KOBE
ECONOMIC & BUSINESSREVIEW(/.f.t,B-v-N-XTE'lt6e'l.i>

THE RESEARCH INSTITUTE FORECONOMICS AND BUSINESS ADMINISTRATIONKOBE UNIVERSITY

1954

CONTENTS
I

Page
Movements for the Establishment ofSurvey- A HistoricalFree Ports inJapan's Trade with Latin America in the
The Maritime Competitions in the Early
In Relation to the Development of" Common Carrier " TypeJapan
GinjiroPost-War Years-• 3

Fukuo Kawata ••- 21

Meiji Era
Seiji

in the Showa Era

Two Deflations

Shibata

Sasaki ••• 37

Masahiro Fujita ••• 53

Estimation of the Effectivenessof Devaluation on

Balance of Payment Deficit inJapan

Hikoji

Katano •-• 77

The Recovery Method of the Japanese Shipping
Industry in

Post-War Period

Hiromasa Yamamoto••• 89
II

SusumuWatanabe••- 109

Business Accounting and Tax Accounting
Spatial Characteristics of rndustries Relativeto TheirBusiness Features Cornparative Study

betweenJapanese and British, American Industries

Stages in Factory

Organization

Accounting for Fixed Assets Revaluation ;Recent Views in JapanOn the Structureof theDistribution inJapan

Minoru Beika ••• 119

Tadakatsu Inoue ••• 137

Munehiro Masuzaki ••• 143

National Income

Nobuko Nose • ny •159

KOBE
ECONOM[C&BUSINESSREVIEW2<tt"/iwa ". "AENSIiABRCusHiNiENsSsTiTAUDTMEiNisOTRRATioN
icE sRMH
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KOBE UNIVERSITY

1954

I

3

MOVEMENTS FOR THE ESTABLISHMENTOF FREE PORTS IN JAPANA HISTORICAL SURVEY
BY GINJIRO SHIBATAI
The subjects for the need of free port in Japan with some explanationsof its system had been often dealt with in abstract by a few scholars even
before World War I. But, the arguments set forth in a concrete way, urging
so as to designate the certain specified ports as free ports or free port districts,

were presented in the first place in Formosa at the end of World War I, when

the industrial prosperity was at the peak in Japan. That is, Shigesaburo
Yasuda, a manager of the Branch of the Nippon Yttsen Kaisha (N. Y. K. Line),advocated through the press "the Taiwan-Nichinichi" on May 1, 19I8, that
free ports should be established in the ports of Keelung and Takao, or thewhole Formosa island should be authorized as free trade zone, which should
be controlled and administrated by a semi-governmental organization, "Port
Trust ", as he called the system. This argument created a sensation to someextent, and afterwards the Taiwan Nichinichi commented editorially on thissubject for many times. But government authorities had yet no interest inthat sort of thing and the argument tapered out during the year, withoutrousing even any opposite view against lt.

A few months after the foregoing incident, a similar case took place at

DOkai, a bay in North Kyushu. When a reclamation plan of the port of
Wakamatsu at a great outlay of \120,OOO,OOO was made public, the press"the Osaka Asahi" expressed an objection to the expansion plan as a commercial port as it was, and made a proposal of rebuilding the plan as anindustrial port, and of establishing a free zone in a new area which was
created by the reclamation, and of making a great industrial port at Wakamatsu.i) This proposal, however, ended merely as an opinion.

1) The Osaka Asahi press, July 24, 1918,

4 GINJIRO SHIBATA
It can be said that an administrative plan for a free port was first laidout ofllcially in the City of Shimonoseki. That is, on the occation ofaccomplishment of the improvement works of the port of Moji in 1918,
Yamaguchi Prefecture and the City of Shimonoseki laid a plan for harbor
construction at Hikojima, a small island at the Shimonoseki Channel, where
free port might be established as an area for processing and manufacturingindustries on a large scale and as a great port for entre-port trade for the
Asiatic Trade. In spite of the investigations and the layouts were accomplishedin 1919 by the prefectural and municipal governments, the plan was suspen-

ded before we were aware of the fact. The reasons for the suspension wereconcentrated around the fact that the time was too soon after the war and thatthe island may be come a strategic point for defensive plans.2)

Most strenuous movements for the establishment of free ports took placein I922. At the beginning of 1922, scores of businessmen traveled around theworld to observe the actual state of economic recoveries in Europe and America

after World War I. On that occasion, they saw the prosperous activities oftrade and shipping in the London consignment market and in the free portsof Hamburg and Copenhagen with their own eyes, and besides they learned
the intensive movements in the political and business worlds for establishing
the foreign trade zones in U.S. A. After their return from abroad, they took
up the very free port problem in the first place as a way out of the economic
depression in Japan. Besides, there was another stimulant just at that time.

That is, in the Russo-Japanese Conference at Dairen in March 1922, a debate
waged about the establishment of free port at the harbor of VIadivostok andthe plan was deemed to be realized as a means of settling the Russo-Japanesetrade problems. Although this plan was presented as a policy of the thenChita Government, it is undeniable that the plan spurred the consciousnessof the Japanese ports and harbors connected directly across the Japan Sea
with the northern Asia. Moreover, there was talk of establishing a free port
in the harbor of Shanghai which would also excite the nerves of the Japanesebusinessmen.

2) The Fukuol{a-Nichinichi Press, Jan. 10 and Sept. 16, 1919.

MOVEMENTS FOR THE ESTABLISHMt ENT OF FREE PORTS IN JAPAN 5
Just on these occasions, a first stage of harbor construction works at Kobe

which had been started in I907 was finished, and new port was formallyopened with great pomp in May 1922 with a good attendance of notables inand out of official life. This was a good chance to be in high spirits for theestablishment of free port in Kobe harbor. The first voice on this problem

was made in Tokyo by Tooru Ishii, a director of Nippon Yusen Kaisha andan attendant in the ceremony for the completion, in May 1922; the purportof the statement was as follows:

1. The population problem in Japan must be solved by obtaining a large
sum of foreign currencies, promoting foreign trade and shipping. Japanese
economic circles should pay attention to the prosperous activities of London

consignment market.
2. Carrying on the protective trade policy, to bring the same advantages
in our foreign trades as is enjoyed by the free trade countries, such as theUnited Kingdom, there is no other way than the establishment of free port.
3. It is natural to establish free port in Kobe harbor, considering its
geographical and economic circumstances.3)

At the same time, some members of the council of Kobe City, who
attended the ceremony for the completion of new port, introduced a motion
to the attendance for establishing a free port in Kobe harbor, and formed"the Association for the Establishment of Free Port in Kobe." The atmosphere
ofthe first meeting was that, if the free port in Shanghai be realised, Japanese

ports are sure to suffer a severe blow, and they must establish a free port in
Kobe which has a closest connection with Asiatic trades. Just then, the second

stage of harbor construction in Kobe was going to be planned and a free port

plan was to be woven into the whole plan of the new harbor.
This free port problem naturally became the subject of conference of theKobe Chamber ofCommerce. The latter set up "the Investigation Committee

for the Free Trade District in the Port of Kobe". The members of theCommittee were elected from the circles of foreign trade, shipping, warehousing,banking, manufacturing industries, and the representatives of various regions.

3) The press "Tokyo Asahi", May 5, 1922.

6 GINJIRO SHIBATAThe Committee sent out questionnaires on the following three items to all
circles of businessmen on October 25, 1922.

1. Pros and cons on the establishment of free port in the port of Kobe;
and the reasons thereoÅí
2. Area of free port, if it is to be established in Kobe or the vicinity.

3. Points to be improved in the operation of bonded warehouses, bonded
factories and other facilities in existence.

While the Committee was collating the answers of the questionnaires,

Shinz6 Mitsuhashi, a member of the Committee and a manager of the Kobe

Branch of the Mitsubishi Warehouse Company, Ltd., made unexpectedly abomb-like motion at the meeting on December 23, 1922. His motion wasmade against the establishment of free port. He stated the the reasons forobjection against the establishment as follows :1. Free port is going to be a system of the past in the foreign countries,

and at present it has been replaced by the bond and drawback systems.

2. Japan is unpromisingly situated to promote the entre-port trades,
considering from the geographical and economic points of view.
3. If the bond and drawback systems in existence are not satisfactory forthe foreign trades, by further improvements made on the systems, bond anddrawback would fulfil the same functions as a free port.
4. Processing and manufacturing industries within the' free port area are
not found to be possible to develop, judging from the cases of the foreign freeports.

5. The complicated formalities of the entrance and clearing of ships
would be replaced easily by the amendments of the procedure regulations.

6. The establishment of free port at Shanghai would not be suspended,even if free ports be realized in Japan. When the free port of Shanghai isrealized, our free ports will not be able to compete with it.

7. The port of Kobe is not qualified for establishing a free port, which

is proved by the fact that the entre-port trades made there amounted only
to 9-16% for the total trades handled in the port of Kobe in 1919-20.

In consequence of the motion, the Committee was thrown into confusion.

And they had to start conference from the beginning over again. ShinzOMOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 7
Mitsuhashi pressed further his objection and printed his contention in full
whose outline was stated above, and distributed it broadcast in the country.
The reasons of his objection against free port were ostensibly based upon thewelfare of the national economy, but there is no doubt that he or the ware-house companies which he represented were afraid that if a free port berealized in any harbor, it should deprive the existing warehouses of theirbusiness activities.

In spite of the hesitation of the Kobe Chamber of Commerce, thearguments for the establishment of free port were gaining grounds over thewhole country increasingly. This was due to the fact that the estab!ishmentsor the plans of free ports in the foreign countries were reported one after
another at that time. The information covered the ports: -VIadivostok freeport was under consideration ; Kiel (July 15, 1922) and Flensburg (September

20, 1922) established free ports; Gothenburg and Malmo free ports wereplanned adding to the existing free port of Stockholm ; Norway was planningout the free port in Christianabergen, Christiansand and Trondjem ; Portugal
established it in the port of Lisbon in l920; Switzerland was planning it inBasel; France was also planning it in the ports of Le Havre and Marseilles;and etc. The information gave positive aid to the movement for free port
in Japan.

Besides Kobe, the Osaka Chamber of Commerce organized the Investigation Committee for Free Port on October 30, 1922. The Committee of Osakareached to a decision, in result, that as a prospective site for a free port theport of Osaka should have the strongest claim since it has a large area of

hinterland for processing and manufacturing. And they started to campaign

for the free port establishment, and the Osaka City Planning Committce,
abiding by the decision of the Chamber of Commerce, introduced a free port
project within their original city planning.

At the same time, In Yokohama, the Investigation Commission for thePort of Yokohama in the Chamber of Commerce formed the sub-committec
for free port problems. The chairman, late Dr. Kiichir6 SOda, a then directorof the Yokohama Institute of Social Problems, studied the free port problem
with the staffs of the Institute, and its result was published as a pamphlet

8 GINJIRO SHIBATA" the Free Port Problem considered from the Point of View of Yokohama ", in

December 1923. The purport of this pamphlet was: Yokohama should notestablish a free port for the purpose of entre-port trades, because the entre-

port trades would not be of any promise in the port of Yokohama from thegeographical point of view : if they wished to establish a free port in Yokohama,

it should be established as the promoting facilities of shipping. That is,

Yokohama was standing on somewhat negative standpoint.

In the City of Moji, the Chamber of Commerce presented a petitionasking for the establishment of free port in the port of Moji to the thenMinister for Home Affairs, late Rentaro Mizuno. The business circles in
Formosa emphasized again their desires for establishing free ports in Keelung
and Takao, or for authorizing the whole island as free trade zone,4) In Korea,

the Fusan Chamber of Commerce sent to the Japanese Government a representation for the establishment of free ports district in the port of Fusan on

December 4, 1922.
Thus, the agitations for establishing free ports spread in the country, andthe four parliamentarians of the Kenseikai Party, Chuji Shimooka and others,brought forward a proposal for establishing free ports to the House of Representatives which was adopted after discussion. The essential of this proposal
was as follows:"The ways for attaining superiority over other countries in the international economic competition and for increasing the national resources mustbe found in the promotion of our foreign trade and of our shipping. To
achieve both promotions, the best policy should be to establish free ports,taking advantage of our natural location and selecting the ports favored withright conditions, and the Government should take proper measures promptly
to execute this proposal."5)

Meanwhile, essays, articles and comments on free ports were publishedin Iarge numbers by scholars, businessmen, and journalists. Especially, apamphlet, "a Treatise on Free Port Establishment, as an Economic Policy for4) The Taiwan Nichinichi, Oe'tober 1 and 22, 1922.

5) The press, "Tokyo Asahi", December 30, 1922.

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 9
National Prosperity" by a member of Ikkyosha (38 pages, July 28, 1922) was
a forerunner in the sense that the fairly detailed descriptions of foreign freeports were given. Besides, the foreign books on free ports were translated bysome scholars. For an example, "The Copenhagen Free Port; the Key tothe Baltic, by the Copenhagen Free Port Company" was translated and editedby the late Kenkichi Kodera, a then member of House of Representatives, inFebruary, 1923. These publications gave more or less impetus to the positive

movement for free port.

Under the circumstances mentioned above, the Kobe Chamber of Commerce could no longer leave the questions in indecision. Therefore, theCommittee of the Chamber, in spite of the bitter objection of a member, S.
Mitsuhashi, held several meetings to arrive at a conclusion, and a report was

published on March 1, 1923, The report stated the following opinion on thepremise that the Port of Kobe requires a free port zone in line with the farsighted national policy.

1. The entre-port trade shall be greatly promoted in our country for thedevelopment of our national economy, and the Kansai (the West-Japan)
region is located by now at a most important point for entre-port trade with the

Asiatic Continent. Especially, the port of Kobe is located at a strategic pointin the ocean and near-sea routes and its hinterland is well adapted for all
sorts of manufacturing industries. Therefore, they believe that the port of
Kobe must be one of the best places to be designated as a free port district.

2. In the free port district, there must be docks, factories and area forstoring, sorting, repacking and other manipulations, As the area for thesefacilities, a new harbor district which is now under construction as the second

stage of plan and another area to be extended in the future shall beappropriated for the free port.

3. Since the City of Kobe has borne a considerable expense of harbor
construction and is expected to bear hereafter, the Chamber of Commercemust join hands with the municipal government to realize a free port,

Besed on the conclusions stated above, the Executive Committee for
Establishing Free Port District was organized on March 16, 1923,dissoluting

the former Committee which contained an objector, and as a first stage of

10 GINJIRO SHIBATA
the movement the Committee resolved after ten days as follows:
1. In order to attain the object of establishing a free port district inKobe, the Executive Committee should cooperate with the City OMce andMunicipal Council.

2. The Executive Committee shall appoint some person of authority as
advisory staffs.

3. A publication explained reasons why the port of Kobe is suitable
above all for establishing a free port district should be printed and distributed
to all parties concerned.

The Committee acted in accordance with the above decisions and apamphlet, "A Proposal of Establishment of Free Port District in the Harborof Kobe" was published in May 1923. In this pamphlet, at the beginningthe character of the free port district was explained and in the second place
the advantages it brings on commerce, industries, transportation and financewere stated, and the importance of promoting entre-port trades was emphasized, judging from the instances of all the countries in Europe and America.

Especially, the argument that the present systems of bond and drawback
would serve enough in place of free port was refuted thoroughly in thepamphlet as follows :1. In the bonded warehouses: the description of the goods stored islimited; formalities of warehousing, delivery and removal of bonded goods
are much complicated ; a period of time of storing is limited under two years ;and any manufacturing or processing operations, needless to say, and any
manipulations are not permitted in the bonded warehouse.

2. In the bonded factories of oMcial and private establishments: thevariety of the goods stored is limited ; the period of time of storing is limited

under six months; the formalities are extremely complicated; though manufacturing and processing are permitted, not only the description of the goods
permitted to be operated is narrowly limited, no facilities for operations areequipped in oMcial bonded factories, Especially, private bonded factories,

though the equipments for operations are free, are monopolized by eachprivate founder. The private bonded factory system, however, is not to bedenounced at all, but when the free port is established, it should rather be

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 11
allowed to remain for the manufacturing of re-exportable merchandise on
large scale or for performing intricated processes.

3. A warehouse certificate with which shippers are enabled to finance is
not issued from the bonded warehouse or factories.

4. A drawback system is practiced merely for the limited description of
goods, its formalities is complicated too, and shippers must deposit guaranty.

And when one wants to benefit by the drawback, he has to re-export the
goods within one year after its importation from the same port of entry.

According to the reasons stated above, the Committee concluded that theexisting bond and drawback systems are not equal to take the place of thefree port system.

In the next stage the pamphlet described the present state of entre-port
trade in the port of Kobe and concluded that the most prosperous port in theentre-port trade in Japan is Kobe. In the last part ofthe pamphlet, the actual
conditions of geographical circumstances, port facilities and natural advantages(the number of days that the loading could not be done under bad weather
were only about ten days a year) are described, and the actual projects ofthe site and facilities are carefully delineated.

These written opinions of the Executive Committee of the Kobe Chamberof Commerce naturally attracted universal attention.

The above descriptions are related to only the non-governmental move-ments for free port problem. Besides these movements, the authorities
concerned in the central and local governments also worked up the investigations or researches about free ports of other countries and their applicability

to our country or to our specified ports. For instance, the Public Works
Bureau in the Department of Home Affairs published the translation of several

foreign publications on free ports under the title of "An inquiry on Free

Port", in March, 1923. The Port and Harbor Department of the Kobe City
OMce published three pamphlets entitled "Outline of Free Port System","Data for the Investigation of Free Port Problems", and "The Explanationof Free Port in Kobe ".

But, before June 1950, the Port of Kobe was owned, administrated andmanaged by the central Government ofJapan and its agencies, and the City

12 GINJIRO SHIBATA
Government had no authority on the port, though the half of the construction and repair expenses of the port had been always imposed on the City
Government. Owing to such condition, the voice of the City Office was apt
to refrain from making any positive argument. And the national Government
was also mostly conservative for the political issue. They made merely theinvestigation or research on the free port system, and did not express positively

any opinion on the problems in question at first.

The arguments for establishing free port was naturally followed by ascramble for the place of the establishment among ports or cities. Then,in spite of no ofHcial opinion that the establishment of free port should be

confined to one place, many disputes broke out whether any one port was
suitable for the purpose or not, taking for granted that as if only one freeport had to be established in the country. This was due to the fact thatthe advocates were for the most part those who were directly connected with
one port or another. Thus the most enthusiastic advocates were the Ports ofKobe, Osaka and Moji, Yokohama, one of the most important ports, alone
had a peculiar opinion as already had been stated. As the opinion of the
independent party, the port of Moji stood aloof from the question, and the 'scramble for a free port became the question of rivalry among the three portsof Kobe, Yokohama and Osaka.
The press comments on this question in those days were the same in tenor
substantially. For instance, "theJiji-Shimpo " presented the then public opinion

over six days, from October 15 to 20, 1922, in the editorial column entitled"Problem of Free Port Establishment". Its summary was as follows:"Osaka is fairly active in foreign trade and is a centre of various
industries in Japan. But the docks in the port are not adequate to thecntrance of large ships. Then, Osaka should be left as a hinterland of thc
port of Kobe, and the question would be contracted as Kobe versus Yokohama•

Kobe, having the region of Osaka as its hinterland, is most prosperous in
manufacturing industries and ranks flrst in Japan in the foreign trade wTith

Asia. So, when a free port would be established in the port of Kobe andOsaka would make use of it, the industries and foreign trades of our country

would surely develop all the more. On the contrary, Yokohama, having no

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 13
hinterland for industries such as Osaka, but bordering the great consuming
region of Tokyo, is a special port for the silk trade of Japan and the site of

the port is too narrow for free port. Thus, Yokohama is considered that there
is little probability for free port establishment."

Since the editorials of the Iocal press in Kobe, Yokohama and Osaka
recommended their own port as a matter of course, these should better be
excluded from the presept discussion. As an opinion of an influential person,
Tohoru Ishii, a director of Nippon YUsen Kaisha, argued in " the Osaka Asahi
Press" of September 18, 1922, as follows:"Judging from the statistics, the first rank among the commercial ports whichhandled the imports and exports of non-domestic-consumable goods is hold by

the port of Kobe. Those merchandise handled in the port of Kobe accounted
for more than 50% in the total for the whole country. Since the region of
Osaka and Kobe is the pivot of our foreign trades at present, the network ofshipping routes is concentrated at the port of Kobe. For example, a Vladivo-

stok direct line is opened at Kobe, but not at Yokohama;a YokohamaShanghai liner necessarity calls at Kobe, while Kobe has her own Shanghai
route, So, when a free port be established in the port of Kobe, there is noneed to open new routes, or there should be no change in the system ofcollection and distribution of cargoes. There is the first reason that werecommend the port of Kobe. For the second reason of the recommendation,

the port and harbor of Yokohama has been already allotted definitely,
where the new site for free port shall be no more available; but the port of

Kobe is now under construction for the expansion and one part of the site
may be alloted for free port without any extra cost. On the other hand wefind that some recommend the port of Osaka on such a ground as follows;
notwithstanding the completion of the harbor construction with much diMculty,
the harbor has been left just like a fishingpond, and utilized little as a port

proper. Thus, if the harbor be used as free port, it may serve two ends
concurrently. In spite of the above argument, no large vessels make a callat Osaka and it seems at present little hope for the establishment of free port,

If I think about the matter calmly, a highest probable port as free port would

be Kobe, secondly Osaka and Yokohama the third."

14 GINJIRO SHIBATA
He gave another account of this subject on "the Kokumin Press" ofSeptember16, 1922 ; that is, if the port of Osaka be designated as a free port,

the shipping circles would make an objection to the plan (note: he himself
was one of the most influential members in the circles), because, it would

cause additional the shipping expenses, first to touch at Kobe, and thenproceed toward Osaka.

The Kokumin Newspaper argued from the objective point of view inthe editorial entitled "the Free Port Question taking Concrete Shape", on
September l5, 1922, and insisted that it is essential to designate a port which
possesses the qualifications necessary for the free port, after mature conside-

ration without any party feeling or any other sentiment.

Several businessmen who had traveled around the world in 1922, mentioned above, formed an association named "the Nippon Keizai-Renmei (theJapan Economic League) since, and its oMce was opened in the buildingof the K6gy6 Club (the Industrial Association) in Tokyo. The members
debated with one another on the free port problem at every meeting.
According to the news of"the Tokyo Asahi", on September 8, 1922, entitled"a demand of the Keizai-Renmei for a free port in Kobe", the tendency ofthe meetings was favorable to Kobe, though a few of them were opposed to it.

Thus, as the general tendency in the country, the approval for theestablishment of free port seemed to have absolute support. In the Govern-ment, the Department of Communications, which had administered theshipping affairs at that time, the Department of Agriculture and Commerce,
which had administered the foreign trades affairs, and the Department of Home

Affairs which then administered the ports and harbors, approved possitively
the free port establishment or had at least no objection to it. The Departmentof Finance which governed the Customs did not expressed its opinion pro orcon to the last moment.6) In the non-oMcial side, the leading r61e in the
movement was played always by the shipping circles, especially by the Nippon

Yusen Kaisha. Among them, however, one expressed opinion which is obscurein significance. Zoku Kamiya, a managing director in the ShipOwners'
6) The Osaka Asahi, September 18, 1922.

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS !N JAPAN 15
Association, argued that he would rather go further and prefer a free tradesystem to a free port system, to which, however, he had no objection at all.7)

A free trade system, that he preferred, was merely an idealist's doctrine andthe dream of the foreign traders even at that time. Therefore, the traders
were inclined to desire the realization of the free trade system rather than of
the free port. That is, his idealistic argument was liable to put on the brakeagainst the movement for the free port.
The industrial circles were also coming round to support the establishmentof free port. Even the oil industrial circles who were at that time aMictedwith the oversupply and were extremely afraid of the importation of foreign
oil in lower prices, expressed the demand for free port as follows :--t

" The importers of foreign oils are forced make sales of their imported oil,since they can not continue to pay the expensive storage for any length oftime. It is caused by the existing regulations governing the bonded warehouses

which restrict every operation in storing the goods and are not adapted toutilize the business opportunity. The free port should be established primarily
with the object of making good those defects, •••••• Therefore, the preparations

should be made now for the construction of the oil factory in the free port
and the building of the oil-tankers. When the free port be established andthe customs barriers be removed, the refiners of foreign oils would be able toimport the cheaper oils and to re-export them abroad after refining."8)On the opposite side of these impetus for the establishment of free port,

there were a few arguments against it. Most of these objections were madeby the warehouse men whose warehouses were already constructed at theexisting ports. For instance, the opposision of Shinzo Mitsuhashi had beenpresented above.
The details of these views against free port, however, were like to thoseexpressed in the United States when the same questions were much discussed

7) The Osaka Asahi, November ZO, 1922,
8) The Sekiyu-Jih6 (the Monthly Journal of Oil Industry), November, 1922: Tooru Shimizud
dani, " the Problem of Free Port Establishment and Oil,"16 GINJIRO SHIBATA
as early as in 1919.9) It is self-evident that the both objections came from thefact that the objectors deliberated the question from the view point of theactivities of their own business, that is, in Japan mainly from the view pointof the warehouse business, while in the United States, of the manufacturing
and agricultural industries. However, the remarkable difference of the views

from each other may be pointed out as follows. While in the case of theUnited States the leading arguments for the objection were fundamentally
based upon the protectionism; while in Japan the arguments were originallybased upon the free trade principle and the fears were felt for the establishment of free port might prove rather detrimental to the realization of the free
trade principle. The objection was based upon the free trade principle. though
it was only a camouflage, and proved to be a tough antagonist to the free port

assertions. We have learned in the practice of social or economic policies ofvarious countries that their progress have been much hampered by such highflown arguments. This is mostly a political trickery that through advocating

an ideal of freedom it really hinders an actual step for the realization of

Setting aside such a lofty idealism, most of the arguments against the freeport were such as that had already been expressed in the United States; orthat the free port of Shanghai, expected to be established shortly, would not
do anything harmful against the Japanese port activities; or that there is nonecessity for Japan to establish a free port at such a great outlay. Thus,
during 1922 and 1923 the debates on the free port problem were raging in a
lively way, On September 1, 1923, however, the great earthquake took placein the central district ofJapan, especially around Tokyo and Yokohama thedisaster was most serious. The people were panic stricken in this and the
public opinion was estranged from the free port problem. Since, the businessbecame very prosperous and the main ports presented much activity in theimportation of the materials for rehabilitation. The world-wide business

9) Ginjiro Shibata, the Foreign-Trade Zones in the United States, pp. 7-19 in "the International Economic Review, Vol. I, 1950, edited by the Research Institute for Ecenomies
and Business Administration.

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 17
prosperity followed this and the measures for the promotion of entre-port tradedisappeared out of the question at last. Especially, in 1931 the Manchurian

Incident took place, and since, the nation intent on the defense problem,
nobody took notice of the free port which seemingly offered a Ieased area for
the foreign ships and cargoes on our soil, Thus, World War II took place andthe free port campaign ended in a fiasco.

II
After World War II, fo!lowing the advice of the General Headquarters
ofthe Allied Powers, the cities that possess the nationally important port in thelocality demanded to have free portdistricts instituted in their harbors. This

fact could not have been ignored by the General Bureau of Shipping of the

Department of Transportation, which was then the direct governing oMceof the port and harbor. Thus, the Planning Division of the Bureau mappedout a scheme and showed confidentially its concrete plan in April 1948. This

plan was quite progressive and it insisted that Japan should prefer a freeport district to a free port and that it should be an industrial as well as
commercial port where processing factories be established like the free portof Hamburg or Copenhagen, but not to be merely a commercial port beneficial
only to the entre-port trade. This plan was shaped in a pretty concrete way,
but it provided that the plan shall be realized on conditions, that its establish-

ment shall be at the time when the independent sovereignty of Japan is
authorized and a peace treaty concluded, the limits of reparation defined,
and the aMliation with the United Nations realized.
Besides the above plan, the Economic Stabilization Board of the Cabinet
had presented confidentially the different plan in a pamphlet entitled "An
Opinion in regard to the Establishment of Free Trade Zones;' on July 25, 1949.
The latter plan seems to had followed the principles of the Celler Act of 1934,

U.S.A., that is, the zone should be left out of the customs territory, theconsumption of the foreign goods is prohibited within the zones, and though
the storing, repacking, sorting, grading, cleaning and other manipulations are

permitted in the zone, the assembling, processing and manufacturing areprohibited, except to repair of vessels. So, this plan is something like regre-

18 GINJIRO SHIBATA
ssion as compared with those of the General Bureau of Shipping.

On the same date, another plan was presented confidentially by "thePlanning Division of the the Port and Harbor Bureau in the Departmentof Transportation as a pamphlet entitled "a Plan for the Establishment of theFree Trade Zones." In the preface of this pamphlet the necessity of the establishment of free port was stated as follows:"The question whether the free ports shall be established or not in ourcountry has been hitherto discussed among the all circles concerned, but still

no decision could be attained, However, G.H.Q. has given us recently an
instruction to establish the free trade zones which suggested that the free port

might be well even for entre-port trade only. The Departments concerned
are at present investigating it from every point of view and consulting
about it with each other. But since we can not decide immediately whether
the free port system should follow the type of a free port city or a free port

district, we have arrived at the conclusion that the free trade zone which
operates only the entre-port trade should be established for the present."
And the establishing standards of a free trade zone, and the actual schemes
for the scales and facilities of the zones, which would be established in the portsof Kobe, Yokohama and Saseho, on a three stages' program were concretely described in that pamphlet, This plan of the Port and Harbor Bureau is much moreconservative as compared with that ofthe General Bureau ofshipping of April
1948, and is much in line with the plan of the Economic Stabilization Board.

In the meantime, the question of port and harbor control was raised byan advice from G. H. Q. That is, the port and harbor, which were owned andcontrolled by the state hitherto, have been now to be placed under the controlof the regionalpublic corporations or the port authorities. The Port andHarbor Law was enacted on May 31, 1950, under which the ports and harbors
in our country are now administrated. Since this reform was much drastic
as compared with the establishment of free port, the national government andthe regional public corporations devoted themselves to the question of theport control, and the problem of establishing free port has been shelved as it

was and the arguments for its establishment have apparently disappeared
either in the political circles or in the authorities concerned.

MOVEMENTS FOR THE ESTABLISHMENT OF FREE PORTS IN JAPAN 19
It will seem, after all, that whi!e before Worrd War II the question oftheestablishment of free ports was the matter argued and demanded by thenon-oMcial circles, the same question after the War was dealt with by thenationa! Government as one of administrative measures.

Irl
On June 15, l952, the Customs Law was amended partially. The main
point of this amendment is that the new systems of "the designated bondedarea" and "the privileged shed" have been adopted, abolishing the former

system of "the customs yard". The customs yard provided in the Law was
defined as a land area, excepting the space enclosed by public or private ownedbuildings, in the port controlled in its entirety by the customs authority where

the merchandise may be landed or stored in bond during a certain limited
time (within seven days) under the supervision of the customs authority, but

any manipulations on the goods shall not be permitted. On the contrary, thedesignated bonded area is a land area which is instituted with the intentionof simplifying the customs formalities and promoting the promptitude of theprocedures within its enclosure, and (1) the examination of the contents of themerchandise, (2) the exhibition of samples or the carrying the samples out of
the area, (3) repacking, sorting and any other conditionings on the goods, and(4) simple processing on the goods, these may be done by permission of thesuperintendent of the customs in each time and under the supervision of thecustoms oMcers, provided that the simple processing shall not involve the mixingof the materials which is considered to be manufacturing in accordance withthe provision of Article 1 of the Bonded Manufacturing Factory Law. The
time of storing in the designated bonded area is prescribed not to run overfifteen days. The privileged shed is a private shed in the port designated asa bonded shed by the superintendent of the customs. The operations permitted
in the privileged shed shall be those of (1), (2) and (3) as stated above inregard to the designated bonded area.

The amendment of the Customs Law in 1952 is considered to be in no doubt
an advance of our port and harbor policy, as it has taken a step toward thefree port. But, in one view, it might be taken as an evasion from the questiQn

20 GrNllRO SHIBATA
of establishing free port, which has come to the fore again after World War

II, according to the advice of the G.H.Q. Although some operations which
had not been allowed under the former regulation has come to be permitted
as a result of the amendment, the customg control and supervision over every

port activity in the area are still in force. Besides, since new operations

may be carried on in the area and new field of the mission has been given
to the customs, the supervision of the customs oMcers may be exercised much

more strictly. The distinction between the designated bonded area and thefree port district is found in these very phases. The characteristic feature of

the free port is to be an area where customs control is excluded. Therefore,customs formalities and duties are all dispensed with and freed from all
restrictions. So, the former is a system adopted from the view point of Gove-rnment administration, while the latter is established from the view pointof national and international economy.
Consequently, although the designated bonded area has come into operationin our ports, the question of establishing free port has neither dissolved nor
been ameliorated at all in our country,

21JAPAN'S TRADE WITH LATIN AMERICA
IN THE POST-WAR YEARS.
BY FUKUO KAWATA(I)
The twenty Latin American republics and the British, French and Dutchcolonies in Latin America represented together 1.3% of Japan's export tradeand O.6% of her import trade in 1928. This figure increased to 4-5% inexport and 3-4% in import in the late 1930's owing to her strenuous efforts
to expand trade with this region supported by the depreciation of yen,

Immediately after World War II, Japan's trade with the Latin Americancountries was negligibly small, but it has been rccovering since 1950, taking

up more than 10% ofJapan's total trade, Latin America's shares in Japan's
Table 1. Latin America's Share in Japan's Total Trade(in million U. S. dollars)
Exports

1928

Total(A)(B)

ToLatinAmerica(c)

(X)
(g)

sharesImports(B)

FromLatinAmerica(c)

(X)
(g)

shares(Note)

(A)
(B)

1937

1938

1950 1951

1952

1953

1954
Jan,-Oet.

1113.6 1005.9 ll70.6 1094.3 820.I l354.5 1272,9 1274.8 l298.7
915.2 781.0 914.8 766.5
12.3

31.9

46.4

24.8

% % % %
LJ 3.1 4.0 2.3% 4.1%

1.3

l928

Total(A)

l936

1936

-

-

in

45.5

91.I

%

Mo

rm

he

53.0 106.4 174.9

% 13.

%1

5.5

6.7

4.1

8.3

3.2

in

-

-

-

1937 I938

l950

1951

1952

l953

%

5.0

%

ae

1954
Jan.-Oct.

1270.8 1040.6 1355.1 1062.4 969.9 1995.0 2028.1 2409.5 2076.5
1019.3 801.5 1089.9 759.0
6.4

%

O.5
9i

O.6

38.9

52.0

riei

o/i

3.7

4.8

%4.8

27.9

.el.

4.8

lncluding exports to Korea & Formosa.
Exports to foreign countries only.

%

2.6

-

-

L---

-

ha

67.0 259.0 167.9 264.7 247.3

%

9,/

%

.o'

o

fee!

6.9

13.0

8.2

ILO IL

-

"

-

'

%3.7

-

22 FUI<UO KAWATA

trade in the post-war as well as the pre-war years are shown in Table 1.
Looking from the Latin American side, in 1937,Japan's share in the export

trade of this region represented 1.5%, and her share in the import trade
2.5%, while in 1953, the former percentage rose to 2.8% and the latter declined

to 1.9%, as is shown in Table 2. This means Japan's purchase from Latin
America relatively increased, and her sale to this area relatively decreased in

the post-war period as against the pre-war days.

Table 2. Japan's Share in Latin American Trade
ExportofLatinAmerica

To:U.S.andCanada
U.K.

1937

1950

1951

1953

46% 63% 57% 62% 62%
13915O.5

10

ContinentalEPUcountries

26

20

Japan

L5

Ll

ImportofLatinAmerica

1937

From:U.S.andCanada
U.K.

1952

1950

1951

5181.5

71728

1952

1953

44% 61% 61% 61.0/e 60%
10ContinentalEPUcountries

29

Japan

2,5

815O.66191.4

718O.8518L9

Sources: IMF; International Financial Statistics.

United Nations, Economic Survey of Latin America, 1953.

Among the Latin American countries, Japan's principal export markets
are Argentina, Brazil, Mexico, Venezuela, and Colombia, of which the former

two countries are predominant. In the pre-war years, Chile was one of thelargest markets in Latin America, but to-day its position has become less
Important.
.

Japan's main sources of supply in Latin America are Mexico, Brazil,
Argentine, Cuba and Peru.

In the pre-war years, Japan's import from Cuba had been negligibly
small, but in the post-war years a great deal of Cuban sugar has been imported, which has made Cuba one of the largest trading partners of Japanin Latin America.

Table 3 shows the distribution ofJapan's trade with the Latin Americancountries, arranged in the order of magnitude in 1954 (January-October).

JAPAN'S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 23
Table 3. Digtribution of Japan's Trade with Latin Amerjcan Countries(in million U. S. dollars)
ExportTotaltoLatinAmerica
ofwhichto:

1936p"38
average

1950

195I

1952

1953

1954
JanrOct.
174,9

34.4

45.5

92.1

53.0

106.4

1.Brazil

3.3

2.3

21.6

10.9

21.7

66.7

2.Argentina

8.1

20.9

47.3

9.I

15.6

40.8

3.Mexico

2.5

3.4

3.3

6.I

12.0

25.2

4.Colombia
5.Venezuela

O.08

Ll

O.6

3.3

3.8

7.7

2,1

3.4

3,8

5.9

7.4

7.0

6.Peru

1.7

O.4

1.0

2,3

2.8

3.7

7.Nicaragua

O.1

8.Cuba

O.3

-3.9

'2.7

ny
1.8

-1.8

2.5

3,5

9•Uruguay

2.1

O.5

2.4

O.8

O.5

2.1

IO.Panama

1.5

O.5

O.7

2.3

11.Jamaica
12.Chile

O.4

2.8

1.I

1.4

25.4
1.3

Ll

2.3

O.1

O.6

L2

3.1

1.0

1950

1951

J952

1953

Jan.--Oct.

