ason HJ8S05; 75 ASIA QJorttell Untncratta Cibrarg 3tlfara, 5Jm» ^atk HJ 8805.K75 " ""'"^'^'^^ '■'""T ^"imrnmmSuJ&^n »' Japan / 398 I Cornell University y Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924023292398 Publications of the Carnegie Endowment for International Peace Division of Economics and History John Bates Clark, Director JAPANESE MONOGRAPHS EDITED BY BARON Y. SAKATANI, D.C.L. Formerly Minister of Finance fcf Japan Conscription System in Japan, by Gotaro Ogawa. Expenditures of the Russo-Japanese War, by Gotaro Ogawa. Military Industries of Japan, by Ushisaburo Kobayashi. War and Armament Loans of Japan, by Ushisaburo Kobayashi. War and Armament Taxes of Japan, by Ushisaburo Kobayashi. Expenditures of the Sino-Japanese War, by Giichi Ono. War and Armament Expenditures of Japan, by Giichi Ono. WAR AND ARMAMENT LOANS OF JAPAN BY USHISABURO KOBAYASHI, D. C. L. NEW YORK OXFORD UNIVERSITY PRESS AMERICAN BRANCH: 35 West 32nd Street LONDON, TORONTO, MELBOURNE, AND BOMBAY 1922 -S /\5\57iV-^ COPYRIGHT 1922 BY THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE THE RUMFORD PRESS, CONCORD, N. NOTE BY THE DIRECTOR The plans of the Division of Economics and History of the Carnegie Endowment for International Peace have been transformed by the World War. Problems now calling for study transcend in importance those with which this Division has been dealing and material for research and record so far transcends any that was formerly available that it will demand almost exclusive attention for some years to come. A new world has evolved suddenly out of the world which we knew and the transformation extends to the foundations of gov- ernment and of economic life. The process of warfare itself is now so unlike that of former days that many military rules of the past have gone into the scrap basket. The late war ended when its deadliest tools had barely been brought into action. The peoples have fought as they had worked, by machinery, mechanical and chemical engines of destruction have decided the result and will decide in like manner the result of all wars of the future. Machine shops and chemical laboratories will so largely determine what armies shall win that fighting strength will be as much a matter of available capital and of science in applying it as of numbers of troops and strategy in directing them. It is safe to say that the death dealing arts and instru- ments will far surpass in destructiveness those which made the late war so deadly, and to a soldier of the future the order to march into a cloud of poisonous gas and a whirlwind of missies will resemble an order to plunge into the rapids of Niagara. This is one central and obvious fact which the war has taught us and it has many corollaries, some of which have to do with the increased costs of war and the importance of the particular resources that make a nation powerful for offense and defense; but there are less conspicuous economic facts which are more fundamental, since they may determine where and when, if at all, wars shall hereafter occur. Causes of warfare are always partly economic and those which incited the recent one were mainly so. The business plans of a powerful state reached to the ends of the earth v Vi NOTE BY THE DIRECTOR and so crossed and interlaced the claims of other states that some writers, then and afterwards, pronounced the war inevi- table. If we assume a settled purpose on the part of such a state to encroach on the rights of others, we may say that it doubtless was inevitable. The victory of the defending countries has saved them from ari immediate and intolerable domination, but it can not be taken as an assured fact that similar attempts will never again be made. The economic inducement continues and the means may at some time be forthcoming. Within the several states war has democratized industry, giving to labor an increase of control — a change that if con- tinued will entail momentous consequences; but still greater effects have been produced on the relations of states to each other. The world as a whole has changed more than its component parts and the new relation of the parts to one another is the critical element in the situation. The greai; increase in the economic functions pf governments is one cause of this condition. Within the great international com- munity in which the several states are units extensive eco- nomic functions have gravitated into the hands of govern- ments and caused them to face each other as business rivals and to deal with each other in a multitude of ways in which the merely self-seeking policy of private business is intoler- able. Power to invoke principles of justice and international law as interpreted by a competent court has become an in- dispensable means of allaying strife and this fact exalts to supreme importance the high court of nations which has just been established. It magnifies also the importance of the economic facts and principles with which the law itself will have to deal. It is not merely individual men or private corporations who now meet each other in the rough and tumble of a world-wide mart but states themselves, each representing its own population and seeking to foster its interests as a zealous and faithful agent. The chances of friction that are inherent in ordinary commerce inhere today in vast international transactions and will increase in the measure in which the intercourse grows. All this means a NOTE BY THE DIRECTOR vii great increase in incentives to warfare, on the one hand, and in the motives for preventing it, on the other. Private com- merce unites more than it separates those who participate in it, and it remains to be seen whether international corhmerce will act in the same way; but, in view of what modern war means, the human race will deserve to perish, and much of it will probably do so, if the forces of strife are allowed to get the upper hand. Whether they will or not — whether the recent economic changes will tend to reduce warfare or to increase it — depends on the ability of nations to create and maintain the instrumentalities that in the new state of the world are necessary. Certain it is that the feeling which prevails today, the world over, is not one of security. The dread of further war is greater than it was before 1914. In some areas war still prevails, in others peace is hfeld by a precarious tenure and in all it can be firmly established only by conscious and intel- ligent action by the states themselves. Mere exhaustion holds war dogs temporarily in leash, but it will take more than that to tame them as they must be tamed if peace is to endure. We here confront a wide difference between the several states in comparative desire for peace ^nd disposition to maintain it. One portentous fact is the grim determination of Russian communists to extend their system by crude force from state to state. Bolshevism is government by the few and largely the bad masquerading as government for and by the people. In its mother country, Russia, the economic meas- ure by which it began its career was confiscation of private wealth — in itself an ultra-democratic measure. If this had brought in a true communism, it would have been a ruthless and unjust measure for creating a peace-loving state. A just and orderly democratizing of industry in the several states would give new strength to the forces of peace, and it would be highly improbable that any state so influenced would try to extend its system over foreign countries by military invasion. Democracy, socialism, communism and bolshe- vism all appear in the aftermath of the war. The first of VIU NOTE BY THE DIRECTOR them makes for future peace and so does even the conserva- tive element in the second, while all else in the series means certainty of civil strife and danger of international war. The fact that during the war governments had to take on innumerable functions that were formerly in private hands has lent an impetus to socialism and to the perverted growths that have accompanied it, and it has created a new inter- national system the meaning of which is profoundly signif- icant, though he who runs can not so easily read it. There are dangerous features in the system which the war evoked and, happily for mankind, there are available safeguards which were evoked with them and need to be retained if human effort can do it. By a compulsion that there was no resisting, the war forced the nations of the Entente into economic cooperation with each other. Commissions centering finally in the Supreme Economic Council adjusted in a harmonious way questions that would otherwise have led to rivalry and conflicting action in purchasing war materials, securing ships, appor- tioning food, controlling railroads, financing the war and doing a multitude of other things with the one common pur- pose of victory. The special compulsion of the struggle is over, but it has left an aftermath of issues grave enough to make peace insecure unless something equivalent to the Supreme Economic Council survives in full efficiency. The agency that did so much to win the war can do so much to prevent another one, but to that end it will have to be guided by economic principles and it is a saving fact that these still survive. The war has not abolished the law of demand and supply, though governments may forget it. In the coming era they must build better than they now know. Economic knowledge must either go in advance of action and prevent disaster or follow action and be learned from disaster. Be- yond computation is the importance of attaining the knowl- edge and using it when evil impends and prevention is possible. John Bates Clark, New York, Director. September 27, ig20. PREFACE The main object of this investigation being to examine into the war and armament loans of Japan, the historical, statistical and economic effects of this subject are here re- lated. At the same time, the author, feeling it necessary to give to foreigners a general conception of the history of pub- lic finance and the money market in Japan, has done his best to this end. Statements and statistics concerning public finance and the money market, therefore, are mentioned continually from the first year of the Meiji Era to the present time, so as to show the connection of every fact. Besides, the author has done his best to make clear the difference between loans concerning war and armament and the other loans. As a result of investigation, I find that the war and arma- / ment loans of Japan, which consist of foreign loans in the greater part, reached to a great amount, and their economic effects were very severe. First, with respect to public finance, the amount of loan expenditures reached to about a quarter of the annual expenditures and consequently the burden of taxes was greatly increased. Secondly, with re- spect to the money market, not only when loans were raised or redeemed did the rate of interest change irregularly, bringing panic in the economic world, but the money cir- culation between the central city and local districts became disproportionate and the evils of centralization of capital were encouraged. Thirdly, in the matter of foreign trade, though exports increased according to the development of industries, the excess of imports increased so irregularly in consequence of foreign loans that there were sometimes crises in the con- version system. Fourthly, in industries, generally speaking, there was, of course, rapid progress ; but by the panics caused by raising or redeeming of loans, the development of indus- tries was prevented and especially manufacture could not ix X PREFACE escape from the condition of small scale and infantile arts. Fifthly, as to social effects, prices rose high on account of the increase of currency and on account of consumption taxes, and paupers and emigrants increased because saving was impaired, wages not rising according to prices. In the investigation of this subject, the materials were col- lected chiefly from books and magazines already published, as enumerated in the following pages. Moreover, by the good will of the officials of the Department of Finance and the Department of Home Affairs, the author obtained various materials from the governmental, documents which are not yet published. The manuscript of this volume at first amounted to five hundred and fifty pages, but afterwards it was abridged to three-fifths of that number. I regret that this manuscript could not contain the full materials which were collected. ushisaburo kobayashi. Tokyo, Japan, April, igi6. BIBLIOGRAPHY Department of Agriculture and Commerce: Effects of War on the Wages of 1904 {Meiji Sanju shichinen Chinkin ni oyoboseru Senso no Eikyo), 1904. Effects of War on the Prices of 1905 {Meiji Sanjic hachinen Bukka ni oyoboseru Senso no Eikyo), 1905. Effects of War on Commerce and Industries {Jikyoku no Naigai Boeki narabini Shogyo ni oyoboseru Eikyo), 1906. Effects of War in Osaka and Kobe {Han Shin Ryoko ni okeru Senso no Eikyo Chosa), 1910. Department of Finance: Short Historical Record of National Eoans {Kokusai Enkaku Ryaku), 1889. Report on the Redemption of Paper Money in Japan {Shihei Seiri Shimatsu), 1890. Report made by the Coinage System Investigation Society (Kahei Seido Chosakai hokoku), 1890. Report on the Reserve Fund in Japan {Junbikin Shimatsu), 1890. Investigation regarding Repayment and Consolidation of Na- tional Debt {Kokusai Shokan narabini Seiri ni Kansuru Chosa), 1892. Relation between Loans and Taxes in Defraying War Expendi- tures {Gunpi Shiben jo Kosai to Sozei to no Kankei), 1893. Annual Report of Financial Matters {Zaisei Jiko Isan), 1893-1907. Reference Book for Monetary Circulation {Kinyu Jijyo San- kosho), 1893-1907. Report on the Special Account of Extraordinary Military Expend- itures for the War of 1 894-1 895 {Meiji Niju shichi hachinen eki Rinji Gunjihi Tokubetsu Kaikei Shimatsu), 1897. General Account on Reform of Coinage System in 1897 {Meiji Sanjunen Heisei Kaikaku Shimatsu Gaiyo), 1899. Report on the Postbellum Financial Administration {Sengo Zaisei Shimatsu hokoku), 1900. xi Xll BIBLIOGRAPHY Tokyo Bankers Association: Finance and Economics during the War {Senji Zaisei Keizai), 1904. Report on Financial Administration during the War of 1904-1905 {Meiji Sanju shichi hachinen eki Senji Zaisei Shimatsusho) , 2 vols., 1905 and 1910. Report on Receipts and Disbursements of Extraordinary Military Expenditures for the War of 1904-1905 (Meiji Sanju shichi hachinen eki Rinji Gunjihi Shuski Gaikyo hokoku), 1906. Report on the Extraordinary War Expenditures {Rinji Gunjihi Shimatsu), i vol., 1907. Investigation concerning Military Bills {Gunyo Kitte ni Kansuru Chosa), 1908. Annual Report of Finance and Economics in Japan {Nippon Zaisei oyobi Keizai Nenpo), 1910-1911. Table showing the Sum of National Loans of Japan {Kokusai Gaku Meisaihyo), 1911. Effects of War on the Money Market {Kinyu Shijo ni oyoboseru Senji no Eikyo), 191 1. Annual Statistics of National Loans {Kokusai Tokei Nenpo). Department of Home Affairs: Central and Local Impositions during the War {Senji ni okeru Chuo oyobi Chiho Koka), 1909. Statistics of Communal Debt of Japan {Chihosai Tokei), 191 3. Annual Report of Communal Finance of Japan {Chiho Zaisei Gairdn) . HosoKAWA, YxJjiRO, General Account of Financial Administration in Japan {Nippon Zaisei Soran), 2 vols., 1892. Sakatani, Y. (representing the authors), History of Financial Administration in the Meiji Era {Meiji Zaiseishi), 15 vols., 1904-1905. Statistics Bureau, Imperial Statistical Year Book {Teikoku Tokei Nenkan). EXPLANATORY TABLES Value of Japanese Currencies Japan adopted the gold standard system in 1 87 1, but the inconvertible paper money became principal currency a few years later. In 1886 the paper money became convertible into silver and after that date the Japanese currency system was the silver standard de facto, until on October i , 1 897, the gold standard system" was legally adopted. The figures necessary to ascertain the value of Japanese currencies are given below: (1)1 gold yen (according to Coinage Law of 1871) contains i .5 gramme pure gold. (2) I gold yen (according to Coinage Law of 1897) contains 0.75 gramme pure gold. (3) I silver yen contains 24.261 gramme pure silver. (4) The value of I silver yen in the English currency (according to the demand rate of exchange on London in the average of the year) is as follows: s. d. 4.02.0 4 . 00 . 8 3. II. 2 3II-7 1882. 1883. 1884. 1885. 1886. 1887. 1888. 1889. s. d. 3.08.8 1890 3 07.9 1891 ?> 07.9 1892 ,3 06.0 1893 3 03.2 1894 3 02.0 1895 3 01. 1896 3 01. 1 1897 1890 304.5 2.02.6 2.10.5 2 . 06 . 7 2.01 .2 2.01.3 2.02.0 2.00.4 1874 1875 1876 1877 1878 309-4 1879 3.08.0 1880 3.08.9 I88I 3-08.4 (5) The value of I yen of paper money in the English currency (calculated on the basis of the above mentioned exchange rate and the quotations of the silver price in the Tokyo Exchange in the average of the year) is as follows: s. d. s. d. s. d. 1877 3. 10. 1 1880 2.06.4 1883 2.10.7 1878 305.6 1881 2.02.1 1884 3-04-3 1879 3-00.3 1882 2.04.5 1885 3-03-7 (6) I ryo (unit of value of the old currency system) was declared in the Coinage Law of 1871 to be equal to i yen. Chronological Table lei i 1st It 2d It 3d >i 4th 5th tt 6th tt 7th tt 8th tt 9th tt loth tt nth tt I2th tt 13th tt 14th 1868 A, 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 D. Meiji 15th 1882 A " i6th 1883 " 17th X884 " l8th 1885 " 19th 1886 " 20th 1887 " 2ISt 1888 " 22d 1889 " 23d 1890 " 24th 1891 " 25th 1892 " 26th 1893 " 27th 1894 " 28th 1895 D. Xlll XIV EXPLANATORY TABLES Chronological Table — (Continued) Meiji29th 1896 A. D. Meiji4ist " 30th 1897 " " 42d " 31st 1898 " " 43d " 32d 1899 " " 44th " 33d 1900 " " 45th \ " 34th 1901 " Taisho ist/ " 35th 1902 " " 2d " 36th 1903 " " 3d ■• 37th 1904 " " 4th " 38th 1905 " " 5th " 39th 1906 " " 6th " 40th 1907 " 1908 A. D. 1909 " 1910 " 1911 " 1912 " 1913 " 1914 " 1915 " 1916 " 1917 " Weights, Measures and Money With English, American, French and German Equivalents Japan i?j = 36 Cho = 2,160 Ken = 12, 1)60 Shaku. , Ri (Marine) Great Britain 2.44030 Miles Square Ri . Cho = 10 Tan — lOo'Se = 3,000 B«. 5 95505 ^ Sq. Miles 2.45064 Acres Tsubo= 10 Go = 100 Shaku.. . Koku = 10 To = 100 Sho = 1,000 Go = 10,000 Shaku . /3-95369, \ Sq. Yards J 4.96005 I Bushels I U. S. of America 2.44029 Miles /1.15152 1.15151 \ Miles Miles 5-95501 Sq. Miles 2.45062 Acres 3-95367 Sq. Yards Koku (Capacity offi/ioof i/io of ship) \ one Ton one Ton Kwan= 1,000 Momme = 10,000 Fun = 100,000 Rin. . Kin= 160 Momme. (8.26733 8.26733 J lbs. (Avoir.) lbs. (Avoir.) I 10.04711 10.04711 [lbs. (Troy) lbs. (Troy) 1.32277 1.32277 lbs. (Avoir.) lbs. (Avoir.) 1.60754 1-60754 . lbs. (Troy) lbs. (Troy) France Germany 3.92727 Kiloms. I. 85318 Kiloms. 15-42347 Km. Carres 99-17355 Ares [47.65389 _ J Gallons (Liq.) I 5 ■ 1 1902 [ Bushels (Dry) 3-30579 Centiares. 1.80391 Hectolitres i/io de Tonne 3 - 75000 Kilogs. . 60000 Kilogs. 3.92727 Kiloms. I. 85318 Kiloms. 15-42347 Quadrat Km. 99-17355 Ar. 3 30579 Quadratm. I. 80391 Hectolitrea i/io Tonne 3.75000 Kilogs. o . 60000 Kilogs, Yen = 100 Sen = 1,000 Rin = 10,000 Mo. - 2.0.582 s. d. 0.4984 Dollar 2-583 Francs 2.0924 Marks CONTENTS Part I — Historical Survey of Public Loans for War AND Armament CHAPTER PAGE I Introduction 3 II From the Meiji Restoration to the Satsuma Rebellion 5 III From the Satsuma RebelHon to the Sino-Japanese War 27 IV From the Sino-Japanese War to the Russo- Japanese War 40 V From the Russo-Japanese War to the Present Day 61 VI Present Amount of Pubhc Loans 87 VII Conclusion 100 Part II — Economic Effects of Public Loans for War and Armament I Introduction . . . 107 II Effects on Public Finance 108 III Effects on the Money Market 145 IV Effects on Industries 193 V Social Effects 201 VI Conclusion 214 Index 217 XV PART I HISTORICAL SURVEY OF PUBLIC LOANS FOR WAR AND ARMAMENT CHAPTER I INTRODUCTION According to their history, and the aims for which they were raised, the public loans of Japan are usually divided into the following : (i) Public loans for the reform of political institutions. (2) Public loans for war and armament. (3) Public loans for the encouragement of domestic indus- tries. (4) Public loans for the adjustment of finance. (5) Public loans for the government of new territories. The above .are all funded, or at least quasi-funded loans, and we ought to add to these another: (6) Floating loans. The main subject of the present Investigation consists of the history and statistics of funded and floating loans for war and armament. The extent of this class of public loans can not be exactly defined. First, loans for the reform of political Institutions are so closely intermingled with this kind of public loans that it is next to impossible to draw a clear line between these loans and those which form the subject of this treatise. Public loans for the reform of political institu- tions were loans in connection with the work of the Meiji Restoration, and the object of their flotation lay in defraying the expenses of the reorganization of old clans, and measures taken with regard to It. The reform, however, gave rise to several internal calamities, which naturally demanded ex- penditure on conquest, pacification or repression, and sub- sequently on the postbellum relief work. Secondly, loans for financial adjustment were loans with respect to the redemp- tion and adjustment of old debts. In those cases in which the old debts had been contracted in connection with war and armament, the corresponding new loans would in theory 4 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY belong to the category of war and armament loans. But as a matter of fiact, these kinds of new debt were floated in the same form as other kinds of old loans, and included In the so-called financial adjustment loans. Thirdly, loans for the encouragement of home industries included some items which, in fact, belong to war and armament loans. For example, a loan, issued with the name of the Government Undertaking Loan ("Jigyo Kosai"), was one which aimed at national defense. It is difficult to distinguish them accurately and to know their exact figures in each year. The above three are mere Instances of intermingling, and there are many other such cases. Lastly, floating loans were mostly Issued for the express purposes of war and armament, but cases are not wanting in which they were Included in the loans for replen- ishing the deficit of the general account. In such cases the setting apart of war and armament loans Is quite out of the question. Such being the case, the extent of war and armament loans is by no means clear and well defined. The present investiga- tion chiefly concerns itself with war and armament loans which are expressly so indicated. In case, however, there exist other loans closely connected with war and armament loans, we intend to endeavor to clarify their mutual connec- tion that we may ascertain the actual instead of merely nominal war and armament loans. CHAPTER II FROM THE MEIJI RESTORATION TO THE SATSUMA REBELLION The Meiji Restoration was accomplished by the reestab- lishment of order and the abolition of old clans. When, in 1867, the Tokugawa Shogunate had transferred the reins of government to the Emperor, the regular monarchial govern- ment may be said to have been nominally restored. But the whole country was still in an uproar, for not only did the great clans which had engaged in the crushing of the Shogun- ate not lay down their arms, but the pro-Shogunate clans were determined on restoring the reign of the Shogun. In January, 1868, battles were fought at Toba and Fushimi. In May battles of Uyeno (in Yedo) took place. In September the name of the reign was called Meiji. In October the Imperial palace was removed to Tokyo, and with it the Dajo- kwan and other government offices. In June an Imperial decree was issued to the effect that the "Daimyo," or feudal lords, should transfer the power of clan administration to the central government. Battles took place, however, suc- cessively at Aizu (end of September) and Hakodate (October), and it was not before the end of May of the next year that they were brought entirely to a termination. This ended what is generally known as the War of Restoration ("Ishin- eki"). On September i, 1870, the system of clan govern- ment by the central administration was put in operation. In July, 1871, a decree was issued for the abolishment of clans and the establishment of prefectures, thus effecting the work- ing of centralizied administration, nominally as well as really. But the peace of* the Empire was not yet wholly restored. There were many local disturbances in Ise, Shinano, Mim- asaka, Oita, Miye, Miyazaki, Takasaki, Sanuki, Yamagata and Saga. Moreover, the conquest of Formosa, beginning in 5 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY April, 1874, and the Korean affair of the following year, 1875, may be numbered among the many disturbances attendant upon the Restoration. The above is a brief summary of the wars and disturbances in connection with the Restoration, and the expenditure ^lih these was 14,188,308 yen in all. The following Hst will show its details : Expenditures of the Wars Connected with the Restoration' Fiscal Period War of Restora- tion Pacifica- tion of Local Dis- turbances Conquest of Formosa Korean AfTair Total L Dec, 1867-Dec., 1868 II. Jan., 1869-Sept., 1869 III. Oct., 1869-Sept., 1870 IV. Oct., 1869-Sept., 1871 V. Oct., 1871-Dec., 1872 VI. Jan., 1875-Dec., 1875 VII. Jan., 1874-Dec. 1874 VIII. Jan., 1875-June, 1875 July, 1875-June, 1876 Total Yen 4,621,633 2,625,644 1,546,984 114-072 Yen Yen 3-637 82,404 999-502 86,821 2,230,376 1,387,683 8-908,333 1,172,364 3,618,059 Yen 489,552 489,552 Yen 4,621,633 2,625,644 1,546,984 114,072 3,637 82,404 3,229,878 1-474,504 489,552 14,188,308 The sources of revenue for covering these expenses were manifold. The expenditures with regard to the War of the Restoration were chiefly met by 1,991,670 yen, which was levied on the clans, and by 452,964 yen, which was the contri- bution on the part of the people. The deficit was replenished by borrowed money, and the issue of Dajokwan notes. The expenditures for the pacification of local disturbances were met by 802,686 yen levy on the clans and 277,530 yew con- tribution on the part of the people. A little deficit was • Based on Imperial Statistical Year Book, and Financial Hiitory of the-Mein Era. MEIJI RESTORATION TO SATSUMA REBELLION 7 covered by the issue of new paper money. General revenue was appropriated to the expenses of the Formosan conquest and the Korean affair, but since the general revenue included, as an extraordinary item, the issue of a great amount of paper money, these expenses may properly be said to have been met by the issue of paper money. The following table shows the total amount, in yen, of the financial resources with respect to the War of the Restoration: Levies on the clans 2,794,356 Money borrowed from the rich 10,426,382 Contributions 730,494 Paper money and general revenue 237,076 Total 14,188,308 The above figures apparently show that the need for paper money issue was insignificant, even if we add the paper money for the repayment of borrowed money. As a matter of fact, however, the issue could not remain at such modest figures. In the general account of the year 1868 (the first period), of the total revenue (33,090,000 yen), the amount of ordinary revenue was only 10 per cent, amounting to 3,660,000 yen, while the extraordinary revenue occupied 90 per cent, amount- ing to 29,420,000 yen. As of this extraordinary revenue the issue of the " Dajokwansatsu " showed 24,037,390 yen, it must be said that 70 per cent of the total revenue was raised by the issue of paper money. In 1867 (the second period), of the total revenue, amounting to 34,430,000 yen, the ordinary revenue was only 4,660,000 yen, while the extraordinary revenue showed 29,770,000 yen, which included the issue of paper money amounting to 23,963,610 yen, i.e., 70 per cent of the total amount. This phenomenon took place, first be- cause the government was deprived of the revenues in the districts afflicted by disturbances, and secondly because the government was in need of a big sum of money for defraying army and navy expenditures, garrison expenditure, warship expenditure and war relief funds for different clans, aside from the warfare expenditure in the strict sense. In the third and fourth periods the expenditures showed a remarkable decrease, 8 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY and the corresponding total of the annual revenue also fell off. The revenues from the districts increased, which brought about an increased receipt in the ordinary revenue, ^ and minimized the necessity of paper money. In the fifth period, however, as there were various outlays for the expansion of military and naval armament, for the purchase of warships, for the construction of ships and shipyards, for the enforce- ment of the conscription system, and for the suppression of local disturbances, the total expenditures amounted to double those of the preceding period, and the corresponding revenue had to be increased to 50,440,000 yen. Of this revenue, the issue of New Paper Money amounted to 17,820,000 yen, viz., 34 per cent of the total sum. Thus the paper money issued up to the fifth period were " Dajokwansatsu," Mimbushosatsu and New Paper Money, which attained the aggregate sum of 73,325439 yen. The majority of this paper money partook of the nature of loans on account of the War of the Resto- ration, local disturbances, or on account of the relief expendi- tures, and military and naval armament. After the sixth period there were local disturbances on the one hand, and the Formosan and Korean affairs on the other, both of which in- volved no small amount of expenditures, and also demanded the increase of armament. It seems that New Paper Money was issued to comply with these needs. Thus, the ordinary and extraordinary armament outlays from the first period until the fiscal year 1876 showed 53,454,154 yen in military arma- ment expenditures, and 14,770,331 yen in naval armament expenditures, totalling 68,524,465 yen. The New Paper Money, which had been primarily issued for the exchange of old government paper money, came to be issued for the sake of covering these enormous outlays.^ Afterward Kinsatsu Exchange Loans were issued to withdraw these paper moneys. When the local disturbances were nearly suppressed, the government set about the financial adjustment attending the ' 5i354.5i2 yen, i.e., 25 per cent of the total revenue, and 2,145,487 yen, nearly 10 per cent of the total revenue. 2 100,000,000 yen in round numbers at the end of the fiscal year 1876. MEIJI RESTORATION TO SATSUMA REBELLION 9 abolition of old clans. The first task lay in the succession to and adjustment of old clan loans. The second was the dis- posal of old clan paper money. The third was the adjust- ment of the hereditary pension system. In the first place, the government divided the old clan loans, of a public nature, into "old loans issued before 1867," and "new loans issued from 1868 to 1872." In exchange for the old loans, the so- called Old Public Loan (amounting to 10,972,725 yen), bearing no interest, was delivered, while the so-called 4 per cent New Public Loan (amounting to 12,422,825 yen) was delivered in exchange for the new loans. This adjustment was made by the issue of the regulations concerning the issue of New and Old Public Loan Bonds. Of the above two bonds, the New Public Loan may be properly regarded as a loan for the pur- pose of adjustment of the debts contracted on account of war and armament by the old clans. In the second place, the withdrawal of the Old Paper Money was accomplished by the issue of New Paper Money after February, 1872 (22,908,434 yen), and by an outlay of the Clan Paper Money Reserve Fund (888,741 yen). We shall not be far mistaken, if we presume that the Old Clan Paper Money was issued on account of the disturbances before or after the Restoration. Lastly, the abolishment of the hereditary pension system was accomplished by the delivery of 7 per cent sterling loan bonds, floated in London, amounting to £2,400,000 (11,712,000 yen), 8 per cent Voluntarily-Capitalized Pension Bonds (16,565,850 yen), issued in accordance with the regulations concerning the issue of Voluntarily-Capitalized Pension Exchange Bonds, and of Hereditary Pension Bonds (173,902,900 yen), with interest ranging from 10 per cent to 5 per cent, issued in accordance with the regulations concerning the issue of Hered- itary Pension Bonds. Inasmuch as the hereditary pensions of the old clans had been considered as pay to the feudal vassals, and corresponded to armament expenditure, and inasmuch as the Hereditary Pension Bonds were also issued for the abolishment of the pensions awarded to those who had rendered services in the cause of the Restoration, the Heredi- lO WAR AND ARMAMENT LOANS: HISTORICAL SURVEY tary Pension Bonds may well be regarded as loans for war and armament. In short, Old and New Public Loans, 7 per cent Foreign Loan, Voluntarily-Capitalized Pension Bonds, and Hereditary Pension Bonds may, in a certain sense, be classed as war and armament loans. As the chief object of their issue consisted in the reform of institutions, we exclude these loans from the present investigation. The reader, however, must keep it in mind that, since these loans had a great deal to do with war and armament, they may well be termed quasi- war and armament loans. If we exclude from our investigation the loans for the reform of public institutions (the establishment of the Restoration), the war and armament loans which form the subject of our research are various government paper moneys, and "Kin- satsu" Exchange Bonds. The government paper moneys in- clude " Dajokwansatsu," " Mimbushosatsu " and New Paper Money. The history and statistics of these several loans will be discussed in the following sections. ' ' Dajokwansatsu ' ' The "Dajokwansatsu" was a kind of paper money issued from the "Dajokwan" in the beginning of 1868. The issues of these government notes were entered in the extraordinary receipt items of the annual account, all their disbursements going through the national Treasury. While a portion of them was disbursed as advances to the old clans as a substi- tute for currency, the greatest part took the form of floating public loans for meeting the requirements of the civil war finances. Inasmuch as these notes failed to be converted into new coins in 1869 according to the public promise which had been made to that effect, this is properly to be looked upon as a sort of compulsory war loan. At the dawn of the Restoration, the pressure of military affairs, together with the decay of all things, helped to increase in no small degree the expenditures for domestic administra- tion and military affairs, while the annual revenue was not sufficient to cover them. As a temporary measure, therefore. MEIJI RESTORATION TO SATSUMA REBELLION II the authorities resorted to the issue of paper money to replen- ish the scanty national Treasury on the one hand, and to supply domestic productive enterprises with necessary funds on the other. It was under these circumstances that the " Dajokwansatsu " was issued in 1872. The notification read as follows : (i) With a view to relieving the general suffering, the "Dajokwansatsu'" shall be issued, and its circulation shall be limited to the period of thirteen years. (2) A loan shall be granted to the clans in proportion to their respective rev- enues, the ratio being 10,000 yen per 10,000 koku (49,629 bushels) and the full repayment must be made in thirteen years, redeeming annually 10 per cent of the loan with the "Dajokwansatsu." (3) A loan shall be granted to farmers and merchants in proportion to their respective earnings, regard being had to the Registry of Social Rank ("Mimoto Gembo "). A reasonable percentage of both principal and interest must annually be repaid. (4) Conversion shall not be allowed, since the repayment itself is to be made with "Dajokwansatsu." Apparently, therefore, the object of issuing this note was to grant loans to the clans, farmers and merchants, in order to relieve the public distress. As a matter of fact, however, its aim lay rather in replenishing the scanty Treasury caused by frequent civil wars. The correctness of this inference is supported by various ordinances, notifications and reports of the government issued in this connection, which show that this government note was employed for purposes of suppres- sion of disturbances, for armament schemes and for miscel- laneous expenses. Moreover, it was left in circulation, with- out the government taking any steps to redeem it. The people at that time were unaccustomed to the use of paper money and they refused its acceptance. This led to the growing up of some difference in value between metallic and paper money, which naturally made the circulation of the latter more difficult. The government was often obliged to publish official notices strictly forbidding any act meant to obstruct its circulation, and to give instructions to all the clans and prefectures to unite their efforts in acquainting the people with the true intent of the ordinance. All these steps 12 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY on the part of the government, however, only helped to injure the credit of the government, and to impress upon the minds of the people the undesirability of the acceptance of paper money. Thereupon, the government issued a notification in May, 1869, providing the limit of its issue, with the promise to convert it into new coins by 1872 and to allow 6 per cent interest on any paper money unredeemed after the expiration of the term. As a result, the credit of the paper money grad- ually rose, and promised a fair prospect for its circulation; but the breach of the promise on the part of the government was soon succeeded by declining credit. According to the notification, the manufacture of paper money was to be limited to the total of 32,500,000 yen. Of this sum, 13,000,000 yen in round numbers had been granted as loans to the clans and urban prefectures "fu, " 14,000,000 yen in round numbers had been disbursed to cover govern- ment expenditures, and the remaining sum of about 5,000,000 yen was to be appropriated for government expenditure till the receipt of the revenue for the current fiscal year. No more issues were to be allowed, and the printing machines were then to be destroyed. The government being unable to observe the limit, the "Dajokwansatsu" was actually issued to the amount of 48,000,000 yen during the period extending from April, 1868, to July, 1869, thus overriding the limit by about 15,500,000 yen. Moreover, the public promise to convert the "Dajok- wansatsu" into new coins was not carried into execution, — on the contrary a new paper money called " Mimbushosatsu " was used to redeem the " Dajokwansatsu." This scheme also resulted in failure, and both of these paper moneys were in parallel circulation. " Mimbushosatsu" The "Mimbushosatsu" was a minor paper money which began to be issued from the Commercial Bureau of the " Mim- busho" from September, 1869, as an extraordinary source of revenue in the general account. MEIJI RESTORATION TO SATSUMA REBELLION 1 3 The "Dajokwansatsu"* consisted of five kinds of paper money of varying face value. The notes chiefly issued, how- ever, were major paper moneys, especially ten yen notes. The issue of minor paper moneys, such as twenty-five sen- notes and 6.25 sen notes was so insufficient that these were inadequate to meet the needs of distant and remote districts. In addition to this, the copper coins became so scarce among the people that small transactions could not be carried on with ease and smoothness. It was with the object of affording more facilities for these petty transactions on one hand, and of replacing major paper money then in circulation, that the government decided to make the Commercial Bureau issue " Mimbushosatsu." This paper money was issued in accord- ance with a notification of 1869, and consisted of minor paper money of the following units, i.e., 50, 25, 12.5, and 6.25 sen^ respectively. The date of conversion was to be announced at a later time by the same department. Thus as one object of this issue was to replace major " Dajo- kwansatsu," the issue of "Mimbushosatsu" should have been followed by the withdrawal and cancellation of "Dajokwan- satsu." But pressed by the deficiencies of the Treasury during war time, this purpose was utterly disregarded. Not only were the "Mimbushosatsu" issued irrespective of the other, but the " Dajokwansatsu," which had been withdrawn,, were again put in circulation. As a matter of fact, therefore, a new paper money was added to the "Dajokwansatsu," which had already surpassed the limit. "Mimbushosatsu" totalled 7,500,000 yen between October, 1869, and October, 1870. 1 Besides the "Dajokwansatsu and the "Mimbushosatsu," two other govern- ment paper moneys were issued, viz., the Exchequer Exchange Bonds and Colo- nial Exchange Bonds. The former bonds were issued by a notification of October, 1871, and amounted to 6,800,000 yen. The latter bonds Were issued by the written agreement made by the colonial governor during the period between January and April, 1872, and amounted to 2,500,000 yen. Both of these, contrary to their names, became inconvertible paper money, but were withdrawn from circulation in 1875. Moreover, as the objects of their issues lay in the adjustment of old gold and silver, and 2 bu gold coins, on one hand, and the colonization of Hokkaido on the other, these two loans, which amounted to the aggregate sum of 9,000,000 yen, can not be regarded as war and armament loans. 14 war and armament loans: historical survey New Paper Money The New Paper Money consisted of inconvertible notes of a new pattern, which were issued after 1871 to prevent the forgery of "Dajokwansatsu" and " Mimbushosatsu " and to adjust various clan paper moneys. This must also be re- garded as a kind of war loan. According to the government proclamation of May 28, 1869, the " Dajokwansatsu" became convertible paper money and was to be changed for new coins in 1872. The coinage of, new coins, however, was an undertaking which had the widest economical and financial bearings, and forbade the hasty, completion of the task. Even though the coinage could be accomplished, the possibility of withdrawing the paper money in exchange for new coins would have been quite out of the question, the Treasury having been constantly confronted with a shortage of revenue. But what the people at large considered as evils, and much more unendurable, were the facts that the government paper money already issued was of extremely inferior quality, thus encouraging forgery, and that the so-called "sensatsu" issued by the former clans consid- erably varied in value, thus wholly depriving them of the nature of legal tender. Now the origin of this latter widely circulated paper money may be traced back to the ' ' Kambun ' ' Era, when it was issued . by the Fukui Clan with the permission of the Shogunate. Many similar issues were made by other clans. When the. downfall of the Shogunate had brought about civil disturb- ances throughout the whole country, all the clans resorted to increased issues of this note, many of them without any per- mission from the Shogunate. On the abolition of the clans, July 14, 1871, the government, with the object of prohibiting the issue of this paper money, made a thorough investigation, and ascertained the amazing fact that 224 clans, I4 prefec- tures and 9 estates of direct feudatories of the Shogun had had recourse to this expedient. This paper money included gold paper money, silver paper money, rice paper money and major MEIJI RESTORATION TO SATSUMA REBELLION 1 5 and minor paper money, all varieties of which amounted to the large figure of 1,614. The total value was estimated at 38,551.132 yen. This sum was found to have been over- estimated and was correctly reduced upon further investiga- tion, but still there existed 24,935,109 yen to be exchanged for new paper money. The circulation of these clan paper moneys was limited to the four corners of each clan, and their value was low from the very time of their issue. Moreover, their manufacture was crude in the extreme, and the system of specie reserve the most imperfect imaginable. Their increased issue, therefore, made their value lower and lower, and often they were as worthless as pieces pi waste paper. Thus the existence of 'these worthless notes in the market impeded business transactions, caused fluctuations of prices, and worst of all prevented the circulation of government paper money. This state of things made the government keenly realize the necessity of preventing the forgery of clan paper moneys, and the need of unification of paper money, both those of the clans and those of the government. Thus as early as in October, 1870, the government sent an order to a German firm in Frankfurt to manufacture an elaborate paper money to the value of 103,537,359 3'^^. with a view to exchanging for it all the paper moneys then in circulation. On December 27, 1 87 1, a notification was promulgated concerning the issue of new paper money. It was subsequently discovered that this new note was easily susceptible to injury, thus rendering renewal necessary. Therefore, the government in December of the same year imported the printing machine from Ger- many, established a paper money factory in the Mint, and set about its manufacture. In December, 1 87 1 , the amount of paper money manufactured there bulked to the total sum of 45,904,037 yen, and this served as a reserve paper money to be issued in exchange in case New Paper Money already in circulation was injured. With this new addition, the amount of manufacture of New Paper Money was calculated at 1 6 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY 149,441,396 yen. The New Paper Money already printed was not all issued immediately upon its importation or manu- facture, only a portion of it being issued in exchange for " Kinsatsu," or worn-out New Paper Money as the case might be, and the rest was kept unissued in the Treasury as a so- called "reserve paper money." The reserve paper money- was issued, contrary to the original purpose, to cover the deficit of the annual revenue, and this sort of issue was tech- nically called "Issue of Reserve Paper Money." The New Paper Money was issued beginning with February, 1872, in accordance with the aforesaid decree of notification of Decem- ber 27, 1871. The maximum amount of its circulation was attained in December, 1878, when it figured at 119,800,455 yen, excepting the "Issue of Reserve Paper Money," which we shall consider later on. The following table gives the details : ^ (i) Issued in exchange for nearly the whole of the "Dajo- kwansatsu," the " Mimbushosatsu," the Exchequer Exchange Bonds and the Colonial Exchange Bonds, 61,367,680 yen. (2) Issued in exchange for Clan Paper Moneys, 22,908,434 yen. (3) Issued in exchange for replenishing the deficit of the annual revenue, 8,525,444 yen. (4) Issued in January, 1878, in accordance with a notifica- tion of December 27, 1877, to cover the expenditures of the Satsuma Rebellion, 27,000,000 yen. In addition to this, there was an exchange reserve paper money which was issued after 1872. At the end of December, 1878, it reached the enormous maximum of 19,618,116 yen. The original purpose of issuing this paper money was equiva- lent to that of the Treasury bills of the present day, i.e., to ob- tain temporary cash accommodation for the Treasury. But during the civil disturbance, it was issued in such great quan- tity, and extending over several fiscal years, that its issue ' Of the 24,935,109 yen, which formed the total sum of all the dan paper moneys, 888,941 yen was redeemed with the so-called "Clan Paper Money Reserve Fund," and 1,136,217 yen can not be accounted for. The remaining sum, 22,908,434 yen, was, as is shown, replaced by New Paper Money. MEIJI RESTORATION TO SATSUMA REBELLION 1 7 came to have the same object as that of New Paper Money, and indeed to become the supplement of the latter. It was thus that the notification of December 27, 1871, changed the form of convertible government paper money into that of inconvertible New Paper Money, the intent of the notification of May 28, 1869, being completely frustrated. Happily for the government, the people by this time had got accustomed to the use of paper currency, and preferred it to metal. The revision of the promise on the part of the govern- ment was, therefore, carried through without any difficulties. One more word must be added here as to the existence of what is called the ' ' Reserve Fund for the Withdrawal of Paper Money and Public Securities," which was instituted in June, 1872. This fund was, in July, 1878, separated from the sink- ing fund, and came to serve as specie reserve for paper issues. This specie reserve consisted of 10,000,000 yen in gold, and not only the interest on this sum, but also the surpluses of the yearly general accounts were added to it every year. But, as is clearly seen in the remarks made by Count Matsukata, Minister of Finance, when he resumed the portfolio in 1871, the best part of this fund had been transformed into advances and public bonds, and the specie left only amounted to 8,000,- 000 yen. This sum was insignificant as compared with the enormous sum of the aforesaid paper money issued. More- over, the government was not in duty bound to pay specie out of this fund to bearers of paper moneys. The existence of this fund, therefore, can not traverse the inconvertibility of government paper money and New Paper Money. "KiNSATSu" Exchange Loan Bonds The "Kinsatsu" Exchange Loan was a public loan issued after March, 1873, for the readjustment and consolidation of the "Kinsatsu" (government paper money) and the New Pa- per Money, above described. Inasmuch as these two paper moneys had been issued as war loans in connection with the Restoration, the newly issued loan also naturally partook of the nature of a war loan. -l8 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY As has been above stated, the government had changed the government paper moneys and the clan notes into inconvert- ible New Paper Money. The notification of May 28, 1869, however, remained unaltered. The government, therefore, turned out as many coins as it could ; as a result, a great quan- tity of metallic currency found its way into circulation. On account of the yearly increase of national expenditures, and the unexpected deficit of revenue, it was impossible for the gov- ernment to fulfil the promise of exchange, as contained, in the above notification. But as the nonfulfilment of the public promise meant a great injury to the prestige of the govern- ment, the government endeavored to find some appropriate solution. Now the above notification contained a promise to pay 0.5 per cent interest per month (6 per cent per annum) , to the holders of ' ' Kinsatsu ' ' after the expiration of 1 872 . The government decided to make good its promise by delivering, on application, government bonds to the holders of " Kinsatsu " (including New Paper Money) , and allowing a fixed rate of in- terest every year. For this purpose, the ' ' Kinsatsu ' ' Exchange Loan Regulation was promulgated by Notification of the , Dajokwan No. 121 on March 30, 1873, consisting of eleven articles, the main points of which notification may be sum- marized as follows: (i) The bonds shall consist of (a) Registered Bonds and (b) Coupon Bonds (Art. I). A Registered Bond is a bond in which the name of the owner is written on the face of the bond, and also entered in a registry kept by the Department of Fi- nance. Every time the bond is transferred from one person to another the name in the register as well as on the bond itself shall be altered (Art. II). A Coupon Bond has no name written in the register nor on the bond itself. Transfer shall be completed by mere delivery of the bond. At the end of -the bond shall be attached a small coupon showing the amount of the interest annually to be paid to the holder of the bond (Art. Ill, Sec. i). (2) Both kinds of bonds shall be kept in circulation for the period of fifteen years from the date of issue (March 5). For MEIJI RESTORATION TO SATSUMA REBELLION 1 9 seven years' from the date of acquisition only interest shall be : paid to the holder. After the lapse of the period, which, ac- cording to the revised computation, was the fourth year from the date of acquisition, certain bonds shall be drawn by lot and the principal thereof shall be repaid at any time the gov- ernment may think fit. The holder shall not be allowed to refuse the repayment (Art. IV). (3) If any holder of " Dajokwansatsu, " " Mimbushosatsu " and New Paper Moneys wishes to have them exchanged for the above-mentioned government bonds in order to obtain the interest according to the above notification, he must report to the Paper Money Bureau of the Finance Department the amount of the paper money he has in his possession, in accord- ance with the proceedings provided for in the following sec- tion of this article. He shall receive either of the above bonds mentioned in the preceding article, according to the discre- tion of the Department (Art. IV, Sec. i). (4) The rate of interest on both bonds shall be 6 per cent per annum. Payment of interest shall be made at designated banks in Tokyo, Osaka, Yokohama, Nagasaki, Kobe, Kyoto, Niigata, Hakodate, etc., and the dates of interest payment ■shall be, on both bonds, twice every year, i.e., from the ist to the 15th of July and from the 1st to the 15th of December. (5) In case any bonds are lost or stolen, the holder must report to the Paper Money Bureau that registered bonds or coupon bonds of such and such a kind — stating the number and amount — have been lost or stolen, as the case may be. Thereupon the Paper Money Bureau shall immediately make public notification to all the local government offices and banks of the fact, together with the kind, number and amount of the bonds lost or stolen, and shall, for the period of six months after the. date of loss or theft, give public notice thfough newspapers, or other means of public notification, that the above bonds shall not be dealt in. During the period of public notice neither principal nor in- 1 Changed to three years, according to a revision made by Notification No. 264 in July, 1873. 