officer, General Tanaka Giichi, afforded an opportunity to try again to set up an economic planning unit with a military outlook.
On May 26, 1927, the government established a Resources Bureau (Shigen Kyoku) as a semidetached organ of the cabinet. Because a heavy military presence in the old Munitions Bureau had led to conflicts with other ministries, this time the government toned down the military element, recruited bureaucrats from other ministries, and set up a joint public-private deliberation council to discuss resource questions. The staff of the Resources Bureau was smallonly five peoplebut MCI sent to it one of its important young officials, Uemura Kogoro*, class of 1918, who was destined to become in May 1968 the president of Keidanren, the most influential post in the country for making policy for the business sector. Uemura spent the rest of his bureaucratic career working in the 'economic general staff,' where he rose to the position of vice-president of the Cabinet Planning Board in 1940. His position in the Resources Bureau was one of the earliest links between MCI and the military planners before the two were formally merged in 1943 in the Ministry of Munitions.
4
The Resources Bureau of 1927 undertook the first measures of genuine economic planning in Japan. It pioneered the 'materials mobilization plans' (to be discussed later in this chapter) that dominated the economic landscape after the outbreak of war with China. Its main achievement in the late 1920's, however, was to sponsor the Resources Investigation Law (Shigen Chosa* Ho*, law number 53 of April 12, 1929), which required private enterprises to report to the government on their productive and financial capabilities. Since the Resources Bureau had no operating functions (lest it conflict with the territories of the established ministries), MCI was authorized to enforce the law by inspecting factories and mines to determine their resource potential. This was a significant development during peacetime. Interestingly enough, article 2 of this law refers to the need for 'plans for the controlled operation' (
*
*
) of enterprises, and this use of tosei* in a military economic statute is thought to be the origin of the term in the title of the Important Industries Control Law of 1931, even though Yoshino has denied that his law had a military purpose.
5
If the financial panic of 1927 brought MCI to life as an organization,
Page 119
it was the invasion of Manchuria in September 1931 and the assassination of Prime Minister Inukai on May 15, 1932, that brought industrial policy to life as an element of military mobilization. The events of the succeeding few years in both Japan and Manchuria made even more insistent the need for an economic general staff, a coordinating organ that could unite military requirements with civilian capabilities and adjust both. After the militarist assault on Inukai the throne turned to a nonparty government of national unity under Admiral Saito * Makoto (18581936, assassinated in the military coup of February 26, 1936). Takahashi Korekiyo continued as minister of finance, and Nakajima Kumakichi (18731960) of the Furukawa zaibatsu (Furukawa Electric, Yokohama Rubber, Fuji Electric, and others), Yoshino's closest civilian associate in the TIRB, became minister of commerce and industry. Since this was a nonparty cabinet and Nakajima and Yoshino were good friends, the old practice of the vice-minister offering his resignation to a new minister was abandoned.
As we saw in the last chapter, Takahashi reimposed the gold embargo in December 1931, an action that advanced the government's intrusion into the private economy well beyond that of the cartels authorized by the Control Law. In order to make the embargo effective, the government also passed the Capital Flight Prevention Law (Shihon Tohi* Boshi* Ho*, law number 17 of July 1, 1932); and when that proved to be ambiguous and therefore evadable, it passed the Foreign Exchange Control Law (Gaikoku Kawase Kanri Ho, law number 28 of March 29, 1933), which made all overseas transactions subject to the approval and licensing of the minister of finance. Although no one at the time could have imagined it, governmental control over the convertibility of yen lasted uninterruptedly until April 1, 1964, and over capital transfers until the capital liberalization policies of the late 1960's and early 1970's.
During 1932 Takahashi also launched his famous policy of deficit financing to overcome the depression (and thereby won the sobriquet that is now associated with his name, 'the Keynes of Japan'). Military expenditures in the general account budget rose from 28 percent in 1930 to 43 percent in 1935, and the combined deficit of the years 1932 to 1936 reached an enormous ?1.9 billion.
6
Takahashi's cutting the yen free from gold also produced a steep decline in the foreign exchange value of the yen. The rate against the U.S. dollar fell from ?100 = $49 in 1931 to ?100 = $19 in 1932, and the consequent lowering of prices of Japanese goods overseas fueled a tremendous surge of exports, particularly to South and Southeast Asia, that was loudly denounced abroad as Japanese 'dumping.' The Ministry of Finance cov-
Page 120
ered the deficit through the issuance of bonds, which it sold to the Bank of Japan, and through some tapping of the trust fund accounts (the funds of small savers deposited in the Treasury through the postal savings system). A degree of inflation was expected, but Takahashi's theory was that a return to business prosperity would lead to a 'natural' increase in government tax revenues sufficient to retire the debt. These methods were unorthodox for the time (the 1932 budget was the first unbalanced budget in Japan's modern history), and all the Finance Ministry officials under Takahashi were dubious.
7
But the policies seemed to work; Japan was well out of the depression before its international competitors had adopted similar policies (see Table 8).
During the autumn of 1935 the demand for goods began to outrun supply, and prices started to rise. Takahashi applied the brakes to military spending in order to control inflation and the balance of payments, but a section of the military revolted against what it took to be his civilian interference in the army's modernization efforts and assassinated him on February 26, 1936. Takahashi was once quoted to the effect that 'it is much harder to nullify the results of an economic conquest than those of a military conquest,' but this was a lesson that many more Japanese had to learn before they took it to heart after the Pacific War. His remark might well serve as an epitaph for his eraas well as a promise of the MITI era to come.
8
Takahashi's successor gave the army a free hand to spendwhich primarily meant to import needed resourcesand within a year, well before the outbreak of war with China, Japan was facing a full-blown balance of payments and inflation crisis. The Tokyo wholesale price index (193436 = 100) jumped from 99.5 in January 1935 to 123.2 in January 1937and then to 131.0 in April. Since the military had ruled out a tightening up of the economy by the Finance Ministry, the only other recourse was to economic controls and
