Preface to Soocial Economics by John Maurice Clark

Author:John Maurice Clark
Language: eng
Format: epub
Publisher: Routledge
Published: 2017-03-15T00:00:00+00:00

5 The Dynamic Concept of a Transaction

The basic element of economic life—a transaction of exchange—is so complex and varied as to be inadequately represented by any simple stereotype of “free exchange.” Freedom implies that neither party is dependent on relations with the other, and that a refusal to accept a given offer will leave tolerable alternatives open.7 But as such relations become habitual people become in a real sense dependent on their continuance, and the refusal of an employer to continue dealing with an employee, in certain states of the labor market, may leave him an alternative which is anything but tolerable. There is real compulsion in such a situation. Under competition, the compulsion is not the arbitrary doing of any one employer, but employers as a group may benefit by it; and competition is not perfect enough to prevent all compulsion of a more personal sort.

Further, a transaction is supposed to be agreed to by both parties, but actual transactions often include many matters in which one or both of the parties exercise no choice or have no effective option. The terms and conditions of employment have never been very largely determined by free individual bargain, but rather by the custom of the trade, by the changing techniques of production at the command of the employer, by social legislation and, of late, by collective bargaining, which is not an individual affair, and involves all the problems and difficulties of representative government. In some respects, what we have is not so much a system of free contract as one of standardized relations, into which one is free to enter or not, (subject to the general compulsion of entering into some relations in order to get a living), but many of the terms of which one is not free to change. And the methods of settling these standard terms, and the interests which control them, are evolving continually.

The power to withhold, which is the key to the meaning of liberty, itself varies with changing economic conditions and legal institutions. Also the freedom of third parties— their immunity from having their interests infringed—is not absolute, and is itself evolving with the development of new kinds of injuries and new kinds of protections. The Federal Reserve System, a collective and not an individualistic institution, is one way of protecting business men from being caught in a panic as the result of the things other business men have done; and this protection could not be afforded by any more individualistic method.

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