20 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY terest shall be paid. When the bonds have not been discov- ered within the period of six months, the said Bureau shall make new bonds and deliver them to the applicants, but the interest that accrues during the period of public notice shall not be paid until the next date of payment subsequent to the delivery of the new bonds (Art. VIII). When bonds have been washed away by floods, or burnt, the holders thereof shall report the fact to the Paper Money Bureau, according to the preceding provisions. If the fact of loss by flood or by fire be established, steps similar to the ones provided for in the previous section shall be taken. In case only a portion of bonds be burnt or otherwise destroyed so as to render their circulation impossible, the holders shall report the fact to the Paper Money Bureau, together with the re- mainder of the bonds and apply for the delivery of substitute bonds (Art. IX). (6) This law shall at any time be supplemented or revised if the government thinks it necessary. Public notice of the supplement, revision, etc., shall be made without delay (Art. XI). At the time when the government made the public promise to allow 6 per cent interest for the outstanding paper money after the expiration of 1872, the quotations of "Kinsatsu" were low; but subsequent recovery of its value caused it to cir- "culate at a par with new coins, thus making 6 per cent inter- est on it appear too low. Simultaneously with the issue of "Kinsatsu" Exchange Bonds, therefore, the government promulgated a bank regulation, by which the issue of bank notes on the security of "Kinsatsu" Exchange Bonds was allowed. The object of this regulation was to maintain the price of this bond by making the banks the purchasers of it. This expedient proved a success, inasmuch as it checked any re- markable depreciation of the bond, although there was not much demand for it among the people. By this device the government wag able to withdraw government paper money to the amount of 2,230,000 yen, in round numbers. Not- MEIJI RESTORATION TO SATSUMA REBELLION 21 withstanding the withdrawal of the above money, however, the increase of the issue of the New Paper Money was such that in 1876 the total of all the paper moneys, including re- serve paper money issued, surpassed 100,000,000 yen. As this enormously big sum naturally surpassed the demand in the market, it caused the value gradually to decline. It was, therefore, necessary for the government to start some plans to increase the issue of the "Kinsatsu" Exchange Bonds by guaranteeing their validity, and to regulate the circulation of the paper money. Moreover, people were then so ignorant of the nature of negotiable securities that they were afraid of accepting unregistered bonds. The government also found much difficulty in forming the estimates of principal and in- terest to be distributed to each district to meet the payment of unregistered bonds. The then Minister of Finance, fully convinced of the desirability of revising the law as it then stood, subjected the revised law to the deliberation of the "Dajokwan," on July 8, 1880. The revised regulation was issued by Notification No. 47 of October 27, of the same year, under the name of "Revised Regulation Concerning 'Kin- satsu' Exchange Loan, " the chief points of the revision being as follows: (i) The "Kinsatsu" Exchange Loan shall be issued for the exchange and redemption of the paper money issued by the government, and the principal and interest of the "Kin- satsu" Exchange Loan shall be paid in gold arid silver coins (Art. I). ' (2) The "Kinsatsu" Exchange Loan Bonds shall be regis- tered bonds with coupons, and shall consist of 500 yen, 100 yen, and 50 yen respectively (Art. II). (3) The paper money exchanged by "Kinsatsu" Exchange Loan Bonds shall be destroyed in the Finance Department, according to the regulation relating thereto. (4) The principal of the " Kinsatsu" Exchange Loan Bonds shall remain unredeemed for three years from the date of de- livery of the instruments. The redemption shall be comple- ted in twelve years, beginning with 1871, and shall be made by 22 WAR AND ARMAMENT LOANS : HISTORICAL SURVEY lot, according to the discretion of the government. The in-' terest shall be 6 per cent per annum, and shall be paid twice a year, i.e., in May and November, till the complete redemp- tion of the principal (Art. V). (5) Whoever wishes to have any paper money exchanged for "Kinsatsu" Exchange Loan Bonds must present an appli- cation for exchange, stating the kind of paper money, together with the amount thereof. (6) Even after the promulgation of the present regulation, the "Kinsatsu " Exchange Loan Bonds shall be made after the form of the unregistered bonds with coupons under the former regulation. Unnecessary and contradictory expressions shall be struck out. (7) The "Kinsatsu" Exchange Loan Bonds, both registered and unregistered, which were delivered prior to the promulga- tion of this regulation, shall be exchanged for revised ones (Art. XIV). According to the revised regulation, therefore, the issue of' "Kinsatsu" Exchange Loan Bonds was intended for the ex- change and withdrawal of the government paper money, with the ultimate object of restoring their value by decreasing their excessive circulation. A comparison between the orig-: inal and revised regulations easily reveals a great differ- ence in the objects which the respective regulations were intended to attain. When the original regulation was pro- mulgated, the government paper money did not surpass the demand, and so their prices were by no means low. The object of the' original regulation, therefore, was not to de- crease the circulation of paper money, but to afford an expe- dient for delivering interest to the holders of "Kinsatsu" Exchange Bonds, in accordance with the notification of 1869. According to the revised regulation, on the contrary, principal: and interest of this loan were to be paid in gold and silver coins. If, therefore, a depreciation in the value of paper cur- rency occurred, and it became beneficial for people to get the principal and interest in the form of specie, this would nat- urally be attended with a demand for the increased issue of MEIJI RESTORATION TO SATSUMA REBELLION 23 the exchange bonds. If the discrepancy between paper and specie ceased, then demand for exchange would again decrease. Thus by the natural operation of this regulation, the value of paper currency could be maintained. Several modifications were subsequently made. In De- cember, 1883, the issue of registered bonds was suspended. In November, 1888, when efforts were made to unify the treat- ment of all sorts of public debts, the "Kinsatsu" Exchange Loans fell under the provisions of the Consolidated Loans Reg- ulation Notification No. 36, October, 1886, and Procedure with Respect to Consolidated Loans '■ with regard to principal refundment, interest payment, sale and other transfer, losses, extinguishment, defacement and destruction of bonds, etc., and these rules were put into force from January, 1889. In short, "Kinsatsu" Exchange Loan Bonds were ordi- narily issued for the benefit of the holders of government notes who wished to obtain interest on them. Though the exchange bonds consisted of registered and unregistered bonds, no demand was made for unregistered bonds before 1875, and. between 1876 and 1 879 no demand was made for either of them., The reason is not very far to seek. The market rate of inter- est then stood at more than 15 per cent, thus surpassing that of the exchange bonds by 9 per cent. Moreover, there was a general falling off of public loans, so much so that the so-called "Voluntarily-Capitalized Pension Bonds," which bore 8 per cent interest, could be bought below eighty yen. In 1880, just before the revision took place, there appeared some de- mand for this bond. On account of the revised regulation, the demand increased until 1883 in spite of the continued depreciation of the paper money. This was wholly due to the convertibility of the exchange bonds into metallic currency. The issue of the bonds allotted to each year is estimated as follows: ' Finance Department Order No. 30, 1886. 24 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Year of Issue In Exchange for ' ' Dajokwansatsu' ' and "Mimbu- shosatsu " In Exchange for New Paper Money- Total i8Ti Yen 1,580,200 633,350 25,000 Fen 3,002,650 627,550 427,950 372,550 Yen 1,580,200 6';'?.'?S0 1874 1875 25,000 1880 3,002,650 627,550 1881 1882 427.0W 1883 372,550 Total . . . 2,238,550 4,430,700 6,669,250 Of this total, 5,219,550 yen was issued under the original regulation and i ,449,700 yen under the revised. According to the classes of applicants, banks and companies constituted the overwhelming majority of 67 per cent of the total, amounting to 4,465,650 yen. This was due to the fact that the object of the National Bank Regulation and the line of policy taken by the government with regard to the issue of this loan had duly been put into execution. Besides, there were unregistered "Kinsatsu" Exchange Loan Bonds amounting to 7,929,900 yen, which were issued in 1884 and 1886 in accordance with the revised regulation of 1883. Conclusion To sum up, there can be little doubt that " Dajokwansatsu " (48,000,000 yen) and " Mimbushosatsu " (45,000,000 yen) should be placed in the category of war and armament loans, inasmuch as they were inconvertible paper money issued as extraordinary sources of war revenue at the Restoration. A close scrutiny of their appropriations, it is true, will show us that they were also used for other purposes than war and armament. But in view of the fact that no other resources for the suppression of the disturbances existed at the time of the Restoration, we consider it quite proper to put them into this category of war and armament loans. On the contrary, Ex- chequer Exchange Bonds (68,000,000 yen) and Colonial MEIJI RESTORATION TO SATSUMA REBELLION 25 Exchange Bonds (25,000,000 yen) should, in view either of the apparent aims for which they were issued or of their actual ap- propriations, be placed outside of war and armament loans. New Paper Money should also be called war and armament loans. It is true that this paper money was not used entirely in exchange for, and in adjustment of war and armament loans, since it was used to exchange and adjust 61,367,680 yen of the aforesaid four kinds of government notes (the total of which was 64,800,000 yen) and 22,908,434 yen of Old Clan Paper Money. But we must not lose sight of the fact that the ma- jority of it was appropriated in exchange for and in adjust- ment of " Dajokwansatsu " and "Mimbushosatsu," which were, as was shown above, war and armament loans. More- over, Old Clan Paper Money was nothing but war loans of the clans, so the New Paper Money issued in exchange for and for the adjustment of them can justly be looked upon as war and armament loans on account of the Meiji Restoration. In ad- dition to it, the amount of issue of New Paper Money was over 84,276,114 yen, which was the sum issued in exchange for the above-mentioned notes. In 1876, itoamounted to 100,521,516 yen and in 1878, as the result of increased issue in connection with the Southwestern Rebellion, ^ it reached the maximum figure of 139,418,571 yen. This surplus amount was appropri- ated for the replenishment of the Treasury, which was then suffering a heavy strain on account of local disturbances, the Formosan and Korean affairs, and expansion of military and naval armament. Such being the case, we find no impropriety in calling New Paper Money by the name of war and armament loan. Lastly, the "Kinsatsu" Exchange Loan Bonds un- doubtedly partake of the nature of war and armament loans because, of the 6,669,250 yen which was the total sum of issue, 2,238,550 yen was issued in exchange for government notes, and 4,430,700 yen in exchange for New Paper Money. The following table details all the war and armament loans from the Restoration (1868) to the Satsuma Rebellion (1877): ' Satsuma Rebellion. 26 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Loans from Riestoration to Satsuma Rebellion ' Calendar Year Dajokwan- Mimbusho- satsu satsu Yen Yen 24,037,386 48,000,000 2,090,867 48,000,000 7,500,000 48,000,000 7,500,000 43,251,058 7.474.833 36,863,722 7,247,824 26,573.507 6.377.646 5.147,913 2,337.886 3.095.921 1,540,000 3,070,145 1,519,686 New Paper Money Kinsatsu Exchange Loan Total 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 Yen 8,374,107 25.535,325 57,208,170 91,584,067 100,521,516 101,207,259 Yen 1,580,200 2,213,550 2,238,550 2,105,950 2,105,950 Yen 24,037,386 50,090,867 55,500,000 55,500,000 58,099,998 71,227,071 92,372,873 101,308,419 107,263,387 107,903,040 The war and armament loans issued during the period from the Restoration to the Satsuma Rebellion were confined to the above-mentioned paper moneys and the "Kinsatsu" Ex- change Loans. If we take public loans at large into consid- eration, there were in addition the 9 per cent Foreign Loan amounting to 4,880,000 yen, and the loans for the reform of po- litical institutions (including 7 per cent Foreign Loan, Volun- tarily-Capitalized Pension Bonds, and Hereditary Pension Bonds). This 9 per cent Foreign Loan was the first loan raised by public subscription by this country. It was raised, in London in April, 1870, and the proceeds were appropriated to public works expenditures, such as the construction of the railways between Tokyo and Yokohama and between Kobe, and Osaka. ' Based on the Financial History of the Meiji Era and special investigatibn.- What is called New Paper Money includes Exchequer Exchange Notes, Colonial Exchange Notes, exchanged Old Clan Notes and Reserve Paper Money. As the figures of these notes can not be separated from those of New Paper Money, they have been inserted as they stood. "Kinsatsu" Exchange Loan Bonds were issued in great amount after 1880, so the above figures do not show the amount of maximum issue. CHAPTER III FROM THE SATSUMA REBELLION TO THE SINO- JAPANESE WAR Friction among the Cabinet members over the question of Korean conquest, added to the local disturbances, made the al- ready confused state of things worse confounded, and the result was the famous Satsuma Rebellion of 1877. In this rebellion, Saigo Takamori, one of the veteran statesmen of the Restora- tion, who enjoyed a wide popularity and was well versed in military tactics, acted as the head of the insurrection. Ku- mamoto, Fukuoka, Saga and other places in Kyushu, not to speak of Satsuma, his birthplace, responded to his call. They resisted the Imperial forces until they were destroyed to the last man. The suppression of the rebels, therefore, involved much time and a great array of forces. The number of sol-- diers who fought for the government was above 66,000, and the' line of battle extended over 20 or 30 ri. More than 200 days had passed before the rebels were completely subdued by the defeat at Shiroyama. The law of requisition at the time left a great deal to be desired. Moreover, as the scene of action lay in mountainous districts the roads were so bad that resort could not be had to ships and wagons. Commissariat and transportation, therefore, had to be left in the hands of coolies, whose pay amounted to no small sum. Increase of police force in the provinces, punishment of rebels, postbellum relief of the distressed, and the reward afforded to the soldiers en- gaged in the campaign necessitated an enormous outlay from the Treasury. Thus the estimate of the war expenses figured 42,000,000 yen, which was, of course, too large a sum to be defrayed out of the ordinary revenue. To resort to an ordinary loan would have been impossible, except at an enormous rate of interest. Increase of the amount of taxes, however, would have estranged 27 28 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY the confidence of the people, as an ordinance concerning the curtailment of taxes had been issued not long before. There- upon, in 1877 and 1878, the government borrowed bank notes amounting to 15,000,000 yen from the Fifteenth National Bank to defray a part of the expenses. This is what is called "the Conquest Loan." Not only was this expedient insuffi- cient to cover all of the conquest expenses, but the bank notes could not be circulated in the battle zones. The government had no other alternative than to issue Reserve Paper Money to the amount of 27,000,000 yen, which it did in February, 1877, by Decree No. 87. Thus the loans from the Fifteenth Na- tional Bank (15,000,000 3'e«), the increased issue of New Paper Money (27,000,000 yen), and contributions (10,000 yen) were sufficient to cover the total of the war expenses, which, according to final accounts made in October, 1878, figured at 41,567,726 ye». There were two problems after the war which needed atten- tion, i.e., the adjustment of paper moneys, and the increase of armament. The adjustment of paper moneys was chiefly effected by the establishment of the Bank of Japan, 1882, and the enforcement of the Bank Note Regulation, 1884. This problem had no direct relation with war, but the loan of the paper moneys redemption fund from the Bank of Japan, 1888, must be regarded as an auxiliary consequence of the war. The extension of armament was effected both in the navy and in the army. Expenses for the increase of naval arma- ment were defrayed out of the Navy Loan, floated by the Navy Loan Regulation, 1886. Expenses for the military arma- ment were paid by the Bank of Japan out of the Temporary Loan, which was effected in accordance with an agreement be- tween the Cabinet and the Bank of Japan in 1886. There were two Korean affairs, viz., one in 1882 and the other in 1884 and 1885, which involved 1,425,375 yen and 139,- 088 yen, respectively. These sums were covered by national reserve funds and ordinary revenue, and had nothing to do with public loans. In short, the war and armament loans from the Satsuma SATSUMA REBELLION TO SINO-JAPANESE WAR 29 Rebellion to the Sino- Japanese War consisted of the Loan for the Suppression of the Rebellion, the issue of Reserve Paper Money, the Loan of the Paper Money Redemption Fund, the Navy Loan, and the Temporary Loan for the Army, which will be treated successively in the following sections. Loan for the Suppression of the Rebellion To cover the expenses of the Satsuma Rebellion, the govern- ment contracted a loan from the Fifteenth National Bank by a written agreement made by the National Loan Bureau of the Finance Department. The loan extended over a term of twen- ty years; and 15,000,000 yen out of the bank notes, which the same bank issued with the government's permission, was to be appropriated for this purpose. The interest was fixed at 5 per cent per annum. The Fifteenth National Bank had been established by a number of peers with a capital of 17,826,000 yen, which con- sisted of public bonds. The bank had received the delivery of the bank notes which it issued on the security of the deposited public bonds. It had not been easy for the bank to make use of this prodigious amount of bank notes. This govern- ment loan on account of the Satsuma Rebellion, therefore, just suited the needs of the Fifteenth National Bank, The interest of the loan, however, was felt to be too low, as the market rate of interest at that time exceeded 10 per cent per annum. In accordance with the above-mentioned agreement, the said bank paid 9,486,000 yen and 5,514,000 yen during 1877 and 1878, respectively. After the completion of the payment of the loan, which was made in forty-two instalments, the said bank twice tendered a petition to the government for an in- crease of the rate of interest, once in October, 1879, and again in January, 1880, to which, however, the government turned a deaf ear. The restoration of peace after the suppression of the Re- bellion brought out unmistakably thfe evils of the overissue of inconvertible notes. Thus, the depreciation of paper cur- 30 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY rency, exportation of metallic currency, unfavorable balance of trade, rise in prices and in interest rates, and the deprecia- tion of public bonds ensued in succession. This storm and stress of the economic world compelled the government to take various remedial measures. Now the said bank could issue bank notes beyond the limit provided for in the National Bank Regulations, though the reserve bonds decreased a great deal on account of the afore- said loan made to the government. Such an anomaly, it is true, was quite unavoidable in time of disturbances, for alleviating the financial stress of the gov- •ernment. But when peace was restored, and when the ad- justment of paper moneys was considered, the overissue was found to be a serious difficulty in the way of financial adjust- ment. After the unification of the paper moneys, which had been effected by decree No. 15, 1883, the government, in July ■of the same year, modified the previous agreement by issuing an order in accordance with which the government repaid 5,000,000 yen out of the total sum of the loan ; thus enabling the said bank to redeem 2,400,000 yen, which had been the amount in excess of the legal limit, and also enabling the bank to in- crease the reserve fund so as to comply with the amount pro- vided for in the National Bank 'Regulation. Having once ■deprived the bank of the privilege of overissue, the govern- ment, on its part, had no reason to borrow money from the bank at the low interest of 5 per cent. So with the repay- jnent of 5,000,000 yen, the government revised the rate of interest on the remaining sum to 7.5 per cent. On July 10, 1892, the Fifteenth National Bank requested the government to repay the loan by instalments, i.e., 2,000,000 yen in November, 1895, and May and November, 1896, and 4,000,000 yen in May, 1897, when the term of^sthe loan ex- pired. The reason assigned for this mode of payment was that if the loan were repaid at a single time, at the expiration of the term, it would greatly affect the money market. This mode of redemption found high favor with the government, as it was conducive to the adjustment of its finance. On April SATSUMA REBELLION TO SINO-JAPANESE WAR 3 1 22, 1896, this request was granted, and it was duly executed by the government. Of 4,000,000 yen, to be repaid on May 20, 1897, however, 2,000,000 yen was paid in cash and the re- maining 2,000,000 yen by delivery of Consolidated Public Loan Bonds, in accordance with a subsequent request of the Fifteenth National Bank made in July, 1896. Reserve Paper Money and Temporary Loan for the Redemption of Paper Money Reserve paper money was that which had been procured from Germany in 1870 to be issued in exchange for damaged paper currency. As the sum exchanged was very big, amount- ing to 10,000 yen a month, the authorities decided in 1877 to manufacture the money within the country, and thus 40,441,- 524 yen was manufactured at home. Reserve paper money was issued not only in exchange for damaged paper money, but also to save the Treasury from financial crises. After 1878 the issue of this paper money for purposes of equalizing the revenue and the expenditure in the general account became -quite common. In order to meet the expenses of the Satsuma Rebellion, the government borrowed bank notes from the Fifteenth National Bank. But when the Fifth National Bank in Kagoshima fell into the hands of the insurgents, and its bank notes were put in . circulation in the field of combat, bank notes generally lost their credit in the neighborhood, and their circulation was greatly impeded. Hereupon, the government declared its intention of issuing reserve paper money by Notification No. 87 of Decem- ber, 1877, and in the following year there was an issue of no less than 27,000,000 yen. The war expenses were successfully met by this expedient, but it made the more necessary a postbellum readjustment paper. At first the New Paper Money was issued to readjust govern- ment paper moneys, and the latter were, in 1874, alm^t super- seded by the former. The issue of New Paper Money, how- ever, was not restricted to the extent of this primary object; and it went on increasing until at the end of 1876 it reached 32 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY 100,500,000 yen. To this already enormous sum was further added the reserve paper money amounting to 27,000,000 yen issued in connection with the Satsuma Rebellion, the circula- tion of which at the end of 1878 stood at 139,418,571 yew. Moreover, the national bank notes which had reached the to- tal of only 1,744,000 yen at the close of 1876 rose to 26,279,006 yen at the end of 1878 on account of the credit notes of the Fifteenth National Bank during 1877 and 1878. Thus the grand total of paper money rose to the unprecedented sum of 165,697,598 yen. As a result of such an enormous inflation of paper currency, the fall of its value could not be averted, and its value against silver coins continued to go down from 1877, the depreciation reaching its maximum in 1881. Prices and interest rose rapidly and our economic affairs were on the brink of a great panic. Realizing that some expedient must be resorted to, the government exerted itself to the utmost to withdraw and redeem paper moneys. For this purpose the government revised by Proclamation No. 40, September 27, 1880, the Sake Manufacture Tax Regu- lation, doubling the rate, and appropriating the increased re- ceipts. Also for this purpose, the government by Proclama- tion No. 48, November 5, 1880, extended the scope of local finance, thus relieving the national Treasury. At the same time it carried out the curtailment of department expenditures. To attain the same object, the government 'sold several fac- tories built by itself, and abolished the loaning of the reserve fund. Thus every effort was made to increase the fund for the redemption of paper money. Count Matsukata, especially, the then Minister of Finance, not only withdrew paper cur- rency, but also accumulated metal in preparation for the adop- tion of the conversion system. By Proclamation No. 32, June 27, 1882, the Bank of Japan Regulation was enacted, and on October 10 of the same year the Bank of Japan commenced its business. As the difference between silver and paper money was still considerable, the government forbade the issue of convertible bank notes by Article 14 of the same regulation. SATSUMA REBELLION TO SINO-JAPANESE WAR 33 The efforts of the government to redeem paper money and ac- cumulate metallic currency raised the value of paper currency, and the discrepancy between them well-nigh disappeared. By Proclamation No. i8, May i8, 1884, the Convertible Bank Notes Regulation was enacted, and on May 9, 1885, the Bank of Japan issued the first convertible bank notes. Further, by Proclamation No. 14, June 6, 1885, it was provided that the paper money issued by the government should be exchanged for silver coins from January, 1886, and that the converted pa- per money should be withdrawn from circulation. At the end of June, 1888, the paper moneys in circulation decreased to only a little above 49,700, 158 yen. This was a good opportunity for the government to lay the foundation for our monetary system, and it revised the Convertible Bank Notes Regulation by Im-, perial Ordinance No. 57, August i , 1888. The issue of convert- ible notes on security reserve was limited to 70,000,000 yen, of which 20,000,000 yen was to be borrowed by the government, at the rate of 2 per cent per annum, for the redemption of gov- ernment paper moneys. Its carrying into effect was post- poned to some future date. This gave rise to temporary loans for the redemption of paper moneys. By Law No. 34, May 16, 1890, the government revised Article 2 of the Convertible Bank Notes Regulation, and the issue limit of convertible notes on documentary reserve was increased from 70,000,000 yen to 85,000,000 yen. Of this sum, 22,000,000 yen was to be loaned to the government without interest for the redemption of gov- ernment paper money. Imperial Ordinance No. 59, August, 1888, could thus be carried into effect. The Finance Minister borrowed 22,000,000 yen from the Bank of Japan in the fiscal year 1890, which, together with the Paper Money Redemption Reserve amounting to 10,000,000 yen, Was transferred to the Paper Money Exchange Fund. This fund was appropriated for the exchange and redemption of government paper money upwards of one yen. With regard to the repayment of this temporary loan it was laid down that it should remain unredeemed for six years be- ginning with September i, 1890, and was gradually to be paid 34 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY • off not later than 191 2, at the convenience of the government. This sum has remained unchanged up to date in the statistics of our national indebtedness. Navy Loan Our navy strength at the Restoration amounted to only a little above 10,000 tons. It consisted of warships collected from Satsuma, Choshu, Hizen and other clans, and of those transferred from the Shogun. Following the increase of army strength in 1872, the expansion of our naval force was carried out on a small scale, and new warships were constructed. As military activities of the period were chiefly limited to internal affairs, the authorities were not confronted with a need of na- val expansion. But frequent disturbances in Korea after the Satsuma Rebellion made them conscious of the necessity of naval preparations. In 1882, the naval authorities estab- lished a program for building new warships. This program was approved by the Cabinet council, and it was decided that 26,640,000 yen should be disbursed as naval expansion expend- iture, during the period from 1883 to 1890. The amount dis- bursed to the end of 1885 amounted to 9,903,491 yen. It was attended with a good result. Inasmuch as the ordi- nary annual revenue fell short of the expenditures on various works and undertakings, which required immediate attention, it was quite out of the question for the government to rely upon the ordinary sources of revenue for armament expansion. A policy was, therefore, adopted to raise a domestic loan for naval expansion to the amount of 16,735,608 yen, the remain- ing sum to be paid according to the prearranged program. By Imperial Ordinance No. 47, June 12, 1886, it was proposed to raise an 8 per cent public loan amounting to 17,000,000 yen. This was the so-called " Navy Loan," which was the first arma- ment loan in this country. The provisions of the ordinance were concerned with the amount of issue, the rate of interest, the term of redemption, the date of interest payment and a few other conditions, all other particulars not provided for in the regulation being re- SATSUMA REBELLION TO SINO-JAPANESE WAR 35 ferred to the regulation concerning the Nakasendo Railway Bonds. Before the flotation of the Navy Loan was completed, a regu- lation concerning the Consolidated Public Loan in October of the same year was adopted with the object of unifying the management of public debts. A part of Navy Loan Bonds Regulation was modified by Imperial Ordinance No. i, Febru- ary, 1887, by which the unregistered bond was made the stand- ard, being changeable into the registered bond, upon request of creditors, all other particulars not provided for in the regu- lation being referred to the Consolidated Loans Regulation. The Navy Loan was raised by par subscription and premium issue during the period from June, 1886, to March, 1889, in four issues. Judging from the circumstances of each flotation, the adjustment of paper currency had already been estab- lished, organs of monetary circulation had been furnished, and the consolidation of public liabilities had already begun. The monetary circulation became, therefore, very smooth, and interest fell, which accounted for the high market price of government securities. The Navy Loan was raised in four issues during the period extending from 1896 to 1899. The first issue was made in June, 1886, the second in March, 1887, the third in February, 1888, and the fourth in March, 1889. The total sum of flota- tion by these four issues amounted to 17,000,000 yen. Not- withstanding the fact that the minimum price was fixed at par, every issue was attended with great success. The total sum subscribed amounted to 33,968,800 yen, nearly double the sum invited. The government, therefore, allotted the subscrip- tions from the maximum price, no yen, down to 100 yen, and the sum actually received by the national Treasury was more than 17,244,153 yen. There was an increased receipt amount- ing to 2i44,i35 yen, the sum invited being 17,000,000 yen, which was wholly due to the premium issue. Its average price was calculated at 101,436 yen. - : The general facts concerning each flotation are summarized and tabulated as follows : 36 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Navy Loan' Items Total amount of sub- scription Minimum price of flota- tion Amount of flotation. . . . Minimum price of sub- scription Number of premium sabscriptions. . ; Net proceeds Excess of subscription . . Maximum price of sub- scription Maximum price of sub- scription at the Inain office Minimum price of pre- mium subscription . . . Average price of sub- scription Average price of allot- ments First Issue Yen 16,642,300 100 5,000,000 670,700 15,971,600 5,187,832 11,642,300 no no 100 102 103 Second Issue Yen 8,447.700 ido 6,000,000 2,653,800 5,793,900 6,048,715 2,447,700 105 105 100 100 100 Third Issue Yen 3,845,500 100 2,000,000 2,550,200 1,295,300 2,004,210 1,845,500 102 102 100 100 100 Fourth Issue Yen 5,033,300 100 4,000,000 709,200 4,324,100 4,003,395 1,033,300 lOI lOI 100 100 100 Total or Average Yen 33,968,800 100 17,000,000 6,583,900 27,384,900 17,244,153 16,968,800 104 104 100 lOI lOI Temporary Loan for Army Expenditures Army expenditures, except in cases of war, were defrayed out of the ordinary annual revenue. By the experiences which the government obtained in the Satsuma Rebellion, the necessity of arms and ammunition improvement was brought home to the minds of the authorities. They decided that, apart from the ordinary army expenditure, an annual sum of 188,300 yen should be disbursed for the period of fifteen years beginning with 1878, the sole object having been the manufacture of new style rifles for army use and the manu- facture of ammunition. The progress along this line was care- fully attended to, and it was not infrequent that the allotted amount for the following financial year was employed in order to meet the demands of the occasion. In the fiscal years of • Based on the Financial History of the Meiji Era. Figures under one yen have been omitted. SATSUMA REBELLION TO SINO-JAPANESE WAR 37 1885 and 1886 in order to speedily complete the work by em- ploying the allotments for the several years to come, it was de- cided that a temporary loan should be obtained from the Bank of Japan, and that the loan should be repaid out of the annual allotments for the years to come. This was the so-called Tem- porary Loan for the Expenditure upon New Style Rifles for Army Use, and upon Ammunition Manufacture. As soon as this decision was made, the Finance Minister delivered to the Bank of Japan a written agreement with regard to the Tempo- rary Loan on May 26, 1886. According to this agreement the amount of the loan was 1,337,298 yen, which could be bor- rowed from the bank at any time before March 31, 1888, with interest at 5.5 per cent. The interest was to accrue from the day the loan was made to the day previous to the redemption. The amount to be borrowed in each fiscal year was fixed be- forehand, but actually it was more or less modified to suit the convenience of the military department. The entire loan was completed on December 15, 1888, in twenty-one instalments in all. The following table shows the details of the amount borrowed in each fiscal year: Temporary Loan for Army Expenditures Fiscal Year Number of Loans Amount of Loans Amount Converted Out of the Amount of Loans" Net Amount of Loans 1885 1886 1887 1888 .... 1889 I 10 7 2 I Yen 330,000 846,999 995,940 859,691 668,649 Yen 234,458 655,940 804,934 668,649 Yen 330,000 612,541 340,000 54,757 Total 21 3,701,281 2,363,982 1,337,298 » Converted for the purpose of making the final account of the unredeemed sura of each fiscal year. For the redemption of the said Temporary Loan, a sum of 191,042.656 yen was paid each fiscal year, and thus the whole debt was paid off during the period ranging from 1886 to 1893. 3.8 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Conclusion The above is a summary of the war and armament loans floated by our Financial Department during the period from the Satsuma Rebellion to the Sino- Japanese War. The war and armament loans during this period, therefore, include the Loan for the Suppression of the Rebellion, in- creased issue of New Paper Money, Navy Loan, Temporary Loan for Expenditures on New Style Rifles for Army Use and for Ammunition Manufacture, and Temporary Loan for the Redemption of Paper Money. The following tables show these under the main division of war loans and armament loans : I.: — Amount of War Loans Year Temporary Loan for the Suppression of the Rebellion New Paper Money Temporary Loan for the Withdrawal of Paper Money Total 1877 1878 1890 Yen 9,486,000 5,514.000 Yen 27,000,000 Yen 22,000,000 Yen 9,486,000 32,514,000 22,000,000 Total 15,000,000 27,000,000 22,000,000 64,000,000 II. — Amount of Armament Loans' Year Navy Loan Temporary Loan for the Expenditure on New Style Rifle and Ammunition Total i88s Yen 5,000,000 6,000,000 2,000,000 4,000,000 Yen 330,000 612,541 340,000 54.757 Yen ■^•^o.ooo 1886 5.612,541 6,340,000 2.054.757 4,000,000 1887 1888. ■. 1889 Total 17,000,000 1.337.298 18,337.298 Although the above loans were adequate to meet all the war and armament expenditures during and after the Satsuma Rebellion, the public loans generally floated during the same period were not restricted to the above. In 1 878 a loan for the ' Based on Financial History of Meiji Era. SATSUMA REBELLION TO SINO-JAPANESE WAR 39 encouragement of industries amounting to 12,500,000 yen was issued. In 1884 and 1885, there was the issue of the Naka- sendo Railway Loan amounting to 20,000,000 yen. In 1884, 1885 and 1886 there was the issue of a revised unregistered Kinsatsu Exchange Loan amounting to 7,939,900 yen. In 1886 a railway expenditure replenishment loan amounting to 2,000,000 yen was floated. Thus the national loans of the Empire, together with the paper money, greatly increased both in their kinds and amounts. The government, therefore, •carried on the readjustment of paper money, established a conversion system and improved the monetary circulation. When the rate of interest had remarkably fallen by these exper dients, the government attempted an adjustment of various public loans after 1886. This was carried through by Imperial Ordinance No. 66, October, 1886.^ This public loan was issued to convert the domestic loans upward of 6 per cent interest (such as "Kinsatsu," Nakasendo Railway Bonds, "Kinsatsu" Exchange Bonds and Loans for the Encourage- ment of Industries, etc., amounting to 175,233,340 yen) into a loan with not higher than 5 per cent interest, or to redeem the same with cash. This loan was issued during the period 1887-1897, the total sum amouTiting to 175,000,000 yen. Thus the program of the consolidation of national loans was steadily carried on. In 1890, the Imperial constitution was put into operation. At the end of the same year, the Imperial Diet was convened and the various financial adjustments were car- ried on. In accordance with Law No. 4, 1892,2 a 5 per cent railway loan was issued beginning with 1893, the object being the extension of government railway lines 'during the coming twelve years, with the sum of 60,000,000 yen. The above is a summary of the public debts of Japan prior to the Sino-Japanese War. We have added the summary be- fore we proceed to the discussion of the war and armament loans on account of the Sino-Japanese War, in order to show the condition of our state liabilities when Japan and China came into conflict. ' Consolidated Loans Regulation. 2 Construction of Railways Loan Regulation. CHAPTER IV FROM THE SINO-JAPANESE WAR TO THE RUSSO- JAPANESE WAR ■ Our declaration of war against China was proclaimed on August "I, 1894. The Sino-Japanese War, however, com- menced in June, 1894, when Japanese and Chinese troops were both dispatched to Korea. The twenty-two months, from June I, 1894, to March 31, 1896, formed one fiscal year for the war expenses. The revenue and the expenditure during this period were estimated at 250,000,000 yen, but the actual out- put did not exceed 200,475,508 yen. Of this figure, 164,520,- 371 yen was disbursed by the Military Department, while 35,955,137 yen was disbursed by the Navy Department. The actual receipt of revenue to meet this expenditure amounted to 225,230,127 yen, and thus there was a surplus of 24,754,619 yen. This surplus sum was transferred to the general account for the fiscal year 1896, together with the fund for meeting the miscellaneous needs concerning the war, which were yet to be met. Besides, the extraordinary expenditure connected with the war in the general account amounted to 32,134,262 yen. At the commencement of the war, however, it was impos- sible for the government to foresee the duration and the ex- penses of the war, and the war fund was not fixed from the beginning. The government, therefore, met the situation by the outlay of the surplus fund of the national Treasury, by the diversion of the special accounts funds, by loans from the Bank of Japan, and by the issue of military bills. These were finally readjusted by public loans, by the indemnity fund and out of other resources. When the Korean affair occurred, the government resorted to the second reserve fund of the general account of the fiscal year 1894-1895, which, however, was not adequate to meet 40 SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 4I the needs of the situation. Thereupon, the government ob- tained the Imperial sanction to employ the surplus fund of the national Treasury. The Korean affair gave rise to the con- flict between Japan and China, and to the dispatch of our troops, and finally to the declaration of war in August, 1894. The need for the war expenses became more and more im- minent. By Imperial Ordinance No. 143, August 13, 1894, the govern- ment was authorized "to transfer and use the fund belonging to the special account, to make temporary loans, and to float public loans in order to meet the expenditures of the Korean aflfair." By Imperial Ordinance No. 144, August 15, 1894 (War Loan Regulation) the flotation of loans to the amount of 50,000,000 yen was ordered. In October, 1894, by Law No. 25, the flotation of loans to the amount of 100,000,000 yen was proclaimed with the consent of the seventh special session of the Diet convened at Hiroshima. In the eighth session of the Imperial Diet a draft relating to the flotation of public loans amounting to 100,000,000 yen met its approval, and was promulgated on March 2, 1895. When the flotation of public loans to the amount of 100,000,000 yen had been approved at the seventh special session of the Diet, it was decided that 20,000,000 yen, which was the remainder of the sum to be floated in accordance with Imperial Ordinance No. 144, 1895, should not be floated. Therefore, the total sum which the government obtained in the form of public loans or of temporary loans was 230,000,000 yen. Of this sum, the war loans actually floated and issued to the end of March, 1896, amounted to 119,000,000 yen in round numbers. At the end of the fiscal year 1898 it amounted to 124,835,750 yen. Thus, the public loan actually floated was smaller than the estimated sum, and this can be accounted for by the fact that a readjustment was accomplished with the indemnity fund and other revenues, which redeemed the sums diverted from the special accounts funds, loans from the Bank of Japan, and military bills and the like. Diversion from the special acr 42 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY counts funds constantly took place during the war beginning with October, 1894, the sum diverted amounting to 26,710,462 yen at the end of March, 1 896. Loans from the Bank of Japan were constantly incurred during the war, and at the end of March, 1896, these equalled 37,900,000 yen. Military bills were issued to the amount of 3,780,000 yen in March, 1895, but subsequent to July of the same year, these were gradually redeemed, and by the end of March, 1896, had been reduced to 103 yen. The sum transferred from the indemnity fund to the extra- ordinary war expenditures special account, for purposes of ex- tinguishing the above temporary loans before the final account of that fiscal year, amounted to 78,950,000 yen in round num- bers. With the addition of the voluntary contribution made by the people for war expenses and for the relief of soldiers, this special account formed the war fund, out of which the entire sum of the extraordinary war expenses was defrayed. In short, the total expenditures of the Sino- Japanese War according to the final account were 200,475,508 yen, and the war fund for meeting this sum was raised by the following methods : Yen Surplus fund of the national Treasury in the fiscal year 1893 23,439,086 Fund obtained by public loans 1 16,804,926 Voluntary contribution for war fund l6o,80(> Voluntary contribution for relief fund _ 2,788,740' Miscellaneous income I.5i9i305 Income in the occupied territories 624,425 Income in Formosa and Pescadores Islands 935.679 Transferred from the special (indemnity) fund 78,957,164 Total 225,230,119 Thus, there was a surplus of 24,754,619 yen transferred to the general account in accordance with Law No. 10, 1896, which was employed fof miscellaneous expenses in connection with the war. Of all the postbellum undertakings the expansion of arma- ment occupied the most conspicuous position, but its re- sources were sought not in the public loans, but mostly in the indemnity fund. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 43 The plan of the expansion of armament for the coming ten years was decided in 1896, but subsequently this plan was further expanded several times. The actual total of the ex- penditures till 1905 was 318,137,458 yen, of which 106,487,- 336 yen was appropriated to the expansion of the army, and 211,650,116 yen to that of the navy. The resources, in yen, for this sum were chiefly the indemnity fund, but public loans and ordinary revenue were also resorted to. Defrayed out of indemnity fund 196,058,025 " " " public loans 77,168,702 " " " ordinary revenue 44,910,731 Total 318,137,458 With regard first to disbursements out of the indemnity fund, it was provided by Law No. 6, March, 1896,1 that bank notes should be borrowed from the Bank of Japan on deposit of gold bullion which was still abroad. The amount of these loans figured up to 99,844,700 yen during the years 1896, 1897, 1898. These loans were called temporary loans on de- posit of the indemnity money. Secondly, with regard to the disbursement out of public loans it was stipulated by Law No. 59, March, 1896,^ that a part of the public undertakings loan should be appropriated to the expansion of armament. For several succeeding years postbellum arrangements were duly carried, including the establishment of the gold-standard' system, the expansion of railways' and telephone services, the encouragement of industries and edtication, the government iron enterprise and the governmental monopolies, in addition to armament expansion; until, in 1900, occurred the Boxer Up- rising in China, which endangered to no small extent the life and property of all the alien residents in China. After consul- tation with England and other powers, our government decided to send the Fifth Division for its suppression. This was what is called the North China affair. The expenditures in connection with the North China affair amounted to 22,815,091 yen in the fiscal year 1900, and 1 Special Account Law with regard to indemnity. ' Regulation with regard to public undertakings loan. 44 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY 12,828,710 yen In 1901, totaling 35,243,801 yen. To meet this outlay the government in the first place resorted to 2,000,000 yen from the reserve fund of the general account. Then, by the Imperial Urgency Ordinance No. 277, June, 1900, it re- sorted to 20,000,000 yen from the replenishment fund for war- ships and torpedo boats, which had been specially set apart out of the indemnity. The uprising was not easily suppressed, and the expenses incurred in dispatching troops and warships showed rapidly increasing figures. In the fiscal year 1901, it was incumbent upon the government not only to seek some sources of revenue for the above-mentioned 12,800,000 yen in round numbers, but also in order that the 20,000,000 yen which had been transferred from the aforesaid fund should be speedily replenished. But the conditions of the market, both domestic and foreign, were such that the raising of public loans was quite out of the question. Thereupon, the govern- ment could find no alternative but the increase of taxes. In the fifteenth session of the Diet, 1901, laws were passed for the increase of the sake tax, for the creation of beer and sugar taxes, for the raising of the rate of monopoly prices for leaf-tobacco, and for the increase of customs duties on alcohol, oil, and tobacco. The increase in revenue resulting from these new taxes and increased rates were estimated at 21,440,758 yen. It was planned that, after the war expenses had been met, the remainder should be appropriated to the replenish- ment of the funds, and then to the public undertakings ex- penditures, which were to be covered out of public loans. Contrary to the expectations, however, the actual receipt in the fiscal year 1901 was only 4,328,925 yen, and the actual receipt in 1902 was no more than 16,076,128 yen. As it was clear that the increase was inadequate even to cover the expenses of war, the government contracted temporary loans amounting to 15,000,000 yen from the Bank of Japan begin- ning with October, 1901. These were called Temporary Loans for Chinese Affair Expenditures. To sum up, the public loans with regard to war and arma- ment during and after the Sino-Japanese War consisted of SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 45 military loans, a part of the public undertakings loans, and various kinds of temporary loans. Military Loans In accordance with the regulations prorriulgated during 1894 and 1895, a military loan not exceeding the total amount of 230,000,000 yen was authorized to be floated to meet the needs of the military outlays in connection with the Korean and Chinese affairs. The nominal amount floated or issued was 125,000,000 yen in round numbers (124,920,750 yen). Inas- much as the regulations, the methods and dates of issue were different one from another, we deem it proper and convenient to divide it into the following three issues : ( I ) The flotation of the first military loan was authorized by Imperial Urgency Ordinance No. 143 and Imperial Ordi- nance No. 144. These provided that the amount should not exceed 50,000,000 yen, that the interest should not exceed 6 per cent, and that the repayment should be within fifty years after remaining unredeemed for five years. Accordingly, when it was actually floated by Notification No. 32 of the Finance Department, on August 17, 1904, the amount was fixed at 30,000,000 yen, with interest at 5 per cent, and the methods of both par subscription and premium issue were resorted to. Payment in seven instalments was authorized for the conven- ience of subscribers, and the payment was to be fully completed by June 30, 1895. Now to float a loan figuring up to 30,000,- 000 yen at one time was a thing quite unprecedented in our history. It was quite natural that some persons should have entertained a doubt as to the success of the flotation. The governnient, therefore, kept this point ever in view, and did its best to encourage subscriptions by sending private direc- tions to the local authorities and by giving instructions to the bankers. It was rather a surprise to everybody to find that the response amounted to 77,002,650 yen, exceeding the sum invited by 47,002,650 yen. Thereupon, the government ac- cepted 11,627,850 yen, applied for at a premium, and 18,372,- 150 yen responded to at par. Among the subscription prices 46 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY of this loan the highest was 142.44 yen, which was followed by other high prices, such as 125 yen, 120 yen, etc. Such a re- sponse was quite unexampled. At that time the tightness of monetary circulation was in- creasing, and the quotation of 5 per cent national loan bonds was below par in the market. It was wholly due to the patriotic nature of the loan, which appealed to the loyalty of the nation, that the flotation of the first military loan at such a time received such an unheard-of response. (2) The flotation of the second military loan was authorized by Law No. 25, October 23, 1894, and by Imperial Ordinance No. 137, October, 1895. This flotation can be divided into the public subscription and delivery issues. The public subscription was authorized by Law No. 25, October, 1894, by which the raising of funded loans or tempo- rary loans not exceeding 100,000,000 yen, with interest not exceeding 7 per cent, was authorized. The actual amount to be subscribed, the rate of interest, and the method of issue were laid down by Finance Department Order No. 15, by which 50,000,000 yen, with interest at 5 per cent, was raised from the public at large. What is called the delivery issue originated in Imperial Ordinance No. 137, October, 1895, by which it was provided that Imperial grants of money, which were to be made in connection with the Sino-Japanese War, could be made with military loan bonds at the convenience of the grantees. Its issue was limited to 10,000,000 yen, with interest at 5 per cent, by Financial Department Order No. 3, and the bonds were to be gradually delivered. The provisions of Law No. 25, October, 1894, were to be ap- plied with necessary modification^ to the above-mentioned two kinds of military loans, as far as redemption, payment of in- terest and other details were concerned. In accordance with Finance Department Order No. 40, November, 1894, 50,000,- 000 yen was subscribed by public subscription with 95 yen as the minimum subscription price. The payment of this sum, together with that of the guaranty money, was divided into seven instalments, and June 30, 1895, was fixed as the final SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 47 date of payment. The subscribed amount of the first mili- tary loan, 30,000,000 yen, was then in course of payment. Money circulation was becoming tight day by day. A new subscription amounting to 50,000,000 yen, therefore, must needs be at as high a rate of interest as the law permitted. Five per cent, however, was a well-established principle in the case of our public loans. In view of the future consolidation of national liabilities, the government regarded it as more expedient to issue public loans at a lower price, and to maintain a uniform rate of interest, than to float a new loan with interest at 6 per cent. This accounts for the adoption of the method of the subscription below par. The division of payment into seven instalments, fixing the last date of pay- ment on June 30, 1895 (which was the same date as that of the first subscription), was chiefly to simplify its treatment. But notice was taken of the amount required to meet the ex- traordinary war expenditures and the actual condition of our economic world. One point worthy of special notice in this connection was the method of its issue. By the application of the proviso of Article 7 of the Consolidated Public Loan Regulation, the government enabled all the applicants for less than 200 yen to become subscribers. This measure was to induce men of moderate means to convert small savings into government bonds, which would interfere less with the monetary circu- lation than the withdrawal of floating capital. Moreover, people of small means would in this way be taught that the national loan was a reliable mode of investment, and thus it would prove, it was thought, an encouragement of thrifty habits. Moreover, it was feared that unless this method was adopted, the patriotic responses from men of moderate means must be rejected and their hopes frustrated, in case the amount subscribed figured to an immense sum. As this sub- scription was made after the lapse of only three months from the first one, the government entertained a fear as to its out- come. Therefore, as in the case of the previous subscription, it gave private directions to the local authorities and instruc- 48 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY tions to the bankers. At the end of the term the total amount reached as much as 90,301,300 yen, exceeding the sum invited by 40,301,300 yen. The subscription price bore no compari- son with that of the first, but still the highest was 120 yen. Of the amount responded to, 22,119,850 yen was allotted out of the premium subscription and 7,924,000 yen out of sub- scriptions of less than 200 yen. Adding to these 19,956,150 yen allotted in ratio out of par subscriptions, the total sum came to 50,000,000 yen. The year was then approaching its end, with increasing tightness of monetary circulation, and the quotations of 5 per cent national loan bonds were steadily falling. Such a re- markable success in the face of these distressing circumstances is to be ascribed partly to the perfect method of subscription. But its chief cause lay in the character of the loan, which ap- pealed to the patriotic feeling of the nation. (3) The flotation of the third military loan was authorized by Law No. 8, March, 1895, which read as follows: In order to meet the military expenditures of the North China affair, a further flotation of public loans not exceeding 100,000,000 yen, with interest not exceeding 6 per cent per annum, shall be allowed. This was carried into effect only after March of the following year. The amount did not exceed 35,000,000 yen, including both general subscription and special issue. General subscription, which amounted to 10,000,000 yen, was raised by Finance Department Order No. 2, March, 1896. But the results were far from being satisfactory, and the greater part had to be put to special issue. As for the re- maining 25,000,000 yen, which was to be issued next, special issue was chosen from the beginning, by Finance Department Order No. 4, March, 1896. The interest for both bonds was 6 per cent per annum. The provisions of the Consolidated Loan Regulation above mentioned were likewise to be applied with the necessary modifications with regard to the interest, the payment, and the redemption. As for the 10,000,000 yen, which was to be raised by gen- eral subscription, it was provided by Finance Department SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 49 Order No. 13, of the same date, that the final date of pay- ment should be October 31, 1896, that the minimum amount of subscription, the rate of security money, and other minor procedural provisions should be similar to those of the first issue. The response, however, to this call was by no means gratifying. The total sum which was tendered by March 21, the final date of application, at the Bank of Japan and its branches and agencies, was estimated at the meager sum of i>578,05o yen. Applications above issue par were 1,026,850 yen, and applications at the issue par 551,200 yen, and even the highest price did not exceed 103 yen. Realizing that the condition of the market forbade any further subscription, the government was obliged to cause the Deposit Section of the Finance Department to subscribe 5,000,000 yen out of the re- maining 8,500,000 yen, and to give directions to the Bank of Japan to subscribe 3,421,950 yen. In short, the sum intended to be raised in the third subscrip- tion was realized by resorting to the accommodation of the Deposit Section and the subscription of the Bank of Japan. What could have been the cause of such a great contrast be- tween the unparalleled success of the two preceding flotations, and the utter failure of the present subscription? Probably the latter was due to the sudden expansion of business as a corollary to our victory, which latter gave rise, in the minds of the people, to anticipation of the rise of various enterprises, thus bringing about the stringency in monetary circulation. It was also due to the cooling down of warlike feelings on the part of the nation at the cessation of hostilities. The failure which attended the subscription of 10,000,000 yen convinced the government that the same method was no more available for the further sum required, viz., 25,000,000 yen. Therefore, it had to have recourse to the method of special issue from the first by Finance Department Order No. 3, March, 1896, mak- ing the Deposit Section of the Finance Department subscribe it. Thus, the issue of the military loan was completed by three subscriptions and two special issues. As regards the three subscriptions, there was a discrepancy between the 50 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY amount of flotation and the net proceeds, and these three were different in other minor points. The following shows the comparative statistics of these three subscriptions: Subscriptions to Military Loan^ Items Amount subscribed Minimum price of subscription Amount of flotation Amount of subscription at minimum price Amount of premium subscrip- tion Net proceeds Excess Maximum price of subscription Average price allotted First Yen 77,002,650 100,000 30,000,000 65,374.800 11,627,850 30,063,371 47,002,650 142.440 100.217 Second Yen 90,301,300 95,000 ■50,000,000 68,181,450 22,119,850 47,638,851 40,301,300 120.000 95.280 Third Yen 10,000,000 100,000 10,000,000 8,973,150 1,026,850 10,001,257 103.000 100.013 Total or Average Yen 177,303,950 98,333 90,000,000 142,529,400 34,774,550 87,703,481 87,303,950 121. 