Part 29

Meanwhile almost unlooked for and wholly insurmountable difficulties had been encountered in the effort to establish in Japan a gold standard, as defined in the coinage law of May 1871, based on Ito Hirobumi’s recommendations, the intrinsic merit of which was not disputed though it had most reluctantly to be confessed that the time was not propitious for their entire adoption. Situated as Japan was in the midst of the silver countries of the East, it was found impossible to uphold the gold standard, and the Government had been driven, moreover, to the expedient of issuing paper money to meet its financial needs at a time when it was hampered by having, in addition to other embarrassments, to take over all the notes issued by the former _daimios_ who had been dispossessed—voluntarily, it must be added—of their fiefs on the restoration of a central imperial government. Paper money was at a heavy discount for a long time, partly because the people could not overcome their repugnance to notes due to the sad experience they had had in years gone by of the inconvertible “satsu” of feudal times. The crisis had been

## partly met by the issue of 6 per cent. Government bonds (_kin-satsu_,

_lit._: gold note) given in exchange for the paper money in order to decrease its amount, and by degrees the hatred of paper money wore off. The Satsuma rebellion in 1877, however, once more placed the Government under the necessity of issuing a large amount of inconvertible notes, which brought about a new depreciation, prices rose rapidly, gold and silver left the country, as imports vastly exceeded the exports, and in 1880-1 there was great financial distress. As Count Matsukata in his work on the “Adoption of the Gold Standard in Japan” has said,—“that disastrous results would inevitably follow if convertible paper money were made the standard of value” might easily have been foreseen, but it appeared that an idea prevailed that the difference between the price of silver and paper was an indication, not of the depreciation of paper, but of the appreciation of silver. The attempt was made to stop the rise of the price of silver by increasing the amount of its circulation. The Government sold silver coins, opened places for the exchange of Mexican dollars, and established the Yokohama Specie Bank in order to call forth the coins hoarded by the people. But the more these measures were resorted to the more rose the price of silver.

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

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

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

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

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

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

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

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

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

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

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

“It occurred to me then,” wrote Count Matsukata afterwards, “that on account of the unstable price of silver, as well as in view of the possible adoption of a gold standard by our country, it would be greatly to our advantage to receive payment of the indemnity in British, instead of Chinese money. The Minister-president of State, Marquis Ito, acting on my suggestion, negotiated with the Chinese authorities, which led to our receiving the indemnity money in pounds sterling.”

In September 1896 Count Matsukata was appointed Minister-president, for the second time in his career, and he forthwith directed his endeavours to the realisation of his highest ambition. A bill was drawn up in February of the ensuing year, to the passing of which through the Diet there was in reality but little opposition. Some critics of the proposal said that the fall in the price of silver would rather encourage trade with gold countries, while the adoption of a gold standard by Japan would tend to decrease the amount of her exports to those countries. Others said that Japan, situated as she was in the midst of the silver countries of the East, would be placed in a position of much disadvantage in her trade with these countries if she adopted gold monometallism. Again, some said that Japan could not produce a sufficient amount of gold to be able to maintain permanently a gold standard system. This was not all. It was by many urged that the silver yen coins exported to foreign lands exceeded 100,000,000, and that if all these came back for exchange, as might possibly be the case, the national treasury would have to suffer an immense loss. Count Matsukata had no notion, however, of allowing himself to be influenced by those dismal prophecies. His Cabinet stood firm in its purpose, and in March 1897, after having been passed by both Houses of Parliament, the bill received the Imperial sanction, and was promulgated as Law No. XVI. on the 29th day of the same month. The stability of Japanese finance during the nine years which have passed since that Law came into force, and especially throughout the terrible ordeal that it has lately undergone during the time that Japan has been at war with one of the Great Powers of Europe, affords an incontestible proof of the soundness of Count Matsukata’s judgment, and the nation is indebted to him for the perseverance and fortitude that he displayed in carrying his scheme, despite all opposition, to a successful conclusion. No doubt every precaution that financial skill could suggest was taken by the Government of which he was a member. One of the earlier instalments of the indemnity was converted in London into gold bullion and conveyed to Japan as fast as steam could transport it, to be minted into coins in the Government mint. In buying bullion, too, care was taken to secure it without much disturbance of the market or loss to the Government. The gold thus turned into coins between July 1897, and April 1898, as a reserve for the exchange of silver _yen_, amounted to roughly £7,500,000 sterling. The process of exchanging began on the 1st of October 1896, and closed on the 31st of July 1898.

