Capitalism is everywhere triumphant. Throughout the world, with very few exceptions, the market economy is employed. This economic ideology has, over time, swept the world and is the system of almost ubiquitous choice. This, of course, was not true even ten years ago. The realization that this predominant system was not always with us, indeed is a fairly recent development, leads to some interesting questions. What were the beginnings of this colossus? When was the infancy of this giant that bestrides the earth? Where did it first awaken into the world? Is it universally the same? Did it spring full grown and armored as Athena from the head of Zeus or was it once a vulnerable babe that required nurturing to survive?
To answer these questions let us investigate three areas: Western Europe, Japan and China. The first two, while surprisingly disparate, are examples of the afore-mentioned success of the system while China represents one of the few areas that has not made a full transition to the capitalist form. China's imperial system had the paradoxical characteristic of acting as a brake on economic development while creating an enormously durable, large-scale political and social order.
Curiously, chronologically, it is China that first exhibited indications of movement toward a market driven economy, but a number of factors derailed this process. In the era of the Song Dynasty (960CE-1279CE) the Chinese economy experienced intensive economic growth as the imperial system that heretofore had acted as a constraint on the economy, pressed by threats from the Mongols to the north, transformed its policies into economic and social relationships that encouraged trade.
According to Jones, Frost and White, the most significant difference was a change in the tax system from focusing on capitation to using income as the determinant. This change involved a change from an accent on corvée labor and confiscatory levels of taxation to one that took only a portion of income, thereby creating an incentive to produce and a rise in per capita income. This use of the tax system to encourage growth was common in a number of dynasties, but was always discontinued as additional demands for revenue confronted the government. However, the Song seem to have understood the principle, that later European princes would discover, that allowing profit increased economic activity and, thus (in good supply side theory) increased tax revenues; 'the rising tide that lifts all boats'. The Song certainly had reason to institute heavy taxation due to the military pressure from Inner Asia, but even in extremis they did not resort to it.
Additionally, they lifted restrictions on merchant activities. Prior to the Song commercial activity had been consigned to certain times and relegated to specific areas of the towns or cities. These restrictions had been a result of the Confucian ideology which placed merchants in the lowest esteem and cast business as somehow contaminated and viewed one who participated in it as sullied. Although this philosophical aversion to commerce did not change, the Song, whose dynasty sprang from rural, peasant roots, were not as influenced by it as the more aristocratic and class conscious T'ang who had preceded them. The Song lifted restrictions on commerce completely, allowing businesses to operate at any time and in any place.
Other changes took place in the late T'ang that assisted the economic growth that occurred after the Song ascension to power. There had developed inland rural markets and transportation centers along with administrative centers which set the commercial geographic network and provided an infrastructure for trade. Further, there had been increasing monetization of the economy and when the Song changed the structure of land ownership from the equal field system of the T'ang to one of manorial private ownership a market developed in land and labor and most of the peasants became tenant farmers less tied to the land.
A variety of results ensued from these changes in land tenure. First, there was an increase in agricultural production as tenants and landlords attempted to maximize their income. This, of course, added to economic growth as the land was worked more intensively. Secondly, with the bond between the peasants and the land weakened many chose to migrate to the cities which produced rapid urbanization and increased specialization in crafts and manufacturing. Further, the use of money as a convertible form of labor or service in taxation increased and this assisted in the creation of additional secondary markets. The system of large landholdings also encouraged the government to levy more taxes on the countryside in cash or kind and less in corvée service.
Further, there was an encouragement of entrepreneurship by the imperium. The improvement of transportation by upgrading roads and canals expedited shipment of goods, reducing costs in both time and money. In particular, water transport, both inland and oceanic, improved with advancements in boat construction, maritime technology and navigation. This improved transportation led to increased commercial connections throughout China. Moreover, growth was also attributable to an enormous increase in foreign trade, particularly with the advent of Arab traders in late 700s CE. Trade began in bulk commodities not just in luxury items and encouraged a transition to regional specialization in market function. This set up a national market based on regional interdependency, in contrast to the rural and local areas' self-sufficiency prior to the Song. Moreover, since the trade was in bulk commodities as well as other goods it included the countryside as well as cities. To better handle this rapid increase in exchange the economy, as mentioned above, became monetarized. As Haeger puts it: ..."economic factors bec[a]me universally convertible on cash basis." Credit and transfers of funds developed and became easier. More sophisticated business forms arose; e.g., partnerships, embryonic corporations, and trading companies. There was also a technological efflorescence as water power began to be used for a number of purposes, including an accurate astronomical clock.
