Economist Coase Studies People, Companies, Not Abstractions

Written By: The WealthCycles Staff

In 1991, economist Ronald Coase was awarded the Nobel Prize for Economics for his role in studying and clarifying the role of transaction costs and property rights that became known as the Coase Theorem. Today, at age 102, Coase is increasingly disillusioned with the data and mathematical nature of modern economics and urges the upcoming generation of economists to study instead the behavior of humans and companies—a philosophy that is right in line with that of Austrian economist Ludwig von Mises.


The Coase Theorem holds that where there is a conflict of property rights, the parties at odds should come to a fair resolution based what yields the highest profit for all. But could the highest social profit be calculated, and then what of the distribution of said profit?

Coase undermines private property with redistribution. The calculations get silly--Coase asking which farmer should erect a fence, given the case of a ranchers cattle trampling another farmer's cropland yields a different answer as market prices vacillate. To measure costs on each side of a dispute, one needs to compare the next best opportunity for each party involved--and as there is no common unit--adding and subtracting their answers is impossible.

The point is, Coasean justice is aggregated, or non-existent. It is what is best for the whole is best for the individual, ignoring the calculation problem and the loss of incentives inherent in earning and owning private property that have acted throughout history as the wellhead of innovation.

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testiomials At age 102, economist Ronald Coase lobbies for a paradigm shift in economics—away from numbers and abstractions, toward companies and people. “The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate,” he writes.”

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