ECONOMICBUSINESS&
7th

ANNUAL REPORTessSVTE'eoe'//e..'[liiii.).,E"

THE

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

Ig6oCopyright, 1960, by The Research Institute forand Business Administration, Kobe University

Economics

KOBE

ECONOMIC & BUSINESSREVIEW
7th

ANNUAL REPORT,<if••,;•THE

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

lg6o

CONTENTS

Page
Japanese Emigration and Its Effecton International Payments ...............

.

........Ginjiro

SH!BATA 1.........Hikoji

KATANo 15'
One-to-One Correspondence
Between Goods and Factor Prices..........

.

The Gold Standard and Banking Capital in Japan ........Masahiro FuJiTA

21

World Trade and Economic Growth-On Professor Nurkse's View- ...................,Fukuo KAwATA

39

Singularity in the Structure of the Seamen's Union ofJapan'-In Comparison with Enterprise
Union- ... .. .Hiromasa YAMAMoTo

47

Some Reflections on Inter-Comparabilityof Social Accounting .....................,...........,Nobuko NosE

The ptCeaning of Inventories ......................

59.,..Susumu WATANABE73

Structure of Income Determination on the Balance Sheet .,..Ryuji TAKEDA 83
On the Value of Stock Rights and Its

Significance in Corporate Finance ..........................Jiro ONo 95
Business Features and Management Policies
of Industrial Enterprises in Local Districts ofJapan ......Minoru BEiKA 107

JAPANESE EMIGRATION AND ITS EFFECTON INTERNATIONAL PAYMENTS

Ginjiro SHIBATA

1 Introduction
The problems of the balance of international payments in relation to migration may be classified in three phases: (1) international payments causedby sending out emigrants; (2) those arising from the settlers themselves; and(3) those arising indirectly from the fact that a number of settlers have Iived longin a certain foreign country. (1) and (2) may be said to be payments in direct
relation to emigration, wherein the former includes such items as passage fare,personal effects and money carried out by emigrants, etc.; while the latter are
remittances to their rr}other countries, tourist expenses while visiting there, im-ports or exports, and investment to and from there on account of the emigrants,
etc. (3) may be said to be payments in indirect relation to emigration, wherein

is included an additional part of foreign trades, investments and other inter-national transactions between both countries, the emigrated and immigrated,by the fact that a number of emigrants have lived long in the latter country.

The items included in (I) and (2) can be calculated from statistical data, if
available, while the items in (3) can not be easily estimated statistically sincethose amounts which are due to the settlers can not be distinguished from thosewhich were born ofother reasons, and so we can only hazily surmise that if such
settlers had not been living in that foreign country, whether investments or otherbusiness transactions would have not risen and developed as they actually did.

Furthermore, the words `Cthe balance of international payments" can becalled into question. Since international currencies are based on the dollar andsterling and the control of foreign exchange is rigidly fixed, the words were under-

1

2 GINJIRO SHIBATA
stood immediately as being a synonym for the balance of dollar and pound currencies retained by the Japanese Government. But their function as a currency
will be generally the same as the national currency; that is, even though theabsolute quantity of dollars retained remains unchanged, the frequency of its

turnover may give impetus to an extreme increase in international trade, andbesides in international transactions without any foreign exchange, so-called
open-accounts, the national income may be well expected to increase considerably.
Therefore, international transactions which have no direct effect on the national

holdings of international currencies but on the national income shall be included
in an account which ordinarily is called the balance of international payments;
in other words, here we will interpret the balance of international payments ina broader sense.

When we argue on the balance of international payments, the treatment
shall be done based on actual figures. Although in every country the figures
relating to visible trades are available, the actual figures of invisible trade can

not be easily obtained and are not so reliable even if obtainable, than those ofvisible trade which are readily available and their reliability high in general.

As to the following research, some parts of the data can be expected to be relatively trustworthy, but others are not suMciently definite or were not available

by any means. Then, here we will estimate the figures analogically from otherdata in the case of iack of direct data, and moreover in order to equalize thediversity of the data the results of the estimation will be shown in round numbersin the final analysis.

II International Payments at the time of the Departure of Emigrants
A direct effect of emigration on international payments occurs at first frompassage fares paid by emigrants to foreign ships, the money and articles they
carry out, etc.

As to the shipping of freight goods, it is dealt with as invisible trade in thestatistics of international payments only when the shipping is done on board

Japanese ships. When the goods are imported by foreign ships, the shipping
freight will be included in the value of the goods as visible trade in the CIF
value, and the freight will not be included in general in the exports value, since

it is shown as FOB value.
This treatment is merely a statistical technique which is intended to keep

3JAPANESE EMIGRATION AND ITS EFFECT ON INTERNATIONAL PAYMENTS

world balance in the face of the balance sheet of the international payments ofwhole world. But as a matter of fact only the freights actually paid to foreign

ships are concerned with the balance of international payments of each country

and those paid to Japanese ships are not concerned with the international
payments ofJapan, even if the latter is paid in foreign currencies. This relationis the same as in the case ofa passage fare.

Personal effects carried out by passengers which are generally made inJapan are ordinarily considered as things having no concern with international

payments. But these have the same nature as exports without compensationor donations sent abroad, and shall essentially be included as one item of inter-national payments. In the statistical table of foreign trades, they are enteredeither under the item "Travelers' Personal Effects", or as independent items ifthey are fairly high-priced, such as agricultural implements. Exports withoutcompensation or donations abroad shall be added on the side of the loss accountof the balance sheet of international payments; nevertheless, in fact they are
registered as normal exports which mean international receipts on the ba!ance
sheet of international payments, whereat we find the sole misleading point fromthe point of view of international payments.

Money and personal effects which are carried out by the emigrants are
generally procured from the consolidation of their own real estates and personal
properties in Japan, or by debts. The consolidation of real estates and personal
properties is a quite difficult matter, because the price is apt to be hammered

down, advantage being taken of the emigrants' necessity. "International Migration", a periodical published by the International Migration Research Society
reported two investigations, which were carried out by inquiries made to emigrants,in the January, 1959 edition, One was the result of an investigation which
concerned a group of emigrants of 17 families for Bolivia on board the S. S.

"Brazil Maru" in May, 1958. Their procurement of funds for emigration was\ 1,698,200 in total, that is, about \ 100,OOO per family. The other was that con-cerned with an emigrants group of 126 families for the South American countries

on board the "S. S. Argentina Maru" and "S. S. Africa Maru", which both sailedin June and July, 1958 respectively. Their consolidated properties amounted
to \36,227,OOO in total, that is \287,500 per family. In these cases, the acturaldisposed value and their expected procurable value are shown in Table 1.
According to the investigation of the above emigrant families the procured

money was appropriated as follows: the money taken with them was 36.50/o,

4 GINJIRO SHIBATA
Table l. Difference between Expected Procurable Value and Actual Disposed Value.
No. of
Items

Expected

Value

Actualo/o

Disposed Value

Houses75

18,218,OOO

11,810,OOO

64.8

Farms

68

35 "2 OOO

51

1 762 OOO

1 484 OOO

84.2

Farm Implements

20

))
))
330,OOO

62.9

Livestock)))e
428,OOO

22 310 OOOFurnitures and'others

15

548,OOO

293,OOO

53.5

78.5

the repayment of debts and reserve money for kinsfolk remaining at home,34.80/,, personal effects carried with them, 27.80/. and unknown, O.90/,.

In order to leave one's own country and to emigrate, such a meagre amountof money as the above is so deficient that they generally ran into the debt ofa certain company. The Japan Emigration Promoting Company (NipponKaigai-IjO Shinko Kaisha) made a loan to 56 families of emigrants for Paraguay,

Bolivia and Dominica from 5 prefectures, Yamanashi, K6chi, Fukuoka, Fukushima

and Tokushima, up to \500,OOO each per family and in total \23,909,OOO.
This loan was almost entirely spent for farm implements which were to be usedon their plantations in Latin America.
The results of the above investigations are not always applicable in all cases.

The Centro de Estudos Sulamericanos, Universidade de Kobe (Kobe-Daigaku Nanbei Kenkyukai) made a direct investigation concerning various items

about 49 families (278 persons) who were embarking for Paraguay and Brazil
and putting up at the Kobe Mediation Ofice for Emigration (Kobe IjU Assenjo)
under the guidance of Assistant Professor Hiroshi Saito. This result has beenshown in detail in its organ "Estudos da America do Sul (Nanbei Kenkyu. 5th
annual edition) and it shows that the amount paid differs greatly according to
the kind of vocation they plan to take up in the countries to which they emigrate.
That is, 10 families who were to emigrate to Brazil to work in sericulture procured

a fund of \282,OOO per family on the average, while the other 11 families who

were to emigrate to Paraguay for colonization had to procure an amount of\887,OOO per family. The personal effects bought by these funds were quite
different in each emigrant group case. The Paulista sericulture emigrants did

not pay for any farm implements but for housing materials, that is, bedding,various furnitures, sewing machines, watches, irons, boots, and shoes, cameras,

sporting goods, amusement goods, gramophone records, books, medicines, buddhist altar fittings, etc. On the contrary, the colonist families for Paraguay

JAPANESE EMIGRATION AND ITS EFFECT ON INTERNATIONAL PAYMENTS 5
generally took with them farm implements besides their housing materials, thatis, sprays, mowing machines, motors, threshing machines, mi11ing machines,
rice-cleaning machines, bicycles, sickles and other simple farm tools. But theabove investigation did not refer to questions of whether within their net proceeds

their passage fares, money carried with them and amount of repayment of old
debts were included or not, or how much they got in loans besides the above

procured fund. Therefore, according to this investigation, how much money
was carried out in the form of personal effects and productive goods and how
much was carried out with them in cash can scarcely be estimated by us. They

procured real estate in Paraguay from the Japan Emigration Promoting Company who sold them in lots of 25 hectares per farnily for \133,OOO in cash, or\ 144,OOO in yearly instalments (\72,OOO in advance and the remainder payable

within 3 years after 2 years unredeemed.). Besides, they must carry \300,OOO

in cash per family on demand by theJapanese Government. Thus, a sum from\372,OOO to \433,OOO had to be appropriated for buying real estates andas cash to be carried out. This may be the very reason why the emigrants for
Paraguay received fairly higher proceeds than those ofother emigrants. However,since money for real estates is paid to the Japanese company which had early
invested on a large scale in land in Paraguay, that money was of no more concern in the balance of international payments.

The amount of the personally carried-out money is generaily determinedby the regulations of the immigrating countries, while emigrating countries also

generally, or in each case, regulate the amount of carried-out money, based
upon the regulations ofimmigrating countries. For example, in 1958 emigrants
to Bolivia carried \180,OOO per family, those to the Guama district of Brazil\ IOO,OOO, those to the Fordlandia district in Brazil \ 120,OOO, those to Paraguay\300,OOO, those to Argentina \200,OOO (fund for farming) and \350,OeO(transportation in immigrating countries), etc. Therefore, generally speaking,the carrying-out money of emigrants to South America, excluding the investment

fund, was from \100,OOO to \300,OOO, that is, on the average about \200,OOO
per family.

Emigrants to South America numbered about 8,OOO persons or 1,500 families
in the yearly average since 1956 and we can roughly estimate from this fact thatthey carried out a total of about \300,OOO,OOO in cash during a year.
Farm implements, furnitures, consumable goods and other personal effects
which are considered as exports in substance are quite different in kind according6 GINJIRO SHIBATA
to the occupations and living circumstances in the immigrating countries. The
farm implements that they took were once investigated in 1958 of the emigrants
to Paraguay (46 families), Bolivia (8 families) and Dominica (2 families) by themembers of the International Migration Research Society. According to thisinvestigation, the emigrants to Paraguay carried farm implements in wider
varieties and greater quantities than others, amounting to \446,113 per familyon the average. On the contrary, the emigrants to Bolivia carried farm implements valued at about \258,780 on the average per family and those to Dominica

averaged \276,880. We think the former example of emigrants to Paraguay
rather exceptional and the latter two cases more typical, because the former
included 36 automobiles, rear-cars and trailers, about 100 various farm machines

and they appeared to have emigrated as an entire village. Thus, generally
speaking, we can roughly estimate that one family carried farm implements andpersonal effects to the amount of about \300,OOO in ordinary cases. As a result,about \450,OOO,OOO of farm implements and personal effects were carried out
by emigrants to South America in total, since the families were computed atabout 1,500 per year since 1956.
The passage expenses of emigrants are usually met by loans from the foun-dation, "The United Associations of Japan for Emigration" (Nippon Kaigaikyokai Rengokai). The foundation advances passage expenses from the portof departure to the port of arrival at the rate of 5.50/. per annum, redeemablein 4 years and payable in 8 years in annual instalments. Passage fares are mostiy
fixed; ordinary 3rd class for an adult is $355 to Brazil, $380 to Argentina, $490

to Colombia (2nd class of cargo-boat), $600 to Chile (ditto.) and $580 to Peru
(ditto.), and for juveniles it is one half of the above rates.

. According to statistics of 1958, Japan sent out 7,492 emigrants abroad, of

which 7,258 were to South America, 232 to Central America and 12 to North
America, excluding those travelers who went at their own expenses. The ageclassification of emigrants are somewhat different in each case; but according to
the Brazillian Statistical Yearbook, about one quarter ofimmigrants were children;

while Japanese emigrant statistics show that with in these last few years emigrants to Brazil under 12 years of age formed yearly from 250/o to 270/, of thetotal. The annual number ofemigrants were estimated to be about 8,OOO persons

during these last three years as mentioned above. And the number embarking
on foreign or domestic ships can be estimated based upon a report provided by
the Foreign Section of the Ministry ofTransportation, Japan. According to thisJAPANESE EMIGRATION AND ITS EFFECT ON INTERNATIONAL PAYMENTS 7
report, the number of planned emigrants sent out from 1952 to 1957 were 22,402

persons, of which 16,406 persons sailed on Japanese ships, 5,925 persons on
foreign ships, and 44 persons went by air; that is, about 730/, of them paid fares
to Japanese ships and about 260/, to foreign ships. Besides the planned emigrants,

there were so-called "summoned emigrants" whose number was about 100/o ofall emigrants and almost all of them went by Japanese ships. So we may saythat 750/, ofthe emigrants were sent byJapanese ships and 250/, ofthem by foreign
ships; that is, about 6,OOO emigrants paid their fares to Japanese ships, while

2,OOO emigrants paid to foreign ships. And since for the most part the emigrants were those who went to Brazil, the passage fares mentioned above may
be averaged as $360, and when adults are estimated as three-fourths and juveniles
as one-fourth, the passage expenses paid to foreign ships in a year would total\259,OOO,OOO, or \260,OOO,OOO in round numbers. 'As almost all passage fares are paid by loans, they must be repaid some timeor other and at that time the amount of fares which are paid to foreign ships
must be added to the side of receipts in the balance of international payments

and offset the amount paid in the past.

III International Payments arising after Emigrants settle downin Foreign Countries
A most important item which arises after emigrants permanently settle
abroad is the remittances to their mother country. The remittance is sent withvarious intentions, that is, to help their relations at home, as contributions,

donations, loans, repayment of debts or investments in their mother country.
In Italy, Netherlands and China, remittances from their emigrants have always
been one of the greatest items of their international revenue, but in Japan thisitem accounted for \50,OOO,OOO (equivalent to above 20 billion yen at present),
that is, formed only 100/o of the invisib!e trades even before the War.

After the War this amount decreased extremely and according to a governmental report of 1956 personal remittances from abroad (including those fromforeigners and non-emigrants) were only 3,400 Million yen, that is about 170/,of the pre-war remittance.

The means of remittance to the mother country from the emigrants ortheir descendants is not only through banks but to ask friends who visit theirmother countries to take it with them, or to include it in business expenses oftrade companies or to remit through other routes which are not regular. Even

8

GINJIRO SHIBATA

though they are remitted through the banks regularly, whether they are emigrants or not can not be ascertained by any of the public reports. Therefore,
here we shall estimate it through other data. The United Associations ofJapanfor Emigration has investigated , by means of an enquete, this item from about
107 visitors to Japan in 1957. Among these 107 visitors, those who remitted totheir homes in the previous year were 54 persons and the sum was \29,662,200.
If we apply this sum of money to all the visitors of 5,514 settlers and their de-

scendants in 1957, those who remitted to Japan would be 2,773 persons andthe sum of money can be presumed to be \l,523,429,OOO. The population of
settlers and their descendants who Iive abroad are said to be about eight hundred

thousand. It would not be an overestimation, therefore, to say that the sumof remittance from them to be somewhere around twice or more the amountshown above. Then, the amount of \3,OOO,OOO,OOO would not be, by anymeans, an overestimation, but it would be rather an underevaluation, as comparedwith the governmental report mentioned above.
,
Japanese residents abroad,most of whom are settlers and their descendants,
always send various articles to their mother country as donations. The United

Associations ofJapan for Emigration has estimated this item according to theenquete of about 107 visitors, like the remittance shown above, and they foundthat 102 persons out of 107 persons brought a present with them, and that it

was on the average about \119,670 per head. Since the visitors totaled 5514
in the same year, the articles they brought in amounted to about \629,408,180.

The United Associations made a further enquete about presents sent toanyone in Japan during the previous year. Those who sent a present to Japan
were 230/. (25 persons) and it amounted to \429,780, that is, \ 17,400 per head.

We extended this amount to the total visitors during this year (5514 persons)and got \22,411,200 as the sum of presents sent from Japanese settlers.
In such fashion, the articles imported in to Japan in the form of presents
and donations from the settlers and their descendants during the year 1957 were

reckoned as \651,819,380; and from this we roughly estimated the total imports
of a presents and donations from all emigrants abroad by doubling this amount,and got about \ 1,300,OOO,OOO in round figures, in the same manner we estimatedtheir remittance as stated above.

The next item which is related to the balance of international payments arepassage fares paid to Japanese ships or air lines by the settlers who visit theirmother country. All expenses paid while staying in Japan are also related to9JAPANESE EMIGRATION AND ITS EFFEaT ON INTERNATIONAL PAYMENTS

the balance of international payments.

There was a total cessation of such visitors during and immediately after
the war, but since then they have increased year after year, and in 1957 those
who were admitted into Japan were counted as l25,294 of whom the settlers andtheir descendants were 5,514. Among the latter 2,586 were ofJapanese descent
but with foreign nationalities, and the remainder were original emigrants, Fur-thermore, out of the 5,514 persons those who landed in Yokohama Port were2,995, at Haneda air port 2,243, and in Kobe Port 276; and from the UnitedStates there were 1,714, from Hawaii 2,705, from Brazil 741 and from other SouthAmerican countries IOI who visited Japan (based on Judicial Statistics, Department ofJustice, 1958).
2,252 of them used foreign ships, 2,243 came by foreign air lines; those whocame by Japanese ships were 1,O19 persons and by Japanese air lines were 1,155
persons. That is, the passage fares of 2,174 persons were related to the balanceof international payments of Japan. Based on the passage tariff of Japanese
shipping companies (O, S. K. Line and N. Y. K. Line) and classifying the passenger-classes, the United Associations of Japan for Emigration estimated thetotal one-way-passage fares Japanese ships received from them as being \128,585,OOO ($351,181) and if we assume they returned by Japanese ships again, thereceipts ofJapanese ships would double, deducting those of permanent homecomers (142 ship-passengers and their fares as \22,563,OOO) from the latter,and it would amount to \234,607,OOO in total,
The air fares paid to Japanese lines were estimated in like rnanner by theUnited Associations. Among 1,155 persons who came by Japanese air lines,
via Los Angeles-Tokyo there were 580 persons (lst. class 174, Tourist class 406)

and via Honolulu-Tokyo 575 persons (lst. Class l73, Tourist class 402) and thetotal of these one-way fares was estimated at \I99,979,200. Since a return
passage is usually discounted 100/,, and in this case 25 persons remained in Japan

permanently, the total fares they paid to Japanese air lines were \355,515,OOO,

after deducting the above items.
The total fares paid to Japanese transportation, shipping and air, by thevisitors in question can be estimated at \590,122,OOO.
The visitors must spend their money for living, touring the country, shopping

and various amusements during their stay in the mother country. According
to the United Associations' enquete about this item to the visitors they found thatone visitor spend about \3,476.lO per day and the length of their visit was 164.29

10 GrNJIRO SHIBATA
days on the average. So one visitor spent \571,088.46 during his stay in Japan,
and since the visitors were totaled as 5,514 persons during this year, the total

consumption of the visitors this year amounted to \3,148,981,818.

According to another report, which was edited by the Tourist Bureau of
the Department of Transportation in 1956, ordinary tourists to Japan spent
daily Sl1 or \3,960 per head. In the results of the enqu6te, the daily amountof consumption of \3,476,10, does not seem to be so large an error in itself,
because generally speaking a long term stay usually becomes cheaper relatively.
Besides the several items estimated above (that is, remittances, presents anddonations, the transportation and consumption of visitors), the export ofJapanese

articles which emigrants settled down abroad want to directly consume shallbe added. As the settlers, even those who emigrated a long ago, do not liketo change radically their Japanese mode of living, and besides articles that theywant are scarcely produced or cost very much in their settled country, they must

import them from their mother country where they have acquaintances to correspond with, Therefore, the amount ought to be in proportion to the population of settlers in each settled country.

And the value of the export of special goods which are consumed or usedby only Japanese settlers can be estimated to a certain extent, because thesegoods can be discriminated from other ordinary goods. But it is quite difllcult

to dicriminate the value of ordinary goods which are actually consumed or used
by Japanese settlers from those of other exports, according to any available reportpublished.

The special Japanese goods we call here are foodstuffs, condiments, textiles,

amusements, kitchen utensils, and other goods which are of Japanese styleor of Japanese taste. We picked out 102 items of those goods from theforeign trades statistics of 1956 and totaled their export value. The result is
as follows.

The final item which is directly connected with international payments
is the capital investment of the settlers in their mother country and those of thelatter to the former. The capital investment made both ways in recent years
comes to a pretty amount in fact, but the figures for this amount are not available

or is very diMcult to estimate, even roughly. Since this item is one of the mostimportant items of international payments, an accurate report should be preparedby the government or some financial organization.

JAPANESE EMIGRATION AND ITS EFFECT ON INTERNATIONAL PAYMENTS 11

Table 2. Exports of Special Japanese Goods as compared with General Exports, 1956.

(in \1,ooo)
United States .......

...6,334,153

Bolivia ..

....19,655

Chile ...

.....5,674(161,721,720)

Hawaii......

.....594,121

Canada ....

.....168,t142(428,040)(2,485,440)(1,401,120)....85,426

Brazil .. ,..

(16,254,360)

Mexico ..,..

......29,679(12,031,920)

Argentina. .. .... .

Cuba ...... ..

...,.128,714....40,O02.

(2,643,720)(28,484,640)

Paraguay ...........

.........4(1,747,440)

Colombia... ..,.

..,...49,132

Peru ......

.....215,936(190,440)

Uruguay . ...

.

....17,359(741,600)(2,555,640)

Venezuela(1,796,040)...151,564(4,825,080)

Total. ...................................7839861))(237,307,200)
Note: The figures in parenthesesi show the total exports from Japan in the same year.

IV Balance of International Payments arising directly from Emi.
gratlonThe facts and estimations mentioned above are those with direct relation toemigration or emigrants from Japan. The annual totals of all amounts in those
items are shown as follows, of which we have to note that these estimations aredone in the rough, although we believe them as to be reasonable. Besides, thefigures are in regard to only l956, l957 or 1958. Therefore, a further enquete
needs be done in the near future and a new estimation at least should be done

again. (All figures are shown in \1,OOO)

I Payments:1. Money carried out by emigrants .................. 300,OOO
2. Articles carried out by emigrants .................. 450,OOO
3. Passage fares paid to foreign companies by emigrants .. 260,OOO
Total payments at the time of departure .............. 1,OIO,OOO

II Receipts:1. Remittances to Japan ......,................... 3,OOO,OOO
2. Articles sent or carried as gift ...................... 1,300,OOO

12

GINJIRO SHIBATA

3. Passage fares paid by visitors to Japanesetransportation companies ........................ 590,OOO
4. Staying expenses of visitors ...................... 3,150,OOO
5. Exports ofJapanized goods to the settlers ............ 7,840,OOO
Total of international receipts ...................... 15,880,OOO
Balance ofinternational piyments .................. +14,870,OOO
The final result shows that the net receipt in the balance of international

payments in regard to Japanese emigration was \14,870,OOO,OOO annually inthese years. This amount is thought of as rather a moderate estimation, andis believed to have greatly increased since then.

V Indirect relation between Emigration and the Balance of International Payments
When the number of settlers increases on the spot and their economic situation is raised, the international relation between Japan and the foreign countries

will become more intimate, and foreign trade, capital investment and othereconomic relations between them will open up new developments. From anational point of view, this must be the final aim of emigration.
Of the indirect influence of emigration on international payments, the mostremarkable facts are the advancement of tbreign trades and investment. But
to estimate the grade of that influence is quite difficult, as an advancement owing

to the emigration proper can not be discriminated from that caused by otherreasons, Foreign trade and capital investment will still rise and increase regardlessof" he existence of settlers in another country, but the fact that many settlers areworking in all lines of business should be a power to encourage internationaltransaction between both countries. The following table presents the relationofJapan's general imports and exports with South-Arnerican countries, and the
population of Japanese settlers in those countries.

The following table represents the amount of trade with Brazil, Argentina
and Peru as being much more than others. But they are not always consistently
proportionate to the population ofJapanese settlers in each country. For example, foreign trade with Brazil shows the highest figure and is surely influenced
by the fact that there are a great number ofJapanese settlers there, but the volumeof trade seems somewhat less as compared with the other countries given above.
Conversely, trade with other countries, especially with Venezuela, seems com-paratively abundant in spite of the small number of Japanese settlers. The

JAPANESE EMIGRATION AND ITS EFFECT ON INTERNATIONAL PAYMENTS 13'
sum of the matter is that settlers engaged in farming do not help much in increasing the amount of foreign trade, while the number of settlers who live inurban districts affect the amount of foreign trade more deeply, and besides,
other economic conditions stimulate foreign trade between countries.
Table 3. Total Exports and Imports to and from South Arnerican Countries

Monetary Unit: \1,OOO,OOO
1957

1956

3 years total

1958

Populationof Settled

Countries

Exports

Imports

Exports

Imports

Exports

Imports

2,973

6,793

9,417

9,643

Exports Imports

Japanese

26,40629,39910,555

14,O16

12,963

Bolivia

958

787

737

756

778

255

2,473

1,799

1,500

Brazil

16,256

18,075

8,994

16,196

15,075

9,756

40,32444,028372,OOO

Chile

2,682

1,698

4,267

3,058

1,512

563
832

5,572
1,589
1,052
709

2,ooe

Peru

3,OIO

9,243

4,277

14,121

2,078

5,319

28,683

40,OOO

Uruguay

1,754

1,301

624

447

54

281

6,522
1,519
1,541
9,365
2,432

700
500

519
526

353
123
265

2,020

438
184

608
99
224

1,840

816
627
830
220

8,461

Colombia
EcuadorParaguay

2,662

2,029

Venezuela

5,756

8,394

I,384

8,296

1,197

22,iK6

163
l33

626

453

770

I04

1,955

797

33,777

43,951

41,39429,047

123,443

118,958

Argentina

Others

Jr59

72l
240

rrotal

48,27345,9603,301

Source; Annual Report of Foreign Trades ofJapan, Department of Financei

The reiation between emigration and capital investment is more delicate.
Both relates indirectly and directly too. For example, in ancient times English

settlers in North America demanded an abundant capital to exploit the newworld and this exploitation demanded further many technicians and laborers.
This tendency was reiterated for many years until the United States completed
high productivity and stabilized their economic condition. Similar situations

can be seen between all old advanced countries and their colonies. Japan has
done, however, very little in such a direct investment since the War, while afairly large investment has started in the countries of South America, especiallyin Brazil, owing to an abundant frozen fund as a result ofa one-way trade, andthis original investment is giving impetus to the export of factory-plants, suchas textile, machinery, mining and others. But the actual figure connected withthese investments are not yet available. These investments belong to investments
which indirectly rose from the existence ofJapanese settlers in those countries,

ONE-TO-ONE CORRESPONDENCE

BETWEEN GOODS AND FACTOR PRICES
Hikoji KATANo

Holding to the International Factor-Price Equalization Theorem in the caseof equal number of goods and production factor, a set of factor prices must be
uniquely determined for a set of goods prices in each country. A. P. Lerner (4)has firstly explained that there may not necessarily be the one-to-one corresPondence.

