Tokugawa Japan: an Institutional Analysis of Economic Development

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1. Introduction

By the start of the Japan’s Meiji Restoration, in 1864, many saw the Japanese economy as underdeveloped and would argue that only contact with the outside world could cause economic growth and development. When a certain American, Commodore Perry, arrived on warships in 1853 the Japanese society saw the growth that they were forgoing for their policy of seclusion and political control. Eleven years later the Meiji restoration removed the Tokugawa government and ended Japanese isolation, cementing the way for Japan’s rapid economic development in the Meiji era (Allison & Alexander, 2010:470; Crawcour, 1989:599-610).

This rapid economic growth transformed the feudal remains of the Tokugawa economy into one of the fastest growing capitalist economies until the 1980’s. The following essay will examine the institutional development of the period preceding the Meiji era, the Tokugawa period from 1600-1864. The focus will be on political, legal and social institutions and its various effects on the economic development of pre-industrial Japan as well as its effects on Meiji growth.

2.The Tokugawa Shogunate: an institutional Analysis

Three years after the battle of Sheigahara, in 1600, Tokugawa Ieyasu took office as prime shogun, an office that gave him authority as head of the national government. Although the office of the emperor remained, it was diminished to be a figurehead of society while the shogun served as “the guardian of the state and protector of its people” with responsibilities in terms of both domestic affairs and foreign relations (Hall, 1991: 156-157).

2.1. Political Institutions: The Bakuhan system

The Tokugawa period saw the Shogun as the ultimate owner of all taxable land, yet the political structure was a feudal one as daimyo had significant control over their respective domains (Hall, 1991:156-157, 183; Horie, 1958:3). Each daimyo had a right to a single castle and a military force, they were not directly taxed, but were required to contribute to the bakufu castle infrastructure (Hall, 1991:159). In order to deter rebellion the Shogun restricted the army sizes of the lords along with their wealth, while also requiring them to reside at Edo castle in alternating years (Broadbridge, 1974:348; Weede, 2004:7). One of the most important aspects of the Tokugawa political system was its policy of isolation from the rest of the rest of the world, this resulted in stagnated growth.

2.2.Legal Institutions and Social Structure

In order to understand the legal institutions of Tokugawa Japan the rigid caste structure of the Tokugawa social order must first be explained. The western equivalent of royalty existed in four spheres. In descending order, it was the emperor, the shogun, the bakufu or daimyos and lastly the samurai administrators (Henderson, 1952:52). All of the royal classes were warriors, samurai in this context means warrior appointees of the daimyo or lords. The common class existed only out of peasants and farmers, below them were the artisans while the merchants were deemed to be the lowest class (Henderson, 1952: 92-93).

The legal system of Tokugawa Japan can be considered as having four separate systems for each caste: it had one for nobles, one for the ruling samurai class, one for lesser warriors and one for commoners (Henderson, 1952:90). A fifth one can even be seen in terms of the merchant class, which were particularly marginalised by arbitrary laws (Hanley & Yamamura, 1971:374-375). Men were thus inherently unequal in Tokugawa Japan while was usually at “the whim of the enforcer” (Hall, 1991:158; Henderson, 1952:92-100). In this sense the law, especially when concerned with the upper classes, was usually general and vague enough to allow arbitrariness and was often misused by the shoguns to justify their own actions and condemn dissenting lords (Hall, 1991:158). Land taxation was determined by expected price yield by the Lords, it may be argued that this system was arbitrary though consistent (Hanley & Yamamura, 1971:374).

The arbitrariness in terms of control over the ruling class also had important effects on the development of the Japanese merchant class, which will be discussed below (Henderson, 1952:96). In summary the Tokugawa legal system, at least as far as criminal matters and certain civil matters were concerned, was not one of rule of law, but rather the rule of man (Henderson, 1952:101).

2.2.1.Private Property Institutions

The importance of private property institutions for economic development in the context of the industrial revolution cannot be over stated. As mentioned, de jure land ownership rested with the shogun in Tokugawa Japan and the property was administered on behalf of him by the feudal lords, which were not the owners of the land but merely entitled to its revenues to the extent that the lord’s duties require it (Crawcour, 1974:120). Paradoxically the method of political control, the alternate residence system, resulted in stronger de facto ties between the peasants and the land as the lords were unable to keep their claims to land (Saito, 2009:171). Land could not legally be sold indefinitely, yet property could be used as a security and be for-closed on (Saito, 2009:171). The result of the order of long tenancy resulted in a system which tied peasants to the land, yet it allowed for some form of flexibility and land markets based on hire (Broadbridge, 1974:352).

