Aesthetics

Diary Entry: April 15, 2025

I’ve been trying to figure out the “undeveloped” part of Coase’s paper. It all goes back to Pigou. Pigou’s concept of “welfare economics” was massive. He said “welfare” was the same as “good,” and “good is good... it cannot be defined”. He knew it was about “states of consciousness,” not just material things. Pigou explicitly split the field in two. The part that can be measured: “economic welfare,” which is “welfare arising in connection with the earning and spending of the national dividend”. And, the part that cannot: The “non-economic satisfactions,”the “aesthetics,” the “morals.”

Pigou was crystal clear that the economic part was just “a part of a part of welfare theory”.

And Coase knew this! He admits his own 1960 paper is “confined... to comparisons of the value of production, as measured by the market”. He explicitly underscores the necessity of developing the remaining part of the welfare analysis. He even says (quoting Frank Knight) that these real “problems of welfare economics must ultimately dissolve into a study of aesthetics and morals”.

He literally told future scholars to go and develop the “second part of the analysis”.

So, what did “the academic community as a whole” do? Did they take up this impossible challenge?

No. They “made up a story.” They substituted it with behavioral economics.

This is what we’re all taught in our JSD seminars. They present the “endowment effect”as the great rebuttal to Coase. They say, “See! His theorem is wrong, people are irrational, the initial allocation does matter.” They created this “pretense” that behavioralism is the “aesthetics”part, the alternative to Coase’s cold-blooded economics.

But as I was writing my notes, a truly horrible thought occurred to me.

What if the endowment effect is not the “aesthetics and morals” part Coase left undeveloped?

What if... it’s just another transaction cost?

In Coase’s own system, what is the endowment effect? It’s a psychological “friction.” It’s an “irrationality” that prevents the efficient market bargain from happening. It’s just a cost.

My God. It’s not a rebuttal to Coase. It’s part and even reason of his system.

And what happens in the Coasean world when transaction costs (like “irrational” human attachment) are too high? The market fails. And what is Coase’s solution for market failure? The firm or “direct Government regulation” takes over.

This is the trap. The endowment effect doesn’t disprove Coase; it justifies his hidden agenda. It’s the “market-failing” excuse he needs for the “super-firm” (the government) to step in and make an “administrative decision”. This is how he makes it “easier to deprive people of their property”. Your “irrational” love for your home isn’t a right; it’s a transaction cost justifying a government takeover. This is horrifying.