Japan's Early Experience of Contract Management in the Treaty Ports

Yuki Allyson Honjo

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9781138973558
• eBook ISBN: 9781134279814
• Edition: 1
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

This is the first in-depth study of the early trial-and-error experiences of contracting between Japanese and western merchants trading in the Japanese Treaty Ports in the eighteen year period immediately following the opening of the ports in 1859. Fundamental to the equation were the inevitable east-west cultural and legal ambiguities that impacted on the traders. The learning curve for both westerners and Japanese regarding the nature and application of western contracting law was predictably difficult, tortuous and open to constant misunderstanding. Nevertheless, it was within such a framework that the principal benchmarks for trade with Japan were set down and which, in essence, have lasted to the present day.

1

THE TOKUGAWA LEGACY

My friends were envious. ‘How is it that the tradesmen fall over themselves for you?’ they asked. When I told them [I bought and sold swords], they said, ‘That’s no way to make money’. But make money I did – and plenty of it.

Musui’s Story, the memoir Samurai Katsu Kokichi (1802–50)¹

BEFORE we fully investigate the problems of contractual relations in treaty-port Japan, it is necessary to outline the general historical context in which these merchants lived and worked in order to better understand merchant expectations.² Even before the arrival of Commodore Perry in 1853, Japan’s economy and its governance were in a state of flux. While the creation of treaty ports and the sudden exposure to foreign trade did affect domestic trade patterns, the economy was already in a transition, which resulted in a series of economic crises. The treaty ports were not the only cause of the economic crises in Japan, but merely added to the disarray in Japan’s markets, prices, and trade procedures. The trends towards urbanization and commercialization and the overall disorder in the Tokugawa economy, however, were rooted in the systemic breakdown of the governance structures of Tokugawa Japan.

THE EARLY TOKUGAWA BAKUFU: 1600–1750

The Japanese economy under the Tokugawa regime (1600–1868) was one that was based, at least officially, on the ideal of maintaining the political, economic, and social status quo. The 1500s had seen a period in which domains within Japan were in a state of almost constant war. Eventually, the disparate domains were unified, culminating with the creation of the Tokugawa regime under Tokugawa Ieyasu, the first of the Tokugawa shoguns. In this system, the Tokugawa shogunate (the largest of the domains and the de facto political authority) controlled a quarter of Japan’s territory, and the other three quarters were controlled by roughly 270 daimyo (semi-independent domain lords). The Tokugawa government, or Bakufu, became the main administrative power in Japan, and the emperor and his court retained only a ritual significance. The domains were only nominally independent under the Tokugawa, and in the early Edo (Tokugawa) period, the Bakufu could essentially govern, either by persuasion or by command, the policies of the domains.

The seventeenth century was a period in which the Tokugawa systematically eliminated potential challenges to the Bakufu’s suzerainty. To achieve it goals, the shogunate weakened the strength of the daimyo’s domains by instituting a number of policies to maintain the political and military balance in its favour. For example, alliances between the daimyo were forbidden. Furthermore, the Bakufu limited fortifications and arms of the daimyo. In order to further occupy the resources of the domains, corvèe labour was also extracted for shogunate roads and other projects.

To prevent the daimyo from seeking foreign alliances, Japanese subjects were forbidden to leave Japan and most Westerners were expelled. The Bakufu perceived Christianity as a precursor to a Western invasion of Japan and took steps to eradicate the faith. Believers were made to renounce their faith or die. Trade with the West was limited to the Dutch on the island compound of Dejima in Nagasaki harbour. Similarly, the size and shape of sea vessels were regulated. All Tokugawa-period boats were small, without a keel, and flat bottomed. Such boats were only capable of coastal trips or travel by river. These regulations collectively formed the Tokugawa policy of ‘national isolation’, or sakoku.

