The Online Library of Liberty

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• Banking In Germany.
• Chapter I.: Non-issuing Credit Institutions.
• Chapter II.: German Banks of Issue.
• History of Banking In Austria-hungary.
• Chapter I.: The Austrian National Bank.
• Chapter II.: Austrian Joint-stock Banks and Banking Associations.
• Chapter III.: Hungarian Joint-stock Banks and Private Credit Institutions.
• Appendix to Banking In Germany and Austria-hungary.
• II.: Statistics of Banking In Austria-hungary.
• Banking In the Netherlands.
• Introduction.
• Chapter I.: Era of Exchange Banks.
• Chapter II.: Period From 1814. Modern Dutch Banking.
• Chapter III.: Period 1814-1863. the Netherlands Bank.
• Chapter IV.: The Netherlands Bank, 1864 to 1895.
• Chapter V.: Banks of Issue In the Dutch Colonies.
• Chapter VI.: “cashiers,” Joint-stock Banks, and Private Bankers.
• Banking In the Scandinavian Nations.
• Part I.: Banking In Denmark.
• Chapter I.: History Previous to the National Bank.
• Chapter II.: The National Bank During the First Half of the Nineteenth Century.
• Chapter III.: Private Banks.
• Part II.: Banking In Sweden.
• Part III.: Banking In Norway.
• Banking and Money In Japan.
• Part I.: The Banking System.
• Chapter I.: Common Banks.
• Chapter II.: The National Banks.
• Chapter III.: The Yokohama Specie Bank. ( Shiokinginko. )
• Chapter IV.: The Bank of Japan. ( Nippon Ginko )
• Chapter V.: Land Mortgage Banks.
• Part II.: The Currency of Japan.
• Chapter I.: The Old Coinage System.
• Chapter II.: The New Coinage Period.
• Chapter III.: The Paper Currency.
• Chapter IV.: Readjustment of the Public Debt.
• Chapter V.: The Future Money Standard.
• Appendices.
• Appendix D.: National Debt In Japan. (from the “british Economic Association Journal” of June, 1895.)
• Banking, Currency and Land Tenure In the Chinese Empire.
• I.: China’s Currencies.
• II.: Chinese Banking: Ancient and Modern.
• III.: Land Tenure and Taxation In China.

CHAPTER V.

THE FUTURE MONEY STANDARD.

LOOKING TO THE GOLD BASIS.

THE unsolved part of the currency problem is the question of the legal standard. The standard fixed in the original Coinage Act is that of gold. But the issue of silver yen and the conversion of the Government and the bank notes into silver have made a gold standard merely nominal. Thus, practically, Japan is at present one of the silver-using countries. Consequently, the fall of silver affects her financially and commercially. How her payments for the purchase of men-of-war, for instance, from gold-standard countries are affected may be seen from the following table:

The increase of the burden was felt by the Government. The fall of silver advanced the prices of exportable goods—among others, rice; but the advance in rice means the general enhancement of prices, as already mentioned. The nominal amount of the exports also increased; so that both the internal and external trade was affected. By 1893, the fall of the yen, measured by pounds, francs, and dollars, became excessive, as shown on the following page.

THE IMPERIAL STANDARD COMMISSION.

Urged by these considerations, the Imperial Commission to investigate the causes and effects of the fluctuation of silver as well as the question of what is the best standard for Japan, was appointed in September, 1893. The names of the members are as follows:

Viscount Tani Takeki, chairman of the Commission and member of the House of Lords.

Mr. Tajiri Inajiro (now Baron), deputy chairman of the Commission and Vice-Minister of Finance.

Mr. Hayakawa Senhichiro, secretary of the Commission and private secretary to the Minister of Finance.

Mr. Wakamiya Seion, ex-director of the Bureau of Commerce and Industry in the Department of Agriculture and Commerce.

Mr. Hara Kei, ex-director of the Bureau of Commerce, and now the Vice-Minister in the Department of Foreign Affairs.

