Skip to navigation – Site map
Varia

The Driving Forces of Diffusion in John R. Commons’ Institutional Economics

Les moteurs de la diffusion des institutions dans Institutional Economics de John R. Commons
Los motores de la difusión de las instituciones en Economía Institucional de John R. Commons
Kota Kitagawa

Abstracts

In this article, I reconstruct John R. Commons’ theory of institutional evolution: I draw a trajectory from where a novel principle at the micro level reached a compromise with old principles at the macro level. In the process, the uniqueness of Commons’ evolutionary theory is highlighted and a forgotten challenge for modern evolutionary and institutional economics is uncovered: the need to explore the spiritual driving forces in history in a specific time and space. In drawing the trajectory in Commons’ centerpiece work Institutional Economics (IE), the following two points are highlighted. First, “institutions” themselves (defined as “going concerns” where the collective action controls member actions), carry novel principles and evolve through their diffusion process. The novel principles discussed here are industrial democracy and safety. Second, the spiritual driving force unique to the era pushed ahead the evolution and diffusion of the institution. This force is similar to a religious devotion to industrial democracy and safety. In order to confirm these “genuine” unique aspects, I compare Commons’ theory with French modern institutionalism and with modern evolutionary economics reconsidering old institutionalism.

Top of page

Author's notes

This work was supported by the Japan Society for the Promotion of Science (JSPS), the KAKENHI Grant-in-Aid for Scientific Research (B) (grant number 26285048), and the Grant-in-Aid for Research Activity Start-up (grant number 15H06303). Ms. Kazusa Masaki and Ms. Chie Kubota (Division of Research Development, Kansai University) competently supported my research activities. I developed some of my ideas through discussions with Dr. Takayuki Nakahara (professor at Hannan University), Mr. Yoshiaki Eguchi (representative director at Kansai University Co-op), and Mr. Kohya Kinoshita (Kansai University Co-op). I also received many helpful comments from two anonymous referees of this journal.

Full text

1. Introduction

1The aim of this article is to reconstitute the works of John R. Commons, specifically, his centerpiece work, Institutional Economics (1934a), as evolutionary theory, drawing the trajectory from where a novel principle or practice emerges at a micro level (the actor level) and leads to the evolution of a compromise of principles at the macro level (social level). In drawing this trajectory, I search for what is unique in Commons’ evolutionary theory. In order to find this “genuine” unique aspect, I compare Commons’ theory with French modern institutionalism in certain spots (Batifoulier, 2001; Boyer, 2004; Eymard-Duvernay, 2004) and with modern evolutionary economics reconsidering old institutionalism (Hodgson, 2004b; Dopfer and Potts, 2008).

2The reconsideration of old American institutionalism has become part of the process in the building of modern evolutional economics (Hodgson, 2004a; Uni, forthcoming). There are three main features of old institutionalism being revisited. The first is focused on “customs” and “habits” constituting the disposition of human and organizational action. Hodgson calls this “reconstructive downward causation.” Neo-classical economics is often bitterly criticized for this idea because if human abilities, for example, “rationality”, “deliberation”, and “choice”, exist, they are not given conditions but are rather constructed over time and thereby change through “cumulative causation.” Thus, such abilities are not conditions but objectives of analysis (Veblen, 1906; Hodgson, 2004b, 2010). Therefore, they should be seen not as a given but as historical consequences and have historical and spatial variety. The second feature is focused on the reciprocal relationship between the institution and institutionalized individuals, and overcomes the dichotomy between individualism and collectivism (Hodgson, 2004a). On the one hand, when we investigate individuals we observe socialized actions, namely, their customs. On the other, the replication of institutions depends on the repeated actions of the customs of individuals. Moreover, the replicated institution is never completely the same over time. The institution, even after it is internalized, is reinterpreted by individuals as they apply it to their specific situations through their interpretation capabilities, idle curiosity, and creativity (Hodgson, 2010). The third feature is focused on the “market” as a mechanism emerging from a bundle of institutions built through historical interactions among technology, sovereignty (law), and culture (Veblen, 1914; Rutherford, 1998; Brette, 2003).

3Hodgson chose Veblen’s works from among old institutionalists to elaborate his own evolutionary “thesmology” (Hodgson, 1993, 2004a, 2010). In his work, he (1) defines a “multi-layered ontology”, which Veblen could not clarify, and (2) further elaborates Veblen’s evolutionary perspective on “universal Darwinism.” In the multi-layered ontology, reality at each level has features that cannot be explained by the sum of all realities one level below. He (3) calls the genesis of these novel elements “emergence.” The principles of Darwinian evolution are variation, inheritance, and selection. These novel elements (e.g., language and money) that emerge are a source of variation. Along with new technology and goods, they become a target of selection.

4Because Hodgson evaluates Veblen’s works highly as material for his evolutionary thesmology, he stringently criticizes Commons (Hodgson, 2003, 2004a, p. 285–308). He argues that Commons’ works lack the theoretical foundations to develop (1), (2), and (3) as stated above. However, should we evaluate Commons only from Hodgson’s particular perspective and eliminate his works from the storehouse of modern evolutionary and institutional economics? Some régulation theorists think “no.” They believe that there are insights in Commons’ works, which modern evolutionary and institutional economists have yet to draw out (Théret, 2001; Nakahara, 2013; Uni and Nakahara, forthcoming).

  • 1 Based on régulation theorist Basle (2002) and convention theorists Bessy and Favereau (2003), who s (...)
  • 2 The first and second findings are stated in Uni (2015, p. 6).
  • 3 For more information about Commons’ term “artificial selection,” see Ramstad (1994) and Hodgson (20 (...)

5Theorists of French modern institutionalism, namely, régulation and convention theorists, in particular have an affinity for the works of Commons.1 They clarify the many similarities between them as well as what is unique about each (Uni and Nakahara, forthcoming) and disclose three main findings.2 First, they clarify macroeconomic cumulative causation, which can be seen as a prototype of the “accumulation regime.” The increase in “efficiency” and supply and demand growth are connected in a relationship of reciprocal enhancement by institutions at the micro, meso, and macro levels. Second, they declare that the “uniqueness” of Commons’ work is that he discusses the collective process of formulating social compromise, namely, “régulation.” Commons and régulation theory share the idea that “the relay of collective action, political deliberation, into law prove to be necessary and decisive in the complex and seldom anticipated process of the emergence of new régulation” (Boyer, 2004, p. 148). Although régulation theory has not yet detailed the particulars of such a “relay”, Commons did. He detailed the sequential and artificial selection of institutions through the process of deciding economic disputes.3 He calls this procedure the “common-law method.” Third, they clarify a source of the variation of human actions in Institutional Economics (Commons, 1934a, hereafter, IE). In convention theory, each actor recognizes the collective as “representation.” This has two aspects. The first is the collective aspect of representation, which gives a landmark role to the ensemble of actors. The second is an arbitrary aspect based on its subjective nature (Chaserant and Thévenot, 2001). In sum, the notion of representation explains both the variety of individual actions and their similarities. Uni and Nakahara (forthcoming) find that the relationship between the collective as reality and its representation in human minds is similar to the relationship between the “collective opinion” of a “going concern” and the habitual assumptions of its members. Therefore, “habitual assumptions” captures both the variety and the similarity among the simultaneous actions of individuals, namely, concerted actions.

  • 4 “Practice” is defined in IE as “optional” individual action rather than custom. Custom is a collect (...)

6While such theorists show fresh and useful ideas, they do not clarify how these ideas relate in Commons’ evolutionary theory. They clarify the source of variation from the perspective of the collective as representation; however, they should not stop there. It is variation that creates conflicts. From conflicts, the “Common Law Method of Making Law by Deciding Disputes” starts (IE, p. 707). If we connect variation, conflicts, and the common-law method, we can draw a trajectory from where the genesis of a novel principle, practice,4 or institution at the micro level leads to the evolution of the compromise of principles, namely, evolution of régulation, at the macro level.

  • 5 A book series from Routledge.

7Nevertheless, it is suspect that the uniqueness of Commons’ works is the clarification of the diffusion process of novel principles, practice, or institutions. For, “the general theory of economic evolution” of Dopfer and Potts (2008), which may be inspired by Commons, draws the diffusion process as a trajectory at the “meso” level, namely, the level of population formulation. In this case, the novel, newly created idea of “rule” is provided for the market or the public (“meso 1”). The rule diffuses through enterprise competition (“meso 2”). A sustainable structure emerges through institutionalization of the followers of the rule (“meso 3”). “Entrepreneurship” is an important driver, especially at mesos 1 and 2; “management” is valuable at meso 3. However, are well-known economic factors, such as “entrepreneurship” and “enterprise competition”, the only representative drivers of the diffusion process? If so, we do not need “economics as social theory.”5

8As I have stated, by reconstituting the work of Commons, I will draw a trajectory from where a novel principle at the micro level leads to the evolution of the compromise of principles at the macro level. In doing so, the uniqueness of Commons’ evolutionary theory will be highlighted. If I succeed in capturing this uniqueness, then a forgotten challenge for modern evolutionary and institutional economics will be uncovered: to explore the spiritual driving forces in history in a specific time and space.

  • 6 The term “institution” means a “going concern,” which is a “collective action” controlling individu (...)
  • 7 Industrial democracy has no clear definition, but its elements may be dialog, deliberation, and the (...)

9In drawing the trajectory in IE, the following two points will be discussed. First, “institutions”6 themselves, which carry novel principles, evolve through their diffusion process. The novel principles discussed here are industrial democracy7 and safety. “Institution” in IE is defined as a “going concern”, which is the collective action controlling member actions. Through trial and error, the methods of collective action have evolved from “log rolling” to “cooperation” to “collective bargaining.” The success of collective bargaining accelerated the diffusion of the principles of industrial democracy and the spirit of safety.

