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188 In 1963, flush with the spectacular overfulfillment of the Income Doubling Plan, Prime Minister Ikeda’s economic adviser Shimomura Osamu declared that when he heard commentators persist in describing Japan as a “lesser-developed country,” with its “dual structure” (e.g., Arisawa) and its “low wages” and “income gaps” (e.g., Nakayama), it reminded him of Hans Christian Andersen’s story The Ugly Duckling. “These people may be mistaking themselves for ducks,” he said. But Japan’s new style and pace of development had its own dynamic balance and its own norms. In a longer retrospect, what was now being revealed was a new developmental norm, whose main field of action was opening in East Asia. In fact, the Japanese economy had entered what Schumpeter liked to call a “New Economic Space.” This chapter ties together several threads in this book by considering this New Economic Space from the aspects of credit creation, investment, and planning. The consultative national planning process itself can be considered a pragmatic extension of Schumpeter’s model in a direction he did not imagine or think possible : toward an entrepreneurial role for the state. Here, Nakayama Ichiro and Okita Saburo served as chief facilitators. 11.1 The Domestic Circuit: Imagined Capital for Real Growth First, a bracketing observation: deeper consideration leads one to ask whether the hydraulic analogies of liquidity and flow are at all apt for describing mone11 HIGH-SPEED GROWTH Indication and Flow No matter how much Japan’s economy shows all the special characteristics of a cygnet’s development, if you look at it with a duck’s eyes it must appear abnormal and unbalanced. But it seems that Japan was not a duckling. Finally we begin to see that when the time arrives, splendid snow-white wings will beat and it will be able to soar high into the sky. —Shimomura Osamu, Japan’s Economy Will Grow (1963) HIGH-SPEED GROWTH: INDICATION AND FLOW 189 tary processes, when most monetary claims exist only as bookkeeping entries maintained by the banking system and have no persistent physical form. The question appears most sharply in the case of banks’ creation de novo of new money-capital. A different and in ways more apt description is of money-capital as indication (see 3.4). This idea is considered further later in this chapter. For now, I continue with the metaphor of money flow, which is ubiquitous as well as convenient. The question to be deferred is whether the “flow” metaphor, with its implications of continuity and conservation of some kind of substance, may not also conveniently mislead. To begin here with the idea of flow, it is informative to consider the Bank of Japan’s own analysis of the monetary flows of the economy. In a 1958 report that adapted U.S. “flow of funds” conceptions, the Bank of Japan offered a description that, while slightly cryptic, goes to the heart of the banking system’s place in the processes of investment and savings. The report is phrased in the conventionally orthodox language wherein bank financing is described as “mediated” and “indirect,” but in fact both the process and the central bank’s understanding of it can again be described as Schumpeterian: The banks are playing today various roles [as] suppliers of deposit currency and equipment funds, and as saving institutions to absorb personal savings. This form of indirect financing, chiefly operating through the medium of the banks, has shown such tendencies as enterprises making investments with funds supplied by the banks in advance, and incomes and savings coming up afterward arising from such investments, and as the great part of personal savings are absorbed by the banks. This form of financing has contributed a great deal to the rapid economic growth, but has brought about a tendency of credit expansion dependent upon Bank of Japan credit.1 This, too, is a clear recognition that the banking system “authorized” industrial investment by creating credit-money in the act of investment. The report says funds are “supplied” “in advance”—this is to say, that they are newly created. Monetary savings spared out of people’s incomes, reabsorbed by the banks, happened afterward as a result of these investments. The conventional and commonsensical idea that savings (S) come first and investment (I) later, as expressed for instance by Joseph Dodge, was thus the reverse of the reality. Here is the place to recall Shinohara Miyohei’s statement that Japan, more than other countries...

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