Abstract
This chapter presents an additional method of institutional reform that John R. Commons described in Institutional Economics (1934a) by comparing this published version with its 1927 manuscript “Reasonable Value: A Theory of Volitional Economics” (1927). The Legal Foundations of Capitalism (1924) and the 1927 manuscript stress that a higher authority plays a role in institutional reform by settling disputes. In contrast, the discussion in Commons 1934a, written after the 1927 manuscript, focuses on the joint bargaining system. The essence of this system is the creation and amendment of working rules through negotiations between interest groups, joint administration of those rules, and the enabling of institutions via sovereignty. On the one hand, interest groups receive sovereign power (rule enforcement power) from government, provided they create rules that society considers reasonable. On the other hand, sovereignty enhances progressive private practices by making them part of the broader semipublic system. Sovereignty thus makes private going concerns responsible for social governance. After clarifying these two methods, this chapter further articulates them. The dynamic nature of these methods of institutional reform becomes apparent where economic, political, and ethical principles affect institutional reform. Not only do higher-level and lower-level (in terms of political, economic, cultural, and legal power) going concerns influence each other, but influence also runs in many directions and follows multiple paths. This dynamic composition artificially enhances the reasonableness of political economy.
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Notes
- 1.
The term “institution” means “collective action.” When it is unorganized, such a rule is described as a “custom”; when it regulates the collective action of an organized “going concern,” such a rule is described as a “working rule.” Commons uses the term working rules to describe rules of private going concerns, laws, judicial precedents, and even the constitution. “Working” here implies that the rules continuously change or evolve in response to changes in economic, political, and ethical conditions outside and inside the going concern. Commons sees “political economy” as the ensemble of evolving “working rules,” namely, the ensemble of evolving institutions (Commons 1924, p.377).
- 2.
In this chapter, the term “value” expresses the broader meaning of value relating to economic, political, and ethical “principles,” which include efficiency value, political power, justice, security of expectation, and freedom (Commons 1934a, pp.207, 213, 683–684). To express a narrower meaning, I use alternative terms such as “price” or “proprietary scarcity value.”
- 3.
I chose to focus on the joint bargaining system rather than the government institution of a commission because the former term expresses the essentials of Commons’ idea. Operative examples include the “advisory committee” of the Wisconsin Industrial Commission and the “interim committee” in the Wisconsin legislature. These examples are not perfectly expressed by the term commission. The terms expressing the same idea are “voluntary representations of organized interests” (Commons 1934a, p.859) and “leading representatives of conflicting interests” (Commons 1934b, p.159).
- 4.
Of course, I am aware that Commons wrote rough outlines of his experiences of the formation and administration of joint bargaining systems before 1927 (e.g., Commons 1911, 1913a, 1913b). However, important questions remain, such as why he embedded fairly detailed explanation of such systems in his later comprehensive theoretical work, Commons (1934a), and why he described such systems in detail only after 1927.
- 5.
Examples include a novel business practice, unconventional decision of a lower court, or minority opinion of the Supreme Court.
- 6.
- 7.
The contents of squared brackets have been added by the author to enhance readability. This also applies elsewhere throughout this paper.
- 8.
The other four parties consist of two sellers and two buyers.
- 9.
The other two parties consist of a superior and an inferior in a firm.
- 10.
How political value, or power, relates to institutional reform is described in Commons (1934a, pp.749–761, “Politics”).
- 11.
It is also known as the unemployment insurance or unemployment compensation law.
- 12.
Commons sees the working rules of a going concern as an “institution” (Commons 1934a, p.69). In this case, the going concern is the joint bargaining system.
- 13.
Here Commons emphasizes the importance of the participation of every representative, as well as the importance of seeking a rule that is workable for each interest group. He does this for two reasons. First, in the history of labor movements in America, attempts by labor to unilaterally impose their policies on employers often failed. Such unilateral attempts by a single interest were a type of collective action classified as “coöperation,” and clearly differed from “collective bargaining,” which involved participation of representatives of interest groups (Commons 1934a, pp.756–757). A historical case of coöperation involved the radical and aggressive association of the Knights of Labor.
Second, he wanted to avoid extreme systems that imposed the policies of one interest group on others, as occurred under Communism and Fascism (Commons 1934a, p.756). In World War I and the interwar era (especially 1918–1921), the American people were skeptical of Communist and Fascist influences. Their skepticism was encapsulated in the phrase “Red Scare.” In this atmosphere, radicals, socialists, and unionists were stigmatized as “communist” and hence were oppressed. Additionally, in response to the Great Depression, as part of the New Deal the USA eagerly imported elements of European totalitarianism and applied them to the social and economic order (Schivelbusch 2005). In this environment, Commons, as an institutional liberalist, must have strongly felt the need to draw a defensive line to protect the American political economy against fascism and communism.
