Douglass C. North
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Douglass Cecil North (November 5, 1920 – November 23, 2015) was an American
economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
known for his work in
economic history Economic history is the study of history using methodological tools from economics or with a special attention to economic phenomena. Research is conducted using a combination of historical methods, statistical methods and the Applied economics ...
. Along with Robert Fogel, he received the
Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...
in 1993. In the words of the Nobel Committee, North and Fogel "renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change." North was an influential figure in New Institutional Economics, which emphasizes the impact of institutions on economic behaviors and outcomes. North argued, "Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline." Rational and wealth-maximizing individuals lack complete information and have difficulties monitoring and enforcing agreements. Institutions can provide information and reduce transaction costs, thus encouraging economic activity.


Biography

Douglass North was born in
Cambridge, Massachusetts Cambridge ( ) is a city in Middlesex County, Massachusetts, United States. It is a suburb in the Greater Boston metropolitan area, located directly across the Charles River from Boston. The city's population as of the 2020 United States census, ...
, on November 5, 1920. He moved several times as a child due to his father's work at
MetLife MetLife, Inc. is the Holding company, holding corporation for the Metropolitan Life Insurance Company (MLIC), better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance, Annuity (US financial produ ...
. The family lived in
Ottawa, Ontario Ottawa is the capital city of Canada. It is located in the southern Ontario, southern portion of the province of Ontario, at the confluence of the Ottawa River and the Rideau River. Ottawa borders Gatineau, Gatineau, Quebec, and forms the cor ...
, in Lausanne, Switzerland, in
New York City New York, often called New York City (NYC), is the most populous city in the United States, located at the southern tip of New York State on one of the world's largest natural harbors. The city comprises five boroughs, each coextensive w ...
, and in
Wallingford, Connecticut Wallingford is a town in New Haven County, Connecticut, New Haven County, Connecticut, United States, centrally located between New Haven, Connecticut, New Haven and Hartford, Connecticut, Hartford, and Boston and New York City. The town is part ...
. North was educated at Ashbury College in Ottawa and the Choate School in Wallingford. He was accepted at
Harvard Harvard University is a private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher lear ...
at the same time that his father became the head of MetLife on the West Coast, so North chose instead to attend the
University of California, Berkeley The University of California, Berkeley (UC Berkeley, Berkeley, Cal, or California), is a Public university, public Land-grant university, land-grant research university in Berkeley, California, United States. Founded in 1868 and named after t ...
. During his time at Berkeley, North was a member of Chi Phi fraternity. In 1942, he graduated with a general B.A. in the
humanities Humanities are academic disciplines that study aspects of human society and culture, including Philosophy, certain fundamental questions asked by humans. During the Renaissance, the term "humanities" referred to the study of classical literature a ...
. Although his grades amounted to slightly better than a "C" average, he managed to complete a triple major in
political science Political science is the scientific study of politics. It is a social science dealing with systems of governance and Power (social and political), power, and the analysis of political activities, political philosophy, political thought, polit ...
,
philosophy Philosophy ('love of wisdom' in Ancient Greek) is a systematic study of general and fundamental questions concerning topics like existence, reason, knowledge, Value (ethics and social sciences), value, mind, and language. It is a rational an ...
and
economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...
. That same year, he entered the US Merchant Marine Academy, graduated a year later and went to sea for three years as a deck officer. A
conscientious objector A conscientious objector is an "individual who has claimed the right to refuse to perform military service" on the grounds of freedom of conscience or religion. The term has also been extended to objecting to working for the military–indu ...
in
World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
, North became a
navigator A navigator is the person on board a ship or aircraft responsible for its navigation.Grierson, MikeAviation History—Demise of the Flight Navigator FrancoFlyers.org website, October 14, 2008. Retrieved August 31, 2014. The navigator's prim ...
in the Merchant Marine, traveling between
San Francisco San Francisco, officially the City and County of San Francisco, is a commercial, Financial District, San Francisco, financial, and Culture of San Francisco, cultural center of Northern California. With a population of 827,526 residents as of ...
and
Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...
. During that time, he read economics and picked up his
hobby A hobby is considered to be a regular activity that is done for enjoyment, typically during one's leisure time. Hobbies include collecting themed items and objects, engaging in creative and artistic pursuits, playing sports, or pursuing other ...
of photography. He taught navigation at the Maritime Service Officers' School in Alameda during the last year of the war, and struggled with the decision of whether to become a photographer or an economist. North returned to UC Berkeley, where he obtained a Ph.D. degree in economics in 1952. He subsequently began his career as an
assistant professor Assistant professor is an academic rank just below the rank of an associate professor used in universities or colleges, mainly in the United States, Canada, Japan, and South Korea. Overview This position is generally taken after earning a doct ...
at the
University of Washington The University of Washington (UW and informally U-Dub or U Dub) is a public research university in Seattle, Washington, United States. Founded in 1861, the University of Washington is one of the oldest universities on the West Coast of the Uni ...
. North died on November 23, 2015, at his summer home in Benzonia, Michigan from esophageal cancer at the age of 95.


