An Evaluation of the Role of the State and Property Rights in Douglass North’s Analysis

Abstract

This paper intends to show that the role Douglass North has attributed in his latest works to the modern State in the working of economic system permits the development of a political economy theory which joins the political and economic dimensions with abstract generalizations quite different from and more interesting than the ahistorical and asocial neoclassical ones, at the same time avoiding a narrow descriptive character. Notwithstanding the fact that some of these ideas have been presented elsewhere, 1 more development is necessary, especially concerning the possibility of spontaneous coopera- tive behavior to dismiss the role of the State in property rights assignment and enforce- ment as a necessary condition for modern market functioning. Thus, the next section explores in North's analysis the links between transaction costs, multidimensional prop- erty rights, and third-party enforcement in modern societies, which demands the State's intervention not only in the enforcement but also in the definition of property rights, as a necessary condition for market operation. The third section discusses the modern institutional analysis of spontaneous emer- gence of social cooperation essentially founded on Robert Axelrod's contribution, for its approach seems to contradict the role of the State as a third-party agent to define and enforce property rights. The fourth section discusses the determinants of the State's institutional action to define and enforce property rights according to North's analysis. Then, it will be demonstrated that North's analysis of these determinants is unsatisfac- tory but states a future research agenda for the study of the relationship between politi- cal and economic systems. The last section summarizes the most important questions for future research.