Japanese State Finance

Abstract

THE history of modern Japanese state finance moves in almost regular cycles which are characterized by the recurrence of three stages: making war preparations in the broadest sense of the word; financing the actual warfare; and, after the war, attempting to consolidate its gains and losses. Always at the start of this cycle, Japan has gone to the very limit of its economic capacity-which, it is true, has continued to grow in the course of such strenuous exercise. But each time the country's financial power proved not quite adequate to achieve its full military objective; and at times even prevented it from reaping all the benefits of the measure of victory already attained. At least twice, so far, Japan has faced the actual danger of financial collapse, from which it has barely been saved by sheer good fortune and the adroit maneuvering of the country's financial leaders. This record of continuous war finance began with the introduction of modern national financial administration provided for in the Imperial Constitution of i889. At that time, Japan was eagerly preparing for its first big war-against China. The country's financial strength was insignificant, the total state revenue and expenditure amounting to something like 8o million Yen, or a mere 2 Yen per capita. Yet, during the five years preceding the Sino-Japanese War, fully 30 per percent of this total state expenditure went into the army and navy, and much of the rest was also used, directly or indirectly, for war preparation. The eight months of actual war in i894-95 cost Japan 225 million Yen, or almost three times as much as a full year's total state expenditure in time of peace. The war left the country completely exhausted, and unable to fight on and force China to cede the Liaotung Peninsula, though this territory had been occupied, in spite of the diplomatic intervention of Russia, Germany and France. The war indemnity of 380 million Yen which China had to pay to Japan, however, was a tremendous windfall to the Japanese