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Took me a minute to place Perry Mehrling, but I finally got it. He wrote a wonderful biography of Fischer Black. Probably this will also be the case for Prof. Medema's work on Coase, so I will say that reading the biography of Black gave a very interesting angle on how to understand Black's academic work.

Thank you so much for posting this video. I would otherwise never have had the opportunity to watch this --- please, if you have other videos of neat economists, post them up.

I have read Medema's intellectual biography of Coase several times, and I think he is absolutely correct in the misplaced emphasis scholars have given to The Coase Theorem.

But I would point out that one can accept this truth without at the same time endorsing Professor Medema's approach to institutional analysis. After all, what are we to make of a book on Coase that cites Fred S. Lee and Warren Samuels more than it does Harold Demsetz or Oliver Williamson?? OR the fact that Medema concludes his book by claiming that Coase is actually an Old Institutional economist in the tradition of Veblen, Ayres, and Commons?

I have a review of his book here:

In other words, just be aware of what Medema is trying to accomplish here --- (1) because Coase is really talking about a world with costs (ie no Coase Theorem), then (2) we need to understand his work in light of Old Institutional Economics. I think you can accept the former without endorsing the latter. Would Professor Boettke agree with that??

I'm curious as to which version Rothbard criticized in his paper on air polution?

Ha! The old air pollution paper by Rothbard! That is as supperannuated (for me, at least)as is Rothbard's book on The Great Depression! But, to answer your question, Rothbard meant to criticize The Coase Theorem version of Coase's paper. Remember, The Coase Theroem does away with property rights, and that is what libertarians object to. Remember, most Austrians are libertarians first, and economists second. (I do not mean that as a criticism -- just a sort of anthropological observation.)

We use Steve's book in our history of thought class.

Let's assign blame. George Stigler "reduced" Coase's argument to the so-called Coase Theorem which expressed only a portion of what Coase was trying to convey. Then, much ink was spilled (what a quaint expression these days!) over whether the allocation of resources was invariant with respect to the initial property rights assignment or simply that it was "efficient" regardless of the initial assignment.

Then Posner and perhaps Demsetz came in and made the theorem into a kind of "economic planning" tool. They said let's assign property rights or liability in tort in the real world to the party who, in the absence of transactions costs, would have bought the right. Or in the case of tort let us assign liability to whomever is the cheaper cost avoider of the costly-interaction. This use of the Coase theorem defied the "knowledge problem." I first criticized all of this in 1979 in *Time, Unicertainty and Disequilibrium* and then again in 1980 in the Journal of Legal Studies.

Now, of course, Coase could have been much more vocal in criticizing the abuses of his insights. He is no saint in my view on this matter.

Dr. Rizzo,

I am curious, how can you attack the Coase Theorem using "knowledge problem" arguments when the Theorem itself assumes these very problems away? By definition, there are no information asymmetries (or diffuse knowledge) when transaction costs are zero, right? Coase, after all, defined transaction costs (1937) as consisting of the search for the relevant prices. If this is already given, as it is in The Coase Theorem, then there is no knowledge problem?

One can, of course, criticize the Theorem for its real world inapplicability, but I think most Chicago scholars would concede that point and just challenge you to attack it theoretically on the basis of its assumptions.

What I find interesting about the Theorem, is not (as you seem to be suggesting) how inappicable it is to the real world (which has knowledge problems), but instead what it has to *say about* the real world. Just consider this:

(1) Property rights are not important when transaction costs are zero.

(2) The fact that we have property rights and they play an important role in modern society proves necessarily that our economy is terribly inefficient.

(3) Therefore, it follows necessarily that the more efficient the economy becomes, the less important property rights will be.

Wow! Now that is interesting, wouldn't you agree Dr. Rizzo?? The emphasis on property rights in studying economics-related problems is necessarily self-defeating because the closer we come to approximating efficiency standards the less useful a property-rights based approach becomes.

Please write this up and publish it!

Austrian away,

You should read my "Law Amid Flux" article. It is important to understand these ideas in the context in which they are presented and developed.

The zero transactions costs case is not the one in which Posner developed his "mimic the market" idea. The very reason the law gets involved, in Posner's view at this time, is that transactions costs are not zero and the parties themselves cannot make the appropriate trades.

So if the parties have transactions costs it seems inappropriate to assume that the courts (judges, juries) do not also. So the knowledge problem applies.

Dr Rizzo,

Point well taken. Yes, knowledge problems become relevant if the proponent concedes the existence of positive transaction costs -- so your point is extremely apt if Posner is trying to get by without addressing this. I will read the article.

"Remember, most Austrians are libertarians first, and economists second. (I do not mean that as a criticism -- just a sort of anthropological observation.)"

