------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (February 2008)

Richard J. Smethurst, _From Foot Soldier to Finance Minister: 
Takahashi Korekiyo, Japan's Keynes_. Cambridge MA: Harvard University 
Press, 2007. xiv + 377 pp. $45 (hardcover), ISBN: 978-0-674-02601-8.

Reviewed for EH.NET by Michael Schiltz, Department of Oriental and 
Slavonic Studies, University of Leuven.


Contrary to what could be expected from the biography of a prewar 
Japanese statesman, _From Foot Soldier to Finance Minister_ is an 
intimate and entertaining portrait of a man who is arguably Japan's 
most important financier of the early twentieth century. Takahashi 
Korekiyo duly deserves the attention Harvard East Asian monographs 
chose to give him. Not only did he save his country from the Great 
Depression; he also played a role in almost every event of importance 
to Japan's macroeconomic choices and performance at the time. From 
raising war loans abroad for the Russo-Japanese War in 1904-05 until 
the managing (accommodation?) of the outrageous demands for increased 
military spending in the late thirties, Takahashi played the part of 
fixer, leader, negotiator, and much more. And who could be more 
qualified to write this biography than Richard Smethurst? As 
longstanding scholar of Japan's prewar economic history, he is the 
author of multiple articles about both Takahashi's educational 
formation and his policies -- and people in the Bank of Japan close 
to him (such as Fukai Eigo). It is also fully to Smethurst's credit 
that this book is an enticing read: in a lucid and fluent style, he 
sheds light on many of the lesser known aspects of Takahashi's 
education, always with attention to the latter's interest in 
self-documentation and irony -- think for instance of Takahashi's 
relating of his indulgence in drinking alcohol as a youngster (p. 22) 
or his naive signing into indentured servitude while being in America 
(p. 26-29).

The book is conveniently separated into four parts, which can further 
be grouped into two. Part I, roughly comprising chapters 1 through 7, 
deals with Takahashi's early experiences and education, in the 
broadest sense of the word. Smethurst points out Takahashi's personal 
relationship with the Scottish banker Allan Shand and the missionary 
Guido Verbeck. Of particular importance is the relationship with 
Maeda Masana, one of Takahashi's mentors but mostly famous for his 
political struggle with the elder statesman Matsukata Masayoshi about 
the nature of Japanese economic development in the late nineteenth 
century (the choice between agricultural and industrial development). 
It is indeed surprising that Takahashi, as the true champion of 
modern Japanese capitalism, sided with the proponents of Japan's 
agricultural development, but Smethurst finds an explanation in 
Takahashi's pragmatism: Japan was, so it is argued, hardly able to 
embark on "top-down" industrialization, but should have embraced a 
program of decentralized development fit to its character as a still 
largely agricultural economy.

One may -- justifiably -- object that Smethurst has devoted too much 
attention to Takahashi's early years, and dwelled too long on events 
and happenings that border on the anecdotal or trivial detail. But 
then again, this is not a book on the Great Depression alone, as 
Smethurst warns us in the acknowledgments (p. vii): "As I 
investigated [the Japanese economy of the early 1930s], the name 
Takahashi Korekiyo, often with the epithet "Japan's Keynes," appeared 
repeatedly. So I bought several biographies of him and began working 
backward, from the Sh?wa depression to Takahashi's childhood. The 
more I read about him, the more fascinated I became by the man -- 
until at last I decided to abandon the economic downturn for 
Takahashi."

Still, it will be the later chapters about the Great Depression 
(chapters 12 and 13) that will invite the most scrutiny from economic 
and financial historians. These chapters are very well structured, 
and Smethurst is aware of the problems he has to tackle. This is the 
"Holy Grail" of the financial history, as Ben Bernanke once argued, 
and people like Bernanke, Charles Kindleberger and Robert Skidelsky 
(the biographer of John Maynard Keynes) have stressed Takahashi's 
uniqueness. What needs explanation is the fact that the Great 
Depression hardly seems to have affected Japan, whereas in other 
countries, most notably the United States, its effects were so 
protracted. "In real terms, the Great Depression scarcely occurred in 
Japan. From 1926 through the 1930's, real gross national product 
(GNP) in each succeeding year never declined from its previous level. 
The economy did experience some stagnation in the 1929-31 period; 
real GNP rose by only 0.5 percent in 1929, 1.1 percent in 1930, and 
0.4 percent in 1931. For the remainder of the 1930's, however, real 
GNP grew at an average annual rate of 5.8 percent" (Nanto and Takagi 
1985, pp. 369-74).

