Encouraged by former Chinese graduate students, my wife and I toured China in May 2007. We came into contact with one of the world’s great civilizations, a striking geographical and human landscape and a huge, time-compressed experiment in economic and social change. As a result of its industrial production, exports and massive construction projects during the last three decades, the People’s Republic of China (hereinafter PRC) has become the fastest growing and one of the most important economies of the world.1 Starting in 1978, the PRC adopted policies for the creation of what it labeled a “socialist market economy” fourteen years later.2 Many of these policies were to be carried out by what the Plenum of the Central Committee of the Communist Party (hereinafter CCCP) referred to as a “modern entrepreneurial system.”3
As with other major representative jurisdictions covered in this book, the present chapter will be devoted to the historical and socio-economic context of the Chinese law of commercial contracts. This is a particularly necessary task because one cannot subsume the Chinese legal system in general and its law of commercial contracts in particular under the civil and common law systems any more than one can subsume it, especially today, under a category such as “socialist” law. Chinese law has by now absorbed institutions from the major legal systems while retaining its deeply ingrained cultural values and attitudes toward law, society and, last but not least, family. In fact, if I were asked to isolate the values that have had the greatest influence on China’s law of commercial contracts, I would have to say that they are what I described as “familism” and “legalism”—the former derived from the struggle for agricultural 624subsistence by the family as an economic unit and the latter from the Chinese’s respect and obedience to hierarchy, whether defined in familistic, religious, intellectual, ethical, political or military terms. The respect for and obedience to hierarchy is a value which inspires both familistic and legalistic rules, but produces undesirable results for legal and economic development.
Since familism and legalism are at the center of gravity of the Chinese legal system, the study of China’s living law of commercial contracts acquires paramount importance. To determine what law actually governs contract making, interpretation and adjudication in China, one must understand how official or written laws interact with their underlying familistic and legalistic norms. Thus, China’s living law of commercial contracts is but a reflection of the interaction of these underlying norms. And the age and size of this society, equal to no other in our planet, has made its living law a much more powerful force than any other known to man.
Where was this living law found, who applied it, to whom and how? Upon reviewing recently discovered compilations of contractual documents, it is apparent that contractual practices, including some forms of business associations, are thousands of years old and mostly related to agricultural endeavors.4 It is also apparent that despite occasional governmental attempts to ban or modify living law institutions following periodic transformations of China’s economy, the strong influence of these institutions manifested in family, lineage and clan transactions and informal or customary rules, was still discernible. This was especially true with respect to the sale and distribution of real estate and other valuable family assets. Yet, who within these associations shaped this living law? Was it shaped by the rich who had the power to “promulgate” it as well as by the poor who could only react to it “with their hands and feet,” by the landed gentry as well as by the dispossessed?
As we visited rural China and watched malnourished farmers hunched over their buffalo-driven plows in what seemed like an endless reach for the yield of a barely life-sustaining soil, words such as “ancestral” kept coming to mind. To be sure, a major transformation of social and legal institutions was taking place in Chinese cities. As we looked up at the forests of skyscrapers and were told of the large number of rural window cleaners or drove by the endless rows of assembly plants filled with workers of a similar rural extraction, we realized how today’s rural presence in the cities is yet another illustration of an ancient predicament; the fate of China’s peasantry continues to be decided by others, at times thoughtfully, and many other times arbitrarily and harshly. It did not seem as if these former peasants—now present city dwellers—had much to do with shaping any official or living law of contracts or with what was happening to them and their families, except by their aversion to it and their perennial attempts to circumvent it.5
Whether conscripted to fight wars or raise the horses of fighting armies, to relocate to drier or more productive land, to act as the pulling force for difficult river navigation, or to build and man unproductive furnaces of “household industries” (a 625project whose end result was one of mankind’s most colossal famines), peasants as a group had little to say in these life and death decisions. Only when conditions were wholly intolerable did they rebel, and then with little improvement of their predicament.6
It was as if Chinese subsistence farmers, among the world’s hardest working and most resilient, were for some undetermined reason kept out of the living law “loop” and were thus likely to experience, again and again, major disasters at the hands of nature or of autocratic rulers, even when these rulers came from their own ranks.7 In a 2008 speech, Professor Jerome Cohen, one of the West’s foremost experts on Chinese law, commented on the lack of representation for large, perhaps the largest, segments of the Chinese population as follows: “Chinese have learned that collective action may be the only effective way to demonstrate the need for resolving their grievances… because the legal system has not developed the kinds of institutions necessary to process grievances.”8
Finally, it was also apparent that despite their revolutionary slogans of radical institutional change, the founders of the PRC, at least in 1949, welcomed a modicum of institutional continuity. The existence of such a policy was confirmed by a United States Library of Congress study, which rejected the conclusion that every traditional institution was changed or was intended to be changed in 1949.9 According to this study, those who established the PRC in 1949 were not intent on making the new legal institutions a replica of foreign models; yet they also “had an ambivalent attitude toward their country’s past and its traditional society, condemning some aspects and 626praising others.”10 Thus, they attempted to change rural land tenure and education while leaving other institutions, such as the all-encompassing and influential family structure, much as they were.11
It was becoming apparent that China’s customary (living) law was nourished by an uneasy mix of Confucian and Neo-Confucian moral law ideology and by contractual practices designed to circumvent burdensome or excessively authoritarian-legalistic rules. And, as just noted, these were the forces responsible for imperial China’s multi-layered and often contradictory legal fabric. To discern the strands of this legal fabric, it will be necessary to understand first the role of institutions such as the family, lineage and clan and subsequently the transactional values that governed these institutions, including those inspired by Confucian and Neo-Confucian ideologies.
After providing this context, I will focus on influential thinkers, especially Confucius and his disciples, and on merchants as sources of China’s living law and will conclude with a discussion of the causes of what some historians and Sinologists refer to as the “Great Divergence.”12 This divide took place mostly during the seventeenth and eighteenth centuries, a time during which China seemed poised to develop a prosperous capitalist economy such as that of Great Britain, but failed to do so.
In previous chapters, I have explored the contribution of commercial legal institutions to Germany’s impressive economic takeoff during the three generations that followed its unification. In subsequent chapters, I will examine the takeoffs of Great Britain and the United States and the commercial legal institutions that contributed to them. One of the concerns of this chapter, then, is: What prevented China’s capitalist takeoff during the centuries of the Great Divergence? In the absence of viable legal institutions, will China’s recent and present economic growth continue to be sustained? When the reader inquires into what is China’s present law of commercial contracts, he or she must understand that this law is much like the proverbial iceberg. More than with any other legal system and culture studied in this book—and because of China’s long and eventful history—the rules, principles and concepts discussed in this chapter are merely what appear on the tip of its institutional iceberg. They are inseparably tied to the legal, economic and cultural institutions discussed in this chapter. Thus, the meaning of present-day statutes, court decisions, doctrinal writings and even customary law rules must be understood in their peculiarly Chinese historical context.
In the 1998 edition of their enlightening “new history” of China, Professors John Fairbank and Merle Goldman point out that, until very recently, the Chinese family was a microcosm of the Chinese state:
The family, not the individual, was the social unit and the responsible element in the political life of its locality. The filial piety and obedience 627inculcated in family life were the training ground for loyalty to the ruler and obedience to the constituted authority in the state.
The father was a supreme autocrat, with control over the use of all family property and income and a decisive voice in arranging the marriages of the children…. According to the law, he could sell his children into slavery or even execute them for improper conduct.13
These authors note that an advantage of the hierarchical ordering of a family and state was to allow each member of the hierarchy to know automatically:
[W]here he stands in his family or society. He can have security in the knowledge that if he does his prescribed part, he may expect reciprocal action from others in the system.
Within the extended family, every child from birth was involved in a highly ordered system of kinship relations with elder brothers, sisters, maternal elder brothers’ wives, and other kinds of aunts, uncles, cousins, grandparents, and in-laws…. Family members expected to be called by the correct term indicating their relationship to the person addressing them.14
Also significant in terms of hierarchy was that, while family headship passed intact from father to son, family property did not. Early in its history, China abandoned primogeniture as the principle of inheritance of family property in favor of an equal distribution of family land among all of the sons.15 This made the family not only an economic but also a private law making unit inasmuch as the distribution of family land entailed the conferral of rights and the imposition of duties for those using the land.
In his study “The Traditional Chinese Family and Lineage,” David K. Jordan, a research anthropologist at the University of California, San Diego, explained each element of the definition of the Chinese traditional family (jiā, 家): a patrilineal, patriarchal, prescriptively virilocal kinship group that shares a common household budget. Of these, it is important to differentiate among patrilineal, lineage and clan associations.16
The term “patriarchal” applies to a hierarchically organized family whose prime authority is vested in the senior-most male. In what is also referred to as an “agnatic descent,” an individual family member must descend from his or her father. Thus, an agnate is one’s genetic relative exclusively through males: a kinsman with whom one has a common ancestor by descent in an unbroken male line. This meant that no two members of a Chinese family had equal authority: “[o]fficially at least, (1) senior generations were superior to junior generations, (2) older people were superior to younger ones, and (3) men were superior to women…. Normatively … a family would 628be headed by a man who was older and/or of more senior generation….”17 Jordan’s discussion of family hierarchy helps to explain central components of the Chinese living law of families and their internal and, at times, external transactions:
Family hierarchy was very emphatically symbolized in the concept of xiào [孝] … which is usually translated as “filial piety,” but is more accurately rendered “filial subordination.” When wills clashed, it was expected (and legally enforced) that the will of a family superior should prevail over the will of a family inferior. Traditional law held a child’s insubordination to a parent to be a capital offense, and a daughter-in-law’s insubordination to her parents-in-law grounds for divorce.18
I should add parenthetically that Jordan’s references to a “traditional law” and to its “legal enforcement” do not necessarily mean a law governed by officially promulgated codes, but rather by rules of ethical behavior enforced by unofficial community institutions and influenced largely by Confucius’s teachings.19
The term “prescriptively virilocal” refers to the expectation that a newly-married couple will live with the groom’s family; the men were expected to bring their wives to live on the family estate. “Kinship,” in turn, means that members of the family have to be related genealogically, i.e., either by common ancestors or by marriage.20
When living together, the members of the family shared a common budget and supporting assets. This meant that possessions, income, and expenses of all family members were pooled, and decisions about resource distribution involved all family members, but were ultimately taken by the patriarchal authority.21 Jordan, among others, suggests that the common budget is one of the most important features of the internal order of Chinese families.22 By partaking in the pooling of the assets of a family, an adopted child, for example, could become a member of the family, regardless of kinship. Further, the same family budget could be shared by a family across several households. For example, a family could have members living in farming village “A” and others in small town “B” or in different locations, and all would share a common budget.
Columbia University’s Professor Madeleine Zelin has recently drawn attention to the importance of lineage and a common budget in the emergence of the Chinese 629version of investment trusts.23 Since male descendants had the responsibility to perform ancestral rites honoring their predecessors in the agnatic chain of descent, “as early as the Song dynasty [960–1279] [A.D.] families were encouraged to ensure the appropriate performance of these rites by sequestering a portion of the patrimony of each generation in the form of an endowment that could not be divided.”24
Because of the importance of the common budget, then, the division of family assets (fēnjiā, 分家) was a critical legal transaction.25 When family members decided that their union was no longer feasible, they would agree to a division of the family’s assets and the creation of new, financially-separate families. This situation occurred typically after the death of a father left two brothers and their wives and children as a common economic unit; differences in the productivity of the brothers or in the number of their children led to disputes settled by such a family division.26 Traditionally, the mediator of such a dispute was the brother of one of the older married-in women, and usually a contract would commit the settlement to writing. As will be illustrated in the following chapter, this agreement was quite common, even in late imperial law.
As pointed out by the University of Washington’s Professor Patricia Ebrey, a fundamental reason why farmers often had difficulties surviving during most of China’s history was the above-mentioned equal division of family property among all sons:
With the decline of feudal tenures and the spread of free buying and selling of land, the division of family property became customary…. The Chinese family remained patrilineal, patrilocal, and patriarchal, but it no longer favoured oldest sons in the transmission of [all the family] property. Ownership of land changed hands frequently as those with wealth … purchased it and those who inherited land had to sell parts of it to meet expenses. To a family head, the survival of his family depended not merely on the survival of a male heir to continue the ancestral sacrifices, but also on preserving or securing enough family property to allow all the sons to marry and support a family.27
This observation explains the remarkable similarity between standard clauses in contracts that conveyed family land subject to the Hindu law’s doctrine of “necessity”28 and to the customs of the Chinese patrilineal, patrilocal family and lineage. The Chinese conveyances of ancestral land, invariably and in a standardized fashion, asserted the serious economic need of the grantor as the reason for the conveyance. On the other hand, as will be discussed shortly, agricultural productivity required that family members be independent and do so by exploiting their own land. This need for greater productivity was the reason why a “frustrated” imperial bureaucrat found it necessary to legalistically impose punitive taxes on family land, thereby forcing the 630departure of many a family member from the family household.29 This was an early instance in which a Confucian-inspired living law of single-line agnatic family ownership clashed with a “legalistic” attempt to encourage economic development by fragmenting family land ownership.