IMHO: If your anthropological observation is correct, it should be taken as a criticism.

Mr. Luther,

Take it as you will. My only point was that I did not intend it as one. Many, many Austrian economists are fine economists, and understand the basic points of economics better than most (opportunity cost, scarcity, subjectivism, etc.). But don't let that fool you into believing that their political ideology does not figure into their academic research, because that most certainly is not the case. In fact, most Austrian economists, at least in recent years, use economics really only to further the implications of their unique political commitments. How else can we explain Dr. Leeson's "pioneering" research on pirates?!?!

Perhaps Dr. Leeson thinks it's valuable to understand the endogenous emergence of rules/norms given how central such rules/norms are to how social orders function. Perhaps he thinks it is complementary to the work of people like Elinor Ostrom who also explore such issues and are by no means libertarians.

It's one thing to say that Austrians' beliefs about the desirable social order are ONE motivating factor in their attempts to understand the world, but to say we/they "use economics really ONLY to further" them is, frankly, really only insulting Matt.

And you'll have to amass a lot better evidence that that to make your case.

That's "really only" why we care about these issues? Good to see you take other people's arguments in good faith.

Yes, I suppose you are right, but I am just going off what someone who is much, much smarter than me said (I think you know who it is): It is basically just applied anarcho-capitalism. Now that may be a bit unfair (and, as you say, insulting), but I welcome Dr. Leeson to share his own motivations for his interesting research on pirates. I wouldn't think any less of him if he positively embraced the assertion that it is just applied anarcho-capitalism. After all, I have seen him deliver a lecture on this very topic in person, and he enthusiastically endorsed this idea (to great effect, I would add). So, I am not trying to insult him by identifying anarcho-capitalism as the primary motivation for his research, and I wouldn't expect him to take it as an insult, unless I have Dr. Leeson all wrong?

Dear Matt,

You might want to look at this paper of mine:

There is a huge difference between anarchism as a progressive research program, and anarchism as a normative aspiration.

You (and our good friend Jeff Friedman) are misunderstanding what the argument is that is being addressed.


Dr. Boettke,

Yes, the paper draws a nice distinction between positive research and normative aims. But Austrian economics, in its recent evolution, has exhibited certain developments that I think this paper doesn't really address.

(1) Your distinction is absolutely correct in making the positive/normative distinction. I would certainly classify people like you, Horwitz, Storr, Chamlee-Wright, etc. etc. as falling into the former category while people like Rothbard, Hoppe, and Block should be put in the latter category. These really are two different strains/branches in the Austrian movement.

(2) But what you have to recognize is that the new generation of Austrian economists --- people from Leeson & Coyne to D'Amico and Nick Snow --- have really embraced both branches of the Austrian movement, so the distinction is distorted somewhat as it applies to *their* work. These new scholars, I would argue, grew up on Rothbard, Hoppe, and Block, have attended all the Mises Institute Summer workshops and conferences, and have contributed to the libertarian/anarcho-capitalism debate. They just ended up getting their Ph.D. at GMU and studying under you. So their research --- which is absolutely positive in the tradition of people like you, Horwitz, Pyrchitko, etc. etc. --- is still very much informed by these normative aims, even if they are not as strong or explicit as they once were. I can see it in their writngs (and especially their lectures). I mean, these kids grew up with the Mises Institute. Don't you think that is an important element in their *motivation* to conduct the sort of research that the GMU-Austrian program has been sponsoring?

If you read my lecture, then you will see that the motivation comes from a puzzle about how social order emerges even in inhospitable circumstances. In particular, my own early work on the Soviet black market; or in underground economy in less developed economies; or in the wake of nature disasters; or in war torn states, etc. So I think the point for these studies is a combination of trying to find a research project where it appears that "history defies what logic dictates" and then to demonstrate that this apparent contradiction is only apparent. In addition, this research is very influenced by Greif and others on the transition from personal to impersonal exchange and the analytical puzzle that is implied.

So I think you are reading too much AND too little at the same time. And it results in a misunderstanding of the agenda.


So, are you suggesting that these young and new scholars, people like D'amico & Nick Snow, have totally expurgated themselves of the normative influences that have been instilled in them by the work of people like Rothbard, Hoppe, and Block? Remember, Dr. D'amico, before entering GMU and conducting this research on "emerging social orders in inhospitable circumstances," studied his basic economics under Walter Block, where I am sure Rothbard, and Rothbardian Misesianism, figured quite stongly into his intellectual development. I would be willing to bet that Rothbard is just as strong an influence on these young scholars as is someone like Avner Greif. But Dr. D'Amico or Nick Snow are free to come on here and say that they no longer believe in the normative aims of people like Rothbard and Block.


Since when is it a crime to be rothbardian?

