Coase v. Rand

Hi All,

In his seminal essay, The Problem of Social Cost, Ronald Coase developed a novel view of legal rights. His view contrasts sharply with Rand's, whose view largely resembles that of Locke and Pigou. Coase suggests that it's a mistake to look for and automatically grant a legal right against he/she who initiates harm. Instead, he proposes that we look for and grant a legal right that in such a way as to avoid the more serious harm. Here's an excerpt from his essay:

II. The Reciprocal Nature of the Problem

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. I instanced in my previous article the case of a confectioner the noise and vibrations from whose machinery disturbed a doctor in his work. To avoid harming the doctor would inflict harm on the confectioner. The problem posed by this case was essentially whether it was worth while, as a result of restricting the methods of production which could be used by the confectioner, to secure more doctoring at the cost of a reduced supply of confectionery products. Another example is afforded by the problem of straying cattle which destroy crops on neighboring land. If it is inevitable that some cattle will stray, an increase in the supply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops. What answer should be given is, of course, not clear unless we know the value of what is obtained as well as the value of what is sacrificed to obtain it. To give another example, Professor George J. Stigler instances the contamination of a stream. If we assume that the harmful effect of the pollution is that it kills the fish, the question to be decided is: is the value of the fish lost greater or less than the value of the product which the contamination of the stream makes possible. It goes almost without saying that this problem has to be looked at in total and at the margin.

My question is: Why is Rand's "non-initiation of force" model of rights better than Coase's "greater harm avoidance" model of rights?

Jordan

Post 1

Wednesday, September 28, 2005 - 1:17pm

I think Rand's model is better because it is less complicated. Rand's model boils down to "Don't take or destroy things that do not belong to you". Coase seems to be justifying "two wrongs make a right", especially in his example concerning cattle that stray onto a neighbor's land and destroy his crops.

Post 2

Wednesday, September 28, 2005 - 1:49pm

Jordan quotes Coase as saying:

If it is inevitable that some cattle will stray, an increase in the supply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops. What answer should be given is, of course, not clear unless we know the value of what is obtained as well as the value of what is sacrificed to obtain it.

Maybe I'm missing the point here, but whose choice "is clear"? And value to whom?
Thanks,
Glenn

Post 3

Wednesday, September 28, 2005 - 3:02pm

Hi Glenn,

By "choice" I think Coase just means "reasonable options." It's clear to Coase that crops will be grown on the land, or cattle will graize there. It's either one or the other, not both.

And by "value," I think Coase is referring to monetary costs and benefits. This becomes clearer when you read the rest of his essay. I would've linked you to the essay earlier, but I couldn't find an online copy until just now: http://weber.ucsd.edu/~jlbroz/Courses/POLI200C/syllabus/Coase_social%20cost.pdf

Jordan

Post 4

Wednesday, September 28, 2005 - 5:25pm

Jordan:
>My question is: Why is Rand's "non-initiation of force" model of rights better than Coase's "greater harm avoidance" model of rights?

Rand's NIOF principle (which I recall actually originates with Lysander Spooner) is not a bad principle - it's one of her better formulations. It runs into the usual difficulties however in being *absolutely applied* - for example, obviously arresting on suspicion is impossible, as would be detention awaiting trial etc. as you would inevitably be initiating force unjustifiably against some innocent parties (there are similar issues as to what constitutes "force", the first variant of course being fraud, but others of which include pollution, and I believe Rand suggested even things like loud noises, smells etc)

So whichever way you slice it, this broad principle requires a utilitarian formulation in order to practically function - that is, a balancing act of some description (either that, or a lot of verbalist fudging). In Coases's case he seems to be using what is known as "negative utilitarianism" or a "lesser evil" approach (in contrast to the more problematic "postive utilitarianism", or "greater good"). So the slogan is "Minimise misery" rather than "Maximise happiness". This is an approach I subscribe to myself not on the basis that it is the perfect answer, but that it the less problematic of the various systems...;-)

Popper was a negative utilitarian, and based its fundamental usefulness on the apparent assymetry between pleasure and pain (ie: people would rather avoid possible pain than experience possible pleasure, or avoid a possible loss rather than experience a possible gain. This assymetry is common in pyschology)

- Daniel

Post 5

Wednesday, September 28, 2005 - 5:50pm

Hey Daniel,

I didn't realize Spooner formulated the NIOF. Don't know much about him, though, aside from his anti-government anti-slavery views. I usually think of Locke as the original rights theorist to espouse the NIOF. It's implicit in his first-in-time labor theory of proper acquisition.