Mr. Wadagaki Kenzo, professor in the Imperial University.

*Mr. Sakatani Yoshiro, accountant and counsellor in the Department of Finance.

*Mr. Soyeda Juichi, secretary and counsellor in the Department of Finance.

*Mr. Kanai Nobu, professor in the Imperial University.

Mr. Kawada Koichiro (now Baron), president of the Bank of Japan.

Viscount Hotta Seiyo, member of the House of Lords.

Mr. Obata Tokujiro, member of the House of Lords.

Mr. Watanabe Jin Kichi, member of the House of Lords.

*Mr. Sonada Kokichi, president of the Yokohama Specie Bank.

Mr. Shibusawa Eiichi, president of the First National Bank.

Mr. Masuda Takashi, manager of the Mitsui Bussan Kuaisha.

Mr. Shoda Heigoro, manager of the Mitsui Bishi Firm.

*Mr. Taguchi Ukichi, editor of the “Tokio Economic Journal” and member of the House of Commons.

Mr. Watamabe Hiromoto, late member of the House of Commons.

Mr. Kawashima Jun, member of the House of Commons.

Mr. Maki Bokushin, late member of the House of Commons.

Mr. Kurihara Rioichi, member of the House of Commons.

Mr. Takata Sanaye, member of the House of Commons.

Thus in the Commission was included members of the Diet, financiers, economists, bankers, and other influential men of business. The first meeting was held in October, 1893, and a select committee of five to investigate the causes and effects of the fluctuation of silver was appointed out of those marked by an asterisk (*) in the above list. They held thirty-seven meetings within eighteen months, collecting much valuable material. Opinions were divided, one party holding the fall of silver to be beneficial, while the other deemed the benefit temporary and mixed with many evils. The former view was in the majority of three against two; and it was so reported to the general meeting in March, 1895, when the select committee to decide the best standard was elected, Messrs. Masuda, Watamabe, and Hiromoto being added to the five already chosen. This select committee, after holding four meetings, reported in May. Every one differed on this most important and practical question.

Mr. Sakatani insisted that gold should be adopted as soon as possible. Mr. Soyeda’s view was, though the aim must be directed toward gold, the present is not the time for change, but for preparation. Professor Kanai had hope of the formation of an international bimetallic league, and advised joining it when formed. Mr. Watamabe urged the necessity of accumulating gold, because the time will come when gold is to be made the standard. Mr. Sonada stuck to the maintenance of the statu quo. Mr. Masuda wanted to wait till the mind of the other countries is made up. Mr. Taguchi desired to take the lead in the formation of a bimetallic league among advanced nations.

THE COMMISSION’S SUMMING UP.

In fact, the gold party was in a majority; but all were against any sudden change except one member. In May, the matter was brought up at the general meeting, and after four days of heated discussion the final resolution was taken. The causes of the depreciation of the white metal were declared to be: 1. The increase of production. 2. A decrease in the cost of production. 3. A comparatively slow increase of the demand for silver. 4. A decrease of the industrial use of silver. 5. The effect of increased production is concentrated on a very small portion of the stock of silver, such as bullion and full-quality silver coins, thus making the result more telling. 6. The production of gold is less, compared with the ever-increasing supply of silver. 7. The increase of the use of gold for coinage. 8. The increase of the industrial use of gold. 9. The increase of the tendency to hoard gold.

The effects of the depreciation on silver-using countries were thus enumerated: 1. Increase in the silver value of exports. 2. Rise of prices. 3. Profits for debtors and tax-payers. 4. Advantages reaped by agriculturists. 5. Industrial and commercial prosperity. 6. Increase of the revenues of the State. 7. Increase of the demand for labor. 8. Increase of the expenditures. 9. Suffering of wage-earners, etc. 10. Losses for creditors. 11. Rise of speculative undertakings. 12. Increase of goods imported from gold-using countries.

