In this outstanding book, Steven J. Ericson challenges the view that the Matsukata Deflation represented a form of shock therapy that replaced an activist Meiji Japanese industrial policy with financial orthodoxy and a laissez-faire reliance on markets to reach developmental goals. In Ericson's view, Matsukata's reforms were a pragmatic blend of economic ideas that might be called “liberal nationalist” and policies of “expansionary austerity,” and we should be wary of neoliberal attempts to turn Meiji economic development into a success story for market fundamentalism (pp. 141–42).
Finance Minister Matsukata Masayoshi is frequently portrayed in English-language histories of Japan as a convert to laissez-faire economics and nineteenth-century financial orthodoxy, but Ericson argues that Matsukata saw economic policy as a means to nationalist ends rather than in ideological terms. Although Matsukata credited Léon Say, the French liberal economist, as a major inspiration, Ericson demonstrates that Matsukata's economic thinking had many different sources. For the origins of Matsukata's economic ideas, Ericson examines a “homegrown mercantilist tradition,” in which the primary purpose of economic policy was to strengthen the state. He then notes that the Tokugawa-era currency reforms Confucian scholar-official Arai Hakuseki advocated in the early 1700s may well have served as a precedent (pp. 29–30).
The question of Western influence was also more nuanced than sometimes portrayed as Japanese students and bureaucrats were digesting a wide array of economic ideas from Britain, France, Germany, and the United States that included policy prescriptions ranging from laissez-faire to government leadership in the development of new industries and infrastructure. The model for Matsukata's financial policies “was neither single nor static, but rather a composite informed by a fluid array of Asian and Western precedents and typifying the pragmatic, eclectic approach the Meiji leadership took to the whole project of modern building” (p. 50). The chapter on Matsukata's ideas gives us a window into how nineteenth-century economic discourse was surveyed and adapted to Japan's particular needs.
Ericson also provides several key insights regarding the timing and scope of Matsukata's policies. Whereas many accounts of the Matsukata Deflation emphasize the sharp break between Ōkuma Shigenobu's earlier pump-priming expansionary policies and Matsukata's fiscal austerity, Ericson shows that there was significant continuity. Ōkuma had earlier proposed to control inflation by redeeming inconvertible paper currency with the help of foreign borrowing in London. When the government decided against foreign loans, Ōkuma began to work out plans to promote exports, retire inconvertible notes, and establish a central bank. “Accordingly, one could claim that by the summer of 1881 Ōkuma, working with colleagues, had set the basic course for the reforms that Matsukata would execute” (p. 27).
Moreover, Ericson argues that Matsukata was not as committed to austerity as he is usually portrayed. While currency convertibility was an important initial focus of Matsukata's reforms that generated some short-lived austerity measures, government investment returned quickly. The famous sale of the Meiji government's model factories occurred well after the years of the Matsukata Deflation and should be interpreted as a move to indirect industrial promotion rather than a shift to a laissez-faire policy orientation. Moreover, the fact that Matsukata chose the more tightly state-controlled National Bank of Belgium rather than the more independent Bank of England as the model for the new Bank of Japan further underscores the prominent role he envisioned for the state in Japan's economic future.
Ericson makes several important observations about the economic and political effects of Matsukata's policies. First, not all the hardships that farmers experienced during the years of deflation should be blamed on the reforms. Declines in international prices for Japan's exports after 1882 also played a role, as did US restrictions on Japanese tea imports beginning in 1883. The fact that famines and uprisings were not widespread suggests that economic conditions during these years were not as dire as they are sometimes portrayed. Ericson suggests that this relative tranquility was partly attributable to Matsukata's policies to mitigate the damage: “Matsukata helped shorten the depression he had largely created, however, by accelerating specie accumulation through the issuance of public bonds, the promotion of exports by foreign trading companies, and the expanded sale of Japanese rice overseas, effectively restoring confidence in the yen by mid-1885” (p. 131). In terms of politics, Ericson argues that the Matsukata reforms split rural support for the Liberal Party, which advocated wider popular participation in government. Sake brewers, for example, were divided between large and small producers with small producers agitating for tax relief through the Liberal Party while the large producers were more willing to cooperate with government officials.
The government's system of taxation and regulation had the effect of driving many small producers out of business while helping large producers by creating barriers to entry into the market. In other industries, Matsukata's policies triggered a series of bankruptcies especially among smaller firms. On this point, it would have been interesting if Ericson had further explored the debate between Maeda Masana, the author of a major government 1880s development report, and Matsukata on the relative importance in Japan's development of traditional industries and small business versus imported capital-intensive industries. Did Matsukata's policies really create conditions favorable to the zaibatsu conglomerates and other large firms at the expense of small business as some scholars have argued? Given the importance of military-related industries in Meiji development goals, some preferential treatment for large-scale firms was probably inevitable, but one does wonder whether the role of Matsukata's policies in the rise of the zaibatsu in the prewar Japanese economy has been exaggerated.
For historians of modern Japan, this book is essential reading and will serve as the definitive work on the Matsukata Deflation for many years to come. Clearly written, persuasively argued, and containing deep insights into the world of nineteenth-century economic policy, anyone interested in historical examples of market reforms will find it rewarding.
