Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (review)

Billed on the front flap as the "first full account" of Japan's financial history and the Japanese gold standard, Mark Metzler's Lever of Empire is a three-part, chronological work that examines Japan's place in the formation of a global gold-standard system in the years prior to the First World War, its role in the reconstruction of the gold standard after the war, and its part in the collapse of the system after 1929. Focusing on the crisis of liberalism in prewar Japan, within the greater framework of the international monetary and financial politics of the gold standard, Metzler explicitly integrates political and monetary analysis in order to clarify the processes and goals of money, empire, and hegemony. While the significance of the gold standard in Japan's economic history has been discussed elsewhere, for Metzler the gold standard is nothing less than the lever by which an empire exerts control over its dominions in its own political history. Japan, then, is seen as an archetype in these broad historical processes.

Metzler touches on and elucidates topics as varied as Tokugawa restrictions on foreign trade, the politics of financing railway construction in Manchuria, and the gold standard as seen from the kitchen and geisha house. Of particular interest is his analysis of the link between Japan's specie-flow mechanism and the gold standard. Japan's adoption of gold as the standard of value by which all commodity prices were obliged to fluctuate implied that the entire burden of its balance of trade payments fell on domestic prices: net inflows of gold were to be "steadied" by domestic inflation, and net outflows were to be "corrected" by deflation. Given the harsh realities of such economic doctrine, it is no wonder that Japan resorted to the "presumably temporary" expedient of balancing a trade deficit through foreign borrowing (pp. 18-20). Metzler is right to identify the facility of foreign borrowing as central to the operation of Japan's gold standard. In this way, the Japanese gold standard is revealed as being "in practice if not in name" a gold-exchange standard, based on foreign-exchange reserves, principally sterling, then dollars, as a substitute for actual gold (p. 36, and see p. 69). Metzler concludes that Japan's London-centered gold-exchange standard was, despite its conveniences and advantages, an expression of "weakness and peripherality" (p. 99).

In this connection, Metzler highlights the famous Russo-Japanese War loans that the Japanese government secured from an Anglo-American consortium in 1904 and 1905 as being of particular importance, for they were vital to the maintenance of Japan's gold standard, and critical in allowing Japan to establish a "continental empire" (p. 50). These loans were of such enormous size that they continued to influence Japan's financial situation, requiring repeated renegotiations in the decades that followed. Nevertheless, despite the massive war expenditure against Russia, Manchuria became the new frontier of Japan's nascent "economic imperialism." Once again, British lending provided crucial support to Japan's continental advance, most visibly in the form of company loans to the South Manchurian Railway. Metzler exposes the imperial face of the gold standard as it financed the monetary expansion of the yen into Japan's new colonies and mobilized European capital, directly linked to semigovernment, colonial development companies. As an aside, Metzler also explores the fascinating attempt and failure of the American railway tycoon E. H. Harriman to negotiate a deal for joint American/Japanese control of the South Manchurian Railway. Initially feted during the Russo-Japanese War, drawing attentive audiences across a wide range of Japan's financial and business elite, Harriman was enraged to learn that at the war's conclusion the Japanese government had flatly repudiated his agreements and deals. In retaliation, he pressed the Japanese government's American bankers (Kuhn, Loeb & Co.) to refrain from all...