Austerity and Expansion

This chapter describes the outbreak of military crises on the Korean Peninsula, the worsening of the domestic depression brought on primarily by Matsukata's own currency contraction, and other exigencies which prompted him instead to increase government spending, generating fiscal deficits that he financed not by boosting tax revenues but by promoting exports and selling public bonds. In responding to these trends through a pragmatic embrace of public bond issuance and state-led export promotion, Matsukata departed significantly from classical economic liberalism. He began turning toward such positive policies as early as 1883. In that regard, the Matsukata financial reform as it unfolded combined the contractionary program of Sano with the expansionary approach of Ōkuma. This policy mix, in turn, would help shorten a sharp, deflation-induced depression that Matsukata initially expected would continue for a year or two longer.