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FREE LABOR, REVISED:
JOHN R. COMMONS, PROPERTY, AND THE AMERICAN WELFARE STATE
PRELIMINARIES: I signed up for tonight’s seminar in a burst of
inspiration last November, for which I blame the Republicans. I can explain that
next Thursday night. Executing what I had in mind was a lot more difficult than I
foresaw, but the basic project is this: To show how John R. Commons—the
Wisconsin labor economist associated with some of the earliest forms of
legislation such as unemployment and workers’ comp, collective bargaining
laws, and minimum wage—attempted to reconcile these interventions with the
American ideal of an economy based on widespread property ownership. What
follows here is a consolidation of the first two chapters of my dissertation, to
which I’ve added a new section at the beginning. It is VERY ROUGH. It involved a
fair amount of cutting and pasting, so I’m praying there’s a narrative here that
you can follow. If not, we can discuss the merits of a new, experimental academic
form, the collage. If you decide not to read, or give up in the middle, please come
Thursday night anyway. It’s the last Tourgee seminar. Let’s make it a party. -Karen
In 1918, looking back at the final decades of the nineteenth century, the
University of Wisconsin labor economist John R. Commons was struck by the
failure of American working classes to embrace en masse any form of socialism.
The fear of revolution had been intense among elites, but their worst fears had
not come to pass. American labor history, it seemed, would follow a markedly
different course from Europe’s.
In his introduction to History of Labour in the United States, Commons
argued that the American labor movement’s apparent rejection of socialism
could be attributed to an abundance of land. “Labour movements in America
have arisen from peculiar American conditions,” he wrote. “The condition which
seems to distinguish most clearly the history of labour in America from its
history in other countries is the wide expanse of free land.”1
Commons, “Introduction,” John R. Commons et. Al., History of Labour in the
United States (New York: Macmillan, 1918), pp. 3-4.
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Because the frontier had provided abundant opportunities for property
ownership, American workers had not felt the need to redistribute property,
Commons explained. But when land dried up, labor rebelled. Unable to achieve
property ownership, laborers now also saw their wages plummet. The result
was agitation—strikes, a call for the right to bargain collectively, and eventually,
in some quarters, a call for legislation such as a minimum wage, and
compensation for unemployment and injuries on the job. Most American
workers never abandoned an individualistic worldview. To the extent they
engaged in collective action, it was to achieve individual aims.
This opening narrative, crude as it was, bore a striking similarity to the
story told by Frederick Jackson Turner, in his now famous address to the
American Historical Association in 1893. Turner was a relatively young
professor of history at the University of Wisconsin when he drafted “The
Significance of the Frontier in American History.” In the address, he revealed
that the census of 1890 showed that settlement in the United States had reached
the Pacific Coast. “The frontier has gone,” Turner declared, “and with its going
has closed the first period of American history.”2
The frontier experience accounted for the main distinctions between
American and European society, according to Turner. Americans assumed
abundance, whereas Europeans were long accustomed to scarcity. Free land,
Turner argued, had secured a relatively even distribution of wealth. But now
Americans faced scarcity, too. These new conditions accounted for much of the
labor strife of recent years.
Because so much of the American character had been premised on the
assumption of abundance, Turner predicted that Americans would find new
opportunities for expansiveness. “He would be a rash prophet,” Turner wrote,
“who should assert that the expansive character of American life has now
Frederick Jackson Turner, The Frontier in American History (New York: Holt,
Rinehart and Winston, 1920), p. 38.
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entirely ceased. Movement has been its dominant fact, and, unless this training
has no effect upon a people, the American energy will continually demand a
wider field for its exercise. But never again will such gifts of free land offer
themselves.”3
Commons didn’t mention Turner by name in History of Labour in the
United States, but his evocation of the closing of the frontier is suggestive. At
thaesame time Turner was crafting his frontier thesis, Commons too was
grappling with the problem of scarcity. His first major book, The Distribution of
Wealth, would be published in the same year as Turner’s address. It’s hard to
imagine Commons wasn’t familiar with Turner’s work or hadn’t given it much
thought. The two had met as graduate students at Johns Hopkins University.
Both were there to study with the economist Richard Ely. And from 1904, when
Commons arrived at the University of Wisconsin, to 1910, when Turner left for
Harvard, the two were colleagues.
Turner’s essay implied a challenge of sorts: “American energy will
continually demand a wider field for its exercise. But never again will such gifts
of free land offer themselves.” And whether he intended to or not, Commons
embarked on a career that seemed designed to respond to Turner’s challenge.
Commons would evoke the end of the frontier only to declare that the
promise of free land had, in fact, never existed. After virtually paraphrasing
Turner’s observations about the significance of free land to American history,
Commons wrote that to talk of the existence of free land was to “ascribe to the
bounty of nature what proceeds from the struggle of classes.”
“Like the laissez-faire philosophers, we trace back to a benevolent
physical nature what springs directly from our social nature, and shows itself in
organization and political effort,” he continued.
From there Commons proceeded to outline a history of the American
frontier markedly different from Turner’s. Commons wrote that after the
3
Turner, The Frontier in American History, p. 37.
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ratification of the Constitution, western lands intended for “free labor” went
instead to speculators and slaveholders. The Republican Party ideal of property
ownership for every laboring man never materialized. “The masses of the
people gradually awakened, then resisted,” Commons wrote. The result was the
Civil War—essentially a struggle over land, he believed.
The Homestead Act of 1862, which made land available cheaply to free
laborers, temporarily calmed the storm. But Commons contended that railroad
land grants in the postwar period again handed “free” land to speculators. In
addition, much more public land was siphoned off and declared off limits in
order to conserve natural resources. Thus, Commons concluded, “[f]ree land
was not a mere bounty of nature.” Rather, it had to be won in political struggle.4
As Commons sought to demonstrate, property rights were not natural rights,
existing prior to the state. Rather, property was both created and distributed by
the state.
In many ways, Commons’s critique of the post-Civil War economy
revealed his long sympathy with free labor ideology. “Liberty, equality, and
defiance of the Fugitive Slave Law were my birthright,” he wrote in his
autobiography, Myself. [insert footnote]
Free labor was a vision of a model society. It described a society based on
property ownership, generally in the form of a farm or a shop, as a means to
economic independence. Free labor Republicans eschewed the wage system.
Wages were merely a means to accumulation—a stepping stone on the way to
owning one’s own farm or shop.”5
Commons, however, never opposed the wage system. This would seem to
be a significant departure from free labor ideology. Yet, it turned out to be a
departure more in the letter than in the spirit. Commons embraced both
Ibid., pp. 3-4.
Eric Foner, Free Soil, Free Labor, Free Men: The Ideology of the Republican Party
before the Civil War (Oxford University Press, 1970): p. 33.
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property ownership and economic independence—and argued that both could
be compatible with the wage system.
The problem was not the wage system itself, Commons maintained, but
the workers’ lack of bargaining power. In other words, he focused on the
poorest wage earners, those who earned sub-subsistence wages. These workers
were the victims of economic coercion and could appropriately be compared to
slaves, as many workers and their advocates had as early as the 1830s.6
Defining wage slavery as “the dependence of one man upon the arbitrary
will of another for the opportunity to earn a living,” Commons attributed it to the
“ownership of all the opportunities of labor” by single corporations, or by groups
of employers whose uniform policies created the effect of monopoly.7 The
monopoly over employment opportunities meant that individuals could be
denied a living either because no job was available, or because the employers
paid sub-subsistence wages. He argued that wage slavery could be eradicated
only by sanctifying a worker’s labor power as a protectable form of property.
