Part 43

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 comparatively 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 7,000,000 _yen_ and policies aggregating 971,000,000 _yen_, and in 1906 the corresponding figures were 65 companies, 22,000,000 _yen_ paid up and policies of 4,149,000,000 _yen_. 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) 10,000,000 _yen_.

Clearing Houses.

The origin of clearing houses preceded that of insurance companies in Japan by only two years (1879). Osaka set the example, which was quickly followed by Tokyo, Kobe, Yokohama, Kioto and Nagoya. In 1898 the bills handled at these institutions amounted to 1,186,000,000 _yen_, and in 1907 to 7,484,000,000 _yen_. Japanese clearing houses are modelled after those of London and New York.

Bourses.

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 times 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 100,000 _yen_, 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.

The Government and Economic Development.

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 of 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 500,000 yen--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 under _Industries_, 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 50,000,000 _yen_ in 1886, it exceeded 1,000,000,000 _yen_ in 1906.

Adoption of the Gold Standard.

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 the 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 silver _yen_ becoming 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 of _yen_, leaving the silver subsidiary coins unchanged. Thus the old 5-_yen_ gold piece, weighing 2.22221 _momme_ of 900 fineness, became a 10-_yen_ piece in the new currency, and a new 5-_yen_ piece of half the weight was coined. No change whatever was required in the reckonings of the people. The _yen_ continued 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.

State Revenue.

To 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)

+--------+-----------+-------------+-------------+ | | Ordinary |Extraordinary|Total Revenue| | Year.* | Revenue | Revenue | (millions | | | (millions | (millions | of _yen_). | | | of _yen_).| of _yen_). | | +--------+-----------+-------------+-------------+ | 1878-9 | 53 | 9 | 62 | | 1883-4 | 76 | 7 | 83 | | 1888-9 | 74 | 18 | 92 | | 1893-4 | 86 | 28 | 114 | | 1898-9 | 133 | 87 | 220 | | 1903-4 | 224 | 36 | 260 | | 1908-9 | 476 | 144 | 620 | +--------+-----------+-------------+-------------+

* 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)

+--------+-------------+-------------+-------------+ | | Ordinary |Extraordinary| Total | | Year. | Expenditures| Expenditures| Expenditures| | | (millions | (millions | (millions | | | of _yen_). | of _yen_). | of _yen_). | +--------+-------------+-------------+-------------+ | 1878-9 | 56 | 5 | 61 | | 1883-4 | 68 | 15 | 83 | | 1888-9 | 66 | 15 | 81 | | 1893-4 | 64 | 20 | 84 | | 1898-9 | 119 | 101 | 220 | | 1903-4 | 170 | 80 | 250 | | 1908-9 | 427 | 193 | 620 | +--------+-------------+-------------+-------------+

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

+--------------------+---------+---------+---------+---------+ | | 1894-5. | 1898-9. | 1903-4. | 1908-9. | | +---------+---------+---------+---------+ | |millions |millions |millions |millions | | |of _yen_.|of _yen_.|of _yen_.|of _yen_.| +--------------------+---------+---------+---------+---------+ | Taxes | 70.50 | 96.20 | 146.10 | 299.61 | | Receipts from | | | | | | stamps and Public| | | | | | Undertakings | 14.75 | 33.00 | 96.87 | 164.66 | | Various Receipts | 4.58 | 3.67 | 8.15 | 11.48 | +--------------------+---------+---------+---------+---------+

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.

Land Tax.

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 million _yen_ annually. After the war with 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 "first _post bellum_ programme"). 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 46,000,000 _yen_, 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.

Income Tax.

The income tax was introduced in 1887. It was on a graduated scale, varying from 1% on incomes of not less than 300 _yen_, to 3% on incomes of 30,000 _yen_ and upwards. At these rates the tax yielded an insignificant revenue of about 2,000,000 _yen_. In 1899, a revision was effected for the purposes of the first _post bellum_ programme. This revision increased the number of classes from five to ten, incomes of 300 _yen_ standing at the bottom and incomes of 100,000 _yen_ or upwards at the top, the minimum and maximum rates being 1% and 5½%. The tax now produced approximately 8,000,000 _yen_. 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 27,000,000 _yen_.

Business Tax.

The business tax was instituted in 1896, after the war with China, and the rates have remained unchanged. For the purposes of the 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 4,500,000 _yen_ in 1897, but it figured at 22,000,000 _yen_ in the budget for 1908-1909.

Tax on Alcoholic Liquors.

The above three imposts constitute the only direct taxes in Japan. Among indirect taxes the most important is that upon alcoholic 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 50 _sen_ (one shilling) per gallon, and the annual yield is 72,000,000 _yen_.

Customs Duties.

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 very petty return--not more than three or four million _yen_--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 Russia compelled 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 42,000,000 _yen_.

Other Taxes.

In 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 a _post bellum_ programme.

Taxes in existence before 1904-1905:--

Yield Name. (millions of _yen_).

Tax on soy 4 Tax on sugar 16¼ Mining tax 2 Tax on bourses 2 Tax on issue of bank-notes 1 Tonnage dues ½

Taxes created on account of the war (1904-5) or in its immediate sequel:--

Yield Name. (millions of _yen_).

Consumption tax on textile fabrics 19½ Tax on dealers in patent medicines ¼ Tax on communications 2(1/3) Consumption tax on kerosene 1½ Succession tax 1½

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 160,000,000 _yen_ before the war to 320,000,000 after it.

State Monopolies and Manufactures.

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-house 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, 39,000,000 _yen_; secondly, from forests, 13,000,000 _yen_; and thirdly, from railways, 37,000,000 _yen_. 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 33,000,000 _yen_; the salt monopoly a profit of 12,000,000 _yen_, and the camphor monopoly a profit of 1,000,000 _yen_. Thus the ordinary revenue of the state consisted in 1908-1909 of:--

_Yen._

Proceeds of taxes 320,000,000 Proceeds of state enterprises (posts and telegraphs, forests and railways) 89,000,000 Proceeds of monopolies 56,000,000 Sundries 11,000,000 ----------- Total 476,000,000

The ordinary expenditures of the nine departments of state aggregated--in 1908-1909--427,000,000 _yen_, so that there was a surplus revenue of 49,000,000 _yen_.

Extraordinary Expenditures.

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 extraordinary 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 422,000,000 _yen_ was set down for improving and expanding the army and the navy. Thirdly, expenditures aggregating 304,000,000 _yen_ were 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 100,000,000 _yen_ remaining 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.