Presentation Speech by Professor Lennart Jörberg of the Royal Swedish Academy of Sciences
Translation of the Swedish text
Your Majesties, Your Royal Highnesses, Ladies and Gentlemen,
Robert Fogel and Douglass North have been awarded this year’s Prize in Economics for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.
Why are some countries rich while the majority are poor? Why have some experienced rapid economic growth over several centuries while others have remained stagnant or even become worse off economically? This year’s Prize-Winners have attempted to answer questions such as these by combining economics with history, and have pointed to new ways of studying and understanding economic growth and change. They have employed the best analytical techniques of economic science and combined them with historical data. In other words, they have combined economic theory, quantitative methods, the testing of hypotheses, counterfactual alternatives and traditional economic history methodology in order to analyze and understand profound questions and explain profound changes.
Fogel showed that railways were not the essential prerequisite of economic growth which many scholars had formerly asserted. Fogel’s analysis of the part played by the railways in the economic development of the United States has caused today’s scholars to be more restrained in ascribing a crucial role to sundry ‘great innovations’ in order to explain modern economic growth. Fogel’s finding, arrived at with the aid of so-called counterfactual analyses and social cost-benefit analysis, has been corroborated by other scholars, all influenced by Fogel.
With the assistance of a prodigious body of data along with economic and statistical techniques, Fogel also showed that despite the moral heinousness of slavery, it was an efficient market solution. Slavery did not perish because of inefficiency but required political decisions to secure its abolition.
In his efforts to elucidate the problems of economic growth Fogel has also laid stress on demographic factors. Through their organization of largescale international research, he and his colleagues have not merely assembled and processed an enormous mass of data but have also shown that our knowledge of the correlation between nutritional standards and mortality has been fragmentary and has left many questions unanswered.
Douglass North has studied the economic growth of the United States, most notably in the period prior to the Civil War, and Europe’s development in a very long perspective. Like Fogel, North has shown that technological change is far from being a sufficient explanation for increased productivity. In transoceanic shipping, for example, the rise in productivity arose to a high degree out of organizational changes.
He has also shown that traditional theoretical analysis must be combined with a study of the development of institutions. It is this combination which is the key to the understanding of economic change.
North has underlined the role which institutions play in reducing uncertainty by creating stable, if not always efficient, structures for human activity. Institutions are to be understood as connoting all the written and unwritten rules and usages which influence our mode of being and acting. Absence of institutional stability raises the cost both of producers and of consumers. A lack of clearly defined property rights and difficulties of concluding binding contracts hamper rational economic decisions. In order to understand Europe’s long-term development, from the Middle Ages onwards, we must be able to analyze the role of institutions, both as a cause of economic growth and as obstacles to economic change.
One reason why the Industrial Revolution took place in England was that the regulatory role of the state was small and the guild system was weak. In France mercantilism developed, with strong regulation of economic life and foreign trade but with weak economic growth. Strong state regulation and strong institutional obstacles, such as vagueness in the rules relating to property rights, may explain Spain’s weak economic development during the seventeenth and eighteenth centuries.
We can also explain the lack of economic dynamism in non-Western countries during past epochs, the collapse of the Eastern European societies, and the current economic problems of many countries in the so-called Third World, by studying the importance of precisely these institutional factors, which have narrowed the scope for economic change more frequently than they have broadened it.
In other words, it is their manner and method of tackling the problems of economic history which, more than anything else, have elevated this year’s Prize-Winners to the front rank of scholars in the field called ‘the new economic history’. Robert Fogel and Douglass North were pioneers of this research, which has had a lasting influence on the continuing development of economic history as a subject. In their different ways Fogel and North have regenerated the study of economic history by making it more stringent and more theoretically aware. At the same time they have demonstrated the need for a historical dimension in economic analysis.
Professor Fogel and Professor North, It is my pleasure, on behalf of the Royal Swedish Academy of Sciences, to convey to you our warmest congratulations for your pioneering research in Economic History, and ask you to receive the Nobel Memorial Prize in Economic Sciences from the hands of His Majesty the King.
Their work and discoveries range from the formation of black holes and genetic scissors to efforts to combat hunger and develop new auction formats.
See them all presented here.