by Tyler Cowen
on September 3, 2013 at 1:04 am
in Current Affairs, Economics, History, Law
Very sad news, he was one of the true greats, notice is here. Here is one good appreciation.
For those interested, he gave a wide ranging interview with Russ Roberts last year:
A single idea so profound that he is among the great 20th-century economists, perhaps greater than most of the better-known names. Coase can be applied far beyond the bounds of New Institutional Economics. Coase’s insight leads to a universal characterization of increasing returns.
In essence, institutions are an archetypical non-rival good. Things which provide growth — ideas, individuals, innovations, institutions — are all reducing the transformation/translation/transportation/transaction costs which are in and under their specific purviews. Returns are enabled, and often increased. Even something so simple as an Archimedian lever works by retranslating the force to be applied, and thus enables a return to effort.
There are two coequal sources of growth: 1) specialization and trade (which also involves competition), and 2) trans-cost reduction by the innovation or institution. These are BOTH found in every level of organization.
Economic growth theory may be non-quantifiable because it requires two logically different sorts of connections in every level of organization, and they are incommensurable: the transaction or transformation whose cost is to be reduced, and the lines of agreement or control to the institution of the cost-saving. It is interesting and it may be significant that one of the primary insights of 20th-century economics was developed by a man who eschewed mathematics.
Here is the non-mathematical mechanism of an institution, of any type whatsoever, showing both kinds of required connections:
A question for a statist is why USSR, Inc, which is one firm with no transaction costs, failed. A simple flowchart might predict it would succeed. Likewise, many large, publicly traded and famous corporations (one firm, little transaction costs) succeed–but ultimately very few last say 100 years.
It is silly to call me a statist, but the answer to your question is, because there is no overall theoretical law. Every case has to be decided empirically. This is one of Coase’s main points!
(A) USSR had enormous transaction costs! Complete central control usually increases the transaction costs to individuals.
(B) Failure is ubiquitous! Failure happens in centers, individuals, and the outer environment: 1) Central failure includes things like government failure (“public choice”) and business-management failure. 2) Individual failure includes things like imperfect individual knowledge, agent-principal problems, and market failure. 3) There is also a third type of failure, external or environmental failure, which is now rather frequently caused by the inability of either individuals or a central institution to precisely predict natural ecological systems, which are built on entirely different principles.
I am going to make further videos about each of these.
A simple flowchart would not predict that it would succeed, because there are NO monotone values in ecology or social systems and NO absolute covering laws.
“The government is, in a sense, a super-firm (but of a very special kind)…” –Ronald Coase, The Problem of Social Cost, 1960.
If your flowchart method shows no general case for Coase’s law, then what is the power of your flowchart approach, except as a prop for those weak in math? It might be just a way of representing a system, akin to how flowcharts are used in software programming, fair enough. But dumbing down a math equation with graphics does not make it smarter. It also contradicts your statement: “Coase’s insight leads to a universal characterization of increasing returns.” Universal what? A universal series of special cases? As for you being a statist, I never said that, that is your assumption.
Not everything can be mathematized, not even in economics. (Both Coase and Hayek maintained that, explicitly.) A flowchart is an open language like natural language; in other words it doesn’t have to be deductive like math. If you dumb down the math equation for the Pythagorean theorem by drawing the graphics of a triangle, it doesn’t make the equation smarter. My intent is to accelerate comprehension of vital ideas that everyone should learn, especially for visual learners. Coase didn’t claim he had found a “law”, so I am not sure what you are saying , there. Here is a brand new one: http://www.youtube.com/watch?v=BXr5VjQ0OXE&list=PLT-vY3f9uw3AcZVEOpeL89YNb9kYdhz3p
Though Coase has died, his ideas are immortal … and to think, Coase was able to express his thoughts without any game theory, regressions, etc.
Is it socially acceptable not to find it especially sad news given he was 102? Anyway, RIP.
But 102 is not rare, if you are born today. If you were born in 2015, then yes it’s exceptional.
Sad that the U of Chicago Law School’s notice gives a badly distorted description of Coase’s contributions. Didn’t they used to do economics there?
Outside the quintessential example of comparative advantage, Coase 1960 is probably the best example of a powerful but not obvious idea from economics. Societies a thousand years from now will probably still be using the concept of Coasian solutions. Most likely even more so than we do today.
Do economists live unusually long? I can think of Coase, Friedman, Galbraith, Samuelson, Arrow (still alive) off the top of my head as notable economists who lived to 90+. Maybe it’s just confirmation bias (what about e.g. Keynes?) or more that Western academics have many factors that would cause them to live long (wealth, usually limited vices, relatively low stress (post-tenure) lifestyles).
Von Mises, Hayek, and Aaron Director as well. I think that Director made it over 100.
I would suspect that most economists have a mental framework that emphasizes finding mutually beneficial compromises. This probably reduces a lot of the interpersonal conflict that makes up a significant part of everyday stress. I would bet economists on average have lower marital and familial strain. Economics may criticize many social policies, but it also highlights the amazing achievements of modern-day societies. (Especially compared to a lot of other academic fields which encourage little else but outrages against society.) This cultivates an attitude of gratitude which is known to have a measurable on happiness and health.
And see this at “A Fine Theorem” http://afinetheorem.wordpress.com/2013/09/03/on-coases-two-famous-theorems/
When I was 24, I was sent to pick him up at the airport and bring him to a hotel for a conference. He was 90 at the time. I had a hard time keeping up with him in conversation.
SF writer Frederic Pohl also passed away (I must confess that I didn’t realize he was still alive).
Very sad indeed. I often teach his work (mostly his less technical essay on Adam Smith’s View of Man) in my business ethics class. His intellectual contribution goes well beyond economics.
Very sad indeed. Coase’s powerful mind plumbed one level deeper than the other greats. My top three favorite economists would be Adam Smith, Frank Knight, and Ronald Coase.
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