  • 8 I realize that the phrase “religious devotion” may be rare in social science. Perhaps, more appropr (...)

10Second, the spiritual driving force unique to the era pushed ahead the evolution and diffusion of the institution. This force appears to be similar to religious devotion to industrial democracy and safety.8 These principles were attractive as alternatives to excessive capitalism based on how individualism and liberalism had been rampantly abused at the time.

11French modern institutionalism has focused very little on the first point above. For it lacks the framework to explain the diffusion process of novel principles and practices. On the other hand, the process can be explained uneventfully through the perspectives of Hodgson (2004a) and Dopfer and Potts (2008), who focus on the process where carriers or carrier populations retaining novel rules are selected, survive, and diffuse through relationships with other various carriers or populations.

  • 9 “Instincts” and “tropisms” are effective explanatory concepts for constructing “a genetic inquiry i (...)
  • 10 Here, I am considering the ideas about genesis and the diffusion process of institutions of Hodgson (...)

12Although the second point above is not the concept by which Hodgson (2004a) and Dopfer and Potts (2008) forced to modify their theories, it is the point that shows the driving force when a rule follows the diffusion trajectory. The driving force, which is decisively important in institutional evolution, is a passion unique to that era, in this case, the collective devotion to industrial democracy and safety. I do not believe that this can be explained only by “instincts”9, “habits” controlling manifestations of instincts, and “entrepreneurship”, which are motivations in their theories.10

13After defining some terms in the next section, this article is organized as follows. Section 3 considers the level of the actors and how novel principles emerge and take root in going concerns (institution). Section 4 addresses, in terms of society, the evolution of the compromise of principles. Section 5 connects the prior discussions of the actor level with the society level; for example, how the novel principles created by actors lead to the evolution of the social compromise; specifically, how the trajectory of innovations at the actor level affects the compromise at the society level. In section 6, based on the prior discussions, the trajectory is clarified. In the final section, the unique point yet to be investigated by modern evolutionary and institutional economics is underscored.

2. Definitions of Terms: Ideas, Principles, and Willingness

  • 11 The explanations of his basic terms and interrelations of them are given by Ramstad (1990) and Kita (...)

14Commons uses many specific terms in his work.11 To clarify these for this discussion, this section reviews his definitions of “idea”, “principle”, and “willingness.”

15“Idea” is “active mental construction” of the human mind (IE, p. 17). According to Commons, humans do not merely shape their perceptions into ideas but rather generate ideas actively and emotionally in order to have them impact their future actions. Humans exercise their creativity when they are interpreting their perceptions and when they are working with other parties in the transaction (IE, p. 17, 107).

  • 12 Economic values (exchange value and use value) are produced through the transactions, which are the (...)

16The analytical starting point in IE is the “transaction”, which means the interactions of multiple parties.12 Commons uses the observed interactions to infer cause and purpose, which drives the parties into action. Stepping back from the interaction, Commons infers the idea that drives an individual participant or all the participants to act together.

17Commons classifies ideas according to similarities. For example, ideas that are classified as “objective attributes”, include “human values” that equate to “ethical values”, such as liberty, freedom, equality, fairness, and the expectation of security, safety, and social justice. “Reasonable values” capture the social level compromise of “use-values”, “scarcity-values”, “future values”, and “human values” (Commons, 1925, p. 304).

  • 13 “Will” refers to the inner world of an individual expressed as an observable active choice, that is (...)

18“Principle”, a particular focus here, is a classification according to a so-called “rule.” The well-known rule is the law of supply and demand (the principle of scarcity). Other rule examples are efficiency, “ethical codes”, “ethical doctrines” of courts, “due process of law”, “public purposes”, and “working rules” (IE, p. 83, 113; Commons, 1950, p. 196). The rule in IE is defined as a “similarity of cause, effect, or purpose.” “The ideas of cause, effect, and purpose are strictly human invention; they come about by the endeavor of the human will,13 in its individual and mass action, to control and subordinate all the other human and non-human factors to itself, or to resist such control and subordination” (IE, p. 100).

  • 14 For instance, each company has an “organizational culture.” Some companies have stronger paternalis (...)

19“Willingness” is the similarity impressed in human actions. Each “going concern” has a specific similarity among the members’ actions.14 A going concern implies a “joint expectation” (IE, p. 58). If members of an organization expect a specific cause, effect, or purpose to be expressed through their concerted actions, the going concern (collective action) encompasses the organization (IE, p. 619). Thus, each going concern has a specific willingness because each has its own way of finding a compromise of the five principles of interaction (efficiency, scarcity, custom, sovereignty, and futurity; see Commons, 1925, p. 302).

20Here, the term willingness equates to “collective spirit” or the driver of the members to retain, diffuse, and develop appropriate principles. It is the spiritual driving force among the members. Specific examples referenced here are “industrial democracy”, “safety”, and “reasonableness” (Commons, 1925, p. 305).

A more complex idea than principle is “social philosophy.” It is “usually described with the suffix ism, such as the philosophies of individualism, socialism, communism, anarchism, fascism, capitalism […]. The philosophy is not always a clear idea. It is usually half-conscious” (IE, p. 98). Specific examples discussed here are “liberalism”, “individualism”, and “business unionism.” However, these coexisting philosophies are compromised into a willingness of society. Moreover, some philosophies make up a part of the willingness of a certain concern and guide the members’ concerted actions in a proper direction. In order to avoid confusion, here, I do not apply the ambiguous distinction between principle and social philosophy; instead, both are expressed as “principles.” In fact, Commons restated social philosophies as “political principles” (IE, p. 750).

3. Genesis of a Novel Principle at Actor Level

3.1. Citizen interpretation capability: source of custom variability

  • 15 Here and throughout this article, italic font indicates a direct quotation, whereas bold font indic (...)

21According to Commons, humans are not isolated individuals. “Instead of isolated individuals in a state of nature they are always participants in transactions, members of a concern in which they come and go, citizens of an institution [namely a going concern] that lived before them and will live after them” (IE, p. 74).15 This is the definition of “actor” in this discussion.

22IE focuses on the actor’s will. “The Will is itself a process of choosing between different degrees of power over the world and other people, according to those meanings and valuings which are the relative importance attributed to the available alternatives” (IE, p. 19). “We take the will as we find it, namely the whole activity of human beings in their actions and transactions” (IE, p. 739). A certain will is expressed through an actor’s action. The action of the actor in IE is a “transaction.” It is the hierarchical or horizontal interactions with other actors containing any potential “third party”, who is the judge of the transaction. The internal workings of the actor’s mind are inferred from the will expressed in the interactions we can observe.

  • 16 Commons normally uses “habit” as certain common character traits shown through the actions of an in (...)
  • 17 The relationship of mind and institution corresponds to Hodgson’s term “reconstructive downward cau (...)

23Each mind is an “institutionalized mind” (IE, p. 697). It consists of “habitual and customary assumptions”16 and “intellect” (IE, p. 698). Customs force individual behaviors that conform to the institution.17

It is in these three directions of variability that Custom exercises greater or less control over individuals. It varies with the kind of sanction, whether moral, economic, or physical; with the degree of precision and publicity [of standards of transactions], as practices [that is, an arbitrary habit of an individual], usages [being sufficiently imitated by others, which is, for example, language and bank checks], and precedents [using as standards of deciding disputes]; and with the degree of organization [namely the degree of which working rules of an association controls individual actions of its members], from loose to centralized, in its power to decide disputes and enforce conformity (IE, p. 709-710).

24Customs are decisively important in the concerted actions of actors because “unwritten law”, namely, customs, working rules of going concerns, and judicial precedents, are the basis of the similarity in how actors apply the “written law” to their specific situations (IE, p. 706-707). Customs compel the enforcers of the written law to maintain the specific principles of the going concern (Arakawa, 2013; Uni and Nakahara, forthcoming). As an example, the state, trade union, and employers’ association jointly use this principle in the administration of the Wisconsin unemployment compensation bill.

[T]he unemployment statute itself […] was partly an enabling act, with minimum standards, and it was to the expected joint administration of the act by the state Commission, the state Manufactures’ Association, and the State Federation of Labor that all parties looked forward. This is the way the practical man reasons. He does not reason abstractly regarding statutes. They are mere inexplicable words to him. He reasons upon the “unwritten law” of the way the statute will be interpreted and who will administer it. For him, administration is “legislation in action”, and it is expected action, not logic and words, upon which he bases his present conduct. (IE, p. 848)

25The principle is the collective expectation of members of the going concern (here, Wisconsin Industrial Commission). It is the mutual confidence that if the working rules are enacted or amended as a result of investigation and negotiation among the members, every member should assuredly administer the rule jointly and positively (IE, p. 848). It is the principle that representatives of opposing organized interests in Wisconsin fostered through experimental collective action for 20 years.

26Up until now, we see “conformity” forced by customs. Thus, does this mean that institutionalized actors have the same mindsets? This answer to this is no, because such actors show variation. This variation comes from two sources.

  • 18 Uni and Nakahara (forthcoming) do not acknowledge this.

27First, is the fact that an actor belongs to multiple concerns and enters and exits these.18 For example, an actor temporary or permanently belongs to a family, school, church, corporation, trade union, State, and Federation. In this example, “habitual assumptions” correspond (at some level) to the working rules of each going concern and have been internalized in the actor’s mind. Thus, the habitual assumptions of these actors would evolve differently. The differences among actors’ internalized “assumptions” are expressed through differences in their actions.

28Second, all actors have individual emotions and interpretation abilities. As already noted, the actor’s mind is not “passive” but rather an “active mind” that interprets and evaluates through perceptions.

