Skip to main content

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 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.......

Comments

Popular posts from this blog

Commons Futurity pg.526-528

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...

Commons Futurity pg. 510-526 VI. The Transactional System of Money and Value

VI. The Transactional System of Money and Value  The overall objective of this section is to understand money and its role and relationship to economic value in the institutional economics of John R. Commons. Commons writes that, "It is because Value is a two-dimensional concept (omitting futurity)—with two different causations, the one being the scarcity-value, or price, determined by supply and demand, the other being the greater or smaller output of use-value which will be created in the labor process that follows the transaction. " (Commons, pg. 517, 1934). The point here is again Commons is fighting against what he observes are the limits of other definitions of economic value such as simply individual utility or the classical case of exchange value only.   In this section, Commons make an important move on pages 520 and 521. He states that for a thing to be objective it needs to be independent of any objective will as opposed to other competing definitions. He will ...

Commons commenting on Marx and Proudhoun

Commons provides a short discussion to contrast Karl Marx (communism) and Pierre Joseph Proudhon (anarchism) in Institutional Economics.  His point in writing about these two authors is to continue to flesh out the idea of theory of efficiency versus an economic theory of value. This is section eight in the chapter of efficiency and scarcity pages 366 to 378.  Commons wants us to understand that Ricardo and later Marx led us to a theory of efficiency and not a theory of value.  This is not in itself a negative as a theory of efficiency is important to Commons. However, Commons wants us to understand that a theory of efficiency as espoused by Ricardo and Marx is only half the story of a theory of value.  Marx is the real part of the story in this section with some attention paid to Proudhon. As usual, Commons points out both the advanced and faults in the various thinkers he is addressing. Marx, Commons writes, did improve on Ricardo and others by replacing a subjec...