ECONOMICBUSINESS&
gth

ANNUAL REPORT

s"vrE.eo

ge[ggel.,,es" s9e"rHE RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

1962

Copyright, l962, by The ResearchInstitute forand Business Administration, Kobe

University

Economics

i

KOBE
I
l

l
I

1

i

ECONOMIC & BUSINESS)iREVIEW

Ii

gth

ANNUAL REPORT//c'` ire'/s'

THE RESEARCH INSTITUTE FORECONOMICS AND BUSINESS ADMINISTRATIONKOBE UNIVERSITY

1962

CONTENTS
Page

Problems in Port Administration and
Finance in Japan ......................,...,,.........,.......Ginjiro SmBATA

Types of Early Modern Japanese Shipowners ...,........Seiji SAsAKr

1

1.r)

On the Employment System of Seamen
in JaPan .........................,...........,,...............Hiromasa YAMAMoTo

A Study on Japan's Invisible Trade .,.,.................Fukuo KAwATA

31

43

Problems of Industrial Location relating
to Regional Development in Japan ....,...,.........Minoru BErKA

6I

The System of Inside Contracting .......,................Tadakatsu INouE

69

A Critique on Professor Mahalanobis Modelof Economic Planning in India ........................Hikoji KATANo

National Income Concepts: Reconsidered ..................Nobuko NosE

79

8f)

'
Some Problems of the Installment Basis ............Susumu WATANABE

95

On the Purposes of a Going-Concern Valuationand its Natures ........................,......,....,....................Jiro ONo

105

Die Betrachtungsweise der neueren betriebswirtschaftlichen
Kostentheorie- Auffassung des Ertragsgesetzes - ...Tetsuo KoBAyAsHi

II7

PROBLEMS IN
PORT ADMINISTRATION AND FINANCE IN JAPANGinjiro SHIBATAI

Administrate forms of ports and harbors throughout the world vary
widely according to the countries or districts, and some ports are administer-ed under very complicated systems which can not be found in other publicorganizations or private corporations. World ports administered under systematically unified organizations in management, control and operation,
are very few. This is specially so in Japan, at the present state, whereprincipal ports have no single supervisory organization responsible for allparts of port administration.
Until the end of the War the principal ports were owned and governedby the National Government, and as a governmental agency the CustomHouse (Ministry of Treasury) had complete supervision over all ports.
Since the decline of the War (1943), the Regional Shipping Bureau (Ministryof Transportation) had generally administered each port in place of'theCustom House for over seven years, when the Custom-House executed its
r61e only as collector under the command ofthe Shipping Bureau. In 1950,
a Law of Ports and Harbor was enacted and a new administrator fixed otherthan the National Government, that is, a local government (prefectural or
municipal) or a port authority (public corporation). But in reality, the new

port-administrators have control over only a part of port administration;that is, the development of ports and the operation of facilities which belong

to themselves and are entrusted to operate by the National Government,
while other functions and activities are controlled by the agencies of the

National Government. This fact is shown in the Table 1.
The complicated condition of port administration in Japan can be
accounted for historically. Since the overall opening of ports at the beginning of the Meiji Era, port administration had been undertaken as a duty of
the Imperial Government, for the reason that a port of entry was considered

an institute for diplomacy and a source of national revenue. Thus, theCustom-House was the principal agency of the national government and thecollector was the head ofport administration; all other national organs and1

GINJIRO

2

Table 1.

Competent Authorities

Competent Agencies

Governments

Local Government
Port Authority

or

SHIBATAin the Principal

Business

Municipality, Prefecture

Development, management and control

or independent Cor-of ports except those under the domination of other organs.

poratlon

Regional Bureau of
Shipping

Ports in Japan

Ministry of Transpor-

Development, improvement and control

tatlonof port transportation, shipping, warehouse, etc.

Business regarding crew and pilots,
ship-buliding and ship overhauling.

Custom-House

Ministry of Treasury

Clearance and inspection of imports

and exports. Collection of Custom
duties and tonnage. Control over thesea-going ships.

Control OMce overEntance
Regional H.Q. of

Ministry of Transpor-

Maritime Safety

tatlonPort-master

Ministry of Transpor-

rvlinistry ofJusticeControl over entrance and landing of
foreigners.

Maintenance of peace and order ofmaritime traMc. Salvage and lifesavmg.
Pratcice of port regulations.

tatlonQuarantine Station

Practice of quarantine regulations for

The Ministry of Public
Welfareships, cargoes and people entering ports.

sS

ta.r e,tary police for fo.d.

The Ministry of Public
WelfareInspection of foodstuff to be imported
and exported.

Quarantine Station for
Animals

Ministry of Agriculture
and Forestry

ses, bones, hairs, etc.

Quarantine Station for

IX

PlantsFoodstuff OMcett

Quarantine on AnimaJs and their carcasQLuarantine on plants imported.
Control over the imported foodstuff.

Regional Bureau of

Ministry of International

International Tradeand Industry

Trade and Industry

Improvement and adjustment of exports.
Control over foreign exchange. Practiceof export insurance.

Regional Brueau of Radio

Ministry of Postal Services

Control over wireless communications.

Ministry of Transpor-

Control over land transportation faciliti-

tatlones.

Wave Control
Regional Bureau of Land
Transportation

Regional OMce of Land/!

Transportation

Control over highway traffic.

Regonal Managing

Japan National Railway

Control and service for port-railways.

Bureau of Railway
Bureau of Labor

Corporation
Ministry of Labor

Superintendence over labor conditions

Standards
Supervisory Station forof port laborers.

Labor Standards
Public Employment
Security OMce
Regional Labor
Relations Board

Port Police Station,
Head-QLuarter of the1/

Practice of the superintendence over thelabor conditions.

t/Service of employment for port laborers
and port works.

tx

Control over port labor relations.

The National H.Q. of

Exercise of poilce power in ports, except

Policeduties of the Regional H.Q. of Maritime

Municipality

Fire service in port areas.

Prefectural Police

Municipal Fire Station

Safety and of Custom House.

3
PROBLEMS IN PORT ADMINISTRATION ArN'D FINANCE IN JAPANagencies attended to their respective duties under the directions of the

Custom-House. Thus, port administration and services were executedwithout a hitch, but public opinion, especially the voice of the businesscircles, was hardly reflected in the port administration, and ships, shippers

and people who used or worked in the ports were under the domination of
bureaucratic control.

Notwithstanding these conditions, the minor facilities, sheds, warehouses, handling machines, tugboats, lighters, water tanks, welfare facilities

for port-laborers, and even piers in some ports were owned and controlled
by the local governments or private companies which took in the profits
from charges of all descriptions from the users of those facilities.

After the War, the General Headquarters of the Allied Powers generally
controlled and managed all Japanese ports during the time of occupation,and the authority of the Japanese National Government over the ports
ceased at that time. In 1950, G.H.Q. suggested that theJapanese Govemment establish a "Law of Port and Harbor" which had never before existed
inJapan as an independent law, and it was actually established and enforcedon May 31, 1950. The Law of Port and Harbor states that the administration of the port should be executed democratically to avoid a centralized
authoritarian rule and port administration should be reorganized under asingle body for each port independently. For these reasons, the Law
provided that the single administrate body should be a Iocal autonomous
entity (prefecture or municipality), or the port authority should be organized as a public corporation.

Before the Law was established, G.H.Q.. suggested to the Japanese
Government that national affairs should be released as far as possible to local

autonomous entities, and consequently, police power, educational authority
and other old national affairs which were deemed appropriate to be dealt
with locally were actually transfered to the local authorities. Ifthe transference ofnational affairs was practiced consistently in all fields, the complica-

cations in port administration might possibly have been checked within
limits. But soon after the withdrawal ofG,H.Q.., the National Government
began to restore centralized authority, police power being the first to berecaptured from municipal control, and then educational authority wascentralized to a great extent. In the same way, national governmental
agencies in the principal ports, which were moderate in action, strengthened
their administrative power so that it became equal to that of the legal administrators or in some cases even stronger than the Iatter. Besides, eachnational agency conducted its own business on an equal footing so that ships,

cargoes and passengers who enter or go out from the ports have to go

GINJIRO SHIBATA

4

through troublesome procedures at different offices. When any casecommon to all or several departments happens regarding port administration,
the oMcials concerned confer with each other and work out a solution of thecase.

The duties which a port administrator should carry out according
to the Law are the construction, maintenance, improvement and operationof port facilities which are owned by him or left to him to be managed by
the country, and the establishment and use of welfare facilities for mariners

and port•-laborers; but any activity which concurs with that of existing
private traders should not be undertaken by the port administrator.

II
The finances of the port are formed and programmed on such anadministrative basis as described above. The expenditures for port administration are, like those of other ordinary enterprises, classified into two large

groups: ordinary expenditures and extraordinary expenditures. The
former includes various expenses necessary to maintain and operate theport and port facilities normally, and personnel expenses; the latter consistsof the costs of construction, improvement and large repairs of the port andits facilities and expenditures ofother extraordinary works.

Ordinary expenditures are usually covered by the various cfues, port
charges and rents which the beneficiaries and users of port or port facilities
pay to the administrator. This is a general rulc provided in the Law of Portand Harbor. So far as ordinary expenditures are concerned, the port
charges and rents received by the administrators have barely covered
expenses. The question is that of extraordinary expenditures. Extraordinary expenditures would be out of question, though, if current revenues
could cover them in a lump sum or in installments. But in the case of
fairly large works it becomes necessary that the administrator demands a
special revenue.

The expenditure for such construction works carried out in theprincipal ports should be defrayed by both the State (National Treasury)
and the port administrator, on a fifty-fifty basis as a rule, in accordance with

the Law. But, when the works are done on a specially large scale, thisfifty-fifty rule is not neccssarily carried through. Ifthe port administrator's

desire for construction is rnore intensive, his share would be in excess offifty percent; conversely, when the national demand for new construction
or improvement is greater, the State bears more than fifty percent of theexpense. But the defrayment on the port administrator would make theburden too heavy for its finance in the case of a largc construction work,

5
PROBLEMS IN PORT ADMINISTRATION AND FINANCE IN JAPANregardless of the rate of share of the expense. The port administrator, insuch a case, would scarcely be able to settle the expense immediately,
but on a fairly long term basis it would be inevitable that it be paid in instal-lments, i.e. by issuing a public loan or by borrowing from the State. Even

to pay in installments, the annual payment would mount up to a good sum
which would still be hard on the finances of the port. The main port
facilities in Kobe, Yokohama, Nagoya, and all other principal ports inexistence have been established on such a principle of finance from their
inception. Therefore, the so•-called "national-owned ports" were mostly
established and maintained by the half apportionment of their total expenses

imposed on the local autonomous entities, i.e., properly saying, "joint-

owned ports".
Large construction works should not only be an important national
undertaking, but are certainly international works, and as a matter of course

the State should bear the costs. The citizens of a municipality where aport is located derive various advantages directly or indirectly from the port,

and they also should have a share in that defrayment. Besides, ships,
cargoes, and people who use the port or port facilities should pay the charges

and dues according to the benefits they receive, a part of which sheuld
be appropria[ed for the redemption of' the construction expenditure. Thatis, the expenditures of port construction works should be placed on threeparties: the State, local autonomous entities and direct beneficiaries ofport and port facilities.
That the State should bear the whole or partial costs of contruction or

improvement does not necessarily mean that the State can execute its authority actually in the administration or control of the ports, neglecting theproper port-administrators. The State, as its proper function, should be ina position to supervise the administration of ports merely on behalf of thewhole nation. All operations of the national governmental agencies inports, excluding the proper business of Custom Houses, would be released

to the port-administrators who have been determined by the Law of Portand Harbor, and thus a port administration would present a coherency
overall in itself, and most of the present complication in port administration

would be simplified to a great extent,III
An essential source of revenue in port administration are the dues,charges and rents paid by ships, cargoes and people who use the port andport-facilities. The nature of port dues and charges differ somewhat
according to ports, and their importance as port revenue also varies accord-

6

GINJIRO SHIBATA

ing to the kinds and ownership ofport facilities. For example: when warehouses or sheds owned by the administrator exist in great numbers, theircharges and storages will be the main revenue for that port; conversely,
when they are mostly owned by private firms, the administrator's revenue
wili be presented in the form ofland-rent, ifthe land is owned by the adminis-

trator. A harborage (or entrance dues) which is generally paid to theauthority by every ship calling at the port is not levied in Japanese ports,

while a tonnage tax is imposed by the State on every ship coming in; thatis, such a general port charge on ships is counted as a national revenue, but

not as a. port mcome.
Here, we will observe questions principally concerned with the Portof Kobe by way of example, because the Iatter is not only one of the mostimportant ports in Japan, but the system of administration and the economic
character can be viewed as model types ofJapanese ports.
The Port of Kobe had established modern port facilities in 1907 when
the first port construction work began on four piers. The second construction work for two piers were completed during 1919-1941, and after the War
when, first of all, the war damage rehabilitation works were finished the7th. pier was constructed and at present the 8th. pier and the Maya piers(including reclamation of the sea fronting the shore) were planned and areunder construction.
The cost of constructions for the pre-war period amounted to \73,043,143, of which \46,339,971 was charged to the National Treasury and\26,703,172 was the burden placed on the City of Kobe; that is, 630/.
to the State and 370/, to the City.
After the War and before the City became port administrator, theport construction expenses amounted to \152,427,162, of which the National
Treasury paid \145,535,819 (950/,) and the City \6,891,343 (50/.).
Because these works were planned and started in accordance with the orderof G.H.Q., the entire sum of the expenses should have been borne by theState alone. Furthermore, the principal ports were administered by theState as described above, and the expendiures for port construction shouldhave been charged to the National Treasury essentially with the local burden

only an auxiliary. So it was considered ipso facto that the main portfacilities were owned and administered by the State. In spite of this fact,
the State deputed the management of state-owned facilities to the City ofKobe, and the City received the port charges from beneficiaries of the
facilities and appropriated them as a part of the managing expenses, disbursing a Iarger part of the expenses from the general account of the municipal
treasury. That is, the City had a harbor division, whose gencral expenses was

PROBLEMS IN PORT ADMINISTRATION AND FINANCE IN JAPAN 7
supported by the annual budget for the management of the Port of Kobe.
The annual budget of the Port of Kobe at that time is shown in Table 2.
Table 2. Revenues and Expenditures of the Port of Kobe, 1949

Unit: Ye.n
Expenditures

Revenues
1. Dues and charges ........
2. Defrayment out of the. . 45,807,105

1, Administration............ 1,585,601

National Treasury .....

. 37,515,541

for construction works
for dividend..........
3. Defrayment out of the37,214,600

2. 0peration................ 3,413,336
3. Maintenance.............. 4,360,927

Prefecture.............

. 300,OOO

4. Contribution.............
5. Miscellaneous revenues ...

Total...............
Excess of Expenditures .
(disbursed from themunicipal treasury)

Totai ..................I

3eO,941. 1,OOO,OOO. 5,997,117. 90,619,753. 47,808,244. 138,427,997

4. Welfare Services .......... i,868,782

5. Water Supply Works ...... 6,034,728
6. Reclamation Works. . . . . . . . '18,794,369.

7. General Services .......... 4,325,400
8. Equipment of Facilities .... 11,275,031
9. Building. Construction...... 2,791,917

10. Improvement and Repair of
the Port and Dock...... 81,022,906
11. Lighters.................. 3,OOO,OOO
Total ....................138,427,997

Table 2 shows that the nature of the port administration of Kobe Cityin 1949 was not essentially different from the present status as administrator of the Port of Kobe as legally settled by the Law of Port and Harbor,

1950. 0ne noted change is that the City has strengthened its voice in theadministration of the port since then.
As stated above, port facilities are classified into three parts; thoseestablished by the State, by the City, and by bothjointly. The City (portadministrator) receives dues and charges from the users of the facilities,

except those which are used by the State and administrator themselves.
The port administrator appropriates these revenues to the principal ways
and means for the ordinary management ofthe port. The uses ofthe dues
and charges in the ways and means of the Port of Kobe are shown in
Tables 3 and 4.
Tables 3 and 4 show that about half of the annual expenditures of
the Port of Kobe was covered by the dues and charges; however, regarding
national properties the administrator transfers a part of them to the National
Treasury at a settled rate, of which the largest item is land rent.

The port facilities are ordinarily used by ships, cargoes and warehouses,

and some of them are used free of charge. The relations between the users
and port facilities are presented in Table 5.

There are port facilities for which no charges exist not only becauseof tradition but for the reason that they are neccssary appendages of the

GINJIROSHIBATA

8

Table 3. Items

of Operating

Revenues of the Port(in \1,ooo)of Kobe,----------------

l--------------------

Wharfage and Quayage ..........•••--•.
Buoyage ...............................

---------t------

Unloading place dues (for domestic trade)
Charges for sheds ..................•..••
Charges for handling machines...........
Charges for open storages .......,.......
Charges for exclusive use of water area...
Other miscellaneous dues and charges.....
Land rent .............................

Towage ...............................

----------------t------------------------------------------l--------------------------------------------i----------------------------------- ny ---------------------------------l---- ny ----------------------------------------------I--------------------------•-----l-t--

Water charges for ships .................
Dues at welfare facilities.................

1959

Total

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

'

.

.

l2,858
6,927
4,860

'

.

104,i129,114
9,889
l56,025
6,571

'

.

.

.

.

.

.

.

.

.

100,260
19,46568,885
9,267

508,233

Table 4.

Settledaccounts for thePort of Kobe,

1959(in \1,ooo)
Expenditures
General Administration

728,O16

746,991

Welfare facilities

19,997

Sheds and handing machines

256,984

Tugboat business

89,10046,669210,333
120,289
77,753

Water supply works

69,572

Total

1,20I,535

1,163,669;

Note:

The deficit was met withthe outlay from the general account of thetreasurv.

Data:

I

Report of General Bureau

of Port and Harbor, the Kobe City.
Table 5.

Users
Ships

Cargoes

WarehousesPortfacilities

Charges

Breakwater

Free

FairwayFree

Wharf or pierChargeable

Buoy

Chargeable

Unloading place

Chargeable

Apron of shed

Free

Road

Free

Railroad

Chargeable

Shed

Chargeable

Handling Apparatus

Chargeable

Land

Chargeable

Excessor
Deficit(Ats)

A 18,975
A 26,172
46,651

A 31,189
A 8,181
A 37,866
municipal

Table 6.

Financial

Conditions of the

195
General Expenditures

Welfare

Ports

Rev.

l Exp.

Rev.

i

Ports inJapan

9

Unit: in \Sheds, Handlingmachines

i Bal.

1[ Ba],

Exp.

Facilities

Principal

Rev.

Exp.

Tugboats
Rev.

Bal.

1,OOO.

Water Supplies

Exp.

Exp.

Rev.

Bal.

+

Total
Bal.

Rev.

Exp.

Bal.

1

Muroran

118,779

125,803

A7,024

Hakodate

90,798

115,980

A25,182,iNomori

95,777

95,777oKawasakiJro7,183

476,561

Yokosuka

41,26655,216

A13,950

Osaka

279.,935

181,391

98,544

Kobe

67i175

713,705

Kure

37,65160,321

1,076,830

1,165,204

Yokohama
Notice:Mark

i11,7{s

1156,

280

For Yokosuka, figures do not include
deficitin balance.
A stands for a

12,220

10,318

1,902

5,740

9,405

A3,665

20,97920,959

20

-

-

1,633

4,570

8,450

l

30622)

A38,530
A22,670
A88,374

A642
L948 A668

-

-

o

69-1

-

A691

22,828

-

-

3,021

30,076personnel expenses.

A137

-

H

-

l37,700

143,601

8,O09

9,892

l,883

104,827

136,225

A3,880

-

-

-

1,437

1,68S

248

m

th

-

H

-

-

-

342,216

60,463-75,56662,e55

13,511

A28,968

261,796

210,349

50,9.47

111,043

120,509

A9,466-

13,962

11,380245,714203,446

expenditures

51796,

240555;

5,682

281,753-

Include ingeneral

242,188

5,545

A27,055

For Kawasaki and Osaka, figureg inTable 7. General

A418
42,268-ny.

21,55918,792

2,767

parentheses show the reclamation

Ex, pendituresof the.

19

5 9

Principal-

2,092,901(1,337,523)

2,OOO,829

20
92,072(1,272,887)(6ti,636)

41,26655,216894,654

A 13,950(257,400)

877,942(292,280)

1,162,624

1,i75,065-

Include' ingeneral expenditures
91,782

78,206-H-

1l6,736

116,756

13,576ij-

51613'

74,701

1,347,124

1,417,51-8

expenditures.

Ports inJapan
Unit: in \ 1,OOO.

'

Ports

REVENUES
State
Subsidies

Dues&

Charges

AllotedMiscella-

EXPENDITURES

Balance

Chargesneous

Municipal
Loans-

26,653

58,OOO

118,779

7.816

404

4,615

83,11429,854l25,803

A7,024-90,79817,057

5,603

2,995

83,246

7,079

115,980

A25,182

95,777

5,543

2,O14

66,853

19,27095,777o

8,319

19,603l81i4,1,

507,183

29,731

9,843

269,865--

476,561

30,622

1,492

12.000'41,266

295

2,395

8,520

44,O0655,216

A18,950

279,935

126,618

43,426

9,968

1.379

181,391

98,544675,175

87,31059,199l8,981

480,287

67,298713,705

37,651

7,962

3,520

4,272

39,9984,569

60,321

1,076,830

120,O04

89,381217,951

692,73945.1291,165,204

A38,530
A22,670
A88,374

Muroran

23,805

10,321

Hakodate

95

16,447

Aomori

8,769

5,925

Kawasaki

32,10328,148

Yokosuka

20,680

7,094

Osaka

-

118,588

12,643Kobe--

S3,821

250,756

4,436

138,062

248,100

Kure

16,842

5,443

235

2,247

12,884

Yokohama

83,155

120,329

12,597

97,039491,636

Note: Tables 6 and 7 were compiled by the

2,256
196

Port-Clities

othersinaddition

80,887(Publicloans&thelocalallocationtax)
237,959(Generalmunicipalexpenditures)
148,704(Propertyrevenues)

97,039(Prefectural

Conference attached to the

,

Total

NTational Associationof Mayors.

Personnel

Supplies

Maintenance2.097'

Construction

Improvement

167122)

Loan

Flotation

M

A 5,901
A 31,398

Total

16,712(A34,880)

A 12,tl41
A 23,088
A 70,394

9
PROBLEMS IN PORT ADMINISTRATION AND FINANCE IN JAPAN

principal facilities just as corridors or lobbies in a hotel. The rates of dues

and charges are made open to the public.
In the case of the Port of Kobe, the largest item of revenues comesfrom the charges for sheds. A shed, built on the public pier, is originally
opened to the public for putting up cargoes temporarily from the beginningof customs formalities to the time ofloading or forwarding or warehousing.
But actually, for traders who usually handle cargoes in large quantities theadministrator may permit them to use a part of the shed exclusively, provided

that subletting is not done because of impairing the function of public

utilities. 'Wharfage which is imposed on the ships or cargoes which are mooredor unloaded at the pier or wharf, is also a great item of revenue and it is

the most common item ofport charges throughout the world. The third itemof large revenue is the rent for land owned by the state or port administrator, above which private buildings or other equipments have been built.
Other port charges, excepting those which are paid to private firms, areinserted in port revenues and appropriated to current expenditures of port
administration.
Besides the above charges, those who use welfare facilities for seamen
and port laborers pay a certain fee for their benefits, but this charge is asmall part of the cost of maintenance and is imposed for the purpose of
equity to the beneficiaries rather than as a revenue source,
The ordinary accounts of administration of the principal ports in Japanare shown in Tables 6 and 7.
A touchy question in the port finance ofJapan is that of the extraordinary expenditures or capital expenditures. No port in Japan can pay the
extraordinary expenditures for port construction or improvement from its
current revenues only. Especially, for the construction of breakwaters,
piers, sheds, roads, bridges, etc. special measures in finance have to betaken.

IV
The construction ofa port and harbor demands huge expenditures andall port administrators find it a matter of vital importance to raise suchfunds.

The Port of Kobe, with the development of foreign trade after the War,has completed the construction of the 6th, 7th, and 8th piers, and further,
forecasting that larger types of vessels would be calling in general and thatthe unloading of cargoes also would increase in abundance, is planningto newly build four large piers of 18 berths at the east side of the present

10

GINJIRO SHIBATA

port (Maya district), with suMcient facilities of the newest type. The
total sum of these expenditures for two piers (settled works) amounts to\12,066,OOO,OOO, of which \4,752,OOO,OOO (39.40/.) is a state liability and\7,314,OOO,OOO (60.60/.) must be borne by the administrator (City of Kobe).

The administrator must pay in cash about \1,OOO,OOO,OOO to the Stateand the remainder has to be covered by public loans. (Unredeemablefor three years, thenceforth redeemable in twenty years with interest of 70/,p.a.) The amount of the loan redeemed annually will be \744,OOO,OOO,
which is just about 600/. of the sum of the total revenues of the Port of Kobe

and 1400/, of the total dues and charges earned by the administrator in
one year. This means that the redemption can not covered by the ordinary
revenues of the port. Nevertheless, this scheme has been put into practiceand construction is now under way.
Under such financial conditions, the administrator must rely on thegeneral finance of the municipality or entreat the State to extend the termof redemption to 40 years or raise the rate of port charges exorbitantly.
The City desires to have the terms of redemption extended and also to raisethe dues and charges to a certain degree, so that the general finances of themunicipality will not be burdened by the entire expenditures of this construc-tion work. This desire of the City connects concretely to the idca of theself-support of port administration. The expenditures for the port accountfor a fair percent (about 170/,, including those ofthe reclamation ofthe front

shoreline) of all public expenditures of the City (excluding those of self-

supporting municipal works); and Iike self-supporting works (surface
transportations and waterworks) of the municipality, the port itself earns agood revenue from terminal services. Therefore, ifthe port would endeavor
to accomplish its self-support, it would not be impossible of attainment.
It is possible that almost all traders would be opposed to the raising of

the rate of port charges. Generally, the rates of port charges should bedetermined between two margins; the upper margin being the payablebasis of the traders and the Iower margin the covering limit of the operating expenses of port facilities.
The highest limit of the rates should take into consideration the costbearing capacity of export or import prices of commodities, Actually, port
charges are included in the selling cost of commodites, but we do not consider

that port charges are so predominant that they influence the prices ofcommodities or the freight of shipping.
Table 8 shows the monthly average prices per ton of classified cagoes
which were entered in the declaration for the warehouse companies in the
Port of Kobe in 1959, and Table 9 presents the rates of port charges forTable 8. Monthlv

Average Prices per Ton ofv
Cargoes entered in the Warehouses,

Classified

v
pa
o
w
v
m
K

PORT OF KOBE

1959

Unit:Yen

Jan.

Feb.

Mar.

Apr.

May.

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Ave.

Cereals

31,94837,98335,12643,47736,022

34,88532,14832,20tl

32,86642,251

39,57533,87936,030

Others54,17354,82356,53452,93940,76360,34062,63758,46559,52750,782

41,72950,99953,643

ArticlesClassified

Foodstuffs

Manu-

171,918 177,166 166,344 162,505 160,310 159,074 158,421

Raw

71,091

65,947

68,99078,627

67,845

88,11996,56784,42390,51689,18678,60074,35079,52249,02844,664

59,83654,88452,70952,36948,53657,05650,86053,80552,20954,09952,50531,89736,933

28,844

24,17025,032

23,07722,39420,89524,746

26,64330,15027,76026,878Raw

65,26070,466

I7,54832,17647,887

68,591

102,332

96,29262,21896,352

99,438116i445

72,917Manu-

95,374 146,583 245,835 272,281-

factured

TextilesMaterials

Papers&Pulps
Fertilizers

Materials

MetalsfacturedChemicalManufactures

142,956 105,647

89,04597,630GeneralCargoes

123,761

135,813 136,144 111,106

Averages

83,74187,60290,42592,979163,808 165,O02 175,636 l68,653

156,754 119,437 210,083 21I,987

109.,824

99,OOI

133,941

184,704 184,415

135,738 128,577 124,925 l13,371

173,306 166,845

159.365'

180,620

128,389 117,420

114,068 123,918 118,847

1!9,230

100,744 108,O09 127,873

90,341

117,488

86,613

97,81992,70490,89390,38772,718

Note: Calculated from the Statistics for Private Warehouses

89,526compiled by the

95,229

Kobe Shipping Bureau,

93,601ts(inistry ofTranspor-

ep

N
Z
rd
o
T
'"i

>
v
K
E
a
H
pa

>
H
o
z
>
Z
v
El

i
g
E

3
iiS

tatlon.

Figure of July for Metal Manufactures is excluded
because any specially high priced manufactured goods

as an exceptlon;

lts average prlce waswere stored fora tlme.

\ 626,278,

probably

E:

GINJIROSHIBATA

12

cargoes and vessels in effect at the Port of Kobe the same year. From thesefigures we know that the average unit-price of all cargoes warehoused in
1959 was \90,387 and the port charges per ton for the cargoes were averaged
at \1,650; that is, the percentage of the port charges for cargoes to theunit-price of cargoes was about 1.80/.. Seeing this in classification, for
fertilizer (ave. price \26,878) the percentage was 6.1 O/. and for metal manu-

factured goods (ave. price \180,620) was O.90/.. Thus, port charges do notplace too much a strain on the price of cargoes, especially on the cargoes ofTable 9. Port-Charges for Forwarding General

Cargo in the Port of Kobe

(Rate per ton)Rateof Charges

Descriptions

orFees

ForCargo

Yen

Carryinginshed'storing)
Shedstorage(assume10days

Tallyandweigh
Deliveryfromshed(witha dditional

140

Yen
-28--------

220
55
charge)182

Handlingatalongside

105

Useofwharfarea

530

Handlingfeeforforwarding

fwhichAdministrator'sReceipts

250

cargo

Stevedoring

168

XForeman,watchman,etc.

afew

XCustom-br-okerage(in comprehension)
Total....

----i--(eachtime-t-------

1,5oo)

1,650

28

ForVessel
Pilotage--1518.-g.ecuringoflines

Wharfage

TughireTonnagetax
Specialtonnagedues
Total....

GrandTotal..............
Note :

Å~--------------------------------

85
l,735

Gross tonnage (Average)..........7,OOO tons
Net tonnage (Average) ..........4,550 ,tLoading cargoes (Average) ......1,800 ,iMooring (Average) ..............2.5days
Hire one tug-boat at the time of arrival and clearance.

61(3•59/o)(looo/,)

Compiled by the General Bureau of the Port of Kobe.
Excluded from total,
Rates of charges for vessel are computed with the tbl]owing

33.
assumptlon;

PROBLEMS IN PORT ADMINISTRATION AND FINANCE IN JAPAN13
higher priced goods. Besides, port charges for vessels are rather lower thanthose for cargoes. The shipping freight rates to San Francisco for textiles are\12,870 per ton, for general cargoes \17,280 and for iron and steel \5,400;
and their port charges for vessels, converted to cargo-tonnqge, are computedat the ratios ofO.60/., O,50/. and 1.50/. respectively. These port charges aremostly the income of port traders and those of the administrator are only asmall part. Therefore, a steep raise ofport charges which are collected by
the administrator will not greatly influence the business concerning cargoes
and ships.

v
Now, we will consider the resolution on the establishment of autonomous
port authorities, by the Permanent Technical Committee on Ports, attachedto the Inter-American Economic & Social Council of Organization ofAmerican States, at the Second Meeting held in Montevideo, June 22-27,
1959. The purport concerning only the present theme is excerpted asfollows.

1. The mission of the port authority should be to serve with efficiency andeconomy the users ofthe terminal, that is the consignees, shippers, passengers,

and the vessels which use the port.
2. It would operate and eMciently maintain all equipment, installation andservices belonging to the Port Authority.

3. The Port Authority would be self-supporting.
4. The Port Authority would make its tariffs and other charges to enable
it, operating eMciently, to be self-supporting.
To try to apply this purport immediately to Japan several difficulties
would be encountered. That is, (1) as already stated, the idea that a portis•primarily a national-governmental establishment is deeply rooted in
the oMcials' minds and they do not think of a port as a facility of national

economy, but as an object of national administration. This fact hinders
the actualization of port authority in Japan; (2) to raise the rates of port
charges so as to be self-supporting would be severely opposed by the users of

the port and also by some departments of the National Government which
control the charges of public utilities; and (3) even if the port administrator

aspired to operate any gainfu1 business in the port (e.g. cargo-handlings)
so as to be self-supporting, such a business is prohibited by the Law as being

a competitive action against private enterprises.
In spite of these unfavorable conditions, the ideal for self-supportshould be actualized sometime or other from the administrative and economic natures of a port of entry. The expenditures of port administration

14

GINJIRO SHIBATA

have depended upon the general finance of the municipalities hitherto in
general, but making a close inspection of all the items shown in Tables
6 and 7, we believe all ports may have a fair margin for improvement intheir finances if they exert all possible effort to attain a self•-supporting
condition.

JAPANESESHIPOWNERSTYPES OF EARLY
MODERN
Seiji SAsAKI

I
Modern Japanese shipping industry, as a whole, consisted of many
independent shipowners, either in the form of firms or as private concerns,
and each individual shipowner had his own distinctive history, character,organization and definite turning-point in its modern development. Suchindividuality of each, or at least of the main shipowners' modernization,
should, ofcourse, be clearly recognized in the study ofJapanese shipping history, as the author has described so often in other articles. In fact, it may
safely be said that the author has in mind as investigation of such special
traits even in this article.