Under what conditions can this correspondence be guaranteed? This problem
has been studied by P. A. Samuelson (10,11, 12), H. G. Johnson (2), I. F.
Pearce (1, 7), S. F. James (1), J. E. Meade (5), R. Robinson (8), H. W. Kuhn (3)and others. Their common conclusion is that if the factor intensities do not
become equal, or reverse themselves, there must be the one-to-one correspondence

between goods and factor prices. This means that the correspondence is only
efi"ective under very restrictive conditions. We, in this paper, shall analyze what

conditions make the restrictions ineMcient.
1. In the case of two-goods and two-factors, the following assumption is needed
for the existence of only one set of factor prices for a set of goods prices.

a. The production functions of each goods show constant returns to scale.

b. The law of diminishing marginal productivity holds.
c. The commodities differ in their factor intensities.

d. The commodities are always being produced with all kinds of factors.
Two-goods, X and Y, are being produced with two-factors, capital C and labor
L. Goods IY is being produced in x with c, of capital and l. of labor.

(1) x=F(cx, l,), 2=G(cy, ly)
According to Assumption (a), we have15

16 HIKOJI KATANO
x-= i.f(StL)- i, • f(r.)(1*)/ y=== lr g(ftl)=="l, •g(r,)'

Marginal physical productivity of each factor in each goods are

aF
2F
sEII=f'(rx), iszl=f(rx)-rxf'(r,)
(2)

aF

aG
a'c,==g'(ry),szl=g(ry)-ryg'(r,)
P. and Py stand for prices of both goods, and tv, and zvL for prices of capitaland labor. Then we have optimum relations between goods and factor prices.

aF a6

wc=PxliEI ==Py5Ec:,

(3)

aF aG

tvL = PxsllF=Py5ZI]

From (2) and (3), we havepf'-g'-=o(4)P[f-r,f']-[g-r,g']=O
where P =P,/P,. If goods prices are cletermined by the international demandsupply relationships, and are given in system (4), (4) becomes a system of implicit function equation with the unknown-variables r, and ry. This situation
is solvent, but it is doubtfu1 whether there can be a unique solution.

Our problems are (i) to assure the existence of some solutions in (4), and(ii) to look for the condition of uniqueness in solution. According to the Implicit

Function Theorem, we know that two suitably continuous equations of (4),possessing a solution (r*,, r*y), cannot have any other solution provided(5) d-- Pf" -g"-Pr,f" r,g"=P•f"•g"•(r,-r.):>fO
For Assumption (b),f" and g" are negative, and the term in brackets cannot
be equal to zero according to Assumption (c). This Jacobian, therefore, does

not vanish. Is this a complete answer? No, it is not so. Economists, since
Lerner, recognize why it is not so.

As anyone knows who understands the Implicit Function Theorem, theTheorem is only true in the small, in the neighbourhood of a point (r*., r*y) sat-ONE-TO-ONE CORRESPONDENCE BETWEEN GOODS AND FACTOR PRICES 17
isfying the two equations in (4). The soundness becomes thinner in the large, inthe whole region of production about which region we have to analyze one partof economic problems. Giving the Theorem an economic consideration, P. A.
Samuelson (10, 11, 12) and I. F. Pearce (1, 6) do expand the above-mentioned
mathematically defined region. They tell us that the Implicit Function Theorem
is economically true within the region in which the factor intensities do not

become equal, or reverse themselves.

C

yx
Y

A

X
Y
Y

o

L

xx

(a )- (b)Figure 1.

In Figure 1, the above-mentioned situations are expressed in geometricalform. Labor L is measure on the horizontal axis and capital C on the vertical.

XX and YY express two contours for both goods. These contours are convex
to the origin for Assumption (b). As we have known, in (a), the factor intensities

are constant within the C-L plane, production plane. While, in (b), the factor
intensities are different between the upper and lower from 02; the two tangentsare equal or parallel at two points at which Ol crosses XX and YY. Therefore,
the difference between (a) and (b) is that there can be only one optimal capital-

labor ratio in (a), while two ratios are possible in (b). This is a geometricalexpression for the solution of (4) is unique within the region for which the signofJacobian (5) does not become equal to zero, or reverse itself. The sign ofJacobian (5) depends only on (ry-r.). Therefore, in (a), the sign ofJacobian
is constant according to the constancy of factor intensities, and there can be aunique solution. But, in (b), the sign ofJacobian is changed from the upper
region to the lower of OR, and there can be multiple solutions.

18

HIKOJI KATANO

2. Economists have looked for the condition of uniqueness of solution by using

the Implicit Function Theorem. They have attempted to economically amplify
the meaning of the Theorem which is only true in the small. But their conclusion may be only a reconfirmation of the factor intensities assumption. By
this conclusion, we cannot say that the problem of the uniqueness of solution
is economically complete. For example, we have no such criterion in the situationof Figure 1-b.

About this situation, what do economists think? P. A. Samuelson (9, pp. 121-122) says, after rereading Hechscher, Ohlin, Ellsworth and his 1948 paper,"In connection with the two-factor case, I have the impression that thephenomenon of goods that interchange their roles of being more labor intensive is much less important empirically than it is interesting theoretically."

Is this thinking correct? I cannot think so. In this connection, we have somespecial assumption about production functions, that is Assumptions (a) and (b).

Satisfying these assumptions, the case in which XX and YY cross each other atonly one point, is very specific; for example, this is the case in which both pro-duction functions are ofthe Cobb-Douglas type. As situation (a) is very specific,

we have to make (b) a general situation. However, as we have seen, there canbe two sets of factor prices for one set of goods price in this situation. How do

we overcome this dilemma?
In the above-mentioned two-goods two-factor model, we have from (1),(2) and (3),(6) w==g(r.), w=gt (r,)
These express the relationships between the capital-labor ratio and the real priceof labor (w,lw,) for each goods respectively.

In Figure 2, the real price of labor w is measured on the horizontal axis
and the capital-labor ratio on the vertical. Therefore, two curves expressing
the optimal capital-labor ratio are drawn on the r-w plane for both goods, on
which the marginal productivity of each factor is proportional to their prices
for any factor price ratio. Both curves increase monotonously, because to substitute capital for labor is more profitable than to increase the real price oflabor.

Endowments for capital and labor are given us. The relation between thefactor endowment ratio and the cpaital-labor ratio in both industries is, under
the assumption of full employment of two factors,

l9
BETWEEN GOODS AND FACTOR PRICESCORRESPONDENCE
ONE-TO-ONE

r,'

Q
,r-

-.- -.-.----- -t -- ------

i- -;- - -L --i -i " -- -L- " - -i -E ,
'

t

ry

i

l

t

r

t

l

l
+
l

I
,

'
l
l

rx
1
,

t

L

L
l
l

,

d

t

l

t

t

l

l

,

1

,

'

'

1

t

l
+

'

t..

i
;

t
t
i

t

,
1

,

'

1

l

'

}

l

'

1

1
,

l
,

,

Q W, W Wi W,ee

W

Figure 2.

(7) r=ar,+(1-a)r,; O:illa:lll
This relation means that the level of technology used are really restricted forany level of the factor endowment ratio. In Figure 2, any real price of labor
w is equal to wi, when all amount of factors are put in to the production of goods

Y. When w is lower than wi, then there may be some excess of capital. As
w increases from wi to w2, the level of production of goods Y is reduced, whilethat of goods X expands. At w=w2, all the amount of capital and labor is used

up for the production of goods X. Finally, there may be unemployment forlabor in w>w2. Thus, as we have seen, if we haveagiven factor endowment
ratio and the assumption of fu11 employment of factors, we can restrict the levelof technology, or the region of capital-labor ratio.

This situation has many other characteristics. As is shown in Figure 2,
the region of capital-labor ratios for any given factor endowment ratio does
not extend to the region for which factor intensities become equal or reverse
themselves. For example, it is clcar that, if any factor endowment ratioris lessthan r*,==r*y==r*, the upper-limit of capital-labor ratio for any factor endowment

ratio is less than r*. Ifris larger than r*, we find the complete inverse.

Let us apply these characteristics to the situation of Figure 1-b. Theremay be possible two sets of factor prices for a given goods price for the whole

region of production. Therefore, we cannot find the one-to-one correspondence

between goods prices and factor prices under Assumption (a)-(d). Let us
substitute the further two assumptions for Assumption (c).

20

HIKOJI KATANO

e. Supply of factors is given.

f. Production factors are fu11y employed.

Under Assumptions (a), (b), and (d)-(f), the above-mentioned one-to-one correspondence is possible. This is caused by the fact that only one kind ofsituationof factor intensities may be made for a given factor endowment ratio.
3. In short, under Assumptions (a)-(d), we generally think that the one-to-one

correspondence between goods and factor prices can not be made for the whole
region of production. However, substituting Assumptions (e) and (f) for (c),we can guarantee the one-to-one correspondence even in general situations.
It must be noted, however, that, if the one-to-one correspondence is heldin each country, this does not necessarily mean they hold the International Factor

Price Equalization Theorem. Even if the same production function is taken
for the same goods in each country and the quality of factor is internationallyhomogeneous, large differences between both factor endowment ratios of somecountries can make different sets of factor prices for one given set of international

goods prices. In the case of the same set of factor prices, it may give rise toa special situation, complete specialization, We must study this situation indetail in another paper.

REFERENCES
(1)

(2)

(3)

(4)
(5)

(6)

James, S. F. & Pearce, I. F., "The Factor Price Equalization Myth", Review of Economic
Studies, 1951-52, Vol. XIX (2), no. 49.
Johnson, H. G., "Factor Endowment, International Trade and Factor Prices," Manchester
School of Economic and Social Studies, Sept., 1957.

Kuhn, H. W., "Mathematical Appendix to A. H. Land's Factor Endowments and Factor
Prices", Economica, May, 1959.
Lerner, A. P., "Factor Prices and International Trade," Economica, Feb., 1952.
Meade, J. E., "The Equalization of Factor Prices: the Two-Country Two-Factor ThreeProduct Case," Metroeconomica, II, Dec., 1950.

Pearce, I. F., "A Further Note on Factor-Commodity Price Relationships," Economic
Journal, Dec., 1959.

(7)
(8)

(9)

(10)
(11)
(12)

Pearce, I. F., "A Note on Mr. Lerner's Paper," Economica, Feb,, 1952.
Robinson, R., "Factor Proportions and Comparative Advantage," Part I and II, Quatrary
Journal of Economics, May and Aug., 1950.
Samuelson, P. A., "International Trade and the Equalization of Factor Prices," Economic
Journal, June, 1948.
Samuelson, P. A., "International Factor Price Equalization Once Again,," EconomicJournal, June, 1949.
Samuelson, P. A,, "A Comment on Factor Price Equalization," Review of Economic Studies,
1951-52, Vol. XIX (2), no. 49.
Samuelson, P. A., "Prices of Factors and Goods in General Equilibrium," Review of Economic Studies, 1953-54, Vol. XXI (1), no. 54.

THE GOLD STANDARD AND
BANKING CAPITAL IN JAPANMasahiro FuJiTA

I
From some articles,Ci) we have observed the history of money and banking
in Japan from its start under the Meiji Government. Though, Japan's monetary

standard system was introduced and established formally by the enforcementof the .New Coinage Act (Shinka J6rei),`2' it was not in its true form. That is

the reason why the substantial monetary standard in Japan was directed by thefact of the establishment of the gold standard in l871.

The Confusing issue of inconvertible notes in the early Meiji period disturbed the direction of the gold standard (this plan implied a legal monetary
standard system), and was an extreme means ofbringing in our monetary system.

The Meiji Government adopted a promotive producing and industrial
policy for the sake of the rapid realization of capitalism in Japan. However,capital to accomplish the industrialization of this country was too insuthcient,so to accumulate industrial capital they needed an enlarged accumulation oforiginal capital. The Melji Government then decided to pursue the following
policies: first, to abolish the old or classical feudalistic land-ownership system
which functioned as the focal point of the controlling class at that time: second,an artificial and strong creation toward a capitalistlc production mode.
(1) M. Fujita, The Banking System in the Middle Meiji Era (1870-I910), Kobe Economic andBusniess Review, 3. 1956.
M. Fujita, Fundamental Features of the Accumulation of capital in the Late Meiji Era,

Kobe Economic and Business Review, 5. 1958.
(2) T. Okahashi, Price Standard under the New Coinage Act in Melji 4 (1871), Kinyu Keizai(the Journal of Financial Economics.) No. 60. 1960.

21

22 , MASAHIRO FUJrTAFirst of all, in those days, the Meiji Government completed a compromiseand threat policy as above-mentioned.

The land-ownership form which was separated from the old controllingclass removed the semifeudalistic land possession form through the revision of
the land tax in 1875. As a result, various incomes that came from agricultural
production were absorbed in an acquired industrial capital.

The low productivity created by the old 7rokugawa Shognate Sptstem could
not help but result in a small accumulation of capital. On the other hand, thepromotive and protective industrial policy by the Melji Government atternpted
to establish a state-managed military industry and to promote the formatien of
aaibatsu organizations.

But, this remarkable promotive industrial policy required an enorrnous
amount of original capital accumulation, so these vast expenses to supply oMcial
corporations and industrial enterprises, reclamation expenditures and exhibition

expenditures needed more than 76 million yen-this total sum didn't contain
subsidies for private industries and expenditures for semioMcial corporations.

What was the main support-of this enormous governemntal expenditure?
Of course, there were the taxes and national bonds as in the accumulationof original capital.

In those days, inconvertible notes especially played an important function
as wel! as national bonds, and the disorganized condition of the currency systemcaused by the confusing issue ofinconvertible-notes, in other words, it was naturalthat a severe inHation arouse necessarily from this situation. In those days,

various kinds of government-notes were issued and those issued held superhegemony in the new infant Meiji Government and were to protect and promote
our under-developed indurstries.

The fact that the Daj6-kan-satsu (government paper), the Minbush6-satsu(government note), the Finance Ministry convertible securities or Treasury bills

and the Hokkaido Colonization Board Securities were issued thereafter may fu11y
explain the above mentioned conditions.
For instance, the Dajo"-kan satsu in l867 (that was 48 miilion ry6) laid out.

17.89 million ry6 for the development and promotive industrial policy, and theremainder for the punitive force expenditure. From this, we can point out themain elements ofthe early Meiji inflation.(3) Still-rnore, the Minbush6-satsu was(3) K. Ono, Inflation in the early Era of Meiji, Kobe University Economic Review, 2. 1956.

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 23
issued to supplement the Dajo'-kan-satsu and Treasury convertible securities(Ohkurash6-Sh6ken) aimed to break the poverty of the national financial situation.

Meanwhile, on account of the adjustment of these various governmental
notes which caused the early Meiji inflation the unification of the monetarysystem was put into effect.

It was often found that the reserve fund of new paper-notes was financed
and diverted for the compensation of temporary revenue deficits (a fioating debt)

and loans for the Hokkaido Colonization Board and the disposition fund of the

kawase-gaisha (exchange company) and the Seinan conflict expenditures.
Though these expenditures might be said'to have differed widely from the initial
object of the issued governmental notes, such issued notes amounted to 62 million

yen. Therefore, the use of new paper-notes were both an important aspectin establishment of the new government and the promotive credit policy (forour key-industry), so of the total quantity of reserve fund-52 million yen in
1879, the protective fund for private enterprises and public enterprises showed

23 million yen.
Now, bank-notes which were based on the jVational Bank Act existed paralell-

ing the governmental notes.
The early Meiji infiation was accompanied by a confusing monetary systemand encouraged with a capital accumulation by enormous land-owners, banking
capital, and big merchants.

The Finance Minister Masayoshi Matsukata began to adjust paper-notes
as an anti-inflation policy which in detail was to utilize the revenue surplus andto establish a central bank, to issue its convertible bank-note.

In this form, the premise condition was finished by a complete monetarysystem which placed the Bank ofJapan as the only monopolistic central bank.
Moreover, the contract financial policy(4) by Finance Minister Shigenobu
Ohkuma declared a disposing policy of public and oMcial enterprises (a substantial

selling policy ofstate managed factories) in 1880. The main public corporations
were a mining industry, shipbuilding industry, chemical industry, textile industry

and silk-reeling industry. Above all, the mining, shipbuilding and chemicalindustries were sold at nearly gratis prices, creating the huge gaibatsus of the(4) H. Shinjo, History of yen-Its Developments in the Japanese Economy (1), Kobe Economic and Business Review, 5. 1958.

24 MAsAHIRO FUJITA
future. By the end of 1885, our modern industries which were completed, andwholesale family industries which constituted the early industrial and economic

structure in Japan were brought together in a remarkable combination. And,
our textile industry (cotton spinning- cotton yarn -spinning) and silk-reelingindustry were called the fibre-industries.

In Meiji 18 (1885), the original accumulation of capital in Japan was com-pletely accomplished and the silver standard was started. Nevertheless our
Meiji Government had determined the adoption ofthe silver standard in Novemberof Meiji 3 (1870), although the vice-minister of Finance, Hirobumi It6 proposed

to put off the start of the jV:ew Coinage Act(-though this implied formallythe gold standard and showed a substantial gold and silver double standard atleast).

However, because the international currency was similarly silver in theseareas since the early Meiji Era many Far-Eastern countries had continuously
used the silver standard. From this view-point of our foreign trade, our politicalauthorities finally abandoned the double standard, corresponding to the monetary

and trade situation in the Far-Eastern countries.
As a result, the confusing currency system since the early Meiji period was
unified by the issue of convertible paper-notes which were based on silver, theideal of the JVew Coinage Act was realized, and additionally true capitalism inJapan was rapidly established.
Table 1. Reserve ratio
Treasuryreservegold(standardcurrency)(1)

Thefirstclassgovernment
note
(2)

exchange
issuedbank

government

note

note

(4)

(3)

reserveratio(O/o)(1)(2)+(3)+(4)1881

12,699105,905

13,OOO

3,4396s.3e/.

1882

16,730105,369

4,OOO

3,4385

11.6

1883

25,87697,9993,4275

19.6

1884

33,56993,3803,101527.0

1885

42,26588,345

3,O15535.7

ooo

unit: thousandyen.

II
After 1886, our economy changed in that there was a remarkable promotionof economic development by the successfu1 adjustment of paper-notes and es-

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 25'
tablishment of the monetary system -> the laxation
offinance -> the rate ofinterestand the price and value of silver fell -> there was a favourable balance of trade-> a realization ofprosperity 1887-1889, in this case, the centre ofsuch a tendency

were the railway corporation, textile enterprise and mining industry.

However, the formation of various enterprises which depended upon excess
accumulation of capital through over-loan measures of ordinary cleposit banks,caused considerable confusion to arise sooner or later. Namely the increasing
tendency of equipment investment of bank-loans -> diminishing trend of capitalor financial resources in banking -> expansion in dependency on the Bank ofJapan. The sudden rise of silver price in 1890 brought about the unfavourable
balance of trade, raising of the oflicial interest rate of the Bank of Japan. And

this trend resulted the decreasing tendency of bank credit availability in thefinancial resources.

From this, the poverty in public enterprise fund arose at last. When thesudden occurance of the first capitalistic panic in Japan was brought about in
1890, the original accumulation of capital completely ended in the true sense.

Under such circumstances, concentration of capital continuously driverforward during a depression disposes of smaller enterprises. As an aftermath,the railway corporation, spinning industry and fertilizer industry were strong

leader in the second prosperity from 1895 to 1899.
Though such a process, our merchant capital and usury capital was transformed into the industrial capital in the middle of the Meiji period. And in
our spinning industry sector, the domestic production quantity exceeded theimport quantity in 1890; the exports also surpassed the 1897 imports-our
cotton spinning industry production in 1888 exceeded its import, the silk-reeling

Table 2. Production index
1886

1889

1890

1893

1895

1897

raw silk

52.8

62.3

66.3

94.2

122.9

118.0

cotton yarn

5.3

22.9

35.9

73.4

125.4

l74.8

textile fabric

22.6

55.4

46.3

82.1

I34.8

171.6

shipbuilding

29.2

58.7

156.1

88.5

219.1

321.4

iron

70.8

103.2

108.l

87.5

132.7

144.0

copper

49.1

81.6

91.5

90.4

96.0

102.4

coal

43.7

65.0

69.5

114.7

134.2

187.1

total average

51.2

68.3

77.7

91.8

125.2

148.7

1891=100

26 MASAHIRO FUJITA'

manufacture in 1889, and silk spinning products exceeded cotton spinning industry

products (in silk spinning section) during the same year.
In 1896, there was a matter worthy of special mention regarding capitalism

in our country. It was the foundation of the Yahata Foundry. This had an
important significance as a successful first step in the establishment of capitalism

in Japan. The capitalistic production mode in Japan was established in thisway, according to another expression, our industrial capital was started finallyin this year.

And this establishment period of industrial capital or industrial capitalism

in 1897 showed a clear change from the double standard to the gold standard
in our monetary system (especially speaking of currency standard system).(5)The worldly ratio between gold and silver before 1873 had been maintained

about the l:15.5 level. Owing to the sudden increase in silver production
since 1872 and to the adoption of the gold standard in Germany in 1873 an
emergency decline in silver price resulted for a great number of advanced countries

had adopted the gold standard and suspended the minting of silver coins.

In order to check such as economic change, the United States as a big
gold producing country enacted the Brand Act to buy silver (bullion) and tomint silver coins in 1878.

The United States abolished this Act in l890 and enforced the new Sherman
Act to prevent the downfall of silver prices and to enlarge the buying extent
of silver bullion.

On account of these policies, the silver price was unconstant and acute.
Still more, a tendency in price decline could not be prevented by any means.
In 1893, the India Government decided to suspend the free minting of silver

coins and the next year there resulted an import tax on silver bullion. With
these facts as a rnomentum, the silver price in Western countries and the UnitedStates declined on a large scale. So these severe changes in silver price generally

extended over another parts of the world, and Japan was no exception to thistrend. In short, it was easy'to find a meeting point between the change in thesilver price and economic fluctuation since 1887 because of the considerable
change in economic structure affected by the silver price fluctuation after theformation of the silver standard.

(5) K. Niino, The Formation ofJapanese Finance Capital and its characteristics, Kobe Univer-sity Economic Review, 2. 1956.

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 27
On the other hand, it was true that it consisted of the silver price and elas-ticityofexportandimportcommodity. Thechangeinsilverpricewhichdepended
upon the worldly increase of silver production, the adoption of the gold standard
in all countries, the suspending of minting silver coins, forced the silver standard

to lose its proper function and significance as a standard. The causes Iay in thefollowing points: (i) Though our rate of foreign exchange was changed by economic fluctuation, such a fluctuation (in the rate ofexchange which was regarded

as the only standard) was nothing but a change in price standard. Ofcourse,
the fluctuation in silver price by the increase in silver production didn't merely

make a difference in the change of price standard, but was also based on thechange of value relation, so we have to clearly distinguish these changes, (ii)

From the monetary side, it necessarily accompanied a nominal change in commodity prices, and it was natural that the ultimate cause of economic fluctuationand trade balance (with commodity export and import) existed in these points
indeed.

However, we can certainly understand and regard real economic fiuctuation

as a complicated combination of such nominal commodity prices and value
relations. In order to control the fiuctuation of commodity prices by the pricestandard, it was an important method to establish industrial capitalism first of all.

That is the reason why the gold standard was adopted as a more stabilized
standard from the monetary aspect.
Above all, Finance Minister Masayoshi Matsukata declared in detail theseprocesses in his speech on the revised law of money in the House of Representative.
And he especially enumerated the following advantages; (i) possibility of checking

the price change, (ii) expansion of our export, (iii) decrease in the change of
foreign exchange rates, (iv) expansion and strengthening of credit availability
or finance-ability.

Moreover, a point to attract our attention was the fact that the real promotersof the gold standard in those days were not the industrial capitalists but the

government authorities. On this point, we can find the elementary function
and feature of the gold standard in the foundation period of capitalism in Japan.

Further-more, the power of the Meiji Government as promoter of capitalism inJapan an enormous and absolute basis.(6)(6)

K. Kajinishi, Nippon Shihonshugi Hattatsu Shi, (History ofdevelopment ofJapanese Capitalism), 1958.

28

FUJITA
MASAHIRO

Table 3. Comparison between gold and silver
production index of silver

ratio

between gold and silver

1868

1OO

15.59

1871

147

15.57

1873

1"

15.92

1876

157

17.88

1878

170

17,94

1881

183

18.16

1885

213

19.41

1887

223

2L13

1888

252

21.99

1889

279

22.10

1890

292

19.76

1891

318

20.92

l892

355

23.72

I893

384

26.47

l894

382

32.56

1895

388

31.61

1896

383

30.65

Besides, the Meiji Government introduced the gold standard to stabilize
price fluctuations (general price level) -> as a more flexible standard in orderto realize importing and borrowing of foreign capital attempt ofintensifying the

low accumulation of our capital situation and financing and supplying the ex-pansion of armaments expenditure.

However, concerning the adoption of the gold standard, these were very
violent disputes between the Meiji Government and the Opposition party andall classes of people in the entire country.

III
As above-mentioned, after 1878 Japan was substantially a silver standard
country with the Bank ofJapan's note as the only central bank-note to the converted into silver.

Since 1876, the silver price fell although during two hundred years its ratio

to gold was maintained at a 1 : 14t-v15 parity and this falling trend was a annually acceralated.

Though the silver price was temporarily raised by the silver policy of theUnited States in 1890, after 189I it began its severe decline. Such a fall inTHE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 29
silver price promoted our export and brought about a prosperity in our economy,
but, on the other hand, a sudden fluctuation in silver 'price disturbed conversely

our trade.

In view of these economic circumstances at that time, the Meiji Government

formed an investigation committee for the monetary system which attempted
to investigate the decline in silver price, its affect on Japanese economy andrevision possibilities or modifications in the monetary system in 1893.

The Meiji Government expected usefuI recommendatory reports from thisadvisory body.

The Meiji Government questioned this committee on the following threepoints: - (i) the falling cause and general result of recent price fluctuations ingold and silver price, (ii) the extent of the affect exerted on our economic circles

by the late changes in gold and silver prices, (iii) the necessity of revising themonetary system of this country due to these fluctuations and if revision wasnecessary which system and what measures should be taken. (-recent fluctuations in gold and silver price).

As a result of violent discussion among the committee of monetary experts,

the opinion of this committee was divided into 8 supporters of an amendment
to the present system and 7 supporters of keeping the present system.
Let us observe the situations faced by the investigation committee of themonetary system in our country in detail. In 1893, a committee was organized
to investigate the monetary system ofJapan. In the first meeting, the Ministerof Finance spoke as follows,(7) "Today in our country only silver coins circulate.

The effect of the change of gold and silver prices upon economy and finance isvery strong, and since the crashing of silver prices due to the Indian currency
reform the prospects for the future of economy are in confusion and those engaged

in trade and industry are doubtful as to how to control themselves".

At-that, the Chief of this committee general Tateki Tani named a specialgroup, and entrusted them to further investigate and discuss our monetary
standard system.
Next, Mr. K6kichi Sonoda whose name headed the list of this special commit-

tee was followed by Yoshiro Sakatani, En Kanai, Juichi Soeda, Ukichi Taguchi

who together formed a five-member committee,(7) The Report of the Investigation Committee of the Monetary System inJapan, (" The Investigation Bureau of the Bank ofJapan. The dates of History of Money and Banking
in Japan,.") VoL 16. 1957.

30 MASAHIRO FUJITA
The five member had 37 meeting which lasted 18 months beginning on
November 14, 1893 (the.first council of this special committee). The committee announced the results of this investigation on March 27, 1895. But by

then, to this committee were added two more members, K6ki Watanabe andTakashi Masuda. Thus, the reorganized committee assembled for the first timeon April 10, 1895 decided on a new chief, and finished their secondary reporton May 15, 1895.
. The first report was separated into two parts, one opinion believed thatan endless fall of silver price in the future was not possible, and comparing theeffects of the changes of the gold-silver ratio upon the country with those of thegold standard country theyjudged its advantage to be great, and its disadvantage
for smaller than that of gold standard countries; others asserted an opposite view.

The former opinion was supported by E. Kanai, K. Sonoda, U. Taguchi,
the latter by Y. Sakatani, and J. Soeda.

The secondary report only arranged and summarized all the member's
opinions.-Y. Sakatani; asserted the necessity of the gold standard and how to

go about adoption preparations. J. Soeda; showed premise conditions in
adopting the gold standard in the future, but, at the timc didn't regard it asa good chance to revise the monetary system. E. Kanai; thought of member-ship in International Double Standard League in the future. K. Watanabe;
athrmed the accumulation of gold for adoption of the gold standard in the future.
K. Sonoda; supported the present monetary system (- he was a powerful asserter).

T. Masuda: advocated making correspond to the establishment of a monetarysystem as in those of advanced western countries. U. Taguchi; promoted theInternational Double Standard League as among western countries. After that,general meetings were often openecl, the third general meeting on May 15, 1895,

the 4th assembly on May 29, 1895, the 5th on June 5, 1895, the 6th on June
12, 1895, and the 7th on July 3, 1895. The Report of the 7th general meeting
was called the investigation committee report of the monetary system in Japan.
As a result of the discussion in the 6th general meeting the conclusion of thespecial committee was as follows:-Supporters: Kenz6 Wadagaki, En Kanai,
Masakazu Hotta, K6ki Watanabe, Eiichi Shibuzawa, K6kichi Sonoda, Tokujiro

Obata, Sanae Takada, Heigoro Sh6da, Ukichi Taguchi. Opposers: Yoshiro
Sakatani, Juichi Soeda, Jun Kawashima, Ryoichi Kurihara, Takashi Masuda.
Next, these opinions were more deeply divided with regard to maintaining
the present system, 8 out of 15 members(8) were for revising (Y. Sakatani, J.

