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"The Role of Merchant Coalition in Pre-modern Japanese Economic Development: Historical Institutional Analysis"(in Japanese)

Listed author(s):
  • Tetsuji Okazaki

    (Faculty of Economics, University of Tokyo)

This paper analyzes the role of merchant coalition (kabu-nakama)in 18th and early 19th Century Japan, from a standpoint of the historical institutional analysis (Greif [1997]). The quantitative economic history literature has made clear that sustainable economic growth based on a market economy started at the end of 18th century in Japan. On the other hand, the central government (Bakufu), from time to time, legislated ordinances which prescribed that suits on pecuniary matters would not be accepted (aitai sumeshi rei). In other words, the public system for third-party contract enforcement did not work well. Activities of merchant coalition substituted for the public third-party enforcement in pre-modern Japan. Many of the merchant coalitions' codes prescribed that all of each coalition's members should suspend transaction with those who cheated any on of the members of the coalition. This was the multiple punishment strategy (MPS), formulated by Greif [1993]. The MPS of the merchant coalition reduced incentive for the players in the market to cheat, which in turn, promoted development of a market economy. It is remarkable that the Japanese merchant coalition applied the MPS not only to ordinary commodity trade, but also to putting out system and employment. We empirically tested the above hypothesis on the function of coalition. In 1841, Bakufu prohibited the coalition intending to eliminate monopoly. This event can be regarded as a natural experiment, appropriate to investigate the role of the coalition. The above hypothesis implies that prohibition of the coalition lowered the performance of the market economy. This implication was checked with the date of money supply and commodity prices. We found that, as predicted by the hypothesis, growth rate of the real money supply went down, and that the efficiency of price arbitrage declined.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE J-Series with number CIRJE-J-20.

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Length: 30 pages
Date of creation: Nov 1999
Handle: RePEc:tky:jseres:99cj20
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