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An analysis of the institutional economics of John Rogers Commons

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Content AN ANALYSIS OP THE INSTITUTIONAL ECONOMICS i' OP JOHN ROGERS COMMONS A Thesis Presented to the Faculty of the Department of Economics The University of Southern California In Partial Fulfillment of the Requirements for the Degree Master of Arts in Economics by Sinclair Wiggins Groman t * T June i960 UMI Number: EP44772 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMT Dissertation PUbMing UMI EP44772 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQ uest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United S tates Code ProQuest* ProQ uest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 4 8 1 0 6 - 1346 UNIVERSITY O F SO U TH ERN CALIFORNIA G R A D U A T E S C H O O L U N IV E R S IT Y PA R K L O S A N G E L E S 7 . C A L IF O R N IA Ec. "60 QrSIS This thesis, written by .... under the direction of M s.—Thesis Committee, and approved by all its members, has been pre sented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of ........ JMASIER...QE..ABTS............ Dean D ate... HESIS COMMITTEE - n<_ Chairman l0£3~f TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION ........ 1 Information Review . ....................... 1 Background Comments...................... . 1 Terminology........................... . . 2 Sources of Material................... 3 Commons' Thinking on Collective Action . . 3 Statement of the Problem . . ....... 4 Resolution of the Problem. . .......... 5 Content of Commons1 Economic System. .... 5 Some Economic Conclusions............ 5 Area of Economic Conflict. ........ 8 Aspects of Economic Conflict ............. 10 Aspects of a Rising Standard of Living . . 12 Economic Merit................. 13 Crucial Importance of Seeking Merit. . . . 13 Economic Theory as a Guide to Seeking Merit............................... 14 Need and Purpose of This Thesis. ...... 18 Perversion of Materialistic Merit.... 18 Need of This Thesis................... 20 Purpose of This Thesis............... 22 II. THE PUBLIC INTEREST AS A BASIS FOR ECONOMICS . 24 CHAPTER i iii PAGE The Society and the Individual in Terns of the Public Interest................... 24 Significance of the Public Interest. . . . 24 Meaning of the Public Interest ........... 25 Statement for Maximizing the' Public Interest ......... ............. 25 Organization and the Public Interest .... 26 Social Control and Organization..... 26 Meaning of Organization................... 27 Collective Action and the Public Interest. . 29 Importance of Collective Action.......... 29 Meaning of Institution . 31 Major Types of Economic Institutions . . . 32 Institutions and the Public Interest .... 33 Legal Theory of the Public Interest. . . . 33 ■ Role of Political Parties in the American Economy. . ............................ 34 Economic Government and Citizenship. . . . 35 Economic Government the Product of the Superior Position of the Supreme Court . 36 Importance of Economic Government to American Democracy . 37 Conditions for Maximizing the Public Interest ....... ............ 38 iv CHAPTER PAGE III. THE LEGAL RECOGNITION OF THE HUMAN WILL AS A BASIS FOR ECONOMICS.................... 40 The Human Being as Will Power............... 40 The Court-s as Experimental Laboratories . 40 The Human Will in Action Analyzed as Will Power........................... 4l Unity of Citizenship and Will Power : Through the Courts........................ 46 The Legal Theory of Citizenship Based on ■ Power Rather Than Harmony ....... 46 Analysis of Power............ ............. 47 Use of Power in Collective Economic Government. * ............................ 47 Kinds of Power in Economic Science. . . . 49 Relationship Between Government, Power, and Sovereignty....................... 50 Economic Power the Fundamental Power in Economic Science.......................... 51 Implementation of Economic Government . . 55 Importance of Economic Government .... 56 The Legal Basis of the Human Will in Action 59 The Meeting of the Human Will in Action as the Basis of Economic Science. . . . 59 CHAPTER The Human Will in Action and the Common Law ....................... Citizenship as it is Related to the Two Dimensional Will..................... .. Constitutional Formulation of the Two Dimensional Will.......... . Two Dimensional Will the Legal Basi3 of Citizenship . .......................... IV. THE OWNERSHIP OF PRIVATE PROPERTY AS A BASIS FOR ECONOMICS......................... . . Commodities................................ Commodities Differentiated from Property. Credit Money as a Commodity ............. Money the Ownership of Negotiable Pur chasing Power . . . . . . . . . . . . . Double Meaning of the Dollar. ...... Money and Market Value................... Distinction Between Ownership and Pos session . . ................... Property.................................... Property Differentiated From Commodities. Types of Property ....................... Scarcity and Property . . Property as a Stabilized Social Relationship PAGE 60 66 67 71 73 73 73 75 76 77 81 86 87 87 88 92 96 vi CHAPTER PAGE Stability................... 96 A Systematic Analysis of Stabilized Economic Relationships................. 100 The Philosophy of Reasonableness. ..... 109 Due Process of Law and Reasonableness . . 110 Legal Meaning of Reasonableness ........ 114 Social Meaning of Reasonableness........ 117 Political Meaning of Reasonableness . . . 118 Economic Meaning of Reasonableness. . . . 119 Implications of Reasonableness on Pro perty and the Conflict Between Capital and Labor............ 119 Sovereignty the Legal Basis of Property . . 123 Property the Creation of Sovereignty. . . 123 Impossibility of Separating Property Prom Sovereignty.......... 124 V. RELATIVITY AS A BASIS FOR ECONOMICS ..... 126 Introduction to the Transaction ........... 126 The Transaction as the Smallest Unit Investigated in Economics............. 127 Relationship Between the Transaction, Property, and Citizenship ....... 128 Preliminary Analysis of the Transaction . 129 Institutional Collective Action ........... 133 vii CHAPTER PAGE Ownership of Scarce Property ............... 134 Futurity.................................... 135 Economic Activity Revolves Around Pros pects for Future Gains ...............135 Futurity in Terms of the Credit System and Psychology .................137 Valuation. ............................l4l Valuation Transcends the Market. . . . . . l4l Valuation as a Relativity. ........ 152 Reasonable Value ....................... 154 Causation.................................... 163 Economic Potential ....................... 163 Strategic Factors the Limiting Transaction 165 Complimentary Factors the Routine Trans action . ..............................167 Causation and Economic Relativity. .... 169 Principle of Proportioning the Factors . . 174 VI. THE TRANSACTION AS A BASIS FOR ECONOMICS . . . 177 Economic Contracts . . •........ ............ 177 The Transaction in Terms of Economic Relationships..................... 177 Introductory Summary of the Transaction. . 178 Debts and Price. ......................... 182 Debts. . ................................ 182 viii CHAPTER PAGE Price.................................... 184 ' Systematic Analysis of Transactions .... 185 Bargaining Transactions ............... . 185 Managerial Transactions ............. . . 189 Rationing Transactions................... 193 All Types of Transactions are in Opera tion Simultaneously................... 197 1 The Transaction as the Smallest Unit Investigated in Economics.......... . 198 Significance of the Transaction.. 198 The Bargaining Transaction the Most Fundamental Type of Transaction .... 201 Functioning of a Market During a. Bargain ing Transaction ............... 206 The Five Parties to a Bargaining Trans action................. 208 Relationship Between the Bargaining Trans action, Citizenship and the Courts. . . 211 VII. OBSERVATIONS AND CONCLUSIONS ........ 218 Breakdown of the Traditional Theory of Economics.......................... 218 Failure of Traditional Economists to Consider Properly Property and the Transaction. . . .......... 219 ix CHAPTER PAGE Financial Capitalism ..................... 225 Critical Comments on Commons' Economic Theory . ........ ....................... 225 Book Reviews ..................... 225 Economic Textbooks ..................... 228 A Noticeable Shift in Commons' Legal Think ing During the Last Twenty Years of His Life..................... .. 229 Shortcomings in Commons' Theory of Economics 234 Undue Influence of the Great Depression of the 1930's. ................... 234 Restricted Institutional Base of His Economic System..........................235 Inadequacy of the Concept of the Public Interest ..........................236 Historical Oversights..................... 236 Inability of Commons to Get at the Basic Moral Issue.............................237 Provincial Aspects of Anglo-American Culture. ................. 238 Other Limitations of His Economic Thinking 239 Concluding Comments....................... .. 240 Economic Rights............................ 240 Reciprocal Duties....................... . 241 X CHAPTER PAGE Manifestation of Citizenship Status . . . 242 Significance of Due Process of Law. . . . 243 Limitations on the Power of the Supreme Court .......... ............. 244 'BIBLIOGRAPHY ................. ........... ..... 247 CHAPTER I INTRODUCTION I I | I. INFORMATION REVIEW i jBackground Comments This thesis is an exposition of the institutional theory of economics developed by the late John Rogers Commons. Commons, who was bom in 1862 and died in 19^> spent sixty years of his life studying the way in which the American economy functioned. He personally observed the transition of the American economy from an agricultural i !ba.se to an industrial base by actually working with leaders of industry, labor, banking, agriculture, political parties i and government. Commons was incapable of accepting textbook explan ations concerning the functioning of the American economy. His was an inquisitive mind, and as such he was constantly searching for reasons why American economic culture took; the form that it did, how it achieved its contemporary I ^form, and in what manner this form was likely to change in !the future. Of his sixty years as an economist, he spent t 'approximately the first thirty years studying and observing |cultural changes as they are related to economics, and the [last thirty years in developing his institutional theory of economics. He felt that institutional economic behavior 'is the major factor involved in determining the functioning 'of the American economy. i j Since Commons developed his economic system within i |the framework of cultural environment, he stressed the role (which human behavior played in economic theory. He was, however, mostly interested in that human behavior which .resulted from people being members of the institutions of labor unions, political parties, and corporations. These institutions, in turn, possess a legal existence in the eyes of the law. It is important, therefore, to stress both the behavioristic aspects and the legalistic aspects ;of Commons' economic theory. His institutional system is jnot a simple one, but rather a legalistic and behavioristic I 'system of economic activity. j i Terminology Commons brought into economic analysis many social, economic, and legal terms which are not in common use among traditional economists in the United States. Reasonable- iness, the Common Law, institutions, economic government, i the human will In action, the interpretation of the Consti tution by the Supreme Court, collective action, custom, the transaction, working rules, degrees of power, performance, avoidance, timeliness, and forebearance, only to mention a few terms, are used frequently by Commons as he unravels [his system of^ economics. The intended, meaning of these words can only be appreciated as Commons uses them in their appropriate con- i text. With this in mind, no discussion of economic terms I will be attempted until they become relevant to a proper understanding of his economic system. Sources of Material ; The major source of material for this thesis is I Commons' book, The Economics of Collective Action, the 1 rough draft of which he completed only a month before his ! 2 j death. Other sources of material are Myself, Institu- ■ 3 tlonal Economics, a n d The Legal Foundations of Capitalism Commons1 Thinking on Collective Action Perhaps the outstanding attribute of Commons' econ omic system is collective action. It is not, however, the collective action of socialism or communism. To Commons' way of thinking collective action meant the voluntary association of people into labor unions, corporations, and j ^John Rogers Commons, The Economics of Collective iAction (New York: The Macmillan Company, 1950), 4l4 pages, i p > John Rogers Commons, Myself (New York: The Macmil- j 1 an Company, 1934), 201 page s. ! ^John Rogers Commons, Institutional Economics (New IYork: The Macmillan Company, 1934), 921 pages. 1 4 1 John Rogers Commons, The Legal Foundations of Cap italism (New York: The Macmillan Company, 1924), 394”"pages political parties, all operating under the leadership of government, each member subjecting himself thereby to group control. Commons' approach to economics, therefore, in- i jvolves the study of human behavior from the viewpoint of [membership in a legally recognized group, where the three major types of economic groups are labor unions, corpora tions, and political parties. Collective action Commons .recognized as group economic behavior, with the emphasis 'Upon positive action. Hence, collective economic action is the dynamic element in his economic system. I Statement of the Problem The problems to be analyzed in this thesis can now !be stated as the followihg series of questions: I A. What are the contents of Commons' system of institutional economics? B. What environmental factors influenced Commons' thinking? C. What natural abilities did Commons possess? D. In what manner did Commons' thinking change over the years? I ' E. How does his economic system differ from that j of the other major economic systems? ! F. How relevant is his economic system to contem- i ! porary economic problems? G. To what extent have contemporary economists familiarized themselves with his economic think ing? | H. What modifications, if any, can be made in his economic system to make it more realistic? I. What are the deficiencies of his economic think ing? f I |Resolution of the Problem Most of the effort applied on this thesis was of necessity devoted to point A above, namely: What are the contents of Commons' system of institutional economics? Since Commons was so exhaustive with his analysis of the American economy, the author made a deliberate effort to limit himself primarily to an exposition of his economic thinking. Unfortunately, it is not possible to present a sim plified version of his economic system, largely because he spent sixty years of his life in developing it. He did not completely firm up his economic system until he was past jeighty, just a few short months before his death. I ‘ II. CONTENT OF COMMONS' ECONOMIC SYSTEM Some Economic Conclusions f ! It is generally conceded that Commons was moved to [develop his own unique economic system as a result of the 5 following conclusions which he came to believe in: A. The inherent uncivilized nature of man, who, unless socialized through group processing, would never amount to much more than a barbarian B. The disintegration of American Puritan Society, with its rather severe cultural undertones, in the context of which the American nation had been founded. C. The disappearance of the universal barter econ omy in the face of a, rising tide of Capitalism and Marxism. D. The substitution of political and economic materialism, more particularly a rising standard of living modified by citizenship status achieved within the context of institutional economic action, in the place of organized reli gion as the ultimate ethical reason for living, the ultimate meaning of merit. E. The necessity for developing a reasonable ap proach to constitutional government in order to preserve the Anglo-American tradition of freedom and to eliminate violence and/or tyranny as a means for achieving political and economic ends. 5 Commons, Myself, pp. 9-37• P. The spectacle of poverty In the midst of plenty., which led him to focus attention upon the eco nomic power which stems from the ownership of assets rather than production and consumption as the key to economic prosperity. G. The influence which English culture, particu larly the English legal system, has had upon the American economic/political system, with the result that American culture is at most a modi fication of Anglican culture. ' H. The necessity for observing the way in which human economic behavior really works, especially in regard to the human will in action, rather than accepting text book explanations of how it should work, which led Commons to focus his attention upon human activity and behavior. I. The great emphasis which should rightly be placed upon the human dignity of working people, a dignity which can be manifested only by achiev ing a citizenship status based on organization and equality of opportunity. J. The rejection of both the individualistic, self- interest theory popularized by Adam Smith and his followers, and the collectivistic, atheistic theory of altruism popularized by Karl Marx and 8 his followers, substituting in place of these theories a legal theory of the public interest which is maximized as a consequence of positive i institutional collective action. i Commons was disturbed by the many economic, social, land political problems which existed during his lifetime. » I These disturbing influences motivated him into developing his institutional theory of economics, which he felt ex plained the functioning of the American economy. He limi ted himself, in his economic analysis, to a discussion of the American economy and the historical relationship between American culture and English culture. The conclu sions enumerated above constitute a group of conditions |which his economic system supposedly satisfies. Area of Economic Conflict Importance of a rising standard of living. The recurring theme to be found in Commons' system of economics is that the most important thing in life is a rising stan dard of living, where a rising standard of living involves peace, prosperity, opportunity, and freedom, which are the 'major attributes of citizenship. Since the standard of [living of a person is limited, in American society, by the amount of scarce property a person owns, conflict over the ownership of scarce property is inevitable. 9 : The resolution of economic conflict. The general idea is to resolve economic conflict over the ownership of :scarce property by constitutional government in such a way i I that the extremes of tyranny, violence, and/or conquest may i ibe avoided. In this manner peace, prosperity, opportunity, I ,and freedom, the major attributes of citizenship, become I . multiple economic objectives to be achieved by a, reasonable' approach to constitutional government. Inevitable consequences of successfully resolving ieconomic conflict. Commons emphasized the importance of : I ' resolving economic conflict almost to the exclusion of the : | i {efficient production, consumption, exchange, and distribu- : jtion of goods and services, which is the usual approach to . I ' economic science. It would be Commons * contention that, | at least for the American economy, the really important i {thing is to successfully resolve economic conflict. Peace,' prosperity, opportunity, and freedom become the inevitable • ■consequences of successfully resolving economic conflict { ■in accordance with the principle of constitutional govern- i j jment, while violence, poverty, regimentation, and tyranny : become the consequences of its failure. f Idealistic solution to economic conflict not I required. Commons, however, did not propose a perfect or 'idealistic solution to the problem of conflict over the 1 'ownership of scarce property, but only a reasonable 10 solution, that is, a , solution which is both workable and just. The big thing, in Commons' opinion, is to establish a cultural environment so people can work reasonably well together by setting up a mechanism for resolving economic conflict. When this mechanism operates successfully peace, prosperity, opportunity, and freedom are its inevitable I ;consequences. I Rising standard of living conditioned by citizenship.. In order that the mechanism for resolving economic conflict might operate successfully, it becomes necessary for the i members of society to achieve a citizenship status involv- I ing both rights and duties. In this manner each citizen , ! becomes a part of the American constitutional system, and in regard to the conflict over the ownership of scarce pro-; i i jperty each citizen possesses a legal being in the eyes of ! the law. Therefore, a rising standard of living in Commons' system of economics means more than simply getting ! richer; it also carries with it the meaning of citizenship,I l the end product of which is peace, prosperity, opportunity,! and freedom. Aspects of Economic Conflict t Commons considered the economic conflict over the ownership of scarce property as two aspects of the same problem, the domestic conflict between capital and labor, land the international conflict between nations. It is these two aspects of the problem of economic conflict which pro vide the cultural environment of his economic system. International aspect of economic conflict. Unfor tunately, Commons offered almost no constructive thinking on the subject of the international aspect of economic conflict, his major effort here being to acknowledge that the problem existed and that the traditional manner of its resolution was by military conquest. To the extent that his economic system ignores, for all practical purposes, the reasonable resolution of international economic pro blems, it is unrealistic. The primary implications which the international aspects of economic conflict have upon his economic system is that domestic prosperity will be limited by the proportion of the world's scarce property which is American owned. Domestic aspect of economic conflict. It is in the area of the domestic economic conflict between capital and labor over the ownership of scarce property that Commons makes his real theoretical contributions. To the extent that economic conflict may be reasonably resolved entirely as a consequence of domestic economic, political and social action, Commons' economic system is■realistic. ^Commons, The Economics of Collective Action, pp. Aspects of a Rising Standard of Living There are two aspects of a rising standard of liv ing, the eastern or oriental notion of limiting wants, and the western or occidental notion of increasing wants. Limiting wants. It is possible, according to the scale of values generic to eastern or oriental cultures, i jto enjoy a rising standard of living by the simple expe dient of limiting wants. Commons1 economic system does not consider this possibility, and to the extent that the eastern philosophy of limiting wants becomes an economic I factor with which America must deal, either on the domestic i |level or the international level, Commons' economic system ;is unrealistic. Increasing wants. The western idea of a rising I standard of living involves satisfying increasing wants. Commons' economic system considers only this possibility, >as conditioned by the principle of citizenship, and to the extent that the western philosophy of increasing wants re- Imains an economic factor with which America must deal, either on the domestic level or on. the international level, jCommons' economic system is realistic. III. ECONOMIC MERIT 13 Crucial Importance of Seeking Merit Commons., although he did not express himself as such, was actually dealing with the most fundamental behavioris- !tic problem of all times, the endless quest for merit, where merit in this context means satisfying or achieving the ultimate purpose or reason for living. He was keenly :aware of this problem, although in his treatment of the subject he chose to use the economic expression of a rising jstandard of living as modified by citizenship rather than , I ' ; jthe philosophical term of seeking merit. The principle of ! 1 , 1 citizenship particularly lends to his economic system many of the qualities of merit seeking. Merit and culture. All mankind seeks merit, but different people seek it In different ways. Apparently each person has his own idea of what merit constitutes. It would appear that different cultures are each unique to the extent that each accepts certain norms of behavior, within allowable limits, in the methods by which merit may ! be sought. I ; Traditional merit seeking in Anglican culture. traditionally, in Anglican culture, of which American cul ture is but a variation, ultimate merit has been sought :through organized religious life. As inadequate as this f t religious life might have been., it nevertheless provided a spiritual basis for achieving ultimate merit. Economic implications of seeking merit. Following the Reformation in England cultural changes occurred which •eventually led to the industrial revolution. Economic con siderations arose which formerly did not exist. Anglo- jSaxon society, as modified in the United States, underwent drastic changes which saw organized religion relegated to a secondary position with respect to seeking ultimate merit. The spiritual "Bread from Heaven" or "Bread of ,Life" of the Bible, which expressed the theological search {for ultimate merit, was replaced by a materialistic quest |for merit based on a rising standard of living stemming from an increased per capita rate of production. | Economic Theory as a Guide to Seeking Merit ' The new theory for seeking materialistic merit was I {developed by economists, particularly from England, France, Austria, Germany, Sweden, and the United States. Strangely jenough, the economists themselves split over the fundamen tal method by which materialistic merit should be achieved. The recent course of history in the western world can be Comprehended only when the significance of this philosophi cal split is appreciated. ' Traditional economic thinking on merit. The tradi tional school of economics, although diverging widely in 15 the content of Its economic theory, nevertheless has a common bond of being founded by Adam Smith and of acknowl edging that materialistic merit should be achieved through I individual economic action based on self interest in an -economy of private property free from economic conflict. i ] i iTraditional economists emphasize peaceful acceptance of jexisting conditions, a factor which often led them to be- j < come little more than apologists for archaic and evil i ilnequities. Here can be seen the economic basis for ; i laissez-faire, ultra nationalism, unregulated capitalism, ^ profit making, and imperialism. The traditional economic ! thinking on the subject of achieving materialistic merit jgave birth to the free enterprise system, and these econ- lomists may be referred to as the free enterprise economists.! In turn, the appeal to free enterprise was used to justify 1 jwestern domination of the world at the end of the nine teenth century, i Marxian economic thinking on merit. The Marxian ;school of economics, although diverging widely in the con- - tent of its economic theory, nevertheless has the common bond of being founded by Karl Marx and of acknowledging that materialistic merit should be achieved through col- lective economic action based on atheistic altruism in a . 1 I regulated economy supposedly ruled by the proletariat but in fact ruled by a single political party. Marxian i 16 economists emphasized economic conflict as a class struggle between the bourgeois and the exploited, downtrodden masses, with the eventual destruction of the bourgeois, by violent i revolution if necessary. Here can be seen the economic basis for socialism and communism. The Marxian economic | ! I ' !thinking on the subject of achieving materialistic merit i gave birth to the contemporary regulated economic system, !and these economists may be referred to as Marxian econ- j I Jomists. In turn, the appeal to class conflict is used to , :justify the overthrow of all aspects of capitalism, even j its commendable features, during this, the twentieth ! i ,century. i i ' Institutional economic thinking on merit. The | i I institutional school of economics founded by Commons has jnot been in existence long enough for much divergence of i | ,opinion to have occurred among his followers. Institu- t jtional economists acknowledge that materialistic merit l I should be achieved through collective action based on maxi-' i i mizing the public interest, where the public interest in- jvolves both self interest and atheistic altruism but is , Jsomething more than the sum of the two, this something morej being citizenship. Institutional economists emphasize both, economic conflict and the peaceful acceptance of existing conditions, especially private property, liberty, and free-' i ;dom. Instead of attempting to justify obvious inequities [ in existing conditions, as did the traditional economists, or revolting against these inequities, as the Marxists do, institutional economists make positive efforts by constitu tional means to peacefully resolve these inequities and the economic conflict which is the consequence of these inequi- i ities. The major constitutional means which the institu tional economists use to resolve economic conflict is an expanding meaning of citizenship, which in turn avoids the i |phenomenon of class conflict anticipated by Marx. Hence, the great force against Marxism in this, the twentieth century, is constitutional government. The traditional ;school of economics, on the other hand, is no longer of :major significance except in economic text books. i | Institutional economists appeal to "reasonableness" |as opposed to the traditional appeal to "free enterprise" land the Marxian appeal to "class conflict." All three economic systems, however, are based on the proposition that ultimate merit should be achieved by materialistic I economic action rather than by religion or theology. i Institutional economics, therefore, represents a I middle ground between traditional free enterprise economics i jon the one hand and Marxian economics on the other. Insti tutional economics is not, however, a compromise choice between these two rival philosophies. It is a unique economic system whose roots may be traced back to medieval 18 and ancient Anglo-Saxon England. It is, basically, Anglo- i American•culture adapted to an age where ultimate merit is sought primarily by materialistic means. Since institu- | tional economics deals so closely with the subject of merit> i the outstanding attribute of the human being, the human will in action, naturally occupies an important place in ^ Commons 1 economic system. ; ■ j Acceptance, resolution, and revolution. The distinct I ‘ ' ! ition between the traditional economists, the Marxian econ- j omists, and the institutional economists is the distinction' between acceptance, revolution, and resolution. Tradition-1 al economists were inclined to accept conditions, good or bad, as they existed. Marxian economists are inclined to i revolt against conditions, good or bad, except, of course, 1 after they gain control, when revolution is no longer tol erated. Institutional economists, on the other hand, are {inclined to resolve conflict through an expanding meaning jof citizenship. I I j IV. NEED AND PURPOSE OF THIS THESIS Perversion of Materialistic Merit I When the free enterprise and Marxian economists ] ( i [attempted to change the basis for seeking merit they, in I effect, attempted to redefine the reason for mankind's 'existence or being. They attempted to give mankind a new ; 19 reason for living, a reason which supplanted the divine basis for mankind's existence as indicated in the Bible. .The economists, in other words, attempted to supplant the principle of seeking ultimate merit by spiritual or reli gious means with the principle of seeking ultimate merit by (materialistic or economic means. i | Methods for acquiring materialistic merit too j restricted. Without attempting to defend the admittedly idegraded situation into which organized religion of Angli- . ■can society had sunk during the 17th, l8th, and 1 9th cen turies, it is evident,that both the free enterprise and the, (Marxian economists actually perverted the reason for man kind's existence by the narrow restrictions which they placed upon the means for seeking ultimate merit. In spite of their great differences about how the economy should 'function, both the free enterprise and Marxian economists I I agreed that the primary goal of mankind was a rising stan- i ■ idard of living, and that in pursuit of this goal man be- 1 jComes little more than a pleasure-pain machine, i Economists ignorant of the true meaning of merit. 'This common goal of both the free enterprise and the Marxian ieconomists represents but a perversion of mankind's I historical quest for merit. It is doubtful whether econ omists have ever realized that mankind has a destiny to fulfill, and that the fulfillment of this destiny cannot 20 be realized by achieving ultimate merit through material istic or economic means alone. Economists have contributed amazingly little in the way of intellectually enlightening j the members of society. They are almost universally ignor-; iant of the true meaning of merit, and they care very little about philosophizing the reasons why mankind; exists other j r i ;than for economic reasons. I I iNeed of This Thesis ' Citizenship and merit. It is because Commons dealt ! :so intimately with the quest for merit that there is a : genuine need for an exposition of his system of economics, j I ;He came much closer than did any of the other well known 1 ; ieconomists in appreciating the significance of merit. It j !is true that, In common with the free enterprise and [Marxian economists, he made the mistake of identifying ! |merit with materialism, but in his system of economics an ; ienlightened principle of citizenship is developed. This l principle of citizenship, in turn, expands the area in which merit may be sought. Redefining materialistic merit. Commons, therefore,1 ! ! I redefined the whole problem of seeking materialistic merit.] I 'He rejected the mutually exclusive principles that merit j ishould be achieved either by individual action based on (self interest or by collective action based on atheistic 'altruism. One discovers in Commons' thinking that, in j addition to a rising standard of living, human dignity, security of employment, equality of opportunity, liberty, and all of the other aspects of citizenship become a part of seeking merit. The quest for merit is inclusive of the totality of institutional economic action, the product of •man rather than God, towards the attainment of socially •acceptable political and economic goals. I Commons1 economic system is realistic but not j necessarily correct. Commons' economic system is of int- jerest because it comes so close to describing how the American economy actually functions. It is realistic but not necessarily correct. Americans, for the most part, are [institutional materialists rather than socialists or indi vidualists. Most Americans are only superficially reli- jgious, their many fine religious edifices notwithstanding. :The overwhelming emphasis in contemporary American culture ! |is placed upon achieving a rising standard of living and a I citizenship status within the context of institutional I - [economic action, with man playing the major role and God Ibeing relegated, at best, to a passive supporting role. Commons as the successor to Smith. Since the IAmerican economy has evolved into an out and out institu tional type of economy after the manner anticipated by Commons, it follows that he becomes the logical successor to Adam Smith. Economists such as Ricardo, Malthus, 22 Menger, Marshall;, and Keynes are to be regarded as followers of Smith, bnt Commons, at least for America, becomes his successor. The institutional economists, therefore, inher it the mantle once worn by the traditional economists. .Among other things, they have inherited, the defense of i , capitalism, modified as it might be in this day and age, and consequently they have also inherited the animosify , of the Marxists. In addition, they have inherited the 'Anglican tradition of freedom, and also the western tradi tion of imperialism, a tradition, incidentally, which in stitutional economists are now trying to live down. Purpose of This Thesis If Commons was wrong in insisting upon a material istic concept of merit, and it is the writer's sincere conviction that he was wrong in this respect, he was at least correct to the extent that he developed a system of economics which more nearly meshes with the universal pro blem of merit seeking than did his predecessors. Much of what he expounds undoubtedly is good even though i t . ' doesn11 give mankind the ultimate reason for living. The purpose of this thesis, therefore, is to relate, in as direct a manner as possible, the institutional theory of economics which Commons developed, and the implications which his economic system has for the daily lives of each American. No attempt will be made by the writer to judge the rightness or the wrongness of his economic system, except to the extent that the writer does not feel it is sufficient o adequate to explain the reason for mankind's existence. CHAPTER II THE PUBLIC INTEREST AS A BASIS FOR ECONOMICS I. THE SOCIETY AND THE INDIVIDUAL IN TERMS OF THE PUBLIC INTEREST Significance of the Public Interest The major factor which differentiates the economics of John R. Commons from that of the other schools of eco nomics is Commons' emphasis upon a, positive concept of the public interest. The following comments summarize his viewpoints on this subject: Yet the courts had always held that "the public," their name for "society," had a "public interest" in the transactions of individuals, and had created the courts and the legislatures to discover and formulate that interest and impose it upon individuals who other wise were guided only by their own individual self interest. Then...the Congress had created administrative commissions, which are subordinate legislatures always in session...for the purpose of imposing specified responsibilities on specified parts of capitalism, in the public interest. Thus, the "public interest" involved an organiza tion of some kind, such as a legislature, an adminis trative commission, a labor union, or a corporation of capitalists. •^Commons, The Economics of Collective Action, p. 13 25 Meaning of the Public Interest In' 'these few sentences Commons states more than is apparent at first glance. Some little time., therefore, should be spent discussing what he had in mind when he 'refers to the public interest. The recurring theme involved in the public interest, [ it is generally conceded, is "the greatest good for the greatest number of people, while at the same time protect- i ing the rights of any minorities which might exist." Society, which is the public, has an interest in the indi vidual, and this interest involves maximizing the well being of society as a whole. Proceeding along this same line of thought, it should be emphasized that, in the realm of economics, the public interest means the interest which society has in the economic activities and the economic well being of the individual. It appears self evident to the writer that the economic public interest cannot be separated from the over all public interest, but for the purpose of economic anal ysis an attempt is made to do so by examining those assumptions and human activities which are primarily economic in nature. Statement for Maximizing the Public Interest It follows, therefore, from what has been stated above, that the economic public interest is deemed best 26 served when the greatest number of people are enjoying the i ‘ greatest possible economic gain or the highest standard of living under the existing conditions. This statement for maximizing the public interest, however, is not a. complete statement; while it is a necessary condition it is not a i sufficient condition. In addition to economic gain, maxi- i ■mizing the public interest involves achieving a citizenship I 'status, and it is in the area, of citizenship where Commons' viewpoint on the public interest diverges from those of other economists. Citizenship is what makes Commons' eco nomic system inclusive of a positive concept of the public interest, since citizenship itself is a positive thing. It should be noted that Commons relates citizens to society 2 rather than individuals to society. II. ORGANIZATION AND THE PUBLIC INTEREST Social Control and Organization Since the economic public interest involves maximi zing the economic well being of society as a whole, this means that society must impose duties and responsibilities upon individuals which they would not observe were they motivated solely by their own self interest. In the name of the public Interest society is under compulsion to 2Ibld., p. 21. 