Economic Nature of the Cooperative Association

Abstract

HE cooperative association is an association of firms or households for business purposes-an economic institution through which economic activity is conducted in the pursuit of economic objectives. An understanding of economic concepts is basic to the sound organization and operation of cooperatives, and to public policies toward cooperative activity which are consistent with society's objectives. Much has been written about cooperative activity, but the literature is dominated by socio-reformistic, historical, and descriptive interpretations. The so-called basic principles of cooperation are referred to frequently and with considerable ardor. Seldom is their significance seriously questioned. Economic theorists have seldom addressed themselves specifically to the cooperative association. Where cooperative activity has been mentioned at all, the cooperative has been treated as a special kind of corporation, covered quite adequately by the general theory of the firm. As Aizsilnieks has suggested,' such a treatment led Clark2 to generalizations regarding the effect of cooperatives on general welfare which are difficult to justify, at least until further analysis has been made. This article attempts to develop, on the basis of the contemporary economic theory of the firm-but with adaptation to the cooperative structure-a realistic, workable, and reasonably complete theory of the economic nature of the cooperative association. This theoretical framework involves: (1) the economic structure of the cooperative association; (2) the economic relationships among the participating units; and (3) the conditions necessary for profit maximization in the cooperating firms.