In the nineteenth century, Western Europe was the economic powerhouse of the world. Its productive power was unmatched. This dominance was achieved at some point between 1500 and 1800, but pinpointing exactly when is a difficult task. This is made clear when we try and compare Europe’s economic development with that of China. In the period before 1500, China was a strong economic power – probably the world’s most advanced economy at the time – but by the nineteenth century it had been thoroughly eclipsed by Western Europe. When exactly did Europe pull ahead, and why did this happen? How did Europe, rather than China, end up ruling the world?
The traditional explanation given is a cultural one. It argues that Europeans have (or had) a way of engaging with the world that was better suited to economic growth, conquest and dynamism. Landes, for example, has asserted that ‘the Chinese lacked range, focus, and above all, curiosity’, and that ‘Unlike the Europeans, they were not motivated by greed and passion.’ Braudel asserted that the Chinese ‘only half-heartedly shared the capitalist mentality of the West.’ Weber, argued that the ‘Protestant work ethic’ was ideally suited to economic success.
But there are serious problems with this argument. For one, it is rather brash to assume that everyone on an entire subcontinent thinks and acts in the same way. Secondly, there is evidence that the Chinese were just as enterprising and driven by greed and passion as Europeans. The seventeenth-century Zheng family trade empire, for example, operated ruthlessly and with fierce commercial passion. They captured Taiwan from the Dutch, and drove the Dutch out of many south-east Asian markets. Nor was a desire for luxury the sole preserve of Europeans: Chinese guidebooks on conspicuous consumption actually appeared before those in Europe.
As Rosenbery and Birdzell have lamented, ‘The great difficulty of identifying the sources of Western economic growth has led to some psychological explanations which are little short of desperate.’ They would be justified in using stronger words than ‘desperate’. This is a lazy, un-analytical assertion of Western cultural supremacy. It’s not just the Chinese who suffer in these accounts: those Europeans who were not at the forefront also have their failings attributed to unsubstantiated cultural inadequacies. Kindleberger’s history of world economic growth has attributed Spanish economic underachievement to a host of factors, including the Spanish ‘disdain for work’, ‘strong hatreds’, and ‘the Inquisition’, but does not explain how each of them would have hindered economic growth. His list of crude national stereotypes reads more like inane racial prejudice than insightful economic and historical reasoning. These lazy prejudices, masquerading as ‘cultural explanations’ lack evidence and even the most perfunctory explanatory framework to support them. Our brief survey of the ramshackle evidence for Chinese cultural inferiority suggests that cultural differences alone – real or imagined – are not enough to explain the differences that emerged between Europe and China.
Let’s take a step back and look at the underlying economic frameworks at play. Before the European rise to dominance, the basic rules of the economic game were the same for both Europe and China. Both economies were limited by the productivity of the land. The economist Lavoisier noted that ‘Commerce and industry can only use the material which it (agriculture) has provided; so that it is the original source, the almost unique source, of all national wealth.’ Adam Smith noted that ‘The town, in which there neither is nor can be any reproduction of substances, may very properly be said to gain its whole wealth and subsistence from the country.’ In both Europe and China, photosynthesis was the sole source of food and fuel. But photosynthesis is inefficient at capturing solar energy, meaning that there was little stored energy that could be accessed later on, except in trees.
With a finite area of land, if more of its area is devoted to one productive endeavour, inevitably, less land can be devoted to others. Ricardo observed that this led to diminishing marginal returns, and stated that ‘the land being limited in quantity, … with every increased portion of of capital employed on it there will be a decreased rate of production.’ This meant that economic growth was inherently limited – this is known as negative feedback. This type of economy has been called an ‘organic economy’. An organic economy is dependent for its energy needs upon flows of energy from photosynthesis, without significant access to stocks of energy. (For a thorough and concise explanation of the nature of organic and inorganic economies, see Wrigley’s ‘The Divergence of England‘) For as long as Europe and China were both organic economies, neither was going to achieve economic dominance, given the negative feedback inherent in this system.