CAPITALIN JAPANTHE GOLD STANDARD AND BANKING

Soeda, U. Watanabe, J. Kawashima, R. Kurihara, T. Masuda, H. Sh6da, U.
Taguchi), the remaining 7 (K. Wadagaki, E. Kanai, M. Hotta, E. Shibuzawa,
U. Sonoda. T. Obata, S. Takada) supported the present silver standard (starting
full member of this committee were 22 experts).
(8) The appointed member of an investigation cornmittee for the monetary system were 22
experts as follows (Feb. 20, 1893)
Tateki Tani: President ofthis committee. Viscount.

Lieutenant-general. Former Minister of Agriculture and Commerce. A member of theHouse of Peers.
Inejiro Tajiri: Vice-President of this committee.

Doctor of Law. Vice-Minister of Finance.
Masane Wakamiya: Director of Commerce Bureau of the Agriculture and Commerce Ministry.
Kei Hara: Director of Commerce Bureau of Foreign Ministry.
Kenz6 Wadagaki: Doctor of Law. Professor of Tokyo Imperial University.
Yoshiro Sakatani: Director of Accountant Bureau of Finance Ministry.
Juichi Soeda: Director ofsupervision Bureau of Finance Ministry. Governor ofJapan Industrial

Bank in future. (in 1902)
En Kanai: Doctor of Law. Professor of Tokyo Imperial University.
K6ichiro Kawada: Governor of the Bank ofJapan.

Jun Kawashima: Governor ofJapan Hypothec Bank,
K6ki Watanabe: The Junior Grade of the 3rd Court rank.
Masakazu Hotta: Viscount. A member of the House of Peers.
President of Toyko Prefectural Assembly.
Eiichi Shibuzawa: President of Daiichi Bank.

President of Tokyo Chamber of Commerce.
K6kichi Sonoda: Director of Yokohama Specie Bank. Director of Nippon Yusen Co,, Ltd.
President ofJUgo (15th) Bank.
Tokujiro Obata: A member of the House of Peers, A member of Tokyo Imperial Academy.
President of Kei6 University.

Jinkichi Watanabe: A member of the House of Peers,
President ofJttroku (16th) Bank.
President of Gifu Chochiku (Saving) Bank.
Director of Hokkaido Tanko Tetsudo (Coal-mine Railway) Co., Ltd.
Ryoichi Kurihara: A mernber of the House of Representatives.

Chief Editor of T6un Shimbun.
A confidential secretary of Itagaki Home Minister.
Bokushin Maki: Secretary of the Privy Council former councillor of the Bureau of Legislation.
Sanae Takada: Professor of Waseda University.

Takashi Masuda: Managing Director of Mitsui Bussan Co., Ltd.
Chief Manager of Mitsui Conzern (Zaibatsu).
Heigoro Sh6da: Director of Meiji Fire Insurance Co., Ltd.
Director of Tokyo Kalj6-Kasai. Manager of Mitsubishi Conzern (Zaibatsu).
Director of Nippon Yusen Co., Ltd.
Ukichi Taguchi: A member of the House of Representatives.
Chief-Editor of "Keizai Zasshi Sha (Economic Journal)".
The career of member of this committee was as abovementioned - refered to "Shimbun
Shasei, Meiji-Hen-Nen-Shi (History of collecture Editorial Newspaper in Japan-Meiji

Series) 1890-1895. Kei Hara, The Diary Memorandum of Hara Kei, 1958.

31

32

MASAHIRO FUJITA

So, as for the revision of the present monetary system, out of which, 6 votes(Yoshiro Sakatani, Juichi Soeda, K6ki Watanabe, Jun Kawashima, Ryoichi
Kurihara, Takashi Masuda) were for the gold standard, the other two members(Heigoro Sh6da, Ukichi Taguchi) were for the double standard. More minutely
speaking, in the report of the 7th general meeting (July 3. 1895) it was decided

by a bare majority for the gold standard, while the direction of the monetaryreform was unanimously acknowledged at the same time.
(1) As for the fluctuation of gold and silver prices the following analysis
can be made: (i) the advantage to Japan's economy according to the fluctuationsof gold and silver prices are merely a small part and of a temporary function,

so, without over-valuing these advantages, it is most important to adapt forthemselves a corresponding policy as taken by the powerful and advanced westerncountries which adopted the gold standard - Y. Sakatani,J. Soeda,J. Kawashima,

R. Kurihara, T. Masuda (ii) Though the remarkable effect on Japan's economyof the fluctuations of gold and silver prices was understood, the rivison of themonetary system had to discover the best opportunity to correspond to thechanging process of the monetary system in the advanced countries - K. Watanabe, (iii) Besides the advantage of the price fluctuation, the new monetary system

to be adopted should be prevented for reactions that would be disadvantageous- Heigoro Sh6da, (iv) as economic confusion due to sharp price raising becauseof price fluctuations in gold and silver is severe, a fixed standard system would
be desirable for Japan.

(2) And the new monetary standard to be adopt should be (i) the gold
standard, (ii) the double standard. In the case of the gold standard, J. Soeda,

K. Watanabe, J. Kawashima, R. Kurihara, T. Masuda believed that it didn't
permit free circulation ofsilver coins. On the contrary, Y. Sakatani asserted thatthe present 1 yen silver coin permitted of free circulation within a given ratio withgold coins (but free minting wasn't granted). In the case of the double standard,

U. Taguchi considered forming an Internationat Double Standard League, but H.

Sh6da opposed the above opinion.
(3) Then, these experts considered the time and method of enforcing asfollows:-(i) to begin preparative for enforcement at once-Y. Sakatani, U.
Taguchi, H. Sh6da, (ii) to begin only preparations,-J. Soeda, K. Watanabe,
J. Kawashima, R. Kurihara, (iii) to wait a good chance for enforcement- T.
Masuda. The supporters of the present monetary system asserted as follows:(i) As Japan's advantage depended upon the fluctuation of silver and gold prices

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 33
and were enormous, it was better to retain the silver standard even in the future-K. Sonoda, K. Hara, (ii) In view of the above-mentioned advantage, it wasa wise policy to prepare for the realization of an International Double Standard

League-K. Watanabe, E. Kanai, E. Shibuzawa, T. Obata, S. Takada, M.
Wakamiya, (iii) Considering Japan's advantage, it was necessary to examine
far-sightedly the new standard to be adopted in the future. The opinion ofthis committee was decided by the majority, but the difference between supporterand opposer was only one member-total members consisted of 15 persons.
Among the supported of a new standard system 6 members supported the gold

standard and the remainder 2 members the double standard. Thus, it was
found to be difficult to find a meeting point of all members.

The bureaucracy of the Finance Ministry, Y. Sakatani and J. Soeda were
supporters ofthe gold standard. They pleaded for the adoption ofa new standard
from the view-point that encouragement of trade based on fu11ing silver prices
was a temporary phenomenon and this fact forced the raise in price of military

goods and capital goods. Still, another point of argument was the emergencyof importing and borrowing foreign capital.
On the contrary, the private industrialists K. Sonoda, E. Shibuzawa,(9) and

K. Ohkura,('O) U. Taguchi(ii' opposed the adoption of the gold standard andsupported the maintenance of the silver standard or the double standard. Their(9)

E. Shibuzawa said; - According to the heavy fluctuation of price comparison of gold andsilver in western Europe and the United States, the gold standard countries have fallen

into a very diMcult situation, but Japan gained enormous profits. ' 'Therefore, today we cannot find a sudden necessity to amend the present monetarysystem. The advanced European countries and the United States will undoubtedly learn
by today's terrible experience with the gold standard, that it is impossible to stick to thegold standard and at last the double standard must be adopted. It is too late to revise ourpresent monetary system by entiring into the same monetary system as these countries.
But, Later, He amended his past opinion as follows:After due consideration I find it is very impatient to claim the checking of the gold
standard. We had great admiration for Prince Matsukata's far-sighted determination torevise our monearty system, removing fierce opposition at that time.
(10)

Next, K. Ohkura siad;-We don't understand the reason why it is necessary to adopt
suddenly the gold standard by throwing away just and due profit at present time. The
most suitable period to debate about the gold standard is not always today.

(11)

U. Taguchi said;- We claim strongly that our government shoudn't change the presentmonetary system at all. First of ali, today our monetary policies to promote the double
standard system of the advanced European countries and the United States.
He had been enraptured by the vast advantage and profit by the favourable trade balance which was based on the falling in silver price. And Still-more, he passed over thefact that our silver standard system had lost its function and significance by an over-seeking

after private profit immediately.

34

MASAHIRO FUJITA

opinions were as follows: - (i) the falling of the silver price was an advantage

in Japan's export and prevented imports from a gold standard country, (ii) toensure export markets in China and other Far-Eastern countries. This advocacy
represented the concern of the textile industry as a leading industry at that time,and stood for the industrial capitalist's claim.

In those days, many private industrialists supported and promoted the above
opinion. At the start of this committee, the opinion supporting the gold stan-

dard was a minority view. With the change of economic circumstances after
the Sino-Japanese War, it became generally influential to claim the gold standard.

During the rising enterprise period in postwar period (the Sino-JapaneseWar), it was seen to raise the general price level and wages and to adverse ourtrade balance very much.
The very cause of this price and wage rising wasn't only the silver pricedecline, but credit expansion due to post-war prosperity. If the standard money

depriciates in value, it may be accompanied by a semi-inflationary phenomenon.
From these view points, we cannot disregard a reasonable effect because of
the silver price fall. The unfavourable trade balance was based on the remarkable increased import of military goods for the next War and of extending capital

equipment by our industrial capital, for it was shown clearly that the importof the steel products and machinery increased yearly at that time. Japan wasforced to import from the advanced European countries and the United States
who were under the gold standard and export countries of capital goods.(i2)When the silver price declined under the silver standard, these imported
prices and their vast value rose.
Therefore, industrial capital of which the greater part was the textile industry didn't always stick to the silver standard - our spinning industry adhered
to the export of cotton yarn, for most Far-Eastern countries were their customers

and were silver standard countries. But, it was forced to part from the silver

standard because of the emergent modernization and advanced production
equipment in the spinning industry. The country from which cotton was imported as raw material changed from China to India and the United States whichcountries already had turned to the gold standard.
(12) In view of capital import from foreign countries the adoption of the gold standard had been

supported by many powerfu1 industrialists and there were many supporters in our Congressfrom this side. (N. Takizawa, K6hon Nihon Kinya-shi Ron: Tract on the history of moneyand banking in Japan -,1)

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 35
India stopped the free minting ofsilver coins in 1873, gold standard countries
generally increased on a universal scale, so it was natural that our country followed

this general tendency. In this case, it was an extraordinarily important factor

that our key-industry requested eagerly the importing and borrowing of foreign

capital. Further-more, it was very fortunate for Japan that in adopting thegold standard she had gained a reserve fund amounting to 230 million ry6 - asreparations from China by her victory in the Sino-Japanese War.

The gold reserve problem promoted the gold standard thus solving andrealizing successfu11y the path toward the gold standard. After the gold standard

in Japan was prepared by Masayoshi Matsukata as the most eager promoter
and supporter of the gold standard for long years the Meiji Government finallyproclaimed the new Currenc2 Act in March, 1897 and this system was carried out
in October the same year. After such a diMcult process, the gold standard systemin our country started nominally and substantially as a member of universal

capitalism. In other words, Japan began to compete with advanced and powerful countries in the world market at last.

IV
As above mentioned, it was rather the bureacracy force (or bureauctratic
capital, in other words) than the industrialists (industrial capital) who establishedthe gold standard in Japan. However, the industrial capital or industrialists
were clearly backed by the banking capital (bank and other financial facilities).

In the course of modification in the National Bank Regulation of May, 1883,
the national bank was ordered to either alter to become a deposit bank by colIecting issued bank-notes after starting its business or close shop. The law ofdisposed national banks which expired was promulgated in March, 1896, somany national banks began to turn into ordinary banks after 1897 when 122 of
the 153 national banks throughout the country were transformed into ordinarybanks.

In addition to these banks, there were many usury banks on a small scale
which started as ordinary banks from their establishment.

Though the Mitsui Bank and the Yasuda Bank similarly opened businessas ordinary banks, these developed into caibatsu banks which had a specialorganishe bank(i3' (Kikan ginko) function for the growth of capitalism in Japan.
(13) Organic bank was quoted from "Organishe bank" (R. Hilferding, Das Finazkapital, Eine
studie Uber die jungste Entwicklung des Kapitalismus. 19IO.)

36

MASAHIRO FUJITA

In order to check such banking circumstances, the Meiji Government limited

and controlled bank credit by the Bank Regulation of August, 1890. Thus, thedevelopment of ordinary banks increased their number 3.5 times during 1893-'
1901 and the paid-up capital grew morethan 8 times, while their deposits wereover 11 times. Especially, after l895 the ordinary bank developed rapidly. Thisdrift was brought about by the remarkable increase and rise in fundamental
industrial enterprises since the Sino-Japanese War boom and the establishmentof many organishe banks in response to immediate increased fund demands.
In those days, the annual overloan tendency in the financial world was verystrong, the deposits occupying merely about 700/, of the 1900.--t1901 advanceor credit level.

As the growth of our modern capitalism increased there was a sudden har-monized fund demand for long term, and a huge or enormous amount resulted.
According to this request, the variou's special and long time banks were arranged

by government oMcial policies,

The continuous establishement of Japan Industrial Bank (Nippon Kogyo

Ginko established in April, 1902), Japan Hypothetic Bank (Nippon Kangyo
Ginko, August 1897), Hokkaido Colonial Bank (Hokkaido Takushoku Ginko,
April 1900), Agriculture and Industry Bank in all prefectures (N6-k6-Ginko,
1898.-v1900) was the answer to the governmental counter-measures of promoting
industrialization.

After the panic of the post-Sino-Japanese War period was forced the limita-•tion of the establishment of small scale banks and the dissolving and mergeringof small scale banks were promoted. In this way, the concentration of banking
capital arouse after 1900. From a peak in 1901, the number of banks decreased
generally to 1618 banks in 1910, but the paid-up capital and reserve fund anddeposits increased reversely after the Russo-Japanese War.

The constitution of the ordinary bank fund (or capital) in 1890 was divided
into the following status:-

Table 4. Banking capital
self fund (capital)

internal or imported fund(deposit etc.)

1890

4ofi-soo/,so.v6oo/,

1901

390/o

610/,

1906

240/.

760/.

THE GOLD STANDARD AND BANKING CAPITAL IN JAPAN 37
After l906, the above-mentioned ratio kept averagely a 700/. Ievel and this im-

plied a turnning from the usury feature in Japan's ordinary banks, The remark-able change of the number of banks in this period was as follows: - 44 banks
were merged, 291 banks were dissolved and total balance was 315 banks. On thecontrary, the number of banks decreased no more than 249 (from 1867 to 1898),

so that 80 new banks were founded during those years. On the other hand, the government aggressively promoted a large scaling
and merger banks by the enaction the ofBank Merger Law in 1896, and decided
the lowest limit ofbank capital (500 thousand yen for incorporated banks and

250 thousand yen for individually managed banks in 1901). Under these conditions, the five big modern banks as Daiichi, Mitsui, Mitsubishi, Sumitomo,

Yasuda Banks ensured controlled and monopolistic positions over the wholecountry. Nevertheless, their real ability was represented by the overwhelming
status in their deposits and loans; their deposit ratio for the total ordinary bankaccounts in the whole country was 21.30/o, while their loan ratio was 16.30/,.
Table 5. Loan ratio

numberofbankpaid-up
capitaldeposit(A)loan(B)(o/o)(A)

(B)

1893

545

30,58338,42649,083

127.7

1894

700

37,38049,19659,178

120.2

1895

792

49,807

84,252

89,165

I05.8

1896

1,O05

87,899141,937

157,200

110.8

1897

1,223

147,812

207,741

241,900

116.4

l89,439

287,Otl5

438,100

l52.6

1898

l444'

1899

1,561

209,973

392,256

581,036

148.1

1900

1,802

239,364

436,779

661,974

IJrl.4

1901

1,867

251,700

450,186

635,107

14!.1

1902

I,84I

258,1I1

536,702697,552

120.9

1903

!,754

253,O03566,227

725,355

128.1

1904

1,708

248,776

605,316

733,145

121.1

1905

1,697

252,697

692,520

796,432

113.6

1906

1,670

256,523

1,033,762

1,111,765

107.5

1907

1,658

286,314944,295

1,113,162

117,8

1908

1,635

295,549

938,072

1,098,149

117.1

1909

1,617

311,354

1,054,413!,123,377

106.5

1910

1,618

315,313

1,185,647

1,249,953

105.4

TRADE AND
ECONOMIC GROWTH
WORLD- ON PROFESSORNURKSE'S VIEW -Fukuo KAwATA

I
According to the late Professor Nurkse,(i) international trade was the `Cengineof growth" in the nineteenth century. International trade was the means bywhich the process of economic growth in the center was transmitted to theperiphery of the world. It was not only the means by which better allocationof resources was effected, but it also was the means by which economic growth

was transmitted. This transmission of growth was an important function ofinternational trade, although this function was relatively neglected.

In the nineteenth century (that is meant by Nurkse, from 1815 to 1914),
Great Britain was the center of the economic growth of the world. The British

population increased threefold, her national income tenfold, ,and the volumeof her import twenty-fold during this period.

The ratio of import to national income was IOO/. in the early part of theperiod, but it rose to about 300/, in the latter part. The Industrial Revolution,
which originated in Britain, a small island with Iimited natural resources, spreadthe wave of economic expansion to outlying areas through the rapid increaseof the demand for raw materials on the part of British manufacturing industries.

Factors of production in the under-developed areas wcre mainly absorbed in the

expansion of profitable production of primary products for export. Moreover,the increasing demand in the center for foodstuffs and raw materials stimulated(1) R. Nurkse, Patterns of Trade and Development, (Wicksell Lectures, 1959) Stockholm, 1959.
Professor Nurkse died on May 6, 1959 in Switzerland, shortly after his lectures at Stockholm

on April, 7 and 10, 1959.

39

40

FUKUOKAWATA

the movement of capital and labor from the center to the periphery, in order
to expand the production of primary goods which were in large demand. Thus,
through trade, economic growth in the center was transmitted to the outlying
areas.

''Such a pattern of growth, that is "growth through trade" was most clearlyshown in the case of newly developed countries, (or the regions of recent set-tlement(2)- to use the word of Folke Hilgerdt) in the temperate region, suchas Canada, Argentine, Uruguay, South Africa, Australia, New Zealand, andthe United States. (Hilgerdt did not include the United States in the "regionsof recent settlement", but Nurkse does.)
The essential characteristics of these "regions of recent settlement" is thatthey were sparsely populated, and were highly dependent upon the export ofprimary products. The production of these primary comrnodities were chiefly
carried on with foreign private capital, direct as well as indirect, and with thelabor of immigrants from the center.
The increase of import into Britain of primary products induced the exportof capital to primary producing countries. International trade and foreign

investment were closely related. Foreign investment was supported by thelong-run prospect of the increasing demand for raw materials in the industrial
center.

The cumulative process of economic development was created by the export

demand and foreign investment. The regions which were endowed with suchnatural resources as were in increasing demand in the center were supplied withcapital to develop those natural resources. Thus, the increase of export demand,and the inflow of foreign capital (as well as immigrants' skilled labor) propelled

the cumulative process of economic development in those regions of recent
settlements.(3)Among the outlying countries, China, India, tropical Africa, and Central
America were relatively little affected by the expansion of export demand andinflow of foreign capital. In South-east Asia, where trade and inflow of capitalwere especially active, a "dual economy" was created (e.g. in Indonesia.). By"dual economy" is meant the economy in which a well-developed export sector
and a primitive, native economy exist side by side and are not integrated intoa united whole. This means that the function of trade and investment as "the(2) These countries are classified as "new capitalist countries" (neukapitalistische Lander) by

E. Wagemann. (E. Wagemann, Struktur u. Rhythmus der Weltwirtschaft, 1931)

WORLD TRADE AND ECONOMIC GROWTH 41
engine of growth" has its limitations, if other conditions for economic progress
fail to exist.

In general, as Nurkse stated, in the nineteenth century trade was the "engineof growth" and the economic growth in the center was transmitted throughtrade to the periphery (especially to regions of recent settlements), thus bringing

about a world-wide economic expansion.

Nurkse did not touch upon the important r61e played by the European
immigrants into the regions of recent settlement in his Iecture, although hedwelt on it in other publications; e.g. in "International Investment To-day

in the Light of 19th Century Experience." (The Economic Journal, December
1954.) The rapid economic growth of these regions was due not only to the
inflow of European capital, but also to the inflow of European immigrants,

whose skilled Iabor and technical knowledge contributed much towards thedevelopment of these regions.
(3)

Percentage Distribution of British Imports by Countries of Origin

Country

1857-59

1911-13

United States

19

19

Other "New" countries (a)818Industrial Europe (b)2123All other areas

52

40

100

100

Total

(a) Canada, Argentine, South Africa, Australia, New Zealand.
(b) Germany, France, Italy, Belgium, Netherlands.
(Nurkse, ibid., p. 16)
Percentage Distribution of British Capital Overseas by regions.
1870

1913

United States

20

20

Other "New" countries

1045

Europe50

5All other area

20

30

1OO

100

Country

Total

The total amount of British Capital Overseas increased from about {1,OOO million in1870 to about 4,OOO million in 1913.
(Nurkse, ibid,, p. 17)

Imlah estimates the total amount of British capital abroad at (692.3 million in 1870
and at 63989.6 million in 1913.
[A. H. Imlah, Economic Elements in the Pax Britanica, (p. 72-75)]

42 FUKuO KAWATA
As stated by ProÅí Haberler, "the rapidly-developing countries in thenineteenth century were the countries of recent settlement, which received capitaland skilled labor in large quantities from the OId World." (G. Haberler,
Nurkse on Patterns of Trade and Development, Review of Economics and Statistics, February 1960.)

According to the research ofJ. Isaac, ofabout 60 million European emigrants
from 1846 to 1937, roughly 60 per cent went to the U. S. A., Argentina accounts
for 11 per cent, Canada for 8.7 per cent, Brazil for 7.4 per cent, Australia received

roughly 5 per cent, New Zealand 1 per cent, and South Africa about 1.3 percent. [J. Isaac. Economics of Migration, p. 62]
The number of immigrants grew larger since the 1880's until it reached thehighest ievel in 1906-1910 and 1911-1915. After the First World War, thenumber declined heavily. [See Table 1]
Table 1. Intercontinental Emigration from Europe, 1846-1937 (Estimates)

Annual averages (thousand)Year

NumberYear

Number1846-1850260

1896-1900

600

1851-1855

340

1,050

1856-l860

200

1901-1905
1906-1910

186tl-1865

220

1911-1915

1,350

1866-1870

350

1916-1920

1871-1875

370

1921-1924

1876-1880

280

1925-1928

1881-1885690

l929-1932

1866-1890

780

1933-1937

430
770
580
290
150

1891-1895

730

1,390

Source: J. Isaac, Economics of Migration, 1947, p. 60.

In contrast to these regions, Indla, China and other Asian countries with
dense populations and ancient civilizations quite different from Europe received

few European immigrants.
Tropical regions of Latin America and Africa also had a small number ofEuropean immigrants, owing chiefly to climatic conditions.

As Haberler pointed out in the above article, "To-day's under-developed
countries can not expect (or do not want) large immigration to speed theirdevelopment. There are, however, a few exceptions. Some countries in Latin

America had a chance immediately after World War II to get large numbersof European immigrants. But nationalistic policies prevented them from mak-

WORLD TRADE AND ECONOMIC GROWTH
ing use of this unique opportunity to accelerate their rate of growth."II

In the twentieth century, things changed completely. The paces of expansion of world trade (excluding Soviet Area) in about a thirty-years' period

were 2700/. in 1850-1880, l700/, in 1880-1913, and only 570/. in the 1928-58

period respectively. In spite of the rapid growth of world production, thegrowth of trade has been stagnant in the twentieth century. Especially the
expansion ofthe export ofunder-developed countries has been very slow, although
their import increased at a more rapid pace than the expansion of world importat large.

The sluggish increase of export of primary products (except petroleum)in the twentieth century is attributed to the following six reasons by Nurkse(Nurkse, ibid., p. 23):

(1) "The composition of industrial production in the advanced economies isshifting away from `Iight' industries in favor of heavy" industries (such as engi-

neering and chemicals), that is, from industries where the raw material content
of finished output is high to those where it is low.
(2) "As a special case, the rising share of services in the total output of advanced

industrial countries tends to cause their raw-material demand to lag behind
the rise in their national product."(3) "The income elasticity of consumer demand for many agricultural commodities tends to be low."(4) "Agricultural protectionism has adversely affected imports of primary
products from non-industrial to industrial countries, though this point should

not be exaggerated."(5) "Substantial economies have been achieved in industrial uses of natural
materials."(6) `CLast but not least, the leading industrial centers have tended more andmore to displace natural raw materials by synthetic and other man-made substitutes produced from a few basic elements of mostly local origin."

Professor Kojima adds to the above six reasons the following ones;(1) On the side of advanced countries, the national defense consideration andfu11 employment policy have brought about agricultural protectionism, andprogress of synthetic industries, and (2) On the side of under-developed
countries the stage of development passed from a period of increasing returns

43

44

FUKUO KAWATAin the sparsely populated regions to a period of decreasing returns in the densely

populated areas. (K. Kojima, Future of World Trade, The Hitotsubashi Review,
July 1960.)

Under these circumstances, it has become diMcult for primary producing
countries (except oil producing countries) to attain a high rate of growth throughthe expansion of the export of their products.

The stagnation of demand for primary products on the part .of advanced
countries has retarded their investment in the under-developed countries, (except

oil-producing countries). The cumulative process of economic growth by meansof the expansion of trade and investment has ceased to operate to-day in underdeveloped countries (excluding oil-producing countries).

The expansion of world trade now depends chiefiy upon the increase of
trade between industrial nations, and the relative importance of trade between
industrial to non-industrial nations has decreased.

The practical measures for economic growth on the part of under-developed
countries, is "industrialization."

There are, as is stated by Nurkse, two types of industrialization; one is the

production of rnanufactures for export and the other is the production of manufactures for domestic market.

"Industrialization for export" is supported by such an expert as A. W.
Lewis. But according to Nurkse, this method is not suitable for under-developed

nations. Because (1) on the supply side, skilled workers are few and dear, andto obtain capable workers a large amount of social overhead capital is needed

for the improvement of conditions regarding education and health; (2) on the
demand side, the export of crude consumer goods, which are produced with comparative advantage by under-developed nations may be subject to various import
restrictions by advanced countries. For instance, the textile goods exported to
Britain by India, Pakistan and Hong Kong are subject to "voluntary restrictions".
Therefore, the prospect for the "industrialization for export" is not bright. The
alternative which under-developed countries should take is the "industrialization
for home market". It is this type ofindustrializatio,n that Nurkse dwells on withemphasis.

According to the theory of Nurkse (Nurkse, ibid., p. 42), "industrial deve-

lopment for domestic markets requires a complementary advance on the'farm
front, a rise in agricultural productivity." In other words, an innovation inagriculture is required first of all, in order to expand the narrow domestic market

WORLD TRADE AND ECONOMIC GROWTH
of under-developed countries,
It is necessary to promote "increases in output that are diversified in accor-

dance with domestic income elasticities of demand so as to provide market foreach other locally." (Nurkse, ibid., p. 44)

Nurkse's theory stands on the basis of balanced growth, in contrast to thetheory of unbalanced growth advocated for example, by A.O.Hirschman.
(A. O. Hirschman, "Strategy of Economic Development", 1958)
Nurkse maintains that "while it is true that the active sectors will tend topull the passive ones forward, it is equally true that the passive sectors will tend

to hold the active ones back. Would it not be better if every sector were in somemeasure active in the sense of advancing spontaneously, imbued with some
expansive 61an of its own instead of waiting for singnals from others?" (Nurkse,ibid., p. 43)

It is usually believed that balanced growth can effectively be attanied only

through centralized-governmental direction or co-ordination. But Nurkse "doesnot say that the theory of balanced growth calls for central planning in order
to assure progress." (Haberler, ibid.) This may be one of the characteristics

of Nurkse's theory of balanced growth,III
Nurkse mentions three patterns of advance in less developed countries;(1) growth through exports of primary products; (2) growth through exportsof manufactured consumer goods; and (3) expansion of output for domestic
markets.
In the real world a single pattern is seldom found in isolation, but usuallya mixture of two or more is found and three main patterns can easily be combined.

In the nineteenth century, pattern I provided the principal opening for
economic growth in outlying areas of the world economy, but it now seems tooffer relatively limited opportunities to the majority of primary producing
countries, except petroleum countries.

