Savage pointed out that in many territories, the political capital is not actually the most important city, economically speaking, in the territory. There are several reasons for this phenomenon, which I've outlined below.

• Many capitals were established when the territories in question took days to cross. Thus, capitals were established roughly in the geographical center of the territory, rather than the largest city. Lansing, MI had a population of 8 when it was established as the capital of Michigan, but it was roughly in the center of the Lower Peninsula.
• Some national capitals are built from scratch to create a neutral ground. Washington, DC and Brasilia fall into this category; Canberra almost does since it was just a small town before it was chosen as the capital.
• In theory, the "first city" of a territory could change after the territory is established. This is what happened with Vancouver and Victoria, BC; Vancouver didn't even exist when Victoria was chosen as the capital of British Columbia in 1868.

Why does this dichotomy fail to prove true in Europe?

London, Paris, Rome -- all are cultural, political, and economic capitols of their respective countries. Why is it that the New World seems to be the only place where this dichotomy occurs?

Because of the shift in economic systems during the same period that the countries of the New World were congealing. Prior to this period, Commerce was controlled from the capitol, usually a capitol that was not created artificially by a nation, but one that grew up over centuries or possibly even millenia. The reached back to a period when the area that controlled the resources was the capitol of a nation because the power could be dispensed from that seat.

With the advent of the nation state and Adam Smith's Free Trade, however, the economic and political componants of the nation became disjoined. As government regulation of trade lightened, merchants were free to move to more commercially viable locations and government centers were free to exist in more defensible or otherwise politically important locations, whereas places having both qualities were previously the best candidates. The existance of a new canvas upon which to build allowed for this to be put into practice -- the old world was already too developed to risk moving much -- the established trade centers served to perpetuate themselves.

I like the explanations given here for the 'Great Cities Dichotomy'. I thought I'd make a handy list of places with the dichotomy and places without and see what it might reveal.

Interestingly, the dichotomy seems to be limited to just North America, Scotland, Australia, New Zealand, South Africa, India, Pakistan, Israel, and Nigeria - all places with former British colonial rule! (And the exceptions which prove the rule: Brazil and Turkey)

Places with the Great Cities Dichotomy:

USA as a whole - Washington, DC versus New York City and LA
Canada as a whole - Ottawa versus Toronto
Scotland - Edinburgh versus Glasgow
Australia - Canberra versus Sydney
New Zealand - Auckland versus Wellington
South Africa - Pretoria versus Johannesburg
India - New Delhi versus Bombay
Pakistan - Islamabad versus Karachi
Israel - Jerusalem versus Tel Aviv
Nigeria - Abuja versus Lagos
Brazil - Brasilia versus Sao Paulo and Rio
Turkey - Ankara versus Istanbul

States of the USA:
Alabama - Montgomery versus Birmingham
Alaska - Juneau versus Anchorage
California - Sacramento versus LA, San Francisco, etc...
Delaware - Dover versus Wilmington
Florida - Tallahassee versus Miami
Illinois - Springfield versus Chicago
Kansas - Topeka versus Wichita
Kentucky - Frankfort versus Louisville
Louisiana - Baton Rouge versus New Orleans
Maine - Augusta versus Portland
Maryland - Annapolis versus Baltimore
Michigan - Lansing versus Detroit
Missouri - Jefferson City versus St. Louis and Kansas City
Nebraska - Lincoln versus Omaha
Nevada - Carson City versus Las Vegas
New Hampshire - Concord versus suburban Boston
New Jersey - Trenton versus NYC suburbia
New Mexico - Santa Fe versus Albuquerque
New York - Albany versus New York City
Ohio - Columbus versus Cleveland and Cincinnati
Oregon - Salem versus Portland
Pennsylvania - Harrisburg versus Philadelphia and Pittsburgh
South Dakota - Pierre versus Souix Falls
Texas - Austin versus Houston and Dallas
Vermont - Montpelier versus Burlington
Virginia - Richmond versus suburban DC and Hampton Area
Washington - Olympia versus Seattle
Wisconsin - Madison versus Milwaukee

Provices of Canada:
Alberta - Edmonton versus Calgary
British Columbia - Victoria versus Vancouver
New Brunswick - Fredrickton versus St. John
Quebec - Quebec City versus Montreal
Saskatchewan - Regina versus Saskatoon

Places WITHOUT the Great Cities Dichotomy:

States of the USA:
Arizona - Phoenix
Arkansas - Little Rock
Colorado - Denver
Connecticut - Hartford
Georgia - Atlanta
Hawaii - Honolulu
Idaho - Boise
Indiana - Indianapolis
Iowa - Des Moines
Massachusetts - Boston
Minnesota - Twin Cities
Mississippi - Jackson
Montana - Helena
North Dakota - Fargo
Oklahoma - Oklahoma City
Rhode Island - Providence
South Carolina - Columbia
Tennessee - Nashville
Utah - Salt Lake City
West Virginia - Charleston
Wyoming - Cheyenne

Provices of Canada:
Manitoba - Winnipeg
Ontario - Toronto
Newfoundland - St. John's
Nova Scotia - Halifax
P.E.I. - Charlottetown

So we see that, for what its worth, roughly equal numbers of states (and provinces) have the dichotomy as don't have it, and there doesn't seem to be any regional patterning. It seems that a more populous state is more likely to have a great cities dichotomy.