The phrase wage slavery first entered the political lexicon in the 1830s.
It was invented by the Workingman’s Party to underscore the loss of
independence already being felt among its members, who were unable to secure
economic independence through the purchase of their own land or shop. It also
reflected the undignified condition in which impoverished laborers lived. Both
the defenders of slavery in the South and their northern opponents observed
that the condition of wage laborers was often worse than that of slaves. Orestes
Brownson argued in his 1840 essay “The Laboring Classes” that the wage system
permitted employers the advantages of the slave system without the expense
and trouble of caring for slaves. In short, the wage system allowed the employer
to purchase labor power at the lowest possible price, without regard for the
ability of the worker to maintain his own capacity to labor.
7 Commons first made this argument in Social Reform and the Church, p. 34. He
made the same argument again in “Horace Greeley and the Working Class
Origins of the Republican Party,” Political Science Quarterly 24:3 (September
1909): 468-488.
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I.
Commons advanced this argument for the first time in his first major
book, The Distribution of Wealth. In it, he emphasized the role of property law in
determining labor’s price. The most radical notion he introduced work was the
idea of a right to work. The right to work, Commons argued, was a logical
outgrowth of the rights to life and liberty and had yet to be secured in an
economy in which the laborer could no longer necessarily secure his own plot of
land or shop. “The claims of justice,” Commons argued, “rebel at the dictates of
law which have reduced the earth and all the opportunities for livelihood to the
private possession of one third the race, and thus compel the other thirds to be
either wage-slaves or paupers. The right to work, for every man that is willing, is
the next great human right to be defined and enforced by the law.” Commons
continued by noting that “freedom of industry” necessarily meant “the right to
free access to nature for the production and acquisition of wealth.”
But American law had applied this notion only to business entities, he
claimed, and never to laborers or labor unions. Workers’ sole route to freedom
of industry was to leave the ranks of wage-earners and to enter the
entrepreneurial realm. With the large expanses of vacant, inexpensive public
land now gone, this option was no longer realistic. Freedom of industry could
only be guaranteed by the right to a job and the income that accompanied it.8
Commons also would refute the widespread claim that the purpose of the
state was to protect private property from encroachment. This assumed that
private property existed in nature, prior to the state. Commons believed that the
institution of property was a socially constructed, malleable concept that guided
the distribution of land and all sources of wealth.
As a scholar who strove to develop an economic doctrine that reflected
actual experiences of economic actors, not surprisingly he arrived at his critique
8
Commons, The Distribution of Wealth, pp. 80-81.
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of the prevailing theory of distribution through the observation of changing
social conditions that orthodox free market economists failed to consider. In
particular, they failed to link distribution to the most striking economic
phenomenon of the day, the rise of the industrial corporation. If the rise of
poverty amidst wealth seemed to make classical economic theory vulnerable, so
too did the appearance of industrial corporations, which fundamentally altered
the rules of competition on which so much of classical economics had been
based.
II.
While the corporate form of business had long existed, it became
widespread only in the late nineteenth century with the rapid growth of railroad
networks. The expansion of these networks transformed local markets into
national markets which could not be served by individual entrepreneurs or
small-scale manufacturing partnerships. Only by forming a corporation could
investors accumulate the necessary capital to purchase the expensive machine
technology to produce in large volume. Consequently, the corporation replaced
the partnership as the dominant business arrangement of the time.9
The expansion of machine production raised considerably the demand for
unskilled workers. To many rural Americans and immigrants from poor nations,
the new unskilled manufacturing jobs offered better pay than they had ever
earned. Skilled craftsmen, however, found their jobs replaced by the new factory
equipment. Not only were they forced into lower paying work; they also had far
For more on the development of the industrial corporation, see Glenn Porter,
The Rise of Big Business, 1860-1920 (Arlington Heights, Illinois: Harlan Davidson,
Inc., 1992; Second Edition); and the several essays on Gilded Age business
development in Thomas K. McCraw, ed., The Essential Alfred Chandler: Essays
Toward a Historical Theory of Big Business (Boston: Harvard Business School
Press, 1988).
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less control over work rules than they had previously enjoyed.10 Furthermore,
the high-volume, low-cost production of the new corporate economy created
rapid upswings in prosperity quickly leading to saturated markets and the onset
of depressions. Corporate managers responded to the downswings with
repeated rounds of wage cuts and lay-offs, leading to the charge that large
corporations had generated economic instability on a massive scale. Indeed, the
entire period from roughly 1873 to the mid-1890s was one of continual panic for
corporations attempting to expand and survive in a fiercely competitive climate.
Wariness of the power of the industrial corporation was not always
synonymous with hostility towards business development, however. As much as
some progressives waxed nostalgic about the days of small-scale competitive
capitalism, others embraced the large corporation whose economies-of-scale
they believed offered great possibilities for the generation of widespread
affluence. Among this latter group were the industrial engineers calling
themselves “scientific managers.” Commons directed much of his attention in
the 1910s and 1920s to this group.11 While he was among those who accepted
the emergence of large-scale industrial capitalism, he was deeply ambivalent
For a discussion on the downward mobility of skilled craftsmen, see David M.
Gordon, Richard Edwards and Michael Reich, eds., Segmented Work, Divided
Workers: The Historical Transformation of Labor in the United States (New York:
Cambridge University Press, 1982), especially chapter 4, “The Homogenization
of Labor: 1870s to World War II.” Although their thesis has been contested, it
reflects the reality that Commons perceived and on which he based his theory of
distribution.
11 On scientific management generally, see Samuel Haber, Efficiency and Uplift:
Scientific Management in the Progressive Era, 1890-1920 (Chicago: University of
Chicago Press, 1964); Daniel Nelson, Frederick W. Taylor and the Rise of Scientific
Management (Madison: University of Wisconsin Press, 1980). The best
discussion of the impact of scientific management on laborers is in David
Montgomery, The Fall of the House of Labor: The Workplace, the State, and
American Labor Activism, 1865-1925 (New York: Cambridge University Press,
1987), pp. 214-256.
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about this latest organizational revolution, which combined enhanced efficiency
with a significant redistribution of wealth from labor to capital.
Scientific managers were the most significant of the new class of business
planners who arrived late in the nineteenth century to provide a human “visible
hand” to direct the once faithful “invisible” hand of natural law.12 In the
turbulent 1890s, these efficiency experts began selling their services to
corporations needing help to adapt and survive in the new economic
environment. They argued that many faltering businesses could actually
produce sizeable new profits by eliminating waste. In practice, this meant,
among other things, the standardization of parts and the rationalization of
business practices on an industry-wide level. Among the most significant
innovations scientific managers proposed were the redesign of factories and the
institution of planning departments, both aimed at maximizing efficiency. Too
often, they argued, laborers had to stand idle, waiting for materials or work
because of poor production planning on the part of business managers.
In the 1910s and 1920s, scientific managers began to argue for the
beneficial social effects of scientific management. The new methods could
increase productivity substantially, they insisted, and in doing so generate
sufficient additional wealth to make possible the steady employment and high
wages workers desired. Among those they convinced was the progressive
lawyer Louis Brandeis. In 1911, Brandeis argued that scientific management
could help eliminate the most immediate source of discontent in that year, the
failure of wages to keep pace with the rising cost of living. Then an attorney for
eastern shippers, he contended that railroads did not have to raise freight rates
simply because they had raised wages. If only they adopted the efficient
practices of scientific management, they would save “a million dollars a day.”
Herbert Hoover made a similar argument a decade later. President of the
See Chandler, The Visible Hand: The Managerial Revolution in American
Business (Cambridge: Harvard University Press, 1977).