One specific means of control over the domains was the system of alternate attendance, or sankin kōtai. In order to weaken the daimyos’ local domain ties, the Bakufu mandated a system in which wives and heirs were left as ‘hostages’ in Edo (the political capital of Japan, later renamed Tokyo) and the daimyo themselves had to reside in Edo on alternate years. Under this system, heirs raised in Edo were cut off from their domains and were indoctrinated to accept Tokugawa authority. By living in the capital, the daimyos’ opportunity to raise an army to challenge the Tokugawa was greatly diminished. This system had a two-fold advantage of preventing rebellions and financially weakening the daimyo. Maintaining a household in Edo was costly, and the Bakufu encouraged lavish expenditures on processions to and from Edo. These drains on resources diverted funds away from any potential insurrection. As time passed and the samurai became urbanized, they and their lords were transformed into bureaucrats and the threat of armed rebellion declined. Finally, the whole network was tied together with a system of road checkpoints, spies, and informants.

The Tokugawa economy was grounded on the principle of pacifying the warrior population which constituted between six and seven per cent of the population. It was in the Bakufu’s best interest to maintain control over the samurai. The Bakufu’s main strategy was to make them dependent on the shogunate for their social, political, and economic well-being. The shogunate gave all daimyo a fief of an estimated rice yield, and each samurai under the daimyo received a stipend in rice. This rice was sold and became cash. Disloyal behaviour resulted in revoking the fief or stipend. This system, called the kokudaka, replaced the kandaka, or cash-based system, in order to protect farmers and samurai from fluctuations in the rice market. In this way, all samurai received an income in exchange for loyalty.

The Bakufu created a social order by categorizing Tokugawa society into four groups deriving from Confucian ideals. In descending order of perceived value, samurai, farmers, artisans, and merchants. The groups were rigidly defined. Class proscriptions forbade samurai to earn a wage or farm, and farmers were forbidden to leave the land to trade or to soldier. With this measure, the Tokugawa guaranteed the loyalty of the domains and prevented farmers from joining armies. Merchants were, in theory, seen as unproductive actors who added nothing to the economy and were hence at the bottom of the social structure.

Economic growth was not a policy goal and was even eschewed because the Bakufu feared price rises which had the potential to unbalance the Tokugawa social order. In order to finance this system, rice was extracted in kind as a tax from farmers. The Bakufu forbade farmers to grow more profitable cash crops. In theory, farmers, who were taxed to subsistence levels, would not have disposable income for market activity, thus preventing economic growth and price rises. As coinage and its exchange was under the shogunate’s monopoly, the exchange of rice to cash was to remain stable. In this way, the Tokugawa reasoned, the samurai would be satisfied and social stability would be maintained.

GROWTH AND CONSEQUENCES 1750–1800

Even with the best efforts of the shogunate, this arrangement did not remain tenable because the peace and stability established by national unification created an environment that fostered commercial activity. The resulting economic growth upset the balance of the Tokugawa policy of stability. Trade was no longer limited to local areas and coinage had replaced barter. The rise of urban centres was a major factor in the growth of commercial activity. Sankin kotai had transformed Edo into a city dominated by the daimyo and their attendants, and Osaka, which had already been a trade centre, consolidated its position as a entrepot city and a collection hub for tax rice.

The burst of commercialization and growth in the economy caused complications in the Tokugawa currency. The Bakufu had a monopoly on all metallic currency which consisted of gold, silver, copper, brass and iron. In the early seventeenth century, the official rate of exchange was one gold ryo (or koban coin) for 50 me of silver or 4,000 copper coins.³ Silver was originally the standard, but by the 1770s gold was the main standard. The different metals were used concurrently. As the coins functioned independently of each other without restrictions, their relative values to each other were in constant flux. As the Tokugawa economy’s need for currency grew, the Bakufu minted more coins. As the system was not rationalized, each issue had differing levels of purity so they too had differing relative values. However, the value of the coins was based on the assigned face value, rather than the metallic content. As consumption levels increased, the daimyos’ consumption and therefore their need for cash increased. Because the Bakufu forbid the daimyo to mint coins, the daimyo resorted to issuing paper currency backed by rice. To further complicate matters, rice remained a form of currency throughout the Tokugawa period as taxes were expressed in bales of rice (koku) rather than in cash.⁴ The shogunate and nearly all daimyo issued these notes in some 1,694 varieties.⁵ The value of domain currency was not constant and varied from place to place. Besides these official issues, commercial paper became prevalent. The increased commercial activity resulted in merchant financiers providing banking needs by issuing drafts, loans, notes, and exchanging currency.