39.6

67.0

259.0

167.9

24.7

247.3

3.6

16.9

99.6

2.Brazil

l5.0

L6

31.2

71.3
15.4

4.1
31.9

70.4
63.1

l936-38

Importaverage

TotalfromLatinAmerlca

ofwhichfrom:
1.Mexico

1.1

1954

3.Argentina

9.2

30,7

49.4

3.6

5L4

43,3

4.Cuba5.Peru

O.06

10.2

43.1

50.8

48.6

19.1

2.0

O.5

6.6

11.1

15.2

18,6

6.Nicaragua

O.2

O.3

2.3

1.4

3.7

7.9

7.Urguay

4.5

5.0

4.7

2,9

13.5

4.8

8.Chile

3.4

-

L3

2.0

4.

2.1

(ll)
The composition of Japan's exports to Latin America has undergone aremarkable change after the war. In the prewar days, cotton and rayon fabrics

took up major parts of export, but now, instead of textiles, iron and steel

have assumed the most important position among the commodities exported
to Latin America. Besides iron and steel, non-ferrous metals, such as copperand alminium have largely come to be exported to this region in recent years.

Sewing machines and textile machinery have also made remarkable advance to the Latin American markets since the end of the war.

24 FUKUO KAWATA

In addition, railway locomotives numbering 32 in all, 10 in 1952, 22 in

1953, were exported to Chile for the first time, and in 1953, five ships (steel)

were sold to Panama.
With regard to the export of ships, it is to be remembered that althoughships exported to Panama are registered in that country, they are actually

owned by the United States shipping companies, established in Panama with
American capital. The operation of these ships is centered mainly around

New York. The reason why these ships are imported into Panama, although
they are not used in Panama, is that the import duties and domestic taxes on

ships are far lower in Panama than in the United States.
In line with these new-type exports, the traditional export goods, such as
cotton and rayon fabrics, potteries and toys are also making a steady advanceto Latin America, although their relative positions have somewhat changedin the post-war years.

Chief imports from Latin America in the pre-war years were raw cotton
and raw wool, but in the post-war years, sugar has come to be imported inlarge quantities from Cuba. To-day, therefore, cotton, sugar and wool are
the three important commodities coming from Latin America.
Besides sugar, rice has also come to be imported from Latin America inTable 4. Composition of Japan's Trade with Latin America in 1936
(in million U. S. dollars)
Exports

Imports

3L90

100.0%

38.90

100.0%

1.CottonFabrics

13.02

40.7

1.RawCotton

20.56

52.9

2.RayonFabrics

3.85

12.1

2.RawWool

4.46

IL5

3.SilkFabries

O.80

2.5

3.Maize

3.60

9.3

4.Potteries

O.70

2.2

4,Lead2.43

6.2

5.Toys

O.58

L9

5.NitrateofSoda

1.28

3.3

O.50

1.6

6.HidesandSkins

1.25

3.2

7.IronandSteel

O.44

L4

O.8I

2.1

8.RawSilk

O,32

1.0

7.TanningExtracts
8.Coffee

O.52

1.3

9.CottonYarns

O.19

O.6

9•Copper(matt)

O,52

1.3

10.TextileMachinery

O.12

O.4

11.SewingMachines

O.02

Total

WoolenandWorsted6.Yarns(Note)

Japan imported nitrate of

Total

h
soda and copper from Chile, andlead from Mexico.

JAPAN'S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 25
the post-war years as a result of the loss of Korea and Formosa, which had

been the main granaries ofJapan.
Table 4, 5 and 6 show the composition ofJapan's exports to and imports
from Latin America in the post-war as well as the pre-war years.
Table 5. Composition of Japan's Exports to Latin America
in the Post-War Years. (in rnillion U. S. do]lars)
l954

l950

1951

1952

1953

(JanrOet.)

45.5

92.1

53.0

106.4

174.9

!.IronandSteel

11,6

43,5

16.7

20.5

51.2

2.CottonFabrics

4,5

2.5

3.Z

5.0

10.1

3.SewingMachines
4.Copper

O,9

7.8

3.4

5.7

7.8

O,9

2,2

2.0

3.5

6.2

5.TextileMachinery
6.RayonFilamelltFabrics

ny
3,8

L8

1.2

L6

4.6

2.7

1.7

3.3

3.6

3.1

3.6

Total

7.Toys8.Alminium
9.SpunRayonFabries

O.6

O.8

Ll

-O.4

O.7

o

1.8

3.3

O.6

3.0

10.Potteries

LO

1.4

L3
LO

2.1

1.9

2,3

11.RawSilk

O.1

O.4

O.8

3.8

1.2

-Ll

23.4

'

12.Ships
13.RailwayVehicles

-

-

2.5

(Note) Ships were exported to Panama, and railway vehicles (locomotives) to

Chile.

of which

In l954, two naval transportation ships were sold to Brazil, the value

is as yet unknown.

Table 6. Composition of Japan's Imports from Latin America
in the Post-war years. (in million U. S. dollars)
1950

1951

I952

2953

1954
Jan.-Oct,

67,O

259.0

167.9

264.7

214.3

1.RawCotton

15.5

144.8

82.5

I08.6

l16.8

2.Sugar

l2.8

44.5

57.9

59.2

34.2

3.RawWool
kWheat

4.9

18.8

2,5

38.1

25.9

19.8

L4

o

3.4

19.3

L5

1.1

6.3

4.8

4,3

2.0

L7
1.1

Total

5.Rice6.SoyaBeans
7.HidesandSkitas

-4.1

-

O.3

12.7

O.7

2.4

8.Coffee

O.3

O.7

1.3

1.6

9.TanningExtract$

ny

4.1

O.8

3.0

(Note)

Soya beans are imported frm Brazil.

26 FUKUO I<AWATA(m)
The relative importance of the Latin American markets for respective
Japanese export goods is different, But, generally speaking, the shares of

Latin America are larger in the case of metals and machinery, including
trasportation equipments, while they are smaller in the case of consumer

goods. For example, the proportions of metals and machinery exported toLatin America are, in 1954, 56% with alminium, 46% with copper, 44eA withiron and steel, 33% with sewing machines, 30% with railway vehicles (in1953), 29% with ships and 14% with textile machinery, while those for consu-

mer goods are 14% with toys, 8% with rayon filament fabrics, 8% withpotteries, 7% with spun rayon fabrics, and 5% with cotton fabrics.

It is, moreover, noteworthy that the shares of producer goods, large as
they are, either fluctuate widely, for example, alminium, copper, iron and steel,or are discontinuous, for example, railway vehicles and ships ; while those of

consumer goods, thpugh they are small, remain relatively steady.

Table 7 illustrates the shares of the Latin American markets for various
Japanese export goods in 1936 and in post-war years.
Table 7. Shares of Latin America in Japan's Total Exportof Various Commodities
1936

1951

1952

M
13

5.RuilwayVehicles
6.Ships

h

l953

1954
Jan.-Oct.

25.3% 55.9%

5,8%

1.Alminium
2.Copper3.IronandSteel
4.SewingMachines

7,Toys

1950

2.5

7,1
19.5

7.0
6.2

62.5

14,2

14.4

46.2
44.5

!o

36.1

17.0

28.0

33,O

'
6.4

17.0

30.0

-t-

ny
5,5

-5.0

H
7.0

29.1

---

13.0

13.9

8.TextileMachinery
9.RayonFilamentFabrics

7.8

O.5

12.1

5.8

IO.O

13.7

9.0

9.8

4.1

3.9

7.6

8.2

10,Potteries

5.5

5.2

4.3

6.8

8,O

-9.2

3,7

3.2

3.4
6.6

7.2

7.3

2.2

O.8

L8

2.9

4.9

ll.SpunRayonFabrics
12.CottonFabrics(Note) Figures in 1936 refer to the trade with foreign countries only, excluding

Korea and Formosa.

JAPAN'S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 27
Now let us examine to what country and in what quantity the Japanese
goods were and are sold.

(I) Iron and SteelIn the pre-war days, iron and steel exported to Latin America amounted toonly ten thousand metric tons, of which five thousand tons went to Argentina,
and four thousand tons to Brazil.

In the post-war years, the volume of iron and steel exported to Latin
America has increased significantly, coming at the top in value of thosecommodities exported from Japan to Latin America,
At the same time, the relative importance of the Latin American market,
which had been negligible in prewar days, increased largely.

This is because of the large demand for iron and steel from Argentine
and Brazil, which have been carrying on their development or industrialization

progammes since the end of the Second World War. AIthough Japan's pricesof iron and steel products are relatively higher than internationals prices,
these countries are willing to purchase iron and steel from Japan in exchange

for their cotton, wool, and wheat, the prices of which are also relatively
higher than the world prices.

(2) Sewing Machines
Sewing machines are also one ofthe new types of exports in the post-war

years. In 1953, 190 thousand and in 1954 (January-October), 324 thousandpieces of sewing machines were sold to Latin America, which take up about

30% ofJapan's total export of sewing machines. The principal markets ofJapanese sewing machines in Latin America, are Brazil, Mexico, Peru, Vene-

zuela and Colombia.

(3) Textile Machinery
The textile machinery is one of the most competitive sorts of Japan's
export machines.
To those countries where the textile industry has been developing rapidly

in the post-war years, Japan's spinning and weaving machines have been soldin the face ofkeen competitions with those of European industrial nations. In
1953 and in 1954 (January-October), about 10% of the total export of textile

machinery were sent to Latin America, while the ratio was 8% i'n 1936. 0f

28 FUKUO KAWATA

the Latin American countries, Brazil and Mexico are the largest markets.

(4) Cotton Fabrics
In the prewar days, cotton fabrics had been of predominant importanceas the export commdity to Latin America, accounting for 40% of the totalexport to that area in 1936. AIthough cotton fabrics had been sold to almost

every country in Latin America, main markets had been Argentina, Chile,

Venezuela and the Dominican Republic, For example, in 1936, Argentina
purchased 82 million square yards of Japanese cotton fabrics. This figure
reached to just one third of Japan's export of cotton fabrics to Latin America
in that year.

In the post-war days, the volume of Japan's export of cotton fabrics toLatin America fe11 down considerably. For instance, only 9 million squareyards were sold in 1951, although in later years, the figure has kept on
increasing. As above stated, the buyers of cotton fabrics are large in number,though each of them takes small portions. In this respect lies the differenceof the market structure of consumer goods between that of producer goods,
the markets of which are now concentrated to small numbers of Latin American countries, such as Argentine, Brazil, Mexico and Chile.

In the post-war years, the principal markets of Japanese cotton fabrics in

Latin America are Venezuela, Jamaica, Nicaragua, Peru and Mexico. 'Since 1952, Japan's export of cotton tissues to Latin America has been
increasing. This is partly due to the barter or compensation trade, by which
Japan buys cotton or other local products in exchange for cotton tissues.

The relative importance of the Latin American markets for Japanesecotton fabrics has declined since the war ; for example, Latin America's sharesin 1953 and in l954 were 3e/e and 5e/o respectively as against 9% in 1936.

(5) Rayon Filament Fabrics
In the pre-war years, rayon filament fabrics were, next to cotton fabrics,

one of the most important exports ofJapan.

In 1936, about 50 million square yards of rayon filament fabrics were
exported to Latin America, of which 23 million square yards were directed

to Uruguay.
In the post-war period, the volume ofexport decreased to 8 million squareJAPAN'S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 29
yards in 1952, but later it has been increasing. The main buyers are Vene-

zuela, Jamaica and the Dominican Republic.
The portion of rayon filament fabrics exported to Latin America, which

was 9% in 1936, declined to 4% in 1951 and 1952, but in l953 and 1954 it
recovered to about 8%, approaching to the pre-war level.

(6) Span Rayon Fabrics
Spun rayon fabrics are one of the new exports in the post-war years.
The amount of export to Latin America has been increasing since 1950. The
chief markets are Jamaica and Mexico.

The quantity of spun rayon fabrics exported to Latin America, which
was only 1.6 million square yards, increased with acceleration, reaching tol7.3 million square yards in 1954, This figure is as large as that of rayonfiIament fabrics exported to this area in the same year.

The share of Latin America, which was about 4% in 1950, rose to 7% in
1953 and l954.

(7) Copper
Copper is exported to Brazil and Argentina, but mainly to Brazil. The
quantity exported to Latin America has been increasing since l952. In 1952
1.8 thousand tons of copper were exported to Latin America, but this figurerose to 3.8 thousand tons in 1953, and 7.0 thousand tons in 1954.

The relative importance of Latin America as the outlet of Japanese
copper, which was only 2,5% in l950, increased strikingly to 62.5% in 1953
and 46.2% in 1954.

(8) AIminium
Alminium is exported to Brazil and Argentina.
The amount of export which was O.9 thousand tons in 1951, registered a
substantial increase to 2.9 thousand tons in 1953, and 5,7 thousand tons in!954. The share of Latin America, which was 6% in 1951, increased remarkably to 25% in l953, and 56% in 1954.

(9) Potteries
In the pre-war years, Argentina and Brazil were the chief markets ofJapan's potteries in Latin America.

In the post-war days, Venezuela, Mexico, Cuba and Panama are the30 FUKUO KAWATA
largest buyers.

Potteries and toys have now, been exported through the barter or compensation trading; that is, Japan exports potteries or toys to some Latin
American countries chiefly in exchange for their local products. The relative

importance of Latin America for Japanese potteries, which was 5% in 1936,
increased to 7% in 1953, and 8% in 1954.

(10) Toys
In the pre-war days, Argentina, Brazil, Peru and Mexico had deen theprincipal buyers in Latin America, but in the post-war years, Mexico, Vene-

zuela, Peru and Cuba have become main markets.

The share of Latin America for the Japanese toys, which was 5.5% in
1936, made substantial growth reaching to 13.0% in 1953, and to 13.9% in
1954.

Table 8 shows the quantity ofJapan's principal exports to Latin America
in the pre-war and the post-war years.

Table 8. Quantity of Japan's Exports to Latin America
Unit

thousandmetric

IronandSteeltons

Copper11

Alminium11

millionsguare

CottonFabrics

yards

RayonFilamentFabrics

SpunRayonFabrics
SewingMachines

11

11

1000
No.

MT

Potteries

Toys

11

1936

1950

1951

1952

1954
1953 Jan.-0ct.

10

145

234

112

136

341

-

1.96

2.10

1.75

3.81

7.03

-

O.91

O.04

2.94

5.69

246.0 24.8

9.4

15,1

27.7

47.4

5L9 16.0

9.7

8.2

17.2

18.2

- 1.58 1.65 6,15 10.62 17.26- 29.92 241.96 132.72 189.96 324.08
m - - - 5,131 5,541
m - - H 2,602 3,394(m)
Sharesof Latin

American products in the Japan's total

import are higher

in tanning

extracts,

coffee, sugar, and raw wool, while

they are lower inwheat and rice.

JAPAN'S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 31
The share of hides and skins showed fairly high percentages in 1950

andl951, but it has declined in later years. CCf. Table 9)

Table 9. Shares of Latin Arnerican Products in Japan's Imports
1936

1.TanningExtracts
2.Coffee

3.Sugar

1950

1951

1952

l953

1954
Jan.--Oct.

%

57.3% 49.6% 83.1% 28.0% 50.0%
50.5

67,5

45.1

55.2

49.2

-

32.5

54.3

53.4

55.0

4.RawCotton

8.3

6.2

31.3

21.5

30.2

30.6

5.RawWool

6.9

9.0

12.8

2.0

22.4

23.2

-

12.6

O,9

o

2.4

13.1

33.0

28.4

3.6

8.0

6.0

m

1,8

O.9

3,4

2.2

1.8

6.WheatHideandSkins,7.undressed

17.7

8.Rice(Note) Figures of 1936 refer to trade with foreign countries only, excluding Korea

and Forrnosa.

Now let us examine in what quantities and from what countries of Latin
America these commodities are imported.

(!) Raw Cotton
In the pre-war years, raw cotton was imported chiefly from Brazil, Peru,
Mexico and Argentina, of which Brazil was the largest supplier. The quantityof cotton imported from Latin America totalled in 1936, 164 million pounds,of which 93 million pounds came from Brazil,
In the post-war years, Mexico, in place of Brazil, has become the largest

source, supplying Japan with 172 million pounds in 1953. Cotton from Latin
America accounted for 7% of the total cotton import in 1936, but in 1953 theratio rose to 30%.

(2) Raw Wool
Argentina and Uruguay are the principal suppliers of raw wool both in

the pre-war and in the post-war years, The quantity imported from Latin
America, which was 15 million pounds in 1936, increased threefold to 46 milli-on pounds in 1953, although the quantity imported in 1952 was only 3 million
pounds.

The share of Latin American wool in the total wool import of Japan,
which was 7% in 1936, increased to 22% i'n 1953, and 23% in 1954.

(3) Sugar

38.0

32 FUKUO KAWATA

In the pre-war years, Japan imported sugar almost exclusively from For-mosa, and the volume of Latin American sugar imported in 1936 was about
12 thousand tons, as against 830 tousand tons from Formosa in the same year.

In 1953, the quantity of sugar imported from Latin America reached 656
thousand tons, taking up 60% of the Japan's total sugar import. The principal suppliers are Cuba, Peru and Brazil, of which Cuba is by far the largest.

(4) Hides and Skins, undressed
Hides and skins, undressed, are imported from Argentina and Urguay inthe post-war as well as in the pre-war years, In 1936, import ofraw hides andskins from Latin America reached 4 thousand tons, representing 18% of the total

import of raw hides and skins. In post-war years, the volume of importsuddely increased to 13.4 thousand tons in 1951, but the amount declined
sharply to 1.3 thousand tons in 1952, recovering, however, to 5.3 thousand tons
in 1952.

The shares of Latin American hides and skins accounting for about 30%
in 1950 and in 1951, declined to 8% in, 1953, and to 6% in 1954.

(5) Wheat
Wheat is imported chiefly from Argentina. The amount of import declined heavily in 1951 and 1952 owing to the bad crops caused by the successive
droughts in the River PIate region. In 1950 and 1954 (Jan.-Oct.) respectively,

about 200 thounsand tons of wheat were imported from Argentina, represent-

ing about 13% in 1950 and 10% in 1954 of total wheat import ofJapan,(6) Rice
The amount of rice imported from Latin America was 29 thousand tons
in 1952 and 22 thousand tons in 1953, representing 3% in 1952 and 2% in 1953of the total rice import of Japan.

It is a remarkable fact that countries supplying Japan with rice are notconstant, but changing almost every year. For instance, rice was imported

from Mexico in 1950, from Mexico and Brazil in l951, from Mexico andEcuador in 1952, and from Peru, Brazil, Nicaragua, Argentina and Uruguay
in 1953.

(7) Tanning Iixtracts (Quebracho Extracts)
Quebracho extracts are imported chiefly from Argentina.

JAPAN'S TRADE WITH LATIN AMERrCA IN THE POST•WAR YEARS 33
In l936, the volume of quebracho extracts purchased from Argentina was
about 9 thousand tons, taking up 54% of tanning extracts imported into Japan.

In 1953, 11 thousand tons of quebracho extracts were imported from Argentina, representing 44% of the total import of tanning extracts.

(8) Coffee beans unroasted
Coffee is one of the most important export products of Latin America.
In 1936, Japan imported about 3 thousand tons of coffee from Latin America, of which 2.5 thousand tons were imported from Brazil. In 1953, about

1.2 thousand tons of coffee is imported from Latin America, of which O.7
thousand tons were bought from Brazil, the rest being supplied by Colombia,

Venezuela, Guatemala, Panama, Costa Rica and other Central Americancountries. This decentralization of coffee import may be due to the compensation trade policy, which Japan has recently adopted.

The share of Latin American coffee in the total coffee import of Japan,
which registered 50% in 1936, showed 55eA in l952, and 49% in 1953.

Table 9 shows the quantity of Latin American products imported into
Japan.
Table 10. Quantity of Latin American Produets imported into Japan
1954

Unit

1936

1950

1951

1952

1953

Jan.-Oct.

millionpounds

146.9

35.1

223.5

203.1

308.7

311.1

11

15,8

7.5

11.4

3.3

46.8

30.4

12

103

326

451

656

377

11

4.5

5.3

13.4

1,3

5,3

2.2

5. Wheat

1/

O.4

221.0

15.3

o

32.7

199.6

6, Rice

11

-

10.0

5.9

29.5

22.4

21.5

7. Tanning Extracts

/1

8.96

3.81

19.51

3.05

11.22

3016

l96

610

l304

1186

1, Rew Cotton

2, Raw Wool
3. Sugar

1000metrictons

4• .H.idde,g,,a,ndd Skins,

Coffee, beansMT

8.unroasted(v)
We have so far examined the figure of export and import between Japanand Latin America. Now we are to study the Japanese trade policy for this34 FUI<UO KAWATA.
reglon.
Japan's trade promotion to this part of the world is mainly achieved bymeans of (1) bilateral trade and payments agreements and (2) compensatory
trading contracts.

Japan's payment agreements with Latin American countries were signed,
for the first time, in 1949. Some of these agreements expired in 1952, when
Japanese Peace Treaty went into effect, while others have been extended andare still in force to-day,

These agreements may be classified into two types, that is (1) the "dollar

cash" type and (2) the "open account" type.
Japanese agreements with Peru and Uruguay are of the " dollar cash " type,under which all payments and receipts are actually made in freeiy disposable
U, S. dollars.

(Japan also had dollar cash payment agreements with Chile, Colombia,
Mexico and Venezuela, all of which were'concluded in 1949, and expired
when Japanese Peace Treaty went into effect in 1952.)
Japan's agreements with Argentina and Brazil are of the " open account "type, under which the U, S. dollar is no more than an accounting unit andthe intergovernmental credit element is implemented by swing provisions.
The swing margin for Argentine open account is 20 million dollars and thatfor Brazilian open account is 10 million dollars. Japan also has trade agree-ments with Argentina, Brazil and Urguay.
Under the trade agreement with Argentina, it is planned that Japan andArgentina will exchange 90 million dollars of goods in a year beginning on
May 1, 1954. Japan is to export iron, steel, machinery, non-ferrous metals,
chemicals and factory equipments, and to import wheat, wool, cotton, hides,

barley, quebracho, maize and rice. Under the trade agreement with Brazil,
Japan intends to export iron, steel, non-ferrous metals, ships, machinery andvehicles amounting to 33.5 million dollars, and to import cotton, rice, soyabeans, coffee and cacao totalling 36.5 million dollars, in a year beginning on
July 1, 1954.

Under the trade agreement with Uruguay, Japan is to export silk, cotton,

and rayon fabrics amounting to 5 million dollars, and to import the same

JAPAN,S TRADE WITH LATIN AMERICA IN THE POST-WAR YEARS 35
amount of wool, hides, linseed, casein and bone-powder in a year,

Japan has conducted the so-called, "compensation trade" with some Latin
American countries, such as Mexico, Nicaragua, Peru, Chile, Uruguay, Para-guay and Colombia. The amount of compensation trade contracts with Latin
America approved in 1953, reached to about 25 million dollars.
Although Japan's share in Latin American trade is very small, as is shoNN'nin Table 2, Latin America is a prospective market. To develop trade relations
with this region, Japan despatched trade missions in 1952 and in 1953. As it

has been stated above, Latin American markets are buying chiefiy metals andmachinery in post-war years. In these lines, Japan's competitive ability is,unfortunately, rather weak. It is, however, owing to the bilateral trade andpayments agreements and other special trading arrangements that Japan's
capital goods are sold to this region. But this kind of special or discriminativetrade measures may not be allowed to last long, because there is a strong tendency toward the liberalization of international trade and recovery of currency
convertibility. It is, therefore, necessary for Japan to strive to rationalize her

export industry, so that she may be able to compete with other nations in the

Latin American markets without recourse to special measures.

37

THE MARITIME COMPETITIONS IN
THE EARLY MEIJI ERAIn Relation to the Development of "Common Carrier" TypeBY SEM SASAKI
Contents
l. Preface
2. Competition between the "Nihon-koku Yubin Jokisen
Kaisha " and the " Mitsubishi kaisha "3. Competition between the "Mitsubishi I<aisha" andthe "Pacific Mail Steamship Co."

4. Conclusion

1. Preface

In 1633, the Japanese Shipping in the Tokugawa Era had been, temporarily

but completely discontinued its outward-bound navigation under such an
unnatural policy of seclusion and restriction, that prohibited the people
from travelling abroad and building large ships. Japanese overseas expansion

in South-China, Thailand and other Seuth Sea Islands, which had formerly

been much encouraged, had been stopped and the visit of the foreign
vessels to Japan had been also restricted. So the former skilled level of
shipbuilding and navigation in this country was not only held up in theirfurther development, but was left behind the foreign countries in progress.

All larger vessels capable of sailing over the ocean disappeared, and thesurviving small sailing-ships of only several tens of tons in tonnage were
narrowly permitted to maintain their existence by the practise of inter-coastal.
transportatlon.
Besides, the main type of the shipping operation in the Tokugawa Era
remained in the " carrying trade " or " merchant carrier ", which accomodated
to the stationary developmental stage in the feudal economic system. Althougha "common carrier" type was partly but it is of so much importance
beginning to grow on the particular trade-route between Yedo, the seat

38 SEIJI SASAKIof the Tokugawa Shogunate Government, and Osaka, the centre of economy
in this country, almost all forms of the shipping business in the Tokugawa

Period were, as a rule, included in the commercial trade and were carried onas " private carrier". It was a matter of course that under the undeveloped

marine transportation, in which only the smaller sailing-vessels navigable inaccordance with the wind and tide were employed, the carrying trade was
not yet able to establish itself as an independent shipping industry.

After the slumbering stagnation during about two centuries and a half

the Japanese shipping awakened again to develop. On a July day in 1853,
Commodore Matthew Calbreith Perry of the United States Navy arrived at

Yedo Bey leading his squadron. The four "Black Ships" moving swiftly
without sails and against the current and belching black smoke like floating

volcanoes surprised the Japanese people rudely. The steaM-worked vessels,
however, rekindled the Japanese dream for the outward advance.

The modernization of shipping which developed rapidly since the Meiji
Restoration, formed originally a link in the chain of the introduction of newcapitalistic political and economic system. Without this development of
capitalism, the independent shipping industry, especially that of common
carrier type, might not have grown in Japan, as it was in foreign countries,

While the process of shipping modernization in this country was based onsuch economic and technical advancement, it was also importantly affectedby the political and military requirements which sometimes neglected to allow

for the relation with the economic basis. In fact the Meiji Government set

out promptly to import new European-type vessels, specially steam-ships,

regardless of the poor development of the national economy and of thejuniority of the technique. It was entirely caused by the following noneconomic reasons:---the one was the purely military transportation to accomodate for the two wars in 1874 and 1877; and the other was the invasionof the foreign steamers which was increasing gradually since the openingof this country.

" Kaiso Kaisha ", the first steamship-company in Japan to which the Meiji

Government gave so much support and actual aid, was established in January

1870. The motives of creation, however, were national impatience and pureTHE MARITIME COMPETITIONS IN THE EARLY MEIJI ERA 39
accident. Although it was, as is clearly seen in the following discription,

diMcult to recognize this company as an independent shipping company of
the common carrier type, and it ceased to exist entirely in spite of several

reorganizations, it was a very important and epoch-making enterprise thatit adopted for the first time the company system in the Japanese marinetransportation. Other steamship companies in Japan followed after thiscompany. The " Tsukumo Shokai ", established in October of the same year,
was also one of the earlist private shipping companies which were organizedindependent of the central government. This Tsukumo Shokai has continued
to exist and develop untill to-day as a good representative steamship company

in Japan, though it changed often its name, and we know it rather by thename " Mitsubishi Kaisha " or " Nippon Yusen Kaisha ".

The formation of these steamship companies, eithcr with or without theconnection with the government, did not promise directly the perfect establi-shment of the Japanese shipping industry and did not realize readily thedevelopment of the common carrier type business enterprise. There was still

a thorny path to tread to reach the Japanese independent shipping trade.
Through the experiences of many severe tests and bitter struggles, the Japanese

shipping has grown gradually and expanded its fields of activity and established its independence as an enterprise, that is to say, attained the developmentfrom private carrier to common carrier type in operation.
This article attempts to consider the process of the modernization of theJapanese shipping from the aspects of the maritime competitions whichhappened in this period.
Emphasis will be laid on how these competitions accelerated the formation-

process of the Japanese independent shipping industry, and served to bringabout the transition from the private carrier type to the common carrier
type.

2. Competition between the "Nihon-koku Yubin Jokisen Kaisha" and the" Mitsubishi Kaisha "The earliest steamship company in Japan was the " Kaiso Kaisha " which
was originally established and supported by the hands of the Meiji Government

40 SEIJI SASAKI

and which set up its business since January 1870. The Government gave to thecompany many steamships, that is, 5 vessels owned by the central Government

and 5 vessels owned by some local governments (feudal lords); all of thesteamers had been imported before the Meiji Restoration. It had also the mono-

poly for the transport of the tribute-rice. Such a decision of the government

was derived itself from the preceding ordinance, which the government had
issued in 1869 proclaiming to encourage the import of the European-type vessels

and also had been the outcome of the policies in the late Tokugawa Era(ordinances 1858 and 1861), and the object had been to set up a carrying
trade against the foreign steam-ships.

With the Pacific Mail Steamship Co. of U. S. A. in the lead, so many senior

shipping companies in Europe, including the British, French and Dutch

the last named alone had been allowed to come to this country even in theisolation period were coming to this new market one after another. Suchan advance ofthe foreign shipping was not only reducing the activity-field of
the Japanese native sailing-vessels and preventing the new development of thesteamship company in this country, but gave necessarily so strong pressure

on the political independence ofJapan. Especially when the P. M. opened
the line from Yokohama to Shanghai through Kobe and Nagasaki in early 1870,
the Meiji Government had to confront the enterprise, willing or not, with acounter enterprise. A sense of crisis that the privilege of coastal navigation

which was (and is) thought to belong to the native shipping was threatenedby the foreign steamers, and this was the immediate motive of the establishment of the Kaiso Kaisha, together with the old still remainning fear of the"Black ships and Cannons" which awakened the Japanese people from the
dream of isolation.

As Japanese economic and maritime circumstances in this period did not
yet require the voluntary formation and development of the steamship ente-

rprise and also the then fundamental operation-type was still the private
carrier type with the out-of-date "Japanese-style sailingvessels", it was necessarythat the government should give great encouragement and support in order
to introduce the steamship and to master its operation-method. The chief linesof the business activity of the Kaiso Kaisha had already been determined by

THE MARITIME COMPETITIONS IN THE EARLY MEM ERA 41
government protections. This was a very advantageous condition for thiscompany, but, on the other hand it was a restrictive condition, for it limited

the development of this company at the beginning. Indeed the system of thiscompany which was established in order to compete against the foreign
shippings and to maintain the privilege of coastal navigation was organized"from upside", utilizing the grant of the needed vessels and promised jobs.
The knowledge relating to the navigation by steamship and the method of its

operation in the new company-system was not only immature and unskilled,
but its operation-system itself was also bureaucratic. Then, even though it
was formally announced that this company will be operated to deal with thetransport of the public cargoes and passengers, its operation actually wasnothing but the semi-common carrier type, It did not start as a common
carrier and even its operating foundation was entirely fragile. The essential

weakness of a non-common carrier type, characterized by its semi-oMcial
organization, coupled with its ineMcient and bureaucratic performance, drove

rather the new company itself to the fate of disorganization within one
year, far from driving the foreign shippings away. These basic defects were

well recognized in the "Kaiso Toriatsukaisho" which was estabiished in

January 1871, and in the "Nihon-koku Yubin Jokisen Kaisha" herein
after abbreviated as N, Y. J. K. which was established in August thesame year. For reasons of these defects, the semiofficial steamship company
disappeared in the end, even though it struggled to continue its existence bychanging the name. The N. Y. J. K. fell behind ofanother native steamshipcompany, "Mitsubishi Kaisha",i) which advanced with more speed and in
more perfect forrn as a common carrier, though it had been estabiished later,when the two companies confronted in competition,
It was a very interesting fact, even though ironic on the other land, that
the Mitsubishi Kaisha which started as a purely private enterprise accomplished ultimately both objects of the elimination of the foreign shippings and
1) It also changed so often its name;Tsul<umo Shokai in OÅëtober 1870, Mitsukawa ShQkai
in January 1872, Mitsubishi Shokai in Mareh 1873, and Mitsubishi I<aisha in May 1875.
It will be known that the Mitsubishi I<aisha was moreover succeeded by the Nippon Yusen

Kaisha in 1885,

42 SEIJI SASAKI

the development from private carrier to common carrier, while the semiothcial
companies failed to do so after all.

Although it had no connection and no support with the Meiji Government

till the "Formosa Campaign" (1874), except the some aids from a local
government, "Tosa-han", the Mitsubishi Kaisha was undoubtedly developing
to considerablly clear common carrier type at least since about 1873. A lackof the monopolistic transport-privilege made this company select the way todeal with the public cargoes and the general passengers. It was more possible

for this company to develop the independent shipping trade, that is, com
mon carrier, as it originally started to earn freight only. Moreover, it wasnecessary for this company that it should depend upon this business forexistence. Therefore it treated the customers carefu11y and adopted every
means of merchantism in order to invite to use of its vessels. It was quite
natural that the general shippers and passengers should like the courteous

treatment accorded them and prefer the ships of the Mitsubishi to otherarrogant ships.

Nevertheless, in view of the general economic development of the country

and the volume of the traMc at that time, the Mitsubishi had no advantage
over others and did not have enough share of the business. Many diMculties
obstructed the way of operating the steamship company ; and even the business

operation of the Kaiso Kaisha, which had been generously subsidized and had
been assured of mass-traffic, was not at all easy. The diMculties were much
more increased in the case of the Mitsubishi, as it depended for its financesolely on the earnings from the transport of public cargoes and passengers.
Its repeated changes of the trade names and reorganizations in the beginningof the history of the company may have been caused by these diMculties.
In order to advance in the direction of common carrier system that aimed
to earn freight and reduce the operating loss and increase the profit, theMitsubishi found it advantageous to obtain some government protections,and especially subsidy by all means. The government, however, had alreadyestablished another steamship company and had given it so exclusive support,that the Mitsubishi had to prove its ability, excellence and superiority overthe semi-ofHcial company, in order to wedge in the claim for the government

THE MARITIME COMPETITIONS IN THE EARLY MEIJI ERA 43
protection. It was the most practical and eMcient method for the Mitsubishi
to overcome the rival in the competition. In effect the Mitsubishi challanged

and conquered the N. Y. J, K. completely.
At this point of competition with the N. Y.J. K. the only motive power bywhich the Mitsubishi attempted to overwhelm the rival was the superiority of
its common carrier type to the semi-common carrier type. It may be concluded,
theoretically, that the Mitsubishi could have challenge and predominate gradually over the N. Y. J. K. because of its modern progress in the operation-type,although it is doubtfu1 whether the importance of the development tocommon carrier type was correctly recognized by both companies, the gove-rnment and the general public. As a matter of fact the Mitsubishi wasconsiderably inferior in almost all aspects ; in the tonnage, in the connections

with the central government and other organizations and in the protectiens
and aids given by them, but it was distinctly superior to the N. Y. J. K. in

the point of its advance toward the common carrier type. The latter wTas
obliged to fall behind step by step in the competitive process by reasonof a limited frame-work of its semi-common carrier type, from which it could
not extricate itself. Of course, the competition with the Mitsubishi and thislimitation were not the only causes that the N. Y. J. K. fell into decay. It

was true, however, that its declining fortune was accelerated by the bitter

strife. Although it is commonly stated in the Japanese books about thisperiod of the history of shipping that the bureaucratic and conservative business

operation on the side of the N. Y. J. K. was inferior to the merchantile andprogressive capabilities of the Mitsubishi, I will emphasize that the differenceof character between two companies, that is, the common carrier type of the
Mitsubishi and the semi-common carrier type (the remains of private carriertype) of the N. Y. J. K. must be recognized more basically and distinctly.

While the N. Y. J. K, remained to persist in the type of semi-common
carrier, the Mitsubishi advanced one step further to common carrier type.
It was natural that the latter which had to manage with the freight-incomeby transporting the public cargoes and passengers should try to collect evenone more passenger or one more tonnage of cargoes. The N. Y. J. K., on theother hand, engaged itself originally in the transportation of the monopolistic

44 SEIJI SASAI<I

cargoes which were assured by the government, and rendered service only ad-

ditionally and benevolently to the general passengers and cargoes. Thus there

was an extremely important difference between both companies, when the
struggle for the common cargoes and passengers later became severe. The
cargoes and the passengers flowed inevitably into the Mitsubishi and the
public credit for it increased gradually. The cut-down freight rate began toabsorb even those cargoes which had not been handled by the steamship,
and the Mitsubishi succeeded to cover the loss of rate-cutting with theincrease ofthe total trafllc volume. Compared with the Mitsubishi, the N• Y• J.

K. Iost gradually the public cargoes and passengers by which it gained an
additional income, though they were only supplementally handled, and thus
its income was limited only to the slender earning derived from the obligatory
traMc.

The "Formosa Campaign" broke out in 1874, when the superiority or
inferiority in this competition became quite distinct. The Mitsubishi perfor-

med indeed the most brilliant and active cooperation with the government
in this war, when the Meiji Government undertook the over-sea transportationof the army for the first time. Believing that it was a golden opportunity toshow its ability for the government, the Mitsubishi undertook voluntarily thegreater part of this transportation. On the other hand, the N. Y. J• K.

which had fallen already into the inferior position was hardly able tocooperate in this work because of the obsoleteness of its vessels and for reasons ofpolitical factions for the war. Here the government relations with bothcompanies reversed completely and the Mitsubishi was now able to expect
the further strongest protection and intimate connection with the government.
While, the financial diflicultyi) of the the N. Y. J. K. which happened after
this war brought about its disorganization, and the Mitsubishi even replenishedits fleet by the annexaion of the company.
The fact that the common carrier type of the Mitsubishi was proved finallysuperior to the semi-common carrier type ofthe N. Y. J. K. demonstrated the1) The "I<awase I<aisha" (Exchange Company) which had supplied the funds to the N. Y.
J. I<. reguired the repayment of its loan for reasons of the bankruptcy in a membership,

THE MARiTIME COMPETITIONS IN THE EARLY MEIJI ERA 45
appropriateness of the inevitable development rule from private carrier tocommon carrier usually including semi-common carrier in the middle ofits process ,as well as the beginning of this progress in Japan. It might
be said that here the Mitsubishi entered a new stage to gain mastery of thisnew common carrier type and to develop it, though it had still to overcome
many diMculties and several years of struggle and experience for its completion. And it was an almost foregone conclusion that the next inevitable trial
should be brought by the confiict with the foreign shipping which had alreadyaccomplished the development to common carrier and attempted to proceed
outward with this operation type. After and during such experiences, theMitsubishi Kaisha developed and completed step by step its common carrier
type.

