Ronald Coase, who died on Monday at the age of 102, was one of the most influential thinkers in American law during the past century, even though he was an economist, not a lawyer.
The work for which he won the Nobel Prize in Economics is the foundation of the law-and-economics movement, which in the 1970s and 1980s transformed how law is understood. Coase did little scholarship about the Constitution, but the importance of his overarching ideas makes them essential to know about as part of the larger picture of changes in thinking about the Constitution in the law-and-economics era.
In 1960, Coase published an article called “The Problem of Social Cost,” “which is concerned with those actions of business firms which have harmful effects on others.” By widely accepted convention then, government intervention was the way to make a company pay for pollution, for example, through a tax, a restriction on where a polluting factory could be located, or some other means.
Coase took a very different approach.
“The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A. The problem is to avoid the more serious harm.”
There is a significant sidebar to this story: As John Cassidy recounts on The New Yorker’s website, “Coase didn’t even think of the Coase theorem as a full-scale economic theory, but merely as a useful mental exercise that could be carried out before passing onto more realistic cases. It was left to less careful proselytizers to exploit Coase’s work in their crusades against big government.”
But exploit it proselytizers did, holding that free-market economics is the best guide to human behavior under law and for prescribing what law should be.
Law-and-economics founded was the basis for waves of deregulation during the past four decades, in transportation, finance, and many other areas of American life. It transformed the frameworks of the law dealing with contracts, property, and other fundamental legal fields.
It also influenced and helps explain major shifts in constitutional law generally: the reliance on cost-benefit analysis in balancing basic interests, like privacy versus national security; the replacement of the long-held definition of judicial restraint as respect for precedent and deference to the other branches with a new definition of restraint as “reducing the power of the federal courts viz-à-viz the other branches of government,” as Judge Richard Posner put it; even the conviction on which the landmark holding in Citizens United v. FEC relies, that more money in politics means more speech and is therefore better for democracy.
Coase’s ideas led to the founding and dominance of the law-and-economics movement. They clearly shaped constitutional law as well.
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