The Key Relevance of the Writings of Professor Kenneth Kenkichi Kurihara

July 28, 2013 12:00 am Published by Leave your thoughts

1 Shimomuran economics is the key to higher growth macro-economics

It is my contention that several Asian economies have used, and are using, a superior understanding of the economic growth process in order to achieve great economic development and trading advantages. It is my further contention that that superior understanding is in turn based upon a Shimomuran analysis of US President FDR’s first economic miracle (1938-44) and from Japan’s Shimomuran interpretation and practice of that understanding to produce the second major economic miracle of Japan (1946-1975). Furthermore, it is difficult to imagine that the Chinese economic-growth-investigating teams (which visited Tokyo after the Sino-Japanese rapprochement of 29 September 1972) did not meet and talk with Shimomura. In my view, the ultimate root of the Chinese economic miracle is also probably based upon Shimomuran economics, whether these delegations spoke with him or otherwise.

The works of Doctor Osamu Shimomura are therefore very important in understanding how to bring about rapid economic development.

2 Western Economists have largely ignored Shimomuran Economics

The academics in most Western universities do not appear to understand the Shimomuran theory and practice of the processes used for several decades in Japan and China (to name only the two most prominent examples) to accelerate their rates of economic development. That is a tragedy for Western academics and a disaster for the populations of the Western economies.

3 Perhaps Because Shimomura’s writings are difficult to access in English

I have recently emailed the British Library and the Library of Congress to ask them whether they have (and if not, by implication to acquire) Shimomura’s eight major works, as listed at , to improve the material available to non-Japanese economic researchers. Within 24 hours, the US Library of Congress advised me that they have seven of these works, and that these have been “Romanji’ed” or converted to an approximate phonetic equivalent of spoken Japanese using Roman letters. These works are therefore only available to Japanese readers of Romanised Japanese pronunciation. I regret I have no such capability. The British Library has not so far replied, but I asked the question on 17 June 2013 so perhaps they need a bit more time.

(See for an explanation of the method of using the Latin script (or Latin alphabet) to communicate spoken Japanese).

4 But Professor Kenneth Kenkichi Kurihara is the English language gateway to Shimomuran Economics

In these circumstances, how can Westerners understand Shimomuran economics? Perhaps principally by viewing his writings in the reflecting mirror provided by the great Japanese-born but American-educated growth economist Professor Kenneth Kenkichi Kurihara.

Professor Kenneth K Kurihara (1910-1972) was the Distinguished Professor of Economic Theory at the State University of New York in Binghampton. He wrote eight books and over 50 peer-reviewed journal articles and he taught macro-economics at Princeton and Rutgers, the State University of New Jersey, as well as being a guest lecturer at the universities of Oxford and Cambridge. The interesting insights of Professor Kenneth K. Kurihara’s greatest book “The Growth Potential of the Japanese Economy” (John Hopkins Press Maryland 1971) should have been integrated into Western macro-economic theory by now.

The above mentioned book was produced as one consequence of his sojourn as the Fulbright Visiting Professor at Tokyo Metropolitan University in 1965, and was one result of his intensive research on the growth potential of the Japanese economy, starting from a 1946 article for the American Economic Review and most intensively summarising his research from 1965 to 1970.

5 The Key Shimomuran Growth-Accelerating Amendment to Keynes’ Savings-Investment Equilibrium Equation

There are many key insights in that book, but the most significant of these is on page 77 where Professor Kurihara quotes the equilibrium condition of the central investment-funding equation of the Shimomura Model of the Japanese economy as S+D = Is+Id (Equation [3.1])

Or Saving (S) plus Debt (D, equal to investment credit created by investment credit at creation at the Bank of Japan) equals Is (Investment financed by saving) plus Id (Investment financed by debt)

That is, the investment level of Japan is increased by credit creation at the Central Bank of Japan. This equation replaces the classic and central Keynesian Savings-Investment equality with a more useful formula because (if the nation’s banks give a high priority to commercial and industrial investment) the government of a country can increase the nation’s investment level through investment credit creation at the Central Bank. So no-cost investment credit, created by the Bank of Japan, once transmitted through a co-operative banking system to industry, creates vast flows of wealth through industrial investment, higher employment and the continually updated production of better goods and services.