813 97.451 The number of subscriptions for the first issue was 1 19,015 ; for the second, 173,051; for the third, 2,160, making a total of 294,226. The total receipts in yen, including the three sub- scriptions and the two special issues, were as follows: Net proceeds of the general subscriptions to military loan 87,710,795 ^ Amount of the special issues 35,000,000 Total 122,710,795 Amount of flotation 124,920,750 Such were the amount of flotation and the net proceeds of the military loan, which was duly floated, in contrast with an estimate of 250,000,000 yen, which the government had for- mulated. Comparing this total with 116,804,926 yen, which was the amount of public loans mentioned in connection with the war fund, we find a discrepancy between them. This is due to the fact that the calculation of the war fund was finally ' The amount subscribed, and the het proceeds in the third flotation, include the amount subscribed by the Deposit Section of the national Treasury (5,000,000 yen) and the amount subscribed by the Bank of Japan (3,421,950 yen) " Includes overdue interest (7,313 yen) due to the delay of payment. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 5 1 settled on March 31, 1896, while the final account of the net proceeds mentioned above was taken at the end of the fiscal year 1905. Public Undertakings Loan The Public Undertakings Loan, issued in accordance with the Public Undertakings Loan Regulation, Law No. 59, 1896, was in the beginning estimated at 135,000,000 yen. This in- cluded expenditures (i) for the improvement of government railways, (2) for the construction of the Sorachifuto Asahigawa line in Hokkaido, (3) for the extension of telephone exchanges, and (4) for the leaf tobacco monopoly fund, the total sum of which amounted to 54,025,062 yen in round numbers. But (5) by far the largest amount was appropriated to the ex- penditure for the navy expansion, which figured at 77,168,703 yen. Besides (6) there was the expenditure for the establish- ment of the steel foundry to the amount of 4,095,793 yen in round figures, which was planned to accomplish the inde- pendence in the supply of arms. Thus, two- thirds of the Pub- lic Undertakings Loan were employed for purposes of arma- ment. The above-mentioned public loan regulation consisted of the following three articles : Article I directed the raising of the face value 135,000,000 yen in order to meet the various public undertakings above noted. Article II provided that the interest on the debt, which should not exceed 5 per cent per annum, was to be definitely fixed at each subscription. Article III stipulated that in case where there was no provision in this regula- tion to cover them, the Consolidated Public Loans Regulation, 1886, should be applied. The Public Undertakings Loan was. to be raised beginning with 1896. The monetary conditions of the market were continually strained, so much so that the 5 per cent national loan fell below its face value. This loan, therefore, whose interest was legally fixed at not over 5 per cent, had no bright prospect. Accordingly, instead of adopting an ordinary method of subscription, the government made a special issue during the two fiscal years 1896 and 1897, in accordance with the expedient provided for in Article VI, paragraph 2, of the 52 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Consolidated Public Loans Regulation. The government de- livered these bonds to the Bank of Japan ; they were then pur- chased by the Deposit Section of the national Treasury to meet the demands of the various government undertakings expendi- tures. In this way the amount of issue reached 37,900,0003/6??. In the next financial year the Public Undertakings Loan and the Hokkaido railway loan, totaling in round numbers 71 ,000,- 000 yen, were to be floated. But opportunity even for the special issue, to say nothing of general subscription, did not offer itself. Hence, the greater part of the employment of these various public undertakings expenditures had to be put off to the following financial year. Only 17,107,772 yen (of which the amount that was to be disbursed out of the Public Undertakings Loan was estimated at 8,763,265 yen) was pro tempore disbursed out of a fund belonging to the indemnity special account. Thus, not even a single bond was issued in this financial year. With the opening of the following fiscal year, the govern- ment had no alternative but immediately to float a public loan. Moreover, the annual allotment for the various works, amounting to over 20,960,000 yen, which was to be met by public debts, had to be raised in this fiscal year. Thus, several unsubscribed public debts for two fiscal years, totalling 100,- 258,879 yen, had to be floated at the same time. To make matters worse, the monetary situation in the home market still presented no signs of recovery ; on the contrary, it became more and more strained. Any immediate flotation of domestic loans was, therefore, out of the question, and the government was thrown back upon was the expedient of floating foreign loans. Hereupon, the government promulgated Law No. loi, April, 1899, entitled "Law Concerning Flotation of National Loans Abroad." In pursuance of this law, and in pursuance of the public undertakings loan law, the railway construction law and the Hokkaido railway construction law, the procedure with regard to foreign subscription was laid down by Finance SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 53 Department Order No. 22 in May of the same year. A 4 per cent foreign loan amounting to £10,000,000 sterling was negotiated in London, which was known as the first 4 per cent sterling loan. This foreign loan was underwritten by a syndicate consisting of Parr's Bank, Hongkong and Shanghai Bank, India-Australia-China Bank, and the Yokohama Specie Bank. The Pamua & Golden Hill Co. acted as inter- mediary. It was agreed that unregistered sterling bonds should be issued, that the repayment of principal and the pay- ment of interest should be made in London, that the redemp- tion should be made within forty-five years, after the lapse of ten years, during which it was to remain unredeemed. Its issue price was 90, and the commission paid to the syndicate was fixed at £400,000. Therefore, though the face value, £10,000,000, was converted into 97,630,000 yen in terms of Japanese currency, the net proceeds were only 87,241,278 yen. The money thus raised was divided among the three kinds of public works above mentioned in ratio of the respective amounts of flotation. The allotment of the issue amount and the amount to be raised in the fiscal year, 1899, were as follows: Public Undertakings Loans, 1899' Amount of Allotment of the Issue Amount To Be Raised in the Fiscal Year 1899 Loans Amount Brought Over from the Fiscal Year 1898 Amount to be Raised in 1899 Amount to be Increased Total Deficit Flotation Railway loan. . . Public under- takings loan. . Hokkaido rail- way loan. . . . Yen 17,577,750 78,052,250 2,000,000 Yen 8,364,813 70,027,23s 1,000,000 Yen 9,212,874 11,253,978 1,000,000 Yen 63 87 Yen 17,577,750 81,281,300 2,000,000 Yen 3,229,050 Total 97,630,000 97,392,048 21,466,852 150 100,859,050 3,229,050 1 If we compare the 100,859,050 yen, which is the total of the amount to be floated in the fiscal year 1899, with the 100,258,879 yen which was shown in another place as the amount still remaining unraised, we see that there exists a difference of 600,07 1 yen. This is due to the fact that the figures shown elsewhere make up the sum in- vestigated at the time the flotation was being commenced, which underwent an increase later on. 54 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY From the table it is clear that the foreign loans thus raised as the public undertakings loan amounted to 78,052,250 yen. Of this sum, the amount appropriated to the armament ex- pansion undertakings was estimated at the immense sum of 54,947,100 yen. Of the remainder, possibly with exception of the face value of £900,000 (net proceeds in our currency 7,908,050 yen), which was set apart for meeting the expendi- ture for the establishment of the steel foundry, the entire amount was employed in public works, such as railway and telephone services. Of the five public undertakings outside of the armament expansion, the establishment of the steel foundry and the im- provement of railways incurred increased expenditure, which called for the revision of the public undertakings loan law. Thus by Law No. 2, 1901, the authorized amount of flotation was raised from 135,000,000 yen to 150,000,000 yen, which was again increased to 175,000,000 yen by Law No. 7, I9'03. In conformity with these laws, the total of the internal pub- lic undertakings loan issued by the end of the financial year 1903 reached 76,947,750 yen. Besides these, the 4 per cent foreign loan amounted to 78,- 052,250 yen. All public undertakings loans amounted to 155,000,000 yen (166,880,050 yen at the end of 1907). The above public undertakings loans included two catego- ries of the armament expenditure and of the other five public works expenditure. They also included within the other five items the expenses of the steel foundry establishment. If we divide the amount of national debts in conformity with this classification, we arrive at the following result : Yen Expenditure for armament expansion 77,168,702 Of the army 181169,755 Of the navy 58,998,947 Expenditure for the establishment of steel foundry 18,622,932 Total 95.791 ,634 Expenditures for four kinds of public works; Issue amount up to 1904 69,208,366 Issue amount up to 1908 71,088,416 SINO- JAPANESE WAR TO RUSSO-JAPANESE WAR 55 We may state in passing, that the total disbursement with regard to the establishment of the steel foundry came to 42,- 988,079 yen during the financial years 1896-1900. Besides this sum, 1,608,779 yen was defrayed to the steel foundry ac- count out of the extraordinary reserve fund, 838,645 yen out of the subsidy for raw materials, and 11,136,670 yen out of the expenditure for the replenishment of the capital, which came to a total of 59,339,204 yen. The amount to be disbursed out of public undertakings loans was, however, as stated in the above table. Temporary Loans Concerning War Expenditure As to the war expenditures on account of the Sino-Japanese War and the Chinese affair, a plan had been previously laid down to meet them with suitable resources, in accordance with which they were duly adjusted in later fiscal years. Of these sources of revenue, there were some that did not allow of prompt disbursement, thus necessitating a recourse to some temporary accommodation elsewhere. It was this cir- cumstance that gave rise to a variety of temporary loans for war expenditure. As a result of readjustment, the temporary loans disappeared within a few years, but for the time being they proved to be a heavy burden upon the national Treas- ury. These loans included temporary loans for the extraor- dinary war expenditures concerning the Sino-Japanese War, temporary loan on deposit of the indemnity fund, and tempo- rary loans concerning the North China affair. (i) Temporary Loan for Extraordinary War Expenditure This debt was contracted from the Bank of Japan at a junc- ture when the war fund to defray the extraordinary war ex- penditure in connection with the Sino-Japanese War could not be obtained within the time previously laid down. The gov- ernment was authorized to adopt this expedient by Law No. 25, 1894, 3-"d by Law No. 8, 1895. This money was borrowed 56 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY gradually between November 15, 1894, and April 6, 1896, the total amounting to 40,760,000 yen; 20,500,000 yen was the amount raised by the former law, while 20,260,000 yen was obtained by the latter. The dates and amounts of the borrowing are given in the following tables : Temporary Loan in Accordance with Law No. 25, 1894 Date of Loans Amount Interest Rate Date of Redemption Nov. 15, 1894 Nov. 26, 1894 Dec. 10, 1894 Dec. 15, 1894 Feb. I, 1895 Feb. 6, 1895 Yen 8,000,000 1,500,000 3,000,000 3,000,000, 2,000,000 3,000,000 5% per annum Mar. 31, 1894 Total 20,500,000 Temporary Loan in Accordance with Law No. 8, 1895' Date of Loans Amount Interest Rate Date of Redemption Yen Nov. 14, 1895 2,000,000 6% per annum Dec. 31. 1895 Dec. 2, 1895 1 ,000,000 " Dec. 3, 1895 1,500,000 " Dec. 9, 1895 1,000,000 Dec. 12, 1895 1,000,000 " Dec. 18, 1895 1,000,000 Dec. 25, 1895 1,000,000 " Dec. 26, 1895 1 ,000,000 Dec. 28, 1895 2,000,000 " Jan. 22, 1896 1 ,000,000 Mar. 31, 1896 Feb. 28, 1896 1 ,000,000 " Mar. 5, 1896 1 ,000,000 " Mar. 27, 1896 1,000,000 " Mar. 31, 1896 760,000 Mar. 31, 1896 500,000 June 30, 1896 Apr. I, 1896 1,000,000 " Apr. 4, 1896 1,000,000 " Apr. 6, 1896 1,500,000 " Total 20,260,000 ' It will perhaps strike the reader as strange that the date of redemption of the loan made on March 31, 1896 (760,000 yen) was fixed at March 31, 1896. This was due to the fact that on the day previous to the borrowing, it was pro- claimed that the redemption of the loan should take place on March 31, and on the self-same day it was postponed till June 30 of the same year. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 57 (2) Temporary Loan on Deposit of Indemnity Fund As soon as the receipt from China of the indemnity of over 364,000,000 yen was fixed upon, a special indemnity fund law was promulgated by Law No. 6, 1896, which created a special account for its receipts and outlays. The first outlay upon the establishment of the special account was the disbursement of above 78,950,000 yen as an additional account of the 1895 budget. The sum was transferred to the war fund item of the special budget for the extraordinary war expenditure. With this money was paid off a portion of the war expenses, which had been temporarily financed by the diversion of various special accounts and loans from the Bank of Japan. But there was only 9,020,000 yen in cash in the special indemnity account, which fell short of the sum required for the outlay above mentioned by over 69,030,000 yen. It was therefore necessary to obtain specie from Great Britain; but the trans- fer of such a large sum before the close of the financial year 1895 was not to be thought of. According to the method of accommodation which had previously been provided in the special indemnity account law to meet such cases, the govern- ment procured a temporary loan from the Bank of Japan on foreign deposit of the indemnity fund on and after May 16, 1896. The total sum thus advanced from that date till April 29, 1897, rose to 70,824,703 yen, which was paid in eight in- stalments. This loan on deposit of the indemnity fund was duly liquidated with the transfer of the indemnity money on March 31, 1898. In August, 1898, gold coins and bullion which had previously been purchased by the Bank of Japan with a portion of the indemnity exchange fund, arrived in rapid succession. The bank, therefore, provisionally paid them back to the national Treasury, pending the completion of the liquidation. The government again deposited the specie in the Bank of Japan to enable the bank to keep it as the specie reserve for converti- ble notes. At the same time, the government, in order to utilize the money of the indemnity fund and also to accommo- 58 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY date the cash needs of the national Treasury, again contracted debts on deposit of indemnity money, an operation which was repeated six times before November 29 of the same year, and the amount of the loans figured up to 29,020,000 yen. This loan may well be called a temporary loan for armament ex- pansion, as armament expansion constituted the chief appro- priation of the indemnity. This temporary loan was also re- deemed on January 31, 1899. This kind of temporary loan amounted to the sum total of 99,844,703 yen; but inasmuch as it disappeared by the adjustment of every fiscal year, and bore no interest (though at the outset it bore the low interest of 2 per cent), it does not properly partake of the nature of public loans. Date of Loans Amount Date of Redemption May 20, 1896 Dec. II, 1896 Dec. 23, 1896 Feb. 27, 1897 Mar. 5, 1897 Mar. 12, 1897 Mar. 16, 1897 Apr. 29, 1897 Aug. 13, 1898 Aug. 26, 1898 Sept. 15, 1898 Sept. 20, 1898 Sept. 24, 1898 Nov. 29, 1898 Total Yen 50,000,000 6,366,190 407,685 1-870,997 3,482,655 2,273,729 3,190,812 3.232,635 9,900,000 5,500,000 2,500,000 3,000,000 4,000,000 4,120,000 Dec. 31, 1896 Mar. 31, 1897 Dec. 31, 1897 Aug. 31, 1898 Nov. 25, 1898 Oct. 30, 1898 11 Oct. 31, 1898 Jan. 31, 1898 99,844,703 (3) Temporary Loans with Regard to the North China Affair As stated above, upon the occurrence of the Boxer Uprising in North China, our government, in order to meet the urgent expenditures of the army, of diplomacy, of communication, and of postbellum rewards and reliefs, first made an outlay of the second general reserve fund, and then employed the three special funds in accordance with Imperial Ordinance No. 277. But as the disturbance was not brought to an end until the SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 59 lapse of several months, the government was obliged to resort to a temporary loan to cover the deficiency of resources. On. March 27, 1901, a government contract involving a liability on the part of the national Treasury outside of the budget estimate was authorized. In accordance with this authoriza- tion, the government made a contract for raising a temporary loan to the limit of 17,080,000 yen, with interest not exceeding 8 per cent, and the date of repayment fixed at two years later. The actual amounts thus borrowed came to 15,500,- 000 yen, and the dates and amounts are shown as follows : Date of Loans Amount Date of Loans Amount Oct. 30, 1901 Nov. I, " " 26, " " 29, " " 30, " Dec. 21, " Yen 500,000 1,500,000 1,000,000 1,500,000 1,500,000 1,000,000 1,000,000 Dec. 24, 1901 " 25, " " 26, " " 27, " " 28, " ....... Total Yen 1,500,000 1,000,000 1 ,000,000 2,000,000 2,000,000 15.500,000 This kind of loan was a temporary loan for war expenditure, and was adjusted and liquidated with the actual receipt of the increased taxes prepared for the North China affair ex- penditures. Conclusion We have explained in the foregoing sections the war and armament loans floated from the Sino-Japanese War to the Russo-Japanese War. Of the above, various temporary loans were adjusted by public debts and other revenues. We, therefore, exclude them from the following summary of the war and armament loans during this period. The kinds and amount of war and armament loans are shown in the following table: 60 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Summary of Was and Armament Loans from Sino-Japanese War to Russo-Japanese War' Establishment of Fiscal Year War Loans Floated Armament Loan Total Steel Foundry Ex- penditure Defrayed Out of Public Under- takings Loan Yen Yen Yen Yen 1895 84,044,000 84,044,000 1896 36,380,000 36,380,000 1897 2,900,000 16,762,036 19,662,036 325,919 1898 1,296,000 25,317.631 26,613,631 1,708,270 1899 235,750 18,517,655 18,753,405 3,011,008 1900 65,000 9,590,345 9,655,345 10,137,186 1901 3,873-003 3,873,003 5,852,680 1902 1,358,913 1,358,913 390,117 1903 1,044,909 1,044,909 1904 478,933 478,933 1905 225,277 225,277 1906 3,498,885 1907 49 Total . . 124,920,750 77,168,702 202,089,452 24,924,114 The above shows the total of the pubHc loans with regard to war and armament during the ten years after the Sino- Japanese War. Besides these, there were also (i) railway loans, in accordance with Law No. 4, 1892 (Railway Construc- tion Law), the issue of which was continued, (2) Public Under- takings Loan, with regard to undertakings other than war and armament, which was issued after 1897, (3) Hokkaido Railway Public Loan, in accordance with Law No. 93, 1896, (4) For- mosan Public Undertakings Loan, in accordance with Law No. 75, 1900. The sum of our public debts at the end of 1903 did not ex- ceed 582,084,110 yen. 1 Based on Finance Department National Loans Statistics and National Loans Specifications. With regard to war loans, as the amount of flotation at the end of each fiscal year could not be obtained, the figures at each year end were inserted. The figures above shown are the amount of flotation, so they do not agree either with the amount invited, or with the net proceeds. Moreover, as they include the part transferred to the general account, they do not accord with the above- mentioned figures of the war fund. The armament loans indicate the net pro- ceeds and actual outlay, and so do not agree with the amounts of flotation as tabulated before. CHAPTER V FROM THE RUSSO-JAPANESE WAR TO THE PRESENT DAY The Russo-Japanese War commenced with the battle of Chemulpo, February 6, 1904, and was terminated with the conclusion of the treaty of Portsmouth. Even after peace was restored the government was obliged to meet the expenses of the withdrawal of troops, expenses with regard to prisoners of war, expenses for the replenishment of the navy, expenses for supplementing warships, and expenses for the rewards granted to soldiers and others. The war expenditures, there- fore, were disbursed until June 30, 1907, and the settlement was made on October 31, 1907. The war expenditures during the Russo-Japanese War were divided into extraordinary war expenditures and department extraordinary affairs ex- penditures. The former belonged to the special account of the budget; the latter to the general account. The plan for and the details of war expenditures will be treated in another treatise in this series, and we intend to confine our discussion to their relation to the public debts. When in October, 1903, the negotiations between Russia and Japan respecting Korea and Manchuria came to a standstill, the government, realiz- ing the necessity of armament replenishment, issued Urgency Ordinance No. 291, December 29,. 1903. In accordance with this ordinance the government was authorized to make tem- porary loans for the disbursement of the necessary expenses for armament replenishment, to employ the funds belonging to the special accounts, or to issue exchequer bonds, and no limit was placed on the maximum amount allowed. On the authority of this ordinance the government decided to look to exchequer bonds amounting to 100,000,000 3'ew, the temporary loans amounting to 30,000,000 yen, in round numbers, and the funds belonging to the special accounts amounting to 25,000,- 61 62 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY COO yen for their resources ; and thus to pay the extraordinary war expenditures 155,900,000 yen, the financial department extraordinary affairs expenditures 250,000 yen in round numbers, totaling 156,000,000 yen, which was the estimate of the expenditures to be incurred till March of the fol- lowing year. On February 6, 1904, took place the declara- tion of war. In March, 1904, the twentieth session of the Diet was convened, and the government obtained a postfacto consent with regard to the urgency outlays, and also submit- ted the estimates of the war expenses from April, 1904, to December, 1904, by which the outlay of 420,000,000 yen (ex- traordinary military expenditures 380,000,000 yen, extraordi- nary affairs expenditures 40,000,000 yen) was requested. This request, together with the Draft Law, duly passed the Diet. The resources for this outlay consisted of 62,000,000 yen, the increased revenue by the taxes and monopoly, of 48,000,000 yen, a surplus fund due to the curtailment of the general account, of 30,000,000 yen, the funds belonging to the special accounts and of 280,000,000 yen, the proceeds of ex- chequer bonds and temporary loans. This was the first war estimate. In November, 1904, the government submitted the second war estimate to the twenty-first session of the Imperial Diet. According to this second estimate, special military ex- penditures figured 700,000,000 yen, and the extraordinary affairs expenditures 80,000,000 yen, thus totaling 780,000,000 yen. The resources for these expenditures were sought in 48,330,000 yen, a surplus due to the curtailment of the general annual account, 8,000,000 yen, the part of the fund belonging to the special account which lay still unutilized, and 2,000,000 yen due to the voluntary contribution for the war fund and to other miscellaneous revenues. It was clear from the outset that these resources were inadequate for covering the enor- mous war expenditures. The government, therefore, resorted to the second increase of extraordinary special taxes, thus ob- taining 150,000,000 yen, and to the flotation of public loans to the amount of 570,000,000 yen. With the progress of war, RUSSO-JAPANESE WAR TO PRESENT DAY 63 the shortage of funds for expenditures was keenly felt, and the government submitted to the twenty-second session of the Diet, December, 1905, a supplementary budget of 7,200,000 yen as a supplement to extraordinary affairs expenditures and looked for its resources to the surplus fund to be created in the general account. In April, 1906, the government decided upon an outlay amounting to 89,000,000 yen in excess of the estimates, of which the sum of 60,000,000 yen was for extraor- dinary military expenditures and 28,800,000 yen for extraor- dinary affairs expenditures. This sum was to be disbursed out of public loans amounting to 60,000,000 yen, out of the fund transferred from the special account amounting to 4,000,000 yen, and out of the surplus fund of the general ac- count amounting to about 24,800,000 yen. As peace was. re- stored in September, 1905, the war expenditures in the strict sense were 1,452,000,000 yen, which was the total sum of the above-mentioned expenditures. But the government, at the latter part of the twenty-second session of the Diet, convened at the close of 1905, demanded an outlay of 450,450,000 yen as a supplementary budget on account of extraordinary military expenditures, and 84,500,000 yen for extraordinary affairs expenditures, and obtained the approval of both houses. These expenditures were needed for the withdrawal of troops, the replenishment of the military forces and the rewarding of soldiers. Its resources were public loans to the amount of 513,640,000 yen and the surplus fund of the general account amounting to 16,300,000 yen. Further, to defray the expenses of the residency-general of Chosen and those of the government of Kwantung, the gov- ernment submitted in December, 1906, to the twenty- third session of the Diet a supplementary budget with regard to .extraordinary affairs expenditures, their resources being found in the surplus fund of the general account, and obtained the approval of both houses. The above is a brief summary of the government financial schemes with regard to the Russo-Japanese War which were carried into effect through the Imperial sanction alone, or with the consent of the Diet. 64 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY For the convenience of readers we insert the following table : Expenditures, Russo-Japanese War, 1903-1907' Class Extraordinary Military Expenditures Department Extraordinary Aflfairs Expenditures Total Urgency outlay in 1903 The first estimate in 1904 .... The second estimate in 1905 . . Outlay beyond the estimate in 1906 The third estimate in 1906- 1907 Total Yen 155.971,035 380,000,000 700,000,000 60,000,000 450,450,000 Yen 257.893 40,000,000 87,200,000 28,825,409 82,000,000 Yen 156,228,929 420,000,000 787,200,000 88,825,409 532,450,000 1,746,421,035 238,283,303 1,984,704,339 Revenue, Russo-Japanese War 2 Fund Extraordi- Exchequer Trans- Contribu- Surplus Class nary Special Bonds, and ferred from tions and Fund of Total Taxes Temporary Loans Special Accounts Revenues Account Yen Yen Yen Yen Yen Yen Urgency meas- ure (1909) . . . 131,228,929 25,000,000 156,228,929 The first budget (1908) 62,201,879 280,000,000 30,000,000 47,798,121 420,000,000 The second budget (1905) 150,671,023 571,000,000 8,000,000 2,000,000 55,528,977 787,200,000 Outlay beyond budget (1906- 1907) 60,000,000 4,000,000 24,825,409 88,825,409 The third budgSt (1907) Si3.643.242 18,806,758 532,450,000 Total 212,872,902 1,555.872,171 67,000,000 2,000,000 '146,959.265 1,984,704,339 The financial scheme for the war expenses figures up to 1,984,700,000 yen, both in revenue and in expenditures. But the actually settled account showed a figure much smaller than this amount. ^ In addition, there was also 1,422,584 yen, disbursed out of reserve fund and surplus fund as department extraordinary affairs expenditures in the fiscal year 1904. ^ The surplus of years account was the fund, obtained or expected to be obtained by the curtailment of military and naval general expenditures, suspension of public loans redemption, curtailment of extension of steamship routes expenditures, and of encouragement of navigation, curtailment and postponement of continuing ex- penditures. RUSSO-JAPANESE WAR TO PRESENT DAY 65 Looking first at the final account from the standpoint of expenditure, it consisted of extraordinary miUtary expendi- tures and the department extraordinary affairs expenditures, and was as follows: Extraordinary military expenditures: Yen Yen In charge of Army Department 1,283,318,056 " " Navy " 225,154,482 1,508,472,538 Department extraordinary affairs expenditures: Fiscal year 1903 1,560,209 '' " 1904 31,548,913 1908 109,638,306 " 1909 65,223,485 " 1910 13,610,695 221,581,608 Total 1,730,054,146 To provide resources for these expenditures, the govern- ment, in accordance with the aforesaid scheme, made a great curtailment in the general account, thereby creating a surplus. Besides, it diverted the three great special funds and other funds of the special account; established and increased ex- traordinary special taxes in 1904 and 1905, and floated public loans and temporary loans both at home and abroad, before and after the declaration of war. These, together with volun- tary contributions for the military fund and miscellaneous revenues, were appropriated to the disbursement of the war expenses. As to the extraordinary military expenditures for the army and navy, a special account was created and a clear settled account was obtained of the kinds and amount of the resources employed for extraordinary military expenditures. As to the department extraordinary affairs expenditures, no special account was established, and settlement was made at each fiscal year in the general account, and their resources were utilized in common with the general income. The kinds and amount of the resources, therefore, are not clear. The final settlement of the war fund revenue as a resource for the extraordinary military expenditures, which amounted to 1,508,472,538 yen, was as follows: 66 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY War Fund for Russo-Japanese War Yen Yen Transferred from general account: Receipt of extraordinary special tax 119,000,000 Surplus due to curtailment of expenditures. . . . 63,430,129 182,430,129 Transferred from special accounts: Warship and torpedo boat replenishment fund 38,311,977 Calamity reserve 10,000,000 Education reserve 10,000,000 Forestry fund 3,000,000 'Diversion of other special account funds 8,000,000 69,311,977 Public loans: Net proceeds of exchequer bonds, fifth issue . . 434,885,638 Net proceeds of sterling loans, fourth issue. . . . 689,594,571 , Net proceeds of extraordinary military loans .. . 294,251,021 — 1,418,731.230 Contribution and miscellaneous receipt: Contribution to war fund 2,331,176 Sale of government property 18,875,114 Transportation receipt 9,908,783 Special receipt 3,516,324 Miscellaneous receipt 16,107,521 50,738,918 Total 1,721,212,254 Comparing this total of war funds with the amount of the extraordinary military expenditures, the former exceeded the latter by 212,739,718 yen. This surplus did not serve as a resource for department extraordinary affairs expenditures, but the greater part of it was transferred to the general ac- count, while a small remainder became the revenue of the general account after the war as a pure surplus. The figures are as follows: Appropriated to extraordinary military expenditures of general Yen account 137,243,731 Transferred to the general revenue of the general account 75,495,987 Surplus of the receipt of war fund 2 12,739,718 The resources for 221,581,608 yen, the total amount of de- partment extraordinary affairs expenditures, were the general revenue of the general account, especially the surplus fund due to the curtailment of the annual account, the remainder of the extraordinary special taxes, and the natural increases of rev- enue. The department extraordinary affairs expenditures, therefore, had no immediate relation with war loans. In short, the war loans with regard to the Russo-Japanese RUSSO-JAPANESE WAR TO PRESENT DAY 67 War consisted of five exchequer bonds, four sterling loans and three extraordinary military loans. To this must be added the temporary loan for the redemption of military bills, which amounted to 15,250,000 yen. We shall next say a few words about the expansion of arma- ment newly planned after the conclusion of the war. At the time of the opening of hostilities with Russia the military authorities changed the formal plan of mobilization and or- ganized four new standing divisions in 1906. When the budget for the year was submitted to the Diet, they demanded of the Diet an outlay required for the two more standing divi- sions, and obtained its consent. Thus the army of the Empire increased by six divisions and the standing army numbered nineteen divisions. The naval authorities also planned the construction of new warships, and after the war demanded an outlay required for the scheme. The tonnage of warships and torpedo boats was only 260,000 tons before the war, but in 1908 it reached 513,000 tons. From the fiscal year 1907 military authorities expanded armament in the name of expenditure for repair and furnish- ing and postbellum expenditure, besides the expenditure for remaining business concerning the extraordinary military ex- penditure ; naval authorities also planned a great expansion in the name of supplementing expenditure for warships and tor- pedo boats and expenditure for repairing and replenishing, besides the expenditure for manufacturing warships, which was already decided. In the fiscal year 191 1, before this third expansion was yet concluded, the naval authorities again made an addition of 82,000,000 yen in round numbers as the fourth expansion scheme to the 350,000,000 yen, which had been the total sum of the naval expenditures, thus raising it to 440,309,016 yen. They decided to make an outlay of 248,- 000,000 yen in round numbers between 191 1 and 1916. The most of the sum has already been expended, and the sum still remaining in 1914 is only 108,370,870 yen. The total sum for the army expansion was 168,237,087 yen, the sum remaining to be expended after 1914, viz., 45,811,765 yen. Thus, the ex- 68 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY pansion of armament in army and navy involved an expendi- ture amounting to 608,000,000 yen in round numbers, of which about 454,000,000 yen has already been expended, and the sum remaining to be expended in and after the fiscal year of 1914 is 145,000,000 yen in round numbers. The resources for this were not sought in the flotation of public loans, but in the general revenue of the general account. Inasmuch as the general account could not supply such a big sum of money, the surplus money transferred from the extraordinary military expenditures special account, the increased revenue due to the increase of taxes in 1908, the curtailment of the general ac- count, and the natural increase of the old resources had to be resorted to. In short, the postbellum expansion of armament was planned in the fiscal years of 1907 and 191 1 and is still be- ing carried on, but no public loans were floated for that pur- pose. From the Russo-Japanese War to the present, there- fore, no public loans with regard to war have been raised. The war loans to be considered in the following sections are the exchequer bonds, sterling loans, the extraordinary affairs loan, loans for the redemption of military bills and several temporary loans. Exchequer Bonds Exchequer bonds were domestic loans with coupons, issued during the Russo-Japanese War, to raise a big sum for war funds. The term was fixed at five or seven years. At first they were floated in accordance with an Imperial Urgency Ordinance, December, 1903. But later, they came to be regulated by Law No. i, March, 1904, and Law No. 12, January, 1905. The sum floated amounted to 480,000,000 yen. The first issue amounted to 100,000,000 yen. The details of this issue were provided for by Finance Department Order No. 4, February, 1904, which was put into effect in July of the same year. The bonds took the form of unregistered bonds with coupons and included issues of minor units such as 25 yen and RUSSO-JAPANESE WAR TO PRESENT DAY 69 50 yen. The interest was fixed at 5 per cent per annum, and the redemption was to be made within five years. The issue price was 95, and the payment was to be made in five instal- ments. The second issue amounted to 100,000,000 yen. Its details were stipulated for by Finance Department Order No. 17, May, 1904. The issue amount, the rate of interest, the kinds of bonds, etc., were similar to the provisions of the preceding issue. The term of redemption was fixed at seven years. The issue price was 92, and the payment was to be made in nine instalments. The third issue amounted to 80,000,000 yen. The details were laid down by Finance Department Order No. 41 , October, 1904. The terms of redemption, rate of interest, price of issue, etc. , were similar to those of the second issue. The number of instalments, however, was changed into eight, and its proce- dure was much simplified. The fourth issue was 100,000,000 yen. Its details were prescribed by Finance Department Order No. 8, March, 1905. The rate of interest was fixed at 6 per cent, the issue price at 90, the terms of redemption at seven years and the number of instalments was reduced to six. Other details were similar to those of the first issue. The fifth issue also amounted to 100,000,000 yen. Its de- tails were laid down by Finance Department Order No. 26, April, 1905. The rate of interest, the terms of redemption, issue price, and other details followed the example of the fourth issue. But allotments less than 25 yen for which hith- erto the minimum bond of 25 yen was delivered were excluded from the amount invited and were apportioned among the allotments more than 25 yen. The success or failure of subscriptions for" the exchequer bonds was significant of the financial capacity of Japan, which was watched with eagerness both at home and abroad. The government, therefore, paid the closest attention to each issue and the convenience of the subscriber was fully taken into con- 70 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY sideration. Especially noteworthy is the fact that, in ac- cordance with the Communication Department Order No. 67,* the management of applications, payments, etc., came into the hands of the post-offices. Each issue was attended with great success. The maximum of the total amount responded to was approximately five times as much as the amount issued. Even the minimum response was not less than three times as much. The highest application above par was as much as 77 per cent of the amount of issue price. Especially in the fourth issue, applications came in abundance from foreigners, which rose to 82,620,000 yen in round numbers. In their issue prices, as well as in the percentage of response, the present issues were widely different from those in the Sino- Japanese War, which indicated the remarkable economi- cal progress of our nation. The following table shows (in yen) the amount offered, issue prices, and the amount re- sponded to, the amount of issue, and the net proceeds : Exchequer Bonds ^ Bonds Amount Invited Issue Price Amount Responded Amount of Issue Net Proceeds First issue (5%) .. Second issue (5%) Third issue (5%) . Fourth issue (6%) Fifth issue (6%) . . Yen 100,000,000 100,000,000 80,000,000 100,000,000 100,000,000 Yen 95 92 92 90 90 Yen 452,130,457 322,190,950 245,829,200 485.876,250 498,261,220 Yen 96,977,400 98,876,650 77,480,725 99,790,575 99,936,150 Yen 92,376,124 90,981,796 71,288,675 90,254,962 89,989,081 Total 480,000,000 2,004,288,177 473,061,500 434,885,638 Extraordinary Military Expenditures Loan When the peace between Russia and Japan had been re- stored, a great sum of money was required to cover the deficits of the war expenditures, the withdrawal of troops, and the grant of rewards. The government, in order to meet these ex- penses, submitted to the twenty-second session of the Imperial ' Regulation with regard to the management of exchequer bonds issue by the post-offices. ^ This table is based on the "Report of War Finance" and "National Loans Statistics." RUSSO-JAPANESE WAR TO PRESENT DAY 7 1 Diet a bill relating to the disbursement of the extraordinary military expenditures, and, with the approval of the same, promulgated Law No. i, March, 1906. In accordance with this law the government had the authority either to float temporary loans or funded loans, or to employ the funds be- longing to the special account, to the extent of 363,000,000 yen, in order to meet the extraordinary military expenditures (Art. I). To meet the requirement for replenishing the army and navy, as well as other public works, and to meet an ex- traordinary outlay for military purposes for Korea and Man- churia, the government was authorized to employ the funds belonging to the special accounts and to float public loans to the amount of 70,000,000 yen (Art. II). The extraordinary military expenditures loan was floated in accordance with this law. This loan consisted of 5 per cent funded bonds to be paid off in thirty years, after remaining unredeemed for five years. This was therefore called a special 5 per cent public loan. There were two categories to this loan. The extraordinary military expenditures loan of the first category was floated by the terms laid down in Finance Department Order No. 8, March, 1906. Its main object con- sisted in the replenishment of the army and navy and the with- drawal and supplement of troops. Its minimum issue price was 95. The payment was to be made in five instalments, and a discount of 80 sen per 100 yen (face value) was granted to those who made their payment in two instalments instead of five. Moreover, in payment, the exchequer bonds of the fourth and fifth issues were allowed to be substituted for cash, and the substitute price was to be determined by the face value plus accrued interest. In case the amount subscribed exceeded the sum required, it was to be accepted in the order of the highest bids, till the necessary amount was met. In case prices tendered were the same, allotment was to be made in ratio of the amount subscribed. The amount responded to before the subscription was closed was 372,829,100 yen which exceeded the amount in- vited (200,000,000 yen) by 172,829,100 yen, or a little over 86.4 72 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY per cent more than the invited sum. These figures are shown in the following table : Yen Amount invited 200,000,000 Amount responded to in cash 333,467,100 ' " " " in subscription 333,467,100 Total amount responded to 372,829,100 Application above par 12,315,200 " at par 360,513,900 Amount of excess 172,829,100 Net proceeds 189,064,218 Of the allotment, amounting to 200,000,000 yen, 328,900 yen could not be obtained. New bonds, amounting to 500 yen, were issued as substitutes for lost bonds. With the de- duction of the former, and the addition of the latter, the amount of issue was .finally fixed at 199,671,600 yen. The second kind of extraordinary military expenditures loan was issued in accordance with the conditions provided for in Finance Department Order, June, 1906, to provide a fund for grants to soldiers. It was delivered by special issue, and the amount of issue was 110,722,950 yen. The issue price having been only 95, the actual sum of the grant was calculated at 105,186,806 3/en. Thus the grand total of the extraordinary military expendi- tures loan, including both the first and second issues, figures up to 310,394,550 yen. This was the sum outstanding on March 31, 1907. As there was an increase of 2,450 yen in the issue amount, the floated sum after 1908 was revised to 310,- 407,000 yen. Six Per Cent Sterling Loan Upon the outbreak of war between Russia and Japan it was clear that the stupendous outlays necessary to carry on the war could not be raised in the home market alone, as was done in the Sino- Japanese War. The government planned from the outset to depend upon foreign loans for a part of its re- sources. In February, 1904, negotiations were started to float a sterling loan not exceeding £20,000,000 on the London market. The terms proposed by foreign capitalists, however, were far from being satisfactory to our government. The RUSSO-JAPANESE WAR TO PRESENT DAY 73 requirement for foreign loans steadily increased after the dec- laration of war, while the specie reserve of the Bank of Japan sank terribly. It stood then at about 83,000,000 yen, and there were gloomy apprehensions of a further outflow of a huge amount. On the other hand, the issue amount of convertible notes was approximately 286,000,000 yen, thus exceeding the legal limit by 83,000,000 3/ew.i Moreover, metallic currency was badly needed for the repayment of the principal and pay- ment of the interest of the old foreign loans. Under the pres- sure of these circumstances the government finally accepted the terms of the capitalists, but with some favorable modifica- tions; and it decided to float £10,000,000 on May 7, 1904. A provisional contract concerning the flotation of public loans was entered into with Parr's Bank, the Hongkong and Shang- hai Banking Corporation, and the Specie Bank, and in May, 1904, a regulation with regard to the first 6 per cent sterling loan was promulgated by Imperial Ordinance No. 138. The regulation provided, (i) that the total value of the issue should be £10,000,000, with the rate of interest at 6 per cent per an- num, (2) that the loan could be redeemed at six months' notice after the lapse of three years, though the term of redemption was fixed at seven years, (3) that the issue price should be £93, 10s. per £100 and the net proceeds to the government £90 per £100, (4) that government receipts of customs duties should be made security for the repayment of the capital and payment of interest, (5) that coupons overdue and clipped might be appropriated to the payment of customs duties, at the rate of I yen per 2s. o\d., and that the subscriptions should be paid in full between May and August, 1904, in four instalments. As to the interest, the portion for the first half year was to be paid on October of the current year, and that for the second half year on April 5 of the following year. Thenceforth, the inter- est for each half year was to be paid on October 5 and April 5. The program of issue was published from the issuing banks on May 10 in New York (nth in London) and the filing of subscriptions commenced on the 12th of the same month. 1 Statistics at the end of 1904. 74 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Just then the Yalu battle was fought, which resulted in our favor. It carried confidence in Japan to the highest pitch. The application for subscriptions, therefore, was attended with great success, so that the application was closed on the same day in London, and on the following day in New York. In London the amount subscribed reached over thirty-three times the sum required, the number of applications being about 30,022, representing a sum of about £151,975,500. In New York it attained nearly five times the amount invited, and the sum paid up by the subscribers was all transmitted to London. Thus our government received between May and August of the same year from the issuing banks £9,000,000 (86,834,170.854 yen) in four instalments, after the deduction of the commissions. The greater part of the fund raised by the first sterling loan was delivered to the Bank of Japan for the redemption of temporary loans, and the same bank was directed to keep it as specie reserve. The specie reserve, which had once decreased to 80,000,000 yen in round numbers, again increased to 115,- 000,000 yen. The war assumed ever-increasing dimensions, and the foreign payments of the government had the prospect of attaining a stupendous amount. The finance minister, therefore, decided to contract another debt amounting to from 100,000,000 yen to 200,000,000 yen during 1904. Nego- tiations with regard to the flotation of a foreign loan were commenced in October of the same year. The public credit at that time could not have been better, as the progress of the war was on our side, and as the money markets abroad were then sluggish. Accordingly, the negotiations in London progressed smoothly. Incidentally, however, the North Sea affair sprang up between Great Britain and Russia, which accounted for the tendency to decline of our first 6 per cent public loan. The government was obliged to comply with a request of the capitalists, and make some modifications in the issue price and commissions. The government, after conced- ing these variations, finally appointed a financial commis- sioner to conclude a provisional agreement with the represent- RUSSO-JAPANESE WAR TO PRESENT DAY 75 atives of the aforesaid issuing banks on November 8, with regard to the subscription of £12,000,000. The terms of the subscription were (i) that the amount of issue should be fixed at £12,000,000, (2) that the rate of interest should be 6 per cent per annum, (3) that the term of redemption should be seven years, (4) that the issue price should be £90, 105. per face value £100, (5) that the net proceeds of the government should be £86, 155. after deducting £3, 155. as commissions, (6) that the customs duties were to be made security to guarantee the present loan after the redemption of the first 6 per cent sterling loan. The legal limit ^ to public loans issues had already been filled to its utmost capacity through these several issues. Upon the conclusion of the present agreement, therefore, the govern- ment had recourse to the promulgation of an Imperial Urgency Ordinance No. 288, November 10, enabling itself to issue a government loan amounting to 120,000,000 yen for meeting the extraordinary military expenditures. Simultaneously with this ordinance. Ordinance No. 229 was promulgated, which laid down the terms and the procedure of the subscrip- tion, which was substantially the same as the provisions of the first loan. This loan was raised in London and New York. In Lon- don, the receipt of subscription tenders was opened on Novem- ber 14, 1904, and closed at noon of the following day, when the number of applications rose to 29,938, representing a sum of £80,533,800, or more than thirteen times the sum required. In New York, too, the receipt of tenders was commenced on November 14, but was not closed until the i8th of the same month, for the convenience of the local applicants and for the encouragement of small tenders. The amount subscribed figured up to six or seven times the sum invited. The money raised in London, amounting to £5,205,000 (50,219,095.471 yen) was received in four instalments between December, 1904, and March, 1905. The money raised in New York, amounting to $25,348,350 (50,244,499.505 yen) was received in * 280,000,000 yen provided by Law No. i, Art. 2, 1904. 76 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY three instalments between December, 1904, and January, 1905. In short, the total sum actually received was 100,463,- 594.982 yen. The 6 per cent public loans raised during 1904 totaled 214,786,000 yen according to the amount of issue, or 187,297,- 765 yen according to the net .proceeds. The above two 6 per cent public loans amounting to £22,000,000 were raised on the most unfavorable terms, wholly on account of the urgent necessities of the war. When the optional redemption period (April 5, 1907) approached, after the restoration of peace, a 5 per cent sterling loan was floated in March, 1907, and the full repayment was thus completed in September, 1907. Four and a Half Per Cent Sterling Loan Out of the public loan amounting to 571,000,000 yen, which was to be floated to meet the extraordinary military expendi- tures of 1905, 120,000,000 yen was to be received in March of the same year through the flotation of the second 6 per cent sterling loan. The disbursement of expenditures, and the necessities of general economy, compelled the government to raise the remaining sum in 1905. With this object in view the government dispatched financial committees to London in February, 1905. Just then the war had attained a remarkable development, and Europeans and Americans were amazed and dumbfounded at the surrender of Port Arthur, and the signal victory at Mukden. Their sympathies were enlisted toward Japan, and the capitalists ' competed with one another in subscribing to our loans. The government was, therefore, in a position to conclude an agreement with the three issuing banks (Parr's, Hongkong and Shanghai, and Yokohama Specie), in March, 1905, upon more favorable terms than in the preceding loans, and with an increase of the amount invited. The more important terms of the agreement were, (i) that the amount of issue should be fixed at £30,000,000, (2) that the rate of interest should be 4.5 per cent per annum, (3) that the term of redemption should be twenty years, with the proviso that after remaining unredeemed for five years bonds could be RUSSO-JAPANESE WAR TO PRESENT DAY 7/ redeemed at six months' notice, (4) that the issue price should be 90, (5) that the commission should be £3, 55., i.e., the net receipt of the government was £86, s^.^per £100, (6) that the security should be the net receipt out of the tobacco monopoly, (7) that the monthly payment of interest should be superseded by one single payment before the date due, (8) that, as in the preceding cases, the amount of issue should be divided be- tween London and New York. This third sterling loan was the so-called first 4.5 per cent sterling loan. Upon the conclusion of the agreement with re- gard to this loan, the government, in conformity with Law No. 12, January, 1905, laid down in Imperial Ordinance No. 73, March 27, 1907, the rules concerning the terms and the pro- cedure of the issue. This loan was so popular in London that it commanded a premium of from i to 2.5 per cent prior to its issue. Thus upon opening the subscription at 9 a.m. on March 29, the space outside every issuing bank was crammed with people, — so much so that policemen had to be on the watch to maintain order. This was specially the case with the Hongkong and Shanghai Banking Corporation, in front of which scenes of great disorder were witnessed. The subscrip- tion was therefore closed at 3.30 p.m. of the same day. The amount subscribed figured about eleven times the sum re- quired, £15,000,000. The total sum subscribed was £162,- 949,000, of which £151,000,000 was responded to by England (applicants numbering 50,000) and the remainder — £11,949,- 000 — was responded to by Germany, Belgium, Switzerland, the Netherlands, Austria and other different continental coun- tries. In New York the receipt of subscription tenders was opened on the same day as in London and was closed at 3 p.m. on the following day (the 30th) . The amount applied for rose to about $500,000,000, or nearly seven times as much as the sum required. Out of the 50,000 applicants in England, over 43,000 persons were offerers of below £2,000, and in New York, too, there were numerous small applications. One special feature of this subscription was the great response from the countries of 78 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY continental Europe. France made every effort to secure a private agreement for underwriting it, and upon the com- mencement of the subscription French capitaHsts offered large subscriptions both in London and in New York. This virtual monopoly of the money markets in Europe and America was undoubtedly the result of the consecutive victories of our army and navy and the rise of our financial credit. Out of this loan, £13,012,500 (125,547,738.694 yen) was received in London in five instalments between August and April of the same year. In New York $63,370,875 (125,611,248.762 yen) was likewise received in three instalments between April and June of the same year. The subscription figured up to 300,000,000 yen, and the amount actually received by the government was 251,158,987 yen, the issue amount being 292,890,000 yen. During the subscription of the first 4.5 per cent sterling loans, the decisive battle of the Japan Sea was fought. As soon as the report of this unparalleled victory was dispatched to Europe and America, the sympathy for our country rose even to madness. The market prices of our bonds advanced by leaps and bounds, promising a unique opportunity for the the flotation of a public loan. Our government had already issued exchequer bonds in the home market to the aggregate amount of 200,000,000 yen, which together with the third ster- ling loan exceeded the amount of flotation previously fixed for 1905. The war continued, however, pushing the restoration of peace to a distant future and involving increasing war ex- penditures. The subscription of foreign loans had to be relied upon in the future, and the victory offered the best opportu- nity for this expedient. Hereupon our financial agents again opened negotiations with regard to the flotation of another loan, and an agreement on the same terms as the previous ones was concluded with the issuing banks. The only difference was, that while the issues were hitherto limited to the markets in England and America, Germany now came into the list, and the subscription was equally divided among these three mar- kets. Upon the conclusion of the agreement, the government promulgated an Imperial Ordinance No. 194, July 8, 1905, au- RUSSO-JAPANESE WAR TO PRESENT DAY 79 thorizing a loan amounting to 300,000,000 yen to cover the extraordinary military expenditures. On the same day Im- perial Ordinance No. 195 was proniulgated providing for the details of the subscription. The ordinance provided (i) that the amount of subscription should be £30,000,000 sterling with the underwriter specified, (2) that the rate of interest should be 4.5 per cent per annum, (3) that the principal should be repaid not later than July 10, 1924, according to the face value, and not before July 10, 1910. The government could, if it thought fit, redeem a portion or the whole of it at six months' notice in the newspapers. The redemption of the principal and interest of this loan was secured on the profit of the tobacco monopoly, subject, however, to preferential secu- rity of the first 4.5 per cent sterling loan, (4) that the issue price be 90, (5) that the principal be paid during the period ex- tending from July, 1905, to December, 1905, (6) that the half- yearly interest for the amount subscribed should be paid on January 10, 1906. The sale began on July 1 1 in London and Germany, and in New York on the 12th, and in each case was closed on the same day. The result was splendid, inasmuch as the amount subscribed was a little less than ten times the sum required in London, four times and a half in New York, and a little lower than ten times in Germany. Not only in politics, but in monetary matters, both Germany and France had from the outset been Russian supporters. Nevertheless, our loans came to be welcomed even in the German market, besides those of England and America, which had been friendly to us from the beginning. As an ally of Russia, France could not open her market to us, but her capitalists vied with one another in subscription on the British and American markets. Other continental countries, such as Belgium, Switzerland, Holland, etc., also heartily welcomed the loan. Our glorious victories both on land and sea so highly affected the feeling of Americans and Europeans that our government attained an unprecedented success in the subscription to loans. Thus, in the second subscription, our government actually realized 8o WAR AND ARMAMENT LOANS: HISTORICAL SURVEY 251,137,817 yen against a nominal issue of 292,980,000 yen of the 4.5 per cent sterling loan. Temporary Loan for Redemption of Military Bills The military bills had been issued to defray war expenses at the scene of action as well as to accommodate the national Treasury, when enormous national outlays and foreign pay- ments made the economy of metallic currency desirable. They had served as a medium of payment for defraying the expenses in connection with junks, wagons, horses, coolies, etc., in a dis- trict where silver coins were in circulation, and were exchanged for one yen silver coins through the Yokohama Specie Bank. They consisted of six kinds of bills, i.e., ten yen, five yen, one yen, fifty sen, twenty sen, and ten sen bills. At first, 100,000,- 000 yen was fixed as the maximum. With the development of the war the amount was gradually increased, and for a time reached over 140,000,000.