Matsukata Masayoshi - Financial Reform

Financial Reform

Matsukata moved to Tokyo in 1871 and began work on drafting laws for the Land Tax Reform of 1873–1881.

Under the new system:

1. a taxpayer paid taxes with money instead of rice
2. taxes were calculated based on the price of estates, not the amount of the agricultural product produced, and
3. tax rates were fixed at 3% of the value of estates and an estate holder was obliged to pay those taxes.

The new tax system was radically different from the traditional tax gathering system, which required taxes to be paid with rice varied according to location and the amount of rice produced. The new system took some years to be accepted by the Japanese people.

Matsukata became Home Minister in 1880. In the following year, when Ōkuma Shigenobu was expelled in a political upheaval, he became Finance Minister. The Japanese economy was in a crisis situation due to rampant inflation. Matsukata introduced a policy of fiscal restraint that resulted in what has come to be called the "Matsukata Deflation." The economy was eventually stabilized, but the resulting crash in commodity prices caused many smaller landholders to lose their fields to money-lending neighbors. Matsukata also established the Bank of Japan in 1882. When Itō Hirobumi was appointed the first Prime Minister of Japan in 1885, he appointed Matsukata to be the first Finance Minister under the new Meiji Constitution.

Matsukata also sought to protect Japanese industry from foreign competition, but was restricted by the unequal treaties. The unavailability of protectionist devices probably benefited Japan in the long run, as it enabled Japan to develop its export industries. The national government also tried to create government industries to produce particular products or services. Lack of funds forced the government to turn these industries over to private businesses which in return for special privileges agreed to pursue the government's goals. This arrangement led to the rise of the zaibatsu system.

Matsukata served as finance minister in seven of the first 10 cabinets, and for 18 of the 20 year period from 1881–1901. He also wrote Articles 62–72 of the Meiji Constitution of 1889.