7 1 Ronald Coase: the makings of an iconoclast Mary M. Shirley 1. EARLY INFLUENCES Ronald Coase was an intellectual rebel – a courteous, generous, and witty scholar, but a rebel nonetheless. From his twenties until his death at 102, he sought answers to questions that most economists ignored. Why are there firms? What would really happen if we set prices equal to marginal cost? If the lighthouse is the iconic public good, have there ever been private lighthouses? What happens when one economic activity imposes costs on other economic actors – and what are the consequences of the ways we try to “fix” this problem? These questions distinguished Coase from mainstream economists, but so too did his answers and his way of finding answers through painstaking scrutiny of evidence. Born in London in December 1910, Coase had a weakness in his legs that forced him to spend his early years at a school for physical defectives, where they taught him basket weaving (Coase 1995). This unlikely begin- ning did not stop him from entering the Kilburn Grammar School at 12, and after graduation, the London School of Economics. Coase pursued a bachelor of commerce degree at LSE, which at that time focused on practical problems of business, much like today’s MBA. This early train- ing inculcated Coase’s concentration on real world problems, an orienta- tion that proved to be at odds with the dominant trends in economics. An even greater influence on Coase’s future was Arnold Plant, whose lectures on economics, which Coase attended at LSE, were a “revelation” to the young Coase (Coase 1992: 715). Much as Coase admired Plant, he was already questioning authority. Plant, arguing against schemes to solve the Great Depression by using central planning to coordinate production, said that competition “acting through a system of prices would provide all the coordination necessary” (ibid.). Coase believed that Plant’s argument created a puzzle: “. . . we had in economics a factor of production, management, whose function is to coor- dinate” (ibid.). If the pricing system provided all the coordination needed, as Plant argued, then why do we need management? Why do we need firms? Coase’s curiosity was fed when he was awarded a Cassel Traveling Mary M. Shirley - 9781782547990 Downloaded from Elgar Online at 05/22/2020 01:29:28PM via free access