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There is plenty of good stuff and illuminating comments in Coase's works, but there is also a lot of vague and ambiguous reasoning. The latter sometimes makes it quite confusing what Coase is trying to say. His 1937 piece is a case in point, in which he (as noted by e.g. Demsetz) misunderstands economic reasoning and opportunity costs to such a degree that he invents "marketing costs" as somehow "outside" of opportunity costs. His argument for the firm is at best a confused tautology based on a misunderstanding. This being said, his humility and approach is in many ways laudable. Coase was also fearless in challenging rather universally held (mis)conceptions, which is a fantastic quality when right and detrimental when wrong (as in the 1937 piece). In my view, of the two papers cited by the Royal Swedish Academy of Sciences for his "Nobel" prize, the 1960 piece is far better than the 1937. One can tell that Coase, while sticking to some misconceptions, was much more mature as a scholar when writing the latter.
The economic minimalist strives to have the greatest insight with the least theory possible, while the maximalist has very little insight for a lot of theoretical mumbo-jumbo. This is a great point that should probably be emphasized in its own blog post (unless it already has, and I've missed it). A "simple" understanding of basic economic law reveals a lot about the real world, and many an economist either lacks or ignores such understanding. It reminds me of Lerner's "Boulevard of Broken Dreams," a book I've recently had the opportunity to read in order to review a Swedish translation, in which the author argues that entrepreneurship in many countries is dependent on government support. According to the book, many government programs for entrepreneurship fail, but it is because they do the wrong things - and, consequently, we can get more out of these expensive programs if we use economic research to make them "better." I've been through the whole book, but there is not a single mention of opportunity cost of such government investments, not a single reference to that which is not seen. I find it shocking that economists make such blatant errors and argue in a scientific-sounding way for what can best be described as central planning - without even considering alternatives. The basic assumption for Lerner, his starting point, is that we need "more" entrepreneurship and that it cannot happen without government support. But what about government-created obstacles to entrepreneurship? What about consumer wants and producing real value? No mention of those. They are obviously unimportant in modern "analysis." Scary.
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Sep 4, 2013