Pattern II is being tried to some extent and in some places with success,but it can hardly be described as a major factor at present.
To-day, as Nurkse stated, more is happening along the lines of pattern III,the pattern of home market expansion. "Industrialization for home markets
is undoubtedly spreading."

45

46

FUKUO KAWATA

We might make additional remarks to the above statement of Nurkse.
I) When industrialization for home market is advanced, it may be possible
for under-tdeveloped countries to organize a common market or free trade areawith neighbouring nations, by providing markets for each other regionally. The

formation of a "common market" or a "free trade area" among less developed
countries through their regional economic co-operation indicates a new type of

economic growth. This pattern of economic growth, that is to say, "growththrough regional co-operation" may well be called pattern IV of economic
growth of under-deveploed countries.

2) Nurkse did not refer to markets in the Soviet area. But in recent years,
trade of under-developed countries with the Soviet area has been increasing
gradually.(i) Under-developed countries export their primary products in ex-change for manufactured goods, especially capital goods from Soviet areas.
Pattern I is still now important in the trade with the Soviet area.

3) Since the end of the Second World War, the balance of payments of underdeveloped countries has deteriorated. It has become diMcult for them to obtain
their necessary imports, (especially capital goods) through their exports. Con-

sequently, a large sum of financial aid has been given by advanced countries
and by the Soviet area as well.

It is thanks to these aids that many under-developed countries are making
progress in their economic development. Some countries, for instance, India
in her third Five-year Plan (draft), drew up their economic development programin anticipation of foreign aid. Such a tendency to attain development throughforeign aid may indicate another type of growth, that is to say, "a growth throughaid". This type of growth appears to have become prevalent among newly
rising countries at present.

(1)

Import of Soviet Area from Under-developed Countries.

(million U.S. dollars)
Regions

1938

1956

Asia

440

306

Latin America

22

107

Near East & Africa

36

194

Oceania

17

58

515

665

Total

Source: United Nations, Economic Survery of Asia and the Far East, 1959.

SINGULARITY IN THE STRUCTURE OF
THE SEAMEN'S UNION OF JAPAN-IN COMPARISON WITH ENTERPRISE UNION-

Hiromasa YAMAMOTO

1. Features of the structure of trade unions in JapanThe structure of trade unions in a country is strongly influenced by the eco-nomic structure of the country, which leaves a peculiar stamp on the structureof trade unions due to its singularities. It is a structural features of trade unionsofJapan that members of a union are composed of all employees of a single
enterprise, including labours and white collar workers, without considerationof their jobs and skills, though of course those in posts of management control

are excepted. We may call such unions "enterprise unions". The structureof industrial unions ofJapan are in many cases only a federation of unit unions-enterprise unions, therefore labor organizations which are often called industrial unions in Japan include those quite different from "industrial union"

in its correct usage. However, the All Japan Seamen's Union (J. S. U.) is
the only typical industrial union, the structure of which is the same as those inEuropean countries and the United States. In this article the reason why only

the seamen's union ofJapan was able to adopt and succeed in maintaining thestructure of a typical industriai union will be considered, in comparison with thereason why the peculiar type of union, the enterprise union, has developed in

postwar Japan.
To clarify the points to be considered, it is convenient to incorporate themain types of industry-wide labor organizations, so-called industrial unions, inJapan. Those organizations may be classified into three types according to their

47

48

HIROMASA YAMAMOTO

structural characteristics.(i)(i) A unit union, which is composed of the employees of a factory or an enterprise including several factories joins together to form a national federation of

trade unions of the same industries. In this type of labor organization is in-cluded most of the important industry-wide labor organizations, such as theJapan Federation of Coal Miners' Unions, the Japan General Confederation ofPrivate Railway Workers' Unions, the Federation of Synthetic Chemical Industry

Workers' Unions and so on. For the most part labor organizations of private
industries are included in this category. The unit member of those organizations

is not, of course, the individual worker but the enterprise union. Unit unions

constitute local organizations which are under the control of the headquarterof the federation, while unit unions also organize respectively federations ofunions which are composed of employees of the same enterprises.
(ii) The second type is the single industrial union which is organized by theemployees of a single undertaking of a national-wide scale, which has a mono•tpolistic influence in its respective field. In this type the following are includedi

the unions which are composed of the employees of government-owned undertakings, such as the Japan National Railway Workers' Union, the All Communications Employees' Union and so on, and government oflice workers' organization, such as the All Agriculture and Forestry Ministry Employees' Union.
(iii) The third type is the AllJapan Seamen's Union (J. S. U.) which is the only
typical industrial union in Japan. This union adopts the principle that the union

members should be formed by the seamen who want to join. The constitutionof the J. S. U. prescribes this point clearly in article 5. Every union member
has to register at the union branch at the place where the main oMce of the ship-ping company to which he belongs is situated. There are eleven union branches,
under which local divisions are established in all main ports. As for craft organizations, the union has four committees including steamship, fishing vessels,

wooden vessels, and port departments. Thus the J. S. U. is the only union in
Japan which does not have the character of a federation of enterprise unions
organized in respective enterprises of the same industry, and has the same structure

as those of industrial unions in European countries and the United States.(2)(1) Ujihara, Fujita and Funahashi, The JapEtn Type of Trade Union and the Seniority Rule,
1960, pp. IOO-102.
(2) Ifwe interpret the meaning ofindustrial union strictly, theJ. S. U. is not necessarily a typi-

cal industrial union, because it does not include as its members the workers of shipping

companies who work on land.

SINGULARITY IN THE STRUCTURE OF THE SEAMEN'S UNION OF JAPAN 49'
2. Enterprise unions and the reason for their emergence
When trade unions were organized in Japan after World War II, why did
most unions take the structure of enterprise unions which were established insidea single factory or single enterprise including several factories, and members ofwhich were composed of all employees of the factory or enterprise with no con-nection to other laborers employed by other enterprises. To explain thisquestion, it is necessary to clarify the labor movement situation for several years

immediately after the war when workers began to organize trade unions rapidly

and as a result many enterprise unions were formed; and as the next step weshould pay attention to the condition of labor markets which made it diMcult
to organize industrial unions in spite of the efforts of union leaders who recognized

the defects of enterprise unions and endeavored to ,reorganize them.

2. I. Formation of trade unions in the postwar period
Before World War II the labor movement was severely suppressed in Japan,
therefore trade unionism showed little development during that period. Moreover, at the beginning of the war trade unions which could maintain their activities under the severe circumstances had to be changed into organizations oflabor-management co-operation so as to increase wartime production. Consequently, there were no trade unions in Japan during the war.
But the end of the war brought into Japan a democratic policy toward labor
movement, and as a result trade unionism developed with a swiftness that could
scarcely be seen in other countries. From August, 1945, the defeat ofJapan, toOctober, 1948 when the union-organizing movement reached its peak, the unions
established amounted to over thirty thousand with over six million laborers.(3)There was a close connection between the swift development of trade unions andthe fact that most of the unions thus established adopted the structure of anenterprise union.

The economy ofJapan in the immediate postwar period was in an exhausted
condition. Factories and other production facilities were destroyed by air-raids,and food and materials for production were very scarce. Laborers had to endurepoor living conditions due to the developing inflation and the scarcity of food,accompanied by feelings of insecurity of losing their jobs. The uncertainty of
their living condition, combined with their dissatisfaction which accumulated
during the war, created the motives which naturally led to the organization of'(3) K. Okawachi, Restart of Trade Unionism - Inside and Outside of Enterprise Unions, 1956,

pp. 39-40.

50

HIROMASA YAMAMOTO

trade unions in order to secure stable and better economic conditions. The
unionizing movement began necessarily among the laborers of respective enterprises and factories, because their living conditions were extremely poor andtheir desire to conquer the diMculties of living was so keen. Moreover, in orderto check the inclination on the part of management to stop production so as
to avoid risks due to the rampant infiation, the organization oflaborers establishedwithin the enterprise was quite effective in combating management. At thattime there was no alternative but that the unions should take the structure ofan enterprise union, for the orthodox unionizing method of asking each laborer
to join by consenting to the aims of the union necessarily needed so much timethat it could not meet the pressing demands of the laborers.(4)The swift development of unionizing in that period was also due to anotherreason which was political. Based on the article in the Potsdam Declaration

demanding that the government ofJapan remove all obstacles against the re-vival and strengthening of the tendency toward democracy by the Japanesepeople, several measures were enforced to secure the smooth development oftrade unionism, And the fact that the freedom to organize was not acquired by
the efforts of the Iaborers, but given them by outside political power resulted in

the fact that the motives of unionizing included not only active and spontaneousorganizing but also followed the general trend. In the latter case the structureof the unions was naturally that of the enterprise union, following the general
pattern.

Thus, during the three years immediately following the war, the organizing
movement included two heterogeneous factors; that is, on the one hand, it emerged

from the active and spontaneous demands of workers; and on the other hand,
it was accelerated by the formation of unions by opportunists. Both factors,
from different reasons, equally introduced the structure of an enterprise union.

2. 2. Detection of the defects of enterprise unions
In the process of the swift development of trade unionism, the efforts tostrengthen the co-operation of laborers in different enterprises and industries
emerged together with the swift increase of enterprise unions. Under the leadership of the two competing labor organizations, the Congress of Industrial Unions

and the General Federation of Trade Unions, industry-wide organizations oflaborers were established during the earHer period of the postwar Iabor move(4) cÅí H. Funahashi, the Singularity of the Structure of Trade Union, in Trade Unions ofJapan, compiled by OkawaÅëhi, 1954, pp. 18-20.

51
SINGULARITY IN THE STRUaTURE OF THE SEAMEN'S UNION OF JAPAN

ment. However, those industry-wide organizations which were organized withina short time had, without exceptions, the structural characteristics of being divided

into a headquarter, branches, and Iocals. The branches were composed ofenterprise unions of the respective industries. The development of the labor

movement made union leaders conscious of the defects of the organizations,
The industry-wide labor organizations, which were composed of enterprise unions
as the basic unit had common defects; that is, in many cases the enterprise union

retained, more or less, autonomy regarding collective bargaining, conclusion of
trade agreement, and the direction ofstrikes. In this sense those industry-widelabor organizations were merely a confederation of enterprise unions, and theirstructural features were fatefuI defects for industry-wide collective bargaining,

because when the organization was bargaining with the association of the management for the purpose of improving the working conditions of laborers on anindustry-wide scale, some enterprise unions, that were members of the federation,

which found a chance of getting more favorite terms, often dropped off from theline of industry-wide collective bargainjng to make certain a gain for its own

members, and as a result the efforts for industry-wide improvement were in
vain. This egoism of the enterprise union was the bottle-neck of the activities ofindustry-wide Iabor organizations. Through many experiences of failure leadersof labor unions have recognized that it is necessary to reorganize the present
industry-wide organization, with its loose federation of enterperise unions, into
Western type industrial unions if they wish to succeed in industry-wide collective

bargaining and to improve the labor conditions of all workers in the industry.
However, it seems that enterprise unions will retain a stable position in Japanesetrade unionism, though industrial unions are regarded as essential for the healthy

development ofIabor movement and many efforts have been made to realize it.(5)The brief sketch of trade unionism in Japan shows us that the structuralfeatures ofJapanese trade unionism are the enterprise unions, or in other words,

the absence of industried unions. Why has enterprise unions been able tomaintain their strong influence against efforts made to destroy them?
Of course an enterprise union has the possibility in its structure to turn into

a comany union influenced by management, and some of the enterprise unions
may have turned this possibility into reality. However the above explanation(5) All labor organizations include in their principle of labor movement the intention to organize

an industrial union and conquer the defects of enterprise union. Refer to following, Japan
Labor Association, Laborers, 1959.

52

HIROMASA YAMAMOTO

can clarify only a part of the whole problem. A more correct and essential
explanation of the problem must be sought in the features of our economic
structure, especially those of the labor market in Japan. The capitalistic devel-

opment of Japan was not accompanied by the exhaustive breaking up of rural
economy; consequently, the labor market ofJapan includes many of those whowork in factories not as their principal occupation but as a side job with theintention of easing the living of their families who are small farmers. Typicaltypes are seasonal workers who work during the farmers' slack season. Even in
the case of those who work in enterprises in the cities, when they lose their jobs
because of depression or other reasons, they do not remain in cities as job-seekers,

but are absorbed in their homes in the country as farmers, that is, they become
potential unemployed persons. In other words they do not have a stable characteras laborers but have mobility between farms and workshops. Western type wage
earners whose sole jobs are found in factories naturally stay in industrial areas,

and then a stable labor market can be established where the same wage andworking conditions are prevalent regarding the same jobs and occupations. On
the contrary, in Japan many laborers do not necessarily lose their relation with

agriculture, and consequently the labor market is unstable where each factory
recruits and combines with each laborer who comes from certain rural districts.

Inshort there is no labor market of the Western type, and wages and labor
conditions differ largely within the same job in different enterprises and indifferent areas. Therefore equalization of wage and labor conditions of laborers

in the same job and the unification of enterprise unions are quite diMcult.
The difficulty of organizing industrial unions in Japan and the existence ofenterprise unions are due to the above conditions.(6)3. The uniqueness of the labor organization of the seamen of Japan(7)The reason why only seamen could organize and maintain an industrial
union in Japan shall be considered in contrast to the reason why enterprise
unions are prominent in Japanese trade unionism.

(6)

(7)

Prof. Okawachi is the first person who pointed out this problem. cf. K. Okawachi, Restart of Trade Unionisrn - Inside and Outside of Enterprise Unions, 1956.
Regarding the peculiarity of the seamen's union, the following article includes many suggestive explanations. H, Sasaki, The Singurarity of Seamen's Union and the Grounds ofits
Singularity, in Trade Unions of postwar Japan, 1956. Regarding the process of establishment ofJ. S. U., see, H. Sasaki, Maritime Labor Movement in postwar Japan, (Journal of
the Univ. of Marine, No. 3, Ser. B, Feb. 1953)
Also see, the Ministry of Transportation, Ten Years' History of Maritime Labor, 1957.

SINGULARITY IN THE STRUCTURE OF THE SEAMEN'S UNION OF 53
JAPAN
3. 1. Circumstances under which the seamen's union was organized
When the seamen's union was organized in l945, the shipping industry was

under government control and seamen were also under government employment
control which had started from the beginning of the war. From the wartime
necessity of controlling shipping so as to carry out military transport without
hindrance, the Shipping Corporation was established and by means of this organi-zation vessels and seamen were administrated under government control. There-

fore, though seamen kept their formal relation with shipping firms through ahiring contract, they.were practically employed by the government, and theirwages and working conditions were regulated by the government. The Shipping
Corporation maintained its operation until shipping firms were allowed to reopen

their activities in 1950. The fact that all of the seamen were employed by the

Shipping Corporation when the organizing began in 1945 was helpful for themin organizing a single industrial union, through the equalization of working
conditions and wages and the strengthening of their consciousness of solidarity.
Another fact was also helpful in the formation of the single industrial unionof seamen. The organizing movement was carried out by the leaders of prewar
labor organizations of seamen, differing from the general conditions of postwar

trade unionism that were essentially spontaneous organizing movements oflaborers, having no relation with prewar Iabor movements both regarding union

structure and leaders. Before World War II unlicensed personnel and licensed
personnel had their respective industrial unions. The former were organized into

the AII Japan Seamen's Union and the latter into the Association of Seamen.

The two organizations were not only co-operative but were strong enough toinclude the majority of seamen as members. When labor unions were forcefu11y
dissolved and changed into absolutely different organizations, the Industrial

Council for Labor-Management Co-operation in l937, the leaders of the twolabor organization found their posts on land in the newly established organization

or Shipping Corporation and few of them went to sea again. Consequently the
prewar leaders of seamen's unions could easily start the reorganizing work of theseamen's union in close contact with their prewar colleagues when defeat brought

to Japan a democratic atmosphere and a boom in organizing trade unions, On
the contrary, for the mass of seamen it was generally quite diflicult to touch onunionizing work because of the peculiarities of their working conditions, thatis, the vessels where their work was done was isolated and they had to travell

from one port to another. Thus there could be found only a few cases where

54

HIROMASA YAMAMOTO

the rank and file of seamen began spontaneous organizing movements, though
they had also the same uneasiness concerning their living and unemployment
and the same desire for improvement as did the laborers on land. The difllcultyof spontaneously organizing by the rank and file, and the general trust of
prewar leaders by seamen were very helpfu1 in the smooth promotion of unionizing by leaders, though they had very little contact with the rank and file.
Thus we may conclude that the establishment of the single industrial union in the

shipping industry was due to the condition that all seamen were under governmental control, together with the strong influence of prewar union leaders.

However, we know that the seamen had strong industrial unions in the
prewar period. Then, if we conclude that the extraordinary conditions immediately after the war were the sole causes that only seamen could establish
a single industrial union, we are led to an incorrect conclusion. Henceforth,
we will examine the conditions of seamen's unions of the prewar period.(8) Our
research will make clear the relation between the unique character of the seamen'slabor market and the structure of the unions, and it is usefu1 to consider theeffects of the changing condition of employment upon the system of the seamen'sumon.
3. 2. Seamen's union in the prewar period and labor market of seamen
In the prewar period we could find various kinds of trade union structuresin Japan, including craft unions, industrial unions and general unions, and also

company unions. But trade unionism in that period did not show much development due to the radicalism of union leaders, who put much stress on politicalmovement rather than on improving working conditions of their members,
and the suppression of labor movements by the government and management.
According to the research of 1931 when trade unionism was most prosperous
in the prewar period, there were 818 trade unions including less than 370 thousand

union members. Organized laborers were less than 8 per cent of industrial
workers.(9) Under such hard conditions of trade-unionism, the Japan Seamen's
Union including 92 thousand members and the Association of Seamen including
12.6 thousand members were successfu1 in organizing the greater part of un-licensed personnel and licensed personnel respectively. The former was thelargest trade union in Japan. The superior position of seamen's unions was(8) Regarding the seamen's unions in the prewar period, see, T. Nishimaki, History ofMaritime

Labor ofJapan, 1952.
(9) I. Suehiro, History of Trade Unionism ofJapan, 195e. p. 80 ff.

SINGULARITY IN THE STRUGTURE OF THE SEAMEN'S UNION OF JAPAN 55
mainly due to the unique conditions of the seamen's labor market.
Nearly all shipping jobs require certain experience and or license in order

to secure the safety of life and property at sea. For example, to be engineers
or deck oficers it is necessary to pass a national examination after graduatingfrom a maritime academy, and even for unlicensed personnel it is necessary tofinish a course of training of at least halfa year. Severe requirements regarding

license and experience naturally tend to bring about similarity of skills among

the laborers engaging in the same kind ofjob. Moreover, the system of employment in the shipping industry was quite different from those ofother industries.

A seamen signed a hiring contract when he joined a ship, and after several
voyages over a certain period determined by the contract he was discharged,
and as a result the employment relation ended. Then he had to look for anothership to join. Therefore the employment of seamen was always intermittent.
Seamen sometimes worked on a vessel ofone company, and then again on a vesselof another company. The wages and labor conditions were more or less similaron the vessels of different companies based on the similarities of skills among

the seamen. The system of employment naturally led seamen to be job-conscious, without enterprise-consciousness. The conditions of seamen were quite

different from other industrics which we have already seen. In Japan, onlyin the shipping industry was a iabor market of the Western type estabiished.

The fundamental reason why only seamen could organize a single indsutrial
union, not only in the prewar period but also in the postwar period, may befound in these conditions.

At the same time we should also keep in mind that the unique system of
employment in the shipping industry influenced deeply to development ofseamen's

unions in the prewar preiod. The intermittent character ofseamen's employment

caused instability in seamen's employment and living conditions. Before theestablishment of the seamen's union, unlicensed personnel were controlled byboardinghouse keepers who also engaged in recruiting the crew, as was often seenin European countries of the nineteenth century. But the seamen's union tried
to work on ajob exchange service from its establishment, and in 1925 the unions

succeeded in securing a job exchange service of seamen exclusively through the

Maritime Joint Committee(iO), and it provided the unions with an adequate
basis for the development of union members.
The seamen's unions also succeeded in concluding trade agreements includ-ing minimum wage agreements. The unions were co-operative with manage-

56

HIROMASA YAMAMOTO

ment and gained more or less improvements in wages and working conditions
for their members. They adopted the principle of typical business unionism
while mQst other trade unions in the prewar period were eagerly engaged inpolitical movements. The conservative and co-operative attitude ofunion leaderson the one hand, and the control of the members through the job exchange
service on the other hand were very important factors in making it possible forseamen's unions to include most of the seamen as union members and maintaintheir activities in the prewar period atmosphere disadvantageous to trade un---lonlsm.

4. Factors affecting the structure of the seamen's union
That the seamen's union has been able to form and maintain the structureof an industrial union in the postwar period is, as we have already shown, basically

due to the features of the labor market of seamen. However, we recognize that
there were several other causes which had possibilities of influencing the structureof the union, after the seamen's union was rebuilt. The first was that government

control regarding vessels and seamen was abolished and shipping companies
began their business in 1950. Since then seamen were employed by respective

shipping companies apart from the employment control of the Shipping Corporation, and this fact meant the return to peace-time employment relations inthe shipping industry. But the postwar system of employment by shipping companies was quite different from that of the prewar period. In the prewar period

seamen were employed by the system common in European countries as we havealready pointed out. The employment of seamen was always intermittent.
On the contrary, Japanese shipping companies in the postwar period succeededin the system of employment enforced by the Shipping Corporation. From thenecessity of maintaining enough members to operate all vessels without delay,

the Corporation made a labor pool of seamen on land, and when seamen got
off a vessel after a certain number of voyages, they were formed into a laborpool of seamen with pay, from which seamen waiting for jobs on land went
to sea. In other words from wartime the employment of seamen lost its inter-mittent character, and searnen have always been with employment with pay,

(10)

The Maritime Joint Committee was organized by the Japan Shipowners' Association, theJapan Seamen's Union and the Association of Seamen, in order to handlejob exchange
service of seamen, to determine the working conditions of seamen, to prevent and mediate
disputes. cf. the Maritime Joint Committee, Regarding to the Maritime Joint Committee,
1930.

SINGULARITY IN THE STRUCTURE OF THE SEAMEN'S UNION OF 57
JAPAN
irrespective of whether they were working at sea or on land. Seamen enteredinto the same employment relations as those generally seen among laborers on

land. Therefore when this employment system was adopted by shipping companies, seamen became enterprise conscious since they were to belong to thesame enterprise and could receive wages even on land so long as they ,did not
try to find jobs in others places. As a result several attempts were made among

seamen employed by leading shipping companies to set up an enterprise union,

when shipping business was regained by private companies from government
control.(ii) But the attempts disappeared without bearing fruit, for at thattime there were no differences in wages and working conditions of seamen among

the shipping companies. The seamen's union could conclude a uniform trade
agreement with the Japan Shipowners' Association, instead of the Shipping
Corporation. The difference of earning power did not become apparent immediately after the reopening of shipping operation by private hands.

However, the difference in revenue among the shipping companies have
gradually become apparent. The business conditions were especially different
between the large shipping companies which operated foreign trade routes andintermediate and small shipping companies which operated mainly coastalroutes. The former could find funds to improve seamen's wages though they
had to face severe international competition, while the latter had to suffer fromthe severe competition of railroad and trucks. Under those circumstances
the seamen's union had diMculty in acquiring improved wages uniformly for
all seamen employed by different shipping companies. In addition, because
the postwar system of employment of seamen had a continuous character, theinterest of seamen employed by large shipping companies with regard to thewage issue clashed with that of those employed by small shipping companies.
Reflecting on those conditions, in 1955 the seamen's union falled to maintain

uniform collective bargaining and to conclude a uniform trade agreement with
the Shipowners' Association. The union had to bargain and conclude respective

trade agreements with five groups of shipownesr separately.(i2) This newly
introduced system of collective bargaining, combined with the postwar employment system of seamen includes the possibility of enlarging the difference of thewage and working conditions of union members in spite of the similarity of theirjob skill, and of strengthening the enterprise-consciousness of seamen which may(11) H. Sasaki, The Singularity of Seamen's Union and the Grounds of its Singularity, p. 96.
(l2) The Ministry of Transportation, op. cit. p. 350 ff.

58

HIROMASA YAMAMOTO

result in breaking a single industrial union of seamen.

Of course the seamen's union has tried to strengthen the solidarity of its
members and to maintain its union Iest the possibility of its destruction becomea reality. For this purpose several measures have been pla•nned and some ofthem have been practically enforced. The union succeeded in adopting theunion shop system in October 1945.(i3) The union is also preparing to enforce

a pension plan and a plan to organize a general employment pool of seamen.
Though these plans are now still at a desk plan stage, if they are to be-enforced,
they seem to be powerfu1 means for maintaining the present single union structure.

(13) The Ministry of Transportation, op. cit. pp. 317-325.

SOME REFLECTIONSINTER-COMPARAON
BILITY OF SOCIALACCOUNTING

Nobuko NosE

I
Introduction
As a result of the rapid development of social accounting after the war,
national income analysis is getting a new weapon, but it seems that the basic
definitions in the social accounting system are not so satisfactory, because thedifference ofsocial welfare from productive power as the basis of national income,and of usefuI labor from productive labor have become retarded.(i)The social accountants, focusing on the accounting matrix only, have tried

to design a standard accounting system to represent the national aggregatesand recently endeavored to compare national economies in standardized accounts.
It is interesting that criticisms of social accounting occur not in the stageof formal but in the practical stage i.e. international comparison. For, thenations to be compared are of so many types, as mature economy, pseudo-matureeconomy and under-developed, that the social accounting figurs in these countries
fail to represent the economic progress on an objective, comparable basis. Then,the definitional problem of national income as a standard, must be reexaminedin order to solve the comparison problem.
It is natural that this problem be seriously considered in the case of comparisons of under-developed economies. The criticisms being represented here,
point out the infeasibilities of intercomparison with under-developed economies

by the Anglo-American standard system. There are many writers, such as Mr.
Frankel, who points out the varied value systems in varied economic systems,(3)such as Mr. Kuznets, who points out the varied institutions in varied national
economies,(4) and such as Mr. Barna, who points out the difference of economic

59

NoBuKo NosE

60

structure in the economies on the varied historical stages,(5) and as Mr. Creamer,

who points out the varied degree of statistical exactness in varied nations.(6)By the reasons we show later, we take the stand that those points, except
the last one, are rooted in the classical problem of the national income theory,and have to be examined by a formal analysis of social accounting despite its

appearances which is at the practical stages of comparison. Then we shall
examine how to contribute to these criticisms in solving the definitional age-old

problem in the following sections and how national income accounting should
be oriented.
Note:
(1)

(2)

T. Barna, `International Comparison of National Accounts in Economic Analysis', `Income& Wealth', series III, pp. 142-3.
Standardized systems for international comparison already published are `A standardized

System of National Accounts' by OEEC, `A System of National Accounts and Supporting
Tables' by UN and `A National Accounting System for Use by ECAFE Countries' by UN.
(3)

S. H. Frankel, `Concepts of Income and Welfare-in Advanced and Underdeveloped(4)

Societies with Special Reference to the Inter-Comparability of National Aggregates', in`Income & Wealth', series III. pp. 156-168.
S. Kuznets, `National Income and Industrial Structure', Econometrica, Vol. 17, Supplement-Jul. 1949, pp. 205-241.
(5)

Barna, ibid.

(6)

D. Creamer, `Uses of National Income Estimates in Under-developed Areas', in `Income& Wealth', series III. pp. 211-223.

g2 The Characteristics of the Standardized System.
When comparing with the accounting units, two things are necessary; i, a
standard of comparison, and ii, a method to measure this standard as given.
This is necessary not only for comparison of individuals but for comparison ofnational economies. As we know, these conditions raise disputable points inmany cases.
Then, in social accounting, these points are treated as follows.

On the first point, social accountants recognize the nations' economic
progress by the income circuit i. e. national income, consumption, saving andinvestment in all economies. Behind this, we can understand the Keynesian
income approach as a standard.
On the second point, they set the standardized accounting systems to be
applicable to all nations, that is, the standard of classification and valuation

oftransactions and the unified system ofaccounts, grounded on the standardized
definition of economic aggregates to be applicable to the income statistics of

SOME REFLECTIONS ON INTER--COMPARABILITY OF SOCIAL ACCOUNTING 61

all nations. The relation between i and ii corresponds to the relation between

the Kelnesian Tableau as an abstract schema and its concrete measurement. We
shall examine the matter closely from the side of measurement.

The standardization, for making a unified system for intercomparison,means that i, the standardization of accounting design i. e. design of national

accounts and the items in accounts and ii, the standardization of the method ofvaluation i. e. the valuation principle of depreciation. As to the former, stand-ardized accounts involve the standardized sector accounts which consist of
production accounts, revenue-expenditure accounts, capital accounts, and therest of the world accounts to be set respectively in the business sector, household

sector, and government sector and national consolidation accounts consolidating
the above sector accounts. The principle of classifying the economy into sectors

is an institutional character, and basis of designing the accounts is economic
activity, i. e, production, appropriation, capital transaction and transaction withthe rest of the world.