However, it is possible to classify these numerous individual modern
Japanese shipowners into some inclusive groups. The special Japanesecontrapositions, "Shasen" and "Shagaisen", and the old group names,"Kitamae-sen", "Taru-kaisen", "Higaki-kaisen", etc. were the mostpopular examples and foreshadowed the possibility of such a classification.
All of them had their distinctive characteristics and played their important
respective parts inJapanese shipping history as a group as well as individually. In this article the classification method and main types of early modern

Japanese shipowners will be explained,

What are the types or groups of modern shipowners? This problem
will be taken up first, for its meaning or concept is not only unfamiliar to theaverage person, especially Japanese, but is sometimes even indefinite andquestionable. It is unaccountable in a sense that we can hardly find any
difinite theory or theoretical works referring to this subject in our country,

although there were some historical classifications and group-names forJapanese shipowners which were frequently used either in daily business orin publications. Besides the above-mentioned terminologies, there aremany other terms like shipbuilder-shipowner and merchant-shipowner,
which would indicate that there were shipowners'originating from shipbuilders and shipowners originating from merchants. Each is surely one of
the shipowners' groups which can be severally treated as a party and shouldhave its own speciality. "Liner" and "Tramp", the most popular inter-

15

16

SEIJI SASAKI

national maritime terms, are frequently quoted too. Nevertheless, theclassification and its concept are very strange to the Japariese public. For

this curious gap between actuality and theory we must begin our study byattempting to introduce some classification methods of so-called modern
shipowners in advanced nations.
Fortunately there are numerous excellent articles on this subject in
Britain which is the mother-land of the world's modern shipping industry.
Now let us select conventionally, but containing a firm belief, the interest-ing description of Mr. C. E. Fayle. The author of the most interesting
book, "A Short History of the World's Shipping Industry," has treated ir
in Chapter 10.

The chapter which is titled "Liners and Tramps" and is devoted to an
explanation of the evolution of modern shipping industry as seen in its
subtitle begins with the following sentence.(i)" The culmination of the sailing vessel in the Clipper Ship, the rise of

steam, and the great expansion of the world's maritime commerce whichaccompanied these developments, partly as cause and partly as effect,
were accompanied also by very important changes in the methods by which
the ships were owned and operated. Indeed, one of the most significant ofthese changes, the replacement of the "constant trader" of the eighteenth
century by regular liner services, had already made substantial headway
before the competition ofsteam had become generally effective in the world's
carrying trade."

And we can easily recognize the main types of early modern English
shipowners which are explained very briefly but distinctly. Based on
his description, the author ofthis article wishes to point out the chief modern

shipowner types during the middle years of the nineteenth century as
follows.

(A) Owner types of modern sailing vessels
Although it is fairly questionable whether Japanese sailing vessels,

both of native Japanese style and of imported European style, could beequivalent to modern ships in the rigid meaning, the British large oceangoing sailing vessels in the last great days of sailing, at least since the middle

ofthe 19th century, have been definitely included in the category of modern
ships by Mr. Fayle. And the main British owners ofthose vessels, either inthe form of big clipperlineets as lincrs-regular traders-or in the form oflittle humbler sisters which knocked about the Seven Seas unhonoured and(1) cf. C.E.Fayle; A Short History ofthe World's Shipping Industry p.253.

17
TYPES OF EARLY MODERN JAPANESE SHIPOWNERS

unrecorded, but doing a large proportion of the world's carrying trade as
tramps, can be classified into five types:(D group of traditional shipowners@ group of merchant-shipownersa) import tradersb) export traders@ group of shipowners originating from brokers@ group of shipowners originating from shipbuilders@ group of shipowners originating from seamen (especially,
retired shipmasters)(B) Owner types of early steamers (mainly liners)
The majority of the early British steamers belonged to a fleet employed
in regular Iiner services, and these vessels were almost all owned by thefollowing two organizations.
@ very wealthy capitalistic firms, @joint-stock companies incorporated under Royal Charter
Each of them were naturally able to form an obvious and important type
among British modern shipowners severally.

(C) Chiefmembersoftheso-calledsixty-fourthsystem-typesoftrarnpowners
By various laws dating back to 1823, the interest in every British ship was
divided into sixty-four parts. While this system applied to steamers as wellas to sailing vessels, specially in the early days of steam cargo-boats most

tramps were owned by small syndicates formed on the sixty-fourth system
unless they were owned by individuals or private firms. Indeed, there arestill a few questions in deciding whether this system was one type of modern

British shipowner as a whole, or was divisible into some smaller groups.
However, Mr. Fayle has pointed out specially its chief members and has emphasized their importance or role. Each ofthem had certainly a direct andfamiliar relation with the actual aspects of the shipping business. They
were as follows:(D shipbuilder@ shipbroker@ merchant with occasional shipments to send abroad@ dealer in marine stores(S) provisioning contractor

18

SEIJI SASAKIII

From the above-mentioned quotation or summarization we can easily
recognize the fact that the types of British modern shipowners were originally divided on the basis oftheir historical growing process and the character of
their organization. In other words, the historical origin, the past or principal profession and the actual formation condition ofthese modern shipowners
were most essential in such a classification. And it will have an universal
validity for worldwide shipping circles. So far as it is, we may introduce
these types intoJapanese shipping circles. In fact, we have to recognize its
theoretical adequateness and also can point out the real existence of somesimilar types in our country.

The types of modern shipowners which were able to be classified andaccepted in Britain, however, would be only "made in Britain", as ifthey hada certain theoretical importance and general leadership or universality.
There were so many differences in the actual modernization process between
British shipping andJapanese shipping that would make an easy applicationof the same thought impossible. Some British types will be repulsed whilesome will be accepted.
A few types of the above-mentioned British shipowners will certainly befound in Japan. The Kaiso Kaisha that was the first steamship company
in our country, the Kaiso-toriatsukai-sho and the Nippon-koku YubinJokisen Kaisha both of which were succeeding enterprises of the Kaiso
Kaisha bear a close resemblance to the British type, "joint-stock companies

incorporated under Royal Charter". The Mitsubishi Kaisha which took
the place of the above enterprises as the first successfu1 steamship company

in Japan, the Kyodo-Unyu Kaisha, established in 1882 as the competitive
company against the Mitsubishi, and the Nippon Yusen Kaisha which was
the most famous and greatest enterprise and was established in 1885 formallyin the way of a combination but actually as the successor of the Mitsubishi

after the legendary competition of the former two companies, also belong
to the same type. For, these earliest Japanese steamship companies were
just so-called protected enterprises which were founded under government
decrees, at least under the strongest and most direct "Upper-protection" andwere given their possibility for development only by such aid. Moreover,they adopted the steamer from the beginning and employed it in regular liner
services. Lastly they gave a great impetus to the growth of other steam-ship-owners. Such effects were almost the same in both countries.
The next three types were also found even more clearly in our country.
group of traditional shipowners

19
TYPES OF EARLY MODERN JAPANESE SHIPOWNERS

group of merchant-shipowners
group of shipowners originating from shipbuilders
While the continuous deveiopment ofJapanese shipping was very muchinterrupted by the national isolation policy during the Tokugawa Era, there
were many coast sailing vessels ("Yamato-bune", or, "Yamato-gata Hansen"that is, Japanese style sailing vessels) and consequently there were manyshipowners during that period. At the time the most famous or typicalvessels were the "Higaki-kaisen",' later called sometimes "Kyuten-bune", the"Taru-kaisen" - both navigated regularly from Kamigata (Osaka andKobe) to Edo (Tokyo) - and the "Kitamae-sen" which engaged in active
voyages between Hokkaido and Osaka via Bakan (Shimonoseki). The
greater part of these traditional owners of historical sailing vessels continued

to exist in the early years of the Meiji Era, in which a few privileged steam-ship companies were beginning to grow under the special encouraging policy.
They not only wielded much power in those days, but played an importantrole in the development oftheJapanese shipping industry as a whole throughtheir own modernization which must be studied from the following two
viewpoints as the author has frequently said;@ The first and visible one was the modernization of ships. This wasitself started off by the employment of the newer and better European stylesailing vessels about after the 10th year of Melji - more exactly, after theSouth-western Rebellion- and was accomplished by the introduction of thenewest and best ships, steamers, since about the 20th year (1887).
@ The secondary and inner one was the transition of business types.

Along or with the development of the ship, the shipowners wished to
become common (public) carriers.
Without hesitation we can regard the above-mentioned three shipownergroups to be representative ofJapanese "traditional shipowners."
The existence of the merchant-shipowner type can also be confirmed
in our country, and its role and position was very important. The most typica] example was the famous Mitsui Bussan Kaisha, sometimes called by thenames Mitsui Senpaku-bu or Mitsui Bussan Senpaku-bu. It had begun
to opcrate a real shipping business about 1878-9, and had grown to be one of
the greatest shipping firms next to the so-called "Shasen" which consisted

mainly of the Nippon Yusen Kaisha and the Osaka Shosen Kaisha. By theway, today's Mitsui Steamship Company was the successor of the shipping
business in' this firm. Another example was the Mitsubishi Shoji Kaisha
which has developed into today's Mitsubishi Shipping Company.
When Japanese modern shipping industry, especially the so-called
Shagaisen group really developed on an epockmaking scale from the closing

SEIJI SASAKI

20

years of Meiji to the early years of Taisho-strictly speaking, that term isbeyond the present scope of our study-, many new shipowners who be]onged

to this type came into view. These newer merchant-shipowners owned
steamers in the position of foreign traders as a rule. They were not only

too numerous to be mentioned but played an important part in theprosperity of Japanese shipping as a whole. In so far they were different
from the older shipowners, who had been domestic traders, as well as fromthe British or European merchant-shipow4ers. Another not to be neglected
speciality of these newer Japanese shipowners was the fact that it was aperiod of historical reversal; for, they appeared just after the modern
separation between shipping business and commerce, in other words, after
the settlement of a common carriage system.
Last, there was one more peculiar characteristic to be remembered.

If the concept of this merchant-shipowner is taken in a wide or mostpopular serrse, the majority of Japanese "traditional shipowners" should
also belong. Especially, the Kitamae-sen group and the Setonaikai (theInland Sea of Seto) or Kyushu shipowners' group which had mainly engaged

in transporting Kyushu-rice to the Hanshin area (Osaka and Kobe) wereclearly merchant-shipowners, even if their activities were limited within
the countrv.

v

The two greatest representatives of the third shipowner type originatingfrom shipbuilders in this country were Kikusaburo Oaki and Shozo Kawasaki.

The former engaged in the old Shinagawa Shipbuilding Factory as a worker(shipcarpenter) and established his own shipbuilding factory in Tokyo.
The latter was the founder of the famous Kawasaki Shipbuilding Yard which

has developed today into the Kawasaki Dockyard Company L.T.D. Oaki
was one of the most celebrated shipowners in the Meiji Era and the earliest

leader among the Shagaisen group, even though his shipping business has
been discontinued. On the other hand, Kawasaki's shipping business has
been taken over by the Kawasaki Steamship Company which is one of thegreatest shipping enterprises in Japan today.

Through the above consideration we can understand that some
British types of modern shipowners might be adaptable to our country.
However, our investigation must not come to an end here.
III
We must pay great attention to the fact that the rest of the above
three or four types, peculiarly some very important shipowner types which

Mr. Fayle emphasized for their great role or situation, can hardly berecognized in Japanese shipping circles during the entire Meiji Era, atleast in its middle ages.

TYPES OF EARLY MODERN JAPANESE SHIPOWNERS 21
At the outset we shall state a few commonplaces:(1) The concept of "very wealthy capitalistlc firms" would be difficult
to adapt for classifying the then Japanese shipowners, because capitalism
itself had not yet developed in this country.
(2) Before the pre-Restoration days the Japanese people were hardly
aware of modern economic, political or cultural organizations or their rules,

so naturally such British shipowner types as a limited company or small
syndicate formed on the sixty-fourth system were not adequate for the
early modern Japanese shipping circles. Although a few Japanese shipowners had been established on the so-called company system with a special
protective policy, they were widely different from the British organizationof the sixty-fourth. We also can not recognize such a cooperative ownershipas "a shipbuilder, a shipbroker, a merchant with occasional shipments to sendabroad, a dealer in marine stores, and a provisioning contractor might agree
together to build and operate a vessel for theirjoint benefit"(2) as in Britain.

(3) We can not overlook the following fact either, that the two members
inside the above-mentioned sixty-fourth system, "a dealer in marine stores"
and "a provisioning contractor" had hardly any importance in our country,
for these merchants had not yet appeared independently in those days.

Now we shall proceed to the main subject.
It is somewhat questionable whether a dealer in marine stores and aprovisioning contractor could become an independent modern shipownerindividually. Mr. Fayle also has not always emphasized their special
situation and role in the development process of British shipping. He andother students, however, have stated distinctly the existence of the following

two modern shipowner types and stressed their historical importance;group of shipowners originating from brokers
group of shipowners originating from seamen
Then, shall we be ab!e to discover these shipowner types in Japan?
It should be surely worthy of note, in so far as both were very well-known

and important types.

On group of shipowners originating from brokers"In the Australian trade, where the flow ofemigration had been quickened by the gold rush of 1851", Mr, Fayle says "the development of the true
liner service reached the farthest point it ever attained under sail," andhe has pointed out very liquidly the greatest part of the group of shipowners
originating from brokers as follows;(3>(2) cÅí Fayle p.260.
(3) cÅí Fayle p.255.

SEIJI SASAKI

22"A regular monthly service to Australia implied a fleet of at least adozen ships, and as a Colonial Clipper might cost anything up to E30,OOO

or ,C40,OOO there were very few firms who could provide such a service
entirely from their own resources. Some owners chartered vessels tofi11 the gaps in their sailing list. Othcrs, like James Baines, were shipbrokers as well as shipowners, and could easily arrange for vessels entrusted

to them for loading to carry their houseflag and fi11 the vacant dates.

Some managing owners of lines, like Bethel, Gwyn and Company, wereship brokers first and foremost, and most of ships which carried their flag

were privately owned. Messrs, Devitt and Moore, who carried much of
the Blackwall tradition into the Australian passenger trade, started as shipbrokers, loading on commission, but later acquired an interest in, orbought outright, many ofthe ships ontheir list."

However, in Japan the job of shipbroker was a new marine business
which Mr. Yutaro Sato had just started as a pioneer in about 1888-9. No
one had ever undertaken such a job before, and even when a few membersof Japanese shipbrokers followed him under the' stimulus of his quick andgreat success none of them grew to be a shipowner or establish a steamshipcompany as president, at least till the middle of the Meiji Era.

After World Wars I and II, we can acknowledge some leaders ofsh)ping companies originating from brokers. But speaking plainly, almost
all of them have still not only a lower position in today's Japanese shipping
circles, but their part or contribution to the development of modern shipping
industry is too insignificant to compare with that of the British. Though wewill later deal with the main reasons, deeply and comprehensively, which
accounted for such a scarcity of this shipowner type in Japanese shipping
circles, here it will be usefu1 to point out repeatly the next few facts, thata broker was, as it has been above-mentioned, such a very new profession as
theJapanese people knew of it just after the 20th year orlater of Meiji, andthat they had not suficient experience and capital so fast to purchase oroperate their own steamer, even if they were growing successfully as brokers.

On group of shipowners originating from seamen
In the early development period of modern British shipping there werealso many shipowners who originated from seamen, especially from retired
shipmasters. They played just an important part in the expansion of theircountry's shipping industry as well as the former group of shipowners originat-

ing from brokers. Then, we will cite again from Fayle's description;(4)"While the performances and the commercial success of the later
sailing vessels depended very much on their captains, they depended also ort(4) cÅí

Fayle pp. 258-9.

TYPES OF EARLY
MODERN JAPANESESHIPOWNERS

23

the technical knowledge as well as on the business ability of the owners. .

....There were owners who were also merchants .......... Some as
we have seen were brokers. Others, such as Green and Money Wigram
and Company, started as shipbuilders. Many ofthe most successfu1 owners
were retired ship-masters. Old John Willis, owner of The Tweed, Lammermuir, and other famous ships, and the hero, according to Captain
Shewan, of the well-known chanty "stormalong" had worked his way up
from before the mast. His son, John Willis the younger, owner of Cutty
Sark, had served as master in his father's ships."

Every able-minded seaman who had spent his seafaring life as a crew,
especially as a captain, would naturally be able to accumulate suMcient
funds, trust and practical knowledge to attempt to obtain his own ship
and to operate it as profitably as possible. This has not only a theoreticalpossibility in itself but there were many actual illustrations in Britain. Can

we recognize this type in our country?
Through the latter part of the Tokugawa Era and the early Meiji Era inwhich "Yamato-bune" (Japanese style sailing vessel) was still superior, there
were fairly many young people who were at first glance like John Willis the

younger. Indeed, it seemed to be a common practice for the sons andbrothers of Japanese shipowners to board their family ships and serve asapprentices in their youth. Some of the historically famousJapanese shipowners were experts in the art ofnavigation. At this point, it may be said
that there should be a type of modern shipowner originating from seamen
like John Willis the younger in Japan.
But we must not overlook an important difference between British

John Willis the younger and Japanese shipowner's sons. In fact, theformer was just a novice whose father had originally "worked his way up
from before the mast," while the latter were almost all sons or brothers of

traditional shipowners. For example, Nisaburo Hiroumi-exactly, N.
Hiroumi IV-, the founder of the present Hiroumi Steamship Company
which is the oldest and most famous successor of "Kitamae-sen" together

with the Baba Steamship Company, had surely gone on board during
his youth. The author has recently discovered a record proving the fact that

he had served as "Jikinori-sendo" (owner-captain) on his family vessel,
Eikichi-maru, in about 1878. As such, he had formally the same seafaring
experience as John Willis the younger. The history of the Hiroumi shipping business, however, is the oldest in our country so that its origin can betraced back to the Keicho Era or still further to the early years of the seven-teenth century. Their ships' names have been recorded since the beginningof the nineteenth century at least, at which time his grandfather's grand-

24

SEIJI SASAKI

father, Hachiemon, had been the head ofthe family. For this great pioneer
had owned Kotoku-maru (400 koku) and others, and had begufi the so-called"Kitamae trade" (navigation to Hokkaido). Incidentally, the majority ofother Kitamae-senshu (shipowners) began their voyages between Hokuriku
and Hokkaido about this time. And the greater part ofthe Kitamae shipowner's sons or brothers went generally.on board their own sailing vessels

as apprentices. Therefore these young men were never such sirnple andpure seamen as old John Willis and John Willis the younger.
Another famous shipowner, the Shimatani family - has developed

into the present Shimatani Steamship Company - had also a similar
historical characteristic. This family had rather a shorter history of shipping

business than Hiroumi according to the remaining valid records, because

Tokuemon had only set up his own independent shipping business fromabout 1877. His son, Tokusaburo, the substantial founder of the Shimatani

Steamship Company, bought a steamer, Urato-mara, and accomplished themodernization of this family's shipping business after the Sino-Japanese War.
Before this established position as a modern shipowner, he had served as anapprentice or as a responsible co-operator on his father's sailing vessels.

And Tokuemon, himself, seems to have been sometimes the captain ofhis own

ships, Shoei-maru and Shohe-mara both of which were Yamato-bune andengaged entirely in transporting Kyushu-rice to Hyogo (Kobe). On thosepoints, the career and other historical circumstances of the Shimatani father

and son were apparently very close to these of John Willis and his son.
However, a member of this family definitely and undeniably statedin his memories to the author that the Shimatani family were already inpossession of a few sailing vessels even before Tokuemon. Apart from this,
it is very certain that Tokuemon was never such a sailor before the mast ora retired ship-master like John Willis judging from his kinship with his
employer's house, Nakao, in Yu, for whom he had served during his youth.
It seems that his forefathers engaged sometimes independently and sometimes co-operatively in the shipping business. Moreover, the most essential
character of the Shimatani shipping business to be observed at first is its pr-

ivate carriage type, in which the shipping business is comprehended inside ofcommerce. They were originally rather rice merchants as well as shipowners.

So Shimatani should belong to the merchant-shipowner type, not to that ofa shipowner originating from a seaman. We must be carefuI not to make awrong estimation of their historical origin by an apparent resemblance only.

The Kitamae-sen group, including Hiroumi, also belong to the merchantshipowner type as far as regards their actual business style, while they weretraditional shipowners from the historical viewpoint as it has been said.

25
TYPES OF EARLY MODERN JAPANESE SHIPOWNERS

Through the above description, it will be clearly shown that the British

concept for the type of shipowners originating from seamen would be not
only in applicable to Japan as it stantds, but would also not always benecessary.

IV
The actual absence or scarcity of modern shipowner groups originating from brokers and seamen who played together important part in Britain
and Europe should be in itselfa fairly good reason for the difllculty in divert-ing British shipowner classification-methods simply and directly. There
were, however, other numerous factors to prevent the hasty applicationof British concepts in Japan. First, there is an inevitability or necessity ofenlarging or digesting the British (foreign) concept in case of its application
to our country, even if it is not always peculiar to this subject. Among thefou! types, joint--stock companies incorporated under Royal Charter, traditional shipowners, merchant-shipowners and shipowners originating from ship-builders which could have once been adapted to the then Japanese shipping
circles, the second and the last may be applied nearly as they stand. But
the rest must be considerably enlarged beyond their original concepts.
The basic meaning of "Royal Charter" in the first type must be digest-

ed into the somewhat changed meaning of "Government Order" or of"Strongest Protective Policy" in case of applying it to the Kaiso Kaisha,
the Mitsubishi Kaisha, the Nippon Yusen Kaisha, etc. Morever, the word,

government, must include some stronger local governments (clans orprovincial governments) together with the Meiji-Restoration Government.

The concept of "merchant-shipowner", itself, may be needless of
special enlargement at first glance. However, when the above-quoted
Fayle's prescription is investigated more deeply and minutely, we shalldiscover the fact that so-called merchant-shipowners were almost distinctly
foreign traders, either exporters or importers. Such a concept of merchantshipowner is also imaginable in theory, and in fact can be found at least in
the further developmental steps ofJapanese shipping. Nevertheless, no one

engaged in foreign trade in the early days ofJapanese modern shipping
due to the long isolation policy. On the other hand, there were many
inland-merchant-shipowners in our country who played an important role.
As a result, even this concept needs to be partly enlarged.
Second, other diMculties still remain even after such possible enlarge-

ment or digestion of British concepts. The difficulty of making actual
Japanese shipowners belong to any British type (concept), the conflict inchoosing the single type adequate toJapanese shipowners who had complicat-

26

SEIJI SASAKI

ed characters really, the delicate difference between the English and theJapa-

nese, these are very conspicuous factors in making it almost impossible toadapt British types to Japan simply.

In reference to this aspect we must imagine the fact that almost all
Japanese earliest modern shipowners should be listed as so-called individual

private owners or private firms.- Even the Nippon Yusen Kaisha andthe Toyo Kisen Kaisha were originally enterprises which had been set up
by one great personality, that is, the former by Yataro Iwasaki and his
Mitsubishi Kaisha, and the latter by Soichiro Asano and his private firm.
- It should indicate an easiness in classifying or grouping them and therefore should show an even greater simplicity and clearness for each characteror organization. It does not mean, however, the possibility of applying
British concepts to Japan. The consequence is that a very delicate but
undisregardable discord has to be recognized between the classification
method of British shipowners and the real situation ofJapanese shipowners.
And it is possibly the most substantial reason for rejecting an imprudent
borrowing of the above-mentioned British types.
Although it is too well-known to be repeated here, there are certainlysome clearcut differences, either from the aspect of time or of surrounding, between the growing process ofJapanese modern shipping and that of
the British. Both main activity fields varied distinctly, as well as the kinds

or sizes of used ships. The British shipping industry, especially, had con-tinuously grown during the Middle Ages and the Modern Ages with such internal and external fu11ness as the expansion of national resources, thedevelopment of colonies and the growth of capitalism, and as a result theirfleets had been engaged mainly in ocean-going routes. On the other hand,
Japanese shipping had been interrupted for about two and a quarter centuries by the dogged isolation policy and was under the necessity of quickly
modernizing their shipping business in such inferior conditions as realtechnical stagnation, narrow activity fields limited to only a few intercoastalroutes and an uncompleted national economy. There was also anotherproblem to be remembered that its actual start was possible only through thestrongest support and leadership from "upside" (government) and by thestimulus and introduction from "outside". Consequently there were nosuch clear modern indications in our country as British shipping had alreadyaccomplished; that is, the industrial independence of shipping as a link innational economy, the settlement of common (public) carriage styles in
actual shipping business, and the individual advancement among shipowners themselves or between them and other shipping interests, specially,brokers and seamen, etc.

TYPES OF EARLY MODERN JAPANESE SHIPOWNERS
27
This was the most important reason that made it impossible to regard thedevelopment of Japanese modern shipping in the same light as that ofBritish modern shipping, and therefore to apply the British concepts toJapan imprudently, It compels us, on the other hand, to look for a specialclassification method and a standard suitable enough to fit actual Japaneseconditions.

v
Until about the 20th Year of Meiji (1887), the modern and large-scale
shipping business with the then large-sized steamers had been almost completely monopolized by a few privileged companies in our country, except
for owners or operating firms of small steam-launches who had been fairly

numerous but very short-lived and operating on a small scale. More
important was the fact that a very large proportion of sea commerce had
been conducted by sailing vessels in those days. Such owners of sailing
vessels hadjust begun after the 10th Year of Meiji to replace their old
Japanese style sailing vessels with newer European style sailing vessels as thefirst step in their modernization. The second and last step to the mostmodern ship, the steamer, was made after the lapse of another decade. It
must be well remembered, however, that the actual business type of thoseyounger modern shipowners has still remained at the stage of "private carriage" in spite oftheir ship's advancement. At least, the first transition was

not accompanied by a definite change in management type. The second
transtition to steamers certainly promoted such a tendency, but, there werestill many complicated problems behind the actual trend, for some attained
quickly their object while others did so slowly.

What can be -and must be-found distinctly from the above speciality
in the actual growing process ofJapanese modern shipowners is the distortion or discrimination between the minority privileged shipowners and the
majority unprivileged shipowners. It is definitely important to our study ofJapanese modern shipowner types. While the greater part of the latter
had historically been the older and more important shipowners in ourcountry, they were in fact new-comers as modern shipowners on account of
not being beneficiaries ofgovernmental protection. On this point, it might
be said that they really proved the correctness of the principle, "the un-protected never develop".
Now, this clear difference between the quick modernization of a few
privileged companies and the slow development of the majority of unprivileged shipowners shows us the existence of two distinguishable types within
Japanese modern shipowners as a whole. In other words, we must first

28

SEIJI SASAKI

classify Japanese modern shipowners into two large groups under the above-

mentioned basic character. It was even natural that the most popularmaritime terms in our country, "Shasen" and "Shagaisen" came to be usedvery widely from about the 25th Year of Meiji (1892). The former, ofcourse, meant the privileged force which consisted of the Nippon Yusen
Kaisha and the Osaka Shosen Kaisha, sometime including another line, theToyo Kisen Kaisha.
In conformity with such a basic and largest division as showed in theform of "Shasen" vs. "Shagaisen", we have to seek for a more detailed
and practical classification ofJapanese modern shipowners. In this case,the Shasen is not only a too distinct type or concept to be understood easily,

but in fact, it consists, as it has been shown, of only a few large companies

that were very well-known. So, it is unnecessary to subdivide them. It
would be better to grasp them as a single group or type.
In comparison, the Shagaisen was a very complicated group-definition
and included so many kinds of shipowners that they would have to be subdivided according to their real specific characters.

The earliest Shagaisen group (Shagaisenshu, owners of Shagaisen)
who adapted steamers before the 30th Year of Meiji (1897) can be firstclassified into the following two types.

(1) older (traditional) shipowners' group(2) newer shipowners' group
This method has a different importance from the above-mentioned classificatiofi of Shasen vs. Shagaisen, although there is some resemblance. The
former type, as it has been stated, was the greatest and most importantsuccessor to the past shipping business, and the majority moved from Japanese style sailing vessels to European style sailing vessels in the first stage
and to steamers later. The latter, as well as all of Shasen, was so-called newcomer who started out to engage in the shipping business without any
experience after the Meiji Era.

Each of them should be divided into smaller but more tangible groups,
according to the author's opinion, for the purpose of looking for more detail-ed and usefu1 types ofJapanese modern shipowners. First, the older shipowners' group will be classified into four smaller groups as follows:(a) Kitamae-sen group(b) Taru and Higaki Kaisen group(c) Kyushu and Inland Sea of Seto shipowners' group(d) others
The three groups, (a), (b) and (c), were the most famous and importantshipping forces before Meiji and played a large part in the further develop-

TYPES OF EARLY MODERN JAPANESE SHIPOWNERS
29
ment ofJapanese shipping with their own specialities and traditions. Without suMcient imformation about these groups it is impossible to understandcompletely the actual growing process ofJapanese shipping.

The newer shipowners' group is somewhat difficult to subdivide, forthere is as yet no definite standard of classification. The author of this arti-

cle has hitherto tried such subdivisions as follows, and believes that it needs

not only no correction but will be very usefu1 in the study of the develop-

ment process of the modern Japanese shipping industry.

(a) "Zaibatsu" group(b) other general foreign traders' group(c) group of shipowners as new entrepreneurs
1) promoter of other trades2) pure shipowners (shipping companies)
3) others
The Zaibatsu group consisted of the Mitsui Bussan Kaisha and the Mitsubishi Shoji Kaisha. The other general foreign traders' group, who set up
the shipping business chiefly as a side job aftet the Twentieth Century,
especially since World War I, had better be distinguished from the above

Zaibatsu group. They played a temporary but unnegligible part in thelater development of modern shipping industry, though they rendered hardly
any direct service to the reconstruction of today's Japanese shipping afterWorld War II. Except for a few shipowners, the third type was a comparatively new product. And the subdivision within this group is basedon our specific viewpoint gained from studying Japanese specialities as well
as all other classifications.

1961. 9. 9.

ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPAN
Hiromasa YAMAMoTOI
An Outline of the EmPlo"ment Slstem of Seamen in .7aPan

The working conditions of seamen are not only in many ways different
from those of laborers on land, but have also peculiar disadvantages. Oneof the greatest disadvantages of seamen is that their working place, i.e.
the ships in navigation are separated absolutely from seamen's homes andsociety on land. Therefore, after a certain period ofoff-shore work it becomes
necessary for seamen to leave their ships so as to have a chance for a vacation
with their families and to have contact with the socjal life on land. Accord-

ingly, in the employment system for seafarers, the pay-off system has been
traditionally adopted from ancient times by all employers. In this systema shipowner hires seamen at the beginning ofa navigation stating in thecontract that he will discharge them after a predetermined number ofnavlgatlons.

In the prewar period up to World War II most of the Japanese shipping
companies had also adopted this traditional employment system with regard
to their unlicensed personnel, while they had employed the larger part oftheir othcers on a continuous basis,(i) However, after the war the employment system ofJapan changed so that both oMcers and unlicensed personnel

were employed continuously and exclusively by respective shipping companies. Ofcourse, the continuous employment ofseamen is the recent international trend. Kindred employment systems adopted by several foreign
ship operators may be found. Such a system can be found in the United
Kingdom where the Merchant Navy Established Service Scheme has been
enforced since 1947.(2) But in the Scheme a considerable part of all seafarers who are under the General Service Contract are not employedpermanently by the specific companies, though seamen who work under(1) As to the prewar employment system ofseamen inJapan, see, H. Yamamoto, "Job exchange
service for unlicensed seamen in the prewar period."(Kobe Univ. International Economic
Review, No.1 1)(2) Regarding the outline of the Scheme, refer to the following. Thornton, British Shipping,
2nd ed., 1959. p.202 ff.

31

32 HIROMASA YAMAMOTO
the Company Service Contract are employed by the specific companies during the period of contract. In contrast the employment system of seamen
in Japan has peculiar points quite different from those of foreign seamen.
In Japan all ship operators have adopted this system of employment andall seamen are also employed under this system. In addition, in the case ofJapan the employment relation between seamen and shipping companies
are of long term and exclusive in character, continuing as long as either

seamen or employers want to continue the employment contract. Therefore the employment system ofseamen inJapan may be called "the exclusive
continuous employment system" in comparison with the traditional "payoff" system.

In order to clarify the effect of the employment system of seamen in
Japan upon the employers, seamen and their trade union, and also to show
the difference between this system and others, it is convenient to give an

outline of the employment system ofJapanese seamen. For those who
receive licenses of othcers after graduation from mercantile marine colleges

and for those who are qualified as unlicensed personnel after leaving
national training courses for seamen the public employment security othces

for seamen will secure jobs for them in respective shipping companies.
The employment contract concluded at that time will be on a long term basis
and continuous in character so that it will be effective until either theemployer or seaman expresses a desire to end the contract, and in ordinary
cases it will continue until a seamen reaches the retirement age of the com-pany, while under the traditional employment system the employment
contract of seamen was on a short term basis ending after a few voyages ormonths. Of course under the Japanese employment system off-shore workofseamen is intermittent. In accordance with the seamen's law and labor
agreement, a seaman who has engaged in continuous voyages of twelve
months has the right of taking a vacation on land with pay. Seamen may
Ieave their ship also for a vacation with no pay, due to accidents or otherreasons. However, the leaving of a ship by seamen does not mean that
their employment contracts have ended. In other words, seamen maintaintheir employment relations with a specific shipping company not only
during off-shore working peroids but also during their stay on land.
II
Characteristics of the EmPlo7ment S2stem of .7aPan(1) Stability of seamen's employment

The above-mentioned employment system ofJapanese seamen has apeculiar effect upon seamen, shipping companies and also the seamen's

ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPAN
33
union. One of the most important effects is that it secures the stabilityof seamen's employment and also does away with the activities of crimps or

boarding-house keepers. Under the traditional employment system seamen
had to suffer from intermittent and unstable employment due to the natureof the employment system in addition to the cyclical fluctuation of employment in the shipping industry. As a result they often fell into thehands of boarding house keepers. Measures to remedy short comings of thistraditional employment system were adopted. In 1920 member countriesof the International Labor Organization adopted the rule regarding theestablishemnt of a public employment exchange service oMce for seamen
in order to check the activities of boarding-house keepers. Recently thenecessity of increasing the continuity and stability ofseamen's employment

has been admitted as a more fundamental problem. In 1944 ITF laid stresson the importance of stability of employment in the International Charterof Seamen which was adopted at the London Convention. The International Labor Organization adopted the resolution regarding the continuous

and regular employment ofseamen. In the United Kingdom the Merchant
Navy Established Service Scheme whose object is to secure the stabilityof seamen's employment was established in 1947.(3) In the light of theseinternational trends the present employment system of Japan should behighly appreciated because it affords seamen stability in their employment.
InJapan a seaman waiting for his next navigation as a reserve personnel
after his vacation receives his wage which amounts to about half of his earningwhen on board.(4) The amount of seamen's average wages and allowanceson land which is paid while they are waiting for their next mannjng is(3) K. Kokado, "International prospect of seamen's problem." 1958. pp. 333-343.
(4) As a result of the fact that allJapanese seamen are employed permanently by specific companies, their wage structure corresponding to the employment system is also different fromthose of foreign countries. InJapan the wages ofseamen are determined and paid without

regard to whether they work on board er stay on land, However, when a seaman is on
board, he receives many kinds of allowances which are paid in addition to his wage, while
he receives only his wage and family pay when he spends a vacation period or is waiting onland for his next navigation.

