Discourse on Fukuzawa Yukichi and the Economy: Between Old and New Ideals

2021/02/10

The Wayland Memorial Lecture is a traditional event usually held in May, but as you know, due to the COVID-19 pandemic, it is being held at this unusual time in December. Thank you very much for coming in this very cold weather. Today, I would like to present my thoughts focusing on how Fukuzawa Yukichi dealt with and discussed the economy.

Fukuzawa Yukichi was, needless to say, an Enlightenment thinker whose life spanned the end of the Edo period and the Meiji period. Like the 18th-century European Enlightenment thinkers, Fukuzawa had extremely diverse interests. His interests spanned many fields: natural sciences such as physics—which Fukuzawa called "Kyurigaku"—medical sciences, and social sciences such as legal systems, political systems, economic phenomena, and accounting. Because he was a person with a very broad perspective, Fukuzawa's intention was to show the "great path of learning" without being confined to individual fields.

However, as you are aware, academic fields have since become extremely subdivided, and today, many tall Towers of Babel stand between scholars. I must say that this has become a major obstacle when we read Fukuzawa. Modern researchers are forced to approach the problems raised by Fukuzawa based on these Towers of Babel. This is a fate we can no longer avoid, and today's talk will also be based on this premise. However, I hope to take as large an analytical scope as possible, grasp the concept of economy broadly, and handle the discourse of "economy" including bookkeeping, accounting, and management.

There are already many research results on this topic. I will only mention a few here, but among them, the research by the late Professor Norio Tamaki, Masanori Komuro, and Takashi Hirano can be called excellent achievements.

The subtitle of Professor Tamaki's book, "The Life of Entrepreneur Fukuzawa Yukichi" (Yuhikaku, 2002), "Enriching through learning, learning through wealth," is known as a phrase Fukuzawa used in a letter to his nephew, Hikojiro Nakamigawa. Using this slogan—which proposed the new idea at the time that learning and the path to wealth are not contradictory—as a guiding thread, Professor Tamaki's research vividly portrayed Fukuzawa as an "entrepreneur."

In his edited book "Modern Japan and Fukuzawa Yukichi" (Keio University Press, 2013), Mr. Komuro points out that the maintenance of employment for "independence of the individual" is one core of Fukuzawa's economic issues. Also, in an essay included in the same book, Mr. Hirano focuses on the positioning of the status of the "shizoku (former samurai) scholar." This point also relates to my talk today.

However, I should state at the outset that, unlike these three gentlemen, I am not prepared to discuss in detail Fukuzawa's statements on economic issues or editorials in the Jiji Shinpo. Today, I would like to focus on Fukuzawa's view of the economy as seen in two works that many of you know: "Gakumon no susume (An Encouragement of Learning)" and "The Autobiography of Yukichi Fukuzawa."

As an introduction, I will quote a well-known passage from the first volume of "Gakumon no susume (An Encouragement of Learning)."

"For example, learning the forty-seven characters of the alphabet, the wording of letters, the methods of bookkeeping, practice with the abacus, the handling of scales, and so on; there are still many more items to be studied further."

The term "choai" appearing here refers to "bookkeeping." Also, as a part mentioning the economy in "Gakumon no susume (An Encouragement of Learning)," Adam Smith's name appears in the fifth volume. It is the passage: "It was the merit of 'Adam Smith' who first discussed the fixed rules of economy and completely changed the laws of business." I don't think evidence remains that Fukuzawa actually read Adam Smith, but of course, there are parts in Wayland's writings that mention Adam Smith, so it is quite conceivable that Fukuzawa learned Adam Smith's name through Wayland's books.

Analyzing this short quote in my own way, a question arises. While I think the "fixed rules of economy" refers to economic laws, what does the "laws of business" refer to? Since economic laws have already been mentioned, we cannot interpret "laws of business" as implying economic laws. In other words, he is saying that the rules of economy and the laws of business are different things.

If so, I think the "laws of business" Fukuzawa speaks of refers to words used with bookkeeping and accounting in mind, similar to "choai." And my interpretation is that a certain kind of managerial accounting mindset appears there. Alternatively, if there is another interpretation of the "laws of business," one might take "law" as "legislation" or a "legal system" and view it as something like modern "commercial law" or "corporate law."