Now, these bases involve disputable points. As to the sectoring principle,
there are technical treatments ofthe accounting unit of the borderline i. e. farmers

and theoretical problems to justify such institutional and non-economical divisions. As to the former, it has been settled in the social accounting convention
to divine such accounting units,(i) but as to the Iatter, it is pending.(2) Next, as

the basis of accounting design, the definition of economic activity is a disputableone. As the standardized system shows, the limit to record a transaction isan economic activity which is distinguished from a living activity. This economic activity is not so sharply defined as productive labor, but is analogous to

useful Iabor. The standardized system defines the principle to divine usefullabor in general into economic activity and living which is only on the possibility of exchange. So, production as an economic activity involves the goods

production, production of self-consumption goods i. e. farmers' products, theservice of the owner-occupied house and the services of the servants in govern-

ment sector and household sector, but excludes the services by house-wives
in households.
Moreover, the standardized system prevides that these activities be measured
in terms of money, on the production basis, and on the basis of a real postulate,

and that the figures estimated by such basis be converted into standardized
currency, i. e. dollars.`3) In this last stage, the infeasibilities of intercomparison

are strengthened by the problems accompaning exchange rates.

62 NoBuKo NosE
Note:(1) R. Stone, `Definitions and Related Totals of National Income', as appendix of `Measurementof National Income and the Construction of Social Account', pp. 21-ll4. and idem,`Functions and Criteria of A System of Social Accounting', in `Income and Wealth', seriesI, pp. 1-74.
(2) J. Margoris, `National Economic Accounting, Reorientation Needed', The Review of Economics and Statistics, vol. XXXIV, No. 4, 1952.
(3) On this point, see R. Stone and K. Hansen, `Inter-Country Comparisons of National Accounts and the Work ofthe National Accounts', in Income and Wealth', series III, pp. 125-36.

93. Critics of Intercomparison in Social Accounting

Concerning the intercomparison of economics, there are some criticisms
published in the series of `Income and Wealth', etc.
First, we shall take Mr. Frankel's criticisms based on multi-welfare patterns.(i)He points out that all nations have their specific `value systems'. The
value system means `the nation's idea, object or value structure' which motivate

the people's economic activity. He says that the value system has different
characters by nature, hence, the standardized system as a common measure isof no use in comparison in plural economies where there are different propensities
i, e. desire ofgoods and services, choice between labor and leisure and the attitude

to money are present.
We find the same opinion in Miss, Dean's work.(2) She says that in central

Africa money is treated as a luxury rather than as a medium of exchange
and it is ruled by the value system much distinguished from western European
rational behavior.

Thus, they conclude that standardized national accounts are the accounting

symbols which only fit developed economies and is a foreign symbol to underdeveloped economies and that a strict comparison of the two types of economies
is impossible.

Second, we shall summarize Mr. Kuznets's critisisms.(3) He points outthat every nation has a different institutional structure, for example, in under-

developed economies the distance between the producer and final consumer ismuch shorter than in developed economies. Firstly, activity in the household
sector in the former includes a considerable amount of domestic production which
is not oriented to the market, Secondly, the intermediate process, i. e. distribution,transportation and government activity in the former is not so long as these in
the latter. Lastly, investment in the former takes place in the household sector

to a considerable measure. Then, he concludes that to compare a developed

63
SOME REFLECTIONS ON INTER-COMPARABILITY OF SOCIAL ACCOUNTING

economy with an under-developed one is very diMcult. We find that Profl
Hicks(4) holds the same opinion.
Third, Mr. Barna criticized intercomparison from the view-point of the economic development in the nations.(5) He points out that in industrial economies
like the Anglo-American type, even in the third sector business is undertaken incapitalistic manner and the nation;s resources in each industry is nearly in equi-

librium and the factor income in each sector is almost equal, while in a nonindustrial economy business in the third sector is undertaken by a pre-capitalisticmode and its income is low, and the price structures in the two types of economies

are retrogressive respectively, acompanied by different items of public finance.

So he suggests that intercomparison is infeasible. He adds that the Keynesian

approach is more applicable to rich countries where there is excess capacity
rather than to poor countries where the physical resources are generally scarce,
By his opinion, in the latter, physical analysis should be given priority insteadof the Keynesian approach. From the above points, Barna concludes that inter-comparison by the Anglo-American standardized system is dithcult and all
countries should endeavor to study their own accounting symbols.
Note:(1) Frankel, ibid.
(2) P. Dean, `Colonial Social Accounting', p. 228.

(3) Kuznets, ibid.
(4) J. R. Hicks, `The Social Framework', pp. 209-10. and see Barna, ibid. pp. 148-50.

(5) Barna, ibid.

g4 Comments on the Critics described in g3.
Now we shall examine the above critics. Considering the writers' viewpoints,
we may classify these critics into three categories as i `subjective value' type,ii `measurable national income' type and iii `national productive power' type.
(1) Criticisms using the subjective value theory.

Frankel and Dean advocate that intercomparison by social accounting ishardly possible on account of the subjective value base which determines thecharacter of the social welfare pattern in each country. From this point ofview,
we understand that rice in Japan is not given the same preference order as it is in
America and that marginal dis-utility in African is not the same as it is in western

Europe, etc. Then we can neither commensurate the value systems into common
denominators nor intercompare them directly, as in the case of comparison ofindividuals with multi-value standards. Standing on this subjective theory, we

64 •

NosE
NOBUKOare led to conclusion that intercomparison in the media of social accounting

is not feasible. •These criticisms are offered against the most fundamental stage in intercom-

parison. But we must remark that usually in social accounting, and in national

income analysis as its prototype, they do not take into account a comparisonof the subjective value standard directly, but a comparison of the national income

is taken as an objective counterpart of it.(i) Then, the problern is viewed fromanother side.

(2) Criticisms using measurable national income as an index of social welfare.

Kuznets and Hicks take the matter from the point of view of measurable
and materialized social welfare, that is, a more concrete stage than a subjective
value.

Kuznets's criticism, as described in the preceeding section, points out thatthe institutional difference of the productive performance in each country has

three stages - consumer goods, intermediate goods and investment. Concerningit, in social accounting the production is prescribed as an activity which is exchangeable and measurable and includes the production of all goods and services.

Referring to the application of this social accounting convention, Mr. Copeland
criticizes that to apply a progressive country's hypothesis to a borderline casebetween the productive activity and living one, i. e. the convention that prescribes

farmers' housewives' services as a living activity, to underdeveloped countries
makes us underestimate the Iatter's national income, as an index of the latter'ssocial welfare.(2) As to Kuznets's first point referring to the final consumer ineach country, according to our understanding, it re!ates to the technique of im-

puting production performance in the household sector. So, this point may besolved by the improvement of the current imputation technique that now omits
the productive activity performed in household sector. If this is achieved, allproducts enjoyed by final consumers will be estimated and the national income
will be a better index of social welfare.

Next, we shall take up his second point concerned with intermediate goods.
His dissent to the comparison of national income, based on the national incomeof the developed country from which arises a high social over-head cost cannot
reflect such a level of social welfare, in some sense, is reasonable. For, doubtless,a comparison with the national income in a militaristic economy and an unmilitaristic one is of no use in a comparison of social welfare in the two countries.

Of course, the intermediate products, as Kuznets says, include not only military

SOME REFLECTIONS ON INTER-aOMPARABILITY OF SOCIAL ACCOUNTING 65
service but communication, distribution, governmental services other than military service. And usually social accountants have treated such services withoutclassifying them into final products or intermediate. Concerning with this, themost debatable one is the criterion to classify these government products.(3)As we know, Mr. Kuznets, bases his definition as a contribution to the final
consumer :== the increment of social welfare == net output, insists that govern-

mental services concerning the maintenance and modification of the social
framework(4) cannot constitute final products, while the productions ofa govern-

ment concerning contributions to individuals are entered into final products.
So, his criterion to classify intermediate produgts and final ones is set on the
final consumer's ability and / or social welfare. If this criterion were acceptable,

the improvement of the imputation technique to the immediate goods amongsome products, i. e. government's products along with such a criterion, would
bring a more precise figure of national products and of social welfare. Then,
this second point might be solved as his first point. Similarly, we may estimate

investment in household sector by improvement of the imputation technique toInvestment.
.

But when we examine the matter more closely, we can notice that thisproblem has more roots and relates to the problem of the subjective value standard

touched upon before. Kuznets defines that national income is the measure of
net output, and that net is an approximate value of social welfare. Then, theamount of the net output, equivalent to the national gross output minus theamount of intermediate goods, is estimated on the basis of social welfare. Then,

welfare economists, including Kuznets, taking national income as the net out-,put - net addition to social welfare, usually define national income as including

not only physical goods but all services - as usefu1 labor in so far as they areapplicable to final consumers' subjective needs,(5) But, from the standpoint of
the consumer, the motive to decide what and how useful it is to his needs being

considerable ]iquid even in one country, it cannot be saved from a subjective,
psychologic character, Still less, in multi-nations the value standards which form

the people's preference orders must not be the same objective ones. Then, we
see that Mr. Kuznets's standpoint emphasizing the different institutional environ-ment in which the production of national income as the counterpart of social
welfare is performed, implicitly presupposes an identity and consistency among

the many value systems. So, we may understand that his critique based on theintercomparison of social welfare, though standing on a different dimension

66

NoBuKo NosEfrom Mr. Frankel, cannot help concluding the impossibility of intercomparisonas does Frankel. In other words, his approach to intercompare in terms ofmaterialized social welfare, includes both the basic problem on social welfare
and its measuring technique required by different institutional environments,
and if the former problem is unsolved, the latter's solution would be meaningless.

The reason why such a conclusion is deduced is based on the welfare economists'(as Kuznets) definition of the national income from the view point of the liquid,

subjective consumer, that is, from social welfare.
(3) Critics using national productivity.

Now we shall examine Mr, Barna's theorem. As described in the preceeding
section, Barna explains the infeasibility not from the materialized social welfare

as Kuznets did but from the industrial structure depending on historical develop-

ment. Then his scheme of development is similar to the well-known scheme of
C. Clark's economic progress. On the other hand, the national income in social
accounting, is the net amount yielded in the so-called three sectors and consistsof goods and services as we showed. As we know theoretically and empirically,
the contents of national income and the industrial structure in which national

income is produced are not thc same as in multi-economies according to thedegree of development, for example, in one case agriculture occupies a considera-

ble gravity and in another case the financial intermediary is over-expanded.
Then, an intercomparison of national incomes as an aggregate is inconparable
of intercomparison of the nation's productive structure or of the economic progressbecause of it is in net figurs. So, we may agree with his opinion in so far as
doubting the intercomparison of such aggregate figures recorded on standardized

accounts. But infeasibility is not conclusively proved by Barna's proposition

or by Clark's hypothesis. The well-known Clark's schema, using Pettey's law
in the 17th Century as `a horizontal analysis between a number of countries atthe same time'(7) shows the movement of a working population and of an equalization level of real income from the first sector to the second sector and fromthe second sector to the third sector. Standing on this Clarkian hypothesis,
modern economists not only Barna, examine the constituent ratio of the threesectors as a measure of the national productive power, that is, economic progress.(8)Clark explained such rearrangement of the industrial structure according toeconomic progress by the relative change in consumers' demands to goods andservices and by the increment in output per head in the first sector which is more

rapid than the second sectors and much more than the third sectors.(9) But

67
SOME REFLECTIONS ON INTER-COMPARABILITY OF SOCIAL ACCOUNTING
we cannot agree with such an explanation as a general law of economic develop-

ment.(iO) For, in our understanding, his hypothesis has not generality andobjectivity. A typical case which upsets this hypothesis is our Japanese economy

wherein co-exists stagnation and a low level of real income in agriculture andof excess expansion in commerce. Also we find that in an under-developed
economy when the income of the first sector and of the second sector is fairly low,while the income of the third sector is relatively high because of governmental

products, i. e. military service taking up a considerable part. Therefore, todefine economic progress only by the relative changes in sectors is not yet so
conclusive.

Of course, Barna's criticisms are interesting in so far as taking the matterfrom the contents and structure of national income without touching the definitional problem of national income as social welfare, and still more involves

many suggestive points. We must take, 1, intercomparison of the countries on
different degrees of productivity and 2, the problem of the comparison between
industrial structures from his suggestion. The former point leads us toward ananalysis of international value and the latter leads us toward an investigation of
the structurs of interrelationship among multi-countries.

Even with these merits, we are still discontented with Mr. Barna. We knowthat Barna's approach is based on the preceeding two points (subjective value,
and national income as the counterpart of social welfare) in so far as comparing
national products and!or industrial sector in terms of monetary national income.

For, Barna and Clark's view based on national productive power, they neverabandon the basic category of monetary national income itself, as shown by theirdefinition on national income elswhere.(ii) So, adding more complexities by their

viewpoints, the problem itselfwould not be solved but would be more confusing.
As we previously pointed out the `materialized social welfare' view without selving

the problem of the `subjective value system' brings more trouble, and it seems

that `the national productive power' view by Barna brings more unsoluable
problems which already have piled up by the other writers' different stages ofthinking.

We shall examine Barna's other point that insists for premature economy the
analysis of the physical structure as more applicable than the monetary approach.

This idea corresponds to the phrase as `Keynesian for progressive economy andclassics for under-developed', being advocated by modern economists. This viewmeans that in an under-developed economy which is a typical case of capital

NoBuKo NosE

68

shortage physical (supply) structural analysis should take priority over monetary(demand) analysis and the standardized system based on the Ke7nesian Tableau
is of no use in such an economy. But it is apparent that the physical approachneeded by a premature economy is not always unnecessary to a mature economy
and similarly is not unnecessary to a premature economy. The physical structural

approach as advocated by Barna, classifies the monetary national income into
consumption goods, intermediate goods, and final goods, as Hayek did.(i2) But

we must notice that even in this approach, the category of monetary national

income is not given up. Then we might understand that this point has same
defects as did his previous point based on Clark's theorem.
Note:
(1)

R. Stone & K. Hansen, ibid.

(2)

M. A. Copeland, `The Feasibility ofA Standard Comprehensive System of Social Accounts',
in Studies in Income & Wealth', vol. 12, p. 22, pp. 33-7.
The review about this in Japan are S. Tsuru, Ch. 3 of `Kokuminshotoku to Saiseisan', andT. Nose, `Kokuminshotoku-ron niokeru Seifu no Ichi', in The Review ofKobe Commercial(3)

College.
(4)

Kuznets, `Government Product and National Income', `Conference on Research in Income& Wealth', series I. pp. 178-2t14.

(9)

Kuznets, `National Income', ibid.
Pettey's law is as follows. `There is much more to be gained by Manufacture than Husbandry; and by Merchandise than Manufacture... Now here we may take notice that as Trades
and Curious Arts increase; so the Trade of Husbandry will decrease, or else the wages of
Husbandman must rise and consequently the Rents of Lands must fall'. It is quorted by C.
Clark, The Conditions of Economic Progress', p. S95.
Clark. ibid. p 397.
By aid of this principle, for example, Mr. Stone classifies the economy into three sectors.
R. Stone andJ. E. G. Utting, `The Relationship between Input-output Analysis and National
Accounting', in `Input-Output Relations', pp. 193-224.
C. Clark, ibid. p. 431.

(10)

Y. Hayashi, `Kokuminshotoku-ron no Mondai-ten (Some Problems in National Income

(5)
(6)

(7)
(8)

(11)
(12)

Theory)', Keizai Hyoron (Economic Journal), vol. 5, no. 5.
Barna names it as Anglo-American definition of National Income. idem. ibid. Ch. II.
'
C. Clark, `The Concepts of National Income', The Economic Review, vol. 49, Dec., 1939.
F. A. v. Hayek, `Prices and Production', pp. 36-62.

g5. Conclusions and Proposals
Examining the criticisms on intercomparison, we can understand that, i,
In so far as tracing national income from the final consumers' standpoint as.

social welfare,
we cannot get rid of a liquid, biased, subjective character impliedand consequently such character in the category of national income,m wants.

ii, touse such a category but to take its constituent ratio in the three sectors as

the measure of economic progress only adds complexities as productive power to i.

SOCIAL
SOME REFLECTrONS ON INTER-COMPARABILITYOFACCOUNTING 69

Then, we may deduce that intercomparison by a standardized system, evenby taking into account social welfare (Kuznets's point of view) and national

productive power (Barna's point of view) besides value standard (Frankel's
point of view), in a strict sence, would be hardly possible. This implies thatcomparison by the present standardized system is dithcult because of its rigid

insistence on the final consumers' view, that is, coming from the subjective
criterion on which both social accountants and their critics stand.
Then, what is the objective criterion, which is unchangeable with subjective
factors and the feature of utilization stages such as we seek? Jumping to a conclusion, this criterion for intercomparison is the net value produced in countries

in certain periods. The reason is as follows: - first of all, the most necessary
activity to maintain human societies, in all institutions and all stages of economic

development, is the activity for physical reproduction.(r) Human labor to reformand reallocate natural resources and to make the physical commodities (productive means and consumption goods), in short, productive labor is a necessary
activity which exists and should exist at all times and space as an objective thing.

Physical products, made only by productive labor, sharply distinguished fromall non-physical services made by unproductive labor that is assured of its supply

only by the continuance of the production of physical products. Services being
furnished as usefu1 do not necessarily exist at all times and space and is not an
objective thing in the sense that its usefulness is changed at times and infuenced

by subjective elements as taste, habit and other psycologic factors and by noneconomic conditions, i. e. climate and natural features, and still more, service

production is secured under a condition of certain physicar foundations. Thenin the value product, the net amount of the physical products in a country during

a year (social products minus physical replacement=C+V+M-C in Marxian
simbol), which represents the net value of the material foundation in all societies

and institutions and indicates the reproduction-scale as an index of productive
power in a society by its absolute level and its constituent structure, is the true

objective criterion for the comparison of multi-nations.(2) ' 'On the other hand, production, being characterized by special social circumstances, in a capitalistic society where it performs in a capitalistic manner,

its products is represented as products made by laborers who make surplus value

for employers, that comose surplus value and value of labor power and is mea-

sured in terms of money as the monetary expression of value. This is anotherside of production, called, the socialistic value character, On the contrary,

70

NoBuKo NosE

services are neither products nor the value.
Thus, the definition of national income is founded on the physical, objective,

and capitalistic (social) criterion. When we compare two or more countries
through the media ofsuch a definition of national income, we must note anotherremarkable point which comes from the fact that different quantities of products(value in use) are created by the same labor unit in two countries where the pro-ductivity oflabor in each country is not equivalent. Then, the quantity ofvalue

in equal amount of products being unequal by nations, for example, the valueof a machine in a progressive country being Iess than that in an underdeveloped
one, the labor in a progressive economy is higher than that in an underdeveloped

one. So, in comparing the two, if we commensurate their national income
only by the exchange rate from the above point, we cannot analyze the economic
relationship of two countries and intercompare them in a strict sense.
Adding the difference between industrial structures to the above basic standard, the degree of international unbalanced growth, i. e. distance of developed

economy and underdeveloped is clearly recognizable in the scale of productive
power, its content, and all economic relationships. Thus, social accounts constructed on such value products based on the objective criterion, is usefu1 not

only to intercountry comparison but to intertemporal comparison in one country
as ajust, ultimate, objective standard. This can be achieved only by a criticism

on the view of basic stages of the matter and complete rearrangement of thepresent standardized system based on the criticisms.

Lastly, we must restate in conclusion the defect implied in critics in theabove section.
(1) First, the critics based on the subjective value theory, in so far as taking
the definition which prescribes usefu1 things as national products, cannot help

bringing the incomparable, subjective standard. But in our understanding,
products have usefulness as one of its attributes.
(2) The theory which defines usefu1 things in so far as they are finally dispersed

to individuals as national income, being unable to distinguish the stage of production from the stage of disposition, is based on the definition derived from above(1) and is no more than appears with a little objective sense.

(3) The theory which aims to compare in the media of national productivity,

marks the different degrees of industrialization in each country. But theycannot show an absolute criterion of productive power in intercomparison.
(4) Aiding the viewpoint of classical physical analysis, they aim to establish

SOME REFLECTIONS ON INTER-COMPARABILITY OF SOCIAL ACCOUNTING 71
a standard, but it is Still difficult to compare in so for as they insist on the money

national income as a subjective standard.

(5) Finally we must say that the discussion about intercomparison in social
accounting should be done through investigation of `age-old questions' in national

income analysis.
Note:(1) K. Marx, ,,Das Kapital", Besorgt vom M. E. L. Instituts. 1932. Bd. II, S. 50-51, 121-24,
133, 139, 141-=l5, Bd. III, S. 312, 330.
(2) More strictly speaking, the constituent ratio of the value product plus physical replacement(c+v+m) shows the volume of the re-production scale in a society and the value productshows the consumable maximum of the social products. K. Marx, a. a. O. Bd. II Abs. IIr.
(3) Conerning to this problem, see my article, `Shakaikaikei no Hoho nitsuite (On the Methodof Social Accounting)', Kokuminkeizai-Zasshi. vol. 93, No. 3.

OF INVENTORIESTHEMEANING
SusumuWATANABE

I
There is no doubt that merchandise, finished goods, goods in process, mat:rials and parts are inventories, but there are some other assets questionable

as to whether they can be included in the category of inventories. Thus there
is no consensus of opinion as to the composition of inventories due perhaps tothe absence of a unified opinion as to the concept of inventories.

The American Institute of Certified Public Accountants states in its Accounting Research Bulletin No. 43 these words:"The term inventor2 is used herein to designate the aggregate of those

items of tangible personal property which (1) are held for sale in theordinary course of business, (2) are in process of production for such sale,or'(3) are to be currently consumed in the production of goods or services
to be available for sale."
By way of illustration the Bulletin cites the merchandise of a trading concern andthe finished goods of a manufacturer under (1), work in process under (2) andraw materials and supplies to be consumed directly or indirectly in production
under (3). It further states as follows:(!) "This definition of inventories excludes long-term assets subject

to depreciation accounting, or goods which, when put into use, will be
so classified."(2) "The fact that a depreciable asset is retired from regular use andheld for sale does not indicate that the item should be classified as partof the inventory."(3) "Raw materials and supplies purchased for production may be
73

74 SUsUMU WATANABE
used or consumed for the construction of long-term assets or other purposes
not related to production, but the fact that inventory items representinga small portion of the total may not be absorbed ultimately in the
production process does not require separate classification."(4) "By trade practice, operating materials and supplies of certain
types of companies such as oil producers are usually treated as inventory,"(i)This definition makes it clear that long-term assets or goods which, when
put into use, will be so classified, and a depreciable asset retired from regularuse are not inventories, but it does not give any concrete idea of those itemsof tangible personal property which are to be currently consumed in the production of goods or services to be available for sale.

The term inventory is used either in the narrow or in the broad sense. QLuestions generally arise chiefly as to supplies or stores. .

A,W. Holmes and others, for instance, classify factory supplies (manufacturing supplies) into (1) items used directly in the manufacture of the productsand (2) items of a general service nature that do not enter into the products

being manufactured. They say that the latter-for example, fuel, lubricants,
or maintenance materials-preferably should be classified with prepayments ascurrent assets. They are of the opinion that office and store supplies, such as
stationery, typewriter ribbons, and janitor supplies, should not be classified as

inventory, but as prepaid expenses and supplies in the current asset section of
the balance sheet, because none of them will become a part of the finished productor the merchandise inventory.(2) In American tax regulations as well, supplies

which will be consumed in operations but which will not physically becomea part of the finished product should be treated as deferred expenses to be charged

off as used or consumed.(3) Both of them employ the term inventor2 in the narrow

sense to denote only goods to be consumed directly in production or those which
will become a part of the finished product.

H. A. Finney and H, E. Miller include, within manufacturing supplies asinventories, those which, like lubricants, are used indirectly in the process ofmanufacture, and do not become a part of the finished product, in addition
to those which become a part of the finished product, such as paint and nails.
But they state that shipping supplies and ofllce supplies which are charged to(1) Accounting Research Bulletin No. 43, pp. 27-8.
(2) Holmes, Maynard, Edwards and Meier, Intermediate Accounting (1958), p. 195.
(3) Montgomery's Federal Taxes (37th ed., 1958), pp. 2.12-13.

THE MEANING OF INVENTORIES
selling and general expenses should be more appropriately classified as prepaid

expenses.(`) W. E. Karrenbrock and H. Simons also classify factory supplies(for example, oils, greases, and fuels) as inventory in view of their ultimate
consumption in the productive process.(5)W. A. Paton and W. A. Paton, Jr. use the term inventorl in a still wider
sense to signify all types of merchandise, materials, work in process, finishedproducts, and supplies, such as factory supplies, packing and delivery supplies

and office supplies.(6) So also in the Accountants' Handbook the term is usedin the broad sense to comprise merchandise, materials, supplies (othce supplies,

packing and shipping supplies and indirect factory materials), work in process

and finished goods. The same Handbook treats as inventories maintenancesupplies to the extent that they are intended for use in normal repetitive maintenance, but neither those held for replacement of portions of plant or equipment,

which should be properly considered as fixed assets, nor materials and supplies

awaiting use on construction projects, which could be properly classified as
separate type of fixed asset, though they are occasionally reported as inventories

by the firm for whom the construction is undertaken.(7)In the Japanese tax law the term inventor2 includes by-products, defective work,

waste, maintenance materials (not including replacement materials with regard

to corporations adopting the replacement rnethod), packing and shipping supplies, supplies (such as oil, nails, paint, books, stationery) as well as merchandise,materials, finished goods, partly finished goods and work in process. The extent
of inventories in the Japanese tax law is akin to that of the above Accountants'

Handbook.
II
The concrete composition of inventories thus shows a range of variation.
It is attributable to a split of opinion as to the concept of inventories.

Inventories are often misunderstood as assets whose cost is to be allocatedbetween part to be charged to the revenue of the period and part to be deferredto succeeding periods by the procedure of `inventory'. It is a matter of coursethat inventories are assets capable of cost allocation by inventory procedure, but'(4) Finney and Miller, Principles of Accounting, Intermediate (5th ed., 1958), p. 224.
(5) Karrenbrock and Simons, Intermediate Accounting (1949), p. 141.
(6) Paton and Paton, Jr., Asset Accounting (1952), pp. 28-29.
(7) R. Wixon (ed.), Accountants' Handbook (4th ed., 1956), pp. 12.1-2.

75

76

SUSUMU WATANABE

it is to be noted that not all assets capable ofcost allocation by inventory procedure

are inventories. Even at this moment the cost of assets such as tools, furnitureand fixtures are often allocated by inventory procedure to expired cost for theperiod and deferred cost for succeeding periods. The expired cost for theperiod is calculated by deducting the amount of ending inventories from thetotal amount of beginning inventories and inventories received during the period.
But these assets, serving as they do as instruments for production, are in theiraccounting nature fixed assets, not inventories. In this case, the `inventory'
procedure of cost allocation has simply been applied to fixed assets, so that not
all assets to which that procedure is applied are inventories.
We should, therefore, define inventories from an entirelM different point ofview. I believe that the characteristics of inventories can be illuminated bya contrast with fixed assets. Inventories are assets held for sale in the ordinary

course of business and assets consumed in the production of such assets for sale.

In this respect inventories are distinguished from fixed assets which serve as

equipment for production. Fixed assets are equipment that makes production
possible by its service, while, on the other hand, inventories are materials which

are put into the production equipment and processed, thereby participating in
the flow of salable finished goods. Inventories, issued on the basis of physicalunits for use or consumption, are absorbed into the production process. For
instance, materials are thrown into the production process by the piece, pound,kilogram and so on, and the stock of such materials is reduced to the extent ofutilization. On the other hand, production machines as fixed assets work uponmaterials as a whole (incapable of division), and are not quantitatively reduced,
as inventories, while offering their services. Fixed assets contribute to produc-tion in their entirety throughout their usefu1 lives without any quantitative
reduction, while inventories are assets for sale in themselves or assets to be utilized

in the production of salable goods. Inventories are strongly characterized byphysical decrease at the time of sale or utilization for production. This leads
to the conclusion that, so long as production on a certain scale is to be continued,

inventories sold or consumed must be replenished and that inventories are in
a constant process of replacement even where the enterprise maintains a certain
level of stock of inventories,

Thus inventories are essentially assets to be sold or assets to be utilized in

production to become salable goods. Inventories are realized into cash in a relatively short period, because they are essentially salable goods. It is,generally

THE MEANING OF INVENTORIEs 77
permitted to apply the `cost or market' method to inventories; and it is because
they are assets of such a nature.

III
From this point of view it is my opinion that as a matter of accounting
theory inventories can be defined in concrete terms as follows:(l) Materials and supplies to be used for the construction of fixed assets
are not inventories, because, when issued and used for the purpose, they constitute the` cost of fixed assets that should be allocated by depreciation procedure. Materials and supplies awaiting use for construction should be properlyclassified as prepayments (belonging to the fixed assets section of the balance

sheet). But sometimes a small portion of production materials are used forconstruction; in such a case it does not require separate classification for practical

purposes. .

