From Foot Soldier to Finance Minister: Takahashi Korekiyo, Japan’s Keynes (review)

“The history of Japan from the Taishô period through the early Shôwa era revolved around the axis of Takahashi Korekiyo,” asserted Shiroyama Saburô not long ago.¹ During the stagnation that followed the bursting of Japan’s financial bubble in 1990, not only Shiroyama—who taught economics before becoming a noted novelist—but many others in Japanese public life and the media gazed admiringly backward at Takahashi (1854–1936), the subject of the book by Richard J. Smethurst under review here. Seeing the politician and financial expert as a kind of wizard, some yearned for a Takahashi redux. Takahashi is known among other things for his role in 1927, when in two decisive months he restored order and a measure of calm in the face of a fullfledged financial panic, having been summoned out of retirement at age seventy-three to serve as minister of finance. In 1931–1936, he was again prevailed upon to take the finance portfolio in three successive cabinets in the midst of the great world depression and carried out “one of the most brilliant and highly successful combinations of fiscal, monetary, and foreign exchange rate policies, in an adverse international environment, the world has ever seen.”²

From the middle of 1932, Takahashi’s fiscal policies went diametrically counter to the conventional wisdom of the day. He stimulated the economy through an increase in government expenditures, even though this required deficit financing. To make up for the insufficient inflow of revenues into the treasury, he resorted to the measure of having the central bank directly purchase government bonds (to resell them in the open market later, when private institutions had the capacity to absorb them). Historian of banking Gotô Shin’ichi (quoted by Smethurst on p. 4) credited Takahashi with practicing Keynesian economics from this time onward, well before publication of John Maynard Keynes’s The General Theory of Employment, Interest and Money (1936). Other commentators, too, have regarded Takahashi as Japan’s Keynes, not only as a practitioner but also as a theorist. Nakamura Takafusa has remarked that an article Takahashi wrote in 1929 criticizing the fiscal policy of then-finance minister Inoue Junnosuke is “invariably cited” as evidence that Takahashi anticipated Keynes.³

In From Foot Soldier to Finance Minister: Takahashi Korekiyo, Japan’s Keynes, Smethurst characterizes Takahashi’s 1929 article as “one of the most engaging and cogent expositions of Keynesian economics ever published,” and quotes extensively from it (pp. 244–46). Advocating spending over retrenchment, Takahashi illustrated the multiplier effect, which was not at all widely understood at the time, with the example of the uses of money spent at a geisha house. He conceded that “we disapprove morally” of luxury spending, but showed that part of it goes for salaries and wages, another part for ingredients used in the kitchen, another for transportation and suppliers’ costs, and finally part of it pays farmers and fishermen; his point was that putting money to use is considerably more beneficial to society than putting it away.

Whether Takahashi deserves credit as an original theorist can be doubted. Indeed, Dick K. Nanto and Shinji Takagi have argued that it was “quite likely” that Takahashi had read the description of the expenditure multiplier elaborated earlier in 1929 in an influential pamphlet that Keynes co-authored with Hubert Henderson called Can Lloyd George Do It?⁴ Smethurst does not mention this pamphlet, but he does make it clear that the mature Takahashi read extensively in books and periodicals in English, and followed theoretical developments in economics abroad with interest. One of the discriminatingly chosen photographs that enhance Smethurst’s book underscores this point, showing the old finance minister reading, in the fall of 1935, Sidney and Beatrice Webb’s newly published Soviet Communism: A New Civilization?

Even if Takahashi did not originate ideas that are almost universally associated with Keynesian economics, he had the vision and the influence...