It is not a little instructive to learn to what degree the foreboding as to the national treasury being swamped by the number of yen silver coins that would come back for exchange, in which some critics indulged, proved to lack solid foundation. The total number of one-yen pieces coined at Osaka from the date of the opening of the Mint was 165,000,000. Of these the number actually exchanged during the ten months specified for gold coin was 45,500,000, including 10,750,000 sent back from abroad for that purpose: the rest were in circulation in Japan. It is estimated that 99,500,000 of yen coins were exported to foreign lands and never returned. 11,000,000 of these coins were taken abroad at the time of the China-Japan war,—5,750,000 were taken to Formosa after the cession of that island to Japan by China and were never brought in for exchange,—about 500,000 were recoined at Osaka into subsidiary coins,—and about 2,750,000 could not be traced, and must have been lost or worn out, or taken away by visitors to Japan, when leaving the country. Count Matsukata was not moved by sinister prophecies, for one thing because he had had the most careful inquiries made as to the numbers of these coins circulating in Shanghai, Hong Kong, the Straits Settlements, etc.; and it was found that no inconsiderable proportion of them either bore the marks of some private stamp or “chop” which unfitted them for circulation in the land of their origin, or had been turned into Chinese _taels_. Then it was known that a fairly large quantity was in use as a medium of exchange in the Straits Settlements and neighbouring islands, and that there was but little prospect of any of these coming back to Japan. Altogether Count Matsukata’s estimate of the number that would have to be provided for was 10,000,000, and this was within a trifle of the true number presented for exchange. The people were invited to pay taxes and make other public settlements in Yen coins, a vast number of Government treasuries and sub-offices were opened all over the country to facilitate the work of exchanging the silver, and that no report was ever received that any failed to get exchanged went to show that the process was effectually completed.

The next thing was to dispose of the silver that had been brought in, and a large part of it was recoined into subsidiary coins, a large proportion sold in Hong Kong, Shanghai and elsewhere, and much sent to Korea. The whole amount was disposed of in a year and a quarter after the new coinage law was promulgated in Japan. The total expense incurred by the State in effecting the change was roughly £500,000 sterling, but this was more than made good by the Mint profit on the subsidiary coinage. As fast as they could be produced the ten-_sen_, twenty-_sen_, and fifty-_sen_ pieces were put into circulation, in lieu of the paper money of small denominations, and it is estimated that the sum-total of the subsidiary coinage in actual circulation,—silver, nickel, and copper,—would be of the value of 4s. _per capita_, if calculated in English money. This is considered to be ample for the economic needs of the people to-day.

In October 1898 Count Matsukata was for the fourth time called upon to take the portfolio of Finance, with Marshal Yamagata as Minister-President, and in May 1899 he presented to the Premier a masterly report on the financial progress of Japan, entitled the “Adoption of the Gold Standard,” which was issued in book form, and it was followed in March of the next year by a “Report on the Post-Bellum financial administration of Japan, 1896-1900,” both affording emphatic testimony to the Minister’s untiring zeal and industry.

In October 1900 Count Matsukata retired into private life, and in the ensuing summer he visited London and the capitals of Europe. In recognition of his long and valuable services to the State the Emperor accords him as much consideration as if he were a Cabinet Minister still. He has received the Grand Cordon of the Paulownia Imperialis, and other decorations, and many foreign honours. He was twice Premier, and fourteen years Finance Minister. His achievements include land-tax reform, centralisation of fiscal administration, the redemption of the paper money, the establishment of the Bank of Japan, post-bellum finance, the adoption of the gold standard, the establishment of the Industrial Bank,—and he has rendered many other services to his sovereign and his countrymen of which it is needless to give details here. His part in the Making of Japan has been most ably and conscientiously performed, and he has won the respect and admiration of all classes of his fellow-subjects of the Japanese Emperor.

XX

ADMIRAL VISCOUNT ENOMOTO

Born on the 25th of August 1836 at Yedo, Enomoto Buyo was sent by the Tokugawa Government as a young naval officer to study in Holland, and he was in Europe for several years, ultimately returning to Japan on board the _Kai-yo Maru_, as she was named, a corvette built at Amsterdam to the order of the Shogunate. With him returned several of the students who had been despatched in 1862 and 1863 to Europe for purposes of study, some sent by their clans, and some by the Bakufu. Ito Shunsuke and Inouye Bunda, two of the number, had, as is elsewhere recorded, returned some years previously, in consequence of trouble in their native province of Choshiu. The _Kai-yo Maru_ reached Japan in 1866, and she was a formidable addition to the fleet of six vessels already possessed by the Shogun’s Government. Being a native of Yedo he was of course one of the Bakufu supporters, and when the troubles of 1867 began, and which were to culminate in the fall of the Tokugawa family from power, Admiral Enomoto was loyal to his chief, Prince Keiki, and fought strenuously for his side in the War of the Restoration.

[Illustration: ADMIRAL ENOMOTO]