One of the great mysteries of the Song was that they took advantage of the economic growth that flowered at this time, but they did not squelch it. For some unknown reason the dynasty, unlike any Chinese dynasty before or since, understood that the benefit derived from the extension of private rights to the citizens and the forbearance of constant intercession in the economy outweighed the possible additional short term gain that a confiscatory policy towards commerce, as practiced by the previous dynasties, promised. In other words they did not 'kill the goose that laid the golden egg'. It may be, as Haeger suggests, that since the first Song emperor (Chao) distrusted the military that brought him to power, in contrast to the T'ang that had been based on military and aristocratic rule, he bequeathed a legacy of innovation in social rule to his successors. At any rate, commercial taxes did become an important new revenue source. There were two kinds of taxes on business, a transit tax (kuo-shui) of two percent at each tax station goods moved through and a residence tax (chu-shui) of three percent on the value of goods at each place of business. There was also a sales tax of three percent for traveling merchants and on wholesale transactions. Further, new taxes were initiated on city land and houses, where the entire burden had previously fallen on the rural areas, not, of course, to say that the rural tax burden was ameliorated.
Given the atmosphere and circumstances extant in the Song, the question of why a full market economy did not take shape immediately arises. A number of factors explaining this have been posited. First, and foremost, is the fall of the Song to the Mongols in 1297CE and the Mongols' return to the T'ang social values of aristocratic style which revived the Confucian principles of devaluation of the marketplace and merchants. Another, related theory is that there was a relapse to a conservative, confiscatory tax system in the Yuan/Ming (the Yuan is the name of the Mongol dynasty and the Ming is the ethnic Chinese dynasty which supplanted it). There is also evidence that the Ming were hostile to technology and even destroyed elements of it purposefully. There is also a proposed economic consideration which was that commercial capital, rather than being used for re-investment, was used to buy land, lend, purchase official position or for simple (or not so simple) consumption. A structural reason is also considered in that profits were not from value added but spatial price differentials. That is, the market was manipulated by the carrying trade and there was not a true increase in per capita income, but merely a zero-sum shell game in which the merchants benefited. A further element suggested is that after a period of intensive growth the demographics of China once again became the deciding factor and expansion of growth continued, but in an extensive manner through internal colonization and demographic growth instead of intensively through increased productivity. There are even suggestions by Mark Elvin, in "China as a Counterfactual", that, somehow, the Chinese are inept at technology, lack imagination, are cheap and pragmatic and retarded in draftsmanship. Whatever the reason, or combination thereof, the Chinese market economy of the Song period never attained what we would regard as the sustained growth which we identify with capitalism and with the change in dynasties in the late Thirteenth Century it fell back into its previous traditional patterns.(3)
Not long after China's abortive experiment with capitalism Europe made the first successful transition to a market economy. Although they shared many of the same conditions, elements and factors, there are several significant differences which Europe displays in contrast to the Chinese situation. The European income distribution curve was flatter than in China. That is, the distribution of income over the whole population was not as skewed toward the elite in Europe as in China; the difference between the richest and the poorest in society was less in Europe. Further, there was a proclivity toward a more extensive rather than intensive farming regimen, including the use of large draft animals not only for labor, but also for soil husbandry. Moreover, war was not as disruptive in Europe because the material wealth of the Europeans was atomistic and could recover more quickly and in a piecemeal fashion, whereas, in China damage to the hydrologic system or other capital intensive works such as the Great Wall, was easy to effect and expensive to fix and therefore, capital was preserved better in Europe. In addition, Europe had different defensive imperatives. Where China had to guard a long border with Inner Asia against nomadic encroachments, Western Europe had no barbarian invasions after the time of the fall of the Western Roman Empire. And, as we have seen, the efflorescence of Song China was crushed under the hooves of Mongol horses.