So, who and what kept the Japanese economy on course? Both Japanese 
and Western observers have pointed to Takahashi's surprisingly 
Keynesian policies: 1) removing Japan from the gold standard, 2) 
devaluing the yen vis-a-vis the dollar and pound, 3) reducing the 
Bank of Japan's prime rate, 4) introducing legislation to raise the 
limit of the Bank of Japan's issuance of bank notes, 5) increasing 
government spending, and 6) making up for the difference between 
government expenditures and income not by raising taxes but by 
pioneering a very specific agreement with the Bank of Japan.

Although avoiding the difficult (and sometimes highly technical) 
debate about policy behavior during the Great Depression, Smethurst 
systematically reiterates several assessments of Takahashi's 
reflationary policies (p. 239):

... was this not a case of social dumping or "beggaring thy 
neighbor," that is, saving your own trade ship at the expense of 
others? Was Takahashi guilty of a "reckless fiscal policy" because 
his introduction of the sale of treasury bonds to the central bank 
rather than directly on the open market would lead to dangerous 
inflation after his assassination in 1936? Was not the policy of 
selling treasury bonds to the Bank of Japan rather than to the public 
dangerous because it gave finance ministry bureaucrats and central 
bankers the power to expand the money supply free from market 
constraints? Did not Takahashi's spending, which went primarily to 
rural relief and the military, play a vital rule in the rise of 
militarism and the road to Japan's aggressive war against China, the 
United States and their allies?

Smethurst chooses not to confine his analysis to the mere number 
crunching of many cliometric studies but instead includes references 
to the writings of Takahashi and his aides, effectively erasing 
several of the above suspicions. I am sympathetic to Smethurst's 
conclusions about Takahashi's doubtlessly limited room for political 
maneuvering, including where it concerns the question regarding his 
alleged role in furthering excessive military spending. I believe he 
has presented a strong case for the latter's appreciation of existing 
problems and their solution. _From Foot Soldier to Finance Minister_ 
is furthermore helpful in explaining financial technologies as the 
time, as example the aforementioned hikiuke system of selling 
government bonds at low interest directly to the Bank of Japan.

What does puzzle me, therefore, is not Smethurst's assessment of 
Takahashi's policies. I am less convinced by the way Smethurst 
pictures the motives of Inoue Junnosuke, Takahashi's antipode and, as 
in the proverbial opposite, the proponent of a deflationary monetary 
policy. As demonstrated by Mark Metzler (2002), foreign pressure to 
have Japan move onto the gold standard was substantial; hence, 
Inoue's defense of a deflationary policy, however disastrous, was not 
necessarily a mere expression of political ambition -- it was, 
however mistaken, the orthodoxy of the time. I furthermore sense that 
methodology similar to Smethurst's reading of Takahashi would reveal 
the sincerity of Inoue's motives (again, however ill-inspired they 
may have been) -- an idea to which again Metzler (2006, pp. 159 ff.) 
lends plausibility.

This is, however, a minor criticism of a work that splendidly and 
entertainingly facilitates our understanding of difficult yet 
formative moments in prewar Japanese political and economic history. 
This book deserves to be read not only by students of Japanese 
economic history, but should be in the hands of every serious student 
of modern Japanese history, as well.

References:
Mark Metzler, "American Pressure for Financial Internationalization 
in Japan on the Eve of the Great Depression," _Journal of Japanese 
Studies_, Vol. 28, No. 2 (Summer 2002): 277-300.

Mark Metzler, _Lever of Empire: The International Gold Standard and 
the Crisis of Liberalism in Prewar Japan_, University of California 
Press, 2006.

Dick Nanto and Shinji Takagi, "Korekiyo Takahashi and Japan's 
Recovery from the Great Depression," _American Economic Review Papers 
and Proceedings_, Vol. 75, No. 2 (May, 1985): 369-74.


Michael Schiltz (postdoctoral fellow, University of Leuven) 
specializes in the financial history of Japan. He is the author of, 
among others, "An 'Ideal Bank of Issue': The Banque Nationale de 
Belgique as a Model for the Bank of Japan," for which he received the 
_Financial History Review_ 2007 Prize for Young Scholars. He is 
currently finishing a book manuscript entitled _The Money Doctors 
from Japan_, which covers the activities of government-appointed 
Japanese financial advisers in the (semi-)colonies of the Japanese 
empire before 1937.

Copyright (c) 2008 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229). 
Published by EH.Net (February 2008). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.

-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review