6 A Few Comments upon Kenneth K Kurihara’s greatest book “The Growth Potential of the Japanese Economy”, John Hopkins Press Maryland 1971

This seminal book illustrates the greatness of Kurihara. For me, Kurihara almost visibly grows in stature due to his developing understanding as the book progresses – in the early chapters he initially tries to understand the Japanese economic miracle through his Western-educated Keynesian viewpoint. For example, at first he ascribes the high equipment investment level to personal corporate and budgetary saving (p28-9) but he is calculating that from results rather than from primary causes. As he digs deeper into the issues there appears in his writing a kind of dawning light showing that isn’t quite the right approach, so he keeps the basic premises of Keynesianism but works out relevant extensions and deeper insights to explain what’s actually going on from his real-world observations and his discussions with prominent Japanese economists, and his growing knowledge of the Shimomuran economic growth model. That process culminates in the Appendix where he suggests five “substantial observations” which Japanese economists may have overlooked.

7 Kurihara vs Friedman

The contrast between the illuminating practical excellence of Kurihara and the boring and theoretically irrelevant repetition of Milton Friedman could not be greater. Kurihara knows, to begin with, that he doesn’t fully understand what he’s looking at, so he suggests, at first tentatively, then with increasing force, fuller and more valid explanations. Friedman has an evangelical belief in freedom and the ways of the West, so after the most cursory look at any national circumstances, he sees the triumph of Western liberalism and freedom, no matter what is actually before his eyes. Friedman’s prejudices are so great that he cannot see what he is looking at – he is a perfectly acceptable intellectual parrot but an economic dead end. In his masterwork with Anna Jacobson Schwartz, A Monetary History of the United States, Princeton University Press, 1963, Section 10.2 (Period of Wartime Deficits) the great expansion of financial credit during the 1938-44 years is noted, but there is no comment upon the great growth of the USA during that period. As that book notes:

“The expanded defense program initiated in 1940 and lend-lease in 1941 produced a substantial increase in government expenditures. These were offset for a time by a rise in tax rates and tax revenues. By early 1941, however, the deficit had begun to rise sharply. For calendar 1941, cash operating outgo exceeded cash operating income by $10 billion or nearly half of total expenditures. Pearl Harbour brought a sharp intensification of these tendencies. Government expenditures nearly tripled from calendar 1941 to calendar 1942, and rose a further 50% from 1942 to 1943, reaching a peak of nearly $95 billion in 1944.

“Tax receipts also rose but more slowly and in no greater ratio. As a result, the cash deficit rose to levels without precedent, either in absolute terms or as a percentage of national income: to nearly $40 billion in calendar 1942, over $50 billion in 1943, over $45 billion in 1944 and over $35 billion in 1945 – sums averaging nearly 30% of the contemporary net national product. Government expenditures fell rapidly after the end of hostilities while tax revenues remained high. As in World War I, within six months of the end of the war the government was taking in more than it was paying out so that the period of wartime deficits came to an end about January 1946.”

Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, Princeton University Press, 1963, Section 10.2 (Period of Wartime Deficits) p556-7

FDR’s investment credit growth from 1938-44 conclusively shows that the US Government could and did increase the rate of economic growth through the Fed’s investment credit creation. Friedman either does not see or ignores that evidence, perhaps because it contradicts his often repeated view that governments cannot act to increase economic growth. But they can. No economy has had any higher growth due to the adoption of Friedman’s recommendations.

As Kenneth Galbraith has commented, Friedman’s misfortune is that his theories have been applied, and as Galbraith has politely refrained from observing, invariably with disastrous results.

The insights of Kurihara are useful and provide a practical prescription for higher economic growth with minimal inflation. I could say that Friedman provides no insights of similar magnitude, but in fact he provides no insights whatsoever into the process of economic development, whether slow, medium or fast. The Wikipedia entry on Friedman says:

“A survey of economists ranked Friedman as the second most popular economist of the twentieth century after John Maynard Keynes , [2] and The Economist described him as “the most influential economist of the second half of the 20th century…possibly of all of it.” [3]”

But if Friedman is regarded in many quarters as the most influential economist of second half of the 20th century, then that is a cultural tragedy to the economists who accept that and the governments they have advised. Friedman, however well regarded, is not responsible for any economic miracles. Shimomura is probably responsible for at least four (Japan, South Korea, Taiwan, and China). Positive economic growth results scorecard: Shimomura, 4: Friedman, nil.

