The Rise of the Western World: A New Economic History

The rise of Europe to a position of unparalleled technological development and power has long been the subject of intense academic scrutiny. During the nineteenth century, anthropologists like Louis Aggasiz chalked up western dominance to biological superiority and social Darwinian theories. In the mid-twentieth century, historians replaced earlier pseudo-scientific explanations with what has become a canonical story focusing on the industrial revolution in England. In this oft-told tale, the development of new industrial technologies in England pitted new entrepreneurial classes against old aristocrats, leading to calls for greater representation as the entrepreneurs gained power. At the same time, the maturation of internal markets in England combined with surging population increases fueled a desire to search for more raw materials and new external markets. The rest of the story is predictable: England, Germany, the United States, and other countries located in the European cultural realm capitalize on massive productivity advantages and leave a huge imprint on the world that persists to the present day. This predictable story has had scores of adherents, including development economists like W.W. Rostow, who were convinced that there is a single linear path that countries can take to reach an advanced level of economic growth. Douglass North and Robert Thomas, a pair of economic historians, disagree with the conventional story of western dominance and articulate an alternative theory in The Rise of the Western World: A New Economic History. The book is not only insightful but has also changed the game in economics: North and Thomas received the Nobel Prize in a move that many economists viewed with controversy since the book was a work of economic history rather than macroeconomic theory. North and Thomas begin their story in the Europe of the high middle ages, well before the conventional 1750s starting point of European ascendance. The decision to begin with the middle ages--a time that many other scholars believed was not worth exploring--was deliberate since North and Thomas believe that the industrial revolution has been an effect rather than a cause of western dominance. By beginning with the middle ages, North and Thomas are investigating the underlying factors that made European innovation, including the industrial revolution, possible in the first place. A set of developments occurred in certain parts of Europe at that time that allowed for the future benefits of innovation to be harvested. At the heart of North and Thomas' argument is a simple but elegant thesis: first, "efficient economic organization is the key to growth"; and second, "the development of an efficient economic organization in Western Europe accounts for the rise of the West" (1). In the high middle ages, Europe lacked efficiency in economic structure for a number of reasons. The scale of economic interaction was low, with most transactions occurring around lo

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

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.

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?)