Smithian rhetoric, Listian practice: the Matsukata ‘retrenchment’ and industrial policy, 1881–1885

Abstract

A widely accepted view of the Matsukata financial reform of 1881–1885 is that, by privatizing the state’s non-military factories and shipyards as well as mines, the reform produced a dramatic change in industrial policy away from direct government intervention in the economy, in keeping with classical European economic liberalism. In addition, the sale of state enterprises is seen as having played an integral role in Matsukata’s program of financial stabilization, which some have claimed resembled IMF-style neoliberal reforms of the late twentieth century. In this article, I argue that these understandings require considerable qualification. For one thing, government spending on industry actually rose during the Matsukata reform compared with the previous four years, and the privatization of state enterprises contributed little to the reform itself. While the government adopted the divestiture program a year before Matsukata became finance minister, most of the sales, including the biggest ones of the 1880s, took place in the latter half of that decade, after the currency deflation had run its course. Matsukata’s ‘Smithian’ rhetoric would seem to back the generally held view, but in actuality his policies were more in line with the Listian tradition and the contemporary global practice of nationalist economics.