Two Parts Of The Gallon Trade

The gallon, especially the Spanish Gallon, traveled on the oceans betweenEurope,America and Asia. They brought millions of silver coins from the NewWorld in order to buy all kinds of goods in China and sell them in Europe andAmerica. We call such transactions "the Gallon Trade".As the Gallon Trade began, Europe itself experienced the greatest changes sincethe end of the Roman Empire: the Price Revolution, redistribution of social wealth,financial innovation based on government credit, the rapid growth of capital market,the lowering of the long term interest rate, and the rise of Industrial Revolution.During that period, China enjoyed the economic growth brought by theoverbalance of exports , low inflation and stable currency, high governmentconsumption made silver standard come into practice. What's more, the fallinginterest rate stimulated the offspring of financial innovation. The Empire bathed themost flourishing economic boom that had ever taken place there.Whereas, Industrial Revolution did not occur in China but in Europe, lacking ofinstitutional innovation was covered up by prosperity and low inflation rate, at thesame time, England had become an industrial giant, a super power, no longer a farisland state. The differentia between China and Europe diverged dramatically. Sohow could we explain that divergence? The answer I think is the institutionaldifference and the environmental competition.