^ At the cornmencement of the war, i.e., at the end of March, 1904, the amount did not exceed 2,459,600 yen, but at the end of March, 1905, it rose to 70,125,- 609 yen, and it was subject to numerous fluctuations later on. After the restoration of peace the sum of 15,253,358 yen was, on August I of the same year, borrowed without interest from the Yokohama Specie Bank, in accordance with Law No. i, March, 1906, the object being the withdrawal and redemption of the military bills. The. above explains why it was called the temporary loan for the redemption of military bills. Dur- ing the same year, 3,038,025 yen was repaid by this loan and the amount unredeemed at the end of the fiscal year 1906 decreased to 12,215,333 y^n. Since then they have been steadily withdrawn, so that at the end of the fiscal year 1912 (the first fiscal year of Taisho) the amount unredeemed stood at 1,979,517 yen. The following table shows (in yen) the amount of military bills outstanding and unredeemed at the end of each financial year since 1907: Fiscal year ending 1907 . . ■ ■ 4,984,568 Fiscal year ending 1910 . . • . 2,347,636 1908.. • • 2,831,332 " " 1911.. • ■ 1,979,517 1909.. • • 2,444,294 1912.. ■ ■ 1,979,517 ^ War Finance Account Report. RUSSO-JAPANESE WAR TO PRESENT DAY 8 1 As can be inferred from the preceding statement, the tem- porary loan for the redemption of military bills, amounting to I5.253i358 yen, remained as a burden upon the general an- nual account, and must not be counted among the extraordi- nary war expenditures. Miscellaneous Temporary Loans For the extraordinary war expenses, appropriate resources had previously been chosen. In extraordinary emergencies, like wars, it is unavoidable that ends do not always meet. Therefore, as a measure for meeting the deficits, whenever they occurred, the government 'promulgated Imperial Ordi- nance No. 291, 1903, Law No. i, 1904, Law No. 12, 1905, and Law No. I, 1906. In accordance with these laws and ordi- nance miscellaneous floating debts were incurred several times from the Bank of Japan after December, 1903, under the names of temporary loan for defraying armament expenditures, temporary loan for constructing warships, temporary loan for extraordinary military expenditures, and loan for the redemp- tion of military bills, which latter formed the subject of the preceding sections. (i) Temporary Loan for Defraying Armament Expenditures This loan was made by the government in accordance with Imperial Urgency Ordinance No. 291, December, 1903, be- tween December 31, 1903, and June 31, 1904, from the Bank of Japan, at the daily interest of 1.6 sen per 100 yen. Its amount was: 1903, 7,000,000 yen; 1904, 34,500,000 yen; total, 41,500,000 yen. This temporary loan was liquidated out of the extraordinary war expenditures fund, and the amount outstanding entirely disappeared in July, 1904. (2) Temporary Loan for the Construction of Warships This temporary loan was also borrowed from the Bank of Japan, at the daily interest of 1.6 sen per 100 yen, by Imperial Ordinance No. 241, December, 1903. The amount borrowed 82 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY reached in 1904 2,500,000 yen. On January 23, 1906, it was cleared off in a single payment out of the war fund. (3) Temporary Loan for Extraordinary Military Expenditures This loan was made in accordance with Law No. i, Jan- uary, 1904, Law No. 12, January, 1905, and Law No. i, March, 1906, and was borrowed from the Bank of Japan between 1904 and 1906 as a temporizing expedient for the payment of the extraordinary military outlays. Its daily interest varied from 1.6 sen to 2.2 sen, and the amount borrowed was (in yen) as follows : 1904 182,000,000 1905 126,125,000 igo6 65,125,000 Total 373,250,000 The portions borrowed in accordance with Law No. i , Jan- uary, 1904, proved to be 182,000,000 yen in 1904 and 57,000,- 000 yen in 1905, both of which were paid off by the end of May, 1905. The debt contracted in accordance with Law No. 12", 1905, was 69,125,000 yen in 1905 and 9,625,000 yen in 1906, and the total sum was finally liquidated in October, 1906. The debt incurred in accordance with Law No. i „ March, 1906, was 55,500,000 yen, which was finally redeemed in July of the same year. It may easily be inferred that the resources for these repayments were supplied out of the fund raised by the public loans relating to extraordinary war expenditures. The flotations of the aforesaid loans were measures for tem- porary accommodation with regard to the extraordinary war outlays, and every one of them was readjusted and repaid not later than the settlement of the extraordinary war expendi- tures. Therefore, they overlap the receipts of the extraordi- nary military expenditures fund. Conclusion To sum up what has been said in the foregoing sections: From the Russo-Japanese War to the present day a great amount of war loans — but not armament loans — have been RUSSO-JAPANESE WAR TO PRESENT DAY 83 floated. The war loans consisted of five exchequer bonds, four sterling loans and two extraordinary military affairs loans and temporary loans for the redemption of military bills. The following table shows the amount subscribed and the amount actually realized : Summary of Loans from Russo-Japanese War to Present Day' Kind Exchequer bonds, ist issue Exchequer bonds, 2d issue Exchequer bonds, 3d issue Exchequer bonds, 4th issue Exchequer bonds, sth issue 6% sterling loan, ist issue 6% sterling loan, 2d issue 4i% sterling loan, 1st issue *. . . 4i_% sterling loan, 2d issue Special s% extraordi- nary military 1 penditure loan. . . Total Temporary loan for the redemption of military bills .... Date of Issue Feb. 1904 May, 1904 Oct. 1904 Feb. 190S Apr. 190S May, 1904 Nov. 1904 Mar. 190S July, 190S Mar. and June, 1906 Aug. 1906 Inter- est Per cent S S 5 6 6 6 6 4i Ai Amount Floated Yen 96,977,400 98,876,650 77,480,72s 99,790,575 99.936,150 97,630,000 117,156,000 292,890,000 292,890,000 Yen 473,061,500 860,566,000 310,400,700 310,400,700 1,584,028,200 15,253,358 Net Proceeds Yen 92,376,124 90,981,796 71,288,675 90,254,962 89,984,081 86,834,171 100,463,595 251,158,987 251.137,817 Yen 434,885,638 689,594.570 294,251,021 294,251,021 1,418,731,229 15,253,358 Of the above, the fourth and fifth 6 per cent exchequer bonds, amounting to 199,726,725 yen, were redeemed by the second 4 per cent sterling loan, amounting to £25,000,000, or 244,075,000 yen,^ which was floated in themarkets of England, America, France, and Germany in November, 1905. The second 4 per cent sterling loan was floated by Imperial Ordi- nance No. 241, November, 1905, in accordance with Law No. i, 1904, a;nd Law No. 12, 1905. It was raised without any secur- 1 This table was made on the basis of the figures as shown in the preceding sections. The total sum of the net proceeds of the exchequer bonds, the sterling loans and ex- traordinary military expenditures loans are the same as the settled amount of public loans exchequer bonds, temporary loans in the fund revenue belonging to the special extraordinary military expenditures account as stated in the general review abov6. This shows that the total amount of the money realized was transferred to the war fund. * The amount actually realized was 214,720,000 yen. 84 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY ity. The issue price was 90, and the rate actually received was 88. The principal was to be redeemed not later than January i, 1931. But on and after January i, 1921, the whole or a part of it could be redeemed at the convenience of the government with six months' notice. The amount actu- ally received was 214,720,000 yen, and after the redemption of the fourth and fifth exchequer bonds a small amount of surplus (about 54,376,000 yen) was left over. The first, the second, and the third 5 per cent exchequer bonds amounting to 273,- 334,775 yen, were mostly redeemed by the surplus of the foreign loans and of the ordinary revenue, while a part of them was redeemed out of the 5 per cent public loan for the read- justment of exchequer bonds, amounting to 31,001,050 yen floated in the home market in March, 1908, and out of the 4 per cent loan issued in Paris in April, 1910, amounting to 175,150.000 yen. At the same time 14,292,500 yen, which had been raised for the establishment of the tobacco monopoly by Law No. 14, March, 1904, was redeemed. Loans for the readjustment of exchequer bonds disappeared as they were displaced by the Imperial 5 per cent loan. Class B. Thus, with the exception of the JCorean undertaking loan, floated in accordance with the Law No. 18, March, 1911, amounting to 30,000,000 yen, all the exchequer bonds disappeared in 191 1. Until the settle- ment of the war expenses (October 31, 1907), however, the second 4 per cent sterling loan, amounting to 199,726,725 yen, and unredeemed exchequer bonds, amounting to 273,334,775 yen, existed side by side with the extraordinary military ex- penditures loans and 4 per cent sterling loan. Of the four sterling loans, the first and second 6 per cent sterling loans, amounting to 215,260,000 yen, were redeemed by the 5 per cent sterling loan, amounting to 224,549,000 yen, which was raised in accordance with Imperial Ordinance No. 23, March, 1907. The foreign loans, on account of the Russo-Japanese War existing at the present day, are the second 4 per cent sterling loan (for the conversion of exchequer bonds), the 5 per cent sterling loan and the first and second 4 per cent ster- RUSSO-JAPANESE WAR TO PRESENT DAY 85 ling loans. Thus, the war loans, on account of the Russo- Japanese War, were modified in kind, in amount of flotations and in the distinction between domestic and foreign loans before the settlement of the war expenses in October, 1907. " Russo-Japanese War Loans' Former War Loans Amount Latter War Loans Amount 5% exchequer loan. . . . 6% " " ... Extraordinary military expenditure loan .... 6% sterling loan 4% " " Yen 273,334,775 199,726,725 310,400,700 2 1 5,260,000 *» 585,780,000 5% exchequer loan. . . 4% sterling loan Extraordinary military expenditure loan . . . 5% sterling loan 4% " " Total Foreign loan Yen 273,344,775 244,075,000 310,400,700 224,549,000 585,780,000 Total 1,584,502,200 1,638,149,475 Foreign loan 801 ,040,000* 1,054,404,000 Besides the above-mentioned Ifians for war and armament, there were many other public loans in the period from the Russo-Japanese War to the present day. All these loans may be divided into : (a) financial public loans, (J)) public loans with regard to the nationalization of railways, and (c) public loans with regard to the amalgamation and financing of the colonies. As for financial public loans there were issued the tobacco monopoly exchequer bonds, after 1904, amounting to 14,292,050 j/ew, consolidated loan for hereditary pension, after 1905, amounting to 441,500 yen, the Okina- waken Pension Bonds, after 1910, amounting to 1,639,800 yen, and the salt fields adjustment loans in 191 1, amounting to 2,426,050 yen. The French loan in 1910, amounting to 175,- 150,000 yen, and the third 4 per cent sterling loan, amounting to 107,393,000 yen, were both floated for the conversion and readjustment of the domestic and foreign loans. As for the public loans for the nationalization of railways, there were public loans for' the readjustment of the liabilities of old rail- ' In addition, there was an issue of a relief loan, 1910, amounting to 988,650 yen. As its object lay in the postbellum relief work, it may properly be regarded as an addition to the extraordinary military expenditures loan. 86 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY way companies, amounting after 1906 to 27,683,850 yen, the public loan for the buying-up of the railways after 1909, amounting to 476,318,750 yen, the amount.which the govern- ment assumed of the liabilities of the old railway companies, amounting to 22,132,900 yen after 1906, the seal-fishers bonds, in 1912, amounting to 501,400 yen, the sterling loan on account of the liabilities in regard to the old railway company, in 1906, amounting to 13,668,000 yen, and the French exchequer bonds and sterling railway bonds, after 1913, amounting to 106,389,- 000 yen, which were raised for the construction and improve- ment of railways. As for the public loans with regard to colonies, there were the Korean Public Undertakings Loan in 1 912, amounting to 1,000,000 yen, Public Loan granted by the former Korean Government to the former Dosho, amounting to 116,825 yen, Onshi Loan Bonds granted to the former Koreans in 1912, amounting to 30,037,400 yen, and Chosen Public Works Exchequer Bonds in 1913, amounting to 30,000,- 000 yen. Besides these, there were no small amount of tem- porary loans. Such is the outline of our national loans from the Russo-Japanese War down to the present day. CHAPTER VI PRESENT AMOUNT OF PUBLIC LOANS In order to discuss the financial position and the economic effects of war and armament loans, it is necessary to know the mode of flotation of our national loans as a whole and their present condition. The national loans as a whole are gener- ally divided into ordinary public loans and floating loans or in- to foreign and domestic loans. Each kind of loan has had its peculiar mode of development, and the influence of each upon economic affairs is different one from another. Further, if we classify according to objects of flotation, public loans may be divided into loans for the reform of institutions, loans for ad- justment of finance, loans for war and armament, loans for the encouragement of industries and colonial loans, etc. Unless, therefore, we classify the statistics according to these divisions, it is impossible for us to know the financial position of war and armament loans and the effects of general finance and business brought about by their flotation, redemption, readjustment, and interest payment. In short, the object of this chapter consists in summarizing the facts and statistics of the preced- ing chapters, thus clarifying the financial position of the war and armament loans and at the same time preparing the minds of the readers for the discussion of the economic effects in the following chapters. Historical Statistics of National Debt In stating the historical statistics of the. total amount of national loans, we must first distinguish between statistics concerning the floated sum and statistics concerning the redeemed sum; and then we must state the unredeemed amount outstanding at the end of each fiscal year. 87 88 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY The ' amount floated resolves itself into the subscribed amounts and special issue amounts. By subscribed amounts is meant the amounts raised by general flotation to the public at large, while by special issue amounts is meant the amount raised by issue of loans, in which delivery is made directly to the person entitled, or in which special issue is made to the Deposit Section or other special funds, or in which a new loan is delivered in conversion of an old loan. We must distin- guish these two, because their influences on the contraction of currency and slackness of the money market are by no means identical. Floated amounts may also be subdivided into domestic and foreign flotations, and this distinction is neces- sary inasmuch as their respective influences on finance and business are different. Lastly, the redeemed amounts must be subdivided into those redeemed out of the general revenue, and those re- deemed out of the public loans fund, floated for the sake of conversion. It was frequently the case that great amounts of redemption and great amounts of fresh subscriptions took place nearly simultaneously. The distinction between those redeemed out of the general revenue, and those redeemed out of the public loans fund can not be said to be very clear ; but their respective influences are not the same, because the for- mer kind of redemption greatly diminishes the total sum of issue, and gives rise to slackness in the money market, while the latter kind of redemption increases the total amount of public loans, and, except when domestic loans are converted into foreign loans, it has not the effect of slackening the money market. The following table ^ shows the amounts of ordinary and floating loans at the end of each year: ' Based on Reference Book Concerning Monetary Affairs, National Loans Sta- tistics, and Imperial Statistical Year Book. The amounts of floating loans are the sum total of government paper money, various temporary loans, exchequer bonds, and railway bonds. Ordinary loans are generally funded loans. Prior to 1885, the system of fiscal years was not yet firmly established, and the figures are shown as those of each year end. After 1886, the present system of fiscal years was adopted. Per capita amount is not necessarily in ratio to the total amount, first because it denotes the figures at each year end, and secondly because paper money was excluded from the calculations. PRESENT AMOUNT OF PUBLIC LOANS Loans by Years 89 Year' 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1 891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 Ordinary Loans Yen 4,880,000 4,880,000 28,056,096 40,640,841 46,919,637 55,810,192 53,927,344 226,854,389 237,364.166 235,198,759 234,338,231 231,127,541 225,511,284 217,662,889 230,334,914 231,255,987 230,681,580 237,694,192 241,438,310 . 245,445,566 243,230,655 241,743,709 235,126,272 235,814,851 263,807,284 341,759,995 357,335,134 399,245,928 391,253,123 480,967,249 486,460,195 502,226,140 530,180,810 539,569,751 969,288,139 1,850,381,121 2,420,256,082 2,254,346,452 2,228,306,822 2,582,798,363 2,650,395,115 2,553,704,973 2,493,969,745 Floating Loans Yen 24,037,389 50,090,867 55,500,000 60,272,000 68,400,000 78,381,013 91,902,000 99,071,869 105,147,582 115,283,091 154,418,592 145,308,921 139,940,485 133,905,194 124,369,014 107,999,277 103,380,233 98,345,096 76,395,945 63,565,988 55,468,455 50,065,256 63,370,072 58,873,789 51,200,044 47,704,773 65,520,517 78,579,236 62,045,082 28,995,374 27,112,265 27,399,453 23,728,883 67,891,816 55,983,447 42,514,359 116,628,616 243,200,000 130,415,333 22,000,000 27,505,095 68,435,291 129,986,100 188,474,946 249,600,969 Total Yen 24,037,389 50,090,867 60,380,000 65,152,000 96,456,096 119,021,854 138,821,637 154,882,061 159,074,926 342,137,480 391,782,758 380,507,680 374,278,716 365,032,735 349,880,298 325,662,166 333,715,147 329,601,083 307,077,525 301,260,180 296,906,765 295,510,822 306,600,727 300,617,498 286,326,316 283,519,624 329,327,801 420,339,231 419,380,216 428,241,302 418,365,388 508,366,702 510,189,078 570,117,956 586,164,257 582,084,110 1,085,916,755 2,093,581,121 2,550,671,415 2,276,346,452 2,255,811,917 2,651,233,654 2,780,381,215 2,742,179,919 2,743,570,714 Per Capita Yen 0.147 0.147 0.843 1 .209 1.380 1.625 1-557 6.772 7-053 6.963 6.858 6.707 6.497 6.079 6.387 6-457 6.931 7 033 6.707 6.496 6.804 -744 .762 .446 -774 .276 10.001 9.024 8.940 10.734 11.086 II .911 12.185 12.017 22.261 44 . 640 48.247 47.302 46.439 53-804 55-007 54-022 51-796 » Up to 1885, the figures are for the calendar year ending with the date given; from 1886 on, the fiscal year ending with the date given. The table on the next page shows how our national debts, which increased, as above stated, both in the total amount and per capita amount, were floated, issued, and redeemed. 90 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Flotation and Redemption of National Debts ^ Year " Domestic Foreign Amount Total Redemption Flotation Flotation Issued of Principal Yen Yen Yen Yen Yen The 3d 4,880,000 4,880,000 The 4th... The 5th... 11,712,000 23.390,900 35,102,900 -219,454 The 6th... 1,580,200 1,580,200 707,454 The 7th... 6,986,200 6,986,200 707,454 The 8th... 1875 10,230,550 10,230,550 1,339.995 1876 7,400 7,400 1,890,249 1877 .... 334.050 334.050 975,855 1878 12,500,000 173,221,895 185,721,895 3.475.274 1879 291,627 291,627 3-575.757 1880 3.044.525 3.044.525 3.796,854 1881 .... 821,915 821,915 2,949,289 1882 513.855 513.855 7,864,207 1883 15,000,000 1,787,650 16,787.650 5,425,294 1884 5,000,000 3.995 5.003,995 4,290,101 X885 6.515.635 6,515,635 5,089,752 1886 21,000,000 607,240 21,607,240 21,022,267 1887 2,000,000 27.838,790 29,838,790 26,457,542 1888 11,000,000 22,395-270 33.395.270 31,198,368 1889 19,001,295 19,001,295 15.885.758 1890 3,349,890 3,349,890 5,361,401 1891 4.913,300 14.549.150 19,462,450 24,157,111 1892 10,000,000 30,960,400 40,960,400 49,596,238 1893 2,000,000 17,842,950 19,842,950 13,318,870 1894 79.996,500 2,000,000 81,996,500 4,108,798 1895 10,000,000 33,047,500 43,047.500 4,990,059 1896 i3.695;ooo 13,695,000 8,120,310 1897 49,157,900 49,157.900 7,288,107 1898 263,750 263,750 8,215,555 1899 97,630,000 3,729,000 101,359.000 11,644,874 1900 15,272,650 15,272,650 9,775,705 igoi 26,002,650 26,002,650 10,240,705 1902 41,498,150 41,498,150 13,795,880 1903 96,977.250 12,000,000 108,977,250 3,218,290 1904 276,147,975 800,566,000 17,404,835 1,094,118,810 219,455 1905 299.607.750 244,075,000 8,869,150 552.551.900 40,472,173 1906 100 132,266,650 132,266,750 176,933,122 1907 TOO 224,549,000 88,848,890 313.397.990 2^7,296,460 1908 150 72,081,014 72,081,164 97,297,030 1909 487,211,740 487,211,740 130,134,009 1910 .... 521.370.575 521,370,575 453,779,773 1911 " 5.541.700 5,541,700 102,231,843 1912 1,100,000 1,100,000 60,835,228 1913 77,400,000 30,798,250 108,198,250 57,047,796 'Up to the eighth year, the figures are for the fiscal period ending with the date given; from 1875 on, the fiscal year ending with the date given. ' Based on an investigation of the .Department of Finance. The amount redeemed assignable to the eighth period is not ascertainable, on account of poor arrangement of the materials, and has been included either in the seventh period or in the fiscal year 1875. The table does not include exchequer bonds, railway bonds, and temporary loans. PRESENT AMOUNT OF PUBLIC LOANS 91 The following table shows the amounts redeemed of the domestic and foreign loans respectively at each year end, or at the end of each fiscal year : Redemption of Loans ^ Year' Domestic Loans Foreign Loans Total 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1 891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 Yen 23,176,096 24,536,841 31.303.637 40,916,432 39,771,928 213.455.373 224,740,094 223,369,639 223,325.535 220,954,205 216,202,196 208,756,401 221,385,842 223,240,587 223,159,548 230,699,688 229,686,718 238,400,752 232,868,430 237,255,085 231.377.456 232,857,571 261,697,171 340,556,587 357,101,382 399,245.928 391.253.123 480,967,249 388,834,194 404,596,140 432,550,810 441.939.751 656,872,139 879,970,810 ,049,546,602 ,088,645,228 062,605,598 ,417,128,864 .203,179,399 116,216,270 ,066,286,840 Yen 4,880,000 4,880,000 4,880,000 16,104,000 15,616,000 14,893,760 14,155,416 13.399,016 12,624,072 11,829,120 11,012,696 10,173,336 9,309,088 8,906,488 8,476,072 8,015,400 7,522,032 6,994,504 6,430,376 5,826,232 5,188,120 4,488,624 3,748,816 2,957,280 2,110,112 1,203,408 233,752 97,630,000 97,630,000 97,630,000 97.630,000 312,416,000 970,410,310 1,370,709,579 1,165,701,224 1,165,701,224 1,165,675.449 1,447,215,715 1,437,449,203 1,427,682,905 Yen 4,880,000 4,880,000 28,056,096 40,640,841 46,919,637 55,810,192 53,927,344 226,854,389 237,364,166 235,198,759 234,338,231 231.127,541 225,511,284 217,662,889 229,861,914 231,255,987 230,681,580 237,694,192 236,117,094 244,226,984 238,056,550 241,743,709 235,126,272 235,814,851 263,807,283 341,759,995 357,335,134 399,245,928 391,253,123 480,967,249 486,464,194 502,226,140 530,180,810 539,569,751 969,288,139 1,850,381,121 2,420,256,182 2,254,346,452 2,228,306,822 2,582,804,313 2,650,395,115 2,553,665,473 2,493,969,745 » Up to 1885, the figures are for the calendar year ending with the date given; from 1886 on, the fiscal year ending with the date given. ^ This table is concerned merely with ordinary loans. 92 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY The above tables show that our national loans increased with every war, and especially in connection with the Russo- Japanese War, after which our finance changed from domestic loan finance to foreign loan finance. As we have finished the historical statistics of thte total sum of our national debts, we enter upon the minute observation of the total sum of national debts at the present time. Outstanding National Debt The following table shows the details of all the national debts outstanding at the present time: Details of National Debt A . — Domestic Loans Kinds Date of Flotation Amount of Flotation Amount Outstanding Date of Redemption Old Public Loan (witliout interest) . Imperial Japanese Government s% Loan. 51,427,400 yen outstanding, divided as follows: Railway Loan Hokkaido Railway Loan Public Undertaking Loan Consolidated Loan for Hereditary Pension Taiwan Public Undertakings Loan Loan for Consolidating the Debts of the Purchased Railway Co. . Okinawa Prefecture Pension Bonds Public Loan Bonds issued for the relief of the Japanese who suf- fered loss during the late war. . PubUc Loan for the Readjustment of the Salt Fields Bonds to Sealers 5% Nationalization of Railway Loan (Mark ko) 5% Extraordinary MiUtary Expendi- tures Loan (Special) S% Loan (Onshi) Debentures of the Purchased Railway Companies 4% Loan Total 1872 From 1893 1898 1897 190S 1900 1906 1910 1910 1911 1912 190S 1906 1910 Sept., 1907 From 1910 Yen 10,972,725 64,866,050 4.403,650 88,827,800 441.SOO 34,508,53s 27,683,850 r.639,800 988,650 2,426,050 927,600 504,002,600 310,400,700 29,826,000 22,132.900 276,028,850 Yen 1,975,091 5,588,900 811,150 10,831,400 164,250 385,650 27,683,850 1,640,550 979.350 2,425,750 916,550 467,043,650 239,885,850 29,826,000 100,000 276,028,850 1961 1961 1961 1966 i960 1963 1964 1964 1964 1966 1963 1935 1964 1913 (Nov.) 1969 1,380.077.260 1.066.286.841 PRESENT AMOUNT OF PUBLIC LOANS B. — Foreign Loans 93 Kinds Date of Flotation Amount of Flotation Amount Outstanding Date of Redemption 4% Sterling Loan of ist issue, 97 ,630,- 000 yen floated and outstanding, divided as follows: Railway Loan 1899 1899 1899 1905 1910 1905- 1905 1907 1910 igo6and 1907 Yen 17,577,750 2,000,000 78,052,250 244,075,000 107,393,000 292,890,000 292,890,000 224,549,000 175,150,000 13,668,200 Yen 17,577,750 2,000,000 78,052,250 244,072,266 107,393,000 283,106,498 283,119,580 224,545,876 174,147,485 13,668,200 1953 Hokkaido Railway Loan Public Undertaking Loan 4% Sterling Loan of 2d issue 1953 1953 Jan., 1931 4i% Sterling Loan of ist issue 4i% Sterling Loan of 2d issue Feb., 192s July, 192s Debentures of the Purchased Railway Co. 1921 and 1926 Total 1,448,245,200 1,427,682,90s C. — Floating Loans Kinds Date of Flotation Amount of Flotation Amount Outstanding Date of Redemption Railway Bonds and Debentures (daily From 1911 Each year 1890 Each year Each year 1906 From 1909 1910 1911 1911 From 191 1 " 1912 Yen 79,289,000 22,000,000 15,253,358 20,963,920 4,000,000 2,094.677 24,900,000 14,000,000 Yen 79,289,000 35,000,000 22,000,000 11,530,000 5,266,743 1,979,517 33,577,113 17,963,920 2,000,000 2,094,677 24,900,000 14,000,000 191S (Mar.> Treasury Bonds (daily interest) Temporary Loans, 135,311.969 yen floated and outstanding, divided as follows: Temporary Loan for the Redemp- tion of Paper Money (without One year 1912 Temporary Loan (daily interest) . Taiwan Undertakings Expendi- ture Changed Temporary Loan (6%) One year 3 years Temporary Loan for the Redemp- tion of MiUtary Bills (without No date Railway Work Expenditure Tem- Each 5 years Korean Undertaking Fund Tem- Imperial Steel Works Fund Tem- ,. Chosen Undertaking Expenditure Temporary Ixjan (5%) Chosen Undertaking Expenditure Changed Temporary Loan (6%) River Work Fund Temporary Loan (4i%) 3 years 3 years each S years Total 182,500,955 249,600,970 94 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Summary of Amount Outstanding Yen A — Domestic Loan 1,066,286,841 B — ^Foreign Loan 1,427,682,905 C — Floating Loan 249,600,969 Total 2,743,570,715 The following table shows the amount and position of war and armament loans viewed from the object of their flotation : A. — Loans for Reorganization of Institutions: Yen , Yen Old Public Loan 1.975.090 Consolidated Loan for Hereditary Pension. . . . 164.250 Okinawa Prefecture Pension Bonds 1,640,550 B. — Loans for War: 4l% Sterling Loan of 1st issue 566,226,078 4% Sterling Loan of 2d issue 244,072,266 5% Extraordinary Military Expenditure Loan 239,885,850 5% Sterling Loan 224,545,876 Public Loan issued for the relief of the peoples who suffered loss during the late war 979.350 4% Loan (Part I) 1 13,398,950 4% Loan issued in Paris (Part I) 63,810,875 Temporary Loan for Redemption of Military Bills 1,979.517 C — Loans for Expansion of Armament: 4% Sterling Loan of 1st issue, 1899 (Public Undertaking Loan, Part I) 54,947,100 4% Loan (Part II) 8,296,700 D. — Loans for Railway Construction and Public Works: Railway Loan (Domestic and Foreign) 23,166,650 Hokkaido Railway Loan (Domestic and For- eign) 2,811,150 Public Undertaking Loan (Domestic Loan and Foreign Loan, Part II) 33.936,550 4% Loan (Part III) 98,462,050 5% Nationalization of Railway Loan 467,043,650 Debentures of the Purchased Railway Com- panies (Domestic and Foreign) 13,768,200 Loans for Consolidating the Debts of the Pur- chased Railway Co 27,683,850 Railway Bonds and Debentures 79,289,000 Railway Work Expenditure Temporary Loan . 33. 577, 113 The Imperial Steel Works Fund Temporary. . . Loan 2,000,000 The River Work Fund Temporary Loan 14,000,000 Bonds to Sealers 916,550 3.779.890 1,454,898,762 63,243,800 796,654,763 PRESENT AMOUNT OF PUBLIC LOANS 95 E. — Loans for Exploitation of New Territory: Taiwan Public Undertaking Loan 385,650 Taiwan Undertaking Expenditure Temporary Loan 5,266,743 Korean Undertaking Fund Temporary Loan. . 17,963,920 Chosen Undertaking Expenditure Changed Temporary Loan 24,900,000 Chosen Undertaking Expenditure Temporary Loan 2,094,677 5% Loan (Onshi) 29,826,000 80,436,990 F. — Loans for Financial A djustment and Treasury Bonds: Public Loan for the Readjustment of the Salt Field 2,425,750 4% Sterling Loan of 3d issue (Part II) 107,393,000 4% Loan issued in Paris (Part II) 110,336,610 4% Loan (Part IV) 55,871,150 Temporary Loan for the Redemption of Paper Money 22,000,000 Temporary Loan (daily interest) 11,530,000 Treasury Bonds 35,000,000 344,556-510 Total 2,743,570,715 This classification dififers from the classification adopted in the Financial Department's annual statistical report, pub- lished since 1901 , with regard to national loans. In this annual report conversion loans are regarded as financial readjustment loans and unfunded loans excluded. In these statistics, on the contrary, any loan that can be looked upon as a loan for the conversion of war loans is regarded as war or armament loan, and also unfunded loans are included. The reader is referred to the note in the following table for particulars. War and Armament Loans The figures with regard to war and armament loans are different, according to the views taken. We have made a special investigation on the basis of the above classification, which has convinced us of the approximate truth of the follow- ing calculation : 96 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Table I. — War and Armament Loans' Year" 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 War Loan Armament Loan Yen 24.037 50,090 55,500 55,500 55,499 68,546 89,059 91,275 93,323 03,321 34,800, 29,190 23,412 20,905, 20,368 07,999 03,380 98,345 ,386 ,867 000 ,000 ,998 ,871 323 ,869 on 764 ,455 ,804 ,369 194 ,856 277 232 ,096 76,395,945 63,565,988 55,468,455 50,065,256 41,370,072 36,873,789 29,200,044 25,704,773 73,621,747 165,623,236 161,769,082 131,567,374 129,948,015 118,775,903 118,306,333 133,672,866 117,184,397 121,913,939 572,606,170 1,487,894,074 1,980,176,112 1,741,810,324 1,678,667,330 1,580,448,010 1,603,668,451 1,514,309,047 1,454,898,762 5,000,000 11,000,000 13,000,000 17,000,000 17,000,000 16,990,000 16,980,000 16,970,000 16,960,000 16,950,000 15,006,000 26,048,636 51,302,267 69,393,922 78,984,267 82,848,270 84,908,800 90,199,200 90,882,400 90,605,650 90,605,650 89,485,400 89,485,400 85,983,500 63,243,800 63,243,800 63,243,800 Total Yen 24,037,386 50,090,867 55,500,000 55,500,000 55,499,998 68,546,871 89,059,323 91,275,869 93,323,011 103,321,764 134,800,455 129,190,804 123,412,369 120,905,194 120,568,856 107,999,277 103,380,232 98,345,096 81,395,945 74,565,988 68,468,455 67,065,256 58,370,072 53,863,789 46,180,044 42,674,773 90,581,747 182,573,236 176,775,082, 157,616,010 181,250,282 188,169,825 197,290,600 216,521,136 202,093,197 212,113,139 663,488,570 1,578,499,724 2,070,781,762 1,831,295,724 1,768,152,730 1,666,431,510 1,666,912,251 1,577,552,847 1,518,142,562 Total of Na- tional Loans Yen 24,037,386 50,030,867 60,380,000 65,152,000 96,456,096 119,021,854 138,821,637 154,882,061 159,074,926 342,137,480 391,782,680 380,507,680 374,278,716 365,032,735 349,880,298 325,662,166 333,715,147 329,601,083 307,795,196 303,796,276 296,906,376 295,510,821 306,600,727 300,617,498 286,327,316 283,519,624 329,327,801 420,339,231 419,380,217 428,241,302 418,365,389 508,366,702 510,189,078 570,117,956 586,164,258 582,084,110 1,085,916,757.- 2,093,581, 121 2,550,671,415 2,276,346,452 2,255,811,917 2,651,233,654 2,780,381,215 2,742,179,919 2,743,570,714 » Up to 1885, the figures are for the calendar year ending with the date given; from 1886 on, the fiscal year ending with the date given. 'The war loans in this table include "Dajokwansatsu," " Mimbushosatsu,'' New Paper Money and other government paper money, temporary loan for the PRESENT AMOUNT OF PUBLIC LOANS 97 The armament loans in this table include navy loan, the part of public undertakings loan which was appropriated to national defense expenditure, temporary loan for the con- struction of warships, and a small part of 4 per cent domestic loan. Table II. — War and Armament Loans' Fiscal Year War Loan Armament Loan Total 1901 Yen 116,581,450 115,6^1,150 212,618,500 996,442,425 1-349-284,950 1,499,920,779 1,273,186,323 1,176,210,848 1,079,400,672 925,926,619 836,932-277 807,091,277 Yen 78,073,600 84,908,800 87,699,200 88,382,400 90,605,650 90,605,650 89,485,400 89,485,400 85,983,500 54,947,100 54,947,100 54,947,100 Yen 194-655-050 200,549,950 300,317,700 1,084,824,825 1,439,890,600 1-590,526,429 1. 162.671. 721 1902 TQ01 TQOd. IQO^ 1906 IQ07 TQ08 i,26=;,6q6,24.8 IQOQ 1,165,184,172 980,871,719 891,879,177 862,038,377 Loans for the Encouragement of iNtousTRiEs The amount of the various kinds of public loans is shown in the annual statistical report of the Finance Department with regard to national loans. A further special investigation was made on the basis of this authority, which is shown in the table on the next page. suppression of rebellion, temporary loan for military expenditure, temporary loan concerning Chinese affairs, exchequer bonds, extraordinary military expendi- tures loan, temporary loan for extraordinary military expenditure, temporary loan for the redemption of military bills, exchequer bonds consolidation loan, 6 per cent sterling loan, 4 per cent sterling loan, the second 4 per cent sterling loan, 5 per cent sterling loan, a part of 4 per cent French loan, a part of 4 per cent domestic loan (the part which was floated for the conversion of military loan) and relief loan. '■ Based on Financial Department Yearly Statistical Report Concerning National Loan, and the classification is that adopted by the Financial Department. The table does not include various temporary loans and treasury bills. The war loans include temporary loan for the suppression of the rebellion, war loan, ex- chequer bonds, 6 per cent sterling loan, 4I per cent sterling loan (excluding those for the adjustment of finance), extraordinary military expenditures loan, 5 per cent loan (excluding loans for the encouragement of industries, reform of institu- tions, adjustment of finance, governance of new territories), and 5 per cent Class B. They do not include second 4 per cent sterling loan, 5 per cent sterling loan, 4 per cent domestic loan (a part), 4 per cent French loan (a part), and temporary loan for the redemption of military bills. The armament loans do not include the fund for the conversion of navy loan. 98 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY Table Showing the Figures of Railway Loan and Other Public Under- takings Loans' Year' Railway Loan Other Public Undertakings Loans Total 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 Yen 4,880,000 4,880,000 4,880,000 4,392,000 3,904,000 3,416,000 2,928,000 2,440,000 1,952,000 1,464,000 976,000 488,000 15,000,000 20,000,000 20,000,000 20,000,000 19,990,000 21,990,000 21,980,000 15,922,900 2,000,000 4,000,000 4,000,000 6,000,000 10,000,000 18,807,350 18,907,350 37,462,650 37,462,650 75,632,200 81,667,050 82,775.650 85>344-950 83.748,500 100,503,700 148,489,730 185,236,730 579,871,050 525,352,250 519,289,550 519,173,000 Yen 12,500,000 12,500,000 12,234,050 11,949,650 11,649,050 11,321,950 10,996,250 10,760,350 10,740,350 10,730,350 10,710,200 10,710,200 10,700,200 10,680,200 3,000,000 21,237,964 58,582,022 52,493,633 27,058,000 30,976,150 31,868,950 31,943,050 33,090,550 33,090,550 38,419,550 38,419,550 37,939,450 19,494,650 19,494,650 20,412,200 Yen 4,880,000 4,880,000 4,880,000 4,392,000 3,904,000 3,416,000 2,928,000 2,440,000 14,452,000 13,964,000 13,210,050 12,437,650 11,649,050 11,321,950 25,996,250 30,760,350 30,740,350 30,730,350 30,700,200 32,700,200 32,680,200 26,603,100 2,000,000 4,000,000 4,000,000 6,000,000 13,000,000 40,045,314 18,907,350 96,044,672 89,956,283 102,690,200 112,643,200 114,644,600 117,288,000 116,839,050 133,594,250 186,909,280 223,656,280 617,810,500 544,846,900 538,784,200 539,586,200 » Up to 1885, the figures are for the calendar year ending with the date given; from 1886 on, the fiscal year ending with the date given. ' Prior to 1900, there was no yearly Statistical Report concerning national loans. Therefore, the foreign 9 per cent loan, Nakasendo railway loan, railway replenish- ment loan, railway loan, undertakings loan (excluding national defense loan), and Hokkaido railway loan have been taken into account. After 1901 the figures are PRESENT AMOUNT OF PUBLIC LOANS 99 Besides the war and armament loans and loans for the encouragement of industries, there are loans for the reform of institutions, the loans for the readjustment of finance, and colonial loans. Of all, loans connected with military affairs constitute the overwhelming majority, while productive loans are insignificant. At the end of the fiscal year 191 3 the major- ity of the total sum of public loans are military loans, and the remaining minority is divided about equally into productive public loans and administrative and financial loans. based on Annual Statistical Report, etc. Other undertakings loans include loans for harbor construction, drainage, road construction, mining, steel foundry, exten- sion of telephone and prohibition of seal shooting. As a part of the 4 per cent domestic loan, and the floating loans were not taken into account, the figures do not coincide with those in a table inserted elsewhere. CHAPTER VII CONCLUSION We sum up below what has been said about the history of war and armament loans and about the fluctuations of the total amount of national debts. The war and armament public loans commenced with government paper moneys such as " Dajokwansatsu, " "Mimbushosatsu," New Paper Money, etc., all of which was issued in connection with the Restora- tion. When in 1877 there was an increased issue of paper money and temporary loans for the suppression of the Sat- suma Rebellion, the total sum of the national debts suddenly rose to 342,000,000 yen in 1877, and 391,000,000 yen in 1878. Though there was a navy loan in 1886, the total sum of na- tional debts did not increase, but it gradually decreased till 1894. Owing to a great sum of war loans and temporary loans in connection with the Sino- Japanese War, the total sum at the end of the fiscal year 1895 was above 420,000,000 yen. After the war there was an increase of railway loans and loans for other kinds of undertakings, and though the armament ex- penditure was disbursed out of the indemnity fund, the deficit was covered by undertakings loans. Thus, at the end of the fiscal year 1899, the total sum of public loans was a little above 508,000,000 yen. In 1900 the Boxer Uprisings occurred in North China, which gave rise to the North China Affair Tem- porary Loans, and there was also an increased issue of under- takings loans. And yet the total sum of national loans at the end of the fiscal year 1902 still remained little above 586,000,- 000 yen. When in 1904 war broke out between Japan and Russia, the total sum suddenly rose to i ,085,000,000 yen, which was wholly due to the sudden issue of exchequer bonds, tem- porary loans for the construction of warships, the extraordi- nary military expenditures loan, the 6 per cent sterling loan, etc. In the fiscal year 1905 there was an increase of exche- quer bonds, of temporary loans, and 4.5 per cent sterling public 100 CONCLUSION lOI loan, and a second 4 per cent sterling loan was issued, thus rais- ing the total to 2,000,000,000 yen. In the following fiscal year, 1906, besides the continued flotation of the second 4 per cent sterling loan, there were issues of the extraordinary military expenditures loan, and the 5 per cent sterling loan, the total sum showing 2,550,000,000 yen. After this year, though there were issues of public loans for buying up railways and other auxiliary readjustment loans, the total sum of national debts decreased. After the fiscal year of 1909, owing to the readjustment by conversion into lower interest loans, the total sum increased. The conversion was affected by an Imperial 4 per cent loan, the third 4 per cent sterling loan, and the 4 per cent French loan. It is true that these were not used for the sole purpose of converting war and armament loans, but at least one-half of these loans converted military loans, navy loans, the remainder of exchequer bonds, and extraordinary military expenditures loans. Consequently the total amount of public debts at the end of the fiscal year 1909 was a little above 2,650,000,000 yen, and in the fiscal year 1910 it stood at 2,780,000,000 yen. Though there was a slight falling off after this year, still in the fiscal year 19 12 the sum total showed 2,743,000,000 yen. Of this sum, what can be regarded as war and armament loans amount to about 1,518,000,000 yen, i.e., 55 per cent of the total amount. The total amount of national loans may be divided into two kinds: (i) unfunded loans and (2) ordinary loans. Roughly speaking, unfunded loans showed the biggest fig- ures during a period of ten years before and after the Satsuma Rebellion, during a period of three years before and after the Sino-Japanese War, during the period of three years following the Russo-Japanese War, and during the three years following the conversion of 19 10. The increased issue of paper moneys and convertible bank notes ga:ve rise to the expansion of cur- rency. Ordinary loans may be divided into domestic and foreign loans. In 1872 foreign loans equalled 488,000,000 yen against domestic loans amounting to 23,000,000 yen. In 1877 foreign loans showed 13,000,000 yen against domestic loans amount- I02 WAR AND ARMAMENT LOANS: HISTORICAL SURVEY ing to 210,000,000 yen. In 1887 foreign loans fell off to 6,900,000 yen against domestic loans amounting to 230,000,000 yen. In 1897 there was no foreign loan, whereas there were domestic loans amounting to 399,000,000 yen. After this date there was only a small sum of foreign loans. In 1902 the foreign loans amounted only to 97,000,000 yen against do- mestic loans amounting to 432,000,000 yen. The Russo-Japanese War brought about a great increase in foreign loans. In 1907 foreign loans amounted to 1,165,000,- 000 yen against domestic loans amounting to 1,088,000,000 yen. After this year, foreign loans showed even bigger figures than domestic loans. At the end of the fiscal year 1912 the domestic loan fell off to 1,066,000,000 yen, while the foreign loan increased to i ,427,000,000 yen. Domestic loans had gen- erally the tendency of making the money market tight, while on the contrary, foreign loans made the money market slack in the first place, and then brought about the rise of prices and interest. The greater part of the foreign loans consisted of war and armament loans. Of 1,427,000,000 yen, which was the total sum at the end of the fiscal year 1912, nearly 1,153,000,000 yen belongs to war and armament loans or their conversion loans, the remaining sum being composed of the greater part of the first 4 per cent sterling loan, the third 4 per cent sterling loan, the greater part of the 4 per cent French loan, and the loans for nationalization of railways. If we add to this sum more than one-half of the domestic loans, such as extraordinary military expenditures loans, the relief loan, and the domestic 4 per cent loan, we get the total sum of war and armament loans amounting to 1,518,000,000 yen, which is 55 per cent of the total sum of our national debts. It is significant that the total sum for the encouragement of industries amounts to 796,000,000 yen, only 29 per cent of the total sum of our national debts. Further, we shall consider the redemption expenditure (in- terest and sinking fund) . The total sum of interest payable in the fiscal year 1912 was 114,000,000 yen, of which interest on domestic loans was 52,000,000 yen, while interest on foreign CONCLUSION 103 loans showed the big sum of 62,000,000 yen. Inthe same fis- cal year the principal annually to be redeemed was 68,000,000 yen, of which the redemption of domestic loans was 51,000,000 yen, while that of foreign loans was 9,760,000 yen. It is impossible to know the exact figures of the sinking fund and interest of the war and armament loans in the above fiscal year. But the amount of war and armament loans figured 1,518,000,000 yen. If we fix the average rate of interest at 4.25 per cent per annum, the interest would be 64,000,000 yen. If we add to this amount about 10,000,000 yen, which is in- ferred to be the annual amount of the principal redeemed, the total would be 74,000,000 yen. The estimate generally ac- cepted with regard to the military burdens of our people must be subjected to some modifications. Generally the military burden of our nation is calculated to be about 33 per cent of the total outlay. This calculation is made by taking into con- sideration only the ordinary and extraordinary expenses of the military and naval department of the annual account, and excluding what ought to be taken into account. The general account in the fiscal year 191 2 shows the following figures: Yen Yen Army expenditure 95f956,98o Navy expenditure 93,810,305 189,767,285 Pension to military men and their families 14,139,546 Pension to naval men and their families 2,628,447 Relief and aid to military and naval men 123,023 The Order of the Golden Kite pension 8,570,400 25,461,416 Interest on war and armament loan -. . 64,000,000 Redemption of war and armament loan 10,000,000 74,000,000 Total 289,228,701 These expenditures amount to nearly 50 per cent of the total expenditures for that fiscal year, and constitute the true mili- tary burden of our nation, amounting to 57 yen per head. We have excluded from the above table expenditures with regard to the establishment and expansion of iron foundries, and of military and naval arsenals. In view of these figures, the mil- itary burden on the shoulders of our nation is anything but light. PART II ECONOMIC EFFECTS OF PUBLIC LOANS FOR WAR AND ARMAMENT CHAPTER I INTRODUCTION By the economic eflfects of war and armament loans is meant the effects and influences due to the issue and redemp- tion of war and armament loans. The economic effects brought about by the outlay of the funds obtained by these loans must be excluded inasmuch as they overlap the effects of the war and armament expenditures. The effects due to the issue and redemption of public loans are both direct or indi- rect. The indirect effects and influences sometimes have a great deal to do with the economic effects due to expenditures and to taxation. The present discussion, however, is con- fined to the direct and special indirect effects due to the issue and redemption of the loans. The economic effects of war and armament loans include : (i) Effects on finance, (2) Effects on the money market, (3) Effects of industries, (4) Effects on society at large. 107 CHAPTER II EFFECTS ON PUBLIC FINANCE The financial effects of the issue and redemption of war and armament loans must be divided into effects upon state finance, and effects upon local finance. The former are the more conspicuous of the two. Moreover, they are, for the most part, direct effects, while the latter are chiefly indirect influences. Effects upon State Finance The effects upon the state finance of the issue and redemp- tion of war and armament loans fall into four heads : (i) The necessity of paper money adjustment which was brought about by the increased issue, and the consequent depreciation of various kinds of government paper money issued after the Restoration. (2) The necessity of national loans consolidation occasioned by the increase of public borrowing. (3) The increase of public loans charges which involves the interests arid sinking funds. (4) The increased issue of Treasury bills which attended the subscription and redemption of public loans. These are the most important of the effects upon state finance. Depreciation and Adjustment of Paper Money The kinds of government paper money issued in connection with the Restoration and Satsuma Rebellion have already been described. The following table shows the total amount of those issues. 108 EFFECTS ON PUBLIC Fi;iSrANCE Total Issue of Paper Money 109 Kinds Amount Period of Issue Dajokwansatsu Mimbushosatsu Exchequer Exchange . Notes 48,000,000 Ryo 7,500,000 " 6,800,000 Yen 2,500,000 " 119,800,475 " 19,618,116 " May, 1868, to December, 1869 September, 1869, " " • " October, 1871, " " 1871 January, 1872, " March, 1872 April, " " end of 1878 June, Colonial Exchange Notes New Paper Money ..... Reserve Paper Money.. Total 204,218,591 Yen Of the above, the new paper money was issued in order that the preceding four kinds of paper money might be superseded. The reserve paper money was issued as a substitute for the worn-out or injured new paper money. These kinds of paper money were by no means issued on a single occasion, but were issued several times during the above-mentioned periods. The amount of circulation of these kinds of government paper moneys outstanding at each year's end is estimated as follows : Paper Money in Circulation' Year •Government Paper Money Reserve Paper Money Total 1868 Yen 24-037-389 50,090,867 55-500,000 60,272,000 64,800,000 77,281,014 90,802,304 91,283,869 93-323-156 . 93-835-764 119,800,475 114,190,804 108,412,369 105,905,194 • 105,369,014 Yen 3,600,000 1,100,000 1,100,000 7,788,000 11,824,426 11,961,327 19,618,116 16,118,116 16,528,116 13,000,000 ■ 4,000,000 Yen 24-037,389 iio.000.867 l86q 1870 S';, 1^00.000 1871 60,272,000 1872 68,400,000 l87-« 78,381,014 1874 187s 91,902,304 99,071,869 1876 105,147,582 1877. ••.. 1878 ; 105-797-091 139,418,591 1879 ••■• 1880 1881 130,308,920 124,940,485 118,905,194 1882. ..:.: 109,369,014 • ' (i) Reserve paper money was issued for the first time in June, 1872, and wa* withdrawn in January, 1883. (2) As there was a revision of the calendar ia IDecember, 1872, the figures at the end of 1872 are those of November 30, 1872. no WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS These paper moneys were all inconvertible in fact. It was quite natural, therefore, that such a sudden inflation should have led to a decrease of the prices of public bonds in general, to say nothing of the paper moneys themselves. The govern- ment, therefore, was obliged to undertake readjustment and redemption. Thereupon, the government set about the task of readjust- ment. The first step was taken by the promulgation of the National Bank Regulation of November, 1872, and the Kin- satsu Exchange- Loan Bond- Regulation of March-, 1S7-3.- Ac- cording to these regulations, six-tenths of the capital of the national banks was to be deposited with the Finance Depart- ment in government paper money, in exchange for which 6 per cent "Kinsatsu" exchange loan bonds were to be granted by the said department. Further, on the security of these public bonds, bank notes of the same amount were to be delivered from the Finance Department to the national banks to be put into circulation. Four-tenths of the capital was to be accumulated in standard coins, viz., silver coins, as an exchange reserve for bank notes. Thus, inconvertible paper money that had been issued by the government was to be replaced by convertible bank notes issued by the national banks. Qwirig to the "frequent riots, armament expansions and the Satsuma Rebellion, all of which occurred during the period extending from' 1873 to 1878, the issue of government paper money suddenly increased and finally exceeded the demand. In consequence, the balance of foreign trade continued un- favorable, and money steadily flowed out. Government paper money alone was in circulation in the domestic money market, and the national banks were unable to issue bank notes and experienced no small difficulties in carrying on their business. An amendment was therefore made to the National Bank Regulation in August, 1876, to the effect that eight- tenths of the capital should be deposited 'with the finance de- partment in public bonds, bearing more than 4 per cent interest, and bank notes of the same amount were authorized EFFECTS ON PUBLIC FINANCE III to be issued. Two tenths of the capital was to be accumu- lated in currency' as an exchange reserve- Thus, this revision abolished the method adopted by the National Banks Regulation of 1872, concerning the adjust- ment of government paper money, and made the bank notes convertible into government paper money instead of into standard coins. To all intents and purposes, therefore, the revision consisted in establishing a system of increased issue of inconvertible paper money. As a result, national banks sprang into existence in rapid succession both in city and country alike, and the issue of bank notes knew no limit. The government, therefore, restricted the total amount of bank notes issue to about 34,000,000 yen, and expressly provided that the government should have the power of restricting the amount of capital of national banks at their organization and of limiting their issues of paper money. At the end of 1879, however, the national banks which had been organized with the sanction of the government numbered 153 and the amount of bank notes issue rose to more than 34,000,000 yen. Paper Money and Bank Notes Issued^ Calendar Year 1868 1869 1870 1871 1872 1873 1874 1875 1876..... 1877 1878 1879 1880 1881 1882 Total Government Paper Money Issued Yen 24.037-389 26,053,477 5,409,132 4,772,000 4,528,000 13,333,859 14,633,228 2,443,296 509,561 513,934 27,000,000 1,717 123,235,597 Bank Notes Issued Yen 1,362,210 632,790 324,000 11,608,751 12,926,255 7,767,008 380,337 35,001,351 Total Yen 24,037,389 26,053,477 5,409,132 4,772,000 4,528,000 14,696,069 15,266,018 2,443,296 833,561 12,122,685 39,926,255 7,768,725 380,337 158,236,948 1 Includes government paper money. 2 Based upon A Summary of the Circumstances Attending the Reform of the Mone- tary System, 1897. 112 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS CiRCXJLATION AND DIFFERENCE IN VALUE BETWEEN PAPER AND MeTAL iEuRRENCY ' Calendar Year Amount of Circulation of Government Paper Money Amount of Circulation of Bank Notes Total Amount of Specie Reserve Price of Paper Cur- rency per One Yen in Silver Yen Yen Yen Yen Yen 1868 24,037.389 24,037,389 0.748 1869 50,090,867 50,090,867 19,611 0.962 1870 55,500,000 55,500,000 39,873 I 033 1871 60,272,000 60,272,000 191,287 0.978 1872 68,400,000 68,400,000 14,709,800 0.018 1873 88,281,014 1,362,210 89,643,224 14,819,127 1.036 1874 101,802,304 1,995,000 103,797.304 - 18,483,983 1.036 1875 99,071,869 1,420,000 101,491,869 14,664,027 1 .029 1876 105,147.582 1,744,000 106,891,582 15,171,224 0.989 1877 105.797.092 13,352,751 119,149.843 1 5. 