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J. R. Commons' Institutional Economics continues to give for us to the various originalities on institutionalism nowadays. However, its complex logical component has led us for long times to not afford to understand his theoretical main framework.
It have been said that Commons' contribution on economics mainly exists in his theory of Going Concerns and of Transactions and Working Rules. They are surely important analytical tools for institutional economics. However, according to recent studies of modern institutional economics, his theory includes also more polemical points of view beyond such a conventional interpretations. For example, his concept of “Bankers' Capitalism” offers the theoretical framework for analyzing the problem of Money Sovereignty.
We shall draw up in this paper that it is very important for contemporary institutional economics to dig up the novel theoretical framework from his Institutional Economics. What is that? It is his original idea that social economic system is constituted by both of Engineering Economy and of Proprietary Economy, and that these economies are articulated by mediums of Money and Sovereignty as Grand Institution.
If we carelessly understand these ideas and terms through the bias of the orthodox economics, it will be only another expression that the production process and the circulation process of commodity will be integrated via market mechanism. But, by following correctly the arguments of Commons, particularly the chapter eight “Efficiency and Scarcity” and the chapter nine “Futurity” in Institutional Economics, we will reach the understanding that such interpretation is absolutely wrong.
We note that what he actually wanted to show was the following conclusions. First, in modern capitalism, both commodity markets and money markets (debt markets) involves factors of maladjustment and instability. Second, these markets could not attain to stable and reasonable results without collective and concerted actions by association of producers, trade unions, central bank and government etc. Effects of these concerted actions are finally authorized by the sovereignty. If our hypotheses are appropriate, we could take the reasoning that Commons has written the chapter eight and nine in order to make clear such conclusion.
For this aim, we will examine our hypotheses by following steps. First, we will summarize the points of view in Commons' Institutional Economics, particularly in the chapter eight and nine, verifying whether above mentioned hypothesis is right. The chapter eight focuses institutional adjustment of commodity market and the chapter nine focuses that of money market. Second, it seems that our hypotheses have some similarities with contemporary economics, especially with a part of evolutionary economics such as that based on Keynesian theory of money. Then, we will make a comparison Commons' theory with that evolutionary economics, making it clear that these theories might have mutually compatibility. Finally, we will make it clear that Commons' monetary institutionalism is not the analysis of automatically equilibrating monetary system but novel monetary system controlled by the power of the sovereignty.
