The year 1966 was central to the history of the Coase theorem debates, featuring the entry of the idea of a ‘Coase theorem’ into economic discourse and the eruption of the controversy over the the correctness of Coase’s negotiation result. This paper examines economists’ treatments of Coase’s result in 1966 and through the remainder of the decade, a period during which its place in the professional discourse began to solidify and three ‘camps’ began to develop around it: those who believed Coase’s result correct but of limited real-world applicability, those who found it relevant for explaining and devising policy with regard to a wide swath of externality-related phenomena, and those who argued and purported to demonstrate that this result was simply incorrect or wrong-headed on one or another grounds.

Ronald Coase was in his early twenties when he developed his groundbreaking theory of the firm. This theory represented a new approach with no obvious precursors, but from where did it arise? This article traces the origins of Coase’s theory of the firm and provides a context for its formation. I argue that Coase’s arguments were rooted in the exchange of ideas in the Socialist Calculation Debate, and that, in this context, one could read his theory of the firm as an argument in defense of economic planning.

The usual internalization of externality ‘by the market’ can be thought of through two different exchange modes: competitive markets, with Kenneth J. Arrow (1969); or bargaining, with Ronald H. Coase (1960). Although, in both cases, ‘externality’ refers to a non-exchanged effect that produces suboptimalities, these authors are working with two different, implicit conceptions of externality, rooted in different analytical worlds and calling for different institutions—parametric prices for the former but not for the latter. Moreover, while both start out with different theoretical frameworks, the authors share a concern for realism and unite when they introduce transaction costs, both advocating a policy design that calls for taking into account the costs of the different solutions. Nevertheless, this introduction of transaction costs does not itself escape consistency problems, since they do both maintain a reference to their respective ideal worlds.

Following the publication of The Logic of Collective Action by Mancur Olson in 1965, the notion of free riding gained wide currency in economics. The idea of enjoying the benefits of collective action without incurring the corresponding costs seemed to shed light on a number of major issues in American society at a time when social ills of various kinds prompted policy makers to reconsider the conditions of social cohesion. Gradually, free riding became to be regarded as the standard behavior of people placed in certain circumstances rather than the exception confirming the rule that people pay for what they get.

In this article, after reviewing the various meanings associated with the term free riding (and free rider), I follow the notion from the late 1930s to the early 1970s. I show that though it was used to tackle problems in fields as diverse as finance and labor—the study of which betrays the usual tensions between the free market and government intervention—from the mid-1960s, the notion increasingly conveyed a message about society as a whole. That an economic notion could serve such a purpose is another indication of the permeation of society by economic reasoning.