Hamilton's Ghost Haunts Washington
From Tokyo --
Excerpts From The Leaders of the Meiji Restoration

by Kathy Wolfe

Printed in the Executive Intelligence Review, January, 1992


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Shocking as it seems, the nation of Japan is the greatest living ``success story'' today of Alexander Hamilton, Friedrich List, Henry Carey, and the American System of Political Economy. It is Hamilton's success, in Japanese form, which has come back to haunt a United States now grown weak and decadent by its rejection of Hamilton's programs.

Despite ignorance of most Americans and Japanese today of the facts, modern Japan was founded when a handful of Japanese intellectuals, lead by Yukichi Fukuzawa, Toshimichi Ökubo, and Shigenobu Ökuma, created an American System Renaissance in Japan in the 1860s and 1870s, modeled on Abraham Lincoln's programs. Traveling to the United States, Germany, and Europe, and bringing back with them American advisers and professors, this Japanese elite based themselves explicitly on the writings of Hamilton, Friedrich List, and Henry Carey.

They adopted List's term ``American System'' for their plan to promote national industrial production, technology, and the elevation of the common man through education. List and Carey were widely translated into Japanese. ``America is our Father,'' wrote Fukuzawa in his newspaper. Without the ``U.S.A. as chaperone of Japan,'' Japan might have been just another colonial satrapy, wrote Ökuma in his Fifty Years of the New Japan.

To found such an American System, these Japanese patriots, born noblemen but ardent supporters of the American Constitution, formed an army to subdue the feudal Tokugawa warlords and restore central government to the young Emperor Meiji in 1868, an event known as the Meiji Restoration. Behind the new government were the leading students of Henry Carey, who later dubbed themselves the Meiroku (Sixth Year of Meiji) Society. During the next quarter-century as a result of their adoption of Hamiltonian economics, Japan crushed feudalism, created a Constitution and parliament, doubled its population, built a national railroad, founded modern universities, and more than quintupled industrial and agricultural output.

The Meiji leaders were explicitly opposed to the British free trade system of usury. They were consciously allied with the Lincoln forces in America, the Christian republican movement of Dr. Sun Yat-sen in China, and humanists in Korea to create a community of American System nations in Asia, in order to halt Britain's Opium Wars which were enslaving the continent.

While it is often said that the Meiji imitated only the trappings of the West, buying a few machines but remaining internally an Asian despotic culture, in fact Fukuzawa and his collaborators rose to the level characterized by Friedrich Schiller as ``a patriot and a world citizen.'' They realized that only by promoting the highest ideas developed by humanity, many of which originated in European Christian civilization but which belong to all men, could they save Japan from subjugation by the British fleet as suffered by the rest of Asia.

In order to do this, Fukuzawa wrote in his Jiji Press newspaper, it would be necessary to join western culture and ``to liberate Japan from the dregs of Chinese philosophy'':

``The final purpose of my work was to create in Japan a civilized nation as well equipped in both the arts of war and peace as those of the West. I acted as if I had become the sole functioning agent for the introduction of western culture....

``I regard the human being as the most sacred and responsible of all orders, unable therefore, in reason, to do anything base. So in self-respect, a man cannot change his sense of humanity, his loyalty or anything belonging to his man-hood, even when driven by circumstances to do so....''

Later, in the twentieth century, it was Britain which broke up the Japano-American alliance, and then obliterated all word of it from the modern record. Just as the British attempted to break up the United States itself by financing the Confederacy in the Civil War, Britain sought to prevent the development of any industrial state in Asia which might follow the American model, and refuse to kneel to the British Empire. After the Meiji Restoration, Britain feared that an alliance of the technology of the United States and Japan might end the British System. To these ends the British created the Russo-Japanese War of 1905 and eventually World Wars I and II.

We present here the facts which Britain has tried to cover up for a century, in terror that the United States and Japan might ally again to re-industrialize the world based upon our common Hamiltonian heritage.


The collapse of Chinese feudalism

The tremendous job done by the Meiji intellectuals is underlined by contemporary accounts of the disaster to which 500 years of Chinese-model feudalism had brought Japan by 1800. The population had been held at zero growth for hundreds of years at the 30 million level, by food control, a caste system, serfdom, the prohibition of travel and trade, and widespread infanticide.

