Ogyū Sorai and the Truth about Money
Ancient, early modern, and quite modern economic wisdom
(I’m Henry Snow, and you’re reading Another Way.)
The Japanese intellectual Ogyū Sorai (1666-1728) realized something that few around him did: gold coins weren’t valued because of the purity or quantity of gold. Weighing coins– a practice that was not uncommon when exchanging them– was “a completely absurd procedure,” he wrote in the Seidan, a series of policy proposals written to the shogun around 1727. So too was any monetary policy based on the purity of gold or silver in coinage. In his view it was not gold coins but copper coins that mattered: most actual transactions happened in copper. The exchange rate between silver and gold coins, and thus their quantity rather than their purity, determined their actual value. Despite— and yet also because of— his philosophical emphasis on the “way of the ancient kings,” Sorai insisted on looking at economic reality, rather than reasoning from feelings about gold purity.
What does this have to do with you? Why am I writing about early modern Japanese theories of money in a newsletter for the public that I hope will actually make some money? Well- first, “making money” is kind of a misnomer: when we say we’re making money, what we mean is that we’re moving it around. Actually producing new dollars is a crime if you aren’t a bank. This isn’t just a turn of phrase. The language we use reflects serious misunderstandings in the way we think about money– misunderstandings that are partly responsible for the looming tariffs threatening to make everything you buy more expensive!
Sorai can help us clear up these and other misunderstandings. Early modern Japan is a perfect case for this. Even talking about “money” in the 21st-century is a pain: do you mean hard currency? Deposits in savings accounts? And what about money-adjacent instruments like bonds? In contrast, eighteenth-century Japan had coins, basic credit, and a simpler economy with severely limited trade, as well as a strong central state. Sorai’s work includes quite modern concerns: ire at a previous ruler who cut taxes on the business class, arguments for debt relief. In his conservative efforts to rethink Japan’s economy in the early eighteenth century, we can find some lessons for progressive efforts to reimagine America’s today.
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Early modern Japan (we’ll say 1600-1868, for present purposes anyway) had three broad classes of coins: gold, silver, and copper. In 1695, during the Genroku period (1688-1704), the Japanese government debased the former coins, reducing their silver and gold content– they melted down and remade them with less of the relevant precious metals. The result, predictably, was inflation: a general increase in prices owing to the general increase in the quantity of money.
But, Sorai explained, the problem wasn’t the quality of gold or silver in each coin, but the number of coins available in total. The “true value of gold and silver coins” was their exchange rate with the currency people actually used for most exchange– copper. Gold coins were far too valuable for daily use, and people were accustomed to thinking of prices in copper. Thus whatever happened to gold, its value relative to copper was what mattered. In Sorai’s view, money derived its value from its actual use– from the real exchange relations it was meant for. The proper response of the ruler to economic problems was investigating and reshaping these relations rather than meddling with gold purity.
Wise rulers had to be sure, above all, that money was circulating. Money hoarded was money wasted. Sorai’s simplest proposal for Japan’s recent economic difficulties was to produce more copper coins. ‘Just produce more money’ is enormously controversial advice today. “Goldbugs”– advocates of a return to the gold standard, in which money was exchangeable for and thus ‘backed’ by gold– use the inability to easily produce gold as their main argument. The US government produces more and more money each year, and in the goldbug view this leads to a decrease in the value of money– or inflation.
Wouldn’t it be nice, the goldbugs whisper, if your money remained valuable forever? Or perhaps even grew in value?
The answer is an emphatic no. Events in Sorai’s Japan demonstrate as much. In 1714-1715, the end of the Shotoku period, Confucian scholar Arai Hakuseki convinced the shogunate to increase the quality and weight of gold in coins and thus decrease the number of gold coins in circulation. Commodity prices went down, and/or (this is the same thing) the value of money went up.
We call this deflation, and it is catastrophic. In a situation where prices in general are going down, I’m encouraged not to buy anything. If I expected the Nintendo Switch 2 would be worth only 400 dollars in six months, I’d hold off. And as prices drop, and as others do this, my own workplace is going to suffer. My wages will probably fall, or I might get fired. Then I have to spend less. This cycle repeats, viciously.