A patrilineal lineage (or patrilineage) is a group of families and descendants of a single, specific ancestor, organized in various locations by those heads of families who descended from the same male ancestor. This organization was set up usually for religious or economic purposes.30 Professor Ebrey points out that these lineages were more common in southern China where migrants from the north had settled in areas with uncultivated land for “many descendants to remain in the vicinity, making for a critical mass of nearby kinsmen.”31 Some of these lineages contributed significantly to the growth of one of the most important commercial clans, the Huizhou (徽州), who will be discussed later in this chapter. Huizhou lineages flourished “in the mid Ming [dynasty] … benefiting from the willingness of the many wealthy local merchant families to make donations.”32 Since the basis for the organization of lineages was kinship, lineages included different social classes, from the rich to the poor. Not infrequently, richer members were required to provide money or valuable property to help the poorer members.33
Patrilineage relies on binding family rules and requires the ability to identify the ancestor who legitimizes the organization and its rules. Given the number of families that can and usually do claim membership in the lineage, the task of identifying the common ancestor has proven difficult even when carried out by expert genealogists. Anthropologists refer to this ancestor as “apical” because he is at the “apex” of the genealogy by which the lineage membership is determined, and the descent links to this person are known.34 Where they existed, these lineages owned property that could range from a modest religious hall to venerate ancestors to highly productive rented-out fields.35 These holdings supported transactions such as loans to members of the lineage, insurance to cover catastrophic events, schools for the benefit of lineage members, and the lineage trusts created at first to ensure the performance of rites to honor ancestors and eventually for commercial investments.36 On many occasions, the same apical hierarchy was responsible for settling disputes prompted by familial, lineage or intra-clan transactions.37 In fact, heads of lineage associations were so strong that they were at times charged by the local governments with administrative functions such as tax collection and settlement of disputes.
Lineages, thus, had their own living law. Traditionally, they supplemented their genealogical documents with “family instructions” (jiāxùn, 家训).38 These were moral directives by elderly members passed down to their descendants, sometimes with rules for the conduct of the lineage business. And since lineages lost face if their members engaged in illegal or immoral acts, they had provisions to punish or eject errant members and expunge their names from genealogies.39 Indeed, as reported by Professor Ebrey: “By the mid Ming, lineages in some areas of the country were introducing elaborate systems to control and discipline members. In one area of Jiangxi province, for instance, lineages wrote up sets of rules, giving lineage leaders considerable authority to settle disputes and enforce compliance.”40
Because lineages sought to promote the welfare of their members, and since this could well be at the expense of non-members, conflict between lineages was not unusual. Further, in areas where competing lineages were strong, local warfare was an occasional result. Even in those instances that did not result in open violence, strong underlying tensions existed and this encouraged rules that insisted on residence with those lineage-mates who were close to their kin. The results were the emergence of single-lineage villages, or villages where most residents were members of a single dominant lineage, and this increased the number of conflicts with neighboring villages whose members were not of the same dominant lineage. Predictably, the disciplinary and private law making functions of lineages became unenforceable and invertebrate.
Still, lineages carried with them the prestige of membership. Although one might get the impression that the system of lineages was universal in China, according to Jordan, it was not. The causes, as just noted, were the confusing methods of grouping families and, even more so, the loose rules for membership in clans. Indeed, the “lineage system” was so frail by the advent of the PRC that no official steps were needed to be taken to end the organized lineages that remained. As concluded by Jordan, “[o]nce ownership of private property was restricted, lineages … collapsed on their own.”41
How do the disciplinary rules and adjudication methods adopted by Chinese lineages differ from those of the Italian medieval “corporazione” described earlier in this book42 by Professor Levin Goldschmidt as forerunners of the consulates and eventually of commercial courts?43 What are the consequences of membership in the same family in the case of the Chinese lineages? While discussing the transactions of pre-commercial society in Chapter 3, I noted the findings of the late Professor Dalton of Northwestern University with respect to the sharp differences between the productivity of tribes or clans who depended for their survival on associations or groups of members specifically organized for trading purposes and those who relied on communal circles to insure their survival by producing reciprocally or for each other. Could the same be said about Chinese villages whose families were devoted exclusively to agricultural production and lineages such as those of the Huizhou?
Anthropologists refer to the Chinese clan as “a wannabe lineage,”44 i.e., a property-holding group made up of descendants of an apical ancestor, but for whom the details of the descent lines from that ancestor are unknown to those who claim to be his descendants. In China, then, clans were created on the basis of a common surname, usually asserting common descent from a real or fictitious ancient person of that name.
A Chinese village may have housed one or more clans, as well as families not organized in clans who were usually the “village poor.”45 In some regions, clans owned large amounts of the land held by their members, which land became part of the clan patrimony. This above-discussed common budget supported by family and lineage rules led to the creation of joint business enterprises. For example, where the clan held jointly-owned land, the business derived from such holdings could be the rental of the land to members and non-members of the clan.46 As will be discussed shortly, the clan’s business could be as varied as weaving, processing rice, distribution of salt or tea, money lending by pawnshops or bank deposits and remittances of funds. Similarly, the proceeds of the clan’s business were used for a variety of purposes that ranged from building and maintaining strongholds against bandits, funding schools and providing scholarships for selected clan members, maintaining ancestral family temples, and paying the funeral expenses of poor members.47
Some clans, such as that of the Huizhou merchants, were instrumental in the rise of commerce in an entire region by establishing networks of correspondents who serviced different sectors of the economy. Others performed various mutual aid functions. Thus, Chinese who traveled to foreign regions could locate presumed kinsmen and procure assistance from them. Clans also settled disputes that arose between members, forced their observance of community standards by threatening to expel them from the community, and interceded for them with the local or national governments. Clan heads often held government offices.48 However, the likelihood of conflicts increases with the presence of clans and their selection of certain lineages as their favorites. As pointed out by David Jordan, clan-selected lineages only promoted the welfare of these lineages at the expense of others, and this exacerbated the number and intensity of conflicts between lineages, above and beyond the conflicts between lineages previously discussed.49 In sum, from the earliest of times, commerce in China was conducted differently between or among members and non-members of familial associations.
While in China, I discussed western contemporary commercial contract law sources (including some that I had drafted or participated in drafting) with Chinese judges, scholars and practitioners. Some of their interpretations were based upon principles and value systems unfamiliar to me. Despite being clothed in western analytical terminology, Chinese views on the protection of commercial third parties (such as beneficiaries of letters of credit or holders in due course of their drafts, secured creditors and other financial market participants) who were not members of the obligors’ nuclear or extended family were unconcerned with their implications for a market economy. While neither time nor space allows a thorough discussion of their legal reasoning, a brief discussion of the values that influenced present-day official and living law will hopefully be of assistance in understanding these laws.
I had always thought of Confucius as a “humanistic” moral philosopher and not as a religious figure. Surprisingly, we found many religious temples dedicated to him and witnessed how many students brought gifts to him in anticipation or appreciation of a good result in their civil service or university entrance examinations. Yet, as I eventually learned about China, seeming opposites are seldom far apart; humanism and religious rituals were in fact not too distinct. As stated by the eminent Confucian scholar Wing-tsit Chan:
The movement of humanism began with Confucius (551–479 B.C.). It gained momentum in Mencius [385–303 B.C.E.] and Hsün Tzu [312–230 B.C.E.] and finally reached its climax in Neo-Confucianism. It is a story of more than two thousand years. It is the story of Chinese life and thought. From the time of Confucius to the present day, the chief spiritual and moral inspiration of the Chinese has been the Confucian saying: “It is man that can make the Way great, and not the Way that can make man great.”
To say that Confucius was humanistic is not to deny that the Sage showed a reasonable interest in religion. Confucius was, on the one hand, a reformer, a pioneer in universal education for all those who cared to come and for people of all classes, a man who traveled for fourteen years over many states in search of an opportunity to serve the rulers in order that the Moral Law (Tao, [or] the Way) might prevail.50
Not much is known about Confucius’ origins, other than that he was born in Lu, a small feudal state in eastern China.51 What is known is found in his writings or in writings that his disciples attributed to him such as the Analects (a collection of aphorisms, sayings and maxims)52—part of a series of the “classics” (Wujing, 五经) of 634Confucian literature that included the Book or Code of Rites, which will be discussed in further detail shortly.53
Confucius spent time as an advisor in the court of Lu (鲁) and also as a teacher (an occupation that earned him many disciples and admirers). He traveled throughout China in search of an opportunity to serve the rulers. China was undergoing yet another period of turmoil, and Confucius was dismayed by the “greed, insincerity, irresponsibility, [and] callous disregard for others’ needs and interests….”54 His teachings on the evils he found and their proposed cures were collected (and very likely supplemented) by disciples and published during the second century B.C.E. as the above-mentioned Analects (hereinafter Analects, Lun Yü or Lun yu). Yet, as will be apparent when we discuss the Analects, what Confucius meant by “the rights of others” is not necessarily what western legal systems would mean by such rights.
Unlike Plato’s utopian “philosopher kings,”55 Confucius linked moral behavior to actual albeit also archetypal societal occupations and hierarchies with clearly assigned roles, including the preeminent one for the “learned” scholar or “noble” man, “gentleman” or “superior person” (junzi, 君子)—someone who, like himself, was not reluctant to do what was good for others, including acting as an advisor to the reigning dynasty.56 Thus, the preeminent position in the social hierarchy that Confucius assigned to learned men was not in a utopian world. His “learned men” were court advisors to rulers in the actual performance of rituals and ceremonies or setting the official calendar. They also acted as performers of divinations and decipherers of their results, keepers of official records and advisors on how to justify administrative or judicial decisions.57 In Confucius’ ideal society, everyone knew his or her proper place and duties, and the need for a ruler and ruling class were taken for granted. However, Confucian learning and ritual behavior could facilitate upward social mobility.
Confucian rulers had to demonstrate their fitness to govern by their “merits.” Heredity alone did not suffice to legitimize the ruler’s rule. When asked by an actual ruler about the principles of good government, Confucius replied: “ ‘Good government consists in the ruler being a ruler, the minister being a minister, the father being a father, and the son being a son’….”58 Jeffrey Reigel explained the preceding aphorism as follows: “I should claim for myself only a title that is legitimately mine and when I possess such a title and participate in the various hierarchical relationships signified by that title, then I should live up to the meaning of the title that I claim for myself.”59
Lurking behind this nominalistic advice was a belief in the rulers’ perennial duty to stay faithful to the moral rule or the above-mentioned Moral Way, or simply “Way,” which indicated how the ruler and the ruled ought to behave. In addition, because filial piety or obedience (xiao, 孝) was so strongly encouraged by the living law of family and lineage, obedience to the ruler benefited from its similarity to membership in a family or lineage. This was apparent in Confucius’ above-quoted saying in which he listed the sons’ duties to their fathers as part of the same hierarchy that included rulers and his ministers. Hence, while hierarchy was a fact of life in the governance of families, lineages and public offices in Confucius’ time, his teachings contributed to it becoming a permanent fixture of China’s public and private law.60
The Confucian hierarchy of occupations (sìmín, 四民) was kind to scholars but not to merchants. Scholars and gentry (shi, 士) were at the top and were followed by the artisans and craftsmen or, more generally, workers (gong, 工), and the peasant farmers (nong, 农); the merchants and traders (shang, 商) were at the bottom.61 According to Fairbank and Goldman, this hierarchical class structure was developed during the early Zhou dynasty by either Confucian or legalist scholars, about whom more will be discussed later.62 As noted earlier, hierarchy was a central value of Chinese living law and thus was respected and deferred to in everyday life. For example, one of the advantages of the upper classes was the exemption from punishment for some of their violations of official law. The Book of Rites (Liji, 礼记), attributed to Confucius, decreed that “Punishments do not extend up to the Great Officials (xing pu shang tafu, 刑不上大夫).”63
The class of scholars, “Superior Persons” (also referred to as learned men, upright, noble, genteel or gentle men, etc.), to which Confucius attributed the highest social 636ranking, may not have existed prior to Confucius.64 In theory, they were supposed to be paid stipends or scholarships (prebends) rather than percentages of collected taxes; and this method of compensation apparently suited Confucius’ rejection of acquisitiveness as contrary to the required “poise and harmony of the soul.”65 Confucian scholars gained influence in Chinese society by teaching respect and proper performance of ancestral rituals and by clarifying the meaning of the virtues that Confucius and other respected scholars considered the prerequisites of a superior person’s behavior.
These virtues were the following: benevolence, charity and humanity (ren, 仁); honesty and uprightness (yì, 义, which may be broken down into doing one’s best, conscientiousness and loyalty, and reciprocity, altruism, consideration for others, and a Confucian version of the Golden Rule, “[w]hat you do not wish for yourself, do not do to others”);66 knowledge (zhi, 智); faithfulness and integrity (xin, 信); and correct behavior, or propriety, good manners, politeness, ceremony and worship (li, 礼).67
The above-stated Confucian version of the “Golden Rule” merits comparison with the western commercial version described earlier in this book as the “marketplace standard of fairness.” The latter requires, at a minimum, that one contracting party treat the other, as well as third parties, as regular participants in the marketplace would reasonably expect to be treated.68 Thus, this version must take into account the others’ reasonable expectations. Confucius’s version is altruistic enough to direct a first party to treat his counterparty as the first party herself would want to be treated, but it is also paternalistic enough to presume to know better than the counterparty or third parties what they should reasonably expect from the contracting party or parties. Thus, the Confucian version of the Golden Rule is at odds with the western commercial marketplace version of the Golden Rule or marketplace fairness. As just noted, this marketplace thrives when the counterparties’ and third parties’ reasonable expectations of fair treatment are met, regardless of whether these expectations are consistent with those of the paternalistic and altruistic first party. After all, the first party’s expectations may be based upon his own unrealistic or unreasonable assessment of the value that he promised or conveyed to the other party. As the old Spanish saying goes, “el ojo del amo engorda a la vaca” (the eye of the owner fattens the cow).
Confucius regarded devotion to parents and older siblings as a duty of altruism intended to promote the interests of others before one’s own. I hasten to add that the universe of the “others” is not as comprehensive as this term may suggest. As an 637Analect that will be discussed shortly reveals, the term “others” applies to those who are members of the same nuclear and extended family. Beyond this group, the deference may well be more academic than real.