3. Competition between the "Mitsubishi Kaisha" and the "Pacific Mail

Steamship Co,"
The Mitsubishi desired earnestly, as it has been stated in the preceding
section, to get the government subsidy to cover the shortage in its income,caused by their operation-object to transport the general passengers and goods,

and also to break open the limitation of its own development. The company

succeeded not only to beat the N. Y, J. K. in the process of the competition, but also to make the government recognize the ability and stre-

ngth of the Mitsubishi through the Formosa Campaign which happened in
1874. The first protective shipping policy which was established in 1875
on the basis of " Okubo's proposal " warranted to the Mitsubishi company thesole monopolistic power in the further Japanese shipping circles. In September

1875 this company owned at least 34 steamers (23,385 gross tonsi)), including

12 vessels imported in Formosa Campaign and 15 vessels taken over from theN. Y. J. K. Though the Mitsubishi grew greater and stronger, the expenses
1) from "1<obe I<aiun 50 Nen Shi"p, 39.;but this figure may not be exaet. According
to my research, the tonnage of 12 vessels imported in Formosa Campaign was 16,021 G/T
and 15 vessels which were transfered from the N. Y. J. K. to the Mitsubishi were 7.438
GIT in total. Nevertheless, those tonnages must be understood in comparision with thesum total of Japanese steamships 26.088 G/T in 1873 and 42.304 GIT in l875•

46 SEIJI SASAKI

for the maintenance of its fieet increased together with the accompanying

diMculty, and the government's expection for this company also became larger.

The government's hope was no other than to check the invasion of theforeign steamers and to recover and maintain intact the coastal navigationright. The Mitsubishi has not yet proved its strength to resist against theforeign shippings, although its predominance over other internal companies
had been proved and recognized in the competition above mentioned. Moreoverto assure its own monopolistic dignity within this country and also to gain

the further protection (subsidy) from the government, it was a necessary
premise for this company that it should repel this foreign steamers by own

hands, which the N. Y. J. K. failed to do. Also to further develop thecommon carrier type which was adopted first by the Mitsubishi and to fuIly
utilize its increased vessels, it was necessary for this company to get thecomp!ete control of all the inter-coastal transportations.

Thus in this point, the political and military requirements of the Government ; that is, the exclusion of the foreign steamers out of the coastal routes

and the purely defensive and military demand, coincided with the economic
necessity of the pt{itsubishi. Expressed more distinctly, the Mitsubishi was the

only company that could compete with the foreign shippings and be expected
to do so for reasons of national defense. Then, how were the forelgn vessels
situated in that period?

The foreign vessels that visited Japan were increasing year after year,
including the Pacific Mail Steamship Co. which came to the orient since it

opened the line from San Francisco to Shanghai in 1867. The name of theP. M. and its fleet were known among the Japanese people as "the fourthbuilding" or "the fourth ships", derived from the name of their Branchbuilding in Yokohama which the company set up after the opening of thiscountry to foreign commerce. Immediately after the Meiji Restoration, thecompany called attention of the Meiji Government to the importance of thecoastal transportatlon and requested for its monopolistic privilege. As soon

as the Japanese Government refused to grant the request and attempted toestablish the "Kaiso Kaisha, the P. M. opened the new route from Yokohama
to Shanghai and made clear its attitude to govern all the coastal navigations

THE MARITIME COMPETITIONS IN THE EARLY MEIJI ERA 47
with its own power. Thus it oppressed the activities of the Kaiso Kaisha

and the Nihonkoku Yubin Jokisen Kaisha and controlled almost all of thesea-routes in Pacific side ofJapan, It was naturally an irnportant disturbanceto threaten the political independence and self-defense ofJapan,

Furthermore, when the Formosa Campaign occurred in 1874, the cooperation
for its military transportation which the P. M. had promised to the Japanese

Government did not actualize because of the neutrality of the United States

Government. This was an immediate motive of the Meiji Government tobelieve that it should not be able to depend on any foreign shipping in caseof emergency. So the Government decided after the war to adopt a mostimportant and original policy to foster the native shipping industry evenovercoming many difficulties.

In order to exclude the great power of the P. M. which gave the mostdirect and important threat to Japan, and which had operated already theline from Yokohama to Shanghai, an order from the government was given
to the Mitsubishi Kaisha on 18 January 1875 that the company should open

and operate the same route at once, With the four steamers, named theTokyo-maru, the Nigata-maru, the Takasago-maru and the Kanakawa-maru,
all of which were imported at the time of Formosa Campaign, the Mitsubishi

began instantly to operate the regular line, sailing once a week. It was
reasonable to expect that the line, which was opened rather from the point ofpolitical view than from the spontaneous will of the company itself, gave
hardly any profit to the Mitsubishi in the beginning. In fact, there was aconsiderable difference in the competitive strength of the competing companies.

The following table shows the tonnage comparison of the two fleets used inthis line. The figures are cited from the statistics in "the 50 Years History
Comparision of the both fieet-tonnages used in this Iine

P.M. Co.

Mitsubishi
the Tokyo•maru

2.217 GIT

the Costarica

the Nigata-maru

1.090

the Oregonia

1.914

the Takasago-maru

1.019

the Golden-age

1,870

Kanakawa-maru 606
total4vessels
4.932 tonthethe Nevater

4 vessels

1.917 GIT

1.060
6.761 ton

48 SEIJI SASAI<I
of Nippon Yusen Kaisha " though they may not be quite accurate.
Although there was no significant difference in the comparision of every
ships' age, there is enough reason to suppose that the vessels of the P. M. weregenerally superior to the Mitsubishi'$ in the point of speed. Quite apart fromthose differences, the Mitsubishi was distinctly inferior to the P. M., as thelatter had already accumulated so much actual results in this line and had
owned considerable facilities in the various ports and had already enteredinto close connections with many shippers.
Nevertheless, the fact that the ).vlitsubishi challenged the P. M. immediately

on the basis of the government direction meant, at the same time, that thecompany had an assurance that suitable protection and help might be further
given by the government if that was necessary. This was the only source ofstrength for Mitsubishi and was the sole advantage that the Mitsubishi had overthe P. M. in competition. The Japanese Government formally drew up theprotective shipping policy in May 1875 and successively in September issued
the "First Direction" to this company, which provided that it shall be given

250 thousands yen a year as the navigation-subsidy. On the other hand,
the Mitsubishi had added to its fleet-tonnage after the disorganization of theN• Y. J. K,, for a considerable number of vessels which the latter had owned
were given to the Mitsubishi free of cost. Supported by such advantages, theMitsubishi was now able to set on so dificult competition againt the P. M.

that seemed quite impossible by its own effort. The challange started
with the rate-cutting and the increase of the navigation-frequency against thecompetitive methods of the rival company, whose superiority was speed andit tried to disturb the vessel-operating and cargo-collecting mechanism of the

Mitsubishi. The fares of the passenger service between Kobe and Yokohama,where the competition was most fierce, were cut down to : - the " Upper Class "from normal 25 yen to 10 yen and the less, the "Lower Class" from normal 10
yen to 3-ilt yen, and at the climax of competition they were reduced to 5 and 3

yen respectively. Although such rate-war resulted in the accumulative loss toboth campanies, the Mitsubishi Kaisha was able to cover the loss with theaforesaid subsidy, if necessary may expect even to be given with more aids.

On the other hand, there were perhaps nothing to cover such loss on theTHE MARITIME COMPETITIONS IN THE EARLY MEIJI ERA 49
side of the P. M. The navigation-subsidy 500 thousand dollars a year which

the P. M. had been given by the U. S. Federal Government for its line
between San Francisco and Shanghai, would hardly have any effect on thisbranch-line from Yokohama to Shanghai, Furthermore, the outbreak of abribery-case involved with this subsidy and the approaching expiration of theterm made the position of the P. M. quite diMcult. It was, therefore, quite

wise for the P. M. to decide to withdraw itself from this route, when it
considered the facts that the Japanese inter-coastal transportation, which thecompany had advised to cultivate, was beginning to develop in the directionof protecting the native shippings from the point of self-defence and that it

might be given with immeasurable government supports for them, It was not,nevertheless, to be thought that the P. M. withdrew itself from this line as aresult of defeat, like some of the conventional Japanese books on its shipping-history are inclined to state. It was quite certain that the P. M. had still

strength enough to compete with the younger Mitsubishi Kaisha, even though

the later was given with much aid from the Japanese Government. Indeed,
the P. M. preferred to close the competition within the advantageous period
for itself and to reduce its possible loss in the future, and gained perhaps as

much compensation as possible to repare its damages hitherto.

Paradoxically, the following facts may be quoted:-the Mitsubishi attempted to close the competition by purchasing 4 vessels and the overall
facilities in Kobe, Nagasaki and Shanghai, including lands, houses, warehouses,

piers and other land equipments owned by the P. M., on 16th October 1875,
about only one month after the day, 15th September, on which it was promised

the grant of subsidy by the "First Direction" for the Mitsubishi Kaisha.
That is, immediately after the grant of an advantageous competitive con-sideration the grant of subsidy, possibly a most important and immediate competition power , the Mitsubishi desired rather to come to anagreement. It seems to mean clearly that the strong hope to end thecompetition had existed in the Mitsubishi management. The money paid to theP. M. in compensation for its withdrawal was never small sum. To be specific,

the payment for 4 vessel amounted to 680 thousand dollars within the totalcompensation of 810 thousand dollars it was paid from the considerablly

50 SEIJI SASAKI

diMcult national treasury and the sum for every vessel was also larger incomparison with the sum paid for each vessel at the time of the "Formosa

Campaign" or "Seinan Campaign" (1877) which was unavoidably muchhigher, as they were bought under emergency conditions.

4. Conclusion

The modernization of the Japanese rnaritime transportation especiallythe mastery of the new operation-method concerning steamship company
in the early Meiji peiod was started on its own process since the foundationof the Mitsubishi Kaisha. It was an inevitable development of shipping that
the N. Y. J, K., which persisted to retain the stage of a semi-common carrier

for the various reasons, was replaced by the Mitsubishi, which launcheddaringly into the common carrier type. The development of common carrier
type in the Mitsubishi was, of course, recognized so far as the restrictive
coastal routes are concerned and its strength could not be compared with thatof the foreign shipping industries. The Mitsubishi had yet no power toadvance outward in the world as a common carrier. Still at that time thetype of a private carrier using infantile Japanese-type vessels or somewhat
more progressed European-type sailing-vessels was predominant in this country.

The navigation of the steamer was just carried on only in such main routs as

the line between Tokyo and Osaka, which had been prosperous in the Tokugawa Era and importance has been attached because the railroad had not yet
been opened.

Therefore, the start of YokohamalShanghai line which the Mitsubishi

Kaisha undertook in accordance with Government-order and attempted to
grow as the first international route between Japan and China, was not based

upon the economic or commercial demand. The same route was only selected

as a method to exclude the YokohamalShanghai Line of the P. M. Co,,for the latter, which included the haul from Yokohama to Kobe, gave asevere threat to "the right of inter-coastal navigation" as well as to "national

defense-right". This is easily confirmed, when we consider that this compe-

tition, which was extended formally on the route between Yokohama andShanghai, was actually restricted almost upon the passenger trafic from Kobe

THE MARITIME COMPETITIONS IN THE EARLY MEIJI ERA 51
to Yokohama.
The Mitsubishi Kaisha was able to compete with the P. M. and to succeedin the purchase of the inter-coastal navigation right with the aid of thegovernment subsidy, which was given essentially from the point of view toprepare the shipping of the country for national defence. It could not, however, prevent all the foreign vessels and their further menace on the right ofintercoastal navigation. In February 1876, four months after close of thecompetition with the P. M. the "Peninsular and Oriental Steam Navigation
Co,", an English Shipping Company, invaded into the same coastal route andgave a more important menace to the Mitsubishi and the Japanese Government. The Mitsubishi resisted again and at long Iast drove back this new
invader, but the explanation about the competition between the Mitsubishi
and the P. O. is beyond the scope of this article, and will be studied in anotheropportunlty.
It is by no means intimated that the Mitsubishi Kaisha excelled the foreign

steamship companies in the type ofcommon carrier, The latter surpassed verymuch in their process. The background by which the Mitsubishi succeeded
to repulse the foreign steamers must be sought in the facts that the modernization of shipping in the early Meiji period was promoted from the viewof the defensive and militaristic emergency and that it had been given withan unbounded government protection for that reason. Through its contact withthe advanced foreign shippings, the common carrier type of the Mitsubishi
learned so much more and went further forward step by step on the road ofprogress. In conclusion it may be said that the development of the Japanese
shipping to the common carrier type, which the Mitsubishi Kaisha represented,
had originally been encouraged by the defensive subsidy policy.

53

TWO DEFLATIONS IN THE SHOWA ERA
BY MASAHIRO FUJITAI
The actual situation of the present Japanese Economy seems to be well
expressed by saying that it is now going througha severe deHation. It is not
however that our people have not suffered from such vicious deflation in thepast. On the contrary, they have suffered several deflations interspersed withalternative inflations since the Meiji Revolution (1868)--that is, we may
count seven deflations as follows:i. The so-called Matukata deflation-Meiji 14r-vl6 (1881-1886)

2. Post Japan-China War (Nisshin War) dcflation-Meiji 29 (1896)
3. Post Japan-Russia War (Nichiro War) deflation (by Katsura
Ministry) - Meiji 41-42 (1908-1909)

4. The early Taisho deflation-by the panic in Taisho 3 (I914)

5. The Inoue deflation-Showa 4-v5 (1929-1930)

6. The Dodge deflation-Showa 24 (1948)
7. The present deflation since last year (Showa 28) - 1953
The Matsukata deflation was brought about as an attempt to retrench theprodigeous issue of paper currency to meet the expense of the Seionan conflict(Meiji 10; 1877). This is one of the only two successful cases which ourfinancial authority effected to contract currency and ceased inflation by self-

reliant policy and voluntary effort. We have only two such cases since thebeginning of Japan Capitalism in the Meiji era. Another case is the socalled
Inoue deflation of which we will speak later. The Seinan confiict resulted in

an inflation; price index (wholesale price) changed as in the following
table.

Table 1. Changes in the price index since 1877 (standard year==1873=100)

1873 IOO (Meiji 6)

1874 108
1875 113FUJITAMASAHIRO

54

108

1876
1877
1878
1879
1880

111 (Meiji 10) Seinan

Conflict

117 1904
128 1905
l46 1906
162 1907
156 1908
126 1909
110 1910
112 1911
I04 1912
108 1913
113 1914
118 1915
124 1916
115 1917
112 1918
126 1919
133 1920
143 1921
153 1922
170 1923
180 1924
181 1925
194 1926
185 l927
l87 1928
199 1929

1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903

In theSeinan conflict inflation,.
withcomparlsonthat of Meiji 6. of inconvertiblepaper-notes
quotatlon\1.03 inMeij'i 10 (1877), and in M 'quotatlonof one

koku was \5.55 in

Out-break

209
224
231
249
240
229
232

1936

240

1937

1930
1931
1932
1933
1934
1935

255 (Taisho 1)

1938

253
243
246
298
375
491

1939

1940
1941
1942
1943

1944

1949

1380
6411
18972
50403
82253

1950

134957

1951

137650

601

1945

661

1946

511
499

1948

1947

508
526
514
456 (Showa 1)
433
436
424

349
295
327
375
382
392
408
496
522
578
647
693
753
806
914

13965
1953
14326
14336
1954
1955Jan. 13475
1952

price index showed 62% rise inwholesale
Meiji(1881);
14(1873)-and the averagesilver coinfor1 (money)
yen

showedeiji 14(1881)
became \1,69; and the rice
" 10but(1877),MeiJi
in MeiJi" 14 (1881)rose to \11.20. 0nthequotatlon'of thisinaccount
flation,theprice levelrose about
50%

in four years, weanother inthat affected
find, fluence

price level

attributted to theof due to unfavourabie
flowingout
gold

positionof ourtrade. The Amount of government specie hoarding was dec-

was'and uneasmess' atmospherereasmgbegan to spread. It, above all, resulted intheTWO DEFLATIONS IN THE SHOWA ERA 55
an excess of import since Meiji 10.vl4. In those days, the amount of thespecie lost rose to \38 million. The stages of transition are as folloues:-.Meiji 9 (I876) (a) circulated inconvertible paper-notes \I07 million(b) government holdingamountsof the specie 15 million(c) rate ofits reserve 14%
Meiji 13 (a) circulated inconvertible paper-notes \159 million(b) government holding amounts of the specie \ 7 million(c) rate ofits reserve 4%
As regards the government counter-measures adopted to stop these inflation influences, there were two chief opinions, the one of which was that ofFinance Minister dkuma's advocacy the other was that assumed by Matsukata
Okuma's successor. Let us examine these two policies, though we shall not beable to go into the details.

1. 0kuma policy:--The cause of this inflation was not the increased issue of inconvertible
paper-notes, but was due to the flowing out of the specie on account of un-

favourable trade. And then the unfavourabie trade was due to dullness of
production and inept retrenchment of the convertible paper-notes which mustcause currency deficit. From these points of view, his poliy was directed necessarily to adopt liberalization of selling Mexican Dollapt or Trade Dollar (y6gin)

an don the other hand, to promote the industry production, which, however,needed enormons funds. The Okuma policy resulted finally in a miserable
failure,2. Matsukata policy
As above-mentioned, Okuma was forced to relegate the work of amending
the defects of his policy to his successor in position and authority. The New

Finance Minister promoted the new policy, which he planned and executedin Meiji 14. The Contents were as follows:(a) To effect surplus and sound government fisca} balance by increasing

the annual revenue by the increase of taxation and economizing annual expenditure.

( b ) Burning away of existing inconvertible paper-notes collected through (a).

56 MASAHIRO FUJITA(c) Accumulation of the specie (gold) by promoting exports. In consequence, he showed the standard fiscal government budget and selected Meiji
14 as a rnodel year.

Therefore, the expenditure of each government oMce after Meiji 15 wasleft unincreased for three years through various newly kinds of taxes andincreased taxes and realized the surplus on government financial budgetbalance of \ 40.1 million during Meiji 14•y18.

The inconvertible paper-notes that were directly burned away in five
years (Meiji 14"v18) amounted to \3.65 million, and the transferred amountto special government reserve fund was \26.46 million, and the total amounted to \40.1 million. The reserved inconvertible paper-note issue system has

been retained by Finance Ministry in order to make good a temporary
shortage of fiscal balance, which was a very unsound system. Therefore, inJan. Meiji 15, this was reformed together with the procedure and order of
dealing with receipts and disbursement of the national treasury fund. It is tobe noted that, in spite of this temporary measure that attempted to decreasean temporary shortage of the fund, the deficit could not be solved by such a
make-shift measure. At the time of his taking oMce as Finance Minister, Oct.

Meiji 14, the uncollected amount of public loan bond had showed \14.5
million, but most of it had been redeemed by Jan. Meiji 16. Besides, by
issuing unregistered public loan bonds (it was exchanged for gold note or

Daj6-kan note) in Meiji 16, attempts were made to retrench the vicious
inflation. By Meiji 19, the inconvertible paper-notes were collected to theamount of \7.92 million. Especially, Matsukata's powerfu1 policy was theretrenchment of paper-notes and the proportion of export. The latter included

the following measures new estabiishment of a central bank (Bank ofJapanestablished Meiji 15), encouragement of export was concentrated in the exportof rice, silk, green tea; and consular service was established at all important

places over the world, and promoting the issue of documentary bill system inexport, furnished the foregn exchange fund to the Yokohama Specie Bank etc•
As Matsukata reformed the reserve fund system, he directed the converting to

specie (instead of buying public loan bond and carrying on advance and loanfund), and the rate of the specie and total reserve fund showed \8.6 million

TWO DEFLATIONS IN THE SHOWA ERA 57
and \5.5 million in Meiji I4, but \42 miliion and \48 million in Meiji 8.
Thus, Matsukata defiation poiicy actualized his public promise, and thevicious inflation in those days was cured in five years. The Matsukata policy

was most pure and diligent practice of the orthodox and classical monetary
Theroy, and in a sense it might be said the Meiji edition of "Dodge line".

With the development of Japan Capitalism, national funds grewto enormous amounts day by day and the scale of our economy extended and its
national expression was the formation of the Japan Imperialism.

Japan-China and Japan-Russia and JapanGermany War (World War I)
were the process of development of Japan Imperialism. Inflation has a prosperous character, on the contrary, deflation has panic character. And, bothinflation and deflation are apt to appear alternately which brings effects as we
mentioned before. Inflation is caused issentially by war, deflation in its train.

Though we picked up the seven deflation or deflation policies since the Meiji
Revolution, these do not cover alt instances that happened in Japan. To takesome up, the panic in Meiji 23 (1890) and the financial panic closing banks
all over the Kyushu district in Meiji 33•-v34 (1900-1901), another in the early

period of Showa (Showa 2: 1927), a great panic defiation or panic in Taisho
12 (1923) at the time of the Kanto district great earthquake disaster. Now
turning to the Katsura deflation policy, it was adopted after the panic follow-

ing the Japan-Russia War. It included measures as follows:-(i) Retrenchment of the expansive government budget.
(ii) Adoptation of drastically contracted government budget andmonetary policy after Meiji 42 fiscal year.
(iii) To cut the national expenditures and put off the expenditures on
public business entity to the utmost.

(iv) To forbid new issu of public loan bond.

(v) The redeeming program of public loan bond more than \50
million per year.
The effect of these policies brought about the depreciation of prices asshown in table 1 and the trade balance from an excess of import in Meiji 41
changed to exess of export.
In point of rate of interest, the othcial rate of the Bank of Japan declined

58 MASAHIRO FUJITA
successively since May Meiji 42, and the discount rate of commercial bill was
fixed at 1.3 sen, and private or city rate of interest similarly fell: Tokyo

discount rate declined from 1.8 sen in Meiji 41 to O.95 sen in Meiji 42.

Subsequently, our history was involved in World War I and then followed
the abandonment of the gold standaed and return to the gold standard andlifting of the gold embargo, so on.

Lately we have experienced the so-called Dodge stabilization policy. It
was a typical deflation policy, which is characterized as follows :-( 1 ) The Dodge policy was not simple alternate depression and prosperity, but cyclical deflation.

(2) This deflation rose from a powerfu1 stabilization policy in order tostop quickly the inflation produced by the war and during the war.
(3) This deflation has been caused by the devaluation of pound sterlingin Sept. 1949 and by the recession of American Economy.
(4) This deflation was the expression of continuing depression, and wasdue to the structural change of economic life. In fact his deflation policy

adopted in 1948-49 was a complex policy that combined the cyclical andstabilizational, mechanical and structural characters.

II
There are various definitions of" deflation " : (1) it is simple reverse concept
to inflation or anti-inflation (2) Stock finance or stock circulation (3) the processoÅí re-estimation of goods and labour. (4) changing of price of gold pricestandard bring about the fall of nominal prices. (5) Deflation is economic
situation under the policy which intends to draw up the rate of foreign ex-change and to draw down the price level, The pulling down of actual valueof gold is attempted by connecting the difference of values between gold andpaper-money. It's remarkable point is that deflation is the circumstances thatdeflation policy can be actually carried on. Again, deflation is one economic

phenomenon through which currency and credit are contracted and priceIevel lowered in which too excessive contracting of currency does not provide

enough social demand quantity of currency. Then, deflation policy contains
adoptation of drawing up the rate of interest, oPen market oPeration (sclling

TWO DEFLATIONS IN THE SHOVVA ERA 59
operation), and an exessive withdrawal of financial fund by the increase of
taxation. Simply speaking, deflation policy is a control of currency quantity.

Furthermore, deflation is price-lowering under the expensive reproduction.
Here the various types of deflation must be made clear, several theories are

as follows:-(1) Cyclical deflation; this direction to depression is one step ofbusiness cycle which is realized automatically.

(2) Continuous deflation; with the development of capitalism, deflation becomes its structural contradiction.
( 3 ) Restorative deflation ; the includes deflation policy and stabilization

policy. The former is contraction policy which intends that the domestic
prices fall down to old level and the rate of foreign exchange goes up to
old level, the latter is devaluation policy. The lifting of embergo on gold
(1930) is one of restorative deflation policy.

(4) Mechanical deflation; the world gold standard caused international deflation, this belongs to mechanical deflation.

(5) Structural deflation; owing to the change in the structure of
economic life, its automatic adjustmental operation is lost, and under the" laissez-faire " operation results in essential continuous depression.

III
As we have studied various characters and counter-parts of deflation, we

intend now to analize the two deflations in the Showa Era. The two deflations include the Inoue deflation or the First World War deflation and the
deflation since 1953 or the Second World War defiation.

First of all, let us examine the former deflation, In the fall Autumn of1929, the stock exchange market of New York registered a severe fall thatmarked the moment of world deflation, Since then, the phenomenon continued

to develop up to 1932 and 1933, until it led up to Great Depression. The
World deflation influence was expressed generally on the price Ievel. This
price-change was remarkable in export country of agricultual products i. e.

the U. S, A., Canada, New-Zealand, Argentia, etc. The decrease of production in all the world showed 60% and capital goods production was larger

60 MASAHIRO FUJITA
than that of consumer goods. So unemployment increased and the wages offactory workers was forced down. In I932, unemployment all over the world

was 25 million --v 30 million. •Table 2. Wholesale price (1929= 100) Leage of Nations

1930 1931 1932 1933 1934 1935

U. S. A. 90,7 76.6 68.0 69.3 78.7 83.5
Canada 90.6 75.4 69.8 70.2 74.9 75.4

United Kingdom 84,O 70.2 67,7 .68,2 71.0 74.1

Germany 90.8 80.8 70.3 68.0 7L7 74.2
Anstria 90.0 83.9 86.2 83.1 84.6 84.4
France 88.4 80.0 68.2 63,3 60.6 54.0
Italy 89.3 78.! 73.0 66.5 65.0 71.5
Japan 82.4 69.6 73.3 81.6 80.8 84.4
The income or earning of capitalist (class) extremely decreased. In 1932,
no profits were made in average, and they suffered great deal of loss; in 1933

the income was 116 to 1929, in 1934 was 114.
In other words, the rate of profit declined.

Table 3. The world production (1929=100)

1932 1933 1934
all over the world (except U. S, S. R.) 63 71 77
all over the Europe (except U. S. S. R.) 70 76 84

Nerth America 54 64 67
Source: League of Nations

Table 4. Production of Invested good and consumer goo(is (1925-29==100)

1930 IIII 1929 IIII l931 IIII 1932I
64
41 35
87
86 83
85
77 78
95 93
89
56 46

{E 94
99
{L 107
101

U. S. A.
U. I<,

Germany{L l8Z .5? g2 s6

Sweden {E 118

103

99
102

94 87
105 IIO

Source: League of Nations

Increase of unemployment during world depression.

TWO DEFLATIONS IN THE SHOWA ERA 61
Table 5. Errtployment Index in the World (1929==100)

1932 1933 1934
all ever the World (except V. S. S. R.) 70 73 81

all over the Europe( 11 ) 79 80 85

N, America 62 66 65

As a whole, 1929-32 employment reduced about 30%, but N. America

employment reduced 38%. Total unemptoyment collected by League of
Nations in 1932, 20 mi11ion •v 25 million, at the end of 1932, 25 millionN30
million.

Table 6. The number of unemployment (unit:1000)

1929 1932 1933 1934

V. S. A. 8% 23% 26% 21%

Canflda 12 77 80 89

U. I<. 1004 3233 2310 1908

Germany 24/84 6034 5599 2779

France 9 347 357 839
Japan 369 474 4pt 381

rtaly 293 1053 1082 1057

only U. S. A. picked up percentage for total employment. Next, nominalor real wage changed viciously.

[lletble 7. Nominal Wage (1929=100)

1932 1933 1934

U. S. A. 84 83 99
Canada
94
90
89
U.
I<.
96
95
96
Germany
79104
79France
10482
104

Italy
8685
8486
8288
Japan

In real wage, general speaking shown propensity to increase.

Table 8. Real Wage (1929=100)l932 1933 1934

U. S. A. 108 111 l24

Canada 115 115 112
U. I<. IIO l12 lll

62 MASAHIRO FUJITA
Germany 1oa 104 101
France 110 111 112

Italy
104
Japan
1tz106107109107

On the contrary, the loss of the profit of capitalist is high degree, andthen diminishing rate of profit is clear.

In the case of the U. S. A.

1929 1930 1931 1932 1933 1934
100.0 59.3 25.0 net-loss 15.9 26.1
In the case of U. K.

1929 1930 1931 1932 1933 1934

100 99 77 63 63 74

According to great deflation, the quantity of the world Trade situation
quitely reduced and the world trade structure changed.

Table 9. The changes of the world Trade (1929==100)

1932 1933 1934

the dollar value 39.1 35.2 33.9

the gold value 52,5 46.5 43.0
the guantity 74.5 75,5 78.5

Dollar value eounted trade amount that it was converted byAmerica Dollar
Thus vicious deflations are caused from the following factor.
a. The changes in the industrial structure
Development of rising capitalism countries i. e.

South and North America, Australia, New Zealand and South andSoutheast Asia, Far East Asia countries

b. The accumulation of contradiction(i) Agriculture revolution since 1910
(ii) Excess or over production in industry

Table 10, The World Stock Index (1925-29=100)

1925 1929 1930
Agriculture stock 89.7 120.9 139.0
Raw material stock 90,9 118.0 128.7

Total stock 90.2 119.6 134.6

TWO DEFLATIONS IN THE SHOWA ERA 63
c. International capital movements
Table 11. Changes of the gold reserve in each country(unit: million dollar)

1931 1931
1932 1933
1925 1927 1928(June)
1929
1930
(Dec.)U. S. A. (A) 3985 3977 3746 3900 4225 4593 4051 4182 4189

U.K(B) 704 742 746 711 722 800 590 587 933

France (C) 800 799 1247 1631 2099 2211 2683 3257 3015

Germany 303 460 666 560 544 354 251 209 109
Canada 226 229 191 151 194 157 144 137 127

Japan 579 542 541 542 4rz 424 234 212 212

Total (D) 9054 9384 9919 10249 10800 11128 11061 11637 11615
ii[al]DI O;lier the WOrld)s4.2 42.4 37.s 3s.o 41.o 4L4 36.s 36.1 36.1

BID% 9.6 7.9 7.5 6.9 6.7 7.2 5.4 5.1 8.0

CID% 10.9 8.4 12.5 15.9 19,4 20.0 24.4 28.1 26.0
During 1929-1930, the defiation was a link of a chain of world panic.
The diagnosis of Finance Minister Junnosuke Inoue of the economic conditions

at that time was as follows:-(1) In those days Japanese economy was under the gold embergo.
(2) So, no autonomous adjustment operation of her economy occured.

(3) Though there were continuous of imports on account of undue
consumption prosperity, domestic deflation could not be produced by theflowing out of gold. Therefore, the people were enjoying life more thanthey really deserved. But they became regard that kind of life as just andordinary, and the national economy faced serious crisis.

(4) It was due to the accumulation of the foreign currency in theWorld War days that despite flowing out of gold, our people were able tokeep up excess import.
As far as the flowing out of gold was not restricted and our people did
not stop wasting this valuable foreign currency for luxury, our hoarding of

foreign currency was clear to be exhausted. An excess-disbursement in thebalance of international payments is sure to bring about the fall of yen inforeign exchange. From this analysis he established the new policy, which

may be summarised :(1) To encourage the cutting down of consumption of the people.
(2) To propose the contraction policy in Finance.

64 MASAHIRO FUJITA(3) Lifting of gold embergo.
(4) To reduce prices, and increase the export, to recover the international value of yen. All these measures were accomplised at the same time.

IV
However, the Inoue policy could not perfectly attain its aim because of

the world depression. Owing to the decrease of the annual government
revenue, government could not balance its over-disbursement in 1930. In our
trade condition, there was no element of changing into excess export and it
was still excess import. After all, in Sept. 1931, as soon as Great Britain

placed embergo on gold, the diMculties to maintain the gold standard ofJapan were aggravated more and more, and eventually in Dec. 1931 Japanwas obliged to place embergo on gold standard again. The characteristicfeatures of Inoue deflation or World War I deflation are as follows :-(l) Over-production in agriculture and industry.

(2) Contradictions due to the great change in the wortd market
composition.
(3) Extremely lessened holding of the gold.
In contrast. the 2nd World War deflation has the following features.

(1) The structural change in the world economy(i) The formation (institution) of Soviet Sphere,(ii) The emphasis of American control power,(2) The Marshall plan,(i) The rapid recovery in 1947,(ii) The diminishing in coal products of Great Britain and WestGermany (under expectation),(iii) Terrible poor harvest in 1947,(iv) Owing to the intensifying tension between the East (Europe)and the West Europe, it arose diMculties in regard to (concerning)

the exchange of various goods.

(v) West-Germany's productivity was still low and showed that theindustrial production level corresponded only to that of 40-45%

1937-38,

TWO DEFLATIONS IN THE SHOWA ERA 65(vi) The change of the U. K. position in the world economy,(vii) The absolute superiority of the U. S. A.,(viii) World-wide dollar shortage; etc.

Let us now observe the recent deflation aspects in banking business.
Present deflation stands upon two factors; firstly, it is the contraction of

government finance; secondly, the restriction of money circulation. The
former measure is to curtail the public financial investment and loan by\58000 million. But in local finance it is far from being curtailed, but
increasing. The influence of the present inflation is not general but limitted
to those that rely on other people's capital, especially the enterprises that rely

highly upon borrowing funds from banks,- i, e. the wholesale dealers, trading

companies, small and medium enterprises. In the Inoue deflation, becauseof keen depression the demand of industrial fund was small, except in theremarkable dollar buying period in the later half of 1931 and generally themoney circulation was moderate. As aforementioned, the Inoue policy placed
weight on the following points :--(l) Curtaiting of the expenditure of the public finance.

(2) Not to issue new public loan bonds.
(3) The adjustment of the outstanding public loan bonds,( 4 ) Reduction of worker's wages in private enterprises,

Owing to the strict Inoue policy and the world-wide over-production ofagriculture and Great Depression, deflation sufferings permeated among allclasses of people, The Inoue defiation faced both agriculture depression andfinancial depression or panic. Because of the latter, the consolidation of banks

has been much pushed forward.
Table 12. The change in the number of banks.

Special bank ordinary bank Savings bank Total

1913 52 1457 648 2157
1914 52 1445 658 2155
1915 52 1442 657 2151
1916 52 1427 664 2143
1917 52 1398 664 2114
1918 52 1378 661 2091
1919 52 1344 657 2053

MASAHIRO FUJITA

66

1920 52
1921 48
1922 35
1923 33l924 33
1925 33
1926 33

1326
1331
1799
1701
1629
1537
1420
1283
1031
881
782
683
538
516
484
466
424
377
346
316
286
186
148
101

•1927 311928 311929 30
1930 25
1931 25
1932 25
1933 231934 21
1935 21
1936 201937 101938 91939 91940 91941 91942 9!943 91944 4The Inoue deflation

636
146
139
136
133

124
113
100
95

90
88
87

85
79

79
74
72
71
71

71

69
69

40

85

24

affectedbank
managementbanks was grave, but on big city banks its influencedeflation, its influence isTable 13.

2039
2015
1980
l873
l798
1703
1577
1427
1162
1006
897
796
650
624
584
566
518
459
426
398
366
264
226
150
113

661

and its

influence on local

weak. But in the present

ultimately reverse.
The ratio of the borrowing fund to the deposit(unit=:million)
Local bank

Big five banks

deposit(A)borrowing(B)Dec.1930

3178

21Dec.1931

3169

-

:%

borrowing(B')

O.66

5550

704

12.68

H

5099

740

l4.51

Big1!banks

Sept.1943

(A)

(B)

1412604

268496B,

deposit(At)Localbanks
BA

19.01

(At)

(B,)

813554

29116

Bt

At

3.59

TWODEFLATIONS IN THE SHOWA ERA
Dec.1943

1521861

Mar.1944

1530821

June1944

1496018

July1944

1497131261653 17. 19 893763
329859 21. 55 881385
808654 20. 63 890241
303195 20. 25 891552

67

14095

1,58

26011

2. 95

l9007

2. 14

20621

2. 31

Table 14, Big 5
Mitsubishi

Mitsui

Loan

DepositDec.1929
Jan.I930

Feb.11
Mar.11
Apr.llL

D

Sumitomo

DaiichiD

D

L

Yasuda

L

L

D

Total

DL

576.0 638.0 582.6 284.6 501.7 378,2 453.6 334.8 374.4 364.7 2490.0i1990.3
12492.G1773.9

594.0 413.8 590.3 290.9 498.9 360.0 450.9 337.2 358.3 372.0
579.5 414.6 583.8 288.7 502.1 351,8 444.8 326.7 346.6 370.3
569.8 419,8 581.6 281.4 495,4 355.5 443.2 329.3 343.7 370.0

1756.0562.1 415,8 576.3 286.6 498.6 365.4 442.8 338.7 343.4 375.4

1781.9

Table 15. Increase
allordinary

bankof deposit Big 5

Big5

percentageof Big5 to

1926

9031

2232

24.7

1927

2817
3219

31.6

1928

8906
9215

l929

9213

3209

34•7

Table 16.

Net profit

Big5
1926

34.0

-24,522.221.3

ordinarybanks
392

1927I

230

1928II

305

1929I

330

Table 17.

