John r commons

What Is John R. Commons?

John R. Commons (1862–1945) was a seminal American economist, labor historian, and social reformer, widely recognized as a founder of Institutional Economics. His work significantly shaped early 20th-century economic thought by emphasizing the role of collective action, laws, and societal norms in shaping economic behavior and institutions. Commons argued that economic activity is not merely driven by individual self-interest but is deeply embedded within a framework of evolving legal and customary "working rules" that govern transactions. ³³His approach delved into the practicalities of economic life, moving beyond purely theoretical models to analyze how real-world institutions function and influence individuals.

History and Origin

Born in Hollansburg, Ohio, John R. Commons's early life and religious upbringing instilled in him a strong commitment to social justice. ³¹, ³²He studied at Oberlin College and Johns Hopkins University, where he was influenced by economist Richard T. Ely. ³⁰Commons began his academic career teaching at various universities before accepting a position in labor economics at the University of Wisconsin in 1904, where he remained for nearly three decades.
²⁸, ²⁹
His pioneering work in labor history, including the multi-volume "History of Labour in the United States," established his reputation as a leading authority on American labor. ²⁶, ²⁷Commons broadened his influence with "Legal Foundations of Capitalism" (1924) and "Institutional Economics" (1934), two foundational texts that articulated his unique perspective on the interplay between law, economics, and society. ²³, ²⁴, ²⁵He viewed institutions not as static frameworks but as "collective action in control, liberation, and expansion of individual action". ²²This dynamic understanding of economic institutions became a cornerstone of the institutional economics school of thought.

Key Takeaways

• John R. Commons was a leading figure in the development of institutional economics, focusing on the influence of laws, customs, and collective action on economic behavior.
• He defined an institution as "collective action in control, liberation and expansion of individual action," highlighting the societal forces that shape individual economic decisions.
  ²¹* Commons emphasized the importance of "working rules"—both formal and informal—in governing economic transactions and resolving conflicts of interest.
• His practical approach led to significant contributions in labor economics, including his involvement in drafting legislation for workers' compensation and unemployment insurance.
• Commons's work laid theoretical groundwork for understanding how legal and social structures underpin and evolve within a Capitalism system.

Interpreting the Contributions of John R. Commons

Interpreting the contributions of John R. Commons involves understanding his emphasis on the practical, evolutionary nature of economic systems. Unlike classical or neoclassical economics, which often focused on abstract models of individual rationality, Commons examined how economic outcomes are shaped by the collective actions of groups, organizations, and the state. He a¹⁹, ²⁰rgued that economic phenomena, such as prices or wages, cannot be fully understood without considering the legal and customary "working rules" that govern them.

For¹⁸ Commons, the fundamental unit of economic analysis was not the individual or the commodity, but the Transactions that occur between individuals within an institutional framework. These transactions are negotiated exchanges of rights and liberties, rather than just physical goods, and are constantly being redefined by judicial decisions, legislation, and evolving social norms. His ¹⁶, ¹⁷concept of "reasonable value," for instance, was rooted in how courts interpreted fairness and conduct in disputes, demonstrating that value is not purely a function of supply and demand but also of social and legal constructs.

¹⁵Hypothetical Example

Consider a hypothetical scenario involving the regulation of a new digital marketplace, illustrating how John R. Commons's ideas on collective action and working rules might apply.

Initially, the marketplace operates with minimal oversight, leading to disputes between buyers and sellers regarding product quality, delivery, and payment. Without clear, agreed-upon rules, trust erodes, and transactions become risky. This situation, in Commons's view, represents a lack of effective Collective Action.

In response, the marketplace, alongside its users and potentially government bodies, begins to establish "working rules." These might include:

1. Dispute Resolution Mechanisms: A formal process for mediating disagreements, akin to a court system for online transactions.
2. Seller Rating Systems: A public record of seller performance, which acts as a form of social sanction or "customary" rule, influencing future transactions.
3. Terms of Service: Legally binding agreements that define the rights and responsibilities of both buyers and sellers, much like property rights in the physical world.

Through these collective actions, the marketplace establishes a more stable and predictable environment for economic behavior. The "working rules" control, liberate, and expand individual action: they control by setting boundaries, liberate by providing predictable conditions that reduce risk, and expand by allowing for a greater volume and complexity of transactions that wouldn't be possible without shared trust and clear guidelines. This evolutionary process of rule-making, driven by the need to resolve conflicts and facilitate beneficial exchange, exemplifies the core tenets of Commons's institutional economics.

Practical Applications

The theories of John R. Commons have found practical application in various fields, particularly in areas where the interplay between economic activity, law, and social policy is critical.

