Makers of Japan

by J. Morris

Throughout that region in which Baron Shibusawa spent his boyhood the silkworm is an object of the keenest interest to the people, for everything hinges upon its preservation in a good state of health, and at certain stages of the worm’s existence it is regarded, even at the inns where travellers have to put up for the night when on the road, as a creature whose interests it is necessary to study far more carefully than those of a guest. The “Kaiko-sama” must on no account be disturbed. Shibusawa Eichi received the rudiments of education at his home, and was a close student of history. He read the Chinese classics with a scholar residing in an adjoining village, and helped his father in the manufacture and sale of indigo. By the time he was nineteen years old the cry of Jo-I (Out with the barbarians) which then was being raised in Yedo, little more than a long day’s tramp away from him, had penetrated to the remote village in which he dwelt, and by degrees the whole region grew to be in an uproar. Shibusawa soon betook himself to the capital, to see for himself what it all meant. There he continued his studies under the famous Gyo-son Kai-ho, a classical scholar of repute, and he was a pupil of the no less celebrated fencing master, Chiba Shusaku. From Yedo he travelled to the then seat of learning, Kioto, where he made many friends and finally was received into the Hitotsubashi clan, one of the branches of the Tokugawa family, and from which the last dynasty of Shoguns sprang. The Hitotsubashi branch was that into which the present Prince Tokugawa Keiki, “the last of the Shoguns,” was adopted,—though really a scion of the Mito house—and whose name he bore in the days immediately antecedent to the Restoration of Imperial Rule. The head of the Hitotsubashi house when Shibusawa owned allegiance to it was a very distinguished nobleman, who was instrumental in founding a modernised military system for the Tokugawas and did good service in connection with its finances. Soon afterwards Prince Keiki was called upon to succeed Iyemochi as Shogun at Yedo, and removed thither from Kioto, taking with him Shibusawa Eichi, who became an officer of the Shogunate Government or “Bakufu.” In 1867, the prince Mimbu-taiyu, a younger brother of the Shogun, was sent to France to study Western sciences and institutions, and in his suite was Shibusawa, at that time twenty-seven years of age. The opportunity was one of which he availed himself to the uttermost, and he diligently acquired all the information possible on matters that it had been his main ambition to know more about, passing no inconsiderable portion of his time in England. His stay in Europe lasted until the close of 1868, and he reached home only to find his former chief, the Shogun Tokugawa Keiki, taking up his residence in retirement at Shidzuoka, in Suruga province, 100 miles from the capital. The Restoration had been effected a few months previously.

Shibusawa received the appointment of Chief treasurer of the Shidzuoka household, under the prince Kamenosuké, who had been installed as chief of the clan, and who is now the President of the House of Peers. In this post Shibusawa found ample employment in rearranging the finances of the Tokugawa family, but he presently relinquished it on being made tax controller in the department of Finance under the newly formed Imperial Government at Tokio. In the same service he was next promoted to be Assistant Vice-minister of Finance, and also Chief Inspector of Trade, and in the performance of his duties in these offices he supervised the establishment of several joint-stock enterprises, the first of their kind undertaken in Japan. The members of these companies were merchants of Kioto and Osaka, and their enterprises extended to shipbuilding, land reclamation, etc.; the joint-stock principle thus early in the history of New Japan having begun to find favour. Soon afterwards Shibusawa was appointed Junior Vice-Minister of Finance to Inouye Bunda, as he then was—the present Count Inouye—and in 1873 both resigned in consequence of their views relative to the apportionments to different departments of the public service in the budget estimates not meeting with the support of the Ministry headed by Prince Sanjo Sanetomi. Count Inouye subsequently resumed his place as Vice-Minister of the department but Shibusawa Eichi retired altogether from the Government service, and applied himself to commercial pursuits.

Prior to the Restoration Japan possessed no institutions exactly corresponding to the modern bank. There was what was termed a “rice bank” which advanced rice to the retainers of the Shogun, and this, it is declared, dated back at least as far as the days of Iyemitsu, in 1724. The plan of operations was for certain business houses in Yedo to receive the grain as it came from the domains under the direct control of the Shogunate, and to distribute it among the Shogun’s officers in remuneration for their services. In this way the houses in question were often called on to advance sums on account of the forthcoming crops, the liabilities of the retainers to be met out of the proceeds of the grain when received from the farmers and sold. Needless to say, the normal condition of many of the samurai was one of indebtedness to the “rice banks.” When, in 1870, the present Marquis Ito was authorised to proceed to the United States to investigate financial affairs in America, especially with respect to the public debt, banking, and the monetary standard, he aroused extraordinary interest by his report on the National Bank Act of the United States, a copy of which he sent to Tokio for perusal. The need of some such system was much felt in the then existing crisis in monetary matters, and though the proposal made at that time could not be adopted in its entirety, the financiers were led to consider the advisability of setting up a bank on those lines in the near future. The reception of the idea was quickened by the cumbersome method in vogue of paying taxes in rice, a plan which not only caused delay, but resulted in loss owing to difficulties attendant on the transport of large quantities of grain from places at a distance. The question arose, should the tax be still paid in rice or in legal currency according to the market price of the commodity? If it were allowable to pay in money, then there ought to be some institution at which rice could be exchanged for ready cash. The necessities of the hour pointed to a bank as the medium which must forthwith be established.