The ratio of profit ln banks and enberprises
allindustrialenterprises(companies)

1919
1920
1921
1922
1923
1924
1925
1926
1927
1926

-%

20,9
15,7
18,6
19.0
17.0
15,2
12,1
12,2
l2,5

allbanks
25.0
24.4
21.8
20.5
20.1
19.8
17.8
19.7
11.8
16.7

all

MASAHrRO FUJITA

68

The eoncentration of the funds

Table 18.
ordinaryal

Deposit(amout)Deposit

total

(A)

ratio

to(A)

ratio

D

to(A)

1927

9025

1928

9310

1929

9292

1703

18.3

1930

8658

100

3187

36.9

1640

18.9

1931

8269

100

3169 38.3

1564

18.9

1932

8319

100

3368 40.4

1467

17.6

\million

100

9174

ordinary

all

to(A)

ratio

D

to(A)

1424

15.6

30.8

1435

15.9

4216

tfo.7

4809

53,3

32.9

1637

17.6

4704

50.5

4605

49.5

33.9

4853

52.2
4828 45.84733 57.2
4831 58.04438 47.8
3829 44,2
3535

42,8

4488 42.0

other ordinary

banks

1933

8729

100

4728

54.2

3999

45.8

1934

9353

100

5080

54.3

4273

45.7

cf. Big 5:

D

23.7

Big 6

banks

banks
ratio

9i
% \Million% \million
5771 60.73602 39.3% \million% \million
2178
2780
100
3066
100
3150
100

1926

other ordinary

Total

neo-big Seven

big five

banks

banks

in Iarge

Mitsui, Mitsubishi, Daiichi, Yasuda, Sumitomo.

neo-Big
Big 6:

7 : I<awasaki, Dai-Hyaku, Yamaguchi, 34, K6n6ike, Aichi, Nagoya, Meiji,
Mitsui, Mitsubishi, Daiichi, Yasuda, Sumitomo, Sanwa.

As for deposit,

deflationary influence made decrease and draw down business-

deposit, saving

deposit increased.

Table

19. The process of bank deposit in all over the conntry(*=decrease)
Juridical

long termderatiotomoney former.POsltamount term

short termde
.POSItm.a.

Mar,1952 719443 Z33220 249650
SePt.11blankdeindivid ual

personr.f.

long term
deshort term
dlepo$it

r.f,

m.a.

.POslt

rn.a.

r.f.

money Ratiotoammo formerunt

31818 305913 41504 60788

44943 340063

time.POslt

term

-

31497 283249*22664 177904 117116

864145 144702 311575 61925 371560

Mar.1953 998810 134665 371737

60162 416017

Sept,1953 1013571

14761 419610

47873 452414 36397 380722 55222 245942 24681

Mar.1954 1060993

47422 474u33

54523 472335

Forbanks, saving-deposit isaccount of dissolving of over-loan.

44457 325500 42251 221261

43357

19921 480841 100119 226809*19133

the most 1rnportant.

.
resource on
earmngTWO DEFLATIONS IN THE SHOWA ERA
Table 20. (A) Deposit banks (unit=ten

69

thousand yen)branchper

Totelcapital(fund)L

onebank

peronebank

Depositamountperbank

1893

O.3

6.4

7.0

1901

O.9

19.4

24.1
65.2

advanceper

onebank

H

1909

1.0

27.0

1914

1.3

36.1

95.4

1919

1.9

78.1

428.6

1927

4.0

180

700.0

1932

!8.0

350

1500

1170

1937

9.6

430

3300

2060

1940

12.8

520

8520

4980

-

76980

44530

1944

(B)

various financial

ordinary

specialbank depositbank D

institution

hi

-

640

depositsavmg
bank D

industrial

guild D

POsta.
savlngsmoney

trust co., D

1916

2256

888

687

1921

6444
9178
8658
9873
24389
102349

2024

1945

1550

1067

43
285
781

1156

423

835
992

Z540

1102

2347

1178

2044

1377

3107

1729

2347

4452

2208

7387

2603

10047

7432

25787

39932

5298

1926

1930
1935

1940
1945

(c)

Over-loan

self-capitalanddepositbond(A)Mar.1950

June11

Sept.11

Dec,1iMar.1951

June11
SePt.11

Dec.1iMar.1952

Juneii
Sept.tl

Dce.11

Mar.1953
In the Inoue
installed during

298
906

(unit=one hundred million)

advanceandloanadvanceforforeignexchange(B)
748
795
883

780
817
882
1003
1107
1200
1329
1490
1616
1766
1892
2151
2258

1023
!192
1363
1492
1615
l699
1817
1994
2205
2356

deflation days, themodern industrial

World War I was

kept fully

B/A
96
97
100
102
108
113
112
108
105
103
103
103
104

equipment thatwas

. m style compared
new

with

70 MASAHIRO FUJITA
European countries that suffered from severe disaster. On account of the
post-war depression that disturbed the productive equipment, then using of it

was ethcient enough to meet the overseas and domestic demand that had
decreased anyway. Consequently, the demand for industrial fund was at alow level, as people owned the capital their own.

On the other hand, after World War II we were at a loss with severe
inflation and most part of our capital accumulation for long years was lostaway at a stroke. In the reconstruction of our post-war economy, our industry

had been forced to rely for its recovering fund on commercial bank advance(borrowing), because our source of long term fund or credit had been dried
up on account of the innovation of the financial system, by the occupation
allied powers. On account of the outburst of inflation business-deposit increa-

sed, but the demand for industrial fund was as much immense and high, so

the demand and supply was unbalanced and was not smooth. Still, the low
rate of interest policy allowed many enterprises to overborrow, for the advancefrom banks was more favourable to the enterprise than to increase the capitalor issue debentures. As a result, the financial capitalists i. e. big banks emphasized their controling over the industrial capitalists. Thus in Japan, powerfu1

banks had come to grasp even the personal administration of the industry.
Table 21. Propensity to advance to excess all over the country(unit=one million)
advance+loan+discountbill+importbillIoan(A)1929(Dec.)
1930(Dec.)
1931(Dec.)
1952(Dec.)

1953Mar.
June
Sept.

Dec.

1954Mar.
June

secnrities(B)

B!A(%)

11999

4901

40.85

11654

4798

41.17

11591

4694

40.50

21280222261377
2370260
251851826712862696026271097623605425540427826729919332828435092737337711.09

selection ofenterpnses which

In the exercise of the deflation policy, the

11.29
11.74
11.88
12.29
13.02
l3.77

Table 23
businessoMce
Year

head

oMce

capitalbranchand oficial
agencyActual condition of ordinary banks(fund)Ireser-(unit == one

advancelloan alldborrowIadvaning[Ives

paidup.,secum-

545

165

34

30

2

33

1897

1223

651

224

147

13

207

1901

1890

1457

367

251

38

450

67

356

278

l906

1670

1476

359

256

68

1033

72

443

668

1911

1615

1784

457

327

III

1256

77

598

794

1916

l427

2163

525

374

134

22i)6

173 [1711

520

1917

1398

2221

659

436

142

3233

209 i2216

762

1918

1378

2374

778

513

161

4639

287

2944

1202

1919

1344

2563

I076

173

57•14

519

3949

1717

1920

1326

2796

1603

963

267

5826

589

4558 l1344

1921

l331

3159

1703

I044

1922

1799

5162

2366

1450

339 6444
j7801

1923

1701

5275

2444

1491

1924

1629

5324

2437

1507

1925

1537

5357

2046

1500

1926

1420

5333

2380 1496

1927

1283

1928

1031

1929

881

1930

-

49

lh

64

241

-

'

L

I

640 !4871

809t

cash

net

netloss

profit

divi-

dend

iloan

1893

493i

ties

diseountcall-bblll

Icet

million)g6323l•'

l370
1524

- - - 108
- 175
- 270
- 421
- 561
- 835
H 847
- 1085- l499- 1746- 1706' 1880

543

7805

937

6509

1549

585

8093

976

6651

1638

627

8726

1042

7269

l572

--.-

2051

H
e

2

1

22

H
'

11

77

38

3

18

76

55

5

19

166

70

3

24

296

44

-

26

492

61

1

32

672

76

-

38

773

127

754

203

p

82

784

169

1

92

968

214

22

127

967

l95

10

134

986

192

14

132

989

187

-

127

663

9178

1102 7075

1558

585

2158 1O09

189

52542522 2364

1481

629

9027

946

6797

1176

206

2591

1068

50742267 2181

1379

592

9330

1037

6564

981

164

3283

49562063 2170

1381

603

9292

885

6420

825

165

782

48021953 2033

1296

589

8738

820

6189

628

1931

683

4582I811

1951

1249

535

8269

817

6030

1932

538

43111522 1910

1217

530

8319

712

1933

516

40211436

l855

1186

515

8815

1934

484

38931253 1814

l162

540

1935

466

37081218

1134

586

1936

424

36541205 1703

1099

Jr97

1937

377

36211171 1627

1047

1938

346

36001151 1587

1939

318

3600ll30

1940

286

1941

186

l942

148

1943

101

19"

85

60

---.

13

128

167

94

105

1190

67

97

3323

1164

133

-

203

3127

982

563

154

2928

5618

663

319

665

5360

725

9438

576

5159

9950

555

illO07

il

95

147

15

83

829

73

21

71

2941

884

102

18

67

420

3325

977

105

14

63

775

369

3895

11ca

l14

9

63

5312

850

389 4243

1010

108

7

62

549

5688

1077

341

4814 1022

108

6

61

628

389

6533

1260

489

4655

1230

102

3

60

1018

664 l5191

342

7484

1363

442

6147

1477

111

l552

1000

701 19966

438 9530 1819

526

7811

2182

122

36581097 1513

979

- 24671- 29401- 35737- 43131l- i60962

232 '12284

1553

710 9644 2390

139

13539

1603

526 l2786-

1765-- -- -m" P h-- - h

Il12434

2975

16430 1226
399 16978 3175
r
21489
- 21502 964 '295 29899 2847
2786
- b33802 994 368

----

-

61
63

17

M

"
"

'
he
pt

p

'rwo DEFLATIONS IN THE SHOWA ERA 71'

are worthy to receive advances does not foltow any definite iine of system on
the part of the banks, but as a general rule, the export industry that is usefu1

to irnprove the balance of international payments and the important fundamental industry enjoy priority in the selection. Under the deflation since 1953.

the bank business administration has to emphasize the following aspects:( i ) To maintain the liquidity of bank funds resources.

(ii) Liquidation of over-loan or over-borrowing.
(iii) To economise general expenditures.
(iv) Rationalization of banking business or officiat work (adoptationof excellent working machine i. e,, accounting machine, etc.)(v) To cut down the cost of fund.
Table 22. (A) deposit cost in ordinary banks (%)
rateofexdenditure

thesateofde'
averageposlt

generalexpenditue

tax

1930

3,920

1,220

1931

sum

total

O.173

1,393

5,313

O.162

1,389

5,114

3,725

J,227

1952

3,188

3,516

O.372

3,888

7,076

1953

3,303

3,436

9,381

3,817

7,120

(B) propensity to return before the World War in tirne-deposit (all bank)depesit (A)time-deposit (B)B/A (%)

Dec.

1929

1, 444

6, 398

55. 91Il

1930

ll, 0356,217

56. 3411

1931

10, 595

6, 037

56. 98ll

1952

2223, 820

855, O12

38. 45Mar.

1953

2333, 328

9I8, 499

39. 36June

112296, 536

974,717

42. 44Sept.

1/2512, 260

1046, 274

41. 65Dec.

112707, 612

Zl81, 718

41. 69Mar.

!954

2715, Z12

ll81, 783

43. 53June.

112682, 898

1237, 865

46. 14

To sum up our analysis of the two deflations in the Showa era, we would
say that the deflation poticy is perfect not only in its financial and monetary
constraction policies, but also essential to points as the general economic policy.

72 MASAHIRO FUJITA
Recent defiation was considered unfavourable to the balance of international

payments (the amount is 3 hundred million dollar), and the reduction of" special demands " caused by the Korean hostilities, have dissolved as a resultof cease of fire, the annual income of which was 5-IO hundred million dollars.

And an excess-retrenchment (with drawal) in government pubtic financebrought about the decrease of export amount and diminished the generalpurchasing power. In contrast, the former deflation (1930) is characterized
as one link of the world panic, but the recent deflation is due to the recession

in the capitalistic sphere (world). We shall, however, find anew the difliculties accuring to deflation yet.
Principal Sources:
Department of Finance, Annual Return of Foreign Trade of Japan,

Economic Counsel Board, Japanese
Econonic Statistics. Economic Counsel Board, "Annnal Report (I<eizai-Hakusho). Ministryof International Trade and Industry, "Tsusho Hakusho ".

1867, Oct. 14 (Meiji) Resotration.
(I<eio 3)

1869, May 24 Tokyo Exchange Company (Katvase Cumi) founded.
(Meiji 2)

1871, May 10 New Money Regulation (ShinkaioUrei) proclaimed an adoption ofgold standard.
1872, Aug. 15 Both ll{titsui-gumi (Mitsui & Co.) and Oibo-guini application of es-

tablishment of new bank granted.

I872, Nov. 15 National Bank Act and National Bank Regulations proclaimedo
1873, July 20 The first (Daiichi) Nationai Bank started business.

1875, May 2 Postal savings started business.
I877, Feb. 15 Seinan Conflict out-brol<en,1878, May 27 An proclamation that make Trade dollar or Mexican dollar(Boeki-gin) the general currency deelared.

1878, June 1 Tokyo Securities Exchange started business.

I879, Dec 1 0saka Clearing House started business.
1880, Feb. 28 Yokohama Specie Bank started business•
1880, Nov. Finance Minister Masayoshi Matsukata began to adjust the issued
recklessly paper-notes (money). (adjustment poliey)

TWO DEFLATIONS IN THE SHOWA ERA 73
1882, Oct. 10

Bank of Japan started business.

1890, Aug. 25

Bank Act and Saving Bank Act momulgated,

1890,

Beginning of Parliamentarism.

1894-1895

Sino-Japanese War,

(Aug, 1)
1897, Oct, 1

An adoption of gold standard by performance of money act

1904-1904

Russo-Japanese War(Feb. 10)
1914, Apr,

The Kitahama Bank incidents (owing to Financial crisis brought(Taisho 3)

about bank run and bank failure,)

1917, July 28

World War I out•broken.

1917, Sept. 12

The Embargo on gold ordinance declared.

1917, Oct. 30

An urgency Imperial ordinallce of issuing of small banlc-iiote proelaimed.

1920, Mar,-Apr•

Foreign exchange rate towards U. S.3A, fell sudden]y $ 47

1921, Apr. 14

Saving Bank Act proclaimed,

1923, Sept. 1

Kanto Great Earthquake occurred.

4!923, Sept, 7Moratorium declared.

1924

Foreign exchange rate towards U. S. A, fell suddenly $42 level.

1926, Feb, 18

Finance ministry announced the stoppage of remitting the specie(Showa l)(owing to anxiety in the financial and business circles by obstructionof export and suddenly rise in foreign exchange by remitting thespecie).

19.9,7, Mar. 15

The Watanabe Bank suspended business. So, the financial circles
guaked, banks in many distrcts suspended business one after andanother as follows:- six saxingbanks stopped business.

Imabari Commercial Bank, Ch6ei Bank, Tokushima Bank, Akaji Bank,
Nakano Bank, Murai Banlc, S6da Bank, Nakazawa Banlc, 84th Banl<,
Hisayoshi Banlc (Saitama Prefecture), The 15th (Daijugo) Ban!c, Omi

Bank, the 65th (Dairokujugo) Bank, Bank run occurred one after
and another in Shil<oku district. Still, Bank of Taiwan (Formosa)faced severe crisis by Suzuki Co., (Sh6ten) incident.

1927, Mar. 30

Bank Act (ordinary bank) proclaimed.

1927, Apr. 17

The Privy Counci] gellera] assembly rejected the urgency Imperial

ordinance (bi!I or draft) of relief Bank of Taiwan (Wakatsuki
Cabinet resigned in a body)•

MASAHIRO FUJITA

74
1927, Apr. 22

The Imperial ordinance of putting off the financial liabilities on private

law and putting off the period of right preservation deed of bill etc,,

in other words, Moratoriumi proclaimedi
1929, May 12

Moratorium matured

May

AII closing banks re-opened business.

The Promotion of Bank anity and combination
1930, Jan, 11

The repeal of goldembergo.
Since Feb. 1930 banks in each districts re-suspended business.

1931, Sept• 18

Manchurian confiict out-broken.

1931, Dec. 13

The Finance Ministry Ordinance of the gold re-ernbergo declared.

1932, Feb• 28

3 U. S. A. showed $ 38
The Foreign Exchange Rate towards

1932, June 9l932,

July 1" tl 11 $31
8Prevent of Capital Flight Aet proclaimed•

1932, Aug. 19

The Foreign Evchange Rate towards U. S. A. showed $22

1933, Mar. 29

Foreign Exchange Control Act issued.

1932, Nov. 27

Bank of Japan began the open market operation.

1937, July 7

Sino-Japanese hostilities out-broken•

1937, Aug, 23

Privatebanks, ForeignExchange Agreernent towards U. I<. (England) among concluded. (it aims to maintain 1 shilling 2 pense level)

1937, Sept• 9Emergency Fund Adjustment Act issued.

l941,

Dec, 8

Pacific Ocean War out•broken,

l942,

Feb. 24

Bank of Japan Act proclaimed (issuing system of bank note
adopted the lmitted measures of maximum issuing amount). Thereafter (after 1942), the principle of one bank in one prefecture wasadopted as a promotive measure of unity and combination of banks,

1945, Aug. 15

VVorld War II ended.

1945, Sept, 20

G• H• Q• ordered the dissolution of financial control organization.

1945, Sept. 24

An Irnperial ordinance te make military note legal tender proclaimed.

1945, Dec. 31

An issuing amount of bank-note (Bank of Japan) showed \ 55, 400
million.

l946,

Jan. 1

Tokyo Banl< Association began Cleaning House function (From wartime till Dec. 31, 1945, Bank of Japan persued).

1946, Jan. 20

Government buying price changed; gold (lg) ii \17, silver (lkg) ==\310.--

TWo DEFLATIONS IN THE SHOWA ERA 7or
1946, Feb. 16

The Emergency Financial Measures Ordinance and the Bankof Japan's note Deposit Ordinance proclaimed,

1946, Feb. 17

The Emergency Property Investigation Ordinance proclaimed•(as the base of Tax for assets)

1946, Aug. 12

Economic Stabilization Board founded. (at the same time Price
Board started business too)Dec. 16

Tokyo Bank (fermer Yokohama Specie Bank) started business.

Dec. 31

An issuing amount of Bank of Japan's note showed \93,300 million.

1947, Jan. 7(money groups or plutocracy zaibatsu, disgolution ordinanceproclaimed.

Jan. 25

The Reconstruction Finance Bank started business.

Mar. 12The military exchange rate (converting rate) of 1 dollar to 50 Japanyen, announced.

Apr. 4July

17

Anti-Trust Act proclaimed,
Government buying price changed :-gold (lg)==\75, silver (lks) =\1300.
Aug. 14The Export and Import Revoling Fund estab]ished.

Sept• 25

Government buying price changed :gold (lg)== \ I50, silver (lkg)= \2700

1948,

Dec. 31

An issuing amount of Banlc of Japan's note showed tt219,100 million.

May 13

The adjustment of small Bank-note Act proclaimed.

1948, June 8June 30

The 60 million dollar Cotton Credit concluded.

Americars Revolving Fund towards Japan (150 million dollar)
concluded,

July 6

Military exchange rate of 1 dollar to \270-. announced,

Aug. 13Government buying price changed.

gold (lg)= \326, silver (11<g)== \6325.-

l949,

Dec. 18

The 9 Economic stabilization principle announced.

Dec. 31

An issuing amount of Bank of Japan's note showed \355,300 million,

Mar. 16

F. E. C. B. started business.

Apr. lThe `' Dodge Line ',' carried (into effect)

Apr. 23G. H. Q. established the foreign exchange rate of 1 dollar.
to 360 yen announced.

Apr. 30

The Relief Counter part Fund Accounting Act towards

MASAHIRO FUJITA

76

Japan proclaimed.
July

22

Sept• 15

Government buying price changed :-gold (lg)m\385, silver (lkg)=\7,288.The '`Shoup l' MIssion Recomraendation announced.

1949, Dec, 1Foreign Exchange Control Act proclaimed•

1950, Jan, 7

One thousand yen bank note issued.

Mar.

1

Government buying price changed
gold (lg)= \401,---, silver (lkg) ==-- \9,700,-

Dec. 15

Japan Export Bank Act proclaimed,

Dec• 31

An issuing amount of Japan's note showed \422,OOO million,

1951, Dec, 31

An issuing amount of Bank of Japan's note showed \506,400 million•

1952, Jan. 16

The Reconstruction Finance Bank dissolved.

Dec, 1

Japan Iong.terrn Credit Bank started business.

Dec, 31

An issuing arnount of Bank of Japan's note showed tt576,400 million,

1953, May 11

I. M. F. granted Japan's new gold parity (\1 :2.46853 gold mg)
at the same, Japan joined I. M. F.

Sept.

5

The High rate (oMcial rate) application system in Bank of Japanemphasized->monetary contraction po]icy as deflation policy.

1954, Mar. 22

The exchange rate towards U. I<. (Great Britain) showed,

1 pound= \le13
1954, Aug.
Sept.

1

24

Tokyo Bank started as the Special foreign exchange bank.

The Reparation Agreement towards Burma concluded
amount of Reparation $ 200 million
amount of Economic co-operation $ 50 million.

Aug.

Government buying price changed.

geld (!g) =- \ , silver (lkg) = \77

ESTIMATION OF THE EFFECTIVENESSOF DEVALUATION ON BALANCEOF PAYMENT DEFICIT
IN JAPAN
By HIKoJr KATANo
I. Introduction.
Il. Model-setting.
III, Estimation.
IV. Remaining problerns.
Statistieal appendix.

L
Theoretical study on the effectiveness of devaluation on the economy ofa country has been pursued for a long time. Some empilical investigation
carried out from the point of view of an actual effectiveness, was one of theobjects of the studies undertaken by IMF in recent years. IMF can notoverlook the experience of severe dollar shortage on the world wide scale
after World War II, and the devaluation by European countries in Septemberof 1949.

But does the problem only pertain to the past? No, not! The present
situation in our country has a possibility to repeat a similar experience,
perhaps a more severe one than that the European countries had experienced.
This is the conclusion we are bound to come if we survey the field to which
Japan is related directly or indirectly. Apart from the question when thatwill occur, we are duty bound to be concerned with the study of this problem.
For this reason, we in the first place attempt to examine the effectiveness ofdevaluation on the balance of payment deficit with an actual example.

II.
The question in this section is to study:

Suppose one country in the world, devaluates her exchange rate by

78 HIKOJ! KATANO

a certain percentage, and then how much effectiveness will that country
enjoy from the devaluation under the conditions in which the country andthe rest of the world are?
In such a case, the focus of this question is concentrated upon the relation

between the country and the rest of the world. And, moreover, this question
has a character of comparative static theory in the sense that it is concernedwith some simultaneous effects at certain time point. Therefore, we may
be allowed, in forming this theory, to disregard the labour and capital relations

and the inter-industrial relations, and the assumption may be permitted as
an first approximation to the theory. At any rate, this assumption shall be
indispensable in the later stage because of some limitations of statistical datathat will have to be used later.

To begin with, we construct a fundamental relations as follows :(1) Y-C+I-D(Definition of national income)(2) D-=M-E(Definition of balance of payment
deficit)(3) C--eY(Consumption function)(4) Y-yp(Definition)(5) l == iP(Definition)(6) M-mpm(Definition)(7) E-epe(Definition)(8) m==pay(Import function)(9) e==-e(given)(1O) P=ao+aiy+a2Pm+a3A(Home supply function)(11) Pe==be+biy+b2PM+b3B(Export supply function)(12) pm==rpm*(Definition),where the notations are
Y: Current value of national.mcome,

C: Current valueof consumption,

I: Current valueof investment,

D: Current value of balanceof payment

M: Current value of import,
E : Current value of export,

deficit,ESTIMATION OF THE EFFECTIVENESS OF DEVALUATION ON BALANCE 79
y : Real value of national income,i: Real value of investment,

m: Real value of import,
e: Real value of export,
P: Index of composite prices at home,
pm: Index of import prices at home,
Pe: Index of export prices at home,r: Index of parity,

e: Average propensity to consume,
p: Average propensity to import,
pm* : Autonomous part of Pm from devaluation,

A : Group composed of data determining P except y and Pm,
B: Group compdsed of data determining Pe except y and pm,
ao : Autonomous part of P,
bo : Autonomous part of pe,:; ab; aanndd ba:) constants.

In this model, if i, e, Pm, A, B, ao and bo are given, the system (1)-(ll)excluding (9) is complete for ten variables Y, C, l, D, M, E, y, m, P and Pe.

(12) shows a sub-relation of datum Pm.

In (1)-(12), we assume certain time point. We suppose it a basic time
point (or initial time point). Then we attempt to reconstruct the above-mentioned system at the basic time point. In the course of this reconstruction,
we introduce some changes in the comparative statics, show the initial valuesof variables and data with bar, neglect the higher-order items of the operator

of increment or decrement. And, at the same time, all indices are reconstructed at the basic time point as the base, which might be all free fromthe base in the above case. Then,(13) AY-=AC+AI-AD(14) AD-AM-AE(l5) AC-0AY(l6) AY-Ay+yAp(17) AI=Ai+iAP

80 HIKOJI I<ATANO(18) AM--Am+mApm(19) AE--:Ae+eApe(20) Am=-ptAy-ntenAPm+mefApfe(21) Ae=Ae*+eophApe-eopfApfm(22) AP-aiApt-ea2APm+a3AA(23) Ape--b,Ay-t-b2APm+b3AB(24) Apm==Ar+Apm*(25) Apfe=Apm(26) Apfm=Ape
are derived from (1)-(12), where the additional notations areeh : Price elastisity of demand for import at home,ef : Price elastisity of supply of import of the world,
opr: Price elastisity of demand for export of the world,nh : Price elastisity of supply of export at home,

pfm: Import price index of the world,pie: Export price index of the world.
Thus, in the system (13)-(26) excluding (24), if Ai. APM, AA and AB aregiven, the above system is complete for thirteen variables AY, AC, AI, AD,

AM, AE, Ay, Am, Ae, AP, APe, APfe and APfm. We use this system as a basicmodel for the analysis below.

In this basic model, we see a complete equation system composed ofa number of variables. However, this model is hard to deal with. Then, inorder to ease the treatment and, what is more important, to rise the core of

our question to the surface, let us construct a reduced form from the above
basic model.

The focus of our question is on the effect of a devaluation upon thebalance of payment deficit. Therefore, in the first place, the basic model isconverged on a variable AD which stands for the balance of payment deficit.

However, we have to notice that a balance of payment equilibrium may beachived corresponding to any national income levels. So that, we must con-sider the balance of payment problem with a particular level of national
income; if not so, problem is indeterminate. Thus, we have two variables AD(balance of payment deficit) and Ay (national income) as central variables.

ESTIMATION OF THE EFFECTIVENESS OF DEVALUATION ON BALANCE 81
And the basic model is induced to a reduced form regarding with AD and
AY' (27) --.{,tL-b,e(i+oph-'opr)}Ay+AD '=-: {m-(1-eh+ef)-b2g(1+7p,-opf)}Ar l-AB",where
AB* [=: - Ae" -l-- {M(1 - E,b H-• ef) - b2?( 1 --t- ?7f,, -- o7r)}APM*- b,P. ( 1 -1-- 77,, - 7?f)AB,and(28) {(1-0)--a,(i-(1-e)Y)}Ay+AD=-a2(i-(1-0)I)Ar+AA',
where
AA" -- Ai •- (i - (1 - 0)Y) (aoAPm"+a3AA).

(27) may be considcred as an explanatory equation for the balance of
payment deficit D, which is reduced from equation (14), by the intermediaryof (18)-(26) excluding (22), and may be easily expressed as a function of yand r: real national income level and exchange rate, (28) is generated from(13), by the intermediary of (15)-(17), (22) and (24), and represents a " multiplier equation ".

(27) and (28) are cooperated into a reduced form of the basic model.
Then we, in the last stage, investigate the efrect of devaluation on the balanceof payment deficit. In order to find the effect, we solve the simultaneous

equation (27) and (28) with regard to AD. Namely, in- {pa -bie(1 + 7p, - epf)}Ay -L- AD- {M( 1 - ei, + er) -b2e(1 + eph - opr)}Ar +AB*,{(1-e)-a,(i-(1-e)Y)}Ay+AD---a2(i-(1-e)y)Ar+AA*,-- {pa -bie(1+77h-nf)} 1'EO{(1-e)-a,(i-(1-e)j)} 1
therefore this simultaneous equation is soluble. Thus we have .

C({pa-big(1+opie-nr)}{a2(i-(1-0)y)}+{(1-e) >H(k(l:Sl-,{9.)i),,L{E,,gwaiillie25',(IXret:?71L}ZA,I,i..,,)

(29)

AD

{pa-bie(1+nh-opr) +{(1-e)-ai(i-(1-e)y)}Moreover, we suppose that there are no changes in the data A* and B* after
basic time

And we have, instead of (29),.
polnt.
({.,pa{?,bteS:.",ib(}!2),}iae2S-)}({i"Mi(92Ye)2+•e,)-b2e(i+opib-nr)}].A,

(30)

AD-=

{pa-bie(1+oph-nr)}+{(1-e)-ai(i-(1-e)y)}82 HIKOJI KATANO(30) shows a compound multiplier through which the balance of payment

deficit is changed by any change of parity (or exchange rate). This multiplieris a function of elasticities, propencities and the other structural parameters,

and each initial value of import, export, saving and investment. To read thismultiplier, it is diMcult due to some complexities of the structure. However,

we can understand that the balance of payment deficit is changed by thechange of parity (exchange rate) through the composite operator which isa weighted average of an excess-investment and an excess-import by somesuitable coeMcients.

IIL
In section III, we will estimate the effectiveness of devaluation on thebalance of payment deficit within a period of actual case in Japan.

An actual example taken up is Japanese situation of 1953 (the calendar

year). We estimate how much effectiveness should reseive the Japanese
economy, under the conditions in which Japanese economy had been piaced
at the time, when Japan carried out to devaluate her exchange rate, within
the limited statistical data.

Of the data, we used the statistics of the Economic Council Board ofJapanese Government, a part of which we modified. Moreover, of the National
Income Statistics which are of central importance, we have only four terms
per year. Therefore, we cannot analyze the time series suMciently, and are
obliged to have a specialized model (as stated in section II) due to the limited

econometric treatment. For example, of the consumption function and theimport function, we are quite unable to estimate these functions from sometime series, or from some cross section data. Therefore these functions aretreated as some proportional relations (for example, between consumption andnational income). Similarly, all initial values in the above-mentioned model

are all average values for 1953. Thus the effect estimated is the one ofa devaluation on the balance of payment deficit under the average conditionof 1953.

To begin with, we calculate each percentages of all variables for the
initial va!ue of national income, (Table 1).

ESTIMATION OF THE EFFECTIVENESS OF DEVALUATION ON BALANCE 83
Table 1(bil. \) (%)

National income 6, 142,3 100.0 Y,yConsumption 4, 460.1 72.6 C,

Saving 1,682.2 27.4 S,
Import 844.5 l3.8 M, fiz
Export 771.3 12.6 E, -e

Investment 1,755.4 28.6 I, t-

Balance of Payment deficit 73.2 1,2 D,
Percentages shown in Table 1 are used to make easy some calculation. The
other structural parameters are estimated as follows;

Table 2e= O. 726 pt= O. 138
Sh= 2. 500 oph= O. OOO

al=O. oo2 a2=-O. 250
bl=1. 846 b2= O. OOO
Two price elastisities of demand for export and supply of import of the world
are impossible to be estimated in fact, so that we suppose(31) sf=op,(32) opr==Sh

Using the above-mentioned figures and assumption, (30) is shown as
fo11ows,(33) AD=--O.076Ar.
This means that a relative decrement O.076 of the balance of payment deficit

is caused by a unit devaluation: for example, US dollar value's increase
represented by yen. To exnlain with numerical example, this means that :Suppose a oMcial rate of yen for US dollar \360.00==US $1.00. Then we
suppose that the Japanese Government devaluates the yen value to makea parity index up to 2 from 1 at initial time point. And, due to the devaluation, the balance of payment deficit is reduced by 7.6% for the initial valueof national income. Well, the Japanese economy had the balance of payment
deficit 1.2% for the national income of 1953. Then, if the Japanese Govern-

ment make her mind to devaluate her exchange rate in order to varnish thebalance of payment deficit, she has to devaluate it by O.158 (= }i3) nnits;

namely US $1.00 =\416.88 for US $1,OO=\360.00.

84 HIKOJI KATANO
IV,
Present investigation is based mainly on Tinbergen-Stuvel's econometricmodel.* This attaches more importance to a measurement than to a theoreticalconciseness:' this is not as well concise as Robinson-Metzler's theories** are,but this has a measurability which is not in the Robinson-Metzler's theories.
Moreover, our model is not a ratio-analysis, but an analysis in activity levels

is not an explanator of a true mechanism of economy in a sense that fora number of ecomic activity levels there may be the same ratio as one ofthem has.
* J. Tinbergen, On the theory of economic policy, 1953,
G. Stuvel, The exchange stability problern, 1951.
** J. Robinson, The foreign exchange, "Essays in the theory of employment ", Part III, 1947.
L. A. Metzler, The theory of inteenational trade, " A survey of contemporary economics ",(ed. by H. S. Ellis), 1948.

However, our model has two I<notty points as below. The first is:-- The
above-mentioned effectiveness of devaluation on the balance of payment deficit

is merely the immediate one, and does not show the process to make the effectto saturate into the mechanism of economy in the propagation process after

the impulse. Even if the economy wants to devaluate her exchange rate forvanishing the balance of payment deficit, it is not wise policy to carry out

the devaluation until the whole effect including the propagation effects isplain for an authority of the economy. Otherwise, the country may be weak-ened in her international economic power. Then we have to construct themodel which can measure the whole effect: this model is in preparation in
our Research Institute, and will be published before long.

The second is: In our present model, the fbreign conditions are allconsidered the same as the home conditions. But an actual situation is not

the case. Then we have to investigate the foreign conditions. And in thisinvestigation, the relations and its convertability problems between the dollar

and the sterling are also considered, Our model in preparation will takethem as complete as possible.

ESTIMATION OF THE EFFECTIVENESS OF DEVALUATION ON BALANCE 85

STATISTICAL APPENDIX(A) Figuresusedin Table I are taken from the following four balances of

the national accounts,

which is constructed regarding to four activities of theeconomy.

Operating Account (biL \)National

lncomeImports

Y 6, 142.Consumption3c4, 460. 1

Investment
M 844.5
ExportsI

1,755,4

E 771. 36, 986. 8

6, 986. 8

Appropriation Account(bil. \)

Consumption

C 4,460.1 National income

Y 6, 142. 3

Saving

S 1, 682. 2
6, l42. 3

6, 142. 3(biL \)

Resting AccountInvestment

I 1,755.4

Savings

Balance of payment
deficit D

1,755.4
External

1, 682. 2

73. 2
1, 755. 4

Account(bil. \)

Export$ E 771.3 Imports M 844.5
Balance of payment

deficit D 73.2
844. 5844. 5

These balances are composed of the statistics of the Economic CouncilofJapanese Government, where

Y-`-C+I-D
Ct=(Personal consumption expenditures)+(Government purchases goods and services)

S=-Y-C
l=-(Government invetment)+(Gross private domestic investment)
M=:(Merchandise imports)+(Invisible imports)
E== (Merchandise exports)+(Invisible exports)

D;--M-E

Board

86 HII<OJI I<ATANO(Personal consumption expenditure)== (Labourer income)--((Income tax liability)+(Social insurance ; private charges))(Labourer income)=((Wages and salary receipts)Å~O.7)*+(Income of agriculture, forestry and fisheries in income of unincorporated enterprises)+((Income of unincorporated enterprises ;excluding income of agriculture, forestry and fisheries and income

by side-works)Å~O,5)""+(Income by side-works)* Of all wages and salary receipt$, O.7 is the relative share for labour between capitaland balour, which is estimated from the statistics of the Ministry of Finance and theCPS (Consumer's Price Survey).
Cf.'S. Tsuru and I. Nonomura; National Income in the Post-war Era. (in "Lectures
on Japanese Capitalism ", VIII, 1954-).
** Of income of unincorporated enterprises, a half of which i3 estimated to belong to

the labour.
Cf. S. Tsuru and I. Nonomura, ditto.

(B) Structural parameters shown in Table 2 are estimated as foUows.

a) e and p•
e is a ratio of consumption to national income ;e- S -o.726.
And pa is a ratio of imports to national income;

P="My =O.138.
b) eh and opf.
The elastisity coeMcients are estimated respectively as follows. Of imports,
sit is taken as the coeMcient of the second term of the right side of the equation

log m=.- eo-ei log Pm+e2 log g,

where
g: Issued value of export letter of credit.

eo, eb and e2; Constants.
This regression equation is estimated for Japanese
log m = -O.O08 --2.500 log Pm +O.150 log g,data of l953 as follows,

ESTIMATION OF THE EFFECTIVENESS OF DEVALUATION ON BALANCE 87
where 2.5 is taken as eh.
Similarly, of exports, opza is taken as the coeMcient of the second term of
the right side of the equation
log e == opo + opi log Pe +n2 log q,

whereq : Index of production.
opo, ni and n2 : Constants.

And the regression equation islog e= -O.Ol 1 +O,OOO log pe +2.400 log q,
where O.OOO is taken as oplt.

c) ai and a2.
ai and a2 are coeMcients of the equation
P ="- ao +al y +a2PM +a3t +a4u,

wheret : Index of quantity of money,u: Index of producer's inventory.
However, national income statistics is published only four times a year, sothat y has not suracient time series. For this reason, we will use the approxi-

matlonaly=,ialq,

where we suppose that national income level moves parallel with production.
This approximation is admitted if and only if pt is taken as the base of ourcalculation (see section III) and q is the index of production based on the
average production of the same year. Thus the above equation is transformed

approximately into
P= ao +alq+a2PM +a3t+a4ec.

However, composite price can not be estimated directly. Then we estimate
consumer's price, PC, and investment goods price, Pi, separately, and calculate

the weighted average of PC and pi :P-O.75PC+O.25pi==O.029+O.062q-O.250pm+1.014t-O.093u

wherepC =-O.298+O.046q+O,OOOpm+1.333t--O.097u

88 HIKOjl KATANO
pi -= 1.ol l +o. losq -- 1.ooopm+o.os6t-o.oso,

and O.75 and O.25 are weights by which PC and pi
in equation of P we haveai-- o.o62,

and a2=--O,250.
d) b, and b2.
bi and b2 are coeMcients of the equation
pe:;=-b,+b,y+b2Pni-l-b3t+b4u,

In this case, we take an approximationb,y s-t b2q.