27 organize, because it Is impossible for society to impose duties and responsibilities upon individuals in the absence of organization. This will be recognized as social control, in the economic realm, and it follows that Commons1 insti tutional theory of economics is essentially a social con trol type of economics. I Meaning of Organization ! Comnions expresses himself on organization as !follows: t In this process of organization the whole is more ; than the sum of its parts and the personality of each I organized individual is higher and more capable than ! the personality of unorganized individuals.3 j There are two important principles which are in- Jvolved with Commons' viewpoint on organization, the prin- I Iciple of personality organization and the principle of j citizenship. Of these two principles that of personality ! |organization is the more fundamental, because citizenship : t is a function of personality organization. j i i Principle of personality organization. When Commonsi — — — — '■ 1 ' . . . i jrefers to organization he means personality organization. j ! : !The whole of society is more than the sum of its individual! [members because of personality organization. Society is | I people plus personality. There exists, within society, a 3Ibid., p. 132. 28 • whole complex of relationships among and. between indivi duals, these relationships being a function of personality organization. The principle of personality organization is really the principle of society. Principle of citizenship. Citizenship is derived from personality organization. Since each member of society is something more than an individual, Commons uses the term |’ 'citizen" to describe the position each member in good » I jstanding occupies in society. Citizens are a part of the 4 ;whole of society. People acquire citizenship by accepting !duties and responsibilities imposed upon them by society ! i ■as a, whole, in return for which society grants them rights and privileges. Commons refers to these rights and duties as reciprocal rights and duties.^ Hence, citizenship be- |comes an achieved status for those individuals who submit j i c ' ■ themselves to social control. ; Relationship between citizenship and personality iorganization. Citizenship and personality organization are i 'very closely related, the common root being social control. ;That is, from social control is derived personality organ- |ization, and from personality organization is derived 4Ibid., p. 130. 5Ibid., p. 1 6 5. 6Ibid., p. 1 5. 29 citizenship. It is possible., therefore, to substitute the meaningful term of citizenship for the vague term of per sonality organization in this exposition of Commons' eco nomic system. Of course, those individuals who live out side the normal range of social control are not citizens but rather social outlaws of one sort or another. Organization as stabilized activity. Organized people are, in fact, people engaged in a common activity governed by common working rules and striving towards a , .common goal. People so engaged in a common activity de- t velop citizenship status as a consequence of the many interpersonal relationships which they experience with other people. Organization, therefore, involves stability, , more particularly it becomes stabilized activity.? III. COLLECTIVE ACTION AND THE PUBLIC INTEREST Importance of Collective Action Citizenship equivalent to personality organization. The previous discussion was developed in such a manner that the term citizenship rather than the term personality or ganization can be used. Citizenship, it has been noted, is an achieved status, or a place in the sun, which an ^Ibid., p. 21. 30 ■ individual acquires by subjecting himself to social control. Citizenship involves both duties and rights. Collective action equivalent to social control. Commons will not use the term social control very often; instead, he uses the equivalent term,.collective action, concerning which he states the following: Collective action is the general and dominating fact of social life. Human beings are born into this process of collective action and become individualized by the rules of collective action. J Collective action, the economic equivalent to social ! icontrol, is universal to human existence. Individuals be- ; I jcome citizens through collective action. No one can escape; the consequences of collective action because society as a whole continually controls the activities of each one of i .its members. The only alternative to acquiescing, in ivarious degrees, to collective action is to become an out- | ■ t ■law, because society expects and demands certain standard ;norms of behavior from everyone. > Individual action the product of collective action. Collective action imposes certain behavioristic goals upon ^ i " " the members of society and forbids certain taboos. Between; “ t the imposed behavioristic goals and the forbidden taboos : exists a . broad area where autonomous human behavior is ;permissible, especially in western style democracies. Even, 8Ibjd., p. 23. here, however, social control applies. Autonomous human behavior in the sense that it is used here means freedom to participate in various economic activities, but only .according to the rules of collective action. In other words, people don't have to participate in any particular type of economic activity, but if they do participate they , ■ i must play the game according to the rules. This is what lCommons means when he states that through collective actionj |a zone of freedom for secure individual action is created, j the security of expectations for individuals and going j 9 concerns.v j Meaning of Institution i Commons, however, does- not stop with this general discussion of collective action. He proceeds to further j i develop the principle of collective action by introducing j the notion of institutions, which he defines as follows: "An institution is collective action in control, liberation; and expansion of individual action.1,10 i Both the control of the citizen and the freeing of , the citizen are involved in institutional collective action.' | The term institution, therefore, carries with it the mean- i I ;ing of collective action both controlling and freeing ! i ■ ■ ■ - j ^Ibid., p. 15. i 10lbid., p. 15 . i 32 citizens simultaneously. It is the institutional nature of collective action which induced Commons to state that human beings become individualized by the rules of collective action,and that collective action is literally the means^ 12 to freedom. Hence, the true meaning of citizenship is ;made clear, since a . citizen is one who is both free and .controlled, which is to say, one who has both rights and dutie s. Major Types of Economic Institutions < Commons limits his discussion of collective action j to the realm of economics, and in this respect he recog- j nizes the following three institutions as being of primary importance: "Three forms of collective action predominate^ 13 : I Corporations, trade unions, and political parties." I i ! Commons has, therefore, reduced the rather hypothe tical problem of social control and personality organiza tion to one which shirt sleeve economists can readily understand, that of citizenship and economic institutions. , 1 1Ibid., p. 15. 1 2 Ibid., p. 65. 1^Ibid., p. 1 5. 1 33 IV. INSTITUTIONS AND THE PUBLIC INTEREST Legal Theory of the Public Interest Conflict between capital and labor the major econo mic problem. Commons considered the major domestic econo mic problem of the day to be that of the conflict between capital and labor, which has economic, political.,, and ! 14 social ramifications affecting the lives of everyone. Maximizing the public interest. The Supreme Court, using its power of interpreting the Constitution has, for all practical purposes, declared that, with respect to the conflict between capital and labor, the public interest can best be served by the legal functioning of the institu tions of corporations, labor unions, and political par- 1^ ties. ^ These, of course, are the three primary forms of economic collective action. Commons explains the Court's reasoning on this sub ject by noting that the Court was searching for a practical ‘solution to the conflict between capital and labor, and that it accepted labor unions and corporations because they could agree voluntarily on the working rules of their own l4Ibid., p. 1 5. !5rbid., pp. 1 3 0-1 3 1. 34 individual members with a minimum of direct intervention on *| ^ the part of the state. Role of Political Parties in the American Economy Purpose of political parties. Political parties have 17 for their purpose the control of the State. ' The unique thing about political parties in their relationship to corporations and labor unions Commons held to be one of aloofness. In his institutional theory of economics poli tical parties, in their capacity of controlling the State, !do not ordinarily directly intervene in the economic •jO 'clashes between capital and labor. I Administrative commissions the creation of political parties. Political parties, however, have taken it upon themselves to pass legislation changing or maintaining the ilegal foundations of economics.^ Political parties, therefore, become economic institutions in that they parti cipate in shaping the economic environment of the nation. The most typical method that political parties use in so ishaping the economic environment of the nation is the creation of administrative commissions, especially those of the state and federal government. i - " ’- - - l6Ibid., p. 25. ITibid., p. 2 3. •^Ibid. ^ p. 18. 19ibid., p. 43. 35 Role of administrative commissions. These adminis trative commissions* which Commons referred to as the 20 fourth branch of government* supposedly act as impartial referees in conflicts between capital and labor* protecting thereby the public interest.21 . Disinterested nature of political parties. Political iparties, then* enact legislation relating to the economic iproblems of the day* and administrative commissions* which ' 'are created by political parties* intervene in the everyday functioning of the economy, An example of such an exception can be found in state intervention during the Homestead ! Steel strike of 1 8 9 2* when violence flared up between the i Icorporation and labor union involved. Economic Government and Citizenship ! Economic government. Commons made the assumption I that* in the overwhelming number of cases* corporations and the labor unions will manage to mutually tolerate and accept one another. The manner in which labor unions and corpor- ' 1 ations are organized and operated* and the methods which ; ! I they use in dealing with each other Commons refers to as ! 22 I economic government or economic democracy. They j ^ 20 Ibid.* p. 11. t | 21Ibid.* p. 6l. 22Ibid.* p. 16. constitute a genuine government since each organization has a legal existence, with its own laws and officials, and each organization exercizes control over its members op through sanctions of various kinds. The manner in which corporations and labor unions deal with one another is oh termed collective bargaining. ^ Citizenship. Citizenship, as it is used in this thesis, means citizenship in economic democracy. This 'means an economic citizen is a member of a labor union, i i |political party, or a corporation. An economic citizen, therefore, has reciprocal rights and duties, and it is as a citizen of this economic government rather than as an 25 !individual that Commons analyzes economic activity. I Other economic organizations must conform to the policies of this economic government, since the major economic issue 26 ;remains that of the conflict between capital and labor. i 1 Economic Government the Product of the Superior Position of the Supreme Court The Supreme Court, in its capacity of interpreting the Constitution, becomes the ultimate sovereign, limited 23Ibid., p. 75. 2^Ibid., p. 15. j 25Ibid., p. 130. 26Ibid., p. 16. 27 only by its own sense of self restraint. 1 Given the eco nomic context of the conflict between capital and labor, the Supreme Court, as the ultimate sovereign, has declared, through its judicial decisions, that the public interest is best served through the functioning of the economic government of labor unions, corporations, and disinterested 28 political parties. Economic government, although not of the same order as political government, is nevertheless a 2Q true government. Importance of Economic Government to American Democracy It is the democracy typical of economic government which offers the great American alternative to violence and tyranny, and which holds in check the potential ex cesses of the institutions involved, excesses which would 30 lead to the destruction of American democracy. Commons uses the following words in describing the appropriate role for economic government: If American democracy is "saved," it will be saved by collective economic organization of corporations and labor unions. Instead of the traditional equili brium between equal individuals of economic theory, 27Ibid., p. 223. 2®Ibid., p. 1 6. 29rbid., pp. 7^-75. 3°Ibid., p. 16. 38 the alternatives today are between an economic govern ment based on balance of.power between self governing corporations and unions, and.a supression of both organizations, or their leaders, by military power.^ What this means is that Commons does not admit to t economic analysis the assumption of laissez-faire based t solely on individual self interest. It also means that the economic problems of the day must, in the final analysis, be solved by those most intimately involved with them. The .alternative choices, at least in the United States, become ; economic government or tyranny. Conditions for Maximizing the Public Interest The public interest, in regard to economic analysis, is deemed maximized when the greatest number of people are enjoying the greatest possible economic gain under the existing conditions. The conditions for so maximizing the public interest can be considered to be three in number: The successful functioning of economic government,33 the jhighest possible standard of living,3^ and the acquisition I lof an enlightened status of citizenship. ^ 31Ibid., p. 263. 32Ibid., pp. 131, 132 33ibid., p. 2 6 3. 34ibid., pp. 130-135 33ibid. t p. 135. These three conditions apply individually to each member of society and collectively to society as a whole. It is not enough to say that society as a whole is involved in maximizing the public interest* or that individuals standing alone are involved. What is really meant is that citizens are involved collectively and individually* that is* a part-whole relationship exists between citizenship ,and society and it is not possible to consider one without !the other. ; The satisfaction of one of these three conditions does not automatically insure the satisfaction of the other itwo* and yet this assumption is often made. In Anglo- I :American society it requires positive effort to simultan eously satisfy the three conditions of a high standard of living, economic government, and citizenship. The satis faction of only one or two of them is inadequate. 36Ibid., p. 131. CHAPTER III THE LEGAL RECOGNITION OF THE HUMAN WILL AS A BASIS FOR ECONOMICS I. THE HUMAN BEING AS WILL POWER The Courts as Experimental Laboratories At this point the question arises as to just exactly what a citizen is. What has been stated previously is en lightening, but no attempt has as yet been made to develop i an economic theory of citizenship. Of course, a citizen i !is a human being, more particularly, one who has relation- iships with other human beings and with his environment. But again, this isn't saying very much. It is time, there-, I - ; fore, to probe somewhat deeper into Commons' thinking on ' ! the economic nature of man. | f Importance of the law and the courts. Commons had in mind,a particular concept of what the economic man or I tcitizen is. Before it is possible to understand what he had in mind, however, it is necessary to appreciate the j i importance which he gave to law and to the courts. Intima-j t tlons of the part which law occupies in his economic systemj i have been noted by the emphasis which he placed upon the 1 < ^Supreme Court, political parties, and the government. ‘ Legal nature of man. To his way of thinking economic ianalysis properly starts with the courts, which study and 41 analyze the economic nature of man, and extends to the markets.1 This differs from the traditional and Marxian approach of dealing entirely with the markets. Indeed, Commons' economic citizen is a legal being recognized as such by the courts. It is because of the analytical func tion performed by the courts that they have become the i p economic laboratories here in America. It must be kept 'in mind, therefore, the role which the courts occupy in his. i economic system and the legal nature which the courts have ; I ;imposed on man. j i I ; j The Human Will in Action Analyzed as Will Power ; j Human will investigated by the courts. What Commons, I ; meant by making the courts the economic experimental laboraj ! tories is that the actual workings of the American economy ; are uncovered, investigated, and analyzed by the courts. The question remains, of course, as to exactly what it is that the courts investigate? Gr, putting it differently, | i I jwhat is the central economic problem which requires the j 'attention of the courts? Commons answers this question as , i ; .follows: I i ! But when economists came finally to the study of | the political theories of bankers and lawyers and ! their implicit theory of valuation, they discovered ! ■^Commons, The Economics of Collective Action, p. 14. 2Ibid., p. 12. 42 ; the foundation to be nothing less comprehensive than the whole of the human will, individual and organized as it operates in politics, government, the enforcement of contracts, corporate charters, labor unions, cartels, and the Constitution of the United States.3 A careful study of this statement reveals that, in j i Commons' system of economics, the courts begin with analyz ing the human will, and this provides the foundation of economics. Commons held that the human will is central to economic life, and his major efforts were oriented towards investigating the human will in action, which is to say, I finding out how people actually worked and lived with 4 respect to economic matters. j ! Human will defined as a , power. Therefore, a proper understanding of economic citizenship requires a study of I the nature of the human will in action. The central pro- !blem of economics has already been seen to be that of anal-! (yzing the human will in action, but a definition of the human will has not as yet been stated. Commons defines the! I human will as follows: ! When the lawyers, however, resolved the human will in the court decisions to its behavioristic dimensions in order to measure damages and enforce contracts regardless of subjective feelings, they made the will j a "power”... The courts took the human will to mean the ■ whole of the human body as a unit of power, choosing, j acting, or ref r a i n i n g . : 3ibid., p. 148. ^Ibld., p. 2 1. 5 Ibid,,., p. 148. Therefore, Commons indicates that the courts iden tified the human being with its outstanding attribute, the human will. The human will, in turn, is best analyzed as a power, but it is a power devoid of subjective feelings. It is not a "good" power or a "bad" power; it is a power without conscience, without sympathy, without love, but nevertheless a power which demands justice.^ Scientific basis of economics. Economics achieves the rank of a science because the human will is capable of being measured :a,nd objectively analyzed.7 The real eco nomic scientists become the judges and lawyers, because they are the ones who actually investigate and measure the human will in action in the economic laboratories of the courts of law.® The smallest unit of investigation in eco nomics, it shall be seen, is the transaction.^ This legal theory of economics contrasts with the traditional thinking on the subject, which holds that economics achieves the rank of a science because money measures value, although admittedly imperfectly, and the smallest unit investigated is the individual. ®Ibid., p. 1 6 6. 7ibid., p. 114. Qlbid., p. 148. 9Ibid., p. 1 5 2. 44 Self control of will power the distinction between economic science and physical science. Furthermore, It is the unique definition of will power which separates Commons' economic science from the physical sciences. Economic science is distinguished from physical sciences by the nature of power involved. Commons states his case as follows: ; Will power differs from the mechanical forces of energies of the physical sciences in that the human will has the power of self control or self command, which is totally lacking in physical forces. 0 ‘ ‘ ! I The principal difference between power in the j |physical sciences and in economic science is that power in i |economic science is capable of self command and power in , I the physical science is compulsive, unyielding power. Here; i can be found the distinction between the two sciences. ■ Definition of power. The human will has been de fined as a power, and now it remains to define exactly what! this power constitutes. Power in economic science is an ! i inducement or influence comprehended as such by the intel- : ligent nature of a human being. This power possesses self control or self command.11 I Transmission of power in economic science. For the j purposes of economic science, power is primarily considered! i j 1QIbid., p. 48. 1 n Ibid., pp. 74-77. 45 ' to be transmitted by the leadership of collective organiza tions representing the collective will of the organization to the members of this organization or to the collective t will of an external organization or other individuals. In addition, the collective will of the organization in ques- : tion may be subject to the application of will power from external collective organizations or other individuals, and the members of the collective organization may interact .upon the will power of each other. Economics, therefore, is mainly concerned with the transmission of will power as : ja consequence of collective action. What is of primary 'importance is the manner in which collective economic or- | iganizations control the behavior of their own members and 1 } influence the actions of other collective economic organiza'f i 1 2 Itions. Elimination of emotion and compulsion from will power. Will power, then, possesses command over itself, ■i ■ • • ! jand in this respect it differs from the power of the physi-| jcal sciences. Human emotions may or may not be involved in, jthe exertion or self restraint of will power, but for the 1 !purposes of economic science the courts eliminate emotions ; in their analysis of the human will. j Will power, therefore, becomes a , rather cold and 'legal idea of power. It is neither compulsive physical ; ! ________l2Ibid., pp. 74-77. : [power nor passionate emotional power. It is capable of either exertion or restraint. It is a type of power which can be self directed or directed by the will of others. Unity of Citizenship and Will Power Through the Courts Citizenship, with its reciprocal rights and duties, is relevant only if consideration is given to the human being as a legal will power. The citizen is a power which is recognized by the courts. The only distinction to be raa.de between will power and citizenship is, in the writer's jopinion, that will power is the term used for the purpose of scientific analysis and citizenship is the term used for the purpose of economic policy. The common root between them is the courts. This distinction lends a measure of i 1 jflexibility to economic science which would otherwise be ^lacking. :The Legal Theory of Citizenship Based on Power Rather Than |Harmony. j Any legal theory of citizenship must involve will Ipower. A citizen becomes a power existing in the environ ment of collective external powers. These external powers make the will power of citizenship more than an individual; Jthe citizen, through social interaction, becomes an indivi- jdua.1 plus organization. The will power of citizenship re- I Iceives its legal recognition from the courts. The citizen 47 is a part of the whole of society; that is, the will power of citizenship is a part of the whole of the social power 13 environment. The relationships which develop between the will power of a citizen and the collective power environment create rights and impose duties of citizenship. Rights arise from the benefits which result from collective * action, while duties result from the necessity of avoiding power clashes. Hence the reciprocating rights and duties .relationship of citizenship stems from the phenomenon of t power rather than harmony. : j II. ANALYSIS OF POWER I Use of Power in Collective Economic Government i Since each citizen becomes, legally, a will power, ; ■if there is to be any economic government or collective i ,action at all the institutions of labor unions, corpora- j tions, and political parties must be in a position to apply! ; various types of power to the wills of their members. These institutions must also be in a. position to apply ! power to the collective wills of other institutions. ' Legally these institutions are in a position to apply such j 'power within the framework of certain constitutional I l 13Ibid., p. 130. > 48 provisions laid down by the Supreme Court, a topic to be discussed in Chapters IV, V, and VI. Pursuit of legitimate economic goals. For the time being it is sufficient to note that power can be applied by the leaders of these institutions to the wills of the individual members, and that these institutions may use power against each other. Thus the use of power is the natural consequence of the respective institutions' pursuit of its legitimate economic goals, the method used to induce or force compliance to the respective institutions', eco nomic ends. Unity of will power and collective power. Power is the common everyday means of applying collective action to the human will, which in itself Is a power, and consequently Commons' institutional theory of economics becomes a study o f the clash of power against power, the end result of which is citizenship. The power of a collective economic organization, representing as it does the collective will of the organization, can be analyzed in a manner analogous to the analysis of will power of the individual members, because collective economic power is also subject to self command and self control. It is capable of influencing the wills of others and of being influenced by external will power. 49 Kinds of Power in Economic Science Commons recognized three different kinds of power or influences as being fundamental to economic science. His classification of power may be stated as follows: The different kinds of power may be grouped accord ing to the kinds of powers, influence, or sanctions, which anyone may use, as moral power, economic power, or physical power.1^ Power, then, becomes moral power, economic power, and physical power. Power, which is an influence directed towards the human will, may be a moral influence, a physi cal influence, or an economic influence. Everyone is free to exert moral power to the will of other people, but only labor unions, corporations, and political parties may use economic power, and only the political parties, ‘ through their control of the state, may legally use physical power.^5 Moral power is the power of persuasion. Economic power is the power of coercion, which stems from the scar city and deprivation of the ownership of property. Physi cal power is the ultimate power of duress or violence, the legal monopoly of which is held by the state. Moral power is almost always the first recourse used in attempting to control the actions of others, while duress and violence, or l4Ibid., p. 40. 15Ibid., p. 75. 50 'the threat of it, is usually the last, and even then it may be legally used only under the jurisdiction of the state.^ Relationship Between Government, Power, and Sovereignty Commons viewed labor unions, corporations, and poli tical parties as being bonafide governments, and together they constitute economic government.^7 Each type of gov ernment differs according to the type of power it may legally use. With this in mind Commons states: Each collective government differs in the kind of i sanctions employed to bring the individual into con- I formity with the rules of collective action, as the j moral sanctions of opinion, the economic sanctions of ! deprivation of property, or the bodily sanctions of physical violence. i Political parties, because of their legal monopoly I of physical violence, represent state sovereignty. Al- I though all forms of collective action possess some form of ■sovereignty over the actions of their members, only the I state possesses what is really understood to be sovereignty, that is, the legal monopoly of violence. Furthermore, the Supreme Court, because its powers are limited only by the will of its members, becomes the ultimate sovereign in ■ l6Ibid., p. 75. 3-7Ibid., PP. 74-75- iQjbid., p. 41. | 1 Q (Commons' system of economics. ^ The Supreme Court, in turn, i 'is the product of political parties, and in general it ! remains true that political parties represent state sov ereignty. Therefore, it is true that political parties, in their control of the state, represent a superior type of sovereignty over that possessed by labor unions and cor porations. The sovereignty of labor unions and corpora tions over their individual members depends upon the exertion of economic power rather than physical power. Each institution has its own legislative, executive, judi cial, and administrative departments which all may be com- I i 20 bined into one group of officials or even one person. These duly authorized officials perform all the usual functions of government, and represent sovereignty based i i ; on power. 1 * Economic Power the Fundamental Power in Economic Science Although the physical power of the sovereign state j I | jis the ultimate form of power, economic power, the kind of ; i , power invoked by the economic government of labor unions i and corporations, becomes the most meaningful form of power in America because it represents the withholding of money : i i 19Ibid., p. 23. I 20lbid., p. 75. and property in order to force people to comply to certain institutional goals or standards of behavior. It is the great importance of money and property in the contemporary j American economy which lends to economic power its attri bute of primary importance. Economic power, like moral and physical power, is an influence directed towards the 2] human will. Definition of economic power. Economic power is the power of scarcity, an Influence directed towards the human will resulting from the withholding of property and money ;from others as a means of commanding obedience. It is the , i » power of coercion which the ownership of scarce assets 22 ;commands over the wills of those who do not own them. Uniqueness of economic government found in legalized1 economic power. Economic government, as a. unique govern- * r merit* is unique because economic power is the type of power i : used by labor unions and corporations to control their j members and to impose their collective wills upon each | 23 ,other. Economic power, the power of coercion, has been |found to be constitutional in collective economic action i by the Supreme Court. No other collective organizations : 21 ibid., pp. 74-77. 22Ibid., p. 75. 23Ibid., p. 75- lexcept political parties in control of the state may use economic power as a method to force its members and each other to comply with its collective will. The Supreme Court and political parties become a part of economic gov ernment because they use their legal monopoly of violence to establish the social and political environment within oh which economic government may function. Citizen status achieved through the collective application of economic power. Citizenship status, with its reciprocal rights and duties, arises as a consequence of the increased bargaining position collective economic power gives to the members of economic institutions. The members of labor unions possess economic power over the jmembers of corporations and, vice versa, the members of •corporations possess economic power over the members of Jlabor unions. A citizen, therefore, is viewed as a power | 25 [possessing power and being subject to power. ! Conflict between capital and labor a conflict of economic power. The primary economic conflict between capital and labor becomes a conflict of economic power j jbetween these two institutions. It is the power which the 1 lone is able to exert upon the other, and the power each is 24Ibid., p. 75. 25Ibid., pp. 14-15. : 54 ;able to exert upon its individual members thereby holding |them in line, that determines the course of the conflict : [between capital and labor. i Resolving economic power conflict. Institutional economics, therefore, is mainly concerned with the success ful resolution of economic power conflict. Harmony is not an assumption made by Commons; it.is a goal to be achieved. The emphasis Is upon the clash of power, especially In the realm of capital and labor, and the resolution of this clash of power. This is the great domestic economic and j of. ! jpolitica.1 problem in this day and age. i Unity of will power and economic power. For the ^purposes of economic science, will power becomes economic I 27 ' ' power. 1 It is not necessary, therefore, to distinguish j i between the two. Throughout the remainder of this thesis jwill power and economic power are used interchangeably, as I ' i (equivalent terms. ! Limitations in the application of economic power. j However, economic power may not be indiscriminately applied, t | to the human will. The institutions which are attempting ; I ! to control their members or other institutions may legally | l -------- . _ T I I o f . ' | Ibid., p. 2 6 3. I 27Ibid., pp. 74-77. 55 I 28 act only through their duly authorized officials. And, i furthermore, the act of imposing economic power upon others ; 29 !must meet the test of constitutionality. ^ I Implementation of Economic Government i Within an economic organization (the trial process). The accepted method for an institution to impose its col lective will upon its individual members is the trial pro cess. One individual, called a plaintiff, will appeal to the authorized officials, asking for the use of collective force against another individual, called the defendant, who, is alleged to have acted or is about to act contrary to the; -?0 1 working rules of the organization. The officials then take whatever action they see fit as long as it is consti- , 31 ; tutional. , Between economic organizations (collective bargain- 1 |ing). The typical example of economic government between , jeconomic organizations occurs when the authorized officials; l of labor unions and corporations engage in collective bar- ■ gaining. The result of this bargaining is either a labor contract, including a wage settlement and a, statement of ; pft 1 Ibid., p. 40. | i 2 9Ibid., pp. 7 8-8 0. I ' ' 30ibld., p. 40. 31Ibid., p. 25. employment and working conditions, or a strike. Again, only collective bargaining which is constitutional may be 32 used by the participants. Importance of Economic Government • Significance of economic power. It is important now merely to note that economic power is the most important ! kind of power which operates in economic government. Eco- ,nomic government, the government of labor unions, corpora tions, and political parties, functions in a social and political environment of legalized collective action. It I is within this environment that economic power is applied to the will of the members of the collective organizations involved. The members in turn have various degrees of self 1 'control or self command over their own will power and respond in various ways to the economic power to which they are being subjected. In general, however, the application of economic power is sufficient to force people to comply to the collective will of.the organization, which is toJ say, the dictates of the duly authorized officials. The activity. The authorized officials of the organization, together with the organization workers, con stitute what Commons termed "the activity," who in turn constitute about ten percent of the organization. The 32Ibid., p. 25. activity provides the leadership without which there could be no collective action or economic government.33 Citizenship the goal of economic government. Eco nomic citizenship becomes the end result of the logical structure of Commons' institutional theory of economics. People do not become enslaved to a system which has been « accepted by society through tradition. Rather, people achieve a citizenship status involving rights and duties. Commons did not view economic power as a means of enslaving people but rather as a means of both controlling them and liberating them, thereby providing the means for achieving Qii citizenship status. It is the discriminating nature of economic power functioning within the framework of economic government which makes citizenship meaningful. Economic power is discriminating because it both controls and liberates people. Citizenship is meaningful because it provides the means for achieving rights and duties.33 Purpose of economic government. Economic organiza tions, in the pursuit of their legitimate economic goals, 33Ibid., pp. 33-34. 34Ibid., p. 10. 35lbid., p. 130. apply economic power to the wills of their members and to the collective wills of other economic organizations. The purpose of economic organizations in so applying power is to resolve the conflict between capital and labor short of violence or tyranny and within the context of economic gov ernment. With this in mind Commons states the following: If American democracy is saved, it will be saved by collective economic organizations of corporations and labor unions. Instead of the traditional equili brium between equal individuals of economic theory, the alternatives today are between an economic govern ment based on balance of power between self governing corporations and unions, and a suppression of both og organizations, or their leaders, by military power. The implication of this statement is that, since the conflict between capital and labor remains the fundamental conflict, the preservation of American democracy depends upon a policy of enlightened action by both labor unions and corporations. This means a moderate and wise use of economic power, the only alternative to which becomes the suppression of American constitutional government. The jgoal of citizenship status, therefore, has for its purpose the maintenance of American democracy. 