Japan

American Journal of Economics and Sociology, The,  Dec, 2000  by Yoshisaburo Yamasaki,  Robert V. Andelson

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YOSHISABURO YAMASAKI [*]

ROBERT V. ANDELSON [**]

WHEN COMMODORE MATTHEW Perry's warship anchored in Edo (Tokyo) Bay in 1853, Japan was a hermit country, ruled by a hereditary generalissimo, the Tokugawa Shogun, in the name of a powerless emperor. Its economy was predominantly agrarian, farmers being outranked only by warriors among the four traditional classes of society, with artisans below them and merchants at the very bottom. Land was held in customary tenure, the largest holdings by 250 daimyos (feudal lords), each with his retinue of dependent samurai. Rents and taxes were paid in kind by peasant cultivators.

This backward and static system was ill-equipped to cope with the challenge presented by the opening of Japan to Western trade that followed Perry's visit; moreover, the national humiliation attendant on the imposition of commercial and extraterritorial treaties through the implied threat of force spelled the end of the Tokugawa Shogunate. In 1867, a group of progressive nobles from western Japan persuaded the young emperor, Mutsuhito, also known as Meiji (Enlightened Rule), to reassert an authority that had been dormant for centuries. Under this pressure, the last shogun resigned, and imperial troops easily subdued such Tokugawa forces as resisted.

These pivotal events, which have been designated the Meiji Restoration, set the stage for a program of modernization that enabled Japan quickly to negotiate for itself an end to such Western political incursions as extraterritoriality that had eroded the sovereignty of China and other Asian nations, and to emerge within the next quarter century as a world power, both militarily and economically.

I

The Meiji Land and Tax Reform

THE MECHANISM THAT made this program possible was a reconstruction of the land tenure system, embodied in the Land Tax Revision Act (Chiso Kaisei Jorei) of 1873 (the sixth year of Meiji), which provided secure legal title in place of merely customary title to land, permitting sale, division, annexation, mortgage, and lease. Above all, it abolished the tax in kind (rice) paid to feudal lords, and replaced it with a tax in money, paid to the central government. "Rent which had formerly been levied upon the rural peasants to support the warrior class and its conspicuous consumption was switched into the coffers of the nation's exchequer and used to finance an industrial revolution." [1]

Thus the 19th century "Japanese miracle" was achieved, at the outset, on a foundation of land-value taxation. [2] An efficient centralized bureaucracy was set up. A modern army and navy were established. Compulsory education was introduced. Manufacturing, mining, transportation, and banking were promoted, frequently with advice from European and American experts. And a bicameral Diet or Legislature was formed, with an elected House of Representatives.

However, from the standpoint of social justice, the assessment formula embodied in the Land Tax Revision Act was severely flawed, in that it gave landlords a tax advantage over owner-cultivators. This was not the intention of the technocrats who devised it, for they had no personal bias toward landlordism. The tax was meant to fall on net produce (i.e., economic rent) in contrast to the Tokugawa land tax, which was a proportional levy on gross farm produce. But the assessment formula used to value holdings was faulty.

Assuming that the income of a tenant was one-third and rent two-thirds of a parcel's yield, they decided that, in arriving at the assessed value of a tenant-cultivated holding, rental income should be capitalized at two-thirds (four percent) of the figure used to capitalize owner-cultivated land (six percent). [3] The effect of this was to deduct from the landlord's property value and hence his taxes the wages (and other inputs) retained by his tenants, but to include the owner-cultivator's wages in his property value and hence his taxes. The Meiji land tax was thus a true land-value tax only with respect to land cultivated by tenants; for owner-cultivators, it was also a tax on wages. One can only hazard the guess that the reformers simply failed to grasp the concept that the yield attributable to the labor input of an independent worker on his own land is a form of wages.

The disadvantage of the owner-cultivators did not cause them serious harm so long as the price of rice remained high, but when it began to decrease (due to a policy of currency deflation) in 1881, reaching its low point in 1887, they found themselves hard-put to pay the tax, which (unlike the Tokugawa land tax) was inflexible, making no allowance for lean years. This put the landlords, whose tax obligation was a third lower, in a position to buy out the distressed independent cultivators, and led to concentration and speculation. A great many of the independent cultivators were thus reduced to tenancy, and some, together with tenants who had been deprived of the right of cultivation, drifted into the cities to join the ranks of the emerging proletariate. [4]