Valuing is a strictly emotional process, differing for each individual and for the same individual at different times. It is not merely economic valuation, it is religious, sexual, patriotic – in fact it is the whole of the emotions aroused by a whole civilization which the Germans name Kultur. (IE, p. 725)

29This active interpretation (“meanings” and “valuings”) works as a process where the mind conforms to “collective opinion” (IE, p. 24). Therefore, the actor’s habitual assumptions are the “active mental construction” formed in the actor’s mind as a consequence of trying to conform to the collective opinion. As an example of this, the differences among habitual assumptions of judges are clearly shown by IE. Specifically, the ways in which judges interpret public opinion and judicial precedents vary by judge.

Supreme courts, like individual human beings, are dominated by these habitual assumptions arising from the prevailing customs of the time and place. Their opinions change by changes in judges, or by new cases, which present old assumptions in a new light, or by changes in economic or political conditions, or even by revolutions. (IE, p. 699)

30However, we should not overestimate the extent of the deviation of such mental constructs from the collective opinion because individual opinions are always revealed and then mutually adjusted through the process of negotiation, evaluation, and consensus building in transactions (IE, p. 157).

  • 19 Stark (2009) further asserts that the organized dissonance of principles provides innovation.

31Another interpretation capability of the actor is “insight.” As already noted, the institutionalized mind consists of habitual assumptions and intellect. When actors confront problems that cannot be solved by actions using their habitual assumptions, their intellect works. Commons focuses on the collective intellect of members of a going concern. The collective intellect reflects habitual assumptions and reforms them. At the same time, institutions that correspond to problematic habitual assumptions may also become a target of reform by the intellect of individuals. In the reformation process of habitual assumptions and institutions, the creativity of the collective intellect works. This equates to insight. Insight is the moment when intellect conceives of novel customs or institutions, which are understandably drawn from existing assumptions and institutions. Insight is also the (re)coordination of opposing principles. In order to adjust them, highly political and ethical leadership is needed. Coordinating principles means configuring the collective willingness. Actors and concerns cannot avoid the fate of coordinating conflicting principles. Although this Commons’ perspective is different from Williamson (1975) who sees a firm as a single principle hierarchy, Commons’ perspective is quite similar to convention theory (Eymard-Duvernay, 2004; Batifoulier, 2001).19

32These interpretation capabilities bring out variations in the transaction consequences.

No repetition is exactly the same as its predecessor, and no duplication is exactly the same as its contemporary. Hence, there is always a variability of customs in successive times and at the same time. These variations in the course of history introduce new customs as variables, or as alternatives, of preceding or contemporary customs; there is always a decadence, or even a violent elimination, of old customs or competing customs, giving way to the new or different ones. Thus, there is a continual selection of customs going on, and consequently there is a survival of customs fitted to the changing economic conditions and the changing political and economic dominance. Since this occurs by operation of the human will, it is much like the artificial selection of Darwin’s evolution, applicable, however, to practices and transactions suited to changing social conditions, instead of to Darwin’s structures and functions of living organisms suited to changing geological conditions. (IE, p. 45)

  • 20 According to Hodgson (2010), this interpretation capability itself is a product of evolution, namel (...)
  • 21 Uni and Nakahara (forthcoming) assert that actors in IE have interpretation capabilities. However, (...)

33The reason the “variation” arises, which is the source of evolution, is that every actor has his/her own interpretation capabilities, namely, meanings and insight20 The variation in habitual assumptions is brought out through transactions endogenously. This variation brings about new conflict and thus a need for the reform of habitual assumptions and institutions. The social method for solving problems one after another is the “common-law method”, which I discuss later.21

3.2. Genesis of the novel principle and institution: creativity of a leader

34Here, I will show how actors with interpretation capabilities generate a novel principle and institution. In IE, chapter 10, there is an abstract discussion and concrete case examples of the genesis of novel principles and institutions. In the abstract discussion, the key concept is the personality of the “leader.” A mass action or a group itself does not create the going concern. In fact, it becomes one through the direction of the leader. The willingness of the going concern emerges when the leader declares his/her “policy” and the members take refuge in the policy. The policy is summarized as a “political principle.” It is a complex concept, which fuels ethical emotions among the members and drives them to specific actions, rather than an idea, which is simply made logically.

[P]olitical principles are addressed to the will and are purposeful lines of action, such as free trade, protection, business ethics, trade union principles, religious or moral principles, patriotism, loyalty, and even economy [namely scarcity] and efficiency—according to which concerted action may be aroused towards a promised goal. Here the leader becomes such, because he can formulate in language what others feel but could not tell. (IE, p. 750)

  • 22 The leader is not an individual who is isolated from the existing institutions or who has free reig (...)

35Thus, the leader has the special ability to verbalize the semiconscious ethical feelings of other people and use words to engage them. Through this leader’s creative ability, the shared willingness is generated.22 From the standpoint of an expert, the leader is classified as a “politician”, namely, a specialist in social psychology (IE, p. 752).

By experience and insight he knows and works upon the passions, stupidities, inequalities, customs, habitual assumptions of individuals in such a way as to unite them in mass action. Just as the engineer is the specialist in efficiency and the business man is the specialist in scarcity, so the politician is the specialist in human psychology. (IE, p. 752-753)

36The leader adjusts aspects of the principle (willingness), namely, scarcity, efficiency, and custom which shows reciprocity (sometimes, mutual constraint) within it. However, when the going concern nears completion, even the leader becomes an expendable part. The willingness itself changes and adapts to shifting relationships in the internal and external environment so that the allegiance and patronage of the members is maintained.

The distinguishing character of a perfected going concern is its capacity to continue with changing personalities and changing principles, not depending upon any particular person or any particular principle. It adapts itself to circumstances, changing its personalities or its principles to fit the changing inclinations, or the conflicting inclinations, of the various groups of people whose allegiance and patronage are needed for the continuance of the concern. (IE, p. 750-751)

37As can be seen, political principles, which attract and engender members to adhere to the collective goal, generate a going concern, namely, the institution. In this case, the creative capability of the leader who verbalizes the principle is definitely important. This abstract explanation suggests that leaders and principles generate institutions.

3.3. Example: the roles of leaders in drafting and administering the worker’s compensation law

38The discussion in IE in regards to drafting the Wisconsin worker’s compensation law in 1911 and administering it for 20 years, presents concretely the genesis and diffusion of the novel principle and institution (IE, p. 840-873). From this example, we can understand the following three points. The first is the importance of leaders in diffusing a novel principle. Here, the leaders are: the Wisconsin governor Francis E. McGovern, who driven by his progressive spirit, decided to create an institution; Commons, who shapes McGovern’s idea into a workable and acceptable institution for interest groups in Wisconsin; the safety experts, who cultivate employers and employees in Wisconsin with all the force of their passion and generate detailed proposals for the improvement of safety at company plants. The second is the new willingness built inside the group psychology through its collective actions (cf., Howe, 1912). The collective actions include holding conventions, offering education, and advice. The new willingness represents the collective spirit of willing cooperation (spiritual driving force for building and diffusing industrial democracy) and the “safety spirit.” The safety spirit was not previously evident at that time among employees. There were “bad” customs that included an unwillingness to follow the advice of safety experts. Employees were reluctant to avoid a dangerous job or a dangerous means of completing a task as they could be seen as cowardly by colleagues. Thus, the leader was forced to take the role of “evangelist” of the safety spirit to convert bad customs among employees to a spirit of safety (Ueno, 1997). Third is the perspective of “power”, where the principles are infused in member minds through moral, economic, and legal coercion and the sanctions of the state industrial commission and the insurance institutions.

39Since the 1900s, large corporations have employed safety engineers. Corporations did this to attract employees from unfriendly trade unions, and to subsequently receive management-labor cooperation without increasing production or insurance costs; in some cases, there was even a cost reduction (IE, p. 888; Commons, 1950, p. 278-279; Ueno, 1997). In the investigation of workplace accidents in the steel industry, Commons listened to the detailed practices of a safety engineer from U.S. Steel in 1907. Wisconsin governor McGovern had requested that Commons draft a workmen’s compensation law. He wrote the draft by cooperating with the American Association for Labor Legislation (AALL), and involved the trade union and Wisconsin employers in the discussion. In the draft, Commons created an institutional innovation that combined safety rules and a workmen’s compensation system. The compensation system included insurance and voluntary enrollment. In the system, workplace accidents of affiliate employers would affect insurance premiums of the next term. Thus, the system included the incentive for employers to enhance safety in their facilities by stimulating their profit motives. In order to accelerate their efforts to enhance safety, “safety experts” belonging to the industrial commission tried to find preventive measures that employers could implement without additional cost and without negative effects on production. In addition, the safety experts would behave not as workplace inspectors, but rather as continuous advisors to management, engineers, and laborers. As a result of the advice and education of safety experts, and the massive campaign to improve safety throughout the whole state, workplace fatalities were reduced by 61 % over the next five years. Additionally, in some cases, labor and management increased their confidence in each other, and the efficiency of plants improved as well (Harter, 1962). In this case, Commons was prompted by the challenge of accident prevention to create an innovative institution based not on coercion but on incentive. Moreover, local and district “safety conferences” as well as a statewide conference were organized. Spurred by the incentive to further reduce insurance fees by sharing prevention measures with others, employers enthusiastically attended the conferences.