Niko--- Nothing at all! My point is that the new generation of Austrian scholars have been deeply influenced by Rothbard, and that Rothbardian political economy deeply informs their research. I am just trying to get Dr. Boettke to acknowledge that point. He seems to be suggesting (although I could be wrong) that his students are conducting purely positive/progressive research where figures like Ostrom and Greif are the *only* people that influence their thinking. I want to say: Not so. These young kids, before they came to GMU, were probably anarcho-capitalists in the tradition of Rothbard, and that outlook informs the research they do under Boettke.

Matt -

Let me assure you that when I arrived at GMU, Pete, Dave, and I were all very much Rothbardian in a number of the ways you are pinning on the younger generation. (And stop trying to cover your tracks - you mean it in a negative way.) The point is that what going to a really good graduate program does is to force you to continually check your premises and expose your arguments to the best, most fundamental, criticisms of your peers and of faculty.

The result is that you find ways to, as I said above, use your "priors" as ONE of the motivating factors in your desire to *understand* the world. As Pete notes, what a really good PhD program also does is to raise fascinating social puzzles that demand explanations, independent of what one thinks the ideal world might look like. And the rigors of Economics grad school are such that you can't present the sloppy, ideological arguments of your youth. You need to actually deploy good economics to make your arguments.

In no way that I can see are any of the younger folks you mentioned guilty of anything that us older folks were at that age and since. In the sense of what my ideal world looks like, I'm still in many ways a "Rothbardian" today. How I come to *understand* the world that exists and why that Rothbardian world is more desirable has changed, but the guiding vision remains the one I encountered in *For a New Liberty* as a high school student.

Yes, Dr. Horwitz all very good points. But it is interesting, is it not, to reflect on the recent development of Austrian economics? I hope I am not entirely incorrect in saying that there is *very* little affinity between people like Boettke, Rizzo, and Koppl, on the one hand, and people like Hoppe, Block, and Murphy, on the other hand. I have been to both the Mises Institute and FEE, and without naming any names, I can say that both groups don't have very nice things to say about the other. But what is interesting is that the new generation of Austrian scholars have embraced both visions of Austrian economics. Someone like Dr. D'amico, I would argue, is as sympathetic to the work of Dr. Boettke as he is to the work of Dr. Block. I just find that interesting. So while these two groups --- The FEE group and The Mises Institute group --- have done lots to isolate themselves from the other, the effect has been somewhat muted when we reflect on the fact that students of Austrian economics have learned from both traditions. I am just curious to see how that plays out in their research, that is all.


I have a very hard time following you. But it is, I think, good to know that Rothbard's MES is considered a pretty mainstream book. I don't know if Professor Boettke would agree with me, although in another post he also said that. Read also Salerno's introduction to the new edition of MES.

So ... some people get a Phd under they are also Rotbardians. Rothbard got a Phd from Columbia under Arthur Burns and criticized Burns for most of his work (after he got his Phd).

So what does this have to do with what you are saying? I don't know. I have no idea what you want. You just keep coming here accusing people of being rogue rothbardians and ask their professors to admit this. Why? Is there a crime somewhere?

Niko, here it is --- all I am saying is that *Austrian* students who study unnder Boettke, and do the sort of research he wants to see done (which is, to the extent that it is "progressive," basically anti-Rothbardian), actually have a stronger Rothbardian influence than he may think. that is all. But you should read Professor Horwitz's reply to that "accusation" by me. He makes some good comments.

I asked you, I can read and yes, I did read Professor Horwitz's replay, a replay to you, not me.

"He makes some good comments."
This one was. He is usually pretty good until he talks about money.

Now, I doubt that Professor Boettke, who takes great pride in listing his most accomplished students and follows their work and who is also very well read in Austrian economics, including Rothbard, didn't spot those rothbardian elements in the work of his students. Now, again, so what? Professor Boettke also started from Rothbard and I think he still thinks of himself of being part misesian, part rothbardian. And if he doesn't, but his students do think of themselves, something that I really doubt he is not able to spot, well, they still do work in Austrian economics. It might not be the work he would like, but again: so what? What would you like him to do, denounce them as traitors?

Niko -- Okay, a good question. I suppose I would answer in this way: If most Austrians, Boettke and Horwitz included, consider themselves at least partly Rothbardian, then the distinction Boettke makes in his paper cited above between positive research (in the tradition of Grief and Ostrom) and normative aims (in the tradition of Rothbard and Block) is a false one. For Austrians, Rothbard is always there, as are the beliefs in an anarcho-capitalist market utopia! Maybe Jeff Friedman was right after all!

If there are any Austrians still following this thread, what is the Austrian perspective on what Coase called the problem of social cost?

No Matt, have you read Schumpeter on Vision and Analysis? We need pre-analytic cognitive acts for us to be able to engage in _positive_ analysis.

