Capital as Will and Imagination: Schumpeter’s Guide to the Postwar Japanese Miracle by Mark Metzler (review)

Mark Metzler has written a highly original and thought-provoking book, “more of an extended essay” (p. 7) than a standard monograph, including general lessons and philosophical reflections on capitalist finance. From the start, Metzler makes clear that he is not presenting a conventional economic history, as he opens with references to Johann von Goethe’s Faust and to Goethe’s younger contemporary Arthur Schopenhauer, whose work Die Welt als Wille und Vorstellung inspired the book’s title. In this book, Japan in the first decade and a half after World War II serves as an empirical case study for a process of inflationary credit creation—of state authorities and private bankers “willing and imagining” money into existence—which the author suggests applies to capitalist industrial development worldwide.

In the case-study chapters, Metzler offers a novel take on a cluster of Japanese economists and economic planners who shaped the key institutional mechanisms of Japan’s high-speed economic growth after World War II. The main figures he investigates are the “mediating Schumpeterians” Nakayama Ichirō, Tōhata Seiichi, and Tsuru Shigeto; the “minister of inflationary reconstruction finance” Ishibashi Tanzan; the Bank of Japan “capital creator” Ichimada Hisato; and the technocratic planners Arisawa Hiromi and Ōkita Saburō. Metzler is certainly not the first to examine these figures; but, unlike Bai Gao, Laura Hein, Scott O’Bryan,¹ and others, he argues specifically that the process of economic recovery and growth these experts helped establish in postwar Japan exemplified in sharp relief the ideas on industrial finance of the Austrian economist Joseph Schumpeter, who during the interwar period had personally mentored several of these men in Europe or in the United States. Others have mentioned the influence in Japan of Schumpeter’s well-known theories on innovation and entrepreneurship; Metzler, however, focuses on the Austrian’s “Faustian” concept of banks’ inflationary creation of money “out of nothing” as the driver of capitalist industrial development. According to Metzler, this concept, which Japanese economists embraced from the start but their Anglo-American counterparts have mostly forgotten or ignored, explains the mechanism by which Japan financed its postwar recovery and “miracle.”

The book requires some patience in navigating, as it begins with globalhistorical and theoretical chapters sandwiching a chapter introducing the principal characters—including Schumpeter and his Japanese acolytes—before turning to the analysis of Japan’s postwar experience. Throughout, Metzler underscores Schumpeter’s century-old insight that the inflationary creation of credit, primarily by banks, is “the financial fountainhead of modern capitalist development” (p. 1). The inflation caused by the operation of banks’ manufacturing money and lending it to industries through “bookkeeping entries” produces “forced savings” from the wider society; as Metz ler puts it, “modern money in the broad sense used by economists is mainly created by private banks in the act of lending money they do not yet ‘have’” (p. 211). Japan’s postwar planners clearly understood this process, stating in the Economic Planning Agency’s 1957 White Paper that, “from the viewpoint of banks as a whole, something is created from nothing” (p. 190). Furthermore, such paper credits act as “orders”—new claims to existing goods and services—so that, as Schumpeter saw it, “banks under capitalism functionally resembled a state planning board under socialism” (p. 47). Schumpeter’s emphasis on “the indicative aspect of capital” (p. 46) seems to have enhanced the appeal of his dynamic, developmental approach in the eyes of Japan’s postwar economic planners, who learned from the failure of deflationary stabilization in the interwar period and built on techniques of the wartime “controlled economy” to manage a successful “inflationary stabilization” after World War II.

A recurring, critical theme of the book has to do with the causal relationship between investment and savings. Narratives of Japan’s postwar economic performance invariably point to stratospheric rates of investment and household savings as key factors behind the economic...