The Answer Is Transaction Costs

The Red Dots Three, Parsley, and Counting Sheep

• Michael Munger • Season 1 • Episode 14

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The listener letter last week asked about the the three "red dots" that are used to identify liquor stores in South Carolina.
Turns out that this kind of "shibboleth" is a way of identifying and discriminating, in ways that can be useful, or harmful.

Red Dots in South Carolina:

Shibboleth

The Stone Signposts of Pompeii

World Series as Shibboleth  (Robert T. Gravlin, 23rd Armored Engineer Battalion)

Appropriate Measures of Inflation

ERRATUM: MJ writes to point out that if the economist could really count, he would have miscounted the number of sheep, adding one, because he counted the dog. That's fine. But then why did the shepherd agree that the number of sheep was correct? It should have been one over. It's okay that TWEJ's are not funny, that comes with the territory. But in this case there is a logical problem. My mistake, and thanks, MJ!

If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com !


You can follow Mike Munger on Twitter at @mungowitz


Speaker 1:

This is Mike Munger of Duke University, the knower of important things. What's up with the red dots on stores in South Carolina? How can signals and signs be used to assure or prevent trust? What's parsley got to do with it? Also, twedge and this week's letter Straight out of Creedmoor. This is Tidy C. I thought they'd talk about it in a system where there were no transaction costs. It's an imaginary system. There always are transaction costs when it is costly to transact, institutions matter and it is costly to transact. Before we start, a technical note, some listeners got tired of the muddy sound and contributed a new Shure MV7 microphone to the cause. So thanks to David and Jack Boyd of Burlington, north Carolina, for the new equipment. Here's last week's letter.

Speaker 1:

I moved to South Carolina some years ago. Our liquor stores are called red dot stores. Why Does any other state do that? I've asked some people here why they have red dots and the answers vary. Some say it's because South Carolinians are illiterate, but then why not blue dots for groceries? Some say it's a symbol of the sun, because liquor is only sold in the daylight hours. It seems like this is more expensive than just having a regular sign.

Speaker 1:

What's up with the red dots Signed not alcoholic but still anonymous. Well thanks, not Al-Anon. That's a common question down here in the Mid-South. That, and what's with all the racist Pedro signs about SOTB? Part of the answer has to do with the end of prohibition in December 1933. There was no right to buy alcohol. All the 21st Amendment did was repeal the 18th Amendment which had outlawed alcohol. The end of national prohibition meant that law reverted to the states, a lot like the Dobbs decision in abortion, and South Carolina had its own statutes which still restricted sales. Much of what I'm going to say comes from a great book by Robert Moss called Southern Spirits. I recommend it.

Speaker 1:

South Carolina finally allowed the retail sale of liquor to return in 1935, but there were constant political challenges from the upcountry busybodies who wanted to tightly restrict the industry. Storefront ads so infuriated drives that in 1938, the Solons in Columbia commanded discrete retail liquor dealer signs where all that could be displayed. Seven years later, with the creation of the Alcoholic Beverage Control Board, or ABC, they decided to reduce any such sign to, let us, only a few inches high, placed on the lower right hand corner of a display window or on the front door. Liquor stores of that era had no back door, because everyone would have used it. Anyway, in 1945, the legislature passed a measure that limited advertising no neon signs, no price advertising and no bottles displayed in their front windows. The only signage allowed were the words retail liquor dealer, which could be printed in letters no more than three inches high, along with the dealer's name and license number in three-inch high letters. This increased the transactions cost of finding liquor stores, which reduced sales. Why? Because to the consumer, all costs are transaction costs. There's no requirement of higher price. Just making it harder to find and less convenient reduces the quantity demanded. South Carolina legislators knew the answer is transaction costs. Before it was cool.

Speaker 1:

Within a few years, though, people started noticing big red dots painted on the side of liquor stores around the state. In October 1951, the Associated Press reported that the origin of the symbol seems to be a mystery, but in the two years since the State Tax Commission officials and retail store owners say they first noticed its use, it has become universal. A month later, dan Henderson of the Charleston News and Courier tracked down the source. A Charleston liquor dealer and of course it was Charleston named Jesse J Fabian, was the first to have the red dot on his store at the corner of Spring and King Street, and it appeared there in July 1945, just after the state's advertising ban went into effect. Fabian had hired Doc Wensley, a longtime Charleston sign painter, to inscribe retail liquor dealer letters on his store using the legally required 3-inch letters. They didn't show up very well. Inspired by the logo on a pack of Lucky Strike cigarettes, wensley painted a large red dot around the lettering to serve as background. Henderson was unable to account for how the symbol had spread to other states, but by 1949 they could be found all the way up in the northwestern part of the state, so as far as from Charleston as you can get.

