Ronald Coase and Wesley Hohfeld

The first time Ronald Coase uses the word “reciprocal” to describe the problem of harmful effects is in his 1959 FCC paper (Coase 1959), but this observation begs the question, what is the source of Coase’s reciprocal-harm model? Did Coase borrow or steal? Or did he discover it on his own? Today, I will one consider one possible source of Coase’s reciprocal-harm model: Wesley Hohfeld’s influential theory of legal relations. (Hohfeld 1913, 1917)

Among other things, Hohfeld (pictured below) observed the ubiquity of rights talk in legal reasoning as well as the polysemy of this legal concept: the legal concept of a “right” in law can be used in different ways to describe different types of legal relations. What Hohfeld did that would shape generations of legal scholars-and perhaps at least one economist, Coase–is create a theoretical framework to capture the precise meaning of different uses of the word “right” in legal reasoning.

Without getting bogged down in the tedious details of Wesley Hohfeld’s overall framework, the part of Hohfeld’s theory of legal relations that is most relevant to Coase’s reciprocal harm model is the logical relationship between legal rights and legal duties. Simply put, a Hohfeldian legal right is always linked to a correlative duty: a right held by one person, let’s call him A, necessarily entails the imposition of a corresponding legal duty on someone else, B.

Nevertheless, the available evidence indicates that Coase most likely developed his reciprocal harm model independent of the work Wesley Hohfeld. For starters, Coase never cites Hohfeld in either his FCC or social cost paper. (As an aside, the first British legal scholar to formally cite and integrate Hohfeld into English legal scholarship was G. W. Keeton (1930).)

Secondly, although Coase uses the word “right” dozens of times in both his FCC and social cost papers, for Coase a legal right is just another “factor of production” or economic input, such as land, labor, and capital. Towards the end of his social cost paper, Coase writes:

“If factors of production are thought of as rights. it becomes easier to understand that the right to do something which has a harmful effect (such as the creation of smoke, noise, smells, etc.) is also a factor of production. Just as we may use a piece of land in such a way as to prevent someone else from crossing it, or parking his car, or building his house upon it, so we may use it in such a way as to deny him a view or quiet or unpolluted air. The cost of exercising a right (of using a factor of production) is always the loss which is suffered elsewhere in consequence of the exercise of that right–the inability to cross land, to park a car, to build a house, to enjoy a view, to have peace and quiet or to breathe clean air. (Coase 1960, p. 44)

This passage, however, points us to another possible source of Coase’s reciprocal harm model: the so-called “LSE tradition in cost theory,” which was developed by Lionel Robbins and F. A. Hayek at the London School of Economics in the 1930s. (To be continued…)