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Douglass C. North

in Economist of the Month

Douglass C. North

doughlas c northDouglass North shared the 1993 Nobel Prize in economics with Robert Fogel “for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.”

North earned his Ph.D. in economics at the University of California at Berkeley, but by his own admission learned how to reason like an economist from Donald Gordon, one of his colleagues at his first job at the University of Washington. In the early 1960s, North helped found cliometrics, which applies economics and quantitative methods to the study of economic history (named after Clio, the muse of history). One of his early major outputs from this work was his 1961 book, The Economic Growth of the United States from 1790 to 1860. In it he showed how one sector of the economy, cotton plantations, stimulated economic development in other sectors and led to specialization and inter-regional trade. In 1968 North published an article showing that organizational change was more important than technological change in increasing productivity in ocean shipping.

Throughout the 1970s, North published books and articles showing that institutions, especially well-developed property rights, are important in explaining Economic Growth. This field of study came to be called “the new institutional economics.” North showed that England and the Netherlands industrialized more quickly because the guild system, which imposed restrictions on entry and work practices in various occupations, was weaker in those two countries than in other European countries. North went further, hypothesizing that when various groups in society see a chance to make higher profits that are impossible to earn within existing institutional arrangements, they will get together and change the institutions to make these higher profits possible. He showed that economic policy in agriculture, banking, and transportation fit this hypothesis.

In 1983 North moved to Washington University in St. Louis, where he is still on the faculty at this writing (2005). In the late 1980s and early 1990s, he came to question his earlier belief that progrowth institutional changes will necessarily occur. He argued that societies can sometimes be locked into dysfunctional institutions, such as absence of the rule of law and a judicial system that does a poor job of enforcing contracts and property rights. When that happens, reasoned North, it is often very hard to build the coalitions needed to reform these institutions.

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