Transaction-Based Economics

What Small Business Experience Teaches us About Economic Theory

Fourth Edition, by Michael Phillips

In TBE, Briarpatch founder and commerce guru Michael Phillips puts on his economist’s hat and presents a small lesson in alternative economics.

His focus moves from the traditional emphasis on exchange to the details of the exchange contained in each transaction.

Image of Michael Phillips wearing a hat.

Components of a Transaction

Phillips lists five primary components of a transaction in the U.S. economy:

  • Service
  • Information
  • Quality
  • Repair
  • Recourse

He defines these as:

  • Service
    • Personal interactions of the buyer and seller, conveniences such as parking, and esthetics.
  • Information
    • Written articles, training, training materials, packaging information, advertising, manuals, and advice on usage.
  • Quality
    • Functional values, durability, appropariateness, maintainability.
  • Repair
    • Convenience, timeliness, and ease of restoring to working order.
  • Recourse
    • Response of the seller to dissatisfaction of the buyer ranging from gracious replacement to civil lawsuit.

Principles Derived from Observations of Briarpatch Members

Phillips also includes two sets of principles derived from his observations of members of the Briarpatch Network:

  1. Recommendations for Basic Business Practices
  2. An expansion upon the Nine Briarpatch First Principles discussed on the Briarpatch Bookshelf page.

Recommendations for Basic Practices

  • Choose a business that you love. (“Do What You Love”)
  • Start with the minimum capitalization (in order to be most dependent on customer whims).
  • Share all information, especially financial, with anyone interested. (aka “open books”)
  • Limit the size of the business to be consistent with your own values and ecological considerations.
  • Have fun.

Eleven More Briarpatch First Principles

  1. Competition is a poor model of the real world. Cooperation and ‘niches’ are more accurate.
  2. Positive values such as honesty and openness are highly effective in attracting customers.
  3. Profit as the primary goal in business has a detrimental effect.
  4. Prices can be appropriately set with relatively little direct reference to ‘the market’.
  5. ‘Social concerns’ can be rewarded when included in the business pricing structure.
  6. Infrastructure costs are a prime determinant of final consumer prices.
  7. Honesty is a major positive factor in business efficiency. Dishonesty has negative effects and is geometrically harmful the greater the degree of dishonesty.
  8. Businesses that resemble monopolies are found in ‘ordinary’ circumstances where they arise from superior service.
  9. Monopolistic conditions are sometimes the result of cultural values and little-known government policies.
  10. Very small in business may be especially beautiful.
  11. Type of ownership doesn’t make any difference.

More Lessons from the Briarpatch

And that’s just the first half of the book. In the second half, he gives an extensive tutorial on the alternative economics discovery of how focusing on the transaction reveals a completely different view that is also more actionable at the personal and local level.

For example, he includes explanations of each of these points:

  1. Price competition is the exception.

  2. Recourse is especially important

  3. The supply of workers is unresponsive to price in the service and information sector

  4. We can expect more businesses and a greater variety of products-services as the price component in transactions declines

  5. The ‘free market’ is not meaningful

  6. Some transactions are inappropriate for business

  7. Interaction of non-price components is increasingly relevant to market structure

  8. Repair and recourse are related to issues of social cooperation

  9. The more breadth, the more transactions

  10. Product price niches are emerging and are unrelated to scarcity

  11. Economic ism’s are irrelevant

Further discussion is included of impacts on economic decisions and those aspects of social need that cannot be met by business because of their specific transactional nature. All in all, a bright and enjoyable mind expander.

You can read the whole book by visiting Michael Phillips’ website at https://people.well.com/user/mp/TBE.html