MITI and the Japanese miracle

Page 178

ber, and to 1184.5 the following March.

³⁹

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

Mainichi

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.

⁴⁰

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."

⁴¹

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.

⁴²

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