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To John Womack's response: 
 
I cannot be sure about the Commons-Barnard-Simon connection (others surely 
can). But I will comment on the appeal of Coase. Recall that Coase (1960) 
was responding to Pigou's assessment of externalities (social costs) and in 
doing so he pointed out that Pigou had assumed that victims of external 
costs (smoke in this case) had a "right" to be free from smoke--hence the 
polluter should be taxed (the Pigovian tax) to force internalization of 
these external costs. Coase objected to this presumption of a "right" for 
the victim and said that the right should go to the most valuable use. He 
thought he was making judgments about rights assignments morally "neutral" 
by advocating the assignment that would produce the greatest net social 
dividend.  Coase failed to recognize, as many economists do, that embedded 
in his own objective function (total value of production) lurks a 
particular moral commitment. But this moral commitment is agreeable to 
economists who imagine that there is nothing value laden in advocating 
greater value of production. Or, if they see it as value laden, it is a 
value that is widely shared within economics. 
 
As we know, Coase insisted that in a world of zero transaction costs, it 
does not matter who gets the initial rights assignment since they (rights) 
will move, via market exchange, to those who value them most highly. He 
certainly recognized that transactions costs are never zero, and so rights 
assignments do matter. In fact if they did not matter why do we see people 
constantly fighting over them? But his simple story was sufficiently 
compelling that it serves to underpin much of the work of the new 
institutional economics. That is, it was now safe ("scientific") to study 
institutions since they are simply alternative rights assignments, and as 
long as those assignments can move to the highest-valued use, all was well. 
In fact, Coase regarded rights as factors of production that are simply 
bought and sold in markets--and the role of government is to help reduce 
transaction costs so that bargains over rights will not be impeded by high 
transaction costs. This approach is highly compatible with the harmonious 
working out of mutual gains from trade that underpins how many economists 
see the market. This explains part of the popularity of new institutional 
economics. 
 
Commons, on the other hand, saw institutions not as something that are the 
result of bargaining transactions, but as the outcome of conflicts of 
interest between parties with quite opposing interests. His "managerial 
transactions" (inside of firms) and "rationing transactions" (what the 
courts and the legislature do) comprise the way that new "working rules" 
(institutions) emerge. Indeed bargaining transactions (what we tend to do 
in markets) are themselves defined by prior rationing and managerial 
transactions. Commons saw the transaction as the central unit of analysis. 
Most economists focus on prices and quantities. 
 
So, it seems to me that the new institutional economics finds the Coasean 
view (rights/institutions as factors of production--i.e. commodity like) a 
much more congenial starting point for much of its work than the Commons 
view of conflict, opposing interests, and institutional change emanating 
not from mutually beneficial "efficient" bargaining among atomistic agents 
but from the rulings, decrees, decisions, and actions of the courts and the 
legislature. Commons insisted that the U.S. Supreme Court "picked values." 
That is, in deciding which party to a conflict would prevail, the Court was 
ratifying one set of interests (and associated economic agenda) while 
simultaneously dismissing the other set of interests (and associated 
economic agenda). We may notice that in rendering decisions, the Court was 
(is) also ratifying one particular constellation of costs and prices. In 
that sense, legal decisions determine "values" in a market economy. To 
Commons the key was always a struggle for "reasonable values." What was 
"reasonable?" That which was worked out by conflicting interests of 
approximately equal negotiating power. And the Courts struggled with the 
same thing. This is not an approach that fits well into the predominant 
method of the new institutional economics. 
 
Dan Bromley 
 
 
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