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Nobel laureate Ronald Coase on rights, resources, and regulation

Thomas W. Hazlett from the January 1997 issue

(Page 3 of 6)

Reason: What was the idea of The Journal of Law and Economics?

Coase: I wanted to find out what the effects of regulation actually are, to make factual studies so that we didn't have all these general discussions. I wanted to find out what effect different legal rules had on the economic system.

Reason: Isn't it shocking that economists didn't spend more time doing this kind of work before 1964?

Coase: Well, I'm not that easily shocked. Economics has been becoming more and more abstract, less and less related to what goes on in the real world. In fact, economists have devoted themselves to studying imaginary systems, and they don't distinguish between the imaginary system and the real world. That's what modern economics has been and continues to be. All the prestige goes to people who produce the most abstract results about an economic system that doesn't exist.

Reason: You began teaching at the University of Virginia in the late 1950s, and by the early 1960s the administration there was not impressed with the work being done by yourself, Warren Nutter, James Buchanan, Gordon Tullock--four of the most famous and influential economists in the post-war era, two of whom [Coase and Buchanan] went on to win Nobel prizes. Yet the University of Virginia was not happy with what was happening in their economics department.

Coase: They thought the work we were doing was disreputable. They thought of us as right- wing extremists. My wife was at a cocktail party and heard me described as someone to the right of the John Birch Society. There was a great antagonism in the '50s and '60s to anyone who saw any advantage in a market system or in a nonregulated or relatively economically free system.

Reason: In 1991, you won the Nobel prize in economics. How has that changed your life?

Coase: It has made it very difficult. Now it takes me a day a week just to read my correspondence, longer to reply to things. It's a great burden, this Nobel prize. I get letters from all over the world. People writing, sending materials they've written, wanting comments on it. But what do you do? You reply when you have a special obligation--you know the person or the person has done something for you. Businessmen, scholars, journalists, students--all write me. Occasionally I get letters from people who argue that they can prove that the Coase Theorem is wrong because the Earth is going to end on the year 2003--which, I might say, is an actual case. He's found the error in the Coase Theorem.

Reason: You're a man who likes to look at the facts, so it's going to take us another few years to check out his theory. You don't wish that you had gotten the Nobel prize any earlier?

Coase: Oh yes I do, because I could have handled this situation much better. At my age it's very difficult. I get invitations to go all over the place. I largely refuse them. But if I were younger and more energetic and so on, I would handle these things better. I would have done more. Getting it so late means that I have very little time left, even though a lot of research is now going on influenced by the fact that I got the Nobel prize. It encourages other people working in the field. A lot more work, I think, is now going on because the field has been recognized, and I want to take part in it, and I don't have very long to do it.

Reason: What led you to study the Federal Communications Commission?

Coase: It started with my study of public utilities in Britain. I studied the British Broadcasting Corporation and how it developed and its policies, and I wrote a book called British Broadcasting: A Study in Monopoly [1950]. I explained how it came to be a monopoly, how it was justified, what were its results. It came to be a monopoly because--and this is rather strange--the telegraphs had been nationalized under the post office. A telegram was defined as a message conveyed by electricity. So broadcasting was considered a telegram. Therefore, the powers to control broadcasting lay with the post office. They were very anxious to have a monopoly of broadcasting. People in some of the firms in the industry wanted it, and people who had visited America and heard about the chaos in broadcasting there decided the only thing that you could do to get rid of all this chaos was to have a monopoly.

I showed that all the arguments for a monopoly were invalid. But it was established, and then it was justified far more by the idea that you needed a monopoly in order to control programming, because competition would result in people producing programs which, although perhaps popular, should not be broadcast because they were bad for people.

Reason: So, you studied the BBC and then you came to the United States and began also taking a keen interest in the FCC.

Coase: Yes, that was really a continuation of my work on broadcasting. Having studied what happened in Britain, I was carrying out a study called Political Economy of Broadcasting. My study of the FCC was a natural result of doing this.