As we know, Jones, among others, traced the roots of European capitalism back through many ages and attributed to socio-cultural and environmental factors, unique to the northwestern quarter of Eurasia, much of the ability to accomplish the change to a market economy. Whether his analysis benefits from the security of hindsight we can only conjecture. Yet we must account for this inaugural achievement in some way. The period from the early Fourteenth to the Eighteenth Century saw the rise of the capitalist order which eventually evolved into the world system we know today. Ironically, just as the Chinese experience was succumbing to invasion and reversion to traditional practice, the process in Europe was commencing.
One of the basic premises for the emergence of a capitalist economy has been the existence of feudalism in the region that has made this change. Indeed, feudalism was extant in Western Europe in the millennia from the fall of the Western Roman Empire until the Fourteenth Century advent of the Renaissance. Part of the definition of feudalism is based on the devolution of power from a previously centralized authority. In Europe this central authority had been the Roman Empire and its political disintegration was almost absolute, including even areas outside of the empire, with central power dispersing all the way down to the local level.
The feudal relation is based on a promise of military service in exchange for a grant of land. There is a belief that feudal ties formed the basis for the change from kinship, which had reasserted itself over Roman law through the Germanic invasions, to civil law. For example, H. Maine, in his 1875 London "Lecture on the Early History of Institutions," called this lord/vassal relation a bond "based on a political decision to serve a lord" and an intermediate step from kin to contract, with all the implications that that shift has for commercial activity. Another aspect of feudalism's factors in the rise of market capitalism is that it was in England that feudalism's complete adoption gave us the implicit separation between economic and political power. This variant was based on land and tenure, but government and law were centralized. Macfarlane argues that in no other European country did this separation between economic and political power occur, and that it is no coincidence that England was the initial country to exhibit the signs of a national market economy, but that it was inherent in the structure of feudalism taken to its ultimate resolution, as happened there.
The devolution of power had other implications besides the obvious one of comparison to the Chinese centralized imperium's ability to quash mercantile operations. It led to the rise of semi-autonomous towns as feudal lords granted greater freedom to towns in order to take advantage of the increase in tax revenues that these entities represented. As the market towns grew, some of the people engaged in merchant activities began to emerge and expand the scope of their operations. The development of the class of merchants and laborers in these urban environments also created their own impetus toward urbanization. The entrepreneurs began to trade with other towns and, as time passed, these traders roamed farther and farther afield. This developed trade links over a large region and also eventually connected disparate geographic locales, leading to a rise in commercial ties and extensive markets. One result of this was to help create a bourgeoisie out of the entrepreneurs and merchants. The rise of city-states based on commercial concerns is seen in the rise of the Italian city-republics, the mercantile cities of the Hanseatic League and the centers of business in the Netherlands. For instance, the merchants of the Northern Italian city-states, particularly Florence, took the lead in establishing the business forms that facilitated the movement of money within the system; such as, double entry bookkeeping, bills of exchange, forms of credit and business methods.
Further, once the political and social power was concentrated in the hands of merchants in the towns, the leaders of these towns and cities promulgated laws and regulations that were naturally skewed to the facilitation of commerce and industry; that is, market forces were now the determining factor in the economy rather than political fiat. The situation which was developing was unique in that the laissez faire attitude of the political authorities had not happened often previously. The ability to consider the market with only minimal interference from the political sphere gave the merchants of the West a freedom to explore and innovate that was a positive factor in the mix that benefited the region. As Michael Mann contends, for the market economy to develop an extensive social network without bureaucratic interference is required, but there is also a need for a state to stabilize and organize infrastructure. For example, Jones asserts that government is needed as a provider of disaster management.