The effects on gold-using countries were summed up thus: 1. Advantage of creditors. 2. Fall of prices of goods imported from silver-using countries. 3. Decrease of expenditures of the State. 4. Fall of prices. 5. Loss felt by debtors and tax-payers. 6. Depressed state of industry and commerce. 7. Fall of the rate of interest. 8. Suffering of the agricultural class. 9. Decrease of revenues. 10. Loss of those who pay wages, salaries, etc. 11. Decreased demand for labor. 12. Increase of importation from silver countries.

Those affecting both countries were divided into two. 1. Hindrances to commercial transactions between gold and silver countries. 2. Withdrawal of capital invested by gold countries from those using silver.

The effects on Japan were concluded to be as follows: 1. Increase of exports. 2. Rise of prices and suffering of wage-earners. 3. Profit for debtors and tax-payers, and consequent loss by creditors. 4. Prosperity of commerce, industry, and agriculture. 5. Increase of revenues and expenditures. 6. Increased demand for labor. 7. Prevalence of the speculative spirit and luxury. 8. Rise of prices of goods imported from gold countries. 9. Opening of the mint absorbing redundant silver. 10. Trade with gold countries hindered and capital withdrawn by them.

The effects were deemed beneficial by ten against five members. When the final question on the best standard was put, the strife increased. On the first question, “Are we to change the standard?” there were eight affirmative against seven negative votes. Then, “What should be the standard?” was asked, and six upheld gold, while two stood for the double standard. The report of the committee was presented to the Government in July, and it is not known how far the report will be adopted. So, the question is still left unsolved.

REASONS FOR THE GOLD STANDARD.

The Author believes gold monometallism to be the best system, for the reasons following: 1. To serve as a measure of value, the standard must be single and simple. This is almost self-evident when we consider that two different measures of length cannot be in use at the same time. Bimetallism is therefore erroneous in theory, besides being difficult to carry out in practice, owing to the impossibility of international agreement.

2. That which forms the standard must be the thing which varies the least, and if it varies, the tendency must be on the side of appreciation. Gold is steadier in production, and its demand will never fall off so long as the human taste is not revolutionized. Some try to prove the steadiness of the value of silver by showing that the prices of commodities in silver countries are more steady than those in gold countries. Nothing is so futile or misleading as this. If a seller of an iron rod were to use an India-rubber measure, who would not laugh at the absurdity? But to try to prove the rise or fall of gold by the ever-changing prices of goods is almost similar to such an example. In order to judge of the fluctuations of silver or gold, we must be guided by the inevitable law of demand and supply. Supposing that the fault lies with the appreciation of gold while the value of the goods remained steady, why should not every commodity fall in price in equal proportion? Indeed, what the economic law indicates is the great fall of silver and the relatively small rise of gold. If so, the variation is less with the latter, and is on the side of appreciation. So long as cheap prices are a blessing to consumers—to which category even manufacturers belong—and therefore to mankind in general, the inflationists’ view must be erroneous, and we must prefer gold to silver.

3. It is futile to attempt to change the human taste or likings by law, or to fix prices of things by international agreement or other artificial device, as has been repeatedly proved by the failure of monetary conferences and the suspension of the working of the Latin Union. Every time we hear of monetary conferences, exchange is disturbed, but no actual result is attained. It is far better to leave the matter to itself than to swell the gains of speculators and mine-owners at the expense of the general public. Some speak of the scarcity of gold and the overproduction of silver, but of late years the production of gold has increased, while that of silver is decreasing. Moreover, credit instruments will fill up the deficiency of gold among civilized nations, and the gradual progress by less advanced countries will increase the use of silver. Even in gold-standard countries, the increased use of silver as token money will make room for the redundant silver. Some commend the compensatory action of the bimetallic standard. This may exist to some extent, but in the double standard the small fluctuations frequently occur in ripples, while in the single one the undulation, though great, is extended over a long period, making the effect almost unfelt, as in the case of ocean waves.

