European Economic Growth: Comments on the North-Thomas Theory

Abstract

IN a recent article Profs. Douglass C. North and Robert Paul Thomas advanced what they described as An Economic Theory of the Growth of the Western World.1 For economic historians who have wrestled with the problem for some time, this attempt at a explanation2 of western economic growth is valuable because it reinforces the growing concern for systematic examination of the relationships between individuals, institutions, and long-run trends in the pre-industrial European economy. Nevertheless, the conclusion that the implications and promise of the synthesis offered are revolutionary enough3 is an overstatement, while the overall synthesis arouses certain reservations. The proposed by North and Thomas relies heavily upon three components. The first is a model for cyclical fluctuations in the pre-industrial economic life of Europe which is virtually identical with that of B. H. Slicher van Bath.4 This model defines the relative changes in the cost (or price) of land and labour as changes in population alter the ratio between the two. It incorporates the relative elasticities which have been found in the supply and demand curves for foodstuffs as opposed to those for raw materials and industrial products. The North-Thomas formulation uses the Slicher van Bath model to demonstrate the presence of shifting factor proportions in the economy of sixteenth-century Europe. These shifts, they maintain, augmented by the increased mercantile opportunities connected with Atlantic expansion, generated a unique pattern of institutional change in western Europe. North and Thomas then elaborate this last observation into the second major element of their model, a theory of institutional change.5 The shifts in factor proportions so heightened the possibilities of profit from production for the market that they exceeded the costs of the institutional innovations needed to change the organization of production and distribution of income. The result was the steady introduction of institutional changes such as enclosures, joint-stock companies, government support of certain guilds, and regulation of quality. The accumulation of new secondary institutions during the sixteenth, seventeenth, and eighteenth centuries eventually forced a change in the fundamental or constitutional institutions of the society.