And in the paper I pointed to, I am making a distinction between normative anarchism (based on rights) and positive analysis (based on a consequentialist examination of the endogenous rule formation and their enforcement.

Another question, have you read Rajan's "Assume Anarchy?" It is about why in many failed and weak states, and in transition societies, the usually neoclassical assumptions of defined and enforced property rights are counter-productive. That is what we are working with here.

Look at the work you are talking about before assuming you know what is driving it. You will have to look long and hard for normative assessment based on rights in this work.


"For Austrians, Rothbard is always there, as are the beliefs in an anarcho-capitalist market utopia! Maybe Jeff Friedman was right after all!"

About what? That Austrians believe in free markets? You do know what kind of an anarchist Rothbard was, don't you?

So, in the end, the people here are guilty of being free marketeers!!!

I think Jorg Guido Hulsmann has debunked the Coase Theorem even on its own terms here


I was thinking about that paper, but I wasn't sure I am allowed to mention it here.

@Niko and Gorbatenko,

Yes, I understand, people I guess don't realize the gains from trade in your model of the world. Is that what you want to say? Because that is the only way you can deny the first proposition of Coase --- that in a world of zero transaction costs that the initial distribution of rights doesn't matter because the parties will negotiate away any potential conflicts.

You do realize the amazing contribution this point made in the debate with Pigovian's right? Under zero transaction costs they still argued that in the face of externalities, that tax and subsidies would be the corrective. Coase blows that up by demonstrating _under the assumptions accepted by the Pigovian's_ that this result was redundant because parties would already have negotiated away the conflicts.

But then move to the positive transaction costs world --- there the Pigovian solution is non-operational, and the initial distribution of rights matter for the way the parties negotiate away their conflicts. In short, Coase sets up precisely the sort of comparative analysis that GH is calling for in his paper --- in fact, that is what he is KNOWN FOR!

Please listen carefully to the Medema interview and read his work --- it is a very useful corrective to the false presentations of Coase that exist.

Pete beat me to it. Trusting GH's reading of Coase is a very risky proposition.

Brad asked for an Austrian perspective on Coase. Here is one from Rothbard, also:

I must admit I didn't understand what Professor Boettke had to object to GH's paper. As far as I could say, GH had a correct reading of Coase, and the first page actually contains the same interpretation that Professor Boettke provided.

Perhaps Professors Boettke and Horwitz could provide another Austrian perspective on Coase, one which would be rothbardian. I would be very interested in reading it.


Perhaps Professors Boettke and Horwitz could provide another Austrian perspective on Coase, one which would NOT be rothbardian. I would love to read it.

Actually, I didn't ask for an Austrian perspective on Coase. I asked for an Austrian perspective on the sort of issue Coase called the problem of social cost, for example, the case of the noisey confectioner. The noise harms the doctor next door, but not being able to make the noise harms the confectioner. What is the Austrian perspective on this problem. I didn't see where Hulsmann considered this type of problem. I did, however, read the paper rather quickly. Perhaps someone who is more familiar with it could direct my attention to the parts where he considers the problem of social cost.

Well, it was an Austrian perspective on the problem of social costs, as presented by Coase. I didn't think anyone was looking for an Austrian perspectives about Coase as a person.

I don't think you will find the solution to that exact problem, but both Hulsmann and Rothbard have the same line. You could read Rothbard's article, since it does treat a similar problem. I think the answer to your case is that the confectioner should do something about it and internalize the problem.

Folks might check out some of Roy Cordato's work on Coase for an Austrian perspective that actually understands what Coase was saying.

Hulsman criticizes coase but I did not see where he provided an alternative analysis of the type of problem Coase examined. Rothbard does provide an alternative. Coase argued that if property rights were fully specified and there were zero transaction costs there would be no problem. Rothbard appears to deal with the problem by coming up with a rule for always determining the property rights: homesteading. But it seems to me that several things are still unclear in Rothbard's approach. How long does it take to homestead? Would the rule require me to monitor any property I might own in order to prevent someone from homesteading the air above it? would I be prevented from planting a tree in my yard because my neighbot had homesteaded the right to the sun?

Rothbard also seems to largely disregard the issue of transaction costs. He has the individual that has been damaged sue to recover the damages. This seems little different than Coase's solution. If you want to use the property you have to pay. But when the damage is done to multiple people he rules out class action suits and insists upon a voluntary agreement among the damaged individuals, regardless of how expensive it might be to come to such an agreement. Again, I read it quickly so I may be missing something.


You can also find Roy Cordato at the Mises Institute's web page. As far as I can tell Cordato has the same understanding about Coase as Rothbard and Hulsmann. I must emphasize the word "understanding."

Enjoy the lectures.

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