January 3, 2005

Understanding the Process of Economic Change

  • Douglass North

    Department of Economics, Washington University in St. Louis
Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

North, Douglass. Understanding the Process of Economic Change. Princeton University Press, 2005.

Click here to purchase the book. 

In this landmark work, a Nobel Prize-winning economist, Douglass North, develops a new way of understanding the process by which economies change. 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.