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But the struggle of greatest interest to this study occurred between the Ministry of Foreign Affairs and MCI. With all of
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Japan's foreign legations closed, there existed during the occupation a vast surplus of diplomats who had to be given work in the government. They were, moreover, of all officials the most adept at the English language, and this gave them a great advantage in dealing with SCAP.
Most important in this struggle was the fact that the key politician of the postwar years, Prime Minister Yoshida, was an ex-Foreign Office official. Yoshida has always acknowledged that he did not know much about and was more or less uninterested in economics, but he had quite firm views on certain other matters about which he knew a great deal. Two such issues concerned Japan's wartime controlled economy and the economic bureaucrats who had cooperated with the military. He deeply disliked both of them. According to many accounts, Yoshida 'could not distinguish an MCI official from an insect'; and he was determined to put reliable Foreign Office men over what he regarded as the dangerously national socialist MCI bureaucrats.
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MCI had to move nimbly in order to survive at all, since its greatest danger came not from SCAP but from its own country's political leader and from some of his official colleagues. As we shall see, MITI did not escape fully from Foreign Ministry influence until 1956.
In these important bureaucratic struggles, SCAP was not so much 'supreme' as a major player on a national chessboard, sometimes the queen but more often merely a pawn. Yoshida on occasion manipulated the purge apparatus to get rid of a politician who had crossed him. And MCI men took full advantage of the proclivities of some of SCAP's 'new dealers' toward a 'planned economy,' much to Yoshida's irritation. The coming to power in 1947 of Japan's only socialist government, something that SCAP was very enthusiastic about, was a godsend for MCInot because MCI advocated socialism but because socialism afforded it a plausible cover for its own industrial policies and because the socialist government put Yoshida out of power for eighteen months.
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These are matters to which we shall return. The first four years of the occupation were a period of immense complexity, extremely rapid social change, and for the Japanese people a bitter struggle for survivalthe time of the 'prison of hunger,' as they spoke of it then. But out of it came a summing up of the experiences of the prewar, wartime, and occupation industrial policies that allowed the government during the next decade to lead the country to prosperity.
The initial postwar problem, and the one that conditioned all the others to come, was inflation. If we take the price level of August 1945 to be 100, then the level rose to 346.8 in September, to 584.9 in Decem-
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ber, and to 1184.5 the following March.
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Several factors caused this inflation, including mustering-out payments to the Japanese armed forces, but the most important was the continuation and even acceleration of government disbursements for wartime contracts, war production loans, munitions companies guarantees and indemnities, and various other obligations the government had assumed under wartime laws and ordinances. One of these was payments for factories that had been seized and converted to munitions production by the Industrial Facilities Corporation. In mid-1946, when SCAP's order to the government to default on its wartime obligations was finally carried out, the Industrial Facilities Corporation still owed the cotton textile industry some ?12 billion for factories it had taken over. Before SCAP stopped the payments, the government had literally flooded the economy with money. The
estimates that in a little over three months after the surrender, the government paid out some ?26.6 billion, a truly colossal sum amounting to about one-third of the total amount Japan had spent for military purposes between September 1937 and August 1945.
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During 1946 these disbursements led to one of the first big clashes between SCAP and the Japanese over economic policy. Ishibashi Tanzan, minister of finance in the first Yoshida cabinet (May 1946 to May 1947), was a strong advocate of increased production; he boldly argued that 'the current economic crisis is not one of inflation but rather of a surplus of unused labor and production facilities. The only way to get out of it is to increase production.'
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For this purpose Ishibashi was prepared to throw money at industry through war claims payments and price support subsidies and to deal with the resultant inflation merely by issuing 'new yen' whenever necessary. SCAP profoundly disagreed; in its view price stabilization had to take precedence over any efforts to restore production. Ishibashi's position reflected the war-bred theories of many industrial bureaucrats who believed that what counted was materials, labor, and outputnot prices and money; SCAP's views were closer to those of Governor Ichimada of the Bank of Japan, who was also a confidant of such senior SCAP officials as General Courtney Whitney.
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During November 1945 SCAP issued direct orders to the Japanese government to stop paying off war claims. Ishibashi stalled as long as possible, fearing that the government's suspension of payments would ruin many banks, dry up industry's working capital, and bring what production there was to a halt. This is rather close to what actually happened during the autumn of 1946: the government stopped its subsidies, inflation accelerated rather than being brought under
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control, and production dropped precipitously. It was under these circumstances that the Japanese government began to take its own initiatives to revive the economy.
On June 25, 1946, the cabinet finally ended wartime compensation payments, but a month later it took the first steps to restore them under new names. The government set up the Reconstruction Finance Committee (Fukko * Kin'yu* Iinkai), with Ishibashi as chairman, to prepare the way for the Reconstruction Finance Bank (RFB), created on January 24, 1947. It was one of a set of institutions that the Japanese created after the war to try to pull themselves out of the postwar economic collapse and to restore production to prewar levels regardless of the fierce inflation it generated.
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SCAP derided these institutions as perpetuations of the old cozy relationship between government and business, and the specific acts of Ambassador Joseph Dodge in 1949, which came to be known as the 'Dodge Line,'
