Liberalism and Institutions:Douglass North and Neoclassical Economics

Abstract

This essay attempts to understand the contributions and weaknesses of Douglass North’s institutional economics and how it relates to the basic tenets of liberalism and neoclassical economics. It examines the liberal theory of society and, on the one hand, how the problems of coordination and social cohesion are resolved in the market while preserving individual freedoms and, on the other, their relation to the neoclassical paradigm. I conclude that North’s theoretical framework contains the basis for building a general theory of institutions. However, his analysis is limited because, in the absence of an alternate theory of value, North inserts it into a neoclassical framework and does not develop an alternative theory of value. His theoretical proposal is useful for reconsidering the tenets of liberalism, while enriching the economic debate by contributing to a broader vision of social, political and economic phenomena.