Institutions and American economic performance
By Arnold Kling
While factors associated with slavery, capital, labor and resource endowments may have contributed to the growth of U.S. regional spatial inequality, the divergence in regional political and legal institutions was also a major contributing factor. In the colonial period, the North emerged with democratic institutions which fostered trade and development whereas the South arose with plutocratic institutions which fostered agrarianism. In the early nineteenth century, the North experienced a shift in its legal institutions to a judge-based, “instrumental” law which promoted industrial development whereas the South held onto its traditional jury-based, common law which defended the agrarian status quo.
…With the outcome of the Civil War, the South faced a significant assault on its institutions but the convergence of their institutions toward those of their northern counterparts did not begin in earnest until the second half of the twentieth century.
This sort of analysis raises some concern about what people refer to as “just so” stories. That is, you notice that the North had a stronger economy than the South. You want to believe that some of the difference reflected better institutions. So you go out and find a story that fits that model.
I am not saying that the analysis has no credibility. However, one needs to be careful about evaluating the evidence.
Nick Schulz, who pointed out the paper, also noted that the author’s interpretation is contra Gregory Clark’s dismissal of institutional explanations. True, but if an economist were to set out to tell a Clark-like story about different labor forces in the North and South, my guess is that this would not be difficult to do.