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Commons, Futurity and profit margins

 Commons spends much of his Futurity chapter in IE explaining profit margin versus profit share theories.  His  main point is that capitalist society exists on very thin margins of profit.  The profit margin is what matters for business expansion or contraction in his mind.  He then goes on to show the very thumb profit margins that exist in the American industry with statistics. He also points to the expectations of changes in profit margins as opposed to actual profit margins as the key to business investment or divestment.  Commons lays out two policy implications for his profit margin concerns:


  1. Profit margins means that a government policy that imposes a higher one or tow percent cost may have create major inducements for change due to thin profit margins - his example here is unemployment or accident insurance

  2. Thin profit margins means a stable purchasing power policy - aka monetary policy is crucial for maintaining a stable employment policy in Commons world of the 1920’s and 1930’s

  3. Commons also advocates for keynesian pump priming via government spending and investment to stimulate and the economy and anticipates keynes idea of a liquidity trap


The key strategy for institutional economics is to understand the actors in the system at the time of their actions. In Commons time of the early 20th century, profit margins were very thin and easily subject to swings and instabilities which would then hurt laborers.  The profit margin was in Hohfeld's terms a liberty-exposure relationship.  Buyers were at liberty to buy or not buy from a company and the owner was subject to the exposure of the consumers preferences.  The conditions of today mean that we would need to rethink business structure and functioning to determine how new relations have been formed.

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