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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.

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