Douglass C. North North\'s Lecture

¶ … Douglass C. North

North's lecture to the memory of Alfred Nobel touches on many different and equally important concepts in the study of economics. Many of them are concepts which are just being identified, and as a process, represent the next step in the evolution of economics as a field. North argues throughout the lecture that the focus of modern economics must be shifted from the study of historical economic functions to the study of economic development and development dynamics. Economic function is something that has been measured and hypothesized about, but the dynamics of markets and they way they change and adapt to the environment around them has not been studied (North, 1993). North also concludes that the way humans learn and interact with their world also affects economic models and functionality. To introduce an economic system in one place and then move it to another where completely different norms and values are at work is something that cannot be done without first modifying the system to be successful in the new social environment. Society is just as important as markets when it comes to adapting and modifying economic strategies to fit within different cultures and societies. North's exploration of the way humans learn and categorize their universe is very insightful and it shows a deep level of understanding relative to the way economic factors are digested by different societies and cultures. What works in one part of the world may not work in another (North, 1994). The perspective that North is taking is beginning to transform the entire world in a cultural, economic, and political context. Problems need to be solved locally, and local influences can exact huge impacts on the function and dynamics of economic concerns.

Another key concept brought up by North is the idea of the telescoping nature of economics and human interaction. He uses a 24-hour clock to compare how for the last 23 and a half hours, humans were merely concerned with basic survival. Only in the last few minutes of time, according to North (1993), have markets and economic understanding been able to develop. These understandings are so fragile and fundamental however, suggesting that the study of economics has been overly concerned with trying to compartmentalize and understand the past behaviors of markets and not the most important aspect of economics currently, which is the dynamics and adaptations of these same markets and economies. The small timeframe with which the field of economics and the study of markets and the way they change, adapt, and are modified is so new, that North (1993) argues more effort needs to be spent in trying to understand these subjects and how they relate to economics as a whole. Economies and markets emerge within the confines of a particular society's set of rules and understanding of the world (North, 1992). Besides limiting the scope and scale of the markets, these confines have limited the perception of market change as well. The perspective that has been used to understand modern economics is that of the United States' and the Western World. North (1993) argues that it would be incredibly useful to begin an undertaking to better understand the market dynamics in third world countries and other places where the study of economics and market dynamics are not already biased by the overarching perspective of the host society.

The importance of North's contributions cannot be understated. Essentially, North is asking those cultures that have been the traditional definers of economics and market analysis to take a step back and begin to understand their inevitable influence on the field of economics. He is also asking these same cultural heavyweights to take a closer look at not just how markets behave in theory or in a perfect world, but how they adapt and change relative to cultural shifts and social-environmental changes. This stepping back from the status quo is also extremely important because it allows the rest of the world the opportunity to have input in economic matters and the study of how economies develop and change. North asks everyone to distinguish between the real world and the decision-maker's perception of the real world. This is an attempt to separate the observer from what is being observed in order to more fully comprehend and understand how economics as a social concept adapts to different scenarios and decision-maker perspectives. In North's own words, "The choices individuals make are going to reflect the mental constructs by which they process information and will vary with different mental constructs" (North, 1992). This statement, while very appropriate to the study of economics itself is also extremely pertinent in the economic development of undeveloped nations and third world economies. The mental and social constructs that a market functions within in one place will likely create a resultant market force that, if applied to a different culture, would not result in the same influence (North, 1993). North is asking for a less ethno-centric egocentric worldview when it comes to the application of economics around the modern world.

North's work deserve the Nobel Prize because it asks economists and scholars alike to begin thinking and perceiving the economic behavior of the past two and a half centuries as a Western-centric phenomenon. Not only has the last 250 years of economic research and understanding been undertaken primarily by Americans and Western Europeans, but also the social constructs that are brought from one part of the world to another are also very ethno-specific (North, 1993). It is through this observation that North has begun to create the dialogue necessary to more successfully and effectively solve the world's economic problems and begin to build a more inclusive understanding of the way markets change and react. Apart from being poorly understood and under-researched, market dynamics are an extremely important function in understanding the whole of how a market and an economy functions inside of a culture. North's work brings together ideas from around the world and justifies the perspectives of those who have not been as fortunate as America or Western Europe in shaping economic and social policy abroad. A shift from ethno-centrism to undertaking an immense effort to understand others within their own context shows why North deserves the Nobel Prize for his work. Through his research, North empowers cultures that would otherwise have been excluded from the conversation of economic dynamics and change by giving them a voice with which to both be heard and to affect influence around the globe. North is truly operating on a global scale.

Other economists and philosophers have not been as kind as North has been in trying to give a voice to those who would otherwise not possess one. In a general way, any sort of power shift from the status quo to those who were previously without a voice represents a direct threat to those who have held power for the past quarter millennium. Other the other hand, if the emphasis has begun to shift and the study of the dynamics and adaptations of economies does occur, it will undoubtedly unlock a wide variety of new opportunities and options for those countries and societies who have enjoyed a relative monopoly on economic perception and implementation of economic systems (North, 1994). With new risks come new opportunities. The pre-North way of thinking, while contextually valid, does not leave room for understanding the cultural and social importance of how economies change and are affected. This entire field has been opened up by North and those working in concert with him to begin to raise awareness that the solutions to many cultural and social problems need to be solved from the same viewpoint and with the same, shared considerations that the people who are involved with the dilemma have themselves. As North (1993) himself argues, the neo-classical way of understanding the world is outdated and there needs to be a fresh set of lenses bestowed upon the perspectives of those involved in the undertakings of economics, particularly outside of the Western World.

From an historical context, Douglass C. North's work represents a sea change in cultural and social policy, and has the potential to affect billions of people through a renewed sense of community and concern for cultural context. North has started a chain reaction that will likely result in the questioning of market forces and fundamentals that were once thought to be the bedrock of the economics field. His work, according to many of his colleagues is groundbreaking because it holds the potential for unlimited inclusion and understanding of how economies are changed by the very mental structures and cultural constructs that they operate in and around.