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