Yesterday, one of the greatest minds of our generation died. Ronald Harry Coase, the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School and creator of the “Coase Theorem”, died at the age of 102. I teach Coasean theory in both my torts and legal theory classes. His rich and brilliant life is a testament to the potential of human beings in understanding the world around them through sheer intellect and logic. I had the honor of meeting Coase and it is difficult to express one’s thanks for such a beautiful mind.
Coase was actually a British import. He was born on December 29, 1910 outside of London. His father was a postal telegraphist and Coase was born as a child with weak legs requiring the wearing of leg irons. He studied at the University of London and later at the London School of Economics. He became an American citizen and eventually settled at the University of Chicago where he became the editor of the esteemed Journal of Law and Economics. He would ultimately win the Nobel Prize in Economic in 1991.
For law professors and lawyers, his most influential work was probably “The Problem With Social Cost” where Coase wrote about the operation of transactional costs and externalities on market exchanges. His work on transactional costs laid the foundation for an array of law and economic theories. His work discussed how property rights and bargaining could address negative externalities.
“The Problem of Social Cost” was first published in the Journal of Law and Economics in 1960. In a perfect market, Coase showed how the initial assignment of property rights or entitlements did not dictate the outcome of a conflict of resources. Rather it was the respective value of the activities that dictated the outcome where the most productive use will ultimately prevail among competing uses of a property. The economic view challenged the normative or moral assumptions the underlaid legal principles:
“The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. . . Another example is afforded by the problem of straying cattle which destroy crops on neighbouring land. If it is inevitable that some cattle will stray, an increase in the supply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops.”
Coase’s other works like “The Nature of the Firm” in 1937 were equally transformative for economic and legal theory. Whether you agree with Coase’s theories or not, his life left a mark on humanity. Few of us can claim such an intellectual contribution. He led the ultimate intellectual life and the world is richer for the fact that Ronald Coase lived amongst us.