Anyway, I can see why you pinned Coase as a negative utilitarian from the excerpt, but from what I understand, Coase is really maximizing utilitarian who - like the rest of the Chicago School - strongly favors a more libertarian legal framework.

Jordan

(Edited by Jordan on 9/28, 7:04pm)

Post 6

Wednesday, September 28, 2005 - 6:09pm

Jordan:
>...from what I understand, Coase is really maximizing utilitarian...

HI Jordan,
Could well be. At any rate, I think he is on the money in the passage you quoted, esp in getting the actual nature of the problem straight:

"...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...."

- Daniel

Post 7

Wednesday, September 28, 2005 - 7:08pm

Yeah, it's his formulation that I'm asking SOLOists to challenge. For Coase, the problem to be solved is reciprocal, whereas Rand views it as unilateral.

Incidentally, where does Popper talk about his "minimize misery" bit?

Jordan

Post 8

Wednesday, September 28, 2005 - 8:57pm

Coase is like most conservatives. His ideas just boil down to mob vote. In this case regulation for the common good. The odd thing is he won his award because economists used his ideas in a way he didn't agree with.

See "Ideas v. Goods" in the Ayn Rand Letter vol. 3, No. 11. Ayn Rand attacks him for using his ideas the way he thought they should be enforced.

Coase was using his "utilitarian approach" against the press having the 1st Amendment rights while other businesses don't have special laws protecting their speech. Like in "problems of social costs" altruism means everyone is reduce down to the lowest person's level of freedom instead increasing the freedom of all individuals.

"Transposed to another field, this sort of mind and policy would produce the figure of a doctor who snaps resentfully that to look for the cause of an epidemic would take too long, and advises - in the name of justice - that the disease be spread to other cities. For years, the conservatives did not object to the outrageous injustice of antitrust legislation imposed on businessmen; instead, they have been advocating the extension of antitrust to labor unions. The proposal to combat today's ills (which are the result of government controls) by giving the government the power to control the press, is a shocking but logical development of that policy."

Post 9

Thursday, September 29, 2005 - 7:25am

Glenn,

I don't think Coase's view boils down to mob vote. He encourages unregulated bargaining first and foremost, but he recognizes that bargaining sometimes becomes an inefficient method by which to allocate wealth, inefficient because of hold-outs, free-riders, search costs, negotiation costs, etc. Coase proposes rights in part to avoid the inefficiencies of bargaining, and he would have a lawmaker allocate rights in such as a way as to maximize wealth. I think that according to Coase how wealth is maximized is largely a matter of economic calculation based on market values, not mob vote. I don't know if this is apparent from the article I linked.

Anyway, thanks for bringing Ideas v. Goods to my attention. I'll have to check that out.

Jordan

Post 10

Thursday, September 29, 2005 - 10:58am

Jordan,

It's that little "lawmaker" who decides that is one of the the main monkey-wrenches in the works. Lot's of people really really really really really like the idea of being that "lawmaker" or having him in the family.

Michael

Post 11

Thursday, September 29, 2005 - 2:12pm

Jordan, you wrote, "Why is Rand's 'non-initiation of force' model of rights better than Coase's 'greater harm avoidance' model of rights?"

Well, the non-initiation of force principle presupposes a respect for property rights, whereas Coase doesn't recognize property rights. He cites examples, such as "the case of a confectioner the noise and vibrations from whose machinery disturbed a doctor in his work." "To avoid harming the doctor, he says, "would inflict harm on the confectioner."

