The Merchant's Tale

by Simon Partner

  If the Japanese social and political order was cracking in front of Chūemon’s eyes, he also saw in front of him the promise of a dazzling future, embodied by the emerging city of which he was a part. Although it was so new, Yokohama was vibrant with brilliant and exotic sights, with novelty and entertainment, with hope, enterprise, and glamor. Its streets rang with the clatter of hand-carts, the cries of hawkers and entertainers, the laughter of children, the drums and fifes of soldiers, the clapping of dancing-girls, and always, in the background, the tantalizing chink of silver. These were the sounds of opportunity.

  3    PROSPERITY (1864–1866)

  SUCCESS AT LAST

  Although the payment of a £100,000 indemnity in June 1863 resolved the immediate crisis between the shogunate and its unwelcome guests, the imperial order to expel the foreigners remained in force. Having failed politically, the government turned to an economic strategy, attempting to cut off the flow of goods to the port. The commodity most desired by the foreigners was silk thread. Anxious to fulfill its pledge to close down the port, and worried also by the immense outflow of silk from Japan and the rapidly rising prices of silk and other commodities, the government began enforcing the Five Products Edo Circulation Law (Gohin Edo Mawashi Rei). This law required that all wholesale transactions in silk, grain, oil, wax, and clothing, including export transactions, be routed through one of the licensed wholesalers in Edo. The law had been created as early as 1860, with a view to preventing the Edo wholesalers (ton’ya), which enjoyed special privileges in exchange for paying extra taxes to the government, from being bypassed by the Yokohama trade. But in the face of strong foreign resistance to any restrictive measures, the government had not been able to enforce the law. Now, with relations between the shogunate and the foreigners already at a nadir, the shogunal authorities felt they had nothing more to lose. They ordered the law to be strictly observed. Direct silk shipments to Yokohama were forbidden, and merchants entering the port were searched to ensure compliance. At the same time, the government issued instructions to the Edo wholesalers to slow silk shipments to Yokohama, or even at times to halt them altogether. The government was able to use its choke hold on the Edo wholesale merchants to squeeze the Yokohama market dry.1

  The shogunate’s measures to choke off trade did little to appease the antiforeign samurai, who continued to wage a campaign of terror aimed at Japanese and foreign merchants as well as at the shogunal authorities themselves. Although they were themselves threatened, the authorities did their best to turn the mood of fear to their advantage. On October 31, Jardine, Matheson’s new Yokohama manager, S. J. Gower, reported on a tense meeting in Edo at which the American minister and the Dutch consul were told by government representatives that

  the only possible way of averting a revolution was for all foreigners to leave and give up Yokohama and betake themselves to Nagasaki and Hakodadi where they might trade … As usual there are all sorts of rumors current, such as, that the Japanese intend to withdraw all their guards from about Yokohama, that several bands of armed men are collecting at different places with the intention of attacking [Yokohama], that if they can not get rid of us in any other way they will stop all supplies, etc., etc., in all of which I do not believe there is one word of truth. And it is also stated positively that the government has ordered ¾ of the silk worm eggs to be destroyed. But this also I doubt.2

  In August, a Japanese silk merchant was murdered in Kanagawa and his head displayed on a pole with a notice stating that other merchants who traded with the foreigners would meet the same fate.3 In September, six silk merchants were murdered in Kyoto and Osaka. The head of one of them, Yamatoya Ōhei, was stuck on a post at Sanjō Bridge in Kyoto, with a placard proclaiming that he and others like him “have trafficked in copper cash, silk, wax, oil, salt, tea, in fact in all the staples of the land, in articles necessary for the use of the people of the country” and “sold them to foreigners for their own gain. By so doing they have enhanced the price of all articles and all but themselves suffer. Many in the interior are pinched as in time of famine; families can no longer live in one place together; households are broken up and scattered; many have died from sheer want of food. On account of all this, we can no longer remain blind to the sufferings of the people.”4 A few days later, a list of twenty-four Yokohama merchants was posted on the door of the Kanagawa commissioners’ headquarters, threatening a similar fate for them. And in December, eighteen Edo townsmen were murdered for their alleged dealings with foreigners—three of them merely for buying lumber that was to be used in the construction of a foreign house.5 Gower wrote, “Trade is suffering from the present state of affairs. Many silk men, alarmed by the actual murder of some of the large merchants of Osaka and Edo and the proclamations that they will be similarly treated if they continue to trade with foreigners, are pulling down their houses and leaving the place.”6 The great Mitsui company, the largest textile merchant in Japan, ordered its Yokohama branch to stop trading in silk after the company manager in Edo was threatened with “divine retribution.”7 Gower estimated that by the end of 1863 a quarter of the Japanese shops in Yokohama had closed.8