But there was another thing that made the notion additionally attractive, and this was the position of the country’s finances in respect of the inconvertible paper currency termed “Da-Jo-Kwan Satsu”—notes issued by the Government, which were depreciated, though not to any great extent so far, and it was deemed unwise to keep them floating so long as thirteen years, the period assigned for their redemption. It had been ascertained that the United States had established a National Bank to facilitate the management of the inconvertible notes issued at the time of the Civil War, known as “Greenbacks,” and the similarity of the situation at the moment in Japan to that of America in 1860 struck everyone.

Messrs Inouye and Shibusawa, then together in the Finance Department at Tokio, cordially agreed with the proposals of Ito Hirobumi, as conveyed in his reports from America, and began to take the needful steps for establishing a National Bank of Japan on a small scale. Mr Shibusawa was made Chairman of a Committee of Investigation into the system of national banks, and after careful study the Committee framed regulations which were put into force by the Government under the National Bank Act in November 1872.

The Dai-Ichi Ginko, lit.: No. 1 Bank, prospectus appeared in December 1872, the proposers—two of them members of the renowned house of Mitsui, two of the firm of Ono, and Minomura Rizayemon, five well-known men, subscribed 2,000,000 yen, and offered 1,000,000 yen for public subscription. It illustrates the change which has come over Japan in more recent years that, notwithstanding every effort, in 1873, when the list closed, only 4408 shares had been taken in the new venture, and the capital of the bank was reduced to 2,440,800 yen, equal at present rates to about £250,000 sterling. The public had not sufficient understanding of the corporation system to be able to appreciate the new enterprise. A few years later the joint-stock concerns were numbered by the hundred. The Dai-ichi Gin-ko began business on the 20th July 1873, in the picturesque block at Nihonbashi, in Tokio, which had belonged to the Mitsui Company, and had been bought from them for 128,500 yen, and it continued thenceforward to transact a general banking business, and to act as accountant of the Finance Department, for at that time every department of the Government had its own accountant and kept its own independent set of accounts.

Mr Shibusawa,—as he was then,—on resigning his post of Junior Vice-Minister of Finance, was elected General Superintendent of the Dai-ichi Gin-ko, and discharged the duties of president.

Speaking some time ago of those early days of banking in Japan, the Baron explained that “It was the 1st day of August 1873 when the First National Bank received the certificate of authorisation. From that time we issued the new bank-notes for circulation, little by little, but there were none who came to make demands for the redemption thereof. It was our idea to have them circulated in the country districts rather than in the cities and open ports. The people of the country districts, although they were very unfavourably impressed by the old Government paper, were now better disposed to circulate the notes issued by a bank under strict Government inspection, and the general public began to put more confidence in these notes than in those which had been issued before. But we were very careful not to put too many of them into circulation, because we were well aware of the possibility of fluctuation in the price of gold and silver that would seriously affect the value. So, at first we kept back a large quantity of the paper in our vaults....” And thus by prudent management the First National Bank passed its first year with a record of 112,000 yen net profit, out of which 11,000 yen were carried at once to a reserve fund.

At the end of 1874 the bank received a severe blow by the failure of the Ono firm, which had been one of the largest shareholders, and owed the bank a considerable sum. At a general meeting it was resolved that the Ono house’s obligation would be met by the shares of 1,000,000 yen which it owned, and consequently the capital was reduced by that amount. Mr Shibusawa was elected first president of the bank, and as the Government had been a little alarmed by the Ono affair, and was determined thenceforward to establish an accountant bureau in each department of State under its own charge, the First National Bank had to hand over all Government moneys left in its control, and seek to extend its business solely among the people. It was believed that no fears need be entertained of the result, and it has, as a matter of fact, done well. In recent years it has been the chief financial organ of the Japan-Korea trade, and has floated loans for the Imperial Household and Government of Korea with complete satisfaction. The Dai-ichi Ginko notes are the recognised medium of circulation in Korea still and are facilitating the commerce of that country.