[E]xperts from private corporations outside the state were brought in [the conferences]; and there suddenly developed a remarkable “safety spirit.” Employers showed that they could do much more voluntarily to prevent accidents than could the state by compulsion in preventing accidents. (IE, p. 856)

40The other institutional innovation Commons achieved was putting this system under the jurisdiction of the industrial commission. The traditional method, where the state legislature passed and amended laws and the administrative branch executed them, proved inadequate in enhancing workplace safety and the rapid development of technology and related rapid sophistication of expertise created the need for the administrative commission (Harter, 1962, p. 100). In pre-existing law for controlling workplace danger, required safety devices, safety rules, and prevention measures were clearly stated in the law. However, as technologies rapidly developed, such laws soon became out-of-date. Further exacerbating this situation, was the challenge of quickly and effectively amending laws in response to technological development. This situation occurred for two reasons. First, employers, who feared an increase in production costs, strongly disapproved of such amendments. Second, the lawyers and lawmakers lacked the sophisticated expertise needed to improve safety rules in response to an environment of rapid technology development. In contrast to these legislative and executive limitations, the industrial commission could quickly amend the working rules of the system, perform at a higher level of expertise, and better coordinate conflicting interests in the amendment process.

41The industrial commission consisted of not only commissioners and professional researchers but also an “advisory committee” appointed by the industrial commission. This committee consisted of “employers, employees, physicians, engineers, architects, economists, numbering some two hundred persons in all” (IE, p. 717). Issues on “health, safety, accident compensation, child labor, and hours of labor” (ibid.) were investigated and negotiated and solutions were concluded. The remit of the advisory committee was to draft “all the rules and regulations”, interpret for “employers and employees the long and detailed provisions of the law, and even encourage the employers of the state to voluntarily come under the law. The [Industrial] Commission itself would be, in effect, only the sanctioning authority, giving legality to the ‘recommendations’ of the advisory committee” (IE, p. 848). The draft of any order of the industrial commission depending on the recommendations of the committee was presented at public hearings in order to seek adverse opinions. In the public hearings, the concerned interests, namely, the employers, could request that the industrial commission amend the draft of the order.

42The “orders”, which the industrial commission finally issued after this process had the following advantages. “They were drafted by joint action of employers and employees and not by lawyers and legislatures ignorant of the technology of the industries. They could be changed, with further experience, by the same committees that had formulated them originally. Above all, they were workable and acceptable to both the employers and employees” (IE, p. 857).

43At the individual level, employees within the plants often felt too self-conscious to speak directly to their managers. However, as part of the collective “labors” on a safety committee in their workplace, and in a discussion on “safety”, which was of interest to them, communication between laborers and managers was possible. Through the safety movement, a germ of industrial democracy, namely, the workplace committee, emerged. In this deliberate context, thanks to labor-management communication, laborers en masse expressed an understanding of the safety movement. Thus, safety spirit and industrial democracy evolved into a reciprocal enhancing relationship. Commons summed up the establishment of the state industrial commission (the institution) and the genesis of willingness (the constituted novel principle) as follows.

The statute, in order to be effectual, must be followed by positive collective action of organized interests designed to create the “safety spirit”, or the “employment spirit.” Without this “collective spirit” of willing coöperation, no law is effective. And it is surprising how little legislative compulsion is necessary […] provided this voluntary collective spirit is positively created by organizing the conflicting interests concerted with its administration.

The term “spirit”, as used in these connections, was not permissible for the classical, hedonic, communistic, or other economists whose theories arose from analogies to mechanisms, organisms, or machines. Yet the actual term, “safety spirit”, arose spontaneously among all of those who joined in a conscious collective effort to prevent accidents. Such a use of the term “spirit” is available only to those who investigate collective action. It is somewhat analogous to a religious revival. I have indeed often noted that collective economic pressure is even more influential than a religious revival in converting individuals from passion and stupidity into “reasonableness.” […] If these forms of moral and economic coercion are not fully effective in reaching the desired result, because of opposition, then the addition of a slight legal duress, with prosecutions only in a few flagrant cases, stimulates the spirit of voluntary social responsibility among the objectors as well as among thousands and millions of individuals who do not need to be coerced. (IE, p. 858-859)

4. Willingness at the Society Level

4.1. Reasonableness

44In the prior section, we could see the genesis and diffusion of a novel principle starting at the micro level, namely, the level of the actors. Here, I look at the higher level, namely, “society”, in IE. Society is defined as “the concerted actions of all participants in a going concern” or the going concern “of a whole nation” (IE, p. 617, 634). The willingness of a society is, according to Commons (1925, p. 305), reasonableness. The easiest definition of reasonableness in IE is the judicial and ethical evaluations given to transactions and their consequences that satisfy four requirements. The requirements are “equal opportunity”, “fair competition”, “equality of bargaining power”, and “due process of law.” However, these requirements have changed gradually over more than a century of resolving disputes through common-law courts, equity courts, and labor and commercial arbitration courts. Moreover, the meanings of these phrases have evolved. This fact implies that aspects of the principles that make up the whole principle, meaning reasonableness, have changed endogenously as a result of decades of resolving disputes. The notion that reasonableness has changed through the resolving of disputes is presented by Commons as follows.

  • 23 Smythe v. Ames, 169 U.S. 466 (1898).

The United States Supreme Court, in the cause of Smythe v. Ames,23 gave the perplexing definition of Reasonable Value, which, however, is the common sense definition under which all rational and semi-rational beings operate as best they can. It is the definition that coincides with the court’s idea of due process of law with its many variations under different circumstances. The Court said, speaking of the many conflicting theories of value offered by disputants in a case of railway valuation, that each must be given its “due weight” under the circumstances. When once the Court, by this process of due evaluating, has finally decided a dispute, then that decision, under the institutional set-up of America, is the final word, for the time being, on Reasonable Value. To it all participants must conform under similar circumstances. Reasonable Value is the evolutionary collective determination of what is reasonable in view of all the changing political, moral, and economic circumstances and the personalities that arise therefrom to the Supreme bench. (IE, p. 683-684)

45This statement from Commons makes three points. First, reasonableness was used as the evaluation criterion in the courts (Rutherford, 1994). Second, at the same time, the decision of such a case, namely, new judicial precedent, may change the meaning of reasonableness itself. Third, reasonableness is a compromise of plural principles. Bazzoli (1999) accurately captures these points.

These concepts [the new concepts of reasonable practices and reasonable values], which form the evolving public purpose and the empirical reality as can be seen in the justifications for decisions (Chasse, 1986), are the product, according to the author, of the “habitual assumptions” of the authorities, personalities, and ethical principles resulting from the resolution of conflicts. Thus, reasonable values have nothing of “true values” but reflect compromises reached through collective action among competing private interests because conflicts are always present and relate specifically to what should be considered reasonable (Bazzoli, 1990, p. 125).

46To Bazzoli, “values” in this context means “use-value”, “scarcity-value”, and “human value” as previously discussed, namely, the product of economic and ethical principles. Reasonableness is the compromise of plural principles at the macro level, meaning society.

4.2. Diffusion of the novel principle and compromise among existing principles

47The evolution of the compromise of principles expressed in IE chapter 10 was written based on the personal history of Commons as a “practical man.” Here, I consider and confirm concretely the historical evolution of the compromise of principles.

48In the so-called “Gilded Age” (1860s-80s), the dominance of markets by big business and the expanding disparity in wealth became a grave social problem. This development engendered deep concern because it railed against the ideas in the American constitution of equality among those escaping from hierarchical injustices in European societies.

49In the “progressive” era, social legislation occurred at the state level. However, the courts strictly protected the property rights of private citizens and corporate entities. Only “reasonable” confiscation of property rights would be concluded by the courts. The workman’s compensation law in 1902, which was passed first in America, was declared unconstitutional two years later. The New York worker’s compensation law in 1910 was also declared unconstitutional by the New York Court of Appeals in that year (Ives v. South buffalo railway company, 1910).

50As previously noted, the Wisconsin governor McGovern planned to introduce social laws to improve the safety of plants and apply compensation for labor accidents. As stated, Commons was asked to draft this law.

51Before the enactment of the safety law of 1911, a “reasonable” standard of safety meant an “ordinary” person’s practice. Based on this standard, the government was unable to effectively regulate the work environment to reduce injuries because, even if employers could “ordinarily” attend to the safety of their facilities at that time, the dangers in the facilities could not be effectively removed. On the other hand, if safety standards ordered by the industrial commission did not include a “reasonable” standard, in the future any law without the word “reasonable” could be judged as unconstitutional by infringing on corporate property without “due process.” In the drafting of the safety law of 1911, Francis H. Bird, a student of Commons, created a novel meaning for reasonableness, which would avoid any unconstitutional judgment by the courts in the future. Bird conceived that the meaning of reasonableness could be changed so the imposition of high safety standards on corporations would be considered constitutional. In order to do this, the definition of reasonable in the draft became the highest standard of safety that the nature of the industry or employer could “reasonably” permit (Commons, 1911, p. 247).

52Once Commons and his team arrived at this interpretation that could overcome the potential constitutional barrier, California, Massachusetts, New York, Ohio, and Pennsylvania imitated this, meaning, the novel legal interpretation, as well as the safety improvement and accident compensation law, and the administering of them through an industrial commission. “If anyone could be said to be the leader of the movement to create industrial commissions, it would be Commons” (Harter, 1962, p. 113).

53In order to answer the critics and remake social unification, social legislatures were introduced along with the administration of them through industrial commissions. This was the introduction of institutions supporting the principle of industrial democracy. The novel interpretation of Commons was the identification of a means to avoiding unconstitutional judgments, which supported legal doctrines of “liberalism.” This result strongly promoted the diffusion of the novel principle, industrial democracy. If a leader wanted to establish and diffuse an institution based on a novel principle, the leader had to find the means to enable the co-existence of the novel principle and the old principle. In the Wisconsin example, it was the discovery of an innovative interpretation of reasonableness that enabled the compromise of the novel principles (industrial democracy and safety) and the old principles (liberalism, fairness, equality, and efficiency). Formulating a new compromise meant that society, which had been fissured by criticism, was unified again and society found a cohesive force to embed farmers, laborers, small- and mid-size firms, and big business into it.

