As to the development of the navy from 1903 onwards, it is not possible to detail with absolute accuracy the plans laid down by the admiralty in TÅkyÅ, but the actual state of the fleet in the year 1909 will be apparent from the figures given below.Japan’s naval strength at the outbreak of the war with Russia in 1904 was:—Number.Displacement.Tons.Battleships684,652Armoured cruisers873,982Other cruisers44111,470Destroyers196,519Torpedo-boats807,119————Totals157283,742Losses during the war were:—Battleships227,300Cruisers (second and smallerclasses)818,009Destroyers2705Torpedo-boats7557————Totals1946,571The captured vessels repaired and added to the fleet were:—Battleships562,524Cruisers1171,276Destroyers51,740————Totals21135,530The vessels built or purchased after the war and up to the closeof 1908 were:—Battleships471,500Armoured cruisers456,700Other cruisers57,000Destroyers3312,573Torpedo-boats5760————Totals51148,533Some of the above have been superannuated, and the serviceablefleet in 1909 was:—Battleships13191,380Armoured cruisers12130,683Other cruisers, coast-defenceships and gun-boats47165,253Destroyers5520,508Torpedo-boats777,258————Totals204515,082To the foregoing must be added two armoured cruisers—the “Kurama†(14,000) launched at Yokosuka in October 1907, and the “Ibuki†(14,700) launched at Kure in November 1907, but no other battleships or cruisers were laid down in Japan or ordered abroad up to the close of 1908.There are four naval dockyards, namely, at Yokosuka, Kure, Sasebo and Maizuru. Twenty-one vessels built at Yokosuka since 1876 included a battleship (19,000 tons) and an armoured cruiser (14,000 tons); seven built at KureNaval Dockyards.since 1898 included a battleship (19,000 tons) and an armoured cruiser (14,000 tons). The yards at Sasebo and Maizuru had not yet been used in 1909 for constructing large vessels. Two private yards—the Mitsubishi at Nagasaki and Kobe, and the Kawasaki at the latter place—have built several cruisers, gun-boats and torpedo craft, and are competent to undertake more important work. Nevertheless in 1909 Japan did not yet possess complete independence in this matter, for she was obliged to have recourse to foreign countries for a part of the steel used in ship-building. Kure manufactures practically all the steel it requires, and there is a government steel-foundry at Wakamatsu on which more than 3 millions sterling had been spent in 1909, but it did not yet keep pace with the country’s needs. When this independence has been attained, it is hoped to effect an economy of about 18% on the outlay for naval construction, owing to the cheapness of manual labour and the disappearance both of the manufacturer’s profit and of the expenses of transfer from Europe to Japan.There are five admiralties—Yokosuka, Kure, Sasebo, Maizuru and Port Arthur; and four naval stations—Takeshiki (in Tsushima), Mekong (in the Pescadores), Ominato and Chinhai (in southern Korea).The navy is manned partly by conscripts and partly by volunteers.Personnel.About 5500 are taken every year, and the ratio is, approximately, 55% of volunteers and 45% of conscripts. The period of active service is 4 years and that of service with the reserve 7 years. On the average 200 cadets are admitted yearly, of whom 50 are engineers, and in 1906 the personnel of the navy consisted of the following:—Admirals, combative and non-combative77Officers, combative and non-combative, below the rank of admiral2,867Warrant officers9,075Bluejackets29,667Cadets721———Total42,407The highest educational institution for the navy is the naval staff college, in which there are five courses for officers alone. The gunnery and torpedo schools are attended by officers,Naval Education.and also by selected warrant-officers and bluejackets, who consent to extend their service. There is also a mechanical school for junior engineers, warrant-officers and ordinary artificers.At the naval cadet academy—originally situated inTÅkyÅbut now at Etajima near Kure—aspirants for service as naval officers receive a 3 years’ academical course and 1 year’s training at sea; and, finally, there is a naval engineering college collateral to the naval cadet academy.Since 1882, foreign instruction has been wholly dispensed with in the Japanese navy; since 1886 she has manufactured her own prismatic powder; since 1891 she has been able to make quick-firing guns and Schwartzkopf torpedoes, and in 1892 one of her officers invented a particularly potent explosive, called (after its inventor) Shimose powder.
As to the development of the navy from 1903 onwards, it is not possible to detail with absolute accuracy the plans laid down by the admiralty in TÅkyÅ, but the actual state of the fleet in the year 1909 will be apparent from the figures given below.
Japan’s naval strength at the outbreak of the war with Russia in 1904 was:—
To the foregoing must be added two armoured cruisers—the “Kurama†(14,000) launched at Yokosuka in October 1907, and the “Ibuki†(14,700) launched at Kure in November 1907, but no other battleships or cruisers were laid down in Japan or ordered abroad up to the close of 1908.
There are four naval dockyards, namely, at Yokosuka, Kure, Sasebo and Maizuru. Twenty-one vessels built at Yokosuka since 1876 included a battleship (19,000 tons) and an armoured cruiser (14,000 tons); seven built at KureNaval Dockyards.since 1898 included a battleship (19,000 tons) and an armoured cruiser (14,000 tons). The yards at Sasebo and Maizuru had not yet been used in 1909 for constructing large vessels. Two private yards—the Mitsubishi at Nagasaki and Kobe, and the Kawasaki at the latter place—have built several cruisers, gun-boats and torpedo craft, and are competent to undertake more important work. Nevertheless in 1909 Japan did not yet possess complete independence in this matter, for she was obliged to have recourse to foreign countries for a part of the steel used in ship-building. Kure manufactures practically all the steel it requires, and there is a government steel-foundry at Wakamatsu on which more than 3 millions sterling had been spent in 1909, but it did not yet keep pace with the country’s needs. When this independence has been attained, it is hoped to effect an economy of about 18% on the outlay for naval construction, owing to the cheapness of manual labour and the disappearance both of the manufacturer’s profit and of the expenses of transfer from Europe to Japan.
There are five admiralties—Yokosuka, Kure, Sasebo, Maizuru and Port Arthur; and four naval stations—Takeshiki (in Tsushima), Mekong (in the Pescadores), Ominato and Chinhai (in southern Korea).
The navy is manned partly by conscripts and partly by volunteers.Personnel.About 5500 are taken every year, and the ratio is, approximately, 55% of volunteers and 45% of conscripts. The period of active service is 4 years and that of service with the reserve 7 years. On the average 200 cadets are admitted yearly, of whom 50 are engineers, and in 1906 the personnel of the navy consisted of the following:—
The highest educational institution for the navy is the naval staff college, in which there are five courses for officers alone. The gunnery and torpedo schools are attended by officers,Naval Education.and also by selected warrant-officers and bluejackets, who consent to extend their service. There is also a mechanical school for junior engineers, warrant-officers and ordinary artificers.
At the naval cadet academy—originally situated inTÅkyÅbut now at Etajima near Kure—aspirants for service as naval officers receive a 3 years’ academical course and 1 year’s training at sea; and, finally, there is a naval engineering college collateral to the naval cadet academy.
Since 1882, foreign instruction has been wholly dispensed with in the Japanese navy; since 1886 she has manufactured her own prismatic powder; since 1891 she has been able to make quick-firing guns and Schwartzkopf torpedoes, and in 1892 one of her officers invented a particularly potent explosive, called (after its inventor) Shimose powder.
Finance.—Under the feudal system of the Tokugawa (1603-1871), all land in Japan was regarded as state property, and parcelled out into 276 fiefs, great and small, which were assigned to as many feudatories. These were empoweredThe Feudal Period.to raise revenue for the support of their households, for administrative purposes, and for the maintenance of troops. The basis of taxation varied greatly in different districts, but, at the time of the Restoration in 1867, the general principle was that four-tenths of the gross produce should go to the feudatory, six-tenths to the farmer. In practice this rule was applied to the rice crop only, the assessments for other kinds of produce being levied partly in money and partly in manufactured goods. Forced labour also was exacted, and artisans and tradesmen were subjected to pecuniary levies. The yield of rice in 1867 was about 154 million bushels,21of which the market value at prices then ruling was £24,000,000, or240,000,000yen.22Hence the grain tax represented, at the lowest calculation, 96,000,000yen. When the administration reverted to the emperor in 1867 the central treasury was empty, and the funds hitherto employed for governmental purposes in the fiefs continued to be devoted to the support of the feudatories, to the payment of the samurai, and to defraying the expenses of local administration, the central treasury receiving only whatever might remain after these various outlays.
The shÅgun himself, whose income amounted to about £3,500,000, did not, on abdicating, hand over to the sovereign either the contents of his treasury or the lands from which he derived his revenues. He contended that funds for the government of the nation as a whole should be levied from the people at large. Not until 1871 did the feudal system cease to exist. The fiefs being then converted into prefectures, their revenues became an asset of the central treasury, less 10% allotted for the support of the former feudatories.23
But during the interval between 1867 and 1871, the men on whom had devolved the direction of national affairs saw no relief from crippling impecuniosity except an issue of paper money. This was not a novelty in Japan. PaperPaper Money.money had been known to the people since the middle of the 17th century, and in the era of which we are now writing no less than 1694 varieties of notes were in circulation. There were gold notes, silver notes, cash-notes, rice-notes, umbrella-notes, ribbon-notes, lathe-article-notes, and so on through an interminable list, the circulation of each kind being limited to the issuing fief. Many of these notes had almost ceased to have any purchasing power, and nearly all were regarded by the people as evidences of official greed. The first duty of a centralized progressive administration should have been to reform the currency. The political leaders of the time appreciated that duty, but saw themselves compelled by stress of circumstances to adopt the very device which in the hands of the feudal chiefs had produced such deplorable results. The ordinary revenue amounted to only 3,000,000yen, while the extraordinary aggregated 29,000,000, and was derived wholly from issues of paper money or other equally unsound sources.
Even on the abolition of feudalism in 1871 the situation was not immediately relieved. The land tax, which constituted nine-tenths of the feudal revenues, had been assessed by varying methods and at various rates byLand Tax.the different feudatories, and re-assessment of all the land became a preliminary essential to establishing a uniform system. Such a task, on the basis of accurate surveys, would have involved years of work, whereas the financial needs of the state had to be met immediately. Under the pressure of this imperative necessity a re-assessment was roughly made in two years, and being continued thereafter with greater accuracy, was completed in 1881. This survey, eminently liberal to the agriculturists, assigned a value of 1,200,000,000yento the whole of the arable land, and the treasury fixed the tax at 3% of the assessed value of the land, which was about one-half of the real market value. Moreover, the government contemplated a gradual reduction of this already low impost until it should ultimately fall to 1%. Circumstances prevented the consummation of that purpose. The rate underwent only one reduction of ½%, and thereafter had to be raised on account of war expenditures. On the whole, however, no class benefited more conspicuously from the change of administration than the peasants, since not only was their burden of taxation light, but also they were converted from mere tenants into actual proprietors. In brief, they acquired the fee-simple of their farms in consideration of paying an annual rent equal to about one sixty-sixth of the market value of the land.