The average monthly earnings of seamen on board*

wage 45.70/,

family pay 2.9

manning pay 14.0

navigation allowance 26.8

oVertime 6.7
total 100.0* calculated regarding the crew (including both oMcers and unlicensed personnel) of steamships ofother allowance 3.9

5.000 g. t. and over in September, 1958.

Source: Ministry of Transportation.

HIROMASA YAMAMOTO

34

nearly 700/, of the average wage of workers employed by manufacturingindustries. Therefore seamen can enjoy their vacation on land without
consideration of finding their another job.

(2) Emergence of wage differentials
While the employment system ofJapanese seamen secures the stability
ofemployment, it is a hindrance in the movement ofmaritime labor from one
shipping company to another in combination with the characteristics of thewage system.
Generally speaking, the distinctive trait of the wage system of Japanis that the wage pf a worker increases in accordance with the increase in the

period of his employment in a certain enterprise. Consequently there may
be differences between the wages of workers engaged in the same job inthe same enterprise, if there are differences in the length of their employment, even in cases where the technique or productivity of a worker does notincrease proportionally to the increase in the period of his experience.(5)Similar characteristics may be found in the wage system of seamen.
In the wage system of seamen the minimum amount of initial wage isdetermined with regard to each job, and in addition the increment of wage
in accordance with the increase of the period of employment is also deter--mined by labor agreement. Accordingly seamen's wage will increase automatically with the increase of the length of their employment. However,
if a seaman changes his employer, his wage at his new place of employment
is not necessarily based on the full period of his experience. Therefore, thewage system of seamen has the effect of encouraging the permanent employ-ment of seamen with the same employer and discourages their changing of 'employers.

Moreover, under the employment system ofJapanese seamen it is very
diMcult for seamen out of employment to find new employment, and infact there can be found only a few cases in which seamen change theiremployers inJapan. BecauseJapanese shipping companies employ sufficientcrew members and reserve seamen necessary to operate ships according
to schedules, their demands for seamen are limited to fi11ing up vacancies
which emerge due to the retirement of old seamen or to man newly built
vessels. And shipping companies prefer ordinarily to fi11 up their demandwith new graduates from mercantile marine colleges and training courses.
Consequently, ifa seaman loses his employment for some reason, his new
employment field will be limited to coastwise shipping or fishing boats.
(5) cÅí S. Ujihara, W.Fujita and N.Funahashi, Japan Type trade union and seniority system,

1960.

35
ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPANThe demand for experienced seamen by shipping companies operating
ocean-going vessels are exceptional even in the case of temporary hiring.(6)Owing to the above-mentioned conditions which disturb the movementof maritime Iabor, a difference in wages and working conditions emerged
and grew larger among shipping companies, reflecting the difference of earn-ing power and labor management among shipping companies. Of course
under the traditional employment system of seamen frequent movementsof maritime Iabor tends to set the wages of seamen in the same job at thesame level, and there is little room for the emergence of wage differentials

among shipping companies.
During the war all seamen ofJapan were under the control of thegovernment, and their wages and working conditions were regulated.
At the reopening of private shipping activities after governmental control
over shipping was abolished, there were few differentials in the wages among
the seamen employed by respective shipping companies, though the exclusive

continuous employment system of seamen was then adopted by all shipping
companies. At that time wages and working conditions were determinedby the uniform labor agreement between the Japan Shipowners' Associationand the seamen's union. However, wage differentials gradually grew larger

among seamen who were employed by respective shipping companies, as
the differences in earning power became clear among shipping companiesespecially between companies engaging in coastwise trade and those engaging in foreign trade. In 1955, at last, uniform collective bargaining regarding wage and working condition was abolished due to the discord of interestsof shipowners, resulting in the separate labor agreement concluded respectively between the seamen's union and shipowner's groups that wereorganized by those maintaining similar trades. Thenceforth wage differentials grew much larger among different groups of shipowners. For example,
wage differentials among seamen who were employed by different groupsof shipowners were as follows at the beginning of 1958.(7)

(6)
(7)

cf. Monthly Report of employment exchange service for seamen, Aug. 1960. pp.9-10.

Commission of Research for the Employment System of Seamen, "Problems of Joint
Employment System, 1959, pp. 14-15.

36

HIROMASA YAMAMOTO(Differences of average wage ofseamen employed by respective groups ofshipowners)

wage (yen) O/.
Group composed mainly of liner operators 16,643 100

Group composed of tramp operators and shipowners 15,114 91
whose vessels are chartered by !arge ship operatorsin the Kanto district

Group composed of tramp operators and shipowners 14,521 87
whose vessels are chartered by large ship operatorsin the Hanshin district

Group composed of coastwise shipowners in the 13,120 79
Kanto district

Group composed of coastwise shipowners in the 12,566 76
Hanshin district

In addition, there may also be found great wage differentials among seamen
employed by shipping companies belonging to the same group in relation to
the collective bargaining regarding wage. Ifwe take as the base the average

wages of seamen who are employed by a company that pays the highest
wages, the average wages ofseamen who are employed by liner operators is760/,, and that of seamen employed by coastwise ship operators is only
Regarding welfare facilities maintained by respective shipping companies

for their employees there are considerable differences. Though welfare
facilities for seamen are partly determined by collective bargaining, many
facilities including lodging houses at ports are maintained by respective
shipping companies with no relation to the seamen's union.(9)Thus wages and working conditions show great differences among
seamen who are employed by different shipping companies due to theinstitutional hindrance of their movement, i.e. the exclusive continuous
employment system.

(3) Effects upon labor management
Under the traditional employment system of seamen each shipowner
can fi11 up any vacancies in crew caused by discharging a man byhiring seamen out of employment at convenient ports of call. In other words

each shipowner may select and hire at will the necessary number ofseamen
from the labor pool ofseamen out ofemployment. In this case the maritime
labor pool, which supplies necessary seamen to ship operators so that they
can operate their ships continuously without hindrance, is maintained andfinanced not by shipping companies but by the seamen or by the government which grants an unemployment allowance.
(8) Y. Sekiya, "On the collective bargaining at the stage of the branch of Seamen's Union,(Kaiji Kenkyu, No.45) p.70.
(9) cf. Y. Sekiya, op. cit, p. 71.

ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPAN 37
On the contrary under the exclusive continuous employment system ofJapan each shipping company must maintain not only crews but also
certain reserve members on its own account so as to enable continuous
navigation even in the case when several members of the crew leave theship.(iO) That results undoubtedly in the increase ofpersonnel expenditures

and also in the increase of ship operating costs for each shipowner. In
case of small shipping companies operating only a few vessels, it is quite

natural that their personnel expenditures should increase much morethan those of large shipping companies. This is because the reserve
members to the crew of small shipping companies becomes much larger
than that of large shipping companies, if the former maintains adequate
reserve seamen all jobs, including officers and wireless operators. Accordingly small shipping companies find diMculty in maintaining an adequate
number ofreserve members on their own accounts. They are often suppliedwith the necessary seamen to•fiII up their vacancies in the crew regarding
a specific job from a large shipping company.

Though shipowners have to maintain reserve seamen on their own
accounts under the exclusive employment system, on the other hand they
may anticipate the ease of labor management and also improvement in theworking efllciency of their crew. Because shipowners can select andemploy permanently seamen who are considered as most adequate for thecompany, the seamen tend to show their loyalty to the company becauseof their enterprise-consciousness under the exclusive continuous employ--ment system. (Refer to 2. 4)(4) Effects upon the seamen's union(ii)Under the exclusive continuous employment system a seaman tends tobe conscious that he is an employee of a certain shipping company, because

he finds much diMculty in changing his employer, and his wage andworking conditions are influenced directly by the ups and down of his
employer. The above-mentioned consciousness of seamen has the effectof strengthening their motive for working for the development of the company.
(10) According to the estimate of Bureau of Seamen, Ministry of Transportation, the ratios ofreserve seamen against crew members were in average as follows during the peiod of 1958

and l959j
the average ratio of reserve seamen against crew members

omcer {edne$.ne 225iliiO/O
Bglggzn.s.e,d{g.e,C:•.. J?[g(ll) cf. H. Yamamoto, Singularity of the Structure of Seamen's Union ofJapan. (Kobe
Economic & Business Review, 7th annual Report. 1960.).

38 HIROMASA YAMAMOTO
At the same time they tend to lose consciousness of coordination with otherseamen employed by other shipping companies. •. It is inevitable that the above-mentioned consciousness of seamen
had an undesirable influence upon the seamen's union which stands forthe common interests and coordination of seamen. In the 15 years' history
ofthe seamen's union after the war several attempts of organizing an enter-

prise union appeared among the seamen, though they were in vain. The
destruction of the uniform collective bargaining system in 1955 was partly

due to the discord of interests of seamen employed by different shipping'
companles.
III
7-lhe J7roint Emplorvment Pool Program

In 1958 at the 17th national convention the All Japan Seamen's Union
determined to adopt a program for the joint 'employment pool of seamen as
the most preferable employment system and stated that necessary measures

should be taken to realize the employment pool. The contents of the
program is as follows;

1. For the purpose of employing seamen jointly a group of several shipowners is to set up a joint employment organization.
2. Thejoint employment organization is to take the position of employer
of seamen and maintain the necessary number of seamen so as to beable to supply a crew to its member-shipowners and to control thereserve seamen on land.

3. The wages and working conditions of seamen are to be determineduniformly by a labor agreement to be concluded between the joint
employment organization and the seamen's union. •4. The wages and allowances of seamen waiting on land for their next
navigation are to be paid by the joint employment organization.

5. Necessary expenses for maintaining the organization are to be contributed by the member-shipowners.
6, Though it is desirable that the members of the organization include all
shipewners, at the beginning the organization should be organized byseveral shipping companies in which there are comparatively little
differences in wages and working conditions.

The joint employment pool program which was presented by theseamen's union had of course the intention of eliminating the differences in(12) As to the attitude of shipowners against the system, refer to Commission of Research for

Employment System of Seamen, "Problems ofJoint ETnployment System," 1959.

ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPAN 39
wages and other working condition emerging under the present employment system ofJapan, and of strengthening the structure of the seamen's
union. But shipowners have made clear their attitude against the program
up to the present, for they Consider that a change in the employment system

would neither decrease the personnel expenses to any large amount nor
make it easy for labor management.(i2)In the case oflarge shipping companies operating more than ten oceangoing vessels, the ratio of the reserve seamen on land against the seamen on
board is comparatively stable and does not result in a large decrease on every
job if the number of the crew increases as the result of an increase in theirfleet. Consequently, in the case of large shipping companies if they adopt
the joint employment system, they can anticipate neither a decrease in thenumber of reserve seamen, nor much decrease in expense for maintaining
reserve seamen, for they must contribute to the joint employment organiza-tion. Moreover, because many of the large shipping companies engage inliner sevices, they attach more importance to the skills of seamen and to thesmoothness of labor management rather than to any relative decrease inpersonnel expenses.

In the case of small shipping companies, the joint employment system
would make it possible to lower the ratio of reserve seamen as comparedto their crew. However, among them those who customarily have theirvessels chartered by large shipping companies need not maintain alarge number of reserve seamen, for vacancies in the crew of their vessels
may be supplied by the charterers, if necessary. Therefore, not all small

shipping companies feel the necessity of establishing a joint employment
pool so as to secure the necessary reserve seamen. Moreover, all of them
may face the possibility of employing seamen at higher wages, as it is 'chepurpose of the joint employment system to destroy the cause of wage differentials among seamen.
On the other hand seamen do not show a uniform attitude toward thesystem. Seamen who are employed by small shipping companies cangain many advantages including an improvement in wage and welfare facilities, and also an extension oftheir retraining period in which to obtain upper

grade licenses. On the contrary employees of large shipping companies areagainst this system, because they are afraid of the possibility of losing their
better wages and working conditions.(i3) In short, the possibility of reali-(13) As to the opinion ofseamen employed by large shipping companies with regard to the system,see. "9uestions and Answers regarding theJoint Employment System" (AllJapan Seamen's
Union, educational pumphlet No.1, Jan. 1960).

40 HIROMASA YAMAMOTO
zing the program of the joint employment pool is found only among seamen
employed by small shipping companies. It appears quite diMcult at thepresent stage to establish ajoint employment pool including all seamen forthe purpose of supplying crews to all shipping companies.
While the joint employment pool program faces many hindrances towards its realization, there can be found several benefits in the recent labor

agreements that are usefu1 in decreasing the differences in wages among
seamen. Of course the results have the effect of remedying defects of the
exclusive continuous employment system on the one hand, and they also form
conditions for the smooth change of the present employment system into
the new on the other hand.

A remedy to decrease the differences in wages among seamen was
realized in collective bargaining in the autumn of 1957 in the form of aminimum wage system for seamen on board. In this system the initial
wage is determined with regard to each job and size of vessel (whichcorresponds to the trade routes, for example, coastwise and oceangoing),
and the wage increases in proportion to the increase of the period of ex-perience of the seamen. The amount of the wages thus determined iscalled the guaranteed minimum wage. Ifthe wage of a seaman employed
by a certain shipping company is lower than the guaranteed minimum
wage, the latter is determined as his wage so long as he engages in his job
on board, while the former is paid as his wage when he is waiting on landfor his next navigation. By this system wage differentials among seamen

who are employed by different companies decrease or disappear at least
when they work on board, though there are still considerable differencesin wages which are paid to seamen on land and in welfare facilities. By
the enforcement of this system about 190/, of all seamen are paid theincreased wages. Seamen who are employed by smaller shipping companies are of course much more benefited by this system. In the case of
39 small ship-owners of the Hanshin district whose vessels are customarily
chartered by large shipping companics 260/. of their officers and 340/. of

their unlicensed seamen are under application for the guaranteed minimum
wage system.Ci4)

Another important benefit of collective bargaining by the seamen's
union is the establishemnt of an industry-wide retirement pension plan.
In August l960, the Shipowners' Association and seamen's union concluded
a retirement pension plan for seamen. This plan is enforced on an industry-(14) D. Mori, Minimum wage system ofseamen, Shipping and Shipbuilding Seminar, Aug 1957.
No.11, p,15.

ON THE EMPLOYMENT SYSTEM OF SEAMEN IN JAPAN
41
wide scale with the co-operation of 161 shipping companies including all
members of the shipowners' association which is organized by companiesof different sizes. The point that we should pay attention to in relation
to the employment system is that the necessary period for seamen to beeligible for a pension is calculated based on the whole period of his offshore work even if he may change his employer. We may consider that thepension plan of seamen includes implicitly the possiblility of destroying thepresent exclusive continous employment system, because in the plan allseamen are treated equally regardless of their employers and seamen do not
lose any advantages because of their change of employers.(i5)IV
Conclusion
As is generally admitted, it is indispensable for the welfare of seamen
that; seamen should be given a reasonable period of vacation with pay, bywhich they can rest in their homes and have contact with society on land;
and the chance to be employed should be given equally to each seaman who
is waiting his next employment after his vacation. For this several measuresor the combination ofthem may be adopted. The permanent employment
of seamen by a specific company is not the sole means for attaining this pur-pose. The seamen's livelihood during their wait for their next employment

may be maintained either by a public unemployment allowance or by a
private unemployment allowance, which is contributed to by shipowners or
the seamen's union. And also the chance of employment may be equalized

by means of a union-hiring hall system which is found in the UnitedStates or by means of a public employment exchange service.
Incidentally, the measure most adequate to secure the welfare of seamen
in one country is not necessarily the rnost adequate measure in anothercountry, if the labor relations ofthe shipping industry, especially the condi-

tions ofdemand and supply of maritime labor, are different. For example,
when the supply of maritime labor is balanced to the demand, the stabilityof seamen's employment may be attained only through the service of the
public employment exchange oMce. On the contrary, if there are many
seamen out of employment in the country, it is quite diMcult to secure thestability of the seamen's employment however well the employment system(15) If we compare the pension plan of seamen with other private pension plans enforced bydifferent industries, the characteristics of the former become clearer. There are severat
private pension plans for retired workers in Japan. However, all of them except that of$eamen are enforced by respective enterprises only for the purpose of encouraging longservice of employes.

42

HIROMASA YAMAMOTO

may be set up. Indeed the present employment system ofJapan, i.e. theexclusive continuous employment system was introduced inevitably so as to
avoid the Iarge unemployment of seamen after the destruction of our merchant fleet due to the war. At that time the exclusive continuous employment system was the most adequate, for under other employment systems theactivities of boarding house keepers were inveitable in the case of widespread

unemployment among seamen. However, as the result of the fact thatseamen were employed by specific companies exclusively and that they had
great diMculty in finding new employment, seamen had to maintain theirservices in the same company even if they were not satisfied with their wages

and working conditions. The above conditions enabled the companies
in financial dificulties to maintain their personnel expenses at a low Ievel.
Thus the difference in wages among seamen was a necessary outcome in spiteof the effort of the seamen's union. In other words the difference in wages

among seamen was due to the institutional hindrance to the movement ofmaritime labor as well as to the comparative oversupply of maritime labor.
Therefore in order to solve the wage difference among seamen along withstabilizing seamen's employment, a mere change in the employment system is
not adequate. But a more basic measure to balance the supply of maritime
labor to the demand should be introduced.

The joint employment pool program introduced by seamen's union
intends mainly to remove the institutional hindrance to the movement ofmaritime labor. But, as we have seen already the establishment of a joint
employment pool including all seamen is quite diMcult, and the co-existence
ofajoint employment pool and the present employment system may still leave

wage differentials among the seamen under a different employment
system, resulting in an undesirable influence upon the consciousness ofseamen. Consequently measures to balance the supply of maritime laborto the demand in company with the efforts of collective bargaining todecrease the wage differentials among seamen is more adequate for thethe welfare ofseamen inJapan. An improvement in the employment systemshould be taken as the next step.

A STUDY ON JAPAN'S INVISIBLE TRADE
Fukuo KAwATAI
The purpose of this article is to make an analysis ofJapan's invisible

trade in 1936, and in postwar years (1950-1960).
According to the statistics of the International Monetary Fund, tradeon current account is divided into ten broad categories: (1) merchandise,(2) non-monetary gold, (3) foreign travel, (4) transportation, (5) insurance,(6) investment income, (7) government transactions not included elsewhere,(8) miscellaneous services, (9) private donations, and (10) oMcial donations.
The invisible trade items with which we are going to deal cover those from
(3) to (10).

Table 1 shows the amount ofJapan's invisible trade and its relative
importance to her total trade. The amount of receipts increased by 600/,
during the period from 1950 through 1960, while that of payments increased
by 6000/. during the same period. The relative importance of invisible
trade receipts to her total trade receipts, visible as well as invisible, showsa declining tendency from 1950 till 1960, while the ratio of invisible pay-ments to her total trade payments shows an upward trend during the same
period.

In 1936, invisible trade receipts accounted for 240/, of total tradereceipts. This percentage showed more than 400/, in 1950, 1951, 1952,
and 1953, but since then it began to decline, coming down to 200/. in
1960, which is below the pre-war level. On the other hand, the ratio ofinvisible payments to total trade payments was l60/. in 1936. This figurerose in the postwar years, amounting to 230/. in 1960. It was highest in1958 with 270/.. In short, the relative importance of invisible receipts was

Iower in 1960 than in 1936, while that of invisible payments was higher
in 1960 than in 1936.
Table 2 shows changes in the composition ofJapan's invisible receipts.
It can be seen from this table that the largest share was taken by transportation and investment income in 1936, each accounting for 300/, of total
invisible receipts. In post-war years, however, the largest share was taken
by government transactions, the major part of which constituted foreign

43KAWATAFUKUO

44Japan's Invisible Trade

Table 1.

to herand its relative importance

Total Trade

Receipts

Payments(million dollars)(million dollars)

316
635
963
948
955
790
758
968

195
l62
346
316

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

Trade as percentage

Invisible

Invisible Tradeof Total Trade
Receipts

Payments
(o/o)

(o/o)

371

24

16

44

17

41

17

42

15

43

15

414

33

17

551
771

27

19

29

23

912
843
892

1,131

24

26

949
892

23

17

21

23

1,OO8

1,126

20

23

t

Source : IMF, Balance of Payments Yearbook, and Economic Plannirrg Agency, Japanese
Government, "Keizai-Hakusho'' (Econom'ic Survey ofJapan), 1961.
Note :Figures in the following tables are quoted or calculated from above mentioned
sources, unless otherwise noted.

military expenditures. Receipts from transportation gradually increased
their share, and regained their prewar level in 1959 and 1960.
Receipts from investment income, which were one of the largest items
in prewar years, declined heavily in postwar years, but they were gradually
increasing since 1955. Receipts from insurance, from foreign travel, andfrom private donations also decreased their shares in postwar years, while
receipts from miscellaneous services increased. Receipts from oMcial
donations, which were negligibly small in 1936, increased their share largely
Table 2. Composition of Invisible Receipts ofJapan (O/,)
1936 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

Item
Foreign Traval

8

3

1

1

1

1

2

2

2

3

4

4

Transportation

31

3

4

7

8

12

17

24

29

29

32

32
3

Insurance

12

1

1

1

1

1

2

2

3

Investment Income

30

1

1

1

2

3

3

3

5

8

Government, n. i. e.

4

24

65

83

85

78

70

61

54

51

Miscelleneous

3

6

3

2

2

3

3

4

5

6

"

42

6

5

Private Donations

12

7

16

5

2

4

4

4

4

5

6

6

56

11

1

1

1

1

100

100

100

100

100

1OO 100

100

OMcial Donations
Total Invisible Receipts
Source : See

Table 1.

--

100

100

100

100

A STUDY ON JAPAN'S INVISIBLE TRADE

45

in 1950, but they declined thereafter owing to the termination of aid fromthe U.S. government.
Table 3 tells us of the changes in the composition of invisible paymentsof Japan. Government transactions, investment income, insurance, andtransportation constituted major items for invisible payments in 1936.
In postwar years transportation had occupied by far the largest part ininvisible payments. It registered as high as 830/, in 1950. This figure
declined afterwards and in 1960 it was 520/., and yet this still is threetimes as large as the figure in 1936.
Miscellaneous services also increased their share from 80/, in 1936
to 2IO/. in 1960. The main item contributing to the increase of miscel-laneous service payments in recent years has been patent royalties. Thisimplies the progress of technological innovations in Japanese industry
through the import of foreign "know-how". Other items, such as government transactions, investment income, insurance and foreign travel decreased

their shares in postwar years. OMcial donations, however, increased
their share since 1955, owing to the payment of reparations.
Table 3. Composition of Invisible Payments ofJapan (O/.)
Item,1936 1950 1951 lgs21 1953 1954 1955 1956 1957 1958 1959 1960

Foreign Travel

9

1

1

2

2

2

2

2

1

2

2

4

Transportation

l7

83

74 •

71

67

61

57

66

68

43

52

52

Insurance

18

2

5

5

tlr

3

3

3

4

tl

4

2

5
9
2

12

9

7

7

9

10

3

2

2

2

3

3

17

15

12

17

22

21

5

3

7

8

6

Investment Income

22

Government, n. i. e.

25

Miscellaneous

8

9

15

12

14

5
11
3
17

Private Donations

1

1

3

5

1

1

3

2

Official Donations

Total Invisible Payments

100

100

100

100

100

1OO 100

1OO 100

(1)

26

100

1OO 100

Source:See Table 1.
Note :(1) The percentage for reparations was70/..

Table 4 shows the regional distribution of our invisible trade in 1959.

On the receipt side, the United States and Canada hold the preeminent
position, taking about two thirds of the total. "Other countries" comenext, followed by OEEC countries. On the payment side, the UnitedStates and Canada also rank first, and OEEC countries take the second
place with small difference, followed by "other countries." The amountsof receipts and payments are almost equal in total. The United States
and Canada alone register positive balance, while all other regions show.
negaUveones.

FUKUO KAWATA

46

Table 4. Regional Distribution of Invisible(in millions of U.S. dollars)

Trade in 1959.

Receipts

RegionPayments

Balances

United States and Canada

616.1

312.7

303rl

OEEC countries

77.7

285.5

-' 207.8

Soviet area

2.0

7.7

-s.7"

Other countries

190.9

202.1

-11.2

Intenational Institutions

O.3
8.4

10.7

- 10.4

71.4

-68.0

89e,4

890,1

+P.3

UnallocatedTotal
Source : See Table 1.

II

Now let us examine the amount and balance of receipts and paymentsof each individual item of invisible trade.

(l) Foreign Travel
The amount of receipts and payments of foreign travel tended toincrease in post-war years, although their relative importance in total
invisibles declined. The foreign travel account registered positive net
receipts both in l936 and in postwar years, except in 1960 when receipts
and payments were almost equal. (See Table 5-1.)
Table 5-1. Receipts and Payments in Foreign Travel(in millions of U.S. dollars)Year

Receipts

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

26

17

9

21

1

20

The
in Table

regional

Payments

Net Receipts

9

4

5

8

5

3

10

7

3

11

7

4

14

8

6

17

l2

5

22

15

7

24

16

8

33

20

l3

40

40

o

distribution of foreign travel

5-2. As is seen from this table, theaccount in 1959 is shown
United States and Canada

A STUDY ON JAPAN'S INVISIBLE TRADE 47
take up the major part in this account. They occupy about 800/. of total
receipts and about 600/. of total payments. On the receipt side, OEEC
countries come next to the United States and Canada, followed by "othercountries". On the payment side, "other countries" rank second, andOEEC countries hold the third place.
Table 5-2. Regional Distribution of Foreign Travel in 1959.

(in millions of U.S. dollars)
RegionReceips

Payments

Balances

United States and Canada

26.5

1L7

14.8

OEEC countries

3.5

3.6

2.6

4.7

-O.1
-O.1
-2.1

32.6

20.1

12.5

O.1

Soviet Area
Other Countries
International Jnstitutions

UnallocatedTotal

Source:See Table 1.

The balance of receipts and payments is positive in total, owing to
the large amount of net receipts from the United States and Canada, whichmore than offsets the negative balance of other regions.

(2) Transportation'

The amount of receipts and payments increased in postwar years,
but the balance turned negative in postwar years, although it was positivein 1936. As to the receipt side, freight holds•the major part, but as tothe payment side freight occupies a smaller part in 1958 and 1959, owing

to the increase of port disbursements.
The transportation account as stated above, registered a positive balancein 1936, but it turned negative in postwar years. The peak of negativebalance was reached in 1957, but thereafter net payments decreased. The
net payments of freight were also highest in 1957, but in the following
years it declined remarkably. (See Table 6-1.)
As is shown in Tables 2 and 3, the relative importance of transportation
receipts recovered their prewar level in 1960, while that of transportation

payments became far greater in postwar years.
Table 6-2 shows the regional distribution of transportation transactionin 1959. 0n the receipt side, "other countries" hold the first place, andthe United States and Canada come next, followed by OEEC countries.
On the payment side, OEEC countries rank first, and the United StatesFUKUO KAWATA

48

Table 6-1. Receipts and Payments in Transportation(in millions of U.S. dollars).

Year

Receipts

Payments

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

96 (-)
l7 (2)

32 (-)

64 (-)

135 (131)

41 ( 35 )

256 (238)

71 ( 54 )

223 (201)

77 (58 )

247 (213)

90 (75 )

256 (209)

127 (116)

276 (225)

210 (158)

513 (334)

Net Receipts

261 (178)

762 (530)-118 (-129)-215 (-203)-152 (-147)-170 (-155)-166 (-134)-149 (-109)-303 (-179)-501 (-341)

240 (178)

406 (187)-166( -9)288 (199)

467 (223)

317 (-)

588 (-)-179 ( -24)
-27' 1 ( - )Note:Figures in parentheses represent receipts from and payments for freight.

and Canada stand next, followed by "other countries".
The balance of receipt and payment is negative in total, and almost
all regions show negative balance except "other countries".
Table 6-2. Regional Distribution of Transportation in 1959.

(in millions of U.S. dollars)
RegionReceipts

Payments

Balances

United States and Canada

105.1

138.5

OEEC Countries

36.9

178.2

-33.4
-141.3

Soviet Area

O.4

6.9

-6.5

Other countries

144.1

72.2

71.9

1.4

70.8

-69.4

287.9

466.6

-178.7

International Institutions

Unallocated
Total(3) Insurance
The amount of receipts and payments in insurance tended to increasein postwar years, The balance which was positive in 1936, turned negativein postwar years. (See Table 7.) The relative importance of insurance
receipts and payments to total invisibles became smaller in postwar years
than they were in 1936. (See Tables 2 and 3.)(4) Investment Income
The amount of receipts and payments of investment income tended toA STUDY ON JAPAN'S INVISIBLE TRADE 49
increase during the postNNTar years. In contrast to the positive balancein 1936, the investment income ofJapan showed a negative balance inpostwar years. (See Table 8-1.) The share of investment income ininvisible re6eipts and payments was far larger in 1936 than in postwar
years, although the percentage shows a gradual increase in postwar years.
(See Tables 2 and 3.) It is to be noted that in the ]atter years of the 1950's

receipts and payments of items other than direct investment became muchlarger than in the former years. (See Table 8-1.)'

Table 7. Receipts and Payments in Insurance(in millions of U.S. dollars)Year

Receipts

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

40

Payments

Ne,t Receipts

35

5

3

-3

4

16

-12

6

15

-9

5

18

9

20

-13
-11

IO

l9

-9

12

25

-13
-17
-10
-15
-16

17

34

22

32

24

39

32

48

Table 8-2 shows the regional distribution of investment income transaction in 1959. 0n the receipt side, the United States and Canada holdthe predominant position, occupying about three quarters of total receipts.
Next come "other countries", taking up only about less than 200/. of thetotal. On the payment side, the United States and Canada, also rank
first, accounting for about 500/. of total receipt. OEEC countries holdthe second place.with 350/. ofthe total, followed by Intemational Institutions.

The balance ofreceipts and payments is negative in total. The negative
amount is largest for OEEC countries, followed by the United States andCanada, and International Institutions. It is only "other countries"that show a fairly large amount of positive balance.

(5) Government Transactions
One of the most important features in Japan's postwar invisible tradeFUKUO KAWATA

50

Table 8-1. Receipts and Payments in Investment Income(in milliops of U.S. dollars.)Year

Receipts

Payments

Net Receipts

1936
1950
1951
1952
1953
1954
l955
1956
1957
1958
1959
1960

94 ( -)

43 (-)

-(-)

6(5)
6(6)

12 (-)

35 (5)

8(-)
14(1)
27(3)
34(4)
27(5)
48(5)

47(7)
56 (11)66 (15)82 (19)67 (11)85 (11)51 (-)-6 (-5)-5 (-6)-5 (-4)-23 (-5)-39 (-7)-41 (-10)-39 (-12)-48 (-15)-40 (-6)-37 (-6)

80 (-)

114 (-)-34 (-)

1(-)
6(-)

11 (4)

Note : Figures in parentheses represent receipts from and payments for direct investment
income. Items other than direct investment income include, for receipts, interest on
foreign exchange deposks of Ministry of Finance and the Bank of Japan; and, forpayments, interest on IBRD loans and on other government obligations andcharges on IMF holdings of yen in excess of 75 per cent ofJapan's quota.

Table 8-2. Regional Distribution of Investrnent Income in 1959.

(in millions of U. S. dollars)

RegionReceipts

Payments

United States and Canada

35.7

45.5

-9.8

OEEC countries

2.2

30.5

- 28.3

Soviet Area

O.1

Other countries

7.6

O.4

International Institutions

O.2

8.7

Unallocated

2.0

Total

4Z8

85.1

Balances

O.1
7.2
-8.5
2.0
-37.3

Source:See Table 1.

is the spectacular increase in the receipts of the government transactions.

AImost all the amount is included in the foreign military expenditures
account, which suddenly increased since the outbreak of the Korean conflict.

The amount reached its peak in 1953, and after that year it tended to decrease. The amount ofpayments also tended to increase, coveringJapanesediplomatic expenditures abroad and contributions to international organizations. The balance of Government rtansactions account was negative in
1936, but in the postwar years it turned positive, (See Table 9-1.)
The share of government transactions in invisible receipts which wasA STUDY ON JAPAN'S INVISIBLE TRADE 51
only 40/. in 1936 rose to as high a level as 850/. in 1953, but thereafter it
gradually declined, registering 420/. in 1960. (See Table 2.) By contrast,

the ratio of government transactions to total invisible payments, which
was 250/. in 1936, declined in the postwar years to the low level of2 or
30/.. (See Table 3.)
Table 9-1. Receipts and Payments in Government Transactions, n.i.e.

(in millions of U.S. dollars)Year

Receipts

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

12

(-)

l54 (154)

Payments

Net Receipts

50

-38
154

-i

625 (624)2792 (788)6786811 (803)9802614 (602)11603

524 (505)13511

524 (498)
486 ("9)427 (404)

19

505

20

466

24

403

395 (381)27368

427 (-)

32

395

623

.
Note : Figures in parentheses represent
receipts from foreign military expenditures.
The regional distribution of government transactions account in 1959
is shown by Table 9-2.

