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From Crusoe to Going Concern

In section seven, entitled, "From Crusoe to going concern", Commons follows on the limits of coercion with more details.  Commons starts by having us consider various types of differences in parties to a bargaining transaction.  One type of difference is the relative difference in physical strength.  This may result in different economic outcomes.  If we imagine physical strength and violence are taken as equal, another difference would be the power of persuasion.  Another difference may be the strength of wants or needs between buyer and seller.  The final difference, number four, may be due to fraud, misrepresentation or ignorance. To reiterare, physical strength used to effect can be called duress.  Differences in economic strength can be termed coercion.  Finally, the difference in moral power can be termed persuasion.  Commons states that, "Duress is the direct or threatened compulsion of physical force.  Coercion is the indirect ...

The limits of coercion

From my perspective, a big part of what Commons is trying to do is balance out an economic system especially in the arena of bargaining transactions.  The balance in a generic sense is between buyers and sellers.  Each side wishes to gain as much "surplus" as possible and in any transaction there will be different sets of abilities and information.  This has been well recognized by modern economists such as Akerlof and the problem of used car market for example.  Commons approaches the question from what he terms reasonable value.  The section entitled "limits of coercion" (pg. 331-335) in Institutional Economics is an important part of the Commons framework. In this section he lays out the idea that a bargaining transaction must meet certain criteria to be a reasonable one.  He first discusses the idea of free and fair competition that applies in much of economics.  He takes his cues from the U.S. Supreme court in understanding the limits of coercio...

More on efficiency and scarcity...

Commons spends a significant portion of the latter half of chapter seven on issues related to the nature and mechanics of bargaining transactions.  while we will explore several parts of that discussion, a key point to focus on here is his critique of perfect competition as a benchmark of assessing bargaining transactions in the marketplace. He discusses several authors including Carey, Bastiat, Marshall, Davenport and Green.  One of his critiques is related to Marshall's idea of the law of substitution.   This relates to the idea that business people are constantly searching for an ideal pathway to maximize their gains.  This leads us to the notion of free markets in the form of equal opportunity, perfect freedom and immediate action.  These are different criteria than today's economists would use regarding competition.  Nevertheless, in this world, Commons acknowledges that, "there would be no measurable difference between competition and choice of oppo...

Efficiency and Scarcity in Institutional Economics

In chapter seven of Institutional Economics, Commons writes about the related issues of efficiency and scarcity.  He is writing because of his great concern over the confusion of wealth and its double meaning.  The first meaning of wealth he defines as the issue of maximizing the production or productive value of assets.  This production is done by engineers and scientists irregardless of the price system or price signals.  He discusses that this first notion of wealth relates to human control over nature.  As we get better at production via technology and ideas, we expand our control over nature.  The engineering economy is based on inputs and outputs and maximizing the one relative to the other.  He focuses on man hour inputs versus use value outputs.  Wealth is defined as the creation of goods and services with use value.  He also fully explain the need to skip dollar values as the measuring stick in the engineering economy. The second m...