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ries.'
2
Matsukata launched a deflationary policy quite comparable to that carried out seventy years later by Joseph Dodge and Ikeda Hayato, and with almost equally propitious results. As Arthur Tiedemann observes:
By all measures what came to be known as the Matsukata deflation accomplished its objectives. After 1881 interest rates, wages, and prices all fell. By 1882 imports were down 6 percent and exports up 33 percent compared with 1880; there was an export surplus of ?8.3 million. The cumulative trade surplus for 18821885 amounted to ?28.2 million. By 1885, the paper currency had been reduced to ?118.5 million and the paper-silver ratio stood at 1.05 to 1.00. The following year, in the midst of the greatest export prosperity Japan had ever enjoyed, the country went on the silver standard.
3
It must be understood that Matsukata's policy was not intended primarily as a new approach to economic development; it was instead a matter of hard necessityof the pressing need to bring imports and exports under control and to keep the government solvent. In its 'hyper-balancing of revenues and expenditures,' the government did not touch military expenditures, these being considered essential to the maintenance of Japan's independence.
4
As an alternative to the state investment that was no longer possible, the government began helping private entrepreneurs to accumulate capital and to invest it in ways that seemed to promote Japan's needs for military security and economic development. The government sold them its pilot plants, provided them with exclusive licenses and other privileges, and often provided them with part of their capital funds. Japan had few other choices open to it at the time (it did not regain control over its own tariffs until July 1911), and although it neither understood nor believed in laissez faire capitalism, the government's policies seemed to reassure foreigners that Japan was becoming 'modern' (that is, like them). The beneficiaries of this new policy were the big merchant houses of Mitsui, Mitsubishi, Sumitomo, Yasuda, Furukawa, Okura*, and Asano, which later came to be known as the zaibatsu.
The relations that developed between the Meiji government and the private investors were not formal or official but, rather, personal and unofficial. They usually took the form of direct contacts between one or another of the oligarchs and an entrepreneur with access to him. Inoue Kaoru's services from within the government to Mitsui, for example, have been well documented.
5
Common clan origins and strategic marriages cemented many of these relations, and bribery and payoffs were not unknown. This working relationship between government and business needed a legal cover, however. In order to formalize and supervise the sale of government property, and also to
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unify all of the government's various economic activities, two of the Meiji oligarchs, Ito * Hirobumi and Okuma* Shigenobu, memorialized the throne on the desirability of a new economic ministry. This memorial was accepted and led to the creation on April 7, 1881, of the Ministry of Agriculture and Commerce.
6
Attending to agriculture was certainly the most important activity of the new ministry. As Horie notes, Japan had one 'God-sent' product in the form of raw silk, without which it might never have brought its trade deficit under control.
7
In addition to the supervision and promotion of agriculture, the new ministry was charged with the administration of all laws and orders relating to commerce, industry, technology, fishing, hunting, merchant shipping, inventions, trademarks, weights and measures, land reclamation, animal husbandry and veterinary affairs, forests, and the postal service. It combined functions that had been divided since the Restoration among the ministries of Finance, Civil Affairs, Industrial Affairs, and Home Affairs.
In 1885, with the success of the Matsukata reforms and the reorganization of the government into a cabinet system, MAC gave up its powers over shipping and the postal service to the new Ministry of Communications (Teishin-sho*). However, with the abolition at the same time of the old Ministry of Industrial Affairs (Kobu-sho*), it assumed control over mining. Between 1885 and the end of the century MAC's internal structure underwent several changes that finally resulted in the configuration that would last with minor variations until its dissolution: a ministerial Secretariat, six internal bureausAgricultural Affairs (Nomu* Kyoku), Commercial Affairs (Shomu* Kyoku), Industrial Affairs (Komu* Kyoku), Forestry (Sanrin Kyoku), Fisheries (Suisan Kyoku), and Mining (Kozan* Kyoku)and one semidetached bureau, the Patent Bureau (Tokkyo Kyoku), with its own secretariat.
At the end of the century MAC acquired one more very important function, management of the government-owned-and-operated Yawata steel works. In 1896, during the ninth Imperial Diet, Prime Minister Ito Hirobumi and Minister Enomoto Takeaki of MAC successfully proposed a bill for the expenditure of about ?4 million to build an iron and steel plant. First priority for its products was to go to armaments, but any surplus could be offered for general sale. It was built in Fukuoka prefecture at Yawata village, and thus was located both in the northern Kyushu coal fields and on the Japan Sea for easy access to iron ore from China. As a result of Japan's victory in the first Sino-Japanese War of 189495, iron ore from China was readily available, and it was of higher quality than that mined domestically. Pro-
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duction at Yawata began in the autumn of 1901 and immediately accounted for 53 percent of the nation's production of pig iron and 82 percent of its rolled steel. It had no serious domestic rivals until 1911 and 1912, when the privately owned Kobe Steel Company and Nippon Kokan * Company (Japan Steel Pipe) were founded.
MAC's sponsorship and operation of the Yawata works produced an identification between the ministry and big steel that has lasted to the present day. Long after the post-World War II Allied occupation had denationalized the steel industry, the Japanese public continued to believe that MITI officials had a soft spot in their hearts for the newly created 'private' Yawata Steel Company. The press regularly suggested that Yawata officials had an unfair influence over the government, and went as far as to nickname MITI the 'Tokyo Office of the Yawata Steel Company.'
8
Certainly in 1970, at the time of the merger of the Yawata and Fuji steel companies into New Japan Steelmaking it the world's largest steel producer and recalling the old nationalized company of 1934no one in Japan thought MITI was either neutral or anything but pleased by the development. The trade and industry bureaucrats throughout this century have had a strong influence over Japan's steel industry, a relationship made all the more explicit by the Tokyo sales office of the Yawata works being located in the Ministry of Commerce and Industry
