WERSITY OF CALIFORNIA AT LOS ANGELES FOR INTERNATIONAL PEACE 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 of 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 EXPENDITURES OF JAPAN BY GIICHI 0N0 Councilor of Finance Department NEW YORK OXFORD UNIVERSITY PRESS AMERICAN BRANCH : 35 West 32wd Street LONDON, TORONTO, MELBOURNE, AND BOMBAY 1922 COPYRIGHT T922 BY THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE THE Rl'MFORD PRESS, CONCORD, N. H. I I CO CD o 4GO. / - - 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- ctL 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 g> 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 g £ 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 missiles 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 o if O Co 227387 VJ 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 an 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 great increase in the economic functions of 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 Vll 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 commerce 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 held 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 and 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 Vlll 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 (act, 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, IQ20. PREFACE The present volume is intended to set forth the results of a statistical investigation of the economic effects of the wars in which Japan has taken part since the beginning of the Meiji Era (1868), particularly from the standpoint of expenditures for war and armament. This volume forms part of the whole historical investigation into the relations of war and armament to the national economy since the first year of the Meiji Era, as embraced in the other volumes dealing with Taxes for War and Armament, Loans for War and Armament, the System of Conscription, the Sino-Japanese War Expenditures, the Russo-Japanese War Expenditures, and the Development of Military Industries. It may be said that this volume stands as an introduction to all the above-mentioned works. The present investigation being mainly a statistical exposi- tion of the relations of war and armament to economy from the standpoint of state expenditures, it may seem as if almost the entire volume is devoted to compilations of figures. I trust, however, that the reader will duly appreciate the painstaking care which the compilers have taken in extracting the figures of expenditures for war and armament from the Annual Accounts extending over the past forty-six years, in arranging them in a proper way, and in giving careful explanations of their nature and significance. Those who will study these figures with considerable care will be able to comprehend various other points not supplied by the compiler. The value of the materials of a book is generally proportion- ate to their degree of accuracy. In the present undertaking the compilers did their utmost to make the figures correct ; but notwithstanding all the pains they have bestowed on its execu- tion, there may be room for criticism of their manner of select- ing and arranging the innumerable items laboriously extracted from the big volumes containing the vast Annual Accounts. In the preparation of this volume and the other volumes of ix X PREFACE these investigations, the respective compilers have often held conferences among themselves in order to arrive at a certain uniformity of method and treatment; but it could not be helped if they have allowed certain discrepancies or disagree- ments to creep in, owing to the difference of objects for which the several volumes have been compiled, and also to differences of opinion on the part of the several compilers. The present volume has been compiled chiefly by Mr. Hyoye Ouchi, myself acting as supervisor of the work. In the supervising, my chief aim was to provide the skeleton of the work and to make a careful examination of the figures, which latter was the most important task from the nature of the investigation. Our thanks are due to the authorities in the Departments of Finance, War, and Navy, who have given us every facility in the present work, and to Mr. Juichi Tsushima, who began the undertaking, but, owing to his having gone abroad on a government mission, gave it up and submitted to us his valu- able materials. Giichi Ono. Tokyo, Japan, April, iqi6. BIBLIOGRAPHY Department of Agriculture and Commerce: The Effects on Wages Produced by the War in 1904 (Meiji Sanju shichinen Chingin ni oyoboseru Senso Eikyo), 1904. The Effects on Prices by the War in 1905 (Meiji Sanju hachinen Bukka ni oyoboseru Senso no Eikyo), 1905. The Effects on Home and Foreign Trade and Commerce by the Russo-Japanese War (Jikyoku no Naigai Boeki narabini Shogyo ni oyoboseru Eikyo), 1906. Army Department, Annual Reports of the Army Department, 1875-1912 (Rikugunsho Nempo). Board of Audit: Settled Accounts of Extraordinary Expenditures for Military Affairs in the War of 1 904-1 905 {Meiji Sanju shichi hachinen eki Rinji Gunjihi Kessan), 1910. Reports on the Settled Accounts of Extraordinary Expenditures for Military Affairs in the War of 1904-1905, with particulars on said Expenditures (Meiji Sanju shichi hachinen eki Rinji Gunjihi Kessan Hokoku Sanko Rinji Gunjihi Shimsatsu), 1910. Department of Finance: General Settled Accounts for the Fiscal Years 1875-1911 (Meiji Hachinen yori Shijuyonen ni itaru Kakunendo Sokeisan), 1877- I9I3- Account Book of Eight Fiscal Periods (Hachiki Keisansho), 1882. Short Historical Record of National Loans (Kokusai Enkaku Ryaku), 1889. Report Made by the Coinage System Investigation Society (Kahei Seido Chosakai Hokoku), 1895. General Account of the Coinage Reform in 1897 (Meiji Sanjunen Heisei Kaikaku Shimatsu Gaiyo), 1899. Report on the Postbellum Financial Administration (Sengo Zaisei Shimatsu hokoku), 1900. Report on the Special Account of Extraordinary Expenditures for Military Affairs for the War of 1894-1895 (Meiji Niju shichi hachinen eki Rinji Gunjihi Tokubetsu Kaikei Shimatsu), 1900. xi Xll BIBLIOGRAPHY Statistics of National Loans (Kokusai Tokei), 1907. Bank Manual (Ginko Benran), 1908. Investigations on War Notes (Gunyo kippu ni Kansuru Chosa) r 1908. Report on Financial Administration during the War of 1904- 1905 (Meiji Sanju shichi hachinen eki Senji Zaisei Shimatsusho), 1909. Settled Accounts of Extraordinary Expenditures for Military Affairs in the War of 1904-1905 (Meiji Sanju shichi hachinen eki Kinji Gunjihi Kessan), 19 10. Report on Financial Administration after the War of 1904-1905 (Meiji Sanju shichi hachinen eki Sengo Zaesei Shimatsusho), 1911. General Budgets for 1912 and 1913 (Taisho Gannendo Ninendo Sokeisan), 1912-1913. Reference Book for Monetary Circulation, 1893-1913 (Kinyu Jiko Sankosho). Annual Reports of the Department of Finance, 1875-1913 (Oku- rasho Nenpo). Annual Statistics of National Loans, 1908-1912 (Kokusai Tokei Nenpo). Annual Returns of Foreign Trade of the Empire of Japan (Dainip- pon Boeki Nenpo). Report on Banks, Secured Debentures and Trust Business (Ginko oyobi Tanpozuki Shasai tsuketari Shintaku Jigyo Hokokusho), 36 vols. Hosokawa, YrjiRO, General Account of Financial Administration in Japan (Nippon Zaisei Soran), 2 vols., 1892. Navy Department, Annual Reports of Navy Department, 1875- 1912 (Kaigunsho Nenpo). SAKATANI, Y. (representing the authors), History of Financial Administration in the Meiji Era (Meiji Zaiseishi), 15 vols., 1 904-1905. Statistics Bureau, Imperial Statistical Year Book, i4th-36th (Teikokn Tokei nenkan). EXPLANATORY TABLES Value of Japanese Currencies Japan adopted the gold standard system in 1871, 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 1, 1897, 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 1.5 gramme pure gold. (2) 1 gold yen (according to Coinage Law of 1897) contains 0.75 gramme pure gold. (3) 1 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: 1874. 1875- 1876. 1877. 1878. 1879. 1880. 1881. s. d. 4.02.0 1882 4 00.8 1883 3 11 .2 1884 3 11. 7 1885 3 09.4 1886 3 08.0 1887 3 08.9 1888 3 08.4 1889 s. d. 3.08.8 1890 3 07.9 1891 3 07.9 1892 3 06.0 1893 3 03.2 1894 3 02.0 1895 3 01 .0 1896 3 01 .1 1897 s. d. 304. 5 2.02.6 2.10.5 2.06.7 2.01.2 2.01.3 2 . 02 . o 2.00.4 (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. 1878. 1879- 3. 10. 1 305. 6 3-00-3 1880. 1881. 1882. s. 2 . 06 . 4 2 . 02 . 1 2.04.5 1883. 1884. 1885. 2. 10.7 3 04.3 303. 7 (6) 1 ryo (unit of value of the old currency system) was declared in the Coinage Law of 1 87 1 to be equal to 1 yen. Chronological Table Meiji 1st 2d 3d 4th 5th 6th 7th 8th 9th 10th nth 1 2th 13th 14th 1868 A. D. Meiji 15th 1869 ' ' 1 6th 1870 ' ' 17th 1871 ' 1 1 8th 1872 ' ' 19th 1873 ' ' 20th 1874 ' ' 2ISt 1875 ' ' 22d 1876 ' 23d 1877 ' ' 24th 1878 ' ' 25th 1879 ' ' 26th 1880 ' ' 27th 1881 ' ' 28th 1882 A. D. 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 xm XIV EXPLANATORY TABLES Chronological Table — (Continued) Meiji 29th 1896 A. D 30th 1897 " " 31st 1898 " " 32(1 1899 " 33d 1900 " " 34t h 1901 " " 35th 1902 " " 36th 1903 " " 37th 1904 " " 38th 1905 " 39th 1906 " " 40th 1907 " Meiji 41st 1908 " 42c! 1909 " 43d 1910 " 44th 191 1 " 45th \ Taisho 1st J 1912 2d 1913 " 3d 1914 " 4th 1915 " 5th 1916 " 6th 1917 A. D. Weights, Measures and Money With English, American, French and German Equivalents Great U. S. of Japan Britain America France Germany Rt== Z 6 r£! d ir~. f 2.44030 2.44029 3 92727 392727 = 2,160 Ken Miles Miles Kiloms. Kiloms. = 12,960 Shaku. . . . { -.,„•! /LI5152 II5I5I I 85318 1. 85318 Ki (Marine; | Miles Miles Kiloms.. Kiloms. Q mra p - / 5-95505 5-9550I I5-42347 I5-42347 Square Ki | Sq Miles Sq Miles Km- Carres Quadrat Km. Cho zY?Jc!! (2.45064 2.45062 99 .17355 99 17355 -ioooe I Acres Acres Ares Ar. = 3,000 Bu { Tsubo=\oGo /3-9.S3f>9 3-95367 3-30579 3 30579 = 100 Shaku.. .. \ Sq. Yards Sq. Yards Centiares. Quadratm. Koku= 10 To { [47.65389 1. 80391 1. 80391 = 100 Sho I 4.96005 J Gallons (Liq.) Hectolitres Hectolitres = 1 ,000 Go "J Bushels 1 5 . 1 1902 = 10,000 Shaku . . { { Bushels (Dry) Koku (Capacity of/i/ioof 1/10 of 1/10 1/10 ship) \ one Ton one Ton de Tonne Tonne v ,, (8.26733 8.26733 3.75000 3.75000 Kwan = 1 ,000 Momme lbs _ ffi o]r) [hs (Avoir } Kil Kil = 10,000 Fun I0047II io .o 4 7ii = 100,000 Rtn.. . [ lbs ( t rroy) lbg (Troy) ( 1.32277 1.32277 0.60000 0.60000 lbs. (Avoir.) lbs. (Avoir.) Kilogs. Kiloms. 1.60754 160754 lbs. (Troy) lbs. (Troy) Ycn = iooSen {2.0.582 0.4984 2.583 2.0924 = 1,000 Km < d _ 1)ollar Francs Marks = 10,000 Mo i. CONTENTS PART I. — Historical Survey of Expenditures for War and Armament chapter page I Introduction 3 II From the Restoration War to the Satsuma Rebellion 8 III From the Satsuma Rebellion to the Sino-Jap- anese War 29 IV From the Sino-Japanese War to the Russo- Japanese War 52 V From the Russo-Japanese War to the Present Day 80 YI Conclusion , . . 106 PART II. — Economic Effects of Expenditures for War and Armament I Introduction 121 II Effects on the State Finance 124 III Effects on the Money Market 153 IV Effects on Industry, Transportation and Com- merce 229 V Social Effects 245 VI Conclusion 250 APPENDIX. — Statistical Tables of Expenditures for War and Armament table page 1 Armament Expenditures for the Army, from the First Fiscal Period (1868) to 1876 261 2 Armament Expenditures for the Navy, from the First Fiscal Period (1868) to 1876 262 xv xvi CONTENTS TABLE PAGE 3 War Expenditures of the Satsuma Rebellion, 187/ 263 Arrangement by Items 263 Settled Accounts of Various Departments, Offices, and Prefectures 264 4 (a) Armament Expenditures for the Army, 1877-1893 265 Ordinary and Extraordinary Expenditures .... 265 4 (b) Ordinary Expenditures under the Control of the Army Department, 1 877-1 885 267 4 (c) Details of Expenditures for Military Affairs of the Army, 1886-1893 268 5 (a) Armament Expenditures for the Navy, 1 877-1893 269 Ordinary and Extraordinary Expenditures . . . 269 5 (b) Ordinary Expenditures under the Control of the Navy Department, 1877- 1885 271 5 (c) Details of Expenditures for Military Affairs of the Navy, 1 886-1 893 272 6 (a) Military Expenses of the Sino- Japanese War, 1894-1895 273 Army Department 273 Navy Department 274 6 (b) Departmental Expenses of the Sino-Japanese War, 1894-1895 275 Department of Foreign Affairs 275 Department of Home Affairs 275 Department of Finance 276 Department of Communication 276 6 (c) Summary of Expenses of Sino-Japanese War, 1894-1895 277 7 (a) Military Expenditures of the Boxer Uprising, 1900 278 Army Department 278 Navy Department 279 7 fc (b) Departmental Expenditures of the Boxer Up- rising, 1900 280 CONTENTS XV11 TABLE PAGE Department of Foreign Affairs 280 Department of Home Affairs 280 Department of Finance 281 Department of Communication 281 8 Armament Expenditures for the Army, 1894- 1903 282 Ordinary and Extraordinary Expenditures .... 282 Details of Expenditures for Military Affairs. . . 283 9 Armament Expenditures for the Navy, 1 894-1 903 284 Ordinary and Extraordinary Expenditures .... 284 Details of Expenditures for Military Affairs. . . 285 10(a) Military Expenditures of the Russo-Japanese War, 1904-1905 286 Army Department 286 Navy Department 286 10(b) Details of Military Expenditures of the Russo- Japanese War, 1904-1905 288 Personnel and Materiel 288 10(c) Departmental Expenditures of the Russo-Jap- anese War, 1904-1905 . . : 289 Department of Foreign Affairs 289 Department of Home Affairs 289 Department of Finance 290 Army Department 293 Navy Department 293 Department of Agriculture and Commerce .... 294 Department of Communication 294 10(d) Summary of Departmental Expenditures of the Russo-Japanese War, 1 904-1 905 295 11(a) Armament Expenditures for the Army, 1904- 1913 296 Ordinary and Extraordinary Expenditures .... 296 1 1 (b) Details of Expenditures for Military Affairs of the Army, 1904-1913 298 XV111 CONTENTS TABLE PAGE 12 Armament Expenditures for the Navy, 1904- 1913 300 Ordinary and Extraordinary Expenditures .... 300 Details of Expenditures for Military Affairs . . . 301 13 Comparative Annual Figures for Armament Expenditures, War Expenditures Defrayed Out of General Account, Debt Charges and Administrative Expenditures 302 CHART 1 Diagram showing the Army and Navy Armament Expenditures in Comparison with the Total State Expenditures 304 2 Diagram comparing the Army Armament Ex- penditures with the Navy Armament Expenditures 305 3 Diagram of Comparative Annual Percentages for War Expenditures Defrayed Out of the General Account, Armament Expenditures, Debt Charges, and Administrative Expend- itures 306-307 Index 309 PART I HISTORICAL SURVEY OF EXPENDITURES FOR WAR AND ARMAMENT Note. — In the tables throughout this volume, fractions of yen greater than one half have been counted as a whole yen and the other fractions have been disregarded. CHAPTER I INTRODUCTION The visit of Commodore Perry in 1853 (the sixth year of Kayei) awakened Japan from a peaceful dream of seclusion in which she had reposed for many hundreds of years. Confu- sion and disorder followed, the Loyalists persisting in the exclusion of foreigners, the Feudalists arguing for the opening of the country to foreign trade and intercourse. Coincident with this, the Feudal Government was thrown into terrible financial difficulties, its influence and popularity fell to the ground, and discipline grew lax. At length, on October 14, 1867 (the third year of Keio), just fifteen years after the visit of Commodore Perry, the Shogun, Keiki Tokugawa, surren- dered the political power to the Emperor, and the feudal system suffered its downfall. Thus the restoration of the Imperial rule was effected. In the following pages dealing with the statistical history and economic effects of war and armament expenditures in Japan, it is proposed that the investigations shall cover the period from the Restoration to the present day. Historians will agree that the rise of modern Japan dates from the year of the Restoration, and that prior to that her wars and arma- ments were so different in nature and purpose from those of today that they must properly be left to separate investiga- tions. Forty-six years have elapsed since the Restoration, during which time Japan has come to be recognized as a great power in the East, having risen from a position so insignificant that her very existence was doubted in the West. No one can deny that the most prominent factors in her rapid rise among the nations of the world are the wars on which she has staked national destiny and the military and naval armaments which she has constantly supported. 3 4 HISTORICAL SURVEY OF EXPENDITURES We have now to consider the cost of these wars and arma- ments. Before we enter upon the subject in detail, however, we deem it expedient to divide the whole period of forty-six years into several epochs. As the object of a chronological classification in history is to facilitate investigation, so here, in our discussion of war and armament expenditures, it seems desirable to arrange the epochs with reference to the circum- stances or events by which these expenditures were distinctly augmented or diminished. Thus, the period with which we are concerned may conveniently be divided into four epochs, as follows: First epoch — -From the Restoration to the Satsuma Rebellion (1868-1877). Second epoch — From the Satsuma Rebellion to the Sino-Japanese War (1877- 1895)- Third epoch — From the Sino-Japanese War to the Russo-Japanese War (1895- 1905)- Fourth epoch — From the Russo-Japanese War to the present day (1905-1914). These are the four epochs in the history of modern Japan to be distinguished from the standpoint of war and armament. The first, covering the nine years commencing with the War of the Restoration, marks the reestablishment of law and order, the introduction of new administrative systems, and the be- ginnings of diligent military and naval preparations. The second, lasting seventeen years, begins with the Satsuma Rebellion, in which a formidable anti-government force was subdued and national unity was perfected, and is the epoch in which the armaments on both land and sea were gradually extended. The third, or the next ten years, opens with the Sino-Japanese War, in which long-yielding Japan fought with accumulated energy against her Asiatic neighbor and suc- ceeded in establishing herself as a strong power in the Far East. It is the epoch in which she increased her armament more and more and busily made ready to plunge herself into the whirlpool of international competition. The fourth, occupying the next decade, begins with the Russo-Japanese War, in which she asserted her position as a World Power by fighting and defeating a great European Power, and is the epoch of aspiration for the development of her army and navy INTRODUCTION 5 to a footing of equality with the great nations of the world. Generally speaking, her war and armament expenditures in- creased steadily all through the four epochs, but in each one the increase had its particular standard or condition. These epochs naturally correspond with the divisions of time com- monly adopted in any political, financial, or economic history of the Meiji Era ; and this fact shows that war has an important bearing upon social events, and that -it is the greatest of all phenomena in national affairs. In the following account the four above-mentioned epochs are allotted to four chapters, each of which is divided into sections dealing respectively with war expenditures, armament expenditures, and the corresponding financial resources. What are war expenditures and armament expenditures? We shall not undertake to define them scientifically, but we may say that the struggle of a nation by the force of arms, that is, the dynamic condition of its military power, is called war; and that the equipment of a nation with arms, that is, the static condition of its military power, is called armament. Assuming that the expenses incurred in the former are war expenditures, and that those incurred in the latter are arma- ment expenditures, we shall accordingly distinguish the two kinds of expenditure by referring to the corresponding items in the Japanese General Budget or Settled Accounts. According to the idea formulated in the foregoing paragraph, an internal disturbance must be regarded as a war, and such disbursements as are made in a civil war must therefore come under the head of war expenditures. As a practical question, however, it is always difficult to draw an exact line of demarca- tion between war expenditures and armament expenditures, or between these and other administrative expenditures. For instance, in the case of ships or horses which are purchased in time of war, but which may be used after the war, or in the case of any administrative expenditure in which war purposes and other purposes are combined, as of the expenses incurred by the financial organ in the collection of funds for the de- frayment of war expenses, it is by no means easy to discrimi- 6 HISTORICAL SURVEY OF EXPENDITURES nate, as it is entirely the degree or extent to which such objects or expenses are employed either in war or in armament that determines to which class of expenditures they properly be- long. Suffice it to say that we do not intend to make a hard and fast rule in the matter, but propose in our discussion to follow mainly the technical classification of accounts employed in our government finance, making such alterations or trans- fers as we deem necessary. With regard to the interest payments on war loans and armament loans, we may say that they might reasonably be classed as armament expenditures, since they form a part of the ordinary expenditures appearing annually in the General Budget or Settled Accounts. We shall not, however, include the figures corresponding to these items in our present work, except on special occasions, for the reason that they occupy such a special position in our armament expenditures that their details have been left to a separate investigation. Moreover, with regard to the financial resources for war and armament expenditures set forth in the following pages, we shall merely enumerate the corresponding items and omit detailed explanations thereof. This seems advisable because public loans and taxes, which form the main body of the re- sources, have their respective students elsewhere, and we wish to avoid repetition in this volume. Finally, with regard to two wars, the Sino-Japanese and the Russo-Japanese, there are already elaborate investigations by other writers, and our own discussion of them will therefore be brief. The statistical data on which our investigations are based are taken chiefly from the Settled Accounts published by the Department of Finance and from the Imperial Statistical Annual compiled by the Bureau of Statistics, and consequently they may be said to be the nearest correct and most reliable materials obtainable. But as for our investigations regarding the facts prior to 1887, and especially prior to 1875, we regret that our figures are more or less approximate owing to the imperfect financial systems existing in hose days and the con- sequent scarcity of material now available. INTRODUCTION 7 It must be noted that the figures collected in this work rep- resent only the expenditures for war and armament in the years concerned. As the value of money fluctuates in course of time, according to the general economic conditions, and is reflected in the rise and fall of prices, the expenditures of the state can not be properly conceived without taking this fluc- tuation into account It is to be hoped, therefore, that the reader will always entertain due consideration of the varying value of money in the different epochs of our history. Finally, it remains to be said that the fiscal year of our National Treasury begins on the 1st of April and ends on the 31st of March of each year, and that our annual accounts are as a rule produced in accordance therewith. But prior to 1885 the fiscal year or period was different and was reckoned as follows: First fiscal period — December, 1867-December, 1868. Second Third Fourth Fifth Sixth Seventh Eighth — January, 1869-September, 1869 (9 months). — October, 1869-September, 1870. — October, 1870-September, 1871. — October, 1871-December, 1872 (15 months). — January, 1873-December, 1873. — January, 1 874-December, 1874. — January, 1875-June, 1875 (6 months). From 1875 to 1884 the fiscal period in each year began with July and ended with the following June, while the fiscal period of 1885 covered nine months, beginning with July, 1885, and ending with March, 1886. CHAPTER II FROM THE RESTORATION TO THE SATSUMA REBELLION The nine years beginning with the Restoration and ending with the outbreak of the Satsuma Rebellion formed the most stirring epoch of the period with which we are concerned. Though the administrative power was restored to the Emperor, the real authority of the Imperial Government was not yet perfected. There was every necessity, internally, of resorting to arms in order to subdue the remnant of Feudalists in various parts of the country, and, externally, of guarding against any foreign interference. Fortunately, ruled by a wise sovereign, assisted by capable men well versed in the management of state affairs, Japan was able to accomplish the great work of the Restoration, reforming the national institutions and carrying out the national policy of opening the country and of making progress. This memorable task of unifying the Em- pire was not consummated without some bloodshed, the first of which was in the War of the Restoration, the second in the suppression of various local disturbances, the third in the Saga Insurrection, the fourth in the Formosan Expedition, and the fifth in the Korean Affair of 1875. The War of the Restoration was inevitable in the establish- ment of the new regime ; and as soldiers of numerous clans were mobilized, and as shifting operations were necessary in dif- ferent parts of the country, the war expenses and their effects were of great importance. The local disturbances referred to were conflicts of comparatively minor importance, caused by small internal movements of opposition against the new rule. In the Formosan Expedition, as well as in the Korean Affair, military power was used overseas, but they were not great wars involving the destiny of the nation. The latter, espe- cially, was merely a little disturbance in diplomatic relations. RESTORATION WAR TO SATSUMA REBELLION 9 Finally, the Saga Insurrection may be called only a harbinger of the Satsuma Rebellion. The war expenditures dealt with in this chapter pertain to these five wars. The country's armament in the earliest days of the Meiji Era lacked almost everything; and the new government, which had just accomplished, almost empty-handed, the work of the Restoration, was still far from its goal. The national finances were in complete disorder, while the sources of revenue were not established. Meanwhile, as foreign war vessels were fre- quenting her coasts, there was urgent necessity for Japan to strengthen her national defense; and above all it was obvious that her internal peace could be secured only through the building up of an efficient military power. The heavy cares of the government at this juncture can easily be imagined, and its anxious thoughts were at first concentrated upon the creation of an army and navy patterned after the occidental system. After laborious application and after enormous expenditures of money, the authorities saw their way clear to meet the emergency. Thus, by the end of the first epoch now under review, the so-called "creation stage" in the development of our army and navy was passed; and, though very imperfect, these two organs of the state came to be recognized in Japan, adding much to the power and systematic progress of the nation. War Expenditures War of the Restoration Though on October 14, 1867 (the third year of Keio), the administrative power was restored to the Emperor, the unifica- tion of national affairs was far from complete. The Imperial Government, having no soldiers of its own, had to rely upon the united efforts of the clans of Satsuma, Choshu, Tosa, and Hizen in order to acquire the sole political power. The Shogun, Keiki Tokugawa, after restoring his power to the Emperor, retired to Osaka, but the partisans of the Shogunate, living chiefly in Yedo and in Kwanto districts, planned clan- destinely the revival of their former regime; and what we call 10 HISTORICAL SURVEY OF EXPENDITURES the War of the Restoration was the struggle of the Imperialists in subduing these opponents. On January 2, 1865 (the first year of Keio), a battle was fought at Fushimi and Toba, in which the soldiers of the Satsuma and Choshu clans defeated the Feudalists of the Aidzu and Kuwana clans and demon- strated the superiority of the Imperialist forces. The Shogun then returned to Yedo and lived in seclusion, but the minds of his adherents still dwelt upon the revival of the Shogunate. The Imperial Government thereupon raised the armies for the expedition to Kwanto, which proceeded toward Yedo, march- ing simultaneously by different routes through the districts of Tokaido, Tosando, and Hokurikudo. Destitute of war funds, the government resorted to borrowing the necessary sums from merchants and rich men, and also issued paper notes to meet the urgent requirements. On April 1 1 of the same year the Castle of Yedo capitulated; but this did not satisfy the hereditary vassals of the Shogun, many of whom plotted a rebellion. Keisuke Otori, as a revolter, fled to Shimosa; Buyo Enomoto, after plundering eight warships of the Feudal Government, fled to Hakodate, where he shut himself up in the Castle of Goryokaku; and the Aidzu clan, together with seventeen other clans of the Ou districts, rebelled against the coalition government of the Satsuma and Choshu clans. The Imperial Government had to overcome all these rebels, and it was not until after many battles that the War of the Restora- tion was at last concluded on May 17, 1866 (the second year of Keio), with the final surrender of the Hakodate rebels. In June of the same year the grant of rewards for military serv- ices was made to 440 persons (4 battalions), and the heredi- tary pensions, life pensions, and temporary rewards amounted to a considerable sum. The War of the Restoration was an internal conflict; and as the government did not have a military force of its own, it happened inevitably that the different clans quarreled with one another, dividing themselves into the eastern and western factions. In dealing with the corresponding war expendi- tures, therefore, we must consider the part borne by the RESTORATION WAR TO SATSUMA REBELLION II Shogunate party as well as that borne by the Imperial Gov- ernment; and these together do not represent the total ex- penditures, since the different clans engaged in the struggle all paid their expenses out of their own treasuries. Conse- quently, the figures given below as representing the cost of this war to the government do not comprise the total disburse- ments; on the contrary, they would perhaps be doubled if the expenditures of the different clans concerned were taken into account. Moreover, it may be here noted that in the arma- ment expenditures mentioned below for the first year of Meiji certain items are partially included that might properly be reckoned as war expenditures. The total war expenditures corresponding to the War of the Restoration, as shown in the Government Statement of Ac- counts for the eighth fiscal period, and as produced in 1878 by consolidating the accounts of the preceding years, was 8,908,- 333 y en - This total was obtained by computing the average market price of rice stored in government warehouses in each fiscal period and by taking into consideration the rice quota- tions in different localities. This was done because in those days rice was used largely as the medium of exchange in paying taxes and in borrowing war funds and supplies from the pub- lic. The figures for the separate fiscal periods are as follows: Fiscal period Yen First 4,621,633 Second 2,625,644 Third 1,546,984 Fourth 1 14.072 12 HISTORICAL SURVEY OF EXPENDITURES The different items of expenditure were as follows Expenditures for the War of the Restoration Items of expenditure Fiscal period Total First Second Third Fourth Subjugation of Kwanto districts Yen 3,348,883 125,446 828,323 12,481 66,000 109,700 130,800 Yen 752,038 577,900 182,708 564,987 310,000 238,010 Yen 235,006 H5,354 27,979 319,570 849,075 Yen 95,389 18,543 140 Yen 4,431,316 Chastisement of rebels at Hakodate Expenses for those who surrendered Emperor's sojourn at Osaka and trip to Kwanto 703,346 298,062 828,323 Garrisons and head- quarters 12,481 Civil administration of- fices 630,987 Police office 27,979 Special grants bestowed on various clans .... Temporary rewards. . . 757,813 1,218,026 Total 4,621,633 2,625,644 1,546,984 114,072 8,908,333 Of the above items, the outlays for subjugating the Kwanto districts and for chastising the rebels at Hakodate may be reckoned as direct war expenditures, but further details of them can not now be given. The garrisons and headquarters were located in Tokyo for commanding the troops mobilized for the Kwanto Expedition and served as presiding military organs; they also performed the duty of pacifying those clans- men who surrendered. The civil administration offices and the police office were established in order to placate popular sentiment and protect life and property; the former were located in the northeastern districts, viz., in Taira (Province of Iwaki), Wakamatsu (Province of Iwashiro), and Sakata (Province of Ugo), and the latter in Shiraishi (Province of Iwashiro). The special grants bestowed on various clans in the first fiscal period consisted of funds advanced to the Kagoshima RESTORATION WAR TO SATSUMA REBELLION 1 3 clan for the purchase of ammunition, and of further advances to various other clans for guarding Osaka and other cities. The special grants in the second fiscal period consisted of an advance of 200,000 yen to the Akita clan, which alone worked hard for the Imperial cause among other clans of the Ou dis- tricts and was thus impoverished, and of smaller advances to a few other clans whose men served in the Imperial Army and whose territory was ravished by troops. Finally, the special grants in the third fiscal period include principally sums ad- vanced to the Wakamatsu clan, the members of which, numbering a few thousands, obediently migrated to Hokkaido. The last item, temporary rewards, refers to the money given, as circumstances required, to the officers and men who took part in the fighting. Suppression of Local Disturbances After the fall of the feudal system and the establishment of the new regime, the consequent introduction of new national institutions and usages caused a considerable agitation of public sentiment. Some opposed the new system of govern- ment, some planned to form a separate government, and others were discontented with the treatment accorded to the former clansmen. These disturbed people were led to revolt in various localities. Thus, in 1871 there was an uprising in Watarai (now Prefecture of Miye) ; in 1872, another in Ina (now Prefecture of Nagano); in 1873, others in Fukuoka, Hojo (now Prefecture of Okayama), Oita, Miye, Miyazaki, Myoto (now Prefecture of Tokushima) ; and in 1874 there was a movement of opposition in Tsuruoka (now Prefecture of Yamagata). All these were small riots, but the government could not quell them save by force of arms. The expenses incurred in these wars were as follows: Fiscal period Yen Fifth 3.638 Sixth 82,404 Seventh 43. 889 Eighth 25,740 Total 1 55 67 1 14 HISTORICAL SURVEY OF EXPENDITURES Saga Insurrection The centralization of political power in the Meiji Govern- ment was accomplished, and the work of remodeling of the na- tional institutions began. At this time the authorities were divided into two parties, the one insisting on the necessity of first reforming the internal administration of the country, the other urging the primary importance of increasing the national strength abroad. At that time it happened that Tai-won- kun, who was acting as regent in Korea, failed to observe the rules of propriety in receiving Japan's envoy sent there for the purpose of establishing friendly relations with his country. The strong foreign policy party in Japan then clamored for the chastisement of Korea, and the State Councillor General, Takamori Saigo, leader of this party, insisted upon going in person to Korea as Japan's emissary appointed for this pur- pose. On the other hand, the moderate party in Japan in- sisted that such action was unnecessary. Neither party would yield to the other, with the result that on September 23, 1873, when the State Council decided against sending an expedition to Korea for the time being, the advocates of the measure indignantly resigned their positions in a wholesale manner. This constituted the direct cause of the Saga In- surrection and the Satsuma Rebellion, and was primarily re- sponsible for the troubles in Korea which occurred on three subsequent occasions, as also for the Formosan Expedition. Indeed, the Korean questions were the nucleus of the events of the Meiji Era. Shimpei Et5, who returned to Saga indignant because his plan of invading Korea had not been carried out, was excited by his adherents to revolt in February, 1874, having himself been chosen as leader of the revolters. The insurrection was quelled by the forces commanded by Major-Generals Nodzu and Yamada, with Toshimichi Okubo, State Councillor, as their head. The hostilities lasted fifty-two days and involved the use of 2,000 soldiers organized in fourteen battalions of the army, 4,500 additional men having been mobilized in different RESTORATION WAR TO SATSUMA REBELLION 1 5 localities. Of the navy, four warships and nine trans- ports took part in the war. The expenses incurred were as follows: Fiscal period Yen Seventh 955.614 Eighth 61,083 Total 1 ,016,697 Formosan Expedition In October, 1871, fifty-four inhabitants of the Loochoo Islands were cast ashore in Formosa, where they were killed by the natives. Subsequently, in March, 1873, four people from the Prefecture of Oda were also injured by the natives there. The Imperial Government then considered the chastise- ment of Formosa and opened negotiations with China in re- gard to the matter; but the Chinese Government was unwill- ing to punish the Formosans on the ground that they were still barbarians and as such beyond the Chinese power of assimila- tion. Thereupon, the Japanese Government decided to send a punitive force to Formosa, considering that the public senti- ment aroused over the Korean Affair and the consequent Saga Insurrection could not otherwise be satisfied. In May, 1874, an expeditionary force commanded by Yorimichi Saigo proceeded to Formosa and subdued the natives there. In September, 1874, Toshimichi Okubo went to Peking and, after negotiations, obtained an indemnity of 500,000 yen from the Chinese Government, and in December of the same year General Saigo returned to Japan in triumph. The number of soldiers employed in this expedition was 3,658, of whom 573 were killed and 17 wounded. Of the navy, the Adzuma and four other warships, with crews numbering in all 289, served in the war. The total expenses were as follows : Fiscal period Yen Seventh 2,230,376 Eighth ., 1,387,684 Total 3,618,060 16 HISTORICAL SURVEY OF EXPENDITURES According to the books kept in those days at the Formosan Expedition Office, these expenditures were apportioned as follows : Apportionment of Expenditures for the Formosan Expedition Payments At Main Office At Nagasaki Branch Office At Expedition Headquarters At War Department At Navy Department By Minister in Charge At Shanghai Consulate. . . For Inspection Tours in China For Purchase of 1 5 Vessels (Tokyo Mam, etc. Total Gold and silver Yen 813.177 158,657 528,801 4 8 .777 78,905 21,420 169 100,000 1,749,906 Trade silver Pieces 775 775 Mexican silver Dollars 123,937 53 206 16,580 44.324 U.979 5,681 6,610 1,545,388 1,807,705 Korean Affair oj 1875 It has already been mentioned that the plan for the chastise- ment of Korea was not adopted by the Cabinet; and although the excitement over the question had almost subsided with the carrying out of the Formosan Expedition, an actual rupture of diplomatic relations with the Peninsular Kingdom was brought about in 1875, when the Korean garrison at Koka Island shelled the Japanese warship Unyo, which touched there for water and fuel. The Imperial Government then sent out a punitive force to Korea, and succeeded in coming to a friendly agreement whereby the three Korean ports of Fusan, Gensan, and Jinsen were opened to foreign trade, and the definite statement was made that Korea was not a dependency of China. The expenses in this war amounted to 489,553 yen. Armament Expenditures Army The nine years beginning with 1868 and ending with the outbreak of the Satsuma Rebellion belong to the epoch in which the Japanese army was gradually and systematically RESTORATION WAR TO SATSUMA REBELLION 1 7 developed for the first time. In the feudal days each clan had its "samurai" or class of men who were hereditary soldiers by profession ; and it is a fact, too, that even before the Restora- tion some attention had been given to military science and some progress had already been made in the manufacture of gunpowder, cannon and rifles. At that time, however, these were but separate works in the individual clans, and what may be called the awakening of the nation to the question of national defense commenced only after the coasts of Japan were menaced by foreign warships and the opening of the country to foreign intercourse became pressing. In 1862 the Feudal Government planned the organization of an army patterned after the occidental system and trained 13,000 soldiers in three companies. This may be called the foundation-stone of the modern Japanese army. But the progress of this first army was "checked by the War of the Restoration, in which the Imperial Government, having no soldiers of its own, made use of the soldiers of the different clans; and by this act the military systems or equipments of the Feudal Government were totally destroyed. After the Restoration, the Imperial Government recognized the importance of maintaining its military power, though it allowed the soldiers of the feudal lords to return to their own clans, and freshly summoned "samurai" from Totsugawa, etc., and also appropriated the soldiers of the house of Toku- gawa. In 1870, when Aritomo Yamagata and Yorimichi Saigo returned from their tours in Europe for the investigation of western military systems, it was decided to organize the army after the French style and the navy after the English style. The Military School was moved from Tokyo to Osaka, and young men from different clans were invited to go there to be educated as officers. In February, 1871, 10,000 soldiers from the clans of Satsuma, Choshu and Tosa were collected in Tokyo to form an Imperial Body Guard (the origin of the present Imperial Body Guard), and subsequently, the feudal soldiers having been ordered to disperse, it was planned to organize four garrisons at Tokyo, Sendai, Osaka and Kuma- 18 HISTORICAL SURVEY OF EXPENDITURES moto. For this purpose soldiers were levied from different clans on the basis of their income at the rate of five soldiers per 10,000 koku of rice. In February, 1872, the War Depart- ment was abolished, and the Army and Navy Departments were established instead. On January 20, 1873, the principle of a whole nation in arms was finally adopted by the passage of the conscription law; and with this the foundation of the Imperial military system was laid. The entire country was then divided into six districts of military jurisdiction, and six garrisons were formed accordingly, each composed of fourteen regiments (42 battalions) of infantry, eighteen sections of artillery, three battalions of cavalry, ten sections of engineers, one battalion of supply troops, and nine companies of coast artillery. The total peace footing was 31,680 and the total war footing 46,350. This organization was maintained, though with more or less revision, until the outbreak of the Satsuma Rebellion, and it seems that the government was able to obtain the required number of men as stated above. 1 The Settled Accounts of the armament expenditures for the army, from the first fiscal period to 1876, read as follows: Armament Expenditures for the Army Fiscal period First .... Second . . , Third Fourth . . . Fifth. . .. Sixth Seventh . . Eighth . . . 1875.:'. 1876 Total Ordinary expenditures Yen 1,008,120 1.347.562 1.355.832 3. 195. 156 7,346,649 8,128,141 8,673,709 3,642,066 6,959,736 6,904,829 48,561,800 Index number 100 133 135 317 729 806 860 362 690 685 Extraordi- nary expendi- tures Yen 567,614 95.904 68,713 57,8ii 352,698 369,614 59,467 3.620,533 5,192,354 Index number 100 18 12 10 625 650 n 6,400 1 Cf. Appendix, Table No. 1. RESTORATION WAR TO SATSUMA REBELLION 1 9 The above table shows a rapid increase of both ordinary and extraordinary expenditures. The figures for the first four fiscal periods comprise all the naval expenditures except the Warship Sundry Expenses, which it was impossible to separate for the reason that until February, 1872, the affairs of both the army and the navy were under one and the same organization, called the War Department, which in 1869 succeeded the Bureau of Military Affairs formed in the first year of Meiji (1868). The figures of the ordinary expenditures are those given in the Settled Accounts of the Department of Finance as army and navy expenditures from the first to the fourth fiscal period and as army expenditures for the fifth fiscal period and thereafter. They include the expenses of the Army and Navy Departments for the purchase of arms, the construction of castles, forts and barracks, and indeed all other outlays that may be classed as military expenses. But in those days there were no such divisions as chapters, sections, sub-sections, and items in the Annual Account; indeed, no definite form of General Budget then existed, so that temporary diversions of available funds, prolongations of particular fiscal years, etc., were of frequent occurrence. Consequently, it must be noted that the above figures show only the amounts of the actual payments made. Though the army and navy expenditures of the first and the second fiscal periods are classed as ordinary expenditures, more than half of the total must have been used directly in the War of the Restoration; and it is so stated in the remarks in the Settled Accounts, as the total amounts are disproportionately large in comparison with the average ex- penditures of the other departments of the government at that time. The ordinary expenditures from the first to the third fiscal period increased from 1,008,120 to 1,355,832 yen, and they represent principally the payments to the soldiers who fought in the War of the Restoration. The extraordinary expenditures in these three fiscal periods comprise 584,000 yen paid for the settlement of debts contracted for weapons pur- chased by the Feudal Government from various French and Dutch firms, and 143,000 yen paid for building barracks at 20 HISTORICAL SURVEY OF EXPENDITURES Kanakawa for the protection of foreigners and natives. The reason the expenditures more than doubled in the fourth fiscal period, as compared with the third, is that, as mentioned above, some 10,000 soldiers, i.e., a few battalions each from the clans of Satsuma, Choshu, and Tosa, were collected to form the Imperial Body Guard, and subsequently four garrisons were organized. In the fifth fiscal period there was again an increase of about two and a half times over the expendi- tures of the fourth, due to the fact that in February, 1872, the War Department was abolished and the Army and Navy Departments were instituted in its place; and as both mili- tary and naval affairs were enlarged, more weapons pur- chased, additional barracks built, and the number of soldiers increased, there was consequent increase of expenses. The whole of the extraordinary expenditures in fifth, sixth and seventh fiscal periods, and 176,567 yen of the same in the eighth fiscal period, totaling 958,346 yen, were used in the purchase of land and the construction of buildings for the Imperial Body Guard and all other garrisons and the Military Academy. The extraordinary expenditures of 3,443,966 yen in the eighth fiscal period were used in the manufacture of arms and ammunition at the critical juncture brought about by the disturbed relations with China in 1874 after the For- mosan Expedition, and included other expenses toward the expansion of affairs in general. In the ordinary expenditures of the eighth fiscal period, and of the fiscal years 1875 and 1876, we do not see any great increases, because those amounts were just sufficient for the maintenance of the military power at the time. In order to set forth the nature of the armament and cor- responding expenditures in those days, we produce at this point some of the main disbursements in the fiscal year 1875,. (July, 1875-June, 1876). The following figures are taken from the first Annual Report of the Army Department, in which, however, a sum of 457,596 yen appears as an extraordinary expenditure for the purchase of land in the compounds of the Castles of Hiroshima and RESTORATION WAR TO SATSUMA REBELLION 21 Himeji, for building barracks in the Loochoo clan, for an emergency fund for the Korean troubles, and for the expenses of the expedition organized to quell the riots in the Prefecture of Wakayama. The consequence is that in the said Annual Report the grand total of the expenditures of the Army De- partment amounts to 7,231,711 yen, which, as compared with the aforementioned Settled Accounts of the Department of Finance for the same year, reveals a difference of 271,975 yen; but the details of this discrepancy can not now be traced. We may conclude, therefore, that in the army expenditures now under review the expenses of the Army Department proper were the largest (approximately 22 per cent) , and that the average expenditure for one garrison was 470,000 yen. Expenditures of the Army Department in the Fiscal Year 1875 Names of offices Amount Army Department General Staff Imperial Body Guard Garrisons: First Second Third Fourth Fifth Sixth Arsenal : Head Office Branch Office Engineering Corps: First Second Third Fourth Fifth Sixth Military Academy Toyama Military School Kyododan Military School (for training non-commissioned officers) Military Preparatory School Main Hospital Law Court Horse Bureau Sick Horse Stable Armory Total Yen 1,510,711 132,182 408,079 786,638 185,089 328,176 57L947 360,848 445.002 433.420 200,431 440,662 23.303 38,095 72,198 18,767 27,264 129,797 8i,54l 242,839 45-335 110,882 23,069 113.409 17.512 26,919 6,774.115 22 HISTORICAL SURVEY OF EXPENDITURES Apportionment of Expenditures of Army Department in the Fiscal Year 1875 Items of expenditure Amount Salaries Allowances Traveling expenses Office expenses Barracks furniture Ordnance Stables Expenses for students abroad Conscription Foreign employees Medical care Penal servitude Prisons Marches Troops Reserve soldiers Ammunition Expenses for students at home Building and repairs Shokonsha (shrine for those killed in war) Sundries Total Yen 796,819 1,268,891 284,702 243,821 46,057 263,591 102,853 19,877 50.042 129,728 64,618 8,831 9,787 30,524 2,623,721 48,255 47,230 61,446 165,427 8,750 499,145 6,774,»5 Further, in the items of expenditure enumerated, we note that the allowances (which include clothing and food) are the larg- est, the salaries coming next; and then follow the traveling expenses and the ordnance expenses. Navy Disregarding the fact that from remote times until the Middle Ages the Japanese occasionally showed their naval power in expeditions to the Chinese coasts or Korea, we may say that they almost totally neglected the question of mari- time defense for a period of more than two hundred years of their modern history, in which they rigidly adhered to the principle of national seclusion. But the transitional move- ments of the times had never allowed the Far Eastern waters to remain permanently tranquil. Toward the end of the Tokugawa regime, the visits to this country of European and American ships had gradually increased in frequency ; and with RESTORATION WAR TO SATSUMA REBELLION 2$ the appearance of frigates off her coasts the old scholars in Japan began to talk of the urgency of maritime defense. When the country was visited by Commodore Perry, in 1853, there came advice from the Dutch Government relative to the creation of a navy in Japan. Thereupon the Feudal Govern- ment, planning the organization of a navy, established a naval school (1855), installed shipbuilding yards at Ishikawajima and Yokosuka (1864), and purchased and constructed several war vessels, so that just before the Restoration the government had at its disposal a fairly well organized naval force. Be- sides this, the clan governments of Satsuma, Choshu, Kuma- moto and Saga also worked toward the development of the navy. But the great revolutionary War of the Restoration completely destroyed the Feudal Government, together with its navy, and the newly formed Imperial Government was keenly alive to the necessity of reestablishing the means of maritime defense. In 1869 the Bureau of Military Affairs was abolished and the War Department, with jurisdiction over both army and navy, was established instead. In 1870 the Naval College, the cradle of Japanese naval education, was founded in Tsukiji, and students from various clans were enrolled there for training. At this school British teachers were employed, and many students were sent forth to pursue studies in Europe and America. Thus great pains were taken in laying the foundation of the country's navy. In 1872, with the abolition of the War Department and the creation of the separate Navy Department, a number of laws and regulations were made for the unification of naval affairs, and the official organization of the Navy Department was ac- complished in October of the same year. It may be said that the plan of the Japanese navy was now for the first time settled. Consisting then of two iron-clad ships, one iron- framed wooden ship, and some small wooden ships, it num- bered in all only seventeen vessels, with a total displacement of 13,812 tons. In October, 1875, the coasts of the country were divided into the eastern and the western jurisdictional districts, in which the warships were properly distributed; in 24 HISTORICAL SURVEY OF EXPENDITURES August, 1876, the naval stations were officially organized; and in September of the same year the Tokai Naval Station was established at Yokohama. In 1873 the construction of H. M. S. Jingei (1,450 tons) and of the warship Seiki (897 tons) was commenced at the Yokohama Shipbuilding Yard, the former being completed in 1876 and the latter in 1875. Thus the infant stage or the first epoch of the Japanese navy was passed, and its strength was shown in the Satsuma Rebellion. The Settled Accounts of these armament expenditures for the navy read as follows: 1 Armament Expenditures for the Navy Fiscal period First . . . Second . Third . . Fourth . Fifth. . Sixth . . Seventh Eighth . 