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The Darwin Economy by Robert H. H. Frank

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SEVEN

Efficiency Rules

THE DEVELOPMENT OF MONEY was a critical step that facilitated the division and specialization of labor, a process that enabled per-capita income to grow thousandsfold during the past several centuries. Money has also been indispensable as a unit of account for deciding which of two competing interests should prevail.

Thus, in Ronald Coase’s example of the factory owner whose machinery disrupted the neighboring doctor’s practice, the best solution to the problem was easily identified by comparing the factory owner’s monetary cost of soundproofing his machines to the doctor’s monetary cost of moving to a quiet location. The incomes of the two parties were completely irrelevant for that comparison, although their incomes would ...

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