So what do we make of the ‘discovery’ of the Americas? Was this as important as academics like Pomerantz have asserted? (Whilst I disagree with Pomerantz on this count, his book ‘The Great Divergence‘ is one of the strongest in the field.) The discovery of the Americas increased European wealth, but it didn’t change these fundamental constraints. The Americas provided an historically unprecedented abundance of resources to Europe. Europeans cultivated land-intensive crops, such as sugar, cotton and timber, allowing them to supply products that were increasingly expensive to produce domestically. This access to resources made it profitable to expand, increasing production and volumes of shipping, driving down transaction costs per unit and making further expansion worthwhile. But the economic exploitation of overseas land areas could not solve the fundamental limitations of the economy. Whilst New World silver and resources may have indeed sharpened European Smithian dynamics and given a boost to growth, they could not challenge the limitations of the pre-industrial economy, constrained by the land. On its own the New World simply enlarged the board, rather than changing the rules of the game.
For most of the period between 1500 and 1850, European and Chinese economies were both locked into this framework of limited growth. The organic economy could not provide sufficient access to energy to perpetuate industrial processes and growth. This is exemplified by experience in both regions. The Dolgyne blast furnace in Wales, built in 1717, only operated for an average of fifteen weeks a year due to a lack of fuel; by the start of the seventeenth century, Danish iron production had halted because of a lack of available energy. In China, by the mid-Ming period, timber supplies neared depletion, leading to the change in salt boiling techniques to use less wood and (arguably) the development of the wok. In the eighteenth century, much of the junk construction trade moved away from the Yangzi Delta, and grasses and dung were burned to avoid using scarce timber. These examples illustrate the fundamental limitations on energy utilisation, and therefore on economic growth, in both economies while they remained almost entirely subservient to the yearly productivity of the land for their energy supplies. By the early eighteenth century, areas in both continents were clearly advanced enough to feel the pinch of environmental limitations, yet neither was able to transcend them. In short, up until the eighteenth century, neither Europe nor China had pulled ahead.
This still leaves us with three large questions: how was economic dominance to be obtained? How were the limitations of the organic economy to be overcome? How did Europe achieve dominance, and how early can we see the wheels turning?
To enable the economy to move beyond organic limitations, a stock of energy was required. The use of fossil fuels, and access to their stocks of energy, represented a move from reliance upon inherently limited flows of energy (dependent upon annual photosynthesis) to partial dependence on stocks of energy. This represented a fundamental break with all past economic experience. This new type of economy is the ‘mineral economy’. The economy had previously been constrained by the productivity of the land, but this was no longer a restraint upon growth because energy could be obtained from fossil fuels as well. These stocks of energy also rendered negative feedback, and the limits to the gains of division of labour, less important: the power they granted allowed output per worker to increase, affording near-unlimited potential gains, at least for as long as the coal lasted. They also facilitated energy-intensive industrial processes which would not have been possible without such an energy source. The organic economy had been transcended, and this transformation happened in Europe first.
Before getting into the complex task of exploring why, let’s quickly have a look at some of the truly awe-inspiring statistics of European economic dominance in the nineteenth century, to see just how powerful these stocks of energy were. By 1810 British coal output was 20 million tons, which provided an amount of energy which Wrigley asserts was ‘roughly equivalent to the quantity of energy theoretically available for capture by the sun’s rays by photosynthesis each year.’ The economic dominance that this afforded was indicated by the massive and sustained, previously inconceivable, increases in output over the course of the nineteenth century. ‘European production of pig iron increased 16-fold between 1800 and 1870, coal output 14-fold, raw cotton consumption 21-fold and railway mileage between 1840 and 1870 some 36-fold… European exports in constant prices rose twelvefold in 1800-1870.’ The ability of European nations to interfere in China’s political and economic affairs in the nineteenth century was clear consequence of this rise to leadership.