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American Engineering Council, new Secretary of Commerce under President
Warren Harding, and a popular hero of the Great War, Hoover announced that
scientific management was carrying out a revolution of no less import than the
industrial revolution of the nineteenth century in its effect on volume of goods
and standard of living. So inefficient were current production practices, he
believed, that near universal affluence could be achieved through substantial
changes in business management alone.13
Commons conceded that scientific management could raise production
substantially.14 But he condemned the fact that modern production planning
entailed detailed job specifications that left workers little room to exercise their
judgment. The judgments workers had long made were backed by experience
and training which had exchange value in the marketplace. Scientific managers,
however, proposed that rather than relying on custom, habit, and arbitrary
“rules of thumb,” managers and workers be provided detailed instructions that
were the product of careful research of scientific mangers in “the one best
way”—the most efficient way—to carry out individual tasks. That research was
not conducted independently of workers, however; rather, it was the result of
careful observation of the most productive among them. Thus, Commons
maintained, the new job blueprints were a sophisticated appropriation of the
valuable knowledge workers had long possessed. Along with the appropriation
of knowledge came the appropriation of knowledge’s exchange-value.15
Scientific managers also boasted that they could make labor unions
obsolete. Instead of giving in to the imprecise haggling that they believed
characterized wage bargaining, they devised detailed wage-payment plans. The
engineer Frederick W. Taylor, who began promulgating scientific management
Haber, pp. 53-54; Montgomery, p. 246; William J. Barber, From New Era to New
Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921-1933
(New York: Cambridge University Press, 1985), pp. 13-15.
14 John R. Commons, Industrial Goodwill (New York: McGraw-Hill, 1919), p. 16.
15 Commons, Industrial Goodwill, pp. 15-16.
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around the turn of the century, complained that unions hampered efficiency. He
promised instead that scientific management could ultimately offer more to
labor than could unions. Taylor pointed out that the company-devised wage
system assigned pay to each laborer scientifically, according to the value of what
he or she had produced. In devising ways to assign precise values to each
worker’s product, scientific managers acted as visible hands determining a just
system of wages for the workers within each firm.
Scientific managers promoted one of two similar wage payment plans.
The first option was a task-and-bonus system, in which a minimum task rate was
supplemented on a sliding scale corresponding to the surplus the laborer
generated. The second option was the differential-piece-rate plan in which the
rate of pay per piece steadily rose with greater production. Commons supported
the spread and strengthening of trade unions, however, because only collective
organization allowed workers to leverage power in order to guarantee some
control over their pay. Indeed, it was often the case under either the task-andbonus or the differential piece-rate plan that if individual workers became too
productive, employers felt obligated to slash incremental pay rates—the task
rate, the bonus rate, and the piece-rate—betraying productive workers and
leaving them without an incentive for continued efficiency.16
Many employers recognized these problems, and as a result, refrained
from adopting either payment plan. The objection of workers to incentive pay
plans convinced some employers to adopt an established hourly wage instead.17
These employers discovered that greater productivity was better achieved with
such other tenets of scientific management as the reform of factory design and
the implementation of departments of planning. With such reforms in place,
they assumed the firm would save enough money to raise the hourly wage
On differential piece-rate and task-and-bonus plans, see Commons, Industrial
Goodwill, pp. 7-16; Montgomery, pp. 226-228; Nelson, pp. 42-46, 99-100.
17 Montgomery, p. 228.
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indefinitely. Lest it seem unlikely that employers would elect to spend extra
profits on higher wages, by the 1920s it had become conventional wisdom that
the enlightened businessman would pay his workers the highest wages possible.
According to this new orthodoxy, in an economy in which the volume and variety
of consumer goods were rapidly expanding, businesses could survive only by
guaranteeing a mass of consumers.
One of the greatest advocates for the “high wage” policy was Herbert
Hoover, who, as Secretary of Commerce, won the commitment of several
prominent business leaders to maintain a high-wage policy even during
recessions. Joining the exhortation of this popular war hero was Henry Ford,
who began paying his workers an unheard of minimum of $5.00 per day. High
wages were good business, Ford contended, for they both created markets for
consumer goods and reduced tensions between capital and labor.18
Commons was unconvinced, however, that the high wage policy would
work without independent trade unions—precisely the institutions many of the
high-wage policy’s advocates were trying to weaken. His suspicions were wellfounded in that only a minority of employers followed the tenets of enlightened
management preached by the likes of Hoover and Ford. In addition, many firms
were still relying on either the task-and-bonus or the differential piece rate
plans. In all of these cases, however, Commons believed he was witnessing an
insidious attempt to undermine the union as a legitimate means to influence
distribution.
Commons was most determined to challenge the intention, voiced by
Taylor, to remove the distribution of wealth from open debate—precisely where
it would be if collective bargaining, rather than scientific management, were the
normative means to distribute income to workers. As Taylor had stated before a
congressional committee in 1912, scientific management could generate a world
in which both capital and labor would “take their eyes off the division of the
18
Barber, pp. 27-29.
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surplus as the all-important matter, and together turn their attention toward
increasing the size of the surplus until this surplus becomes so large that it is
unnecessary to quarrel over how it shall be divided.”19 It was difficult for
Commons to envision scientific management taking distribution out of debate,
however, since he believed scientific management itself represented a deliberate
redistribution of wealth from labor to capital. He believed that scientific
management represented but the latest current in a century-long history of
organizational change that had made it ever harder for a growing number of
laborers to achieve a dignified and secure existence. Indeed, as Commons saw it,
the key problem presented by scientific management was how to secure a living
wage for a working class whose once-valuable labor power had been
appropriated first by the owners of large-scale machinery and now by the
apostles of efficiency. “[S]cientific management,” he wrote in Industrial Goodwill,
carries to the final limit that disintegration of the workman’s skill and
its transfer to the employer, which began a hundred and fifty years ago
with the inventions of power machinery, the steam engine, and division
of labor. The ancient craft gilds [sic] were rightly known as “mysteries.”
The member of the gild [sic] learned through his apprenticeship a skill in
manufacture unknown and unpractised by outsiders. This mystery was
his vested right—his property against all the world. But when machinery
or division of labor took the place of his skill, his property-right went with
it to his employer who owned the machine. Scientific management carries
the process a step further. The time-and-motion studies, the blue prints
and specifications, the detailed instructions how to do the work, become
the property of the employer, and the mechanic no longer hands down by
word of mouth and by example the mystery of his skill. Where
mechanical inventions transferred ownership of skill to the employer
19
Montgomery, p. 253.
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through ownership of the machine, scientific management transfers it
through blue prints and job studies made by a staff of engineers and
specialists on the staff of the employer.20
This provocative characterization of scientific management was, in fact, in
accord with statements Taylor had made just a few years earlier. Taylor had
explained to a congressional committee in 1912 that he intended “the deliberate
gathering in on the part of those on management’s side of all the great mass of
traditional knowledge, which in the past has been in the heads of the workmen,
and in the physical skill and knack of the workman, which he has acquired
through years of experience.”21 Taylor reflected the frustration of employers in
a world in which, until late in the nineteenth century, craft unions had reserved
the right to make their own work rules. They developed their own practices, and
carried those practices forth by training their own members. It was not unusual
for craft unions to set their price and for companies to expect that they would
have to negotiate. Only in the 1890s did corporations finally win the exclusive
right to set work rules, as courts declared such union demands—made, as they
were, in relation to corporate capital equipment—an unconstitutional violation
of corporate property rights.22
Thus, Commons was not without foundation in arguing that scientific
managers attempted a redistribution of knowledge from labor to capital. More
importantly, he would argue, knowledge was property and property had
exchange value in the marketplace. Hence, it was implausible that the
appropriation of workers’ collective knowledge would have no effect on the
distribution of income.