The practice of this deference can be accomplished only by those who have learned self-restraint and discipline. Herein lies the connection between virtue and ritual because learning this virtue involves “mastering li, the ritual forms and rules of propriety through which one expresses respect for superiors … in such a way that he himself is worthy of respect and admiration.”69 By insisting on the performance of the rituals of deference to the interests of the Confucian others, the teacher instills a behavior consistent with that of a superior person, gentleman or possessor of the ideal or archetypal personality (junzi, 君子).70 Even though the Analects are not explicit on Confucius’s view of human nature as good and predisposed to do good, Confucius said that he never came across anyone whose strength was insufficient for practicing the reciprocity and benevolence of jen (仁).71
In contributing to man’s improvement by teaching him to defer to the interests of others (however perceived by the followers of Confucius’s Golden Rule), Confucian scholars also hoped to instill faith in the Chinese state and its officials. The legitimacy of a government in Confucius’s view depended not upon its military power or even upon the strict enforcement of its laws, but upon that government’s higher (Confucian) morality or moral law—a law he referred to, as noted earlier, as the “Way” (Dao, 道). This is the most important dividing line between Confucianism and legalism. A scholarly inculcation of such a morality could only lead to greater faith in governmental institutions. Thus, as stated in another analect that will be discussed shortly, even if a state had to give up its military might and its stores of food to preserve faith in governmental institutions, such renunciation was worth it.72
Only those who fell beyond the bounds of ritual and moral behavior, i.e., social outcasts, were subject to the ruler’s criminal law. As just pointed out, this moralistic and highly restrictive application of official law distinguished Confucian governance from “legalism,” i.e., a view that empowered the much wider if not preeminent application of “human law,” at least in theory, equally to all the subjects. Hence, in the Confucian legal universe, living law as the Moral Way was supreme, and those who behaved in accordance with the Way were not treated equally with those who did not. In other words, unequal treatment of Confucians and non-Confucians was an essential feature of Confucianism; and official law was implicitly, if not explicitly, inferior to moral (Confucian) law.
Max Weber, the German sociologist who in the eyes of many is the father of modern religious and legal sociology, ascribed much importance to the religious and aesthetic components of Confucius’s “gentleman[ly] ideal.”73 Together, the religiously-inspired good spirits, art (expressed in poetry, literature and calligraphy, among other artistic manifestations) and benevolence made up the “work of art” that was supposed to be the Confucian ideal “genteel” man. “Puns, euphemisms, allusions to classical quotations, and refined and purely literary intellectuality were considered the conversational ideal of the genteel man.”74 Not surprisingly, Chinese officials, including emperors, proved their gentility by drafting official communications in the manner of “didactic poems.”75
On the other hand, Max Weber also points out that since the percentage of aspiring learned or superior men who failed the civil service entrance examinations was extraordinarily high because of small, fixed quotas, many candidates obtained these positions by bribery or outright purchase, much as the “venal” judgeships were purchased by the French bourgeois.76
How does Confucius’s archetypal superior, genteel, learned man compare with the Greek-Roman bonus vir, or with the medieval Jewish brotherly and trusted intermediary, or, more recently, with the German HGB’s honest and decent merchant? Clearly, these archetypes were designed for different roles and performed different socio-economic functions. Yet, does Confucius’s superior man possess a standard of behavior that could measure the fairness of an average commercial transaction, including the exorbitance of its price, the overreaching effects of its disclaimer of liability, and the control of a market? As you study the Analects, please keep these questions in mind.
As pointed out earlier, the Analects are a collection of widely-read and quoted aphorisms, sayings, maxims and anecdotes embodying teachings attributed to Confucius.77 Yet, as warned by Jeffrey Riegel, the Analects are a problematic and controversial work especially because they were compiled “in variant versions long after Confucius’ death by disciples or the disciples of disciples.”78 Despite the controversies and their internal contradictions, Benjamin Schwartz, the late Professor of Harvard University and highly-respected sinologist, counsels against rejecting them as a central source of Confucian and Chinese philosophy.79 I will heed his advice because for our purposes, the purity of the Confucian texts does not matter as much as does their continued application as a living law of proper behavior.80
While Confucius relied on maxims as his favorite tool of persuasion, they are not normative in the sense that they do not refer to the facts of a given dispute or to a class of disputes as do the Roman regulae iuris.81 Some Confucian maxims were written as narratives capped by a short conclusion, others as aphoristic definitions, and still others as questions which Confucius answered by means of an allegory.
The distinction between maxims in the Analects and in the regulae iuris points to the limitations of the Analects as sources of living or official law, especially when used as principles for decision-making by Confucian-inspired mediators, judges or commentators. Their distance from the actual facts or issues in a given dispute is such that the Analect in question cannot persuasively serve as a rule or principle of adjudication. As a rule, it would not distinguish the relevant from the irrelevant facts; as a principle, it would automatically, without factual evidence, ascribe to the entire class of merchants what has not even been proven with respect to an individual.
2.3 The Master said, “If the people be led by laws, and uniformity sought to be given them by punishments, they will try to avoid the punishment, but have no sense of shame. If they be led by virtue, and uniformity sought to be given them by the rules of propriety, they will have the sense of shame, and moreover will become good.”82
12.11 Tsze-kung asked about government. The Master said, “The requisites of government are that there be sufficiency of food, sufficiency of military equipment, and the confidence of the people in their ruler.”
Tsze-kung said, “If it cannot be helped, and one of these must be dispensed with, which of the three should be foregone first?” “The military equipment,” said the Master.
Tsze-kung again asked, “If it cannot be helped, and one of the remaining two must be dispensed with, which of them should be foregone?” The Master answered, “Part with the food. From of old, death has been the lot of an [sic] men; but if the people have no faith in their rulers, there is no standing for the state.”83
Please note that in Analect 2.3, Confucius warned against people being led by law instead of moral principles as provided by the Analects and the Code of Rites.
As will be discussed shortly, what Anglo-American lawyers refer to as “law” has at least four counterparts in the Chinese language: order (li, 理); rites or the rules of propriety (li, 礼), discussed earlier in conjunction with Confucius’s Code or Book of 640Rites; human-made laws (fa, 法); and control (zhi, 制).84 And while “human-made laws,” especially of a penal nature, were common since the Qin and Han dynasties, the latter dynasty introduced a Confucian component—the adjudication of local disputes by Confucian scholars acting either as arbiters or mediators—and, in so doing, added Confucian morality to the mix of human law.85 This was a sufficiently important component to warrant the assertion by a respected Chinese scholar that it was the most significant development in China’s legal system prior to its twentieth century modernization.86
From a commercial lawyer’s standpoint, what is the effect of the numerous meanings of the term “law,” and the places where it can be found? Does it add or detract from the certainty of the marketplace? At this point, it would also be helpful to compare Hugo Grotius’s and Samuel Puffendorf’s versions of natural law (as influences on the French and German Civil Codes) with Confucius’s Moral Way. Are they “birds of the same feather,” or are they very different animals? What are their normative differences? Which of these differences can be used to fashion more precise rules of contract law?
The governor of She said to Confucius, “In my land there is an upright man. His father stole a sheep, and the son turned him in to the authorities.”
The Master responded, “The upright men of my land are different. The father will shelter the son and the son will shelter the father. Righteousness lies precisely in this.”87
Why is this version of righteousness commercially important? Why should the innocent victim of a theft of sheep by one’s father not be worthy of greater protection than one’s thieving father? What effect does the protection of the thieving father and the disregard of the rights of the owner or lawful possessor of the sheep have upon the willingness of sheep owners or possessors to do business in Confucius’s family-above-all market place? Assume that “A,” the owner of a jewelry store in a busy marketplace, bought a valuable jewel from his son “B” that B had stolen from the rightful owner “C.” Should A’s sale of this jewel to his other son “D” be allowed to prevail over C’s attempt to recover the jewel? Should it prevail over the claim by “E,” a stranger who bought the same jewel from A, either before or after it was sold by A to D? How would the previous Analect answer these questions? How would the same questions be answered by the open market (marché ouvert) purchase rules in the Code Civil, especially Article 2279 641of the current Code Civil and in the English common law?88 Is it possible to reconcile this Analect with what Professor Ebrey described earlier in this chapter as Confucius’s concern with the “greed, insincerity, irresponsibility, [and] callous disregard for others’ needs and interests”89 that he had found in his travels through China?
4.16. The Master said, “The mind of the superior man is conversant with righteousness; the mind of the mean man is conversant with gain.”90
The Master said, “The gentleman understands moral duty; the petty person knows about profit.”91
4.14. The Master said, “The superior man thinks of virtue; the small man thinks of comfort. The superior man thinks of the sanctions of law; the small man thinks of favors which he may receive.”92
The Master said: “He who acts with a constant view to his own advantage will be much murmured against.”93
Please note that while profit-seeking is to be shunned, wealth or being wealthy per se was not criticized by Confucius.94 Does this vision have anything to do with the agricultural-subsistence nature of Confucius’s China? Or does it have to do with Confucius’s perception of acquisitiveness as contrary to the “poise and harmony of the soul?”95 Recall Aristotle’s rejection of the charge of interest on money lent as unwarranted by the “barren” nature of money.96 Does this view have anything in common with Confucius’s rejection of profit-seeking as an occupation?97 After 642reviewing the chapters on European codification,98 do you recall a judge or court that agreed (at least in theory) with Confucius’s view on acquisitiveness and virtue? Compare Confucius’s view with that of Adam Smith in “The Wealth of Nations”:
Merchants are commonly ambitious of becoming country gentlemen, and when they do, they are generally the best of all improvers. A merchant is accustomed to employ his money chiefly in profitable projects; whereas a mere country gentleman is accustomed to employ it chiefly in expence. The one often sees his money go from him and return to him again with a profit: the other, when once he parts with it, very seldom expects to see any more of it…. Whoever has had the fortune to live in a mercantile town situated in an unimproved country, must have frequently observed how much more spirited the operations of merchants were in this way, than those of mere country gentlemen.
…
Thirdly, and lastly, commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours, and of servile dependency upon their superiors. This, though it has been the least observed, is by far the most important of all their effects.99
Whose view, Confucius’s or Adam Smith’s, is more realistic in today’s society? Berthold Brecht, a Marxist playwright who fled Nazi Germany in the 1930s, wrote “The Good Person of Szechuan” (Der gute Mensch von Sezuan), a play in which a young prostitute struggles to lead a life that is “good” according to the terms of a morality—inspired by what I perceive as the same morality that inspired Confucius’s genteel man. As she tried to be benevolent to others, she observed that she was invariably abused and taken advantage of. At one point, she says (paraphrasing): “If I am good to others, it turns out that I am bad to myself, but if I am good to myself, it turns out that I am bad to others.” Would you consider this a real or false dilemma? As between Confucius and Adam Smith, would either of them or both consider it a false dilemma?
Professor Ebrey characterizes Confucius and his followers as “activists.”100 Yet, if Confucius was an activist when drafting the ideology of professional administrators, he was, at best, passive when it came to profit-making in trade as illustrated by the previous Analect. Even his directive to the finder of the beautiful gem—“sell it”—in the preceding Analect was tempered by the passive—“wait for someone to offer a price.” The followers of the religion known as “Daoism” (or Taoism), who also enjoyed a wide popularity during Confucius’s time, were even more reluctant to get involved in profit-making occupations.101
In everyday life, Daoists preferred to yield rather than to assert and to be silent rather than wordy. Their highest good resembled the nature of water: “Water benefits all creatures but does not compete. It occupies places people disdain and thus comes 643near to the Way.”102 An implication of these ideas was that the rulers should leave the ruled alone and enable their “return to a natural state in which the people are ignorant and content….”103 Professor Ebrey provides an illustrative quote from the Laozi, one of the classic Daoist texts:
Do not honour the worthy,
And the people will not compete.
Do not value rare treasures,
And the people will not steal.
Do not display what others want,
And the people will not have their hearts confused.104
Despite their strong divergence on the role of government, then, the Confucians and the Daoists shared a common distaste for commerce.
Once the examination system for ingress to Chinese bureaucracy took hold, efforts began to modernize Confucianism under the authority of the emperor.105 These reforms assumed respect of the imperial autocracy and perceived:
[T]he great mass of the common people as passive recipients of the benevolent despotism they sought to guide. They assumed merchants were perniciously addicted to greed and military men to violence. The reformer’s job was to keep them in their place and secure a wise application of the unified central power….106
Accordingly, during the Song dynasty, the bureaucracy was exhorted to eschew favoritism in the entrance examinations, encourage the sharing of income between the emperor and the peasantry rather than continuing their “squeeze,” rely on local militias rather than on national armies for the defense of the provinces, and so on.107 Professors Fairbank and Goldman refer to these efforts as attempts to keep “the imperial Confucian system going by always trying to remedy its defects and avoid its evils….”108
As an aid to this reform effort, the tenets of Neo-Confucianism were summarized in the writings of the scholar Zhu Xi (朱熹, 1130–1200 A.D.). He advocated disciplined self-cultivation as a means to understand the true Way of the moral improvement of the individual and the world, as originally advocated by Confucius and which many centuries later had to be repossessed. Thus, he urged the imperial court and its literati to be less selfish, more rational and humane.109
The influence of Neo-Confucianism upon China’s elite was significant—to the point that it “became the living faith of China’s elite down to the twentieth century….”110 Yet, as will become apparent when we discuss the effect of these ethics upon business practices, its continued emphasis on hierarchy (with merchants at or near the bottom of the heap) and ceremonial and manneristic behavior did not encourage the emergence of truly better (or more ethical) business practices. As also noted by Fairbank and Goldman: “One way in which Neo-Confucianism may have retarded China’s modern growth was by its disesteem of trade. The attitude was that merchants did not produce things but only moved them around in search for profit, which was an ignoble motive.”111
In addition to an anti-commercial attitude, Confucianism and Neo-Confucianism were not equipped to focus on actual practices and their improvement because their classical Chinese method of reasoning and writing made little or no use of “theoretical hypotheses or conditions contrary to fact, nor of inductive and deductive logical reasoning.”112
This section focuses on the interaction between Confucianism and the traditional familial values it reflected or inspired and legalism and the official law it created during China’s most influential dynasties. In China, legalism (fajia, 法家) was a body of “ideas and practices” associated with the rise of the Chinese imperial bureaucracy and central government control from the fourth to the second centuries B.C.E.113 These bureaucrats were primarily concerned with the economic problems faced by rural families and how to prevent unrest in the rural population.114
Meanwhile, the importance of contracts, mostly in China’s predominantly rural marketplace, underwent an evolution similar to that described by Sir Henry Sumner Maine (from “status to contract”).115 Professor Valerie Hansen’s illuminating book, Negotiating Daily Life in Traditional China,116 examines a wide spectrum of contracts entered into during the eight centuries that spanned from 600 to 1400 A.D. and involved the purchase, sale or rental of houses or plots of land, draft animals, slaves, concubines and children, and concludes that:
In 600 [A.D.], officials did not recognize contracts and used government registers to record land ownership. By 1400 [A.D.], the registers had fallen into disuse, and contracts had become the only proof of ownership.
