The History of Economic Thought
Online ISSN : 1884-7358
Print ISSN : 1880-3164
ISSN-L : 1880-3164
John R. Commons’ Early Monetary Reform
Ryuichiro Terakawa
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JOURNAL OPEN ACCESS

2019 Volume 60 Issue 2 Pages 20-41

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Abstract

Abstract: While John R. Commons (1862―1945) is well known for his studies on American labor and Anglo-American economic law, even researchers of the history of economic thought are unfamiliar with his career-long devotion to the study of monetary questions. It was not until the 1990s that a few researchers discovered that Commons, in his later years, developed the concept of endogenous money, according to which money is a dynamic process that gets created, transferred, and extinguished alongside ongoing economic transactions. However, it is still unclear how he developed the concept in his long career as an economist. To tackle this question, this study focuses on Commons in his earliest days and reexamines his works on monetary reform published in the aftermath of the financial panic of 1893.   The salient features of Commons’ money reform plan can be summarized as follows: (1) adopting “bullion notes” as base monies that are redeemable in silver at its market price, and (2) establishing a monetary commission that compiles the price index and accordingly keeps the average price at a constant level through the silver bullion open market operations. To understand the true scope of the plan, this study revisits its historical context, that is, the establishment of the international gold standard after 1873, the 1893 banking and dollar crisis, and the debate on the national banking currency after the crisis. It eventually demonstrates Commons’ early theory of money and credit, which underlies his reform plan. The study finds that Commons takes a nominalist position on the nature of money, adopts an endogenous approach on credit money supply, and recognizes a governmental role in credit administration in his money reform plan. JEL classification numbers: B15, B31, E42.

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© 2019 The Japanease Society for the History of Economic Thought
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