Essays on Economics and Economists.

This book is about spurs - the nettles that foster research - the grain of sand that annoys the oyster. For Professor Ronald H. Coase, doubts are a more important spur to thought than conviction. In the words of Coase:

the inspiration is most likely to come through stimulus provided by the patterns, puzzles and anomalies revealed by the systematic gathering of data, particularly when the prime need is to break our existing habits of thought [3, 71].(1)

Coase's response to spurs has often been to create them:

my contribution to economics has been to urge the inclusion in our analysis of features of the economic system so obvious that, like the postman in G.K. Chesterton's Father Brown tale, "The Invisible Man," they have tended to be overlooked.

Understanding the book requires background information about the author and his work. For Coase, the practice of "blackboard economics" amounts to "fiddling while Rome burns." By living up to his aversion to meaningless abstract exercises, Coase has become one of the most influential economists of this century and has revolutionized two fields of learning: law and economics. Coase is a towering intellectual figure in economics, a true scholar and liberal in the tradition of 18th century moral philosophers Adam Smith, David Hume, and 20th century political economists Edwin Canaan, Arnold Plant, and George Stigler. In 1991, the Royal Swedish Academy of Science awarded the Noble Prize in Economics to Coase, then in his seventies, for work he had done in his twenties and fifties. His award was based on two simply written but profound articles: "The Theory of the Firm" (1938) and "The Problem of Social Cost" (1960). One was about why we have business firms and do not all buy and sell our services individually in the market. The second paper articulated the concept of externalities as related to the legal structure and to the costs of carrying out transactions.

Unlike many of his contemporaries, Coase's work contains neither high powered mathematics nor arcane diagrams. Nor is Coase known for his forecasts of next quarter's GNP or making pronouncements on the equilibrium exchange rate of the franc [2]. His writing is typically composed of quotations from lawyers and judges; his works are written in the most straight forward prose; and he makes use of precise English with impeccable deductive reasoning and compelling logic [1]. Also indicative of Coase's perspective on spurs is his statement regarding the slow acceptance of his work: "a scholar must be content with the knowledge that what is false in what he says will soon be exposed and as for what is true, he can count on ultimately seeing it accepted, if only he lives long enough" [p. 14]. Coase's eventual acceptance and the well deserved recognition he has received is a commentary on the training of economists to communicate with each other and its effect on their "economics," woolly and otherwise. Just as language conveys meaning, what is practical in economics becomes ground down, its attributes discovered, and competition among economists can be expected to winnow out the transient and shallow ideas.

Coase's fifteen papers written since 1972 in Essays on Economics and Economists reflect his views on the spurs to his work and the work of others. He focuses on the factors that affected the choice by economists to address specific questions, how they went about tackling the problems of the economic system, and how their advice was given.

The book is divided into two sections: "Economics" and "Economists." Part One comprises seven chapters. Chapter 1, "The Institutional Structure of Production," is Coase's Alfred Noble Memorial Prize Lecture, given in Stockholm in December 1991. This essay addresses the question of why economists tend to ignore the role of the institutional structure on production. According to Coase, "[I]t makes little sense for economists to discuss the process of exchange without specifying the institutional setting within which the trading takes place, since this affects the incentives to produce and the costs of transacting" [p. 12]. Furthermore, he argued that it is obviously desirable that rights should be assigned to those who can use them most productively and with incentives that lead them to do so. It is also desirable that, to discover (and maintain) such a distribution of rights, the costs of their transference should be low, through clarity in the law and by making the legal requirements for such transfers less onerous [p. 11]. Coase offers an explanation of the intellectual avoidance of these features of the economic system which he thought were so critical and why their recognition fosters change in the way economists' analyze the working of the economic system.

Chapters 2, 3, and 4 examine general questions about economists' perception of the market for economic analyses. These include how economists tackle the problems of the economic system, how they choose their theories for investigation, and how they decide what questions come within the purview of their subject. Coase's argument, in Chapter 2, "How Should Economists Choose?," that theory is to serve as the basis for thinking,'reflects his preference for a theory that is an aid for exploration which provides insights even if it predicts badly. Serving as a map which may be poorly drawn or simply not correct, the predictions of a theory serve as a "base for thinking" [p. 16]. The author's view of many quantitative studies is summarized in the following statement: "if you torture the data enough, nature will always confess" [p. 27] and citing Kuhn, "[N]ature undoubtedly responds to the theoretical predispositions with which she is approached by the measuring scientist" [5]. Coase concludes we should investigate the effect of alternative institutional arrangements on theories because it is from such investigations that economists will discover the arrangements that are most likely to lead economists to make better choices.

Chapter 3, "Economics and Contiguous Disciplines," defines contiguous to mean other social sciences and focuses on the boundaries between such disciplines as linear programming and cost-benefit analysis. Coase concludes that the most enduring contributions in such contentious areas will come from study by economists of the effects of other social systems on the economic system in contrast to the reverse.

Chapter 4, "Economists and Public Policy," focuses on areas where influence by economists might be obtained. He argues that effective participation by economists in policy debates about limiting the role of government will continue to challenge economists because "our experience with the present overexpanded governmental machine may not give us much indication of what tasks the government should undertake when the sphere of government has been reduced to a more appropriate size" [p. 63].

Chapters 5, 6, and 7 represent a somewhat different side of Coase's perspective on economics. Chapter 5, "The Market for Goods and the Market for Ideas," is another of Coase's interesting and original essays. In this chapter, Coase sees no distinction between the market for goods and the market for ideas. He argues that the basic question about government's role in the market for goods and the market for ideas boils down to how the government will perform whatever functions are assigned to it. He argues for a consistent view in both markets with regard to the competency of government to undertake any assignment.

