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Commons as Business Economist and Profit Margins

John Commons on pages 526-590 (Section VII) of Institutional Economics lay out a set of ideas that would be very familiar to a modern business economist.  He talks about different theories related to the operation of business concerns and puts his own "money" on the idea of profit margins.  Commons spends a great deal of time explaining how profit margins are key concept that drives business concerns and ultimately the business cycle.  Given Commons concerns about the business cycle and unemployment, it is no surprise of his interest in this topic.  He goes on to provide a great deal of evidence that profit margins are thin in general in the U.S. economy and that this thins means it takes only a few disturbances for business to be thrown into a tail spin and cause economic decline. He makes several other statements related to this including: 1) stable prices (that did not occur during the 1929-1933 depression) could have helped prevent the crash and 2) business peopl...

Basics part 2

What I find fascinating about Commons is that he states right up front in Institutional Economics that "I set forth a record of participation. I hold that this book is not so much a theory personal to myself as it is a theory conforming to many experiments in collective action and requiring therefore a reconciliation with the individualistic and collectivistic theories of the past two hundred years" (pg. 1, Commons, 2005).  Thus, we have a theorist who is explicilty stating that their theory is at least partially based on their own experiences in life and not just simply a reflection of the so called natural order that has been created with no bearing from their own life.  At the same time, Commons tells us that his theory must be judged relative to the other theories of economics from the 18th, 19th and early 20th century.  This is an ambitious book and at times very hard to read and yet I believe it contains an enormous amount of knowledge and wisdom that applies well t...

Some Basics

Commons most cited article is "Institutional Economics" from the American Economic Review of December 1931.  He defines an institution as "collective action in control, liberation and expansion of individual action".  Many of us imagine that collective action of any group against an individual is inherently negative or restrictive.  In Commons view however, collective action can both restrict or liberate individuals.  In fact, in any transaction or relationship between two individuals, the rules of the collective may liberate one party and restrict the other.  This is a critical point to understand.  Traditional economics views the individual as being set against nature or the market and not any other individual.  Any rules are by definition restrictive in this view of the world.  In the Commons view of the world, the rules that help restrict one party may provide a liberation or expansion of activity for another party.  This begins to help u...

Welcome to a blog about John R Commons and the Spartan School of Institutional Economics

Welcome to the a blog on John R.Commons and some thoughts on institutional economics as it has evolved at Michigan State University under A. Allan Schmid, Robert Solo, Warren Samuels, Sandra Batie and James Schafer. I hope to explore some of the current academic articles being written about Commons and MSU faculty who worked in this tradition to see how our understanding of this important vein of economics continues to expand and evolve.