In 1873, when these changes were effected, the ordinary revenue of the state rose from 24,500,000yento 70,500,000yen. But seven millions sterling is a small income for a country confronted by such problems as Japan had to solve.State Revenue.She had to build railways; to create an army and a navy; to organize posts, telegraphs, prisons, police and education; to construct roads, improve harbours, light and buoy the coasts; to create a mercantile marine; to start under official auspices numerous industrial enterprises which should serve as object lessons to the people, as well as to lend to private persons large sums in aid of similar projects. Thus, living of necessity beyond its income, the government had recourse to further issues of fiduciary notes, and in proportion as the volume of the latter exceeded actual currency requirements their specie value depreciated.
This question of paper currency inaugurates the story of banking; a story on almost every page of which are to be found inscribed the names of Prince ItÅ, Marquis Inouye, Marquis Matsukata, Count Okuma and BaronBanks.Shibusawa, the fathers of their country’s economic and financial progress in modern times. The only substitutes for banks in feudal days were a few private firms—“households†would, perhaps, be a more correct expression—which received local taxes in kind, converted them into money, paid the proceeds to the central government or to the feudatories, gave accommodation to officials, did some exchange business, and occasionally extended accommodation to private individuals. They were not banks in the Occidental sense, for they neither collected funds by receiving deposits nor distributed capital by making loans. The various fiefs were so isolated that neither social nor financial intercourse was possible, and moreover the mercantile and manufacturing classes were regarded with some disdain by the gentry. The people had never been familiarized with combinations of capital for productive purposes, and such a thing as a joint-stock company was unknown. In these circumstances, when the administration of state affairs fell into the hands of the men who had made the restoration, they not only lacked the first essential of rule, money, but were also without means of obtaining any, for they could not collect taxes in the fiefs, these being still under the control of the feudal barons; and in the absence of widely organized commerce or finance, no access to funds presented itself. Doubtless the minds of these men were sharpened by the necessities confronting them, yet it speaks eloquently for their discernment that, samurai as they were, without any business training whatever, one of their first essays was to establish organizations which should take charge of the national revenue, encourage industry and promote trade and production by lending money at comparatively low rates of interest. The tentative character of these attempts is evidenced by frequent changes. There was first a business bureau, then a trade bureau, then commercial companies, and then exchange companies, these last being established in the principal cities and at the open ports, their personnel consisting of the three great families—Mitsui, Shimada and Ono—houses of ancient repute, as well as other wealthy merchants in KiÅto, Osaka and elsewhere. These exchange companies were partnerships, though not strictly of the joint-stock kind. They formed the nucleus of banks in Japan, and their functions included, for the first time, the receiving of deposits and the lending of money to merchants and manufacturers. They had power to issue notes, and, at the same time, the government issued notes on its own account. Indeed, in this latter fact is to be found one of the motives for organizing the exchange companies, the idea being that if the state’s notes were lent to the companies, the people would become familiarized with the use of such currency, and the companies would find them convenient capital. But this system was essentially unsound: the notes, alike of the treasury and of the companies, though nominally convertible, were not secured by any fixed stock of specie. Four years sufficed to prove the unpracticality of such an arrangement, and in 1872 the exchange companies were swept away, to be succeeded in July 1873 by the establishment of national banks on a system which combined some of the features of English banking with the generalbases of American. Each bank had to pay into the treasury 60% of its capital in government notes. It was credited in return with interest-bearing bonds, which bonds were to be left in the treasury as security for the issue of bank-notes to an equal amount, the banks being required to keep in gold the remaining 40% of their capital as a fund for converting the notes, which conversion must always be effected on application. The elaborators of this programme were Ito, Inouye, Okuma and Shibusawa. They added a provision designed to prevent the establishment of too small banks, namely, that the capital of each bank must bear a fixed ratio to the population of its place of business. Evidently the main object of the treasury was gradually to replace its own fiat paper with convertible bank-notes. But experience quickly proved that the scheme was unworkable. The treasury notes had been issued in such large volume that sharp depreciation had ensued; gold could not be procured except at a heavy cost, and the balance of foreign trade being against Japan, some 300,000,000yenin specie flowed out of the country between 1872 and 1874.
It should be noted that at this time foreign trade was still invested with a perilous character in Japanese eyes. In early days, while the Dutch had free access to her ports, they sold her so much and bought so little in return that an immense quantity of the precious metals flowed out of her coffers. Again, when over-sea trade was renewed in modern times, Japan’s exceptional financial condition presented to foreigners an opportunity of which they did not fail to take full advantage. For, during her long centuries of seclusion, gold had come to hold to silver in her coinage a ratio of 1 to 8, so that gold cost, in terms of silver, only one-half of what it cost in the West. On the other hand, the treaty gave foreign traders the right to exchange their own silver coins against Japanese, weight for weight, and thus it fell out that the foreigner, going to Japan with a supply of Mexican dollars, could buy with them twice as much gold as they had cost in Mexico. Japan lost very heavily by this system, and its effects accentuated the dread with which her medieval experience had invested foreign commerce. Thus, when the balance of trade swayed heavily in the wrong direction between 1872 and 1874, the fact created undue consternation, and moreover there can be no doubt that the drafters of the bank regulations had over-estimated the quantity of available gold in the country.All these things made it impossible to keep the bank-notes long in circulation. They were speedily returned for conversion; no deposits came to the aid of the banks, nor did the public make any use of them. Disaster became inevitable. The two great firms of Ono and Shimada, which had stood high in the nation’s estimation alike in feudal and in imperial days, closed their doors in 1874; a panic ensued, and the circulation of money ceased almost entirely.Evidently the banking system must be changed. The government bowed to necessity. They issued a revised code of banking regulations which substituted treasury notes in the place of specie. Each bank was thenceforth required to investChange of the Banking System.80% of its capital in 6% state bonds, and these being lodged with the treasury, the bank became competent to issue an equal quantity of its own notes, forming with the remainder of its capital a reserve of treasury notes for purposes of redemption. This was a complete subversion of the government’s original scheme. But no alternative offered. Besides, the situation presented a new feature. The hereditary pensions of the feudatories had been commuted with bonds aggregating 174,000,000yen. Were this large volume of bonds issued at once, their heavy depreciation would be likely to follow, and moreover their holders, unaccustomed to dealing with financial problems, might dispose of the bonds and invest the proceeds in hazardous enterprises. To devise some opportunity for the safe and profitable employment of these bonds seemed, therefore, a pressing necessity, and the newly organized national banks offered such an opportunity. For bond-holders, combining to form a bank, continued to draw from the treasury 6% on their bonds, while they acquired power to issue a corresponding amount of notes which could be lent at profitable rates. The programme worked well. Whereas, up to 1876, only five banks were established under the original regulations, the number under the new rule was 151 in 1879, their aggregate capital having grown in the same interval from 2,000,000yento 40,000,000yen, and their note issues from less than 1,000,000 to over 34,000,000. Here, then, was a rapidly growing system resting wholly on state credit. Something like a mania for bank-organizing declared itself, and in 1878 the government deemed it necessary to legislate against the establishment of any more national banks, and to limit to 34,000,000yenthe aggregate note issues of those already in existence.It is possible that the conditions which prevailed immediately after the establishment of the national banks might have developed some permanency had not the Satsuma rebellion broken out in 1877. Increased taxation to meet military outlay being impossible in such circumstances, nothing offered except recourse to further note issues. The result was that by 1881, fourteen years after the Restoration, notes whose face value aggregated 164,000,000yenhad been put into circulation; the treasury possessed specie amounting to only 8,000,000yen, and 18 paperyencould be purchased with 10 silver ones.Up to 1881 fitful efforts had been made to strengthen the specie value of fiat paper by throwing quantities of gold and silver upon the market from time to time, and 23,000,000yenhad been devoted to the promotion of industries whoseResumption of Specie Payments.products, it was hoped, would go to swell the list of exports, and thus draw specie to the country. But these devices were now finally abandoned, and the government applied itself steadfastly to reducing the volume of the fiduciary currency on the one hand, and accumulating a specie reserve on the other. The steps of the programme were simple. By cutting down administrative expenditure; by transferring certain charges from the treasury to the local communes; by suspending all grants in aid of provincial public works and private enterprises, and by a moderate increase of the tax on alcohol, an annual surplus of revenue, totalling 7,500,000yen, was secured. This was applied to reducing the volume of the notes in circulation. At the same time, it was resolved that all officially conducted industrial and agricultural works should be sold—since their purpose of instruction and example seemed now to have been sufficiently achieved—and the proceeds, together with various securities (aggregating 26,000,000yenin face value) held by the treasury, were applied to the purchase of specie. Had the government entered the market openly as a seller of its own fiduciary notes, its credit must have suffered. There were also ample reasons to doubt whether any available stores of precious metal remained in the country. In obedience to elementary economical laws, the cheap money had steadily driven out the dear, and although the government mint at Osaka, founded in 1871, had struck gold and silver coins worth 80,000,000yenbetween that date and 1881, the customs returns showed that a great part of this metallic currency had flowed out of the country. In these circumstances Japanese financiers decided that only one course remained: the treasury must play the part of national banker. Produce and manufactures destined for export must be purchased by the state with fiduciary notes, and the metallic proceeds of their sales abroad must be collected and stored in the treasury. This programme required the establishment of consulates in the chief marts of the Occident, and the organization of a great central bank—the present Bank of Japan—as well as of a secondary bank—the present Specie Bank of Yokohama—the former to conduct transactions with native producers and manufacturers, the latter to finance the business of exportation. The outcome of these various arrangements was that, by the middle of 1885, the volume of fiduciary notes had been reduced to 119,000,000yen, their depreciation had fallen to 3%, and the metallic reserve of the treasury had increased to 45,000,000yen. The resumption of specie payments was then announced, and became, in the autumn of that year, an accomplished fact. From the time when this programme began to be effective, Japan entered a period of favourable balance of trade. According to accepted economic theories, the influence of an appreciating currency should be to encourage imports; but the converse was seen in Japan’s case, for from 1882 her exports annually exceeded her imports, the maximum excess being reached in 1886, the very year after the resumption of specie payments.The above facts deserve to figure largely in a retrospect of Japanese finance, not merely because they set forth a fine economic feat, indicating clear insight, good organizing capacity, and courageous energy, but also because volumes of adverse foreign criticism were written in the margin of the story during the course of the incidents it embodies. Now Japan was charged with robbing her own people because she bought their goods with paper money and sold them for specie; again, she was accused of an official conspiracy to ruin the foreign local banks because she purchased exporters’ bills on Europe and America at rates that defied ordinary competition; and while some declared that she was plainly without any understanding of her own doings, others predicted that her heroic method of dealing with the problem would paralyze industry, interrupt trade and produce widespread suffering. Undoubtedly, to carry the currency of a nation from a discount of 70 or 80% to par in the course of four years, reducing its volume at