  In the meantime silk shipments into Yokohama slowed to a trickle. The only supplies coming through were those brought in under the seal of daimyo who felt free to flout the shogunal regulation. In August 1864, Chūemon wrote, “No silk whatsoever is coming into the port. Right now there is no trading taking place.”9 And the following month, “In Yokohama the enforcement is so strict that people are being arrested for trying to smuggle silk into the town [hidden] in shipments of cotton or tea.”10 And indeed at least one customs house official was ordered to commit suicide for abetting smugglers.11 On July 14, 1864, William Keswick reported to his Shanghai office that the Yokohama customs house “is exercising its influence to apparently put a stop to business in Silk … How far the Authorities will go in their endeavour to obstruct trade it is impossible to say but I fear their interference … will reduce the export of Silk during this season.”12

  It must have taken a cool head and a great deal of courage and resolve to stay put in the midst of all these obstacles, threats, and acts of violence. Chūemon had already shown in the confrontation in May and June that he was not easily frightened, and in his letters in the latter part of 1863 and into 1864 he showed no sign of backing down from his confidence in Yokohama’s bright future. And indeed, in the midst of all these difficulties and fears, an opportunity was developing in the Yokohama market that would play directly to Chūemon’s strengths.

  The American Civil War, which had begun in April 1861, upended the global cotton market. In an attempt to throttle the South’s economy, the Northern navy blockaded the South’s major ports, preventing the export of its major income-producing commodity. England’s cotton mills imported 77 percent of their supplies from the American South. So severe was England’s dependence on American cotton that the Confederate government had hoped Britain would join the war against the North. Many British mill owners did indeed support the Confederate cause and even flew Confederate flags in front of their factories. But the cotton mill workers supported the Union’s fight against slavery and even wrote President Lincoln a collective letter of support. The British government remained neutral.13

  Although English mills had considerable stockpiles of raw cotton at the beginning of the war, by the end of 1862 supplies were running out, and many mills were forced to cut back production or even close. The “cotton famine” in the English mill towns caused great hardship, to which the foreign merchant community in Yokohama responded by subscribing $2,160 (£558) to the Lancashire and Cheshire Operatives Relief Fund.14 At the same time, seeing a commercial opportunity, European merchants in Yokohama began tapping Japan’s domestic supplies of raw cotton. Ultimately, India, Egypt, and Brazil were to take over much of the productive capacity of the Southern states, but in the summer of 1863, any cotton-producing country saw immediate opportunities as the London market price skyr
ocketed from $0.10 a pound in 1860 to as much as $1.89 in 1863–1864.15

  Chūemon first noticed this development near the end of 1862. In a letter dated October 1, he noted, “With regard to cotton, the price is going up rapidly … The foreigners have bought up between three hundred thousand and five hundred thousand kin [four hundred thousand to six hundred sixty thousand pounds], and deliveries are now in progress. Prices are going up in Edo, too, and they are sure to follow suit in Kōshū, so please take note.”16 Three weeks later, he asked Shōjirō to send him samples that he could show to the foreigners.17

  Chūemon’s response to the opportunity in cotton is the first indication of his growing global awareness. He did not specifically mention the American Civil War, nor the shortages of raw cotton in Manchester, but Chūemon was clearly aware of the importance of market movements originating far from Japan. This new awareness presaged a transformation in Chūemon’s perceptions of time and space, as his mental map shifted from the politics and economics of the Kantō region to take on a new global perspective.

