By 1700 or so, Osaka had become the mercantile center of Japan. Osaka merchants had organized themselves into a national
clearinghouse system. A major obstacle to the development of a modern capitalistic system in Japan at this time was the problem of transportation. While some commodities, such as woven silk and
sake could be transported easily in a cart, most crops were harvested in such volume that a caravan of packhorses or carts across the rough and dangerous roads, transported by the individual farmers, simply could not work out. Thus, a number of towns served as waystations where merchants would act as middlemen, storing farmers’ goods and transporting them to major trade centers such as Osaka, for a price. However, increasing supply and demand towards the end of the 17th century necessitated a better method of transporting goods in large amounts. Merchants in
Sakai, Osaka, and a number of other ports addressed this problem, testing the use of large ships to transport goods along the coasts. By the end of the 17th century, Osaka was home to at least 24 freight shippers to Edo, and a complex system of
guilds, both in Osaka proper and in the surrounding area, dealing in cotton, sugar, paper, and the produce of particular regions.
Daimyō income at this time was in the form of
koku of rice, an amount equal to the amount of rice a man eats in a year. Though there was a unified national system of coinage, every feudal domain was free to mint its own coinage as well. Thus, paying for hotels, inns, and food were complicated and difficult affairs for
daimyōs traveling to or from Edo as mandated by the shogunate's
sankin kōtai (alternate attendance) system. Thus, a system of rice warehouses arose, evolving naturally out of the rice storehouses which formed a part of this trade network. Centered in Osaka, the rice brokers bought the
daimyōs rice and issued paper bills, representations of value, in exchange. This was probably the first paper money in Japan, but the concept was picked up quickly, and the credit of the brokers was good enough to warrant the kind of trust that such a system relies upon. Many merchants throughout the country were willing to exchange the paper bills for metal coins or bars, recognizing that the Osaka brokers would take back the bills, as payment for rice. Soon afterwards, these rice brokers took the next natural, logical, step towards becoming true financial institutions. They began to loan the paper money to
daimyōs and samurai, who promised to pay it back with the tax revenue of future seasons. For a time, this worked quite well for both samurai and brokers, whose system developed into something much more akin to a modern bank; transactions began to be done entirely in paper, with the rice only nominally serving as reserve backing. This, however, quickly led to the problem of samurai living beyond their means, spending more in order to maintain the kind of lifestyle expected of their status than they could hope to repay. The rice brokers, more often than not, found it easiest to simply allow samurai and
daimyōs to postpone repayment of the loans, or to default on them entirely. The last decade or so of the 17th century, the
Genroku period, is today widely considered to have been the peak of Edo period extravagance;
daimyōs and samurai spent beyond their means, and merchants, who on the whole enjoyed immense profits, spent frivolously as well. This inflated economy came crashing down at the end of Genroku, in the first decade of the 18th century. By this point, many samurai and
daimyōs were so indebted to the brokers that they could never hope to be able to pay them back; this was a huge problem for the brokers. A new shōgun came to power at this time, motivated by
Confucian ideals and seeking reform. Thus, the shogunate stepped in, and sought to control the country's economic development, and the growing wealth and power of the merchant class, by organizing and regulating a series of guilds, and by passing strict sumptuary laws forbidding merchants from behaving like higher-class citizens (i.e. samurai, nobles). Sanctioned and encouraged by the shogunate, the
Dōjima Rice Exchange was born, incorporating and organizing the rice brokers in the north of Osaka. The system became formally backed by the shogunate, who acted through the Rice Exchange to affect
monetary policy. Over the course of the 17th and 18th centuries, these Osaka-based institutions grew more solidly into what can legitimately be called banks, focusing their efforts largely on loans to the
daimyōs. However, as the peace and stability caused the feudal system to break down,
daimyōs became less and less able to pay back the loans, and an incredible volume of debts were simply rolled over or ignored. The money supply the banks had created also grew out of control, becoming an essential aspect of the nation’s economy, causing serious economic consequences whenever it was altered. The shogunate tried to repair and regulate the economy, in particular the monetary supply and monetary value of rice, but to no avail. Seemingly, if anyone understood the economic developments incurred by the rice-brokers, it was the rice-brokers alone. Since the samurai's income was in fixed amounts of rice, not monetary value, the debasement of the value of rice affected their wealth drastically, and the inflation created by governmental attempts to control the supply of metal coinage had similar effects. In all of this turmoil, the rice-brokers were nearly the only ones to profit. At the beginning of the 19th century, in response to growing inflation, and to the power of the rice brokers, and the merchant class in general, the shogunate once again imposed a series of heavy regulations and restrictions. Easily one of the most damaging was a proscription against receiving loan payments from
daimyōs. By the 1860s, which saw the end of the Tokugawa shogunate, the Osaka rice brokers had also disappeared, replaced by other merchant institutions. ==Edo==