Another Keynes was Born and Lived and Died in Japan and The West Didn’t Notice

November 19, 2013 5:21 am Published by Leave your thoughts

Let me tell you a story:

Another Keynes was born in the Saga Prefecture in the north west part of the island of Kyushu, Japan, in 1910. He grew up to become a very bright student and went to Tokyo Imperial University from which he graduated with distinction with an economics degree in 1934.

He was recruited to work in the Bank of Japan after his graduation. He rose to become a policy advisor, perhaps the key policy advisor, in the Bank of Japan.

The primary objective of the Bank of Japan was redefined by the Japanese Government in 1942 as “The Promotion of Economic Growth.”

The Japanese navy attacked Pearl Harbour on December 7 1941. World War II then followed in the Pacific between Japan, the USA and all the American allies. The war in the Pacific lasted until the atomic bombs were dropped, first on on Hiroshima on August 6 1945 and then on Nagasaki on August 9 1945. The Japanese Emperor decreed the surrender of Japan on 14 August 1945 and Japan was subsequently occupied by foreign forces for the first time in its history.

The advisor to the Post-War Japanese Occupation Authority was Joseph Morrell Dodge, an American banker. He recommended to that Authority what you would expect a banker to recommend – a balanced budget. The Japanese, of course had to accept that recommendation, which was informally practiced from 1946 and legally required from 1949.

The Asian Keynes visited the USA during the immediate postwar period and studied how the Americans had out-produced the rest of the world. (The US economy of FDR doubled in size from 1938-44, growing at an average rate of 12.2% a year.) The Asian Keynes knew exactly what to do. He recommended that the Bank of Japan should adopt an expansionary monetary policy while obeying the USA requirement for a balanced- budget, restrictive fiscal policy.

The Asian Keynes had understood the writings of John Maynard Keynes (1883-1946) that “saving” could be created in advance of the project returns that justified it, and that while there are intrinsic reasons for the shortage of land, there was no intrinsic reason for the shortage of capital. The Bank of Japan created investment credit to rebuild Tokyo and re-equip Japanese industry. Tokyo rose like a phoenix from the ashes of American bombing, with Japanese industry also growing very rapidly out of the ruins of wartime destruction. And where Tokyo led, the rest of Japan followed, re-industrialising and developing at an astounding rate.

Some Western observers, visiting Japan in 1947 and 1948, and seeing the flourishing of Tokyo and its industries, concluded that the war damage must have been much less than previously estimated. They could see what was there but they could not see why or how.

Year after year, during the following decades the Japanese economy flourished, because investment credit creation produced new fixed plant and equipment in the factories, new permanent jobs for industrial workers, new products produced by up to date machinery. Taxes were paid to government by the workers producing and installing the plant and equipment, by the workers in new jobs, by the companies that employed them, by the sales taxes on products and services. The infrastructure of Japan was improved by the extra taxes arising from a growing economy. The Japanese Government had a surplus of income over expenditure from 1947 until 1964, when the savings in the Post Office Savings Bank were borrowed in 1965 for the first time by the Government to help finance road-building and other government infrastructure projects.

The Asian Keynes was not interested in telling the rest of the world about how high economic growth could be achieved. Japan was in a bind: it could not grow by conquering an Empire in Asia, that had not worked; it lacked key natural resources, and could never be self-sufficient in energy resources or in the raw materials essential to economic development; only by the most intensive cultivation could Japan produce enough rice to feed its people. In these circumstances it was of paramount importance that the Japanese economy had the objective of “Economic Growth First” and was able to buy from abroad the oil and raw materials it did not have at home.

The Asian Keynes was a patriot: he wanted to explain how the Japanese could grow rapidly only to the Japanese, so he wrote only in Japanese (eight major works between 1952 and 1987) for the Japanese. He became “Japan’s most influential economist” and the acknowledged “Father of the Japanese economic miracle.”

And the economists of the West paid the Asian Keynes almost no attention whatsoever. He visited the universities of Oxford and Cambridge in England, and various leading US universities, where there was apparently much polite laughter but no real exchange of views. The West had their own stream of Nobel-prize winning Western economists, none of whom knew anything about how to make an economy truly prosperous, and to do that in the matter of a few decades rather than the centuries some Western economies had taken to develop, but no matter: non-Japanese economists might not be of any real use in dealing with the key issue of accelerating economic development, but they were Western economists. In some circles, the view was that Asia had nothing to teach the West: what was happening in Japan was because the Japanese were “economic animals” according to the Economist magazine. To many Western economists the idea that the Japanese were using a superior understanding of economic growth was just not an acceptable idea to the smug and superior Western academic mindset.

After the Nixon-inspired Sino-Japanese rapprochement of 29 September 1972, the Chinese were fascinated by the economic understandings, the policy and the mechanisms which had produced rapid Japanese economic growth. Many Chinese delegations visited Tokyo with the objective of finding out how Japan had grown so rapidly and copying that procedure back home in Beijing. Some of these delegations met the Asian Keynes. How could they not meet him, given their objectives?

No Western government showed a similar initiative.

The Japanese Foreign Ministry were so impressed with the development of Chinese economic understanding and the introduction of higher growth procedures in China that on 31 August 1980 they released a press statement that said

“China will emerge as a tremendous economic and military power in the 21st century”.

As we now see.

The Asian Keynes died in 1989.

This is not a fictional story. The name of the Japanese Keynes was Dr Osamu Shimomura (1910-1989). His brief biography is the Development Bank of Japan Website, at . My slightly longer biography of Shimomura is at .

China is using Shimomuran economics to become the preponderant economic, military and political power in the world. It is high time that the investment credit procedures – which are bringing that situation about – were better understood in the Western economies.

Or else.

© George Tait Edwards 2013


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This post was written by George Tait Edwards

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