the same time from 160 to 119 millionyen, was a financial enterprise violent and daring almost to rashness. The gentler expedient of a foreign loan would have commended itself to the majority of economists. But it may be here stated, once for all, that until her final adoption of a gold standard in 1897, the foreign money market was practically closed to Japan. Had she borrowed abroad it must have been on a sterling basis. Receiving a fixed sum in silver, she would have had to discharge her debt in rapidly appreciating gold. Twice, indeed, she had recourse to London for small sums, but when she came to cast up her accounts the cost of the accommodation stood out in deterrent proportions. A 9% loan, placed in England in 1868 and paid off in 1889, produced 3,750,000yen, and cost altogether 11,750,000yenin round figures; and a 7% loan, made in 1872 and paid off in 1897, produced 10,750,000yen, and cost 36,000,000yen. These considerations were supplemented by a strong aversion from incurring pecuniary obligations to Western states before the latter had consentedto restore Japan’s judicial and tariff autonomy. The example of Egypt showed what kind of fate might overtake a semi-independent state falling into the clutches of foreign bond-holders. Japan did not wish to fetter herself with foreign debts while struggling to emerge from the rank of Oriental powers.After the revision of the national bank regulations, semi-official banking enterprise won such favour in public eyes that the government found it necessary to impose limits. This conservative policy proved an incentive to privateClosing of the National Banks.banks and banking companies, so that, by the year 1883, no less than 1093 banking institutions were in existence throughout Japan with an aggregate capital of 900,000,000yen. But these were entirely lacking in arrangements for combination or for equalizing rates of interest, and to correct such defects, no less than ultimately to constitute the sole note-issuing institution, a central bank (the Bank of Japan) was organized on the model of the Bank of Belgium, with due regard to corresponding institutions in other Western countries and to the conditions existing in Japan. Established in 1882 with a capital of 4,000,000yen, this bank has now a capital of 30 millions, a security reserve of 206 millions, a note-issue of 266 millions, a specie reserve of 160 millions, and loans of 525 millions.The banking machinery of the country being now complete, in a general sense, steps were taken in 1883 for converting the national banks into ordinary joint-stock concerns and for the redemption of all their note-issues. Each national bank was required to deposit with the treasury the government paper kept in its strong room as security for its own notes, and further to take from its annual profits and hand to the treasury a sum equal to 2½% of its notes in circulation. With these funds the central bank was to purchase state bonds, devoting the interest to redeeming the notes of the national banks. Formed with the object of disturbing the money market as little as possible, this programme encountered two obstacles. The first was that, in view of the Bank of Japan’s purchases, the market price of state bonds rose rapidly, so that, whereas official financiers had not expected them to reach par before 1897, they were quoted at a considerable premium in 1886. The second was that the treasury having in 1886 initiated the policy of converting its 6% bonds into 5% consols, the former no longer produced interest at the rate estimated for the purposes of the banking scheme. The national banks thus found themselves in an embarrassing situation and began to clamour for a revision of the programme. But the government, seeing compensations for them in other directions, adhered firmly to its scheme. Few problems have caused greater controversy in modern Japan than this question of the ultimate fate of the national banks. Not until 1896 could the diet be induced to pass a bill providing for their dissolution at the close of their charter terms, or their conversion into ordinary joint-stock concerns without any note-issuing power, and not until 1899 did their notes cease to be legal tender. Out of a total of 153 of these banks, 132 continued business as private institutions, and the rest were absorbed or dissolved. Already (1890 and 1893) minute regulations had been enacted bringing all the banks and banking institutions—except the special banks to be presently described—within one system of semi-annual balance-sheets and official auditing, while in the case of savings banks the directors’ responsibility was declared unlimited and these banks were required to lodge security with the treasury for the protection of their depositors.Just as the ordinary banks were all centred on the Bank of Japan24and more or less connected with it, so in 1895, a group of special institutions, called agricultural and commercial banks, were organized and centred on a hypothec bank, theSpecial Banks.object of this system being to supply cheap capital to farmers and manufacturers on the security of real estate. The hypothec bank had its head office in TÅkyÅ and was authorized to obtain funds by issuing premium-bearing bonds, while an agricultural and industrial bank was established in each prefecture and received assistance from the hypothec bank. Two years later (1900), an industrial bank—sometimes spoken of as thecrédit mobilierof Japan—was brought into existence under official auspices, its purpose being to lend money against bonds, debentures and shares as well as to public corporations. These various institutions, together with clearing houses, bankers’ associations, the HokkaidÅ colonial bank, the bank of Formosa, savings banks (including a post-office savings bank), and a mint complete the financial machinery of modern Japan.Reviewing this chapter of Japan’s material development, we find that whereas, at the beginning of the Meiji era (1867), the nation did not possess so much as one banking institution worthy of the name, forty years later itReview of Banking Development.had 2211 banks, with a paid-up capital of £40,000,000, reserves of £12,000,000, and deposits of £147,000,000; and whereas there was not one savings bank in 1867, there were 487 in 1906 with deposits of over £50,000,000. The average yearly dividends of these banks in the ten years ending 1906 varied between 9.1 and 9.9%.Necessarily the movement of industrial expansion was accompanied by a development of insurance business. The beginnings of this kind of enterprise did not become visible, however, until 1881, and even at that comparativelyInsurance.recent date no Japanese laws had yet been enacted for the control of such operations. The commercial code, published in March 1890, was the earliest legislation which met the need, and from that time the number of insurance companies and the volume of their transactions grew rapidly. In 1897, there were 35 companies with a total paid-up capital of 7,000,000yenand policies aggregating 971,000,000yen, and in 1906 the corresponding figures were 65 companies, 22,000,000yenpaid up and policies of 4,149,000,000yen. The premium reserves grew in the same period from 7,000,000 to 108,000,000. The net profits of these companies in 1906 were (in round numbers) 10,000,000yen.The origin of clearing houses preceded that of insurance companies in Japan by only two years (1879). Osaka set the example, whichClearing Houses.was quickly followed by TÅkyÅ, Kobe, Yokohama, KiÅto and Nagoya. In 1898 the bills handled at these institutions amounted to 1,186,000,000yen, and in 1907 to 7,484,000,000yen. Japanese clearing houses are modelled after those of London and New York.Exchanges existed in Japan as far back as the close of the 17th century. At that time the income of the feudal chiefs consisted almost entirely of rice, and as this was sold to brokers, the latter found it convenient to meet at fixed timesBourses.and places for conducting their business. Originally their transactions were all for cash, but afterwards they devised time bargains which ultimately developed into a definite form of exchange. The reform of abuses incidental to this system attracted the early attention of the Meiji government, and in 1893 a law was promulgated for the control of exchanges, which then numbered 146. Under this law the minimum share capital of a bourse constituted as a joint-stock company was fixed at 100,000yen, and the whole of its property became liable for failure on the part of its brokers to implement their contracts. There were 51 bourses in 1908.Not less remarkable than this economic development was the large part acted in it by officialdom. There were two reasons for this. One was that a majority of the men gifted with originality and foresight were drawn into the ranks ofThe Government and Economic Development.the administration by the great current of the revolution; the other, that the feudal system had tended to check rather than to encourage material development, since the limits of each fief were also the limits of economical and industrial enterprise. Ideas for combination and co-operation had been confined to a few families, and there was nothing to suggest the organization of companies nor any law to protect them if organized. Thus the opening of the Meiji era found the Japanese nation wholly unqualified for the commercial and manufacturing competition in which it was thenceforth required to engage, and therefore upon those who had brought the country out of its isolation there devolved the responsibility of speedily preparing their fellow countrymen for the new situation. To these leaders banking facilities seemed to be the first need, and steps were accordingly taken in the manner already described. But how to educate men of affairs at a moment’s notice? How to replace by a spirit of intelligent progress the ignorance and conservatism of the hitherto despised traders and artisans? When the first bank was organized, its two founders—men who had been urged, nay almost compelled, by officialdom to make the essay—were obliged to raise four-fifths of the capital themselves, the general public not being willing to subscribe more than one-fifth—a petty sum of 500,000yen—and when its staff commenced their duties, they had not the most shadowy conception of what to do. That was a faithful reflection of the condition of the business world at large. If the initiative of the people themselves had been awaited, Japan’s career must have been slow indeed.Only one course offered, namely, that the government itself should organize a number of productive enterprises on modern lines, so that they might serve as schools and also as models. Such, as already noted underIndustries, was the programme adopted. It provoked much hostile criticism from foreign onlookers, who had learned to decry all official incursions into trade and industry, but had not properly appreciated the special conditions existing in Japan. The end justified the means. At the outset of its administration we find the Meiji government not only forming plans for the circulation of money, building railways and organizing posts and telegraphs, but also establishing dockyards, spinning mills, printing-houses, silk-reeling filatures, paper-making factories and so forth, thus by example encouraging these kinds of enterprise and by legislation providing for their safe prosecution. Yet progress was slow. One by one and at long intervals joint-stock companies came into existence, nor was it until the resumption of specie payments in 1886 that a really effective spirit of enterprise manifested itself among the people. Railways, harbours, mines, spinning, weaving,paper-making, oil-refining, brick-making, leather-tanning, glass-making and other industries attracted eager attention, and whereas the capital subscribed for such works aggregated only 50,000,000yenin 1886, it exceeded 1,000,000,000yenin 1906.When specie payments were resumed in 1885, the notes issued by the Bank of Japan were convertible into silver on demand, the silver standard being thus definitely adopted, a complete reversal of the system inaugurated at theAdoption of the Gold Standard.establishment of the national banks on Prince Ito’s return from the United States. Japanese financiers believed from the outset in gold monometallism. But, in the first place, the country’s stock of gold was soon driven out by her depreciated fiat currency; and, in the second, not only were all other Oriental nations silver-using, but also the Mexican silver dollar had long been the unit of account in Far-Eastern trade. Thus Japan ultimately drifted into silver monometallism, the silveryenbecoming her unit of currency. So soon, however, as the indemnity that she received from China after the war of 1894-95 had placed her in possession of a stock of gold, she determined to revert to the gold standard. Mechanically speaking, the operation was very easy. Gold having appreciated so that its value in terms of silver had exactly doubled during the first 30 years of the Meiji era, nothing was necessary except to double the denominations of the gold coins in terms ofyen, leaving the silver subsidiary coins unchanged. Thus the old 5-yengold piece, weighing 2.22221mommeof 900 fineness, became a 10-yenpiece in the new currency, and a new 5-yenpiece of half the weight was coined. No change whatever was required in the reckonings of the people. Theyencontinued to be their coin of account, with a fixed sterling value of a small fraction over two shillings, and the denominations of the gold coins were doubled. Gold, however, is little seen in Japan; the whole duty of currency is done by notes.It is not to be supposed that all this economic and financial development was unchequered by periods of depression and severe panic. There were in fact six such seasons: in 1874, 1881, 1889, 1897, 1900 and 1907. But no year throughout the whole period failed to witness an increase in the number of Japan’s industrial and commercial companies, and in the amount of capital thus invested.ToState Revenue.obtain a comprehensive idea of Japan’s state finance, the simplest method is to set down the annual revenue at quinquennial periods, commencing with the year 1878-1879, because it was not until 1876 that the system of duly compiled and published budgets came into existence.Revenue(omitting fractions)Year.