36Ibid., p. 263. j III. THE LEGAL BASIS OP THE HUMAN WILL IN ACTION ,The Meeting of the Human Will in Action as the Basis of I Economic Science Commons, by emphasizing economic government, was trying to emphasize the importance of the meeting of the human will in action. Economic science begins, essentially, with a meeting of power against power, human will against human will. This clash of power involves a meeting of the wills of men. The meeting of the human will in action, therefore, becomes the most important relation in Commons' ; system of economies. Concerning the human will Commons j states the following: The human will is central to economic life. Human ’ activity is behavioristically the human will in action.' ; Consequently the strategic relation in economic activity is the place where the wills of men meet. The meeting ! ; of the wills of men can be analyzed in terms of the ' ; transaction.37 | i J At this time it is still premature to discuss the (transaction. It is sufficient, for the time being, to be [ [aware that Commons placed great emphasis upon the meeting ; I jof the human will in action, the main idea being that the Jcourts, as the experimental laboratories of the human will, j ) have investigated it and measured it in legal terminology. T T Ibid., p. 21. This legal measurement of the human will becomes the ulti mate basis of Commons' institutional system of economics. 1 The Human Will in Action and the Common Law ; | , Emergence of the Common Law. The legal basis of the human will was developed by the courts as they evolved the Common Law, which means judge made law.38 The Common Law, i which originated in England during the middle ages and was transported to America during the colonial period, is the law which the courts have declared to be the law in the absence of statutory law. It is law which traces its roots to the emergence of property rights that came into being I as England emerged from the middle ages.39 Economics and property are very closely akin to one another, and Commons I was very careful to point out that the same Common Law which recognized property rights also recognized the human ,will in action. i ! Private property and the Common Law. Commons went j ;to great lengths to demonstrate how the courts have altered' i ithe traditional Common Law to take cognizance of the in creasing importance of property and the effect which pro perty has on the human will. After all, property rights i are the basis of economic power, and it is by withholding 1 38lbid., p. 112. 39ibid., pp. 79-80. 6l property that collective economic organizations control itheir members and attempt to control each other, i It is no exaggeration to state that, in the absence j iof an enlightened legal system, the great mass of people jmight well become slaves to private property rights, be cause no one in today's Anglo-American political economy can enjoy any decent standard of living at all in the absence of property. Property rights and economic power can command will power, and it is to illustrate the emer gence of private property rights as a source of economic power that Commons divides the Common Law into two stages in regard to its recognition of the human will. First or primitive stage of the Common Law. Con cerning the first stage of the Common Law, Commons states ;the following: In the first stage, the primitive Common Law, which j descended from England, applied to both criminal and ; economic contracts... The requirements of early juris- i prudence were met with proof or disproof of guilt in , performing an unlawful act, and were therefore satis- ' fied with interpreting the act in an alleged violation as an act, or an omission, to act.'4' 0 i Commons means, by this statement, that the courts, Iduring medieval and colonial times, did not take cognizance . 1 lof the command which property and economic power had over I I !the human will in action. Indeed, private property rights, | ^°Ibid., p. 37. 62 as they are understood in this day and age, were just then emerging as an important aspect of Anglo-American culture, and the influence which property exercized on the human will in action was not a.s great as it is today. The i courts, therefore, in judging the guilt or innocence of a i defendant with respect to an economic contract, considered » . only the acts which the defendant committed or omitted and I • not any pressure which might have been brought to bear I upon him. This was substantially the same procedure that was used in criminal law. Therefore, the primitive courts, as they judged the innocence or guilt of a defendant, actually analyzed and measured the human will in action, but they attributed to the human will only one characteristic or dimension, the . ability to commit or omit and act, any pressure being brought to bear upon the defendant notwithstanding. The human will, then, was recognized by the primitive Common Law only insofar as it was able to act in a mechanical manner, that is, it was recognized only as being capable of doing or not doing, which was a one dimensional concept. Second or recent stage of the Common Law. About 1 8 9 0, here in the United States, beginning with the courts reviewing the constitutionality of newly passed regulatory legislation, a further analysis of the human will in eco nomic transactions was developed by the courts. This Commons referred to as the second stage of the Common Law. [Here consideration is made only of the human will as it 'pertains to economic contracts, and criminal law is not ^involved. With this in mind Commons states the following: In the second stage, a, further analysis of the 1 human will in economic transactions was developed by the courts. Two dimensions of the will in action were recognized.^-1 Commons then goes on to state: The new decisions, turning mainly on the collective action of governments, corporations, and labor unions in control of individuals, required that account be taken of the degrees of economic power exerted in the act, and the choice of alternatives open to individuals in their regulated activity. These two considerations were really two dimensions of the will in action at the moment of action,^a. two dimensional will instead of a one dimensional. • Here is a statement to the effect that the courts Lave re-examined the human will in action, and in light of ! Ithe recent large scale emergence of private property rights the human will has legally acquired two characteristics or dimensions. The writer understands Commons to mean that I the collective organizations of political parties, corpora- i itions, and labor unions are but the products of the emer- jgence of property rights; it was the clash over the i acquisition of property rights which made these economic i ; institutions what they are today. As a consequence they 4lIbld., p. 37- ^2Ibid., p. 37- acquired economic power which did not previously exist or which was magnified many times over what had previously been the case. Notice that no reference has been made about physical power which traditionally had been possessed by the sovereign state, and moral power which traditionally has been possessed by everyone. Second stage of the Common Law the consequence of the emergence of economic power. Therefore, the power of scarce property to command the human will, which is eco nomic power, became an important, factor in the Anglo- American political economy. The courts, in their decisions relating to economic contracts, took cognizance of this power and found that the human will had two characteristics or dimensions. The courts were no longer interested only in the commission or omission of an act in regard to eco nomic contracts, but they were also interested in the degree of economic power exerted and the choice of'alterna tives open to people in their regulated economic activity. Two conditions for determining the legality of economic contracts. The point which Commons is trying to make is that,.if economic power is resorted to when an economic contract binding the participants to the terms of the contract is consummated, if the contract should be challenged in court it is legally binding only if the degree of economic power exerted is reasonable and if I 65 i |reasonable alternate opportunities are available. While ! the meaning of reasonableness has not been defined as yet, ■ some little insight into the two dimensional will may j nevertheless be had at this point. ; ! ; Legal basis of the human will found in the Common Law. Here is the Common Law in action, where the courts manufacture law by legally insisting upon the analysis of the human will in two dimensions instead of the traditional one dimension. Political parties, labor unions, and cor porations are compelled, by the decisions of the courts, to abide with the two dimensional nature of the human will., These collective institutions must be reasonable in their .use of economic power, and they have to avoid the tendency ; toward monopoly, a tendency which invariably results in j ;the stagnation of opportunity. I f Collective action the consequence of property. i ! jEconomic collective action becomes a consequence of the in-' Jcreasing importance of property. People have acquired the I 1 right to group themselves together in order to achieve more' wealth and a higher standard of living. People so grouped together are in a better position to combat the power which; the property of others commands over their wills, but they j also subject themselves to the collective power of their own group. 66 I i [citizenship as it is Related to the Two Dimensional Will | Source of collective action and individual action. [The two dimensional will in action is largely a power which ; is capable of being &cted upon by the will power of others i land capable of acting on its own behalf. This is the source of both collective action and individual action, since collective action depends upon the will being con trolled by external will power and individual action de pends upon the will acting in its own behalf. Collective action more fundamental than individual action. What happens is that collective organizations es tablish working rules or acceptable standards of behavior j to which its members are expected to comply. Since these standards of behavior are quite broad, the indivial is a.1- i 43 > 'lowed a wide latitude of action in his own behalf. This \ I 1 > I ;is the source of individual action, which has actually been 44 i expanded and liberated by collective action. Without | I socially approved standards of behavior the jungle law I would apply, and human behavior would be animal behavior. Save for the basic urge for survival, individual action does not exist in the absence of collective action. t I i t l 43 Ibid., p. 355. 44 Ibid., p. 15. i_ ; In the event that an Individual acted in a manner ■contrary to acceptable standards of behavior, that is, out- !side the bounds of prescribed working rules, the collective organization involved would take appropriate action to make 45 the individual conform. This means that the collective I organization would subject the will power of the individual to its collective will power. This is the source of col lective action, which is actually controlling individual 46 action. The individual becomes a citizen with reciprocal rights and duties by being both free to act in his own 47 behalf and subject to control by the group. ' Constitutional Formulation of the Two Dimensional Will Free will-controlled will relationship. When the courts analyze the two dimensions of the human will in action as a part of the legal process of determining the constitutionality of challenged economic contracts, they must formulate the problem in such a manner that they can •observe the relationship which existed between the free will and the controlled will of an individual or organiza tion at the time that the contract was consummated. This, in the writer's opinion, is the major point which Commons i 45Ibid., p. 355. ! 46 I Ibid., p. 15. | 47lbid., p. 355. 68 ' I was trying to make concerning the reasons why the two di- i I mensions of the human will are of interest to the courts. i i The measurement of the two dimensions of degree of ipower exerted and alternatives available enable the courts . I to observe the free will-controlled will relationship, and : itherefore to render their legal decisions impartially. The procedure which the courts use in analyzing the human will in action is the trial process, which is common to all 48 forms of collective action. Legal tools used by the courts. Commons indicates that the courts use four legal tools or concepts in measur ing the two dimensions of the human will in action. These 1 concepts or legal analytical tools used by the courts in rendering their decisions Commons refers to as performance, j i ‘ avoidance, forebearance, and timeliness. It is through thej use of these analytical tools that the two dimensions of ' i ' i the human will can be legally measured, and the free will- controlled will relationship observed. j Performance. Commons defines performance as follows: "Performance is the 100^ positive act of self to the full extent of one's ability without any external command or ; restraint whatever"^ I I I 48Ibid., p. 40. i j ^9jbid., p. 149. 69 Performance, then, is understood to be the 100$ exercise of the free will. : Porebearanee. Commons defines forebearance as i follows: i Forebearance is self restraint, ranging in all 1 degrees of power over self from 0$ restraint, or liberty, up to 100$ self restraint, which is avoid ance in that direction.-5 Forebearance is self control over the free will. Commons notes that all economic citizens have a certain indefinable duty of forebearance or self control, and that they are under compulsion to act reasonably, especially 51 regarding the degree of power exercised in performance. Avoidance. Commons defines avoidance as follows: 52 "Avoidance is the choice of the next best alternative." Avoidance, then, is the directing of performance. Avoidance means choosing an alternative when it is impos sible to do the thing you want to do. Timeliness. Commons defines timeliness as follows: I ' ' . '"Timeliness is the selection of the right time, right 'place, and right degree of power. \ I Timeliness, in short, means using good judgment. i i j- - - - - - - - - - - - - - - - - - - - - - - ! 5°Ibid., p. 149. , »• ...Ml I I ! 53-ibid., p. 3 9. ! 52ibicL., p. 149. i 53Ibid., p> !49# i Constitutional implications. The courts are better |able to pass judgment on the constitutionality of economic |contracts and transactions because they now possess the jmeans to determine, with these legal tools of analysis, Jthe degree of free exercise of the will, the degree of self 'control over the will, the possible alternatives available, i and the all around good judgment used by both parties to an economic contract or transaction at the instant of time it was consummated. In other words, the courts are now able to unmask the human will and determine all the factors present at the time that the economic contract was consum mated. If it appears that the constitutional rights of one of the participants were violated, the economic contract will be found to be unconstitutional. Two dimensional will the foundation of economics. It is this systematic analysis of the two dimensional will I in action that permits Commons to state the following: ; The all inclusive foundation of modern economics involves the double choice of the degree of power an | individual may exert when confronted with choosing i an alternative.-^ i i . . The two dimensional will in action, therefore, be comes the foundation of Commons' institutional theory of ^economics. Economic power or coercion becomes a part of 54Ibid., p. 41. 71 his economic system. Will power, for all practical pur poses, becomes economic power. Two Dimensional Will the Legal Basis of Citizenship The economic citizen, therefore, is a two dimen- |sional being, a power capable of choosing alternatives and acting in his own behalf in the face of other powers. It is the writer's understanding that Commons accepted the two dimensional will because it was in the public interest to do so. He started with the public interest and ended with economic citizenship, but in order to really understand the technical mechanism of economic citizenship the two dimen sional will must be analyzed, studied, and measured. Will 55 power and citizenship are unified through the courts. Economic citizenship, which is really the end pro duct of Commons1 system of economics, becomes an achieved status or a state of existence which everyone shares in, 56 although admittedly unequally and inequitably. The two dimensional will, on the other hand, is a judicial abstract which exists only in the eyes of the courts, a legal ap proximation of what man really is, a. free will-controlled will relationship.57 Citizenship is an achieved status 55ibid., p. ii4. 56lbid., p. 130. 67ibid., p. 37. within the framework of legally recognized will power. i 58 is power which makes citizenship what it is. -^rbid., p. 4l. CHAPTER IV I THE OWNERSHIP OF PRIVATE PROPERTY ! I | AS A BASIS FOR ECONOMICS ■ I i j The analysis of the two dimensional will in action i , linvolves, in its application to economic science, a knowl- \ ■ 'edge of private property relationships. It is appropriate that private property be introduced at this time, since i mention has already been made of the command which property has over the human will. Private property becomes, logi cally, the next order of business to be discussed. Commons! developed a unique approach to private property, the pri mary significance of which is the legal basis which he ( gives to it. This is in keeping with his legal approach ! i to the human will in action, and to economics in general. ! However, preliminary to the treatment of property i Commons deals with the closely related subject of commodi- ; .ties. With this in mind, the subject of commodities will j I ibe discussed prior to that of property. ; I. COMMODITIES jCommodities Differentiated from Property , Legal significance of commodities. Although the | 'terms property and commodity are usually given synonymous jmeanings by economists and businessmen, Commons I 74 I distinguishes between them. His distinction is legal in nature and he expresses it as follows: There developed a double meaning of the word cora- i modities: A proprietary or ownership meaning, intended by the courts, of the acquisition or alienation of ; ownership; and a technological meaning, used by econ- i omists, for the production, transportation, and physi- j cal delivery of the thing owned. 1 i The courts, therefore, distinguish between commodi ties and property, and it is this legal distinction which was of interest to Commons. Ownership and the thing owned. The distinction between commodity and property is really the distinction between ownership and the thing owned, concerning which 'Commons makes the following comment: The proprietary or ownership meaning of commodity was assets, the legal capacity to pay debts and taxes ’ i which were known as liabilities... The technological ] ^ meaning was wealth, the product of labor, and the ; ' enjoyment of consumers.2 1 Commons, therefore, points out that the term commo- ; 1 jdity was given a double meaning, ownership and the thing I owned. The ownership meaning, the meaning intended by the ! ! ; ;courts, becomes the correct meaning of commodity in his jsystem of economics. The thing owned, which he will later Jidentify as property, is not a commodity. Assets and icommodities are associated with ownership. Commons was - j Commons, The Economics of Collective Action, p. 44. 2Ibid., p. 44. 75 | very much interested in who owned what, much more so than ’ i he was concerned with the mere existence of property or wealth. It is actually the ownership of scarce property {which determines the potential of economic power present I o during the meeting of the human wills in action. I j Credit Money as a Commodity j j Commodities in general. Commons has differentiated I commodities from property. An asset, which is a commodity, is not synonymous with wealth, which is property, because assets designate ownership while wealth designates only the thing owned. People may use property without owning it, 'for example, the machinist who uses his employer's expen sive equipment while working. Legal title to the equipment! belongs to the employer, adding thereby to his potential economic power rather than to the worker's, although the worker's skill is certainly a source of economic power. j Credit money the most universal commodity. The most j juniversal commodity, which is to say the commodity most ' » ! icommonly used, is credit money legally possessed by an {individual or firm. i I Nature of credit money. Money at one time was gold 'or silver, but now it has become at least 90$ credit or t ! bank checking accounts. Present day credit money is, | L _ 3Ibid., P. 44. _______ ___ 76 | substantially, a promise to pay, which is the same thing as a debt. The person who holds or has legal title to money therefore is a creditor since he owns an instrument I jwhich represents a debt owed by somebody else. This credit: i money is usually a negotiable instrument, which may be ; 1 legally transferred from person to person, and it repre- j j I isents, in this day and age, purchasing power which can be owned. ! Money the Ownership of Negotiable Purchasing Power Credit an invention of the courts. Credit money |legally possessed by an individual or firm is a commodity i :because it is ownership of a debt, an ownership which . represents purchasing power. The commodity nature of j i icredit money is a legal invention of the courts, the impli-! • i cations of which have changed the economic activities of mankind. Commons expresses himself as follows on this point: ! This remarkable fact by which a debt becomes a : commodity is an invention of the lawyers and courts... It is one of the great inventions of all times... The ; debt, or checking account, owned by the creditor of ' the bank is a negotiable instrument, not naturally : and inherently a physical thing. It serves as money, I or general purchasing power, and modern money is ; primarily negotiable debts owed by the bankers.^ ^Ibid., p. 46. It* is this invention which led Commons to state that the ownership meaning of commodities has become the founda tion of the credit system and its method of creating credit 5 ■money in the place of metallic money. The credit system, in other words, has given greater mobility and efficiency I “ Ito the circulation of money. | Money and purchasing power. Not only is money the Imost universal commodity, but it is also a special kind of commodity because it alone pays taxes and debts. For this reason everyone tries to get legal title to money. Money i |is, in effect, the universal negotiable commodity designa ting purchasing power. ■ Double Meaning of the Dollar Commons noted that, prior to the New Deal, there were two kinds of money, gold coin and legal tender paper money. Congress established legal tender paper money dur ing the Civil War by the Greenback Act of 1863 and gold coin money by the Gold Act of 1900. Both of these kinds of monies were equally lawful. Paper money was convertible to gold. Congress, during the New Deal era, empowered the president to put the United States on a modified gold stan- I ; jdard. By this act the two kinds of money were unified into I 1 j ---------------- --- ! 5Ibid., p. 44. 78 legal tender paper money. There Is now only one kind of money, paper money, which is no longer convertible to gold. Commons, however, failed to follow through his argument by noting that, even though there is now only one type of Jmoney, the dollar has come to have at least two meanings, iOne can extract from Commons' thinking the double meaning i jof the dollar, but he does not come right out and say this I 6 ; :is so. The writer will now develop further the theory of , } the double meaning of the dollar. The double meaning of |the dollar, in turn, gives rise to a money supply which J fluctuates in accordance with collective action. j Legal gold meaning of the dollar. The first meaning of the dollar is the legal gold meaning, where the dollar, i ' I by act of Congress, becomes a certain weight of gold. j Today the dollar is 13.714 grams of pure gold. This weight; I I of gold may be changed by act of Congress. i i Legal tender meaning of the dollar. The second ■ Imeaning of the dollar is the legal tender meaning, where i i the dollar, by act of Congress, becomes the financial book keeping unit of account. This means that the dollar is a certificate of legal tender. f ‘ ' | Implications of the legal gold meaning of the dollar; llhe writer notes that the legal gold meaning of the dollar , i i , ' f\ * - Ibid., p. 244. ; 79 establishes the upper limit upon the amount of credit money which may be issued or created, the determining factor ! •being the relationship between the gold reserve and the ; weight of the gold dollar. Gold becomes the base upon | which the money supply is pyramided, but the pyramiding , ! .effect is not an unlimited one. Congress may raise or ; Slower the upper bound limit of the potential supply of i i money by changing the weight of the dollar, or this limit ; may be changed by fluctuations in the supply of the gold ; i re se rve. I j Fluctuations in the money supply independent of the ; legal gold meaning of the dollar. The writer also notes I |that the money supply fluctuates between the upper bound jestablished by the legal gold meaning of the dollar and i jSome variable figure determined by a. whole matrix of fac tors which, in their totality, constitute the over all i economic condition of the nation at any one time, which is i ‘ in turn the product of economic collective action. This is jto say, the legal gold meaning of the dollar, while it r 'establishes the upper bound of the money supply, does not . i jestablish its lower bound. The supply of money, therefore, j fluctuates downward from its upper bound independently of I i the legal gold meaning of the dollar. Since the supply of i ‘ money fluctuates independently, it cannot be said that gold is used as a measuring device, that is, the supply of money or commodities valued in terms of dollars is no longer measured by gold. Commons identified the dollar primarily as its legal tender meaning. While Commons was aware of the legal gold |meaning of the dollar, he was more Interested in its legal jtender meaning, as the following statement indicates: ' (The dollar)...is not metallic money, and it is j not paper money, nor even bank checks. It is a ... i unit of account on the books... established by law I as a legal tender in payment of debts. It measures the amount of metallic bouillon as well as the amount of paper money, or bank debts, and of all debts and the monetary value of all commodities. This unit of account is maintained by custom and law, in the ! language of weight of gold and silver coin, although ! the metal itself has long since been taken out of j circulation.7 ! i ! Commons here recognizes that the dollar is tied to jgold, but he does not consider this to be its primary {function. The primary function of the dollar revolves 'around its meaning as legal tender, that is, Commons con- isidered the dollar to be the financial bookkeeping unit of I » I account of the credit system. i The writer notes that the legal gold dollar and the [ jlegal tender dollar, by custom and law, are unified into a l common dollar, but this unification is a legal fiction, a {gimmick, as it were, preserved and fostered by the politi- :clans and bankers to reassure the public of the stability 7Ibid., pp. 47-48. of the American credit system. Actually, the legal gold dollar and the legal tender dollar are inconvertible; they have different meanings. The legal gold dollar limits the supply of money while the legal tender dollar measures the jsupply of money and the market value of commodities in terms of dollars. This split in the meaning of the dollar i ■ became inevitable when America went on to the modified gold standard, but so persistent is custom that the two meanings are consistently confused into one meaning. Money and Market Value Thus, according to Commons, the primary meaning of the dollar for the purposes of economic science is its legal tender meaning, that is, the dollar serves as the financial bookkeeping unit of account. Therefore, the pri mary meaning of the dollar is as a measuring device. In this manner money, expressed in terms of dollars, legally measures market value.^ Fluctuations in the supply of money. The writer notes that the money supply fluctuates independently of the supply of gold. Money today is not what it was fifty years ago, that is, money is not convertible to a specified amount of gold. Money is credit, which in turn is the product of the collective action of judges, lawyers, 8Ibid., p. 45. . politicians, bankers, business men, labor leaders, and the general public. Credit is created or manufactured not by ;gold or silver but rather as a consequence of collective economic action. True enough, Commons, recognized that credit is manu- i i factured or created in accordance with the banking and jcredit system and the laws which apply to this system. In ;turn, the banking and credit system and their associated 'laws are a part of the institutional aspect of political parties in control of the state and corporations in control of the banks and financial institutions. The banking and I [credit system determines in what manner credit money may » * |be created and how much credit money may be created, up to the limiting upper bound as indicated by the gold reserve i jin relationship to the weight of the gold dollar, but to i Commons the dynamic force behind the supply of credit money is colleptive action, that is, the whole matrix of the human wills in action of all economic citizens. Furthermore, the writer notes that there is no necessary relationship between the supply of money and the j ^supply of goods and services. The money supply, in other words, fluctuates independently of the supply of goods and services. True enough, it might be expected that the greater the supply of goods and services the greater will be the supply of money. However, the converse may also be 83 true, that Is, the supply of money may Increase while the supply of goods and services decreases or remains rela- t : tively stable. This situation occurs during periods of extreme inflation, when people, through collective economic * 'action, force up the price of goods and services by trying ! j to acquire the ownership of commodities with little or no thought to the real economic situation or the capacity to i i Iproduce. J The writer concludes, therefore, that fluctuations in the supply of money are independent of the gold reserve j ,and the supply of goods and services. It follows, in other i I ! words, that fluctuations in the supply of money are primar- I > |ily the consequence of collective action, that is, the con- ‘ sequence of the whole matrix of human wills in action of ! i all economic citizens as they go about trying to make a • living, get rich, and acquire ownerships of commodities. Notice, however, that no effort has been made to account i for the velocity of money circulation. Velocity is, in i • ■ i ;effect, but another aspect of collective action, and as 'such its significance as an agent in influencing the supply I ! ! j i of money is considerable. i Market value. The implications on market value of j I 1 jthe fluctuation in the supply of money independently of the ! gold, reserve and the supply of goods and services are two- I fold: First, market value may not be equated to a fixed amount of gold. Second, market value, while it may be ex pressed as money in terms of dollars, is pegged to a fixed amount of dollars only at a specific instance of time. It would be more nearly correct to state that market value is proportional to money expressed in terms of dollars rather :than to say that market value is equal to money expressed :in terms of dollars. However, it is customary to say that jmoney is equal to market value, and if this statement is conditioned by noting that this is true for only a specific instant of time, no real harm is done. The dollar market value of any commodity may, however, fluctuate over an ex tended period of time. This fluctuation in the market value of commodities jdoes not necessarily reflect any inherent change in the I isupply or demand of goods or services, but rather it re flects the consequences which collective action has upon the supply of money as it is related to supply and demand i at any given time. Market value, therefore, is an expres- i Ision of value only at a given time. A thorough discussion of valuation will have to be jdeferred until Chapter V. It is sufficient to note now ithat Commons rejects the theory that valuation is a deter- 'minant of human economic behavior. Instead, he introduces !the theory that valuation is a subjective expression of judgment. He felt that not only is the expression of value 85 ' as such important, hut of even more importance are the reasons why a money value is expressed in the amount that it is. In order to properly understand valuation it is necessary to understand the nature of the human will in action, that is, it is necessary to understand the degree :of power exerted and the alternative opportunities avail- i |able at the time of valuation. | i i Valuation, therefore, is an expression of subjective i I ijudgment which is the consequence of the two dimensional i i ; will in action. A proper understanding of valuation re quires a knowledge of conditions which existed at the time ; of valuation. These conditions become more important and I more fundamental than the expression of value itself. Consequently Commons moves away from the traditional posi- ' tion that economics achieves the rank of a science because lvalue can be measured in terms of money and establishes the institutional position that economics achieves the rank of a science because the human will in action can be mea sured by the courts in terms of the transaction, as will be seen in Chapter VI. i I Value, meaning market value, becomes a subjective :thing, the product of collective action. Money, in terms j 1 - I 1 I of dollars, is also a subjective thing, again the product ;of collective action. It follows that value, being a sub- .jective expression of judgment, can only be measured by a 86 subjective device, money. Commons never denied that money performs this function; he merely contends that valuation is not as fundamental an economic problem as the analysis of the two dimensional will in action and that the element of subjection replaces the element of objection in the val-; uation process. ' Purchasing power nature of money. Money, as it [measures market value, becomes purchasing power. Purchas- ■ jing power is the most satisfactory definition for money j ! because it does not imply that money is something objec tive, like a physical body or a natural phenomenon, or even, i the paper upon which it is printed. Money represents the ipower to buy; its ownership represents the opportunity to !va.lue some commodity. However, the purchasing power defin- | t jition of money does not imply anything more than this. ' distinction Between Ownership and Possession ; In Commons' system of economics, ownership is more ( ^fundamental than possession, because someone may possess 1 something without actually owning it. Commons was primar ily interested in the conflict between capital and labor, ithat is, his economic theory revolved around labor unions j and corporations as modified by political parties. With this in mind, it is possible for an employee of a corpora tion to actually have in his possession property which is owned by the corporation but which the employee uses, as a 87 •consequence of the nature of his job. In this instance the employee* presumably a member of a labor union* possesses property which is owned, by the corporation and which is used at the discretion of the corporation. The distinction, between ownership and possession can be found in the legal ■ jdistinction between ownership and the thing owned, that is, i * jbetween commodity and property. Ownership, therefore, is I . ,more important than possession, the critical consideration ' ! being legal title'. ^ : II. PROPERTY I Property Differentiated From Commodities ; Commons noted that commodity acquired a double mean ing, ownership and the thing owned. If ownership is the j I real meaning of commodity, then the thing owned becomes ! ■ ^ 10 property. When Commons discussed commodities he did so primar- I ! ily in terms of the credit money in which their ownership ;is valued. On the other hand, he discussed property in I items of the legal relationships created and maintained by |the state through the sovereignty it possesses. Commodity : ! carries with it a dynamic meaning, the very nature of 9Ibid., p. 44. 1QIbid., p. 83. ownerships lending to commodity its active attributes. Property, on the other hand, carries with it a passive meaning, since property must be acted upon by being owned 11 or transferred before it becomes meaningful. Actually, 12 prices are paid not for property but for ownerships. A commodity is simply owned property. Types of Property Concerning property distinct from commodity, Commons' treatment of the subject illustrates once again the way he works the Common Law into the framework of eco nomics. Since medieval times in England the courts have enlarged or expanded the meaning of property through three distinct stages. In effect, property, through the opera tion of the Common Law as manufactured by the courts, has acquired three successive meanings, each one different from the other. These meanings Commons identifies as corporeal, incorporeal, and intangible property. Corporeal property. Concerning corporeal property, the earliest meaning of property, Commons states the fol lowing: In earlier times there was substantially but one kind of property, corporeal property, meaning thereby the ownership of a physical body or corpus. Ownership 11 Ibid., p. 8l. -^Ibid., p. 46. 89 consisted mainly in the expectation that the sovereign, by physical power, would prevent physical trespass upon, the corpus by those not deemed to be its owners. The rules accepted by the courts of England and America for preventing this trespass, and thereby permitting the owner to exercise his own free will upon the corpus, came to be known as the Common Law. ^ i I Commons here uses the term ownership, but this is jnot what he means in the strict sense of the word. What he; !is actually referring to is a physical body or corpus which; I ’ is capable of being owned. Unfortunately, his language was: sloppy in this instance, but the major point to be gathered is that the earliest meaning of property given by the i : courts was merely that of physical bodies or physical things. r I | Incorporeal property. As England passed out of the medieval era and into the industrial revolution, the mean ing of property was expanded by the courts to include in- , corporeal property, the property of debts. Commons ex presses the meaning of incorporeal property in the follow- , i ing manner: : With the industrial revolution a new kind of property in debts came to be recognized and enforced . by the courts under the name of incorporeal property. Incorporeal property is simply the. duty of the debtor 1 to pay money known either as a credit or its equivalent; debt. It does not become a debt, for economic science, ; 1 unless the judicial branch of sovereignty is in a position... to compel the debtor, by physical power, ! to pay money or perform what the courts recognized as 13 Ibid., p. 46. his legal duty. This duty., in the American Constitu tion, is known as the obligation of contracts.1^ Incorporeal property, in short, is the obligation of a debtor to pay. However, a debt is legally binding only when the sovereign state, acting through the judicial .branch of government is in a position to compel the debtor to pay, even if this means resorting to physical power or the threat thereof. It can be seen, therefore, how sov ereignty has become a part of economic science. Intangible property. Finally, and especially in the ! iUnited States, the meaning of property has become still i i I further enlarged by the courts to include intangible pro perty. Commons discusses intangible property in the fol lowing manner: In the last quarter of the nineteenth century... the meaning of property, as protected in the Constitu tion, was further enlarged by the courts in the United ' States to include what was named intangible property, i or the economic power of sellers, buyers, or competi- ! tors in charging against others or paying to others ( 1 such prices as they wished or could enforce for commo- ■ I dities or services. Typical cases of intangible | property are patents, the good will of a business, t the right to do business, the right to earn a living, I the right to get rich, good reputation, trademarks, i i trade secrets, and going value. They are not the f incorporeal property of debts, they are the intangible property of liberty and scarcity. In economics intan- | gible property is purchasing power.... which can be owned. ^-5 l4Ibid., p. 80. 