Hoover Institution (Stanford, CA) — From using a “silver standard” more than six hundred years ago to maintaining robust rural lending markets in the nineteenth century, some of China’s lesser-known historical economic institutions were examined by scholars at the Chinese Economy in the Long Run conference at the Hoover Institution on March 6–7, 2025.
Organized by the Hoover Prosperity Program’s Working Group on Long-Run Prosperity, the gathering welcomed political scientists and historians who explored the factors underlying China's unique development path.
Considered one of the world’s wealthiest and most technologically advanced economies from the reign of the Han dynasty, beginning in the 200s CE, through the early Ming dynasty, in the 1400s, China started to fall behind Western Europe in development before managing to regain its standing in recent decades—though only as a middle-income society on population-wide per capita terms. The six papers presented at the conference provided historical focuses on both Chinese economic institutions and political institutions.
“Our goal with this conference is to bring together leading voices from around the world to explore the big questions behind China’s economic journey—from its heights a thousand years ago to periods of decline and its recent stagnation,” said Stephen Haber, director of the Hoover Prosperity Program and Peter and Helen Bing Senior Fellow at the Hoover Institution, at the outset of the conference. “By understanding the long arc of China’s economic development, we hope to shed light on what drives prosperity, not just in China, but globally.”
Chinese Lending Markets in the 1800s
Hoover Fellow and co-organizer of the conference Matthew Lowenstein opened the event with a reassessment of the role that rural credit played in Chinese history from the 1600s to the 1900s, a period spanning the Qing Dynasty to the republican, pre-Communist era. As the scholarship has long cited, the absence of credits markets was a principal cause of China’s stagnation in that three-hundred-year interval. This perspective was shared by the Chinese Communist Party, which, for political reasons, has railed against what they believe to be the exploitative nature of rural lending.
Relying on newly digitized primary resources documenting rural loan agreements from Shanxi Province, Lowenstein challenged that narrative by showing that competitive financial markets did in fact exist in China. A system based on guarantors and farmland as collateral existed in many regions of China, allowing capital to flow freely between rural and urban areas and across provinces. Although these markets were not fully efficient and remained unavailable to the poorest in the rural population, their existence shows that previous scholarship regarding the reasons for China’s slow economic growth in early modernity may not tell the whole story.
Rise and Fall of Early Paper Money
The next two papers discussed whether the history of paper money in China should be seen as a success or a failure. A presentation by Richard von Glahn of UCLA traced the evolution of paper money in China from its emergence around the year 1000 CE—many centuries ahead of Europe’s adoption of paper currency—to its eventual decline in the fifteenth century. Von Glahn argues that opposing monetary theories gave rise to dramatically different financial systems in medieval China and Europe. In China, money was not primarily viewed as a medium for market exchange, as in Europe. Instead, it was seen as a tool for rulers to control markets and manage the wealth of the population.
This approach enabled China to implement paper money usage relatively early in its history by carefully managing the money supply relative to the demand for money and goods. For example, paper bills were issued with a three-year expiration period, enabling the state to regulate the amount of currency in circulation. However, Von Glahn said, a series of military crises forced the government to relax its control over the money supply, which over time resulted in inflation and the replacement of paper money with uncoined ingots of silver.
Adopting a Silver Standard
Meng Wu of the University of Manchester focused on a major financial innovation that marked the successful adoption of paper money in China: the introduction of the silver standard under the Mongol Yuan Dynasty, which ruled China from 1260 to 1368 CE. By implementing paper money that could be converted into a standard amount of silver, China preceded Europe’s adoption of the gold standard by six centuries.
Wu and her coauthors constructed a dataset that included information on annual money issuance, prices, population, taxation, and warfare, gathered from both primary and secondary sources, and found that the fiscal consequences of the Yuan financial innovation led to its eventual demise. They demonstrated that the adoption of the silver standard, by constraining the money supply, succeeded in stabilizing prices for more than forty years; however, intensified civil turmoil led the government to abandon the silver standard in order to finance warfare by printing more paper currency—a conclusion that echoed Von Glahn’s in the previous session.
Territorial Consolidation and Ideology of Great Unity
Long-term development depends not only on economic but also on political institutions. A paper presented by Debin Ma of Oxford University examines why Chinese history reflects a remarkable degree of political consolidation compared with the territorial fragmentation of Europe. The answer offered by the authors involves the interactions among China’s unique geographic location, the emergence of institutions of direct rule, and an ideology legitimizing a single ruler.
