This chapter explores how the interplay of early networks of religion and state significantly influenced fiscal capacity development in Europe and China. The ideological and institutional autonomy of the European religious network, embodied by the Roman Church, allowed it to function parallel to the state. In China, where the state-controlled religious rituals and functions, no comparable institution arose to challenge or balance state power. These differences contributed to cultural variations that shaped the broader organizational structures of the historical regimes of China and the West, with lasting consequences for fiscal capacity and state-building.

These foundational network structures also influenced moral frameworks and institutional development, further deepening the divergence between Europe and China. In Europe, the emergence of generalized morality supported low-cost, impersonal contract enforcement, strengthening institutions like corporations, and enabling complex, long-term economic exchanges. This created a positive feedback loop where morality and institutional capacity expanded together, broadening market scope and state strength. In contrast, China’s reliance on kinship-based exchanges limited the development of impersonal institutions, reinforcing a negative feedback loop that constrained long-term economic growth. These coevolutionary processes not only shaped economic trajectories but also had unforeseen consequences for fiscal development and state capacity, contributing to the broader divergence between the two regions.