  It was not until the cotton harvest was in in 1863 that Chūemon began to organize a concerted response to the opportunity. On November 15, 1863, Chūemon sent a letter to Higashi-Aburakawa by express messenger and marked “extremely urgent.” In the letter, Chūemon told his son to sell any supplies he had of woven cotton, which was a domestic staple in which Chūemon’s family had been trading for years. Instead, Shōjirō was to buy up all the raw cotton he could find. It was raw cotton that was in demand on the global market.18

  In a detailed analysis, Chūemon calculated the potential profit from a shipment of raw cotton purchased at the prevailing prices in Kōshū. His analysis illustrates the complexity of the currency and measurement conversions that were needed to manage a transaction between Kōshū and Yokohama. Transactions in Kōshū were usually paid for in copper kan (equivalent to about 0.6 ryō). For bulk goods, quantities were denominated in packhorse loads, with one packhorse equivalent to 178 kin (about 235 lbs.). However, goods sold in the Yokohama market were denominated in piculs, with one picul equal to 100 kin (132 lbs.). For payment, the major commodity markets in Yokohama were denominated in Mexican dollars, which were valued by Japanese exchange brokers in silver monme (approximately 36 to the dollar). Finally, the entire tally of profit and loss had to be calculated in gold ryō, which was the notional unit of currency used by merchants and townsmen in the Kantō region. As Chūemon applied these calculations, “one horse load of cotton sells for 28 kan and 800 me. In Kōshū, the exchange rate for 1 ryō is 1 kan and 700 me, so the cost [per horse load] is 16 ryō 3 bu 3 shu. It would cost about 1 ryō to pack it and transport it to Yokohama, so the total would come to 17 ryō 3 bu 3 shu. Here in Yokohama, 100 kin is selling for $23 of Western silver. In dollars, 1 horse load would sell for $41.10 at 36 monme to the dollar. Our gross income would be 24 ryō 2 bu 3 shu. After deducting for packing and transportation, our net profit would be 6 ryō 3 bu [per horse load].”19

  No matter the logistics, though, the opportunity was clear. In the following weeks, prices on the Yokohama market continued to soar. On November 22, Chūemon sold a large consignment of cotton—20 horse loads, or about 36 piculs (4,800 lbs.)—at $25 per picul, more than double the prevailing price in June.20 And by late December in the Western calendar, the price had gone up to $33 per picul (equivalent to 34 ryō per horse load), while in Kōshū it was still possible to buy cotton for 23 ryō per horse load.21

  This was exactly the kind of market opportunity Chūemon had been waiting for. Instead of waiting for Kōshū merchants to bring him goods to sell to foreigners for a 2 or 3 percent commission, Chūemon moved aggressively to exploit the wide gap between prices in his home province and the booming global market. By the end of 1863, he had dramatically expanded his buying activities, investing as much as six thousand ryō ($14,000) at a time in purchases of Kōshū cotton. This was an extraordinary transformation for a man who just two years earlier had pawned all his wife’s kimonos just to pay the bills.

  Chūemon could not have raised such sums of money on his own credit. Late in 1863, he developed a relationship with an Edo merchant named Kojikahara Jihei, who was willing to provide the financial capital for Chūemon’s ventures.22 In return, Chūemon could offer a deep network of business contacts in the cotton-producing region, as well as relationships with the foreign merchant houses that were the ultimate buyers of the product. In order to ensure access to the large amounts of cotton that he needed, Chūemon also developed a relationship with Matsudaya, a large cotton broker in Ichikawa town in Kōshū. In a typical example of the transactions that resulted from this three-way relationship, according to a letter dated November 22, 1863, Jihei provided 200 ryō ($467), and, with the help of Matsudaya, Chūemon purchased 20 horse loads of cotton. Chūemon sold this in Yokohama for $25 per picul, clearing a profit of 70 ryō ($163). After deducting expenses, the business partners split the final proceeds three ways. Chūemon called this process noriai—literally, “riding together” but perhaps better translated as “alliance capital.”23 As the business model proved itself to be effective, the size of the business partners’ transactions increased dramatically. With Jihei’s capital backing him, Chūemon was able to buy consignments as large as 300 horse loads (70,000 lbs.).24

