Hi-Stat

Discussion Paper Series

No.139

Money, credit and Smithian growth in Tokugawa Japan

Osamu Saito and Tokihiko Settsu

February 2006

Hitotsubashi University Research Unit

for Statistical Analysis in Social Sciences
A 21st-Century COE Program

Institute of Economic Research

Hitotsubashi University
Kunitachi, Tokyo, 186-8603 Japan
http://hi-stat.ier.hit-u.ac.jp/
 Money, credit and Smithian growth in Tokugawa Japan *

Osamu Saito and Tokihiko Settsu

(Institute of Economic Research, Hitotsubashi University)

Abstract

In the latter half of the Tokugawa period economic growth, however sluggish its
pace was, took place in the form of rural industrialisation and the expansion of
inter-regional trade. This paper addresses the following questions: how capital
was mobilised for such rural-centred growth in production and commerce, and how
the quasi-capital markets worked in both the Osaka economy and in the
countryside, with special reference to trends in interest rates over time, in a
pre-modern setting of market segmentation. The paper will argue that although
Tokugawa Japan’s formal institutions were far from ideal, the credit systems did
function as quasi-capital markets reasonably well within each commercial
network formed through relational contracting, and that for the Smithian process
of early modern growth to work, inter-regional competition mattered more than
institutional maturity of the nation’s market environment.

* The authors are most grateful to Jan Luiten van Zanden, the organiser of the
sixth GEHN Conference held at Utrecht, June 2005, for his encouragement and
suggestions. Our thanks also go to Kaoru Sugihara for his bibliographical help
during the course of revision of the conference paper.
Introduction

In many parts of Eurasia, money and credit markets existed even before the age of
modern banking. In Tokugawa Japan too, there were various lenders of money in
cities and the countryside, some private and some professional. In the nation’s
commercial capital, Osaka, in particular, there emerged a group of wealthy
merchants specialised in state lending. They regularly advanced loans to overlords
(daimyō ) and their domain administrations. Also emerged was an elaborate credit
system established by those Osaka merchants between Osaka where the silver
was the standard medium of transactions, and Edo (present-day Tokyo), the
samurai-dominated, administrative capital where the gold was used, under which
trade and payments were settled with the use of bills of exchange. Other kinds of
commercial paper were also used extensively by money changers and merchants
within each commercial capital. At the other end of the spectrum were numerous
pawnbrokers for common people and rotating saving-credit associations organised
by villagers and townsmen themselves. There were also wealthy farmers and
merchants who supplied private credit. Some of them are said to have borrowed to
lend money to others, for whom Ronald Toby talks of the birth of modern banking
in the countryside (Miyamoto 1954; Crawcour 1961; Crawcour and Yamamura
1970; Toby 2004).

Moreover, legal protection was given by the Tokugawa shogunate to support the
operation of the Osaka-Edo credit systems. The administration of justice in
Tokugawa Japan was based on a body of rules and precedents. They were
reasonably general, if not quite unbending, so that people could take any civil
dispute to court. Indeed, as case studies show, Tokugawa common people were
surprisingly litigious, although there was an unmistakable tendency towards a
resort to time-consuming arbitration as a primary means of settling legal disputes
(Ooms 1996; Takahashi 2001). In the case of commercial lawsuits, however,
protection was ensured not by providing greater predictability through more
specific legislation, but by instituting a summary procedure in court hearing. The
procedure allowed the magistrate to give a speedy judgement, while its
enforcement was nonetheless remained strict. In fact, as J. H. Wigmore, an
American professor of law who taught in Tokyo at the end of the nineteenth
century noted, it was ‘somewhat stricter’ than in other cases such as land and
inheritance disputes. Hence, it is suggested, ‘one of the reasons for the solidarity
of the mercantile credit system was the special protection given by law to
commercial paper’ (Wigmore 1969, p. 127).

