Doug North

Quotes From

Understanding the Process of Economic Change (2005)

• 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.#
• 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.#
• 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.#
• [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.#
• 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.#
• 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.#
• 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.#
• 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.#
• 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.#
• 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.#
• 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.#

Violence and Social Orders (2009)

• Beliefs that impersonal identities can be sustained lie at the heart of beliefs in equality. Equality depends on impersonal identity; for citizens to be equal before the law, for example, the law must treat citizens impersonally.#
• It is not that natural states are incapable of progress; it is that they are as likely to move back toward personal arrangements and more limited access as they are toward impersonal arrangements.#
• The birth of the nation-state did not occur with the apotheosis of the ruler, but by subsuming the personal identity of all rulers in a durable and perpetual corporate organization of the state.#
• Charters created rents even when charters did not confer monopolies because the ability to access the corporate form in itself was a substantial advantage to any economic organization.#
• A modern political party contains a legislative arm coordinating the behavior of legislators, and an elective arm identifying party voters and getting out the vote.#
• [Adam Smith’s] low opinion of corporations in general reflected less on the economic and organizational aspects of joint-stock businesses than on the natural state’s political effects of chartering – the corrosive effects of corporate privileges given to towns, guilds, and monopolies. Although much of the debate about Smith’s view of corporations has focused on his view about their efficiency, Smith saw corporations in a traditional Whig manner: grants of economic privilege used to secure political advantage. As late as 1776, the founder of modern economics viewed corporations largely in natural-state terms – as tools for the political manipulation of the economy.#
• When elites institutionalize their own impersonal intra-elite relationships, they lower the costs of expanding the size of the coalition covered by these institutions.#
• The personal nature of sovereign debt in a natural state meant that all early modern European sovereigns were credit rationed, and the Stuart kings could not raise much money to finance their governments. After the Revolution of 1688, sovereign debt became the impersonal liability of parliament.#
• Solving the problem of constraining its leaders required that the church define itself as a perpetually lived organization.#
• The Romans developed rule of law for organizations, but they never solved the problem of perpetual life.#
• As long as landownership serves both a political and an economic purpose, it will serve its economic purpose less well than if ownership responds more closely to economic incentives.#
• Effective political competition requires credible guarantees that losers will not be expropriated and that losing political organizations continue to enjoy access to future competition#
• The natural state cannot support creative destruction because the creation of new economic organizations directly threatens existing economic organizations and their patterns of rents.#
• All exchange in limited access order is dominated by personal knowledge.#
• Widening the set of commonly held beliefs among elites broadens the range of credible commitments that the dominant coalition can sustain.#
• Societies capable of supporting complicated private organizations have complicated and sophisticated public organizations. Societies incapable of governing themselves are also incapable of supporting strong private organizations.#
• The social identity of non-elites [in a natural state] is closely tied to the identity of the patronage network in which they are located.#
• All personal relationships are, in some way, unique while large classes of impersonal relationships are the same. . . . As long as social personas are unique across individuals, impersonal relationships are impossible. Impersonality arises as social personas become standardized.#
• The cessation of violence (peace) is not achieved when violence specialists put down their arms, but rather peace occurs when the violent devise arrangements (explicit or implicit) that reduce the level of violence.#
• The difficulty with a single actor approach to the state is that it assumes away the fundamental problem of how the state achieves a monopoly on violence.#
• Systematic rent-creation through limited access in a natural state is not simply a method of lining the pockets of the dominant coalition; it is the essential means of controlling violence.#