  Chūemon’s partners were not limited to his wealthy Edo contacts. He continued to involve his network of business associates in Kōshū, bringing many of them into his deals with Kojikahara and others. In doing so, he was able to expand his capital base still further while also extending his deep network of rural contacts, many of whom were closely connected to the silk and cotton producers of the region.

  The key to profits under Chūemon’s model of alliance capital was to recirculate the available capital by buying as much and as often as possible. As he wrote to his son Shōjirō, “I am sending Naotarō out to buy cotton … It will be very profitable if I can repeat this transaction many times over … No matter how many times we [purchase], it will be to our profit.”25 Capital was a scarce commodity that had to be exploited as rapidly and aggressively as possible. With the same amount of capital, it was possible to make double the profits if the merchandise could be turned around twice as fast.

  Indeed, because of the basic weakness of Chūemon’s position as a small and undercapitalized merchant, he had to do his utmost to take advantage of those strengths that he had. In addition to his contact networks in Yokohama, Edo, and Kōshū, Chūemon’s main strength was his access to information about the day-to-day movements of the Yokohama market. Chūemon was intensely conscious of the need for speed and secrecy in conveying this information, which he considered to be a crucial competitive advantage.

  Chūemon repeatedly told his son Shōjirō to keep the contents of his letters secret, or to share information only with a few selected merchants. At times, he also instructed his son and business partners to deliberately spread misinformation. One conspicuous example was a plan to misinform the residents of Kōshū about the likely consequences of the Richardson murder in September 1862. In the wake of that crisis, Chūemon wrote to three of his business partners urging them to make the situation sound even worse than it actually was:

  It may be expedient to spread the word that there has been a complete halt to trade, and by this means spur a decline in prices in Kōshū … If necessary, I can write a separate letter that you can use to spread rumors. Right now it may be a good idea to sell all that you have purchased, and then once the prices have fallen, you can buy again. If you sell now, you may indeed suffer a loss, but if you use the letter I will send separately, then prices will collapse and you can perhaps profit by buying again. Please consider this, and I will abide by whatever decision you take … Please do not show this letter to anyone. Instead, you should repeatedly show the other letter that I will write … If you do it this way, the letter will be copied and circulated by the people of the Isawa post station, and its contents will become a topic of conversation.
26

  Once the cotton market began to take off, Chūemon also repeatedly told his associates to do their best to hide the news of rising prices in Yokohama: “Here cotton is selling for more than $18 per 100 kin, at 35.9 silver monme to the dollar. You must not talk about this to anyone. When you go to Ichikawa to order cotton to be sent here, you must say that the price of cotton is low. You should not mention that we are trying to buy as much as possible, and you should say that the price is falling.”27

  Of course, such a campaign of misinformation could be effective for only a limited time. Within a month or so, the foreigners’ large-scale purchases became the talk of the province, and cotton that Chūemon had been able to buy for thirteen ryō a horse load in November shot up to twenty-three ryō by the end of the December 1863 and was at twenty-five ryō a week later.

  Chūemon also relied increasingly on speed to preserve his information advantage. In his first few years in Yokohama, Chūemon had depended mostly on traveling merchants to deliver letters back and forth to Kōshū. As a result, it could take quite a while for a letter to arrive—a week to ten days in most cases, but sometimes much longer. One undated letter states that “your letter of the nineteenth of last month arrived on the twenty-third,” which suggests an elapsed time of more than a month.28 However, as he undertook larger transactions in which the timing of purchases was all-important, Chūemon began using the services of professional couriers (hikyaku), sometimes paying extra to ensure even speedier delivery.