The question is: who was there first? If the doctor was, then the confectioner has no right to interfere with his practice. One could just as easily argue that to avoid harming the thief would inflict harm on the victim. After all, the thief presumably needs the money to support himself, just as the confectioner needs the business to support himself. But neither has the right to support himself by interfering with the rights of others. The principle that Coase is ignoring is one of property rights. So, it's not surprising that he would oppose intellectual freedom, having already rejected property rights, which is the foundation of economic freedom.

Coase may claim that he is an advocate of the freedom to bargain economically (the so-called "Coase Theorem"), but that freedom presupposes a respect for property rights, which he simultaneously rejects. His political philosophy would lead inevitably to the demise of capitalism, not to its improved performance as he and many other economists have claimed.

- Bill

(Edited by William Dwyer
on 9/29, 2:15pm)

Post 12

Thursday, September 29, 2005 - 2:47pm

Bill,

Well, the non-initiation of force principle presupposes a respect for property rights, whereas Coase doesn't recognize property rights.

He does respect property rights, just not the Lockean labor theory of property acquisition. That is, he disagrees with Locke about how one comes about having a property right, but agrees that once the right is acquired, it should be respected.

The question is: who was there first?

I'm asking why that is the better question.

So, it's not surprising that he would oppose intellectual freedom, having already rejected property rights, which is the foundation of economic freedom.

Where does he oppose intellectual freedom?

Coase may claim that he is an advocate of the freedom to bargain economically (the so-called "Coase Theorem"), but that freedom presupposes a respect for property rights, which he simultaneously rejects.

I'm not following you. One must have property rights in order to bargain? Coase argues that in a world with zero transaction costs, people would bargain for who gets the property right. With positive transaction costs, however, bargaining might become inefficient, at which point neutral 3d parties, e.g., judges and legislatures, enter the picture to allocate rights.

His political philosophy would lead inevitably to its demise of capitalism, not to its improved performance, as he and many other economists have claimed.

Definitely not following you, but maybe this is because I didn't follow your previous claim about Coase rejecting intellectual freedom.

Thanks for responding,
Jordan

Post 13

Thursday, September 29, 2005 - 6:39pm

Jordan,

In the words above, Coase is using utilitarian (ends justify means) reasoning, whether he admits of being a disciple of utilitarianism or not.

a confectioner the noise and vibrations from whose machinery disturbed a doctor in his work. To avoid harming the doctor would inflict harm on the confectioner. The problem posed by this case was essentially whether it was worth while, as a result of restricting the methods of production which could be used by the confectioner, to secure more doctoring at the cost of a reduced supply of confectionery products

Assumption is made that the damn confectioner and doctor cannot work it out amongst themselves -- which is insulting to the 'trading principle of human interaction' (TPHI). Also, the 'principal of harmony of interests among rationals' (PHIAR) is thrown to the wind here, as is the related 'principle of inherent human productiveness' (PIHP). And each man -- the doctor, the confectioner -- is expected to have 100% control over whether the evidence of others -- is present to his senses. I say this: Let the man who so values silence, work overtime; in order to save up for a friggin' sound-proof booth -- in order to work inside it.

the problem of straying cattle which destroy crops on neighboring land. If it is inevitable that some cattle will stray, an increase in the supply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops.

If 2 adjacent farmers utilized TPHI, PIHP and PHIAR, then the cattle-owner would simply pay the crop-grower for any lost crops due to cattle-straying. The crop-grower sets the price at a rate that has more utility for the cattle-owner -- than being hauled off to jail or jurisdictionally fined for destruction of another's property. WHERE IS THE FREAKIN' PROBLEM?! The problem is Coase, who sets the thing up so that everyone wants/demands everything without any cost to themselves -- and without the idea of trade firmly planted in their psyche. In this respect then, humans are no different than baby chicks with their mouths open, and government is the mother would is determining how to minimize suffering by picking and choosing who gets which worm when. Folks aren't chicks -- Coase is wrong.

the contamination of a stream. If we assume that the harmful effect of the pollution is that it kills the fish, the question to be decided is: is the value of the fish lost greater or less than the value of the product which the contamination of the stream makes possible.

