In a Russ Roberts podcast, Marina Krokovsky says,
I mean, if we really stop to think about what we do and the role that we play in our own social network, we are all middlemen.
Listen to the whole thing. By the way, there is a nice profile of Russ Roberts at a site called priceonomics. Recommended
Some pundits predicted that the Internet would eliminate middlemen, instead linking producers and consumers directly. I think that this is a misleading way to think about things.
In The Book of Arnold (which will appear this fall I hope), I point out that very few people engage in producing goods and services directly for consumers. Patterns of specialization and trade are highly complex, and nearly all of us are involved in intermediate and support roles.
What we mean by eliminating the middleman is a re-arrangement of the patterns of specialization and trade. When a pattern of specialization and trade involving physical books becomes less sustainable, Borders Books goes out of business. Other processes for connecting authors with consumers use different patterns of specialization and trade.
I think that what ought to be eliminated is the concept of “middleman.” I do not believe that it is a useful concept. It is misguided to think of economic activity as “production,” “consumption,” and “other.” (Note, however, that standard economic textbooks do nothing to discourage this way of thinking.) Instead, it is better to think in terms of the Austrian concept of roundabout production, the Smithian concept of division of labor, and the Schumpeterian concept of creative destruction. Put those together, and you have PSST.
There is “Distribution,” or distributing activities.
Those even include distribution of what is labeled “Demand,” not just “Production.”
I think the job of old style commissioned travel agents in brick and mortar storefronts, nearly extinct, is a good example of middlemen eliminated by IT. Some stock brokers too. They were just intermediary gatekeepers with privileged access to terminals and networks that did little more than place orders on their clients’ behalf for an inflated fee.
Yep. There actually has been a lot of middleman elimination. The old author-publisher-printer-distributor-retailer-consumer model for books has been replaced in many cases by an author-Amazon-consumer model that provides more revenue for the author and lower prices for the consumer.
“Eliminating the middle man, never as simple as it sounds. About 50% of the human race is middlemen and they don’t take kindly to being eliminated.”
– Mal Reynolds, Firefly
Good.
Here’s to more middlemen and more division of labor!
Good post. I heard the podcast and was a bit puzzled. We live (we buy and sell) in a sea of supply chains. I cannot tell who the real “middlemen” are in any of these. Each are in the chain because they bring value added.
If I recall correctly, 1/3 of the cost of furniture goes to the companies which make it. The rest goes to people who suggest styles, transport, store, display, and sell it.
Finding customers and selling to them, with associated return policies and guarantees, is the majority service in deliering the benefits of furniture. Middlemen dominate.