I have just read that Ronald Coase has died aged 102.
Certainly one of the greatest figures in modern economics. His “dumb” question “What is a firm?” was one of those “dumb” questions that transformed microeconomics. A firm as an island in an ocean of markets. On the island market forces didn’t operate – managerial fiat did. This led to the Williamson et al literature that focused on the internal workings of firms and how they were managed. A major gap between economics and how we view the business world was closed. After it was done it all seemed so obvious.
Another of Coase’s other great insights centred around the connections between property rights and externalities. This was the Coase Theorem which, when first stated, was rejected by the profession’s elite such as Milton Friedman. Gradually the experts came around to understand the Coase logic and these days some even see the core idea as simple-minded. It ‘aint. The idea that Pigovian taxes and subsidies were necessary correctives in a market economy was the overwhelming conventional wisdom when I first studied microeconomics. That such correctives could sometimes be replaced by a legal system which enforced property rights in the presence of a bargaining process among those affected by externalities is an astonishing insight. Again, once the insight got bedded done, the smartie math types saw it as “obvious”.
Recognising the obvious when no-one else does is a sign of careful independent thinking. Ronald Coase was an intellectual giant who changed the way economists looked at the world.