top of page
Logo

Shattering the Myth: Why Ronald Coase Was Actually an Advocate for a Controlled Economy

For decades, Ronald H. Coase has been celebrated as a hero of the free market. His seminal work, The Problem of Social Cost (1960), is the most cited law review article in modern American legal tradition. It is widely taught as the foundation of free-market environmentalism: the idea that if property rights are clearly defined and transaction costs are zero, private parties can negotiate efficient solutions to problems like pollution without government interference.


But what if this interpretation is entirely wrong?


In a groundbreaking new article published in the Deutsch-Georgische ZEITSCHRIFT FÜR RECHTSVERGLEICHUNG (Issue 08/2025), AI Law CEO Gocha Okreshidze challenges the economic orthodoxy. Titled "Coase’s Theorem: A Pathway to a Controlled Economy," the paper argues that a close reading of Coase’s full text reveals he was not a libertarian anti-regulationist, but rather an advocate for a state-run economic system where the government acts as a "super-firm."


The "Coase Theorem" is Not the Coase Theorem


The article highlights a frustration Coase himself harbored: that his work was widely misunderstood. The famous "Coase Theorem"—which suggests the law doesn't matter absent transaction costs—describes an ideal world Coase did not believe existed.


Okreshidze argues that by focusing only on formulaic representations of the theorem, scholars have ignored the other eight chapters of Coase's analysis. When the full text is considered, a different picture emerges: Coase actively critiqued the classical "invisible hand" model of Adam Smith.


The Government as a "Super-Firm"


The core of Okreshidze's argument is that Coase viewed the economy through the lens of transaction costs.


  • When costs are low: Markets work well.

  • When costs are high: Firms (hierarchies) are more efficient than markets.

  • When costs are too high for firms: The government must step in.



Coase explicitly described the government as "a super-firm (but of a very special kind)". Unlike a private firm, the government can avoid the market entirely by conscripting or seizing property and decreeing how factors of production should be used. Okreshidze posits that Coase’s ultimate solution was a flexible system where the government determines the initial allocation of factors of production and controls their movement by adjusting transaction cost parameters.


Redefining Property as State-Granted Licenses


Perhaps the most controversial aspect of the new publication is the analysis of Coase’s view on property. Traditional economics views factors of production (like land) as physical entities owned by individuals.


Okreshidze demonstrates that Coase redefined property not as physical ownership, but as a "bundle of rights" or licenses to perform specific actions. Under this framework, private ownership is effectively eroded; individuals hold only government-granted rights to perform activities, leaving the state as the ultimate owner of all factors of production.


A New Intellectual History


The article also traces Coase’s intellectual lineage back to his early socialist sympathies and his interactions with economists like Abba Lerner, who sought to use price mechanisms within socialist economies. Okreshidze suggests that Coase did not abandon these roots but rather found a "practical mechanism" to implement a controlled economy that outperformed the "invisible hand".


This publication invites lawyers, economists, and historians to revisit the text of The Problem of Social Cost with fresh eyes. It suggests that the man often credited with providing the blueprint for deregulation may have actually drafted the architecture for total state control.


 
 
 
bottom of page