1 15.405 I 033 1878 139.418,592 26,279,006 165,697,598 17.837,729 1.099 1879 130,308,921 34,046,014 164,354.935 9,967.879 1. 212 1880 124,940,485 34.426,351 159,366,836 7,166,819 1-477 1881 118,905,194 34,396,818 153.302,012 12,699,576 1.696 1882 109,369,014 34.385,349 143.754.363 16,730,267 I 571 Thus to the already excessive inflation of government paper money was further added the increased issue of bank notes. It was, therefore, only natural that an agio sprang up between metallic and paper currency. The preceding tables show the issue amount of government and bank paper money, their amount of circulation, the amount of specie reserve, together with the monthly average price of paper currency against metal (silver). Thus the specie reserve was merely nominal, inasmuch as both government and bank paper money were virtually in- convertible. The amount of paper money went on increasing year after year, until at last its price suffered a great slump, as is shown in the preceding table. The government realized the necessity of readjusting the public loans and paper money as early as 1878, and drew up rough estimates concerning the redemption of public loans and paper money. ^ Based upon A Summary of the Circumstances Attending the Monetary System Reform, iSgj, The amount of circulation is the amount of issue minus the re- deemed sum. The amount of specie is the amount of issue minus the amount melted down and minus the net sum of exportation. EFFECTS ON PUBLIC .FINANCE II3 A program was then established to accomphsh the redemp- tion work in twenty-eight years' time, extending from the fis- cal year 1878 to the fiscal year 1905. Upon this basis the estimated amount of paper money to be withdrawn in the financial year 1878 was raised from 500,000 yen to about 7,160,000 yen. This enormous increase is in part ascribable to the fact that 1,460,000 yen was subtracted from the estimated sum for the redemption of principal and interest of public loans for that fiscal year to be added to the paper money redemption. Furthermore, the surplus result- ing from settlement of annual revenue for the fiscal years 1876 and 1877, amounting to 3,370,000 yen, and the surplus result- ing from the settlement of expenditures with regard to the Satsuma Rebellion, amounting to 440,000 yen, and other dis- bursements out of the reserve fund of the national Treasury, amounting to over 1,380,000 yen, were all appropriated to paper money redemption. In consequence, from 1879 silver coin rose steadily against paper money. Then the government founded in Yokohama the Foreign Silver Exchange and the Yokohama Specie Bank, and charged them with the sale of silver coins. Besides this, the government sold out silver coins from the Treasury to the market through the First and Second National Banks and the Mitsui Bank. The object of these expedients was to put a check on the appreciation of silver coins. Realizing, however, the fruitlessness of petty manipulations, the government at last decided to readjust it through a direct measure. By Notification No. 40 of the Dajokwan, September, 1880, the Sake Manufacture Tax Law was revised, and the increased receipt thus obtained was appropriated to the redemption of paper money. By Notification No. 48 of Dajokwan, Novem- ber, 1880, the rate of the land surtax (one of the items of local taxation) was raised and at the same time added to the items of expenditure from local taxation, thus decreasing the local expenditures to be defrayed out of the national Treasury. The government also instructed the departments to curtail their expenditures and, by the regulation concerning the trans- 114 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS fer of state factories to private undertakings, charged the departments to transfer to private individuals all the govern- ment factories hitherto carried on by the government. -At the same time the loaning business out of the reserve fund of the Treasury was abolished. Thus funds obtained by these curtailments and adjustments were all directejd to the redemp- tion of paper money. In spite of all these government measures the price of paper currency went on decreasing, reaching its extremity in April, 1 88 1, when the ratio between silver and paper currency was one yen to 1.8 15 yen. Moreover, there was an upheaval of prices and an advance of money interest which resulted in the repression of enterprises. A heated public discussion as to its relief was then carried on. The government decided in Octo- ber, 1 88 1, on the adoption of a fundamental policy in connec- tion with the redemption and readjustment of paper money. For this purpose resort was had to about 7,000,000 yen out of the ordinary revenue, and to above 38,438,000 yen out of the reserve fund, representing the balance after deducting various advances, amounting to 19,355,000 yen, out of the reserve fund amounting to 55,793,000 yen. These two funds were at once appropriated to the redemption of paper money on the one hand, and the accumulation of specie on the other, in order that the recovery of the price of paper money and the replen- ishment of specie reserve might be duly accomplished. The establishment of the central bank was also decided upon, with the object of carrying out the exchange of paper money. Thus by Dajokwan Notification No. 32 in June, 1882, the Bank of Japan Regulation was enacted and its business was opened on October 10, 1882. Though the Bank of Japan was expressly authorized by Article 13 of the said regulation to issue the convertible bank notes, the government hesitated to allow the bank immediately to exercise the authority, as there still existed no small agio between silver and paper currency. The above relates to the readjustment of the government paper money. There were also in circulation the bank notes EFFECTS ON PUBLIC FINANCE II5 issued by the national bank on the exchange reserve of govern- ment paper money, which also needed readjustment. According to the National Bank Regulation of 1872 the bank notes were to be converted into metallic currency, but by the amendment of 1876, they were made exchangeable into inconvertible paper money. Their readjustment, therefore, had to be carefully attended to. Consequently, an important amendment was made to the National Bank Regulation by Dajokwan Notification No. 14, May, 1883, the most remark- able feature of which was as follows: Any national bank might continue its business for twenty years after the date on which it received its charter. Even after the expiration of the term it might continue its business as a private bank, but should not retain the privilege of issu- ing paper money (Art. 12). National banks were required to deposit with the Bank of Japan the sum of money correspond- ing to one- fourth of the paper money granted, and the reserve fund out of the half-yearly profits corresponding to 1.25 per cent of the amount of paper granted (Art. 20) . The Bank of Japan should, on request, exchange bank paper money issued by the national banks (Art. 49). All the paper money is- sued by the national banks was to be withdrawn while they existed as the national banks according to such method as the government thought fit. But the procedure of the manage- ment was to be decided by the finance minister, and subse- quently to be attended to by the Bank of Japan (Art. 212). Besides the bank notes redeemed by the Bank of Japan ac- cording to the above method, there were also the national bank notes, amounting to 243,028 yen, which were withdrawn during the period from November, 1881, to the end of 1885, on account of the stopping of business of, or the decreasing of the number of shares of, the national banks. Forged paper money amounting to 19 yen was also withdrawn. In May, 1883, the privileges which had been granted to the Fifteenth National Bank — the privilege of issuing 2,400,000 yen beyond the legal limit — ^was taken away, and the bank was ordered to withdraw 2,400,000 yen. In consequence of the above expe- Il6 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS dient the government and bank paper money were consider- ably withdrawn after 1881, and their circulation witnessed a remarkable decrease. We give below the amount of both sorts of paper money redeemed after 1882. Redemption of Paper Money and Bank Notes' Year Government Paper Money Redeemed Bank Notes Redeemed Total Amount of Redemption 1882 Yen 536,181 7,369,737 4,619,044 5.035.137 20,544,258 11.985,794 9,080,311 5.543,803 7,918,216 5,385,994 7,058,476 4,421,244 3,002,453 2,275,323 1,753.052 1,925,073 2,039,371 5,411.727 Yen 1 1 ,469 109,613 3,259,794 860,553 653,905 897,351 924,477 940,451 928,485 941,212 978,999 1,134,391 974,322 985,010 4,298,897 11,473,160 3,158,166 1,866,563 Yen 547,650 7,479,350 7,878,837 5,895,690 21,198,162 12,883,145 10,004,788 6,484,254 8,846,701 6,327,206 8,037,475 5,555,635 3,976,775 3,260,333 6,051,949 13,398,233 5,197,537 7,278,290 1883. . 1884 188'; 1886 1887 1888 1889 1890 1891 1892 1893 l8q4 1895 1896 1897 1898 1899 Total 105,905,194 34,396.816 140,302,010 Total since 1868 123,335,597 35,001,349 158.336,946 Thus, during the period extending from November, 1881, to March 31, 1890, the withdrawal of both national bank and government paper money amounted to 83,839,700 yen and 3,730,000 yen, respectively. The withdrawal was carried on steadily and there was a simultaneous increase in the specie reserve, and thus the foundation of the convertible note system was laid. A convertible bank note system was established by Dajokwan Notification No. 18, May, 1884. On May 9, 1885, the Bank of Japan issued for the first time convertible bank notes. The following table shows the circulation of, and the ^ Based upon A Summary of the Circumstances Attending the Monetary System Reform and History of Finance in the Meiji Era, vol. XII. The figures below yen have been omitted. The redemption of government paper money was accom- plished in December, 1899, and that of bank notes in November, 1899. EFFECTS ON PUBLIC FINANCE 117 specie reserve for, government and bank paper money, and convertible bank notes: GOVERNME^IT AND Bank Paper Money and Convertible Bank Notes' Calendar Year Amount of Circulation of Government Paper Money Amount of Circulation of National Bank Paper Money Total Specie Reserve in the Treasury Convertible Bank Notes Specie Reserve for Convertible Notes 1882 1883 1884 1885 1886 1887 1888 1889 1890 Yen 109,369,014 97,999,277 93,380,233 88,345,096 67,800,846 55.815,044 46,734,740 40,913,034 34,272,447 Yen 34.385,349 34,275,735 31,015,942 30.155.389 29,501,484 28,604,133 27.679,656 26,739.205 25,810.720 Yen 143.754.363 132,275,012 124,396,175 118.500,485 97,302.330 84,419,178 74,414,397 67,652,240 60.083,167 Yen 16,730,267 25,876,230 33,569,188 42,265,640 25.865,864 19,790,388 8,150,822 10,709,950 25,000,000 Yen 3,956,161 39,025,779 53,235,102 62,995,518 74,297,005 102,931,766 Yen 3,3'ii',46i 23,855,237 31.579.904 45.022,871 57,409,299 44,622,333 The decrease of government and national bank paper money, together with the increase of specie reserve, brought about the rehabilitation of the price of paper money, which was accompanied by the fall of prices and money interest. This was followed by the excess of exportation over importa- tion and resulted in the influx of metallic currency. The following table shows the annual average price of paper money equivalent to one yen gold or silver coin after 1882: Paper Money Equivalents in Gold and Silver Coin^ Year Paper Money Equivalent to One Yen in Gold Coin Paper Money Equivalent to One Yen in Silver Coin 1882 1.690 1-394 1. 198 1. 218 1 .246 I -571 1883 1 .264 1884 1.089 1885 1-055 1886 1. 000 The specie reserve for the government paper money and convertible bank notes steadily rose in amount, exceeding 50,- 000,000 yen after 1887, while on the other hand there was a 1 Based on A Summary of the Circumstances Attending the Monetary System Re- form and The History of Finance in the Meiji Era, vol. XII. 2 Based on A Summary of the Circumstances Attending the Monetary System Reform. After 1886 the price of bank paper money was restored to par, and for this reason we have omitted the figures after that date. Il8 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS decrease of paper money and increase of convertible bank notes. This state of affairs suggested the arrival of a unique opportunity for accomplishing a fundamental reform in the monetary system. By Imperial Ordinance No. 59, July, 1888, therefore, the government revised the Convertible Bank Notes Regulation, by which the Bank of Japan was authorized to issue over and above the specie reserve, convertible notes within the limit of 70,000,000 yen on security reserve. Of the above, some 27,000,000 yen corresponded to the unredeemed national bank paper money outstanding on January i, 1889. The issue of bank notes in the future, therefore, was only allowed in proportion to the degree of the redemption of the bank paper money. Further, the government ordered the Bank of Japan to make a loan to itself within the limits of 22,- 000,000 yen at 2 per cent interest per annum, for the redemp- tion of government paper money, which order the Bank of Japan duly carried out. Although the government paper money had been in circulation at par and very little demand was made for its exchange, it was inconsistent with the spirit of the conversion system that inconvertible government paper money upwards of one yen, amounting to about 32,000,000 yen (at the end of March, 1890), should be left in circulation. The government, therefore, with a view to putting an end to its circulation, created a special account known as the paper money exchange fund, by Law No. 24, 1890, to which were transferred 10,000,000 yen out of the reserve fund and 22,000,- 000 yen out of the aforesaid loan from the Bank of Japan. Thus the exchange of government paper money was honestly pushed forward. By Law No. 6, 1898, the term of its circula- tion was limited to February 31, 1899. In exactly five years, counting from the day on which its circulation was abolished (December 31, 1904), the exchange and withdrawal were brought to a close, and inconvertible paper money completely disappeared from the market. ^ The following table shows paper money, convertible notes and specie reserve, with the object of supplementing the preceding table and also of show- 1 Report concerning the paper money adjustment. EFFECTS ON PUBLIC FINANCE 119 ing the circumstances under which the paper money was readjusted: Paper Money, Bank Notes, Convertible Notes and Specie Reserve 1 Calendar Year 1891. . 1892. . 1893. . 1894- ■ 189s.. 1896. . 1897. . 1898. . 1899. . Amount of Circulation of Government Paper Money Yen 28,737,657 21,409,432 16,407,000 13,404,547 11,129,224 9,376,172 7,451.098 5,411.726 4.125,783 Amount of Circulation of of Bank Notes Yen 24,869.508 23. 890. 509 22.756,119 21,781,797 20,796,786 16,497,889 5,024,729 1,866,563 Amount of Circulation of Convertible Notes Yen 115.734.545 125.843.363 148.663.128 149.813.700 180,336,815 198,313.896 226,229,058 197.399.901 250,562.040 Total Yen 169.341.710 171.143.304 187,826.247 185.000,04s 212,262,825 224,187,957 238.704.885 204.678,190 254.687,823 Amount of Specie Reserve Yen 83.678.333 66.158,265 97.928.516 90,718,291 68,370,797 140,095,192 105,226,473 96,535,239 110,142,169 Readjustment of Conversion FIRST NATIONAL LOAN CONVERSION The first national loan conversion scheme was realized by the issue of the consolidated public loans during the period extending from 1886 to 1897. Except for the fact, however, that this consolidation was favored by the success of paper money readjustment, and that two or three war loans were readjusted by this process, it can not be said that there existed any intimate connection between war loans and the consoli- dated loan. The national loans which had been issued sincethe Restora- tion were floated for a variety of purposes, now to meet the exigencies. of political changes and reforms, now for national defense and increase of armament, now for productive indus- tries, etc. The provisions with regard to these loans were found in various regulations. The rate of interest, terms of redemption and other details of loan were different in the extreme, one from the other. In other words, there was great complexity in the treatment of these public bonds, which 1 Based upon A Summary of the Circumstances Attending the Monetary System Reform and Finance Department Reference Book Concerning Monetary Affairs. The amount of specie reserve is the aggregate sum of the specie reserve for govern- ment and bank paper money, and the specie reserve for convertible bank notes. The amount of specie reserve for bank paper money at the end of 1897 and 1898 is the figure in September, 1898. 120 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS put the Finance Department to great inconvenience. Just then the work which had been commenced in January, 1886, was proving a success in the way of readjusting the paper money; and the conversion system was also initiated. As a result, the value of paper money was restored to par. The money interest was lowered through the gradual development of monetary organs, and interest on deposits fell to between 3 and 4 per cent. Prices of various public bonds bearing more than 6 per cent interest all commanded a premium. Such haying been the case, the time may be said to have arrived for the government to convert the national loans bearing high interest in order to reduce the expenditure of the national Treasury and the burden of the nation on one hand, and in order to consolidate and readjust various public loans on the other. On April i, 1886, the total amount of unredeemed national loans stood at 260,822,609 yen. If we exclude from the above sum 68,097,237 yen at 5 per cent and 17,620,033 yen at above 6 per cent, in which the term of redemption could not be changed, the public debts bearing above 6 per cent interest and amenable to readjustment by conversion were still estimated at 175,203,340 yen. Therefore, the govern- ment, with a view to redeeming these high interest-bearing debts, by the issue of a 5 per cent consolidated public loan totalling 175,000,000 yen in round numbers, promulgated by Imperial Ordinance No. 66, October, 1886, a Consolidated Public Loan Regulation. Details with regard to it were laid down by Financial De- partment Order No. 30 of the same month. Later, provisions with regard to the extraordinary issue were added by Imperial Ordinance No. 46, June, 1888, which was enforced side by side with the provisions concerning the ordinary issue. Ac- cording to the various regulations mentioned above, we note three methods by which high interest-bearing debts were con- verted into consolidated public loans. The first was an ordi- nary subscription, i.e., designed' to raise funds from the public at large and to repay high interest-bearing debts in cash. The second was an extraordinary special issue method, i.e., to EFFECTS ON PUBLIC FINANCE 121 make the Deposit Bureau purchase the consoHdated public loan at the current price and to clear off high interest-bearing public loans with the money thus obtained. The third was the bond exchange method, i.e., to exchange the high interest- bearing public bonds into the consolidated public bonds. The public debts bearing interest upwards of 6 per cent which were redeemed and converted by these devices during the period ex- tending from 1886 to 1893 were hereditary pension bonds, Nakasendo Railway bonds, loans for encouragement of in- dustries and Kinsatsu exchange bonds. As a surplus was secured in excess of the estimated amount, an item in the form of the redemption of the temporary loan for the suppression of rebellion was added from 1895, which also was thus completely repaid in May, 1897. The issue of the consolidated public loan finally totaled 173,- 017,647 yen. Though the consolidated public loan amounted to such a huge sum, the kinds of war. loans which were re- deemed with it were only "Kinsatsu" exchange bonds and tem- porary loans for the suppression of rebellion. SECOND NATIONAL LOAN CONVERSION The second conversion of national loans was the so-called 4 per cent conversion which was carried out on several occasions during 1910 and had a great deal to do with war and armament loans. As a result of the war of 1904 to 1905 the domestic loans increased by over 667,000,000 yen. The nationalization of railways which took place after the war added over 475,000,- 000 yen. Thus, the total amount of domestic loans at the end of December, 1909, reached 1,419,874,689 yen, of which the old public loan, the navy loan, the consolidated loan, the military loan, the railway loan, the public undertakings loan, the Hokkaido railway loan, the Formosan public undertakings loan, totalling 529,854,389 yen, had already become overdue. In view of these circumstances, the government adopted the policy of readjustment, when the great war approached its end, thinking that this was the most important of all the postbellum 122 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS financial policies. To carry on the repayment of loans, and thus keep up the national credit, a sinking fund was created, and by taking advantage of the high credit which the govern- ment thus maintained, it decided to effect the conversion into a lower rate of interest. We shall speak about the creation of the sinking fund later on, and shall treat here only of the con- version to a lower interest rate. The time for conversion, however, had not easily arrived. But with the beginning of 1 910 the balance of trade became favorable, the monetary circulation grew sluggish, rate of interest steadily fell, and the quotations of public debts, which had long been below par, rose, at last commanding a premium. Taking advantage of these favorable circumstances of the money market, the govern- ment decided upon converting the 5 per cent public loan into a 4 per cent loan, and by Financial Department Order No. 5, February 5, 1910, it promulgated a regulation concerning the issue of the first 4 per cent public loan. The most important conditions with regard to its issue were as follows : (i) The total amount of issue shall be 100,000,000 yen. (2) The rate of interest shall be 4 per cent per annum. (3) The principal shall be redeemable within fifty years after the lapse of ten years, during which it is to remain unre- deemed. (4) The minimum issue price shall be 95 yen per value loa yen. (5) The 5 per cent national loan bonds, which have already been issued, can be substituted- for cash in subscribing to the present loan. The representatives of fifteen banks in Tokyo and Osaka were summoned and they were induced to organize an under- writing syndicate to manage the general subscription. An agreement was entered into that in case the amount subscribed fell short of the amount offered the syndicate should take the amount unsubscribed. On the close of subscription the total sum responded to was found to be 180,774,400 yen, of which 120,000,000 yen was subscribed in cash. The first subscription having been crowned with success. EFFECTS ON PUBLIC FINANCE 123 the government decided to prosecute a further conversion. On March 15, 1910, a project for the second conversion was published. The total amount offered was 100,000,000 yen, and the conditions were nearly the same as those of the first conversion, except that much more convenience was offered for the exchange. Besides the body of underwriting banks (which was more in number than on the previous occasion) the brokers of the Tokyo Stock Exchange organized another syndicate for subunderwriting. The total amount of the second flotation figured up to 151,759,900 yen, of which sub- scriptions in cash amounted to only 58,402,350 yen. The final amount of subscription of the two preceding conversions was as follows: Subscription and Issue First Conversion Second Conversion Total Amount subscribed .... In cash Yen 100,000,000 31,316,900 68,683,100 95,008,473 Yen 100,000,000 759,000 99,241,000 95,002,589 Yen 200,000,000 32,075,900 167,924,100 190,011,062 In substitutes Amount issued In this way was cleared off 190,000,000 yen out of 520,000,- 000 yen of 5 per cent public loans that had then become due. Out'of the remainder of 330,000,000 yen, the total of 150,000,- 000 yen had flowed out of the country partly by the endorse- ment of the government and partly by the exportation of individuals. This latter sum could be redeemed through the flotation of a foreign loan in the future, but the remaining 170,000,000 yen in round numbers must be converted accord- ing to the principle adopted by the government, which necessitated the flotation of the third 4 per cent loan. The circumstances of the money market, however, were not favorable to the conversion issue, and the government was obliged to change its policy. Repayment in cash was made the principle, and the delivery of 4 per cent bonds was made only on special application. To obtain the funds for this repayment the flotation of foreign loans was decided upon. 124 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Happily, the credit of our loans in the English and French money markets just then began to increase. In the first place, the government negotiated with French capitalists, and in April, 1910, the subscription of a 4 per cent French loan was concluded, and the issue of the bonds took place on May 16. Its terms were that the rate of interest should be 4. per cent per annum, that its issue price should be 95.5, that the term during which it was to remain unredeemed should be ten years, that the terra of redemption should be fifty years after outstanding for ten years. The amount actually received was 159,347,250 yen, in terms of our cur- rency. In the second place, the government entered into negotiations with English capitalists, and on May 11, i9fO, the third 4 per cent sterling loan amounting to £11,000,000 was concluded, and the issue of the bonds took place on May 27 and on August 17. The most important of the terms were that the rate of interest should be 4 per cent per annum, that the issue price should be 95, that the term during which it was to remain unredeemed should be ten years, that the terms of redemption should be fifty years after outstanding for ten years, and that in case endorsed 5 per cent public bonds were substituted for cash, the charge should be 10 shillings per 1,000 pounds. The final result of the flotation was that the amount of sub- scription substituted in 5 per cent bonds was £4,798,200 and subscription in cash £6,201,800, the total amount thus reach- iiig 97i474>999 >'^^i in terms of our currency. A part of the actual receipts by the sterling and French loans amounting to over 256,800,000 yen was employed for the redemption of the navy, consolidated, war, 5 per cent excheq- uer, and Formosan public undertakings loans, etc. (excepting those which were endorsed), totalling 190,092,000 yen, which had reached the termination of the period for which they were to remain unredeemed. The following provisions were made for those who applied for 4 per cent domestic loan bonds instead of cash: (i) The first 4 per cent domestic bonds should be delivered at 95 per cent. EFFECTS ON PUBLIC FINANCE 125 (2) The national loans which had not yet fallen due were permitted to be converted on request. (3) The interest should be reckoned from the first day of the month in which the application was made. By these stipulations the conversion by the first 4 per cent domestic loan was encouraged. This was practically the third 4 per cent conversion, but in point of form the bond was exactly the same as that of the first 4 per cent domestic loan. With these the 5 per cent domestic loans which had now become redeemable, and passed the term for which they were to remain unredeemed, were all converted into 4 per cent bonds, or else repaid in cash, and thus the 4 per cent conversion program was temporarily completed. The actual receipt of the above domestic and foreign loans subscribed on several occasions, the sum transferred from the general account in 1910 to meet the repayment of the national loans, and the sum carried over from the fiscal year 1909, con- stituting the fund for repaying the 5 . per cent public debts which had fallen due, were respectively as follows; Yen Raised by public loans 5i7i477>538 Transferred from the general account 60,800,000 Carried over from 1909 21,747,395 Total 600,024,933 The amount of the 5 per cent domestic loan repaid by the above funds was as follows : ■ Yen Repaid in cash 249,908,591 Substitute payment and conversion by 4 per cent loans 273,218,075 Total sum of 5 per cent domestic loan redeemed 523,126,666 Again the kinds of the public debts repaid are shown as follows : Yen Navy loan (entire sum) 8,296,700 Consolidated loans (entire sum) 162,552,200 War loan (entire sum) 1 13,398,95° 5% public loan (entire sum then redeemable) 137,502,850 5% " " (Mark ko) , 3,296,600 5% " " (Markotsu) 1,585.900 5% " " (special) 20,474,200 The second exchequer bond (entire sum) 56,359,25° 126 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Yen The third exchequer bond 12,011,625 Tobacco monopoly exchequer bond 7,441,450 The first and the fourth exchequer bond 10,175 Formosan public undertaking loan (entire sum) 92,735 4% loan of second issue 3,250 4% sterling loan of second issue 781 Debentures of "Sobu" railway 100,000 Total 523,126,666 The issue of the 4 per cent public loan against the above, and the amount of 5 per cent public loans redeemed by the actual receipt of the issue, are shown as follows : Yen Amount of issue of 4% domestic and foreign loan: 4% loan of first issue 176,029,350 4% loan of second issue 99,999,500 4% loan (issued in Paris) 175,150,000 4% sterling loan 107,393,000 558,571,850 Amount of 5% loan redeemed by actual receipt 518,413,383 Balance (increased amount of new loans) 40,158,467 The 4 per cent conversion saved the national Treasury the annual interest charge of 3,645,000 yen, though it increased simultaneously the capital amount by 40,158,467 yen. This computation, however, does not reveal the entire truth, be- cause the authority relied upon for this estimate is the Finance Department, which did not take the face value into considera- tion. If computation of the issue and redemption of domestic and foreign loans had been according to their face value, the disadvantage of capital increase would have been so great as to reduce to the minimum the advantage in the way of interest curtailment. Be the matter what it may, there is no doubt that on account of this conversion, war and armament loans such as military loan, navy loan and exchequer bonds were greatly readjusted. Fund for the Readjustment of the National Loans Our country came out of the Russo-Japanese War with an enormously increased national debt. As soon as the war was over, the authorities attached the greatest importance to re- payment and readjustment of all the postbellum finances. A EFFECTS ON PUBLIC FINANCE 127 fund for the readjustment of national loans, therefore, was created, which exists to this day. The creation of a fund aim- ing at the readjustment of national loans, however, was not an innovation of this period. There was a regulation called the "Sinking Fund Regulation," in the beginning of the Res- toration, for meeting excessive national debts and for neutral- izing the disorder of the monetary system. We shall, there- fore, treat of the subject historically. The first fund for the readjustment of national loans origi- nated in the national Treasury reserve fund, established in October, 1869. This reserve fund consisted of the proceeds from the sale of disused articles and miscellaneous receipts other than out of taxes. To this reserve fund were added old clan paper money reserve and various new and old coins extant in the national Treasury. These, put together, were made the reserve fund for the withdrawal of paper money and public loans in June, 1872. Thereafter the amount saved by the cur- tailment of the annual expenses was paid into the fund. Gold and silver bullion, old coins and public bonds were bought, and thus the recoinage and the profit was planned. In July, 1878, the reserve fund for the withdrawal of paper money and the fund for the adjustment of national loans were separated from each other, the former fund being fixed at 10,000,000 yen and the latter at 20,000,000 yen. To the latter fund was annually transferred 20,000,000 yen out of the general annual account that it might be appropriated to the redemption of public bonds every financial year. Its surplus was put aside and the interest accumulated. Since then the repayment of national bonds was steadily carried on by this method, the endeavor being made at the same time to increase the fund. After 1 882, however, the system of conversion was established, and stocks recovered their credit, thus minimizing the necessity of the accumulation of the fund. In February of 1886, it was pro- vided that the fund for the readjustment of national bonds should be abandoned after the financial year 1885. The money extant at the time of the abolition amounted to 26,922,- 265 yen, of which 11,477,378 yen was transferred to the gen- eral annual account to take care of expenditures for the 128 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS redemption of national loans. The remaining 15,444,886 yen was returned to the reserve fund for paper money con- version. The second fund for the readjustment of national loans was, as above, created upon the termination of the Russo-Japanese War. The amount of war loans, inclusive both of domestic and foreign loans which had been raised during the Russo- Japanese War, amounted to the huge sum of over 1,300,000,- 000 yen. After the conclusion of the war, i.e., in the financial year 1906, the public loan amounting to 463,000,000 yen was planned to be raised for the replenishment of the extraordinary affairs and extraordinary military expenditures. In short, the total amount of the public debts on account of this war reached more than 1,763,000,000 yen. If we add to this sum unredeemed public debts outstanding before the outbreak of the war, which camp to over 535,000,000 yen, the entire sum reached approximately 2,300,000,000 yen. There had been created in the ordinary annual account an item called national loans expenditure for the redemption of old loans. For the new loans, however, amounting to 1,763,000,000 yen, anew program for adjustment was yet to be made. By Imperial Ordinance No. 236, November, 1905, the government pro- mulgated, a regulation with regard to the organization of a bureau for the readjustment of extraordinary national loans. During the twenty-third session of the Diet it introduced a special financial bill relating to the fund for the readjustment of nktional loans, which was duly approved by the Diet and was promulgated in the redemption and readjustment of war loans; but it had also as an auxiliary object to readjust the old and other new loans. Therefore, it was provided that a sum not less than 1 10,000,000 yen must be annually received from the general account for the disbursement of war loans. The fund for the disbursement of other national loans was to- be provided out of the national loans expenditure of the gen- eral account, and out of the similar item in the special account in accordance with the annual budget estimates. EFFECTS ON PUBLIC FINANCE 129 A program had already been established to appropriate an annual amount of about 40,000,000 yen for the cancellation of old loans. The amount transferred from the general account to the fund for the readjustment of national loans was about 150,000,000 yen in all. Of this about 120,000,000 yen being required for the interest charge, only about 30,000,000 yen was to be appropriated to the discharge of the principal. After the financial year 1909 the government strenuously endeavored to redeem the national loans. The annual amount to be appropriated for the repayment of principal was brought up to not less than 50,000,000 yen. From the following fiscal year onward, the surplus amount of interest accumulated by the redemption of each preceding financial year was appropriated to the redemption of prijicipal. It was not long, however, before this program ended in fail- ure, on account of the armament expansion. Moreover, the annual amount appropriated to the redemption of principal was reduced to not less than 30,000,000 yen, by the revised law of 1915. Expenditures for the National Loans The expenditure for the national loans is a special name given to the division of our budget which included not only the redemption and payment of the principal and interest of the domestic and foreign loans, but also the payment of the expenses for the issue of the bonds, the fees for the manage- ment and other miscellaneous expenses. But the redemption of the principal and the payment of interest of the national loans undoubtedly formed the two most important items. Inasmuch as the nature of this expenditure was as above mentioned, it was quite natural that its amount should in- crease with the increase of the national loans. The increase of war loans, especially, had remarkable effects upon this expenditure. The table on the next page substantiates the above statement. How the national loans expenditures increased year by year can be best shown by comparing the rate of increase of this 10 130 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS National Loans Expenditure and Its Proportion to the Total Expenditure ' Fiscal National Loans Expenditure Percentage to Total Expenditure Amount Amount of Total Amount Year Redeemed Interest Principal and Interest Yen Yen Yen Yen Fourth 439,337 2.30 437,151 437,151 Fifth.. 439,340 0.70 219,454 437,151 656,605 Sixth.. 2,996,039 4.60 707,454 2,103,338 2,810,792 Seventh 3,254,140 4.00 707,454 2,464,440 3,171,894 Eighth . 1,593,083 2.40 866,830 866,830 1875- ■ 4,645,302 6.70 1,339,995 3,239,022 4,579,017 1876. . 4,950,797 8.30 1,890,249 2,999,217 4,889,466 1877.. • 16,774,928 36.90 975,855 14,479,126 15,454,981 1878. . 26,640,136 47-50 3,475,274 15,111,498 18,586,772 1879.. . 21,749,652 39 40 3,575,757 15,146,526 18,722,283 1880. . ■ 22,420,573 37.10 3,796,854 15,417,032 19,213,886 1881. . ■ 27,747,123 45 90 3,949,289 14,797,242 18,746,531 1882.. ■ 23,414,961 39.10 7,864,207 14,330,534 22,194,741 1883.. . 28,658,303 42.20 5,425,294 14,058,879 19,484,173 1884. . . 19,819,615 32.60 4,290,101 14,283,624 18,573,725 1885, . 14,101,377 29.60 5,089,752 8,016,848 13,106,600 1886.. 24,090,611 29.20 21,022,267 15,118,718 36,140,985 1887. . 21,415,690 27.40 26,457,542 15,179,127 41 ,636,669 1888. . ■ 20,717,784 26.30 31,198,368 14,705,563 45,903,931 1889. . 18,362,110 23.00 15,885,758 14,371,207 ■ 30,256,965 1890. . • 20,317,932 25.00 5,361,401 13,649,110 19,010,511 1891. . ■ 18,515,799 21.60 24,157,111 13,548,902 37,706,013 1892. . . 18,517,168 23.00 49,596,238 13,204,565 62,800,803 1893.. 19,455,918 23.10 13,318,870 11,817,932 25,136,802 1894.. . 19,721,143 25.20 4,108,798 11,572,029 15,680,827- 1895- ■ 24,190,858 28.70 4,990,059 14,431,091 19,421,150 1896. . • 30,504,172 18.00 8,120,310 16,847,503 24,967,813 1897- ■ ■ 27,300,959 12.20 7,288,107 18,006,785 25,294,892 1898. . . 27,284,287 12.40 8,215,555 19,485,675 27,701,230. 1899. . . 32,885,787 12.90 1,644,874 20,953,413 32,598,287 1900. . ■ 34,501,485 11.80 9,775,705 22,935,791 32,711,496 1901 . . . 35,777,814 13-40 10,240,705 23,286,450 33,527,155 1902 . . • 75,319,554 26.00 13,795,880 24,376,847 38,172,727 1903.. ■ 35,895,399 14.38 3,218,290 25,890,462 29,108,752 1904. . . 44,193,194 15-96 219,455 32,011,720 32,231,175 1905. . . 124,398,585 29-58 40,472,173 86,345,748 126,817,921 1906. . . 156,415,134 33-70 176,932,122 101,786,341 278,718,463 1907.. . 176,504,590 29-30 247,296,460 116,341,318 363,637,778 1908. . . 178,942,644 28.12 97,297,030 105,473,318 202,770,348 1909. . . 155,281,255 29.14 130,134,009 116,456,018 246,590,027 1910. . . 171,461,147 33-54 453,779,773 121,983,960 ■ 575-763,733 1911. . . 147,222,558 25.16 102,231,843 117,962,842 220,194,685 1912. . . 142,323,811 24-39. 60,835,228 114,876,828 175,712,056 1913- • • 142,949,794 24.38 57,047,796 112,803,688 169,851,484 ' Based upon Financial History of the Meiji Era (with regard to the figures prior to twenty-fifth fiscal year) and upon National Loans Statistics (with regard to later figures). National loan expenditure with respect to funded and floating loans, and the principal redemption and interest payment of ordinary loans only were taken into account. Though the principal redemption refers only to ordinary EFFECTS ON PUBLIC FINANCE 131 item with the total amount of outlays of every financial year. And the considerable increase of the amount of the principal redemption and interest discharge, which forms the most important items of the expenditures, may easily be realized. The table on this page distinguishes between domestic and Redemption and Interest Payment of Domestic and Foreign Loans ' Payment of Payment of Fiscal Redemption Redemption Interests on Interests on Year of Domestic of Foreign Total Foreign Total Loans Loans Loans Loans Yen Yen Yen Yen Yen Yen Fourth 437,151 437,151 Fifth 219,454 219,454 437,151 437.151 Sixth 219,454 488,000 707.454 850,171 1,253,167 2.103,33s Seventh. . . 219,454 488,000 707.454 1,254,989 1.209,452 2,464,441 Eighth. . . . 109,101 757.729 866,830 187s 617,755 722,240 I.339.9BS 2,113,018 1,126,004 3.239,022 1876 1,151,905 738,344 1,890,249 1,925,481 1,073,736 2,999,217 J877 219,455 756,400 975,855 13,424,223 1,054,903 14,479,126 1878 2,700,330 774.944 3,475.274 14,040,838 1,070,660 15,111,498 1879 2,780,80s 794.952 3.575,757 14,108,329 1,038,197 15.146,526 1880 2,980,430 816,426 3,796,856 14,231,523 1,185,509 IS.417,032 1881 2,109,929 839,360 2,949.289 7,864,207 14,006,457 790,786 14,797,243 1882 6,999,959 864,248 13,606,700 723,834 14,330,534 1883 5,022,694 402,600 5,425,294 13.362,998 695,881 14,058.879 1884 3,859,685 430,416 4,290,101 13,954.685 328,938 14,283,624 -L88S 4,629,080 460,672 5,089,752 7,335.689 681,159 8,016,848 18B6 20,528,899 493.368 21,022,267 14.444.495 674.223 15,118,718 1887 25.930,014 527.528 26,457,542 14.509.776 669,351 15,179.127 1B88 30,634,240 564,128 31,198,368 14,075,712 629,851 14.705. 563 1889 15,281,614 604,144 15.885,758 13,803,476 567,731 14,371,207 1890 4,715.289 646,112 5,361,401 13,169,476 479.634 13.649,110 T891 23.465,61s 691,496 24,157.111 13,105,014 443.888 13.548,902 1892 48,856,430 739,80s 49,596,238 12,784,488 420,077 13.204,565 1893 12,527,334 791.536 13,318,870 11,443,102 374.830 11,817,932 1894 3,261,630 847,168 4,108,798 11,223,882 348.147 11,572,029 T89S 4.083,355 906,704 4.990,059 14,208,917 222,175 14.431.092 1896 7.150.654 969,656 8,120,310 16,753.812 93,690 16,847,503 1:897 7.054.35s 233.752 7,288,107 17,990,054 16,731 18,006,785 1898 8,215,555 8,215,555 19,485,675 19,485,675 1899 11,644,874 11,644,874 19.003,234 1.950.179 20,953.413 T900 9,775.705 9.775.705 19.030,57s 3.905.21s 22,935.791 10,240,705 10,240,70s 19,381,210 3.90s. 239 23,286,450 1902 13,795.880 13,795,880 20,479,779 3,897.067 24,376,847 1903 3,218,290 3,216,290 21,987,234 3,903,228 25,890,462 219,455 219,455 25,179.778 6,831,942 32,011,720 1905 40,472,173 40,472,173 45,009,157 41,336,591 86,345,748 1906 176,916,501 15,621 176,932,122 50,314.125 51,472,216 101,786,341 T907 32,525,105 214,771.35s 247,296,460 54,360,206 61,981,31s 116,341,521 97,297,030 97,297,030 53,671,651 51,801,66.8 105.473.319 1909 130,108,23s 25,774 130,134.009 64,697,410 51,758,608 116,456,018 1910 453,777,040 2,733 4S3. 779.773 63,240,519 58,743,440 121,983,960 1911 92,465,330 9,766,513 102,231,843 55,329,452 62,633.390 1912 51,068,930 9,766,298 60,835.228 52,564,464 62,312,364 114,876,828 ^913 42,401,737 14,646,059 57,047.796 51,162.767 61,640,921 112,803,688 loans, it includes no small amount of conversion loans, which accounts for the fact that the aggregate amount of principal redemption and interest payment exceeds national loans expenditures. The total amount of principal and interest is the aggregate sum of the amount redeemed, plus the amount of interest. 1 Based upon Finance Department Investigation of National Debts. This table does not include temporary loans, exchequer bonds, and railway bonds. The figures in the eighth period could not be ascertained on account of imperfect materials, and they have been added either to the figures of the seventh period or the eighth fiscal -year. The figures of interest payment for the second fiscal year of Taisho are based ■upon rough estimates. 132 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS foreign loans, with regard to principal redemption and inter- est payment. This table shows that the amount of principal redemption witnessed a noticeable increase in the financial years 1878, 1894 3.nd 1904 — the dates of the Satsuma Rebellion, the Sino- Japanese War and the Russo-Japanese War, respectively. After the financial year 1904, especially, the nominal amount of redemption figured up to a huge sum, because after that date the method of repayment by conversion was resorted to. But as the domestic loans were mostly converted into foreign loans, there was but slight repayment of foreign loans, except in the financial year 1907. It may be said, therefore, that this table shows in an indirect way that there was a steady increase of foreign loans. The amount of interest charge is in ratio to the unredeemed amount of national loans for each fiscal year. Especially was this true after the fiscal year 1906 as the domestic loans were gradually converted into foreign loans and the amount of interest for foreign loans far surpassed that of domestic loans, while the amount of prin- cipal redemption of foreign loans was very small. Relation between National Loans Expenditures and Taxes The expenditure for the redemption of the principal and payment of interest of our national loans was disbursed out of the ordinary resources, which in our financial system consisted chiefly of taxes. It was, therefore, quite natural that the increase of the national loan expenditure should bring increase of taxes in its train. A statistical proof of the relation between the taxes and the expenditure for the war and armament loans is no easy task, because the expenditure for the redemption and interest of public loans, with regard to the war of the Restoration arid the Satsuma Rebellion, were later mingled with the expenditure for those of the con- solidated loans which unified and readjusted various other public debts. The redemption and interest charge for the consolidated public loan, the navy loan, the war loan in con nection with the Sino-Japanese War, the exchequer bonds,, and extraordinary military expenditures loans were all EFFECTS ON PUBLIC FINANCE 1 33 blended into the redemption and interest expenditure of the Imperial Government 4 per cent loan, or that of foreign loans. Thus the distinction between various loans expenditures became very obscure. The single exception was the repay- ment and interest expenditure in connection with the Russo- Japanese War loan, where it was made distinguishable by legislation, and thus the kind of increased taxes for that particular purpose was very clear. Therefore, with regard to this loan the connection between the redemption and interest expenditure and taxes can be shown fairly well. At the outbreak of the Russo-Japanese War, the govern- ment, with the object of meeting the immense war expenses, twice increased or created extraordinary special taxes. The first consisted of the Extraordinary Special Tax Law in 1904 and the Supplementary Budget No. i for the financial year 1904, which were approved by the twentieth session of the Diet, March, 1904. By this measure the extraordinary increase of the land tax, income tax, business tax, sake tax, soy tax, sugar consumption tax, mining tax, bourse tax, registration tax, Okinawa prefecture spirituous liquors export duties, miscellaneous import duties (customs duties), the introduction of the tobacco manufacture monopoly and the creation of the woolen textiles tax and kerosene consumption tax were carried out to provide a part of the fund for the extraordinary affairs outlay connected with the war. The estimated annual amounts of increased revenue by this first measure was, in round numbers, 62,000,000 yen. The second measure consisted of the revised Extraordinary Special Tax Law in 1905 and the supplementary budgets for the financial year of 1905, which were approved by the twenty- first session of the Imperial Diet in November, 1904. By this measure second increases of the land tax, income tax, business tax, sake tax, sugar consumption tax, mining tax, bourse tax, registration tax, Okinawa prefecture spirituous liquors export duties and customs duties, were carried out; together with initial increases of stamp duty and patent medicine tax; and the fresh creation of a traveling tax, and succession tax, and. salt monopoly. These were introduced to provide a part of 134 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS the resources for the Immense sum required by the extraordi- nary military expenditures additional estimate, and by the extraordinary reserve fund estimates for the fiscal year 1905. The estimated amount thus obtained was 74,120,000,000 yen. Increase in Tax and Monopoly Receipts Authorized by Law, 1904 and 1905 Kind First Increase Second Increase Total Yen Yen Yen 23,936,213 18,640,678 42,576,891 5,287,315 5,286,462 10,673,777 5,036,199 5,809,007 10,845,206 178.484 2,566,083 2,744,567 1,138,952 1,138,952 8,212,382 2,400,104 10,612,486 79,115 1,389,586 1,468,701 532,846 432,566 965,412 5,398 66,577 71,975 2,330,633 2,687,626 5,018,259 89,279 89,279 2,138,661 8,468,085 10,606,776 1,238,599 1,238,599 3,188,180 3,188,180 4,309,596 4,309,596 3,620,797 2,555,303 6,176,100 8,466,285 8,466,285 16,239,667 16,239,667 62,201,879 74,128,799 136,330,678 Land tax Income tax Business tax Sake tax Soy tax Sugar consumption tax Mining tax Tax on bourse Okinawa spirituous liquors ex- porting Customs duty Patent medicine tax Woolen textiles tax Kerosene tax Traveling tax Succession tax Stamp receipt (registration tax stamp duty and fees) .... Monopoly receipt Salt monopoly receipt Total By these extraordinary special taxes an increase of taxation amounting to 136,330,000 yen in round numbers was effected, and probably the amount actually received exceeded the estimated sum. In spite of the express provision of the law that this increased taxation should be abolished with the termination of the war, it came to assume a permanent nature with the establishment of the national loans readjustment fund in the fiscal year 1906. A reflection upon the financial program of the time will clarify the circumstances just men- tioned. The receipts of the aforesaid extraordinary special taxes were the sums estimated in the program. Most of the sub- EFFECTS ON PUBLIC FINANCE 135 sequent actual receipts, however, were mixed with the taxes, rendering the distinction very obscure. Later in the fiscal ■year 1908, the increased taxation of the annual amount of about $25,000,000 yen was added to by the increase of the sake tax, the sugar consumption tax and tobacco monopoly charges and the re-creation of a kerosene consumption tax. On the other hand, in the fiscal year 19 10, a decrease of taxa- tion amounting to 14,419,803 yen was carried out with respect to the land tax, business tax, succession tax, sake tax, sugar consumption tax, shooting license fee and fees of administra- tive suits; and in the fiscal year 191 3 a reduction of 7,617,600 yen in the income tax was carried out. Thus, owing to the several changes which occurred after the Russo-Japanese War, the exact figures can not be known, but the receipts accruing from the increase of these taxes and monopolies are roughly estimated at between 138,000,000 yen and 150,000,000 yen. This was nearly the same with the amount which was annually transferred from the general account to the national loans readjustment fund. The figures are shown in the fol- lowing table: Annual Increase and Transfer of Tax and Monopoly Receipts, 1906-1913 Fiscal Year Increase Over 1903 Amount Transferred from General Account to National Loans Readjustment Fund TQ06 Yen 150,670,000 150,670,000 161,000,000 161,000,000 146,581,195 146,580,195 146,580,195 138,862,595 Yen 151,183,514 174,390,457 176,839,532 I'i'?.I70.7Q2 TQ07 TQ08 IQOQ TQIO I'i4.,270.0I2 IQII 147,212,558 142,323,811 iqi2 I9I3 142,919,794 According . to this table the receipts from the increased taxation are apparently less than the amount transferred to the national loans readjustment fund, giving the appearance that the national debts were redeemed in greater amount than the increase of taxes. In point of fact, however, it was not 136 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS what it appeared to be, because in the amount transferred from the general acount to the national loans readjustment fund was included the national loans expenditure, amounting" to from 30,000,000 yen to 40,000,000 yen, to meet the public loans outside of the war loan, especially the old loans. If we deduct from this transferred amount the redemption expendi- ture for the principal and interest of the old loans, we know that all the remaining public loans expenditures with regard to the Russo-Japanese War must have been defrayed out of this increased taxation. This was indeed a permanent inherit- ance of the war of 1904 to 1905 in the form of an unproduc- tive burden imposed upon the shoulders of our people over and above that of the ordinary armament outlays. Effects upon Local Finance During the period extending from the Restoration to the Satsuma Rebellion our local finance was almost neglected on account of the constant straits in which our national finance was placed. In 1875 a distinction was made between na- tional and local taxes, and in 1878 a local tax regulation was enacted. The form of government then was characterized by a remarkable centralization of power, and local public works were carried on only to a small extent. Local finance, therefore, was not worthy of any serious attention. By Law No. I, 1888, the Regulations for Cities ("shi"), Towns and Villages ("cho" and "son"), respectively, were promulgated. By Law No. 35, 1890, and by Law No. 36, 1890, the Regula- tions for Prefectures (both "fu" and "ken") and the Regu- lation for the District ("gun") were promulgated. By these laws the system of local autonomy was for the first time placed on a firm basis. Local competence with regard to taxes and loans was recognized, and thus local public undertakings and local finances came gradually to be developed. The central power, however, remained as strong as ever, and local taxes and loans were subject to considerable restrictions on account of the demands of the central finance. At the out- break of the Sino-Japanese War the annual account of the EFFECTS ON PUBLIC FINANCE 1 37 central government witnessed a sudden inflation, and the need of new resources was keenly felt. In consequence, local revenue was deprived of the business tax, which was made a national tax in 1896. During the continuance and after the termination of the war the local finance incurred a great amount of expenses for schools, roads, etc. In view of these expenses the restrictions hitherto imposed by the central government upon the local taxation were on several occasions greatly mitigated. But the last restriction on local taxation was imposed by Law No. 27, 1910,1 which provided that the land surtax should not exceed 53 per cent of the principal tax, the business surtax should not exceed 26 per cent of the prin- cipal tax, the income surtax should not exceed 19 per cent of the principal tax, and that the taxation beyond this legal limit, and other special local taxes should be levied only with the sanction of the home and finance ministers. As for the local loans, there were no such minute restrictions. But with regard to the aims and methods of flotation, interest and the method of redemption, the sanction of home and finance ministers was required. The only exceptions were the so- called "Free Loans," in which the sanction of the ministers was not needed. Free loans included the following: (i) City, town and village loans which were to remain unredeemed for three years and then to be redeemed within thirty years, (2) All the local loans which were to be redeemed within three years, (3) Prefectural (both "fu" and "ken") loans not exceed- ing fifty thousand yen and district loans less than one thousand yen. In short the flotation of any local loans, excepting those for a short time or for a small amount, required the sanction of the central government. Moreover, the objects of the flota- tion of local loans were restricted to the redemption of old loans, to the redress of disasters and calamities, or to public works of a permanent nature. Moreover, a very strict con- * Relating to the restoration of local taxation. 