Substantial as this development may sound, however, it is difficult to talk about

2
the existence of any capital market for this period. The Tokugawa shogunate’s
seclusion policy forced merchants to withdraw from international trade while the
political division of the nation into separate territorial units meant an impediment
to internal trade. In such circumstances of segmented markets, no notion of a
stock or bond market emerged. Some of the shares of coastal shipping operations,
which required larger amounts of capital than ordinary businesses of the day, were
often allocated to individual investors, but this practice did not develop into a
stock exchange where shares and stocks could be freely traded. Nor did state
borrowing evolve into an open market where a government bond could be bought
and sold by any participant. Both institutions were introduced from the West af t er
the Meiji Restoration of 1868. However, given the recent agreement that there
took place Smithian growth during the Tokugawa period, we may raise a question
similar to the one put forward elsewhere (Saito 2006). Output growth, however
sluggish its pace was, took place in the latter half of the period. It was
rural-centred and associated with an expansion of inter-regional trade (Shimbo
and Saito 2004). Thus the question is how capital was mobilised for such
rural-centred growth in production and commerce. Rural entrepreneurs who
wanted to borrow must have been able to find sources of finance, and there must
be suppliers of credit to meet the demand. This chapter looks at how such financial
capital was supplied, and how the quasi -capital markets worked in both the Osaka
economy and in the countryside, with special reference to trends in interest rates
over time, in a pre-modern setting of market segmentation.

1. The changing structure of the Tokugawa economy

After the consolidation of political power by the Tokugawa family in 1603, Japan
was under control of the shogunate government. However, much of the country’s
land was governed by samurai overlords. About four-fifth of the total land area
was controlled by nearly 300 lords , while the Tokugawa House took the cities of
Edo, Osaka and Kyoto, major port towns, mines, and areas around the
metropolitan cities. In each territory, called han (domain), taxes were paid in kind,
i.e. rice. Tax rice collected was sent by the domain governments to Osaka to earn
‘hard’ currency. Thus the city of Osaka came to dominate the country’s commerce
in the latter half of the seventeenth century as the market for tax rice grew. With
those wholesale merchants who traded in tax rice, the city grew extremely rich,
and ‘reputedly held 70 per cent of Japan’s money in its hands’ (Miyamoto 1954, p.
15; see also Hauser 1974, ch. 2).

The Osaka market received rice and other agricultural goods from local domain
economies. In exchange, Osaka shipped out handicraft goods produced in the

3
towns and villages surrounding Osaka and Kyoto (the region called Kinai) to the
peripheral, local economies. In most cases, the balance of payments was
favourable to the local economies; indeed the domain economies had to draw their
supply of currency from the Osaka market. All these transactions were made
through the channel of Osaka wholesale merchants (ton’ya), intermediary dealers
(nakagai ) and local merchants. A transaction at each stage of this chain was never
a spot contract; the relationships between the wholesaler and the intermediary
and between the intermediary and the local merchant tended to be continuous and
stable , perhaps as continuous and stable as the relation between today’s Toyota
and its ancillary parts manufacturers.

This kind of transactional relations is one variant of ‘relational contracting’ as

contrasted with ‘vertical integration’ (Hayami 1998). The term ‘relational
contracting’ denotes any contract relationship maintained primarily through
non-market ties and accumulated trust. Patron-client relations that are said to
have been prevalent in South-east Asian countries, and lineage- or
native-place-based commercial networks that operated in the Chinese past, are all
cases in point (for a Chinese perspective on law and commerce, see Ma 2006).
However, the Osaka-centred hierarchical chain of commercial relations was much
less to do with those kin- and community-based enforcement mechanisms. The key
to the workings of the Osaka-based chain was, simply, recurrent transactions and
accumulated trust between the two parties who carried on the transactions within
the closed system.