In another vein, the rise of merchants and towns' power was facilitated by the political game of pitting one 'prince' against another. The multi-state nature of Europe apparent by 1100 and the arms race competition led to increasing commercial activity and capital formation as merchants and manufacturers vied to supply war materiel to the various kingdoms, principalities, duchies, earldoms, etc. This interstate competition and the failure to establish a universal imperium was another positive factor in the rise of capitalism. The rise of the nation-state in the West, while its constant competition and concomitant war mitigated against commerce, was actually a supportive development, inasmuch as it kept politics involved in international affairs and supported the encouragement of mercantile activity as a source of state revenue. Further, European pluralism, the interplay and counterbalances of the church, state and 'lower' orders also ensured the state was not overly coercive.
Eventually, as consolidation of the diverse political entities took place a level of comparability developed among the large states inside the larger Christian culture that encouraged capitalism. That is, the general balance of power led to the dissemination of technology and ideas and also provided escape routes for people and capital should the burdens of one polity become too onerous. In this a property of Christianity also assisted in the development of autonomy in the city-states and mercantile efforts; the opposition to tyranny because of the concept of god's higher law forbidding it. In China there was no similar viewpoint around which the resistance to imperial rule could coalesce.
Although there was political devolution within Western Europe, the Catholic Church provided a number of strands of interconnection throughout the feudal era. Latin was the lingua franca of the area and intercommunication continued over Roman roads and the rivers and sea lanes and was facilitated by the Church and its network of religious organizations, monasteries, nunneries, etc. Additionally, Christian ideology allowed for the exploration and exploitation of nature and implicitly abetted scientific, technological and geographic investigation and was not averse to improving the lot of humans on Earth, thereby tacitly encouraging capital accumulation.
On the other hand, there were significant conditions that mitigated against mercantile concerns within Christianity just as in Confucianism. Usury (interest on loans) was forbidden. As in China, merchants were considered to be unproductive parasites and less than honorable (business was identified with Jews, who were considered to be cursed through their collective guilt associated with the crucifixion of Christ). This attitude was slowly overcome and mutated, particularly during the Reformation, to the ideology of the Protestant work ethic where success is taken as a sign of God's favor. Weber attributes a large significance to the boost capitalism received through this change in intellectual interpretation that was generated by the Reformation.
In addition to the foregoing considerations, there were also changes in the agricultural system that contributed to the movement to a market economy. In the realm of horticulture, the change to a three year crop rotation schedule enhanced productivity and allowed for the marketing of agricultural surplus. Regional specialization in cash crops occurred in areas, such as wool from England and wheat from the central European plains. Moreover, changes in technology, such as the deep plough and improved harnessing of draught animals improved efficiency in farming. This, in turn, enabled fewer people to produce at a higher level, freeing labor to migrate to the burgeoning towns and cities. With the excess produce going to market a demand for liquid instruments of commerce developed and this helped provide the impetus for monetization of the economy. Also, the changes in land tenure from the feudal manorial system to private property produced a push toward peasant alienation from the land, urbanization and tenant farming. The greatest example of this trend is the Enclosure movement in England which removed the peasantry from the land, commercialized agriculture and increased urbanization.
Other factors also came into play in the transition to a market economy. The plague decimated the population and caused a labor shortage which increased per capita income and aided in generating demand for items beyond subsistence requirements. The Crusades and Islamic incursions in the Southern Europe brought the knowledge and desire for Eastern products which stirred participation in the world economy. The encounter with and integration of the Americas into the European sphere of influence provided high capital accumulation for the European expansion which eventually became world hegemony.(4)
These circumstances all combined to make the change from a traditional economic system to one based on a market driven economy a reality in Europe. It also led Europe on a competitive outward trajectory that saw the impact of this transformation effect not only Europe, but the rest of the world.
As Europe came to global dominance in the beginning of the Nineteenth Century China once again exhibited signs of making the change to capitalism. However, this time, in the era of the Qing Dynasty, there were significant differences with both the Song experiment and the European model. In this case it was China's relationship with the West which set up mercantile capitalism in what could be called a commercial revolution. The genesis of this change occurred with activities on China's South East coast and the encroachment of foreign control. It was an outside imposition of capitalism to integrate the 'China market' with the sophisticated mechanisms of private property, freedom of enterprise, including profits and competition, and choice by consumers of the developing world economy. This involved mercantile capitalism in trade and commerce as opposed to industrial capitalism. It was also tantamount to economic imperialism. The process began with the forced opening of free trade by the British on the coast and developed into what Hao calls Sino-Western commercial capitalism. There was an expansion of the money supply and of credit and new types of agricultural commercialization, including specialization in such items as silk on a regional basis. It made the commercial sector most important in Nineteenth Century China.
