<p>This paper examines John R. Commons’ social security theory through the lens of transaction economics. Based on his involvement in Wisconsin’s pioneering workers’ accident compensation (1911) and unemployment compensation (1932) legislation, Commons developed a distinctive approach emphasizing prevention over compensation and equal stakeholder participation in rule-making. The study demonstrates how Commons’ social security theory integrates with its institutional economics framework through four interconnected phases. In the political-legislative phase, rationing transactions creates reasonable value through stakeholder negotiations. This generates goodwill among going concerns during the ethical phase, as parties develop mutually beneficial relationships. The economic phase follows, where improved efficiency increases expected profits. Finally, the social-legal phase addresses disputes and outdated rules through judicial review and legislative revision. Commons’ framework dynamically explains how social security operates across political, legal, ethical, economic, and social dimensions. His emphasis on prevention, administrative commissions over courts, and company-specific accountability influenced American social security development, particularly the federal Social Security Act of 1935. His theory reveals social security’s broader economic impact beyond its political and ethical dimensions.</p>