November 25, 2015

Nobelist Douglass North Taught Us Institutions Matter Most

John Nye

Frederic Bastiat Chair in Political Economy, Mercatus Center
Summary

Douglass C. North passed away on Nov. 23, 2015, at the age of 95. A recipient of the Nobel Memorial Prize in Economics, he was one of the most cited and influential scholars of his generation—not just in economics, but also in law, political science, history, and development. Though he started as a conscientious objector and even a Marxist before World War 2, North's views constantly evolved and in the end, he did more than anyone to restore to the study of economics the importance of good institutions as the basis for the success of modern market capitalism.

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Douglass C. North passed away on Nov. 23, 2015, at the age of 95. A recipient of the Nobel Memorial Prize in Economics, he was one of the most cited and influential scholars of his generation—not just in economics, but also in law, political science, history, and development. Though he started as a conscientious objector and even a Marxist before World War 2, North's views constantly evolved and in the end, he did more than anyone to restore to the study of economics the importance of good institutions as the basis for the success of modern market capitalism.

Today, the idea that good formal and informal institutions (laws, norms, and their enforcement characteristics)—the rules of the game as he called them—are a crucial determinant of economic success or failure is almost a trite truism accepted by academics, NGOs, and most governments from Mumbai to Moscow, and from Berkeley to Beijing. So it is difficult to recall a time half a century ago, when most leading economists and bureaucrats could say or suggest that all that mattered for development were new technologies, capital transfer, and good Keynesian management of employment and aggregate demand. Leading surveys of growth in the 1950s were written as if the only differences between the economies of the United States, France, Sweden, and the Soviet Union were due to unemployment, technology transfer, capital accumulation, and demand management.

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