Thus we have the estimation-of Pe as follows ;pe :--:- 2.995 + I.846q +O.OOOPm-3.778t-O.283u,

where we haveb, =- 1846,
and b2 :-A' O.OOO.

are averaged into

P. And89

THE RECOVERY METHOD OF THE JAPANESE SHIPPING
INDUSTRY IN POST-WAR PERIODBY HIROMASA YAMAMOTO
l. Destruction of the Japanese Shipping Industry

Capitalistic development ofJapan had been promoted by the government
since the beginning of the Meiji era (1868) and its development had been

inspired with militalistic aim. The Japanese shipping industry was suchan important industry for militalistic potential power and for the improvementof the long continuing unfavorable balance of' trade that the government
fostered this industry with subsidies for special trade routes and shipbuilding.

The shipbuilding policies included shipbuilding finance and the cost lowermentof the steel for vessels, which contributed much for completing the superiorityof the Japanese merchant fleet in quantity and in quality. In addition, prewar

accumulation of capital in the Japanese shipping industry was huge and 80
per cent. of the money needed for shipbuilding was self-provided, Thus at

the beginning of World War II Japan had great merchant fleet totalling
6,094,271 gross tons which ranked third in the world with the 8.2 per cent.
of the world bottoms.

Following Japan's entry into the war, for the purpose of making the seaborne transportation subservient for the war fu1fi11ing program the controlling

authority of the ship operation was organized which was named the Ship
Operating Authority. This organization had the power to charter all merchant vessels, but the charter money provided shipping circles with profit on

one hand, and the loss of the vessels by war was covered with wartime
special indemnity on the other hand.

To meet the increased demand for vessels Industrial Equipment Corporation, one of the wartime controlling organization, gave orders for ship
construction, and the domestic shipyards built many wartime standard typevessels of lower quality which were good enough mass production. Thoughthese shipbuilding was obstructed by the priority granted to naval vessel

90 HIROMASA YAMAMOTO
construction, many merchant vessels were constructed and the peak of pro.
duction was reached in 1943.
But in the course of the war the losses of merchant vessels were over theamount of shipbuilding, so the vessels left at the end of the war were only
1,494,OOO gross tons, 557,OOO gross tons of which were movable.i) Moreover,almost all of the vessels that survived were either wartime standard-type or'superannuated vessels, while we could hardly find any ocean-going vessels.
World War II destroyed Japanese merchant fleet entirely, The Japanese shipping industry lost her merchant fleet by war, and the occupation forces' initial

policy which aimed at demilitarization and democratization ofJapan gave thesecond blow to the Japanese shipping industry. Controlling Japanese merchantmarine directly, the occupation forces prohibited the prewar shipping andshipbuilding policies and limited the navigable area of Japanese vessels to

Japanese waters. Wartime special indemnity of lost vessels was given up,
property taxes were imposed upon the shipping companies, and the importantshipping companies were designated as special account companies.

Thus the destruction of the Japanese shipping industry was decisive
because of the fact that the shipping industry lost the accumulated capitalwhich might be used to obtain new ships.

A series of these measures had the intention to destroy the Japancse
industry which had served Japan to make militaristic invasion, and to limit
the scale of her merchant fleet to the amount that would be needed only forthe continuance of peacetime economy. The reparation program by Mr.
Pauley, American ambassador,2) had such an intention that the scale of themerchant fieet shall be limited to under 1.5 million gross tons of steel vessels,

and each vessel had to be under 5,OOO gross tons and under 15 knots at thehighest speed. It further proposed that surplus 869,OOO gross tons of theabove mentioned shall be expropriated as reparation, and that navigable area
shall be limited to domestic routes and the far eastern waters, and that as1) cf. J, B. Cohen; Japan's Economy in War and Reconstruction, ch. 4. Arms industries
2) Statement by ambassador Edwin W. Pauley on Japanese Interim Reparation Program, Dec.

7. 1945

THE RECOVERY METHOD OF THE JAPANESE SH!PPING INDUSTRY IN POST-WAR 91
regards the shipbuilding equipments all equipments and accessories of the 20
shipyards in Japan shall be expropriated, Ieaving only ship repairjng equipments necessary for the occupation forces in Japan.

Meanwhile the occupation forces made the Ship Operating Authority
operate the coastwise transportation, and ordered the domestic shipyards torepair vessels and to maintain the construction of vessels laid down in wartime with twenty-four hours' work, for the fear that the people might sufferfrom the shortage of vessels. Because in the period right after the war the

economy of Japan was in disorder and the function of transportation had
been destroyed. The emphasis of the instructions was, however, placed on

the ship repair, so that they may not be used for the recovery of theJapanese merchant fleet.

2. Shipbuilding Programs(a) From the First to the Fourth Shipbuilding Programs
In 1947, for the purpose of ecocomic recovery of Japan the so-calledpriority policy of important products was carried out so as to supply funds
and raw materials preferentially to important fundamental industries such ascoal, steel, shipping, etc. Then with the investment of the government,
aggregating to 300 million yen, the Ship Corporation was founded which
was in charge of building, repairing, and taking in custody of the vessels,

according to the recovery program of the Economic Stability Board under
the cabinet, and the fund for the project was furnished from the Economic
Recovery Fund established to supply funds to the important industries,

The reason why this organization was established can be found in thefollowing circumstances :-In the postwar period, shipping companies wereforced to rely upon this fiscal investment for the construction of the ships

needed for domestic transportation, because they received from the Ship

Corporation bare-boat charter money which was not enough to build theboat, and could not carry on their own operation, because the prewar shipbuilding policies had already been abolished.

It was provided in the Ship Corporation Act that the Corporation should
invest 70 per cent. of the shipbuilding cost and the rest should be provided

by the private shipowners, and the ships concerned shall be co-owned by the92 HIROMASA YAMAMOTO
owners and the Corporation. The establishment of the Corporation did not
aim to make the shipping industry the national enterprise but only to assist
this industry to build up new merchant fleet as the transition means until it
gains self-supporting strength, Accordingly, it was provided that the Corpora-tion shall sell its shares of vessels when a private shipowner wants to buy

the vessels co-owned. 'The shipbuilding by the Ship Corporation had been carried out as fromthe first to the fourth shipbuilding projects from 1947 to 1948, and built 93
cargo boats totalling 188,374 gross tons, each of the boats being under 5,OOO

gross tons used for coastwise and adjacent sea trade. In consequence of thefact that the size and speed of the vessels were limited and these vessels

included no foreign-class boat except a few, the projects did not furnish

Japan with enough vessels to re-enter the world market. However, thesevessels were enough to transport domestic cargoes. Here we can say thatthe shipbuilding programs were the first step of recovery of the Japanesemerchant fleet, and that in the course of the projects the Ship Corporation
toDk the Iarge part of the responsibility of the recovery when we consider
that the fiscal investment reached to about 58 pcr cent. of all shipbuilding
COsts.1)

Among the applicants of the private shipowners NN'ho would take part in

the programed shipbuilding those were picked up preferentially who would
bear over 30 per cent. of the construction cost, the ordinary shipowners'
share of the cost of the vessels. The partakers of shipbuilding programs
were scattered broadly in the shipping circles, and almost all of them were
small companies.

In relation to the method of ship operation from September 1948, theShip Operating Authority changed the ship operating system from bareboat

charter to time charter, and we may say that the controlled system ofshipping industry began to take a new turn to liberal conditions.

(b) From the Fifth to the Tenth Shipbuilding Programs'
1) Shipbuilding Survey, edited by the Ship Department of the Ministry of Trunsportation,

1953. p. 92.

'

THE RECOVERY METHOD OF THE JAPANESE'SHIPPING INDUSTRY IN POST-WAR 93
In 1949 when new China was born, the United States occupation policy
against Japan changed clearly from the initial policy which had intended todemilitarize and democratize Japan, into a policy which intended to makeJapan a member of the free world and make her the bulwark against thecommunism in the Far East. This change, however, did not take place suddenly, but this tendency appeared gradually since February 2, 1947 when theoccupation forces prohibited a general strike in Japan and oppressed communism. We can see the change of the United States's attitude with regard
to reparation as one of the concrete expressions of this change. The Strike

Report section B dated February 19482) advised that the scale of Japanesemerchant fleet shall be 4 million gross tons at minimum, that merchant fleetof that day shall be excluded as objects of reparations, and that the ship-building equipments which had the capacity of building vessels totalling
400,OOO gross tons a year shall be retained.3) This advice had much generous

contents than Mr. Pauley's program, and more-over the Johnston Report4) in
1948 stood on the principle that the productive equipments shall be retained
as are necessary for the Japanese people to enjoy adequate standard of living,

and also it advised to retain 569,OOO gross tons of shipbuilding capacity inJapan. It seems clear that the reparation policy changed into the one which
aimed at the self-support of the Japanese economy.

In the heating of the cold war the thing which the United Statesnecessitated, in making Japan a member of the free world, was not theabsolute demilitarization of Japan but to Iet Japan have a considerable
economic power under the leadership of the United States. For this purposethe occupation forces ordered the Japanese government to adopt the stability
and the self-supporting policy of the Japanese economy which included to stop

2) Report on Industrial Reparations Survey of Japan to the U.S. A.by Overseas Consultant,

Inc. New York.
3) This report estimated shipbuilding capacity of dornestic shipyards a year at O.8 tnillion

gross tons.
4) Report on the Economic Position and Prospect of Japan and Korea. Measures reguired
to improve the,m April 26. 1948 ; P. H, Johnston, Secretary of the Army's Committee toinguire into economic problems of Japan and I<orea.

94 HIROMASA YAMAMOTO
inflation and to enlarge the amount of foreign trade,

The change of the policies above mentioned greatly affected the methodof merchant fleet recovery up to that time. The occupation forces demanded

the balanced budget of the government to stop inflation, and the Economic
Recovery Fund stopped to function and the Ship Corporation was prohibitedthe construction of the vessels and limited its function only to repairs andsafe-keeping of vessels. (The Ship Corporation was dissolved in March 1950.)

In short, shipbuilding programs supported by the fiscal investment weredestined to be given up.

On the other hand occupation forces' insistence for a fair balance of
payment for Japan required the Japanese merchant marine to operate vessels
in international sea-borne traffic and to contribute to the invisible income

because the post-war trade of Japan had been unfavorable in balance. In
such a plight the occupation forces began to allow the ocean-going ofJapanese

ships, and in March 1950 abandoned the control of the shipping industry.
Nevertheless, the Japanese shipping industry had no ocean-going vessels, andit was necessary and desirable to build ocean-going vessels.

The i"cport of the Economic Five Years' Plan5), which was drawn up by
the government along the occupation policy, stated the intention and thet.arget of reconstruction cf t-hc shi-pping :nd'u'stry as follo'v'v:s:" The first aim is to recover the normal situation as a nation of mercantile

marine, and for this purpose we project that the coastwise transportation be
carried on all by Japanese flag ships and that as for foreign trade routes one

half of the cargoes be carried by the Japanese flag ships in the last year of

program. For this purpose, we improve and enlarge our small ocean-goingboats of the present day, and as for new shipbuilding we must lay stress onbuilding of larger vessels of superior grade, 3,OOO gross tons or over.""The five year new shipbuilding program aims to build 1,3 million grosstons•••••-and then we prospect our mercantile marine to earn 100 million
dollars by the international sea-borne traMc2' In this program they projected
5) The Report of the Committee of Economic Recovery Program, May 30. 1949 Part II. pp•161-175. Though the pregram itself was abandoned by I<orean waT, unexpeeted plight,
it may be thought that the fundermental aims were not changed.

THE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR 95
to make good the deficit of 70 million dollars, the estimated amount of
unfavorable trade balance, with the invisible income from the mercantile

marme.
Further, with regard to shipbuilding fund it was stated: "However, thisenlargement of the merchant fleet requires a huge amount of long term
funds, and there are neither accumulated funds in the shipping circles, norpeople can depend for all the necessary funds upon private investments andprivate financing. In the last program year they can provide themselveswith shipbuilding funds by freight earning, but in the initial period they haveto depend upon the assistance of the government or the direct government

investment or the United States Aid Counterpart Fund." The occupation
forces gave allowance to use the U. S. Aid Counterpart Fund as the shipbuilding fund. In its employment in Japan stress was laid on the redemptionof national debt and on the investment to public utilities; but among theinvestment to private industries the shipping industry together with the electric

power industry took greater advantage than others. Here again, however,
we can realize how great was the need of the shipping industry for theoccupation forces.

Thus the fifth and the subsequent shipbuilding programs which have had
quite different characteristics from the first-fourth shipbuilding programs had

to be carried out. The objects of the fifth and the following programs were
to have ocean-going large vessels necessary for Japan in coming back to theinternational shipping market, and the neucleus of the funds was the Aid
Fund which had to gain the permission of the United States at the time ofits use. However, since October 1952 the direct investment of the Aid Fund
was abolished and its investment was carried out through the Japan Develop-

ment Bank. After the nineth project this investment took the shape of theDevelopment Bank ioan.
In October l954 the tenth shipbuilding program was decided on and they
began to construct projected vessels. Now, we want to know whether theseprojects (5th-10th) had really promoted the recovery of the merchant fleet,or not. While shipbuilding. programs (from fifth to nineth) had completed
202 vessels totalling in 1,547,OOO gross tons which included 173 cargo boats

96 HIROMASA YAMAMOTO
totalling 1,175,OOO gross tons and 39 tankers totalling 372,OOO grosstons until

the end of 1953, independent shipbuilding free from the programs

completed

46 vessels totalling 48,OOO gross tons composed of 21 cargo boats

totalling

Shipbuilding Prograrns (5th-10th) (1,OOO G. T.)
Cargo Boat

Tanlcer

No.

G.T.

No.

G.T.

1949 {5th

36

203

6

72

6th

26

171

6thadded
6thadded
7thformer

4

26

2

25

3'

22

26

l79

2

24

7thlater

13

100

1

18

7thlateradded

4

28

2

24•

8thformer

29

199

1950

1951

I952

8thlater.1)yforeigninvestment

1953

9thformer
9thlater*

1954 {IOth
Tot[il* included

a emlgrant

ves$el inJapanese Merchant Fleet

12

91

20

157

19

154

192

I,329

3

43

4

51

4

51

5

64

29

372

cargo I)oats. (Source); Economic Counsel Board

Steel vessels, 100

gross tons and over
(1,OOO G. T•)
ocean-golng
.

Total

No.

Passenger vessels

G,T.

No.

G.T.

Tankers
No,

G.T.

Cargo vessels

vessels*

G.T.

No.

1935
1941

3,890

13ror,'

6094'

1962:

392

1,O18

39

155

433

1,269

94

401

924

G.T.

No.

.- t.L-.

.. t

2,716
4,424

1435'

1945

796

1,344•

185

l89

83

168

528

987

1949

994

1,684

192

209

105

247

697

I,227

23

1950

94,4

1,711

178

190

116

281

650

1,240

l25

745

1951

1,O17

2,283

160

l68

133

372

724

1,743

291

l,739

2,735

144

I44

148

448

773

2,14-4

332

2048'

1,067

3,046

153

164

174

596

740

2,286

376

2,434

l,066

3,090

155

164

185

598

726

2,328

387

2,511

129

'

1952
1953

1954

May

1065'

(Source) Quarterly

Bulletin* Ship Year Bookin 1955 edited by Ship Departmentof Transport Statistics by

Ministry ofTransportationof Ministryof Transportation.

THE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR g7
40,OOO gross tons and 25 tankers totalling 8,OOO gross tons. Moreover, theaverage size of the vessels was only about l,OOO gross tons. Accordingly we
can realize that the postwar recovery of ocean-going vessels was carried out
only by the shipbuilding projects.

In postwar period the Japanese merchant fleet increased steadily, there-

fore in May 1954 we could number 387 ocean-going vessels aggregating
2,511,OOO gross tons and over one half of them were new ships constructedwith the projects. Seeing such a fact, we may admit the successful recovery
of merchant fleet in the Japanese shipping industry, which had an ill-luck oflosing all its accumulated capitals. Of course the scale of the merchant fleet

in May 1954 was 3090,OOO gross tons or 50.7 per cent. of the scale in 194I,
but the recovery was quite speedy.
Nevertheless, the quantative recovery of the merchant fleet did not always

mean the recovery of the Japanese mercantile marine to prewar situation ofsuperiority. It becomes clear when we see the role of the shipping industry
among the invisible trade. Before entering into the discussion we will consider
the shipbuilding finance.

From the beginning of the fifth shipbuilding program to October 1952
when the Japanese Peace treaty with the free world nations took legal effect,

the neucleus of the shipbuilding fund was the U. S. Aid Counterpart Fund.
This Aid Fund was the skilfu1 investment of the United States, because theUnited States' assistance for Japan was conducted in the form of supplyingof surplus commodity in that country, and the payments for the commodity

were employed as investments in Japan. Consequently, the employment of
the Aid Fund required the permission of the United States. Taking into
consideration these plights, we shall think that the recovery of the Japanesemerchant fleet proceeded within the allowance limit of the United States orin harmony with the interests of that country. Since October 1952 direct
investments of the Aid Fund were abandoned, and it has been replaced withthe loans from the Japan Development Bank, funds for loans of which arederived from the Aid Fund and the governmental fund,

The financing of the Aid Fund or the Development Bank was not enoughto furnish all the costs of shipbuilding, and at such times the firms must have

98 HIROMASA YAMAMOTO
loans from private institutions. The firms which could build vessels under
the projects (after 5th) were required to go through following procedures.
The Ministry of Transportation first estimated the necessary amount of vessels

to be constructed, and secondly adjusted this amount with the considerationof the scheduled amount of loans from the Aid Fund decided by the occupation forces. The Ministry of Transportation made public this decided amountof shipbuilding to make shipowners apply for the project. Among theapplicants firms qualified for borrowing the Aid loans or government loans
were lastly selected. But the criteria to select the firms for various projects

were different, hence we cannot find any consistent measures in them, except

the liner priority policy and the policy to select shipping companies preferentially to industrial carriers.

And then, because loans of the Aid Fund or the Development Bank only
covered about fifty per cent. of the total shipbuilding costs, especially less than

30 per cent. in 1951 and early period of 1952 when the shipping circles boomed,
the shipping circles had to raise the rest of the necessary funds.

According to the five year program in 1949 it was projected that the
shipping companies would raise funds for shipbuilding by the earning of theship operation in the !ater period of the prog.ram" But this prosp.ect ol thc

Japanese shlpplng industry has not been successfu1 to earn the amount of
shipbuilding costs in reality, because of the depression of the world shipping,

and with regard to necessary funds they had to depend either on the increaseof the capital or loans from financial institutions, But they were unable toraise money by the former because of their bad management, so they had todepend on the latter, that is, on the loans, and being possible to borrow ship-building funds surely from private banks became the required condition
for the participation in the shipbuilding projects. Selection method of proper

firms in the sixth project made this condition clear, that the terms to apply

for the project were to produce the written contract with the financial
institutions to borrow long term funds.
For the reasons it was natural for private banks to lend money to such larger enterprises having comparatively good assets and credit, (that is, the sameprospects for loans ofthe Development Bank) as could redeem surely andTHE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR 99
could hardly become the prospects of ordinary private banks. And after thefifth shipbuilding program the volume of the vessels constructed through the
projects by the larger shipping companies increased distinctly,6) and specificconnection series of large bank large shipping company large shipyard were created, especially among the Zaibatsu enterprises. We can discern
the criteria of firrr)s selection after the seventh project which included theterms "those who have good assets and credit" as the condition which spurred

this tendency. We must say that the system of programmed shipbuilding was
usefu1 for the recovery of prewar monopolistic enterprises.

The interest rate of the shipping equipment funds lent by the Aid Fundand the Development Bank was 7.5 per cent. a year, and the interest rate of

the fund by private banks were 11 per cent. or over a year. The shipping
industry could not pay not only the loans but the high interest, and also thehigh interest rate was the cause of weak competitive power of the Japanese

shipping industry. The "act regarding the supply of interests and thecompensation of losses for the loans lent for the ocean-going vessel construction ", which we shall study later, has the intention to lower the interest rateof the fund and to strengthen the competitive power of the Japanese shipping
industry on one hand, and to relieve the losses of financial institutions which
lent funds to the shipping industry on the other.

The quantative enlargement and the beginning of the ocean-going of theJapanese mercantile marine proceeded on with good conditions accidental to

the Korean war, but this boom did not last long. The index number of theJapanese tramp freight7) which showed 213 in May 1951 fell to 100 in Octoberl952. Every nation increased the rearmaments and enlarged the volume oftrade by the Korean war. However, the coming of peace brought about thegreat contradictions largest increase of vessels after World War II andthe curtailment of the world market caused by the division of the world into

two factions, which produced the curtailment of the trade volume in the6) Ten important shipping companies built 10! vessels of the total 221 vessels built throughthe 5th-10th projects.
7) constructed by the Ministry of Transportation, April 1950..March 1951= 100

100
HIROMASA YAMAMOTO'
capitalistic nations. In consequence, the Japanese shipping industry had toface a deep depression, Moreover, when the ocean-going of the Japanese

mercantile marine began in 1950, the market where she had enjoyed theadvantage before the war had been invaded by foreign ships, and the decisionof the United States that prohibited Japan to trade with China made Japan
lose the far eastern shipping market where she had kept superior position inprewar period. Almost all of the Japanese vessels built by the fifth and thefollowing projects were liners, and they operated on 40 voyages, averaging allroutes a month with 308 vessels at the end of 1953. And when the Japanese
mercantile marine reopened in this year, nearly all international trade routes

where she had placed vessels before the war, were run by 880 foreign vessels

which kept 108.5 voyages a month.8) Therefore a hard competition was
inevitable. The hard competition resulted in lowering freight. However, theJapanese shipping industry was forced to make profits charging high freightrates because it operated vessels built with loans bearing higher interest andthis condition gave her weak competitive strength.

(Remark) "With regard to shipping and shipbuilding problems in recent

years" published by the Ministry of Transportation showed the weak competitive power of.Tapanese shippin.q industry as follows:

Freight cost of new built vessels of Japan in comparison with thosc of

the United Kingdom (grain laden in bulk from North America Pacific
Coast to Japan) one voyage cost per long ton

Unit : dollars
DirectShipCosts
VoyagewagesofCosts

ofvessels

Japan
UnitedI<ingdornIndirectShipCosts

OMce.repalr.necessarles

sailors

expenses,chargesof.Insurance

shiptax

redemption.mterest

Total

ofloans

3.73

O.74

O.61

L75

O.28

1.98

3.38

12.40

3.73

O.68

O.99

1.40

o

1.55

1.21

9.56

Shipbuilding cost per g. t. was estimated l46,OOO yen in Japan and125,OOO yen in United Kingdom. Both countries borrowed all shipbuilding8) World Shipping, No. 31 p. 20 edited by the Research Department of N. Y. K.

THE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR 101
funds and their interest rates were respectively 7,5% in Japan and 3.5% in

United Kingdom.
The conditions mentioned above resulted in the worse plight of theshipping management and the failure of contributing toward balanceing of

payment. The rate of profits against total capital of twelve importantshipping companies were always lower than that of important enterprises of
all industries in Japan, and after the beginning of ocean-going in l950 theyregistered the losses in the first half period of 1950 and in the second half

period of 1952. We should keep in mind that the organization of income andGoods carried by Japanese Vessels in International Sea-borne Trathc
monthly averages or calendar months (1,OOO metric tons)
lmportExportTotal

Tons

Inter-

cargo* foreigncountries

cargo*

Tons

67.0

1,579

57.0

loadingrateloadingrate

l936

2,311

1939

2,846

70.0

1,804

63.0

1949

188

64

31.7

121

12.7

4

1950

311

46

15.3

243

25.1

22

732
1041'

1951

709

82

27.2

576

32,7

52

1952

1,163

133

32.1

902

45.5

130

1953

1,488

156

37.8

1,122

43.0

210

!,813

198

38.4

1,366

41.0

249

1954
April

* Percentage of tonnage carried by Japanese vessels against the total exports(or imports)

tonnage(Source) Ministry of Transportation

Balance of Paymentg in Japan(million dollars)
BalanceofInvisibleTrade

BalanceofTrade
Net

ExportImport

1936
1950

1,035

1,049

-14

829

835

-6

883

358

1951

*1,582

1,647

-65

1,O14

619

1952

1,289

1,694

-405

1,136

557

Credit(Source) Ministry of Finance* included Procurement payments

CreditDebit

Net
Credit

+525
+395
+569

ofwhichmaritime
Transportation

Debit

Credit

94I71

Net
Credit

97

+68
-88

256

-- 215231-160

102 HIROMASA YAMAMOTO
expenditure of the shipping companies in the second half period of 1952 showedinterests paid at 10.3 per cent. of all expenditures.9) The Shipbuilding pro-grams as a means of recovering measures of the Japanese mercantile marine
did not succeed to bestow the competitive power to the shipping industry.

On the other hand, whereas the purpose to countervail the ill balance oftrade with the shipping earning, the balance of the invisible trade of shipping

showed unfavorable balance and it was impossible to attain the aim. The
cargo loading rate of the Japanese vessels in both export and import wasincreasing gradually, but Japanese vessels could not have carried one half ofcargoes waiting to be carried in May 1954. Small cargo loading rate is due
not necessarily to the insuMciency of vessels but to weak competitive power.

We should refer to the ill balance of the shipping account to the fact thatJapanese vessels chiefiy carried cheap bulky cargoes, while foreign vessels
carried cargoes of high freight rates, together with the small cargo loadingrate,

3. Enactment of the "Act regarding the supply of interests and the compensation Qf Iosses for the loans lent for the ocean-going vessel construction"

In summary, the programmed shipbuilding system made possible therpvcovery of the Japanese .r.n.erchant fleet, bi..,t t.his systerr.]. o.!so .r.n.ade apparent

the weak competitive power of the shipping industry and the iil balance ofthe shipping account because of the higher rate of interest. The Shipping
industry requested to lower the rate of interest of shipbuilding funds so as toget rid of its weakness. Besides the banks and shipyards also demanded someshipping and shipbuilding policy to help them. In January 1953 "Actregarding the supply of interests for the Joans lent for the ocean-going vessel

construction" was enacted, and again in August of the same year the "Actregarding the supply of interests and the compensation of losses for the loans]ent for the ocean-going vessel construction ", which had enlarged and revised

the former contents in the form to be helpfu1 to all three. This was enacted
and put to effect on and from the day the bill passed. (Hereafter we call thisact the Fund Act,)
9) The research is of the Japan Industrial Bank

THE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR 103
The reason why shipbuilding and financial circles required the Fund Act
can be found in the following circumstances.

Shipbuilding Circles: Domestic shipbuilding equipments including naval
shipyards were cancelled as the objects of reparations by the change of theUnited States occupation policy against Japan. Before the war, private ship-

yards kept up their works busy with the considerable volume of naval vessel

construction. After the war the prohibition of naval shipbuilding and thedullness of ship export made inevitable the excess of equipments. Volume oflaunching during l949-53 in Japan was 2,267,569 gross tons, and 1,525,029
gross tons with 67 per cent. of the total were built under the projects, and555,124 gross tons, a quarter of the total were export vessels.i) Annual volume

of average launching (about 450,OOO gross tons) could employ only one half ofall the shipbuilding equipments, and this volume were maintained chiefly withthe projects. Accordingly, the shipbuilding industry required the enlargementof shipbuitding volume by the projects and supported indirectly by lowering
the interest rate to make the shipbuilding projects proceed smoothly.

Financial Circlcs: Financial institutions accomodated to the shipping
companies long term funds for vessel construction and as working capital,
and the ratio of loans to the shipping industry reached to 21.1 per cent. ofStatement of Borrowing and Repaying of Shipbuilding Funds
Afber 1949 (at the end of March X953)(million yen)
Fiscal

Funds

Fundl

PrivateLoans RepaymentOutstanding

Total

RepaymentOutstanding

Loans RcpaymentOutstanding

1949 15,911

207

15,704 13,401

9,901

3,500 l29,396

50 13,619

563

13,056

9,222

4,204

5,O18

24,807

6,733

18,07451 24,155

50

24,105 33,638

7,346

26,29259,3108,913

50,39735,09952 10,270o10,270 25,121

53

2,697

o

2,697

Total

66,653820

19,205291

24,82936,348

1,250

515

o

515

3,212

o

3,212

65,833 81,896

21,74260,154 i153,073

27,086125,987(Source) The Japan Development Bank, EeollorriicCounsel Board, and the Ministry ofTransportation

1) The data is of the

10,191

Ship Department of the Ministry of Transportation

104 HIROMASA YAMAMOTO
the outstanding loans of all banks at the end of 1952, and 25.8 per cent. at
the end of 1953, which were at the top of all industries. Hence, the conditionof redemption by the shipping industry had considerable effects upon thebanking accounts, but the depression of the shipping industry made it diMcultto repay. Accordingly, to continue the lending to the shipping industry,
especially to shipbuilding finance, will lead banks to worse business conditions.

Moreover, so far as banks had loaned much funds already to the shipping
and the shipbuilding industry, the suspension of loans for these industries could

not be practiced, because that would produce worse business conditions of thetwo, and that would also make it impossible for the banks to collect thecredits. Thus the situation of the banks came to need the government assis-

tance for the shipbuilding which would be usefu1 not necessarily for therelief of the shipping industry but also for the improvement of the banks'
own business condition.

The outline of the Fund Act is as follows:(a) Aim:This act intends to promote the construction of ocean-goingvessels2) and to promote healthy development of our merchant marine byproviding with interest and compensating for the losses for the loans which
are necessary for the construction of ocean-going vessels.

(b) Supply of interests: By the contract with financial institutions thegovernment provides them with the difference of interest rates between 5 percent. and ordinary rate (11 per cent.) in the case they loan funds for shipbuilding, and they are required to lower the interest rate 5 per cent. so as toiessen the burden of paying interest for those who want to build vessels.

Supply of interest is also applied to the Development Bank,and in thiscase it is provided that the government allows the Development Bank withthe difference between 3.5 per cent. and ordinary interest rate (7.5 per cent.).

Therefore, with the application of this act, shipping companies can borrow
shipbuilding funds at 5 per cent. interest rate of private fund, and 3,5 percent. interest rate of the Development Bank fund.

2) The act prescribes an ocean-going vessel is the vessel which is 4, 500 g. t. and over and12 knots speed and over.

THE RECOVERY METHOD OF THE JAPANESE SHIPPING INDUSTRY IN POST-WAR 105
However, the total sum of interest supplied by the government is determined in the fiscal budget, and the period of supply is limited within eight

years from the fiscal year in which the contract is concluded, And also theshipping company which realized the revenue over the amount prescribed inthis act can not enjoy the benefit of this lower rate of interests. In addition,

the builder of the ocean-going vessels is confined to Japanese individuals andjudicial persons, and this is of no other intention but that the act's aim is tomaintain domestic shipyards. The point of which we ought to take noticewith regard to the supply of interest is that these provisions are applied forthe construction of the vessels undertaken after December lst, 1950, as to cargoboats, and for the vessels undertaken after December lst, 1951, as to tankers.

(c) Compensation of losses: By the contract with the financial institu-

tions the government compensates the losses for them, which they sufferedfrom the loans for shipbuilding funds, within the amount corresponding to 30
per cent. of the loans.

The Japanese merchant marine which had tried to enlarge its fleet bymeans of the shipbuilding projects found out its weak competitive powerresu]ting from the exorbitant high interest rate, and for the purpose of its
relief the Fund Act was enacted. So far, the shipbuilding projects resulted in

producing the tendency to create larger shipping companies more powerfu1
because of the connection with the large banks and large shipyards. Farther
this act tends to make the gap between larger enterprises and weaker small
enterprises still more wide. This act seerns to bestow the competitive power
to the shipping industry, at any rate through the effect of lowering the rateof interest. But the world-wide tendency of the surplus vessels in the future

has the possibility of lowering the freight and cut-throat competition may
result. In such a case, it is doubtful if this act shall still be able to give thecompetitive power to the Japanese merchant marine. There is a great possi-

bility that the weak point in the merchant marine to become apparent, andthe loss of the accumulated capital may require another shipping policy oncemore.
In concluding this article, the writer has a question with regard to therecovery method of the Japanese merhant marine which was determined by

106 HIROMASA YAMAMOTO
the change of the United States occupation policy against Japan. For the

purpose of making the Japanese merchant marine powerfu1, the national
enterprise system, or another method which facilitated the accumulation of
the capital should have been adopted; and the writer thinks that, there isroom to consider more fundamental means to balance the balance of payment
by fostering the shipping industry. However it may be, the Japanese merchantmarine of the present day comprise glaring contradictions ofJapan itself whichbecame a member of the free world only at the end of World War II.

II

109

BUSINESS ACCOUNTING AND TAX ACCOUNTINGBY SUSUMU WATANABE
BUSINESS ACcoUNTING AND TAX ACcoUNTrNG
Here we define tax accounting as an accounting which has for its object

the measuring of periodic income in accordance with tax law. This may be
distinguished from business accounting based on business accounting principles.

By the termi.`business accounting principles' we mean "those standards which
form a system of customary rules generally accepted as just and proper chosenfrom among business accounting practices of spontaneous growth, and which
are binding on all enterprises in their accounting if not necessarily by theoperation of iaw."O Hence it follows that business accounting principles
should be considered as those standards which derive from what are generally
recognized as ` the best accounting practices ' regularly employed for a numberof years by a majority of the enterprises involved. The question of the differ-ences between tax accounting and business accounting and their adjustments
is now taken up by many writers. It is this question that is before us to besolved.

There are in fact several differences between these two types of accounting.
One of the most important factors in causing such differences is the fact thattax accounting aims at the measurement of taxable income and stands under
the strong influence of the tax policy of the government. Another factor isexpediency in tax administration which is taken into consideration in tax
accounting. There is a third factor which is operative even if we leave outof consideration tax policy and expediency in tax administration. Tax law
necessarily lags behind business accounting in following the development of
the latter, a circumstance which gives rise to differences between the two

types of accounting in the process of tax law absorbing newly developed

1) The Business Aceounting Council of the Treasury Department `Business Aecounting
Principles' (an interim report)

110 SUSUMU WATANABE
accounting practices. Business accounting keeps modifying accounting practices

according to changes of economic conditions in order to meet its own needof properly reflecting periodic profit, Some newly adopted accounting practices

stand the test of time by growing into established standards and force them-selves upon tax law for approval. An apt illustration is afforded by thestatutory recognition of the Lifo method in the United States, Lifo started insome enterprises (as a result of the income concept being re-examined in suchindustries) and developed until it was incorporated into the Internal Revenue
Code of the United States.

Tax accounting and business accounting as they actually stand are thus
destined to have some differences, Moreover, certain differences are inevitable

when we consider the need of national industrial policy. A complete agreement

between the two is never to be expected. The question then lies not so muchin whether there are differences between them as in whether provisions of tax

law affect business accounting to such an extent that they stand in the wayof its deveiopment.

Indeed it goes without saying that tax law should provide regulations
pertaining to the measurement of periodic business income, but it would bea serious question if it should interfere with the measurement of periodic
business profit. The infiuence of tax law in Japan is so powerful that it looks

as if tax accounting were the only accounting practice in business circles,
leaving no room for business accounting proper. The result is that all thereis accounting restrained and distorted by tax law, and that there is no hopefor the development of proper business accounting. The proper function of

tax accounting is to measure and determine taxable income, and not tointerfere with a sound development of business accounting.

INTERFERENCE BY TAX LAW WITH BUS!NESS ACCOUNTING
The interference of tax law with business accounting may be divided into
two categories, direct and indirect. Direct interference arises from the re-quirement that enterprises should follow a specified book-keeping method inorder to enjoy certain benefits offered by tax law. Indirect interference arises
from the provision that a corporation should file its return `on the basis of its

BUSINESS ACCOUNTING AND TAX ACCOUNTING 111
confirmed settlement of accounts '. As a typical example of direct interferenceby tax law, we may cite a special treatment of corporate income in cases
where a corporation is granted nationai subsidies, prefectural subsidies ormunicipal subsidies (hereinafter called governmental subsidies) and spend thesame in acquiring such assets as fit their purposes. We may put the special
treatment as follows: Where a corporation enters the assets in the `Inventur'at the book value of the cost of acquisition less the amount of the governmental

subsidies expended for such acquisition, the difference between the cost of

acquisition and the amount on the face of the Inventur is computed asa dedution in calculating corporate income (Corporation Tax Law Enforcement
Regulations, g11 (1)). Here entry in the Inventur means entry on the balance

sheet, and the amounts on the balance sheet in their turn derive from theaccounting records. It follows then that the corporation can take advantageof the statutory benefit only when it adopts the book-keeping method con-forming to the statutory requirement. This may be explained below bya hypothetical example :A corporation spends a governmental subsidy of 5,OOO,OOO yen and an
amount of 8,OOO,OOO yen out of its funds (totaling 13,OOO,OOO yen) on theconstruction of a warehouse, This transaction will be journalized as below if

the corporation wants to take advantage Df the above cited provision in the

Corporation Tax Law Enforcement Regulations:(1) When the governmental subsidy is received:

Dr. Cash\5,OOO,OOO Cr. Subsidies\5,OOO,OOO(2) When the warehouse is built:

Dr. Warehouse \13,OOO,OOO Cr. Cash \13,OOO,OOO(3) To enjoy the statutory benefit mentioned above:

Dr. Subsidies\5,OOO,OOO Cr. Warehouse\5,OOO,OOO
Through this procedure the book value of the warehouse is placed at
8,OOO,OOO yen. This method is oridinarily known as ` reduced entry ' because it
places the warehouse acquired for 13,OOO,OOO yen at the book value of 8,OOO,OOO

yen. Although tax law treats a subsidy as taxable income as a principle, thejournalizing (3) shown above gives the subsidy of 5,OOO,OOO yen the appearance

of being exempted from taxation. But the subsidy is not in fact so treated.

