Paths toward the Modern Fiscal State: England, Japan, and China by Wenkai He (review)

In Paths toward the Modern Fiscal State, Wenkai He, a political scientist, takes on the task of explaining the “birth of the modern fiscal state.” He describes it as a state that uses “centrally collected indirect taxes to mobilize long-term financial resources from the markets.” In adopting this definition He invokes the line of interpretation that Richard Bonney, W. Mark Ormrod, and others have pioneered. (See, e.g., the contributors to Bonney, ed., Economic Systems and State Finance [1995] and Bonney, ed., The Rise of the Fiscal State in Europe, c.1200–1815 [1999].) He joins them in pushing beyond Joseph Schumpeter’s “tax state” model to incorporate debt finance and thus understand the linkages between successful national states and financial markets. In so doing, he attempts to identify general patterns across episodes in England (1642–1752) and Japan (1868–1895) that he believes produced modern fiscal states and an episode in China (1851–1911) that he believes failed to do so. He casts his international interpretation in institutional terms, concluding that the three episodes display “sequential features of institutional development” that “are surprisingly similar.” (2)

In each of He’s three narratives of the starting point was the onset of a severe national crisis—the English Civil Wars in 1842, the Meiji Restoration in 1868, and the Taipai Rebellion in 1851. In each narrative, the author details how each crisis intensified financial pressures on the central government, driving it to experiment with novel ways of generating revenue streams. In each of the three episodes, the postcrisis national government imposed taxes on either domestic consumption or international trade, collected the taxes indirectly (through third parties), and established those taxes as the primary source of revenue. As part of the same postcrisis process, two of the nations, England and Japan, centralized their collection of indirect taxes and leveraged their new tax revenues to undertake long-term lending. The new tax revenues and long-term loans became the central features of the modern fiscal state. In the third episode China also enhanced central control over collection of tax revenues, but it failed to so as effectively as England and Japan had. And, although China introduced short-run financial instruments, China failed to move beyond into the realm of long-term lending. High-level Chinese officials understood the potential effectiveness of creating state banks, and the Qing government had the administrative capacity to mobilize timely transfers of tax revenues to Shanghai. However, the modern fiscal state did not emerge. He proposes that In China, in contrast with England and Japan, the postcrisis problems in floating paper notes were not sufficiently severe to threaten the central government and persuade officials to develop the institutional means of achieving “the mutually reinforcing effects between punctual interest payments and the increasing confidence of investors in state bonds.” (179).

In constructing the three narratives He has demonstrated impressive scholarly range by synthesizing large and complicated interdisciplinary literatures. Previous scholarship on these three episodes has been most abundant for England and Japan, and his general findings will not surprise experts on the fiscal history of those two nations. There are possibilities for interpretive disagreements but the author describes them with care, fairness, and acuity. In analyzing the scholarship on formation of the Japanese fiscal state, He’s discussion of literature in Japanese has rendered a major service for the many fiscal scholars who do not read the language. In his narrative on China He not only mobilizes the secondary literature but analyzes primary sources for the Qing dynasty in the No. 1 Historical Archives in Beijing. And, it is in his analysis of the China episode that he makes his most original scholarly contributions. His highly contingent, institutional approach to explaining the failure to establish a modern fiscal state in China seems much more compelling than relying on factors such as large national size...