Reason: What were you surprised by when you studied the Federal Communications Commission?
Coase: I don't know that surprise is the right word. I looked to see what happened, and I discovered that the FCC was extremely inefficient, that the choices it made could not easily be justified, that a lot of the activities in which it engaged [were] an absolute charade. I was a little doubtful about pure markets for the use of the radio frequency spectrum at first, because there are a lot of things that we can imagine for which we can't have markets because the transaction costs are too high. I thought that perhaps the transaction costs were too high in this case. But then I discovered from the early history of broadcasting that property rights were being established, and it struck me that left alone they could have solved the problem with [signal] interference, which was the main problem they talked about. The period of broadcasting chaos arose because people didn't have well-defined property rights. So I saw no difficulty in bringing about a market in this area.
Reason: Were you ever interested in Hayek's thesis about the road to serfdom?
Coase: I read the book, of course. I knew Hayek and I knew the British response to it. In Britain it was a success, but much less than in the United States, because the general thesis was that socialism would inevitably lead to a totalitarian society, totalitarian state, or suppression of freedoms in other areas. In Britain, living in what is a very tolerant society, few people could imagine that this was going to be the result. I remember Lionel Robbins saying to me this is a very fine book from the continental point of view. It just wasn't British. Once, after I'd come to America, when visiting England I ran into someone I knew. We chatted a few minutes in a very civilized way (he had been a student of mine), and he went on and I went on. This person was a prominent member of the British Communist Party. I'd never imagined that he would have sent me to a Gulag. You know, if the communists had come to power, life would have been much worse. But that these sort of horrors would happen in England....
Reason: Well, the Russians were obviously more serious about their socialism. And in fact, they got much more severe decay of the economic system.
Coase: They got much nearer to serfdom, but the thing that stopped the system was not the fact that human liberties were trodden on, but that they didn't produce. It was a failed economic system.
Reason: How surprised were you by the collapse of the Soviet Union?
Coase: Very surprised. Nothing I'd read or known suggested that the collapse was going to occur.
Reason: What can you tell us about lighthouses?
Coase: Economists had always used this as a service that had to be provided by government. How could a private provider ever be paid for it? So without government operation you wouldn't get lighthouses. My usual practice is to look into what actually happens, and if you look into what actually happens you discover that there's a long period in which lighthouses were provided by private enterprise. They were financed by private people, they were built by private people, they were operated by the people who had the rights to the lighthouses, which they could bequeath to others and sell.
Some have said what happened in lighthouses wasn't really private enterprise. The government was involved in some way in setting the rights and so on. I think that's humbug because you could say that there's no private property in houses by that logic, since you can't transfer your rights to a house without the examination of title and registration and without obeying a whole series of regulations, many enforced by government.
Reason: I thought it was interesting that the shippers were the ones that lobbied to get the toll because they wanted the incentive for the private investor to build the lighthouse. What reaction have you had over the years when Paul Samuelson or other economists would use this example of the lighthouse as a necessary government function?
Coase: Samuelson says I was wrong and he was right, and he froths at the mouth when people talk about the lighthouse example. He says Coase is wrong; he doesn't overcome the free rider problem. Who are the free riders? The foreign ships going past the British coast which do not call at a British port. Using Samuelson's approach, what do you do? Do you ask the foreign governments to give you a subsidy? Do you tax people in Britain because the foreign ships are getting help without paying for it? What do you do?
My approach is to compare the alternatives. People like Samuelson like to set up a perfect world and say that the market does not bring us to this point and imply that the government should do something. They stop their analysis at that point.
Reason: Certainly if the government builds the lighthouses and operates them at a zero price to the shippers, there's a huge free rider problem there, free riding on the taxpayer. But you had to go back to the early days to find the private ownership?
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