Makers of Japan

by J. Morris

COUNT MATSUKATA

The monetary system in vogue in the last days of the Tokugawa Shogunate was based on an obsolete plan established as far back as 1600 A.D. and various causes had combined to bring the currency of Japan into the utmost disorder. His course of study led Matsukata to appreciate the necessity of action long before the opportunity came to him to put his ideas into practice. The coins in circulation had become debased, having lost in quality and quantity by successive recoinage, to which the Shogunate had resort as a relief measure at times of financial distress. Some of the feudal lords, moreover,—of whom there were in all some 270,—had secretly coined money, and counterfeits had become numerous. Most of the Hans—i.e. baronial administrations—had issued paper money for circulation within their respective jurisdictions, and the value of such notes had undergone great depreciation. The Shogun’s administration was prompt to realise, on the opening of the country to trade with Western nations under the treaties, the serious loss which the country was sustaining on account of the disordered state of the coinage, but before any adequate steps were taken towards reform the Shogunate regime came to an end and an new era dawned for Japan under the beneficent influences of the reign of Meiji.

The imperial government even instituted a scheme of monetary reform while yet the revolutionary war was in progress, for a system of recoinage was drawn up and adopted in April 1868, and steps were taken to found a Government Mint. At the end of 1869 it was resolved to base the new coinage on the metric system, making silver the standard unit of value and gold subsidiary. The Hong Kong Mint was purchased outright, on the Colony ceasing to coin for itself, and many members of the British staff were engaged by the Tokio Government to supervise the operations of the establishment, which it was found expedient to set up at Osaka. It began to coin silver in November 1870.

While this substantial progress was being made by the newly formed imperial government Ito Hirobumi (the present marquis) was travelling in the United States,—he then occupying the post of Vice-Minister of Finance,—and from what he saw he was induced to write home strenuously advocating the establishment by Japan of a gold standard. His memorandum is quoted at some length elsewhere, but its salient points may be briefly summarised here, because its cogency appealed to Matsukata, who made it practically the chief aim of his official life to procure the adoption of a gold standard for his country, and finally triumphed over the many and vast obstacles that lay in the path of its successful introduction. Ito Hirobumi’s memorandum referred to the opinions of economists the world over displaying a decided bent towards the choice of gold as the fittest metal for standard, and mentioned that the fact that Austria, Holland, and some other countries were still maintaining a silver standard was probably due to the difficulty met with in making a change. He urged that it would be a wise policy for Japan, in her new coinage, to profit by the teachings of modern times. He admitted the necessity of provisionally making silver the standard, but insisted that Japan should keep in view the time when gold might be adopted as the more suitable basis of her monetary system.

At the time when the Satsuma men were contending at Fushimi, near Kioto, with the adherents of the Shogun the future Count Matsukata was residing in Nagasaki. The Governor of the town happened to be a northern man, one whose sympathies were wholly with the Tokugawa side, to which, indeed, he had been indebted for his appointment to the post he held. At Nagasaki the trend of opinion was of course anti-Shogunate, and the Governor, recognising that his rule must necessarily be somewhat unpopular, decided, it would seem, to take his leave rather abruptly, for he hastily quitted his official residence and sought safety in flight. The administration of the treaty port could not be left unprovided for, and therefore Matsukata and a few other young men who were on the spot at this crisis resolved to take matters into their own control. As soon as the upheaval of 1868 had subsided and affairs were beginning to run their normal course, Matsukata was offered a position under the newly established government at Tokio, but he was for a short time placed in charge of its interests at Nagasaki as Local Governor. In 1871 he was attached to the Department of Finance, for it had been discovered that he possessed exceptional qualifications for dealing with problems of the knotty character which were at that period of transition apt to present themselves. The connection with the national finances thus auspiciously begun in the fourth year of the Meiji era has never ceased, since he is still frequently consulted on points of policy in which it is considered that his matured judgment will be of benefit to the nation.

