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Rh to restore Japan’s judicial and tariff autonomy. The example of Egypt showed what kind of fate might overtake a semi-independent state falling into the clutches of foreign bond-holders. Japan did not wish to fetter herself with foreign debts while struggling to emerge from the rank of Oriental powers.

After the revision of the national bank regulations, semi-official banking enterprise won such favour in public eyes that the government found it necessary to impose limits. This conservative policy proved an incentive to private banks and banking companies, so that, by the year

1883, no less than 1093 banking institutions were in existence throughout Japan with an aggregate capital of 900,000,000 yen. But these were entirely lacking in arrangements for combination or for equalizing rates of interest, and to correct such defects, no less than ultimately to constitute the sole note-issuing institution, a central bank (the Bank of Japan) was organized on the model of the Bank of Belgium, with due regard to corresponding institutions in other Western countries and to the conditions existing in Japan. Established in 1882 with a capital of 4,000,000 yen, this bank has now a capital of 30 millions, a security reserve of 206 millions, a note-issue of 266 millions, a specie reserve of 160 millions, and loans of 525 millions.

The banking machinery of the country being now complete, in a general sense, steps were taken in 1883 for converting the national banks into ordinary joint-stock concerns and for the redemption of all their note-issues. Each national bank was required to deposit with the treasury the government paper kept in its strong room as security for its own notes, and further to take from its annual profits and hand to the treasury a sum equal to 2% of its notes in circulation. With these funds the central bank was to purchase state bonds, devoting the interest to redeeming the notes of the national banks. Formed with the object of disturbing the money market as little as possible, this programme encountered two obstacles. The first was that, in view of the Bank of Japan’s purchases, the market price of state bonds rose rapidly, so that, whereas official financiers had not expected them to reach par before 1897, they were quoted at a considerable premium in 1886. The second was that the treasury having in 1886 initiated the policy of converting its 6% bonds into 5% consols, the former no longer produced interest at the rate estimated for the purposes of the banking scheme. The national banks thus found themselves in an embarrassing situation and began to clamour for a revision of the programme. But the government, seeing compensations for them in other directions, adhered firmly to its scheme. Few problems have caused greater controversy in modern Japan than this question of the ultimate fate of the national banks. Not until 1896 could the diet be induced to pass a bill providing for their dissolution at the close of their charter terms, or their conversion into ordinary joint-stock concerns without any note-issuing power, and not until 1899 did their notes cease to be legal tender. Out of a total of 153 of these banks, 132 continued business as private institutions, and the rest were absorbed or dissolved. Already (1890 and 1893) minute regulations had been enacted bringing all the banks and banking institutions—except the special banks to be presently described—within one system of semi-annual balance-sheets and official auditing, while in the case of savings banks the directors’ responsibility was declared unlimited and these banks were required to lodge security with the treasury for the protection of their depositors.

Just as the ordinary banks were all centred on the Bank of Japan and more or less connected with it, so in 1895, a group of special institutions, called agricultural and commercial banks, were organized and centred on a hypothec bank, the object of this system being to supply cheap capital

to farmers and manufacturers on the security of real estate. The hypothec bank had its head office in Tōkyō and was authorized to obtain funds by issuing premium-bearing bonds, while an agricultural and industrial bank was established in each prefecture and received assistance from the hypothec bank. Two years later (1900), an industrial bank—sometimes spoken of as the crédit mobilier of Japan—was brought into existence under official auspices, its purpose being to lend money against bonds, debentures and shares as well as to public corporations. These various institutions, together with clearing houses, bankers’ associations, the Hokkaidō colonial bank, the bank of Formosa, savings banks (including a post-office savings bank), and a mint complete the financial machinery of modern Japan.

Reviewing this chapter of Japan’s material development, we find that whereas, at the beginning of the Meiji era (1867), the nation did not possess so much as one banking institution worthy of the name, forty years later it had 2211 banks, with a paid-up capital of £40,000,000,

reserves of £12,000,000, and deposits of £147,000,000; and whereas there was not one savings bank in 1867, there were 487 in 1906 with deposits of over £50,000,000. The average yearly dividends of these banks in the ten years ending 1906 varied between 9.1 and 9.9%.