1875- • ■ 1876. . . Total Ordinary expenditures Yen 1,767,450 1,188,684 1,685,237 1,033,713 2,825,843 3,424,998 11,925,925 Index number 100 68 95 56 166 195 Extraordi- nary expendi- tures Yen 30,000 147,000 301,124 101,544 1,629 2,488,586 3-069,883 Index number 100 490 1,003 332 4 745 The absence of figures of ordinary expenditures for the first four fiscal periods in the above table is due to the fact that, as mentioned before, the navy expenditures in those days were included in the army expenditures. As regards the extraordi- nary expenditures, the amount appearing in the first period represents half of the purchase price of the warship Takao bought by the Akita clan, and that in the second period represents a payment of 130,000 yen for a warship previously purchased by the Feudal Government, and the balance of 17,000 yen paid for the Takao. The extraordinary expendi- tures in the third period represent some 225,000 yen expended 1 Cf. Appendix, Table No. 2. RESTORATION WAR TO SATSUMA REBELLION 25 for coast defense at the time of the Franco-Prussian War in July, 1870, when Japan declared neutrality and dispatched warships to guard the ports of Shinagawa, Yokohama, Hiogo, Nagasaki, and Hakodate; and also 75,629 yen expended for repairing and transporting the warships of various clans in order to bring these vessels under the centralized control of the War Department, as it was considered disadvantageous for the clans to have warships under their own control. It has already been stated that in the fifth fiscal period the enlargement of the navy was planned, and ordinary expendi- tures exceeding 1,740,000 yen were consequently made in that period. The figures of extraordinary expenditures in the same period represent the amount paid for the warship Unyo purchased from the Yamaguchi clan. The increase in the seventh period was due to the general increase of expenditures for purposes other than those directly connected with war, in consequence of the Saga Insurrection and the Formosan Expe- dition. It is interesting to note that in the eighth fiscal period, which lasted only six months (January, 1875-June, 1875), there was a great increase in these navy expenditures ; but it is attributable to the carrying out, in the preceding year, of the Formosan Expedition, which led to the necessity of purchasing more arms, ammunition and warships in anticipation of a possible conflict with China. Incidentally, this temporary increment of the navy served as a preparation for the war of the Satsuma Rebellion. Financial Resources In December, 1867, the "Money and Cereals Revenue Office" was established, later to be renamed the "Bureau of Financial Affairs." Though in July, 1869, the Department of Finance was at last established, the sources of revenue were insufficient, consisting only of trifling receipts from land taxes, customs duties, various business taxes, etc. ; and while each clan had its own income from taxation, the newly formed Imperial Government had no distinct revenues of its own. Thus, almost the whole of the expenses incurred in the War of 26 HISTORICAL SURVEY OF EXPENDITURES the Restoration were defrayed by means of borrowed funds and issues of paper money. Indeed, there was no war fund in preparation during the period between the battles at Toba and Fushimi and the subjugation of the eastern districts, so that the supply of money and food was always obtained, as occasion required, by borrowing from the rich houses in dif- ferent localities or else by commandeering. Evidences that the government borrowed considerable sums at high rates of interest are still very clear, and the amounts borrowed were as follows: Fiscal period Yen First 4,732,482 Second 911,500 Third 4,782,400 Total 10,426,382 Besides these loans, the government issued on the 19th of the intercalary month of April, 1 1868, the so-called Dajokan- satsu (paper money authorized by the State Council) ; and at the same time it was decreed that "by the gracious intentions of the Imperial Government paper currency was ordered to be issued as an emergency measure for the relief of the universal distress among the people." While the object of issuing these notes was proclaimed to be that of supplying capital for the development of industry, it can not be denied that another very urgent object was that of meeting a large deficit in the government revenue. The amount of paper money issued was first restricted to 32,500,000 ryo (old yen), but was after- wards gradually increased as follows: Fiscal period Yen First 24,037,390 Second 23,962,610 Third 5.354.513 Fourth 2,145,487 Total 55,500,000 The financial resources for the expenses incurred in the War of the Restoration were obtained through the two means 1 According to the lunar calendar of the time, a double month occurred at certain, fixed intervals, and this was the year in which the double month occurred. RESTORATION WAR TO SATSUMA REBELLION 27 referred to above, and also through the war contributions exacted from the various clans and their voluntary donations. In the intercalary month of April, 1868, the government decreed that the war fund was to be raised from the clans on the basis of their income at the rate of 300 koku per 10,000 koku of rice, the payments to be made annually. Later, in September, 1870, the rate was raised to 450 koku per 10,000 koku, and the total amounts received by the government were as follows: Fiscal period Yen First 73-377 Second 79,137 Third 378,093 Fourth 1 ,461 ,064 Total 1,991,671 During the War of the Restoration, moreover, many of the Feudal Lords and Loyalists in various parts of the country voluntarily contributed cash and rice to the war fund of the government, the amount of these donations having totaled 655,406 yen in the first four fiscal periods. At that time no special accounts were kept for war expenses, and it is therefore impossible to indicate definitely the cor- responding financial resources. But the revenue from the four sources above mentioned was so large that only one-eighth of the total amount thus obtained was used for war expendi- tures. Consequently, it must be noted that the funds derived from the paper money issued and from the other sources were for the most part utilized for other purposes. The aggregate revenue for the first four fiscal periods was about 110,000,000 yen, of which the paper notes represented 50 per cent, the borrowed funds 10 per cent, and only the remaining 40 per cent represented the ordinary revenue from taxes, etc. It is apparent that the government did not rely solely upon this last 40 per cent for meeting its war expenditures. It may also be deduced that the revenues from the four financial resources above mentioned were largely used in the total war expenditures of 5,279,981 yen in the four wars following the 28 HISTORICAL SURVEY OF EXPENDITURES War of the Restoration, and also in the total armament ex- penditures of 68,749,962 yen. However, the income of the Meiji Government had been greatly augmented during and after the third fiscal period, as, for instance, by a gradual in- crease in the land tax; and it may be said that war expendi- tures then came to be gradually supplied through the ordinary sources of revenue. We may further remark here that after the year 1872 some spare notes were issued for circulation, as will be narrated in the following pages, for supplying the deficit in the government revenue; and it can scarcely be doubted that these notes, which were originally intended to replace defaced or worn-out notes in circulation, also served to satisfy the requirements for armament expenditures. CHAPTER III FROM THE SATSUMA REBELLION TO THE ^JAPANESE WAR Ten years passed after the Restoration, and during that time order was gradually restored within the country. Meanwhile, however, a cri- - - developing in I gcr eminent ha The conflict of opinions between the cc r i e internal policy party and the strong foreign policy par: na vehement controversy over the question of an invasion of Korea, and finally led to the great S bsmna RebeUion : I " " But this war served as a touchstone I - the ability of the new regime and was an indispensable medium for perfec: g the modern institutions and unified organization of th staJ --withstanding the great sacrifices ~ - railed upon to makv I b . I mperial Government was fortunately able to . proof of its ability to maintain the unified rule nation, and was left virtually free to proceed on its way toward ad- ministrative reforms and general public improvements. \\ e have said that the nir. - ng 1 - be- longed to the epoch in which : - - created, and we may call the nex: - - now under review, the epoch in which the developmen: national defense was effected. Comparative peace reigned in Japan from the Satsuma rllion to the year 1893. though a few soldiers 1 sent to Korea in 1882 and again in 1884: and during this epCK quiet, progress was made in the development of the army and navy. At first, that is. prior to 1884 r 1885 the prog- as very slow, but from then on it was gradually accelerated. In other words, in the first half of the epoch the preparation for the development of the national defense was made, and in the at nd half the development was actually effected. This was due to the fact that the financial and economic status of primi- 29 30 HISTORICAL SURVEY OF EXPENDITURES tive Japan was seriously shaken by the war of the Satsuma Rebellion, and the country was consequently compelled to pass through a sort of preparatory stage, though the comple- tion of the national defense was very urgent. In the present chapter we shall first consider the war ex- penditures connected with the Satsuma Rebellion, which was really the last great struggle for the unification of the Empire, and shall then take up the expenditures resulting from the Korean Affairs in 1882 and 1884. Regarding the latter, there may be more or less objection to our treating them as war expenditures; but as they were practically the expenses in- curred in moving soldiers, and as fighting actually occurred, we may say they can not properly be excluded from the items of war expenditure. War Expenditures Satsuma Rebellion Takamori Saigo, defeated in his insistent advocacy of the invasion of Korea, resigned his councillorship in the Cabinet and returned to his native place, Kagoshima, where he started a private school with funds derived from the pension bestowed on him by the government, and was soon educating thousands of students. The dissatisfaction of these students with the Imperial Government could by no means be controlled, and on January 30, 1877, they revolted against it. On February 15, with a force numbering about 25,000, they crossed over the boundary of their clan and entered Kumamoto, where they were joined by a force of Kumamoto men under Kichijuro Ikebe. Together these two forces besieged the Castle of Kumamoto. The startling report to the above effect having reached the Imperial Court, the declaration of war was promulgated on February 19, and the Imperial Army marched on to Kyoto under the command of H. I. H. Prince Taruhito. At the beginning of the rebellion the Minister of War, Aritomo Yamagata (now Field Marshal), called upon the government for a special advance of 200,000 yen to meet the immediate re- quirements. But the government was then laboring under SATSUMA REBELLION TO SINO-JAPANESE WAR 3 1 heavy expenses of all kinds, with inadequate financial re- sources for their defrayment, and could not meet the demand. Meanwhile, the field of the war operations was expanding more and more. The entire active army was mobilized, but it was not sufficient. The second reserves were then mobilized, and it even became necessary to call upon the territorial army and the police forces. At this juncture the home affairs of the government were not yet quite in order, the attitude of the public was very uncertain, and there was very little hope of raising national loans with any success — the more so because the domestic loans already raised had far exceeded the reason- able limits of the national power of redemption. Moreover, it was then not long since the issue of an Imperial Edict pro- posing a decrease in the people's burden of taxation, and the government had to be prepared for the alienation of public sympathy if it undertook to levy new taxes or to raise the rates of existing taxes. Thus, the public authorities had a very painful experience in finding means for defraying the expenses of the war. About that time there was a plan under consideration by a noble, Tomomi Iwakura, Director of the Nobles Board, for utilizing the nobles' Hereditary Pension Bonds for the estab- lishment of a large National Bank. The government then granted various privileges to facilitate the carrying out of this enterprise and promised to borrow at the low rate of 5 per cent per annum the notes issued by the bank to the amount of 15,000,000 yen. The notes were taken into the Department of Finance within the year at specified times, and in this way the government managed to obtain the funds it needed. Meanwhile, the field of the war continued to expand. By the fierce battle at Tawarazaka the siege of the Castle of Kumamoto was at last raised and the rebels were compelled to flee in the direction of Miyazaki and Oita, where another battle ensued. Here there were greater difficulties of trans- portation and provisionment, resulting in a further increase of expenditures. On June 1 of the same year, Yorimichi Saigo, commander of the Imperial Army, applied to the government 32 HISTORICAL SURVEY OF EXPENDITURES for an advance of 12,500,000 yen for the defrayal of war ex- penses for the four months commencing with June, and the Department of Finance complied with this application by means of the bank notes issued by the Fifteenth Bank (the bank established as explained above). But for future needs the government did not have sufficient funds. Just at that time difficulty was being encountered in circulating the bank notes, which were in the nature of inconvertible paper money. In December of the same year, therefore, the government was compelled to decide on another means of meeting the pressing need, that of issuing 27,000,000 yen of new paper notes out of the paper reserve kept for the replacement of worn-out paper money, giving notice that the new notes were to be gradually exchanged for coin during the next fifteen years. Fortu- nately, however, in the month of August the Imperial Army was able to confine the rebels in Kagoshima, and on September 24 Takamori and his followers committed suicide and the rebels were all subdued. In this connection, therefore, it must be noted that the new paper notes issued as explained above were used chiefly in the settlement of affairs in the regions where the hostilities took place and in the with- drawal of troops. The war of the Satsuma Rebellion lasted eight months. The number of soldiers and civilians attached to the Imperial Army exceeded 52,200, of whom more than 6,200 were killed and more than 9,500 wounded. Of the navy, eleven warships (Adzuma, etc.) and three transports (Takao, etc.) took part in the action, while the sailors and civilians attached to the navy numbered about 2,280. Besides, some 600 men of the territorial army and some 11,000 members of the police force participated in the war. Thirty-eight steamships of the Mitsubishi Co. were employed in transporting the troops. The number of men who fought in the rebel army was about 40,000, of whom about 20,000 were killed. For the adjustment of the expenses of this war, the Army Department first made out on February 20 a series of regula- tions for the classification of accounts for war expenses, SATSUMA REBELLION TO S1NO- JAPANESE WAR 33 specifying fifteen titles or headings for the purpose; and the Navy Department followed its example. In August the Ex- peditionary Expenses Control Bureau was formed in the De- partment of Finance for consolidating the war expenses. This bureau was changed in November to an office belonging to the Dajokan (State Council, abolished in 1885), and Shi- genobu Okuma (now Count) was appointed chief of the office. Here the responsible officials in charge of other government offices were called in and the settlement of accounts for war expenses was effected. The accounts ran only to the end of October, but the payments made thereafter (such as those for withdrawing troops and temporary rewards to discharged soldiers) were included in the Settled Accounts. Let us now consider the so-called Campaign Expenditures itemized in the Settled Accounts, as set forth in the table on page 34. The Campaign Expenditures enumerated, totaling 35,295,- 580 yen, comprise all the expenses incurred directly for cam- paign purposes, and represent three quarters of the total of the expenditures corresponding to the Satsuma Rebellion. The Relative Expenditures mentioned on page 35 make up the balance. The Campaign Expenditures in the army were disbursed by the Army Department, Police Bureau, Hokkaido Colonial Government, and the prefectural governments of Fukuoka, Kumamoto, Oita, and Kagoshima. The details of the outlays made by these different offices are shown in Table No. 3 of the appendix, in which the amounts recorded for the Police Bureau and the Hokkaido Colonial Government are comparatively large, owing to their having sent to the front large contingents of the territorial army and police forces. Of the Campaign Expenditures of the army, some 8,000,000 yen of allowances to employees and about 7,500,000 yen of transportation expenses are the largest, together amounting to one-half of the total. This is due not only to the fact that the rate of wages in this war was necessarily high, but also the fact that, as the fighting took place in mountainous and rugged regions, large numbers of coolies were hired for army service (their number reaching to some 20,350,000 in all, reckoned 34 HISTORICAL SURVEY OF EXPENDITURES c c .2 TJ bt-3 j-i S • — ~ * h)« rt e (I CJ C •■2 3 8 2 2 bS u. O c ai U I^f| H m - !/)[<) . H ^OOCOCOO O m o o K t^OO oo 00 0< <+ O O O — ft, C X O oo >C OO ~ O oo C^ O tN CO N it, f, ; ^ o~ m ■* to t^ of o « - s? o P-i — ID 01 O) -> vC •" ■+ C -mNO o^ o o »*5 1^» o io» o» 5 B .2a- « 2.2 'u js rt O a c c u S" 10 t3 it •S.2 c = c/} < H Oh U 5> ca U H IH U Pl, Q c/) J ;->•_= liOOO r» lO f*5 *f "*■ CI rOO>fO X N ~ l/> 3 O ~ O «j ON O On t>. -+\0 -t- 01 t^ O oo On N - i/5 00 to t^O h O (>h moo H !0» O O^OMO ^ m N ION IO00 "1 i-i UO^O '^■O O OiNCO 0000 O VO OO30 t> f^l ^ fO N - t>. 1/5 ca U H -St U Ph Q c^ j x « u, -y) SATSUMA REBELLION TO SINO-JAPANESE WAR 35 according to the unit rate of payment per head). The large amount of traveling expenses is due to the extensive employ- ment of police forces. The Campaign Expenditures in the navy amount to less than 2 per cent of the total Campaign Expenditures, because there was no regular naval force in existence at the time. Moreover, there was no navy of the enemy to fight with, while the geographical conditions at the seat of war did not allow the use of warships. Let us now consider the expenditures other than the Campaign Expenditures, that is, those relative to the war, as set forth in the following table. These Relative Expenditures in the Satsuma Rebellion amount to one-seventh of the total expenditures in the war and one-sixth of the Campaign Expenditures. The recruiting expenses were those incurred in recruiting the soldiers of the second reserve, the police forces and the territorial army, numbering altogether over 32,300. The guard expenses were Relative Expenditures in the Satsuma Rebellion Names of offices Dajokan (State Council) Foreign Office Home Office Finance Department Army Department Navy Department Educational Department Engineering Department Department of Justice Imperial Household Department Hokkaido Colonial Government Post Office Police Bureau Temporary Law Court in Kyushu District . Expeditionary Force (General Office) Fukuoka Prefecture Oita Prefecture Kumamoto Prefecture Kagoshima Prefecture Other prefectures outside the war districts. Total 6,272,146 Amount Yen 306,762 29,469 13.977 51,020 116,804 2,250 13659 23-975 256.138 93.865 44,101 !, 0)0,147 15,848 3.IOO 119,624 202,244 950,440 [,292,503 646,220 36 HISTORICAL SURVEY OF EXPENDITURES Apportionment of Expenditures in the Satsuma Rebellion Items of expenditure Amount Recruiting expenses Guard(ing) expenses Imperial sojourning expenses. Dispatching expenses Rewards Charitable donations Criminal proceedings Sundry expenses Total Yen 1,446,320 1,678,123 256,138 103,098 267,861 1,524,298 181,296 815,012 6,272.146 those incurred in guarding and defending different localities in the time of war, and represent 27 per cent of the total Relative Expenditures. The charitable donations were made to all people in various districts who suffered from the hardships of war, and represent 19 per cent of the Relative Expenditures. Comments on the other items seem unnecessary. 1 Korean Affair of 1882 After the troubles with Korea in 1875, the policy of opening the country to foreign intercourse was adopted, and the political power fell more and more into the hands of men who entertained friendly feelings toward Japan. Tai-won-kun, however, became offended at the situation. In July, 1882, he incited some discontented Korean soldiers to murder a number of our officers and students in Korea and to attack our Lega- tion, forcing our Minister, Yoshitada Hanabusa, to make his escape to Chemulpo. Upon receipt of this report, Masayoshi Matsukata, then Minister of Finance, made out a rough esti- mate of 2,000,000 yen required for the settlement of the dis- turbance, and it was proposed to raise this amount by tempo- rarily borrowing from the reserve fund set apart for the redemption of paper money at the time. The government caused a demonstrative movement by placing two companies of soldiers under Major-General Takashima, and three war- ships (Kongo, Amagi and Nisshin) under Rear-Admiral Nirei; 1 Cf. Appendix, Table No. 3. SATSUMA REBELLION TO SINO-JAPANESE WAR 37 and in this way it opened negotiations with Korea. The negotiations were concluded by an agreement whereby Korea was obliged to redeem 50,000 yen of the relief fund raised for the persons who suffered by the incident and 500,000 yen of the expenses for the guarding army, and thereafter to permit one battalion of the Japanese Army to be stationed in Seoul for the protection of the Japanese residents. The expendi- tures in connection with this affair were as follows : Expenditures for Korean Affair of 1882 Items Yen 3.946 i,585 1,700 662 119,691 41-685 3.932 27,623 2,278 7,576 36,599 1,151 1,151 2,175 • 1,285 308 582 857,596 28,740 3,327 9,697 139,609 609,730 66495 145,525 1,906 105 8,620 595 34,821 99,479 4,483 645 17 6 3,8i5 Total 1,134,569 Dajokan (State Council) Foreign dispatching Rewards Sundries Foreign Affairs Department .... Foreign dispatching Domestic dispatching Temporary offices Rewards Reception of Korean envoy . . . Sundries Home Affairs Department Sundries Finance Department Foreign dispatching Domestic dispatching Sundries Army Department , Domestic dispatching Rewards Sundries Brigade expenses Armament Detachment sent to Korea Navy Department Foreign dispatching Domestic dispatching Rewards Sundries Armament Warships Imperial Household Department. Foreign dispatching Domestic dispatching Sundries Banquets and presents Settled accounts of 1882 Settled accounts of 1883 Yen 37 997 274 37,723 65,021 65 ,021 103,018 Total Yen 3,946 i,585 1,700 662 1 19,691 41,685 3.932 27,623 2,278 7.576 36,599 1,151 1,151 2,175 1,285 308 582 895,593 28,740 3.327 9,97i 139,609 609,730 104,218 210,546 1,906 105 8,620 595 99,842 99.479 4,483 645 17 6 3,8i5 1,237587 227387 38 HISTORICAL SURVEY OF EXPENDITURES The total expenditures in this disturbance were 1,237,587 yen, of which what may be called the actual Campaign Ex- penditures were 1,052,878 yen, viz., the aggregate amounts spent for armament, brigade expenses, and detachment sent to Korea by the Army Department, plus the amounts spent for armament and warships by the Navy Department. The balance of, say, 184,700 yen (15 per cent of the total) forms the Relative Expenditures occasioned by the disturbance. Korean Affair of 1884 After the Japanese and Chinese garrisons were stationed in Seoul, following the disturbance of 1882, there took place in Korea a series of violent political quarrels between the pro- Japanese party and the pro-Chinese party. In the year 1884, when China became involved in a difficult situation with France, the Independent Party in Korea, which favored Japan, took advantage of the opportunity and on December 4 murdered a number of high Korean officials belonging to the Jidaito Party (a party advocating truckling to a stronger power), which favored China. Thereupon the Korean King addressed an autograph letter to the Japanese Minister re- questing protection of the Royal Palace. The commander of the Chinese garrison in Korea, Yuan Shi-Kai, thought the moment too critical for losing standing in the Peninsular Kingdom, and on the 6th day of the same month, after con- spiring with the Jidaito Party, he entered the Royal Palace with 2,000 Chinese soldiers and was there joined by a de- tachment of Korean soldiers. The combined forces opened fire on the Japanese soldiers who were guarding the palace, and the Japanese Minister again made his escape to Chemulpo. Japan at once proceeded to negotiate with Korea and China. The former apologized and made reparation, while the latter concluded with Japan the so-called Treaty of Tientsin, where- by it was agreed that both countries should withdraw their garrisons from Korea and that they should confer with each other in case the necessity of sending forces to Korea should again arise. The expenditures in this affair were as follows : SATSUMA REBELLION TO SINO-JAPANESE AVAR Expenditures for Korean Affair of 1884 39 Items Fiscal period of 1884 Fiscal period of 1885 Total Foreign Affairs Department: Foreign dispatching Domestic dispatching Temporary' offices Rewards Reception of Korean envoy Sundries Yen 108,400 224 6,503 2,554 585 13,867 Yen 1 1,700 5,254 Yen 108,401 224 8,203 2554 585 19,121 Total 132,133 6,955 139,088 Armament Expenditures Army The war of the Satsuma Rebellion in 1877 supplied many instructive suggestions for the development of the Japanese Army. In this war men who entirely lacked regular military training were recruited to fill the gaps in the second reserve army, and, as the result was extremely unfavorable, the necessity of training men in accordance with the new western methods was clearly recognized. As for mountain and field guns, ten or twelve four-kin brass muzzle-loaders were used ; but as they did not prove effective, the necessity of supple- menting the artillery was likewise recognized. In the year 1878, accordingly, the management of the affairs of the army was divided into three parts, namely, the Army Department, the General Staff Office, and the Military Supervision Office. The first managed the affairs of the military administration, the second had to do with matters relating to national defense and military strategy, and the third dealt with military commands and accounts. At the same time the completion of an artillery force was planned. In 1879 the conscription law was revised so as to make the duration of service both in the active army and in the first reserve three years and in the second reserve four years. Subsequently, in 1883, the length of service in both the first and second reserves was prolonged one year in order to solve the problem of providing the required effectives 40 HISTORICAL SURVEY OF EXPENDITURES in war time. Further, in order to carry out the principle of the whole nation in amis, the obligation to military service was extended to men in all ranks of society. In 1882 an Imperial Rescript for military expansion was issued, and was subse- quently followed by an Imperial Edict for the augmentation of the army and the navy. Consequently, great reforms in the army organization were introduced. The Imperial Body Guard division and six other divisions were organized, and a plan was formed, to be carried out in ten years, for making each division consist of two infantry brigades, one regiment each of artillery and cavalry, and one battalion each of engi- neers and supply troops, thus making the number of soldiers in one division in time of peace about 10,000. The present organization of the Japanese Army originated in this plan. In 1883 the Military Staff College was created for training staff officers. In 1884 the regimental organizations were altered to brigade organizations, and the number of men in the cavalry was also considerably increased. In 1886 the Fortress Con- struction Office was established for erecting fortifications in important places along the coasts, in line with the system of five naval jurisdictional districts, and the distribution of gar- rison artillery in different localities was effected. By 1888 the vacancies in the different classes previously planned had been filled, so that the official organization of all the divisions was promulgated. The Imperial Body Guard division and six other divisions were finally established with the infantry, cavalry, artillery, engineering corps; and the army service corps was properly arranged, in order that each division should have independent fighting powers. In addition, several com- panies of garrison artillery were formed, together with a battalion of railway corps; and at last the military foundation for fighting on the continent was laid. Just before the Sino- Japanese War, accordingly, the military strength was cal- culated at 73,000 men in time of peace and 274,000 men in time of war. Compared with the force of 45,000 men at the beginning of the second epoch under review, this represented an increase of more than 600 per cent. SATSUMA REBELLION TO SINO-JAPANESE WAR 41 As to the expenditures required for completing the army as described above, we give below the Settled Accounts for the consecutive fiscal periods: 1 Expenditures for Completing the Army, i 877-1 893 Fiscal Near Ordinary expenditures Index number Extraordinary expenditures Index number 1877 1878 ' 879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 Yen 6,087,934 6,828,561 8,121,931 8,763,593 8,502,268 8,877,913 10,530,617 10,992,366 9,853,190 11,938,322 12,181,619 12,192,776 12,558,096 12,885,787 13,184,665 13,117,691 13,170,669 100 113 L34 144 140 146 165 166 162 197 200 200 209 203 216 213 213 Yen 831,630 1,262,990 298,110 464,5'=i6 722,599 319,210 510,162 583,658 18,583 577,056 93L978 L9i9,34i 3,005,090 1,463,086 2,137,016 2,301,397 100 151 35 56 87 38 62 70 2 69 1 12 230 368 176 256 277 Total. . . . 179,787,998 17,346,509 The total of the ordinary and extraordinary army ex- penditures for 1 877-1 893 was 197,134,507 yen. While it amounted to some 6,000,000 yen in 1877 and about 7,600,000 yen in 1878, it rose to more than 15,000,000 yen in 1892 and 1893, which means that both the ordinary and the extraordi- nary expenditures doubled in the latter years. Such an increase was inevitable, owing to the army increment plan already referred to and the expenses incident thereto. In the ordinary expenditures there was in the year 1878 an increase of more than 600,000 yen for the establishment of the General Staff Office and the Military Supervision Office; in 1879, an increase of about 1,400,000 yen for artillery increase, etc. ; and in 1880, an increase of 960,000 yen for the creation of auxiliary transports and increases of supply troops and the 1 Cf. Appendix, Tables Nos. 4(a), 4(b), and 4(c). 42 HISTORICAL SURVEY OF EXPENDITURES first reserve army. In the extraordinary expenditures, about 400,000 yen were required in 1879 and 1880 for arms and am- munition, and some 150,000 yen in 1878, 1879, and 1880 for temporary rewards to men who served in the Satsuma Re- bellion; and about 150,000 yen were also disbursed in the said three years for the construction of barracks at Kanazawa, Sendai, and Kokura. Though in the year 1881 there was a slight decrease in the ordinary expenditures, some 240,000 yen in the extraordinary expenditures were spent for the construc- tion of fortresses; and in each of the ensuing five years nearly the same amount was spent for the same purpose in the ordi- nary expenditures. But in the four years beginning with 1882. some 700,000 yen in the extraordinary expenditures wen- spent for the arsenal, and this sum was used principally for supplementing the artillery and for making cartridges for Murata rifles and shells for mountain and field guns. With the year 1882 the era of army expansion was entered upon, and that is why in that year some increase is to be seen in the ordinary expenditures, followed by a pronounced increase in 1883. Besides, from the year 1882 a special reserve fund for supplementing armament expenditures was formed by trans- ferring some 1,800,000 yen from the General Account. In 1884 an increase of about 500,000 yen was seen in the Army Department expenditures, owing to the increase made in the number of soldiers. The fact that very little decrease is observable in the ordinary expenditures in 1885, although the fiscal period of that year was only nine months, shows that ex- penditures were increasing. In the year 1886 the term of the fiscal year and the forms of the General Budget and Settled Accounts were all changed, and there was an increase of about 1,000,000 yen in the army expenditures as compared with 1884. In the next few years there was no significant increase in the ordinary expenditures, but the increase in the extraordi- nary expenditures was conspicuous. This was due to the fact that there was decided upon and commenced the disbursement of 8,265,000 yen for the construction of the Tokyo Bay Bat- tery as a continuing expenditure for forty-three years from SATSUMA REBELLION TO SINO-JAPANESE WAR 43 1887, 1,603,000 yen for the construction of the Shimonoseki Battery as a continuing expenditure for fifteen years from 1887, 1,513,000 yen for the construction of the Kitan Channel Battery as a continuing expenditure for sixteen years from 1888, and 7,836,000 yen for arms and ammunition as a continu- ing expenditure for seventeen years from 1889. Thus, in the years 1889, 1890, and 1891 some 2,600,000 yen were disbursed for the construction of batteries in different places, and some 2,000,000 yen for arms (ordnance) and ammunition. In the year 1892, as the budget failed to meet the approval of the Diet and was not adopted, the government produced a supplemen- tary budget and shortened to eighteen years the term of contin- uing expenditures for the construction of the Tokyo Bay Bat- tery and arranged to disburse for this item about 400,000 yen in 1892 and about 300,000 yen in 1893. It also prolonged for four years the term of the continuing expenditures for arms and ammunition, arranging to disburse for this account 900,000 yen in 1892 and 600,000 yen in 1893. In these circumstances some 480,000 yen of battery construction expenses were dis- bursed in 1892 and some 1,380,000 yen in 1893; and in 1892 the amounts for making cannon and magazine-rifles and the continuing expenditures for arms and ammunition, totaling 1 ,320,000 yen, were expended ; and a total of 420,000 yen of the same two items was also expended in 1893. In the foregoing paragraphs we have considered the causes of the increase that took place year after year in the ordinary and extraordinary expenditures. As regards the different items of expenditure, the reader is referred to Tables No. 4(a), No. 4(b), and No. 4(c) in the appendix. The first of these tables shows the armament expenditures of the army for the period 1 877-1 893, in which the different items are given re- spectively for the ordinary and the extraordinary expenditures. The second of the three tables shows the particulars of the ordinary expenditures for the army for 1 877-1 885, less the expenses for Army Department proper, the territorial army, and the gendarmerie; and the third table — No. 4(c) — shows the details of expenses for military affairs in Table No. 4(a) 44 HISTORICAL SURVEY OF EXPENDITURES for 1 886-1 893. In the fiscal year 1886 the financial system and regulations were reorganized, so that the classification of the items of expenditure is different in that year from that in the preceding years. Navy The new men-of-war, Fuso (3,717 tons), and Kongo and Hiyei (2,248 tons each), ordered from abroad according to the naval expansion scheme adopted in 1875, were completed and arrived in Japan in 1878; and the gunboats Iwaki, Tateyama, Kaimon, Tenryu, and Tsukushi were subsequently either com- pleted or in course of construction. But in view of the rapid progress that was being made both scientifically and practi- cally in the navies of western countries at the time, Japan could not continue to take merely temporizing measures in naval affairs. In 1 88 1 , therefore, the government adopted a warship construction program (revised in January, 1882) providing for the construction, in an eight-year continuous undertaking, of six large warships, twelve each of middle-sized and small- sized warships, and twelve torpedo boats. This program called for an annual disbursement of 3,300,000 yen, or a total outlay of 27,000,000 yen in eight years. The naval strength in those days was reckoned at 30,700 tons, 22,000 horse power, and 155 guns, with crews numbering 4,500. But the warships were mostly of the old style and unfit for the requirements of the new era. In December, 1882, an Imperial Rescript for military expansion was issued, and it was determined to carry out the aforesaid naval expansion scheme. In 1886 certain alterations were introduced into the scheme, and it was de- cided that the funds necessary for its execution should be raised by means of naval loans. Furthermore, it was decided to construct six first-class and second-class coast defense ships, one first-class iron-clad, one coast iron-clad, four cruisers of the first, second, and third classes, six first-class and second- class dispatch boats, eight first-class and second-class gun- boats, and twenty-eight torpedo boats, making a total of fifty-four vessels. Besides, it was proposed to establish naval SATSUMA REBELLION TO SINO-JAPANKSK WAR 45 stations in Kure and Sasebo, and to establish marine divisions instead of barracks in places where the naval stations were located, and gradually to establish torpedo divisions in all the naval ports. According to these plans, the construction of twenty-two vessels was completed between 1883 and 1889, of which the Unebi and Takachiho, of 3,700 tons, and the Mat- sushima, Hashidate, and Itsukushima, of 4,200 tons, were the largest. Moreover, twenty torpedo boats and torpedo service boats were constructed. In this manner the first naval increment in the epoch now under review was effected, and our navy was at once largely augmented and strengthened. In 1891 another plan was made for constructing five second-class cruisers, including the Yoshino (4,216 tons). In 1892 the government called upon the Diet for 2,250,000 yen for the establishment of an iron foundry, together with 2,750,000 yen for the construction of two battleships, and the Xaval Minister, Sukenori Kabayama, delivered a violent speech in the Diet urging the passage of these bills. He explained the urgent necessity of establishing the iron foundry for the sake of national independence in the manufacture of ordnance and pointed out that the construc- tion of the new vessels was inevitable; but the Diet would not consent to his overture. The bills were again presented to the Diet in its session in 1893, but the Diet insisted upon a reduc- tion of the amount demanded. Meanwhile, the government adhered tenaciously to its opinion of the so-called 120,000 ton principle of the navy, and the two were obstinately opposed to each other. Just at this time, or on February 10 of that year, His Majesty the Emperor was graciously pleased to issue an Imperial Rescript concerning national defense, to the effect that by economizing the expenses of the Imperial household a sum of 300,000 yen was to be set apart annually for warship construction expenses for six years, and further to the effect that the government officials were ordered to disburse one- tenth of their salaries as a contribution toward the same ex- penses. The government and the Diet were now enlightened enough to come to an agreement, and they decided upon the 4 6 HISTORICAL SURVEY OF EXPENDITURES disbursement as seven-year continuing expenditures, com- mencing from 1893, of 15,420,000 yen for constructing two iron-clad vessels and 2,650,000 yen for constructing one cruiser and one dispatch boat. Thus the naval strength at the close of 1893, or just before the outbreak of the Sino- Japanese War, was calculated at thirty-four ships with a total of 63,493 tons and twenty-six torpedo boats with a total of 1,637 tons. The expenditures involved in the naval expansion as stated above are shown in the following table. 1 Expenditures in Naval Expansion, 1877-1893 Fiscal year Ordinary expenditures Index number Extraordinary expenditures Index number 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 Yen 3,167,512 2,804,021 3,079,859 3,165,222 3,014.758 3,160,492 3,080,634 3.193.300 2,634,658 4.370,441 4,965,955 5,504.589 5.317.883 5,848,118 5.507.255 5,463,645 5.315,130 100 89 97 100 95 100 95 100 83 138 156 175 167 184 175 173 167 Yen 16,494 58,892 250,650 245,961 249,162 3,079,965 3,067,565 2,699,473 4,538,208 4,876,752 4,34i.oo3 4,045,825 4.372,924 4,089,201 3,785,920 2,959,445 100 360 1,562 I.53I 1.556 I.950 1,917 1,690 2,836 3.098 2,710 2,528 2,732 2,555 2,366 1,849 Total 69,593.472 42,677,440 The naval expenditures as given above for the period 1877— 1893 total 112,270,912 yen if the ordinary and the extraordi- nary expenditures are added together. The ordinary expen- ditures increased from 3,160,000 yen in 1877 and 2,800,000 yen in 1878 to 5,460,000 yen in 1892 and 5,310,000 yen in 1893, showing an increase of approximately 70 per cent as compared with the first-named year. The extraordinary expenditures increased from 16,000 yen in 1878 to 3,780,000 yen in 1892 and 1 Cf. Appendix, Tables Nos. 5(a), 5(b), and 5(c). SATSUMA REBELLION TO SINO-JAPANESE WAR 47 2,950,000 yen in 1893, or more than two hundred times over. In 1877 there were no special outlays for naval armament, and even great economy was effected in the expenses of the Navy Department; for it was the year of the Satsuma Rebellion. In 1878 there was a decrease of some 300,000 yen in the naval expenditures, because the warships the construction of which was planned in 1875 were completed and the expenses for them ceased. In the same year 170,000 yen were disbursed from the ordinary expenditures for repairing warships used in the war of the Satsuma Rebellion. The increase of 200,000 yen in the ordinary expenditures of 1879 was due principally to the dis- patching of the Hiyei and four other warships to India and Korea, and to the purchase of accessories for torpedo boats. I n the extraordinary expenditures of the same year, 41,000 yen were expended for shipbuilding and 16,000 yen for the manu- facture of gunpowder. In 1880, though there was a decrease of more than 500,000 yen in the Navy Department expenditures, the ordinary expenditures showed an increase of 90,000 yen owing to the new recruiting of sailors, to establishing the Tor- pedo Practice School, and to completing the equipments of men-of-war. In the extraordinary expenditures, 100,000 yen for shipbuilding and 140,000 yen for the manufacture of gun- powder were expended as continuing from the preceding year. In the years 1882 and 1883, though there was, generally speak- ing, no increase in current expenditures, there appeared in the latter year a new item of warship construction expenses in the extraordinary expenditures, amounting to 2,770,000 yen, which sum was almost equal to the yearly total of ordinary expenditures for the navy ; and this large amount was disbursed as the result of the great naval expansion decided upon in 1882, as already stated. These warship construction expenses were defrayed in 1884 to the amount of 3,000,000 yen and in 1885 to the amount of 2,400,000 yen, according to the general plan of disbursing 3,300,000 yen per annum for such expenses. At the time of the revision of the financial system and regulations in 1886, the affairs of the navy were also expanded and the ordi- nary expenditures in that year showed an increase of over 48 HISTORICAL SURVEY OF EXPENDITURES 1,000,000 yen as compared with 1884. In the extraordinary expenditures a new fund for "Special Expenses" was obtained by raising naval loans for the construction of new ships to the amount of 5,000,000 yen, and out of this fund 4,160,000 yen were disbursed. Naval loans were also raised in March, 1887, to the amount of 6,000,000 yen; in March, 1888, to the amount of 2,000,000 yen; and in April, 1889, to the amount of 4,000,000 yen. It was principally from these resources that the new warship construction expenses, or the so-called "Special Ex- penses," were defrayed to the amount of 4,670,000 yen in 1887, 3,290,000 yen in 1888, and 3,290,000 yen in 1890. The completion of these new men-of-war naturally resulted in the increase of ordinary expenditures, so that the Ordinary Ex- penses for Military Affairs showed an increase of 600,000 yen each in 1887 and 1888 as compared with the preceding years. In the meantime, the construction of numerous offices and barracks was begun, and for that purpose a new item of civil engineering expenses was made in the extraordinary expendi- tures from the year 1889; and between 500,000 yen and 700,000 yen were expended annually from that year until 1893. In 1 89 1 it was decided to disburse, from the annual surplus of revenue, about 5,210,000 yen in all for warship construction expenses as a five-year continuing expenditure until 1895, in order to supplement the naval expansion scheme of 1882. In 1892 a supplementary outlay of 2,750,000 yen was decided upon as the estimated cost of constructing two iron-clad cruis- ers, and the amount was to be included in the expenses for warship construction begun in 1892. Thus 730,000 yen in 1 89 1, 2,160,000 yen in 1892, and 1,930,000 yen in 1893 were disbursed; but as in these years there were balances remaining of the "Special Expenses" that were being defrayed since 1883, according to the naval expansion scheme of 1882, viz., 2,330,000 yen in 1891, 840,000 yen in 1892, and 240,000 yen in 1893, the said balances were also employed for constructing new warships. In the foregoing paragraphs we have outlined the causes of the annual increase in the naval expenditures from 1877 to the SATSUMA REBELLION TO SINO-JAPANESE WAR 49 outbreak of the Sino-Japanese War, or during the second epoch in our present researches. As regards the particulars of the items of expenditure in the consecutive years, the reader is again referred to the appendix. 1 Financial Resources As already stated, it is clear that the funds for the Satsuma Rebellion were chiefly obtained by borrowing from the Fif- teenth Bank and by the issue of paper money, or by the use of the paper reserve set apart by the government for replacing worn-out paper money. The total amount borrowed was 15,000,000 yen; and the total amount of paper money issued was 27,000,000 yen; and the combined total of 42,000,000 yen was enough to meet the total war expenditures of 41,560,000 yen. There was also a contribution from the Prefecture of Sakai of 10,000 yen accumulated from the balances of the fixed salaries of the subordinate prefectural officials. Thus, the financial resources for the Satsuma Rebellion totaled 42,010,000 yen, and the balance of this sum remaining after the expendi- tures of the war were paid, viz., 440,000 yen, was transferred to the ordinary revenue of the government. With reference to the expenses of the Korean Affair of 1882, it may be said that they were easily met, for the financial condi- tion of the government at the time was sound. Although in the Settled Accounts of that year there was an excess of 6,666,- 544 yen of the year's total expenditures over the budget esti- mates of 73,480,666 yen, and the expenses in the Korean Affair took up 20 per cent of the excess, there was no need of seeking special resources to meet the expenses of the Korean Affair, because in that year the revenue of the Settled Accounts ex- ceeded the budget estimates so much that the amount of the excess was more than sufficient to confiscate the above-men- tioned excess of actual expenditures. As regards the Korean Affair in 1884, the expenses incurred were small; and owing to the fact that in that year and in 1885, as in the year 1882, the increase of revenue was more than the increase of expenditure, 1 Cf. Appendix, Tables Nos. 5(a), 5(b), and 5(c). 5 50 HISTORICAL SURVEY OF EXPENDITURES the expenses were easily defrayed out of the so-called "natural increase" of revenue. With regard to the financial resources for the total arma- ment expenditures of 309,405,419 yen in this epoch, we have not much to say. Generally speaking, they formed part of the General Revenue Account; and as discussions of the de- tails of the General Revenue Account are rather out of place in the present treatise, we will mention here only some of the sources of revenue specially connected with the armament expenditures in this epoch. (1) Naval Loans. — For carrying out the naval expansion scheme adopted in 1883, naval loan bonds were issued for three years from 1886 to the total amount of 17,000,000 yen, to be left unredeemed for five years and to mature in thirty years. As stated previously, a total of 17,244,100 yen was raised in this way between July, 1886, and April, 1889, and this amount was spent chiefly in naval expansion up to the year 1890, or in the extraordinary expenditures such as warship construction expenses, civil engineering expenses, etc. (2) Imperial Subsidy and Public Donations for the Naval De- fense Fund. — In March, 1887, an Imperial Proclamation con- cerning a Naval Defense Fund was issued, and a subsidy of 100,000 yen was contributed by His Majesty. A great many public donations followed this Imperial example, and the amounts thus obtained were as follows: Yen 1887 1,647.365 1888 243,205 1889 210,844 1890 3,033 1891 20,100 1892 1,230 1893 1,099 Total 2,226,876 (3) In March, 1893, His Majesty the Emperor, anxious about the urgent question of national defense, gave special orders to economize the expenses of the Imperial household in order to make a contribution to the Naval Defense Fund, and also ordered the government officials to set apart one-tenth of SATSUMA REBELLION TO SINO-JAPANESE WAR 5 1 their salaries for supplementing the funds for warship con- struction. In 1893 the Imperial contribution was 300,000 yen and the officials' contributions amounted to 1,346,492 yen, making a total of 1,646,492 yen. 1 (4) Expenses for Manufacture of Army Rifles and Ammu- nition. — i\fter the Satsuma Rebellion the attention of the government was drawn to the improvement of arms and ord- nance, and consequently a plan with that object was made for disbursing 188,300 yen every year for fifteen years beginning with 1878; but in the year 1886 the circumstances of the time made it necessary to move up or advance the instalments of later years. The funds for that purpose were loaned by the Bank of Japan, which made advances totaling 3,701,281 yen in the years 1 886-1 889, as follows: Yen 1886 176,999 1887 995-940 1888 859,691 1889 668,649 Of the above amounts, a total of 2,363,982 yen was con- verted from other loans, so that the actual amount borrowed was 1,337,298 yen. To sum up, the resources for war expenditures in this epoch were supplied by loans and issues of paper money; and as regards the armament expenditures, both the ordinary and the extraordinary expenditures were in general taken from the General Revenue Account. Besides, for naval expansion naval loans were raised to the amount of 17,000,000 yen, together with the Imperial Subsidy and public donations to the amount of 3,000,000 yen and special loans to the amount of 1,330,000 yen. 1 These special means for armament expenditures were continued until the year 1897. Cf. Chapter IV, Section on Financial Resources, post, p. 70. CHAPTER IV FROM THE SINO-JAPANESE WAR TO THE RUSSO-JAPANESE WAR Our army and navy created in the first epoch and improved in the second epoch had an opportunity to exhibit their real power in the Sino-Japanese War of 1894-95. The cause of the breach lay in the fact that, while Japan was making it a constant national policy to observe the independence of Korea, actuated by the necessity of guarding her own interests, China, the oldest large country in the Far East, was regarding the Peninsular Kingdom as her own dependency. But the result of this war was a sudden recognition of Japan's intrinsic value as a strong nation in the Far East. Japan had already estab- lished her constitutional government, with various national institutions reformed and improved, but her position in rela- tion to other countries was such that she was unable even to conclude a treaty on equal terms with them. It may be said, therefore, that by virtue of this war the international position of Japan was clearly established. Not only did it give her an excellent opportunity to extend her national glory abroad, but it also taught her two important lessons regarding her national defense, namely, that her armament on both land and sea was greatly lacking in scientific improvement; and, above all, that the perfection of war preparation was necessary, as without this even the dearly-bought effects of victory would be hard to retain, as actually happened in the retrocession of Liaotung, to the profound regret of both the government and the people. The nation keenly perceived the value of these two lessons, which steadily resulted in the formulation and execution of various plans for national defense. In the ten years with which we are concerned in this chapter, accordingly, armament projects of very broad scope were formulated, and their execution was undertaken in a high-spirited manner. As 52 SINO-JAPANKSE WAR TO RUSSO-JAPANESE WAR 53 described in the following pages, the military and the naval armaments were developed by veritable leaps and bounds toward the end of this epoch. With reference to the North China Disturbance of 1900, it may be said that the occasion resembled a competitive mili- tary exhibition on the part of various European countries and of Japan. Although our national destiny was not at stake, that is to say, although we had no large forces specially engaged in continued actual warfare, we nevertheless learned not a few instructive lessons concerning the importance of military training for our national defense. While Japan was zealously applying herself to the question of national defense, Russia was busily engaged in ceaseless planning in Manchuria and was conspicuously showing a tendency to advance southward. Dark clouds of war hovered over Manchuria and East Asia, and at length, in 1903, it was generally thought that the break- ing of the storm was inevitable. War Expenditures Sino- Japanese War It is evident that at the outset of the troubles regarding Korea the Imperial Government was most concerned about the funds required for the settlement of the affair. Kunitake Watanabe, the Minister of Finance at that time, laid down the financial scheme for the purpose in three ways. In the first case, supposing that the war would end in the course of 1894, and estimating the monthly cost at 6,000,000 yen, or at 50,000,000 yen in all, the resources therefor were to be obtained by appropriating the surplus revenue of the year 1893 and the funds of various special accounts, and by raising public loans. In the second case, assuming that hostilities would continue until June, 1895, at a total cost of 100,000,000 yen, the funds were to be raised, over and above the sums proposed in the first scheme, by revising the taxes on sake and tobacco and the income tax, to yield 5,000,000 yen; also by appropriating 15,000,000 yen out of the revenue of 1895, and by raising pub- 54 HISTORICAL SURVEY OF EXPENDITURES lie and other loans to the amount of 38,000,000 yen. In the third case, supposing that the war would last until the end of 1895, at a eost of 150,000,000 yen, additional resources were to be obtained by making an increase of 7,000,000 yen in the land-tax revenue, and by further increasing the amounts of public and other loans. At last the war with China opened. To meet the immediate requirements the government made a disbursement out of the General Reserve Fund; and further, with the Imperial sanction, it disbursed 25,000,000 yen out of the Treasury sur- plus. After the fifth army division started in advance, the sixth, second, first, and fourth divisions, as well as the Imperial Body Guard division, were all mobilized or ordered to the front ; and as the Treasury surplus became scarce, the govern- ment decided in August, 1894, according to the above-men- tioned first scheme, and in conformity with an Imperial Ordi- nance of Financial Emergency, to use the funds belonging to various special accounts for war expenditures, to borrow money, and to raise public loans. In the same month 5 per cent loans were raised for the first time to the amount of 30,000,000 yen, and the diversion of various special account funds was also carried out. In this manner the war expenses, totaling 56,000,000 yen, were defrayed until October 18, when a special session of the Diet was opened in Hiroshima. At this session the government submitted a budget for the total war expenses of 150,000,000 yen, enlarging the aforesaid second scheme, seeing that the war was to cost a great deal more than expected and that it was not to end in the year 1894. As of this total of 150,000,000 yen, 56,000,000 yen had been expended already, ex post facto consent was asked for in the Diet. Regarding the remaining 1 00,000,000 yen, the amount was to be raised principally by public loans and partly from the Treasury surplus. This budget was unanimously approved and passed by both Houses of the Diet. The government then planned a second issue of 5 per cent bonds, and called a meeting of the bankers of the whole country to ask their assist- ance in floating the war loans. On November 22, the second SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 55 war loan was issued to the amount of 30,000,000 yen. Mean- while, the war steadily progressed, and Japan gained victory after victory. On August 17, in the battle near Hai-Yang Island, our main squadron won a signal victory over the main body of the enemy's fleet and obtained command of the sea. Our army, too, expelled the enemy's forces from Korea. The first army corps captured the Castles of Kiu-Lien and Feng- Huang and established a Civil Administration Office in the Province of Antung; and the second army corps landed on the Liaotung Peninsula and captured the Castle of Kinchow. On February 19, 1895, Admiral Ting-Ju-Chang committed suicide and the Chinese naval force was annihilated. The first and the second army corps combined were to subdue Liaotung, cross the Liao River, and by a single effort to press on to Tientsin and Peking. On February 18, 1895, the Minister of Finance submitted to the Diet in its ordinary session a supplementary budget pro- viding for a further sum of 100,000,000 yen, seeing that the war was likely to continue until the end of 1895. The cost was estimated at 15,000,000 yen a month and at a total of the said 100,000,000 yen, as there was then 48,000,000 yen yet remaining unused of the 150,000,000 yen already sanctioned by the Diet. After due consideration both Houses expressed unanimous approval of this second budget of 100,000,000 yen, and the House of Representatives especially declared that it was quite ready to approve any further funds for war expenditures, in order to attain the final object of the war. On March 19, 1895, peace envoys of both countries met at Shimonoseki, and on March 30 a truce was concluded. A treaty of peace was finally signed on April 17, 1895, and the Sino- Japanese war came to an end. Further expenses were necessarily incurred in the withdrawal of troops from the field, and in other aftermaths of the war, and in March, 1896, pub- lic loans to the amount of 25,000,000 yen were raised as a part of the war expenses already approved by the Diet. These loans were met with the funds belonging to the Deposit Money in the Department of Finance. At the same time 5 per cent 56 HISTORICAL SURVEY OF EXPENDITURES public- bonds were issued to the amount of 10,000,000 yen, and these were subscribed to by the general public. Before proceeding to explain in further detail the war expenditures of the Sino-Japanese War, we may refer briefly to certain financial rules for the occasion, in order that the figures of the Settled Accounts may be better understood. With a view to treating the extraordinary war expenditures in the affairs connected with China and Korea quite distinct from the General Account, the government made a draft of a law providing a Special Account for Extraordinary War Expenditures. In accordance with this law, which came into operation after being approved by the Diet at its special ses- sion in October, 1894, the accounts of the revenues and expen- ditures for the extraordinary war expenditures were entirely separated from the ordinary administrative expenditures, and a particular fiscal year was made for the purpose, beginning with June 1, 1894, and ending with the conclusion of the hos- tilities. By a law promulgated in March, 1895, it was fixed that these revenues and expenditures belonging to the fiscal year allotted to the Special Account for the Extraordinary War Expenditures should be settled and concluded on March 31, 1896, and that the accounts regarding contracts for manu- factures, constructions, etc., for which the payments were not ye1 finished by that date, should be transferred thereafter to and dealt with in the General Account. Regarding public loans, this law also provided that only those for which the sub- scription was opened prior to March 31 were to be included in the Special Account for the Extraordinary War Expenditures. Moreover, in order to prevent any misappropriation, the law further provided that even the war expenses previously decided upon in the budget should be carefully disbursed in such a way that the Minister of Finance on receipt of applica- tions for disbursements from the army and the navy would have to apply to the Prime Minister for their approval by the Cabinet Council and for the final Imperial sanction. It is now clear that the statistics of the expenditures for the Sino-Japanese War should be sought in the special account SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 57 in question and in the General Account during and after 1896. We must also calculate all the expenses specially incurred by various departments of the government in connection with the war. For this purpose Tables No. 6(a) and No. 6(b) in the appendix have been prepared to show r the Expenses for Military Affairs of the Sino-Japanese War and various rela- tive expanses occasioned thereby. The total Expenses for Military Affairs, as given in the Settled Accounts, amount to 232,609,771 yen, of which the particulars and percentages of the total amounts are to be found in Table A at the end of this chapter. 1 The grand total of the Expenses for Military Affairs in the Sino-Japanese War was 232,609,773 yen, of which the army expenditures were about 194,000,000 yen, or 83 per cent. The war lasted nine months, and the number of soldiers sent overseas was 170,000; the number of cannon was 300. It is not surprising, therefore, that so large an amount was re- quired for the army expenditures, of which the chief items were transportation ( 18 per cent), provisions (13 per cent), clothing 1 12 per cent), and employees (10 per cent). The navy expenditures amounted to 38,705,000 yen, or only 17 per cent of the total expenses. Twenty-nine battleships were engaged in the war, with a total displacement of 60,600 tons, and twenty-two torpedo boats, with a total of 1,400 tons, besides a number of transports and four converted cruisers. The loss on our side was only two torpedo boats, while thirteen warships with 16,000 tons and four torpedo boats were gained as trophies. The largest amount in the navy expenditures was the warships item, amounting to 14,- 600,000 yen, or 37 per cent of the total navy expenditures; and then followed arms and ammunition (26 per cent), and warship maintenance (11 per cent); and it may be noted, as distinct from the army expenditures, that the amounts for salaries and allowances, employees, transportation, and cloth- ing were all comparatively small. The relative expenses in the Sino-Japanese War are as follows: 2 1 See post, p. 76. 2 Cf. Appendix, Table No. 6(b). 58 HISTORICAL SURVEY OF I- XPENDITURES Department Amount Yen Department of Foreign Affairs 3°7.83i Department of Home Affairs 241,4115 Finance Department 100,849 Department of Communications i40,<)4<) Total 791,125 The above total represents only a small fraction of the aggregate war expenditures of 233,400,896 yen. North China Disturbance l After the Sino- Japanese War, Russia entered into a secret treaty with China and started upon her Manchurian program. Other Powers, too, began to lease important places in China, so that the alienation of Chinese territory became a matter of international concern. At that time the Empress- Dowager Hsi-Tai-Hou was acting as regent in China, and Twan-Chun- Wang was holding the political power. A conservative anti- foreign policy was being pursued. In 1900 the Boxer bandits rose up in Shantung on the pretext of expelling foreign resi- dents and missionaries, and in May of the same year they marched into Chihli in formidable strength. The Chinese Court, regarding them as heroes, would not restrain them, whereupon the Boxers destroyed the Peking-Tientsin railway and threatened the foreign legations and residents in Peking. The western Powers now landed their troops in China for the relief of Peking, and desired Japan's aid; and then Japan sent an armed force for the purpose. On June 23 the allied troops captured Tientsin, and under command of the British general, Seymour, marched on Peking, the siege of which was raised on August 14 by the German marshal, Waldersee. The Powers thereupon opened negotiations with the Chinese Government, and on September 4 the affairs were concluded by China's agreeing to pay an indemnity of 450,000,000 taels. On the outbreak of this disturbance, the Japanese Govern- ment issued an Imperial Ordinance of Financial Emergency, by which it was decided to make disbursements, beyond the 1 Boxer Uprising. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 59 budget, out of three Special Accounts, viz., the Warship and Torpedo-boat Supplementing Fund, the Catastrophe Reserve Fund, and the Educational Fund. Thus 20,000,000 yen was diverted from the first-named Special Account, besides 2,000,- 000 yen was taken out of the General Reserve Fund, and these urgent financial measures were approved by the Diet at its session in February of the following year. Further, on March 16, 1901, the government called upon the Diet for 23,500,000 yen from the Treasury surplus under control of the Depart- ment of Finance for paying the Chinese Affairs Expenses, and this as a supplementary budget to the General Account, the resources for which were sought in a temporary loan of 17,000- 000 yen and in monopoly profits and tax increases of 6,000,000 yen. Actually, however, the revenue from the increased taxes did not come up to the amount anticipated, and the loan from the Bank of Japan amounted to 15,500,000 yen. In 1902 and 1903 a budget for 2,500,000 yen each was allotted in these re- spective years to Chinese Affairs Expenses. In 1902 the loans made from the Bank of Japan and the Warship and Torpedo- boat Supplementing Fund were redeemed by means of the indemnity of 33,301,800 yen received from China. No special account was made out for the expenses of the North China Disturbance, so that the corresponding statistics can be sought only in the General Account. Thus, Table No. 7 has been compiled from the data taken from the General Account to show the Expenses for Military Affairs of the North China Disturbance and various Relative Expenses occasioned thereby. According to this table, the disburse- ments in 1900 and 1901 were 30,861,507 yen for Expenses for Military Affairs and 4,782,294 yen for Relative Expenses. While these appear to be the only disbursements anent this disturbance, an annual sum varying from 640,000 to 2,520,000 yen was spent thereafter until 1908 as expenses for troops sta- tioned in China. These annual sums must also be reckoned in the war expenditures of the North China Disturbance, as in the Settled Accounts they stand as Chinese Affairs Expenses. 60 HISTORICAL SURVEY OF EXPENDITURES The Expenses for Military Affairs in the North China Dis- turbance are shown in Table B at the end of this chapter. 1 The total Expenses for the Military Affairs of the North China Disturbance were approximately 38,165,000 yen, of which the army expenditures were approximately 31,550,000 yen, or 83 per cent. The war lasted two months. The num- ber of soldiers who took part in it was 13,000, viz., thirteen battalions of infantry, three squadrons of cavalry, ten batteries of artillery, and one battalion of sappers. The number of cannon used was fifty-eight. The chief items in the army ex- penditures were weapons (16 per cent) and transportation (12 per cent). The navy expenditures were 6,600,000 yen, or 13 per cent of the total Expenses for Military Affairs. The naval forces actually engaged in the war were chiefly the naval bri- gade; and the men-of-war that served were the Kasagi and seven others, with a total displacement of 24,800 tons. The principal item in the navy expenditures was, of course, the warship maintenance (56 per cent), with salaries and allow- ances (12 per cent) following next. The expenses incurred in the departments other than those of the army and the navy in connection with the disturbance totaled 5,437,122 yen, the details of which are as follows: 2 Department Amount Yen Department of Foreign Affairs 1,120,256 Department of Home Affairs 15, 167 Finance Department 3,999,942 Department of Communications 301,757 Total 5,437,122 This total of Relative Expenses of 5,437,122 yen comes to \2\ per cent of the total war expenditures of 43,602,243 yen obtained by adding the former to the above-mentioned total Expenses for Military Affairs. This is not a small percentage, and the disbursements of the Department of Finance were great, especially because the compensations given in this war were mostly defrayed from the item of temporary rewards. 