Ronald Coase and Frank Knight’s common nemesis: Pigou (or market versus legal failures)

Was it the University of Cambridge economist A. C. Pigou (pictured below) who unwittingly inspired Ronald Coase’s notion of reciprocal harms? We spent most of last week tracing the origins of Ronald Coase’s axiom that harms are a reciprocal problem: the counter-intuitive idea that victims are just as responsible for harms as wrongdoers. Among other possibilities, potential precursors include (1) Wesley Hohfeld’s theory of legal relations, (2) what economist Jim Buchanan has called the “LSE tradition in cost theory“, and (3) Sir Arnold Plant, the British economist who had the largest influence on Coase’s intellectual development. Today, it’s Pigou’s turn, for Coase’s critique of Pigou in “The Problem of Social Cost” — i.e. the work that contains Coase’s reciprocal-harm axiom — can be traced back to a paper by Frank H. Knight titled “Some Fallacies in the Interpretation of Social Cost” (Knight 1924, 1952), which was first published in the Quarterly Journal of Economics in 1924 and…