Institutional Law and Economics: The Legal-Economic Nexus

This guest blog post is posted on behalf of the Center's visiting scholar,  Rodrigo Constantino Jeronimo. Rodrigo is a Ph.D. candidate in Economics at Sao Paulo State University (Unesp/Brazil) and is visiting the Center to work with Eric Scorsone and I on the work of John R. Commons. Commons and Smith on Growing Markets The book “Institutional Economics: its place in political economy” (1934) is one of John R. Commons` densest works in his attempts to provide a clear and organized exposition of the theoretical basis for what he conceived as his institutional economic theory. Undoubtedly, Commons` IE and “The Legal Foundations of Capitalism” (1924) are fundamental references for those aiming at investigating the constitutive elements of a “Commonsian approach” to economics and its phenomena. However, we are talking about a book that had as one of its main objectives reconstructing the history of economic though and placing collective action as the central feature of the economic inv...

 The New York Times The Daily podcast for October 11th covered climate change mitigation and adaptation efforts in two North Carolina towns subject to significant flood events over the past several years: Avon and Fair Bluff. It's been 8 year since Hurricane Matthew put the towns under water; 4 since Florence. Both towns are struggling from the realities of the physical collapse caused by flooding and now economic collapse for numerous reasons, notably the loss of residents following each major flood event. In the case of Fair Bluff (pop. 545), they rely on grants and what amounts to many volunteer hours to keep things going and rebuild after every set back. Current economic development goals include rebuilding downtown on higher ground-- but that requires significant funds and a tax base. They discuss federal aid (notably FEMA) who offer to buy out residents in at-risk areas, essentially encouraging residents to leave rather than invest in a rebuild time after time.  This de...

  Institutional economists certainly hold a variety of views regarding the role and positives or negatives of the profit motive.  There can be little doubt that the profit motive is a major part of any capitalist system regardless of its overall design.  The profit motive is the piece that moves supplies and firms to bring products and services to market. It also plays a role in the quality and long term relationships between buyers and sellers.   It has been both heralded as a great force in improving human society and the advancement of technological innovation and the force that is pulling society apart and cheapening human life. The ILE approach is that the profit motive is a function of costs and benefits and those very costs and benefits are structured by institutional rules.  These rules help determine which costs will be borne by which party and which parties can take advantage of what  benefits.  One of the early founders of ILE, John R. Commo...

This week, we are shamelessly promoting the upcoming Institutional Economics: Perspectives and Methods in Pursuit of a Better World ( Pub: October 28th, 2021).   It is edited by our colleague Charles Whalen, who previously reflected on his career as an institutionalist on this blog here , here , and here . The book covers several major institutionalist perspectives and methods in one place. Other authors include Mary Wrenn, and Bill Waller, who are both interviewed in our Legal-Economic Nexus podcast.  How Charles managed to pull this many-authored volume together throughout a global pandemic (with few setbacks) remains a mystery to me.  Eric and I (with Charles) contributed a chapter in the latter section titled: "Institutional impact analysis: the situation, structure, and performance framework." This chapter covers the evolution of Schmid's model, using old files and drafts we found here at MSU and at the University of Wisconsin to piece together the SSP model. Through...

  There is an ongoing debate about whether we can make capitalism “nicer'' or “gentler” in order to address the issues of economic inequality, climate change and other social ills.  For some the answer is a better capitalism and a better set of capitalists and for others it is the change in economic systems to socialism, mutualism or something else. Recently, the Canadian Mark Carney, ex central bank governor of Canada and the UK,  has written a book called “Values: Building a Better World for All”.  In the book, he argues that we need to shift from market society to market economy.  The market must not dominate all of society and market decisions must reflect values other than mere financial profitability. Laurence Miall writing in the Jacobian argued that this will not work (Miall, 2021).  Miall’s basic critique is that there is a lot of wishful thinking about capitalists getting better, greener, etc...but not much evidence to back it up other than a few ...

In working through the idea of human interdependence as the building block for conducting institutional analysis, I frequently return to a couple common examples used in other related literature. I share some of these somewhat-baked thoughts here, as they relate to previous posts about interdependence and using Hohfeld in econ analysis ( here and here ).   One of these is the example of the doctor and the candy maker given by Coase (1960). He described two people operating in offices side-by-side: a doctor, looking for a stable, quiet environment in which to treat patients, and a candy maker, utilizing the space for his or her craft, accompanied by the noisy machinery necessary to do so.  Coase uses the case to demonstrate externalities in his larger discussion of transaction costs, or the cost of any kind of bargaining or solution-finding on the part of the doctor. Many writing about this example have been focused on the external effect of the machines, or the noise cre...

  A recent article in Nonprofit Quarterly by Steve Dubb raised the interesting question of whether we need a “better capitalism” or a “better economy”*.  Dubb was reporting and writing an opinion piece in regards to a recent 2021 Harvard Conference on Social Enterprise.  I like the thinking here and wanted to expand on it.  IE explains its overall goal of social provisioning versus resource allocation.  The economy should be assessed in terms of how it ensures that all economic agents have adequate social needs as opposed to simply the question of resource allocation and highest and best use.   A model of economics built on highest and best use is one where income inequality is perfectly acceptable and part of an efficient economy.  In fact, addressing inequality will come at the expense of economic efficiency. I think the framing of a “better economy” is a good one to use and a good starting point as opposed to privileging the word “capitalism”. It ap...