Why Europe? A Critique of Institutionalist and Culturalist Economics

Abstract

Economists have recently started to discuss the roles of institutions and cultural beliefs in explaining the performance of civilizations. This paper investigates two views, 'institutionalist economics' and 'culturalist economics', with regard to the question of why Europe rose economically a few centuries ago, while other regions of the world lagged behind. These two views share a common platform raised on two pillars. First, both regard institutions/beliefs as extraeconomic -as primordial entities that ultimately stand independent of economic performance. Second, both regard economic performance as fully determined by institutions/beliefs -i.e. normative causality in the sense that institutions/beliefs determine performance. Douglass North's (2005) analysis of economic performance, for example, is based on both pillars. Concerning the primordial pillar, he attributes 'the mystery' of the rise of Europe to primordial beliefs, viz. 'Christian dogma' and English 'individualism'. Concerning the normative pillar, he presumes that such beliefs have almost one-to-one correspondence with economic performance. This paper, though, maintains that the two pillars (primordial analysis and normative causality) are rather fragile: Advocates of the first pillar fail to recognize that institutions/beliefs are endogenous. Advocates of the second pillar fail to recognize that institutions/beliefs can give rise to diverse economic performances.

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