15ibid., p. 80. 91 Intangible property becomes purchasing power which can be owned. It is not the ownership of purchasing power, which is actually a commodity, but rather it is potential purchasing power which can be owned under certain circum stances. The distinction between property and commodity is a fine one, but nevertheless the distinction remains. ,Intangible property or purchasing power become, therefore, ja market opportunity, which means an opportunity or cir- I Icumstance to make money by selling property on a. market. 1 It is interesting to note that corporeal and incor poreal property become intangible property when the pur poses of creating them are production for sale upon a Jmarket.^ Corporeal and incorporeal property, in this {instance, represent but another market opportunity, which is the definition of intangible property. It is in this manner that property has become economic power or purchas- r jing power, that is, property for sale on a market is [capable of commanding the human will of potential buyers, T r y |and vice versa. The important thing to remember at this I 'time is that most property has, in effect, become intan- jgible property, and that intangible property is simply a market opportunity. This is true because most property is created for sale on a market. l6Ibid., p. 94. 17Ibid. , . p. 94. Scarcity and Property Possession of prope rty not ownership. Possession of property is not synonymous with ownership. The key to ownership is legal title. Property is simply something which can he owned, that is, something on which legal title - | Q ,can be claimed. ° Distinction between types of scarcities. It is with |the market opportunity idea of property that Commons devel- » ^oped his own theory of scarcity. Scarcity, to him, was iproprietary scarcity or a type of ownership scarcity, which i 'is to be differentiated from the biological scarcity of Malthus and Darwin, and the psychological scarcity of the pleasure-pain economists.49 ; Proprietary scarcity. Proprietary scarcity should be viewed as supplementary to both biological and psycholo gical scarcity, neither of which are very relevant for 'economic analysis. The main value of biological and psy- ! jchological scarcity, Commons held, was to pave the way for ;the introduction of proprietary scarcity into economic i science. Commons does not deny the existence of psycholo gical and biological scarcity, but he does consider them i 'to be incomplete concepts of much less importance than i ' l8Ibid., p. 48. 19Ibid., p. 94. proprietary scarcity. He felt that., even if biological and psychological scarcity could be reasonably overcome, the 20 problem of proprietary scarcity would remain. Proprietary scarcity involves the idea of withhold ing from others what they need but do not own. It is the bargaining idea, of owners withholding release of ownership until a price or ratio of exchange is agreed upon. It does I not involve the idea of holding for self. The recurring : theme throughout Commons' discussion of scarcity is with holding from others what they need until a price is agreed 21 ‘ upon. In this sense, property is a market opportunity. Property made scarce by ownerships. Commons empha sizes scarcity to the exclusion of abundance. He was interested in the ownership of scarce assets rather than the production of abundant wealth. Property, to be sure, is wealth, and from the over all point of view property may be abundant. Property, however, even abundant property, jis made scarce by limiting its supply so that it will have I exchange value. The means which Commons uses in limiting ithe supply of property is by ownership, that is, property I jowned by one person is made scarce to another person who p p wants to own it, ^ 20Ibid., p. 94. 21Ibid., p. 94. 22Ibid., p. 94. 94 Commons summarizes his thinking on scarcity in the following manner: The assets of an individual or association of individuals are increased by limiting their supply so that they will have exchange value, or bargaining power, in commanding other things in exchange, and especially, in modern!life, commanding money in ex change- Modern business is conducted on the basis of assets, that is, scarcity of wealth, and not on the abundance of wealth. ^ Ownership, therefore, makes scarcity what it is. People who own production facilities can produce goods and services as they please, but in economic science they will ;never produce them beyond the point where they lose or reduce their exchange or scarcity value. It is in this way that ownership makes property scarce. Scarce property that is owned Commons terms as assets, and it is around the ownership of scarce assets and money that modern business revolves. Of course, biological and psychological scarcity often complicate the problem of proprietary scarcity. Scarce property equivalent to economic power. In the final analysis, Commons identifies the intangible pro perty of market opportunity and purchasing power as eco nomic power. Economic power, therefore, is what Commons really claimed can be owned, and it is economic power which becomes scarce and highly desired. The human will, 23Ibid., p. 94. therefore, is subject to control by property or its equiva,- 24 lent, economic power. Unity of scarcity and property. The major distinc tion which Commons makes between scarcity and property is the method used in analyzing these two terms. Scarcity is an economic concept and property is a legal concept. Commons describes the distinction as follows: "Scarcity in ; 25 economics is property in jurisprudence." ^ i He means, of course, that scarce economic power is property. In economics the term scarce economic power is 1 used and in law the term property is^usedj both, however, have the same meaning. This equating of concepts enables ieconomists to use not only the tools of economics but also : |the tools of law when dealing with property. Scarce pro- i Jperty is, literally, speaking, invested with a legal nature,; I ' land the introduction of jurisprudence into economics opens Jup broad avenues of analysis not otherwise available to Ieconomists. ' I ! j The two dimensional human will was recognized by the' i courts as a part of the development of the Common Law be- I Icause of the command which property has over it. Property, i ! ■ jtherefore, represents the common root between economics and: ilaw. Commons, in his unique treatment of property, implies I ___________________ ' 24Ibid., p. 80. 1 1 . . 25ibid., p. 89. ___ - — -- 96 that property accounts for the emergence of both economics and law as distinct disciplines. i III. PROPERTY AS A STABILIZED SOCIAL RELATIONSHIP 1 It is not enough to state that property has acquired' i i ' a market opportunity or intangible nature, the outstanding attribute of which is scarcity and the outstanding conse- ; I ' : jquence of which is economic power. This is true enough but' i jin order to make the concept of property more meaningful an, ' i janalysis must be made of its stabilized social nature. 1 1 ^ Stability ! I Commons notes that, in the legal sense, property is i an economic relationship, and that this relationship is a i ' . | istable one but one which is subject to change over extended i • ! periods of time. Of all economic relationships, those of ! 26 private property are the most stable and most important. . Evolutionary change in the meaning of property. The• stability of private property relationships does not imply ■ !a static or unchanging nature, but it does mean that what j 1 is true today will probably be true tomorrow with little or.; i Jno change. Change, when it does come, will come gradually | and within due process of law and as a consequence of col- j lective action. In other words, the meaning of property 1 __________________ 1 26Ibid., p. 21. 97 will not change so fast that the economy will fail to adjust to it, nor will it change arbitrarily as a result of individual action, but change nevertheless will be going on almost continuously. Concerning this point, Commons ex-’ presses himself as follows: j i In modem capitalism the most important stabilized ' economic relations are those of private property. The property relations are not something fixed and perma nent. They are undergoing change all the time within I the process of collective action. The meanings of pro-; perty, liberty, and due process of law which the courts■ j have followed in the settlement of disputes in trans- 1 actions are changing.2< « i Stability to Commons, therefore, does not mean un- j i I changeable, but rather it implies an evolutionary type of J flexibility. Stability an Anglo-American custom. Stability in property relationships, as opposed to unchanging property relationships on the one hand and revolutionary changing iproperty relationships on the other hand, are an Anglo- r I 'American custom or tradition. It is the stability of i , lAnglo-American property relationships which makes the Anglo- jAmerican community of nations a distinct economic entity.28 Common Law and custom. The outstanding means of i i reflecting the stability of private property relationships | In the evolving Anglo-American economy is that of the ; 27lbid., p. 21. 28Ibid., p. 112. 98 Common Law, especially as it applies to due process of law. It is the means which is used to interpret the Constitution so that the law of property may he consistent with prevail ing custom and tradition. It enables Anglo-American nations to operate without the excessive use of statutory law, that is, it enables the judicial branch of government to maintain parity with the executive and legislative ! |branches of government. It Is also the means used to |reflect changes In custom or tradition, and to direct 'changes when they become necessary to preserve stability. ; ! . i j.The recognition by the Common Law of the two' dimensional j I will in action is but an indication of the Supreme Court's ; .attempt to preserve stable private property relationships 29 .in a changing capitalistic era. | Private property the recurring theme of capitalism. I iThe success which the Supreme Court has had in preserving ithe stable nature of private property can best be appre ciated when the importance of private property to American 1 :capitalism is considered. Concerning this, Commons states i the following: Capitalism, in its highest form as found in the United States, is built upon the legal foundation of : private property laterally modified by the emergence Ibid., p. 112. of joint stock corporations, holding companies, hanks, labor unions, and political parties... 3° Private property, therefore, becomes the recurring theme of American capitalism, but it is private property which has been legally modified by the Common Law so its stable nature may be preserved. Summary of stability. Not only are property rela tionships both stable and flexible, but changes in the Imeaning of property can only occur within due process of ilaw. This is to say, it is up to the courts to determine Iwhen and how the meaning of property shall change. It is i 1 ithe collective action of labor unions, corporations, and I political parties struggling to obtain control over scarce assets and control of the sovereign state that induces the tcourts to recognize changes in the meaning of property. i [Collective action with its emphasis upon securing owner ships of scarce assets, commonly termed the conflict between [capital and labor, literally speaking forced the sovereign , I ! state to legally change the meaning of property from a ; ; physica,l thing to a market opportunity. This is so: because i jthe evolution of collective action destroyed the corporeal ; Jproperty base of the traditional barter economy and in its ‘ jpla.ce substituted an intangible credit economy, making a , ;new legal meaning or interpretation of property mandatory. I i 30Ibid., p. 21. A Systematic Analysis of Stabilized Economic Relationships The writer has initially dealt with the stabilized economic relationship of property because property is the most important of all stable economic relationships. It is not, however, the only stable economic relationship. The writer will now present a systematic analysis of all stable economic relationships, including property, so the great conflict between capital and labor may be observed in its proper context. Obviously, some repetition in the discus sion of property is forthcoming, but only as much as Is necessary to observe property as a part of the whole of the stable economic relationships which exist in the American economy. Importance of stabilized social relationships to economic science. Human behavior is constructive to eco nomic science only insofar as it is stable and predictable. A social relationship, therefore, must be stable before it becomes relevant for economic science. However, only those relationships which have economic implications need be con- sidered. in economic analysis. In general, economic rela tionships are those social relationships which give rise to the economic behavior of the participants to economic col lective action. Choosing stabilized economic relationships. In general, Commons appeals to the Common Law and jurisprudence as the means for choosing or selecting stabilized economic relationships. These relationships are chosen by the Com mon Law method from the totality of existing human beha vioristic relationships which society expresses as custom. In this manner custom, in the form of economic relation ships, is transformed into the law of the land. Commons expresses himself as follows: Prom among these countless ways of social behavior, mankind has selected practices and made them more ! secure and of general application. The classic case of this function in the Anglo-American tradition is ! the Common Law method of selecting good practices i (customs) and making them into the law of the land. | These regularized social relationships... create , security of expectations.. .. for'individuals, asso- I ciations, and concerns.3 As was indicated earlier Commons appeals to the Common Law as the means for translating custom, tradition, ‘ practices, and usages into stable economic working rules, iwhich is the same thing as the economic law of the land. .This Is the point which Commons really tried to make in i jthis instance, that human behavior, for the purpose of I |economics* is stabilized and changed by the courts through i the functioning of the Common Law. The ultimate source of the Common Law in the United States is that of the power of the Supreme Court to interpret the Constitution. 31Ibid., p. 355. ■ 102; Definition of a stabilized social relatlonshlp. The 'Common Law method is the method typically used in choosing a stabilized social relationship and giving it a legal . i nature. It remains, now, to define a stabilized social (relationship, which Commons does as follows: i Social relationships are stabilized by defining the limits within which individual behavior is allowed j discretionary action...that is, working rules define I the limits within which an individual is allowed to exercise his free will.-^2 • A stabilized social working rule, therefore, is the product of collective action which defines an area of dis cretionary individual action. A stabilized social rela tionship does not exist in the natural world in the same sense that matter and energy exist. A social relationship 'exists only in the minds of men. They are the artificial creations of mankind which have social rather than natural implications. Unlike the physical relationships which exist between matter and energy in the natural world, iSocial relationships are subject to self command and jchange. s Types of stabilized economic relationships. There are five types of economic relationships which one may j jextract from Commons' mind, these being the relationships 'of property, institutions, sovereignty, custom, and the I i_ _ _ _ _ _ _ _ _ _ ! 32Ibid., p. 355. public interest. Of these relationships property, institu tions, and sovereignty have achieved legal recognition, the -impetus of which was provided by the Common Law. These are the relationships which the Common Law method has selected I over the years from prevailing custom and transformed into the law of the land. ; i i On the other hand, custom does not have the force of law, although it does provide an indication of how and j why law came into being. Finally, the public interest is a judicial abstract rather than a law; it is actually an appeal to the conscience of the Supreme Court. An analysis !of these relationships provides the means for better under- : ^standing the economic conflict between capital and labor. ; I I Property as an economic relationship. By property | ^relationships are meant the rights and duties of prope rty .33- These rights and duties involve not only property but also sovereignty, the economic institutions of collective i ' ( [action, and the public in general. These rights and duties - of property are the working rules of sovereignty in control 3 4 of scarcity. Once again Commons has taken an economic boncept, working rules controlling scarcity, and equated it ; !to a legal concept, the rights and duties of property. [ i ! I 33ibid., p. 8 9. •^Ibid., p. 89. What Commons means is that property relationships are manifested or made meaningful by working rules to which people conform. These working rules, then, are what really 1 possess stability and flexibility, and they undergo change lover an extended period of time. Working rules literally {mean that people believe in or accept certain stabilized i ' {patterns of behavior, in this instance with respect to Jproperty. It is human behavior which makes property what it is. Stable working rules mean stable people, more particularly, the manner in which stable people go about acquiring the ownership of property. Institutions as an economic relationship. Commons identifies an institution as a going concern.^ He then makes an institution or going concern a behavioristic re lationship, as the following statement indicates: "As the wills of participants become stabilized in the process of collective action, it then becomes possible to organize going concerns (institutions).’ 0 ! An institution, then, is a, stable behavioristic i i relationship. An institution is organized as a consequence I of behavior which is stabilized under the guidance of lead ership or the activity, but behavior actually transcends 35ibid., p. 34. 36rbid., p. 355. I 105 leadership. Behavior becomes a part of the personality of . the individual members or participants of the going concern; or institution. Behavior is not something which can be ; I i dreamed into economic theory by armchair economists or j ' i philosophers. I Institutions in this day and age have come to mean ; i I |corporations, labor unions, and political parties. How- 1 | ] jever, the thing which makes an institution what it is is j collective action in control, expansion, and liberation of individual action. It is through the Common Law method i I that the courts have selected the most appropriate types j 1 of institutional collective action from all types of in- j ■stitutional collective action and given them a legal j 1 istanding. i ! ! Sovereignty as an economic relationship. The courts,1 through the use of the Common Law, have managed to stabi lize economic behavior by extracting or removing violence 37 I 'from private initiative. The extraction of violence from I ; i !individual behavior is a continuing process, and it has • resulted in the monopolization of legal violence on the j i part of the state. In this monopolization of violence the : i 1 !state has become a process or an activity rather than an 'abstract sort of individual with certain deified powers. i i : ------- — ------ I 37Ibid., p. 7^. I 106 The state is an activity because the manner in which it i [continually applies its monopolization of violence repre- 38 sents a process of maintaining stable economic activity. The monopolization of violence on the part of the j state Commons terms as sovereignty. Only the state can } 39 ' legally use violence to impose its will upon others. i i ! However, in the United States sovereignty is not an arbi- , | t itrary thing. Violence can only be used by the state in ; I i accordance with the Constitution of the United States, more ! particularly, in accordance with the due process of law J provision of the Constitution as it is interpreted by the Supreme Court. Therefore, the arbitrary use of state , i sovereignty here in the United States has also been ex- ! I ' [tracted or regularized, and dictatorships governed by arbi- j I trary tyrants are not possible under present conditions. j Sovereignty, therefore, is not a capricious thing. Rather, \ kt has become regularized through the due process of law provision of the Constitution, and it is consequently an | | economic behavioristic relationship. j The public interest as an economic relationship. The| i ■ ! public interest becomes an economic relationship; it is that I ! behavioristic relationship which involves the whole of 38Ibid., p. 74. I 3^Ibid., pp. 74, 82-86. 107 society. All other social relationships, it appears to the writer, are restricted to segments of society, but the public interest takes into account all of society. The public interest is a social appeal to the conscience of the Supreme Court, that is, it is the conscience of the public making an appeal to the conscience of the court. The pub lic interest, dealing as it does with the conscience of the court, becomes a judicial abstract. Hie public interest has become stabilized by the due process of law provision of the Constitution. This provi sion is the main protection which citizens have against deprivation of life, liberty, and property. It is, in Commons' opinion, the most admirable of all protections 40 which has made America a. great economic nation. Custom as an economic relationship. Custom is com mon behavioristic traits which may be expected to continue in the future. It is predictable behavior based on the traditions of the past which extend into the future. Custom, however, does not have the force of law; neverthe less, custom is collective action in control of individual action. It is from custom that the Common Law is manufac tured by the courts. Therefore, a knowledge of custom is ' ^°IMd., p. 85. .necessary to understand how law has come into being. A {knowledge of current customs will often serve as an indica- I 'tion of the law of the future. Custom, then, relates the past to the future, that is, the past is extrapolated into the future by custom. There is no guarantee that custom will be good. 'Here, in the writer1s opinion, is one of the most funda mental shortcomings of Commons’ system of economics, since bad customs might well be absorbed into the law of the land by the Common Law method. Custom, therefore, is not morality, and neither is the law of the land morality. 1 Place of property among stabilized economic rela tionships. Of the five principle economic relationships, property, institutions, sovereignty, the public interest, ! and custom, property occupies the key role. Property is equivalent to economic power, the source of wealth and a jhigh standard of living. Property relationships determine 'what can be owned, and the control which people exercise i lover what they own. Institutions determine how people go ; about acquiring the ownership of property and the manner |in which people formulate the rules of collective action i i {which determine what means are socially acceptable for ! jacquiring ownerships. Sovereignty applies to the manner i 'in which the state enforces property contracts and to the I extent which the state may use its legal monopoly of violence. The public interest is over all public satisfac tion arising from the ownership of property which the Supreme Court attempts to maximize as it renders its judi cial decisions of an economic nature. Custom indicates how property relationships come into being and what changes are likely to occur in property relationships in the future. These relationships, then, revolve around property. Property in turn is the basis of capitalism. In the final analysis, the problem is'one of who gets what, and this problem can be better understood or appreciated by a knowl edge of these economic relationships. IV. THE PHILOSOPHY OF REASONABLENESS Reasonableness, as a philosophy, is very fundamental to Anglican culture. Not only are its implications evident in the Anglican economic system, of which the American eco nomic system is but a variation, but the implications of 4l reasonableness are also evident in the.Anglican church. It should be noted, however, that the Anglican form of Protestantism, which is organized around the Bishops, differs quite fundamentally from the American form of Pro testantism, which is organized around the congregation. ^Book of Common Prayer, Protestant Episcopal Church, 1928, p. 81. 110 This distinction is attributable to the dominant Puritan- Congregational religious movement which has prevailed in America since colonial times/ and which came under the in fluence of the Wesleyan revival movement during the cen tury following the American Revolution. Due Process of Law and Reasonableness The working rules of property are established or ; changed within due process of law. This provision of the Constitution has become the foundation of the American Common Law system. It is interesting to note, however, that even the meaning of due process of law will change in accordance with the Supreme Court's interpretation of the Constitution. In this day and age due process of law, for the purpose of economics, has come to mean economic inves tigation by the courts without dictatorship, civil war, or conquest, and the rendering of subsequent legal decisions in such a manner that economic citizens retain their eco- lip nomic power of collective action. in other words, the Supreme Court interprets the Constitution in such a manner that the great conflict between capital and labor can be resolved short of violence, civil war, dictatorship, or foreign conquest, with the condition that this conflict be resolved within the context of collective action. ^2Commons, The Economics of Collective Action, pp. 8 5-8 8. ‘ ------------------------------ Ill A middle course between tyranny, which is actually a , stratification of existing social behavior; civil war, which is actually a collapse of existing social behavior; and conquest, which is actually a. degeneration of existing ; social behavior, becomes the goal which Commons would have the Supreme Court strive for. Not only are tyranny, con quest, and civil war to be avoided, but the institutions of labor unions, corporations, and political parties should bei prevented -from performing excessive acts against each other, their own members, and the public in general, that j I would bring about American economic decay and finally for- ! ‘ I t !eign conquest. This, in the final analysis, is the manner : 43 in which Commons would preserve stability. Extremes to be avoided. The goal of the due process, ;of law provision of the Constitution is to find a middle ; I way between the general extremes of civil war, tyranny, and conquest. Due process of law, therefore, becomes the heart; i of the American Common Law system. Common Law is manufac- j I :tured by judges, but only with due process of law. It is I in this manner that the meaning of the Constitution can be changed or enlarged as the Supreme Court sees fit. Civil war, tyranny, and conquest are general ex- j Itremes because they indicate the pattern of extremes which ^Ibid., pp. 261-264. 112 ' are to be avoided as a consequence of due process of law. These general extremes translate to particular extremes which may be analyzed in conjunction with the forthcoming discussion of reasonableness. It is the particular extremes ; which give meaning to the pattern of the general extremes. Re a. s onablene s s the middle ground. The whole purpose t of the Common Law becomes that of finding the middle way, which Commons describes as reasonableness. Reasonableness, ■ i i however, has acquired a quadruple meaning, a legal meaning, , ja social meaning, a political meaning, and an economic mean- I ing. Each meaning of reasonableness, in turn, lies some- iwhere between two particular conflicting extremes, where : i the paired extremes are each unique to the meaning of reasonableness under consideration. Reasonableness has the , characteristics of the extremes without actually going to Ithe limit of absorbing the extremes in their totality. I jReasonableness is, in the final analysis, a middle ground jbetween extremes. ! ! Reasonableness a philosophy. It becomes evident to j jthe writer that Commons must have intended reasonableness ; to be a philosophy, more particularly the philosophy of j Anglo-American culture. As such, reasonableness is a unique I i I philosophy because of its emphasis upon avoidance of ex- ' i tremes on the one hand and the adoption of the attributes of the extremes on the other hand. Reasonableness is both ; 113 a negative and a positive philosophy, with emphasis upon moderation and a middle ground. It transcends economics and involves all aspects of Anglican culture. The Common Law method of making the law of the land is an example of the positive attribute of reasonableness. Here the courts are actually doing something positive, that .is, translating custom into law. On the other hand, the :two party system, which is almost unique to Anglo-American !societies, is an example of the negative attribute of i I reasonableness. The two party system provides a method !whereby people can vote against some legal, economic, or ’political issue. It is the writer's opinion that Anglo- j ; jAmericans, as they exercise their right to vote, by tradi- I | ! tion vote negative rather than positive, that is, they vote1 against rather than for. 1 Stable working rules the goal of reasonableness. When it is remembered that the Supreme Court is the ulti- • \ mate sovereign in Commons' system of economics, the concept; of reasonableness cannot be underestimated. Reasonableness ! is synonymous with due process of law, that is, due process of law is a provision of the Constitution and reasonable- ; ness expresses a philosophy which underlies the due process: [provision. The Supreme Court uses the philosophy of rea sonableness in interpreting or enlarging the meaning of the ■Constitution. The enlarged meaning of the Constitution, in, turn, expresses the Supreme Court's definition of due pro cess of law. The purpose of the Supreme Court in so defin ing due process of law in terms of reasonableness is to provide stable economic working rules. Here, perhaps, better than anywhere else, can be seen the manner in which the Supreme Court manufactures law by using the Common Law method. ■ Legal Meaning of Reasonableness The legal meaning of reasonableness has come to be l jidentified with the Supreme Court's test of constitution ' s 4 4 ality; that is, whatever is reasonable is constitutional. The Supreme Court, in determining the constitutionality of working rules, judges them on the basis of reasonableness 1 4r in order to preserve a stable economic system. J if due I process of law is a constitutional provision, and if rea- } sonableness is the test of constitutionality, then stabil- hf\ ity becomes the goal, | Ext reme s of the legal meaning of re a.sonablene s s. The extremes of the legal meaning of reasonableness are de rived from two distinct and conflicting moral codes. These codes Commons describes as the pragmatic code of workability I .............' ■ »■■■■■■ - i m 44Ibid., p. 25. 45Ibid., p. 39. ^Ibid., p. 267. 115 and the ethical code of justice- These codes conflict be cause what is often workable is not just, and what is often just is not workable. Workability. Concerning workability Commons states the following: ...Reasonableness is best ascertained and practiced when representatives of conflicting organized economic interests, rather than politicians or lawyers, agree voluntarily on the working rules of collective action in control of individual action... Reasonableness is the discovery, through investigation and negotiation, of what is the best practical thing to do under the actual circumstances of conflicting economic interests, organized as they are to impose their collective wills on individuals and on each other. ' The workability attribute of reasonableness, then, involves that which makes collective action workable and .practical, with a minimum of interference on the part of the state. Workability, therefore, becomes an attribute of reasonableness. It is, however, a pragmatic attribute, ethics or logic not being involved. Justice. Ethics, however, becomes an attribute of reasonableness when consideration is made of the way in which the Supreme Court directs its thinking. The court, as it decides just exactly what reasonableness is, uses as its scientific guide the ethical code of justice. Commons expresses himself as follows concerning justice: "Not until the transition is made to courts of justice as the Ibid., p. 25. dominant economists... does economics... become integrated with ethical science."^® Here Commons recognizes the unity of justice and ethical science, that is, he makes justice an ethical code. Then, while noting the slow growth of justice over the course of English history, he reinforces his conviction of the unity of justice and ethics in the following manner: "Until finally what had been only empirical stabs at jus tice, without a rounded out theory, became entitled to the name of all around ethical science."^ j As a final step, Commons relates reasonableness to {justice and ethics in the following manner: i i The theory of reasonable operation of the human will | in view of foresight and consequences makes economic I value turn on a science of ethics based on reasonable use of economic power. The science of justice, then, is the science of anal yzing the two dimensions of the human will in action. Jus tice does not involve love, sympathy, or conscience; it is i a judicial standard which refers to the way in which econ omic power may be applied. Justice, therefore, becomes an i attribute of reasonableness. It is, however, an ethical attribute, workability not being involved. I J___________________ i 48Ibid., p. 1 6 6. 49lbld., p. 1 6 8. ^ _________ibid., p., 166. ( H 7 ! Legal meaning of reasonableness a middle ground. The legal meaning of reasonableness becomes a middle ground between justice and workability. It possesses the attri butes of both without going to the extreme of either one. That is to say, the legal meaning of reasonableness never ■becomes so ethically just that it ignores workability, and neither does it become so involved with workability that it ignores justice. The legal meaning of reasonableness is, in the final analysis, the test of constitutionality. iSocial Meaning of Reasonableness | i i r ~t r i mmmmmm M M m M M n n a — n n r " M M M [ I ! ! The social meaning of reasonableness is understood ! ] . * jto be somewhere between the extremes of security and free- ■ Jdom. Freedom the writer distinguishes from liberty and jequality in this instance in that freedom means freedom from regulation while liberty and equality mean that all men are equal in the eyes of the law. Freedom has a social| i meaning while liberty and equality have a political mean- | ( I ing. The difference between freedom on the one hand and I liberty and equality on the other is the difference be- ; tween freedom from and equal to. i I The urge for security is very fundamental to man- j i kind. If one is to achieve security, however, the price lone has to pay is often a loss of freedom, that is, secur- ! lity is usually obtained by regulation. Freedom is equiva- ' ! 'lent to individual action and security is equivalent to collective action. Commons wanted the social meaning of reasonableness to be inclusive of both security and free dom, but he did not want security carried to the extreme of stagnation and neither did he want freedom carried to the extreme of laissez-faire. The social meaning of rea sonableness, therefore, becomes the ultimate economic purpose for living. The writer will arbitrarily refer to the social meaning of reasonableness as purposefulness, 51 .since Commons neglected to identify it with any one term/ !Political Meaning of Reasonableness The political meaning of reasonableness is under- jstood to be somewhere between the extremes of law and order 'on the one hand, and liberty and equality on the other, jcommons wanted the political meaning of reasonableness to be a blend of both law and order and liberty and equality, ,but he did not want law and order carried to the extreme ! ,of tyranny and neither did he want liberty and equality carried to the extreme of anarchy. He wanted reasonable ness to possess the attributes of both concepts on the one hand and to avoid the extremes of both on the other. The political meaning of reasonableness, therefore, becomes the goal, which when achieved, satisfies the purpose for living. i ! i ! 51Ibid., p. 15. The political meaning of reasonableness, in one term, means 5 2 opportunity, and it is a goal to be achieved. Economic Meaning of Reasonableness The economic meaning of reasonableness is somewhere between the extremes of monopoly and destructive competi tion. Reasonableness, in this instance, is equivalent to fair competition. In turn, fair competition involves both monopoly and competition while avoiding their extremes. Pair competition means reasonable competition, which in turn is tolerant of both monopoly and competition. The I (economic meaning of reasonableness, therefore, becomes the ! 53 ;means for achieving the political goal of reasonableness.-' i 1 Implications of Re a s onab1e ne s s on Prope rty and the Conflict 'Between Capital and Labor The economic goal of life, from the over all view- j point, involves acquiring the ownership of property in order to achieve a rising standard of living without vio lence, tyranny, or conquest. A rising standard of living, jtherefore, is conditioned by the principle of citizenship, that is, a rising standard of living means freedom, peace, and prosperity. ! S-gjbid., p. 138. 120' The Supreme Court, in determining the validity of economic working rules, uses as its test of constitutional ity the legal meaning of reasonableness. These working rules, when they pass the test of constitutionality, have for their function the establishment of a means for achiev ing the economic goal of life, the means being fair compe- ! tition, the economic meaning of reasonableness. The reason for achieving the economic goal of life may be found in ' purposefulness, the social meaning of reasonableness. The economic goal of life, however, actually means acquiring ; i (Ownerships of property according to the rules of collective[ !action. In order to so acquire ownership the opportunity for doing so must be there. In this manner the economic : 1 < goal of life translates to the political meaning of reason ableness, opportunity. Opportunity, then, becomes the goali to be achieved. I In this manner reasonableness is inclusive of the i j ; ;test of constitutionality, the purpose for living, the goal, j - 1 jto be achieved, and the means for achieving the goal. Each t meaning of reasonableness is defined as being between two particular extremes. These particular extremes, then, j i ! jtranslate, in their totality, to the general extremes of , (civil war, tyranny, and anarchy. The goal of due process I 'of law is to find a middle ground between these general extremes, that is, reasonableness is found somewhere between the extremes. The general extremes in the meaning of reasonable ness, in turn, lead to a general definition of reasonable ness in regard to the conflict between capital and. labor. The conflict between capital and labor, in other words, must be reasonably resolved if the extremes of civil war, tyranny, and anarchy are to be avoided. The general ex tremes and the general meaning of reasonableness, however, are not directly capable of being analyzed because the 'areas which they cover are too broad. If analysis is to be I |of any value at all, the quadruple meaning of reasonable ness and the particular meanings of the associated extremes i Imust be investigated. This investigation, then, makes i ! [meaningful the general meaning of reasonableness and the ; general extremes. Digression into Anglican theology. Reasonableness, ! it has been noted, is the philosophy of Anglicanism. As f such, it permeates all aspects of Anglican culture. I One aspect of Anglican Culture concerns the Anglican church, or, what is the same thing, Anglican-Protestantism. The Anglican form of Protestantism has been much concerned i with what Anglican theologians consider to be the two ex- ! 