Society was divided into two large castes, overwhelmingly the commoner castes (91%), mainly illiterate peasants and the nobility. The basis for rule was food control. During the seventeenth century, the Tokugawa war lords at Edo (Tokyo) had made themselves Shogun (military dictator) by force and taken power from the Imperial Court at Kyoto. They held the peasants as serfs, tied permanently to the land, forced to pay a large proportion of their rice crop to the local lord (daimyo) who in turn paid a large portion of his aggregate collection to the Shogunate.

By the early 1800s, this feudal structure of looting had broken down, creating widespread famine, epidemic, and anarchy. The Meiroku intellectuals acted to break Japan from that Chinese-model feudalism, the worst imperial tyranny ever known to man. Most western tracts on the Meiji Restoration falsify this completely. They claim the Meiji sought to forge a Chinese-style Imperial Dynasty to rival the British Empire, and were forced to do so only by the invasions of western fleets. They claim that the Meiji nobility created the regime to perpetuate their own feudal power structure, with no larger moral concerns for their population. Thus, most western texts claim, a pro-Nazi fascist movement in Japan in the 1940s was the direct outcome of the Meiji Restoration.

This is a lie. The Meiji patriots built a state on the American constitutional model, for which the emperor was needed to unify the nation in the face of anarchy.

Both the Meiroku leaders and the American Lincoln republicans were well aware that the British were militarily attacking the Americas and Asia simultaneously, with the Opium Wars and the British finance for the Confederacy in the Civil War. The unloading of opium by the force of British gunboats upon China during the Opium War of 1840-42, which led to Britain's first colonial possession in East Asia, Hong Kong, caused tremendous concern in Japan and the United States, as did the Taiping Rebellion in China against Britain's Manchu puppet regime (1850-65) and the Indian Mutiny (1857-59).

The United States fought Britain with a policy for spreading civilization around the globe through commerce and industry which could help foster new republican nations to ally with America, not by military occupation, drugs, and looting. This was behind U.S. Commodore Matthew Perry's sailing into Tokyo Harbor in 1853.

``When we look at the possessions in the East of our great maritime rival England, and at the constant and rapid increase of their fortified ports, we should be admonished of the necessity of prompt measures on our part,'' Perry wrote before sailing to Japan for the first time in 1853.

``Fortunately the Japanese and many other islands of the Pacific are still left untouched by this unconscionable government; and some of them lie in the route of a great commerce, which is destined to become of great importance to the United States. No time should be lost, in adopting active measures to secure a sufficient number of ports of refuge.''


The Benjamin Franklin of Japan

The intellectual leader of the Meiji Renaissance was Yukichi Fukuzawa. During the 1840s and 1850s, Fukuzawa was a member of the Dutch Studies movement, a group of young intellectuals who flocked to the Dutch colony at Nagasaki, the only venue to learn western science under the Shogun feudal dictatorship. There they studied the works of Johannes Kepler, among other leading western thinkers.

In 1858, ten years before the Meiji era, Fukuzawa founded Keio University on part of his clan's estate near Tokyo, the first university in Japan. As soon as he was able, he staffed it with American professors from the school of Henry Carey and Mathew Carey.

In 1860, Fukuzawa visited America; in 1862, Europe; and in 1867, America again. The 1860 trip was clandestine as it was illegal under the Shogun feudal lord. After his 1867 visit, Fukuzawa brought back as many American books as he could carry.

Fukuzawa never joined the government, but concentrated on founding universities and newspapers, including Japan's first newspaper, the Jiji Shinpo, in 1871. His friends from the Dutch Studies movement formed the first ``Hanbatsu Cabinet'' at the restoration of the Emperor Meiji in 1868:

Toshimichi Ökubo, the ``George Washington of Japan,'' forged a faction for the American System within the Japanese elite. The first minister of finance in 1868, he became vice envoy of Japan in the first Meiji government mission to the United States and Europe, the Iwakura Mission of 1871-73. He founded the Industrial Production Board, the precursor of today's Ministry of International Trade and Industry (MITI).

