John R. Commons's Reasonable Value and the Problem of Just Price

Article excerpt

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 [1] entities him to be ranked among the great economic theorists. Yet, when economists are asked to identify the discipline's distinguished value theorists, [2] 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. …