The Osaka wholesalers were not a sort of merchants who earned profits by
bridging two separate price regimes. Unlike traders in the Age of Commerce, they
traded on a large scale by securing high rates of turnover of capital and
merchandise ‘with low margins’. They were in many cases specialised in trading
one commodity or two with the volume of transactions becoming large. As the firm
size grew, it was no longer a one-man business (Miyamoto et al. 1995, pp. 18-19).
Within this Osaka-centred network, the wholesaler’s money went in advance to
the intermediary and the intermediary to the local dealer, so that the merchant
did not need to find credit before shipment. It was an arrangement that emerged
in a situation where no banking businesses developed. The network with the
wholesale merchant acting as a creditor of the entire transactions was called the
‘wholesaler system’. The profit earned by those wholesale merchants, therefore,
must have included a substantially large portion of interests to be paid by the
senders of commodities, as indicated by the interchangeable use of the words,

4
‘interest’ and ‘commission’, in Tokugawa days (Miyamoto 1951, p. 420). 1

From the late eighteenth to the early nineteenth century this Osaka-dominated
system of commerce underwent a series of drastic changes. The first change was
the rise of Edo as a market for consumer goods. Being a city of 1,000,000
population, its purchasing power extended stimulus to rural areas surrounding
Edo and to other regions in the eastern half of the country, thereby giving rise to
separate rural-urban linkages outside the Osaka-centred commercial network.
Secondly, domain governments in rural regions, both east and west, came to
behave more like independent ‘mini-states’. For example, many domain
administrations started issuing quasi-bank notes ( hansatsu) in place of
shogunate-issued hard currency. Their attempts often failed. Yet there are cases in
which domain governments succeeded in keeping the note price from falling. The
attempts to issue their own paper money were often coupled with ‘export’
promotion programmes. One of the aims of such policies was to by-pass the control
of Osaka merchants on the marketing of the domain’s speciality goods (Nishikawa
and Amano 2004). As a result, thirdly, trade between those mini-states grew, so
did their trade with Edo. All this resulted in a substantial decline in the volume of
commodities arriving at Osaka. Trade statistics for three separate periods show
that while the overall volume of trade increased from 1736 to 1804-29, there
occurred a marked contraction from the 1804-29 period to 1840 (Shimbo and Saito
2004, p. 362).

2. Trends in interest rates in the Osaka market

The result of the decline of the Osaka market was a fall in the level of profit rates
among Osaka or Osaka-related merchants. For example, according to a detailed
account of one such wholesale merchant who traded in cotton and had a branch
shop in Edo, the rate of profit over assets net of liabilities in the period around

1 The word ton’ya system was often extended to an institutional arrangement that

emerged between merchant-manufacturers and sub-contractor producers, then

was adopted later as the translation of the English term ‘putting-out system’ when
economic history writings were brought in from the West. Putting-out is another
variant of ‘relational contracting’, and is said to have been a major form of
production organisation in the late-Tokugawa countryside. However, as far as
textiles are concerned, recent studies of rural industrialisation have revealed that
putting-out spread in a much later phase of development: in late Tokugawa times
an arrangement termed Kaufsystem seems to have been more widespread than
genuine putting-out arrangements, and it was in the early Meiji period when
putting-out took root in local industrial districts, especially in growing textile
districts. It is not unlikely, therefore, that the local merchants at the other end of
the Osaka-centred system bought up their goods solely on a Kaufsystem basis.

5
1700 were well over 10 per cent, but the level started to fall towards the 1770s,
then remained below 3 per cent until the end of the Tokugawa period (Kitajima
1962, pp. 200, 387). Similar evidence is available for six urban merchant houses,
showing a secular fall in the profit rates from the eighteenth-century level of a
little lower than 10 per cent (Ishikawa and Yasuoka 1995). Since a large portion of
the profit earned by the wholesale merchant corresponded to interest to be paid by
the shipping merchant for advance payments, the declining trend in the level of
commercial profits must have reflected a similarly declining trend in interest
rates in the Osaka market.

