Ronald Coase, The British Tradition, and The Future of Economic Method

Although Ronald Coase is popularly associated with the Chicago School, his approach belongs to the late nineteenth and early twentieth century British tradition. In this essay, we address whether the Coasean or traditional British methodology can offer improvements to current methods. Current economic method has contributed to a crisis in economic theory which, we believe is leading to a paradigm shift. We maintain that greater weight given to the earlier method would lead to a stronger economic science. In important cases, modern economics has failed to adequately test its theory and explore its assumptions. The very notion of the need to explore assumptions has been dampened by modern method's emphasis on prediction. The Coasean and British tradition emphasizes understanding, rather than prediction, as the first function of theory. It stresses the use of inductive methodology in the building of theory. That, in turn leads to an emphasis on the understanding of the behavior of individuals and institutions rather than their treatment as black boxes which carry out certain functions. In the British tradition, the foremost purpose of theory is to understand, and understanding requires empirical research and building theory inductively