So why did Europe achieve economic dominance? Or, to be more precise, why did Western Europe begin using coal on a wide scale whilst China did not? I argue that this happened because the Western European agricultural sector freed up workers for use elsewhere in a way that China’s did not, because Western Europe had not experienced China’s geopolitical handicap, and, more importantly, because of the dynamic European engagement with supply problems that led to a self-perpetuating progression down the path to the mineral economy. China, whilst impressively innovative, was focused more on the perfection of the organic economy than on transcending it.
The path taken by Western European agriculture enabled its emergence from the limitations of the organic economy, whereas China’s did not. In Europe, increased labour productivity freed up workers to apply their labour to non-agrarian pursuits. Between 1600 and 1820, the number of surplus people fed by every hundred workers in agriculture increased in several Western European countries. In England and Wales it rose from 42 to 148, in the Netherlands from 119 (in 1670) to 177, and in France from 45 to 70.
Chinese agriculture, on the other hand, was focused on increasing land productivity (ie making each unit of land produce more) rather than increasing labour productivity (ie making each labourer produce more). This meant that Chinese agriculture remained strongly tied to the organic paradigm and its limitations. In the Yangzi, increased output from the land was obtained by diminishing returns to labour: from an index of 100 in 1700, output per capita fell to 74 by 1750 and 70 by 1800. As Brenner and Isett assert, ‘The trend to rising labor productivity in agriculture in England was the direct opposite of the trend to declining labor productivity that obtained in the Yangzi delta…’
The European agricultural advantage was not at feeding its people, as China was able to support a denser population than Europe through the eighteenth century. Rather, it was at allowing its people to move outside of agricultural work, and beyond a world limited by the restraints on agricultural output and photosynthesis. But whilst the agricultural differences were an essential prerequisite to Europe’s rise from the organic paradigm, they did not bring it about. To enter the mineral economy required not only workers to run its infrastructure but access to stocks of energy and the technology to use them.
Both China and Europe were well endowed with coal, but China’s was in the wrong place. China’s coal supply was located overwhelmingly in the north and west: 98 percent of China’s coal supplies were located to the north of the Yangzi, and the western areas held just under 90 percent of its coal. This coal was utilised by the iron industry that existed there until around 1100, but invasions, occupations, civil wars, flood and plague led to instability that halted the industry. By the time stability had returned, after 1420, the demographic and economic centre of the country had shifted to the south, to the Yangzi Delta. Transportation of the now-distant coal was a serious problem, one that the Chinese economy did not overcome. Even at the end of the nineteenth century, coal use was generally very localised: transporting coal from Qinghua to the Yellow River, 50 km away, led to a fivefold price rise, leading Wright to assert that ‘transport costs were the single most important constraint on the growth of coal consumption.’ Areas in the north Jiangsu could have potentially reached the Yangzi Delta, but in Qing times the cost of coal doubled before it reached the canal port. It therefore seems clear that whilst China had large reserves of coal, and had shown the capacity to utilise them long before Europe had begun to do so, unfavourable geopolitical circumstances led to coal’s potential being overshadowed by transport costs.
Europe had similar problems with coal supply. Britain was well-endowed with coal, but transport networks were so primitive that the price of coal could double for every ten miles transported over land. The distances that European coal had to travel were much smaller than those in China, but, nonetheless, the way that the European economy dealt with the problem of coal supply helps explain why Europe rose to economic leadership by the middle of the nineteenth century.
The close relationship between the market system, scientific tradition and invention in Europe was crucial to its rise to economic leadership. The market encouraged inventors to tackle certain technological or logistical problems, the solving of which led to an increase in technological capabilities that benefited the economy as a whole. In this way, the steam engine was conceived as a response to the problem of coal supply, allowing access to otherwise inaccessible coal by increasing the potential depth of mines by pumping out water. Similarly, entrepreneurs observed that given that transport links between mines and towns were poor and that coal was in demand, improving transport infrastructure could be profitable. This led them to focus on improving transport links, which further facilitated the expansion of coal production. As a result, between 1700 and 1750 British coal output rose by 70 percent; between 1750 and 1830 it rose by a further 500 percent. As steam engine technology improved it became more efficient and began to be put to other uses. This drove up the demand for coal and further encouraged improvements to steam technology. Thus the demand and supply of coal were locked in a positive cycle, powering the economy out of the organic paradigm as coal use and mineral energy-harnessing technologies spread. This was a powerful, self-reinforcing technological path that ended in the mineral economy. This was the true dynamic of European exceptionalism.
