Hostname: page-component-78c5997874-dh8gc Total loading time: 0 Render date: 2024-11-08T01:20:38.289Z Has data issue: false hasContentIssue false
  • English
  • Français

Financial transition in pre-World War II Japan and Southeast Asia

Published online by Cambridge University Press:  05 November 2007

Gregg Huff
Gregg Huff
Affiliation:
Department of Economics, University of Glasgow, Glasgow G12 8RT, Scotland, [email protected]
Get access Rights & Permissions [Opens in a new window]

Extract

Self-sustaining, technologically based growth has always been accompanied by a process of financial transition which, as defined by Raymond Goldsmith, entails an increase in the financial superstructure to a status in the economy comparable to that in the leading countries of North America and Western Europe. The pattern of development along this transitional path may, of course, differ, as for example in the relative contribution of bank- or market-based financial systems. But all countries, Goldsmith observed, trace a similar transitional path in the increase in their superstructure of financial instruments and institutions relative to an infrastructure of output and wealth. Because of the close relationship between financial transition and modern economic growth as defined by Simon Kuznets, differences in speed at which countries traverse Goldsmith's transitional path are critical.

Type
Research Article
Information
Financial History Review , Volume 14 , Issue 2 , October 2007 , pp. 149 - 175
Copyright
Copyright © European Association for Banking and Financial History 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 An earlier version of this article was presented at the 2003 Economic History Association Meeting in Nashville. Thanks go to conference participants for many helpful comments and suggestions and to Andrew Bain, Michael Edelstein, Tim Guinnane, Janet Hunter, Joel Mokyr, Larry Neal and Dick Sylla. Thanks also to the editor and two anonymous referees for a number of useful ideas and clarifications which considerably improved the article. Support for research and data collection provided by the Nuffield Foundation, the Carnegie Trust, Scotland, and the British Academy is gratefully acknowledged.

2 Goldsmith, R. W., The Financial Development of India, Japan, and the United States (New Haven, 1983), pp. 1–2, 69Google Scholar and The Financial Development of Japan, 1868–1977 (New Haven, 1983), pp. 68–70. Others have termed ‘path’ what I refer to here as ‘pattern’. For example, see Gurley, J. G., ‘Financial structures in developing countries’, in Kirvine, D. (ed.), Fiscal and Monetary Problems in Developing States (New York, 1967), pp. 108–16Google Scholar. On modern economic growth, see S. Kuznets, ‘Modern economic growth: findings and reflections’, American Economic Review, 63 (1973).

3 Goldsmith, Financial development of India, Japan, and the United States, p. 4.

4 Ibid., p. 4.

5 R. G. King and R. Levine, ‘Finance and growth: Schumpeter might be right’, Quarterly Journal of Economics, 108 (1993); R. Levine, ‘Financial development and economic growth’, Journal of Economic Literature, 35 (1997); Rousseau, P. L. and Sylla, R., ‘Financial systems, economic growth, and globalization’, in Bordo, M. D., Taylor, A. M. and Williamson, J. G. (eds.), Globalization in Historical Perspective (Chicago, 2003)Google Scholar and ‘Emerging financial markets and early US growth’, Explorations in Economic History, 42 (2005).

6 R. G. Rajan and L. Zingales, ‘The great reversals: the politics of financial development in the 20th century’, Journal of Financial Economics, 69 (2003).

7 Goldsmith, Financial Development of India, Japan, and the United States, p. 1.

8 This argument for comparing Southeast Asia with Japan draws on Geertz, C., Agricultural Involution: the Process of Ecological Change in Indonesia (Berkeley, 1963), pp. 124–54Google Scholar.

9 R. Sylla, ‘Financial systems and economic modernization’, Journal of Economic History, 62 (2002).

10 Iriye, A., ‘Japan's drive to great power status’, in Jansen, M. P. (ed.), The Cambridge History of Japan, vol. 5: The Nineteenth Century (Cambridge, 1989), p. 749Google Scholar.

11 Beasley, W. G., ‘The foreign threat and the opening of the ports’, in Jansen, M. P. (ed.), The Cambridge History of Japan, vol. 5: The Nineteenth Century (Cambridge, 1989), pp. 306–7Google Scholar.

12 On traditional Japanese finance, see E. S. Crawcour and K. Yamamura, ‘The Tokugawa monetary system’, Economic Development and Cultural Change, 18.1 (1970); Crawcour, E. S., ‘Industrialization and technological change’, in Yamamura, K. (ed.), The Economic Emergence of Modern Japan (Cambridge, 1997), p. 58Google Scholar; R. P. Toby, ‘Both a borrower and a lender be: from village moneylender to rural banker in the Tempo era’, Monumenta Nipponica, 46 (1991); Y. Yasuba, ‘The Tokugawa legacy: a survey’, Economic Studies Quarterly, 38 (1987). On Japanese social capability, see Ohkawa, K. and Rosovsky, H., Japanese Economic Growth (Stanford, 1973), p. 7Google Scholar.