'tremes of Orthodox Protestantism, of which American Pro testantism is but a variation, and Roman Catholicism. Of course, what constitutes an extreme is a matter of conjec ture, and both Roman Catholics and American Protestants would deny that their denominations represent extreme positions. Prom the Anglican point of view, however, Orthodox Protestantism and Roman Catholicism do represent extrerae theological positions. The major problem with which the Anglican church has been struggling since the Reformation is that of avoiding the extremes of Orthodox Protestantism and Roman Catholicism on the one hand, and achieving the attributes of both on the other. Anglican theologians have attempted to find a middle ground between Orthodox Protes- .tantism and Roman Catholicism. This, then, is an applies- I |tion of reasonableness in the theological realm. Anglican Protestantism, of course, is no more cor- !rect in its position than is Orthodox Protestantism or Roman Catholicism. The purpose of this digression is not i jto attempt to justify the mission of Anglican Protestan tism, but rather to note that the philosophy of reasonable- i ness transcends Anglican legal, political, economic, and social considerations, and has become diffused with the ;Anglican church. Apparently reasonableness as a philosophy is very fundamental to Anglican culture. V. SOVEREIGNTY THE LEGAL BASIS OP PROPERTY Property the Creation of Sovereignty The most important stabilized economic relationships c2i are those of private property. These are the working rules or economic behavioristic norms which corporations,; labor unions, and political parties have in common. Es pecially in regard to defining private property has the Supreme Court invoked the Common Law and the principle of re a s on a b 1 e ne s s. Role of the courts. Indeed, the Supreme Court, acting in the capacity of the ultimate sovereign, creates property as it renders its decisions. Commons states the following concerning the creation of property: Property is created by sovereignty, by keeping other people off, by preventing robbery, trespass, stealing secrets, or preventing infringement upon one's oppor tunities to buy, sell, or compete... It is created by creating duties of forebearance and a v o i d a n c e . 55 It is immediately recognized that this is the creation of intangible property, which was previously noted as a market opportunity. Property, therefore, has for its basis stabilized economic behavior imposed upon people by the sovereign power of the Supreme Court. People must practice forebearance and avoidance in regard to the 54lbid., p. 21. 55Ibid., p. 8-1. 124 property of others, or the court will use physical force to obtain their compliance. Necessity of dwelling on reasonableness. The reason why the writer has spent so much time developing the prin ciple of reasonableness is because it pertains especially to the creation of property. It is, in the final analysis, the struggle over the ownership of scarce property which induces violence and tyranny, and hence the pressing need for reasonableness can be appreciated. Impossibility of Separating Property From Sovereignty Property is created by sovereignty, by imposing duties upon others and thus, in effect, lending to property its nature of a scarce market opportunity. Therefore, property and sovereignty cannot be separated, as was done by the laissez-faire economistsSovereignty and pro perty are unified through the pressing necessity of sover eignty protecting the property rights of the public. Pro perty rights are artificial rights and. not natural rights, as was claimed by the laissez-faire economists. Commons expresses himself on this point as follows: "These proper ty rights are indeed artificial. Nothing like them is found 56Ibid., pp. 81-82. ! 1251 i In nature. They are the artificial creations... of sov- 57 ereignty.nvl Sovereignty, the monopolization and stabilization of violence which has been extracted from individual ini- 58 tiative, is a prerequisite for private property. All the economic rights associated with property are subject to review by sovereignty, that is, to due process of law.-^ Indeed, it is sovereignty, rather than the owners them selves, who transfer the ownership of property, since ownership can be officially transferred only when the courts recognize that legal title to the property involved ' has changed hands.^ 57Ibid., P. 82. 58Ibid., PP. . 77-78. 59ibid., P- 85. 6oIbid., P- 45. CHAPTER V RELATIVITY AS A BASIS FOR ECONOMICS Commons worked out a unique basis for relativity in economic theory. This theory of relativity is inclusive of six major concepts: transactions, institutional collec tive action, ownership of scarce property, futurity, valua tion, and causation. Of these six concepts, institutional collective action and scarce property have already been thoroughly analyzed, and a very brief review of their sig nificance will be sufficient in this instance. The trans action, on the other hand, will be thoroughly analyzed in jthe following chapter;.therefore, only an introduction to |the transaction will be presented at this time. ! j I. INTRODUCTION TO THE TRANSACTION I 1 j The transaction-is really collective action applied to specific instances of everyday economic life. A knowl edge of the transaction is necessary before one can under stand how collective action affects the lives of all jeconomic citizens. This preliminary discussion of the transaction, however, is intended only to provide the basis for an understanding of economic relativity. i 1271 The Transaction as the Smallest Unit Investigated in Economics Commons analyzes the science of economics in terms of transactions. The important role which property occu pies in economic science has already been noted. The struggle over the ownership of scarce property is the great economic problem facing the nation. The reasonable resolu tion of this problem within the due process of law provi sion of the Constitution represents the goal of Commons1 institutional system of economics. The transaction provides the means for analyzing, observing, and measuring the human will in action at the time when the ownership of property is being accumulated or transferred. Since the struggle for the ownership of i jscarce property is in fact a struggle between the clashing S ^wills of men, it follows that the transaction ultimately (provides the means for analyzing the historic conflict i between capital and labor and discovering ways to resolve 1 i it short of civil war or tyranny. Commons notes that the transaction, rather than the j individual, is the smallest unit investigated in economics, j t Basically, he means that individuals standing alone are notj analyzed, but rather the subject of economic analysis is ! _ * j -'-Commons, The Economics of Collective Action, p. 21. , ; 1281 i 'citizens of economic government. Economists examine people plus personality organization, the human will exposed to the power of the wills of others. It is this totality of the human will in relation to other human wills rather than individuals by themselves which forms the basis of the transaction. Consequently, the transaction is the smallest 2 economic unit investigated. Relationship Between the Transaction, Property, and Citi zenship Of course, the obvious feature of the transaction is 'that it relates citizens to property. With this in mind : Commons states: The word property... carries the idea of something j passive or stationary, usually named statics. Its I active or dynamic content which makes property what 1 j it really is in human affairs is transactions.. I ! What Commons means here is that property, which is I ia, market opportunity, is actually created or its ownership ; i i exchanged during that time period associated with a trans- | i action, that is, during the interval associated with the 'meeting of the human wills in action. Property is of a static nature because it can do nothing on its own account, i while a transaction is of a dynamic nature because it is ; 1 2Ibid., pp. 351-352. 3Ibid., p. 8 1. u_ - - ;through the transaction that property is subjected to iownership. The transaction, therefore, is a unit of acti- i ,vity which contains in itself the three principles of con flict, dependence, and order. ^ This means that the transaction provides the mechan ism for economic citizens who, being dependent upon each other for economic survival, may resolve the great conflict between capital and labor in an orderly manner. Since the transaction intimately involves the resolution of the conflict between capital and labor, it becomes the most important economic activity.^ Preliminary Analysis of the Transaction The meeting of the human wills in action is capable I jof being analyzed and measured by the courts of law. It is this attribute of measurement which provides the scien tific basis of economics. The smallest unit measured is the transaction, that is, economic science is analyzed in < ! 'terms of the transaction. Types of transactions. There are three principle [types of transactions, bargaining transactions, managerial » transactions, and rationing transactions. The bargaining transaction is typically negotiated between labor unions ! 4Ibid., p. 352. i 5ibid., p. 21. i__ 6lbid.,, pp. 43-57. . . -.... - ; 130 i and corporations by collective bargaining, and its terms designate in what manner the legal ownerships of scarce property will be transferred among the participants to the transaction. That is, the terms of the bargaining trans action set forth wages, hours, seniority rules, and condi tions of employment. After the bargaining transaction has been negotiated the actual physical transfer of ownerships occurs between the participants. The bargaining transaction involves the legal transfer of ownerships while the managerial trans action involves the physical transfer of property. The , I managerial transaction typically occurs between a foreman and a worker, where the foreman is an agent of the corpora-■ ;tion and the worker is a member of a labor union. The worker, then, carries out the commands of the foreman. ! While bargaining and managerial transactions typi cally occur between labor unions and corporations, ration- : I ing transactions occur within a single collective organiza-j jtion. Collective, organizations control their members i through the rationing transaction consequently a rationing; transaction is collective action in control of individual 1 j i 1 t 'action. For the purposes of economics, collective organ izations are labor unions, corporations, and political [parties; therefore, the rationing transaction is the means ( [by which these organizations control their individual ! 1311 [members. The rationing transaction, it will be seen, pos- ;sesses the attributes of both the bargaining and the mana- 'gerial transaction. ! ! Strategic and routine transactions. The bargaining \ transaction is a strategic transaction because it sets the ' stage for the transfer of ownership of scarce property, that is, the question of who owns what is largely deter mined by bargaining transactions. The significance of the bargaining transaction is the ownership of scarce property; hence, the bargaining transaction is the strategic trans action, that is, it deals directly with the most fundamen tal economic problem of all, scarcity. Strategic bargaining transactions are limiting , i itransactions because one1s standard of living and citizen- i ship status are limited by the nature of the bargaining ; transaction and the rate at which they are consummated. ' Bargaining transactions, strategic transactions, and i limiting transactions, which all mean the same thing, are primarily concerned with the transfer of ownership of scarce property. I i The managerial transaction is a routine transaction . I because it sets the stage of what shall be done with scarcej property which is already owned, that is, it is a physical transfer of property. The significance of the managerial I .transaction is efficiency because the foreman directs the 'worker's efforts in producing goods and services as effi ciently as possible. This means that scarce property is :actually produced from scarce property which is owned by a corporation. The traditional factors of production, resources, labor, capital, and enterprise, plus the in creasingly important factor of skill and technology, are all involved in the managerial transaction. ' The managerial transaction is a routine transaction ' rather than a . strategic transaction because it follows logically from the consummation of a bargaining transaction. The managerial transaction is routine rather than strategic; hence, it is a complimentary transaction, that is, it compliments the bargaining transaction so that the two, considered as a whole, constitute a unified theory of ]transactions. Managerial transactions, routine transac- i . . . tions, and complimentary transactions, which all mean the i !same thing, are primarily concerned with the physical I t |transfer of property. i j However, managerial transactions are no less impor- 'tant than are bargaining transactions. The important thing jto remember is that managerial transactions deal with ‘physical transfers of property and efficiency while bar- | {gaining transactions deal with ownership transfers of i jproperty and scarcity. It is scarcity rather than effi ciency which provides the most fruitful field for economic ' investigation, since the fundamental problem in economics jis ownership of scarce property rather than the efficient I 'production of property. This means that the resolution of economic conflict takes precedence over the efficient production of goods and services. The rationing transaction presents a somewhat dif- : ferent problem from that of the bargaining and managerial transaction. Since the rationing transaction is actually the method used by an organization in controlling its mem bers, that is, collective action in control of individual I action, it need not be discussed any further, in regal’ d to I i !economic relativity, because the subject of collective ;action is dealt with in the following section. j | II. INSTITUTIONAL COLLECTIVE ACTION I I | Although the transaction indicates the manner in which collective action is applicable to everyday economic life, it does not reveal the over all institutional struc- i ture of the American economy. An understanding of the i !transaction, while it is indicative of how and why collec- . tive action works in the manner that it does at a particu- | lar time, in a particular place, and under particular ! circumstances, does not reveal the historical pattern of jthe evolution of collective action. The transaction does not explain the historical transition from individual economics of the barter system to collective economics of the institutional system. This transition is very important to comprehend, because it gives an indication of the direction in which the American economy is heading. The transaction, while it assumes that one has an understanding of the philosophy of reasonable ness, does not provide a basis for analyzing it. Therefore, in addition to the transaction, which is really an aspect of collective action, the entire area of collective action must be considered for a proper under standing of economic relativity. Collective action dir ected towards the resolution of economic conflict is, in fact, the economic environment in which citizens live; this environment, in turn, is influenced by the actual physical environment. A knowledge of the economic environ ment, that is, an understanding of economic collective action, is fundamental to a proper understanding of eco nomic theory,; III. OWNERSHIP OF SCARCE PROPERTY The ownership of property is valued because property is scarce. Of course, property must be useful if it is to have economic value, but use is not sufficient. In addi tion to use, property must also be scarce, and it is !scarcity rather than use which occupied most of Commons' [attention. i j The motivating force in economic science, therefore, is the propensity to accumulate the ownerships of scarce property. Citizens express this propensity as will power, that is, the propensity to accumulate the ownership of scarce property is an economic pressure, force, or in fluence which exists in the economic environment of col lective action. The extent to which the pressure of will power interacts with the economic environment depends upon a whole complex of factors, but for the time being the most important factors may be considered to be the significance ■of scarce property and the nature of economic collective ■action. The net effect of the propensity to acquire the i jownership of scarce property, therefore, is an economic [pressure, a consequence of the significance of scarcity. ! i IV. FUTURITY I i Economic Activity Revolves Around Prospects for Future i ’ Gains I | Futurity is a concept which Commons designated to I stress the importance of the future in economic analysis. 'Basically, Commons felt that economics is oriented toward the future. Future read back into the present. Instead of 'starting with the present and extrapolating into the fu- i jture, Commons starts with the future and reads back into I the present. The prospect of making a profit or earning ! .a living in the future makes economics the dynamic science •it is. In the economic sense, people are moved to act now 7 because of the prospect of future gains. Economic effect precedes economic cause. What ac tually occurs, therefore, is the phenomenon of an effect preceding its cause in regard to the time element involved. The cause of economic activity, which is the expectation of some economic gain at an indefinite future date, induces the actual present economic activity or transaction, which is the effect in this instance. Commons analyzes economic activity in terms of the transaction, which becomes the I jeffect and precedes its cause, which is the hope of some O future gain. However, it must be realized that expecta tions of future gain actually precede the transaction; it iis the actual gain itself which follows the transaction, and it is in this sense only that Commons reversed the i Jorder of cause and effect for economic purposes. i ! 7Ibid., pp. 104-105. I 8Ibid., p. 105. 1371 Futurity and stable private property. It can be understood,, therefore, why Commons placed so much impor- ! !tance upon stabilized private property relationships, be- Jcause the expectation of some future gain, if it is to be ia cause of economic activity is significant only if people anticipate that scarce private property will retain the capability of being owned. People come to expect that private property as it exists today will continue to exist into the future, any changes in its nature being gradual and realistic, that is, people anticipate property will retain its stable nature. ; I Futurity in Terms of the Credit System and Psychology The credit system and futurity. Commons defines futurity more specifically in the following manner: "Fu turity... is the credit system and the expectations of the q * future associated with the credit system. ' j Commons defines futurity in terms of the credit sys- l item because the expectation of future gains are capitalized i backwards into present worth of stocks and bonds, which in j turn shape the over all structure of the American economy.1® I - iOnly the credit system can provide the means for reading the future backward to the present. Money, which has \ j I - I I I I l» 11.11.■■■■ 9Ibid., p. 105. ! 10Ibid., p. 104. 1 become credit, is the means used by which the public ex presses its confidence in the future. i Up until now consideration has been given only to the expectation of some future gain. However, the opposite ! » I may also be true, people may come to expect some future I loss, or for that-matter, neither gain nor loss may be' anticipated. In any event, whatever expectations of the i future which do exist become the cause of some economic action. These actions in turn become the economic present and as such are reflected in the functioning of the credit system, but future prospects remain the controlling element.! Negotiational psychology and futurity. Commons ' t found that people react differently when future expecta- ; tions are optimistic than they do when future expectations ! are pessimistic. In the economic sense, the hopes of ! 'people hinge upon whether a gain, loss, or no change is expected. Commons expresses himself as ..follows on this , point: j Institutional economists find that people act in exactly opposite ways during periods of depression and prosperity. Not logic, but fear and hope are fundamental. People act to enlarge valuations in periods of hope or prosperity and to depress valua- : tions in periods of fear or depression... This is i negotiational psychology instead of rational or hed- j onistic psychology... It is volitional psychology | ! or will power. 11Ibid., p. 105. Future expectations definitely influence and mold ; present economic activity, but the way in which people act (differs according to the nature of their expectations. i Perhaps the most interesting thing which Commons has accom- jplished here is to introduce the concept of negotiational jpsychology. He has obviously done this to counter the traditional approach to psychology, which was a , rational or logical kind of psychology. People, Commons insists, are not rational or logical beings. People are the prod ucts of hope and fear. Negotiational psychology and collective action. These human hopes and fears Commons translates into nego tiational psychology, an eclectic or bargaining psychology. Negotiational psychology can be controlled through the med- 'ium of collective action, and it is also capable of con trolling. Commons relates collective action to negotia tional psychology as follows: Negotiational psychology, the truly behavioristic , psychology of business, of labor, of politicians, of j propagandists, of legislatures, of courts, is the I psychology of persuasion, coercion, duress, command, fear, and hope. Its instrument is signs and language. Negotiational psychology is often mistaken in the calculations of the future... yet it is controlling and controlled. 2 ^ Commons was interested in a theory of psychology :which was consistent with human behavior; he was not 12Ibid., p. 105. interested in armchair explanations of what human behavior should be. Negotiational psychology, he felt, explained j jhuman behavior as it relates to economics because it is \ ;oriented towards the future and because it is inclusive of icollective action. Negotiational psychology accounts for the controlling aspects of collective action as well as the actions of those subject to its control. In this way the mass tendencies towards moods of optimism and pessimism concerning prospects of the future become a consequence of 1^ collective action. : The point which Commons was trying to make is that futurity, with its emphasis upon future expectations, is the simplified statement of negotiational psychology. That i iis, people behave the way they do because of future expec tations. There is a propensity for people to look ahead, ,and their behavior is guided by what they think is in store for them.1^ Negotiational psychology, therefore, becomes the bargaining psychology Commons used in developing the trans action. It is not the subjective psychology of pleasures and pains occurring during the present, but rather the ob jective psychology of preparing for the future. Futurity ^Ibid., p. 105. | 14 Ibid., p. 105. 141 is simply the shorthand notation for negotiational psy- I IS chology. ^ I 1 Credit system the creation of negotiational psy chology. The credit system is the great creation of nego- i tiational psychology. The credit system, in turn, pro vides the mechanism for reading the future back into the ■present, that is, it provides a way to relate the present with the future., Economic behavior finds expression through the credit system. Important aspects of the credit system are debts and credits, prices, intangible property, money, profit, interest, savings, investment, stocks, and bonds. All of these aspects of the credit system are the creation of negotiational psychology, that is, they have come about because people look towards the future in re- ■gard to economic activity and need visible instruments to 'express their confidence in the future as well as to desig- I 16 Inate who owns what. I i I V. VALUATION i ! :Valuation Transcends the Market | ' ■" . ! j The fifth relativity concept to be discussed is that ;of valuation. ' 15Ibid., p. 109. ' l6Ibid., pp. 106-107. Valuation Inclusive of liberty and equality. Market value Is measured by credit money, which in turn Is the ( 'product of collective action. However, If valuation is considered to be a continuing process which is going on in i |the minds of people, equality and liberty are also neces sary to the full meaning of value. It is not enough to say !tha.t money measures market value; in addition people must ’ have access to money, or at least they must have the oppor tunity to earn money, if valuation is to become meaningful 17 for everyday economic activity. Importance of liberty and equality. It would make little difference if money measured value, and then people were denied the opportunity to earn money, as, for example, in the case of slaves. Equality and liberty, which make - i O valuation accessible to people, are in themselves valued. Liberty, for the purposes of economics, means the liberty IQ I to fix or agree on prices or values, which means the same i jthing as making valuation accessible to people. Of course, I jextreme liberty and extreme equality are to be avoided, 20 since they may result in anarchy. But nevertheless I ! l7Ibid., pp. 156-159. l8Ibid., p. 159. | 19ibid., p. 215. ; 2QIbid., p. 138. 143; Iliberty and equality are desirable attributes which should be liberally present in the American economy. Meaning of liberty and equality changes. The mean- | ing of money has changed from that of gold and silver to | i that of credit, largely in response to the change in the ] Imeaning of property from that of a physical thing to that ! Jof an intangible market opportunity. The valuation of an intangible market opportunity, which is oriented towards the future, can only be accomplished through the credit system, more specifically by credit money which reads the future back into the present. The changing nature of pro- , i perty has, therefore, induced a change in the meaning of I i 21 1 money. In an analogous manner there has been a change in | the meaning of liberty and equality. The early meaning of j liberty and equality, for the purposes of economics;’ hinged jon the obligations of contracts clause of the federal Con- ! i i < * jstitution, while the contemporary meaning of liberty and i (equality hinges upon the due process of law provision of 22 the amendments to the Constitution. In so altering its position of interpreting the Con stitution, the Supreme Court has created a whole new phase i i ! Pi | Ibid., pp. 45-49. ! 22Ibid., p. 265. of the Common Law. It has changed or extended the meaning (of liberty and equality from that of an individual concept ito that of a collective concept. It has permitted the I . .evolution of corporations, political parties, and labor ■unions. It has eliminated the extreme case of individual ^liberty, whereby one person, a proprietor, was free to own ■another person, a slave. This, of course, was not liberty at all, but because of the obligation of contracts clause of the Constitution the colonial institution of slavery was absorbed into the meaning of liberty, that is, an indivi dual's property could not be taken away from him even if the property was another individual. Withdrawal of liberty and equality contingent upon ,due process of law. Basically, the meaning of liberty as it was interpreted during the early days of the American republic was consistent with the prevailing laissez-faire philosophy of the day, and a person was free to do with what he owned without outside interference. The present concept of liberty hinges upon the freedom of an individual, jmeaning his economic freedom, to participate in collective Jeconomic action so as to accumulate the ownership of scarce ; assets. The application of collective action, however, j must be consistent with the rule of reason. This means, for 2^rbid., pp. 264-265. 1 4 5 1 the purposes of economics, that a person cannot be deprived p h . of life, liberty, or property without due process of law. ' Liberty can be withdrawn with due process of law, and it frequently is. Commons, however, felt that the ’ r • liberty of an individual should be restricted only when the! public interest benefitted. What this means is that, for | the purposes of economics, the liberty of a person can be : i lrestricted only when it has the effect of making the valua tion process, and consequently the ownership of property, more accessible to society as a whole. Political parties, corporations, and labor unions all place restraints upon ; people and upon each other, but they also have the effect • of giving people economic bargaining power or economic j liberty never before enjoyed. Labor unions and political parties both attempt to take property away from each other,: and political parties attempt to take property away from ■both labor unions and corporations, but as long as this jconflict remains within due process of law it is constitu- j I ' I l |tional. This is different from conditions which existed i 'during the early days of the republic, when the obligations1 of contracts clause of the Constitution was the controlling' ! factor and each person was free to do what he pleased with i i ; Iwhat he owned. That is, collective economic action was i r r ' 1 : 24Ibid., p. 265. 146' i • unconstitutional with the exception that certain corpora tions were granted charters hut only by specific acts of legislatures. Double meaning of liberty and equality. It becomes i 'evident to the writer that Commons had in mind a double [ i • • meaning of liberty and equality. The first meaning, the political meaning, involves the concept of equal to, and in this sense liberty and equality are identical with the political meaning of reasonableness. Liberty and equality, therefore, have acquired an opportunity meaning, since equal to means that all persons are equal in the eyes of the law, that is, all persons, in the legal sense, have equal opportunities to enter the business world and make money. The second meaning of liberty and equality, which is . social in nature, involves freedom from, more particularly freedom from regulation. The amount of economic regulation , one is subject to is a function of the economic power one J possesses. In this sense liberty and equality are identi cal with the social meaning of reasonableness. Obviously, I all people are not equal because some people are more sub- \ ject to regulation, that is, subject to the economic power j 'of coercion from external sources, than are others. I I ___________________ 25Ibid., p. 265. ! 1 ...... 1 4 7 j Equality in the eyes of the law does not mean equality in fact. Equality has come to mean reasonable opportunity jwhile freedom has come to mean reasonable freedom from (regulation. Apparently, Commons blended both concepts into ^the meaning of liberty and equality, and in this sense (liberty and equality have come to acquire a double meaning.| i ; ;The writer, however, prefers to identify freedom as freedom: ! jfrom, and liberty and equality as equal to, and in this i I ' | manner to distinguish between the two meanings. : This double meaning of liberty and equality can be : attributed to the rise of collective action, which in fact is regulation. With the increase in the significance of .regulation, freedom from and equal to both become factors worthy of consideration. While it might have been true j 'that equal to was the prevailing consideration during the ! early days of the American Republic, the rise of collective 1 action and regulation in the past century have imposed upon; economic, political, and social science the additional con- ; jsideration of freedom from during this day and age. I Liberty, equality, and intangible property. It is i |the writer’s opinion that Commons was really trying to say jthat the criterion for liberty and equality has changed jfrom what it was in the early days of the republic because i ■the meaning of property has changed. Contemporary Ameri- : i _ 'cans, like their forefathers, are free, but the criteria for freedom has changed over the past century. Americans of a century ago were free in the sense that they could, i as individuals, do as they pleased with what they owned, providing they refrained from economic collective action. Americans today are free in the sense that they, as citi zens of economic collective action, can withhold from i !others what the others want hut do not own. Furthermore, j icontemporary Americans may use collective economic power, if necessary, in order to accumulate the ownership of more scarce assets, providing they abide by the rules of eol- lective action, the apex of which is the Supreme Court. This withholding, of course, defines the new meaning of intangible property or market opportunity, and it explains the shift from the obligations of contract clause of the original Constitution to the due process of law clause of the amendments to the Constitution. In other words, obli gations of contracts carried with it an individual meaning jwhile due process of law carries with it a collective i , meaning. The great example which Commons uses in citing this jtransition is that of the Civil War, when the Northern |States, by force of arms, compelled the Southern States to !abandon slavery, an act which resulted in the loss of ex- i jtensive property holdings to the southern slave owners. |Admittedly, slavery was an evil and immoral practice, but 149I Commons did not consider the problem from this point of view. He was concerned with this event primarily because j r 'it forced the Supreme Court to shift its position from one , 1 jwhere, in the economic sense, property was a physical thing' ,(in this case a . physical human body) capable of being owned 1 by an individual, to one where each person had the right 1to withhold from others the product of his labors (a market ! opportunity and consequently a form of intangible property) ;subject to the rules of collective action. In no other manner could the seizure of slave hold ings be found to be constitutional by the Supreme Court, I aside from force of arms, and once the legal precedent had been set a change in the legal meaning of property was in evitable. That is, once the Civil War had forced the Supreme Court to shift its definition of property from a physical thing to an intangible thing, the Supreme Court was forced to use this precedent as the basis for all its future decisions concerning property. The due process of law provision of the Constitution superseded the obligations of contracts provision of the Constitution. In the process the meaning of liberty and equality also changed until in jthis day and age liberty and equality have acquired economic 1501 ( implications which are at least as important as their poli- ?6 tical implications. ' Change in the meaning of due process of law. The meaning of due process of law will change as the Supreme jCourt interprets the Constitution. That is, the Supreme I ■ ICourt will read new meanings into the due process of law 'provision of the Constitution as circumstances change. Consequently, the meaning of due process of law changes over an extended period of time through the application of the Common Law method. Therefore, the constitutional pro vision remains in force even though its meaning changes. In this manner the meaning of liberty and equality can be 1 i changed in an orderly fashion, that is, within due process of law. What this means is that people have recourse to the courts whenever the issue of personal liberty and equality arises, but the criterion the courts use in re volving the issue will depend upon the conscience of the 27 .court at that particular time. 1 ; I n ' i I Property in self. A new form of intangible propertyi * lhas come to be recognized, this being the property of one1s ; i ■ jself, the property of one's ability to make money. This ; i - i ; property is, in effect, a market opportunity of5 intangible I > • property, but it differs from all other forms of property i_ _ _ _ _ _ _ _ _ _ _ g6Ibid., pp. 264-265. L _ 27lbid.,, p. 22. . ....... ______ in that its ownership cannot be permanently sold. An indi vidual may temporarily sell the market opportunity which his own person represents, but he is always free to reclaim this ownership by the simple expedient of quitting his job l v or finding a new type of employment. An individual may not |legally permanently sell the market opportunity which his person represents to another person, even if he sells him self voluntarily. This new property in self stems from the anti-slavery due process of law provision of the amend ments to the Constitution which followed the Civil War. 28 It has become the basis of universal citizenship status. In turn, the New Deal gave property In self further impetus by recognizing the right of individuals to join a collective labor union and thereby to make their economic independence even more keenly felt in the economic world. This means people became free to join a labor union with ;the avowed purpose of forcing their economic will upon cor- i i jporations. Consequently, liberty and equality took on a |new meaning which it did not have previously, the freedom • 29 :of people to organize into labor unions. I i | Institutional valuation. Since collective action j plays such a large role in the functioning of money, > i | ; ------- ! 28Ibid., p. 5 4. 29Ibid., p. 159. 1 ' 152; 'liberty, and equality, Commons believed that valuation has become institutionalized, that is, valuation has become a part of collective action, which in turn makes it accessible ’ i I to people as a part of their opportunities. It is inherent, i ! jto American culture that Americans have the facility, | through the valuation process, to determine their own des- j i i :tinies, at least in part, but only within prescribed bounds i • !of collective action institutionalized by society as a :whole.^ • Valuation as a Relativity Valuation is a very subjective and complicated | thing, and it involves much more than maximizing one's own , immediate self interest. It is, according to Commons, a relativity, that is, it relates man to the environment of collective action and conflict in which he lives. However, the environment is subject to change, which means that the valuation process is also subject to change, and hence it ■31 i ■ is a relative thing.-* Valuation a resultant rather than a determinant. iValuation, furthermore, is not a determinant of economic i , ■behavior but rather the resultant of the whole of the human jwill in action. When an individual values something he j i I I } . . 