112 SUSUMU WATANABE
The reason is that, since the book value of the warehouse is 8,OOO,OOO yen,thjs figure forms the basis of depreciation allowed, with the result that 5,OOO,OOO

yen equivalent to the amount of the subsidy is excluded from depreciation
when the actual cost of acquisition is 13,OOO,OOO yen, This method results inannual underdepreciation (in other words, profit shown in excess of what itreally is), through which the equivalent of the subsidy is gradually represented

as income to be practically taxed in instalments. Thus the benefit offered by

tax law through the reduced entry lies in a mere deferment of taxation
because the subsidy is not treated as the taxable income of the year of grant

but is substantially made subject to taxation spread over a number of years
through annual underdepreciation.
Here it may be questioned whether a subsidy is of the nature of income.
Tax law holds that a subsidy should not properly be treated as an tax-exempt

item on the ground that it forms an ultimate gain of the stockholders. The
business accounting principles in Japan, on the other hand, consider a subsidy
as having, in accounting theory, the nature of capital surplus, not of operating

profit. This is the position taken in the `Proposals for Adjusting Tax Law
and Business Accounting Principles' (hereinafter called Proposals). The Proposals look on a subsidy as a contribution to the capital of the enterprise notby its stockholders but by the Government to serve purposes of national
economy. The Proposals conclude in these words: "From the point of viewof accounting principles, the reduced entry is an undesirable accounting procedure contrary to the principle of fair presentation because it does not show

assets at their actual cost of acquisition and prevent governmental subsidies

granted from appearing in the financial statements. The compulsory adoptionof such a procedure amounts to the control of tax law over the accounting
method of an enterprise. It is desirable, therefore, that the tax law requirementof reduced entry in the financial statements should be repealed."

It is the opinion of the writer that it depends on varying business income
concepts whether a subsidy should be considered as business income or capitalsurplus. Tax law takes the position that an enterprise is a body of stockholders

and that a subsidy is an ultimate gain of the stockholders. Even if we admitthat the enterprise is owned by the stockholders and that the subsidy ultimately

BUSINESS ACCOUNTING AND TAX ACCOUNTING 113
becomes their gain, it is evident that a going concern should not regard thesubsidy as operating income. So far as the business entity is concerned, thesubsidy may by considered as a capital contribution by the Government. It is
improper to levy a tax on it as business income before it actually realizes asa gain to the stockholders, even if it ultimately so realizes.

The concept of business income must be defined before it can be determined

whether a subsidy is business income or not. At the present moment tax law
holds one way, and the accounting principles another. There is no immediate
likelihood of overcoming this split of opinion. Even if we admit the standpointof tax law which includes a subsidy in business income and subjects it totaxation, the requirement for reduced entry, as the Proposals point out, produces results contrary to the principle of fair presentation.

The need of making reduced entry for taxpayers to enjoy a statutory
benefit (deferment of taxation) arises in cases of contribution to the cost ofcontruction and insurance excess. Here a contribution to the cost of construction means the contribution by the user or beneficiary of all or part ofthe cost incurred when a corporation engaged in electricity or gas supply or
local railroad transporation constructs facilities necessary for its operation;

an insurance excess means the excess of the amount of money received fromthe insurer o"er the book value of fixed assets owned by a corporation
immediately before their destruction or damage.

INDrRECT INTERFERENCE BY TAX LAW wrTH BUSINESS AocOUNTING
Indirect interference by tax law with business accounting may be illus-

trated by the price fiuctuation reserve. It is provided in g5-(10) of theSpecial Taxation Measures Law that, where a corporation being permitted tofile its return on the blue form sets up a price fluctuation reserve not inexcess of a certain amount (the maximum amount to be credited) to coverpossible losses consequent on a decline in the prices of assets to be inventoried2)
2) The assets to be inventoried enumerated in g9-(7) of the Corporation Tax Law aremerchandise, raw materials, finished goods, partly finishea goods, goods in proce$s andothers. We omit to discuss in this article the price fiuctuation reserve recognizedwith regard to securities.

114 SVSUMU WATANABE
enumerated in g 9-(7) of the Corporation Tax Law, the amount so credited
shall be treated as a deduction in computing the income of the accounting
period in which it is credited.

The maximum amount to be credited varies according as (1) the inventories are valued by the Lifo method or (2) by a method other than Lifo,
That is to say:(a) In the former case, the maximum amount to be credited is theexcess, if any, of the total amount of the book value of the inventories at theclosing date of the accounting period over 90 per cent. of the total amountof the market value of the same inventories at the same date.

(b) In the latter case, the maximum amount to be credited is theexcess, if any, of the total amount of the book value of the inventories at theclosing date of the accounting period over 90 per cent. of whichever is thesmaller, the said totai amount or the total amount of the market value of thesame inventories at the same date.
In the latter case, therefore, the amount of inventories valued (the bookvalue of inventories less the price fluctuation reserve), substantially speaking,is the amount reached by the `cost or market, whichever is lower' method
less 10 per cent. of such amount. Whereas it is not allowed in the formercase to set up a price fluctuation reserve unless the book value is over 90 per
cent. of the market value, it is allowable in the latter case to set up a reserve

equivalent to 10 per cent. of the amount reached by the `cost or market,
whichever is lower' method. In this connection there is an objection raised tothe different treatment of the price fluctuation reserve according to the valua-tion method adopted, Lifo or otherwise. This different treatment is presumably

based on the assumption that the amount of inventories valued by the Lifo
method is ordinarily already lower than that reached by any other method.
Opposition to this, however, is expressed, for instance, in the `Opinions on

the Price Fluctuation Reserve System' (dated November 1, 1954) of the
Kansai Economic Federation: "As things actualiy stand in Japan, the Lifo
method has not been given free scope because of the narrowness of valuation
units of inventories in Japanese tax law, diMculties in obtaining raw materials

at the right time, diMculties in maintaining stock in trade due to unforeseen

BUSINESS ACCOUNTING AND TAX ACCOUNTING 115
accidents, etc. It is unreasonable to deny a corporation electing the Lifo
method the setting up of such price fluctuation reserve as allows a certain
latitude to the book value at the end of each period, on the assumption that
the Lifo method has had a fu11 scope. It is proper, therefore, not to discrimi-nate between corporations electing the Lifo method and those electing anyother method."3) Here we will not go into the propriety of this opinion forthe double reason that it demands pages of discussion and that it is not themain subject of this articie.4)

The said price fluctuation reserve perhaps comes under what the American
Institute of Accountants calls " reserves designed to set aside a part of current

profits to absorb losses feared or anticipated in respect of inventories on
hand "5) and charges or credits relating to such reserves should not enter into

the determination of net income in accounting theory.

It is necessary, however, in the present-day Japan with violent pricefluctuations and with enterprises of little flexibility to allow the setting up ofa price fluctuation reserve by a charge to income. It is, in view of this neces-sity, to be considered as a grace which tax law bestows from the point of viewof industrial policy.

The above referred-to Proposals for Adjusting Tax Law and BusinessAccounting Principles assert that the price fluctuation reserve evidently has
the accounting nature of earned surplus, instead of a valuation account suchas bad debts reserve, and go on to say, "Even if treated as a deduction at
the time of its setting up, the amount so debited should not appear in theincome statement, but to be charged to earned surplus as its accounting nature
requires." The majority opinion agrees with this position in holding the pricefiuctuation reserve as an appropriation of earned surplus.6) Tax law is sointerpreted, however, that a price fiuctuation reserve set up as an appropria-

3) The dollar-value Lifo remains yet to be recognized in Japanese tax law.

4) There has been a series of cases where corporations that had elected the Lifo method
gave it up to avoid disadvantage in taxation in connection with their price fluctuation

reserve.
5) A I A, Accounting Research Bulletin, No. 31, Oct. 1, 1947.
6) The writer is of the opinion that it is necessary to recognize a price fluctuation reserve116 SUSUMU WATANABEtion of earned surplus is not recognized as a deduction.7) Here again we finda difference between business accounting and accounting based on tax Iaw.

RETURNS BASED ON THE CONFIRMED SETTL,EMENT OF- ACCOUNTS
The differences between business accounting and tax accounting are foundin many cases other than that of the price fluctuation reserve. The original
source of such indirect interference is in fact the statutory requirement that

returns shall be filed on the basis of the confirmed settlement of accounts(Corporation Tax Law, g18 & g21), By a return based on the confirmed
settlement of accounts is meant a return based on the financial statements
approved at the general meeting of stockholders. This requirement has givenrise to the following rules: a) The amount of valuation profit or loss on
assets or of depreciation shall not be increased or decreased in the return,because such amount must not, as a rule, be other than the same amount thathas been approved at the general meeting of stockholders or by the wholebody of partners. b) What are allowed to be treated in tax calculation as
deferred assets shall not be deducted from the amount of income in the returnin cases where such items are already listed as deferred assets in the financial

statements approved at the general meeting of stockholders or by the whoie
body of partners (Basic Notification 315). The provisions in this notification,
being of an illustrative nature, are interpreted as applying to other profits orlosses of a similar character.

The taxing authorities explain that internal transactions such as depreciation, valuation profits or losses, setting up of reserves or allowances should notproperly be recognized in tax law unless they are tisted in the financial
statements approved at the general meeting of stockholders, because decisions

set up by a charge to income besides or before a price fluctuation reserve as an appropriation of earned surplus. But this view is grounded on anincome concept different
from the prevalent one. The majority opinion considers the present price fluctuation
reserve as an appropriation of earned surplus.

7) The amount of income of a domestic corporation for each accounting period shall be thetotal amount of its incomes less the total amount of its business expenses for eachaccounting period (Corporation Tax Law, g 9).

BUSINESS ACCOUNTING AND TAX ACCOUNTING 117
on such internal transactions are finally and most authoritatively made at thegeneral meeting of stockholders.8)

This explanation appears plausible. The apparent justification of thisinterpretation consists in the very fact that the so-called confirmed settlementof accounts is prepared with due regard to the statutory requirement. Thissame fact, therefore, does not justify us in denying that business accounting
as it should be is distorted by the requirement of returns based on the confirmed settlement of accounts,
For instance, even enterprises which believe that the present price fluctua-tion reserve is an appropriation of earned surplus cannot treat it as such ifthey want to enjoy the benefit offered by tax law. The consequence is thata fair presentation of periodic profit or loss is prevented.

The very presence of the requirement of`returns based on thc confirmed
settlement of accounts' demands of necessity regard to be given to the requirement in the settlement of accounts so as to avoid disadvantage in taxation.

This is way tax law affects business accounting to such an extent that it

restrains accounting procedure. This may be called indirect interference by
tax law with business accounting.
For a sound development of business accounting, it is imperative that tax

law should emancipate business accounting from all interference, direct orindirect. Tax law should be primarily concerned with the measurement of
taxable income, and the difference between business accounting and tax ac-

counting should be allowed to be adjusted in the return filed. This would

by no means mark a step backward for tax law, but a return to what itshould properly be. The duty of criticizing the propriety of business account-ing practices does not devolve on tax law, but on some other competent organ.

8) There are cases where adjustments in returns modifications of the confirmed settlementof accounts at the time of filing returns are recongnized. Such adjustments are
considered as allowable in the following cases:a) where the accounting is contrary to the facts.
b) where the accounting is contrary to the tax law provisions.

119

SPATIAL CHARACTERISTICS OF INDUSTRIES RELATIVE
TO THEIR BUSINESS FEATURES
Comparative Study between
Japanese and British, American Industries
BY MINORU BEIKA(1)
For business enterprises, the plant location is an important problem, but
it is only one of many factors correlated to one another. These enterprises,
therefore, are more concerned with the relative adaptability than the highest
suitability of their locations. In other words, the interrelation between thebusiness features which many factors of the enterprises produce, and theirlocation problems, shall constitute the central point of their spatiality.

As an attempt to pursue these studies, this article is first to grasp the
spatial characteristics of our important industries relative to their businessfeatures, and then to compare them to the British and American industries
for clarifying those characteristics. There seem to be many ways for grasping
the specialities of our industries. Now, for finding out the mutual relation of

the spatiality amony our important industries, a good furtherance may be
given for our research from the calculation of the coeMcient of localization foreach type of industries, and to combine it with their business features, Fortu-

nately these coeMcients for the British and American industries have been

given by ProÅí P. S. Florence in his "The Logic of British and American
Industries" (1953), and the writer of this article will try to collate ourmaterials and related data.

The coeflicient of localization can be measured by the deviation of theregional (by prefectures in our case) distribution of the workers in each industry, from the distribution of the total workers in the whole industries over thewhole country. First, the percentage of the workers in a certain industry is
obtained for each region, and compared to percentage of the total workers in120 MINORU BEII<A
our whole industries for each region, Next, the extent of localization (coeffi-

cient) of certain industry can be measured by the sum of plus, or of minus
deviations for all regions of the ,former (for each industry), from the latter(for the whole industries). Accordingly, the totals of plus and of minus
deviations are to be the same, and the •type of distribution of a certain indus-

try is more appoximate to the distribution of the whole industries, the coefli-

cient is nearer to zero, and when the distribution of a certain industry has
higher deviation from the whole, the coeMcient is nearer to 100.
But as these coeMcients indicate only the mutual relation of localization
among each industry and not the actual extent of regional concentration, theactual percentages of most important regions (three chief prefectures in ourcase) for each industry are also to be usefu1 as checks against misunderstandings.

Still more, the industrial localizations above stated, have a close correlation
with their business features. The business features are to be characteristicallyfound out by the size of their plants, that is, by number of workers. Thismeasure shows not only the size, but also their industrial characteristics;
small industries, localized industries, modern large-scale industries, or associatedor assembly industries. For this reason, the size of the plants in each industry

is used here with the coeMcient of localization.

(2)
The details that are tabulated following the above statement, are shown
below :-r

(1) Localization and Size of PIant in Japanese Industries

Group of Industry

vn
gs
im
g' g,

pa o

Percentage of Workers
by Size of Plant(no. of workers)

3 Leading Prefectures

":
:o
5' rt

-49

e

1 Pottery

2 Lacgner
3 Electrigal

measurmg apperatus
4 Electric lump

68
60
59
53

Aichi, Gifu, Mie
Ishikawa, Fukushima,

Wakayama
Tokyo, Shizuoka,

NaganoTokyo, I<anagawa,Osaka% 57. 474

50-99 1oo-499500-9991,OOO9. 7

20. 2

4, 1

8. 5

44

96. 8

3. 1

64

26. 7

4. 5

18. 9

13. 6

35. 8

74

30. 8

7. 7

27. 6

8. 7

24. 9

OF INDUSTRIESCHARACTERISTICSSPATIAL
5

Comm.unication .
.
egulpment

6 Iron and steel'

51

Tokyo, Kanagawa,

Hyogo
Fukuoka, Hyogo, .
49
Kanagawa

7 Shipbuilding

48

Hyogo, I<anagawa,Nagasaki

8 Precise Machinery

47

Tokyo, Aichi, Osaka

9 Mortor vehicles

47

IO Bicycles

45

11

Two and threewheel motor cycle

12 Sugarl3

Textile industries

machinery
Industrial

121

45

43
4•2

Tokyo, Kanagawa,
Aichi

Osaka, Tokyo, Aichi

81

25. 0

9.9

l9, 9

9. 2

35. 7

55

3. 0

2, 8

ll. 6

7. 7

74. 0

46

16. 7

4. 7

11. 1

3. 3

64. 0

67

4•5. 9

12. 2

25. 3

6. 7

9, 7

71

24. 4

8. 5

14. 8

12. 4

39. 5

7Q 47. 9

16, O

29. 6

6. 2

24 4

6.6

17. 9

15. 4

35. 5

49

21. 8

14. 1

64. 1

57

40. 6

11. 1

23. 9

8.9

15. 2

28

16. 9

4,4

18. 3

9.8

50. 3

Osaka, Okayama, Tokyo 55
Hokkaido, Tokyo,

Fukuoka
Aichi Osaka, IIyogo

Yamaguchi, Fukuoka,

l4 inorganic chemicals
Nonferrous metal
15
smelting

41

39

Shizuoka, Ehime, Osaka

32

5. 1

2. 7

12. 4

2L 4•

58. 2

16 Railroad equipment

39

Aichi, Osaka, Hyogo

47

12. 5

4, 1

13. 8

17. 2

52. 1

17 Broad fabrics

39

Aichi, Osaka, Fukui

35

53. 3

11. 6

18. 2

5. 6

IL O

18 Glass products

39

Osaka, Tokyo, Fukuoka

61

36. 4

18. 2

20. 9

8.3

16. 0

finishing

39

I<yoto, Osaka, Aichi

50

50. 1

10. 1

27. 9

4. 1

7. 5

20 Drugs

37

Tokyo Osaka, Toyama

53

34, O

14. 6

36. 5

6. 1

O.8

21 Etectrieal generating,

37

Tokyo, Ibaraki, Osaka

46

24. 9

7. 9

16. 4

9. 2

41. 3

Rubber products

36

Hyogo, Tokyo, Fukuel<a

50

20. 5

LO

41, 2

10. 9

16, 4•

35

Tokyo, Osaka, Toyama

52

44, 4

IO. 6

18. 4

11, 8

14. 6

23

51. 9

I5. 7

29. 2

3. 0

3.9

11. 0

9. 1
11. 2

19

Dyeing andtransmlsslon apparatus

22 diMetal working
23
machinery
Agricultural

Niigata

Niigata, Hokkaido,

24 machinery

35

25 Spinning yarn

34

Aichi, Osaka, Mie

32

17. 9

26 Soap

33

Tokyo, Osaka, Hyogo

51

46. 2

12, O

24. 4

Lumber and27

32

Hokkaido, Shiga, Aichi

18

86, 5

8. 4

5. 0

28 Hosiery

31Tokyo, Osaka, Aichi

43

66. 1

12, 6

l8. 3

29 Toys

31

Tokyo, Aichi, Osaka

53

84. 6

7. 2

8. 1

Industrial organic
30
chemicals

31

Fukuoka, Tokyo, Osaka

44

20. 2

7. 0

3LO 12. 3

Canned and
3130Tokyo, Hokkaido, Aichi

22

73. 8

!L 3

14. 9

32

30

Osaka, Saitama, Aichi

48

56. 6

15. 0

20. 1

8. 1

33 Apparel

29

Osaka, Tokyo, Saitama

43

72. 2

14. 2

11.3

O.3

L8

34 Paper products

29

Shizuoka, Tolcyo, Osaka

36

45, O

10. 2

20. 8

9. .5

14. 3

35 Metal products

28Tokyo, Osaka, Hyogo

56

69. 3

IL 1

15. 4

3. 3

O. 7

wood products

bottled foods
Iron and steel
castlng

Osaka

57. 8

LO L8
29. 3

MINORU BEIKA

122

28

Tokyo,Osaka,Aichi

53

59.3

11.1

16.0

37Grains,flour

26

Hokkaido,Aichi,
kanagawa

19

82.7

7.8

9.5

-

-

38Engines

24

34

32.8

8.8

25.4

17,7

15,2

Hokkaido

27

63.8

6.8

25.8

3.4

Tokyo,Osaka,Aichi

29

88.0

6,9

5,O

-

-

30

82.7

6.0

6.9

3.6

O.6

36Printing,Publishing

3gY.eig.it,aibi.eiia,".ddfats

24

40Furniture

16

41Breadandcake

13

Tokyo,Osaka,Hyogo
Tokyo,Hyogo,

sTokyo,AichiOsaka

3,5

The writer calculated by the data of "Census of Manufactures, 1952" and "Establishment

Census of 1951"

Our industries, largely depending for raw materials from abroad and on
foreign markets for the sales of products, naturally tend to concentrate in a
few central districts including trade ports, where, so to speak, there are raw

materials and consuming centers; that is, Kei-Hin (Tokyo and Kanagawa

Prefecture), Han-Shin (Osaka and Hyogo Prefecture) and Nagoya (Aichi
Prefecture) districts. As a matter of fact, even the several industries withlower coeMcient of localization have considerably concentrated in these central
districts, for such coeMcients indicate only the mutual relation of localization

among the industries.
The lst Table sets forth several groups which have certain types of localization and business features, as follows ;-(1) Several types of industries which have highest, or relatively higher
coeMcient of localization, and which are concentrated chiefly in a few central
industrial districts, including large, medium and small factories in the localities.

Electrical measuring apparatus (3), Electric lump (4), Communicationequipment (5), Precise machinery (8), Motor vehicles (9), Bicycles (10), Twoand three-wheels motor cycles (11), Textile industries machinery (13), Elect-ricgenerating, transmission apparatus (21), Metal working machinery (23).
all of which belong to higher-processed engineering industries.

Most of these industries in the 3 leading prefectures, have severally 50%

or over of all workers in each industry. And these leading prefectures aremainly in a few central districts above stated.

These industries which have high coeMcients, concentrated in certain

9.8

OF INDUSTRIESSPATIALCHARACTERIST[CS123%

Hokk=ldo

Map of Japan by PreFectares

Aediorst".-s' tJ--.
Akit" Si T"ateg"' N?•-•N.J;
Yatn]eatas.tsllyo,giex?•< j'

tuiisuteSt) ..-•'L)(- Fvkushjma
rlg',Xlltt:l'i-,C:ili'l'fehjk.i,1 /ti"Tova'p#!

•-l.N
Fukui )
-KAt j lll$.V.fit3.,' . iF.til'III{,J- -v•. . .i•s.

x
e
,N'

t]gn-"ki

,<?

S•7k.
.c.i
s "' ,Oita tU''Y Kutno2o"i.'-eav iMivntak,fN
Kesash]msioY124 MINORU BEIKA
districts, and yet consist of each type of factory-size, could be said to belong

to the kind of the mutual associated industries for which it will be very
difficult to maintain respective isolation.

Needless to say, there are a few exceptions that several factories in those

types of industries, have been in different districts outside of our central
industrial districts, But in these cases, those factories have special conditionsof their own. According to the writer's research, these conditions have been
chiefly as follows ;(A) These factories have been constructed in adjoining districts as aresult of industrial development around the old, central districts. The leading
prefectures outside the central districts above stated, in these types of indust-

ries, are, for example, Saitama, Gumma, Ibaraki, Chiba, Shizuoka, which are
all adjoining prefectures of Tokyo and Kanagawa prefectures.
(B) Most of these factories have belonged to some of the Iargest multiplant enterprises in our country. One factory ofelectric generating machinery
in Mie Prefecture is one of the 15 factories of Tokyo Shibaura Electric Indus-

tria! Company, another factory in Ibaraki Prefecture and another of electric
lump in Chiba Prefecture belong to the 16 factories of Hitachi Manufacturing

Company, and one factory of electric machinery in Hiroshima Prefecture is
one of the l2 factories owned by Mitsubishi Electric Machine Company ; and(2) Several types of industries which have relatively higher coeMcients,
and are concentrated not only in a few central districts, but are also distri-buted, more or less, in several country districts, and which include chiefly
large factories are ;-Iron and steel, (6) Nonferrous metal smelting (15),primary-processed industries
Shipbuilding (7), Raiiroad equipment (16)finished, assembling industries
Industrial inorganic chemicals (14), Spinning (25)AIthough these types of industries have higher coeMcient in the same
degree of the lst types of industries, they have not over 50% of the workers
severally in three leading prefectures, but have a fair weight in some country

SPATIAL CHARACTERISTICS OF INDUSTRIES 125
districts. And yet, most of them are not mutually associated industries, but
are chiefly consisted of large factories with over 1,OOO workers. In the primary-processed industries and industrial inorganic chemicals, these characteristics

have been produced, on the one hand, by the existence of raw material
resources in the locality, however small that quantity may be, and, on the other

hand, the shortage made good by the importation of raw materials fromabroad. Shipbuilding industries and railroad equipment industries are both
assembly or associated industries, but have severally special location factors

which must depend on good ports, wider space and market orientation. They
have been able to control many connected firms or factories, however isolated
they may be, because of the large scale of the enterprise.

Exception is found in the case of the spinning industry which, though it
depends mainly on foreign raw materials and is low-processed manufacturingindustry, the factories have not been concentrated in the central districts byreason of relatively higher transportability of raw materials and products,

In short, these types of industries have been located in central and rural
districts by their own location factors respectively. Therefore, such locational

characteristics are fouud clearer in the factories in the country districts. In
the factories in the country distrit prefectures outside of our central industrial
districts, the characteristics are found as follows,

The country district prefectures, which have these types of industries, arefound here and there, not so connected with one another as with the lst
types of industries.

Eor example, Fukuoka, Hokkaido and Iwate in iron and steel ; Shizuoka

and Ehime in nonferrous metal smelting; Nagasaki and Hiroshima in shipbuilding, Hiroshima and Yamaguchi in railroad equipment ; Yamaguchi andFukuoka in industrial inorganic chemicals; Mie and Gifu in Spinning andso on.

These locational phenomena indicate that these types of industries havebeen located in the country districts, because of their respective location factors,

which are coal or mineral resources, electric power by water, conveniences of.
transportatlon,
etc.

(3) Severai types of market-oriented industries, which have medium

126 MINORU BEIKA
coeMcient, consisting of medium-sized factories.

Sugar (12), Glass products (18), Drugs (20), Rubber products (22),Industrial organic chemicals (30),These are chiefly apparatus industries, and have been concentrated somuch in central districts by market orientation as medium coeMcient, Especially these industries have been located severally in three or four of the fiveareas in our country (Hokkaido, Kanto, Chubu, Kansai and Kyushu), Thislocational pattern indicates that these industries are market-oriented.

(4) Several types of localized industries, which are concentrated inseveral districts, here and there, and consist of a number of small-sizedfactories. These industries have medium or higher coeMcient.
Pottery (1), Lacquer (2), Broad fabrics (17), Parts of rubber products (22),These industries which constitute parts of our important industries, are in

existence on "external economies" by high localization in certain districts.
The origins of the localization of these industries are to be pursued historicallyfor the most part, in our country.

(5) Several types of market oriented industries which consist of smallsized industries, having rnedium or lower coefHcient.

Dyeing and finishing (19), Agricultural machinery (24), Soap (26), Hosiery(28), Toys (29), Iron and steel casting (32), Apparel (33), Metal products(35), Printing publishing (36), Engines (38), Vegetable and animal oil andfats (39), Furniture (40), Bread and cake (41),The markets of these industries are not only in the central districts, but
are also all over the country;cities, suburbs, towns and rural districts. Therefore, these industries are not so much concentrated as with the other industries above stated. Some of these types have the characteristics of the localized

industry (the fourth types) with their own specialities. For examples, partsof dyeing and finishing industries, hosiery industries and apparel industries, etc.

(6) Several types of material-oriented industries which consist of smallsized factories, having low coeMcient.

Lumber and wood products (27), Canned and bottled foods (31), Parts ofpaper industries (34), Grain and flour industries (37),The industries are dispersed fairly widely on the country. But some of

SPATIAL CHARACTERISTICS OF INDUSTRIES 127
the factories in the paper industry, which include large factories, belong to
the 2nd type, and some of the factories in the grain and flour industry, which

consist of medium-sized factories and depend on foreign raw materials, belong
to the 3rd type.
On account of the spatial characteristics of the industries relative to theirbusiness features, our industries have to be classified to the six groups above
stated.

Furthermore, there seem to be two characteristic features in our industries
through these typical researches.

First, the industries which have medium or higher coeMcient of localization, are chiefly classified to the producers' goods, and one which have medium
or lower coethcient, chiefiy to the consumers' goods. Secondly, the industries
which are located in the other districts than the few central industrial districts

in our country, are the ones which have the following characteristics:(1) Large-sized factories which are located by raw-materials in the localities; these belong to the 2nd type of the industries above stated. (2) Largesized factories which have been controlled by big multi-plant enterprises, andIocated in the out-side districts by the extensive development of the central
districts; these belong to the lst type industries.

(3)
The next problem is to compare the results of our research on our industries as above stated with the characteristics found in the British and Americanindustris.

Prof. P. S, Florence set forth the coeMcients of localization and leading
size of the factories of the British and American industries in p. 24-25 andp. 84 of his "Logic of British and American Industry" (1953). These data
may be well compared with our researches, for the writer of this article has

adopted generally the same research method for coeMcient of localization as
Prof. Florence. The coeMcient of localization and size of plant in the leadingindustries and higer-coeMcient industries in both countries, are given below :----BEIKA
MINORU

128(2)

Localizationand Size of Plant in British and(A)

American Industries

Leading Industries

Britain(1935)

U. S. A. (1939)

vn
e.O
o
gm Leading
Size ofvnoeoosum

Leading

GroupofIndustry

v,ONH.

pan

e5
6'rf

SizeofGroup of Industry

g' 9.

pt o

Plant

"p
5'e

Plant

:g

:e'i

'

1.Cottonweaving

72 Medium 1.

Cotton yarn

73

Medium2.Chinaandearthernware

70 Medium 2.

Cotton broadwoven goods

70

Largish3.Cottonspinning

69 Mediurn3.

Saw mi]1 and veneer mills

65 No type

4.Woolenandworsted

66

Medium4.

Motor vehicles

62

Large

5.Bootandshoe

58 Notype

5.

Rayon

59

Largish6,Hosiery48 Notype

6.

Petrol refining

55

Largish7.Motorandcycle

45

Large

7.

Woolen and worsted

54 No type8.Shipbuilding

45

Largish8.

Hosiery

52 No type9.Ironandsteel

42

Large

9.

Steel works, rolling mills

51

Large

10.Silkandartsillc

41

Largish10.

Meat packing

45

Largish11.Electricmachine

32

Large

IL Foot wear

12.Wholesaletailoring

30 Notype

12,

Paper and paper board mills

40 Medium

13.Newspaper30

Largish13.

Men's and boy's suits, coats

37 No type14.Brickandfireclay

28 Smallish

14.

Furniture

34 Medium

15.Printingandbookbinding

25 Notype

15.

Commercial printing

27

16.Ironandsteelfoundry

25 Notype

16.

Newspaper

20 No type

Bread and other baking

14

17.Funiture

25 Notype

18.Sawmill

25

Small

19.Paper
2o.Cocoaandsugar

25

Mediurnconfectionery

23

Small

21.Breadandcake

22

Small

17.

p

i

products

44 Medium

Small

Small

SPATIAL CHARACTERISTICS OF INDUSTRIES

129

'

(B)

industrieg of Higher CeeMcient of Localization

Britain(1930)

U.S.A.(1929)
vo
oo

va
oe
Groupoflndustry

on Leading

ao Leading
Sizeofee:ots-2-ngH'ON-.

GioupofInaustry

Sizeof

Plant

"o
ee
uoth
86

Small

2.0ilcake,Cottonseed

74

Small

ri:-t

-

Plant

1.Jute91

Medium 1.Turpentine

2.Tinplate86

Largish3.Lace81 Smallish

3.Cottonsmallware

71

Medium4.Linen74

4.Cottongoods

71

Largish5.Cottonweaving

72 Medium5.Clocks

71

Large

6.China

70 Medium6.Worstedgoods

70

Largish

7,Co,ttonspinning

68 Medium7.Canningfish

70

Srnall

8.Fur

68

Small

8.Textilemachinery68

Largish

9.Wirelessapparatus

66

Large

9.Castpipe

66 Medium

10.Fishcuring

66

Small

10.Rubbertyre

65

11,Woolandworsted

66

Medium 11.Jewellery

64 Smallish

l2.Electricvalves

66

Largish12.Corsetg

61 Smallish

13.Tools

65

Medium 13.MICtool-access

61 Smallish

l4.Plate,Jewellery

62 Smalligh

14.Motorvehicles

60

Large

15.Textilepacking

58

15.Furgoods

60

Small

16.Gloves

58 Smallish

16.Woolengooas

59

Medium

17,Dyes

57

17,Wire59

Largishl8.Saddlery

56 Smallish

18,Agric,Implem.

59

Large

19.Corset

56 Meaium 19.Motorbodies

59

Large

20.Linoleum56

20.(4.industries)

58

LargishSmall

LargishLarge

By P• S. Florence " The Logic of British and American Industry " 1953 p. 2t"-25 and p. 84.

Size of plant are classified by the workers of plant; Small-under 50, Large-over 1,OOO,

No type-mix of several types.

In these tables, we can see the general spatial characteristics of British

and American industries, and so the writer will compare these with those ofLarge

130 MINORU BEIKA
our industries in tables (1) and (2).

(1) In Great Britain and the United States of America, the leadingindustries which have high coeMcient of localization, are the cotton spinningand weaving, and woolen and worsted industries, and the ones which haverelatively higher or medium coeMcient after the above industries, are theiron and steel, shipbuilding, engineering and motor vehicle industries.
In contrast, in our industries, the higher-processed engineering industries,that is the lst types of industries in I table, have rather higher coeMcientthen the textile industries,(2) In the size of plant also, while our textile industries have chiefly
large factories in the spinning section, and small in the weaving section, thetypical size of plant in the British and the American textile industries(spinning and weaving) are both medium (100 to 500 workers per plant).
Moreover, our engineering industries are consisted of more mixed sizes oflarge, medium and small plants than in the other countries.
( 3 ) But it is common between theJapanese industries and the British andAmerican industries, that the tYpes of industries which have lower coeMcient,
are chiefly the kinds of consumer goods industries like bread and cake, paper,
printing and furniture industries. Yet while our industries of these types are
consisted of almost small sized factories, the British and American industries

comprise not a few medium or largish factories.

What are the causes of these differences? It is diMcult to answer satisfactorily because they caused by many mixed conditions in and out. But thewriter of this article will try to approach to this problem, as far as they
relate to the locational problems.

(l) Industrial Structure. • 'The coeMcient of localization is to indicate relative spatial characteristics

among the industries. Therefore, the dithrences may be caused by the
specialities of industrial structure in the several countries. The 3rd tableshows the industrial structure in each of the three countries by the numberof the workers.

SPATIAL CHARACTERISTICS OF INDUSTRIES

(3)

131

Industrial Structure by No. of Workers in the Three Countries'EU.S.A.'(l947)

BritainJapan (1952)(1951)

Group ofIndustry

No.of Workers

No.of Workers
MetallurgicalandEngineering

5,888,944

Textileandclothing

2,315,275

16.2

FoodandDrink

1,441,847

10.0

Chemieals

632,319

Woodenproductsand
Furnitune
OthersTotailNo.of Workers
1,424,563

4,125,OOO
20.6

1,024,841

23.7

841OOO'9.5

419,586

9.7

4.4

485,OOO

5.3

329,34176

958,092

6.7

311,OOO

3.5

375,671

8.7

3,057,827

21.5

1,223,OOO

14.3

745,080

17.4

14,294,304

100.0

8,801,OOO 1oo.O

4,319,082

100.0

1,816,OOO

L

U. S. A. Statistical Abstract of the United States, 1951

Britain Annual Abstract of Statistics, 1952 'Japan Census of Manufactures, 1952
As is shown in this table, striking differences among the three countries
are only noticeable in the metallurgical and Engineering industries, in which
Japanese industries have relatively less weight than the others, so this table
may be not suMcient to solve our specialities of coeMcient and business features.
The qualitative differences relating to these industries will be examined later.

(2) Types of enterprises. 'Types of enterprises, especially number of factories controlled by one
enterprise, is to be closely related with the spatial characteristics of theindustries to which the enterprises belong. In the Japanese industries, thenumber of multi-plant enterprises which are capitalised at over 100,OOO,OOO yen,
are classified by the numbr of the controlled factories as follows :(4) No. of single and Multi•plant Enterpriseli by No. of controiled

Factories (Manufacturing Industries) -1954-No. of

faetories

1 2 3 4 5 6 7 8 9 10•1112131415
No. ofenterprisesX- - rv - - - -15 7 7 3 3 2 2

Ironandsteel
Nonmetal

42
4

1

Engineering57!6 22 9 8 2

1

2

1

l
,

1

1

MINORU BEIKA

132

34

7 12 5 2 3 1

8

3 2 1 1 1

Transportationeguipment

38

12 11 6 4 2

ShipbuildingI3

2 5 3 lElectricmachinery

Measuringandoptical
Machinery

1

1

58

19 9 12 7 4 2 2

1

15

2 5 5

1

Drugs

1

4 2

1

1

(16)1

2 1

Chemicals

II

2

Foods

40

8 8 9 2 4 2

Ceramics

21

3 5

Rubberandleather

125

Textile39

5 2

Pulpandpaper26

6 8 3 4 1Fabrics

22

6 4 3 41

11Oilandcolours

1

1

1

1

2

2

1

4 2

1

4

1

1

1

1

3 5 3 3

1(19)(26)ll

1(22)(27)

1

5

2

11
ll

l

(38)(45)

3 1

2

1

1

Collated by the writer from "The Corporation Year Book 1954" of "The Nippon Keizai

Shimbun ".

In our country, the leading industries which are consisted of relatively
Iarger multi-plant enterprises, are the textile industries, and in our metallurgical and engineering industries, only a few exceptional large enterprises
have many factories. On the contrary, there are different features in Americanindustries as follows. As it is diMicult for the writer to obtain such detailed

research materials in the United States of America as in our industries, only
several leading enterprises in chief industries could be shown here. But evenwith that limitation it will be usefu1 for comparison in outline.

(5) No. of the Factories of the Leading Enterprisesin the United States of America(Engineering and Textile Industries)
GroupofIndustry

Enterprises

No.offactories

Engineering(Motorvehicle)

GeneralMotorsCor.

28

ChryslerCor.

24
8

Nash-KelvinatorCor.
(Electricmachinery)

35

FordMotorsCo,

StudebakerCor.

4

GeneralElectricCo.

122

1

SPATIALCHARACTERISTICS OF INDVSTRIES(Railroad eguipment)(OMce machinery)133

Westinghouse Electric Cor.

33

Radie Cor. of America

14

Singer Manufacturing Co.

9American Lomotive Ce.

7

Baldwin-Lima-Hamilton Cor.

10International Business Machine Cor)

7

Remington Rand Inc.

18

National Cash Register Co.

4

Burrough Adding Machine Co.

7(Agricultural machinery)International Harvester Co.

19(Aircraft)

Douglas Aircraft Co.

4

Boeing Airplane Co.

3

Curtis-Wright Cor.

6

Consolidated Vultee Aircraft Cor.

4

Textile inderstries

Berkshire Fine Spinning Association, Inc,

8

Burlington Mills Cor.

75

Cone Mills Cor.

20

Cannon Mills Cor.

IO

Pacific Mills

8

Bibb Manufacturing Co.

11

Pepperell Manufacturing Co.