*Ordinary Revenue(millions ofyen).Extraordinary Revenue(millions ofyen).Total Revenue(millions ofyen).1878-9539621883-4767831888-97418921893-486281141898-9133872201903-4224362601908-9476144620* The Japanese fiscal year is from April 1 to March 31.The most striking feature of the above table is the rapid growth of revenue during the last three periods. So signal was the growth that the revenue may be said to have sextupled in the 15 years ended 1909. This was the result of the two great wars in which Japan was involved, that with China in 1894-95 and that with Russia in 1904-5. The details will be presently shown.Turning now to the expenditure and pursuing the same plan, we have the following figures:—Expenditure(omitting fractions)Year.OrdinaryExpenditures(millions ofyen).ExtraordinaryExpenditures(millions ofyen).TotalExpenditures(millions ofyen).1878-9565611883-46815831888-96615811893-46420841898-91191012201903-4170802501908-9427193620It may be here stated that, with three exceptions, the working of the budget showed a surplus in every one of the 41 years between 1867 and 1908.The sources from which revenue is obtained are as follow:—Ordinary Revenue1894-5.1898-9.1903-4.1908-9.millionsofyen.millionsofyen.millionsofyen.millionsofyen.Taxes70.5096.20146.10299.61Receipts from stamps and Public Undertakings14.7533.0096.87164.66Various Receipts4.583.678.1511.48It appears from the above that during 15 years the weight of taxation increased fourfold. But a correction has to be applied, first, on account of the tax on alcoholic liquors and, secondly, on account of customs dues, neither of which can properly be called general imposts. The former grew from 16 millions in 1894-1895 to 72 millions in 1908-1909, and the latter from 5¼ millions to 41½ millions. If these increases be deducted, it is found that taxes, properly so called, grew from 70.5 millions in 1894-1895 to 207.86 millions in 1908-1909, an increase of somewhat less than three-fold. Otherwise stated, the burden per unit of population in 1894-1895 was 3s. 6d., whereas in 1908-1909 it was 8s. 4d. To understand the principle of Japanese taxation and the manner in which the above development took place, it is necessary to glance briefly at the chief taxes separately.The land tax is the principal source of revenue. It was originally fixed at 3% of the assessed value of the land, but in 1877 this ratio was reduced to 2½%, on which basis the tax yielded from 37 to 38 millionyenannually. After the war withLand Tax.China (1894-1895) the government proposed to increase this impost in order to obtain funds for an extensive programme of useful public works and expanded armaments (known subsequently as the “firstpost bellumprogrammeâ€). By that time the market value of agricultural land had largely appreciated owing to improved communications, and urban land commanded greatly enhanced prices. But the lower house of the diet, considering itself guardian of the farmers’ interests, refused to endorse any increase of the tax. Not until 1889 could this resistance be overcome, and then only on condition that the change should not be operative for more than 5 years. The amended rates were 3.3% on rural lands and 5% on urban building sites. Thus altered, the tax produced 46,000,000yen, but at the end of the five-year period it would have reverted to its old figure, had not war with Russia broken out. An increase was then made so that the impost varied from 3% to 17½% according to the class of land, and under this new system the tax yielded 85 millions. Thus the exigencies of two wars had augmented it from 38 millions in 1889 to 85 millions in 1907.The income tax was introduced in 1887. It was on a graduated scale, varying from 1% on incomes of not less than 300yen, to 3% on incomes of 30,000yenand upwards. At these rates the tax yielded an insignificant revenue of aboutIncome Tax.2,000,000yen. In 1899, a revision was effected for the purposes of the firstpost bellumprogramme. This revision increased the number of classes from five to ten, incomes of 300yenstanding at the bottom and incomes of 100,000yenor upwards at the top, the minimum and maximum rates being 1% and 5½%. The tax now produced approximately 8,000,000yen. Finally in 1904, when war broke out with Russia, these rates were again revised, the minimum now becoming 2%, and the maximum 8.2%. Thus revised, the tax yields a revenue of 27,000,000yen.The business tax was instituted in 1896, after the war with China, and the rates have remained unchanged. For the purposes of theBusiness Tax.tax all kinds of business are divided into nine classes, and the tax is levied on the amounts of sales (wholesale and retail), on rental value of buildings, on number of employees and on amount of capital. The yield from the tax grows steadily. It was only 4,500,000yenin 1897, but it figured at 22,000,000yenin the budget for 1908-1909.The above three imposts constitute the only direct taxes in Japan. Among indirect taxes the most important is that upon alcoholicTax on Alcoholic Liquors.liquors. It was inaugurated in 1871; doubled, roughly speaking, in 1878; still further increased thenceforth at intervals of about 3 years, until it is now approximately twenty times as heavy as it was originally. The liquor taxed is mainly sake; the rate is about 50sen(one shilling) per gallon, and the annual yield is 72,000,000yen.In 1859, when Japan re-opened her ports to foreign commerce, the customs dues were fixed on a basis of 10%ad valorem, but this was almost immediately changed to a nominal 5% and a real 3%. The customs then yielded a veryCustoms Duties.petty return—not more than three or four millionyen—and the Japanese government had no discretionary power to alter the rates. Strenuous efforts to change this system were at length successful, and, in 1899, the tariff was divided into two sections, conventional and statutory; the rates in the former being governed by a treaty valid for 12 years; those in the latter being fixed at Japan’s will. Things remained thus until the war with Russiacompelled a revision of the statutory tariff. Under this system the ratio of the duties to the value of the dutiable goods was about 15.65%. The customs yield a revenue of about 42,000,000yen.InOther Taxes.addition to the above there are eleven taxes, some in existence before the war of 1904-5, and some created for the purpose of carrying on the war or to meet the expenses of apost bellumprogramme.Taxes in existence before 1904-1905:—Name.Yield(millions ofyen).Tax on soy4Tax on sugar16¼Mining tax2Tax on bourses2Tax on issue of bank-notes1Tonnage dues½Taxes created on account of the war (1904-5) or in its immediate sequel:—Name.Yield(millions ofyen).Consumption tax on textile fabrics19½Tax on dealers in patent medicines¼Tax on communications21â„3Consumption tax on kerosene1½Succession tax1½Also, as shown above, the land tax was increased by 39 millions; the income tax by 19 millions; the business tax by 15 millions; and the tax on alcoholic liquors by 15 millions. On the whole, if taxes of general incidence and those of special incidence be lumped together, it appears that the burden swelled from 160,000,000yenbefore the war to 320,000,000 after it.The government of Japan carries on many manufacturing undertakings for purposes of military and naval equipment, for ship-building, for the construction of railway rolling stock, for the manufacture of telegraph and light-houseState Monopolies and Manufactures.materials, for iron-founding and steel-making, for printing, for paper-making and so forth. There are 48 of these institutions, giving employment to 108,000 male operatives and 23,000 female, together with 63,000 labourers. But the financial results do not appear independently in the general budget. Three other government undertakings, however, constitute important budgetary items: they are, the profits derived from the postal and telegraph services, 39,000,000yen; secondly, from forests, 13,000,000yen; and thirdly, from railways, 37,000,000yen. The government further exercises a monopoly of three important staples, tobacco, salt and camphor. In each case the crude article is produced by private individuals from whom it is taken over at a fair price by the government, and, having been manufactured (if necessary), it is resold by government agents at fixed prices. The tobacco monopoly yields a profit of some 33,000,000yen; the salt monopoly a profit of 12,000,000yen, and the camphor monopoly a profit of 1,000,000yen. Thus the ordinary revenue of the state consisted in 1908-1909 of:—Yen.Proceeds of taxes320,000,000Proceeds of state enterprises (posts and telegraphs, forests and railways)89,000,000Proceeds of monopolies56,000,000Sundries11,000,000—————Total476,000,000The ordinary expenditures of the nine departments of state aggregated—in 1908-1909—427,000,000yen, so that there was a surplus revenue of 49,000,000yen.Japanese budgets have long included an extraordinary section, so called because it embodies outlays of a special and terminable character as distinguished from ordinary and perpetually recurring expenditures. The items in this extraordinaryExtraordinary Expenditures.section possessed deep interest in the years 1896 and 1907, because they disclosed the special programmes mapped out by Japanese financiers and statesmen after the wars with China and Russia. Both programmes had the same bases—expansion of armaments and development of the country’s material resources. After her war with China, Japan received a plain intimation that she must either fight again after a few years or resign herself to a career of insignificance on the confines of the Far East. No other interpretation could be assigned to the action of Russia, Germany and France in requiring her to retrocede the territory which she had acquired by right of conquest. Japan therefore made provision for the doubling of her army and her navy, for the growth of a mercantile marine qualified to supply a sufficiency of troop-ships, and for the development of resources which should lighten the burden of these outlays.The war with Russia ensued nine years after these preparations had begun, and Japan emerged victorious. It then seemed to the onlooking nations that she would rest from her warlike efforts. On the contrary, just as she had behaved after her war with China, so she now behaved after her war with Russia—made arrangements to double her army and navy and to develop her material resources. The government drafted for the year 1907-1908 a budget with three salient features. First, instead of proceeding to deal in a leisurely manner with the greatly increased national debt, Japan’s financiers made dispositions to pay it off completely in the space of 30 years. Secondly, a total outlay of 422,000,000yenwas set down for improving and expanding the army and the navy. Thirdly, expenditures aggregating 304,000,000yenwere estimated for productive purposes. All these outlays, included in the extraordinary section of the budget, were spread over a series of years commencing in 1907 and ending in 1913, so that the disbursements would reach their maximum in the fiscal year 1908-1909 and would thenceforth decline with growing rapidity. To finance this programme three constant sources of annual revenue were provided, namely, increased taxation, yielding some 30 millions yearly; domestic loans, varying from 30 to 40 millions each year; and surpluses of ordinary revenue amounting to from 45 to 75 millions. There were also some exceptional and temporary assets: such as 100,000,000yenremaining over from the war fund; 50 millions paid by Russia for the maintenance of her officers and soldiers during their imprisonment in Japan; occasional sales of state properties and so forth. But the backbone of the scheme was the continuing revenue detailed above.The house of representatives unanimously approved this programme. By the bulk of the nation, however, it was regarded with something like consternation, and a very short time sufficed to demonstrate its impracticability. From the beginning of 1907 a cloud of commercial and industrial depression settled down upon Japan, partly because of so colossal a programme of taxes and expenditures, and partly owing to excessive speculation during the year 1906 and to unfavourable financial conditions abroad. To float domestic loans became a hopeless task, and thus one of the three sources of extraordinary revenue ceased to be available. There remained no alternative but to modify the programme, and this was accomplished by extending the original period of years so as correspondingly to reduce the annual outlays. The nation, however, as represented by its leading men of affairs, clamoured for still more drastic measures, and it became evident that the government must study retrenchment, not expansion, eschewing above all things any increase of the country’s indebtedness. A change of ministry took place, and the new cabinet drafted a programme on five bases: first, that all expenditures should be brought within the margin of actual visible revenue, loans being wholly abstained from; secondly, that the estimates should not include any anticipated surpluses of yearly revenue; thirdly, that appropriations of at least 50,000,000yenshould be annually set aside to form a sinking fund, the whole of the foreign debt being thus extinguished in 27 years; fourthly, that the state railways should be placed in a separate account, all their profits being devoted to extensions and repairs; and fifthly, that the period for completing thepost bellumprogramme should be extended from 6 years to 11. This scheme had the effect of restoring confidence in the soundness of the national finances.National Debt.