"How China became capitalist" in memoriam Ronald Harry Coase (29. Dec. 1910 – 2. Sept. 2013)

by Ning Wang and Ronald Harry Coase, who died on […]

Nobel Prize Medal Bearing Likeness of Alfred Nobelby Ning Wang and Ronald Harry Coase, who died on September 2nd 2013.

He was a British economist based in the United States. He was the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took courses with Arnold Plant. He received the Nobel Memorial Prize in Economics in 1991.

 Coase is best known for two articles in particular: “The Nature of the Firm” (1937), which introduces the concept of transaction costs to explain the nature and limits of firms, and “The Problem of Social Cost” (1960), which suggests that well-defined property rights could overcome the problems of externalities (see Coase Theorem). “How China became capitalist” (Cato Policy Report (Januray/February 2013) continue reading         

In memoriam Ronald H. Coase

University of Chicago News Office
September 2, 2013

Ronald H. Coase, Founding Scholar in Law and Economics, 1910-2013

By Sarah Galer and Jeremy Manier

Ronald H. Coase helped create the field of law and economics, through groundbreaking scholarship that earned him the 1991 Nobel Memorial Prize in Economics and through   his far-reaching influence as a journal editor.

Coase, who spent most of his academic career at the University of Chicago Law School, died at the age of 102 on Sept. 2 at St. Joseph’s Hospital in Chicago. He was believed to be the oldest living Nobel laureate.

Coase, the Clifton R. Musser Professor Emeritus of Economics, is best known for his 1937 paper, “The Nature of the Firm,” which offered groundbreaking insights about why firms exist and established the field of transaction cost economics, and “The Problem of Social Cost,” published in 1961, which is widely considered to be the seminal work in the field of law and economics. The latter set out what is now known as the Coase Theorem, which holds that under conditions of perfect competition, private and social costs are equal.

“That Ronald Coase is among the most influential and best-cited economists in the past 50 years is not debatable,” said Law School Professor Emeritus William M. Landes and Sonia Lahr-Pastor, JD ’13, in “Measuring Coase’s Influence.” They presented the paper at a 2009 conference titled “Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase.”

“Among the highest aspirations of the University of Chicago is the drive to create new fields of study that change our world for the better,” said University of Chicago President Robert J. Zimmer. “Ronald Coase embodied that ideal. His groundbreaking scholarship made impacts on law and policy that people around the globe continue to feel today. As a scholar, a colleague and a mentor, his historic contributions enriched our intellectual community and the world at large.”

“Ronald Coase achieved what most academics can only dream of – immortality,” said Michael H. Schill, dean of the University of Chicago Law School. “His scholarship fundamentally changed the way lawyers approach issues of when and how government should intervene in the economy, and when and how private contracts should govern. His work could not be more relevant to many of the debates we are enmeshed in today.

“Our great law school has contributed much to the world of law and jurisprudence,” Schill said. “Ronald’s contributions were among the most important.”

His intellectual impact continued late into his life, when at the age of 101, he published his final book, How China Became Capitalist, co-authored with former student Ning Wang, PhD’02.

Coase’s enduring legacy at the University of Chicago is reflected in the Law School’s Coase-Sandor Institute for Law and Economics, named in honor of Coase and donors Richard and Ellen Sandor, who gave UChicago $10 million in support of law and economics scholarship.

“Ronald Coase inspired a new way of thinking about law and about the application of economics,” said Omri Ben-Shahar, the Leo and Eileen Herzel Professor of Law and Kearney Director of the Coase-Sandor Institute. “His insights are simple but at the same time profound. They are accessible to first-year students, and their implications continue to provoke cutting-edge research. We will continue to develop the field that he inspired, and to build on the vitality of his ideas.”

