The industrial revolution in Japan in the latter half of the 19th century, the first industrial revolution in Asia, did not depend on foreign capital until 1899, when the Japanese government called off the prohibition on foreign capital investment. This change was a result of Japanese law courts beginning to consider the crimes of foreigners in Japan.
Even after 1899, the amount of foreign capital used in private enterprises within Japan was unexpectedly small. In 1914, only 7% of all stocks and debentures of private enterprises were foreign-owned. How did Japanese entrepreneurs then raise money for industrialization?
Big enterprises raised money domestically through joint-stock companies. The stockholders invested not only their own money but also money borrowed from banks using their stocks as security. Most stockholders were merchants and financiers, including those who started their businesses in the Edo era. Although the loan business with the merchants set up by the biggest moneychangers, such as Mitsui and Kounoike, was said to be declining toward the end of the Edo era, it is notable that the draft business, which promoted modernization of the economy, was growing.
In Japan, payment to distant clients by bills of exchange began in the 13th century, and payment to nearby clients by such bills began in the 17th century. However, Japanese moneychangers did not develop a business around discounting bills because Japanese merchants did not use terminable promissory notes.
In this paper, I first discuss cases of settlement of transactions involving cotton goods and fertilizers between Owari (present-day western Aichi Prefecture) and Edo (present-day Tokyo) by bills of exchange. I also discuss cases of settlement for trade of cotton goods and tea between Yokohama and Kamigata (present-day Osaka and Kyoto) by bills of exchange. The latter cases were important in keeping foreign merchants from making inroads into Japan’s market. It also led to Japanese merchants accumulating capital via cash payments with foreign merchants in Yokohama.
I then discuss cases of settlement among merchants by bills of exchange in Kamigata in the late Edo era. Such settlements became common in Osaka as well as its suburbs, thereby reducing the loan interest rate to approximately 6％, which was almost half of that in Edo.
In Osaka, bills of exchange could be settled by many moneychangers who were further controlled by the biggest moneychangers, particularly Kounoike, Mitsui, and Kajimaya. Contrary to popular belief that Mitsui was in financial straits by the end of the Edo era, the real situation of Mitsui was promising when the draft business was taken into account.
Although many moneychangers went bankrupt during the Meiji Reform, a considerable number of them survived the phase. Additionally, many powerful newcomers such as Chojiya, Nunoya, and Yasuda began operating during this period. Some of these moneychangers even established modern banks. The most important suppliers of capital for the industrialization in Japan were the merchants, both old and new, headed by moneychangers.
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