1 See post, p. 78. - Cf. Appendix, Table No. 7. sino-japanese war to russo-japanese war 6 1 Armament Expenditures Army After the Sino-Japanese War the government aimed to in- crease the size and strength of the army. First of all, in 1895, the conscription law was revised; the period of service was made to extend over 12 years and four months, instead of twelve years only; the reservist system was changed to con- script reserve service; and the militia service was divided into the first and the second terms. In 1896 it was decided to raise the organization of colonial troops to that of a division; to make five more army divisions in the country, in order to have thirteen divisions in all; to organize a composite brigade in Formosa; to construct batteries at Naruto, Kure, Gei-Yo Channel, and Sasebo; and, by extending the arsenal, to plan the replenishment and independence of arms and ordnance. This was the so-called ten-year plan of the army, which was to be completed before the year 1905. The plan was largely carried into effect, and at the end of 1903, or just before the outbreak of the Russo-Japanese War, we had thirteen divisions of infantry, and two brigades each of cavalry and artillery, viz., one hundred fifty-six battalions of infantry, fifty-four cavalry squadrons, six field artillery batteries, and thirty- eight companies of sappers. Besides, other forces were formed, such as the garrison artillery at Tsushima, the inde- pendent garrison at Formosa, the gendarmerie, etc. The peace footing then was calculated at 170,000 men, and the war footing at 600,000 men. To sum up, the development of the army in this epoch was due to the carrying out of the so- called ten-year plan described above, and the result was that the military strength was trebled. Before going on to explain the annual disbursements concerned, we may here describe the financial side of the army expansion scheme made after the termination of the Sino- Japanese War. In December, 1895, when the war ended, the government submitted an expansion bill to the Diet, where, though heated discussions arose, the budgets for 1896 and 62 HISTORICAL SURVEY OF EXPENDITURES thereafter were passed, as the nation was at one in regard to the necessity of increasing its military power. The first post- bellum army expansion budget was as follows: First Army Expansion Budget after Sino-Japanese War Item Amount Remarks Battery Construction : Naruto Channel battery Yen 686,981 1,237.471 2,009,033 880,319 9,258,089 17.334.891 8,486,767 2,949,108 479.575 Six years' continuing expenditures (1 896-1901) Gei-Yi> Channel buttery ,, " " " " " Repairing and furnishing of arms and implements for campaign Four years' continuing expenditures (1896-1899) This is the first recorded instance of a requisi- tion of this nature. Enlargement of factories and Two years' continuing expenditures (1896-1897) Expenses of lumber for tern- To be defrayed in four years but not as con- tinuing expenditures. 43.322,234 Subsequently in 1897, the second post-bellum army expan- sion budget was decided upon as follows: Second Army Expansion Budget after Sino-Japanese War Item Amount Remarks Battery Construction: Yen 164,572 271.366 596,444 532.017 4,896,121 19.363.747 9.854.539 2,679,790 Four years' Five " Seven " Six " continuing expenditures (1897- (1897- (1897- (1897- 1900) 1901) Repairing and furnishing of arms and implements for campaign 1903) 1902) Deficit in funds for use in fac- 38,358.596 Besides the two army expansion programs, the continuing expenditures of 9,829,134 yen for the construction of batteries, and of 8,220,583 yen for repairing and furnishing arms for cam- paign use, making a total of 18,049,717 yen, were introduced in the budget of 1899 for the completion of the seventh division and the construction of batteries at Tsushima, Keelung, and Pescadores. The seventh division, it may be remembered, was a reorganization of the Hokkaido territorial army. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 63 In the budget of 1900 the above-named new continuing ex- penditures were inserted, and, moreover, owing to the rising market, increases of 5,208,477 yen and 3,541 yen were made, respectively, in the two items of repairing and furnishing arms and implements for campaign use and the expenses of lumber for temporary buildings; and owing to circumstances in con- struction, a decrease of 351,351 yen was effected in the Gei-Yo Channel battery construction expenses, besides certain alterations in the yearly allotment of the other continuing expenditures. We may say, in summary, that the post- bellum military expansion, with its first and second programs, was commenced in 1896 and completed in 1903, with an aggregate expenditure of 106,487,336 yen. It was natural that with this expansion scheme there were increases in the ordinary expenditures; and though the increase in 1896 was only 2,600,000 yen, the increases thereafter ranged from 14,000,000 to 25,000,000 yen. As already stated, these expenses for military expansion were defrayed generally in conformity with the original pro- grams, side by side with the gradual completion of the expan- sion, up to the year 1903. The Settled Accounts of both the ordinary and the extraordinary expenditures read as follows: 1 Expenses for Military Expansion, 1 893-1903 Fiscal year Ordinary- expenditures Index number Extraordinary expenditures Index number 1893 1894 1895 1896 1897 1898 Yen 13,170,669 8,593,474 9,221,979 25,022,276 31,179,879 34,877,127 37,979,171 38,692,333 40,257,659 42,268,800 42,732,070 100 67 69 192 242 266 290 303 308 321 328 Yen 2,301,397 2,580,871 1,605,724 10,213,655 25,486,162 18,309,620 i6,95i,752 21,929,421 13,477,237 8,206,454 6,382,093 100 113 69 440 1,100 790 742 950 586 349 262 1899 1900 1901 1902 1903 Total 310,824,768 281 125,142,989 652 1 Cf. Appendix, Table No. 8. 64 HISTORICAL SURVEY OF EXPENDITURES The ordinary and extraordinary expenditures in the years 1 894-1903 thus aggregated the enormous total of 435.967,757 yen. The ordinary expenditures in the years [894 and 1895 were only between 8,000,000 and 9,000,000 yen, as in these years many of the accounts were treated as war expenditures; but in 1896 there was a sudden increase to 25,000,000 jew, fol- lowed in 1897 by a further increase to more than 30,000,000 yen. The upward trend continued until 1902 and 1903, when an amount about five times as large as that of the years 1894 and 1895 was reached. As for the extraordinary expenditures, their amount was the greatest in the year 1897, when t hex- reached 25,000,000 yen; but they gradually decreased, until in 1902 they amounted to 8,000,000 yen and in 1903 to only 5,000,000 yen. The average increase in the armament expen- ditures in this epoch ending with 1903, or the year preceding the Russo-Japanese War, was 280 per cent in the ordinary and 650 per cent in the extraordinary (excepting from the average the two war years 1 894-1 895). In the war years of 1894 and 1895 there were no new dis- bursements for armament purposes either in the ordinary or the extraordinary expenditures. It was natural that the former did not specially increase, as most of the expenses for expeditionary forces were included in the war expenditures. As for the year 1896, the new army expansion program neces- sitated increases in various items of expenditure, the most considerable of which were 12,000,000 yen in the expenses for military affairs, [,500,000 yen in the gendarmerie, and 1,500.- 000 yen in the decorations and annuities, pensions, compas- sionate allowances, and gratuities (temporary rewards). The ordinary expenditures in 1896 totaled some 25,000,000 yen, as compared with some 9,000,000 yen in the preceding year, th.it is, an increase of some 270 per cent. Regarding the extraor- dinary expenditures, the battery construction expenses (in- cluding the manufacture of arms and ammunition mentioned in the aforesaid budget estimates, which must be remembered hereafter, as it was so adjusted in our Settled Accounts) com- menced gradually to increase ; and as there was also an increase SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 65 of 5,000,000 yen for the new item of repairing and furnishing of arms and implements for campaign use, and an increase of 1,200,000 yen in the manufacture of arms, the extraordinary expenditures in 1896 amounted to an unprecedented total of 10,213,655 yen. In 1897 we note still further increases in all the items, of which the chief were 5,000,000 yen in the expenses for military affairs, 1,800,000 yen in battery construction, 7,000,000 yen in the repairing and furnishing of arms and implements for campaign use, 2,000,000 yen in the enlargement of arsenals, and 1,000,000 yen in the Temporary Army Transportation and Communication Office, resulting in an increase of 6,000,000 yen in the ordinary and 15,000,000 yen in the extraordinary expenditures. In each of the years 1898 and 1899 we note an increase of 3,000,000 yen in the ordinary expenditures, as compared with the preceding years, owing principally to the increased expenses for military affairs consequent upon the increased cost of maintaining forces in the new divisions and batteries. On the other hand, there were decreases of from 7,000,000 to 9,000,000 yen in the extraordinary expenditures, owing chiefly to the decreases in the repairing and furnishing of arms and implements for campaign use, which in turn meant that the barracks and barracks outfits were being brought near to completion. Thereafter, until the year 1903, the ordinary expenditures increased about 1,000,000 yen yearly, whereas the extraordi- nary expenditures gradually decreased, except that in the year 1900 new expenses were added for completing the seventh division and constructing batteries at Tsushima, Keelung, and Pescadores. In short, the extraordinary armament expenditures of the army in this epoch amounted to a large total, and the con- sequent increase in the ordinary expenditures was significant. This was especially the case during and after 1896, the increase ranging from 50,000,000 to 60,000,000 yen in the six years be- ginning with 1 897. For the details of the expenses for military affairs, the reader is referred to Table No. 8 in the appendix. 66 HISTORICAL SURVEY OF EXPENDITURES Navy In the Sino-Japanese War, the Japanese Navy acquired seventeen Chinese ships and bought one warship. The war- ship construction scheme made out in 1892 was brought to completion in the year 1896, with the result that the naval force was increased by two battleships (Fuji and Yashima, of 12,400 tons each), one cruiser and one dispatch boat. Yet the post-bellum national defense measure called for a still greater enlargement of the navy. Therefore, in 1896 a further scheme was made for constructing four battleships of 15,000 tons each, six first-class cruisers of 9,700 tons each, ten ships, including second-class cruisers and other ships, twenty-three torpedo- boat destroyers, sixty-three torpedo boats, and five hundred eighty-four ships for various uses; and they were all completed before the outbreak of the Russo-Japanese War. At the same time, the regulations of the General Staff of the navy were revised in order to raise it to equal rank with the General Staff of the army, a naval station was established at Maizuru, the secondary naval station at Takeshiki and the torpedo divi- sion at Ominato were extended; and, moreover, by enlarging arsenals and other works, independence in shipbuilding and in the manufacture of arms and ammunition was aimed at. This was the first naval expansion program made after the Sino-Japanese War, and on the whole it was accomplished by 1902 or 1903. In 1903 a second expansion scheme was formed for constructing eight men-of-war and for making accompany- ing accommodations on land; but this second expansion was not completed before the Russo-Japanese War, as it was a ten- year undertaking. The naval expansion in this epoch was as described above, and at the outbreak of the Russo-Japanese War the strength of the navy was represented by six first-class battleships, one second-class battleship, eight first-class cruisers, ten second- class cruisers, seven third-class cruisers, ten gunboats, four dispatch boats, ten third-class coast-defense ships, and one torpedo-boat depot ship, making fifty-seven vessels with a SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 67 total of 265,000 tons. Besides, there were seventeen torpedo- boat destroyers with 6,100 tons and eighty-four torpedo boats with 7,400 tons, making a grand total of 278,900 tons. This was an increase of four times in the naval strength, as compared with the beginning of the epoch now under review. Before explaining the annual expenditures in connection with this expansion, let us say a few words regarding the financial side in the first and the second expansion programs. The budget for the first program came into existence in 1896, and in 1897 the amount of the annual allotment was increased and the number of years to be continued was prolonged. Finally, in 1899, it was revised again, and this finally revised amount was as follows: Naval Expansion Expenses Revised, 1899 Item Amount Remarks Yen 63,355,072 20,125,990 Ten years' continuing expenditures (1896-1905) Total 83,481,062 The carrying out of this expansion plan rendered increases in the ordinary expenditures inevitable; and though the in- crease was only 770,000 yen in 1896, the annual increase there- after was expected to become 10,000,000 yen. As for the second naval expansion program, the following was the amount first decided upon, though it afterwards under- went considerable alteration as a result of the Russo-Japanese War: Warship Construction and Other Construction Expenses, 1903 Item Amount Remarks Yen 62,348,269 29.001,313 8,510,723 Eleven years' continuing expenditures (1903-13) ■1 ii ■■ 1. ,. Total 99,860,305 68 HISTORICAL SURVEY OF EXPENDITURES The Settled Accounts of the armament expenditures of the navy in this epoch read as follows: l Armament Expenditures of the Navy, 1893-1903 Fiscal year ( )rdinary expenditures Index number Extraordinary expenditures Index number i8qi Yen 5.315,130 4,767,806 5,091.454 7.632,529 9,855,473 11,523,44s 14,968,528 17.334.477 19,935471 21,571,093 22,094,699 100 89 96 143 187 191 282 327 376 405 451 Yen 2,959.445 5.679.550 8,607,025 11,204,668 40,242,383 47,023,682 46,961,910 35,520,462 23,521,429 15,259,424 14,566,631 100 1894 1895 1896 1897 1 898 192 281 378 1,360 I.490 1899 1 900 1901 1 902 1903 1 ,480 1,190 795 514 458 Total 134.774,978 299 248,587,164 959 The total naval expenditures for the ten years 1 894-1 903 were 383,362,142 yen, of which the ordinary expenditures show sudden increases from some 5,000,000 yen in 1894 and 1895 to 7,600,000 yen in 1896 and to 9,800,000 yen in 1897. A further annual increase of 3,000,000 yen appears thereafter, until in the year 1903 the ordinary expenditures reached a total of 22,000,000 yen, or four times that of 1893. As regards the extraordinary expenditures, they made a great bound in 1896 and 1897 and reached the enormous amount of 47,000,000 yen in 1898, or fifteen times that of 1893. But afterwards they decreased gradually to 14,000,000 yen in 1903. The average increase in this epoch, excepting the war years 1 894-1 895, or in the eight years 1 896-1 903, was about three times in the ordi- nary expenditures and about nine and one-half times in the extraordinary expenditures. It was for obvious reasons that the ordinary expenditures did not specially increase in the war years 1894-1895, but in the extraordinary expenditures the notable amounts of 4,900,- 000 yen in 1894 and 7,600,000 yen in 1895 were disbursed as continuing expenditures planned in 1892 to run until 1896 for 1 Cf. Appendix, Table No. 9. SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 69 constructing two battleships and two other ships. In 1896 a sum of 6,000,000 yen was allotted for the same continuing expenditures, and 4,000,000 yen crept in as the first instalment of the first naval expansion budget. On the other hand, the ordinary expenditures increased to 7,600,000 yen, an increase of 2,600,000 yen over those of 1 895, owing to the general expan- sion of naval affairs, though the increase in the expenses for military affairs directly affected by naval expansion was less than 1,000,000 yen. In 1897 there was an increase of 2,000,000 yen in the expenses for military affairs, and in the extraordinary expenditures there were disbursements of 5,800,- 000 yen as continuing expenditures from 1893 and 32,000,000 yen belonging to the first naval expansion budget. As for 1898 and 1899, the disbursements as continuing expenditures running from 1893 became trifling, but the expansion expenses increased to no less than 45,000,000 yen; and consequently the extraordinary expenditures reached 46,000,000 or 47,000,000 yen, while the ordinary expenditures showed an increase of 1,800,000 yen in 1898 over that of 1897 and a further increase of 3,400,000 yen in 1 899 over that of the preceding year. These increases in the ordinary expenditures were attributable prin- cipally to the general expansion of naval armament in connec- tion with the completion of new warships, torpedo divisions, naval stations, and secondary naval stations. For the same reasons the ordinary expenditures continued to increase until the year 1903, but the extraordinary expenditures decreased a great deal in 1900, 1901, and 1902. This was due to the gradual decrease of payments, as the first naval expansion plan was nearing completion. In 1900 a disbursement of 1,100,000 yen for the extension of the naval arsenal at Kure was decided upon; and after disbursing 700,000 yen in 1900 and 1901, the extension plan was enlarged in 1902, and it was decided to spend 7,450,000 yen thereafter until 1905. Thus 1,300,000 yen in 1902 and 1,900,000 yen in 1903 were dis- bursed for the purpose. In 1903 the second naval expansion program began to be carried out, and 2,600,000 yen came on the budget as the first year's portion of the warship construe- 70 HISTORICAL SURVEY OF EXPENDITURES tion expenses. For the details of the expenses for military affairs, the most important item in the ordinary expenditures, and for the details of both the ordinary and the extraordinary expenditures in this epoch, the reader is referred to Table No. 9 in the appendix. Financial Resources As a Special Account of Extraordinary War Expenditures was made for the expenses of the Sino- Japanese War, the finan- cial resources therefor also received special treatment. As has been explained previously, the government adopted an emergency measure for the Sino- Japanese War of drawing upon the General Reserve Fund and the Treasury surplus, and also decided upon the flotation of the first war loan amount- ing to 50,000,000 yen. In the extraordinary session of the Diet in October, 1894, the raising of the second and third war loans to the amount of 100,000,000 yen was decided upon, and in February, 1895, it was determined to issue another 100,000,- 000 yen as the fourth war loan. Thus the government was also to raise loans to the limit of 250,000,000 yen; but the war loan bonds actually issued amounted to only 125,000,000 yen, of which 35,000,000 yen belonged to the special issue. When, after the year 1896, it became necessary to issue loans to the amount of 80,000,000 yen to meet the war expenditures, the Chinese indemnity was made to serve these requirements and the budget estimate of thus utilizing the indemnity to the amount of 79,000,000 yen was made in February, 1896. The Settled Accounts of the revenues for the Special Account of Extraordinary War Expenditures for the Sino-Japanese War are shown in the table on page 71. If we compare the above revenues with the expenditures in the Special Account, we find that there was a surplus of 24,754,- 624 yen, which was brought forward into the General Account in the year 1896 as Extraordinary War Expenditure Fund. Besides, there was a balance of 5,906,669 yen of the proceeds from the war loans belonging to the Special Account. Con- sidering now that the Settled Accounts of the funds paid as SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 71 extraordinary war expenditures out of the General Account were 32,134,262 yen, we see after all that the deficit in the financial resources for this war was only 5,500,000 yen, and this deficit was covered by the ordinary revenues. As regards the Relative Expenses in the Sino-Japanese War (Extraor- dinary Affairs Expenses defrayed by various government departments), they amounted to 791,000 yen and were of course defrayed from the General Account. Financial Resources for the Sino-Japanese War Sources of revenue Amount Public loans Treasury surplus Public contributions: to war funds to Soldiers' Relief Fund to Sailors' Relief Fund Sundry incomes Incomes from occupied territories Incomes from Formosa and Pescadores. . Fund transferred from Chinese indemnity Total Yen 116,804,926 23-439.086 160,800 2,210,650 578,090 1. 519.305 624,425 935.679 78,957.165 225,230,126 The financial resources for the Sino-Japanese War were as stated above, but besides we must make mention of the tem- porary measures taken for securing them. We mean, first, the funds borrowed from the Bank of Japan by virtue of Law Xo. 25 of 1894 and Law No. 8 of 1895, authorizing the govern- ment to borrow from the bank in case the revenues for the Special Account of Extraordinary W T ar Expenditures actually fell short of the amounts required. The borrowed fund according to the former law was 20,500,000 yen, and that ac- cording to the latter law was 20,260,000 yen, totaling 40,760,- 000 yen. Secondly, there were the funds borrowed from the Bank of Japan as a temporary means before transferring the aforesaid 79,000,000 yen from the Special Account of the Chinese Indemnity to the Special Account of Extraordinary War Expenditures. Concisely speaking, 70,824,703 yen in all was borrowed on eight occasions during the period between 72 HISTORICAL SURVEY OF EXPENDITURES May 20, 1896, and April 29, 1897, because the accommodated treasury funds for the Special Account of Extraordinary War Expenditures and the funds borrowed from the Bank of Japan by virtue of the above-mentioned law were to be reimbursed as soon as possible; and, besides, there was the convenience of closing up the Special Account of Extraordinary War Expen- ditures by opening the Indemnity Account with the Bank of Japan pending the withdrawal of the indemnity money from London, which required a certain interval of time. The financial resources for the North China Disturbance were not obtained by raising public loans, but by using first of all 2,000,000 yen of the General Reserve Fund by diverting 20,000,000 yen from various special accounts in 1900, by bor- rowing 15,500,000 yen from the Bank of Japan in 1901, and by obtaining 107,000 yen from public contributions to the war fund between 1900 and 1902. But in order to equip the Gen- eral Reserve Fund for the purpose, the taxes on sake and sugar and the custom duties were increased, and the annual income of 14,167,000 yen obtained by these increases in taxation may be called the direct financial resources for the expenditures of the North China Disturbance. As for the great armament expansion after the Sino- Japa- nese War, the government made it a principle to cause all the ordinary expenditures therefor to be paid from the ordinary sources of revenue, and in like manner the extraordinary ex- penditures from the extraordinary sources of revenue. The government then effected an extensive reform in the taxation system, in order to make the ordinary revenues keep pace with the increases in the ordinary expenditures. Since the increased revenues from taxation were used for the general expansion of national affairs, however, it is difficult to fix defi- nitely what part of them was disbursed as armament expen- ditures. This increased taxation meant 26,000,000 yen (ex- clusive of the taxes that were abolished at the same time) of the annual revenue in 1896 derived from the newly established registration tax and business tax, the opening of the tobacco monopoly, and the increased tax on sake; and the annual SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 73 revenue of 42,000,000 yen in 1899 derived from the increases in land tax, income tax, sake tax, tonnage dues, registration tax, tobacco monopoly profits, tax on convertible bank-notes, soy tax, license fees on the tobacco trade, and posts and tele- graphs receipts. As regards the extraordinary expenditures, they depended solely on the extraordinary revenues, viz. : Source? (1) Imperial donation Contributions by civil officials and military officers as one- tenth of their salaries (used as a supplementary fund for warship construction from 1894 to 1898) (2) Chinese indemnity: Disbursed as army expansion fund from 1896101903 Disbursed as navy expansion fund from 1896 to 1905 (The disbursements during and after 1904 were 601,733 yen and those up to 1903 were 138,657,654 yen) {3) Public loans (forming part of the loans raised for post-bellum enterprises) : Disbursed as army expansion fund from 1897 to 1905 (The disbursements during and after 1904 were 21,355 yen and those up to 1903 were 18,148,320 yen) Disbursed as navy expansion fund from 1897 to 1905 (The disbursements during and after 1904 were 682,834 yen, and those up to 1903 were 58,316,1 13 yen I Amount Yen 1,200,000 4.96i,305 56,798,638 139.259,387 18,169,755 58,998,947 The total of the above three items is 278,082,030 yen, of which the revenues of the first item were used for warship con- struction as continuing expenditures from the year 1892, and those of the latter two items in the expenditures in the first and the second army expansions and in the first navy expan- sion. The said total represents 75 per cent of the total 373,- 730,153 yen of the extraordinary armament expenditures of the army and the navy in this epoch, the remaining 25 per cent having been taken from the General Revenue Account. The financial resources for the second naval expansion in 1903 were obtained through administrative adjustments and the postponement of work on various undertakings. Organization Expenses of the Iron Foundry In 1892, Viscount Kabayama, Minister of the Navy, asked the Diet for 2,500,000 yen for the establishment of an iron 74 HISTORICAL SURVEY OF EXPENDITURES foundry, earnestly explaining its importance from the stand- point of national independence in the manufacture of arma- ment; but as the Diet did not agree to his proposal, the starting of the enterprise was deferred for the time being. After the Sino- Japanese War, however, it was decided, for the same reasons, to establish an iron foundry at a continuing expenditure of 4,095,793 yen in all from 1896 to 1899, the financial resources for which were sought in the loans for public enterprises to the amount of 3,500,000 yen and in the Chinese indemnity for the balance. In 1898, after the work of establishing this iron foundry was begun, an additional expen- diture of 6,474,056 yen was voted in 1898, and in 1899 the work had progressed so far as to enable the foundry to make some trial manufactures. Then there arose the necessity of setting apart a working capital for carrying on the manufacturing works, and at the same time it came to be realized that the foundry itself must own mines producing iron, coal, and other necessary materials. Thereupon, a further sum was voted to the total amount of 3,632,845 yen to be disbursed until 1901. These two increases in the foundry's expenditures were all to be met with the proceeds of the loans for public enterprises. While these extensions were being gradually completed, the market prices of all materials steadily increased ; and, moreover, as the hostilities with Russia broke out, the existing scale of ex- penditure of the foundry became inadequate. To meet the en- hanced requirements of the situation, the government effected a makeshift by applying some 3,000,000 yen over and above the budget to reinforcing the foundry's expenditures, and made a plan of establishing a productive capacity of 130,000 tons by authorizing expansion expenses of 10,880,000 yen after the conclusion of the Russo-Japanese War. This last plan having been found still unsatisfactory, another plan was formed in 191 1 for increasing the productive capacity to 300,000 tons by authorizing a further expenditure of 12,000,000 yen until the year 191 5. The following table shows the expenses required in the organization and expansion of the iron foundry (the figures for 1 91 2 and 191 3 being based on the budget estimates) : SI NO-JAPANESE WAR TO RUSSO-JAPANESE WAR Organization Expenses of Iron Foundry 75 Fiscal year 1 896 . . . 1897. • 1898. . . 1899. • . 1900. . , 1901 . . , 1902. . . 1903. . . 1904. • • 1905. • • 1906. . . 1907. • • 1908. . . 1909. . . 1910. . . 1911 . . . 1912 . . . 1913- • • Total Organization expenses Yen 157,529 709,224 1,747,572 3,011,008 7,126,198 5.853.335 490,117 820,011 289,596 1,181,055 3,498,886 4,729.547 4.407,073 1,470,113 255.428 421,664 3,022,186 3.797,535 42,988,078 Organization expenses of the iron foundry, in the depart- mental extraor- dinary expenses in connection with the Russo- Japanese War Yen 3L905 1.576,872 2.307,271 724,378 4,640,426 Subsidy to the organization ex- penses of the iron foundry Yen 322,762 495,429 20,454 838,645 Maintenance expenses of the Akadani mine Yen 386 5,386 Supplement to the working capital of the foundry Yen 2,640 898 990 869 1,790 1,397 1,577 880 711 185 175 720 986 539 391 963 11,136,670 While the establishment of the iron foundry was important as a means of fostering home industries and as a military in- dustry, the expenditures for its organization and expansion are doubtful armament expenditures. However, in view of the circumstances in which this iron foundry was started and operated as a government enterprise, we believe that they may be included in our extraordinary armament expenditures. Still, as it is impossible to draw a line of demarcation between the army and the navy with regard to these expenditures, and as they are under the control of the Department of Agriculture and Commerce and not of the Department of Finance, we de- cided to treat them here instead of in the main body of the present treatise. Incidentally, it must be noted that, in the organization expenses of the foundry, the sum of 4,640,000 yen disbursed from the departmental extraordinary expenses in connection with the Russo-Japanese War refers to the identical expenditures mentioned in the following pages under the head of Relative Expenses in the Russo-Japanese War. 1 1 Cf. Appendix, Table No. 10(c). 76 HISTORICAL SURVEY OF EXPENDITURES r > ^ y o oj.o >, , o £ C O +2 n i k B rt.3 t C^ w. to I*» - •tx 0) • ir,o oi to X 11 CO -C € X v o o s — o Oi m oi i/o i/o vO r^ i-i to o* s q> ■* o_ to q» N^ S C? O of co " 0> t>- t-» 0) to vO m -ftON t^ Q\ 01 00 i-i 01 01 O u^» w hi t^. o_ "5 ■* l/S o" vO o" tF VD 1^00 hi « N M CO u o rt 2-2 o .3 u 3 ttf r- 3 - c = .- 3 o ia 5 ^ajjoa-S js — rt - BJ'rJ to _ s " U "J O Q. O ^ "" s *a a— £ o c x oj . = c3 o a— cj en T3 3 a! - 0J3 OT3 £'-3 S B > 8 -a <« c S 3 O C/jU .3.5 3 E? i" o a 3 c u a a o a a* c •£ 3 — a - — x >- .2 *n "£! be ^ u"S.3 rt to 5 rt O o 3 k -^ y-; CU U < X en ->,la- S ^l" r>> aj a-— i o l-i -ri a 1 - ,n tO OJ^S-M l-i p -a 2 3 > a <2 ^3 3ct«rtrtc5 c ^301-^-303 SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 77 O "" On 1- t^ O O o m ON C o o c o M O o >c -+ o c o "0 c o NO o c o o o 6 NO OOC o ON -t lO M O OC 00 r-» O O O > QJ GO u £ "rt > C3 3 <2 c u 0) if) H o v£) -j- IO M OC ro "0 ON " NO . T+- -js t^ 00 M "5 -I - O NO rOOC x t^ o NO c o ro (*)p- ON O •rf- ON o p» ts. 1-1 — fN nC C3 on vq CI M_ -f 00_ On >- NO q; ro rO N~ lO ON ! o x> o be • tn a) in O u c « E E-H-S ° tn O tn c o tn "O ■p ■ rt ■ E 3 aj a X OJ hips . strati Jj B 12 rt- c «3 0-5.S "o 1 J1^^3 >, ._ "c. 3 B ^ i 2^ « S 3 Ptu E seo: Hmi So 'u C .3 Uh 00 £ .ilT Ota K ■as a ? .e £ cfl cfl J2 2 4) 1> 5s t- -w w in- S a cfl 3-3,-C bfi u 03 urcha ivil a • ctj 5 ? 2 i c3"S §T3 O tj 3 £ as £. rt 'rt H Oh U '/. O (A) O H£ ^ « i 78 HISTORICAL SURVEY OF EXPENDITURES < » u W X c a s H cd 8 2 >JA 2*n rt C O * O ;>, Si S g * WOOOO«OOOOOn -ooooo >D M 0< O lOMlO 1^.00 On f) NO ON M l~- "* O O N OnnO O Nf)iOO rO(N row -f-O lONO g ONt^-'-3-ONONr^roC)NO i-i t^00 rf-O O Oi c a) o 3 a j- C/)CftP-c "O D CT3 03 C Ofi 3 ■fig .£ n n -IH.y U G x u O 2 (Li .b o3 O +-> 01 Ri ft, w ^^-Tt-t^t^Tf-Oi-ii-iOOOOrOMMOO a, - t^ 1O00 *j" rooo r) 1^ cOnO i-i ■* O ON rONO O i-i nO rOvO On Ol On "000 0 t^ioo" lO ^f oo" fO lO •Coo ^-iO«tH rfCN ON fONO i-i NO i-i 1^ tN **• rO n iO«C^ C>_ NO_ fO rf rO i-i 00 rOOO N OiO 'C Q.X! H *m « bo g oj 3- «) 4J 2 & b S rt « c o c w>& ti 5e y w? s _ c > a^-a jj C M o3 a3 - 0) a! rtt3 > t^d. SoOnn 5 c " «« fi „ - « CN^^oS^oi-i^t-O i» 0) _ c o cd SINO-JAPANESE WAR TO RUSSO-JAPANESE WAR 79 o o o b o o o o M mo NO rO vO O -+00 M M NO o M O NO On c o /} o 00 M 00 lO •+ "0 rOOO o> 1^ M O io -t- M -tvO 00 >*■ •o <-o n0 "2 2 c .2 "0*0 cfl E-S CZ b£j: '**'->. S-S--S a e^- IM _ O O O F5 o rt c _+j c rt c o. c - 1> OJ ' HP* ^ m to rrt b/D ™ t/) m CO -2 0P-- 3 = , o c O 3 s ^ u cd -o 3 O a. en H CHAPTER V FROM THE RUSSO-JAPANESE WAR TO THE PRESENT DAY After the Sino-Japanese War, both the government and the people of Japan applied themselves with great energy to the national armament expansion. As a result of Japan's victory over China, the great country in the Orient, her national strength acquired sudden recognition throughout the world. Meanwhile, however, all the Western Powers had begun to extend their influence in the Orient, thus making international relations in the Far East more and more complicated. For Japan, accordingly, it became more necessary than ever to develop a real military power which would enable her to main- tain her position in the Far East. Unless Japan was able to assert herself in Far Eastern affairs, it was apparent that China's territorial integrity would be doomed; and the Gov- ernment of Japan always feared the alienation of the Chinese territory, as that would place Japan in a very disadvantageous position with regard to her national defense. Though the retrocession of Liaotung was effected in accordance with the friendly counsel of Germany, Russia, and France, the Japanese nation was shocked by this incident; and considering that it was no other than coercive interference in the absence of sufficient military strength on the part of Japan, the whole nation was quite ready to endure anything to the end of com- pleting her military forces. Such was the motive by which the army and navy expansions were steadily and decisively carried out on a large scale after the Sino-Japanese War. The Russo-Japanese War was unprecedentedly great in the size of the forces employed by both belligerents, in the fierce- ness of the fighting, in the magnitude of interests affecting both countries, and in the immensity of the expenses incurred. Fortunately for Japan, victory was on her side, and having 80 RUSSO-JAPANESE WAR TO PRESENT DAY 8 1 attained the objects of the war, she could gain a very advan- tageous position with regard to her national defense, with the result that her prestige was expanded more than ever and her military strength was fully recognized by all the Powers. But this enhancement of her national position did not release her from the problems and burdens of armament; on the con- trary, it only convinced her of the still greater necessity of devoting her energies to military and naval preparations. This was much more the case for the reason that, as a result of the war, it was found that elaborate improvements were necessary in the manufacture of arms and ammunition, in the construction of men-of-war, in military education, and in all warlike measures. All this was due to the influence of the competitive efforts that were being constantly put forth by other Powers to the end of strengthening their armaments on both land and sea. Accordingly, most of the expenditures after the Russo-Japanese War were made for armament ex- pansion purposes, though the headings or items in the budget estimates were expressed in the form of recuperation of armament or completion of warships, except where they were actually used for restoring losses and damages sustained in the war. In this connection it may be stated that the expan- sions effected in this epoch were not so conspicuously large as in the epoch following the Sino-Japanese War. The ex- penditures to be treated in the present chapter are those for war and armament in the epoch commencing with the Russo-Japanese War and ending with the year 191 3. War Expenditures After October, 1903, the negotiations with Russia became more and more active and caused enormous expenditures of money, so much so, indeed, that the ordinary sources of rev- enue were found insufficient. In December, 1903, an Impe- rial Ordinance of Financial Emergency was issued, by which the government was enabled (1) to make temporary loans, (2) to divert part of the funds belonging to various Special 7 82 HISTORICAL SURVEY OF EXPENDITURES Accounts, and (3) to issue Exchequer Bonds, all for meeting the expenditures of supplementing the national armament. The government thus found means of forestalling the enemy, in case of necessity, by obtaining 100,000,000 yen of the income from Exchequer Bonds, 25,000,000 yen diverted from various special-account funds, and 30,970,000 yen proceeding from temporary loans. Now the Russo-Japanese negotiations became more and more difficult. Japan's demands regarding Korea and Manchuria were disregarded by Russia, while Russia's war preparations were steadily completed against Japan. The Imperial Government, perceiving that war was inevitable, broke off diplomatic relations with Russia on February 5, and on February 9 some Russian men-of-war were sunk off Chemulpo. Then the bombardment of Port Arthur commenced, and the Imperial declaration of war was issued on February 10. The Diet, which had been dissolved at the end of the preceding year, was on March 18 convened at Tokyo, where the government presented a bill for 380,000,000 yen of extraordinary war expenditures, the first budget for expenses for military affairs for this war. According to this budget, the financial resources for the 380,000,000 yen were to be obtained from 280,000,000 yen derived from public loans, Exchequer Bonds, and temporary loans; from 30,000,000 yen diverted from special-account funds; from 62,000,000 yen derived from increased taxation; and from 8,000,000 yen of the General Account surplus. Regarding the Relative Expenses in the war (or the expenses incurred in various departments other than those of the army and navy), another bill for 40,000,000 yen was submitted to the Diet, the resources for which were to be sought in a sur- plus to be created by economizing the expenditures from the General Account. Both Houses of the Diet unanimously passed these bills; and the fact that the Diet, which in the preceding few years had always collided with the government on various questions, showed so splendid an attitude of con- sent on this occasion proved that the hostile feeling of the nation had reached its height, just as on the occasion of the RUSSO-JAPANESE WAR TO PRESENT DAY 83 Sino-Japancse War. Further, the Diet then resolved that it was ready to approve any further war expenditures, as it was thought that this war might be of long duration. The war expenditures were met from December, 1903, by means of diversions of Treasury funds and by temporary loans from the Bank of Japan; but in February, 1904, the gov- ernment, according to the right given by the above-mentioned Imperial Ordinance of Financial Emergency, issued 100,- 000,000 yen of 5 per cent Exchequer Bonds. Subsequently, according to the aforesaid first budget estimates, Exchequer Bonds were further issued to the amount of 100,000,000 yen in May, and 80,000,000 yen in October, 1904. Prior to this the government saw that the domestic resources were not sufficient to meet the enormous demands in this war, and owing also to the necessity of keeping specie in the country it was decided to negotiate foreign loans. In May, 1904, accord- ingly, 6 per cent Sterling Bonds were floated in London and New York to the amount of £10,000,000, and they were sub- scribed to and paid for with very satisfactory results. The war funds obtained through these loans were gradually turned into the Treasury, and thus monthly incomes ranging from 18,000,000 yen to 53,000,000 yen were received in the interval between April and October, 1904. Meanwhile, the Japanese forces advanced on the wings of victory after each successive battle, and on May 26 Kinchow was captured and Port Arthur was besieged. General Oyama was sent to the front as com- mander-in-chief, and our corps marched on to the fields of Manchuria. In November, 1904, the twenty-first session of the Diet was convened in Tokyo, at which the government asked for 700,000,000 yen as a supplementary budget for extraordinary war expenditures and 80,000,000 yen as a Reserve Fund for Extraordinary Affairs. This was the second budget estimate made in this war. The resources for the above war expendi- tures were to be found in 571,000,000 yen obtained from pro- ceeds of public loans, the income from Exchequer Bonds and from temporary loans, 8,000,000 yen diverted from special- 84 HISTORICAL SURVEY OF EXPENDITURES account funds, 1,500,000 yen of contributions to the war fund, and 500,000 yen of sundry receipts, the balance of 1 19,000,000 yen being sought in increased taxation and in the salt mo- nopoly. As regards the above-mentioned Reserve Fund, the resources therefor were to be obtained by economizing the expenditures from the General Account and by temporary loans. Of the 570,000,000 yen of proceeds of public loans, belonging to the second budget estimate, 117,000,000 yen was already obtained by floating the second issue of Sterling Bonds in England and America in November, 1904, to the amount of £12,000,000, according to the above-mentioned financial emergency measure, and therefore this amount was submitted to the Diet only for ex post facto consent as form- ing a part of the second budget estimate. In consequence, the amount of the public loans to be raised thereafter accord- ing to the second budget estimate was 433,000,000 yen. At the beginning of 1905 the government issued 100,000,000 yen of fourth Exchequer Bonds, followed by another 100,000,- 000 yen of fifth Exchequer Bonds in April of the same year. In March, 1905, \\ per cent Sterling Bonds to the amount of £30,000,000 were issued in England and America, and the raising of public loans belonging to the second budget estimate was thus finished. Then a further emergency measure was adopted whereby the fourth Sterling Bonds to the amount of £30,000,000 were issued in England, Germany, and America. Meanwhile, the army proved to be continually victorious. The great decisive battle at Mukden was fought on March 10, and the Russian Baltic fleet, which had come a long way from the West, was annihilated by a single effort on May 28. The Japanese victory was now assured. After the occupation of Saghalien on August 4, peace negotiations were opened with Russia through the mediation of the President of the United States; and though on September 5 the treaty of peace was finally signed, still further expenditures were necessary for the withdrawal of troops from the front and for the grant of rewards for military services. Such being the case, the funds allotted by the budget estimates for the extraordinary war RUSSO-JAPANESE WAR TO PRESENT DAY 85 expenditures ran short prior to the opening of the Diet in December, 1905, and those for the departmental expenses in connection with the war (or the Relative Expenses) were also exhausted. But as the war expenses pertaining to the army, amounting to 60,000,000 yen, and the various departmental expenses in connection with the war, amounting to 28,000,000 yen, making a total of 88,000,000 yen, were urgent expendi- tures which could not wait till the supplementary budget was passed, they were accordingly paid out as disbursements un- provided for in the budget. As sources of revenue to meet these expenditures, 60,000,000 yen were taken out of the un- used balance of the proceeds of the loans belonging to the Special Account for Extraordinary War Expenditures, and 24,000,000 yen out of the surplus of the General Account. When the Diet was convened in December, the government presented the third budget estimate for extraordinary war ex- penditures calling for an appropriation of 450,450,000 yen, and to meet this amount it was proposed to take 88,000,000 yen of the unused balance of the proceeds of the loans belong- ing to the Special Account for Extraordinary War Expendi- tures and 362,450,000 yen of the proceeds of new loans. In accordance with this budget, the government raised a loan for extraordinary war expenditures in February, 1906, to the amount of 200,000,000 yen. In this way the funds for carrying on this unprecedented ly great war were raised. Our successive victories greatly assisted the satisfactory raising of loans in the foreign markets on terms advantageous to us, and also increased the national willingness to bear the burdens of increased taxation and to subscribe to the Exchequer Bonds. We must not forget the fact that the victories of our soldiers facilitated the carrying out of our financial measures to a very great extent. Before going on to explain the details of these war expenditures, we shall here call attention to their amounts according to the budget estimates and the corresponding sources of revenue as shown in Table A at the end of this chapter. 1 1 Post, p. 104. 86 HISTORICAL SURVEY OF EXPENDITURES The expenditures for the Russo-Japanese War were thus enormous, and as the corresponding sources of revenue were different in nature from those in ordinary cases, a special account was opened for them as on the occasion of the Sino- Japanese War; and similarly a particular fiscal year was made for the purpose, beginning with the commencement and end- ing with the conclusion of hostilities. As the budget for the extraordinary war expenditures and the departmental expendi- tures was voted by the Diet as a lump sum without itemiza- tion, the government, with a view to precluding any mistakes in the defrayment of the expenses, adopted elaborate formali- ties for the control of such disbursements. Thus, before any payment was made, the Minister of War or of the Navy was to consult privately with the Minister of Finance, who was to give his assent after he had examined the proposed application, reported it, with his opinion appended thereto, to the Min- ister President, and obtained his approval. The Minister of War or of the Navy was then to apply formally for the dis- bursement, and the Minister of Finance had to obtain Im- perial sanction, before the disbursement could be made. Now, let us consider the Settled Accounts of the expendi- tures of the Russo-Japanese War. The aforesaid special account for these expenditures was settled on March 31, 1907, and the receipts and disbursements were closed up by the end of November. At the same time, the balance remaining of the Settled Accounts, amounting to 212,739,718 yen, was transferred to the General Account, and 130,700,000 yen, which still had to be paid out as war expenditures, was changed to be paid out of the General Account. Thus, the statistics having direct connection with the Russo-Japanese War are to be found in the Settled Accounts under the Special Account for Extraordinary War Expenditures, in the General Account after 1907, and in the various Departmental Expenses con- nected with the war. The figures of Settled Accounts col- lected from these three sources are shown in Table B at the end of this chapter. 1 1 Post, p. 105. (I. also Appendix, Tables Nos. 10(a), 10(b), and 10(c). RUSSO-JAPANESE WAR TO PRESENT DAY 87 We now see that the grand total of the expenditures for the Russo-Japanese War was 1,639,267,194 yen, of which the army expenditures covered 86 per cent and the navy expendi- tures 14 per cent. The military forces engaged in the war were seventeen divisions of field corps, two divisions of the second reserve, seven mixed brigades of the second reserve, and seven brigades of infantry of the second reserve, besides the militia and other reserve forces. The area of hostilities extended from Korea and Liaotung far into Manchuria, to Mukden and Changchung, also to Saghalien in the north. When we consider that the attack on Port Arthur and the engagement at Mukden were among the greatest battles that have taken place in modern history, we do not wonder that the expenditures involved in this war came to so enormous an amount. The greatest item of expenditure in the army, amounting to 19 per cent of the total army expenditures, was that of provisions, which included all kinds of food and forage. Next came the item of transport, covering 18 per cent of the whole expenditure, and including the construction expenses of the Seoul- Yichou, Eastern Chinese, Antung-Mukden, and Fushun-Tieling railways, the cost of materials therefor, and the payments for chartered vessels. Then followed the items of arms and clothing, each of which amounted to 13 per cent of the total army expenditures. Of the navy there were employed fifty men-of-war (255,- 000 tons), twenty-two torpedo-boat destroyers (7,200 tons), and fifty torpedo boats (5,400 tons), totaling 267,000 tons; and they all participated in several fierce battles. The heavi- est item in the navy expenditure was that of warship and torpedo-boat replenishing expenses, which were used for con- verting chartered merchantmen into war vessels and for gen- eral replenishment; and if we add to this account the sum of 16,000,000 yen used for the purchase of warships (i.e., the two men-of-war, Nisshin and Kasuga, purchased for immedi- ate use in war), the sum total covers 27 per cent of the total navy expenditures. The next largest items were those of naval ordnance and repairs and shipbuilding and repairs, 88 HISTORICAL SURVEY OF EXPENDITURES the sum total of the two covering 21 per cent of the total navy expenditures. The item of warship maintenance, including the expenses for coal and all other necessaries in navigation, was also considerable, amounting to 17 per cent of the total figure- The various departmental expenses incurred in connec- tion with this war also amounted to a considerable sum, the details of which are as follows: 1 Relative Expenses in Russo-Japanese War Department Amount Department of Foreign Affairs Department of Home Affairs Department of Finance Army Depart ment Navy Department Department of Education Department of Agriculture and Commerce . 1 >epartment of Communications Total Yen 8,82.).-.::, 2,015.580 128,824,849 36,265 5 (2 25,039,391 2 5'), 203 4,919.471 15,427,849 22I,58l,6o8 If this total of 221,581,608 yen is added to the aforesaid total of the extraordinary war expenditures, the grand total comes to 1,860,848,801 yen, the final grand total of the Russo- Japanese War expenditures. The relative or departmental expenditures covered 12 per cent of the final grand total, and as much as 58 per cent of these expenses was defrayed by the Department of Finance. Armament Expenditures Army To meet the unparalleled requirements of the great Russo- Japanese War, four new divisions of the army were hastily organized in the midst of the hostilities. These were found insufficient, and while further increment schemes were under contemplation the war came to an end. The four newly 1 Cf. Appendix, Table Nos. 10(c) and 10(d). RUSSO-JAPANESE WAR TO PRESENT DAY 89 organized divisions were continued after the war, however, and with the establishment of two other new divisions the total number of army divisions was increased from thirteen to nineteen. At the same time other increments were effected by making a special independent corps of four cavalry bri- gades and three artillery brigades. The garrison artillery was reformed to heavy artillery, and thereby the number of artillery soldiers was increased. The communications brigade, the railway battalion, the telegraph battalion, and the bal- loon battalion were newly organized, and besides there were established the Formosan garrison, the Manchurian independ- ent garrison, and a special detachment in Korea, whereby also the number of soldiers was noticeably increased. In October, 1907, a system of two-year instead of three-year service was adopted for the infantry, as a result of which the number of soldiers was to be increased 25,000 yearly or 250,000 in ten years. The above is the gist of the army expansion scheme formed after the Russo-Japanese War; but besides this we may men- tion the establishment of the Horse Administration Bureau in 1906 for the encouragement of stud breeding, and the issuance in the same year of the Invalid Soldiers' Asylum regulations for the relief of disabled soldiers. All this shows that the government has labored incessantly for the comple- tion of all the necessary equipments and provisions of the army. Regarding the financial side of these increment plans, we may note that in the war years of 1904 and 1905 many of the ordinary expenses were defrayed as war expenditures, and on the other hand a considerable amount was saved by gen- eral economies in the annual expenditures. But in 1907 large budget estimates were made out for organizing six new divisions. The first estimate was for repairing and furnishing arms and implements for campaign use, being continuing expenditures for eleven years (1907-19 17) and amounting to 110,000,000 yen and including 24,000,000 yen for purchase of land, 33,000,000 yen for building expenses, and 52,000,000 yen for arms, etc.; and the second estimate was 9 o HISTORICAL SURVEY OF EXPENDITURES for the post-bellum adjustments, being continuing expendi- tures for five years and amounting to 59,000,000 yen, of which the chief item was 51,000,000 yen for the restoring of arms, etc. These continuing expenditures were readjusted several times during the years 1908, 1909, and 1910 on account of financial and other circumstances, and in the meantime several new enterprises were also introduced. The addition of six new divisions and the adoption of the two-year system for the infantry naturally caused a consider- able increase in the ordinary expenditures, and it was expected that the amount of such increase would be 7,000,000 yen annually. The figures for the armament expenditures of the army in this epoch (the figures for 191 2 and 191 3 being according to the budget estimates) were as follows : x Armament Expenditures for the Army, 1903-1913 Fiscal year Ordinary expenditures Index number Extraordinary expenditures Index number 1903 1904 1905 1906 1907 1908 1909 1910 191 1 1 9 1 2 1913 Yen 42,732,070 12,905,832 18,346,414 67,009,748 76,000,338 91,850,931 92,640,363 98,087,875 100,901,210 101,835.900 94,097,458 100 32 48 157 178 212 213 231 237 237 221 Yen 6,381,093 2,395,66o 1,925,145 1,640,372 35,087,328 49,934,999 21,534,523 16,434,399 24,746,916 17,720,252 19,780,673 100 37 29 26 54o 785 338 253 387 279 310 Total. . .. 753,676, 129 21 1 191,200,267 365 Excluding the war years of 1904 and 1905, we find that the ordinary expenditures of the army gradually increased from the year 1906 to the years 191 1, 1912, and 191 3, when they became nearly stationary, reaching about 100,000,000 yen. The increase was from 220 to 240 per cent as compared with the year 1903, and the average increase for the eight years 1 Cf. Appendix, Table N'os. 1 1 (a) and 1 1 (b). RUSSO-JAPANESE WAR TO PRESENT DAY 9 1 from 1906 was 210 per cent. As regards the extraordinary expenditures, they increased abnormally to 35,000,000 yen and 50,000,000 yen in the years 1907 and 1908; and though they decreased somewhat in after years, their average increase for the eight years from 1906 was 370 per cent with respect to the year 1903. The total of the ordinary and extraordi- nary expenditures of the army in the ten years was 944,876,396 yen. In both the ordinary and the extraordinary expenditures for 1904 and 1905 we see a considerable decrease, and this is explained by the fact that, when the proposed budget for 1904 was not adopted and that for the previous year had to be carried out instead, the Russo-Japanese War broke out. Then, according to the first budget for extraordinary war expenditures, economy and postponement were effected in the general expenditures, and thereby 50,920,000 yen was squeezed out as resources for extraordinary war expenditures. Consequently, many of the army and navy armament expendi- tures came to be disbursed as war expenditures. Thus, in 1904, 12,544,176 yen was curtailed in the expenses for military affairs under the control of the army department, and 470,- 516 yen in the extraordinary expenses such as building and repairs, surveying expenses, general repairing and furnishing arms and implements for campaign use. In 1905 about the same curtailment was effected for the same reasons, except in a case such as the battery construction expenses, where the works were carried out as prearranged and disbursements were made accordingly. In 1906 the expenses for military affairs returned to the same condition as before, and as the annuities, pensions, compassionate allowances, and gratuities suddenly increased (the total of the four items amounting to 28,600,000 yen), the ordinary expenditures increased by 60 per cent as compared with those of 1903. In 1907 the ex- penses for military affairs increased by 1,200,000 yen, which was due indirectly to the organization of new divisions. As regards the increased extraordinary expenditures in the same year, the chief disbursements therefor were 16,000,000 yen as 92 HISTORICAL SURVEY OF EXPENDITURES a part of the annual instalment of 33,000,000 yen for 1907 of the aforesaid eleven-years continuing expenditures for furnish- ing arms and implements for campaign use of the total 110,- 000,000 yen; and 4,000,000 yen, the annual instalment for post-bellum adjustments, which, as stated above, was a new account created chiefly for restoring worn-out arms. The expenses for military affairs after 1908 underwent an annual increase of 3,000,000 yen and reached 73,000,000 yen in 191 1. After that not much change took place, owing to the fact that in the year 191 1 the armament repletion plan adopted after the conclusion of the Russo-Japanese War was almost com- pleted. The other ordinary expenditures, such as gendarme- rie, contributions to Yasukuni Shrine, Horse Administration Bureau, annuities, pensions, allowances, and gratuities, were made almost in the same amounts every year, the minimum being 25,000,000 yen in 1908 and the maximum 28,000,000 yen in 1912. The extraordinary expenditures reached their maxi- mum (49,340,000 yen) in 1908, in which year the item of fur- nishing arms and implements for campaign use amounted to no less than 37,000,000 yen, as there were large payments of these expenses brought forward from previous years in connec- tion with the establishment of the six new divisions. The annual allotment of these expenses was very large in this year, and there was also a disbursement of 4,000,000 yen for the two regiments newly stationed in Korea since the end of 1906. In 1 909 various equipments were nearly completed for the six new divisions, and consequently the expenses for furnishing arms and implements for campaign use began to decrease, as the chief of these expenses — the construction expenses — decreased in that year to 10,000,000 yen from 27,000,000 yen in the pre- ceding year. The post-bellum readjustment expenses in the same year underwent an increase, however, because in the chief item of these— the restoration expenses — there was made a payment of 1,000,000 yen brought forward from the preceding year, in 19 10 the extraordinary expenditures decreased to 16, 000,000 yen, in spite of disbursements of 400,- 000 yen representing the first instalment of the three-years RUSSO-JAPANESE WAR TO PRESENT DAY 93 continuing expenditures of 1,763,619 yen for building, for furnishing arms and implements for campaign use, and for the Formosan Ordnance Department, and of 262,000 yen for military balloon investigation expenses. In 191 1 the extraordinary expenditures were increased by 8,000,000 yen on account of 1,000,000 yen expended for a detachment sent to Korea and of 7,000,000 yen for restoration expenses of post-bellum readjustments; and in the same year the number of continuing years and the amount of the annual instalments for furnishing arms and implements for campaign use and for the Tokyo Bay battery construction were revised. In 1912 the item of post-bellum readjustment expenses was abolished and consolidated with that of repairs and furnish- ing arms and implements for campaign use; and the number and the amount of annual instalments of this latter-named item were revised, the item being made a continuing expendi- ture for eight years beginning with 1912 for a total of 64,821,- 220 yen. The first annual instalment of 1,000,000 yen was disbursed in 1912, and the second of 11,000,000 yen in 1913. However, the building and other expenses connected with the post-bellum army expansion were generally concluded by this time, and the extraordinary expenditures in 191 2 and 1 91 3 consequently decreased. Navy The naval strength of Japan after the conclusion of the Russo-Japanese War was suddenly increased. Though Japan lost eleven warships (44,000 tons) and seven torpedo boats (600 tons), she captured twenty-two warships and torpedo- boat destroyers (135,000 tons). During the war, moreover, two warships (15,000 tons) were purchased and three warships (10,000 tons) were constructed, so that by the end of 1906 the total displacement of Japan's navy amounted to 451,000 tons. Taught by the experience of this war, and studying the tendency in the naval construction methods employed by the other Powers, Japan found that her warships were imper- fect in many respects, and she saw the necessity of augment- 94 HISTORICAL SURVEY OF EXPENDITURES Budget Estimates of Naval Repletion Scheme Adopted after Russo- Japanese War Items Amounts Remarks (i) Warship construction and building expenses: Shipbuilding Yen 62,348,269 29,001,307 8,510,721 To be disbursed in eleven years ( [903-1913). The amounts of the annual instalments were revised in 1908, 1909 and 1910 and made to extend to i<)H>. These were required for the con- struction of the battleships Kashima and Katori (16,000 tons), the cruiser Ibuki and the gunboat Toba. The construc- tion plans were made in [903, as mentioned in the preceding chapter, but the actual dis- bursements were made in this epoch. Naval ordnance Total 99,860,297 (2) Warship and torpedo-boat replenishing expenses: Shipbuilding Naval ordnance 35,783,424 28,293,867 To be disbursed in six years (1907-1912); prolonged two years in 1908. These were required for the con- struction of the cruisers or dis- patch boats Tsukuba, Ikoma, Mogami, Tone and Kurama, and the battleships Aki and Satsuma (19,800 tons and 19,350 tons, respectively). Total 64,077,291 (3) Supplementing of warships and torpedo boats: Shipbuilding 47,955,593 28,621,509 To be disbursed from 1^07 to I9I3- These were required for the con- struction of the battleships Kawachi and Settsu (20,800 tons) and the cruisers Hirado and Yahagi. Naval ordnance Total 76,577,102 (4) Adjustments and equip- ments: Shipbuilding and naval ordnance repairs Building 79,846,728 31,724,428 To be disbursed in seven years (1907-1913); revised in 1909 and 19 10 and made to extend to 1916. These were required principally for repairing, restoring and making improvements and not for constructing new warships. Total 111,571,156 (5) Supplement to armament repletion expenditures 88,233,170 To be disbursed from 191 1 to 1916. In 191 1 the four above- mentioned continuing expendi- tures were combined under one account for armament repletion expenditures, which by the addition of 82,233,170 yen were made to total 434,309,616 yen. Another addition of 6,- 000,000 yen was made in 1913. RUSSO-JAPANESE WAR TO PRESENT DAY 95 ing her naval strength to an aggregate displacement of 500,- 000 tons. According to this necessity, the post-bellum naval repletion scheme was put into practice, and the correspond- ing budget estimates were in the main as shown on the previous page. The balances remaining in and after 191 1 of the first four items mentioned above, plus the supplement in the fifth item, formed the so-called armament repletion expenditures. The warships that were being or have been constructed since 191 1 by means of these armament repletion expenditures are the cruisers Kongo, Hiyei, Haruna and Kirishima (27,500 tons each), the battleships Fuso (30,600 tons) and Nos. 4, 5 and 6 (each 30,800 tons), and the gunboat Saga. For the completion of all these ships, it was estimated that 90,000,000 yen more was needed. By the end of 191 3, the navy was to consist of sixty-eight warships (549,000 tons), besides fifty- nine torpedo-boat destroyers, fifty-four torpedo boats, and thirteen submarines. Comparing this naval strength with that at the end of 1906, the increase in tonnage is not great, but the substantial improvements carried out are conspicuous. Further, when the six ships in course of construction at the end of 1 91 3 are completed, there will be an added strength of 185,000 tons. Among the other causes of the post-bellum increase of expenditures may be mentioned the establishment of the Port Arthur naval station and the Chin-hai Bay second- ary naval station. These armament repletions naturally resulted in an annual increase of the ordinary expenditures, which may be seen in the following figures taken from the Settled Accounts. l Excluding the war years of 1904 and 1905, and basing our calculation on the figures of 1903, we find that the ordinary expenditures continued to increase rapidly, from 29,000,000 yen in 1906 to 45,000,000 yen in 1913, showing an average annual increase of 170 per cent for the eight years beginning with 1906. The extraordinary expenditures also increased greatly after 1907, reaching the maximum of 65,000,000 yen in 1 Cf. Appendix, Table No. 12. 