Ronald H. Coase was one of the founders of the discipline of legal economics and one of the most influential economists of the 20th century, who changed the way people think about the economy, especially about the role of laws and other institutions in dealing with transaction costs. The first volume of Coase's Collected Works is a collection of 13 important works by Coase on the economics of law, spanning more than half a century, including the Federal Communications Commission (1959) and The Problem of Social Costs (1960), two of the most important essays that "announced" the birth of legal economics. While all of the articles have been published publicly (three of them were published after Coase's death), this collection of essays will be more convenient for those who wish to study or revisit Coase's thoughts on the subject in a systematic way.
Today, legal economics is branded as "economic imperialism", which analyzes law from the perspective of modern price theory. At the same time, Coase discovers and elucidates the significance of law to the functioning and evolution of the economy through the economics of law, especially by studying the influence of law on what he calls the "institutional structure of production."
Preface (excerpt)
At first, when I graduated from Yale Law School in the late spring of 1968, I had never heard of Ronald Coase. I studied my first law degree in the spring of 1966 as a non-Englishman at the Oxford University Law School, but I had never heard of Coase by name, either at Oxford or at Yale. I first heard about Koase shortly after I started teaching at USC. In the summer of that same year, the now-late Michael Levan also came to the University of Southern California, where he had previously spent a year as a fellow at the University of Chicago Law School, where he worked with Ronald Coase.
Our first real conversation was about the different theories of liability in tort law. Only a moment into the discussion, Michael kept mentioning "Koss", and I didn't know at the time if it was a noun, or a verb, or a name. But the talk that followed was all about how the liability regime had to take into account the costs of the tortious parties and with each other. Like many people, my initial reaction was that the logic of this so-called insight seemed reversed. Transaction costs always appear as an additional factor in a broad equation that has nothing to do with traditional legal considerations of justice or fairness in specific jurisprudence that has long occupied people's attention. In my legal education, such thinking did not arise at all.
My ignorance of this problem at USC was quickly resolved, and I came to the University of Chicago in the fall of 1972, where I met Coase. He was 61 years old, much younger than I am today. Looking back now, he was less obsessed with his youth. However, Koase always stood his point of view and always defended his position tirelessly. He was very kind and kind to me, and as editor of the Journal of Law and Economics, he recommended my article "Unreasonable: A Critical Reevaluation" in 1975. This article marks an important step in my evolution of Coase's approach to transaction fees. I have been with Koase for more than 40 years, and he has never doubted the unique nature of the method he pioneered.
At this moment, a couple of hiccups pop up in my mind. Sometime in the '80s, Koss, James Buchanan, and I had a small meet-and-greet with members of the Freedom Foundation. On that occasion, Coase was very disappointed, believing that the world, especially Richard Posner, had misunderstood and misused his views. Coase wants to use transaction fees to determine the functioning of the legal system. What he failed to see was that his theories had enormous applications, often implicitly influencing the way judges formulated legal principles. Indeed, Mr. Coase often argues that many lawyers cite his views in directions that they do not agree with. He claims that he used the language of transaction costs only to illustrate land disputes between neighbours under tort law.
Strangely, on this point, Coase was completely wrong. The impact of Coase's research has far exceeded what he originally envisioned, and since the application of the "Coase theorem" to all aspects of law and social behavior is far and wide, the many scholars who have transferred his research to different fields and topics have the same right to do so. In fact, the really revealing question is why no other scholar has given the second theorem as widely accepted as Coase's theorem. I have come to the conclusion that for nearly 60 years since Coase's article was published, there has not been another theorem that has had this impact, because none of the theorems are really needed in this way. In all fairness, this theorem assumes that "the right way to maximize social welfare is to minimize transaction costs", because only such a strategy can increase the maximum transaction volume for society as a whole. As one of those readers who wanted to hear Coase speak on these topics himself, I had the opportunity to have a long conversation with Coase in 2002, and this led to the posterity of the article entitled "A Conversation with Ronald Coase".
Even in the final years of his life, Kos was keenly proud of his personality. Two vignettes here illustrate this fact.
In 2010, Professor Thomas Hazlitt and I held a workshop to pay tribute to Coase's work. Kos didn't make it, but he prepared a short audio clip ready to play at the meeting — which was obviously not easy. The main content is a commentary on a rather provocative article by Richard Posner. Posner's article points out that there are alleged similarities between Coase and John Maynard Keynes. Posner emphasizes that both men's grand theories shy away from formal mathematics. Coase disagreed with Posner at all, and gave his account of the connection between himself and Keynes: "Mr. Keynes and I only met once after the end of the war. It was a tea party. Mr. Keynes sat there, and I stood beside him. He turned around and asked if I could pour him a cup of tea, which I did. This was Keynes's influence on Coase. ”
Indeed, on this point, Coase is right. His instinct is to break down complex aggregates into different components and see how they work together. Keynes, on the other hand, always ignored individual transactions and studied the macroeconomic effects of aggregate quantities. In this regard, I think that Coase's way of turning the macro into the micro is preferable to Keynes's way of accumulating the micro into the macro. Because the latter approach tends to ignore the conflicts between the parts of the aggregate, which in turn leads us to ignore the problem of public choice associated with government regulation, Coase rightly sees this dynamic process as a stumbling block to a more efficient functioning of the market.
The last time I saw Kos was when I had lunch with him in his senior apartment. He was over 101 years old at the time, and his body was clearly overwhelmed. In the last years of his life, Coase was always careful to protect the reputation and purity of his economic position. But this time, he was a little sullen. Coase asserts that his life was an academic failure because the world has largely misunderstood his understanding of the role of transaction fees within the economic system, which is consistent with his lamentation many years ago. When many scholars apply Coase's theory, they often put on a crown and even refer to the deer as a horse. I disagree with his pessimistic assessment, and when I tell him that he has a great intellectual advantage – his surname is only one syllable – and that he uses it to the extreme, he laughs back.
Text: Richard A. Epstein
Editor: Yuan Lulu