8 Differences in viewpoint between Shimomura and Kurihara

Shimomura was a cyclops – he worked out what really mattered in a high-investing economy and how to bring that about. Some of the differences in viewpoint with Kurihara are due to their different understandings, and their backgrounds, because Shimomura stresses the key importance of equipment investment in manufacturing production from the viewpoint of a growing-by-imitation Japan in the mid 1960s, while Kurihara the American-educated economist knows that the ultimate boundary to growth is innovation in a more developed economy. And Shimomura was a patriot – he often addressed his comments to Japanese economists and his life’s work was centred on assisting Japanese economic growth – while Kurihara had the objective of explaining the high growth of the Japanese economy to the academics of the world.

Shimomura stresses the difference between the great effect of equipment investment in vastly improving manpower productivity and seems to regard “social overhead capital” such as transport systems and educational and health facilities as enabling rather than producing. Human capital and better education is also seen by Shimomura as enabling. Kurihara disagrees with some of this because in his view (and mine) higher education and a more skilled population is key to higher economic growth in developed countries. But Shimomura is on more solid ground than it seems, because some research indicates that in order to achieve economic take-off, perhaps only 40% of the population need to be acceptably educated. That in many ways is an appalling finding – the lack of education of women does not prevent economic take-off provided most men and/or a minority of women (whatever gets the country over the 40% barrier) are well enough educated (usually defined as literate). In the immediate post-war period, Japanese women were still largely absent in commercial and industrial companies. Shimomura’s attitude is quite consistent with the Japan’s post-war slogan of “economic growth first”, but he also stressed that the achievement of the highest national economic growth is only possible when all of the possible workforce in a country is fully employed.

Shinzo Abe has referred to this issue and quoted Shimomura approvingly in the fourth section of his 19 April 2013 speech at the Japan National Press Club:

“Dr. Osamu Shimomura, who set forth the theory of the “income doubling plan” during Japan’s period of high growth, said in a paper entitled “The Possibilities and Conditions for Economic Growth” that growth policy is the creation of “conditions that will bring into play to the greatest extent possible the capabilities actually held by the Japanese people.”

“Dr. Shimomura pointed out that 45 million persons in the labor force had “few opportunities to demonstrate” their creative abilities “even though they have extremely high levels of latent ability” and explained that the Japanese economy would be able to grow if only these “opportunities” were provided properly.”

“I consider Dr. Shimomura’s words to have universal value even now.”


9 Two Gravestones

I was born, brought up and educated in Edinburgh and many members of my family live there. On a few occasions during my time in Edinburgh, while wandering up and down the Royal Mile, I have naturally visited the grave of Adam Smith in the Canongate Kirkyard on Edinburgh’s High Street, and on a few of these visits it has been impossible not to notice several other visitors to the grave of the founder of economics.

The death of Kenneth Kenkichi Kurihara in 1972 was a great loss to the world. He was buried in Vestal Hills Memorial Park Broome County, New York, USA. See the record of his burial and the image of his modest gravestone at

I have not yet managed to visit Kurihara’s grave, and I doubt that many do, but I believe if more economists understood what he has achieved, there would be a regular stream of visitors paying their respects.

10 High Growth Economics may have started as a state secret

Investment credit economics was first practised in FDR’s America from 1938 to 1945 and the process may have been an American state secret during wartime. But in the post-war period, the Americans made no secret about how they had produced their economic miracle. Perhaps the American establishment in 1945 thought that only they could do it, because only they had done it. Shimomura visited the postwar USA to examine the process, and he saw and understood it, and his economics then became effectively a Japanese state secret from 1945 to 1961. After 1961, Western economic and political complacency was responsible for not paying attention to the fact that the 1961 Shimomuran Economic Model of Japan model explained how to enable high economic growth through investment credit at the central bank, directed to industrial investment through the secondary banks.