[Tables 1 and 2]

There is some direct evidence confirming this statement. Interest rates charged by
Osaka’s Kōnoike for loans to domain lords reveal an unmistakable downward
tendency over the period from the beginning of the eighteenth to the late
nineteenth century (Table 1). In the early eighteenth century the average level of
interest was a little over 12 per cent, which was probably a little lower than
market rates since the latter is said to have exceeded the 15 per cent mark, a
statutory rate of interest set as the upper limit by the shogunate government in
1724 (quoted in Miyamoto 1963, p. 47). By the end of the Tokugawa period,
however, the average level declined to 7 per cent. Among the cases there were
transactions with very low interest rates, which may be suspect. But even if such
suspect cases are excluded, the trend is clearly a downward one: starting with
12.5-3 per cent and ending with 8.7 per cent (second column of Table 1). Other
pieces of evidence are for the proportion of received interest to loans to business
people. Table 2 shows Mitsui’s as well as Kōnoike’s average rates from 1721 to
1860. The measure cannot be regarded as a contract rate of interest since some
may have been defaulted, but the direction of movements such data reveal may
well have reflected market trends. All that Tables 1 and 2 indicate, therefore,
seems to suggest that recurrent transactions within this Osaka-based relational
contracting system increased predictability within the system, thus allowing
interest rates in the Osaka market to fall.

[Figure 1]

The final piece of evidence for this section, a time-series of interest rates charged
by pawnshops in Osaka, focuses on the last phase of the Tokugawa period. The
series, shown in Figure 1, is annual and covers from 1830 to 1879. According to
this graph, there was a slightly downward tendency up to the early 1860s, then
occurred a sharp drop of the interest rate. It is usually the case that pawnshops

6
charged higher rates than ordinary creditors did, but since the data were those
provided by a guild organisation, it is likely that the figures did not reflect
transactions of ruthlessly high-charging shops. Wherever the actual level was,
however, the trend and annual movements were unmistakably clear from this
graph. And what is really interesting with this interest rate series is that its
movements were negatively correlated with an Osaka price index (price data from
Saito 1975). Although the negative relationship is relatively weak in the 1840s,
the correlation coefficient for the entire period is -0.76, which means that when
prices were high, interest rates tended to fall rather than to rise. If a rise in the
price level reflected a general prosperity, then we should expect a positive
relationship between the two; but if the price rise was occasioned simply by an
excess supply of, or a reduced demand for money, or both, it is likely that interest
rates in the money market would fall. In the age of industrialisation, i.e.
1893-1940, it is documented that the two were positively correlated, suggesting
that low interest rates could stimulate investment in commercial and industrial
activities (Fujino 1965, p.524). In contrast, the negative correlation seems to have
been the case for late-Tokugawa Osaka. There, while the government supply of
money was unmistakably on the increase in the period after 1820, the demand for
money was contracting. This must have been a reflection of its declining position
in the Tokugawa economy.

3. Rural development

It is widely agreed that the decline of Osaka was a consequence of rural

development. Most of the commodities ‘exported’ from regional economies were
labour-intensive goods such as textiles, dye stuff, paper and straw goods.
Undoubtedly, wage differentials between the rural Kinai (areas surrounding
Osaka and Kyoto) and remote districts played a part (Shimbo and Saito 2004). The
question here, however, is how the development of such rural ‘export’ trade was
financed.

One obvious source of finance came from local domain governments. As noted
above, the domain authorities became increasingly concerned with
macro-economic management of their own economies, especially with their trade
with Osaka. 2 Their awareness of potential gains from ‘export’ of their speciality
goods to Edo and other metropolitan markets often led them to institute schemes

2 The following account draws on Nishikawa and Amano (2004). For political
economy of domain-level mercantilist approaches in the late Tokugawa period, see
also Roberts (1998) and Ravina (1999). The former looks at Tosa and the latter at
Yonezawa, Hirosaki and Tokushima.

7
of trade promotion, setting up ‘monopolies’ and ‘trading bureaus’. 3 Such attempts
were found as early as the seventeenth century. However, according to a
comprehensive list compiled from various sources, the number of domain
governments who adopted such schemes increased in the last quarter of the
eighteenth century: 26 in the 1601-87 period, 28 in 1688-1735, 39 in 1736-88, 80 in
1789-1829, 98 in 1830-59, and 106 in 1860-71. The list also indicates that those
domain governments often issued paper money. Initially, it was simply an attempt
to make up for their budget deficits, but they increasingly came to realise its
potential as a measure of trade promotion. Although it is difficult to quantify how
many of the total of the above-mentioned trade-bureau schemes were linked with
such monetary policy, the following case studies strongly suggest that there were
close connections between the two.

