John R. Commons's Reasonable Value and the Problem of Just Price
Ramstad, Yngve, Journal of Economic Issues
I was trying to save Capitalism by making it good.
John R. Commons
A strong case can be made that John R. Commons's theory of Reasonable Value  entities him to be ranked among the great economic theorists. Yet, when economists are asked to identify the discipline's distinguished value theorists,  Commons's name will seldom be mentioned. To some degree, certainly, the onus for this neglect falls on Commons himself, as there can be no doubt that he found it excruciatingly difficult to communicate his ideas effectively to others. Common's theoretical accounting for market value--characterized by him as a "theory of reasonable value"--was initially outlined in his 1924 treatise, Legal Foundations of Capitalism, where, in contrast to the "natural mechanism" underpinnings of mainstream value theory, Commons declared that he conceived his to be a "volitional" theory of value (1924, vii). Discerning that others had great difficulty in understanding the arguments sketched out in that volume (see 1934a, 1), Commons attempted to provide a more rigorous exposition in his 1934 magn um opus, Institutional Economics: Its Place in Political Economy, wherein he explicitly, and repeatedly, employed the term "theory of Reasonable Value" in reference to his theoretical system. This second effort experienced a similar fate, leading Commons to a third and final attempt to set forth his theory--this time "in simple terms"--in a work published posthumously in 1950 as The Economics of Collective Action (see Parsons 1950, 9).
Whatever the reason, Commons's theory of value has received little scholarly attention from economists--and, regrettably, this is largely true even in regard to the institutional literature. Today I wish to review Commons's contribution to value theory. Specifically, I want to highlight the factors that underlay Commons's affinity for a "volitional" conception of value, provide an overview of what the theory of reasonable value itself entailed, and show how, and why, Commons transmuted it into an instrument of reform, that is, into the theory of Reasonable Value. I do so not only in an attempt to illuminate what I believe to be a largely neglected and dimly understood contribution to institutional thought. I also want to call attention to something that has not been commented upon, to my knowledge, in the Commons literature, namely, that Commons's theory can be understood as resolving the long-neglected issue that originally stimulated inquiry into market values--the quest for principles ensuring just prices . Indeed, I wish to suggest that at an abstract level, Reasonable Value itself is nothing other than a coherent and pragmatic, albeit secularized, solution to the problem of just price.
Before proceeding, some caveats are in order. First, to suggest that Commons revived the quest for an economics of the just price is not to say that his work represents further development of Thomas Aquinas's original attempt to grapple with that issue. According to professional lore, Aquinas's analysis of just price was wholly "normative" in character, that is, conveyed no insight into the process by which market prices are actually generated. In contrast, Commons's "reversion," far from being a throwback to a "pre-scientific" age, is rooted in a penetrating "positive" reinterpretation of the principles governing the values realized in market exchange. Second, it should be recognized that to deem Commons's solution to the problem of just price "both coherent and pragmatic" is not to imply that it could be easily implemented today. Commons always sought to craft institutional solutions fitted to the realities of his own time, but that time no longer exists. I want to underscore that in this paper all I seek to do is to outline and interpret Commons's own line of thought and make no attempt to speculate as to how his conception of Reasonable Value could be used to guide the process of institutional adjustment in the United States today.  I also want to emphasize that when the "volitional" interpretation of market value is applied to other economic systems, it will unquestionably lead one to pinpoint different institutional solutions for realizing Reasonable values from those advocated by Commons in the case of the 1920s and 1930s United States.  Third, the theory of Reasonable Value is supported by or intertwined with the entirety of the system of ideas and concepts Commons elaborated in Institutional Economics. I have elsewhere attempted to articulate in comprehensive fashion the "structure" or "logic" of the evolutionary theoretical standpoint provided therein (see Ramstad 1990; 1994), the psychological foundations upon which it is erected (see Albert and Ramstad 1997; 1998), and the methodological presum ptions it manifests (see Ramstad 1986; 1987b). In principle, there is no need to repeat here what has been worked through systematically elsewhere. Unfortunately, in "setting the stage" for the discussion of reasonable value and Reasonable Value, some repetition cannot be avoided. Finally, while I use the term "theory" in reference to Common's views concerning market values, many will no doubt consider that usage infelicitous. It is important to keep in mind that Commons employed holistic methods in constructing and communicating the structure of his theoretical system (see Ramstad 1986; 1987b). His theory of reasonable value is akin to "general theory" within the holistic hierarchy of constructs, and as such is neither capable of being summarized in formalistic terms nor directly applicable to concrete phenomena such as prices absent supplementary concepts and specific contextual information. Hence, while those unfamiliar with holistic methodology might consider "meta-theory" or "vision" to be a more suitabl e term for Commons's ideas concerning reasonable value, "theory" is the correct designation from the perspective of holistic methods--but, admittedly, only from within that perspective.
