Douglass North

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Douglass North, 1997

Douglass Cecil North (November 5, 1920November 23, 2015) was an American economist known for his work in economic history. He was the co-recipient (with Robert Fogel) of the 1993 Nobel Memorial Prize in Economic Sciences.


  • Information costs are reduced by the existence of large numbers of buyers and sellers. Under these conditions, prices embody the same information that would require large search costs by individual buyers and sellers in the absence of an organized market. (footnote 4: The original contributions were those of Hayek (1937 and 1945)).
    • Douglass North, in "Structure and Change in Economic History" (1981), p. 36
  • Regarding social order, Fukuyama writes, "The systematic study of how order, and thus social capital, can emerge in spontaneous and decentralized fashion is one of the most important intellectual developments of the late twentieth century." He correctly attributes the modern origins of this argument to F.A. Hayek, whose pioneering contributions to cognitive science, the study of cultural evolution, and the dynamics of social change put him in the forefront of the most creative scholars of the 20th century. But Hayek's views about the "spontaneity" of social order remain controversial. In their extreme form, they imply that all deliberate efforts to manipulate social order — social engineering — are doomed to failure because the complex nature of our cultural heritage makes a complete understanding of the human condition impossible.
    Hayek was certainly correct that we have, at best, a very imperfect understanding of the human landscape, but "spontaneous" it is not. What distinguishes human evolution from the Darwinian model is the intentionality of the players. The mechanism of variation in evolutionary theory (mutation) is not informed by beliefs about eventual consequences. In contrast, human evolution is guided by the perceptions of the players; their choices (decisions) are made in the light of the theories the actors have, which provide expectations about outcomes.
  • Institutions are the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights). Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange.
    • Douglass North. (1991). "Institutions." Journal of Economic Perspectives, 5(1): 97-112; Abstract

Institutions (1990)[edit]

Douglass C. North (1990) Institutions, Institutional Change and Economic Performance

  • Order in the societies they describe is the result of a dense social network where people have an intimate understanding of each other and the threat of violence is a continuous force for preserving order because of its implications for other members of society.
    • p. 39
  • We are far from understanding how to achieve adaptively efficient economies because allocative efficiency and adaptive efficiency may not always be consistent. Allocatively efficient rules would make today's firms and decisions secure - but frequently at the expense of the creative destruction process that Schumpeter had in mind.
    • p. 81; Ch. 9 : Organizations, learning, and institutional change
  • Effective institutions raise the benefits of cooperative solutions or the costs of defection, to use game theoretic terms.
    • p. 89
  • Institutions are the humanly devised constraints that structure political, economic, and social interactions. They consist of both informal constraints (sanctions, taboos, customs, tradition, and code of conduct) and formal rules (constitutions, laws, property rights).
  • Specialization in this world is rudimentary and self-sufficiency characterizes most individual households
    • p. 119
  • International specialization and division of labor requires institutions and organizations to safeguard property rights across international boundaries so that capital markets as well as other kinds of exchange can take place with credible commitment on the part of the players.
    • p. 121

Violence and Social Orders (2009)[edit]

Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders (2009).

  • Schumpeter’s approach has an important implication for political behavior. If the constellation of economic interests regularly changes because of innovation and entry, politicians face a fundamentally different world than those in a natural state: open access orders cannot manipulate interests in the same way as natural states do. Too much behavior and formation of interests take place beyond the state’s control. Politicians in both natural states and open access orders want to create rents. Rent-creation at once rewards their supporters and binds their constituents to support them. Because, however, open access orders enable any citizen to form an organization for a wide variety of purposes, rents created by either the political process or economic innovation attract competitors in the form of new organizations. In Schumpeterian terms, political entrepreneurs put together new organizations to compete for the rents and, in so doing, reduce existing rents and struggle to create new ones. As a result, creative destruction reigns in open access politics just as it does in open access economies. Much of the creation of new interests is beyond the control of the state. The creation of new interests and the generation of new sources of rents occur continuously in open access orders.
    • Ch. 1 : The Conceptual Framework
  • A final aspect of all open access orders is Schumpeter’s notion of creative destruction, one of the most powerful descriptions of a competitive, open access economy. When Schumpeter wrote Capitalism, Socialism, and Democracy in the early 1940s, the economic theory of perfect competition among atomistic firms (i.e., firms too small to have market power) had come under sustained attack as unrealistic. Large and powerful economic organizations dominated the new economy, and their behavior did not match the textbooks. Despite this dominance, the economy produced historically unprecedented, sustained economic development. Schumpeter asked, How could large businesses that were supposed to choke off competition and growth nonetheless generate such spectacular productivity increases in a world that seemed ever more competitive?
    • Ch. 4 : Open Access Orders

Quotes about North[edit]

  • Economists with a historical bent have only just begun to study institutional change and its impact on industrial organization. Douglass C. North has been the innovator here. In his work with Lance E. Davis he outlined a most useful theory of institutional change and applied it to American economic growth. In his study with Robert Paul Thomas he demonstrated how the changing industrial organization affected the rise of the west. The works of North and his colleagues use this sweeping panorama of history to test, buttress, and refine their theory. They have not yet focused on a detailed analysis of the historical development of any specific economic institution.
  • Robert Fogel and Douglass North have been awarded this year's Prize in Economics for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.

External links[edit]

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