On the receipt side, the United States and Canada occupy almost
all the amount of total receipts. "Other countries" come next, followed
by OEEC countries. On the payment side, "other countries" rank first,

followed by the OEEC countries and the United States and Canada.
Table 9-2. Regional Distribution of Government Transactions in 1959.

(in millions of U. S. dollars)

RegionReceipts

Payments

Balances

UnitedStatesandCanada
OEECcountries

384.9

4.7

380.2

2.2

4.8

-2.6

SovietArea

O.3

O.3

o

Othercountries

7.3

l5.6

InternationalInstitutions

O.1

2.0

-8.3
-1.9

Unallocated

-

Total
Source : See Table 1

394.8
.

m
27.4

367.4

52

FUKUO KAWATA

The balance of receipt and payment is positive in total. (nly theUnited States and Canada show positive balance, while all other regions
register negative balance.

(6) Miscellaneous services

The amount of payments in the miscellaneous service account showsa remarkable rise in postwar years, although the increase in receipts was
not so remarkable. Therefore the negative balance ofthis account increased

greatly. (See Table 10-1.) Miscellaneous services cover receipts andpayments of (1) fees, (2) film rental, (3) patent royalties, etc. (4) personal

services, (5) communications, (6) adj'ustment, (7) construction abroad,(8) pensions, (9) management fees, (IO) profits or losses on business activity

abroad, (11) advertising, (12) subscription to press, (13) copyrights,(14) other rentals, (15) lottery tickets and prizes, (l6) processing fees,(17) claims, (18) private contribution, (19) settlement of postal moneyorder, (20) news services, (21) settlement of" open book account, and (22)others.

The increase in payments is largely due to the rise of payments forpatent royalties, etc. For example, the payment of patent royalties, tec.

from Apirl, 1960 to March, 1961 amounted to 94 million dollars out of
the total payment of 281 million dollars for miscellaneous services during
the same period.
The ratio of miscellaneous services receipts to total invisible receipts
was 30/. in 1936 and 50/. in 1960, while that of miscellaneous services payments to the total was 80/. in 1936 and 210/. in 1960. This indicates theconsiderable rise in the relative importance of miscellaneous service payments

in postwar years. (See Tables 2 and 3.)
Table 10-2 shows the regional distribution of miscellaneous services
and insurance in 1959. 0n the receipt s,ide, the United States and Canada,
and OEEC countries rank first with almost equal amount, "other countries"
coming next to them. On the payment side, the United States and Canada

occupy the foremost position, followed by OEEC countries and "othercountries".

The balance of receipts and payments is negative both in total, andin each individual region. The Iargest negative balance is registered by theUnited States and Canada, followed by OEEC countries and "othercountries."(7) Private donations
The amount of receipts of private donations is far larger than that

A STUDY ON JAPAN'S INVISIBLE TRADE

53

Table 10-1. Receipts and Payments in Miscellaneous Services(in millions of U.S. dollars)Year

Receipts

1936
1950
(1)
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

Payments

Net Receipts

10

J6

-6

37

15

101

51

22
50

16

40

-24

18

53

26

7!

-35
-45

22

82

m60

32

ll5

-83

47

131

-84

52

158

- 106

55

l81

55

241

-126
-186

Source:See Table 1.
Note : (1) The 1951 figures include receipts of 89.0 million dollars and payments of
24.1 rnillion dollars under the convertible yen system.

Table 10-2. Regional Distribution ofMiscellaneous Services andInsurance in 1959
(in millions of U.S. dollars)

RegionReceipts

United States and Canada
OEEC countries

28.7

110.9

-82.2

28.6

64.3

- 35.7

Soviet Area

O.3

O.4

-O.1

Other countries

21.4

44.0

- 22.6

O.6

-O.6

220.2

-141.2

Payments,

Balances

International Institutions

Unallocated
Total

79.0

Source;See Table 1.

of payments, which makes the balance of this account positive both in1936 and in postwar years. (See Table 11-1.) Private donations cover(1) personal remittance, (2) institutional remittance, (3) legacies, etc., and(4) migrants' transfers. The relative importance of private donations tototal' invisibles was 120/, in 1936 and 60/, in 1960 for receipts, while, for pay-ments, it was IO/. in 1936 and negligible in 1960. (See Tables 2 and 3.)
The regional distribution of net receipt of private donations, is shownin Talbe 11-2.
Private donations originating from the United States and CanadaFUKUO KAWATA

54

account for about three
OEEC countries follow

quarters of the total. "Other countries" andthe United States and Canada, although theirrespective amount is far

smaller.
Receipts and Payments in Private Donations

Table 11-1.

(in millions of U.S. dollars)

Net Receipts

Payments

Year

Receipts

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

39

2

37

45

2

43

26

10

16

50

16

34

23

2

21

32

3

29

33

2

31

34

1

33

37

2

35

41

2

39

50

2

48

57

4

53

Table 11-2.

Regional Distribution of Net Receipts of Private Donationsin 1959.

(in millions of U.S. dollars)

Net Receipts

RegionUnited States andCanadaOEEC countries

34.9
3.7

Soviet Area

O,9Other co,untries

7.9

Total

47.4

Source:See Table 1.

(8) OMcial Donations
The amount of oMcial donation receipts was negligible in 1936, but it
increased to as much as 360 million dollars in 1950. This is because of

U.S. aid. With the end ofU.S. aid, the amount decreased. The amountof oMcial donation payments cover reparations and grants. Since 1955,
the payment of reparations increased, making the balance of this accountnegative. In addition, the waiver of the credit balance on Japan's open
account with Indonesia largely increased the deficit of this account in 1958.
The relative importance of oMcial donation receipts to total invisible

A STUDY ON JAPAN'S INVISIBLE TRADE 55
receipts was negligible in 1936, but it rose to 560/, in 1950. Later it declined

to a negligible figure in 1960. (See Talbe 12-1.)

The ratio of oMcial donation payments was negligible in 1936, but
in 1955, the figure showed 50/.. (SeeTable 2 and 3.) This was due to thebeginning of reparations payments. The figure in l958 was 260/., but theratio for reparations was only 70/,, the rest mainly representing the amountof waiver of Japan's credit balance on her open account with Indonesia.
Table l2-1. Receipts and Payments in OMcial Donations(in millions of U.S. dollars)Year

Receipts

1936
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

--

360
155
5

NetReceipts

Payments
--

--

360

--

155

--

5

--

-13

"
m
24(24)-11

12

20(20)
76(76)
245(64)71(70)
79(69)

-66
-235
-71
-79

10
10
---

--H-

m

-8

Note:Figures in parentheres represent reparations. The payments in 1958 cover thewaiver of the credit balance onJapan's Open Account with Indonesia amounting
to 177 million dollars.

'

In contrast to private donations, oMcial donations register net payments.
The regional distribution of net payment of oMcial donations is given in
Table 12-2.
Nearly all the amount of net payment is absorbed by "other countries",
because reparations, which constitute by far the largest item of the pay-

ment of oMcial donations, are paid to them. ,Table l2-2. Regional Distribution of the Net Payment of OMcial Donations.

(in millions of U. S. dollars)
RegionUnited States and

Net Payments.

CanadaLl

OEEC countries

4.1

Soviet Area
Other coun' tries

65.2

Total

70.4

Source:See Table 1.

56 FUKUO KAWATA'

III
It may be interesting to make an international comparison as to thesize and relative importance of invisible trade of the major trading nations.

Professor Ely Devons calculates invisible receipts and payments for major
trading countries which had a total import trade of over $2,OOO millions in
1958. According to his study, the size ofJapan's invisible receipts ranked
ninth and that of her invisible payments ranked fifth. (See Table 13.)
The ratio of Japan's invisible receipts to her total trade was 22,70/.
in 1958. This percentage is slightly Iower than the world average, while

the percentage of her invisible payments to total trade was 27.50/.,
which was almost equal to the world average. (See Table 13.)
Table 13. Invisible Receipts and Payments for Major

Trading Countries: 1958.
Invisible Trade as percentage

Invisib!e Trade

Werld
United States

United Kingdom
Cl)

Germany
Canada(2)

France$'ooo m.

s'ooo m.

(o/o)

(o/o)

33.8
7.7
3.8
2.5
1.2
1.6

33.4
10.4
3.1
2.9
2.2
1.4
O.7
O.9
O.8
O.9
O.6
1.2
0.8
O.2
O.4
O.5

27.8

27.4

32.2

44.6

Ll
l.8
l.O
O.8
O.8
O.1
O.4
O.5
O,7
O.8

SwedenVenezuela
Australia

India
Switzerland

Union of S. Africa

Payments

Payments

Italy

Belgium

Receipts

Receipts

Netherlands

Japanof Total Trade

28.2

24.7

21,9

28.5

18.9

29.3

33.0

28.6

35.8

23.8

41.7

23.0

23.5

2L7

22.7

27.5

28.7

20.6

3.8

43.6

17.9

32.0

28.5

8.7

30.7

17.3

43.9

25.6

Source : ProÅí Ely Devons, World Trade in Invisibles, Lloyds Bank Review. April 1961.
Nbte : (1) In this and in the following tables, "Germany" means "Western Germany".
(2) Figures for France relate to trade between the Franc Area and the rest of

the world.

Table 14 shows the amount and relative importance of invisible receipts

itemsof selected countries in l958. As to the foreign travel item, thetA STUDY ON JAPAN'S INVISIBLE TRADE 57
United States is largest in amount, but Italy is more dependent upon thisitem than any other country. In the transportation item, the amountfor the United States is the biggest, but the relative importance of thisitem to total invisible is greatest in the United Kingdom. For investment
income, the amount for the United States is by far the largest, as well as

being of greatest relative importance. As to government transactions,the amount for Germany is largest, but the ratio of this item to total invisi-

bles is greatest in Japan. .

With respect to insurance and miscellaneous services, United Kingdom
ranks first both in the amount and in the relative importance, although
the breakdown of insurance and miscellaneous services is not made clear
in the United Kingdom. As far as the separate figures are available, theUnited States holds the first place in the amount both of insurance andof miscellaneous services. As for private donations, Italy ranks first andas for oMcial donations, France stands in the first place.
Table 14. Invisible Receipts of Selected Countries 'in 1958

(in millions of U.S. dollars)
Item

u.s.

U.K.

1. Foreign Travel

825

386

2. Transportation

1,672

1,210

3. Investment Income

3,677

?lg

4. Government, n. i. e.

438
223
851

5. a Insurancee

5. b Miscellaneous

5(a)+(b)6. Private Donations

7. 0Mcial Donations
Total

1,074

33
61
7,780

} 1,os(o"{

(t)
1,080
(1}

-

8

3,776

Germany France
452
718

163
151

101

168

925

369

Italy

492
401
53
142

12

Q)

20

Cl)
106

34
390
424
(1}
276
14

2.592

1,342

1,802

50

35

264
314

350
385

- Source:See Table 1.
Note : (1) Net receipts.

Table 15 shows the amount and the relative importance ofinvisible
payments items for selected countries. For foreign travel, the amountfor the United States is by far the largest, but 'the relative importance of
this item is greatest for Germany. In transportation, the amount is largest
for the United States, but the ratio of this item to total invisible payments
is greatest in Italy, followed by that in Japan.

For investment income, the amount is largest for the United Kingdom,
and the percentage of this item is also greatest for that country. As to
the government transactions, the amount is by far the highest for the United

Japan

24
240

27
427

22
52
74
41
843

10

58 FUKUO KAWATA'

States, owing to her enormous amount of military expenditures abroad,and the percentage of this item is also highest in that country.

The United States also ranks first in the payment of insurance, but
Germany holds the first place in the payment of miscellaneous services.
As for donation payment, the United States holds a preeminent position
both in private and in oMcial ones. The major part of oMcial donations
paid by the United States is used for her military aid, while those paidby Germany and Japan are devoted chiefly to indemmifications andreparatlons. ' '.

Table 15. Invisible Payments of Selected Countries in 1958.

,(in millions
of U.S. dollars)

Item

U.K.

u,s.

Germany France l

1.ForeignTravel

1,460

434

486 '101

2,Transportation

1,636

969

799

291

3,InvestmentIncome

786

829

250

108

4,Government,n.i.e.
5a.Insurance
5b.Miscellaneous

3,899

620

92

183

5.(a)+(b)

}

304
310
614

6.PrivateDonations
7.0flicialDonations
Total

'

573

(1)

-75

<1}

74

46

713

493

787

539

58

1,677

143

366

IO,646

3,070

2,838

cn

Italy

Japan

80
433
88
48
31
163
194

16
406

23

245

866

950

67
24
32
158
190

2

6

(1)

M
1,288

Source:See Table l.
Note : (1) Net Payment.

'Table 16 shows us invisible trade balances of selected countries in
1958. Balances are negative for the United States, Germany and Japan,
and positive for Italy, the United Kingdom and France.
As to foreign travel, Italy, France and Japan register positive balanqes

while the United States the United Kingdom and Germany show negative
ones. The amount of deficit is largest for the United States, and that ofsurplus is largest for Italy. As to transportation, the United Kingdom
and the United States show positive balances, whileJapan, France, Germany
and Italy have negative ones. The amount of deficit is highest in Japan,
and that of surplus is biggest in the United Kingdom. As to investment
income, the United States, the Unitcd Kingdom and France register positivebalances, while Germany, Japan and Italy recond negative ones. The
amount of surplus is by far the largest in the United States, and that ofdeficit is greatest in Germany.
As to government transactions, the United States, the United Kingdom,A STUDY ON JAPAN'S INVISIBLE TRADE 59
show negative balances, while other countries show positive ones, Theamount ofdeficit is exceedingly large in the United States and that of surplus

is greatest in Germany. Japan comes after Garmeny in the amount of
those transactions. This tells us of the fact that a large amount of military
expenditure is paid by the United States in these countries.

' As regards insurance and miscellaneous services, the United Kingdom,
the United States and Italy register positive balances, while other countries

show negative ones. The lamount of surplus is largest in the United Kingdom, while that of deficit is greatest in Germany.
With respect to private donations, only Italy shows positive balance,

while as to oMcial donations France alone records positive one. The
United States is biggest in the amount of negative balances of bothprivate and oMcial donations. Her negative balance in private donations
is chiefly due to the semittance in cash, personal as well as institutional,

and that in oMcial donations is mainly ascribed to the payments related
to Mutual Security programs and other military aid grants. 'Table 16. Balance of Invisible Trade of Selected Countries in 1958'(in millions of U.S. dollars)
Item

u.s.

U.K

1. Foreign Travel

-635
36

-48
241
115
-472

2. Transportation

2,891-3,468

3. Investment Income
4. Government, n.i.e.

6. Private Donations

-81
541
460
-540

7. 0Mcial Donations-1,6165a. Insurance
5b. Miscellaneous

5. (a)+(b)

`

Japan

Italy

-34

67

412

-81

- 140

- 149

6e
186
11

-32
-35
94
3
227

} 1,080

-24

- 143

1,080

-449
-473

-132

230

-75
-135

-46
-346

-6

276

106

-9

8
-166
-40
403
-10
-106
-116
39
-235

-246

54

936

- 107

-2,866

Total

Germany France

706

:

383

Source:See Table 1.

'

IV
In conclusion, we may summarize

our findings about thefeatures ofthe structure ofJapan's invisible trade.
First we take up the receipt side.

(1) Japan is too much dependent
This item alone occupies about a half
1958. Germany also depends largely

upon government transacUons.
of her total invisible receipts inon governmept transactions, but

60 FUKUO KAWATA
the percentage of this item is not so high as in Japan.

(2) The amount and percentage of foreign travel is too small incomparison with other countries. This item should and can be expandedby making efforts to attract foreign tourists.

(3) The amount and percentage of investment income is also very
low. This is partly because of the losses affected by the Second World
War. In order to enlarge this item, Japan should endeavor to expand her

foreigninvestments. I(4) Receipts from transportation, which rank next to governmenttransactions, should be increased by strengthening our merchant fleet.
Now let us turn to the payment side,(5) Payments for transportation holds the first place, taking up
about 400/, of the total. Compared with other countries, this percentage
is only second to that of Italy.

(6) Payments for miscellaneous services have recently been increasing.
This is chiefly due to the increase in the payments for patent royalties.

PROBLEMS OF INDUSTRIAL LOCATION RELATING TOREGIONAL DEVELOPMENT IN JAPAN
Minoru BEiKA
I
The writer was deeply impressed by public and private activities relating

to regional development problems, during his recent tour in western countries. Roughly speaking, three common points concerning regional phenomena could be found in those countries; the poiicies ofindustrial location todevelop the depressed ,or underdeveloped areas, the energetic activities ofurban renewal or redevelopment, and the active formation ofnew suburban

industrial districts. The same problems are found inJapan. But it is amatter of course that each country has its respective peculiar conditions,when observed more exactly. This article aims to approach the problems ofindustrial location relating to regional development inJapan, by comparisoriwith the common phenomena and special conditions in western countries.

II
It is not necessary to say that Great Britain has had the most progressive national policy of industrial location, which purpose is to ihduce newindustrial factories in several development areas (meaning depressed areas),
while restraining their establishment in existing, excessively concentrated

industrial districts, in the last thirty years. The French Government isfollowing the British policy for avoiding excessive industrial concentration in

Paris and the surrounding districts which occupy about 500/. of her industries, after the Second World War. On the contrary, in the United Statesof America, the local government and local communities have taken leading

parts in the regional development activities, by means of inducements to
new industries and assisting existing industrial firms, while the Federal.
Government
has promoted their activities indirectly. But recently as several
districts have become depressed economically by the change in industrial
structure, the Federal Government began to take a positive action in theredevelopment of these depressed areas.
In Japan, the Central Government has been shaping the policies forregional development and industrial location, following such experiencesof western countries, within these last ten years. The government has

61

62

MINORU BEIKA

established service bureaus of information for industrial location to enter-

prises in Tokyo and several other local central cities. Since 1961, theestablishment ofa new plant is obliged to be registered with the government.
If the location decided by the enterprise is undesirable from the nationa]standpoint, that it brings an excessive concentration of industries, a change

in its location plan is recommended by the government. Moreover several
new plans to avoid an excessive concentration of industries and to develop
underdeveloped local districts industrially, have been recently taken into

consideration by relating departments of the central government. These
plans have not yet been coordinated, but their final objectives can be seen

to be the same. The locational policies of industry in Japan are common
to those of western countries, as far as stated above. But more pointedly,
our country has confronted peculiart diMcult problems on several points,
physically,
economicallyand socially. ,(1) While the greater part ofthe areas in the western countries stated above
are plain fields or low hills, 800/, or over of the land in Japan is occupied

by mountain ranges. Therefore the development of land transportation
has been greatly obstructed, especially road networks in the inner part ofJapan. This is a necessary factor in the development of motor truck
transportation, which promotes the industrialization of the underdeveloped

local districts by attracting new industries. Under such conditions, thegovernment has been confronted with very difficutt problems, as to which
is more urgent; to redevelop the existing industrial congested districts, orto develop the underdeveloped local districts; to reconstruct or enlarge themain roads in the existing industrial districts to avoid congestion by theenormous development ofindustries; or to construct new roads in the underdeveloped rural districts to induce new industries in these districts, becauseroad construction is very expensive, physically because of our mountainous

districts, and socially because of our densely populated narrow plains.
(2) The policy in western countries to induce new industries in local districts, is chiefly due to the remarkable change in their industrial structure;
the old industries have become depressed while the new have becomeprosper-ous. In other words, the districts set aside for the inducement of new
industries are those that have.already been industrialized to' some degree,
rather than the so-called underdeveloped districts, but the existing industries

in such districts are of old type and depressed for this age of innovation.
The depression of these old fashioned industries has brought about severe
unemployment regionally. The policy of industrial location is related tothe unemployment problem for the most part.
The condition is very different in Japan. The industrial districts in,

PROBLEMS OF INDUSTRIAL LOCATION RELATING TO63
REGIONAL DEVELOPMENT IN JAPANJapan have been originally limited to a few metropolitan districts including

the large representative ports for foreign trade. Mostly agriculture andforestry are the leading economic activities in the other local districts.
Recently a few local coastal regions including reclaimed land only as beenindustrialized by some growing new industries. Therefore the income
difference between residents of the central and local districts has been con-siderably large. Now some effective policies to decrease the difference'should be taken by the government. Namely, in the case ofJapan, thedistricts in which the new industries are to be induced, are not depressed
areas, but so-called underdeveloped areas. The industrialization of theseunderdeveloped districts is more dithcult than in the industrially depressed
districts, since the former have had less experience in fostering industries
than the latter, and most of the national industrialists have little interestin these districts when selecting a plant location, in most cases.

(3) Regional development, essentially, should depend on the positive
activity ofthe local community. In western countries as stated above, theinhabitants in each district are more or less well conscious of the Iocal
community, and many industrial companies located there have taken into
consideration the good community relations policy, especially in the UnitedStates of America.
InJapan, after the War, the local governments and public bodies endeavoured to induce new industries and then later began to make more generaldevelopment plans. But these activities could be found only on the politicalor administrative level, and not in the local communities and in the policies

ofthe industrial companies located there. They tend to depend mainly on
the positive action of the central government.

However, such phenomena are reasonable from some standpoints.
Japan has few resources and an excessive population. Therefore the efficiency of a national investment and development action is an indispensablefactor, and a comprehensive national plan for regional development ismost desirable. Excessive competition for development activities among
local districts may lead to an undesirable waste of national resources.
Nevertheless, regional development is dependent on the spontaneous
activities of the local communities, their inhabitants, and individual
industrial companies located there. In the present free economy system, it
should be naturally admitted that the national planning activity may conflictwith the regional prospect to some degree. Such problems of national andregional planning activities lead to more desirable and adapted projects forregional development.
Due to the difficulties as stated above in Japan, social investments for

MINORU BEIKA

64

public facilities by the central and local governments are one of the mostimportant factors in regional development. It is generally said that social

investments are far less than private individual investments in Japan.
This is not unreasonable. Nevertheless, it must be emphasized that the
Ieaders of the industrial world ofJapan should initiate more creative action,

due to the above-stated peculiar regional conditions ofJapan. Until now,
Japanese industrialists have been forced to absorb their energies and activities

only in their own businesses and to ignore their surrounding conditions tosome degree, because ofthe rapid industrial development in such a short period. But now their environment has changed, and their positive cooperationis needed for regional development such as in the selection of industrial

location, urban renewal, and suburban industrial development, It would
be very diMcult to leave the solution of the problems relating to regional

development only to government planning and action, especially due tothe physical, economical, and social peculiar cond{tions ofJapan. Whena business leader is not swayed by conventional thinking and recognizes
accurately the logic ofindustrial Iocation inJapan, the business policy which

he would adopt relating to industrial regional development, would be not
only very effective for the solution ofour development problems, but would
also improve the surrounding environment for his own greater industrial
development.

III
We could find positive public and private action for urban renewal
or redevelopment in many large cities in western countries. In the UnitedStates of America, the rapid development of motor transportation (carand truck) and the change in consumers' behavior, have brought about theremarkable development ofnew suburban industrial and residential districts,

so that urban districts (downtown) of the center of the core city in themetropolitan region have been rapidiy depressed in physical facilities,
economical condition, and social structure. Now the core cities have been
confronted with severe problems to redevelop the downtown section by

any means. Each respective core city has planned for urban renewal
with the cooperation of industrial associations, business leaders, and many
people in the local community, and some energetic core cities have alreadybeen reconstructed in new city centers. In the near future, the writer
supposes, development differences among such cities will be found according
to the different degrees ofinterest and effort in the redevelopment of publicorganizations and private bodies of the communities. In Europe, thedegree of urban depression is not so large, but several large cities have

PROBLEMS OF INDUSTRIAL LOCATION RELATING TO65
REGIONAL DEVELOPMENT IN JAPAN
been redeveloping their urban districts, along with reconstructing war
damages by bomb attacks ofWorld War II. In some cases, middle-andsmall-sized industrial firms have relocated their plants from the central
old districts to new suburban industrial estates for better land-use andmodernization oftheir industry, and some small industrial firms have beenaccomodated in newly constructed flat buildings at the same site. In
other cases, slum clearance in old urban residential districts has progressed,

but industrial relocation in those districts has been confronted with somedithculties. In most of cases, the local governments and public bodies
have endeavoured to develop the urban districts.
In Japan, also, we have been confronted with heavy traMc congestlon
and the declining advantages of other locational factors in the central districts of large cities, and commercial and industrial activities have been
obstructed by these difficulties. There are many problems to be solved inthese urban renewals, but this article intends to limit its scope to the problems

relating to industrial location and business policy. Two points will be ex-amined here; (1) commercial (wholesale) and (2) industrial functionin the core cities of the metroplitan districts.

(1) In the center of the core cities (especially Tokyo and Osaka) in themetropolitan regions, there are many head oMces of public and private
establishments, commercial companies and small industrial firms. Now
the large commercial companies have begun to relocate their warehouses
which had been built in congested business centers to suburban districts.
But in the small commercial firms located there, their oMces have thefunction ofhead oMces, trading places,,stockyards and, in some cases, dwell-ing houses of the employees. These business features have hitherto been
essential for many small commercial firms. Therefore, for the redevelopment of such districts, it is indispensable to revise business policies andcommercial customs to some degree with the cooperation of these small
commercial firms and their customers (local wholesalers and retailers).
Moreover, manufacturing industries could be gradually dispersed to surrounding districts of the existing industrial center by the national policy ofindustrial location, but the commercial functions relating to these manufacturing functions would still have to be concentrated in the few central

districts in Japan, and the volume of the business world would increase
more and more by the rapid industrial development of other new districts.

(2) The tendency of a market-oriented location in many industries, thenarrowness oflevel plains for industrial location inJapan, and the challenge
by regional communities to modernize the structure of the industries there,
have brought about a Iarge scale reclamation of the waterfront of the central

MINORU BEIKA

66

districts for new industrial plants. From the standpoint of the industrial
regional structure of the whole country, this concentration is not desirable
for decreasing the income differences among the regions, but we can not help
admitting such phenomena for the reasons stated already. As far as it is theinner part of reclaimed estates, the land use or layout of industrial establish-

ments can be modernized and planned properly, but the multiple effects fromtheir industrial activities might bring many undesirable problems to thehinterland. Accordingly, the problems for urban redevelopment or renewal
are more diMcult to solve. It is desirable that public action and community
relations of industrial firms be coordinated more closely.
Fortun,ately, the representative industrial and commercial associationsin the metropolitan regions in'Japan have recently recognized the impor-tance of these problems and begun research on them. Some kinds of industrial and commercial firms have planned to set up their own joint new
industrial estates in the suburban districts, relocating their existing establish-

ments.

IV
It is a common phenomenon in western countries that suburban industrial districts have been enormously developed, and in Japan it is also
the same. But the types of suburban industrial districts of the former are
considerably different from the latter, Japan. In western countries, recently
especially after World War II, many of these developments have been in thetype of well planned, and managed (or cGntrolled) industrial estates.
In the United States of America, such a type is generally called anindustrial park, and has had an enormous development throughout thecountry. In industrial parks, which have been established by private companies and public bodies, the layout and related facilities are not only well-planned for eMciency and beauty, but also the kinds of industrial firms to
be located there are selected to avoid obstructions in the effect of their in-

dustrial activities on each other, and moreover, the parks are continuously
controlled by the organizations to maintain the desirable good conditions
for industrial development and business climate.

In Great Britain, we can find two types of suburban industrial districts. Some are found in the so-called "development areas" for the promotion of inducing new industries by the government, and they are developed
as new types of industrial estates like the industrial parks in the U.S.A.
The others can be found in the industrial zones bf the "new towns". Bothare well planned and have very beautifu1 landscapes, and maintain excellent conditions for industrial development, especially in the cases of thosePROBLEMS OF INDUSTRIAL LOCATION RELATING TO 67

REGIONALDEVELOPMENTINJAPAN . •which have been constructed after the War. In the U.S.A., cases of thesuccess of industrial parks can be found relatively more in the types of privatecompanies, while in Great Britain, they are rather in public bodies.
These beautifu1 and ethcient suburban industrial districts are perhaps
partly due to the well-designed and controlled formula ofthe industrial estates
or industrial parks, and partly due to the community relations policies of theindustrial firms located there. At least, the industrial firms must inevitably

be under an obligation to be community-conscious, being located in theseplanned and controlled districts.
On the contrary, in Japan, industrialization in the suburban districts

has developed disorderly, because the tremendous industrial development
made it diMcult to maintain a well-designed land use. Of course, we canfind the same kind of reasons for disorderly development as in westerncountries, for example, hindrance to cooperative actions by inter-cities
boundaries, and the entrepreneurs easy-going behavior in' selecting locations

for industry. Moreover, industries ofJapan tend to concentrate in a few
central industrial districts because of the characteristic factors, physically,

economically and socially as stated before. Accordingly, new industrial
establishments tend to overflow to a greater degree to suburban districts
from central districts. It is the reason why land use has been disorderlyin suburban districts, at least until now.
The writer thinks, in general, the idea of industrial parks is not only
one of the best means to prevent locational disorders of suburban industrial

districts, but it also promotes industrial firms located there to be morecommunity-conscious and to adopt a business policy to bring about goodcommunity relations. The policy of "new town" is also desirable. But inJapan, the scarcity of land and dense population might hinder the execution of such an ideal policy. Therefore, it is most desirable to design
several types of well-planned and controlled industrial estates or industrial

parks in new suburban districts in representative metropolitan regions inJapan. These are industrial estates for a single largescale plant, forseveral plants belonging to growing medium-size industrial firms, and several

types of relatively smaller industrial estates for many small-size firms;
they are groups of related industrial firms belonging to some core large

scale industrial enterprises, cooperative groups belonging to the samekind of industries, and groups independent industrially on each other.

v
The government policy for the location of industry, the plan of anindustrial estate in a suburban district, and the plan of an urban redevelop-

68

MINORU BEIKA

ment are important means for a well-balanced regional development of thewhole country, common to all industrialized countries. But each country
should try respectively to execute these plans for adaption to its peculiar
conditions. Especially, the function of industrial firms is very importantin the accomplishment of these plans.
Problems of industrial location should be approached by industrial
firms, not only as problems to investigate locational factors, but also as
problems to contrive creative business policies to overcome restrictions forindustrial locations. The logic of business activities and business experiences in the past show the possibilities for these business policies relating
to industrial locations. The experiences ofwestern countries as stated above,show such evidences to some degree. In Japan, where more diflicult
conditions for industrial location are to be found, it is most desirable that thebusiness leaders recognize the important function of their business policies

for a balanced regional development ofJapan. In other words, it is desirable for business leaders to contrive to absorb social costs into their private
costs by their creative activities, which they inevitably bring forth by theirbusiness activities, in business policies as far as possible.

THE SYSTEM OF INSIDECONTRACTING
Tadakatsu INouE

About the rise and growth of the factory system we know a great deal
and yet our knowledge is largely centered in general backgroud, technological development, personalities, manufacturing establishments, capital
invested, and social results. The vital story of the factory managementin the earlier days is not well known, expect at a few scattered spots. For
instance, one might suppose that the factory owner should exercise supervision over the details of the manufacturing processes. But such an idea

did not spring into existence as soon as he had been drawn within thefactory. A remarkable fact which emerges from a study of the earlyfactory organization is that work in factories was performed by the system

of inside contracting. In this paper, thus, we shall attempt to examine(1) the nature of the system, (2) the origin of the system, (3) the advantages attending the system, and (4) the decline of the system.

I
The chief feature of the system of inside contracting is the existenceof an intermediary class of men who act as a link between the factory ownerand the workers. Termed "contractors, " "subcontractors," "job-takers,""job-hands," "piece-masters," "overseers," "overhands," "department
heads," "department supervisors," "fitters," or "charter-masters," they
all had much the same general function to perform. This was to contract
with the factory owner to furnish him with a certain number of products
at a specified price, and then to employ, pay and supervise such workers
as they needed to fulfi1 their individual contracts. These arrangements
look very much like the so-called subcontracting or subletting between

a prime company and an independent company or companies, yet wereconfined entirely within the factory walls.

In detail, however, the duty of the contractors varied according to
the nature of their trade. Sometimes they had large numbers of workmen
under them; in other cases, they had only one or two helpers. Occasionallythey provided their underhands with tools and certain raw materials. But
usually they relied on the factory owner not only for the plant and machines

69

70

TADAKATSU INOUE

but also for all neccessary materials and supplies. Theoretically, they
could not recieve payment until their individual contracts were fu1fi11ed
to the satisfaction of the factory owner. In actual practice, however,most ofthem claimed payment from the factory owner before the completionof the work. As to the payment to their subordinates, the contractors
iR some industries paid directly whatever wages they considered suitable;
eleswhere they only fixed the wage rates of their subordinates and depended
on the factory owner for the payment of the wages. In the latter cases,
the wages paid through the factory owner were deducted from the contractors' price. Sometimes the contractors recieved a daily base rate inaddition to the differential between the job price and the labor costs on
the work for which they contracted,
In all cases, however, the contractors relieved the factory owner ofmuch of the responsibility attending the actual manufacturing processes.
After the factory owner had made agreements with the contractors, he had
no need to concern himself about the employment of workmen and about
the supervision of them. His chief functions were defined to provide a
workplace and machinery, to supply raw' materials and working capital andto arrange for the sale of the finished products. The multiplicity of operations was left to the contractors who, in turn, ran their divisions with almost

complete authority or independent autonomy.
II

The inside contract system can best be understood by observing how
it worked in each particular instance.

