Markets as transfers of legal rights and duties

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 Despite many differences and even outright hostility at times, there are a few points of commonality between new and original institutional economics as represented by Ronald Coase and John R Commons.  One point of commonality is that both agree that markets and capitalism involve the trading of legal rights and duties and not the physical goods themselves (which is present but incidental to the process).  In contrast, neoclassical economics views the law as a background variable and that markets involve the transfer of physical goods and services between consumers and producers.

Ronal Coase wrote in 1992 in his Nobel speech, "If we move from a regime of zero transaction costs to one of positive transaction costs, what becomes imme- diately clear is the crucial importance of the legal system in this new world. I explained in "The Problem of Social Cost" that what are traded on the market are not, as is often supposed by economists, physical enti- ties but the rights to perform certain actions, and the rights which individuals possess are established by the legal system.” (Coase, pg. 717, 1992).  Compare this statement to John R. Commons who wrote that, “Transactions, as thus defined, are not the “exchange of commodities,” in the physical sense of “delivery,” they are the alienation and acquisition, between individuals, of the rights of future ownership of physical things, as determined by the collective working rules of society. The transfer of these rights must therefore be negotiated between the parties concerned, according to the working rules of society” (Commons, pg. 58, 1934) (Commons credits Henry Dunning Macleod as having originally thought about political economy as the exchange of property rights in the mid 19th century).

Why is this important? Because it enhances our understanding of how markets work. It also means that we can conceive of many different types of transactions that can occur  over time as we may trade one specific set of rights for a good but not the entire bundle.  You can understand how to break up the rights to a commodity or service and generate economic returns.  This is particularly useful in the era of digital consumption.




for more see. https://www.researchgate.net/publication/281389457_Commons_Coase_and_the_Unchanging_Nature_of_the_Social_Provisioning_Process

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