The Japanese Economy During the Great Depression: The Emergence of Macroeconomic Policy in A Small and Open Economy, 1931–1936

125 Pages·2021·4.575 MB·English

by  Masato Shizume

Studies in Economic History
Masato Shizume
The Japanese
Economy During
the Great
Depression
The Emergence of Macroeconomic Policy
in A Small and Open Economy,
1931–1936
Studies in Economic History
SeriesEditor
TetsujiOkazaki,FacultyofEconomics,TheUniversityofTokyo,Tokyo,Japan
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Masato Shizume
The Japanese Economy
During the Great Depression
The Emergence of Macroeconomic Policy
in A Small and Open Economy, 1931–1936
MasatoShizume
FacultyofPoliticalScienceandEconomics
WasedaUniversity
Tokyo,Japan
ISSN2364-1797 ISSN2364-1800 (electronic)
StudiesinEconomicHistory
ISBN978-981-13-7356-5 ISBN978-981-13-7357-2 (eBook)
https://doi.org/10.1007/978-981-13-7357-2
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TakahashiKorekiyoinhisgarden,1930,bycourtesyofYasushiInoue
Preface
Thisbookprojectbegansometimearound2000,whenIwasworkingfortheInstitute
forMonetaryandEconomicStudies(IMES),BankofJapan(BOJ).Oneday,Ihad
a conversation with Masaaki Shirakawa, then head of the Policy Planning Office
and later governor of the BOJ (2008–2013), about the lessons to be learned from
Takahashi Korekiyo’s policies. Mr. Shirakawa asked me what lessons the central
banktodaycouldderivefromTakahashi’sexperienceduringtheGreatDepression.I
repliedthattoanswerthatquestion,wewouldneedfurtherresearchonthechallenges
Takahashifaced,Takahashi’sintentions,andthesimilaritiesanddifferencesbetween
Takahashi’stimeandtoday.
Twodecadeshavesincepassed.Duringthistime,Ihavepublishedseveralpapers
in English and Japanese, written a book on Takahashi’s policies in the 1930s in
Japanese(Shizume2009),andtranslatedTakahashi’sbiography,originallywritten
inEnglish(Smethurst2007),intoJapanese.Thesetasksgavemetheopportunityto
dig into new archival materials, construct new data sets for econometric analyses,
obtainnewinsights,andraisenewquestions.Ialso,in2014,lefttheBOJtotakeupa
positionatWasedaUniversity.Thenewenvironmentprovidedmeafreshperspective
formyresearch.
WhenIfinishedmybookinJapanesein2009,Ithoughtitmightbeagoodideato
rewriteitinEnglish.IalsothoughtIwouldsharethedatasetIhadconstructedand
addmoreeconometricanalysistofurtherexplorethenatureofTakahashi’spolicies
tointroducehisachievements toabroaderaudience. Thanks tothecooperation of
Springer Nature, I have completed my thesis in English. The full data set used in
thisvolumeisavailableonthewebsiteoftheResearchInstituteforEconomicsand
BusinessAdministration(RIEB),KobeUniversity.1
Withthepassageoftime,theBOJhascontinuedtoenhanceitsunconventional
monetary policy. In the wake of the global financial crisis of 2008, other central
banksinmatureeconomiesfollowedsuit.Thechangeinthetideofglobaleconomics,
geopolitics, and domestic politics in a number of countries sheds new light on the
1ThedataareavailableontheKobeUniversityRIEBwebsite:http://ccss.kobe-u.ac.jp/en/research/
database/.
vii
viii Preface
historical lessons to be learned from macroeconomic policy as well as from inter-
nationalrelations.COVID-19hasbroughtnewchallengesforpolicymakersaround
the world in both economic and political spheres. It has also completely changed
academic life. For some time starting the spring of 2020, virtually all classes in
universities were held online, and conferences and seminars were either cancelled
or postponed. Interactions with students and colleagues continue to be restricted,
makingusfreshlyawareoftheimportanceofface-to-facecommunications.Confer-
encesandseminarsarenowregularlybeingheldonline,thankstoinformationtech-
nology. Universities in Japan are preparing to resume classroom teaching while
continuingwithonlineandhybridstylesofteaching.Ihavecometofeelinabroad
sensethatcrisesbringinnovations,akeyphraseIuseinconnectionwithTakahashi’s
policyinnovations.
Sincethestartofthisproject,Ihaveextendedthescopeofmyresearch,andthe
