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Commons and Ideas Part 2

Using the ideas expressed in the last post, Commons began to construct the key to his institutional economics methodology which he called the ethical ideal type on pages 741-750 of the second volume of Institutional Economics. He defines the reasonable value as expressed in an ethical ideal type as “highest attainable idealism of regard for the welfare of others that is found in a going concern under existing conditions of all kinds at a given point in historical development.” (Commons, 1934, pg. 741). What does this mean? It must be attainable by a going concern so it must exist in the world.  It is specific to the time period under investigation and not for all time.  In several places in these few pages, Commons refers to  “regard for the welfare of others”, then a page later he talks about “those above the average in their social regard for others” and again “both private self interest and social welfare”. What are we to make of this focus on social welfare, responsib...

Commons and Ideas, Part 1

  I would submit that pages 93 to 108 of Institutional Economics is a critical part of understanding John R. Commons overall program to build a different type of economics. This section speaks to his sense of human understanding and cognition. In particular, the argument that Commons doesn't have a clear theory or framework on human cognition is simply wrong. Here is what Commons writes in paragraph two of section III of chapter 2, “But if the mind itself is a unit of activity, then it actually creates its own ideas. An idea is not a copy of reality—it is a useful imagination by which we get our living or get rich. And since getting a living is also resolved into units of activity, then a more complicated classification of ideas is required.” This is such an important point. Commons human cognitive theory is that our minds are crucial in that they construct ideas that determine how to make money in transactions. Then he writes that, “Ideas are the intellectual tools with which we i...

Locke Part 2

 In our first post on Locke, we talked about his examination of the concepts of ideas and sensations in Locke's thinking and the passive mind that copies or reflects external reality.   Locke talked of value as being reflected as the external “use-value” of an item or object being outside of a person.  At the same time, Locke talks of idea as being the internal sensation or reflection of that use value.  Again, it is important to note that these ideas as reflected in use values will be the same for all individuals using reason.   From this point forward, Commons talks of moving from value to valuing .  The verb valuing means that the human person is the interpretation and reinterpretation  of those items of use value.  Human beings think forward about what can be done with the objects. This the key reference to the valuing process that will be crucial to Commons project. Commons also makes reference to the fact that Locke can’t deal wi...

John Locke and John R Commons Part 1

In Chapter 2 of Institutional Economics entitled "Methods", Commons spends a significant amount of time on the English philosopher and political thinker John Locke. It is important to spend with Commons thinking on Locke to understand his overall project. Commons is keen to emphasize how Locke things about knowledge and the human brain.  As a side point, I still think for those who claim Commons had no real theory of human cognition and human behavior just aren't actually reading Commons in full but only bits and parts or reading summaries of Commons.  Again for Commons context matters.  Locke was writing in response to an absolute monarch and church and so wanted to emphasize the role of the individuals and not talk so much about collective action.  Locke talks about reflections and sensations.  Reflections are the external stimulus we take in from the outside world through our senses.  Sensations are how our internal mind understands and thinks about thes...

Ch. 5 Adam Smith, Abundance and Sympathy

Commons spent almost fifty pages on Adam Smith in chapter five.  Obviously part of the reason for this is the importance of Adam Smith in the history of economic thought and his continuing importance in the discipline. According to Commons, Smith based his economics on abundance and divine beneficence. It meant that one person could use their labor power to gain some commodity and that would not take away from what another person could achieve by their labor power.  The abundance of nature is provided by the divine.  This labor power is what gives value to a commodity and its exchange value is based on the labor required to obtain a commodity from nature.  This is the general economic tradition of Smith that Commons takes away in very short form. Besides this abundance, there are important innate human characteristics that help motivate and provide guide rails on human behavior.  Smith believes our inherent "sympathy" is what drives is to self-restraint and prud...

Hume and Peirce: Chapter 4 of Institutional Economics

Chapter 4 of Common's Institutional Economics is about the english philosopher David Hume and Charles Sanders Peirce the scientist and pragmatist philosopher.  The main point of this chapter is to present Commons conception of the human mind and human behavior in the context of these two thinkers.  Upon re-reading this section recently, I realized the importance of this chapter, which is a relatively short one for Commons, on his whole project. The chapter started with his understanding of David’s Hume's conception of the human mind.  Hume is well known for his extreme skepticism in breaking down that the human intellect is not as real as we think and further that the soul isn't real either.  Some accused Hume of trying to demolish both science and religion. Hume was also known for stating that cause and effect were not real but only real in our mind in that we inferred cause and effect and we did not actually observe it in reality. I will leave it to the reader to d...

Futurity: section 4 on types of property (pg. 401-457)

This is very long section the Futurity chapter so I will likely break it down into several posts. A couple of key points that are key to understanding this section: 1. The difference between an interval in time (interest payment) and a flow of time during which successive transactions are taking place (profit and loss). This distinction in time will come up often. It has taken me a long time to understand why this matters to Commons and I will share what insights I have. 2. Having a good or service and using it (use value) and being able to exchange that good or service (alienation of the thing) exchange value is critical.  Economics take account of use value but is really about exchange value. 3. Commons also introduces the idea of economic status. Status is "expectation of working rules within which individuals adjust their present behavior" (pg. 412, Commons).  This is important as a status works on both sides of market as a both buyers and sellers conform to patte...

Futurity: negotiability of debt (pg. 390-400) first thoughts

Commons spends a lot of time thinking about the double meaning of many words and how we use them.  One of those words he is concerned with is "commodity" (page 393, IE).  He talks about the meaning of a commodity as a physical object and secondly as the ownership of a physical thing.  Commons claim that the classical economists had an inherent contradiction in their work because they used both of these definitions. Commons spends some time in the first part of the chapter "Futurity" thinking about the various ways we can classify a commodity. He uses the example of water (pg. 399-400). He states that the Austrian economist Bohm-Bawerk classified water in four ways: 1. as a physical object, 2. as having some chemical or physical qualities 3. as having some value to humans (use-value) and 4. as having attached to it legal rights and duties.  Commons goes on to state that engineering and engineering economics is focused on number 2, hedonistic or psychological econom...