His ideas were instrumental in the development of labor legislation in the United States. Commons himself drafted much of the reform legislation in Wisconsin, which became a model for other states, introducing measures such as compulsory Unemployment Insurance and Workers' Compensation. His ¹³, ¹⁴students further applied his principles, with Edwin Witte and Arthur Altmeyer playing key roles in creating the Social Security Act of 1935, a landmark piece of legislation establishing a national social insurance program.

Bey¹²ond labor, Commons's framework is relevant to the regulation of industries, particularly Public Utilities, where collective interests and societal norms heavily influence economic decision-making and pricing. His ¹⁰, ¹¹emphasis on the legal foundations of capitalism highlights how legal structures, such as contract law and property rights, are not merely external to the economy but are integral to its functioning and evolution. His work continues to inform discussions on governance, regulation, and the design of institutions that facilitate orderly economic interaction and promote broader societal welfare.

Limitations and Criticisms

While John R. Commons's contributions to institutional economics are widely recognized, his work has also faced limitations and criticisms. Some scholars have found his writings to be complex and at times difficult to interpret, leading to varied understandings of his core theoretical contributions. Crit⁹ics occasionally argued that his approach, while rich in empirical detail and historical analysis, lacked a unified, abstract theoretical framework akin to the models found in Classical Economics or neoclassical theory. This⁸ perceived lack of a universal model made it challenging for some to apply his ideas systematically across diverse economic phenomena.

Furthermore, while Commons passionately advocated for reform and social justice, some interpretations of his focus on "working rules" and collective bargaining could be seen as placing too much emphasis on incremental change rather than radical systemic transformation. His emphasis on consensus and the resolution of conflicts through established institutional processes, while pragmatic, might not always address fundamental power imbalances or deeply entrenched societal inequalities. Despite these critiques, the enduring legacy of John R. Commons lies in his profound insight that institutions are not static backdrops to economic activity but are dynamic, evolving forces shaped by, and in turn shaping, human Economic Behavior.

John R. Commons vs. Thorstein Veblen

John R. Commons and Thorstein Veblen are both recognized as foundational figures in the "old" school of Institutional Economics, but their approaches and emphases differed significantly.

Veblen is known for his sharp critique of neoclassical economics and his focus on the "ceremonial" versus "instrumental" aspects of institutions. He emphasized evolutionary processes driven by instincts and habits, often highlighting the conservative nature of institutions that resist technological progress. Veblen's analysis tended to be more descriptive and critical of societal norms, like conspicuous consumption, and the underlying motivations of individuals within a pecuniary culture.

In contrast, Commons offered a more pragmatic and actionable framework. While also critical of purely abstract economic models, he focused on the practical "working rules" and Collective Action that govern transactions and resolve conflicts. Commons's work was deeply intertwined with legislative reform, viewing law and judicial decisions as central to the evolution of institutions and the economy. He provided a theoretical basis for understanding how legal and administrative processes could shape economic outcomes and foster a more equitable society. While Veblen provided a penetrating critique of existing structures, Commons sought to understand and, crucially, to build mechanisms for purposeful institutional change and Social Justice.

FAQs

Q: What is John R. Commons best known for?
A: John R. Commons is best known for his pioneering work in institutional economics, his focus on collective action and "working rules," and his significant contributions to U.S. labor law and social policy, including his involvement in the origins of unemployment insurance and the Social Security Act.

Q⁶, ⁷: What is "institutional economics" according to Commons?
A: According to Commons, institutional economics is the study of "collective action in control, liberation and expansion of individual action." It examines how laws, customs, organizations, and other societal institutions shape economic behavior and resolve conflicts of interest within a framework of Working Rules.

Q⁵: How did Commons influence labor policy?
A: Commons profoundly influenced labor policy by conducting extensive research into labor history and economics, advocating for Collective Bargaining, and actively drafting progressive legislation. His efforts in Wisconsin, for instance, led to laws on workers' compensation and unemployment insurance, which later influenced national policies.

Q³, ⁴: What is the significance of "transactions" in Commons's theory?
A: In Commons's theory, transactions are the fundamental unit of economic analysis, rather than commodities or individual actions in isolation. He viewed transactions not merely as exchanges of goods but as the "alienation and acquisition... of the rights of Property Rights and liberty," which are continually redefined by collective action and legal interpretation.

Q¹, ²: How does Commons's work differ from neoclassical economics?
A: Commons's work differs from neoclassical economics by emphasizing the importance of institutions and collective action, rather than solely focusing on individual, rational utility maximization. He explored how real-world rules, power dynamics, and historical processes shape economic outcomes, providing a richer context for understanding economic behavior beyond abstract models of New Institutional Economics.