9 6 II STORICAL SURVEY OF EXPENDITURES 191 1, the average annual increase as above having been 290 per cent. The total of the ordinary and extraordinary ex- penditures during these ten years was 686,287,464 yen. Table Showing Anni u. Increase of ] EXPENDITURES, t903-l9i3 Fiscal j ear ( (rdinary expenditures Index number Extraordinary expenditures Index number 1903 1904 1905 1907 1908 [909 1 9 1 191 1 1912 1913 Yen 22,0 >4,6 )9 8,803,971 13085 535 2 1,209,791 32,985,632 36,137-882 37,077-328 40.456,595 42,500,564 43.116,309 45,227,909 100 37 56 32 149 163 162 182 191 '95 202 Yen 14,566,631 12,365,466 11,030,754 12,584,512 31,918,260 36,247,176 35 648,795 45,431,464 65,854,965 51,968,508 54,636,048 IOO 85 76 86 220 250 246 342 453 358 376 Total 328,601,516 172 357,685,948 292 In the war years of 1904 and 1905 the items of the expenses for military affairs, such as traveling expenses, special allow- ances, shipbuilding and naval ordnance repairs, etc., which were defrayed as extraordinary war expenditures, amounted to more than 10,000,000 yen, and thereby there was a great decrease in the ordinary expenditures. In the extraordinary expenditures, the naval expansion expenses defrayed accord- ing to predetermined budget estimates decreased by 5,000,000 yen in 1904 and 8,000,000 yen in 1905 (owing to the completion of some of the warships), as compared with those of 1903; but the decrease was not great, because, on the other hand, there was an increased expenditure of 3,500,000 yen in each of these two war years in the warship construction and building expen- ses as continuing expenditures since 1 903, and because theKure arsenal extension expenses did not diminish in comparison with 1903. In 1906 there was a considerable increase in the ordinary expenditures owing to the increased expenses for military affairs (6,000,000 yen over 1903 and 15,000,000 yen over 1905) caused by the increased number of warships. There RUSSO-JAPANESE WAR TO PRESENT DAY 97 was no special increase in the extraordinary expenditures, however, as the post-bellum schemes were not as yet carried out. In 1907 we find that, while the ordinary expenditures showed normal increases only, the extraordinary expenditures suddenly increased, showing the commencement of the work- ing of new schemes, as there was disbursed a total of 20,800,000 yen, the first annual instalments of warship and torpedo-boat replenishing expenses, warship and torpedo-boat supplement- ing expenses, and adjustment and equipment expenses, viz., the second, the third and the fourth of the above-mentioned naval repletion budget estimates, the first of which, or the warship construction and building expenses, being a continu- ing expenditure since 1903. During the years 1908-1913, we see a gradual increase in the ordinary expenditures, due to the progress of the naval repletion work, the yearly increases ranging from 700,000 to 2,500,000 yen. The increased items were expenses of the Navy Department proper, expenses for military affairs of the navy, navy pensions, allowances to sur- viving families of naval officers and sailors, etc. In the extra- ordinary expenditures there were considerable disbursements during 1 908-1 910 for warship construction, warship and tor- pedo-boat replenishing, and adjustment and equipment ex- penses. In 191 1 the extraordinary expenditures amounted to more than 64,000,000 yen, as the result of the additional dis- bursements for warship and torpedo-boat replenishing. At last, in 1 91 3, the work of the so-called naval repletion scheme was nearly accomplished, and the object of sup- plementing the naval strength, after the experience of the Russo-Japanese War, was attained, enabling Japan to fall in line with the world's tendency. Financial Resources With reference to the sources of revenue to meet the ex- penditures of the Russo-Japanese War, the general explanation has already been given. Moreover, as taxes and public loans are subjects which do not fall within the scope of the present 98 HISTORICAL SURVEY OF EXPENDITURES treatise, we shall here give only the statistics corresponding to the financial resources in question. In the first place, the Settled Accounts of these revenues belonging to the Special Account of the Extraordinary War Expenditure were as follows: Yen Proceeds from public loans and Exchequer Bonds 1,418,731,229 Funds transferred from General Account (taxes stamp revenues, tobacco-monopoly profits, and Treasury surplus) 182,430,129 Funds diverted from Special Accounts (forestry fund, warship and torpedo-boat replenishing fund, and educational fund) .... 69,31 I . ( >77 Voluntary contributions to war fund 2,331 ,1 76 Sundry receipts (penalties, fines, forfeitures, compensations, and interesl on deposits) 16,107,521 Proceeds from sale of government properties (buildings, provi- sionsand forage, night-soil and horse-dung and cattle) 18,875,115 Special Receipts (disposal of captured articles and trophies) 3.516,325 Receiptsfrom South Manchurian and Korean railways '1,1,08,784 Total 1,721,212,256 Thus, the total receipts of the Special Account of Extraor- dinary War Expenditure amounted to 1,721,212,256 yen; and if we compare this with the total disbursements of 1,508,- 472,538 yen of the same account, we find that there remained a surplus of 212,739,717 yen, which was transferred to the Gen- eral Account on November 30, 1907. In the second place, as regards the financial resources for the war expenditures of 130,794,655 yen to be disbursed from the General Account during and after 1907, we need not explain them beyond saying that these disbursements were trans- ferred to the General Account ; but we may mention that they were abundantly covered by the above-mentioned surplus of the Special Account of Extraordinary War Expenditure trans- ferred to the General Account, as this surplus, minus the aforesaid 130,794,656 yen still left a balance of 81,945,061 yen. In the third place, regarding the financial resources for 221,- 580,000 yen of various Departmental Expenses in connection with the war, we can not give accurate figures of these resources from the Settled Accounts. However, as the budget for 238,- 280,000 yen of these Departmental Expenses was made out simultaneously with that for extraordinary war expenditures, but independently of the General Budget, we can make an RUSSO-JAPANESE WAR TO PRESENT DAY 99 approximate estimate and say that the government's financial arrangements for meeting the said budget for Departmental Expenses directly formed the financial resources in question. Such approximate financial resources for the Departmental Expenses, estimated according to the financial measures taken on the occasion, are as follows: Approximate Financial Resources Departmental expenditures Amount Resources Disbursement through financial emergency measure of Decem- ber, 1903 Yen 257,893 Temporary loans Budget of 1904 40 000 000 Surplus of Annual Account Budget of 1905 87,200,000 Surplus and temporary loans Disbursements (December, 1905) unprovided for in budget 28,825 409 Surplus of Annual Account Budget of 1906 82,000,000 Surplus of Annual Account Thus, we may say that the financial resources of the various Departmental Expenses in connection with the war were in the main sought in the surplus of the Annual Account and to a small extent in temporary loans. With reference to 1,418,731,229 yen obtained as a financial resource for the Russo-Japanese War expenditures from the proceeds and receipts of public loans and Exchequer Bonds, we shall not give here any detailed explanations, but shall simply enumerate the issues with the corresponding dates and amounts, as shown in the table on page 100. We have already stated that the Imperial Government, in order to obtain revenue to meet the expenditures of the Russo- Japanese War, adopted two schemes of increased taxation. The first scheme, which took the form of extraordinary special taxes, increased the land income, business, sake, and soy taxes, the sugar excise, the mining, registration, bourse, and shooting-license taxes, the tax on sake exported from the Prefecture of Okinawa, and various import duties; it also im- IOO HISTORICAL SURVEY OF EXPENDITURES Receipts from Public Loans and Exchequer Bonds Date of issue Kinds Amount of issue Actual receipts March 21, 1904. . . . June 25, [904 November [8, [904 , April 10, 1905 May 15, 1905 .March 31, 1906. . . . May 17, 1904 December 15, 1904 March 29, 1905. . . . July 11, 1905 July, 1906 -June, 1907 Exchequer Bonds: First issue Second issue Third issue Fourth issue Fifth issue Extraordinary Military Ex- penditure Loan Sterling Loans: First 6 per cent Second 6 per cent First 4§ per cent Second 4A per cent Gratuities Substitution Loan Yen 100,000,000 100,000,000 80,000,000 100,000,000 100,000,000 200,000,000 97,630,000 117,156,000 292,890,000 292,890,000 171,722,050 Yen 92,376,124 90,981,796 71,288,675 90,254,962 89,984,081 189,064,218 86,834,171 100,463,595 251,158,987 251,137,817 1 10,722,950 posed consumption taxes on woolen textiles and kerosene; increased the amount of stamps to be affixed to documents relating to civil suits and non-contentious commercial cases; by amending the regulations regarding ceidasters it raised the fees chargeable in connection therewith; and by altering the formalities for registration it laid down in the detailed rules attached to the said regulations; finally, it increased the regis- tration tax, and put into operation the tobacco-manufacture monopoly. The second scheme increased the revenues from taxation by amending the law regarding the extraordinary- special taxes; it further increased the land, income, business, and sake taxes, the sugar excise, the patent medicine business tax, the mining, registration, bourse, and shooting-license taxes, the tax on sake exported from the Prefecture of Okinawa, and the stamp duty; it also increased the existing import duties and imposed new ones; it introduced a transit tax, a stamp duty on cheques, and a placer tax, and imposed a con- sumption tax on textiles other than woolens; it caused stamps to be affixed to documents relating to administrative suits; it established an inheritance tax; and it put into operation the salt monopoly. The receipts from these two schemes of in- creased taxation were as follows: RUSSO-JAPANESE WAR TO PRESENT DAY 1 01 Yen 1904 60,568,345 1005 154,091,858 1906 184,839,433 Total 399.499.636 A few words must also be said in regard to the temporary loans, though they are not items included in the Special Ac- count revenues. As in the case of the Sino-Japanese War, it was often necessary during the Russo-Japanese War to secure advances from the Bank of Japan to make the Treasury re- ceipts and disbursements balance. Although these advances were all made in the form of short-term loans and were re- deemed before the closing of the Special Account, they may be looked upon as temporary or special sources of revenue. Their amounts were as follows: Temporary loan for armament repletion (Imperial Ordinance Xo. Yen 291 of 1903) 41 ,5 00 - 000 Special loan for warship and torpedo-boat construction 2,500,000 Temporary loans for extraordinary affairs: Law no. 1 of 1904 239,000,000 Law no. 12 of 1905 66,000,000 Law no. 1 of 1905 12,750,000 Law no. 1 of 1906 55. 500,000 Besides the above, it must be stated here that I5> 2 53>35 8 yen of the temporary loan for the redemption of war notes was also a source of revenue for the Russo-Japanese War expendi- tures. This loan was necessary for the post-bellum redemp- tion of the war notes issued in Manchuria during the war, and was the money borrowed from the Yokohama Specie Bank, which had charge in 1905 of the circulation and redemption of these war notes. This loan is not included or found in the Settled Accounts of the receipts and disbursements of the Special Account of the Extraordinary War Expenditures. We may now refer to the financial resources for the arma- ment expenditures in the last ten years. It must be noted that most of the armament expenditures belong to the dis- bursements from the General Account and that consequently no special explanations can be given regarding the correspond- ing sources of revenue. However, as it has been customary 102 HISTORICAL SURVEY OF EXPENDITURES in the case of specially large disbursements to express their financial resources in the budget estimates or in the govern- ment's financial scheme's, we may give here the outline of these resources as follows: In 1 907, or the first year of the post-bellum financial scheme, there were, in both the army and the navy, not only many of the continued undertakings, either running from the previous years or transferred from the extraordinary Departmental Ex- penditures, but there were also not a few new expenditures started, such as for the construction of new warships, for the establishment of the Port Arthur naval station, expenses for garrisons in Manchuria, Korea, and Saghalien, adjustment expenses of the remaining works of the war, expenses for re- pairing arms, etc., increases in warship and torpedo-boat re- plenishing expenses, adjustment and equipment expenses, pensions and rewards, increases in Expenses for Military Affairs attendant on armament expansion, repairs, and fur- nishing of arms and implements for campaign use in connec- tion with the adoption of the two-year system of infantry and the establishment of four additional divisions, and construc- tion expenses of supplementary warships and torpedo boats. All these were continuing expenditures disbursed from the year 1907, amounting in total to 86,500,000 yen. For the financial resources corresponding to these new expenditures, no public loans were specially raised, but they were secured by continuing the extraordinary special taxes inaugurated during the war, and by transferring 100,000,000 yen, the surplus of the Special Account of Extraordinary War Expenditure, to the General Revenue Account. These resources served also for armament expenditures, and the result was that there still remained a certain surplus in the General Account. In 1908 a large deficit in the General Account was met, but as the market conditions then did not allow the raising of new public loans, additional funds were provided by increasing the taxes on liquors, the sugar excise and kerosene tax, and by raising the fixed ] trices of monopoly tobacco; and also by postponing various undertakings the equilibrium of receipts and disburse- RUSSO-JAPANESE WAR TO PRESENT DAY IO3 ments was planned. As the said deficit was caused principally by armament expenditures, it follows that the said increased taxation was caused by the armament requirements. Thus, with the gradual growth of the figures of the General Account the financial difficulties became greater and greater, and the government became convinced of its having gone too far in its post-bellum undertakings, so that in 1909 a policy of re- trenchment was adopted and several undertakings were post- poned. In this way surpluses in the General Account became more and more plentiful during and after 1910, enabling the government to ameliorate the taxation system and to effect extraordinary redemptions of public loans. In 191 1, in spite of the fact that the four great continuing expenditures of the navy were consolidated in one item called the armament reple- tion expenditures, and thereby the armament scheme was expanded, no special revenue measures were necessary in that year. In both 191 2 and 191 3 the General Account continued to show surpluses and under easy circumstances could meet enormous expenditures for armament. However that may be, the superabundance of public loans and the continuation of the war-time taxes are the weak points in Japan's finances, and discussions regarding the redemption of loans and the reduction of taxes are becoming more and more frequent and important. 104 HISTORU Al SURVEY OF KXPENDITURES - i X 2 W — ^ wV Cu o X X > » Q w as a 2 " * 3 m a w H ir. rO -~ fS M Q O m f; C ' v . c 1^ c 000 rO C CO re ~ — q q_ « <-o _" ro «* Cl" rT 0" c c^ -f - N 00 c r-. 1^ c "o O 0) 8 -t N 1 - 00 00 ir. W) 3> 1^ O _Z O -f pj 10 t^ - ■* Eh -t- CO X 10 vO "* 00 1^. N q <-\ "2 M q; " 4-J 1/ O N X M w 5 3 : -t 10 "O S--v q q q N • • t^ a 0" ro : o~ ~S c "- -f . . 10 c -?- vO oq_ ■+ .3 m v —^ c* N <~C / cf _C 1J >n X rr ro H -t i/-: ir m Ements imber, excess o> a C C » 5 8 6 10 z <* IT . : 3 3 1C £ 8.S-5 3 O _ u) - z ci N . . O Cl r X c - 00 00_ J3 Q JO * en O ■— 6 so 00* c -f -f 00" c ci X z 00 5-5 ?° +J bo : c: c O t*» c IP c*3 «h c 2 5 O C 1- 3 8 d c c z q c Q 6 6 x' c 0" rH O z g C Z c x" - " ir-. r-C u \r. t^. CO t budget imates 1904) : _ Z c c s P. z CI c c q co z c ' "I c_ ? 0" 3 6 c ! ! 00 0" ^ c c 3 3 c c £ cn w ' n* c c i^- c .3 00 -t r i \C r ro •+ fc r*5 •^ N -+ 0> >_ ^ Amounts bursed und Imperial rdinance cembcr, 1 9 c or financial Emergency measure 10 •+ ^ cO O f i P( 3 CI q_ oq_ >lO> CI "0 /- 1/ . q; q 00" d ci C N C ": <-i q; CO C4 N vO 10 -3 Q , , ~ 1- , - U) ' in s . . 1- V O C ; 3 U U X - u c i « .3 p — u J3 u X W - • C - ■ 1 - S O • r. O 3 XI z. r V) E 1-1 'in h f c c C ill c/) fS C u u c 3"S c •£> 1 \ T3 . C >, II 2 x C •~ — 2 2 - c E- urces of Rc\ enm Receipts from in tavntinn. etc. . T3 C rt c c/T c -a c > £ Funds diverted special accoun Voluntary contri tr> war fund •x 3 3 C O U QJ c< = 2 QJ l-H (J tn C • - >'3 oi •° S C J3 ti O 253 = - 3 "5.5 2 7. . r : R "5 a u = u d <1 e T3 — c id c Ed o _ ° S3 rt • 2 V 3 rt E £ a % v = '. ed B c c a S •a S 3 a 4; J3 ^ .: * tu H "^ 3 RUSSO-JAPANESE WAR TO PRESENT DAY 105 Q y, a 6. w >< > < Q < < CQ >. s 2 ° & III ti — *3 O ^ c C.'S <" o2 a H 3 c rt 3 .2 is .5 tj — T3 ri C S" o 0. Oh <" K rfrft^rorOOO f*500 »/i N Ov u} o 00 o o 1^ O Ov r^co CO (*} M fO O s© CC in ^3 10 CO lOO ror*} -t r l ~> ro "^ N CO roco O O t^ in -f t- m o" 1^ o" loifl O w Ov Oi egs -3;£ ri 3 £ p 5"g-" £ rt. :~2 SS? ■ • i ■is : >» ■ Bt • C •a c Si nphal cele- ory of naval Russo-Jap- :■§ c . U * .2 -.1 v '. rt-7 •3 2 *• ■„_*• • ? ;3 •'o o-E-^ 1 *- m O ">■? 1- • c u .3 -*- . 1 8 8 55 £•??'§?§ ^ H J " x -^ O ~ Oi W U >*Ov Ov 1/1 "3- t^vO l~- fO-O Ov m O rO "i" Ov O fOOO O "-» moo n ^O •& ro r*)oo ro 10 * vO « ^ m t— CO ^tO 00 fO Ov OvCO (N M *t r~co ro O Ov Ov fOfOO "3 rt a-2 ?o S"S 3 5 ° > U C £■5 « ? J3 at c« to •so c 5~ = 3 ^•l> b-§rt^S2SS|3 CHAPTER VI CONCLUSION We may now recapitulate what we have stated in the last five chapters, and conclude by adding some statistical com- ments. Since the Meiji Restoration there have been in all eleven occasions on which disbursements have been made as war expenditures, and the amounts expended were as follows: Period Xumber of wars Expenditures First Second 5 3 2 I Yen 14,188,291 42,944,401 277,011,130 1,860,848,801 Third Fourth Total II 2,194,992,632 This simple table shows us that, while the number of wars is decreasing, the expenditures required in one single war are enormously increasing. We may not determine the exact rate of this increase, but we may say that the increasing tendency in the cost of war is indisputably great. Two comparative tables showing expenditures incurred in four wars, i. e., the Satsuma Rebellion, the Sino-Japanese War, the North China Disturbance, and the Russo-Japanese War, arc given at the end of this chapter. 1 It seemed best to exclude the War of the Restoration from these tables, because the classification of the expenditures for this war was different from that for other wars; moreover, their total, as explained in the earlier pages, could not include the whole of the war expenditures. We may enumerate five principal factors affecting the amount of war expenditures: (1) war preparations or the 1 See post, pp. 1 1 6, 117. 106 CONCLUSION 107 development of armament in time of peace; (2) the number of soldiers engaged in the war; (3) the duration of the war; (4) the strength of the hostile forces; and (5) the extent and conditions of the scene of the hostilities. As minor factors, moreover, we may mention the prices of commodities, the management of accounts and supplies, the economic condi- tions in general, the degree of patriotic sentiment, and others too numerous to mention. These principal and minor factors must be taken into consideration in making a comparative study of the war expenditures, and the foregoing table fur- nishes no more than a basis for making a few investigations by comparing some of these causes with the amount of expenditures concerned. In the above table we observe that the expenditures for the Russo-Japanese War are about forty times as great as those for the Satsuma Rebellion or the North China Disturbance, and more than eight times as great as those for the Sino- Japanese War. It is most interesting to observe how greatly the expenditures increased in each successive war. But con- sidering the duration of the war, the extent of the scene of hostilities, and the military strength of both the belligerents, •we may not only find the reasons for the greatness of the expenditures incurred in the Russo-Japanese War, but we may even learn that war on a large scale seems to involve proportionately less expenditure. In the above table we have assembled the different items of expenditure, which are practically similar in the main, although their classification differed at various times and in the various departments. Except in the case of the Sino- Japanese War, the ratio between the Expenses for Military Affairs of the army and the navy (War Expenditures) and the various Relative or Departmental Expenses (expenses incurred in the departments other than those of the army and the navy) was 85 or 88 for the former to 15 or 12 for the latter. This shows that in mobilizing or working the army and the navy there must always be certain attendant dis- bursements in the general administrative branches. 108 HISTORICAL SURVEY OF EXPENDITURES If we compare the Expenses for Military Affairs of the army with those of the navy, we find a curious ratio. Though in the Satsuma Rebellion the smallness of the navy expenditures was due to the fact that the enemy had almost no navy, it is curious to note that in every war the army expenditures are from four to six times as great as the navy expenditures. Neither in the Sino-Japanese War nor in the Russo-Japanese War can we say that the army played a more important part than the navy, nor that Japan thought a great deal of the army and little of the navy; and yet the war expenditures were much lower on the side of the navy. Of course, in our calculation we have not taken into account in both the army and the navy the loss or gain of warships and arms, and we have computed only the disbursements from the Treasury; therefore, if Japan had suffered defeat, we may imagine that the loss might have been specially heavy on the part of the navy. Nevertheless, viewing the amount of expenditures only, we must conclude that there is always a great difference between the war expenditures required for the army and those required for the navy. The question is important, however, in making the preliminary estimates of war expenditures or in deciding national defense questions. It is at least safe to say that the principal factors responsible for such a difference between the two expenditures are (i) the number of com- batants, (2) the means of transportation, and (3) the nature and quantity of munitions. In every war we see that the greatest item of army expendi- ture has always been transportation; but in the navy this item is trilling, even if it is combined with the ship expenses. The greatest item next to transportation is that for amis and ammunition. As the latter forms a principal item in the army as well as in the navy, this and the former item may be called the accounts of foremost importance among the expenses for military affairs. Next to arms and ammunition come provisions and clothing, which are especially large amounts in the army and much smaller in the navy, the ratio being about twenty to one. Also, in the foregoing table the CONCLUSION IO9 expenses of personnel, such as salaries, wages, traveling expenses, and sundry allowances, were summed up as one item for the sake of convenience, and the sum total generally corresponds with the figures of provisions in the army and those of provisions and clothing in the navy. But this sum total in the case of the Satsuma Rebellion comes to a partic- ularly large amount, owing to the fact, as explained before, that it included much of the wages in the actual nature of the transportation expenses. We may add that horses in the army and warships maintenance in the navy are all very important accounts, as also construction, building and repairs, secret service fund, mobilization expenses, and temporary rewards in the army, and hydrographic expenses, naval station and secondary naval station expenses, and warship and torpedo- boat replenishing expenses in the navy; but we need not indulge in any more general comment on these items. Turning our attention to the armament expenditures, we shall first of all recapitulate their gross totals for the different epochs as follows : Armament Expenditures Period Army Navy Total First Yen 53,754,154 196,811,673 435,967,757 944,876,396 Yen i4,995, 8 ° 8 112,270,912 383,362,142 686,287,464 Yen 68,749,962 309,082,585 819,329,899 1,631,163,860 Second Third Fourth Grand total 1,631,409,980 1,196,916,326 2,828,326,306 From the above figures we can see clearly the wonderful consecutive increases in the armament expenditures. Gen- erally speaking, they have steadily increased, rising slowly but surely from 1,600,000 yen in the first epoch to 10,320,000 yen in 1876. After the Satsuma Rebellion the rate of increase was about the same until the end of the second epoch, though a gradual acceleration is observable after 1883 or 1886. But in the third epoch, or after the Sino-Japanese War, the expend- IIO HISTORICAL SURVEY OF EXPENDITURES itures increased by leaps and bounds, as from 24,520,000 yen in 1895 to 106,760,000 yen in 1897. After this latter year the increasing tendency still continued for a few years, when in 1 901, 1902 and 1903 there were decreases of from 20,000,000 to 30,000,000 yen. The huge increases above mentioned were merely the result of the working out of the post-bellum armament schemes on both land and sea after the Sino- Japanese War; but such extraordinary increases can not be found in any other portions of the national expenditures. We do not know whether or not armament expansion is always the inevitable result of a war in all countries, but in Japan we can not deny that it was the Sino-Japanese War that caused such a tremendous expansion of armament. In the arma- ment expenditures in the war years of 1904 and 1905 there were considerable decreases, but these were due, as already explained, to the transfer of many of these expenditures to the account of war expenditures. In 1906 we saw for the sec- ond time an abnormal increase in the armament expenditures, which in that year exceeded 100,000,000 yen. This rapid rate of increase did not slacken in the following years, 1 907 and 1908, producing an unprecedented amount of more than 200,000,000 yen. Looking into these armament expansions after the two great wars, we find that, comparing the ante- bellum armament expenditures (or those in 1893 and 1903) with the post-bellum armament expenditures (or those in 1898 and 1908), the annual increase after the Sino-Japanese War was about 93,000,000 yen, or five times as much as before the war, and the annual increase after the Russo-Jap- anese War was about 129,000,000 yen, or between two and three times as much as before the war. We therefore see that, though there was a large increase of armament expenditures after the Russo-Japanese War, the rate of increase was below that which followed the Sino-Japanese War. The highest record was 230,000,000 yen, reached in 1910, and though there were slight decreases thereafter, the annual amount of arma- ment expenditures has ever since been not far from this high- est record. If we compare this greatest annual record of CONCLUSION 1 1 1 230,000,000 yen with the record of 10,000,000 yen in the first epq£h, we find that the increase is twenty- three times; and comparing it with the record of 26,000,000 yen in the second epoch, we find that the increase is nine times; and compared with that of 113,000,000 yen of the third epoch, it is twice as much. It is indeed astonishing to see these great and con- tinual increases in the armament expenditures. From the foregoing explanations an idea may be formed of the proportionate increases of the army and the navy arma- ment expenditures. Let us now see the ratio between the two expenditures in each of the four epochs. Taking the army armament expenditures as 100, the ratio of the navy armament expenditures was 27 in the first epoch, 57 in the second, 89 in the third, and 72 in the fourth. Calculating the whole of the navy armament expenditures spent from the Meiji Restoration to the present day, they amount, to about 73 per cent of the whole of the army armament expendi- tures of the same period. At the present time this ratio continues to hold good. We can not clearly define on what principle of national defense such a ratio is maintained, nor can we possibly decide whether this country is a military power or a naval power in character; but from the standpoint of the money spent for both we may say that neither the army nor the navy was considered more important, as they have generally kept pace with each other, with only a slight advan- tage observable on the side of the army. As for relative explanations of different items of armament expenditures in the different epochs, we shall here omit them for the sake of brevity; but regarding their details the reader is referred to the tables in the appendix. One thing, however, may be noted, and that is that the proportion of the ordinary and the extraordinary expenditures is very different in the navy armament and the army armament. In the former the ordi- nary expenditures are in most cases smaller than the extraordi- nary expenditures, while in the latter they are just the reverse. The reason for this is that in the army the principal items are clothing, provisions, horses, etc., which require constant 112 HISTORICAL SURVEY OF EXPENDITURES replacing, while in the navy the principal item is the construc- tion of warships, which require large temporary expenditures. However that may be, the details of classifying the expendi- tures as ordinary and extraordinary are left chiefly to the tech- nical convenience of the financial accountants; but if more scientifically taken, an item such as warship construction expenses may properly be classed as an ordinary expenditure, because it is in nature an item requiring a regular annual outlay for appropriate replenishment. Such being the case, little scientific value may be attached to what we have said above regarding the proportion of the ordinary and the ex- traordinary expenditures. It may be said that the principal items in the ordinary expenditures are the expenses for mili- tary affairs in a narrow sense, and that the principal items in the extraordinary expenditures are buildings and repairs and furnishing of arms and implements for campaign use in the army, and warship and torpedo-boat construction in the navy. To say more about the armament expenditures, we must add a few words in regard to decoration annuities. These annuities are given to the recipients of the Order of the Ris- ing Sun, established in 1877, and of the Order of the Golden Kite, established in 1894. As the former of these two orders may be bestowed on civilians who have rendered specially meritorious services, as well as on soldiers, this fact must be taken into consideration in including the corresponding amounts in the armament expenditures. However, the num- ber of civil officials who are receiving these annuities of the Rising Sun Order is very small; and as their meritorious serv- ices were in most cases rendered in connection with war, the amounts of these annuities have been reckoned in the arma- ment expenditures. As these decoration annuities are given in a lump sum and are not distinguishable as between the army and the navy, we have only for the sake of convenience reckoned them in the army armament expenditures. The decoration annuities prior to 1894 are those belonging to the Rising Sun Order, bestowed in connection with distinguished CONCLUSION 113 services rendered in the Satsuma Rebellion and the Saga Insurrection. That their amounts suddenly increased in 1896 and in 1906 is of course a result of the Sino-Japanese War and the Russo-Japanese War. It is interesting to note that their latest figures are over 10,000,000 yen annually. We have seen how great an amount is disbursed by the state for armament expenditures, and it forms an interesting subject of study, from the standpoint of politico-economic science, to compare this amount with other expenditures in the country's General Revenue Account. Prior to the year 1877 we find that the proportion of the armament expendi- tures in the General Account never exceeded 19 per cent of the total, but it gradually increased thereafter until it reached the climax of 51 per cent in the year 1898. Then it gradually decreased until it came to amount to about 36 or 37 per cent (excepting the war years of 1904-5). The percentages of armament expenditures against the total General Account expenditures at different epochs (excepting the war years of 1894-95 and 1904-5) are 18 per cent in the first epoch, 24 per cent in the second epoch, 37 per cent in the third epoch, and 34 per cent in the fourth epoch. It may be said that the present proportion of armament expenditures as compared with the total General Account expenditures is about 35 per cent annually. The annual increase of public expenditures in recent years is a phenomenon common to all countries of the world, and it is scientifically a settled opinion that the increase of armament expenditures should be counted as the chief cause of the general expansion. The same is of course true in the case of Japan, and as the armament expenditures occupy so important a position in the General Account, and as also the increases and decreases of armament expenditures are so closely related to those of the total annual expendi- tures, we may say that the increase in armament expenditures is the greatest reason of the expansion of our annual expendi- tures. In our explanation regarding the comparative position or importance of armament expenditures in the total annual 114 HISTORICAL SURVEY OF KXPENDITIKI - expenditures, we have excluded from our consideration not only the war expenditures but also the debt charges incident to war loans and armament loans. As stated in our Intro- duction, we are of the opinion that the interest on war and armament loans must be included in armament expenditures. This interest may be calculated at from 75,000 to 925,000 yen annually in the second epoch, at about 10,000,000 yen annu- ally in the third epoch, and from 35,000,000 to 65,000,000 yen annually in the fourth epoch; and if we include these amounts in the armament expenditures, a considerable dif- ference will surely be seen in the latter's annual total figures and percentages against the total annual expendi- tures. Forty-six years have elapsed since Japan was opened to foreign intercourse. The basis of national wealth and military strength has now been established, and the glory of the Empire has already been spread abroad. As we look back upon the history of this national growth, we may say that we have passed through many years full of great events both at home and abroad. Thanks to our constant and zealous application to the task of completing our armament, and also to our having achieved splendid results in each of the many wars, the country has been enabled to enjoy the opportunity of diligently endeavoring to equip herself with all the paraphernalia of modern civilization. However, con- sidering the fact that the grand total of the expenditures for armament and war amounts to 5,023,318,438 yen, we can not but feel that it was no easy matter for us to join the great Powers and acquire the same rights as they. If the latest annual armament expenditures are apportioned to the popula- tion of the country (census of 19 10), the annual rate per capita becomes 4 yen. This rate concerns only the expendi- tures made by the government; and if we consider the other burdens of the whole nation in connection with armament, such as the national duty of military service and the inci- dental expenses incurred by public and social bodies, the figures representing these charges will be far above the figures CONCLUSION II5 of the armament expenditures. It is hard to decide whether armament is necessary for war or war is caused by expansion of armament ; or whether war is necessary to bring about peace or peace is secured by armament. But at any rate, it is cer- tain that the armament and the war expenditures are the greatest burdens of the state. 116 HISTORICAL SURVEY OF EXPENDITURES Per- ;ntage epart- lental xpen- itures ITi Tf " U"C K V'U CJ T, Mi , HI rt *• U y "- S o & g a o o 00 - u " ts'-a <-> -i. ■- re ^ CO r co 00 - -- OJ a, & *o O C] H 01 a ■* o r^ 00 r ! 00 _ a re- = c : d n O 3 oc" CO to 00 d t ~> T}- x Q " f*> m o _, w ro !3 " 00 a rt £ t/3 c — "3 b-- o c -o — rt -^ °Sg >s j- PI z d o X * w o o o c tfl >, to l/> o o o > S N °. °. q i§ re z £2 O P) -o N «3 si '-I V t o o C M >> B < 8 O o o o re u O q q c C. re • c 6 >^ d o o_ M A St O re tn 'C o « O re " 5 c 01 o •- w 8 •5 3 s; E oi _ £ °5 c _0 is 4 1 " m o ° c ". - y . 1 c H - re c r.J o o c £>,„•„ o : j. Q oca E rt o g c re o « M c m o 00 w t 1-1 M c o .« c . rt •— ; ^ 01 01 Pi « E 3 ai re £ c c IE c 0) c re a re 6 ta 6 c c -" 3 W X Oi CONCLUSION 117 rr t- b ir, £ -t O i/\ i .. c n N _ . ~t - V O vO 00 1,-1 NO»h oc r*i • r < Q Z w X w >- as s « o « u z o H o o - a. u fc u.2 X- X cd j> £ 12 z « r^ av d « O O Rg c > 05 O u u ■C en u o .S rt "3 >. • O ^ 3 - c a>_ ; o n 5 £ !* * - T-I - <0 - ^ C/2 o u c v «i e «•£ C c. S. S. an U sis •3 3 a c a > ax tj 2 E o £ PART II ECONOMIC EFFECTS OF EXPENDITURES FOR WAR AND ARMAMENT CHAPTER I INTRODUCTION The national economy, in its true character, is a great mechanism or organic combination of the various economic bodies in society, and any change brought about in any one of its parts will have an effect on another part, the influence of which will gradually spread to all the other parts. Thus, the law of cause and effect is continually working in the field of national economy. As the state itself is the greatest factor in the national economy, the economic achievement of a state must in most cases produce the greatest change in its financial condition. As already set forth in Part I of this volume, the war and armament expenditures of Japan in the past forty-six years have always occupied the most important position in the state finance, and it is unnecessary to say that the effects of these expenditures on the national economy have been very great. However, it is by no means an easy task to determine the relationship and importance of these effects, which are so varied and wide that they are often vague and difficult to discern. The reason for this may be traced to the methods employed in gathering and dispersing the funds for these ex- penditures. While their financial resources are variously sought in the present income of the nation, in the wealth or capital accumulated in the past, and in the future financial obligations incurred in the form of loans, the purposes of their disbursements are also varied, some being made for purchas- ing home products or for payments to foreign countries, and others for making materials destined only to be consumed in the smoke of battle on both land and sea. As the economic effects in question are so complicated, it is necessary for us to limit the sphere of our present treatise. In the following pages we shall not undertake to deal with all the relations of war and armament to the national economy, but 122 ECONOMIC EFFECTS OF EXPENDITURES shall merely endeavor to set forth in what manner the expen- ditures for war and armament affect the national economy. For instance, the economic effects of the acquisition and admin- isl ration of colonies, or of the development of war industries, or of the enforcement of the conscription system must be excluded from the scope of our present inquiry, though each forms an im- portant subject of investigation in the history of the economic effects of war and armament. Furthermore, we have here to confine ourselves to those economic effects of war and arma- ment expenditures which are in their nature more direct and important, and in which the relations between cause and effect are more clearly defined. It is needless to say that the most direct economic effects of war and armament expenditures lie in the field of the state finance, because these expenditures themselves form part thereof. According to our definition, therefore, the increase or decrease of these expenditures must mean the expansion or contraction of the state finance. Both are closely connected, and for that reason we begin with the effects on the state finance in the next chapter. Next to state finance, the money market of the country is most directly affected by the expenditures for war and arma- ment. In the modem economic system the production, con- sumption, and distribution of goods are all affected by, and change in consonance with, the changes in the money circula- tion. If the state, as the greatest factor in the national economy, receives and disburses large sums of money, the money market of the country is necessarily tightened or slack- ened thereby; and this influence, in turn, will produce innu- merable effects in various other fields of the national economy. For this reason we deal in Chapter III with the effects on the money market. As regards the effects of war and armament expenditures in the other fields of the national economy, viz., production, communications, consumption, distribution, social life, move- ment of the population, etc., we find to our regret that it is extremely difficult to ascertain and explain them definitely, INTRODUCTION 1 23 for the reason that these effects are closely hound up, in irregu- lar complexity, with many causes other than the expenditures in question. Our explanations in this connection must there- fore be of comparatively limited dimensions. Of course, it would be an easy matter for us to describe fully the bare facts in war times in the fields above enumerated or to give their history in the past ; but that would be rather beyond the scope of the present investigation. We say that our explanations in these fields are necessarily limited, because we are going to dwell only upon the places where the relations of cause and effect are specially notable. But the reader must not assume that, because our explanations are limited, the effects in these fields of the national economy are also limited or unimportant. Students of economic phenomena are all aware that many effects very often exist where the causes are not direct and apparent; and the same must apply to the economic effects of war and armament expenditures. Accordingly, we must rely upon the reader's ability to discern the truth in those cases where these expenditures form the causes, though indirectly and obscurely, of some extensive economic effects which are not dealt with in this volume. CHAPTER II EFFECTS ON THE STATE FINANCE In dealing with the effects of war and armament expendi- tures on the state finance, it is convenient to adopt the com- mon classification of subjects employed in financial science, viz., revenues, expenditures, and public loans. But the revenues are treated in another volume, entitled War and Armament Taxes of Japan, l>y Ushisaburo Kobayashi; the expenditures have already been treated in Part I of this volume; and the public loans are treated in War and Arma- nent Loans of Japan, by Ushisaburo Kobayashi, which con- stitutes another volume of this series. What remains to be supplied here, accordingly, is a general explanation of how the above three financial subjects are combined or related to one another. From the Restoration War to the Satsuma Rebellion We have already observed that at the very beginning of the Meiji Government the national finances were so disorganized and straitened that there were no available means of obtaining the necessary war funds other than those of raising compul- sory loans from the wealthy classes and issuing inconvertible notes. Immediately after the Restoration, the government had established it> five fundamental policies, viz., (i) adjust- ment of the administrative organs, (2) creation of the army and the navy, (3) consolidation of the debts of the former clans, (4) settlement of capitalized pensions, and (5) en- couragement of industries. For the carrying out of this pro- gram large sums of money were required, and in order to meet the financial requirements the government began steadily (a) to enforce the paper currency policy, (b) to create the taxation system, and (c) to raise public loans. Let us now give brief outlines of these three subjects: 124 EFFECTS ON THE STATE FINANCE 125 (a) Enforcement of the paper currency policy. — In order to meet the emergency of supplying funds for the War of the Restoration, the government issued official paper currency. The first issued was the Dajokan-satsu, or notes of Dajokan (State Council), which were purely inconvertible notes to be withdrawn from circulation by the year 1880. These notes were issued to the amount of 48,000,000 yen in the years of 1868 and 1869, but the people did not like to use them because of their sad experiences with the various kinds of paper money issued by the clan governments; and in spite of various at- tempts on the part of the Imperial Government to secure credit, differences in the value of paper and of specie became unavoidable. Subsequently, the government issued the Mim- busho-satsu to the amount of 7,500,000 yen. These were notes issued by the Home Department, and were in nature the same as the Dajokan-satsu. In October, 1871, Okurasho Dakan Shoken (convertible treasury bills) were issued, and in January, 1872, the convertible bills of the Kaitakushi (Colonial Government of Hokkaido) were also issued, the two together amounting to 9,300,000 yen. The aggregate total of the paper notes now reached 64,800,000 yen. The government, seeing the inconvenience of having so many kinds of paper notes in circulation, proceeded to reduce them to one uniform kind by issuing during and after 1875 the so-called "new paper money" in exchange for the four kinds of paper notes above mentioned. This adjustment was completed by the year 1879. However, this new paper money was secretly overissued in order to sup- ply a large deficit in the government revenue, so that before a large additional amount of the same was issued as a means of providing funds for the Satsuma Rebellion there was already being engendered a future trouble regarding the overissue of paper notes. (b) Creation of the taxation system.—- When the Meij i Govern- ment acquired sovereign power, its right of collecting taxes was yet hardly established and its revenue consisted solely of the funds derived from the confiscation of the feudatory fiefs. Although the land tax at that time did not exceed that for only 126 ECONOMIC EFFECTS OF EXPENDITURES one-eighth of the total crop of rice obtained from the fiefs in the whole country, still the old method of tax collection was chiefly followed. This explains why the tax revenue in 1868 or 1869 amounted to only three or four million yen. Though in June, 1869, the Imperial sanction for the restoration of the clan cen- sus to the government was obtained, it was as yet impossible to effect a unification of the taxation system throughout the country. Each clan continued to pursue the old usages in tax collection and to pay one-tenth of its income of rice into the National Treasury. At last, in 1871, the abolition of clans and the establishment of prefectures rendered practicable the adoption of a uniform system of taxation throughout the coun- try. A great reform in the land tax was now resolutely carried out, by which the former standard of taxation based on the amount of rice crop was altered to that based on the value of land, and the method of paying taxes in rice was abolished and replaced by that of paying them in money. An appraisal of land for taxation was made over the whole country, and the establishment of a rate of 3 per cent on the value of land produced an annual revenue of about 50,000,000 yen. In 1875 the sake taxes were reformed and classified into a tax for sake brewing, a license for sake brewing, and a tax on retail sales of sake, yielding the government an annual revenue of some 3,000,000 yen. A further annual revenue of about 4,000,000 yen was also procured in the same year by adjust- ing the sundry taxes on shooting, vehicles, vessels, stamps, patent medicines, and mining. (c) Public loans. — The Meiji Government, besides issuing paper money, as above stated, to make good the deficit in its revenue, raised five public loans, as follows: 1 . Nine per cent foreign loan. — These bonds were issued to the amount of £1,000,000 in London in April, 1870, and the net proceeds, amounting to 4,782,400 yen, were used for the building of railways. 2. Seven per cent foreign loan. — These bonds were issued in London in February, 1872, for the purpose of purchasing the pensions given to the Shizoku (gentry), after the abolition of KKH'X IS ON THE STATE FINANCE 127 feudalism, in order to enable them to procure funds for engag- ing in business pursuits. This loan was to mature in twenty- five years, and its net proceeds amounted to 10,833,600 yen. 3. New and old public loans. — When feudalism was entirely swept away in 1871, all the debts of the former clans were transferred to the state. The 4 per cent new public loan bonds, redeemable in twenty-two years, were allotted to the debts contracted by each clan between 1868 and 1871, and the non-interest-bearing old public loan bonds, redeemable in fifty years, to those contracted between 1844 and 1868; the former amounted to 10,972,725 yen and the latter to 12,422,825 yen. 4. Paper money exchange loan. — These bonds were issued for the purpose of withdrawing various kinds of government paper money temporarily issued at the time of the Restoration, such as the Dajokan-satsu, Mimbusho-satsu, etc., and were exchangeable at par with the new paper money on the demand of the holders. They were redeemable in fifteen years, but the rate of interest was so low that there was little demand for the exchange. The actual issue, therefore, amounted to only 6,669,250 yen. 5. Voluntarily capitalized pension bonds. — These bonds were issued after the abolition of feudalism for granting some relief to the Shizoku (gentry) and Sotsn (common soldiers) who had voluntarily surrendered their pensions, in order to enable them to procure funds for engaging in business pursuits. They bore interest at 8 per cent and were redeemable by drawings for a period of seven years after the lapse of three years, during which they were to remain unpaid. The total amount of these bonds was 16,565,800 yen. We now see that the total issue of these public loans was 63,222,600 yen, and that the net proceeds amounted to 62,241,- 950 yen. These figures are by no means large as compared with the total annual revenue of 350,000,000 yen in the epoch now under review, and it must be remembered that almost all of these loans had been occasioned by the reorganization of national institutions and the adjustment of the state finances, and that they had no direct relations with war and armament [28 ECONOMIC EFFECTS OF EXPENDITURES expenditures. The position of war and armament expendi- tures in the state finance in the early part of the Meiji Era was hut trifling as compared with that in after years. Even the largest of war expenditures, those for the War of the Restora- tion, amounted to only 8,908,000 yen. But in those days, when the national life of Japan was undergoing radical changes and the government was in greatly straitened circumstances, it was inevitable that even for comparatively small war and armament expenditures debts were often contracted through the issue of inconvertible notes. In after years these notes brought about unlooked-for calamities in 1 he national econ< »my, especially in the money market; and though such calamities were indeed unavoidable, it is deplorable that the economic development of this country was thus checked at the very beginning. From the Satsuma Rebellion to the Sino-Japanese War In the seventeen years from 1877 to 1893 the finances of Japan benefited by a process of peaceful adjustment. In this period the national economy was for the first time systemati- cally organized; where it had formerly lacked definite scheme and order, it now received more careful attention and was put on the right track. After 1873, when matters of state finance were for the first time made public, various rules and regula- tions concerning the Annual Account were gradually developed. In 1878 regulations for the auditing of the annual accounts were enacted, and in 1881 the regulations for the receipts and disbursements of money and grain were adjusted and unified by the passage of a new financial law. In 1882 the aforesaid auditing regulations and the financial law were revised and improved, and in 1883 the handling of the National Treasury funds was entrusted to the Bank of Japan. In 1889, with the promulgation of the Constitution, an elaborately revised financial law was issued, and with Japan's becoming a constitu- tional country in that year the mode of keeping the Annual Account was made to follow modern scientific methods. EFFECTS ON THE STATE FINANCE I2C; The financial measures taken by the government during the epoch under review began with the settlement of the expendi- tures for the Satsuma Rebellion. The Satsuma Rebellion was the greatest war after the Res- toration and involved an expenditure of more than 40,000,000 yen. It is natural, therefore, that the finances of the country after the Satsuma Rebellion changed, as shown in the follow- ing table comparing the annual expenditures of 1879 with those of 1876: Annual Expenditures Before and After the Satsuma Rebellion Items Amount expended 1876 Amount expended 1879 Increase or decrease Ordinary expenditures: Redemption of national loans Interest on national loans Yen 1,941,638 3,009,159 827,500 17,629,552 25.771.703 3.709,339 2,081,204 198,261 1,539,615 Yen 5,834.375 15,915.278 1,013,726 584,403 21,686,700 167,658 4,405,676 2,629,566 125,480 1,996,721 845,958 Yen + 3,892,737 + 12,906,119 + 186,226 -17,045,149 - 4,085,003 + 167,658 + 696,337 + 548,362 72,78l + 457,106 + 845,958 Imperial household expenses Annuities and pensions. . . . Various government departments, Colonial Government of Hok- kaido, and other administrative expenses Making good the deficit in the capital of private enterprises (mining, export trade, etc.) Prefectural expenses Police expenses Expenses for shrines Building, repairing, and civil engi- neering expenses in the prefecture Subsidies to the Famine Relief Fund Total 56,707,971 55,205,541 - 1,502,430 Extraordinary expenditures: Industrial enterprises 2,600,986 1,325,696 3.786,343 + 1,325,696 + 1.185,357 Sundry expenditures Total 2,600,986 5.112,039 + 2,511,053 Grand total 59,308,957 60,317,580 + 1,008,623 From the above table we see that the increase in expendi- ture after the Satsuma Rebellion was not very great, and this is of course due to the fact that this war did not cause an im- mediate necessity of expanding the army and navy. Seeing in v ' ECONOMIC EFFECTS OF EXPENDITURES that there was a decrease of some 4,000,000 yen in the expenses for government departments, Colonial Government of Hok- kaido, etc., Ave may also note how the administrative affairs were generally curtailed. The items in which the figures were considerably increased were those concerning national loans. In their redemption there was an increase of about 3,900,000 yen, which was due to the disbursement of 2,200,000 yen for the withdrawal of paper money and of 1,700,000 yen for the redemption of domestic loans. This withdrawal of paper money was made in connection with the notes issued for the war expenditures of the Satsuma Rebellion. The increase of 13,000,000 yen in the interest on national loans was owing to the increase of bonds, such as the Hereditary Pension Bonds and other loans, and the decrease of 17,000,000 yen in the annuities and pensions was a result of their conversion into such pension bonds. As the government finance did not un- dergo any considerable change after the Satsuma Rebellion, it may seem that the war expenditures of the Satsuma Rebellion did not influence it to any great extent. But considering the fact that these expenditures were met by means of paper money and loans, we may reasonably conclude that the Satsuma Re- bellion expenditures did cause heavy burdens in after years; because, though the redemption of paper money had not yet proved to be a serious burden in 1879, it gradually became more and more burdensome as time went on. We shall also see in the following chapter how greatly the money market of this country was affected by the burdens of the paper money and the loans. Turning to the administrative expenditures and to the armament expenditures, it is interesting to observe that the former did not generally increase and the latter did not undergo any noticeable expansion, quite unlike what hap- pened in the later years subsequent to the Sino-Japanese or the Russo-Japanese War. It will be noted that the Imperial Government was so sorely pressed by the need of money to defray its manifold expenses that its finances almost lost elasticity; and however urgent was the increase of administra- tive expenditures and armament expenditures, the govern- EFFECTS ON THE STATE FINANCE 131 ment lacked sufficient power to cope with it. In other words, the reason that there was no post-bellum expansion of finances at the time was because it was impossible and not because it was unnecessary. Under these circumstances the government had first of all to settle a very important question, namely, the adjustment of paper money. Prior to this, it had seen the necessity of unifying the paper currency and had issued new paper money for the purpose; and being anxious to maintain its price, it had established a conversion fund for the notes issued. It was thus able to see its way clear toward the redemption of the paper money issued after the War of the Restoration. But the government, bewildered by the readiness of its circulation, forgot the necessity of redeeming it, and was caught by the erroneous notion that capital and currency were interchange- able terms and that an abundance of paper money was very important to the progress of industries. Such being the condition at the time, during the Satsuma Rebellion the government determinedly carried out the increased issue of inconvertible notes to the amount of 27,000,000 yen, besides borrowing bank notes to the enormous amount of 25,000,000 yen. The amount of government paper money in circulation exceeded 100,000,000 yen before the Satsuma Rebellion, and was increased to 165,000,000 yen at the end of 1878, was 164,000,000 yeti at the end of 1879 and 170,000,000 yen in January, 1880. Unless so large an amount of paper money was by some means redeemed, the government could not, of course, issue any more. In view of this fact, a plan for re- deeming the whole in twenty-eight years was made out in 1878, in which year 7,600,000 yen was first redeemed, and in each of the years 1879 and 1880 2,000,000 yen was redeemed. But being distressed to find financial resources for such redemption, the government revised the tax regulations for sake brewing in 1880, diminished the expenditures allotted to various govern- ment departments, caused the greater part of local expenses to be borne by local taxes, and abolished various government enterprises; and by these means it was at last able to redeem 132 ECONOMIC EFFECTS OF EXPENDITURES 7,000,000 yen in 1881. But such makeshifts and slow meas- ures were quite inadequate for the quick attainment of the object in view. A decisive step was at length taken in Octo- ber, 1 88 1 , when it was determined to redeem at least 7,000,000 yen every year, and a special reserve fund of 55,790,000 yen was created to be utilized for the purpose of accumulating specie. The execution of this plan of adjusting the disordered state of paper money was accompanied by extraordinary difficulties; but by various means, such as by inaugurating a stamp duty on patent medicines, taxes on stock-exchange brokers, or by increasing the taxes on sake and tobacco, and by devoting all the revenue obtained from these sources to the redemption of paper money, and also by introducing extreme economies in the Annual Account, the government at last succeeded in re- deeming 13,640,000 yen of paper money up to the year 1885, and was also able to carry forward 26,460,000 yen into the General Reserve Fund. The amount of specie on hand rose as high as 42,000,000 yen. In January, 1886, the government was able to commence the conversion of paper money into silver coin through the mediation of the Bank of Japan. In July, 1888, regulations governing convertible notes were enacted,, and the object of adjusting paper money was at last attained. What we have been trying to point out is that in the strait- ened financial circumstances at this period every other enter- prise was sacrificed for the sake of attaining the object of adjusting the paper money, and that this great work was principally necessitated and caused by the war expenditures of the Satsuma Rebellion. The reason for this is obvious if we consider the fact that, when the paper money in circulation reached the most enormous amount, as much as one-third of it was the paper money put into circulation on account of the war expenditures for the Satsuma Rebellion. In this way the great financial problem after the Satsuma Rebellion was solved, and then by gradually effecting other financial improvements in various fields until the year 1893, or the year before the outbreak of the Sino- Japanese War, the government was able to make its finances follow the right path.. EFFECTS ON THE STATE FINANCE 133 Let us now try to explain briefly some of these improve- ments in connection with the taxation system and with the national loans. Among the former we may mention the special revision of the land tax, the creation of an income tax, and the enactment of a National Tax Collection Law. The so- called special revision of the land tax means the revision of the land tax regulations and partial revision of land values made in the years 1880, 1885, 1887, and 1889, by which the great question of perfecting the land tax law existing since 1873 was settled. The creation of an income tax in 1887 remedied the defect in the taxation system lying in the inequality of national burdens, as there existed formerly no taxes of importance other than those on land and sake. This income tax was levied on a graduated scale at the rate of from 1 to 3 per cent on persons whose income from property or from earnings exceeded 300 yen. The annual revenue derived therefrom was about 1 ,000,- 000 yen, but it did not exceed 1,230,000 yen in the year 1893. By the aforesaid National Tax Collection Law various former methods of tax collection were unified, and cities, towns, and villages were made the chief tax-collecting organs. With regard to the fiscal improvements made in connection with the national loans, we may mention the issuance of the Consoli- dated Public Loan in and after 1886. To arrive at our ex- planation of this Consolidated Loan, we must enumerate as follows the loans that were existing after the year 1877: 1. Hereditary Pension Bonds. — The government, being convinced of the sluggishness of settling the capitalized pen- sions with the voluntarily capitalized pension bonds, took the decided step of exchanging all at once the hereditary pensions and the pensions for merit for public loan bonds called the Hereditary Pension Bonds. These were issued chiefly in 1878 in four series of 5, 6, 7, and 10 per cent, in conformity with the amount and nature of the pensions, and the total amounted to 174,153,000 yen. 2. Pro-rata Pension Bonds for the "Shinto" Priests. — These were issued for the purpose of granting relief to "Shinto" priests, who, being deprived of their profession in consequence 134 ECONOMIC EFFECTS OF EXPENDITURES of the reforms of the institution of "Shinto, " found themselves without means of livelihood. They were issued in 1879 and amounted to 334,500 yen. 3. Industrial Enterprises Loan. — This loan was raised at home to the amount of 12,000,000 yen with a view to improv- ing the means of transportation and encouraging industries, agriculture, etc., in the whole country. This loan was the forerunner of the industrial loans in this country and the pioneer of the loans raised from the general public. 