—When the fiefs were surrendered to the sovereign at the beginning of the Meiji era, it was decided to provide for the feudal nobles and the samurai by the payment of lump sums in commutation, or by handing to them public bonds, the interest on which should constitute a source of income. The result of this transaction was that bonds having a total face value of 191,500,000yenwere issued, and ready-money payments were made aggregating 21,250,000yen.25This was the foundation of Japan’s national debt. Indeed, these public bonds may be said to have represented the bulk of the state’s liabilities during the first 25 years of the Meiji period. The government had also to take over the debts of the fiefs, amounting to 41,000,000yen, of which 21,500,000yenwere paid with interest-bearing bonds, the remainder with ready money. If to the above figures be added two foreign loans aggregating 16,500,000yen(completely repaid by the year 1897); a loan of 15,000,000yenincurred on account of the Satsuma revolt of 1877; loans of 33,000,000yenfor public works, 13,000,000yenfor naval construction, and 14,500,000yen26in connexion with the fiat currency, we have a total of 305,000,000yen, being the whole national debt of Japan during the first 28 years of her new era under Imperial administration.The second epoch dates from the war with China in 1894-95. The direct expenditures on account of the war aggregated 200,000,000yen, of which 135,000,000yenwere added to the national debt, the remainder being defrayed with accumulations of surplus revenue, with a part of the indemnity received from China, and with voluntary contributions from patriotic subjects. As the immediate sequel of the war, the government elaborated a large programme of armaments and public works. The expenditure for these unproductive purposes, as well as for coast fortifications, dockyards, and so on, came to 314,000,000yen, and the total of the productive expenditures included in the programme was 190,000,000yen—namely, 120 millions for railways, telegraphs and telephones; 20 millions for riparian improvements; 20 millions in aid of industrial and agricultural banks and so forth—the whole programme thus involving an outlay of 504,000,000yen. To meet this large figure, the Chinese indemnity, surpluses of annual revenue and other assets, furnished 300 millions; and it was decided that the remaining 204 millions should be obtained by domestic loans, the programme to be carried completely into operation—with trifling exceptions—by the year 1905. In practice, however, it was found impossible to obtain money at home without paying a high rate of interest. The government, therefore, had recourse to the London market in 1899, raising a loan of £10,000,000 at 4%, and selling the £100 bonds at 90. In 1902, it was not expected that Japan would need any further immediate recourse to foreign borrowing. According to her financiers’ forecast at that time, her national indebtedness would reach its maximum, namely, 575,000,000yen, in the year 1903, and would thenceforward diminish steadily. All Japan’s domestic loans were by that time placed on a uniform basis. They carried 5% interest, ran for a period of 5 years without redemption, and were then to be redeemed within 50 years at latest. The treasury had power to expedite the operation of redemption according to financial convenience, but the sum expended on amortization each year must receive the previous consent of the diet. Within the limit of that sum redemption was effected either by purchasing the stock of the loans in the open market or by drawing lots to determine the bonds to be paid off. During the first two periods (1867 to 1897) of the Meiji era, owing to the processes of conversion, consolidation, &c., and to the various requirements of the state’s progress, twenty-two different kinds of national bonds were issued; they aggregated 673,215,500yen; 269,042,198yenof that total had been paid off at the close of 1897, and the remainder was to be redeemed by 1946, according to these programmes.But at this point the empire became involved in war with Russia, and the enormous resulting outlays caused a signal change in the financial situation. Before peace was restored in the autumn of 1905, Japan had been obliged to borrow 405,000,000yenat home and 1,054,000,000 abroad, so that she found herself in 1908 with a total debt of 2,276,000,000yen, of which aggregate her domestic indebtedness stood for 1,110,000,000 and her foreign borrowings amounted to 1,166,000,000. This meant that her debt had grown from 561,000,000yenin 1904 to 2,276,000,000yen27in 1908; or from 11.3yento 43.8yenper head of the population. Further, out of the grand total, the sum actually spent on account of war and armaments represented 1,357,000,000yen. The debt carried interest varying from 4 to 5%.It will be observed that the country’s indebtedness grew by 1,700,000,000yen, in round numbers, owing to the war with Russia. This added obligation the government resolved to discharge within the space of 30 years, for which purpose the diet was asked to approve the establishment of a national debt consolidation fund, which should be kept distinct from the general accounts of revenue and expenditure, and specially applied to payment of interest and redemption of principal. The amount of this fund was never to fall below 110,000,000yenannually. Immediately after the war, the diet approved a cabinet proposal for the nationalization of 17 private railways, at a cost of 500,000,000yen, and this brought the state’s debts to 2,776,000,000yenin all. The people becoming impatient of this large burden, a scheme was finally adopted in 1908 for appropriating a sum of at least 50,000,000yenannually to the purpose of redemption.Local Finance.—Between 1878 and 1888 a system of local autonomy in matters of finance was fully established. Under this system the total expenditures of the various corporations in the last year of each quinquennial period commencing from the fiscal year 1889-1890 were as follow:—Year.Total Expenditure(millions ofyen).1889-1890221893-1894521898-1899971903-1904281581907-1908167In the same years the total indebtedness of the corporations was:—Year.Debts(millions ofyen).1890¾18941018993219046519078929The chief purposes to which the proceeds of these loans were applied are as follow:—Millions ofyen.Education5Sanitation12Industries13Public works52Local corporations are not competent to incur unrestricted indebtedness. The endorsement of the local assembly must be secured; redemption must commence within 3 years after the date of issue and be completed within 30 years; and, except in the case of very small loans, the sanction of the minister of home affairs must be obtained.Wealth of Japan.—With reference to the wealth of Japan, there is no official census. So far as can be estimated from statistics for the year 1904-1905, the wealth of Japan proper, excluding Formosa, Sakhalin and some rights in Manchuria, amounts to about 19,896,000,000yen, the items of which are as follow:—Yen(10yen= £1).Lands12,301,000,000Buildings2,331,000,000Furniture and fittings1,080,000,000Live stock109,000,000Railways, telegraphs and telephones707,000,000Shipping376,000,000Merchandise873,000,000Specie and bullion310,000,000Miscellaneous1,809,000,000———————Grand total19,896,000,000
It should be noted that at this time foreign trade was still invested with a perilous character in Japanese eyes. In early days, while the Dutch had free access to her ports, they sold her so much and bought so little in return that an immense quantity of the precious metals flowed out of her coffers. Again, when over-sea trade was renewed in modern times, Japan’s exceptional financial condition presented to foreigners an opportunity of which they did not fail to take full advantage. For, during her long centuries of seclusion, gold had come to hold to silver in her coinage a ratio of 1 to 8, so that gold cost, in terms of silver, only one-half of what it cost in the West. On the other hand, the treaty gave foreign traders the right to exchange their own silver coins against Japanese, weight for weight, and thus it fell out that the foreigner, going to Japan with a supply of Mexican dollars, could buy with them twice as much gold as they had cost in Mexico. Japan lost very heavily by this system, and its effects accentuated the dread with which her medieval experience had invested foreign commerce. Thus, when the balance of trade swayed heavily in the wrong direction between 1872 and 1874, the fact created undue consternation, and moreover there can be no doubt that the drafters of the bank regulations had over-estimated the quantity of available gold in the country.
All these things made it impossible to keep the bank-notes long in circulation. They were speedily returned for conversion; no deposits came to the aid of the banks, nor did the public make any use of them. Disaster became inevitable. The two great firms of Ono and Shimada, which had stood high in the nation’s estimation alike in feudal and in imperial days, closed their doors in 1874; a panic ensued, and the circulation of money ceased almost entirely.
Evidently the banking system must be changed. The government bowed to necessity. They issued a revised code of banking regulations which substituted treasury notes in the place of specie. Each bank was thenceforth required to investChange of the Banking System.80% of its capital in 6% state bonds, and these being lodged with the treasury, the bank became competent to issue an equal quantity of its own notes, forming with the remainder of its capital a reserve of treasury notes for purposes of redemption. This was a complete subversion of the government’s original scheme. But no alternative offered. Besides, the situation presented a new feature. The hereditary pensions of the feudatories had been commuted with bonds aggregating 174,000,000yen. Were this large volume of bonds issued at once, their heavy depreciation would be likely to follow, and moreover their holders, unaccustomed to dealing with financial problems, might dispose of the bonds and invest the proceeds in hazardous enterprises. To devise some opportunity for the safe and profitable employment of these bonds seemed, therefore, a pressing necessity, and the newly organized national banks offered such an opportunity. For bond-holders, combining to form a bank, continued to draw from the treasury 6% on their bonds, while they acquired power to issue a corresponding amount of notes which could be lent at profitable rates. The programme worked well. Whereas, up to 1876, only five banks were established under the original regulations, the number under the new rule was 151 in 1879, their aggregate capital having grown in the same interval from 2,000,000yento 40,000,000yen, and their note issues from less than 1,000,000 to over 34,000,000. Here, then, was a rapidly growing system resting wholly on state credit. Something like a mania for bank-organizing declared itself, and in 1878 the government deemed it necessary to legislate against the establishment of any more national banks, and to limit to 34,000,000yenthe aggregate note issues of those already in existence.
It is possible that the conditions which prevailed immediately after the establishment of the national banks might have developed some permanency had not the Satsuma rebellion broken out in 1877. Increased taxation to meet military outlay being impossible in such circumstances, nothing offered except recourse to further note issues. The result was that by 1881, fourteen years after the Restoration, notes whose face value aggregated 164,000,000yenhad been put into circulation; the treasury possessed specie amounting to only 8,000,000yen, and 18 paperyencould be purchased with 10 silver ones.
Up to 1881 fitful efforts had been made to strengthen the specie value of fiat paper by throwing quantities of gold and silver upon the market from time to time, and 23,000,000yenhad been devoted to the promotion of industries whoseResumption of Specie Payments.products, it was hoped, would go to swell the list of exports, and thus draw specie to the country. But these devices were now finally abandoned, and the government applied itself steadfastly to reducing the volume of the fiduciary currency on the one hand, and accumulating a specie reserve on the other. The steps of the programme were simple. By cutting down administrative expenditure; by transferring certain charges from the treasury to the local communes; by suspending all grants in aid of provincial public works and private enterprises, and by a moderate increase of the tax on alcohol, an annual surplus of revenue, totalling 7,500,000yen, was secured. This was applied to reducing the volume of the notes in circulation. At the same time, it was resolved that all officially conducted industrial and agricultural works should be sold—since their purpose of instruction and example seemed now to have been sufficiently achieved—and the proceeds, together with various securities (aggregating 26,000,000yenin face value) held by the treasury, were applied to the purchase of specie. Had the government entered the market openly as a seller of its own fiduciary notes, its credit must have suffered. There were also ample reasons to doubt whether any available stores of precious metal remained in the country. In obedience to elementary economical laws, the cheap money had steadily driven out the dear, and although the government mint at Osaka, founded in 1871, had struck gold and silver coins worth 80,000,000yenbetween that date and 1881, the customs returns showed that a great part of this metallic currency had flowed out of the country. In these circumstances Japanese financiers decided that only one course remained: the treasury must play the part of national banker. Produce and manufactures destined for export must be purchased by the state with fiduciary notes, and the metallic proceeds of their sales abroad must be collected and stored in the treasury. This programme required the establishment of consulates in the chief marts of the Occident, and the organization of a great central bank—the present Bank of Japan—as well as of a secondary bank—the present Specie Bank of Yokohama—the former to conduct transactions with native producers and manufacturers, the latter to finance the business of exportation. The outcome of these various arrangements was that, by the middle of 1885, the volume of fiduciary notes had been reduced to 119,000,000yen, their depreciation had fallen to 3%, and the metallic reserve of the treasury had increased to 45,000,000yen. The resumption of specie payments was then announced, and became, in the autumn of that year, an accomplished fact. From the time when this programme began to be effective, Japan entered a period of favourable balance of trade. According to accepted economic theories, the influence of an appreciating currency should be to encourage imports; but the converse was seen in Japan’s case, for from 1882 her exports annually exceeded her imports, the maximum excess being reached in 1886, the very year after the resumption of specie payments.