At [first] … the central government enjoyed an unprecedented level of control over both the countryside and the cities. Most peasants grew their 645foodstuffs and bought little, except perhaps salt, at local markets. Officials set prices every ten days and supervised weights and measures at the strictly regulated markets…. Under the equal-field system … all land belonged to the emperor. Local officials conducted periodic surveys of land and households, reported their findings to their superiors, and redistributed land every three years. Official land registries were the only basis of legal title. Contracts between individuals had no legal status…. As the system of land registration and taxation broke down after 755 [A.D.], the emperor’s claim to ownership weakened…. Increasingly, people started to buy and sell land … and contracts began to be the only reliable record of changes of ownership.117
Some of these contracts, as well as those found in additional sources, will be discussed in the following chapter.118 The next section focuses on the economic and legal policies of contracts of the successive dynasties and especially on those policies that illustrated the interaction between familism-Confucianism and legalism.
As with other long-lasting cultures, the Chinese civilization emerged from city-states located along navigable waters, especially those adjacent to the Yellow River.119 The origins of Chinese culture, including its distinct script, literature, philosophy and methods of farming, became evident in the Zhou dynasty, which reigned from 1122 B.C.E. to 221 B.C.E.120 It was during this dynasty and especially during what is known as the Eastern Zhou period (770–250 B.C.E.) that “[t]hose engaged in advising rulers about state affairs began analysing basic principles of human society and the natural order…. Their ideas began to be written down, and … stimulated intellectual debate.”121 As was just discussed, Confucius was the best known and influential of these advisor-scholars.
The large territory occupied by the Zhou led them eventually to share their government with local overlords in a feudal manner not unlike that of Europe.122 Overlords were appointed first from within the Zhou family and military ranks and subsequently from a growing bureaucracy.123 The Zhou imposed the obligation to pay tributes, which were collected from the agricultural exploitation of the land, to the dynastic rulers in a pyramidal fashion through nobles, vassals and commoners (in that order). Eventually, the Zhou Dynasty broke apart into individual feudal-like warring states. Finally, in 221 B.C.E., Qin Shi Huang (秦始皇, of Terracotta Soldiers mausoleum fame)124 united the warring kingdoms and created the first Qin and Chinese empire.
During this dynasty, government by feudal nobles was replaced by a centralized imperial rule aided by an expanding bureaucratic system. During the fourth century B.C.E., the Qin adopted far-reaching, legalistic-egalitarian and thus anti-Confucian penal and administrative codes on the advice of Lord Shang Yang (商鞅), a powerful bureaucrat.125 In a collection of his writings known as the Book of Lord Shang (Shangjun shu, 商君书),126 he advocated reliance on strict laws including harsh punishments for violators rather than reliance on what Theodore De Bary and Irene Bloom characterize as “traditional fiduciary relations and family ethics.”127 He also advocated the pursuit of agriculture and the suppression of political parties, particularly those influenced by Confucian scholars.128
Lord Shang Yang’s enactments were credited with having made possible “the best organized state” during the subsequent Qin dynasty (221–206 B.C.E.).129 In order to improve agricultural productivity, one of Shang Yang’s enactments was aimed at thwarting the effects of China’s family law of descent upon landholding. In order to encourage a greater willingness to cultivate arable lands by male members of households, he levied a double tax on any male citizen who was not master of an independent (and hopefully) productive household.130 This was an obvious attempt to break down the strict patrilineal requirement of family lineages.131 His double tax forced the younger males to move out of their father’s household and establish their own productive household wherever a gainful occupation could be found. As a result of this tax, many more economically productive nuclear families could be found in China’s countryside. Not surprisingly, Confucian scholars who taught the value of the traditional patrilineage continued to attack Lord Shan Yang’s tax levy as violative of the principle of filial piety as late as the second century B.C.E.132
The Han dynasty, which reigned from 206 B.C.E. to 220 A.D.,133 came from one of the largest single ethnic groups in the world. It relied upon advances in agriculture to improve its revenues from tributes and taxes. When these collections proved insufficient, Han officials invoked widespread suspicion of commerce as an unsavory speculation and assessed taxes upon commercial transactions and commercial properties such as boats, carts and shops.134 Further, the Han became responsible for a policy often repeated by their successor dynasties—they competed with merchants by 647selling back to them and to consumers some of the very commodities they had collected from them as taxes. In 119 B.C.E., still pressed for revenues, the Han established state monopolies for the production and distribution of iron, salt and liquor.135 This policy deprived merchants, albeit temporarily, of major sources of profit-making.136 Eventually, it was replaced with a policy of overt or covert shared monopolies with selected merchants or commercial clans.
As was to be the case not only in China but also in colonial Mexico many centuries later, the Han government started as a wholesaler of grain, purchasing it from producers in areas where it was cheap and selling it to the public at a significant premium.137 The justification for such monopolistic governmental practices was “to eliminate speculation in grain, provide more constant prices, and bring profit to the government.”138 Eventually, the Han abandoned this policy and alternatively associated with private monopolies or embraced laissez faire policies. However, the beneficiaries of these policies were the large landowners more so than merchants. In Professor Ebrey’s words: “The Chinese economy thus became firmly agrarian, a pattern that was to continue through Chinese history.”139
Yet, while adopting legalistic policies, the attitudes of the Han bureaucracy were ostensibly shaped by Confucian teachings of “self restraint, concern for others, love of ritual, devotion to principle, and loyalty to superiors….”140
On the one hand, the Confucian bureaucracy was guided by a morality proclaimed to be higher and contrary to that of the legalism of the Qin dynasty.141 On the other hand, Han government officials were the beneficiaries of a generous official and extra-official compensation system. For example, “China already had a civil service divided into twelve grades, each of which received a set annual stipend, from the 100 measures of grain of the lowliest clerk to the 2,000 measures of grain of the highest minister of state.”142
In due course, some of the taxpayers and suppliers of the monopolized commodities and trades such as the inhabitants of the Huizhou region engaged in wide scale bribery of government officials.143 This bribery led to the transfer by government officials of a monopolized distribution to selected suppliers. The consequences of such a system of procurement and distribution were to eliminate competition among manufacturers and wholesalers, and the market became dependent on the selected suppliers for its means of payment (mostly metallic coin).
During the end of the sixth century A.D. and after the short-lived Sui Dynasty, China’s northern and southern provinces were reunited.144 The succeeding Tang Dynasty (700–800 A.D.) transformed China into an “expansive, dynamic, cosmopolitan empire….”145 The Grand Canal linked China’s northern and southern provinces, and regional and international trade so stimulated economic growth that the Tang capital city of Chang’an became the largest and one of the most prosperous cities in the world.146
Money in the form of silver coins began to be used as a means of payment and, as happened in colonial Mexico, the assay and circulation of silver wound up in the hands of private merchants. It was not long before credit and banking institutions emerged: “[S]ilversmiths took money on deposit and arranged for transfers of funds; a complex system of credit transfers arose by which tea merchants would pay the tax quota … out of their profits from the sale of the crop … and receive reimbursement in their home province.”147
Meanwhile, government officials started investing personal and government money in commercial transactions, such as oil presses, flour mills, and real estate ventures to the point that “[t]he wall between the ruling class and the merchants … was rapidly breaking down in the 9th century….”148 Yet, despite this revitalized and widespread commerce, no commercial law of any significance was enacted. Instead, the Tang enacted a criminal code in 653 A.D.149 which decreed penalties from imprisonment to banishment and execution for numerous crimes and ascribed a major role to filial piety and familial hierarchy in their adjudication: “[I]t was [a] more serious [crime] for a servant or a nephew to strike or kill a master or an uncle than vice versa.”150 The absence of a commercial law and the enactment of a criminal code in its place reflected the imperial government’s willingness to allow Confucian and traditional family rules to continue to act as the living law of contracts.
This observation is confirmed by Professor Valerie Hansen’s research on imperial contracts. She questions whether the Tang dynasty controlled the transfer of imperial land: “The government may have forbidden the sale of land except under exceptional circumstances, but contracts from Turfan show that people did buy and sell land. They also violated the government’s strict regulations about the sale of livestock and slaves.”151
This fact is particularly significant because the economy during the Tang dynasty was mostly a barter economy. The use of money expanded only slowly during this dynasty and in the centuries following its demise.152
Major economic advances in agriculture and industry during the Song dynasty153 were accompanied by large southward migrations that made the Yangzi river valley “as central to the Chinese economy … as the Yellow River regions in the north.”154 In what was described as China’s first economic revolution, whole regions of China became market-oriented (rather than just family-oriented) in their production of tea, timber and timber products.155
For fear of alienating families who had by then become the most powerful landowning families, the Song funded their wars against nomadic invaders through revenue taxes leveled at every level of exchange rather than through land taxes. Expeditious tax collection and the growth of trade spurred the demand for money in the form of coins (and eventually paper money), thereby consolidating the monetization of China’s economy.156 Song officials granted a monopoly to a small set of shops on the issuance of certificates of deposit for money or goods left with them as bailees or custodians. This private issuance lasted until 1120 A.D. when the government took it over and began issuing paper money. Nonetheless, the process of commercial and financial specialization of China’s local and regional trade was set in motion as were a variety of investment, lending and trade contractual arrangements, albeit with the inevitable governmental component:
Partnerships were common, and commercial ventures were sometimes organized as stock companies, with a separation of owners (shareholders) and managers. Credit was widely available, not only through money-lenders, but also through brokers, wholesalers, and warehousemen. In the large cities merchants were organized into guilds, such as the rice guild which arranged sales from wholesalers to shop owners and periodically set prices.157
In addition, printed handbooks containing sample contracts became available during this dynasty. The first compilation of vignettes of court cases were published (Minggong shupan qingming ji, 名公书判清明集).158 Together with litigation manuals, 650they contributed to a considerable increase of contractual litigation.159 As will be discussed in the following chapter,160 recently found records of extensive contractual litigation since the days of the Song dynasty force at least a qualification of the scholarly perception that formal law “was not viewed by ordinary Chinese as a tool to resolve private disputes.”161
Yet, the moralistic hold of Confucius and especially his Neo-Confucian disciples upon Chinese living law (albeit removed from actual business practices) had become apparent during the Song dynasty: The “Song era saw the gradual change of China into an ideological society with a strong sense of orthodoxy.”162 Undoubtedly, this development was aided by the establishment of a meritocratic examination system by the first two Song emperors for aspiring bureaucrats whose schooling including heavy doses of Confucian and Neo-Confucian classics. However, “big families … continued to get their candidates [accepted] … in disproportionate numbers….”163
Under the Ming Dynasty, the growth of China’s industrial sector spawned a technological boom in every area, from silk looms to paper manufacture to the development of new machines for planting, growing and harvesting crops.164 Consequently, imperial China attained its largest economic expansion: Agriculture, commerce and maritime trade grew dramatically as closer connections with European and other trading partners were established.165 According to Professor Richard Hooker of Washington State University, Chinese naval-trade expeditions during this period “made China the world’s greatest commercial naval power at the time, far superior to any European power.”166
As a result of all of these advances, China’s population and urbanization grew to the point that town and village markets could be found everywhere, including small 651businesses that specialized in paper, silk, cotton and porcelain goods.167 The Ming also built their own merchant marine which carried silks, cotton and porcelain to Manila, where they were traded to the Spanish for silver, firearms and goods from the Americas. Ming porcelain and Chinese tea had become very popular by the mid-seventeenth century in Europe.168
This remarkable commercialization was accompanied by despotism under the guise of legalism.169 On the one hand, the Ming seemed concerned with the fairness of market prices, enacted rules against monopolization of the market in order to force higher prices, and set the lawful rate of interest at approximately three percent per month.170 On the other hand, government officials continued to exact costly bribes from merchants and the population at large.
Meanwhile, the commercial clans continued to observe as their internal law the strict hierarchy of patrilineal family rules, including resort to a common budget which provided the “seed” or the purchase money for investments, many of which continued to include land as their principal asset. As with other family investments, the decision to invest, purchase or sell family assets of any significance had to be made by the head of the household, lineage or clan.171 Yet, establishing the hierarchy within these entities (especially families and lineages) required updated genealogies. In southern China, these genealogies were continuously compiled by “educated men.” Their services were in demand because the north-south migration often settled in places with sufficient uncultivated land for the many descendants of the same lineage to remain in the same vicinity, “making for a critical mass of nearby kinsmen.”172 This is how one of China’s most important commercial clans settled and was able to flourish in the Huizhou region of the Anhui province, as will be discussed shortly.
