An Economist Honored for His Unorthodoxy Douglass North Receives Nobel Prize Today

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DOUG NORTH hobnobbing with royalty? Dressed in white tie and tails? It'll happen today in Stockholm, Sweden, when he receives the Nobel Prize for economics. And friends may be left wondering which is the bigger event - the prize or the outfit?

At Washington University, where he resides as an understated faculty icon, North, 72, wears no tie at all. Typical dress would be a sweater or sport coat, tan trousers, and old yellow sunglasses.

For a man who has won almost every honor in economics, North seems to be without conceit - even modest.

All of which seems surprising for a man who has spent a lifetime challenging conventional wisdom.

Until recently, North had been a hidden giant in his field - respected and well known within it, virtually unknown outside it.

That changed on Oct. 12 with the announcement of his Nobel Prize.

Now, North is celebrated for creating a whole new way of thinking about economics. His work stands a good chance of dethroning the famous Chicago School of neo-classical economics that has dominated the profession for so long. Learning At The Chess Table

Although he had a lot of formal education, Douglass Cecil North, says he really learned about economics at a chess table.

A Marxist as a youth, North stayed with that dogma until well after he completed his Ph.D. in 1952 at the University of California, Berkeley.

Then, in his first teaching position, at University of Washington in Seattle, North found his mentor - economist Don Gordon, who liked to play chess and talk economic theory by the hour.

Gordon was a devout believer in the importance of rigorous economic analysis. He was able to tear North's logic to pieces while remaining his friend.

North's conversion from Marxism was by no means immediate. He describes it as a gradual process. He came to see that while Marxism asked the right questions, its answers weren't very good.

For a while, North became a Republican; he did not remain one. On economics, however, North remains a conservative. He believes in the free market.

Moreover, he thinks it is important to understand why the free market works; and that requires understanding the societies that produced it. Economic Principles Applied To History

At first, North accepted orthodox economic principles as a guide to the truth. But gradually he came to see that they didn't fully explain why people behaved as they did.

Eventually, he concluded that other institutions in society mattered at least as much to economic development. This started him on the road to economic history.

North became one of the pioneers of what is known as the New Institutional Economics. He also calls it Cliometrics (Clio for the Greek muse of History, Metrics to emphasize the importance of statistical technique). Simply put, North applied economic principles to the study of history. He believes this is the only way to see what caused some societies to develop, while others languished.

North became convinced traditional economic theory was wrong. He found its model of rational man acting in perfect pursuit of his economic self-interest simply "crazy."

Worse in his view, neo-classical economics focuses on economies in the abstract.

North wanted to know how they behave over time. He wanted to "predict yesterday" in order to understand today, and perhaps tomorrow.

Believing in what he calls "the plasticity of man," North searched for other factors to explain economic - development.

Traditional economists point to the importance of natural resources, capital, technology and education.

But North found by examining history with quantitative tools that this wasn't so.

Some societies rich in resources hardly developed at all. Spain conquered the New World, which brought Spain enormous wealth. But the nation didn't develop economically. …