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 people want to convert their uncertain profits into vested interests or monopolistic type profits as quickly as possible to protect themselves from these thin profit margins. This is a crucial aspect of Commons macroeconomics which have been ignored in the literature. more to come.......
Commons Futurity VII. The Margin for Profit pg 526-528 In this section, Commons turns to thinking about a specific aspect of modern banker capitalism addressing the question of profit's role in the economy. He starts with some terminology regarding profit share - the share of national income that goes to profit earners and the profit margin - the dynamic aspect that drives a going concern forward. We then move into another set of terms that are rate of profit and profit yield. The rate of profit is related to the par value of stock and yield is related to market value of stock or outstanding equity. The social question to Commons is what the role of profit in keeping the overall economy and does society or community pay too much or too little for this service. Economists have long thought about the role of profits in driving the economy up or down. Commons believes there are profit share theories and profit margin theories as two diction categories in economic thinking...
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