Abstract
The Japanese economy was severely damaged by the World War II. Production dropped to 30% of the pre-war peak. There were three serious problems when the war ended in 1945, namely unemployment, energy shortage, and inflation. This chapter focuses on the galloping inflation and analyzes how to control it. The government invoked the Emergency Financial Measures Order and enforced the price control order in 1946. As a government officer, Dr. Shimomura was responsible for checking inflation. He thought that the measures taken in 1946 were temporal and production recovery was fundamentally necessary. It was very difficult to increase production and to curb inflation at the same time. However, the government implemented an industrial policy called the Priority Production System, which opened the route to attain both the objectives successfully. Dr. Shimomura suffered from recurrence of lung disease in 1948 during his course of service with a government organization, forcing him to take a long leave. While bedridden, he started to write a thesis and completed it in 1951; the paper was titled Economic Fluctuation and Economic Analysis. In this paper, which depicts the “Shimomura theory,” he developed the dynamics of Keynes theory and received a doctoral degree.
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Notes
- 1.
When Dr. Shimomura planned economic policies, he collected statistical data fully, studied them carefully, and judged the actual economic situation. He seldom depended on a standard textbook of American Economics or the remarks of a man of authority. This partly explains why he had many serious controversies with economists and scholars.
- 2.
Three major reforms to democratize Japan were put into practice by the Allied Powers, in reality, the US forces. They were the dissolution of the Zaibatsu, land reform, and legalized labor union activities.
- 3.
The standard analysis emphasizes that the Priority Production System became the new source of inflation. A Marxian economist expresses this view; however, the researcher does not evaluate the effect of the system in increasing production.
- 4.
The Economic Stabilization Board was founded in 1946. It exercised economic control over ministries and agencies during the reconstruction period.
- 5.
Dr. Shimomura (1974) commented that inflation could have been contained without the Dodge Line. J. Dodge, a conservative banker in Detroit, came to Japan when inflation began to level off.
References
Kosai, Y. (1981). The era of high growth. Tokyo: Nihon Hyoronsha (in Japanese).
Nakamura, T. (1981). The postwar Japanese economy. Tokyo: University of Tokyo Press.
Shimomura, O. (1947). Standard of living in relation to prices. In Study on the Japanese Economy. Yodaisha, June/July, 8–16 (in Japanese).
Shimomura, O. (1951). Economic fluctuation and multiplier analysis. Monthly Research Report, 40(3), 61–89; 40(5), 56–79; 40(7), 1–86. Ministry of Finance (in Japanese).
Shimomura, O. (1952). Economic fluctuation and multiplier analysis. Tokyo: Toyo Keizai Press (in Japanese).
Shimomura, O. (1974). Prices and inflation in the occupation period. In Ministry of Finance (Ed.), Financial News, No. 85, March 30. Tokyo: Ministry of Finance (in Japanese).
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Horiuchi, K., Otaki, M. (2017). Postwar Reconstruction. In: Dr. Osamu Shimomura's Legacy and the Postwar Japanese Economy . SpringerBriefs in Economics(). Springer, Singapore. https://doi.org/10.1007/978-981-10-5762-5_2
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DOI: https://doi.org/10.1007/978-981-10-5762-5_2
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