Perspectives from New Institutional Economics
Edited by Claude Ménard
Chapter 4: A revolution in economics
4. A revolution in economics Douglass C. North Ronald Coase started what I consider a revolution in economics. His two most famous essays are ‘The nature of the ﬁrm’ (1937) and ‘The problem of social cost’ (1960). My interest here is in the implications of Coase’s work, which lead us in the direction of concern with the overall performance of economies. The inspiration, of course, was his emphasis over and over again that one could not really come to grips with how economies perform without putting at the foundation institutions and the way they affect economic performance. Here I shall discuss the implications of that approach and that particular emphasis for reshaping the way we are studying economic performance and why economies will vary in terms of the quality of that performance. Institutions are the structure that human beings impose on human interaction. They determine the incentives that direct economic activity and underlie the price theory and indeed all of neoclassical economic theory. It is for this reason that Coase has emphasized over and over again, as he did in his address at the ﬁrst meeting of the International Society for New Institutional Economics, September 1997, that what we are going to do in the Society is redirect economics. He is emphatic in the view that economics is going to be redirected by the demonstration that what we are doing could solve problems of human beings better than alternatives. Indeed, that is happening. It is happening in terms of the...
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