Toll Collecting

Michael Froomkin’s musing that toll collector might be the worst job has lead to some to be less than amused but, yeah; I was amused for the self centered reason that I’ve thought a lot about toll collecting. You see my favorite business model is the two sided network, i.e. a hub that coordinates the transaction traffic between two groups and for the longest time my preferred visualization for this model is as a bridge between the two populations.  The toll taking funds the owner’s house on the beach.  These are very profitable businesses that are very hard to create. They are like the old and foolish idea of selling to China where in you fantasize making a vast sum of money by charging a vast population a tiny tiny amount of money. Businesses like this are easy to find, because they have to touch vast populations, but they are very hard to build because you have to coordinate the millions, or billions, of transactions. Not just get those transactions to take place, you have to charge a toll on each one.

I love the saying the economics takes as it’s area of interest solved political problems, e.g. that each simple economic transaction marks a solution to some political problem. Of course every transaction is a political act. My choice where to buy Harry Potter is a vote in a political negotiation about the nature of modern retailing; the currency system I use, the store I select, the discounts (bribes) I garner, etc. etc. all fold into that politics. I suspect, for example, that the average cost to merchants of credit card transactions is around 5-7% of the transaction. Contrasting that to the total tax burden it seems like a very high cost for an alternate currency system. The regulatory framework around that, for example the bankruptcy rules, are of course a part of negotiating those taxes; a political problem. We have, depending upon our mood, various names for the processes that frame the politics of these negotiations about how to coordinate the transactions and who gets to collect the tolls if any. We can call it creative destruction, entrepreneurship, institution building, politics, revolution, etc. etc.

Sometimes we even call it freedom not so much because each time you succeed in creating a new high volume widely used from of exchange you create a bloom of new options for fun things in it’s penumbra; but because often the new institutional framework routes around an existing system’s constraints. It maybe the relaxing of constraints that creates the sense of freedom more than the bloom of fresh options. (I think there is something in that which is related to Clay’s recent point about “taking for granted“; e.g. that those freed have a hard time taking full advantage of the fresh option space because their muscles are somehow stiff; but I’m not clear exactly what.)

In the folk tale I recall the ferryman tricks one of his passengers into taking over his job. I have a few fluffy theories as to why that is. The toll collector is not the owner of the hub; he’s just a cog in the machine. In fact the hub owner would prefer that he never gum up the works. Heaven forbid that he should enter add complexity to the transaction. The toll taking is added complexity already the owner would prefer that tax be as invisible as possible.

There are two other reasons though; that extend beyond just the toll taker and effect the hub owner. The owner of a successful hub has a captured something of a monopoly; what a military man might call a high value target. Keeping everything running smoothly is tough work. Meanwhile each of those travelers passing over the ferry are going someplace, doing something, they are on holiday, going to town, moving on. They are free. He is not; he’s got a job to do.

Delegating to the toll booth collector the tedium is all well and good; but after a bit the toll booth collector has the worst of all perspectives. He sits in the center of a monopoly touching each coin of the monopoly rents but keeping none of it while watching all the happy travelers exercising the options created enabled by the solution to the coordination problem in which he can not share. No wonder, after a while, the begins to fantasize trading places with one of the travelers.

Delightfully, in the folktale the ferryman finally manages to foist the gig off on the king.

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