CommonsINSTITUTIONAL ECONOMICS.docx

CommonsINSTITUTIONAL ECONOMICS.docx

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CommonsINSTITUTIONALECONOMICS

INSTITUTIONALECONOMICS

byJohnR.Commons

AmericanEconomicReview,vol.21（1931）,pp.648-657.

Thedifficultyindefiningafieldfortheso-calledinstitutionaleconomicsistheuncertaintyofmeaningofaninstitution.Sometimesaninstitutionseemstomeanaframeworkoflawsornaturalrightswithinwhichindividualsactlikeinmates.Sometimesitseemstomeanthebehavioroftheinmatesthemselves.Sometimesanythingadditionaltoorcriticaloftheclassicalorhedoniceconomicsisdeemedtobeinstitutional.Sometimesanythingthatis"economicbehavior"isinstitutional.Sometimesanythingthatis"dynamic"insteadof"static,"ora"process"insteadofcommodities,oractivityinsteadoffeelings,ormassactioninsteadofindividualaction,ormanagementinsteadofequilibrium,orcontrolinsteadoflaissezfaire,seemstobeinstitutionaleconomics.

Allofthesenotionsaredoubtlessinvolvedininstitutionaleconomics,buttheymaybesaidtobemetaphorsordescriptions,whereas,ascienceofeconomicbehaviorrequiresanalysisintosimilaritiesofcause,effectorpurpose,andasynthesisinaunifiedsystemofprinciples.Andinstitutionaleconomics,furthermore,cannotseparateitselffromthemarvelousdiscoveriesandinsightoftheclassicalandpsychologicaleconomists.Itshouldincorporate,however,inaddition,theequallyimportantinsightofthecommunistic,anarchistic,syndicalistic,fascistic,co-operativeandunionisticeconomists.Doubtlessitistheefforttocoverbyenumerationalloftheseunco-ordinatedactivitiesofthevariousschoolswhichgivestothenameinstitutionaleconomicsthatreputationofamiscellaneous,nondescriptyetmerelydescriptive,characterofso-called"economicbehavior,"whichhaslongsincerelegatedthecrudeHistoricalSchool.

Ifweendeavortofindauniversalcircumstance,commontoallbehaviorknownasinstitutional,wemaydefineaninstitutionascollectiveactionincontrol,liberationandexpansionofindividualaction.

Collectiveactionrangesallthewayfromunorganizedcustomtothemanyorganizedgoingconcerns,suchasthefamily,thecorporation,thetradeassociation,thetradeunion,thereservesystem,thestate.Theprinciplecommontoallofthemisgreaterorlesscontrol,liberationandexpansionofindividualactionbycollectiveaction.

Thiscontroloftheactsofoneindividualalwaysresultsin,andisintendedtoresultin,againorlosstoanotherorotherindividuals.Ifitbetheenforcementofacontract,thenthedebtisexactlyequaltothecreditcreatedforthebenefitoftheotherperson.Adebtisadutyenforcedcollectively,whilethecreditisacorrespondingrightcreatedbycreatingtheduty.Theresultingsocialrelationisaneconomicstatus,consistingoftheexpectationstowardswhicheachpartyisdirectinghiseconomicbehavior.Onthedebtanddutysideitisthestatusofconformitytocollectiveaction.Onthecreditandrightsideitisastatusofsecuritycreatedbytheexpectationofthesaidconformity.Thisisknownas"incorporeal"property.

Or,thecollectivecontroltakestheformofatabuorprohibitionofcertainacts,suchasactsofinterference,infringement,trespass;andthisprohibitioncreatesaneconomicstatusoflibertyforthepersonthusmadeimmune.Butthelibertyofonepersonmaybeaccompaniedbyprospectivegainorlosstoacorrelativeperson,andtheeconomicstatusthuscreatedisexposuretothelibertyoftheother.Anemployerisexposedtothelibertyoftheemployeetoworkornottowork,andtheemployeeisexposedtothelibertyoftheemployertohireorfire.Thetypicalcaseoflibertyandexposureisthegoodwillofabusiness.Thisiscomingtobedistinguishedas"intangible"property.

Eitherthestate,oracorporation,oracartel,oraholdingcompany,oraco-operativeassociation,oratradeunion,oranemployers'association,oratradeassociation,orajointtradeagreementoftwoassociations,orastockexchange,oraboardoftrade,maylaydownandenforcetheruleswhichdetermineforindividualsthisbundleofcorrelativeandreciprocaleconomicrelationships.Indeed,thesecollectiveactsofeconomicorganizationsareattimesmorepowerfulthanthecollectiveactionofthepoliticalconcern,thestate.