The Qing dynasty, the last of the imperial dynasties, followed the Manchu chieftains which, in turn, had briefly followed the Ming dynasty. Qing’s policies reacted to what Professor Ebrey described as a collapse of the social order in the late Ming and Manchu periods by adopting strongly conservative and inward-looking policies in many aspects of social life.173 Legalism severely repressed socially and culturally deviant behavior while Confucians attempted to combat the prevailing laxness and the “contamination of Buddhist and Daoist ideas.”174
The Qing had inherited a highly advanced civilization. Until the beginning of the eighteenth century, China’s “material culture” was unrivaled and its standard of living was among the best. Thereafter, however, it started losing ground to the British, 652“without anyone in China taking much notice.”175 Ebrey quotes a Qing ruler who, responding to a British envoy’s request for an authorization to send a permanent British envoy to Beijing, remarked that “there were too many nations in Europe to allow each an envoy” and added in a letter to the King of England that he saw no use to trade, since “[w]e possess all things.”176
On the other hand, the private sector and some of their public sector patrons were not as dismissive of foreign capital. Professor Zelin’s studies on Chinese partnership contracts during the same period revealed that partnerships that supplied goods or services to the coal mining and related industries were funded by family and outsider capital contributors (Chengshouren). Further, these associations were governed by individualized investment contracts that were tolerated, if not encouraged, by the laissez faire policies of at least some of the Qing bureaucrats.177 Clearly, the attempts to reconcile seemingly irreconcilable policies and values had continued until the very end of China’s imperial period.
Could China’s failure to become a major capitalist nation during the Ming and Qing dynasties be related to the low regard for commerce and merchants or to other aspects of Confucianism? Max Weber, who asked himself a closely-related question, equated Confucianism with a religion and contrasted it with Puritanism, especially as it related to the resort to family rites.178 He pointed to a possible link between the continued presence of a “magical-sacramental grace and tradition-strengthening ceremony”179 and Chinese social, including economic and commercial, behavior: “the unlimited patience and controlled politeness; the strong attachment to the habitual; the absolute insensitivity to monotony; [and] the capacity for uninterrupted work and slowness in reacting to unusual stimuli….”180 Chinese social behavior also included dishonesty “even toward their own defense attorneys….”181 To which he added:
Retail trade, to be sure, seems to know little of such honesty; the “fixed” prices appear to be fictitious even among native Chinese. The typical distrust of the Chinese for one another is confirmed by all observers. It stands in sharp contrast to the trust and honesty of the faithful brethren in the Puritan sects, a trust shared by outsiders as well.182
Weber’s suggestions on the reasons for a widespread distrust of and among Chinese imperial merchants would lead to the conclusion that Confucianism was indeed the major cause for the late-seventeenth-century “Great Divergence” between imperial China and western capitalism. Yet, why did this cause not prevent the emergence of China’s massive commercialization during the Song and Ming dynasties, 653surely an important component of any future form of capitalism? As discussed in earlier chapters,183 distrust among contracting parties often as not results from “tribalism” or “familism,” i.e., the manner in which families, clans and tribes in agricultural survival societies treat strangers or outsiders. Surely some religious doctrines reflect the different treatment given to “brethren” and to the “strangers,” such as the prohibition in Deutoronomy to charge interest on loans of money to “thy brethren” but not to strangers.184
Nonetheless, the preceding questions are much too big and the available data too sparse to reach verifiable conclusions at least at this stage of the seemingly worldwide inter-disciplinary research efforts. The most a comparative legal researcher can do as part of this effort is to search for those legal principles that enabled the universal transition from a pre-commercial to a commercial society in other countries and legal cultures. The presence of these principles in late-seventeenth-century China could be regarded as a pre-condition of a capitalist economy. And if these are not found or are found only in a weakened state, the chances are that a productive form of capitalism would be unlikely to emerge.
As discussed earlier in this book,185 among the legal principles that made the transition from a pre-commercial to a commercial society possible in other societies and legal cultures were: (1) the parties’ freedom to enter into contracts, including their contractual power to limit their liabilities; (2) equal and fair treatment of merchants and consumers; (3) a view of contracts as the products of the parties’ commercial cooperation (including their truthful disclosures of relevant transactional information) and as the receptacles of the parties’ reasonable expectations rather than as the result of “zero sum” negotiations; (4) the legal protection of third parties, including good faith purchasers and creditors, from equities and defenses derived from pre-existing or underlying transactions; and (5) a fair and predictable adjudication of disputes among merchants and their customers. The following sections will seek to establish the presence and state of these principles in Chinese imperial commercial practices.
Recent records on the Huizhou clan of merchants (huīzhōu, 徽州) confirm their importance as a major merchant clan and as trendsetters for other major merchants.186 After having settled as farmers in the Huizhou region (located in the province of Anhui near the port city of Shanghai), this clan started to trade during the late Song or early Ming dynasties and remained active until the early twentieth century.187 According to 654the PRC Ministry of Culture, at the beginning of the Song dynasty (907–1276 A.D.), Huizhou merchants were engaged in selling tea, ink, paper and wood throughout China; after Emperor Jiajing’s reign in the Ming dynasty, seventy percent of the Huizhou were traders.188
In 1132 A.D., the Southern Song dynasty moved its imperial court to the southeastern city of Hangzhou in the Huizhou region. The Huizhou were quick to exploit their proximity to the imperial court. As with Mexico’s “almaceneros” six centuries later, close contacts between Huizhou merchants and court officials led to a privileged, often monopolistic, supply of goods and services. By the time of the Song dynasty, the Huizhou became the sole suppliers to the court of bamboo, wood and lacquer, among other commodities; in addition, they were heavily represented among the builders of palaces, pavilions, villas, and temples and profited greatly from the salt trade.189
The governmental monopoly of salt became lucrative for private merchants once the Ming Dynasty issued a regulation that provided that in exchange for the merchants’ bringing needed army supplies to the army’s northern outposts, the government would allow suppliers to purchase quotas of salt that they could resell at a profit.190 Subsequently, another regulation allowed merchants to sell salt without having to journey to the northern frontiers.191 The Huizhou merchants took advantage of this new regulation and purchased most of the salt available from a government plant ten miles away from Huizhou city at a price of two to three wen and resold it to other regions at an average price of sixty to seventy wen.192 As discussed in connection with commercial practices during the Imperial period, this method of trade by major merchants was typical. Over the centuries, they continued to take advantage of such exclusive dealerships and profited from the salt business. By the turn of the nineteenth century, four of the eight largest salt merchants of China were from the Huizhou region.193
A similarly lucrative and exclusive dealership trade involved timber needed by the Ming Dynasty for building palaces in Beijing’s Forbidden City. Wang Tianjun, a Huizhou merchant, bribed the officials in charge of this project and sold them 16,000 pieces of timber labeled (in a simulated transaction) as “Royal Requisitioned Timber.”194 By obtaining such a classification, he avoided the payment of costly taxes. As noted by Qi Zhu, although bribery was forbidden, many Huizhou merchants used similar “underhanded tricks to reap their profits.”195
As the Huizhou merchants accumulated cash from their salt, timber and other profitable businesses, they placed this cash as loans through a national and international chain of pawnshops. Wang Qi, a Huizhou merchant of the late Ming Dynasty, was known to own more than a dozen shops in Beijing alone;196 by the time of Emperor Guangxu (光绪, 1875–1909 A.D.), the word Huizhou was synonymous with pawnbroker throughout China.197
The implications of this equivalence were not flattering. According to the PRC Ministry of Culture: “The pawn-broking in those days was actually usury. Wei Chaofeng, a [H]uizhou pawnbroker depicted in Fantastic Stories [a literary saga], deprived a scholar of [all of] his real estate in three years’ time by changing [sic] exorbitant rates of interest.”198 According to this view, Huizhou pawnbrokers were widely regarded as more interested in exorbitant profits than in lending to an appreciative and steady clientele. Professor Chow traces this method of doing business to its agrarian roots. “Instead of channeling capital investment into the support of industrial production, China’s agrarian society channeled capital into the practice of usurious money lending for farmers.”199
The PRC Ministry of Culture describes other features that the Huizhou merchants shared apprenticeship with the eighteenth- and nineteenth-century Mexican almaceneros and hacendados:200 “As the saying goes, ‘It is a Huizhou practice that thirteen year-olds start their career in town and at seventeen they do business all over the country.’ Usually at the age of 12 or 13, Huizhou children began to work as apprentices in town.”201
I found very few positive images of the business practices of the Huizhou. One such positive practice was that:
[They] did everything to ensure the quality of the tea they purchased, refusing fake and bad tea. They summarized the experience of selecting raw tea and wrote it in books to warn purchasers. After the tea was brought in, it would be processed under strict rules. The delicately produced tea found a big market overseas.202
The PRC Ministry of Culture adds that the Huizhou’s success in commerce was a result of what it termed social factors and painstaking efforts and described them, as a group, as “ ‘properly dressed, well-spoken’, ‘fully aware of prices, knowing when to buy and sell, and gaining extra profits from selling local goods at other places.’ ”203 In all likelihood, the above reference to “social factors” was a euphemism for the Huizhou’s reliance on family, lineage, clan and political connections.
The common budget of Huizhou families and lineages provided the initial capital to start many of their businesses; even dowries were contributed to this common investment budget.204 The lineage organization was central to the Huizhou merchants’ form of doing business, for it provided:
[C]redit, capital and commercial intelligence to their members (Fujii)…. Many Huizhou lineages claimed long pedigrees, tracing their ancestry from the time of their southward migration. They maintained their solidarity by keeping their settlements in … a few villages, and by regularly meeting to engage in prescribed Confucian rituals. They also periodically issued genealogies. Genealogies would generate consciousness of common identity and prestige….205
Once a Huizhou business was organized, it was operated in patriarchal, guild-like fashion by the family clan:
[Y]ounger members in the same family became apprentices for the more experienced family member. Bonded by the family relationship, the skillful masters generally had complete trust in the younger ones and accepted the mentoring responsibility to teach the apprentice the related skills of running a business…. It was eventually through the closely knit family structure that the Huizhou merchants steadily grew their wealth and stepped into the emerging gentry groups.206
By the sixteenth century, it was clear to the Huizhou that their fortune depended not only upon the support of family, lineage or clan, but also upon that of politicians. Regardless of how these merchants comported themselves, their wealth could be undone almost instantaneously by the whims of high government officials. In response to official arbitrariness and venality, the Huizhou joined the ranks of Neo-Confucian-influenced and trained bureaucrats. They embraced, at least in ritual and appearance, a vague Confucian-like morality of doing business. They adopted the teachings of the Neo-Confucian philosopher Zhu Xi (1130–1200 A.D.) and donated important sums to educational institutions, provided fellowships to their young who wanted to join the Confucian academies, and tutored candidates on how to excel in imperial civil service examinations.207 Once these Huizhou-supported candidates joined the swelling ranks of government officials, the Huizhou had powerful bureaucratic allies to protect them against bureaucratic avarice and arbitrariness.208
The PRC Ministry of Culture describes their strategy as follows:
The resourceful Huizhou merchants were well versed in the expertise of obtaining a position so as to attach themselves to the court. Their strategy was to “provide funds for academic pursuits with business profits, and get political positions through academic pursuits and ensure business profits from the political positions” …. [they] went on with large-scale construction, building mansions, ancestral temples, guild-halls, roads and bridges to honor their ancestors and to extend the influence of the clan…. [During] the Ming and Qing Dynasties … 2,108 people from five counties … were granted the title of jinshi [equivalent to a doctorate]….
[Thus, it was common for a] “father and son [to] both [be] ministers”, [or] “brothers [to] both [be] prime ministers” ….209
Professor Richard Lufrano’s studies highlight the manner in which the appearance of Confucian behavior was affected by the Huizhous:
Through rigorous Confucian-influenced education, apprentices or aspiring merchants learned not only the commercial skills necessary for business but also how to deal with people and how to cultivate appropriate personality traits. In essence, merchants were taught to achieve an “inner mental attentiveness,” subdue selfish desires, distinguish good from evil, and practice reciprocity.210
This education relied on commercial manuals which advised hard work, obedience, caution, frugality, deference and discretion, as well as other virtues such as generosity, eradication of selfish desires, sincerity, trustworthiness, reciprocity and an enlightened self-interest.211
Yet, to teach a Confucian-like commerce, the manuals used mostly general formulations of proper ritualistic behavior rather than descriptions of best business practices such as how to conduct a profitable but fair sale or exchange or how to draft a non-exploitive or excessively selfish loan or security agreement. Thus, on the whole, they did not venture beyond warnings such as not to do business with unsavory characters or not to pursue goals beyond the merchants’ means. They also counseled long-term steady profits as opposed to short-term gains. As pointed out by Professor Lufrano, “[t]hose who did turn to mid-level commerce behaved cautiously, rejecting the great risk taking and large-scale deal making of the ideal capitalist merchant.”212 To this, Professor Lufrano added that it “would be surprising for capitalists to emerge from a group of [such] mid-level merchants.”213
While monopolies were omnipresent in Europe at the advent of capitalism, they were not as strongly protected by successive governments, nor as long-lasting, as those 658of imperial China. During the Ming and Qing dynasties, commerce was heavily polarized. At one end of the spectrum were major commercial clans and guilds. The latter controlled the prices of numerous items while also providing lodging, warehousing and entertainment services to their members.214 As was also done by the European guilds, they enforced regulations for their respective trades and discharged important public and civic duties such as maintaining fire-watching towers, soup kitchens in times of famine and other charitable endeavors. In doing this, they exhibited what Fairbank and Goldman describe as a “Confucian ‘public-mindedness’ ” that enabled them to organize militia or boycotts and mediate in trade disputes.215
At the other end of the spectrum were the small businesses. Typical was the farm household from which most of the agricultural-based commerce was generated:
[It] had so little land that sideline and handicraft production especially in silk and cotton became an integral part of its subsistence. The farm household was thus commercialized, to be sure, but through a maximum of labor input, far beyond the point of diminishing returns, and a minimum of input of capital. Both their agricultural income and their handicraft income were necessary for the farm family’s mere subsistence.216
A major gap existed, then, between the income, market and political power of merchant clans and trading guilds and those of subsistence-farmers and town merchants. The latter, together with the artisans, professionals and laborers, were among the poor. Fairbank and Goldman blamed the agricultural-subsistence origin of their commerce for its lack of progress. Their farm-based production was the victim of an “involution” in which the number of products they produced and sold was not matched by an increase in productivity per hour of labor.217 Moreover, rural and town merchants alike continued to be the subject of official arbitrariness, corruption and monopoly. The result was that “[m]erchants, bankers, brokers and traders of all sorts were therefore a class attached as subordinates to the bureaucracy.”218 As was just discussed, successful merchants, such as the Huizhou, invested their profits in usurious loans and in real estate rather than in industrial ventures in an attempt to join the “dominant class of landed degree-holders (gentry).”219 Viewed from a developmental perspective, then, the successful merchant class “produced landlords more readily than independent commercial capitalists.”220
Meanwhile, merchants continued to be regarded with distrust, especially by those who advocated a return to agrarian values. Professor Richard Lufrano quotes the following set of admonitions to merchants by an advocate of an agrarian economy which reflects the low esteem in which merchants were held during the seventeenth century:
Do not deceive ignorant villagers when fixing the price of goods.
