Wednesday, September 4, 2013

Ronald Coase (1910-2013) and Friedman's legacy

There will be several obituaries and posts in the next few days about Coase's contributions (see here or here, for example), to the theory of the firm (his 1937 paper here; subscription required), which used the notion of transaction costs, later used by Douglas North and other economic historians, but also central for certain discussions in Industrial Organization, and his famous Theorem (or so-called as McCloskey calls it). He won the Sveriges Riksbank Prize (aka Nobel) "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy."

An interesting story is the famous dinner in which the main Chicago economists (including Friedman and Stigler) met for dinner [David Warsh calls it the most famous dinner party in the history of modern economics] with Coase at Aaron Director's home (Friedman's brother in law) and decided that the Theorem was correct. The paper (subscription required) was then published in the relatively new (at that time, 1960) Journal of Law & Economics. I always thought that it was very revealing of the way publications, even peer reviewed ones, take place. Coase had to convince the audience, basically the Chicago School, that his arguments were valid.

Don't get me wrong convincing editors and reviewers is always part of the process. What the dinner party makes explicit is that, something that is increasingly true, is that Coase had to convince a group of people that is like minded. There was nobody with an alternative [and I don't mean heterodox or radical] perspective at the dinner party. Maybe I'm wrong, but it seems that Chicago was ahead of its time in excluding alternative views on the basis of ideological purity than other places. That's Milton Friedman's real legacy.

PS: I was traveling, and didn't post anything about David Landes death. Brad DeLong had a nice post here. I should say that I liked way more the Landes of Unbound Prometheus, than the one of The Wealth and Poverty of Nations.

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