Financial Foundations, 1881-1914
THE last two decades of the nineteenth century were noteworthy for the creation of a stable monetary system which, in spite of many difficulties, was able to withstand the stresses of the Russo-Japanese War. During the seventies Japanese finances had been disturbed by the political troubles incidental to the Restoration, and the banking experiments of that period yielded results that were hardly satisfactory. With the appointment of Count (later Prince) Matsukata as Minister of Finance in 1881 a determined and successful attempt was made to introduce order into the chaotic financial situation. It was decided to abandon the experiment in national banking, to establish a central banking system on the European model, to balance the budget and to restore parity between the silver yen and the notes.
In the first place reforms were effected in the system of land taxation, and increased taxes were levied on sakē and tobacco.1 Economies in administration were achieved; grants for public works and private enterprises ceased; and many Government factories were sold. A sinking fund was instituted to provide for the redemption of the public debt, and in consequence of this and of successful efforts to balance revenue and expenditure, the public debt which had stood at .245 million yen in 1880 was only 5 million more ten years later when the national income and the taxable capacity of the country had considerably risen. A marked reduction was effected in the service charge on the debt. In 1880 the Government had paid rates of interest ranging from 7 to 10 per cent even on short loans. In 1885 it was possible to raise a foreign loan for building the Nakasendo Railway at 6 per cent, and in 1886 all public bonds carrying interest over 6 per cent were redeemed by a 5 per cent conversion issue. In the same year the Government began the practice of drawing up regular annual budgets. Thus, in a very short time the disorderly state of the public finances had been remedied.
Japan's newly-found financial strength was tested in the Sino-Japanese War of 1894-95. On the eve of that war annual public expenditure was____________________