Just as numerous scholars have delved into the interplay between markets and institutions in an attempt to explain the postwar economic miracle, this paper examines the relationship between markets and institutions in Tokugawa Japan in an attempt to better explain the phenomenon of economic development at that time. In particular, this paper focuses on the Tokugawa era institution of the sankin kotai, or alternate attendance system, and argues that conventional explanations attributing the unusual economic development of this period to the unilateral coercive government power of this institution are problematic. The author argues that the alternate attendance system must instead be understood as a rational institution which promoted mutual compliance ex post and allowed for credible commitments ex ante through its harmonization of interests. The resulting peace dividend generated the positive externalities requisite for the development of a market economy.

In comparison with the postwar decades from 1945 to 1990, East Asian prospects for peaceful stability and economic growth have never been better. The Cold War confrontation between the Soviet Union and the United States has ended. The arms race that flooded the Pacific region with Soviet and U.S. nuclear weapons systems has been replaced by a gradual phasing out of tactical and intermediate missiles. The navies of the two superpowers are diminishing, albeit involuntary on Russia’s part. Moscow’s alliances with Pyongyang and Hanoi now exist only on paper. Washington’s bases in the Philippines were closed by mutual agreement.