Institutions, economy and politics: the debate between Commons and North

Abstract

This article compares John R. Commons and Douglass C. North. Both scholars justify the role of institutions by referring to cognitive issues and emphasise power relations as a key concern. However, their perspectives are radically different. North focuses on the barriers to the emergence of “open-access orders” in developing countries. The existence of impersonal norms is supposed to eradicate violence in society. In contrast, Commons is a progressive preoccupied with the survival of capitalism. In his view, through the growth of inequalities, these norms renders the system unstable. The economy has to be bounded at the political level.

Keywords:

• Commons
• North
• cognition
• violence
• politics

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 North states: “we are interested in combining what we are doing in institutional theory with traditional formal neoclassical price theory. Ultimately, what we are trying to do is not to replace neoclassical theory” (North 2000a, 8).

2 According to North (2004a), Western economies performed well, not because they achieved exceptional growth, but because their incentive institutional environment avoided the phases of economic decline observed elsewhere.

3 Among pragmatist thinkers who associate the truth differentially-Peirce, with practical consequences, William James with desirable consequences and John Dewey with socially desirable consequences-Commons prefers Commons ([1934] 1990).

4 Commons draws inspiration from Wesley N. Hohfeld’s model of legal relations, introducing four pairs of “legal opposites”- for example, power / disability- as well as four pairs of “legal correlatives”- among them “power / liability”. See Luca Fiorito (2010) on this point.

5 To bargaining and managerial transactions, Commons adds a third type, “rationing transactions”, which refer to policy issues, dealing with the distribution of benefits and costs in an organisation.

6 This term is used in three different contexts: to reflect the current best practices in the “going concerns;” to express the absence of coercion in negotiations; and in relation to price formation (Dugger 1979). These meanings are compatible with each other.

In search of pioneers, exemplary economic agents, Commons even becomes a laudatory voice of Andrew Carnegie, the steel magnate, as well as of James B. Dill, the inventor of the holding company (Biddle 1990).

7 For a positive theory of the predatory state, see Mehrdad Vahabi (2016).

8 Acemoglu and Robinson (2005), whom North often quotes, focus on the relationship between the strategy of the ruling classes towards the people and the political regime.

9 For instance, “performance” occurs 66 times in Institutions, Institutional Change and Economic Performance (North 1990), compared to only 18 times in Violence and Social Orders (North, Wallis, and Weingast 2009)—a work at least twice as long.

10 Spencer’s contribution is also mentioned in connection with cognitive issues (Commons [1899–1900] 1965). However, this does not prevent a disagreement between the two, already evident in SVS ([1899–1900] 1965) as we shall see, and which intensified later. Commons even wrote that the metaphor of natural selection “reached . . . the peak of absurdity at the hands of Herbert Spencer” ([1934] 1990, 637).

11 See Jeff Biddle (1991) on Commons’ “instrumental presentism.”

12 Commons’ comment ([1924] 1959) on the 1917 Hitchman case, which legalises “yellow-dog contracts,” is a good illustration. In the labour contract, the employer may insert a clause forbidding the employee from being a union member.

13 According to Spencer’s eschatology (Spencer [1879] 2012), the future will be so imbued with cooperation between people that altruism will be the norm.

14 For example, Commons participated in the drafting of several laws such as the Civil Service Law in 1905, the Public Utilities Law in 1907, the Worker's Compensation Law in 1911 and the Unemployment Insurance Act in 1932.

15 Keynes’ and Commons’ respective theories converge more on ends than on means (Chasse 2017; Whalen 2008).

16 While North (2004) provides the example of the New Economic Policy (NEP) during the Russian Revolution, but in the Marxist ideological context, the NEP must be seen more as a hiatus in the revolutionary project rather than its end as an abandonment of the capitalist model.

17 In the debate on the economic efficiency of democracy, North positions himself in an original way. He opposes Robert Barro (1996) who equates this political system with “luxury good” because of the redistribution that accompanies it and which is wasteful. Like Dani Rodrik (1997), North postulates its effectiveness but limits the forms of redistribution. It must be recalled that Acemoglu and Robinson (2005) are discussed extensively.