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Was Ronald Coase an Austrian?

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July 18, 2014

Ronald H. Coase was one of the few very influential economists of the 20th century, and was awarded the "Nobel Prize" in economics in 1991. He was hardly an Austrian economist. On the contrary, he was a self-declared socialist - at least in his youth. But there is reason to believe he was well aware of Austrian theories while an undergraduate student at LSE in the 1930s (which was when he wrote one of his most influential articles, "The Nature of the Firm" published in 1937). This is when Hayek gave a series of lectures on capital theory and business cycles at LSE, and later the same year was made part of the faculty. Coase notes in his reflective work that the whole department was affected by Hayek's lectures and the content of the latter were part of the discussion among faculty and students for months. At the same time, it would be strange to assume that the leading figure in the department - Lionel Robbins, at the time somewhat of a Misesian - had no impact on Coase. We know that Arnold Plant, head-hunted and employed by Robbins (and mentioned as an Austrian in Hülsmann's Mises biography), was the faculty member that influenced Coase's thinking most. So there are several obvious "touch points" between Coasean thought and Austrian economics. But there is more. Coase was obviously well aware of Mises's argument against socialism, which he refers to in his 1937 article noting that "economists in the West were engaged in a grand debate on the subject of [economic] planning" (Coase, 1988, p. 8). This (and related) statements in Coase's lauded 1937 article have been quite overlooked by scholars, but they may very well be important. In fact, as I elaborate on in an article in the September 2014 issue of the Journal of the History of Economic Thought, there is good reason to read Coase's "The Nature of the Firm" as not primarily a treatise on economic organization in general - but a discussion on economic planning intended to support the market socialist argument in the Socialist Calculation Debate. Coase not only positions his article in the great debate, but refers to Austrian arguments while seemingly relying on insights borrowed from Hayek's lectures (but misunderstood). This apparent relationship between Coasean thought and the Austrian framework sheds new light on the modern theory of economic organization, which is often based on or even "starts with" Coase. (The probably most influential theory is Transaction Cost Economics, developed by Oliver E. Williamson but based on Coase's contributions.) My article is here: Ronald Coase's "Nature of the Firm" and the Argument for Economic Planning (2014, gated). An ungated working paper version, Mises Working Paper #0001/14, is here.

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