The above facts deserve to figure largely in a retrospect of Japanese finance, not merely because they set forth a fine economic feat, indicating clear insight, good organizing capacity, and courageous energy, but also because volumes of adverse foreign criticism were written in the margin of the story during the course of the incidents it embodies. Now Japan was charged with robbing her own people because she bought their goods with paper money and sold them for specie; again, she was accused of an official conspiracy to ruin the foreign local banks because she purchased exporters’ bills on Europe and America at rates that defied ordinary competition; and while some declared that she was plainly without any understanding of her own doings, others predicted that her heroic method of dealing with the problem would paralyze industry, interrupt trade and produce widespread suffering. Undoubtedly, to carry the currency of a nation from a discount of 70 or 80% to par in the course of four years, reducing its volume at the same time from 160 to 119 millionyen, was a financial enterprise violent and daring almost to rashness. The gentler expedient of a foreign loan would have commended itself to the majority of economists. But it may be here stated, once for all, that until her final adoption of a gold standard in 1897, the foreign money market was practically closed to Japan. Had she borrowed abroad it must have been on a sterling basis. Receiving a fixed sum in silver, she would have had to discharge her debt in rapidly appreciating gold. Twice, indeed, she had recourse to London for small sums, but when she came to cast up her accounts the cost of the accommodation stood out in deterrent proportions. A 9% loan, placed in England in 1868 and paid off in 1889, produced 3,750,000yen, and cost altogether 11,750,000yenin round figures; and a 7% loan, made in 1872 and paid off in 1897, produced 10,750,000yen, and cost 36,000,000yen. These considerations were supplemented by a strong aversion from incurring pecuniary obligations to Western states before the latter had consentedto restore Japan’s judicial and tariff autonomy. The example of Egypt showed what kind of fate might overtake a semi-independent state falling into the clutches of foreign bond-holders. Japan did not wish to fetter herself with foreign debts while struggling to emerge from the rank of Oriental powers.
After the revision of the national bank regulations, semi-official banking enterprise won such favour in public eyes that the government found it necessary to impose limits. This conservative policy proved an incentive to privateClosing of the National Banks.banks and banking companies, so that, by the year 1883, no less than 1093 banking institutions were in existence throughout Japan with an aggregate capital of 900,000,000yen. But these were entirely lacking in arrangements for combination or for equalizing rates of interest, and to correct such defects, no less than ultimately to constitute the sole note-issuing institution, a central bank (the Bank of Japan) was organized on the model of the Bank of Belgium, with due regard to corresponding institutions in other Western countries and to the conditions existing in Japan. Established in 1882 with a capital of 4,000,000yen, this bank has now a capital of 30 millions, a security reserve of 206 millions, a note-issue of 266 millions, a specie reserve of 160 millions, and loans of 525 millions.
The banking machinery of the country being now complete, in a general sense, steps were taken in 1883 for converting the national banks into ordinary joint-stock concerns and for the redemption of all their note-issues. Each national bank was required to deposit with the treasury the government paper kept in its strong room as security for its own notes, and further to take from its annual profits and hand to the treasury a sum equal to 2½% of its notes in circulation. With these funds the central bank was to purchase state bonds, devoting the interest to redeeming the notes of the national banks. Formed with the object of disturbing the money market as little as possible, this programme encountered two obstacles. The first was that, in view of the Bank of Japan’s purchases, the market price of state bonds rose rapidly, so that, whereas official financiers had not expected them to reach par before 1897, they were quoted at a considerable premium in 1886. The second was that the treasury having in 1886 initiated the policy of converting its 6% bonds into 5% consols, the former no longer produced interest at the rate estimated for the purposes of the banking scheme. The national banks thus found themselves in an embarrassing situation and began to clamour for a revision of the programme. But the government, seeing compensations for them in other directions, adhered firmly to its scheme. Few problems have caused greater controversy in modern Japan than this question of the ultimate fate of the national banks. Not until 1896 could the diet be induced to pass a bill providing for their dissolution at the close of their charter terms, or their conversion into ordinary joint-stock concerns without any note-issuing power, and not until 1899 did their notes cease to be legal tender. Out of a total of 153 of these banks, 132 continued business as private institutions, and the rest were absorbed or dissolved. Already (1890 and 1893) minute regulations had been enacted bringing all the banks and banking institutions—except the special banks to be presently described—within one system of semi-annual balance-sheets and official auditing, while in the case of savings banks the directors’ responsibility was declared unlimited and these banks were required to lodge security with the treasury for the protection of their depositors.
Just as the ordinary banks were all centred on the Bank of Japan24and more or less connected with it, so in 1895, a group of special institutions, called agricultural and commercial banks, were organized and centred on a hypothec bank, theSpecial Banks.object of this system being to supply cheap capital to farmers and manufacturers on the security of real estate. The hypothec bank had its head office in TÅkyÅ and was authorized to obtain funds by issuing premium-bearing bonds, while an agricultural and industrial bank was established in each prefecture and received assistance from the hypothec bank. Two years later (1900), an industrial bank—sometimes spoken of as thecrédit mobilierof Japan—was brought into existence under official auspices, its purpose being to lend money against bonds, debentures and shares as well as to public corporations. These various institutions, together with clearing houses, bankers’ associations, the HokkaidÅ colonial bank, the bank of Formosa, savings banks (including a post-office savings bank), and a mint complete the financial machinery of modern Japan.
Reviewing this chapter of Japan’s material development, we find that whereas, at the beginning of the Meiji era (1867), the nation did not possess so much as one banking institution worthy of the name, forty years later itReview of Banking Development.had 2211 banks, with a paid-up capital of £40,000,000, reserves of £12,000,000, and deposits of £147,000,000; and whereas there was not one savings bank in 1867, there were 487 in 1906 with deposits of over £50,000,000. The average yearly dividends of these banks in the ten years ending 1906 varied between 9.1 and 9.9%.
Necessarily the movement of industrial expansion was accompanied by a development of insurance business. The beginnings of this kind of enterprise did not become visible, however, until 1881, and even at that comparativelyInsurance.recent date no Japanese laws had yet been enacted for the control of such operations. The commercial code, published in March 1890, was the earliest legislation which met the need, and from that time the number of insurance companies and the volume of their transactions grew rapidly. In 1897, there were 35 companies with a total paid-up capital of 7,000,000yenand policies aggregating 971,000,000yen, and in 1906 the corresponding figures were 65 companies, 22,000,000yenpaid up and policies of 4,149,000,000yen. The premium reserves grew in the same period from 7,000,000 to 108,000,000. The net profits of these companies in 1906 were (in round numbers) 10,000,000yen.
The origin of clearing houses preceded that of insurance companies in Japan by only two years (1879). Osaka set the example, whichClearing Houses.was quickly followed by TÅkyÅ, Kobe, Yokohama, KiÅto and Nagoya. In 1898 the bills handled at these institutions amounted to 1,186,000,000yen, and in 1907 to 7,484,000,000yen. Japanese clearing houses are modelled after those of London and New York.
Exchanges existed in Japan as far back as the close of the 17th century. At that time the income of the feudal chiefs consisted almost entirely of rice, and as this was sold to brokers, the latter found it convenient to meet at fixed timesBourses.and places for conducting their business. Originally their transactions were all for cash, but afterwards they devised time bargains which ultimately developed into a definite form of exchange. The reform of abuses incidental to this system attracted the early attention of the Meiji government, and in 1893 a law was promulgated for the control of exchanges, which then numbered 146. Under this law the minimum share capital of a bourse constituted as a joint-stock company was fixed at 100,000yen, and the whole of its property became liable for failure on the part of its brokers to implement their contracts. There were 51 bourses in 1908.
Not less remarkable than this economic development was the large part acted in it by officialdom. There were two reasons for this. One was that a majority of the men gifted with originality and foresight were drawn into the ranks ofThe Government and Economic Development.the administration by the great current of the revolution; the other, that the feudal system had tended to check rather than to encourage material development, since the limits of each fief were also the limits of economical and industrial enterprise. Ideas for combination and co-operation had been confined to a few families, and there was nothing to suggest the organization of companies nor any law to protect them if organized. Thus the opening of the Meiji era found the Japanese nation wholly unqualified for the commercial and manufacturing competition in which it was thenceforth required to engage, and therefore upon those who had brought the country out of its isolation there devolved the responsibility of speedily preparing their fellow countrymen for the new situation. To these leaders banking facilities seemed to be the first need, and steps were accordingly taken in the manner already described. But how to educate men of affairs at a moment’s notice? How to replace by a spirit of intelligent progress the ignorance and conservatism of the hitherto despised traders and artisans? When the first bank was organized, its two founders—men who had been urged, nay almost compelled, by officialdom to make the essay—were obliged to raise four-fifths of the capital themselves, the general public not being willing to subscribe more than one-fifth—a petty sum of 500,000yen—and when its staff commenced their duties, they had not the most shadowy conception of what to do. That was a faithful reflection of the condition of the business world at large. If the initiative of the people themselves had been awaited, Japan’s career must have been slow indeed.
Only one course offered, namely, that the government itself should organize a number of productive enterprises on modern lines, so that they might serve as schools and also as models. Such, as already noted underIndustries, was the programme adopted. It provoked much hostile criticism from foreign onlookers, who had learned to decry all official incursions into trade and industry, but had not properly appreciated the special conditions existing in Japan. The end justified the means. At the outset of its administration we find the Meiji government not only forming plans for the circulation of money, building railways and organizing posts and telegraphs, but also establishing dockyards, spinning mills, printing-houses, silk-reeling filatures, paper-making factories and so forth, thus by example encouraging these kinds of enterprise and by legislation providing for their safe prosecution. Yet progress was slow. One by one and at long intervals joint-stock companies came into existence, nor was it until the resumption of specie payments in 1886 that a really effective spirit of enterprise manifested itself among the people. Railways, harbours, mines, spinning, weaving,paper-making, oil-refining, brick-making, leather-tanning, glass-making and other industries attracted eager attention, and whereas the capital subscribed for such works aggregated only 50,000,000yenin 1886, it exceeded 1,000,000,000yenin 1906.
When specie payments were resumed in 1885, the notes issued by the Bank of Japan were convertible into silver on demand, the silver standard being thus definitely adopted, a complete reversal of the system inaugurated at theAdoption of the Gold Standard.establishment of the national banks on Prince Ito’s return from the United States. Japanese financiers believed from the outset in gold monometallism. But, in the first place, the country’s stock of gold was soon driven out by her depreciated fiat currency; and, in the second, not only were all other Oriental nations silver-using, but also the Mexican silver dollar had long been the unit of account in Far-Eastern trade. Thus Japan ultimately drifted into silver monometallism, the silveryenbecoming her unit of currency. So soon, however, as the indemnity that she received from China after the war of 1894-95 had placed her in possession of a stock of gold, she determined to revert to the gold standard. Mechanically speaking, the operation was very easy. Gold having appreciated so that its value in terms of silver had exactly doubled during the first 30 years of the Meiji era, nothing was necessary except to double the denominations of the gold coins in terms ofyen, leaving the silver subsidiary coins unchanged. Thus the old 5-yengold piece, weighing 2.22221mommeof 900 fineness, became a 10-yenpiece in the new currency, and a new 5-yenpiece of half the weight was coined. No change whatever was required in the reckonings of the people. Theyencontinued to be their coin of account, with a fixed sterling value of a small fraction over two shillings, and the denominations of the gold coins were doubled. Gold, however, is little seen in Japan; the whole duty of currency is done by notes.
