Product Description

In this landmark work, a Nobel Prize-winning economist develops a new way of understanding the process by which economies change. Douglass North inspired a revolution in economic history a generation ago by demonstrating that economic performance is determined largely by the kind and quality of institutions that support markets. As he showed in two now classic books that inspired the New Institutional Economics (today a subfield of economics), property rights and transaction costs are fundamental determinants. Here, North explains how different societies arrive at the institutional infrastructure that greatly determines their economic trajectories.

North argues that economic change depends largely on "adaptive efficiency," a society's effectiveness in creating institutions that are productive, stable, fair, and broadly accepted--and, importantly, flexible enough to be changed or replaced in response to political and economic feedback. While adhering to his earlier definition of institutions as the formal and informal rules that constrain human economic behavior, he extends his analysis to explore the deeper determinants of how these rules evolve and how economies change. Drawing on recent work by psychologists, he identifies intentionality as the crucial variable and proceeds to demonstrate how intentionality emerges as the product of social learning and how it then shapes the economy's institutional foundations and thus its capacity to adapt to changing circumstances.

Understanding the Process of Economic Change accounts not only for past institutional change but also for the diverse performance of present-day economies. This major work is therefore also an essential guide to improving the performance of developing countries.

Product Details

• Amazon Sales Rank: #291743 in Books
• Published on: 2005-01-03
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 208 pages

Review
Anyone with an interest in world poverty can benefit from this carefully crafted and closely argued book. It is a pleasure and a delight to read.
(Paul Ormerod Times Higher Education )

[North] sets forth a radical reconceptualization of the task and methods of the social sciences in general and economics in particular, providing a glimpse at an economics that refuses to 'assume a can opener.'
(Will Wilkinson Cato Journal )

[This book] provides a sweeping view of the relationships among human belief systems, social institutions, and what [North] calls 'the adaptive efficiency' of societies in coping with changes in demographics, technology, and other factors.
(Richard N. Cooper Foreign Affairs )

A courageous attempt to enlarge the arsenal of theoretical tools available for economists.
(Diego Rios Journal of Evolutionary Economics )

Review
Just as Douglass North's earlier classic, Institutions and Institutional Change, ushered in the revolution in understanding institutions that dominated the nineties, his new book, Understanding the Process of Economic Change, seeks an equally revolutionary change. North now integrates the cognitive component into this analysis: how the mind works, how we form beliefs and understandings about the world, and how societies solve--or fail to solve--the problems they face. This book is vintage North.
(Barry Weingast, Professor of Political Science, Stanford University )

From the Inside Flap

"Just as Douglass North's earlier classic, Institutions and Institutional Change, ushered in the revolution in understanding institutions that dominated the nineties, his new book, Understanding the Process of Economic Change, seeks an equally revolutionary change. North now integrates the cognitive component into this analysis: how the mind works, how we form beliefs and understandings about the world, and how societies solve--or fail to solve--the problems they face. This book is vintage North."--Barry Weingast, Professor of Political Science, Stanford University

"In this book Douglass North once again opens new frontiers in economic research. He calls for probing into the human mind to seek an understanding of how knowledge acquired by individuals and societies manifests itself culturally and institutionally to shape processes of change. The analysis makes a courageous foray into territories unfamiliar to most economists, such as social psychology and cognitive science, and uses the findings to further our understanding of the most pressing economic question of our time: why, despite the production capacity of modern technology, do many economies fail to prosper?"--Avner Greif, Bowman Family Professor in the Humanities and Sciences and Professor of Economics, Stanford University

"This short book by a great master will be read, discussed, and debated widely. It boldly goes where few have dared to tread. It is a book about something more ambitious than economic growth or even economic history. It is about economic change, and it dares to ask questions that the profession will still be scratching its head over for many years to come."--Joel Mokyr, Northwestern University, author of The Gifts of Athena: Historical Origins of the Knowledge Economy

"This deeply exciting book culminates North's research agenda, and points the way to solving the most valuable but intractable problem in economics today: how institutions evolve. When I first read it I immediately saw implications for my own research, and began rethinking several fundamental ideas about how economies and their governments interrelate. What you learn from North changes how you think, and changing how people think is the best measure of intellectual influence."--John Joseph Wallis, University of Maryland

Customer Reviews

Something for Everyone

In this short but enlightening work, Douglass C North creates a model of forces for and against economic change that makes sense of, and provides a vocabulary for, the forces acting upon economic events past, present and future.

He tracks human progress from primitive to modern times showing how assumptions, beliefs, the environment and other factors each play a crucial role. The importance of property rights, he contends for example, has historically been far less in Africa, with its low population densities, than in Asia, where space is at a much greater premium, and this has impacted the social and legal frameworks of the two regions to the extent that these in turn impact economic conditions. The process of path dependence, well explained and illustrated, subsequently has meant that squaring African "institutions" with those of the rest of the world has been an uphill struggle as what has taken centuries to develop in other places has only seemed an imperative for a relatively short space of time in Africa.

At the heart of North's rationale for this work is a fundamental flaw in neo-classical economic models, specifically their reliance on the assumption of stasis. Quite to the contrary, North points out, the world is "non-ergodic": constantly changing through natural and human intervention. It is therefore unable to explain how markets and economies evolved in the first place.

As it happened, I read this book whilst in the middle of David S Landes's The Unbound Prometheus, about economic progress from 1750. What North had to say enabled me much better to build a mental framework around what Landes had to say; in retrospect, I would also say the same would apply to Landes's The Wealth and Poverty of Nations, which I read several years ago, although that is not to take away any of the value of either work: North's work complements both, as it would many other good study of economic history.

North's approach throughout is accessible and lucid. He explains concepts for non-experts in a clear and non-condescending way. The thesis draws on many sources other than the purely economic, including anthropology, social psychology and biology, and these are integrated well into the overall model. And while being anything but light reading this is a work that would probably appeal to both specialists and generalists.

Moreover, as I progressed through the book, it also occurred to me that there were some lessons to be learned on a micro level also, to help individual firms analyse just exactly how it was they got to where they are and why they respond to events in such a way. North himself uses some of his thesis to explain the Enron debacle.

Something for everyone indeed.