4.3. The future that ought to be attained

54In terms of the political situations of the major nations in 1917-1933, totalitarianism was sweeping the world. Examples include the Russian Revolution (1917), the grip on power by Partito Nazionale Fascista in Italy (1922), the militaristic trend in Japan, and the grip on power by Nationalsozialistische Deutsche Arbeiterpartei (1933). In terms of the economic situations of that era, the world economy was devastated by the Great Depression that began with the plunge of the New York Stock Market in October 1929. Against this backdrop, Commons needed to show how American liberalism and democracy could be compatible with “managed recovery.” In the parts of IE, which were written after 1929, Commons amplifies the new compromise of principles created in Wisconsin in order to establish a vision that could make the challenging American way workable (Kitagawa, forthcoming).

It may be that American capitalism is moving towards Fascism under the guise of an Economic Planning Council. It has begun by suppressing Communism and Syndicalism. But it cannot reach the ultimate Fascist state until legislatures are discredited and judges are appointed and removed by dictators. With these suppressions are suppressed the civil liberties that make possible the voluntary associations of labor unions, farmers’ unions, business coöperatives, and political parties. It is these associations, instead of the older individualism of free individual action, that are the refuge of modern Liberalism and Democracy from Communism, Fascism, or Banker Capitalism. (IE, p. 902-903)

55According to IE, the defense against Fascism is to maintain legislatures. The functions of enacting “general laws and general standards”, giving approval to voluntary associations, protecting them from discrimination, and, if needed, giving them authority to administer their rules, will be lost if legislatures are disempowered as in Italy. If so, voluntary associations will also become non-voluntary associations, which are dominated by a dictator (IE, p. 901).

56Commons indicates that the legislature should be excused from any complex conflict of interest groups and concentrate on the functions already mentioned. Thus, this role of coordinating the opposing interests should be banned by the commissions. The significance of a commission compared with other branches of government is its function as an investigator of facts and a facilitator and conciliator in the negotiation of a compromise among interest groups (Commons 1934b, p. 160). This advanced function of the commission produces more progressive “reasonableness” than one produced by courts.

57The courts select the “better” custom from conflicting customs according to the public purpose. The reasonableness produced by this “selection” takes on the meaning of “ordinary” (practice and value). This occurs because courts envision the “common man” in their decisions. On the other hand, in the commission, that is a “voluntary representations of organized interests” (IE, p. 859), reasonableness takes on the meaning of the “upper practicable limit of idealism.” In this way, the agreement of voluntary representations can institutionalize (authoritatively diffuse) existing best practices, which are found through the investigations of the commission.

58How can the two meanings of reasonableness be viewed in an integrated fashion? The perspective needed is that of the compromise of the novel and old principles. We can understand from the where Bird identified a novel meaning, that leaders should find a way to enable the compatibility (co-existence) of novel and old principles. The latter meaning of reasonableness adopted by the commission is the intermediary idea, which connects novel practice and principle with old judicial precedents, principles, and institutions. The former meaning of reasonableness is the compromise of the old judicial precedents, principles, and institutions and lags behind current business and social situations (IE, p. 788).

  • 24 As like Veblen and Hodgson, Commons also sees the future as non-deterministic. This can be understo (...)

59IE not only shows the historical evolution of reasonableness from the past to that point in time (November 1933) but by amplifying reasonableness, also shows the new American way (a compromise of liberalism, democracy, and managed recovery), which ought to be attained.24 After Commons shows how industrial democracy is able to compromise with liberalism, he presents, through concrete examples, the plan for “managed recovery” in keeping with the principles configuring the existing compromise (e.g., protection of property, fairness, equality, due process, safety, and political and industrial democracy). This vision is not discussed as deviating freely from historical analysis but rather as the social foresight that the existing interest groups at that time think is acceptable and workable.

[O]ur idea of reasonable value is the consensual idealism of those who work together and are dependent one upon another for the continuance of their coöperation. It is not what “I think” ought to be, but what “we think” ought to and can be attained, as a going concern. (IE, p. 743)

60In IE, Commons applies to his definition of “reasonable” the role of directing interest groups to a workable American way against regime transformation.

5. Common-law Method and Collective Action

61In my prior discussion, I have confirmed the genesis of the novel principle at the micro level and the change in the compromise of principles at the macro level. In examining French modern institutionalism, convention theory provides an elaborate micro level analysis of how principles make actors’ actions concerted and pragmatic sociology (Boltanski and Chiapello, 1990), at a macro level, provides analysis of the change in the compromise of the principles in France. If we consider these theoretical developments in the present, then what is the forgotten significance of Commons’ works today? In this section, I reassert my argument that the significance of Commons’ works is to concretely describe, based on American history, how a novel principle generated at the micro level reaches a compromise at the macro level.

5.1. Common-law method

62As noted, because actors have interpretation capabilities, variation in custom and novel practices as well as principles emerge. These may conflict in transactions. Thus, how do customs, working rules, even the willingness of a going concern or society, change through the process of resolving disputes? The method of changing principles and institutions is called by Commons, the “Common-Law Method of Making Law by the Decision of Disputes” (IE, p. 72).

  • 25 Kitagawa (2016b, p. 18-22; forthcoming) shows that not only “top-down” order can be seen clearly he (...)

[T]hese customary standards are always changing; they lack precision, and therefore give rise to disputes over conflicts of interest. If such disputes arise, then the officers of an organized concern, such as a credit association, the manager of a corporation, stock exchange, a board of trade, a commercial or labor arbitrator [According to IE (p. 707, 717-718) and Commons 1950, collective bargaining systems, for example the state industrial commission, should be added here], or finally, the courts of law up to the Supreme Court of the United States, reduce the custom to precision and add an organized legal or economic sanction.25 […] The decisions, by becoming precedents, become the working rules, for the time being, of the particular organized concern. (IE, p. 72-73)

63In this process of resolving disputes, “practice”, “custom”, “precedent”, “statute”, and “habitual assumptions” are indivisibly connected and successively change (IE, p. 706-707). Through this, novel practices diffuse. I sum up the process from a different perspective, namely, “selection.” Actors having interpretative capabilities, create variation of custom and novel practice. If the practice, for instance, is shared by participants in a transaction, it gains the status of a new custom. At times, the novel practice will conflict with old customs. If the going concern involves parties of a dispute, the “better” custom, according to the collective purpose of the concern, is selected from the conflicting customs (novel and old ones). If one party brings this before the court, the court selects the better custom according to the evaluation criteria of reasonableness. The selected custom receives the status of the approved custom.

64Of course, according to Commons, there were circumstances when the novel practice or principle did not diffuse. In some cases, “public-spirited and self-sacrificing leaders and propagandists” pursued mythical utopia, for example, communistic, socialistic, or single-tax society ideals, and in reality, there were no idealized working men, capitalists, or politicians (IE, p. 844-845). In contrast to the idealist method, the common-law method creates a compromise for deciding, arbitrating, or conciliating disputes. It is not only a method for judges in courts but also a consensus building between conflicting going concerns through negotiation. The latter is called “collective bargaining.” The model for decision making of a going concern and collective bargaining system in IE is the state industrial commission. In the context of decision making to create feasible rule, the elements of the commission include the following three points: First is the importance of the “collective investigation” (collective inquiry). This approach avoids adopting any one extreme opinion (Commons, 1998, p. 326). Second is the compromise of principles as the consequence of the collective investigation. The compromise means finding a novel reason that can reconcile the old principles, which supported the cumulative past decisions, and the novel principle, which supports the newest decisions for resolving a dispute emerging from a novel economic and social situation. The third is the workable and acceptable agreement between parties formed by satisfying the above two issues. Such an agreement becomes the similarity of the concerted actions of the parties, which means the willingness of the going concern involving the parties.

65As can be seen, novel practices and variation of customs are created through interpretation capabilities of actors and in the process of deciding disputes, some of these diffuse through the imitation of other actors and even are approved by the oversight authority. The process of deciding disputes contains collective investigation and compromise solutions by going concerns, which are the actors in the decision making process, and a step-by-step decisions making process where if a lower going concern cannot resolve the conflict, the upper going concern will try to resolve it.

5.2. Evolution of collective action: the evolution of “how”

66Earlier, I discussed the common-law process according to Commons as if it was obvious that “collective bargaining” (its model case is the industrial commission) is involved in the process. However, as with the evolution of the meaning of reasonableness in the historical process, collective action itself has evolved through historical trial and error. This captures “how” the novel principle has been inculcated into society. Collective bargaining may be a tentative consequence of trial and error. A significance of Commons’ theory of institutional evolution is its consideration of the evolution of collective action. In what follows, I trace the evolution of collective action from log rolling, to cooperation, to collective bargaining. However, all of these can co-exist even today.

67Log rolling implies “a primitive democratic process” (IE, p. 755).

Fundamentally it is the process of reaching voluntary agreements of partnership among equals in sharing the benefits and burdens of a joint enterprise. The American pioneers agreed to help each other in rolling and raising the logs to build their log houses. […] this term begins with the physical process, then was expanded by analogy to include the legislative process of “trading votes”, where, however, it obtained inaccurately the invidious meaning of desertion from one’s moral principles in order to get the votes of those whose morals were supposedly unprincipled. (IE, p. 755)

68This expanded meaning of log rolling shows the consequence of collective actions that are not accompanied by duress or coercion. The consequence was in fact political corruption that lasted until the 19th century, in particular, the collusion between politicians and big business. In order to countervail capitalists who were not regulated by politicians and thus behaved outrageously, shielding themselves behind liberalism and individualism, “cooperation” diffused.

