Quotes from Understanding the Process of Economic Change

By Doug North (2005)

• Pattern recognition rather than abstract logical reasoning is at base the way human neural networks appear to operate. . . . In fact we are relatively poor at reasoning compared to our ability to understand problems and see solutions.#
  Epistemology
• The process of learning is unique to each individual but a common institutional/educational structure will result in shared beliefs and perceptions. A common cultural heritage, therefore, provides a means of reducing the divergent mental models that people in a society possess and constitutes the means for the intergenerational transfer of unifying perceptions.#
  Epistemology
• The richer the artifactual structure, the wider the range of routine decisions that can be made. . . . Modern western societies like the United States embody a rich cultural heritage which has led to the immensely complex artifactual structure that not only gives us command over nature in an unparallelled fashion but equally extends our range of “easy” decision making over space and time in ways that would be beyond the comprehension of our ancestors. In effect this artifactual structure has converted uncertainty into certainty or at least risk over an ever wider domain of human activity.#
  EconomicsInstitutions
• Ideological conformity to this day is a major force in reducing the costs of maintaining order, but it comes with the additional societal costs of preventing institutional change, punishing deviants, and serving as the source of endless human conflict with the clash of competing religions.#
  Religion
• While individuals are the actors it is typically individuals in their capacities as part of organizations that make the decisions that alter the rules of the game.#
  Institutions
• Different experiences of societies through time will produce different perceptions of the way the world works and therefore require different institutions to provide the same incentives.#
  Institutions
• A polity (in which the players operate on the basis of rational self-interest) that is strong enough to specify and enforce economic rules of the game is strong enough to allow factions (to use Madison’s felicitous term) to use the polity to pursue their own narrow self-interest at the expense of the general welfare. The elusive key to improved political ordering is the creation of credible commitment on the part of the players. While Madison’s checks and balances take us part way to resolving the problem it requires, in addition, informal constraints that will redirect behavior to more felicitous outcomes.#
  PoliticsInstitutions
• When economic markets are so structured that the players compete via price and quality rather than at non-productive margins then the Smithian result [division of labor and increasing returns] ensues.#
  EconomicsInstitutionsIncreasing Returns
• The movement from personal to impersonal exchange always increases total transaction costs but the consequence is a drastic reduction in production costs, which more than offset the increased resources going into transacting – and was responsible for the dramatic growth of modern economies.#
  EconomicsHistory
• [The institution of] trade will make the individual better off only if the increased uncertainty due to specialization is more than compensated for by the reduction in uncertainty resulting from the availability of wider variety.#
  EconomicsInstitutions
• It should be emphasized that the institutions that have emerged in the Western world, such as property rights and judicial systems, do not have to be faithfully copied in developing countries. The key is the incentive structure that is created, not the slavish imitation of western institutions. Starting with the household responsibility system, the Chinese developed an incentive structure which managed to produce rapid economic development without any of the standard recipes of the West. However, down the road the Chinese must embed the incentive system in the political/economic structure if they are to continue their rapid development and that will probably require institutions that come much closer to having the adaptively efficient features of western societies.#
  InstitutionsHistory

Debra Satz & John Ferejohn, “Rational Choice and Social Theory” (1994)

• The [traditional] theory of rational choice is most powerful in contexts where choice is limited.#
  EconomicsPraxeology

Steven Solnick, Stealing the State (1998)

• In effect, Soviet institutions were victimized by the organizational equivalent of a colossal “bank run” in which local officials rushed to claim their assets before the bureaucratic doors shut for good. As in a bank run, the loss of confidence in the institutions makes its demise a self-fulfilling prophecy.#
  HistoryInstitutions