4. Xakasendo Railway Loan. — As the name indicates, this loan was raised for the purpose of constructing the Nakasendo Railway, and the bonds w r ere issued in three instalments from 1884 to 1885, amounting in all to 20,000,000 yen. 5. Unregistered "Kin-satsu" Exchange Loan. — These bonds were issued as a means for withdrawing paper money and were exchangeable at par with the paper on the demand of the holders. They bore 6 per cent interest and totaled 7,929,900 yen. 6. Navy Loan. — According to the naval expansion scheme of 1883, the government was to spend 26,640,000 yen in all during eight years; but when only 9,900,000 yen had been dis- bursed up to the year 1885, the financial sources for these expenditures ran short, and it was decided to raise this loan for the purpose. They were 5 per cent bonds amounting to 17,000,000 yen and were issued in four instalments. The re- sult of the flotation was successful and the proceeds amounted to more than 17,200,000 yen. This was the only military loan raised in this period, and it was the first time that funds for armament expenditures were obtained by means of public loans. 7. Supplementary Railway Loan. — This was raised in January, 1889, for supplementing expenses for railway con- struction and amounted to 2,000,000 yen. 8. Consolidated Public Loan. — The rate of interest of the foregoing loans was mostly over 6 per cent, which was much above the current market rate of from 3 to 4 per cent. More- oxer, as these loans were not to be redeemed freely and with- EFFECTS ON THE STATE FINANCE 135 out restriction, they considerably hampered our finance; and also as they were registered and not made out "to hearer," they were unfit for the requirements of the times when the utiliza- tion of securities was growing up. Stimulated by its success in settling the question of paper money adjustment, which had been pending since the Satsuma Rebellion, the govern- ment now thought of consolidating these national loans. Therefore, a scheme was formed in 1886 for issuing 5 per cent loans to the amount of 120,000,000 yen, which were called the Consolidated Public Loan. There were three modes of issuing these bonds, viz., the ordinary issue, the extraordinary special issue, and the issue in exchange with other bonds. By the ordinary issue these loans were floated on the home market in five instalments from October, 1886, to July, 1892, to the total amount of 30,204,000 yen. By the extraordinary special issue the conversion of the interna] debts was effected through util- izing a surplus in the Treasury, and the conversion amounted to more than 19,000,000 yen by the year 1897. By the issue in exchange with other bonds was meant the delivery of these Consolidated Public Loan bonds in place of the payment in cash for the redeemed loans, and this kind of bonds reached 112,858,000 yen. In 1893 the exchange of the internal loans with the Consolidated Loans was completed. The object of consolidating the public loans was finally attained by the re- payment in May, 1897, of the fund borrowed on account of the expenditures for the Satsuma Rebellion. In summary we may say that after the year 1886 the result of adjusting public loans was conspicuous, and side by side with the improvements made in the taxation system, as al- ready mentioned, the state finance was gradually put on a sound basis. But this was twenty years after the Restoration, and had it not been for the unfortunate Satsuma Rebellion such an amelioration of the financial condition of the govern- ment would surely have taken place a few years or even a dec- ade earlier. A comparison of the Annual Accounts during seventeen years (1 877-1 893) does not show so considerable an increase annually, both in the revenue and in the expenditure, 1 36 ECONOMIC EFFECTS OF EXPENDITURES is in recent years. The amount of national loans underwent no great increase, rising only from the annual balance of 226,- 800,000 yen at the end of 1877 to that of 234,000,000 yen at the end of 1892. The ratio between the amounts of administra- tive expenses, debt charges, and expenses for military affairs remained almost the same. Though the national progress seemed thus very slow during this period, greater activity set in after the year 1887 in various quarters of administrative affairs, as schemes for many new enterprises gradually came under contemplation. After the establishment of the Imperial Diet, however, there were such frequent collisions between the government and the Diet that the expansion of the Annual Accounts was considerably hindered thereby. From the Sino-Japanese War to the Russo-Japanese War The Sino-Japanese War was an epoch-making event in the history of the Meiji Era, affecting all phases of the national life, not excepting the government finance. A comparison of the Settled Accounts of annual expenditure before and after the war is shown on the following page. As indicated, the Settled Accounts for the year 1897 show an increase of two and a half times in the annual expenditure, ■ is compared with the year 1893. This rate of increase was unprecedentedly great, and the expansion of expenditure may be said to have been of a revolutionary nature. This rapid rate of increase was not limited to the year 1897, DUt continued for a few years thereafter. From the figures given it may be noted that the increase was greater in the extraordi- nary expenditures than in the ordinary expenditures, that the increase was most considerable in the Departments of the Navy, the Army, Communications, and Finance in the extraordinary part, and in the Army Department in the ordinary part ; and also that there was a large increase of about 10,000,000 yen in the debt charges. Such a sudden increase of the expenditures may be attrib- EFFECTS ON THE STATE FINANCE 137 Annual Expenditures Before and After the Sino-Japanese War" Items Amount expended 1893 Amount expended 1897 Increase < )rdinary expenditures: Imperial household expenses . Debt charges Yen 3,000,000 19,455,918 1,454,666 623,982 7,662,106 4,004,684 12,419,829 5,141,475 3,45i,9H 932,562 928,942 5,469,524 Yen 3,000,000 29,504,731 3,661,704 1,445,849 8,262,075 6,006,979 28,746,263 9,543,889 3,543,489 1,985,729 1,364,923 10,629,496 Yen 10,048,813 2,207,038 Department of Foreign Affairs Department of Home Affairs Finance Department War Department . . Navy Department Department of Justice Department of Education Department of Agriculture and Commerce Department of Communications . . 821,867 599,969 2,002,295 16,326,434 4,402,414 91,578 1,053,167 435,98i 5,159,972 Total 64.545,599 107,695,127 43,149,528 Extraordinary expenditures: Department of Foreign Affairs Department of Home Affairs Finance Department . War Department. Navy Department . Department of Justice Department of Education Department of Agriculture and Commerce 19,265 11,465,283 1,185,170 2,301,397 2,959,446 75,56i 135,240 493,177 1,401,734 1 18,460 19,556,088 10,224,769 31,401,725 40,850,645 215,016 629,870 1,514,188 n,475.956 99,195 8,090,805 9.039,599 29,100,328 37,891,199 139,455 491,630 1,021,011 1 Vpartment of Communications 10,074,222 Total 20,036,273 115.983,717 95,947,444 Grand total 84,581,872 223,678,844 139,096,972 "The expenditures of the War and the Navy Departments do not correspond with the figures of the armament expenditures mentioned in Part I of this volume, because the decoration annuities and other rewards do not come under the jurisdiction of these departments. uted to the post-bellum administrative expansion and the increase of national loans caused by the war. The admin- istrative program made out subsequent to the Sino-Japanese War was unparalleled in extent. Besides the enlargement of the army and navy, numerous other schemes were set on foot, such as the establishment of metal-refining works, the construction and improvement of railways, the expansion of telegraphs, telephones, and navigation, the establishment of the Kyoto Imperial University, the Second Higher Normal I38 ECONOMIC EFFECTS OF EXPENDITURES School, the Second Higher Commercial School, the Sixth Higher School, the Higher Industrial School, and the Higher Agricultural and Dendrological School, the founding of the Hypothec Bank of Japan, the Bank of Formosa, and the Hok- kaido Colonization Bank, and various other plans concerning the administration of Formosa, the encouragement of agri- culture, industry and commerce, and river improvements. All these schemes had as their object the completion of the national power and the development of industries, and the expenditure involved in them was enormous. Let us now consider the importance of the armament expenditures in this huge post-bellum program by enumerating the various expenditures required in the new schemes by referring to the budget explanations for the various fiscal years concerned : I. Armament expansion: (a) Army — total of the first, the second, and the supplementary Yen expansions 101,51)1,217 (1 1) Navy — expansions decided upon in 1896 and 1899, the ex- pansion scheme made in 1903 being excepted because most of the expenditures therefor were to be made during and after 1904 211,650,1 16 Total 3i3.24i.333 _'. ( onstruction and enlargement of refineries 19,202,694 3. Construction and improvement of railways 61,469,000 (The so-called First Period Railway Construction Expenditures, amounting in all to 59,92 1,663 y en > were mostly to be de- frayed after the Sino-japanese War, or in 16 years during and after ito 1903.) EFFECTS ON THE STATE FINANCE 139 Yen 12. Aids to the special account of Formosa 50,000,000 (Disbursements from 18 7 to 1 05.) 13. Assigned to the Imperial property 20,000,000 14. Replenishing fund for warships and torpedo boats ] Natural calamity emergency fund j- 50,000,000 Educational work fund J 15. Other works: The chief of these are prison expenses defrayed out of the Na- tional Treasury (annual outlay estimated at not less than 3,000,000 yen), subsidy for water works (about 870 000 yen), etc., the other minor items being the expenses for the estab- lishment of the experimental breeding farm for the improve- ment of oxen, etc. Heavy expenditures were necessarily required for the post- bellum program made out on so large a scale, and it was but natural that the Annual Account was thereby made to expand suddenly. However, the fact must not be overlooked that the rate of increase of armament expenditures was quite dis- proportionate in comparison with other items of expenditure; that is to say, the expenditures for armament expansion rose to 313,000,000 yen, and if we add to this the expenses for the establishment of the iron foundry, the total exceeds 330,000,- 000 yen. This enormous amount was really more than twice the aggregate total of the expenditures of all the other new schemes, including their continuing expenditures, to be dis- bursed annually until 1903. Another thing which must be noticed as an effect of the war and armament expenditures on the Annual Account is the increase of the debt charges after the Sino-Japanese War. The amount of the national loans, which totaled 234,814,000 yen at the end of 1893, suddenly increased after the war and became 382,953,000 yen at the end of 1897, and further increased to 538,962,000 yen at the end of 1903. The cor- responding increases in the debt charges during said decade were from 19,455,000 yen to 29,504,000 yen and to 36,484,000 yen. These increases in the national loans and debt charges were principally caused by the war loans raised on account of the Sino-Japanese War, which amounted to 117,000,000 yen, their annual interest accruing to as much as 6,200,000 yen. We have already seen, in the comparative annual percentages of the debt charges and administrative expendi- 140 ECONOMIC EFFECTS OF EXPENDITURES turcs appended to the Conclusion of Part I of this volume, that the debt charges increased, either absolutely or propor- tionately, during and after 1897; and this may be explained by the fact that, in spite of the considerable increase of the administrative expenditures generally, it was yet below that of the debt charges caused by the increase of the war loans. As the result of such financial expansion after the Sino- Japanese War and the consequent increase of expenditures, it became urgently necessary to increase the annual revenue by all possible means. Moreover, although, generally speak- ing, the above-mentioned armament expansion schemes had their special financial resources, as we have already seen, there were no such special resources available for increasing the ordinary expenditures for armament occasioned by these expansion schemes, so that the resources therefor had to be sought in the increase of the ordinary revenue. We shall now see how the sources of revenue were adjusted in the decade ending with the outbreak of the Russo-Japanese War !)y explaining in brief the increase of national loans, the dis- >osal of the indemnity money, and the increase of taxes during this period. The period beginning with 1893 and ending with 1903 is known as a period of the expansion of national loans. The loans raised in this period were the Public Works Loan, the Hokkaido Railway Loan, the Railway Construction Loan, the Feudal Pensions Consolidation Loan, the Formosan Pub- lic Works Loan, and the first 4 per cent Sterling Loan. I. Public Works Loan and the Hokkaido Railway Loan. — For the purpose of carrying out the post-bellum program for the improvement of the government railways, for the con- struction of railways in Hokkaido, lor the extension of the telephone service, for the establishment of the iron foundry, and for armament expansion, the government had great need of money and undertook to raise 168,000,000 yen by issuing a Public Works Loan and a Hokkaido Railway Loan to that amount. The armament expansion expenditures were origi- nally to be met by the tise of the indemnity money, but as a k EFFECTS ON THE STATE FINANCE I4I part of the indemnity was used for paying the Sino- Japanese War expenditures, it was intended to make good the deficit by issuing the Public Works Loan. However, the issue of this loan was hindered by the post-bellum financial pressure and the economic weakness caused by the lack of harmony in monetary circles, and the government was able to raise the loan only by means of a special issue to the amount of 81,980,000 yen until the year 1905. 2. Railway Construction Loan. — In 1893 it was decided that a loan should be raised to the amount of 60,000,000 yen for obtaining a fund for the construction of railways, and in each of the two years 1893 and 1894 this loan was issued to the amount of 1,000,000 yen. According to the alteration made later in the railway construction plan, it was determined to raise this loan to the total amount of 95,000,000 yen; but owing to the same reason mentioned in the foregoing paragraph with regard to the Public Works Loan, it was possible for the government to effect only a special issue to the amount of 70,000,000 yen until the year 1905. 3. Feudal Pensions Consolidation Loan. — As a final step toward the consolidation of the feudal pensions, this loan was floated to the amount of 282,500 yen. 4. Formosan Public Works Loan. — These bonds were issued with the object of meeting the expenses connected with various undertakings in Formosa, such as the construc- tion of railways, the surveying and reclamation of lands, harbor works, and the building of government offices. This loan was also raised by means of a special issue, and the total reached 34,508,000 yen. 5. First 4 per cent Sterling Loan. — All the aforesaid loans could not be raised to the derived amount, as stated above, and although at first the government could resort to the so-called special issue by temporarily utilizing the indem- nity money and other funds, the time for reimbursing the sums thus advanced was reached in the year 1899, an d it became absolutely necessary to raise new loans to the amount of 100,000,000 yen. At last the government issued 4 per I42 ECONOMIC EFFECTS OF EXPENDITURES cent Sterling Loan Bonds and obtained as proceeds 97,630,- 000 yen, which was apportioned to 78,000,000 yen for the Pub- lic Works Loan, 17,570,000 yen for the Railway Construction Loan, and 2,000,000 yen for the Hokkaido Railway Loan. The national loans thus varied a great deal both in kind and in amount, but owing to the scarcity of domestic funds great difficulties were encountered in floating them. At length the object was attained by raising enormous sums by means of a foreign loan, as above stated, and this was the origin of sustaining the Japanese finances through recourse to foreign capital. It may be said that the reason the post-bellum program was made out on so extensive a scale lay in the fact that the amount of the indemnity obtained as the result of the victory was very large, and in relation to the poor finances of the country at the time constituted a very large amount of ex- traordinary revenue; and this was reflected in an exaggerated manner upon the minds of both the government and the people. Indeed, the receipt of the indemnity was the great- est cause of the financial and economic shaking after the Sino- Japanese War. The indemnity money, totaling 231,500,000 taels, consisted of the following three items: a payment of 200,000,000 taels as indemnity for war expenses, an annual payment of 500,000 taels as indemnity for the temporary occupation of Wei-hai-wei, and a compensation of 30,000,000 taels for the retrocession of the Liaotung Peninsula. In the four years 1 895-1 898 the government received this indemnity to the total amount of £38,082,884 in English money, or 364,070,195 yen in Japanese money. The indemnity and its interest were placed under separate management in a Special Account, the receipts and disbursements of which are shown on the following page. The expenditures needed for the post-bellum schemes after the Sino-Japanese War were thus met by means of pub- lic loans and the indemnity; but as the consequent temporary expansion of revenue led to the expansion of enterprises, it naturally led also to an increase of ordinary expenditures, and EFFECTS ON THE STATE FINANCE 1 43 the government was compelled to seek sources of ordinary rev- enue. Under these circumstances, increase of taxes was twice carried out. The first increase was effected as early as in the year 1896, because in that year the deficit in the Annual Account already amounted to 68,000,000 yen, and even the deficit belonging to the ordinary revenue was not less than 30,000,000 yen. By this increased taxation an additional annual revenue of 33,576,000 yen was obtained by inaugurat- ing a business tax and a registration tax, by enforcing a leaf- tobacco monopoly, by increasing the sake brewing tax, and by effecting a general adjustment of the taxation system, also by transferring all sorts of license fees, which formerly belonged to sundry taxes, to the use of the local governments. Even this, however, was not sufficient to make good the defi- cit in the Annual Account, and as a shortage of revenue became unavoidable for the fiscal year 1899, the government made out a bill for an increased taxation on land and sake. The bill was submitted to the Diet but rejected by it. In 1899 the Diet was dissolved, and in the next session theobject of increasing taxes was at last attained. In this second increase of taxes an additional revenue of 42,020,000 yen was gained by either increasing or introducing the land tax, income tax, sake tax, tonnage dues, registration tax, leaf- tobacco monopoly receipts, dues from the Bank of Japan, soy brewing tax, postal receipts, and tobacco-monopoly receipts. Receipts: Yen Indemnity and interest 364,868,586 Disbursements: Army expansion 56,798,638 Navy expansion I 39» 2 59.387 Establishment of iron foundry 579,762 Assigned to the special account of extraordinary war expenditures 78,957,164 Extraordinary war expenditures, and transport and communica- tion section expenses 3,214,484 Assigned to Imperial property 20,000,000 Formosan administrative expenses 12,000,000 Assigned to the three funds (cf. supra) 50,000,000 Assigned to the Special Account for the Administration of Con- cessions Abroad and to the National Debts Consolidation Fund 4,059,151 Total 364,070,195 144 ECONOMIC EFFFXTS OF EXPENDITURES In short, the increase of taxes at this period was the nat- ural result of the general expansion of the state finances, and the amount of increase reached the annual sum of 75,600,000 yen, which was about half of the total 156,000,000 yen of the tax and stamp receipts and the monopoly profits in the year 1900, or exceeded by 5,000,000 yen the tax receipts of 70,000,- 000 yen in 1893. The national burden thus became heavier and heavier, and the relation between the armament expendi- tures and the increase of taxation may be seen in the fact that the increase of the ordinary expenditures at the time, as com- pared with the year 1893, was 84,000,000 yen, or 130 per cent, /of which 25,520,000 yen, or 33 per cent, was that of the ordi- nary expenditures for armament. n From the Russo-Japanese War to the Present Day In the Russo-Japanese War the disbursements as war expenditures amounted to about 1,860,000,000 yen, and the amount required in the expansion of the army and navy in the ten years following the war was about 1,634,000,000 yen. These two figures added together amount to as much as 3,494,- 000,000 yen, and although the Annual Account of this country is expanding year after year and has amounted in recent years to some 600,000,000 yen, such an enormous amount of expenditures for war and armament must have had a great effect on the country's finance generally. The following figures will show the financial changes by comparing the Settled Accounts of 1903, the year just before the outbreak of the Russo-Japanese War, with those of the year 1908. According to the following table the ordinary expenditures of the year 1908, as compared with those of 1903, underwent an increase of more than 140 per cent, and the extraordinary expenditures an increase of more than 180 per cent. A simi- lar increasing tendency is also to be observed in the annual revenue, as the ordinary revenue increased by 127 per cent, or from 224,180,699 yen in 1903 to 509,862,986 yen in 1908, and the grand total revenue increased by 200 per cent, or EFFECTS ON THE STATE FINANCE 1 45 Annual Expenditures Before and After the Russo-Japanese War a Items Amount expended 1903 Amount expended 1908 Increase Ordinary expenditures: Imperial household Yen 3,000,000 36,484,520 5,688,561 39,355,388 21,530,237 63,703,208 Yen 3,000,000 183,031,308 27,535,6o8 67,665,133 34,347-700 93,666,173 Yen 146,546,788 21,847,047 28,309,745 12,817,463 29,962,965 Army Department Navy Department General administrative and depart- mental expenditures Total 169,761,914 409,245,922 239,484,008 Extraordinary expenditures: Army Department 7,529,174 14,587,620 57,717-423 74,140,048 37,230,748 1 15.744-375 66,610,874 22,643,128 58,026,952 Navy Department Other departments Total 79,834,217 227,115,171 147,280,954 Grand total 249,596,131 636,361,093 386,764,962 a In the expenditures of the Army and the Navy Departments, the annuities and pensions are not included. from 260,220,758 yen to 794,937,260 yen. The unusual expansion of finance after the Russo-Japanese War is con- spicuously shown by the above figures, and as may be seen from the foregoing comparative list of Settled Accounts, the main cause of the expansion lay in the increase of debt charges. This increase, plus the increase of annuities and pensions, accounts for about half of the total increase of the annual expenditures. While the administrative expenditures in- creased by about 70 per cent, the expenses for military affairs increased by about 150 per cent. Now, we may con- clude that the first cause (in the order of importance) of the expansion of the Annual Account after the Russo-Japanese War was the increase of debt charges consequent upon the increase of national loans; the second cause was the expendi- tures required for armament and its expansion after the war; and the third cause was the increase of the general admin- istrative expenditures. The lack of a firm financial basis has been the common I46 ECONOMIC EFFECTS OF EXPENDITURES defect of the country's finance in the last eight years, and this is evidently attributable to the three causes above men- tioned. We may say that, generally speaking, the absolute as well as proportionate increases of war and armament expenditures made the government finance insecure or placed it in an almost precarious condition. To be more explicit in our observation, we think we may distinguish two periods in the country's finance of the last ten years. The first period ends with the year 1908, during which disorder ruled Japanese finance. This condition may have been due to the fact that the post-bellum enter- prises were all rough and unprepared, but this in turn gave proof of the urgent necessity of carrying out the great post-bellum program. In this first period the extraordinary special taxes or war taxes continued to be levied, and public loans on a very large scale were raised, and yet the financial condition was such that the Annual Account could not get rid of deficits. The second period began with (he year 1909, and in this period all the energy was used toward putting an vm\ to the war-time finance. Consequently, the basis of the Annual Account gradually gained firmness, and rays of hope were perceived beyond. In other words, the first period was of a positive nature and the second of a negative nature, and both were subject to the conditions brought about by the direct influence of war and armament expenditures. How- iever, we may say that beginning with the years 1912 and 1913, the Japanese finances began to be restored to the normal state, and the first stage of the post-bellum financial adjust- ment seemed to have been passed. It is now necessary for us to see what important position the expenses for military affairs occupied as against the various other expenditures required for post-bellum adminis- tration. The first of the great works in the post-bellum pro- gram was the nationalization of the railways. From the early days of the Meiji Era it was the policy of the government to put all the railways under the government's own control and management; but for financial reasons this policy had EFFECTS ON THE STATE FINANCE 1 47 not been carried into effect, though the plan therefor was several times contemplated. However, the experiences ob- tained during the Russo-Japanese War in the transporta- tion of troops and munitions, and the irregular conditions in the working of the various private railways, taught the govern- ment that it was now of paramount importance -to carry out the nationalization of private railways as the first step in the post-bellum program. Thus, railway nationalization was decided upon during the war, and though it was generally believed that the financial resources for carrying it out might be sought in a war indemnity, unfortunately the war did not bring even a penny of indemnity. But as the necessity for nationalizing the railways never diminished on that account, it was decided to carry it out by means of public loans. This was indeed the first step tow r ard leading the post-bellum finance to ruin. In one year (October, 1906-Septembern 1907) the railways of seventeen private companies, the extent of which was 2,822 miles, were purchased by the government. The purchase price amounted to 481,981,000 yen, for which purpose the Railway Nationalization Loans were raised to the amount of 476,310,000 yen. Side by side with the nation- alization of railways, the government formed a great plan for the construction and improvement of railways, and for the financial management a special account was established by which it was intended to accumulate its own profits in order gradually to complete the railway network all over the country. It was also intended that by reason of the burden of this special account ordinary loans and public loans should be raised according to necessity without interfering with the General Account. However, the actual state of things proved to be such that during and after 1909 funds between 20,000,000 yen and 50,000,000 yen were annually borrowed from the deposit section of the Department of Finance. This fact revealed the straitened circumstances of the Special Account of the Nationalized Railways, and also brought about bad results in financial and economic circles. The second important problem in the post-bellum program was I48 ECONOMIC EFFECTS OF EXPENDITURES the administration of the newly acquired territories — Man- churia, Korea, and Saghalien. The government, which had already disbursed enormous amounts in the management of these places even during the war, was obliged to disburse 85,800*000 yen in all during and after 1907 until 1913, that is to say, 60,000,000 yen in the form of advances to the Ko- rean Government, Korean Residency-General Expenditures, and supplements to the general expenditures of the Korean Government, 21,800,000 yen for supplements to the general expenditures of the Kwantung Government, and 3,500,000 yen for supplements to the Saghalien administrative expendi- tures. Thus, the increase in the number of colonies added a great burden to the finances of the government. In the third place, the government established a great scheme of riparian works and made a plan for disbursing a total of 193,000,000 yen in the eighteen years beginning with 191 1. Besides the expenditures for the three great works enumerated above, there were innumerable other items of expenditure belonging to various departments of the government that may be recognized as expenditures for post-bellum undertak- ings. However, the expenditures belonging properly to the new post-bellum schemes may be said to have been 131,401,- 000 yen, or the total post-bellum continuing expenditures run- ning until the year 1913, and the aforesaid expenditures for the nationalization of railways. Turning to the post-bellum program for military affairs generally, we find that, as narrated in Chapter V of Part I, there were plans for the creation of -i.\ new divisions of the army and the adoption of the two- year system for foot soldiers in the army, and for the mainte- nance of the 500,000 ton system in the navy. The expendi- 1 11 res required for these plans were 169,000,000 yen in the army and 334,000,000 yen in the navy, the actual amounts dis- tanced until the year 1913 having reached 127,000,000 yen in the army and 332,000,000 yen in the navy. Putting aside the railway nationalization expenditures, the whole of which remained as capital stock, we may now say that the expenditures for military affairs were three and a half EFFECTS ON THE STATE FINANi I 1 49 times all the other expenditures. If we add to these the 130,000,000 yen disbursed during and after 1907 out of the General Account on account of the Russo-Japanese War expenditures the said ratio will increase to four and a half times. It is needless to specify how greatly the expenditures for military affairs contributed to the ex- treme expansion and precarious condition of the post-bellum finances of the country. The general tendency of expanding the post-bellum Annual Accounts is as stated above; and let us now see by what methods the financial resources therefor were obtained. The national loans, which amounted to 538,000,000 yen at the end of 1903, rose to the highest amount of 2,650,000,000 yen at the end of 1910. Meanwhile, the annual interest! increased correspondingly from 25,700,000 yen to 119,500,- 000 yen. These great financial burdens were all caused by the war loans raised to meet the Russo-Japanese War expenditures and by the public loans issued for railway nationalization. The government, recognizing the urgency of establishing a sound policy regarding national loans, opened a special account called the National Debts Consoli- dation Fund, and by utilizing for it an annual disbursement of 110,000,000 yen from the General Account opened the way for consolidating the national loans at the first opportunity. But the majority of the suddenly increased national loans were superabundant in the market and their value showed a depreciating tendency day by day. The 5 per cent loans, for instance, which were quoted at 96.50 yen in February, 1906, went down to 79.00 yen in March, 1907. The govern- ment endeavored to devise methods for maintaining their prices, and as a means to that end it abolished the Stock Exchange Tax on national loan transactions, exempted national loans from registration taxes, allowed the payment of revenue dues in national loan bonds and interest coupons, and exempted from income tax the interest accruing from national loan bonds. But the object of keeping up the prices of national loans could not be attained. At last, in 1908, 150 ECONOMIC EFFECTS OF EXPENDITURES radical measures for consolidating the national loans were undertaken by the Katsura Cabinet, and for that purpose the curtailment of the General Account and the postponement of various prearranged undertakings were effected. Thus, an annual redemption of national loans to the amount of 50,000,000 yen was fixed upon, by which the credit of the national loans was to a certain extent restored, and the gov- ernment then proceeded to consolidate the high-interest loans. Prior to this there were already the 6 per cent Ster- ling Bonds floated to the amount of £25,000,000 in November, 1905, for the purpose of redeeming the fourth and the fifth Exchequer Bonds, and the 5 per cent Sterling Bonds issued to the amount of £23,000,000 in March, 1907, for the purpose of converting the first and the second 6 per cent Sterling Bonds. There were still remaining some 590,000,000 yen of domestic and foreign loans bearing interest in excess of 5 per cent, and the consolidation of these high-interest loans was the work of the Katsura Cabinet. Consequently, in Febru- ary and March of 1910, 4 per cent domestic loans amounting to 100,000,000 yen were issued in each of the two months, and in May of the same year French loans were also issued to the amount of 450,000,000 francs and English loans to the amount of £11,000,000. At the same time there was also effected a special issue of 4 per cent domestic loans to the amount of 77,000,000 yen. In this way the redemption was effected of the 5 per cent loans, such as the Navy Loans, the Consolidated Public Loans, the Second Exchequer Bonds, the Railway Nationalization Bonds, and the Extraordinary Military Expenditures Loans. The aggregate amount of national loans was thus to a certain extent reduced, that is, to 2,493,900,000 yen at the end of 1912, the annual interest having also come down to 114,870,000 yen. The national loans consolidation work was thus far accomplished. It re- mains to be seen, however, whether or not such an enormous amount of national loans was too great a burden on the national economy; and in particular it must be noted that the burden of the national loans caused by the Russo-Japanese EFFECTS ON THE STATE FINANCE I5I War has remained until this clay almost without decrease in amount. We have already seen in Chapter V of Part I of this volume that extraordinary special taxes were inaugurated to meet the expenditures for the Russo-Japanese War. In spite of the fact that these extraordinary special taxes were meant to be levied only for a certain limited time, the post- bellum financial requirements necessitated their continuance, and inequality and excess of burden were the inevitable results. Such a state of affairs could not be allowed to con- tinue, so that during and after 1910 a partial revision of the taxation system was effected, viz., an 0.8 per cent decrease was effected in the land tax; the mode of assessment and the rates of business taxes were revised ; the inheritance taxes were lowered; the mode of assessment was revised in the sake tax and sugar excise ; and a decrease was effected in the excise on textiles and salt-monopoly prices. These revisions of the taxation system brought about an annual decrease of revenue amounting to 15,000,000 yen. But these innovations in the taxation system merely resulted in the removal of two or three conspicuous defects in taxes, and a sufficient recti- fication in the fundamental lines of taxation was never made. The receipts from taxation, which amounted to 146,000,000 yen in 1903, rose to nearly twice that amount, or 283,000,000 ' yen, in 1906, and thus the aforesaid small revisions introduced in the taxation system had not produced any noteworthy effect. In 191 3 the revenue from taxes further came to 336,000,000 yen, and the profits of the government monopolies ) aggregated 65,000,000 yen. We do not know when we shall be able to see the alleviation of this burden of taxes, but at any rate the radical adjustment of these heavy taxes is a long-pending question with both the government and the public. In summary it may be said that the finances of Japan in recent years have been suffering from the scarcity of financial resources, notwithstanding the extraordinary expansion of the Annual Account, and that great financial difficulties 152 ECONOMIC EFFECTS OF EXPENDITURE were caused by the increase of debts. It is quite clear that all this was principally due to the Russo-Japanese War and the post-bellum military expansion. Owing to the insuf- ficiency of funds, the expenditures for general administrative affairs have always been curtailed, and while this tendency was made so great by the positive policy pursued in the three years after the war, the negative policy adopted in the five years thereafter could barely rescue the finances from ruin. CHAPTER III EFFECTS ON THE MONEY MARKET With regard to the effects of the war and armament expendi- tures on the money market, we regret that we shall be able to make no exact statistical investigation, but only to draw con- clusions based on mere inference. This is partly due to the fact that we can not in this case make any distinction between the disbursements for war and armament purposes and those for general administrative purposes and debt charges, and partly to the fact that, even where similar amounts of money were disbursed, their effects on the money market differed according to the manner in which the disbursements were made and according to the condition of the money market at the time. As regards the comparative study of the war and armament expenditures and those of other administra- tive expenditures, we have already discussed it in consid- erable detail in Part I of this volume, and that must form the premise of our discussion in this chapter. We shall now give here by way of introduction a brief outline of the development of the money market of this country. The history of the Japanese money market since the time of the Restoration is commonly divided into three periods. The first period extends from the first year of Meiji (1868) to 1877. This was the period in which the monetary organs were created and the system of the utilization of capital was established. Though in this period many new institutions were started to take the place of the old feudal systems, there was no time to exercise calm and careful discretion in the adoption of these new departures. As society was thrown open to the agricul- tural, industrial and mercantile classes, who lost their former privileges and mingled with the Shizoku or former Samurai (military class), who in turn were compelled to procure new means of livelihood, a chaotic condition came to prevail in the 153 154 ECONOMIC EFFECTS OF EXPENDITURES economic world. Though we call it a period of the establish- ment of the utilization of capital, it was in reality a period in which no regular order of things was yet constituted. What is called the second period in the history of the money market of the Meiji Era begins with the Satsuma Rebellion in 1877 and ends with the year 1886, in which the convertible sys- tem of government paper money was finally established, and it may be called the period of reforming the monetary organs and of developing the system of capital investment. The monetary organs created in the first period were a mixture of the old and the new ages. They were of such crude and in- ferior nature that no healthy progress was expected of them, and the hard times of the Satsuma Rebellion revealed the necessity of their radical reform. As for the system of capital investment, indications of the development of which were ob- servable in the first period, it gradually commenced to pro- gress with the adjustment of paper money. The formation of a national economy, in its modern sense, was at last accom- plished toward the close of this period, and the correlation of the monetary circles all over the country could at last be seen. The third period is the period from the year 1886 to the present day. It may be styled the period of the active work- ing of the monetary organs and the smooth working of the system of capital investment. In this period we recognize for the first time the proper development of the money market in conformity with the national economy, and the existence of the monetary organs to cope with it. In the last few years of this period we also note the international intercourse of our monetary circles. The development of monetary organs and of a money mar- ket in this country is as roughly stated above, and the effects of the war and armament expenditures on the money market are differently characterized according to the said different periods of the history of the money market. We may say that the effects in the first period were confusion with lack of con- nection between them, the only question being to what extent the establishment and creation of the monetary organs and EFFECTS ON THE MONEY MARKET 1 55 money market were made difficult. The same state of affairs also prevailed in the second period. In the third period only are we able to discuss in what manner the already formed na- tional money market could meet the requirements of war and armament expenditures. In this chapter, however, the above- mentioned different periods are not followed, but for conven- ience of reference the epochs as classified in Part I of this vol- ume are pursued instead. From the Restoration War to the Satsuma Rebellion Disorder of Currency System and Issuance of New Paper Notes The Tokugawa Government met its expenditures by a financial system peculiar to the feudal age, but, owing to grow- ing financial distress at the time of its downfall, it frequently resorted to recoinage as its invariable relief measure, and in every case, excepting the solitary case of the Kioho Era (1715- 1734), it brought out coins of lighter weight and lower quality. Thus, the coinage system, though nominally kept intact, was practically destroyed in the end through continual debasement. Besides, some of the Daimios (feudal princes) often took the liberty of secretly coining money, while the practice of issuing paper money for circulation within their separate jurisdictions became well-nigh universal. In a word, the currency system of the country at the end of the Shogunate period was in a most disordered condition. On entering Yedo (now Tokyo) the Imperialist forces cap- tured the feudal mints, seized the coins, and grasped the power of coinage. But they could introduce no improvements, hav- ing only followed the old coinage system, and, as they even issued inferior coins, the disordered condition of the currency system was made still greater. The outflow of specie, which had been great since the Ansei Era (1 854-1 859), became more and more conspicuous, and the depreciation of the currency reached its extreme. In 1870 the Imperial Government drew up a plan for reorganizing the existing coinage system on a sound basis, and by issuing new coins in 1871 on the gold I56 ECONOMIC EFFECTS OF EXPENDITURES standard it endeavored to accomplish in a single effort the great work of unifying the coinage system. The gold stand- ard was of course adopted in accordance with the examples of the other countries, but the issuing of new coins could not be carried out as the government wished because of the enormous amount of the government paper money and the old currency that was already in circulation. The adoption of the gold standard remained almost a mere plan, therefore, and could not produce the desired effect. Moreover, the new coinage system was defective in that the coins of legal tender were to be driven out of the country by the subsidiary coins, owing to fluctuations of the ratio of value between gold and silver. The silver trade dollar (Boyeki ichi yen gin), which was current at the time, drove the legal tender gold coins out of the country. But the government did not have the penetration to discern the truth of the situation, and thinking that the Mexican dollars could be driven out by increasing the weight of the trade dollar, it ventured to increase the weight of the trade dollar in 1875. The government was ignorant of the fact that by doing so the rampancy of the Mexican dollars was still more increased. It could not be helped that the government at that time often committed blunders of this sort. The gov- ernment's scheme of improving the coinage system having thus failed, in November, 1878, the gold standard was given up and a gold and silver bimetallic system was adopted. In practice, however, as there was no circulation of gold coins, it may be said that Japan had adopted from this time on a silver monometallic system. Though the work undertaken by the Meiji Government for the reorganization of the coinage system ended in a fiasco, yet it can not be denied that by these efforts the standard unit of value was fixed and a certain progress was made in the unifica- tion of the coinage system. What formed, then, an important question of the monetary system, in contradistinction to the unification of the coinage system, was the issuance of inconvertible paper money. As narrated previously, the financial resources for the expenses EFFECTS ON THE MONEY MARKET 1 57 of the War of the Restoration were sought chiefly in the issue of inconvertible paper money, and it must thus follow that the most important economic effects, or especially the effects of the expenses for military affairs of the War of the Restoration upon the money market, were produced through the channels of the inconvertible paper money. The issuance of paper money by the Meiji Government began with the Dajokan- satsu (or the notes of Dajokan) of the 19th of the intercalary month of April, 1868. The principal object of the issuance was to provide for the expenses for military affairs for the War of the Restoration, and the old methods of issuing the Han (clan) notes were pursued. The government had to make a loan of these notes to the Han governments, at their request, the amount being proportioned to the revenue of each Han, at the rate of 10,000 no (old yen) for each 10,000 koku of rice. The liquidation of these loans was to be made by yearly instal- ments, in the same paper money, 10 per cent of the loans being payable at the close of each year. While the object of issuing these notes was proclaimed to be that of supplying capital for the development of industry, as shown in the wording of the Imperial Ordinance concerned, viz., "in order to lay the foun- dations for the wealth of the country," and "as an emergency measure for the relief of universal distress among the people," it is not to be denied that another very urgent object was that of obtaining war funds. The Dajokan-satsu issued in such a manner and with such an object amounted to 48,000,000 rio during the period from April, 1868, to November, 1869. In 1869 another Imperial Ordinance appeared in regard to the issuing of the Mimbusho-satsu, or the notes issued by the Home Department. The end sought was to relieve the cur- rent distress due to the lack of small currency. Hence, these notes of the Home Department were to be all of smaller de- nominations and to be issued in exchange for the Dajokan- satsu of denominations above one rio. Yet the annual deficit of revenue continued to be so great that the government most unfortunately did not keep its promise of canceling the ex- changed notes, which were again placed in circulation. The I58 ECONOMIC EFFECTS OF EXPENDITURES result was that the Mimbusho-satsu of 7,500,000 rio was put on the market in the term from September, 1869, to October, 1870. It was now evident that the paper money issued in such a great amount could not maintain its own credit. The sphere of the paper money circulation was very limited at the time, and the independent state of each of the three principal prefectures — Tokyo, Kyoto, and Osaka — added further to the overflow of paper money. The extreme loss of credit of paper notes was due partly to the lack of confidence in the Imperial Government itself, but also to the fact that the people could not free their minds of the sad experience of the losses they had incurred on account of the inconvertible notes issued by the various clan governments. It was thus unavoidable that the value of papei money in 1868 could not rise above 70 per cent of the value of the Mexican dollars. Therefore, the gov- ernment, being confronted with great difficulty in maintaining the value of paper money, resorted to every makeshift for the purpose. For instance, the government prohibited the quot- ing of the value of paper money and arrested and then released the offenders; established a standard quotation at the ratio of 120 rio of paper money to 100 rio of specie; announced that the time of converting paper money into specie was at no dis- tant date, or, again, made clear that such conversion could not easily be realized. After various attempts to secure credit, in which expostulations and threats were used alternately, the government saw the impossibility of keeping the price of paper and of specie on a par. In the summer of the year 1869, how- ever, the value of inconvertible notes suddenly rose, so that they came to circulate at par with specie; but this was quite accidental because of the lact that the appearance of bad coins, which the various clans took the liberty of issuing at the time of the War of the Restoration, together with the worthless plated coins, resulted in the complete disappearance of the coins of proper quality. When in this way all the coins be- came bad and lost national credit entirely, the government began to withdraw specie as a preparatory step to the unifica- tion of the coinage system; and the result was that the credit EFFECTS ON THE MONEY MARKET 1 59 of paper money suddenly increased, because it became better than counterfeited hard money or coins of the worst kind. Although the disordered state of the coinage system was of course a problem that should have been solved in the early days of the Meiji Era, no efforts to that end were of any avail because there was no adequate power for it on the part of the government. This must be regarded as one obstacle to the development of our monetary system. The inconvertible notes were issued solely because of the requirements created by the War of the Restoration. The advisability or inadvisability of the issue can not be discussed easily and simply; but in this connection we must always consider the two important facts, viz., that the Restoration was a great turning-point in the his- tory of Japan, and that no other means were available than to resort to the issue of inconvertible notes for raising the funds needed for that war. Though, as already mentioned, the issuing of inconvertible notes once caused a great rise in the price of commodities and increased the disordered condition of the coinage system, with many disastrous results, it may be said that the evils of the inconvertible notes issued for the needs of the War of the Restoration were comparatively limited, because the value of the notes was restored to a normal state within a comparatively short period. It was also fortu- nate that by the issue of paper money the people and the gov- ernment were brought into closer touch, as the people, long accustomed to the feudal system, came to understand what the Imperial Government could do and learned something about the value and use of creditable paper money. Thus, there were good results in this direction. Much more fortu- nate was the case when, a few years thereafter, the random issue of paper money was stopped and that money came to circulate freely at par with specie. Therefore, while on one hand we see the evil effects of the paper money issued on ac- count of the War of the Restoration, on the other hand we must consider that such evils were inevitable and be some- what lenient in our criticism of the government's policy at the time. We must likewise bear in mind that the economic dis- 160 ECONOMIC EFFECTS OF EXPENDITURES asters connected with the issue of inconvertible notes after the Satsuma Rebellion were brought about chiefly by the paper money issued at random to meet the expenditures of that war. We do not say that the bad effects of the paper money issued at the time of the War of the Restoration did not last until after the Satsuma Rebellion; but we mean to say that, if there had been no irregular issue of paper money at the time of the Satsuma Rebellion, it might have been possible to prevent the occurrence of a calamity. The government, which experienced great difficulty in cir- culating the so-called ktnsatsu, or the Dajokan and the Mim- busho notes, was again obliged to issue paper money under straitened circumstances which now reached an extreme. Thus, on October 12, 1871, an Imperial Ordinance appeared relating to the convertible treasury bills (Okurasho Dakan Shoken), which were issued through the banking department of Mitsui & Co. The object of issuing these bills was twofold : first, to make up a yearly deficit of revenue; secondly, to call forth hoarded old coins in order to have them recoined into new coins. The amount of these bills issued up to February, 1872, rose to 6,800,000 yen. Again, on January 14, 1872, an- other Imperial Ordinance appeared in regard to the issuing of Kaitakushi bills for the purpose of defraying the expenses of the Colonial Government of Hokkaido. These were also issued through the banking department of Mitsui & Co., and the amount issued reached 2,500,000 yen. All the convertible and inconvertible paper notes issued up to this time showed very inferior workmanship, so that several attempts had been made to counterfeit them. The govern- ment therefore detei mined to exchange all these notes for paper money of more skilful workmanship, and entrusted the manufacture of the new paper money, amounting to 100,000,- 000 yen, to a certain manufacturing firm established in Frank- furt, Germany. On December 27, 1871, an Imperial Ordi- nance was issued relating to the circulation of this new paper money, which was of excellent workmanship and welcomed by the people. The government now earnestly adopted the EFFECTS ON TIIK MONEY MARKET l6l policy of circulating this new paper money and of with- drawing the old paper notes in exchange for it. If the issuing of the new paper money had been limited to the purpose of exchange, it would have been all right; but as the government, in order to gloss over for a time the straitened circumstances of its finance, issued this new paper money beyond this limit, injurious effects resulted therefrom. Here the progress of the national economy was sacrificed for the financial convenience of the government. The amount of the new paper money issued in excess was not small, and one such issue was openly made on a large scale to meet the war expenditures of the Satsuma Rebellion. Besides, as the government took over the old Han notes of the feudal days, it contracted a liability of 24,959,350 yen and for the purpose of conversion issued new paper money to the amount of 22,908,430 yen. Table A at the end of this chapter l shows the amounts of paper money in circulation at the end of each year from 1868. Inauguration of the Banking System When the work of the Meiji Restoration was accomplished, the sweeping change that was effected in the national institu- tions caused a chaotic condition in every branch of society. How to make relief measures for this was the question that most worried the government authorities. In financial affairs the government early adopted the policy of protection, established the Shohoshi (Business Bureau), later renamed Tsushoshi (Commercial Bureau), which guided business enterprises, and created a Money Exchange Company in order to supply capital to the trade generally. The exchange company was a monetary organ established under the gov- ernment's protection and enjoyed the privileges of issuing paper money, receiving deposits, making loans, and trans- acting exchange business, and was the origin of the banking system of Japan. Though this company was no more than a medium for utilizing the funds borrowed from the govern- ment, and its business finally ended in failure, we can not but 1 Post, p. 213. 