Ronald Coase

A weakness in his legs put him in iron braces as a child and into a school for physical defectives, which cost him the ordinary route through English schooling until a scholarship got him into Kilburn Grammar at 12. Both his parents worked as telegraphists for the post office. He read for a Bachelor of Commerce at the London School of Economics, took it in 1932, and in between spent a year in the United States on the Sir Ernest Cassel Travelling Scholarship, studying American industry at 21 and sitting in on Frank Knight and Jacob Viner at Chicago. He was looking at who owned what, who contracted for what, and where a company stopped and the market began. He came home with a question nobody had thought to ask.

The Nature of the Firm appeared in Economica in 1937, and its argument was almost embarrassingly plain: markets cost something to use. Finding a supplier, striking a bargain, policing the contract: all of it consumes resources, and a company exists because at some point giving an order is cheaper than negotiating a price. It grows until organizing one more task inside costs what buying it outside would. Twenty-two years later, in a paper on the Federal Communications Commission, he argued the broadcast spectrum should go by price and property right, not administrative judgment. The Problem of Social Cost followed in 1960. He set it out that year to roughly 20 senior economists at Chicago, Milton Friedman and George Stigler among them, and gradually won the room over. Stigler named the result the Coase theorem in a 1966 textbook.

The theorem that carries his name describes a world with no transaction costs, which is exactly the world his 1937 paper had said does not exist. Coase said so for the next 50 years. He specified the conditions under which the result holds and then argued that real transaction costs are rarely low enough for the bargaining to happen, so the theorem is almost never applicable to an actual economy. In 1990 he wrote that he feared The Problem of Social Cost had been widely misunderstood. It had been. Across law and economics the paper was read as a demonstration that regulation is unnecessary because private parties will trade their way to the efficient outcome. His own point ran the other way: because bargaining is expensive, who the law hands the right to is decisive.

He kept working into his second century. How China Became Capitalist, written with Ning Wang, came out in 2012, when he was 101. Marian, his wife of 75 years, died that October, and he died in Chicago on September 2, 2013 at 102, still a British subject after six decades in the United States. The two papers he is remembered for are among the most cited in the discipline and the profession has not settled what they mean, which was more or less his complaint about it. The Ronald Coase Institute, which trains young researchers in institutional economics, still carries his name and his insistence that economists go and look at what firms actually do.

Ronald Coase's life against the full span of the corpus.

• The Nature of the Firm article
  Written in his twenties. The origin of transaction-cost economics. 1937
• The Federal Communications Commission article
  Argued the broadcast spectrum should be allocated by price, not by hearing 1959
• The Problem of Social Cost article
  The paper Stigler turned into the Coase theorem, and the one Coase said was misread 1960
• The Firm, the Market, and the Law book
  His own gloss on what the two famous papers had actually claimed 1988
• How China Became Capitalist book
  Written with Ning Wang and published when he was 101 2012

• 1922 aged ~12 Wins a scholarship to Kilburn Grammar School at 12 He had been at a school for physical defectives, wearing leg-irons.
• 1931 aged ~21 A travelling scholarship sends him to the United States to look at American industry He was 21. The Nature of the Firm came out of that year.
• 1937 aged ~27 Publishes The Nature of the Firm in Economica
• August 7, 1937 aged 26 Marries Marian Ruth Hartung The marriage lasted 75 years.
• 1951 aged ~41 Takes his doctorate and leaves Britain for the University at Buffalo
• 1960 aged ~50 Presents The Problem of Social Cost to about 20 economists at Chicago Milton Friedman and George Stigler were in the room. The skeptics came round.
• 1964 aged ~54 Settles at Chicago and co-edits the Journal of Law and Economics with Aaron Director
• 1991 aged ~81 Awarded the Nobel Memorial Prize in Economic Sciences
• September 2, 2013 aged 102 Dies in Chicago at 102, ten months after his wife

• Milton Friedman 1912–2006
  Nobel Prize-winning economist whose free-market ideas profoundly influenced American economic policy. argued him round at Chicago
• Gary Becker 1930–2014
  Extended economic analysis to family — crime and discrimination — winning the 1992 Nobel Prize. Chicago colleague
• Elinor Ostrom 1933–2012
  Political economist who showed how communities can govern shared resources without relying solely on markets or centralized states. extended his question about common resources
• John Kenneth Galbraith 1908–2006
  Economist and public intellectual whose The Affluent Society critiqued American consumerism. opposing school of economics
• Paul Samuelson 1915–2009
  First American to win the Nobel Prize in Economics, whose textbook defined the field for decades. formalized the discipline he thought too abstract
• Alfred P. Sloan 1875–1966
  General Motors leader who established the multidivisional corporation and professional management systems copied across industry. ran the firm his theory described