Makers of Japan

by J. Morris

“Rice being the greatest of our national products, the abundance or scarcity of its harvest and the fluctuations in its price naturally affect to no small extent the financial condition of the country. As to the contingency of a bad harvest, there is already in operation the Law of Storing, and ... I shall confine myself to providing means of disposing of surplus rice in a year of abundance. For should there occur an extraordinary depreciation in the price of rice, it would not only make it difficult to raise the revenues, but it would interfere with the development of agricultural enterprises, affecting thereby the general trade and commerce of the country. For this reason it seems to me that the best means to prevent such a contingency would be to export rice to foreign countries. It so happens, however, that work of this kind, owing to shrinkage from rotting and other causes, and the time involved in transport over wide seas, can hardly ever pay in private hands. If the Government undertakes it these apprehensions need not be entertained. When specie is as scarce as it is to-day, the Government must still provide it for the payment of unavoidable expenses, such as the army and navy, and it seems to me that every effort ought to be made to absorb specie by enlarging the list of exported commodities. The export to foreign countries of the surplus rice will be like killing two birds with one stone, for it will provide specie for the Government and protect the income of the farmer. There seems to be a growing increase in the demand for Japanese rice in Western markets, owing to the gradual recognition of its superior quality. As it is an urgent necessity to draw in specie, let what has hitherto formed the Reserve Fund (of the Department of Agriculture) be turned into capital for making yearly purchases of rice in suitable quantities according to conditions of crop and market price, in order that it may be sent abroad, and let the Finance Department be charged with the duty of keeping accounts.”

The actual quantity of rice exported under this arrangement amounted to some 6,000,000 bushels, and in selling the rice British and American coins were taken in payment, and the various earnings were transferred to Japan through the agency of the Yokohama Specie Bank in the form of draft or of gold and silver bullion. Altogether the specie accumulated by the Government, by its several measures, was in English money value about £28,750,000 sterling, the total disbursements from this huge sum having been £23,500,000, leaving a margin of £5,250,000 to be applied to the redemption of paper money.

In this way and on the recommendations of Count Matsukata the needful redemption was brought about, and at the close of 1885 the difference between the value of silver and paper money had almost disappeared. Notice was given by the Government, therefore, that on and from the 1st of January 1886 specie payments would be resumed. The actual amount of specie held at that time in the State coffers was of the value of £4,500,000 sterling.

The adjustment of the paper currency thus accomplished prepared Japan to reap the benefits of a scientific system of coinage. The rate of interest fell,—commercial and industrial enterprises began to expand,—the volume of the country’s foreign trade increased greatly. Count Matsukata had rid his nation of one serious impediment to its progress, but in the process Japan had become de facto a silver standard country. Sooner or later, as he well knew, she would have to enter the international economic community, and to do this she would have to adopt a gold standard.

Prior to 1873 the price of silver had not shown any great variations, the ratio between gold and silver having been as a rule 1 of gold to 15½ of silver. Count Matsukata attributed the immense fall which took place in subsequent years to a number of causes, (a) the vastly increased annual output of the metal, (b) the action of the German Government in selling large quantities of silver when unifying the coinage of the Empire, (c) the adoption of a gold standard by the United States of America, and (d) the various limitations imposed on the coinage and in other forms by Continental nations. None of the measures adopted were sufficient to check the fall. In 1879 the ratio became 1 to 18,—in 1891 it was 1 to 20·92,—in 1892 it was 1 to 23·72,—and in 1893 it had become 1 to 26·49. But this was eclipsed by the figures for 1897, which at one time were as 1 to 39·70 and the average for that year was but 1 to 34·35. In Japan the consequences were most serious, for the price of commodities rose rapidly and a spirit of speculation became rampant.

It is necessary to go back a little, to the period of Count Matsukata’s initial efforts to pave the way for the introduction of a gold standard. That his financial policy led at first to Japan becoming a silver standard country was owing mainly to the immense difficulty of at once accumulating a large gold reserve necessary for the establishment of gold monometallism. It was deemed advisable to defer this essential, all but vital, alteration to some more favourable time, but Count Matsukata never relinquished for one moment the hope of being able to effect it. When it is remembered that in April 1881, 1 yen in silver fetched on an average 1 yen and 79½ sen of paper, and at one time the proportions were as 1 to 1·815,—the lowest point ever reached,—and yet four years and a half later paper and silver were on a par, the magnitude of Count Matsukata’s achievement becomes apparent. The imperial ordinance authorising the Bank of Japan to issue convertible notes was obeyed when, on the 9th of May 1885, the first of such notes were put into circulation, and the moment was seized by Count Matsukata to urge on the Government, as Minister of Finance, the advisability of taking the opportunity then presented for redeeming the whole of the inconvertible paper, and of entrusting the business of the exchange entirely to the Bank of Japan, to be effected in the ordinary way of circulation, so that the reform might be quietly and smoothly carried out. “If,” he concluded, “these suggestions shall happily receive the August Sanction, not only will the Government be able to accomplish its original purpose in regard to paper money, but the credit of the Government at home and abroad will thereby be assured, the national finance placed on a firm basis, and the future happiness of the people greatly enhanced.”

In the year 1884 Mr Matsukata, as he then was, received the rank of Haku, or Count, continuing to hold the portfolio of Finance until 1891, when he was appointed Prime Minister, but without relinquishing his post at the Okurasho, and he only quitted it, after a service of nearly twenty years in that department of State, when he resigned the Premiership also in 1892.

In the office of Premier of the third administration since the institution of Constitutional Government Count Matsukata had for one of his colleagues Count Enomoto, who had represented his country at the Courts of Russia and China, and had previously been Minister for the Navy. He now held, in the Third Cabinet, the portfolio of Foreign Affairs. Count Matsukata’s occupancy of the position of Prime Minister lasted on this occasion from May 1891 to July 1892, there having been a general election in February of that year which had resulted in a victory for the opposition, followed by Cabinet disruption, and the advent of Count Ito, as he was then, to a long lease of power.

At the period of the outbreak of war between Japan and China, Count Matsukata was in private life, pondering his all-important scheme for the permanent settlement of Japanese finance, but the successful floating of the War Loan was in a measure ascribable to his influence, for the nation had learned to couple his name with not a few judicious measures of national finance that had given relief to commercial enterprises in a very marked degree. And as the end of the campaign in Shantung and Liaotung was seen to be approaching the Emperor expressly decreed the Count’s assumption of the duties of Finance Minister, in order that he might undertake the adjustment of the country’s finances on the termination of the war. He remained in office long enough, with Marquis Ito as Premier, to initiate a movement which in effect carried him a great way towards the realisation of that cherished plan on which he had expended so much mental labour and close application both when in and out of office. He says that when India, the greatest silver country in Asia, took steps in 1893 to reorganise her currency system, the sudden fall in the price of silver had most noticeable effects in Japan, and the need of the adoption of gold as the basis of her coinage was more and more impressed on her financiers. The reform was, however, very difficult to undertake. Quite unexpectedly, however, the receipt by Japan of a large indemnity from China seemed to offer the long-desired opportunity.