Prior to the decade of the 1850’s, especially during the ’30’s and ’40’s, the abuses of the new capitalism, based on the individualism of Smith, Bentham, and Ricardo, were so flagrant that the opposing philosophy, associationism, gained wide-spread acceptance. It took several forms. At one extreme was Anarchism, by which was meant voluntary coöperation. At the other extreme was Communism, by which was meant compulsory coöperation. The essential doctrine of all was the substitution of coöperation for competition. (IE, p. 756)

69Labor organizations tried this up to the 19th century. They began cooperative production by building their own plants, cooperative marketing by having their own wholesale warehouses, and even cooperative banking, and a consumers’ cooperative. The aim was the elimination of capitalists, employers, wholesale merchants, financial capitalists, and retail merchants. The largest and last attempt at such cooperation was the Knights of Labor. However, most of the attempts collapsed.

The majority of labor coöperatives were unsuccessful, because it turned out that laborers were incompetent to elect the boss whom they must obey in the shop. The elections fell into the hands of politicians within the coöperative, and the issue became the log-rolling one as to who should control the manager and make the rules which he would enforce on the members. (IE, p. 757)

70In common with the lack of a mechanism to elect a capable manager, the cooperatives also lacked the mechanism to repeatedly elect businessmen who could effectively tackle the complexity of the market.

[T]he trade union movement, which began in the decade of the ’50’s, abandoned all attempts, by coöperation, to displace the capitalists. The unionists fell back to where they could do something now by concerted action, namely, get more wages and shorter hours out of the capitalist system. […] They left the employer in charge of the shop, and endeavored only to fix the price, shorten the hours of labor, and establish the working rules. (IE, p. 757)

71As Commons points out, this became the isolated action of the labor organization. Commons calls this isolated action “labor dictatorship” (IE, p. 757). As such, labor tried to use the gap between the bargaining power it had and that of an employer by approaching an “independent” employer to negotiate (IE, p. 758). However, in truth, there was no such thing as an independent employer, as all had to collaborate closely with bankers and merchants as well as suppliers, for example. At that time, employers concertedly locked out workers. The labor organizations learned the lesson that there was no employer who was isolated from the web of employers, merchants, and banker. Therefore, it was impossible to make an isolated employer a bargaining partner.

72Not wanting to follow in the footsteps of the radical and aggressive cooperatives, Samuel Gompers, the leader of the American Federation of Labor (AFL) set up “business unionism.” This principle of the AFL was that the labor movement should not become a political movement and should instead concentrate on the economic bargaining with employers in regards to wages, work time, and other labor conditions. According to this union strategy, the AFL acted as a coordinated labor union, thus, (some) employers could see it as a bargaining partner. In contrast to the political struggle in which laborers were in a position as a minority, improving the bargaining system, where the power of the employer (their association) and the power of the AFL would be equal was the purpose of the AFL. Eventually, in last of the 19th century, “collective bargaining” began. Participants in collective bargaining were representatives of opposing interest groups. This bargaining between representatives was different from log rolling in making agreements between equal individuals. It was also different from cooperation where a certain interest group steamrolls its requirements using a big bargaining power gap as a weapon. Collective bargaining consists of plural, and opposing representatives participating in the bargaining session.

By collective bargaining, both sides are organized equally. Neither employer nor employee acts individually. But the representatives of each draw up a joint agreement, fixing hours, wages, and working rules. Then each individual contract of labor between an individual employer and an individual worker is controlled by the joint agreement. This is what is meant by the Trade Agreement. It did not come to be understood until the beginning of the 20th century. Collective Bargaining is the working rules of trade agreements. (IE, p. 758)

73The working rule here was not the content of the agreement, which was the consequence of the collective bargaining, but rather the working rule was the rule of the collective bargaining system itself, which set up periodical and regular bargaining and prohibited isolated action by one group. As noted, the safety spirit was formed through collective bargaining and collective bargaining itself embodied the principle of industrial democracy. The principle and institution (way) of industrial democracy were diffused throughout all of American society, namely, through the diffusion of the collective bargaining of labor and management, the start of collective bargaining by farmers, the diffusion of the industrial commission in which the state participates as mediator, and last, the establishment of the 1933 National Industry Recovery Act regime. The principle of industrial democracy emerged locally in the will of individuals and the willingness of the going concerns, using collective bargaining as the vehicle. It finally reached a compromise with liberalism at the macro level, the society. The symbolic event is expressed below. Wisconsin established the 1911 workers’ compensation law as an “elective” law. Employers could elect not to fall under the law. This is because Wisconsin policy makers were concerned that a compulsory law had the possibility of being designated as unconstitutional by the Supreme Court based on the principle of the protection of property, namely, the principles of liberalism and individualism.

Finally, in 1931, after the constitutionality of a compulsory law had been sustained in other states and by the Supreme Court of the United States, the [Wisconsin state] legislature substituted a compulsory law for the elective law. (IE, p. 857)

6. Genesis and Diffusion of Novel Principles and Institutions

74As a summary, I present here how the novel principle and institution emerge, diffuse, and compromise with old principles and institutions. The following discussion does not aim to produce a general theory of emergence, diffusion, and the compromise of principles and institutions, but rather aims to explain conceptually their trajectory throughout American history, from post civil war to the first half of the New Deal period.

6.1. Genesis of novel principles and institutions

  • 26 Commons discusses the “collective” driving force, therefore, Hodgson’s following criticism of Commo (...)

75Responding to increasingly unequal and unfair competitive conditions, work conditions, and incomes, leaders appear who criticize liberalism as too much to tolerate and thus offer up new alternative principles. The examples here are the principles of safety and industrial democracy. The leaders engender the principles in people around them and mobilize them to collective actions. The diffusion of the principle looks like a “religious revival” movement. In the collective action, the principle becomes the “willingness” of the going concern (institution), which drives members to act and direct their actions to a particular goal.26 The examples are the “safety spirit” and the “collective spirit” of willing cooperation (i.e., spiritual driving force for building up and diffusing industrial democracy).

6.2. Diffusion of novel principles and institutions

76Novel principles justify the creation of a new going concern, for example, an organized social movement and an industrial commission. The concerns educate people in their jurisdictions in order to diffuse their principles. This means that the concerns promote the diffusion of their principles. Collective actions, which internalize the principles in human minds, evolve through trial and error. The example of this evolution is the movement from log rolling to cooperation to collective bargaining (involving the industrial commission). This is then successively imitated as a “model” by other actors and states, and finally by the federation. During this time, the novel principle has diffused substantively (although not authoritatively) throughout American society and has almost reached a compromise with the old principles, which had configured the willingness of society.

6.3. Compromise of novel principles and institutions with older ones

77The Supreme Court of the United States responds to the changing socio economic environment with a “lag” (IE, p. 788). Until the novel principle is substantively diffused, the court inhibits the diffusion of the principle. However, after the novel principle is diffused enough in society, the court tacitly acknowledges the principle and institutions based on the principle or positively selects the principles and institutions from conflicting ones in a dispute. At such time, the principle receives the status of an approved principle and is built into the willingness of society (reasonableness) substantively and authoritatively.

7. Conclusion

78This article reconstructs the J.R. Commons’ theory of institutional evolution: the explanation of the trajectory of the genesis, diffusion, and compromise of principles and institutions from the micro level (actor level) to the macro level (society level). In regards to this trajectory, I point out the significances that modern institutional economics and evolutionary economics have not yet recognized in the works of Commons.

79Batifoulier (2001) asserts that while interpretation capabilities lead to various practices, at the same time, the willingness of society decides on the interpretation of rules regulating the interactions of actors, and averts the breakdown of transactions among actors. However, the willingness of society has in fact changed (Boltanski and Chiapello, 1990) and it is not clear how such change at the macro level relates to the various practices derived from the interpretation capabilities of the actors at the micro level. I find that Commons presents two mechanisms of diffusion of the novel principle and institution. The first is the common-law method where the upper concern involved in a multiple party dispute may select the novel principle and diffuse it as a new, private, or judicial precedence for actors under its jurisdiction. The second is the institution, which conveys and diffuses the principle by evolving itself to a more workable one and then being imitated by other concerns. These two points represent the significance that France modern institutionalism should focus on.

80Hodgson (2004a) and Dopfer and Potts (2008) establish general and universal theories of variation, inheritance, diffusion, and selection of practice, principle, and institution. They rely largely on biological metaphor and economic motivation, namely, entrepreneurship and market competition. However, can the trajectory of diffusion be explained only through biological perspectives and economic factors? Are we struggling to shape economics into social theory? Are there any social factors that drive this diffusion? I did find the social factor. It was collective devotion (in this case, to industrial democracy and safety) confirmed in a specified time and space, and this devotion looked like religious passion. According to IE, the spiritual driving force of institutional diffusion is the willingness that strives against strict liberalism, and is the collective spirit of industrial democracy. Modern evolutionists have not yet understood the significance of the works of Commons, which describe the spiritual driving force working in a specific society and era. I do not intend to say that this spirit cannot be explained by complex manifestations of “instincts” and “habits” as discussed by Hodgson (2010). In fact, cumulative causation does relate to how an actor’s instincts manifest in his/her actions. The instincts and tropisms interact with each other and their manifestations are ruled variously by habits, which have historically accumulated in an actor’s mind (Hodgson, 2004a, 2010). However, no matter how much we elaborate on their general or universal theory, we cannot find such spiritual driving forces. Therefore, we should explore them in the history of a specified space in a specified time. Such work is different from an intellectual task, which develops and sophisticates universal theory in order to compete against neo-classical economics. I assert that this work is needed for evolutionary and institutional economists to provide theories and descriptions, which are attractive not for their effectiveness in criticizing of neo-classical economics but rather in their own right.

