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SOVEREIGNTY IN TRANSACTION COST ECONOMICS: JOHN R. COMMONS AND OLIVER E. WILLIAMSON
Актуальные публикации по вопросам экономики.
Источник: Journal of Economic Issues, Jun96, Vol. 30 Issue 2, p427, 6p
Dugger, William M.
SOVEREIGNTY IN TRANSACTION COST ECONOMICS: JOHN R. COMMONS AND OLIVER E. WILLIAMSON
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 Sovereignly
Advocating New Transactions
Commons helped trade unionists, such as Samuel Gompers, expand their business unionism by arguing in favor of their collective bargaining transactions. This shaped his view of sovereignty. He spent a good part of his life working to get the state to accept and support such new transactions [Commons 1964]. He also studied the historico/legal development of capitalism to see how such acceptance had taken place in the past [Commons 1968, 307].
Commons worked with Williamson's legal centralism versus private ordering, without using those terms. He explained what Williamson refers to as private ordering in terms of evolving customs and working rules edging themselves into the common law of the English legal tradition:
The prerogative of to-day is the prerogative of business, and the common law of to-day seeking recognition is the customs [private ordering] of propertyless laborers developing in their own assemblies and industrial courts [Commons 1968, 307].
Commons was trying to get state sovereignty to back up the new transactions of business unions with state power [Commons 1968, 306-312].
The Search for Value in Commons
Commons sought to close the gap between conflicting interests that separated disputing transactors so that their mutual interests could be served and their going concerns kept going. He was searching for reasonable value [Commons 1964, 5557]. Reasonable value-reasonable wages, reasonable utility rates, reasonable working conditions, reasonable standards--all lay somewhere within the gap between what the conflicting interests in transactions actually wanted. In resolving disputes, the proper role of sovereignty was to close that gap in favor of "the highest degree of safety, health, well-being of employees, etc., that the nature of the industry or employment would reasonably permit" [Commons 1964, 155].
His search for reasonable value in transactions began with careful study of the societal conditions surrounding and affecting the conflicts and the mutual benefits involved in transactions. Commons's "collectivist" approach to value in transactions was profoundly different from Williamson's "individualist" approach. In his autobiography, Commons described his approach as follows:
A collectivistic theory of value derived from existing best practices, from custom, the common law, and the decision of courts, could make reasonableness "objective" and therefore capable of investigation and testimony, leading to the formation of working rules for collective action in control of individual action [Commons 1964, 156].
Social Power and Evolution
In his collectivist approach to reasonable value, Commons emphasized the way in which the relationship between power and sovereignty evolved. Anglo-American state sovereignty evolved through three epochs. The Norman Conquest of 1066 made the executive (monarch) sovereign within the state by giving him/her supremacy over other state officials. The epoch of executive sovereignty was followed by the epoch of legislative sovereignty with the English revolution of 1689. This epoch saw a "parliament of property owners" gain supremacy over the monarch and his judicial and executive officials. Our current epoch in the United States is the epoch of judicial sovereignty. With the Constitution and with the Fifth and Fourteenth Amendments to it, the United States Supreme Court has gained supremacy over the federal executive and the federal legislature and over the different states as well [Commons 1961, 684-92]. In this epoch in the United States, "it is more important to know who the men are on the Supreme Court bench than to know what the law is. The Constitution is not what it says it is-it is what the Court says it is" [Commons 1961, 697]. It is in this social epoch and against this entrenched judicial sovereignty (Williamson's legal centralism) that Commons pushed to get the customs and working rules of business union transactions accepted into the legal foundations of American capitalism. Outside that pale of acceptance, Commons believed, lay the customs and rules of radical labor, or the iron rule of fascism [Commons 1961, 8769031.
Williamson's View of Sovereignty
Advocating New Transactions
While Commons wanted to legalize the collective bargaining of business unions, Williamson has wanted to legalize the nonmarket arrangements of conglomerate corporations. While Commons pushed against the prerogatives of property supported by Supreme Court sovereignty, Williamson has pushed against what he refers to as the "inhospitality tradition" and "bogeyman economics" that dominated legal centralism [Williamson 1985, 19, 192-93, 200-204; 1984, 65].
Commons worked to stop the blanket use of injunctions against the practices of labor unions. Williamson has worked to stop the blanket use of antitrust against the practices of conglomerate corporations. Territory and customer restrictions, reciprocal trades, tie-ins, vertical and horizonal integration, and other "nonstandard modes of organization" were frequently viewed by the U.S. courts as some form of monopolization. Williamson objects and has argued that such practices should not be viewed exclusively through the inhospitable lens of antitrust because they could very well be new forms of transaction cost economizing [Williamson 1985, 18-19].