However, in either case, the interpretation that "Adam Smith completely changed the laws of business" does not seem to hold up.

Setting aside the "laws of business" for a moment, let's move to the 10th volume of "Gakumon no susume (An Encouragement of Learning)." To put it simply, the 10th volume is about human capital investment. For example, it discusses how much money is needed when striving in studies and how to view profit within that, but the next quote is a passage admonishing Western scholars for taking jobs too easily after finishing their studies.

"Though the tip of my pen may become a bit vulgar and these are not things that should be said to scholars, I shall explain this by calculating money. To attend a school, the cost for one year does not exceed one hundred yen; by investing three hundred yen over three years, obtaining a profit of fifty or seventy yen a month is the business of a Western student."

The "investment" mentioned here refers to capital investment, and the 50 or 70 yen corresponds to profit. In other words, he is questioning how much profit is brought in relative to the capital investment.

However, what I want to question is not the talk of capital investment, but the part at the beginning of Fukuzawa's text where he adds the proviso: "Though the tip of my pen may become a bit vulgar and these are not things that should be said to scholars." Here, Fukuzawa goes so far as to say that talk of so-called money counting is not something to be discussed with scholars. I have given today's lecture the subtitle "Between Old and New Ideals," and I believe this single sentence serves as evidence that Fukuzawa, as an Enlightenment thinker, was not necessarily able to free himself from "old ideals."

Next is another quote from "Gakumon no susume (An Encouragement of Learning)." It is the text titled "Inventory of the Mind" from the 14th volume.

"In times of busy buying and selling, things one thought would surely be profitable may, upon looking at the profit and loss statement produced at inventory, turn out to be losses contrary to expectations. Or, things one thought were in short supply at the time of purchase may, upon seeing the remaining stock at inventory, have taken unexpected time to sell, making the purchase actually excessive. Therefore, the one thing of great importance in business is to keep daily bookkeeping precise and not to miss the period for inventory."

Fukuzawa explicitly mentions the name of the American thinker Benjamin Franklin in other parts of "Inventory of the Mind." The point of this 14th volume is that because our daily lives pass by very easily, we must take inventory on a daily, weekly, or monthly basis. In terms of financial statements, this can be translated to mean that we must never neglect the comparison of the left and right sides of the balance sheet. The rhetoric Fukuzawa uses here is about bookkeeping, not about economics.

Next, I would like to look at "The Autobiography of Yukichi Fukuzawa." First, I want to mention Fukuzawa's father, Hyakusuke, who passed away relatively early. Fukuzawa describes his father as an "ordinary Chinese classicist," and from such descriptions, the ethos of Fukuzawa's father emerges. I believe it is important to understand how the ethos of the Fukuzawa father and son changed, how the son evaluated the father, and how Yukichi Fukuzawa's own ethos overlapped with that of his father. For example, the following quote is a passage where Fukuzawa speaks specifically about his father's work.

"His job while stationed at the domain residence in Osaka was to associate with wealthy Osaka merchants like Kashimaya and Konoike and manage the domain's debts, but originally my father found such things unbearable. His thought was that he wanted to be a scholar devoted solely to reading rather than handling money, but unexpectedly he had to take up the abacus and count money, or negotiate for the extension of domain loans. Unlike modern Western scholars, he was a pure scholar of the old type who said that even looking at money was defiling, yet he had to deal with pure worldly affairs, so it is no wonder he was dissatisfied."

"Domain debts" refers to the domain's borrowings, and Fukuzawa's father was in a position where he had to figure out how to manage the repayments. "Negotiating for the extension of domain loans" could, in some cases, be a rollover (a financial term for deferring a settlement deadline), and he had to negotiate in such situations as part of his profession. As for where the Nakatsu domain borrowed money from, it was from organizations like Kashimaya and Konoike, which would later become zaibatsu. Hyakusuke Fukuzawa was in a role where he had to conduct very troublesome negotiations with such parties. According to his son Yukichi's evaluation, his father did not enjoy that work at all; as a "Chinese classicist," he would probably have been happy if he could have spent his life reading, but it seems that was not possible.

The next quote also illustrates the ethos of his father, Hyakusuke.