Market Values as Institutionally Created Phenomena
Commons always insisted that his institutional economics arose out of an attempt to supplement and thereby shore up the weaknesses of mainstream theory, not to replace it (cf. 1934a, 7). Irrespective of whether he was disingenuous or sincere in professing this view, it is indisputable that Commons considered the mainstream conception of the "price mechanism" and its role in generating market values and thereby an orderly flow of production and exchange to be defective. Although all economists are schooled in the logic of conventional price theory, it might be helpful for purposes of juxtaposing Commons's propositions against mainstream views to underscore some important, if often only implicit implications of mainstream theory.
First, "the market mechanism" through which market values are derived is conceived of in naturalistic terms, as operating according to a logic that is "supra-cultural." At the heart of market activity, in other words, lies a notional "core process" (summarized by the model of perfect competition) whose logic is independent of human will, ethics, or action. Since this "core process" is therefore necessarily part of "nature," the neoclassical edifice applies equally to all market systems, no matter how different their histories, customs, and/or institutions. In turn, socially created institutions serve only to "facilitate" or "impede" the operation of the "core process." That is, the "institutional matrix" is apprehended by proponents of mainstream theory to "deflect" economic outcomes away from their "natural" configuration. This conception of an autonomous and self-regulating price mechanism allows mainstream economists to presume it is unnecessary to pinpoint the ultimate social determinants of market proce sses.
Second, "competitive" prices are similarly treated as "natural" phenomena functioning as the "balancing wheel" of economic life. For, within the aforementioned "core process" market values or prices are perceived to adjust automatically to equilibrate demand and supply and to move inexorably to levels corresponding to minimum costs of production. These "competitive" minima, in turn, have quantitative magnitudes that can be explained without making reference to socially created institutions.
Third, in performing its balancing function the price mechanism automatically produces what we can call "economic order," a state in which the activities of economic agents are approximately consistent with one another and the associated "economic outcomes" are acquiesced in by them. By omission, by failing to bring its limitations into open view, the market mechanism is implicitly treated as a sufficient condition for economic order to arise and persist.
Fourth, the price mechanism similarly produces "allocative efficiency"--that is, a state in which the "best" use of society's limited resources occurs.  Of course, allocative efficiency has a limited and static meaning in the neoclassical framework. It refers to a situation in which, given technology, preferences, and resource endowments, the market mechanism (the "core process") has produced a set of prices whose alteration must reduce consumers' aggregate surplus utility. Again, the naturalistic and mechanistic interpretation of the price system's operation makes it unnecessary to explore the process through which preferences and resource endowments are produced. That problem is dismissed as "non-economic" in nature (cf. Samuelson 1947, 319-320).
Finally, "voluntarism" and orderly behavior are seen as mutually consistent. In spite of the apparent chaos of day-to-day economic activity, market activity generates "order through liberty." That is, if left unhindered, the price system will itself operate so as to ensure that the voluntary or "free" actions of individuals are made harmonious.
Let us now turn to Commons. He maintained that conflict of interest arising out of scarcity is the most important feature of economic life (1934a, 96-97) and, consequently, the most important task facing the economic theorist was to provide a scientific explanation of the process by which order emerges out of this conflict. Commons was unable, however, to accept that economic order emerges automatically from unconscious cooperation induced by the exchange system and instead traced the source of order to collective control of individual behavior through working rules (1934b, 118). In working out his explanation in support of this insight, Commons was led inexorably to embrace a vastly different standpoint in regard to the origins and meaning of market values from that reflected in the mainstream view and ultimately to his theory of Reasonable Value.
