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The Role of the Merchant Coalition in Pre-modern Japanese Economic Development: An Historical Institutional Analysis

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  • Tetsuji Okazaki

    (Faculty of Economics, The University of Tokyo)

Abstract

This paper examines the role of the merchant coalition (kabu nakama) in the eighteenth and the first half of the nineteenth century in Japan, from the standpoint of Historical Institutional Analysis (Greif[1997, 1998]). Quantitative economic history literature has made clear that market-based economic growth started around the end of the eighteenth century in Japan. On the other hand, the Bakufu, the central government, repeatedly promulgated Aitai Sumeshi Rei (Mutual Settlement Decree), prescribing that the public authorities would not accept suits on pecuniary affairs. This implies that the public system for third-party enforcement was not working well. Activities of the merchant coalition substituted for the public third-party enforcement. Many of the merchant coalitions' codes wrote that all of each coalition's members should suspend transaction with those who cheated any one of the members of the coalition. This was the multilateral punishment strategy (MPS), formulated by Greif[1993]. It is hypothesized that kabu nakama played the role of contract enforcement using the MPS, which reduced incentives for the transaction counterparts to cheat, and thereby promoted a market economy. Also, this paper empirically examines this hypothesis, using an opportunity of a natural experiment. In 1841, the Bakufu prohibited the coalition, intending to eliminate monopoly. The above hypothesis implies that prohibition of the coalition lowered the performance of the market economy. As predicted, we found that the growth rate of the real money supply contracted, that the efficiency of price arbitrage declined, and that inflation rate went up.

Suggested Citation

  • Tetsuji Okazaki, 2004. "The Role of the Merchant Coalition in Pre-modern Japanese Economic Development: An Historical Institutional Analysis," CIRJE F-Series CIRJE-F-268, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2004cf268
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    Cited by:

    1. Sahle, Esther, 2014. "Quakers, coercion and pre-modern growth: why friends’ formal institutions for contract enforcement did not matter for early Atlantic trade expansion," Economic History Working Papers 60452, London School of Economics and Political Science, Department of Economic History.
    2. Tomihiro Machikita & Tetsuji Okazaki, 2019. "Transition to a Modern Regime and Change in PlantLifecycles: A Natural Experiment from Meiji Japan," CIRJE F-Series CIRJE-F-1122, CIRJE, Faculty of Economics, University of Tokyo.
    3. Aidin Hajikhameneh & Jared Rubin, 2019. "Exchange in the Absence of Legal Enforcement: Reputation and Multilateral Punishment under Uncertainty," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 192-237.
    4. Masaki Nakabayashi & Tetsuji Okazaki, 2007. "The Role of the Courts in Economic Development: The Case of Prewar Japan," CIRJE F-Series CIRJE-F-517, CIRJE, Faculty of Economics, University of Tokyo.
    5. Yamamura, Eiji, 2008. "The role of social capital in homogeneous society: Review of recent researches in Japan," MPRA Paper 11385, University Library of Munich, Germany.
    6. Ferrali, Romain, 2012. "The Maghribi industrialists: contract enforcement in the Moroccan industry, 1956-82," Economic History Working Papers 45680, London School of Economics and Political Science, Department of Economic History.
    7. Tomohiro Machikita & Tetsuji Okazaki, 2019. "Transition to a Modern Regime and Change in Plant Lifecycles: A Natural Experiment from Meiji Japan," CIGS Working Paper Series 19-006E, The Canon Institute for Global Studies.
    8. Hajikhameneh, Aidin, 2024. "Reputation or court: Individualism, collectivism, and the choice of enforcement mechanism in exchange," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 184-206.
    9. Bassino, Jean-Pascal & van der Eng, Pierre, 2019. "Japan and the Asian Divergence: Market Integration, Climate Anomalies and Famines during the 18th and 19th Centuries," CEI Working Paper Series 2018-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    10. Yamamura Eiji, 2008. "The Market for Lawyers and Social Capital: Are Informal Rules a Substitute for Formal Ones?," Review of Law & Economics, De Gruyter, vol. 4(1), pages 499-517, December.

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