3°ibid., p. 159. I : 31Ibj Ld.j p. 45. makes a subjective judgment about It and It is these judg ments which constitute his values, at least in the realm of economics. In order, however, to understand properly i 'valuation, it is necessary to deal with the whole of the I ;human will in action. Consideration must be given to any ;external pressure to which the human will is subject and the available alternative opportunities from among which :it may choose. With this in mind, valuation becomes-a re- 52 sultant and not a determinant of human economic behavior. What Commons means here is that when someone ex presses the value of something he does not state the condi tions which were present during the valuation process. It is not known, from an expression of value alone, what ex ternal power was present during the valuation process, and neither is it known what alternatives were available to those who were performing the actual valuation. An expres sion of value, by its very nature, is devoid of these con siderations, because it is an end product or resultant of human behavior which has already reacted to the conditions present during the valuation process. Valuation, therefore, ;remains a central problem in economic science, but before Jits significance can really be appreciated the transaction 32Ibid., pp. 117-119. I |must be analyzed. It is during a transaction that the whole of the human will in action becomes involved. Valuation an aspect of judgment. In effect, when- jever a person values something he makes a subjective judg ement which is influenced by all of the factors present, I that is, he must consider not only what he wants to do but |also what others want him to do and what is possible for |him to do. He then subjectively weighs the various consid- jerations involved in ‘ the valuation process and makes a subjective judgment. In this manner valuation becomes an aspect of judgment, a resultant rather than a determinant of human behavior. Judgment, therefore, is more fundamen- : tal than valuation to the extent that judgment is inclusive of valuation.33 ; i i Reasonable Value It is the writer's opinion that Commons best ex presses his thinking on both reasonableness and valuation ,by his references to reasonable value, which in turn de- j ,pends upon the reasonable operation of the human will in action. It is here that Commons blends together the quad ruple meaning of reasonableness (legal, economic, social, ! and political) into a , single meaningful theory of reason able value. 33ibid., p. 10. Theory of reasonable value. The distinction between reasonable value and valuation in general, apparently, is that reasonable value is a collectivistic concept while I valuation in general is an individualistic concept. This i means that reasonable value takes into consideration the philosophy of reasonableness and all its institutional I implications while valuation in general ignores all consid- i : ,erations except the expression of an individual judgment. Since all institutional implications are taken into consid eration by reasonable value, economic theory cannot be based upon any one proposition, such as monopoly, competi tion, supply and demand, etc. Rather, it is based on a theory of reasonable value the courts have worked out from proportioning many complex factors involving multiple op portunities and choice of alternatives in an economic and social environment of stabilized values. It is the judicial effort toward reasonable values which has permit ted the Anglo-American civilization to avoid the violent !swings between the anarchy of destructive competition and ;the tyranny of monopoly, both of which, in the final anal- j iysis, lead to periodic violence, dictatorship, war, and bloodshed. Reasonable value, therefore, is the key to 34 peace and prosperity. | 34Ibid., p. 164. 156 Analysis of reasonable value. There are many fac tors which the courts proportion when they work out the theory of reasonable value. The factors themselves will be treated, in the next section of this chapter, Causation. What is important now is the judicial mechanics involved in proportioning the factors. ; What the courts are trying to do, it appears to the ! iwriter, is to maximize the public interest by raising the 'standard of living. This, however, is not a sufficient statement for maximizing the public interest. A complete 'statement must include the principle of citizenship. This citizenship requirement has led the courts to develop the theory-df reasonable value, the first step of which is to invoke the rule of reason as the test of con stitutionality. In turn, the rule of reason involves the legal meaning of reasonableness with its attributes of workability and justice. The purpose of the judicial test of reasonableness is to make available to all citizens the social meaning of reasonableness. This meaning of reason ableness is termed purposefulness. The purpose for living Is satisfied/when the political meaning of reasonableness, the goal of opportunity, is achieved. The method for achieving the political goal of reasonableness is the economic meaning of reasonableness, fair competition. Pair competition is something everyone may participate in. i 157; ! i I These four aspects of reasonableness, the test, the 'purpose, the goal, and the method, constitute, in the writer's opinion, the framework of Commons' theory of reasonable value. Reasonable value, then, combines the legal, social, political, and economic meaning of reason ableness into a single theory of value. The development U the theory of reasonable value was occasioned by the need j ! for conditioning maximizing the public interest with the ; ! i principle of citizenship. Reasonable value is collective valuation, but all citizens express their own values as members of collective action. Reasonable value starts with j I the Supreme Court and ends with citizens of economic govern ment participating in fair competition. Reasonable value, i therefore, is a . participating type of valuation. Market value and reasonable value. Reasonable value goes far beyond market valuej reasonable value is more than price; it is actually price plus reasonableness. Price is ; i the obvious component of value while reasonableness is its hidden, but more meaningful component. True enough, price : is an aspect of reasonable value, that is, reasonable value • I I is inclusive of price, but price is by no means its most i important aspect. The philosophy of reasonableness is the j most important aspect of reasonable value, and it is in this ; 1581 manner that the whole Institutional framework of collective i action becomes absorbed, into valuation. Commons was much more interested in that part of value which was above and beyond price than he was in price ( alone, and this increment beyond price accounts for his jtheory of reasonable value. Price,, in other words, is not jenough for an expression of value. In the same manner that Iprice is related to a higher standard of living from the i jdollar standpoint, so reasonableness is related to citizen- i ship from the social standpoint. Furthermore, it is the reasonableness aspect of value rather than the price aspect which is in need of explanation, since the subject of analysis is citizenship rather than money. A high standard of living, to be a com plete statement, must include the principle of citizenship. It is the principle of citizenship which is accounted for by reasonable value and which distinguishes Commons' view point on valuation from that of other economists. What Commons was interested in was citizenship rather than pro duction and consumption, and he uses reasonableness to jexplain citizenship rather than price to explain production 'and consumption. i i f I 85Ibjd., pp. 162-165. 159 Scarcity value and reasonable value. Commons was much impressed with,the historic dichotomy of use value versus scarcity value, especially since he considered the outstanding attribute of property to be scarcity. While Commons.does not follow the traditional line of reasoning ;on either scarcity value or use value, he does accept the premise that something is valued because it possesses pro prietary scarcity. True enough, it would be expected that something which is valued is useful, that is, possesses ,utility, but use alone is not sufficient to generate value. It is proprietary scarcity which lends to intangible pro perty the attribute of value. Hence, the problem of valua tion does not center around the overcoming of scarcity by efficiency as the traditional economists assumed, but rather it comes to focus on the ownership of scarce assets and the bargaining for these scarce a s s e t s . 36 The scarcity characteristic of value Commons acknowl edged to have originated with Malthus, but Maithus spoke of biological scarcity rather than proprietary scarcity. 1 Scarcity value is actually exchange value, that is, scarcity lends to property the attribute of commanding exchange or bargaining power over other property or the human will. 36ibid., p. 169. 37ibid., p. 165. Scarcity value has become absorbed into the framework of reasonable value, and the importance of the scarcity attri bute of reasonable value can be appreciated by noting the importance of collective bargaining for scarce assets in | fair competition. I | Rejection of deductive logic. Commons, in developing i ,the theory of reasonable value, rejects the deductive logi- 1 cal thinking popularized by the classical economists. I Commons' criticism of deductive logic is best exemplified by his comment that the law of supply and demand can be carried out logically to its inevitable disaster. This 1 I erroneous method of deductive reasoning he terms a part- j whole fallacy, that is, reasoning logically from an incom- i plete proposition. Commons accepts the law of supply and i demand, but not as a hard and fast phenomenon; rather, he considers it to be but one of many economic principles, from which generalizations cannot be made in the absence of giving appropriate weight to all the other factors involved., The law of supply and demand, when standing alone, is but a part of the whole scope of economic theory.--’ ! He developed his theory of reasonable value by using i ithe comparative type of reasoning, which involves investiga,- ! jting similarities and differences as they exist in the real ■ I [ • ___________________ ' 38Ibid., pp. 137-138. 1 6 1 1 l world. He then weighted them in a realistic manner, using 39 the principle of proportioning the factors. ! Reasonable value identified as opportunity cost. Commons, when he attempts to use a single word to describe [ reasonable value, uses opportunity cost, the sacrifice in- , 40 • volved in foregoing an alternative. Opportunity cost he ! terms the legal theory of value, the idea here being that ;only those economic contracts or transactions which involve ; 'a reasonable opportunity cost will be upheld by the courts. Citizenship itself is an opportunity cost sort of thing, since citizens are continually weighing alternatives. Op- l portunity cost, however, transcends an individual citizen; ; * l it applies to the whole of society. F Citizenship rather than a citizen is involved. The recent Supreme Court decision forcing the DuPont family to i divest itself of its General Motors holdings is an example of an opportunity cost which the Supreme Court has held to be unreasonable. That is, the Court thought that the public would sacrifice too much economic freedom if the DuPont family continued to control General Motors, j Reasonable regulation. The theory of reasonable value, emphasizing as it does collective action, is 39j;bid., pp. 120-125. 40Ibid., p. 139. t i 162 I linclusive of regulation, not only as a consequence of poll- : i 1 •tical parties but also as a consequence of corporations and, I jlabor unions. It is through regulation that socially ap proved values are expressed by society; regulation also determines how society induces citizens to conform to isocially approved values. i These values, of course, are merely collective ex- 1 1 pressions of judgment and not collective determinants of ■behavior. Collective determinants of behavior are more nearly identified with how society induces citizens to conform to socially approved values. The values are simply• ' I goals to be achieved. Both aspects of regulation, the values and the man ner of inducing conformance to the values, are subject to j the rule of reason, and, indeed, to all of the other mean ings of reasonableness. Regulation, therefore, must be reasonable regulation; it is the working rules of collective action in control of individual action. Therefore, regula tion, emphasizing as it does reasonableness, valuation, and f . 1 collective action, becomes absorbed into the meaning of , 4l reasonable value. ^Ibid., p. 125. 163 1 VI. CAUSATION Commons was much Interested in the cause of economic action. He was of the opinion that people looked to the I future when they make their economic valuations and parti- ♦ r cipate in economic activities. For the purposes of eco nomic contracts these valuations and activities are under- i |ta.ken during a transaction. Transactions, therefore, • j ! translate valuations and future expectations into the cre ation of scarce property and/or the transfer or accumulation of ownerships of this scarce property. However, it is ' scarcity of ownerships of property which induces people to look to the future in the first place. I Economic Potential Ownership of property is scarce, and expectations of ■the future are always present. These two factors, scarcity ; and futurity, when considered as a unified whole, consti tute the framework of the theory of economic potential. Economic potential involves economic action, that is, eco nomic potential is a set of conditions which induces eco- 1 nomic action. In particular, economic potential is the scarcity-futurity relationship. While scarcity and futurity constitute the framework of potential theory, they are not sufficient to completely define it in the absence of institutional collective action, 164 ' [transactions, and valuation. Institutional collective t ■ ■ ' action, which is the economic environment, determines to I 'what extent economic potential induces economic action, the j jnature. of economic action which does occur, and the goals i 1 toward which economic action is directed. Transactions determine the manner in which scarcity and futurity are i ^translated into economic action via the meeting of the \ jhuman wills in action. Valuation expresses judgment i reached during the transaction. I Economic potential, therefore, is a process which induces economic action and which is inclusive of scarcity, ! Ifuturity, institutional collective action, and transactions.' 1 jcommons, when he speaks of economic potential, does so in :terms of buyers and sellers, but his intention was to de- > iip .scribe just exactly how economic action transpired. In the final analysis, economic potential means bringing together buyers and sellers on the market so that transactions may be negotiated. Although the profit motive1 is used by many economists to describe why buyers and sellers negotiate transactions, the profit motive does not jaccount for collective action. It is not the profit motive ; Which is in need of analysis, since the profit motive is an j jobvious thing; rather, analysis should be made of the whole 42Ibid.., p. 50. < . I 165 ' i 'area of economic potential, which is inclusive of the profit motive. In other words, the subject of analysis should properly be human behavior rather than money. The profit motive, while a necessary condition, is not a sufficient condition to explain human economic behavior. Strategic Pactors the Limiting Transaction I Given economic potential, that is, a propensity for j I economic action, the subject of strategic factors or limit-j i jing transactions now arises. i Qwnership the strategic factor. It is the accumula.- jtion and transfer of ownerships which is the strategic fac-; !tor in economic science. This strategic factor Commons 43 terms the limiting transaction. The limiting transaction! involves ownership because this is what determines who gets how much of what, that is, a person's standard of living is limited by the assets which he owns or is in the act of acquiring. Causation the consequence of controlling the limit- ► : ing transaction. The limiting transaction of ownership is jcontrolled through collective action, more particularly by I jthe working rules defining the rights and duties of pro perty and the manner in which the ownership of property may, ;be acquired and/or transferred. As the operation of i j 43lbid., pp. 366-373. 166 ' {working rules Induces economic behavior to assume a predic table pattern concerning the acquisition of ownerships of 1 I jproperty, the limiting factor is controlled and this control I ’ becomes the cause of a new state of affairs. This new state of affairs actually involves future expectations relative ( to current scarcity, and this relative condition results in {new limiting transactions and the adoption of new working {rules.^ In this manner causation becomes the consequence ; | 1 'of control exercized over the limiting or strategic factor ■of ownership.^ I Effect precedes cause. Since the new state of af- j ;fa,irs actually involves future expectations, it becomes {evident that, in the realm of economic science, effect pre cedes cause. The cause of an economic action, which is future expectations, becomes manifested after the effect, which is the limiting transaction. It is true that expec tations, which are the cause, in a . sense precede the trans action, which is the effect, but the cause does not become manifested into reality until the transaction is consumma- !ted. Whether future expectations are correct or incorrect I jis not important; it is only important to note that expec tations are manifested in the future in some manner, and. i ___________________ | ^Ibid., pp. 179-180. '45 ^ ^Commons, Institutional Economics, p. 632. ; 167 ; I this manifestation is the cause which, in the final anal- j 46 .ysis, induces the consummation of a transaction. Timing of limiting transactions. Commons placed much emphasis upon controlling the limiting transaction of ; [ownership by timing, where timing involves the three aspects ! j ; of when to act, where to act, and to what extent action ' ishould be undertaken. He wanted the limiting transactions ! consummated at the right time in the right place and to the | right extent. Timing, in other words, is judgment, and tim-r ing replaces stable equilibrium in Commons' system of eco- ; I nomics because full employment or the utilization of re- I i sources at maximum efficiency occurs when timing has been j 'correct rather than at the point of stable equilibrium. j Unlike economic equilibrium, timing is not capable of being scientifically analyzed because it involves subjective judgment rather than some objective measurable phenomenon. To the extent that the timing of limiting transactions causes a new state of affairs, causation is also a conse- 47 quence of timing. ' Complimentary Factors the Routine Transactions Once the limiting or strategic factor is controlled, that is, once the working rules and the timing for ■^Commons, The Economics of Collective Action, pp. 1 0 4 - 1 0 6 . ------------- ----------------------- 47Ibid,, pp. . 179-180. I 168 transactions involving the transfer and/or accumulation of ownership of scarce property are agreed upon, other compli- ! mentary factors or routine transactions become involved. j : i Although all transfers of ownerships involve transactions, , ; ! not all transactions involve ownerships. Perhaps the out- ; . . ■ standing-example of such transactions are those which deter mine the manner in which owned scarce property is processed I or used, as, for instance, the manner in which a corporation I I uses the capital, resources, labor, and enterprise at its 1 ' 1 48 disposal. i i J Routine, transaction a controlled limiting transac- ; jtion. Once the limiting factor is controlled, the routine ! i transactions are automatically set to work in the direction j intended. The trick, of course, is controlling the limit ing factors properly. Since the complimentary factors are i translated directly into employment, production, and Income, it is of crucial importance that the limiting factors be skillfully controlled. The limiting factor, although it is not comprehended by laymen, nevertheless determines the whole framework of complimentary factors, and, in the final analysis, production, employment, and income. So important is the technique of controlling the limiting factor that Commons states that it requires managerial genius,^9 48Ibid., pp. 179-180. 49lbid., p. 180. Efficiency involved in the routine transaction. When I limiting transactions are controlled this means that the ; ■working rules of ownership are stabilized through collective I ' action. The important thing is what happens to the owner- j ships involved in the limiting transaction. The answer to j ;this is that ownerships are put to work creating additional jownerships in the routine transactions. I j The key to creating additional ownerships is effi- i ciency, that is, efficient production processes result in the creation of additional ownerships during the routine transactions. These routine transactions are controlled * limiting transactions because the working miles for acquir- ! ing these additional ownerships during a routine transaction I r were established during a limiting transaction. Limiting I ; transactions, therefore, are more fundamental than routine transactions, and ownership is more fundamental than effi cient production. The limiting transaction-routine trans action relationship is a part-whole relationship, that is, one can neither be understood nor properly analyzed without the other. i Causation and Economic Relativity Relationship between bargaining transactions and manage rial transactions. The bargaining transaction becomes 5°commons, Institutional Economics, pp. 6 3 0-6 3 3. 170 . the strategic or limiting transaction a.ndr the managerial jtransaction becomes the routine or complimentary transac tion. Bargaining transactions are identified with owner ships and scarcity while managerial transactions are identified with physical effort and efficiency. A manager- . I jial transaction, therefore, becomes a controlled bargaining | [transaction, and it is the control thus exercized which creates a new scheme of things, that is, a new scarcity i i ; .versus futurity condition. It is this new scheme of things,: i 151 : then, which is the cause of new bargaining transactions.-^ I ! s Double meaning of control exercized. The managerial jtransaction, it appears to the writer, is controlled by the bargaining transaction to the extent that the performance of physically transferring ownerships is controlled by the performance of will power. The physical transfer is but the consequence of will power. A double meaning of control, therefore, becomes evi dent. The first meaning of control involves controlling the bargaining transactions which are negotiated as a conse quence of future expectations. In this sense control sig- 1 nifies action or a process; it is a verb; it means using the human will in action to influence or control other human 1 wills. The second meaning of control involves a. controlled ^J-ibid., pp. 630-633. ; 171 , transaction* that is, the managerial transaction. In this , \ jsense control signifies a result or a description; it is an adjective; it means a human will which has been controlled ;by other human wills or by.its own self command. i | Commons, apparently, was rather ambiguous in his Jtreatment of control. Citizens, in attempting to calculate the future correctly, participate in bargaining transactions i. 1 'and attempt to control the wills of others. As a conse- j quence, bargaining transactions become controlled transac tions and are transformed into managerial transactions. It j is this process of control which is exercized in bargaining transactions and which, in turn, becomes the cause of a new !scheme of things. i ' Control exercized the process of causation. Causa tion becomes a process which is the consequence of control. ,Control which is exercized during a bargaining transaction causes a. new scheme of things, that is, a new scarcity and futurity relationship. This control is a continuing pro cess, the product of the meeting of the wills in action. I Causation is, in other words, the consequence of transac tions . Causation and economic relativity. Therefore, in addition to the ownership of scarce property, futurity, institutional collective action, and transactions, causation is also necessary to a proper understanding of economic ; 172 I 'relativity. Economic action is a relative thing; it is relative to the scarcity-futurity framework, but within ,this framework the importance of causation must also be ^considered. Causation, in turn, involves institutional ^collective action and the transaction. Therefore, it fol- i lows that economic relativity involves all the conditions : : of scarcity of ownerships, futurity, institutional collec- 1 i 1 Itive action, transactions, and causation. Economic rela- ; 'tivity becomes a relationship between economic conditions, 1 ■ * • land economic activity in turn is a function of economic i i 'relativity. Economic potential and economic relativity. Economic potential, which is actually the scarcity-futurity relation- I i * ship conditioned by institutional collective action and i transactions, is basic to an understanding of economic relativity. Potential accounts for the unbalanced condition the consequence of which is economic .activity. Economic potential is an unbalanced condition, and economic activity . is the balancing force or the equilibrium agent. However, economic activity is accomplished through transactions; furthermore, the control exercized during the transaction is the cause of a new scheme of things, or a new scarcity- futurity relationship. Consequently, economic potential remains an unbalancing force and economic equilibrium is never achieved. In the final analysis, economic potential 173 I Is the social force of human wills reacting to the scarcity-1 futurity relationship. I Part-whole relationships. Since economic relativity v is so important to economic theory, it follows that no one single economic axiom is capable of relevant analysis in j i |the absence of other related axioms. Economic axioms are ! t interrelated with one another, and any conclusions drawn ifrom a single axiom are relevant only for certain specified ! R O conditions, that is, only if other axioms are defined. 1 i Part-whole relationships are analyzed in terms of i . working rules of collective action. These working rules are i 'investigated by using the comparative or observation method i jof scientific reasoning. Similarities and differences are : 'observed and measured, and the results of the analysis so j performed are formulated into economic theory or working rules. These working rules, however, will apply only under the conditions present when the analysis was undertaken, that is, the relevancy of working rules is dependent upon the validity of the axioms assumed. Changing axioms means 'changing part-whole relationshipsj consequently, part-whole [relationships are relative things, that is, they are a part iOf economic relativity. 52Commons, rpj^ Economics of Collective Action, pp. 120-144. Rationing transactions excluded from this discussion. Rationing transactions have been excluded from this discus- 1 sion. Since rationing transactions possess the attributes of both bargaining transactions and managerial transactions,' fit follows that the same conclusions concerning causation which apply to bargaining transactions and managerial trans- ! actions also apply to rationing transactions. The major i difference between the two cases is that the element of ; i ; freedom found in bargaining transactions is absent from t rationing transactions. The free choice of one's destiny, i ;therefore, is much more difficult to achieve in rationing i ■ ^transactions. | Principle of Proportioning the Factors Judgment. Commons considered the blending together of strategic and complimentary factors as the principle of proportioning the factors.^3 prosperity, therefore, depends upon proportioning the limiting and complimentary factors in the optimum manner. In other words, the economic leaders must judge the future correctly. This is why timeliness is not of a scientific nature, because judgment cannot be measured. Although economics can qualify as a science, it cannot do so on the basis of judgment. It can be said that a person has used good or bad judgment, and timeliness or 53ibid., p. 366. judgment may be used to help analyze the human will In action, but judgment itself defies analysis. Apparently what Commons had in mind is that good i ’ judgment or timeliness is an important attribute for econo- ; mic success. Judgment, in turn, is translated into collec- ■ I jtive action through the Institutional structure of the ^American economy, because the only way that economic judg ment can be made available to the public is through the i • ■ . • ■ i institutions of labor unions, corporations, and political parties. The judgment of a very few people, therefore, is critical to the functioning of the economy, and the public i is entitled to its interest being served in some measure by j the economic leaders of the nation. I I Resolution. It is the writer’s opinion that, throughout the whole course of the book of The Economics of j Collective Action, Commons implies that an additional con sideration is involved in the principle of proportioning the factors, this being what the writer arbitrarily refers to as resolution, the willingness to work out or resolve I 'differences. There must exist among the participants to a transaction the willingness to resolve differences in some i equitable manner if good judgment is to be effective. It is not possible to over-estimate the importance of resolu tion as an aid to successfully proportioning the factors, 'and it would appear that Commons was of a like opinion. 176 Resolution Is derived from the forebea.ra.nce meaning of reasonableness, with the emphasis upon having the willing ness to seek workable and just solutions to economic pro blems. ; 54Ibid., pp. 138-139. I i 1 i 1 CHAPTER VI THE TRANSACTION AS A BASIS FOR ECONOMICS I. ECONOMIC CONTRACTS IThe Transaction in Terms of Economic Relationships The five economic behavioristic-relationships of [property, institutions, sovereignty, the public interest, ;and custom constitute, in their totality, human economic .activity, or, what is the same thing, the human will in 1 -action. These relationships are indistinguishable in fact, and they are distinguished only because it.is convenient to do so as a systematic approach to economic analysis. ^ However, economic science is not primarily concerned with analyzing the above mentioned five economic relation- .ships. These relationships are analyzed only to acquire an ^nsight to economic behavior. Economic behavior itself is analyzed in terms of the transaction. Preliminary to under- i standing the theory of the transaction it is necessary to have some knowledge of human economic behavior, and the [systematic approach which the above five mentioned economic relationships provide is a convenient means of acquiring sufficient knowledge to proceed with a thorough analysis of the transaction. 178 What this means is that the human will in action is ; actually the strategic behavioristic relationship in eco nomic science, and. that this strategic relationship is anal- i yzed in terms of the transaction. It is this analysis which ! ■ 1 ‘ [provides the scientific basis of economics. j i ' : 'Introductory Summary of the Transaction I ! Preliminary definition of a transaction. A trans action is a behavioristic unit. It is the smallest unit ! analyzed in economic science, that is, it is the smallest ‘ i ‘ 1 economic unit which involves economic behavioristic rela- | tionships. Because the transaction can be scientifically 1 analyzed in the economic laboratories of the courts of law, leconomics achieves the rank of a science. i ; A transaction is inclusive of time, that is, it is •economic behavior over an interval of time. A transaction is also inclusive of collective action. During a trans action a meeting of the minds of the participants of joint ’ collective economic activity occurs, and an economic con tract, written or unwritten, is negotiated. This economic > [contract makes legally binding the terms of performance agreed upon during the negotiations of the transaction. ^Commons, The Economics of Collective Action, p. 21. 179 Each of the economic relationships of property, institutions, sovereignty, the public interest, and custom is found in a transaction. The transaction, therefore, is . .the smallest unit subject to economic analysis. The inves- 1 ;tiga,tion of a transaction is the investigation of economics j . i in its simplest form. It is true, however, that the concept; iof the transaction is so revolutionary that it may be com- j 4 ' i ; i Iprehended only with difficulty. , ! " | ! Economic relationships are not natural relationships, I I they are artificial man-made relationships subject to j i change. The transaction, therefore, is an analytical unit I i the criteria of which will change over an extended period j of time. It is, nevertheless, a unit which retains its [ i i .fundamental characteristic of human economic behavior, par ticularly economic collective action. : The transaction is the product of man rather than nature; it is behavioristic rather than physical; it is real without being either matter or energy, that is, it exists only in the minds of men. Commons best expresses I his thinking on the transaction in the following manner: The meeting of the wills can be analyzed in terms of the transaction. A transaction is two sided; it is joint action. In the transaction the terms of perfor mance are agreed upon; or performance is executed according to working rules previously established or agreed upon. In this way, the theories of economics come to center on transactions...2 2Ibid., p. 21. l8o : What Commons means here is that he is going to anal yze joint economic activity, which really occurs as a con- 'sequence of human wills in action, in terms of the trans action. During the transaction the terms of performance jare agreed upon, that is, the participants to the joint f action agree how to go about the economic activity which holds their common interest. When this performance is exe cuted, it is done so in accordance with the terms which i have been agreed upon during the transaction, these terms ^constituting the actual working rules of collective action., I | Types of transactions. Commons recognized three distinct types of transactions, bargaining transactions, q rationing transactions, and managerial transactions. Bar gaining transactions represent the limiting transactions ; i i while managerial transactions represent the routine trans actions. Rationing transactions have the attributes of both limiting and routine transactions. ! Transactions, collective action, and economic con tracts. Two things immediately stand out when consideration is made of the transaction. First, the transaction is the product of collective action. Second, economic contracts . 4 ' are the product of transactions. These contracts may be 3ibid., p. 43. 4Ibid., p. 43. written or unwritten, the idea being that, if any economic i contract is challenged in court, the courts will determine its validity. Negotiational psychology and economic contracts. The i- in n r —n r_, , , iftt— ^ > I courts, in determining the validity of economic contracts, : 1 _ ' . i use the technique of the negotiational psychology of law, ■ Which Commons expresses as follows: ' I i One of the legal technicalities‘of economic signi ficance is what may be named the negotiational psychol ogy of the law, by means of which the*, intentions of the participants are discovered. These intentions may require actual investigation in cases of criminal ; law, usually by circumstantial evidence, but in cases | of proprietary law, which applies to economics, it is sufficient to read into the minds of bargaining parti- ■ cipants the intention to do what was right and lawful under the circumstances of time and place, as similar participants who were lawful men would have intended to do. This comparative behavioristic psychology is investigated or assumed under the name of custom or J usage.5 Actually, what the courts do in determining the validity of economic contracts is to extract from the minds of the participants to the transactions the intentions which each had at the time the contract was negotiated. The im portant thing becomes the intentions involved. If the in tentions of any of the participants were unreasonable, the | 1 courts will find that the contract is unconstitutional. ^Ibid., pp. 49-50. 182 II. DEBTS AND PRICE Debts . A debt is incurred during a transaction, that is to ; bay, whenever the ownership of property is created or ^transferred. The ownership of a debt is designated as a negotiable instrument. This negotiable instrument is legal title to property, that is, a commodity. Whenever owner- 6 ships legally change hands debts are incurred. I Duties of performance and, payment. < Incurred debts i 'create two duties, the duty of performance and the duty of payment. Whenever the ownership of a commodity changes hands the seller of the commodity undertakes to deliver it within an immediate or deferred future. This duty is the (duty of performance, the necessity of delivering the goods. i On the other hand, the buyer undertakes to deliver the 1 money, or other customary equivalent, at a future date or i dates. This duty is the duty of payment, the necessity of j ( delivering the money. Both of these duties are the conse quences of a transaction.7 i Debts, therefore, are legally consummated duties. | Both the buyer and the seller undertake debts or duties when the ownership of property changes hands. The legal ^Ibid., p. 106. 7Ibid., p. 106. 183 Incurrence of the duties of performance and payment in ae- > cordance with the rules of collective action constitute the economic contract resulting from transactions. Debts, therefore, are duties voluntarily incurred, and the debtor-, ^creditor relationship becomes one which exists between two ■ i parties, both of whom are equals to the resulting joint economic contract.® i Assignability of debts. During the interval of time; 'following the closing of the negotiations of the transaction I ' ' and before the closing of the transaction itself, the two | debts of performance and payment are negotiable or assign- ; i jable, whereby the rights and duties may be transferred by negotiation to others. These debts, therefore, are salable, which in turn gives them value. Since debts have value, i they become intangible property, that is, they represent a market opportunity, and the ownership of a debt is a com modity . The discovery that debts could be bought and sold o n : the money market Commons terms the greatest invention in the jfield of economics. The very art of creating a debt indi- 'cates the trust which people have in their negotiability, i and it is doubtful if economic progress could have occurred ' 8Ibid., p. 106. 184 to the extent It has here In America in the absence of the 9 negotiability attribute of debts. Price j A relationship exists between price and debt. Price* |no longer means the amount of physical money, gold or | silver, paid for a physical thing. Commons defines price i •in the following manner: j ! ...Price means, in the legal economics of the courts,; the consideration, that is, the service which the owner' ! of the money rendered to the owner of the (corporeal, incorporeal, or intangible) property by alienating his ownership for money in consideration of the service rendered by the alienation of the ownership of the (property).-*-0 Remembering that the two obligations of the duty of payment and the duty of performance are created by trans actions, it follows that with each debt is associated a. i , » , price or a consideration. Associated with the debt of per- 'formance is the price or service of delivering the property. Associated with the debt of payment is the price or service , of delivering the money. Ownership of property is being alienated by the seller in return for the alienation of ownership of money on the part of the buyer. Price, then, ! is a. reciprocal consideration on the part of the buyer and seller for the alienation and acquisition of ownerships. 9Ibid., pp. 52-53. 