(2) Fixed assets retired from regular use and held for sale are not inventories,

lbr they are not assets for sale in the proper sense of the term; they are merely

retired from regular use.

(3) Tax law allows fixed assets to be treated as expenses for the period,
not as fixed assets, where their usefu1 life is below one year or where their ac-

quisition or production cost is under ten thousand yen (with the exception of
fixed assets, whose usefu1 life is one year or more, acquired for the beginningor expanding of business). This rule being applicable to fixed assets in use
for business purposes, it is not allowed to treat them as expenses while they are
stored instead of being used for operations. These assets, being not of the natureof expenses during their storage, must be reported on the balance sheet, but
not as fixed assets. (And, therefore, they are not susceptible to depreciation.)

But they are not inventories because they are not fixed assets. These stored
assets should be properly classified as prepayments (belonging to the fixed assets

section of the balance sheet). When used for business purposes, these assets
should be properly treated as fixed assets. Tax law treatment as expenses is
simply a matter of expediency based on the principle of materiality(4) Scaffolding logs, sheets and the like used by civil engineering andbuilding contractors, if capable of repeated use, should be treated as quasi-fixed

assets. (If, however, used for some particular construction and incapable offuture utilization, their costs are to be treated as the cost of that particular con-struction.) It is allowed, however, to compute the expired cost of such quasi-

78

SUSUMU WATANABE

fixed assets by the replacement method or inventory method instead of throughdepreciation.

(5) Auxiliary materials and supplies which become a part of finishedgoods are unquestionably inventories. Assets for sale and assets which becomea part of finished goods are inventories even in the narrowest sense of the word.

In addition to these, assets currently consumed in the production of finishedgoods for sale are generally included within the category of inventories.
Materials which do not become a part of finished goods but render services
indispensable for production or facilitate production (such as fuel, oil, chemicals,

and others) and consume themselves through utilization may be appropriately
added to the category. It is because these elements are indispensable for production and their services constitute an integral part of the bundle of services thatmake up finished products. They may well be called factors currently consumed

in production and participating in the flow of production. The concepts of`flow of production' and `currently consumed' may be expanded to include also

maintenance supplies used for normal and repetitive maintenance and repairs

in the inventory category. But those maintenance supplies whose use means
replacement of portions of plant or equipment that goes beyond the ordinary
notion of repairs should not be considered as inventories. Such maintenancesupplies should be appropriately treated as prepayments (belonging to the fixed
assets section of the balance sheet).

This remark may apply as well to `deteriorating assets' such as quick silver(used in the production of sodium hydroxide), solvents and electrolytes. By theterm `deteriorating assets' we understand assets which are used repetitively to-gether with the main body of production facilities without constituting a partof it and quantitatively deplete or qualitatively deteriorate. It is proper to treat
as quasi-inventories deteriorating assets which can be considered as participating in

the flow of production, by physically or chemically becoming part of intermediate
products, and to treat all other kinds ofdeteriorating assets as analogous to fixed

assets or prepayments.
OMce supplies such as books, stationery, etc. are not inventories in the strict'

sense ofthe term. Although subjected to cost allocation by `inventory' procedure,

they cannot be considered as constituting elements of the flow of products.
OMce supplies in store, therefore, should be treated as prepayments (belonging
to the current assets section of the balance sheet).

Packing and shipping supplies (excluding containers as inventories to beTHE MEANING OF INVENTORIEs 79
referred to in the succeeding paragraph) do not correctly fit into the concept of
inventories. Although, like oMce supplies, they lend themselves to cost allocation
by means of `inventory', they are not in themselves assets for sale, but are of thenature of selling expenses necessary for sale. Packing and shipping supplies instore, therefore, are prepayments (belonging to the current assets section of thebalance sheet).

(6) Bottles, cases, barrels, cans and other kinds of containers may be classified as inventories where the title to them passes to the purchaser. When partof them are recovered, the transaction should be treated as a reacquisition ofcontamers.
Containers to which the title is reserved by the seller and which can be put
to repetitive use are fixed assets as a rule. But the principle of materiality allows

containers whose usefu1 life is below one year or whose cost is below a certain

amount to be treated as expenses for the period when they are put to use. The
cost of containers as fixed assets is allocated by the depreciation, replacement

or inventory method. It may be added that it would be necessary to provide
for portions of containers as fixed assets unrecoverable through breakage, loss, etc.

(7) Inventories to which the corporation holds title, wherever they may
be, should be reported on the balance sheet as its inventories. Such inventories
include those in the hands of agents and salesmen, to say nothing of those heldin branch oMces. Consignments-out that remain unsold as yet sould be includedin the consignor's inventories. (Conversely, consignments-in in the hands of theconsignee should not be included in his inventories.) Assets acquired througha trading company under an indent contract are assets of the principal.
Goods in transit that have not arrived at the balance sheet date should be
included in the purchaser's inventories where the title to them has passed tohim. It sometimes happens that the completion of the inventory tabulation is
postponed until the merchandise has been received and checked, in cases where
the receipt is expected within a short time, But where it is fairly long before
its arrival and checking, as in the case of imported materials, it is proper toreport it on the balance sheet as "goods in transit". In this case, I believe, it
is appropriate to treat goods in transit as a separate type of inventories even where

the same kind of goods are already in stock.

IV
The Special Tax Treatment Act allows a price fluctuation reserve to be set

80

SUSUMU WATANABE

aside to provide for probable loss owing to a price decline of inventories andsecurities (which latter is outside the scope of this article). Since such reserve ismeant to provide for possible loss due to a future price decline, no such concession

is granted with regard to goods free from any price decline (goods which areproduced or purchased by order of customers to be sold at a price pre-determinedby contract and which are specified by law). Since, conversely, those specified

by the notification of the National Tax Bureau as objects of price fluctuation
reserve may be considered as equivalent to inventories for purposes of the tax law,let us now consider what are included inventories for tax purposes in addition
to inventories in general as mentioned above:(1) Cattle, poultry, fishes and shellfishes and suchlike assets which livestockraising, fish and shellfish raising and suchlike corporations hold for sale andwhich they treat as inventories in their accounting.

Young pearl-oysters, matrices, and operated shells which pearl raising corporations hold for pearl culture and which they treat as inventories in their.
accountmg.

Buildings which are purchased for re-sale or built by realty corporations
without orders of customers like ready-made houses which they treat in theiraccounting as assets for sale in distinction from assets for their own use (including

those under construction, but excluding those under lease at the close of theaccounting period).
All these items are objects of price fiuctuation reserve. They properly fallunder the category of inventories, because they are themselves assets for saleor are in the process of becoming assets for sale.

(2) Expenditures which have been made to convert or repair others' assets
for sale and which have been treated as assets may become objects of price fluctu-

ation reserve as inventories. This does not, however, apply to expenditures
which have been made to improve or repair others' fixed assets and which havebeen treated as assets.
The cost of conversion or repair in these cases is not inventory in the ordinary

sense of the term, but may be so considered in the accounting sense, since con-version or repair is production from the viewpoint of converters and repairers
and since cost factors constitute the flow ofproduction. Therefore, the tax law
is right in treating as inventory the cost of conversion or repair, but is not rightin excluding the cost of improving and repairing others' fixed assets, for, whether
directed to others' assets for sale or others' fixed assets, the reason for treating

THE MEANING OF INVENTORIEs 81
the cost of conversion and repair as inventory is one and the same. It is morereasonable to extend the concession in the case of improving or repairing others'

fixed assets or to deny it in both cases on the ground that in such contracts

the price to be received is usually pre-determined and is not subject to any

fluctuation. .

(3) The said notification excludes following items from the list of eligible

assets :a. Assets acquired for use as fixed assets and held in store (including materials obviously acquired for the construction of fixed assets for use).

b. Assets which used to be fixed assets and are now held in store (excluding

those which have been scrapped and have been transferred to the materials
account for use as materials).
c. Civil engineering and building contractors' scaffolding logs, sheets andsuch materials necessary for construction.

d. Food producers' bottles or barrels, oil refiners' drum cans, and othercontainers which are loaned out under mutuum contracts.
These items are made ineligible for price fluctuation reserve persumably
because they are not essentially inventories.

STRUCTURE OF INCOME DETERMINATIONON THE BALANCE SHEET(DIE STRUKTUR DER BILANZMABIGENERFOLGSRECHNUNG VON ERICH KOSIOL)

Ryuji TAKEDA

I. Relative Position of Income Determination on the Balance Sheet Re-

lating to Dynamic Accounting
As the dynamic accounting theory in Germany has mainly treated of thecharacter and function of the balance sheet in income determination, it is a pre-vailing opinion in accounting fields that dynamic accounting is rnerely a theory
relating to the balance sheet. But this interpretation is not always proper. It

seems to me that the dynamic accounting theory should be treated as an unified
view which contains an entire body on calculating income with a balance sheet

and an income statement.
It depends upon the following reason that the German dynamic accounting
has primarily hitherto focused on an analysis for income determination with thebalance sheet.

When we intend to determine an income, it is a self-evident truth that therovenues and costs (or expenses) are summarized on the income account. But
the balance sheet which discloses the results of closing of the books in pairs of
the income accounts, appears in the form of a summarizing sheet for the various

kinds of pending items. Consequently, how shall we interpret the balance sheet
from the standpoint of the income determination forms our interesting centre.
This is the natural course of events. It stands to reason here that the dynamic

accounting theory has mainly taken up the character and structure of income
determination on the balance sheet under the name of "dynamische Bilanzlehre"8384 RYUJI TAKEDAin Germany, At the same time, we must especially take notice of the fact thatthe dynamic theory has endeavoured to make the whole structure of accounting
to unifically interpret with the sole object of income determination (Erfolgs-

rechnung).

II. Structure of the "pagatorische" Balance Sheet*
In order to determine an income for a business, we can directly start fromthe production processes of goods. Therefore, because of matching costs andrevenues, we must confirm the real consumptions of goods and the real formationsof goods and estimate them.
Accounting does not take such a method, but links the cash receipts andexpenditures (die Zahlungsvorgange) into closer relations for bookkeeping. Thisapproach is possible for us, because in modern economy all transferences of real

goods are accompanied by nominal money flow. The economic flows of money
and goods run the reverse courses side by side, so in a business the entering of
the goods and the leaving ofthe money or the Ieaving of the goods and the enter-ing of the goods always flow parallel. Accordingly, the real fiow of goods canalso in accounting be presented by the rnoney flow which stands usually parallel.

Instead of the real consumption of goods and the real formation of goods, we

make it a rule to use the expense expenditures (die Aufwandsausgaben) andthe revenue receipts (die Ertragseinnahmen).
The central problem for an income determination is a periodical allocation(eine Periodenabgrenzung) ofrevenues and expenses. It must be conceived that
not only the receipts and expenditures be allocated over the periods, but also

through summarizing of their amounts allocated for a period, a period income
is determined as a difference between receipts and expenditures. But, there areidiMcult problems in the fact that current receipts and expenditures do not always

coincide with current expenses and revenues.

As causes that the receipts and expenditures do not coincide periodicallywith the expenses and revenues, there are two money flows ofdifferent characters.
The first cause rises through the neutral money flow (neutrale, d. h. erfolgs-

unwirksame Zahlungsvorgange). For example, the payment of loans does not
represent the revenue receipts (Ertragseinnahmen), and also the withdrawal" "Pagatorische Bilanztheorie" is represented by Erich Kosiol (Bilanzreform und Einheitsbilanz,
Berlin-Stuttgart, 1949)

85
STRUaTURE OF INaOME DETERMINATION ON TtlE BALANCE SHEETof capital by the owners does not represent the expense expenditures (Aufwands-

ausgaben). All such kinds as pure financial movements, which do not parallel
the real goods flow, will not influence an income for a business.
The second cause rises by the periodic crossings of the receipts and expen-

ditures which influence an income. For example, when the house-rent outlay
conforms to the periodic expenses, that belongs to the current period. It is
possible that the cash outlay is done either before the current period (expenditure

early, expense later) or after the period (expense early, expenditure later)in fact.

In order to settle these problems of the periodical allocation, accounting
wil! usually apply a series of technically fictitious actions. Through such actions,the receipts and expenditures must be adjusted by the end of a year, at latest,

so as to determine the correct periodic income. Conscquently, the income calculation (die Erfolgsrechnung) appears as a modified receipts-and-expenditures-

calculation (modifizierte Einnahmen- und Ausgabenrechnung), so an income isconstituted as a monetary surplus (geldmaBiger UberschuB), as if the receipts
and expenditures are correctly allocated for the current period under the pointof view in the income determination.

From the above standpoints, we should expand the concepts on receipts
and expenditures for a correct determination of business income. These expansions will be required under accrual accountipg, and we can expand it in two

F On the one hand we must expand these concepts on the ground ofmaking
lines.
the current and future cash receipts and expenditures to be contained in theconcepts of receipts and expenditures, and on the other hand we must do the
expansions which will result from a periodical allocation of income.
Accounting first requires similar expansions of receipts and expenditures asthat which was ever done by Ernst Walb.* The concepts ofreceipts and expenditures contain the future as well as the current cash receipts and expenditures.

The accounts receivable means the future cash or credit receipts, and the accounts

payable include also the future cash or credit expenditure. They are immediately

recorded at the time they occurred.
The concepts of the credit expenditure are not only applied to the creditors'

equity but also expanded in a broad sense to the stockholder's equity.

Payments of accounts receivable and accounts payable should also consis* Ernst Walb, Die Erfolgsrechnung privater und 6ffentlicher Betriebe, 1926,

86

RYUJI TAKEDA

tently be trated as an appearance of receipts and expenditures, Therefore, thedisappearance of credit receipts (Forderungseinnahmen) is recorded on the books
as a settlement-expenditure (Forderungsausgaben) and the disappearance ofcredit

expenditures (Schuldausgabe) is done as a settlement-receipt (Schuldeinnahme).
By the first expansions two kinds of effects are achieved. As a first effect, thepure money flows are mutually offset and stand still rieutrally for income
determinations. Each receipt is opposed to the same amount of expenditure.
Because such receipts and expenditures as "Forderungseinnahmen und ausgaben"

as welll as "Schuldausgaben und einnahmen" always appear at the same timeand amount, these will be known by the name of "zweiseitige oder wechselbe-

zUgliche Einnahmen und Ausgaben".
Such "wechselbezUgliche Einnahmen und Ausgaben" are mutually offset
in each accounting period. In opposition to these receipts and expenditures,
both accounts receivable (Forderungseinnahmen) and accounts payable (Schul-dausgaben) which accrue in accordance with the selling or buying of goods,
will be after all paid in or out once, at least, so they will be completely offset

within the total income determination (Totalerfolgsrechnung).
As a second effect, the revenues and expenses are always parallel to receipts

and expenditures, so they can be grasped as receipts and expenditures.

As above-mentioned, we can not correctly determine the periodic income

only by expanding the concepts of receipt and expenditure to contain cash
and credit receipts and expenditures, so we tt
shall need other expansions.

A second expansion of receipts and expenditures is required to absorb therevenues and expenses into a period which are not grasped by the cash or credit
receipts and expenditures. The expansions are achieved beyond the legal sphereof debts and credits.

The periodical crosses which appear from the periodic interlocking of thereceipts and revenues as well as expenditures and expenses are adjusted by thefollowing series of technical processes:

1) the before- and against-calculation (Vor- und Gegenverrechnung)2) the back- and after-calculation (RUck- und Nachverrechnung)"The before-calculations" (=Vorverrechnung) are the technical and in-•tentional steps which make the revenues (or revenue-receipts) and expenses (orexpense-expenditures) displace an earlier period than the period in which theactual receipts and expenditures occurred. When cash or credits are not yet
received or delivered, but the accrued revenues or expenses are entered in

STRUCTURE OF INCOME DETERMINATION ON THE BALANCE 87
SHEETa period, we shall find the before-ca!culation here. Therefore, the accrued
revenues (that is, the before-receipts = Voreinnahmen) are recorded corres-

ponding to the revenue records on the books, and also the accrued expenses(that is, the before-expenditures = Vorausgaben) are done corresponding to
the expense records, When the actual receipts (that is, Ausgleichseinnahmen)
occur, the against-exp'

enditures (that is, Gegenausgaben) appear corresponding

to the actual receipts so as to offset the before-receipts. When the actual
expenditures (that is, Ausgleichsausgaben) occur, the against-receipts (that is,Gegeneinnahmen) also appear corresponding to the actual expenditures so as
to offset the before-expenditures. Consequently, the before-receipts and theagainst-expenditures as well as the before-expenditures and the against-receipts

shall be presented on a balance sheet with the gross amounts accrued.

"The after-calculation" (= Nachverrechnung) are the technical andintentional steps which make the revenues (or revenue-receipts) and expenses(or expense-expenditures) displace a later period than the period in which theactual receipts occurred. The cleferred interest income and so on (that is, Reservateinnahmen) as well as the actual expenditures for the goods (that is, Vor-

ratsausgabcn) are offset by the back-expenditures and the back-receipts of thesame amount, And in order to record theamount which belongs to the current
period, the after-expenditures should correspond always to the expense-records
by the after-calculation. Accordingly, the back-receipts and the after-expenditures as well as the back-expenditures and the after-receipts should be presented

on the balance sheet with the amount accrued.
' expansions, the following form
As a result relating to the above mentionedof balance sheet is revealed by Erich Kosiol.*

A. Einnahmen
I. Tatsachliche Einnahmena) Bareinnahmen DM 146,240b) Krediteinnahmen

1. Forderungseinnahmen (Entstehung) DM 150,OOO

2. Schuldeinnahmen (Tilgungen) . 71,OOO . 221,OOO
II. Verrechnungseinnahmena) antizipative Einnahmen: Voreinnahmen DM 3,500b) transitorische Einnahmen: Nacheinnahmen ,, 150* Erich Kosiol, Bilanzreform und Einheitsbilanz, S. 53.

88

RYUJI TAKEDAc) kompensatorische Einnahmen

DM 30,870

1. RUckeinnahmen
2. Gegeneinnahmen

DM35,220
DM402,460,, 700

B. Ausgaben
I. Tatsachliche Ausgaben

DM122,400a) Barausgabenb) Kreditausgabenl. Schuldausgaben (Entstehung)2. Forderungsausgaben (Tilgungen)

DM 133,500,, 80,OOO. 213,500

II. Verrechnungsausgabena) antizipative Ausgaben: Vorausgabenb) transitorische Ausgaben: Nachausgaben

DM 35022,OOO))c) kompensatorische Ausgaben

1. RUckausgaben))

2. Gegenausgaben

))

170

380

22,900s)DM358,800

Saldo = Periodenerfolg (Gewinn)

1)

43,660DM

402,460

This balance sheet is translated into

English as follows:

Balance Sheet in a kineticform

A. Receipts

B. Expenditures
I. Actual Expenditures

I. Actual Receiptsa) cash receipts

146,240b) credit receipts
1. obligators' receipts

150,OOO

1. creditors' expenditures 133,500

71,OOO 221,OOO

2, obligators' expenditures 80,OOO

122,400(occurrence)(occurrence)
2. creditors' receiptsa) cash expendituresb)' credit expenditures(payment out)

213,500(payment in)

II. Calculative Receipts

II. Calculative Expendituresa) anticipatory receipts(before-receipts)

3,500a) anticipatory expenditures 350b) transitory receipts(after-receipts)

150b) transitory expenditures 22,OOO(before-expenditures)(after-expenditures)c) offset receiptsc) offset expenditures

1. back-receipts

30,8702. against-receipts

700

1. back-expenditures 170
35,2202. against-expenditures 380
balance=periodic income

402,460

22,90043,660402,460

SHEET
DETERMINATION ON
STRUCTURE OF INaOME
THEBALANCE
On the basis of the following contents of accounts,

89

we can prepare the abovebalance sheet in a kinetic form.
cash and deposit
the beginning balanceeash expenditures
2,450

cash receipts

146,240the closing balance

26,290148,690

148,690

122,400

obligator
the beginning balance

102,OOO
obligators' expenditures

obligators' receipts (occurrence)

150,OOO
the closing balance

172,OOO

252,OOO

252,OOO(payment in)

80,OOOgoods
the beginning balance

after expenditures
25POO

22,OOOback receipts

30,870the closing balance

33,87055,87055,870accrued revenue

against expenditures400
the closing balance
3,500
3,900

the beginning balance
before receipts

380
3,520
3,900

creditors' and stockholders' equity

creditors' receipts (payment out)

71,OOOthe beginning balance

the closing balance

191,330

creditors' expenditures

128,830(occurrence)

262,330
deferred

150
340
490

after receipts

the closing balance

revenuethe beginning balanceback expenditures

320
170

490

accrued expense

against receipts 700 the beginning balance 700
the closing balancebefore
350expenditures 350
1,050

133,500

262,330

l,050

A distinctive feature of Kosiol's accounting theory is the following point:
Kosiol lays hold ofa kinetic form ofbalance sheet as the original form. Separating

between the balance sheet which rests on the basis of pure kinetic amounts (dy-9.0

RYUJr TAKEDA

namic concepts of receipts and expenditures) Bewegungsbilanz and thatwhich is grounded upon the pure stock amounts (static concepts) -Bestandebilanz, the concepts of receipts and expenditures are purified by him. The
dynamic concepts of receipts and expenditures mean the receipt and expenditure

amounts as periodic kinetic amounts, and the static concepts mean the receipt

balances and the expenditure balances as static amounts which result frombalancing the kinetic amounts.
III Structure ofIncome Determination on the "pagatorische" balance sheet

In the pagatorische balance sheet, on the one hand the revenue receipts(Ertragseinnahmen) which belong to a period are calculated resting on theactual receipts of a period, while on the other hand the expense expenditures(Aufwandsausgaben) are done resting on the actual expenditures of a period,so the income determination with the pagatorische balance sheet consists of theabove two accunting processes by which a periodic income is determined. This
relationship of calculations is just the same as the Schmalenbachs theory andWalbs theory."
Now, if we modify and reconstruct the kinetic balance sheet of Kosiol, weshall be able to prepare the following balance sheet.
The kinetic Balance Sheet 'after Modifying

Receipts Expenditures
I. Actual Receipts

III. Actual Expenditures

1. cash receipts

1. cash expendituresa) neutral-cash receiptsa) neutral-cash expendituresb) revenue-cash receiptsb) expense-cash expenditures

2. credit receipts

2. credit expendituresa) neutral-credit receiptsa) neutral-credit expendituresb) revenue-credit receiptsb) expense-credit expenditures

II. Calculative Receipts

IV. Calculative Expenditures

1. calculative-neutral receipts

1. calculative-neutral expendituresa) against receiptsa) against expendituresb) back receiptsb) back expenditures

2. calculative-revenue receipts

2. calculative-expense expendituresa) after receiptsa) after expendituresb) before receiptsb) before expenditures" cfl, Erich Kosiol, Formalaufbau und Sachinhalt

der Bilanz. In:' Wirtschaftslenkung und

Betriebswirtschaftlehre (Artikel in der Festschrift

zum 60. Geburtstag von Ernst Walb)

Leipzig 1940, p. 103-l32.

SHEETINCOMEDETERMINATION ON
STRUaTURE OF
THEBALANCE

91

Because the above shown balance sheet has a character as "eine pagatorische orientirete Erfolgsrechunng",* the revenue-receipts and the expense-

expenditures are over-all determined and a periodic income is calculated asa balance of two factors.
Therefore, we shall be able to show the structura! formula of the kineticbalance sheet as follows:
calculative receipts
vattualreceipts calcf{Ii/E;;;E'LEalE{Iiiative calculative

cash credit neutral revenue

recelpts recelpts recelpts recelpts{(Iia+Iib+I2a+I2b)+(IIia+IIib+II2a+II2b)}- - da --A---s- {(IIIia+IIIib+III2a+III2b)+(IVia+IVib+IV2a+IV2b)} =G• • • ' ' • ' ' (1)yny--/
Vcalculative
N---t--Vcalculative
Y-.y-Vcash
creditexpenditures expenditures neutral expenseal]itEEi'SIIiFfiEili[Iluaiexpenditures expendtttures expenditures

calculative expenditures
or)(Iia+Iib+I2a+I2b)+(IIia+IIib+II2a+II2b)==(IIIia+IIIib+III2a+III2b)+(IVia+IVib+IV2a+IV2b) +G• • • • • • • • • • (2)There remains the question of how an income is computed in such astructural formula as the above kinetic balance sheet.

According to the nature of receipts and expenditures for the income determination, the concepts of receipts and expenditures shall be distingushed into
two kinds of categories : the neutral receipts and expneditures which do not affectan income and the revenue receipts and expense expenditures which affect anincome. As already written, the neutral receipts and expenditures are called"zweiseitige oder wechselbezUgliche Einnahmen und Ausgaben". The against
receipts correspond always to the neutral-cash expenditures and the against expenditures do to the neutral-cash receipts, so the following formula comes into.
exlstence:

agamstneutral expendi- neutral against

receipts tures expenditures receipts- -.-A-- de -{(Ila+I2a)-(IV!a)} ={(IIIIa+III2a)-(IIIa)} ••••••••••••••••••••(3)

gv.-.V Y-'-V---V
WechselbezUgliche
WechselbezUgliche
Einnahmen Ausgaben

Then, if the third formula can be recognized in the first one, the neutral# Erich Kosiol,

Betriebswirtschaftliche

Gesichtspunkte

zum Bilanzsteuerrecht,

ZfB, 1952, S. 268.

92

RYUJI TAKEDA

receipts and expenditures will offset each other and be neutralized on the income

determination. We can gain the following formula from (1) and (3) formula:{(Iib+I2b)+(IIib+II2a+II2b)}- {(III,,+III,,)+(IV,,+IV,,+IV,,)} =G ..................(4)We must clarify the income calculating processes which lie in the behind (4)formula in the next place.
' Subtracting the sum of neutral expenditures i. e. the neutral-cash expenditures (IIIi,), the neurtal-credit expenditures (III2.) and the against expenditures(IVi.) from the actual receipts (I), we have the temporary revenue-receipts(Iib+I2b)• In the next step, the temporary revenue-receipts are given a periodical limitation by the addition and subtraction of the various kinds of calculative receipts and expenditures. Namely, in order to reduce the pre-received
sum of revenues into an unsettled condition on closing the books, such revenues
are deducted from the revenue items concerned and further correspondingly fromthe actual receipts as back-expenditures. As a result, we will have basic revenue-

receipts. Adding the additional revenue-receipts i, e. the after receipts (II2,)
and the before receipts (III2,) to the basic reveune-receipts, we shall gain theentire revenue-receipts. Wc are able to reveal these relations in a formula asfollows :basic revenue receipts

x--"d-vL--(Iib + I2b) - (IVib) + (II2a + II2b) = RR ••••••••••••-..•............ (5)w vv-" Nv-y" V

ternporary back additional revenue

revenue- expendi- revenue- receipts

recelpts tures recelpts
In the same manner, subtracting the sum of neutral receipts i. e. the neutralcash receipts (Ii,), the neutral-credit receipts (II2,) and the against receipts (IIi.)from the actual expenditures (III), we are able to gain the temporary expenseexpenditures (IIIib+III2,). In the next place, the temporary expense-expenditures are given a periodical limitation by the addition and subtraction of thevarious kinds of calculative receipts and expenditures. That is to say, so as
to reduce the pre-delivered amounts of expenses into the pending conditions, such

expenses are deducted from the expense items concerned and further correspondingly from the actual expenditures as back-receipts. Consequently, we
shall have basic expense-expenditures. Adding additional expense-expendituresi. e. the after expenditures (IV2.) and the before expenditures (IV2,) to the basic

gxpepse receipts, we shall have the entire expense-expenditures:

THE BALANaE SHEETDETERMINATION ON
STRUaTURE OF INCOME
basic

expense-expenditures(IIIib +.---.L.N
III2b) - (IIib)- + (IV.va+ IV2b) := EE •••••••••••••••••••..•..(6)N.'-v-b- V W St'

temporary back additional expense

expense- receipts expense- expenditures

epxenditures expenditures

Ifwe rearrange (4) formula into the forms of (5) and (6) formula, (4) formula

will be modified as follows:{(Iib+I2b)-(IVib)+(II2a+II2b)}-{(IIIib+III2b)-(II,,)+(IV,,+IV,,)}=G=RR-EE ......(7)or){ (Iib + I2b) ' (IVib) + (II2a + II2b) }==: {(IIIib +III2b) - (IIib) + (IV2a +IV2b)} + G ••••••-•••••••••(8)This formula is simplified as follows:

RR:-EE+G............,...................................(9)As it is made elear from (7) formula, there are two accounting processesof which on the one hand the revenue-receipts are ultimately determined fromthe actual receipts, and on the other hand the expense-expenditures are also
determined from the actual expenditures, in the structural formula of the kineticbalance sheet, so we see that the periodic income is decided as a difference between(5) and (6) formulas. Where we conceive the above facts, it is made clear thatthe kinetic balance sheet has a fundamental function which may determine theperiodic income only from the receipts and expenditures in a pair of income
statements. Accordingly, the income calculation on the kinetic balance sheet
has a character of revenue and expense calculation (Ertrags-• und Aufwandsrechnung) which may be performed with the receipts and expenditures.

