In Korea with Marquis Ito

by George Trumbull Ladd

The matter of the Customs stands midway between the development of the natural resources and the control of finance; it therefore concerns both the topics which are being briefly treated in this chapter. The following quotation from the last report of the Financial Adviser to the Korean Government gives all the information necessary to our purpose upon this point:

On the conclusion of the Russo-Japanese war, trade on the Yalu River became suddenly prosperous. It is a well-known fact that the districts along the river are rich in various sources of wealth, the opening up of which depends greatly upon the facility of transportation, as well as the prosperity of trade in those districts. While making arrangements for the convenience of traders at large, the prevention of illegal traders, as smugglers, is being carried out more strictly than ever before; and a healthy development of the trade is thus aimed at. On the seventh of June, a branch office of the Chemulpo Customs was established in Shin-Wiju. On the third of August last, a Customs Agency of this branch office was commenced at Yong-am-po, and an Inspection Station at Wiju. On the first of October last the Chin-nampo Branch Office of the Chemulpo Customs was promoted to an independent office, and the above-mentioned branch offices, agency, and station were transferred to its jurisdiction.

The increase of trade after the Russo-Japanese war was not limited to the banks of the Yalu River. A similar increase was also shown in Northern Korea, and a sufficient equipment to meet the customs demands of this increase was lacking. As a means of meeting the present requirements, the reconstruction of the Song-chin Customs Godown, which had been destroyed by fire during the war, was commenced in June last, and completed in the following October. In September last, the construction of the Customs Wharf at Song-chin was commenced and completed in November. The Wonsan Customs had not been provided with sufficient sheds, and consequently damage to the goods was an affair of frequent occurrence. Sheds were newly built there in December last. Steam launches were provided in the Customs of Chemulpo, Fusan, Wonsan, Chin-nampo and Mokpo, for purposes of inspection.

Though Japanese have now been appointed as Commissioners at Chemulpo and Fusan, the customs business is being managed in essentially the same way as when those offices were being held by Europeans, but not without some changes. From the first of September last, the institution of new customs regulations was undertaken. In October the service rules for customs officials were issued, and uniforms were prescribed for officials of the outdoor service. In November the jurisdiction of each customs office was clearly defined. Uniformity of taxes was arranged. The work was divided into several departments and sections. Various procedures in the collection of customs were altered. The new arrangements are intended both to regulate and to expedite the work of customs; but the before-mentioned concern matters of internal administration only. As to the reform of more fundamental matters, this must be undertaken in connection with the reconstruction of harbors, customs, accommodations on land, and the building of lighthouses. The Customs Maritime Works Department has been organized for this purpose—the first stage of the work to be concluded in 1911. As the port regulations now in force do not fit the present conditions in each port, alterations are now being planned. In February last the method of quarantine inspection was altered. The accounts of the Korean Customs Department have hitherto been separate from the Korean Government accounts—the revenue and expenditure of the former not being entered in the annual budget. [On the last item the Report of the Residency-General upon Administrative Reforms remarks that the impropriety of this omission is obvious.] They are, however, entered in the budget of 1907 for the first time.

The development of the resources of any country is, of course, intimately dependent upon the soundness and wisdom of its financial policy and administration. This is increasingly so under modern conditions in countries where international relations are of the greatest importance. Nothing could have been worse than the chaotic condition of the Korean finances when Mr. Megata, in conformity with the Convention signed between Japan and Korea on the 22d of August, 1905, was appointed Financial Adviser to the Korean Government by the Imperial Japanese Government.[65] Mr. Hulbert, who afterward became the most unsparing critic of Mr. Megata’s policy, himself wrote in the Korean Review, in 1903: “It is encouraging to note that every part of the Korean Executive has come to the conclusion that something has got to be done to put Korea’s money system on a more secure foundation.” It was, however, largely this same “Korean Executive” which had been chiefly responsible for the deterioration of the currency and for the entire confusion in the financial condition of the country. On this matter of the deterioration of the currency, the Financial Adviser says in one of his Reports:[66] “The currency of Korea, though nominally on a silver basis, has hitherto in reality possessed no standard, and only cash and nickel coins have been in circulation. Before the commencement of the reorganization of the currency, the market rate of the nickel coins fell to 250 won for 100 yen in gold (Japanese currency); while that of the cash fluctuated from 100 per cent. to 60 per cent. premium. All cash pass at a uniform rate in spite of their different sizes and weights. The market rate varies according to the condition of supply and demand. When the market rate is equivalent to one rin (1-1000 yen Japanese currency) it is called par; when it is 2 rin, the cash is at 100 per cent. premium. Cash are preferred in some provinces, nickel coins in other provinces. Since the commencement of the withdrawal of the old nickel coins in June, 1905, the market rate has gradually risen, and at present it is steady at the normal rate of 200 won to 100 yen. (According to the Currency Law, the face value of the old nickel coin is 2.5 sen, its intrinsic value being 2 sen).”[67]