A case in point is Tokushima domain, well-known for its indigo products. In 1766 a
reform proposal was made by a wealthy indigo merchant to the Tokushima
government, which ‘taking the eighteenth-century development of the
[Tokushima] indigo industry as its basis, called for the establishment of an
indigo-ball trading bureau which the domain government would control in
Tokushima and keep separate from the distribution and financial controls of
Osaka wholesalers’. The proposal also ‘called for the Tokushima government to
function as a commercial credit provider in place of the Osaka merchant houses’
(Nishikawa and Amano 2004, p.256). It seems that credit was provided in the form
of notes rather than hard currency. Although this reform failed as the central
shogunate government took the side of the Osaka merchants, this clearly shows
how such a domain-level scheme operated. In the 1790s, another reform effort was
made. The aim of the reform programme was the same as in the 1760s. However,
this time they turned their eye on to the Edo market, and the Tokushima
merchants played a larger role in advancing funds to local dealers (Amano 1986,
pp. 28-46).

Two other examples come from Himeji, a cotton area, and Kaga, the largest of all
daimyō domains, producing silk. Both domains exhibited successful operations of
‘export’-promotion development policies in the early nineteenth century. Both, in
order to by-pass the Osaka oligopoly, turned their eyes to Edo as a market and the

3 Although all these domain-level schemes were customarily called ‘monopolies’

(senbai-sei ), inter-domain ‘monopolies’ in the inter-domain markets were not many.

Most of them were actually ‘monopsonies’ within their own domain. Given the
competitive nature of the metropolitan markets, this implies that in the case of
‘domestic monopsony’, the domain’s trade bureau could not exercise any
monopolistic power in the inter-regional markets. See Nishikawa and Amano
(2004), pp. 249-250.

8
direct shipment of their ‘export’ goods to Edo was one major factor for the success
of their schemes. Also noteworthy was their ‘conscious use of domainal notes
[paper money] as regional currency’, with which credit was provided to shipping
merchants (Nishikawa and Amano 2004, pp. 257-259).

The final case study is concerned with inter-domain trade between Takamatsu and
Wakayama, neighbouring domains across the Kii Channel. The initiative began in
the 1830s from the Takamatsu side, which was a major supplier of sugar products.
From the beginning it involved the use of paper money. The Takamatsu
government discontinued the circulation of old notes and issued new ones, ‘by
taking a specie reserve into account’. The new notes were used via a ‘sugar
exchange fund’ to provide loans to shipping merchants. Initially shipment was
bound for Osaka, but with a petition from a rural merchant a new bureau was set
up in order to by-pass the Osaka market and came to include Wakayama domain
as a partner in 1845. Again, it is worth noting that the whole operation was made
possible by the issuing of paper money as regional currency (Nishikawa and
Amano 2004, pp. 260-264).

4. Interest rates in the countryside

The above account of regional trade promotion policies suggests that money was in
short supply in those local economies, and also that there existed no way in which
excess stock of funds in Osaka was invested into commercial and industrial
opportunities in the regional economies. Without formal institutions, the capital
markets were very much segmented.

In such circumstances, it is difficult to assume that interest rates in the regional

economies moved in accordance with those in the Osaka market. Unfortunately, no
evidence is available with respect to how credit markets operated in Tokushima,
Himeji, Kaga, Takamatsu and Wakayama. There are only scattered pieces of
evidence for rural credit and interest rates in other areas. Ronald Toby in his
paper on a wealthy farmer-banker in a province of central Japan has made
analysis of money-lending ledgers for the 1829-37 period, arguing that there were
local networks of money lenders who borrowed to do money lending businesses. In
so doing, he suggests that the rural level of interest rates on retail loans seems to
have been in the range of 12-15 per cent per annum, unmistakably higher than the
Osaka market rates, although other local studies he quotes include loans at
single-digit rates as well as those at 20-30 per cent (Toby 2004).