"'Teaching such outrageous things. It is out of the question to let young children know about matters of calculation. I cannot leave my children in such a place. Who knows what they might be taught? Take them back immediately.' I heard later from my mother that he once took us back saying this."

What is recalled here are Hyakusuke's words regarding the education of children, especially in Osaka where the Fukuzawa family lived at the time, such as teaching things like multiplication tables as a primer for trade. I do not know well the difference between merchant education in Edo and Osaka, but Fukuzawa's father said of Osaka education, "They teach outrageous things." "Calculation" refers to money counting in general, but it seems to have also implied the economy in a broad sense. Through Fukuzawa's description, we can see that his father cast a critical eye on the fact that in Osaka, where there were many merchants, children grew up savvy about money counting from an early age.

So, what did Fukuzawa himself think about bookkeeping and accounting? We will look at parts of "The Autobiography of Yukichi Fukuzawa" where this can be seen. First, there is the following passage regarding the practice of bookkeeping and finance.

"Early after the Restoration, I translated a book on bookkeeping called 'Bookkeeping,' and all the bookkeeping books in the world today are written following my translation examples. Therefore, I should be a professional in bookkeeping. However, it seems the thoughts of a reader and the thoughts of a businessman are different things; not only can I not put this bookkeeping method into practical use, but I am also very poor at understanding ledgers written by others. If I think hard, of course I can understand it, I certainly will, but it is just troublesome and I have no inclination to do such things, so I leave all complicated money matters, like the Juku's accounting or the newspaper's accounts, to others, and I only look at the total figures."

First, "Bookkeeping" appears. As he states that he translated a "book on bookkeeping," Fukuzawa was also the person who introduced bookkeeping and accounting to Japan. He says that all bookkeeping books in the world today are written following his translation examples, and that he is at the starting point. Of course, he is saying this at the time of writing the "Autobiography," but it can be seen that he took great pride in this. In fact, in Fukuzawa's later years, by the latter half of the Meiji period, thinking about bookkeeping, accounting, finance, and the economy in general had advanced significantly.

While Fukuzawa valued bookkeeping in this way, I also want to focus on the juxtaposition of the reader's way of thinking and the businessman's way of thinking. I believe that from the fourth line of the quote onwards, parts of Fukuzawa trapped in the "old order," or in my own expression, "old ideals," are revealed. This is because if "enriching through learning" and "learning through wealth" in the letter to his nephew Nakamigawa introduced at the beginning expresses Fukuzawa's new ideals, then in this quote, he is taking a quite different view. It might be said that the old ideals within Fukuzawa inadvertently surfaced.

Here, while saying he must be a professional in bookkeeping, Fukuzawa also says of himself, "I am very poor at understanding ledgers written by others." In modern terms, I think this means he was not the type who could glance at financial statements or balance sheets and have the management status of a company or organization immediately come to mind. He clearly felt a lack of understanding, and there might be a bit of a "sour grapes" attitude. After all, he says, "If I think hard, of course I can understand it." Since he says he looks at the "total figures," it seems he received summary reports for his own businesses and Fukuzawa himself was satisfied with that.

By the way, two organizations are mentioned in the passage just quoted. One is, needless to say, the accounting of Keio University where we are now. The other is the newspaper company, which I believe refers to the accounts of the Jiji Shinpo. It was likely true that he "left all complicated money matters to others." It is inferred that Fukuzawa's basic stance was that although he identified as the introducer of bookkeeping, he did not understand the details of accounting, or rather, he was not interested.

Next, I would like to look at how Fukuzawa thought about investment or the management of money.

"For example, there are Keio students who bring their tuition money and want to leave it with me because they want to receive only their monthly expenses. Yoshiro Takiguchi, now a member of the House of Peers, was one of them when he was a student years ago, and he left several hundred yen with me. I would put that money properly in a dresser drawer, and if he came to collect it every month, I would hand over ten or fifteen yen as needed, and wrap the rest in paper and put it away again. It's not that I didn't know how convenient it would be to deposit that money in a bank; I knew it perfectly well in my heart, but I couldn't do it with my hands."

Fukuzawa calls it "tuition money," but it seems that in the old Juku, there was a system where students would leave a certain amount of tuition plus extra with the Juku—that is, with Fukuzawa—and receive only the necessary amount from it each month.

