Early Modern European and Chinese Political Economy, and the Great Divergence

Abstract This article studies the comparison between mercantilism and orthodox Confucianism, two kinds of political economy which respectively dominated many important European countries and China in the early modern period. This article finds that mercantilism was industrialistic, proluxury, and pro-innovation, whereas orthodox Confucianism was physiocratic, antiluxury, and anti-innovation. Interpreting such distinction with the modern theories of increasing and decreasing returns, this article finds that mercantilism advocated an increasing-return strategy of economic development, but orthodox Confucianism insisted upon the economic path of decreasing returns. This article believes that such distinction can be added as a parameter to the discussion about the Great Divergence, because, as the Great Divergence was driven by the divergence between the behaviors of early modern European and Chinese states, this article presents that such divergence between the behaviors of states happened in the context of the divergence between the political economy that guided the behaviors of states.