Hao delineates several characteristics of this era. First, it was based on system imposed by West. Further, The Chinese coastal merchants were not as subservient to Beijing as they had been for a number of centuries, so the initiative of private Chinese was important. He notes the commercial transition was large in scope and headlong in pace; that is, there was a high volume of trade and it was established quickly. Unlike the Song era there was significant reinvestment. On the other hand, as in the Song era, new commercial practices were tried; for example, there were explorations in the realm of joint ventures, stock and futures markets, and trade on credit (which became quite important) et alia. Moreover, the whole system was highly competitive internally and externally; e.g., the trade in silk between regions and internationally was a highly volatile arena included at this time. Unfortunately, the entire structure was inherently unstable and collapsed in 1883. What followed was a period of chaos and then experimentation with socialism which has influenced China until the present.
Some of the reasons for the collapse are now evident. Whereas the West's commercial capitalism was spontaneous and long term, Qing China's was imposed and occurred faster, some would say too fast. There was no real, integrated 'national' economy in the China of the time. In the West commercial capitalism served as a launch pad for industrial development while in China it served as an extractive intrusion. However, there were positive aspects which survived the downfall of the system. Important technology transfer in both commercial and industrial sectors took place. Also, the indigenous economic system was shown to be flexible enough to support the imposition of Western capitalism for some decades and although China has been through significant disruption since then, perhaps the 'third time is the charm'.(5)
Following closely after the start of China's second futile experience with capitalism came Japan. Japan's was the first and, until recently, only successful change to a market system outside of the West. However, there are a plethora of distinctions between the European paradigm, which we have investigated above, and the Japanese model.
The Japanese began with an very different world view. The European ideology of the middle class accompanied the change to capitalism. This was a philosophy of economic individualism with emphasis on material progress that celebrated the virtues of labor and self-help and accented competitive struggle. The Japanese, on the other hand, kept traditional values that included non-acceptance of merchants into political power or the intellectual elite with the dichotomy of the use of capitalist methodology in the economic arena. This view holds to the 'common good' ideal of traditional Japan. We can see this today in the attitude of their businessmen in identifying with the samurai as sacrificing for the nation. The ideology of the business elite differs from US and English businesspersons who believe in competition within the country. Japan is built more on internal cooperation. This follows the societal imperative that individual gain should be subordinated to society. Additionally, the chosin (merchants) were thought of as inferior to all classes in a tradition based on Confucian hierarchy but with the mobility of merit of the Chinese Confucian model removed.
Most historians' theories about capitalism presume feudalism as a prerequisite for the development of a market economy as it sets the foundations of a class structure. In this respect the Japanese case does not vary from the model. There was a land-based economy in 'feudal' Japan. Also, there had been a previous centralized state that provided a legal structure, as the Roman civilization had, before it disintegrated, although Rome's influence also enlarged to encompass additional areas, whereas Japan's remained isolated. However, there are a number of unique aspects which the evolution of their feudal society formed during the Tokugawa Shogunate.
The premise of feudalism is that in return for military service a vassal is granted land (a fief or feud). In Japan the warrior elite, the samurai, substituted for what in Europe was a civilian nobility and they received an income of rice in lieu of land. Moreover, the size of this parasitic class was much larger than that of the feudal nobility of Europe. This alienation of the upper feudal class from the land and the reliance on rice revenue income rather than rents had extensive ramifications for the emergence of the market economy in Japan. The samurai rice stipend was measured in koku, about 5 kilos and was annualized. Further, the samurai were constrained, by law, from living on the land and relegated to the towns or cities of their lords. Because of this the samurais were separated from source of wealth and vulnerable to those upon whom they depended to exchange this payment into necessities and luxuries. Consequently, the agricultural economy based on rice production and production's transfer to this warrior elite caused a large segment of the crop to become commercialized; that is, power came to be based on revenue in rice. This created a national market in some commodities, particularly rice, and this market was centered on Osaka and Edo (now Tokyo).
