‘Saving Economics from the Economists': A Tribute to the Late Ronald Coase

Another tribute to the British economist and Nobel Laureate, Ronald Coase who died this week at the tender age of 102. Best known for his seminal contributions to the fields of management, law and economics, in particular: ‘The Nature of the Firm’ (1937), in which he introduced the concept of transaction costs to explain the boundaries and existence of the firm, and ‘The Problem of Social Cost’ (1960) which outlined the central tenets of the eponymous Coase Theorem, namely the importance of well-defined property rights in overcoming negative externalities resulting from economic activity.

Coase often described himself as an ‘accidental’ economist, preferring to teach at the University of Chicago’s law school than in their prestigious economics faculty. On many occasions he spoke scathingly of the discipline to which he made some of his most important contributions. In his book The Firm, the Market and the Law (1988) he wrote: “In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics”. Similarly in 1999, addressing the International Society of New Institutional Economics, he joked that “If economists wished to study a horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, “what would I do if I were a horse?” Both then and now, such views stand in stark contrast to those of policymakers, central bankers and business school academics, who laud economics as the science that explains and sustains the complex machine that underlies modern society, (despite some minor glitches exposed by the global financial crisis).

In many ways Coase was the original management scholar. The keen legal mind that he was, I doubt that title would have sat well with him without clarification. However, in my experience as an ‘accidental’ management scholar (of which there are many, believe me), I find myself relating to his work on a number of levels. Not just in terms of its contribution to our field – The Nature of the Firm (1937) being one of the earliest examples of what can legitimately be called ‘management’ scholarship, and which set the ball rolling on the question of ‘why do firms exist?’ – but also the ideology that underpinned his research. In this sense, management scholars share a disdain for what Coase dubbed ‘blackboard’ economics, specifically the simplified models of reality employed by economists, which assume away the ‘grubby’ details we are so concerned with in the field of management. Interestingly, Coase’s view on the subject never changed, and in December 2012, he took a final parting shot at a discipline which had revered him throughout his career. The piece appeared in the Harvard Business Review, entitled ‘Saving Economics from the Economists’ in which he reiterated the need to reform the discipline and reconnect it with the real world.

Besides his contributions to management science, one final takeaway from a long and distinguished career is Coase’s passion for the eclectic. Like Archilocus’ fox in the classic fable (Multa novit vulpes, verum echinus unum magnum), his curiosity for theories and phenomena across a variety of disciplines not only typifies management scholarship but acts as an inspiration to a new generation of economists and organisational scholars alike. Indeed, the video below gives some idea of the richness of Coase’s academic pursuits, which he surveys in a lecture given at the centennial celebrations of his beloved law school, ironically held ‘in honour of Richard Coase’.

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