"Going concern" was Commons's term for any group within which "ongoing coordinated activity" takes place--for example, the family, the business firm, and the nation are all going concerns. Obviously, most if not all economic behavior takes place within the ambits of these overlapping entities. As Commons saw it, the "smallest unit" of economic activity is the transaction, through which individuals relinquish and acquire the ownership of scarce-and hence valued--things, that is, of "property." Through their transactions principals secure for themselves a right to future income and the right to control the use of the property they own. And it is through the same transactions that they acquire the corresponding duty to make specific payments and to undertake specific productive activities.
It was Commons's position that individuals do not naturally live in harmony. He perceived a world in which ever-present conflicts of interest between individuals as to the terms on which ownership of property is to be exchanged frequently produce disputes that are not "voluntarily" resolved. Moreover, Commons discerned no mechanism provided by nature capable of "naturally" or spontaneously resolving such disputes. Hence it was his view that a going concern cannot remain "ongoing" unless it possesses an "authoritative agency"--a final decision maker--capable of specifying, and then enforcing obedience to, the specific working rules that are to govern transactions within the concern's domain. Working rules "resolve" conflicts of interest by either prescribing or proscribing specific actions (that is by creating rights and their correlative duties) or by defining the boundaries within which individual discretion can be exercised (by creating liberties with their correlative exposures).
In Commons's understanding, then, working rules are indispensable to the orderly operation of a concern. By establishing the rights, duties, liabilities, and exposures of the different economic classes within each concern, working rules guide and restrain--that is, correlate the actions of--its "citizens" as they attempt to secure an income and acquire commodities over which they can exercise control. Commons perceived that unless such compulsory rules are in place, ones it can be presumed will be enforced in the future, individuals will lack security of expectations and therefore be unwilling to voluntarily enter into transactions with one another. Significantly, since they spell out in a general sense how the burdens of production will fall on members of different classes and how the benefits of their joint undertaking are to be distributed among them, Commons maintained that working rules reflect an "authoritative apportioning of inducements."
Commons understood individuals to be both self-interested and purposeful. But, at the same time, he considered their minds to be, in the main, socially derived. It was Commons's view that as individuals repeat the practices mandated or authorized by the controlling working rules, those practices soon become habitual, gradually harden into custom, and eventually even come to be perceived as "natural." As a result, behavior conforming to customary practices will be widely experienced to be "voluntary," as expressive of "free choice." Similarly, customary practices, particularly ones that reinforce one's own objective interests, will typically come to be understood by the individual as "right" and "just." As the nature of underlying conflicts of interest change over time due to technological innovation, resource discoveries, and so on, the existing working rules will not suffice to prevent overt conflict. When overt conflict does occur, the parties to the dispute will usually each be able to identify customary practices that, if extended to regulate the new type of conflict, would resolve the dispute to their own perceived advantage. Hence the dispute will generally center upon the question of which of conflicting customary practices is in fact to govern the new, "unregulated" class of conflicts. Accordingly, the role of the authoritative agency in such instances is not to invent a new working rule but to identify which of the customs is the "better" one and then to make it mandatory. That determination is inseparable from the "judge's" ethical beliefs as to the "good," that is, as to the purposes the working rules are intended to advance. One's conception of the "good," however, will in large part depend upon one's "habitual assumptions"--the attitudes arising from "similarity of interest and similarity of transactions engaged in" (Commons 1934a, 699) or, in a word, one's economic class.
Individuals are typically "citizens" of numerous, often-overlapping going concerns, each with its own authoritative agency capable of enforcing its own rules of conduct. Of the three sanctions through which compliance with working rules is enforced--the moral sanction of disapproval from those whose approval is desired, the economic sanction of poverty or bankruptcy, and the physical sanction of violence--Commons understood the latter to constitute the most powerful inducement. He therefore concluded that the authoritative agency possessing the greatest command over force has, if it desires to exercise it, the ultimate say in determining the actual character of the working rules governing economic life, that is, the code of conduct to which individuals must adhere in their transactions with one another. In other words, since in most cases the state possesses greater power of violence than its citizens, individually or collectively, the "sovereign power," the entity able to command the state's power of violenc e, has the final say in determining what a society's actual working rules will in fact be. Accordingly, the ethical beliefs of the sovereign, themselves a product of the sovereign's class position(s), will determine what is a good "public purpose"--and Commons referred to every private purpose endorsed by the sovereign as a public purpose--and hence which of alternative rules (customs) will be enforced.