Shigenobu Ökuma, Ökubo's successor as finance minister, was the Alexander Hamilton of Japan. He set up a banking system modeled explicitly on Lincoln's Hamiltonian system, beginning with his foundation of the First National Bank of Japan in 1873.

Prince Tomomi Iwakura, a leader of the Imperial Sanyo (Council of Advisers) was the first prime minister and headed the Meijis' first mission to the United States and Europe in 1871. The Education Decree promulgated by Iwakura in 1872 created the first public school system in Asia.

Arinori Mori and Tetsunosuke Tomita, Japanese consuls in Washington and New York, respectively, worked closely with Carey in the U.S. and traveled frequently to Japan to assist in the restoration. Tomita commissioned the first Japanese translations of the works of Carey and List.


The National Bank

Toshimichi Ökubo led the drive for a Hamiltonian banking system and American-style industrialization. Upon his return from America in 1873, on the advice of Washington's adviser in Tokyo, Erasmus Peshine Smith, a student of Lincoln's economic adviser Henry Carey, Ökubo founded the Ministry of Home Affairs and set up within it the Industrial Promotion Board. Ökubo placed his friend Shigenobu Ökuma, another intellectual leader, as finance minister, and they founded the First National Bank of Japan the same year.

Without the national banks, of which Ökuma set up a series during the 1870s, explicitly modeled upon Alexander Hamilton's 1791 First National Bank of the U.S., Japan could never have industrialized. Japan thus became the first nation in Asia to found an independent state bank. For this reason alone, the British, who always owned the central bank of the nation they occupied, such as the Hongkong and Shanghai Bank in China, were unable to crush Japan.

Ökuma took his cue from Hamilton who, in his 1790 ``Report on a National Bank,'' solved the crisis of the huge American Revolutionary War debt. The Continental debt, he wrote, should be used as specie, that is, be circulated as currency, and could be capitalized, used as the capital of a national bank, to then issue a much greater sum of credit for industrialization (see p. 15).

In Meiji Japan, the state was the source of credit, for feudalism had left Japan with few private money lenders, almost no money economy, little national debt, and no industrialists. Where were they to begin?

Ökubo and Ökuma constructed a solution, based on Hamilton's solution to the Continental debt, which eradicated feudalism in Japan in less than a decade. They abolished the ownership of Japan's land by the feudal samurai nobles, ``reverting'' ownership to the nation in 1871. They did this by creating a national debt, paying the nobles in new government paper--a vast transfer completed by force of arms where necessary by 1876.

The government then urged the samurai to put their new sums of capital into creating new industries. Ökuma's Ministry of Finance created additional government debt credits to aid these new industrialists, and also to capitalize a national bank, in which the samurai were encouraged to deposit their cash.

Ökuma never hesitated to run large government deficits to industrialize, unlike International Monetary Fund-run Third World governments today, which put book-balancing before eating. The new government debt credits were issued in amounts as large as half again the amount of annual tax receipts.

On the urging of the American advisers to beware of British plans for financial control, foreign loans were tightly regulated. When President Ulysses S. Grant visited Japan in 1879, he cautioned Ökuma and the Emperor Meiji himself against all foreign borrowing. ``Look at Egypt, Spain, and Turkey,'' he said, ``and consider their pitiable condition.... Some nations like to lend money to poor nations very much. By this means they flaunt their authority, and cajole the poor nation. The purpose of lending money is to get political power for themselves.''

Japan borrowed virtually nothing abroad, i.e., from London, from 1870 to 1897, and only then because British agents in Tokyo had dragged Japan into a war against China, for which loans became needed.

When Ökuma later became finance minister again, he acted to ensure that Britain's Hongkong and Shanghai Bank could also not manipulate Japan through trade from the outside. He founded the Yokohama Specie Bank in 1887 as a Meiji government monopoly over all dealings with foreign countries. All foreign loans to the Japanese government were done in the form of purchases of bonds of the Yokohama Specie Bank, a Hamiltonian mechanism whereby debt was turned into state credit for industry. Furthermore, the Yokohama Bank took over the finance of all foreign trade, previously exclusively financed by Britain's Hongkong and Shanghai Bank, which broke the British monopoly on the foreign exhange market in Asia. Only when British assets in Tokyo forced through the 1902 alliance with Britain against Fukuzawa's Russian ally Count Witte did Japan allow British banks to operate freely inside the country.


