(The speech was based on. and was replaced here with, a formal manuscript on "The Influence of Coase on China")
The Influence of Coase on China
―Speech to the seminar "Coase and China"
Coase can't read or write in Chinese, nor has he ever been to China. He also establishes the same principle as the great Scottish scholar David Hume who "speaks of himself without vanity". Therefore, he can't tolerate any flattery from others, not to speak self-glorification. That is exactly why "the influence of Coase on China" has become a topic which deserves our deliberate discussion at the celebration of the 100th birthday of Professor Coase.
In my opinion, the influence of Coase first comes from what he wrote in Coasean Economics. As is know to all, the main contribution of Coase to economics is his introduction of transaction costs into the economic analysis, which, in his own words, cannot be counted as an "innovation" to the high theory of economics, but will "bring about a complete change in the structure of economic theory, at least in what is called price theory or microeconomics". It is true that ever since Coase introduced the concept of transaction costs whose "propositions fall in to the category of truths which can be deemed self-evident" in his thesis published at the age of 27, there is no subject of economics that can explain the logic behind economic behaviors without referring to the transaction costs.
No doubt, the aforesaid contributions made by Coase have a universal meaning. In the field of science, each stage of the evolution represents a completely different cognitive level, starting from the complete ignorance of transaction costs, to the assumption of transaction costs as zero, all the way to the research and analysis of "the world of positive transaction costs". Therefore, we might as well use other scientific subjects as a source of reference to understand this concept. For example, no one will deny that by assuming the frictional force as zero, significant progress has been achieved in the physics research. Only by standing at this platform can the physicists carry out further research into the world of positive skin frictional. The point here is, in order to assume the frictional force as zero, there must be a clear concept of frictional force. Similarly, without a clear understanding and definition of the transaction costs, it is impossible for the economists to assume transaction costs as zero, let alone explore into the world of positive transaction costs.
With the existence of transaction costs, various transaction rules, agreements and their respective implementation, organization and institutional arrangements, or as collectively referred to as "the institutional structure of production" by Coase in the topic of his acceptance speech at the Nobel Prize award ceremony, have become indispensible components of the economic activities. By introducing transaction costs into economic analysis, Coase calls for the formation and operation of the theoretical analysis system of orthodox economics, as well as the recognition of the position and role of this system in the whole economic system. As a result, the scope of the economics, which had been gradually narrowing since the classical economists like Adam Smith, the core of which only has a focus on the price theory in which prices serve as the decisive element, has been able to expand again into a subject which includes the analysis industry, market, enterprises and other organizations, governments and states and all human behaviors universally constrained by institutions. Such economics is, in Coase's own words, "what economics is supposed to be".
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