One the Fundamental Role of Transactions Costs in Monetary Theory: Two Illustrations from Casino Gambling

A study was conducted to determine the interrelationship of money in the sense of a medium of exchange, and transactions costs. The study specifically analyzed the use of chips in casino gambling as a specialized medium of gambling. For example, with the game of roulette, the use of chips instead of ordinary currency has several advantages. Handling various forms of currency becomes too cumbersome and slows the action, specifically in making change and in identifying the exact position of the currency on the board. Chips eliminate these problems as well as provide clear identification of whose chips are located on the winning number. Similar considerations can be identified for the use of chips in the game of "craps." In general, the house makes more money if the game is played faster. Chips are used as a standard exchange medium to speed the game, which in effect reduces transaction costs.