Doug North has died

by Henry on November 24, 2015

Obituary here (via Tyler Cowen). He was a fascinating and very important writer and thinker, although his final two books were not as strong as his earlier work. The politics of his ideas are complicated – on the one hand moving away from the efficiency arguments of markets towards political processes of institutional formation, but on the other never precisely able to decide whether and when these political institutions were guided by a logic of lowering transaction costs or by the desire of powerful actors to reap distributional benefits. Path dependence in his work serves more as a stand-in for an explanation than an explanation in its own right, especially given the continuing question (not really resolved in his work or the work of those he influenced) as to why some economies (by his account) changed and began to develop towards the rule of law while others did not. Still, even if he didn’t explain this, no-one else has done an especially good job either. One thing that is likely to get overlooked in his work is his continued engagement with the left. The first time I had had a serious conversation with him, he described himself as a “Marxist of the right,” which seems correct to me (I’m pretty sure I’m not the only person he used this self-description with). There’s a good essay to be written on his encounter with Karl Polanyi – this essay (PDF) disagreeing with Polanyi contains the seeds of some of his most crucial arguments. He will be missed.

{ 25 comments }

1

jake the antisoshul soshulist 11.24.15 at 10:08 pm

Not being familiar with North, I am a little curious as to what a “Marxist of the right” would be.

2

Rakesh Bhandari 11.24.15 at 10:36 pm

North as the Marxist of the Right and Robert Brenner as the Marxist of the left, on both of whom Acemoglu and Robinson draw in their non-Marxist institutionalism, vs. Robert C. Allen on whether new agraian institutions in England underpinned the productivity growth that made the Industrial Revolution possible.

3

Rakesh Bhandari 11.25.15 at 1:16 am

Acemoglu and Robinson:
“Our work in general, and Why Nations Fail in particular, built on North’s seminal ideas (for example, those in Structure and Change in Economic History and on North and Weingast’s seminal paper in 1989 Journal of Economic History as well as on North, Wallis and Weingast (NWW). But there are also major differences — which would have been really obvious to Fukuyama. The most important one is about the role of politics. In our book, we argue that a framework built on the primacy of politics — political institutions being forged and changing as a result of conflict and in turn shaping economic institutions and then innovation and investment — will go a long way. Our framework also clarifies that what we call extractive institutions are there by design. NWW put much more emphasis on economic and social factors. For example, their concept of “open access order,” far from being similar to “inclusive political institutions” as Fukuyama argues, is defined as a “social order” similar to Seymore Martin Lipset’s “development complex” (page 3). In particular, NWW emphasize the existence of business and other non-government organizations, impersonal exchange and beliefs supporting cooperation in society as the foundations of “open access orders”.

Though our work owes much to North and his co-authors, it is disingenious to imply that we have just re-created their argument under a different guise. In fact, NWW are themselves very explicit that when they talk of political change, they build on our past work, in particular our earlier book, Economic Origins of Dictatorship and Democracy as well as our earlier work (see, for example, their Chapter 5).

Overall, it should be clear that our work, though it builds on NWW, takes a different approach, and the two works not only build on each other but are quite complementary.”

4

Donald A. Coffin 11.25.15 at 3:49 am

My first contact with Douglass North’s work came, unsurprisingly, as a graduate student (at West Virginia University) in 1971, in the American Economic History sequence. We read The Economic Growth of the United States, 1790–1860 and I read Growth and Welfare in the American Past pretty much immediately after its publication, which I thought were both absolutely brilliant (I was, or course, not alone in that judgment). In the regional economics sequence, I read “Location Theory and Regional Economic Growth,” which is also brilliant. I subsequently read a bunch of his other books and unfailingly learned a great deal. In my opinion, he was the greatest historian of the American economy ever (and in saying this, I am paying insufficient attention to the bulk of his work), and I an saddened by his passing.