In the year 1874, when Japan was about to embark on an expedition to Formosa, to avenge the deaths of several of her sons at the hands of the savages whom China professed to be unable to control, the Count was made Vice-Minister of the Department of Finance, and began a series of fiscal reforms among which the conversion of the pensions granted to the lords and their retainers of the old regime into public loan bonds was one of the most important. The 7 per cent. Foreign Loan raised in 1873, and which was entirely redeemed in 1897, was devoted in the main to the supply of funds to those samurai who had of their own accord surrendered their hereditary pensions and who were at that time entering, in not a few instances, on a business career. In 1874 the Voluntarily Capitalised Pension Bonds were issued for granting relief in the form either of cash or bonds to the samurai in order that they might be enabled to carry on their commercial pursuits. In 1876, when the old hereditary pension system was entirely abolished, a systematised plan of compounding the pensions with capitalised pension bonds was at once instituted, it being the intention of the government that these bonds should be made the capital of National Banks, and that those banks should be authorised to issue notes. In this way it was believed that the poorer samurai would at once be placed in funds, while the economic market would be supplied with much wanted capital in the form of bank notes. As Count Matsukata has remarked, “it is needless to note that these ideas were based on an erroneous notion that capital and currency were interchangeable terms.”

Meanwhile almost unlooked for and wholly insurmountable difficulties had been encountered in the effort to establish in Japan a gold standard, as defined in the coinage law of May 1871, based on Ito Hirobumi’s recommendations, the intrinsic merit of which was not disputed though it had most reluctantly to be confessed that the time was not propitious for their entire adoption. Situated as Japan was in the midst of the silver countries of the East, it was found impossible to uphold the gold standard, and the Government had been driven, moreover, to the expedient of issuing paper money to meet its financial needs at a time when it was hampered by having, in addition to other embarrassments, to take over all the notes issued by the former daimios who had been dispossessed—voluntarily, it must be added—of their fiefs on the restoration of a central imperial government. Paper money was at a heavy discount for a long time, partly because the people could not overcome their repugnance to notes due to the sad experience they had had in years gone by of the inconvertible “satsu” of feudal times. The crisis had been partly met by the issue of 6 per cent. Government bonds (kin-satsu, lit.: gold note) given in exchange for the paper money in order to decrease its amount, and by degrees the hatred of paper money wore off. The Satsuma rebellion in 1877, however, once more placed the Government under the necessity of issuing a large amount of inconvertible notes, which brought about a new depreciation, prices rose rapidly, gold and silver left the country, as imports vastly exceeded the exports, and in 1880-1 there was great financial distress. As Count Matsukata in his work on the “Adoption of the Gold Standard in Japan” has said,—“that disastrous results would inevitably follow if convertible paper money were made the standard of value” might easily have been foreseen, but it appeared that an idea prevailed that the difference between the price of silver and paper was an indication, not of the depreciation of paper, but of the appreciation of silver. The attempt was made to stop the rise of the price of silver by increasing the amount of its circulation. The Government sold silver coins, opened places for the exchange of Mexican dollars, and established the Yokohama Specie Bank in order to call forth the coins hoarded by the people. But the more these measures were resorted to the more rose the price of silver.

It was while matters remained in this awkward fix that Matsukata Masayoshi received the portfolio of Finance in October 1881. “It was at this crisis,” he states in his Report, “that it occurred to me as I studied the case that in order to effect the object in view the Government should, side by side with the redemption of a portion of the paper money in circulation, take steps to increase the specie reserve of the Government preparatory to the resumption of specie payment. Moreover, in order to put the country’s finance on a sound basis and relieve the pressing distress of the time, I felt the need of a central bank having the sole privilege of issuing convertible notes. I submitted a scheme for the establishment of such a central bank to my colleagues. In the Cabinet Council which followed my suggestions were approved, and in June 1882 the Nippon Ginko (Bank of Japan) was established. Two years later it was empowered to issue convertible notes. After the necessary foundations were in this way laid, the Government used every means in its power to raise thereon a sound financial superstructure. The method of receiving and disbursing the State revenue was changed, and the strictest economy was practised in the expenditures of the different departments. One half of the surplus obtained in this way was devoted to the redemption of paper money, while the other half was added to the specie reserve of the Government. Besides, after the latter part of 1881 this reserve fund was employed for discounting foreign bills of exchange, with a view to encourage the export trade of the country, which in its turn would lead to the importation of specie.”

Something more was done, however, in the way of accumulating specie besides the transaction of foreign exchange. Count Matsukata proposed as an important adjunct to the scheme that the Government should engage in the direct exportation of rice and seaweed, and his memoranda on the subject, dated November 1882 and February 1883, only adopted by the Cabinet in June 1883,—a clear proof that there was no undue haste in any of the steps taken in this pre-eminently momentous national affair,—took in part the form given below. It should serve in its tone to explain with what solicitude the Government of Tokio views all questions that hinge upon the successful cultivation of Japan’s most valuable staple.