The Institutional Theory of John R. Commons: Foundation for a Heterodox Labor Economics

71 Pages Posted: 10 Mar 2006

See all articles by Bruce Evan Kaufman

Bruce Evan Kaufman

Georgia State University - Department of Economics

Date Written: February 2006


Over the last three decades neoclassical economic theory has become the dominate approach for the study of labor, most clearly in North America but also increasingly in Europe and elsewhere. Rival heterodox approaches, on the other hand, are threatened with marginalization, partly due to the imperializing tendencies of neoclassical economics and partly due to the inability of heterodox economists to articulate an alternative unified theoretical framework. The purpose of this paper is to push forward the heterodox project by outlining a theoretical framework and set of core ideas that may provide the basis for an alterative paradigm. Toward this end, I re-examine the theoretical writings of institutional economist John R. Commons and describe and synthesize his theory of institutional economics. Although his theory is general, I focus on its application to the study of labor. Key concepts are bounded rationality, property rights, working rules, institutions, transactions, and incomplete contracts. I argue that these concepts not only form a coherent body of theory but also give rise to numerous insights and predictions about labor markets and the employment relationship, highlight crucial weaknesses and lacunas in the neoclassical approach, and provide a theoretical framework for an integration of the economic and social dimensions of human behavior.

Suggested Citation

Kaufman, Bruce Evan, The Institutional Theory of John R. Commons: Foundation for a Heterodox Labor Economics (February 2006). Andrew Young School Research Paper No. 06-02. Available at SSRN: or

Bruce Evan Kaufman (Contact Author)

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-2922 (Phone)
404-651-3299 (Fax)

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