4
26

American Woolen Co.

from "Moody's Industrials" 1952

While eight leading enterprises in American textile industries have somany factories as our representative ones, the several chief engineering
enterprises in U. S. A. have far more facteries than ours. In U. S. A,, theengineering industries are more representative, and have more distinguishedcharacteristics of the multi-plant enterprise, than the textile industries. These

characteristics could have dispersed many American factories in these industries to the South and the other parts, especially more remarkably sincethe 2nd World War. Abovre all, these movement have been found in the
famous national and international enterprises.
On the other land, 70eA of the American textile industries are concertrated

in the South, and the rest are located in New England and other districts.
And yet these industries have relatively competitive conditions, while most of

metallurgical and engineering industries have been controlled by a few large

134 MINORU BEIKA
enterprises, The type of the enterprises is to be one of the causes of thedifferences about spatial characteristics.

In the British industries, the writer has only a few research data, but

he has only to say that it is remarkable that the North of England andScotland which are called "Depressed Areas", have induced several large
engineering factories recently; for example, several factories of large multi-

plant American enterprises of oMce machinery.
(3) Structural characteristics of the consisting factories,

As is shown in the lst table, our spinning industry is consisted chiefly oflarge factories ovcr I,OOO workers, and our weaving industry, of chiefly small-

sized factories under 100 workers. On the contrary, as is shown in the 2ndtable, the British and American spinning and weaving industries are consisted
chiefly of medium-sized factories from 1oo to 500 workers. Thus, the Spinningindustry is the representative one in our country, whiie in British andAmerican, it does not.

But our metallurgical and engineesing industries, on the one hand, haveincluded large, medium and small-sized factories, depending on one anothermutually, and, on the other, the British and American industries are consisted
chiefiy of largish or rather large sized factories. The latter can be dispersed incertain districts severally independently, but for the former the dispersion

may be very diMcult unless they have some special contitions. Though thesame descriptive of "large factories" in classification is used, the "large" in

British and American industries are far more large-sized than in theJapanese,in organization, and machinization, and so the former have also madeout far more added value than the latter. In this sense, there are rather
more differences qualitatively between both countries than quantitatively, in

the industrial structure. '(4) Geographic differences.
Geographic differences are also one of the causes, but as this phase of the

problem had already been set forth by the same witer in the " Kobe Economic
and Business Review" 1, (1953) it shall be treated here only briefiy.

First, the British and American industries, especialy in the Iatter, havefar more raw materials as coal and minerals in the countries, than the

SPATIAL CHARACTERrSTICS OF INDUSTRIES 135
Japanese, and although the obstacles through raw materials have been gradually diminished by the development of industrial technology and transportation,
it is beyond dispute that the concentration of our higher-processed engineering
industries, induding several sizes of plant, in a few industrial districts aroundprincipal trade ports, have been at !east partially caused by this speciality.

Secondly, while the American industries have depended chiefly on her
large-scale national market, our industries must depend largely on the foreign
markets. This has also caused our special locational features.
Thirdly, the difference of the land area covered in each of three countries

must•not be overlooked. Although it might be said that the cotton industries
have been concentrated in both countries, in Britain and U, S. A., the actual

space of the area where the American cotton industry is concertrated, is 10
times of the whole of Britain, where the same industry is concentrated in only

Lancashire, a part of her country. The same thing could be said about theJapanese industries.

(5) Historical background.
In certain cases, the historical background about the deveJopment of eachindustry in the several countries constitutes the most important cause of thebuilding up of the present locational features. But a satisfactory study of these

problems must be relegated to next opportunity, for it needs much more space.

(4)
As a result of our above researches, a few points about location problems

will become clear, and they may be summerized as follows: .
( 1 ) The spatial characteristics of each kind of industries are to correlate

closely with its business features, and may be grasped by several types.

(2) These several types very closely resemble with one another among
the three countries, at least in form, Namely, the kinds of industries which
consist chiefly of large factories, have relatively higher or medium coeMcientof localization, and so are concentrated not only in a few central districts,
but are also dispersed, more or less, in several country districts, dependingon their own iocation factors. The kinds of industries which include large,

medium and small factories, have highest or relatively high coeMcient of

136 M!NORU BEIKA

localization, and concentrate in a few industrial districts, depending on themutual correlation to the localities. The kinds of industries which consist
chiefly of small-sized factories, have highest, medium or low coeMcient oflocalization, and some kinds are concentrated highly in certain districts,

depending on "the external economies", and the other kinds are dispersed
over the country districts,(3) But, the kinds of industries which belong to each type, are actuallydifferent among three countries in some cases. Namely, these phenomena could
be found especially in metallurgical and engineering industries, and textile

industries. However, the industries whose raw materials are agricultural or
marine products, have the relatively resembling features among three countries.
Therefore, those differences seem to be found remarkably in relatively higherprocessed industries.

To add a few-words in conclusion, the industriaiization of several country

districts outside the central industrial districts, has to be completed fordeveloping the intensive industry which increases the value of manufactured
products, as the writer had stated in the "Problem of Regional Industriali-

zation in Japan" (The Kobe Economic and Business Review 1, 1953). Our
higher-processed engineering industries are to belong to such types of industries.

Yet as a matter of fact these industries have not dispersed to the country
districts, but are highly concentrated in Kei-Hin districts,

What is the cause of this? It must be due to the speciality of the businessfeature of our higher-processed engineering industries. The general principle
for the regional industrialization as above stated, will be a success int"thesecases in our country, only under the condition of modification of their businessfeatures. Thus the writer enphasises that it is very important to study thespatial characteristics of the industries relative to their business features.

137

STAGES IN FACTORY ORGANIZATION'BY TADAKATSU INOUE'

In this article we shall attempt to divide the historical development offactory organization into two stages, that is, the subcontracting system andthe system of centralized control.

1
The first stage of factory organization we may call the subcontracting
system.i) The chief feature of this method of factory organization was theexistence of an intermediate class of men between the employer and theworkers who may be called the subcontractors. They had much the samegeneral function to perform, though the details of their duty varied according

to the industry in which they worked, This was to contract with the factoryowner to furnish him with a certain number of products at a specified price,and then to employ such workers as they needed to fulfi11 their individual

contracts, paying the workers whatever wages they considered suitable, or
allowing the wages to be paid by the factory owner and deducted from theircontract account. These subcontractors and their underhands worked in thefactory and were fgrnished by the factory owner with the tools and materials

neccessary for carrying on their work. However in some cases the subcontractors provided their men not only with tools but also with certain raw
materials. When the work contracted for had been completed to the satisfactionof the factory owner, the contractors recieved payment in accordance with thecontracts, though in practice they did not wait for their payment until thecompletion of the work. Thus the contractors, if they had obtained theirlabours cheaply, or if they had been good supervisors, might make large profits--..--b......ny-

1) The term, subcontracting system, was used for the first time in Professor G. C. Allen's

The lndustriczl Development of BirminghaTn and the Black Country 1860--1927, 1929. In
this book the author called the attentions of historians to the significance of this methodof industrial organization.

138 TADAKATSU INOUE
for themselves.

From the manufacturer's standpoint, the chief advantage of this system
was its easiness in managing the factory. After the factory owner had madeagreements with the subcontractors, he had no need to concern himself about
the supervision ofhis labours and about wages. The multiplicity of operations

was left to the factory's subcontractors who bore the fu11 effect of all
fluctuations in labour costs, sometimes even in other manufacturing costs,

whether favourable or unfavourable. Under this method of organization
which relieved the manufacturer of much responsibility attending to theactual productive process, the position of the factory owner did not greatly

differ from that of the factor in old domestic production. Indeed the sub-contracting system was a handy and simple management technique of thefactory. And this merit was to be especially welcomed by the early factoryowner who had as yet worked out no managerial system by which control
could be centralized. This was just the reason why the subcontracting systemprevailed in the early days of factory production and occupied the first stage
in the development of factory organization.

The illustrations of the subcontracting system were afforded by thepractices in the trades of many industrial areas. In Birmingham and theBlack Country in 1860, this system had long existed in the majority ofindustries in which the factory production prevailed, from the coal and iron
trades to the manufactures of brass goods, chains, edge-tools, gun-locks, buttons,

machine-made nails and washers, bedsteads, saddlery and harnesses, hollowwares, and tinplate wares.2) For instance, in the ironworks the ironmastercommonly contracted with the "bridge-stocker" and the "stock-taker." The"bridge-stocker" was the subcontractor in charge of the upper part of theblast-furnace. He kept horses, employed a gang of men, women and boys,
and supplied the furnace with the necessary materials. He was paid so mucha ton on the produce of the furnace, and he made his own arrangementswith his underhands. The "stock-taker" was the subcontractor in charge ofthe lower part of the furnace, and his men prepared the sand and' lookcd

2) G. C, Allen, ibid. pp, 144, 146, 148, 159-165.

STAGES IN FACTORY ORGANIZATION 139
after the casting and the weighing of the pigs.

The similar situation existed in the texile rnachinery industry of New
England in the middle nineteenth century,3) Especially, the practices in somecompanies such as the Proprietors of the Locks and Canals on the Merrimack
River, Lowell, Mass,, the Lowell Machine Shop, Lowell, Mass., the Saco Water

Power Company, Biddeford, Main, the Pettee Machine Works, Newton, Mass.,
and the Whitin Machine Works, Whitinsville, Mass. presented the substantial

forms of the subcontracting system. For instance, in the Saco Water Power

Company in 1850, there were sixteen subcontractors who employed one
hundred and thirty men and boys. They contracted with the company's
superintendent for the different kind of work in the machine shop. In the

Whitin Machine Works, the department supervisors worked for the company
on contract basis and held positions of considerable authority and prestige.

They hired their own men, trained them, determined their rate of pay, set

their jobs, and had the power to fire them or transfer them to anotherdepartment. The number of men who worked on a contract basis showed
fifty-six in 1864, fourty-nine in 1870, and twenty five in 1886.4)

2
The next stage in the development of factory organization may becharacterized by the centralization of control. Under the older method offactory organization, the manufacture delegated much of his authority to thesubcontractors, and avoided the trouble of supervising the process of produc-tion. Actual control over operations were assumed by each subcontractor
who enjoyed considerable freedom in the performance of his contract. The
subcontracting system, thus, was favourable to the manufacturer who had not

yet been accustomed to managing the factory under his direction. However,3) G. S, Gibb, The Saco-Lowell Shops: Textile ll,lachinery Building in IVew England, 1950,

pp. 89, 1as-!47, 217, 359. T. R. Navin, The M'hitin Machine MTorks since l831:A

Textile Machinery Companpt in an lndustrial Uiltage, 1950, pp. 139-149. •4) For the other illustrations of this system, see G. S. Gibb, The JP'hitesntiths of Taunton:

A History of Reed & Barton l824-1943, l943, ,pp. 70-•71 ; S. J. Chapman, The Lancashire
Cotton lndtestry, 1904, p. 62 ; H. R. Fox Bourne, Engltsh Merchants, 1886, pp. 402-403.

140 TADAKATSU INOUE
from the standpoint of business eMciency, there was a serions disadvantage
attending this system. Since real authority in the factory rested in the handsof each subcontractor who ran his department with almost independent
autonomy, it was not easy to keep the process of factory production inharmony. To make the system work, each subcontractor had to have aknack of fitting his department's work into the flow of factory production.
His r61e in the organization required him to be farsighted and cooperative.
But in actual practice his position of authority, more often than not, encouraged him to be arrogant and autocratic. He acted with independent disregardof the welfare of the whole, and brooked no interference in the conduct of

his department's affairs. Thus the subcontracting system tended to cause
irregularity in the flow of production.

In the early days of factory production, however, the above mentioned
fault of the subcontracting system was not a serious matter. Firstly, theestablishment of those days required no expensive plant and the loss occassioned

by irregular work was small. Moreover, in those days, when the competition
was not keen, there was less need of carefu1 attention to costs of production.

Now, however, the character of industrial operations changed. The sizeof the establishment was enlarged and the burden of overhead charge wasraised. The loss Åírom irregular work was very great. At the same time
there was the increasing pressure of severe competition. The manufacture,
therefore, was forced to make an attempt to secure a regular flow of workthrough his factory in order to minimize the effects of overhead costs. The

long-established system of subcontractors had to be abolished and the new

method of factory management had to be devised. Thus the manufacture
began to deprive the subcontractors of their erstwhile prerogative and totransfer many of their former responsibilities to the newly enlarged oficestaff. The subcontractors were gradually superseded by the modern foremen
who merely directed their department under the direction of the othce. The
results were the shifting of managerial function from the departmental levelto the oMce staff and the increasing centralization of factory control.

The period of the transition from the subcontracting system to the systemof centralized control may be illustrated by the industries we have alreadySTAGES IN FACTORY ORGANIZATION 141
mentioned. In Birmingham and the Black Country it was during the quarterof a century preceding the Flrst World War,5) and in the textile machineryindustry of New England it was during the iast quarter of the nineteenth
century.6) In both of them the replacement of the subcontracting system by

the new method of factory organization occurred during the period characterized by the severe competition in the markets and by the greater use ofmachinery and the growth in the size of the producing units which raised theburden of overhead charges.

***

The system of centralized control which superseded the subcontracting

system towards the end of the nineteenth century has become the typicalform of the factory organization of to-day. However, we must not supposethat this system must occupy the last stage in the development of factoryorganization. If it is necessary to make a few observations concerning theprobable future development of factory organization, we must rather take up
the recent movement towards the decentralization of control.7) This opposite
movement against the centralization of control is, in a sense, that of revivalof the subcontracting system in the early days of the factory. However theforces underlying the recent tendency are not the same factors which intro-

duced the subcontracting system into the factory of the early days. The
forces at work now are intimately associated with the inereasing labourunrest in recent years and with the lack of moral in the operating classes

5) G. C. Allen, ibid,, pp. 337-339,

6) 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.
Their power of hiring, firing, and rate setting had been turned over to the various foremen."(G. S. Gibb, The Saco-Lotveza Shops, p. 296). In the Pettee Machine Works, "by 1887
the traditional system of iob contracting had been abolished in the plant." (G. S. Gibb,

ibid., p. 359). In the Witin Machine Works, "by 1895 job work as a system was a deadletter, .•••••." (T. R. Navin, ibid. p. IK]).
7) See E. Schmalenbach, Pretiale Mirtschaftslenkung, 2. Band, Pretiale Lenkung des Betriebs, 19ng ;K. Bender, Pretiaie Betriebslenkung, Grundsdtze der Betriebsabrechnung und Betriebsorganisation

bei dezentraler Lenkung, 1951; H. Felmann, Selbstverwaltung in der Unternehmung, 1950;
K. W. Henning, Thonias Bat'a, eine betriebswirtschaftliche Untersuchung, 1949.

142 TADAKATSU TNOUE
which was the result of the highly centralized control. In other words, it
may be said that the recent movement towards the decentralization of control
aims, on the one hand, to give the supervising class more incentive to work,

and, on the other hand, to set up a buffer between the employer and thelabours. The movement in this direction, thus, cannot be passed over inconsidering the development of factory organization in the near future.

143

ACCOUNTING FOR FIXED ASSETS REVALUATION;RECENT VIEWS IN JAPANBY MUNEHIRO MASUZAKI
It {s a recent trend in various countries that change of prices is producing

an alarm to the theoretical structure of business accounting which had stoodon the convention of the so-called stability of monetary value; and the business income concept which is the central theme of the business accounting is

becoming to be newly discussed. Japan is by no means exceptional in going

through this phenomenon, Shown in Table I, in Japan, where after WorldWar II, an exessive infiation has affected its economy as can not be comparedwith other countries in the world, this theme is under heated discussion as oneof special subjects. Among these discussions, bringing those cancerning fixed
assets revaluation and those depreciation to the focus, the writer wishes tostudy these discussions in relation to the economic background on which they
are staged. In this case, the writer's interests are directed chiefly to theunderstanding of the present meaning of the said problems. For, the problemof fixed assets revaluation is originally the accounting steps for adjusting thevalue to the exessive infiation which attacked post-war Japan. However, thepresent Japanese economy, as will be stated later, is suffering from deflation
rather than inflation, and the pr}'mary function held by fixed assets revaluation is considered, at first sight, to have been accomplished, but in fact it is by

no means so, because the problem is yet fresh, and has close connection withcapital accumulation in the field of the future Japanese national economy,
Table I Wholegale Price Index in various Countries (1937 :100)
1945
Japan

U.S.A.
BritainFranÅëe
Italy

1946

1947

1948

!949

1950

1951

1952

1953

278 1,290 3,837 10,190 16,580 l9,667 27,309 27,819 28,226
123
140
176
191
l80
189
210
204
201
155
161
l75
202
295
301
212
24
303
422
728 1,112 1,924 2,147 2,328 2,982 3,136 2,982
2,587 3,084 5,518 5,821 5,528 5,239 5,996 5,646 5,58

Note: These figures are cornputed by the writer from the price index tables obtainedfrorn

144 MUNEH!RO MASVZAKI
Statical Yearbook l953, United Nation.

In this treatise, the writer first classifying in categories the present various

discussions surrounding the problem of fixed assets revaluation, and then,studying critically the typical views, wants to clarify the writer's own viewon this problem.

Faced with the post-war inflation, long time has elapsed in Japan since
the necessity of fixed assets revaluation had been discussed, That is to say,since the occurrence of the problem initiated by the Japan Spinning Association in the latter half of 1947, when the rise in prices became increasingly

apparent. Since the lst assets revaluation was made in 1949, we have had
assets revaluation instituted 3 times, and at present, the 3rd assets revaluation

is now under way. As for 'the circumstances during the progress, see (he" Review " No. 1, by Prof. Susumu Watanabe who has given us all the details
about the progress.

I
In Japan, it is usual to explain the narrowest bottle-neck for economic
independenoe to lie in the defliciency of capital stock, The problem of capitalstock which will add to national economy cannot be discussed one-sidely, andthe measures to be taken for them are divided divergently. Moreover, thesemeasures should be considered on the relative balance of actual phenomena.
Even when the problem of capital stock is limited to the phase of fixed assets

revaluation, against the view that to strengthen the actual condition of theenterprise is the prerequisite to enhance national economic foundation, there

are already arguments for and against, and those who are against, strongly
advocate no use of revaluation, and even among those who advocate that only
the fu11ness of own-capital in an enterprice is the prerequisite to enlarge
national economic foundation. These two schools advocate from their different

understandings of economic environment in which present Japanese enterpriseis placed, either to coerce the realization of the prerequisite or to leave therevaluation to the discretion of each enterprise. The discussions on revaluation at the present stage in Japan, therefore, can be classfied as follows:l) No use of revaluation

ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VIEWS IN JAPAN 145
2) ComPulsoi3, car?ying out of revtzluation

3) Voluntat3i caimping out of reualuation

The representative advocate of the No use of revalaation school is Prof.

W. Kimura.i) The chief points of his argument are as follows:
1. Under the present inflation in Japan, in which increase in laber wages is regtrained,
and the rise in the income of those who earn fixed income is restricted, it is guite partial toenterprises to allow to maintain real capital, acknowledging revaluation of the plants and eguip-

ment, and this will enlarge the gap between prices and wages, and restrict, all the more, ournotion's purchasing power.
2. Inflation itself strengthens the conspiraey between few large enterprises and national
capitals, and though the maintaining of the capital may not be complete from accounting standpoint, substantially tlie enterprise recovers and accumulates real substanees of the enterprise.

That is to say, through relying on financial operation of national capital, such as debts or
subsidy from government funds, etc,, the enterprise can eomplete its real substances, and does
not necessitate to depend on accounting management, such as fixed assets revaluation. Loans of
the national fund from the Reconstruction Financial Bank is a good example of this case.2)
3. The real effects of assets revaluation have already been realized by receiving in of newcapital stock accounts through capital increase which was extensively practiced in Japan since1948, and the fruit has actually been achieved, though mere measures on accounting book suchas fixed assets revaluation had not yet been accomplished.

The above arguments are the chief points of insistence of the No use ofrevaluation shchool, specially that of Prof. W. Kimura. Now, the writer wants

to pass comment, in brief, on these arguments, which will contribute to thedevelopment of his own view.
Ist Comment (on the lst point of view): Indeed, an enterprise revalues
fixed assets and the law permits to determine the income subtracting depreciation expense based on the said revalued amount and this may be consideredto allow the enterprise stand on partial advantageous ground in comparison
1) Dr. Wasaburo Kimura, The Conscience of Assets Revaluation, Kievo-Kaikei (Accounting),
Aug., 1953. And his other treatises concerning this problem since 1948,
2) The Reconstruction Financial Bank had accomodated 304 billion yen to private enterprises

since 19ca to 1951. This aceomodation fund has reached l,459 billion yen, converted

by general wholesale price level at the end of 1951. Compared with 725 billion yen,maximum limit of revaluation minus revalued amount enforced in following Table II, it
is clear that the enormous fund has contributed to rebuild the plants and eguipment ina few large corporation.

146 MUNEHIRO MASUZAKI
with general laborers and fixed income earners in determining taxble income.3)
However, this understanding arises from the lack of knowledge of the essential

diffence between enterprise income and fixed-earning-income in the present
system of economic society.4) According to my view, it is not proper to argue
to suppress fixed assets revaluation, only in consideration of the unequality indeterming the taxable income.3)
2nd Comment (on the 2nd point of view) : Actually a few large enterprises

may have maintained its real substance relying on the support of financial
operation of the national capital. However, there is no reason to think that
this will continue in the future. Such a financial operation of national capitalfund and the origin of such operation, e. g,, issuing of the Reconstruction

Finance Bond, was the principal cause which drove the post-war Japanese
inflation to a drastic one. Therefore, though a few large enterprises succeeded

well to maintain their substance through the support of the national capitalfund, this, after all, will make the progress of inflation worse, and will oblige

reproduction scale of the said enterprise reduced until it destroys the enterprise. Therefore, the 2nd point of argument above-mentioned must be criticisedas " defeatism "3rd Comrnent (on the 3rd point of view): Surely, it may be said that in

an enterprise whrer loan policy or capital increase policy could be made,appraisal market price of the fixed assets had enough security power to makethese policies possible. As far as this point is concerned, these enterprises

might be said to have achieved results on substancial revaluation throughloan and capital increase, without resorting to accounting steps of assets
revaluation. However, there is no logical connection between having achieved
results of assets revaluation and having made success in the loan policy or incapital increase policy. In other words, these two are problems belonging to'3) In post-war Japan, wages of Iaborers increased to some extent in compliance with therise in price-Ievel ; which was forced bY the strength of laborer classes, On the other ha'nd,

fixed assets revaluation was made, originally, for the purpose to maintain the real substances of enterprise, at least, to the same extent as maintenance of labor wages to slidewith the rise in price levels.
4) LeD T, Little, Historical Cost or Present Value, The Economic Journal, Dec., 1952.

ACCOUNTING FOR FIXED ASSETS REVALUATION;RECENT VIEWS IN JAPAN 147
seperate categories, and further more, if success or failure of loan policy or
capital increase policy be chiefly determined not by assets real substance but

by earning power, then the foundation of the 3rd view of the No use of revaluation school will entirely completely collapse.

According to the comments mentioned hitherto, the writer considers thatthe foundation of the view, no use of revaluation, is untenable, However,there is one thing to be pointed out which cannot be ignored. That is, inthe progress of the long and serious inflation in post-war Japan, the trend of

the survival of the fittest among competing enterprises were made more
obvious than in ordinary days, by the proficiency of self-defenre steps to meetthe stress of inflation adopted by each enterprise, especialiy whether or not itshared the benefit of the financial operation of the national capital fund,That is to say, the larger the enterprise, the more it could evade the loss frominflation. This, in case of considering the problem of infiation accounting in
the post-war Japan, that is, in considering the problem of fixed assets revalua-tion, we are forced to notice as an accounting problem, though it happened
from the change of ex-economical condition following the progress of inflation,

which affected the enterprise in addition to the simple phenomenon of thedecline of the value of monetary unit. It is really so. Moreover, the changeof ex-economical condition is not caused only from the abovementioned financial operation of national capital. Post-warJapanese enterprise is being affectedfrom day to day, by the change of the world-wide economic structure, by thechange of domestic demand and the advancement of productive technique,and there is no similarity between enterprise before the inflation and that ofafter the inflation. This must be kept in mind when we study assets revaluat

ion theory. This, we will study below.

ll
In any case, in Japan, fixed assets revaluation has been instituted and it
became effective for the purpose of tax law, in 1949 when the rising tendency

of prices began to abate. 'The national economic object of fixed assets revaluation was, needleess tosay, to adjust the depreciation expenses as product cost which was becoming

148 MUNEHIRO MASUZAKI
too small on account of the depreciation reserve caused by the inflation, andto properly reflect in the costs of products the limit of the maintainance of

the independence of capital of an enterprise. It is clear that the "Shoup

Recommendation" which was the incubator of the Assets Revaluation Law,
and advocated to adopt general wholesale price index as the revaluation
standard, was distinctly based on this idea. We find the following:"••••••even were there no practical diMculties in using specific indexes

and even though such indexes were not affected by temporary disturbances,it would still be preferable on theoretical ground to use a general index.

For we are not trying to exempt from tax all gains, but only that gains
that do not represent a real increase in purchasing power."5)This means that the Shoup Recommendation proclaims, from national
economic aspect, that the defects in depreciation accounting in post-war Japan

must be replenished by means of the so-called stabilizedaccounting. By this,
it is understood that the fixed assets revaluation in Japan was, originally,
what it should have been.
If so, it means, naturally, that all the Japanese enterprises should revalue

their fixed assets uniformly and compulsorily, having written up their bookvalue multipled by general price index. However, the main purpose of theShoup Recommendation does not accord with the clamour for voluntary
revaluation in the business circle, and the Revaluation Law which was actua-

11y enacted resulted in permitting voluntary revaluation. That is to say,enterprises can either be revalued or be not revalued, and even in case ofrevaluation, provided the revalued amount remains within the maximum
limit of revaluation prescribed by the Law, each enterprise was permitted tovoluntarily to revalue its own fixed assets. This complicated the discussion on
the recent assets revaluation.

The following table (next page) shows how the lst and 2nd fixed assets
revaluations mentioned hitherto are being carried out.

When each enterprise determined revalued amount at its favorable point,

what conditions have really been considered in determining that favorable5) Report on Japanese Taxation by the Shoup Mission, p, c•14

ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VtEWS IN JAPAN 149
Table II Facts about the tst and 2nd Revaluations by Industrial Groups.

(unit==a milion yen)
NumberofCornpanyof
Revaluation
Returned

lst&2nd

Revaluation
enforeed

MaximumLimit

RevaluedofAmounts

Revaluation(A)enforced(B)

B/A

Wholesale store

15, 983

2, 22022, 841l4, 70864

Retail store

26, 8173, 62323, 488

13,336

56

Manufacture :Food

12, 977

3, 53942, 85428, 590

66

Fextile7, 60!

1,912

100, 694

87, 31786

Clothes

2, 378719

4, 1012, 07150

Lumber

15, 0272, 93918, 847

9, 45550

Paper

2, 107510

19, 751

16, 101

81

Chemicals

5, 4291, 43197, 069

68, 41170

Petroleum .

356

8, O075, 92273

Rubber1, O1311, 9077, 26360

LeatherGIass548

3, l72
14, 377

1, 5099, 65047

2, 694

136
300
148
800

Steel & Iron

1, 2624tK]61, 953

50, 474

81

Metal
Machinery6, 492

1, 83124, 50254

11, 227

3, 29644, 685
93, 997

52, 4,8555

67MisÅëellaneous

15, 656

3, 02057, 48044, 948

77

Mining1, O09349

104, 351

82, 70679

15, 359
106, 268

8, 91458

76, 83772

Constructing

7, 813

1, 076

Transporting

4, 1101, 363Seryice5, 445

1, 52623, O06

15,77068Electricity

299, 2608399351, 121

Miscellaneous

20, 182

3, 641

117, 731

60, 50245

TOTAL

166, 122

34, 637

1, 343, 039

973, 533

72

Note; Investigation by National Tax Bureau. The iVippon Keizai Shiit6un (Japanese Economist's
Paper) Jan. 7th., 1954

point?

The "Report of Investigation on Fixed Assets Revaluation" carricd out
by the Research Institute for Economic and Business Administration of theKobe University concerning the lst fixed assets revaluation, leads us to passalmost a definite judgement on this point. When the questionaire was givenout to the companies which made 'assets revaluation within the statutory

maximum limit, asking why the company did not carry it up to the limit,out of 247 companies which answered the questionaire,a majority of I47

150 MUNEHIRO MASUZAK!
answered that they were forced to do so on account of their companies'" earning capacity ".

In this case, the "earning capacity" means:
1. Future annual revenues are not stabilized, and it is dificult for the managernent tomake forecast.

2. When revaluation carried up to the maximum limit, from the viewpoint of future
earning prospect, depreciation expense computed thereon cannot be charged.
3. Though the said depreciation may well be charged, dividend on the present capital stock

may become diMcult.
4. Though the said depreciation and dividend can be charged, dividend on the capital 6tock
after transfer of revaluation surplus into it will become tight,

Therefore, the above-mentioned facts show that the prospective future
earning power in each enterprise, fixed assets revaluation in post-war Japanthrough backward reckoning. This peculiarity of the present revaluation
remained unchanged from the lst fixed assets revaluation to the prevailing
3rd revaluation. Nay, it can be asserted that this tendency is becoming more

and more conspicuous, because Japanese economy, excepting the temporary
boom at the time of Korean Invasion, is following the trend to depression,and Japanese enterprises' earning capacity is aiso on the wane.

Thus, the recommendation given by the Shoup Mission to carry out uni-

form and compulsory fixed assets reva!uation have already made a l800.
turnlng.

m
As mentioned above, fixed assets revaluation carried out hitherto in Japanwas voluntary revaluation by each enterprise. Regarding this point, there isan advocate who insists upon the compulsion of the 3rd assets revaluation now
under progress and also the transfer of revaluation surplus to capital stock.6)
The objects of this insistence are, generally speaking, to readjust fixed assets

book-value and the composition of gross capital in each enterprise, to rebuild

the enterprise in its proper status and through adquate depreciation, to stop6) I<aichiro A'ishino, The significance of " New Kapital Determining Law" advocated by theK.eizai-Dayukai, Sangro-Keiri (Industrial Accounting), Feb., 1954. The I<eizai•Dayukai isthe moderate business managers' association in Japan.

ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VIEWS IN 3APAN 151
encroachment on capital, and to reduce nominal standard of dividend rate.
Thus giving impetus to accumulating capital to obtain the stability of financial foundation of the enterprise and to strengthen the foundation of national

economy. This is the opinion proposed by those who advocate comPalsory
earrying out of reualuation mentioned in the beginning of this article.
The outline of their insistence of those advocates is as follows:l. As the results of compulsory revaluation, depreciation expenses charged to the same
manufactured products become almost equal among various enterprises, and therefore, superioTity
or inferiority of these enterprise become apparent.
2. Consquently, competition among those enterprises become intense, and inferior enterprises
will be adjusted and amalgamated, and reorganization of industrial groups will be expedited.

3. Even when rationalization of plants and eguipment is attempted, if there had not beenadguate revaluation of the old fixed assets amounts, the depreciation expenses to be charged onthem will be comparatively small, and the proprietors are apt to hesitate to renew the plant andeguipment from the view point of whether it is paying or not.
4. As a result of compelled revaluation, the present status of capital composition to rely on
loan will be corrected, and high rate dividend on nominal capital stock will be reduced, and by

and by, the manager will come to realize that for col]ecting capital, an increase of capital ismore profitable than to loan money.
5. As a result of compulsory revaluation, appropriate depreciation charge on revenuc will
become possible, and reported income thereon, namely, taxable income will be reduced as much,and this amount of tax reduction will make internal reserve to be increased to that extent,
which will enable real capital accumulating.

These in outline represent the views insisted by those who advocate com-pulsory revaluation. According to my opinion, these views have one grave
fault at the foundation, and in pointing out this fault, the writer found thefirst step which directed the writer to formulate his opinion. However, reserv-

ing this for later discussion, the writer here wants only to comment on
above-mentioned discussion.

Ist Comment (on the lst and 3rd points of view): As mentioned above,
fixed assets revaluation in Japan is practiced on the standard of the rise ingeneral price index, and the maximum limit of revaluation is computed bymultiplying the original aquisition costs of assets (minus the depreciation res-erve already charged) concerned, by the coeMcient index expressing the relation

between the year of acquisition and the useful life of the assets. Therefore,

this limited amount is only the one computed in pure mathematical method,152 MUNEHIRO MASUZAKr
depending upon the acquisition cost and its life of the said assets, and by nomeans, it can be said that the limited arnount is the market price of the said

assets. Therefore, since the market price cannot be determined by the prevailing assets revaluation, the views presented by those who advocate comPulsory
caewying oast of reval"ation cannot be asserted as appropriate.

Supposing the said assets become obsolete by the development of techniqueand become inadequate by change of economical structure and also supposingthat the earning capacity becomes generally deteriorated by the decline ofprofit-making power in the enterprise, in this case, market price (transfer
price) of the said assets will generally become less than revalued maximum
limit. Thus, that there are many cases that will not carry out the fixed assets

revaluation to the maximum limit may have chance to give plausibility to

the lst view expressed by those who advocate comPalsory carrying out ofrevaluation.

The same comment may be made on the Srd viw. Because the comparison of eMciency value between new and old assets should not be made by
the maximum limited amounts of revaluation but by the market prices ofsaid assets.7)

2nd Comment (on the 2nd point of view); Generally speaking, there is no
direct relation between the compulsory carrying out of fixed assets revaluationand the survival of the fittest enterprise, cosequently the promotion of industrial reorganization is not accelerated. Probably, though an enterprise whichcannot make revaluation to the maximum limit because of its lack of earning
capacity could force up revaluation to that limit, but that will not enable thefirm to win in the competition among various enterprises. Of course, there

can be reverse cases, In brief, the fault of the 2nd view made by those
who advocate comPuls("ey caiv2y'ing out of revaluation is that they considered as

if economic substance might be changed by manipulation on the book, fixed
assets revaluation.

Concerning this point, I notice one noteworthy trend as follows :Aside from the enforcement or not of fixed assets revaluation, an enter-7) G. Terborgh, Dynamic Eguipment Policy, 1949, pp, 117-vl19, 125, 126

ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VIEWS IN JAPAN 153
prise which can charge depreciation expense only less than the one on market
price of the said productive equipment is not, after all, fit for long existence.

In this case, it goes without saying that the calculating basis value of proper

depreciation charge is not the prevailing revalution maximum limited amount,but it is the market price of the said equipment. •3rd Comment (on the 4th and 5th points of view): Arguments in the 4th
and 5th discussion insisted by those who advocate comPulsory carrying out ofrevaluation are time.worn ones talked about ever since fixed assets revaluation

opinion came to the front and are matters of common sense. However, these
opinions can easily be critisized by reconsidering the meaning of general
proposition that "Fixed assets revaluation contributes to accumulating enterprises' capital ". That is to say, that fixed assets revaluation prevents capitalof enterprise from being sponged and contributes to accumulating enterprises'
capital, which means revaluation is the condition on which proper depreciation
expense can be computed, and also it is a premise that the said enterprise has

earning capacity enough to charge such depreciation expense on the revenue,
Supposing there is no earning capacity enough to charge proper depreciation
expense, compulsory carrying out of revaluation is not only effective, but may
render the enterprise to lost credit and hasten its collapse. Thus, it is easily

understood that not only the 4th point but the 5th point of view also presented by those who advocate comPulsory carrying out revaluation are utterly
untenable.
Table III Depreciation Accounting Practice, unit= a miliion yen(For Half-Year ended March 31th, 1953 since Oct. Ist, 1952)

NumberofCompa-.

Original
Cost

Current

Deprecia-

OverorDeprecia-

tion

!ess

tion

ReserveAmountnles

JustDepreciationonlegallimit
OverDepreciationthanlegallimit

124

236,773

10,282

43,200o

138

212,822

10,61442,516

4,243

LessDepreciationthanlegallimit

273

889,979

22,335

1,339,574

43,23283,l23
174,938

39,419535

Total

Source•.,..,Investigation by the Edditorial Department of Sangpto-Keiri-Kyokai (Financial

and Cost Accounting Association)
Note "Legal limit" of depreciation eharge was determined by Corporation Tax Law,
its Enforcement Detail Regulation, in Japan,

154 MUNEHIRO MASUZAKI
Now, let us understand by the above table, the outline of depreciationaccounting practice actually carried out by the first class Japanese corporations (535 companies) and the earning capacity of those corporations when therevaluation is carried out compulsorily. These tables will prove that thewriter's above mentioned comment is not too pessimistic.
Table IV Estirnated Earning Capacity after Compulsory RevaluationofPresent
Earning

EarningCapacityafter
CompulsoryRevaluation

Companies

Capacity(%)

(%)

(%)

9

31.4

5.6

25,8

NumberIndustrialGroup
Transporting

Decreaseof
EarningCapacity

Gas&Electricity

8

34.3

16.6

17,7

Mining

23

63.5

iro.1

23.4

Machinery

51

96.5

77.6

18.9

Iron,Steel&Metal

25

43.2

2L5

2L7
9.5

Spinning

34

133,1

123.6

Food

22

105.5

100.8

4,7

Fishery

1

35.8

31.4

4.4

Chemical

35

7L4

50.4

21.0

OtherManufactured

28

145,2

Commerce

25

73.2

134.3
60.5

12.7

Total

269

8.2

Source....,.IVippon Keizai Shinbun (Japaness Economist's Paper), Jan. 7th, 1954,

by the investigation of Nikko Security Corp.

The writer has already pointed out that one grave fault had been madein the opinion held by those who advocate compulsory revaluation. Now, thewriter reached the stage where he shouid clarify the fault and express his

own. vlews,m
Needless to say, the reason why fixed assets have value for the enterpriseis that they have utility value and can bring profits to the said enterprise.
Supposing no kind of this earning power is in the fixed assets, the historicalbackground at the time of acquisition of the said assets bears no meaning to

the enterprise. As mentioned above, the fact of change in demands between
pre-war and post-war days, progress in productive techniques, appearance of
new products, etc. have entirely changed the earning capacity of enterprise inpresent Japan as compared with that of pre-war days. Under the drastic

ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VIEWS IN JAPAN 155
change in economic background, post-war earning capacity status classified byindustry and by enterprise has changed its condition compared with that of
pre-war days. Being entangled with rapid change in economic circumstances,and having suffered from exessive inflation, inflation accounting in post-war

Japan has its characteristics and pecuriarity of fixed assets revalgation
problem.
First, let us consider an enterprise which could increase earning power
more than the rise in general price level under post-war Japanese inflation.

