What the Internet Can Do For Pennies


I enjoy listening to NPR’s Planet Money.  They make economic theory manageable to the average listener, through stories on everything from violins to professional sports.

I’m frequently disappointed, however, in the incomplete economic thought that goes into the show.  The reporters tend to miss some pretty simple connections from their story to economic principles.  

It makes the story feel more like a human interest piece rather than applied economics

The recent show on the value of a penny is a great example.  This would have made a great exhibit of how the internet has lowered transaction costs.

The reporters went all over Manhattan to see if they could buy anything for a penny.  The closest they found was at a dressmaker. The shopkeeper told them that a single sequin would cost about one penny, but she would not bother selling it too them.  She said it wouldn’t be worth the time to transact the deal. 

This is, quite literally, a transaction cost.  Other shopkeepers said that in similar instances, it was actually more cost-effective to give away penny merchandise than to actually sell it.  The transaction costs outweighed the sale.

Flash forward in the show to the internet startup looking to disburse micro-donations to various content providers, and the problem of transaction costs disappears.  

The internet has unlocked value potential to the smallest fraction of a dollar by bringing transaction costs basically to zero. 

So the internet equivalent of a sequin — let’s say a video or blog post — can be traded for a penny, with economic benefit.  With the millions of customers surfing the web, this could be a real moneymaker for many online content providers.

Unfortunately, Planet Money failed to develop this idea, and the value of a penny in the online world vs. brick-and-mortar remained more an oddity than an explainable phenomenon. The application of transaction cost theory would have made for such a more stimulating show.

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