Sovereignty in Transaction Cost Economics: John R. Commons and Oliver E. Williamson

By Dugger, William M. | Journal of Economic Issues, June 1996 | Go to article overview
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Sovereignty in Transaction Cost Economics: John R. Commons and Oliver E. Williamson


Dugger, William M., Journal of Economic Issues


This paper compares and contrasts the concept of sovereignty as developed by the founder of transaction cost economics, John R. Commons, and as later rediscovered and redeveloped by Oliver E. Williamson [Dugger 1979, 1980, 1983, 1987, 1990, 1993]. For both Commons and Williamson, sovereignty is the authority to settle disputes between transactors, thereby creating order. Sovereignty is extremely important to the work of both [Commons 1961, 1964, 1968, 1970; Williamson 1975, 1981, 1984, 1985, 1990]. In the theory-forming stages of their lives, each tried to get new kinds of transactions accepted within state sovereignty. Commons worked on behalf of the collective bargaining transactions of labor unions and on behalf of the rationing transactions of various industrial boards. Williamson worked on behalf of the merger and acquisition transactions of various corporate conglomerates and on behalf of the hierarchical prerogatives of corporate management. Both were advocates pushing against a disapproving judicial system.

Multiple Sovereignty

Sovereignty is grounded, ultimately, on some form of power, and power is never absolute. Commons was more aware of the importance of power than Williamson has been, but each recognizes that several different kinds of sovereignty operate at the same time. Sovereignty is not singular or absolute, but multiple and relative.

Commons clearly saw the connection between sovereignty and power. He differentiated between three kinds of power/sovereignty and between three corresponding kinds of going concerns [Commons 1968, 62-64]. The first and most important form of sovereignty is based on the power of the state to exercise violence. Second is the sovereignty of the business concern, which is based on the power of property owners to withhold from others that which they need but do not own. This power emerged, Commons argued, only after the violent power of the state had been limited. Third is the sovereignty of the religious, moral, and cultural concerns, based on the power of opinion.

While Commons uses power to differentiate between different kinds of sovereignty, Williamson uses site for the same purpose. That is, to Williamson, two different social sites support two different kinds of sovereignty: "legal centralism" or court ordering on one hand, and private ordering on the other. Sovereignty sited in the central state's judicial system is referred to by Williamson as "legal centralism." Following Marc Galanter [1981], Williamson uses "legal centralism" to describe dispute settlement in "a forum external to the original social setting of the dispute" that provides "remedies prescribed in some body of authoritative learning and dispensed by experts who operate under the auspices of the state" [Galanter 1981, 1; quoted by Williamson 1985, 20]. Again, following Galanter [1981], Williamson defines private ordering as sovereignty sited within the social setting of the disputants themselves. Sovereignty sited in the corporation itself and/or in private parties contracting with it is the principal kind of sovereignty referred to by Williamson as "private ordering" [Williamson 1985].

Although Williamson does not use the terms in this way, and although he does not see the connection between sovereignty and power, his differentiation between legal centralism and private ordering makes a lot more sense when it is rephrased in terms of public order - the sovereignty backed up by the power of the state, versus private order - the sovereignty backed up by the power of the private parties to disputes.

Nonetheless, Williamson and Commons agree that sovereignty is multiple and relative rather than singular and absolute [further discussion is in Dugger 1992].

Commons's View of Sovereignty

Advocating New Transactions

Commons helped trade unionists, such as Samuel Gompers, expand their business unionism by arguing in favor of their collective bargaining transactions.

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