Background

This book was recommended by a Podcaster duo I’m currently obsessing over, whose channel name loosely translates to “Casual Linguistics Radio”. The hosts are best-described (in my very personal opinion) as eternally intellectually curious, yet their delivery is often sarcastic and heavily humorous. The hosts are extremely well-read and I always love their book recs!

This book is a non-fiction that describes the surprisingly complex market economy of the Edo period in Japan. Edo is the period between 1603 and 1867 when Japan was under rule of the Tokugawa family alongside hundreds of regional leaders. The farmers paid their taxes in rice rather than with money. The collected rice would then get shipped to the handful of central markets across the country, the largest one of which was the Dojima Rice Exchange in Osaka. The vibrant market stocked and sold hundreds of tons of rice every year, crowded with hundreds of merchants every day looking to get a nice deal. The main image attached to this post is an actual painting from the time, depicting what the market looked like. (Folks would splatter ladles of water every time a transaction was made, many of which can be seen on the painting.)

The maturity of the trade system

Although the book subtitle goes “Edo government vs. markey economy”, I chuckled at how it takes over half of the whole book for the author to describe just the “market economy” part. However, as you read on, you understand why this is the case ––the system is so mind-blowingly complex and sophisticated!

In short, since moving around huge bundles of rice was too cumbersome for quick transactions, the merchants who buy and sell rice used something like a voucher that could be traded with the stored rice at some later time. Since merchants often took weeks to come collect their rice following their purchase of the voucher, regional leaders would inflate their claimed storage amount of rice and over-issue these vouchers to get more money faster. It actually wasn’t uncommon for merchants to come pick up their share, just to find out that they were out of stock. It’s the exact same idea as airlines overbooking their flights.

In addition to this, there existed a highly sophisticated “futures trading” market, where, what’s referred to as “representative rice,” got traded over the books without actual currency or items being exchanged. What’s even more crazy is that this “representative rice” was an imaginary item, NOT intended for actual exchange of goods, just like the index funds we see today. The price of the “representative rice” fluctuated over time, and merchants would attempt to make a fortune from buying and selling this “representative rice”, just like day traders do today. It absolutely blows my mind to think that such a complex system already existed by the mid 1700s in Japan.

The government’s grappling with the volatile market

In such a complex and fast-paced market, not only did the price fluctuate based on the amount of supply (primarily defined by weather), but also by the sentiment of the traders. With prices too high, everyday people starve to death, whereas with prices too low, the regional governing body has no income and experience financial difficulties. It was absolutely fascinating to learn about the ways that the Edo government handled this situation, since these folks didn’t even have the concept of “economics” as we know today. Of course not all their policies were perfect, but they made some great efforts to stabilize the trading prices.

The postscript strikes a chord

There’s so much more that I would like to share, but this is already becoming too long so I will have to cut it short and close the article with a (long lol) quote from the postscript of the book, which really stuck with me. In discussing the difficulties of fluctuating prices and the Edo government’s interference, the author offers up some food for thought with the analogy of second-hand concert tickets:

The price of concert tickets soar as they are sold secondhand on auctions online. Some might argue that it's unfair that folks who actually love the artist are forced to pay an unfair price because of people who are simply looking to get money, and others might argue that this is a fair transaction under capitalism. In fact, the mainstream sentiment among secondhand concert ticket brokers is that the government must not interfere with these transactions where the buyer and seller comes to an agreement. However, it is unlikely that the Edo government would have shared this perspective. Based on primary historical records, it is clear that the government believed that the free market economy should only be protected so long as it serves the society, not at the expense of societal needs. I believe that this is where we could learn something from the Edo government. All the complex deliverative trades and stock exchanges should all exist to serve us well. If it is not serving us well, certainly the government must step in and interfere. How does it serve us well? What does "well" entail, even? How do we take advantage of the market mechanism for this? I'm not saying that the Edo government did everything perfectly, and I recognize that it is possible the government was concerned primarily with its continued reign over the wellness of their citizens. However, I still believe there is much for us to learn from the government's persistent conversations with market stakeholders to search for these answers.

Even though we have all certainly enjoyed the immense benefits of capitalism and market economy, we need to learn to recognize when these systems, or part of these systems, is no longer serving us well. This passage in the postscript sounded to me like a simple and quiet questioning of the all-too-common argument of “governments shouldn’t interfere with the free market”.