Hamiltonian industry

The speed with which the Meiroku Society overthrew feudalism and built a nation was astonishing, and due to the Fukuzawa group's realization that Hamiltonian economics was a universal scientific method. This science could be used by all humanity, just as scientific inventions like electricity and the steam engine belong to the human race--those with the brains to apply them.

The industrialization of Japan is perhaps one of the best examples in history of Hamilton's voluntarism. These intellectuals conceived of the state first, and then created it, demonstrating that such things can be done in any nation with the quality of mental leadership to buck British ``free trade'' dogma.

The Meiji in fact avoided elevating the few big feudal merchant houses, such as Mitsui and Co., which were close to the British. Instead, they created new industrialists from the ex-samurai, under the direction of Ökubo's Industrial Promotion Board.

``The Industrial Promotion Board had three divisions: Agriculture, Commerce, and Industry, but the policy aimed at an organized unity. While in foreign trade and shipping the formation of private companies was encouraged, in agriculture and industry, state intervention was more extensive. Public experimental stations, model factories, and educational institutions, built by the Board for Technical Improvement and Industrial Promotion, initiated and directed industrial activies from above. Hence the need for experienced foreign employees,''
reported a contemporary account.

From 1873 to 1882, some 310,970 samurai received public bonds equivalent to over $113 million (1880 dollars), and 200 new corporations were established as a result of government loans and encouragement, creating shipbuilding, construction, cement, fertilizer, salt works, textile mills, and other companies. In 1873, Ökubo fostered Japan's first independent shipping company, Mitsubishi, founded by Yataro Iwasaki, an ex-samurai provided by Ökubo with large government loans. A shipping company was needed, Ökubo wrote, to stop Britain's total domination via the P&O Line over Japane's transportation system.

Throughout the 1870s, Ökuma intervened to assure the exapansion of the Mitsubishi fleet. In 1874, the government purchased 13 steamers and gave them to Mitsubishi. During the British-instigated Satsuma samurai rebellion, Mitsubishi alone was able to transport the troops needed to save the Meiji regime. The government expanded it into a maritime academy, a marine insurance agency, a warehousing chain, and a major coal-mining concern.

The government itself also operated the overwhelming majority of heavy industries until well after the turn of the nineteenth century in a manner often advised by American System economists. In 1875, government-operated factories accounted for 56% of the total number of factories, 75% of the total horse power of energy used, and 88% of the manufacturing employees. The government built a railway system nationwide, a chemical industry, a shipbuilding industry, and so on. As these militarily and strategically critical new industries became capable of standing on their own without being destroyed by foreign dumping, the Meiji government sold them off to the private sector.


America as the protector of Japan

The American alliance was a joyful collaboration to the Meiji intellectuals, and a military necessity, which had nothing to do with plagiarization. If the United States had not protected the young Japan, it could never have remained independent in a world where Britain sought to occupy Asia by opium and force. As Shigenobu Ökuma wrote in Fifty Years of New Japan:

``Fortunately, helping hands were not wanting, ready to chaperone Japan in her debut upon the world stage. The friendly part which the United States took for its Japanese protégé especially deserves mention. Indeed, this spirit has pervaded all her proceedings toward Japan from the very first. Commodore Perry, while outwardly overbearing, entertained friendly sentiments toward our country. He scored the idea of following the submissive methods of the Hollanders, but neither did he agree to the proposal of a Russian admiral to coerce Japan by force.

``His diplomacy was as adroit as it was magnanimous, and this wise precedent was followed by the first minister which his country sent us, for Townsend Harris was the confidant and adviser of the Japanese government in the new business of diplomacy. It was he who advised Japan to forbid the introduction and use of opium, thus enabling her to keep clear of this source of national disaster. ''

In 1869, the Dutch-American missionary Guido Verbeck became the first foreign Japanese government employee, at the recommendation of Ökubo and Ökuma, as a legal adviser to the emperor and a teacher at the Kaisei School in Tokyo. Such foreign employees totaled over 500 by 1873.

