A Change of Approach

Diary Entry: March 31, 2025

I’ve read this paper so many times, but I always focused on the first half. Tonight, I reread the last chapter... and the floor just dropped out.

It’s here. It’s all here. Literally in the final section of the paper, the part everyone ignores because they’re all still arguing about the “theorem” in chapters III and IV.

Coase lists three reasons why the theory of resource allocation has failed. And the third one... my God.

He says the real problem is “a faulty concept of a factor of production”.

He argues that a factor of production is “usually thought of as a physical entity which the businessman acquires and uses (an acre of land, a ton of fertiliser) instead of as a right to perform certain (physical) actions”.

This is it. This is what I’ve been sensing all along.

This goes way beyond the simple “bundle of rights” I was thinking about. He’s not just saying property is a bundle of sticks. He’s saying there is no physical object at the center of it.

He says a landowner doesn’t own land. He “in fact possesses is the right to carry out a circumscribed list of actions”. And in the very same breath, he says “the right to do something which has a harmful effect (such as the creation of smoke, noise, smells, etc.) is also a factor of production”.

If my “right” to use my land is just a “right to an action,” and the factory’s “right” to pollute is also a “right to an action,” then... nobody owns anything. We’re just two people holding competing government-issued permits.

This is what he’s been hiding. This is the “misunderstood” part. If property is just an immaterial “right”, then the owner no longer possesses the property itself. It just... evaporates.

This “redefinition” is a call for the eradication of private property. It effectively removes the notion of private ownership from the economy, leaving the government as the ultimate arbiter — and, by implication, the ultimate owner — of all factors of production.

This whole time... the entire paper... it’s all been a diversion. The attacks on Pigou, the “theorem” about a fantasy world... it was all to distract from this. It’s hidden in plain sight in the final chapter.

The libertarian champion... is advocating for the total government takeover of all factors of production.

Wait a second. If property is just a “list of actions” ... isn’t that exactly the same definition he gives for the factory’s smoke? They are both just “factors of production.”

So when Coase declares, in the very first sentence of the paper, that it “is concerned with those actions of business firms which have harmful effects on others”... he was never really talking about torts. He was hiding his redefinition of property in plain sight.

This is how he did it. He diverts readers’ attention right after the very first sentence. He called it “harmful business actions” to make us think of torts, but he really meant “property interference” all along. Incredible.