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Enduring Insight From John R. Commons

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Parlor 1
Hosted By: Association for Evolutionary Economics
  • Chair: Charles J. Whalen, State University of New York-Buffalo

John R. Commons’s Criticism of Classical Economics

Hiroyuki Uni
,
Kyoto University

Abstract

Commons criticized limitations of the classical economics, namely the elimination of scarcity, ownership money, friction and heterogeneity, and attempted to construct new concepts and theories to overcome these limitations. The purpose of this paper is to reveal Commons’s theoretical progress by analyzing a recently discovered manuscript written in 1927 titled “Reasonable Value: A Theory of Volitional Economics”. Specifically, I compare this manuscript with several other published works by Commons: The Distribution of Wealth (1893), Legal Foundations of Capitalism (1924), Reasonable Value (1925), and Institutional Economics (1934).
In this paper, Section 1 presents the conclusions Commons reached as a result of his criticisms of the classical theory of value and the classical economic dynamics. Section 2 applies comparative analysis to identify three aspects of Commons’s theoretical progress in the 1927 manuscript: first, the conceptualization of proprietary scarcity; second, the construction of his theory of value with multiple causations; third, the formulation of three types of transactions. Section 3 identifies two theoretical limitations of the 1927 manuscript and considers how to overcome them. The first limitation is that the “judicial transactions” described in the 1927 manuscript included only the correction of transaction failures at the micro level. The second limitation is that Commons’s theory of value did not include the coexistence of suppliers with different efficiency levels. Section 4 shows that, in Institutional Economics (1934), Commons constructed institutional economic dynamics by introducing a concept of “rationing transactions” instead of “judicial transactions”, with the result that he overcame most of the above limitations.

John R. Commons’s Pricing Theory

Shingo Takahashi
,
Tokyo College of Transport Studies

Abstract

In Institutional Economics, John R. Commons featured relative scarcity (law of supply and demand) and proprietary scarcity (withholding) as main factors affecting prices. Commons’ pricing theory is unique in that it is explained by the historical development of capitalism and his original concepts of transactions. Relative and proprietary scarcity affects prices directly by bargaining transactions. However, efficiency (man-hour) affects prices indirectly by managerial transactions. In banker capitalism, the expected profit at a micro level and protection of efficiency such as patent law and monetary policy at a macro level have a great relationship with prices by rationing transactions.

Rethinking John R. Commons’s Theory of Collective Action: The Viewpoint of Regulation and Convention Theories

Takayuni Nakahara
,
Hannan University

Abstract

In this paper, we examine theoretical connection between Commons and régulation theory and convention theory. The former partly shares and develops the above first characteristic: ‘multiple causation’, while the latter shares and develops the above third characteristic: ‘interrelation of habitual assumption and collective action.’ In Institutional Economics (Commons, 1934), applying the idea of ‘multiple causation,’ Commons approached macro dynamics based on expansion of some key concepts and studies on income distribution and demand growth. It is a prototype of the growth analysis based on the cumulative causation model with the various forms of coordination, later formulated by régulation theory. Moreover, Commons, following and developing Dewey’s theory of habit and intelligence, created a concept of ‘habitual and customary assumptions’ and discussed collective process for achieving ‘reasonable values’, such as the common law method and the committee system. The two-layered coordination in convention theory attempted to explain explicitly the individuals’ reflexive capacities to change preference endogenously and to evaluate collective and social value, which were implicitly assumed in Commons’ word ‘intellect’. With Commons’ theory as medium, it may be possible to articulate macro dynamics developed by régulation theory and micro theory of interaction developed by convention theory.

Judicial Decision and Joint Bargaining: Two Methods of Institutional Reform in the Institutional Economics of John R. Commons

Kota Kitagawa
,
Kansai University

Abstract

This paper presents an additional method of institutional reform that John R. Commons described in Institutional Economics (1934) by comparing this published version with its 1927 manuscript “Reasonable Value: A Theory of Volitional Economics” (1927). The Legal Foundations of Capitalism (1924) and the 1927 manuscript stress that a higher authority plays a role in institutional reform by settling disputes. In contrast, the discussion in Commons (1934), written after the 1927 manuscript, focuses on the joint bargaining system. The essence of this system is the creation and amendment of working rules through negotiations between interest groups, joint administration of those rules, and the enabling of institutions via sovereignty. On the one hand, interest groups receive sovereign power (rule-enforcement power) from government, provided they create rules that society considers reasonable. On the other hand, sovereignty enhances progressive private practices by making them part of the broader semi-public system. Sovereignty thus makes private going concerns responsible for social governance. After clarifying these two methods, this chapter further articulates them. The dynamic nature of these methods of institutional reform becomes apparent where economic, political, and ethical principles affect institutional reform. Not only do higher-level and lower-level (in terms of political, economic, cultural, and legal power) going concerns influence each other, but influence also runs in many directions and follows multiple paths. This dynamic composition artificially enhances the reasonableness of political economy.

How Necessary Are Unions? Insight From John R. Commons

J. Dennis Chasse
,
State University of New York-Brockport

Abstract

In The Economics of Collective Action, John R. Commons stated that free independent trade unions were a necessary condition for the preservation of representative democracy in an industrial society. This article examines the sense in which that surprising statement may be true. It reviews the considerations that brought Commons to that conclusion, the empirical evidence on the relation between unions and representative democracy and the larger literature on the rise and decline of representative democracies in the twentieth century.
Discussant(s)
John Marangos
,
University of Macedonia
JEL Classifications
  • B3 - History of Economic Thought: Individuals
  • B5 - Current Heterodox Approaches