Institutions play a vital role in allocating entrepreneurial talent in society. Specifically, the payoffs to different kinds of innovation influence the allocation of entrepreneurial talent between productive, unproductive, and destructive behavior. I apply this insight to the case of the military classics of China’s Warring States period, 475–221 BCE. The Warring States witnessed political centralization and incessant conflict that helped inspire numerous economic and social innovations. Among these are the appearance of many texts pertaining to governance and public policy, particularly writings on military strategy. Excellence in strategy and planning were highly rewarded during this period, and competing states even developed an interstate market for military talent. However, success in commerce was often not only frowned upon, but harshly punished. This tendency was reinforced by the rise of Legalist policies, which often recommended suppressing the merchant class relative to agricultural production and militarism. These institutional conditions limited the amount of ‘productive’ market entrepreneurship in the period, which was often instead channeled into ‘unproductive’ entrepreneurship, especially the areas of military organization and strategy.