There were likely many such students besides Yoshiro Takiguchi. As Fukuzawa mentions, there was money that students deposited with the Juku or Fukuzawa at the time, and setting aside whether it was appropriate, it was possible to manage assets based on that. He understood well that some interest could be expected if deposited in a bank.

What I want to focus on is the final part, where Fukuzawa states that while he knows in his heart it would be convenient to deposit it in a bank, he cannot do it. I think these are very suggestive words. This is because I believe the coexistence of Fukuzawa's old and new ideals is very vividly expressed here. From the expression "knowing in my heart," we can interpret that he understood the merits of asset management in theory. However, he "couldn't do it with my hands." In other words, he could not actually put such investment behavior into practice.

This means that not only in economic acts but in human behavior, understanding something with the head and having it soak into the body and appear as an expression are clearly different things. Regarding the latter, it has recently come to be called "embodied knowledge." It is a way of thinking that emphasizes "knowledge held by the body," and Fukuzawa is stating here that understanding with the head and having it appear as actual behavior are indeed different.

The next quote is also about investment. It is a part that could be called a variation on the same theme as the part just cited.

"A great financier came to my place, and the conversation turned to money, and he said all sorts of complicated things that were truly dazzling. Well, well, it's quite annoying; it's a story about directing this money over there and returning that money over here, but if one has money to lend to others, it seems one shouldn't have to borrow. I know very well that businessmen do business by borrowing other people's money, but if one lends money to others at all, it's because there is surplus money to lend. Even for a businessman, if there is money to lend, shouldn't the original intention be to operate that for oneself as much as possible and avoid borrowing other people's money as much as possible? Yet, while holding capital oneself, one has gone to the unnecessary trouble of borrowing from others."

I think this part can also be read very interestingly. A "financier" is a financial expert well-versed in investment activities, simply put, a banker. That person came to Fukuzawa and likely recommended investments or explained their significance. "Complicated things" means troublesome or annoying things, but that financier discussed how doing this would increase profit, or how doing that wouldn't work well, so perhaps Yukichi Fukuzawa should do it this way. However, Fukuzawa says it is a very troublesome and annoying story.

Following that, he speaks about managing money borrowed from others. Procuring money from others in the form of deposits and lending it out with a bit of interest added is one of the essences of the banking business, but Fukuzawa says very clearly that the act of lending money to others is, in the first place, because there is surplus money. In other words, he thought the act of lending surplus funds to others was rational, but I think it didn't make sense within his values to go so far as to use money borrowed from others for management.

This story can be interpreted in various ways, but Fukuzawa had a disposition that extremely disliked debt, and he repeatedly states in "The Autobiography of Yukichi Fukuzawa" that he had never done such a thing in his life.

Now, let's get into a bit more detail. The next quote is about "commission," that is, fees.

"In the group this time, there was a person in charge of the so-called 'National Interest,' and in that person's plan, Western learning would gradually open up in Japan from now on and the price of original books would surely become higher. Therefore, if we buy these original books now, bring them back, and sell them, it would be to some extent for the national interest, so he gave me a private order to buy them, but I did not easily agree."

This is a part I found particularly interesting. The "person in charge of National Interest" refers to a role in the old Shogunate era that conducted various businesses for the country's finances. If the business grew, it would develop into a state-run industry, but what Fukuzawa is describing is a small-scale story. This is a story from his third trip abroad, to America. The person in charge of National Interest says that since the era of Western learning is coming, the price of original books will keep rising. If so, he says it would be for the national interest—helping the country's financial state—if Fukuzawa and his friends were made to buy original books and sell them at a high price.

Fukuzawa's way of responding to this person in charge of National Interest is very interesting and brilliant. From this, it can be seen that he deeply understood consignment trading, that is, commissions.

"'If so, the government is doing business. I did not come to act as a manager of business, but if the government has already stepped out to do business, I shall also become a merchant. In exchange, how about I take as much commission as I please? Either way is fine; if you say you will sell at the same price the government bought them for, I will work as hard as possible, examine the books, haggle and haggle to buy them cheaply and sell them for you. But if you say the government will make a profit, I won't let only the government profit; I will profit together with you. Now, here is the dividing line between official and merchant. What do you say?'"

