The Rise of the Western World: A New Economic History (ISBN 0521290996)

Book Description:
A radically new interpretation, offering a unified explanation for the growth of Western Europe between 900 A. D. and 1700, provides a general theoretical framework for institutional change geared to the general reader.

A Liberal Analysis of Modernity?:
North and Thomas seek to explain the "rise of the Western world" by illuminating the causal importance of an efficient economic organization that guarantees a wide latitude of property rights and both incentives and protection for economic growth. Although they pay homage to both Marxian and neoliberal theory, they take a theoretical middle ground that privileges the sociopolitical backdrop of economic affairs (as opposed to solely private or class-based activity) and in doing so identifies the roots of modernization as far back as the 10th Century. To justify the novelty and originality of this approach, they write that most analysts have misidentified the symptoms of modern economic growth (technological change, human capital, economies of scale) as the causes. In doing so, previous scholars have failed to answer the question "if all that is required for economic growth is investment and innovation, why have some societies missed this desirable outcome?" (2). Their answer is that some societies (England and the Netherlands) were better than others (France and Spain) at providing an efficient economic organization that could guarantee conditions favorable to per capita economic growth among a rapidly growing population. These conditions are conceptualized as mechanisms to reduce the gap between "social" and "private" rates of return, the key operating concepts in the analysis. Indeed, any old economic undertaking can provide private gains, but the "social" costs or benefits of this undertaking will affect the society's well-being, and a given discrepancy between the two rates of return means that a third party will absorb benefits or costs of this undertaking (an example would be the lack of intellectual property rights for inventions, leading to copying and piracy by third parties). A lack of strong property rights gives these third parties the institutional incentive or imperative to absorb social costs or benefits, and if private costs exceed private benefits then no rational chooser would ever undertake any risky new private economic activity (trade, inventions, investment, etc.). In a sense, then, the analysis becomes a refreshing neoliberal justification for strong government power. Population growth serves as a convenient control variable for this analysis, because by holding population growth constant across all the countries concerned, the authors are able to pinpoint their causal variable (parity between private and social rates of return) in the cases where it spurred the rise of capitalism (England and the Netherlands). Population growth serves as a control because the authors show that the rise of the Western World happened only after the second population boom in the period being studied (16th Century) - the fact that it didn't happen during the first population boom (10th through 13th Centuries) means that population growth alone cannot be seen as accountable for modernity. But how did the two population booms differ from each other? Only during the second one were England and the Netherlands able to provide per capita growth by providing a climate of incentives and protections (rule of law, property rights, insurance companies, joint stock companies, etc.) that reduced the gap between private and social returns and laid the groundwork for the industrial revolution to begin. The evidence provided to back up this causal argument comes in two primary forms: citations of historical scholarship (often quoting large passages out of encyclopedias) that are given a "new" economic spin, and a great deal of quantitative evidence, in the form of graphs and charts, to verify the cycles of population growth and economic growth and recession being identified. The authors admit that the quality of statistical data from the early period under study is rather dubious, but if one can grant the integrity of the historians that uncovered such incomplete and partial data then one can probably take this data as high-quality evidence of the trends being identified. The authors are intentionally ambiguous about their theoretical implications. Clearly, they seek to refute Marx by showing that technological change alone could not have been the cause of capitalist development, since this change itself was a symptom of both population growth and a favorable institutional climate (what Marx would dismiss as the superstructure). However, it's not clear how much they wish to refute neoliberal theory, since they follow much of its logic regarding the role of incentives in economic growth. They admit that Adam Smith himself went too far in his laissez-faire beliefs, since a weak state would not be able to provide the kinds of efficient economic organization that our authors advocate. But their analysis does not clarify just how strong of a state is required for such organization, especially in the information age economy.

First-Rate, But Not For Amateurs:
I read this excellent book in preparation for the writing of my senior thesis. It is the most thorough and comprehensive tretment of the economic reasons for the rise of the western world. Every sentence is information dense, and I often found it necessary to reread sentences or even whole paragraphs to digest the wealth of information and analysis. That said, it should be kept in mind that firm backgrounds in both European history and economics are necessary prerequisites for a full appreciation of this book. Moreover, this book is a crucial but nevertheless incomplete explanation for the rise of the western world. In this sense, it has everything on something (economic history), but nothing on anything else. For a broader analysis, see McNeill, "The Rise of the West." (McNeill has something on everything, but everything on nothing. Get it?)

An Examination of Property Rights:
An outstanding book that clearly explains how `our' current understanding of property rights can be found and more fully understood through the feudal history of western Europe. The breath and sweep of this book is truly impressive. The roots of how nations protect property rights are found in western feudal history. The case is made that economic efficiency, or more specifically economic prosperity, is dependent upon how a society defines and protects property rights. Therefore, differences in economic performance among nations can be in part explained by how that particular nation's notion of property rights evolved. North and Thomas compare and contrast the development of property rights and the resulting economic performance during the feudal period in several nations, such as France and England, to make their point. Transaction costs, intellectual property, and negative and positive externalities are also discussed.

Less Than Advertised:
This is a classic statement of the economic "institutionalist" explanation for Western dominance of the world. The North/Thomas argument is essentially that Western Europe/North America developed a set of economically efficient institutions that promoted economic producitivity growth, institutional innovation, and technological innovation. These institutions are free markets and specific forms of property rights, legal and political systems that favor market stability and security of property, and government fiscal policies that provide government with enough resources to protect market stability and property rights. Government fiscal and political policies cannot, however, undermine market forces and property rights. North and Thomas present a concise but well done overview of European economic history from 900 - 1700 AD to support their hypothesis. The gist of their case is that a pair of nations that developed these institutions, Holland and England, developed productive and expanding economies. Those nations that did not; France, Spain, etc., either stagnated or actually declined. The development of these institutions is shown to be a contingent and essentially fortunate process. Up to this point, I think that North and Thomas make a very good case, though there may be other crucial strictly non-economic factors. Holland and England were both, for example, relatively tolerant Protestant countries. Does this argument, however, explain The Rise of the Western World of their title? Probably not. North and Thomas have made a good argument to explain how Holland and England developed more dynamic economies than their European competitors. But does this explain the subsequent Industrial Revolution that really made possible the Western conquest of the globe? The North and Thomas story terminates at 1700, before the Industrial Revolution. Its a reasonable hypothesis that the same institutions that drove economic success in Holland and Britain contributed to the Industrial Revolution, but the most you can argue on the basis of the North/Thomas thesis is that these institutions were necessary for industrialization. They present no arguments to prove that these institutions were both necessary and sufficient to drive the Industrial Revolution. Substantial recent scholarship like Pomeranz's The Great Divergence has argued that 18th century Qing China and 18th century Europe were economically much more similar than believed previously. Yet, the Industrial Revolution arose in Europe, not in China. To date, no one has provided a convincing explanation.

Not bad:
Some great insights into the origins of property rights and how they relate to today's world. Well written, but tedious at times.