13 Jansen, M. P., ‘Tokugawa and modern Japan’, Japan Quarterly, 12 (1965), p. 36Google Scholar; see also Iriye, ‘Japan's drive’, pp. 728–9.

14 Garon, S., ‘Rethinking modernization and modernity in Japanese history: a focus on state-society relations’, Journal of Asian Studies, 53 (1994), p. 350CrossRefGoogle Scholar and see N. Nakamura, ‘Meiji-era industrialization and provincial vitality: the significance of the first enterprise boom of the 1880s’, Social Science Japan Journal, 3 (2000).

15 Maruyama, M., Thought and Behaviour in Modern Japanese Politics (London, 1963), p. 97Google Scholar.

16 For discussion of the modern state, see Iriye, ‘Japan's drive’.

17 Rosovsky, ‘“Lessons” of Japanese economic history’, p. 234.

18 Ohkawa, K. and Shinohara, M., Patterns of Japanese Economic Development: a Quantitative Appraisal (New Haven, 1979), p. 278Google Scholar.

19 Ohkawa and Rosovsky, Japanese Economic Growth, pp. 81–4.

20 Ohkawa and Shinohara, Patterns, pp. 280, 393.

21 Goldsmith, Financial Development of Japan, p. 35.

22 Ibid., p. 36; and see Metzler, M., Lever of Empire: the International Gold Standard and the Crisis of Liberalism in Prewar Japan (Berkeley, 2006), pp. 45–50, 68–9CrossRefGoogle Scholar.

23 Rosovsky, , ‘Japan's transition to modern economic growth, 1868–1885’, in Rosovsky, H. (ed.), Industrialization in Two Systems (New York, 1966), p. 92Google Scholar.

24 See, for example, Shepherd, J., Industry in Southeast Asia (New York, 1941), p. 133 and passimGoogle Scholar.

25 The argument that Japan had a much higher standard of living than per capita GDP alone suggests has been convincingly refuted by Maddison. See S. Hanley, ‘A high standard of living in nineteenth century Japan: a fact or fantasy?’, Journal of Economic History, 43 (1983) and Everyday Things in Premodern Japan (Berkeley, 1997); A. Maddison, ‘Review of Hanley, Everyday Things’, Journal of the Japanese and International Economies, 13 (1999).

26 Bank of Japan, Supplement to Hundred Year Statistics of the Japanese Economy – English Translation of Explanatory Notes (Tokyo, n.d.), pp. 91–5; and see Yoshino, T., ‘The creation of the Bank of Japan – its western origin and adaptation’, Developing Economies, 15 (1977), pp. 395–6CrossRefGoogle Scholar.

27 King, F. H. H., Money in British East Asia (London, 1957), p. 10Google Scholar; Drake, P. J., Currency, Credit and Commerce: Early Growth in Southeast Asia (Aldershot, 2004), pp. 92–7Google Scholar.

28 Robequain, C., The Economic Development of French Indo-China (London, 1944), pp. 141–50Google Scholar; Schwartz, A. J., ‘Currency boards: their past, present, and possible future role’, Carnegie-Rochester Conference Series and Public Policy, 39 (1993), p. 167CrossRefGoogle Scholar.

29 Schwartz, ‘Currency boards’, pp. 164–7; Ingram, J. C., Economic Change in Thailand 1850–1970 (Stanford, 1971), pp. 152–62Google Scholar; Prince, G. H. A., ‘Monetary policy in colonial Indonesia and the position of the Java Bank’, in Lindblad, J. T. (ed.), Historical Foundations of a National Economy in Indonesia, 1890s–1990s (Amsterdam, 1996), pp. 59–68Google Scholar; Bloomfield, A. I., Monetary Policy under the International Gold Standard (New York, 1959), p. 14Google Scholar.

30 Keynes, J. M., Collected Writings, vol. 1: Indian Currency and Finance (London, 1971), pp. 24–5Google Scholar; Bloomfield, Monetary Policy, p. 14; Wai, U Tun, Burma's Currency and Credit (Bombay, 1962), pp. 88–90Google Scholar.

31 van Laanen, J. T. M., ‘Between the Java Bank and the Chinese moneylender: banking and credit in colonial Indonesia’, in Booth, A., O'Malley, W. J. and Weidemann, A. (eds.), Indonesian Economic History in the Dutch Colonial Era (New Haven, 1990), p. 252Google Scholar; Prince, ‘Monetary policy’.

