The Japanese Economy During the Great Depression: The Emergence of Macroeconomic Policy in A Small and Open Economy, 1931–1936 PDF
Preview The Japanese Economy During the Great Depression: The Emergence of Macroeconomic Policy in A Small and Open Economy, 1931–1936
Studies in Economic History Masato Shizume The Japanese Economy During the Great Depression The Emergence of Macroeconomic Policy in A Small and Open Economy, 1931–1936 Studies in Economic History SeriesEditor TetsujiOkazaki,FacultyofEconomics,TheUniversityofTokyo,Tokyo,Japan AimsandScope This series from Springer provides a platform for works in economic history that truly integrate economics and history. Books on a wide range of related topics are welcomed and encouraged, including those in macro-economic history, financial history, labor history, industrial history, agricultural history, the history of institutions and organizations, spatial economic history, law and economic history, politicaleconomichistory,historicaldemography,andenvironmentalhistory. Economic history studies have greatly developed over the past several decades through application of economics and econometrics. Particularly in recent years, a variety of new economic theories and sophisticated econometric techniques— including game theory, spatial economics, and generalized method of moment (GMM)—havebeenintroducedforthegreatbenefitofeconomichistoriansandthe researchcommunity. At the same time, a good economic history study should contribute more than just an application of economics and econometrics to past data. It raises novel research questions, proposes a new view of history, and/or provides rich documentation.Thisseriesisintendedtointegratedataanalysis,closeexamination of archival works, and application of theoretical frameworks to offer new insights andevenprovideopportunitiestorethinktheories. ThepurviewofthisnewSpringerseriesistrulyglobal,encompassingallnations and areas of the world as well as all eras from ancient times to the present. The editorial board, who are internationally renowned leaders among economic histo- rians, carefully evaluate and judge each manuscript, referring to reports from expert reviewers. The series publishes contributions by university professors and others well established in the academic community, as well as work deemed to be ofequivalentmerit. All books and chapters in the Studies in Economic History book series are indexedinScopus. EditorialBoard: LorenBrandt(UniversityofToronto,Canada) MyungSooCha(YeungnamUniversity,Korea) NicholasCrafts(UniversityofWarwick,UK) ClaudeDiebolt(UniversityofStrasbourg,France) BarryEichengreen(UniversityofCaliforniaatBerkeley,USA) StanleyEngerman(UniversityofRochester,USA) PriceV.Fishback(UniversityofArizona,USA) AvnerGreif(StanfordUniversity,USA) TirthankerRoy(LondonSchoolofEconomicsandPoliticalScience,UK) OsamuSaito(HitotsubashiUniversity,Japan) JochenStreb(UniversityofMannheim,Germany) NikolausWolf(HumboldtUniversity,Germany) (inalphabeticalorder) Moreinformationaboutthisseriesathttp://www.springer.com/series/13279 Masato Shizume The Japanese Economy During the Great Depression The Emergence of Macroeconomic Policy in A Small and Open Economy, 1931–1936 MasatoShizume FacultyofPoliticalScienceandEconomics WasedaUniversity Tokyo,Japan ISSN2364-1797 ISSN2364-1800 (electronic) StudiesinEconomicHistory ISBN978-981-13-7356-5 ISBN978-981-13-7357-2 (eBook) https://doi.org/10.1007/978-981-13-7357-2 ©SpringerNatureSingaporePteLtd.2021 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,specificallytherightsofreprinting,reuseofillustrations,recitation,broadcasting, reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformationstorageand retrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodologynowknown orhereafterdeveloped. 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The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore TakahashiKorekiyoinhisgarden,1930,bycourtesyofYasushiInoue Preface Thisbookprojectbegansometimearound2000,whenIwasworkingfortheInstitute forMonetaryandEconomicStudies(IMES),BankofJapan(BOJ).Oneday,Ihad a conversation with Masaaki Shirakawa, then head of the Policy Planning Office and later governor of the BOJ (2008–2013), about the lessons to be learned from Takahashi Korekiyo’s policies. Mr. Shirakawa asked me what lessons the central banktodaycouldderivefromTakahashi’sexperienceduringtheGreatDepression.I repliedthattoanswerthatquestion,wewouldneedfurtherresearchonthechallenges Takahashifaced,Takahashi’sintentions,andthesimilaritiesanddifferencesbetween Takahashi’stimeandtoday. Twodecadeshavesincepassed.Duringthistime,Ihavepublishedseveralpapers in English and Japanese, written a book on Takahashi’s policies in the 1930s in Japanese(Shizume2009),andtranslatedTakahashi’sbiography,originallywritten inEnglish(Smethurst2007),intoJapanese.Thesetasksgavemetheopportunityto dig into new archival materials, construct new data sets for econometric analyses, obtainnewinsights,andraisenewquestions.Ialso,in2014,lefttheBOJtotakeupa positionatWasedaUniversity.Thenewenvironmentprovidedmeafreshperspective formyresearch. WhenIfinishedmybookinJapanesein2009,Ithoughtitmightbeagoodideato rewriteitinEnglish.IalsothoughtIwouldsharethedatasetIhadconstructedand addmoreeconometricanalysistofurtherexplorethenatureofTakahashi’spolicies tointroducehisachievements toabroaderaudience. Thanks tothecooperation of Springer Nature, I have completed my thesis in English. The full data set used in