Academic career

From 1951 to 1983, North taught economics at the
University of Washington The University of Washington (UW and informally U-Dub or U Dub) is a public research university in Seattle, Washington, United States. Founded in 1861, the University of Washington is one of the oldest universities on the West Coast of the Uni ...
, where he was an
assistant professor Assistant professor is an academic rank just below the rank of an associate professor used in universities or colleges, mainly in the United States, Canada, Japan, and South Korea. Overview This position is generally taken after earning a doct ...
till 1956, an associate professor from 1956 to 1960, and a
full professor Professor (commonly abbreviated as Prof.) is an academic rank at universities and other post-secondary education and research institutions in most countries. Literally, ''professor'' derives from Latin as a 'person who professes'. Professors ...
till 1983; he also chaired the economics department at Washington from 1967 to 1979. In 1960, North became co-editor of the '' Journal of Economic History'', where he helped popularise cliometrics. In 1979 he served as the Peterkin Professor of Political Economy at
Rice University William Marsh Rice University, commonly referred to as Rice University, is a Private university, private research university in Houston, Houston, Texas, United States. Established in 1912, the university spans 300 acres. Rice University comp ...
, and in 1981–82 as the Pitt Professor of American History and Institutions at
Cambridge University The University of Cambridge is a Public university, public collegiate university, collegiate research university in Cambridge, England. Founded in 1209, the University of Cambridge is the List of oldest universities in continuous operation, wo ...
, before joining the faculty of Washington University in St. Louis in 1983 as the Henry R. Luce Professor of Law and Liberty in the Department of Economics (where he also directed the Center for Political Economy from 1984 to 1990). He also served as the Bartlett Burnap Senior Fellow at the
Hoover Institution The Hoover Institution (officially The Hoover Institution on War, Revolution, and Peace and formerly The Hoover Institute and Library on War, Revolution, and Peace) is an American public policy think tank which promotes personal and economic ...
at
Stanford University Leland Stanford Junior University, commonly referred to as Stanford University, is a Private university, private research university in Stanford, California, United States. It was founded in 1885 by railroad magnate Leland Stanford (the eighth ...
. In 1991, he became the first
economic historian Economic history is the study of history using methodological tools from economics or with a special attention to economic phenomena. Research is conducted using a combination of historical methods, statistical methods and the application of ...
to win the John R. Commons Award, which was established by the International Honors Society for Economics in 1965. A collection of North's papers is housed at the Rubenstein Library at Duke University.