Do not raise the price of fuel and rice too high.
When the poor buy rice, do not give them short measure.
Sell only genuine articles.221
In contrast with Fairbank and Goldman’s analysis, Dr. Harriet T. Zurndorfer of Leyden University222 found no commercial or credit intermediaries (verlegers)223 during Ming-Qing China. As customary with Chinese agricultural production, much of the production of rural cotton was done by individual families, lineages and other forms of extended families.224 By the fifteenth and sixteenth centuries, cotton textile production was commercialized and a division of labor was discernible.225 Ginned cotton was shipped from cotton growing regions in the north to southern loom houses that spun the cotton and wove the cloth. In 1466, cotton cloth merchants from the principal trading centers established a cotton merchants’ guild that sold cotton cloth.226 By the late Ming dynasty, loom houses increased the production of cotton cloth by families in rural areas where the bulk of the production continued to take place. Unlike in the countryside, however, the urban loom houses were not run by family units but rather they employed “wage workers [who] performed cotton ginning, bowing, carding, spinning, weaving, dyeing and calendaring on a year-round or seasonal basis.”227
Dr. Zurndorfer identified the following participants in the cotton cloth business: (1) the peasant-producers of raw cotton; (2) those who finished cloth pieces and disposed of them in market towns through licensed cloth brokers (yaren); (3) the local merchants-purchasers of these pieces who resold them; (4) long-distance merchants who purchased them from the local merchants (keshang); (5) spinners-wage workers who purchased ginned cotton from some of the keshang; and (6) local retail merchants who bought yarn and cloth for their mostly local sales from these looms.228 The yaren were residents of the market towns “in possession of the necessary personal connections to both officials and local gentry….”229 The keshang, in turn, “were typically sojourners … [who] shipped the finished cotton cloth to other regions…. [some of these merchant groups] had access to large amounts of capital and could advance as much as 100,000 taels of silver … for large orders of cloth….”230 With the exception of those who received advances from the long-distance merchants, 660participants in this production and supply chain were not financed in the manner made possible by the European verlegers.231
Accordingly, Dr. Zurndorfer’s response to the question why capitalism failed to emerge during the Song and Ming Dynasties in China centers on the absence of Chinese verlegers:
Despite the centrality of merchants to the advancement of cotton textiles in China, this industry, nevertheless, was not evolving toward capitalism. As a number of modern scholars have argued, the system of Ming cotton production cannot be compared to one of the critical phases in Europe’s transition to capitalism, i.e. the putting out system whereby merchants advanced capital to rural workers in the form of raw materials, and controlled their product. In contrast to the European putting out merchant … the Chinese textile merchant monopolized the market by “buying cheap and selling dear.” Consequently, cotton production did not present an opportunity to usher in change to the local social structure or to alter the relations of production.232
The absence of European verlegers is closely if not causally related to monopolization and exclusive dealing as a form of doing business in China. The European verleger was someone who, like Nathan Rothschild,233 advanced moneys or raw materials to dyers of cotton cloth or to the makers of textiles to be able to compete better with other verlegers by selling the same textiles at a cheaper price.234 The major Chinese merchants who bought large quantities of materials or merchandise cheaply from waged or piece-work producers did it to monopolize the market and be the only ones who could “sell dear” to anyone wanting or needing to buy. The object of the Chinese method of producing and distributing cotton cloth was then, a priori, to prevent others than guild or major clan members from competing.
And when during the Ming dynasty China built its own merchant marine and started selling its tea, silk, paper, cotton and porcelain products far and wide it created a large but increasingly unsatisfied demand for its products. Chinese producers needed credit with which to acquire more raw materials and pay more workers and the only institutionally available credit was the Houizhou’s monopolistic “pawn shop” and usurious credit which led to higher and eventually uncompetitive prices.
These monopolistic and usurious practices must have continued well into the Qing dynasty. As noted by Professor Zelin, the main focus of the late imperial statutes and codes was the maintenance of fair prices. They equated benefitting from unfair prices to theft and set forth rules against monopolizing the market in order to obtain higher prices for inferior goods or against the buying of goods for prices lower than those of the market.
These practices must have continued well into the Qing dynasty. As noted by Professor Zelin, the main focus of the late imperial statutes and codes was the 661maintenance of fair prices.235 They equated benefitting from unfair prices to theft and set forth rules against monopolizing the market in order to obtain higher prices for inferior goods or against the buying of goods for prices lower than those of the market.236
In her research paper “Informal Law and the Firm in Early Modern China,” Columbia University Professor Madeleine Zelin finds that the Chinese family firms (much as their western counterparts) were generally organized as simple partnerships, “relying on household capital and the resources of kin and friends, demonstrating little separation of ownership and control.”237 These features reduced transaction costs and facilitated acquisition of capital; yet, “[they are] also often blamed for limiting firm growth. More importantly, personalization is seen as injecting into the culture of business irrational and corrupt practices grounded in ‘familism.’ ”238 Professor Zelin also notes an important distinction that took place during late Qing dynasty between commercial and industrial partnerships:
In the older guild controlled trades, the vast majority of firms appear to be single proprietors or simple partnerships with native place guild affiliations. However, in the burgeoning coal and iron industry [during the late Qing period] … the majority of firms are [also] small partnerships [that combined] … investment from unrelated parties, and sometimes incorporating labor shares.239
As long as the investment portfolios of individual households were relatively simple, as was the case in many parts of rural China, the fact that the unit of ownership of property was entrusted solely to the head of the family did not create legal uncertainty as to the liability of members of the family household for family debts. However, in active commercial markets, the property rights and duties of members of the family or lineage could result in serious uncertainties, especially when non-family members invested in businesses that involved family or lineage property.240 Similar uncertainties and liabilities could also arise for family members, especially when individuals within households began to engage in business activities of their own and such activities involved undivided family property. In Professor Zelin’s words: “Common property implied common liability. Because property belonged to the household and not the individual, the debts of the father became the debts of the sons, who themselves could be held accountable for the others’ bad business dealings.”241 As with Mexico’s “difficult-to-live-with rules,” attempts were made to avoid the Chinese unlimited liability of family members by “simulatory” practices, including one which made it appear as if the individual member’s business interest was part of his wife’s dowry.242
By now, it should be clear that Chinese familistic property restrictions on the rights to enter into contracts, especially those that conveyed family property by any person other than the head of the household (and not by an individual owner or co-owner), amounted to a significant obstacle to trade and investment.243 The protection of the interests of family, lineage or clan members was also at the expense of the rights of outsiders who could not compete in the monopolized or exclusive dealing markets as sought and frequently attained by the Huizhou, among other commercial clans and guilds. Third parties were simply unable to buy the necessary raw materials or components for their products or, if they had managed to do so, they could not sell their products in exclusive or reserved markets. Thus, as the family economic unit grew to become a clan, guild, and, in some instances regional or national monopolies, the number of disenfranchised potential competitors also grew.
The only recourse left to these excluded third parties was to counter the family-centered exclusive dealerships and monopolies with their own exclusivities. To be sure, public officials and powerful personages were bribable, but their help was uncertain because they were likely to be the same public officials who had helped procure (or shared in the procuring of) the original monopoly or exclusive deal. In addition, a reliable patronage would only result after a long-standing relationship of reciprocal services and duties had been established between the parties to this relationship. This relationship and living law institution was, and is still is, known as the Guanxi (关系).
Guanxi is constructed and “pulled” … when something needs to be done and yet no prior relationship exists, often between individuals not on the same social plane. Once guanxi is established, the cultivating of renqing (human feelings or human obligations) makes it meaningful. The longer the relationship, the better the renqing, and the more effective the interaction…. “Once one is inside the renqingwang or guanxiwang, he is locked into an intricate relationship of interdependence with others. He is, in this case, socially obliged to respond to any request for help from others.”244
The reader should be able to identify in the long-running Guanxi relationship what I described earlier in this book as a “dense” and living commercial law relationship of reciprocity.245 As with the Mexican dense compadrazgo, the parties to this relationship assume brotherly-like duties such as one party’s willingness to shoulder the other’s losses in the expectation that the long-term balance would be profitable for both. Indeed, as with the Mexican compadres or with the beneficiaries of a Brazilian Jeito, the Guanxi relationship protects its participants, but more often than not this protection is at the expense of the rights of others or those who are, in turn, third parties or strangers to that relationship.
The preceding analysis of China’s imperial commercial practices reveals that most, if not all, were sharply at odds with the above-listed principles246 of a commercially viable society: from the monopolistic and exclusive dealings, to sharp, zero-sum dealings, especially with non-family members including usurious loans to producers, and eventually leading to uncompetitive prices. It was not only the third parties who were unprotected; the original parties were also frequent victims of legal invertebration. Only some of the transactions entered into by members of the households and the head of the household could provide a modicum of protection. The statistics on homicides that resulted from disputes concerning such rights and duties among holders of divided and undivided family property confirm the degree of prevailing uncertainty.247 The same uncertainty prevailed with the unlimited liability of family members and outside investors in family businesses when dealing with undivided family property. And, as will be discussed in the following chapters, it is the same uncertainty that stands in the way of the liquidity necessary for the creation of a national and eventually a secondary market for PRC-originated land and real property mortgages.
The ignorance or disregard of the preceding viability principles by China’s official and living law contributed to a non-measurable type of risk, precisely the kind of risk that capitalists are generally unwilling to assume. Can you visualize, for example, a Nathan Rothschild willing to underwrite the issuance of an imperial Chinese private or public sector housing mortgage bond when faced with any of the above legal uncertainties?248 The only factor that could still encourage participation in an otherwise questionable transaction would be that of total trust in the counter-party’s integrity and skill. Yet, according to some scholars, this is not a trust easily found among non-family counterparties in countries such as China and the Philippines.
A recent collection of essays on business ethics in Asian countries draws a comparison between ethics and trust in the Philippines and China on the one hand and Germany and Japan on the other:
[E]ver since Max Weber … the idea that “familism” is detrimental to economic development has come into circulation. According to the German sociologist, overly restrictive family bonds constrain the development of universal values and impersonal social ties necessary for modern business organizations…. For this reason, “familistic” societies such as those of China and the Philippines are considered to be low-trust: They have difficulties in 664creating large organizations beyond the family; and consequently, the state has had to intervene to promote durable, globally competitive firms. In this regard, a sharp contrast may be drawn with high-trust societies, such as Japan and Germany, capable of spawning large-scale firms not based on kinship ties (i.e., professionally managed).249
What remains to be explored is whether two key legal elements for a successful transition from a pre-commercial to a commercial society were present in late imperial China and, if not, why not. One was alluded to as part of the above list of “transitional” legal principles: a fair and predictable adjudication of disputes involving merchants and their customers. The other underlies the drafting and dispute adjudication of contracts in thriving market economies. As described by the late Professor Lon Fuller of Harvard Law School: “the rule must be that you give, so far as possible, what is less valuable to you but more valuable to the receiver; and you receive what is more valuable to you and less valuable to the giver.”250 In other words, contracts must become a tool of commercial cooperation and a product of trust among contracting parties.
If the above-quoted scholars of business ethics are correct in their assessment of the impact of familism in imperial China, how was this impact manifested in the drafting of contracts and especially of their standard clauses? How was it reflected in the manner in which contracts were litigated? And, finally, how could the comparative commercial law of contracts increase reliance on the above-mentioned “universal values” and “impersonal social ties”?
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1 See US-China Business Council, US-China Trade Statistics and China’s World Trade Statistics (1996–2009) (on file with author). According to the China Statistic Yearbook, the total volume of imports and exports of China grew from US$20.64 billion in 1978 to US$360.63 billion in 1999 to US$850.99 billion in 2003 and up to US$2,173.8 billion, i.e., well over two trillion U.S. dollars, in 2007. Meanwhile, the contract value of foreign investment in the PRC grew from US$28.769 billion during the six-year period from 1978 through 1984 to: US$52.009 billion in 1999, US$116.901 billion in 2003 and US$156.588 billion in 2004. See also Photius Coutsoukis and Information Technology Associates, Amount of Foreign Investment by Type (2006) (data table going over the amount of foreign investment, by type, that China received in the years 2003 and 2004), http://www.allcountries.org/china_statistics/18_14_amount_of_foreign_investment_by.html. See generally Kenneth Dam, China as a Test Case: Is the Rule of Law Essential for Economic Growth? (John M. Olin L. & Econ., Working Paper No. 275, 2006) (discussing China’s growth and the relationship of this growth with the rule of law), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880125.
