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Industrial Finance Before the Financial Revolution: Japan at the Turn of the Last Century

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Author Info
Yoshiro Miwa (Faculty of Economics, University of Tokyo)
J. Mark Ramseyer (Harvard Law School)

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Abstract

In a series of pathbreaking articles, Sylla argues that successful economies experience "financial revolutions" before they undergo their periods of rapid growth. In turn, governments generate these revolutions by putting public finance in order, and thereby giving private investors the incentive to create banks and securities markets. In the U.S., suggests Sylla, Hamilton masterminded the revolution. Might Matsukata, he continues, have done the same in Japan? Consistent with much of Sylla's work, Japan did indeed experience a financial revolution in the late 19th century. Matsukata, however, did not mastermind the revolution in advance of private-sector demand. Instead, private investors created the financial infrastructure in response to demand from industrial firms. What is more, most firms (at least in the pivotal silk industry) raised the funds they needed through trade credit rather than securities markets or banks. In this environment, the financial revolution contributed to economic growth in three ways: (a) the new securities markets funded the very largest firms, particularly the railroad firms; (b) the new banks sold the transactional services that merchants used to provide their trade credit, and (c) the banks supplied some of the funds that the merchants as intermediaries then re-lent to the manufacturing firms.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-311.

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Length: 40 pages
Date of creation: Dec 2004
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Handle: RePEc:tky:fseres:2004cf311

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  1. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Miwa, Yoshiro & Ramseyer, J Mark, 2002. "The Value of Prominent Directors: Corporate Governance and Bank Access in Transitional Japan," Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages 273-301, June.
  3. Miwa, Yoshiro & Ramseyer, J Mark, 2000. "Corporate Governance in Transitional Economies: Lessons from the Prewar Japanese Cotton Textile Industry," Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 171-203, January.
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  4. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(3), pages 661-91.
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  5. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, 02. [Downloadable!] (restricted)
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  7. Miwa, Yoshiro & Ramseyer, J Mark, 2002. "Banks and Economic Growth: Implications from Japanese History," Journal of Law & Economics, University of Chicago Press, vol. 45(1), pages 127-64, April.
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