Research agenda

Along with
Ronald Coase Ronald Harry Coase (; 29 December 1910 – 2 September 2013) was a British economist and author. Coase was educated at the London School of Economics, where he was a member of the faculty until 1951. He was the Clifton R. Musser Professor of Eco ...
and Oliver Williamson, he helped found the International Society for the New Institutional Economics (ISNIE) which held its first meeting in St. Louis in 1997. His research included
property rights The right to property, or the right to own property (cf. ownership), is often classified as a human right for natural persons regarding their Possession (law), possessions. A general recognition of a right to private property is found more rarely ...
, transaction costs, the institutional basis of markets, and economic organization in history as well as economic development in
developing countries A developing country is a sovereign state with a less-developed Secondary sector of the economy, industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. ...
. North served as an expert for the
Copenhagen Consensus Copenhagen Consensus is a project that seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics, using cost–benefit analysis. It was conceived and organized around 2004 by Bjørn ...
and as an advisor to governments around the world. He was engaged in research (with John J. Wallis of the
University of Maryland The University of Maryland, College Park (University of Maryland, UMD, or simply Maryland) is a public land-grant research university in College Park, Maryland, United States. Founded in 1856, UMD is the flagship institution of the Univ ...
and Barry Weingast of
Stanford University Leland Stanford Junior University, commonly referred to as Stanford University, is a Private university, private research university in Stanford, California, United States. It was founded in 1885 by railroad magnate Leland Stanford (the eighth ...
) on how countries emerge from what they call "the natural state" and into long-run economic growth. He was a trustee of Economists for Peace and Security, and a special adviser to the non-profit organization Vipani.


Publications


''Institutions''

In 1991 Douglass North published a paper, titled ''Institutions'', in the '' Journal of Economic Perspectives''. This paper summarized much of his earlier research relating to economic and institutional change. North defines institutions as "humanly devised constraints that structure political, economic and social interactions". Constraints, as North describes, are devised as formal rules (constitutions, laws, property rights) and informal restraints (sanctions, taboos, customs, traditions, codes of conduct), which usually contribute to the perpetuation of order and safety within a market or society. The degree to which they are effective is subject to varying circumstances, such as a government's limited coercive force, a lack of organized state, or the presence of strong religious precept. Section 2 of North's 1991 paper describes the economic development of societies as occurring in stages: North begins with local exchange within the village. In this setting, specialization "is rudimentary and self-sufficiency characterizes most individual households", with small-scale village trade existing within dense social networks of informal constraints that facilitate local exchange, and a relatively low transaction cost. However, this confined market reduces the potential of specialization and increases production costs. In this close-knit network "people have an intimate understanding of each other, and the threat of violence is a continuous force for preserving order ..." With growth, the market extends beyond the village into larger, interconnected regions. As the participants of a transaction become more socially distant, the terms of exchange must be made more explicit. This increase in transaction costs necessitates institutions that reduce the risks of being cheated, either by raising "the benefits of cooperative solutions or the costs of defection". With increased specialization, production costs are reduced and can justify higher transaction costs. As long-distance trade becomes more feasible, generally through caravans or lengthy ship voyages, individuals and groups experience occupational and geographic specialization. Society also experiences a rise of formal trading centers (temporary gathering places, towns or cities). From the development of long-distance trade arise two transactional cost problems. The first transactional cost problem is agency: the transfer of one's goods or services outside the control of local rule leaves the rules of exchange undefined, the risk of unfair trade high, and the contracts within society unenforced. For this reason, sedentary merchants often would send their kin with the product to ensure its safe arrival and the fulfillment of agreed terms of exchange by the receiving party. The second transactional cost problem is the enforcement of contracts. Historically this problem was met with either armed forces protecting ships or caravans, or use of tolls by local coercive groups. However, in modern societies, institutions acting cooperatively in the interest of free market trade provide protection for goods and enforcement of contracts. Negotiation and enforcement in alien parts of the world require the development of a standardized system of weights and measures. As development continues, the rise of capital markets (and the protection of associated property rights), creates social capital and enables citizens to gain wealth. Technology plays an instrumental role in the continued development of manufacturing sectors, and acts to lower transaction costs in several ways. The most substantial benefits are generally the result of transportation improvements. Eventually, society becomes overwhelmingly urban. This final stage of development specialization requires increasing percentages of the resources of the society to be active in the market so that the transaction sector becomes a large share of gross national product. Highly specialized forms of transaction organizations emerge at this stage. Globalized specialization and division of labor demand institutions to ensure property rights even when trading in neighboring countries enabling capital markets to develop "with credible commitment on the part of the players." North enumerates three primitive types of exchange: * Tribal Society, which "relies on a dense social network".(Colson 1974, p. 59) * Bazaars, which have "high measurement costs; continuous effort at clientization; intensive bargaining at every margin" * Long-distance caravan trade illustrates the informal constraints that made trade possible in a world where protection was essential and no organized state existed. All three methods above are found to be much less likely to evolve than large urban societies. North's paper concludes with a few intriguing questions which his paper aimed to address: * What is it about informal constraints that give them such a pervasive influence upon the long-run character of economies? * What is the relationship between formal and informal constraints? * How does an economy develop the informal constraints that make individuals constrain their behavior so that they make political and judicial systems effective forces for third party enforcement?