Commons, Industrial Goodwill, pp. 15-16.
Montgomery, p. 219.
22 For more on the destruction of self-governing craft unions and the rise of
corporate management, see Montgomery, pp. 9-44.
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In his second philosophical work, Legal Foundations of Capitalism,
Commons would explore the intersection of property law and the distribution of
wealth to discredit the claims of Taylor and his disciples. But as always,
Commons also had the goal of reform in mind. While the worker was unlikely to
prevent the further appropriation of his skill, he would instead “learn, as he has
to some extent in the case of machinery, to recoup in other directions.”23 In
Legal Foundations of Capitalism, Commons proposed an alternative
interpretation of property with which workers might, indeed, recoup in another
direction the losses they had endured at the hands of industrialism and scientific
management.
III.
Legal Foundations of Capitalism represented, in the author’s own words,
the culmination of over thirty years of teaching and study.24 In contrast to such
progressives as Frederick Taylor and Herbert Hoover, Commons sought to prove
that the conflict over distribution was no mere passing phase of capitalism that
greater production could render obsolete. The premise of his theory of
distribution was that scarcity—meaning the surplus of wants over available
resources—would never be transcended. Therefore, American society would
always have working rules to adjudicate the competing claims for available
goods.
The assumptions Commons adopted in Legal Foundations of Capitalism
also took aim at the philosophical assumptions of neoclassical economists, who
viewed all economic activity from the standpoint of a self-interested individual
who was assumed to be separate from society. In the neoclassical economic
Commons, Industrial Goodwill, p. 16.
Commons, Legal Foundations of Capitalism (New York: MacMillan, 1924);
Preface.
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world, “society” as such was a competitive marketplace—an arena of
opportunities in which the self-interested individual sought to maximize his
pleasure and minimize his pain. Commons argued in Legal Foundations of
Capitalism, however, that such an individual was an abstraction. Like other
progressive intellectuals, Commons believed that there was no strict dichotomy
between the individual and society. Nor did he accept the free market as a
given—as a metaphysical reality rooted in nature. By contrast, Commons
demonstrated that the market was a social creation. The individual’s
opportunities were as wide or as narrow as manmade laws, rather than natural
laws, permitted. Because opportunities were created by laws, individual
freedom was a creation of society and not something which existed prior to
society and in opposition to it.
“Economics and law are concerned with freedom of choice rather than
freedom of will,” Commons complained. “Freedom is a social product whereby
society opens up for the individual an enlarging world of the potential and
possible within which he may construct his own future as he will.”25
Commons envisioned this society as an arena of constantly evolving and
changing groups, associations, and relationships, each of which he called a “going
concern.” Society, therefore, was composed simply of people who were, at any
given moment or in any given context “citizens of a going concern.” Going
concerns functioned according to working rules which evolved as new
circumstances, and hence new disputes, arose. Working rules arbitrated the
conflicts of interest among groups, distributing the benefits and burdens of
production.26 The conviction that distribution was related to the working rules
Commons, Legal Foundations of Capitalism, p. 82.
For more on Commons’s terms “going concerns,” “working rules,” and their
relationship to his general philosophy of economic behavior, see Commons,
Legal Foundations, pp. 1-10; 134-142; 143-213; R.A. Gonce, “John R. Commons’s
Legal Economic Theory,” Journal of Economic Issues 5:3 (September 1971): 8095; Yngve Ramstad, “The Institutionalism of John R. Commons: Theoretical
25
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of society directed Commons’s attention beyond the businesses and labor
organizations that were conventionally considered “economic” institutions.
Instead, Commons examined the relationship between economic transactions
and the law, attempting to trace the social construction of the market. Because
the legal term for wealth was property, Commons centered his investigation on
property law and its relationship to the prevailing patterns of the distribution of
wealth.
Commons’s principal argument in Legal Foundations was that the use of
private property was fundamentally a social act in a market economy
characterized by specialization and interdependence. Essentially, this
contention was a specific application of his more general claim that the exercise
of individual freedom was a social act. But Commons made several original
contributions in Legal Foundations of Capitalism. His first was to situate his own
analysis of property law in the context of the dilemma that he had identified in
Industrial Goodwill: that in two large sweeps, advanced machinery and scientific
management had appropriated to the employer what was once the property of
the laborer, condemning to poverty skilled craftsmen along with much larger
numbers who had never received specialized training. As he had noted in that
earlier work, deskilling would force employees to “recoup in other directions,”
chiefly through protective legislation.27 However, in order for such legislation to
be constitutional, proponents would have to demonstrate that compulsory labor
legislation represented an appropriate use of state police power—a power long
understood to protect “public purpose,” but explicitly prohibited from
Foundations of a Volitional Economics,” in Warren J. Samuels, ed., Research in the
History of Economic Thought and Methodology 8 (1990): 53-104; and Malcolm
Rutherford, “J.R. Commons’s Institutional Economics,” Journal of Economic Issues
17:3 (September 1983): 721-744.
27 Commons, Industrial Goodwill, pp. 15-16.
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supporting “class legislation” which took property from one class and
transferred it to another.28
The premise of Legal Foundations was that a symbiotic relationship
existed between orthodox economic and orthodox legal thought, and that both
disciplines shared similar faulty assumptions. Just as his fellow institutional
economists sought to expose the laws of production and distribution as
manmade, Commons now attempted in this book to reveal the actual
architecture of those manmade economic laws through an examination of
American constitutional jurisprudence and the laws it upheld. In doing so, he
intended to discredit the claims of orthodox jurists to objectivity, as well as to
reveal fundamental contradictions in a jurisprudence that held the protection of
natural rights to liberty and property consistent with the preservation of
economic competition unmediated by state intervention. The result of his
efforts, he hoped, would be a major contribution towards a legal foundation for a
redistribution of wealth from capital back to labor.
There was indeed a symbiotic relationship between the economic
theories originating with Adam Smith and the social contract theory of John
Howard Gillman, The Constitution Beseiged: The Rise and Demise of Lochner
Era Police Powers Jurisprudence (Durham: Duke University Press, 1993). Gillman
argues that late nineteenth century judicial decisions which seemed to reflect a
reactionary, pro-business ideological bent were actually decisions adhering to a
century-long tradition of police power jurisprudence. That tradition was rooted
in James Madison’s Federalist No. 10, in which Madison warned of the dangers of
factionalism, understood to mean social class competition over the distribution
of wealth. Madison cautioned against confusing the quest for equality before the
law with laws mandating economic equality. Police power jurisprudence,
reflecting this warning, confined the power of state intervention to protecting
the public interest against factions. Gillman demonstrates that the Supreme
Court remained consistent throughout the century in its understanding of the
police power, whether or not such an understanding favored powerful
businesses. Commons’s economic theories indirectly undermined orthodox
police power jurisprudence by attacking the assumption that the prevailing
distribution of resources was the result of natural laws rather than legally
sanctioned practices.
28
19
Locke in which the American constitutional system was grounded. Locke’s social
contract posited the existence of two sharply defined spheres of action, the
public and the private. Locke’s private sphere designated a protected arena of
liberty in which free individuals exploited their property in the process of
securing a livelihood. Smith, writing approximately a century later, envisioned a
similar private sphere which, unobstructed by state mandates, exhibited the
natural laws of production and distribution in motion. To both men, the public
sphere was a realm carefully circumscribed as a guardian of the liberty of
individuals in economic action, the guarantor of the natural rights of individuals
to life, liberty, and property.
