Coase was a polymath and an outsider, rising from humble origins in Willesden. His degree at the London School of Economics was in commerce and, despite being one of the leading economists of the century, he spent most of his academic life on the faculty of the University of Chicago law department.
That sideways perspective on the discipline was to Coase’s advantage: it enabled him to see the simple things that other theorists had missed. His greatest discovery – equivalent, in the words of the Nobel committee, to discovering new elementary particles in the economic system – was to identify the costs involved in transactions, such as hiring a member of staff or acquiring a telecoms licence.
Coase made his discovery because he looked out at what actually happened in the world: starting with his focus on how businesses actually organised themselves, opening up the black box of the firm to scrutiny. His insult of choice was to dismiss the mainstream as blackboard economics – facing away from reality, focused on scribbling equations without caring enough about empirical evidence.
This groundbreaking man’s hard-to-pronounce surname (rhymes with grows) is hardly a household word. But it should be: following Adam Smith on the £20 note, perhaps Coase can feature on the Royal Mint’s new £20 coin. To understand why he deserves to rank so high in the catalogue of this country’s geniuses, consider the lecture he gave when he received his Nobel in 1991. Coase was a modest man, but he saw his discipline with ferociously original eyes. Economics, he declared, had become nothing but a series of footnotes to Adam Smith: obsessed with understanding how prices served to coordinate a free market. He saw unclaimed territory, the alternative coordination arrangements inside large firms, and struck out for himself, bringing back a vital contribution to the discipline.
Coase matters to everyone, not just economic historians. It is impossible to understand the current revolution of the world of work without his insight. Coase teaches us why firms cannot survive the internet unscathed. Frictionless connectivity across great distances transforms transaction costs and the calculus that drove huge vertical integration in the twentieth century. Today’s cutting-edge businesses are children of Coase: crowdsourced cars from Local Motors, crowdfunding from Seedrs, sites devoted to uniting employers and independent contractors like freelancer.com.
Coase, the quiet revolutionary, left us with piercingly original insights that help us to understand the shattering economic changes our technology is now enabling. But his work remains unfinished. To honour him properly, we need to turn from blackboard economics and bring even more reality back to the dismal science.
Marc Sidwell is managing editor at City A.M.