It is not to be supposed that all this economic and financial development was unchequered by periods of depression and severe panic. There were in fact six such seasons: in 1874, 1881, 1889, 1897, 1900 and 1907. But no year throughout the whole period failed to witness an increase in the number of Japan’s industrial and commercial companies, and in the amount of capital thus invested.
ToState Revenue.obtain a comprehensive idea of Japan’s state finance, the simplest method is to set down the annual revenue at quinquennial periods, commencing with the year 1878-1879, because it was not until 1876 that the system of duly compiled and published budgets came into existence.
Revenue(omitting fractions)
The most striking feature of the above table is the rapid growth of revenue during the last three periods. So signal was the growth that the revenue may be said to have sextupled in the 15 years ended 1909. This was the result of the two great wars in which Japan was involved, that with China in 1894-95 and that with Russia in 1904-5. The details will be presently shown.
Turning now to the expenditure and pursuing the same plan, we have the following figures:—
Expenditure(omitting fractions)
It may be here stated that, with three exceptions, the working of the budget showed a surplus in every one of the 41 years between 1867 and 1908.
The sources from which revenue is obtained are as follow:—
Ordinary Revenue
It appears from the above that during 15 years the weight of taxation increased fourfold. But a correction has to be applied, first, on account of the tax on alcoholic liquors and, secondly, on account of customs dues, neither of which can properly be called general imposts. The former grew from 16 millions in 1894-1895 to 72 millions in 1908-1909, and the latter from 5¼ millions to 41½ millions. If these increases be deducted, it is found that taxes, properly so called, grew from 70.5 millions in 1894-1895 to 207.86 millions in 1908-1909, an increase of somewhat less than three-fold. Otherwise stated, the burden per unit of population in 1894-1895 was 3s. 6d., whereas in 1908-1909 it was 8s. 4d. To understand the principle of Japanese taxation and the manner in which the above development took place, it is necessary to glance briefly at the chief taxes separately.
The land tax is the principal source of revenue. It was originally fixed at 3% of the assessed value of the land, but in 1877 this ratio was reduced to 2½%, on which basis the tax yielded from 37 to 38 millionyenannually. After the war withLand Tax.China (1894-1895) the government proposed to increase this impost in order to obtain funds for an extensive programme of useful public works and expanded armaments (known subsequently as the “firstpost bellumprogrammeâ€). By that time the market value of agricultural land had largely appreciated owing to improved communications, and urban land commanded greatly enhanced prices. But the lower house of the diet, considering itself guardian of the farmers’ interests, refused to endorse any increase of the tax. Not until 1889 could this resistance be overcome, and then only on condition that the change should not be operative for more than 5 years. The amended rates were 3.3% on rural lands and 5% on urban building sites. Thus altered, the tax produced 46,000,000yen, but at the end of the five-year period it would have reverted to its old figure, had not war with Russia broken out. An increase was then made so that the impost varied from 3% to 17½% according to the class of land, and under this new system the tax yielded 85 millions. Thus the exigencies of two wars had augmented it from 38 millions in 1889 to 85 millions in 1907.
The income tax was introduced in 1887. It was on a graduated scale, varying from 1% on incomes of not less than 300yen, to 3% on incomes of 30,000yenand upwards. At these rates the tax yielded an insignificant revenue of aboutIncome Tax.2,000,000yen. In 1899, a revision was effected for the purposes of the firstpost bellumprogramme. This revision increased the number of classes from five to ten, incomes of 300yenstanding at the bottom and incomes of 100,000yenor upwards at the top, the minimum and maximum rates being 1% and 5½%. The tax now produced approximately 8,000,000yen. Finally in 1904, when war broke out with Russia, these rates were again revised, the minimum now becoming 2%, and the maximum 8.2%. Thus revised, the tax yields a revenue of 27,000,000yen.
The business tax was instituted in 1896, after the war with China, and the rates have remained unchanged. For the purposes of theBusiness Tax.tax all kinds of business are divided into nine classes, and the tax is levied on the amounts of sales (wholesale and retail), on rental value of buildings, on number of employees and on amount of capital. The yield from the tax grows steadily. It was only 4,500,000yenin 1897, but it figured at 22,000,000yenin the budget for 1908-1909.
The above three imposts constitute the only direct taxes in Japan. Among indirect taxes the most important is that upon alcoholicTax on Alcoholic Liquors.liquors. It was inaugurated in 1871; doubled, roughly speaking, in 1878; still further increased thenceforth at intervals of about 3 years, until it is now approximately twenty times as heavy as it was originally. The liquor taxed is mainly sake; the rate is about 50sen(one shilling) per gallon, and the annual yield is 72,000,000yen.
In 1859, when Japan re-opened her ports to foreign commerce, the customs dues were fixed on a basis of 10%ad valorem, but this was almost immediately changed to a nominal 5% and a real 3%. The customs then yielded a veryCustoms Duties.petty return—not more than three or four millionyen—and the Japanese government had no discretionary power to alter the rates. Strenuous efforts to change this system were at length successful, and, in 1899, the tariff was divided into two sections, conventional and statutory; the rates in the former being governed by a treaty valid for 12 years; those in the latter being fixed at Japan’s will. Things remained thus until the war with Russiacompelled a revision of the statutory tariff. Under this system the ratio of the duties to the value of the dutiable goods was about 15.65%. The customs yield a revenue of about 42,000,000yen.
InOther Taxes.addition to the above there are eleven taxes, some in existence before the war of 1904-5, and some created for the purpose of carrying on the war or to meet the expenses of apost bellumprogramme.
Taxes in existence before 1904-1905:—
Taxes created on account of the war (1904-5) or in its immediate sequel:—
Also, as shown above, the land tax was increased by 39 millions; the income tax by 19 millions; the business tax by 15 millions; and the tax on alcoholic liquors by 15 millions. On the whole, if taxes of general incidence and those of special incidence be lumped together, it appears that the burden swelled from 160,000,000yenbefore the war to 320,000,000 after it.
The government of Japan carries on many manufacturing undertakings for purposes of military and naval equipment, for ship-building, for the construction of railway rolling stock, for the manufacture of telegraph and light-houseState Monopolies and Manufactures.materials, for iron-founding and steel-making, for printing, for paper-making and so forth. There are 48 of these institutions, giving employment to 108,000 male operatives and 23,000 female, together with 63,000 labourers. But the financial results do not appear independently in the general budget. Three other government undertakings, however, constitute important budgetary items: they are, the profits derived from the postal and telegraph services, 39,000,000yen; secondly, from forests, 13,000,000yen; and thirdly, from railways, 37,000,000yen. The government further exercises a monopoly of three important staples, tobacco, salt and camphor. In each case the crude article is produced by private individuals from whom it is taken over at a fair price by the government, and, having been manufactured (if necessary), it is resold by government agents at fixed prices. The tobacco monopoly yields a profit of some 33,000,000yen; the salt monopoly a profit of 12,000,000yen, and the camphor monopoly a profit of 1,000,000yen. Thus the ordinary revenue of the state consisted in 1908-1909 of:—
The ordinary expenditures of the nine departments of state aggregated—in 1908-1909—427,000,000yen, so that there was a surplus revenue of 49,000,000yen.
Japanese budgets have long included an extraordinary section, so called because it embodies outlays of a special and terminable character as distinguished from ordinary and perpetually recurring expenditures. The items in this extraordinaryExtraordinary Expenditures.section possessed deep interest in the years 1896 and 1907, because they disclosed the special programmes mapped out by Japanese financiers and statesmen after the wars with China and Russia. Both programmes had the same bases—expansion of armaments and development of the country’s material resources. After her war with China, Japan received a plain intimation that she must either fight again after a few years or resign herself to a career of insignificance on the confines of the Far East. No other interpretation could be assigned to the action of Russia, Germany and France in requiring her to retrocede the territory which she had acquired by right of conquest. Japan therefore made provision for the doubling of her army and her navy, for the growth of a mercantile marine qualified to supply a sufficiency of troop-ships, and for the development of resources which should lighten the burden of these outlays.
The war with Russia ensued nine years after these preparations had begun, and Japan emerged victorious. It then seemed to the onlooking nations that she would rest from her warlike efforts. On the contrary, just as she had behaved after her war with China, so she now behaved after her war with Russia—made arrangements to double her army and navy and to develop her material resources. The government drafted for the year 1907-1908 a budget with three salient features. First, instead of proceeding to deal in a leisurely manner with the greatly increased national debt, Japan’s financiers made dispositions to pay it off completely in the space of 30 years. Secondly, a total outlay of 422,000,000yenwas set down for improving and expanding the army and the navy. Thirdly, expenditures aggregating 304,000,000yenwere estimated for productive purposes. All these outlays, included in the extraordinary section of the budget, were spread over a series of years commencing in 1907 and ending in 1913, so that the disbursements would reach their maximum in the fiscal year 1908-1909 and would thenceforth decline with growing rapidity. To finance this programme three constant sources of annual revenue were provided, namely, increased taxation, yielding some 30 millions yearly; domestic loans, varying from 30 to 40 millions each year; and surpluses of ordinary revenue amounting to from 45 to 75 millions. There were also some exceptional and temporary assets: such as 100,000,000yenremaining over from the war fund; 50 millions paid by Russia for the maintenance of her officers and soldiers during their imprisonment in Japan; occasional sales of state properties and so forth. But the backbone of the scheme was the continuing revenue detailed above.
The house of representatives unanimously approved this programme. By the bulk of the nation, however, it was regarded with something like consternation, and a very short time sufficed to demonstrate its impracticability. From the beginning of 1907 a cloud of commercial and industrial depression settled down upon Japan, partly because of so colossal a programme of taxes and expenditures, and partly owing to excessive speculation during the year 1906 and to unfavourable financial conditions abroad. To float domestic loans became a hopeless task, and thus one of the three sources of extraordinary revenue ceased to be available. There remained no alternative but to modify the programme, and this was accomplished by extending the original period of years so as correspondingly to reduce the annual outlays. The nation, however, as represented by its leading men of affairs, clamoured for still more drastic measures, and it became evident that the government must study retrenchment, not expansion, eschewing above all things any increase of the country’s indebtedness. A change of ministry took place, and the new cabinet drafted a programme on five bases: first, that all expenditures should be brought within the margin of actual visible revenue, loans being wholly abstained from; secondly, that the estimates should not include any anticipated surpluses of yearly revenue; thirdly, that appropriations of at least 50,000,000yenshould be annually set aside to form a sinking fund, the whole of the foreign debt being thus extinguished in 27 years; fourthly, that the state railways should be placed in a separate account, all their profits being devoted to extensions and repairs; and fifthly, that the period for completing thepost bellumprogramme should be extended from 6 years to 11. This scheme had the effect of restoring confidence in the soundness of the national finances.
