About the Interview
When externalities are present and transaction costs are absent, private parties will strike welfare-enhancing deals regardless of who owns what. In a frictionless world, bargaining leads to efficiency. That is the essence of the Coase Theorem, and it is fiction, according to Steven Medema. The world is not frictionless, which is why the Theorem is not applicable to it. And yet the theorem, distorted versions of it, entered into textbooks and came to captivate the minds of economics and legal scholars alike. Medema investigates how that came to be. Writing the intellectual history of the Coase Theorem -- this is new economic thinking.
About Steven Medema
Steven G. Medema is Professor of Economics at the University of Colorado Denver. His research focuses on the post-WWII history of economics, with particular attention to economists’ views of the roles of market and state in economic activity and the extension of economic analysis beyond its traditional boundaries. He served as editor of the Journal of the History of Economic Thought from 1998-2008. Full profile
Comments
Is this really "new economic thinking"?
It sounds like study for the sake of study and publishing.
I've asked the question several times before, Is this a good way for INET to be spending George Soros' money?
I go back and listen to the speeches at the inaugural INET conference and the more recent Bretton Woods meeting - INET is about finding new solutions that will make the economic system benefit more people. Will Steven Medema's research go any way to doing this??
I think TTJ misses the point: communication of new ideas can benefit from the study of how they failed or got skewed in the past. Read Kuhn's The Structure of Scientific Revolutions. Strategy for rapid assessment and adoption requires such studies. Mathematican Grassman had great ideas but they weren't adopted until after his death, due to his lack of communication skills.
In total agreement with TJJ. The economists who are now redacting their history have yet to solve a single problem that would demonstrate an effective "new economic thought" that we might test with data. Pedantry is already paid for - it should not be paid again even while millions suffer deprivation and terror due to the "old economic thought".
One might say, "School is out. Stand and deliver or shut up."
I've read Medema's "The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas" and I have to disagree with TJJ. A major part of finding new solutions is understanding why the old solutions didn't work and what they really were. In the case of the Coase Theorem, "Law and Economics" and "Public Choice" theory a large part of the problem was a hasty, ideologically-motivated "crusade" based on a semi-understanding of what was actually a worthwhile (albeit flawed) critique of the Pigovian tradition.
One of the dangerous temptations of "new thinking" is to simply revert to Pigou's arguments without understanding why it was vulnerable to Coase's criticism. I was inspired by Medema's history to take the critique of Coase one step further. Coase only dealt with Part II of Pigou's Economics of Welfare but Part III dealt (inadequately, in my estimation) with the external economies of labor. Those labor issues were better addressed later by J. M. Clark in Studies in the Economics of Overhead Costs and earlier by S. J. Chapman in his theory of the hours of labor.
Any new economic thinking is going to have to redress the expulsion of labor analysis from economics -- or what is worse, the bone-headed treatment of labor as if it is a commodity like any other. That requires interrogating Coase's exclusion of Part III and restoration of Clark's and Chapman's analyses.
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