differences—the fact that because of developments during
the fifteenth and sixteenth centuries, the English Crown
could not control all overseas trade, as this trade was
mostly under Crown monopoly in France and Spain. As a
result, in France and Spain, it was the monarchy and the
groups allied with it who were the main beneficiaries of the
large profits created by Atlantic trade and colonial
expansion, while in England it was groups strongly
opposed to the monarchy who gained from economic
opportunities thrown open by this critical juncture. Though
institutional drift leads to small differences, its interplay with
critical junctures leads to institutional divergence, and thus
this divergence then creates the now more major
institutional differences that the next critical juncture will
affect.
History is key, since it is historical processes that, via
institutional drift, create the differences that may become
consequential during critical junctures. Critical junctures
themselves are historical turning points. And the vicious
and virtuous circles imply that we have to study history to
understand the nature of institutional differences that have
been historically structured. Yet our theory does not imply
historical determinism—or any other kind of determinism. It
is for this reason that the answer to the question we started
with in this chapter is no: there was no historical necessity
that Peru end up so much poorer than Western Europe or
the United States.
To start with, in contrast with the geography and culture
hypotheses, Peru is not condemned to poverty because of
its geography or culture. In our theory, Peru is so much
poorer than Western Europe and the United States today
because of its institutions, and to understand the reasons
for this, we need to understand the historical process of
institutional development in Peru. As we saw in the second
chapter, five hundred years ago the Inca Empire, which
occupied contemporary Peru, was richer, more
technologically sophisticated, and more politically
centralized than the smaller polities occupying North
America. The turning point was the way in which this