As synopsized in the previous paragraphs, Commons's "theory" would appear to have little relevance to the points raised earlier in regard to the mainstream conception of the price mechanism and its role in the conduct of economic life. However, it is clear from even this cursory recapitulation that Commons's perspective is in fundamental conflict with that conception.
First of all, in Commons's framework it is instituted working rules, not a "natural" process, that governs the transactions of individuals as they participate in economic activities. Commons was quite explicit in proclaiming his belief that the market system is an "artificial mechanism," one that has been consciously constructed via an "authoritative apportioning of the burdens and benefits of collective wealth production" intended to realize the purposes of the human will--specifically, the private purposes the sovereign power transforms into public purposes. "Competition" is simply a set of actions in conformity with those public purposes; it has no tendencies and operates toward no ends other than those willfully--or, as Commons preferred, "volitionally"--implanted in it. As such, the "price mechanism" is mentally inseparable from the instituted working rules of which it is but the active expression. Indeed, without an
Understanding of the specific rules themselves, one cannot understand how the "mechanism" functions.
Returning to the schema outlined in the previous section, the foregoing signifies that within Commons's framework there can logically be no "core process" separable from a specific institutional context. This being the case, it becomes nonsensical to hold that institutions "deflect" economic outcomes away from "natural" configurations. For if there is no "core process" imbedded within institutions, then no intrinsic character can be ascribed to the "price mechanism" apart from the features, the instituted working rules, implanted in it by the authoritative agencies who have consecutively sought to promote actions furthering "good" purposes. The important questions to ask with respect to the "price system's" operation, therefore, are whether those purposes are in fact "good," and, if so, whether the "machine" volitionally created (instituted) to effectuate them can be altered so as to allow for their more complete realization. In short, the issue of purpose must be addressed at the beginning of one's study of the price system's operation.
It is equally inappropriate, given Commons's conception of the "price mechanism," to regard prices as "natural" phenomena whose function is to "balance" economic life. It was Commons's perception that economic systems do not move automatically toward "equilibrium." Such "balance" as may be attained will be a willfully created "institutional balance" brought about by the adoption and subsequent adjustment of working rules. In short, it is volitional, purpose-driven institutional adjustment that constitutes the balancing wheel of economic life.
Indeed, within Commons's system prices are themselves perceived to be the product of previous institutional adjustments, that is, to be institutionally created. It is society, through its working rules enforced by sanctions, that establishes what individuals can, must, or may do or not do with the things they "own." Obviously, the exchange value that "property" can command is inseparable from the working rules--the "property rights"--expected to remain in force during the period such property will be owned (see Commons 1924, 21-28). Even the costs of producing goods for sale cannot be separated from the working rules one must adhere to in procuring and using the productive resources one owns. Thus "costs," being the pecuniary consequences of adhering to the specific practices mandated or authorized by the controlling working rules, are understood from the viewpoint developed by Commons to be institutionally created rather than "natural" phenomena. Of course, this is not to imply that physical relationships, w hat Commons referred to as the principle of mechanism (see Commons 1924,135), play no role in determining costs.
Commons's reinterpretation of the economic process also calls into question the utility of "allocative efficiency" as a meaningful criterion by which to judge the performance of an economic system. While accepting that individual "wills"-their capacities for self-direction--and working rules are mutually causal in an endless chain of circular causation, Commons held that one can only understand why an individual acts as he does--and Commons took the answer to this question to be the funda mental goal of a social science--by accepting that going concerns, with their specific working rules, predate the entry of specific individuals into the concern, for example, into a family, an enterprise, or most important of all today, a nation. As previously noted, Commons perceived that the individual mind is formed by accommodating itself to practices already established. Thus the individual's will is not understood to be the actual source of his/her desires. This is not to say that Commons rejected the idea that there m ight be "instincts" or "desires" providing an impetus for action which are independent of instituted working rules, for he emphasized in particular "the three fundamental wishes of man" for security, equality, and liberty. But at the same time, Commons maintained that the specific goals to which such "desires" give rise are usually rooted in institutionalized practices (customs and working rules) to which the individual has become acclimated. Once this is recognized, it is not entirely clear why static "allocative efficiency" is of fundamental significance to the problem of assessing the "price mechanism's" efficacy.