Ma and his coauthors argue that as China is surrounded by mountains on three sides, with the north facing the great steppe as its only vulnerable frontier, it continually faced the threat of nomadic invasion. The constant need for resource mobilization gave rise to a set of centralizing institutions, which aimed at the eradication of feudal control, the strengthening of imperial bureaucracy, and the unification of legal codes. The ideology of “Great Unity,” rooted in Confucian respect for hierarchy and the legalist emphasis on state primacy, provided legitimization for territorial consolidation. While the external threats gradually diminished, institutions and ideology persisted, entrenching the state’s leading role in Chinese development.
China’s “Decentralized Totalitarianism”
The second day of the conference centered on how China’s contemporary institutions have both built upon and diverged from their historical foundations. Presenting findings from his forthcoming book, Institutional Genes: Origins of China’s Institutions and Totalitarianism, Chenggang Xu of Stanford University offered a new perspective on the evolution of the contemporary Chinese regime. To characterize China’s recombination of institutional elements adopted from pre-Communist China and the Soviet Union, Xu introduced the notion of “regionally decentralized totalitarianism.” Under this system, the central party retains full control over ideology and policymaking while delegating the administrative implementation of centrally made decisions to local party branches.
Xu has traced the origins of regionally decentralized totalitarianism back to the imperial junxian system that originated under the Qin Dynasty, in the third century BC, in which local governments exercised full administrative authority. Starting in 1958, the centralized system, initially modeled on the Soviet example, began incorporating administrative decentralization, in which local bureaucrats reported to local party organizations instead of central ministries. This institutional shift spurred economic competition among semiautonomous local governments, incentivizing the emergence of private firms operating under the guise of state ownership to enhance economic performance.
Crony Capitalism in Modern China
For the final presentation of the conference, Chang-Tai Hsieh of the University of Chicago argued for the importance of studying informal institutions for understanding development patterns in China and worldwide. Hsieh focused on an informal institution central to Chinese economic growth: special deals between private firms and local bureaucrats.
Seeking to improve local economic performance, the success of which can secure a political career in modern China, local bureaucrats work hard to support private businesses by helping them navigate the Chinese system and lobbying the central government on their behalf. This was a recurrent theme behind the development of the Chinese car production market, exemplified by the joint venture between General Motors and the City of Shanghai, also known as Shanghai Automotive Industry Corporation.
While scholarship tends to consider political connections of private firms as detrimental to economic growth, special deals appear to work differently under the Chinese system. Local politicians are incentivized to employ their administrative power to enable private firms to generate more profits, while a high degree of administrative decentralization enables firms to choose between thousands of local governments competing to attract them.
Concluding Remarks
In his concluding remarks, Hoover Institution senior fellow and co-organizer of the conference Amit Seru reflected on how both the historical and contemporary trajectories of Chinese prosperity appear to rest on a delicate equilibrium between centralized state control and market forces—visible in the management of credit, the innovation of paper money, competition among local governments, and enduring partnerships between bureaucrats and private firms.
As the papers presented made clear, China’s tradition of bureaucratic governance and financial innovation has fostered remarkable institutional resilience. Yet, as Seru noted, this system has not been tested under the weight of sustained economic distress or global disruption. Whether these historical governance models can adapt—or whether we are approaching an inflection point—remains an open question. Seru concluded his remarks by thanking Stephen Haber for his intellectual leadership and long-term vision in shaping this research agenda through the Long-Run Prosperity conference series.
About the Hoover Prosperity Program
The Hoover Prosperity Program conducts evidence-based research on the institutions and policies that foster economic prosperity amid today’s public policy challenges. The program is dedicated to producing research that empowers citizens and policymakers to make informed decisions a core question: What combination of laws, institutions, policies, and regulations is most likely to foster long-term economic prosperity?
About the Working Group on Long-Run Prosperity
Why do prosperous economies develop in some countries and not in others? The Working Group on Long-Run Prosperity applies approaches from a range of disciplines to understand the mechanics of long-run growth. It disseminates the results to the research community, policymakers, and the broader public. The Long-Run Prosperity Working Group is an initiative of the Hoover Prosperity Program.
