It is difficult to believe that the exploration of long-run economic change can be achieved without development of a body of theory that can incorporate the innovation, mutation, and demise of institutions. If the theory employed in economic history (and economic growth) continues to be restricted to the tools of traditional micro–macro economics, further advances in knowledge are, by the very nature of the theory, severely restricted. The objective of this book is to break out of these strictures and develop a theory of institutional change. The model is consistent with, and built upon, the basic assumptions of neo-classical theory. Therefore, it allows us to integrate standard economic analysis with an explanation of the emergence and decline of institutional arrangements as we attempt to explore the past. The limits of the model will be readily apparent to the reader since we have attempted to specify its shortcomings as well as its accomplishments. Certainly it is only a first step – but we hope a major stride – in developing a theory of institutional change. In Part One, the theory is developed; Part Two applies the theory to American economic history; Part Three explores some further implications and limitations of the analytical framework.

We ask the reader to keep in mind three limitations of the study: (1) the model is a simple one which explains a given, and specified, range of institutional innovations, but explicitly does not explain all institutional change; (2) the historical chapters make no pretense of being a complete history of the particular product or factor market under examination.