Structure and change in economic history

Title: Structure and change in economic history
Author(s): Douglass Cecil North
Publisher: New York : Norton
Pages: 228
Date: 1981

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Rampant speculation

The book professes to be a new approach to the study of economic history (written by a Nobel prize-winning economist). It reads instead like Rousseau's description of the natural man – full of half-baked speculations and rampant over-generalizations. The gist of the argument:

  • Population pressures drove humanity away from communal resources (e.g., common hunting grounds) toward exclusive resources (e.g., farm plots, domestication).
  • Exclusive resources required weapons to keep others out, and agreement on the distribution of the exclusive resources to members of the community.
  • Accelerating population growth and better weapons led to the growth of larger communities and greater specialization (e.g., weapon making, planting, harvesting)
  • Labor was ‘decoupled' from its output. Each laborer provided only a part of the final product. Innovation in reward structures for labor for their partial contributions were integral to ever larger and more specialized production processes, and to greater economic prosperity.
  • Labor came to identify itself more with co-workers than with the consumer, and developed political ideologies consistent with their new identity.
  • Property rights both expanded to include the patenting of ideas and were constrained to change the distribution of production output back toward laborers.

In general, the book looks to equate economic history with the evolution of property rights, as reflected in the government policies, rules, regulations and practices of these rights.

Apart from the rampant speculation, with which I share a sympathy, the book has two fundamental flaws:

  • It is biased toward a Phase 2 view of industry – it views economic history as a drive to reduce transaction costs (e.g., costs for contract compliance) for industrial processes and products that have magically appeared with little mention for how new products and industries arise.
  • It is biased toward the removal of constraints on ideas and not on the founts of new ideas.

The book is essentially a history of property rights, with a sidenote on the importance of innovations in management that allowed for the decoupling of labor from the final consumer product.

North emphasizes the critical importance of ideology. Build love of institution and you greatly reduce the costs of ensuring compliance of labor to the intent of management. Our compliance needs are much more intransigent: with creative endeavors there are no overt measures of compliance. Individuals must reach into themselves as the only source of compliance. North's discussion of ideology reveals a few organizational design features we can use to improve compliance without overt mechanisms:

  • Always have competitive alternatives – do not allow yourself to be held hostage+ to any one creative individual or team
  • Use personal transactions – economic transactions between colleagues are much more resistant to deliberate distortion
  • Ensure transactions between colleagues are frequent and repeated – fool me once shame on you, fool me twice …
  • Work deliberately and persistently to ensure both parties to the transaction share a sense of fairness for the transaction – neither party is tempted to take advantage due to a sense of feeling cheated.

Investments into building love of institution, a sense of community and fairness are very expensive (in time and effort) but in the end are the only sure way to align the interests of labor (researchers) with those of management (funding agents).

In the spirit of rampant speculation, spanning thousands of years, I offer an alternate view of economic history to that given by North. New ideas and new products (e.g., economic advancement) spring from a child-like fascination with things novel. The individual child, either from reading a science-fiction novel, experiencing a personal tragedy or simply overcoming the taunting challenge of friends that something "can't be done" experiences the thrill and delight of having his or her imagination piqued and then satisfied. Economic history advances as more and more of these children are free to pursue their imagination into adulthood, through the elimination of poverty and with the support and backing of fellow dreamers (and family).

Rights to economic output are secondary to braggin' rights: witness those involved in the scaling of Everest, the Apollo moon landing, and undoubtedly those who oversaw the building of the vast network of Egyptian irrigation canals.

I'm not talking about publicity, Bob. It's the glory you carry inside you the rest of your life knowing you've done something, something that made a difference. Benjamin Bratt as Lt. Colonel Mucci, from the fact-based movie “The Great Raid

Those bribed or conscripted into helping others realize their dreams also deserve to have their story built into the economic narrative. But for our purposes we focus on the dreamers without whom the rest of the story would be mundane, boring and cyclical.