Carl Menger's evolutionary and John R. Commons' collective action approach to institutions: a comparison

Abstract

This essay examines the relation between Carl Menger's and John R. Commons' approaches to institutional analysis. It draws attention to certain aspects of their respective approaches which are of systematic relevance to the ongoing debate on the direction into which an adequate economic theory of institutions ought to be developed. It is argued that – contrary to a common perception – Menger's and Commons' concepts of institutions represent compatibleand complementaryrather than conflicting, alternative theoretical perspectives. It is suggested that the explanatory power of an economics of institutions can be enriched by incorporating both perspectives; Commons' collective action perspective as well as Menger's evolutionary perspective.

Law, language, the state, money, markets, all these social structures …are to no small extent the unintended result of social development, The prices of goods, interest rates, ground rents, wages, and a thousand other phenomena of social life in general and of economy in particular exhibit the same peculiarity. Also, understanding of them …must be analogous to the understanding of unintentionally created social institutions. …For they, too, as a rule are not the result of socially teleological causes, but the unintended result of innumerable efforts of economic subjects pursuing individualinterests (Carl Menger, 1985: 147, 158).

Collective action, as well as individual action, has always been there; but from Smith to the Twentieth Century it has been excluded or ignored, except as attacks on trade unions or as postscripts on ethics or plublic policy. The problem now is not to create a different kind of economics - ‘institutional’ economics - divorced from preceding schools, but how to give to collective action, in all its varieties, its due place throughout economic theory (John R. Commons, 1934:5).