138 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS struction was placed upon these provisions, with the object of restricting the right of local flotation. Upon the outbreak of the Russo-Japanese War in 1904 to 1905, the war expenditures were met by an extraordinary special tax of a huge amount and by the domestic subscription of the exchequer bonds. Local taxes and loans, therefore, were restricted as before. Causes arose, however, after the war which necessitated the increase of local loans. (i) One of the causes was the exhaustion of resources for the local taxes, due to the continuation of the extraordinary special tax for the readjustment of national debts. When the extraordinary special tax was at first imposed, any further imposition of local surtaxes upon them was prohibited, in order to prevent the increase of local taxation. The national enthusiasm and prestige after the war were accompanied by the growth of local public undertakings which demanded a relaxation of the restrictions imposed upon local taxation. In 1 910 the imposition of local surtaxes upon the extraordi- nary local taxes was at length authorized. As a result of this measure the local taxes rose to the same amount as the na- tional taxes, so far as the direct taxes were concerned. There- after the public undertakings expenditure which had hitherto depended upon taxation could hardly be raised unless by resort to the flotation of local loans. (2) The second cause was the expansion of public under- takings in cities, which attended the rise of cities after the war. These public works included water works, gas and electric enterprises, the construction of roads, markets and schools, all of which had to rely upon public loans for their resources. We may also add to this list the increase of school buildings on account of compulsory education, and repairing expenses due to damages by flood. (3) The third cause was the introduction of a tremendous sum of foreign capital which attended the flotation of foreign loans. At first a greater part of war expenditures was de- frayed from domestic loans, such as exchequer bonds and EFFECTS ON PUBLIC FINANCE 1 39 extraordinary military expenditures loans. As most of these loans were converted with proceeds of foreign loans during the continuance and after the termination of the hostilities, a great inflow of foreign capital ensued. Money circulation in the home market became slack, and temporarily brought down the rate of interest. This naturally paved the way for the flotation or conversion of local loans. Moreover, local loans hitherto bore a high rate of interest, and the supervising central government encouraged their conversion into loans of lower interest. Following the example set by the national loans, many provinces negotiated directly with foreign cap- italists, and converted their loans through the importation of foreign capital. This is the reason for the flotation and con- stant increase of local foreign loans after the Russo-Japanese War. There is no doubt that the causes of the increase of the local loans were by no means limited to the above three, but it is equally true that these three were the most important ones. It was due to these circumstances that postbellum local finances showed much more remarkable increase in local loans than in local taxes. Inasmuch as the continuance of extraordinary taxes for the readjustment of national loans and the flotation of the large sum of the foreign loans had a great deal to do with war and armament, it is quite proper to enumerate the increase of local loans as one of the influences which the flotation and redemption of war and armament loans had upon local finances. And as it is equally natural that increase of local loans should be attended by increase of local loans expenditure for the redemption and payment of their principal and interest, we may say with propriety that the most important influences which national war and arma- ment loans had upon local finances lay in the increase of local loans and the local loans expenditures. The following table is intended to prove the above statement: 140 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS (i) Local Loans, Classified as to Amounts Floated. Redeemed and Outstanding ^ Calendar Amount Existing at Amount Amount Amount Existing at Amount of Loans per Capita Year Beginning of Year Floated Redeemed End of Year Yen Yen Yen Yen Yen 1890 720,301 0.018 1891 2,128,245 0.052 1892 4,279,692 0.104 1893 9,093,801 0.219 1894 10,061,253 0.240 1895 10,299.934 0.243 1896 10,518,414 . 246 1897 16,352,814 0.378 1898 13,738,161 8,229,044 1,702,725 20,264,480 0.437 1899 20,264,480 10,054,772 2,090,953 28,228,299 0.602 1900 28,228,299 10,084,018 582,844 37,729,473 0.793 1901 37,729,472 8,046,336 2,055,003 43,720,806 1.290 1902 51,240,972 23,057,661 13,118,278 61,110,255 1-346 1903 61,140,201 17,928,320 11,956,774 67,111,747 1.390 1904 65,690,172 7,846,440 8,544,104 64,992,508 1-346 1905 65,128,306 5,462,035 8,021,159 62,569,182 1.293 1906 62,470,955 21,843,407 6,729,002 77,585.360 1.606 1907 77,585,359 25.574.153 3.893.397 89,266,115 1.848 1908 89,266,115 19.641.779 9,084,270 99,823,624 2.067 1909 99,506,044 94,078,567 30,650,878 162,933.733 2.459 1910 163,539-902 12,689,017 7.766,719 168,462,200 2.616 191 1 ..... 175,945,362 1,493,676 2,026,824 175,412,215 2.532 I9I2». . . . 183,375,245 130,344,077 17,817,472 295,901,850 5-568 1913°- • ■ • 296,252,694 23,726,627 13,750,700 306,228,628 5-656 ' Fiscal year. The above table shows the remarkable increase of local loans after the Russo-Japanese War, especially at the time of national loans readjustment. Table 2 is intended to show what kind of loans were most abundantly bsued. This table shows that municipal loans witnessed an enor- mous increase after the Sino-Japanese War, and more es- pecially after the Russo-Japanese War. Table 3 is intended to show what undertakings have brought about' this increase, and whether domestic or foreign loans were resorted to for their resources. Table 3 shows that the greatest cause of increase of local loans in recent times was the encouragement of industries. Next comes the civil engineering works after the Sino-Jap- ' Based upon Reference Book Concerning Monetary Affairs. The disagreement ■of the amounts existing at the beginning and at the end of each year is due to the fact that there was some later revision of figures in the so-called "Free Loans." EFFECTS ON PUBLIC FINANCE 141 Q < w O H O a Pi .0 o o < Q m < U Cfi < O u o M lOWM cO'T|--^^l^-^i-( c^» lOt^CO dO-^^OOO^ ® ^S^° lOcOM 1-1 OnO M t^iO-^OcX3vO N <» lOO lOW CO N \£) 00 01 ^00 a^M c^ascot^u:)lH cdmvo\o moo i3 § 9,^ ^ S:? t <^°o ^" ^°o" cf^ d" d i-T N c^ lovo" ro CO oT hT tC !^ ^ ^ tr 2^^ <^ ^ "^09 10 CO ^ w H 0\y3 00 MD C4 COVO O lO )^ 1^ (H N q_ o_ N 10 CO -^00^ ^ ^^ "-^ "^^ c^ 10 "2 ^-°°- ^ "^ ^ ^ W -^O^O \D cOHrprMMtCTfcTt^C^cf oT 00 iO\0 H M l-H hH M M CO -^ lOVO vO vD vo t^OO ON'O \0 ON "-1 HH 1-4 M CO W t^rht^VD OSVO On woo t^OO O On OMO "«j S ^ 10 ON-^i-i Tj--^^ W co^w coot VO M § . . ; *. *. *. ; '•f c^c^O ^f lOw o"oo cooo"\o" w -^f m C: wMoiMoiMvooot-ii-it^ t>*\o vo t^ *^ vo 0) "C 10 t-* ir3\D CO OvOO vo 00 lO vO Ot 01 COCOiOt^O O t^iOiOiOO Ht ONOO vo t-1 M HH tH . 00000000 OvOvOlOO »0-«d-COO i^f-1 01 lOOl lOCOW ON O t-iOoOOOoooO O -si-t^i-i 0»O OliOrO'^coON'-' m cs e m • ■ u^ -^ -^ n lo -^vo CO COVO ONOO coiOcoOOO Wi-i rOi-< "Kumi (Unio Loan § ! ; \d rovo 00 ■'^ t^oo ■^ \n tZco\d tC cfl t-Too^vrToo'" co t^ c> O: . . -^oicooi-^-^oi ONOO lo M r^ M CO onvo i-* t-i\o ^ t^ M M HH o» -^ !>. "-^^^ o^ iovq_oo_^ o; M^ q^ o w oi o; M M oT cT oT of oT CO -^ -^ -tF lo »o Town and Village Loans oionOoiooiOio Onvo rhONOl l/^T^hr^lOIN M On« lO •JOO cot^-^r^oioo '^ONiO'^iot^iooNON'-< 1-1 01 01 O O O on OsvO COOO 00 lO-^Tt-O woo cOco t^vO O O O t^ 01 -^ i-i ^00 -^wvo cow O lOcOTt-ON - m , . . ■ O lO 01 -^ t^vO VD CO lO O ON CO M t^ CO On COVO 00 s s 1? ; ; 1 ;cooivo"iHiooiioo^g^orFcr;i-ii-ii-iO»oo^cfN k^ . . . . 01 -^VO CO CO O ONiO I-I I-I 00 00 t^ O vo lO HH i-i CO lOOO 00 00 00 00 lO •«*- lO CO I-I ? s 9j M M 1-1 I-I 01 - C 1-1 M -ih tN. I-I lO -^00 W O^ CO -^ -^ I^VO lOvD Tj- 1^ M O CO UO d oi OOO too I-I TfiOrfO COOO VOVO OniOcoO O C0i0c0'<^0 (X. 9 CO -Tl- 1-1 lO lO OnOO i-i 01 vo onvo 00 -^VO VDOO i-i -^-^t^ONW -J 8 cTcOlOONi-i On-'^O lOcf<>(> cf vo 00 CO C^OO M T^ 01 01 M "» t^vO ONOIOO O O Oooi^wt^Mt-s.i-(0000 O COVO lOvO 01 (U >iiOWWiO0101W lOOO vo r>- CO r^ o co -^oo vo OO m oo -^ co IH i-i i-i 01 W W -^r^OO OvOO 01 i-iOO Ot -::hlOlO'^t->. QM MWWMl-IMl-ll-IMMCOCO 13 1 CD U Own cO'<:h»OvO t^OO On O M N cO -^ lOvO t^OO On O i-i N OnOnOnOnOnO\OvOnOn,OvOOOOOOOOOOi-iihi-i OOOOOOQOOOOOOOOOOOCO ONONONONONOvONOvONONONOvON 'n S T3 X! J3 3 P. ^ «« s ? S ^1 (U' ;? E o nl ja 8* f§ p a- !S B s o t; a 'fe'i^ ^ j3 4J c >. OJS T3T3 OJ J3 m m Xi 3 P. 142 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS o & » H o en !a < o J ^; o P4 o Q oinioio»oio»o^tC«cf\ *; lOiOfOfOco ceo \0 C» \0 VO C\^ ' « cs 00 CO r>. t^ M cctJ-'^i-i o a^rocMors-oo n o iO'-i uOVD W r^t^I^r^iOcOOl O 0^vO 10 O CO »*< O^O N."^*^W^N'^ '^^CX)^ 00 *^ f^ ^; "^ CT; "^"^"^ ^ On 0~ O*" 0~ CO ©"oo r^ co'o' «" o~oo 10 i>i tC lood" c^ c^ M w 1-1 i-H 01 W CO'^IOVO'O 10 10\0 t^OO OMH w -t-i cO'^'^M O 0^ cO^O li^r^oo « O »0 ^ -^00 O co O lOcOi-i^OOO CM^O lO-^OOO^O M M C0\0 »0 W 00 r^ On ^ >-i ^ CS '^■OO cOf^"2*-^ fOi-<'Or^CT;00vq^ S CO m" ^COaS •i&OQ oi O O" i-T cT cfi iO\D CO CO <> hToo" K^ 0^\D ON w lO'O W « 01 iH M Os\0 00 \0 N CO i-( O (N " O O w lot^M N '^^'^^'^crjioio N,oq^ ^ ^ cr; n d\ o o o CO cToo" t^co'-TiC-^c^'rCaNOvcrfO i6\o" 1-1 H-i w M 01 W CO -^^ 'O "O VO t-*00 0\^ 00 ON O M l-H 01 CO O O ON-^-^t^w 01 io\D NO r>. o 00 CO Onoo 01 -"d-oo « -^lOcOcOOl lOON -^00 VONO ONW o r^cooi omo \0 O int^^ ONOO 00_ O^ O; O;00_ ^'^ON'^t^cocOiOO^^ R hT 1000 rC On 0~ O"o0~ »0 O CO 01 hT i-i cO COVO oi" 00" CO K?" W 10 ■.l-^VO O « 01 01 b<.CO«NO t^ ■^■^■^'^■cOO\0 ■<^Tf'«d-N hH ON . ioio»oo o ^ONt^cocot^'^^ow^to r^QO »ooo ' ioioiOiO»0 0"uSl:^ cTnO^ I^ M t^vO^oo" pf cT O" ^ t^ t^ (^ r^oo i>.oo t^o •-• w N lO'^in^j-'^o o» 1-1 01 ■^ 10 r^. IN.CO 00 On 10 Tt- I-I O VO 00000000 -^ COOO lovo CO r>.oo co»o>o r>- O O O O ■^WOO -^ ■<:fOO Tt-1000 O lOVD lO ■^ m i-i O ONO ■^*'^t^'^'>;'-i.'^o» ^_°° ^ ^ 't ^ ■^ r^ ON ? tF -^ oT 0~ t^ wS loy^'oo" tC o' --f 1000" « CO 0~ o" CO CO K?> --^d- COOO 00 00 1-1 M -^QO OOVONO t^iH 01 -ti-ON •^ '^_'^_ *^^ ^ "^^ ^ 9, "> ^ '^ M Oi-< 1-ii-t WCOCN^^-^vOlO MlHWI-ll-IIHOlOll-lOl h-i 00 NO CO 10 r-. lovo NOW coo i-< CN) ^ONcor^i-io 00 t^ 1-1 CO ON 00 ONlOlONO 10 1000 ONUONO Tf- 1-1 NO HH 00 ^^O^tOt^C\^ '^'^ 9i ^ *^ "^ *^^_ N_^ M On »0 01 |S On CO 10 CO wS ■<:? oTnO '^vO~vO~ oI pT -tF CO hT tC r^oo ■^ *»1 (M 01 •'t'O O COCOOI ■^uD'^r^ONOiO-^O 10 1>^ PH 1-1 01 W CONO^ ^ "^ '^ ^_ ^ ^^°^ CO IH CO i-^yS rCio -^ CO -^00 i-T ■.^ rf CO OO(MONOONOcO'<:l-lOHHli00»iOONw\O0icoi-i O ON !-< O -^ O « ^vO CO 01 O CI t^ lONO lOvO NO ^ CO t^ On r^ t-^ 0_ ci^ -^ i-j, 10 1-H^ t^oq^ '^°° "^ N -^ ■<*■ 10 S 00" CO i-^ t-^" o"oo~ oi m" uS oT -^ tCvcT oT o^ t^ m" o~ tC .« r^ 1000 i/^oncoonhhvono O r^oo co lo w lo »ono *-* HH O ON 1-1 CO ^ r^ ''^OO *^ '^ 0_ ''t O^ OnnO vO -^00 10 ?o ^ ^ O O CO C^ r^VO H-i On CO OnOO CO h-i m" i-T hT CO rC hH HI h-i I-I 01 cO'<:l-'<^cococoiOU:>iO lONO *>- 1>* tO'^lONO t^OO ON O tH 01 CO'. o_vD^ CO q; M cT t^cO\D in COQO" oT <«° COIOO N rO-^iOiOlN. IH l-l HI l-H M H-l IH \o 10 « 00 co^D t^ t^ r^ _ 01^ "2 ih"vO CO ■^^~ i:C\d' in m Municipal Loans xpenditure CO CM^OO CO CO l-l M CO N ON a\ covo M r^ w w 0) 000 00 S d" 0" CO 10 ci o~ w" M ^^voooo HHOr^oi CMH Ph hH "^00^ M ■<*; CO -?*- CO of CO ^f t^ CO 10 CO 01" (N l-H M t-l W CO CU "Gun" Loans Expenditur l^(N'0 CNlOlOlOlDOl COM -^CNCM-i cOcOlO k?* oT 0" d" cRoo 1000" 00 CO HH iO-<^ONO rhcOcOM l-l l-l CO 01 N 01 01 1 ^SS 00 CO 01 l-l co-^iom u" and enditur CO ■* COv£) -^ coco ^- "^ '^_ "^ '^ '^ "« "^^o ^ -^ oT^o'vcTio ■^M \d"iC ^« 10 U5 01 00 CNVO -^ CO Ph lU (-I4 CO N^ CO CO 10 ■^ ■^ Is 01 00 CM t^OO ON M 01 OnOnOOOOhhihi-i 0000 ONONOnOnOnOvOn •M k a S3 J3 T3 ■M (1J l-< > > J3 ^ M .a Ov CI n "H H CO 3 bo 5* ys 1 J3 H ■n rJ ■VI.C ^ cS c +-» IH c IH s Ov a s u J! •^ «*H 4_> T^- 0. T3 X C (U (1) ■«i.a » !■. (U 1 1 CO tS y -1-1 3 rt ^ "rl '■S n 1) t3 « io Pi a •d i C* a .^ T3 J=! f. frt .ti J2 m ii c c 4* s CHAPTER III EFFECTS ON THE MONEY MARKET The flotation of any kind of public loan has some influence upon the money market of a country. In the case of war and armament loans, whether they be funded or unfunded, the ef-" fects upon the money market are especially great and speedy on account of the amount and despatch of their flotation. The effects extend over manifold fields, but especially noteworthy are the changes brought- about in the banking system, coinage system, currency, prices of commodities, bank rate of interest, amount of specie and various modifications brought about in the~ municipal and rural money markets. Each of these will be treated in the following sections. Effects on the Banking System The primary effect upon the banking system of the redemp- tion of government paper moneys issued on account of the Res- toration and that of the utilization of public bonds was the es- tablishment of national banks after 1872. At the beginning of the Restoration the so-called "Exchange Company" was the only commercial organ of monetary circulation. More- over, on account of the imperfect organization of these companies, bankruptcies occurred in rapid succession. Such having been the case, an organ of monetary circulation suit- able both for the government and the people was what was then keenly needed. Had this been the only defect, the estab- lishment of an ordinary commercial bank would have complied sufficiently with the needs of the times. The circumstances of the time, however, were very complex. The inconvertible paper money issued by the government during the period ex- tending from 1868 to 1872 for the pacification of the disturb-, ances or for supplementing the deficits of the annual revenue reached the tremendous amount of over 80,000,000 yen, and 11 145 146 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS continued to increase. Unless, therefore, a measure for its re- demption were to be speedily taken, there was no telling what financial and commercial crisis might be in store. Upon the return from America of Hirobumi Ito, an official of the Finance Department, the government adopted his proposal for the es- tablishment of national banks, which was chiefly based upon the system of national banks in the United States, including a partial adoption of the American bank note system. The na- ' tional banks were to be authorized to issue convertible bank notes. The National Bank Regulation was promulgated by Notification No. 349, November, 1872. The most important points of this regulation were as follows : To found the national banks and to cause 60 per cent of the capital to be paid to the government in government paper money, for which the government was to deliver to the banks "Kinsatsu" exchange loan bonds issued for the redemption of government paper money. On the security of these loan bonds, bank notes of the same amount were authorized to be issued which the banks were required to convert into coins on demand. The aim and object of the regulation was to redeem the inconvertible paper money and to bring about a smooth circulation of currency. In anticipation of the applications for charters, the government manufactured bank notes amounting to 15,000,000 yen to be delivered in exchange for public bonds. There were, however, only a few banks which opened business in accordance with that regulation. The rea- son was simply this: From about 1874 there had been a con- stant outflow of specie, and the value of paper money under- went daily depreciation. If the national banks issued bank notes, specie conversion would immediately be demanded, and the bank notes would at once return to the bank. The bank received from the governtnent only 6 per cent interest for the public bonds corresponding to 6 per cent of the capital, but no profit could be derived from bank notes. The already estab- lished banks experienced more and more difficulty in carry- ing on their business. At this juncture the government, with a view to disposing of the hereditary pension system, issued EFFECTS ON THE MONEY MARKET 1 47 hereditary pension bonds which, at length, reached the im- mense sum of 174,000,000 yen. Consequently their quota- tions daily suffered depreciation, throwing the nobles and "Samurai" class holding these bonds into an indescribable state of embarrassment. An urgent measure for their relief was needed. The government, therefore, authorized the em- ployment of these bonds as security for the issue of bank notes, made much more liberal the conditions imposed on the issue of the bank notes, and enlarged the limitations hitherto put upon the "Kinsatsu" exchange bonds. By proclamation dated August I, 1876,1 the government made less vigorous the pro- visions regarding their exchange reserves. By this revised regulation the national banks were to deposit as security with the government public bonds to the amount corresponding to eight-tenths of their capital, for which bank notes of the same amount were to be printed by the government and issued by the banks, providing the exchange reserve with any kind of currency amounting to one-fourth of circulation. Thus the national banks were relieved from the restrictions concerning the issue of the bank notes, and could hold public bonds at large. On the other hand, the system of specie exchange, which had formed one of the stumbling blocks to the circula- tion of paper money, was mitigated, and exchange with gov- ernment paper money was permitted, provided it was used as currency. This was undoubtedly not conducive to the speedy redemption of inconvertible paper money, but there was no alternative for the government to take. Moreover, to hold public bonds was equal to possessing them as security reserve for inconvertible paper money, which in turn proved to be a preliminary step in the redemption of inconvertible paper money. Be that as it may, this revised regulation was very favorable to the national banks, and the holders of the hereditary pension bonds applied for the estab- lishment of one bank after another. The Fifteenth National Bank was the largest of its kind. The relation between the war loans with regard to the Sat- 1 Regulation concerning new national banks. 148 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS suma Rebellion and the banking system is fully exemplified in the establishment of the Fifteenth National Bank. The said bank was a great institution with an authorized capital of 17,- 800,000 yen, which had been founded in 1877 with the object of meeting the government floating debts contracted in connec- tion with the Satsuma Rebellion, by combining hereditary pension bonds possessed by nobles. As the said bank loaned the government bank notes corresponding to its actual capital 15,000,000 yen, the government conferred in exchange great privileges upon the said bank. It enjoyed, therefore, great in- fluence in the center of the metropolis which greatly attracted the attention of the public. Thereafter, the enthusiasm for founding national banks sprang up throughout the whole Em- pire, and their number increased day by day. On the authority of Financial History of the Meiji Era, the number of national banks in 1876 was only five, with a total capital of 2,500,000 yen, and with an issue of paper money of not more than 2,040,000 yen. In 1877 there were twenty- three newly authorized banks, with a total capital of 20,550,000 yen, and with an issue of paper money amounting to 18,144,880 yen. In 1878 there were ninety-eight newly authorized banks with a total capital figuring 12,185,000 yen, and with an issue amounting to 9,300,000 yen. In 1879 twenty-seven banks, with a total capital of 2, 655,000 3'ew, and with an issue of 1,964,- 000 yen, were newly chartered. Thus the number of national banks rose to 103 in a brief space of time. Through the in- crease of capital of each bank after its foundation, the whole amount of paper money issued ultimately exceeded 34,430,000 yen, which was the limit set by the government. The govern- ment, therefore, forbade any more chartering of new national banks. The business of the national banks was thus put on a firmer basis and enjoyed high prosperity, as can be seen by the table inserted elsewhere. In consequence of the adoption of a uniform convertible notes system in 1882, by the promulgation of Bank of Japan Regulation, the National Bank Regulation was also revised in May, 1883. Through this revision the na- tional banks were deprived of their privilege of issuing paper EFFECTS ON THE MONEY MARKET 1 49 money, and the term of their continuance as national banks was limited to twenty years, counting from the day of their respec- tive establishments; and at the expiration of the terms each bank was ordered to complete the redemption of the already issued paper money. Further, it was left to the discretion of each bank whether or not it would continue its existence as an ordinary bank. The redemption of the already issued paper money was to be accomplished by purchase of public bonds with the reserve fund, which had been hoarded at each bank, the public bonds being required to be accumulated, until, the expiration of the continuance of the banks, as a fund for the redemption of paper money. This was called the Redemp- tion Fund, Class i. Further, an amount corresponding to 2.5 per cent per annum, or 1.25 per cent per, half year, against the issued paper money was to be deducted from the profit of every business year, which sum was to be deposited in the Bank of Japan. The Bank of Japan was then to purchase public bonds with money deposited by the banks. These bonds, together with interest on them, were to form the fund for the redemp- tion of paper money. This was called the Redemption Fund, Class 2. The above two redemption funds were all deposited in the Bank of Japan, through the agency of which the paper money of all the national banks was redeemed. This was called the method of collective redemption. By a law of March, 1896, the expiration of the term of business was post- poned to February, 1899, the term of circulation for the bank notes was fixed to terminate on December 9, 1899, and the term for their exchange was fixed at five full years counting from the termination of circulation. The establishment of the Bank of Japan had something to do with the redemption of paper money. Over one hundred and fifty national banks had been scattered all over the coun- try, controlling each locality, but there was no central banking institution. Each bank acted in its own sphere of influence, and concerted action of all the banks in adaptation to the cir- cumstances of the domestic and foreign markets was impossible. The desirability of the establishment of such a central bank, 150 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS therefore, had aheady attracted the general attention of the business world. One thing, however, remained which re- quired immediate attention. The government inconvertible paper money which had witnessed a sudden increase after the Satsuma Rebellion, together with the bank notes which had then been issued from various national banks, brought down the quotations of public loans and paper money. This, in turn, occasioned an advance of prices and money, interest, ac- companied by increasing efiflux of specie. Such circumstances were the most important cause of the establishment of the Bank of Japan. The establishment of this bank had in view the following three important missions with regard to the re- demption of paper money. The first was as an organ of unify- ing convertible notes by exchanging the government paper money into convertible notes. The second was to advance to the government a fund for the paper money redemption, that the latter might' directly redeem its own paper money. The third was as agent for the collective redemption. The Bank of Japan was organized by Notification No. 35, June, 1882 (Bank of Japan Regulation) with a capital of 10,- 000,000 yen. By Article 14 of the same regulation, the Bank of Japan was authorized to issue convertible bank notes. The issue of convertible notes commenced on May 9, 1885, in ac- cordance with Notification No. 18, May, 1884.^ The main points of the regulation were as follows : (i) The convertible bank notes shall be issued by the Bank of Japan in accordance with Article 14 of the Bank of Japan Regulation and shall be convertible into silver coins (Art. i). (2) The Bank of Japan shall hold as an exchange reserve a reasonable amount of silver coins against the convertible bank notes issued (Art. 2). (3) The convertible bank notes shall be available, without any hindrance, for taxes, customs duties and all other trans- actions (Art. 4). (4) The Bank of Japan shall on demand convert the con- vertible bank notes at any time during business hours at its main and branch offices (Art. 6). 1 Convertible Bank Notes Regulation. EFFECTS ON THE MONEY MARKET I5I In accordance with Notification No. 14, June, 1885, the con- version was commenced by disbursing specie (silver coins) out of the reserve fund, on and after January i , 1886, and thus the conversion system was firmly established. This system of conversion, together with the method of collective redemption, greatly reduced the amount of government and bank paper money. In 1888 the figures were still as follows: Yen 1. Government paper money. 52,115,148 Standard paper money. . 43,667,436 Subsidiary paper money 8,447,712 2. Bank paper money 27,000,000 Against this sum the remainder of the reserve fund which the government had accumulated was only 21,667,436 yen. Some measure was necessary to cover this shortage of 22,- 000,000 yen. As for the subsidiary paper money, it could be exchanged for subsidiary silver coin. As for the bank notes, their gradual retirement by means of collective redemption had already been decided upon. But with regard to converti- ble notes, which were to be issued in exchange for them, it was impossible to provide enough specie reserve for their con- version. Unless, however, some new restrictions were to be imposed, it could not but help on the tendency to currency in- flation. By Imperial 0;-dinance No. 59, July 31, 1888, the government made the following amendment to the Converti- ble Bank Note Regulation. Article 2 provides against the issue of the convertible notes ; the Bank of Japan shall provide the same amount of gold and silver coins, or bullion. The Bank of Japan shall, aside from the preceding clause, be authorized to issue convertible notes to the limit of 70,000,000 yen on the security of government bonds. Treasury bills and other reliable bonds or commercial bills, but 27,000,000 yen out of the 70,000,000 yen under this clause shall be gradually issued to the extent of the amount of redemption of the paper money issued by the national banks on and after January i, 1889. In case the Bank of Japan considers that the condition of the market requires the increase of current money, the said bank 152 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS shall be authorized to issue, with the permission of the Finance Minister, convertible bank notes over and above the issue of the two preceding clauses on the security of government bonds, Treasury bills, and other reliable bills or commercial paper. In such cases the bank shall pay a circulation tax not lower than 5 per cent annum, the precise figures being decided by the Finance Minister from time to time. The Bank of Japan shall loan the government an amount not exceeding 22, 000,000 yen for the redemption of government paper money, with interest at 2 per cent per annum, provided that it shall bear no interest after 1898. The term and the annual amount of repayment of the loan provided for in the preceding section, shall be fixed by the Finance Minister. By Law No. 34, May, 1890, the limit of the issue on the se- curity reserve was raised to 85,000,000 yen, and at the same time the interest on 22,000,000 yen, which was the amount loaned for the redemption of government paper money, was dropped. By this revision the convertible notes were able to fulfill the currency demand and yet not exceed it. They also could su- persede the remaining government and bank paper money. To accomplish this purpose the Bank of Japan was granted the privilege of the fiduciary note issue, though the bank was or- dered to loan the government 22,000,000 yen at a low rate of interest. The government added this sum to the reserve fund, in order to drive from circulation the government paper money. We have already referred to this loan as the loan for paper money redemption. This was undoubtedly one of the most remarkable influence's which the redemption of government paper money had upon the system of the Bank of Japan. During the Sino-Japanese War and Russo-Japanese War, the Bank of Japan often complied with the needs of tempo- rary loans for war and armament, and continued to issue con- vertible notes beyond the legal limit. Moreover, by a law of 1899, revision was made of the system of security reserve, EFFECTS ON THE MONEY MARKET 1 53 raising its limits to 120,000,000 yen. Subsequent to the Russo- Japanese War a big amount of government loans had to be contracted on account of the government temporary loans, war loans and their conversion, whereby the issue beyond the legal limit became so much the greater. The establishment of the Yokohama Specie Bank had a great deal to do with the redemption of inconvertible notes. The revision of the National Bank Regulation in 1876, together with the issue of hereditary pension bonds, gave rise to the tendency toward establishment of banks, and thus, in 1879, the monetary organs for domestic commerce became substan- tially adequate. With regard to foreign monetary organs, however, there were only two or three branch offices of foreign banks, which state of things caused great inconveniences and disadvantages to our foreign trade. Just then the increase of the circulation of paper currency brought about no small dif- ference between silver and paper currency. As a result of this, an immense amount of metal flowed -out of the country, and circulation of gold and silver within the home market remark- ably decreased. Public bonds and paper money continued to depreciate. Such circumstances could not but have remark- able effects upon foreign commerce and domestic finance. The establishment of an organ with the double object of assisting money circulation and of maintaining and regaining specie was what was most needed at the juncture. Accordingly, in 1879, on the proposal of the Finance Minister, a foreign silver exchange was established with the object of facilitating the sale of silver and of arresting the rise of its value. The root of the malady, however, lay in the superabundance of paper cur- rency. Therefore, without readjusting paper money, there was but slender hope of effecting a cure. In order to readjust paper money the regulation of specie was necessary. There- upon, in accordance with National Bank Regulation of Feb- ruary 23, 1880, the establishment of the Yokohama Specie Bank was authorized, which opened for business on the 28th of the same month. By Irnperial Ordinance No. 29, July, 1887, the Yokohama Specie Bank Regulation was promulgated. 154 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS At first its capital was 3,000,000 yen, one-third (1,000,000 yen) being contributed by the government in silver coins. More- over, the government deposited with the said bank, out of the reserve fund of the national Treasury, a foreign documentary bill fund in order to encourage direct foreign exportation and also to regain specie, and ordered the bank to do documen- tary bill business. After the Yokohama Specie Bank Regula- tion was promulgated, the organization of the bank underwent a change, and its capital was increased to 6,000,000 yen. At the same time, the government ordered the bank to manage government money, public loans and government exchange at home and abroad, and also to extend accommodation in mat- ters of government finance. On the abolition of the foreign exchange fund system in 1889 the government ordered the Bank of Japan to enter into a special agreement with the Specie Bank to the effect that the former bank should, at the low in- terest of two per cent per annum, rediscount the foreign bills of exchange held by the latter bank. Thus, the Yokohama Specie Bank, in collaboration with the Bank of Japan, as- sumed the mission of export trade encouragement and specie absorption. The above business can not be explained merely from the fact that the Yokohama Specie Bank served as a monetary organ in foreign trade. It served also as a financial organ for the maintenance and absorption of specie and for the facilitation of the payment of the principal and interest of pub- lic bonds. For instance, in March, 1886, this bank was or- dered to manage the lottery, the repayment and payment of the principal and interest of the 7 per cent foreign loan (which had been floated for the disposal of the hereditary pension system), and the business of public loans. The number of occasions on which the bank transacted business relating to for- eign countries during the Sino- Japanese and the Russo-Japa- nese Wars with regard to war and armament loans defies enu- meration. In 1900 its capital was increased to 18,000,000 yen, and its business witnessed a remarkable development. The effects of war and armament loans upon private banks were not direct ones. Prior to the establishment of national banks EFFECTS ON THE MONEY MARKET 1 55 there had existed exchange companies, and similar monetary companies, which partook of the nature of private banks, though the privilege of paper money issue had been conferred upon them. By the promulgation of the National Bank Reg- ulation in 1872, this privilege was taken away from those com- panies, and the use of the name of banks was also prohibited. In 1896, with a revision in the above regulation, ordinary pri- vate monetary companies were authorized to use the name of banks, and thus private banks came gradually to increase. In 1879 the establishment of national banks was forbidden on ac- count of the already superabundant number. Consequently, private banks greatly increased. Further, by the revision of the National Bank Regulation in May, 1883, the privilege of issuing paper currency was taken away from the national banks, and after the expiration of the period fixed the national banks were allowed to continue their business as private banks. Consequently the national banks gradually re- deemed the bank notes and changed themselves into private banks, which contributed in a great measure to the develop- ment of private banks. The development of private banks, therefore, had a great deal to do with the government paper money, inasmuch as the disposal of national banks brought about the development of private banks. Indirectly, the read- justment of war loans had no small effect upon the growth of private banks. Moreover, the private banks which had taken the place of national banks fell under a special law from July i, 1893, in accordance with Law No. ']2, August, 1890,1 and Law No. 73, August, 1890.2 Once developed as an integrated system, they assumed the responsibility of collecting and distributing funds for the flotation, conversion and redemption of public loans, which had increased with each war. It was also not infre- quent that they successfully carried on their business by re- ceiving the deposits of the government and public bodies.' Lastly, the flotation and redemption of public loans had great 1 Bank Regulation. ' Cf. table, p. 156. ''■ Savings Bank Regulation. 156 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS influence upon the money market of the country, inasmuch as it brought about the centralization of the fund. The bank- ing system was centraUzed, and even ordinary banks showed a strong tendency towards amalgamation and concentration. The explanation is to be sought in the fact that the develop- ment of banking business decreased the number of main offices, while it increased their branches and detached offices. The capital stock of each bank on the average increased year after year especially after great wars.i To sum up the relation be- tween war and armament loans on one hand and private banks (I) Development of National, Banks'' Calendar Year Number of Banks Paid-up Capital Reserve Fund Deposits Outstanding Circulation of Banlc Paper Money Net Profit of Every Latter Half Year 1873 1874 187s 1876. 1877 1878 1879 1880 1881 1882 1883 1884 188S 1886 1887 1888 1889 1890 1891 1892 1893 1894 189s 1896 1897 1898 1899» 1900 1901 1902 2 4 4 5 26 95 151 ISl 148 143 141 140 139 136 136 135 134 134 134 133 133 133 133 121 S8 4 Yen 2,440,000 3,432,000 3,450,000 2,350,000 22,986,100 33,396.063 40,616,063 43.041.100 43.886.100 44,206,100 44.386,100 44,536,100 44,456,100 44,416,100 45.838,851 46,877.639 47.681,380 48.644.662 48,701,100 48,323,600 48,416,100 48,816,100 48.951.100 44,761,770 13,630,000 390,000 Yen 29,253 62,002 81,599 137,080 378,484 971,817 1,665,256 2,716,909 3,830,362 4,259,590 4,677,473 5,130.210 3,488,659 6,019,654 7,750,523 9,609,590 12,461,45s 13,730,893 13,278,932 16,071,768 17,634,647 19,209,040 34,196,369 6,057,020 91. 71s Yen 2,867,437 3,491,637 1,470,812 2,502.099 4,506,676 8,067,44s 16,226,511 14,913.679 19,383.342 19,714,942 . 24,223.429 20,370.636 27,476,921 32,359,578 33,4|p.309 35,5^,228 36,429,441 33,598,116 40,214,394 49,976,965 59,833,610 66,977,141 74,999,390 61,825,619 27. 766.196 745,077 Yen 1,362,210 1,993,000 1,420.000 1.744.000 13.352,751 26,279.003 34.046.006 34,426,351 34.396,818 34.385,345 34.275.736 31.015,942 30.155,389 29,501,484 28,604,133 27,679,633 26,739,205 25,810,720 24,869.308 23.890,509 22,756,119 21,781,797 20,796,786 16,497,889 5,024,729 1,866.563 974.999 483,933 449,321 431,576 Yen 93,551 194,011 184.015 227,275 1,311,260 2,118,440 3.073,378 3,394,645 5,851,262 3,887.509 3,163,631 3,090,030 3,047,740 3,792,232 3,419,281 3,899.198 3,888,163 3,721,919 4,091,29s 3,662,082 3.730,779 4,309,763 4,447,803 7,363,528 , 1,447,198 98.014 * Expiration of the term of business. ^ Cf. table above. ^ Based on the Financial History of the Meiji Era. It is mentioned in the author- ity that though the total amount of bank paper money delivered is estimated a-t 35,136,860 yen, the amount disbursed by collective redemption amounted to 35.687,256 yen. EFFECTS ON THE MONEY MARKET 157 on the other: the former had indirect effects upon the latter, (i) in the establishment, (2) in the carrying on of their busi- ness, and (3) on the scale of their business. In illustration of the above statement, the statistics respecting the development of the national banks. Bank of Japan, Specie Bank, private banks and all the banks of the Empire are given in the preceding and following tables. (2) Amount of Bank oj Japan Convertible Notes and Government Loans' Calenda Year Issue of Convertible Notes Specie Reserve Security Reserve Issue Be- yond the Legal Limit Government Temporary Loans 1885 (May Yen Yen Yen Yen Yen ) 2,645,440 2,806,883 12,000,000 1885... 3.653-272 3,008,572 644,700 ■ 15,066,205 1886. .. • 39.976,365 24,066,787 15,694,577 36,882,892 1887. .. • 53.469.092 31.594.193 21,874,898 36,790,808 1888. .. . 65,822,252 45.074.543 20,747.709 23,081,755 1889. . . . 79,108,652 57.409.299 21,699,353 10,271,243 1890. . . . 102,931.766 44,622,413 58,309,353 32,000,000 1891. . . • 115.734.545 63.178,333 52,556,212 32,000,000 1892. .. ■ 125.843.363 81,158,265 44,685,098 32,000,000 1893 • • • . 148,663,128 85,928,516 62,734,612 32,000,000 1894. .. • 149.813.700 81,718,291 68,095 409 51,530000 1895... . 180,336,815 60,370,797 119,966,018 34,966,018 71,500,000 1896. . . ■ 198.313,896 132.730,192 65,583,704 76,000,000 1897. .. . 226,229,058 98,261,473 127,967,585 42,967,585 28,831,132 1898. . . ■ 199.399.901 89.570,239 107,829,662 22,829,662 22,000,000 1899. . . . 250,562,040 110,142,169 140,419,871 20,419,871 24,500,000 1900. . . . 228,570,032 67,349,129 161,220,903 41,220,903 40,200,000 1901 . . . . 214,096,766 71.358,371 142.738,395 22,738,395 77,200,000 1902 . . . ■ 232,094,377 109,118,817 122,975,560 2,975,560 76,850,000 1903 . . . . 232,920,563 116,962,184 115,958,379 56,849,200 1904. .. . 286,625,752 83,581,226 203,044,526 83,044,526 154,849,200 1905. . . . 312,790,819 25,595,026 197,195.793 77,195,793 178,624,200 1906. . . . 341,766,164 147,202,125 194,564,039 74.564,039 134,695,333 1907. . . . 369,984,111 161,742,132 208,241,980 88,241,980 78,482,157 1908 . . . • 352,734.272 169,504,514 183,229,758 63,229,758 75.753.603 1909 . . . . 352,763,201 217,843,275 134,919.926 14,919.926 99.508,649 1910. . . . 401,624,928 222,382,465 179,242,463 59,242,463 147,390,292 1911 . . . • 433.399.116 229,154,220 204,244,896 84,244,896 205,591,202 1912 . . . . 448,921,708 247,023,380 201,898,326 81,898,326 154.513,877 1913- ■ • . 426,388,708 224,365,880 202,022,828 82,022,828 127,672,664 1 Based on the Financial History of the Meiji Era, Materials for Reference with Regard to Tokyo Clearing House, and the Specie Investigation. Government loans include Treasury bills and various temporary loans. 158 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Development of Private Banks and Similar Companies' Calendar Year Number Capital Deposits Outstanding at End of Each Year 1884 1885 1886 1887 1888 1889 1890 1891 1892 Yen 955 34.672,735 963 34,190,182 969 33.360,329 962 34.013.736 941 32,779,650 950 36,480,979 974 40,083,791 972 40,988,209 1,003 42,262,619 Yen Unknown 14.527.993 18,288,497 25.337,978 24,693,495 33,238,685 Development of All Banks of the Empire ^ Calendar Year Number of Banks Paid-up Capital Deposits Outstanding at End of Each Year 1893- 1894. 1895- 1896. 1897. 1898. 1899. 1900. 1901 . 1902. 1903. 1904. 1905- 1906. 1907. 1908. 1909. 1910. 1911 . 1912. 663 862 1,012 1,277 1,505 1,721 1,942 2,272 2,359 2,324 2,275 2,227 2,230 2,210 2,201 2.172 2.152 2,127 2,143 2,151 Yen 62,916,100 101,379,881 127,695,210 166,195,948 208,790,931 254,119,423 286,133,308 341,922,711 361,207,456 372,950,062 374,685.764 373.194,284 382,148,879 401,134,910 444,204,041 458,827,302 477,550,154 494,122,304 523,109,357 570,488,740 Yen 107,963,306 138,965.752 191. 135.400 427,189,767 375.144.677 375.173.336 564,312,407 561,576,193 555,233.352 659,495.053 714.258,117 788,134,579 1,337,897,673 1,690,576,187 1,662,881,003 1,408,030,851 1.543,779,573 1,772,240,847 1,740,776,659 2,025,493,908 ' Based chiefly on the Financial History of the Meiji Era, but the Reference Book Concerning Monetary Affairs and the Imperial Statistical Year Book have also been referred to. 2 Based on Reference Book Concerning Monetary Affairs and Imperial Statistical Year Book. All kinds of banks are included, such as the Bank of Japan, Yoko- hama Specie Bank, national banks. Hypothec Bank, Provincial Hypothec Banks, Industrial Bank, Bank of Taiwan, Colonial Bank of Hokkaido, private banKs, and savings banks. The table is confined to the figures after 1893, prior to which the banking system was still imperfect, and the above-mentioned statistics concerning the national and private banks nearly cover it. EFFECTS ON THE MONEY MARKET 159 Number of Branches and Average Amount of Paid-up Capital of All Banks of the Empire Ratio of Number of Average Number of Main Ofifices Number of Branches and Amount of Calendar Branches and Detached Paid-up Paid-up Year Detached Places of Bus- Capital Capital of Offices iness Against Main Number of Offices Main Offices Yen Yen 1893 663 166 0.25 62,916,100 94,896 1894 862 401 0.46 101,379,881 118,617 1895 1,012 556 0.54 127,695,210 126,181 1896 1,277 831 0.65 166,195,948 131,370 1897 1,505 1,094 0.72 208,790,931 138,711 1898 1,721 1,368 0.79 254,119,423 147,658 1899 1,942 1,720 0.89 286,133,308 147,339 1900 2,272 1,920 0.85 341,922,711 150,494 1901 2,359 2,025 0.89 361,207,456 153,119 1902 2,324 2,033 0.87 372,950,062 160,478 1903 2,275 2,055 0.90 374,684,764 164,697 1904 2,227 2,019 0.91 373,194,286 167,577 1905 2,230 2,090 0.94 382,148,879 171,367 1906 2,210 2,187 0.99 401,134,910 181,509 1907 2,201 2,369 1.08 444,204,041 201,819 1908 2,172 2,441 1. 12 458,827,302 211,246 1909 2,152 2,476 115 477,550,154 221,910 1910 2,127 2,537 1. 19 494,122,304 232,309 1911 2,143 2,680 I 25 523,109,357 244,101 1912 2,151 2,897 1-35 570,488,740 265,220 Effects on the Monetary System The monetary system of our country during the reign of To- kugawa Shogunate was based upon a gold and silver coin sys- tem, established in 1601 A.D. This system continued down to the last days of the Shogunate (for more than two hundred and sixty years). With the financial embarrassment of the Shogunate the quality of the coinage grew worse, and forged coins were found in circulation. Moreover, each clan issued all sorts of paper money with circulation within the four cor- ners of each clan, which paper, too, witnessed great deprecia- tion in value. The monetary system of Japan, therefore, had been thrown into a state of chaotic confusion before the Resto- ration. At the Restoration the government paid the keenest attention to the establishment of a monetary system. In l60 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS April, 1868, it decided upon the recoinage of old currency and set about the establishment of the mint. In November, 1868, a coinage law based upon the decimal system was established, by which silver was made the standard coin and gold was em- ployed as a subsidiary. In November, 1870, the coinage of silver was commenced. In the beginning of 187 1 a gold stand- ard system was adopted by the proposal of Hirobumi Ito, an official in the Finance Department, who had then been sent on a tour of inspection to the United States, On May 10, 1871 , a new coinage regulation was at last promulgated. At that time, however, Mexican silver was employed in commerce with Oriental countries, and it was convenient to employ silver in our foreign commerce. In view of this special circumstance, one yen silver coins, besides the standard coins, were minted under the New Coinage Regulation, for the purpose of com- merce in the open ports. Not only was the production of gold very meager in our country, but, as was stated before, inconvertible paper money which the government had issued for the pacification of the disturbances, annually increased, which was followed by a steady outflow of gold coins. This made the gold standard system very difficult to maintain. By Proclamation No. 12, May, 1878, one yen silver, which had been minted for com- merce in the open ports, was permitted to be circulated in the country at large. In consequence, one yen silver coin became legal tender having the equivalent value to one yen gold coins. Accordingly our monetary system was changed from a gold standard system into a legal bimetallism, which was practi- cally a silver standard system. This virtual silver standard system was in danger of being degraded into a paper money standard system by the over- issue of paper money at the Satsuma Rebellion, and by the consequent discrepancy in value between silver and paper. The readjustment of paper money was successfully completed in 1886, and an ordinary monetary system was reestablished. But the system thus restored was a silver standard, and the legal bimetallism was no more than nominal. The fiuctua- EFFECTS ON THE MONEY MARKET l6l tions of silver in the foreign markets, therefore, could not but exert an immediate influence upon our economics and finances. Especially in 1892-1893, when silver saw a great depreciation on account of the adoption of the gold standard system by Austria, Russia, United States and India, great fluctuations of the rate of exchange impeded foreign commerce, raised the prices of commodities, encouraged speculation, and threw our economic world into a state of great confusion. With the de- preciation of silver, national expenditures gradually increased. Therefore, the maintenance of the silver standard system was, it was feared, opposed to our economic and financial interests. Thereupon, the government thought it necessary to investi- gate our monetary system, and it promulgated, by Imperial Ordinance No. 113, October, 1893, a regulation concerning the Board for the Investigation of the Monetary System. The said board further organized a special commission for the pur- pose, which finished its investigation in July, 1895. It was decided that there was no present need for the reform of the monetary system, but that there might be an opportunity for reform in the future. As to whether the gold standard system or some other system in such a case should be adopted, there was a diversity of opinion among the commissioners. The government, therefore, was obliged to maintain the status quo, though it had been very much in favor of the adoption of a gold standard system. With the outbreak of the Sino- Japanese War in 1894-1895, the government was obliged, or was in a position to realize its long cherished ideal, the adop- tion of the gold standard system. The circumstances which drove the government to adopt it were (i) the necessity of floating or selling war loans abroad, and (2) the receipt of a big sum of war indemnity from China. The government, in order to raise loans in connection with the war, issued war loan bonds amounting to 120,000,000 yen, as a part of the estimated sum of 250,000,000 yen. But the actual subscription was only 85,000,000 yen. The remaining 35,000,000 yen was finally raised by a special issue to the 12 1 62 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Deposit Section. The remaining estimated sum was not raised because of the certainty of acquiring the indemnity from China on the one hand, and because of the speedy conclusion of the war on the other. The special issue of 35,000,000 yen had to be sold abroad, which made the government, and the creditors also, conscious of the extreme inconvenience of the silver standard. Thus, the fact that unless the gold standard should be adopted foreign flotation or sale of bonds abroad could not be easily accomplished was brought home to the government. This was the effect which the war loan had upon the adoption of the gold standard system. Had there not been enough gold reserve, the adoption of a gold standard sys- tem would not have been practicable, and indeed this was the point which bothered the heads of the commissioners of the monetary system investigation. Just then the indemnity from China served to satisfy the needs, and afforded impor- tant facilities for the adoption of the system. The payment of the indemnity on the part of China was de- cided upon by the treaty of peace at Bakan in April, 1895. It consisted of 200,000,000 taels, which was the indemnity for war expenses, 30,000,000 taels as a compensation for the re- turn of Liaotung Peninsula, and an annual amount of 500,000 taels as an indemnity for garrison expenses at Weihaiwei. All these sums were to be converted into pounds and paid in Lon- don. Thus, our government was able to receive between Oc- tober, 1885, and May, 1898, the indemnity for .war expenses (with interest) amounting to £32,900,980, ys., 'jd., the indem- nity for the return of Liaotung Peninsula amounting to £4,935,- 147, IS., id., and the indemnity for garrison expenses at Wei- haiwei amounting to £246,757, 75. (the annual amount was £82,252, 95.), totalling £38,082,884, 155., 6d. As this acquisition of gold reserve prepared the way for the revision of the monetary system, the government submitted to the Diet the monetary law and other ancillary drafts, which met the approval of both houses, on March 26 of the same year. The monetary law, together with auxiliary laws Nos. EFFECTS ON THE MONEY MARKET 1 63 16-20, were promulgated and put into force on and after October i of the same year. Prior to the establishment of the gold standard system the transfer of the indemnity was chiefly made by the purchase of silver, and the receipt of gold was accepted only with the object of averting the great losses to the national Treasury due to the fluctuations in the value of gold and silver bullion. When the adoption of the gold standard system was decided upon, in October, 1896, the method of transferring on indem- nity was rapidly revised, and import of gold bullion was made chiefly in order to obtain gold reserve for the exchange of silver coins, which was required for the enforcement of the new monetary law. Thus, during the period ranging from January i, 1896, when the transfer of the indemnity was begun, to March 31, 1899, the money delivered to the Bank of Japan for the trans- fer of the indemnity amounted to £30,476,642, 5s., ^d. Of this sum the bills of exchange drawn amounted to £1 5,81 1 ,261 , lay., 2d.,^ the purchase of silver stood at £3,090,504, 65., ^d., and the receipt of gold was £1 1,574,876, 8s., i id. Of this re- ceipt of gold the amount actually transmitted on September i , 1897, stood at £7,733,516, 17s., gd., which the government at once minted into gold coins to serve as exchange reserve for one yen silver coins. Our gold standard became firmly established by the receipt of the tremendous indemnity. This made it possible not only to pay a huge gold exchange, due to the excess of importation over exportation, which had continued for several consecutive years after 1896, but also to increase the circulation and re- serve of the standard gold coins, thus putting an end to the cir- culation and reserve of silver coins in March, 1898. The following table affords sufficient explanation of the sudden increase of the circulation and reserve of gold coins, especially after 1896. 1 This sum contains £4,386,000, proceeds of the sale of military loan bonds con- verted into the bills of exchange. 1 64 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Gold Coins and Gold Reserve after the Sing- Japanese War' Calendar Year Circulation of Gold Coins Gold Reserve Total i8q'? Yen 5,740,456 5,250,074 5,162,280 5,372,714 16,574,579 18,135,184 19.359,553 17,562,652 18,220,150 17,378,777 20,492,832 Yen 21,806,200 32.344.954. 31,510,800 90.935.471 96,913,262 89.570,239 103,142,169 65.349.129 68,858,371 108,118,817 116,962,184 Yen 27.546,658 37,595,028 36,673,080 96,308,185 113,487,841 107,705,423 122,501,722 82,911,781 87,078,521 125,497,594 137,455,016 1894 i8qs 1896 1897 i8q8. . . 1 890 IQOO 1901 ig02 1903 To sum up what was said above, the chief cause of the revival of our gold standard system may be found in the Chinese in- demnity, by means of which our country was able to provide sufficient gold coins and gold reserve for the exchange of one yen silver coins. The necessity of the gold system, which had been felt in connection with the flotation of the war loans, only formed an additional motive. With regard to the main- tenance of the system, however, we must not lose.sight of the great contribution toward it of the public undertakings loans floated abroad in 1900, nor of various other foreign loans floated in connection with the Russo-Japanese War. The public undertakings loan of 1900 was raised in the for- eign market because of the difficulty of domestic subscription. Of this, 54,900,000 yen was appropriated to national defense expenditures, viz., for purposes of armament. As shown by the figures for 1900-1901 in the preceding table, the gold coins and gold reserve within the country witnessed a great decrease as a result of excess of importation which had continued for sev- eral years. It was due chiefly to the money raised from for- eign loans that they showed a slight recovery after 1902. In- asmuch as the majority of the foreign loans were for purposes of the expansion of national defense (armament loans) it ' Based on Financial and Economical Year Book of the Finance Department and Ginko Tsushin Roku (Banker's Magazine, Tokyo). Gold reserve is the reserve fund for the issue of convertible notes, and includes gold coin and bullion. EFFECTS ON THE MONEY MARKET 1 65 would not be a strained assumption to call them a link between the war and armament loans on the one hand and the gold standard system on the other. Further, it was the foreign loans in connection with the Russo-Japanese War that furnished the most remarkable con- tribution in the direction of the maintenance of the gold stand- ard system. The total amount of public loans floated in con- nection with the Russo-Japanese War, outstanding at the end of the fiscal year of 1906, stood at 1,627,000,000 yen, accord- ing to their issue prices. Of this, 583,000,000 yen ^ belonged to domestic loans and 1,044,000,000 yen"^ belonged to foreign loans. The war expenditures actually defrayed by war loans did not exceed i ,418,000,000 yen. There were also the depart- ment extraordinary affairs expenditures, amounting to 221,- 000,000 yen, and extraordinary military expenditures for post- bellum works, transferred to the general account, amounting to 137,000,000 yen. These expenditures, however, were de- frayed by the continuation of increased taxation, and by the natural increase of the ordinary annual revenue. The fund raised by the flotation of the war loan, therefore, left a surplus of 210,000,000 yen, in round numbers. This is the surplus money in the national Treasury brought forward to each suc- ceeding fiscal year after the fiscal year 1908, and a greater por- tion of it consists in gold coins deposited abroad. One half of it directly supports the gold standard system as specie reserve for convertible notes, while the other half indirectly checks the decrease of specie reserve as the foreign exchange fund. This specie abroad gradually decreased because of foreign pay- ments — financial as well as commercial — but the government replenished it by occasional conversions of domestic war loans into foreign ones. In April, 1910, a 4 per cent French loan, amounting to Fr.450,000,000, was floated, and in May and August of the same year the third 4 per cent sterling loan, amounting to £11,000,000, was raised, both of which were' ' The first, second and third Exchequer bond and extraordinary military expend- itures loan. ^ The first and second 6 per cent sterling loan, the first and second 4.5 per cent sterling loan, and the second 4 per cent sterling loan. 1 66 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS employed for the redemption of domestic loans, such as Imperial 5 per cent loans, navy loan, war loan and exchequer bonds. At the redemption of these loans, domestic 4 per cent bonds were, on request, delivered instead of cash, which gave rise to the increased issue of the third domestic 4 per cent loan. This was the most important contribution of foreign flotation or foreign conversion of war and armament loans toward the maintenance of the gold standard. , Thus, from the beginning of the war, no small amounts of foreign flotations, and afterward domestic war loans, were con- verted into foreign loans. The specie thus obtained was either deposited abroad or minted into coins. The remarkable in- crease of gold coins and gold reserve in 1906, and especially in 1 910, is indicated by the following table: Gold Coins and Gold Reserve after Russo-Japanese War ' Calendar Year Circulation of Gold Coins Gold Reserve Total 1904 1905 1906 1907 1908 1909 1910 1911 IQ12 Yen 20,346,564 24,565,488 34,588,657 24,078,410 27,051,427 28,672,309 31,208,214 33,969,969 35,594,084 37,348,230 Yen 79,904,726 145,284,369 147,202,125 161,742,131 169,504,514 217,843,275 222,382,465 229,154,220 247,023,380 224,365,880 Yen 100,251,290 169,849,857 181,790,782 , 185,820,541 196,555.941 246.515.584 253.590,679 263,124,189 282,617,464 261,714,110 1913 The causes of the increase of the gold reserve were multifari- ous. The foreign flotation and foreign conversion of war loans, foreign subscription of local loans and debentures, or the pur- chase of foreign bills by the Bank of Japan, constituted the im- portant factors. Against this, however, there were excess of importation for several consecutive years, the repayment and payment of capital and interest of the foreign loans, and the purchase of warships and arms from foreign countries. It was 1 Based on Financial and Economical Year Book of the Finance Department and Ginko Tsushin Roku {Banker's Magazine, Tokyo). Gold reserve is the reserve fund for the issue of convertible notes, and includes gold coin and bullion. EFFECTS ON THE MONEY MARKET ^6^ mostly due to the subscription and conversion of foreign war loans that the maintenance and increase of the gold reserve was made in the face of these factors. Effects on the Currency and Prices In another monograph of this series ^ a full account is to be given of currency and prices. In this part, therefore, partly because of the limit of space and partly for the avoidance of repetitions, only a statistical summary is given. It goes without saying that the issue and conversion of war and armament loans swelled the currency and led to the rise of prices. From the Restoration to 1881 prices generally showed an advance, which was undoubtedly due to the increase of gov- ernment paper money, the Restoration and the Satsuma Re- bellion having greatly swelled the currency. From 1881 to 1887 prices were much lowered on account of the contraction of currency. From 1888 to 1893 prices rose with the gradual ex- pansion of currency. This was due to the rise of enterprises encouraged by the specie influx and the fall of money interest as a result of the favorable balance of trade, which in turn was due to the completion of divers readjustments. The expan- sion of currency and the rise of prices in this period can be said to have no particular relation to the war and armament loans. But during the first half of the period from 1894 to 1900 the ex- pansion of currency and the rise of prices were primarily due to the increase of temporary loans in connection with the Sino- Japanese War, and to the consequent increased issue of con- vertible notes beyond the legal limit ; while during the second half of the same period the expansion of currency and the rise of prices were primarily due to the receipt of the indemnity, to the extension of the authority of the Bank of Japan with re- gard to the issue of bank notes on security reserve, to the con-, sequent lowering of interest on the part of the Bank of Japan, and to the rise of the enterprising spirit. From 1900 to 1903 there was a contraction of currency and ^ War and armament expenditures of Japan. 