But while the thinking of Smith and Locke was deeply embedded in
American legal and economic assumptions, such a neat division between public
and private had never existed in American legal and economic life. Tariffs and
excise taxes had long been regular instruments by which federal and state
governments attempted to influence the course of action in the private sphere.
Furthermore, much of the economic development of the nineteenth century
occurred as a matter of public policy, as federal, state, and local governments
afforded a host of special grants, immunities, and other forms of protection or
favorable treatment to private parties whose activities public officials deemed
might provide the public benefit of enhanced overall commerce and trade.29
The ratification of the Fourteenth Amendment to the Constitution in 1868
complicated such efforts, for the first time compelling federal judges to confront
the contradiction between the Constitution’s Lockean premises and actual
practice. Prior to this amendment, state constitutions were the source of rights.
The federal Constitution guaranteed under the Fifth Amendment that no citizen
be deprived of property without due process of law, nor could he have his
property confiscated for public use without just compensation. But ever since
Morton J. Horwitz, The Transformation of American Law, 1780-1860
(Cambridge: Harvard University Press, 1977).
29
20
the 1833 case of Barron v. Baltimore, the Supreme Court had held that the Bill of
Rights limited the actions only of the United States Congress. The Fourteenth
Amendment nationalized the Bill of Rights by declaring that “[n]o State shall
make or enforce any law” depriving a citizen of property without due process.
The result was an infusion of cases in federal courts in which plaintiffs
challenged the constitutionality of state laws. In the complex market of the late
nineteenth century, many of these cases involved private enterprises charging
that certain state actions had deprived them of their rights to property under the
Fifth and Fourteenth Amendments.
The courts also faced a barrage of cases in which private parties charged
each other with property violations. Under these circumstances, courts had a
simple test to assess the validity of Fourteenth Amendment property claims. In
Lockean terms, individuals formerly in the state of nature had sacrificed just a
portion of their liberty—the liberty to harm others—in order that each of them
could then be entitled to exercise his will in any way that did not cause harm.
Judges had adopted this principle, declaring that liberties under the
Constitution—including the liberty to use one’s property as one saw fit—were
protected as long as they did not inflict harm on others. In legal terms, this
principle was described as the doctrine of sic utere tuo ut alienum non laedus—or
simply the doctrine of sic utere. In theory, the doctrine of sic utere placed only
minor and exceptional limits on the exercise of liberties. In practice, however,
the exercise of private property rights in the modern industrial economy often
caused harm to others. The ratification of the Fourteenth Amendment coincided
with economic developments that made the security of property dependent on
market conditions. Credit and debt instruments, for example, were forms of
property in expected earnings. If a debtor defaulted, he had taken the property
of the creditor. Price instability meant that property in expected earnings was
always vulnerable. In the Gilded Age, the days were long gone in which a
property violation constituted simple trespass. But the doctrine of sic utere
21
offered little guidance as to how to distinguish between harm resulting from
economic competition, which it permitted, and an unconstitutional violation of
property rights.30
In addition, the Fourteenth Amendment combined with labor strife to
generate claims by factory owners that trade union activities such as strikes and
boycotts constituted illegal interference with the business owner’s property
rights in the conduct of interstate commerce. They argued that a free contract
between two willing parties had secured an agreement guiding the participation
of each in the use of the business owner’s capital equipment. The existence of
the contract extinguished any opportunity for workers to claim the owner’s use
of his property brought them harm.
Commons extensively researched the history of federal court decisions
before and during the industrial period, seeking to demonstrate and to
characterize a fundamental shift in the legal understanding of property and
property rights. Commons’s basic thesis was that even though courts continued
to invoke the doctrine of sic utere, their understanding of property rights no
longer referred to the rights to hold things for one’s exclusive use as long as it
did not harm others. In a highly specialized and interdependent economy, the
property rights that courts sanctioned were actually market values. Market
values remained stable in this era of copious production only when the owner
withheld much needed resources from others. In such an environment, the
exercise of property rights sic utere was the exception rather than the rule. If
judges routinely applied the doctrine of sic utere, either they had to resort to an
exceedingly narrow definition of that doctrine, or fewer and fewer cases would
pass such a test. To Commons’s mind, exposing the fiction of the sic utere
doctrine in law provided the means to reveal the fiction of just and natural
The vagueness of the sic utere doctrine, and its eventual collapse, are the
subject of Joseph William Singer, “The Legal Rights Debate in Analytical
Jurisprudence from Bentham to Hohfeld,” Wisconsin Law Review 1982 (6): 9751059.
30
22
distribution in economics. But more important, he hoped that it would make the
exclusive property claims of capitalists harder to sustain in court disputes with
workers and unions, and with state and local governments over labor legislation.
Commons identified the legal dilemmas that caused courts to move
towards increasingly abstract definitions of property and property rights in the
last two decades of the nineteenth century. The abstraction of property could be
characterized broadly as an understanding of property not as tangible things,
but as the market value of anything which could be bought or sold. Commons
contended that the increasing abstraction of property and property rights
demonstrated an appropriate response by judges confronting changing
economic institutions and relationships, and therefore, novel types of disputes.
But Commons was eager to point out that as court interpretations of property
and property rights became ever more abstract, it became harder to adjudicate
property cases according to the test of sic utere. By the turn of the century, the
abstraction of property had begun to unveil long-concealed contradictions in
orthodox jurisprudence forcing a resolution that would undermine the
intellectual and legal foundations of the policy of laissez-faire.31
Commons intended to undermine the assumption of exclusive property
rights for employers and to demonstrate, on the basis of a broad interpretation
of property, the property interests of workers. To begin this task, he traced the
transformation of the Supreme Court definition of property in three major
decisions: The Slaughterhouse Case (1873), Munn v. Illinois (1876), and the
Minnesota Rate Case (1890). None of these cases directly concerned the
distribution of wealth between employers and laborers. But in revealing a shift
in the understanding and adjudication of property disputes, they provided the
key to Commons’s major claim: that the development of property law did not
follow a neutral and objective course, as jurists claimed; rather, it conceded a
virtual hoarding of wealth by increasingly large and powerful corporations. By
31
Horwitz, The Transformation of American Law, 1870-1960, pp. 145-151.
23
the end of the century, the Supreme Court had recognized that the law often
favored corporations over consumers. But Commons hoped that the Court might
also someday be convinced that property law permitted an unjustified
redistribution of wealth at the expense of workers.
Slaughterhouse marked the first instance in which the Supreme Court was
called upon to give meaning to the Fourteenth Amendment. The case concerned
a Louisiana state law that granted an exclusive right to operate all of New
Orleans slaughterhouses to one company—ostensibly to protect public health—
and permitted that company to charge fees to other butchers to use the facilities.
The plaintiffs in the case, the New Orleans Butchers’ Benevolent Association,
argued that the law deprived them of both their liberty and their property in
violation of the due process clause of the Fourteenth Amendment. “The right to
labor,” they contended, “the right to one’s self physically and intellectually, and
to the product of one’s own faculties, is past doubt property, and property of a
sacred kind. Yet this property is destroyed by the act.”32 The destruction to
which they referred lay in the restrictions the Louisiana law imposed. The law
had “made it unlawful for men to use their own land for their own purposes” and
had thwarted the business of over a thousand individuals who “had qualified
themselves, had framed their arrangements in life, had invested their property,”
and on which they “had founded all their hopes of success on earth.”33 The
exercise of police power was illegitimate by the very definition of orthodox
police power jurisprudence, in that it took property from one class and granted
it to another.
