John R. Commons’ Criticism of Wicksell's Theory of Interest: Focusing on the Influence of R. G. Hawtrey

Abstract:

John R. Commons is one of the founders of the American institutional school. In recent years, two compiled manuscripts of his main book, Institutional Economics, were discovered in Japan and in the United States. One is a manuscript written in 1927 found at the Kyoto Prefectural Library, and the other is a manuscript dated 1928–29 found at The United States Department of Agriculture's National Agricultural Library. Using these manuscripts, this article examines formation process of Commons’ institutional theory of interest. In particular, the influence of R. G. Hawtrey on Commons’ theory is explained. Commons depended heavily on Hawtrey's theory in order to overcome some limitations included in Wicksell's theory, in the section of Institutional Economics titled “A World Pay Community.” This is clarified mainly by comparing it with a section of the manuscript with the same title, which did not refer to Hawtrey.

Keywords::

• theory of interest
• Commons
• Wicksell
• Hawtrey

JEL Classification Codes::

• B25
• B31
• B52
• E11

Notes

1 See Hiroyuki Uni (2014) for the history and outline of this manuscript (Commons 1927). Using this manuscript, I carried out joint research with the support of JSPS KAKENHI Grant Number 26285048, the result of which was Uni (2017).

2 This manuscript, titled “Reasonable Value,” was published electronically on the National Agricultural Library site: https://www.nal.usda.gov/.

3 Commons wrote “September, 1928” in the upper right part of the first page of Chapter 11 of the 1928–29 manuscript. And he wrote “(To be revised, February, 1929)” in the top of the first page of the final section of this chapter. Moreover, in Chart I and II in Section 5 of this chapter, he plotted the monthly data of interest rates and prices in the United States until the end of 1928. These facts indicate that this manuscript was written from 1928 to 1929.

4 These changes indicate that his theory of reasonable value developed from micro-statics to macro-dynamics.

5 For Commons’ criticism of the classical economics, see Uni (2017, Chapter 1) or Uni (2018).

6 Representative studies are Whalen (1993) and Takahashi (2008). In 1923, Commons also said that he and Hawtrey belonged to the “bank regulation group” as follows: “The bank regulation group, which its remedies of stabilization of prices, proceeded from MacLeod and Juglar in the decades of the 1850s, to Fisher, Cassel, Hawtrey and the more recent writers, Foster and Catchings, who find their explanations in the discrepancies between the production and consumption of goods and promises of business men and banks to pay the prices of those goods in the future” (Commons 1923, 639).

7 The first major change in IE is the addition of facts of anthropologists’ discovery of money-based accounting in primitive society (Commons 1934, 475). The second is the addition of a new term “debit money” as follows: “Since Hawtrey's bankers’ debts, or so-called ‘deposit currency’ used as money, is a running account of credits and debits on the bankers” books, we may name it by the act that gives it effect and call it Debit Money” (Commons 1934, 485).

8 Please refer to Akira Furukawa (2012) regarding the contents and evaluation of Hawtrey's credit theory and monetary policy theory, as well as an overview of Chapter 1 of Hawtrey's Currency and Credit (Hawtrey 1919).

9 Commons quoted from the second edition (1923) of Currency and Credit. In the footnote of the 1928–29 manuscript, Commons noted that Hawtrey (1923) and Hawtrey (1927) should be referred to, in addition to Currency and Credit. Also, in the footnote of IE, Hawtrey (1932b) is noted (Commons 1934, 472).

10 In addition to the page number attached by Commons himself in the upper middle of each sheet of the 1928–29 manuscript, the National Agricultural Library attached the serial number in the upper right corner of each sheet. In the following, this serial number is indicated.

11 For the meaning of Hawtrey's theory of quantity adjustment, please refer to Kojima (1997), Furukawa (2012).

12 Kojima (1997) examined the whole picture of the influence of Hawtrey on Keynes.

13 Although Commons used the term “fluctuations in the general price,” “expected fluctuations in the general price” seems to be more appropriate.

14 Wicksell himself also mentioned the unmeasurable nature of the natural rate of interest (Wicksell 1898, 168; 1899, 85).

15 This idea of Commons was also seen in the 1928–29 manuscript, but it was a proposal to use the bond yield instead of the natural rate of interest.

Additional information

Notes on contributors

Hiroyuki Uni

Hiroyuki Uni is a professor of economics at Otemon Gakuin University and an emeritus professor at Kyoto University. This research was supported by the Japan Society for the Promotion of Science (JSPS) KAKENHI Grant Number 18K01530.