A History of Wealth and Poverty

Why a Few Nations are Rich and Many Poor

John P. Powelson
Emeritus Professor of Economics
University of Colorado

Spanish translation published 2006 by The Quaker Economist, Louisville, Colorado.
Electronic edition published 2005 by The Quaker Economist, Louisville, Colorado.
Hardcover edition published 1994 by the University of Michigan Press, Ann Arbor, Michigan.
Title of the first edition: Centuries of Economic Endeavor: Parallel Paths in Japan and Europe and their Contrast with the Third World.


To Cynthia

Beloved daughter, 1955-92

and to Robin, Judy, Ken, Carolyn, Larry, and Tim

with whom she shared her life and love


by Loren Cobb

The work before you is Jack Powelson's magnum opus, the result of fourteen years of intense scholarly research into the thousand-year history of economic and political development on five continents. Originally published in print form in 1994, it received excellent reviews. To extend its reach to students and scholars all over the world, Jack agreed in 2005 to publish this free electronic version on the world wide web. A Spanish translation will appear in electronic form in 2006.

The geographic and temporal scope of the historical research in this volume is enormous: the history of the interplay of political and economic changes as they have occurred in Japan, Europe, Africa, India, China, Russia, Mexico and Central America, South America, and the Middle East. In addition, there is a separate chapter dedicated to an analysis of law as an institution of economic growth, and another on prospects for development in the twenty-first century.

It is my hope that future scholars of economics and political science can turn to this work as a starting point for a wide variety of comparative historical studies. One could use Powelson's research to begin a comparative history of political institutions and their influence on economic development, or a comparative history of trade and commerce, or of movements for reform of political systems and land ownership. The possibilities here are unlimited.

Powelson's main interest, and the theme which binds the chapters together into a unified whole, is visible in the evolution of power relations among all the institutions of society. The ultimate explanation of economic development — Powelson argues — lies not in economic factors, such as land, labor, and capital, or even in social forces, such as education, religion, and entrepreneurship. Rather, all these will be added when most people learn, as the Japanese and northwestern Europeans did, that it is good business to be just and considerate toward one's neighbors; to solve quarrels peacefully; to be held accountable for the efficient use of resources; and to abide by modes of behavior — institutions — that have been negotiated and agreed by interested parties.

More than in other regions, as far back as the twelfth and thirteenth centuries many corporate economic interest groups were being formed in northwestern Europe and Japan. At first these included guilds, churches, fief holders, village assemblies, and armies. Over the centuries political parties, labor unions, farmers' unions, consumer cooperatives, lobbies for industries, and more were added. Each interest group possessed a structure by which it might negotiate as a body with other interest groups. A society of many corporate interest groups is called a pluralist society in this book. Other types of pluralism — such as many educational systems, religions, and ethnic groups — followed. Corporate interest groups did exist in other parts of the world, but they did not form the critical mass necessary for power and economic development.

In Powelson's formulation, power means the ability to influence or direct the behavior of others. Power is an economic good, either a capital good like machinery (capable of yielding other products for its possessor) or a consumer good (enjoyed for its own sake). It has costs and benefits. The costs may be monetary, but they may also lie in other sacrifices, such as the number of fellow citizens killed in war. Power is tradable for money or for other goods, and one may hold more or less of it. Thus power shares the major attributes of other economic goods and services.

In both Japan and northwestern Europe, the methods, rules, and instruments of policy and exchange were fashioned primarily by powerful corporate groups that possessed interests in common. Money and banking, commercial law, rules of the market, corporate enterprise, government bureaucracies, and ultimately parliamentary democracy were created in this way. Furthermore, in Japan and northwestern Europe, plus cultural descendants of the latter, the institutions of economic development are held in place by a balance of power among interest groups, which have created an interlocking society. The institutions so fit into each other, like pieces in a jigsaw puzzle, that none can be displaced without the whole society unraveling. Groups with a preponderance of power have vested interests in many of the institutions, so they prevent the unraveling.

As nobility, kings, or church competed with one another in northwestern Europe and Japan, peasant groups might ally themselves with either side, demanding greater power or freedom if their side won. If their side lost, they would bide their time until the next occasion. These arrangements, across social clusters, are called vertical alliances. The application of vertical alliances to enhance power is referred to as leverage. The power-diffusion process consists in repeated instances of vertical alliances with leverage, hundreds and thousands of times over centuries, with power becoming incrementally more balanced each time. "More balanced" means that lower-level groups gained in their ability to thwart (or promote) the goals of upper-level groups. In no society has this process led to a complete balance of power, nor would one even know what "complete" would be.