2 Although many of the measures that are presently ascribed by the PRC to a “socialist market economy” had been enacted since 1978, the actual term “socialist market economy” was officially sanctioned in October 1992 at the XIV Congress of the PRC. See Michele Fabbri, China—“Socialist market economy” or just plain capitalism?, In Defence of Marxism (Jan. 20, 2006), http://www.marxist.com/china-socialist-market-economy200106.htm.
3 Id.
4 See infra § 18:1.
5 See Max Weber, The Religion of China: Confucianism and Taoism 79 (Hans H. Gerth trans., Free Press ed. 1968). As Weber points out, with respect to the constant attempts at land reform by Chinese governments, “The various attempts at land reform by the [Chinese] state led to two results: the absence of rational and large scale agricultural enterprise, and the intensely suspicious aversion of the entire peasantry toward any governmental interference in landownership and land utilization.” Id.
6 Professor Patricia Ebrey transcribes a description of the plight of China’s small farmers written by the scholar Chao Cuo in 178 B.C.E. that, in Professor Ebrey’s words, “could well have been repeated in most later dynasties”:
They labour at ploughing in the spring and hoeing in the summer, harvesting in the autumn and storing foodstuff in winter, cutting wood, performing labour service for the local government, all the while exposed to the dust of the spring, the heat of the summer, the storms of autumn, and the chill of the winter. Through all four seasons they never get a day off…. No matter how hard they work they can be ruined by floods or droughts, or cruel and arbitrary officials who impose taxes at the wrong times or keep changing their orders…. Some as a consequence sell their lands and houses, even their children and grandchildren.
Patricia Buckley Ebrey, The Cambridge Illustrated History of China 74 (9th prtg. 2010). While describing life during the Ming Dynasty, she refers to the “160,000 soldiers of the transport army—who pulled loaded barges with ropes where needed—thus bec[oming] the lifeline of the capital.” Id. at 194. I used the phrase “as a group had little to say” in the principal text to differentiate group or pluralistic decisions from those taken by individual rulers who may have started as conscripts or peasant soldiers and who after a successful military career rose to the ranks of general and emperor as was the case with the founder of the Ming Dynasty, Zhu Yuanzhang, or by a political and military leader such as Mao Tse Tung “born into a peasant family … in the province of Hunan….” Jung Chang & Jon Halliday, Mao: The Unknown Story 3 (Anchor Books 2006) (2005); see also Ebrey, supra note 6, at 190; Henry C. K. Liu, The Abduction of Modernity, Part 3: Rule of law vs Confucianism, Asia Times Online (July 24, 2003), www.atimes.com/atimes/China/EG24Ad01.html. Liu places the number of Chinese peasant uprisings at “seven … in 4,000 years of history….” Liu, supra note 6. Yet, I for one am not convinced of the accuracy of such a statement, especially when the same author describes Mao Zedong as the “towering giant in modern Chinese history, with apt insights on Taoist doctrines….” Id.
7 Ebrey, supra note 6, at 74.
8 Sky Canaves, Thirty Years of Chinese Legal Reform, Wall St. J. China, Dec. 9, 2008 (reporting on the lecture given by Jerome Cohen at the Foreign Correspondents Club of Hong Kong in December 2008), http://blogs.wsj.com/chinarealtime/2008/12/04/thirty-years-of-chinese-legal-reform/.
9 U.S. Library of Congress, Traditional Society and Culture, in China: A Country Study (Robert L. Worden et al. eds., 1987) [hereinafter Chinese Traditional Society] (on file with author) available at http://countrystudies.us/china/42.htm.
10 Id.
11 Id. See also generally John King Fairbank & Edwin O. Reischauer, China: Tradition and Transformation (rev. ed. 1989); William Theodore de Bary, Sources of Chinese Tradition (1960). I found these sources, including the U.S. Library of Congress’s study, to be quite helpful.
12 See infra § 17:5 (for a discussion of the writings on the “Great Divergence”).
13 John King Fairbank & Merle Goldman, China: A New History 18 (2006).
14 Id. at 20.
15 Id. at 21.
16 David K. Jordan, Traditional Chinese Family and Lineage, University of California, San Diego, Division of Social Sciences, http://weber.ucsd.edu/~dkjordan/chin/familism.html. I am most grateful to my former student and now Professor Ling Zhu of Long Island State University for having corrected the spelling and calligraphy of Chinese terms in the three chapters on Chinese law and practice.
17 Id.
18 Id.
19 See generally Liang Zhiping, Explicating Law: A Comparative Perspective of Chinese and Western Legal Culture, 3 J. Chinese L. 55 (1989); Charles de Secondat, baron de Montesquieu, The Spirit of the Laws (Anne M. Cohler et al., Cambridge Univ. Press 1989) (1748); Derk Bodde & Clarence Morris, Law in Imperial China: Exemplified by 190 Ch’ing Dynasty Cases (1973).
20 Jordan, supra note 16.
21 Id.
22 Id. See also infra § 17:5(A).
23 Madeleine Zelin, Informal Law and the Firm in Early Modern China 8–9, 13 (Feb. 23–24, 2007) (unpublished manuscript) (on file with author), available at www.international.ucla.edu/cms/files/Zelin_Informal_Law.doc.
24 Id. at 8–9.
25 Jordan, supra note 16.
26 Id.
27 See Ebrey, supra note 6, at 74.
28 See supra § 3:6(B); see also Kozolchyk, Fairness, at 258; see also Kozolchyk, Roadmap, at 5–6.
29 See infra § 17:4(A).
30 Jordan, supra note 16.
31 Ebrey, supra note 6, at 207.
32 Id.
33 Jordan, supra note 16.
34 Id. Jordan also points out that “[i]n China, as in other lineage systems, it was (and is) regarded as incestuous to marry (or mate with) a member of the same lineage.” Id.
35 Id.
36 Id.
37 Id.
38 Id.
39 Id.
40 Ebrey, supra note 6, at 207.
41 Jordan, supra note 16.
42 See supra § 13:7(A).
43 Id.
44 Jordan, supra note 16.
45 Harry M. Johnson, Sociology: A Systematic Introduction 183 (21st reprt. 2006).
46 Id. at 184.
47 Id.
48 Johnson, supra note 45, at 184. See also Debin Ma, Law and Commerce in Traditional China: An Institutional Perspective on the “Great Divergence” 73 Keizai-Shirin 1 (March 2006) (on file with author), available at http://personal.lse.ac.uk/mad1/ma_pdf_files/keizai%20shirin%20%20MA1.pdf. According to this study, clan loyalties tend to be strong in southern China, reinforced by ties to an ancestral village, common property, and often a common spoken Chinese dialect unintelligible to people outside the village. Clan structures tend to be weaker in northern China, with clan members that do not usually reside in the same village and typically do not share property.
49 Jordan, supra note 16.
50 Wing-tsit Chan, The Story of Chinese Philosophy, in The Chinese Mind: Essentials of Chinese Philosophy and Culture 32 (Charles Alexander Moore ed., 1967) (citations omitted).
51 Ebrey, supra note 6, at 42; see also Irene Bloom, Confucius and the Analects, in I Sources of Chinese Tradition 41 (Wm. Theodore de Bary & Irene Bloom eds., 2d ed. 1999) (suggesting that “Confucius was born in the feudal state of Lu in eastern China into a family of the lower ranks of the nobility, one that was probably in straitened circumstances.”).
52 Bloom, supra note 51, at 42. Professor Bloom explains that “[t]he English word analects (from the Greek analekta) means ‘a selection,’ while the Chinese title Lunyu may be translated as ‘conversations.’ ” Professor Bloom further states that while “[t]he Analects is the single most important source for understanding the thought of Confucius…. [i]t is clearly … not a work that he himself wrote.” Id.
53 Burton Watson, David S. Nivison & Irene Bloom, Classical Sources of Chines Tradition, in I Sources of Chinese Tradition 25–26 (Wm. Theodore de Bary & Irene Bloom eds., 2d ed. 1999) (discussing these classics).
54 Ebrey, supra note 6, at 42.
55 See e.g., Plato, The Republic 8 (B. Jowett trans., 1st World Library 2008) (360 B.C.E.) (“We are thus led on to the conception of a higher State [Kallipolis, his utopian or ideal city-state]…. ‘kings are philosophers’ and ‘philosophers are kings’….”)
56 Ebrey, supra note 6, at 42.
57 Id.
58 Jeffrey Riegel, Confucius, The Stanford Encyclopedia of Philosophy (Edward N. Zalta ed., Summer 2013) (citing Confucius’s Analect (Lunyu 12.11)), http://plato.stanford.edu/entries/confucius/.
59 Id.
60 Weber, supra note 5, at 157. Max Weber, for one, finds an organic connection between filial piety and Chinese feudalism: “Residues of feudalism still inhere rather strongly in Chinese status ethics. Piety (hsiao) toward the feudal lord was enumerated along with piety toward parents, superiors in the hierarchy of office, and officeholders generally….” Id.
61 Fairbank & Goldman, supra note 13, at 108. Farmers were in the second place because they produced the food that provided society’s physical sustenance. The craftsmen (workers) were third because they produced all the tools and implements needed to survive. Merchants were fourth and last because they did not create goods; rather, they bought them in one place and sold them in another and skimmed profits off the top. As will be illustrated shortly when discussing the Analects, Confucius disliked merchants because, according to him, all they cared about was their “gain” or profit-making.
62 Id.
63 Wallace Johnson, On Limitations on Legal Privilege in The Tang Code, 7 J. Asian Legal Hist. 23, 23 (2007), available at http://kuscholarworks.ku.edu/dspace/bitstream/1808/3850/1/johnson2007.pdf. In this study, Professor Johnson calls attention to the influential monograph by the Chinese scholar T’ung-tsu Ch’ü, which describes the legal privileges that separated the upper classes from the commoners and to a great extent protected the former from punishment. See generally Ch’ü T’ung-tsu, Law and Society in Traditional China (1961). Professor Johnson adds that these privileges were particularly true in the centuries following the collapse of the Latter Han 後漢 dynasty at the end of the second century B.C.E. “During [that] time, there was a resurgence of feudalism, the great families dominated China, and the central authority was weak.” Johnson, supra note 65, at 23.
64 Yu-lan Fung, I A History of Chinese Philosophy 52 (Derk Bodde trans., Princeton Univ. Press 1983) (1931). This author describes this category of scholars under the Confucian school of thought as follows: “[they] were neither farmers, artisans nor merchants, and who did not engage in any kind of productive activity, but depended entirely upon others for their support. This class seems to have been non-existent prior to Confucius….” Id. Fung also provides an analogy between the class of Greek Sophists (including Socrates), the Chinese scholars, and Confucius. Id. at 46–54.
65 See infra note 94.
66 Riegel, supra note 58 (citing Lunyu 12.2, 6.30).
67 The Five Virtues of Confucius, David B. Schlosser, http://www.dbschlosser.com/five-virtues-of-confucius/.
68 See Glossary, “Market Standard of Fairness.”
69 Riegel, supra note 58.
70 Id. (citing Lunyu 3.3).
71 Pei-Jung Fu, Human Nature and Human Education—On Human Nature as Tending Toward Goodness in Classical Confucianism, in Chinese Foundations for Moral Education and Character Development 26 (Tran Van Doan, Vincent Shen & George F. McLean eds., 1991), available at http://www.crvp.org/book/Series03/III-2/chapter_ii_human_nature_and_huma.htm.
72 Confucius, The Analects (c. 500 B.C.E.) An electronic version of the Confucius’s Analects is available online in which the work is divided into four sections, three of which will be used in this chapter. See Confucius, The Analects (c. 500) [hereinafter Confucius I], available at http://classics.mit.edu//Confucius/analects.1.1.html; Confucius, The Analects (c. 500 B.C.E.) [hereinafter Confucius II]; available at http://classics.mit.edu//Confucius/analects.2.2.html; Confucius, The Analects (c. 500 B.C.E.) [hereinafter Confucius III], available at http://classics.mit.edu//Confucius/analects.3.3.html.
73 Weber, supra note 5, at 131.
74 Id. at 132.
75 Id.
76 Id. at 134.
77 See supra § 17:3(F). Despite the elapsed millennia, they are alive in the PRC and elsewhere in Asia. Millions read them or cite them, as proven by the recent sale of four million copies of a simplified version. Alberto Serna, China embraces Confucius again, MERCATORNET (Nov. 12, 2007), http://www.mercatornet.com/articles/view/china_embraces_confucius_again (discussing the readership of the Analects).
78 Riegel, supra note 58.
79 Id.
80 Based upon the advice of Chinese and U.S. Confucian experts, I have chosen several translations as reliable enough to warrant cross-checking. The first is available online through MIT. Confucius, supra note 72. Additionally, I have relied on two sources with Confucius quotes. A Collection of Confucius’ Sayings, an English-Chinese Bilingual Textbook (Lao Chenglie et al. eds., 1988); Confucius Art Quotes, The Painter’s Keys, http://quote.robertgenn.com/auth_search.php?name= Confucius. I have cross-checked the translations found in the Riegel and Ebrey sources with the above sources. Riegel, supra note 58; Ebrey, supra note 6.
81 See supra § 4:2(A)(4).
82 Confucius I, supra note 72.
83 Confucius III, supra note 74.
84 See Zhiping, Explicating Law, supra note 19, at 56–58 (a thorough and insightful discussion on the various meanings of the Western term “law” (including Anglo-American, Greek and Roman law)).