This initial burst of growth was not sustained beyond the early 1700s, but the social effects of the sudden growth disrupted the Tokugawa’s original aims of social, financial and fiscal equilibrium.⁶ Economic growth had resulted in the ‘bottom’ class of merchants becoming more prosperous, and the division between samurai and merchants was becoming less distinct. As the Pax Tokugawa wore on, the economic activity resulted in increased levels of consumption, and samurai sank into penury: the samurai class, whose income was tied to their fixed rice stipends, were now reduced in estate. Some samurai, though forbidden by class proscriptions, resorted to commercial activity.

Merchants, on the other hand, thrived under the Tokugawa peace and gained status and wealth. The market became more diversified. In Osaka and Edo, a rice futures market developed. Also in this period, the house of Mitsui, at present one of the world’s oldest companies, developed from a small local saké and pawn-broking enterprise for pilgrims going to Ise shrine, to a dry goods retailer in the capital city of Edo. By 1691, Mitsui had branch stores in Osaka and Kyoto, and was established as the official bank of the shogunate. With this newly acquired wealth, merchant culture flowered; theatre, restaurants, literature, tea houses, and other amusements reached new levels of sophistication. Merchants, often flaunting austerity laws, began wearing fine silk stuffs, developed a quasi-samurai code of honour and formed academies to teach ‘mercantile’ ethics.⁷

Although the changes were slow and uneven, the agrarian sector also experienced economic growth under the Tokugawa period. Improvements in farming technology and the commercialization of farming improved agriculture. Partial unification under the shogunate had brought peace; farmers were no longer called up for military service and were able to make long-term plans. Seeds, irrigation, tools, fertilizers improved in this period as well. Cash crops such as cotton, tobacco, and mulberry leaves (for silkworm feed) increased. With this shift towards cash crops came such cottage industries as cotton spinning, saké brewing, weaving, and dyeing.⁸ With cash crops and regional specialization, wealth became concentrated in a few rural families and rural life became generally more commercialized than in the previous period of civil war which ended with the Tokugawa peace. The complex alliances of the large and tightly knit rural village farms were not as necessary for survival when peasants had other opportunities to make money. Village-wide farms were slowly divided into family units, thus loosening the land’s hold on the populace.⁹

The economic growth and commercialization of agriculture was perceived as a threat to the stability of the Tokugawa regime. From the Bakufu’s point of view, this shift from rice to cash crops and crafts diverted land and labour away from the rice tax base on which the samurai were entirely dependent for income. Less rice in an economy with growing consumption levels was seen as a twofold threat. Not only did the commercialization of farmers threaten the economic system of payments to the samurai, they jeopardized social stability as well. Namely, these changes in farming did not uniformly improve the life of the Edo-period farmer; cash crops and tenancy exposed peasants to price fluctuations and famine. Peasants became more vociferous and expressed their grievances in organized demonstrations, called ikki, which occasionally became violent. These disturbances, which had been rare in the previous 150 years, became widespread by the mid 1750s, and averaged six per year.¹⁰ The Bakufu perceived the existence of rich peasants as a symptom of moral decay in the Confucian order of Tokugawa society.

In this period, the merchant class was garnering more power due to the samurai’s increased dependence on them to finance their day-to-day expenses. In order to spend their stipends, samurai had to convert the rice to cash, and then spend the cash for goods and services. If the price of rice fell, their stipend would be worth less, and if the price of goods and services rose, again, the samurai would have less income. Thus, the Bakufu had to pursue the difficult economic policy of maintaining a high price for rice at the same time as keeping the price of other goods low.

Samurai had increasingly become dependent on merchants to convert their rice income into cash as well as for loans to cover the rising living costs of the urban samurai administrator. Although samurai were in theory to live a frugal life, they too surreptitiously partook of the pleasures and entertainment of the cities and often lived beyond their means. The two classes began to reach a sort of convergence: the samurai out of economic circumstance, the merchants by aping their betters. The ‘top’ was now in hock to the ‘bottom’, severely straining the social fabric.