5

LFC 11.25.15 at 4:04 am

from the OP:
There’s a good essay to be written on his encounter with Karl Polanyi

I haven’t read it, but there’s a paper on North and Polanyi available on academia.edu; link to the author’s page:
https://eth-mpg.academia.edu/MatthijsKrul

6

Lee A. Arnold 11.25.15 at 12:51 pm

Sad. Institutions, Institutional Change and Economic Performance is the only book I’ve ever found that correctly (IMHO) includes “transformation costs” with “transaction costs”.

North, Polanyi, Coase found the seeds of the economics of the future. I think we must add Mach, due to an interesting little subsection called “The Economy of Science” in the book, The Science of Mechanics. Also Babbage, “On the Influence of Signs in Mathematical Reasoning”, because language is the pre-eminent cost-saving institution.

This will argue for a notably expanded redefinition of “institution”, and possibly a new typology of the ways in which costs are saved.

I would have liked North to see the following video animation, which, as it happens, I just finished yesterday. It portrays “institution” as a functional center, the center of any group structure, which automatically always raises economic and distributional issues:

7

jake the antisoshul soshulist 11.25.15 at 3:02 pm

I suppose I was asking what would commonalities did he share with Marx?
Being from the Right, I assume he would not favor government intervention in markets.
Did he view history in terms of Capital vs. Labor? Or just draw assumptions from
the economic history? 4th grade level , please.

8

bjssp 11.25.15 at 4:14 pm

I feel like I remember seeing his name on some of those petitions of economists that usually circulate around election time, but for the Democrats. For whatever reason, the Democratic petitions seem to collect a larger number of big names, and there was at least one guy who had an affiliation with the Hoover Institute that was on a few of them. Seemed kind of odd.

9

Rakesh Bhandari 11.25.15 at 4:49 pm

From the Economist:
“Mr North set about to construct a new way of thinking about economic interactions that could explain long-run economic divergence. Like his contemporary Coase, Mr North understood that the transaction costs and frictions of the real world ruled out ideal solutions. He then set about exploring the ways in which societies created institutions to help ameliorate the problems created by these imperfections. As trade expanded in the Middle Ages, traders found themselves in need of ways to overcome all sorts of market shortcomings: to determine who was creditworthy, whose goods were of high or poor quality, which merchants were good partners for risky trade voyages, and so on. Different societies developed different institutional approaches to managing these problems: like common merchant codes and repositories of records tracking traders who ran afoul of it. Mr North studied the conditions under which such solutions might arise and be sustained (or lead to defections and collapse).

Institutions are persistent, he noted. Institutions developed as a response to one set of historical circumstances could inhibit development later on. Or encourage it; Mr North emphasised the role of Britain’s Glorious Revolution in supporting British economic development. When Parliament conspired to replace King James II with William of Orange, that demonstrated the enhanced power of the legislature relative to the monarch, which in turn sent a credible signal that the monarch could be prevented in future from exproporiating private wealth in a time of fiscal need. That constraint, he reckoned, was crucial in asserting the rule of law and the security of private property, clearing the way for Britain’s economic revolution.”

James Robinson agrees on the importance of the Glorious Revolution but specifies different reasons for its importance. Others such as Peer Vries and Robert Allen think its importance has been exaggerated as a precipitant of the Industrial Revolution. The mercantilist-imperial state and factor prices are alternative explanatory variables.

10

Rakesh Bhandari 11.25.15 at 4:54 pm

11

Rakesh Bhandari 11.25.15 at 8:20 pm

I am having doubts that what North, Wallis and Weingast (Journal of Democracy > Volume 20, Number 1, January 2009) are calling historical and contemporary examples of emergent open access orders will ultimately be judged persuasive in light of the historical researches of Thomas Piketty on patrimonial capitalism (how can an order be described as open access and impersonal or “inclusive” in Acemoglu and Robinson’s language when increasingly power and income again are determined personally, i.e. through gifts and inheritance determined by kinship) and Sven Beckert on war capitalism (it seems that North, et al do not discuss at length the use of external violence such war-making, slave trading and colonization in the making of the modern world).