A. The industries of Birmingham and the Black Countr>r(i)In Birmingham and the Black Country in 1860, this system had longexisted in the majority of industries in which Iarge units existed, from thecoal and iron trades to the manufacture of brass goods, chains, edge-tools,
gunlocks, buttons, machine-made naiis and washers, bedsteads, saddlery andharnesses, hollow-NN'ares and tinplate wares.

a In the blast-furnaces, the iron master commonly contracted withthe "bridge-stocker" and the "stock-taker." The former was the contractor
in charge ofthe upper part ofthe blast-furnace. He kept horses, employeda gang of men, women and boys, and supplied the furnace with neccessary
materials. He was paid so much a ton on the produce of the furnace, andhe made his own arrangements with his underhands. The latter was(.1) For information on the system in Birmingham and the Black Country, see G. C. Allen's
The Industrial DevetoPment of Birmingham and the Black Countr" 1860-1927, 1929.

THE SYSTEM OF INSIDE CONTRACTING 71
the contractor in charge ofthe lower part ofthe furnace, and his subordinates

prepared the sand and looked after the casting and the weighing of the
Pigs.(2)b As in the blast-furnaces, the system of inside contracting wascommon in finished-iron works. The puddler, who performed the keyprocess in this industry, usually employed one or two men and boys as
assistants at the puddling furnace; the "singler," who reheated andhammered the iron in the form ofa ball in order to remove the slag, had
an underhand to help him move the iron; and in the rolling mills the work
was done by contract between the employers and the master-rollers, whothemselves hired and paid the w'orkers they required.(3)c In the brassfoundry trade, an overhand commonly specialized insome particular class of article and employed about seven underhands,

although twenty or thirty was not an uncommon number. Often theoverhands supplied the tools, aqua fortis and other "loose" materials;
while the master provided space, power, machinery and metal. When thejob was a long and complicated one, then two or more overhands would
sometimes go into partnership with each other, and would pool theirresources for the duration of the particular contract.(4)d The women in the button factories each had a few girl assistants, andit was said of that trade that "the manufacturer......has merely a nominal

control over the large proportion of his workpeople. He neither engages

them, pays them nor dismisses them. They are the servant of his
servants."(5)e In the collieries, the owners usually contracted with the "butties,"

who employed, managed and paid the workers required for getting thecoal from a mine, and for carrying it to the shift. Sometimes the "butty"
had as many as a hundred and fifty workers under him and also employeda "doggie" to help in the work of superintendence.(6)B. The textile-machinery industry of New England
The system of inside contracting was in common use by many New
England textile-machinery companies in the middle nineteenth century.

a The Proprietors of the Locks and Canals Company
As successor to the machine shop of the Boston Manufacturing Com(2) Ibid., p.146.
(3) Ibid., p.148.
(4). Ibid., pp. 164-165.
(5) Labour and the Poor in The Morning Chronicle, October 21, 1850. (see G.C. Allen, oP. cit.,p. 164.)(6) G. C. Allen, oP. cit., p.144, 164.

72 TADAKATSU INOUE
pany which was founded in 1813 by the mercantile capitalists of Boston,
this company engaged in the manufacture of a nearly complete line of
textile machinery for the period from 1825 to l845 at Lowell, Mass. The
capital stock was $600,OOO; the building was probably 142 feet long andfive stories high; and the numder of employees was nearly 300 men in
1835.

There is little information about the organization of this machine
shop. It is evident, however, that the key-position in the shop was occupied by the contractors. A business historian has described it as follows:(7)"These men [the skilled mechanics and overseers] were respectedby laborer and [mill] agent alike as masters of a trade. They contractedwith the Locks and Canals Company for the performance of specific jobs
and enjoyed considerable freedom in the fulfi11ment of their contracts.
The job hand and overseers hired and discharged their own help, trained
their own apprentices,..........."b The Lowell Machine Shop
In 1845, the machine shop of the Locks and Canals Company wassold to a new corporation, known as the Lowell Machine Shop. The newcompany, like the old, performed its operation on a job-contract basis:(8)"NN'ork in the Shop continued to be performed, as in the past, by thecontract system. Job-takers worked in the Shop under contract and undersupeArision, but exercised, nevertheless, much independence. They were
paid a daily rate and supplied with materials and they employed, supervised, and paid their own assistants as needed. On large orders formal
contracts were signed with the job-takers; on small orders, or what thesuperintendent referred to as the `peanut trade,' verbal orders w'ere deemedsuMcient and binding."c The Saco Water Power Company
This company was launched in 1839 at Biddeford, Maine. The initial
capital stock authorized, $500,OOO, was increased to $2,OOO,OOO in 1847;
by 1850, the machine shop establishment consisted of a building 271 feetlong, 46 feet w'ide, and five stories high, and other shops and houses; bythat time the old-style hand lathes and fluting engines had been replacedby machine tools capable of heavy work; and in the peak years from 1844

to 1848, 600 men labored in the company.
The organization ofthe machine shop as stated in G,S.Gibb's 7rhe Saco--(7) G. S. Gibb, 7he Sco-Lowell ShoPs: 7rextite machiner7 Building in JVew England, I813-1949, 1950,

p.89.
(8) Ibid., p.217.

THE SYSTEM OF INSIDE CONTRACTING 73'
Lowell Shops:(9)"Reminiscences of an old machinist relate how work in the shop wasdone by contract, with experienced machinists taking certain parts of amachine to do by the job, employing cheap help, many of them boys, toperform over and over again one small task. `In this way, even boys
would become so adept in a single process as to be quite profitable to thecontractors employing them, yet would obtain but little real knowledgeof the machinists trade.......'"These bits of information are augmented by a detailed account,written by the superintendent and dated January 31, 1850, of the machine
shop as it then existed..,.... He said that he contracted for the different

kinds of work in the shop with men `sN'ho employ their own hands, makecontracts with them and pay them.' These contractors and their employees
worked in the shop and were furnished by the company with all the tools

and materials necessary for carrying on their work. When the work contracted for had been completed to the satisfaction of the superintendent,

the contractors received payment in accordance with the terms of theirwrltten contracts.

"The superintendent noted that at the time of his report there were
sixteen contractors at work in the shop, employing one hundred and thirty

men and boys.""Apart from these contractors, the company employed some hands
directly, the number varying according to the quantity ofwork to be done."d The Whitin ]YIachine Works
Perhaps the best illustration of the contracting system in the textile-machinery industry of New England was afforded by the practice in the
Whitin Machine VVrorks, Whitinsville, Mass. The following are the selections from T.R. Navin's The Whitin Machine IVorks since 1831.(iO)"Whitinsville supervisors who were employed on a contract basis weresaid to be `on job work'. The first Whitin job records begin in 1864, at
which time the system must have been in full effect, since fifty-six of thecompany's employees, or about one in ten, were being paid on a job-workbasis. This meant that they were receiving a daily base rate, in addition
to which they were being paid the differential between the job price andthe labor costs on the work for which they had contracted.

"The Whitin records show that Henry F. Woodmancy, head of thespindle department, worked on a jobbing basis from l864 until his death(9) Ibid., pp.145-147.
(10) Published in 1950 by the Harvard University Press.

74

TADAKATSU INOUE

in 1898. He began with only two assistants and ended with a department
comprising fifty or more. Like all other job workers, he was allowed abase wage in addition to his jobbing pay....... In general his income
followed the business cycle, growing rapidly in prosperous times and falling

off in periods of inactivity, In 1888, a fairly good year, job work paid
him $5,2I6.51. In the following year jobbing paid him $7,931.78; a year
Iater it fell to $ 6,277.35 and in the year after that to $3,254.21.

"Since Woodmancy's department produced not only spindles but
also collars, skewers, and caps, he was required to submit to the paymasteran itemized report of his department's output. The paymaster then computed the amount of his job-work earnings on a so-much-per-piece basis
and credited the amount to his account.......
"Since the paymaster also entered on the debit side of Woodmancy's
account all the wages of the men in the spindle department, VIToodmancy's
net income per spindle was very small compared with his gross incomeat no time more than a cent or two. Theoretically, the paymaster settledwith Woodmancy only four times a year, at which times he balanced
Woodmancy's account. In actual practice, however, Woodmancy did
not wait for his job-work earnings to be paid him in quarterly sums but
instead drew against his account at irregular intervals."

C. The Winchester Repeating Arms Company
See John Buttrick's 7rhe Inside Contract S]stem (The Journal of Economic

History, Summer, 1952) and H. F. Williamson's Winchester: The Gun that
IVon the West (1952) in both of which the practice of inside contracting
at Winchester are treated in detail.

D. The Taunton Britannia Manufacturing Company
In 1824, two village mechanics in Taunton, Mass., formed the partner-

ship of Babbitt & Crossman to experiment in the manufacture of householdarticles ofbritannia or white metal. In 1830, the partnership of Crossman,West & Leonard, successor to Babbitt & Crossman, was dissolved, and a
joint stock company, called the Taunton Britannia Manufacturing Company, was formed with a capital stock not exceeding forty thousand dollars.
The company, it seems, used a variation of the inside contract system
for the performance of specialjobs. "In some cases one or two employees
agreed to perform a certain task, the company charging their account withmaterials used, and crediting them for the Ware completed. Time worked
by other employees on such jobs was charged against the earnings of thecontracting mcn. This time was kept in the company records book, paidfor directly by the company, and deducted from the account of the con-THE SYSTEM OF INSIDE CONTRACTING
tractors before the final settlement."(ii)This practice of contracting looks very much like the inside contractsystem which has already been described. Nevertheless, there was a substantial difference: hiring and firing were in the hand of the company,that is, the contractors could choose their own helpers but only fromamong those whom the company had already hired,III

In considering the origin of the inside contract system, G.C. Allen'sinterpretation shown in his 71he Industrial DeveloPment of Birmingham and theBlack CountT7 (1929) is worthy of quotation:"The origin of this system is not diflicult to surmise. When theemployer first decided to establish a factory, he would naturally engage
subcontractors, since he would thus avoid the trouble of supervising theprocess of production; and his position would still approximate that of

the factor. The subcontractor, indeed, was a logical development fromthe shop owner. Their relation to the employer was identical, except
that, whereas the shop owner had his own workplace, the subcontractor
worked i" the employer's establishment. In those days, moreover, theemploying class had as yet worked out no managerial system by which
control could be centralized. Ifwide functions devolved on the overhands,
then the manufacturer had no need to concern himself about the supervision of his labour and about wages.
"During the old era the manufacturer, even if he had a large factory,
usually delegated much of his authority to overhands, and had little to dowith the actual productive process. He was, in turn, a factor who had
gathered his dependent craftsmen into his own establishment. His relation
to them had not fundamentally changed.
"This system grew up naturally with the rise of the factory from theolder methods of industrial organization, and the relation of overhand
and employer bore a strong resemblance to those ofshop owner and factor."
This well considered idea that the inside contract system was a naturaldevelopment from the domestic system was only applicable to such industrial

areas as Birmingham and the Black Country where the domestic systemonce prevailed throughout the majority of industries. But it was inappli-

cable to New England where the putting-out system did not precede thefactory system except in such consumer-goods industries as boots and shoes,(11) G.S.Gibb, The Whitesmiths of Taunton; A Hister) of Reed &9 Barton 1824-1943, 1946, p. 70.

75

76

TADAKATSU INOUE

straw hats, and ready-made clothing. Judging from the fact that theIndustrial Revolution in the United States borrowed much .from the earlyindustrial capitalism in England, it seems possible that the inside contract

systm in New England was also introduced from England. The opinionof T. R. Navin regarding this point was that:(i2)"How the contract form of plant organization originated is not known,
but in all likelihood it came to this country from England where industrial

development in the late eighteenth and early nineteenth centuries wasconsiderably more advanced than in the New World."
At any rate, the inside contract system was a method of adjustment
to the need of the time. On the one side, the manufacture was relievedof one of his chief functions, that is, the organization and management of

Iarge numbers of workers attending large-scale production. Even if he
was a factor or merchant in his previous history, he could easily enter thefield of manufacture by forming an alliance with a master mechanic. On
the other side, the contractor was able to avoid the problems of providing
for a plant and machines and selling the finished products while maintain-

ing a high degree of independent autonomy within the factory.

IV
From the manufacturer's standpoint the contract system had many
advantages: (1) as we have already described, the manufacturer wasable to avoid the problem of engaging the workers and of supervising them;(2) the manufacturer was able to shift part of the risk of operating to thecontractors, since the latter bore the fu11 effect of all fluctuations in laborcosts, whether favorable or unfavorable; (3) the manufacturer was able
to expect that the method of organization would function as a crude incen-

tive system. The contractors, who enjoyed considerable freedom in thefulfi11ment of their contracts and received a piece rate for the completed

goods, conducted their rooms with as much economy as if they were theirown. Thus, they gave their whole thought to the employment of cheap
help, to the training of inexperienced boys, to the supervision of the work
processes, and to the invention and application of new processes and tools.

Though the contractors received a given sum for their work, the factoryowner gained ultimately the advantage of any reduction in the cost of
production by resetting contract rates to be kept realistic.

(12) T.R. Navin, op. cit., p. 142.

THE SYSTEM OF INSIDE CONTRACTINGv
The practice of contracting, which had exercised a powerfu1 influence
over the organization of factories, began to disappear during the period
from the late nineteenth century to the early twentieth century. In Bir-mingham and the Black Country the transition was taking place during
the quarter of a century preceding the First World War, and in the textile

machinery industry of New England it occurred during the last quarterof the nineteenth century. For instance, in the Lowell Machine Shop,
Lowell, Mass., "by 1890, at the very latest, the long-established system
of job-takers or contractors in the plant had been abolished."(i3) In the
Pettee Machine Works, Newton, Mass., "by 1887 the traditional system
ofjob contracting had been abolished in the plant."(i4) In the Whitin
Machine Works, Whitinsville, Mass., "by 1895 job work as a system wasa dead letter."(is)From the beginning, the system of inside contracting had its fault.
As we have already described, the contractors were given almost complete
authority to hire, train, fire, and make out the payroll for the workers intheir departments. In other words, they performed their work on an
informal, decentralized basis. Under the system, the contractors had tobe farsighted and cooperative, so as to keep the whole process of productionin harmony. But in actual practice their position of authority, more often

than not, encouraged them to be arrogant and autocratic. They actedwith independent disregard of the welfare of the whole, and brooked nointerference in the conduct of their departments' affairs. Thus the insidecontract system tended to cause irregularity in the flow of production.
In the early days of factory production, however, the above mentioned
fault in the system was not a serious matter. The establishments of thosedays required no expensive plant and the loss occasioned by irregular work
w'as small. Moreover, in those days, when the competition was not keen,
there was less need of carefu1 attention to costs of production. After all,the advantages of the system outweighed such disadvantage in the eyesof the manufacturer.
In the meantime, however, the character of industrial operations
changed. The size of the establishments was enlarged and the burdenof overhead charge was raised. The loss from irregular work was very(13) G.S. Gibb, 7rhe Saco-Lowell ShoPs, p, 296,
(14) Ibid, p. 359.
(15) T.R. Navin, eP.•cit., p. 148.

77

78

TADAKATSU INOUE

large. At the same time there was the increasing pressure of severe competition. The manufacturer, therefore, was forced to make an attempt
to secure a regular flow of work through his factory in order to minimize
the effects of overhead costs. In addition, trial-and-error methods, basedon long experience and inherent mechanical aptitude, began to give
way to scientific principles and knowledge. This development weakened
the technical dominance exercised by the contractors. Thus the longestablished system of contractors had to be abolished and the new methodof factory management had to be devised. The manufacturer began to
deprive the contractors of their erstwhile prerogative and to transfer manyof their former responsibilities to the newly enlarged oflice staff. The
contractors were gradually superseded by the modern foremen who merely
directed their department under the direction of the oflice. The results
were the shifting of managerial function from the departmental level tothe oMce staff and the increasing centralization of factory control.

A CRITIQ)UE ON PROFESSOR MAHALANOBIS MODEL
OF ECONOMIC PLANNING IN INDIA
Hikoji KATANo

1. The Draft Plan-Frame for the Second Five Year Plan in India had beenfounded on Professor P. C. Mahalanobis' economic planning model. In
this paper, we will explain one of the factors from which unfavourable resultsin the Second Plan might have been caused. This is regarding estimations

for some of the parameters in Mahalanobis model.
2. Table 1. shows both the planned and actual values of the net national
product at 1952/53 prices. It is clear that the actual value had followed
about the same path as the planned value during the First Plan period, andthat the actual growth path was much below that of the planned path
during the Second Plan. Considering the fact that the favourable situationin 1958/59 had been supported by an unexpected abundance in agricultural
product, it is possible, I think, that the rate of growth over the Second

Plan should have been very Iow.
Table 1. Net National Product(Rs. crores)
PlannedValue*(at1952/53 price)

ActualValuet..

1950/51
1951152
1952153l953/54
1954155

8,710
9,090
9,490
9,910
10,350

9,190
9,510
9,820
10,43010,6901955/56
1956157
1957/58
1958/59
1959/60

10,80011,27011,77012,99012,89010,73010,77010,56011,0401960161

13,480* The planned value is calculated in accordance with interpolation and extrapolation at

50/. rate of growth per year on the basis of Rs. 10,800 crores in 1955/56 and Rs.
13,480 crores in 1960f61.

If it is possible to visualize the agricultural products of the year as the79-HIKOJI KATANO

80

average level of the preceding two years, the rate of growth over the Second

Plan may be 1,50/. per year: this is much below the planned rate of 50/o
per year.

3. Professor Mahalanobis has constructed his model as follows. The model
consists of four sectors of production:

Sector K : industries producing capital or investment goods,
Sector C.1: factory industries producing consumer goods,
Sector C.2: small and household industries producing consumer
goods, andSector C.3: services such as health, education, etc.
We shall use the subscripts k, 1, 2 and 3 for Sectors K, C.1, C.2 and C.3
respectively.

We shall then have Zk, 2i, 12 and Z3 as fractions of investment allocatedto the respective sectors; where, of course,(1) X 2, - 1, (i -ww k,1,2,3)
Next, we also have fi as the ratio of increment of income to investment.
fi of the economy as a whole is the weighted average of fii,

(2) X 6,2, - 6, (i - k,1,2,3)
where weights are the corresponding Zi. Last, we have a as the ratioof new employment to invetsment. And also, a of the economy as awhole is the weighted average of ai,(3) XaiZi -- a, (i -- k,1,2,3)
where weights are the corresponding 2i. ,In this model ,(1)-(3), investment criteria Ai ( i = 1,2,3) are uniquelydetermined corresponding to some conditions in the economy ( ai and 6i )and certain targets ofeconomic planning ( a, fi and 2k ), where it must be that(4) 1 1 1 >fO
fi1 fi2 fi3

al a2 a3
4. Professor Mahalanobis estimates the sectoral coeMcients (ai and fii)
according to the experiences during the First Plan period, Those estimatesareai* 6i

SectorK O.05 O.20

Sector C.1 O.116 O.35
Sector C.2 O.40 ' 1.25
Sector
C.3 O.267 O.45
* unit:man/Rs. 1,OOO

A CRITIQ)UE ON PROFESSOR MAHALANOBIS MODEL 81
OF ECONOMIC PLANNING IN INDIA

Considering priority, industrialization of economic structure in India, in
the Second PIan, he takes

A, == O.33 ..

for the value ofa fraction of the investment allocated to Sector K. And theconditions of 'initial national income Rs. 10,800 crores,

total asset formation Rs. 5,600 crores,
rate of growth of national income 50/o per year,
and total new employment to be created 11 millions lead toa -= O.20 and 6 =O.50.
By all conditions, we have the following simultaneous equations ofA, (i -- 1,2,3).

Zi + Z2 + 23 =O.67' O.35 Zi +1.25 A2 +O.4r5 23 =O.4r54r(5)O.116 A, + O.4,O 22 + O.267 Z3 = O.180
Then we can easily determine the investment criteria for the Second Plan;
that is,a, = O.17,

22 =O.21, for 2k == O.83
23 = O,29.
At the same time, we can calculate the values of investments allocatedto the respective sectors (see Table 2-A). And to make a partial amendment of the values, Draft Plan-Frame sets the investment programme asshow in Table 2-B.
Table 2. Investment Programme(Rs. crores)
A. Mahalanobis

B. PIan-Framemodelelectricity

500

large scale industry

1,400

900

transport

2,830

tN

2,800

of which investment goodsof which consumer goods(1,850)(1,850)

(980)

(950)

agriculture & irrigation

986

household' enterprices

194

950
200

1,180

1,150
1,350

constructlon, etc.
stocksgrand total

300
1,600

1,650

5,610

5,600

82 HIKOJI KATANO
5. We do not have any data, on hand, of the actual input of investmentin the economy as a whole. We have only some data obtained from agovernment sector, which is shown in Table 3.
Table 3. Investment bv Government'(Rs. crores)
theFirst

Agriculture

theSecond Plan

Plan

plannedactualplannedactual*354.0(17.5)

299.0(l4.3)

568.0(ll.8)

4rlO.7(ll.4)

695.7(19.3)

Inigation&energy

648.0(27.1)

585.0(29.1)

913.0(19.0)

Mining&188.0(8.4)

100.0(4.9)

890.0(18.5)

842.0(23.3)

Transport&

570.0(24.0)

531.0(26.3)

1,385.0(28.9)

1,039.8(28.8)

Socialadjustment

532.0(20.5)

423.0(21.0)

945.0(19.7)

547.8(15.2)

Others86.0(2.5)74.0(4.4)

99.0(2.1)

77.7(2.0)

manufacturingcommunication

Total

2,378.02,O13.04,800.0

3,613.7* These values are totaled for the first four years, of which the value in 1959f60 is theestlmate.

'
It is clear that Rs. 4,800 crores ofplanned investment has been managed by
the government; this is equivalent to 860/. of the total planned investment(Rs. 5,600 crores). And it is shown that Rs. 3,613.7 crores has been theactual input by the government over the first four years of the Plan. At
this rate about Rs. 4,600 crores would be invested by the government overthe entire period of the Second Plan. On the other hand, it is supposedthat Rs. 800 crores of planned investment in the private sectors may also
be almost realized. Moreover, fractions of investment actually allocated to
the respective sectors are about the same as planned fractions. Thus we
can see that investment planning for the Second Plan might work well.

6. As stated above, while investments have worked well as planned, thegrowth ofthe net national product has been realized at the rate ofonly l.50/.

per year instead of the planned rate of50/.. What can be the reason? To
answer this question, we will examine the Mahalanobis model from theview-point of estimations of parameters in that model.
In the model (1) - (3), equation (2)X I9,2, -- 6
is directly related to growth of the net national product. 6 is the ratio ofincrement of income to investment. Therefore,

A CRITIQIUE ON PROFESSOR MAHALANOBIS MODEL83
OF ECONOMIC PLANNING IN INDIA

6-

increment of income. lnvestment
newinitial {(1national
income+ rateof growth )5. lnvestment
new

-1}

In the Mahalanobis model, fi is settled at the level of O.5. This is equivalent

to 50/o ofthe growth rate ofnational income under given conditions. However, the economy has been realized only at 1.50/, of the growth rate. Then
we can estimate that the actual fi has been O.20 under the same given conditions.

The value of O.20 is also of minimum level among 6i (values of respective sectors). This means that all investments should be concentrated only
upon Sector K, that negative investments might happen in any sectors, orthat some of 6i must be overestimated. It is assumed that the first two arenonsense. We believe the third reason to be true. Then we have to explain
the reasons by which overestimations of 6i have been caused.

As above-mentioned, in the Mahalanobis model, estimations of 6i havebeen based on the experiences during the First Plan. Therefore, whether
values of 6i in planning for the Second Plan might be overestimated orunderestimated must be due to the comparison between the two Plans.
fii is the ratio of increment of income to investment in each sector.
In order that the values of 6i estimated according to experiences during theFirst Plan can be true during the Second Plan too, investments mus[ play thesame role during the Second Plan period as in the First Plan period.
The role ofinvestment may be classified in various ways. In this paper,
we have to divide it into two activities; the activity to enlarge the scale ofproduction and the activity to improve the equipment of production.
The former works in that the larger the new investment the larger theincrement of income. This effect is direct and for a short duration. This,
however, does not change productivity. The latter does not create, directly

and in the short run, an increment of income from a new investment.
After production equipment is fruitfu11y improved and productivity canbe increased, there must be a positive and large increment ofincome. Therefore, this effect is indirect and on a long run basis. Thus, in the short run,the larger the fraction of the direct character in investment and the smaller
the fraction of indirect character, the smaller is the value of 6i.

Then we will re-examine the inside characteristics of investment
both in the First and in the Second Plan. The actual level of investment
allocated to respective sectors has been increased from the First Plan to theSecond Plan period as follows:

Mining&manufacturing 10 times,

HIKOJI KATANO

84

Transport & communication 2.5 times,

Agriculture, irrigation, energy, etc. 1.5 times.

At the end of the First Plan period, the main constituent of the manufactur-

ing industry in India had been the light industry. There had not been any
heavy industry. It is well known that priority in the Second Plan wasgiven to raise the heavy industry in India. This must explain the hugeamount of investment in mining and manufacturing.
It is clear that this investment in mining and manufacturing was input
for new plants and equipments. Therefore, this investment may not contribute to an increase in the net national product. Thus, we assume, while O.20
for fik is true over the First Plan, the same value must be overestimated for theSecond PIan.
As to the other 6i, we can assume, more or less, the same situations.
Therefore, we believe that the values of 6i used in planning for the Second
Plan are almost all over-estimated. This is a reasonable explanation thatthe actual fi (O.20) over the Second Plan has been much below that ofthe planned 6 (O.5).

7. As stated above, some parameters used in the Mahalanobis model
have been estimated according to experiences in the First Plan. But therole of investment was very different between the First and the Second
PIan. Therefore, we believe that one of the causes for the unfavourable
results in the Second Plan come from the above•-mentioned overestimationsof parameters.

NATIONAL INCOME CONCEPTS: RECONSIDERED
Nobuko NosE

I
Introductor2 Remarks
From the traditional method of the analysis of social accounting, it isquite clear that all systems of social accounting are considered on the groundof the national income analysis. It should also be remembered, that thebasic thinking methods and concepts of the theories of social accounting
systems inherit from the national income analysis. First, groups of thesocial accounting systems are composed from the idea of the triple equalityof national income, which forms each account. Second, economic quantities or volumes are estimated on the flow basis, i.e. in money terms. Ifwe
consider, however, the basic construction of national income, which is thebasic concept ofsocial accounts, from the point ofview ofthe basic reproduc-tion of a certain economy, the classification of national income as wellas the formulation of social accounts needs to be reformed in order to show
the relation of production to distribution and expenditure of the national
income. Our object in this article is to give some exact definitions ofnational income from the view-point of the production of a certain economy,
introducting the "classical pattern" in our system.

II
Definition of jVlational Income
Individual businesses, as building blocks of social capitals, produce

physical products, consumption goods and production goods, services,
circulation-costs and consumption-costs. Their net products, which areequal to sales minus the replacement costs of constant capitals, are divided
into wages and profits. Profits are distributed at average, over average orunder average levels according to the earning abilities ofbusinesses. These

totals, wages and profits, are equal to social income. ThrQugh theseprocesses, the wear and tear of constant capitals are replaced from current

revenues, and wages are expended to reproduce labour by labourers, andcapitalists' savings (profits minus capitalists' consumptions) are accumulated

85

86

NOBUKO NOSE

to be reinvested as capital, preparing for reproduction in the next period.
In fact, these processes are a little more complicated, for example, throughtransfer by the government, as we shall discuss in the later contexts. The
total income, which is earned by all factors entering into the circulationof individual capitals is called factor income by the Keynesian economics.
It should be noticed, however, that the Keynesian national income is rather
a subjective concept, because it contains the estimation of immaterial goods
as well as material goodsin terms ofmoney. On the contrary, ifwe introduce
and inherit the classical orthodox doctrines, we may distingutish originalincomes, which are the basic concepts of reproduction of a certain economy,

from distributive incomes and expenditure incomes, which are paid fromoriginal incomes. Then, total circulating incomes are divided into theoriginal part which concerns the production of material goods and thederivative part which concerns the expenditure of original production
incomes, which estimate, especially, immaterial services. Now, we must
examine the reason why we should think of these relations between real
income defined by the process, of production and nominal income definedby the process of expenditure. This problem is to be solved throughconsidering the following three subjects: 1) the relation ofprice to reproduction, 2) the relation of reproduction to incomes, 3) the relation of original

national income to its derivative income.

III
Price' and ReProduction

Generally speaking, the law ofreproduction in a certain economy is suchthat the reproduction will be held on grounds of the production of physicalgoods, investment goods and consumption goods, which maintain productivemeans and productive labour powers respectively, and on the other side,
it reproduces social relations among producers which correspond to thefunctions of divided incomes. Under these conditions, furthermore, it is clearthat labours which create material goods and "surplus value" are only
productive labours, if we consider it from the superior classical points ofview. And in capitalistic societies, prices must have a standard for theexchange of goods, i.e. objective value that is often defined by the valueof money (gold). The actual prices are defined by the levels of thisstandard value. In other words, the market price is equal to the "value
price" which is the ratio of the value of the goods to the value of money.
On the grounds of this type of production, economies may be in equiliblium under the condition where the only one rate of profits comes into

NATIONAL
CONCEPTS; RECONSIDERED
INCOME
being common to all industries,

We can show these relations asvalue priceunder the condition of free competition.
follows :== (fixed capital+ variable capital) (1 + rate of profits)== profits (capital

Å~ average rate of profits) + fixed capital+ wagesIV,Formationof Original Income

It is our next problem to see how goods are produced under certain
productive conditions. Ifwe assume the constant "value prices(i)" of goods

and hence the average rate of profits, all goods are produced under thecondition of obtaining the maximum rate of profits in all industries, wherethe volume of producers goods are defined by the technical relations to

produce them, and the volume of consumers goods under the necessary
condition of holding certain levels for both labourers and enterpreneurs.
Income is obtained by multiplying prices to goods produced. The resulting
relation of incomes to prices is defined bysales = (1 + rate ofprofits) Å~ costs = (1+ rate ofprofits) (necessary volume
of fixed capital for a unit product) Å~ (fixed capitals) + (necessary volumeof labour-power for a unit product) Å~ (wage rates)
prices == (1 + rate ofprofits) (cost price for a unit product) == (1 + rate
ofprofits) (necessary volume of fixed capital for a unit product) Å~ (pricesof fixed capitals) + (necessary volume of labour-power for a unit
product) Å~ (wage rates).

According to the scale of the constant or expanding production of an
economy, we may have the physical volume ofproducts, which are composedof the products that are necessary to obtain the certain scales of production.

We now have the replacement of producers goods, the production of
consumers goods and the net investments; these are the concrete components
ofnational income, "original national income" in its strict se.nse.
By adding up all products of all industries in an economy, we get social

products, which is equal to the sum of replacement costs of capitals andthe net products. The net products is referred to as an objective net
national income, in a sense that is defined through the process of original(1) See. N. Okisio, Value and Price, in Keizaigaku Kenkyu Nenpo, vol. 1. The value which
is produced in an anarchic, competitive society, must be counted in terms of money (gold).
So, the price ofi commodity is defined as Pi=ti/ti, where ti, ti denote the social value ofi

and of the money (1 commodity) respectively.

87

NOBUKO NOSE

88

production ofincome. Introducing a multi-sectorial point of view(2),we can restatethis connection as follows:

xLv, = xP,x,- xa,,p,x,i i i' J'.E'.y, =T,wx, + .X lee,(a,iPjxj, + T,zox,),ii

where2,'is an income of theisector, P, is the price of products of the isector, x, is the physical output of the i sector, a,, is the necessary volume of

fixed capital x, for a unit ofproduction of i goods, T is the necessary volumeof labour for a unit of production ofi goods and w is the wage rate, p, is therate of profit of i sector, respectively.

