Coase on Regulating Goods and Ideas
One of the articles by the late Ronald Coase that I highlighted in my recent Wall Street Journal encomium to him was his clever 1974 piece, “The Market for Goods and the Market for Ideas.” I had remembered the highlights correctly but this morning I took time to read the whole thing. It’s masterful.
Recall that he is challenging the way intellectuals generally think about government regulation of the market for goods and government regulation of the market for ideas. In the former case, most intellectuals want to give the government a fair amount of power; in the latter case, almost none.
Coase points out the contradiction. Some excerpts:
What is the general view that I will be examining? It is that, in the market for goods, government regulation is desirable whereas, in the market for ideas, government regulation is undesirable and should be strictly limited. In the market for goods, the government is commonly regarded as competent to regulate and properly motivated. Consumers lack the ability to make the appropriate choices. Producers often exercise monopolistic power and, in any case, without some form of government intervention, would not act in a way which promotes the public interest. In the market for ideas, the position is very different. The government, if it attempted to regulate, would be inefficient and its motives would, in general, be bad, so that, even if it were successful in achieving what it wanted to accomplish, the results would be undesirable. Consumers, on the other hand, if left free, exercise a fine discrimination in choosing between the alternative views placed before them, while producers, whether economically powerful or weak, who are found to be so unscrupulous in their behavior in other markets, can be trusted to act in the public interest, whether they publish or work for the New York Times, the Chicago Tribune or the Columbia Broadcasting System. Politicians, whose actions sometimes pain us, are in their utterances beyond reproach. It is an odd feature of this attitude that commercial advertising, which is often merely an expression of opinion and might, therefore, be thought to be protected by the First Amendment, is considered to be part of the market for goods. The result is that government action is regarded as desirable to regulate (or even suppress) the expression of an opinion in an advertisement which, if expressed in a book or article, would be completely beyond the reach of government regulation.
The special characteristics of each market lead to the same factors having different weights, and the appropriate social arrangements will vary accordingly. It may not be sensible to have the same legal arrangements governing the supply of soap, housing, automobiles, oil, and books. My argument is that we should use the same approach for all markets when deciding on public policy. In fact, if we do this and use for the market for ideas the same approach which has commended itself to economists for the market for goods, it is apparent that the case for government intervention in the market for ideas is much stronger than it is, in general, in the market for goods. For example, economists usually call for government intervention, which may include direct government regulation, when the market does not operate properly–when, that is, there exist what are commonly referred to as neighborhood or spillover effects, or, to use that unfortunate word, “externalities.” If we try to imagine the property rights system that would be required and the transactions that would have to be carried out to assure that anyone who propagated an idea or a proposal for reform received the value of the good it produced or had to pay compensation for the harm that resulted, it is easy to see that in practice there is likely to be a good deal of “market failure.” Situations of this kind usually lead economists to call for extensive government intervention.
If you read his piece, don’t miss his quotes from John Milton’s Areopagitica, his famous defense of free speech. They’re hilarious. My favorite:
“Let [truth] and falsehood grapple; who ever knew Truth put to the worse in a free and open encounter”