MITI and the Japanese miracle

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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.

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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.

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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 rationing. And the advent of rationing raised new demands that an "economic general staff" be empowered to plan for the whole economy. This economic general staff, in the form of the Cabinet Planning Board, came into being on October 23, 1937, under the added impetus of the China Incident.

Since the creation of the Resources Bureau in 1927, and especially after passage of the Important Industries Control Law in 1931, the military economists' primary efforts had been to enact individual laws in conjunction with MCI for particular strategic industries. The first industry law to be passed that had explicit military implications was the Petroleum Industry Law of March 28, 1934; it remains interesting to-