Chapter 6, "The Wealth of Nations," was delivered on the 200th anniversary of the publication of Smith's masterpiece. In summarizing the insights of Smith, Coase argues that despite the 200 years which have transpired, "we display no greater insight into the working of the economic system and, in some ways, our approach is inferior to that of Adam Smith" [p. 95].

Chapter 7, "Adam Smith's View of Man," was written because Coase believes that Smith's views on human nature are important in understanding Smith's economics. While Smith is commonly perceived as viewing man as economically motivated and in rational pursuit of his self-interest in a single-minded way, Coase broadens the view: Man is dominated "by self-love but not without some concern for others, able to reason but not necessarily in such a way as to reach the right conclusion, seeing the outcomes of his actions but through a veil of self-delusion" [p. 116].

Part Two of the book, entitled "Economists," focuses on individuals in the profession and the factors which shaped the development of their ideas. This part is informative about what Coase views as critical in understanding economic ideas. Consisting of four biographical essays about Alfred Marshall, a "great economist and flawed human being," Coase shows his keen interest in historical accuracy in setting the record straight on Marshall as depicted in such sources as the Collected Writings of John Maynard Keynes. Coase provides an in-depth examination of J. N. Keynes's (father of J. M. Keynes) correspondence with Marshall, various biographical material on Marshall, and personal interviews with Claude Guillebaud, Marshall's nephew.(2) In Chapter 8, "Alfred Marshall's Mother and Father," Coase examines the influence of Marshall's parents with primary focus on his father. Coase disagrees with J. M. Keynes's appraisal of the importance of the influence of Marshall's father and concludes the effect was neutral because Marshall tended to ignore his father [4, vol. 10, 161]. Chapter 9, "Alfred Marshall's Family and Ancestry," discusses Keynes's inaccuracies with regard to Marshall's early life [4]. Chapters 8 and 9 provide valuable background for Chapter 10, "The Appointment of Pigou as Marshall's Successor." Coase uses J. N. Keynes notes and other sources to delve into the politics of Marshall's promotion of Pigou. The effect of alternative choices is well discussed in this fascinating and well-written chapter.

Chapter 11, "Marshall on Method," is perhaps best summed in the following "advice" to L. Bowley, the statistician, about how mathematics should be used. These are Marshall's views:

(1) Use mathematics as a shorthand language, rather. than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in (4), burn (3). This last I did often [p. 174].

According to Coase, Marshall thought economists should start with the real economic system, that it was our high calling to try to explain how it worked, and that we should be interested in techniques of analysis only to the extent that this helped us to achieve the main goal. Here it can be seen that Coase's view is very much in line with Marshall as discussed above in this review.

Chapters 12 through 14 focus on people and the academic environments which affected the development of Coase's ideas. In Chapter 12, Coase provides information on Sir Arnold Plant, who had an important but little known influence on Coase, Arthur Seldon, and other prominent economists. Arnold Plant, a student of Edwin Cannan, recognized the frailties of capitalism, took a deep interest in his students, and exerted himself to further their careers.

In Chapter 13, we are acquainted with the work of the Scottish economist Duncan Black whose contribution to the development of public choice theory is not widely known. Chapter 14, "George J. Stigler," provides insight in the work of a close and important colleague to Coase. The final chapter, "Economics at the London School of Economics in the 1930s: A Personal View" is far too short as it relates the author's perspective of one of the major intellectual powerhouses of economics. Coase has experienced many honors during his long academic career and does not spare praise and gratitude for the many who aided him during his career. The intellectual environment of the LSE, the University of Virginia, and the University of Chicago were important intellectual influences from which the benefits were certainly reciprocal.

In conclusion, this book provides valuable insight in the development of economics and its hybrids. Coase's work provides a foundation for liberal democracy defined as the political activity of a people whose conduct and relationships with one another is governed by the principles of private property, contract, and free association. His work highlights the shortcomings of social democracy, in which government is the source of rights and people may do individually only what the state allows them to do. In focusing upon externalities and the role of property rights, Coase offered an alternative to the standard Pigovian rule that Pareto-efficiency required corrective subsidies and taxes in the presence of technological (as opposed to pecuniary) external economics and diseconomies.

Coase's book is valuable in giving more complete information on Alfred Marshall, his family, and the factors and personalities affecting his choice of Pigou as successor. We also learn much about the influence on Coase of Arnold Plant, Duncan Black, and George Stigler. Coase's collection of essays pulls this useful information together to provide elements of Coase's biography in the context of the historical development of economic ideas. This material which will be new to most readers provides a deeper insight in the unique contributions of Coase and the development of his ideas and his evolution as an economist.

Gordon L. Brady George Mason University 

1. This citation is also found on page 13 of the book being reviewed.

2. See the numerous letters from Alfred Marshall to J. N. Keynes during the period 1899 to 1908. Coase argues that J. M. Keynes drew some erroneous conclusions from this correspondence.

References

1. Breit, William, remarks at the April 1994 presentation of Professor Coase at Trinity College, San Antonio, Texas. 2. Brittain, Sir Samuel, "Motives Not Full Story." Financial Times, 30 October 1995, 16.

3. Coase, R. H. The Firm, the Market, and the Law. Chicago: The University of Chicago Press, 1988.

4. Keynes, J. M. Essays in Biography, reprinted in Collected Writings of John Maynard Keynes, edited by D. Moggridge. London: Macmillan for the Royal Economic Society, 1972.

5. Kuhn, T. S., "The Function of Measurement in Modern Physical Science," reprinted in The Essential Tension, Chicago: University of Chicago Press, 1977.