This expression is rather convenient for considering the characters ofnational income, compared with the traditional Keynesian definition ofnational income which is defined on the grounds of an even basis in termsof money. The national income, that is defined in the preceding context,
shows easily the division of the national income between profits and wages,

the former is given by w and the latter by (aP-w). On the other hand,it explains the distinction between capital and labour, which concerns
the distinction between the volume of indirect and that of direct work or
labour, i.e. aP and w. In the course ofa certain scale ofproduction, profits

are created on the basis of the production of excess products, which arenecessary to reproduce capital and to maintain the level of the living lifeof capitalists, by means of net profits, interests, rents, dividends, wages ofmanagement, etc. On the contrary, wages are necessary to maintain acertain level for holding the living standard or re-producing powers oflabourers working in an economy. Thus, consumption in the Keynesian
sense is composed of the consumption from profits and that from wages
and investment from the net investment from profits, so we may think thepropensity to consume of labourers as equal to unity.

v
Process of u7Vational Income Redistribution

Netphysicalproduct (=national income) as above mentioned is the original
national income created by productive labour(3) in productive(2) The criterion to classify industries is reproduction ofthe capitalistic society, i. e. reproduction

ofproductive power and ofsocial relations in production. Then, multi-sectors are consolidated into two industries i. e. investment goods industry and consumption goods industry.
cÅí K. Marx, Das Kapital, Diez verlag, Bd. I, S.593-4, u. Bd. II, S. 395-494.
(3) CÅí Marzian definition on productive labour. Marx defined the productive labour from two

points of view - to produce the value in use and to produce exchangeable value. He
explained the former as the labour to produce physical products in ch 5 and ch 14 of `Das

CONCEPTS:
NATIONAL
INCOMERECONSIDERED
industries.(4) But the actual circulation of national income is rather more

complicated, because physical products are transfered on multi-sector
markets in an actual economy, which consists of productive sectors andun-productive sectors. Interpreting from the rule of the basic material
production in a economy, national income which is produced from productive
industries is the only basis of an economy, and so incomes that are received
by un-productive industries are the derivatives of physical national income(original national income). In this re-distributive process of originalincome, we may have two refinements: one is the redistribution throughmonetary exchanges including material goods and immaterial goods ona flow basis, in which all goods and services are estimated in money terms

in order to make exchanges actually, and national income thus defined
may be inflated compared with original income. The other is throughthe structure of public finance, where actual distribution of income isrefined through the processes of public revenues and expenditures.
We shall explain the preceding processes more in detail. The original
national income is a net product which is equal to the social product Px
minus productive consumption of investment goods pax. This implies
that there is no other available income than the physical incomes, when
we maintain reproduction of an economy without under-capitalization.
National income is composed from productive capitals and consumers goods,
while services cannot be produced or maintained without productive capitals
or labourers, as they are neither productive nor creative. All sectors except
physical production sectors cannot hold their operation unless they receive
transfers of incomes from profits or wages of physical productive sectors.
Such transfers are applied to incomes of un-productive sectors; the capitalists

in un-productive sectors may receive profits for his capital, profits which

originated in the sum of profits produced in productive sectors, and may
Kapital', and the latter as the labour to produce surplus value in the appendix of his `Theorien

Uber den Mehrwert'. These two views raised much controversies among his followers.
We can understand that a synthesis of the two views is necessary because in `Mehrwert' heintensively criticized A. Smith's one-sided view which viewed productive labour only as

making physical products. Cf. A. Smith, ed. Cannan, The Wealth of Nations, Book II,
Ch III. pp. 314-332. Marx, Das Kapital, a.a.O., Bd.I, S.I89, S.533-544, Bd.II,S. 100-l23,
Bd.III, S.310-312, S.319-333, S.346, S.354. Marx, Theorien Uber den Mehrwert, Beilagen[12], Diez verlag, S.353-376. K.Nonornura, Kokuminshotoku to Saiseisan (National
Income and Reproduction), pp.32-44.
(4) Physical production is carried on in the following industries: agriculture, forestry, fishery,mining, construction, manufacturing, transportation and communication (in so far as used to
produce), storage (in so far as used to store commodity as mornal stock), and the physicalproduction carried on in the distribution process i.e. package of commodities. See and Cf.

footnote 3. A, Petrov, Keizaitokeigaku Kyotei (KHpc glcoHoMHgecKoth CTaTHcTHKH, "OA

ponaKJ"eB np<Peccopa) pp.24-25,

89

90

NOBUKO NOSE

equalize the rate of profits similar to that of productive sectors, and on theother hand, the labourers in un-productive sectors may receive wages fortheir services to the extent that wages are necessary to maintain their life
similar to those of productive labourers. Thus, the division of the funda-

mental basis of an economy from the phenomenal situation of it is ourbasic idea in analyzing national incomes.
Turning now to the incomes of un-productive sectors(5), the capitalthat buy un-productive labour are called un-productive capitals, whichgain the same rate of profits as productive capitals with the mechanismof equalizing the rate of profits, setting down an average rate of profits

in a free competition. The labourers in un-productive sectors may
receive wages as those in productive sectors, from the capitalists in the
sectors. In so far as the re-production of un-productive or service sectors
depends upon the products of productive sectors, it may be called derivative
sectors. And in capitalistic societies the prices of services p are determinedin the same way as those ofproductive works or products, through the lawof average rate of profits as follows:p, -(a.•p,+b,p,) (1+it`).
In this equation, a is the quantity ofthe productj' which is purchased fromproductive sectors by un-productive sectors to produce one unit of service
i, b is the volume of living materials for holding the labour-•powers, pa isaverage rate of profits.

The resulting transactions and formation of incomes in service sectors
are held through the follwoing processes : (1) un-productive services are
created in the un-productive sectors by the combination of capitals with
un-productive labours, (2) the services are sold to productive sectors, (3)capitalists and labourers in the un-productive sectors receive incomes fromthose in the productive sectors, (4) the ex. penditure of incomes in the unproductive sectors. Especially, the last process involves the next five items:i) payment ofwages to the labourers in un-productive sectors, ii) consump-tion of wage goods paid from the wages of un-productive labourers, iii)
replacement of capitals in un-productive sectors, which is held by buying
them from the productive sectors, iv) the aquisition of the average rate ofprofits and consumption ofcapitalists in the same way as those ofproductive
sectors, v) the succession of re-production in un-productive sectors through(5) Productive capital and un-productive capital are firms who buy productive labor and unproductive labor respectively, and are another expression for productive Iabor and unproductive labor respectively. Cf. Marx, Theorien, a.a.O,, Beilagen [12]. Das Kapital,
a.a.O., Bd. I, k.14.

NATIONAL INCOME CONCEPTS: RECONSIDERED 91
the combination of capitals with labours.(6)Where the types of un-productive capitals are considered, there are twodifferent forms. One is the circulating-cost sectors, and the other is theconsumption-cost sectors. The former are commercial sectors, which
consist of sectors that supply distributive services to productive sectors andfinancial sectors that mediate funds to productive sectors through financial
institutions. The consumption-cost sectors consist ofinstitutions for health,study, welfare, or culturel associations(7), etc.

It should be noticed, however, that there are some complicated elements

of incomes which we may consider as un-productive incomes. The first
are the rents, that are paid to landlords as for use of lands. Rents are
only dividends from profits created in the productive sectors, under theconditions of limited scales of lands and different conditions of fertility.

The second element is the concrete dividend of profits, such as wages ofmanagement, dividends for stock--holders, retained incomes, etc. Evenin the productive sectors, ifthese dividends are used to reproduce productive

capitals, all incomes are estimated as un-productive incomes the same as
those in the case of un-productive capitals. The last are wages for un-

productive labourers who work in productive sectors, such as wages forclerks working at book-keeping, management, controlling businesses, etc.
The other special element are incomes through public finance, which redistributes and transfers national incomes through revenues and expendituresor public debts. Public finance has a special effect on the formation ofnational incomes, for while it produces no material goods, it transfers
national incomes by employment of governmental oMcers and expenditures
for subsidies with a voluntary political decision.
Through the above processes, we have the sum of national income interms of money, which is equal to the sum of the revenue, after setting up
derivative incomes. The resulting national income, which is estimated interms of money, is composed of two main parts, one is the flow based on(6) The reason why we should classify unproductive labour from productive labor, can beunderstood only in the reproduction of social capital. So, the "Economics" published by
the Soviet Academy where the chapter of natinal income is settled before the chapter ofreproduction of social capital is incorrect. See. H. Kaneko, Seisantekirodo to Kokuminshotoku (Productive Labor and National Income), in Keizai Hyoron, Oct., l959, p.119,

125, 127.
(7) A. Palizev, The Theory of National Income in Capitalistic Society (translated in Japanese),

p.147, pp.l45-149. A. I. Petrov, ibid., p.23. In Marxian economics, there are many
controversies on the definition of the unproductive sector, especially in the transportationindustry. See. H. Kato, ShakaishugiShakai no Kokuminshotoku ni tsuite (On the national

income in socialistic society), Keizai Hyoron, Oct., 1955. H. Yamamoto, Regarding
Marx's "Nutzeffekt", International Economic Review Annual Report, No. VII, 1957.

NOBUKO NOSE

92

original incomes, the other is the fiow from original incomes. The redistributive effects occur principally in the latter process, where originalincomes are divided into profits and wages in un-productive sectors, aswell as into some other revenues (rents, interests, dividends, revenues ofentreprenuers, retained incomes) as the concrete derivatives of profits.
Replacement of capitals and consumption in un-productive sectors arepaid from these incomes in the same way as in productive sectors. Suchsituations are shown in the following contexts, if we neglect public finance,(8)in the following three stages of the formation of national income.

(l) Stage of Production
When we denote national income, social products, the replacement
cost of constant capital, the wages of productive laborers and capitalists'
profits (before charges i.e. interest, rent, etc.) as Y*, px, zx, zv*, R* respecively,

the fundamental relations are as follows:(l.1) Px -nx=Y" (1.2) PV" +R" == Y"(2) Stage of Distribution
Assuming capitalists' profits and wages in circulating-cost sectors as Ri and
MxT2i respectively and profits and wages in the productive sector as R2i andvai respectively, and neglecting the replacement cost of the constant capital
employed in the circulating sector, we get, the following:(2.I) PV,+W,,+R,+R2i=Y*
Assuming the profits and wages in the consumption-cost sector as W22 andR22 respectively, and the income aggregates (National income in the Keynesian sense) as Yi we get the follwoing:(8) Public Finance distributes the national income as follows:

Fr=:Frwi+Frm,+FrK+Frh+Fri, •••••••••••••••-•••••••••••••••••••••-•••• (1)where the redistribution effect from the revenue sideF. on Vlii, I'V2,K, Ii, I2 are Frwi,Frm2,
Fr K, Fr ii and Fr i2 respectively.

F.==FEw,+F..,+F.K+F,,,-l-F.,, .......................................... (2)where the redistribution effect from the expenditure side FE on Wi, Mi2, K, Ii, I2 are FEmi,
FEw2, FEK, FE ii and FE i2 respectively.
The net effect of public finance F is as follows:

F= FE - F.
=Fw,+iFw,+FK +Fi ,+ Fi 2
whereFon Mii, W2, KJ, Ii, I2 are Fwi, F-2, FK, Fii and Fi2 respectively•
This net effect finally rearranges the original national income and the original structure ofsocial demand.

NATIONAL INCOME CONCEPTS: RECONSIDERED 93(2.2) Pll,+XW,,iR,+XR2,=Y (j'-1,2)

J'iAssuming the wages of an unproductive laborer employed in a productive
sector as Mii2, and the charges on profit, i,e. retained profit, manegers'salaries, interest on loan capital, devidend and rent as ri, r2, r3, r4, rs, respect-

ively, we get, the follwoing:(2.3) Y ==X MI., + Xr... (i, j' =I,2. m=1,2,.....,5)iJ' iim(3) Stages of Expenditure
Denoting the laborers' consumption, capitalists' consumption, the accumulation of productive capital (investment), the accumulation of unproductive
capital as C., K, Ii, and I2 respectively, the structure of aggregate demand
E is as follows:(3•1) E=Cw +K +Ii +I2
Denoting the profits minus capitalists' consumption as S we get,(3.2) S-XI, (i-1,2)iConclusion
The classical concepts of national income as above mentioned, aredifferent from modern economics's concepts. From the latter aggregates
which hold the triple equality of production, distribution and expenditure,

we cannot distinguish i. physical net product from service, ii. original
national income (productive original capitalists' profits plus productive
laborer's wages) from derived income,(9) and cannot estimate, iii. theallocation of physical products between the physical production sectors andservice sectors. The Iast point means that subjective national income
cannot show the relation of redistribution and rearrangement of the annual
created resources in a society.

So, when we are to analyse the national income structure concretely,
it is very clear that we should reconstruct the income accounts on the former
POint ofview.(10)(9) The subjective national income aggregates are ofno use in analyzing the distribution of income
in social classes. Marxian national income is used to measure the distribution in capitalistic

society. See H. Koziolek; Zur Marxistisch-Leninistischen Theorie des Nationaleinkommens,

1953. S.6-7. Marx,DasKapital,a.a.O., Bd.III, S.932-942. W. Lenin, The Developement of Capitalism in Russia, pp.62-4.
(10) Our first design ofsocial accounts on the former concepts is shown in Shakaikaikei-Ron(The Theory of Social Accounting), 1961, pp.246-252.

SOME PROBLEMS OF THE INSTALLMENT BASIS
Susumu WATANABE

I
In installment sales we employ a criterion for revenue recognitiondifferent from the sales basis in terms of which sales revenue is recognized inordinary sales of merchandise, finished goods etc. It is what we term theinstallment basis. The installment basis may be defined for our present
purposes as a criterion for recognizing sales revenue by which sales revenue

is considered to be realized when an installment is paid in cash (or whenthat installment becomes due as prescribed by our tax law).

W.A. Paton and A.C. Littleton cite the following reasons generally
given for employing the installment basis(i) instead of the ordinary sales
basis in installment sales:(1) The receivables involved are at least in part far removed fromavailability as purchasing power.
(2) The possibility of failure to collect is increased by the length of
the term of settlement.
(3) The "after-costs" - largely billing and collection expenses - arehigher than in the case of short-term credit sales.
Paton and Littleton offer the following criticisms upon these explana.
tlons:"Ofthese points the first is probably the most significant, to the extent
that `revenue' implies, an inflow of highly liquid assets, long-term receivables are an unacceptable evidence ofrevenue. The validity ofthe second

point is questionable. The down payment invariably made by the installment buyer tends to give the installment sale some advantage over theordinary account sale with respect to certainty of collection in fu11 and thetype of contract typically employed, under which the vendor retains title,

facilitates recovery of goods in event of default. Further, the device of
establishing an allowance for possible bad debts is available to the concern(1) In the United States they think of the installment basis exclusively as a criterion forrecognizing sales revenue in terms of collection, not in terms ofreceivables due as provided

for in the Japanese tax law. Accordingly the installment basis as used in American
literature means only the collection basis (the cash basis for recognizing revenue).

95

96

SUSUMU WATANABE

selling on the installment plan if it is desired to measure revenues in termsof sales. With respect to the third point it may be said that the problem ofadjusting sales revenue in the amount of costs yet to be incurred is much thesame whether the amount be small or substantial."(2)There is an opinion that denies justification or significance to the useof the installment basis, This opinion considers it reasonable to apply thesales basis to installment sales with certain adjustments. For instance,

H. A. Finney and H. E. Miller advocate that the application of the sales
basis is more appropriate at least in theory. They maintain:"Take up all of the gross profit in the period of sale, and, by setting up

reserves, include among the expenses for the period charges for such `after
costs' as bad debt losses, collection expenses, and, if experience warrants,
losses from repossessing merchandise. Theoretically, this method is perhaps
the best, because its objective is to take up the earnings from the installment
sale in the period in which the sale is made. However, in some circumstances
it may be virtually impossible to estimate the after costs with any reasonable

degree of accuracy, and if this is the case, it is questionable whether the

method should be considered acceptable.
"There is an additional practical disadvantage to this method: Reserve
provisions for collection expenses and costs of reconditioning repossessed
merchandise are not allowable deductions for income tax purposes."(3)This argument may be deemed to be theoretically presenting the casefor the application of the sales basis (with adequate reserves set up), apartfrom disadvantage for income tax purposes, with the reservation that theprocedure is inapplicable when an accurate estimation of after costs is virtu-

ally impossible. Where such estimation can be made with some degreeof accuracy, therefore, Finney and Miller may be taken as supporting thesales basis.
(2) W. A. Paton and A. C. Littleton, An Introduction to Corporate Accounting Standards,
p. 58.
The Japanese Business Accounting Principles, Annotation 2 explains the installment
basis in the following terms:"In installment sales sales revenue is considered to be realized when an installment ispaid, and it becomes part of the profit and loss of the period. The criterion for recognizing
installment revenue is as a rule not the sales basis but the collection basis. Revenue

recognition in accounting must be prudent, because, unlike ordinary sales contracts,
installment sales contracts allow a relative]y long term of credit and payment to be madein installments, inVolve greater risks in collection and complicated conditions for passage orrecovery of title. Installment receivables uncollected by the end of the period containrevenue not yet realized, so that such unrealized revenue shourd be deferred to thesucceeding periods.
(8) H. A. Finney and H. E. Miller, Principles of Accounting, Advanced, 5th ed., 1960, p. 106.

SOME PROBLEMS OF THE INSTALLMENT BASIS
The Accounting and Reporting Standards for Corporate Financial
Statements of the American Accounting Association (AAA) states as follows :"An extended collection period or the necessity for substantial effort

by the enterprise subsequent to sale may create problems of measurement
without affecting the propriety of recognizing revenue on the basis of thesale."(4)This extremely brief and somewhat unintelligible passage may be interpreted as stating the propriety of applying the sales basis to installment sales,

though it entails problems of revenue measurement (adjustments for after
costs and interest).
It is evident that the installment basis has for its objective the allocationof part of revenue (or profit) to a number of periods following the one inwhich the sale is made, in order to provide for expenses to be incurred in the
future (after costs) with respect to that sale. So far as it is concerned, thisobjective can be achieved as well by recognizing whole revenue from thesale in the period in which it is made and charging the revenue of that
period all after costs relating to such sale by providing reserves to cover suchafter costs, instead of allocating revenue to a number of periods. In suchcase, however, it is important that such after costs should be susceptible ofaccurate estimation.
The problem, however, lies basically rather in whether we can consider
revenue from an installment sale to be realized in fu11 in the period in which
the sale is made.

II
In modern business accounting it is an established practice to determine
the income ofthe period by deducting from the realized revenue ofthe period
all costs relating to the revenue. According to E. L. Kohler's "Dictionary
for Accountants", realized revenue (or profit) is "a profit in the form of cash

or some asset which at the time the transaction was consummated could
have been converted immediately into cash or another current asset."
Installment receivables that derive from installment sales are not assets immediately convertible into cash at the time such sales are made. It will bea considerable length of time before they become cash or assets convertible
into cash. It is erroneous, therefore, to apply the ordinary sales basis andconsider whole revenue to be realized when the installment sales are made)for it would be to treat unrealized profit as fu11y realized beforehand in the(4) AAA, Accounting and Reporting Standards for Corporate Financial Statements, 1957
Revision.

97

98

SUSUMU WATANABE

period in which the installment sales are made. In this connection it is tobe noted that the possibility of getting financed on the security of an obligation arising from installment sales is not in itself conversion into cash
(realization) in the accounting sense of the term. In such case, the bearerof possible loss from bad debts is naturally the seller of the merchandise.
Whole revenue from installment sales cannot be considered, therefore, to berealized because installment receivables have been made means of finance.
Such being the case, installment sales require a criterion different fromthe ordinary sales basis to be applied. Here is one question, however,whether revenue (or profit) from installment sales should be considered to berealized when collection is made or when receivables are due as provided forby our tax law.

There is no doubt that the Japanese Business Accounting Principles
adopts the collection basis.

By contrast, our tax law adopts the "due date" basis. There has beena ruling that with regard to sales contracts allowing payment to be madeby monthly or yearly installments, gross profit corresponding to monthly
or yearly installments due in the period may be computed as the incomeof the same period.
This "due date" basis was criticized in the "Proposal for Adjustments
between Tax Law and Business Accounting Principles" as follows:"This ruling threatens to impede the development of sound accounting practices by denying fiexibility to the application of the accrual basis.
It should, therefore, be amended so as to recognize the installment basis in

the ordinary sense."
The ruling has been superceded by a new ruling providing as follows:"The installment basis within the meaning of this ruling is the method
ofcomputing as the profit or loss ofthe period installment profit or loss corre-

sponding to that portion of the amount of sales collected or to be collectedduring the period.""That portion ofthe amount ofsales collected or to be collected means
the total of the following items:

1. That portion of the amount of sales that becomes due during theperiod (excluding the amount included in the amount of receipt of a preceding period as falling under head 2).

2. That portion of the amount of sales that has been paid during theperiod without becoming due (including the amount virtually received in
payment, such as advance payment and others, whatever they may be called,
and bills receivable drawn with the express understanding that they are
given by way of payment).

SOME PROBLEMS OF THE INSTALLMENT BASIS
3. In the case of sales in which merchandise is to be delivered uponreceipt of a certain amount, the amount received before such date of delivery
with regard to the period in which the delivery is made."Thus the new ruling follows in the footsteps of its predecessor in adopt-ing the due date basis (including the amount received before due). In
other words, the reform proposed in the "Proposal for Adjustments between
Tax Law and Business Accounting Principles" was not incorporated into the
new ruling, which, therefore, is liable to the same criticism as its predecessor

from the viewpoint of the said Proposal.
The Business Accounting Principles is in agreement with the new rulingin the treatment of the amount received before due, because it considers
receipt to be realized revenue. They diverge with respect to due receivables that remain unpaid.
No procedure is more secure or more conservative than recognizing
receipt as realization ofinstallment revenue or profit. But it is by no means
wrong, as does our tax law, to recognize the realization of installment revenue

or profit when installment receivables fall due. For that portion of installment receivables which becomes due is immediately claimable and may
be deemed to be a highly current asset. It is quite reasonable from theaccounting point of view to recognize the realization of revenue or profit
at this point. Seeing that a legal obligation comes into being at the timeofdelivery ofgoods whether the title passes or not, it would be a grace of tax

law to defer revenue or profit recognition until the due date, if we accept
the primitive "obligation" principle. But as the total of installment receivables is not immediately realizable, it is rather proper for accounting purposes

to recognize the realization ofrevenue or profit at the due date. We may
conclude, therefore, that the recognition of revenue or profit at the due dateis not a grace oftax law, but a procedure meant to meet the needs ofaccounting.

If we recognize the realization of revenue or profit at the due date,
another question arises whether the receivables due are to be appropriated forthe recovery of cost or, on the contrary, to be taken, before everything, as therealization of profit. (A similar question arises where receipt is considered
to be a factor in the realization of revenue.) But the view that receivables
due or receipts should be appropriated for the recovery of cost (till the cost
is completely recovered) is generally rejected as ultra-conservative. (Thereis, however, a yiew that endorses this procedure only where the merchandise

delivered cannot be rcpossessed in event of default or where, even if repossessed, it has no net realizable value.) On the other hand, the view thatreceivables due or receipts are to be treated as profit before everything is99

SUSUMU WATANABE

100

unconservative and improper from the viewpoint of matching cost withrevenue. For this procedure allows the earlier periods to absorb fu11 profit
and does not take into account all future expenses relating to installment
sales.

Hence it follows that the most appropriate procedure is to treat receivables due or receipts as consisting ofprofit and recovery ofcost. In this case,there would be no alternative but to treat such receivables due or receipts as

containing an average proportion of profit. For illustration, suppose theamount ofinstallment sales is \100,OOO, the cost is \70,OOO and the amountdue or received in this period is \60,OOO, then the amount of gross profit
realized will be \18,OOO as calculated below:

1 00,OOO -70,OOO\60,OOO x loo,ooo = \18,OOO
The figure is obtained by multiplying the amount due or received by thegross profit ratio. Of course, the same result is obtainable by multiplying
the amount of gross profit by the collection ratio as follows:

60,OOO\30,OOO Å~ loo,ooo -\18,OOO
III
The following procedure is generally recommended for treating install-ment sales: 'Suppose goods whose cost is \700,OOO are sold for \1,OOO,OOO to be paidin installments, and \600,OOO is received in the period.

Installment Contracts Receivable .... 1,OOO,OOO
Installment Sales ,.,..................... I,OOO,OOO

cash.................................. 6oo,ooo
Installment Contracts Receivable .......... 600,OOO
Where, besides actual receipts, there is an amount due but
yet unpaid during the period, such amount should be added tothe actual receipts if the due date basis is adopted.

Cost of Installment Sales ..,......... 700,OOO
Inventory.................................. 700,OOO
Installment Sales .......,............ 1,OOO,OOO

Cost of Installment Sales ................ 700,OOO

Deferred Gross Profit ...............,....300,OOO

SOME PROBLEMS OF THE INSTALLMENT BASIS 101
The Deferred Gross Profit (on Installment Sales) account isalso called the Unrealized Gross Profit on Installment Sales
account. At the end of the period, the realized portion of theDeferred Gross Profit account should be transferred to the Realized

Gross Profit (on Installment Sales) account. In this example,
the amount to be transferred is:

1,OOO,OOO - 700,OOO\600,OOO Å~1,ooo,ooo - \180,Ooo

Of this amount we should make the following entry:
Deferred Gross Profit ....,.,......... 180,OOO
Realized Gross Profit ,................... 180,OOO
The balance of the Deferred Gross Profit account, \120,OOO, will beshown on the credit side of the balance sheet. In the next period, thatpart of the amount of the deferred gross profit corresponding to the amountreceived or due will be transferred from the Deferred Gross Profit accountto the Realized Gross Profit account.
This accounting procedure for treating installment sales recognizes
installment receivables as an obligation at the time of sales and defers
unrealized portions of installment gross profit to succeeding periods. The
Deferred Gross Profit account is used for this purpose.
The Deferred Gross Profit account is an account showing deferredgross profit. The Deferred Income account which is also an account to show
deferred income represents consideration received in advance of delivery of
goods or rendering of services, such as prepaid rent, interest or subscription
for periodicals, and is, therefore, indicative of a kind of external obligations, whereas the Deferred Gross Profit on Installment Sales is to be dis-tinguished from the former, in that the latter is not an account to show
external obligations. This account is a special sort of deferred profit accountintended to satisfy the requirement of recognizing profit on the installment
basis, while recognizing receivables as an obligation at the time of sales as in
the case of the sales basis.

As to the treatment of installmcnt revenue, there used to be in use aprocedure for recognizing as sales revenue only receivables collected (orreceivables due). This may be illustrated below by the example above.
glven:

Installment Receivables .......,,,.. \ 1,OOO,OOO
Installment Sales Contracts .,.,.,...,.. \ 1,OOO,OOO

102 SUSUMU WATANABE
cash .............................. \ 6oo,ooo
Installment Sales Contracts ,........... 600,OOO
Sales ...........,..,................... \ 600,OOO
Installment Receivables .................. 600,OOO
In this case, the Installment Receivables and Installment Sales Contracts accounts are memorandum per contra accounts. In this procedure,
the cost of goods sold is computed by the inventory method. That portionof the cost of goods delivered and no longer in the hands of the vendor
which corresponds to uncollected installment receivables should be added

to the ending inventory. In the present example, the amount is asfollows :700,OOO\400,OOO Å~ 1,ooo,ooo -= \280,OOO
Then the cost of goods sold is \700,OOO - \280,OOO -- \420,OOO, and thegross profit belonging to the period becomes \600,OOO - \420,OOO ==\180,OOO.
This procedure is characterized by its recognition of sales revenue
in terms of receivables collected (or due), but, on the other hand, suffersfrom the defects of not showing the total amount of installment receivables
as an obligation, and of adding to the ending inventory that portion of thecost of goods no longer in the hands of the vendor which corresponds touncollected installment receivables. (Under our tax law, either of theabove procedures is considered permissible.) The latter procedure does notcomparc favorably with the other one which shows the total amount of
installment receivables as an obligation at the time of sales and defers unrealized profit portions to succeeding periods.

IV
In the case of installment sales it is reasonable to apportion profits
arising from such sales on the basis of receivables considered realized (orreceipts), because receivables arising from such sales remain yet to be realized

for accounting purposes at the time ofsuch sales. There is no question as tothe allocation of profit to a number of periods in the case of installment
sales.

The question consists rather on the side of expenses to be charged to the

profit. Expenses are generally treated as expenses of the period in which
they occur. In consequence, the determination of periodic income on the
installment basis often turns out to be unsatisfactory from the point of viewofmatching cost with revenue. In the above cited example, 600/o ofthe

SOME PROBLEMS OF THE INSTALLMENT BASIS
amount of sales is collected and, therefore, 600/. of the gross profit
is treated as realized in the period in which the sales are made. If then
600/o of the expenses other than the cost of the goods sold with respect to thesales (selling expenses such as commissions etc., collecting expenses, baddebts, losses caused in repossessing merchandise, etc.) occur in this period, anappropriate matching of cost with revenue is achieved. If, however, theamount of expenses incurred in the period is above or below 600/o of thetotal amount, there is no appropriate matching of cost with revenue. As
a result, the net profit of each period becomes too small or too large. From
this angle, it is theoretically justifiable to average expenses by deferring a
portion of such expenses already incurred to succeeding periods or by adding

expenses to be incurred in the future as already accrued to the expenses ofthe period.
No such procedure is followed in practice, however, but all expenses aretreated as expenses of the period in which they occur. This practice of notdeferring expenses isjustified on the ground that, while the realization of grossprofit from installment sales depends upon the collection of the amount ofsales, expenseS already incurred are definite, notwithstanding the collectionof the amount of sales. In American tax law as well, expenses are to be
deducted in the period in which they are incurred (with the exception of
expenses to be properly included in the cost of goods sold).
Under this procedure it will be of little significance to add to theexpenses of the period expenses to be incurred in the future as alreadyaccrued according to the gross profit realized, because it will not by itself

achieve the averaging of expenses to realize an appropriate matching of
cost with revenue.
As we have seen above,' so long as we treat all expenses as expensesof the period in which they occur, an appropriate matching of cost withrevenue is conditional on the way expenses occur.

103

ON THE PURPOSES OF A GOING-CONCERNVALUATION AND ITS NATURES
Jiro ONoI
As everyone is aware, it is necessary to appraise an entire businessenterprise as a whole when it or a substantial portion of its ownership istransferred and when the accounting of the business enterprise is going to
make a fresh start on the basis of a new capital value; i.e. in the cases ofmerger, sales of a controlling interest, alteration of the company system,

admission or withdrawal of partners in a partnership, reorganization,
quasi-reorganization, valuation of goodwill for income tax purpose andborrowing money on the security of the entire business, etc.

It is said that the methods of a going-concern valuation vary with thetypes of situations and other circumstances and that in many sales of abusiness no precise calculation has been attempted.(i) Thus we cancertainly recognize a great complexity in the practice of a going-concern
valuation, but as for the methods, if they are arranged, which have been
employed in the appraisal of an entire business enterprise, we can givethe following.

(1) the method which is founded on the total amount of the share's
market price,(2) the method which capitalizes the future dividends on shares,(3) the method which sums up the replacement-costs of each tangible
asset of the business,(4) the method which decides the value of a business by comparing
the amount of its products (or sales) during a fixed period with the amountof another business of the same kind which value is already known,(5) the method which decides the value of a business by comparing
the amount of its cost during a fixed period with .the amount of anotherbusiness,(6) the method which capitalizes the difference between cash-receipts
and cash-disbursements anticipated in future periods of the business enter(1) R. Wixon; Accountants' Handbook, 4th edition, 1956, 19.35.

105

JIRO ONO

106.
prlse.

The worth ofa business as a going-concern, however, is usually considered to be based primarily on its earning power.(2) Because in the valuationof a business as a conglomerate of facilities and as a living organization
the costs lose their significance and the worth is dependent on the profits
anticipated in future periods, that is, from the viewpoint of a business entity,
whether it is proprietorship capital or total capital employed in a business, theenterprise has a value in proportion to its future profits. And therefore(7) the method which capitalizes the profits anticipated in future
periods is generally considered the most predominant way in a going-concern
valuation. The value of earnings capitalized is regarded as the correct
worth of a business enterprise.
For example, in Co. X the expected profits in future n periods aresupposed to be Ei, E2, E3, ..... E., the interest rates for capitalizationin the same periods are ii, i2, i3,.....i., then ei=(1+ii), g2 == (1+i2),
93=(1+is)•••••• g.=(1+i.) and the liquidation-value after n years is
L. Ifso, at this time the worth ofX Co. as a whole is represented by the follow-

ing formula.

miT.. E'.+ E2 +--- E3-..........+ En
91 91.92

91.92.g3 91.g2 • . • • • •9.

+L••••• g.
gl.91
Supposing that Ei =E2 == E3 =: ........., E. ==E and ii =i2 == i3== •••.• i, ==i, then

1- 1
w==E. g,g("i-lr) +gL. ==E. g=gl" +gL.
In the case of n= qp

EE

M'T == gin1 : i
And in many circumstances the replacement-cost of tangible assets
is employed as a supplementary-value invarious ways.(3)To say nothing of how the replacement-cost of a business enterprise istaken into consideration in a going-concern valuation, however, there isno generally accepted theory in regard to each of the detailed problems
in the above-mentioned profits-capitalization-formula - especially in regard(2)(3)

Paton & Paton; Asset Accounting, 1952, p.507.
See, Paton & Paton; ibid., p.512-vp.515, p.523,N.p.529, E. Schmalenbach; Die Beteili-

gungs Finanzierung, 1954, p.66 p.74, H. Jacob; Die Methoden zur Ermittlung desGesamtwertes einer Unternehmung, Z.f.B., 1960, p.131 and p.209.

ON THE PURPOSES OFAGOING-CONCERN 107
VALUATION AND ITS NATURES

to how the contents of "profits" and "interest rate for capitalization" must
be grasped, in spite of the fact that the value ofprofits capitalized is predominantly acknowledged as the theoretically correct value of an entire business.
enterprlse.
So, in this report, referring to several sources, I will try to examine thetwo different points of view in a going-concern valuation and to consider
the purposes and the natures ofthe valuation, in order that we may know

how these important components of capitalization must be understoodand in order that we may acquire a clue to a systematized theory of a going-

concern valuation.

II
On the valuation of a going-concern, theoretically there have been two
fundamental points of view, that is, one is the opinion that understands
the worth of an entire business enterprise as the value of proprietorship
capital, and the other is the view--point that tries to get the value of, thetotal capital invested in the business.
In the first point ofview which, for instance, E. Schmalenbach and A.S.
Dewing(4) insist on, the going-concern valuation is to determine the value ofstock equity or proprietorship capital for each of the persons concerned in thetransaction of a business or a substantial portion of its ownership.

According to the theory of Schmalenbach, there are two forms in theso-called external corporation finance which means raising funds from outsideof business, that is, the finance of borrowed capital and the finance of
proprietorship capital.

The one is substantial]y distinguished by the payment of a fixed rateinterest and of originally offered principal, and the most important charac-

ter of the other, in contrast with the above form of finance, is that thecapital financed in this form participates in all profits and losses throughout the whole period of the existence of a business enterprise - and so in thevariation of its value as a whole. The finance of both forms raises the capital
to be invested in a business enterprise, but only the proprietorship capitalalways participates in all variations of the going-concern value.

Therefore Schmalenbach said "The precise estimate of a going-concern
value has great significance in the very finance of proprietorship capital, but

has little importance in the finance of borrowed capital.(5)" It is here(4) E. Schmalenbach; ibid., and A.S. Dewing; Financial Policy of Corporation, 5th Edition,

1953, p.287.
(5) E. Schmalenbach; ibid., p.9Avp.10, p.18-vp.19 and Die Optimale Geltungszahl, 1948,

p.91.