Finally, from Commons's perspective it is clear that mainstream economists are badly misguided in assuming that economic action is fundamentally "voluntaristic" in nature. Orderly behavior was understood by Commons to obtain only because there exists an external structure (collective action) capable of forcing individuals (through use of sanctions) to accept the behavioral patterns that is, to make the choices, that working rules dictate or allow. Hence, "organized compulsion," or more specifically "collective action in control of individual action," is the dominant principle. This is not to say, however, that the existence of working rules is incompatible with "liberty." For, Commons discerned that as working rules restrain the actions of more powerful individuals they simultaneously liberate the less powerful from coercion, duress, discrimination, and "unfair" competition and thereby expand their opportunities to give effect to their wills. Commons therefore always emphasized that the working rules of goin g concerns--or "institutions"--represent "collective action in restraint, liberation, and expansion of individual action" (Commons 1934a, 73). This being so, the question regarding working rules is never "freedom" (or "liberty") versus "coercion" but rather whose will is to be restrained and whose, by that same action, is thereby to be liberated and expanded.
Before moving on, I want to emphasize that the foregoing should not be taken as indicating that Commons rejected the possibility of "economic laws." The specific working rules giving concrete meaning to the term "market system" allow for a broad zone of action within which some degree of individual discretion may be exercised. "Economic laws" summarize observed regularities within that discretionary zone. Commons acknowledged the existence of such "laws" and in many places made it evident that he considered knowledge of the regularities they summarize as indispensable to a full analysis of the consequences of an institutional adjustment. At the same time, however, Commons insisted that economic laws are not "natural" laws outside the influence of human volition, that is, they are not logically prior to, or conceptually separable from specific "authoritative apportioning[s] of inducements."
There can be no doubt that the central purpose to which the entire body of Commons's policy prescriptions gave effect was that class income inequalities should and can be reduced through public policy. Commons came early to his understanding that income shares were institutionally created rather than "natural" phenomena and hence that they can be altered through public policy.  For in his first book, The Distribution of Wealth (1893), one can discern not only a crude version of Commons's "theory," as adumbrated above (see Commons  1963, ch. 2) but also an explicit argument that "laws" comprising "property rights" created by the "sovereignty of government" is the "all-powerful factor in the distribution of wealth" (110-11). The extant law, he continued, "is the expression not of the whole society, but of the sovereign elements or social class" (61). Furthermore, "Laws are not the fortuitous and blind coercion of nature. There are always human purposes underlying the enactment of laws, and these are t he purposes of whatever may be the ruling political class at the given time, and in the given country" (61). What clearly is implied here is that if the purposes reflected in the law are misguided or of lesser importance than other purposes, the law, and hence property rights--and pari passu their consequent, market values--can and should be changed. Equally clear, however, is that this will not occur unless the "ruling political class" itself is broadened.
Fortuitously, as will be shown, the purposes to which Commons's theory of Reasonable Value give effect are in large part purposes already implanted in the law and hence in the working rules that define the "market system." At the same time, it is clear that Commons's unique prescriptions for realizing those purposes more effectively, that is, the concrete institutional adjustments he recommended, are not entirely separable from his own normative agenda. Thus it is important to understand that more than a desire to reduce income inequalities underlay his concrete recommendations.
