Michael Schiltz

The second half of the nineteenth century is correctly known to have culminated in the emergence of the gold standard as the first truly international monetary regime. The processes leading up to this remarkable feat are, however, far less documented or understood. Economic historians have only recently started digging into the causes behind the ’fall of silver’ that preceded the scramble for gold. It is nowadays clear that its effects were felt worldwide. Not in the least, silver depreciation severely affected East-West trade. It was, among other factors, behind the bankruptcy of several powerful institutions as the Oriental Bank Corporation. Yet at the same time, it cemented the position of other banks, some of which exist until this very day (HSBC, Standard Chartered). What did these banks know that others did not? In Accounting for the Fall of Silver, Michael Schiltz explains that the 1870s and 1880s witnessed furious experiments with new financial products and, equally important, strategies for hedging exchange rate risk. Drawing on archives that have never been used before, the book throws new light on an important episode of nineteenth century world history. At the same time, it illuminates lesser known aspects of the first gold standard period. It draws attention to the existence of ’carry trades’ between European money markets and the lesser liquid Asian periphery; and describes the creation of financial contracts with the sole aim of enabling commodity finance among Asian mercantile centers.

This chapter examines the fudasashi (札差) of Tokugawa Japan — institutions nominally classified as rice brokers but functioning in practice as the primary credit intermediaries, debt managers, and financial agents of the shogunate’s bannerman (hatamoto) retainer class. Operating within the licensed guild framework of the kabu nakama (株仲間) system, the fudasashi developed sophisticated instruments of financial intermediation, yet failed to generate the corporate forms that might have enabled perpetual institutional accumulation or a transition into Meiji-era banking. The chapter argues that this failure is explained not by market underdevelopment or cultural factors, but by the absence of juridical personhood in the European sense: without entity shielding — the legal separation of firm assets from the personal assets of proprietors — the kabu nakama existed entirely within delegated bakufu authority, with no independent legal personality. Monopoly rents were channelled into conspicuous personal consumption rather than reinvestment, and the institution died with its members. The Meiji debt cancellation of the early 1870s, analysed here as a jubilee-form instrument operating outside the probability distribution the fudasashi system was designed to manage, extinguished residual claims at a recognition rate of effectively zero. The argument is developed through three comparative frames: ancient Near Eastern debt jubilee traditions and their rabbinic circumvention via the prozbul; the European corporate form and the role of entity shielding in decoupling institutional continuity from individual mortality; and the Tokugawa kabu nakama as a third path available to neither solution. Ergodicity economics provides the analytical vocabulary for understanding why recurrent bakufu interventions — sumptuary regulation from above and debt moratorium (kien-rei) from below — were structurally necessary rather than administratively contingent, and why they were insufficient. Primary sources include guild records, commission deeds, and bakufu edicts drawn from the Sumitomo Archives and Sueoka Teruaki’s Tokugawa Bakushindan to Edo no Kinyu-shi 徳川幕臣団と江戸の金融史: 札差・両替商の研究 (2024).

In the macro-economic literature, Japan has at several times been treated as a canonical example of why countries joined the gold standard. On the one hand, the country has been linked to the argument that there exists a relationship between the gold standard and lowered borrowing costs; on the other hand, it has been discussed as motivated by a desire to expand its trade with gold standard countries. This article argues against both strands in the literature, and argues for a third interpretation. It demonstrates that the specificities of Japan’s gold standard reveal a concern with ’original sin’, or the impossibility of raising foreign loans in Japan’s own currency, and explains that there were grave costs to gold standard adoption.

Japan’s experience with modern capitalism and finance is characterized by a remarkable combination of shocks and adaptation. After being steamrolled by Western institutions and financial technologies, the country attempted to retaliate against this intrusion. However, regaining financial sovereignty proved a protracted process of trial and error. In the 1880s and 1890s, under the auspices of Matsukata Masayoshi, Tokyo seemed to get it right. The establishment of the Bank of Japan and related institutions, on the one hand, and the adoption of the gold standard, on the other, appeared designed to lift Japan out of its peripheral status. In reality, however, they mostly served to emphasize its role as an enabler of the British-led international order. Only in the 1930s, during the worldwide Great Depression, would it break with this role, if only to find that its autonomy had been compromised from the very beginning. Japan’s disastrous loss in World War II drove the country into the arms of the newly arisen global hegemon: the United States. In the early 21st-century, Japan remains a linchpin in the still surviving American-led world order and the corollary “dollar standard.”

Historically, unilateral political attempts at boosting the liquidity and prestige of a currency have rarely been successful. In the context of catastrophic events as, for instance, a World War, several countries have nevertheless experimented with schemes to develop currency blocs. This chapter describes the Japanese experiment with establishing an economic zone in which the yen was either the main or the sole currency of reference. We proceed chronologically. Taiwan and Korea are explained as consolidating currency policy in the nascent Japanese empire. World War I temporarily reversed Japan’s balance of payments problem. It heralded bold attempts at incorporating China within the Japanese yen-bloc, by means of aggressive lending schemes. Although the latter failed, the yen-bloc became an important political objective throughout the 1930s. The chapter explores the financial technology that governed the monetary set-up of the wartime empire; and it attempts to explain why it contained the seeds of its destruction.