The Property System in Austrian Economics: Ronald Coase's Contribution

The Property System in Austrian Economics: Ronald Coase's Contribution This paper argues that contrary to Roy Cordato's claim, Ronald Coase's work on the “problem of social cost” is an important contribution to Austrian economics. Coase identified a criterion that can be used to establish initial legal rights to control actions that have external effects. In other words, he discovered a criterion that, in some cases, can be directly applied to help establish a property system when there is none. The criterion also helps a government adapt, or maintain, a property system in light of continuing changes that are characteristic of the entrepreneur economy. Cordato's anti-state ethical economics, which he used to criticize Coase, is a deviation from the century-old tradition of Austrian economics. Menger, Mises and Hayek saw economics as a body of logical knowledge that is value free. In addition they recognized a role for government in defining legal rights and in maintaining the property system in light of changing conditions. Accordingly, it is wrong to invoke “Austrian economics,” properly understood, to criticize this aspect of Coase's work. In this paper, I argue that Cordato has followed a deviant and troubling path by trying to construct an Austrian economics based on ethics, that he has failed to understand that a changeable property system is a prerequisite for the market economy, and that he has correspondingly failed to recognize Coase's contribution to the problem of how to maintain the property system in light of continuing change. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

The Property System in Austrian Economics: Ronald Coase's Contribution

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1023/A:1007864703682
Publisher site
See Article on Publisher Site

Abstract

This paper argues that contrary to Roy Cordato's claim, Ronald Coase's work on the “problem of social cost” is an important contribution to Austrian economics. Coase identified a criterion that can be used to establish initial legal rights to control actions that have external effects. In other words, he discovered a criterion that, in some cases, can be directly applied to help establish a property system when there is none. The criterion also helps a government adapt, or maintain, a property system in light of continuing changes that are characteristic of the entrepreneur economy. Cordato's anti-state ethical economics, which he used to criticize Coase, is a deviation from the century-old tradition of Austrian economics. Menger, Mises and Hayek saw economics as a body of logical knowledge that is value free. In addition they recognized a role for government in defining legal rights and in maintaining the property system in light of changing conditions. Accordingly, it is wrong to invoke “Austrian economics,” properly understood, to criticize this aspect of Coase's work. In this paper, I argue that Cordato has followed a deviant and troubling path by trying to construct an Austrian economics based on ethics, that he has failed to understand that a changeable property system is a prerequisite for the market economy, and that he has correspondingly failed to recognize Coase's contribution to the problem of how to maintain the property system in light of continuing change.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: Oct 8, 2004

References

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