Statedinthelanguageofethicsandlaw,tohedevelopedbelow,allcollectiveactsestablishrelationsofrights,duties,norightsandnoduties.Statedinthelanguageofindividualbehavior,whattheyrequireisperformance,avoidance,forbearancebyindividuals.Statedinthelanguageoftheresultingeconomicstatusofindividuals,whattheyprovideissecurity,conformity,libertyandexposure.Statedinlanguageofcause,effectorpurpose,thecommonprinciplesrunningthroughallofthemaretheprinciplesofscarcity,efficiency,futurity,theworkingrulesofcollectiveactionandthelimitingandcomplementaryfactorsofeconomictheory.Statedinlanguageoftheoperationofworkingrulesonindividualaction,theyareexpressedbytheauxiliaryverbsofwhattheindividualcan,cannot,must,mustnot,mayormaynotdo.He"can"or"cannot,"becausecollectiveactionwillorwillnotcometohisaid.He"must"or"mustnot,"becausecollectiveactionwillcompelhim.He"may,"becausecollectiveactionwillpermithimandprotecthim.He"maynot,"becausecollectiveactionwillpreventhim.

Itisbecauseofthesevolitionalauxiliaryverbsthatthefamiliarterm"workingrules"isappropriatetoindicatetheuniversalprincipleofcause,effectorpurpose,commontoallcollectiveaction.Workingrulesarecontinuallychanginginthehistoryofaninstitution,andtheydifferfordifferentinstitutions;but,whatevertheirdifferences,theyhavethissimilaritythattheyindicatewhatindividualscan,must,ormay,doornotdo,enforcedbycollectivesanctions.

Analysisofthesecollectivesanctionsfurnishesthatcorrelationofeconomics,jurisprudenceandethicswhichisprerequisitetoatheoryofinstitutionaleconomics.DavidHumefoundtheunityofthesetheesocialsciencesintheprincipleofscarcityandtheresultingconflictofinterests,contratoAdamSmithwhoisolatedeconomicsfromtheothersonassumptionsofdivineprovidence,earthlyabundanceandtheresultingharmonyofinterests.InstitutionaleconomicsgoesbacktoHume.TakingourcuefromHumeandthemodernuseofsuchatermas"businessethics,"ethicsdealswiththerulesofconductarisingfromconflictofinterests,arising,inturn,fromscarcityandenforcedbythemoralsanctionsofcollectiveopinion;buteconomicsdealswiththesamerulesofconductenforcedbythecollectiveeconomicsanctionsofprofitorlossincaseofobedienceordisobedience,whilejurisprudencedealswiththesamerulesenforcedbytheorganizedsanctionsofviolence.Institutionaleconomicsiscontinuallydealingwiththerelativemeritsandefficiencyofthesethreetypesofsanctions.

Fromthisuniversalprincipleofcollectiveactionincontrol,liberationandexpansionofindividualactionarisenotonlytheethicalconceptsofrightsanddutiesandtheeconomicconceptsofsecurity,conformity,libertyandexposure,butalsoofassetsandliabilities.Infact,itisfromthefieldofcorporationfinance,withitschangeableassetsandliabilities,ratherthanfromthefieldofwantsandlabor,orpainsandpleasures,orwealthandhappiness,orutilityanddisutility,thatinstitutionaleconomicsderivesalargepartofitsdataandmethodology.Institutionaleconomicsistheassetsandliabilitiesofconcerns,contrastedwithAdamSmith'sWealthofNations.

Butcollectiveactionisevenmoreuniversalintheunorganizedformofcustomthanitisintheorganizedformofconcerns.Customhasnotgivenwaytofreecontractandcompetition,aswasassertedbySirHenryMaine.Customshavemerelychangedwithchangesineconomicconditions,andtheymayto-daybeevenmoremandatorythanthedecreesofadictator,whoperforceiscompelledtoconformtothem.Thebusinessmanwhorefusesorisunabletomakeuseofthemoderncustomsofthecreditsystem,byrefusingtoacceptorissuechecksonsolventbanks,althoughtheyaremerelyprivatearrangementsandnotlegaltender,simplycannotcontinueinbusinessbycarryingontransactions.Theseinstrumentsarecustomarytender,insteadoflegaltender,backedbythepowerfulsanctionsofprofit,lossandcompetition,whichcompelconformity.Othermandatorycustomsmightbementioned,suchascomingtoworkatseveno'clockandquittingatsix.

Ifdisputesarise,thentheofficersofanorganizedconcern--acreditassociation,themanagerofacorporation,astockexchange,aboardoftrade,acommercialorlaborarbitrator,orfinallythecourtsoflawuptotheSupremeCourtoftheUnitedStates--reducethecustomtoprecisionbyaddinganorganizedsanction.

Thisisthecommon-lawmethodofmakinglawbythedecisionofdisputes.Thedecisions,bybecomingprecedents,becometheworkingrules,forthetimebeing,oftheparticularorganizedconcern.Thehistoric"commonlaw"ofAnglo-Americanjurisprudenceisonlyaspecialcaseoftheuniversalprinciplecommontoallconcernsthatsurvive,ofmakingnewlawbydecidingconflictsofinterest,andthusgivinggreaterprecisionandorganizedcompulsiontotheunorganizedworkingrulesofcustom.Thecommon-lawmethodisuniversalinallcollectiveaction,butthetechnical"commonlaw"ofthelawyersisabodyofdecisions.Inshort,thecommon-lawmethodisitselfacustom,withvariabilities,likeothercustoms.Itisthewaycollectiveactionactsonindividualactionintimeofconflict.

Thuscollectiveactionismorethancontrolofindividualaction--itis,bytheveryactof