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The Institution of Douglass North

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  • McCloskey, Deirdre Nansen
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    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.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21768.

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    Date of creation: Jul 2009
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    Handle: RePEc:pra:mprapa:21768

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    Keywords: Douglass North; Industrial Revolution; institutions; Clifford Geertz; institutional change; virtues;

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    1. William D. Nordhaus, 2004. "Schumpeterian Profits in the American Economy: Theory and Measurement," NBER Working Papers 10433, National Bureau of Economic Research, Inc.
    2. Goldsmith, Raymond W, 1984. "An Estimate of the Size and Structure of the National Product of the Early Roman Empire," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(3), pages 263-88, September.
    3. Ann M. Carlos & Frank D. Lewis, 1999. "Property Rights, Competition and Depletion in the Eighteenth-Century Canadian Fur Trade: The Role of the European Market," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 705-728, May.
    4. Gregory Clark, 2007. "A Review of Avner Greif's Institutions and the Path to the Modern Economy: Lessons from Medieval Trade," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 725-741, September.
    5. Nuvolari, A., 2001. "Collective Invention during the British Industrial Revolution: The Case of the Cornish Pumping Engine," Eindhoven Center for Innovation Studies (ECIS) working paper series 01.04, Eindhoven Center for Innovation Studies (ECIS).
    6. Migheli, Matteo, 2009. "The two sides of a ghost: Twenty years without the wall," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 125, Institute of Public Policy and Public Choice - POLIS.
    7. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
    8. Nuvolari, A., 2004. "Collective invention during the British Industrial Revolution: the case of the Cornish pumping engine," Working Papers, Eindhoven Center for Innovation Studies 04.02, Eindhoven Center for Innovation Studies.
    9. Allen, Robert C., 1983. "Collective invention," Journal of Economic Behavior & Organization, Elsevier, vol. 4(1), pages 1-24, March.
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