History matters. It matters not just because we can learn from the past, but because the present and the future are connected to the past by the continuity of a society's institutions. Today's and tomorrow's choices are shaped by the past. And the past can only be made intelligible as a story of institutional evolution. Integrating institutions into economic theory and economic history is an essential step in improving that theory and history.

This study provides the outline of a theory of institutions and institutional change. Although it builds on the earlier studies of institutions that have been the focus of my attention for the past twenty years, it delves much more deeply than the earlier studies into the nature of political and economic institutions and how they change. The specification of exactly what institutions are, how they differ from organizations, and how they influence transaction and production costs is the key to much of the analysis.

The central focus is on the problem of human cooperation – specifically the cooperation that permits economies to capture the gains from trade that were the key to Adam Smith's Wealth of Nations. The evolution of institutions that create an hospitable environment for cooperative solutions to complex exchange provides for economic growth. Not all human cooperation is socially productive, of course; indeed, this study is concerned as much with explaining the evolution of institutional frameworks that induce economic stagnation and decline as with accounting for the successes.