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Institutional Change and Economic Growth

Published online by Cambridge University Press:  11 May 2010

Douglass C. North
Douglass C. North
Affiliation:
University of Washington
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Extract

The meteoric rise of the new economic history reflects the fact that historians abhor a vacuum and sometimes it seems to reflect an even baser instinct that any theory is better than no theory. Of course, any explanation always uses theory; however, it was usually implicit and frequently a bouillabaisse in which Marx, Veblen and the German historical school floated around in as equally indigestible lumps. But the combination of an internally consistent paradigm based on a few simple assumptions and the mysteries of econometrics simply overwhelmed the older historian, as much as anything else, because he could not understand the rules of the game, much less play it. But even while the new breed was destroying one traditional explanation after another, the traditional historian even in retreat kept muttering over and over, “But you are destroying the existing myths without replacing them. Soon there will be no explanation—no economic history—just an immense heap of numbers.” And sometimes, plaintively from the left flank of the retreating historians, there would come the cry, “But institutions ARE important!”

Type
Economic History: Retrospect and Prospect. Papers Presented at the Thirtieth Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 31 , Issue 1 , March 1971 , pp. 118 - 125
Copyright
Copyright © The Economic History Association 1971

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References

1 These extensions of economic theory have been applied to economic history in two recent articles: Davis, Lance E. and North, Douglass C., “Institutional Change and American Economic Growth: A First Step Towards a Theory of Innovation,” The Journal of Economic History (March 1970), pp. 131—149CrossRefGoogle Scholar [hereafter cited as, Davis and North, “Institutional Change….,” JEH (March 1970)]; North, Douglass C. and Thomas, Robert P., “An Economic Theory of the Growth of the Western World,” Economic History Review, XXIII, 1 (April 1970), pp. 1–17CrossRefGoogle Scholar [hereafter cited as North and Thomas, “An Economic Theory….,” EHR (April 1970)]; Davis, Lance E. and North, Douglass C., Institutional Change and American Economic Growth (Cambridge: Cambridge University Press, 1971)CrossRefGoogle Scholar [hereafter cited as Davis and North, Change and Growth]; and North, Douglass C. and Thoma, Robert P., The Rise of the Western World: A New Economic History (New York: The Free Press, forthcoming)Google Scholar [hereafter cited as North and Thomas, Rise of Western World],

2 For an exposition of the model and the sources of desequilibrium which change the benefits and the costs to make it worthwhile to innovate these institutional arrangements, see Davis and North, Change and Growth.

3 The two forces of technology and institutional innovation are frequently interdependent since new technology frequently was the source of disequilibrium which made it profitable to innovate an institutional arrangement.

4 Douglass C. North, “Productivity Change in Ocean Shipping 1600–1850,” Journal of Political Economy (September-October 1968), pp. 953–970; also, in the Chapter on Service Industries, we have attempted to measure the changing organizational efficiency of the cotton trade in the nineteenth century. Davis and North, Change and Growth, ch. ix.

5 Since almost all institutional arrangements involve some income redistribution, the likelihood of their realization is going to be affected by the size and distribution of losses. Davis and North, Change and Growth, chapter ii.

6 In our forthcoming book, Lance Davis and I explore briefly the source of success of extra-legal or illegal institutional arrangements in the history of American land policy.

7 In our forthcoming book, Lance Davis and I explore the changing public/private mix over the past one hundred and eighty years (chapter xi).

8 “The Rise and Fall of the Manorial System: A Theoretical Model.”

9 Although, it wasn't until the 1920's that some of the formal language of feudal land law was finally eliminated.