The Enlightenment
in Economic Science
For the 100th Birthday of Ronald Coase
December 29, 2010
Chenggang Xu
University of Hong Kong
Among the few on the top
Let me start by borrowing some words of Einstein to celebrate the
100th Birthday of Coase and I’ll explain why I borrow these
words
“In the temple of science are many mansions, and various indeed
are they that dwell therein and the motives that have led them
thither. Many take to science out of a joyful sense of superior
intellectual power; …; many others are to be found in the temple
who have offered the products of their brains on this altar for
purely utilitarian purposes. Were an angel of the Lord to come
and drive all the people belonging to these two categories out of
the temple, the assemblage would be seriously depleted, but
there would still be some men, of both present and past times,
left inside. Our [Ronald Coase] is one of them, and that is why
we love him.”
-- borrowed from Albert Eistein (1918), Principles of Research:
for Planck’s 60th Birthday [Planck is a mentor of Einstein]
Coase as an Economic Scientist
“There is no logical path to these laws [of physics]; only
intuition, resting on sympathetic understanding of
experience, can reach them.” (Einstein, 1918)
• For more than 100 years economists have tried to be
“scientific” by imitating rigorousness of physics
– But interpreting physics as a “box of analytical tools” is wrong
• The enlightenment that Ronals Coase has given to us
corrects that wrong and harmful but popular view
• The essence of science is to understand puzzling facts: it
starts from observations and ends with observations
– In contrast, mathematics starts from axioms and ends with
QEDs of proofs; but science can never be proved by logical
consistency alone
– e.g. Calculus is analytical tools invented by physicists: it is
math, but is NOT science and is not physics!
Intuitive Coase: Science beyond Logic
• The type of empirical and theoretical work emphasized
by Coase is fundamentally different from today’s
fashions in our profession, which is centered on
deductive/inductive reasoning
• Deductive reasoning (e.g., proving theorems) and
inductive reasoning (e.g., running regressions) alone
would not lead to breakthroughs in deep understandings
of real world problems
– This old fundamental issue (Hume, 1748) has been ignored in
our profession
– The most important discoveries in economics and in physics
are all beyond deductive/inductive reasoning: “There is no
logical path to these laws” (Einstein, 1918)
– e.g. “The invisible hands”, “the Coase Theorem”, and “the
boundary of the firm”
– e.g. “The universal gravitation” and “the general relativity”
Ronald Coase vs. Isaac Newton:
Boundary of the Firm vs. Universal Gravitation
• The importance of the issue of the boundary of the firm to
economics is comparable to that of the universal gravitation
to physics
– It is a central issue in understanding the nature of markets, firms,
government, economics systems, and institutions in general
– Just like universal gravitation is a central issue in understanding
the nature of the universe
• Generations of economists have followed and the influence
will continue
– Similar to the influence of Newton’s universal gravitation on
Einstein’s general relativity, on today’s unified field theory, etc.
– Analytical tools may be changed but the spirit of the essential
question is the same
Coase: an Immortal Curios Scientist
• With his immortal curiosity Coase has devoted most of
his energy to explore what happened in China in recent
years
• His way of research is like what Einstein said about
physics: he rests on intuition, “on sympathetic
understanding of experience,” because “[t]here is no
logical path to these laws”
– Although this is not the fashion in our profession!
• The scientific attitude that we learn from Coase: to be
an independent intellectual
– Driven by pure curiosity of the real world
– Never been dictated by outside forces, such as the power, the
rich, or other extrinsic incentives
– Do not follow the fashion of the profession
– Enjoy of being a lonely explorer of the truth
Happy Birthday Ronald Coase!