32 See, for example, Straits Settlements, ‘Currency note issue’, Straits Settlements Annual Report, 1903 (Singapore, 1903), p. 19Google Scholar; Philippines, Division of Currency, Annual report of the Chief of the Division of the Currency, 1904 (Manila, 1904), pp. 11–19Google Scholar; Philippines, Secretary of Finance and Justice, Third Annual Report 1904, pp. 22–4.

33 Sakurai, K., Financial Aspects of Economic Development in Japan 1868–1958 (Tokyo, 1964), pp. 16–23Google Scholar.

34 Smith, T. C., Political Change and Industrial Development in Japan (Stanford, 1955), pp. 36–7Google Scholar.

35 Bloomfield, Monetary Policy, p. 14; Friedman, M. and Schwartz, A. J., A Monetary History of the United States, 1867–1960 (Princeton, 1971), p. 359Google Scholar.

36 Tamaki, N., Japanese Banking: a History, 1859–1959 (Cambridge, 1995), p. 17CrossRefGoogle Scholar.

37 Patrick, H., ‘Japan 1868–1914’, in Cameron, R. et al. (eds.), Banking in the Early Stages of Industrialization (New York, 1967), pp. 264–5Google Scholar; Tamaki, Japanese Banking, p. 76.

38 Goldsmith, Financial Development of Japan, p. 48.

39 Ibid., pp. 49–50; Tamaki, Japanese Banking, pp. 104–6.

40 Rousseau and Sylla, ‘Emerging financial markets’; P. L. Rousseau, ‘Finance, investment, and growth in Meiji-era Japan’, Japan and the World Economy, 11 (1999).

41 Yamamura, K., ‘Japan 1868–1930: a revised view’, in Cameron, R. et al. (eds.), Banking and Economic Development (New York, 1972), pp. 168–73Google Scholar; T. Nakamura, Economic Growth in Prewar Japan (New Haven, 1983) and Lectures on Modern Japanese Economic History 1926–1994 (Tokyo, 1994).

42 Goldsmith, Financial Development of Japan, p. 83; S. Asajima, ‘Characteristics of the Japanese financial system during the inter-war period’ and J. Hashimoto, ‘Japanese industrial enterprises and the financial market between the two world wars’, both in Cottrell, P. L., Teichova, A. and Yuzawa, T. (eds.), Finance in the Age of the Corporate Economy (Aldershot, 1997)Google Scholar; Patrick, ‘Japan’, p. 253; Sakurai, Financial Aspects, pp. 115–21, 140.

43 HSBC Group Archive, LII, 121 and 122, Inspectors reports for Rangoon, Bangkok, Singapore, Batavia and Saigon; Willis, H. P., ‘The Philippine National Bank’, Journal of Political Economy, 25 (1917), p. 410CrossRefGoogle Scholar.

44 Straits Settlements, Reports of the Commissions on Trade Depression and the Extension of Credit Facilities (Singapore, 1921), appendix 1, pp. 169–70, 174–7Google Scholar; Straits Settlements, Report of the Commission to Report on the Trade of the Colony, 5 vols. (Singapore, 1934), vol. III, pp. 415–17, 423, vol. IV, p. 414Google Scholar; Burma, , Report of the Burma Provincial Banking Enquiry Committee, 1929–30, 3 vols. (Rangoon, 1930), vol. I, pp. 36, 42Google Scholar; Murray, M. J., The Development of Capitalism in Colonial Indochina (1870–1940) (Berkeley, 1980), pp. 115, 132–3Google Scholar.

45 See, for example, HSBC Group Archive, LII, 121, Inspectors Report Singapore 1924, 7, 9, 12, 17, 19–20, 26, 31, 33 and in LII, 120 Inspectors Report Batavia 1924, 20–1; Inspectors Report Bangkok 1924, 6; Inspectors Report Saigon 1924, 12–14. On lending to Chettiars and other Indians in Burma, see Burma, Banking Enquiry Committee, I, pp. 40–1, 215–18.

46 Tamaki, N., ‘The Yokohama Specie Bank; a multinational in the Japanese interest 1879–1931’, in Jones, G. (ed.), Banks as Multinationals (London, 1990), p. 191Google Scholar.

