Skip to main content

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 coercion that shall be allowed in a transaction.  The key question that must be resolved is when is it reasonable or unreasonable discrimination between buyer and seller.  Commons answer is to relate the buyer back to the value of service and seller back to the cost of service.  This obviously begs the question as to whom and how are these factors decided.  Commons acknowledges that it is difficult to get an answer to these thorny theoretical questions.

Commons then uses several examples to further clarify the question related to a labor transaction involving a professor and a university and a wage earner who must borrow from what would now be called a chat advance company and what interest must they be charged.  Commons does not seek to answer his question as he laid it out but rather to clarify that this question of reasonable value is at the heart of his inquiry.

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...