Moreover, in this situation, it doesn’t make sense to invest your money either. The smartest thing to do isn’t spend it on consumer goods, purchase assets you expect will go up in value, or invest in new businesses. The best choice is stashing it under your bed and waiting. When money is the only thing growing in value, it stops circulating. This was a significant contributor to the Great Depression in early 20th-century America, and it had similarly poor results for early 18th-century Japan.
Thus Sorai proposed increasing the quantity of copper coins. Money only had value when it flowed. Money and wealth are not the same thing– money represents value or wealth. But money itself is the ability to exchange. More money means more exchange. If people already are trading everything they want to, increasing the amount of money will simply cause prices to go up. But otherwise, more money means desirable trades that did not happen before will now occur. This will raise prices in certain areas, and perhaps even across the board, but it also makes society better off by promoting trade and growth.
Our first lesson from Sorai, then, is that the quantity and not the quality of money matters. But all of this we could have already learned from elsewhere. American conservatives, most notably Milton Friedman, provided a more modern version of this in their “quantity theory of money” (QTM) which holds that the general level of prices in the economy is a result of how much money is in circulation. QTM isn’t all wrong– obviously if you print infinite money it will go down in value– but like so many other areas of right-wing economics it takes a basic, trivial insight and turns it into a counterproductive framework for describing reality. Inflation isn’t “always and everywhere a monetary phenomenon,” as Friedman put it– we have to pay attention to other things. Sorai also gives us tools for doing that.
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Metal is heavy. The fact that one gold coin was worth around 4,000 copper coins (in the late 1720s) did not mean they were actually the same. As Sorai pointed out, “gold and silver coins may be conveniently carried on a journey, and soon return” from rural areas. Copper didn’t. As merchants did more and more business in remote areas, copper flowed out and did not come back. Even without changes in the quantity of copper coins, the actually accessible quantity of copper coinage decreased accordingly. We have to pay attention to how money is actually used in order to make policy decisions.
This is a more analogous situation to a 21st-century economy than you might think. Bonds are a kind of “locked up” money, and if we allow ourselves to peek out of the realm of money into assets, we’ll find other cases like this. Homeowners who bought during the brief period of low interest rates in 2020 are now “locked in” to those low mortgages– even if they wanted to sell, it’s irrational or in many cases impossible for them to swap their house for one of equal price, because a new home loan with today’s rates will lead to a much higher mortgage.
For another analogue, consider cryptocurrency. It is, as the name suggest, ostensibly a currency. Bitcoin’s whole purpose was to be a kind of digital gold currency that would achieve the deflationary objectives of goldbugs since national governments were wise enough to ignore them. But transacting in Bitcoin is painful and wasteful. The network requires oodles of electricity to do one transaction, and it can take time. Of course middlemen can and do offer to streamline this, but that simply moves the time and energy costs around rather than getting rid of them. Accordingly, nobody really uses Bitcoin for buying and selling. It isn’t a digital gold coin, it is digital gold. You wouldn’t buy bread with a gold bar. It’s too cumbersome.
Sorai’s insight about the mobility of copper led to specific and useful policy proposals. He advised letting regional lords (daimyo) to “cast copper coin in their castle-towns at their own pleasure” instead of only producing new copper coins centrally. Not only the quantity of copper coinage, but the location it was produced in, mattered. When we produce new money, we have to consider where it’s going.
Geography is less important now; it’s easy for me to send money across the world and back. But money has a kind of economic geography too. A middle-class consumer is more likely to spend any individual dollar than a wealthy executive is, and what they spend their dollars on will also differ. We have to consider how policies differ across class geography as well as space.
When the Federal Reserve raises interest rates, it is aiming to reduce inflation by cutting off access to money: if people cannot borrow money as easily, they cannot spend it as easily. But interest rate increases also mean more money for people who already have it, since, as one wealth manager put it last year, their piles of cash now generate more cash. That means interest rate increases have more complicated effects. They might actually worsen inflation.