In contrast to Europe, a relatively strong central government based in Edo survived. Japan remained a single cultural polity for the times of the feudal period. But, this polity was not strong enough to completely stifle commerce, in fact the Tokugawa Shogunate relied on it to support the san-kin ko-tai. This was a sophisticated hostage arrangement whereby the lords or daimyo of large provinces (han) had to spend every other year in residence at Edo and were forced to leave their wives and children there on a permanent basis. This policy was an impetus for the start of the national economy centered on Edo and Osaka in order to service the requirements it entailed. Moreover, it tended to create an urban centered economy.
Due to the above-mentioned Confucian disparagement of commercial activity and those who participated in it (merchants, chosin, were considered the lowest of society except foreigners, slaves and the like, and were subordinated to all higher classes based on the Confucian hierarchy, but even the limited upward mobility of the China model did not extend to Japan and the classes were frozen by law by the Tokugawa), Osaka, rather than Edo, became the center of commerce and finance. The commercial exchange of koku for other items and sale of monopoly products concentrated in Osaka and Edo and commercial houses were set up to facilitate exchanges and eventually became an integral part of the Shogunate. One effect that the san-kin ko-tai and sakoku, the policy the closure of Japan to the rest of the world, was to tie the Osaka merchants, who formed the center of a new middle class, to the political and economic order in a way that French and English merchants never were and resulted in an interdependency and subordination that precluded a bourgeois revolt. However, this knife cut both ways and the aristocracy, encouraged to extravagance by the structure of the san-kin ko-tai, made the bourgeoisie the creditors of the nation. This left the merchants vulnerable to government action, but, conversely, the government was dependent on the merchants for economic stability. So, since merchants were seen as unproductive and profit as unclean but essential, a love-hate relationship was formed. And, particularly toward the end of the Tokugawa era with the samurai debt crisis due to stagflation, this system suppressed the bourgeoisie politically but helped them and, incidentally, the country economically.
Other elements of a national economy arose. Regional specialties began to develop, starting in the Eighteenth Century. Some villages were more oriented to production for market; for example, areas that produced silk. Rural entrepreneurs emerged in the late Eighteenth and early Nineteenth Centuries to set up saké, soy and textile manufactories. The textile manufacturing facilities were water-powered and factory-based, although in the Japanese case the factories were primarily located in rural villages to take advantage of labor as extra employment for farmers, rather than in the newly urbanized areas as in Europe. A village social change ensued that created the nucleus of a proletarianized manufacturing force based in the countryside and added to the bourgeoisie of the Osaka merchants in the form of the manufacturers.
The manufacturing activities induced the daimyo to place monopolies on certain goods produced in a han as featured items. These monopolies were an attempt to compete with and in the burgeoning markets of Edo and Osaka. The ability of the daimyos to impose these sorts of controls on trade reveals the weakness of the central government. The hans were more like principalities and had considerable autonomy even though the central government never completely disappeared, as in Medieval Western Europe.
This leads to an examination of the han and the part that it played in Japan's change to a market economy. Although the Shogunate had feudal ties among top officials, local administration was increasingly bureaucratic. Particularly interesting is the evolving relationship between the daimyo and the samurai. Since they were banished from the land and the two hundred year peace of the Tokugawa period had removed the warrior function of the samurai, the daimyos began to use them in the local bureaucracy. Hall posits that feudal oaths are 'bonds of agreement in arms' which can be viewed as a precursor to contracts and thus as the foundation for contract law. The relationship between lord and vassal is not one between civil officials, but as time passed the feudal relation shrank to that between the daimyos and the shogun and the corollary one between the daimyos and the samurai became an administrative one. In this case the samurais became, in effect, a bureaucratic elite and the Tokugawa and han governments the nucleus of the coming bureaucracy. In another development, the autonomy of the han governments was so great that they began to issue notes on their treasuries, initiating the monetization of the economy. Quickly the use of cash increased and became common. The formation of monopolies and the issuance of money set the precedents for intervention in economic matters by the government, which we will see has later repercussions. And, the consequent acquisition of economic knowledge by some samurai in the han bureaucracy created a base of economically knowledgeable individuals in positions within in the government in spite of cultural biases.