Up to medieval times, power was centralized in a few elites everywhere in the world, in ways similar to those found in less developed zones today. But in northwestern Europe and Japan, over time it became diffused among more and more persons and organized groups. The pertinent question becomes not why power is still centralized in less developed zones today but why it became less centralized in today's more developed zones.

Power diffusion in Japan and northwestern Europe was initiated in similar ways, and it continued in matching ways for at least seven centuries. In this book, Powelson shows examples of how both societies developed a growing balance of power among economic interest groups and how this balance led toward institutions that were both equitable and growth-promoting. Power diffusion also fostered liberal economic attitudes, along with parliamentary democracy, widespread ownership of assets, and decentralized decision making. These are what led to durable economic development.

Loren Cobb, PhD.
Editor, The Quaker Economist
Louisville, Colorado
December, 2005.

Note: A large portion of the foregoing summary appeared in April of 2005, in The Quaker Economist, vol. 5, #119. — LC


This book sums up, but I hope does not end, my forty-year career devoted to studying, teaching, lecturing and advising about economic development, in universities, governments, and international agencies in the United States and in thirty-five countries in Asia, Africa, and Latin America.

Twenty years ago I decided that an understanding of economic development lay as much in history as in economics. The resulting incursion into history forced upon me an observation I had not wanted to find, to wit:

  • In the quest to raise vast numbers out of poverty all over the world — known as "economic development" — all that I was proposing to governments had been advocated over centuries: land reform, liberal trade, sound money, realistic exchange rates, stable fisc, enforcement of contracts, adequate public investment, privatization of enterprise, defense of property rights, and economic integration. Yet for centuries in most of the world, these good orders had not been adopted or if adopted, had not lasted.
  • Why should the present era be different, I wondered? Why do we expect eastern Europe and the Third World to implement reforms at the behest of consultants like me, or the International Monetary Fund, when most of Asia, Africa, and the Middle East would not adopt these very same reforms despite repeated urging by European governments in earlier centuries?
  • Yet some world areas have succeeded in economic development. What distinguishes them? Under what conditions may or may not modernizing reforms become the way of the future in eastern Europe and the Third World?

This book addresses these questions.


I am indebted to Wallis Bolz, Clarence Boonstra, the late Kenneth Boulding, Murray Bryce, Joseph Clawson, Martin Cobin, Colin Day, the late Ragaei el Mallakh, Barbara Engel, Steven Epstein, Ray Evans, Herbert Fraser, Jenny Gibson, Patricia Gilmore, Grace Goodell, Elizabeth Herr, Bruce Herrick, Lewis Hoskins, Jerry Jenkins, Tim Kasser, Charles Kindleberger, the late Russell Kirk, Joyce Lebra, Donald Marsh, Philip Mounts, David Murdock, Mark Perlman, Barry Poulson, Gerald Sazama, William Shropshire, Niles Utlaut, J.D. Von Pischke, and James Wescoat for their advice and assistance.

My wife (Robin) and children (Cynthia, Judith, Kenneth, Carolyn, and Lawrence) all read parts of the manuscript and offered useful comments. Cynthia died of cancer while the manuscript was still being evaluated. One of her last questions was, "Has Michigan accepted the book?"

Norma Price and Louise Dudley, professional editors not employed by the Press, read the entire manuscript and offered some excellent suggestions on presentation and style. Debra Armour helped with the organization of notes and secretarial work. The staff of the University of Michigan Press was very helpful in the final preparation of the manuscript and page proofs, especially Laurie Ham, Michael Kehoe, Lorrie Lejeune, and Christina Milton.

Since I did the entire book on my home computer with laser printer, from writing the original manuscript to the preparation of photo-ready copies of page proofs, any errors, whether of fact, reason, or typographical, are my full responsibility.

I am also indebted to the Earhart and Wilbur Foundations for their assistance.


Non-sexist language ("he or she") is used except where it would be verbose, ungrammatical, or indefinite. In deference to non-Christian readers, BCE (Before Common Era) and CE (Common Era) are used instead of BC and AD respectively. "Liberal" and "liberalism" are used in their original senses, implying freedom of trade, thought, politics, and the like, not in the more recent sense of "progressive."