Ronald Coase, R.I.P.

British economist Ronald Coase, who had a great influence on my own understanding of economics, has died, at the age of 102.

Coase wrote and published little, but the quality of his writing was superb. In 1991, he won a Nobel memorial prize in economics for two articles: “The Nature of the Firm”, published in Economica in 1937, and “The Problem of Social Cost”, published in the Journal of Law and Economics in 1960. The first publication is the one that had such a profound effect on me even though (perhaps because) the article was regarded as an aberration by mathematical economists and econometricians, who ignored institutions as they modelled the firm as a production function. One of the reference books that I keep at my desk – next to Adam Smith’s Wealth of Nations – is The Nature of the Firm: Origins, Evolution, and Development, edited by Oliver E. Williamson and Sidney G. Winter (Oxford University Press, 1993).

FT columnist John Kay admires Coase as much as I do, and has written a warm obituary for tomorrow’s newspaper.

Ronald Harry Coase, the son of two Post Office workers who both left school at the age of 12, was born in the London suburb of Willesden in 1910. Condemned to wear leg irons as a boy, he won a late scholarship to Kilburn Grammar School and then went to the London School of Economics. There Arnold Plant, professor of commerce, introduced him to Adam Smith’s “invisible hand” and helped him win a travelling scholarship to the US to investigate the structure of American industry.

In classical economic theory, agents moved effortlessly towards equilibrium in a frictionless world. In reality, goods are bought and sold in marketplaces – sometimes literal, sometimes virtual – and economic life is dominated by corporations. Classical theories ignored or looked through these institutional arrangements. Economists saw only the investors, employees and customers who obtained, without cost or intermediation, the information they needed to do the business of the market economy.

John Kay, “Ronald Coase: Nobel Prize winner who explored why companies exist“, Financial Times, 4 September 2013.

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