''Transaction Costs, Institutions, and Economic Performance''

In a 1992 paper, North argues that neoclassical economic theory overlooks the institutions required to create efficient markets with low monitoring and transaction costs. He develops a framework for explaining how institutions change and become more efficient over time. North theorizes that all transaction costs are rooted in information asymmetries between the parties to an exchange. Hence, each person must expend resources ascertaining the qualities of the good she is buying and enforcing the terms of the trade. Because these costs pose such a large barrier to economic growth, a central function of political and economic institutions is to control them, often by disincentivizing fraud, theft, and other socially detrimental behaviors. Yet those who command the political system will structure these institutions to maximize their personal benefit, rather than the social benefit, so transaction costs will not always be minimized by existing institutions. Importantly for North, individuals and organizations make their decisions on the basis of imperfect
ideologies An ideology is a set of beliefs or values attributed to a person or group of persons, especially those held for reasons that are not purely about belief in certain knowledge, in which "practical elements are as prominent as theoretical ones". Form ...
, which are "mental models" for how the world functions. Therefore, the politicians who craft institutions will, despite their best efforts, occasionally fail to maximize their personal gain. When this happens, entrepreneurs who believe that institutional changes will significantly benefit them will enter the political realm to effect this change. The result is incremental institutional change, pushed forward by self-seeking individuals. North argues that this change will usually be slow for two reasons. First, the powerful actors in control of the political systems made the institutions for their benefit and so will be reluctant to change them, resulting in path dependence. Second, informal institutions—like social customs and cultural practices—are by their nature slow to change, yet play a role in determining transaction costs. North goes on to apply this framework to analyze a few historical examples, including the
Green Revolution The Green Revolution, or the Third Agricultural Revolution, was a period during which technology transfer initiatives resulted in a significant increase in crop yields. These changes in agriculture initially emerged in Developed country , devel ...
, the
American Revolution The American Revolution (1765–1783) was a colonial rebellion and war of independence in which the Thirteen Colonies broke from British America, British rule to form the United States of America. The revolution culminated in the American ...
, and imperial Spain, as well as to offer some general policy recommendations.


''Violence and the Rise of Open-Access Orders''