In response to the plaintiffs’ expansive property claims, the majority
declared that “under no construction of that provision that we have ever seen, or
any that we deem admissible, can the restraint imposed by the State of Louisiana
upon the exercise of their trade by the butchers of New Orleans be held to be a
32
33
The Slaughterhouse Cases, 83 U.S. (16 Wall.) 36, 56 (1873).
83 U.S. (16 Wall.) 36, 48.
24
deprivation of property within the meaning of that provision.”34 The objection
of the majority was not to the claim that property included one’s labor power, or
even “the product of one’s own faculties.” It was rather that the plaintiffs made
claims to property rights that exceeded, in the court’s mind, the limits of the
doctrine of sic utere. As the majority stressed, the law “does not, as has been
asserted, prevent the butcher from doing his own slaughtering.” It merely
required that butchers use certain facilities to do their slaughtering, and pay
“reasonable,” regulated compensation, for their use—as well as prohibiting the
favored company from refusing the business of any butcher. “[I]t is not true,” the
majority asserted, that the law “deprives the butchers of the right to exercise
their trade, or imposes upon them any restriction incompatible with its
successful pursuit.”35 The Louisiana state law was merely a fair exercise of the
police power of the state in order to protect a well-defined public interest.
To Commons, the majority’s focus on the doctrine of sic utere was
misplaced. The central issue was instead whether property was to be defined as
“the use-value of physical things” or “exchange-value.” Commons focused
particular attention on the dissent offered by Justice Noah Swayne. In his
dissent, the Justice declared: “Property is everything which has exchangeable
value, and the right of property includes the power to dispose of it according to
the will of the owner.” Therefore, Commons concluded, “Justice Swayne defined
property as the exchange-value of one’s ability to work, and liberty as the right
to realize that exchange-value on the labor market.”36 In the context of this
particular case, the majority and the minority, without ever explicitly
acknowledging it, were subscribing to two fundamentally different conceptions
of property. In the majority’s case, property connoted the use-value of a thing.
In the minority’s case, it connoted exchange-value.
83 U.S. (16 Wall.) 36, 81.
83 U.S. (16 Wall.) 36, 60-61.
36 Commons, Legal Foundations of Capitalism, pp. 11-13.
34
35
25
In the 1876 case of Munn v. Illinois, the court faced a similar Fourteenth
Amendment challenge. In this instance, the Court ruled against a monopoly. But
in so far as the Court was interpreting the content of property and property
rights, Commons demonstrated that it ruled consistently with Slaughterhouse,
again assuming that the value of property indicated use-value, rather than
exchange-value. Plaintiffs contested an Illinois state law which fixed the
maximum prices warehouse companies could charge for the storage of grain.
They declared that by mandating the price warehouse companies could charge,
the law violated their rights to property under the Fifth and Fourteenth
Amendments. The Court upheld the law, however, ruling that warehouse
owners continued to receive “reasonable” compensation for their property; and
that so long as an owner received such compensation, “[w]hen the owner of
property devotes it to a use in which the public has an interest”—such as renting
his property to others for storage of grain—“he in effect grants to the public an
interest in such use.” The property-holder may withdraw the grant of public use,
but as long as it remains in effect “he must submit” to a degree of public
regulation consistent with his right to fair compensation, even if that
compensation was below what he expected to capture in the marketplace.37
The Munn Case galvanized the business community. But even to many
individuals outside the business world, this narrow conception of property
threatened potentially sweeping opportunities for public intrusion into the uses
of private property. As the volume of such cases increased, a movement began
to untangle an apparent collision between the doctrine of sic utere and the
realities of a market economy. A landmark in this movement was the publication
by John Lewis in 1888 of his Treatise on the Law of Eminent Domain in the United
States. In this treatise, Lewis argued that decisions defining property as tangible
things misunderstood the nature of property. The true nature of property had
never been corporeal; hence, judges needed to “look beyond the thing itself,
37
Munn v. Illinois, 94 U.S. 113, 126 (1876).
26
beyond the mere corporeal object, for the true idea of property.” As to that true
nature, Lewis contended that even the “dullest individual among the people
know and understands that his property in anything is a bundle of rights.” “If
property, then, consists, not in tangible things themselves, but in certain rights in
and appurtenant to those things, it follows that, when a person is deprived of any
of those rights, he is to that extent deprived of his property…though his title and
possession remain undisturbed.”38
Increasingly, Lewis’ provocative notion of property as “a bundle of rights”
made its way into court decisions. In the 1889 Minnesota Rate Case, the Supreme
Court reexamined the Munn Case and ruled this time that a state-mandated
reduction in warehouse rates was indeed a taking of property. As the majority
declared, the company was “deprived of the lawful use of its property, and thus,
in substance and effect, of the property itself.”39 As Commons expressed it, the
majority “now held, as they had not held in the Munn Case, that not merely
physical things are objects of property, but the expected earning power of those
things is property; and property is taken from the owner, not merely under the
power of eminent domain which takes title and possession, but also under police
power which takes its exchange-value.”40
The decision in the Minnesota Rate Case sealed the reversal of the
interpretation of property in Slaughterhouse—but foreshadowed in Justice
Swayne’s Slaughterhouse dissent—and set the precedent which would hold
throughout the 1890s and well into the twentieth century.41 Courts had
Horwitz, The Transformation of American Law, 1870-1960, p. 147.
Chicago, Milwaukee and St. Paul Railway Co. v. Minnesota, 134 U.S. 418, 458
(1889).
40 Commons, Legal Foundations of Capitalism, p. 16.
41 Horwitz identifies the contours of the transformation with different cases,
while agreeing with Commons’ characterization of the switch. Horwitz cites the
little noticed case of Pumpelly v. Green Bay Co., decided in 1871. This case
involved a property owner whose property value had plummeted due to
flooding allegedly caused by a government authorized dam. Horwitz, quoting
38
39
27
gradually slipped away from long-held assumptions about the nature of
property, heading into uncharted territory that would have important
consequences for the distribution of wealth in the next century. Commons
explained that tangible property had disappeared entirely, and that now
property was not a thing but “any of the expected activities implied with regard
to the thing owned, comprehended in the activities of acquiring, using, and
disposing of the thing.”42
As for Commons’s views on the nature of property, he rejected the
“primitive” orthodox definition of property to which the court had adhered in
both Slaughterhouse and Munn. In the latter case, the court had argued that
merely holding title to property did not incorporate “the right to fix the prices
for its use.” Commons contended: “To this Justice Field had rightly answered,
‘There is indeed no protection of any value under the constitutional provision
which does not extend to the use and income of the property, as well as to its
title and possession.’ For, of course, the title of ownership or the possession of
from the decision, states “Justice Samuel F. Mill wrote that ‘[I]t would be a very
curious and unsatisfactory result, if …the government… can destroy
[property’s]value entirely, can inflict irreparable and permanent injury…
without making any compensation, because, in the narrowest sense … it is not
taken for the public use…’” Horwitz continues: “Though the broadest
implications of Pumpelly only gradually emerged, the case immediately
presented a challenge to the prevailing idea that a taking constituted either a
physical trespass or appropriation of title. Instead, it soon came to stand for the
increasingly prevalent proposition that all restrictions on the use of property
that diminished its market value were takings in the constitutional sense.”
Horwitz demonstrates that Pumpelly formed the precedent for several cases in
the 1880s and early 1890s, culminating in Monongahela Navigation Co. v. U.S.,
decided in 1893. Commons indeed cites Monongahela later in Legal Foundations,
and characterizes it as an instance in which “a concept of justice was eventually
obtained by abandoning entirely the notion of physical things as property and
accepting as a substitute the concept of the present value of an expected
income.” See Horwitz, The Transformation of American Law, 1870-1960, p. 148;
and Commons, Legal Foundations of Capitalism, p. 182.