Self-Interest and Efficiency
Room needed to be made, Williamson has argued, for these new private orderings because they could serve valuable ends. In particular, they could be efficient. They could be the new ways in which self-interested individuals economize on transaction costs. And, by serving their own self interest, they serve the public interest. Universally prohibiting such practices because they are seen as serving monopolistic ends deprives the economy of the transaction cost savings that the practices may actually serve. (This theme runs through all of Williamson [1985].) Legal centralism had to be overcome to allow for transaction cost efficiency-the value for which Williamson searches.
The Search for Value in Williamson
While Commons searched for reasonable value in settling disputes between transactors, Williamson has searched for minimal transactions cost. The reasonable of Commons is strikingly different from the optimal of Williamson. Commons searched for the reasonable in the best existing practices of going concerns. Williamson's search for the optimal is not grounded in such social pragmatism but in game-theoretic individualism. Williamson does not begin with existing practices. Rather, he begins with assumed characteristics of individual players in hypothetical, economic games. When the players are assumed to pursue their self-interest with guile and bounded rationality, the transactions between them become extremely costly. So efficiency is found in minimizing those transaction costs. Williamson's search for value is grounded in such game theory considerations, not in the existing practices of actual going concerns [Williamson 1975, 1985].
Contrasts and Conclusions
Value plays a central role in both Commons and Williamson. Each tries to get sovereignty to accept new values. However, Williamson's value (the optimal) is found in overcoming the transaction costs caused by the assumed characteristics of individual transactors, while Commons's value (the reasonable) was found in the best existing practices of going concerns. In Commons, value is collectivistic and pragmatic. In Williamson, value is individualistic and deductive.
Both Commons and Williamson worked for the outsider. However, the outsider Commons worked for was virtually powerless (the labor movement) while the outsider Williamson works for is far from powerless (the giant conglomerate). With his "clients" having little, Commons dealt explicitly with power in his formulations; with his "clients" having much, Williamson does not. The thrust of each is fundamentally different. While Commons was trying to extend state sovereignty to protect the transactions of the powerless, Williamson is trying to shrink state sovereignty to protect the transactions of the powerful.
Selected References
Commons, John R. Institutional Economics. Madison: University of Wisconsin Press, 1961.
-----. Myself Madison: University of Wisconsin Press, 1964.
-----. Legal Foundations of Capitalism. Madison: University of Wisconsin Press, 1968.
-----. The Economics of Collective Action, edited by Kenneth H. Parsons. Madison: University of Wisconsin Press, 1970.
Dugger, William M. "The Reform Method of John R. Commons." Journal of Economic Issues 13 (June 1979): 369-81.
-----. "Property Rights, Law, and John R. Commons." Review of Social Economy 38 (April 1980): 41-53.
-----. 'The Transaction Cost Analysis of Oliver E. Williamson: A New Synthesis?" Journal of Economic Issues 17 (March 1983): 95-114.
-----. "Review: The Economic Institutions of Capitalism." Journal of Economic Issues 21 (March 1987): 528-30.
-----. "The New Institutionalism: New but not Institutionalist." Journal of Economic Issues 24 (June 1990): 423-31.
-----. "An Evolutionary View of the State and the Market." In The Stratified State, edited by William M. Dugger and William T. Waller, Jr., 87-115. Armonk, N.Y.: M. E. Sharpe, 1992.
-----. "Transaction Cost Economics and the State. In Transaction Costs, Markets, and Hierarchies, edited by Christos Pitelis, 188-216. Oxford, United Kingdom: Blackwell, 1993.
Galanter, Marc. "Justice in Many Rooms: Courts, Private Ordering, and Indigenous Law." Journal of Legal Pluralism no. 19 (1981): 1-47.
Rutherford, Malcolm. Institutions in Economics. Cambridge: Cambridge University Press, 1994.
Williamson, Oliver E. Markets and Hierarchies: Analysis and Antitrust Implications. New York: The Free Press, 1975.
-----. "The Modem Corporation: Origins, Evolution, Attributes." Journal of Economic Literature 19 (December 1981): 1537-68.
-----. "Perspectives on the Modem Corporation." Quarterly Review of Economics and Business 24 (Winter 1984): 64-71.
-----. The Economic Institutions of Capitalism. New York: The Free Press, 1985.
