01 / 05
Modernization and the Loss of Japan’s Samurai Culture Benefited the Japanese People

Blog Post | Health & Medical Care

Modernization and the Loss of Japan’s Samurai Culture Benefited the Japanese People

Economic, technological, industrial, and other progress radically improved the life of the ordinary Japanese citizen.

Imagine you’re a farmer in Japan in 1850. You pay homage to your feudal lord, wear clothes of plain cotton, eat rice and fish, and are mostly preoccupied with surviving the occasional famine and outbreaks of disease. You likely have no education. Fifty years later, life has changed beyond recognition. Farmers now have an education, have fertilizer to farm with, have access to vaccination, and can use the telegraph and the postal service. They have more money to spend, more leisure time, and access to mass media.

The 2003 movie The Last Samurai portrays Japan during this period of modernization. The film laments the loss of traditional samurai culture amid rising Westernization. The film is inspired by the Satsuma Rebellion, a revolt from disaffected samurai amid the loss of their privileged position in society.

Longing for a privileged past is not unique to Japan; many in Europe romanticize the medieval era as one of knightly chivalry. However, such portrayals usually look at history through rose-tinted glasses. The “good old days” is a common fallacy, with facts becoming more distorted the further one looks back in history.

What really happened in the era of The Last Samurai?

The period takes places after the Meiji Restoration, showcasing the Westernization of Japan. Before this period, Japan was ruled by Tokugawa shogunate, a military dictatorship that had dominated the island for over 260 years. It imposed the foreign policy of Sakoku—that is, one of extreme isolationism. Aiming to reduce the spread of Christianity and cement the power of the shogun, the islands of Japan became closed to foreigners. No one was allowed to enter or leave Japan, and foreign trade was virtually nonexistent. (There was some trade allowed from the Dutch through the island of Kyushu, notably in porcelain.) This period was one of peace, which many in Japan welcomed after the Sengoku Jidai (a period of civil war) of the 1500s.

Conservatives in Japan welcomed this closing of the country to foreign influence. At the time, Japan was dominated by the samurai class. Samurai, while traditionally warriors, had moved in peacetime to become aristocratic bureaucrats at the service of their daimyo, a feudal lord. Samurai had a monopoly on military force and controlled most of education. Merchants were seen as a lower class, even lower than farmers. Feudalism, a system where a lord would rent out land in return for labor from the peasantry, had ended in parts of Europe around 1500. Whereas competition among European powers had created the emergence of a middle class, Japan had remained socially, technologically, and militarily stagnant from 1639 onwards.

As described by Mitsutomo Yuasa in his study The Scientific Revolution in Nineteenth Century Japan:

The traditional society (feudalism) before the Meiji Restoration, namely the age of Edo of Tokugawa Shogunate, was based on pre-Newtonian science and technology, and on pre-Newtonian attitudes towards the physical world.

In 1853, Japanese isolationism came to an end. With the arrival of Commodore Matthew Perry demonstrating a textbook example of gunboat diplomacy, the United States forced an end to Japanese isolationism and the opening of Japanese ports to American trade. In the years that followed, Japan established diplomatic relations with the Western Great Powers and underwent a collapse of the ruling Tokugawa shogunate.

Japan then went through a period of rapid modernization, importing Western technology, ideas, and culture. Ian Inkster describes the impact:

By 1855, Western machinery and factory organization had been introduced at Nagasaki for the maintenance of warships, and a spurt of building began in 1860 under Dutch leadership. It was Englishmen who in 1867 constructed the first steam powered spinning plant, the Kagoshima Spinning Factory. . . . By 1882, the Osaka Spinning Company operated 16 mules, 10,500 spindles and was practically powered by steam. . . . From 1870 to 1872, 245 railway engineers arrived in Japan from Europe. . . . Telegraphic communication was also established by the British from 1871.

The industries that were revolutionized by foreign influence included the iron industry, mining, railways, electricity, civil engineering, medicine, administration, shipbuilding, porcelain, earthenware, glass, brewing, sugar, chemicals, gunpowder, and cement manufacture. Japan developed its staple industry and export product, silk manufacturing and spinning, under guidance from a Swedish engineer using Italian methods. The silk industry also employed a large amount of female labor in Japan, with more women in the industrial labor force in Japan than in any other country in Asia.