From 1871 to 1877, Ulysses S. Grant sent State Department official Erasmus Peshine Smith to act as the official economic adviser to the Meiji regime. Smith advised Ökubo and Ökuma on Carey's system for protective tariffs and development of domestic industries. ``The Japanese statements appear to have sound notion upon the policy of encouraging the protection of native industry,'' Smith wrote home. By the time he left Japan, ``The American System of protectionist economic theory had become generally common thinking among Japanese statesmen, government officials, and philosophers,'' as one Japanese historian put it.


From the leaders of the Meiji Restoration

Shigenobu Ökuma

Shigenobu Ökuma founded the First National Bank and the basic credit policies of the Japanese Ministry of Finance. He transformed the Japanese feudal system into a modern banking system, using a credit policy directly modeled upon the manner in which Alexander Hamilton transformed the Continental debt of the American colonies into credits for a major industrialization program through his first National Bank of the United States.

After the British assassination of Ökubo, Ökuma, who was no technocrat economist but a universal mind and a patriot, took over as the leader of Japan's Meiji faction. In 1881, he forced the creation of a Parliament and the creation of a modern Constitution for Japan.

In his ``Proposal Concerning the Abolition of the Fief System by the Issuance of Government Securities,'' dated March 20, 1876, Ökuma proposed to turn all remaining samurai into industrialists by issuing them government securities for use in investments:

The feudal system for nobles and warriors dates back a long time.... Warriors who were especially talented were given a stipend or other annual award by the state. These samurai were to occupy themselves solely with military service, with no need to go into agriculture, industry, or mercantile professions. With the establishment of the feudal system, this fief-right came to be hereditary, and for the past several centuries a large amount of the government's rice crop has been used up in these allowances ... which is truly a misfortune for the nation.... For the government to spend its revenues on them without getting any real use from them not only harms the nation but causes the samurai to doubt the government.... The people complain vehemently, and their minds are very disturbed....

As the samurai have already surrendered political power to the new regime ... it is due time that contracts concluded during the feudal era be canceled.... Since the annual revenue of the government is meant to be used for the nation's public purposes, especially at the present time when many many offices are to be equipped at once ... useful state enterprises must be established and encouraged by making full use of economic measures in accordance with the national ability to do so. This is the basic principle of national economy. Despite this fact the government has always been in want of capital ... because the government has divided the revenue into three portions, and a third of it has been used for the payment of feudal fiefs and stipends....

The first thing to be done is to regard all the fiefs and stipends of nobles, samurai, and even commoners, as debts of the government. In order to redeem these all within thirty years, government securities should be issued and, whether the fiefs were hereditary, lifetime, or for a limited term, the securities are to be limited according to the acts attached herewith.... An interest rate should be given annually of perhaps five, six, or seven percent according to par value, and the capital sum should be repaid (by the government) in the sixth year, as far as the means of the government allow....

At that time, it is obvious that upon receiving all at once an enormous amount of money equivalent to several years payment ... those who wish to pursue their own livelihood can go into the appropriate enterprise.... Even those who cannot make up their minds will take into account that there is now a limit to their funds, and in the end plan some way to support themselves. In this way the accumulated customs of several hundred years will all at once be changed, terminating the abuse of providing for a useless group with valuable assets, and succeeding instead in making a useless group occupy itself in useful occupations.

In addition, at present there are many bankruptcies among our major merchants and businessmen, causing the circulation of currency to slow nationally, and drying up the source of capital. At this time, if the above measures were put into effect, these evils would be readily remedied, simply by issuing government securities for approximately 150 million yen or more. [In the 1870s, the yen was equal to one U.S. silver dollar, so this was a huge sum--ed.] It would serve in a positive way to create better currency circulation, and would kill two birds with one stone. I therefore humbly propose the above along with a draft of the decree, the acts concerned, and other materials attached herewith.


