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INSTITUTIONAL ECONOMICS by John R. Commons American Economic Review, vol. 21 (1931), pp.648-657. The difficulty in defining a field for the so-called institutional economics is the uncertainty of meaning of an institution. Sometimes an institution seems to mean a framework of laws or natural rights within which individuals act like inmates. Sometimes it seems to mean the behavior of the inmates themselves. Sometimes anything additional to or critical of the classical or hedonic economics is deemed to be institutional. Sometimes anything that is "economic behavior" is institutional. Sometimes anything that is "dynamic" instead of "static," or a "process" instead of commodities, or activity instead of feelings, or mass action instead of individual action, or management instead of equilibrium, or control instead of laissez faire, seems to be institutional economics. All of these notions are doubtless involved in institutional economics, but they may be said to be metaphors or descriptions, whereas, a science of economic behavior requires analysis into similarities of cause, effect or purpose, and a synthesis in a unified system of principles. And institutional economics, furthermore, cannot separate itself from the marvelous discoveries and insight of the classical and psychological economists. It should incorporate, however, in addition, the equally important insight of the
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communistic, anarchistic, syndicalistic, fascistic, co-operative and unionistic economists. Doubtless it is the effort to cover by enumeration all of these unco-ordinated activities of the various schools which gives to the name institutional economics that reputation of a miscellaneous, nondescript yet merely descriptive, character of so-called "economic behavior," which has long since relegated the crude Historical School. If we endeavor to find a universal circumstance, common to all behavior known as institutional, we may define an institution as collective action in control, liberation and expansion of individual action. Collective action ranges all the way from unorganized custom to the many organized going concerns, such as the family, the corporation, the trade association, the trade union, the reserve system, the state. The principle common to all of them is greater or less control, liberation and expansion of individual action by collective action. This control of the acts of one individual always results in, and is intended to result in, a gain or loss to another or other individuals. If it be the enforcement of a contract, then the debt is exactly equal to the credit created for the benefit of the other person. A debt is a duty enforced collectively, while the credit is a corresponding right created by creating the duty. The resulting social relation is an economic status, consisting of the expectations towards which each party is directing his economic behavior. On the debt and duty side it is the status of conformity to collective action.
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This note was uploaded on 09/09/2010 for the course ECO 11230 taught by Professor Dr.nogara during the Fall '10 term at St.Francis College.

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