12

Lee A. Arnold 11.25.15 at 11:37 pm

If risk reduction is a part of cost-reduction, which is what institutions are formed to do for the transactions under their purview, then certainly a war to protect the extension of markets into foreign lands, is a cost-saving measure from the viewpoint of the center of the imperial realm. It is always from the viewpoint of the center that is perpetrating the cost-reduction. Institutional thinking does not automatically confer moral status; the use of the market institution does not immediately confer moral status. It is a description of an unalterable way that epistemology works, not an absolute rule for conduct or policy.

13

Maria 11.27.15 at 11:12 am

I’m far from versed in subsequent debates and so can’t triangulate Institutions, Institutional Change and Economic Performance in terms of what it didn’t manage to do. But from the point at which Henry introduced me to the book (and the man) about fifteen years ago, it’s provided a really helpful way for me to think about political and institutional change as I’ve gone through my career.

The one time I met him, Doug was at an APSA reception in Washington, complaining fondly that his wife had dragged him away from TV baseball to come and meet people. He came across as surprisingly warm and home-spun, given the depth and breadth of his biggest book, and was a lovely, open and interested conversationalist. RIP.

14

Daniel Tompkins 11.27.15 at 3:06 pm

I’m glad to have Henry Farrell’s note and the comments as well. Douglass North also wrote a brief review of Polanyi’s Livelihood of Man: Business History Review 52.3 (1978) 398-9. He criticized Polanyi but said some very positive things as well. “Livelihood” was a posthumous publication that some acquaintances, including Moses Finley, thought should not be published, since the arguments were not worked out. Against that background, North’s positive remarks stand out.

Dan Tompkins

15

LFC 11.27.15 at 4:05 pm

R Bhandari @11
it seems that North, et al do not discuss at length the use of external violence such as war-making, slave trading and colonization in the making of the modern world.

The first word in the title of North/Wallis/Weingast (NWW) is “violence” (Violence and Social Orders). Are they talking only about “internal” violence? Btw, Perspectives on Politics ran a symposium on NWW in March 2010.

16

Ronan(rf) 11.27.15 at 6:47 pm

To take a slightly contrary and, no doubt, ignorant position. I had an argument, or at least one way rant, with some dude on twitter that a lot of institutionalist arguments are (1) very vague * (‘institutions’ used as a general rhetorical explanation for everything that doesnt get at any thing specific), (2) ahistorical (at least according to some historians), and (3) appear to go out of their way to ignore culture (or, at least, emphasise politics and power to the detriment of culture. Culture as determined by institutions rather than vice versa)
Therefore, a lot of these institutional arguments strike me as a little weak in explaining different levels of economic development, or the emergence of the institutions in question. (where the story begins with the institution in place, then explains development from there. Or offers semi plausible tales of elite power strugges/informal rules transforming into norms and institutions, but becomes limited by that perspective) I used Douglas North a(perhaps unfairly, and based mainly on reading chunks of ‘Violence and Social Orders’) and acemoglu and robinson (wikipedia with regressions?) as examples of this phenomenon.
I’d be interested to hear people who are more versed in this lit if all of these (admittedly vague and general) criticisms are off base.

17

Rakesh Bhandari 11.27.15 at 8:15 pm

On why their concept of an extractive institution is broad (they do not say vague), Acemoglu and Robinson write:

‘Fukuyama accuses us of not unpacking the constituent parts of inclusive and extractive institutions. He even writes: “There is for example a large literature comparing the separate impacts of a modern state, rule of law, and democracy on growth, which tends to show that the first two of these factors have a far greater influence on outcomes than democracy.” Now there are two problems with Fukuyama’s statement. First, the literature he seems to have in mind is the one on cross-country growth empirics, which sometimes runs kitchen-sink regressions including several indices at the same time. But few economists would take such regressions seriously given the endogeneity and reverse causality concerns. Second, a large part of our book is in fact devoted to explaining why many extractive (and inclusive) aspects will travel together — because of the feedbacks between these different aspects.

