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ch. 8 efficiency and scarcity

Having just finished the almost 200 pages of ch. 8 of institutional economics, it seems like a good time for a few reflections. This enormous chapter with a lot in it, some of which I discussed earlier.  The perhaps key point that Commons is trying to make is that economists have gotten their thinking very mixed up on some issues related to use value and scarcity value and efficiency and scarcity which have hampered overall economic thinking.

Summarizing the 200 pages, it seems to come down to that there is an engineering economy and a proprietary economy.  The engineering economy way of thinking is based on the creation of wealth, labor power and managerial transactions, power over nature, human to nature relationships, output/input ratios and efficiency.  This is the economy as thought of by Ricardo, Marx and Taylor of scientific engineering.  It is based on the maximizing output and overcoming the difficulties of nature.

The proprietary economy, on the other hand, is based on the the relationship between income and outgo and scarcity value.  The proprietor wishes to be able to withhold products and services in order to maximize scarcity profits.  It is based on bargaining transactions and human relationships and the power of one over others.  This is the world of Malthus, Marshall and others.

I don't read Commons as saying one is more important that the other.  Rather they are a dual and simultaneously interacting system that determines the outcome of reasonable value.  He is saying that economists throughout time have mixed these fundamental ideas up and have led them astray in their thinking about social organization.

Commons heavily cites Morris Cohen from a book called "Reason and Nature". I will have more on Cohen in a future post but basically it is about understanding that there are always opposing forces in any social situation and in this case it would be efficiency versus scarcity as opposing and complementary forces.

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