1QIbid.., p. 46. i 185 ; Both the buyer and the seller are equal parties to an eco nomic contract, the major differences being the types of debts incurred. The particular price or consideration in volved depends upon whether the debt is one of performance i ! ■ i jor one of payment. The important thing to understand is ] that price involves not only the acquisition of ownerships ! ibut also the alienation of ownerships. ! III. SYSTEMATIC ANALYSIS OF TRANSACTIONS Transactions, for the purposes of economic analysis, 1 •may be divided into three types, bargaining transactions, managerial transactions, and rationing transactions. : Bargaining Transactions | ; Definition of the bargaining transaction. The bar- I 1 1 ; i gaining transaction, the most universal type of transaction, l Commons defines as follows: A bargaining transaction is a double or reciprocal transfer of ownership— the legal transfer of ownership of physical objects, negotiable debts, or government debts— in the familiar open or free markets; the terns of the transfer, including both price and the amount to be sold, are arrived at by negotiation.11 ] Apparently Commons meant, by this statement, that the i » 'bargaining transaction provides the means for voluntarily transferring the ownership of property. This includes the 11rbid., p. 48. ; 186 ■ market opportunity which the skill, strength, and intelli gence each citizen possesses. People may not sell their bodies into slavery, but they may, for a price, temporarily transfer the ownership of the market opportunity which their I ' being represents at any one time to another party. This isj 'a temporary arrangement, and it may not become a permanent ! arrangement because the Supreme Court will not permit i ; 'slavery. i ! 1 The law of bargaining transactions is the law of | 1 1 i equality. Bargaining transactions occur between equal ; i | {parties. Each participant voluntarily enters into the transaction as an equal, at least in theory. The law of j 'bargaining transactions is the law of equality. People {voluntarily enter a bargaining transaction as citizens of I Collective action, usually represented by their leaders, 'who freely bargain with the leaders of other institutions of collective action. These leaders, then, bargain over ,the terms of the proposed joint economic contract. Bar gaining transactions may be for cash, that is, the trans action may be closed on the spot; or the transaction may 12 extend over a period of time. Purpose of bargaining transactions. Bargaining ; transactions, in the writer's opinion, have two purposes: 12Ibid., p. 53. i 187 that of transferring ownerships, and that of establishing the terms under which the actual transfer of ownership occurs. Both of these purposes may be negotiated or inclu- !ded in the same economic contract under one master bargain- ling transaction. Typically, the purpose of transferring i . jownership is exemplified by collective bargaining between •a labor union and a corporation over wages and hours; the ^purpose of establishing the terms under which the actual i , - 'transfer of ownership occurs is exemplified by collective jbargaining between a labor union and a corporation over i ■working conditions and terms of employment. The terms of :a collective bargaining contract reflect both purposes, and they become the working rules of collective action be- f' i jtween a labor union and a corporation. Types of bargaining transactions. Throughout Commons' discussion of bargaining transactions the author ■has noted that he includes three types of transactions: ; } bargaining transactions between two individuals; bargaining transactions between an individual and a collective economic i ^organization; and bargaining transactions between two col- ■ jlective economic organizations, for example, between a labor ■union and a corporation. Apparently the third type of bar-' gaining transaction, that between two collective organiza tions, is the type of bargaining transaction Commons had in mind. This is the type of bargaining transaction where collective bargaining typically occurs. Collective bargaining. When a collective organiza- i |tion bargains for its members, the members do not actually i - 1 ' t 'bargain in the individual sense; it is the officials of t h e . Lollective organizations who do the bargaining. The two icollective organizations involved bargain freely and they ^both enter the transaction as legal equals. The outstand ing example of collective bargaining is that which occurs ; .between corporations and the labor unions during the nego- : j | ,tiation of an employment contract. Here occurs the trans- j I fer of ownership of the market opportunity represented by ! ,the skill and strength of working people and the terms of i I jeraployment associated with the actual transfer of ownership.; 1 Bargaining transactions as strategic transactions. ,Since bargaining transactions deal with the working rules ifor acquiring and transferring ownerships, the writer must I 'conclude that bargaining transactions are in fact strategic I ;transactions. When a bargaining transaction is negotiated lit becomes a controlled or routine transaction, and the 'control exercized is the cause of a, new scheme of things, that is, of a new scarcity-futurity relationship. The control of a bargaining transaction is exercized over an extended period of time, and causation therefore becomes a process. The new scheme of things, which is the 1 189 1 consequence of control, in this manner becomes the cause of new bargaining transactions, that is, the bargaining transaction is the effect which is the consequence of a future cause. I Managerial Transactions : Definition of the managerial transaction. The mana gerial transaction, unlike the bargaining transaction, does not involve the transfer of ownership of property. Rather, it involves the transfer of physical possession of.property. [The bargaining transaction is a legal transfer of two owner-1 ships, while the managerial transaction is a physical and ; i llabor transfer of possession of the things owned. It makes 1 . i no difference whether the thing owned is a corporeal, in- ! [corporeal, or intangible thing. The bargaining transaction, i which is the legal transfer of ownership, must precede the I managerial transaction, which is the physical transfer of possession. Ownership, therefore, precedes possession, and i ownership is the most important concept, but the transfer pf physical possession nevertheless inevitably follows the transfer of ownership.13 I The law of managerial transactions is the law of inequality. The law of managerial transactions has a super!or-inferior legal relationship. The typical 13Ibid., p. 48 190 I managerial transaction involves a foreman and a laborer, a carryover from the traditional English master-servant • relationship. There exists, in the managerial transac tion, a command and qbedience relationship, or a relation- jship of inequality. This relationship of inequality has 'acquired a legal standing in the eyes of the law. 1 Master-servant relationship. When a person goes to i a 'work for an employer, in this instance a union member going t o work for a corporation, the foreman becomes the agent of 'the corporation or the master. The worker, in effect, sells .the market opportunity which his person represents, and he is, in the eyes of the law, a servant. When he enters the premises of his employer with the intention to work he is .legally obligated to carry out the orders of the foreman. I iLiterally speaking, the worker physically delivers the in- ! [tangible property which his being represents, and the em ployer physically delivers the property which wages and ,other benefits represent. The conditions of transferring ownerships and the terms of working conditions, however, were specified by the preceding bargaining transaction.^ This is clearly a double physical transfer of pro perty, which has followed the double legal transfer of ; l4Ibld., pp. 54-55. 1^Ibld., pp. 54-55. ; 191 ownership of property. The legal transfer of ownership was accomplished during the bargaining transaction while the actual physical transfer is accomplished during the mana gerial transaction. ! The major difference between the status of the work- I ling man or servant today and those of medieval England is ‘ that today he is free to run away from the job and he cannot be compelled to work against his will. On the other hand, the employer is free to hire and fire, and he is not com pelled to provide for his servants as a feudal lord was j i ! compelled to provide for all those serfs born on the lord's ! ; | 'land. It is these freedoms to work or not to work, and to i hire or fire, which form the source of bargaining power for ' i if both corporations and labor unions. u The important thing to remember is that a command and jobedience relationship exists between the foreman and the worker, but that this relationship exists only for the dur ation of the job. During the duration of its existence, the master-servant relationship is binding upon both parties of ' jthe joint transaction. Commons expresses himself as follows jon this point: i ( I By the law of managerial transactions the seller : of property rights is placed in a position to fulfill his duty of performance, and the buyer his duty of l6Ibid., pp. 54-55. 192 payment by hiring and firing laborers and by commanding ' their obedience. * The master-servant relationship, therefore, has acquired a legal standing. It is a relationship of in equality without involving slavery. It may be terminated at the discretion of either the master or the servant, pro vided the relationship is terminated in accordance with the i working rules or conditions of employment established by the bargaining transaction. Manage rial transactions as routine transactions. The managerial transaction, dealing as it does with a command-obedience relationship devoid of ownership consid eration, becomes a routine transaction. Managerial trans actions are the logical consequences of bargaining transac tions. A controlled bargaining transaction, it appears to the writer, is a . managerial transaction. Proportioning the factors, therefore, means proportioning bargaining and managerial transactions in the optimum manner. The managerial transaction is a controlled bargaining transaction because the working rules were established dur ing the bargaining transaction. The rights and duties of both the employer and the employee are determined prior to the managerial transaction. True enough, the employer retains the right to hire or fire, subject to the working 17Ibid., p. 55. rules adopted during the bargaining transaction, and the employee retains the right to accept employment or quit, subject to the same working rules. Likewise, there is much t haggling over job classifications, compensation rates, 1 ispecific conditions of employment, supervisory prerogatives, arbitration procedures, and seniority rights, even with the adoption of working rules during the bargaining transaction. However, the pattern for resolving conflicts which might 'occur during the managerial transaction is established dur- ! jing the bargaining transaction, and it is in this sense I that a managerial transaction is a controlled bargaining . ■transaction. i Rationing Transactions Definition of rationing transactions. The rationing transaction Commons defines as follows: | A rationing transaction is a double or reciprocal ! transfer of ownership--the legal transfer of ownership : of physical objects, negotiable debts, or government ; debts--where either the quantity or the price, or both, j are determined by some authorized superior power. Ownerships are transferred by rationing in two principle ! fields: Controlled markets or dictatorships and in war | time economy; and within the integrated industrial con- | cems or combinations where ownerships of goods or j services pass from one company to another without mar ket bids. Here it will be noted that the rationing transaction is a super-inferior type of transaction. It contains, l8Ibid., p. 48. ! 194 1 I therefore/ the elements of both the bargaining transaction ! and. the managerial transaction, that is, like bargaining transactions it deals with the transfer and acquisition of ownerships, and like the managerial transactions it involves a command-obedience relationship. Actually, rationing transactions are those transactions formulated by the policy makers of collective organizations, whether the organiza tions are labor unions, corporations, or political parties. They are not limited to corporations, as might appear at first glance. Rationing transactions are actually collec- !tive action in control of individual action, and they pro vide the governing method by which the leaders of an organ ization control the ordinary members. The members, in turn, have recourse to the trial procedure, so the trial procedure 1 is also part of the governing method of rationing transac- , tions.19 1 1 ; ! The law of rationing transactions is the law of i Inequality. The rationing transaction involves a command- : obedience relationship. In the final analysis, the ration ing transaction is collective action in control of indivi- . 1 dual action, the officials of the organization being legally superior to the ordinary members. What Commons means here' 19Ibid., p. 43. 20Ibid., p. 56. 195 is that the officials of collective organizations lay down the policy line to which all members must comply. This may involve the actual distribution of the ownership of property to the final consumer* or it may involve the setting forth ,of certain working rules* goals* or budgetary requirements which in turn become the established policy of the collec- ftive organizations. In any event* the ownership of property is trans ferred in accordance with the wishes of the superior party* ; who is actually laying down the rules'of collective action j to which the inferior party must comply. The superior- : inferior relationship of the rationing transaction has 3 acquired a legal standing in the eyes of the law. It is jthe basis of institutional collective action. The traditional example of a rationing transaction is that of taxation by the sovereign state. Other examples jof rationing transactions are the budgeting and personnel i [policies of corporations* to which all employees of the : i . 1 corporation are expected to comply* and the by-laws of labor unions which the leaders of the unions use to govern 3 the individual members. i I Holding companies and rationing transactions. An example of the rationing transaction which Commons was fond of reciting is the manner in which holding companies dictate the policies of their subsidiary companies. Here the ! 196 1 ownerships of goods and services pass from one company to another without any market bidding. The parent company simply commands the obedience of the subsidiary companies 21 through the rationing transaction. I Rationing transactions as both strategic and routine ■ Itransactions. The rationing transaction, since it involves both the legal transfer of ownerships and a superior- inferior relationship possesses the attributes of both ! strategic and routine transactions, that is, it has the characteristics of both the bargaining transaction and the managerial transaction. The control of the strategic factor i is achieved within a common collective organization. Of course, a rationing transaction by no means presents a complete and unified approach to the subject of transac tions. It is possible to have rationing transactions, bar gaining transactions, and managerial transactions existing I side by side, and indeed, this situation is probably the f ’ typical situation. ! It appears to the writer, however, that in many economic areas the importance of the rationing transaction is increasing at the expense of the bargaining transaction. i This logically follows from the growth of big business, big labor, and big government, since the leaders of these 21Ibid., pp. 55-57. 1 9 7 collective economic organizations have at their disposal an increasing potential of economic power which they may use to control the ordinary members. This increasing amount of ^economic power is a consequence of the very nature of the higness of collective economic organizations, and it is i 'only natural that the leaders of collective action will use this power as long as it is at their disposal. The rationing transaction is the oldest of all trans actions, dating from medieval England when the kings were almost absolute sovereigns. The bargaining and managerial transactions developed from rationing transactions, the consequence of the growth of freedom in Anglo-American iCivilization. This common root of the bargaining and mana- igeria.1 transactions explains why the rationing transaction ■has the attributes of both. The recent trend toward ra tioning transactions at the expense of bargaining transac tions is a consequence of the growth of collective action during the last century at the expense of laissez-faire action. All Types of Transactions are in Operation Simultaneously i - ; All types of transactions are in operation simultan- eously. After a bargaining transaction is negotiated it is executed through one or more managerial transactions. While it is being executed another bargaining transaction may be 'negotiated, or a budgetary rationing transaction may be i ■undertaken. This process continues indefinitely. All transactions, in the final analysis, involve i * . human economic behavior, so the distinction between the ■three types of transactions is purely artificial. That is, ! human economic behavior cannot realistically be broken down into sub-types, except as a convenience for analyzing eco- 22 ■nomic science. ; IV. THE TRANSACTION AS THE SMALLEST i UNIT INVESTIGATED IN ECONOMICS Significance of the Transaction The significance of the transaction is that it be- icomes the smallest unit investigated in Commons' institu- i 'tional system of economics. Commons denies that the ismallest unit investigated in economics is the individual, which is the traditional thinking on the subject. What jCommons wanted to do was to investigate how people earn a. living under the actual conditions with which they are ■confronted. He was deeply concerned with the problems which arise as people deal with collective organizations 23 ;or with other people in their economic lives. The i 2 2Ibid., pp. 55-57. 23ibid., p. 52. i 199 : transaction provides the means for analyzing economics with ithese conditions in mind. Scientific basis of economics. Since man is more jthan an individual, that is, since man is the product of | group action, Commons developed the transaction concept i to. analyze man as he really lives in his economic environ- ! ment. Actually, the transaction is the meeting of the human wills in action, and it is will power which the courts, as the economic laboratories of the land, analyze i by resolving will power into its two dimensions. The ; transaction, since it is capable of being analyzed and ■ • s i measured, makes it possible for economics to achieve the rank of a science. The traditional economists, it must be i * remembered, contended that economics becomes a science be- i i i cause value can be measured by money, which is quite a bit i different from Commons’ contention that economics becomes a science because the human will can be analyzed in terms 24 of the transaction. Inadequacy of valuation. To Commons' way of thinking, valuation is a relativity which relates people to their environment. Since the social environment is collective action, it follows that when the nature of collective action i changes the criteria for valuation also changes. This is 24Ibid., p. 52. i 2 0 0; because society, through collective action, establishes certain goals or values for which people are expected to strive or comply. Changes in collective action consequently result in changes in the criteria for valuation. Valuation is a function of the human will, but eco- 1 i nomists do not analyze valuation, they analyze the human will in action. In other words, Commons felt that valua tion is something which results from the human will in action, the product of judgment. He would, however, deny that valuation can be used to determine mans' behavioristic factions. Valuation is a resultant and not a determinant of ) human behavior. When something is valued a judgment is expressed which, to be properly understood, requires an janalysis of the whole of the human will in action. That is, [it is necessary to understand the degree of power exercized! ^nd the alternative opportunities available at the time of 'the meeting of the human wills in action if valuation is to ' be properly understood. What is really of importance is 1 not the judgment which expresses valuation, but the meaning 1 behind the judgment. Therefore, Investigation rather than money is the scientific measuring device used in economics, t ! and the transaction rather than the individual Is the smallest unit investigated. The Bargaining Transaction the Most Fundamental Type of [ Transaction Of the three different types of transactions Commons considered the bargaining transaction to be the most funda-; i mental. This is partly a convenience, but also partly be- • 'cause the element of freedom is present in a bargaining transaction while it is lacking in the others. It is in bargaining transactions where the human wills in action meet as equals and arrive at economic contracts, so it is only natural that Commons should develop it as the most i ‘ I fundamental of all transactions. With this in mind, Commons i i I 'uses the bargaining transaction to illustrate the details 1 of the theory of the transaction. The same general anal ysis, however, also applies to the managerial and rationing ( i 1 PR I transactions. J « * Time sequence in a bargaining transaction. Very i ,briefly, a bargaining transaction is the negotiation and I ■agreement which transfers ownerships under the operation 26 of the law. in point of time sequence the bargaining transaction has three steps: First, the negotiations, ■which are closed when the agreement bn intentions is reached; second, the contract or commitment, which imposes j 25Ibid., p. 45. 2^Ibid., pp. 48-53. 202 , the obligations of performance and payment upon the parti cipants in future times; third, the administration of the obligations agreed upon, which, when completed by both 27 parties, closes the transaction. : What happens during a bargaining transaction, then, i is that the participants first negotiate or bargain over the transfer of ownership of property; then they consummate an economic contract involving the terms under which the owner ship of property will be transferred; finally, the contract ‘ i itself is administered until the transaction is closed. i 1 , That is, the wills of the participants undertake to comply with the terms of the transaction. This, however, does not imply the physical or labor transfer of ownerships, which j is actually a function of a managerial transaction. f ! 1 Sovereignty rather than individuals transfers owner- I ships. It is not even the owner, however, who transfers the i [ownership of property and gives a legal title of ownership. I 'It is sovereignty, the law of the land, as worked out by i court decisions through the centuries in the form of the i Common Law. The actual transfer of ownership by sovereignty during the transaction is made by the courts extracting intention or purpose from the minds of the participants, this being the function of the negotiationa.1 psychology of 27Ibid., p. 53. : 203 i law. Once Intention or purpose has been extracted from the tainds of the participants by sovereignty, or once It would I ordinarily be extracted from their minds were the contract i 28 challenged in court, the contract is legally consummated. ! Transforming the future Into the present. The future becomes the present following the commitment stage of the ;transaction, which is the same thing as saying that the present continues until the administrative stage is comple ted and the transaction is closed. The working rules, which were established during the negotlational stage as a j Iresult of future expectations, define the present conditions 29 ; to which the participants must comply. | Duration of the administrative stage. The duration , ' 1 cf the administrative stage may be immediate, that is, for I cash, or it may be for a short term period or a long term iperiod. If it is for cash, immediate transfer of ownership : occurs and the transaction is immediately closed. If it is I ‘ ; ,for a short or long term period the ownerships are imme- 'diately transferred, on a conditional basis, but the trans action is not closed until the debts of payment and perform ance are satisfactorily concluded. i 28Ibid., p. 50. 29lbid.., p. 53. 1 204 Conditional transfer of ownership. The conditional ■ transfer of ownership is the writer's own language and not Commons % and it means legal possession of the property now followed by .outright ownership*when the debt of payment is completed. This occurs, for example, during installment i purchases, when a person secures legal possession to pro perty before final ownership. Apparently Commons' defini tion of ownership is inclusive of legal possession, and the purchaser enjoys most of the benefits of owning the property during that period of time when he is actually paying for : I : it. ! i ; Significance of the managerial transaction. The physical or labor transfer of ownerships, which is the managerial transaction, occurs simultaneously with the i administrative stage of the bargaining transaction. This is equivalent to saying that the same performance which is . | exercized during the administrative stage of the bargaining transaction is also exercized during the managerial trans action. There is, consequently, a correspondence between the two transactions, this correspondence being attributable [to a common performance. The only distinction which can be made is that performance in the administrative stage of the bargaining transaction means the intention of the human will in action while performance in the managerial transaction means the physical efforts involved in transferring 205 : ownerships. It is the performance so exercized during the bargaining transaction, which is actually the performance of intention, that controls the performance exercized during jthe managerial transaction, which is the performance of iphysical effort. This control of performance by performance ! [provides the key to the theory of causation. This is be cause the bargaining transaction and the managerial trans action are tied together by performance, and it is perform ance which is controlling and being controlled, that is, which is causing a. new scheme of things or a new scareity- ifuturity relationship. i Significance of debts and prices. During a bargain- . ing transaction the debts or duties of performance and pay ment are legally established. These debts may be termed rules of action or working rules agreed upon by the parti cipants to the transaction, and they are enforcable by the . \ courts. It is during this period that the debts are ' * I ■assignable or negotiable. The prices involved are the considerations or ser vices which the participants provide for their respective .debts of performance and payment. This means that prices I i are paid by the fulfillment of the legal obligations of the j outstanding debts of performance and payment. The success ful termination of the debts of performance and payment indicate the closing of tooth the bargaining and the mana gerial transactions. Functioning of a . Market During a Bargaining Transaction i Getting back to the bargaining transaction proper, ! which is the basic transaction, investigation reveals that i iwhat is actually happening is that buyers and sellers of jProperty are making offers or bids to each other for the jpurpose of transferring the ownership of property. These 80 [buyers and sellers Commons terms a market. ' Pairing off of buyers and sellers. The buyers and i 'sellers who constitute a market pair off, the best buyer and seller seeking each other out, negotiating, and con summating an economic contract. The ownership of property, Jof course, is actually transferred by sovereignty extract- t . ing intention from the minds of the bargaining participants Once the economic contract is negotiated and ownership , legally transferred, the initially paired buyer and seller 'are off the market. For the next trenasction, the best pair of those buyers and sellers who were potential now I become the actual buyer and seller, and this process con tinues until the entire market is cleared.31 i ^°Ibid., p. 48. 31Ibid., p. 50. 207 Economic potential In terms of buyers and sellers. Potential buyers,and sellers, therefore, are the next best buyers and sellers. These next best or potential buyers i 'and sellers continually apply pressure to the best buyers i [and sellers, and In this manner the market is cleared. All i i . ■buyers and sellers have a scarcity-futurity relationship . . » : which induces buyers and sellers to negotiate transactions, I and hence to clear the market. Those buyers and sellers 'who have the greatest economic potential will consummate transactions first, and those buyers and sellers who have j : the least economic potential will consummate transactions j last.32 Competition and supply and demand have a place in -I rr- -ri""T- — Hiri™ ^ ' " rn " ^ economics. Commons uses the word competition sparingly in his discussion of the transaction, and in this instance he excludes any reference at all to the law of supply and ;dema.nd. It appears obvious to the writer, however, that jboth apply here. Buyers compete with buyers and sellers compete with sellers; also, buyers and sellers compete with each other. The market, then, is cleared in accordance with supply and demand. Notice, however, that supply and demand I are individual things which merely express an outcome be- J tween a particular buyer and a particular seller or among 32ibid., p. 50. i 208 buyers or among sellers. They cannot be used for the pur poses of generalization or deduction; they cannot even be used to explain human behavior or prices. All the law of supply and demand does is to record the two debts of performance and payment. It can be used 'to exhibit the result of a single transaction, or even the result of a number of transactions, but. the transaction itself involves the analysis of the whole of the human will in action. The law of supply and demand, therefore, is nothing more than a bookkeeping device to record the quan tities and prices of ownerships which have been transferred. 1 It is not a determinant of human behavior; it is a result ant of human behavior, the consequence of judgment and va. 1- . juation. The writer feels that such an explanation of the 'significance of the law of supply and demand conforms to jCommons1 conviction that it is a part-whole principle, that is, the law of supply and demand is simply one aspect of Economic theory.33 The Five Parties to a . Bargaining Transaction There is a rather complicated pattern of human rela.- 'tionships which exist within the framework of a. bargaining transaction. These human relationships arise from the numerous parties to a single transaction, there being five 33rbid., pp. 135-139. 209 ! ; I I in number, namely, the best buyer, the best seller, the ! next best or potential buyer, the next best or potential seller, and sovereignty. Sovereignty is represented by the courts, and it actually transfers the ownership of property i \ land stands ready to enforce the contract. There are, then, , 'five actual participants to a transaction, the idea being that economists are not only interested in the actual buyer; and actual seller but also in the relationship between rival buyers, rival sellers, and the role played by sovereignty. ! Admittedly, the debts of payment and performance I arise only between the actual buyer and seller, but in order to understand economic activity economists must be aware of what is actually happening during a transaction. No sooner is one bargaining contract negotiated than the i next best buyer and seller begin to negotiate. As they negotiate they socially interact with other potential, buyers ' i and sellers. It is the automatic nature in which potential I ! buyers and sellers become active buyers and sellers and the j I ! social interaction which occurs between actual and potential buyers and sellers that provides the means for clearing the market and lends to the transaction the attribute of being more than an individual affair between a single buyer and a single seller. 34Ibid., p. 50. : 2io i ; The social interaction which occurs between buyers j and sellers is the manner in which the degree of power exer cized during a transaction is expressed by the participants and the manner in which alternative opportunities become \ available. Social interaction, therefore, becomes the meet-, j . _ ing of the wills of men in action. j Since social interaction is identified with the meet ing of the wills of men in action, and since the transaction is the smallest economic unit which is analyzed, it follows » that the transaction is the smallest unit which has the at- i tribute of collective action. The transaction, in other Words, is the smallest economic unit which is a. social unit.. The point which Commons was trying to make when he developed the theory of the transaction, of course, is that i economists cannot investigate the individual standing alone.: They cannot restrict themselves to analyzing self interest .and value measured by money. They must also examine what other people are doing and what sovereignty is doing. They ' must examine the whole of the human will in.action, as it I interacts with the human wills of others. Economists must, ! in other words, investigate economic science in terms of the transaction, in this instance the bargaining transac tion. Hence the transaction, and not the individual, is the smallest unit of investigation in economic science. I 211; I Relationship Between the Bargaining Transaction, Citizen ship and the Courts Commons was so impressed with the transaction and ( collective action that he considered assets to be the or ganizations of transactions in the economic world. Economic . I I activity becomes an hierarchy of organized transactions of all types. Individuals exist in this organization, but ,they are individuals whose personalities are subject to collective action. They are economic citizens possessing .rights and duties, liberty and responsibility. These reci procal rights and duties represent the achievement of the !sta.tus of economic citizenship in the American industrial democracy.25 Self interest insufficient to explain citizenship. Organization involving citizenship means that mere self interest cannot be used to explain the economic behavior of industrial citizens. True enough, self interest plays ; a part, but each citizen actually subjects himself to con trol by the economic group or groups involved, and this in turn means that self interest is tempered by the interest of the group as a. whole. It is by subjecting himself to group control that the personality of each citizen is en larged or organized, and this in turn enables each citizen 35Ibid., pp. 134-135. i 2 1 2 : \ to work more efficiently and hence enjoy a higher standard • of living than he would were he unorganized. Effective 'organization through labor unions, corporations, and poli- 1 [tical parties means, for most workers, more money in less j q zT I ■hours with more stable employment. ^ , | ; ! The bargaining transaction an expression of citizen- : 1 ship. It appears to the writer that Commons would have the 1 : jfree bargaining transaction be the means by which an eco- 'nomic citizen expresses his citizenship status. During the bargaining transaction the citizen possesses various degrees ;of freedom as well as being subject to various degrees of i ■ regulation. The courts, supposedly, protect whatever legal interests the citizen may have in the transaction. Appar ently, the essence of citizenship becomes manifested during ithe bargaining transaction, because this is the manner in ■which the citizen actually goes about making a living and getting rich. The reciprocal rights and duties of economic •citizenship are the working rules of the bargaining trans action, to which all the participants of the joint trans action are expected to comply. ; The rights of economic citizenship extend to the courts. It has been noted that sovereignty, through the courts, plays a role in the bargaining transaction. 3^ibid., pp. 134-135. Ownerships are transferred by sovereignty, in accordance i with certain legally prescribed rules. Once sovereignty recognizes the transfer of ownership, a legal economic con- I I itract is said to exist. In the event that this contract is I Ichallenged in the courts by one of the participants to the bargaining transaction, that is, by an economic citizen or ! an organization of economic citizens, the courts will con sider both the degree of power to which the human will in action was subjected, and the alternative opportunities .available at the time that the transaction was negotiated. I ifhe courts will, in other words, hear out the complaint in accordance with the trial process. Judicial review of economic conflict. The courts :resolve the two dimensions of the human will in action by i examining the economic issues at stake. In order to do this, the courts use the four analytical tools of forebear- i ance, performance, avoidance, and timeliness. The actual .issues involved Commons refers to as the issues of competi tion, the issue of equal opportunity, the issue of bargain- ing power, and the issue of due process of law.-5' Summary of economic issues. These issues stem from the fact that citizens, when they go about negotiating bargaining transactions, are confronted by competitors, 37ibid., p. 50. 'discrimination, the bargaining power of others, and sover eignty. Competitors are trying to take from the citizen jhis living or riches by fair or unfair methods, and this ils what Commons called the issue of competition. On the I 'other hand, the citizen may be subjected to discrimination, ! (that is, he may be unfairly deprived of the opportunity to jcompete on equal terms with his competitors in his efforts 'to earn a living or get rich. This is what Commons calls the issue of discrimination. In a somewhat different man ner, the citizen may be subjected to external economic power which is so coercive or superior to his own economic » ipower that he becomes an unequal party to the bargaining I transaction and is consequently deprived of the opportunity !for a fair or reasonable price. This is what Commons calls i the issue of bargaining power. Finally, the citizen may be subjected to the arbitrary use of the sovereign powers of the state, whereby he is deprived of life, liberty, or pro perty without due process of law. This is what Commons I oQ calls the issue of due process of law.0 Issue of competition. Concerning the issue of com petition, Commons states the following: "This issue refers to whether the competitors, buyer versus buyer, and seller versus seller, have acted fairly toward one another."39 38Ibid., p. 52. 39ibid., p. 51. The courts, in judging the constitutionality of eco-! i nomic contracts, will insist that the competition between ■the competitors for an economic contract be fair or reason able. In this instance the issue is between sellers versus i J ^sellers or buyers versus buyers. Issue of equal opportunity. Concerning the issue of! equal opportunity, Commons states the following: This issue refers to whether the actual buyer dis criminates unfairly between the sellers or the actual seller discriminates unfairly between the buyers, by charging or paying different prices under similar circumstances. 0 The courts, in judging the constitutionality of j economic contracts, will insist that price favoritism is not shown among buyers and sellers. In this instance the issue is between buyers versus sellers or' sellers versus i •buyers. i Issue of bargaining power. Concerning the issue of l bargaining power Commons states the following: This issue refers to whether the price, or consid eration, agreed upon by the actual buyer and seller was determined with or without the duress, coercion, unfair competition, or unequal opportunity, known as a fair or reasonable price or value.1 In this instance the courts form a pattern of the two dimensional will in action as it was influenced by the 4oIbid., p. 51. 4lIbid., p. 51. ! 