Structure and Change in Economic History

By Douglass C. North | Go to book overview

throughout history, many resources are closer to common property than exclusively owned. As a result, the necessary conditions for achieving the equi-marginal efficient solution have never existed—neither in the Roman Republic nor in the twentieth century United States or Soviet Union. The best that societies have ever accomplished is to raise the private return close enough to the social return to provide sufficient incentives to achieve economic growth. But the fact that growth has been more exceptional than stagnation or decline suggests that "efficient" property rights are unusual in history. In particular, individual capturability of the benefits to society from additions to the stocks of knowledge and technology has been either absent or very imperfect. As a result, not only has technological progress been slow throughout most of history, but diminishing returns to the stock of natural resources has been the most critical economic dilemma of mankind.

That dilemma brings us to the second assumption of the model. It is only in the modern era that science and technology have been wedded so that the overcoming of diminishing returns has been a reality. While Western nations have not experienced diminishing returns to natural resources in the past century, they certainly had in the more distant past.

The existence of a positive return to savings is also dependent on the structure of property rights. Throughout history the percentage of income saved and the rate of capital formation (physical and human) have usually been extremely low and sometimes have been zero or negative. The security of property rights has been a critical determinant of the rate of saving and capital formation.

Coincidence of the private and social costs of having children has implied not only that fertility was subject to human control but also that the structure of incentives and disincentives existed to adjust individual fertility decisions instantaneously to changes in the costs to society of additional population. The recurrence of Malthusian crises throughout history provides abundant evidence that this condition has not obtained.

And finally we come to the last assumption—the coincidence of choices with results. A powerful insight of neoclassical theory, with fundamental implications for economic history, is that under conditions of uncertainty it is impossible for individual profit, or wealth, maximization to exist (since no one knows with certainty the outcome of a decision), but that the wealth-maximizing re

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