Japan and the Great Divergence by Penelope Francks

Author:Penelope Francks
Language: eng
Format: epub
Publisher: Palgrave Macmillan UK, London

7.3 The Institutions of Commerce and the Market

The Smithian growth which many of Pomeranz’s opponents have come to see as the basis for northern Europe’s early divergence from the rest of the world depends on the spread of the market and the division of labour which competitive forces induce. On this argument, market institutions were much less highly developed in China than in Europe by the eighteenth century and commercial production was limited to luxury goods for an elite who nonetheless looked down on the merchants who supplied them. The same argument has long been applied to Tokugawa Japan, where the system appeared to dictate that farmers produced for subsistence and taxes in kind, while a despised merchant class met the financial and commercial needs of the elite, so that the reach of the market remained highly limited. Restrictions on the movement of goods and people across domain borders and the rigidity of an occupational structure based on hereditary class precluded the development of national markets in goods or a wage-based labour market and prevented Japan from gaining the economic benefits of specialisation that Adam Smith described. Hence, it could be argued that the much earlier development of the institutions of the market in Europe must have created the conditions under which Europe diverged from Asia on the path towards industrialisation.

Against this, however, much evidence has now accumulated to demonstrate the widespread operation of the market in Tokugawa Japan, to the extent that, even though subsistence production and household labour might have remained the basis of the economy and commercial institutions certainly differed from their European counterparts, few households could have remained untouched by market forces. As a result, as industrial growth began to take off in the later nineteenth century, working for wages, producing to meet market demand, and utilising commercial and financial institutions were far from alien practices to all but the most isolated and remote households. In Japan too, therefore, by the eighteenth century, the conditions for Smithian growth and what is now known as ‘proto-industrialisation ’ 17 had come into existence, creating forms of market-based growth that continued to dominate the economy, even as modern industrialisation itself began to be established.

The spread of the market hinges on the use of money , which makes trade beyond the face-to-face community, and measurement and comparison in terms of prices, possible. Segal dates the first surge in the use of money in Japan—mainly in the form of copper coins imported from China—to the late thirteenth century, on the basis of documents describing the increasing number of local markets and practices such as the commutation into cash of taxes in kind. Chinese copper coins continued in circulation into the Tokugawa period, despite efforts by the Shogunate to create a unified domestic money supply, and it was not until later in the seventeenth century that Japanese gold, silver, and copper coins finally superseded them (Segal 2011: 208–11). By then, however, there had been a substantial increase in the demand for money

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