11 Kenneth K Kurhara’s 1962 book – “Applied Dynamic Economics”

But not everyone ignored what Shimomura had to say. Alone among major western economists, Kenneth Kenkichi Kurihara produced a book, entitled Applied Dynamic Economics, George Allen and Unwin, London, 1963. It is not an accident that Kurihara dedicates this book to his personal friend Sir Roy Harrod, because this book, by replacing Keynes’ central savings-investment equilibrium equation with the addition of credit-creation as shown in the amended equation in Section 5 above, extends the range of the dynamic economics which was Harrod’s major contribution to macro-economics. The resulting dynamic macro-economics is precisely what Shimomura recommended, when he called upon Japanese economists to “abandon the static western concept of savings-investment equilbrium.” (See Question 3 at ). An exploding economy, growing rapidly through massive investment credits, with an economic dynamism brought about through higher investment credit creation at the central bank, is the natural result of that greater economic dynamism.

The most significant part of that 1962 book is in the Appendix to Chapter 5 entitled “Japan’s Credit-Supported Growth and Linear Programming”, page 60, where Kurihara says:

“In a significant footnote to his controversial paper Dr H [sic] Shimomura (of the Japanese government-owned Development Bank or Nippon Kaihatsu Ginko) reveals a key to Japan’s high-saving high-investment dynamics.

There, he urges such a dynamic financial policy as to enable Japan to liberate itself from the traditional static concept of savings-investment equilibrium, though he fails to demonstrate a functional relation between such a financial policy and the amazingly high target investment ratio of nearly 30 percent envisaged in his growth model.”

The footnote to which Kurihara refers is at Shimomura, “Basic Problems in Growth Policy”, Economic Studies Quarterly, March 1961.

Kurihara then produces five formulae demonstrating that if Japan’s natural investment rate is 15% and if Bank of Japan credit creation produces another 10% of debt-financed investment, and if the capital-output ratio is 2.5, then 25% of GDP investment will result in an economic growth rate of (25%/2.5) or 10% pa. It is pretty clear from these formulae that the functional relation not demonstrated by Shimomura is the addition of investment-funded BoJ-created bank credit to the underlying more normal savings-funded investment level of Japan. Kurihara then produces, for the first time, the central insight of his understanding of the Shimomura model in the immortal words:

“In the light of such financial arrangements in Japan as described by equations (1.1) – (1.5) it is not at all surprising that Shimomura should make a seemingly paradoxical reference to Japan’s ‘rate of (capital) accumulation remaining very high despite her rising consumption level.’ 1 If, therefore, greater investment can be financed partly by credits, there is no need for that ‘abstinence’ which the classical economists considered necessary for economic progress, any more than there is for that ‘austerity’ which some present day underdeveloped countries impose on already under-consuming populations at the constant peril of social unrest. Nor is it difficult, in such credit-creating circumstances, to agree with Keynes’ observation that investment and consumption should be regarded as complementary rather than competitive.” 2

1 Shimomura, op.cit.

2 Kurihara, Op. Cit, p61.

12 Conclusions

Shimomura acted like an economic Prometheus – he went into what Churchill called “The gigantic boiler” of the postwar United States economy, understood the process of high economic growth, and took these secrets back to the eternal and divine nation of Japan. Shimomura, like most Japanese, was a patriot – he only wanted an advantage for Japan, and he appears to have had no interest in convincing the economists of any other countries about his understandings. Shimomura wrote only for the Japanese, and only in Japanese.

The current non-availability of his writings in translation, over half a century after his most significant work and almost a quarter of a century after his death, testifies to the continuation of that policy by his Japanese successors.

And the two key references to Dr Osamu Shimomura in Shinzo Abe’s 19 April 2013 speech at the Japan National Press Club shows how highly Shimomura is still regarded in Japan.

Kenneth Kenkichi Kurihara was entirely different. He understood the implications of the Shimomura model in 1962, a year after Shimomura went public about his growth-accelerating system, and Kurihara wanted to convince the world about it. He wrote a seminal article in Kyklos, Vol XV, 1962, and expanded it in above-quoted Appendix to Chapter 5 of his 1963 book.

He then further repeated and expanded his observations in his 1971 book.

Kurihara did his best to deliver investment credit economics to the world.

Given the immense economic difficulties currently being experienced by Western economies, it is astonishing that even now Western academics fail to understand, and Western politicians fail to practice the highly effective investment credit economics that he taught. It is not as if they have no need of him and his lucid interpretations of the Shimomuran economic model and its no-debt investment credit creation, higher growth macro-economics, and the national wealth it produces.

Because if any nation wants the most prosperous future for all of its people, there really is no better way.

© George Tait Edwards 2013


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This post was written by George Tait Edwards

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