I’m not qualified to take a position on how this balances out– that would take extensive research and expertise. But contrary to orthodox economic wisdom, we can’t simply assume higher interest rates produce lower inflation. And even to the extent they work as intended, they’re mitigating inflation at the cost of enriching the wealthy and impoverishing the poor. Higher inequality can cause other effects– including inflation. Who policies work through and who they affect differently matters for their effects.
Imagine a policy that gave $1,000 dollars to everyone who made more than $120,000 last tax year. We would expect this policy to increase the prices of goods that these people buy more or all of than everyone else does: more expensive homes and cars, as well as stocks. In contrast, if you gave $1000 to everyone who made less than $40,000 last tax year, you might expect prices of basic goods, or rents in cheaper apartments, to increase. Both policies would produce some general inflation, and if you had god-like knowledge you could even calibrate them to produce the exact same increase in general prices. But their real world effects would be quite different.
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Finally, Sorai’s monetary proposals were only one part of a broader vision. His central economic concern was what he called the “inn life” that many samurai and aristocrats led. Early on in the Edo period (which began in the 17th century), samurai had been disconnected from their land, literally and figuratively. They became dependent upon the government and merchants. In the past, Japan’s elite extracted rice and other goods directly from the peasantry. But now the military class of samurai and their lords “live[d] as in an inn”: living in the capital city of Edo, they had to sell their holdings’ rice for money in order to buy necessities from merchants. They were beginning to experience what political theorist Ellen Meiksins Wood called “market dependence.”
While this was excellent for political stability in a nation previously torn apart by civil war, it was a serious economic issue– and for Sorai, a class issue. Merchants and samurai have different interests. Samurai and their lords ideally wanted political stability and an effective state– their own reputations and (if peasants got rowdy) lives depended upon it. In contrast, merchants’ interest is in wealth, even at the expense of either particular actors like the peasantry or the real economic wealth of the nation. Policies that put more gold in merchants’ hands were not necessarily policies that produced more rice. Moreover, early modern Japan was not a bourgeois-dominated capitalist state– merchants were not represented in government. This meant the increasing power of merchants threatened the existing political structure itself.
Thus all of Sorai’s monetary proposals, he stressed, were merely temporary or mitigatory. What the government really needed to do was demonetize the economy as much as possible. The shogunate should demand tax payments in real goods, not money. The military class should return to the land. Consumption of urban luxuries should fall, and rice prices should rise.
This was probably impossible and not likely desirable. It’s worth noting here that politically, Sorai was an ally of the samurai class and relatively hostile to the merchants. He admitted his proposals to end inn life might hurt merchants, but, he pointed out, their lives already were uncertain. “Since this is so, it would probably be of little consequence if the merchants were ruined.”
I am, of course, not interested in upholding the power of landholders– but even Sorai’s morally and economically questionable schemes to ruin merchants have lessons for us. What we call monetary policy is always only a minor area in a much broader ocean of political economy. Like medicine for the economic body of the nation, monetary policy can relieve devastating symptoms or poison and kill us. But it cannot change the basic composition of the body it interferes in.
America today has profound economic problems. On the surface, the Biden-era economy was remarkably strong. The working class made real gains in spite of inflation (and arguably in part because of it), and stocks did very well too. Yet this did not translate to a generally positive view of the economy. There has been and I am sure will continue to be lots of ink spilled on this matter, and it has been weird for me as a socialist to be in the position of defending, in a limited way, a capitalist economy to capitalists– “I agree it sucks, but by your terms it’s great!” But however you think we should feel about the broader economy, negative feelings come from real structural issues as well as vibes.
Perhaps first among these is the nature of consumer interests. Because consumers benefit from low prices, Americans generally want higher wages for themselves and, in effect, lower wages for everyone else. Sadly, in material terms, the best economy for an American is one in which everyone else is struggling, but not so much that the economy is shrinking or your life is unstable, while you are doing quite well. This is a systemic problem that no monetary policy can resolve. Only radical changes to the property and economic structure of the country can do that.
