“It was a strange meeting,” said Ronald Coase, “in which everyone thought I was wrong at the beginning, and they thought I was right at the end.” On the phone in 2011, he was speaking of a dinner in 1959, during which he changed the minds of 20 Chicago economists, among them George Stigler and Milton Friedman. Before the dinner, economists believed that electromagnetic spectrum had to be apportioned by the government, to prevent interference. After the dinner, at least 21 economists believed in a property right to spectrum, which could be sold like real estate. It’s the kind of radical idea that, given 34 years, can win you a Nobel Prize.
Coase died yesterday, at the age of 102. His 1959 paper, “The Federal Communications Commission,” is still a good read. It’s slightly ahead, even, of where the actual Federal Communications Commission is now. I called him, briefly, in 2011, to ask what he thought of spectrum policy, a subject on which academics and think-tankers jockey to see who can be more Coaseian. And “Coaseian” is the word they use. He declined, politely, to make any judgments. “I’m not up-to-date on things, you know,” he said.
I explained how I thought his name was being taken in vain. “I’ve gotten used to it,” he said. “People have used my views for purposes which are very different from mine. I’m no enthusiast for the Coase Theorem. I don’t like it, but it’s widely used. It’s a pity when your name gets used in this way, but there it is.” Coase did not posit this theorem; others derived it from his work. Ronald Coase had a few profound ideas, then lived long enough to watch them wander away from him.
In awarding him the Nobel, the Royal Swedish Academy of Sciences cited an even earlier work, “The Nature of the Firm.” In the paper, published in 1937, Coase asked one of those questions so basic that it’s hard to see, out there in plain sight: In a market economy, why do firms exist? In theory, each worker could sell his own production to his boss, just as his boss sells the finished product. Companies exist, Coase wrote, because every market transaction comes with transaction costs: negotiating a price, agreeing on contract terms. Firms exist because it’s easier to negotiate an employment contract once, rather than a sales contract with the turn of every screw.
Coase, in his Nobel lecture, said that he had first come up with the idea in 1932. “I was then twenty-one years of age and the sun never ceased to shine,” he said. “… [I]t is a strange experience to be praised in my eighties for work I did in my twenties.” Coase himself described the paper as “widely cited and little used” until the 1970s and ’80s, when it provided a theoretical foundation to the field of institutional economics, which admitted that law, culture, politics, and education—institutions—can have effects on the market. It’s tempting to say that he coasted, for decades, on the work he did as a young man.
But this would ignore the task to which Coase bent himself for six decades: convincing other economists that the real world, the actual, empirically observable and measurable world, existed and was worth their time. During Coase’s lifetime, academic economists fell in love with models of markets removed from actual experience. He referred to this as “blackboard economics,” a practice “disdainful of what happens in the real world,” he wrote in 1998, “but it is one to which economists have become accustomed, and they live in their world without discomfort.”
From 1964 to 1982, Coase edited the Journal of Law and Economics, an attempt to interest legal scholars in numbers and economists in the world of man. And as recently as last year, he was trying to launch a new journal. He wanted to call it Man and the Economy. In an essay on Nov. 20, 2012, in Harvard Business Review, Coase worried that economists wrote for each other, instead of for other disciplines or for the business community. “It is suicidal for the field to slide into a hard science of choice,” he wrote, “ignoring the influences of society, history, culture, and politics on the working of the economy.” Ronald Coase spent his life trying to save economics from itself.