Toshimichi Ökubo

Toshimichi Ökubo created the Ministry of the Interior and set up the Industrial Promotion Board (Kangyo Ryo), precursor of today's Ministry of International Trade and Industry (MITI).

His main writings deal with 1) industrialization and the building of government model factories; 2) promoting exports and improving their quality; 3) development and construction of a merchant marine; 4) expansion of government credits to industry; and 5) increasing agricultural productivity, improving education, and fostering land reclamation.

His praise of England's ``protectionism'' here is half diplomacy and half tongue-in-cheek, for Ökubo was not only clearly an American protectionist, but he describes dirigist laws promulgated in England during the Tudor Renaissance of the sixteenth century, long before Britain was occupied by Venice and became the free trade capital of the world.

Ökubo founded the Tomioka Silk Mill in 1872, the first state-owned factory in Japan, with the assistance of Phillippe Brunat, a textile expert sent to Tokyo by the French government to train Japanese engineers and workers in mechanical reeling and other textile machinery construction and operation.

Proposal of Toshimichi Ökubo, ``Concerning Industrial Enterprises for Increasing Production,'' May 1874:

Generally speaking, a country's strength depends on the wealth or poverty of its people, and the latter is closely related to the volume of national production. The volume of production originates in the industriousness of the people, but if we go back to the true source of that strength, we find that no industry has ever been independent of the guidance and encouragement of the government and its officials. If I may say so, imperial prosperity grew between 1868 and 1873, and the evil customs and old abuses which had for some hundreds of years been deeply entrenched, were thoroughly eradicated, with not a trace left.... Since that time, the various strong points of other countries have been studied widely ... and rapid progress has been made in civilization....

Nothing is more urgent for the government at this time, than the promotion of industry and trade, the provision of the essentials for the population. By essentials, I mean the means of production. Without such productive assets at hand, everyone, high or low, scrambles for his means of subsistence, leaving no time to care for anything else.... Looking at the present situation, we see that ... the people still lack the essentials for producing prosperity, and the government's encouragement of industry is inadequate. Those who are responsible for the people should ponder this carefully, then establish methods for procuring everything necessary for the maintenance of the population, from the profits of industrial products, to the conveniences of land and water transport routes ... and make this the core of the government's policies.

To cite an example, England is but a very tiny country. But being an island, possessing bays and ports and mineral resources, the government considered it their greatest duty to take advantage of these and use them to their fullest. The king and his subjects all have tried to use the advantages of the world's waterways to foster their domestic industries. They courageously passed a novel, special Navigation Act, which banned any imports of foreign goods, unless brought on British ships, and prohibited the use of foreign ships for transportation of goods between the country's ports. One purpose was to increase the number of British ships and to have the people become well-trained in navigation.

Another reason was to block in this way the haphazard intrusion of foreign goods, so as to protect and foster domestic industries. It has been many years since the measure was taken, and now the number of ships has greatly increased.... Since then their industries have grown extremely prosperous and domestic products are now more than sufficient to meet domestic demands. At this point, they have removed the prohibition and allowed free trade.

There are many similar examples in other foreign countries of the governments properly protecting the people and encouraging their own industries.... We should not necessarily imitate slavishly what England has done....

It is the duty of the ministers of the central government to lead and inspire our docile people to industriousness, and the endurance of hardships, in order to create industrialization. I request your Reverence to determine a policy, study the natural blessings of our country, and investigate which products are to be increased, and what kind of industries are to be encouraged and concentrated upon. The policy should be to initiate industrial enterprises for increasing production, by setting a standard appropriate to the people's temperament, and their level of knowledge. In this way no one will be indolent, none will be left without a fitting place to work; in this way the people would enjoy immense prosperity. If the people enjoy such prosperity the country will grow rich and powerful as a result....


Encouraging industries for export

Proposal of Toshmichi Ökubo, ``Concerning the Need for Encouraging Industries for Export,'' 1875:

The natural resources of a nation are first developed by agriculture, and then by industries. However, if manufactured goods were bought and consumed only by the few, how could we promote agriculture and encourage industry? That which mediates between agriculture and manufacturing on one side, and consumers on the other and distributes the goods, is commerce.... Thus to promote agriculture and industry, we must expand the distributive system of commerce, so that there will be no bottlenecks.