Of course, increase in earning power is not dependent only upon the productive operation of fixed assets, however, in this case, there may be increasein earning capacity of enterprise which leave something even after charging
and absorption of proper depreciation expenses, which had been computed on
fixed assets value revalued in compliance with the rise in general price level.
Therefore, in this case, good effects to accumulate enterprises' capital in thesense held in the Assets Revaluation Law may fairly be realized. In facts,
such enterprise must have already realized fixed assets revaluation to its

maximum limit.
Therefore, the object of the insistence of those who advocate eomPulsory

carrying out of revelaation must be understood to be directed toward theenterprises which can not increase the earning capacity more than the rise ingeneral price level, and urge them to practice fixed assets revaluation in con-cert with higher profitable enterprises. However, even if such fixed asssets
revaluation should compulsorily out in lower profitable enterprises, it does notmean to bring good results so as to accumulate its own capital. This has
already been mentioned. Really as for the significance of fixed assets revaluation to be accumulating enterprises' capital, there is a basic difference between the higher profitable enterprises and the lower ones. The writer considers

that the fundamental mistake made by those who insist upon the compulsory
revaluation is, disregarding this fact, and they only want to enforce even thelower profitable enterprises to carry out the computsory revaluation which isonly appropriate to the higher profitable enterprises.

This shows that the problem of fixed assets r.evaluation in post-war Japanis not so simple as a problem as to be regarded as mere adjustment of histo-

156 MUNEHIRO MASUZAKI
rical cost, That is to say, fixed assets revaluation in post-war Japan is notmathematical manipulation of book value on fixed assets, but it is a step todetermine the size of enterprises' capital suitable to maintain the enterprise.
In other words, the fixed assets reva!uation should be considered as a revalua-tion made up to adjust capital amount computed by suitable determination ofenterprises' capital. The basic proposition of those who advocate voluntary

camping out of revaluation, who argue simply to consider `there is value,
because there is an asset;and the historical cost of an asset, can be properly

valued computing from the decline of value in monetary unit, has only primary-school-pupil's mathematics in its foundation, as far as it concerns therevaluation problem in Japan.8) It cannot be denied that revaluing fixed
assets by reckoning backwards from future estimated earning capacity, as ismentioned by those who advocated voluntary cart3ting out of revaluation has,

if considered practically, many diMcult points. However, considering fromrevaluation conditions based on earning power in post-war Japanese enterprises,

and which have remained lower-toned, the writer, theorectically, stands on
this 3rd view. Therefore, the writer's view on fixed assets revaluation in post

war Japan may be stated briefly as follows:
The fixed assets revaluation which has hitherto remained low-toned, is theone made after shifting up of the negative goodwill which had occured over
all the enterprises by the decline of the earning capacity throughout Japanese
inflation in pre- and post-war days, In short, it confirmed the facts of decrease of enterprises' capital by the process of fixed assets revaluation, which had

been substantially made real in those days.

In conclusion, what mentioned above, can be summarized as follows:
1. Accummulation of enterprise's capital is necessary to strengthen thefoundation of Japanese national economy.

2. The possibility of contribution of fixed assets revalution throughbook manipulation to capital accumulation for each enterprise depends on
its earning capacity, and if fixed assets revaluation is compulsorily carried8) Dr. Igatsuzi Yamashita, The Theory of Assets Revaluation, Sangoro•Keiri (Industorial

Accounting), May, 1954. 'ACCOUNTING FOR FIXED ASSETS REVALUATION; RECENT VIEWS IN JAPAN 157
out in lower profitable enterprises, no effect of strengthening the capital canbe expected.

3. It is only a few high profitable enterprises which can produce goodeffects on capital formation through revaluing fixed assets mechanically incompliance with the rise of general wholesale price, and other enterprises
should consider fixed assets revaluation as a step for determining the proper
capital size which could be found in the earning capacity of each enterpriseitself.

According to the writer's view, the inflationary process itself, or eachstage of the process, is accompanied by change of the economic relation
among all enterprises more directly than in stabilized price days. Whether
this phenomenon can be disregarded or not, the process of rapid and excessive
inflation after World War II in Japan suggests, by the problems of fixed assets

revaluation, that how meaningless it is to discuss the accounting problem inthe course of inflationary stages merely as the phenomenal problem derived
from the decline of value of monetary unit.

159

ON THE STRUCTURE OF THE NATIONAL INCOME
DISTRIBUTION IN JAPAN.
BY NOBUKO
NOSE
1. Introduction.

'

The conventional national income research presents only the superficial

investigations, the interests being made subject to actual behavior andphenomena. On the contrary, our ambitious investigations of National Incomein this paper are concerned with two subjects :First, to extract the original dividing structure ofJapanese National Income

from actual data, which is represented in the present statistical works. Thatis given by deducing the adjustment of Public Finance and unproductive
sectors (wholesale trade and services, etc.) from the actual data.

Second, to point out the clear pictures of structure of National Income inJapan.
The most correct index of National Dividend is the surplus-value rate.
So, it will be usefu1 to choose the surplus-value rate as the index to measure

the redistribution effects and adjustmentsby Public Finance on original
distribution.

The procedures of our analysis are as follows:( l ) Theoretical Model of National Income from the view point of Marxian
Economics.

(2) The memorandum about some procedures in application of the Model,(3) Data.
(4) Conclusion.

Qxiginal

Value of labor•power'v ti1'u' e<Origina 1 divi dend)

Wages ofproductimtel "R.

Surplus va!uem.

Original ineome
Transformation of• value
into original ineomecptoinceme Flgw

Sehemaof. I ationa!

Wages of un-productlve sector'Wagesofproductive

Wagesof"•un-produc•

seCtO;Ml tivesectorM2

R

ProfitM2

sector

Accumulationinpro.

Accumulationinun-•

ductivesectorIl.

productivesector.I2,'

Consumption{remprofitK

z
o
w
a
o
z
o
m
Hts

-

pt

StructureoS pu51id?ersotia!•incomo

CustomsandExcise• Businessprofits

taxes

taxes

taxe6

OthersSo,ciaLsecurities

finanee

JIXpenditureoncurrentgoo(rsan.dserviceB

Revenve

Government.sav.lng

Subsidies.E.xpenditutee"
Actual aneQme
f-..

Ml

+

M2

11

I2

K

ON THE STSUCTURE OF THE NATIONAL INCOME DISTRIBUTION IN JAPAN 161
2. The theoretical Model of National lncome from the view Point of Marxian

Economies.
The original national income is the total sum of the value created byproductive labour.
The value created by labourers in productive sectors is divided into valueof labour-power and surplus value.

Thus, the dividing structure of original income Y" is composed of wage(1)

ofproductive Iabourers in productive sectors W" (substantially corresponds

to value of labour-power) , and capitalists' profit R* (substantiallycorresponds to surplus value),

1.l VIV*+R -- Y*
and surplus value rate is R*
expressed by vv*.

Such an original structure of Income distribution is subjected to sometransformating effects.

In the first place, the transformation by unproductive sectors is brought
about.

(a) The aggregate profit can be re-distributed by the introduction of(3)

unproductive commercial sectors; i. e. the wage of commercial labourers
VJV2 and the profit of commercial capitalists R2 come in for a share of the profit

of productive sector R*, taking the service for circulating process of wares into
consideration.

1.2 W,+W,+R,+R,--Y,
So the surplus-value rate in terms of money can be transformed into
VV2+ÅíR,wf' • (i -- l, 2)

VV,+R, are varied torrjl7i:m ,The surplus-vaiue rate in productive sector, therefore,
being lessend by W2ve+ ,R2 compared with original rate.
(b) And if the unproductive consumption-cost sectors are introduced, theincome of unproductive sectors Y2 (W2+R2) would be expanded. This sector
is so called services sector, being purchased by aggregate income VV+R.

1.3 Wi+2VV2j+Ri+2R2j=-Y. (]L-1, 2,••••••, n.)jv

In the second place, we have the division of aggregate profit, which is162 NOBUKO NOSE

divided into Entreprenures' Profit (sum of the Corporation's Income ri andthe Directrate's Salaries r2), Interest for loan capital r3 and Rent r4.

Thus, some expansion being added in appearances, the original National
Income Y" are divided into sections.
i.4 :l.:Ri==2.ri•m (id==i.l'ft 2, 3, 4)

1.s y-=2Wi,i+2ri,j,m
i, 1' i, im
In turn, from the point of view of the structure of National grossExpenditure E, the National Expenditure is composed of aggregate consumption C (sum of consumption fund of labourers' Cw and capitalists' K)
and the Investment by capitalists I (sum of investment in productive sector
Ii and unproductive sector I2).

2.1 E=-C+l
We suppose that the aggregate wage covers consumption of labourers'
household, i. e. their propensity to consume is unity as a whole.

2.2 Cw=VV,+VV,
The capitalists' consumption fund is the value of aggregate consumption
minus labourers' consumption.

2.3 K-C-Cw
Deducing the consumption of capitalists' K from aggregate profit, we havethe investment by capitalists. Thus, the Profit are expended on capitalists'

Consumption and capitalists' Investment (Accumulation).

2. 4 R,+R2 == l,+I2 +K
Next, it is the Public Finance that has no less special significance about

the matter under discussion. The Public Finance (both Public Revenue andExpenditure side including local government's Finance) influences the income
distribution, and so is the second changing factor on National Income structure.

The Public Revenue .F'R collects the value FRwi, FRva2, FRk, Fm2, and
FRK from VVb VV2, Ib I2, and K respectively.

The contents of FR are Direct Tax sum of t(2VVi+2It+K) , In-tt
direct Tax sum ofT(2VVi+K) ,Social Insurance funds sum
iof T (2VVi+EIi) , and Surplus Public Enterprisesector X4.

;:

ON THE STRUCTURE OF THE NATIONAL INCOME DISTRIBUTION IN JAPAN 163

3. 1 FR= (t+7)EVV,+t(EI,+K)+TK+TEVV,+TÅíI,+X,.

ii ii

3.2 l7R=FRw,+Fnv,+17Tm,+FRI,-FFRK
On the other side, Public Expenditure FE gives the allowance l7Evvi,
17Ew,, FEii and FEi, to VVi, VV2, Ri and R2 respectively.

The contents of .F'E are Subsidies to capitalists , the expenditureof Social Insurance Fund to labourers , and employment of governrnent'

employees to labourers of unproductive sector ,etc.
3. 3 FE= 17Evai+l7EvTr2+ 17Eii +FEia
The value of effective financial adjustment, that is estimated by deductionof the payment to government (Public R) from the receipt from government(Public E), calculated on each income classes, can be called "net effect of

Public Finance".
By this effect, the surplus-value rate of economy as a whole varied to( VV, + Fva,) + ÅíI, + ÅíF,) + (K + FK)-:t Wl+Fm, '( var2, + Fva,,) + (I, + FI,) + (K, + FK,)andthatofproductivesectorvariedtOwri+Fw, '(IfWe denOte, ((ab)) Fmw2:.L17t; l22,}h'''b:roniutc21.IveectsoefcPourb. Iic Finance on Wb W2, ••-•••.)

Undoubtedly, the actual value represents the final one, which is adjusted
by the above mentioned factors. Therefore, we can represent the actual value as

W2'+EI'+K, W2,t+I,'+K,'
the actual measure in
the follOwing fOrM, wi, , Wi' '(by denoting for example as X+Fx= X')
IVote. This Model is founded on Marxian Econornics.
Cf. Karl Marx, ` Capital ', Vol. 1 and 3.

(1) The whole sectors concerning to produetion of material resource, rn this seetion thesurplus•value is produced. Speaking concretely, collecting industries, agriculture, manu.

facturing industries, a part of transportation and communieation industries belong tothis section.
(2) The whole sectors not coneerning to production of material resource. Concretely
speaking, circulation sector, i. e. wholesale and retail trade, and consumption-cost sectors,

i. e. service sectors belong to this,(3) Cf. Marx,`Capital', Vol. 3, Ch., 17,
Strictly speaking, division of Rl by introduction of commercial sector, eomposed M2
and R2 and value of depreciation of fixed asset in commercial sector, This last part

164 NOBUKO NOSE
is circulation-cost minus wage of comrnercial lobourers M2.
Also, the wage of Financial labourers are a part of circulation cost as a whole economy,

3. The memorand"m about some Procedures in aPPIieation of the Model.
In order to reach the original flow of National Income, supported by the, along the adverse path against the process ofabove theory, we must advance
the Model; i. e, by deducing each transformation effects from actual measuresin turn, we have to reach the original figures finally.

Then, the defects of the present use of National Income Statistics andTheory being undeneiable from in the view point of the Marxian Theory,some carefu1 procedures are necessary when we construct the data in correspondence to the above Model; these would be as follows:

I. We must divide the National Income into two categories, i. e. Wageand Profit. For example, the Earning Income includes the directorates' salaries

or annual allowance, etc. except pure Wage. So, it must be adjusted strictly.

Specially, the proprietors' income, occupying a considerable percentage in

National Income in Japan, need to be divided into proprietors' wage andproprietors' profit.

2. We must divide aggregate expenditure E into labourers' consumption
fund, capitalists' consumption fund and capitalists' accumulation (investment)fund.

In this case, we must regard the fact of self-consumption fund in Agriculture, Forestry and Fisheries sectors excluded from the calculation of E, andhave to be excluded this value from the iabourers' consumption fund.
3. The Wage and Profit which are estimated by the adjustment 1, and theconsumption fund of labourers and of capitalists which are estimated by the
adjustment 2, must be divided into productive sector and unproductive sector.
In this case, we must remark the fact that some unproductive labourers, i. e.
stuffs are employed even in the productive sector.

So we need to separate the number of these Iabourers in productive sector
from the number of labourers in productive sector.

4. The changing effects by Public Finance have to be investigated andmeasured from each side of the Revenue and Expenditure, and must be deducted,

ON THE STRUCTURE OF THE NATIONAL INCOME DISTRIBUTION IN 3APAN 165
Applying above procedures, we can reach and deduct the structure of original distribution of National Income in Japan.
IVote. In spite of the fact that a part of the Transportation and the Communication belong tounproductive service sector, we cannot separate them. So, we are obliged to treat them wholly

as belonging to productive sector.

g4. Data
1951 1. Actual distribution of National lncome million yen

868o.:B:svRm

I2

Ml

M2

&Fisheries

905,353

78,72678,799Mining76,10910,378

4!,295

16,368144,l50

80,515

20,12935,75915,O04

151,407603,473

25,997

366,660

146,Ol7 1,142,147

212,675

63,52623,303

1,878,125

198,756

545,816

o

66.1

6.9

19.2

o

7,8

100.0

215,465

86,366

737,267

Agriculture,Forestry

Construction

ManufacturingIndustries

Transportation,Comm-

unication&public

ll

I<

ooooo

totals31,838 1,094,716

9,616

309,120

utilities

subtotals%
Wholesale&Retail

oooo

Trade

435,436oooo

218,843 2,841,540

75,483
320,326

56,33922,323

154,145

Services

91,247447,803

Pub!icServices

166,428

5,618

36,2302,196

Finance&RealEstate%
totals%totals%"997,673o368,669

65.9

o

24.4

1,878,125 1,196,429

545,816

368,669

27.5

12.5

8.5

o

subtotalso43.1

174,242

147,115 1,513,457
9.7

100.0

365,958 4,354,997
8.4

100.0

1,878,125

2,475,872

4,354,997

43.1

56.9

100.0

Cf. Eq.

(l. 2), (1. 5), (2, 2), (2. 3) & (2. 4).

As forthe method of estimation in aetails, see Appendix.

Source ;`The Japanese Economy & National Income (Nippon-Keizai topublished by Economic Counsel Board, Japan.

I<okumin-shotoku)',NOSENOBUKO

166
1952

M2

Ml
Agriculture,Forestry&Fisheries
888ge'gg2A

million

2.

K

I2

Il

yen
totalstt

1,O04,689

130,738

84,44133,395 1,253,263

ooooo

MiningII5,347

15,72948,661

19,028

198,765

Construction

100,365

25,091

55,346

21,746

202,548

615,459

135,101

291,895

115,719 1,158,174

276,104

82,472

28,671

10,4742,111,964

389,131509,O14

o

65,7

12.2

15.9

o

6.2

100.0

oooo

520,599257,276

101,351879,226
207,288

ManufacturingIndustries

TransportationCommunica{on&PublieUtilities
subtatols%
Wholesale&Retail
Trade

oooo

397,721200,362 3,210,471

Finance&RealEstate

88,66484,72933,395Services

401,168

127,419

50,103

578,690

PublicServices

214,084

6,550

3,107

223,741o476,474

64,8

o

25.3

2,111,964 1,613,646

509,O14476,474

3L6

10.0

9.4

o 1,224,515

subtotals

187,956 1,888,945

tt%
totalso%

41.4

totals2,111,964%

41.4

Source :

9.9

100.0

388,318 5,099,416
7.6

100.0

2,987,452

5,099,416

58.6

100.0

ibid.

1951

3.

Public Revenue

millionyen%-xPersonalIncomeTaxes

M'1

M2

K

158,803

127,238

39,375oo325,416 28.2

Customs&ExciseTaxes

243,156

194,824

60,291oo498,271 43,6

BusinessProfit[l]axes

o

o

o

116,319i78,520

194,839 17.0

Surplusearned
byPublicEnterprises

o

o

o

41,43041,430

3.6

20,095

14,671oo34,766

3.

o

o

o

28,856•

19,47948,335

4.6

totals422,054336,733

99,666

186,605

97,999 1,143,057

%

36.9

29.4

8.7

16.3

Jl

SocialInsuranceFunds
contributed

byEmployees
SocialInsuranceFunds
contributed

byEmployers

1totals

I2

o

lo
8,3

100.0

DISTRIBUTIONIN JAPAN
THENATIONAL INCOME
ONTHESTRUCTURE OF
1952

167

million yen-----4,:-[l:Lx''..'t.t..'tt'''tt

Ml

M2

K

PersonalIncomeTaxes

155,774

147,276

37,074

Customs&ExciseTaxes

ll

I2

o

%

totalso

340,124 25.8

277,207

262,075

65,972oo605,254 45,7

BusinessProfitTaxes

o

o

o

127,118

119,234

246,352 l8.7

Surplusearned
byPub]icEnterprises

o

o

o

26,524o26,5242.0

22,36021,057ooo43,417

3.3

o

o

o

31,O1829,094

60,112

4.5

430,408 103,046

184, 660

148, 328 1, 321, 783

SoeialInsuranceFunds
contributed

byEmployees
SocialInsuranceFunds
contributedby Employers
455, 341

totals

%

34. 5

32. 6

13. 9

7. 8

Cf. Eg. (3. 1) &(3.

Note. Personal Tax
see Appendix.

and Corporation Tax include miscellaneous

11. 2

100. 02)
taxes burden.,

Source: ibid.

1951

4.

Å~-L.---.s.z

Ml

Currentgoods&services

Public ExpenditureTransferExpenditure

llI2

K

M2
o58.093oo

166,42oooo

236,152t

159,41396,022GovernmentSaving
58,093204,357o261,439

5.8

17.8

o

22.9

53.5

100.0

millionMl

Currentgoods&services

K

JM2
o85,079oo

TransferExpenditure

214,084
55,084

Subsidies

I2

ll

eo
ooo

302,836

yen

totals177,856%

694,776 52.5
140,163 10.6

o24,516o

38,915oo

GovernmentSaving
totals8.4

619,168 1,143,057

1952

Å~.--...L-....t....t.-xx%

561,993 49.2

25,28717,069 42,356 3.7
O442,686 442,686 38.7

oo

%

yen
totals37,929Subsidies

totalsmillion2.

447,929 1 34.0
85,079269,168

6.4

20.3

%
CL Eg. (3. 3)
Source :ibid.

As forthe method of calculation,see. Appendix (4).

ol327,3s21

O24.8

640,184 I,321,783
48.5

IOO.O

NOBUKO NOSE

168

minus Revenue)

5. Redistribution by Public Finance (Expendituremillion yen

1951

1952

Ml

M2

A363,961
A370,262

A132,376
A161,240

Il

74,834

521,169

142,692

491,856

A363,961
A370,262

1951,totals
1952,totals

A99,666
A103,046

363,961
370,262

from table 3 andThis is derived

K

I2

table 4.

6. The Changing Process of National

Income Distribution(CONCLUSION I)

1951

Aetualdata

nv1

M2

Il'

1,878,125

1,196,429

545,816

368,669

365,958

4,354,997

A363,961

Al32,376

74,834

521,169

A99,666o2,242,086

1,328,805

470,982

A152,500

465,624

4,354,997m!

M2

2,111,964

KI2

totalsRedistribution

byPublic
Finance
Originaldata

1952

Actualdata

Jl

i2

K

1,613,646

509,O14476,474

388,318

5,099,416

A370,262

A161,240

142,692

491,856

AI03,046o2,482,226

1,774,886

366,322

A15,382

491,364

5,099,416

totalsedistributien

byPublic
Finance
Originaldata

7. The Change of Surplus Value Rate (CONCLUSION II)
Decreaseofsurplus
OriginalSurplus

ItsIncreaseby

ValueRate

PublicFinance

YeaT

1952

bytheunprodu-

PublicFinancectiveSecter
rIP'2+EI+EKNKMI1 rif'2'+;-il+K'hkMlt1

1951

ValueRateofthe ItsIncreaseby
productiveSector

94.2%
105,O%

132%
142%(L'te,R-L)

32.8%
24.9%

(-UiK.,i-t)

40.7%
33.6%

DISTRIBUTIONIN JAPANINCOMEOF THENATIONALON THESTRUCTURE

169

Mi+2It+2K,Year

excluding A. F.
F. Industries

Mlt

235%
247%

1951

1952

For Reference : Surplus

Forestry

Value Rate excluding Agriculture,& Fisheries (Supplementary Concl usion ).

Supplementary Data

(1)

1951

Structure of Wage lncome
No.oflaborers No.ofstuffs

Aggregate
•x...

t.

Agriculture,Forestry&

Ml

M2

8%

102,858

8,944

WageIncome
No.ofworkers No.ofworkers
i'lll,802

92%

Mining85,03288u

1211

74,828

10,204

Construction

72,7138011

20ll

58,17014,543

ManufacturingIndustries

538,937

82!/

1811

529,236

9,701

Transportation&other265,343

77!1

2311

204,31461,029969,406

I04,421

Fisheries

productivesectors

1,073,827

totals1952

Å~x-x""VH.-..-

Aggregate

No.oflaborers No.ofstuffs

WageIncome
No.ofworkers No.ofworkers
Agriculture,Forestry&

Ml

or2

138,3I3

90%

10%

124,472

13,831Mining129,451

8811

1211

113,917

15,534

Construction

91,6278011

2011

73,302

18,325

ManufacturingIndustries

643,273

82!1

1811

527,484

115,789

344,458

7711

2311

265,233

79,235

1,104,oo8

242,714

Fisheries

Transportation&otherproductivesectors
totals

1,347,122

NN06.0off !awboOrUkreerrsS & NNo2'o7fw:rtkUeffrSs in Agriculture, Forestry & Fisheries derived from s. uesugi& others' ` National Income statistics in postwar Japan ', series of Nippon-Sihonsyugi I<oza, Vol.

IX, Appendix, p. 500. 0ther rates deriyed from "Establishment Census of 1951" publishedby the Bureau of Statistics OMce of the Prime Minister, Japan. This Census for 1952, yet
unpublished. So, 1952's rates in Construction, Manufacturing Industries etc. are obliged touse 1951's rates.
Source: ibid,

NOBUKO NOSE

170
(2. 1)

Å~Å~IncomeRate of Divisionrof Proprietors

1952

1951
av. wageÅ~-•1
av. proprletors
mcome

Agriculture, Forestry &Fishering

av. wage1- av. w?-gpm.,

av.proprietors'

av.proprietors'

av.proprletors

lncomemcome

lncome1- aV• wage.

89. 9%

10. 1%

89. 7%

10. 3%

Mining

6. 4 !1

93. 6 u5. 5 /1

94. 5 !1

Construction

43. 6 /1

56. 4 11

37 t/

63 !1

Manufacturing Indus-

56, 8 11

43. 2 11

56. 5 ,1

43, 5 /1

83. 6%

16. 4%

82. 7%

17. 3%

60,2n

39. 8 ll

58. 6 1141.4u

83. 6 11

16. 4 11

76. 7 1123, 3 11

Services

5L 8 1148, 2 11

46. 7 /1

53. 3 11

Others60. 3 11

39. 7 1166, 3 1/

33. 7 !1tries

Transportation & other
Productive sectors

Wholesale & Retail
Trade
Finance & Real Estate

The rates inother sectors

derived from

`The Japanese Economy& Income',

ibid.

Source : ibid.

(2. 2)

Income of proprietors

in uncorporated

establishments

1951

IncomeAgriculture,Forestry&

Profit

Wage

Ml

M2

872,277

802, 495
8

69, 782

970,386

98,109Mining

22,741

21,286

1,455

1, 281

174

Construction

64,062

36,131

27,931

22, 345

5, 586

ManufacturingTndustries

l59,389

68,856

90,53374, 237

l6, 296

Transportation&other

12,9882,130

10,8588, 361

2, 497Wholesale & Retail Trade

408, 022

162, 393

245, 629

Finance & Real Estate

4, 791

785

4, O064, O06

Services

205, 028

98, 824

106, 204

106, 204

Othersl, 655657

1, 849, 062

489, 171

Fisheries

productivesectors

totals245, 629

998
1, 359, 891

998
908, 719

451, 172

(3)

1951
-su--t..--Aggregate Proprietors

Corporations'

IncomeCompoBition of Aggregatc Profit

Directorates
Salaries.oclansurance

byEmployers'Rent

nterestor
Perso"surpusesin

Tips

PublicEnterp.

ProfitProfits

Agriculture,Forestry&Fishe;ies

110,637

98,109

2,092

265.7

193.3

Mining57,663

21,286

31,3793,985,92,9oo.1

Construetion

50,76336,131q23o

664

Manufacturinglndustries

512,677

68,856

347,780

44,176.6'

32,14S2.8

12,6tlO

32,9192,130

15,6891,992

1,450.1

128

Wholesale&RetailTrade
Finance&RealEstate

301,831

162,393

74,7869,4po

6,911.9

78,662786

32,9484,185

3,045.1

Services

127,477

99,481

13,074

1,660.8

1,208.4

Trsnsportationandotherproductive
sectors

PublicServices

2,oo5

nnual
Allowances

483.4

59,551A2,857
A1,88825,oa918,93325,04941,tBO

42,508.7

8,254

505,595.4

7,082

21,39011,529253,590.5

48,240863

133,961.2

6,484

2,549

5,265

43,982

Aca,9822,529 1,254,412.9

38,990

2,549

7,814

Adjustment

77,791.1

1,101

18,537

InterestreceiyedbyNon-Business
Section(SumofPerson'&'Goyern-

Profit113,494

10,82935,726

u-totament' )
totals

1,280,443

489,172

522,978

66,42948,335.1

37,731

18,537

1952
x'.t.L-+.'-.-t.''.tL-

ggregate.roprletors

ProfitProfit-orporatlons

IneomeDirectorates
Salaries

ociansurancei
byEmployers jRentnterestor
Persons-

erpusesin

Tips

PublicEllterp•

nnua
Alowancesu-totaProfitAgricttlture,Forestry&Fishering

117,836

112,1225,278

1,485.3

781.5

122,7!7

A4,881Mining

67,68927,92532,0769,O14.1

4,748.8

60,oo1

7,688

Construction

77,092

6,903

1,939,8

1,021.967,ca4.7

9,627

ManufacturingIndustries

407,61457,60082,602

205,451

57,736.1

30,416.7

13,068389,273.8

18,340Transportationandotherproductive

39,145

2,954

12,9933,651,2l,923.6

2,57.724,098.8

15,046Wholesale&RetailTrade
Finance&RealEstate

358,627

202,133

68,61919,283,4

10,158.9

118,624

1,371

60,091

16,887,2

8,896.6

Services

177,522

140,672

14,617

4,109.7

2,IM.I

sectors

PublicServices

2,9as

r-

105

3oo,194.3

A1,36043,652

22,896
3,245

9,657

InterestTeceivedbyNon-Business

Section(SumofPerson'&Goyern-

46,851

12,13446,851

26,524

130,761.8

A12,138

184,458,8

A6,937

3,245

6,412

58,985

A58,985

3,245 1,351,2oo.2

32,605ment' )
totalsII373,eo6l

627,379

Cf. Eg. (1.4)
Estimated from ` Japsnese Economy and National Ineome ', ibid.

406,028

1,141,068

6,O12.1

6,597

22,896

OF THENATIONAL
INCOMEDISTRIBVTIONIN JAPANON THE STRUCTURE

171

1952
IncomeProfit

Wage

Ml

MT2

1,099,236

112,122

987,114

888,403

98,711Mining29,55027,925

1,625

1,430

195

Construetion

91,42857,60033,82827,063

6,765

MallufacturingIndustries

189,889

82,602

107,287

87,975

19,312

17,072x't...''''--x

Agriculture,Forestry&
Fisheries

Transportation&other

2,954

I4,118

10,871

3,247

Wholesale&RetailTraae
Finance&RealEstate

488,24•5

202,133

286,112im

286,112

5,883

1,371

4,512

Services

263,585

140,491

123,094

1,O15,742

productivesectors

540

18!

359

2,185,428

627,379

1,558,049

OtherstotalsL

These tables are derived by

the following

procedures.

Income from side work isallotted into

each industry

4,512
123,094359
542,307

and added to PrOprietors'

income ineach industry.
2.

Proprietors' wage derived

from proprietors' income Å~

3.

Proprietors' profit derived

from proprietors' income

4.

As for division of Wages

into ori & n72, dividing rates

average wage
average proprietors'

Å~(l-

mcome

average wage
average proprletors
for wage income (see''Table 1.1)

are applied.

(4)

RevenueStructure of Public
From

Xt

PersonalTaxesXl

Customs&Excise

Ml
MLXEM+K1

M2
Emlll\rTKXi

Finance Revneue

Koo-S/R-1x3X4oERRIx6

MlX22JP'+K

Eif!l:lilKx,

Surplusearnedby
publicenterprises

Xq
SocialInsurance
Fundscontributed

byEmployeesXs
SocialInsurance
Fundscontributed

byErnployersX6

ooginX5ooo2MiXso

R2

K2XlEJ7+K

KX22ur+l<

TaxesX2
BusinessTaxesX3

Rl

oooo

)

mcome

ooRÅíf2.,X3ooR2ftX6

NOBUI<ONOSE

172

Expenditure
Ml

To

zi

Currentgoods&

K

M2

ServicesZi

Ztl*

Transfer

EN
N2z2

o2NNIz2oo

ExpenditureZ2

SubsidiesZ3Rl

R2(Z,-Zt,)gt

oooo(Zl-Zi)-Sit}-

ogtZ3oooGovt,SavingZ4

Å~
or1

1952

48.8

1951

1952

45.8

59.7

5L6

39,1

43.3

40.3

tl8.4

12,1

10.9

---

~
Ml

Rl-SitTtR2Tt

Enr+K
M2
2Jl7+K

K

1951

sw+K

TmM2

Yt

1951

1952

57.8

51.5

42.2

48.5

Z'i*=(Numbers of Government Employee)Å~(average wage), EE=Total fiscal expenditure(including local one), El= productive fiscal expenditure, E2 ==unproductive fiscal expenditure,

EIV==No. of workers, Nl, IV2 =No. of productive, unproductive workers respectively.

(5) Self Consumption in Agriculture, Forestry & Fisheries
EngelCoeMcient

CtWl

Ctw2

1951

53.2

426,927

35,728l952

51,2454,862

50,540consumptlon fund Cw, inNote. Self consumption Ctw must be deducted from all labourers'

order to attain K from aggregate Expenditure E.

C=:(2wl-C'w)+K cf. 3,
estimating Ctw as proprietors' income in Agriculture, etc.

sectors X Engel coeMcient in them, Ctw can be calculated.
Source:White Paper for l952, Japan, Table (2).

(6)

Division of

Employment
ten thousand persons

Nl

N2

ENi

1951

836

545

1952

877

568

li

h

1,381

60.5

39.5

1,445

60,7

39.3

i

ON THE STRUCTURE OF THE NATIONAL INCOME DISTRIBUTION IN JAPAN 173
Ari==No. of productive labourers
IV2 =No. of unproduetive labourers

ENi--Sum of IVi and N2i

ll= iGNII

l2 =1-tl
Source: White Paper, ibid.

5 Conclusions.
Deriving from above theoretical model and data, our conciusions are as
follows :1. (Cf. Table 6)
Deducting the adjustment effect from each actual measure of National

Income W" W2, Ii, I2 and K, the whole aspect of the original National
Income in Japan is made clear.

2. (Cf. Table 7)
Referencing to the movement of the surplus-value rate, we can understand the changing process of original structure of Income distribution.

3. (Cf. Supplementary table of Table 7)
The surplus-value rates in all Japanese industries except Agriculture,
Forestry and Fisheries are the most correct rates of exploitation in such of
the industries. They are high rates, as Table clearly shows. The rates are
distinguished from the surplus-value rate in Japanese manufacturing industry

which have been investigated heretofore.
Main points are as follows :(a) Our research is deduced from Japanese National Income statistics.
(b) Our research regards the re-distributing effect by public Finance, andefforts to measure it.

(c) As compared with the method used before research, i. e. the investigation

limited to over 30 men establishment in the manufacturing industry, ourresearch endeavours to cover a wider scope.
Note. 1. As for the computation of surplus-value rate in the Japanese industry, see. S. Uesugi& othres, `The estimation of surplus-value rate in Japanese Industry', reprinted in theseries of `Nippon-Shihonsyugi I<oza', Vol. VIII and IX,NOBUKO NOSE

174
Help and Advice generously

given by Vice

Professor Nobuo Okisio of

the UniversityofI<obe, and Vice Professor

Tetsuya Nose of the Kobe Commercial

College shouldbeparticularly acknowledged.

THE RESEARCH INSTITUTE
FOR ECONOMICS AND, KOBE UNIVERSITY.
BUSINESS ADMINISTRATIONThe Institute was founded in 1919
attached to the Kobe University (theKobe Higher Commercial School atthat time) with the endowment fundof the Kanematsu Company, thepioneer firm of Japan-Australia Trade,which provided the school with thebuilding and the fund to carry on
the research work. In 1949, the Insti-

attached to the Kobe University, maintainedtute became an othcial organizationby the national treasury.

The aim of the Institute is to earry on
Industrial Economy in its two teams of

the scientific and synthetic study ofManagement, Accounting, Rationalizationof Industry and Labor Problems.

research work, namely, the Research
Team of rntermational Economy and the Research Team of Business Adminiseach taking charge to carry on
tration. The former comprises four sections,- International Finance andEconomy,research work on Foreign Trade, Marine
Commerce; the latter comprises fourInternational Rules and Agreements onon the research work on Businesssections, each of which undertakes to carry
have special sections closely relating
Besides these regular research sections, weto the regular research sections to carry on special research works by a Committee

economy, two committees for special
study the Committee on Asian Economy, andthe Cornmittee on Latin Americanof Specialists. In the field of international

Economy, have already been inaugurated; and in the field of business administration the Cornmittee on Company Accounting has already begun its work.
These special research works are carriedby extra-Institute and extra-Versity researchon by the faculty of the Institute andworkers.

The results of the research works are published on the Kobe Economic & BusinessEconomic Review and the Kobe UniReview, the Kobe University Internationalversity Business Revievv (each published annually) and on the rnonthly journal"Kokumin Keizai Zasshi" (Journal of Economics and Business Administration),and sometimes in book forrns treating individual
themes.
The Institute has a research staff of 21 members anda secretariate of 11 clerks.

1

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THE RESEARCH INSTITUTE FORECONOMICS & BUS:NESS ADMINISTRATrON
KOBE VNIVERSITY

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GROUPOFINTERNATIONAL I GROUPOFBUSINESSiECONOMICRESEARCHl ADMINISTRATIONRESEARCH
ii

Ginjiro SHIBATA

Professor of International •Fukuo KAWATA

professor of Internatienat lKiyoze M]yATA
Hiroshi sHINJOTorasaburo NoMuRA

TarO KAwAKAM[
Jire YAo

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SUSUMtt WATANABEProfessor of Acceuntmg

Ttade andiMarinc :Economics I Minoru BEIKA

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Secretary : Teshio HARA

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Director : GinjirO SHTBATA

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Seiji SASAKI

Hikeji KATANO
Masahiro FuJTTA

Yas"taro HIRAI

Trade
:
I

YoshSmeto KoeAyASHIProfcssor of Business
Management
Prefessor of Busincss
Tatsuo GoAMr

Professor of •professor of liInternational Finance:Transportation i'

Maehimery?rofesser of prisrate l

Tadakatsu INouE

lntornatienal Law lprofessor of lAssistant Professer ofBusincss HisteryInternationar Finance i
Assistant Ptofessot of i

Hidee KITANT

Marine Economics i'

Munehite MAsuzAKIEnginecr of Busincss

Machinery:
Trade section l
iAssistaptl in :Intetpational Finapce :Assistant in rnternatiopal i

Nebuko Nosk

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Assistant in AccountinglSectlonilAssistant in Sociat

Accountlng Sec"enTsunejiro NANeA

Sectioni,i

Assistapt in Bnsiness
Administratien Sectiop,

Engineer of Business

Hiromasa YAMAMOTOAssistant in Marine :Ecenomics iSection :Machiperyl

The Kaneniatsu Metnotial Hatl,

UNIVERS[TY
THE KOBEROKKO,KOBE, JAPANiva fl 30 ee 3 A 25 H pp raU

ma" 30 va 3 A3e H Xa"v

Ptofessor of Business

Administratien

Professor of Economics l

Ofice:

Professor ef Plapt

Locatlonut

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mo p nt g ca t, pt k astwp)k ge.retwffeM?tm

EP MI fifi
as ft pt X rp M J[1 th ty

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