ABSTRACT
Everybody likes a story, economists included. A popular economic story is about lighthouses. The problem is how to get lighthouses built and how to get them paid for. The ships passing a lighthouse receive a warning of danger but how could they be made to pay for this valuable service? An economists’ hall of fame concluded that only the government could collect fees for the provision of lighthouse services. It would seem to follow that the cost of building and maintaining lighthouses would be met from these fees. This puts lighthouses outside the private sector of the economy. Not so said Professor Coase (1988) who begins his story with Trinity House that got letters patent from Henry VIII in 1514. Apparently its lighthouse role did not start until a century later when it “established lighthouses at Caister and Lowestoft” (p. 195). Between 1610 and 1675 Trinity House had built no more lighthouses and ten private lighthouses had Royal charters (p. 196). Moreover, it is very important to note that from the outset, fees for these lighthouses were collected from ships entering or leaving English ports “commonly [by] customs officials” (p. 197). Customs officials are governmental officers. Therefore, it would seem that this fact does not refute the assertions made by the distinguished economists taken to the woodshed by Coase. In 1820, there were a total of 46 lighthouses, built by Trinity House and 34 privately built. Of these 46, 24 were operated by Trinity House and 22 by “private individuals or organizations” (p. 199). In 1834 there were 56 lighthouses, 42 in Trinity House hands, and 14 in private hands. In 1836 Parliament vested all English lighthouses in Trinity House. This means that by 1836 the government had nationalized the lighthouse industry. It took 6 years to complete the process because Trinity House had to make acceptable payments to the private owners of lighthouses. By 1842 there were no privately owned lighthouses remaining in England. The 1834 Select Committee of Parliament’s Report from which Professor Coase quotes (pp. 201–3) gives the reasons for the ensuing nationalization of the lighthouse industry by Parliament. The chief argument in this Report amounts to saying that the privately held lighthouses were monopolies which set fees too high and thereby put English shipping at a competitive disadvantage to foreign shipping. Although Coase never states explicitly how the reader should regard Trinity House, it does not seem to be a private enterprise. Indeed, judging from Coase’s own words, it appears that lighthouses were never private according to the common usage of this term. Professor Coase begins his criticisms of the failure of leading economists to learn the facts by quoting John Stuart Mill. By the time Mill published his views on lighthouses, all English lighthouses were in the hands of the government. Nor is this all. Since 1892 the government’s role in the lighthouse matter has expanded to the extent that it seems to me that the “fable” of the lighthouse rests on a bedrock of truth.