Since the opening of ports in the country, trade with foreign countries has been mostly in the hands of foreign merchants, so that our merchants have not been free from domination by them. There are certainly a few who, starting out as very small merchants, have become involved in large-scale trading in Yokohama, but they rise and fall, one after another, and yet not one can possibly compete with foreign merchants, nor stay in the market.

One of the reasons is that they are not accustomed to trade with foreign countries. Another is that they have only such small capital, that they cannot survive for long. If they are not accustomed to trade with foreign countries, their outlook is inevitably narrow. If they do not possess sufficient funds, how can they think about long-term business? They, therefore, are apt to engage in narrowminded small tricks, or obtain good fortune by chance. As a result they are unable to escape domination by foreign merchants, and finally lose their entire fortune....

If this continues, how can we some day have merchants who can sufficiently compete with foreign traders? We have recently been importing foreign goods, more than we export our own goods, so that the national power is in an endless process of losing, and our nation may, in the end, fall into bankruptcy if this trend continues.

Since 1868 the Imperial Court has realized this, and established an Office of Trade to promote commerce, and made government loans to several companies. But these have mostly failed to prosper in their business, and their willingness to improve is almost nil, so that the Ministry of Finance last year ordered them to repay the public funds loaned them.

Because our silkworm eggs and silk were the two products most desired abroad, the government established a system of standards, to suppress those of bad quality, and award those of high quality, for there were many of poor quality and many fakes. The government also introduced a reeling machine at the Tomioka Silk Mill, to raise the standards of the workers and protect and encourage the silk industry. But these measures were the objects of many complaints from foreigners, and the government was forced to abandon the project.

The cooperation of government and merchants, however, awoke the population to the necessity and convenience of such cooperative undertakings. As a result, hundreds of such companies have been established, and flourish today. The Tomioka Silk Mill has not yet been able to make ends meet, but has served the purpose of enhancing the fame of our silk industry abroad, raising the quality of silk at home, and stimulating other private companies to set up reeling machines....

[Ökubo describes the recent bankruptcy collapse of the foreign-owned Onogumi silk traders near Tokyo, due to a ``quick profit'' mentality, which had caused mass unemployment in the Yokohama port area and a panic by Japan's private lenders, who were afraid to make loans for less than 40% annual interest rates--ed.] Thus the Onogumi affair affects not only the locale of its main office and branches but the entire country. The resulting financial collapse has now become the greatest obstacle to our foreign trade.

Our plan now consists in having our merchants ship, and sell, our exports by themselves, directly to foreign countries, freeing themselves from the control of foreign traders. The urgency for opening to our merchants a means to sell abroad is clear, but the current great financial difficulties make it most difficult to persuade them. If we hesitate, however, and lose this chance to expand in the American market, there will be no other such chance.

Thus it is that the government should now take the appropriate initiative for a while, to find a mechanism to sell our goods abroad, expanding this step by step, so that [this new mechanism] ... shows its profit to our merchants. Of course, the government itself must not be involved in business. Hence, it must persuade a few companies to do so, loan them the capital to set up an agency in Yokohama, and let this agency contact companies in foreign countries to sell our goods. If this business progresses well, the government should encourage it to set up branches in foreign countries to expand....

There are two problems commonly raised here. One is that since 1868, few companies for which the government has provided the investment funds have functioned well. The other is that such a project might conflict with the interests of private merchants in Yokohama, creating in the future a conflict between government and private profits. Having taken all this into consideration I assert, however, that whether an enterprise succeeds or not, is far more dependent upon how it is conducted, and the quality of men conducting it, than upon whether the capital comes from government or from private companies....

One must invent the most careful and scrupulous ways to prevent conflict of interest. The government must clearly define the conduct of such businesses, and set all accounts and money transactions under the supervision of government officials.... Then, when in the future a stage is reached in which the business becomes so profitable that other companies become envious, the government should, since its plan will have been accomplished, then entrust the business to the private sector. I also therefore submit to you here, an outline of the means, methods, the amount of legal capital, and the aim of such an enterprise.


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