47 Ishii, K., ‘Japanese foreign trade and the Yokohama Specie Bank, 1880–1913’, in Checkland, O., Nishimura, S. and Tamaki, N. (eds.), Pacific Banking, 1859–1959 (London, 1994)Google Scholar; Patrick, ‘Japan’; W. D. Wray, ‘Japan's big three service enterprises in China, 1896–1936’, in Duss, P., Myers, R. H. and Peattie, M. R. (eds.), The Japanese Informal Empire in China, 1895–1937 (Princeton, 1989), p. 38Google Scholar; Fletcher, M., ‘The Japan Spinners Association: creating industrial policy in Meiji Japan’, Journal of Japanese Studies, 22 (1996), pp. 73–4CrossRefGoogle Scholar.

48 Yap, P. G., Scholar, Banker, Gentleman Soldier: the Reminiscences of Dr Yap Pheng Geck (Singapore, 1982), p. 36Google Scholar, and see pp. 28, 37–8. On Chinese banks in Indochina, see Brocheux, P. and Hémery, D., Indochine: la colonisation ambiguë (1858–1954) (Paris, 1995), p. 134Google Scholar.

49 Wong, K-C., The Chinese in the Philippine Economy 1898–1941 (Manila, 1999), p. 131Google Scholar; Burma, Banking Enquiry Committee, vol. I, p. 44.

50 Straits Settlements, Report of the Commission on Trade, vol. III, p. 416; Grove, D. L. and Exter, J., ‘The Philippine Central Bank Act’, Federal Reserve Bulletin, 34 (1948), p. 939Google Scholar; Bank of England Archives, OV65/10 Memorandum on the Overseas Chinese Banking Corporation.

51 Ishii, K., ‘Japan’, in Cameron, R. and Bovykin, V. I. (eds.), International Banking 1870–1914 (New York, 1991), p. 227 and see pp. 222–3Google Scholar; Yabushita, S. and Inque, A., ‘The stability of the Japanese banking system’, Journal of the Japanese and International Economies, 7 (1993), p. 390CrossRefGoogle Scholar.

52 Tamaki, Japanese Banking, pp. 66, 135 and see Sugiyama, K., ‘Business finance in Japanese business history’, Japanese Yearbook on Business History, 1 (1984), pp. 25–9Google Scholar; Hashimoto, J., ‘How and when Japanese economic and enterprise systems were formed’, Japanese Yearbook on Business History, 13 (1996), pp. 13–14Google Scholar.

53 Sylla, R., ‘Schumpeter redux: a review of Raghuram G. Rajan and Luigi Zingales, Saving Capitalism from the Capitalists’, Journal of Economic Literature, 44 (2006), p. 401CrossRefGoogle Scholar. It has been argued that by 1900, and progressively thereafter, the value of traded stocks on the two exchanges as a percentage of GDP placed Japan within the range of modern advanced economies. Miwa, Y. and Ramseyer, J. M., ‘Banks and economic growth: implications from Japanese history’, Journal of Law and Economics, 45 (2002), p. 140CrossRefGoogle Scholar.

54 United Nations, Mobilization of Domestic Capital in Certain Countries of Asia and the Far East (Bangkok, 1951), p. 192Google Scholar; Burma, Banking Enquiry Committee, vol. I, p. 287.

55 Crawcour, ‘Industrialization’, p. 59.

56 Ishii, ‘Japan’, p. 215; Calder, K. E., ‘Linking welfare and the developmental state: postal savings in Japan’, Journal of Japanese Studies, 16 (1990), p. 38CrossRefGoogle Scholar.

57 Ericson, S. J., ‘Private railroads in the Meiji Era: forerunners of modern Japanese management?’, in Yui, Tsunehiko and Nakagawa, Keiichiro (eds.), Japanese Management in Historical Perspective (Tokyo, 1989), p. 506Google Scholar.

58 Hashimoto, ‘Japanese industrial enterprises’, p. 100.

59 Tamaki, Japanese Banking, pp. 66–7; Ericson, S. J., The Sound of the Whistle: Railroads and the State in Meiji Japan (Cambridge, MA, 1996), pp. 178–82CrossRefGoogle Scholar.

60 Miwa and Ramseyer, ‘Banks and economic growth’.

61 Tamaki, Japanese Banking, p. 67 and see p. 136; Goldsmith, Financial Development of Japan, p. 69.

62 Ericson, Sound, pp. 359–61.

63 Quoted in Ericson, Sound, pp. 362–3.

64 Ericson, Sound, pp. 359–73.

65 Calder, ‘Linking welfare’, p. 39.

66 Kuwayama, P. H., ‘Postal banking in the United States and Japan: a comparative analysis’, Monetary and Economic Studies, 18 (2000), p. 93Google Scholar.