In another early work, Social Reform & The Church ( 1963), Commons made clear his belief that "Man is made in the image of God" (30). In accordance with the tenets of the Social Gospel movement, of which he was an enthusiast at the time, Commons maintained that Christians must endeavor to ensure that the "Godlike" can have an opportunity to develop within the souls of all members of society, that is, to ensure that all are afforded "equality of opportunity [in allowing] free scope for [the] development of such gifts as we have" (10).  Foremost among "such [Godlike] gifts as we have," according to Commons, is the capacity for true independence (36). Yet he perceived that the working man of his day was anything but "independent" due to "social conditions" thwarting the development of his innate potential. The most important of those conditions were poverty and "wage slavery, ... the dependence of one man upon the arbitrary will of another for the opportunity to earn a living" (34, 37). Not surprisingl y, given his earlier work, Commons maintained in Social Reform & The Church that poverty and wage slavery cannot be attributed to the operation of "so-called natural laws which man cannot modify. Social conditions are the result of the human will" (14). Thus the obligation of the Christian, Commons declared, is to endeavor to lift the worker out of poverty and to create the conditions which raise him to true equality with his employer.  It was these two objectives toward whose realization Commons endeavored throughout his lifetime and which shaped his distinctive "solution" to the problem of making values truly Reasonable, that is, truly just.
The Theory of Reasonable Value
It was more or less by chance that Commons was directed onto the path that ultimately led to the theory of Reasonable Value. Shortly after arriving at the University of Wisconsin in 1904, he was asked by Governor Robert M. LaFollette to draft a civil service law for the state. Favorably impressed with the result, LaFollette in 1907 had Commons draft a public utilities law and in 1911 a law establishing an Industrial Commission in Wisconsin. Commons recognized in each case that the new law would invariably be subjected to legal challenges and that it was only prudent for him to construct it in such fashion that it would be likely to pass constitutional muster. In studying relevant court cases, Commons quickly discovered that judges tend to rule favorably on legislation promoting "reasonable" conduct. Concluding that the legislation he had been entrusted to draft should therefore be designed so as to secure "reasonable" values, Commons had to address squarely the question: What do the courts mean by "reasonabl e" value?
It was the search for an answer to that question which ultimately led Commons to the research effort culminating in Legal Foundations of Capitalism (1924, vii). As noted earlier, it was in Legal Foundations that Commons first forwarded the theory reflecting his "volitional" conception of value, that is, the theory of reasonable value. Here Commons explored the genesis of the laws structuring the key bargaining transactions of modern-day American capitalism-the rent bargain, the price bargain, and the wage bargain. Since American law has its roots in British law, Commons began his investigation in 1066 with the conquest of Britain by William the Conqueror, whom Commons perceived to be the sole "owner" of the newly conquered land. He traced out in careful fashion how other groups, through collective action, ultimately forced the crown to share its sovereignty and thereby to relinquish its monopoly over the process of institutional adjustment. He also detailed how common law judges, the sovereign's designated " authoritative agency," gradually, and volitionally, made adherence to the established customs that they deemed to be "good"--most of which were themselves simply adaptations of long-standing guild rules and standard practices (230)--mandatory for all who enter into market transactions. By so doing, they slowly erected a set of working rules ("property rights")  capable of producing outcomes to the three types of bargaining transactions consistent with public purposes.
This interpretation, in which economic "competition" is understood as patterned activity volitionally built up over many centuries via the process of authoritative dispute resolution by consecutive "authoritative figures," leads one inescapably to the conclusion that transactions and their objective expression, "market outcomes" or values,  manifest the ethical values of those who were consecutively authorized to determine what were the "good" versus the "bad" customs. That is why Commons always emphasized that economics (the production and distribution of wanted or needed things), law (the enforced working rules patterning those activities), and ethics (the public purposes to which the working rules give life) are "correlated" in the transaction (cf. Commons 1934a, 56).
After the United States achieved separate nationhood, it was to Congress and the various state legislatures that the responsibility of writing the laws of the land was delegated. However, the task of determining the sovereign's final judgment as to whether or not enacted laws actually are constitutional, as well as to what they mean in the context of specific applications, was delegated under the Constitution to the courts. Final authority as to how working rules are to be adjusted to new conditions thus quickly passed into the hands of the Supreme Court. In light of this reality, Commons insisted that "[A]ll acts of legislatures and the Congress are [but] tentative suggestions to the Supreme court as to what acts the latter might perhaps be led to believe are in the public interest" (1934a, 340).
