In a series of pathbreaking articles, Sylla argues that successful
economies experience "financial revolutions" before they undergo their periods of rapid
growth. In turn, governments generate these revolutions by putting public finance in
order, and thereby giving private investors the incentive to create banks and securities
markets. In the U.S., suggests Sylla, Hamilton masterminded the revolution. Might
Matsukata, he continues, have done the same in Japan?
Consistent with much of Sylla's work, Japan did indeed experience a financial
revolution in the late 19th century. Matsukata, however, did not mastermind the
revolution in advance of private-sector demand. Instead, private investors created the
financial infrastructure in response to demand from industrial firms. What is more, most
firms (at least in the pivotal silk industry) raised the funds they needed through trade
credit rather than securities markets or banks.
In this environment, the financial revolution contributed to economic growth in
three ways: (a) the new securities markets funded the very largest firms, particularly the
railroad firms; (b) the new banks sold the transactional services that merchants used to
provide their trade credit, and (c) the banks supplied some of the funds that the merchants
as intermediaries then re-lent to the manufacturing firms.
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