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Rh 240,000,000 yen. Hence the grain tax represented, at the lowest calculation, 96,000,000 yen. When the administration reverted to the emperor in 1867 the central treasury was empty, and the funds hitherto employed for governmental purposes in the fiefs continued to be devoted to the support of the feudatories, to the payment of the samurai, and to defraying the expenses of local administration, the central treasury receiving only whatever might remain after these various outlays.

The shōgun himself, whose income amounted to about £3,500,000, did not, on abdicating, hand over to the sovereign either the contents of his treasury or the lands from which he derived his revenues. He contended that funds for the government of the nation as a whole should be levied from the people at large. Not until 1871 did the feudal system cease to exist. The fiefs being then converted into prefectures, their revenues became an asset of the central treasury, less 10% allotted for the support of the former feudatories.

But during the interval between 1867 and 1871, the men on whom had devolved the direction of national affairs saw no relief from crippling impecuniosity except an issue of paper money. This was not a novelty in Japan. Paper money had been known to the people since the middle

of the 17th century, and in the era of which we are now writing no less than 1694 varieties of notes were in circulation. There were gold notes, silver notes, cash-notes, rice-notes, umbrella-notes, ribbon-notes, lathe-article-notes, and so on through an interminable list, the circulation of each kind being limited to the issuing fief. Many of these notes had almost ceased to have any purchasing power, and nearly all were regarded by the people as evidences of official greed. The first duty of a centralized progressive administration should have been to reform the currency. The political leaders of the time appreciated that duty, but saw themselves compelled by stress of circumstances to adopt the very device which in the hands of the feudal chiefs had produced such deplorable results. The ordinary revenue amounted to only 3,000,000 yen, while the extraordinary aggregated 29,000,000, and was derived wholly from issues of paper money or other equally unsound sources.

Even on the abolition of feudalism in 1871 the situation was not immediately relieved. The land tax, which constituted nine-tenths of the feudal revenues, had been assessed by varying methods and at various rates by the different feudatories, and re-assessment of all the land

became a preliminary essential to establishing a uniform system. Such a task, on the basis of accurate surveys, would have involved years of work, whereas the financial needs of the state had to be met immediately. Under the pressure of this imperative necessity a re-assessment was roughly made in two years, and being continued thereafter with greater accuracy, was completed in 1881. This survey, eminently liberal to the agriculturists, assigned a value of 1,200,000,000 yen to the whole of the arable land, and the treasury fixed the tax at 3% of the assessed value of the land, which was about one-half of the real market value. Moreover, the government contemplated a gradual reduction of this already low impost until it should ultimately fall to 1%. Circumstances prevented the consummation of that purpose. The rate underwent only one reduction of %, and thereafter had to be raised on account of war expenditures. On the whole, however, no class benefited more conspicuously from the change of administration than the peasants, since not only was their burden of taxation light, but also they were converted from mere tenants into actual proprietors. In brief, they acquired the fee-simple of their farms in consideration of paying an annual rent equal to about one sixty-sixth of the market value of the land.

In 1873, when these changes were effected, the ordinary revenue of the state rose from 24,500,000 yen to 70,500,000 yen. But seven millions sterling is a small income for a country confronted by such problems as Japan had to solve. She had to build railways; to create an army and

a navy; to organize posts, telegraphs, prisons, police and education; to construct roads, improve harbours, light and buoy the coasts; to create a mercantile marine; to start under official auspices numerous industrial enterprises which should serve as object lessons to the people, as well as to lend to private persons large sums in aid of similar projects. Thus, living of necessity beyond its income, the government had recourse to further issues of fiduciary notes, and in proportion as the volume of the latter exceeded actual currency requirements their specie value depreciated.

This question of paper currency inaugurates the story of banking; a story on almost every page of which are to be found inscribed the names of Prince Itō, Marquis Inouye, Marquis Matsukata, Count Okuma and Baron Shibusawa, the fathers of their country’s economic and financial

progress in modern times. The only substitutes for banks in feudal days were a few private firms—“households” would, perhaps, be a more correct expression—which received local taxes in kind, converted them into money, paid the proceeds to the central government or to the feudatories, gave accommodation to officials, did some exchange business, and occasionally extended accommodation to private individuals. They were not banks in the Occidental sense, for they neither collected funds by receiving deposits nor distributed capital by making loans. The various fiefs were so isolated that neither social nor financial intercourse was possible, and moreover the mercantile and manufacturing classes were regarded with some disdain by the gentry. The people had never been familiarized with combinations of capital for productive purposes, and such a thing as a joint-stock company was unknown. In these circumstances, when the administration of state affairs fell into the hands of the men who had made the restoration, they not only lacked the first essential of rule, money, but were also without means of obtaining any, for they could not collect taxes in the fiefs, these being still under the control of the feudal barons; and in the absence of widely organized commerce or finance, no access to funds presented itself. Doubtless the minds of these men were sharpened by the necessities confronting them, yet it speaks eloquently for their discernment that, samurai as they were, without any business training whatever, one of their first essays was to establish organizations which should take charge of the national revenue, encourage industry and promote trade and production by lending money at comparatively low rates of interest. The tentative character of these attempts is evidenced by frequent changes. There was first a business bureau, then a trade bureau, then commercial companies, and then exchange companies, these last being established in the principal cities and at the open ports, their personnel consisting of the three great families—Mitsui, Shimada and Ono—houses of ancient repute, as well as other wealthy merchants in Kiōto, Osaka and elsewhere. These exchange companies were partnerships, though not strictly of the joint-stock kind. They formed the nucleus of banks in Japan, and their functions included, for the first time, the receiving of deposits and the lending of money to merchants and manufacturers. They had power to issue notes, and, at the same time, the government issued notes on its own account. Indeed, in this latter fact is to be found one of the motives for organizing the exchange companies, the idea being that if the state’s notes were lent to the companies, the people would become familiarized with the use of such currency, and the companies would find them convenient capital. But this system was essentially unsound: the notes, alike of the treasury and of the companies, though nominally convertible, were not secured by any fixed stock of specie. Four years sufficed to prove the unpracticality of such an arrangement, and in 1872 the exchange companies were swept away, to be succeeded in July 1873 by the establishment of national banks on a system which combined some of the features of English banking with the general