We can show the above mentioned relationships in the following Schema.
Processes of Income Determination on the Kinetic Balance Sheet
Actual Receipts

Actual Expenditures=Cash and credit receipts (I)=Cash and credit expendi.tures (III)-Neutral cash and credit-Neutral cash and credit

expenditures in addition toreceipts in addition toagainst expenditures

agalnst recelpts(IIIia+III2a+IVia)(Iia+I2a+IIm)

Temporary Revenue Receipts

Temporary Expense Expenditures-Calculative neutral expenditures-Calculative neuntral receipts==back expenditures (IVib)==-;back receipts (IIib)

93

94

RYUJr TAKEDA

Basic Revenue Receipts

Basic Expense Expenditures+Calculative revenue receipts+Calculative expense expenditures==additional revenue receipts= additional expense expenditures(IV2a+IV2b)(II2a+II2b)
Current Revenue Receipts

Current"

Current Income (or loss)

Expense Expenditures

OF STOCK RIGHTS AND ITS
ON THE VALUESIGNIFICANCE IN CORPORATE FINANCE
Jiro

ONO

I
A stock right is the preemptive subscription right given to existing shareholders for prior purchase of additional stock-issue in proportion to their hold-ings, because they must be given an opportunity to retain their proportionate
control in the affairs of the corporation and their equities in the surplus mustnot be impaired, that is, their shareholders' rights must not be diluted in the
additional stock-issue. So it is not always related to the subscription price, but
usually the stock right is considered the existing shareholders' right to sUbscribe

to additional stocks at a value considerably less than the current market price- especially in Japan, at a par value.

There are some important accounting and financial problems in regard to
this right; whether the issue at a less value than the market price means a dilution of the existing shareholders' equity or not; what infiuences it has on thecapital market; and how it may distort corporate finance, etc. But the mostimportant one is how to appraise the value ofa stock right which is the mostessential factor for the solution of other problems.
In this report, referring to several sources, I shall try to consider two different

theories on the value of stock rights and to consider, in connection with theacquired conclusion, the significance of stock right in the corporate finance ofJapan,II
On the valuation procedure of a stock right, theoretically there have been95

96 JIRo ONO
two formulas, that is, one is the static (or substantial) valuation-formula andthe other is the dynamic (or earning-power) valuation-formula.(i)The static formula, which K. B6tcher insisted on and named "the mixed
valuation-formula" in 1912, has been supported by many authorities of corporate

finance theory in Germany and also in America, that is, K. Banse, E. Schmalenbach, J. I. Bogen, W. A. Paton, etc.(2)The X Co., for example, with a certain number of outstanding stocks at
a market price K per stock, offers shareholders the right to subscribe for .7V stocksof an additional stock-issue, at a price B per stock, for each A stocks held.
At this time, if the value of the stock depends on the market price, the total

value of stocks is A•K+jV,B and the value of one stock after the subscription

nyift1:B. Therefore, the value of stock rights for each A stocks is
is A'KA+
Jv'(A'filtilll'B-B) and the value for each oid stock is -JAV•(A'Kz:-jNV•--'E-B).

So, the theoretical value of a right ur can be represented by the following
formula.

if=: (K-B)YV
A+.N- Or AK-B
N+1
On the other hand, the dynamic formula which was brought forward by
W. Mahlberg and was formulated by K. Theisinger and H. Sommerfeld,(3) is
The X Co., for example, with outstanding stocks of a paid-in value of Ei
and a profit ratio D,O/, per stock (it is supposed that no part of the income hasever been retained), offers shareholders the right to subscribe for N stocks ofan additional stock-issue, at a price E, per stock, for each A stocks held.
At this time, if the expected profit ratio of a new stock (new paid-in capital)is D20/o and the average rate of interest in the capital markct (the rate of interestfor capitalization) is po/,, the total value of stocks is A'E

p" Di+"N'Ep2'D2 and so. A•Ei•D,..7V•E.,•D,

the value of one stock after the subscriptiOn is A+N •Therefore, the value of the stock right for each old stock Mf is represented

by the following formula.

va=(s.A•Ei•DA,++NN•E2•D2-E,)i
Here, differing from the above mentioned, it is considered that the value

ON THE VALUE OF STOCK RIGHTS AND ITS SIGNIFICANCE
IN CORPORATE FINANCE
of a stock depends on its earning-power.
Thus, it has been pointed out that there are

two opinions in regard to thevaluation-procedure of a stock right. In the next

place we will compare these

two formulas resorting to Theisinger's example.
Note:(1) W. StrickerJ Aktienkapitalerh6hungen und Bezugsrechte, 1955, p. 62-p.63.
(2) K. B6tcher; Das Bezugsrecht, ZfhF, 1911/12, p.516, K. Banse; Die BerUcksigtigung vonKosten und von Dividendenbeschrankung bei der Wertberechnung des Bezugsrechtes, ZfhF,
1928, p. 330, E. Schmalenbach; Die Aktiengesellschaft, 1950, p. 137, J. I. Bogen; Financial

Handbook, l954, p. 450, and W. A. Paton; Asset Accounting, 1952, p. 126-p. 130.
(3) K. Theisinger; Bezugsrechtsberechnung vom Ertragswert, Bank-Archiv, 1927, p. 175-p. 178,
W. Mahlberg; Bezugsrecht und Bilanzkurs, ZfhF, 1920, p. 223-p. 237, and H. Sommerfeld;
Die betriebswirtschaftliche Theorie des Bezugsrechtes, 1927, p. 51.

III
We shall suppose that X Co., with outstanding stocks of a paid-in value of$1000 (E, in the above formula) and a profit ratio of219/, (D,) per stock, offers
shareholders the right to subscribe for 2 (N) stocks of an additional stock-issue

at a price of S2000 (B or E,) for each 3 (A) stocks held, and that the rate ofinterest for capitalization (P) is 70/,. So, at this time, if on the new paid-in
capital profit ratios of 10.50/,, 70/o and 50/. can be expected, the value of a stockright is respectively as follows.

In the static valuation-formula, no matter what the profit ratio of capitalis,2(3000-2000)

W'L= 3+2 [=:$400
In the dynamic valuation-formula, if the profit ratio of new paid-in capital
is,

21
10.5
io.s./., ve=(!o7-oÅ~3Å~iOOOÅ~iooI2Å~2000Å~ioo-2ooo)g2.. $666-3-!1 !! 70/., PV=$400
11 ii 50/., W==$247.62(i)First it must be regarded that in the former the total value of stocks after
the additional issue, which is represented by the sum of the market price of oldstocks before the issue and the paid-in value of new stocks i. e. the substantial

value of assets to be newly acquired, is assumed to coincide with the rnarket
price again. And here the value of a stock right is appraised by the value which

97

98

JIRO ONO

is transferred from the old stock to the new in consequence of the additional
issue, that is, the difference between the value that shareholders keep in cash but

for the subscription, and the value to be acquired from the subscription.
So, as far as this example indicates, having no connection with the profit
ratio of capital, the value of a stock right is decided by the market price of theold stock and the paid-in value of a new stock.
Therefore, from the point of view that the market price of a stock is decided
by its earning-power, this valuation-procedure logically has no consistency because

it is partly dependent on the earning-power value and partly on the substantial
value,(2)From another point of view that the book value and the secret reserve reflect
on the market price of stock, that is, in Banse's or Porterfield's opinion,(3) it isunderstood as a valuation-procedure of more substantial character.

Whichever point is adopted, in this formula we can point out an importantfault that the earning-power ofnew capital is not directly taken into consideration.

Mahlberg and Theisinger, in regard to this fault, pointed out that in thestatic valuation-formula of stock right the substantial value of a stock is identified
with its market price or the profit ratio of the new paid--in capital is supposed tobe the same rate as the rate of interest for capitalization (the average rate incapital market), that, however, new capital has usually a higher profit ratio
than the average rate, and that therefore the static formula can not be applied
to any other than a limited condition(4) (the case of an expected profit ratio of
70/. in the above example).

So, rejecting this formula, they brought forward the dynamic (or earningpower) valuation-formula.

On the other hand, as is indicated in the example, in the latter dynamic
formula the value of stock after the issue is represented by the capitalized valueof profit which is averaged in consequence of the additional issue, and the valueof a stock right is appraised by the difference between this stock value and thepaid-in value i. e. the capitalized value of a profit of the same rate as the rate ofinterest•for capitalization (the average rate in capital market).
That is, the value of a stock right is the capitalized value of the difference
between the profit that the existing shareholders can expect from the corporation,and the due profit that they can expect from the other investment of money to bepaid-in, or the capitalized value of the profit that is to be lost by giving up theuse of capital in the corporation.

ON THE VALUE OF STOCK RIGHTS AND ITS SIGNIFICANCE 99
IN CORPORATE FINANCE
Therefore, the higher (or the lower) the expected profit ratio of new capitalis, the higher (or the lower) it becomes. If the expected profit ratio is undera certain rate (1.750/. in our example), it even becomes negative.

So, it is pointed out that in this dynamic valuation-formula the expected
profit ratio of new capital is directly taken into consideration. We must give
regard to the important fact that the value ofa stock right can be different according to the profit ratio anticipated in the future.

It must be next regarded that in the dynamic valuation-procedure an accountcan be given of whether the acquisition ofstock rights is profitable for shareholders

or not.

We shall try to consider the position ofa shareholder's property in each caseof the above examples.(5)I. The case in which the shareholder subscribes for additional stocks.
In the static valuation-procedure
the positionof property
profitafter the issue

before the issue
3 stocks$9000

5 stocks

cash

$4000

(a),$2600$13000$o$13OOO$13000In thedynamic valuation-procedure
the position of property

the expected

profitprofit ratioof new capital

before thelo.s o/.

issue

after the3 stocks$9000

5 stocks

cash

$4ooO

@$3000issue$1500070/o

3 stocks$9000

5 stocks

cash

$4000

O,$26oo

3 stocks$90oo

5 stocks

cash

$4000

@$2370.4$130ooII. The casecash from sell

mwhich the shareholder.

$13000mgof stock rights.

$o$13000$1300050/o$2000$15OOO$13000$11852-$1148$11852

does not subscribe for.
and acqulre

1OO

JIRO ONO
In thestatic valuation-procedure

the position of property
profitafter

before the issue
3 stocks

the issue

3 stocks.@$2600, $7800

$9000

cash
$1200
(3 stock rights.@,$400)
$9000

$9000

In thelo.s o/.

dynamic valuation-procedure
the position

the expected
profit ratioof new capital$oof property
profitbefore the issue
3 stocks$9000

after the issue

3 stocks.@$3000, $9000

cash s $2000(3 stock rights.("),$666.7)$1!OOO$9000
70/e

3 stocks

$9000

$2000

3 stocks.(fi),$2600, $7800

cash $1200$o(3 stock rights.ei.$400)

$9000
50/o

3 stocks

$9000

$9000
3 stocks.@,$2370.4, $7112

cash $740(3 stock rights.@.$247)$9000-$1148$7852

This example indicates that in the static procedure an account is not givenof how much profit the shareholder acquires from receiving stock rights because
the profit ratio of the new capital is not taken into consideration, but that in
the dynamic procedure the shareholder's profit (or loss) from the stock rights,

depending on each of the expected profit ratios, can be computed.
So, Schmalenbach stated that it means an extra dividend to vest the shareholders with stock rights if the previous rate of dividend is still kept on after

the issue.(6) That is, the shareholders acquire a profit from receiving the stockrights if the expected profit ratio of new paid-in capital is higher than the averagerate of interest (the rate ofinterest for capitalization), and this fact can be taken

account of only from the view-point of dynamic valuation,
This extra dividend of stock right is a pre-payment of profit in the future.
(Because in our example it is supposed that no part of the income has ever been

ON THE VALUE OF STOCK RIGHTS AND ITS SIGNIFICANCE 101
IN CORPORATE FINANCE
retained. If retained, giving of stock rights may mean the dividend of the retained income as far as it exists.)

In other words the corporation must acquire a higher profit on the new
paid-in capital than the average rate of interest in order to give the characterof extra dividend to the stock right and to satisfy the shareholders.

Thus, the dynamic valuation-procedure has a very important significance.
However it seem to me that there are some further problems to consider in thisprocedure. We shall try to examine these problems in the fourth chapter.
Note:(1) K. Theisinger; ibid., p. 1766-p. I77.
(2) E. Schmalenbach; ibid., p. I38.
(3) J. T. S. Porterfield; Dividends, Dilution and Delusion, Harvard Business Review, 1959,
Nov. - Dec., p. 56-p. 60, and K. Banse; ibid., p. 330.
(4) K. Theisinger; ibid., p. 175, and W. Mahlberg; ibid., p.225.
(5) W. Stricker; ibid., p. 65, p. 68, p. 74.

(6) E. Schmalenbach; ibid., p. 134-p. 135.

IVFirst, it must be pointed out that there are some uncertain factors in the

dynamic valuation-formula.
Theisinger, recognizing the limit of the significance of his procedure, said
"In the valuation of stock right by earning-power it is supposed that each profit
in future periods can be calculated, but the exact measurement of these amounts

may be impossible. It cannot but depend on the estimated or anticipatedprofits."(i) So the expected profit ratio in the future, which is the mostessential factor in the dynamic formula, must be estimated, and that of eachof the new and old capitals even if it has much uncertainty.
Besides, there is not given an account ofwhether the profit means a periodical

net income or a dividend, and therefore what rate must be adopted as the rateof interest for capitalization is also not taken into consideration.

The dynamic valuation-procedure, in comparison with the static procedure,
is dependent on these more uncertain factors which are determined by the subjective long-range anticipation,(2) and it brings much diMculty to the valuation.

Second, in this procedure it is supposed that the earning-power value ofstock before the issue coincides with its market price, and that the latter neverreflects the earning-power of new paid-in capital. Though it can be recognizedthat the market price ofstock approximates its present earning-power value, themarket price is rather determined by the relation between demand and supply,

102 JIRo oNoon which not only the present but the future anticipated earning-power of the
new paid-in capital always influences,

Therefore, though Theisinger and Mahlberg insisted on only the earningpower value and rejected the market price, from such a point ofview a question
may be brought forward; that is, is the static valuation-procedure essentiallydifferent from the dynamic valuation-procedure?
In other words, the dynamic valuation-procedure must start from the time
when nothing is known of the additional stock issue - the time when the market
price of stock is determined only by its then earning-power, being irrelevant to
the information of the issue.

On the other hand, in the static valuation-procedure, the time of the highest

market price of stock is taken as the starting point. At this time the market

price may be much higher than the then earning-power value of old stock (ifthe expected profit ratio of total capital after the issue is much higher than the

average rate of interest), as Schmalenbach pointed out the market price of oldstock may reflect the effect of additional stock issue at once if the corporation is

expected to be more profitable by means of the new paid-in capital.(3)So Theisinger's criticism against the static procedure may lose its basis ofargument.
Then, how high an amount may the market price of stock reach?
The X Co., for example with outstanding stocks df a paid-in value of Eri
and a profit ratio DiO/. per stock, offers shareholders the right to subscribe for.Ar stocks of an additional stock-issue, at a price E2 per stock, for each A stocks
held.

At this time, if the expected profit ratio of the new paid-in capital is D20/oand the rate of interest for capitalization is PO/., the value of stock right W is

Mi..(lt.A'Ei'DA,++jjVv'E2'D2-E,)l\.
Because theoretically the market price of stock K is considered to reachsuch an amount that is higher by W than the earning-power value after the issue,

K..zli.A'Ei'DA,++Njv'E2'D2+(t.A'Ei'DA,++jjVv'E2'DamE,)l\..$.A•E,•DA,++NN•E2•D2(I+-NA)-i•E,
1 A•E,•D,+.Ar•E,•D, JV-P' A+Jv A•E2•

Therefore K becomes higher than the earning-power value of stock before
the issue by

ON THE VALUE OF STOCK RIGHTS AND ITS SIGNIFICANCE 103
IN CORPORATE FINANCE
ti.A•g,•Di+AJV•E2•D2 l\..E,-ETisDi=ilf.i-2-(D,-p).
And the value of a stock right by means of the static valuation-procedure,
if this K is inserted, is as follows.

($.A,•E,•D,ijV•E2•D7--jANfT.E,-E,)JV

ur -

A+jV

=,(Li-.A•E,•DA,++jNV•E2•D2-E,)-tAN
The value of a stock right coincides with the result in the dynamic valuation-

procedure. That is, the market has no sooner been informed of the additional
stock-issue than the market price of old stocks begins to rise, and it will rise byN

the capitalized value of the surplus profit z•E,(D,-P) just before the issue of

warrants the segregation of the preemptive subscription rights from stocks.
So in the static valuation-procedure which starts from the time just before
the issue of warrants the market price of old stocks is already supposed to include

the surplus earning-power value of new paid-in capital, and the paid-in value- the capitalized value of a profit equal to the average rate of interest has only

to be taken into computation as another factor. .
But because this market price appears just before the segregation of stockrights, the value computed by means of static procedure can be used only invery short periods during the time the warrants are circulating in the market,

though the value can be computed by more certain factors in the market thanin the dynamic procedure and shareholders are given a more reliable market
value of stock rights.

On the other hand, from the point of a more long-range view, the dynamic
valuation-procedure is considered to give the managements and the shareholders
many kinds of usefu1 suggestions in regard to stock right and to make the anticF
pation of a rnarket price of stock possible.

As W. Stricker says "From the difference between both valuation-procedures
only the limit of application of each procedure is brought. Only one proceduremust not be determined to have general applicability,................but thesetwo procedures are the same in their substance",(4) we must recognize that thougheach of these two valuation-procedures has an individual application they are
not substantially different, from the point of view that the earning-power value

not only of the old capital but also of the new paid-in capital determines themarket price of stock, that is, from the point of view that may be again

le4 JIRo oNo
considered as the dynamic valuation-procedure in a wider sense.
Note :(1) K. Theisinger; ibid., p. 178.
(2) W. Stricker; ibid., p. 70.
(3) • E. Schmalenbach; ibid., p. 134.
(4) W. Stricker; ibid., p. 83.

V
As above-mentioned we have examined the natures of two opinions in regard
to the preemptive subscription right i. e. the stock right and concluded, fromthe point of view of the dynamic valuation-procedure in the wider sense, thatthey are not quite different but the same in their substance though each of themhas a different application.

And then we must point out that in our point of view of the dynamic valuation-procedure in the wider sense it is not other than the pre-payment ofprofits

in the future to give the shareholders stock rights whether its value is computedby means of one of two procedures or the other.
Especially in Japan where additional stocks are usually issued at a par value
considerably less than the current market price, but warrants are not segregatedfrom stocks to circulate in the capital market, it has little significance to deter-mine the value of stock rights as a fair market price from the more short-range
point of view and it is considered to be rather necessary that we understand thenature of stock rights as the pre-payment of profits in the future from the more
long-range point of view.

That is, in Japan it is more significant to give an account of the impacts
ofstock rights on corporate finance in the more long-range view-point of earning-

power in the future.
It seems to me that there are some important problems to consider in regard
to stock rights in Japan as follows.

As I mentioned above, it means an extra dividend and a pre-payment of
profits expected in the future for a corporation to offer its shareholders stockrights. So the rate of the dividend of the stocks becomes higher than of suchstocks that pre always issued at the market price, and in the course of nature theformer stocks become more attractive in the capital market.
In Japan additional stocks are usually offered to shareholders at a par value.

The additional stock issue in form of an allotment to shareholders at a par valueis, on the average during 1951-v1958, 860/, of the whole additional stock issue

ON THE VALUE OF STOaK RIGHTS AND ITS SICNIFICANCE 105
IN CORPORATE FINANCE(in \), though it is 290/, (in $) in U.S. A,Ci' And an investment in stocks ismore profitable than in bonds. It seems to me that the profit ratios of somekind of stocks, including the acquisition of stock rights, become about 200/,N
250/o in a year because after the war many corporations have often issued additional stocks in Japan. On the other hand the rate of interest of first classbonds is 70/.•v80/..

Though the profit ratio of stocks is usually considered to be higher by therate of risk than the rate of interest of bonds, such a high rate is not always neces-sary. And moreover the investment in stocks has little risk in regard to infiation.

Therefore the financial convention in Japan that corporations offer theirshareholders the right to prior purchase of additional stock-issues at a par valueinterferes with the equalization between the rate of interest in the bond market
and the rate of profit in the stock market, gives support to the higher level ofinterest rate in Japanese capital markets, makes the development of the bondmarket more diMcult, and gives cause to prevent preferred stocks or convertible

bonds from prevailing in Japan because, besides the above-mentioned basis ofargument, their equities may be diluted by the offering of the right to subscribe
for additional stock-issue at a par value.

On the other hand, because the high profit ratio including the acquisitionof stock rights is dependent on the pre-payment of the profits in the future, themanagements of corporations must keep such a high dividend even after an issue
that makes the market price of stock i. e, the expected profit ratio hold on, if
they intend to reply to the shareholders' expectations.

That is, if other conditions are the same, for common stock capital is de-manded a high profit ratio which can be acquired only by "trading on equity"or "financial Ieverage." However Japanese corporations cannot but be much
more dependent on short term credits because other long term capital cannot be
so used as in the U. S. A..
It is the reason why the current ratio and the capital structure in Japanese

corporations are much worse than in the U. S. A.. Of course the offering ofstock rights must not be considered as only one cause of the bad financial struc-ture ofJapanese corporations, but it seems to me it must be regarded as oneof the most important causes.
Last, we must point out that the profit ratio including the acquisition ofstock rights is much more speculative than the common rate of profit or dividend

106

JIRO ONO

of stock on account of its dependence on the anticipated profits in the future.

The financial convention of the offering of stock rights have made the Japanesestock market more speculative than in its normal phase. The speculative character of the stock market will tend to prevent the capital of the Japanese people

from participating in corporation finance and delay the democratization of thewhole ofJapanese economy though it is said that many people have joined thegroup of shareholders following the war.

Before the war most corporations in Japan were controlled and financed byseveral rich families i. e, so called "Zaibatsu", and then it was very significant
for the corporations to offer their shareholders stock rights and to keep the Zaibatsu's controlling power, but whether the stocks were issued at a par value or ata market price is not so important because it didn't influence the capital market,
the circulation of people's capital and the level of the rate of interest.
However after the war it is of little significance to retain the shareholders'

controlling power, and the impacts of stock rights on the capital market andthe corporate finance are rather important.
It seems to me that one of the most urgent things for us to do is to examine

the nature of stock rights, to make a counter-plot to develop normal capital
markets, and to improve corporate finance in Japan.
Note:(1) I. Kawai; Kabushikikakaku Keisei no Riron (The Theory on The Market-Pricc.Formationof Stocks), 1960, p.228-p.231.

BUSINESS FEATURES AND
MANAGEMENTPOLICIES OF INDUSTRIALENTERPRISESIN LOCAL DISTRICTS OF JAPAN
Minoru BEiKA

I
Introduction
In dealing with the problem of the location of an industrial enterprise a
careful consideration of the following two phases of the subject matter should
not be lost sight of: viz., first, the locational features ofan enterprise and, secondly

the conditions of the locality or the regional characteristics for industries. Con-

sequently, in a study of the location of a plant, on the one hand, a scrutiny of
the conditions ofthe locality as well as its regional characteristics should be made.

Further, on the other hand, a consideration of the business features and manage-

ment policies in connection with such conditions of the locality and regional

characteristics should likewise be made. However, with the so-called problemof the location of a plant it is usually the case that the former aspect is chiefly

dealt with, while the latter is apt to be often ignored. From such a viewpoint

an attempt will be made in the following pages to take a forward step in theelucidation of the situation as it actually exists in this country today in orderto fu1fill in a measure the objectives aimed at.

The industrial activities ofJapan made a marked progress in recent years
with the result that an excessive regional concentration in certain central areas
ensued to such an extent that there is an urgent call for their adjustments andcoordination. At the same time, in order to remedy the unbalance as a resultof the regional expansion of economy much emphasis is being Iaid on regional
developments with special reference to industrialization of the local districts.

107

108

MINORU BEIKA

Stated in other words, it has been proposed to effect a transformation of theregional structures of the current industries of this country to a more or less extent.

It may be observed that such regional structures of industrial enterprises are theresults of the natural growth in the industrial development of Japan.
At the same time, in the course of this development, the business features
and the distinctive characteristics of their management policies have also beennaturally built up on the basis of such regional structures. It is believed thata comparison of the regional characteristics of the various industrial enterprises

in Japan with those of similar enterprises in European countries and in the
United States will make the situation existing in this country clearer.

From such a viewpoint it is proposed to review the situation of the various
industrial factories of a considerable scale in the local districts ofJapan, wherelarge factories are exceptional, as well as their special features and management
policies.

In another paper, the writer made an attempt to deal with the regional
characteristics ofenterprises in their relation to business features.(i) In the con-cluding part of the paper, seven typical types were formed from 75 kinds of in-

dustries in 1956. For convience' sake the general types of industries will beshown in the list which follows, viz.:Type No. 1 comprising those industries which are centralized in the central
industiral areas (various kinds and scales of industrial plants are intermixed),

including chiefly machinery industry, electrical machinery industry, precision
machine industry, etc.;

Type No. 2 comprising those industries consisting chiefly of large sizedplants located in the central industrial areas as well as those existing in local

districts, and including chiefly iron and steel works, non-ferous metal works,
shipbuilding yards, cotton spinning mills, chemical fiber plants, petroleum refineries, etc,;

Type No, 3 comprising market-oriented industries consisting of mediumsized plants, and including chiefiy manufacturers of pharmaceutical supplies,
rubber goods, glass, organic industrial chemicals, sugar, etc.;

Type No, 4 comprising those industries consisting of local market-oriented

or material-oriented medium-scale plants, and including chiefly paper mills,
manufacturers of agricultural machines, and of ropes and nettings;(1) Refer to "The Spatial Characteristics of Industries Relative to Their Business Features"-The Kobe Economics & Business Review 2, 1954.

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDUSTRIAL 109
ENTERPRISES IN LOCAL DISTRICTS OF JAPANType No. 5 including such localized industries as small and medium-sized
manufacturers of potteries, china wares, and weavers of broad-cloth fabrics;

Type No. 6 including market-oriented industries consisting of small-sizedplants - omitted here;
Type No. 7 including local material-oriented industries consisting of small-

sized plants - omitted here.

In this paper metal working and machine industries belonging chiefiy totype No. 1 and type No. 2 as above-noted will be dealt with. In this connection
it should be noted especially that the machine industry, electrical machines andappliances making industry, existing in the central areas, belong to type No. 1,
while the iron and steel industry, non-ferrous metal refining industry, shipbuilding

industry, which exist both in the central industrial areas and in the local districts, belong to type No. 2. It is to be noted further that the former group ofindustries has oriented to their market in the central areas, and, at the same time,

it is worthy of note that there exists a high degree of mutual dependence, whichgave rise to their concentration in the central areas. In the case of the latter,it may be pointed out that they exist due to their special locational conditionsof the localities respectively. In this article, the metal working and machineindustries located exceptionally in the local districts far away from the central

industrial regions of Japan will be dealt with on their actual conditions. It isbelieved that the consideration of their developments will throw light on the
problem of the industrialization of the local districts, from an angle of businessconditions, management and business policy. Besides it will enable us to makean observation on the key point of the fundamental problem of the location ofenterprlses.

II'
Actual Conditions of Enterprises Located in Local Districts in the

Metal Working and Machinery Industries
The medium and small-scales and other petty firms of the metal working
and machinery industries will be ignored here because they are largely included
in types No. 6 and No. 7. Accordingly in the following pages chief emphasis will

be placed on No. 1 and No. 2 types of industries.

According to the Establishment Census ofJapan for 1957, the number ofmetal working and machinery plants each having 300 employees or more accounted for 810, of which those located in Kyushu, Shikoku, Chugoku and the110 MINORU BEIKA
Northeastern regions, consisting of a total of 22 prefectures and the island of

Hokkaido comprised 129 plants, which amounted to only 15.90/, of the total
number of such plants for the entire country, while these regions comprise 63.3
O/, of the entire territorial area ofJapan, and cornpared on the basis of popula-tion, these regions comprise 43.90/, of the total population ofJapan. It willthus be seen that their relative importance is exceedingly small. It will be as
shown in the following table:
Total No. of plants each with
300 Employees or rnore for Ditto for local areas

the Entire Country (22 Prefs. & Hokkaido)
I Type No. 1 concentrated ln
central industrial areas

402 50 12.40/.