-----, ed. Organization Theory: From Chester Barnard to the Present and Beyond. New York: Oxford University Press, 1990.
Dugger, William M.
SOVEREIGNTY IN TRANSACTION COST ECONOMICS: JOHN R. COMMONS AND OLIVER E. WILLIAMSON
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 Sovereignly
Advocating New Transactions
Commons helped trade unionists, such as Samuel Gompers, expand their business unionism by arguing in favor of their collective bargaining transactions. This shaped his view of sovereignty. He spent a good part of his life working to get the state to accept and support such new transactions [Commons 1964]. He also studied the historico/legal development of capitalism to see how such acceptance had taken place in the past [Commons 1968, 307].
Commons worked with Williamson's legal centralism versus private ordering, without using those terms. He explained what Williamson refers to as private ordering in terms of evolving customs and working rules edging themselves into the common law of the English legal tradition:
The prerogative of to-day is the prerogative of business, and the common law of to-day seeking recognition is the customs [private ordering] of propertyless laborers developing in their own assemblies and industrial courts [Commons 1968, 307].
Commons was trying to get state sovereignty to back up the new transactions of business unions with state power [Commons 1968, 306-312].
The Search for Value in Commons
Commons sought to close the gap between conflicting interests that separated disputing transactors so that their mutual interests could be served and their going concerns kept going. He was searching for reasonable value [Commons 1964, 5557]. Reasonable value-reasonable wages, reasonable utility rates, reasonable working conditions, reasonable standards--all lay somewhere within the gap between what the conflicting interests in transactions actually wanted. In resolving disputes, the proper role of sovereignty was to close that gap in favor of "the highest degree of safety, health, well-being of employees, etc., that the nature of the industry or employment would reasonably permit" [Commons 1964, 155].
His search for reasonable value in transactions began with careful study of the societal conditions surrounding and affecting the conflicts and the mutual benefits involved in transactions. Commons's "collectivist" approach to value in transactions was profoundly different from Williamson's "individualist" approach. In his autobiography, Commons described his approach as follows:
A collectivistic theory of value derived from existing best practices, from custom, the common law, and the decision of courts, could make reasonableness "objective" and therefore capable of investigation and testimony, leading to the formation of working rules for collective action in control of individual action [Commons 1964, 156].
Social Power and Evolution
In his collectivist approach to reasonable value, Commons emphasized the way in which the relationship between power and sovereignty evolved. Anglo-American state sovereignty evolved through three epochs. The Norman Conquest of 1066 made the executive (monarch) sovereign within the state by giving him/her supremacy over other state officials. The epoch of executive sovereignty was followed by the epoch of legislative sovereignty with the English revolution of 1689. This epoch saw a "parliament of property owners" gain supremacy over the monarch and his judicial and executive officials. Our current epoch in the United States is the epoch of judicial sovereignty. With the Constitution and with the Fifth and Fourteenth Amendments to it, the United States Supreme Court has gained supremacy over the federal executive and the federal legislature and over the different states as well [Commons 1961, 684-92]. In this epoch in the United States, "it is more important to know who the men are on the Supreme Court bench than to know what the law is. The Constitution is not what it says it is-it is what the Court says it is" [Commons 1961, 697]. It is in this social epoch and against this entrenched judicial sovereignty (Williamson's legal centralism) that Commons pushed to get the customs and working rules of business union transactions accepted into the legal foundations of American capitalism. Outside that pale of acceptance, Commons believed, lay the customs and rules of radical labor, or the iron rule of fascism [Commons 1961, 8769031.
Williamson's View of Sovereignty
Advocating New Transactions
While Commons wanted to legalize the collective bargaining of business unions, Williamson has wanted to legalize the nonmarket arrangements of conglomerate corporations. While Commons pushed against the prerogatives of property supported by Supreme Court sovereignty, Williamson has pushed against what he refers to as the "inhospitality tradition" and "bogeyman economics" that dominated legal centralism [Williamson 1985, 19, 192-93, 200-204; 1984, 65].
Commons worked to stop the blanket use of injunctions against the practices of labor unions. Williamson has worked to stop the blanket use of antitrust against the practices of conglomerate corporations. Territory and customer restrictions, reciprocal trades, tie-ins, vertical and horizonal integration, and other "nonstandard modes of organization" were frequently viewed by the U.S. courts as some form of monopolization. Williamson objects and has argued that such practices should not be viewed exclusively through the inhospitable lens of antitrust because they could very well be new forms of transaction cost economizing [Williamson 1985, 18-19].