To achieve its goals, the Bakufu attempted to retrench and discourage growth in a rapidly commercializing economy. Already there was an increased demand for currency to feed the new urban economies, and the shogunate resorted to debasing the currency, leading to inflation, which only worsened the situation. Another Bakufu method for controlling prices and consumption was the licensing of monopoly privileges within the major cities. In this complex system, wholesalers (tonya) were organized into guild-like associations called kabu nakama. The latter were given monopoly privileges as the shogunate’s official agents. Agents from one city could only accept shipments from an approved list in another city. The Bakufu supervised the entire network in order to maintain price controls, and a similar system existed at the domain level in the domain castle towns.

Another control on the economy was the Junin Ryogae, the Ten Exchange Houses that served as a quasi central bank. This group of ten Osaka banks lent money to the domains and to smaller ‘banks’, issued bills of exchange for trade between other cities, controlled credit, and the market for gold cash and silver-denominated money. As the credit of wholesale retailers was in silver, and retail sales in other forms of cash, a shift in exchange rates between the different types of currency affected price levels. Also, the metals market reflected bank credit to cash supply. Loans from the banks financed trade and industry through advances to wholesalers who in turn advanced funds for goods.¹¹

The Tokugawa system of controlling trade and prices was largely viable up until the nineteenth century, and kept inflation in check. During the Edo period, the Japanese economy experienced a four-to-five-fold increase in trade volume and the amount of the currency entering the economy doubled. As time passed, Japan moved further away from the ideals set out by the original Tokugawa shoguns.

JAPAN ON THE EVE OF PERRY

By the turn of the nineteenth century, Japan had begun the process of shifting from a largely rural, agricultural economy to a more urban, commercialized one. In 1800, Japan was a pre-industrial country with a population that had stabilized at 30 to 33 million of which 80 to 85% was rural. While the majority was classed as rural farmers, a significant minority conducted trade and developed nascent industries. Often these farmers would work away from the farm on non-agricultural labour such as construction and transport during the slack months. In this way, a segment of the population was shifting back and forth from agricultural to informal commercial work.^12,13

Urban centres in Japan had become significant and began to concentrate the population in cities and towns. The castle towns and large cities were centres of commercial activity. Nearly two million lived in the three urban sectors of Edo, Osaka, and Kyoto, one and a half million in castle towns, and a half a million in port and communication centres. Merchants, traders, and artisans composed half of the Edo population and met military and administrative needs. By the 1800s the non-samurai urban population of Edo had gained enough critical mass to sustain a demand for the merchants’ services and products.

Even the cities themselves had become specialized. As mentioned above, Edo had become the seat of administrative power and entrepot trade. Osaka, which had been a trade centre from the 1500s, had fewer samurai living within its borders. Taxes in the form of rice were sent to the city to be exchanged for cash. Agricultural and manufactured goods flowed into Osaka and were distributed to other parts of Japan, often through Edo. Kyoto, the oldest city in this triad, housed the imperial court and its attendants. Consequently, the city became known for its artisans and their luxury goods produced for the court and senior officials.¹⁴

By 1800, the system that had been established two hundred years earlier was no longer viable; the usual Bakufu methods for economic control such as austerity drives, price controls, and supervised monopolies could no longer stem the tide of commercial activity. The system of wholesalers could not control prices because of the increased overall consumption and commercial activities of rural and domain level markets. Intensifying the Bakufu’s woes was th...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• CONTENTS
• ABBREVIATIONS & CONVENTIONS
• Acknowledgements
• Introduction
• 1. TheTokugawa Legacy
• 2. Treaty Ports: Boundaries and Borders
• 3. Reaching Agreement: The Mechanics of Promise and Payment
• 4. Description of Cases
• 5. The Avenues of Legal Redress
• 6. In Pursuit of a Bargain
• 7. Promise, Agreement and Contract: Itō Hachibei vs. Walsh, Hall & Co.
• 8. Towards Implications and Theory
• Conclusion: The Republic of Commerce
• Notes
• Select Bibliography
• Index