Taxes were high enough to be considered oppressive, bordering 55% of assessed yield in some cases, but these taxes were static, meaning that any returns on productivity would be held by the farmer completely (Bird, 1977:164-165; Smith, 1958:13; Toshio, 1991:494-498). In this sense there was still a small incentive for the average village farmer to become more productive, as his relative tax rate would decrease while his welfare would increase (Weede, 2004:76). Thus, although property rights were to a large extent limited, the contradictory government policies and difficulties in terms of tax assessment resulted in a system where there were at least marginal incentives for specialisation and productivity growth existed in the later Tokugawa era.

2.2.2.Contractual Institutions and the nature of the Village The above mentioned tenancy rights could not have been possible without some form of contractual law and enforcement, especially in the villages. In terms of the upper classes enforcement of contracts came from the bakufu court and the shogun, whereas a more complex system evolved for the lower classes (Henderson, 1974:51-53). In order to understand the nature of contract that existed within villages that eventually allowed for the existence of markets and agricultural specialisation the nature of the village needs to be understood. For the largest part of the Tokugawa period the village was treated as a single tax entity (Toshio, 1991: 489). The assessed amount of tax payable was declared by the lord of the land and was given to the village headman, which then distributed the tax through consultation process (Smith, 1958:4).

This along with the fact that villages were generally required to manage their own affairs resulted in the kind of contractual enforceability required for secure trade amongst the lower classes (Henderson, 1974:59-60). Contractual institutions thus substituted for the lacking property institutions. With regards to commercial law, it would be sufficient to say that by the end of Tokugawa Japan had an efficient non-partisan contract system that had knowledge of trade, banking, bankruptcy and credit (Crawcour, 1974:122-123). This would later allow the merchant class to play a more important role in the Tokugawa.

3.The Impact of Institutions on the Economic Development of Tokugawa Japan These institutions did not operate in isolation and had a great effect on the way in which the Tokugawa economy would develop and the speed at which the growth in the Meiji restoration would occur.

3.1.The Alternate Residence System, Taxes and Geographical Development The shogun required the lord of each territory to spend either 6 months a year or every alternate year at Edo Castle, while the lord’s family would remain at Edo as hostages for the duration of the lord’s office (Broadbridge. 1974: 349; Hall, 1991: 158). The effect of this can be seen in the geographical patterns of Tokugawa Japan’s growth as the constant flow of traffic to Edo resulted in the development of urban centres (Broadbridge, 1974:349-350). The reason the alternate residence system is at least partly attributed to this is due to the amount of money that the lords had to spend on their retainer for accommodation and supplies; this resulted in towns and centres competing for the business brought by the lords (Broadridge, 1974: 349-350).

The in-kind tax system also had a great impact on urbanisation as can be seen in the establishment of urban centres around the Osaka rice Market (Saito & Settsu, 2006:3; Kawagoe, 1998:26). In this sense the alternate residence system along with the in-kind tax system had important implications for the development of markets along with road infrastructure (Sugihara, 2004:11-12). It should be made clear, however, that the alternate residence system was a drain on the resources of the Tokugawa economy and was one of the many factors that led to the financial difficulties of the Tokugawa government (Hall, 1991:158). These difficulties eventually led to policies supporting economic growth (Crawcour, 1974:117).

3.2.The Impact of institutions on Human Capital in Tokugawa Japan The formal social institutions, in terms of caste and codified ethics, had an important influence on human capital development in the form of education, this later served as a catalyst for the rapid growth seen in the Meiji era (Shively, 1991:715). The examination of education can be split into the two classes. The ruling samurai class had quasi-compulsory official education, in that one of the articles in the laws for military houses was that the samurai administrator should be well trained in war, literacy and morality (Shively, 1991:716).

The fact that lords risked the loss of their domains in cases of maladministration further incentivised knowledge acquisition for the ruling class (Shively, 1991:720). The education for the ruling class contained moral, reading and arithmetic lessons primarily aimed at making the samurai good rulers (Lehman, 1982:119). Commoners received a different form of education in that their curriculum at official institution was of a lower level and was aimed at forming the masses into obedient and efficient subjects (Kobayashi, 1965:289; Passin, 1967:211). The steady development of the Tokugawa economy also demanded an education system through which the classes could be equipped with knowledge that would allow for effective succession of the family business, this system was called terakoya education (Dore, 1965:252-253; Kobayashi, 1965:293).

The overt focus on maintaining the caste system resulted in a system of education that became static over time and thus unattractive to those wishing to gain more knowledge (Lehman, 1982:120). The outcome of this stagnation was a growth in the private education sector, especially in terms of higher education (Shively, 1991:722). All of these factors combined and by the end of the Tokugawa period Japan’s literacy rate was surpassed only by around three countries in the world (Crawcour, 1974:122). The relatively high level of education further aided the abidance to codified legal institutions as well as the diffusion of agricultural knowledge and merchant expertise, two factors which would prove to be fundamental to Tokugawa Japan’s economic development (Lehman, 1982:119-121).