216 Issues of competition and equal opportunity. This pattern of the two dimensional will in action reflects the actual conditions present at the time that the transaction was negotiated. Issue of due process of law. Concerning the issue lof due process of law, Commons states the following: This issue, which might be named the due operation | of law, refers to whether the trial court, the execu- ' tive, or the legislature, unjustifiably deprived anv_ ■ one of the participants of his liberty or property.^-2 In the final analysis, the courts use the criteria of due process of law in determining the constitutionality of economic contracts. Due process of law, in turn, is based on the Supreme Court's philosophy of reasonableness. In other words, due process of law Is what the Supreme i Court, acting in its role of the ultimate sovereign and i using its power to manufacture the Common Law, makes it 'to be. I Performance, forebearance, avoidance, and timeli- i j — ----------------------------- | ilQ ness, J The discussion of the possible Issues which can i form grounds for economic dispute have been sufficiently detailed to indicate, for the purposes of economics, what the courts are looking for. These issues are all dependent upon one another. Apparently Commons' thinking on this 42Ibid., p. 51. ^3ibid., pp. 64-65. 217 subject is that, whenever an economic contract is challenged in courts it will be challenged on the basis of one or more of these issues being present at the time that the bargain ing transaction was negotiated. The courts, then, will ‘ examine each issue using as its criteria for judgment on | each issue the four terms of performance, forebea.ra.nce, avoidance, and timeliness. It is in this manner that the analysis of the two dimensions of the human will in action is made and the free will-controlled will relationship ob served, but only for those economic contracts which are challenged in court. However, the threat of being taken to court is always present and this alone is usually suffi cient to induce all participants of the transaction to bar gain in good faith. The threat of court action is almost equivalent to court action itself. If, in the opinion of the court, investigation re veals that an economic contract was negotiated under reason able circumstances, and that the intentions of the partici- ■ I I pants meets the constitutional test of the rule of reason, the contract will be held valid and binding. Otherwise it will be voided. In this manner the transaction becomes the basic unit of investigation in economic science.^ 44Ibid., pp. 49-50. . CHAPTER VII OBSERVATIONS AND CONCLUSIONS I. BREAKDOWN OF THE TRADITIONAL THEORY OF ECONOMICS i It is now possible to review Commons' thinking on ! | I ■the breakdown of traditional economic theory in favor of ! his own institutional system of economics. A discussion of Marxism is not included because the American economy has evolved from that of a traditional economic system to that of an institutional economic system rather than to I that of a Marxian economic system. The most important stabilized economic relationships are those of private property. Capitalism is built upon i I ! :the legal foundation of private property modified by the 1 emergence of collective economic action. However, property denotes something passive or static, and it is the trans- 1 action which lends to economic science the active or dynamic 2 content in human affairs. Furthermore, it is the unique nature which Commons ascribes to both property and the transaction which best illustrates his rejection of tradi tional economic theory,. -^-Commons, The Economics of Collective Action, p. 21. 2ibid., pp. 8 1-8 2. ‘ Failure of Traditional Economists to Consider Properly property and the Transaction Traditional economic formula was goods exchanged for goods. The traditional economists, commencing with Adam ^mith, started out with the formula that one Individual I i 'exchanges his own goods for the goods of another individual I IThe simplified formula, of traditional economics is goods i ’ 'exchange for goods, with the emphasis upon individual ac tion. This simplified formula is, essentially, the formula, of a barter economy. Each individual knows, by following his own self interest, what goods he wants to exchange and jin what ratio for the goods of others.3 i Individual!stic nature of traditional economics. .Traditional economic theory, therefore, was built around individuals exchanging goods with other individuals. The .individual exchange became the primary subject to be inves tigated, with self interest being the motivating force for [economic action. Goods were valued in gold or silver money I and the dollar became the basic unit for expressing value, because the dollar value of goods determines their exchange ratio. Money value, in other words, tended to equal the real value of goods. ^ibid., p. 41. ' 220 ; ! i It was part of the traditional economic thinking |that money value and the real value automatically equated :with each other only in the absence of economic collective j i action, that is, only as long as corporations, labor 1 unions, and political parties refrained from participating j 4 :in the economy. I ; The emphasis which traditional economists placed i ;upon the Individual is clearly demonstrated here. The tra ditional economists rejected collective action, they re jected the achievement of economic citizenship status, they ^rejected the human will in action, and indeed, they per sisted in treating the human being as a profit machine whose will power acted capriciously and arbitrarily, moti- , i vated only by individual self-interest. This is, of 1 i ! I course, the laissez-faire economics popularized by Adam |Smith and his followers, and its philosophy lingers on into ithe present. ; Rejection of collective action, especially that of I sovereignty. One of the major characteristics of laissez- faire economics is the rejection of collective action, especially the role of sovereignty, because this would interfere with the natural process of each person following ' the dictates of his own self-interest. The major function ^Ibid., p. 36. <of sovereignty, according to the laissez-faire economists, ;is the preservation of law and order and the protection of (property. In all other respects sovereignty was kept out of economic theory. Property rights were natural rights f iwhich existed in nature and which mankind could best enjoy I i sand become wealthy only if sovereignty refrained from par- i ■ticipating in the economy. Commons, of course, countered this thinking by com menting that no such thing as property rights existed in nature, and furthermore, that property rights are the arti ficial creation of sovereignty, maintained by sovereignty ■through the exercize of its legal monopoly of violence.^ Exclusion of sovereignty misled traditional econo mists . Traditional economic science, therefore, developed within a framework of a perfect society composed of equal individuals working solely for their own self-interest and whose common enemy was sovereignty and collective action. The transaction, because it involved collective action, was not included in traditional economic theory. Instead, the traditional economists accepted the more primitive concept of an exchange, which had the double meaning of a legal transfer of ownership and a labor transfer of the thing ^Ibid., pp. 80-8l. : 222 . ( ! 6 I ovmed. In other words, traditional economists did not i accept the bargaining transaction transferring ownership, i following which the managerial transaction transferred ; physical possession. They combined both into a single ex- ! change, from which sovereignty and. all other collective | ^action was excluded. The inability of traditional econo- 1 mists to accept collective action, especially the collective i Action of sovereignty, misled them into substituting the Exchange for the transaction. One equal individual dealt with another equal indi vidual, the economic power which property bought to its owners being ignored. Property rights were natural, and property was viewed as being composed only of physical 'property. Traditional economists did not provide for the *r oourts changing the meaning of corporeal property, first ,to incorporeal property and then to intangible property Junder the functioning of the Common Law. They also insisted, that money was gold or silver and not credit money as is j true today. They did not recognize the difference between commodities and property, onwership and the thing owned.^ Formula of goods exchanged for goods not realistic for a. credit economy. The primitive individual exchange of 6Ibid., pp. 47-48. ^Ibid., pp. 80-84. ; 223 ' traditional economics applies only to a barter or gold or ^ilver economy; it does not fit the credit-debit economy 'of contemporary America. This is to say, it does not fit i |a.n economy where money is credit subject to collective : A I action and the dollar is primarily a unit of account. The | i ■ | lexchange does not apply to the American economy of collec- ■ i 1 i Itive action, where sovereignty plays such a fundamental i ■ jrole. It does not apply to an economy where the meaning j | ;of property changes, although admittedly gradually* and it i does not provide for legal measures to counter the accumu lation of economic power by collective organizations. Finally, the exchange does not provide for a distinction between the meanings of property and commodity.^ Division of labor versus division of ownership. The i source of the confusion in the minds of traditional econo mists Commons traces to the identification of the process of the division of labor with the process of the division p f ownership. These two processes are separate and dis tinct, but since traditional economists rejected sover eignty, which actually transfers ownerships, there was no other course of action remaining except to associate the two as one process.^ 8Ibid., pp. 41-42. 9Ibid., p. 84. 10Ibid., pp.,,83-84. j 224 t i . Failure of logical deduction. Having so constructed i •the exchange to exclude sovereignty, traditional economists ( developed economic science by logical deductive reasoning Trorn a false premise, that is, they made economic science (turn on the creation of wealth by the labor process of I ! iproduction through efficiency when economic science is ;rea.lly concerned with the accumulation of ownerships of I i !scarce property. Ownership, rather than production, is the key to economic theory, and it is the ownership Of intan gible property in a credit economy which really is the jcentra.1 economic problem. Economics, in other words, in volves the transaction rather than the exchange.11 | Rejection of economic equilibrium by Commons. The i breakdown of traditional economic theory, in short, is best i illustrated by the inability of traditional economists to comprehend collective action. Instead of the traditional equilibrium between equal individuals of economic theory i Commons looked to economic government based on collective action, the only alternative to which is tyranny or vio lence . 11Ibid., pp. 83-84. 12Ibid., p. 263. Financial Capitalism Commons referred to the present day era of transac tions as the financial capitalistic stage, to distinguish it from the merchant and industrial capitalistic stages ^pon which traditional economists based economic science. i Important aspects of financial capitalism are big govern ment, big business, big labor, and a complex banking system having for its function the channeling of earnings and credit into large scale investments.1^ Another aspect of i Financial capitalism is the importance of administrative |commissions, which possess executive, legislative, and ju- jdicial powers. These commissions, particularly those of |the federal government, have become a , very powerful force |in allocating ownerships of scarce property, so powerful, In fact, that Commons refers to them as the fourth branch of government. They have become a part of due process of law. II. CRITICAL COMMENTS ON COMMONS' ECONOMIC THEORY Book Reviews Beginning with Commons' book Legal Foundations of Capitalism published in 1924, critics have noted that he 13ibid., p. 6l. 2 2 6 was ambiguous in the manner in which he presented his 14 ideas. Part of the ambiguity, of course, can be traced to the inability of the critics to understand what Commons was trying to say. His thinking was, in other words, so advanced over that of the other economists who lived during i his lifetime that much of his work went unnoticed. However, Mr. David Lilienthal's point is well taken to the extent that Commons did not present a systematic analysis of eco nomic theory. The writer could find no evidence that Legal Foundations of Capitalism created any widespread interest among economists at the time that it was published. Institutional Economics, which Commons published in 1934, created much more interest. It was a controversial book both as to its subject matter and presentation. ¥. C. Mitchell, for example, was favorably impressed with both its subject matter and its presentation,1- * while R. T. Bye was unfavorably impressed with both.1^ On the other hand, F. H. Knight was impressed with the subject matter but 17 implies that much is lacking in the manner of presentation. Max Lemer takes a somewhat different stand in that he l4D. E. Lilienthal, Nation 119: 315 S 24 '24 800w. x5w. C. Mitchell, Am. Econ. R. 26: 635 D '35 4300w. l6R. T. Bye, Arm. Am. Acad. 178: 200 Mr '35 750w. ^F. H. Knight, Columbia. Law R. 35: 803 My '35 HOOw. 2 2 7 admired Commons' courage, insight, ingenuity, and grasp of fundamental social problems involved in economic science, but he could not quite see how Commons actually accom- 1 ft plished anything. W. T. Atkins rejected Commons' econo- IQ mic theory as being inadequate, ^ while M. P. Atkinson took the opposite view that it has much to offer in resolving 20 economic conflict. Criticism of Commons' book Institutional Economics 'was varied, and widespread interest was expressed. The high interest and the wide range of criticism undoubtedly was the product of the turbulent times during which it was published. By the time The Economics of Collective Action was published in 1950 Commons had been dead for five years and the nation had. passed into a new era. of prosperity and international conflict. This text created very little interest. In general, those critics who did take time to read the book took the attitude that little if any new ma terial was included over and beyond that which could be found in Legal Foundations of Capitalism and Institutional Economics. Some comment was noted that the presentation •^Max Lemer, Harvard Law R. 49: 360 D '35 2600w. 19w. E. Atkins, Management R. 24: 91 Mr '35 l40w. 20M. P. Atkinson, Christian Century 52: 1245 0 2 '35 6 5 0 w . 2 1 was improved over his previous works. Without any ref- I jerence to Commons' previous works, J. E. Cross took a some what different view that The Economics of Collective Action i p p ;was an important piece of work. i It was almost universally overlooked by the critics, jprobably as a , result of the prosperous times when the book jwas published, that the fundamental economic problem of I |resolving conflicts still remains an unsolved problem. .Certainly the domestic economic events which have occurred during the decade of the 1950's indicate that Commons' po sition remains quite realistic, but the critics seemingly .don't want to be bothered with his works. Economic Textbooks 1 The almost complete ignorance of the significance of Commons' works can be readily appreciated by the small amount of space devoted to his ideas in standard textbooks of economic thought. Edmund Whittaker devotes a single (sentence to Commons, which, incidentally, he shares with Veblen.2^ Louis Haney permits Commons to share a paragraph with Veblen, although he does acknowledge that Commons was 2-*-A. L. Harris, Ethics 62: 6l 0 '51 2100w. 22S. A. Levitan, Pol. Sci. Q. 66: S '51 500w. J. E. Cross, Library J. 75: 1412 S 1 ’50 60w. 23gdmund Whittaker, A. History of Economic Ideas (New York: Longmans, Green and Co., 19"50), p. 736. primarily a legal economist and Veblen was primarily a 24 * isocial economist. Eric Roll neglects to mention Commons ( at all.25 Theo Suranyi-Unger briefly analyzes the impor- ! tance of property and the law to economics, but his analysis is inadequate. He is led to reject Commons’ legal approach; I of jto economics on the grounds that it is one sided. I ! j III. A NOTICEABLE SHIFT IN COMMONS' LEGAL THINKING i DURING THE LAST TWENTY YEARS OF HIS LIFE When Legal Foundations of Capitalism, which was I Commons' first book on theoretical economics, was published, !in 1924, he recognized two equally important aspects of the American legal system, Equity Law and Common Law. These ,two branches of law were consolidated under the American Constitution in 1 7 8 7 . The Law of Equity originates from the royal preroga tive of the early English kings. The principal means by jWhich the Law of Equity is implemented is through the 2j+Louis Haney, History of Economic Thought (New York; The Macmillan Co., 1 9 4 9),p. 721. ^Eric Roll, A History of Economic Thought (New York; Prentice-Hall, 1950)> 585 pages. ; 2^Theo Suranyi-Unger, Comparative Economic Systems, (New York: McGraw-Hill Book Co., Inc., 1952), pp. 217-235- 27<John R- Commons, Legal Foundations of Capitalism, pp. 234-235. ‘ injunction procedure of the courts. In Equity Law, inves tigation follows the injunction; that is, the court issues lan injunction first and then investigates the basis for the I 28 injunction later on. j The Common Law, like the Law of Equity, originates (far back in English history; its roots have really become I obscured in antiquity. The great impetus to the Common Law. however, occurred during the 17th century Puritan era of English history, especially under the leadership of Sir Edward Coke, who was opposed to the arbitrary office of King James I. The Common Law, therefore, was a. rival to the Law of Equity. I The growth of the Common Law was, in the writer's opinion, a natural consequence of the Reformation, because 1 once the English monarchs rejected the authority of the Pope it was only a matter of time until the politicians and lawyers rejected the authority of the kings. To the extent that the Common Law rejected the authority of the king the Common Law was a , rival of the Law of Equity. Today the principal means by which the Common Law is implemented is through investigation, and not until after a thorough in vestigation will the court take a specified action or issue a. legal decision. 28Ibid., pp. 234-235. g9lbid., pp. 234-235. 231 Even though the Law of Equity and the Common Law were ^consolidated in the American Constitution, the difference .between them remains the difference between an injunction : 'and an investigation. Commons originally was willing to give each an equal rank of importance, but towards the end I ‘ ! of his life he placed much greater emphasis upon the Common jLaw than he did upon the Law of Equity. In the index of I The Economics of Collective Action the word Equity does not > jappear, whereas there are four references made to the Com- mon Law. j j What Commons actually did was to shift his emphasis , ' I 'away from regulation of institutional collective action through the medium of the injunction procedure of the j i .courts in favor of the self government of institutional ; collective action legally operating within the framework 30 of the Constitution as interpreted by the Supreme Court. That regulation which does occur Commons would have accom plished through the medium of administrative commissions, but only after sufficient investigation has taken place. In turn, these administrative commissions have the power 'to issue economic regulations which become the law of the : i land in the absence of statutory law. These administrative regulations are subject to judicial review by the courts, 3°ibid., pp. 234-235. I 232 but the courts cannot interfere with the power of adminis- i 1 it rati ve commissions to issue regulations and make investi gations. I 1 In this manner the administrative commissions become \a, part of the Common Law mechanism, but the courts still j retain their function as the economic laboratories because the power of judicial review gives the courts the final say in analyzing the human will in action and passing on the 'constitutionality of administrative regulations as well as 1 ;a,ll other laws. Here is seen the shift from the Law of i Equity to the Common Law, from judicial prerogative to ju dicial investigation. ; Further evidence of this shift may be seen in the manner that Commons changed his emphasis from giving equal I consideration to both the Act of Settlement of 1700 and the Revolution of 1689 in Legal Foundations of Capitalism to major consideration only for the Revolution of 1689 in ! ■The Economics of Collective Action. The Act of Settlement ,of 1700, in that it freed the courts from control by the I king, gave to the courts a prerogative much like that pre- I i viously enjoyed by the king, that is, the power of the injunction became the prerogative of the courts. The Revo lution of 1 6 8 9^ on the other hand, was the culmination of a century long battle on the part of the courts to conduct investigations, in this instance involving a religious 233, I matter, free from the interference of the king, and issue i an opinion, in this instance through trial by jury, in j |accordance with its own criteria. The Revolution of 1689 [reflected custom, public opinion, and the public interest, , ,that is, Common Law, as opposed to the Act of Settlement } 1 ; ■of 1700, which reflected judicial prerogative and Equity ; lLaw. Commons, by dropping consideration of the Act of ! i [Settlement, was in effect, dropping from economic theory 1 31 the injunction. jn this respect he probably acted un- ! •wisely and too hastily, for the injunction remains a power- 1 |ful tool of the courts in the American political economy. Of course, the Revolution of 1689 and the Act of ^Settlement of 1700 were both aspects of the same era of ; I 'English history. They really marked the culmination of the 1 ; Puritan movement in England. The Revolution of 1689 .strengthened the hand of the courts in making the Common ;Law; the next logical step was to give the courts equality with the king and the Parliament through the Act of Settle- i ! ment. In this manner, the triple division of sovereignty between the legislative branch, executive branch, and judi cial branch of government became a part of the Anglo- : Amerlcan tradition. In the United States this triple divi sion has recently been modified into a four part division through the evolution of the administrative commission. In _31commons, The Economics of Collective Action, p.. 2 6 3. 234 Commons1 scheme of economics, the Supreme Court stands at the apex of power of this quadruple division of authority. IV. SHORTCOMINGS IN COMMONS' THEORY OP ECONOMICS There are a number of shortcomings in Commons' eco nomic thinking which the writer feels are worth noting. Undue Influence of the Great Depression of the 1930's The writer extracted from Commons' thinking a pessi mistic attitude concerning the possibilities of ever reach ing a level of reasonably full employment. This particular impression was not reached by any specific statements on jhis part but rather from the over-all presentation of his jideas in The Economics of Collective Action. It would ap pear that he came under the influence of the now defunct ! mature economy school of economics. However, the pessimism i ! . ^hich shaded his ideas is mostly superficial in nature. His basic theory still applies, since the problem of econo mic conflict remains an unresolved issue. Considering his advanced age at the time in which he wrote The Economics of Collective Action, and the turbulent period of the 1930's jfol lowed by the second World War, one can readily appreciate how his attitude became superficially pessimistic. ! Restricted Institutional Base of His Economic System Commons was concerned primarily with the conflict of capital and labor. He felt that labor unions* corporations, iand political parties provided an adequate base to resolve economic conflict. Since his death additional problems lhave arisen which indicate this institutional base is too ;na,rrow. Among these problems are survival through a jsustained defense effort* the rise of the African-Asian- I ;La.tin American nations, research into outer space* the pop ulation explosion* the spread of communism* and civil .rights. These problems have both materialistic and spir itualistic implications* whereas Commons’ institutional .system considered only materialistic problems. These new problems have been imposed upon the traditional problem of i economic conflict. It appears that the institutional base of labor unions, corporations, and political parties will have to be enlarged if consideration is to be given to the resolution of these additional problems. ! Spiritual as well as materialistic considerations are involved. However* Commons' basic system of institu tional collective action still applies. The major problem is to enlarge institutional collective action so that eco nomic* political* and social problems of this day and age may be adequately resolved. Inadequacy of the Concept of the Public Interest 236 | ' It would be Commons' contention that the public 1 :interest is best served when the participants to a trans action voluntarily negotiate its terms free from outside interference. However, it has become obvious that when i .transactions are voluntarily negotiated the public interest I i its not always served. Unscrupulous organizations or their jlea.ders will often victimize the public as they negotiate 'transactions. It would appear, therefore, that some pro- i jvision must be made for the public interest to be more [effectively served as transactions are negotiated. t Historical Oversights 1 Commons was guilty of two basic historical over- 1 sights. First, he traced the origin of Anglo-American culture to the Norman conquest when in fact he should have gone back into the Anglo-Saxon tribal era of the fifth century. Second, he refused to concede the existence of the traditionally close relationship between economics, politics, and religion which existed in England and in Colonial America. A proper understanding of the develop ment of the Common Law, the parliamentary system, liberty, and political parties requires that consideration be given to ancient Anglo-Saxon England and the influence of reli gion on English culture, which in turn is the basis of American culture. 237 ! Inability of Commons to Get at the Basic Moral Issue , The Puritan tradition has imprinted upon American ^culture the association of punishment with sin and reward i ;with virtue. Darwin's theory of natural selection has be- i uome absorbed into American culture by making God into Inature and identifying wealth with fitness and poverty with i ■weakness. The fittest, therefore, becomes the most virtu- ; ous, who are rewarded with wealth and survive in the divine: scheme of things. On the other hand, the weakest become I the most sinful, who are punished with poverty and even- Itually perish. God, in other words, selects the fittest | ,by making them wealthy and bears down on the unfittest (weakest) by making them poor. Commons was aware of this perversion of Puritanism; he opposed it; but he was unable to do anything about it because he, too, was a materialist. He was not able to ibrlng himself to believe that the primary problem is one of finding a spiritual basis for life. The power of property over the human will has become, in this day and age, a superstition as deep rooted as the religious superstitions iof the Middle Ages. In the final analysis, Commons was i unable to effectively combat the perverted materialistic religion of contemporary America because he too was a vic tim of the superstition of property, that is, he was unable to get at the basic moral issue of a spiritually free mind. 238 ■ I Provincial Aspects of Anglo-American Culture ! Anglo-American culture has made substantial strides ! in the area of political liberty, economic well being, ; 'sanitation, public health, and medicine. Unfortunately, Anglo-American contributions in other social areas are I 1 something less than desirable. i i : The amount of divorce, crime, vice, juvenile delin- I I ; Iquency, narcotic addiction, insanity, murder, criminal | :assault, violent deaths on the highways, low business jmorals, and racial intolerance should be the cause of great ' |alarm on the part of most Americans. Material well being ! ! - 1 ; isn't everything. Commons, however, like most Americans, was convinced that the American way of life is far superior i to that of other cultures. Anglo-American culture is sup- ! 'posedly a unique culture, the uniqueness being attributed ' to it because of the high level of materialism which has been reached through a representative, constitutional form of political government. This materialistic side of America is only half the story. The other half is the failing of American culture. The philosophy of reasonableness is not a cure-all, and Commons failed to see this point. He made American culture into a provincial culture by stressing its uniqueness. It is likely that, in the absence of a change on the part of the American people, America has contributed all it is going 239, ,to contribute to the cultures of the world except, perhaps,: 'for more materialism. | Americans traditionally look down upon other cul- : Itures. They fail to see that other cultures have merit |even if these cultures do not provide as much personal lib-. i erty or as high a standard of living as is possible in the ; lunited States. Particularly, Americans fail to see the i j manner in which Latin culture has preserved the family way ; ■of life. This feeling of superiority has stamped American j Iculture as a provincial culture, and peoples of .other lands i jare becoming less interested in patterning themselves after, the American fashion. Commons, in sharing this thinking, made his economic system a negative system in regards to s international economic problems. Other Limitations of His Economic Thinking A few other limitations of his economic thinking may be summarized as follows: (l) Absorption of bad custom into the law of the land by the Common Law method. (2) Lack :of emphasis upon the necessity of an individual to develop a, strong moral character on his own volition. (3) Failure to appreciate the impetus given to inflation by an institu tional credit type of economy. (4) Failure to consider the business cycle. (5) The ease with which his system en courages people to adopt mediocre standards of behavior for 240 i their personal lives. (6) Premature action on his part of dropping the injunction prerogative of the courts from eco nomic theory. V. CONCLUDING COMMENTS i ■Economic Rights Commons notes that'"the re are five basic rights with reference to economics, these being the right of liberty, ; I the right of owning property, the right of association, the ! i right,of bargaining, and the right of appeal. ; i j Property rights are really based on the power of , ! scarcity; property rights, therefore, become the right of i the owner of property to command obedience from others by : 32 withholding from them what they need but do not own. Liberty rights, for the purposes of economics, become the right of the owner of property to market it at such prices 33 and in such quantities as he can negotiate. Association rights are the rights of people to form legal entities or i going concerns of corporations, labor unions, and political action, which in turn permit the members of the going con cerns to act collectively in their efforts to accumulate the 3gibid., p. 215. 33ibid., p. 215. 241 34 .ownership of scarce property. Bargaining rights are the rights which permit individuals or legal entities to bar- 'gain with other individuals or legal entities in their ef- i ^orts to accumulate the ownership of scarce property. » i :Appeal rights are the rights of individuals or legal enti- | i i ities to appeal to some higher authority, of which the I i [Supreme Court represents the apex, in the event that the ^respective individuals or legal entities have grievances arising from the manner in which the great struggle to obtain ownership of scarce property has been resolved. j I i I Reciprocal Duties i ---------- " n r ' ' These five rights, property, liberty, association, bargaining, and appeal constitute what the writer considers | jto be the five fundamental economic rights with which Com- | mons was concerned. Corresponding to these rights are the ^reciprocal duties of respecting and honoring the rights of others. Each citizen has a certain indefinable duty of forebearance in regard to his own economic actions, and everyone is under compulsion to act reasonably, or to avoid , extremes, whenever their own economic action influences I 3^Ibid., p. 64. 35ibid., p. 45. 36iMd., p. 40. 242 others.37 jt is in this manner that rights and duties be come manifested or made meaningful for everyday economic ;behavior, that is, become the economic working rules which ' define that area of collective action based on the great ' I ■ -3« istruggle for the ownership of property.J : i l i [ Manifestation of Citizenship Status i The area of collective action based on the great 'struggle for the ownership of scarce property Commons ; 39 (refers to as economic government. It is through the jrights and duties of economic working rules that economic I ! 'citizenship within the framework of economic government i becomes a fact. Hence, economic citizenship, the foundation ) |of which is really the core of Commons' system of institu- i jtional economics, means a free will-controlled will rela tionship within which reciprocal rights and duties exist. ;It is through economic citizenship that people, especially ‘ workers, acquire dignity and self respect, and a higher | 40 (standard of living. Economic citizenship, since It arises only by people living in accordance with certain i ____________ 37ibid., p. 39. 3®ibid., p. 3 5 5. 39ibid.,'pp. 15-16. 4oIbid., p. 3. H ± ! behavioristic standards, becomes an achieved status. The ■ courts, when they investigate the human will in action, do so with the intention of preserving and enlightening citi zenship. The continued successful existence of the Anglo- American political economy is dependent upon the satisfac- i tory functioning of economic citizenship within the frame work of economic government. This satisfactory functioning ; i of economic citizenship not only protects the American eco- ; homy from foreign conquest but also from internal decay, [violence, and tyranny induced by excesses on the part of ■ 42 corporations, labor unions, and political parties. : .Significance of Due Process of Law The rights and duties of economic citizenship center | around the conflict over the ownership of scarce property, i These rights and duties constitute stable economic working rules. For all practidal purposes, the achievement of economic citizenship means that economic working rules apply for common everyday economic action. Furthermore, the achievement of economic citizenship means that citizens cannot be deprived of life, liberty, or property without due process of law, that is, citizens cannot be deprived of 4lIbid., p. 15. 42Ibid., p. 16. 244 their economic power of collective action without judicial review.^ Working rules may change only within the constitu tional provision of due process of law. However, the mean ing of due process of law itself may change, in response to i 44 the need for new working rules. This change in the mean- i ing of due process of law is merely a reflection in the manner in which the Supreme Court interprets the Constitu- i 45 tion or changes its meaning of reasonableness.■ This i change in the manner in which the Supreme Court interprets the Constitution comes under the general heading of the i sociological process of reification, that is, giving new i meaning to old ideas. Limitations on the Power of the Supreme Court The Supreme Court, while it is theoretically limited only by its own conscience as it interprets the Constitu tion, must avqid legal decisions which will lead to civil war and/or tyranny. Since reasonable working' rules, by definition, mean working rules which stabilize human econo mic behavior somewhere between the extremes of civil war ^3ibid., p. 85. ^ Ibid., p. 22. ^5Ibid., p. 236. and tyranny, any large scale resort to these tactics by politicians, revolutionaries, the military, or the public can only mean that the Supreme Court has failed to achieve its avowed goal of stabilizing human economic behavior according to the principle of reasonableness.^ Public i opinion, in other words, cannot be flouted by the Supreme . ’ Court. ■ In the final analysis, the power of the Supreme * • Court is limited by public opinion, that is, by customs, practices, usages, and traditions commonly accepted by the Ipublic. Therefore, it becomes, the function of the Supreme i Court to investigate human economic behavior as it actually exists', and through the means of its judicial decisions to i jabsorb the implications of human economic behavior into the main body of the law of the land by the Common Law method. In the present day and age administrative commissions do much of the basic investigation and issue administrative regulations, but the Supreme Court still retains its right of judicial review, and consequently it remains the major ^conomic laboratory of the nation and the ultimate sover- : kl eign. 1 ^Ibid., pp. 85-88. ^7ibid., pp. 110-112. 246 The power of the Supreme Court to make the law of the land; therefore, must stand the test of public opinion. Even when the Supreme Court does bow to public opinion, however, it runs the risk of incorporating bad law into ! i r ,the law of the land. Not all customs, practices, usages, |. ! ■and.traditions are good. Some might well be bad. The Supreme Court, therefore, is not a. moral agency; all it can1 i . ' ■ [do is to try to stabilize human economic behavior within i reasonable bounds. It seems to the writer, however, that ithe Court may unwittingly accomplish just the opposite if ■it uses the Common Law method to manufacture bad law. i B IB LIO G R A PH Y A. BOOKS I Commons, John R. The Economics of Collective Action. New York: The Macmillan Company, 1950. 414 pp. I Icommons, John R. Myself. New York: The Macmillan Company, 1934. 201 pp. 'Commons, John R. Institutional Economics. New York: The 1 Macmillan Company, 1934. 921 pp. 1 :Commons, John R. The Legal Foundations of Capitalism. New York: The Macmillan Company, 19241 394pp. i (Whittaker, Edmund. A History of Economic Ideas. New York: Longmans, Green and Company^ 1940. 7 6b pp. ■Haney, Louis. History of Economic Thought. New York: The • Macmillan Company, 1949. 996 PP- Roll, Eric. A History of Economic Thought. New York: Prentice-Hall, 19501 565 PP. I isuranyi-Unger, Theo. Comparative Economic Systems. New York: McGraw-Hill Book Company, Inc., 1952. 628 pp. B. PERIODICALS Harris, A. L. Action. 'Levitan, S. A. Action, p. 5 0 0. 'Review of the Economics of Collective Ethics, October, 1951* P. 2100. "Review of the Economics of Collective Political Science Quarterly, Spring, 1951, 'Cross, J. E. "Review of the Economics of Collective Action." Library Journal, September 1, 1950, p. 60. Knight, F. H. "Review of Institutional Economics." Columbia. Law Review, May, 1935* P. 1100. Lemer, Max. "Review of Institutional Economics." Harvard Law Review, December, 1935> P* 2600. 248 Atkins, W. E. "Review of* Institutional Economics." Management Review, March, 1935? P- 140. Atkinson, M. P. "Review of Institutional Economics." Christian Century, October 2, 1935? p.6 5 0. Mitchell, W. C. "Review of Institutional Economics." American Economic Review, December, 1935? p. 4300. iBye, R. T. "Review of Institutional Economics." Anna.1 s of the American Academy of Political and Social I Sciences, March, 1935? P. 750. i .Lilienthal, D. E. "Review of Legal Foundations of Capital ism. " Nation, September, 1924, p. 800. i i i I I t Perversity of Southern California Library

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Creator Groman, Sinclair Wiggins (author)

Core Title An analysis of the institutional economics of John Rogers Commons

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