Self-Interest and Efficiency
Room needed to be made, Williamson has argued, for these new private orderings because they could serve valuable ends. In particular, they could be efficient. They could be the new ways in which self-interested individuals economize on transaction costs. And, by serving their own self interest, they serve the public interest. Universally prohibiting such practices because they are seen as serving monopolistic ends deprives the economy of the transaction cost savings that the practices may actually serve. (This theme runs through all of Williamson [1985].) Legal centralism had to be overcome to allow for transaction cost efficiency-the value for which Williamson searches.
The Search for Value in Williamson
While Commons searched for reasonable value in settling disputes between transactors, Williamson has searched for minimal transactions cost. The reasonable of Commons is strikingly different from the optimal of Williamson. Commons searched for the reasonable in the best existing practices of going concerns. Williamson's search for the optimal is not grounded in such social pragmatism but in game-theoretic individualism. Williamson does not begin with existing practices. Rather, he begins with assumed characteristics of individual players in hypothetical, economic games. When the players are assumed to pursue their self-interest with guile and bounded rationality, the transactions between them become extremely costly. So efficiency is found in minimizing those transaction costs. Williamson's search for value is grounded in such game theory considerations, not in the existing practices of actual going concerns [Williamson 1975, 1985].
Contrasts and Conclusions
Value plays a central role in both Commons and Williamson. Each tries to get sovereignty to accept new values. However, Williamson's value (the optimal) is found in overcoming the transaction costs caused by the assumed characteristics of individual transactors, while Commons's value (the reasonable) was found in the best existing practices of going concerns. In Commons, value is collectivistic and pragmatic. In Williamson, value is individualistic and deductive.
Both Commons and Williamson worked for the outsider. However, the outsider Commons worked for was virtually powerless (the labor movement) while the outsider Williamson works for is far from powerless (the giant conglomerate). With his "clients" having little, Commons dealt explicitly with power in his formulations; with his "clients" having much, Williamson does not. The thrust of each is fundamentally different. While Commons was trying to extend state sovereignty to protect the transactions of the powerless, Williamson is trying to shrink state sovereignty to protect the transactions of the powerful.
Selected References
Commons, John R. Institutional Economics. Madison: University of Wisconsin Press, 1961.
-----. Myself Madison: University of Wisconsin Press, 1964.
-----. Legal Foundations of Capitalism. Madison: University of Wisconsin Press, 1968.
-----. The Economics of Collective Action, edited by Kenneth H. Parsons. Madison: University of Wisconsin Press, 1970.
Dugger, William M. "The Reform Method of John R. Commons." Journal of Economic Issues 13 (June 1979): 369-81.
-----. "Property Rights, Law, and John R. Commons." Review of Social Economy 38 (April 1980): 41-53.
-----. 'The Transaction Cost Analysis of Oliver E. Williamson: A New Synthesis?" Journal of Economic Issues 17 (March 1983): 95-114.
-----. "Review: The Economic Institutions of Capitalism." Journal of Economic Issues 21 (March 1987): 528-30.
-----. "The New Institutionalism: New but not Institutionalist." Journal of Economic Issues 24 (June 1990): 423-31.
-----. "An Evolutionary View of the State and the Market." In The Stratified State, edited by William M. Dugger and William T. Waller, Jr., 87-115. Armonk, N.Y.: M. E. Sharpe, 1992.
-----. "Transaction Cost Economics and the State. In Transaction Costs, Markets, and Hierarchies, edited by Christos Pitelis, 188-216. Oxford, United Kingdom: Blackwell, 1993.
Galanter, Marc. "Justice in Many Rooms: Courts, Private Ordering, and Indigenous Law." Journal of Legal Pluralism no. 19 (1981): 1-47.
Rutherford, Malcolm. Institutions in Economics. Cambridge: Cambridge University Press, 1994.
Williamson, Oliver E. Markets and Hierarchies: Analysis and Antitrust Implications. New York: The Free Press, 1975.
-----. "The Modem Corporation: Origins, Evolution, Attributes." Journal of Economic Literature 19 (December 1981): 1537-68.
-----. "Perspectives on the Modem Corporation." Quarterly Review of Economics and Business 24 (Winter 1984): 64-71.
-----. The Economic Institutions of Capitalism. New York: The Free Press, 1985.
-----, ed. Organization Theory: From Chester Barnard to the Present and Beyond. New York: Oxford University Press, 1990.
Опубликовано 24 декабря 2004 года
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