Speaker 1:

The state alcoholic beverage control board tolerated the red dots for more than two decades. For South Carolina residents, it became the main way they figured out where to go buy a bottle. Suddenly, in 1968, though, the ABC board ruled that the red dot was advertising and could no longer be used. Several legislators promptly introduced legislation exempting red dots from the ban, codifying the use of the symbol in law. In 1976, the rules were further clarified, specifying that red dots not exceeding 36 inches in diameter may be placed on each side of the building and on the rear and front of the building. The laws prohibiting liquor store advertising were gradually relaxed over the decades that followed, and today the South Carolina statutes ban only advertising. That quote is addressed to and intended to encourage persons under 21 years of age to purchase or drink alcoholic liquor end quote. But the red dots have stuck, much to the bafflement of folks from other parts of the country. These subsequent rules have been relaxed somewhat, but into the 21st century the red dot has remained a faithful beacon for those seeking liquor, as well as a warning sign for those determined to avoid it.

Speaker 1:

There's actually many instances of this sort of signaling. It fulfills a function of advertising in the sense that it provides information. In ancient Pompeii that has been excavated after the explosion of the volcano, you can find on the sidewalk and on walls of building carved representation of male parts oriented to point towards a nearby brothel. Now, using a depiction of male parts to advertise cis-het brothels may seem odd, because that's not what was being sold. Maybe it's easier to carve an identifiable representation of that rather than the alternative, and of course, the directional function is more specific. So well, the answer is transaction costs.

Speaker 1:

This kind of social encoding reminds me of one of my favorite concepts, the shibboleth. A shibboleth is a cultural focal point, something that discriminates among groups. To be precise, the meaning of the word shibboleth was a small flooding stream, a fresh-het or an ear of corn, but the reason we remember the word is its pronunciation, not its meaning. In the Bible, in the Book of Judges, there was one tribe, the Gileadites, who could pronounce shibboleth with the SH sound, but the Ephraimites, lacking the SH sound, pronounced the word shibboleth. How in the world did they get people to be quiet in the library? That's a mystery for anthropologists. Well, the Ephraimites, though they were a larger tribe, were ethnically defined and were scattered. They mostly lived west of the Jordan, northwest of Jericho and the tribe of Benjamin. The Gileadites, though, were concentrated. Even though they were smaller numerically, they were much more concentrated east of the Jordan than the land bordering the Ammonites. Well, there'd been a war with the Ammonites. They'd been defeated, and the Ephraimites felt assertive. They tried to assert their rights, even in the land of the Gileadites. But the Ephraimites were scattered and the Gileadites easily defeated them. The Ephraimites were trying to get back home, but to do that they needed to cross the Jordan. They were on the east side. They needed to cross back to the land of Ephraim, which is on the west side.

Speaker 1:

It turned out that the difference in pronunciation mattered, as the following passage from the Old Testament illustrates. This is from Judges, book 12, verses 5 through 7, and my source here is the King James Bible. And the Gileadites seized the passages of the Jordan before the Ephraimites. And it was so that when those Ephraimites who had escaped and said let me go over that, the men of Gilead said unto them art thou an Ephraimite? And if he said nay, then they said unto him say now Shibboleth. And he said Shibboleth, for he could not frame to pronounce it right. Then they took him and slew him at the passages of the Jordan and there fell at that time of the Ephraimites 40 and 2000. It's a pretty long line. I can't imagine people lining up to be told say Shibboleth. But that's the story.

Speaker 1:

Next crucifixion yes, good. Out of the door line on the left, one crossy. Next crucifixion Good. Out of the door line on the left, one crossy. Next crucifixion no freedom. Freedom for me. They said. I'm done in a thing so I could go free and live on an island somewhere. Oh, that's really good. Well, I could go then. Now I'm only putting your leg. It's crucifixion, really. Oh, I see. Very good, very good. Well, out of the door, yeah, out of the door line on the left.

Speaker 1:

Why is it that we're concerned about Shibboleths and the cultures that they delineate? Well, in this case, it was possible to tell something about your clan or tribe, and that is often code for your loyalties. Remember, one of the big sources of transaction cost is asymmetric information. If I think that you're a trader but I say are you a trader, you're likely to say me no, I'm not a trader. But if I had some source of information that you could not fake or counterfeit, that would be very valuable. Being able to identify yourself and be trusted make exchange and cooperation much cheaper, both in economics and in international relations.

Speaker 1:

A famous example is the use of baseball as a Shibboleth in the Second World War. In the Battle of the Bulge in December 1944, german infiltrators crap behind American lines dressed as military police. Now, the Germans had chosen young men who had been raised or who had spent a lot of time in the US and spoke flawless English, and they were using captured American MP uniforms. They had prepared papers that identified them as American MPs, so it was very difficult to identify them. The US troops confronted each other with questions about baseball. So in a personal account of Robert Gravelin from the 23rd Armored Engineer Battalion, they went like this I asked him if he thought Detroit would win the World Series. He said no. But they put up a bloody good fight. We pulled them out of the Jeep because the World Series in 1944 had been between the Cardinals and Browns. A side note that was the only all St Louis World Series ever. It's hard to believe that St Louis had two teams when apparently this year there's not even enough decent pitching for one team. Back to the quote. It was discovered that they were Germans in US uniforms. We sent them back to our G2 Intelligence Group. So any American man, the theory goes, would know who played in the World Series. Now, woe betide, the soldier who didn't follow baseball, who suffered like a Gileadite who happened to speak with a lisp.

