Uber Solves the Fundamental Problem of the Marketplace – Steven Horwitz

As an economic innovation, Uber exemplifies the way creative entrepreneurs discover new methods of providing better, less expensive consumer products and services. It also demonstrates how such creativity helps people navigate around barriers to entry created by government regulations that, though designed to protect consumers, end up protecting incumbent firms.

The benefits of these innovations have prompted me to write glowingly about services like Uber — many times, in fact. As much as I had written about it, though, I’d never actually used the service.

Until this month, that is. After three Uber rides in the last two weeks, not only am I more convinced about the value that the so-called “sharing economy” is providing; I have been struck by the way technology helps to solve the fundamental problem of the marketplace.

The fundamental problem of markets is the need to establish trust among strangers. In a wonderful and unappreciated book called In the Company of Strangers, Paul Seabright explores this formulation in great depth. He argues that for markets to work more fully, we need various institutions that allow strangers to be less suspicious of one another. We need to turn them into “honorary friends,” or in my own preferred version, “honorary kin.”

For most of human history, we lived in small, kin-based bands, where the people we interacted with were all people we knew personally. Our minds have evolved to know how to deal with such situations after millennia of living that way. The modern world, however, requires that we interact with people we do not know personally — but treat them as if we do.

Read the rest via Uber Solves the Fundamental Problem of the Marketplace : The Freeman : Foundation for Economic Education.

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