An important aspect of Commons's genetic investigation of American capitalism's legal foundations was his detailed review of the manner in which the United States Supreme Court had independently reapportioned the inducements patterning "competition"  in the American economy as economic and social conditions changed. For even though it is formally required to enforce the US Constitution, Commons discovered that the Court had managed on its own to make fundamental changes in the working rules structuring economic behavior. The way the Court accomplished this, Commons averred, was by subtly changing the definitions, and hence the practical meanings, of the terms "person," "property," "liberty," and "due process of law." The Fifth Amendment of the US Constitution, applicable to the federal government, specifies that "no person shall be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation." The Fourteenth Amendment, ap plicable to state governments, adds: "Nor shall any state deprive any person of life, liberty, or property without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." It was in a series of cases centered on disputes about how these amendments should be interpreted, Commons found, in which the aforementioned terms were gradually redefined so as to make legal newly invented business practices or usages. That is, definitions were modified by the Court so as to include the "good" customs  that had evolved spontaneously within the business community--"good," of course, in light of the public purposes embraced by the justices.
Since the working rules patterning economic life in the United States were understood by Commons to be rooted in the ethical values consecutively embraced by Supreme Court justices, in the public purposes the justices have consecutively sought to advance, he confirmed that market outcomes (values) generated by the American variant of economic competition" had indeed been "volitionally" rather than mechanically produced, that is, had as their "efficient cause" the "collective will" of the Supreme Court (the purposes reflected in majority opinions). Thus he concluded that:
Competition is not Nature's "struggle for existence" but is an artificial arrangement supported by the moral, economic, and physical sanctions of collective action. The theory of free competition developed by economists is not a natural tendency towards equilibrium of forces but is an ideal of public purpose adopted by the courts, to be attained by restraints upon the natural struggle for existence. The economic terminology is "raising the level of competition by reasonable restraints of trade." (1934a, 713)
Commons discovered, as this passage makes clear, that in adjusting the constitutional meaning of key terms the Court was seeking to ensure that economic outcomes (values) emanate from practices that are "reasonable." And even though the word "reasonable" has no intrinsic meaning when modifying the term "value," Commons argued that it nonetheless becomes objective in the specific case. As he put it:
The Supreme Court [decides] what is and what is not n public purpose by choosing between existing practices and customs. . . . The Court thus [has become] an authoritative faculty of Political Economy for the United States.  It is authoritative ... for what its majority says is reasonable is reasonable for the time being. (1934a, 712)
Reasonable value is the Court's decision of what is reasonable as between plaintiff and defendant. It is objective, measurable in money, and compulsory. (1936, 244)
Because it was the justices' expressed "will" that market outcomes be "reasonable" in nature, and because that "will" is objectified in a form "measurable in money," that is, in market values, Commons referred to this US-specific variant of his "volitional theory of value" as "a theory of reasonable value."
To sum up, in Commons's own words, his was an "economic theory of going concerns based on authoritative proportioning of inducements in a world of limited resources" (1924, 360). In the United States, the "authoritative proportioning" effected by legislative and executive action is always subject to judicial review. Thus, in so far as the United States is concerned, Commons had as the strategic factor in his theory the regulation of exchange values through judicial review of working rules: "We are governed by n theory of value [that is, by the Court's interpretation of 'reasonable'] ... in which individuals and classes of individuals count according to what is felt [by the justices] to be their relative importance for public purposes" (1924, 360). This being the case, Commons concluded, "America has at last attained the ideal of Plato of a government by philosophers" (1924, 360), that is, by the justices. Accordingly, in a word, America represents a system of "Judicial Sovereignty" (1934a, 882).
Moving from "reasonable" to "Reasonable Values"
To this point, Commons's analysis--the theory of reasonable value--lies entirely within the domain of "positive economics." That is, Commons's "theory" forwards a novel "legalistic" perspective regarding the "principles" (causal relationships) revealed in the actual values obtaining in the American economy. It bears repeating that Commons's theory of reasonable value, being a holistic general theory, was not intended to "explain" specific outcomes (values) but rather to assign fundamental categories of meaning in that through its lens value magnitudes were seen to emanate from an "authoritative apportioning of inducements" instead of from a self-balancing "price mechanism." I have elsewhere reviewed how additional theoretical constructs permitted Commons to "explain" individual transactional outcomes (values) (see Ramstad 1986; 1987b) and hence will not discuss that matter here.