12 1 62 ECONOMIC EFFECTS OF EXPENDITURES recognize the distinguished services rendered by it in the midst of the extremely disordered state of the monetary cir- cles at a time when there was no way of accommodating capital to trade. The creation of the Money Exchange Company was the germ of the monetary organ in its developed sense, and it contributed in a certain degree to the adjustment of monetary affairs generally. It was established in each of the eight principal cities in the country, and though its busi- ness failed in the end, it can not be denied that it gave a stimulus to the rise of the monetary organs in the country, as people then began to plan the establishment of banks. But the government would not allow the people to carry out such plans easily, because it was just then contemplating the inauguration of a banking system by which to solve the urgent question of the adjustment of inconvertible notes. In 1872 there were promulgated the National Bank Regula- tions, which were based mainly upon the National Bank Act of the United States of America, and all the banks were made to abide by these regulations. In this way it was expected that proper monetary organs would be created and that the adjustment of inconvertible notes would be effected. Accord- ing to the said National Bank Regulations the banks were required to deposit with the government paper money cor- responding to 60 per cent of their capital, which was to be not less than 50,000 yen, and the government in turn was to give to the banks 6 per cent Kinsatsu Exchange Bonds, whereupon the banks again deposited these bonds with the government as security for the bank notes to be received from the government. In this way the banks were enabled to make loans to the public out of the fund consisting of the bank notes delivered by the government. The banks were liable to convert these bank notes into specie, and so were to hold a specie reserve for the purpose to an amount equaling 40 per cent of their capital. By enforcing these regulations the government aimed at a speedy conclusion of the adjust- ment of inconvertible notes and expected the successful cir- culation of the convertible bank notes, and in order to pre- EFFECTS ON THE MONEY MARKET 1 63 pare for this it manufactured bank notes to the amount of 100,000,000 yen. But at that time there was a large amount of government paper money in circulation, the value of which was depreciating a great deal, and as there was consequently a great outflow of specie abroad, the bank notes convertible with specie were continuously returning to the banks after being issued for circulation. Such being the case, the banks had no means of making profit, and only four banks were established under these regulations, so that the government was disappointed. Neither the Kinsatsu Exchange Bonds nor the convertible bank notes were issued in any great amount, and the business of the national banks became more and more difficult. The government now decided to give to the national banks the privilege of issuing bank notes exchangeable for currency and made liberal conditions for such issue. Another reason for making such a revision in the regulations was that, owing to the issue of government loan bonds amounting to 174,000,000 yen for the capitaliza- tion of the Hereditary Pension Bonds, it was necessary to devise methods to expedite their operation and to prevent a decline in the value of public loan bonds; and by facilitat- ing the issue of bank notes in making them issuable on the security of government loan bonds it was hoped to increase the demand for the loan bonds. The object of this revision was successfully attained, as in December, 1879, the number of established banks reached one hundred fifty-one, with an aggregate capital of 46,000,000 yen. The bank notes issued by them amounted to as much as 34,000,000 yen, and the bank business other than the issuing of bank notes also began to develop. In summary we may say that the historical development of monetary organs in the Meiji Era was always closely bound up with the adjustment of inconvertible notes, and that its progress was always made difficult by all sorts of failures. In this connection we are also reminded of how lasting were the effects of the inconvertible notes issued on account of the expenditures for the War of the Restoration. 164 ECONOMIC EFFECTS OF EXPENDITURES Though the failure in the National Bank system made diffi- cult the work of paper money adjustment, yet the birth of the new system gave opportunity for the progress of the bank- ing business, and we must recognize that it formed a guide to the development of the necessary organs of the national economy in a real sense. From the Satsuma Rebellion to the Sino-Japanese War Defrayal of War Expenditures arid Increase of Inconvertible Notes In Chapter III of Part I of this volume we saw that the expenditures for the Satsuma Rebellion were met by 15,000,- 000 yen loaned by the Fifteenth Bank and by the increased issue of 27,000,000 yen of government inconvertible notes. This fund borrowed from the Fifteenth Bank consisted of National Bank Notes, which were in nature inconvertible, because, as stated already, they were only convertible with the inconvertible government paper money. As this loan bore interest at 5 per cent and was redeemable in twenty years, it was more disadvantageous for the government than the issuing of inconvertible notes; but the reasons for the con- traction of this loan, in spite of these unfavorable conditions, were, first, that there was need of employing the spare money of the Fifteenth Bank, which was established with the capital composed of public loan bonds, by way of putting into use the capitalized pension bonds issued by the government at the time; and, second, that the manufacture of paper money by the government could not satisfy the immediate require- ments of the time. In the preceding section and in Table A at the end of this chapter ' we have noted the increasing rate of the amounts of circulation of government paper money and bank notes. Table B, immediately following Table A, 2 will show how the rate of increase was accelerated by the addition of the- 1 See post, p. 213. 2 Post, p. 214. EFFECTS ON THE MONEY MARKET 1 65 paper currency used in the expenditures of the Satsuma Rebellion. We see from these figures that the highest amount of government paper money was reached at the end of 1878 and the highest amount of bank notes at the end of 1880. The total sum of the government paper money and the bank notes reached its maximum at the end of 1878. Referring, how- ever, to the monthly statistics of the amounts in circulation of these two kinds of paper currency for these years, we find that their highest figures were reached at the end of January, 1880. Considering now the relation between the increase of paper money and the expenditures for the Satsuma Rebel- lion, we see that the only increase of the government paper money in that connection was the 27,000,000 yen of Febru- ary, 1878, and that the increase of the bank notes was 15,000,- 000 yen during the term February, 1877-July, 1878, the latter amount corresponding to the amount of bank notes borrowed in thirteen instalments from the Fifteenth Bank during the same term. We may conclude, therefore, that the increase of inconvertible notes and bank notes during the term 1877-January, 1880, was due solely to the needs of the expenditures for the Satsuma Rebellion. We must also say that the effect of the overflow of inconvertible notes on the money market was due almost entirely to the expenditures for the Satsuma Rebellion. If the inconvertible notes issued after the Restoration had not been remaining at that time the injurious effect of the inconvertible notes issued largely on account of the Satsuma Rebellion would not, of course, have been so great as it was. But it was due to this increased issue of inconvertible notes at the time of the Satsuma Rebel- lion that the evils of the inconvertible notes were again brought to light. Depreciation of Paper Money and its Effects The increased issue of paper money resulted in a deprecia- tion of the value of paper money and in a rise in the price of commodities, and produced without exception the economic 1 66 ECONOMIC EFFECTS OF EXPENDITURES evils that invariably result from the inflation of paper money. If the paper money, however overissued, had been convertible and had had the quality of elasticity, it would have naturally decreased in amount and would not have caused such disas- trous effects ; but as it was inconvertible and lacked elasticity, the effects were detrimental. For a long time after the failure of the new coinage system in this country, the coins actually used in international transactions were trade dollars and Mexican dollars. Before the year 1877 the difference of value between these silver dollars and the paper money was very small, the value of the latter only ranging from 0.95 yen to 1.05 yen against one silver yen, according to the conditions of foreign trade; but with the overissue of paper money the difference became more and more conspicuous, and was followed by a rise in the price of commodities, an excess of imports over exports, and an outflow of specie abroad. The following table, giving the average exchange rates of paper money for silver yen and the quotations of silver bullion in London shows that the depreciation of paper was not due to the appreciation of silver but to the overissue of paper money: 1 Exchange Rates of Paper Money and Quotations of Silver Bullion Year Exchange rate of paper money for one silver yen Quotation of silver bullion in London 54 13/16 52 9/16 51 i/4 52 1/4 51 15/16 51 13/16 1877 1878 1879 1880 1881 1882 The premium in the exchange of paper with silver reached as much as about 70 sen per yen in the year 1881. The effects of the fall in value of the paper money were also manifested 1 The exchange rate of paper for silver is the yearly average of the monthly rates, and the silver quotation in London is the average of the highest and lowest quota- tions in the year. EFFKCTS ON THE MONEY MARKET 167 in the purchasing power of the paper money, as shown in the following table of the prices of rice, the most important staple product of the country: Wholesale Prick and Production of Unhusked Rice (1877-1882) :i Wholesale price >f unhusked rice Annual production of rice Index number for prices of commodities Year specially reported bv Price per Index \ alue in Index Amount Index the Bank koku 1 ' number silver number number of Japan Yen Yen Koku 1877. 5 34 100 5-17 100 26,599,181 100 99 1878. 6.38 I IQ S-8I 1 12 25,282,540 95 106 1879 7- 95 I 4 8 6.56 154 32,418,924 120 119 1880. IO.S7 196 7. 16 138 31.359,326 117 143 1881 . 10.59 197 6.25 120 29,971,383 113 163 1882 8.81 164 561 108 30,692,327 US 146 » The price of rice is the average of that in Tokyo of the middle grade quality. For the index number of the prices of commodities reported by the Bank of Japan, cf. Chapter V. '' Koku = s.i3 bushels. In spite of the fact that there was not much decrease in the production of rice in the years 1879, 1880, and 1881, we see that its prices were considerably increased, thus proving that the purchasing power of paper money was decreased. This will be more clearly understood if we compare the prices in paper money with those reduced to silver valuation. Thus, the changes in the prices of rice most clearly exhibit this state of things, but the prices of other commodities at the time point to the same general tendency, as shown by the index numbers of the prices of commodities as reported by the Bank of Japan. The depreciation of currency and the appreciation of prices were as stated above, and these bad conditions, which were continuing from the time of the Restoration, were made much worse by the effects of the inconvertible notes issued at the time of the Satsuma Rebellion. An abnormal state in eco- nomic circles ensued. From the year 1877 an excess of imports over exports was seen every year, amounting to 4,000,000 yen in that year, 6,900,000 yen in 1878, 4,770,000 yen in 1879, 1 68 ECONOMIC EFFECTS OF EXPENDITURES ;iiid to as much as 8,250,000 yen in 1880. Accordingly, gold and silver rapidly left the country, with the yearly balance of exports over imports of 7,260,000 yen in 1877, 6,130,000 yen in 1878, 9,640,000 yen in 1879, 9,580,000 yen in 1880, and 5,630,000 yen in 1881. The disordered state in the debit and credit relations, the inflation of currency, and the rise in the price of commodi- ties, and the consequent demand of capital, gradually led to the raising of the rate of interest. The rate in Tokyo (for amounts between 100 and 1,000 yen), which was under 10 per cent in 1877, gradually rose in 1878 and 1879 to 12.5 per cent. During and after 1880 the rate of over 15 per cent became common. The value of securities also depreciated. The 7 per cent capitalized pension bonds, for instance, which were quoted at 83.49 yen in 1878, fell to a monthly average of 71.89 yen in 1880, finally falling to 65.27 yen in January, 1 88 1. With these changes in economic circles, the people ran wild in extravagances, the industrial classes became greatly excited with vain hopes of speculation, and the derangement of the economic and financial condition of the country became most deplorable. The government now became fully aware of the danger the country was in, and one after another it adopted the necessary measures for the regeneration of the economic and financial condition of the country. That disastrous results would inevitably follow if inconvertible paper money were made the standard of value might have easily been foreseen by anybody possessed of mere common sense, but the measures adopted by the government at this crisis seemed to show that the authorities did not grasp this simple truth. They regarded the difference in price between silver and paper as an indication not of the depreciation of paper but of the appreciation of silver. They attempted, therefore, to stop the rise of the price of silver by increasing the amount of its circulation. The government sold silver coins reserved for the resumption of specie pay- ments, opened places for the exchange of silver coins, so as to balance speculations in Mexican dollars and other coins, EFFECTS ON THE MONEY MARKET 1 69 and then established the Yokohama Specie Bank in order to call forth the coins hoarded by the people. This bank, which was established with the government's careful support, was to supply the merchants engaged in foreign trade with the silver coins kept as the government's reserve and also to transact foreign exchange business. But the more these measures were resorted to the higher the price of silver rose, and no one knew how far the paper currency would go down in the scale of depreciation. The evil effects on the money market caused by the expenditures for the Satsuma Rebel- lion reached their height at this time. Withdrawal of Paper Notes and the Establishment of a Conversion System As the emergency measures taken against the depreciation of inconvertible notes had all proved ineffective, there was pressing need for further radical measures. Until this time the government had a reserve fund for the redemption of paper money, but whenever it accumulated it was always diverted to other purposes. In September, 1880, the government gave up the plan of selling the silver coins and began to take steps to redeem a part of the paper money in circulation by means of 7,000,000 yen, the annual revenue obtained by doubling the rate of the tax on sake brewing. In November of the same year the Kinsatsu Exchange Bond Regulations were revised, as a result of which the 6 per cent bonds were made exchangeable with paper money. The undertakings hitherto carried on by the central government were transferred to the local governments, and the fund saved thereby was utilized for the redemption of paper money. Though these improvements were introduced in the method of redeeming paper money, the depreciation still continued without a sign of abatement. In April, 1881, the average quotation of paper money for one yen of silver became 1.79 yen (the highest in the month being 1.81 yen), and the fall in the value of paper money reached its extreme. It was at this crisis that Count Matsukata (now Marquis) received I/O ECONOMIC EFFECTS OF EXPENDITURES the portfolio of finance and was called upon to rectify the system of paper money. He was able to solve the question successfully by exercising sound judgment and exact cal- culation, and finally established the coinage system on a firm foundation and did much to further the economic develop- ment of the country. His plan was not confined to the redemption of paper money, but at the same time aimed to establish a powerful central bank and to complete the cir- culation of the convertible bank notes issued by such a cen- tral bank. At the time of his appointment as Minister of Finance, the amount of government paper money in cir- culation was 120,405,000 yen, that of bank notes 34,398,000 yen, the total being 154,803,000 yen. Of course, the adjust- ment of so large an amount of paper money was a great event in the history of the money market. The following table gives the figures concerning the gradual redemption of paper money, and shows how the value of paper money was gradu- ally restored with the progress of its redemption: Gradual Redemption of Paper Money Government paper money Bank notes Total amount of govern- ment paper money and bank notes circulating at end of year Valueof paper money for one yen sil- ver coin Year Redeemed during year Circulating at end of year Redeemed during year Circulating at end of year 1880. . . 1881 1882 1883 1884 1885 1886 1887 1888. . 1889. Yen 5.778,436 2,507.174 536,180 7.369.737 4,619,044 5.035.137 20,544,258 11,985,794 9,080,31 1 5.543.803 Yen 124,940,486 118,905,195 109,369,014 97.999.277 93.380,234 88,345.096 67,800,839 55.815,044 46,734.733 41,190,931 Yen 778,654 820,940 638,303 889.031 920,046 935.503 Yen 34,426,351 34.396,818 34,212,805 34,092,802 30,914,148 30,093,208 29,454.905 28,565,829 27.645,771 26,710,268 Yen 159.366,837 153.302,013 143.581,819 132,092,079 124,294,382 118,438,304 97.255.744 84.380,873 74,380,504 67,901,199 1 1 1 1 1 1 1 Yen 477 696 S7I 264 089 OSS 000 As shown by the above figures, the redemption of govern- ment paper money began in 1880 and that of bank notes began in 1884. The annual redemption of both kinds of paper money amounted to a great deal, and their circulating amounts yearly decreased, so that by the end of 1887 their total diminished EFFECTS ON THE MONEY MARKET 171 to 84,000,000 yen, or about one-half of that at the end of 1880. The result was that the value of the paper money gradually approached that of specie, and by the year 1886 the difference between the value of silver and that of paper almost disap- peared. The government's endeavors to redeem the paper money and bank notes were very great, because in this effort a large reserve fund was needed. Accordingly, the most rigorous economy was practised in all the ministerial departments, and by June, 1885, the specie reserve thus gained reached 40,000,- 000 yen, equaling about one-half of the amount of the govern- ment paper money in circulation. Therefore, in January, 1886, the exchanging of paper money with silver coins was commenced. From that year a plan for the annual redemp- tion of 7,000,000 yen was carried into effect, and thus the re- demption of the government paper money was finally com- pleted in 1902. As regards the adjustment of the bank notes, it was planned to establish a large central bank, by which to effect the much-needed adjustment of the National Banks, which were the source of all troubles, and to replace the inconvertible bank notes with real convertible bank notes. The memorandum respecting the scheme for the establish- ment of the central bank, or the Bank of Japan, stated its objects as follows: (1) to act as the supreme monetary organ, in order to concentrate in the hands of numerous National Banks the capital scattered in different localities; (2) to serve thus as a source of capital supply, according to the circum- stances in monetary circles; (3) to lower the current rate of interest throughout the country; (4) to perform certain serv- ices in the Treasury, so as to simplify the business of the Exchequer; etc. In short, the Central Bank was to act as the highest and most powerful monetary organ in the country. Thus, the Bank of Japan was established after the pattern of the banks of the same kind in European countries, notably that of Belgium; and with a capital of 10,000,000 yen, half of which was subscribed by the government, the bank opened its busi- ness in October, 1882. 172 ECONOMIC EFFECTS OF EXPENDITURES The time had now arrived for the government to effect the adjustment of the existing National Banks. In May, 1883, the National Bank regulations were revised, as a result of which the National Banks were deprived of their right of issue, and the Bank of Japan was granted the sole privilege of issuing convertible bank notes. The Bank of Japan was now bur- dened with the duty of adjusting the paper money hitherto issued by the National Banks, and for that purpose each Na- tional Bank was required to deposit with the Bank of Japan its reserve fund devoted to the purpose of redeeming its notes. Each National Bank was also required to set apart every year a portion of its profit, equal to 2.5 per cent of the amount of the notes issued by that bank, and to deposit this sum with the Bank of Japan to form part of the redemption fund. Though there was more or less difficulty in carrying out these redemp- tion measures, they were smoothly carried out in general as prearranged. Besides, after the year 1896, the fund obtained by selling the national loan bonds deposited at the Bank of Japan was used directly for the redemption of paper money. This being so, the amount of the notes in circulation, which stood at 29,500,000 yen at the end of 1886, was totally re- deemed by the year 1899. Now that the arduous task of redeeming the government paper money and the bank notes was successfully accomplished, the government proceeded to make the Bank of Japan perform the duty of issuing converti- ble bank notes. As a first step, a trial issue by the bank of convertible bank notes to the limit of the reserve fund was cftected by making the Bank of Japan owner of a sufficient reserve fund for the purpose. The result having proved good, the government seized this opportunity for introducing amend- ments into the Convertible Bank Note regulations, in order to establish solidly the so-called elastic currency system. From all that we have stated above regarding the history <>t paper money redemption and the establishment of the con- version system, one may imagine that the sudden changes produced in the national economy during this period brought about chaotic conditions in economic circles, and that the EFFECTS ON THE MONEY MARKET 1 73 economic development of the country was hindered thereby. The mere fact that the difference in value between specie and paper, which was as much as 70 sen in the year 1881, dis- appeared in 1886 may convince us of the importance of these economic effects especially on monetary circles and the prices of commodities. Table C at the end of this chapter shows the effects of the restoration of the value of paper money on the prices of com- modities, and it will be observed that these effects are just . the reverse of those noted in the foregoing table showing the effects of the excessive issue of paper money on the prices of commodities. As regards the index numbers for the prices of commodities reported by the Bank of Japan in the foregoing table, the reader is referred to Chapter V. The changes in the purchasing power of currency as mani- fested in the prices of commodities became greater in and after 1 88 1, the year in which the redemption of paper money was begun, as shown in the foregoing table; that is to say, the value of paper money rose with the progress of its redemption. We may say that in the year 1886, when the difference in value between specie and paper disappeared, the value of paper money came to be fixed and the prices of commodities entered a normal state. These changes in the value of currency brought about economic effects in all directions, but these effects were of course the reverse of those caused by the over- issue of paper money. With regard to imports and exports, there was an annual excess of exports over imports after 1882, ranging from 4,000,000 yen to 8,000,000 yen; and, on the other hand, there was an annual excess of imports over exports of gold and silver, amounting to 1,700,000 yen in 1882, 2,290,000 yen in 1883, 600,000 yen in 1884, and 3,290,000 yen in 1885. The rate of interest was meanwhile lowered throughout the country. The rate of interest on loans of from 100 to 1,000 yen in Tokyo, which was at least 15 per cent in 1881, was already lowered to 1 1 per cent in May, 1882, and to 9.5 per cent in January, 1883, and to 7.5 per cent in June, 1883. 174 ECONOMIC EFFECTS OF EXPENDITURES Though there was later more or less rise, the rate was rarely above II or 12 per cent. With the lowering of the rate of interest, the prices of securities were gradually restored; the 7 per cent bonds, for instance, which were quoted at 65 yen in 1 88 1, rose to an average price of 73.40 yen in 1882. The average in the two following years reached 83.90 and 93.40 yen, respectively, and the quotation in December of 1885 at last exceeded the face value. The economic changes in the money market were as great as stated, and their extraordinary effects in all lines of the eco- nomic circle were indescribable. What were advantages to the creditors proved to be disadvantages to the debtors, and this led to successive bankruptcies. While living was made easier for the people who lived on salaries or wages, the fall in the prices of commodities caused disadvantages to the pro- ducers, and this resulted in industrial inactivity. Trade sank to a very low ebb, hard times prevailed throughout the coun- try, and the people began to express their dissatisfaction with the administrative policies of the government. The economic circles, which by the ample issue of inconvertible notes once dreamed of prosperity and ran wild in extravagance and be- came prone to speculation, now suddenly sank into the deep- est gloom, and this sad condition continued for a considerable time. It took thirty-two years to complete the adjustment of the inconvertible notes, the first of which were issued in the days of the Restoration. Of these thirty-two years, the nine years beginning with 1877 and ending with 1885 were the term during which the economic effects of the overissue of inconvert- ible paper money were most extraordinary. It may be noted that those effects before the year 1881 and those after that year were just the opposite. Until the year 1881 the natural effects of the overissue of inconvertible notes were shown gradually, and after that year the natural effects of the adjust- ment of the inconvertible notes were exhibited. However, it must be noticed that it was no other than the result of this unnatural coinage system that the economic world, which EFFECTS ON THE MONEY MARKET 1 75 should have been peaceful, was thrown into utter disorder and many failures took place. By availing themselves of the op- portunity of these economic changes, some people could benefit themselves, and though these changes also seemed to have done good to society in certain respects, yet it can not be denied that, generally speaking, the economic development was obstructed by this state of affairs to a degree unparalleled in the economic history of Japan. In thus dealing with the economic effects caused by war expenditures, and in seeing such grave effects on the money market, we can not but wonder at the seriousness of the question and the great mag- nitude of these effects. Development of Monetary Organs and Spread of Credit Systems We have already dwelt on the effects of the war expenditures of the Satsuma Rebellion on the money market, and inciden- tally we have explained the completion of a great reform in the monetary system of the country. We shall now see how this reform resulted in the development of various monetary organs. To determine to what extent the progress of these monetary organs was caused must mean in one way an investi- gation into the economic effects — especially the effects on the money market — of the war and armament expenditures. As the work of adjusting the paper money was carried on gradually and the hard times were continuing so long, the people's minds, which were prone to speculation, now at last came to maintain a cautious attitude generally. Want of business prosperity naturally made room for saving power, which then gave rise to good habits of thrift and economy. Looking into the business conditions of the National Banks after the year 1882, we find that, notwithstanding the gradual falling of the rate of interest, there was considerable increase in the amount of deposits. With the resumption of specie payments for government paper money in 1886 there took place an industrial revival ; a mania for railway undertakings also began, followed by a general recovery of business activity. In 1888 there was already a fear of a panic likely to be brought I76 ECONOMIC EFFECTS OF EXPENDITURES on by this mania for new enterprises. But the potential energy of the nation, nourished for a long time, was powerful enough to cope with these circumstances, and after that time the bank deposits continued to increase, and the subscription for naval loans met with splendid success on three separate occasions. As the healthy development of the economic circles was in such an excellent condition, the imports and exports of the country were also in a satisfactory state, every year showing excess of exports over imports. Though this was due to the very advantageous position in which the coun- try was placed in the exchange relations with the gold stand- ard countries as a result of the great fall in the price of silver at the time, yet it is clear that this was attributable to the con- traction in the amount of the currency, which made the situa- tion suitable and perfectly ready for standing in a favorable condition with regard to foreign trade. In 1890, however, the various enterprises started before began urgently to require a large amount of capital on account of the rise in the prices of commodities and for other reasons, and this condition made money circulation very active and further led to a temporarily disordered state of the money market. The Bank of Japan then decided to raise the rate of interest, and the prices of stocks showed sudden falls, so that it was then feared that a panic was imminent. But the fear was fortunately removed before it became serious. In July, 1890, the rate of interest was lowered by the Bank of Japan and other banks, and the money market could resume its normal state. From that time until the outbreak of the Sino-Japanese War, steady and quiet progress was made in the money market. As may be seen from what we have said regarding the gen- eral effect of the completion of the adjustment of paper money, on the money market the first signs of the development of real national economy were in this epoch, since it may be said that during this epoch all of the monetary organs in the country created prior to the year 1877 were completely reconstructed. We may also say that it was during this epoch that the ordi- nary banks, as well as the savings banks, were brought up and EFFECTS ON THE MONEY MARKET 1 77 developed, and that the extension of the uses of credit notes and negotiable instruments was effected. All the National Banks were now changed to ordinary pri- vate banks, since they were deprived of the privilege of issuing paper money. Prior to this there was already a tendency for the private banks to come into prosperity. After the year 1876 many banking concerns were started under various com- pany organizations, and by 1892 as many as four hundred and ten banks were either started or closed up. Especially in 1 88 1 and 1882, when speculation was rampant, the establishment of new private banks was rife; but as they were all of little means, they could not compete with the National Banks. In 1890 the government enacted a number of bank regulations, simultaneously with the promulgation of the Commercial Code, by which it was fixed that the banks should be such establishments as receive deposits from the public and employ the fund in making loans and discounting bills. By the en- actment of these bank regulations it was aimed to bring all the banks under a uniform and more efficient control, and the National Banks and the private banks were subjected to one and the same regulations. This unification of the banking system was the beginning of the successful development of the monetary organs of the country in after years. The number of ordinary banks at the end of 1892 was two hundred seventy, with an aggregate paid-up capital of 22,000,000 yen and having 27,000,000 yen as outstanding loans. With the enactment of the regulations for ordinary banks, those for the Savings Bank were also enacted and put into force during and after 1893. These Savings Bank regulations were issued because it was necessary to exercise reasonable control and put suitable re- strictions on the numerous bank-like companies which had sprung up since 1882 and 1883, when thrift and economy came into vogue, making it their business to get money as bank de- posits through various means and methods. At the end of 1893 the number of Savings Banks was twenty-four, with a nominal capital of 1,100,000 yen in all and savings deposits totaling 6,000,000 yen. 13 I78 ECONOMIC EFFECTS OF EXPENDITURES It is obvious that the development of banks of all kinds is connected with the extension of the uses of security paper and the development of credit notes. The object of amending the National Bank regulations in 1876 was to open up the methods of operating and utilizing the national loans, which had at that time reached already huge amounts. From that time the national loans continued to increase in amount year by year, and the uses of the loan bonds were also much extended. After 1886 the domestic market was so developed as to be able to digest an enormous amount of the 5 per cent Consolida- tion Loan bonds. With the progress of maritime and railway transportation, people came to adopt more and more the busi- ness organizations of the modern system, and joint stock com- panies came into vogue, with the result that the stock market began to prosper. At last, the Stock Exchange was established, and at the same time further improvements in the issues of commercial, bills and cheques were effected. Prior to 1877 there was almost no circulation of bills, and the scholars were insisting upon the introduction of the western system of credit notes. After December, 1882, in which month the regulations for commercial bills were issued, a system of clearing bills was opened between the banks in Tokyo and in Osaka, and the circulation of bills came gradually into practice. However, it was only after the creation of the Bank of Japan and the opening of bill transactions that the system of clearing bills was completed and commercial bills came to be circulated generally. Thus, it was not until 1889 that the Tokyo Clearing House was established and its clearing balances were settled by the Bank of Japan. The number of bills exchanged in 1893 be- tween Tokyo and Osaka was 300,000, and they were valued at 210,000,000 yen. Thus, we may say that about the year 1893 the monetary organs in their real sense of national economy were practically completed. The Bank of Japan now began to discharge its functions by appearing in the market like the great sun, hav- ing an enormous capital and the privilege of issuing bank notes, EFFECTS ON THE MONEY MARKET 1 79 followed by numerous stars, and the blood of capital flowing freely through the veins of credit notes. Thus, the monetary circulation was generally made smooth throughout the coun- try. Indeed, the foundation of the present economic" organs of the country was laid in the days after the year 1886, when many business enterprises sprang up and the monetary organs were put in order. Generally speaking, the developments prior to 1877 were only the preparations or experiments for the developments in this epoch. These preparations or experi- ments as viewed from the present day are all a history of failures, and they were no doubt useless for vigorous economi- cal development. What taught us that these preparations and experiments were in vain were the economic changes or accidents attendant on the Satsuma Rebellion. The economic changes caused by the inconvertible notes issued at that time proved that such preparations and experiments should naturally be done away with. Such being the case, new foun- dations were laid afresh and a new system was begun. We may now say that the expenditures for the Satsuma Rebellion and the consequent economic disorder were of great signifi- cance in the country's economic history. While we must recognize that the economic disorder during the decade begin- ning with 1877 and ending with 1886 had wholly arrested our economic growth, and while we must wonder at the disastrous effects caused by the enormous expenditures for war, we must rejoice in the fact that our economic condition could follow the right path of progress after we had gone through such mis- fortune. Though the criticism is made by some that the policy taken by the government for the adjustment of paper money was too radical and sudden, since the dulness of the market and the general economic changes caused thereby were so se- rious, yet in our opinion the government of that time should not be too severely judged. The evil effects which one has brought upon himself must be removed by himself, and if sur- gical operations are necessary for that purpose he can not be blamed for having gladly received severe treatment with the sharpness of the surgeon's knives. We should rather say that l8o ECONOMIC EFFECTS OF EXPENDITURES by utilizing the painful experience, improved economic organi- zations were developed, and thus we could convert a misfor- tune into a blessing. The economic changes caused by the Sino- Japanese War were the touchstones in testing for the first time the stability of the economic organizations thus formed. We shall find it interesting to look into the question whether these new organizations gave evidence of having suffi- cient resisting power against the events of the Sino- Japanese War. From the Sino-Japanese War to the Russo-Japanese: War Payment of War Expenditures and the Money Market in War Time The grand total of the war expenditures for the Sino- Japanese W r ar was 233,000,000 yen. The main part of this was the 200,475,000 yen paid on the Special Account of Extraordinary War Expenditures, of which the disbursements- amounted to 5,200,000 yen each in June and July of 1893, gradually increasing to 7,600,000 yen and 9,700,000 yen in August and September, respectively, and further increas- ing to monthly amounts of not less than 10,000,000 yen from October, 1894, to March, 1895, the greatest amount of 19,- 000,000 yen having been reached in November, 1894. From April, 1895, these disbursements gradually diminished to about 7,000,000 or 8,000,000 yen. The items of receipts to meet these defrayals were the proceeds from public loans, voluntary contributions to army and navy relief funds,, voluntary contributions to war fund, treasury surplus,, transfers from the Special Account of the War Indemnity, etc. Though at first we could make both ends meet by trans- ferring 26,000,000 yen from the treasury surplus, the receipts- fell short of the disbursements after September, 1894, m spite of the first flotation of loans. The subsequent proceeds from loans of 10,000,000 yen each in the months of April, May, and June of 1895 were still insufficient to meet the- EFFECTS ON THE MONEY MARKET 181 expenditures, and straitened circumstances were being experienced. However, the third flotation of loans and the transfer from the indemnity, effected after March, 1895, gradually made our receipts equal our expenses. Of the above receipts, the funds absorbed from among the people were 116,000,000 yen of the proceeds from loans and 2,940,- 000 yen of the voluntary contributions to war funds and those to army and navy relief funds; and the rest were, as shown in the following table, the transfer from the National Treasury, loans from the Bank of Japan, and the war notes issued, the economic effects of all these on the money market having been very great : Details of Accommodations Made to the War Fund* Year and month Total amount to date of the war fund deficit Amounts transferred from National Treasury Loans from the Bank of Japan War notes 1894 October November . . . December . . . . 1895 January February .... March April May June July August September . . . October November. . . December. . . . 1896 January February .... March April May Yen 553.377 3H,o25 500,644 144.797 578,648 648,991 357,222 975.419 941.036 531,860 001,498 357.546 705.799 496,265 030,541 .835.238 .043.164 610,565 .347,883 .102,137 Yen 2,553,377 8,814,025 7,970,644 16,724,797 16,048,648 22,368,991 25,077,223 24,195.419 22,661,036 20,727,591 26,748,676 29,080,730 32,412,194 31,534,497 28,710,373 34,930,525 41,773,061 26,710,462 16,107,780 3,102,035 Yen 6,000,000 12,500,000 19,530,000 18,420 22,530 20,500 17,500 14,000 12,500 12,500 12,500 18,390 25,000 33,ioo 41,500 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 42,500,000 41,270,000 37,900,000 41,240,000 Yen 3,780,000 3,780,000 3,780,000 3,780,000 3,304,268 2,752,821 1,886,816 1,293,605 861,768 820,167 404,713 103 103 103 103 ' Since there were no deficits prior to October, 1894, and after May, 1896, no figures are given. As the deficits in the war expenditures of the Sino-Japanese War came to large amounts, the sums transferred from the National Treasury and borrowed from the Bank of Japan 1 82 ECONOMIC EFFECTS OF EXPENDITURES also reached a large figure; the former often exceeded 20,000,- 000 yen and sometimes reaching as much as 40,000,000 yen, and the latter, which rarely exceeded 20,000,000 yen before the first half of 1895, often exceeded 40,000,000 yen in the latter half of 1895 and the first half of 1896. We shall now proceed to consider the economic effects of these receipts and disbursements of the war expenditures for the Sino-Japanese War. In doing so, let us deal with those effects of the receipts derived principally from public loans and from the makeshift means of borrowing from the Bank of Japan and transferring from the National Treasury, and then with those effects of the disbursements or the scattering of funds among the people. We shall not here state in detail the particulars about the conditions of the flotation of the war loans, but we may say that when, with the opening of hostilities, the raising of war loans was under contemplation, it was generally anticipated in monetary circles that the flotation would surely be at a high rate of interest and that pressure would be brought upon private undertakings. As a result of this, the public became very cautious; the rate of interest was raised accordingly and the quotations of securities were lowered. Therefore, as soon as the first war loan of 30,000,000 yen began to be raised on August 17, 1894, there occurred a wholesale decline in the stock market. Fortunately, however, the subscriptions to the loan proved to be extremely encouraging, and the applica- tions for subscription reached two and a half times the amount asked. The second flotation of the war loan, in November, 1894, was equally successful. Looking into the changes in the prices of loan bonds and the rate of interest during the war, we find that, whereas the prices of the Consolidation Loan bonds on the Tokyo Stock Exchange ruled between 109 and no from January, 1894, to the outbreak of the war, they fell down to 100 after the raising of the first war loan, and further to 97 or 96 after the issue of the second war loan; after that, however, they gradually recovered and were main- tained at about 100. As for the rate of interest in Tokyo, EFFECTS ON THE MONEY MARKET 183 it rose from 2.4 sen in January, 1894, to 2.8 sen in June, July, and August of the same year, after which the same rate continued without any change until July, 1895, when it returned to the pre-war rate. We may conclude from this that, though during the Sino-Japanese War the amount of funds absorbed from among the people by means of public loans reached the enormous figure of 80,000,000 yen, the effect was not so great as had been anticipated. The rate of interest and the prices of securities were not much changed, and the condition of the money market seemed to be free and unconstrained. In order to see the effect on the money market of the loans from the Bank of Japan and the accommodations made to the war fund, we give the following tables, showing the amount of convertible notes issued by the Bank of Japan and the amount of currencies actually circulated: As shown in the first of the two foregoing tables, the amount of convertible notes issued from just before the war until the end of the war remained generally at about 140,000,000 yen, but during and after September, 1895, it increased greatly until it reached 180,000,000 yen in December of the same year. Meanwhile, the specie reserve gradually decreased, and during and after June, 1895, the amount issued beyond limit greatly increased. During the war the government's Amount of Convertible Notes and Currencies Amount of convertible notes issued Specie reserve Security reserve Balance of note-issuing capacity Year and month Amount existing Increase or decrease as compared with June, 1894 Issued beyond limit 1894 March June September. . . December . . . 1895 March June September. . . December . . . Yen 141,270,549 141.736,358 I37.795.i66 149,813,700 135.224,654 143,083,663 156.897,783 180,336,815 Yen 82,649,964 79.632,988 77.291.508 81,718,291 72,367.888 64,885,149 68,250,119 60,370,797 Yen — 2,341.480 + 2,085.303 — 7,265,100 -14,747.839 -11,382,869 — 19,262,191 Yen 58,620,585 62,103,370 60,503,658 68,095,409 62,856,766 78,198,514 85.647.664 119,966,018 Yen 4.773.333 1,302,091 3,389,191 1,522,516 Yen 4. 197.549 13,811,497 20,767,606 55.083.148 1 84 ECONOMIC EFFECTS OF EXPENDITURES Amount of Currencies Circulating Year and month Specie Paper money Total Balance in Treasury Amount actually circulating Index num- ber for prices of commodi- ties, as re- ported by the Bank of Japan 1894 March Yen 51,610,221 52,252,649 56,173,152 62,711,242 66,146,112 67,358,072 67.568,497 69.739.986 Yen 179,261,061 178,621,176 173.390,774 185,000,044 169.545,546 176.361,325 186,167,042 213,262,825 Yen 230,871,282 230,873,825 229,563.926 247,711,286 235.691,658 243.7i9.397 253.735.539 282,000,811 Yen 47,043,622 44,019,370 30,895.834 16,624,102 19.315,256 15,834.918 10.355.133 11.521,794 Yen 183,827,660 186,854.455 198,668,092 231,087,184 216,376,402 227.884,479 243,380,406 270,479.107 125 September. . . . December. . . . 1 89S March June September. . . . December. . . . 131 133 135 132 135 140 energy was specially turned toward preventing the outflow of specie by making the convertible notes of the Bank of Japan chiefly circulate at the front, thus restricting the specie payment abroad. The result was that, out of the rough total of 200,000,000 yen disbursed as war expenditures, no less than 183,900,000 yen was disbursed in convertible notes, and hard money was very little used. On the other hand, the foreign trade, which showed an excess of imports over exports to the amount of 4,000,000 yen in 1894, showed, on the con- trary, an excess of exports over imports of 6,000,000 yen in 1895, so that our balance of trade was favorable. At that time the attitude of the Bank of Japan was comparatively calm in the discharge of its important duties. As soon as the war opened, it raised the daily rate of interest on loans on June 8 from 1.9 sen to 2 sen, and further to 2.2 sen on July 26. This was purely a precautionary war-time measure taken by the bank to warn the public against making immoderate loans, and was never an ambitious policy for absorbing specie by availing itself of the exchange operations. The aim of this raising of interest was attained, as it directly affected the rates of interest in all parts of the country, the rate in Tokyo having risen by 0.3 sen from May to September. The Bank of Japan, which in this manner became cautious with the outbreak of hostilities, never altered the rate of in- terest until the restoration of peace, and consequently the gen- EFFECTS ON THE MONEY MARKET 1 85 eral market rate of interest also remained almost unchanged. What with this self-possessed action of the Bank of Japan, and with the favorable balance of foreign trade, the sup- ply of specie during the war was generally ample and the issue of the convertible notes did not run to an extreme. But as stated previously, large amounts of loans were made from the Bank of Japan owing to the necessity of meeting the war expenditures, and at last, in the latter half of the year 1895, there came the inflation of the convertible notes and the diminution of the specie reserve. By referring to the three foregoing tables, therefore, we find that as the war fund deficit became larger the loans from the Bank of Japan or the amounts transferred from National Treasury also increased. It was only natural that with the large increase of the loans from the Bank of Japan and of the amounts transferred from the National Treasury there was accordingly an inflation of the currency. In the foregoing table giving the amount of currency actually circulating in the market, we find that this amount, which at the outbreak of the war in June, 1894, was about 180,000,000 yen, increased gradually after the restora- tion of peace in 1895, reaching over 243,000,000 yen in Sep- tember, 1895, and 270,000,000 yen in December. That these increases were caused by the said increased issue of converti- ble notes, also by the abundant flowing of the currency in the National Treasury into the circulating market, is clearly shown by the foregoing table. Such an inflation of the cur- rency gradually affected the prices of commodities, as is shown by the index numbers for the prices of commodities in the foregoing table. This in turn resulted in the gradual outflow of gold and silver abroad in the relations with foreign countries, as there was an excess of exports of specie to the amount of 7,000,000 yen in 1894 and of 21,000,000 yen in 1895. To sum up, we may say that, though the expenditures for the Sino- Japanese War, as they amounted to large figures, seemed to cause sudden changes in economic circles at the time, the fact is that during the continuance of the war com- 1 86 ECONOMIC EFFECTS OF EXPENDITURES parative calmness ruled in the money market, except for slight changes at the time of its outbreak. It was only after the war that various phenomena consequent upon the infla- tion of currency began to be experienced, the results of which will be explained in the following pages. Preparations were quite thorough on the part of the gov- ernment, the Bank of Japan, and economic circles generally, during the Sino-Japanese War, in order to preserve the tran- quillity of the money market; and added to this the loyalty of the nation, stimulated by the outbreak of the war, brought about successful results in the raising of war loans, besides producing good effects in preventing the starting of unhealthy business undertakings. However, no one will deny that the successful development of the economic organizations of the country, accomplished by the adoption of drastic measures in the adjustment of paper money and the establishment of the real convertible system, was the chief factor in produc- ing the comparatively free and unconstrained condition of the money market when it faced affairs of grave national con- cern. We should say that the foundations of the national economy laid in the decade following the year 1882 proved to be sufficiently strong in the first test to which they were exposed during the Sino-Japanese War. Post-Bellum Economic Inflation and its Causes A great economic expansion of an unprecedented nature took place after the Sino-Japanese War, which ended in a glorious victory for Japan. Let us now dwell upon this expansion and its causes. The signs of this post-bellum economic inflation first mani- fested themselves in the bond and stock market, as may be seen from the following quotations of the Consolidated Loan bonds and some principal shares at the Tokyo Stock Exchange for "direct delivery." As may be observed from the following table, activity in the stock market had already begun before the war ended. But it was after July, 1895, that the real activity set in, as from EFFECTS ON THE MONEY MARKET I8 7 July to December, 1895, a ^ the shares rose steadily without any fall, the rise in the least case having been over 10 yen and in the largest case nearly 400 yen per share. Though the ac- tivity slackened in 1896 to some extent, the highest quotations of many of the stocks were recorded in May or June of the same year, and the general tendency was not at all weak. However, in the latter half of the year 1896, a gradual fall at last commenced. The rising tendency in the stock market, which lasted so long and went to such high degree, was accom- panied by a mania for speculation. Thus, for instance, the transactions for "time bargains" at the Tokyo Stock Exchange, which never exceeded in amount 200,000 shares per month from the year 1894 to the first half of 1895, often exceeded 300,000 shares per month from the second half of 1895 to the first half of 1896, sometimes even reaching 500,000 shares per month. Quotations of Stocks and Bonds at Tokyo Items Paid-up amount per share January 189S June 1895 December 1895 June 1896 December 1896 Consolidated Loan bonds Yen 100 30 47 50 50 50 50 Yen 96.93 28.96 47.14 79-68 74-51 42.82 225.52 Yen 98.15 34-99 56.08 84-45 75-94 57-44 273-13 Yen 101.73 61.13 75-38 101.85 102 .44 73-78 621.43 Yen 100. 21 56.00 (50 yen paid up) 77-08 109.70 108.40 68.54 819.64 Yen 98.18 43 -39 Kansai Railway Hokkaido Colliery Rail- way Nippon Yusen Kaisha . . . Kanegafuchi Cotton Tokyo Stock Exchange. . 5962 86.27 73-73 62.44 350.32 The continued animation in the stock market, of course, caused a mania for industrial enterprises, and was followed by various projects for new undertakings and for increasing the capital of the existing concerns. Statistics concerning these schemes for starting new concerns in those days are lacking; but we have the following figures, which compare the actual number of the companies and the amount of their capital at the end of 1894 with those at the end of 1895 and at the end of 1896, showing the real increase of the newly established firms: ECONOMIC EFFECTS OF EXPENDITURES Statistics of Industrial Enterprises Year 1894 1895 1896 Increase at the end of 1896, as com- pared with the end of 1894 Number of companies 2,792 3,222 4.595 1,803 Nominal capital Yen 323,915,492 410,661,41 1 619,223,949 295.308,457 Paid-up capital Yen 249,762,899 289,002,341 397.564.341 147,801,633 While the actual increase during 1895 and 1896 in the num- ber of companies was thus over 50 per cent, as compared with that at the end of 1894, it was calculated at the time that the total capital involved in all of the new schemes contemplated in 1895 and 1896 would come up to the immense sum of about 1,200,000,000 yen. The lines of these new enterprises were chiefly in the railway, the banking, and the insurance business. The number of life insurance companies, which was only ten at the end of 1893, increased to twenty-nine by the end of 1896. The number of fire insurance companies increased to ten by the end of 1896, as compared with five at the end of 1893. The number of banks at the end of 1894 was seven hundred, with an aggregate capital of 52,770,000 yen, but it increased to one thousand and fifty- four, with an aggregate capital of 146,950,000 yen, by the end of 1896. Loans Made by Banks Period ending 1 >ecember, 1894 June, [895 December, 1895 June, 1896 December, 1 896 Increase at the end of December, 1896, as compared with the end of I >ecember,|i894 Loans made by the Bank of Japan Yen 36,601,797 44,057,254 64,018,141 58,024,573 91,300,947 54,699.150 Loans made by ordinary banks i fixed loans and overdrafts) Yen 59,178,194 69,099,085 89,165,458 112,967,873 157,200,254 98,042,060 EFFECTS ON THE MONEY MARKET I89 This mania for new enterprises caused a press of business in monetary circles. The preceding table shows the increases at the time in the general loans made by the Bank of Japan and the loans by the ordinary banks. Such an enlivened state of the money market led to over- issue of convertible notes and inflation of currency, which, as already stated, began to take place shortly after the war. The following comparative figures will show this increasing tendency : Inflation of Currency Amount of specie and paper money actually- circulating in Average at the market, ob- tained by de- ducting the balance in the Increase as Amount of con- Increase as end of each compared with vertible notes compared with month during the year 1895 issued the year 1895 National Treas- ury from the gross amount in circulation Yen Yen Yen Yen 1895 235.i89.oi3 147,918,518 1896 260,684,986 25,495,973 172,192,370 23,357,188 1897 280,562,237 45.373,224 186,412,207 38,493,689 With the inflation of the currency and the increase of the amount of issue of convertible notes, as shown above, there was a gradual rise in the prices of commodities. The index numbers of the prices of commodities based on the year 1887,. as reported by the Bank of Japan, averaged 126 in 1894, be- came 135 in 1895, 145 in 1896, and went up to 161 in 1897, with a still further upward trend. From all that has been stated above, a general idea of the post-bellum economic inflation may be had, and the animated state of monetary circles may be imagined. We shall now proceed to discuss the causes that brought about this state of affairs, touching upon their relations with the war expendi- tures and the post-bellum armament expansion expenditures. The causes of the economic inflation after the Sino-Japanese 190 ECONOMIC EFFECTS OF EXPENDITURES War are various and complicated. But there is no doubt that the awakening of the nation in consequence of victory in the war was the greatest motive power in causing this economic expansion; and it is quite true that the expectation that the Chinese indemnity would soon be transported home, thus supplying plentiful capital to our money market, brought about a reaction from a state of temporary cessation of all undertakings during the war to that of great industrial expan- sion immediately after the war. We must also take into account, as a chief contributor to this post-bellum economic inflation, the improved economic foundation of the country, as well as the fact that during the war every precaution was exercised by the people in general, so that the national re- sources were amply fostered and the economic development was carried through, enabling the country to make this post- bellum expansion. In order to show, for instance, how capital was being hoarded during the war, we give the following figures showing the increases of bank deposits and postal savings: Increases of Bank Deposits and Postal Savings Period ending December, 1893 June, 1894 December, 1894 June, 1895 Deposits at the cooperating banks in Tokyo Yen 36,965,752 39,259,690 40,374,640 45,017,866 Deposits at the cooperating banks in Osaka Yen io,5I4,534 io,453,4I5 10,294,162 12,387,187 Postal savings Yen 24,815,986 26,569,325 24,962,459 26,275,675 The economic inflation after the Sino-Japanese War hap- pened on such foundation and in high national spirits as above described, but it was characterized by a sickly nature; the symptoms were not reassuring and the reactionary effects were disastrous. It was apparent that it was beyond the economic resources of the nation to meet such an extravagant and sudden demand for capital. The aforesaid activity in the stock market, the sudden increase of bank loans, the craze for speculation, the inflation of currency, and the mania for new EFFECTS ON THE MONEY MARKET 191 enterprises were all of an unhealthy nature. The anomalous conditions in financial circles, which will be dealt with farther on, were the natural results of this unhealthy economic expan- sion. Our historical investigation must now go into the causes that gave rise to such an unhealthy economic expansion. Some attribute it to the lowering of the rate of interest, which was effected by the Bank of Japan immediately after the war and which gave an impulse to the mania for new enterprises; others ascribe it to the increase of convertible notes consequent upon the expansion of the security reserve of the Bank of Japan; and still others say it was due to the system of keep- ing specie reserve abroad, which system was inaugurated at this time by the government's allowing the Bank of Japan to issue convertible notes against the reserve of a part of the Chinese indemnity deposited with the bank. All three of these opinions are correct, but none of them can adequately explain all of the causes in question. The supporters of these opinions take up and explain the single fact of the unreason- able inflation of the currency, and they attach too much im- portance to one particular cause and are therefore unable to make a sufficient explanation. Of course, we are at one with them in recognizing that the inflation of the currency brought about this unhealthy economic expansion, but, on the other hand, we believe that in addition to the question of the single matter of the convertible notes policy there is much to be in- vestigated thoroughly in this connection. The loose policy pursued by the Bank of Japan after the war was a reflection of the government's economic policy, and the bank can not be held solely responsible for it. We may say that the expansion of the security reserve for the convert- ible notes was made in compliance with the demand of eco- nomic circles, and that it must rather be regarded as an effect of the unhealthy rise of new enterprises. Moreover, the in- auguration of the system of keeping specie reserve abroad was due to the government's own convenience, and was more prop- erly a measure rendered necessary by the pressure of finan- I92 ECONOMIC EFFECTS OF EXPENDITURES cial needs. We may conclude that there were other causes for such a state of affairs, because of the fact that, since the premature growth of the economic circles was unable to cope with the expansion of the financial administration, the mone- tary circles received too great a pressure, and the money mar- ket was thrown into a chaotic condition by the overflow of unproductive capital. The amount of the public loans raised to meet the expendi- tures for the Sino-Japanese War reached 120,000,000 yen. Moreover, in accordance with the various great post-bellum financial schemes, a considerable increase of taxation was effected and many public loans were raised. All these im- mense funds absorbed from the people were first centralized in the National Treasury; and it is unnecessary to say that, when these funds were again going out into the market, great difficulties were encountered in maintaining an equilibrium of receipts and disbursements. In order to suit financial con- venience, therefore, the policy of the Central Bank had always been to change without reference to the overflow of currency, with the result that, as shown in the foregoing table, the infla- tion of currency was brought about. In view of all this, we may reasonably conclude that the original cause of the policy adopted by the Bank of Japan was in the pressure of govern- ment finance brought to bear upon the monetary circles. Almost all of the funds disbursed as war expenditures and post- bellum administrative expenditures were spent unproductively ; that is to say, this immense capital was consumed mostly in building barracks, warships, and schools, in the administrative expenses of Formosa, and in the organization expenses of the iron foundry, and only a small part was invested in railways and other productive works. Moreover, the huge sum of indemnity money, the coming of which had been so enthu- siastically expected in economic circles, was almost wholly converted into warships, fortresses, and batteries. It was not strange that all these funds spent for unproductive purposes, so to speak, overflowed into every quarter of society, together with funds of the same nature, such as rewards, interest on EFFECTS ON THE MONEY MARKET 1 93 national loans, etc., and it was but natural that these moneys in turn should be consumed in an unproductive manner. Moreover, inasmuch as funds of such a floating nature had no proper place to settle down during the two years of the war, it was inevitable that, as soon as the war ended, they should be directed into all sorts of speculative undertakings; and it may be said that various post-bellum industrial enterprises arose with a view to the settlement of all this floating capital. It is now clear that this post-bellum economic inflation was quite weak and irresolute in its character and was conducive to useless expenditure of capital, and that this led to future straitened circumstances. Anomalous Conditions in Financial Circles As narrated in the preceding pages, the post-bellum economic inflation was of a very unhealthy character. Its serious effects came to light during and after the year 1897, and were made more serious by the outbreak of the North China Disturbance. The capital which had long been floating was thus settled by the post-bellum industrial expansion, with the result that a still greater need of capital was caused. Moreover, as the prices of commodities, which had risen by the inflation of cur- rency, continued to be high, imports exceeded exports year after year, and there was a continual outflow of specie abroad. At length, an unprecedented stringency of the money market was produced. The following figures may serve to illustrate these circumstances. The annual amount of paid-up capital invested in various companies was as follows: Year Yen 1896 95.664,559 1897 135,002,845 1898 89,154,081 Total 319,821,485 The annual increase of loans made by various banks (amount of loans outstanding at end of year) was as follows: 14 194 ECONOMIC EFFECTS OF EXPENDITURES Year Bank of Japan < Ordinary banks Sa\ ings banks 1896 Yen 91,300,947 104,973,122 84.375.651 Yen 157,200,254 241,899,875 294,192,883 Yen 8,088,206 16,569,899 23.576,480 1897. . 