Top of page

Bibliography

Arakawa, Akiyoshi (2013), “Economics of Convention and Institutional Economics”, The Journal of Economics (The Economic Society of Osaka City University Keizaigaku Zassi), vol. 113, no 4, p. 43-58 (in Japanese).

Ayres, Clarence Edwin (1958), “Veblen’s Theory of Instincts Reconsidered”, in Thorstein Veblen: A Critical Reappraisal. Lectures and Essays Commemorating the Hundredth Anniversary of Veblen’s Birth, Dowd, D. (ed.), Ithaca, Cornell University Press, p. 25-37.

Basle, Maurice (2002), “Acknowledged and Unacknowledged institutionalist Antecedents of Régulation Theory”, in Régulation Theory: The State of the Art, Boyer, R. and Y. Saillard (eds.), New York, Routledge.

Batifoulier, Philippe (ed.) (2001), Théorie des conventions, Paris, Economica.

Bazzoli, Laure (1999), L’économie politique de John R. Commons : essai sur l’institutionnalisme en sciences sociales, Paris, L’Harmattan.

Bessy, Christian and Olivier Favereau (2003), “Institutions et Économie des Conventions”, Cahiers d’économie politique, no 44, p. 119-164.

Biddle, Jeff (1990), “Purpose and Evolution in Commons’s Institutionalism”, History of Political Economy, vol. 1, no 22, p. 19-47.

Boltanski, Luc and Ève Chiapello (1999), Le nouvel esprit du capitalisme, Paris, Éditions Gallimard. trans. by Gregory Elliot: The New Spirit of Capitalism (2005), London, Verso.

Boyer, Robert (2004), Une théorie du capitalisme est-elle possible? Paris, Odile Jacob.

Brette, Olivier (2003), “Thorstein Veblen’s Theory of Institutional Change: Beyond Technological Determinism”, European Journal of the History of Economic Thought, vol. 3, no 10, p. 455-477.

Chaserant, Camille and Olivier Thévenot (2001), “Aux origines de la théorie économique des conventions : prix, règles et representations”, in Théorie des conventions, Batifoulier, P. (ed.), Paris, Economica, p. 35-61.

Chasse, John Dennis (1986), “John R. Common and the Democratic State”, Journal of Economic Issues, vol. 20, no 3, p. 759-784.

Commons, John Rogers (1924), The Legal Foundations of Capitalism, New York, Macmillan.

―― (1925), 2008. Reasonable Value, Edwards Brothers, Madison. Reprinted in Documents from F. Taylor Ostrander at Oxford, John R. Commons’ Reasonable Value and Clarence E. Ayres’ Last Course (Research in the History of Economic Thought and Methodology, vol. 26-B), W.J. Samuels (ed.) Bingley, Emerald JAI, p. 239-307.

―― (1934a), Institutional Economics: Its Place in Political Economy, New Brunswick and London, Transaction Publishers.

―― (1934b), Myself. New York, Macmillan.

―― (1950), Economics of Collective Action, New York, Macmillan.

―― (1998), “Investigational Economics”, in Research in the History of Economic Thought and Methodology: John R. Commons’s Investigational Economics, Samuels, W.H. (ed.) Archival Supplement 7, Greenwich and London, JAI Press, p. 39-326.

Dopfer, Kurt and Jason Potts (2008), The General Theory of Economic Evolution, London and New York, Routledge.

Eymard-Duvernay, François (2004), Économie politique de l’entreprise, Paris, La Découverte.

Harter Jr., Lafayette (1962), John R. Commons: His Assault on Laissez-faire, Corvallis, Oregon, Oregon State University Press.

Hodgson, Geoffrey Martin (1993), Economics and Evolution: Bringing Life back into Economics, Cambridge, Polity Press.

―― (2003), “John R. Commons and the Foundations of Institutional Economics”, Journal of Economic Issues, vol. 37, no 3, p. 547-576.

―― (2004a), The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism, London and New York, Routledge.

―― (2004b), “Reclaiming Habit for Institutional Economics”, Journal of Economic Psychology, vol. 25, no 4, p. 651-660.

―― (2010), “Choice, Habit and Evolution”, Journal of Evolutionary Economics, vol. 20, no 1, p. 1-18.

Howe, Frederic Clemson (1912), Wisconsin: An Experiment in Democracy, New York, C. Scribner’s Sons.

Kitagawa, Kota (2015), “An Analysis of J.R. Commons’s Changing Views on the Role of Sovereignty in the Political Economy”, Kyoto Economic Review, vol. 84, no 1-2, p. 2-28.

―― (2016a), “Cumulative Causation in J.R. Commons’s Institutional Economics from the Perspective of Instrumental Pragmatism”, Cahiers d’économie politique, no 70, p. 75-106.

―― (2016b), “Political Government and Economic Government in J.R. Commons’ Institutional Economics”, paper for “Monetary Institutionalisms in the French-Speaking World: Past Record, Future Prospects, and International Perspectives”, 1-3 June, 2016, Sciences Po Lyon, France.

―― (forthcoming), “Two Methods of Institutional Reform in the Institutional Economics of John R. Commons”, in Contemporary Meanings of J. R. Commons’s Institutional Economics: An Analysis Using a Newly Discovered Manuscript, Uni, H. (ed.), Singapore, Springer.

Nakahara, Takayuki (2013), “Theory of Regulation and Theory of Convention: An Accidental Reunion of a Few Heterogenic Institutional Economics through the Economic Theory of J.R. Commons”, The Journal of Economics (The Economic Society of Osaka City University Keizaigaku Zassi), vol. 113, no 4, p. 43-58 (in Japanese).

Orléan, André (2011), L’empire de la valeur : refonder l’économie, Paris, Le Seuil. trans. by M. B. DeBevoise: The Empire of Value: A New Foundation for Economics (2014), London, MIT Press.

Ramstad, Yngve (1990), “The Institutionalism of John R. Commons: Theoretical Foundations of a Volitional Economics”, in Research in the History of Economic Thought and Methodology, Samuels, W.J. (ed.), London, JAI Press, p. 53-104.

―― (1994), “On the Nature of Economic Evolution: John R. Commons and the Metaphor of Artificial Selection”, in Magnusson, L. (ed.) Evolutionary and Neo-Schumpeterian Approaches to Economics, Boston, Kluwer Academic Publishers, p. 65-121.

Rutherford, Malcolm (1994), Institutions in Economics: The Old and the New Institutionalism, Cambridge and New York, Cambridge University Press.

―― (1998), “Veblen’s Evolutionary Programme: A Promise Unfulfilled”, Cambridge Journal of Economics, vol. 4, no 22, p. 463-477.

Stark, David (2009), The Sense of Dissonance: Accounts of Worth in Economic Life, Princeton and Oxford, Princeton University Press.

Théret, Bruno (2001), “Saisir les faits économiques : la méthode Commons”, Cahiers d’économie Politique, vol. 40-41, p. 79-137.

Ueno, Tsuguyoshi (1996), “Safety Movement and Industrial Relations: Early Phases of the Personnel Management Movement in America, 1908–1915”, Keieishigaku (Japan Business History Review), vol. 4, no 31, p. 1-31 (in Japanese).

Ueno, Tsuguyoshi (1997), “The Spreading of the Gospel of Safety: The Safety Movement and Immigrants in the Progressive Period”, America Kenkyu (American Review), no 31, p. 19-40 (in Japanese).

Uni, Hiroyuki (2015), “J. R. Commons’ Concept of Reasonable Value as a Result of Régulation”, Paper for Colloque International Recherche and Régulation 2015, 10-12 June, université Paris 7, Paris.

Uni, Hiroyuki (ed.) (forthcoming), Contemporary Meanings of J. R. Commons’s Institutional Economics: An Analysis Using a Newly Discovered Manuscript, Singapore, Springer.

Uni, Hiroyuki and Nakahara, Takayuki (forthcoming), “Theoretical Connection between John R. Commons, Régulation and Convention Theories”, in Contemporary Meanings of J. R. Commons’s Institutional Economics: An Analysis Using a Newly Discovered Manuscript, Uni, H. (ed.), Singapore, Springer.

Veblen, Thorstein Bunde (1898), “Why is Economics not an Evolutionary Science?” Quarterly Journal of Economics, vol. 12, no 3, p. 373-397. Reprinted in The Place of Science in Modern Civilization and Other Essays, Veblen, T. New Brunswick and London, Transaction Publishers, p. 56-81.

―― (1899), The Theory of Leisure Class: An Economic Study in the Evolution of Institutions, New York, Macmillan.

―― (1906), “The Place of Science in Modern Civilization”, American Journal of Sociology, vol. 11, no 5, p. 585-609. Reprinted in The Place of Science in Modern Civilization and Other Essays, Veblen, T.B. New Brunswick and London, Transaction Publishers, p. 1-31.

―― (1914) The Instinct of Workmanship and the State of the Industrial Arts, New Brunswick and London, Transaction Publishers.

―― (1919) The Place of Science in Modern Civilization and Other Essays, New Brunswick and London, Transaction Publishers.

Williamson, Oliver Eaton (1975), Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal Organization, New York, Free Press.

Top of page

Notes

1 Based on régulation theorist Basle (2002) and convention theorists Bessy and Favereau (2003), who state that Commons captured their ideas earlier.

2 The first and second findings are stated in Uni (2015, p. 6).

3 For more information about Commons’ term “artificial selection,” see Ramstad (1994) and Hodgson (2004a, p. 295-299).

4 “Practice” is defined in IE as “optional” individual action rather than custom. Custom is a collective action in which an actor is compelled to conform by other participants of the collective. See section 5.1 for further detail.

