Controversy over the Policy for Economic Recovery in Interwar Japan

Abstract

The economic-recovery policies of Junnosuke Inoue (1869-1932) and Korekiyo Takahashi (1854-1936), two prominent Japanese finance ministers in the interwarperiod, stood in marked contrast to one another. Inoue's policy was a contrastive one, while that of Takahashi was expansionary. Their difference in this regard can be attributed to their differing perspectives on the depression of this period.
In spite of his swaying between contractionist and expansionist viewpoints for several years after the War, Inoue stuck to a classical position in his understanding of the depression. He lifted the embargo on gold exports and enforced a deflationary policy which ultimately failed.
Takahashi also left evidences of both contractive and expansionary policy until 1929, after which time he became anxious about the shortage of demand. In order to realize a recovery, his cabinet decided to reembargo gold exports and expand government spending by way of the deficit finance. Indeed, this policy bears a remarkable resemblance to the so-called Keynesian policy, but it would be stretching a point to call Takahashi “the Keynes of Japan.” In reality, he adopted an expansionary policy merely as an emergency measure and had no clear distinction in mind between the “New Economics” and traditional economic theorems.