Speaker 1:

Another example is the so-called Parsley massacre. In October 1937, rafael Trujillo, the dictator of the Dominican Republic, announced basically war against Haitians living in the Dominican Republic. A lot of Dominicans felt that Haitians brought with them crime, drunkenness. They blamed their problems on Haitians who were living in the Dominican Republic. What Trujillo said was for some months, I have traveled and traversed the border in every sense of the word. I have seen, investigated and inquired about the needs of the population. To the Dominicans who were complaining of the depredations by Haitians living among them thefts of cattle, provisions, fruits, and thus were prevented from enjoying in peace the products of their labor I have responded I will fix this. We've already begun to remedy the situation. 300 Haitians are now dead in Banica. This remedy will continue. This is an actual public statement of the leader of a country saying that they're just executing, conducting ethnic cleansing, something like the Gileadites were trying to do to the Ephraimites.

Speaker 1:

But of course, it may have been difficult to tell who was a Haitian. So the so-called Parsley massacre, in Spanish El Corte, the cutting was a mass killing of Haitians who were living in the Dominican Republic and in certain parts of the Cebau region. Army troops from different areas of the country carried out the massacre on the orders of Trujillo. The massacre claimed the lives, ultimately, of between 14,000 and 40,000. That's four oh thousand Haitian men, women and children. Dominican troops interrogated thousands of civilians, demanding that each victim say the word Parsley in Spanish. Now, in Spanish, the word for Parsley is perihil. It has an R you have to trill once and then the J is a pretty hard 8 sound. Perihil the French word for Parsley and French is what most Haitians spoke was persil. If you said perihil without trilling the R, it meant that you were likely Haitian. If the accused couldn't pronounce the word to the interrogator's satisfaction, they were deemed to be Haitians and killed.

Speaker 1:

Now, all three of these examples have involved the distinction of friend from foe in war time, being able to pronounce Shibboleth, knowing who won the World Series in 1944 and being able to pronounce the word for Parsley in Spanish. All three of those were basically about distinguishing friend from foe. Now, in war, the idea of the other is stark, but even in peacetime, knowing who we are may require knowing who they are, and the very existence of a we may depend on their being a they. More precisely, it's about culture and ways of knowing that have to do with shared understanding and differences. That may solve larger problems of cooperation, because I think that I can trust you because you're one of us. But that works better when there are people who are not one of us, who are they, and that means that Shibboleths can be used both as good and as evil. Whoa. That sound means it's time for the twedge.

Speaker 1:

A man walking along a road in the countryside comes across a shepherd in a huge flock of sheep. He tells the shepherd I'll bet you $100 against one of your sheep that I can tell you the exact number in this flock. The shepherd thinks it over. It's a big flock, so he's willing to take that bet. 973, says the man. The shepherd is astonished because that's exactly right. He says well, okay, I'm a man of my word. Pick any sheep you want.

Speaker 1:

Man goes over, picks up an animal and begins to walk away. Wait, wait, wait, cries the shepherd. Let me have a chance to get even Double or nothing. That I can guess your exact occupation. Man says I think that'd be pretty hard. So sure. And the shepherd says you are an economist for the US Bureau of Labor Statistics. Amazing response, the man. You're exactly right. But how did you deduce that I'm an economist for the BLS? Well, says the shepherd, if you'll put down my darn dog, I'll tell you. The idea is that the BLS, which calculates both unemployment rates and inflation, is really good at counting things specifically, but it's not very good at using consistent or useful definitions. Some people claim that both rates are grossly inaccurate. For that reason, the things that people buy or the way that people work changes over time. The BLS counts things but can't identify them. It's time for this week's letter.

Speaker 1:

Jk writes I have a disability under control now. On a drug trial, doing great, I found myself quickly unable to perform routine home care and maintenance, so I traded my tool belt for a checkbook. When I moved to a condominium, my neighbors would complain about our HOA fees. I thought I'd won the lottery. I give you $200 a month and you mow the lawn, shovel the walks, fix the roof, paint the garage, pay my water and trash bill and I get a swimming pool. Shared resources help. But it occurs to me that a big part of the bargain in transactions cost is that there's one contract for 500 lawn sections, one contract for 500 sidewalk segments.

Speaker 1:

Now, going more macro, could you extend this as an argument against anarchy? One could individually contract for all of those services. That's really high transaction cost. Or you can subscribe to a big Randy Barnett style super HOA. That would have fewer transaction costs but might start to resemble a government as it grows to cover more services. My HOA is a bargain, but it's not utopia. They tell me how many plants I can have on the patio. For heaven's sakes. All the best, jk. Well, thanks for listening. We'll work on that puzzle. Have another hilarious twedge and more next week on TidySea.