Coase's valuable insights into market economies
The English-born Ronald H. Coase published his first major article in 1937. He published his last book in 2012. Over those 75 years, Coase — who died on Sept. 2 at the age of 102 — gave to the world some of the most path-breaking insights ever to emerge from the mind of an economist.
Yet even more remarkable than the length and fertility of Coase's scholarly career is the fact that he wrote exclusively in prose. Coase's work features no mathematical equations or other faux-scientific decorations designed to impress graduate students and to intimidate non-economists. Coase understood that world-class economics is best done by asking in plain language probing questions about everyday matters — matters so familiar that most people take them for granted.
The probing questions Coase asked led him to expose brilliantly so many previously hidden vistas of economic reality that he won the 1991 Nobel Prize in Economic Science.
Consider Coase's first influential article, his 1937 essay “The Nature of the Firm.” The existence of business firms — organizations in which owners or managers consciously tell workers what to do — was simply taken for granted. But Coase pointed out that much of what goes on in firms could occur without firms.
Safeway hires some workers to drive trucks from warehouses to its retail stores. It hires other workers to stock fruits and vegetables, and yet other workers to operate cash registers so customers can buy those fruits and vegetables. But why? Coase noted that, say, each individual farmer could sell his broccoli to an independent trucker who could then resell that broccoli to an independent merchant in the city who, in turn, could do nothing but sell broccoli at retail from a stall on a city street.
Why, then, does one firm do many of these tasks? And why does Safeway sell not just broccoli but also oranges and garlic and pet food and detergent?
It's a key question for anyone interested in understanding market economies.
Coase's answer to the question was “transaction costs.”
An individual consumer could, say, drive to farms to directly buy food for the family table. But the costs of transacting in that way are high. Even beyond the expense of gasoline, the time required to get food in this way is simply too great for most consumers. Coase argued that firms exist to keep to a minimum the costs of transacting to get goods and services from their raw-material stages into the hands of their consumers.
As with all sound economic scholarship, Coase's pioneering article on the firm offered not a final answer but, rather, a new and creative way of thinking about some economic phenomenon. Since the publication of Coase's article on the firm, countless scholars have built on — and refined — Coase's pioneering insight. That insight continues to inspire valuable research on the existence and operation of business firms.
More important, though, than Coase's theory of the firm is his set of insights into the nature and role of property rights. Those insights proved downright revolutionary.
Coase's efforts in the 1950s to better understand the law of property revealed totally surprising ways that private property rights outperform judges and bureaucrats at ensuring that resources are used efficiently. In my next column, I will explain Coase's stunning and brilliant insight.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Steelers rookie says Sam, his former roommate, has changed
- Fire victim’s ex-boyfriend jumps from Tarentum Bridge
- Steelers aim to create more turnovers this year with speedier defense
- Two cars strike horse near Fayette fair
- Rossi: Buying trust is a must for Pirates
- Monessen coke plant workers exposed to chemical
- Minister quick to share time, talents, love
- Software developers aim to ease crush of emails for businesses
- Colleagues, friends remember longtime Charleroi councilman Reis
- What does your body language reveal about you?
- Latrobe woman charged in deadly standoff claims coercion