Other characteristics of market economies began to be noted. Wholesaling and credit transfers and other business practices entered their formative stages. A high degree of national economic integration because of the policies of sakoku and san-kin ko-tai was apparent in the country well before Western intrusion. There was improved transportation infrastructure with good roads and significant coastal transport. And, although there was a population increase of two hundred percent between 1600-1850 and the agricultural base of the economy had a Malthusian control of population, in the last century of Tokugawa rule production outstripped population.
However, there were some difficulties. The market was segmented because of the political fragmentation of the country. Also, due to the rigid hierarchical social structure, upward social mobility was limited. Additionally, because of the sakoku, manufacturing was backward with only water powered machinery.
Then, in 1853, Commodore Perry arrived. The Western intrusion set into motion a number of significant changes for the Japanese and their economy. First, of course, was the Meiji Restoration as a political response. This is crucial because the adaptation of the operative Japanese economic forms flowed from this revolution which ended the Tokugawa Shogunate and established a constitutional monarchy based on the German Imperial government's paradigm. This was not a middle class revolution, but a change in the group of the elite that was in power. The Genro, as the victorious oligarchs came to be called, turned to capitalism with what Marshall calls "reactive nationalism." Their knowledge of economics came from their experience as samurai in the Satsuma and Choshu hans and they applied this understanding to defend against the unequal treaties, outflow of specie, influx of cheap, superior goods and to stimulate industrialization. They tried to expand the economy in resistance to Western encroachment, but with state direction. Basically, a top down stimulation of a commercial revolution. They became an authoritarian government that supported industrialization. They were aided in this by the homogenous character of the nation, the incipient market system which had developed during the Shogunate, a largely literate population and nationalism. In their opinion this was a national crisis, and being cognizant of China's fate their assessment is probably not far off, in which the private sector was too weak to withstand the foreign onslaught and thus required the engagement of the government in the economy. The state planning of economy was a key to Japanese industry and capitalism. It promoted exports and import substitution. It built key industrial facilities and then loaned the money to privatize them to businessmen (Mitsui, Mitsubishi, and Sumitomo were all Osaka merchant houses at one time). The Genro used state taxation for credit creation, favored business in taxation and encouraged heavy industry. Additionally, the government gave priority to the development of the transportation and communication infrastructure.
In the countryside the Restoration reinforced the agricultural status quo of control by the elite. The 1873 change to land tax rather than production tax allowed capitalist accumulation of land ownership without an 'enclosure' movement similar to the English. In essence, the private ownership of land was just a change in semantics from feudal relations. In contrast to the French Revolution in which feudal rights were outlawed, in Japan they were transformed to civil rights for the elite. The landlords used their position to dispossess tenants by using high rents or instituted what became debt peonage. However, there was no English-style move to cities because industry had been established and continued to grow in rural areas. Once the initial phases had been completed subsequent industrialization came mainly from private sources, but the government was usually there with support, if necessary (loans, etc.). Although he had not propounded his theories at this point, the Japanese seem to have "primed the pump" in true Keynesian fashion. By 1900 manufactured goods accounted for forty percent of all Japanese exports, a phenomenal change from what had been a rural, agricultural, feudal society less than fifty years previously.(6)
We can see there are many fundamental similarities which have been attributed to the stimulation of a market economy. While China, Europe and Japan all had forces impelling them toward national markets, these factors arose at different times in different areas in response to different stimuli and led to different results.