This is mere, naked prudence, put on a mantle, and "referred to" as a "philosophy of rights." Of course folks are going to weigh up what's lost and gained by their chosen method of producing value on this planet. Hell, that's what a value hierarchy is for in the first place! Do you value your free time more than your paycheck, or your paycheck more than 8 hours of free time? Hmmm. I'm going to make a prediction here: Those that value the paycheck more ... are ... no wait, I've changed my mind on this midstream ... aha, THEY are the ones who are going to go to work! You see, by understanding another's hierarchy of value I CAN, generally, predict many of their decisions!

But what about the little fishies in the stream? The point about the little fishies is that "the value of the fish lost" needs the qualifier:

the value to X of the fish lost (where X is the moral agent actively altering X's environment)

Of what? To whom? The value of the lost fish to X.

Geez-Lewwweeez Coase, get an ethical & epistemological grip man!

Ed

Post 14

Thursday, September 29, 2005 - 7:16pm

Ed, did you read the article? Also, I'm not sure whether I've made the intent of this thread clear. I want to know what I asked Bill: Why is "who was there first?" the proper question and not, "which allocation of rights most greatly minimizes harm?" Why the unilateral rather than the reciprocal formula? I'm investiging justifications for different theories of rights allocations. I don't find your post enough on the mark for us to discuss it. I'll understand if you choose not to try again.

Jordan

PS Forgive me if this post is antagonistic or insulting. I couldn't figure out a better way to word it. I meant no offense.

(Edited by Jordan on 9/29, 7:17pm)

Post 15

Thursday, September 29, 2005 - 9:49pm

Roar!

=============
Ed, did you read the article?
=============

Hell no.

=============
Why is "who was there first?" the proper question and not, "which allocation of rights most greatly minimizes harm?"
=============

Short answer:
Because the second question involves central planning (for the least harm/greatest good), which always fails (because it's wrong).

Long answer:
Taking the second question first (which allocation?), the precise allocation of rights that "most greatly minimizes harm" is the one that secures the property of "who[ever] was there first." The purpose of government (as outlined in our Declaration of Independence, Constitution, and Bill of Rights) is to secure individual's rights, particularly the rights to property and the pursuit of happiness ...

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Obviously, it was not necessary to organize government to protect free speech from government or to protect freedom of assembly against government. It was only necessary to organize it to protect property and life (one's life was his property), and once organized other freedoms had to be protected against government power. [Locke] wrote in the Second Treatise that men unite in a society "for the mutual preservation of their lives, liberties, and estates, which I call by the general name 'property'." He said that the supreme power (the legislative) "cannot take from any man any part of his property without his own consent. For the preservation of property being the end of government and that for which men enter into society ... " --www.johnlocke.org/about/legacy.html
=============

That said, the idea of "centrally-planned, greatest-good-by-default, harm-minimization" has had its race and lost. Jordan, you mentioned that you were looking at various justifications, I'll bet you have not yet seen the one below! Though the actual philosophical justification for "who was there first" -- which ought rather be: "who mixed their labor with that stuff over there first" -- is a moral justification (of inalienable, ie. absolute, property rights), here is an entertaining, mixed-justification; from jim.com/rights.html. The twin-theme is that individual good is the ONLY good that there is (in reality); and that you can't get value via initiation of force:

