'The Great Divergence': Max Weber and China's 'missing links'

The longstanding question of China's economic stagnation after the sixteenth century and failure to emulate Western Europe's nineteenth century capitalist industrialisation was revitalised by the 'California School' of economic history's account of this 'great divergence'. It focuses on material factor endowments and technology and firmly rejects earlier explanations which had attributed the different paths of development to the West's institutions, culture and religion. Other writers have levelled the charge of 'Eurocentrism' against the historians and social scientists who had explained the West's economic advance in these terms. For different reasons which stem from each side's respective intellectual framework, both have been unable to see the importance of crucial differences between the monetary and financial institutions of China and the West. As Weber argued, a stable and uniform money of account is an essential prerequisite for extensive, impersonal markets and rational capitalistic calculation in the enterprise. For Schumpeter, western capitalism was made possible by the transformation of individual debts into 'negotiable' (anonymously transferable) credit instruments which, in turn, enabled the production of bank credit money. Both were 'missing links' in Chinese development.