In all four instances there was a relaxation in the discrimination against merchants coupled with government encouragement of the business sector. Three, with the exception of Qing China, experienced significant changes in their systems of land tenure which consolidated land, alienated the peasants from the fields, commercialized farming and gave impetus to the monetization of the economy. In all four technological innovation played a part in the advance of agriculture and industrialization, creating a surplus food supply, shaping proletarians of displaced farmers, adding to the bourgeoisie and increasing urbanization. Moreover, there was a change in the pattern of trade from luxury items to bulk commodities. Critical to the change in all the cases were improvements in transportation and communication which provided the ability to specialize regionally and to integrate into the larger economy. This intercommunication and specialization also led to interdependency on the local, as labor specialized, regional, as production of a particular product predominated, and international levels. There was also similarity in the value systems of all four. In Confucian ideology in China and Japan and in Christian theology in Europe there were overarching attitudes of suspicion toward the unsavory character of commercial activities, but all of the areas where able to reconstruct and reinterpret these philosophies to provide for the acceptance of those activities as legitimate. Therefore, a great deal of similarity is embedded among these examples. But not all of them made the change. So, the critical information must lie in the differences that we can delineate.
First, Song China suffered conquest. And while that might not have been enough to destroy its surge toward capitalism, the re-imposition of traditional restrictions on the merchant class and society, particularly the return to predatory tax practices would have a chilling economic effect. Moreover, China, in both Song and Qing periods, was not a feudal society, traditional, yes; feudal, no. Therefore, its civil law did not experience the dissolution that the fragmentation of the Roman Empire caused in Europe nor the devolution of the Tokugawa Shogunate and, thus could not have seen the transition from feudal law and practice back to civil law which formed the basis of contract law for the West and Japan. China also experienced imperial government which for the most part was able to impose its will over the entire geographic range, thus precluding the mobility inherent in the European nation-state system for both people and capital. The imperial government stifled the rise of a large middle class whose advance was so instrumental in Europe's transformation. Furthermore, the centralized government of Imperial China did not allow the separation between the political and economic spheres to develop which assisted the European progression.
In Qing China and Japan we have the example of two areas which both are attempting to deal with the intrusion of foreign influences. This accounts for the differences in the successful change to capitalism in Japan when compared to the Western model. Although Japan exhibited many of the traits of China which inhibited the Qing from success, it brought a record of imitation, a homogenous culture, and a fierce nationalism to the process that the Chinese lacked and it had the portrait of what the failure to adapt would mean to the country in the example of the Qing.
Therefore, the processes and foundations of the change to a market economy began in various places at different times, but in its impact on world history its beginnings in Europe in the Fourteenth Century seem to be the salient ones. Through the Japanese example it is obvious that capitalism is not and did not develop everywhere the same. Nor was it a strong, vibrant system from its inception. The abortive transformations in Song and Qing China show the vulnerability of the market economy in its formative years. And yet, currently, the world has shown a predilection for the capitalist system and has adopted it for the global economy, maybe not consciously (or maybe so), but for better or worse.
(2)The influence, although not specifically referred to, of John K. Fairbank's China: A New History, Cambridge, MA: Belknap Press, 1992; Mark Elvin's, The Pattern of the Chinese Past, Stanford, CA: Stanford University Press, 1973; William G. Skinner's, The City in Late Imperial China, Stanford, CA: Stanford University Press, 1977; William G. Skinner & Mark Elvin's, The Chinese City: Between Two Worlds, Stanford, CA: Stanford University Press, 1974; and the lecture courses of Drs. John Killigrew, in particular, and Arden Bucholz of SUNY College at Brockport, are reflected in the Chinese and Japanese sections.
(3)Haeger, John Winthrop. Introduction. Crisis and Prosperity in Sung China. Ed. John Winthrop Haeger. Tucson, AZ: U. of Arizona Press, 1975; pp. 1, 3, 5-7.
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(4)Hall, John A. "States and Societies: The Miracle in Comparative Perspective." Eds. Jean Baechler, John A. Hall & Michael Mann. Europe and the Rise of Capitalism. NY: Oxford University Press, 1988; pp. 20, 23-24, 32-37.
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(6)Baechler, Jean. "The Origins of Modernity: Caste and Feudality (Europe, India and Japan." Europe and the Rise of Capitalism. Eds. Jean Baechler; John A. Hall; Michael Mann. NY: Oxford University Press, 1988; pg. 42.
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