Second, Americans suffer due to the the centrality of assets rather than wages in our economy. As Melinda Cooper explained in her excellent recent book Counterrevolution, America has shifted in the last few decades from an economy based on wage growth to one based on asset price increases. The general real (ie indexed to inflation) wage of workers has– with the notable exception of the Biden era– not increased much at all since the 1970s. But housing prices and stock prices have. This is a kind of deal with property-owning Americans: homeowners, rest assured that your wages might not be great, but your house will be worth a fortune, and your investments will be too!
The asset centrality of America is a deal with the devil. Housing price increases come at a cost, and we are beginning to pay it. Economic growth predicated upon higher productivity and shared prosperity is real. Economic growth based on the expectation that our grandkids will have to pay increasingly exorbitant mortgages is not. Homeowners are eating everyone else’s future.
Donald Trump and his advisors have promised that tariffs will help us “make” money. But America already has a monopoly on the making of dollars— the currency everyone wants. Dollars flow out of America precisely because they are produced here and needed elsewhere. Using “money” as shorthand for wealth and prosperity obscures reality. If Trump manages to remake global trade such that dollars mostly flow in rather than out of America, he will have done so by making American dollars less desirable.
Like Sorai, we have to look at real economic and monetary relationships. America buys a lot of goods, but it sells a lot of services: when I teach international students, I am in effect providing an export, and one that makes America wealthier. We don’t generally see it that way because of how we talk about money and imports.
Of course we need to talk about manufacturing too— but here as well the broad vibes-based focus on “making money” and “deals” makes it harder for us to see the actual relations beneath. American firms need all kinds of things produced only abroad. Tariffs will harm what factories we have, not help them. The value of Japanese coinage was not determined by its purity, and the value of America’s dollar and economy are not determined and should not be measured by how many toasters we make.
Addressing America’s problems in a better way will require us to be honest, inquisitive, and creative. As I gestured at in the into, Sorai believed ancient Confucian scholars had devised the correct “Way” to govern, and the task of the present was simply to adapt it. But he was willing to countenance surprisingly detailed adaptations. I’ve read a lot about Sorai for my book— for interested readers I recommend McEwan’s translation of excerpts of his work, Political Writings of Ogyū Sorai, since it’s on the Internet Archive, and Boot and Takayama’s edited volume, Tetsugaku Companion to Ogyu Sorai, in particular— and, like scholars who study him more properly, and I don’t think I can sum up the reasons this apparent inconsistency briefly. But we might say his near-absolute confidence in the “ancient way” actually enabled him to be more confident in changing it. It would be easy to just see this as motivated reasoning— if you can say whatever you want is the ancient way, and based on what I have read I agree with some of Sorai’s contemporary critics that he did in fact do this, then it is easy enough to be pragmatic. But Sorai’s governance proposals, while based on values we would not share today, and often on tenuous or invented connections to Confucian foundations, were based in real observations about the world around him. This is truly a virtue.
Perhaps Ogyū Sorai’s simplest but also most laudable ideas– in a body of work that includes plenty of dubious schemes!– was a proposal for listening to ordinary people. Literally. He advised that the ruling shogun should invite, once or twice a month, a group of elders from across society to the palace itself. The group would include Buddhiest priests, Confucian scholars, doctors, and even peasants, and Sorai claimed they should have “complete freedom” (according to his translator J.R. McEwan, whose translation made this article possible) to speak about government and regional affairs. This wasn’t democracy– it was more like informed technocracy. But it was a call for making decisions based on real conditions rather than vibes, assumptions, or the experiences of elites.
The most harmful schools of economics today reject empiricism entirely– they avoid real numbers, experiments, and reality. Not unlike Aristotle, right-wing economists like Ludwig von Mises, coming out of the same tradition as Herbert Spencer, insisted they could figure out reality better through supposedly pure logic. Honest questioning and careful research aren’t a substitute for ethics. They can’t tell us where to go. But they can help tell us where not to.