Four historical macro phenomena of development ask for an explanation: the slow increase of welfare in Western Europe from the Middle Ages up to the publication of the Wealth of Nations, rapid modern economic growth in Europe and its transoceanic ofshoots following the industrial revolution, the lagging behind of the Asiatic areas India, China, and Japan, and the succession of economic leadership from Italy via the Low Countries and the United Kingdom to the US. The paper deals with these problems on three levels. On the first level of proper economic analysis the process of material growth is approached. On a second level, the level of institutional economics, the social framework is introduced. The third level is the field of the political economy of institutional change. Classical and neo-classical economic theory and institutional political economy offer a number of plausible explanatory causes. Next to the classical division of labour and accumulation, technical progress and human capital play a decisive role. It is shown that the emergence of an impartially operating system of law and a polity which supports it make possible the unfolding of such material conditions for growth. The institutional factors, in turn, are furthered by the development of autonomous and self-responsible individuals and competition between them and between independent political systems. Finally, a general attitude favouring the search for new ideas together with a positive attitude towards progress and risk contribute to the great divergence.
