|New institutional economics|
November 5, 1920 |
Cambridge, Massachusetts, U.S.
|Institution||Washington University in St. Louis
University of Washington
|Alma mater||University of California, Berkeley|
|Influences||Melvin M. Knight|
|Awards||Nobel Memorial Prize in Economic Sciences (1993)|
Douglass Cecil North (born November 5, 1920) is an American economist known for his work in economic history. He is the co-recipient (with Robert William Fogel) of the 1993 Nobel Memorial Prize in Economic Sciences. In the words of the Nobel Committee, North and Fogel were awarded the prize "for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change."
Douglass North was born in Cambridge, Massachusetts, on November 5, 1920. He moved several times as a child due to his father's work at MetLife, living in Cambridge, Ottawa, Lausanne, New York City and Wallingford.
A conscientious objector in World War II, North became a navigator in the Merchant Marine, traveling between San Francisco and Australia. During this time, he read economics and picked up his hobby 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 was educated at Ashbury College in Ottawa, Ontario and The Choate School in Wallingford, Connecticut. He was accepted at Harvard at the same time that his father became the head of MetLife on the west coast, so North opted to go to University of California, Berkeley. In 1942, he graduated with a B.A. in General Curriculum-Humanities. Although his grades amounted to slightly better than a "C" average, he managed to complete a triple major in political science, philosophy and economics.
North decided to return to school at Berkeley to pursue a PhD in economics, not history as many of his followers believe he did. He finished his studies in 1952 and began work as an assistant professor at the University of Washington.
In 1960 North became co-editor of the Journal of Economic History, popularizing Cliometrics (New Economic History). In 1960-1983 he was Professor of Economics at the University of Washington. He then joined the faculty of Washington University in Saint Louis in 1983 as the Henry R. Luce Professor of Law and Liberty in the Department of Economics, and served as director of the Center for Political Economy from 1984 to 1990. North held the position of Pitt Professor of American History and Institutions at Cambridge University in 1981. In 1991, he became the first economic historian to win the John R. Commons Award, which was established by the International Honors Society for Economics in 1965.
North has served as an expert for the Copenhagen Consensus and as an advisor to governments around the world. He is currently engaged in research (with John J. Wallis of the University of Maryland, College Park and Barry Weingast of Stanford University) on how countries emerge from what they call "the natural state" and into long-run economic growth. He is a trustee of the Economists for Peace and Security and a special adviser to the non-profit organization Vipani.
A collection of North's papers is housed at the Rubenstein Library at Duke University.
Douglass North's 1991 paper summarizes much of his earlier work relating to economic and institutional change. In this paper, 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, code 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 describes the economic development of societies as occurring in stages:
He 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. 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." 
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: 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 merchants often would send their kin or a sedentary merchant with the product to ensure its safe arrival, and the fulfillment of agreed terms of exchange by the receiving party. Contract: covered briefly in “agency” above, problems with negotiation of contracts and enforcement of contract stipulation. 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 (protection of 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.” 
Three primitive types of exchange: Tribal Society – “relies on a dense social network.” Colson (1974, p. 59) Bazaars – “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.
North's paper concludes with a few intriguing questions which his paper has 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? 
Along with Ronald Coase and Oliver Williamson, he helped found the International Society for the New Institutional Economics which held its first meeting in St. Louis in 1997. His current research includes property rights, transaction costs, and economic organization in history as well as economic development in developing countries.
- Location Theory and Regional Economic Growth, Journal of Political Economy 63(3):243–258, 1955.
- The Economic Growth of the United States, 1790–1860, Prentice Hall, 1961.
- "The State of Economic History," American Economic Review, 55(1/2), p p. 86–91, 1965.
- Institutional Change and American Economic Growth, Cambridge University Press, 1971 (with Lance Davis).
- The Rise of the Western World: A New Economic History, 1973 (with Robert Thomas).
- Growth and Welfare in the American Past, Prentice-Hall, 1974.
- Structure and Change in Economic History, Norton, 1981.
- Institutions and economic growth: An historical introduction, Elsevier, 1989
- 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.
- Institutions, 1991, The Journal of Economic Perspectives, 5(1), pp. 97–112
- "Economic Performance through Time," American Economic Review, 1994, 84(3), p p. 359–368. Also published as Nobel Prize Lecture.
- 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).
- Breit, William and Barry T. Hirsch. Lives of the Laureates, 4th ed. Cambridge, Mass: The MIT Press, 2004.
- John R. Commons Award, , Omicron Delta Epsilon
- "Douglass Cecil North Papers, 1942–2006 and undated". Rubenstein Library, Duke University.
- North's Profile, Hoover Institution
- Colson, Elizabeth. Tradition and Contract: The Problem of Order. Chicago: Adeline Publishing, 1974.
- 1993 Nobel Memorial Prize in Economics
- Hoover Institution homepage
- Douglass C. North – Autobiography
- "Douglas C. North (1920– )". The Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.) (Liberty Fund). 2008.