National Debt.—When the fiefs were surrendered to the sovereign at the beginning of the Meiji era, it was decided to provide for the feudal nobles and the samurai by the payment of lump sums in commutation, or by handing to them public bonds, the interest on which should constitute a source of income. The result of this transaction was that bonds having a total face value of 191,500,000yenwere issued, and ready-money payments were made aggregating 21,250,000yen.25This was the foundation of Japan’s national debt. Indeed, these public bonds may be said to have represented the bulk of the state’s liabilities during the first 25 years of the Meiji period. The government had also to take over the debts of the fiefs, amounting to 41,000,000yen, of which 21,500,000yenwere paid with interest-bearing bonds, the remainder with ready money. If to the above figures be added two foreign loans aggregating 16,500,000yen(completely repaid by the year 1897); a loan of 15,000,000yenincurred on account of the Satsuma revolt of 1877; loans of 33,000,000yenfor public works, 13,000,000yenfor naval construction, and 14,500,000yen26in connexion with the fiat currency, we have a total of 305,000,000yen, being the whole national debt of Japan during the first 28 years of her new era under Imperial administration.
The second epoch dates from the war with China in 1894-95. The direct expenditures on account of the war aggregated 200,000,000yen, of which 135,000,000yenwere added to the national debt, the remainder being defrayed with accumulations of surplus revenue, with a part of the indemnity received from China, and with voluntary contributions from patriotic subjects. As the immediate sequel of the war, the government elaborated a large programme of armaments and public works. The expenditure for these unproductive purposes, as well as for coast fortifications, dockyards, and so on, came to 314,000,000yen, and the total of the productive expenditures included in the programme was 190,000,000yen—namely, 120 millions for railways, telegraphs and telephones; 20 millions for riparian improvements; 20 millions in aid of industrial and agricultural banks and so forth—the whole programme thus involving an outlay of 504,000,000yen. To meet this large figure, the Chinese indemnity, surpluses of annual revenue and other assets, furnished 300 millions; and it was decided that the remaining 204 millions should be obtained by domestic loans, the programme to be carried completely into operation—with trifling exceptions—by the year 1905. In practice, however, it was found impossible to obtain money at home without paying a high rate of interest. The government, therefore, had recourse to the London market in 1899, raising a loan of £10,000,000 at 4%, and selling the £100 bonds at 90. In 1902, it was not expected that Japan would need any further immediate recourse to foreign borrowing. According to her financiers’ forecast at that time, her national indebtedness would reach its maximum, namely, 575,000,000yen, in the year 1903, and would thenceforward diminish steadily. All Japan’s domestic loans were by that time placed on a uniform basis. They carried 5% interest, ran for a period of 5 years without redemption, and were then to be redeemed within 50 years at latest. The treasury had power to expedite the operation of redemption according to financial convenience, but the sum expended on amortization each year must receive the previous consent of the diet. Within the limit of that sum redemption was effected either by purchasing the stock of the loans in the open market or by drawing lots to determine the bonds to be paid off. During the first two periods (1867 to 1897) of the Meiji era, owing to the processes of conversion, consolidation, &c., and to the various requirements of the state’s progress, twenty-two different kinds of national bonds were issued; they aggregated 673,215,500yen; 269,042,198yenof that total had been paid off at the close of 1897, and the remainder was to be redeemed by 1946, according to these programmes.
But at this point the empire became involved in war with Russia, and the enormous resulting outlays caused a signal change in the financial situation. Before peace was restored in the autumn of 1905, Japan had been obliged to borrow 405,000,000yenat home and 1,054,000,000 abroad, so that she found herself in 1908 with a total debt of 2,276,000,000yen, of which aggregate her domestic indebtedness stood for 1,110,000,000 and her foreign borrowings amounted to 1,166,000,000. This meant that her debt had grown from 561,000,000yenin 1904 to 2,276,000,000yen27in 1908; or from 11.3yento 43.8yenper head of the population. Further, out of the grand total, the sum actually spent on account of war and armaments represented 1,357,000,000yen. The debt carried interest varying from 4 to 5%.
It will be observed that the country’s indebtedness grew by 1,700,000,000yen, in round numbers, owing to the war with Russia. This added obligation the government resolved to discharge within the space of 30 years, for which purpose the diet was asked to approve the establishment of a national debt consolidation fund, which should be kept distinct from the general accounts of revenue and expenditure, and specially applied to payment of interest and redemption of principal. The amount of this fund was never to fall below 110,000,000yenannually. Immediately after the war, the diet approved a cabinet proposal for the nationalization of 17 private railways, at a cost of 500,000,000yen, and this brought the state’s debts to 2,776,000,000yenin all. The people becoming impatient of this large burden, a scheme was finally adopted in 1908 for appropriating a sum of at least 50,000,000yenannually to the purpose of redemption.
Local Finance.—Between 1878 and 1888 a system of local autonomy in matters of finance was fully established. Under this system the total expenditures of the various corporations in the last year of each quinquennial period commencing from the fiscal year 1889-1890 were as follow:—
In the same years the total indebtedness of the corporations was:—
The chief purposes to which the proceeds of these loans were applied are as follow:—
Local corporations are not competent to incur unrestricted indebtedness. The endorsement of the local assembly must be secured; redemption must commence within 3 years after the date of issue and be completed within 30 years; and, except in the case of very small loans, the sanction of the minister of home affairs must be obtained.
Wealth of Japan.—With reference to the wealth of Japan, there is no official census. So far as can be estimated from statistics for the year 1904-1905, the wealth of Japan proper, excluding Formosa, Sakhalin and some rights in Manchuria, amounts to about 19,896,000,000yen, the items of which are as follow:—
Education.—There is no room to doubt that the literature and learning of China and Korea were transported to Japan in very ancient times, but tradition is the sole authority for current statements that in the 3rd century aEarly Education.Korean immigrant was appointed historiographer to the Imperial court of Japan and another learned man from the same country introduced the Japanese to the treasures of Chinese literature. About the end of the 6th century the Japanese court began to send civilians and religionists direct to China, there to study Confucianism and Buddhism, and among these travellers there were some who passed as much as 25 or 30 years beyond the sea. The knowledge acquired by these students was crystallized into a body of laws and ordinances based on the administrative and legal systems of the Sui dynasty in China, and in the middle of the 7th century the first Japanese school seems to have been established by the emperor Tenchi, followed some 50 years later by the first university. Nara was the site of the latter, and the subjects of study were ethics, law, history and mathematics.
Not until 794, the date of the transfer of the capital to KiÅto, however, is there any evidence of educational organization on a considerable scale. A university was then opened in the capital, with affiliated colleges; and local schools were built and endowed by noble families, to whose scions admittance was restricted, but for general education one institution only appears to have been provided. In this KiÅto university the curriculum included the Chinese classics, calligraphy, history, law, etiquette, arithmetic and composition; while in the affiliated colleges special subjects were taught, as medicine, herbalism, acupuncture, shampooing, divination, the almanac and languages. Admission was limited to youths of high social grade; the students aggregated some 400, from 13 to 16 years of age; the faculty included professors and teachers, who were known by the same titles (hakaseandshi) as those applied to their successors to-day; and the government supplied food and clothing as well as books. The family schools numbered five, and their patrons were the Wage, the Fujiwara, the Tachibana (one school each) and the Minamoto (two). At the one institution—opened in 828—where youths in general might receive instruction, the courseembraced only calligraphy and the precepts of Buddhism and Confucianism.
The above retrospect suggests that Japan, in those early days, borrowed her educational system and its subjects of study entirely from China. But closer scrutiny shows that the national factor was carefully preserved.Combination of Native and Foreign Element.The ethics of administration required a combination of two elements,wakon, or the soul of Japan, andkwansai, or the ability of China; so that, while adopting from Confucianism the doctrine of filial piety, the Japanese grafted on it a spirit of unswerving loyalty and patriotism; and while accepting Buddha’s teaching as to three states of existence, they supplemented it by a belief that in the life beyond the grave the duty of guarding his country would devolve on every man. Great academic importance attached to proficiency in literary composition, which demanded close study of the ideographic script, endlessly perplexing in form and infinitely delicate in sense. To be able to compose and indite graceful couplets constituted a passport to high office as well as to the favour of great ladies, for women vied with men in this accomplishment. The early years of the 11th century saw, grouped about the empress Aki, a galaxy of female authors whose writings are still accounted their country’s classics—Murasaki no Shikibu, Akazome Emon, Izumi Shikibu, Ise Taiyu and several lesser lights. To the first two Japan owes theGenji monogatariand theEiga monogatari, respectively, and from the Imperial court of those remote ages she inherited admirable models of painting, calligraphy, poetry, music, song and dance. But it is to be observed that all this refinement was limited virtually to the noble families residing in KiÅto, and that the first object of education in that era was to fit men for office and for society.
Meanwhile, beyond the precincts of the capital there were rapidly growing to maturity numerous powerful military magnates who despised every form of learning that did not contribute to martial excellence. An illiterate eraEducation in the Middle Ages.ensued which reached its climax with the establishment of feudalism at the close of the 12th century. It is recorded that, about that time, only one man out of a force of five thousand could decipher an Imperial mandate addressed to them. Kamakura, then the seat of feudal government, was at first distinguished for absence of all intellectual training, but subsequently the course of political events brought thither from KiÅto a number of court nobles whose erudition and refinement acted as a potent leaven. Buddhism, too, had been from the outset a strong educating influence. Under its auspices the first great public library was established (1270) at the temple ShÅmyo-ji in Kanazawa. It is said to have contained practically all the Chinese and Japanese books then existing, and they were open for perusal by every class of reader. To Buddhist priests, also, Japan owed during many years all the machinery she possessed for popular education. They organized schools at the temples scattered about in almost every part of the empire, and at thesetera-koya, as they were called, lessons in ethics, calligraphy, reading and etiquette were given to the sons of samurai and even to youths of the mercantile and manufacturing classes.
When, at the beginning of the 17th century, administrative supremacy fell into the hands of the Tokugawa, the illustrious founder of that dynasty of shÅguns, Iyeyasu, showed himself an earnest promoter of erudition.Education in the pre-Meiji Era.He employed a number of priests to make copies of Chinese and Japanese books; he patronized men of learning and he endowed schools. It does not appear to have occurred to him, however, that the spread of knowledge was hampered by a restriction which, emanating originally from the Imperial court in KiÅto, forbade any one outside the ranks of the Buddhist priesthood to become a public teacher. To his fifth successor Tsunayoshi (1680-1709) was reserved the honour of abolishing this veto. Tsunayoshi, whatever his faults, was profoundly attached to literature. By his command a pocket edition of the Chinese classics was prepared, and the example he himself set in reading and expounding rare books to audiences of feudatories and their vassals produced something like a mania for erudition, so that feudal chiefs competed in engaging teachers and founding schools. The eighth shÅgun, YoshimunÄ“ (1716-1749), was an even more enlightened ruler. He caused a geography to be compiled and an astronomical observatory to be constructed; he revoked the veto on the study of foreign books; he conceived and carried out the idea of imparting moral education through the medium of calligraphy by preparing ethical primers whose precepts were embodied in the head-lines of copy-books, and he encouraged private schools. Iyenari (1787-1838), the eleventh shÅgun, and his immediate successor, Iyeyoshi (1838-1853), patronized learning no less ardently, and it was under the auspices of the latter that Japan acquired her five classics, the primers ofTrue Words, ofGreat Learning, ofLesser Learning, ofFemale Ethicsand ofWomen’s Filial Piety.