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
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
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
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
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
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
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. …