108 JIRO ONo
insisted that the going-concern value is the worth of proprietorship capitalin a business enterprise.
As he stated that it must entirely depends on the profits anticipatcd in the

future for both buyer and seller of a business to dertermine the goingconcern value,(6) we must recognize that from this point of view the valueof a going-concern can be grasped as the worth of the proprietorship capitalof business for each person concerned in the transfer of its ownership.
That is, from the higher standpoint of national economy, the going-

concern valuation means the determination of the value of the capitalwhich is offered, in the form ofa proprietorship equity and so circulates in theform of share-transaction in a country.

So, from this viewpoint, when the competition-danger can be disregarded, a going-concern value is estimated by capitalizing the future profitsthat are to belong to the proprietorship capital with a rate of interest whichcorresponds to them.
According to the opinions of Schmalenbach(7) or some other german
writers, the going-concern value is supposed to be between the abovementioned value of profits capitalized and the part of replacement costs oftangible assets that is in proportion to the proprietorship capital, when
the competition-danger is taken into account. In this report we wiH notrefer further to this matter, but will only point out that it also means thevaluation of proprietorship capital to calculate the going-concern value
from the above two factors.

When the contents of the profit to be capitalized, from the viewpointof proprietorship capital, is determined, we can give several important
items to eliminate as follows;(1) secret reserve or secret loss,(2) interest expense that is considered to accrue naturally from thenormal financial activities of a business,(3) normal remuneration or pay to the management of a business,(4) private disbursement that pretends to be a normal expense,(5) all kinds of taxes to be paid by the business,(6) capital expenditure appropriated in the repair a/c or other expensealc,(7) bad debt expense, and(8) non-operating expense or revenue.
It is the elimination of interest expenses and all kinds of taxes that(6) E. Schmalenbach; Die Beteiligungs Finanzierung, p.37.
(7) E. Schmalenbach; ibid., p,86.

ON THE PURPOSES OF A GOING-CONCERN 109
VALUATION AND ITS NATURES

we must especially point out as items which show the basic character ofthis viewpoint.

That is, by subtracting the interest expenses from operating profit,
the profit which belong only to the proprietorship capital is calculated.
And'moreover the elimination of all kinds of taxes, including income tax,
means the estimate of the net profit which each person concerned in thetransaction of a business or its shares can expect to get in the future, notof the profit which is shown in the income statement. Similarly the
remuneration to business management must also be subtracted whether it
is a form of profit-distribution or an expense item.
Here it is understood that the contents of the profit to be capitalized

indicate the nature of the going-concern valuation from this viewpoint.
On the other hand, in regard to the determination of the interest rate
for capitalization, the starting point is the effective rate of return on
investment expected under the present condition of the same kind of busi-•
ness, and then the rate is considered to be dependent on the present situationof the capital market, the company system of business, the scale of businessenterprise and other special conditions in the business field.

According to the opinion of Schmalenbach, the rate for capitalization
is determined by modifying the average rate of returns on capital stock in thesame business field, taking account of the company system, the shares'
ability to circulate in stock market and the scale ofbusiness.

For example, the rate for capitalization in the valuation of a small
company whose shares are not yet dealt with in the security market isestimated as follows(8).

the average rate of return on capital stock in the same businessfield ...................................................... 5%
the additional rate for the scale of business (100/. of the aboverate)..........................,........................... 10/..

. 60/othe additional rate for inability to circulate in the market (500/.

of the above rate)..............,........................... 30/.
the rate for capitalization ......,.,....................,.,.. 90/.
That is, from this viewpoint, the rate for capitalization must also be
the rate of net profit which belongs to proprietorship capital and so the average rate of returns on capital stock in the same business field is taken as thestarting point. It must be pointed out that the procedure for the determination of the rate comes from the basic concep of the nature of a going-(8) E. Schmalenbach;ibid., p.50•-vp.53.

JIRO ONO

110

concern valuation.
In short, it can be said that the going-concern valuation theory fromthis viewpoint, which Schmalenbach and Dewing insist on, has the appraisalof proprietorship capital, that is, the estimate of the worth of shares for each

person concerned in the transaction of an entire business or a substantial
portion of its ownership, for its purpose. And the basic concept of thetheory determines the contents of profit to be capitalized (the net proft
which belongs to proprietorship capital) and the rate of interest for capitalization (the rate founded on the average rate of returns on capital stock).

Ill
In the second point of view, which was advanced, for instance, byK.Mellerowicz and W.A.Paton(9), the going-concern valuation is a procedure which from the standpoint of business management estirnates theworth of the total capital employed in a business enterprise, at least in thefirst step.

Mellerowicz says "The acceptable viewpoint in this problem is only oneof business management. The purpose of the valuation theory is not toadvise a buyer of business how he can most profitably invest his capital,
but to determine the objective value of a business enterprise regardless of theinterest of each person concerned in the transaction of the business andso regardless of the transaction-price of business or its shares.(iO)" According
to his theory, differing from the first viewpoint, the form of finance need not

be taken into account, but the very products (or sales) which the businessas a conglomerate of supplementary production-factors will bring about inthe future and the whole earnings which it will gain for them are considered
to determine the value of a going concern.
So, from such a viewpoint, it has no significance in the going-concern
valuation whether the capital once invested in a business is proprietorship

capital or borrowed capital, and the capitalized value of earnings which
the total capital brings about or the value of the total capital employedin business is regarded as the value ofa going-concern. Because only theperformance of the entire business enterprise as a structure composed ofvarious forms of capital is the decisive factor in valuation.(ii)
Therefore, the profit to be capitalized is necessarily one which belongs
to the total capital employed in the business, and the rate for capitalization(9) K. Mellerowicz; Der Wert der Unternehmungs als Ganzes, 1952, p.61, p.71, Paton &Paton; ibid.,p.523 p.528.
(10) K. Mellerowicz; ibid., p.11.-b.p.13.

(11) K. Mellerowicz; ibid., p.15.

ON THE PURPOSES OFAGOING-CONCERN 111
VALUATION AND ITS NATURES

must be also determined in accordance with the contents of profit.
That is, in this second viewpoint too, we can give several similar items
which must be examined as in the first view point of proprietorship capital,
but here it must be especially pointed out that both items of interest expense
and income tax (if it is defined more precisely, all kinds of taxes wihch arecharged on the earnings of the total capital employed in the business) must

be included in the profit to be capitalized.
In regard to the charge ofincome taxes, however, there is no generally

accepted opinion among many authorities.
Mellerowicz states that from the view point of business management
income taxes must be subtracted from the profit because they decrease
the profit which belongs to the capital of business and so they cannot
constitute any portion ofthe value ofprofit capitalized and so of the goingconcern value.(i2)And Paton & Paton also insist on the same opinion and show anillustration of a going-concern valuation in which income taxes are subtraCted.(i3)On the other hand, J.B. Felten states that income taxes must not be
subtracted from the profit because they are not an expense, that is, economic
value consumed in a business for the acquisition of surplus, but they meana form of distribution of the surplus value itselÅí He thinks that a going-

concern value has no relatiQn to whether the surplus value the eamingsof business is distributed in the form of dividends or of taxes.(i4>Then J. Liebl insists on profit before income taxes on the groundthat capitalization of profit after income taxes misleads the income statement of business after the valuation. Because depreciation will be undercharged ifthe value ofcapitalized profits which do not include income taxes
is taken as the whole value of assets and if each of the depreciable assets isrevalued in accordance with the going-concern value.
That is, it leads to the undervaluation of assets when the assets arerevalued on the ground of the value of capitalized profit after the chargeof income taxes in spite of the fact that the total capital invested in businesstotal assets bring about the earnings including income taxes.(i5)I consider that income taxes must not be subtracted to estimate the

(12)
(13)
(14)
(15)

K. Mellerowicz; ibid., p.65.
Paton & Paton; ibid., p.511, p.524 Op.525.
J.B. Felten; Wert und Bewertung ganzer Unternehmungen unter besonderer Beracksichtigung der Energiewirtschaft, 1958, p.53 p.54.
J.Liebl; DerErtragswertderUnternehmungunddieGewinnsteuern,Betriebswirtschaftliche
Forschung und Praxis, 1953, p.74Np.87.

112 JIRO ONO
going-concern value in accordance with the purpose of the valuation inthis second viewpoint on the basis of the above quoted reasons. In regard
to how to understand the purpose of a going-concern valuation I will state

my opinion in the next chapter.
To say nothing of the fact that there are two opinions in regard towhether income taxes must be subtracted from the profit or not, we must
recognize that the contents of profit to be capitalized are determined toinclude interest expenses from the viewpoint of total capital, that is, fromthe basic concept of the going-concern valuation.
And then, in the second viewpoint, the function of the interest rate forcapitalization is first considered to compare and appraise the operating
earnings, which belong to the total capital of each business enterprise, as a
generally acceptable measure and second to take account of the risk factors
which cannot be anticipated in the amount offuture profits in the valuation.

Mellerowicz determines the rate for capitalization by modifying thenormal market rate the average rate of returns on the most secure
investment, for example, on first class bonds taking account of the normal
rate ofearnings in the same business field, the structure ofcapital and asset
in the business and the risk expected in the future financial-or production
activity.(16)For example, the rate for capitalization in the valuation of a company

is estimated as follows; s
the normal market-rate of interest of first classbonds ,........................................... 7.5 O/.
the average rate of earnings in the same businessfield ............................................ 7.5 O/.
A. average of the above two rates .................... 7.5 O/o(the rate which has the first function of comparison and appraisal)
the additional rate for the structure of capital andasset.............................................. 1.8 O/,
the additional rate for the risk of financial activity(as to the scale of business or the company system) .... O.5 O/othe additional rate for the risk of production activity(as to the competition-danger or the variation of demand)t.............,.............,..................... 1.5 O/.
B. total of the above three rates ...................... 3.8 O/o(the rate which has the second function of taking account of risks)
the rate for capitalization (A+B) ...................... I1,3 O/.

'(16) K. Mellerowicz; ibid., p.77 p.82.

ON THE PURPOSES OF A GOING-CONCERN 113
VALUATION AND ITS NATURES

That is, differing from the first viewpoint of Schmalenbach, the rateof retufons which capital can normally gain in a national economy and therate of earnings which the capital in business enterprise should bring about
are taken as the measure with which the value of profit on the total capitalis compared and appraised.
If an investment is done from the standpoint of business management
regardless of whether the capital is proprietorship capital or borrowed
capital, the normal market-rate of interest is supposed to represent thecapital utility in a national economy which mu,gt be acquired, but thecompetition region of total capital investment is practically limited to acertain business field, that is, the rate of earnings is usually equalized onlyin the same business field and not beyond the region, and so the mean of
the normal market-rate of interest and the average rate of earnings on the
total capital in the business field is taken as the starting point.
The rate of interest for capitalization must also be the rate of earnings

which belong to the total capital employcd in accordance with the contentsof the profit to be capitalized.

In the second viewpoint, in comparison with the first viewpoint, theworth of a going-concern is grasped as the value of the total capital invested

in the business from the standpoint of business management.
In regard to whether income taxes are included in the profitg. to becapitalized or not, there are two different opinions, but on the basis of thereason that the purpose of going-concern valuation is to determine an
obiective value of a business enterprise regardless of the interest of each
person it is insisted that the value of total capital must be estimated fromthe earnings of total capital employed and the rate for capitalization which
is determined by the rate of earnings on total capital.

IV
As mentioned above, in each of the two viewpoints, the value of agoing-concern is quite different.
That is, in the first viewpoint, it is the value of the proprietorship capitalof a business, and in the second viewpoint the value of total capital em-

ployed in business it equals the value of proprietorship capital plus
the amount of borrowed capital.
It is an extremely important problem whether this difference between
the two viewpoints is only such a numerical one that the one is equalized
to the other if the nominal amount of borrowed capitai is subtracted, orsuch a substantial one that is brought about from the difference between
the purposes of each going-concern valuation.

114

JIRO ONO

We try to examine this problem in the fourth chapter.
The first viewpoint that understands the worth of a going-concern
as the value of proprietorship capi[al is usually insisted on by many writers.

And we can acknowledge that in the case of the transaction of an entire
business or a substantial portion of its shares, the value must be appraisedin this way.

On the other hand, however, in regard to the second viewpoint thatappraises only the objective value of a business from the standpoint ofbusiness management regardless of the interest of each person concernedin the transaction of its shares, we must consider what the purpose of thevaluatien is.

M.R. Lehmann states that the motives of going-concern valuation areusually given from outside of the business and that it is not required by thebusiness management itselÅí(i7) However, in spite of Lehmann's opinion,
we can point out that the estimate of future earnings acquired by the wholebusiness activity and the revaluation, founded on them, of the total capital

employed are sure to be required, when the business enterprise is goingto make a fresh start on the basis of a new value of total assets or total capitalin the case of a reorganization or a quasi-reorganization, from the stand-point of the business management itself, not from the standpoint of theinterest of each person.

In other words, the basic concept of the fir.qt viewpoint is that thegoing-concern valuation is an estimate of the worth of proprietorship capitalfor each person cencerned in the transaction of a business or its shares, andthe fundamental purpose of the second viewpoint of business enterpriseitself, on the contrary, is considered to be the appraisal of a new base ofcapital value for the accounting of business to make a fresh start.

I am sure that these two concepts are related to two fundamental
purposes of a going-concern valuation and that they respectively define
the contents of the profit to be capitalized and the rate for capitalizationin accordance with the purposes.
In the first viewpoint, the profit is one from which interest expenses
and income taxes are subtracted, that is, the net profit which purely belongs

to prorietorship capital. This valuation procedure, as mentioned above,
can be acknowledged from the standpoint of proprietorship capital, but
can not be accepted for the purpose of a fresh start of accounting,Because by subtracting interest expenses, both the business activities(17) M.R. Lehmann; Allgemeine Grundstitze fUr die Bewertung ganzer Unternehmung,Z.ÅíB., 1954, p.66.

ON THE PURPOSES OF AGOING-CONCERN 115
VALUATION AND ITS NATURES

and the capital structure of an enterprise have effects on the profit tQ becapitalized. When the rate of interest expense is lower than the rate ofearnin,gs on total capital, the more the borrowed capital is, the more theprofit of proprietorship capital is and so the larger the value of a goingconcern is. On the contrary, when the rate of interest expense is higher,
the more the borrowed capital is, the less the profit is and so the smaller

the value is. 'Besides, the profit varys in accordance with alteration of income tax

rates and subtraction of income taxes means to appraise the assets of businessfuture expenses , which bring about the earnings including income taxes, on the basis ofthe profit after payment of income taxes. Therefore, if the depreciable assets of a business are revalu'ed on the basis of thevalue estimated by this valuation procedure, the future expenses will be
undercharged and the future income statements will be influenced anddisturbed by the present capital structure and the existing institution oftax.

On the other hand, in the second valuation procedure, the earnings
whjch include interest expenses and income taxes are taken as the profit tobe capitalized, but thus the appraised value of a going-concern can not
represent the worth of proprietorship capital in the transaction of a businessor its shares, because here the profit or the loss, which should belong to
the proprietorship cap{tal as the result of the capital structure of a businessand the charge of income taxes, is not taken into account, and so the net

profit which will be purely given to each person concerned and the net
value of proprietorship capital cannot be estimated.
Supposing that in a business the value of proprietorship capital appraised by the first valuation procedure is V,, the amount of borrowed
capital is V,, the value of total capital appraised by the second valuation
procedure is V,, the earnings on total capital equals the interest expenses

and therefore income taxes are not charged, V, ==O. However if the rateof interest expense is higher than the rate for capitalization, V,-V,>O.
Ifthe rate ofinterest expense equals the rate for capitalization, V, -V, ===O.

And if the rate of inrerest expense is lower, V, -V, <O. That is, for example, even when the profit on proprietorship capital is O, the worth ofproprietorship capital appraised by the second valuation procedure (V, V,•) can be larger than O or smaller than O.
To the new base of capital-or assets-value for a fresh start of accounting,however, the appraised value of total capital can be applied. ' Theoretically
it is at least considered to be one of the best basis of revaluation of wholeassets.

116

JIRO ONO

The rate for capitalization must be also determined in accordancewith each fundamental viewpoint of a going-concern valuation as we havealready seen in the opinions of Schmalenbach and Mellerowicz.
The first valuation procedure is fbunded on the average rate of returnsof capital stock, and the second procedure starts from the normal market
rate of interest which capital can normally gain in a national economy.
As the result, the difference between the two viewpoints is not only
numerical, but a substantial one in their natures and it is determined by
the purposes and objects of valuation in each case.
In the valuation theories of many authorities, that is, W.A. Paton,

E. Schmalenbach, A.S. Dewing, K. Mellerowicz, etc,, the fundamental
purposes which shouldbe the basis have not been recognized and the theories

which have been aimlessly brought forward have been vaguely considered
to be applicable to general purposes. It has not been recognized that thevalue of proprietorship capital and the value of the total capital employed
in a business are substantially different and that the purposes and naturesof valuation must be also different in each of the cases. And as the result,

such problems as above stated have remained unresolved.
Therefore I am sure that the valuation of a going-concern has two
purposes and so two objects, that is, appraisal of1) the value of proprietorship capital for each person concerned in thetransaction of an entire business enterprise or its shares, and2) the value of total capital employed in a business which should be
the new base of capital- or assets-value for a fresh start in business accounting.

The fundamental concept and so the nature of a going-concern valuation must be also determined in accordance with each purpose.

DIE BETRACHTUNGSWEISE DER NEUERENBETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIEAUFFASSUNG DESERTRAGSGESETZES
Tetsuo KoBAyASHII
Der kostentheoretische Streit ist eines der auffalligsten betriebs-

wirtschaftlichen Probleme, dienach dem zweiten Weltkrieg in WestDeutschland bestritten worden sind. Dieser Streit ist von vielen
Autoren auch inJapan vorgestellt worden, und sie hat gleichfalls diejapanische betriebswirtschaftliche Kostentheorie zu nochmaliger Uberle-

gung aufgefordet. Aber nach ihrem Anfang sind mehr alszehnJahre
vergangen. Nunmehr sollen wir also diese Bestreitungsprobleme einrichten
und auch die allgemeine Bewertung der neueren Kostentheorie feststellen.

In dieser Abhandlung wollen wir die Unterschiede des Charakterszwischen der traditionellen Kostentheorie und der neueren Kostentheorie
ins klare bringen, indem wir einige Probleme Uber dasi Ertragsgesetz

besonders betrachten. Dabei nehmen wir Konrad Mellerowicz als den
Vertreter der traditionellen Betrachtungsweise ihrerseits, und Erich Guten-

berg als den Vertreter der neueren Betrachtungsweise anderseits, an.

II
Einige Autoren haben die Auffassung, dass Mellerowicz und Gutenberg
die unterschiedliche Stellung zum kostentheoretischen Ziel, bzw. zur
Aufgabe nehmen. Das ist der Fall fUr Mellerowicz selbst. Er schreibt;,,Zusammenfassend kann......, gerade auch nach Kenntnis der Gutenbergschen Einwendungen, festgestellt werden:......, dass die Einwendungen, die Gutenberg gegen die Geltung der herrschenden Kostentheorie
erhebt, auf nicht stichhaltigem Material, auf falschen Vorstellungen Uber

die Ziele, Aufgaben und Voraussetzungen der betriebswirtschaftlichen
Kostentheorie und auf Formulierungen und Einengungen theoretischer
Tatbestande beruhen, die fUr die betriebswirtschaftliche Forschung unzweckmassig sind."(i)(1) Konrad Mellerowicz, Kostenkurven und Ertragsgesetz, Zu Gutenbergs These uber den
Verlauf von Kostenkurven, Zeitschrift fUr Betriebswirtschaft 23.Jg. Nr.6 Juni 1953 S.346.

117

118

TETSUO KOBAYASHI

Dafur zahlt Mellerowicz einige GrUnde auf: ,,die unrealistische mathematische Deduktion", ,,die falsche Auffassung der empirischen Kostenuntersuchungen in Amerika", ,,die Ausschliessung aller Bedingungsveranderungen", ,,die Verwechselung der Betriebsgr6sse mit dem Beschaftigungs-

grades". Und Gutenbergs Auffassung Uber das Ertragsgesetz ist auchein Grund. Dieser Grund bezieht sich auch auf ,,die unrealistische
mathematische Deduktion" und ,,die Ausschliessung aller Bedingungsveranderungen".
Mellerowicz erhebt Einspruch gegen die Kritik von Gutenberg Uberdas Ertragsgesetz, wie folgt:,,W,enn wir von einer Erklarung der Kostenkurve durch das Ertragsgesetz sprechen, so kann dieses Ertragsgesetz nur als Inbegriff fUr die

Veranderungen in den Produktionsbedingungen stehen, die im Verfolg.
wechselnder
Kombination von Produktionsfaktoren auftreten. Als solches
darUber muss man sich stets im klaren sein ist das Ertragsgesetz
aber kein Gesetz im strengen Sinne des Wortes, da es aus der Erfahrung
gewonnen wird und somit rein hypothetischen Charakter tragt. Es ist
nicht m6glich, das Verhalten von Produktionsfaktoren im Kombinationsprozess a priori festzustellen."(2),,Gutenberg hat mir vorgeworfen, ich hatte unzulassigerweise einen
gekrUmmten Kostenverlauf behauptet, und er hat durch die Auffassung
einer Reihe von hypothetischen Falle zu zeigen versucht, dass bei den
Kosten einzelner Produktionsverfahren ein linearer Verlauf besteht. Es
ist aber erkenntnistheoretisch unsinning, ein Gesetz, rein hypothetischen
Charakter tragt, anders als aus der Erfahrung zu begrUnden oder zu wider-legen. Eine Erfahrungsregel kann nur aus der Erfahrung gewonnen werden
und ist durch willkUrlich gewahlte Hypothesen nicht angreifbar."(3)Den gleichcn Einspruch k6nnen wir auch in den folgenden Satzen vonUlrich Kifhn sehen.
,,Wenn Gutenberg die Geltung des Ertragsgesetzes fUr die Industriedavon abhangig macht, dass ,die Ertragsanderung einzig und allein ineindeutiger Weise dem Mehr oder Weniger an Einsatzmengen des variierten
Faktors zugerechnet werden kann`, so hat diese Forderung zwar mit dem
Bestimmen der Auswirkung des Ertragsgesetzes sehr viel, mit der Erklarungdes Bestehens und mit der GUItigkeit d{eses Gesetzes an sich sehr wenig
zu tun. Freilich ist hier das BemUhen bei Gutenberg vorherrschend, furdie Wahl der Faktorkombination und damit wiederum fur die Maximierung(2) Mellerowicz, K., a.a.O., S.343,(3) Mellerowicz, K., a.a.O., S.344.

DIE BETRACHTUNGSWEISE DER NEUEREN
119
BETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIE
der Produktivitat im voraus exakt bestimmbare Angaben zu machen,welcher Faktor in welcher Menge zu verandern ist, damit das Kombinationsergebnis m6glichst gUnstig ausfallt. Gewiss ware viel gewonnen,
wenn es gelange, die Kostenrechnung auch in dieser Hinsicht in den Dienst
der Produktion zu stellen. Dies ist aber unabhangig davon, den Ertragsverlauf als solchen zu erklaren,..........".(4)An der Gutenbergschen Kritik Uber das Ertragsgesetz haben wir htiufig

allerdings einen Eindruck, dass sie wenige immanente Faktoren gegen
die traditionelle Kostentheorie enthalt. Insofern erscheinen die Antikriti-

ken von Mellerowicz und KUhn gerechtfertigt. Aber die Kritik vonGutenberg Uber das Ertragsgesetz ist ein Widerschein seiner kostentheoretischen Betrachtungsweise.
Bei GutÅënberg baut die Kostentheorie sich auf der Produktionstheorieauf. Er entwickelt die kostentheoretische Verfeinerung, indem er das
genaue fertigungstechnische Verhaltnis zwischen Faktorertrag und Faktorein-satz durch die Produktions-(bzw. Verbrauchs-) funktion angibt.
Ausserdem nimmt er die verschiedenen Formen der Anpassung an
Beschaftigungsanderungen als zusatatzliche und neue Variable in die
Kostentheorie hinein, Somit bringt er das realistische Verhalten der
Kosten bei Beschaftigungsanderungen ins klare, und die Untersuchungerstreckt auch sich auf Ursachen und Entstehungsformen von allen
Kostenarten.

Dabei handelt es sich zwar um die Verfeinerung der Kostentheorie.
Aber das bedeutet nicht, dass wir die Bedeutung von Gutenbergscher
Kritik gegen die traditionelle Kostentheorie Uber das Ertragsgetz unsinnig

untersuchen. Ich denke, dass die kostentheoretischen Betrachtungen vonGutenberg auch die immanente Bedeutung fur die traditionelle Kostentheorie enthalten, und dass vor allem Gutenbergsche Kritik Uber das Ertrags-

gesetz die immanente Kritik gegen die traditionelle BegrUndungsweise vonder Gesamtkostenkurve sein kann. Das soll in den folgenden Ausftihrungenvon selbst bewiesen werden. Dabei handelt es sich um den Unterschiedder Untersuchungsmethode.(5)(4)

Ulrich Ktihn, Betrachtungen zur Theorie des Kostenverlaufs und des Ertragsgesetzes,
Betriebswirtschaftliche Forschung und Praxis, Jg.8 1956 -S.407.

(5)

Ich denke auch, dass die Kostentheorie von Gutenberg die gleichen Aufgaben wie die
traditionelle Kostentheorie enthalt. Und ich denke also nicht, dass die Kritik von KUhn,
die er in seiner Abhandlung ,,Ist die Theorie der fixen Kosten Uberholt?" (Zeitschrift fUr

handelswissenschaftliche Forschung, 7.Jg.1955 Heft 9 S.399-412.) gegen die Lehre vonErich Schneiders gemacht hat, auch in die von Gutenberg Ubertragbar ist. Gutenberg
berucksichtigt auch die Anpassung von dem erreichbaren Absatz an die Kapazitat derAnlagen.

TETSUO KOBAYASHI

120

Deshalb untersuchen wir im folgenden die Bestreitungen Uber das
Ertragsgesetz als ein Problem der kostentheoretischen Untersuchungsmethodc. Das Problem ist Uber die Auszeichnung (und Auswahl) der
kostentheoretischen Untersuchungsmethode.
Wenn man dieses Problem untersuchen soll, gibt es dabei zwei Untersuchungsweisen. Die erste Weise ist von der Seite der traditionellen Methodeauszugehen, Und die zweite Weise ist umgekehrt von der Seite der neueren

Methode auszugehen und davon auf die Problematik der traditionellen
Kostentheorie einzugehen. Bei dieser Abhandlung m6chte ich die letztere
wtihlen, denn ich wahlte frUher(6) die erste Weise.

III
Die Grundidee von Gutenberg, auf der sich seine betriebswirtschaftliche
Konzeption aufbaut, besteht in der prinzipiellen Auffassung des Produktions-prozess als eines Kombinationsprozess.(7) Auch seine Kostentheorie wird

also dadurch ausgerichtet, dass der Kombinationsprozess zum Grunde
seiner Betrachtung gelegt wird. Infolgedessen wird das Ertragsgesetz bei
Gutenberg als Grundprinzip der Kombination betrachtet.
Die Auffassung des Ertragsgesetzes als Grundprinzip der Kombination
mag zwar von der Auffassung nach der traditionellen betriebswirtschaftlichen
Kostenlehre verschieden sein, Vor allem fasst Mellerowicz das Ertragsgesetz,
wie oben gezeigt ist, nicht als a priorische Kombinationsprinzip, sondern als

die emiprische Regel auf.
Aber im Gegensatz zu Ktihn mdchte ich meinen, dass es sich bei Guten-

bergscher Auffassung des Ertragsgesetzes nicht nur um a priorische
Kombinationsprinzip an sich handelt. Vielmehr interessiere ich mich dafUr,

mit welchem Umfang die traditionellen BegrUndungsweisen der Gesamtkostenkurve von Gutenbergscher Betrachtung Uber das Ertragsgesetz kritisiert

werden. Ich denke, dass man dort die immanenten Zusammenhange
beider finden.

Gutenberg weist hin, dass die grossen technischen Hindernisse gegen
die Kombination nach dem Ertragsgesetz in der industriellen Produkrion
bestehen. Das Ertragsgesetz baut bei Gutenberg sich auf der Voraussetz-

ung auf, dass ein bestimmter Ertrag mit mehreren Kombinationen der
Produktionsfaktoren erzielt werden kann, mit anderen Worten, dass die
Vermehrung eines Faktors bzw. einer Faktorgruppe sogar mit keiner leistungsabgabmassigen Veranderung anderer Faktoren zu Ertragszuwachsen(6) Tetsuo Kobayashi, Betrachtungen zur Theorie der fixen Kosten, Kobe University Business

Review 11th Annual Report 1961, S.205-236.
(7) Vgl., Gutenberg, E., Zum ,,Methodenstreit", ZfhF 5•Jg.1953 Heft 7. S.334.

121
DIE BETRACHTUNGSWEISE DER NEUERENBETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIE

fUhren kann. Aber nach Gutenberg kann die Beschaftigungsvermehrung,die mit dem zusatzlichen Einsatz von variablen Faktoren wirklich verursacht
wird, nur in der Mitwirkung konstanter Faktoren (d.h.mit der Veranderungvon Leistungsabgabe der konstanten Faktoren) sein, Das widerspricht dem
Ertragsgesetz (bei Gutenberg). Deshalb halt Gutenberg das Ertragsgesetz
fur unreprasentativ in der industriellen Produktion.
Um die wirkliche Kombination und damit das relalistische Kostenverhalten festzustellen, hebt Gutenberg das Ertragsgesetz auf, und er nimmt
die andere Produktionsfunktion auf. Dabei ist darauf achtzugeben, dasser fUr die BerUcksichtigung des Verhaltens konstanter Faktoren die verschiedenen Benutzungsformen (Anpassungsformen an die Beschaftigungsanderungen) der Betriebskapazitat in die Untersuchung einbezieht. Das
ist besonders wichtig fUr die Feststellung des realistischen Kostenverhaltens.

Aber das kann nicht vom Ertragsgesetz erklart werden, da das Ertragsgesetz

nach Gutenberg das konstante Verhalten des konstanten Faktors voraussetzt.

Daraus erglbt sich die Unwirklichkeit der Kostenkonsequenzen, die
vom Ertragsgesetz (als Kombinationsprinzip) abgeleitet werden. Die
traditionelle Betrachtungsweise mag zwar das Kostenverhalten bei Beschaftigungsveranderungen nicht mit dem Ertragsgesetz (als Kombinations-prinzip) begrUnden. Aber sie hat dieselbe Unwirklichkeit wie in der
BegrUndug des Kostenverhaltens nach dem Ertragsgesetz (als Kombinationsprinzip). Die starkeste Schwache besteht in der UnberUcksichtigung
des veranderlichen Verhaltens der konstanten Faktoren, also in der Unberifcksichtigung der Benutzungsformen der Betriebskapazitat beiBeschaftigungs-

veranderungen. Im folgenden wollen wir dieses Problem noch naher
untersuchen.

Mellerowicz begrifndet den Verlauf der Gesamtkostenkurve hauptsachlich mit den Einflttssen des Verhaltens der Menschen auf den Charakter

bzw. aufdie Charakteranderung der einzelnen Kostenarten. Dabei nimmt
er die empirische induktive Methode auf. Das stimmt mit seiner Auffassung
des Ertragsgesetzes Uber, insofern als er das Ertragsgesetz als die empiri-sche Regel betrachtet. Aber, um die gleichen Problematiken zwischen
Mellerowicz und Gutenberg festzustellen, mUssen wir die empirische
BegrUndungsweise und die produktionstheoretische Weise gegenUberstellen,
Es bedarf also die empirischen BegrUndungen an der Sicht der Produktionstheorie zu Uberlegen. Und ich glaube es lst m6glich, denn auch die empirische Produktion muss irgendeiner Produktionsfunktion zu Grunde liegen
und ich denke, dass die Kombinationsverhaltnisse von Produktionsfaktoren,
vor allem die von variablen Faktoren mit den konstanten Faktoren, die

122

TETSUO KOBAYASHI

man in der traditionellen Kostentheorie findet, mit den Kombinationsverhaltnissen nach dem Ertragsgesetz (bei Gutenberg) sehr verwandt sind.

Bei den traditionellen Betrachtungen werden die variablen Faktoren
ohne Beschrankung innerhalb der technischen Kapazitatsgrenze mit den
konstanten Faktoren kombiniert, bzw. wird keine Rechenschaft Uber die
M6glichkeit der Kombination gegeben. Insofern sind die Kombinationsverhaltnisse nach den traditionellen Betrachtungen mit der nach dem Ertragsgesetz bei Gutenberg verwandt, weil das Ertragsgesetz als Kombinationsprinzip nach Gutenberg eine Ertragsfunktion mit veranderlichen Produk-•

tionskoeMzienten und damit, wenigsten in gewissen Grenzen, die
M6glichkeit der ,,frei-variierbaren Faktoreinsatzmengen"(8) enthalt.

Damit haben wir dieselbe Unwirklichkeit in den traditionellen
Betrachtungen wie in dem Ertragsgesetz als Kombinationsprinzip gefunden.
Wahrend, wie oben bereits erwahnt ist, aus dem Ertragsgesetz das veran-derliche Verhalten der konstanten Faktoren abgeleitet wird, kannauch die traditionelle Betrachtungsweise das Verhalten, also die verschied-lichen Benutzungsformcn der Betriebskapazitat (Anpassungsformen an
Beschaftigungsveranderungen) nicht berUcksichtigen, insofern als sie dieahnlichen Verhaltnisse wie die vom Ertragsgesetz als Kombinationsprinzip
erkennt.