67 Goldsmith, Financial Development of Japan, p. 51; Asajima, ‘Characteristics’; Saito, S., ‘The Industrial Bank of Japan during the inter-war period’, in Cottrell, P. L., Teichova, A. and Yuzawa, T. (eds.), Finance in the Age of the Corporate Economy (Aldershot, 1997)Google Scholar.

68 Chenery, H. and Taylor, L., ‘Development patterns: among countries over time’, Review of Economics and Statistics, 50 (1968), pp. 400–16Google Scholar.

69 G. Huff, ‘Globalization, natural resources and foreign investment: a view from the resource rich tropics’, Oxford Economic Papers, 59.5 (2007); Huff, G. and Caggiano, G., ‘Globalization, immigration, and Lewisian elastic labor in pre-World War II Southeast Asia’, Journal of Economic History, 67.1 (2007), pp. 33–68Google Scholar.

70 Rowe, J. W. F., Studies in the Artificial Control of Raw Material Supplies, no. 2 Rubber (London, 1931), pp. 17–18Google Scholar; see also Brocheux, P., The Mekong Delta: Ecology, Economy and Revolution, 1860–1960 (Madison, WI, 1995), p. 233, n. 72Google Scholar.

71 McKinnon, R. I., Money and Capital in Economic Development (Washington, DC, 1973), p. 70Google Scholar.

72 Patrick, , ‘Japanese financial development in historical perspective, 1868–1980’, in Ranis, G. et al. (eds.), Comparative Development Perspectives (Boulder, CO, 1984), p. 311Google Scholar; Teranishi, J., ‘Financial system and the industrialization of Japan: 1900–1970’, Banca Nazionale del Lavoro Quarterly Review, 174 (1990), p. 316Google Scholar.

73 Teranishi, J., ‘Government credit to the banking sector: rural banks in nineteenth century Japan and the postwar Philippines’, in Ohkawa, K. and Ranis, G. (eds.), Japan and the Developing Countries (Oxford, 1985), p. 295Google Scholar. On supply-leading finance in the development of banking, see Patrick, H., ‘Financial development and economic growth in underdeveloped countries’, Economic Development and Cultural Change, 14 (1966), pp. 175–7CrossRefGoogle Scholar.

74 Patrick, ‘Japan’, p. 267.

75 Teranishi, ‘Government credit’, pp. 301–3.

76 Burma, Banking Enquiry Committee, vol. I, pp. 44–5; Tun Wai, Burma's Currency, pp. 74–5.

77 Waswo, A., ‘The transformation of rural society, 1900–1950’, in Duus, P. (ed.), The Cambridge History of Japan, vol. 6: The Twentieth Century (Cambridge, 1988), p. 574Google Scholar.

78 Bank of Japan, Supplement, pp. 120–1.

79 Elson, R. E., The End of the Peasantry in Southeast Asia (London, 1997), p. 200CrossRefGoogle Scholar.

80 Phongpaichit, P. and Baker, C., Thailand: Economy and Politics (Oxford, 1995), pp. 32, 21Google Scholar.

81 van der Eng, P., Agricultural Growth in Indonesia (London, 1996), pp. 131–3CrossRefGoogle Scholar.

82 Sylla, ‘Financial systems’, pp. 281–8; see also Sylla, R., ‘Emerging markets in history: the United States, Japan and Argentina’, in Sato, R. et al. (eds.), Global Competition and Integration (Boston, 1999), pp. 432–4, 435–8Google Scholar. For a critical view of the argument for financial revolution, see Y. Miwa and J. M. Ramseyer, ‘Japanese industrial finance at the close of the 19th century: trade credit and financial intermediation’, Explorations in Economic History, 43 (2006).

83 Rousseau and Sylla, ‘Emerging financial markets’.

84 Sylla, ‘Financial systems’, p. 281.

85 Goldsmith, Financial Development of Japan, p. 69.

86 Gurley, ‘Financial structures’, p. 111.

87 Gerschenkron, A., Economic Backwardness in Historical Perspective (Cambridge, MA, 1966), pp. 32–4, 45–9Google Scholar.

88 Goldsmith, Financial Development of Japan, p. 7. In Tokugawa Japan the elite of samurai, daimyo and the shogunate absorbed nearly a quarter of GDP. Maddison, A., The World Economy: a Millennial Perspective (Paris, 2001), p. 258CrossRefGoogle Scholar.

89 Patrick, ‘Financial development and economic growth’, pp. 175–7.

90 Ferguson, N., The Cash Nexus (New York, 2001) pp. 12–20, 420–1Google Scholar.

91 Sylla, ‘Schumpeter redux’, p. 397.

92 Huff, W. G., ‘What is the Singapore model of economic development?’, Cambridge Journal of Economics, 19 (1995), pp. 750–2Google Scholar.