thisvolumeisavailableonthewebsiteoftheResearchInstituteforEconomicsand BusinessAdministration(RIEB),KobeUniversity.1 Withthepassageoftime,theBOJhascontinuedtoenhanceitsunconventional monetary policy. In the wake of the global financial crisis of 2008, other central banksinmatureeconomiesfollowedsuit.Thechangeinthetideofglobaleconomics, geopolitics, and domestic politics in a number of countries sheds new light on the 1ThedataareavailableontheKobeUniversityRIEBwebsite:http://ccss.kobe-u.ac.jp/en/research/ database/. vii viii Preface historical lessons to be learned from macroeconomic policy as well as from inter- nationalrelations.COVID-19hasbroughtnewchallengesforpolicymakersaround the world in both economic and political spheres. It has also completely changed academic life. For some time starting the spring of 2020, virtually all classes in universities were held online, and conferences and seminars were either cancelled or postponed. Interactions with students and colleagues continue to be restricted, makingusfreshlyawareoftheimportanceofface-to-facecommunications.Confer- encesandseminarsarenowregularlybeingheldonline,thankstoinformationtech- nology. Universities in Japan are preparing to resume classroom teaching while continuingwithonlineandhybridstylesofteaching.Ihavecometofeelinabroad sensethatcrisesbringinnovations,akeyphraseIuseinconnectionwithTakahashi’s policyinnovations. Sincethestartofthisproject,Ihaveextendedthescopeofmyresearch,andthe book’s perspective ended up broader than I had originally intended. I have added ananalysisonthepoliticaleconomyofTakahashi’spolicyformationwithreference tomodernJapan’snationalgoalfromlong-termandglobalperspectives.The1930s testedthe“richcountry,strongmilitary”goalofMeijiJapanasanemergingnation state. There were multiple challenges arising from the international–domestic and economic–politicalnexuses.IhavecometobeconvincedthatthechallengesTaka- hashifaced,thesourcesofhisideas,andtheconsequencesofthechoicesmadeby theJapanesegovernmentandpeopleholdpreciouslessonsforus,inthetwenty-first century, in a world with challenges comparable to Takahashi’s own. The research isstillongoing,andIwillcontinuetodomypart,butIhopethisbookraisesnew questionsandbringsopportunitiesfornewprojects. Ithankallwhohaveencouragedandhelpedmecompletethisvolume.Richard Smethurst and Mark Metzler, two distinguished historians and experts in modern Japanese economy and society, have provided advice, suggestions, and invalu- ableinsightsthroughout.MasahikoShibamotoprovidedeconometricsupport,gave suggestions on data and methodology, and permitted me to publish the data we constructedinourjointresearch.YasuoTakatsukiandstaffofCenterforComputa- tionalSocialScience(CCSS),RIEB,KobeUniversity,alsosupportedmypublication ofthisdata.MarkMetzlerhasreadthewholebook,PatriceBaubeauandJunkoKoeda havereadachapter,andallofthemhavegivenmevaluablefeedback.Allremaining errors are of my own. I benefitted greatly from the archival materials of the Bank ofJapanArchives,theBankofEnglandArchives,theNationalArchivesofJapan, theNationalDietLibraryofJapan,andtheKobeUniversityandWasedaUniversity libraries.ThisworkwassupportedbyJSPSKAKENHIGrantNumber18H00660. Lastbutnotleast,IwouldliketothankTetsujiOkazaki,serieseditoroftheStudiesin EconomicHistorybookseriesandtheeditorialboardmembersofthebookseriesas wellasJunoKawakami,theeditoratSpringer,whohasdedicatedherselftoensure thepublicationofthisbook. Tokyo,Japan MasatoShizume March2021 Preface ix References Shizume,Masato.2009.Sekaikyo¯ko¯ tokeizaiseisaku:kaiho¯ sho¯kokuNihonnokeikentogendai (Theworlddepressionandeconomicpolicy:lessonsfromJapanasasmallopeneconomy). Tokyo:NikkeiShinbunShuppanSha. Smethurst,RichardJ.2007.Fromfootsoldiertofinanceminister:TakahashiKorekiyo,Japan’s Keynes.Cambridge,MA:HarvardUniversityAsiaCenter,292. Contents 1 Takahashi Korekiyo, the Man Who Brought Japan Out oftheGreatDepression ......................................... 1 1.1 Japan’sGreatDepressionHero ............................... 1 1.2 TheScopeofThisBook ..................................... 5 References ..................................................... 6 2 Japan’sPlungeintoandEmergencefromtheGreatDepression ..... 9 2.1 OverviewoftheJapaneseEconomyfromtheLateNineteenth totheEarlyTwentiethCentury ............................... 9 2.2 ContractionandRecoveryoftheJapaneseEconomy ............. 10 2.2.1 LiftingGoldEmbargoPlungesEconomyintoGreat Depression,1930–1931 ............................... 10 2.2.2 Takahashi’sInitiativesforEconomicRecovery,1931– 1932 ............................................... 16 2.3 A Quantitative Account of the Macroeconomic Effects ofTakahashi’sPolicies ...................................... 18 2.3.1 Takahashi’s Stimulus Package and Economic Recoveryinthe1930s ................................ 18 2.3.2 AStructuralVectorAuto-RegressionModel ............. 20 2.3.3 TheSourcesofEconomicRecovery .................... 22 2.3.4 TheDynamicsofTakahashi’sPolicyPackage ............ 24 2.3.5 EconomicGrowthandJobCreationbySector ............ 27 2.3.6 DistributionalAspectofTakahashi’sPolicyPackage ...... 29 References ..................................................... 31 3 PolicyInnovationintheGreatDepression ........................ 33 3.1 MassiveCurrencyDevaluation ............................... 33 3.2 Debt-FinancedFiscalSpendingasPartofanEmergency ReliefProgram ............................................. 37 xi
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