1898 Thus, the amount of paid-up capital aggregated more than 300,000,000 yen for the three years, and the demand for capital, as indicated by the annually increasing loans of the banks, be- came very great. On the other hand, the balance of foreign trade and the rela- tion of the amount of convertible notes to the prices of com- modities was as follows: Year Excess of imports over exports of commodities Excess of exports over imports of specie 1896 1897 1898 Yen 531.714 56,16= 111.748,404 Yen 27.543,323 62,247,550 44,423,699' Excess of imports. Year Average al end of month of Bank of Jap, m convertible note- Average at end of month of Bank of Japan specie reserve Index number of the prices of com- modities, as re- 1" »rted by the Bank of Japan (1887 = 100) 1896 Yen 172,192,370 186,412,207 185,578,742 Yen 93,474,894 106,953,073 80,474,376 J 45 1897 161 1898 170 The excess of imports over exports of specie in the year 1898 dots not correspond with the balance of trade in the same year, and this is explained by the fact that in that year some of the indemnity money was received. The need for capital was thus pressing, specie became scarce, and the supply of capital was gradually obstructed. This EFFECTS OX THE MONEY MARKET 195 caused a great contraction in the money market and a sudden rise of the rate of interest. At the same time, falls in the quotations of securities, especially of stocks, were observed. The following tables will demonstrate this state of affairs: Rates of Interest on Loans and Discount Half-year ending Bank of Japan interest rate on loans Lowest interest rate on loans in Tokyo Lowest discount rate in all parts of country June, 1896. . . . December, 1896 June, 1897 December, 1897 June, 1898. . . . December, 1898 Sen 2.00 2 . 10 2.30 2.50 2 .70 2.50 Sen 2.28 ■58 59 .86 . 06 Sen 2.76 Quotations for "Immediate Delivery" of Some Principal Stocks on the Tokyo Stock Exchange Month and year June, 1896 June, 1897 December, 1897 . June, 1898 December, 1898 . Sanyo Railway" Kansai Railway b Hokkaido Colliery Railway 11 Nippon Yusen Kaisha 1 ' Kanegafu- chi Cotton Spinning b 56.00 45-7-' 45-55 45. 95° 52.85 77.08 57.13 53-30 4'J.74 51.15 109.70 85.72 93-95 80.96 8981 108.40 56.13 52.89 45-98 5569 68.54 56.78 42 . 21 41.58 41.42 Tokyo Stock Exchange 11 S19.64 313-88 167.04 119-64 184.66 30 yen paid up. b 50 yen paid up. 40 yen paid up. We may judge from the foregoing figures that the money market during the period from June, 1896, to June, 1898, ex- perienced gradual tightening to a serious extent. In 1898 matters became so much worse that a panic seemed imminent. At last, the government bought up from the market government loan bonds to the nominal amount of about 38,000,000 yen to relieve the prevailing distress, and also subscribed for the debentures of the Hypothec Bank of Japan and instructed the bank to make loans to industrial companies. Moreover, by raising foreign loans to the amount of 100,000,- 000 yen it aimed to secure a large supply of capital for the market. The fact that such further steps for replenishing I96 ECONOMIC EFFECTS OF EXPENDITURES capital were taken by the government, in spite of the receipt of the indemnity money to the amount of 59,000,000 yen in 1898 and 34,000,000 yen in 1899, which made an ample supply of capital, may show how extremely stringent the money market was at the time. The importation of foreign capital was then much welcomed by the public as a fit relief measure for the economic distress. It is our opinion, however, that, though by the importation of this unproductive capital the economic community was barely saved from an impending catastrophe, a superfluity of floating capital was again caused thereby, and that it led, as usual, to a vain boom in industrial circles. Under these circumstances it is not surprising that the money market, which became easier in the year 1899, when there were indications of an industrial revival, was again thrown into a state of depression in 1901. The post-bellum financial anomaly became most serious in 1900 and 1 90 1. This was due to the fact that, when the financial circles seemed to recover a little in 1899, there arose the North China Disturbance in 1900, and that, in order to raise the funds needed in this affair, large loans were obtained from the Bank of Japan, and, besides, increases of taxation were effected. To enumerate some of the symptoms of this anomalous condition, we may mention that in 1900 and until September of the next year, excepting November, 1900, and May, 1 901, there were monthly excesses of imports over ex- ports, amounting to more than 10,000,000 yen in many mont hs. This was followed by a great outflow of specie, as in 1900 the excess o\ exports over imports of specie amounted to 45,000,- 000 yen. Then, there was, of course, a sudden decrease in the supply of specie, as the specie reserve, which at the end of 1899 amounted to 100,000,000 yen, came down to 66,000,000 yen in January, 1901. We have seen the issue beyond limit of the convertible notes in every month of 1900 and 1901, that in January, 1900, being 24,000,000 yen and that in December of the same year 41,000,000 yen; and even in 1901 this excess issue was about 20,000,000 yen. Prices of commodities, whose index numbers, based on the year 1887, as reported by the EFFECTS ON THE MONEY MARKET 197 Bank of Japan, were then from 170 to 190, steadily continued to rise. These things led the Bank of Japan to resort to severe measures of raising the interest as many as six times during and after July, 1899, the rate on loans at 1.7 sen having been raised to 2.7 sen by July of the year 1900. In the midst of these straitened circumstances, the North China Disturbance arose, and the economic world was terrified in the extreme. The following stock market quotations after the year 1899 are the reflection of this panic-stricken state of affairs : Stock Exchange Quotations, December, 1899-JuNE, 1901 Month and year Sanyo Railway a Kansai Railway 1 ' Hokkaido Colliery Railway* Nippon Yusen Kaisha a Kanegafu- chi Cotton Spinning" Tokyo Stock Exchange 1 December, 1899 Yen 53-85 Si. 10 52.40 51.60 Yen 4530 36.97 37-79 34-89 Yen 97-04 81.26 76.51 68.42 Yen 64 41 58.84 64.27 64.55 Yen 54-07 40.92 37 99 29.82 Yen 204.86 162.28 143.21 114.87 8 50 yen paid up. ■ 47 yen paid up. As the hard times due to the scarcity of capital in economic circles were nearing an end, after 1900 many banks suspended payment, and the generally cautious attitude of the money market continued to exist. At length, when on April 16, 1901 , there was a fearful run on the banks at Osaka, the money market was utterly ruined. This was the greatest disaster ever recorded in the monetary history of the country. This run was made on almost all of the principal banks in Osaka, and deposits were drawn out to the amount of 21,500,000 yen in twenty days. All the Kansai districts, the Shikoku, as well as Kyoto and places eastward up to the Province of Mikawa, were thrown into the same troubled condition. Hereupon, commercial and industrial calamities became very serious, and many bankruptcies occurred among the import and export merchants, dealers in coal, foreign piece goods, matches, etc. The destruction of the credit system at this time could be seen from the increase in dishonored cheques and bills. The an- nual number of these bad cheques and bills, which was 35 111 I98 ECONOMIC EFFECTS OF EXPENDITURES 1896, 101 in [897, and 146 in 1898, increased to 1,305 in 1900 and to 606 in the first four months of 1901. Though in May, 1901, the crisis was almost over, economic stagnancy then set in, both consumption and production declined, and economic circles could do nothing else than await the healing of the wounds they had received. This was the two-year economic depression experienced just before the outbreak of the Russo- Japanese War. Thus, t he vicissitudes of monetary circles con- sequent upon expenditures for the Sino-Japanese War were generally determined, and beginning with the year 1903 the market in general resumed its normal state. Nine years elapsed before the economic effects of the Sino-Japanese War were passed, and we wonder at their persistence, even though it was partly due to the outbreak of the North China Disturbance. Adoption of the Gold Standard and Increase of Monetary Organs We shall now say a few words regarding the great coinage reform in this country and the new organization in our mone- tary system. The former was accomplished by the utilization of the indemnity money received from China, and the latter was one of the post-bellum administrative measures. They may be said to have been the by-products of the war expenditures, and are facts which must be noted by those who study the history of the money market of the country. The adoption of the gold standard was a long-pendilg question, which was left unaccomplished owing to the lack of means of absorbing the gold reserve. The unexpected receipt of the Chinese indemnity seemed to offer the desired opportunity, and the system was at last adopted. The new system went into effed in March, 1897, and from that time the country enjoyed considerable convenience in its international monetary relations, among which the facility of inviting capital from other countries after the year [899 may be counted as the most important. There is no doubt that the benefit con- ferred upon the country by this coinage reform was very great. The government also carried into practice, after the con- clusion of the war, its long-cherished desire of founding real EFFECTS ON THE MONEY MARKET 1 99 estate banks; and at last came the establishment of the Hypothec Bank of Japan and of one agricultural and industrial bank in each of the prefectures throughout the country. By these new monetary organs the immovable properties of the country were now able to be converted into negotiable instru- ments in the money market. Next to the above-mentioned banks, the establishment of a kind of movable properties bank in 1901 demands our attention. It was called the Industrial Bank of Japan, and its object was to serve as an intermediary in subscribing to the national loans and indus- trial stocks and bonds. The Bank of Formosa was established in 1900 as a central financial organ in the newly acquired in- sular territory. Thus, three new and significant institutions were added to the financial organization of the country. From the Russo-Japanese War to the Present Time Payment of War Expenditures and the Money Market in War Time The expenditures of the Russo-Japanese War aggregated 1,860,840,000 yen, of which the amount properly belonging to the Special Account of Extraordinary Military Expenditures was 1,508,470,000 yen. In order to see the effects of these ex- penditures on the money market, let us first of all refer to Tables D and E on pages 216-17 anc l 218-19. According to these tables, we find that, though at the com- mencement of the Russo-Japanese War the purchases of munitions amounted to a great deal, the monthly disburse- ments as military expenditures were limited to 20,000,000 yen, or at the most to 40,000,000 yen, owing to the yet small number of troops sent to the front. After August, 1904, the monthly expenditures increased to 50,000,000 yen, or at the most to 70,000,000 yen, gradually to decrease after the res- toration of peace. The average daily expenditure was about 1,000,000 yen in May, 1904, and reached 2,305,000 yen in August of the same year, after which it ranged between 2,000,000 and 2,700,000 yen, until in 1906 it began to decrease 200 ECONOMIC EFFECTS OF EXPENDITURES largely. The receipts, even after the commencement of the war, were not large until October, 1904, and when the receipts of over 100,000,000 yen came to be obtained in each of the four months from May to August, 1906, we could at length make both ends meet. Though in the special Aecount of Extraordinary Military Expenditures we see an excess of more than 200,000,000 yen of receipts over expenditures, we must note that during the war we weiv always very short of war funds. Thus, the accommodations made to the war fund were necessary, as shown in Table E at the end of this chapter, J in which we see that at first the accommodations were chiefly in the nature of transfers from the National Treasury and loans from the Bank of Japan and later in war notes and treasury bills. The treasury bills ranked first, amounting to more than 100,000,000 yen from the end of 1905 to July, 1906; the war notes ranked second, amounting to 96,000,000 yen; and the loans from the Bank of Japan ranked third, amount- ing to 92,000,000 yen in February, 1904. In order to see the effects of the special account of Ex- traordinary Military Expenditures on the money market, we must consider the amounts that were absorbed directly from the money market. To these amounts belong 434,880,000 yen of the receipts from the Exchequer Bonds raised five times in all, the proceeds of 189,060,000 yen from war loans, the receipts of 399,490,000 yen from twice-increased taxation, and 2,331,076 yen of voluntary contributions to the war fund, or 1,025,780,648 yen in all. To the above must also belong the treasury bills issued and the loans made from the Bank of Japan. Thus, the monthly amounts absorbed from the money market were at least 38,000,000 yen or at the most 210,000,000 yen. Now, as regards the items of expenditure, they were very numerous, as explained in Part I of this volume; and as their monthly amounts exceeded 60,000,000 yen, as al- ready seen in the beginning of this section, it may easily In- supposed that their receipts and disbursements caused no little disturbance in the money market. 1 Post, pp. 218 I . EFFECTS OX THE MONEY MARKET 201 We shall not here go into the details of the loans raised on account of the Russo-Japanese War, but an idea of the general condition of the market at the time may be gathered from Table F, 1 which shows the results of the issue of Ex- chequer Bonds, which were the principal loans raised in the home market on five occasions. We may note from the above that as the issue of Ex- chequer Bonds was repeated the conditions were such as to be disadvantageous to the government, and the proportion of the net proceeds to the amount raised became smaller and smaller. Generally speaking, however, the result of the flotation was successful throughout the five issues, although the number of applications above issue price gradually decreased. This may seem to prove that the national wealth was ample beyond expectation, but we must not overlook the fact that the whole nation was at that time imbued with such intense feelings of loyalty and patriotism that upon announcement of the issue of Exchequer Bonds it came forward in response and, aided by the strenuous efforts of the central and other banks, made the issue a brilliant success. Thus, patriotism contributed largely to the success of the issue of the Exchequer, Bonds. But it was not only in this direction that the nation's preparedness was exhibited, for it was seen also in the increase in the amount of national savings. During the war the general de- posits at the Bank of Japan were increased by millions of yen, and the deposits at the banks in the chief localities of the country underwent an increase of 85 per cent, or 370,000,000 yen, from October, 1903, to December, 1906. In the same period the postal savings showed an increase of 115 per cent, or 35,000,000 yen. Table G 2 at the end of this chapter sets forth these increases. That such increases took place in bank deposits and postal savings was mainly due to the efforts made during the war, both by the government and by certain sections of the public, especially those in educational circles, to encourage thrift and economy, and also to the efforts of the postal authorities, who 1 Post, p. 220. 2 Post, p. 221 . 202 ECONOMIC EFFECTS OF EXPENDITURES by raising the rate of interest on the postal savings aimed to accumulate whatever moneys were scattered over the country. A o >nsiderable pari of the funds, which were once disbursed as war expenditure-, was in this way converted into such de- posits and savings, and it is admirable that the nation could show such extraordinary economic power at the time. This state of affairs produced a good effect on the security market and the bank interest rates. Though the Bank of Japan raised the rate of interest on loans by 0.2 sen in July, 1903, owing to the stringency and disquietude of the money market ex- perienced from the beginning of the same year, and raised it by another 0.2 sen in December of 1904, in which year the war broke out, by way of warning the monetary circles the rate was left unchanged for the following six months; and on June 16, 1905, as the termination of the war was almost certain and business activity began again, a third raising of interest by 0.2 sen was effected, yet the rate then stood at 2.3 sen, which was indeed the lowest in the four years since March, 1900. The rates of interest throughout the country were nearly in the same condition. Thus, the daily rate on loans, which was be- fore the war 2.2 sen in Tokyo and 2 sen in Osaka, was raised only to 2.3 sen and 2.2 sen, respectively, with the outbreak of the war. These rates remained unchanged until July, 1905, when they were raised by 0.2 sen, or, at the most, 0.4 sen, but this was done in response to the aforesaid third raising of inter- est by the Bank of Japan and was intended rather as a warning against the post-bellum industrial mania. Turning to the stock market, we find that comparative calm, ruled through- out the war time, and no serious depression was observed. Of course, the nervousness of the stock market was shown in its fluctuations every time a war report arrived or a war loan was floated, but no abnormally high or low prices were recorded. Even the stocks of the Tokyo Stock Exchange, which may be called the barometer of the stock market, were quoted during the war at monthly average prices ranging between 1X2 yen in June, 1904, and 148 yen in January, 1905. We have seen that the demand and supply of capital during EFFECTS ON THE MONEY MARKET 203 the war were regulated in a comparatively smooth manner, and we must now see whether the currency system was seri- ously affected by this unprecedented event in the history of the Empire, since this is an important question to be con- sidered, especially in the case of a debtor country like Japan. Let us first of all glance at the figures indicating the balance of foreign trade : Balance of Foreign Trade Year 1903 1904 1905 1906 Exports Yen 289,502,442 319,260,894 321,533,610 423,754,892 Imports Yen 317,135.517 371,360,739 488,538,017 418,784,108 Excess of im- ports over exports Yen 27,633,075 52,099,845 167,004,407 4,970,784= a Excess of exports. We see that during the war the increases in imports were great, a decrease of 70,000,000 yen having occurred only in the year 1906. It was fortunate for our economic community that trade remained active, in spite of the fact that navigation was rendered dangerous by the appearance of the Vladivostok Squadron and the Baltic Fleet. But the considerable excess of imports over exports, which amounted to some 246,000,000 yen for the first three years in the foregoing table, was due to the necessity of getting from abroad the various materials urgently required for the prosecution of the war. Indeed, the expenditures which belonged to the payments abroad reached 233,000,000 yen, viz., 177,000,000 yen for the army and 56,000,000 yen for the navy. The balance of foreign trade being as stated above, the next thing to consider must naturally be the difficulty of maintain- ing the specie reserve. At the commencement of the war the government gave the most careful attention to the mainte- nance of the specie reserve by economizing the use of foreign goods, by restricting the treasury payments abroad, and by causing the Yokohama Specie Bank to effect an extensive pur- 204 ECONOMIC EFFECTS OF EXPENDITURES chase of drafts in the export trade and to limit the exchange transactions in the import trade. The government, moreover, undertook to raise funds by means of large foreign loans. In the expenditures of the Russo-Japanese War some 500,000,000 yen were met by foreign loans. It must not be forgotten that the funds raised by these foreign loans formed in reality an important factor in the maintenance of the specie reserve. The repayment of the loans- made by the Bank of Japan, ef- fected by means of these foreign loans, reached 304,000,000 yen at the end of June, 1905, and the amount of the specie sold to the Bank of Japan came up to 329,000,000 yen. Further, the government endeavored to keep the foreign exchange favorable to this country by a cautious handling of the funds obtained through foreign loans. The government also issued war notes at the seat of war and made them tem- porary currency by economizing in the use of hard specie money. These war notes rose in credit at the theater of war, and the amount of circulation at the end of each month ex- ceeded 90,000,000 yen. The government's endeavors to maintain the specie reserve, in spite of the enormous war expenditures, thus proved suc- cessful, and our convertible note system was fortunately kept intact. Consequently, no destruction of our currency system resulted from the expenditures for the Russo-Japanese War, which were the gravest economic burden ever borne by the nation. The economic effects of these war expenditures, therefore, are not to be sought in a direction such as the is- suance of inconvertible notes, but in the effects caused by foreign loan-. Thus, the maintenance of the specie reserve was successful, but there can be no doubt that the payment of the war expen- ditures brought about an inflation of the currency. Though there was general facility in the accommodation of funds, and the importation of foreign capital was successful, yet the loans made l>y the Bank of Japan amounted to a great deal. As an abundance of capital may generally mean a phenomenon ap- pearing in tlie market through the channel of the Bank of EFFECTS ON THE MONEY MARKET 205 Japan, it itaturally follows that the amount of the bank's notes was inflated. The following table gives the amounts of Bank of Japan convertible notes and specie reserve : Convertible Notes and Specie Reserve of Bank of Japan Date December 31, 1903 March 31, 1904. . . June 30, 1904 September 30, 1904 December 31, 1904 March 31, 1905. . . June 30, 1905 September 30, 1905 December 31, 1905 March 31, 1906 Convertible notes Yen 232,920,563 213,149,185 232,072,757 239,964,281 286,625,752 251,202,479 265,514,474 262,690,683 312,790,819 269,091,983 274,576,279 277,502,732 341,766,164 Increase or decrease com- pared with amount on Oct. 1, 1903 Yen 27.430,530 7,659,152 26,582,724 34474,24« 8i,i35,7i9 45.712,446 60,024,441 57,200,650 107,300,786 63,601,950 69,086,246 72,012,699 156,276,131 Specie reserve Yen 116,962,184 92,127,709 92,793,834 110,002,094 83,581,226 102,163,093 107,732,010 104,049,186 H5,595,026 122,732,662 143,621,797 146,117,315 147,202,125 Increase or decrease com- pared with amount on Oct. I, 1903 Yen 882,389 23,952,084 s 23,285,959a 6,077,699 s 32,498,567 s 13,916,700 s 8,346,783* 12,030,607 s 484,767 a 6,652,867 27,542,002 30,037,521 31,122,331 Decrease. According to the above table, the inflation of convertible notes is found to be very remarkable; the notes, which amounted to less than 210,000,000 yen in October, 1903, averaged more than 230,000,000 yen through the year 1904, more than 250,000,000 yen through the year 1905, and went up to more than 270,000,000 yen in 1906, showing an average increase of 20,000,000 yen per annum in these three years. In the meantime, the specie reserve gradually decreased up to the close of the year 1905, but it increased again in the ensu- ing year. This, as before mentioned, was due to various measures taken for the maintenance of the specie reserve, and more particularly to the importation of foreign capital on a gigantic scale by means of foreign loans. The inflation of currency should cause prices to advance; but as the effects can not appear immediately, no extreme rise in prices seems to have taken place during the war. If we consider the advance of prices on the basis calculated from 206 ECONOMIC EFFECTS OF EXPENDITURES October, 1903, on, according to the index number of prices reported by the Bank of Japan, we find that in February, 1904, the number stood at 104.47 and in March at 105.07, while afterward it declined somewhat and stood at 100.78 in June of the same year. The highest point was 115.66 in August, 1905, and 116.76 in March, 1906, which could not, as yet, be looked upon as an abnormal rise. The war expenditures and their effects upon financial circles, as already stated, may be considered to have been calm and to have had no bad consequences. However, our attention must now be called to the direction in which all the funds disbursed as war expenses flowed out. The enormous amounts of foreign capital imported and the private productive capital specially absorbed by the National Treasury were all lavishly distributed throughout the country; and, in conse- quence, though some of the funds thus spent returned two or three times to the Treasury, most of them enjoyed a large circulation at any rate, finding their way to various parts of the Empire. Yet no new enterprises were undertaken with the funds distributed, and there prevailed a great general con- servation in the enterprising circle, which was then in a rather quiescent state. Therefore, in 1906, an enormous amount of capita] was floating among the people, as evidenced by the increasing bank deposits and postal savings during the war. Now, let us see in which direction the enormous amount of idle capital made its way. Post-helium Mania jor New Enterprises Along with the victory in the war, the enterprising spirit of the public, so long kept down, was roused to full action. By dint of the extreme thrift and perseverance which the nation had doggedly maintained during the war, the funds for in- dustrial enterprises were now abundant, and prices had risen in -nine extent, while the foreign loans of 500,000,000 yen contracted after the war added to the available funds. Many enterprising people or men of business ability were trying their fortune in various undertakings, now that the govern- EFFECTS ON THE MONEY MARKET 207 ment had carried out the nationalization of private railways, and conditions in general were favorable. The war having closed with honorable victory, the fresh self-consciousness felt by the nation as one of the first-class Powers in the world did much to make action more energetic and vigorous in all quarters. At this juncture, the enterprising circles could not stop without engaging in brilliant activities, and general views of these activities will now be related in order to elucidate the effects of the enormous expenditures for war and armament. The first symptom of the post-bellum activity appeared in the stock market, where the boom was most significant in rail- way shares, due to the government's plan to effect railway nationalization immediately after the war. This activity was also seen in the stock of various industrial companies interested in such military supplies as woolen fabrics, flour, etc., because these companies, on account of the war, had gained increased profits in their lines of industry. We have no space here for dealing in detail with the conditions of the stock market at the time, but Table H 1 is given to show the quotations of a few principal stocks for "immediate delivery" on the Tokyo Stock Exchange. In September, 1905, when peace was restored and the na- tional dissatisfaction with the conditions of peace reached its climax, the market became exceedingly dull. However, it showed a gradual recovery, and the highest quotations were recorded from the close of the year 1906 to January of 1907. Table I 2 gives a comparison of the quotations on September 4, 1905, when the peace treaty was concluded, with those on January 18, 1907, when the stock market arrived at the zenith of activity. It will be noted that in less than half a year there was an enormous advance of 221 yen in the Kanegafuchi Spinning stock and of 603 yen in the Tokyo Stock Exchange stock and the profit basis, or actually reckoned rate of gain, on the vari- ous shares was, with a few exceptions, far below 5.5 per cent, which was the rate of interest on fixed deposits in Tokyo in 1 Post, p. 222. Post, p. 223. 208 ECONOMIC EFFECTS OF EXPENDITURES January, 1907. The stock market was then at the height of it- excitement. Activity in the stork market naturally leads to a fervent desire for new enterprises. For a few months after the war the bankers were -till cautious, and the people, taking warning from the bitter experiences they had had after the Sino- Japanese War, acted with deliberation. Consequently, com- plaints of industrial dulness began to be heard. In June, 1906, however, when the boom in the stock market showed no signs of abatement, the mania for new enterprises increased suddenly, beginning with the subscriptions to the stock of the South Manchurian Railway Co. For the 99,000 shares, for which the company invited public subscriptions, there were 106,730,000 applications, or 1,078 times the number invited. The flotation of stock for numerous new concerns proved to be very successful in almost every case, the subscriptions having always reached more than one hundred times the amount issued. Capital could be instantly gathered, no matter what the business was, if the shares were issued in the name of per- sons looked upon as able business men. To illustrate this wild trend, we give Table J 1 , showing the numbers of com- panies started, with amounts of capital paid up, for three years, [905 -1907. In the above-mentioned table the amount of capital in the transportation business is seen to have decreased (hiring the three years, due to the carrying out of railway nationalizati< >n. In all other activities we note a considerable increase, and it specially evident in the case of industrial and commercial companies. The kinds of enterprises started after the Russo- Japanese War were electric light and power supplying, flour and fertilizer making, etc., which were quite different from those in banking, insurance, and transportation, that prospered after the Sino-Japanese War. These were characterized by being gradually planned on a larger scale, obviously tending toward centralization in each particular branch of industry. The activities in the stock market, as well as in new enter- 1 Post, p. 224. EFFECTS ON THE MONEY MARKET 209 prises, were so keen and flippant as to cause the people in general to turn toward speculation. Many "irregular cus- tomers" appeared among those frequenting the stock market, and some who succeeded in making enormous fortunes at a stroke took to sumptuous living and bore themselves haughtily in the world. There even appeared many simple farmers who deserted their hereditary occupations and invested their funds in speculation. At last, however, the time came when the temporary and unstable activity caused a reaction. On January 19, 1907, an ominous sign of darkness had scarcely ap- peared in the stock market when the values of all stocks abruptly plunged down with alarming rapidity, resulting in the ridiculous failure of those interested in the stock market, and in less than three months the stocks all depreciated below their values quoted in 1904. This abnormal depreciation naturally produced an effect upon industrial enterprises, and the vanishing of bubble companies caused many bankruptcies and nation-wide distress. The post-bellum economic action and high-spiritedness of the people were significant and wonderful, and this, as al- ready explained, could not be regarded as without reason. But it is obvious that this economic expansion, which was so sudden and unstable, must have been principally attributable to the superabundance of floating capital scattered during the war. When the large sums of money found their way to every part of the country, they ought properly to have been turned to account in the most suitable or productive manner. Un- fortunately, however, the people did not care to rely upon such a measure and finally gave themselves over to unsound speculations and risky enterprises. The same economic phenomenon was experienced after the Russo-Japanese War as after the Sino-Japanese War; the activity and the reaction after the latter were due to the plethora of funds obtained through the large indemnity from China, while the same re- sults in the former case were due to the large foreign loans for the purpose of meeting war expenditures. And the reason why the two great sums of money equally gave rise to an 15 210 ECONOMIC EFFECTS OF EXPENDITURES unsound condition of the market was that in both cases they were spent unproductively. Their unproductive ex- penditure was the direct and indirect cause of the inflation of the currency, as well as of the advance of prices, and went far toward the easy materialization of the spirit of enterprise and speculation called forth by the superabundance of floating money. Here the reader can see the effects of the war ex- penditures, as well as of the expenditures for armament ex- pansion after the war, on the post-bellum monetary circles, and he may further be able to infer the effects of the same in the period of reaction after the year 1907. Anomaly in Financial Circles and Industrial Inactivity As was to be expected, there came a reaction, or a time of economic inactivity caused by the pecuniary distress and dif- ficulty arising from the rough financial policy after the war, from the sudden growth of unsound post-bellum enterprises, and from the widespread speculation incited through the superabundance of funds. This period of inactivity, which began in 1907, has continued up to the present day. Some of the most important events in this period will be given below, and their causes, as we have seen, lay in the methods of meeting the expenditures of the Russo-Japanese War. The reaction in question appeared in monetary circles in 1907. To begin with, in January of that year there was an abnormal depreciation of shares in the stock market, and there was a run on the banks at Nagoya at the end of February. Afterward, bank after bank in various parts of the country met with a run or was closed for business; the banks pressed for payment numbered 58 up to October of the same year, and those closed for business numbered 24. And it so happened that a great panic arose in New York at the end of October, resulting in a considerable decrease in the export of raw silk, cotton yarn, and copper, Japan's most important export articles. This made the financial panic in this country more serious and the money market more stringent. In 1908 the EFFECTS ON THE MONEY MARKET 211 tightness did not slacken, and ceaseless runs on banks or sus- pensions of their business continued. A succession of bank- ruptcies took place among iron merchants, paper dealers, drapers, and exporters at Kyoto and Osaka. This money stringency made the bankers more cautious, so that the rate of interest advanced and the value of securities went down. In June, 1908, the rate of interest at Tokyo stood at 2.6 sen and the average rate throughout the country at 3.1 sen, which was the highest that had been experienced since the year 1903. Meanwhile, the Imperial 5 per cent bonds dropped to 80 yen, and the Tokyo Stock Exchange shares to 104 yen. In the latter half of 1908 and in 1909, the government redeemed public loans amounting to 96,500,000 yen, with a view to helping the public in the supply of capital. The foreign capi- tal imported for the debentures of the Industrial Bank, the South Manchurian Railway Co., and the Tokyo Gas Co., in- cluding the municipal loans of Yokohama, Osaka, Nagoya, and Kyoto, reached 99,000,000 yen. Such being the case, not only was the specie reserve of the Bank of Japan greatly increased, but the capital in the market became so abundant that the people felt that they had found a spring which would restore everything to life. The faults of the new enterprises rashly undertaken or expanded at the height of the mania were now revealed. Sugar factories, insurance companies, aquatic products companies, steamship companies, etc., brought all sorts of ignominy upon themselves, so that at length business men began to find it difficult to carry on enter- prises. Bank deposits, which had shown a considerable de- crease at the time of the depression, now began to increase enormously, and money slackness gradually followed. De- spite the fact that the gilt-edged securities showed a steady ad- vance in value, enterprises remained completely inactive, and economic circles still seemed to be suffering from weakness caused by a long sickness. Properly speaking, the increase of deposits or the appreciation of securities was merely a symptom of the anomaly in the money market, which came of such unnatural measures of relief as the aforesaid importation of 212 ECONOMIC EFFECTS OF EXPENDIT1 RES foreign capital, etc. Tables K 1 and L 2 throw some light on the point- referred to above. In 1 910 the Imperial Government set about to adjust the national loans and made a great effort to increase the value of bonds. As t he result of these efforts, the 5 per cent loan bonds were kept above par, and the government, availing itself of this opportunity, issued the first and second 4 per cent loan bonds with good results; but as the third was somewhat un- satisfactory, the government raised new foreign loans amount- ing to enormous sums, a measure which was then looked upon as a revolutionary work against interest rates, and caused banks in general to lower the rate of interest by 0.3 sen. Here, again, we note a tendency toward industrial activity, and in 19 10 the capital for starting new companies and banks and for expanding old enterprises amounted to 487,000,000 yen. This, however, was a mere momentary impulse, as afterward the rate of interest was often raised, but never lowered, until the close of the year 1913. The securities gener- ally kept a downward tendency, many banks and business concerns failed, dulness reigned in the market, prices gradu- ally dropped, and the balance of foreign trade continued to be unfavorable. The table immediately following, and also Tables M 3 and X 4 at the end of this chapter, will serve to confirm what has been said above. Amount of Capital Subscribed for Industrial Kntkri'risks Year [907 ,,,, ,- [909 [910 191 1 i'ii • 1913 For establish- ment of new enterprises Yen 458,091,000 75.343.ooo 63,393,000 27 1 ,<> 10,000 276,207,500 333 485.000 1 83,31 "■"' '" For expansion of old enterprises Yen 216,686,160 59,889, 1 20 64,864,535 215,390.650 1 1 ).< 132,000 187,623,600 196,983,250 Total Yen 674,777,160 135,232,120 [28,257,535 4*7,000,650 421,139,500 521,108,600 380,373,250 1 Post, p. 225. 1 Ibid., p. 226. 'Ibid., p. 227. 1 Ibid., p. 228. EFFECTS ON THE MONEY MARKET 213 U Total amount of circulation xoooopioox -t- r~ fOX O O O PI tOX 1000 10 a t^o 0" pi O to r^ *< m c^r-^ ^ 0_ O^ lO Pl_ +vO I-; +0C "O -t 0" 00" ^ to 6" 0' C" lc pi 10 100 00 C — C ■^ ?! ~ a « vo 1- c c "o , PlOOOt^O 3 ! ' n it, -f n ? O C^ PI -fON H M M m roO M PI Temporary issue Ironi the stock of new paper money re- served for exchanging with old notes OOOOO l^vo c PI PI l- 1 O O C O -1- tO « § ; ; ; c x ■ -f - x S- OOCXPlO" ; t^x c-o r- ONt^O O C -* •+ C* vC -no OOO'O C « C O lO-C 1^ fOOO 0_ 0_^ 0_ 0_ CO00 w t>. rj 8 1^0 o" pi O i-> pi fO^>oo ./"toOOt^OXCXPItoO ^OCIOPIXPIXPI to 00 X_ -f O" 1^ O" "f N d ->" t^ tO ^ pi 10 i/}\o vo n c? c> c~ r - nioo r» O pi "0 pi r^o CNtot-. . . . .HflMCOOll 1 8 4u",»a Nifio ►*> . . ' ' t - to o> x Tt- i-*i t>. -f « t^O PI X 4 4o" rOM d 'd PI ir,x X X i-i Convertible notes of the Colo- nial ( rOV- ernment ol Hokkaido c s ----oo-i----- K . O X PI ... . ^ .... O M O ... . IflM t Op Pi" ( Convertible notes of the Depart- ment of Finance 11 1-1 c -1- - g • • • O "-• >o • • • • ^> : : : cT vo . . . . ^ . . . >■"- 1 — 1- . . . . l^X \C to TpVO O M g t— O O tO '■fO vO -f\0 O O C to PI >t» -J-X g •XOOXXvCX>-'0 • .^ ' O O ■» t-^ r-^ c£ ►^ 'ooor^-i-i^to-t-'-' . ■ O lO IO ^- M to tO IO IO pf r-Cr-Cj^t^o pi m — ■11 o- O O X PI t- C — 10 XOOOW2PIOPIPI-1" tOOOCOI^'O'-'O m £r^OOO^tOto««0 '. s" to 100 i^x c t^ . c pi x m "i 'i z -t- x x x to -c c c rr : to cs -1- -1- -1- -1- to t| 00 O^ O i- 1 pi to -t- IOC I^X C £ i-~ 1-^ I — 1 — I— t — t^ t — 1 — xxxxxxxxxxx 214 ECONOMIC EFFECTS OF EXPENDITURES Increase or decrease as compared with preced- ing year - \n reoC -T ■ \r> r^vo O oc I N I^ NOO t * \r. -T -5-00 >0 " N d - ^O ++I 1 1 a o H m n r- -to « oo -T c ~". n — fN X ^ C X c *> Oi t o> m*o o .— Ov *- sO re ^ PO C - »e + o> re Increase or decrease as compared with preceding year - xr. 00 i~ -e • t; w o «e in ~ ■ 00* d I - c" c « . O NOX N ++-r+l o >- o ^ .- x C >e O « «-> - § + m' 6 d d d K ■* "". i- t 2 a ■ c" . -" n oo "^ >i so o ~ ~c o re Oi ic*0 re ++ 1 1 1 4J >■ B " °s° - 5 S 12 »« t. o «j S H > c. M P, ►h o - c ><-. -r X c> o* w x o a -e i^x x o >e > >r. C - I T C Ifl ir. oid 'tOO c «re « ih Temporary issue from the stock of new paper money re- served for exchanging with old notes p| N M M 11 O __ -r re - -_ - 1 q £ -f - si ' s: x o" K NvC - - Cl O x c\o *- m o c c c -e e. ^ I- y. 88.687.000 89,245.932 1 19,800,475 1 14.100.S04 [ 08,41 2,369 105.905.194 Dajokan notes and Mimbusho notes fe ~ l-X ■ • •>* " ! 1 '. "--• ^foc .... 1 - \r. -? 4 r. > c 1 - /: O C ~ i~ i- t- 1- x x EFFECTS ON THE MONEY MARKET 215 U u>« 01 1 ji a x numbe prices moditie ially re ed by th< kof Japai *r>\0 n mo ic vO ^-ih o>o\^ M M M Inde for com spec port Baa 'o u c ,—- -^ S 62 i 11 CJ ro >0 lO O^OO O 3 _ _ _ on n t^- -a c l-H l-H 1-1 >- ~ £ t- u a ■82 __ C v_, 03 l ~ _l 3 C c < ro r^ M mvO *+ c 00 N O^OO CT* N ^ rO rc r)-00 w tJ- 3 ,£ m pf w C?00 1-1 O O NCM^'l-'O^ E < N fOtON mm u - • (V) O C^ N • 0) C w u T3 c CI > £ o 000 ^ • " KO >0 •* t1-v£) 3 <-) r3 -C - n J" C Oh 3 *-*H O O DC' °u .£2 O a 5 2 1 t-» rJ-OO 00 ►- t^ O^vO 1-1 O (S >-i "5 C " en *£ _o •S<2 J3 C w £ 1—1 aj - O _ _, O M O O, _ g ir;oo «NO 1- ■* irno 00 00 00 00 00 00 00 00 00 00 00 00 H H M l-l IH M 2l6 ECONOMIC EFFECTS OF EXPENDITURES o 5 ... s. - < _ X Z IO u-.ir.~-x. -t -t -tO — CO CO CS -X iron i-";n ?o»o -t — c 'i ". 4 c u". >: - co r^ c?n co c: tT--t-MKOO?ooo — CN "tv o CM O -t« ■+ (M IO 1^ 1^ — _ X x sj in — - - t < *, 6 - i — i. = !•& n C 'i m r- z c c C 01 "000 — — 00 c i-x C 1^ co CO 3\NO« i - O 00 r^X O N m M00VC • 00 (O -t N C • m r-. ^ — 01 O j« Ohio . CS N CO 01 -t . C -t o r 1^. -t -t 1^ . . M O ►"• O 0> . *-tx c CO C C c<5\C N OfO « N - X o -1- Z CO W r i co c >o x: m -t IO — N PI — 01 CO co — — 01 £ — .-- _ O O -+ 01 -+ 01 r- in -t CO CO TtO (N CM -+ c~ c o t- io -t- "NO C c ir.-tN:c co — rex n c -J\ IO — O io ^i rj — COOO — X 'i t - N £ -f-O -t-tC CO Th ~ c n x' -t - 6 ~ & cox" — r co r. r c-i O C X) u"> r O cOO — r O CO CO co A i — r J 3* IO "tX X C ><". r-\ IO x : r i -i- 'i -i- - '■i cox ■ c c- z — io i - O O -' z' CO c-foo' m" — IO iO — I - I ~0 CI O co 01 io COX i - >o s ^ s U O 01 0ZQ U — Tj 0> — . — . — .u. 2 < g >, u iiJga . = 3 = o, u .^ ^ ■&8I EFFECTS ON THE MONEY MARKET 217 O 01 bh O O^" ^"O O O "- 1 — N- 01 to O ►-■ -^ O 00 NM COOOvC ^M too^f^ tJ-O bh On OO^O O 10* -+00 00VO O^O^M to oi~ o~ o rCro>-3Cf;c>oo-t--t->ooo _ ,_ o bh 10 "t ^ * c^ o too o icm-t _ — _,,_|_B*B*ClPlPIPIO|ClCl 1-1 N 01 to 01 NOO 1- N0C flON" NO O N On On N 00 to 1- lO CI 00 O ■>*■ 01 O >-> i- 1 -> 1-1 01 01 CI CI CI CI CI O rO 00 10 O. CO O 00 O «iO^ O On N00 "■*■ "0 \0 fl CO "+O 0_ ' vo" "- 00 ci* irioo" iOo n o o to -t ci n o> o> 00 ON +0 o Clio 00 b NmX rO 00 O N ■ • tO 1- IO O N h © n ! ; -f n « iri co b- n co. . n o O b« bh ION ON "+ O C ■<+ 0> no" 6" n -f o~ o 10 CO M -3- M -fB N « 10NC7-0 m Nm « -flOMOO +(>HO « -i-cicoO VO O^'tNW "t(M to too ci 10 "OCITl-O tOO O O " O30V0 -+00 •=*■ to uit>NO C? 4 O*o0 vo" NO iCj ui O 10 Pi CO NO ") 01 O + 10 01 -t CI X " V0 noc cooo vo rt- ^t-00 m too "ovc it; pi 00 vo c? O lO >- vD "O 01 ■too* *mn tOO OO b Pi IC to 00 to CI O boo o> O to O O OO N-J-N N bh to •+ 01 N On -+00 CI \r, 1 -, o -C ITjX CI CI BH* ON O O" O M b to C bh M C* CO NX* bh C N to i^vO O«00 -t- O bh to LOCO -t tO IT, IT, C O N OC on bh . 1^ O POO O *1"X O m o « t^- « o t>. -^0_ M_ t-; 0__ OCN »0 i-t 00 00 O fO M l^. LOX \2 O ~ MOO o^ 1 cccoocco OQQOOOQO coooocco o o c o c o o o o o o o o o o o o o ■^ cccoocococco ccooocooocoo C O IC lO »C lO ID IT, O IT;1/)Q o o o o o o o c o o o o O lOiOiOO o o o o o o o o o o o ooooo 8 : : : :::::::;:;;; '. d d d d d & ooooo -^ o_ q o_ o_ o_ o" o" >o iO iO «£_ 5 fe^-H ir.iCir, o CX O C O . -+ M to — 00 lO "St- O O >ONrc« lOtC Lfi i - -1- O x cr x looo h q w O* IC r^ C~ fC -' CO UOO PO *i- >- — \C r^Tt-« mx icfcoio -i-x — lOCX— X -t IO O M N iC O « O ^ >-" O LOO O O O* ro >0 lOX m lOf^N MX co o Mn^^M w - o E i« ~ o H - N 00 O O pO M I^O 0 i- X ■**••+ -to n 3\0 — X LOOM Nt^lM O C X O O t^. C X LO -+■ tf) M iO C__ M O C" M* r0 t? O 'O K m tON^fi i-X NC -*f t^O O O O O O -t- -h ~ Tf-i-XX O O OCX O M O 'i-X P0 IO — O 1^ t^- M X "i" . 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'. vo m ""in ton NnO rooo iO N mO'-m'+Oco cO co O nC •+ On n 01 10 10 m n rOOO rf co -f On 00 no m^o oj M M fN| M 00 m on VD CO o 01 O-00 t)- On O O O NO On co l~-» m OnnO NnO no , " NO COnO CM m l~» tN OnnO 'Mf On 4J 1) CJ >> too," > > ° > rTr + J ° > tj "tMr>.4' « -^ ^ 3^ 3 3 J2 <" U "^ cj OJm-. J~-m 3 M-,MH f<<<< M-vM->< [/j O *£ Q M-,(l, ^ < <" M-> c — 3T3 tu CJ it rt ■a H -3 a It) -1 U S CJ 3 -J ■a CJ -Ml 3 MM S M [\ c u ? fl ~1 r) •n i3 > ct] x: S *J c 1) u SJ tf c FS 3 H ID mx! ^ .'/> (J 'j -n ai T3 3 Ml CJ c cfl -0 c > >-* ex a D 3 -a 3 cd S it eg -Tl T) ■0 ' a j I-. c-a ".J OJ O JST3 Ml id 03 H V :- * xi ■c 220 ECONOMIC EFFECTS OF EXPENDITURES a V O - H = - S, S-TD 3 j i a in O— u .2 = $ §■ o o-9 o ti > *IO^ ■+ rt rj C ^ too to t^ O tagc for as i mou >>. ." tOO N r-» 01 -"Tort U 4) O _ O • - • - -C " — ? rt lO >o -w . t^ 10 O 10 n c ~ 3. CU s ^h C> (N_ CN (S 3 .— u a O O O C — °"c. ° >i tOON 1 - £ — — /I 00 01 < «j N P) lO 1O00' "O (N *f 00 O <* to 01 -+ -+■ - •/. ^ O CJ ■m C tONN I/O 00 3 u w -• 01 SS2 *> O VO O 1^70 ft, ^ 3 /; oii-i to 0) O t^. vO 00 TD _^ - t-;VO O O +j 1) U I) ? -<" 00" -+ 4 • " 1 - y. x 1000 Z 5 " to O 0) 0) £■ of O" w 0~ rf ~ ~ l~» ~ -T- 000 00 000 CO c ^ 0_ 0_ 0_ CD CD 3 ? c 0" 0" 0" 6 •~coc C O 3 *-' c c c c <^ 0" 0" z c" C £ 'X c cu 3 10 (/) "- -r ir. c 'ON '_ -, O _ Q "" £ "-. *Mb _3 >r> U (11 CJ . U ° > u ^. ~ 3 C rt rt <~ ,/ P- ^ EFFECTS ON THE MONEY MARKET 221 O t/> a -s JiO CO - U pq CM IT; O « " M 01 M vD (OCtOO 01 CO 01 >-" 0_vD 0_ O O00 00 i- SO « *co « •+ « o O m -t C -+ O •+ 00 OW N« -t 1 ■ CI -+ i-c tOO_ "0 I M tOsc" oo" -f i-i ' NOW tOOO 00 i to t^so O C"jM Cn i-i 00 so *+ t ^ Os • Os 1^ i- ^ 01_ I"; 0_ t-~ 0"t» "OO lOPI P-c M MlCOO") -t-00 q. os t^ -t q; t<2 n rf i_T rf ro ir; i^ m ►h 01 CssO m tN N to SO toco N CM*/ OssO 01 O O ""5 to tOOO CI ds O C? . t~~ ^ O iC O o>o O" M ^"'n i t^. t^ to i-H t— i—i tO i-i 01 -+N^-OS'ONSO ro„ tO" O ^t-t^to 00 w N 0_^ 01_ "+■ tO >0 S (>h to so oo" -t" i-T -f ►5 1 SO ONIOO lO IO00 i^i ioooso "tnn ■+ w n o ""- n 4 Os O to tO -t"0 i-i tOsO i-i go !-• "o -foo t^ too t-i >-i to o r^so os ci uoiotsi r^ t ^ m uo r>. 8 o^o'oo-f-O'toi-rir-C .^ so 00 00 CI -+■ 0| m 00 >>i o O. Os 't ^ O -+ci oo" cT ds ci — -f iflio to o O Os o fa CU.1 >s o o o o o oj -.O Osj3 ^J . c _ c . c d £ AO 222 FCONOMIC EFFECTS OF EXPENDITURES -a o J2 £J> ■ p/ 00 ir ; M O r*}vO 00 00 t-~00 rc C X iO iO tO Tt ? cooooooo 00 ? N h lO N tO « oocooooooo gM O rO^O CT*00 <-> O 1^-00 x r- € >r. £* on M H S i_* - 2. r~» i-* 2, o 1/2 C g> a H £ c a g rt c a g •x ^ g i—//. Q <--. —>(/:' u ° K 5 EFFECTS ON THE MONEY MARKET 223 o H < H O £> 3'' D 3 C O °° c ~ ° ~ . 0) _ <« C t" too g M flNfl tc ■^ 5 ft. in (n S NO 1^00 ^ ■ • • • <£ 5U 1-1 O u ft, C- "^ to O C CN " m « ^ g O O C5 t>» £ IO20 tJ-vo " ICNNN 3 a. a 8* " cr. c CJ 73 ux mo r>- ■> ,__ M — — 5 ft. 2 be Qfi r. . - S cd 5 .c s^ 5 <-> a a* -— ^ — i^i .— x 3 — s C/5 3 c rt £ wo r*->._ C3 O k / Z^H 224 ECONOMIC EFFECTS OF EMM- MUTURES - = - a K H O g - P o - - "(3 o "-> G 1/10C — in o oo o"o *^ o q m iq °J N 00 o ■- - 5 COG = E A O u -o o r- O fOOO °. "3 °. c". o" o" •* c o a c U H — a ca 3 Is 00 Tf o\ O O 00 q r^ m 8 rf no -' >• -q "i oo o t- o" t*5 ro « in oo" Eo G 3 S 2 § On On rO >0 vO r^ IO a) 01 E o O ■"3 a 2 3 c-a «'3 U G 00 00 00 On On ts Tf l/l ro K 4oO vo" .* ooooo -o* o" On -o c o ■3- in in 10 nO «q i- 4> 0) "3 E'c G = E Z o o o o r- ro ■*Oi "°. "°- ". 00 00 u 3 •a c ■a a 'GT3 «'3 U G On "t On q -t h s 4 » in ^ "t M . °°. MOW o q 00* q oo" w l- 41 4) -3 ■S-S E O G -<_ ^t; i-i CO NO M NO 01 c 00 S NO w t^rooT^N CO t^ i-Too" r-f k~ ■* "3- t-» O rO>ONO OnO iO *+■ ro ►^ iO ro O O *+ On. NO OncO 1-h r>-N0 no i-* fCoO 00~ oo" t-^ l~^ O On o" lO >-. NM N N N (IN N CI CI 01 CI -» CNX ON00 OnOnO 01 00 mnO CO 5 o h h ro n-NO min?\ o coo J fl M « M M « M M fl N m m -aOOOOOOCOOOOO J00COC0 o o o o o o»oo Co ' H M M M fl N fl f| p| h M H o ■ ON t*» SI to On q^ • " i-i oo ; " i-i on On-^ JO On^ _q On^3 j-j " C £ J5* " S d oo i-* . - 2. o> i_" , - On-O _q on^ £ 4) £J o - <" jc ~ E c 0> *- 71 _ a « £ c a « 1(5 226 ECONOMIC EFFECTS OF EXPENDITURES o - ■s. Q y < - z - Z fa / V H ■a! H C '- c < w > ^; tr> *t -rt- oi m r^x i^ -t- -t -< IO On ro l^vO "3" O lOiONO Deposit hanks in ocalities Empi N NH NX flB/i-N fl b O M t^OO t^ lOO O lO "3"n0 IC bb vO M COX) » bO N O ^ cO >- O "3-1-1 O tOiflffNC" Obh 0000 GnOnOnOnQnOnOnOnOnCnOnO ON O BH H c jj rt C 'C O IC Pi N co-O >0 01 -3-0 rO00 M r-~ — o3 9- VD 00 "*■ "3-00 m pO h iOO»? iO00 1^ O "1 rn rt N CO 0) 00 i/} CO "3" O t-i C>M3 O 00 t^O m iObb o t^"3""3-0 r^. tj- t^^O *i" lOvO rO ■*• £ C-00 NO CO "3- ""5 CT 00 »T> O i-i IO00 1^ t^ bb S o ° COM to CO bb 00 00 bboOO OM-i On Cn s O t^ O 0) C\ "-J00 00 O CO00 MD^OvO O NO lO MM M M f| BB — C O 'n_ 3-= P" O M C y 5W Qx rt O 4-> (3 bW o o - u 7. rt Q 0) c c o qpQ rt C/) "-B" Q >. N«NM««NflNNNN«NNN C] N N N N W b0 Cn ON 01 BB N 2> >2 fefe^d & £2*2 5 on-Q ja a-Q ja ON-Q j5 i M cpi' H csi H E - P « S « " «J E i; C3 2 fe u on « H S: in h H : o ii o " „-« 5 y o£ 8 u BB O h q7S " 5 P sTS S ,c/n a S — .r. — 228 ECONOMIC FFFECTS OF EXPENDITURES PQ < - z - z- ■ < a > 2 -^ '-J-?, £ S N MOO Tj-C^OO O 10N1D«00»0 OOO >+ x S « co — r C IC fO N O t^OO O t^NO NO n£> coOiOi^-r^ if 5 ~or^^ii\oO"-oocC00 00 l^ t^OO On CO f>| uo C-nO 1 in • ~ -tlOOMJ CN CO00 t^OO ■"+• « NCItOr -t " On On C rC ~ Z O ~ n oi o « n O i 5'rt Z-_£ y. '1 « - rJ-vO O NO iO"i"COO co On On i nO '■"" tj-00 VO NOMOH CO CN « ID Tj- 0) 00 CN1 CO C ■ O t^- t^ t^NC nC lONC lO co O M O On O PQ»-> \3 \Q U0i/^"^'O'O"0"0 1 '0 l O ,/ 2 l O l/ ^ T J' u ^ -~ ">§ COOOOMOOOOOOiOlO rONO t~» « M N lOvO u") 01 UZ C iOIOm O co t^ l^» ■**■ rt^3 ' ~ ^O O COOOO if,M fl O O h mN^ 'C jj C C C C C- Z 3\ On On On On On On CnoO 00 1) 1 ^ _ ^H H £ o 1—1 bo C -a c V -o o u o C 2 o £ 3 ' o *"' w c\ 2ri "we 3 cn o £ u - o "-' b u on ^ h u on r? h u H --* M oJ=i.n M o»£.q w O-CJa £ M 6 gj3" H 6 gjs" H c gjf H c g P £ a -. / 2 % £ / (f H ►1 1 - / c % -^ C CHAPTER IV EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE We can not here attempt, for want of space, to enter upon thorough inquiries into all the relations between war and armament expenditures, on the one hand, and industries, transportation, and commerce, on the other, or to deal with them conclusively by giving detailed statistical facts for all the different branches of industry. In this chapter, there- fore, we will briefly outline the development of industries, transportation, and commerce, proceeding no further than to conclude roughly what relation they bore to the expendi- tures for war and armament. Since the effects wrought on industries by the raising and disbursing of funds for war and armament expenditures were revealed in various ways, our observations made on two or three phases thereof can by no means cover the whole field, inasmuch as we should, in accordance with the theoreti- cal principles of economy, look into the improving conditions of industries, transportation, and commerce, and try to make historical observations on these state expenditures in connec- tion with these conditions. We will leave out of account, however, the effects arising from taxes or the national loans belonging to the receipts, as these are dealt with by other investigators, and likewise we will not consider here the remote effects on labor, capital and nature. Thus, with the scope of our questions shortened, we have to state, first, what effects the war and armament expenditures had upon the circulation of money, as well as upon the accommodation of capital; and, secondly, what effects these expenditures had upon the demand and supply of commodities and in conse- quence on industries, transportation, and commerce. But as the former question has been already treated, in this chap- ter we will devote our attention exclusively to the latter. 229 230 ECONOMIC EFFECTS OF EXPENDITURES Effects on Industries Primitive Industries Japan lias remained an agricultural country for thousands of years. Even in the early part of the Meiji Era, agricul- ture was looked upon as the most important basis of the national prosperity; and of all the agricultural products, rice had the largest output and barley was next. Raw silk and tea were gradually improving with the increasing demand for them in foreign trade. Besides the above industries, fishery and forestry have also made great strides in the last forty-six years. We give lure a condensed table showing the chief produc- tions in the years 1877, 1893, 1903, and 1913, in order that the improvement of these primitive industries may be seen: Production of Primitive Industries Articles Rice (koku) Barley, rye and wheat (koku) Beans (koku) Cattle (head) Horses (head) Tea (kwan) Raw silk (kin) Fisheries (yen) 1877 116,599,181 9,620,490 1,642,183" 1,080,414" 1.540,588 2,761,523" 1893 37. 1 99, 663 [( ..1.36,588 3,052,337' 1,105,201 i,56i,373 7,640,368 7.709,713 [9.950,451 1903 46,473,298 15.545,105 3,647,830 1,286,116 1,523,745 6,711,112 1 1,478,700 42,145,602 1913 50,255,267 ,050,454 ,511,000 ,399,498° ,581,743° ,679,810° ,410,563° ,731,407° 1878 1894. 1912. Though the above statistics give only a general idea of the primitive industries, yet they show a considerable progress in the period covered. The progress, however, is far inferior to that of commerce and industry, as will be shown further on, due to the fad thai the natural conditions of the country and its relations with foreign countries did not allow it to remain solely agricultural. And this situation may be expected to develop much more in the future. That raw silk and tea products show a more remarkable increase than any other articles in the above table is entirely attributable to the growing foreign trade of Japan. We may be sure EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 231 that there existed some facts showing that the expenditures for war and armament increased the demand for these products, raised their prices, and improved production in consequence — the direct relations of cause and effect to war and armament expenditures and the primitive industries. No data, however, are now obtainable to illustrate statistically the existence of these relations. Modern Industries According to investigations made at the close of the year 1912, the number of factories in Japan was 15,119, the num- ber of artisans was 863,447, the number of common laborers was 164,718, and the consumption of coal exceeded 9,100,001,- 700 kin. Of all the industries, 4,403 were carried on under a company system with paid-up capital exceeding 677,794,- 000 yen, while thirteen enterprises were carried on with a paid-up capital of more than 10,000,000 yen, viz., brewing, sugar making, cotton and other spinning, shipbuilding, mining and refining, coal mining, petroleum mining and refining, electric light, gas, paper and pulp making, cement, and fertilizer making. The progress of industries in Japan, if compared with that in Europe and America, is very trifling, yet no one can deny that Japanese industry is in process of im- provement. Her rapid industrial progress is shown by the fol- lowing statistics: Industrial Progress of Japan Items 1877 1893 1903 1912 Total number of factories 5,985 8,274 I5,H9 Factories using motive power (included in the above) 2,409 3.74i 8,7IO Working hands. . . a 483,839 863,447 Laborers a a 164,718 Coal consumed in factories {kin) . . a . . . . a 9,117,638,891 Industrial com- i,367 b 2,441 4,403 panies Paid-up capital of industrial com- panies (yen) .... 89,<,oo,900 b 170,346,340 677,794.564 No returns b At the end of 1896. 