Ronald Coase: On the Market for Goods and the Market for Ideas

Ronald Coase is one of my favourite living economists (he is now 100 years old). His work on the significance of transactions costs and dealing with problems that these costs raise is fundamental to a proper understanding of the market economy and the institutions that support it.  Alas, though his work was recognised with the receipt of the Nobel Prize in 1991 the implications of Coase’s ideas are not widely understood by contemporary economists and indeed they are often completely misrepresented by those who should know better (in my book Robust Political Economy I target Joseph Stiglitz as being particularly guilty of this charge).

One of the most interesting but neglected of Coase’s ideas is presented in a brief essay on ‘The Market For Goods and the Market For Ideas’ , originally published in the American Economic Review in 1974. In this essay, Coase points out the inconsistency of those who cite ‘imperfect’ and ‘asymmetric information’ as constituting a case for government regulation in markets for private goods and services, while remaining steadfast in their support for free speech in the political market for ideas. For its proponents though the ‘free market in ideas’ is plagued with various ‘imperfections’ – such as deception, misrepresentation and downright lying by politicians and pressure groups, coupled with the ignorance of the general public (i.e. voters), over time free speech and the competition it engenders offers the best prospect of ensuring that good ideas prevail over the bad. Attempts to regulate political speech to ensure that only ‘accurate’ and ‘truthful’ information is presented to the public are doomed to fail. Who would decide what is to count as ‘accurate’ and ‘truthful’, and who would ‘guard the guardians’ of public truth should they seek to abuse their authority?

Read the rest of the article on the Pileus website.

Mark Pennington is the author of Robust Political Economy: Classical Liberalism and the Future of Public Policy

Mark - interesting post. The status quo seems to be that both ideas and goods are regulated, to an arbitrary degree depending upon how the particular good or idea is perceived by politicians influenced via the usual mechanisms. Informational issues are often cited as a 'market failure' and as a pretext for intervention, ignoring the problems of government failure and its own lack of knowledge. Moreover, many of the perceived problems of our 'market' economy are caused by a pre-existing state intervention and lack of marketisation. I won't review the argument - that seems to be what your book is largely concerned with. I would suggest that a sensible response and a classical liberal (Whiggish) programme is to preclude action by the state except where property rights are negatively affected (including 'communal' property, which ought to be minimised as far as possible). I don't see that the state should intervene where there is a perception that positive externalities are being 'underprovided' either. Areas where property rights are at question are proper areas for state intervention - this does not mean, however, that the state must intervene or is the best mechanism for solutions, but those questions must be decided by some sort of political process. Ideally such a process will be democratic and subject to a wide variety of constitutional checks and balances within its tightly defined boundaries. Any attempt by government to exceed its bounds and interfere in areas where there are not property rights at stake would have to be struck down as ultra vires - of course, this is easy to state as a principle but is very hard to achieve in practice, even if we were starting with a blank slate. Still, I think it's good to have big ambitions! Such a circumscribed role for the state would mean that the problems of 'government failure' as pointed out by Coase and Caplan would be minimised - I don't see how they can be eliminated without being an anarchist and that has problems of its own. To my mind, Caplan's logic (and Coases') suggests that that we need to circumscribe the areas in which government operates rather than eliminate democracy and create some sort of benevolent dictatorship of economists - I don't think I need to outline the problems of that approach.
I always like an excuse to quote Lord Salisbury's 1877 remark about 'experts: "No lesson seems to be so deeply inculcated by the experience of life as that you never should trust experts. If you believe the doctors, nothing is wholesome: if you believe the theologians, nothing is innocent: if you believe the soldiers, nothing is safe. They all require to have their strong wine diluted by a very large admixture of insipid common sense." Those of us who are, or are reputed to be, 'experts' in one field or another usually have enough self-knowledge and humility to recognise how much we don't know. So I certainly wouldn't want to put so-called experts in charge.

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