As Commons saw things, actual outcomes (values) produced by judicially authorized practices are "reasonable" by definition. Yet, as indicated previously, Commons devoted his entire career to improving them. In order to grasp his unique orientation to economic policy, it must be understood that his own agenda was only to "improve" upon what the Court was already trying to achieve, that is, to find a means of more effectively realizing--principally in the labor market--what he understood to be the overriding public purpose already volitionally implanted in economic "competition," namely, reasonableness.
As a purpose underlying legal decisions, what was it that Commons understood "reasonable" to really connote? About as close as he ever came to providing a straightforward definition  is his statement that "Reasonable value, as formed in the practices of juries, courts, arbitration arrangements... [is a] consensus of opinion of reasonable men-'reasonable' in that they are men who conform to the dominant practices ["customs"] of the time" (1 934a, 207). However, throughout his writings Commons suggested that at root "reasonable" always intertwines with a sister concept, "just" or "fair," and that, indeed, the operative phrase actually is "fair and reasonable" (cf. Commons  1964, 355; 1934a, 110,337). In determining which rules are consistent with "reasonable" values (transactional outcomes) thus defined, he understood the courts to have endorsed just and to have proscribed unjust limits on access to opportunities (cf. Commons 1934a, 61-66), just as he understood them to have approved fair and elimina ted unfair practices designed to capture the income of a rival (cf. Commons 1934a, 333).
The basis upon which Commons arrived at this understanding was a deep one. As already noted, in Commons's interpretation "law is found in the customs of the people," and the unwritten law ("customs") consists of "rules springing from the social standard of justice, or from the habits and customs from which that standard has itself been derived" (1924, 299).  Thus, for example, were the doctrines of assumpsit and quantum meruit "discovered" and incorporated into the law. Indeed, it was through the latter doctrine, one that includes the assumption that in transfers of ownership the recipient intends to pay or perform what is fair or reasonable, that "reasonable value" came to obtain its meaning for the Court: what would be agreed to by a "willing buyer and willing seller," that is, agreed to in a bargaining process free of duress or coercion.
From what Commons discovered by reviewing legal decisions, then, reasonable value is nothing more than a consensus among "reasonable men" (as inferred by the justices) as to what constitutes an exchange free from duress and coercion. Accordingly, Commons concluded, a regime of truly Reasonable values must be arrived at solely through persuasion (assuming no fraud is involved) (cf. Commons 1934a, 337, 341, 679). What lay at the heart of Commons's policy perspective was a belief--evident, as noted above, in his earliest writings--that the outcomes produced in the industrialized American economy were not arrived at solely, or even fundamentally, through persuasion. In a word, it was Commons's judgment that the Court's guiding public purpose of making capitalism "good," of instituting an "authoritative apportioning of inducements" that is genuinely "fair," had been incompletely realized. It was his view that further adjustments of the controlling working rules (property rights) were necessary if the market outco mes produced in the industrialized American economy were to fully realize the Court's own ideal--an ideal, needless to add, with which Commons agreed.
Why was this the reality? Simply put, Commons discerned that in labor markets "free competition" was not in actuality "fair competition." That is, as he saw it "free competition" fails to produce "good" wage, employment, and working condition outcomes, meaning that the market prices arising out of those labor market outcomes are themselves defective. As noted, Commons distinguished between two fundamentally different types of inducements by which agreement between the parties in a transaction can be reached: coercion and persuasion.  By the term coercion, however, Commons meant more than the threat of violence, or duress. An individual's "willingness to agree" is profoundly influenced by his power to wait for the other to give in. The one with larger resources can generally wait longer than the other, thereby using his power (to wait) to influence favorably the terms of exchange. This type of "economic coercion" (1934a, 337-38) must also be eliminated if a transactional outcome (value) is to be considere d genuinely "Fair and Reasonable" (cf. Commons 1934a, 338-342). Truly "Reasonable," in short, implies: as resulting from bargaining between parties with equal physical and economic power (cf. Commons 1934a, 337). Accordingly, the ideal becomes the set of transactional outcomes that would obtain if everyone actually possessed equal power to wait for the other to give in, that is, if they possessed equal bargaining power. "Better" and "worse," as Commons used those terms with respect to market values, accordingly refer to outcomes (values) closer to and further