These aspects also allowed the Meiji regime to create a national education system with relative ease, while it also aided them in the issuing of directives via writing (Hauser, 1983:577; Kobayashi, 1965:293, 299). 3.3. The impact of Institutions on Productivity, Specialisation and Development

3.3.1. Growth in Agriculture

As most of the peasants were almost by definition agrarian, Tokugawa economic development and growth had to develop from agriculture, and indeed it did (Smith, 1959:87). Initially this productivity growth was not the product of technological advancement but rather that of the diffusion of farming techniques (Smith, 1959:87). Smith (1959:87-90) argues that diffusion arose mainly because of writings, showing again the import of the relatively high Japanese rate of literacy. The introduction of fertilisers was most likely the biggest agricultural innovation from the Tokugawa period, although precise estimates of the impact are hard to come by (Smith, 1959:93).

Irrigation farming was another advancement which allowed for the conversion of dry fields to rice paddy, this allowed for a great increase in the rice yield (Smith, 1959:97). The fact that rice was taxed and the fact that the farmers were gradually becoming linked with markets resulted in sustenance farming growing into commercial farming in the form of cash crops and the diversification of produce (Toshio, 1991:509-510). The growth of the economy resulted in a market for technology especially for agricultural tools (Toshio, 1991:508). It is interesting to note that the areas with the highest levels of technology were those that were free from government control (Choi, 1971:735).

The spread of techniques and technology also resulted in and from the infrastructural growth in Tokugawa (Smith, 1959:92). The advancements in techniques and technology resulted in productivity increases for both capital and labour, resulting in rice output increasing from 3 million tons at the beginning of the Tokugawa era to 6 million tons at the end of the period (Kawagoe, 1998:26; Smith, 1959:101). The advancing complexity of agricultural activities, along with increasing worker remuneration, resulted in smaller landholdings which then led to reducing families to nuclear size and thus increase welfare per capita (Smith, 1959:104-106). Thus, despite oppressive taxes and several other less than favourable institutions, Tokugawa Japan still had economic development in terms of productivity and output growth.

3.3.2.Markets, Credit and the Merchant class

One of the most important aspects of most countries’ industrial revolution is the rise of the merchant class and credit systems. Although the Tokugawa government saw the merchant class as the lowest class, their repressive policies in a sense aided the rise of the merchant class and the development of futures markets. The example most often used is the Osaka rice market, resulting from the in kind tax system of the shogunate that required the trade of rice for currency on the market (Saito & Settsu, 2006:3; Kawagoe, 1998:26). The rice that was not used for taxes was sold on the market by the peasants along with other produce (Kawagoe, 1998:26).

The nature of the exchange was for a great part continuous and stable; in this sense Osaka based markets were not based on contracts but based on accumulated trust through continuous trade in a closed system, but as trade grew this developed into a system of commercial law (Saito & Settsu, 2006:4; Kobayashi, 1965:288). Empirical evidence indicates that the market operated efficiently during the middle of the Tokugawa period, but deteriorated in efficiency towards the end (Anderson et al, 2001:873). The fact that the persons in government and the persons in the growing merchant class were not one and the same can be attributed to the Tokugawa government’s concept of ethics.

The government forbade the samurai class from doing any commercial activity that would result in income greater than that required for himself and his retainer (Sheldon, 1983:479). This prohibition along with the fact that the bakufu did not see the merchants as any form of threat gave the merchant class a monopoly on access to markets, although this was somewhat constrained by Japan’s policy of isolation (Sheldon 1983:479-480).

Furthermore the feudal lords did not see the merchants as generating wealth and thus did not tax them (Sheldon, 1971:195). Although it was prohibited, one of the main sources of revenue to the merchants was money lending to the daimyo and so a system of credit was developed in the Tokugawa economy (Sheldon 1971:195-195). As the merchant class grew so did the samurai ruling class decline, although it is difficult to argue that causation ran in any direction, it is most likely the case the samurai class’s decline was a result of the increase in their spending on goods and service rather than any other factor (Hauser, 1983:579; Yamamura, 1971:403).


The institutional framework of Tokugawa Japan resulted in policies that supressed economic growth and development, but even in spite of this the Tokugawa economy still develop. This was especially the case in sectors the furthest away from bakufu control. Government policies influenced the geographical growth patterns, specialisation, infrastructure, human capital development and cultivation. Without a relevant counterfactual it is impossible to say what the economic development of Japan would have been without these rigid hierarchies. It should be clear however that the Tokugawa economy did develop and the resulting institutions were a great aid to the growth of the Meiji era.

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