How Rich Countries Got Rich...and Why Poor Countries Stay Poor

Pre-modern writings on economic development highlight issues that today’s mainstream economics neglects.

Harvard Business School teaches students to approach a problem by gathering broad evidence and then focusing on the mismatches and dissonances between reality and existing theories. Economic development is one area in which a mismatch between past reality and current theory is obvious. But you can find reasons for these inconsistencies in long-forgotten books and obscure publications, such as the 19th-century political pamphlets that documented the policy debates going on within the United States as it grew into an economic superpower.

Many early writers recognized that cities with a diverse mix of manufacturing activities had created a “common weal” of rising prosperity. For example, Naples, despite its bountiful surrounding farmland, remained poor, while Venice, built on a swamp, became rich from its trade and arts. Early thinkers also grasped the dynamic that manufacturing could deliver increasing returns to scale, as investment in mechanization meant that subsequent units produced would need less labor per unit...