The meaning is almost clear, but to supplement just in case, the final "dividing line between official and merchant," "official" refers to the official world, the world of government. "Merchant" refers to the world of business, and Fukuzawa is telling the person in charge of National Interest that he wants them clearly separated.

If the government does its job as a government, it sells the purchased books at cost. However, if the Shogunate or government officials are thinking of selling something worth 100 yen for 150 yen, he says he also has a plan. In other words, he is talking about becoming an agent in that case. Since he is going to buy as a representative, he says he will naturally take an agent's fee. If it's the government's work, he will try to buy the original books as cheaply as possible. In that case, he wants them sold at the same price. However, if the government intends to do business, he will also do business. The final part is where he is speaking in a typical Fukuzawa-style defiant tone. He is pressing them, saying this is the fork in the road, which will it be?

It is unknown where Fukuzawa acquired such ideas, but reading this part gives the impression that ideas regarding consignment trading, consignment sales, and commissions had permeated quite deeply within Fukuzawa. It wasn't just that he knew the idea of fees as a theory; he well understood the economic logic that it is rational for an agent to take a commission and that it is the correct way. I think that is precisely why he could speak so defiantly.

Regarding the final theme, although I haven't shown specific quotes, I would like to mention Fukuzawa's involvement with the publishing industry as a point related to the new ideals among his old and new ideals. I think Professor Tamaki's assertion in his book that Fukuzawa was indeed an entrepreneur was, in one aspect, a very correct understanding. On the other hand, as he says, "leaving all complicated money matters to others," a certain indifference toward economic management, especially finance and investment management, can also be seen in Fukuzawa.

For Fukuzawa, in whom such old and new ideals were mixed, there is something he cites as an example of a business that succeeded in his life, or that he worked hard on in his own way. That is the publishing business.

There is already much research on Fukuzawa's publishing business, and I think it is understood to some extent what kind of money counting led to profits, but let me explain the outline very briefly. As also stated in "The Autobiography of Yukichi Fukuzawa," when Fukuzawa first started his publishing business, it was an era when the rights of the publisher were very strong, and the rights owned by the author were extremely limited. Specifically, when making a book, unlike today's system, it required craftsmen to write the master copy, carve the woodblocks, and handle the printing, as well as a vast amount of paper to give it shape.

Fukuzawa writes in his "Autobiography" that he took these various rights away from the publishers in a sense and brought them into his own hands as the author. Paper is just a matter of paying money to buy it, but what was important here were the craftsmen in charge of woodblocks and printing. They were the limited existence who held the know-how to make books at the time. Therefore, Fukuzawa began his involvement in publishing by employing craftsmen himself. He realized that no matter what kind of book he was making, he first had to have such craftsmen under him.

Such activities would be close to starting a publishing company in modern terms. At the time, buying paper and employing craftsmen were all controlled by the "bookstores" (publishers), to use the expression from "The Autobiography of Yukichi Fukuzawa." Later research has revealed that the reason Fukuzawa went so far as to employ craftsmen quite forcefully and buy paper in bulk to start publishing himself was that he strongly believed the rights of writers like themselves were not being properly protected as economic value at the time.

What was characteristic of Fukuzawa's attempt was that he turned the traditional bookstores into sales agents. I think it can be said that by making the publisher the author's agent, he strengthened the author's rights. This is a part where Fukuzawa showed a very active response toward the new ideals among the old and new ideals he held. Fukuzawa himself also wrote in "The Autobiography of Yukichi Fukuzawa" that publishing was a part that showed his talent as a businessman.

Based on the above considerations, I would like to move toward a summary. Today's lecture had two purposes. One was to clarify how Fukuzawa Yukichi thought about the old and new ideals regarding the economy. Regarding this, my tentative conclusion is that Fukuzawa was indeed wavering greatly between the two ideals.

Professor Norio Tamaki, whose name I have mentioned repeatedly, states that Fukuzawa was a businessman based on the reflection that we have not looked at Fukuzawa with such eyes until now. Professor Tamaki put forward the view that Keio University, where we are studying, is also his business. And he has mentioned in his books not only Keio University, but also Maruzen, Yokohama Specie Bank, and even the relationship between Mitsubishi and Fukuzawa.

