Part XI. The Institution of Douglass North

Chapters 25-28 from:
Bourgeois Dignity and Liberty: Why Economics Can’t Explain the Modern World
[Vol. 2 of The Bourgeois Era]

Abstract

North, with many other Samuelsonian economists, thinks of "institutions” as budget constraints in a maximization problem. But as Clifford Geertz put it, an institution such as a toll for safe passage is "rather more than a mere payment,” that is, a mere monetary constraint. "It was part of a whole complex of moral rituals, customs with the force of law and the weight of sanctity.” The Geertzian metaphor of negotiation and ritual makes more sense than the metaphor of a mere budget constraint. Meaning matters. North in particular thinks that the budget line of anti-property violence was shifted in the late 17th century. It was not: on the contrary, England was a land of property rights from the beginning. So "institutional change” does not explain the Industrial Revolution. The timing is wrong. Incentive (Prudence Only) is not the main story, and cannot be the main story without contradiction: if it was Prudence Only the Industrial Revolution would have happened earlier, or elsewhere. Other virtues and vices mattered — not only prudence, beloved of the Samuelsonians; but temperance, courage, justice, faith, hope, and love, which changed radically in their disposition in the seventeenth and eighteenth centuries. Sheer commercial expansion is routine and predictable and ill-suited therefore to explaining the greatest surprise in economic history. The Glorious Revolution of 1689, which North and Weingast have cast in a central role, merely made the British state effective. It did not change property rights, as economists such as Darin Acemoglou have supposed, on the basis of North's tale. North praises patents and incorporation laws, neither of which had much impact in the Industrial Revolution. The 18th century, in other words, was not a century of "institutional change.” Nor is the entire absence of property relevant to the place or period. Richard Pipes argued it was relevant, on the basis of the Russian case. Yet only in society's dominated by Steppe nomads was property weak—in Europe in the 16th and 17th centuries, as in China then, it had been strong for centuries past. The Stuarts were not princes of Muscovy. And indeed private property characterizes all settled human societies.

One thought on “Part XI. The Institution of Douglass North

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