1 68 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Currency and Prices' Calendar Year Government Loans Paper Money and Convert- ible Notes Circulation of Specie Total Amount of Currency Index No. Yen Yen Yen Yen 1868 24,037.390 24.037,390 1869 50,090,867 50,090,867 1870 55,500,000 55,500,000 1871 60,272,000 12,440,817 72,712,817 1872 68,400,000 39.307.394 107,707.394 1873 79,743,224 60,446,286 140,189,510 95 1874 93.897.304 59,108,881 153,006,185 99 1875 100,491,870 53,339.159 153.831.029 102 1876 106,891,583 56,800,761 163,692,343 102 1877 9,486,000 119,149,843 56,191,012 175,340,855 102 1878 15,000,000 165.697.598 56,297,184 221,994,782 100 1879 15,000,000 164.354.935 51,557.167 215,912,102 100 1880 15,000,000 159.366,837 44,627,243 203,994,080 93 1881 15,000,000 153.302,013 42,440,585 195,742,598 90 1882 15,000,000 143.754,363 46,622,128 190,376,491 90 1883 10,000,000 132,275,013 50,351,213 182,626,226 91 1884 12,000,000 124,396,176 53.581,787 177.977,963 94 1885 15,066,205 122,456,646 55.665,719 178,122,365 99 1886 36,882,892 136,852,146 38,330,610 175,182,756 96 1887 36,790,808 137,873,981 31,290,721 169,164,702 99 1888 23,081,755 140,184,977 37,362,555 177,547.532 103 1889 10,271,243 146,760,892 41,901,903 188,662,795 108 1890 32,000,000 162,015,201 51,256,594 213,271,795 113 1891 32,000,000 168,490,775 51,235.839 219,726,614 113 1892 32,000,000 170,562,117 46,224,004 216,786,121 116 1893 32,000,000 187,826,247 50,672,072 238,498,319 123 1894 51,530,000 185,000,044 62,712,241 247,711,285 132 1895 71,500,000 212,262,825 69,737,986 282,000,811 « 34,966,916 » 140 1896 76,000,000 224,187,957 76,185,729 300,373,686 153 1897 28,831,132 238,704,885 91,765,257 330,470,142 42,967,585 " 172 1898 22,000,000 204,678,190 80,941,508 285,619,698 22,829,662 » 161 1899 24,500,000 255.669.431 82,140,051 337,809,482 20,419,871 » 189 ' Shows convertible notes issued on security reserve. ' Based on the Financial History of the Meiji Era; Summary 0/ the Circumstances Attending the Reform of Monetary System; Report of the Commission for the Investi- gation of the Monetary System; Materials for Reference, by the Tokyo Clearing House, and the Special Investigation. The government loans are based upon the Special Investigation of the Finance ' Department, and include exchequer bills and temporary loans of the government. The total amount of currency is the aggregate sum of specie and paper money. The index number prior to 1892 is based upon the report of the Commission for the Investigation of the Monetary System, and was calculated by putting the average prices of commodities in Tokyo from 1873 to 1877 at 100. The figures after 1892 are based on the Investigation of the Bank of Japan, putting the average price of the chief commodities within the country at 100. EFFECTS ON THE MONEY MARKET Currency and Prices — Continued 169 Calendar Year Government Loans Paper Money and Convert- ible Notes Circulation of Specie \ Total Amount of Currency Index No. Yen Yen Yen Yen 1900 40,200,000 230,821,779 89.460,356 320,282,135 41,220,903" 181 1901 77,200,000 216,155,858 92,610,211 308,766,069 22,738.395 " 170 1902 76,850,000 234.077,745 94,478,002 328,555.747 2,975.560 " 176 1903 56,849,200 234.859.918 98,231,864 333.091.782 187 1904 154,849,200 288,524,145 102,607,863 391,132,008 83,044,526 ■» 203 1905 178,624,200 314,676,557 116,857,137 431,533.694 79,195,793 ' 217 1906 134.695.333 341,766,164 135.177,144 476,943.308 74,564,039 " 222 1907 78,482,157 369,984,111 138,452.757 50q,436,868 88,241,980" 237 1908 ,75.753,603 352,734.272 150,665,475 503,399,741 63.329,758 ° 215 1909 99,508,649 352.763.201 159,214,164 511,977,365 14,919,926" 214 1910 147.390.292 401,624,928 168,130,182 569,755.110 59,242,463 " 226 1911 205,591,202 433.399,116 174,637,603 608,036,719 84,244,896 " 235 1912 154.513,877 448,921,708 175.089,776 624,011,484 81,898326" 251 "Shows convertible notes issued on security reserve. depression of prices which were chiefly due to the continuous efflux of specie caused by successive unfavorable balances of trade and the consequent contraction in money circulation. It must be admitted, therefore, that this phenomenon had little to do with war and armament loans. The unprece- dented increase in currency and prices in the years extending from 1904 to 1907 was undoubtedly due to the enormous tem- porary loans in connection with the Russo-Japanese War, and also due to the issue of notes in unprecedented excess in order to have the fund raised by foreign war loans transferred to Japan. The period subsequent to 1908 was one of commer- cial crisis; there was a slight contraction of currency and a slight fall of prices. After 1910 there was a remarkable ex- pansion of currency and a rise of prices, due to the increase of 170 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS temporary loans for the conversion of domestic and foreign loans, inclusive of war and armament loans, and due to the enor- mous amount of money raised by foreign loans and trans- ferred to Japan. It was not long, however, before the reaction was felt in the economic and financial world. , Thus the year 1 912 drew to its close amid general depression. Effects on the Rate of Interest In the chaotic period of political renovation of the first years of Meiji it was only natural that money interest should have had no fixed standard by which to abide. Even though the paper money for war expenses had not been issued, the rate of interest would have been very high. During the period ranging from 1868 to 1873 the average bank rates of interest on se- cured loans ran from 14 per cent to 18 per cent per annum. This rate can not be assigned to the issue of government paper money. Though money interest slightly fell in 1 875-1 876, it rose again in 1877, the reason assignable for this rise being the fracture of credit and rise of prices which accompanied the increased issue of inconvertible paper money and bank paper money. How exorbitant were the interest rates at that time may be learned from the promulgation of the Usury Law by Notification No. 66, September, 1877, whereby a restriction was imposed that the interest on 100 yen or less should not exceed 20 per cent per annum ; 100 yen to i ,000 yen, 1 5 per cent per annum; and from 1,000 yen upwards, 12 per cent per annum. Notwithstanding these legal restraints, the interest rates rose by leaps and bounds, which was due to the issue of the reserve paper money and inconvertible notes. This high rate continued till 1881, when the readjustment work was commenced. The rise of money interest prior to 1881 may be clearly seen from the table on the opposite page. When, in 1881, the readjustment of inconvertible paper money was entered upon, prices began to decline, followed by a EFFECTS ON THE MONEY MARKET Interest on Loans in Tokyo, i 868-1881' 171 Calendar Year 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 Maximum Per Cent 18.00 18.00 18.00 12.00 15.00 15.00 18.00 18.00 Minimum Per Cent 6.00 7.00 6.00 9.00 8.00 8.00 9.00 7.20 Average Per Cent 14.00 13-50 13.80 14.00 13 50 12.80 12.96 11.80 12.01 10.00 10.43 12.16 13.12 14.06 fall in money interest. In 1886 the work of readjustment was brought to a successful conclusion, money circulation became more sluggish, bringing down money interest, and a convenient opportunity was offered, as has been noticed, for the flotation of the navy loan and for the consolidation of public loans. The decline of the rate of interest is indicated by the fact that at the time the Bank of Japan was established the rate of dis- count stood at 2.8 sen per diem, while in 1886 it fell to 1.35 sen per diem. The average rate of interest in the city of Tokyo in 1882 stood at 10. 1 per cent per annum, and fell to 9.16 per cent in 1886 and to 8.74 per cent in 1887. The above may be looked upon as the influence of the issue and redemption of government paper money, i.e., war loan, upon money interest. Subsequent fluctuations in money interest, however, can not be traced to the same cause. Thus, in 1887, the fall of money interest, together with the commencement of the exchange of silver coins, brought about a favorable balance of trade, and with it the rise of enterprises. 1 The figures prior to 1874 are based on the investigation of the Mitsui Bank, and the figures after 1875 on the investigation of the Tokyo Bank Association. The average shows the average of the twelve months of each year. The figures after 1875 are calculated on the basis of loans ranging from 1,000 yen to 10,000 yen. 172 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Within a short time subsequent to 1890 a reaction came and money circulation became stringent, bringing about a sort of panic. The rich harvest of rice for 1 890-1 891 and the depre- ciation in silver coins from 1891 remedied the unfortunate tendency in foreign trade. The financial markets were again rejuvenated, money circulation became sluggish, and the fall of interest in 1893 was quite an unprecedented one. The follow- ing tables show the rate of interest at the main office of the Bank of Japan during the period extending from its establish- ment to 1893, and the rate of interest on loans in Tokyo City: Interest Rate of the Bank of Japan (Main Office), 1882-1893 ' (Sen Per Day for Every lOO Yen) Revised Date Days of Continuance Time Loan Rate of Discount of City Bills Rate of Discount of Country BilU October i, 1882 November 21, " December i, " March 14, 1883 October i, " November 29, " December 10, " April 26, 1884 July 3. " July 17, " August 12, " November 19, " February i, 1885 April 2, " April 17, *' August 6, " August 25, " March 4, 1886 April 9, '* May 3, " May 28, " June 22, " October 14, " October 22, " January 24, 1887 January 4, 1888 March 9, " May II, " June 2, '* August 24, " September 29, " January 4, 1889 February i, " February 19, " May 8, " June I, " August 19, " September 3, " June 14. 1890 41 10 102 201 S9 II 138 68 14 26 99 74 60 IS III 19 191 36 24 25 2S 114 8 94 345 65 63 22 83 26 97 28 18 78 24 79 15 284 128 Sen 3.01 (11% perannum) 01 2.74 2.47 2.19 2.19 2.19 2.19 2.19 2.19 2.33 2.47 2.74 2.47 2.19 2.05 1.92 1.92 1.73 1.64 1. 51 1.37 I. S3 1.64 ISl 1.64 1-59 1.64 1.73 1. 81 1.86 1. 81 1.75 1.70 1.75 1.81 1.86 1.92 1.78 (11% (10% (9% (8% (8% (8% (8% (8% (8% (8.5% (9% (10% (9% (7.5% (7% (7% (6.3% ^*%^ (5.5% (5% (5.5% (6% (5.5% (5.8% (6.3% (6.6%' (6.8% (6.6% (6.4% (6.2% (6.4% (6.6% (6.8% (7% (6.5% Sen 2.80 2.60 2.60 2.40 2.20 2.10 2.00 1.80 2.00 2.10 2.20 2.40 2.60 2.40 2.30 2.00 1 .90 1.80 1.70 1.60 I. SO 1.3s I. SO 1.60 I. SO 1.60 I. SO 1.60 1,70 1.80 1. 85 1.80 1.75 1.6s 1. 75 1.80 1. 85 1.90 1.70 Sen 2.50 2.30 2.20 2.00 2.20 2.30 2.40 2.60 2.80 2.60 2.50 2.20 2.10 2.00 1.90 1.80 1.65 l.SO 1.6s 1.80 1.6s I. So 1.65 1.80 1.8s 1.90 2.00 1.95 1.90 1,80 1.90 1.9s 2.00 2.10 ^ Based on an investigation of the Bank of Japan. EFFECTS ON THE MONEY MARKET TABLE II 173 Interest on Days of Loans and Rate of Rate of Revised Date Rate of Discount of Discount of Discount on Security City Bills Country Bills respondence Sen Sen Sen Sett October 20, 1890 133 1.90 1.80 2.00 March 2, 1891 6S 2.10 2.00 2.20 May 6, " 76 1.90 1.80 2.00 July 21, " 492 I-7S 1.70 1.8S November 24, " 119 1.6s 1.60 1. 75 March 23, 1892 69 I. SO 1.40 1.60 1.70 May 31, 1893 94 1.30 1.30 1.40 1.70 September 2, " 80 1.50 I. SO 1.60 1.70 November 21, " 62 1.70 1.70 1.90 1.90 Interest on Loans in Tokyo, 1882-1893^ Calendar Year Maximum Minimum Average 1882 Per Cent 13.00 9.08 15.00 16.50 10.50 11.00 12.00 12.00 12.15 II. 10 9.18 9.26 Per Cent 7.20 6.80 10.25 10.00 7.06 7 13 8.00 8.00 9.07 7.81 7-37 5.65 Per Cent 10. 10 i88s 7-59 10.92 11.38 9.16 8.74 1884 i88s 1886 1887 1888 9.66 10.17 1889 1890 10.50 iSqi 9.33 1892 8.37 189-;. 7.19 The fluctuations in money interest after the Sino- Japanese War were largely due to the vicissitudes of government and private enterprises and of foreign comm'erce. At the begin- ning of the war, however, the influence on interest caused by funded and floating war loans was by no means insignificant. Before the outbreak of the war the Bank of Japan, in antici- pation of the hostilities, raised the rate of interest by one rin per diem.2 On June i8, 1894, and in July, when the war broke out, the bank further raised the interest by 2 rin per diem.' By this time the government had contracted a temporary loan 1 Based on an investigation of the Tokyo Association of Bankers. ^ Daily interest one rin per lOO yen, i.e., one yen per 100,000 yen. ^ Cf. table above. 174 ^AR AND ARMAMENT LOANS: ECONOMIC EFFECTS of 50,000,000 yen from the Bank of Japan as an urgent finan- cial measure. This sum, together with the surplus brought over from the preceding fiscal year, had been appropriated for the war expenditures. Changes in interest after 1894 can be regarded as the result of the flotation of war loans, but the sluggishness of money circulation for several years, together with the completion of the banking system, the increase of the capital of banks, and the withdrawal of funds in anticipation of the war by means of the raising of the interest by the Bank of Japan, checked any unnecessary rise in interest. In 1895 a tremendous amount of war loans was floated, but there were no remarkable changes in the rate of interest during the same year. But after the war, in the first half year of 1896, the in- creased war loans at last began to affect the rate of interest. At the close of 1895 the war expenditures were estimated at 159,000,000 yen, which were disbursed out of the fund raised by public loans, amounting to 85,000,000 yen, to say nothing of the use of the surplus and the special accounts funds. Until May, 1896, the temporary loans from the Bank of Japan, and the fund advanced out of the several special accounts, re- mained still unredeemed. The government was obliged to make the Bank of Japan issue convertible notes to the amount of 50,000,000 yen, on depositing with the bank 50,000,000 yen out of the indemnity deposited in London. Moreover, the general rise of the enterprising spirit, which was wit- nessed from the beginning of 1895 in expectation of the victory, reached its climax with the receipt of the indemnity in the lat- ter half of 1895. Prices ran up, and the balance of trade turned unfavorably. Just then there were rumors of failure in the rice and barley crops, and the financial world became quite alarmed. When the government tried to raise the remainder of the war loan, amounting to 35,000,000 yen, in March, 1896, the rate of interest in Tokyo ran as high as 7 per cent to 8 per cent, promising a gloomy prospect for the subscription. Therefore the government resorted to a special issue, delivering to the Deposit Section 25,000,000 yen, and the remainder, 10,000,000 yen, being floated in the market on eight occasions; notwith- EFFECTS ON THE MONEY MARKET 175 standing which the results could not have been worse, only 1 ,500,000 yen having been subscribed. As a result of the loan on the deposit of the indemnity the money circulation became sluggish. Prices rose, however, by the increased issue of convertible notes, which tightened the money market in July, and interest was raised by one rin at the end of September. In Osaka a certain bank suspended payment, and the year came to a close with great financial uneasiness. The Bank of Japan raised its interest by 2 rin on June 14, 1897. From that time to March 14 of the following year the rate of interest was raised on five occasions by the same bank. Interest on loans and the rate of discount on security was 2.7 rin per day, the rate of discount of city bills was 2.4 sen per day, and the inter- est on overdrafts stood at 2.9 sen per day. In view of this financial distress the government decided to remedy the situation by the use of the indemnity. It set about the purchase of public loans with convertible banknotes, which the government got from the Bank of Japan upon de- posit of the indemnity. Thus, from April, 1898, to October, 1898, the Bank of Japan purchased consolidated, war, navy and hereditary pension bonds, and imperial 5 per cent bonds, etc., which totalled 38,707,770 yen. As a result the monetary circulation became somewhat sluggish, and the rate of interest showed a tendency towards depreciation. The above facts show that increased issue and the redemption of war loans and temporary loans had something to do with the fluctuations of interest. In March, 1899, the Bank of Japan was authorized to increase the limit of issue on security reserve to 120,000,000 yen, with an addition of 35,000,000 yen. Just then the arma- ment expansion program was in course of execution, and there were some indications that this prompted the increased issue of convertible notes in the form of temporary loans. On the whole, however, the Bank of Japan lowered of its own accord its rate of interest on several occasions in order to stimulate the enterprising spirit. As a result prices advanced, the balance of trade became unfavorable, and the efflux of specie seemed to know no bounds, thus reducing the specie reserve of the 176 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Bank of Japan day by day. In June, 1900, the Boxer Uprising occurred, and our country despatched a big army in concert with the other powers. This gave rise to the increased issue of convertible notes as temporary loans for war expenditures. Prices and interest rose again. The eflflux of specie became marked. The specie of the Bank of Japan decreased even to 60,000,000 yen, thus reducing monetary circulation to an alarm- ing stringency, till it ended in the great panic of 1901. The tightness of money circulation since the latter half of 1900 put the banks on their guard — so much so that the smaller banks in the provinces were cut off from the supply of money and were reduced to bankruptcy. During 1901 the banks which suspended their payments in the Kwansai districts, headed by Osaka, numbered thirty-four, and an unheard-of confusion and turmoil was witnessed in the financial world. This also goes to prove the close connection between the war loans and fluctuations of interest. With the decline of credit transactions the money market was gradually adjusted. With the opening of 1902 money circulation became a little sluggish, a favorable balance of trade returned, and the banks lowered the rate of interest. In March, 1902, the Bank of Japan lowered its rate of interest by 2 rin, and there was a lowering of 8 rin on five occasions by March of the following year. To sum up what was said be- fore, from the outbreak of war to May 8, 1896, fluctuations in the rate of interest were brought about by war loans, and afterward by the issue of temporary loans connected with the Boxer Uprising in 1900-1901. The inflation of convertible notes and the consequent rise of prices gave rise to a marvel- ous increase in money interest in 1901. Other fluctuations in interest were brought about by other causes of which the receipt of indemnity played an important part. It lowered the interest and helped on the progress of enterprise to no small extent. Various tables concerning the money interest during the period to substantiate the above statements are given on the next two pages. The condition of our economic world in 1903, the year pre- vious to the outbreak of Russo-Japanese War, was that the EFFECTS ON THE MONEY MARKET 1 77 Rate of Interest at the Bank of Japan (Main Office), 1894-19031 Revised Date Days of Contin- Interest on Loans and Discount on Security Rate of Discount of City Bills Rate of Discount of Country Bills Interest on Over- drafts Interest on Corre- spondence January 22, February 8, June 18, July 26, July 12, September 7, June 14, August II, October 23, February 9, March 14, October 8, December 7, February 10, March 11, April 12, July 28, February 10, February 27, December 19, March 20, April July March June October December March 1894 189s 1896 1897 1898 1898 1899 1900 1902 1903 17 130 38 350 423 280 58 73 109 33 208 60 65 29 32 107 105 17 22 91 29 91 609 100 98 67 99 472 Sen 2.0 2.0 .7 ' . 2.3 •■ .7 » .4» 2.7« .Si- 2.8" .61= • 9° 2.7 b .7 • • S'' • s ■ ■4» ,2.2b ' 2.2 » 2.0 b .9" .0 » .8b Sen 1-9 2.0 1-9 2.0 ■ 4' .2.2b 5' . 2.3 b .6» •4'' •4' 2.2 b f 2.2 a .9b .0 " .8b .9" .7b .8> 1. 6b .B» .7b ■ 9 .9 . I .3 ■4 1.7 1.6 Sen 2.0 2. 1 2.0 2.3 2.2 2.3 2.3 b 2.4b 2.5b 2.6b ^.7b 2.5 b :..3b 2.2 b 2.2 b 2.0 b 1.9 b ^.0 b 2.2 2.2 2.4 2.6 2.7 2.5 2.3 2. I 2.0 1-9 Sen 2.0 2.1 2.2 2.3 2.2 2.3 2.5 b 2.6b 2.7 b 2.8b a.9 b 2.7b ;..5b ..4b 2.2 b i.I b 2.2 b 2.1b 2.3 2.4 2.6 2.8 2.9 2.7 2.5 2.3 2.1 1.9 Sen 2.2 2.3 2.2 2.3 2.5 b 2.6b a.7 b 2.8b 2.9b :..7b 2.5 b ^.4b 2.2 b ^.ib 2.2 b 2.1b 2.3 2.4 2.6 2.8 2.9 3.7 2-5 2.3 2.1 1-9 * Individual. b Bank. Rate of Interest in Tokyo at Associated Banks, 1894-1903 Daily Rate of Daily Rate of Daily Rate of Interest on Interest on Cur- Interest onTime Cal- Loans Discount rent Deposits Deposits Year One Two Three Max. Min. age Max. Min. age Max. Min. age Month Months Months Sen Sen Sen Sen Sen Sen Sen Sen Sen Percent Per Cent Percent 1894- . • 2.96 2.13 2.54 3-70 2.14 2.64 I. IS 0.79 0.97 5.46 4-27 4.91 1895- • • 2.93 2.32 2.63 3 23 2.32 2.71 23 0.92 1.06 S.93 4.77 5.37 1896... 2.93 2.28 2.54 3 00 2.25 2.59 31 0.98 I. IS 6.05 4-94 5.49 1897- . . 3.26 2.SS 2.79 3 19 2.53 2.83 so 0.99 1.27 6.44 5.31 5-89 1898. . . 3.34 2.75 3.09 3 48 2.67 3.13 84 1. 31 1 .64 7.35 6.43 6.97 1899. . . 2.93 2.00 2.44 3 10 1.89 2.31 79 1.20 1.46 6.62 5.93 6.26 1900. . . 3.40 2.43 2.98 3 34 2.33 2.90 80 1.33 1.62 7.19 6.71 7. -03 1901.. . 3.70 3 02 3 .24 4 19 2.89 3.18 82 1.62 1-74 7.56 7.10 7.38 1902. . . 3-30 2.00 2.83 3 25 1.80 2.67 79 0.50 i-Si 7.06 6.62 6.93 1903- . . 3.70 1. 10 2.35 3.50 1.40 2.10 I 60 0.30 1.70 6.00 S.S6 5.83 1 Daily interest is to be calculated per 100 yen. If not a leap year, 3 sen per diem becomes 10.95 yen, or 10.95 per cent per annum. 13 1 78 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Rate of Interest for the Whole Country, 1894-1903 Calendar Year 1894. ■ 189s.. 1896. . 1897.. 1898.. 1899.. 1900. . 1901.. 1902.. 1903. . Interest on Loans » Max. Min. Average Per Cent 13-85 13.9s 13.92 13.86 14.50 12.90 14.10 14.40 13.90 12.60 Per Cent 8.83 9.21 8.9s 9.68 10.46 8. 80 9.80 11.60 10.00 9.00 Per Cent 10.46 12. IS 13.09 12.09 10.90 Daily Rate of Discount •> Max. Min. Average Sen 3-97 4.02 3-93 4.0s 5.20 3.78 4.00 4.06 3-93 3.4s Sen 2.69 2.83 2.76 2.83 3-20 2. SI 2.79 3.3s 2.78 2.43 Sen Interest on Time Deposits" Max. Min. Average Per Cent 5 ■ S4 - S.81 6. 14 6.47 7.50 6.90 7. SO 7 SO 7.60 6.90 Per Cent 3.38 3.86 40S 4.20 4-95 S.70 5. 90 6.80 6.30 SSO Per Cent 6.28 6.79 7.23 6.96 6.15 ^ The rate of interest on loans prior to lOO is tiie annual rate on loans, amounting to from i ,000 yen to 10,000 yen, with the term fixed at three months, and made on the security on negotiable instruments. The interest rate on loans after 1900 is the annual rate on loans, between 5, 000 yen and 10,000 yen, with the term fixed at three months, and on the security of negotiable securities and goods. '' The daily rate of discount is the rate on city bills discounted worth 100 yen. " The daily rate on time deposits is the annual rate of interest on loans, with the term fixed at six months. rice crop was abundant; the amount of foreign trade showed over 606,000,000 yen; the money interest was below 5 per cent per annum; the money market became more and more sluggish, and the subscription of company debentures came into vogue. At the outbreak of the war more than 90 per cent of the war expenditures was covered by domestic and foreign war loans. The loans floated in the domestic money market were tempo- rary loans for the replenishment of armament, extraordinary loans for the construction of warships and other vessels, ex- traordinary affairs expenditures loans and Treasury bills, total- ling 200,000,000 yen in round figures. The issues took place in 1 904-1 905 and gave rise to the in- creased issue of convertible notes, and burdened the domestic market. In the second place, the issues of exchequer bonds during 1904 amounted to 200,000,000 yen and those during 1905 amounted to 280,000,0003/^^. The average summonthly absorbed by the national Treasury out of the money market is calculated at 126,000,000 yen. The outbreak of war had been anticipated as early as October, 1903, when the negotiations with Russia threatened diplomatic rupture. The money markets both of Tokyo and of Osaka began the withdrawal of funds, and the rate of interest was raised by 3 rin per diem in EFFECTS ON THE MONEY MARKET 1 79 order to decrease the demand for funds. Therefore, when the declaration of war was made in February, 1904, no bank at- tempted to raise the rate of interest. In June of the same year, however, the 130th Bank of Osaka suspended payment, which was followed by a run on various banks in Osaka. The Bank of Japan raised the rate of interest by 2 rin per diem on July I. On the other hand, the subscription of foreign loans amounted to a formidable sum, totalling 820,000,000 yen in round numbers, during the period ranging from May, 1904, to July, 1905, which was raised by the first and second 6 per cent loans and the first and second 4.5 per cent loans. In order to have the fund obtained by these loans transmitted to Japan, there was an increased issue of convertible notes. Our economic situation was greatly relieved by the Russian surrender of Port Arthur in January, 1905, and the interest showed a decline. The great victory at Mukden, followed by the decisive battle on the sea of Japan, animated the popular spirit and the stock market experienced a boom trade and in- dustry became active which, together with a rise of prices, called forth a demand for funds. Money circulation became gradually, tight, and the rate of interest in 1905 was higher than that of the preceding year. The treaty of peace^ signed on September 5, 1905, fell short of the expecta;tipn of the nation, which gave rise to the de- pression of popular feelings and discouraged the enterprises which had just been stimulated. Demand for money came to a standstill. In November, 1905, a 4 per cent sterling loan amounting to 244,000,000 yen was raised. The exchequer bonds bearing high interest, which were to have been con- verted and redeemed out of this flotation, were converted into a domestic extraordinary military expenditures loan. The greater part of the fund raised by foreign loans was equivalent to a new subscription; the interest rate was thus declining. Simultaneously with this various priyate companies imported foreign capital, and local self-government bodies also intro- duced enormous foreign funds. These also played an impor- tant part in the expansion of domestic money circulation. l80 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Encouraged by the plentiful supply of funds on the one handy and by the enthusiasm for new enterprises on the other, the monetary world after the war fostered the enterprising spirit. This spirit, manifested itself in the stock market in the latter half of 1906. Simultaneously an increase of capital was planned in various companies, such as cotton-spinning com- panies, sugar-manufacturing companifes, fertilizer companies, etc. The hydro-electric industry made its first appearance. The subscription to the 99,000 shares (100 y&n per share) of- fered by the South Manchuria Railways Conipany at its establishment reached 1078 times as much as the amount offered. From that time forward the mania for new enter- prises grew more and more, and was manifested in many simi- lar phenomena in every field, the number of new projects in 1907 being quite beyond enumeration. The reaction, however, came through the slump of shares and stock in January, 1907. In February of the same year an ominous cloud appeared in Nagoya and its neighborhood, which advanced to Tokyo. In March several dealers in sugar in Tokyo and Yokohama became insolvent. In April the in- terest tightened by one rin or two rin per diem. In May a revulsion came in the money markets of the Kyushu, and a new relief movement appeared. In October the panic which occurred in America dealt a severe blow to our commerce with America, and the stringency of money circulation grew more and more. The government again tried to mitigate it by the flotation of foreign loans. In March, 1907, it tried to float the remainder of the 4 per cent sterling loan amounting to £25,000,000. The changed situation in Europe did not favor this project, and the government was thrown back upon the flotation of 5 per cent bonds, amounting to 224,000,000 yen. By the flota- tion of this loan, 6 per cent foreign bonds amounting to £22,- 000,000 were converted. Thenceforward, in order to main- tain the credit of our national loans, the government first converted 5 per cent domestic loans by three issues of 4 per cent domestic loans, totalling 278,000,000 yen, in February and March of 1910. Moreover, the sum to be transferred to the sinking fund was augmented. In April and May the conver- EFFECTS ON THE MONEY MARKET l8l sion of 5 per cent domestic loans, including the war loan, ex- chequer bonds, navy loan, etc., was effected by the flotation of 4 per cent French and sterling loans, totalling 282,000,000 yen. By this expedient not only were domestic loans converted into foreign loans, but there was also an increase of the amount of public indebtedness on account of the lowness of the issue price of the loans. Thus, in 19 10 and 1911, a temporary sluggish- ness in nioney circulation came about, attended with a low rate of interest. Nevertheless, owing to the inflation of con- vertible notes, prices suddenly went up, stimulating bubble enterprises. Soon afterwards stringency of money circulation was brought about, which prevented the execution of govern- ment works and repressed private undertakings. Financial and economic development was checked, and there was noth- ing for it but to resort to the adjustment of public finance in order to bring about the contraction of currency and the fall of prices, and thus to regulate the monetary circulation. It was at this moment that the present reign commenced. The following table shows the fluctuations of interest from the Russo-Japanese War to 1912: Fluctuation in Rate of Interest at the Bank of Japan (Main Office), 1904-1914'^ Revised Date Days of Continuance Interest on Loans and Rate of Discount on Security Rate of Discount of City Bills Rate of Discount of Country Bills Interest on Overdrafts and Corre- spondence July 3, 1904 December 19. " June 16, 190S March 13, 1906 May I, " July ^ '. " December 14, 1907 May 4, 1909 August 13. " January 11, 1910 March 7. " September 27, 1911 January i, 1912 February 7. " October 2, 1913 November 14. " July 6', 1914 170 179 270 49 6 521 517 lOI 151 55 S69 96 ' 37 238 43 599 Sen 1.90 2.10 2.30 2.10 1.90 1 .90 2.20 2.00 I. go 1.60 1.40 i.6o" 1.60 « 1.70 » 1.80" 1 .90 ■* 2.10 • Sen 1.80 2.00 2.00 2.00 1.80 1.80 2.00 1.80 1.60 1.40 1.30 I. SO 1.50 1.60 .1.70 1.80 2.00 Sen 2.10 2.30 2.50 2.30 2.10 2. 10 2.30 2.10 1.90 1.50 1.30 1.50 1-50 1.60 1.70 , 1.80 2.00 Sen 2.10 2.30 2.50 2.30 2.10 2.10 2.30 2.10 1.90 1.70 I. SO 1.70 1.70 1.80 2.00 2.10 2.30 * Minimum rate. ' Loans and discount on security after May, 1906, show loans and discount rate on security other than national loan bonds. Interest on loans and rate of discount on national loan bonds security are one rin lower. 1 82 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Rate of Interest in Tokyo, 1904-1913 Daily Rate of Daily Rate of Daily Interest on Interest on Time Cal- Interest on Loans Discount Current Deposits Deposits endar Year Aver- Aver- Aver- One Two Three Max. Min. age Max. Min. age Max. Min. age Month Months Months Sen Sen Sen Sen Sen Sen Sen Sen Sen Per Cent Per Cent Par Cent 1904. . . 3.70 1. 10 2.33 3.40 1-45 2.16 1.60 0.30 0.97 5-75 5.40 S.S4 1905... 3. SO 1.60 I.S2 3.50 1 .60 2.40 1.70 0.30 1. 01 5.95 5. 58 5-73 1906.. . 3. so 1.60 2.39 3-50 1.40 2.16 1.70 0.30 0.95 ■ 5:79 5.41 5-55 1907... 3-50 1.70 2.35 3-20 1.60 2.17 1.80 0.30 0.91 5. 60 5.23 5. 41 1908. . . 3. SO 1.80 2.63 3.50 1.80 2. 54 I. go 0.30 1.02 6.18 5.82 6.02 1909. . . 3.50 1.20 2.36 3-40 0.95 2.09 1.70 0.50 0.89 S.68 5.22 S.48 1910. . . 3.30 0.70 1.99 3.10 0.85 1. 58 1.30 0.30 0.64 4.63 4-25 4-43 1911.. . 3.30 0.7S 1.93 3.20 1. 00 I.6i2 I. SO 0.30 0.64 4-51 4.14 4-34 1912. . . 3.30 1. 00 2-IS 3.50 1.30 1.99 1.80 0.30 0.86 5.4s 5.02 S.30 1913.. . 3.30 1.60 2.45 3.20 1.60 2.30 1.80 0.50 1. 01 6.20 5-85 6.09 Rate of Interest for the Whole Country, 1904-1912 Calendar Interest on Loans Daily Rate of Discounts Interest on Time Deposits Year Max. Min. Average ' Max. Min. Average Max. Min. Average 1904 190S 1906 1907 1908 1909 1910 1911 1912 Per Cent 12.3 12.6 12.4 ii-S 12.2 II. 9 10.7 10.3 IX. 2 Per Cent 9.0 9.3 8.4 8.3 9.2 8.2 7.1 7.0 7.5 Per Cent 10.74 11.02 10.27 9.92 10.79 10.00 8.70 8.36 9.0,0 Sen 3.39 3.44 3.36 3.16 3.33 3.23 2.87 2.73 3.10 Sen 2.48 2.57 2.25 2.23 2.47 2.07 1.79 1.78 1.98 Sen 2.94 3.01 2.77 2.65 2.94 2.67 2.28 2.20 2.41 Per Cent 6.4 6.5 6.5 6.2 6.6 6.6 5.8 5.1 6.3 Per Cent 5.6 5.7 5.5 5.4 5.5 5.2 4.4 4.4 4.6 Per Cent 5.98 6.08 5-93 S-73 6.08 S.82 4-97 4-72 S.20 Effects on the Specie Reserve Abroad In July, 1877, the government deposited in public offices stationed abroad, or in foreign banks, the foreign coins (specie) which had been received abroad. This fund was to be ap- propriated to the repayment of the principal and interest of foreign loans, the purchase of warships, or to the expenditures of government offices. Further, gold and silver bullion was purchased with this fund in the foreign market; sometimes it was transmitted home by bills of exchange. This wg,s called "the foreign deposit in the reserve fund section in the national Treasury," and was the first attempt on the part of the gov- ernment to accumulate specie abroad. Just then the amount pFFECTS ON THE MONEY MARKET 1 83 I of receipts abrqad was very scanty and was inadequate to meet foreign disbursements. With the enactment of the foreign ex- change law, October, 1880, ^ the fund suddenly increased. In accordance with the object for which it established the Yoko- hama Specie Bank, the government deposited with the bank paper money amounting to 3,000,000 yen, which was set apart to serve as the fund for foreign documentary bills. The pro- ceeds of the sale of such bills abroad, received in specie, went to the reserve fund, the object being the patronage and en- couragement of direct exporters on one hand, and on the other the saving of any special remittances in order to repay foreign loans or to disburse miscellaneous expenses of the public offi- cers stationed abroad. In 1882 this regulation was revised by the New Foreign Documentary Bill Regulation, by which the machinery of foreign exchange was extensively readjusted. With the enactment of a regulation in 1884 with regard to the drawing of bills of exchange by foreigners the system of foreign exchange was brought to completion. The main object of en- couraging foreign exchange by advances out of the govern- ment reserve fund lay in obtaining specie abroad. The gov- ernment proposed to accomplish this by changing paper money into bills of exchange. The paper money in the reserve fund consequently witnessed a great decrease, and in 1888 it was unable to meet the drawing of documentary bills. An expe- dient was resorted to whereby the fund to be paid abroad from the general account should be utilized for the documentary bills. The documentary bills of the direct exporters, however, were not infrequently delayed in the repayment abroad, thus causing great inconveniences to the government. The utili- zation of documentary bills on the part of direct exporters was abolished in 1888. The foreign deposits of public offices abroad had hitherto been made in branch or detached offices of the Yokohama Specie Bank or reliable foreign banks. When, however, the branch or detached offices of Yokohama Specie Bank came gradually to be esta,blished in Europe and America, the whole ' Deposit Fund Regulation. 184 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS of the foreign deposits were transferred to the specie bank (except in China), and the specie bank was charged with the disbursements of the public officers. Thus, with the re- peal of the regulation relating to documentary bills, foreign deposits were also abolished in 1889, and the final settlement was accomplished in March, 1890. The total amount of the receipts and disbursements from July, 1877, to July, 1890, was calculated at 86,003,719 yen, itemized in the following table: Receipts and Disbursements, July, 1877-JuLY, 1890 Items Receipts Items Disbursements Repayment for advance on documentary bills Proceeds of rice and laminaria (seaweed) belonging to reserve fund Yen 65,161,431 6,661,033 9,565,011 408,405 Payment of principal and interest of for- eign loans by ex- change bills Payment for purchase of warships and other expenditures of gov- ernmental office by exchange bills Payment for purchase of gold and silver Yen 19,771,640 Receipt for payment of unfavorable exchange rate 2,821,8^9 Interest on deposits . . . Total 81,694,871 4,308,848 32,892,297' 4,899,850 Money transmitted from Japan Money transmitted to Miscellaneous expend- itures Grand totaK ..... 86,003,719 80,600 Lost payment and money transferred to perpetual loan account 140,994 Total 86,003,719 After the abolition of the deposits abroad the government received from China the aggregate sum of 355,980,000 yen, in round numbers, including the indemnity for war expenditures and compensation for the retrocession of the Liaotung Penin- sula. The payment of the sum was made in London in Eng- lish currency in several instalments. Upon the receipt of each instalment it was placed in the custody of the London branch of the Yokohama Specie Bank, which acted as the agent of the Bank of Japan. Thus the question of specie abroad sprang up EFFECTS ON THE MONEY MARKET 185 again. The appropriations of this indemnity may be sum- marized in the four items following: 1. The portion appropriated for purchase prices payable abroad for warships, rails, etc. 2. The portion of the indemnity which was to be appro- priated to domestic expenditures. This was to be transmitted to Japan in English coins, bar gold or silver, or by exchanges, according to the circumstances of the money market. 3. If the condition of the money market was inopportune, the portion which was to be transmitted to Japan was to be deposited with our London agent of the Bank of Japan in ster- ling coins. The Bank of Japan was directed to issue convert- ible bank notes on the security of this reserve. The govern- ment borrowed and employed the notes pro tempore. The English coins were gradually exchanged for our currency, and paid back to the Bank of Japan. 4. The remaining portion, which was appropriated to the annual expenditures or other purposes, was preserved in the form of reliable bonds, etc., or deposited with the Bank of Japan for interest, according to the condition of the money market. Receipts, Disbursements and Balances, October 1895-MARCH, 1903 ' Calendar Year Receipts Disbursements Remaining Sum (Specie Abroad) 1895 £ i. d. 13,160,392.03.00 9,335,653-03.06 7,963,981.12.03 13,607,444.19.09 9,199,006.08.09 572,447.17.07 78,185.16.03'' 743,092.06.00 1,108,356.00.00 £ X. d. 18,205,549.16.00 10,151,220.02.02 15,270,409.09.02 9,158,664.13.08 i,059,357.i30i 166,138.19.06° 1,020,813.08.01 141,101.02.08 £ s. d. 13,160,392.03.00 4,290,495.10.06 1896 t8q7 2,103,257.00.07 440,292.11.02 1898 I 8qo 480,634.06.03 IQOO 355,377.10.10 1901 443,330.14.01 1902 165,609.12.00 IQO'?'' 1,132,864.09.04 Total 55,684,269.07.04 54,551,404.18.00 22,572,253.17.09 » Until March only. ** Loss in receipts. <= Withdrawal of disbursements. 1 This table, which is based on the Financial History of Meiji Era, vol. II, shows the total amount of receipts, disbursements and balances at the date when dis- bursements were actually made in London, in English money. They are not in accord with figures in the books kept in the national Treasury. See text on fol- lowing page. 1 86 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS At that time the government decided to adopt the gold standard system, and no small amount of this indemnity was transmitted to serve as a specie reserve. Moreover, in April, 1899, the first 4 per cent foreign loan^ was floated which, to- gether with the sale of domestic loans, made the receipt of specie mount up to a big sum. The balance of the receipts and disbursements of the indemnity and the fund raised by foreign loans constitute the specie reserve abroad.^ The specie abroad after the Sino-Japanese War was based, in the main, upon the receipts and disbursements of the in- demnity, but, since the fund raised by the public undertakings loans and the proceeds of the sale abroad of the war loans also augmented specie abroad, the specie abroad may be said to have some connection with the war and armament loans. During the Russo-Japanese War the government floated foreign loans amounting to 82,000,000 yen. In the fiscal year 1910, 282,000,000 yen, in round numbers, was floated in the English and French markets for the conversion of loans into 4 per cent. With regard to the transmission and the appropria- tion of these foreign loans the government seems to have en- tered into some secret agreement with foreign capitalists. It was believed that the government was not only forbidden to have the fund transmitted in specie, but also was subject to the obligation always to deposit a certain amount of specie in foreign banks as security for foreign interest. The specie in question was not only appropriated to the repayments and payments of principal and interest of national loans, purchase of warships and torpedo boats and other government dis- bursements, but was delivered to the Bank of Japan to serve as specie reserve, in exchange for which bank notes were is- sued in order to meet the domestic payments. Furtherrhore, the specie received by the flotation of public loans and deben- tures in the foreign market was delivered to the Bank of Japan to enable the bank to replenish the specie abroad. Hereupon, the specie abroad was divided into (a) specie abroad owned by the government and (&) specie abroad owned by the Bank of Japan. The specie amounted to a formidable 1 For national defense and public work. ^ See table on preceding page. EFFECTS ON THE MONEY MARKET 187 sum, and its increase and decrease exerted no small influence upon the economic world. Government-Owned Specie Abroad, 1904-1913' Year Amount Year Amount IQ04. Yen 147,000,000 209,000,000 229,000,000 71,000,000 96,000,000 IQOQ Yen 23,000,000 138,000,000 133,000,000 88,000,000 84,000,000 igo'5 igo6 lOII 1907 IQI2 1908 101"^ Average of the above five years Average of the above 150,000,000 93,000,000 According to the publication of the government in the thirty-first session of the Diet the existing amount of specie on December 31, 191 3, was as shown in the following table, which contains the amount and whereabouts of specie abroad. Amount of Specie, December 31, 1913 Yen Owned by national Treasury 86,000,000 Owned by Bank of Japan 285,000,000, Total 371,000,000 Yen At home 130,000,000 Abroad: In England 204,000,000 " France 26,000,000 " America 7,000.000 " Germany .... 4,000,000 241,000,000 Total 371,000,000 The existence of the specie abroad is due to the expansion of international indebtedness which made it both necessary and convenient to keep specie abroad by way of foreign dis- bursement. This, however, deprived convertible notes within the country of elasticity. The unfavorable balance of trade did not contract convertible notes, and prices went up instead of going down. Importation of goods was encouraged and ex- portation declined, thus increasing our international indebted- ness. This necessitated the constant replenishment of specie abroad in order to provide for the disbursement of national expenditures and to protect the foreign trade and exchange fund. 1 Held by the government in order to meet foreign disbursements. The specie possessed by the Bank of Japan was greater in amount, the part of which, was employed as specie reserve. Its variations and the method of custody are not clear. 1 88 war and armament loans: economic effects Monetary Distribution Between City and Country It may be said that war on the whole brings about the prosperity of cities at the expense of the country, because war has a tendency to concentrate capital and labor in the former. Our country has been characterized by the constant centrali- zation of financial and political power since the Restoration. After the Sino-Japanese and Russo-Japanese Wars monetary circulation centered in cities at the expense of the country. For instance, during the Russo-Japanese War 480,000,000 yen was raised from every district of the Empire by five issues of exchequer bonds, thus exhausting the resources of the coun- try. Against this, 820,000,000 yen was raised by the flotation of foreign loans, one-half of which was kept abroad in order to meet the foreign disbursements on account of the war. The other half was transmitted home, only with the result of flood- ing the upper classes in the central cities with money. No small amount of the money, however, flowed out to the scene of action or to foreign countries, partly because of the several issues of the Treasury bills and the flotation of extraordinary military expenditures loans amounting to 310,000,000 yen, and partly because of payment of exchange due to the successive excesses in importation. In the meanwhile the resources of large cities became abundant through the employment of war loans and the centralization and amalgamation of banks, through the expansion of industries concerned with munitions of war, and through government enterprises. The money circulation of the provinces, on the contrary, had little share in this abundant distribution of capital. In addition a ormid- able amount of special taxes was levied on several occasions, to the exhaustion of provincial resources. As a result the patriotic loan bonds which had been in the hands of provincials gradually centered in the cities. Thus the amount of public loan bonds possessed by people of the capital and other large cities greatly increased, while those of the provinces decreased. When, after the war, the government redeemed the war loans, either out of the continu- EFFECTS ON THE MONEY MARKET 1 89 ation of increased taxation or by means of conversion, it was quite natural that the money deHvered as repayment and pay- ment of principal and interest was chiefly absorbed in the capital and other large cities. Thus, while the financial power tended to center in the capital and in other large cities, the provinces were left resourceless and without any prospect for recovery, which caused the crippling of credit and the depres- sion of local industries. Now let us glance at the condition of monetary distribution over the whole country, when the war came to an end. In the paid-up capital of various companies, or in the distribution of national loan bonds, or in the compari- son of the existing amount of bank deposit, some eight or nine prefectures that could boast large cities appropriated to them- selves the better part of the amount. The interest rate in large cities was found to be much lower than the average inter- est rate of the whole country, while that of the other districts (twenty-nine prefectures) was much higher. The accompany- ing tables show various resources and money interest of Tokyo, Osaka, Kyoto, Yokohama, Kobe, Niigata, Nagoya and Fukuoka. Comparison is made with those of the whole coun- try that the actual condition of monetary distribution may be clearly shown. I90 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS < S O U H S. 2 a o « Bo O A V Z iftE^O i-i O W O ^w r-C "^m ^ mm O mmr- Oi to t^ m O t^O « H -itm fOHi n t^ r- po r- mo eo to o c« o 00 mo o M fOO t* « o t-o t-« O l> COOO 00 « ro CO 'to lO M 00 fO ■* O m Oi o Oioo o m r* w* m w CJO ro O ■ O M r* iH M o t-oo » M ^f OlOO POOO o « mm o t^oo "^'^ w ■^O'^w&'-fi'-m ■^■^OiOoo ►*•*« Ooo w w o»^>«f- lomn omo'^o K oo'oo" (O i> m dv o WiOoOM OiOmOvO\ O O -* ro ^m M O r*3 mo ro o m OO Or~mroONOvi-< 00 ^commrOM M ro o « fOOOO m Oi o NQor-neoooo OOM or;mi>'^ £ fO t^ o o' ■^ r^ N ro .* o ■^ t- ao t- r- M ^ 0_ ^ ■^ M rooO_ Oi l> w ^C -^00 ro t^ « O Oii-i rom(*3i-' nm m M moo O r^O t^ ■* O»oo i^ ^ m M o •rf\n M 't '*M H M ■* (*j "+0 o m « o m-^-ftfor^mw w K t^ m ro fOO fO tto .""mNON t-t fomro >t ^ r^ M_ M M roo_ iH oo 00 cT «" w H M m m M t-t M ^^ o o 6S^ O CO m m - . - - • d (d*^ 5 d o S --S 2f9 >i H -n M-— CQ GO ^ a) V > fc< 2 =1 5» nJ ""^ ** ** Pi o EFFECTS ON THE MONEY MARKET 2. — Distribution of National Loan Bonds 191 Names of Prefectures End of 1895 End of 1897 End of 1902 End of 1907 End of 1910 Yen 160,560,829 20,636,397 18,023,731 7,018,059 9.540,988 5,480,32s 7,254.224 2,940,439 Yen 169.558,407 23,188,49s 16,791,968 8,196,186 14,290,584 3,799,269 6,654.159 2,059,904 Yen 235.549,008 250.066,388 16,314,485 18,433,298 3,448,035 6,919,595 Yen 434,141,681 104,403.03s 33.703,491 54,630,880 8,076,108 19.917.527 Yen 511,227,210 182,894.52s 33.061,535 Osaka Kyoto 51,832,900 10,485,450 Niigata Kanagawa 22,805,190 Total 23i,4S4.992 244,538,971 305,730,809 654,872,722 812,326,810 London 53,868,450 55,233,050 90,921,500 114.795,975 311,295,910 320,889,528 364,246,326 793.6lI.68S 950,600,940 Eight prefectures Other prefectures 74% 26% 76% 24% 83% 17% 82% 18% 85% 15% 3. — Deposits of Gold and Silver in Bank^ Private and Calendar Year Tokyo Yokohama Osaka Nagoya National Associated Associated Associated Associated Total Banks of Ratio Banks Banks Banks Banks Whole Country Yen Yen Yen Yen Yen Yen Per Cent 1897 6,547,224 4,232,195 10,779,419 40.779,369 25 1898 7,665,354 2,501,731 4,137.378 500,232 14,804,695 41,548,315 34 1899 7,792,797 2,401,81s 5,457,149 646,533 16,298,294 51,113,218 31 1900 9,029,299 3,636,747 5,303,803 7S3,8SS 18.723,704 53,889,175 33 1901 11,045,080 3,399,283 5,500,470 780,899 20,725,732 . 57,242,173 35 1902 16,871,025 3,202,125 5,277,882 869,488 26,220,520 65,012,154 40 1903 19.723.075 3,301,601 7,454,057 878,967 31,357,700 67,555,971 46 1904 14,410,247 4,807,788 9,770,533 911,244 29,899,812 75,239.354 38 190S 22,408,429 S.798,238 12,157,252 1.154,279 41,518,198 84,873,050 48 1906 28,879,819 6,947,470 12,458,983 1.959.550 50,245,822 110,220,987 45 1907 32,568,012 7,114,832 12,044,519 1,475,035 S3. 202,388 104,863,006 SO 1908 31,763.172 5,876,665 13,062,535 1,423.395 52,125,767 106,050,091 49 1909 ,36,743,166 6,420,416 16,444,076 2,765,919 62,573.577 105,388,047 59 1910 35,417,615 6,550,147 18,766,999 2,081,49s 62,816,256 111,667,228 55 1911 30,310,006 5,445,067 16,126,747 2,657,603 54,539.423 116,710,759 46 ' Based on Tokyo Associated Banks Weekly, Osaka Associated Banks Weekly, Reference Book Concerning Monetary Affairs, and Imperial Statistical Year Book, 192 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS 4. — ^Distribution of Bank Deposits' Ordinary Bank Prefectures End of 1895 End of 1897 End of 1902 End of 1907 End of 1911 Yen 52,629,619 5,903,761 7,007,623 2,627,744 8,666,859 30,494.277 7.135.877 2,264,665 Yen 104,425,310 13,937,110 20,725,441 5.997,033 20,661,429 56,402,804 17,472,723 7,845.179 Yen 141.357.037 17,167,212 28,286,047 10,179,770 ' 27,191,280 73,416,462 30,916,154 12,193,954 Yen 251,272,658 35,349.032 50,646,014 15,611,958 43.222,026 125,094.197 53,528,488 19,450,108 Yen 342.867,525 43,514,644 62,397.917 21,285,128 57,648,713 170,098,984 77,176,741 20,951,049 Niigata Kvoto Osaka Hyogo Total 116,730,42s 247,467,029 340,707.916 594.174.481 795.940,701 Total for the whole 167,430,573 392,033,993 536,702,802 908,257,217 1,256,247,545 Eight prefectures Other prefectures 69% 31% 63% 37% all- 35% 37% Further Deposits in Tokyo Deposit Bureau Bank of Japan Industrial Bank 50,760,774 6,653,909 28,352,728 78,109.995 100,686,354 18,887,799 1,108,213 186,043,563 220,286,956 10,072,688 247,688,021 133,658,573 4,780,800 Total 57,414,683 106,462,723 120,685,366 406,403,207 286,125,394 Grand total for the 8 prefectures including deposits in Tokyo . . 174,145,108 353.929,752 461.393.284 1,000,577,688 1,182,066,09s Grand total for the whole country in- cluding deposits in Tokyo 224,845,256 498,496,716 657.388,170 1,314.660,424 1,642,372,929 Eight prefectures Other prefectures 77% 23% 70% 30% 70% 30% 76% 24% 72% 28% 5-- -Maximum and Minimum Rates of Interest on Bank Loans, in December of Each Year* Prefectures December, 189s December, 1897 December, 1902 December, 1908 December, 1912 Tokyo Yokohama Nagoya Kyoto Osaka Kobe Niigata Fukuoka Average of the whole country Per Cent 8.5- 9-5 8.9-10.6 S.o-ii.o 8.0-12.0 9.1-ii.S 9.S-11.7 8.8- 9-5 9.0-12.0 9.3-13.3 Sen 2.79-3.19 2 . 90-3 . 20 2.90-3.00 2.60-3.20 2.60-3.50 3.00-3.50 3 . 00-4 . 00 2 . 90-4 . 00 Per Cent 5.0-12.7 6.0-13.0 6.9-10.5 6.6-12.7 S. 0-12.0 6.2-12.0 8.4- 9.5 10.0-13.0 Per Cent 6.7-12.7 I. 0-13.0 8.4-10.0 7.S-12.0 5.0-12.2 6.0-11.0 9.0-10.2 9.9-11.0 3.17-405 9. 