Laissez-faire

Diary Entry: April 4, 2025

I’m back in the last chapter of The Problem of Social Cost. My mind is still reeling from his “redefinition of property”. That was the third reason he gave for why economic theory has failed.

But I just re-read the other two, and... my God. It’s not just property. He’s going after everything.

His second reason for failure is that “the economy is considered as a free market that is then compared to an ideal world”.

This is exactly the “So What?” problem I was struggling with! He’s saying that economists are wrong to compare the messy, high-transaction-cost real world to the “ideal world” of his theorem. He says this ideal world “is the world of modern economic theory, one which I was hoping to persuade economists to leave”. He wasn’t proposing the ideal world; he was attacking it. He’s telling everyone to stop using the one thing he’s famous for!

His first reason for failure is that “the discussion focused on externalities, which loses sight of the ‘total effect’ of economic arrangements”. This is his final shot at Pigou. He’s saying that by just focusing on “externalities” (like smoke), we’re just patching a broken system. He wants to analyze the “total effect” of all “social arrangements.”

When you add all that up, what is he really saying?

He’s not trying to fix the free market. He’s saying it’s broken beyond repair. My research for this Cornell paper is leading me to one, inescapable conclusion: Coase ultimately rejects Adam Smith’s free-market system. He wants to dismantle the very system established by Adam Smith, including the free-market economy, private ownership, and... all the institutional structures that stem from them.

This is it. The whole picture. The libertarian hero’s “hidden” argument is that we need to eradicate private property and dismantle the free-market economy. I can’t believe it.