Our recent discussions with Glen Whitman about slavery, Haitian zombies, and the Coase Theorem has led us to think deeper about the relation between the Coase Theorem and other “legal failures.” (We consider the institution of slavery a paradigm case of a legal failure because it was the law, not free markets, that made slavery possible prior to abolition. By the way, you can find other examples (some fictional) of legal failures in our short essay “Buy or Bite?,” which also appears as Chapter 12 in the new book Economics of the Undead, which we highly recommend.)
Consider the U.S. Civil War — or the War between the States, as this terrible conflict is sometimes referred to in the South. As Paul Samuelson once noted in his short paper Some uneasiness with the Coase theorem: “the Civil War was not aborted by purchase of the slaves and setting them free.” In other words, although it would have been in the mutual interest of both abolitionists and slave-owners to negotiate a deal rather than go to war, such a Panglossian outcome or “Coasian bargain” did not occur. Dogmatic defenders of Coase’s theorem, of course, will resort to postulating the existence of “transaction costs” or market frictions preventing the parties from negotiating a mutually-beneficial deal, but doesn’t this vague and all-purpose excuse make the Coase theorem unfalsifiable in principle?
But aside from the important issue of falsification (an issue that is essential for us academics who care about intellectual honesty), we wish to make an even more important point, especially in the context of slavery. In short, what about the interests of the slaves themselves? In fairness to Glen, he actually takes the time to address this concern in one of his replies to our initial critique of his post on Haitian zombies. Our point here is that most slaves were simply unable to purchase their own freedom as a matter of common law (i.e. slaves lacked the “legal capacity” to enter into contracts), so how can we talk about the Coase theorem when one side to a possible transaction is prevented from bargaining at all? More importantly, notice that our focus is not on slave-owners or the Civil War; our focus is on the slaves themselves and their unjust plight created by the law.
Next time, let’s negotiate.
prior probability 