Contemporary American society saw both communism and fascism as undesirable political movements. However, Milwaukee was a rare city in the USA with an active socialist movement. This was a movement not of revolutionists, but of gradualists, and they sought civic reforms like infrastructure improvement. In 1910, Emil Seidel of the Socialist Party was elected as the mayor of Milwaukee. He set up the Bureau of Economy and Efficiency in the administrative branch of the Milwaukee government. Commons became involved in the Bureau (Commons 1913b, ch.13).
- 14.
In passages quoted from other works, text in italics is simply reproduced from the original, whereas text in bold indicates emphasis by the author of this chapter. This applies throughout this chapter.
- 15.
As already stated in this chapter, Commons did not clearly show the coordination of different principles. However, clearly he was strongly interested in principles other than economic ones, as demonstrated by his following comments about the working rule.
[The term “working rules” indicates] their temporary and changing character conforming to the evolution of economic, political, and ethical conditions. (Commons 1934a, p.705)
Reasonable Value is the evolutionary collective determination of what is reasonable in view of all the changing political, moral, and economic circumstances and the personalities that arise from there to the Supreme bench. (Commons 1934a, pp.683–684)
- 16.
For example, Sect. 7 (a) of NIRA clearly states the right of employees to organize and engage in collective bargaining. However, because this section is subject to various interpretations, it has not been enforced effectively (Kihira 1993).
- 17.
The blue eagle movement (formally called the campaign to enact the “President’s Re-employment Agreement”) was a government-organized movement that required employers to install maximum working hours (40 h per week) and minimum wages (e.g., 15, 13, or 12 dollars per week, and 40 cents per hour, albeit with various conditions and exceptions). Business establishments that met these conditions could signal their compliance by using the blue eagle mark. Noncompliant businesses became targets of economic and ethical sanctions that included public boycotts (Kihira 1993, pp.228–239, 260; Shinkawa 1973, p.102).
- 18.
However, in the stage of the planning and administration of the codes of fair competition, the capital exercises its power in a unilateral way, in part because the National Recovery Administration insufficiently supports trade unions and consumer groups (Shinkawa 1973, pp.120–121).
- 19.
The corporatism of fascism can be restated as “syndicalism”:
The word “syndicalism” comes from the French, meaning simply “unionism.” A union of employers or bankers is an employers’ syndicate or bankers’ syndicate. A trade union is a labor syndicate. But history has changed the meaning of the word syndicate. […] In Italy it has come to mean patriotic syndicalism, organized by government to support private property and the supremacy of the dictator. (Commons 1934a, p.883)
In Italy at the time, syndicates of employers, bankers, and workers had emerged. As noted above, these syndicates differed from the associations that were participants in Commons’ joint bargaining system in being “organized by government” and therefore not voluntary associations. Commons was trying to show a way to keep such syndicalism out of the USA. Other reasons Commons respectfully describes the joint bargaining system are given in Sect. 4 of this chapter.
- 20.
- 21.
The substance of this law is shown as an unemployment insurance or unemployment compensation law.
- 22.
This number was further reduced to 175,000 by the representative George Blanchard.
- 23.
Commons (1924; 1934a) implied that each citizen has “constituent power.” The powers inside every citizen reflect and affect social structure. From the perspective of constituent power, Kitagawa (2013) compares Commons with Antonio Negri, noting that while Negri (1981) focuses on the constitution in the productive sphere, he cannot show concrete momentum, and nor does he show processes. On the contrary, Commons shows these as economic conflicts, negotiation, and the two methods of institutional reform.
- 24.
This “efficiency” is not “efficiency” in the sense used by Commons, that is productivity per “man-hour” (quantity of products produced per man-hour), but rather refers to the minimization of transaction costs (costs of collecting information and bargaining with transactional partners). Thus, efficiency means the minimization of whole cost by choosing from between horizontal exchanges in market (entailing transaction costs) or hierarchal relationship inside a firm (entailing management costs).
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Acknowledgments
This work was supported by the Japan Society for the Promotion of Science (JSPS), the KAKENHI Grant-in-Aid for Scientific Research (B) (grant number 26285048), and the Grant-in-Aid for Research Activity Start-up (grant number 15H06303).
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Kitagawa, K. (2017). Two Methods of Institutional Reform in the Institutional Economics of John R. Commons. In: Uni, H. (eds) Contemporary Meanings of John R. Commons’s Institutional Economics. Evolutionary Economics and Social Complexity Science, vol 5. Springer, Singapore. https://doi.org/10.1007/978-981-10-3202-8_4
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