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82 Was the postwar inflation caused by shortages or by overspending? This is the way the question was often posed; and even after the fact, the productionoriented Ministry of International Trade and Industry (MITI) and the fundingoriented Ministry of Finance tended to come down on opposite sides of it. In a retrospective survey of Japan’s postwar economy written in 1956, the chief of MITI’s Research Section thus explained that after the war, “the acute shortage of food-stuffs, raw materials, fuel, and electric power soon brought on a vicious inflation.” His counterpart in the Ministry of Finance emphasized instead that it was the great increase in the money supply that drove the inflation.1 Both were correct, but to emphasize one side or the other implied a choice between opposed policy positions. The inflation was also understood as a case of “forced savings” by many analysts . As such, it had a capitalist-developmental aspect in line with Schumpeter’s account. Schumpeter claimed (without investigating it empirically) that the social subsidy received by industrialists with superior access to credit came at the expense of other industrialists competing for the same productive services.2 In practice , cost increases were not so neatly contained, and the “inflation tax” was much more widely paid. “We cannot deny,” the Bank of Japan’s Yoshino Toshihiko acknowledged in 1957, “that economic reconstruction has been enforced through the sacrifice of wage and salary earners.” Yoshino himself was the main author of a substantial study of Germany’s post–World War I inflation and stabilization produced by the BoJ in 1944–45. He then took part in reconstruction planning as the BoJ member of the committee that developed the Priority Production 6 INFLATION AS CAPITAL It is a curious paradox that a country whose people are so devoted to frugality and thrift should have such a strong propensity to inflation as does Japan. —Jerome Cohen, Japan’s Postwar Economy (1958) Reconstruction of basic industries was made possible by the forced savings caused by hyperinflation. —Noguchi Yukio, “The Development and Present State of Public Finance” (1986) INFLATION AS CAPITAL 83 System. Wage levels, as Yoshino explained, “caught up with price levels only after 1954, when postwar inflation was halted.”3 Thus wage earners subsidized industrial investment. Industrial recovery by means of inflation contributed a core component of the reformed capitalist order that was consolidated in the early 1950s. This capital-provision aspect of the inflation has often been overlooked by AngloAmerican analysts, although in fact Joseph Dodge came to perceive it clearly. Politically, the inflation policy was identified above all with Ishibashi Tanzan, who was among the visionaries of Japan’s postwar growth. Many Americans then and since considered Ishibashi’s policy a manifest and even foolish failure. Many Japanese have perceived instead a substantial degree of success under dif- ficult conditions. From the standpoint of industrial recovery, there is much truth in this. In other circumstances such an outcome would not have been possible, but in the special local and international circumstances after World War II, it was. Some of the ideas and institutions confirmed and created out of these successes later became dysfunctional and damaging, but this is a story of more recent times. 6.1 The Ishibashi Line On the face of it, a Keynesian liberal like Ishibashi Tanzan would seem to have been exactly the sort of person GHQ’s “New Dealers” would have wanted in of- fice in newly democratizing Japan. Since the 1910s, Ishibashi had been known as a critic of Japanese expansionism and as a proponent of social reform and representative government. As a writer for and later publisher of Japan’s biggest business newsweekly, the Toyo keizai shinpo (Oriental Economist), he also had a platform for making his views known. Economic journalist Kimura Kihachiro, in an English-language account written to introduce Ishibashi in 1946, explained that Ishibashi was “a liberalist of the classical type, who strictly adheres to the doctrine expounded by Adam Smith,” who opposed state controls, and whose ideas “verg[ed] upon ultra-individualism.” “Thus Ishibashi was consistently crying down the controlled economy during the war and now is in a most earnest manner urging for a comeback of the free economy of the pre-war period.”4 But Ishibashi conspicuously failed to play the part of a member of a defeated nation, and he persistently irritated the occupation authorities by...

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