China was also innovative, but in the wrong direction. The innovation-minded Chinese state aimed for static efficiency through the spread of agricultural best practice. ‘The Chinese imperial government generated and diffused new technologies in rice cultivation, including better (drought-resistant) varieties… and encouraged the use of cotton, better implements, and hydraulic techniques… The authors of the great treatises on agriculture such as Wang Chen and Hsü Kuang Chhi, as well as the inventor of the use of mulberry tree bark in papermaking, were government bureaucrats.’ State measures to spread knowledge have led Maddison to even conclude that ‘the gap between best-practice and average practice was probably narrower than it was in the polycentric state system of Europe.’ In the seventeenth century, Champa rice was introduced, which ripened in three months rather than six or nine. This period was reduced to two months, and in the eighteenth century it was reduced to just forty days. In the early nineteenth century a thirty-day variety became available. Clearly China remained innovative, but its developments were mainly agrarian, in stark contrast to the European experience. Europe alone took the self-reinforcing journey down the road to the mineral economy, which is why it rose to economic leadership by the mid-nineteenth century.
The imperial state need not have been an inhibitor of innovation leading to the mineral economy – indeed, China developed the compass, gunpowder and the blast furnace well before Europe – but by the eighteenth century, the rate of non-agrarian innovation in China had dried up.
What went wrong with Chinese innovation? Geography and inefficient markets seem to be the main culprits. Perhaps the blame should be cast on inefficient markets for not sending out adequate incentive signals, or on unfavourable geopolitical circumstances that meant that coal was an impractical distance from the economic core. Or perhaps the Chinese state, so concerned to promote agrarian development, should be censured for not having tried to promote industrial development. Whatever the reason we can certainly conclude that for China to have achieved the results that Europe did would have been even more exceptional than what came to pass in Europe.
In conclusion, we have seen that explanations of the European rise to economic leadership based around relative cultural values or mentalities are highly flawed and unsatisfactory, and that the European exploitation of overseas territories cannot explain Europe’s rise to leadership. Rather, economic leadership could only be achieved through the utilisation of mineral stores of energy, allowing a change in economic paradigm. For most of the period the Chinese and European economies operated within a shared organic paradigm, subject to the same limitations. Facilitated by Western European agricultural dynamics that differed to those in China, a combination of entrepreneurialism and science funnelled Europe down a route of self-reinforcing technological change that led to an escape from the limitations of the organic economy. China, on the other hand, tackled the organic economy’s problems head on rather than transcending them, and thus focused its efforts on land productivity. Europe was aided by geography, with coal within reach of its most developed areas, but even then, problems caused by the cost of transport needed to be overcome. That the Europeans achieved this, whereas the Chinese did not, is down to a combination of Chinese geographic bad luck and the entrepreneurial, inventive market system operating in Europe.
The answer to why Europe rather than China rose to economic leadership by the mid-nineteenth century therefore lies somewhere between European geographical good fortune, Chinese geo-political misfortune, and the focus of European inventiveness as compared to that of China, which led to a feedback loop that allowed some western European economies to escape the organic paradigm. However good a country’s institutions and however strong the market’s incentives, without a change of economic paradigm there could be no economic leadership. But it was through the functioning of incentives and the institutions of growth that this paradigm shift was achieved. That the European market had these incentives tied so closely to invention and innovation was the secret of its success. Without inorganic energy utilisation Europe could not have risen, but even with favourable coal supplies its rise was not guaranteed.
Europe therefore rose to economic leadership by the middle of the nineteenth century because of the powerful link between innovation and market incentives, which allowed it to realise the potential of energy stored in coal.