Financial Stabilization in Meiji Japan: The Impact of the Matsukata Reform by Steven J. Ericson (review)

When, in the 1970s, I first started studying Japan’s rural history, Matsukata Masayoshi, finance minister almost continuously from 1881 to 1900, was indelibly marked as the author of the deflationary policies of the first half of the 1880s that were held to have condemned Japanese farm households to debt and tenancy for a generation. Since then, as economic orthodoxy has shifted, Matsukata has been rebranded as something of a hero, an early pioneer of neoliberal “austerity” whose reform package has even been seen as a forerunner of the “structural adjustment programs” imposed by the International Monetary Fund on developing countries in the later twentieth century. Steven Ericson’s Financial Stabilization in Meiji Japan brings together his previously published work on Matsukata’s reforms, expanding it into a full-scale reassessment of the origins, content, and impact of the “Matsukata deflation.” From this, Matsukata emerges as neither an apostle of neoliberal orthodoxy nor a tool of capitalist industrialization at the expense of starving farmers, but rather as the author of a necessary and distinctive reform program that established a sound basis for Japan’s subsequent development within the prevailing world economy.

Readers should perhaps be warned at the outset that this conclusion is reached by means of some dense description that only those versed in the economics of trade and finance are likely to appreciate fully. However, anyone (and there are many) tempted to attribute Japan’s successful industrialization to the state’s role in the economy should persevere to discover what the Meiji government actually did that made a real difference to the economic lives of the mass of producers and consumers. This is not the exciting business of railways and imported French silk mills, but the day-to-day work of retiring paper money, building up specie reserves, raising and lowering taxes, rediscounting bills to aid exporters, coping with tax evasion by home brewers of sake, and managing the timing of land-tax payments. Ericson shows many of the decisions involved to have been highly political, reflecting the particular historical conditions faced by the Meiji leadership, but as he also reveals, Matsukata and his rivals were embedded within the same system of theory and practice as the rest of the world’s financial leaders in the global economy of the time. The book can therefore be seen as complementing Mark Metzler’s study of Inoue Junnosuke, who followed Matsukata in attempting to find the best way to integrate Japan into a global economy dominated by the Western powers and their thinking.¹ Like Inoue, Matsukata had read the same books as his European counterparts and talked the same financial language as they did, while, also like them, ultimately deciding his course of action on the grounds of national interest and local knowledge. This involved some eclectic borrowing of foreign examples as well as creative adaptation to the particular economic and political context of Meiji Japan: not many finance ministers in other countries had to worry about the impact of their measures on samurai commutation bonds!

The book begins with the background to Matsukata’s adoption of the reform package as a means to deal with the economic crisis that faced Japan by the late 1870s. Chapter 1 explains the financial and political circumstances of the crisis and the implications of Matsukata’s replacement, in 1881, of his then-superior, Ōkuma Shigenobu, as finance minister. Uncontrolled issue of inconvertible notes by newly founded banks was accelerating inflation and leading to the depreciation of the international value, measured in silver, of Japan’s currency. The rising price of rice in particular, while a windfall for farmers, was steadily eroding the real value of revenue from the cash-based land tax, limiting the scope for government expenditure on key military and economic objectives. Ōkuma had already been proposing measures that involved the use of foreign loans to finance the redemption of inconvertible notes and...