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 investigate. We shall reconstruct the familiar hierarchy of ideas in order to fit them to our subject-matter. This subject-matter is the transactions of human beings in producing and acquiring wealth by coöperation, conflict, and the working rules that control, liberate, and expand individual transactions.” We have a clear idea that the subject matter is humans interacting and transacting with each other and importantly, each of the humans thinking about acting and interacting that is crucial in the study of institutional economics.
Commons has a series of very complex ideas and concepts in this part of the book. I have found over many readings that one can break these done and make them useful. They turn out to be incredibly important to understanding the rest of the book. In particular, an understanding of how he is using a specific word such as “precept” or “idea” is critical for understanding topics presented much later in the book.
Commons creates a hierarchy of “ideas”.
Precepts - a sensation from an external stimulus
Concept - the simplest idea where there is a “similarity of attributes”
Principle - a similarly of actions, concept has no flow of time while a principe does; also can be defined as a similarity of case, effect and purpose
(Commons then goes on a two and half page diversion on Willingness which we will discuss later as a principle)
Formula - constructed by the mind to understand the relationship between parts and whole
Social Philosophy (ideology) - based on a presumed type of human nature and has an endpoint or desired goal
Theorizing and Theory - analysis, genesis and insight actively constructed by the human mind so that we can predict, control and understand the future; a correct or incorrect insight among the limiting and complementary factors
Much more to come….
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