Die Ungttltigkeit des Ertragsgesetzes fifr die industrielle Produktion
und der Vorteil der Betrachtung, die Gutenberg'fUr die BerUcksichtigung
des veranderlichen Verhaltens der konstanten Faktoren (Anpassungsformen
der Betriebskapazitat) neu entwickelt hat, werden vom Beispiel fifr eine
Hobelmaschine,(9) die Gutenberg in ,,Grundlagen der Betriebswirtschaftslehre" angegeben hat, anschaulich gemacht.
Dabei unterscheidet Gutenberg zwei Falle: im ersten Falle l6st eine

Veranderung der Materialmenge (variable Faktor) keine Anderung in dem
arbeitsmassigen Verhalten des Arbeiters und dem technischen Verhalten
der Maschine aus, also sollen die beiden konstanten Faktoren als auf einebestimmte Leistung fixiert angenommen werden; im zweiten Falle beeinflusst
eine Veranderung der Einsatzmenge des variablen Faktors das Verhalten
der konstanten Faktoren. Diese beiden Falle sind in ihren Benutzungsformen der Betriebskapazitat (Anpassungsformen an Beschaftigungsveranderungen) verschiedlich miteinander.(iO) Im letzeren Falle kommt zwar
ein Mehrprodukt zustand, aber im ersten Falle nicht. Daraus ergibt sich,(8) Vgl. Gutenberg, E., Grundlagen der Betriebswirtschaftslehre, Erster Band, Die Produktion,

4 Aufi 1958. S.210.
(9) Vgl. Gutenberg, E., a.a.O., S.214-215.
(10) Der erste Fall fUhrt zur quantitativen oder zeitlichen Anpassung, der letzere Fall wird an derintensitiitsmassigen Anpassung angeknUpft.

DIE BETRACHTUNGSWEISE DER NEUEREN 123

BETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIE

dass die verschiedliche Kostenkonsequenzen je nach der Benutzungsformder Kapazitat (also, je nach der Anpassungsform) gefUhrt werden. Unter,

dieser Beoachtung betrachtet Gutenberg die Kostenkonsequenzen bei
Beschaftigungsanderungen. Der Unterschied des Kostenverhaltens bei
den verschiedenen Benutzungsformen der Betriebskapazitat kann, wieoben erwahnt ist, nicht vom Ertragsgesetz abgeleitet werden.

In diesem Sinne kann man sagen, dass Gutenbergsche Kritik Uber das
Ertragsgesetz die immanente Bedeutung fUr die traditionelle Kostentheorie
enthalt. Dabei handelt es sich nicht nur darum, dass der liniare oder S-

f6rmige gekrUmmte Verlauf der Gesamtkostenkurve fUr die industrielle
Produktion reprasentativ ist. Vielmehr sollen wir den BeweisfUhrungsprozess, von welchem die Folgerung Uber den Verlauf der Gesamtkostenkurve
abgeleitet wird, fur wichtiger halten. Das soll aus den obigen Ausfuhrungenverstanden werden.
Damit soll auch die Antikritik von Mellerowicz, der gegen die Gutenbergsche Auffassung des Ertragsgesetzes in Anlehung an die folgenden
Satze von Weller versucht hat, wenig sinnig sein.
,,Ein Unternehmer rechnet jedoch nicht in Faktoreinsatzmengen,sondern er berUcksichtigt lediglich den Verlust, den sein Verm6gen durch
die Produktion erleidet. Ftir den Betriebsleiter sind daher alle Produktions-faktoren konstant im Sinne des Ertragsgesetzes, deren vermehrter Einsatz
nicht zu einem zusatzlichen Verm6gensverlust fUhrt. Erhalt der Arbeiter...... Stundenlohn, dann hat der Unternehmer ihm die gleiche Lohnsumme zu zahlen, ob nun der Arbeiter einen oder zwei WebstUhle bedient.

Da der Stundenlohn von der H6he der Faktoreinsatzmenge des Produktionsfaktors Arbeit nicht berttrt wird, betrachtet der Unternehmer den
Produktionsfaktor Arbeit in diesem Falle als konstant..........,.. Beiseinen wirtschaftlichen Vberlegungen kombiniert der Unternehmer nicht
die Faktoreinsatzmengen der einzelnen Produktionsfaktoren, sondern die
Verm6gensverluste, die ihm durch ihren Einsatz entstehen. Der Unternehmer denkt nicht in Faktoreinsatzmengen, sondern in Kosten, und es
ist sein Bestreben, die Kostenkoinbination zu verwitklichen, die ihm diehdchsten Erfolgsaussichten bietet, bei der er den geringsten Verm6gensver-lust in Kauf nehmen muss. Er sucht die Minimalkostenkombination.
Hierbei rechnet er mit dem Ertragsgesetz."(ii)Im Falle in dem der vermehrte Einsatz des Produktionsfaktors nicht

wirklich zu zusatzlichen Kosten fUhrt, mag der Faktor allerdings(11) Weller, ,,Errechnung der Minimalkostenkombination als Grund]age fur unternehmerische
Entscheidungen", ZfB,Nr.3/1957 S.176/177. Vgl. Mellerowicz, K., Kosten und Kostenrechnung I: Theorie der Kosten, 3.Aufl,, S.394-395.

TETSUO KOBAYASHI

124

als konstant fUr die Unternehmer betrachtet werden. Aber die Kosten
k6nnen nicht immer mit der zusatzlichen Benutzung der Betriebskapazitat

unveranderlich sein, also nimmt die Gesamtkostenkurve nicht immer
denselben Verlauf, wenn sich der Betrieb an Beschaftigungsanderungenin verschiedenen Formen anpasst. Man kann nach dem Ertragsgesetz
die Anderungen des Kostenverhaltens, die mit dem zusatzlichen Einsatz
des Produktionsfaktors, bzw. mit der zusatzlichen Benutzung der Betriebskapazitat verursacht werden, nicht recht berUcksichtigen. Von einer
zufalligen Tatsache, dass der vermehrte Einsatz des Produktionsfaktors
nicht zu einer zusatzlichen Kost fifhrt, lasst nicht die unklare, ertragsgesetz-

massige BerUcksichtigung von Benutzungsformen der Betriebskapazitat
bleiben. Auch bei Gutenberg gibt es zwar solchen Verlauf von Gesamtkostenkurve, welcher in der traditionellen Kostentheorie festgestellt wird.

Daher kann Gutenberg den S-f6rmigen, gekrUmmten Verlauf nicht vollkommen ablehnen. Aber man soll denken, dass die Kritik von Gutenberg
Uber das Ertragsgesetz zunachst die wichtigere Bedeutung an die Kritik
gegen den traditionellen BeweisfUhrungsprozess zum Verlauf der Gesamtkostenkurve, als den Verlauf an sich gewinnen, wenigstens, wenn man
die immanente Bedeutung fUr die traditionelle Kostentheorie in der Kritik
Gutenbergs Uber das Ertragsgesetz sucht.

IV
Das andere Problem Uber das Ertragsgesetz besteht darin, wie weit
die EinflUsse von den Produktionsbedingungen in die Untersuchung desKostenverhaltens bei der Beschaftigungsgradanderung einbezogen werdensollen,Mellerowicz hat das Ertragsgesetz als eine Bestatigung fUr die S-f6rmige

gekrUmmte Gesammtkostenkurve herangezogen. Aber dabei nimmt er
das Ertragsgesetz als ,,Inbegriff fUr die Veranderungen in den Produktionsbedingungen ......, die im Verfolg wechselnder Kombination vonProduktionsfaktoren auftreten"(i2) an. Er denkt, dass das Ertragsgesetz
den reinen technologischen Charakter hat, und dass die Anderungen der
Produktionsbedingungen sofern in Erwagung gezogen werden sollen, als sie,,Ausdruck von technischen Datenanderungen im Produktionsprozess
selbst"(i3) darstellt. Solche Anderungen der Produktionsbedingungen, diezwangslaufig aus der Beschaftigungsgradanderung resultieren, werden also
bei Mellerowicz aus- dem Ertragsgesetz nicht eliminiert. Dagegen weist(12) Mellerowicz, K., Kostenkurven und Ertragsgesetz, S.343.
(13) Mellerowicz, K., a.a.O., S.343.

DIE BETRACHTUNGSWEISE DER NEUEREN 125

BETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIE

Gutenberg hin, dass das Ertragsgesetz die konstanten Produktionsbedingungen voraussetzt. Darin besteht wieder die verschiedliche Auffassung
Uber den Begriff des Ertragsgesetzes. Mellerowicz kritisiert die Auffassung
von Gutenberg, wie folgt:,,Indem Gutenberg auch diese EinflUsse ausschalten will, eliminiert er
nicht nur die EinflUsse, die aus der Marktseite herrUhren, sondern auchdiejenige, die eine Folge der veranderten technischen Produktionsbedingungen sind. Damit schaltet er hier dieses Gesetz selbst aus, indem er es zu
erklaren versucht."(i4)Aufder andern Seite weist Kifhn aufdie Tatsache hin, dass Gutenberg
das Grundprinzip der Kombination, mit welchem die mit dispositiver Aufgabe
Betrauten den Kombinationsprozess vollziehen, in dem Ertragsgesetz gesucht
hat, und dass Gutenberg unvermeidlich infolgedessen die dispositiven

Faktoren aus der Ertragsfunktion ausgeschlossen hat. KUhn schreibt:,,Ob zwischen den Elementarfaktoren und den dispositiven Faktoren einegegenseitige Abhangigkeit besteht, die aufden Effekt der Kombination von
Einfluss sein und wenigstens allgemein in einem ,,Gesetz" ausgedrUckt werden
k6nnte, lasst Gutenberg vollstandig offen. ............ schliesst er diesedispositiven Faktoren aus der Ertragsfunktion aus, indem er die Aufgabe
der Kombination, fUr die er das Ertragsgesetz untersucht, so eng zieht,

dass Veranderungen qualitativer Art auch im Hinblick auf den
konstanten Faktor im Kombinationsprozess keinen Niederschlag finden,
ohne spater diese Abstraktion aufzuheben und den Inhalt eines danngeltenden Ertragagesetzes zu prufen."(is)Aber wir mUssen vielmehr dieses Problem wieder auf das Problem
von der Betrachtungsweise Uber das Kostenhalten bei Beschaftigungsanderungen beziehen. Auch bei seiner eigenen Begrifndung der Abhangigkeit

der Kosten von Beschaftigungsgradanderung, in der das Ertragsgesetz
zunachst aus der Acht gelassen wird, zieht Mellerowicz solche Anderungender Produktionsbedingungen, die mehr oder weniger zwangslaufig aus derBeschaftigungsgradanderung resultieren, in Erwagung ein. An anderer Seite
werden die Anderungen der Produktionsbedingungen ausser Beschaftigung

in der Gutenbergs Untersuchung, bei welcher die andere Produktionsfunktion (d.h. nicht Ertragsgesetz) zum Grunde seiner Betrachtung gelegt
wird, geeliminiert. Gutenberg wollte die reinen quantitativen Kostenver.haltnisse betrachten.

Insofern stimmen beide Begriffsbestimmungen des Ertragsgesetzes(14) Mellerowicz, K., a.a.O., S.344.
(15) KUhn, U., Betrachtungen zur Theorie des Kostenverlaufs und des Ertragsgesetzes, S.404-405.

126

TETSUO KOBAYASHI(von Mellerowicz und Gutenberg) mit jeden Betrachtungsweisen Uber die

Anderungen der Produktionsbedingungen Uberein. Deshalb k6nnen wir
dieses Problem aufdas Problem von der Betrachtungsweise Uber das Kostenverhalten bei Beschaftigungsgradanderungen heranziehen.

Gutenberg macht Bemerkungen darUber, dass die EinfiUsse der
Produktionsbedingungen in die Untersuchung der Kostenabhangigkeit vonBeschaftigung einbezogen werden, wie folgt;,,Bezieht man aber dennoch diese Kosteneinflussgr6ssen in die Untersuchung der Frage nach der Abhangigkeit der Kosten von der Beschaftigung ein, dann ware in diesem Falle zu beweisen, dass die angenommen
Anderungen der Produktionsbedingungen allein die Folgen von Beschaftigungsanderungen sein und dass diese Anderungen der Produktionsbedingungen nun ihrerseits wiederum genau den Einfluss aufdie Kosten ausUben,
der von der Theorie behauptet wird, dass nahm]ich erst abnehmende unddann zunehmende oder Uberhaupt nur abnehmende oder nur zunehmende
Kostenzuwachse entstehen."(i6),,Die Untersuchung dieses Zusammenhanges zwischen Anderungendes Beschaftigungsgrades und Anderungen der Produktionsbedingungenist von der Betriebswirtschaftslehre systematisch Uberhaupt noch nicht
begonnen worden."(i7)Aber es gibt auch die Auffassung, dass die Anderungen der Produktionsbedingungen, Uber die Gutenberg Mellerowicz kritisiert, zum Teil auchbei Gutenberg, vor allem im Falle von der intensitatsmassigen Anpassung
einbezogen werden. Man kann nicht ganz negativ urteilen, dass die Anderungen des Verhaltens konstanter Faktoren bei der intensitatsmassigen

Anpassung nicht solche Anderungen der Produktionsbedingungen sind.
Es soll jedoch achtgegeben werden, dass solche Anderungen aus dem
schlagenden Untergrund abgeleitet werden. Bei Gutenberg werden sie
aus den Verbrauchsfunktionen, die ,,die Abhangigkeiten zwischen Verbrauch an Faktoreinsatzmengen und technischer Leistung eines Betriebsmittel"(i8) darstellen, abgeleitet. Mit anderen Worten, bei Gutenberg, wer-

den nur die Anderungen der Produktionsbedingungen, deren Abhangigkeiten von Beschaftigungsanderungen von den technischen Gegebenheiten des
Betriebsmittel genau bestimmt sind, in die Untersuchung der Kostenabhangigkeit von Beschaftigung einbezogen. Gutenberg bezieht keine vagen
Bedingungsanderungen in diese Untersuchung ein. Insofern untersucht(16) Gutenberg, E., Uber den Verlauf von Kostenkurven und
1/1953 S.16.
(17) Gutenberg, E, a.a.O., S.17.
(18) Gutenberg, E., Grundlagen der Betriebswirtschaftslehre, I.

seine BegrUndung, ZfhF, Nr.

Band, 4.Aufl., S.219-220.

DIE BETRACHTUNGSWEISE DER NEUEREN 127

BETRIEBSWIRTSCHAFTLICHEN KOSTENTHEORIE

er die Abhangigkeiten der Kosten von der Beschaftigung, isoliert aus den
EinflUssen der Produktionsbedingungen. DarUber schreibt Heinen; ,,Die
neuere Betrachtungsweise in der betriebswirtschaftlichen Kostentheorie
wendet, von einzelnen besonders gekennzeichneten Ausnahmen abgesehen,streng die isolierende Untersuchungsmethode an. Dies bedeutet, dassstets nur eine der von ihr unterschiedenen KosteneinflUssgr6ssen bei strenger
Konstanz aller Ubrigen untersucht wird."(i9)Nachdem wir den Unterschied der Untersuchungsmethoden ins klare
gebracht haben, muss nun eine von dieser Methoden ausgewahlt werden.
Heinen betrachtet dieses Problem weiter in Bezug auf die Preispolitik bzw.
die Beschaftigungspolitik. Er schreibt:,,Die neuere Betrachtungsweise in der betriebswirtschaftlichen Kostentheorie unterzieht die Einwirkung der von ihr unterschiedenen Kosteneinflussgr6ssen auf die H6he der Produktionskosten einer streng isolieren-.den Betrachtung. Bei preiskalkulatorischen Uberlegungen mUssen die
Kosten jedoch in Abhangigkeit von allen Kosteneinflussgr6ssen betrachtet
werden."(2o)Jedoch stimmt er am Ende der isolierenden Untersuchungsmethode zu,
denn er denkt: ,,Weder die Entwicklung der Gesamtkosten in Abhangigkeit von samtlichen Kosteneinflussgr6ssen noch .........., lasst sichtheoretisch ohne einschrankende Annahme so fixieren, dass sich praktischeinfach zu handhabende und zu Ubersehende Zusammenhange ergeben."(2i)Wenn man das praktische Verfahren Uberlegt, dann mUssen zwar
alle wichtigen Faktoren in den Kreis der Betrachtungen mit einbezogen
werden. Jedoch muss der Einflussjedes Faktors zunachst einzeln bestimmt
werden, um die EinfIUsse aller Faktoren auf die Kosten zusammenfassend
zu ergreifen. Dabei kann man nicht umhin, die isolierende Untersu-

chungsmethode anzuwenden. Das fuhrt zur abstrakten Theorie. Aberdas bedeutet nicht, dass diese Methode die pragmatische Dimension(22)geringschatzt. Auch die isolierende Methode bezweckt am Ende den
Untergrund zu geben, von dem die praktischen Vberlegungen abgeleitet
werden.
Die traditionellen Betrachtungsweisen der betriebswirtschaftlichen
Kostenlehre knUpfen im allgemein mehr unmitteltar die Preispolitik, und
(19)
(20)

(21)
(22)

Heinen, E., Betriebswirtschaftliche Kostentheorie, Bd.1.1959. S.171.
Heinen, E., a.a.O., S.300.
Heinen, E., a.a.O,, S.330.
Schreiber, E., Erkenntniswert betriebswirtschaftlicher Theorien, Wiesbaden, 1960. S.18-19.
Er weist hin, dass die Theorie drei Dimensionen hat: syntaktische, semantische und piagmatische.

128

TETSUO KOBAYASHI

sie sind insofern mehr pragmatisch. Dagegen kritisiert Gutenberg die

Ungenauigkeit ihrer theoretischen Untersuchung. Und die neuere
Betrachtung an sich scheint mehr rein-theoretisch. Aber das Erkenntnisziel ist nicht anders. Die neuere Betrachtungsweise schatzt die pragmatische Dimension nicht gering. Der Unterschied zwischen traditioneller undneuerer Kostentheorie besteht nur in der Auffassung Uber den Charakter
der Theorie. Es bestehen keine Unterschiede darin, dass die Theorie endlichzur Aufl6sung der praktischen Probleme beitragen soll.
Damit ist auch die Gutenbergs Auffassung des Ertragsgesetzes als
Kombinationsprinzip nicht unsinning fUr die traditionelle Kostentheorie.

Die Ausfuhrungen von Gutenberg Uber das Ertragsgesetz k6nnen einenochmalige Vberlegung der traditionellen kostentheoretischen Untersuchungverlangen. Die Auffassung des Ertragsgesetz als Kombinationsprinzip ist,
wie oben bereits erwahnt ist, auch bei Gutenberg, nicht der Selbstzweck.
Sie ist nur das Mittel, mit dem Gutenberg seine Theorie systematisiert.
Deshalb ist es nicht richtig, dass man aus seiner Auffassung des Ertragsgesetzes

den Beweis fur die falsche Problemstellung seiner Kostentheorie sofort
ableiten will. Auf seine Problemstellung soll der Gegenstand der Kritiken

nicht gelenkt werden. Wenn man auch denkt, dass die Betrachtungenvon Gutenberg die neuen Richtungen enthalten, wird die tradtionelle Kost-

entheorie von seiner Kritik auch immanent nicht befreit.

KOBE ECONOMIC & BUSINESSREVIEW
CONTENTS
NO. 1 (1953)
Present Day Significance of Free Ports ....,...........................Ginjiro Shibata
Development of Devaluation-Problem in Post-War Japan ................Kilozo Mi ata
Japan's Trade with South and South-East Asian Countries ..............Fitkuo Kawata
The Exchange Control Policy in Post-War Japan ......................Masahiro FuJ'ita
On the OMcial Statistics of Foreign Trade in the Post-War Japan . . . . . . . .HikoJ-i Katano

On Business History ................................................Tadtrkatsu lnoue
Problems of Regional Industrialization in Japan ,.......................Minoru Beika
A Research of Wage Income in Post-War Japan ........................jVobtcko Nese'
Revaluation in Japan ..............................................Susumu Watanabe
Last-In, First-Out Inventory Method under the Japanese Tax Law. . . . . . Munehiro Masucaki

NO. 2 (1954)
Movements for the Establishment of Free Ports in Japan ................Ginjiro Shibata
Japan's Tradc with Latin Amcrica in thc Post-War Years................Fdewe Kawata
The Maritime Competitions in the Early Meiji Era........................Sei'i Sasaki
Two Deflations in the Showa Era....................................Masahiro Fuj'ita
Estimation of the Effectiveness of Devaluation Qn

Balance of Payment Deficit in Japan ..........................Hikoji Katano
The Recovery Method of the Japanese Shipping Industry
in Post-War Period......................................Hiromasa ramamoto
Business Accounting and Tax Accounting............................Susumu Pifatanabe
Spatial Characteristics of Industries Relative to Their

Business Features ............................................Minoru Beika
Stages in Factory Organization ......................................Taddkatsu Inoue
Accounting for Fixed Assets Revaluation; Recent Views in Japan . . . .Munehiro Masuzaki
On the Structure of the National Income Distribution in Japan...,........JVobttko jVese'

NO. 3 (1956)
Industrialization and International Trade ....,.........................Fttkuo Kawata
Econometric Determination of Foreign Exchange Rate of Japanfor 1926-1953 ................................................Hikoji Katano
Present Status of Japan's Shipping .;..................................Ginjira Shibata
The Distinction between "Shasen" and "Shagaisen" as Historical
Concepts in Japanese Shipping ............................,.....Sei'i Sastrki
The Banking System in the Middle Meiji Era (1870-1910)..............Masahiro FuJ'ita
Disposition of Cost Variances= in Japanese Tax Law ..................Susumu Watanabe
Structure of Industrial Districts in Japan................................Minoru Beika

Note on the ZAIBATSU Combines ..................................Xaddkatsu lnoue
On the Model-Building for Social Accounting Design ,...................jVobttko jVose'

NO. 4 (1957)
The Impact of Exchange Policy on the International Economy
ofJapan During the Period 1930-1940......................Laurence P. Dowd
A Note on the Recent Trends ofJapan's Foreign Trade ...........,....Fitkuo Kawata
The Development of Overseas Banking System in Japanin the Meiji Era................,......,....................Masahiro FuJ'ita
More on the Structure of National Income Distribution in Japan ..........JVobttke JNfose'
Reconstruction of the Theory of Purchasing Power Parity ................Hikoj'i Katano
Tramp Shipping Freights and International Trade......................Ginjiro Shibata
A Little Study on the Transition from the Sailing Vessel to

Steamer in Japan .......,...........................,..........Sei'i Sasaki
On the Regulating Policy of Japan Against the Shipping
Conference-Especially in Relation tq the Refusal of

the Entry to New Comers................................Hiremasa ramamoto
The Price Fluctuation Reserve System in Japan ......................Susumu Watanabe
Locational Problem in the New Major Branches ofJapaneseIndustries from 1954 to 1956 .,..,.............................Minoru Beika
Business Problems in an International Situation........................7raddkatsu Inoue

NO. 5 (1958)
History of Yen Its Developments in theJapanese Economy (1) ........Hiroshi Shinjo
Fundamental Features of the Accumulation of Capitalin the Late Melji Era ......................................Masahiro Fujita

Some Aspects ofJapan's Trade with South andSouth-East Asia, 1950-1957....................................Fukuo Kawata
Curves of Diminishing Values ofJapanese Merchant Ships
in Proportion to Their Age .....,..........................,.Ginjiro Shibata
The Modernization ofJapanese Shipping Based on theTransportation of Hokkaido Marine Products......................Seiji Sasaki
Development of the Marine Insurance Industry in Japanin the Meiji Period.............,........................Hiremasa ramamoto
A Assimilagao do Imigrante Japones no Brasil............................Hiroshi Saite
Rate of Profit and International Specialization of Production..............Hikoj'i Katano

Replacement Cost and Lifo Cost.........,..........................Susumu Watanabe
Spatial Problems of Business Activities ..................................Minoru Beika
The Nature of the Morgan Control ......,...........................Taddkatsu Inoue
On the Effect of Accelerated Arnortization for Tax Purposes ..............jVobtLko .]Vose'

NO. 6 (1959)
History of Yen Its Developments in theJapanese Economy (2) ........Hiroshi Shinjo
The Central Banking Policy in the Meiji Era.....;....................Masahiro Fuj'ita

Economic Growth, Balance of Payment and Capital Movement ..........Hdeoj-i Katano

World Trade and Japan's Export 1953-1957 ....................Frkuo Kawata
AIguns Aspectos da Mobilidade de Japoneses no Brasil....................Hireshi Saito
Problems of Emigrant-Transportation in Japan......................Hiromasa Tamamoto
Port Labor Conditions in Japan ......................................Ginjire Shibata
The Development of the Concept "Operator" in Japan ....................Sei'i Sasaki
Single Industry Towns in Japan........................................Minoru Beika

On the Application of the Social Accounting
Principle to Business Accounting .........................,......jVobttko .IVose'
Valuation of Work in Process ......................................Susumu Vt,ratanabe
Developmental Stages Relating to Theories
of Stock-Equity Accounting ....................................R2uj'i 71akeda
On the Rate of Interest in Business Administration ..........................7iro Ono
Various Classes of Data Processing by Means of Electronic. Computer ............................................'........Hideo Kitani
Company Histories in Japan ......................Taddkatsu Inoue and roshiro Ikushima

NO. 7 (1960)
Japanese Emigration and Its Effect on International Payments ..........Ginjiro Shibata
One-to-One Correspondence Between Goods and Factor Prices............Hikoji K;atano
The Gold Standard and Banking Capital in Japan ....................Masahiro FuJ'ita

World Trade and Economic Growth ..................................Fitkuo Kawata
Singularity in the Structure of the Seamen's Union ofJapan ........Hiromasa ramamoto
Some Reflections on Inter-Comparability of Social Accounting .............IVobtrko jVose'

The Meaning of Inventories........................................Susumu Watanabe
Structure of Income Determination on the Balance Shget ................R7uj"i Tdkeda
On the Value of Stock Rights and Its Significancein Corporate Finance ............................................7iro Ono
Business Features and Management Policies of Industrial
Enterprises in Local Districts ofJapan..........................?t(lineru Beika

NO. 8 (1961)
The Industrial System and Industrial Education in Southeast Asia
now on the Threshold of Reform; and Japan's Position therein. . Ki ozo Mi ata
Industrial Structure and Educational System in India ................Tadao Mivashita
Industrial Education in India .......,..............................Tadao Mi ashita
Technical Education in India ......................................Tadao Mi ashita
Industrial Structure and Vocational Education in Thailand ,.............Ftckuo Kawata
The Industrial Structure and Industrial Educationin the Philippines ........................................7rei-ichi ramasaki
Industrial Structure and Vocational Education in Indonesia ........Hiromasa ramamoto

1961
KOBE UNIVERSITY ECONOMIC REVIEW
Edited by Faculty of Economics,
Kobe University, Kobe, JapanCONTENTS
On the Glacial Flood as a Disaster to Frontier Settlements

in Chilean Patagonia .............,..........,.....••.•....••

Kaoru Tanaka

The Red Chinese and Soviet Economics in Comparison
Socialism and Economics ...........................
Subjectivism as a Methodological Basis of the Menger's
Technical Changes and the Rate of Profit..,........•
Import Behavior in Asian Countries .......,........•-----t--------....Tadao Mi ashita...........Tukio Kitano

Thought ••.....•..

---------------

7iichi Hayashi• ........Nobuo Okishio.......Atsushi Murakami

ww
THE ANNALS OF THE SCHOOL OF
BUSINESS ADMINISTRATIONKOBE UNIVERSITY 1961
Edited by The School of Business Administration,

Kobe University, Kobe, JapanCONTENTSOn Sorne Pecurialities of the Japanese Wages System ..............Toshimoto Kobayashi
A Mutual Approach Between the Public and the Private Enterprise . . . . 7-latsuo lrakenaka
A Short History of Economics of Socialist Enterprise in the U.S.S.R . . . . . .Susumu Kaido

Labor Productivity Indexes and Theoretical Labor Productivity ........Kazuhisa Adachi
Drei Relative Wahrheiten ..................,.......................Hisashi Tanihata
The Structure of Retail Trade in Japan..............................rukichi Arakawa
Organized Securities Exchanges in Japan................................Hideo Hirata

nv

KOBE UNIVERSITY LAW REVIEWInternational Edition 1961
Edited by Faculty of Law,
Kobe University, Kobe, JapanCONTENTSThe Development of the Idea of Social Fundarnental Rights
in Japan........................,......,....................Keiichi Matsuo
A Study of Sino-Soviet Ideological Controversies--What Binds USSR and (]ommunist China Together ......Masao Oneue
The Origins and Development of the Agricultural Association

System in Modern Japan ..................................Tsuivoshi Masuda
Essai sur le d61ai de viduit6 au Japon .................................. r6ko Fukuchi

THE RESEARCH INSTITUTE FOR ECONOMICS AND
BUSINESS ADMINISTRATION, KOBE UNIVERStTYHISTORICAL SKETCH
In 1919, a research organization named the Institute for Commerce wasfounded in Kobe Higher Commercial School, one of the chief predecessors ofKobe University, with a gift made by F. Kanematsu & Company, a leading
mercantile firm in Kobe. The organization was designed to carry on and facilitate integrated research on business and commerce and to formulate andpublish the results of these studies and investigations in such form as to makethem available to the business community.
With the founding of Kobe University of Commerce, successor of Kobe
Higher commercial School, in 1929, the Institute extended its research activities by adding several divisions, One was the famous Latin-American Library,which soon became the center of research in this field in Japan. A room
for statistics equipped with various computing machines was established andbegan publication of "Juyo Keizai Tokei'' monthly and "Sekai Boeki Tokei"
annually. A filing room was prepared to deposit press clipping files systematically arranged by topics and dates. Another room was designed to become
the center of all possible original records and data having to do with the beginn-

ing and progress of Japanese business.

On the campus of Kobe University of Commerce, another organization
named the Institute for Business Mechanization was founded in 1941 utilizing business machines donated by the IBIYI Corporation and others. With
Professor Yasutaro Hirai as its head a broad and forward-looking plan for bu-

siness mechanization in Japan was developed.

In 1944, Kobe University of Commerce changed its name to Kobe University of Econgmics. After the war, however, the University was oonsolidatedwith three other colleges in Hyogo Prefecture to become Kobe University. With
this development, the two Institutes were also amalgamated into the ResearchInstitute for Economics and Business administration, Kobe University. At
present, the Institute, with its eighteen full-time professional staff members,
carries on studies and investigations in international economy, business administration, and business mechanization in Japan.

LOCATION AND BUILDINGSThe Research Institute for Economics and BusinesLq Administration is
located on the campus of Kobe University, Rokko, Kobe. It is a three-story
building named the Kanematsu Kinenkan and has a fioor space of about 2,900
square meters, which includes a president's room, forty-one oMces, six rooms
used as a library, a room for statistics, three conference rooms, etc. Adjoining is a one-story building recently built to install business machines.

ORGANIZATION
Under the directorship of a president, the Institute operates with two research groups one of which consists of five sections while the other has four
sections. Each research group and its sections are as follows:

A Group of International Economy(1) International Trade(2) Economy of Latin-America(3) Marine Economy(4) International Finance( 5 ) International Law of Economy

B Group of Business Administration(1) Business Administration and Business Mechanization(2) Accounting(3) International Management(4) Labor Problems
Besides the regular work of the Institute organized in this manner, researchcommittees may be created to carry on any special work requiring the joint
study of academic and business circles. At present, there are three committees, that is, the Asian Economy Committee, Latin-America Committee, andAccounting Committee.
For convenience and greater eraciency in carrying out its research activities, the Institute has a general oMce which is responsible for, ( 1 ) the collec-

tion and preservation of a comprehensive collection of books, periodicals, pam-phlets, and original records and data of finance, trade, commerce, industry
and business generally; (2) the classification, cataloguing, indexing, arranging,annotation and compilation of these research materials; and ( 3 ) the formulation and publication of the results of the investigations and studies accompli-

shed by the professional staff members of the Institute.

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THE RESEARaH INStlTVTE FOR
EeONOMrCS & BVSINESS ADMTNISTRATION
KOeE UNIVERSITY
Director: Susumu WATANABE
Secretary: Toshio HARAGROUP
OF BUSINESSGROUPOFINTERNATIONALl
ECONOMICRESEARcH lADMINISTRATIONRESEARCH
Profeseer of Marine Eco- 11
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GinjiroSHIBATA',' nomics Dr.
of Economics:l
Fukuo KAwATA Professor of lnternationali,

Trade Dr. of Eeonomics i

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Tare KAwAKAMI Professor of Priyate ltation Dr. ef Commerce :lnternational Law lJiro yAo
Professor
International
Finance lof iBusiness Histery• Soeial'Aeeeuntins

Regional Study en Latin l'

Jiro ONo Assistant in BusinessAmericaIlAdininistratien Seetion

Hikeji KATANo Assietant Profeseor of l

Tetsue KoeAyAsHt Assistant in Aecounting

Internstional Trade liHiremasa yAMAMoTo Aseistant in Marine Ii

SectionKihachiro Tsvvo Engineer in Business

Mschinery Scction

Yoshiaki NlsHIMuKAI Assistant in Regienal Studyi

on Latin Ameriea Seetion i
Yoshiro lKusHtMA AssiBtant in Regional l'

THE KOBEROKKO,

Management

Nobuko Aseistant
NostProfeseor ofProfessor of lMaeahiro Assiatant
FuJtTA

Ornce: The

Yoshituoto KoBAyAsHl Prefeseor ef Bueiness

Tadakatsu lNouE Assistant Prefessor ofiMarine Ecenomics i
Dr. of Economicsltll

Seiji SAsAKI Assistant Prefeseor ef i

Sectioni,Dr. of Business
Administration

Dr. of Business
Adminietrationi

Econetnics Section l

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LocationTe' raeaburo NoMuRA Professor ef Transpor- l,:Dr. of Business
Administration
Minoru BEsKA Profeeeor of Plant

I'. Finance D.r.ofEconemicsi

Hireshi sHINJo Professor of lnternational[,

Study on Latin America il,

SUeUMU WATANABE Professor ef Accounting i

Tomeko KusAKABE Aesietant in Business

Machinery Section
I<azuko MIKuNl AsBistant in Accounting

SectionKanernateuMernerial Hell,tuglvERslTy
KOBE,JAPAN

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