), which differed from the export unions in being genuine cartels whose mem-
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bers agreed among themselves on the amounts each member could produce and sell.
There were several precedents for cartels in Japan. The Japan Paper Manufacturers Federation of 1880, the Japan Cotton Spinning Federation of 1882, and the Japan Fertilizer Manufacturers Federation of 1907 were the main trade associations with cartellike powers before World War I.
28
The Production Cooperatives Law of 1900 had authorized prefecturally supervised industrial unions (
*
), but despite their name, these were actually agricultural cooperatives, not industrial manufacturers.
29
They were also hampered by the fact that in 1917 MAC, in an attempt to control the wartime prices of food and clothing, had prohibited them from agreeing on prices or wages. The primary functions of the early cartels were inspection and grading of products. The Japanese were not unfamiliar with cartels, but those authorized in 1925 were new in that they sought to organize a part of the whole economy, not just particular industries.
The 1925 laws did not work too well. The industrial unions were more popular than the export unions, because MCI subsidized the industrial unions from the outset but only began to finance the exporters after the world depression. There were also frequent clashes between the two. In order to get the laws passed in the Diet, MCI had to agree that membership would not be compulsory in either of the unionsalthough the ministry was given authority to order nonmembers to conform to some of the terms of cartel agreements among members.
During 1925 MCI was not a powerful ministry compared with Home Affairs, Foreign Affairs, or Finance, and it was all but unknown to the general public. Its efforts to aid medium and smaller enterprises were thus merely a first, and rather experimental, step toward industrial policy. Both its commercial and industrial activities during the mid-1920's were focused on trying to relieve Japan's balance of payments deficits by stimulating trade. Yoshino established a committee in the ministry to promote the use of nationally manufactured goods, and he sought budget authorization to station MCI trade representatives abroad. He also asked that the Trade Section in the Commercial Bureau be upgraded to a bureau. The Ministry of Foreign Affairs blocked the idea of overseas commercial attaches from MCI as an infringement on its territory, and the Finance Ministry approved an MCI Trade Bureau in 1927 but did not provide funds for it until 1930, when the world depression made it seem more important.
30
One of the leading historians of trade and industrial policy comments, 'No
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one remembers working very hard in the early years of MCI.'
31
Even Nakahashi Tokugoro*, who became minister of MCI in April 1927 as part of the cabinet of General Tanaka Giichi, said on taking office, 'As a government agency, MCI is not a place of exciting work.'
32
But he was destined to help change that condition quite decisively.
Nakahashi became minister in the wake of the financial panic of 1927, which forced the resignation of the first Wakatsuki cabinet. This crisis was the culmination of all the panics that had afflicted the Japanese economy during the 1920's, and it constitutes the true dividing line between the 'old testament' and the 'new testament' of Japanese trade and industrial administration. It also marks the onset of the world depression for Japana period of economic stagnation and of radical attempts to find solutions to endemic problems that afflicted the rest of the world only three years later. On the significance of the 1927 panic, Nawa Taro* observes, ''MCI already existed as a body, but the financial panic brought it to life as an organization.'
33
One important, if deeply conservative, point of view concerning what to do about the recession of the 1920's is associated with the name of Inoue Junnosuke (18691932), a former official of the Yokohama Specie Bank, president of the Bank of Japan in 1919, and minister of finance in the Hamaguchi cabinet of 1929. (Like several other finance ministers of this era, he too was assassinated, on February 9, 1932, in the so-called Blood Brotherhood Incident, a fascist attack on the Japanese capitalist establishment.) Inoue's idea was that Japan should lift the 'temporary' gold embargo that it and all other major countries had imposed at the outbreak of World War I. Japan had continued the embargo after the war because of its unfavorable balance of payments, and it was alone among major powers in not having returned to the gold standard. In Inoue's view this was the reason that efforts to revive exports had been unsuccessful. The situation was somewhat comparable to that in 1949, when Japan had to achieve a stable exchange rate for the yen in order to resume international trading, a goal that in turn required Japan to halt inflation and live within its means. In 1949 Dodge and Ikeda led the fierce deflation that was prerequisite to economic rebuilding.
In theory a nation in a situation like Japan's in the 1920'sone that imported more than it exportedwould pay out gold to cover the balance. This outflow of gold, which had been prohibited during the 1920's, would raise the value of the domestic currency and thereby lower export prices. The effect would be highly deflationary, and would drive marginal firms out of business, but it would also thoroughly shake up an economy that was living off inflation and restore
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its international competitive capacity. This is what Inoue and the Minseito * party wanted to do.
Before any attempt to lift the gold embargo could be undertaken, however, the government had to get its own financial house in order, and this meant resolving the matter of the outstanding earthquake bills. During the 52nd Diet (December 1926 to March 1927), the Wakatsuki (Minseito) government introduced two bills that would convert the outstanding earthquake bills into ten-year government bonds. The opposition parties complained bitterly that the government wanted to use the people's tax revenues to aid the capitalists, and during the course of a heated Diet debate the minister of finance accidentally revealed just
