Writing in 2011, Jean-Laurent Rosenthal and R. Bin Wong challenged historians and economists to take a more dynamic approach to the Great Divergence debate.Footnote 1 Too many earlier historians, they pointed out, had simply posited that Europe had some kind of long-term, unchanging advantage over China. Song-dynasty (960–1279) China certainly had the world's most developed economy, but by the seventeenth century Britain had surpassed China. Europe gained ascendance in the nineteenth and twentieth centuries, but China's subsequent industrialization in the late twentieth and early twenty-first century gives it certain advantages that may lead to even greater growth. What kind of explanation can account for the changing relationship between China and Europe? By focusing on money supply and the different forms of currency in use in Europe and China, Niv Horesh offers a compelling response to Rosenthal and Wong. He makes a major contribution to the Great Divergence debate (particularly in Chapter 3, ‘The great money divergence: European and Chinese coinage before the age of steam’, pp. 83–117).

Horesh notes that, at the height of the Song economic boom in the late eleventh century, the state issued 50 billion coins over the course of a decade. By banning private mining and minting of coins, it also retained full control of coinage throughout the whole course of the dynasty. In addition, after the 1023 takeover of the private merchant houses in Sichuan, the Song state issued paper money. One Song theorist, Zhou Xingji (1067–1125), even proposed that the government keep on hand two-thirds of the value of all paper notes it issued. Over the next three centuries, state-issued paper money functioned well, but by 1430 inflation and out-of-control government spending had rendered paper money unusable. The government stopped issuing notes and paper money slowly fell out of use. In subsequent centuries, the Chinese government minted bronze coins but made no effort to regulate silver specie, which became the de facto currency of Ming (1368–1644) and Qing (1644–1911) China. Horesh estimates that, in 1900, 70% of the Chinese money supply, including bank deposits, consisted of metal coins.

In the United Kingdom, in contrast, the comparable figure was only 20%. The British government, like other European governments, had learned by the mid 1700s to make technologically superior machine-struck coins that were perfectly round and evenly stamped, and which were circulated at a greater value than the metal they contained. Minting this fiduciary coinage had advantages for the state, which directly collected the benefits of seigneurage. It had advantages too for the people, because the money supply was large, interest rates were low and it cost much less to borrow capital in Europe than in China. (Horesh does not account for the persistently high interest rates during the Song dynasty – often 10% a month – which should not, according to his theory, have existed at a time when the money supply was adequate and entirely controlled by the government. Inflation may also have been a factor.)

Starting in 1000, Europe slowly shifted to a gold standard. This was a key development because Europeans traded goods desired by Africans in exchange for the gold they needed, making substantial profit in the process. In addition, the output from European mines increased markedly in the twelfth and thirteenth centuries, so much so that by 1360 English coin production had reached the level of Song coin production. All these changes resulted in a major difference between European and Chinese currencies: in Europe the exchange value of standard coins exceeded their inherent metal value, while in China, even during the first four centuries of paper money before 1430, the value of standard coins was their face value. The world's first genuinely global currency was the Spanish American silver dollar.

The book offers broader chronological coverage than the above summary suggests. The author's proposed start date for Chinese coins is 600 BCE; 2012 is presumably the closing date of his research on the renminbi (RMB). The first part of the book, about the history of Chinese coins, makes a valiant if unpersuasive attempt to argue that Chinese and Western coins were part of the same currency sphere and that Western coins influenced the earliest round Chinese coins. (If Western coins were so influential, why were Chinese coins cast while Western coins were struck? Why did Chinese coins have a square hole in the middle, which was not true of any Western coins at the time?) The second part of the book draws on the author's earlier work on paper money in the nineteenth and twentieth centuries; it surveys the Qing efforts to print paper money, discusses notes issued by British and Japanese banks in China, and finally considers the prospects of the RMB as an international currency. Horesh's answer? ‘That the RMB will within a few decades become much more than merely the currency of the people of China is, at any rate, not as far fetched as it may seem at first glance’ (p. 237).

Horesh's method is exactly what Marc Bloch suggested so many years ago in his call for comparative history: to examine closely the history of disparate areas to generate new questions. Horesh has read widely and well (the bibliography alone occupies pp. 293–338); familiar names such as John Nef and Robert M. Hartwell appear, but so, too, do many new names of both Western and Chinese scholars (the Rosenthal and Wong book is one of the few missing must-have items). Beginning students may find the book confusing. For scholars working across a range of fields in economic history, however, it will prompt them to catch up on their reading in secondary sources just as it sparks a host of new questions.