Orthodox Finance and “The Dictates of Practical Expediency”: Influences on Matsukata Masayoshi and the Financial Reform of 1881–1885

Abstract

Orthodox Finance and “The Dictates of Practical Expediency”Influences on Matsukata Masayoshi and the Financial Reform of 1881–1885 Steven J. Ericson (bio) In 1880–1881 the Japanese government embarked on a pivotal program of financial stabilization that came to bear the name of Matsukata Masayoshi 松方正義 (1835–1924), who brought the program to fruition after he became minister of finance in October 1881. The aim was to deal with the severe inflation and paper-currency depreciation that had begun in 1878–1879 with the issue of huge amounts of inconvertible (fiat) paper notes by the government and U.S.-style “national banks.” Under Matsukata, the government accelerated the retirement of unbacked notes and the accumulation of specie reserves, raising the necessary funds mainly by privatizing state enterprises, hiking consumption taxes, and floating domestic bonds, as well as directly acquiring specie by underwriting exports. By January 1886, the regime had succeeded in establishing a sound, silver-backed currency system centered on the Bank of Japan, founded by Matsukata in 1882.1 Often hailed as the “Alexander Hamilton of Japan,”2 Matsukata was perhaps the only leader of the Meiji period who consistently advocated “orthodox” monetary and [End Page 83] fiscal policies in the late 1870s and early 1880s, although his predecessors as minister of finance, Ōkuma Shigenobu 大隈重信 (1838–1922) and Sano Tsunetami 佐野常民 (1822–1902), actually introduced most of the measures for whose origination Matsukata has usually received credit.3 In Matsukata’s thinking, the practice of “financial orthodoxy” meant, above all, the pursuit of policies (1) to restrain spending by the central government and generate adequate revenue for it, thereby enabling it to balance the national budget or, better yet, create a budget surplus and (2) to establish and maintain a stable, national currency backed by specie—a hard currency with paper money convertible into silver or gold coins. By the time he succeeded Sano and started fully implementing those measures in late 1881, Matsukata had come to embrace financial orthodoxy based on multiple influences: his pre-Restoration study of ancient Chinese and early modern Japanese financial reforms, his experience as an official in the new Meiji government, and his exposure to Western ideas and precedents in the 1870s. According to the prevailing view, as finance czar Matsukata rigidly applied the theories of orthodox finance he had learned from French economists during the nine-month trip he took to Europe in 1878.4 Some historians likewise claim that French scholarship and example provided the overall pattern for the Matsukata reforms of the 1880s.5 Contrary to this interpretation, however, French tutelage for the most part simply reinforced ideas that Matsukata had been developing since the Restoration, drawing on both Sino-Japanese and Western sources, and that he would go on to implement pragmatically after 1881. Granted, he and his subordinates in the Ministry of Finance did rely heavily on the French recycling of classical British liberal economics. Yet what they found attractive about this French rendering was not its free-trade or laissez-faire prescriptions but its down-to-earth, policy-oriented views on monetary and fiscal matters. As I conclude in this article, Matsukata and his brain trust had no single model for financial reform; rather, they participated in a global circulation of ideas and practices regarding public finance. [End Page 84] The set of policies that Matsukata put into effect, building on his predecessors’ initiatives, amounted to a self-imposed, nineteenth-century antecedent of modern structural adjustment programs, which have included debt reduction through higher taxes and lower government spending, currency stabilization, privatization of state-owned enterprises, and creation of new financial institutions. Mark Metzler has in fact called the Matsukata financial reform the world’s first such program.6 In the West in the 1870s and 1880s, most of these measures, with laissez-faire and free competition in place of the late-twentieth-century strategy of privatization, would have fallen under the rubric of orthodox financial and economic policies. The underpinnings of such policies were largely developed by British classical economists beginning with Adam Smith (1723–1790) and his cohort, who elaborated the concept of laissez-faire that French Physiocrats had introduced earlier and, most importantly for financial...