42 Commons, Legal Foundations of Capitalism, p. 18.
28
physical property is empty as a business asset if the owner is deprived of his
liberty to fix a price on the sale of the product of that property.”43
Commons agreed with the Minnesota Rate Case decision that the
exchange-value of an item should be considered property. But he cautioned
against the assumption that a single party to a transaction could alone determine
the value of his property. In other words, Commons did not agree that the right
to sell property in the marketplace and the right to a particular exchange-value
were equivalent. In the modern marketplace, selling property often constituted
the intended “use” of the property owner. As Commons explained, “when
property began to yield exchange-value as well as use-value, the term ‘uses’ was
simply enlarged by the courts to include it.”44 Buying and selling involved
others, however, and there was no legal mechanism to distinguish between
using property in a socially harmful way and exercising one’s liberties in a freely
competitive marketplace. As he saw it, the failure to distinguish between the
right to use property by selling it and the right to an expected exchange value lay
at the core of the contemporary confusion over the meaning of property and
property rights.
In making the distinction between use-value and exchange-value,
Commons attacked the neoclassical theory of distribution directly. Neoclassical
economists made no distinction between use-value and exchange-value; instead,
they specifically defined exchange-value as a social expression of use-value. But
Commons saw exchange-value as an expression of power in the marketplace—
not, as neoclassical economists did, the result of natural laws efficiently
allocating scarce products. In the neoclassical economic world, the individual
ranked his needs, calculating what he must procure to obtain maximum
satisfaction within the limits of his resources. The exchange-value of a product
was the expression of demand for that product in the context of scarcity—
43
44
Commons, Legal Foundations of Capitalism, p. 15.
Commons, Legal Foundations of Capitalism, p. 20.
29
demand measured by the aggregation of individuals in an economy ranking
needs to maximize satisfaction. According to this reasoning, exchange-value and
use-value meant exactly the same thing. Thus, the purchaser of land assumed
that the price at which he obtained the land constituted its precise social value to
a society producing needs and wants in an environment of scarcity. The
reduction in that value at the hands of market forces represented competition,
and hence, the adjustment of that land’s importance in procuring the needs and
wants of the aggregation of pleasure-maximizing individuals who made up the
society. Any government action that reduced the value of the land, however, was
seen as interference with the natural distribution of wealth. As such,
government action was construed as the seizure of the property’s natural value,
and hence of the property itself.
To Commons, the equation of value with market price was a tautology.
Borrowing from the institutional economist Thorstein Veblen, Commons argued
that industrial capitalism was not structured to produce goods for their usevalue; it was designed instead to produce exchange-value.45 Producers
manipulated production in order to obtain higher prices. Exchange-value was
not “just price”—it was the result of conditions that created a relative bargaining
leverage of buyer and seller at any given moment. Exchange-value was not
embodied in the product, as neoclassicists assumed. Hence, to argue that laws
that diminished expected exchange-value violated an owner’s natural right in
property made sense in the neoclassical world, but to Commons this argument
claimed a Constitutional right to existing bargaining leverage. Put another way,
it declared the right to maintain one’s power over others in the marketplace.
In Slaughterhouse, Commons could contend, as dissenters had, that one’s
calling was one’s property right. But to argue, as Judge Swayze had, that the
property right lay in the exchange-value of the labor was something different
See Thorstein Veblen, The Theory of Business Enterprise (New York: Charles
Scribner, 1904).
45
30
entirely. Within the context of Slaughterhouse, an abstract notion of property
would have assisted the labor side of the case. But for the low-skilled industrial
laborers who were Commons’s principal concern, the prevailing exchange-value
generally amounted to a poverty wage. The extraordinarily expansive definition
of property, with all its potentially negative social consequences, invited
rebuttals to show that a definition of property as market value was
unsustainable.46
Commons argued that because exchange-value depended on the
marketplace, equating property with exchange-value suggested that property
achieved its value not as an independent entity, but rather, only in relation to
other property. Second, since exchange-value depended on supply and demand
in markets—and was generally enhanced by limitation of supply—this meant
that what courts called property was just as accurately described as a measure
of economic power. Both these points illustrated the way in which to claim a
property right to market value forced the legal system to acknowledge that it
was attempting to adjudicate conflicts with ideological tools which did not
recognize the existence of conflict in the private sphere. In other words,
orthodox jurisprudence assumed a Smithian private sphere in which the
aggregate actions of self-interested individuals produced not legal battles, but
harmony.
This vaguely felt dilemma was addressed in a landmark article published
in 1913 by Yale Law School Professor Wesley N. Hohfeld.47 Hohfeld posited the
existence not of discrete rights protected according to the doctrine of sic utere,
but of a system of “jural relations” between and among individuals and groups.
Horwitz, The Transformation of American Law, 1870-1960, pp. 151-152.
Wesley N. Hohfeld, “Some Fundamental Legal Conceptions as Applied in
Judicial Reasoning, 23 Yale Law Journal 16, 30 (1913). For a summary of
Hohfeld’s argument, see Joseph William Singer, “The Legal Rights Debate in
Analytical Jurisprudence from Bentham to Hohfeld,” 1982 Wisconsin Law Review
975.
46
47
31
For progressive jurists, as well as for Commons, Hohfeld’s system of jural
relations gave clarity and concrete form to the problems of sic utere by
deconstructing the actual content of the rights and liberties courts had
construed in recent decades. In positing the system of jural relations, Hohfeld
explicitly recognized what orthodox jurisprudence had not: that far from
protecting property rights sic utere, the American legal system permitted
numerous instances of harm; and that such instances were not rare or
exceptional, but rather the norm. The classical liberals John Stuart Mill, Jeremy
Bentham, and John Austin explained sic utere by positing the existence of two
types of actions: the self-regarding, which had legal protection, and the otherregarding, which did not have legal protection.48 A “liberty” protecting a selfregarding act automatically conferred a corresponding “duty” on all others not to
interfere in that act. This argument posited that all protected liberties were
guaranteed against interference from others. But they either did not recognize
the existence of liberties for which there was no corresponding duty, or they
maintained that where such liberties existed, they should necessarily be
corroborated by duties. Stated another way, they either did not recognize, or did
not advocate harms for which the legal system offered no redress. In
Institutional Economics, Commons complained that Bentham, for example, had
equated private utility with public utility in all circumstances. His “concept of
national wealth excluded scarcity and bargaining, and included only the sum of
all private production of use-values” and he believed that “the interest of the
community is only an arithmetic sum of individual interests—not an expectation
of transactions between individuals as members of a going concern.”
Contradicting his own argument, Bentham assumed that in all such instances the
policy arguments for allowing one person to harm the other would also justify
requiring the victim to submit to the harm and preventing others from
48
Singer, p. 984.
32
interfering. He did not see that there could be any policy arguments against
corroboration either of powers or of liberties.49
Hohfeld incorporated such harms—damnum absque injuria—into the
description of current legal rules and offered a justification for them. Hohfeld
began his argument with the contention that a right involved more than simply
the person possessing that right. Considering more deeply the implications of
rights, Hohfeld argued that a right was not merely a freedom for an individual
(or individual entity, such as a corporation) to act in a particular way, but a
sanction compelling others to act in a particular way with respect to the rightholder. In other words, rights were not simply legal entitlements for rightholders, but instances of jural relations. The entire jural relation consisted of
two jural “correlatives.” In the case of a right held by one, the jural correlative
was a duty held by all others. Thus, one did not speak simply of “rights,” but of
the jural relation, rights and duties.50
This led to Hohfeld’s central contention. The core of the current
confusion over property rights, he argued, derived from a confusion between
rights and liberties. Rights imposed duties on others. But liberty, Hohfeld
maintained, was merely a “privilege.” A privilege, in turn, was merely the
permission to act in a certain way, but did not impose duties on others. If one
had the legal liberty to commit a certain act, it did not necessarily mean that
others had an obligation not to interfere with that act. Legal liberties could no
longer be justified because they referred to acts which did not harm others.
