Tag: Institutional Economics

Commons says Marx missed Institutional Forces

These are the grand national and social forces which have come into existence since the time of the Communist Manifesto, and have nullified what otherwise might have been accurate predictions of that Manifesto. For Karl Marx had based his calculations upon the purely mechanical, economic evolution of machinery, of tools, of markets, of supply and demand. He had not weighed these spiritual and psychological forces which have revolutionized the modern world. He had not seen beneath the economic forces. He had not seen the power of patriotism by virtue of which the divers classes of these different nations would finally unite. He had not seen the movement of trade unionism through which laborers learned to organize, learned self-control, learned to negotiate with em-ployers, learned that they need not fall back into the pauper condition that Marx predicted, but that by negotiation, by arbitration, they might make an agreement with the capitalists, that they might come to terms with the capitalists and divide the product between them.

The spirit of trade unionism, instead of being that of class struggle, is the spirit of partnership. The trade union movement looks upon itself, not as the irreconcilable opponent of capitalism, but as & member of the family. Being a member of the family it is entitled to have a row with the head of the family, and to live apart for a time, but it has not yet taken out a divorce. Trade unionists do not presume, as Karl Marx did, that the members of the family can do without the head of the family. Trade unionism is based upon that principle of partnership which we see in & different way in the home. Consequently here we have a spiritual movement which has not attacked family, religion, and property, as Karl Marx had done, but has organized itself to get a larger share of profits by negotiation, by agreement, by strikes.

Industrial Goodwill, John R Commons 1919

Why didn’t the Austrians appreciate John R Commons?

John R Commons makes it about transactions

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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