(M:::l•:e.;; l:g:gt,k' Si$c;,ri•nt. >XMachine lndustry. 1
II Type No. 2 concentrated incentral industrial areas &local industrial regions 370 73 1g.7o/6

combined.
(il['l&n,.eeie.Z'g,V,R".Ilg;o"s >XMachinery lndustries. 1
III Others-metal products industry(chiefly type No. 6)

38 6 15.80/,

It may be noted in the above table that the relative importance of the plants

comprising chiefly of machinery industry, electrical machinery industry, precision machine industry, etc., whose degree of processing is high, is exceedingly
small in the local districts. But, as the problem about the characteristic aspectsof the regional structures of these industries and their business features will be

dealt with in other paper, their consideration here will be dispensed with.
It will be apparent from the foregoing fact that at least regarding the re-gional development and rural industrialization of Japan, the consideration of
the business features and of management policies together with the improvementof the conditions of industrial location of undeveloped areas is imperatively required. It is to be observed that this improvement of the locational conditions
for industries is playing an extremely important role in such industries as theiron and steel, non-ferrous metals refining, and transportation industries and in
the various chemical industries, etc., belonging to type No. 2, and it is also con-

BUSINESS FEATURES AND MANAGEMENT POLIalES OF INDUSTRIAL , 111
ENTERPRISES IN LOCAL DISTRICTS OF JAPANtributing more or less to the promotion of industrialization of local districts inrecent years. It should be noted further that in the modernization of the industrial structures ofJapan, its developments, and also in the industrialization of
the local districts, the various industries belonging to type No. 1 should not beignored. It will be impossible to explain in this instance the problem without

making the consideration on the business features and management policies
relative to the special characteristics of the locatilies.

Iron &

Non-ferrous

Metal

Steel

Metals

Products

Machinery

Electrical

MachineryTransportation

Machinery

Prefectures in

the Klushu
Region;Kagoshima
Miyazaki
Oita

2

1

Kumamoto

2

Saga
Nagasaki

1

Fukuoka

8

1

1

6

6

1

4

3

3

Shikoku
Region:

Kochi

2

Ehime

4

3

1

Kagawa111Tokushima
Chugoku
Region:Yamaguchi

32

Hiroshima

2

1

Okayama
Shimane

5

5
1

2
1

2

1

2

2

Regien:JVIorth Easter

Region:Aomori
Iwate

13
2

3

1
1

Tottori

Hokkaido

3
I

2

1
1

Akita

Miyagi1

Yamagata

2

Fukushima

1

1

1

2

2

1

2

2

112 . MINoRU BEIKA
From such a view point, in the present survey, it will be, at any rate, aforward step to investigate the business features and management policies of the
major factories which are found exceptionally in the local districts. Consequently,

emphasis has been laid chiefiy on those industries belonging to the industries of

the type No. 1 and, at the same time, the industries of the type No. 2 also are

to be considered, since some of them have problems more or less akin to thoseof type No. 1.

From such a standpoint as above-mentioned, if a summary statement weremade of the metal working and machinery industries (each having 300 or more

employees) in Kyushu, Shikoku, Chugoku and the Northeastern regions comprising 22 prefectures and Hokkaido, outside the sphere of the cental industrial

areas ofJapan, the results will be as shown in the foregoing table.

Regarding the chief enterprises and plants shown in the preceding table,consideration of the subject matter will be on the business features and manage-

ment policies relative to their regional characteristics. As regards the data
available in this instance, it was the result of on-the-spot investigation made by

the writer. They are also based upon certain materials furnished by the various

companies. However, since the data on hand are limited, besides as the on-the
spot investigation of the principal plants had to be made hurriedly, the investi-

gation is necessarily incomplete. As it is thought that it will be possible forthe writer to obtain a clue to further study on the subject, he hopes to make asystematic investigation of the actual conditions at a later date.

III
Reasons for Establishment of Plants in Local Districts
It will be noted that the plants for metal working and machinery industries

of Iarge and medium-scale with 300 or more employees each are located chiefly
in the central industrial areas of Japan, and that these plants are of highly con-sentrated type. However, there are about a hundred of plants of these industries

in the Kyushu, Shikoku and Chugoku regions and in the Northeastern region
and in Hokkaido. Viewed from their regional chracteristics, as the whole, they
may be said to represent aspecial category as an exception. But if readjustmentsin the regional distribution of plants would be one of the objectives of the policyof location of industrial plants in the current situation ofJapan, a considerationon the business features and policies of these various plants now existing as an
exception, would provide one method of approach to the solution of the problem,

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDUSTRIAL 113
ENTERPRISES IN LOCAL DISTRICTS OF JAPANAt the same time, it will also serve to enlighten us in the elucidation of the essential

problem of the location of industrial plants relative to the study of the businessfeatures and policies. In this sense, the writer wishes to pursue further consideration of the principal p}ants now exsiting in the local districts as exceptions.

From a perusal of the list of various plants shown in the preceding table,
it may be noted that there are a large number of plants which depend for theirraw materials and other supplies upon the localities, in some degree, in which
the various plants are located. At the same time, it should be noted that thedegree of their dependence on local supply is rather low. A detailed treatmentof the situation will be deferred to Iater. The actual conditions of the various
enterprises will now be taken up. Let us proceed on the survey of their historicaldevelopments and on their present status relative to their management policies,

1. Reasons for Establishment of Local Enterprises
Upon taking a glance at the reasons for establishment of the various enterprises such as the iron and steel works, non-ferrous metal works, and shipbuilding

yards, which belong chiefly to type No. 2, it may be noted that in the case of
a considerable number of these enterprises the conditions of locations as, forinstance, accessibility to raw materials and other special circumstances played
an important role. As regard the various works like the machinery and electricalmachinery plants, which belong principally to type No. 1, it may be noted thatmany of these plants owe their establishment to the presence of vitally related
enterprises like the mining industry in the same area, or due to the Iocal markets.

These then are the features that stands out conspicuously in the establishmentof these industrial enterprises. To begin with, let us consider the latter or alliedindustries or proximity to Iocal markets, viz,, those which are due to the rnarket-

oriented conditions in the broad sense of the term.
(1) Establishment of Allied Industries.

More than any others there are the cases related to the mining industry,
especialy those that owe their establishment to historical developments as a branch

for making their own machines.
As instances of enterprises allied to manufacturing industries the following

may be cited: an electrical machinery plant and a machine plant in Kyushu,

industrial machinery plants in Chugoku and Hokkaido. A certain number ofindustries related to shipbuilding (in Nagasaki and Hokkkaido) ; besides a numberof industries related to chemical fibers are found in the Chugoku. However,in the Chugoku and Kyushu, despite the fact that there are leading shipyards

114

MINORU BEIKA

for the shipbuilding industry, it should be noted that the metal working andmachinery industries of more than medium scale which were established in theirenvirons and relying directly upon them are but few in number.

(2) Plant Establishment Due to Marketing Potentiality of Local Districts.
a) As one of the fields in which an industrial plant had its origin in themarketing potentiality of the locality may be mentioned the agricultural ma-chinery industry. A considerable number of medium and small scale agricultural machinery plants was established widely dispersed in the various places of

the country. But as it will be mentioned later, some of these plants have expanded their marketing activities in recent years. As a result of wide expansion
in the scale of their business, as certain number of these enterprises are fast

emerging in their new aspects by sloughing off their former characteristics of

medium and small scale enterprises. Among these agricultural machinery
plants each having 300 or more employees in the Chugoku, Shikoku and Kyushu
shown in the preceeding table, a certain number may be cited as typical examples.

b) Another field in which the basis ofplant establishment may be attributed
to marketing potentiality in the historical development is the establishment due

to increased demands from the local markets. With the intensification of competition, large-scale branch plants were established in the centers of local markets

throughout the entire country, Among the foodstuff and other consumer goods
industries there is a marked tendency in this direction throughout the country

in recent times. Among the machine industries also an electrical machineryindustry in Fukuoka prefecture in the northern Kyushu may be cited as an
mstance.

(3) Plant Establishment Due to Availability of Raw and Processed Materials and to Special Conditions of Location.
It is needless to state that in the cases of the iron and steel works And of
non-ferrous metal refining plants, the chief bases of establishment were the availability of raw-materials existing in the locality or an easy means of transportationin the acquisition of raw-materials, Consequently, generally speaking, it may
not be said to form an exceptional case of establishment in the local districts

though it is exceptional in the case of the machinery and electrical machineryindustries. Among these plants, the development of some iron and steel works
in the northern Kyushu with the Yawata Iron and Steel works as the center andtwo iron and steel works in Muroran, Hokkaido, stand out conspicuously as
showing the basis of establishment in the development of the mining industry

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDUSTRIAL 115
ENTERPRISES IN LOCAL DISTRICTS OF JAPANand in the exploitation of Hokkaido.

The fact that the Chugoku and Kyushu regions are the central areas forthe shipbuilding industry may be cited as instances of establishment based upon

the original existence of the special conditions for shipbuilding which these
reglons possess.

(4) Other Bases of Establishment (war-time plant dispersals, etc.)
In the various local districts there is a considerable number of plants, be-longing to machinery and electrical machinery industries, which has arisen outof the demands for expansion of plant facilities or due to plant dispersals during

World War II; these dispersed plants have continued to exist in their dispersed
sites. Then, the reversionary uses to which some of these plants were put became
the direct bases of establishment.
The plants mentioned above are of a considerable scale in the metal-working

and machinery industries. Such is the overall situation of the establishmentof the various industries in their respective localities at the present time.

From the foregoing we are enabled to note the bases of establishment ofa rather small number of the machinery and electrical machinery plants, whichhave the local markets as their targets along with the mining industry as an alliedindustry together with those that have their bases of establishment in the war-time plant dispersal. Further though reference will be made later, viewed fromthe standpoint of their present business conditions, the relative importance of

the industrial machinery departments in the shipbuilding plants and rollingstock plants have gradually increased, due to decreasing orders for their original

business received by them. In so far as this phase of the matter is concerned,
it may be said that they are having the same locational characteristics as themachinery and electrical machinery plants in local districts.
Tlte foregoing represents the view on the bases of plant establishment chiefly
from the standpoint of its business. It will be advisable naturally to make a side-view consideration from the standpoint of capital.

In the machinery and electrical machinery plants, etc. belonging to type
No. 1 industries, and existing as an exception to the regional structure ofthe in-dustries ofJapan, there is a number ofenterprises, which stands out conspicuously
as tracing its historical development to local capital. Many of these plants arefound in the mining and allied industries and the agricultural machineryindustries, and their developments today is quite noteworthy.
In contrast to the above, there are a certain number of industrial enter-

!16

MINORU BEIKA

prises belonging to type No. 2, such as the iron and steel works, non-ferrous metal

plants, and shipbuilding yards, which have the characteristics of the primary,central industrial regions as well as of local industrial regions. It is significant

that many of them trace their historical developments to establishment by theold Zaibatsu aMliated enterprises and nation-wide enterprises or directly or
undirectly by the national government during the mid-Meiji era. It is interesting

that, while some nation-wide enterprises established their plants belonging toType No. 2 in these local districts by selecting their sites among broader areas,
the local representative enterprieses by local capital established necessarilly intheir districts their plants, chiefly belonging to Type No. 1, and have endeavered

to exist by their management policies.

2. Present Business Features of the Industrial Enterprises and Plants in
Local Districts

The industrial enterprises and plants in local districts above stated, now
depend upon the different conditions or the different business features from their

original or historical conditions to Iocate. They have developed by their ma-

nagement policies to adapt internal and external changing conditions.
(a) Some enterprises and plants which started originaly as the machine department of the mining enterprises, or as the parts maker of the shipbuilding industry

in local districts, now depend on chiefly nation-wide market. A few electricalma'chine maker, and one machine maker in Kyushu are representative examples.
(b) Particularly in the case of the shipbuilding industry, belonging to type No. 2,

it may be noted that, due to the current stagnation in the shipbuilding industry,

and in order to stabilize the normal volume of business a policy of increasing
the relative importance in the field of industrial machinery is being pursued generally. Therefore the locational characteristics is approaching to type No. 1.
In certain rolling-stock manufacturing plants, from a similar standpoint, industrial

machinery department is occupying about half of their productions.

(c) In the case of the various enterprises mentioned in the preceding table,
the agricultural machine industry, which has the markets of the agriculturalcommunities as its target and which are found throughout the country today,
has the entire country as its marketing outlets in so far as the threshing machines,

the rice-hulling machines, the automatic power cultivators are concerned. It
may be noted especially that a certain number of these enterprises is growing
up to large-sized enterPrises through a process of sloughing off from their businessstatus of local medium and small scale enterprises.

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDUSTRIAL 117
ENTERPRISES IN LOCAL DISTRICTS OF JAPAN(d) In the enterprises belonging to type No. 2 industries especially the iron andsteel industries, although many of these industries had developed, historicallyspeaking, with dependence on locally procurable raw materials, the historicalsignificance of the location of plants is almost negligible due to the changes in
the quantitative developrnents, changes in the marketing situation, and likewisethrough changes in the structure of the respective industrial plants.
Be that as it may, we might cite the cases of the iron and steel works of theSanin and the Northeastern districts, which rely upon the iron sand resourcesof the respective localities, as showing the cause of their historical developments.

At present, however the relativ.e importance of the dependence upon the rawmaterial resources is rather small. The existence of those plants which rely
upon the specialization of products, such as the special steel, may be cited as
typical examples. Moreover, in the case of those that belong to these types, itis needless to state, that the degree of dependence on the local markets is lower

than that of the type No. 1 industries.

(e) The communications machinery and their parts p]ants of the Northeastern
district being originated as the dispersed plants in their historical developments

have existed from their very biginning as the so-called foot-loose industry. But
in the midst of a high degree of centralization of these varieties of industries ofJapan, which are concentrated especially in Tokyo and its environs the Northeastern district is also an exception. This is a point which should be noted in
the location of industrial enterprises as well as of the conditions of business,(f) Consequently, it follows that the metal and machinery plants of a considerable scale, chiefly depending on the local markets, are small in number
in so far as the above-noted table is concerned.

'
As it may be seen from the foregoing if one were to view the situation of

the enterprises now extent in these local districts, it will be noted that, inspiteof their historical developments their relative importance on the basis of thelocal raw materials available or on the basis of the Iocal marketing potentiality

is low, in comparison with the markets of the entire country and with the raw
and processed materials in other wider areas.
These are existing as exceptions in such industries as the metal working andmachinery industries, chiefly belonging to type No. 1 which has concentrated
in the central industrial districts. The management policy to cope with sucha situation, or the means of surmounting the so-called spatial limitations, necessarily pose a problem, which is the subject of what follows in the following pages.

118 MINoRU BEIKA
Further, as already mentioned, in such industries as the manufacture ofchemical industrial products, the foodstuffs and a number of certain other con-sumer goods, a tendency has been discernible in recent years, that some medium
and large sized plants have been established in local districts, but to an increasein the purchasing power in the local markets as the center. Such cases are foundalso in type No. 3 industries, which comprise the medium scale enterprises withthe marketing potentialities as the target, and in type No. 6, of small scale in-dustrial enterprises with the marketing potentialities as the target. But few

medium and large-sized plants in the machinery industry depend on chiefly
in local marketing potentialities. It poses one of the problems in the regional
industrial development.

IVManagement Policy of Medium and Large Sized
Enterprises in Local Districts
It is generally expounded in the study of the conditions of location of industry, that most industrial plants are enable to exist depending upon the traditional forces formed in the changes of time or economic inertia, even if theoriginal locational conditions for them had either been diminished or ceased
to exist entirely due to the internal and external changes, However, such is thecase when an enterprise or plant is viewed from an objective viewpoint; but whenan enterprise is viewed subjectively, it will be found that traditional conditions

for industrial location have not been naturally formed to a large extent, but it
is backed by the cumulative effects, directly or indirectly, of management policy,

which tries to adapt to the changing conditions, and to surmount the spatial
limitations.

Therefore, what kind of management policy is to be pursued in order tosurmount the problem of the spatial limitations? From such a viewpoint, anattempt will be made in the consideration of the various industrial enterprises

and plants as above noted.
(1) Specialization of Products
That one of the means of surmounting the spatial limitations in regions far
from the marketing centers is the specialization of products as it has often been

pointed out. In the areas under consideration, a number ofpertinent cases may

be cited. Such an instance may be seen in a steel works with the rotors forturbines as its chief products of some steel works in Nagasaki in the extreme

BUSINESS FEATURES AND MANAGEMENT POLrCIES OF INDUSTRIAL 119
ENTERPRISES IN LOaAL DISTRICTS OF JAPANwestern part ofJapan; and as if in parallel with it, there is a steel works in Hok-kaido with facilities for making various large-type machines in the extreme northern part ofJapan. The latter works are engaged in steel making, shipbuilding,large-type special accessaries for the various industrial machinery as its principal

products, and with the various large scale engineering facilities of war-time muni-

tions production era as the basis. The above noted two works are receiving
orders from the central industrial areas of Japan on an almost exclusive basis.
The instances cited are significant in that they are the makers of heavy industrial

machinery products, although they are supported by an easy means of marinetransportation, and moreover, although their manufacturing process which
are accompanied by a few loss in weight in the course of their manufacturefrom raw materials. Also a machine tool manufacturer in Kyushu, where, it
is only one in the tool manufacturing industry, is engaged in the manufactureof Iarge-type machine tools, which require more than fu11y half a year to manu-

facture, are receiving orders from central industrial districts. The same may
be said of the special steel works located in the Northeastern district and in the
Sanin districts.

Then, the agricultural machine enterprises in local districts also, try to takethe semi-monopolized market for them by forming their branded products. It
may be said to be an effective means in the implementation of its management

policy. A certain number of these enterprises, based on such a premise, isemerging as large-scale enterprises from their current status of medium andsmall scale enterprises.

(2) Specialization of Plants
A policy of specialization of products brings about specialization of plants
to a' certain extent. To this category belongs such enterprises as the manufac-

turing plants for electric appliances, communications equipment, and allied plants.

This too provides an effective means of surmounting the regional limitations.
Many of the allied plants for electrical applicances, as noted above, belong tothis category. An electrical machinery plant in Kyushu in particular, whichmarked a turning point in its management policy of specialization into motor
manufacturing from the manufacture of diverse different products may be citedasacase in point. 'The retarded development of allied industries in the environs of shipbuilding

yards, which are coordinated assembling pl,ants of the localities, pose a problem

from the viewpoint of the regional development. This fact presents a problem,

120

MINORU BEIKA

on the one hand, from the viewpoint of the management policy of the main shipyard, and at the same time, its cause is to be sought in the fact that the allied
plants could not be made to forge ahead in the direction of plant specialization,on the other hand.
However, such a policy of plant specialization has a tendency which shouldbe especially noted to make it feasible to conform to the market requirementswith the changes of time. At the same time, it is frequently the case also in

the expansion of the business sphere which aims at a higher plane from thespecialized plant when it is a sole enterprise. It often happens that fairly di-

Mcult problems of management are encountered in the course of manufactureand sale of its products.

(3) Argumentation of Technical Developments
It is apparent that the problem of the spatial limitations can be surmounted

only when specialization of products is carried out in conjunction with argumentation of technical developments. Some business leaders in such local enterprizes above stated hqve heretofore concentrated its energies in the manufactureof home-made products, a field in which Japan had till lately depended chiefly
upon imports, or upon self-supply for such equipment as the mining machinery,or on the desire for introduction of technical innovations, etc. But technicaldevelopment policy should be accompanied by management policy to realize theindustrialization. It is found that some local enterprises failed to develop theirpotentialities due to lack of the management policy, in spite of their original
merits in their industrial world.

(4) Forming and Maintaining the Marketing Route:Marketing activities are very important for the enterprises and plants in thelocal districts. Necessary marketing activity of such enterprises and plarits is
not the simple selling technics or selling strategies, but generally to form andmaintain their marketing routes or outlets. Because they are considerably
distant from the central markets in our country. Some successfu1 cases are formed

among the enterprises and plants above stated,
In the distant localities far from the central distributing outlets the spatial

limitations as above-noted have been surmounted thereby. Regarding the agricultural machines, it may be noted that the security and expansion of markets
have been effected through the channels of the system of farmers' associations.
There are not a few instances in which the security of the marketing outlets have.
been achieved by meansof systematic arrangements with the special principal

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDVSTRIAI, 121
ENTERPRISES IN LOCAL DISTRICTS OF JAPANenterprises in the central industrial areas. •(5) Intensification of Management Activities and Improvements
Though it is generally recognized that the improvements in the activities
of management is a subject on which much stress is being laid, the management
improvement should be emphasized ifi the cases ofplants located in distant localities

far from the central industrial area.

Though there are not a few enterprises in the localities, which have thelocal rnarkets and allied industries of the localities as the targets, many of them

are medium and small scale enterprises, of which a small number have achieved
the status of fair-scale enterprises. Though the developments of such firms havebeen considerably retarded by the spatial limitations in the conditions oflocation,such spatial limitations also bring about exclusive characteristics of the localities

for the small-scale enterprises by bringing about an attitude of management froma force ofhabits as a result ofthe lack ofwill for an enterprise. One ofthe reasonsfor the belated progress in the industrialization of Hokkaido is found here.

Some of the electrical machinery plants located in Kyushu, perceiving themanagement attitude from their force of habits based upon these regional characteristics, carried on investigations into the manufacturing phase of their products.

As a result of analytical studies it was shown that the results achieved in a IO

month production period as theretofore could be shortened to 6 months, Suchan example cannot fail to furnish a good proof as an importance the management
effort in the present-day industrial enterprises in the local districts.

When the shipbuilding and the rolling stock industries are fast advancing
into the spheres of industrial machineries as it has been in recent years, it isnecessary for them to effect improvements in the activities ofmanagement in orderto enable them to survive in the competitive markets in the production of thevarious products in small quantities. Such being the case, it is so different fromthe dominant position as regards the location of plant they had formerly enjoyed.

(6) Management Policies Towards Allied Sub-Contract Plants
The above-noted improvements in the activities of enterprises must not be
overlooked in the policies to be pursued the allied sub-contract plants. Amongthe sub-contract plants now existing in the distant localities far from the central

industrial areas, those that could be utilized effectively are few in number incontrast of the fact that the industries in the central industrial area must naturally

rely on the allied plants to more or less extent. In so far as such a situation
exists in the local districts, it follows from force of their habits that the limi-

122

MINORU BEIKA

tations due to the regional differences in their manufacturing and sales activities

could not be avoided. As a consequence, they are naturally bound to pursue
a policy of setting up and fostering their sub-contract plants in the localities,

or to resort to a policy of expansion of parts making in their own plants. Moreover, their sub-contract firms are not considered to be a "cushion" in the vicissitudes of economy, due to the very nature of the local market as it is the casein the central industrial areas, There are a number ofinstances in the machineryand electrical machinery industries, on the contrary, which have pursued a positive policy of fostering their sub-contract plants; and there is a demand for

promotion of the improvements in their activities for modernization of manage-

ment.

(7) Problems of Sloughing off Medium and Small Scale Enterprises
There is some of medium and small scale enterprises in the local districts
having local market as their targets, which is undergoing a process of sloughingfrom their present status ofthe medium and small scale enterprises. The slough-ing process may be attributed to their superior management policy of effecting
technical, managing and marketing improvements. The significance of this basic
policy which brought about this state of affairs is worthy of special commendation.

Such policies necessarily should include effective use of able personnel,

strengthening of organization and getting out of primitive management by thefamily ownership.

It is very diMcult to establish such management policies by the businessmen who were the founders of the medium and small scale enterprises in thelocal districts. But a certain number of instances may be cited in which those

diMculties have been surmounted. Considered as a problem of the medium andsmall scale enterprise it merits a special attention.

By the above-stated general survey on the management policies of the medium
and small scale enterprises with the limited materials available, it will be notedthat it covers the whole range ofmanagement policy, such as the products, technicalinnovations, sales, allied plants, supervision and the basic management attitude.
Through a combination of these various factors distinctive conditions of businessmay be created which will meet the requisite conditions of the locations of enter-

prises. At the same time a management policy which will be able to cope withthe changes in the internal and external conditions arrest out attention.

BUSINESS FEATURES AND MANAGEMENT POLICIES OF INDUSTRIAL 123
ENTERPRISES IN .LOCAL DISTRIaTS OF JAPANv
Conclusion
The problems of the local industrialization for regional developments withwhich Japan is confronted today, namely, the problem of changing an excessive
concentration of industries and their regional structure, that of the businessfeatures and the management policies of enterprise now existing in the localities

as an exception, must not be overlooked. These problems might have been
made clearer to some extent as the result of this short survey.

THE RESEARCH INSTITUTE FOR ECONOMICS AND
BUSINESS ADMINISTRATION, KOBE UNIVERSITY.
•. ,:'.. , ... ' l• •e •i

and attached to Kobe University (the.4-rw} lIrle

l ll E, {!IR g.kii ttime) with an endowment fund from
H!fl{tlll N,' F. Kanematsu & Co., Ltd., the pioneer

l l .g"!.li:'v-.l I.

i `s .•I e", mant.,."e'r t. v +tt

University,

Japan-Australia
trade.
ThisabuiissJIPi-, tt-`.: ., firm
fundinprovided
the schooi
with

a. i

l.
yf ,, t: - ,:;s, ,.,•t; The lnstitute was founded in 1919

ttz' ;. Kobe Higher Commercial School at that.,zding and the means to carry on research;A' •t ,.• ,..., work• In 1949, the lnstitute became an,- " ... .. --, .X, 4.'.. .as.t ts1Å}..m-' oMcial organization attached to Kobe

the national treasury.
maintained by

The aim of theInstitute is to carry on scientific and synthetic study of industrial
economy in its two tearns of research work, namely, the Research Team of International Economyand the Research Team of Business Administration. The former
taking charge of research work on International Trade,
comprises five sections each,
International Finance, International Rules and Agreements on
Marine Economy,on Latin-America; the latter comprises four sections,Regional Study
Commerce andeach of which undertakesto do research work on Business Administration, Accounting,Internationaland Industrial Relations.
Management

Besides theseregular research sections, we have horizontal study groups closely
sections to carry on special research work by arelated to the regular researchCommittee ofSpecialists. In the field of international economy, two committees for
special study, the Committeeon Asian Economy and the Cornmittee on Latin Ame-rican Economy,have beenorganized; and in the field of business administration the
been hasformed. The said special research work
Committee on Company Accounting

is carried on by the faculty of the Institute and by extra-Institute and extraUniversity

research workers.

The results of the researchwork are published in the Kobe Economic & Busi-' ' International Economic Review and the Kobe
ness Review, theKobe University(each published annually) and in the monthly journal
University Business Review
Zasshi '' (Journal of Economics and Business Administration), and"Kokumin Keizai
from on specific themes.
sometimes in bookstaff of 24 members and a secretariate of 12 clerks.
The Institute has a research:] ECONOMICS&BUSINESSTHE RESEARCH INSrr'ITUTEFOR :ADMINrSTRATION:KOBESusumu
UNIVERSITYi;l] Secretary:
Directer:
WATANABE:
Teshio HARA :•1l GROUPOFINTERNATIONAL I• GROUPOFBUSINESS li ECONOMICRESEARCH l• ADMINISTRATIONRESEARCH i
i Ginjiro SHIBATA Professorof lnternational i Susumu WATANABE Professor of Accounting il Trade and Marine Econe-i//Dr. of Business ll mics Dr. of Ecenomics l Administration i
Profefisorof/t lnternational:
i'i Fukuo
Trade KAwATA
IMinoru BEIKA
Professorof Plant ii:;, Finanee Dr- ofEconomics:/tDr, of Busiriess l
I Hiroshi sHINJo Professor of lnternational i Lecation i

I Torasaburo NoMuRA PrefeSSOr Of i Administration i: Transportationli//, Taro KAwAKAMI

Professor of' Private ,International Law l

Yoshimote KoBAyAsHt Professor of Bueinessprofessorof lInternational Finance l

i Jiro yAol Tei-ichi YAMASAKIManagementiiAdministrationli
Assistant Professorof l
StUdY' On Latin I Eradakatsu INouE
Assistant Professor of il Seiji sAsAK:

Marine Economics i'ii MaeahiroFuJITA'

i HikojiKATANO

Assistant professor of l NObUko Nost

America i
International Trade lAssistant in Business
Administration Section

Assistant Prefessor ef I Jiro ONol Yoshiaki

NISHIMUKAI

i Yoshiro IKuSHtMA

AssistantinRegionalStudy ion Latin America Section i

Assistant in International l' I<ihacl}iro TsuDo

Trade section l

A$sistant in Regionai l'
Study on Latin America l TOMokO KusAKABE

Section I

OMee: The I<anemtttsu Memorial Hall,THE KOBE UNIVERSITYROKKO, KOBE. JAPANi
i

i

Assistant Professor ofSocial Aceounting

Assistant in Marine i
YAMAMOTO
Economica Section I TetSuO KoBAyAsHI

i Jyun NAKAJIMA

Assistant Professor ef
Bueiness History

Regional Study on Latin ll' Hiromasa']

Dr. of BusinessalRAe
rng eiOrnicaii

Assistant in Aecounting
SectionEugineer in Business
Machinery Sectien
Assistant in Business
Machinery Section

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