6-12. u Per Cent 6.0-13.2 .2-12.0 .9-11.3 5 6 6 6 6.0-10 8.2- 9 7.5- 9 ' This table is based on Imperial Statistical Year Book. 2 Based on Imperial Statistical Year Book. CHAPTER IV EFFECTS ON INDUSTRIES The effects of war and armament upon industry are both immediate and conspicuous, and are supported by facts and statistics. But the effects of the issue, redemption, etc., of war and armament loans upon industry are not so direct and immediate. Inasmuch as the issue and redemption of war and armament loans exerted an influence upon prices and monetary circulation, as was stated before, it was quite natural that these changes in prices and monetary circulation in turn should have some effect upon foreign commerce, enterprises and stocks. Especially in the Russo-Japanese War a greater part of the loans were floated abroad. The introduction of foreign capital, and the conversion or redemption of loans had, therefore, no small effects upon the amount of foreign commerce, enterprising schemes and the stock market. Effects on Foreign Trade The issue and conversion of war and armament loans, to- gether with the simultaneous vicissitudes of enterprises, and fluctuations of prices and of monetary circulation, exercised a very great influence upon our foreign commerce. The politi- cal changes of the Restoration terminated the national isola- tion policy, which had been adopted by the Tokugawa Re- gency, and established a policy of opening the country to foreign commerce. This brought about a wonderful change in our national life at large, and for one thing it gave rise to the demand for foreign goods. Especially the increased issue of the government paper money which attended the civil dis- turbances rapidly pulled up prices and kept up the excess of importation over exportation for several successive years with the consequent efflux of specie. This tendency of excess of importation temporarily disappeared in 1876. When, in 1877,, 14 I9i 194 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS the Satsuma Rebellion occurred, causing increased issue of new paper money and bank notes, the currency was remark- ably inflated, general prices went up higher, and the excess of importation and the specie efflux did not cease until 1881. In 1 88 1 the government set about the adjustment of paper money and the curtailment of expenditures. As a result the currency contracted, and prices gradually went down. No excess of importation was witnessed until 1889, and specie tended to flow in. There was a temporary reaction in 1890, when there was an excess of importation, and specie flowed out. In 1891, however, the rice crop was abundant, and there was also a remarkable depreciation of silver currency, which brought about a great excess of exportation with an inward flow of specie, which state of things continued till 1893. In 1894 a great sum of temporary loans and military loans was floated. As a result a great amount of convertible notes was issued and there was a temporary stringency of monetary circulation. When, as a result of successive victories of our forces both on land and sea, the reception of the indemnity was reported, it gave rise to a strong enterprising spirit and to the increase of exportation. The importation of merchandise, however, was still greater. In 1899 the expansion of the security reserve of the Bank of Japan brought down the rate of money interest. In 1900 in connection with the Boxer Uprising there was an increased issue of convertible notes which brought up prices. The excess of importation, never- theless, increased every year. The existence of the indemnity fund brought about an influx of specie, and prices continued to rise. The excess of importation, however, continued as ever. At the outbreak of the Russo-Japanese War in 1904, resort was had to the domestic issue of exchequer bonds and tempo- rary loans, which caused a stringency of monetary circulation and a rise of prices. Shortly afterwards a great amount of foreign ;loans was floated. Exchequer bonds, domestic loans, etc., were redeemed by a further increased issue of foreign loans, and a great amount of convertible notes was issued. EFFECTS ON INDUSTRIES 195 This not only caused inflation of currency and the rise of prices, but also — in conjunction with the transfer of funds raised by the foreign loan — ^tended to encourage the importa- tion of foreign articles. Therefore, with the expansion of the total volume of foreign trade, there was an annual excess of importation, showing, in 1905, a balance of 167,000,000 yen. Exportation and Importation of Merchandise, Gold and Silver! Year Merchandise Merchandise Excess of Importation Exportation Importation Excess of Exportation Exported Imported of of Gold of Gold Merchandise and Silver and Silver and Silver Yen Yen Yen Yen Yen Yen 1868 15.553,473 10,693,072 4,860,401 » 1869 12,908,978 20,783,633 7,874.655 1870 14,543,013 33,741,637 19,198.624 1871 17,968,609 21,916,728 3,948,119 1872 17,026,647 26,174,815 9,148,168 4.480,896 3,691,510 789,386 1873 21,635,441 28,107,390 6,471,949 5,122,927 3,080,542 2,042,38s 1874 19,317,306 23,461,814 4,144,508 13,995,202 1,071,731 12,923,471 I87S 18,611,111 29,975,628, 11,364,517 14,663,971 298,322 14,365,649 1876 27,711,528 23,964,679 3,746,849" 10,675,701 8.267.241 2,408,460 1877 23,344.522 27,420,903 4,072,381 9,441.271 2.173.499 7,267,773 1878 25,988,140 32,874.834 6,886,694 8.328.653 2,189,101 6,139,552 1879 28,175,770 32,053,002 4.777.232 12,778.864 3.134,804 9.644,060 1880 28,395,387 36,626,601 8,231,214 13.222,993 3.638.230 9,584,763 1881 31,058,888 31,191,246 132,358 7,490,547 1.856.147 5,634.400 1882 37.721,751 29,446,594 8,275.157" 4,430,198 6.160,724 1,730,526" 1883 36,268,020 28,444,842 7,823,178' 3,156,565 5,451.501 2,294,936" 1884 33.871,466 29,672,647 4,198,819" 5,005,072 5.611,759 606.687 ' 188S 37,146,691 29,356,968 7.789,723* 4,256,446 7,546.841 3,290,395" 1886 48,876,313 32,168,432 16,707.881" 9,626,448 9.171.874 454,574 1887 52,407,681 44,304,252 8,103,429" 11,035,488 8.871.266 2,164,222 l8§8 65,705,510 65,455,234 250,276" 7,833,444 8,732,492 899,048 " 1889 70,060,706 66,103,767 3,956,939" 5,188,529 14,173,246 8,984,717* 1890 56,603,506 81,728,581 25,125,075 13,778,531 1,200,607 12,577,924 1891 79.527.272 62,927,268 16,600,004" 14,452,964 13,888,526 12,435,562" 1892 91.102.754 71,326.080 19,776,674" 9,729,753 22,883,757 13.154.004" 1893 S9.712.86s 88,257,172 1,455,693' 12,289,188 11,186,487 26,783,653 1,102.701 1894 113.246.086 117,481,955 4,235,869 34.379,111 7.595.458 189s 136.112.178 129,260,578 6,851,600" 27,301.699 5,874,164 21.427,535 1896 117,842,761 171,674,474 53,831,713 11.598.884 39,142,208 27,543,324" 1897 163,135,077 219.300.772 56,165,695 19.219.164 81,466,713 62,247.549" 1898 165,753,753 277.502,157 111,748,404 86,987,481 42,563,781 44.423,700 1899 214,929.894 220,401,926 -5,472,032 11,178,247 20,163,501 8,985,254' 1900 204,429,99,4 287,261.846 82,831,852 56,707,063 11,517,835 45,189,228 1901 252,349.543 255.816.646 3,467,102 14,049,099 10,960,750 3.088,349 1902 258.303.065 271.731,259 13,428,194 2,028,982 32,161,358 30,132.376" 1903 289.502,442 371,135,518 27,633,076 19,001,199 27,807,469 8.806.270 » 1904 319,260,896 371,360,738 52,099.842 107,795,859 33,946,656 73.849.203 190S 321,533,610 488,538,017 167,004,407 16,354,757 31,506,973 15.152.216" 1906 423.754,892 418,784,108 4,970,784" 25.784.436 47,211,197 21,426,761' 1907 432,412,873 494,467,346 62,054,473 18.759.285 8,256,503 10,502,782 I9Q8 378,245,673 436,257,462 58,011,789 3,772,502 17,544,486 13,771,984' 1909 413,112,511 394.198,843 18,913,668" 6.584.327 79,587,502 73,003,175" 1910 458,«t28,996 464.233.808 S,804,8r2 25.175.091 17,571,797 7.503.294 1911 447,433,888 513.805,705 66,371,817 24,398,286 6,168,268 18.230,018 1912 526,981,842 618,992,277 92,010,435 28,325,153 11,544,351 16,780,802 1913 632.460,213 729,431,644 96,971,431 27,093,346 1,021,351 26,071,995 » Shows the excess of exportation in the case of merchandise, and the excess of importation in the case of gold and silver. '(The amount of foreign trade in the colonies and special articles for the array and navy were not taken into account in this table. 196 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Still the rise of prices went on and on, which, together with the growth of the enterprising spirit, helped on the excess of importation. So long as there was abundant specie abroad, due to foreign loans, specie flowed in in no small amount. From 1 910, however, there was an efflux of no small amount of specie until 1913. In short, the excess of importation and efflux of specie, from the Restoration until 1881 were occasioned by the overissue of inconvertible paper money. The same phenomenon which occurred after the Sino-Japanese War must be attributed in the main to the indemnity and the issues on the security re- serve, although war loans were responsible for it to a small extent, especially at the outset. The excess of importation and the outflow of specie was wholly due to war loans and conversion loans. The table on the preceding page shows the importation and exportation of merchandise, gold, and silver, which is intended to prove the foregoing statement. Effects on Domestic Trade " The effects of the issue, redemption, etc., of the war and armament loans upon the domestic trade are either general or indirect and can not be said to be very clear. With the issue of the government paper money during the war of the Restora- tion prices rose and money interest became very high. Our economic organization left a great deal to be d,esired and was, moreover, in great disorder. Notwithstanding the strenuous endeavors of the government to promote the public finance and money circulation by encouraging productive industries and the establishment of joint stock companies, all the trad- ing, exchange and shipping companies which had been started ended in failure immediately after their organization. In 1873, with the establishment of the National Bank System, there cropped up all sorts of enterprises such as railway, mail steamer, copper manufacture, cotton spinning, paper manu- facture, gas, insurance and other companies. At the time of the Satsuma Rebellion in 1877, however, the inflation of in- convertible paper money, together with the increased issue of bank paper money, gave rise to immense fluctuations both in EFFECTS ON INDUSTRIES 1 97 prices and in money interest, and nipped in the bud the enter- prises which had just been cropping up. During the period extending from 1881, which was a beginning of the paper money readjustment scheme, to 1885, there was a general de- pression of the business world and all sorts of enterprises seemed to have gone to the ground. In point of fact, however, insurance,, transportation, cotton spinning and the banking business made during this period a salutary development. With the establishment of the convertible notes system in 1886 the business world became active. Various companies and factories were started to conduct such businesses as rail- way, shipbuilding, machine manufacture, cotton spinning, mining, textile industry, gas, electric light, paper manufacture, marine product, brick, fertilizer, glass, engineering and other companies. All sorts of stocks and bonds witnessed a boom. Reaction, however, set in in 1890, attended with extreme stiff- ening of monetary circulation, and a cry of panic was heard on all sides. But owing to the monetary relief afforded by the government, and by the Bank of Japan, business prosperity was restored, and after 1892 various undertakings promised a salutary development. During the Sino-Japanese War in 1 894-1 895 no small amount of temporary loans and military loans was floated, and a little later armament loans were is- sued as government undertakings loans. Except at the very outset these did not interfere with the projects of private enterprise. With the restoration of peace, the receipt of in- demnity, and the expansion of specie reserve, money interest fell. As a consequence, such enterprises as railways, shipping, coal mining, insurance, dock construction, hydro-electricity, cotton spinning, sugar refining, kerosene refining, railway car building and other companies rapidly grew up. An unheard- of boom was witnessed in the stock market, which naturally re- sulted in the springing up of many bubble companies. In 1890 a great amount of convertible notes was issued in connec- tion with the Boxer Uprising, which advanced prices and brought about a great efflux of specie. In consequence there was a great stringency of monetary circulation after 1891, and 198 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS it was not before 1903 that signs of recovery were witnessed in the industrial world. During the Russo-Japanese War of 1904- 1905 the flotation of domestic loans and temporary loans at the outset of the con- flict discouraged new enterprises. Immediately afterwards, however, an immense amount of capital was introduced through the flotation of foreign loans, which brought about sluggishness in monetary circulation and the fall of money interest. As a result, in 1906, when the war came to an end, the market grew brisk and the stock market witnessed a great increase of transactions. Popular enthusiasm seemed to center upon new enterprises. The starting and the ex- pansion of the companies during the period was such that it reached the astonishing figures of over 1,600,000,000 yen. There were started also numerous bubble companies. Reac- tion came, and in January, 1907, the quotation of stocks suf- fered a terrible slump, spreading consternation and panic in the market. The banks and the companies which stood upon a feeble basis tottered down to bankruptcy. This seems to have proved a sort of natural selection, and the normal state of things was about to be restored, when the increased issue of foreign loans, by way of conversion in 1910, brought down the money interest and occasioned a sudden rise in prices, which stirred up the enterprising spirit. A reactionary phenomenon was observed from 19 10 until 1912, when stringency of mone- tary circulation impeded the government and private under- takings. In short, we may safely conclude that the failure of enter- prises from the Restoration until about 1873, the unsteadiness of enterprises from the Satsuma Rebellion until 1 88 1 , the con- traction of new enterprises at the outset of the Sino- Japanese War, the depression of enterprises in 190 1 and the unsteadiness and fluctuations of enterprises and stocks which ended in a panic during the Russo-Japanese War, are in the main due to the flotation and conversion of war and armament loans. The following tables, showing the yearly condition of business companies and negotiable securities, tend to prove the fore- going statement. EFFECTS ON INDUSTRIES 199 t-H ^; w Oi-^woo ho »/)rOM 9!'*1 *^ "* ^ *^ '^. ^ "^ 0, '^. '^. *^ t^ '^ W Tt-00 ^ m" 0\0 10 d >o i>co'vd u? (O t^ ■^ m'o" d" m" in r^O N o*"»d t^o' ^ w" r^ d" ^ ipQO 100 w r-oo -S-O >o Tj-o w i>(M m mo ooroiowooooow £ "^.^ *~;°^'0.^- '^ "i ^°° "^ 9. "2 "3'0_°° ". "* f^^ "T.°° Ov « ro H •* ao ^,. « d" t^ t^ ro>odloo'doo" ■"tt^ «" w"m ddoor^ n'm d '^lOt^H'do' •^ w mupo Moo NaaOTM>Orowoor-« t^oo r^jt^oo h mooo -*io iHMMWMWHH romOO C^COOOOO OvOiO HN fO-^iOt* s ■si CO Oiwoo ror-OO f- rn Tfoo lorOTf-HOOWWt- f*30 o r- O OOO w t- Oi r^ioro OiO OiOOrOOmOii-i'^fOOiOMrtMO MOO « ■^O r*5CO N w_vq c m 9. ^ "^ *^ '^. '^. "t ■? "^^ ® "^ '^^ "^ ^ O'O rsot-wDOoo MM M ei w" Tf «* Tf "t '^ w" w" ^^o r^ t^oo 00 00" doc d d d d m* m" ro ro M M H H H M 1 1 12 Eu < tT ro ■* Oi 0>0 -^W "^Oi»oO»OM N ^NO fOoo -^ 0»0 N m ro n f^O l>00 OiO -^O Ov t^ t*f*50 MO MOOOifOt^O OoOOoO 1000 N »no_ w t- 'd- noo_o lOM Nco t~M ■■^inininM Oi'^tot^M t*o 10 w m S M 4 (^ m'vO d d w" -<* d" d do" ■* roo' ro ■^o" N N doc" m" t^ do" ro m" >» 000 r-oo »o POO ■^ "^O M 00 ro ■^ M w t^oo m -^t t- Oi »ooo OiO -^ l^oo mc^O e^ 000 00 r^fomoiwo o 10 OooiOiomOi^rOM OiMror'SiD rcoo N Ov -^ O oo C» O. roO w m O O N MHHNPOrOfOMWN ro-^ifl too mo f'OOO t^c^oooo OiO 1 1 r*:t> CMo NO m t~Tf<;hoo « O'^O lOfOt^oO rooooooo iH fDO o* to 000 foo r^MoomMor-mH r-o omromw m oOiwoooqo moo m M -^ o_ o_ ro >o ■'t "Hoo^ to r^ ^to <> *o to O 0_0_ -^ m too -^ -^o^ r; s rC^^irt d doo'o"©©" t-^ ■^■^mdi> do m" cT « d" in"-^oo"o" w"m" n 00' d ■aoo m fOfO (OOO M -^M m toco c^ rooo mcTiOoo H Oioo 9; N -^ "^ o_ M_ 10 r; o_oo c^ ". o_ in q cq (OO « ^"S^'^'^'^^'* 00" m d d iH mo" 00" d"oo" d' fo N d d' m d i> d" m" mo" 6 0^ rf r-^ m -^ M HwrocoNiOrONW 00 fOtxJ M •:^mmo OO Oi tooo (OO M « fOCOfO'*'0<0 fOO l>00 ^1 ■tj-mm-^mOH mMoooo moo oooOir-rommOiO or-mM rj-toTf mt» M t^' t^oo" 1(3 < 0.00 w 10 M --to ooNr-woootoooroaoroa** 00 r-oo Q -^ CTi CN M r*o woowomoo mco toooo -^tomw oi-toa -^o (M t^ N m ■* M OlOO ■;!- m t^O OlMOtMt^OOfON O'^H MWOO-^m a 00" d m d (N d d cio'oc dioo" d m'o" to m" to i^^S^ 4oo' m t^ d r^ ro «^ .^"*r*N McoOiNOiM moo w oooooomo» t^O t* "^moo « ■^100 i> t^oooooo Tj-'too N r- MMMMMMMMMNfc^m mo s 0,0 i^ M -fd-a ■^oo o»co Tt-o M -"t (O -^ t* f- H Thao i>mm p* m to ' t* 0\ OiO mco 00 ■^ M r- -fd-o 00 o m m t^ tN -^i-oo •:t ■i to ■* too « <»_ "^ ^: q t~ a pooo >-i w m -^ ■* -^ po ■'d; m« o_ •«to_ q -^ H m' m' w" «" w" m" m" h" m' N (N n' Cs" N n" n" (n" oi" w' CO to po to -^ 1 < 3 a 2 ta EU < Yen 1,234.562 1.450,370 1.052,923 2,Q24,I02 8,118,592 8,229,982 6.314.532 4.437,745 2,542,204 1,188,203 1,522,409 1,666,160 2,229,627 2,336,720 2,303,68s 2,614,509 2,645,776 2,551.284 3.IQ6.886 3,220,857 3.368,990 4.870,357 12,035,192 13.069,137 14,752,822 16,894.519 18,008,481 26,334,942 = 1 ^5 Moom'^'^O toOiH Mooo r^oooo oO'^OioomoOin 0\0 (n m r-oo --to (OO OiO t^ M (N w Tto t^w M -tiOp^mo too 00 cs r- M«'^'*PO'POHMMHKMHMNWCHlNNWrOfOtOtO'*t'^ Calendar Year 'd-mor-ooao MP4 ro ^w^ t^oo o> M N (o '* mo r^oo h n QCOOOOOOOOOOOvOiOiOiOOiOiOiOiOvOOOO 00 OOOOMM M ooooooooooooooooooooooooooooooQO otOto«o>aiao\chOtootChOi rt r! 3 aQ s r, _c d i ts -M « c D H ^ a^ t^ > -c ^ !!' v; a >, c3 >. JJ ■u j:^ ■3 H "=1 rt 8 s fr s ft c3 3 •r) ri a Kl ^ \."> n) K ^-S ft:; nj c ."H ,£3 m cS r> o n § fci XI f^ 1) a ,«^ rn >H vC i" 1 is S, •y nj 143 ■3 55 " R X) •* J3 ^-1 fe T3 ■ft, 1) 1 a ^ S T3 3 4-1 n! S^^ m 00 vo CT\ 00 200 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS o o (/) H O CLi (A as o b en & U U o y H U P« Tokyo Stock Exchange Stocks (Sum Paid Up, 50 Yen) tSJ t^OO t^t^Ovt^w t^"-" »O^OCOO^ O^OO lO ro W 00 ^ *^ CO ^ CO ONOO 10 N XO fO 10 r^xO OWlOi-rlOwlOiO Tj-dcO^Wwwi-iMi-ii-iiHMCONt-'wcs'-''-' Kanegafuchi Cotton Spin- ning Co. Stocks (Sum Paid Up, 50 Yen) t-t b* ^ -^ ID tN. lO fOOO Tj-CfOO fOmlOO^O^>-< t^- g 00 w -^ io\o t^Miow «ioN onco>-< a\Ooor^ ^ ONCIOO lOlOfOOTt-tOii ii t^ONO Os»0 O^00 N i-t *^ 10 ID iO\0 lO^^Tt-rO^'^cOr^'^ fOOO On O O t-" Nippon Yusen Co. Stocks (Sum Paid Up, 50 Yen) OM^ •«*• ThvO vO tH W a\'d-uoiON roOooiO rO^ O g «Oa^'-< cOC* i-ioo (^ON-^rOTj-w cOii i-« t^iOOsCJN t^ (-too-^O co'-'^o CO r^oo CO »ooo 00 co omo 10 '^ r^vO 00 ONVO »0^ VO \D t^OO t^OO 00 r>. ON >-" Japan Railway Co. Stocks (Sum Paid Up, 50 Yen) 01 »0 N HH -"^ 10 TtvO \0 fOvO 00 10\0 00 .... gOOPOi-fOMONO moo »0 11 W N ONVO 00 ■ • • • ^^ Noo rN.li ror^-^ioo -^oo 10 n co « O - ■ • • Yokohama Specie Bank Stocks (Sum Paid Upi, 100 Yen) eooo Ti- b* mvo «vo ONi^w ioo^onO n 000 On^* 5» ONiOfocociNO ON r^vo ^ inm-t rfoo r^ rooo lo lo t^ r^OMO'«i-N iOr>-t^O »00 ■<*• C0"0 -^ lO t^ rh lO tJ- ^ ■* (N Td-OO r^ -^OO VO t^OO \£)00 ^100 woo lOw «NW- »o coco o^ g 00 « \0 CO 0^00 11 ^00 rl- ON r^vo OMO Tj- .1 10 N ^^ 10 10 0\ r^ cOvO O^'^iOOvrf-w O^O « COOOO N ON ov ON ONOO 00 00 00 00 00 o^oo 00 ON 0* ON 11 M H M Year CO ^ iOnO t^oo' Ov d n' cj CO ri- iOnD 1^00 <> O* "-J (N OnOnOnOnOnOnOnOOOOOOOOOOiiii-( 00000000000000 OnOnQvOnOnOnQnOnO^ONOnOnOn CHAPTER V SOCIAL EFFECTS It is no easy task to point out the effects of war and arma- ment loans upon social life. There is no doubt, however, that the increased issue of paper money and convertible notes, the increase of taxes in connection with the national loans ex- penditure, and the changes of the money market, together with other circumstances, had some effects upon the prices of com- modities, wages and other incomes, burdens and savings of individuals. These effects in turn must have exerted some influence upon the migration between town and country and upon migration abroad. In the following pages we shall consider these points in connection with the statistics avail- able. These statistics, however, do not treat of the figures prior to 1889, which makes comparison very difficult. More- over, these points are more fully treated in another part. We shall, therefore, confine ourselves to a bird's-eye view of im- portant points, so far as the statistics exist. Prices With regard to the investigation of the prices of commodi- ties in general we shall refer the reader to another part, where it will be more fully discussed. We shall not here go any fur- ther than to pick out four or five important commodities and show the statistics with regard to them. Index numbers of general prices will also be added for the convenience of the reader. The fluctuations of the price of rice were brought about through divers agencies and are not attributable to war and armament loans alone. The price of rice witnessed a remark- able appreciation in 1879, 1880 and 1881. Again it rose in 1897 and 1898 upon the conclusion of the Sino-Japanese War. It rose again in 1906 upon the termination of the Russo-Japa- 202 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS nese War, which condition of things continued till 1 9 1 2 . There is no doubt that these appreciations were due to the inflation of currency which, in turn, was brought about by the increased issue of paper money and convertible notes in connection with the war. Thus, the present price of rice is four times as high as that of 1875. The statistics of prices with regard to salt and soy before 1885 are not available. Sudden rises took place, however, in 1895, 1897 and in 1898. Further, they witnessed remarkable appreciations in 1905, which have continued to this day. Their present price is from 300 per cent to 360 per cent higher than that of 1886. Its chief cause is to be traced to the salt monopoly subsequent to 1906, but at the same time it is statis- tically certain that the inflation of currency due to the flota- tion of war loans was also responsible for it. Moreover, after the war the receipt from the salt monopoly formed the re- source for the redemption of the war loans, which makes the connection between the rise of the price of salt and war loans a much closer one. The statistics of the prices with regard to sugar and kero- sene previous to 1885 are also lacking. They witnessed a re- markable appreciation during the Sino-Japanese War, and rose still further after the Russo-Japanese War. Sugar especially was subjected to several increased taxes which helped this rising tendency. The present prices of sugar and kerosene are twice as high as those of 1886. The chief cause lay in the increase of taxation. But inasmuch as this rise kept pace with the inflation of currency, and inasmuch as the in- crease of taxes after the Russo-Japanese War was chiefly for the redemption of war loans, we can not but recognize the influence of war loans in this connection. The prices of sake and tea did not have similar tendencies. Sake was a taxed article, and the rate of the tax was increased several times. Moreover, it could not escape the influence caused by the appreciation of the price of rice. The first sud- SOCIAL EFFECTS 203 den rise took place during 1879, 1880 and 1881 through the inflation of inconvertible paper money. It witnessed its second appreciation after 1895. The third rise began in 1905 and has continued to this day. Its present price is six times as much as that of 1875. The chief cause lies undoubtedly in taxation, but presumably the inflation of currency was also responsible. On the other hand, tea was an untaxed article. Statistics are lacking with respect to it prior to 1885. The first rise after 1886 took place during the period extending from 1894 to 1904. Its second appreciation was after 1905. The rising tendency was not as remarkable as in other commodities. Its present price is only 260 per cent higher than that of 1886. It was due to the general improvement of the standard of liv- ing and to currency inflation that the price made some appre- ciation despite the unfavorable condition of the market. The prices of cotton and spinningyarn similarly appreciated. Its first advance after 1886 was in 1896, the second rise began in 1905, and it kept up the tendency until 191 2. Present prices are 260 per cent to 290 per cent higher than those of 1886. Both cotton and spinning yarn are untaxed or lowly- taxed commodities. It was undoubtedly due to the general trend of high prices, which was caused by inflation of currency, that there was such remarkable appreciation despite the un- favorable condition of the market. Lastly, about the average index number : The index num- ber prior to 1886 had as its standard the prices of commodities in 1878. It witnessed a slight appreciation during the period extending from 1875 to 1879, when there was an increased issue of inconvertible paper money. The index numbers after 1887 had as their standard the prices of 1887. They showed a gradually rising tendency which was especially remarkable after 1895. The third appreciation began in 1905, and has continued to the present day. The present price is 250 per cent higher than that of 1887. 204 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS P(P«NOOMOO>-i •*0^V0 Ov «00 « tovo ON M <0 lO m o O OOOOOO^O^O^O^OlO^O^O^OO■-|""l-'t«3tO ■*vO t^ »>. • ° is S „ 10'*WCOt^l^>0100 ■*00 00 00 VO H^ O^00 0\'-i OOOOO 0N0\0 N -^fOTf kHMt-iC1Cli-ii-*i-iMCINClCtM S « O tHO «3 -^VO t^ O « M VO •* " ►^ 00 VO ■* ■* lO lOOO VD O O O -i- 1^ lO 11 to a lO n tOVO O COOO O en rOOO •* OVOO -^tONPIOcONOOVO t^OO 8 MI-(MM»HI-ll-IMMI-IMt-lt-IHII-lhHI-l»HMC4n 00 1! ■4-) OJ n ^ "H0INN.-.WM1HWWWWWN § 0) S.-S ■a o U Ck O U 1^^ £ ^*i G000Q0O0O^O^ C^00 Os O O CO lO*^ l-l HI M hH 1^^ gONNwOWO^p"^ 1^00 OI^rOiOiiOOOOOWrOt^iHOO 1 lOvO t^QO ON O M C* CO'^IOVO I^OO O^ O hh M rC ■^ I0\0 t^OO a« t^ r^ t>. t>. tN.00 ooooooooooooc»oooo a^cso^o^a^o\a^o^a^a\ CO 0000000000 0000C»O0OO0OOOO0O0O0Q0QO00O0O0000O00 00 ttl ft^ K) SOCIAL EFFECTS 205 T3 ^ ;$ Q O s O u fa o tit U a, II Cotton Yarn per 100 Kin Cotton Ginned Per 100 Kin HH -^0 Ml^w -^i-iOOt^N cOfO ooooir>'<:d-rNiW con i-h covo r^ (^ r-H cOON'^lN.cOrOiOaNcOfN i-i oovo IOCS ^^^*u^loo^coo 000 t^ r^ r^oo ONN cocococococo-^ HHMMWMWNC1CS(NNN0< vO 'O *^ t-i 10 C^OO CO w 0\ ^ O^i-i w C^O^^vOOCOOOt^ (N M ts N N cO■-< N OOOOOOOOOOwHHhH ^ 0\ ^ 0^ 0\ Qs ^\ Q\ 0\ ^ Q\ ^ 0^ 206 war and armament loans: economic effects Incomes We have seen in the foregoing section that the prices of com- modities doubled many times. If the income of the people made a corresponding increase we should have no apprehen- sion of the lowering of the standard of living ; on the contrary, it would be rather a matter of congratulation inasmuch as it would indicate a natural course of things in the development of the economic life of the nation. If, however, the increase of income did not go hand in hand with the rise of prices it would be a matter of great regret. We shall examine, therefore, the fluctuations of income in these paragraphs. The statistics concerning the income of the nation are any- thing but perfect. There are some statistics indeed which are based on guess work, but even they relate only to recent times and do not cover any sufficient space of time. We shall, there- fore, confine ourselves to the observation of the amount of in- dividual income belonging to income tax. Class No. 3, and to Purposes of Income Tax and Amount of Income Class li- Class I— Class III — Per Capita Fiscal Income of on Public Individual Total Taxpayers Income of Year Judicial Persons Bonds and Debenture Income in Class III Taxpayers in Class III Yen Yen Yen Yen Yen Yen 1887 '91,313,444 91,313.444 1888 80,860,753 80,860,753 129,086 626.410 1889 78,881,863 78,881,863 115,643 682.11S 1890 81,047,372 81,047,372 115,833 703.144 1891 82,059,320 82,059,320 115.945 707.743 1892 83,453,130 83.453,130 117.094 712.908 1893 91,313,444 91,313.444 124,077 735-930 1894 99,470,716 99.470,716 129,327 769.914 189s 107.553.679 107,553,679 134.732 798.278 1896 127,298,087 127,298,087 151,037 842.822 1897 147.674.419 147,674,419 172,763 854-780 1898 168,480,424 168,480,424 195.292 862.710 1899 60,809,987 2,473,711 204,117,462 277,603,069 1900 89,761,613 11,847,052 253,251,341 365,124,578 1901 87,080,324 12,925,297 291,256,213 392,851,052 a,. . . 1902 90,718,198 12,905.400 326,230,305 432,090,791 S87.8O9 555.000 1903 94.334.438 14,014,019 366,931,266 478,421.448 648,976 585.330 1904 93.736,019 13,748,617 395.262,894 507.067,624 700,576 723.786 190S 123,233,248 10,095.553 424,493,678 562,303,149 755,338 562.000 1906 139,447,043 9,069,424 466,219,915 618,795.998 827,516 563.638 1907 127,533,008 21,784,789 515.457,997 671.635.319 817,079 635.750 1908 132,672,234 33.794.757 640,132,021 806,602,014 1,124,594 569.214 1909 125,910,237 16,261,883 689,722,392 831.894.512 1,231,467 560.060 1910 119,602,93s 7,210,008 698,004,957 824,817,900 1.256,535 555.500 1911 148,963,315 11,858,451 708,101,914 868,923,68a 1,275,718 555.060 1912 180,546,689 14,191.555 765.425,742 960,163,986 1,342,071 495.820 SOCIAL EFFECTS 207 o pa < O m cd 0-2 ;r-°. H N t^ ■^ 10 fO to fO to to to toS W *o 00 '■t -o Ok Ok N •N 00 M « N to fO fO ro to •* ■* ■^ -^ to 10 to »o J V a r° w 00 t- t^ ro 00 ro ro ro to to to 00 N ■|a .^S fO Ch (N fO 00 t^ M to (O fO fO ro ro ■<*• ■* ■* to '^ 10 to SI- rOP-iO f0>O Oit^OVJQO N Oi»00 fOfOfOOiflOOo 000 ■000 tooo ro rooo to n r-ooo w « '*'0 I> r-O'O a Oi N (N rhM OfN pi at ro r- CO to .0 00 10 (O ro ro 00 fO r~ rTs coS »o to ^ ■* -!t- ■ ^0 t^ is 8^ 10 CO to ■* fO w 00 10 to to 00 00 00 to 00 ="6 ro 00 -o 00 fO ro to "^ to to to 10 to yO t* r^ t^ r* £3 Ch 00 ro 10 to 00 to ro to ,•» n fO 10 ro ■^ ro t^ o >o vO ■0 « 00 Ch CO „ r- t^ w ^ 0. ro 10 00 fO fO ro to to 00 00 00 i w ^ 10 M l> t* r- Ov 00 to ro ^o to N w Tt ro ■* 10 10 t^ 00 Ok Ok s ^ n Si! 00 H ^ (O ro fO ■* ■^ to to to <3 to ■O 00 00 00 00 B r- 00 to 00 to N f to HI 00 00 00 00 ■t CO n ro to »o to to to m to I> 00 00 00 S >• M m «r> r- 00 M Ot Ok Ot t-l DO M M 1-1 Ok Ok H Ok Ok 0\ M 0, M l-C a a Q (U m 208 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS wages of various laborers. The taxable incomes are the in- comes of people of property and of high-class employers. The aggregate amount multiplied almost tenfold, but the number of taxpayers increased more than ten times. Thus the amount of income per capita rather showed a decrease. Wages (the income of laborers) progressed with the rise of prices, but the advance was only from 200 per cent to 260 per cent and did not keep pace with the advance of such neces- saries of life as rice and salt. Public Burdens and Savings The most important point which must be investigated in connection with income is the burden upon the people result- ing from public expenditures. If we deduct from the income public burdens and necessary cost of living, the remainder may be said to be the saving of the nation. The increase and decrease of savings have great influence upon society. We show in the following table the public burdens imposed by the state and local bodies, and the amount of postal savings which is representative of saving in general. The burden of public expenditure remarkably increased, so much so that it is now five times as much as prior to the Sino-Japanese War. The amount of postal savings per capita^ on the contrary, shows a tendency to decrease. The tables on pages 209 and 2 10 show that the amount of in- come and saving per capita showed no signs of advance, that the burden of national expenditures and local rates suffered a remarkable increase, and that the wages of low-class laborers, though showing an increase, did not keep pace with the rise of the prices of commodities. Thus the poorer classes found in- creasing difficulty in getting a living. Population With regard to the migration of the population, we shall consider both internal and international migration . There was SOCIAL EFFECTS 209 Burden of Public Expenditures, and Per Capita Amount of Postal Savings '■ Fiscal Year 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 T891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 Per Capita Amount of National Taxes I I I I I I I I I I I I I I I I 2 3 5 5 5 6 5 6 5 5 8 9 12 12 ID II II II Yen .48 •45 .62 .76 .66 .62 .26 ■57 ■56 ■49 ■63 ■47 ■47 ■49 ■54 ■87 .02 ■95 .16 .02 ■74 ■53 .87 .28 ■34 ■87 ■83 .64 ■34 ■75 .60 .16 ■33 .12 Per Capita Amount of Local Rates Yen 0.68 .76 .96 o. o. o. 0.91 88 75 84 78 76 99 II 12 15 19 29 43 69 22 I 47 I 85 I 95 2.10 2,21 2.18 I 74 82 .06 ■49 ■77 03 3^07 3^05 3-47 Total Yen 2.16 21 58 74 57 50 01 2.41 234 2.25 2 2 2 2 2 ,62 58 59 .64 ■73 .16 ■45 5^65 6.38 6.49 7-59 8.48 7 97 8.49 752 7.61 10.65 II .70 14 83 1552 13^63 1423 14 39 1459 Per Capita Amount of Postal Savings Yen 18.67 18.33 21 .09 22 .90 26.42 37.26 30.86 31 ^53 30.69 28.52 25 47 23 59 24 35 24.08 24.67 23 36 23.68 22.26 20.68 17.91 16.91 12.30 II .64 10.48 9.16 8.62 9.46 11.05 12.10 12.62 12,94 15^07 16.07 16.06 ' Based on Imperial Statistical Year Book, Tax Bureau Year Book, and A Survey of Local Finance, published by the Home Department. The per capita amount of national taxes to 1893 was calculated by excluding customs duties. The figures after 1894 are the per capita amount of total expendi- tures of the general account. This expedient was taken, because after 1894 the proceeds of monopoly, receipt out of the sale of stamps, etc , make the calculation exceedingly complex. Local rates are the per capita amount of the sum levied by " Do, " "Fu," Cities, Towns, Villages, and "Kumiai." Miscellaneous local receipts were _ excluded, to avoid repetition. Postal savings are per capita amounts outstanding at the end of each year. It should be kept in mind that the number of depositors greatly increased, showing the great advance of the saving spirit. 15 2IQ WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS Income, Savings and Burden of Public Expenditures' Per Capita Per Capita Index Number or Index Number Per Capita Amount of Year ■ Amo unt of Amount of Amount of Wage, of Prices National Taxes Inc ome Postal Savings Laborers in Tokyo and Local Rates I en Yen Yen 1873 96 95 1.88 1874 98 99 2.4s 187s '.'.'. Sialj 100 102 2.04 1876 9.42 104 102 1.73 1877 17.38 102 102 1.39 1878 20.2s 102 100 1.75 1879 18.67 98 100 2.16 1880 18.33 87 93 2 .21 1881 21.09 78 90 2.58 1882 22.90 86 90 2.74 1883 26.42 78 91 2.57 1884 37.26 86 94 2. so l88s 30.86 104 99 2.01 1886 31.53 117 96 2.41 1887 30.69 122 99 2.34 1888 62« .41 28.52 126 103 2.25 1889. . • ■ 682 .11 2S.47 126 108 2.62 1890. . . . 703 .14 23. S7 123 113 2.58 1891 . . • • 70- .74 24.3s 120 113 2.59 1892 . . . . 712 .90 24.08 123 116 2.64 1893 735 .93 24.67 124 119 2.73 .1894. ■ ■■ 76s .91 23.36 126 132 3.16 Peasant Carpenter Sen Sen 189s 798 .27 23.68 18. s 31s . 135 3. 45 1896 842 .82 22.26 20.6 38.0 14s S.65 1897 8S1 .78 20.68 24.7 43.7 l6t 6.38 ¥898 . . . . 862 .71 17.91 27. S 46.8 170 6.49 1899 16.91 26.2 50.6 172 7.59 1900 . . . . 12.30 29. S 53.5 183 8.48 T90I. . . . 11.64 32.0 59.3 175 7.97 1902 . . . . sss .00 10.48 32.3 58.3 171 8.49 1903 . • ■ ■ S8S .33 9.16 31.3 58.8 183 7.52 X904. . • . 723 .78 8.62 32. s S8.8 194 7.61 I90S- • • • 563 .00 9 . 46 32.0 60.3 213 10.65 1906. . . . S63 .63 iios 33.8 64. s 216 11.70 1907. . ■ • 635 .75 12.10 35.8 74.8 233 14 83 T908. . . . S6g .21 12.62 38.5 8t.3 226 15.52 11909 560 .06 12.94 38.3 80.0 215 13.63 ^910. . . . SSS .so 15.07 39.3 80.0 221 14.23 19II. • ■ ■ SSS .06 16.07 41.5 83.2 245 14.39 1912. , . . 495 .82 16.06 14.59 much migration from country to city, on the one hand, and, on the other hand, migration abroad. This was a natural result of the concentration of capital and the sudden increase 1 Wages for 1873 and 1874 are the average index number of per diem amount of the wages of various laborers, and were calculated at the time of the investigation concerning monetary reform, putting the average wages in 1875 at 100. There have been no similar investigations with regardto the wages since 1895. We have therefore inserted, above, the maximum and minimum wages of farmers and car- penters according to the Statistical Year Book. Per capita amount of national taxes is calculated upon the basis of the annual total amount of national expenditures, while per capita amount of local rates is calculated on the basis of the local income, styled " amount of imposition of each fiscal year." SOCIAL EFFECTS 211 of prices and burdens. This tendency after every great war is intensified by war loans. It is rather difficult to get any appropriate statistics con- cerning the migration of city population. In accordance with Cabinet Instruction No. i, November, 1891, however, a census of the actually resident population was taken every five years. The investigations in 1903 and 1908 show the general tendency of internal migrations: Population of Japan 1903 1908 Increase Cities Towns 6,809,976 6,890,295 34,842,465 8,299,744 7,901,233 35,540,886 1,489,768 1,010,938 Villages 698,421 Total 48,542,736 51,741,853 3,199,117 The above table shows that there was an unmistakable tendency toward concentration of population in cities. It was no less evident that this phenomenon was most conspicuous in large cities, as is shown in the following table: Increase of Population in Large Cities' Cities Tokyo Kyoto Osaka Yokohama. . . Kobe Nagasaki Nagoya Kanagawa. . . Hiroshima. . . . Sendai Kure Fukushima . . . Total Population of whole country Population Actually Resident, When City Regulation Came into Force (1889) 1,389,640 257,229 426,846 115,012 111,678 5C,894 144,145 99,370 79,100 74,094 53,903 47,402 2,849,313 40,072,020 End of 1913 2,033,320 408,068 1,387,366 396,101 440,766 154,351 447,951 127,267 159,000 97,131 1 19,060 95,423 5,865,804 53,000,538 Increase Dur- ing Twenty- four Years 643,680 150,839 960,520 281,089 329,088 103,457 303,806 27,897 79,900 23,037 65,157 48,021 3,016,491 12,928,518 Rate of Increase Percentage 46 58 225 244 296 218 215 27 100 32 102 122 105 32 1 Based on Population Statistics, published by the Imperial Statistical Bureau. The City Regulation came into force on April I, 1889, in all the above-mentioned cities except Kure, a comparatively new city, in which the same regulation was enforced on October i, 1902. 212 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS With regard to the international migration the following table proves that the tendency of emigration of our people abroad was more reniarkable than the incoming of foreign population, though the latter was also on the increase. According to the preceding table the rate of increase of big cities during the last twenty-four years was by no means the same. The average rate of increase of the population of the above twelve large cities, however, was 105 per cent, while that of the whole population of the cities, towns and villages was only 32 per cent. The rate of rapidity in the former case was threefold more than in the latter. Fluctuation of Population 1 Year Japanese Resident Abroad Foreigners Resident in Japan Male Female Total Male Female Total 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 50,515 105,967 116,439 112,716 139,317 153,363 158,648 303,377 187,958 55.472 123.284 212,551 14.558 34.304 38.295 37.035 45,175 38.796 75.476 117,274 114,658 20,317 61,992 96,916 65,073 140,271 154,734 149,751 184,492 182,159 234,124 420,651 302,616 75,789 185,316 309,467 9,662 10,322 9,903 11,569 12,573 14,485 14,561 13,119 12,539 10.406 10,133 3.762 3.940 3,806 3,928 3,985 4,489 4,347 4,774 4,796 4,491 4,837 13,424 14,262 13.709 15,497 .. i6,5S8 18,974 18,908 17,893 17,335 14,897 14,970 'As the figures of foreign residents in Japan prior to 1901 can not be obtained the figures after that date only are given. The figures of Japanese residents abroad are based upon the reports of government officials stationed abroad, but can not be said to be accurate owing to probable omissions. The sudden decrease of Japanese abroad in 1909 is due to the decrease of the residents in the United States. The decrease in 1910 is, first, on account of the residents of old Korea having been left out, and, secondly, on account of the re- ports of Hawaiian residents having been omitted. The sudden increase in 1911 is due to the inclusion of the residents of Hawaii in the calculation. The increase in 1912 can be accounted for by the fact that the residents of the State of Cali- fornia in the United States and of Kwantung were added. CHAPTER VI CONCLUSION The war and armament loans of Japan, first inaugurated with the government issue of paper money in connection with the Restoration War, have continued without a single break to the present day. Moreover, the amount of flotation went on increasing on account of the successive wars which occurred nearly every ten years. At first the expansion of currency was brought about by the issue of floating loans, such as govern- ment paper money, government temporary loans. Treasury bills, etc., while, later on, currency was contracted by the issue of funded loans. But their conversion usually had the effect of increasing the total amount of public loans. Especially after the Russo-Japanese War foreign loans were resumed or domestic loans were converted into foreign loans, both of which caused the issue of Treasury bills and the increase of temporary loans for the purpose of having transferred the money thus raised. The issue was so extensive that the issue of convertible notes beyond the legal limit had to be kept up continuously. The effects upon the national finances were conspicuous. One of these was that the overissue of the government paper money and public bonds necessitated great readjustment. The most striking, however, was the annual increase of na- tional loans expenditure, which at present occupies about one- fourth of the total national expenditures. A great share of the taxation which had been imposed in time of war is still kept up. If, to the war and armament loans expenditure, we add other military expenditures, then the total of the war and armament expenditures attains nearly one-half of the total national expenditures. The unproductive burdens upon the shoulders of the nation, therefore, can be said to be by no means small. Local finance after the Sino-Japanese War 213 214 WAR AND ARMAMENT LOANS: ECONOMIC EFFECTS remarkably expanded in its expenditures and loans. The burdens of the provinces, therefore, show signs of remarkable increase. As for the effects upon the money market the adjustment of inconvertible paper money brought about the development of the banking system, which, however, can not be looked upon as an effect of war and armament loans. The flotation of foreign loans after the Boxer Uprising and the Russo-Japanese War kept up the monetary system and contributed to supple- ment specie abroad, which, however, was not so much due to the fact that the loans were floated in connection with war and armament, as that the loans were floated abroad. As for the effects upon money interest there was some difference between domestic and foreign loans. The flotation of domestic loans caused the expansion of currency on the one hand, but always depressed the money market on the other. The flotation of foreign loans, on the contrary, expanded the currency on one hand and brought down the rate of money interest on the other. Depreciation of money interest was only temporary. It soon caused a rise of prices, encouraged the enterprising spirit, and the market quotation of negotiable securities wit- nessed a boom. Then tightness of money appeared and, not infrequently, it culminated in a panic. Moreover, the issue of big amounts of war loans and the continuation of increased taxes for the re- demption of principal and payment of interest concentrated the local funds to the capital, by means of which the centraliza- tion of enterprises and labor took place. Local money markets were dried up, and were short of labor, which brought great losses. Even in cities, the fund raised by war loans and taxes was absorbed by the upper classes, and the lower classes were always devoid of means. The rate of interest affecting the lower classes rose, and many a poor citizen fell a victim to the unmerciful claws of a money lender. With regard to the effects upon foreign commerce arid industries, the increased issue of temporary loans and excheq- uer bonds kept up the expansion of convertible notes and the CONCLUSION 215 appreciation of prices. There was an annual excess of impor- tation over exportation, and consequent outflow of specie. The more specie reserve abroad was supplemented by the fund raised by foreign loans the more it encouraged importation, which caused no small apprehension in the minds of many people that the conversion system was approaching a crisis. Home industries made great strides with the progress of the age. But with the flotation of war loans and various changes brought about in connection with them, home industries were subjected to frequent attacks of panic. Their basis was any- thing but sound. Industrial companies, especially, were car- ried on a very small scale and the technique employed was naive in the extreme, which made the excess of importation over exportation unavoidable. Moreover, the market quota- tions of negotiable securities were subjected to frequent fluc- tuation, which impeded enterprises and credit, and made the gathering of capital next to impossible. Next, the effects upon society at large can not be overlooked. The concentration of money in the capital and among the up- per classes made money circulation among the lower classes very tight. Though prices rose considerably with the expan- sion of currency, the rise of laborers' wages was merely nomi- nal. The real wages, indeed, may be said to have been brought down. The increased imposition of consumption taxes for the redemption of war loans raised prices, and complaints of high cost of living were heard on all sides among the lower classes. The above facts go to show that war expenditures and war loans exerted most unsalutary influences, though Japan had steadily been making remarkable progress in her political and economic condition and though the wars she carried on were mostly out of her dominions, and those always attended with victories. Had the wars been waged within her territory and ended in her defeat the results would have been appalling. In short, there is no room for any optimistic view of the economic effects of our war and armament loans. INDEX Aizu, 5. Alcohol, customs duty on, 44. Austria, participation in sterling loans, 77; gold standard, 161. Bakan, 162. Bank Note Regulation, enforcement of, 28; revised, 118. Bank notes, amount issued (1876-78), 32; issue of convertible, 33, 116; borrowed from Bank of Japan on gold deposit, 43; increased issue of convertible, loi ; issued against paper money, no, 115, 118; issued (1868- 1882), in; (1891-1899), 119; redemp- tion of (1882-1889), 116; circulation of convertible, 117; issued in propor- tion to redemption of bank paper money, 118. Bank of Japan, 52; establishment of, 28, 32, 114, 150 et seq.; issue of convertible laank notes by, 33, 43, 114, 116, 151; temporary loan of, 37, 44; loans from, during Sino- Japanese War, 41-42, 55, 57; sub- scription to Third Military Loan, 49; specie reserve, 57, 73; redemption of loans, 74; loans from, during Russo- Japanese War, 81-82; convertible notes and government loans of, (1885-1913), 114, 157; loan for redemption of government paper money, 118, 149, 152; interest rates of, (1882- 1 893),. 172 el seq.\ (1894- 1903), 177; (1904-1914)1 181; specie owned by, 186; aid to business, 197. Banks, private, change of national banks to, 155; concentration of, 156, 188; development of (1884-1892), 158; branches and average amount of paid up capital of, 159. Beer, tax on, 44. Belgium, participation in sterling loans, 77. 79- Bonds, Old Public, New Public and Hereditary Pension, 9; Voluntarily- Capitalized Pension Exchange, 9; Exchequer, 61, 68; rise of prices. of, during Russo-Japanese War, 78; re- tirement of Exchequer, 86; methods of redemption of, 88 et seq. ; effect of paper money on prices of, no. Boxer Uprising, 43; loans in regard to, 58-59, 100, 176, 197, 215. China, indemnity paid by, 41, 57, 162, 184, 194. Cities, towns and villages, local finances of, 136; restrictions on loans of, 136 et seg.; "free" loans of, 137; increase of loans in, 138-139; distribution of capital of companies, 190; distribu- tion of national loan, 191 ; deposits of gold and silver in banks, 191 ; rates of interest on bank loans, 192. Consolidated Loans Regulation Noti- fication, object, 23, 47-48, 52, 120. Conversion, of national loans, 1 19-120, 181; first, 122; second, 123; third, 125; of paper money, 151. Convertible Bank Notes Regulation, 33; revision of, 118, 151. Cotton and yarn, rise in prices of, 203. Customs duty on alcohol, 44. Education, loans for encouragement of, 43- England, participation in sterling loans, 77-78, 83, 124, 165. Exchange Company, object of, 145. Expenditures, of Restoration, 6, 8, 10; for naval and military armament (1876), 8; (1896), 43; during Sino- Japanese War, 40, 42 ; of North China affair, 43 ; of Russo-Japanese War, 61 , 63; of redemption, 103; of national loans, 129 et seq.; of local loans, 143- 144; burden of public, per capita (1879-1912), 209. Fifteenth National Bank, 30, 147-148; loans by government from, 28, 31 ; establishment of, 29; privileges with- drawn, 115. Factories, sale of government, 32. Foreign deposits, abolition of, 183-184. Foreign exchange, 183. Foreign Silver Exchange, object of, "3. 153- Formosa, conquest of, 5-6, 8. France, effort to underwrite loans, 78, 83; 4 per cent loan in, 124, 165. Fukuoka, 27; resources and money interest, 189 et seq. Fushimi, 5. Germany, manufacture of paper money by, 15, 31; participation in sterling loans, 77 et seg., 83. 217 2l8 INDEX Gold standard, 43, 186; effect of, 161 et seq.; in other countries, 116; coin and reserve (1893-1903), 164; (1904- 1913), 166; causes of increase in coin, 166. Hakodate, 5, 19. Hawaii, 213. Hiroshima, 41. Hokkaido, loan for colonization of, 13; railway loan, 51-52, 60, 121. Holland, participation in sterling loans, 77, 79- Hongkong and Shanghai Bank, under- writing foreign loans, 53, 73, 76. Imports and exports, of merchandise, gold and silver (1868-1913), 194-195; excess of imports, 194 et seg. Income tax, increase of, 133-134; re- duction in (1913), 135; purposes and aipount of (1887-1912), 206. Indemnity, 176, 194; fund, 41 et seg., 57; paid by China, 162-163, 184; appropriations of, 185; used as specie reserve, 186. Index numbers, fluctuations in, 203. India, gold standard, 161. India-Australia-China Bank, foreign loan underwriting, 53. Industry, loans for encouragement of, 43i 97 «' ^«9-, 102; effect of, on local loans, 140; boom in, 180; effect of loans on, 196 et seq.; capital of com- panies (1884-1912), 199. Interest rates, 170; fluctuations of, in Tokyo (1868-1881), 171; (1882- 1893), 173 et seg.; (1894-1903), 177; (1904-1914), 182; of Bank of Japan (1882-1893), 172 et seg.; (1894-1903), 177; (1904-1914), 181; for whole country (1894-1903), 178; (1904- 1914), 182; maximum and minimum interest on loans, 192. Ise, 5. Ito, Hirobumi, proposed plan of, for national banks, 146. Kagoshima, 31. Kerosene, tax on, 133; rise in price of, 202. Kinsatsu Exchange Loan, issuance of, 8, 24, 39; object of, 17-18, 23, 25, 121; Regulations, 18 et seg.; as se- curity for bank notes, 20, no, 146; revised regulations of, 21-22. Kobe, 19; loan for railway construction at, 26; resources and money interest, 189 et seg. Korea, 71; affair in, 6, 8, 28, 34, 40. Kumamoto, 27. Kyoto, 19; resources and money in- terest, 189 et seq. Kyushu, 180. Liaotung Peninsula, 162, 184. Loans: Restoration to Satsuma Rebellion: kinds, 3-4; Kinsatsu Exchange, 8, 18 et seg., 25, 121, 146; succession and adjustment of clan, 9; Old Public, New Public, 9; Foreign Voluntarily-Capitalized Pension Bonds, Hereditary Pension, 9-10, 26, 121, 147; details of war and armament (1868-1877), 26. Satsuma Rebellion to Sino-Japanese War: conquest, 28; Navy, 28-29; 34 et seg., 67, 100; Temporary, 28-29, 37; details of, for the sup- pression of the Rebellion, 29, 100; amount of war and armament, during Rebellion, 38; for encour- agement of industry, 39; railway, 39; consolidation of national, 39. Sino-Japanese War to Russo-Japanese War: flotation of public, during, 41, 100; Temporary.for Chinese Affair, 44, 100; Military, 45 ei ^€9.; appeal to small investor to participate in, 47; Public Undertakings, 51 et seq., 100, 165; foreign, 52, 54, 101-102, 180; Temporary, concerning war expenditures, 55-56; on deposit of Indemnity Fund, 57; Temporary, with regard to the North China Affair, 58-59, 100; war and arma- ment, (1895-1907), 60. Russo-Japanese War to present: war loans of, 67 et seq., 85; Exchequer, 68 et seq., 100, 179, 188, 194; Ex- traordinary Military Expenditures, 70 et seg., 100; Sterling, 73 et seq., 100; for redemption of military bills, 80 et seq.; Temporary, for defraying of armament expendi- tures, 81 ; Temporary, for construc- tion of warships, 81-82, 100; Tem- porary, for Extraordinary Military Expenditures, 82, 100; summary of, 83; retirement of Exchequer, 84; for nationalization of railways, financing colonies, tobacco monop- oly, pension, salt fields adjustment, etc., 85-86; French, 85; increase of foreign, 102, 143, 186, 193-194; increase in amount of principal redemption of, 132. Present Public : floating and ordinary (1868-1912), 89; redemption of INDEX 219 (1870-1912), 91; foreign floating, 93 ; amount and position of, for re- organization of institutions, for war, for expansion of armaments, for railway construction and public works, for exploitation of new ter- ritory, for financial adjustment, 94-951 war and armament (1868- 1912), 96; war and armament (in- cluding navy), (1901-1912), 97; for reform of institutions, 99; conver- sion of, 119-120; consolidated, 120- 121 ; readjustment of national, 126 et seq., 135, 139; expenditures of national, 130 et seq.; redemption and interest payment of foreign and domestic, 131; increase in for- eign, 132; increase in local, 137 et seq.; details of local, 143-144; effect of foreign, on gold standard, 164; foreign, for redemption of domestic, 166; effect on business issue, re- demption, etc., of, 196 et seq. London, 184; loan flotation, 9; par- "ticipation in loans, 53; 73 et seq.\ 76 et seq;. Manchuria, 71. Matsukata, Count (Minister of Fi- nance), 17, 32. Meiji Restoration, battles, results and costs of, 5-6. Mimasaka, 5. Mitsui Bank, sale of silver to, 113. Miyazaki, 5. Miye, 5. Monetary system, before Restoration, 159; of 1868, 160; establishment of mint, 160; legal bimetallism, 160; silver standard, 160; gold standard, 161 et seq.; investigation of, 161. Money circulation, 47, 112, 139, 175- 176; effect of loans on, in city and country, 188-189; stringency of, 181, 194. Monopolies: tobacco, 44, 51, 84, 133- 134; increase and transfer of tax and receipts (1906-1913), 135; salt, 133- 134, 202. Mukden, 76, 179. Nagasaki, 19. Nagoya, 180; resources and money interests, 189 et seq. National Banks, regulation of note issue of, 29-30, III; loans to govern- ment by, 28, 31; number of, ili; establishment of, 145; growth of, 148; exprtration of paper currency issue privilege of, 155; development of (1873-1902), 156. National Bank Regulation, effect on paper money, 24, 30, no, 115; amendment to, iio-iil, 115, 148, 155; details of, 146. National debt, flotation and redemp- tion of (1875-1913), 90; present outstanding, 92 et seq., 102; repay- ment of, 125; readjustment of, 127. New Public Loan, object of, 9. New York, participation in loans, 73 et seq.; 76 et seq. Niigata, 19; resources and money interest, 189 et seq. Oil, increase in duty on, 44, 133-134. Oita, 5. Old Public Loan, object of, 9. "Open door" policy, 193. Osaka, 19, 122, 176, 178; loan for rail- way construction at, 26; run on banks of, 179; resources and money interest, 189 et seq. Pamua and Golden Hill Company, 53. Paper money^ at time of Restoration, 7-8; New Paper, 8-9, 14 et seq., 25, 31,' 100; "Dajokwansatsu" and object, 8, lo-ii, 19, 24-25, 100; "Mimbushosatsu" and object, 8, 10, 12-13, 19. 24-25, 100; disposal of clan, 9, 15; Clan Paper Reserve Fund, 9; objections to "Dajokwansatsu" and "Mimbushosatsu", 11-12; Ex- chequer Exchange Bonds, 25-26; Colonial Exchange Bonds, 13, 16; unification of, 15, 30; government manufacture of, 15, 31 ; reserve, 16, 28; exchange reserve, 16; Reserve Fund for Withdrawal of, 17; ex- change of, for Kinsatsu Exchange Loan, 19, 146; total issued (1876), 21 ; (1878), 32; (1868-1878), 109; (1868- 1882), III; effect of Kinsatsu Loan on value of, 22-23; amount of issue of New, 25; redemption of, 32, 113, 116, 146, 149; exchange of, for silver, 33; temporary loans for redemption of, 33; increased issue of, loi, no- li i , 1 93 ; amount in circulation (1868- 1882), 109; (1891-1899), 119; effect of, on bond prices, no; readjustment of, no, 114, 160, 194, 214; difference in value of, and currency, 112; de- preciation of, 112, 114; circulation of government and bank, 117; re- habilitation of, 117; equivalents in gold and silver, 117; adjustment of inconvertible, 118, 127, 215; conver- sion of, 151; effect of specie on issuance of, 196. 220 INDEX Paper Money Bureau, work of, 19-20. Parr's Bank, foreign loan under- writing, 53, 73, 76. . Patent medicine, tax on, 133. Pension system, adjustment of heredi- tary, 9, 85, 121, 147. Population, (1903-1908), 211; con- centration and increase of, in cities, 211-212; fluctuation of (1901-1912), 212. Port Arthur, surrender of, 76, 179. Postal savings, per capita (l 879-1912), 209; (1873-1912), 210. Prices, fluctuation of, 30, 32, 113, 176, 179, 194; (1868-1912), 168-169; of commodities (1875-1912), 201 et seq. Public Undertakings, loans for, 39, 51 et seq.; 94-95; (1870-1912), 98; effect of loans for, on gold standard, 164- 165. Railways, loans for construction of, 26, 51, 85, 94; Nakasendo Railway Loan, 39, 98, 121; loans for expansion and nationalization of, 43; loans (1870- 1912), 98; loan of South Manchu- rian, i8o. Redemption, methods of bond, 69, 74, 79, 88; of National debt (1875-1913), 90; of loans (1870-1912), 91; size of fund for, 102-103; of paper money, 32, 113-114; (1882-1899), 116; of bank notes (1882- 1899), 116; of national loans, 127 et seq.; payment of domestic and foreign loans, 131; effect of establishment of banks on note, 153, Regulations: Kinsatsu Exchange Loan, 21-22; enforcement of bank note, 28, 118; convertible bank notes, 33, 118, 151; Sake manufacturing tax, 32, 113; Sinking Fund, 127 et seq.; national bank, 146. Revenue, sources of, for expenses of Restoration, 6-7; sources of, during the Sino-Japanese War, 40, 42; sources of, during Russo-Japanese War, 62, 66. Rice, 172, 178, 194; fluctuations in price of, 201-202. Russia, gold standard, 161. Russo-Japanese War, 92, 126, 128, 133; expenditures of, 61 et seq. ; war fund, 66. Saga, 5, 27. Sake, Manufacture Tax Regulation, 32; revision of, 113; rise in price of, 202-203. Salt, monopoly of, 133-134- 202; rise in price of, 202. Sanuki, 5. Satsuma, 27. Satsuma Rebellion, 27, 36, 113, 194; paper money issue to cover expend- itures of, 16, 25, 29, 31, no; num- ber of men engaged in, 27; cost of, 27-28; increase in amount of principal redemption during, 132. Shinano, 5. Shiroyama, 27. Sinking Fund Regulation, 127 et seq. Sino-Japanese War, 40, 70, 72, 1 00, 136; expenditures of, 42, 55; increase in amount of principal redemption, 132. Soy, fluctuations in price of, 202. Specie reserve, 15, 17, 57, 73, 112, 175- 176; expansion of, 74, 116-117, 194, 197; amount of (1891-1899), 119; ac- cumulation of, abroad, 182-183, 216; receipts, disbursements (1895-1903), 184-185; transfer of indemnity to, 186; government-owned, abroad (1904-1913), 187. Stamp duty, increase of, 133-134. Steel foundry, loan for establishment of, 51. 54-55' Succession tax, 133-134. Sugar, tax on, 44, 133-134; rise in price of, 202. Surplus fund, during Russo-Japanese War, 02-63. Switzerland, participation in sterling loans, 77, 79. Takamori, Saigo (head of Satsuma Re- bellion), 27. Takasaki, 5. Taxes, increase of sake, 44, 133; crea- tion of beer and sugar, 44; increase due to North China Affair, 59; in- crease during Russo-Japanese War, 65, 133; increase in, due to national loan expenditure, 132-133; increase of land, business, soy, sugar consump- tion, mining, bourse, registration, spirituous liquor, customs duties, to- bacco, woolen textiles, kerosene (1904- 1905). 133-134; decrease in (1910), 135; annual increase and transfer of, and monopoly receipts (1906-1913), 135; special, 188; per capita amount of (1879-1912), 209; (1873-1912), 210. Tea, rise in price of, 202-203. Telephone exchanges, loan for extension of, 51. 54- Toba, 5. INDEX 221 Tobacco, 51, 84; rise in monopoly prices of, 44. 133-134- Tokyo, 5, 19, 122, 178, 180; loan for railway construction at, 26; fluctua- tion of interest rates in (i 868-1 881), 171; (1882-1893), 173; (1894-1903), 177; (1904-1914), 182; resources and money interest of, 189 et seq. Tokyo Stock Exchange, underwriting by, 123. Traveling tax, creation of, 133-134. United States, participation in loans, 77-78, 83; gold standard, 161; effect of panic in, 180; decrease of Japanese population in, 212. Usury law, 170. Wages, 216; of laborers (1894-1911), 207. Warships, program for building, 34; new, during Russo-Japanese War, 67; loans for construction of, 82, 182. Yamagata, 5. Yokohama, 19, 180; loan for railway construction at, 26; resources and money interest, 189 et seq. Yokohama Specie Bank, foreign loan underwriting, 53, 73, 76; loan to gov- ernment, 80; purpose of, 113, 183; effect of establishment on redemption of notes, 153; other services of, 154.