232 IX'ONOMIC I I I It IS OF EXPENDITURES The following table, showing some principal products of the industries, reveals the progress still more clearly: Principal Produ< rs of Industries of Japan Items 1877 1893 1903 • [912 499,000 ".570,748 9,542 2,862,416 3,346,158 30,025,201 4.535-305 83-644 228,544,320 10,666,744 80,718,507 3.842,973 2,188,171 s 3,931.384 51,275,587 3,627,322 s [0,088,845 55.312,343 9,016,383 1,065,116 388,712,866 39,120,772 85,075.275 b 3,836,750 6,855.525 6-975.542 134,006,795 8,508,704 "». "38,755 104,037,499 18,497,265 1,458,290 634,142,780 67,912,083 104,123,812 4,486,823 Copper {kin) Iron (kwari) Petroleum (crude oil) . . {koku) Matches (dozen) Cotton yarn (kwan) . . . Home-made sugar {kin) Sake and other liquors {koku) P^uropean paper {yen) . . Porcelain and earthen wares {yen) Textiles (yen) Mats and mattings for floor {yen) 20,092,463 16,545.545 337.230,152 10,703,738 1894- b 1901. In the above table so many figures are wanting in 1877 that no conclusions can be drawn therefrom. But those industries which had begun to improve from the year 1877 and returned a fair output in the year 1893 showed in 1903 quantities nearly twice as great as those produced ten years before, that is, the production of coal, iron, petroleum, cotton yarn, European paper, textiles, and mats, at least, increased to double former amounts. For the nine years following 1903 the progress was not so remarkable as before. Though at the close of the year 1912 no industries but foreign paper, por- celain and earthern wares, and textiles had more than doubled their previous production, yet it is past question that all the industries, continuously improving, indicated steady increases in output. In the last ten years the most wonderful progress has been made in both the electric supply and electric rail- ways, and the paid-up capital of companies interested in these lines of business, amounting to over 87,000,000 yen at the end of 1907, is over 250,000,000 yen at present. So far we have outlined the development of industry in EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 233 Japan and found that it advanced with great rapidity. Now, leaving out our study of the relations between the above- stated industrial progress and war and armament, we will try to treat of the war and armament expenditures as the direct cause of the industrial improvement. It may be noted that there were different effects of the expenditures upon different industries, as military demands varied accord- ing to the nature of the products. It may also be said, there* fore, that the war and armament expenditures had more direct effect on industrial products than on agricultural prod- ucts. As most of the agricultural products are, as said above, the necessities of the whole nation, it is difficult to affirm that they were conspicuously affected by the increased military demands. Now, by turning to the production of coal, which is regarded as the most important of all the industrial products in time of war and is affected directly by the expenditures for war and armament, we may determine the relation between the expenditures and general industries. This relation can be known only in the years 1904 and 1905, when the war expendi- tures reached an enormous amount all at once, as it is very hard to illustrate statistically such an economic process as that the payments of expenditures caused demand to increase, prices to rise, and production to grow. With little or no statis- tical data at hand, we will not dwell further upon this subject. Table A at the end of this chapter 1 shows the domestic consumption of coal from 1903 to 1906. The consumption of coal used for ships in 1904 and 1905 was larger than in the previous year, and this increase was, as anyone can see, due to the war. The average price of coal was 5.81 yen per ton in 1903, 6.53 yen in 1904, and 8.35 yen in 1905; this gradual appreciation in price was due to the increasing demand. Accordingly, as seen in the following table, the output of coal, as compared with that of 1903, also increased gradually by more than 634,000 tons in 1904, by more than 1,453,000 tons in 1905, and by more than 1 Post, p. 242. 234 ECONOMIC EFFECTS OF EXPENDITURES 2,891,000 tons in 1906, increases which were chiefly due to the advance of the price of coal. Amount and Value of Coal Production, 1903-1906 Year 1903 1904 1905 1906 Production Tons 10,088,845 10,72 11,542,397 12,980,103 I net' as compared with i«m.;, Tons 634.951 1,453.642 2,891,258 Value Yen 28,978,829 29,218,134 40,196,695 (.5.144,000 Incre. i-r as compared with 1903 Yen 239,305 11,217,866 34,165.171 Effects on Transportation Land Transportation There were no railways in Japan prior to the construction of the Tokyo- Yokohama line, which was completed in Sep- tember, 1872, and horses or cattle were the sole means of con- veyance. In the War of the Restoration and in the Satsuma Rebellion so great a number of cattle, horse-, and coolies were collected that the expenses therefor constituted the largest part of the war expenditures. The government having learned by experience the convenience of having railway traffic between Tokyo and Yokohama, and the great trouble caused by deficient means of transport, exerted itself to the utmost in the construction of railways. At last, accordingly, the government caused the Nippon Railway to be laid by private hands in 1882, and further planned to lay the Nakasen-do Railway by itself. The mania for rail- wax- enterprises was most intensified for some years after 1887, and the aggregate railway mileage in this country already extended to 2,000 miles before the outbreak of the Sino-Japanese War. Though the transport of troops and war materials led to a temporary interruption in the trans- portation of general merchandise during the war, yet immedi- ately after the war it was restored to its former condition, with more favorable return for goods and passengers carried in 1894-95. The result was that various railway companies EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 235 were financially successful. Just at that time, the govern- ment, disinclined to have new railway companies started, in order to avoid the fixation of capital, refused to give license for their construction. The mania for railway ('in- struction again appeared after the war, and the government itself attempted to carry out the extension of railways on a larger scale. The railways were of so much greater use in carrying troops and munitions in the Russo-Japanese War than in the Sino-Japanese War that 97 locomotives, 36 pas- senger cars, and 1,835 freight cars were devoted exclusively to the use of the field railways. Such being the case, the domes- tic railways found themselves in so great want of cars that traffic was inevitably held up and goods became congested at various points. The railway statistics during the war indicate a slight increase in goods and a slight decrease in passengers carried in 1904-5, as compared with former years, while the average mileage of goods and passengers trans- ported shows a considerable increase. This was all due to the busy conveyance of troops and munitions, and the fact that this phenomenon is more particularly recognizable in February and March of 1904 confirms our explanation. The railways were so busily occupied in transporting troops and munitions during the war that the general traffic com- munication was greatly interfered with. The balance-sheets of the railway companies, however, showed the best profits that had ever been obtained, because the transportation of troops and munitions could be carried on with comparatively little expense. After the Russo-Japanese War, the mania for railway enterprises showed signs of beginning again, but prior to its reappearance railway nationalization was finally carried out. From the standpoint of the government's policy the nationalization of railways had been expected from „ the beginning of the Meiji Era, and it was realized, as already stated, just after the war. Government ownership of rail- ways was then insisted upon principally on the ground that it possessed an important military value. The Meiji Gov- ernment was guided in its railway policy at all times by mil- itary considerations. 236 ECONOMIC EFFECTS OF EXPENDITURES Water Transportation In considering the matter of water transportation in a limited sense, namely, as regards the improvement of the mercantile marine, we note that there always exists, as in the ease of land transportation, a elose relation between the shipping business and military affairs. At the time of the Restoration, vessels of foreign style had been already imported, but they were of little importance as means of conveyance in the War of the Restoration. In the Saga Insurrection of 1894, the military transport was effeeted ex- clusively by the Mitsubishi Steamship Co., successors to Tsu- kumo Co., and in the Formosan Expedition that company was again held for the service, as the American Government was disinclined to have the vessels of the Pacific Mail Steam- ship Co. engaged in transporting armies. The Government accordingly purchased fifteen steamships from abroad for the purpose, all of which the government turned over to the Mitsubishi Steamship Co. after the war, and ordered it to occupy itself with coastwise navigation and mail service. At the outbreak of the Satsuma Rebellion, the company was thrice called tipon to render important service of military transport, getting ten steamships purchased with a subsidy -700,000 granted by the government and its own capital of ^380,000 in addition. These ships all came into the com- pany's possession again after the war, when its ships numbered fifty-six in all, or 80 per cent of the entire mercantile marine. Thus, the company was apparently monopolizing the carry- ing trade of Japan. Since then, competing with the Kyodo- I nyu Kaisha or driving out the Pacific Mail Steamship Co., the Mitsubishi Co. has at last grown to the present Nippon Yusen Kaisha (Japan Mail Steamship Co.). In the Sino-Japanese War, fifty-seven ships (130,000 tons) owned by the Nippon Yusen Jvaisha, thirty ships (10,500 tons) of the Osaka Shosen Kaisha, and a few other small vessels were collected for military use, and in addition to them the government purchased thirteen ships (20,000 tons) for the same purpose. Such a large requisition of ships by the gov- EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 237 ernment led to a deficiency in general means of water trans- portation, and though that was shortly replenished there ensued a great post-bellum excess in the number of ships. The shipping world, which was in possession of 400 ships, with 167,000 tons capacity, at the close of 1893, had 528 ships in all, with an aggregate capacity of 321,000 tons, at the close of 1895. New services were then opened, and the government also adopted a policy of protection and encourage- ment. Availing themselves of this opportunity, the Nippon Yusen Kaisha inaugurated new services to Europe, America, and Australia, and the Osaka Shosen Kaisha to Formosa, America, and the Yangtze-Kiang, and the Toyo Kisen Kaisha was started also at this opportune time. It was from this time that the Japanese commercial flags began to fly at the various chief seaports in Europe and America. During the Russo-Japanese War, the government chartered a large number of merchant ships for military use, viz., 108 ships of 400,000 tons from the Nippon Yusen Kaisha and 73 ships of 78,000 tons from the Osaka Shosen Kaisha. The col- lection of these ships by the government dealt a severe blow to the conveyance of general goods, no commercial ships of over 500 tons plying for general transport, so that for a time the foreign service came to a complete standstill. In this connection the government encouraged the chartering of foreign ships to replenish the deficiency in the shipping trade, intending thereby to remove difficulties in foreign trade. The chartered ships sometimes reached an aggregate of 90 ships with a capacity of 180,000 tons. Besides, the purchase of foreign ships and home shipbuilding were also greatly encouraged by the government, and therefore it came about that the purchases from abroad amounted to 172 ships of 315,000 tons in 1904-5, or more than ten times the number of ships purchased in 1903. A great deal of trouble and difficulty was felt in the carrying trade until this replenish- ment had been completed, but after the war ships were found again in great abundance. The shipping fleet with 1,570 vessels of 662,000 tons in all at the close of the year 1903 238 ECONOMIC EFFECTS OF EXPENDITURES came to own 2,103 vessels of 1,045,000 tons at the close of the year 1907. The result was that new lines were again inaugurated and new shipping companies were started, namely, the American and Saghalien services opened by the ( >saka Shosen Kaisha, the South American service opened by the Toyo Kisen Kaisha, and the Siamese sen ice opened by the Nippon Yusen Kaisha; and the Sino-Japanese Steam- ship Co. was newly established. Although the general transportation and communication of the country was dealt a heavy blow during the wars on account of the large requisitions of railway cars and ships for military use, the post-bellum development was successful, and it is therefore beyond doubt that the progress of trans- portation business was largely due to the wars. At the same time it. is worthy of note that the Japanese Government's policy of communication was dependent from beginning to end upon a unique and unparalleled principle of protection. The railways were allowed enormous subsidies by the govern- ment before they were nationalized, and shipbuilding and navigation were placed much more under the government's financial egis. It is said that 90 per cent of the total dividends of various shipping companies were the protection and encour- agement funds granted to them by the government, and it was due to this policy that the means of communication in Japan underwent such splendid growth and improvement. Since this policy originated in the tendency to regard com- munication as most valuable from the military point of view, the national funds used for the purposes of protection must be, in a certain sense, called expenditures for military affairs. When those who discourse upon the development of com- munication in Japan take these matters into account, they may find themselves unable to agree readily with the assertion that the expenditures for war and armament had a good effect upon communication, for the truth is that the effects produced by these expenditures are too complicated to be distinguished as to whether they were favorable or unfavor- able. The means of communication outside of railways and steam- EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 239 ship lines are not treated here in detail, but it may be added that not only highways, telegraph and telephone service, but also wireless telegraphy and telephony, made progress with the protection and assistance of the government, as these means were also considered valuable from the military point of view; and on the whole the effects produced upon them were the same as in the case of the railways and steamships. Effects on Commerce Domestic Commerce The domestic commerce of a country is a reflection of its economic life. Commercial prosperity naturally follows the commencement of agricultural and industrial activity, the smooth circulation of money, and an increasing consumption of commodities by the people. In the early part of the Meiji Era, the government relied upon the policy of protection to improve commerce, and it resorted to various measures, most of which were unsuccessful, in order to get goods more widely distributed. Through the development of the national economy since the years 1885 and 1886 there have come into existence the modern enterprises which at last have developed to the present system on a large scale. The following table is given to illustrate the general trend of economic progress: Number of Companies and Paid-up Capital Year 1893 1903 1912 Number of companies 871 5.855 8,004 Capital paid up Yen 40,309,194 451,680,028 864,439,783 Average capital paid up Yen 46,278 77J44 108,000 As the expenditures for war and armament amounted to enormous sums, the commerce in military supplies gradually became active and prosperous, and the districts of military importance became more and more flourishing. This becomes clearer when we mention the fact that at present great quan- tities of goods are transported to and from the localities where 24O ECONOMIC EFFECTS OF EXPENDITURES army divisions or naval stations are situated, and that those who are engaged in the supply of military requisites are hold- ing the most prominent positions in those localities as "gov- ernment contractors." Foreign Commerce Prior to the year 1877 the imports and exports of Japan were annually valued at less than 50,000,000 yen, but they reached more than 100,000,000 yen in 1887 and more than 200,000,000 yen in 1894. In 1903 the values were put at 600,000,000 yen, in 1905 at 800,000,000 yen, and in late years at more than 1,000,000,000 yen. These figures show that the international trade of Japan has gradually come to occupy an important position in the economic life of the country. To be more explicit, we may state that there appeared a tendency for comestibles and raw materials to grow less important in the export trade and to be supplanted by half-manufactured and finished articles. In 1893-94 the ratio of the values of exported articles was put at 19 per cent for comestibles, 10 per cent for raw materials, 42 per cent for half-manufactured articles, 25 per cent for finished articles, and 4 per cent for other articles, while at present the ratio stands at 10, 8, 52, 29, and 1 per cent, respectively. As regards imports, the contrary was the case, as finished articles gradually diminished and raw materials became more im- portant. In 1893-94 the ratio of values of imported articles was put at 24 per cent for comestibles, 21 per cent for raw materials, 19 per cent for half-manufactured articles, 34 per cent for finished articles, and 4 per cent for other articles, but the latest ratio stands at 17, 48, 17, 17, and 1 per cent, resped ively. Such being the general condition of Japan's imports and exports, many of the military requisites at first had to rely entirely upon foreign makes. The progress, however, of industries at home and the autonomy of the government's arsenal gradually made foreign manufactured articles less im- portant. Therefore, the payments to foreign countries as war and armament expenditures should have gradually dimin- EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 24I ished; but, in reality, the imports of foreign-made war req- uisites never decreased in value and quantity on account of the wonderful increase of demand for them. Although no conclusion can be reached on these points in the absence of proper statistics of the imports and exports of war requisites, Tables B l and C 2 will show the increase and decrease in the imports and exports in war time of some articles that may be classed as military stores. According to the first table, exports of munitions decreased very slightly even in war times. Excepting the excess of exports for the year 1877 over those for the year 1876, exports for the years 1894-95 decreased very slightly as compared with those for the year 1893. Moreover, the decrease of exports for 1904-5, though it seems comparatively large on account of the increased exports of copper in 1 903, due to special causes, can not be regarded as so large in reality. This state of affairs was brought about by the fact that, as these materials for munitions were at the same time the daily necessities of the nation, the general demand for them decreased along with the increase of the military demand. According to the second table, the imports of munitions increased in some degree in consequence of the wars. The value of the imports in 1877 was over five times as great as that in 1876. The imports in 1894-95 increased by 50 or 70 per cent of those in 1893, and in 1904-05 by 38 or 150 per cent of those in 1903. This means the abrupt increase of demand for munitions during the wars; in other words, the effects pro- duced directly by war expenditures. Other matters indicative of the manner in which war or armament was related to the vicissitudes in foreign trade do not come within the scope of this study. We have, however, to state that, in spite of several contests with foreign countries, Japan was able to maintain her sea power at all times during the wars, and to keep herself free from any lasting disastrous effects on her foreign trade. This was of the greatest advan- tage to her economic development. 1 Post, p. 243. 2 Post, p. 244. 242 fOMIC EFFECTS OF EXPENDITURES o U - w W - : SI •- - roo ,00 mo 00 mo .00 05 n 1-t^oo -r q « 9ih in < Tf m<> g 00^0 EFFECTS ON INDUSTRIES, TRANSPORTATION, AND COMMERCE 243 o H t^.«^ 1^00 ON r^oo * «*3 q. o_ p-i o_ 00 ^ >C N ON O O a O O rr> <~0 1-^ CO On00_ « c t; o> <*■> -;f t^ in ON "™ t^~ <3 t-C -t ■*■ O t-- O t^ cj • "d-r~» ■ -t- 10 ^ O ■ t->. t^ • 1/5 £ '"- '. 00" 0" ! of 00 ■ in oc *- ■*" t^ -f -f 0 N l~ H • <\| Q\ • ro ■* ON • NO O • NO t -f ! *r> •+ '. -f X ^, 00 (N I- 1 m ■*■ •*■ M 10 no" CN (N 10 On On m no • 10 n C2 N -\D N § vo" : 0" 0" nO_ ON t^ 00 £ <*5 >-> C5 1^ ►- 1 ^ ci ^10 « •0 NO N O m M On c r O ~:oc r r — - — -: r*)Ul 1 T cc ri-- ;> ~i - c — - i-o c -o ~ *o ^o o x t- M -0 O O O 1 "J : r ^ - -i *i c *i *i c : ^ - : c x c c ". ^ : ? t ? n a | »o g n - i~ x x -i C - C --to* oo'sOO — n too" c£ — o o>o o oo 10 E — ici-c z - looo^o -r -o •> c ■ O i^ -r -t O ■> t- •TC "iX N00 iflOM t^M OO O N fO NTtt^ 1 ~> 00 * fOOO O -- Dt W OC — — i^.O r-O>-oD00 O O^O C C* 10 *i- c •* h c ^i : c z "-• r x m c c "■• -t i- c - -oo ~ r^ O l/ ^ — ^ O MONO f> t- O ■> CS Ifl N r- w 0>0 O 0>« « 030 o o *C ir ? 'i ir - C C o O- Ov f - iv)nm n c n r»oc -or--r-ox — c*~ o c -r r- -o ~ 00— .— Ifl C fO C C "i — T C X "J PO "i X — O^O O r- l> in <-" o^» ^N ID t- C\ N N — ~ — in r* GO -t c ^h h -o ~ -0 C* » , O rO *> w 1^ ™ N oo-tcx -T c c " z ioot-ocior-oc ^- n Q\ 00 ^t- r* •* o K 1 - -i- ir, - -J- x "-.O N -t C X O C ZC O — O 00 M ^ >- - C n n ~ r- *J- — po r* 10 O C t- fO 4 t* -OX C — — lOHNOjOoO^N^^C — in^r^H *tc n Hoo-t o'r-noo fc ►hwm ID - 00-10 O ro 10 \n *fr>C n it -t t n c -re- c t — 1 -0 - h TtsO >0 I^OC O CO to CO r~ — i-r-C ■^■^■Oi^JTOiO'^'C) --o - rO O ■ 00 »^nO >ooc ■* moc ?i — c 1 - ~r -0 10 1 - w t - — r u~- ~ 0^ -0 • c>q»ioc a = ^OWt^OOOCN^WM fOCHO^O N t^lOWfOP 00 00 O -^ d /" OCO>0-Hlf,HMhfOH«)H£>nOM' O 1^ O O r* t~ * Pi "3-0 t- in — r^ c C O O OO C ^£ 0> "0 »oO m N 0\ 1^ •^ m* ^ poo" 10 1^- 10 h -.' m ■* r- n ro fOO N 'i t- t- C O PO CO <0 0»h O N W5 CO CO^C T y: 1/: ^ c »tc 0> 00 10 O Z i-tor^ioNCr-po — c w>« — • « ««: ^r ' hi n 0" M* c r- '- -0— CX C l- -f - C m -t "OX 1- tO O C -i r-— 1/ ) r> O OOC C O 10O C ro O *+ -rt <»o 10 1- m r- n to »o r- ^a \D ro 00 a. C n e *) 10 "". -r -0 x d po O -^o" 10 to « t- pn 10 x 00 r~ N id ■- 6. 00 K HHHn\OHMO»V5 , tNOOr-OOvO^TO« OX NO - — OCO 00 t^ M i>->0 — N - 1^ -O H -0 Tl-iON OC C?.X r*-t O O —(--£> 00 OoC <* Zr — -r ■ - C ~r — -0 -i -o ■ ro ■ r» ■ -irrio • » ■ -ox r- r^ 00 x -r ^ifloo'd m x* x" 10 1> n . .0 f ) •* — -r t-'OC t mo ot^o n vO M Tj" O O O OC H\C c M r *r r r- i^ "o — 'o »o c 10 - ~5 ID " r 00 'O'O-t- C—I^-'C— --TX ■ -O'OTN • -i-C 00 O £ -t to O - ■ O ro Oi ■ 1- O - -t • ro ■ O "■ ■ -r ■ ■ " oo C - OCOC t-x" O . C> . .OODOC '"- "-■ — to -f ** ir -r - r> 10 ro x •t N - t -o - -0 5 ^ !C £ T3 3! > ., — B X rt a z ■ 5 i ~ .5 ■0 •c ? ai • 5 2 j u £2 |-g ■ & c3 g a c E ■ox E E : z j j I 'w c -5 r S C "Si 03 1 c r: £ - si 'J2 c ns'5 3 g B u > I S| Be 3 1 - ■Si I U e CJ 9 1 Z Z E - 5 C E c c V 1 a X H E C '5 T ffi -J c f: R C a at E C c J 1 Cr. c : '£ CHAPTER V SOCIAL EFFECTS It is impossible to make any detailed demonstration as to how the war and armament expenditures were connected with the economic life of society, especially with every class of so- ciety and its living conditions, or with the static or dynamic condition of the population. In order to bring these social phenomena to light, it is fundamentally necessary to avoid a partial and fragmentary inquiry into the causes, as the expla- nation of a phenomenon can never be considered as perfect until it has been made by assiduously consulting various causes concerned with the phenomenon. The arguments on these points, however, do not admit of being conveniently grouped within the scope of our investigation. It is no useless work, however, to touch here on the effects on prices and wages alone, because the sudden disbursement of such large amounts as the war expenditures are likely to produce great effects upon both. The effects in question present themselves chiefly through the medium of monetary circulation, and those com- ing along such a course may be inferred by what has been described in Chapter III. In this chapter, therefore, the gen- eral trend of prices and wages will be epitomized, as covering a feature different from the remarks given in Chapter III. Effects on Prices At the beginning of the Meiji Era, prices varied throughout the country to such an extent that no standard prices for those days can now be ascertained. Several index numbers are published, of which the numbers reported by the Investiga- tion Committee of the Monetary System and two kinds of the numbers used by the Bank of Japan are the most trustworthy. The diagram and table given at the end of this section have been worked out for the prices of twenty-three different arti- cles in Tokyo by the Investigation Bureau of the Bank of 245 246 ECONOMIC EFFECTS OF EXPENDITURES Japan, and are based on the figures of the Investigation Com- mittee of the Monetary System, with those of the bank itself taken into consideration. They constitute the most conven- ient and reliable information regarding the history of prices in the Meiji Era. In looking into the trend of prices according to these index numbers, it is observed that no great fluctuations in prices took place from 1872 to 1877, but that there was a great advance in the years 1878, 1879, and 1880, and that the highest point was reached in 1881. Commencing a down- ward trend from the year 1882, they reached their lowest point in 1884, and then continued to show an upward tendency up to 1893. During the decade from 1894 to 1903, they again fluctuated and went highest in 1898 and 1900 and lowest in 1900 and 1 90 1. They kept to the third appreciation for years afterward, until at last they reached their height in 1907 and have not shown a downward tendency since that time. In short, prices in Japan tended to rise at the ratio of thirty- two years of appreciation to fifteen years of depreciation, and made far greater advances than prices in London. Further explanation in reference to this state of prices is here imprac- ticable; but the reader should not fail to direct his attention to the fact that the advance of prices regularly continued for some years after the wars. This phenomenon was principally attributable to the relation of prices to the amount of cur- rency in circulation, which was much affected by the war expenditures, as previously mentioned, and may be considered after all as having been due to the very payments of war ex- penditures. Generally speaking, the prices of daily necessities rose higher than those of luxuries. The prices of rice, soja beans, red beans, mi so, etc., went up considerably after the Satsuma Rebellion, as compared with other commodities. After the Sino-Japanese War there was a great advance in the prices of rice, table salt, miso, pickled radishes, sake, etc., and a fall in the prices of dyestuffs, raw lacquer, copper, lead, soda, ginned cotton, etc. After the Russo-Japanese War, salt, sugar, miso, rye, barley, wheat, red beans, tobacco, hemp, etc., rose in price, while soy, habidaye, foreign iron, copper, tile, silk SOCIAL EFFECTS Fluctuation in Prices and Wages in Tokyo 1 247 n^iocr-coao — wco^iocor-cooio — c*eo^io©r-coa>o— c*co^^a>a>a)0)a>aia>oio>00 ocooo o 00— — — — CO CD CO CO CD CO CO CO CO X COCDCOCDCOCOCOCOCOCOCOCOCOCOCOCOCOCDO) CD CO CO Oi CO CD 0) CD Q CD Cft C> 220 m'tiocor-cooo — wn^unohcooo- c*n^ioa>c>a>c»a>c>a>o>a>oooooooooc COCOCOCOCOCOGOCOCOGOCOCOOOCOCOCDCOGOCOGOCOCOCOGOCOCOCOOOOBQQOOOGbOQQOa) 1 Prices of commodities are the averages taken of rice and twenty-two other articles of necessity. Wages are calculated upon the averages for twenty-four principal kinds of labor, as carpentry, etc. 24* ECONOMIC EFFECTS OF EXPENDITURES Index Numbers for Price and Wage Fluctuations in Tokyo 8 Year 1873 '*74 1875 1876 1877 1N7S 1879 iNSo I88l 1882 I883 1884 1885 ISM, I887 IKS* 1889 1890 1891 1892 1893 Prices Wages 94 100 96 103 100 11)2 94 I OI 99 K.4 100 I IO 119 Il6 143 126 163 128 .46 I3O 1 12 I30 91 126 96 '-7 95 127 103 126 106 127 105 126 119 123 "3 121 116 124 119 124 Year 1894 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 191 1 1912 1913 Prices 129 139 152 177 188 178 190 186 184 205 219 227 233 254 252 239 241 254 278 283 Wages 135 152 158 167 180 185 194 203 201 205 201 210 220 225 238 234 225 241 247 245 a Specially reported by the Bank of Japan. fabrics, etc., went down. Desirable as it is to arrive at some conclusion in respect to how directly such a phenomenon as noted above was connected with the war and armament expen- ditures, in other words, to trace to what extent the prices of commodities advanced because of increasing military demand, the conclusion will be left ultimately to the reader. Concern- ing the phenomenon under review, however, it is believed that comparatively explicit causes and effects are obtainable by making inquiries into the changes in monetary circulation and the national burden of taxes, particularly of indirect taxes. Effects on Wages As shown by the foregoing table, the rise and fall of wages followed that of prices at all times in the Meiji Era, and wages always fluctuated somewhat less than prices. Although it is evident that the effects of the war and armament expenditures on wages were as wide and substantial as on prices, we believe that they came about chiefly through the SOCIAL EFFECTS 249 monetary circulation, as in the case of prices. We have sought to elucidate this fact in detail, namely, that the war and armament expenditures directly created a demand for labor, causing wages to rise, and, when such demand decreased, to fall again. The interpretation, however, is found very difficult so far as the statistical references at hand are con- cerned; and it is specially unattainable considering that it was common, in every war under notice, that wage earners connected with the wars, as blacksmiths or ship carpenters, for instance, were no better paid than tile layers, roofers, etc., who had no relation to the wars. CHAPTER VI CONCLUSION There remain numerous points of discussion which should be touched upon, but which can not possibly be enumerated in the present historical investigation of the relations that exist between wars and economy. The observations made in the foregoing pages concerning the raising and disbursement of funds for war and armament cover but a small part of these numerous subjects and by no means complete the historical study of the relations between economy and wars or arma- ments. It may be recognized, in some sense, that the effects of war and armament expenditures on economy are thoroughly comprehensive of all of those on economy arising from wars and armaments, because no wars and armaments could exist without necessary expenditures for carrying them on. As stated in the introduction, however, a study covering so wide a scope as the above has neither been the purport of this part of our work nor intended by us from the commencement. All the war and armament expenditures during the last forty-six years amounted to more than 5,000,000,000 yen, and they have had influences on all phases of activity in Japan. It is interesting to look back into the past economic develop- ment of the country under such heavy burdens of expense. The statistics in the table on the following page give a general idea of the economic development of the nation. In the following table, the numbers of companies, factories, and workmen in 1876 are left blank; the industries then carried on under a factory system in the modern sense belonged to the infant stage of organization and were too insignificant to be numbered; and the exports, imports, railways, and steamships were also in a very young and rudimentary condition as com- pared with those at present. In 1893, seventeen years later, industries, carrying trades, etc., had gradually improved. During the decade after 1893 such great progress was made in 250 CONCLUSION 251 ro rO ~ o On ON E o 5 2 s "O u ' 3 ai — 02 • conO COvN g 00 00 N 'tOvC N 000)00 rOOO O h M f^ K N O00 NOnO C"» « N N * fl — — — — — ,-. "*• cooc o to to 1- to « m M M 00 CI O too O J^ 00 -tNN 0< i-h 1-1 04 04 NO 04 10 to o to ci — h 0>tON M CI i-h 04 01 01 01 -t r^ ■* 00 O « O M ON CI -r • "* ci nO 01 to i-> w • C| CO CO "■* NOX , rj M -, m o - 8 ci 10 ti tO Ol -f NO CO co p-i « o -* ox r^ o no o oi 00 °. °. °. °i cc - 00* o" tO m CO on o to 01 i-> tONO_vO_ tJ- 04 04 vO OI UOnO OnnO >o uo in — gn t-- r- i>» « ►" <* O NO CO NO 10 vO uo co -sf ON00 -h Tf h- ON 01 NO O lOr^NiO 1- — NO 00 UO NO 00 ^ 01 vo 10 ►"" IO NO to ON ** **" nO co O uo — 10 01 04 On co 01 no i>» •OvO CO to 00 00 On 1-1 VO ^- t^ !>. 1-1 to to • i~~ uo oi 04 NO O 04 O^ to a- oi no NW}« ON no" on p" 00" "* ^nO to 04 04 uo O if On "000 ON t^ CO ■<*■ ON M M» 1-. 04^ no" 00" to rf to O OO NN NO •* On rh NO NO l-l OnO N N ON On tJ- i-h °i ^t 't "5 00' -* oi" uo c o to rf uo m 00 i-i 01 tO 00 Nm N tO O 11 ON NO_ 0I_ 04_ Tf t-^ oT i-T t-C 04 On N rj- oi no -3- oi to 01 « — co i-h t^oo uo rO tOOO CO00 nh 00" >-<" On "sf rf 00 OO NO i-H to uo r^.00 TJ-OO "H PO ►H 0) 00 to 01 to nO__nO_ uo ON NO ON OnnO 01 cOnO N ONOO l-H O UOnO h- i-c U0O0 to 04 rt- On uo no" uo uo On N tOHH -* O 00 NO tJ-nO nO ^f O uo co rh Tf ON 0_ to 00" 00" <-T tC to O 00 01 to to tJ- On c - O 00 t^. I-H no" On UO On to uo 00 nO 00 On •*■ 01 oi r-» o» uono O" M rf ■* 1-1 NO t-~ ON 04 i-h >-i *u: 3 O o Oh s 50 ~ - ^ u R ^J "n ^-" e* ~ "5 0) R en c rt O cfl _ n - (/J cS - rr (%> fs> p/ >>U _ rj • — ^ 3 M ~~^ 3 S 8 ?N8 g oj ?\ tn ^n-J "° ^•— , n oc ,> i_ 5" oc 3 ? P, e C n-- ^ nj jj •- O » »- gg_ o£_ o -g S's tf 3 o Sort >. "° C^ !S -H o O'Jj On oi ° aj M ^ y 0.0 rt c 2 «1~H C o> =0 to 2'c OJ 1) °. •S c - u O I- ,2 c "" » O o Ji^ 3 o IC'O 01 •oJ2 t. C 3^ rt G w . O 2 0> G aJ 2t3 ^ S 5 « > rt o u to •*- " 0) -^ t* C O 01 00 01^ -J" 2 •■3-1 £°1 G273 x c c = rt o «c"b oj.2.5 o o * — .= ■0 •a o ""5 NOO lOfOTfrTc^rCfoo) on *f n rf cm iflo^o^ cono 10 O iO •<£ tJ- CM v£5 ^J-N CM On On m i-T m co noo'oo" nno""^o *J- tJ- co « 00 <+N CO i-iO'- ,, "-'ON , -*NOtO \D_ On t^-00 NO nO •<*• >o S n 1000 n D on on O 0> no onno 10 mo 10 *• SOh mo>O00m g no "^ t^oo no no no r>» ,*> w rooo" n oT i-T w ^f ^■i CN IOnO ""> IO00 lO •<*• no o CO O ON IO O N N>0 CT>m OnnO NO On Cni NO co 10 -ri- -j- O NO CO fN — 1000 m^m no r^oo ax"NiOiOo"»fON On "£ ,*> O •<+ W) On *i- cN NtiOO O^ rO co "-_ CO i-<_ vO_ vO_ On On 11 1-1 11 CO N 00 00 CO no" nO~ }*" ^£f°'r-*-- ■ O 00 2 — Im v O U U T» o_ o_ M ■ On W N W 00_ q ; 0°. o c~ 8 O f^ ** ' oo" o *n §5 N CS C o o -o o 00 ■ 00 c*a CN • N «::::::: -* : ■* o_ a .5 < 6 •3 n) o a L nO_ 9 W O *NfO COOC lO >, . . • ■ moo to w ■* N M u . . . tj-^o c< t^oo a N On c 8 ' * r^oo" in tri in ■*■ " IO <0 • '»O0O00 tOM « Ps t-, i« NO_ 0_ 00_ t! (N '-3 ; ^ O _T M M M pf f 3 w u s >» (d cj CO 0) -a JZ O 17 b (I c F I — I t c X (X, : 7 C S b >NC - 1 E- STATISTICAL TAHLES OF EXPENDITURES 263 U O go O £ C 2.3 e^ hz 0.3 HH O OiO^oO i/> ro 0*^0 »0 W fO " 00 (n in 00 m a *t t^ rf o tJ-i i-->C O r^O noo O-^CO ir-O 0> ■- O ^COCOOCO w O O iOOif*)0^w)0 IN CO* O* O t- 0 OO mo ro r- 0> »*> • C> r- n fO i/i 10 ro ► 0r-t-ooi/)0»- r^O r- t-< 10 m i-« • •- o t- m f} ■ O uirorofji/ir-O^tO ■^t^O>* y 5 -DO rfo "* O t* 'j ' h »ooifl ! PC 0> CX ^ ro 10 mtno R ^ o_ O} . v ' '.'.'.'.'.'.'.'.'.'.'.'. t> ^ fo jjOi-tvO • •OrONiOCOr^MfOro ■ O O TfO moo >- •-• • •CO O lON'tO' ■fOO O ** f > rJ-O m ^ O PO Tj-a OiO r-t^O rorOO rj" <: «00 'tN fO^t 264 APPENDIX O : -r - R - a w CO to a Pi ■5. < J P. - = - < s J. ^ - - ^. - -.. H Q g - g 3 - 5 ft. * < - ~5 o>o •* ^ a> i«30 m ^ 000 ~~. 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W O >_E ^ ?8 o ■C! nnfj ?; o "SS" 4) i rt o I Hi 3 a >E < o t-. -u o « 3 - J5 u o" c •£ ex rt o <3&> %* E~ x a"C ex 2"^ e Z c o B '? o STATISTICAL TABLES OF EXPENDITURES 267 a Id Q 55 p Id » H s y. Id 0- W >< OS < 5 S Q MOM c m e 1 ID 00 IDvO 'toe O O CO P) t^ O >- *- M O >^ NOO -t *t O ■ -O O f*5 ^ OM~- ^ c Tf OOC o* ^0C* o_ ID « *t r*r^sO"1" ^ r^O'-'-^'-'OOiO c O ,0 M « -f id N Oh f 1^ »d O « id oo>o Tf Tj-sO O O O M >0 »0 vO r~ t. 01 -rf r~ CO IDO Or-O^- O -CO t ■ rco -lO (O H[*)« MNh Onooo Tf-rto_-0 ,( *'-r^ 00 5 O f^xd O IDO ^lOrO'O ►-* ! ^Oi |Of^ . t- ■* vO 00 K CO <*N OOO IO CO 0» TfM M M M O *n rft* *r>\0 m re H CO "-■ O CO CO 1— <*0 Tf-iOOO ■I'OOO -O O tt »D --3- co rO <> - Niflai" *t ' ■*? ^ ' °. "? 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O so 00 00 >iO ^fo t- t- Tf 00 1-r^Tj- M P0t* >-i(-( 10 r* 00 UIPON ■*■* » •* 00 00 M O ^f TfOO N N a'O CO O Ot^CO fO rj- N 00 H00O m hor* f*) -O OiiflfOr* -O j- rt l^ Or-'-t > - !0» s 00" 00 , — /, CN - [, ^t» CO t-O N HI f^lflN N H H4 O co *tO\ W Tf HI « to 00 00 - H MOf) TfOC CO Tf O ^"00 N O HI Ov a "TO CO r-o-^tfN N ■ ION00-O fO • • c H coo ID00 ID OiOOt- hi • 00 W rf- h 00 • ■ Ifl 10 00 *» Mflt^ »ioV l^t^"^^f f^ 1 hO N N00 \ \ 4 ■* CO Pi O M Tf c- Tf id roco on 10 r^i in a rr> ^ m CO O "* ■*a (NO- "-• ■* ^ W CO 00" 00 r*- ■«*• ro^N m O ^00 r- O 00 io^-h a a r- • cooo Tt O r- « Tf • m ■ poo O O ■ a g 0>0_ • t " °- O\f*5io h \n -o *oh.no • Ot t- <^ ^fO " 00 r~ n n" di - t-^ o» ; 0* iNo'foio ; 00 >ilOTt ' id « « r-00 "*r0 Tf O N «N d m 00 o* ■**: m ,-. m h. hi 1- M CO 1 - r^ Tf Oi ^■NUl t- r* « hi rooo hi tj- -r ■3- Tt ID 00 in 000 n ■ ■ woo 'tOiO • O 00 j* O ^ * UJO ifl ■ h. m • ■ m b fO h q • o_ CD O" ' >-* O M ! loo'nit-OOPO ) 9 61 00 kH O ^fH q\h rj- r<: CO rf t^ r*^ -rt ~ ** O^ " " O c ■ ■ 3 U C B :| : rt < u id O 01 a c •— ■ u . •> u Cfl "o y (0 b pa M a c sr>ital 1 - CI / 3 n >. 5 < ■3 H •a E c a I a T C j a >C a — . s a ■/ pq-5 ji ! . 3 - SI t •< ■> ( I \ (. < j IS •j < t- : < ! L c - c c7 _ < X ^0 ■I ~a 3 < 3 C • CO ■0 M .2 fc " (*«.£ 268 APPENDIX Pi < - a V, w - - r- w Q - - - rOC J>=0 ^O M 5-OO00N WM^NM &lflC t f* m i/"j C* X X O "ir*^N — r-'Ot-oc i/i-O -j -^ i o — (N i/l -C r- ^ X O — I- *T CO ^f 0 »^ u^ r^O rf ^ n r* -t "O **} — >^. -~, ro *o « o on") oawt-aoO'Oo&ooo^ <"0X -« • 'hfOO ^-O ifliflMfl'td "tfO ^ fOI^M - ■ f*)»0 3C O !N 't- "1 fOlOlOCOC V fOO>» Ot"iNNOhro N O ^ O ")m « POX t^ **? i- *0 N »OaO 00 »0 O "^ O "^ »o ox O *t if OO i-"0 O t"- o o o moo iO'*0 n r* to P-* f<) (> N Ct^ PO iflN ifl »/) 0* O-^^tCOMOO'^l-'-'O 1 I- t- O N 0*0 ■ *1" ** O r- ws rf -co n-G0«ac 4o c "^ O* ifl ■x O O 0 W 't^O &OC 0> I'* O X rf •?#.ft5 = «cp? J2 ta rt 4J J STATISTICAL TABLES OF EXPENDITURES 269 < <^ H hi H 00 00 00 ■> CO H 10 CO m E« CO co - ■* CO CO vO t N c cs CO v> xn • • d •«* .... -O ■* e n • • ""? 1/-, 00 00 ^ co ! 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O T « o sQ 't r- m •-• ^f •-< 01 -t < ■* h row 00 C* r pi in in N p ^ d 00r*)T r w \0 oo »fl O to o - r-< > 1/) ^O io (s • • • r- o • C m g n n r O >-» po O ■ • • r* ro ■ r 1- 00 S* ~ OvC ■ 1-^ o" ro po >« ; ! ; Nrf ; : K O" >* o 01 a in t^-O "-• f*3 N C m ui m N F oi 00 ro f 00 PC O 00 ^ 00 O **oO 00 r p< 00 ©f 1 >-i C0^fO> f> O* •-* CO o« • 00 oo" oVi^ po ; at- i^o'^f oo •-< O n r- r* iooo ^t p M S_ PO m< " MO ■* r 00_ nt^M w lO N 5 P< in in c-i F o" CO- f) N IflN Tf O'^tVlP' i 1 CO 1 00 Tf o-, \n • ■ ■ p*) o oo pox p o Ov s so O u ■> 00_ >-« o O . . . ro O r-oo r X r- 00 00 ."Wh'c r~ »-^t^o* ! 1 !^o o d4c ' '■> pi l^lflMT r « O n* po o •- T (■ o f0 •H U^ N c P} in •n P0 " F a *foo r o ►-• N rfsC p 5 P) O CO p > 00 Tf ro ■ r- w ) : Ov 00 li mmc in • • • q n -oc c in CO . o m po OX T r •* in 5 oo in in 4 - F & >O00 1- in ■*t to Of* 1 C t~ Pl O P ) in O n • oo r t u 1 o r^ £ q in r o. oo_ io ■ o r • ^ r^ CO CO »> oo" d" t F in ; ; '. 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SE-oJ! fcU-U-S STATISTICAL TABLES OF EXPENDITURES 271 55 W 7, 3 w a > z w w H O g H ■0 w j a < noO r» »-. <") m o_ Q\ K it rf o\ <> OO -tO 30 0> 00 CK^oO i-H • N M ^N a • fO <"0 N m-O j*oo -rJ-MOrom -M O rot^N 0\ N IN M - (MM 1 t^0O "-. <-. O ■ -oo Ooo r*ro ^tO rf-oO * rtO^'O On 0\ 0\ <-i C^O N <*o O OO O OirOflH g o^Ovoo'O Ov >-< 00 c^ o_ "*■ *» O O O ^ i-T 00 r^ in fO O* Pi 0»!>-• m > >■( ro ^t rn TtoO 00 0\ r-00 >oo r-o mo ^ pooo o>o\< v 5t^«-. -rt o\ O} i O Ov r- fO • rfOv-OO O ^wj'OXO » 00 O-lNvOoo r- O Oxn <*0 TJ"0\t^^N fCtuiOOO NIOOM lO ^" lO-O ro ^f *t N •-( "3" f^OO 00 ^tNlON N a rtM ■ . 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K po io-O ^OoO* 10O fO^rO't^tNcO Ol^-O r^O Ww hO 00 o t O r~ > S d.^5 ot->- ,^0C C i- - -^ c r- o to r*3 «o ~~ 3 - : •■ _ ooo r*0 « c -r 3 t - » io x — — (- c ir -r t- i- r n oc "**. — N g Ot Ot>0 N CQ tO O ,::::::«::::::: s id o s : : :s : rD 1/lsO • ■ 00 00 — O ^ ~ in &> • ■ — n oq q o_ ».** I i I ! o o> ! — — - ^1 N - 1/5 t- w ffl oo O ^ r~ r* (n • o O O - l^O ■ N o ID— r~ , a ao .-. ^ a — B ^ . . 3J u c a 5 3S M 5 = £r » o 5? a o-cs.9-5 ■- a 5 1 73-5 O ol id g « B-g g gjg §•- c u C a g at § DS?<>S(-.HHO«M'5wM«O^U Srrc. K , o = = ^ ^ -r i I «! STATISTICAL TARLES OF EXPENDITURES 275 < S ■« •^ 10 d o •+ n" w -f in <* « >c -* i^. w ro m • ■* i-i 8 G\ • ^ O £ vO . 01 ^O ro 01" rO M lO w PI X £^ rt- oi mo 10 o pi _ t^ rOvO O PI -fO qv o — -t-00 oi « oi >l- O t-^00 N m h r^M <2, bE S ° .53 -C o U ^ o rt ffiJS rt t/) n3 _, l8|s ^ ca .2 c 8 « ev~- c; J2 e ^ CJ .3 5 O .Co ■ j- r u— ib *ti w " O. o • bo- a ^«C|- o a ojo c oi;ooi5 c J~, ti rt °* *j c .a c c s J 2 a 1 «' j> O 3 a g/5 -c is 2 J| jr 3 0= a i o £ CO O 1- t^oo f^ IT; 10 -(■ r<5 N O^ 10 NvO X O OO f*^— rO« >0 vO >0 10 O O r-» p- -too h i^h 00 01 00 \0 3N 00 NO OO 0^ N ro 1-1 1/5 CO iCOcT to >0 •4- 1-1 lOOO 1-1 rO irj 10 ro l~~ -1- t^. 1— ■ NO^O -+ -t" t^OO -t-i-i ION" t^sO " s o-- o o o o 0) U, jj rrl _C "" ^ ^ S-u «» o gCJ .S 3 C^-- - • - rt.y o 3 o 00 , a o O O t- ri rt i; en O I- "1 u 4) ui^iJ>2^^ U C,4J o o m-^^ ^ ca ca o o-rt.Sf ^ ^ _g M bfi g bfi M^ « bo b ° o-S 15 S a^ 13 o g Jg.o bJ0be o j:jr £•*=-£ Mrx' CC'3UCj4Jo(JCr*0 J , J , -S&s-g&B-J , BH-a 276 APPENDIX U — r ) f. ~ C i^ ''I r i — O 00 g 00 t~» ri ir. c C "~. C T -+ O ,~ X IC N OM ION £ u, ^ t<5 - M t^0»(N'-»iO01N 00 CO CMON"t'ti'jNr~- moo 1^ — r<5 lO rO >- O -+ ►H >H *-, C 8 *i s V. a ■^ ,x O rt x C_ _ y STATISTICAL TABLES OF EXPENDITURES 277 1- O N 10 O 0 -1- o^ m\C 00_ rt-00 CT; 00 t± iri 1^ w O" 0* 0* s -fO "3- ~ £ O^NtON " ** tCoO f! CT* m r^ (3 u 00 4) J« * OJ C rt £ r, o o o o 5 c H rt « c c c c 8* 8* 2 £ a v - ooB5z u U U 1- <*» P** cd rt rt ctf P > a a a a r d a; a) u u ir, \rj -tw. ^-x ^ r^ C r- re *n . ^ 00* (^ rf io ro ci<)oO~ -rfo t^ N r- in ro IO00 i r*3 ►-. OihN-O i C4 CO ^t^nO tJ-sO O* r; po =C N ro ~ «0 O M I u r^iocco*( s "o^f , ^ft^oo"^u^rCo^oo"fOt^> 3 3 ;. u 2 c - > - u V c >* nUS"* 2.2 7 .e rtT3 >.■" H c O n g"M S C c-co.2 ■o £ C 3 C S--J3 o o _ £ E y : b.s jE 8 c ) > . . -9 3 0/ *-"«-• * ^ , STATISTICAL TAHLKS OF KXPKNDITURKS 279 10 o in ^t- t >n O t~ I-- I- - w q - qq i\0 o mo amtr-oiN m-i fooo *o 9. ° ^ "T E2 - "a • —i ra Is - 1- — 'Js raj xi c- u w a. ^ *=; — « x x (/> O < > < !5 -a* * >>'3j •Efl .. 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COW— Oa»COh-(DiO^COC4— OO0hVlOtBH« O0>C0r-©iO«frC0N — O&G0r-©lOC0r~Oi0^ntt< FISCAL PERIOD 305 40 pi < ll.'Ul 306 30 40 3 D ' agram ° f a-l-th. * al Percentages for War Ex^ndit, ( hargcs, and Adminfc f NT eo Defrayed Out of the Gen ve Expenditures eral Account, Armament Expenditures, De 100 bt 307 INDEX Agriculture: expenditures for encour- agement of, during Sino-Japanese War, 138; production of (1877— 1913), 230. Ammunition: 108; funds for purchase of, 13, 20; expenditures for (1879- 88), 42-3; expenditures for improve- ment of, 51, 64. Annuities, expenditures for decoration, 112-13- Army: armament expenditures of (1868 -76), 18 et seq.; (1868-76), 261; (1877-93), 265 et seq.; (1894-1903), 282-3; O904-13), 90 et seq., 296 et seq.; size of, during Satsuma Re- hellion, 32; expenditures of, for Korean Affair, 37-8; expenditures for development and reorganiza- tion of, 39 et seq.; expenditures of, for Sino-Japanese War, 57, 76-7, 273; expenditures of, for North China Disturbance, 60, 78-9, 278; ten year plan of, 61; expansion budgets of, after Sino-Japanese War, 62-3; expenditures of, for Russo- Japanese War, 87-8, 104-5, 286 et seq.; expenditures for expansion of, after Russo-Japanese War, 89-90; comparison of • navy expenditures with, 108, in, (chart) 305; total armament expenditures, 109; State expenditures compared with Army and Navy expenditures (chart), 304- Arsenals: expenditures for construc- tion of, 42; for enlargement of, 65. Auditing, regulations for, of annual accounts, 128. Balloons, expenditures for, battalion, 89; investigation expenses, 93. Bank notes: redemption of, 170, 172; regulations for convertible, 172. Bank of Japan: loans to government by, 51, 196; for North China Dis- turbance, 59; for Sino-Japanese War, 71, 181, 189, 194; for Russo-Japa- nese War, 83, 101; handling of na- tional Treasury funds, 128; con- version of paper money by, 132; business of, 171, 179; issuance of convertible notes by, 172, 183, 205; raising of interest rate by, 176; in- creased bank deposits, during Russo- Japanese War, 201 ; specie reserve of (1903-6), 205, 211. Bankruptcies, 211. Banks: foundation of new, during Sino- Japanese War, 138, 188; plan for central, 170; regulations for, 177; loans made by (1894-96), 188, (1896-98), 194; increased deposits (1893-94), 190, 201; (1903-6), 221, (1907-9), 225; (1910-13), 227; Hy- pothec, 195, 199; runs on, 210-11. See also Bank of Japan. Barracks, expenditures for construc- tion of, 19-20, 42, 48. Batteries, expenditures for construc- tion of new, 62, (1897), 64. Bimetallic system, adoption of (1878), 156. Bonds: Navy, 50, 134; Exchequer, 82 et seq., 200-1, 220; foreign Ster- ling, 83 et seq., 126-7; paper money exchange, 127; Voluntarily Capital- ized Pension, 127; Hereditary Pen- sion, 130, 133; Pro-rata Pension, 133— 4; Industrial Enterprises, 134; Naka- sendo Railway, 134; Unregistered Kin-satsu Exchange, 134; Supple- mentary Railway, 134; Consolidated Public, 134-5. See also Loans. Bourse: tax on trading on, 99; in- creased tax on, for redemption of paper money, 132. Boxer Uprising. See North China Disturbance. Budget, First and Second Army Ex- pansion, after Sino-Japanese War, 62. Bureau of Financial Affairs, 25. Changchung, 87. Charts: total state expenditures com- pared with Army and Navy arma- ment expenditures (1875-1913), 304; Army expenditures compared with Navy expenditures (1875-1913), 305; comparative annual percentages for war expenditures (1875-1913), 306-7. Chemulpo, 82; flight of Japanese minister to, 36, 38. Chihli, 58. Chin-hai Bay, establishment of naval station at, 95. Clearing house, establishment of, at Tokyo, 178. 309 ,10 INDEX Clothing, 108; expenditures for, during Sino-Japanese War, 57; during Russo- Japanese War, 87. expenditures for, during Russo- Japanese War, 88; used in industries |S 77" I 9 12 ). 231; production and consumption of (1903-6), 233-4, 242. Coinage, system of, from Restoration to Satsuma Rebellion, 155 et seq. Conscription system, foundation of, 18, revision of, 39, 61. Coolies, in army service, 33. Currency: depreciation of (1854-70), 155; amount of, in circulation, 184; inflation of, 189, 192, 205, 254; circulation of paper (1868-78), 213. DajSkan-satsu (paper money); issued, 26, 32, 49; issued during War of Restoration, 125, 157. Discount rates (1907-9X225; (1910-13), 227. Enomoto, Buyo, 10. Enterprises: new, 208; capital invested in new (1907-13), 212; (1905-7), 224; (1893-1903-12), 239. Eto, Shimpei, revolt of, 14. Exchequer bonds: issuance of, 82 et seq., 99, 200-1; receipts from (1904-7), 100; redemption of, 150; economic results of issuance of, 220. Expeditionary Expenses Control Bu- reau, formation of, 33. Kxports: excess of, over imports, 173, 176, 184, 254; growth and nature of, 240-1; of military stores (1876- 1905), 243. Feudal government: downfall of, 3, 13, 252; army organization of, 17; naval plan of, 23; loan to purchase pensions of gentry (Shizokn), 126. Formosa: organization of composite brigade at, 61; expenditures for im- provements in, during Sino-Japanese War, 138, 192. Formosan Expedition, 8; expenditures for, 15-16. Fortresses, expenditures for construc- tion of, 42. fortress (Oust ruction Office, establish- ment of, 40. Foundry, proposed, 45; establishment expenditures of, 74; organization expenditures of, 75, 139, 192. Fusan, opened to foreign trade, 16. Fushimi, bat 1 le at , to, 26. Garrisons, expenditures for construc- tion of, 17, 102. Gei-Yo Channel, expenditures for battery at, 61, 63. Gendarmerie, expenditures for, 92. General Reserve Fund, 54, 59, 70. General Staff Office, creation of, 39; expenditures for, 41. Gcnsan, opened to foreign trade, 16. Cold, import of (1882-85), • 73- Gold standard, adoption of, 155-6, 198. Hakodate, 10, 25. Hanabusa, Yoshitada, Minister to Korea, 36. 1 [ereditary pension bonds: plan to use, for establishment of central bank, 31; issuance of, 130, 133, 163. Hiogo, 25. Hiroshima, 54. Horse Administration Bureau, estab- lishment of, 89; expenditures for, 92. Hsi-Tai-Hou, Empress, regent of China, 58. Hypothec Bank, 195; establishment of, 199. Ikebe, Kichijuro, leader of Satsuma Rebellion, 30. Imperial Body Guard, formation of, 17, 40. Imports: duties, 99-100; excess of, over exports, 167-8, 193; (1896- 98), 194, 196; (1903-6) 203, 254; of gold and silver (1882-85), x 73: growth and nature of 240-1 ; of military stores (1876-1905), 244. Income tax: revision of, 53; enforce- ment of, during Satsuma Rebellion, 133; during Sino-Japanese War, 143. Indemnity, from China, 15, 58, 70, 142, 192, 196, 198. Industries: progress of (1877-1912), 230-1; principal products of (1877— 1912), 232; development of (1876- 93-1903-13). 251. Inheritance tax, ioo; decrease of, 151. Insurance, increase of, companies, 188. Interest: on war and armament loans, 114; rise in rates of, 168, 176, 197; cited of lowering of rates of, 173, 191; fluctuation of, during Sino- Japanese War, 183-4; rates on loans (1896-98), 195; rates during Russo- Japanese War, 202. Invalid Soldiers' Asylum, expenses of establishment of, 89. Ishikawajima, shipbuilding yard at, 23- IXDKX 311 Iwakura, Tomomi, plan of, for national bank, 31. Jinscn, opened to foreign trade, 16. Kabayama, Sukcnori, Naval Minister, 45. 73- Kanakawa, expenditures for barracks built at, 20. Kanazawa, expenditures for construc- tion of barracks at, 42. Keelung, expenditures for battery at, 62, 65. Kerosene, tax on, 100, 102. Kinchow, capture of, by Japanese, 83. Kitan Channel Battery, expenditures for construction of, 43. Kokura, expenditures for construction of barracks at, 42. Korea, 14, 87; expenses of garrison at, 92, 102; expenditures of administra- tion of, 148. Korean Affair, 8; expenditures for, 16, 37 et seq., 49. Kumamoto, expenditures for construc- tion of garrison at, 17; invasion of, 30. Kure; naval station at, 45; expendi- tures for construction of battery at, 61 ; for construction of arsenal at, 96. Kwanto Expedition, 12. Kyoto, bankruptcies in, 211. Land tax; 25, 28, 99-100, 126; revision of, during Satsuma Rebellion, 133; during Sino-Japanese War, 143; decrease in, 151. Liaotung, 87; retrocession of, 80. Liquors, increased tax on, 102. Loans: to government by Banks of Japan, and individuals, 26, 51, floated during Sino-Japanese War, 54-5, 70, 140 et seq., 180, 182, 192; receipts from (1904-7), 100; floated during Russo-Japanese War, 83 et seq., 149-50, 204, foreign public, 126-7, 212; interest on, 114; for redemption of paper money, 127, 130; floated during Satsuma Re- bellion, 133 et seq.; for railroad na- tionalization, 147; redemption of, 150; increase of national, 178; made by banks (1894-96), 188; economic effect of, 253. See also Bonds. Loochoo Islands, 15. Maizuru, naval station at, 66. Manchuria, 87; expenditures for con- struction of garrison at, 102; ex- penditures for administration of, 148. Matsukata, Masayoshi: Minister of Finance, 36; reform of coinage system by, 169-70. Metal refining works, cost of establish- ment of, 137-8. Mercantile marine, growth and de- velopment of, 236 et seq. Mexican dollar: attempt to withdraw from circulation, 156, 158; use of, 166; speculation in, 168. Military school, establishment of, at Osaka, 17. Military Staff College, creation of, 40. Military stores, imports and exports of (1 876-1 905), 243. Military Supervision Office, creation of, 39; expenditures for, 41. Mimbusho-satsu (paper money), is- sued during War of Restoration, 12.5, 157-8. Mining, tax on, 99, 126. Mitsubishi Company (Nippon Yusen Kaisha), 32; growth of, 236. Mitsui and Co., issuance of Treasury and Kaitakushi bills by, 160. Money Exchange Company, creation of, 161-2. Money market, effect of war and arma- ment expenditures on, 122. Monopolies, tobacco, 72, 100; salt, 84. Mukden, 84, 87. Munitions, exports and imports of (1876-1905), 241, 243. Nagasaki, 25. Nagoya, run on banks of, 210. Naruto, expenditures for construction of battery at, 61. National Bank: establishment of, 31-2; loans to government by, 49; aboli- tion of, 177. National Bank Regulations, 162; re- vision of, 163, 172. National Tax Collection Law, enact- ment of, 133. Naval College, foundation of, 23. Naval Defense Fund, 50-1. Naval stations: establishment of, 24, 45; expenditures for, 69, 109. Navy: in Saga insurrection, 15; in Formosan Expedition, 15; expendi- tures for expansion of, (1872-76) 23 et seq., (1877-93), 4-6 et seq., (1893-1903), 68-9, 284-5, (1904- 13), 300-1; expenditures for Korean Affair, 37-8; expenditures for Sino- Japanese War, 57, 76-7, 274; ex- penditures for North China Dis- turbance, 60, 78-9, 279; expansion and repletion expenditures, 66-7, 312 INDEX 93 et seq.; expenditures for Russo- Japanese War, 87-8, 105, 286 et seg.; comparison of Army expenditures with, 108, in, (chart) 305; state expenditures compared with Army and Navy expenditures, 304. Nirei, Rear- Admiral, 36. Nodzu, Major-General, 14. North China Disturbance (Boxer Up- rising): 58; expenditures for, 59 et seq., 196, 278 et seg.; financial resources for, 59, 72; expenses for military affairs of, 78-9. Notes: convertible, 172; amount of, in circulation, 183 et s«g.; increased issue of, 196; amount issued by Bank of Japan (i894-95),_ 183 \, (1903-6), 205; issued by Fifteenth Bank, 32. Inconvertible: issued during the War of Restoration, 26, 32, 159; during Satsuma Rebellion 165; redemption of, 170; economic effects of, 174. Okubo, Toshimichi, State Councilor, Okuma, Shigenobu, chief of Expedi- tionary Expenses Control Bureau, _33- Okurasho Dakan Shoken (convertible Treasury bills), issued in 1871, 125, [60. Ominato, torpedo division at, 66. Osaka: 9, 13; expenditures for garrison organized at, 17; run on banks of, _ 197; bankruptcies in, 211. I >ti >ri, Keisuke, 10. ( Kama, ( Jeneral, Japanese Commander- in-Chief, 83. Panic of 1907, 209-10. Paper money: issuance of, inconverti- ble, 26, 32, 159, 165; for expendi- tures of Satsuma Rebellion, 49, 156 et seq., 165, (1876-81), 214; re- demption of, by "New", 125; loan for exchange of, 127; loan for with- drawal of, 130; redemption of, 131-2, 169 et seq.\ manufacture of, in Germany, 160; depreciation of, 165 et seq.; exchange rates of (1877- 82), 166; specie payments for, 175. Patent medicine: tax on, 100, 126; increased tax on, for redemption of paper money, 132. Peking, 15, 55, 58. _ Pensions: granted in War of Restora- tion, 10; expenditures for, in ex- pansion program of 1896, 64; in Russo-Japanese War, 92; Navy, 97; bonds issued for, 127. Perry, Commander, visit of, 3, 23. Pescadores, expenditures for construc- tion of battery at, 62, 65. Port Arthur: besieged by Japanese, 82-3; expenditures for establishment of naval station at, 95, 102. Postal savings: increased deposits in (1893-94), 190; during Russo-Japa- nese War, 201, 221. Prices: fluctuation of, during Russo- Japanese War, 206; (1873-1913), 245 et seq. Provisions, 108; expenditures for, dur- ing Sino-Japanese War, 57; during Russo-Japanese War, 87. Railroads: construction expenses of military, during Russo-JapaneseW.tr, 87; organization of, battalion, 89; loans for construction and improve- ment of, 134, 140-1; expenditures for, during Sino-Japanese War, 137— 8, 188, 192; nationalization of, 146 et seq., 207, 235, 255; extension of, 234-5; subsidies to, 238. Redemption: of paper money, 13 1-2, 169 et seq.; of bond issues, 150. Rice: as a medium of exchange, II, 27; wholesale price and production of unhusked (1877-82), 167, (1881- 86), 215. Russo-Japanese War, 80-1; resources for expenditures of, 82-3, 85, 97 et seq., 200; expenditures for, 86 et seq., 104-5, 110, 144, 199, 286 et seq.; annual expenditures before and after, 145; loans tloated during, 82-3, 150, 204; loans from Bank of Japan for expenses of, 200; war fund receipts and war expenditures based on special account of Extraordinary War Expenditures of, 216-17; ac- commodations made to War Fund of, 218-19; requisitioning of ships dur- ing, 237; departmental expenditures of, 289 et seq. Saga Insurrection, 8; expenditures for, 14-15; military transport during, 236, Saghalien: 87; Japanese occupation of, 84; expenditures for garrison at, 102; for administration of, 148. Saigo, Takamori, State Councilor General, 14; resignation as Counci- lor, 30. Saigo, Yorimichi, commander of ex- pedition to Formosa, 15; investiga- INDEX 313 tion of western army systems by, 17; commander of Imperial army, 31-2. Sakata, expenditures for administration and police offices at, 12. Sake, tax on, 53, 72, 99; reformation and classification of tax on, 126; increased tax on, for redemption of paper money, 13 1-2; tax on, during Sino-Japanese War, 143; revision of tax, 151. Salt, monopoly of, 84. Samurai (hereditary soldiers), 17. Sasebo, naval station at, 45; expendi- tures for construction of battery at, 61. Satsuma Rebellion: 29-30; campaign expenditures for, 33-4; relative ex- penditures for, 35; apportionment of expenditures for, 36; resources for expenditures for, 49 et seq.; expendi- tures before and after, 129; national loans floated during, 130, 133-4; improvements in taxation system during, 133; requisitioning of ships during, 236; total expenditures for, 263-4. Sayings banks; regulations for, 177; increased deposits in, during Russo- Japanese War, 201. Schools, military: 17, 40; naval, 23; expenditures for new, during Sino- Japanese War, 137-8, 192. Sendai: expenditures for garrison con- structed at, 17; expenditures for constructing barracks at, 42. Seoul, 37. Seymour, British general (North China Disturbance), 58. Shimonoseki Battery: expenditures for construction of, 43; Treaty of Peace of Sino-Japanese War signed at, 55. Shinagawa, 25. Shipbuilding: installation of, yards, 23; expenditures for (1877-93), 47; during Russo-Japanese War, 87-8. Shiraishi, expenditures for administra- tion and police offices at, 12. Shohoshi (Business Bureau): establish- ment of, 161, Later Tsushoshi (Com- mercial Bureau). Shi-Kai, Yuan, 38. Shooting licenses, tax on, 100, 126. Silver; quotations of, bullion, (1877- 82), 166; rise in price of, 168; ex- port of, 185, 193. Sino-Japanese War: loans floated dur- ing. 54-5. 70, 140-1, 180, 182, 192; expenditures for, 57 et sea., 137-8, 180, 273 et seq.; sources of revenue for expenditures of, 70-1; expenses for military affairs of, 76-7; in- creased taxation during, 143-4, 192; requisitioning of ships during, 236. Soy, tax on, 73, 99. Specie: export of, 155, 191; excess of exports over imports (1896-98), 194, (1900), 196; maintenance of, reserve, 204; reserve of Bank of Japan, (1903-6), 205, 211. Stamp duty, 100, 126. Sterling bonds: flotation of, during Russo-Japanese War, 83-4; during Sino-Japanese War, 141-2. Stock exchange: establishment of, 178; quotations of principal stocks on Tokyo, 186-7; (1896-98), 195; ( 1 899-1901), 197; (1904-5), 202; 207-8, (1905-7), 222-3; (1907-9), 226;(i9io-i3), 228. Subsidies, government, to railroads and shipping companies, 238. Sugar, tax on, 99; revision of tax on, 151- Tai-wonkun, regent in Korea, 14; leader of Korean Affair, 36. Taira, expenditures of administration and police offices at, 12. Takeshiki, secondary naval station at, 66. Takashima, Major-General, 36. Taruhito, Prince, leader of Imperial Army in Satsuma Rebellion, 30. Taxes: land and business (1869), 25, 28, 99-100; on sake and tobacco, 53, 7 2 , 99-IOO, income, 53; registra- tion, 72; soy, 73, 99; increase in, during Sino-Japanese War, 73, 143, 192; during Russo-Japanese War, 84, 99-100, 151 ; receipts from (1904- 6), 101; uniform system of, 126; for redemption of paper money, 1 3 1-2; improved system of, during Satsuma Rebellion, 133; economic effect of, 253. Telephones and telegraph: battalion, 89; _ expenditures for expansion of, during Sino-Japanese War, 137-8; growth of, 239. Textiles, tax on, 100. Tientsin, Treaty of, 38; attack upon, 55, 58. Toba, battle at, 10, 26. Tobacco: tax on, 53, monopoly, 72, 100, 102; increased tax on, for paper money redemption, 132; tax on, during Sino-Japanese War, 143. Tokugawa, Keiki (Shogun), surrender of political power by, 3, 9. 314 INDEX Tokyo: expenditures for garrison and headquarters at, 12, 17; clearing house at, 178; fluctuations of interest rates in, 183; quotations on stock exchange at, 187 et seq.; fluctuations of prices and wages in (1873-1913), 247-8. Tokyo Bay Batten-, expenditures for construction of, 42-3; further ex- penditures for, 93. Torpedo boats: expenditures for re- plenishing of, 97, 102, 109; ex- penditures for construction program for (1881-86), 44-5; expenditures for accessories for, 47. Torpedo Practice School, expenditures for establishment of, 47. Totsugawa, 17. Transit tax, 100. Transportation: 108; expenditures for, during Sino-Japancse War, 57; dur- ing Russo-Japanese War, 87; de- crease of capital invested in, 208; land, 234-5, 255; water, 236 et seq., 255 .\ Tsukiji, naval college at, 23. Tsushima, expenditures for construc- tion of garrison at, 61, 65. Wages, fluctuation of, in Tokyo (1873-1913), 247 et scg. Wakamatsu, expenditures for admin- istration and police offices at, 12. Waldersee, German general (North China Disturbance), 58. War of the Restoration, 8; battles of, IO; total war expenditures for, II et seq.; resources for expenditures for, 26-7; paper money issued during, 125; taxation system during, 125-6; public loans floated during, 126-7. Warships: expenditures for construc- tion of (1870), 24-5; construction program for (1882), 44, 48; expendi- tures for repairing, during Satsuma Rebellion, 47; during North China Disturbance, 60; construction of, under expansion scheme of 1892, 66-7; construction of during Russo- Japanese War, 87; expenditures for new, after Russo-Japanese War, 93. 95. 97. I02 « I0 9; expenditures for, during Sino-Japanese War, 192. Watanabe, Kunitake, Minister of Finance, 53. Yamada, Major-General , 14. Yamagata, Aritomo: investigation of Western army systems, by 17; Minister of War, 30. Yasukuni Shrine, expenditures for, 92. Yedo, 9-10. Yokohama, 25; naval station at, 24. Yokohama Specie Bank: 169; loans to government by, during Russo- Japanese War, 101; 203-4. Yokosuka, expenditures for shipbuild- ing yard at, 23. UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below WWvkQ MAY3 11957 Form L-9-15,,, :;,:; | iii e ^ 3 MAR 3 { m MAR 2 1 < R wi»' & »*« m Iepd MAY 2 * ufa $ F"7- ^1 UNIVERSITY of CALIFORNIA AT K 3 1158 00452 6322 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 249 51 1 5