85 See T’ung-tsu, supra note 63, at 280.
86 Id. at 3.
87 Ebrey, Cambridge History of China, supra note 6, at 47. But cf. Confucius III, supra note 72:
The Duke of Sheh informed Confucius, saying, “Among us here there are those who may be styled upright in their conduct. If their father have [sic] stolen a sheep, they will bear witness to the fact.” Confucius said, “Among us, in our part of the country, those who are upright are different from this. The father conceals the misconduct of the son, and the son conceals the misconduct of the father. Uprightness is to be found in this.”
88 C. Civ. (Fr.) art. 2279. Unless otherwise indicated, all the English translations of the Code Civil provisions belong to Legifrance (see Frequently Cited); see also ch. 20 (on British law).
89 Ebrey, supra note 6, at 42; see supra note 56 and accompanying text.
90 Confucius I, supra note 72.
91 Ebrey, supra note 6, at 46.
92 Confucius I, supra note 72.
93 Id.
94 Max Weber proffers a more qualified or perhaps nuanced assessment of Confucius’ aversion to profit-making:
The Master considered acquisitiveness a source of social unrest. Obviously, he meant the rise of the typical, pre-capitalist class conflict between the interests of the buyers or the monopolists and the consumers’ interests…. Still hostility to economic profit was quite remote, as it was also in the popular mind…. Confucius, too, might strive for wealth, “even as servant, with whip in hand,” if only the success of the endeavor were fairly guaranteed. But the guarantee does not hold and this fact leads to the one really essential reservation concerning economic acquisitiveness: namely, the poise and harmony of the soul are shaken by the risks of acquisitiveness. Thus, the position of the office prebendary [i.e., the recipient of a government stipend] appears in ethically hollowed form. It is the one position becoming to a superior man because the office alone allows for the perfection of personality.
Weber, supra note 5, at 159–60. I am not sure if Max Weber is truly taking exception to the view that Confucius rejected profit-making or if he is more nuanced in his analysis. Be that as it may, is his a proverbial distinction without a difference?
95 Id. at 160.
96 See supra § 2:2(A)(3).
97 Weber, supra note 5, at 159–61.
98 See supra chs. 8–12.
99 Adam Smith, An Inquiry into the Nature and Causes of The Wealth of Nations 432–33 (Edwin Cannan ed., Univ. Chi. Press 1976) (1776) (citation omitted).
100 Ebrey, supra note 6, at 46.
101 Id. at 47.
102 Id. at 48.
103 Id.
104 Id.
105 Fairbank & Goldman, supra note 13, at 96.
106 Id.
107 Id.
108 Id. at 97.
109 Id. at 98.
110 Id.
111 Id. at 100.
112 Id. at 101.
113 I Sources of Chinese Tradition 190 (Wm. Theodore de Bary & Irene Bloom eds., 2d ed. 1999) [hereinafter Chinese Tradition].
114 Id.
115 See supra § 2:1(B)(2).
116 Valerie Hansen, Negotiating Daily Life in Traditional China: How Ordinary People Used Contracts 600–1400 (1995).
117 Id. at 1–2 (emphasis added).
118 See infra § 18:1.
119 The History of China 43 (Kenneth Pletcher ed., 2011).
120 Id. at 43, 47.
121 Ebrey, supra note 6, at 38.
122 See Encyclopaedia Britannica, supra note 119, at 304 (estimating the number of feudal states established by the Chou anywhere from 20 to 70).
123 Id. at 303–04.
124 See Qin tomb, Britannica.com, http://www.britannica.com/EBchecked/topic/11785/Qin-tomb.
125 Chinese Tradition, supra note 113, at 193; see also Encyclopaedia Britannica, supra note 119, at 307 (regarding Shang Yang’s reforms).
126 Chinese Tradition, supra note 113, at 193. Professors De Bary and Bloom assume that this book is of a date following his being in office and of an “uncertain provenance.” Id.
127 Id.
128 Id.
129 The History of China, supra note 119, at 55.
130 Id.
131 Id.
132 Id.
133 Han Chinese, New World Encyclopedia, http://www.newworldencyclopedia.org/entry/Han_Chinese. Han Chinese citizens amount to 92 percent of the population of the PRC and about 19 percent of the world’s population. Id.
134 Ebrey, supra note 6, at 75.
135 Id.
136 See infra § 17:5(A) (for a discussion of the Huizhou family and the replacement of the governmental monopolies by clans of merchants’ monopolies).
137 Ebrey, supra note 6, at 75.
138 Id.
139 Id.
140 Id. at 77.
141 Id. at 79–80.
142 See Steven W. Mosher, Broken Earth 58 (2008).
143 See infra § 17:5(A).
144 Ebrey, supra note 6, at 108.
145 Id.
146 Id.
147 The History of China, supra note 119, at 128–29.
148 Id. at 129.
149 Ebrey, supra note 6, at 111.
150 Id. at 112.
151 Hansen, supra note 123, at 10–11.
152 Id. at 11.
153 Ebrey, supra note 6, at 136.
154 Id.
155 Harriet T. Zurndorfer, Contracts, Property, and Litigation: Intermediation and Adudication in the Huizhou Region (Anhui) in Sixteenth-Century China, in Law and Long-Term Economic Change: A Eurasian Perspective 96 (Debra Ma & Jan Luiten van Zanden eds., 2011).
156 Ebrey, supra note 6, at 142. Professor Ebrey notes that the T’ang dynasty had stopped using bolts of silk as currency and, by 997 A.D., the Song government was minting 800 million coins per year, which was more than twice the largest amount minted during the T’ang period. Id. Yet, less than a century later, in 1085 A.D., the Song supply of coins had increased to over six billion coins a year and, correspondingly, the means of payment of taxes had shifted from commodities such as grain or silk to silver—eighteen million ounces of which had been collected as government revenue in 1120 A.D. alone. Id.
157 Id. at 142 (emphasis added).
158 Zurndorfer, supra note 155, at 92.
159 Id. at 92–93.
160 See infra ch. 18.
161 Daniel Chow, The Legal System of the People’s Republic of China in a Nutshell 52–53 (2d ed. 2003). After acknowledging that some scholars had recently taken issue with the view that China did not develop a formal civil or commercial law, he summarizes the traditional view of Imperial law in China as follows:
Citizens viewed law as being administered vertically, from the state upon the individual, as opposed to being used horizontally to resolve disputes between actors with one another…. Ordinary subjects who had disputes resolved them through informal means and mediation by various customary and unofficial channels such as through the use of craft or merchant guilds or through the intervention of village elders. The aversion to using the legal system among the general populace meant that China did not develop a civil law system useful in resolving civil disputes. Formal law only served the public interests of the state and was not viewed by ordinary Chinese as a tool to resolve private disputes.
Id.
162 Fairbank & Goldman, supra note 13, at 100 (Fairbank and Goldman attribute this quote to Professor Denis Twitchett).
163 Id. at 94.
164 Richard Hooker, Ming China: The Commercial Revolution (1997), http://richard-hooker.com/sites/worldcultures/MING/COMM.HTM.
165 Id.
166 Id.
167 Id.
168 Id.
169 Ebrey, supra note 6, at 190. “The early Ming emperors, struggling to gain personal control over a huge, complex empire, used terror to keep officials in line.” Id.
170 Contract and Property in Early Modern China 21–22 (Madeleine Zelin, et al. eds., 2004) [hereinafter China Contract and Property].
171 Even during the late Imperial period and early “modern” period of Chinese property and contract law, “Chinese property rights … operated within a complex of institutions that included partible patrilineal inheritance, weak inheritance rights for women, ownership vested in the household and not the individual….” Id. at 31. (emphasis added).
172 Ebrey, supra note 6, at 207.
173 Id. at 228–30.
174 Id. at 229.
175 Id. at 234.
176 Id. at 236.
177 China Contract and Property, supra note 170, at 5–6.
178 Weber, supra note 5, at 226–27.
179 Id. at 230.
180 Id. at 231.
181 Id. at 232 (although this dishonesty was in contrast with the honesty of Chinese’s big businesses).
182 Id.
183 See supra chs. 1 & 3.
184 See supra § 5:9(C).
185 See supra § 3:6.
186 See Zhang Xuehui, The Huizhou Documents: A Newly Found, Rich and Precious Source for the Study of Chinese History (May 23, 2003) (on file with author) (discussing the recent finds of Huizhou documents and the types of contracts found), http://bic.cass.cn/English/InfoShow/Arcitle_Show_Forum2_Show.asp?ID=270&Title=The%20Humanities%20Study&strNavigation=Home-% 3EForum-%3EHistory&BigClassID=4&SmallClassID=8; see also Qi Zhu, Shi in Architecture: The Efficacy of Traditional Chinese Doors 64–95 (Mar. 25, 2008) (unpublished Ph.D. dissertation, Virginia Polytechnic Institute and State University) (on file with author), available at http://scholar.lib.vt.edu/theses/available/etd-05152008-193629/unrestricted/Chapter_2.pdf; Zurndorfer, supra note 155.
187 Huizhou Merchants, China Daily (May 20, 2009) (on file with author) [hereinafter Huizhou Merchants], http://www.chinadaily.com.cn/china/2009–05/20/content_7824807.htm.
188 Id.
189 Ancient China’s Merchant Groups and Merchant Culture, ChinaCulture.org (2003) [hereinafter Ancient China’s Merchant] (on file with author), http://www.chinaculture.org/gb/en_madeinchina/2006–02/20/content_79481_3.htm.
190 Zhu, supra note 186, at 74.
191 Id.
192 Id.
193 Id.
194 Id. at 75.
195 Id.
196 Id.
197 Ancient China’s Merchant, supra note 189.
198 Huizhou Merchants, supra note 187 (emphasis added).
199 See Chow, supra note 161, at 52.
200 See supra § 14:3(A).
201 Huizhou Merchants, supra note 187.
202 Ups and Downs of Huizhou Merchants, crienglish.com (July 23, 2009), http://english.cri.cn/6566/2009/07/23/1781s503493.htm.
203 Huizhou Merchants, supra note 187.
204 Zhu, supra note 186, at 76; see also supra §§ 17:5(A) & 17:2(D).
205 Law and Long-Term Economic Change: A Eurasian Perspective 96 (Debin Ma & Jan Luiten van Zanden eds., 2011).
206 Zhu, supra note 186, at 76.
207 Id. at 77.
208 Ma, supra note 48, at 16–17; see alsoAncient China’s Merchant, supra note 189. These sources claim that the Huizhou people were a “disproportionate share in Chinese bureaucracy.” Ma, supra note 51, at 17; Ancient China’s Merchant, supra note 189.
209 Huizhou Merchants, supra note 187. According to Britannica, the title of jinshi was equivalent to that of “doctor.” See jinshi article, Britannica.com, www.britannica.com/EBchecked/topic/11780/jinshi.
210 Richard John Lufrano, Honorable Merchants: Commerce and Self-Cultivation in Late Imperial China 2 (1997).
211 Id. at 52–67.
212 Id. at 178.
213 Id. at 216 n.3.
214 Fairbank & Goldman, supra note 13, at 176–79.
215 Id. at 178.
216 Id. at 179.
217 Id. at 179.
218 Id. at 180.
219 Id. at 179 (as succinctly put by authors Fairbank and Goldman).
220 Id. at 180.
221 Tadao Sakai, Confucianism and Popular Educational Works, 354–56 (1970), cited in Lufrano, Honorable Merchants, supra note 210, at 41 n.67.
222 Harriet T. Zurndorfer, Cotton Textiles and Ming/Qing China in the Global Economy (1500–1840), The London School of Economics & Political Science (Jan. 31, 2006) (on file with author), http://www.lse.ac. uk/economicHistory/Research/GEHN/GEHNPDF/PUNEZurndorfer.pdf.
223 See supra § 6:2(A).
224 Zurndorfer, supra note 222, at 11–12.
225 Id. at 9–11.
226 Id. at 10.
227 Id. at 11.
228 Id. at 13.
229 Id.
230 Id.
231 See supra § 6:2(A).
232 Zurndorfer, supra note 222, at 13–14 (citations omitted).
233 See supra § 11:4(C).
234 See Robert S. Duplessis, Transitions to Capitalism in Early Modern Europe 127 (1997).
235 China Contract and Property, supra note 170, at 21.
236 Id. at 21–22.
237 Zelin, supra note 23, at 2.
238 Id.
239 Id. at 5 (emphasis added).
240 China Contract and Property, supra note 170, at 32.
241 Id.
242 Id. at 32–33.
243 Even during the late Imperial period and early “modern” period of Chinese property and contract law, “Chinese property rights … operated within a complex of institutions that included partible patrilineal inheritance, weak inheritance rights for women, ownership vested in the household and not the individual….” Id. at 31 (emphasis added).
244 Lufrano, supra note 210, at 93.
245 See supra § 3:3.
246 See supra § 17:5.
247 Thomas Buoye, Litigation, Legitimacy and Lethal Violence: Why County Courts Failed to Prevent Violent Disputes over Property in Eighteenth-Century China, in China Contract and Property, supra note 170, at 96 (noting that the author had looked at “literally thousands of homicide reports” and, of these, had analyzed 630 homicides related to disputes over property rights involving, among others, disputes on rent default, eviction, or land boundaries). The magnitude of violence and uncertainty is highlighted by the fact that the 630 homicides he examined took place during the years of 1750–1753 and 1789–80. Id. at 7.
248 Recall Nathan Rothschild’s measurement of the transactional risks in a German principality requested for the underwriting and sale of their bonds in the English bond market. After measuring the various determined and determinable risks, he identified the risk of a possible unwillingness to support the judicial and extra-judicial enforcement of defaulted bonds by the principality’s parliament. See supra § 11:4(C).
249 Alejo José G. Sison, Business and culture in the Philippines: a story of gradual progress, in Business Ethics in Theory and Practice: Contributions from Asia and New Zealand 151 (Patricia H. Werhane & Alan E. Singer eds., 1999).
250 Lon L. Fuller & Melvin Eisenberg, Basic Contract Law 100 (3d ed. 1972).