The development of technological innovations improved Japanese industry. Ryoshin Minami showed the growth in total horsepower between 1891 and 1937 was in the order of 13 percent annually. The figure below shows the growth rate of development of primary industries during the period between 1887 and 1920, as well as overall economic growth. In many of the years during that period, growth in private non-primary fixed capital was in the double digits.

By the 1890s, Japanese textiles dominated the home markets and competed successfully with British products in China and India. Japanese shippers were competing with European traders to carry these goods across Asia and even to Europe.

The Satsuma Rebellion occurred in 1877, as Japanese government restricted the ability to carry a katana (long sword) in public. Regardless of one’s thoughts on the right to bear arms, the reduction in the power of the samurai class was a win for ordinary Japanese people. Having access to modern medical techniques, transportation, and goods benefited the whole society, rather than just feudal elites. Indeed, many of the samurai were able to adapt to their new roles in a modern Japan, working in business or government. In the 1880s, 23 percent of prominent Japanese businessmen were from the samurai class. By the 1920s, the number had grown to 35 percent.

By 1925, universal manhood suffrage had been implemented, a stark contrast from the Tokugawa shogunate. The social structure had loosened, allowing societal advancement far more easily than in the feudal era. By 1897, 95 percent of citizens were receiving some form of formal education, in contrast to 3 percent in 1853. With a more educated population, Japan’s industrial sector grew significantly. Of course, the new system still had its problems, such as labor strikes and industrial unrest. However, Westernization brought far more economic freedom to the Japanese people. Attitudes to commerce changed. Merchants rose from being the lowest class to becoming a vital part of the burgeoning middle class.

In Japan, progress was seen in economics, science, technology, education, consumer goods, industry, and social mobility. Society and the traditional order had been uprooted, in an example of Schumpeterian “creative destruction.” The inflow of new ideas, of new ways of doing things, allowed people to become freer, wealthier, healthier, and better educated. The opening of Japan was fundamentally an opening to progress. By isolating itself, Japan fell behind the rest of the world. As it opened itself to competition, it was able to catch up, and in some cases, surpass other countries. And the ordinary citizen of Japan was better for it.

Blog Post | Infrastructure & Transportation

The Race to the Sky: How Competition Pushes Humanity Forward

Cities could still be growing quickly upward, but regulations are limiting their growth.

“I would give the greatest sunset in the world for one sight of New York’s skyline.”

—Ayn Rand, The Fountainhead

The story of how the Empire State Building came to dominate Manhattan’s skyline—defeating 40 Wall Street and the Chrysler Building for the title of the tallest building in the world—is an illustration of the power of competition and innovation.

In 1929, the successful businessman George Ohrstrom hired architect H. Craig Severance to design 40 Wall Street. Severance was a well-known architect in New York City and together with William van Alen had built amazing constructions, such as the Bainbridge Building on W. 57th Street and the Prudence Building at 331 Madison Avenue. Van Alen was an innovator and a revolutionary who often challenged the classical and Renaissance styles that had influenced most American cities since the beginning of the 20th century. He often ran into problems with clients who rejected his modern styles. Severance, worried about losing clients, decided that he no longer needed Van Alen’s partnership, and they ended their business relationship in 1924. In 1929, Walter Chrysler hired Van Alen to design a monument to his name, the Chrysler Building.

Competition Incentivized Innovation

In April 1929, Severance learned that his former partner was designing a structure of 809 feet. Ohrstrom and Severance, worried about falling behind, announced that they would add two additional floors to their original design so that 40 Wall Street would end up with a total height of 840 feet. That same year, Empire State Inc., led by former General Motors executive John Jakob Raskob, entered the race—putting pressure on Severance and Van Alen. To keep pace with the other two projects, architectural firm Shreve, Lamb & Harmon and builders Starrett Brothers & Eken accelerated the construction process. According to architectural historian Carol Willis, the framework of the Empire State Building rose four and a half stories per week due to an A-team design approach in which architects, builders, and engineers collaborated closely with each other.

Troubled by both Severance and the Empire State project, Van Alen designed the famous chrome-steel art deco crown for the top of the Chrysler Building and a sphere to stand on top of the crown. The sphere was built inside the crown, hidden from the public, and it was never announced to the press or explicitly mentioned. On the other hand, Severance modified his design one more time and asked permission to add a lantern and a flagpole at the top of the tower, increasing the height by 50 feet. Severance planned to have 40 Wall Street reach the 900-foot mark to secure its place as the tallest building in the world.