‘In fact, this is an important point which is perhaps somewhat easy to miss (or at the very least Fukuyama has missed it): there is a very good reason for broad concepts such as “extractive institutions,” because extraction is often undertaken using one of many specific institutions that are on the whole different ways of “skinning a cat”. So, for example, when after the Civil War, slavery was abolished and black Americans were enfranchised, this did not put a conclusive end to extractive institutions in the US South, but opened the way to the emergence of a different complex of specific institutions to achieve the same objective. Slavery went, but then came Jim Crow, “separate and equal” schooling, vagrancy laws, convict labor, and a whole gamut of restrictions against the movement and labor market freedoms of freed slaves. Former slaves were given the right to vote, but literacy tests for voting and the Ku Klux Klan made sure that they were effectively disenfranchised. Just focusing on a specific institution of extraction would miss the continuity in the nature of extractive institutions in the US South. It would also miss the similarities in the nature of extractive institutions across the world, which we tried to illustrate, for example, in Chapter 13 of Why Nations Fail.’

There does however seem to be something ahistorical about putting societies spanning from the Neolithic Revolution to the late Roman Republic to the late Mayan Empire to the Austro-Hungarian Empire to contemporary China under the same ideal type of an extractive institution (Weber’s ideal types also are ahistorical in this way). It seems to imply that the possibility of what they are calling inclusive institutions as an ever-present and superior option since the dawn of settled agriculture. It also seems to imply that the persistence of extractive institutions has had the same explanation for the ten thousand + years–the advantages that they confer on narrow elites and the difficulties created by path dependence for inclusive institutional reform.

It suggests that the decline or failure of once successful nations always has the same ultimate explanation, which cannot be found in the inter-state system or changing physical conditions but the transmutation of once inclusive into extractive institutions, while leaving open to historical contingency why that would happen.

Acemoglu and Robinson also argue that what accounts for England’s economic revolution in the eighteenth century was the inclusive elements of new institutions in the seventeenth century, which implies that China’s and India’s institutions must have been then less inclusive–something contested by Prasannan Parthasarathi and others.

18

Rakesh Bhandari 11.27.15 at 8:31 pm

Of course it goes without saying that if the concept of inclusive institution is so broad, one can always respecify it in such a way that it can be seen to have already been in place before, and the cause of , sustained, broad-based prosperity. But it would be quite unfair to say that Acemoglu and Robinson are unaware of that problem and do not take steps to address it. For example, see their finding that those parts of Germany in which Napoleonic code held grew relatively faster than those parts of Germany in which it was never institutionalized or quickly reversed.

19

Rakesh Bhandari 11.27.15 at 8:45 pm

@15. The work of North, et al does seem important indeed. For example, instead of simply criticizing extractive or, say, rent-yielding regimes as in the interest of a narrow elite, they seem to show how the allocation of rents can be used to placate potentially violent groups. Which seems to imply that the call for inclusive institutions or neo-liberal reform could potentially destabilize a society. I think that Acemoglu and Robinson reached a similar conclusion in their analysis of Ghana in the 70s; and all this raises the question of how these two institutional theories are related.

20

Rakesh Bhandari 11.27.15 at 8:48 pm

Another institutional theory that does not get enough attention is the social structure of accumulation school, represented by David Kotz (The Rise and Fall of Neo-Liberal Capitalism) and Michael Reich. Analysis focuses on the institutions regulating capital-capital and capital-labor relations as well as the institutions regulating trade and capital movements.