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Natural law is, or follows from an ESS [Evolutionary Stable Strategy] for the use of force: Conduct which violates natural law is conduct such that, if a man were to use individual unorganized violence to prevent such conduct, or, in the absence of orderly society, use individual unorganized violence to punish such conduct, then such violence would not indicate that the person using such violence, (violence in accord with natural law) is a danger to a reasonable man. This definition is equivalent to the definition that comes from the game theory of iterated three or more player non zero sum games, applied to evolutionary theory. The idea of law, of actions being lawful or unlawful, has the emotional significance that it does have, because this ESS for the use of force is part of our nature.
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Law derives from our right to defend ourselves and our property, not from the power of the state.
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... each kind of animal has a mental nature that is appropriate to its physical nature. All animals know or can discover what they need to do in order to lead the life that they are physically fitted to live. Thus humans are naturally capable of knowing how to live together and do business with each other without killing each other. Humans are capable of knowing natural law because, in a state of nature, they need to be capable of knowing it.
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The peasants, foreseeing death by starvation if they continued to pursue the greater good, selfishly sought to pursue their own individual good, contrary to the decrees of their masters. Their masters imagined themselves to be responsible for feeding the peasants, so they were reluctantly forced to use ever more savage terror and torture to force the starving peasants to pursue the greater good. For the sake of the greater good, the peasants were forced to watch their starving children murdered, for the sake of the greater good they were forced to maim and break those they loved with crude agricultural implements, for the sake of the greater good they were brutally and savagely tortured, for the sake of the greater good they died horrible and degrading deaths in vast numbers, all for the greatest good of the greatest number.
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... state intervention to improve people[s] lives has invariably resulted in mass starvation ... in Ethiopia, where hundreds of thousands of people who failed to appreciate the generous aid their Marxist government provided them were resettled in extermination camps built by the World Bank, and shipped to those camps in cattle trucks supplied by the World Bank (Bandow, Bovard, Keyes). Another amusing example of your taxes at work providing the greatest good for the greatest number was the World Bank's Akosombo dam project (Bovard, Lappe 35 37).
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Stalin tried simple [act] utilitarianism until 1921, meta rule based utilitarianism from 1921 to 1928 and rule based utilitarianism from 1928 onwards. ... The problem was the basic assumption that the state could pursue good ends by force and coercion. In the social fabric, means are ends.
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Knowledge of the rights of man is more important than knowledge of what area should be planted with cabbages.
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The rule of law is not merely a matter of the government applying its own rules in a consistent manner to all its subjects, as Stalin did in the great terror. The rule of law is not rule based utilitarianism, it is fundamentally incompatible with any form of utilitarianism. The concept of the rule of law is inexpressible in utilitarian speak, and is meaningless within the utilitarian philosophy.
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Since the Cambodian irrigation project and the World Bank African assistance program the utilitarians have been unable to shake the stink quite so easily, and some utilitarian factions are now trying out new names. The phrase "the greater good" is at last starting to sound like a polite euphemism for lawless state violence.
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Jordan, THAT is why "which allocation of rights?" doesn't deserve any ethical & epistemological priority here.

Ed
(Edited by Ed Thompson
on 9/29, 9:57pm)

Post 16

Thursday, September 29, 2005 - 11:46pm

Coase's theory, like all forms of utilitarianism, is not a theory of property rights at all. Property implies ownership and the right to possess and dispose of a piece of land or equipment or whatever as one sees fit. Coase subordinates all such forms of ownership and rights-of-disposition to a centrally-planned body of lawmakers that somehow have the ability to determine which reallocation of titles would maximize wealth. (See the voluminous works of von Mises on the impossibility of such calculations.)

Coase also steals the concept of bargaining. "Bargaining" implies that two parties absolutely possess the goods which are to be traded, and can walk away from a deal if the terms do not suit them. There are no such provisions in social cost theory. If one potential bargainer is a "hold-out" (i.e., places greater value on the possession he already owns than on what he has been offered), well, he is to be made to accept the bargain by a central planner.

Finally, Coase inverts the concept of "harm," which in the Lockean/Randian view must be a positive act of aggression against the person or property of another. It is not an "infliction of harm" against others to expect them not to infringe upon me or my property, because my person and property are not theirs to begin with. Just because the neighbors would like my house to be pastel blue doesn't mean I'm "harming" them by refusing to let them repaint it. (Of course, if they want to offer me a few thousand dollars to change my mind, perhaps I could be persuaded .... )

Post 17

Friday, September 30, 2005 - 12:00am

Spot on, Andrew!

Ed

Friday, September 30, 2005 - 12:05am

Yes, I quite agree, Andrew!!

Post 19

Friday, September 30, 2005 - 7:30am