Commons, John R. (1862–1945)

John R. Commons was a prominent historian and interpreter of the American labor movement, as well as an activist in several social reform movements. He was a major architect of regulatory agencies, a historian and theoretician of the evolution of the economic system, and a leading theorist of the role of institutions in the economy, especially its legal foundations. Commons's view of economics was broad and evolutionary. His view of institutions focused on social control and social change, on the institutions that formed and operated through markets, and on the legaleconomic nexus in which the details were worked out. He became a founder of institutional economics, especially its Wisconsin branch.

Commons's analysis of the legal foundations of capitalism reflected his view of them as complex and interactive. He felt it necessary, therefore, to incorporate several bodies of theory. These included theories of social control and social change; language; behavior; systemic and institutional organization; the evolution of capitalism, centering on power struggle and conflict resolution; the legal-economic nexus; property; liberty; and interagent interrelations.

Commons's theory of language focused, in part, on how the operative, substantive content of legal concepts such as property and freedom changed, but without change in terminology. His theory of behavior centered on a negotiational rather than a maximizing psychology. Institutions were collective action, including systems of belief, in control and liberation of individual action. He gave great weight to custom, morals, and legal rules and to the processes of their transformation. His theory of the labor movement centered on union collective bargaining over wages and working conditions (workplace rules), rather than on revolution. The “values” that interested Commons [Page 212]were those residing in institutions rather than in money prices.

Commons developed a theory of transactions. These were of three types: bargaining (between legal equals), managerial (between legal superior and inferior within a firm's organization of production), and rationing (between legal superior and inferior when government apportions opportunity through the protection of interests through rights). The basic transaction included not only the two negotiating parties' positions but also each person's next-best alternative, as well as the government, notably the courts, as arbiter of conflict.

Commons's theories emphasized the process of social construction of institutions, as a process of policy making and of working things out. This process he designated artificial, rather than natural, selection. His fully developed theory of institutional economics used very different terminology from that of most other economists. His theory centered on terms such as working rules, sovereignty, scarcity, efficiency, and futurity. These he elaborated in part using their manifestations in conventional economic theory.