21

Ronan(rf) 11.27.15 at 10:55 pm

I think if I were to develop a hypothesis about institutional development, evolution and change it’d argue that the causal mechanism was changes in people cognition , value systems and transcendent obligations . In this take institutions aren’t explaining economic or political processes , but collective moral ones, where economic and political development is a byproduct of changes in moral orders and transcendent obligations ?
I’m Completly serous with the next question, would this hypothesis make any sense ?

22

Bruce Wilder 11.27.15 at 11:34 pm

Ronan(rf) @ 16: “vague, ahistorical and ignorant of culture”

I think institutional arguments are always fighting an uphill battle within economics, viewed both as a doctrine (neoclassical economics as the analysis of a system of “markets”) and a tradition, favoring methodological individualism.

The notion that the modern economy is a self-organizing system (of “markets”), arising from the atomistic behavior of striving individuals bumping into each other in the effort to specialize and exchange, barter and truck and so on, and evolving means of mutual cooperation, has a powerful hold; a lot of economists want the economy to be very nearly an automatic mechanism, government intervention something that can only be justified (sic) in canonical cases of market failure as identified by economists, and their only concession to “institutions” is to regard “institutions” almost as a secret sauce you sprinkle over a society, to catalyze the otherwise spontaneous magic of the market. A little Protestant work ethic, a couple of handfuls of ye olde rule of law, then let the clockwork of markets seeking general equilibrium do the rest. Economists are the champions, if you like, of Polanyi’s Self-Regulating Market, striding across the recent historical landscape vanquishing the philistinism of everyone, who might question Progress.

The neoclassically trained economist wants to apply an equilibrium-and-maximization framework to organize how he sees behavior and regulation of behavior in theory’s system of markets, where individuals are self-organizing their little hearts out. Since institutions are, by definition, social mechanisms for organizing and regulating cooperative behavior, the institutionalist is either a sociologist (automatically disregarded) or an apostate. Actual, manifest institutions are regarded by many mainstream economists with more than a bit of hostile skepticism, their complicated rules and categories and the heavy hand of regulation a dross on the market gold. You are a bit leftish and suspect, if you are soft on labor unions, or industrial policy. Even basic bank regulation and bank deposit insurance is regarded as a bit of philistinism, even by those who would concede its necessity in this second-best of all possible worlds. (They’ll all explain how deposit insurance “distorts” risk-taking by bankers.) Pollution as an externality can be conceded, but preferably only in the context of arguing for more markets — that is, markets in permits to pollute for example. They’re sure there’s a superior “market” alternative to social insurance.

Acemoglu and Robinson are vague, because they want to distinguish between Al Capone and the honest capitalist entrepreneur of economists’ dreams without getting bogged down in details that might be embarrassing to neoclassical theory, which never confronts why highway robbery is Pareto Efficient.

Douglas North and his sometime companion-in-institutional-arms, Oliver Williamson, have always struck me as being almost fatally handicapped by their choice of audience, and their desire to keep their institutionalism within orthodoxy’s bounds. The core of neoclassical theory is ahistorical, and North would have to make a case for path-dependence, for example, that didn’t seem too subversive of the case for equilibrium. (It’s not logically possible, of course; it’s one or the other.)

23

liberal 11.28.15 at 2:36 pm

Henry George understood more about these issues than these writers, and he was writing a long time ago.

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Rakesh Bhandari 11.29.15 at 1:44 am

Is North’s idea in this discussion of Polanyi that the gift economy tends to recede as transaction costs fall, making property-based exchange economical? Would anthropologists from Mauss to Godelier agree with this–it seems that North only deals with Polanyi’s theory of the gift? And just because I am reading Piketty: it would seem that transaction costs could fall to make all kinds of exchange possible while still the value of gifts in the form of inheritances rises (in opposition to Modigliani’s life-cycle hypothesis).

25

Ronan(rf) 11.29.15 at 2:01 am

On culture, cognition, ‘intelligence’, and what not

http://pseudoerasmus.com/2015/10/04/ce/

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