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Who first used the term externality in economics, as the term is currently used in its modern sense?

(I believe it was already used in philosophy to mean something else and the economics version of this term came into use later.)


The earliest instance I've found so far is Bator (1958). However, he uses it without any introduction and as if it's already a well-known term so I suspect someone else may have used it before.

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    $\begingroup$ en.wikipedia.org/wiki/Externality#History_of_the_concept $\endgroup$ – Art Oct 17 at 6:25
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    $\begingroup$ @Art: Where specifically does Sidgwick or Pigou use the term externality? I am asking about the term/word, not just the concept (which is of course much older). $\endgroup$ – user20311 Oct 17 at 7:10
  • $\begingroup$ I see. Just checked Pigou's book out and there seems to be no reference to the term "externality" $\endgroup$ – Art Oct 17 at 8:56
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    $\begingroup$ This paper by Meade (1952) repeatedly uses "external economies" and "external diseconomies" meaning what are now called externalities, but avoids the term "externalities". So probably it came into use after 1952. $\endgroup$ – Adam Bailey Oct 17 at 13:04
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    $\begingroup$ @AdamBailey: I don't think your conclusion ("probably it came into use after 1952") necessarily follows. It could be that Meade (for whatever reason and just like some authors today) didn't want to use the term externality. Coase (1960) doesn't use it either, but this doesn't mean it only "came into use after 1960". (Bator (1958) had already used it.) Indeed, Coase self-consciously chose to avoid the term externality throughout his career. $\endgroup$ – user20311 Oct 18 at 4:08
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I suspect you have found the author responsible for the original coinage of the word "externality" within economics, with this meaning.

In the 1950s (and earlier), the discussion of externalities was typically done using the phrase "external economies", as Francis M. Bator frequently did too. Bator built on Scitovsky (1954) and Meade (1952), both of whom used "external economies", as did JK Galbraith and others around that time (as well as several others before them).

Boudreaux and Meiners wrote the paper: "Externality: Origins and Classifications", 2019, within which they say:

Bator's article likely forms the basis for the now-common notion of externality

which is probably as close as we can get to confirmation that the word is Bator's original coinage for this particular meaning, together with Fizz's Medema reference. There's a long footnote in the reference that Fizz found - Medema 2019 (p20) (my emphasis):

Bator first used the term in his 1956 MIT Ph.D. thesis, from which his 1957 and 1958 articles were derived (Bator 1956). Whether it was Bator who coined the term is hard to say. Paul Samuelson, Bator’s MIT colleague, used it at nearly the same time in an article on the subject of intertemporal price equilibrium that appeared in Weltwirtschaftliches Archiv(Samuelson 1957). Samuelson noted simply that “knowledge is a resource loaded with externality” (1957, 210). Bator’s article seems to have appeared first and was certainly more widely read, being cited nearly fifty times over the next dozen years as against eighteen cites to Samuelson’s piece. (Source: Google Scholar, accessed August 22, 2017). Moreover, none of the citations to Samuelson’s article were in the welfare economics/externalities context. There is no input from Samuelson acknowledged in Bator’s opening footnote, nor is mention of Bator made in Samuelson’s article. The term was picked up relatively quickly though, being used another half-dozen times before 1960. It was also Bator who introduced the term “market failure” into the literature, this in his 1958 article, “The Anatomy of Market Failure.

Bator's 1956 PhD thesis for MIT (pdf) uses the term 78 times, with no earlier citations or quotes of its use.

So, with both Samuelson (1957) and Bator writing around that time about externalities, using that specific word, and both at MIT, there's a fair chance that the word was coined there within that MIT department by one of them, or a colleague of theirs (with Robert Solow being the most likely candidate, as Bator's PhD supervisor), and entered the writings of both of them organically at around the same time, through the usual social and professional interactions that go on in an academic department.

And Medema's footnote quoted above makes a persuasive case that it is Bator's 1957 & 1958 papers that established the term in the literature, from where it became widely disseminated.

Robert Solow is, at time of writing, still with us. I wonder if a direct enquiry to him might shed any light on this?

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  • $\begingroup$ The term market failure also appears in Bator's 1956 thesis, possibly also for the first time. $\endgroup$ – user20311 Oct 22 at 2:54
  • $\begingroup$ @user20311 you could well be right. I had great fun chasing down the origins of "externality", but I'll take your word for it on "market failure". Are you, by any chance, one of Medema, Boudreaux or Meiners? Congratulations on your archaeology of terminology, if so! $\endgroup$ – EnergyNumbers Oct 22 at 11:24
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You seem to be correct. Or at least Medema (who is hopefully not you) agrees in a 2019 paper.

It was Francis Bator’s elaboration of “The Simple Analytics of Welfare Maximization” in 1957 that introduced the term “externality” into the economics literature (1957, 42, 43).

In contrast, Largreux (2010) says

the term ‘externality’ – which, apparently, was first coined by Paul Samuelson in the 1950s [...]

but he cites no particular paper of Samuelson for that and I could not find one pre-1958 in which Samuelson uses that exact term. Samuelson does adopt it in his later papers, for sure. It appears in vol 3 of his collected works when referring to Coase's [1960] paper for example.

Largreux also takes issue with how broadly Bator defined the term "externality". Largreux seem to criticize the use of the term for "technical" and "ownership" externalities (two of the three categories defined by Bator, the last one being "public good externalities"), but that may be a different matter.

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