[Table 3]

9
In another case study of a farmer of similar status in Izumi province in the Kinai,
Satoru Nakamura has shown us how rural interest rates changed over time
(Nakamura 1968). The Nakamura data for two series of lending rates, i.e. pawning
and mortgage rates (set out in Table 3), reveal that while most of yearly averages
of interest rates charged by the farmer-creditor were within the range that Toby
suggested for the countryside, i.e. 12-15 per cent, there occurred two changes in
the level of interest rates during the period of one and a half centuries. The
interest rate declined in the eighteenth century: in the pawning series the average
declined from 18 per cent to the level of 10-11 per cent during that century while in
the mortgage series the decline took place a little later in the second quarter of the
nineteenth century. The chronology of the decline was more or less in line with the
trend in the Osaka money market, and is confirmed by another study of rural
credit. Based on a number of contract documents in Harima, a province adjacent to
the Kinai, Shoji Uemura shows a steadily declining trend in the average interest
rate from the level of 15-20 per cent to that of single-digits (Uemura 1986,
pp.235-238). On the other hand, the Izumi-province data (Table 3) reveal an
upturn in the level of rural interest rates in the period from c.1860 to 1880. This
was a period of inflation. Especially the 1860s saw a hyper inflation during which
Osaka’s pawnshop interest rates fell sharply (see Figure 1 above). In other words,
the response of market interest rates to price change differed between Osaka and
the countryside in the inflationary period that followed immediately after the
opening of the country into world trade: in the 1860s and after demand for money
went down in the urban market while it increased in the countryside.

Interesting and illuminating as these rural trends in interest rates are, however,
it is not quite clear at this stage of research how these phenomena were related to
the ways in which inter-regional trade expanded in the latter half of the Tokugawa
period. Did the schemes instituted by the domain governments to promote ‘export’
trade bring interest rates down in the countryside? How did local ‘export’
merchants respond to emerging markets? Did their response eventually lead to a
decline in interest rates, just as the Osaka-centred system of commerce had
achieved in the eighteenth century? Or did the ‘export’ merchants behave
differently from what the Osaka wholesalers did? Unfortunately, it is not possible
to examine these questions in relation to the specific cases of Tokushima, Himeji,
Kaga, Takamatsu and Wakayama.

5. The case of the early Meiji silk trade

For a more general question of how ‘export’-oriented rural development was

10
financed, however, it is not impossible to draw an inference from early Meiji case
studies for the period after the country’s entry into international trade.
Particularly interesting is the silk trade which grew strongly in the rural
provinces of central and eastern Japan after the commencement of overseas trade
in 1859. 4 The trading port was Yokohama, a Treaty port, and it was export
merchants in Yokohama who played an important role in the growth of silk export.
They were called ‘wholesale merchants’ ( ton’ya) but most of them had rural origins,
having no relations at that stage with the established wholesalers in Osaka and
Edo (although Mitsui entered the business as early as 1876 by setting up Mitsui
Bussan, a trading company). Of course, it should be remembered that in the early
Meiji period, unlike in late Tokugawa years, commercial banks in a modern sense
came into existence, first as American-style ‘national banks’. There also emerged a
number of non-bank lending businesses in rural industrial districts, especially in
export-oriented silk-producing areas in Shinshū and Jōshū. In 1880 the Yokohama
Specie Bank was established as a quasi-government bank specialised in financing
foreign trade, and two years later the Bank of Japan came to operate as a central
bank, replacing the decentralised American system of ‘national banking’.
Nevertheless, even when credit from those ‘modern’ banking institutions became
available, the role played by the export merchant-wholesalers in Yokohama was
crucial in financing the development of silk export, the system of which came into
being in the late 1870s.

