Japan's economy continues to stumble, and the near future doesn't look promising. Politicians in the world's second-largest economy have restarted unsuccessful policies of pump priming and large stimulus bills. These programs didn't work in the early 1990s and won't work now. Perhaps it's time for policy makers to review what did work in Japan--in medieval times.

From about 1470 to 1600, Japan was convulsed by civil war. Although nominally ruled by an emperor, the country was in effect splintered into dozens--and ultimately hundreds--of autonomous feudal domains. Most were small and quickly absorbed by larger neighbors. But a few dozen thrived and fought each other for political and military supremacy.

One of the key ingredients for success turned out to be a form of economic laissez faire. Some of the most powerful and farseeing feudal lords, such as the great Oda Nobunaga, turned their domains into free-trade zones. They lowered or abolished taxes, reduced road tariffs on transported goods and physically protected local merchants. Their large, fortified castles served as administrative command centers and urban trading posts. The development of regular markets stimulated local and regional trade. Leading samurai lords also carefully invested in public works that promoted both their control as well as economic growth, from building roads and ports to river dredging and massive leveling and landfill operations that expanded cities.

As a result, the most sophisticated and skilled artisans and merchants swarmed to these low-tax, economically vibrant domains. Merchant neighborhoods blossomed outside the gates of the castles, leading to further exchange. Technological advances flourished, largely due to the century-long need to equip larger and larger armies, but also thanks to the newfound economic stability. Leading lords engaged in as much foreign trade as they could, importing Western technology for the battlefield. Defense spending, combined with low taxes, supported a decades-long economic stimulus. Ultimately, the existence of these safe, vibrant urban units, with relatively wealthy samurai and merchants, stimulated consumer spending on everything from daily needs to luxuries like porcelain, art and silks.

This system wasn't ideal, of course. There were no individual legal rights, no electoral system and no free press. Local lords held the right of life and death over all residents in their territorities. Peasants were just as likely to be conscripted for a lifetime of military service as they were to be allowed to sell their goods or become a powerful samurai. Roving bands of warriors attacked innocents at random while massive armies in the hundreds of thousands clashed on the battlefield. Death and destruction ruled wide swaths of the country.

However, a number of fairly stable territorial units figured out that the way to promote further internal stability and prosperity was to unleash the productive capabilities of their people. Lower regulation and taxation drove improvements in armaments, the arts, food production, weights and measures and infrastructure. These were the regions that became the most powerful. Many of them survived the civil wars and secured a quasi-autonomous position in the peace that followed the last great battles, around 1600.

While the free-wheeling economic freedom of the civil wars was steadily restricted during the centuries of peace that lasted until the mid-19th century, the results of that freedom remain impressive today. The lessons of Japan's medieval economic freedom may point the way out of its current malaise. Perhaps America should take notice, too.

Michael Auslin is a resident scholar at AEI.