Economic Systems: The Roots of Success (1600–1868)

Even though Japan's spectacular economic rise did not occur until the three decades after World War II, the foundations for the so-called economic miracle were laid during the Tokugawa era (1600–1868). Although technologically behind parts of Western Europe and the United States that were industrializing and had more advanced technology, the Tokugawa economy was certainly not primitive by world standards. Tokugawa Japan, despite occasional, localized severe food shortages, was in general a prosperous society. A substantial number of small and large businesses, particularly in urban areas, existed, and the use of money was widespread.

By the 1850s, larger percentages of Japanese were literate than was the case in most of the world's countries. The Japan that Perry ''opened'' contained an economic base for future commercial and industrial expansion and a segment of the population well educated enough to make good use of new Western technology. Several economic conditions important for this stable and relatively healthy economy existed in Tokugawa Japan. The entire Tokugawa period was, with the exception of some isolated peasants' revolts, a time of domestic peace accompanied by no unwanted foreign presence in the archipelago. The samurai, the institutionalized upper class, were theoretically warriors and bureaucrats, but the absence of a need for the military meant these educated elites devoted their time to efficiently supervising and maintaining the infrastructure of Japan's domains so irrigation, water supplies, tax collection, and a transportation system were, for the most part, effectively administered. A daimyo, or great lord, controlled each domain. In order to prevent daimyo opposition, the Tokugawa shoguns required daimyo to spend alternating years residing in Edo. A system of five national highways, originally constructed so that daimyo and their entourages could travel to and from Edo, had the positive unintended consequence of facilitating the exchange of goods and services through making most of Japan a national market.

The great highways, an efficient agricultural sector, the use of money throughout most of Japan by the mid Tokugawa years, and population growth in cities and market towns created national demand for agricultural and nonagricultural goods. A large number of peasants, especially in central Honshu, produced food surpluses. In rural areas, this overproduction of food led to two subsequent developments that further stimulated economic prosperity: the commercialization of agriculture and what economic historians identify as protoindustries, or small manufacturing enterprises. Commercialization of agriculture was a change in the scope of how agricultural goods were consumed as regions producing more food sold surpluses to consumers in towns and cities and in less fertile areas. Much of Japanese agriculture was transformed into a ''for-profit'' enterprise.

The development of rural protoindustries was also significant for the Tokugawa economy and for later economic growth because protoindustrialization brought infusions of investor capital, raw materials, and hired labor in efforts to produce products for regional or national consumption. Daimyo, samurai, and especially merchants from towns and cities in the latter Tokugawa years were using rural people to brew sake and soy sauce, produce silk, make paper, engage in small-scale iron- and metalworking, and process indigo and fertilizer. These goods were then sold throughout Japan. Protoindustrialization in the Tokugawa years meant that throughout Japan, because they earned extra income through nonagricultural labor, many peasants achieved increased prosperity. Peasants also learned such work habits as time management that facilitated production, and families became accustomed to work not exclusively dependent on seasonal agricultural cycles. This better positioned many Japanese for work in the industrializing economy of the later Meiji years (1868–1912).

As readers of the history chapter are aware, Tokugawa Japan had a vibrant urban culture. This meant city- and town-based retail and wholesale sectors that interacted with peasants who supplied food and goods while also serving the needs of the urban consumers of a wide range of goods and services. Japan had a highly successful preindustrial economy by the late Tokugawa years. Per capita incomes had been rising for a century before the 1868 Meiji Restoration.