Before examining their activities since the mid-1870s in the trade between the silk
district and Yokohama, however, it is worth having a look at the situations in the
period from the beginning of foreign trade to the mid-1870s. 5 Raw silk was the
single most important of all export goods of Japan since the entry into world trade.
A number of merchants came to Yokohama where lucrative trade opportunities
were suddenly created since 1859. Initially, as price gaps between the rural
districts and Yokohama were large, they went round to buy raw silk in the
countryside, or bought goods from producers who brought their merchandise with
them to Yokohama. With the development of long-distance communications,
especially of telegram, the price differences narrowed and the 1870s saw district
producers forming their trade co-operatives, which acted as consignors to
Yokohama. Correspondingly, similar trade associations were formed by
Yokohama’s export merchants. The moves were occasioned by
government-introduced regulations which required the product stamped in the

4 For the development of Japan’s silk export, see Sugiyama (1988), ch.4, which
covers both changing situations in trade and production.
5 The following account draws largely on Ishii (1972), ch.2, and Nakabayashi

(2003), ch.7.

11
silk district and its quality checked in Yokohama. Although the regulations were
repealed several years later, this gave a further opportunity for export merchants
to extend their influence onto local consignors. The former provided advances to
the latter before the merchandise was handed to a Western merchant. Because of
this financial role, their handling share increased over time. Indeed, export of raw
silk from Yokohama grew at the average annual rate of 8 per cent from 1873, when
the regulations were announced, to 1887, while the amount the export merchants
handled increased by 10 per cent over the same period (Yokohama-shi 1959-76, III,
jō, p.584).

This kind of advance finance in the silk trade is said to have started by a branch
shop of the Mitsui House in 1870. However, it was the emerging Yokohama export
merchants who adopted it as a major medium of business strategy (Yamaguchi et
al. 1966, p.61). According to this method, summarised in Figure 2, raw silk
produced in the rural district was delivered through a local consignor (or an agent
from the co-operative) to the export merchant in Yokohama, who sold the products
to Western merchants. The local consignor drew a documentary bill through a
local bank on the export merchant in Yokohama and was financed for 70-80 per
cent of the estimated selling value. The export merchant took the silk dispatched
by the consignor to his warehouse on settling a bill of exchange with interest. The
settlement was made before the agreement with a Western merchant was reached.
The export merchant was financed by a commercial bank in Yokohama, most
notably by the Yokohama Specie Bank, which in turn was financed by the Bank of
Japan since its establishment in 1882.

Thus the export merchants received interests as well as commissions. According to

one large export merchant’s account book in 1884, for example, interest earnings,
net of interest payments, amounted to 20,687 yen while commissions totalled
25,788 yen. Commission rates seem to have been fairly low. According to an
agreement in 1883, the rate was 1.1 per cent of the total transaction value, which
was reduced to 1 per cent in 1886. Interest rates charged by them to advances to
local consignors were not so cheap (annual average rates, converted from daily
rates, are set out in Table 4). In 1882 the average was 18.3 per cent per annum,
but the level came down to the range of 9-12 per cent by 1890. These rates were
said to be higher than market rates in Yokohama. Twenty years later, however,
export merchant rates declined further and became lower than market rates in the
rural silk districts (Yokohama-shi 1959-76, III, jō , p. 561; Tokyo Kōtō Shōgyō
Gakkō 1915, p. 47). It seems, therefore, that as the relations between the
Yokohama export merchant and silk-producing districts became closer and
stabilised, recurrent transactions between them enabled interest rates to fall.

12
6. Conclusion

In this early-Meiji silk trade, it is possible to identify an element of continuity

from the Tokugawa past on at least two counts. One is the role played by wholesale
merchants in financing trade growth. After the opening of its Treaty port,
Yokohama saw spontaneous growth of a hierarchical system of commercial
relations with the silk districts, similar to the age-old ‘wholesaler system’ that had
been at work between Osaka and regional economies. In the core of the system was
the supply of credit by the wholesale merchant. Initially the rates of interest were
high but tended to fall eventually as transactions within the system became
continuous. The other is the way in which the export trade was promoted. In both
late-Tokugawa and early-Meiji development policy regimes, the government saw
money supply as a principal means of trade promotion. Late-Tokugawa domain
governments issued paper money to finance their trade promotion programmes,
and early-Meiji policy makers of the 1870s believed that increased money supply
from note-issuing ‘national banks’ would mean an increase in the supply of capital
to merchants and producers in the export business. In the silk trade from the late
1880s onwards, the role played by them was taken over by the central bank
(Hashino and Saito 2004, pp. 244-245).