While Professor Tamaki emphasizes Fukuzawa as a businessman, Takashi Hirano, according to an interesting essay in "Modern Japan and Fukuzawa Yukichi," emphasizes that the economic person Fukuzawa spoke of was, in fact, a shizoku scholar. This is a point very deeply related to my lecture today, so I will comment a little while relying on Mr. Hirano's research.

Fukuzawa said various things about what type of person is desirable as a merchant or business person, but what he particularly emphasized was being of the shizoku class. In the Meiji period, the "shizoku's method of business" was a target of ridicule, but Fukuzawa said in a sense that the shizoku's method of business was fine. He emphasizes that it is desirable for educated students—and I think this point of being "educated" is important—to enter the business world and be involved in management.

However, without limiting it to shizoku, if we summarize Fukuzawa's discourse on the economy in general, as we have seen, his own ethos likely had a very wide range and swung toward both old and new ideals.

He stated himself that he was relatively indifferent to investment and the management of funds, and as we have seen, regarding the practice of bookkeeping and finance, he only understood the big picture and did not understand the details himself. I think these vividly show that he maintained a certain distance from the thing called the economy.

Then, if you ask whether it was a mistake for Fukuzawa to emphasize entrepreneurship as Professor Tamaki pointed out, I do not necessarily think so. Earlier, I specifically quoted the part where Fukuzawa speaks about consignment trading and commissions, and as can be seen from his saying things like "it's the dividing line between official and merchant," he also emphasizes that if one does business, one must be devoted to business. I think such arguments are also very brilliant.

Furthermore, I think Fukuzawa was indeed successful in starting the publishing business, and I believe he proposed a new business model in his relationship with the publishers.

In this way, it can be considered that Fukuzawa brilliantly showed his own entrepreneurship regarding new ideals as well. If we unravel what Fukuzawa said and wrote, it can be clearly seen that old and new ideals regarding the study of economy coexisted within him.

There was one more thing I wanted to clarify in today's lecture. That is what the discourse of economy actually meant to Fukuzawa. This question is a bit different from the problem of old and new ideals and is very vague. Fukuzawa, of course, read Wayland's economic books and was also interested in "The Elements of Moral Science." It's not that he couldn't come into contact with economics, and it is a fact that he learned various economic thoughts from Wayland and others within a certain range.

However, as shown in the quotes so far, I think the proportion of discourse related to the economy in a broad sense, such as bookkeeping, accounting, and finance, rather than just economic discourse in a narrow sense, was not low in Fukuzawa's thought.

For example, Fukuzawa's rhetoric in the "Inventory of the Mind" part of the 14th volume of "Gakumon no susume (An Encouragement of Learning)" was that we must take an "inventory of the mind" by overlapping it with the left and right sides of a balance sheet, and based on this way of thinking, we must re-examine and reflect on our lives every week, every month, and every year. I think the bookkeeping rhetoric Fukuzawa showed here is very vivid.

Then, it becomes important which aspect of bookkeeping and accounting he focused on. Since accounting is so-called accounting that expresses the results of a company's activities through the balance of money, the most important function is to "clearly state the company's performance to outsiders." However, as far as I can see, Fukuzawa's recognition of that point was relatively thin, and I feel he did not emphasize it that much.

Then, as for what was essential for Fukuzawa, my thought is that he was most attracted to the managerial accounting aspect appearing in bookkeeping and accounting. There are financial accounting and managerial accounting, but managerial accounting is basically a story inside the business. In other words, it tries to clarify how management merits can be utilized to increase profit with the help of accounting. In modern terms, it would be business accounting. I think the aspect of business accounting was very strong in bookkeeping and accounting for Fukuzawa.

Therefore, my tentative conclusion regarding the second agenda concerning Fukuzawa's economic discourse is that Fukuzawa was strongly influenced not only by so-called economics, but also by ideas of bookkeeping and accounting, or ideas of managerial accounting in a broad sense based on them.

I will conclude my humble reading of Fukuzawa with the above. Thank you for your attention.

(This article is based on a lecture given at the Wayland Memorial Lecture on December 2, 2020, with some additions and corrections. Quotes from Fukuzawa's works are from the "Collected Works of Fukuzawa Yukichi" (Keio University Press). The talk on that day had a tendency to overemphasize the distance between Fukuzawa and economics, and that point was corrected in preparing this manuscript.)