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Ronald Coase, the lighthouse, and free banking

Ronald Coase died earlier this week at age 102. Not only was he the longest-lived major economist I know of, but he was the most pithy.  His major writings could easily fit in a small book, they are accessible to an educated general reader, and they also repay deeper study. Would that we could all be like that.

One of Coase's articles was "The Lighthouse in Economics." Coase pointed out that, contrary to textbook assertions that lighthouses were an example of a public good that could not be privately provided, private lighthouses had existed and thrived in England. Coase's method–if it is true in practice, it must be possible in theory–is an excellent one to apply across all branches of economics. Those of us who blog on this site who have written about the history of free banking in Britain (Larry White), the history of private coinage in Britain (George Selgin), the history of free banking around the world (me), or the history of free banking and regulation in the United States (Steve Horwitz) have all drawn some inspiration from Coase's essay. What Coase scorned as "blackboard economics" persists in monetary theory, though, where free banking generally receives little or no attention in standard textbooks and treatises.

  • hamblin

    As I recall (not having it handy), Coase’s article says the private lighthouses were contracted for, or regulated by, the government; therefore he did not refute the argument that we need government in order to have lighthouses.

    • Kurt Schuler

      I provided a link in my post precisely so that the article would be handy. Your post does not address the point that Coase made. He was addressing the claim that lighthouses could only effectively be provided for from general tax revenue. For the privately built and maintained British lighthouses that Coase examined, the the role of the government was limited to allowing groups that want to erect lighthouses to collect fees from ships that used their harbors. In other words, the government established a limited property right in light and private provision followed. Coase was not an anarchist (in fact, when he began his studies as an economist he was a socialist), and he did not make the general argument about the necessity of government that you are making.

  • Larry White

    Coase's "Durability and Monopoly," identifying the credible commitment problem, is also highly relevant to understanding why paper money issued by private firms has historically always been redeemable.

    • Mike Sproul

      Larry:

      Can you elaborate on the connection between Coase's ideas and the redeemability of private paper money?

  • Gonzalo R. Moya V.

    There is an excellent article in memorial of Ronald Coase, called "Strange animals and the unseen costs of regulation" by Oscar Sumar (he has an MA in Law from UC Berkley), too bad that it is only in Spanish:

    http://blogs.gestion.pe/menulegal/2013/09/animales-extranos-y-los-costos.html

    I could gladly translate it for the users of this blog, if it goes in a new post. Now, the term "blackboard economics" reminded me of Deirdre McCloskey´s "The So-Called Coase Theorem" (http://www.deirdremccloskey.com/docs/pdf/Article_306.pdf), which is really good if you can put her pedant writing style aside (or simply skip the first two paragraphs).

  • Paul Marks

    Yes the Lighthouse example (like the private British rescue service – the RNLI) show that some economists assume that the only motivation people have is commercial.

    The idea that some people might not like the idea of others drowning and be willing to spend their own money, and risk their own lives (in an organised fashion) to try and prevent other people drowning, seems to be too difficult for some people to grasp. Even if examples of such voluntary organisation are thrust in their faces.

    As for private coinage – this actually is explainable in a commercial manner (no need for charitable trusts and so on).

    A private mint is given metal (say silver or gold) and, in return for being allowed to keep a small fraction of the metal, turns the metal into coins.

    This was the system that dominated the American West till Congress banned it in the 1850s.

    Nothing hard to understand here.

    Yet it seems that many do not understand it.