4. The standard must conform to the necessities of the country in which it is applied. For uncivilized nations, shells and hides may do; but as we advance, something better, such as silver, becomes necessary. As the unit of prices rises by still higher advance toward civilization, silver becomes too heavy, and something which embodies more value in less volume is needed. This need is best satisfied by gold. Therefore, for the advanced nations, gold must be made the standard by the very necessities of daily life, while for backward countries silver will be more suitable.

Turning now to the case of Japan, she will before long reach the stage when gold becomes necessary by: 1. A rise of the unit of value. 2. An increase of transactions. 3. Becoming a creditor country. 4. Importing raw material and exporting manufactured goods. 5. Increase of commercial relations with gold-using countries. But at present it is premature to adopt the gold standard at once. Therefore, making gold the object, we must be simply contented just now with such preparations as: 1. The stoppage or limitation of the free coinage of silver. 2. Coining mostly gold. 3. Accumulating gold by increased exports and production. 4. Buying up the output of neighboring gold mines. 5. Collecting customs duties in gold. 6. Giving preference to those who pay in gold. 7. Placing the national debt bonds in the market of gold countries. 8. Converting and retiring all paper notes below five yen and increasing the specie basis in gold.

Another important question is the manipulation of the indemnity fund. This is a question which may affect the world at large, and, therefore, its treatment cannot be disregarded by commercial countries. However, so far as the Author can see, there is no cause for anxiety, because the Japanese financiers will do their best not to disturb the exchange market. They will act with caution and circumspection in the transmission or disbursement of the fund, which was received in gold to the amount of £13,160,392 3s. 5d., and was all deposited in the Bank of England. In case the Japanese finances were strained, as some superficial observers used to announce, there might be a risk of precipitate action. But just the contrary being the case, and the financial strength of the country being far greater than expected even by her financiers themselves, the rest of the world has less to fear from the mode of handling the fund. If by the late war the military and naval strength of Japan were vindicated, the skill and development of her financering must at the same time be acknowledged. After being engaged in an enterprise involving the sending across the sea of more than 300,000 men, and keeping them there for a period of a year and a half, it is nothing short of marvelous that the national finances should have been kept free from all disturbance.

CONCLUSION.

Not only in its banking and currency, but almost in all other respects, Japan was far behind the so-called civilized nations, having long been kept down by the iron rule of feudalism. Things went on smoothly enough so long as the organization of society was simple and homogeneous. But as it became more complex and active, as the comparatively recent decay of feudalism set in, there was an outbreak of confusion and turmoil. In the Restoration a new era dawned, but still the turbulent condition lasted, being intensified by crude and vague ideas of things European. At last, after a great many failures and miscarriages, the so-called “best out of every country” policy bore a fruit peculiar to Japan. A banking system was firmly established, and the currency was made stable and trustworthy, equal to those of the highly civilized countries. Success, however, was won only after a series of struggles and contentions. Those who do not know how much latent energy existed before the opening up of the country may say “these are all apish imitations.” But a moment’s reflection and a glance at what has been described may raise the question whether so much can be achieved by imitations only. There must be a strong digestive and assimilating power at least, for the attainment of reforms and improvements of such amplitude. If, therefore, Japan cannot expect the world to admire her or learn from her, she has at least a right to be investigated more and known better, instead of being slighted and despised, and even subjected to extreme contempt, as was the case before her success in the war with “the Sick Man of the Far East.” She has sent men over to Europe to investigate and study the best of everything practically and theoretically. From her university many able and active young men come out every year and enter public and private service. Not only in material sciences, but in politics, law, economics, and public finance, the newest theories are carried into practice. For those who are not prejudiced, Japan is thus the best place for investigating the practical working of economic theories. Moreover, the rapidity of the progress which she has made increases the interest which she offers to scientific observers.

If what has been herein described can arouse a sense of interest in the minds of impartial investigators, the Author will be amply satisfied, even if he fails to secure the attention of the general public in the New and the Old World.