Why Was Ancient China so Good at War, and so Bad at Commerce?

China’s rise to the status of global economic power has invited enormous interest in its cultural and political heritage. Historians tend to be fascinated by China’s erratic economic progress and rich history of innovation, each of which have, at different times, both outpaced and lagged behind developments in Western Europe. In particular, many questions surround the reasons for China’s “great divergence”—why Western Europe industrialized and China did not.

Numerous explanations have been suggested, and the key issues remain controversial, but the most plausible answers tend to point out problems in Chinese political institutions. Simply put, the ruling classes in many eras of Chinese history have been hostile to commercial activity, at best treating it as a necessary evil to be tolerated to increase state wealth. This interpretation has been advanced by economists like William Baumol, for instance, who argued that Chinese rulers drove talented individuals out of the marketplace and into service to the state bureaucracy. That is, by providing rewards for government advisers and punishments for merchants, rulers largely destroyed interest in entrepreneurship and innovation outside the state apparatus. Of course, this did not eliminate commerce in China. In fact, the title of this article risks being unfair: throughout history Chinese entrepreneurs have often been exceptionally skilled. The trouble is that their skills were rarely acknowledged as socially beneficial, and have even been subject to outright oppression.

Although this argument has been applied to more recent history, it reflects a pattern with deep roots in Chinese politics that predate even its unification under the Qin dynasty. The era preceding unification, known as the Warring States period (c. 475-221 BCE), is one of the most culturally important in Chinese history in that it witnessed a flowering of science, philosophy, art, and technological innovation.

Unfortunately, as its name implies, the Warring States was also a period of brutal, unremitting conflict between various Chinese states. The persistence and intensification of their conflicts meant that, over time, virtually every belligerent became deeply interested in military matters, including strategy, tactics, logistics, and the governance of large organizations. Having the best available knowledge of these topics meant everything to the rulers. Hence, the opening line of Sunzi’s Art of War: “War is the greatest affair of state, the basis of life and death, the Dao to survival or extinction.”

Excellence in martial affairs thus became a highly-valued commodity, and a complex “interstate market for talent” emerged between competing rulers each trying to attract the wisest and most effective advisers. A secondary effect of this trend toward militarism was the flourishing of a sophisticated literature on war and strategy. In fact, military writings surveyed a wide range of problems relating to governance, including not only armed conflict but also civil administration (see here; I also discuss some of this history in a new paper here, where I explain how the political institutions of Warring States China diverted talent away from commerce and into military strategy).

Of the texts that survive, seven are considered to represent the canon of classical Chinese strategic thought. The most famous of these, Sunzi’s Art of War, is now well-known around the world. Oddly, business pundits often quote it without realizing the irony that it was compiled during a period of rising anti-commercial sentiment among China’s ruling class. This sentiment was promoted especially by reformers of the Legalist school, whose primary concern was expanding the power of the state. For these writers, the twin pillars of the state were the agriculture and the military; other occupations were treated with disdain. The strategist Wei Liaozi, for example, argued that, “We should cause that apart from engaging in agriculture there will be no means to eat, and apart from engaging in battle there will be no means to attain rank. We should cause the people to bump into each other in competing to go out to the farms and into battle” (Sawyer 2007, 246). And Shang Yang declared that, “profits and emoluments, office and rank should be determined exclusively by military merit, and… there should not be different reasons for distributing them” (Duyvendak 1928, 275).

This sentiment was not limited to ideology, but extended to policy as well:

[The Book of Lord Shang] also records antimerchant measures, including registration of merchants’ servants for corvée labor, high market taxes and taxes on goods in transit, and the registration of merchant households as “inferior people.” As such they were not permitted to wear silk or ride horses, and were subject to extended terms of garrison duty at the frontier. (Lewis 1999, 613)

In other words, entrepreneurs could reasonably expect that success in the marketplace would be at best limited and at worst severely punished, while service to a ruler could mean increased wealth and social status. It is not hard to understand why, in this environment, many of the most brilliant and innovative minds became military advisers. The relative burden placed on merchants is eloquently illustrated by the Lu state, which, according to Yohei Kakinuma, experienced a surge of entrepreneurship relative to its neighbors after the fall of its central government (2014, 108).

Shang Yang also oversaw the introduction, for the first time in Chinese history, of the private ownership and sale of land. This may seem like a valuable reform, and indeed it was. Yet it was not motivated by concern for individual rights or economic development, but by the desire to increase military service (Lewis 1990, 61–65). For example, a lost chapter of Art of War reveals that ownership was granted in exchange for taxes, which made it far easier for the belligerent states to monitor, control, and register (perhaps, “to regiment”) their people. Business activity, on the other hand, was more difficult to trace and therefore to tax, another reason it was discouraged.

This story should not come as a surprise. Chinese entrepreneurs, and the merchant class in general, have been struggling with the political classes since antiquity. It’s important to note, however, that the suppression of commercial society does not stop with attacks on entrepreneurs. There is a deeper, subtler force at work: political institutions simultaneously make serving others in the marketplace less attractive as a profession and service to a destructive ruler more attractive. The lesson to be learned by today’s reformers then is that lasting change for the better will only occur when both sides of this problem are remedied.

Matthew McCaffrey is Assistant Professor of Enterprise at the University of Manchester.


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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