book’s perspective ended up broader than I had originally intended. I have added
ananalysisonthepoliticaleconomyofTakahashi’spolicyformationwithreference
tomodernJapan’snationalgoalfromlong-termandglobalperspectives.The1930s
testedthe“richcountry,strongmilitary”goalofMeijiJapanasanemergingnation
state. There were multiple challenges arising from the international–domestic and
economic–politicalnexuses.IhavecometobeconvincedthatthechallengesTaka-
hashifaced,thesourcesofhisideas,andtheconsequencesofthechoicesmadeby
theJapanesegovernmentandpeopleholdpreciouslessonsforus,inthetwenty-first
century, in a world with challenges comparable to Takahashi’s own. The research
isstillongoing,andIwillcontinuetodomypart,butIhopethisbookraisesnew
questionsandbringsopportunitiesfornewprojects.
Ithankallwhohaveencouragedandhelpedmecompletethisvolume.Richard
Smethurst and Mark Metzler, two distinguished historians and experts in modern
Japanese economy and society, have provided advice, suggestions, and invalu-
ableinsightsthroughout.MasahikoShibamotoprovidedeconometricsupport,gave
suggestions on data and methodology, and permitted me to publish the data we
constructedinourjointresearch.YasuoTakatsukiandstaffofCenterforComputa-
tionalSocialScience(CCSS),RIEB,KobeUniversity,alsosupportedmypublication
ofthisdata.MarkMetzlerhasreadthewholebook,PatriceBaubeauandJunkoKoeda
havereadachapter,andallofthemhavegivenmevaluablefeedback.Allremaining
errors are of my own. I benefitted greatly from the archival materials of the Bank
ofJapanArchives,theBankofEnglandArchives,theNationalArchivesofJapan,
theNationalDietLibraryofJapan,andtheKobeUniversityandWasedaUniversity
libraries.ThisworkwassupportedbyJSPSKAKENHIGrantNumber18H00660.
Lastbutnotleast,IwouldliketothankTetsujiOkazaki,serieseditoroftheStudiesin
EconomicHistorybookseriesandtheeditorialboardmembersofthebookseriesas
wellasJunoKawakami,theeditoratSpringer,whohasdedicatedherselftoensure
thepublicationofthisbook.
Tokyo,Japan MasatoShizume
March2021
Preface ix
References
Shizume,Masato.2009.Sekaikyo¯ko¯ tokeizaiseisaku:kaiho¯ sho¯kokuNihonnokeikentogendai
(Theworlddepressionandeconomicpolicy:lessonsfromJapanasasmallopeneconomy).
Tokyo:NikkeiShinbunShuppanSha.
Smethurst,RichardJ.2007.Fromfootsoldiertofinanceminister:TakahashiKorekiyo,Japan’s
Keynes.Cambridge,MA:HarvardUniversityAsiaCenter,292.
Contents
1 Takahashi Korekiyo, the Man Who Brought Japan Out
oftheGreatDepression ......................................... 1
1.1 Japan’sGreatDepressionHero ............................... 1
1.2 TheScopeofThisBook ..................................... 5
References ..................................................... 6
2 Japan’sPlungeintoandEmergencefromtheGreatDepression ..... 9
2.1 OverviewoftheJapaneseEconomyfromtheLateNineteenth
totheEarlyTwentiethCentury ............................... 9
2.2 ContractionandRecoveryoftheJapaneseEconomy ............. 10
2.2.1 LiftingGoldEmbargoPlungesEconomyintoGreat
Depression,1930–1931 ............................... 10
2.2.2 Takahashi’sInitiativesforEconomicRecovery,1931–
1932 ............................................... 16
2.3 A Quantitative Account of the Macroeconomic Effects
ofTakahashi’sPolicies ...................................... 18
2.3.1 Takahashi’s Stimulus Package and Economic
Recoveryinthe1930s ................................ 18
2.3.2 AStructuralVectorAuto-RegressionModel ............. 20
2.3.3 TheSourcesofEconomicRecovery .................... 22
2.3.4 TheDynamicsofTakahashi’sPolicyPackage ............ 24
2.3.5 EconomicGrowthandJobCreationbySector ............ 27
2.3.6 DistributionalAspectofTakahashi’sPolicyPackage ...... 29
References ..................................................... 31
3 PolicyInnovationintheGreatDepression ........................ 33
3.1 MassiveCurrencyDevaluation ............................... 33
3.2 Debt-FinancedFiscalSpendingasPartofanEmergency
ReliefProgram ............................................. 37
xi