Necessarily the movement of industrial expansion was accompanied by a development of insurance business. The beginnings of this kind of enterprise did not become visible, however, until 1881, and even at that comparatively recent date no Japanese laws had yet been enacted for the control

of such operations. The commercial code, published in March 1890, was the earliest legislation which met the need, and from that time the number of insurance companies and the volume of their transactions grew rapidly. In 1897, there were 35 companies with a total paid-up capital of 7,000,000 yen and policies aggregating 971,000,000 yen, and in 1906 the corresponding figures were 65 companies, 22,000,000 yen paid up and policies of 4,149,000,000 yen. The premium reserves grew in the same period from 7,000,000 to 108,000,000. The net profits of these companies in 1906 were (in round numbers) 10,000,000 yen.

The origin of clearing houses preceded that of insurance companies in Japan by only two years (1879). Osaka set the example, which was quickly followed by Tōkyō, Kobe, Yokohama, Kiōto and Nagoya. In 1898 the bills handled at these institutions amounted to 1,186,000,000 yen, and

in 1907 to 7,484,000,000 yen. Japanese clearing houses are modelled after those of London and New York.

Exchanges existed in Japan as far back as the close of the 17th century. At that time the income of the feudal chiefs consisted almost entirely of rice, and as this was sold to brokers, the latter found it convenient to meet at fixed times and places for conducting their business. Originally their transactions

were all for cash, but afterwards they devised time bargains which ultimately developed into a definite form of exchange. The reform of abuses incidental to this system attracted the early attention of the Meiji government, and in 1893 a law was promulgated for the control of exchanges, which then numbered 146. Under this law the minimum share capital of a bourse constituted as a joint-stock company was fixed at 100,000 yen, and the whole of its property became liable for failure on the part of its brokers to implement their contracts. There were 51 bourses in 1908.

Not less remarkable than this economic development was the large part acted in it by officialdom. There were two reasons for this. One was that a majority of the men gifted with originality and foresight were drawn into the ranks of the administration by the great current of the revolution;

the other, that the feudal system had tended to check rather than to encourage material development, since the limits of each fief were also the limits of economical and industrial enterprise. Ideas for combination and co-operation had been confined to a few families, and there was nothing to suggest the organization of companies nor any law to protect them if organized. Thus the opening of the Meiji era found the Japanese nation wholly unqualified for the commercial and manufacturing competition in which it was thenceforth required to engage, and therefore upon those who had brought the country out of its isolation there devolved the responsibility of speedily preparing their fellow countrymen for the new situation. To these leaders banking facilities seemed to be the first need, and steps were accordingly taken in the manner already described. But how to educate men of affairs at a moment’s notice? How to replace by a spirit of intelligent progress the ignorance and conservatism of the hitherto despised traders and artisans? When the first bank was organized, its two founders—men who had been urged, nay almost compelled, by officialdom to make the essay—were obliged to raise four-fifths of the capital themselves, the general public not being willing to subscribe more than one-fifth—a petty sum of 500,000 yen—and when its staff commenced their duties, they had not the most shadowy conception of what to do. That was a faithful reflection of the condition of the business world at large. If the initiative of the people themselves had been awaited, Japan’s career must have been slow indeed.

Only one course offered, namely, that the government itself should organize a number of productive enterprises on modern lines, so that they might serve as schools and also as models. Such, as already noted under Industries, was the programme adopted. It provoked much hostile criticism from foreign onlookers, who had learned to decry all official incursions into trade and industry, but had not properly appreciated the special conditions existing in Japan. The end justified the means. At the outset of its administration we find the Meiji government not only forming plans for the circulation of money, building railways and organizing posts and telegraphs, but also establishing dockyards, spinning mills, printing-houses, silk-reeling filatures, paper-making factories and so forth, thus by example encouraging these kinds of enterprise and by legislation providing for their safe prosecution. Yet progress was slow. One by one and at long intervals joint-stock companies came into existence, nor was it until the resumption of specie payments in 1886 that a really effective spirit of enterprise manifested itself among the people. Railways, harbours, mines, spinning, weaving,