Nor was the chaotic state of the currency the only evil connected with its use. The cash, while having the preference over the nickel coins because its intrinsic value was more nearly equal to its market value, and it was therefore more stable, was intolerably inconvenient for monetary transactions of any considerable size. Its value was so low as to make it not worth the risk of counterfeiting. But even the traveller for a few weeks in the country could pay his expenses only by taking along several mule-loads of these petty coins. The nickels, on the contrary, were exceedingly unstable, and were subject to wholesale debasement and counterfeiting. It is true, as Mr. Hulbert charges, that “counterfeit nickels were made largely by the Japanese in Osaka”; but it is also true that these coins were counterfeited in large quantities by the Chinese, and that the worst offenders were the Koreans themselves. Here, as everywhere during the contemporaneous history of Korean affairs, it was the “Korean Executive” which was chiefly to blame. In some cases the Government loaned its coining machine for a money consideration; in others, the “promoter of the minting industry” was obliged to content himself with a manufacturing outfit obtained on private account. In this connection the author calls to mind an astonishing but authentic story of how a boy, deputed by his father to return to a benevolent association in Seoul a sum of money which had been originally stolen by the trusted agent of this association and loaned to the father, stole the money again and spent it in the purchase of a counterfeiting machine. It should be added that these remarkable transactions were of recent occurrence.

Japanese counterfeiters were arrested, tried and punished, after the passage of a law by the Diet making it an offence to counterfeit foreign money in Japan, with the same penalties as those applied to cases of counterfeiting Japanese money.[68] Even before that, administrative measures were taken by the Japanese to break up the illicit industry. So far as Korean offenders were concerned, nothing was done to punish the chief culprits. In fact, the Korean Government was hardly in a position to do anything, having itself made large over-issues of nickels, and even surreptitiously farmed out the right to private individuals to coin them. This right was exercised, among others, by a relative of the Emperor. Doubtless this official malfeasance is what Mr. Hulbert alludes to when he speaks of the “prime movers in the deterioration of the currency.”

The history of this nickel coinage is another illustration of the opera bouffe methods which characterize Korean public administration. The discovery of the potentialities of fiat currency probably came in the nature of a revelation to Korean officialdom. It opened vistas of profit never before dreamed of; all that was needed was the raw material and a machine. Finally the industry ceased to be as remunerative as at first; and the “Korean Executive,” all branches of it, discovered (in 1903) that, sooner or later, even a nickel coinage will find its true level.

Such, briefly described, was the deplorable state of the financial affairs of Korea when Mr. Megata’s administration began. This was only a brief time ago, or in 1905. What has already been accomplished for the reform of the Korean finances may be summarized as follows.[69] The first step taken was the adoption of the gold standard, followed by the promulgation of a law strictly prohibiting the private minting of nickel coins, and the endeavor to recall this currency already in circulation. Measures were also taken to popularize the circulation of notes issued by the Dai Ichi Ginko (First Bank), and to enlarge the sphere of circulation for the coins newly introduced. “The organ for the circulation of money and the collection of the taxes having been now fairly well provided, efforts will be made to restrict and ultimately prohibit the circulation of the fractional cash now in use in the three southern provinces, by encouraging the employment of notes in accordance with the law regulating currency.” “As regards the bank-notes issued by the General Office of the First Bank in Korea, the Korean Government has officially sanctioned their compulsory circulation. But, it being deemed desirable to have said Government grow firm and content in the idea that the notes are the national currency, a contract was concluded in July, last year (1906), between the Government and the First Bank, providing that the pattern and denomination of the notes shall be subject to the approval of the Resident-General and the Korean Minister of Finance; that the amount of their issue and of the reserve be reported every week to the said Minister; that the Korean Government have the power to institute inquiries and examinations with respect to the issue of notes; and that the bank be placed under reasonable obligations in return for the exclusive privilege of issuing notes.”