On October 23, 1929, the sphere of the Chrysler Building was lifted from the inside of the crown, reaching 1,046 feet and surpassing the final height of 927 feet of 40 Wall Street. The crash of Wall Street on October 28 distracted the press from the trick played by Van Alen, and it was not reported immediately. When Severance found out, it was too late to change his design—40 Wall Street held the title for one month from its opening in the first week of May 1930 to the opening of the Chrysler Building on May 27. The Chrysler Building held the title for only 11 months until the Empire State Building was completed in 1931 and became the new tallest building.

Regulations Limit Us

The Empire State Building held the title of tallest building in the world for 40 years, and it was built in only one year and 45 days. Bryan Caplan, professor of economics at George Mason University, believes that excessive restrictions slow construction today. Regulations such as height restrictions prevent cities from going up. Humanity now has better technology than in the time of New York’s race to the sky, but getting permits to build upward is extremely difficult. Excessive restrictions also generate artificial scarcity, which is slowing the growth of cities and making it difficult (and expensive) to live in them. Cities could grow upward, but regulations limit their growth.

However, we continue to see competition in many industries; technology companies fighting for the dominance of artificial intelligence are creating better and more efficient tools. The race between SpaceX, Blue Origin, and Virgin Galactic is improving the development of innovative technologies. Soon we might even have commercial flights to the moon. History has shown that when brilliant minds have freedom to compete, humanity moves forward.

Blog Post | Financial Market Development

The Promise of Cryptocurrency | Podcast Highlights

Chelsea Follett interviews Jack Solowey about the potential benefits of cryptocurrency and the regulatory challenges it faces.

Listen to the podcast or read the full transcript here.

Let’s start with the big picture. What is cryptocurrency? 

Cryptocurrency is an application of blockchain technology that leverages cryptography and game theory to create public digital ledgers that are highly secure and highly resistant to tampering. In its best form, cryptocurrency could replace the traditional balance sheets at institutions like banks and brokerages with this open distributed ledger. You’d have something like a bank account balance, but rather than being managed by a centralized intermediary, it’s run by computers all over the world that are incentivized to maintain the database and check each other’s work.

What are some of the benefits of cryptocurrency? 

Crypto is relatively young, so a lot of the benefits are potential benefits. However, we do already see use cases around the world.

Vietnam is one example. The blockchain analytics firm Chainalysis publishes an annual survey of the leading countries for crypto adoption, and Vietnam has led that list for a couple of years. An interesting corollary is that 69 percent of Vietnam’s population lacks access to a traditional bank. I think it’s reasonable to say that cryptocurrency is filling that need.

Can cryptocurrency be a hedge against inflation? 

Ultimately, this is an empirical claim that will have to be evaluated over time. There was some thinking initially that Bitcoin could be an inflation hedge because it has an ultimate cap on its supply. According to the protocol, there will only ever be 21 million Bitcoin minted. But that hasn’t borne out empirically, or at least hasn’t borne out yet.

With that said, there are places around the world where we’ve seen both national currency depreciation and relatively high crypto adoption or spikes in crypto adoption around national currency depreciation events. Examples include Turkey, Nigeria, Kenya, Argentina, and Venezuela.

There’s also a class of crypto token known as stablecoins, which are designed to be pegged to the value of another asset, for example, fiat currencies like the US dollar. Stablecoins have actually been growing in popularity in some of the same countries I just mentioned as a way to access the US dollar.

What about the potential of blockchain technology to combat censorship or resist authoritarianism? 

I think it’s helpful to look at the tactics that are used by the totalitarian regime in George Orwell’s Nineteen Eighty-Four. In that story, control was often a matter of changing and deleting the historical record. The thinking is that if there was no evidence of a free society, the idea of freedom or liberty could be extinguished.

And as we know, totalitarian regimes are not mere fiction. The Cato Institute recently awarded the Milton Friedman Prize to Jimmy Lai, who was the founder of the pro-democracy Apple Daily Newspaper in Hong Kong. When the central government in Beijing applied the draconian national security law to Hong Kong and raided the Apple Daily offices, civic and cyber activists were able to maintain a record of thousands of Apple Daily newspaper articles on a blockchain called Arweave. That is one example where blockchain technology thwarted the Orwellian authoritarian ambition.

What are some of the challenges or potential drawbacks of cryptocurrency? 

