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FINANCE] paper-making, oil-refining, brick-making, leather-tanning, glass-making and other industries attracted eager attention, and whereas the capital subscribed for such works aggregated only 50,000,000 yen in 1886, it exceeded 1,000,000,000 yen in 1906.

When specie payments were resumed in 1885, the notes issued by the Bank of Japan were convertible into silver on demand, the silver standard being thus definitely adopted, a complete reversal of the system inaugurated at the establishment of the national banks on Prince Ito’s

return from the United States. Japanese financiers believed from the outset in gold monometallism. But, in the first place, the country’s stock of gold was soon driven out by her depreciated fiat currency; and, in the second, not only were all other Oriental nations silver-using, but also the Mexican silver dollar had long been the unit of account in Far-Eastern trade. Thus Japan ultimately drifted into silver monometallism, the silver yen becoming her unit of currency. So soon, however, as the indemnity that she received from China after the war of 1894–95 had placed her in possession of a stock of gold, she determined to revert to the gold standard. Mechanically speaking, the operation was very easy. Gold having appreciated so that its value in terms of silver had exactly doubled during the first 30 years of the Meiji era, nothing was necessary except to double the denominations of the gold coins in terms of yen, leaving the silver subsidiary coins unchanged. Thus the old 5-yen gold piece, weighing 2.22221 momme of 900 fineness, became a 10-yen piece in the new currency, and a new 5-yen piece of half the weight was coined. No change whatever was required in the reckonings of the people. The yen continued to be their coin of account, with a fixed sterling value of a small fraction over two shillings, and the denominations of the gold coins were doubled. Gold, however, is little seen in Japan; the whole duty of currency is done by notes.

It is not to be supposed that all this economic and financial development was unchequered by periods of depression and severe panic. There were in fact six such seasons: in 1874, 1881, 1889, 1897, 1900 and 1907. But no year throughout the whole period failed to witness an increase in the number of Japan’s industrial and commercial companies, and in the amount of capital thus invested.

To obtain a comprehensive idea of Japan’s state finance, the simplest method is to set down the annual revenue at quinquennial periods, commencing with the year 1878–1879, because it was not until 1876 that the system of duly compiled and published budgets came into existence.

The most striking feature of the above table is the rapid growth of revenue during the last three periods. So signal was the growth that the revenue may be said to have sextupled in the 15 years ended 1909. This was the result of the two great wars in which Japan was involved, that with China in 1894–95 and that with Russia in 1904–5. The details will be presently shown.

Turning now to the expenditure and pursuing the same plan, we have the following figures:—

It may be here stated that, with three exceptions, the working of the budget showed a surplus in every one of the 41 years between 1867 and 1908.

The sources from which revenue is obtained are as follow:—

It appears from the above that during 15 years the weight of taxation increased fourfold. But a correction has to be applied, first, on account of the tax on alcoholic liquors and, secondly, on account of customs dues, neither of which can properly be called general imposts. The former grew from 16 millions in 1894–1895 to 72 millions in 1908–1909, and the latter from 5 millions to 41 millions. If these increases be deducted, it is found that taxes, properly so called, grew from 70.5 millions in 1894–1895 to 207.86 millions in 1908–1909, an increase of somewhat less than three-fold. Otherwise stated, the burden per unit of population in 1894–1895 was 3s. 6d., whereas in 1908–1909 it was 8s. 4d. To understand the principle of Japanese taxation and the manner in which the above development took place, it is necessary to glance briefly at the chief taxes separately.

The land tax is the principal source of revenue. It was originally fixed at 3% of the assessed value of the land, but in 1877 this ratio was reduced to 2%, on which basis the tax yielded from 37 to 38 million yen annually. After the war with China (1894–1895) the government proposed to increase this impost

in order to obtain funds for an extensive programme of useful public works and expanded armaments (known subsequently as the “first post bellum programme”). By that time the market value of agricultural land had largely appreciated owing to improved communications, and urban land commanded greatly enhanced prices. But the lower house of the diet, considering itself guardian of the farmers’ interests, refused to endorse any increase of the tax. Not until 1889 could this resistance be overcome, and then only on condition that the change should not be operative for more than 5 years. The amended rates were 3.3% on rural lands and 5% on urban building sites. Thus altered, the tax produced 46,000,000 yen, but at the end of the five-year period it would have reverted to its old figure, had not war with Russia broken out. An increase was then made so that the impost varied from 3% to 17% according to the class of land, and under this new system the tax yielded 85 millions. Thus the exigencies of two wars had augmented it from 38 millions in 1889 to 85 millions in 1907.

The income tax was introduced in 1887. It was on a graduated scale, varying from 1% on incomes of not less than 300 yen, to 3% on incomes of 30,000 yen and upwards. At these rates the tax yielded an insignificant revenue of about 2,000,000 yen. In 1899, a revision was effected for the purposes of

the first post bellum programme. This revision increased the number of classes from five to ten, incomes of 300 yen standing at the bottom and incomes of 100,000yen or upwards at the top, the minimum and maximum rates being 1% and 5%. The tax now produced approximately 8,000,000 yen. Finally in 1904, when war broke out with Russia, these rates were again revised, the minimum now becoming 2%, and the maximum 8.2%. Thus revised, the tax yields a revenue of 27,000,000 yen.

The business tax was instituted in 1896, after the war with China, and the rates have remained unchanged. For the purposes of the tax all kinds of business are divided into nine classes, and the tax is levied on the amounts of sales (wholesale and retail), on rental value of buildings, on number of

employees and on amount of capital. The yield from the tax grows steadily. It was only 4,500,000 yen in 1897, but it figured at 22,000,000 yen in the budget for 1908–1909.

The above three imposts constitute the only direct taxes in Japan. Among indirect taxes the most important is that upon alcoholic liquors. It was inaugurated in 1871; doubled, roughly speaking, in 1878; still further increased thenceforth at intervals of about 3 years, until it is now approximately

twenty times as heavy as it was originally. The liquor taxed is mainly sake; the rate is about 50 sen (one shilling) per gallon, and the annual yield is 72,000,000 yen.

In 1859, when Japan re-opened her ports to foreign commerce, the customs dues were fixed on a basis of 10% ad valorem, but this was almost immediately changed to a nominal 5% and a real 3%. The customs then yielded a very petty return—not more than three or four million yen—and

the Japanese government had no discretionary power to alter the rates. Strenuous efforts to change this system were at length successful, and, in 1899, the tariff was divided into two sections, conventional and statutory; the rates in the former being governed by a treaty valid for 12 years; those in the latter being fixed at Japan’s will. Things remained thus until the war with Russia