Ronald Coase, the real world economist
Ronald H. Coase, whose insights about why companies work and when government regulation is unnecessary earned him a Nobel Memorial Prize in Economic...
Ronald H. Coase, whose insights about why companies work and when government regulation is unnecessary earned him a Nobel Memorial Prize in Economic Science in 1991, died a few days back. The former University of Chicago professor was the oldest living Nobel laureate at 102.
He modestly dismisses his 1937 "The Nature of the Firm," central to his Nobel award, as the naive musings of an undergraduate. This paper provided the basic insights undergirding the field of transaction cost economics. And while Coase disparages economic theory, theorists continue to find substantial grist for new models in his more recent remarks about the firm -- an organization that is all about friendships, alliances, antagonisms, and strategies subjects that can be illuminated by game theory and the theory of endogenous coalitions.Coase introduced the concept of transaction costs — the costs each party incurs in the course of buying or selling things; this set the stage for an entire school of economic thought and theory called transaction cost economics.
Professor Coase asserted it was not enough to include only production and transportation costs as the main costs of doing business; businesses needed to also consider the cost of entering into and executing contracts. This boils down to a mathematical analysis—in other words Do the Math!—and his breakthrough thinking was even given a mathematical name—the Coase theorem.
He believed in privatizing lighthouses, opposed regulating taxis, thought pollution was a price worth paying for profit, wanted to abolish the BBC and didn't think private companies could ever be monopolistic – one might not call his thinking extreme but the label ideological would surely suit to his vision.
Coase was praised for writing about the real world, for example his assertion that firms grow in relation to the cost of doing business. It's a theory, and attracted attention because so little economics is about real existing companies and the highly imperfect markets in which they operate.
Professor Coase said that “economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship.” He continued that the extent “to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.” If we listen to the theories of Mr. Coase from more than 60 years ago, we can understand how the digital revolution helps us find the uniquely qualified minds and talent to create wealth, govern and educate ourselves for the future. Almost 70 years after that first Dundee lecture Mr Coase won the Nobel Prize for economics. “A scholar must be content with the knowledge that what is false in what he says will soon be exposed,” he noted in his speech. “As for what is true, he can count on ultimately seeing it accepted, if only he lives long enough.”