Social Rules

Abstract

North is an outstanding figure in the economists’ approach to the history of rules and changes in rules, though he believes, as he makes clear in the work that outlines the basis of his thinking (Structure and Change in Economic History INew York: W. W. Norton & Co., 1981]), that “ideology” (in part, the rationalization of institutions and the rules that give form to them) in large part escapes economic analysis. Economics—neoclassical economics—can explain via the free-rider problem why as so frequently happens people do not organize to advance their interests even when large numbers of people would benefit from such organization; but it is in the direction of ideological controversies over the justice of rules that historians must look for the explanation of those large number organized efforts that do occur. Moreover, in the sphere of issues amenable to economic explanation, North holds that neo-classical models assuming smooth adjustments in supply and demand must often give way to models that give chief weight to transaction costs and to people’s efforts to reduce them. The rules that give form to institutions may be intended to be least-cost solutions for people seeking to protect and increase their revenues; but they have more often than not been at best least-cost solutions for a subclass of the population (the rulers of a given state) and even then successful only to a degree in reducing transaction costs. Nevertheless, it is shifts in perceived opportunities to seize benefits while reducing such costs that time and again account for changes in rules, including in time changes in the most fundamental ones.