“Professor Coase’s research on property rights provided the academic underpinning for the establishment of the Acid Rain Program in the United States in the early 1990s, which virtually eliminated acid rain pollution in America,” said Richard Sandor, chairman and chief executive officer of Environmental Financial Products, LLC. “Personally, he has been a source of inspiration and mentoring to me for over 40 years. Professor Coase provided me with unwavering intellectual support to carry on my ideas as both an academic and a practitioner.

“The Coase-Sandor Institute for Law and Economics at the University of Chicago will continue to support and expand Coase’s legacy in areas such as the environment, health care and education,” Sandor said.

A ‘lucky chance’ leads to economics

Coase graduated from the London School of Economics with a B.Com. in economics in 1932 after spending his final year of studies in the United States on a Sir Ernest Cassel Traveling Scholarship. During that year abroad, he focused on the structure of American automotive industry and why some work was performed inside firms and some by the marketplace. These ideas became the basis of “The Nature of the Firm.”

Sir Arnold Plant, a British economist at the London School of Economics, was a major influence on Coase while he was a student there. Until meeting him in his senior year, Coase had never taken an economics course, only accounting and business. Plant introduced Coase to Adam Smith’s “invisible hand” and to the idea that competitive economic systems could be coordinated by the pricing system. In an autobiographical essay written for the Nobel organization, Coase writes that Plant “changed my life,” influencing his ideas, helping his achieve the Cassel Traveling Scholarship and setting him on the path to becoming an economist.

“My life has been a lucky chance at all points,” Coase said in a 2012 interview with the UChicago News Office.

Coase believed the incentives of private parties to resolve disputes in their own best interests, even if there needs to be adjudication by courts, should result in an efficient, mutually beneficial solution that is always preferable to government intervention. This theory, known as the Coase Theorem, has been applied to such issues as the sale of rights to broadcast on portions of the electromagnetic spectrum and the problem of pollution; while countless other economists have applied it to virtually every area of human activity.

“Ronald Coase discovered many of the foundational ideas of modern economics,” said Douglas Baird, the Harry A. Bigelow Distinguished Service Professor of Law, in a 2006 lecture on “Coase’s Journey.”

“When I teach Property, the first thing I cover on Day 1 is the ‘Coase Theorem,’ and the last thing we talk about on the final day is the same thing,” Schill said. “Ronald’s insights infused all of my scholarship and the scholarship of many, many professors throughout the world in countless fields.”

Coase reminisced about “The Nature of the Firm” in a 2009 video address recorded as part of a Law School celebration of his 100th birthday and the 50th anniversary of the publication of “The Problem of Social Cost.” In his unhurried, thoughtful cadence, Coase said he was surprised by how much it is cited since it was “little more than an undergraduate essay.”

He disputed his onetime characterization of firms as having diminishing rates of return as they grow larger, calling the growth a sociological issue, not an economic problem.

“I learned a great deal about how large organizations operate during my World War work when I was in the Cabinet office,” he said of his changed opinion. During World War II, Coase served as a statistician with the Central Statistical Office of the Offices of the British War Cabinet.

‘What an exhilarating event!’

In his personal essay for Nobel, Coase described being invited to UChicago to defend a 1959 paper he had written on the Federal Communications Commission to a group of skeptical UChicago economists. In that evening gathering at Law School Professor Aaron Director’s home, he was able to persuade them to his view that as long as legal rights are properly defined, efficient solutions will prevail. He was asked to write an article for The Journal of Law and Economics, which Director had recently founded. The outcome was “The Problem of Social Cost.”

“Had it not been for the fact that these economists at the University of Chicago thought that I had made an error in my article on The Federal Communications Commission, it is probable that ‘The Problem of Social Cost’ would never have been written,” Coase said

George Stigler, PhD’38, an economist at UChicago and 1982 Nobel Prize winner, later wrote in his 1988 book, Memoirs of an Unregulated Economist, about that night: “We strongly objected to this heresy. Milton Friedman [UChicago economist and 1976 Nobel laureate] did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument, the vote went from 21 against and one for Coase to 21 for Coase.

