------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (August 2006)
Avner Greif, _Institutions and the Path to the Modern Economy:
Lessons from Medieval Trade_. New York: Cambridge University Press,
2006. xix + 503 pp. $35 (paperback), ISBN: 0-521-67134-5.
Reviewed for EH.NET by Philip T. Hoffman, Division of Humanities and
Social Sciences, California Institute of Technology.
Institutions have captured the attention of many economic historians,
and of many other social scientists as well, ever since Douglass
North argued that they were the key to understanding long run growth.
The widespread interest in institutions ought ultimately to boost the
fortunes of economic historians, since they can rightfully maintain
that they have something of a comparative advantage in the area. Who,
after all, knows better how institutions work, how they change, and
what real impact they have?
Economic historians will therefore welcome the appearance of Avner
Greif's new book, for among its many virtues, it offers a new and far
more profound way of thinking about institutions. Greif, of Stanford
University, begins by setting aside the concept of institution that
dominates much of economics and political science -- namely, that
institutions are politically determined rules which constrain
behavior, such as laws or articles of a constitution. While this
definition may suffice in some circumstances, it is really ill suited
for analyzing why institutions change or why their effects seem to
endure so long. Worse yet, it fails to explain why rules are followed
in the first place. Saying that people follow rules because they fear
the penalties for violating them is unsatisfactory, Greif points out,
for what enforces the penalties and makes sure that the police and
the courts punish the violators? Historians ought to know this better
than anyone else, for we have all studied periods of history when
order breaks down and enforcement of laws goes out the window.
Greif's answer is to conceive of an institution as more than just a
rule, because there has to be something behind the rule if it is in
fact observed. For Greif, an institution is thus a system of rules,
beliefs, norms, and organizations that together generate regular
social behavior. Consider, for example, the rule from the criminal
law that outlaws theft. Part of the reason the law is observed is
that it is enforced by organizations such as the police and the
courts. But beliefs and norms are at work too. A person will only
heed the law if he has internalized a norm that frowns upon theft or
if he believes that police are likely to catch him if he tries to
steal and that nothing he can do (such as trying to bribe judges or
the police) will change the outcome in his favor. In many places, the
organizations, beliefs, and norms work, and the rules against theft
work. The result is a regularity of behavior -- low crime rates. But
in other places, that is not the case. In Chicago in the 1950s, for
instance, certain jewelry thieves could go about their business with
relative impunity, provided they paid off the police or had their
lawyers bribe judges; the rule against burglarizing jewelry stores or
holding up gem salesmen was not always observed. The thieves believed
that bribing judges and the police would pay off, and at least in
some cases it did. But their impunity did not extend to the nearby
suburbs, where the police were apparently harder to corrupt.[1]
My account of Greif's definition may seem a bit abstract, but Greif
makes it come alive by using it to explore a number of illuminating
examples drawn from the history of the Commercial Revolution in the
Middle Ages. The examples (the Maghribi traders, medieval merchant
guilds, the rise and fall of Genoa, the medieval origins of
impersonal exchange, and its ties to the common practice of holding
whole communities responsible for individual debts) not only yield a
much deeper understanding of how institutions operate but they also
shed light on fundamental questions of economic history-- in
particular, why the West and the Muslim World diverged in the late
Middle Ages. To make sense of these examples, Greif uses two tools --
game theory and careful historical analysis. Neither tool, he argues
persuasively, is sufficient by itself, and those who would try to
probe institutions with game theory alone are therefore making a
terrible mistake. To understand institutions -- and in particular, to
grasp how they change -- requires a historian's painstaking attention
to the context, and for that reason alone economic historians ought
to rejoice in his book, for it amounts to a powerful defense of
economic history within the discipline of economics.
That is not the only reason Greif's book should appeal to economic
historians, for he also manages to explain why institutions have such
long lasting effects and when it is they themselves will change. And
he does all this while drawing upon fields ranging from sociology to
political science, which should win the book readers throughout all
of the social sciences.
Will they all agree with everything Greif says? Perhaps not, but they
will have to take him seriously, because his book represents the
cutting edge when it comes to the study of institutions. Some readers
may perhaps want more quantitative evidence, but they will have to
admit that Greif's analytic histories are quite persuasive, and they
will have to acknowledge too that appropriate econometric testing of
the sort of game theoretical models Greif uses is still in its
infancy. Other readers may worry that the historical evidence is
perhaps consistent with different game theoretical equilibria and
thus with different treatments of Greif's examples. They can
certainly make their case, but in the end their accounts are likely
to end up complementing Greif's analysis, rather than being a
substitute for it.
And that is perhaps another virtue of this path breaking book: by
creating new tools for studying institutions, it is likely to inspire
research for years to come. By all rights it deserves to do so, in
economics, in sociology, in political science, in law, and (to the
extent that historians in history departments pay attention to the
social sciences) in history too. Economic historians obviously have
special reason to prize the book, since it takes up some of the
biggest issues in the field and makes a vigorous case for economic
history within the larger discipline of economics. But other social
scientists will highly value it too, and it will be no surprise if it
ends up becoming -- and rightfully so -- a classic.
Reference:
1. Edward Baumann, _Polish Robbin' Hoods: Inside Story of the Panczko
Brothers - The World's Busiest Burglars_. Los Angeles: Bonus Books,
1992.
Philip T. Hoffman, who is Richard and Barbara Rosenberg Professor of
History and Social Science at the California Institute of Technology,
has recently finished _Surviving Large Losses_ (forthcoming, Harvard
University Press), a study of financial crises, coauthored with
Gilles Postel-Vinay and Jean-Laurent Rosenthal.
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Published by EH.Net (August 2006). All EH.Net reviews are archived at
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