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Lever of Empire

Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan

Mark Metzler
Copyright Date: 2006
Edition: 1
Pages: 396
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  • Book Info
    Lever of Empire
    Book Description:

    This book, the first full account of Japan’s financial history and the Japanese gold standard in the pivotal years before World War II, provides a new perspective on the global political dynamics of the era by placing Japan, rather than Europe, at the center of the story. Focusing on the fall of liberalism in Japan in late 1931 and the global politics of money that were at the center of the crisis, Mark Metzler asks why successive Japanese governments from 1920 to 1931 carried out policies that deliberately induced deflation and depression. His search for answers stretches from Edo to London to the ragged borderlands of the Japanese empire and from the eighteenth century to the 1950s, integrating political and monetary analysis to shed light on the complex dynamics of money, empire, and global hegemony. His detailed and broad ranging account illuminates a range of issues including Japan’s involvement in the economic dynamics that shook interwar Europe, the character of U.S. isolationism, and the rise of fascism as an international phenomenon.

    eISBN: 978-0-520-93179-4
    Subjects: History

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-x)
    (pp. xi-xii)
    (pp. xiii-xviii)
    (pp. xix-xx)
    (pp. xxi-xxii)

    • Prologue: London, 1898
      (pp. 3-13)

      The road that led to the crisis of 1931 began in the late 1890s, when Japan’s Asian empire, gold standard, and foreign borrowing got underway simultaneously. These three historical processes were linked from beginning to end. The odd thing was that the linkages were forged on the other side of the world, in the city of London.

      Japan’s modern gold standard was born out of war. In the aftermath of military victory over China in 1895, the Japanese government exacted an indemnity of 230 million silver taels, a sum equal to about one-quarter of Japan’s entire national income.¹ The Chinese...

    • ONE Japan and the British Gold Standard, ca. 1715–1885
      (pp. 14-28)

      As it came to Japan in 1897, the gold standard was a Western, originally British institution, and its institutional life story reflects the long rise to worldwide financial ascendancy of Great Britain and its more sudden fall. Japan’s engagement with the gold standard was from beginning to end a story about international hegemony, integrally connected to the many questions of Japan’s relationship to Britain and to the United States. To understand that story, it is necessary to begin with the prior monetary history of both Britain and Japan.

      At its most basic level, the “classical” British-style gold standard consisted of...

    • TWO Gold and Empire, 1885–1903
      (pp. 29-44)

      In 1885 Fukuzawa Yukichi, the Meiji era’s most famous Westernizer and a leading advocate of liberalism and constitutional government, wrote an editorial asserting that Japan should “leave Asia” (datsu-A) and join the West. To associate with neighboring China and Korea would invite Westerners to view Japan as backward and Asian: “The person who is close to bad friends cannot avoid getting a bad name.”¹ Fukuzawa’s slogan has become well known, and it serves to encapsulate a whole set of systemic changes.

      Japan’s war with China in 1894–95 was the great turning point. In 1894, before the war, Ikeda Shigeaki,...

    • THREE The Sinews of War, 1904–1914
      (pp. 45-66)

      The Anglo-Japanese alliance became effective in January 1902. Its result was to ensure that Japan could fight a war with Russia without fear of another European power intervening. By October 1903 war appeared imminent, and in December the Japanese minister in London approached the British government for a war loan.¹ On the night of February 8, 1904, Japanese naval forces launched the war with a surprise torpedo attack on the Russian warships stationed at Lüshun (Port Arthur) in southern Manchuria and landed troops at Inchon in Korea. Korea was militarily occupied and a great land campaign was begun in Southern...

    • FOUR The “Positive” and “Negative” Policies
      (pp. 67-90)

      After the war came the postwar, and even as the Japanese government leveraged the gold standard to build an empire overseas, the contractionary logic of postwar adjustment under gold-standard rules began to bind at home. This contradiction was at the heart of the government’s policies for “postwar management” (sengo keiei).¹ That is, colonial, military, and heavy-industrial development required continued high government spending. But to repay Japan’s foreign debt and maintain the gold standard required Wscal retrenchment. These contrary tendencies also tended to succeed each other in time, in a policy cycle that would be repeated, with a greatly magnified amplitude,...

    • FIVE “Divine Providence,” 1914–1918
      (pp. 91-112)

      Between 1904 and 1913 the Japanese government financed the building of a continental empire with more than ¥1 billion in borrowed British and American funds. During the same period, Japan’s national balance of payments ran a deficit that totaled some ¥850 million. If viewed as a national enterprise, Japan invested heavily in two lines of expansion, overseas empire and militarily oriented heavy industry, neither of which brought a net return in terms of foreign-exchange earnings.¹ Gold was paid out to foreign countries to fund this expansion, while profits gotten within the new Japanese empire came mostly in the form of...