Like all financial instruments, crypto can be abused by bad actors, who can use cryptocurrencies to fund terrorist activity and trafficking. However, it’s important to keep this in perspective. Even high estimates of crypto-related illicit activity are an order of magnitude smaller than the UN’s estimate of, for example, total global money laundering each year, and law enforcement agencies in the US acknowledge that crypto has a relatively small role in crime when compared to traditional financial technologies.

Another common critique is that cryptocurrency technology is bad for the environment. 

It’s worth distinguishing here between the two mechanisms underlying major blockchains. You have Proof of Work, which helps secure the Bitcoin network, and because it’s compute-intensive, it’s also electricity-intensive. However, there’s also a different mechanism known as Proof of Stake, which has been implemented by the Ethereum blockchain, the second biggest crypto network by market cap. Proof of Stake reduces energy consumption and carbon footprint by over 99 percent. So, some of the critique needs to adapt to the changing nature of the technology.

But I also think it’s important to keep in mind that this critique begins with the assumption that cryptocurrency is not worth its environmental footprint. I think the role of policymakers is to address downside risks, not to assess the benefits. Regardless of one’s preferred environmental policy, it should apply uniformly and should not single out one specific class of technology.

If cryptocurrency is overregulated, what could be the possible impact of that on the average American? What’s the potential loss there? 

If our policies make the US an uncommonly inhospitable place for crypto, we could lose both the potential gains from this class of technology and the competitive pressure that these innovations put on traditional institutions to improve their own products and services. Crypto is already a very useful tool for sending payments across borders quickly and cheaply.

There are two big problems with how regulators have been approaching this space. One is regulatory ambiguity. Securities laws in the US, at the federal level, are almost 100 years old. It’s not hard to conceptualize how technologies that began as paper stock certificates and are now being replaced with decentralized global networks could pose challenges to existing regulations.

In the 1990s, the SEC actually had a fairly rational rule-making process to adapt laws to new technologies, what are known as alternative trading systems. Laws and rules can keep up with technology if regulators are willing to make those changes. Unfortunately, in the US, we haven’t seen the SEC take the same rational approach to cryptocurrency.

In fact, we’ve seen a bit of gaslighting, where the agency can ask projects to register under existing laws, and the project will say, “Okay, great. Let’s do it.” And then SEC says, “Well, we’re not really sure how to register your project.” And then, a little bit later, the project faces enforcement actions for not registering. It’s not a rational approach to innovation and financial markets.

As of the time of this recording, what are some of the current policy initiatives around regulating cryptocurrency? What are some of the concerns people are wrangling with?

The US is unique in that we have two capital market regulators, the Securities and Exchange Commission, SEC, and the Commodity Futures Trading Commission, the CFTC. This presents an interesting question about cryptocurrencies: should they be treated as a commodity or security?

To answer that question, my colleague Jennifer Schulp and I hone in on decentralization. Decentralization addresses some of the risks that securities regulation is intended to mitigate, which are known as managerial risks. Basically, are the issuers of an instrument going to have information that market participants don’t have, and could they use that information to gain an edge over market participants? Things like insider trading and information asymmetries through disclosures. But when you have a fully decentralized crypto token project, there is no managerial body with that information. So, at a high level, crypto securities are those that are centralized, and crypto commodities are those that are decentralized.

One wrinkle here is that crypto tokens can begin life as centralized projects but evolve into more decentralized projects over time.

Say regulators get this right and allow people to realize all the potential gains of cryptocurrency. What kind of gains could people see? 

In addition to the potential benefits of faster, cheaper payment methods, cryptocurrency promises a more decentralized internet and financial system. Loans could be issued permissionlessly. In the same way that you put a dollar in a vending machine to get a can of soda, you could have lending protocols that, once you put in the designated crypto collateral, you could take out a loan in crypto without some of the traditional gatekeeping by financial institutions. And that’s just one example of this broader ecosystem.

The Human Progress Podcast | Ep. 46

Jack Solowey: The Promise of Cryptocurrency

Jack Solowey, a policy analyst at the Cato Institute focusing on financial technology, joins Chelsea Follett to discuss the potential benefits of cryptocurrency and the regulatory challenges it faces.

Wall Street Journal | Science & Technology

Amazon Introducing Robotics to Speed Deliveries

“Amazon.com is introducing an array of new artificial intelligence and robotics capabilities into its warehouse operations that will reduce delivery times and help identify inventory more quickly.

The revamp will change the way Amazon moves products through its fulfillment centers with new AI-equipped sortation machines and robotic arms. It is also set to alter how many of the company’s vast army of workers do their jobs.”

From Wall Street Journal.