Rather, they had to be upheld and enforced as a matter of policy in the belief that
one individual’s (or group’s) liberty to perform certain acts was a more valuable
social objective than another’s liberty.51
John R. Commons, Institutional Economics (New York: Macmillan, 1934), p.
225; Singer, p. 1008.
50 Singer, pp. 986-987.
51 Singer, p. 988.
49
33
While Hohfeld himself did not attribute to his work any political goals, he
gave form to the most radical implications of the abstraction of property.52 He
demonstrated that property was now not even a monetary value; property was
instead a social relationship.53 Commons adopted Hohfeld’s system of jural
relations, with minor adjustments, in his analysis of the nature of the economic
transaction. Commons’s goal was “the enlargement of individual wills” involved
in transactions, which in the context of his day meant the curtailment of the
power of employers in order to enlarge the sphere of liberty for workers.
Paraphrasing Hohfeld, Commons wrote: “Liberty is absence of restraint or
compulsion, or duty, and is equivalent to the exercise of power.” Commons
pointed out that courts had declared unconstitutional a host of labor laws
because they interfered with liberty. He rebutted: “They do indeed restrict
liberty.” But liberty, again, was an exercise of power; and legislatures were
merely trying to curb an exercise of power, in this case, the power of property, or
rather, “the economic power to withhold from others what belongs to self but is
needed by others.”54 In essence, property rights were rather property liberties.
The concept of withholding was an important one, and was linked to
Commons’ conception of exchange-value as a reflection of bargaining power. As
Commons explained, “[t]he change in the concept of property from physical
things to the exchange-value of things is a change from a concept of holding
things for one’s own use to withholding things from others’ use.” This transition,
he continued,
accompanies the historical evolution of property from slavery,
Gregory S. Alexander, Commodity and Propriety: Competing Visions of Property
in American Legal Thought, 1776-1970 (Chicago: University of Chicago Press,
1997), p. 313.
53 Hohfeld and Ely probably made the claim that property was a social
relationship simultaneously and independently of one another. Alexander does
indicate that Ely technically made the claim before Hohfeld. See Alexander, p.
325.
54 Commons, Legal Foundations of Capitalism, p. 33.
52
34
feudalism, colonialism and a sparse population, to marketing,
business, and the pressure of population on limited resources.
Where production was isolated, or the owner held under his control
all of the material things as well as the laborers necessary to the
support of himself and dependents, the concept of exclusive holding
for self was a workable definition of property. But when markets
expanded, when laborers were emancipated, when people began to
live by bargain and sale, when population increased and all resources
became private property, then the power to withhold from others
emerged gradually from that of exclusive holding for self as an
economic attribute of property.55
If property-ownership entailed the ability to withhold, the use of property
sic utere was increasingly the exception rather than the rule. One’s use of one’s
property in a market system was rarely a private and more often a social act.
The Court recognized this reality in the 1876 case of Munn v. Illinois,
which Commons cited as the first time in which “it came to be seen that this
liberty of private property meant also the economic power of private property.”
Although he considered Munn to be a milestone, it remained to be seen whether
this decision, which regulated private property when the interests of customers
were involved, would be applied to the regulation of private property when the
property-owners’ employees were concerned. For as it stood at the time, a
corporation could successfully prevent the institution of a minimum wage, for
example, by declaring it an unconstitutional confiscation of its property. Union
activity to raise wages could similarly be forestalled if it interfered with an
employer’s property in expected income. In short, few in either business or the
legal profession questioned the conviction that labor’s market wages—and
business claims to property—simply reflected natural law. But if one accepted
55
Commons, Legal Foundations of Capitalism, pp. 52-53.
35
that the use of property was an exercise of power—as the majority had done in
Munn—it seemed to follow that Court protection of the prevailing working rules
of distribution could not endure forever.
IV.
Commons’s Legal Foundations of Capitalism unveiled the fundamental
shift in the meaning of property from the right to hold for one’s use to the right
to withhold from others’ use. Beginning in the progressive era and culminating
in the 1930s, a rebellion within the legal establishment took hold that received a
significant boost from the works of Ely and Commons. The rebellion of
progressive jurists against orthodox legal thinking mirrored the institutional
economists’ repudiation of classical and neoclassical economics. Just as
institutionalists rejected natural law in favor of the study of society as it actually
existed, progressive jurists debunked the claim of orthodox legal thought to a
natural, neutral form of justice. Progressive legal scholars, who often assigned
the works of Ely and Commons in their classes, focused attention on the
historical development of the law, the role of powerful interests in shaping the
law, and the social consequences of orthodox jurisprudence. In the late 1930s,
their thinking would make a significant mark on the decisions rendered by
American courts, including the United States Supreme Court.56 This shift in legal
thinking would finally permit many of the legislative inventions that Commons
and others envisioned to recoup labor’s lost exchange-value.
Alexander makes the case that Ely and Commons had a significant influence on
developments in progressive legal scholarship. He even goes so far as to claim
that the legal realist movement of the 1930s was “largely an extension of the
project of Progressives like Ely and Commons.” Moreover, “[t]heir discussions of
the relationship between property and power added little to what Ely and
Commons had already said.” See Alexander, pp. 333-334, 350.
56
36
Legal Foundations of Capitalism was not the starting point of Commons’s
career, but rather its culmination. The book was to provide a coherent
theoretical justification for two decades of public work designed to enhance and
protect the jobs, incomes and livelihoods of industrial laborers.57 Drawing on
the concept of intangible corporate property, Commons argued that a worker’s
property in his or her labor power also constituted intangible property. From
this initial observation, Commons pursued reforms along two general paths. The
first was to protect the freedoms of individual workers to leverage the value of
their property-in-labor by acting collectively. Commons began a quest in the
1910s, taken up by his students in the 1920s and 1930s, to win constitutional
sanction for the right of workers to organize. As Commons saw it, such a right
was exactly analogous to the right of capital investors to organize into
corporations. But since the late nineteenth century, American courts had
uniformly rejected any such line of reasoning, arguing that such organization
inherently damaged employers’ intangible property rights.
The second application concerned the protection of the property-in-labor
of individual workers, whether part of a trade union or not. The idea that
individual workers had such property rights was particularly useful in
protecting workers from destitution following unemployment and in securing a
compulsory minimum wage. The minimum wage protected the worker’s
property-in-labor by compelling payment sufficient to preserve the worker’s
viability. As for unemployment compensation, Commons again drew an analogy
between laborers and capital investors, by comparing the payment of dividends
on idle capital to what could become the payment of compensation to
See Commons, Legal Foundations of Capitalism, Preface; and Joseph Dorfman,
The Economic Mind in American Civilization, volume 4 (New York: Viking Press,
1959), p. 387. For a complete discussion of Commons’s public activities in
Wisconsin and elsewhere, see Lafayette G. Harter, Jr., John R. Commons: His
Assault on Laissez-Faire (Corvallis, Oregon: Oregon State University Press, 1962),
pp. 71-77; 89-129.
57
37
unemployed workers. Although the amount of compensation would be subject
to the discretion of a public commission, the principle of unemployment
compensation itself would reflect the idea that workers held intangible property
in the use of their labor power.