One thing that separated the Tokugawa systems from the early-Meiji case is that
the late-Tokugawa local economies were never integrated into a national market.
Links between the local domain economies were weak, and the Osaka-centred
system of credit chain was virtually cut off from those of the growing rural
economies. In the late-Tokugawa Osaka market, as we have seen, there was an
over supply of money; yet there was no institutional channels through which
investment funds were allocated across the semi-independent commercial
networks. Had the excess funds that glutted the Osaka money market been
diverted to rural investment opportunities outside the Osaka-centred network, the
rate of growth in the nation’s output could have been somewhat higher.

Two additional points may be made, however. First, this chapter has emphasised
that although Tokugawa Japan’s formal institutions were far from ideal, the credit
systems could function as quasi -capital markets reasonably well within each
commercial network formed through relational contracting. Transactions costs as
reflected in interest rates did not remain inhibitingly high. Rather, relational ties
and trust accumulated through recurrent transactions enabled the cost of
financing trade growth to decline in each of the closed systems. Moreover, secondly,
this does not necessarily imply that market forces were not at work in the

13
inter-regional spheres. As we have seen, the whole process of output growth in the
late Tokugawa period may be seen as a product of increased compe tition between
the Osaka-centred and the other commercial networks, which took place in the
form of mutual competition between the regional mini-states. Indeed, it is likely
that for the Smithian process of early modern growth to work, inter-regional
competition mattered more than institutional maturity of the nation’s market
environment.

14
Table 1. Interest rates on loans to overlords: House of Kōnoike, 1707-1880

Period Average rate (% p.a.)

All cases Excluding cases with
below 6 % interest rate
1707-1740 12.5 12.5
1741-1760 12.1 13.0
1761-1780 11.3 11.3
1781-1800 6.5 9.3
1801-1820 7.3 9.3
1821-1840 7.1 8.3
1841-1860 6.8 8.7
1861-1870 7.4 8.7

Source: Miyamoto (1963), pp. 348-365.

15
Table 2. Rates of received interest to loans: Mitsui and Kōnoike Exchange Houses,
1721-186

Period Average rate (% p.a.)

Mitsui Kōnoike
1721-1740 4.9 6.3
1741-1760 4.1 5.5
1761-1780 3.4 4.9
1781-1800 1.7 3.8
1801-1820 1.8 2.2
1821-1840 1.9 3.4
1841-1860 － 3.3

Source: Shimbo and Saito (2004), p. 358.

16
Figure 1. Interest rates charged by pawnshops in Osaka, 1830-79

12

10
% per annum

4
1830 1835 1840 1845 1850 1855 1860 1865 1870 1875 1880

Source: Miyamoto (1963), p. 344.

17
Table 3. Interest rates in Izumi province, 1728-1890

Period Pawning rate Period Mortgage rate

(% p.a.) (% p.a.)
1728-1758 18.0
1771-1788 10.6
1789-1800 11.7 1781-1801 13.2
1801-1824 10.1 1818-1832 14.5
1833-1845 11.8
1845-1859 10.9 1848-1859 10.2
1861 11.6 1860-1867 12.0
1871-1874 13.5 1868-1875 14.2
1876-1881 18.7
1882-1890 17.6

Source: Nakamura (1968), p. 348.

18
Table 4. Interest rates charged by Yokohama export merchants, 1882-91

Year Average rate (% p.a.)

1882 18.3
1883 15.3
1884 13.5
1885 12.8
1886 10.2
1887 8.8
1888 11.0
1889 11.0
1890 12.0
1891 12.0

Source: Yamaguchi et al. (1966), p. 47.

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Figure 2. The export merchant in the silk export trade, c.1880

Local Market Yokohama Market

Produ cer Western merchant

Silk Money Money Silk

Silk
Consignor Export merchant
◀ Settlement ▶

Bill Money Money Bill

Bill
Local bank Yokohama bank
Money

20
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