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The Effect of the Great Depression on the Institutional Economics of John R. Commons

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Contemporary Meanings of John R. Commons’s Institutional Economics

Part of the book series: Evolutionary Economics and Social Complexity Science ((EESCS,volume 5))

Abstract

Although Institutional Economics (1934), John R. Commons’s most important work, was published after the start of the Great Depression, it contains little analysis of that extraordinary event. In fact, Commons formed some of his main concepts, such as his notions of the institution and the rationing transaction, over a 4-year period, from 1927 to 1931, overlapping with the start of the Great Depression in 1929. The evolution of his ideas can be traced from April 1927, when he completed the manuscript “Reasonable Value: A Theory of Volitional Economics” to his later article “Institutional Economics” in 1931. Commons analyzed the causes of the Great Depression in a report published in May 1931. The ideas he presented were similar to those in other prominent studies. However, Commons was unique in advocating a policy of international cooperation on interest rates. The Great Depression caused Commons to substitute the notion of the rationing transaction for that of the judicial transaction and also influenced his definition of the institution, his support for policy making by administrative committees working under due process of law, and his idea of reasonable capitalism. Commons worried that inherent in capitalism was a risk of evolution toward fascism and communism where rationing transactions would be controlled by a dictator. Therefore, in his later years, he emphasized the role of the administrative committee working under due process of law in policy making, a means through which he sought to achieve a reasonable capitalism.

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Notes

  1. 1.

    Williamson (1975, p.254).

  2. 2.

    Atkinson and Whalen (2011).

  3. 3.

    Dutraive and Théret (2013).

  4. 4.

    “The 1927 manuscript” refers to Commons (1927a), written in April 1927.

  5. 5.

    Besides the 1927 manuscript, Commons produced several other drafts of Institutional Economics. Three drafts were completed between April 1927 and the start of the Great Depression: the draft of December 1927 (Commons 1927b), the draft of February 1929 (Commons 1929a), and the draft of March 1929 (Commons 1929b). These are simply tables of contents.

  6. 6.

    Commons wrote “Economic Reform” (Commons 1893a) and “Sound Currency” (Commons 1893b) in 1893, also the year of publication of his first major work, The Distribution of Wealth. In these two studies he insisted that money should have elasticity.

  7. 7.

    See Table 1.

  8. 8.

    Additionally, Uni explained that Commons enhanced the price theory between 1927 and 1934, and in the 1927 manuscript Commons thought reasonable value was formed in the mutual constraint relationship between bargaining transactions in the market and managerial transactions in the organization (Uni 2013).

  9. 9.

    According to John R. Commons Papers (microfilm edition, State Historical Society of Wisconsin, 1982), this report is contained in a set of unbound items that includes articles, speeches, and miscellaneous writings (ibid., p.27). Being dated May 9, it seems likely the report took the form of a speech or newspaper account.

  10. 10.

    Gruchy described Institutional Economics as follows: “In the depths of depression he published his Institutional Economics, Its Place in Political Economy (1934), a statement of his overall economic ideas, and not a book designed to provide answers to the immediate problems of the day” (Gruchy 1947, p.151).

  11. 11.

    “Custom” means specifically “common law method” (Commons 1931b, p.651).

  12. 12.

    Koh (2013, pp.58–59). This article pointed out that before the Great Depression Commons consistently maintained that a “public” organization should manage the currency. The article also insisted that Commons was optimistic in that the FRB would be recognized as suited for this role.

  13. 13.

    Incorporeal property and intangible property are discussed in more detail in Legal Foundations of Capitalism (Commons 1924).

  14. 14.

    Akimoto (2009, p.67).

  15. 15.

    Timberlake (2005, p.212).

  16. 16.

    Galbraith (1955) also criticized the passive attitude of the FRB.

  17. 17.

    This is common with Bernanke (2000).

  18. 18.

    See Ramstad (1996) and Takahashi (2006).

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Acknowledgements

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).

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  1. Tokyo College of Transport Studies, Tokyo, Japan

    Shingo Takahashi

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  1. Shingo Takahashi
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Correspondence to Shingo Takahashi .

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  1. Graduate School of Economics, Kyoto University , Kyoto, Japan

    Hiroyuki Uni

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Takahashi, S. (2017). The Effect of the Great Depression on 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_3

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