The Institutional Revolution: Measurement and the Economic Emergence of the Modern World.

• Author: Shughart, William F., II.
• Position: Book review

The Institutional Revolution: Measurement and the Economic Emergence of the Modern World

By Douglas W. Allen

Chicago: University of Chicago Press, 2012.

Pp. xiv, 267. $30.00 cloth.

"Institutions matter" is a--or perhaps "the"--mantra of the public-choice and Austrian economics research programs. But institutions also play central roles in scholarly work lying mostly beyond the boundaries of those two traditions, including that of, among others, economic historians (e.g., Douglass North and Joel Mokyr); students of the organization of the firm and of the industries populated by business enterprises (Ronald Coase and Oliver Williamson); and contributors to the modern literatures on the evolution of property rights (Harold Demsetz, who is missing in action here, and Yoram Barzel), the common law, and commercial law (Coase again and Bruce Benson, also MIA).

Douglas Allen, relying heavily on Coasian transaction costs and models of principal-agent relationships, theoretical ideas to which he has devoted his own attention throughout much of his academic career, writes that he eventually realized that an institutional revolution, running "between roughly 1780 and 1850" (p. xii), propelled the more familiar Industrial Revolution, which began around 1750, according to most students of economic history. In The Institutional Revolution, Allen summarizes the evidence he sees as supporting the conclusion that new technologies, such as reliable timepieces, and new institutions, such as "professional" public-sector bureaucracies and standard weights and measures, were necessary, if perhaps not sufficient, for driving the economic progress that has enriched the nations of planet Earth.

Allen begins in chapter 1 by describing what he calls "the pre-modern world," wherein individuals lacked "the ability to measure basic fundamentals such as time or distance" (p. 8). He quotes liberally from Samuel Pepys's famous Diary (kept during the second half of the seventeenth century) to show the reader that many important meetings never happened owing to the absence of reliable (and synchronized) clocks as well as to the unavailability of dependable, steam-driven transportation modes and power sources (as discussed in chapter 2, such deficiencies magnified the variances of outputs relative to inputs). Was the person whom Pepys (or anyone else) had been scheduled to meet simply dilatory, or could a missed appointment instead be explained by mutual mistakes in estimating the meeting's actually scheduled time? Was a shipment of cargo delayed because of the vagaries of wind, weather, and tides in the age of sail or because of some failure on the part of the captain or crew? No clear answers could be given to such questions, and, in consequence, "shirking" (evasion) of responsibilities was widespread.

As Allen remarks, the trustworthiness of one's agents was, then as now, of first-order...