“What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.”

Coase was hired at the UChicago Law School in 1964.

“It was the first law school, to my knowledge, that had an economist teaching full time,” said University Professor Gary Becker, the 1992 Nobel laureate in economics, at a luncheon in honor of Coase’s 100th birthday, according to The University of Chicago Magazine. Coase took over The Journal of Law and Economics after Director retired in 1965 until 1982, and according to Becker he “really made it into a major and influential journal.”

Creating a field of study

“I used the journal to change views,” Coase told the UChicago News Office in 2012. “I wanted to use the journal to create a subject, and I did.”

Becker said that when he first met Coase in 1970, Coase “didn’t say a lot, but I began to realize that every time he did say something, it was really profound.”

Coase was born in a suburb of London in December 1910, the only child of a Post Office telegraphist and his wife. While his parents were more interested in sports than scholarship, both having left school as the age of 12, Coase was always drawn to academic endeavors. However, in his youth due to leg braces he had to wear, he was sent to a school for “physical defectives” and because of the school’s curriculum, started his academic education later than other children.

After graduating from the London School of Economics, he held positions at the Dundee School of Economics and the University of Liverpool before joining the faculty of the LSE in 1935. He continued at the London School of Economics and was appointed Reader in Economics with special reference to public utilities in 1947.

Coase held both a Sir Ernest Cassel Traveling Scholarship and a Rockefeller Fellowship. He was also a Fellow at the Center for Advanced Study in the Behavioral Sciences, in Stanford, California.

In 1951 Coase migrated to the United States and held positions at the Universities of Buffalo and Virginia prior to coming to the Law School in 1964. He taught regulated industries and economic analysis and public policy. Coase was the editor of the Journal of Law and Economics from 1964 to 1982. Among his many books are The Firm, the Market and the Law (1988) and Essays on Economics and Economists (1994).

In 1977 Coase was a Senior Research Fellow at the Hoover Institution, Stanford University. Coase was a Fellow of the British Academy, the European Academy, and the American Academy of Arts and Sciences. He was a member of the Honour Committee of Euroscience. He held honorary doctorate degrees from the University of Cologne, Yale University, Washington University, the University of Dundee, the University of Buckingham, Beloit College and the University of Paris. In 2003, Coase was the winner of The Economist’s Innovation Award in the category of “No Boundaries.”

An endlessly active mind

Coase’s more recent work continued to look into the complicated nature of the firm, as well as the emergence of capitalism outside government control. In his 2012 book How China Became Capitalist, Coase and his co-author, Wang, traced the market transformation China experienced over the past 35 years. The book argued that the changes came not from deliberate actions taken by Chinese leadership, as often claimed by Beijing, but from “marginal revolutions.”

“China became capitalist while it was trying to modernize socialism,” Coase and Wang wrote. “The story of China is the quintessence of what Adam Ferguson called ‘the products of human action but not human design.’ A Chinese proverb puts it more poetically: ‘The flowers planted on purpose do not blossom; the willows no one cared for have grown into big shade trees.’”

Even before his last book Coase enjoyed a towering reputation in China, Richard Sandor said. “With the exception of Milton Friedman, no other Western economist is as revered and respected among Chinese scholars and policymakers,” Sandor said. “Coase always believed that ultimately China’s respect for new ideas and education will provide a fertile ground for law and economics scholarship in that country.”

Coase said in 2012 that his main scholarly talent was to identify solutions that were in plain sight. “I’ve never done anything that wasn’t obvious, and I didn’t know why other people didn’t do it,” he said. “I’ve never thought the things I did were so extraordinary.”

Coase was preceded in death by his wife, Marion Ruth. The Law School will host a memorial to Coase later this fall, at a date and time to be announced.

Related Links:

 “The Coase-Sandor-Institute for Law and Economics”

A Brief Autobiography (from the Nobel Institute)


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