Historically, this has happened for a variety of reasons:

• a deliberate decision to place the center of political power (i.e. the capital) somewhere separate from the center of economic power.
• as a result of a political compromise. For example, there might be more than one major center (economic or political) and the only way to make them all happy is to place the capital somewhere else (Ottawa and Washington, D.C. are examples of this).
• reverse discrimination - over time, the effort to prove to voters that the capital isn't getting special favours results in the other center getting a better deal.
• historical factors which were once critical (e.g. ability to defend the city) but which are ultimately less important than other factors (e.g. transportation) in determining where economic activity becomes centered.
• changes in borders which result in the old capital being in a different country (Bonn during the cold war would be a classic example).
• happenstance (i.e. there is no good reason - it just is).

Just for fun (and cuz I'm biased), let's take a look at the Canadian experience^*:

• {British Columbia} Victoria (319,400) vs Vancouver (2,099,400): this is a classic example of changing times. As has been mentioned above, Vancouver barely existed when Victoria became the capital. Unfortunately, Victoria is located on Vancouver Island whereas Vancouver was the western terminus of the first Canadian transcontinental railway. The result was quite inevitable - Vancouver is today one of the three largest cities in Canada and Victoria is a (quite beautiful) sleepy little government town.
  
  
• {Alberta} Edmonton (954,100) vs Calgary (969,600): in the first seventy five years of the province's history (it was founded in 1905), there was no dichotomy in Alberta as Edmonton was both the largest city and the provincial capital. Calgary's position as the economic powerhouse of the province (with a particular emphasis on the oil industry) as led to it becoming (just barely) the largest city in Alberta.
  
  
• {Saskatchewan} Regina (198,300) vs Saskatoon (231,500): Saskatoon has been larger than Regina since the mid-1980s and the gap is increasing. I'm somewhat at a loss to explain what's been happening in Saskatchewan but Saskatoon continues to enjoy steady grown while Regina actually shrank slightly before recovering again in the late 1990s.
  
  
• {Manitoba} Winnipeg (684,300): the capital of Manitoba's history follows the classic pattern of becoming the dominant center early in the area's history and simply maintaining the position of dominance through to the current day (Winnipeg's population in 2001 is over ten times the size of Brandon, the next largest center with a population of 48,000 in 2001).
  
  
• {Ontario} Toronto (4,907,000): like Winnipeg, Toronto established itself as the dominant center in Ontario fairly early and has maintained that position through to the current day. From a different perspective however, Toronto is the victim of a political compromise as the much smaller center of Ottawa, Ontario was chosen as the national capital to avoid having to choose between Ontario's Toronto and Quebec's Montreal.
  
  
• {Quebec} Quebec City (694,000) vs Montreal (3,511,400): Quebec City has been the "political center" of the province of Quebec in many ways since the city's founding in 1608. Montreal, on the other hand, has been a major economic center for about the same period of time.
  
  
• {Prince Edward Island} Charlottetown (32,200**), {Nova Scotia} Halifax (359,100) and {Newfoundland and Labrador} St. John's (176,400): these three cities' histories follow the same pattern of being economically and politically dominant since the earliest days of their respective regions/provinces.
  
  
• {New Brunswick} Fredericton (47,500**) vs St. John (127,300): the capital of New Brunswick was selected and named in 1785 by Thomas Carleton, the first Governor of the newly created province (colony?). The fact that Fredericton was slightly over one hundred miles up the St. John River from the thriving seaport of St. John made the capital considerably more difficult to attack (an important consideration for a region settled in large part by United Empire Loyalists who had fled to the British colony in the wake of the Revolutionary War). The feared invasion never materialized (in any meaningful way) and St. John with a population of 72,000 (2001) continues to be the largest center in New Brunswick. The second largest city is actually Moncton with a population of 59,000. Fredericton is the third largest city with a 2001 population of 47,000.

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^*the population of each city's metropolitan area, from the 2001 Canadian Census, is given in parentheses after the city's name. The capital is listed first if it isn't also the largest city in the province.
^**The population numbers for Fredericton and Charlottetown are for the cities themselves rather than for their metropolitan areas.

The great cities dichotomy exists mostly because of one thing: people wanted it that way. Thomas Jefferson managed to move the national capital to a swamp in Virginia from its logical place in New York City because his vision was of a nation of yeoman farmers, free, rural people, and a government of tricky cityfolk from the north wouldn't suit his plan at all. (His federalist opposition, in contrast, was much more cynical about the ability of the people to truly govern themselves.) It's important to realize how revolutionary this idea was: rather than allowing the elite - either the aristocrats or the intellectuals to run the nation, Jefferson (perhaps naïvely) thought that a self-taught, literate citizenry would develop outside the cities, and that the U.S. would grow to be truly free.

A lot of other nations explicitly imitated the American example - the capital of Turkey was moved from Istanbul to Ankara because of Atatürk's desire to build a modern, westernized nation, with the United States as an example. No doubt many other young nations held the same idea when choosing the location of their governments.

Even in circumstances in which the United States wasn't deliberately chosen as a model, the basic reasoning remains the same. A capital in the city's economic and cultural center means that these powers would be too united. The idea is very typical of 19th century democracy: to keep a nation free, it is vital to ensure that the great powers that inevitably would rule its economy would not also rule its government. Capitalism is all well and good, but it can't be permitted to turn into aristocracy. Thus it is mostly in older nations that governments have remained coupled to their cultural centers.

Many would argue, however, that it hasn't been enough, and that the corporate powers and the true power behind most modern governments is wielded far too often by industrialists and corporate leaders - that the aristocrats rule modern societies again. Clearly in modern times more than geographical separation is needed to maintain the independence of our leadership. Perhaps we'll see a new wave of revolution in this century as a result.