In ''Violence and the Rise of Open-Access Orders'', North, Wallis, and Weingast integrate a theory of politics with a theory of economics to explain the institutions, i.e. the rules governing behavior, that develop in human societies. In their view, the primary task of any set of institutions is to limit violence among individuals. They focus on two sets of institutions—which they call social orders—that accomplish this task, but which also have different effects on economic growth. The first set of institutions are called "limited access orders," and they are characterized by elite control of the political and economic systems to extract rents. Violence is limited because the most powerful actors maintain law and order to protect their rents. However, their means of maintaining law and order require supporting economic and political monopolies, which stunt economic growth. The second set of institutions that North et al. propose are called "open access orders," and they limit violence through a politically controlled military. These societies allow anyone who meets some impersonal criteria to form political and economic organizations, resulting in a Schumpeterian process of " creative destruction." The military limits societal violence, and the political actors that control this military are themselves constrained by the constant competition for political and economic power that this process of creative destruction entails. Unlike limited access orders, open access orders stimulate economic growth since solutions to economic and political challenges can come from any individual in society, rather than a select few. North et al. argue that modern open access orders emerged from limited access orders through a two-step process: first, the application of impersonal laws to elites and the consolidation of military power, and second, the extension of elite privileges to the rest of society. They apply this theory to explain the legitimacy of elections within different societies and to explain why economic growth is more consistent in modern open access orders than it is in limited access orders.


Personal life

North was married twice. His first marriage was to Lois Heister in 1944 with whom he had three sons: Douglass Jr., Christopher and Malcolm. During the marriage, Heister became a notable activist and politician. The marriage ended in divorce. North remarried in 1972, to Elisabeth Case.


Legacy

As a Nobel laureate, North's reputation extended both from his own university environment to the international influences made by his research and writing. North's research in New Economic History has included such notable economists and historians as Jonathan Hughes, Richard Sutch, Lloyd Mercer, Jim Sheperd, Donald Gordon, Gary Walton, Lance E. Davis, Robert Huttenback, Roger Ransom, Gaston Rimlinger, Terry L. Anderson, P.J. Hill, Philip Coelho, and David Knowles as recorded in the 60th Anniversary dedication volume in memory of North.


Publications

North's other major publications include:Douglass C. North
RePEc citations
* * * ''The Economic Growth of the United States, 1790–1860'', Prentice Hall, 1961. * * ''Institutional Change and American Economic Growth'', Cambridge University Press, 1971 (with Lance Davis). * * ''Growth and Welfare in the American Past'', Prentice-Hall, 1974. * . * * ''Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England'', Cambridge University Press, 1989 * ''Institutions, Institutional Change and Economic Performance'', Cambridge University Press, 1990 . * Also published as Nobe

* ''Empirical Studies in Institutional Change'', Cambridge University Press, 1996 (edited with Lee Alston & Thrainn Eggertsson) . * ''Understanding the Process of Economic Change'', Princeton University Press, 2005 . * ''Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History'', Cambridge University Press, 2009 (with John Joseph Wallis and Barry R. Weingast) .


References


Further reading

* Colson, Elizabeth. ''Tradition and Contract: The Problem of Order''. Chicago: Adeline Publishing, 1974. * S. Galiani and I. Sened (eds.), 2014. Institutions, property rights and economic growth: The legacy of Douglass North, Cambridge University Press. https://www.cambridge.org/core/books/abs/institutions-property-rights-and-economic-growth/institutions-property-rights-and-economic-growth/C036667D3EA6FE5D511A1DFC7BC46D37
Kevin Bryan. 2015. Douglass North, an economist's historian. Voxeu.

John Wallis. 2015. Structure and change in economic history: The ideas of Douglass North. Voxeu.


External links

*
Hoover Institution homepage
* * * * Douglass North
The NIE and Development
Essay (~ 1995), 8 p. * {{DEFAULTSORT:North, Douglass 1920 births 2015 deaths Academics of the University of Cambridge American economic historians American sailors American Nobel laureates Nobel laureates in Economics Choate Rosemary Hall alumni Fellows of Girton College, Cambridge University of California, Berkeley alumni New institutional economists Washington University in St. Louis faculty People from Cambridge, Massachusetts University of Washington faculty People from Benzie County, Michigan Distinguished fellows of the American Economic Association Social Science Research Council Economists from Michigan Economists from Massachusetts American expatriates in Canada Rice University faculty Stanford University faculty Ashbury College alumni