John R. Commons’s Criticism of Classical Economics
AbstractCommons criticized limitations of the classical economics, namely the elimination of scarcity, ownership money, friction and heterogeneity, and attempted to construct new concepts and theories to overcome these limitations. The purpose of this paper is to reveal Commons’s theoretical progress by analyzing a recently discovered manuscript written in 1927 titled “Reasonable Value: A Theory of Volitional Economics”. Specifically, I compare this manuscript with several other published works by Commons: The Distribution of Wealth (1893), Legal Foundations of Capitalism (1924), Reasonable Value (1925), and Institutional Economics (1934).
In this paper, Section 1 presents the conclusions Commons reached as a result of his criticisms of the classical theory of value and the classical economic dynamics. Section 2 applies comparative analysis to identify three aspects of Commons’s theoretical progress in the 1927 manuscript: first, the conceptualization of proprietary scarcity; second, the construction of his theory of value with multiple causations; third, the formulation of three types of transactions. Section 3 identifies two theoretical limitations of the 1927 manuscript and considers how to overcome them. The first limitation is that the “judicial transactions” described in the 1927 manuscript included only the correction of transaction failures at the micro level. The second limitation is that Commons’s theory of value did not include the coexistence of suppliers with different efficiency levels. Section 4 shows that, in Institutional Economics (1934), Commons constructed institutional economic dynamics by introducing a concept of “rationing transactions” instead of “judicial transactions”, with the result that he overcame most of the above limitations.