    • SIX The Great Divide, 1918–1921
      (pp. 115-137)

      After the triumphs and turmoil, excesses and grand visions of the late 1910s, Japan, as Inoue Junnosuke had foreseen, entered a new age of limitation in the 1920s. It was an uneasy, in-between era. Contending political forces seemed to stand in a fragile state of balance. In the eyes of conservatives, degenerate customs flourished. Business conditions were chronically depressed, and the entire decade could easily be characterized as a reaction to the inflationary wartime boom.

      The 1920s was perceived as a time of economic stagnation in Japan. It was also a time of sharp social and economic dualism. Tokyo, especially...

    • SEVEN “The Contractionary Tide,” 1921–1926
      (pp. 138-158)

      At the beginning of 1920, Inoue Junnosuke and Hamaguchi Osachi warned separately of a necessary reaction after the great boom of the late 1910s. More remarkably, ten years later both men continued to see the entire intervening decade as one long drawn-out reaction. They were joined by much of financial and business opinion. Inoue and Hamaguchi also worked to create this reverse movement, and in line with their sense of things, the policy tone of the 1920s as a whole was toward restriction.

      Fiscal retrenchment began with Takahashi Korekiyo’s reluctant curtailment of the positive policy in 1922. The demands of...

    • EIGHT The Theory and Practice of Induced Depression
      (pp. 159-174)

      The theme of restoration was widely sounded in the post–World War I world, and restoration was deeply connected to the questions of deflation and the gold standard. This connection forms a recurring theme in monetary history.

      Britain’s original legislative enactment of the gold standard in 1816 was itself intended as a restoration of hard money—the “old par”—after the inflationary Napoleonic Wars, and it was a central plank in a larger program of conservative restoration policies. A thirty-year deflation followed. In the 1870s, after episodes of paper-money inflation that accompanied wars of national unification in the United States...

    • NINE “The Two-Party Principle,” 1927–1929
      (pp. 175-196)

      The Kenseikai’s Hamaguchi Osachi, as finance minister in the Katō Takaaki cabinet, had by stages adopted a “negative” retrenchment policy after June 1924. The Kenseikai cabinet of Wakatsuki Reijirō carried the retrenchment movement further in 1926, and notwithstanding Inoue Junnosuke’s criticism of the cabinet’s approach as sloppy and half-baked, it is clear in retrospect that Finance Minister Kataoka took decisive steps to prepare for the restoration of the gold standard after September 1926. Compounded by the increasingly bitter conflict between the two mainstream conservative parties, this move back toward the gold standard led directly to the financial panic of spring...


    • TEN The Liberal Triumph, 1929–1930
      (pp. 199-216)

      In Western terms, it is perfectly unproblematic to describe the Inoue financial policy as orthodox. In the words of economic historian G. C. Allen, who lived in Japan in the 1920s, Inoue was “the nearest approach to an orthodox liberal financier that Japan has produced.”¹ For Thomas Lamont, Inoue was a regular member of the international central bankers’ club. In line with such judgments, the Minseitō party was described in the Western press as the “Liberal” party as against the “Conservative” Seiyūkai. The new Minseitō government’s announced policy of free gold movements, the central plank of the liberal economic project,...

    • ELEVEN Opening the Door to a Hurricane, 1930–1931
      (pp. 217-239)

      On January 10, 1930, speaking at a luncheon party that he hosted at London’s Savoy Hotel, Overseas Financial Commissioner Tsushima Juichi spoke to his elite metropolitan audience of global time and global money: “You, my British friends, may not appreciate [it] so fully as we do, since your London is situated on the Zero Meridian of Greenwich which sets the time of the world,” but in fact, nine time zones to the east, it was almost tomorrow in Japan. “In other words, Gentlemen, before we leave this room, the embargo on the export of gold from Japan will be removed.”...

    • TWELVE Capitalist Recovery in One Country, 1932–1936
      (pp. 240-256)

      Under Takahashi Korekiyo’s leadership, financial conditions in Japan rapidly did become dissimilar to those of other countries. After December 13, 1931, the yen fell sharply, and by early 1932, Japanese industry was beginning to export its way out of the depression. In 1932 Takahashi also initiated a historic policy of deficit finance, funding government spending projects via the direct creation of money. Domestic prices rose, corporate profits and investment ended the long downward slide that had begun in 1920, and by late 1932 or 1933, prosperous conditions had returned to most branches of industry. Japan came to present the picture...

    • Epilogue: Money and Hegemony
      (pp. 257-272)

      In the fall of 1951, soon after U.S. occupation authorities lifted the purge restrictions under which they had placed him four years earlier, Ishibashi Tanzan wrote an essay in which he considered the reasons for the disaster that had befallen his country. Ishibashi had made his reputation as an economist by attacking Inoue Junnosuke’s restoration of the gold standard at the old par, and he now returned to a familiar theme:

      The profound livelihood difficulties that the Japanese people fell into because of the depression that began in 1929 formed a good basis for extending the influence of the right-wing...

  11. APPENDIX: Reference Information
    (pp. 273-280)
  12. NOTES
    (pp. 281-318)
    (pp. 319-352)
  14. INDEX
    (pp. 353-370)