Taken from Institutional Economics, 1931, American Economic Review, Vol 21
But the smallest unit of the institutional economists is a unit of activity–a transaction, with its participant.
Every choice, on analysis, turns out to be a three dimensional act, which, as may be derived from the issues arising in disputes, is at one and the same time, a performance, an avoidance, and a forbearance. Performance is the exercise of power over nature or others; avoidance is its exercise in one direction rather than the next available direction; while forbearance is the exercise, not of the total power except at a crisis, but the exercise of a limited degree of one’s possible moral, physical or economic power. Thus forbearance is the limit placed on per-formance; performance is the actual performance; and avoidance is the alternative performance rejected or avoided all at one and the same point of time.
And lastly, this finally.
Consequently the final social philosophy, or “ism”- which is usually a belief regarding human nature and its goal towards which institutional economics trends is not something foreordained by divine or natural “right,” or materialistic equilibrium, or “laws of nature” it may be communism, fascism, capitalism. If managerial and rationing transactions are the starting point of the philosophy, then the end is the command and obedience of communism or fascism. If bargaining transactions are the units of investigation then the trend is towards the equality of opportunity, the fair competition, the equality of bargaining power, and the due process of law of the philosophy of liberalism and regulated capitalism. But there may be all degrees of combination, for the three kinds of transactions are interdependent and variable in a world of collective action and perpetual change, which is the uncertain future world of institutional economies.
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