A Neo-Institutionalism of Measurement, Without Measurement: A Comment on Douglas Allen’s The Institutional Revolution

DEIRDRE N. McCLOSKEY
THE REVIEW OF AUSTRIAN ECONOMICS 26.4 (2013): 363-373

Abstract: In his elegant book Douglas Allen claims that an improvement in the measurement of Nature made for lower transaction costs and the Industrial Revolution. His argument is a typical example of neo-institutionalism in the style of Douglass North (1990) and North et al. (2009). A fall in a wedge of inefficiency is supposed to provide Good Incentives, and the modern world. But the elimination of wedges lead merely to Harberger Triangles of improved efficiency—not to the factor of 100 in properly measured real income per head, which is the Great Enrichment 1800 to the present to be explained. Allen does yeoman work in explaining some of the peculiarities of British public administration, such as the reliance on aristocratic honor and on the prize system in naval warfare. But he attributes to public administration an implausible effect on private incomes. The merging of power and plenty is mistaken. Further, the alleged increase in a modern ability to measure marginal products is implausible. Large modern enterprises face greater, not smaller, problems of assessing the contribution of individuals. Allen’s book on measurement does not measure, and the probable order of magnitude of the items he focuses on is too small to explain any but the details of administration.