5 A book series from Routledge.

6 The term “institution” means a “going concern,” which is a “collective action” controlling individual member’s actions. When it is unorganized, the rule regulating the institution is described as a “custom”; when it is organized and continuing, a “going concern,” such a rule is described as a “working rule.” Examples of going concerns are firms, trade unions, “safety conferences,” and a “voluntary representation of organized interests” (e.g., Wisconsin state industrial commission, 1933 National Industrial Recovery Act regime, other systems of collective bargaining)(IE, p. 859). Commons uses the term working rules to describe rules of private going concerns, laws, judicial precedents, and even the Constitution.

7 Industrial democracy has no clear definition, but its elements may be dialog, deliberation, and the negotiation of labor-management in the decision-making process of a firm and an industry. The communication is often done between representatives of labor and management. An example is the “safety committee” in a plant, district and state “safety conferences,” and “collective bargaining” of labor-management. The industrial commission in Wisconsin is the model case for this.

8 I realize that the phrase “religious devotion” may be rare in social science. Perhaps, more appropriate wording would be the “absolute priority given to” industrial democracy and safety. However, I use the religious reference for the following two reasons. First, such a religious reference can better express the evangelical state where individuals are stirred to action to achieve an end through single-minded dedication. I want to express a collective sense of mission shared by these individuals. Second, as I note in section 3.3, in fact, leaders were forced to take on the role of “evangelist” in order to motivate workers who were strongly entrenched in “bad” habits (Ueno, 1997).

9 “Instincts” and “tropisms” are effective explanatory concepts for constructing “a genetic inquiry into institutions” (Veblen, 1914, p. 2; Ayres 1958; Hodgson, 2004a). For example, the origin of the “leisure class” and “conspicuous consumption” are “pecuniary emulation” and they have been brought about as a result of cumulative causation consisting of interactions between pecuniary emulation, habits of thought, and technology (Veblen, 1899). However, it seems unlikely that these explanatory concepts can also explain the spirit for industrial democracy.
However, I have no intention of pointing out insufficiency of instinct as an explanatory concept. This is because the background context is different between 1899 when Veblen constructed his basic framework and 1910–1920 when Commons elaborated his theory. In 1899, it would be difficult for government to amend market failures and engage in social reform. With the purpose of explaining the situation as the consequence of cumulative causation, Veblen did not need to focus on progressive principles. In fact, Commons’ works also considered the possibility that government pursues progressive policies and support to institutionalize collective bargaining. In contrast, in 1910s, there was a wave of court interventions in markets, enactments of social legislations, and establishment of administrative commissions. For instance, Standard Oil and American Tobacco were dissolved in 1911 by antitrust law and safety laws were enacted in many states. In this period context, Commons focused on the diffusion of industrial democracy in his theory.
Thus, Commons did not need the explanatory concept of instinct for this interest. Rather than giving genetic explanation to today’s situation, his interest was how to understand the present problem (the problem will be understood as a historical consequence of cumulative causation) and how to resolve the problem by using the concrete historical cumulative causation as a cure for the problem (Kitagawa, 2016a).

10 Here, I am considering the ideas about genesis and the diffusion process of institutions of Hodgson (2004a), Dopfer and Potts (2008), and Commons. Hodgson (2004a) who develops Veblen’s evolutional theory by adding the ideas of “population,” “emergence,” and “layered ontology,” drew the process as follows. The novel “habit” emerges as a “mutation” or a “variation” of an existing habit. “Emergence” of a novel habit, caused by the complexity of the system at a higher ontological level (for example, “society” is at a higher ontological level than human temperament), is a source of mutation and novelty (Hodgson, 2004a, p. 247). The novel habit is replicated and diffused by “imitation.” A “population” who shares the habit is formed. Various populations are naturally “selected.” A certain “population” that modestly fits the environment survives (thus, the surviving population does not mean “the fittest”). This is the diffusion and selection process.
In both Veblen’s and Hodgson’s evolutionary theories, certain “instincts” are the fundamental drivers of the actors. The myriad actions driven by the engines of instinct, and their intended and unintended consequences, lead to the genesis of “variation,” reproductive or diffusional “inheritance,” and “selection” through the evolving environment. However, the action of an actor is the consequence of complex interactions between instinct and habit (Hodgson, 2010). Thus, the socio-economic evolution is a non-deterministic and never-ending process and there always must be the opportunity of mutation and evolution.
Dopfer and Potts (2008) drew the process as follows. The novel idea of “rule” is generated by a person (persons) who has (have) “entrepreneurship” and is brought to the market. The rule diffuses through “enterprise competition.” A sustainable structure emerges through institutionalizing and “administering” followers (imitators) of the rule.
In regards to Commons, I sum up the genesis and diffusion process of institutions in section 6. Then, in section 7 “conclusion,” based on this Commons’ perspective, I criticize former theories.

11 The explanations of his basic terms and interrelations of them are given by Ramstad (1990) and Kitagawa (2015, p. 10-16).

12 Economic values (exchange value and use value) are produced through the transactions, which are the interactions of plural participants. This means that value cannot be explained only by “substance”; for example, labor and utility. Exchange value is produced in a “bargaining transaction.” In a bargaining transaction, a seller and a buyer eventually negotiate and then agree on a certain exchange value. In this negotiation, the ownership institution and other institutions (e.g., accumulation of judicial and executorial precedents), latent judges for the transaction, and business customs become habitual assumptions of the participants. Thus, the agreed upon exchange value consists of various elements, for example, institutions’ production cost, good will, and bargaining power (relying on institutions, e.g., right of association). Because of these elements, the institutions exchange values repeatedly that are set by the participants inside a certain range. Commons’ focused on institutional reform artificially implemented by judges and administrators who tried to make the range a “reasonable” range.
This perspective is superficially similar to the value theory of Orléan (2011). However, there is a difference. The perspective of Orléan is to explain the emergence and expansion of the gap between the movement of the real economy and the financial world by his assumption of the “mimetic individual” imitating other people’s opinions (Orléan, 2011, p. 115). Thus, the roles of institutions (e.g., mechanisms for the objectification of the qualities of goods) take on only secondary importance for Orléan. Orléan reviews two cases. One is where the imitation of other persons’ desires stabilizes all the values in the bargaining transaction. The other is where the values in the bargaining transactions are scattered. Both can happen. In contrast, Commons focused on the role of the institution that establishes commodity prices, wages, interest, and rent within a certain range and showed how institutions have artificially altered in order to amend this range.

13 “Will” refers to the inner world of an individual expressed as an observable active choice, that is, “performance,” “forbearance,” “avoidance,” and “timeliness” (IE, p. 305-306; Commons, 1950, p. 149). This strategic choice, including purposeful “withholding,” is intended to control “proprietary scarcity” (IE, p. 198-201). Timeliness is the choice of appropriate time and place and degree of performance.

14 For instance, each company has an “organizational culture.” Some companies have stronger paternalistic principles than others, and some have stronger principles of industrial democracy.

15 Here and throughout this article, italic font indicates a direct quotation, whereas bold font indicates emphasis added by the author and [ ] is a supplement of the author.

16 Commons normally uses “habit” as certain common character traits shown through the actions of an individual and “custom” as certain common character traits shown through the concerted actions of members of a going concern. Thus, habit belongs at the individual level and custom at the social level (IE, p. 153). However, when Commons mentions a “habitual” assumption, such a reference is nearly equal to “customary” and “institutionalized,” and thus, belongs not only at the individual but also at the social level (IE, p. 707). Therefore, here, the term “habitual assumptions” and quotes containing this term, more precisely means “habitual and customary” assumptions.

17 The relationship of mind and institution corresponds to Hodgson’s term “reconstructive downward causation.”

18 Uni and Nakahara (forthcoming) do not acknowledge this.

19 Stark (2009) further asserts that the organized dissonance of principles provides innovation.

20 According to Hodgson (2010), this interpretation capability itself is a product of evolution, namely, consequence of variation, inheritance, and selection. While the interpretation capability is purposeful disposition and capability, according to Veblen (1906), at the same time, it is a product of un-purposed natural selection. Commons discusses the evolution from his viewpoint of “reformer”; Veblen discusses it from his standpoint of “scientist” focusing on un-purposed law. The two theories are compatible, however, their viewpoints are different.

21 Uni and Nakahara (forthcoming) assert that actors in IE have interpretation capabilities. However, they do not clarify that because of this capability, conflict occurs, and a sequence of institutional reform happens in resolving the conflict.

22 The leader is not an individual who is isolated from the existing institutions or who has free reign to generate novel willingness, but rather he/she is the “inspirer” who generates willingness from social psychology that has not yet been verbalized. Thus, the leader is also embedded in the current institutional situation.

23 Smythe v. Ames, 169 U.S. 466 (1898).

24 As like Veblen and Hodgson, Commons also sees the future as non-deterministic. This can be understood in his discussion, which does not deny the conversion of the American economic regime (liberalism, democracy, and capitalism) to other regimes (communism or fascism) (IE, chapter 11; Biddle, 1990).

25 Kitagawa (2016b, p. 18-22; forthcoming) shows that not only “top-down” order can be seen clearly here but also other dynamics work through this common-law method. It is a “bottom-up” construction of institutions, which is the formation of institutions by en masse gathering and participation.

26 Commons discusses the “collective” driving force, therefore, Hodgson’s following criticism of Commons is not necessarily relevant: Commons “lacked any adequate theory of human motivation” (Hodgson 2004a, p. 307).

Top of page

References

Electronic reference

Kota Kitagawa, « The Driving Forces of Diffusion in John R. Commons’ Institutional Economics », Revue de la régulation [Online], 20 | 2e semestre/ Autumn 2016, Online since 20 December 2016, connection on 23 October 2017. URL : http://regulation.revues.org/12079

Top of page

About the author

Kota Kitagawa

Researcher at Kansai University, kota.k@kansai-u.ac.jp

Top of page

Copyright

© Tous droits réservés

Top of page