Cornell Studies in Money. Ithaca, NY: Cornell University Press, 2013. xvii, 295 pp. (Tables.) US$49.95, cloth. ISBN 978-0-8014-5179-9.
In his 2006 book Lever of Empire, Mark Metzler provided a masterful account of Japan’s efforts to cement its position in the late nineteenth-century gold standard and its subsequent struggle to return to the gold standard following World War I and into the 1930s. This book carries his interest in Japan’s financial policy to the 1940s and 1950s. He looks at key figures in Japanese immediate postwar economic policy, such as Okita Saburo (of the Economic Planning Agency), Ichimada Hisato (the long-serving governor of the Bank of Japan), Arisawa Hiromi (the architect of the Priority Planning System that sought to revive key industries after 1945), and Ishibashi Tanzan (an economic journalist who was briefly prime minister). Alongside them were policy makers in the US Occupation, particularly Joseph Dodge. Metzler uses the work of the economist Joseph Schumpeter as an overarching framework, arguing that a policy of “inflationary” finance underlay the phoenix-like ascent of Japan from the 1950s.
Using Schumpeter as a framework does not make that task easy. He was a powerful intellect of unbounded curiosity, a romantic who was interested in the forest and the trees—but did not build systematic theory and was fundamentally uninterested in policy. That made him fascinating as a lecturer and raconteur but meant that his influence on the later development of economics and of policy was minimal. He was aware of his failings, at least subconsciously. His personal library resides at Hitotsubashi University, and includes the most advanced mathematics treatises of his day but he used not a single equation in his writings. He was a founder of the Econometrics Society, pushing for the development of statistical data analysis; his own work includes none. Instead Schumpeter insisted on looking dispassionately at all sides of arguments, even arguing for the workability of the socialism that he personally despised.
By making Schumpeter central to his story, and insisting on casting his argument in Schumpeter’s terms, Metzler weights himself down with idiosyncratic jargon that dates to the 1912 Theory of Economic Development, and to early work on monetary economics and business cycles. Unfortunately much of the latter two either has turned out to be wrong (Schumpeter’s theory of business cycles was developed before Simon Kuznets and the development of modern national income accounting and the data it provides) or a dead end (Schumpeter’s capital theory is analogous to Marx’s effort to develop a labour theory of value). Instead it was his romantic vision of “creative destruction” that has had a continuing impact, reflected in studies of entrepreneurship and industrial organization. That however did not find a home until Robert Solow’s first formal growth model (1956), which provided a framework for distinguishing the role of capital accumulation from that of technical change, and in work in industrial organization on the role of firm exit and entry that only gained currency in the 1980s.
Metzler, however, latches onto Schumpeter’s term “money-capital.” That muddies his arguments throughout, and leads to many basic errors. For example, the book is riddled with places that confuse relative and absolute price changes (102, 112), and that confuse financial flows with flows of goods and services (202). He ends the book, for example, by talking about “deflation” stemming from manufacturing, where what Metzler really means (I think!) is that productivity in manufacturing increased faster than that in other sectors, leading to relative price falls (217). Given that the book focuses on the issue of inflation it is curious that he ignores the past century’s writing on that issue; Irving Fisher is mentioned only once in passing, Milton Friedman not at all.
He also provides a confusing picture of monetary policy. That is ironic on many counts. First, Metzler devotes much of a previous book to the interaction of central bank policy and the gold standard, and unlike here, in general translates those debates into modern terminology. One puzzle in this book is why there was no globally coordinated disinflation following World War II, as there had been in the 1920s. He attributes it to social learning (166) without realizing that the Bretton Woods system represented a decisive break with the gold standard which did not attempt to reconstruct global capital markets, which remained moribund until the 1970s. There was in practice no post-World War II analog to the gold standard. Second, he emphasizes throughout the book the use of an inflation tax to support economic development, which the data available today shows to be unimportant. Instead, in the early years government and corporate savings (retained earnings) were central, not “money-capital.” Again, Schumpeter suffered from a lack of data that allowed subsequent economists to pick apart the savings-investment nexus.
Third, he spends three of his eight core chapters (and much of his introduction and conclusion) on Schumpeter’s writings rather than those of the key Japanese actors. This contributes little to his overall project. Indeed, Metzler himself argues that the key actors—Ichimada at the BOJ, Ikeda and Ishibashi in government—were not disciples of Schumpeter. Yes, Schumpeter had more disciples in Japan than in the United States. However, Metzler fails to demonstrate that he had a decisive influence on policy, hardly surprising since Schumpeter himself wrote almost nothing on practical matters, consistent with his brief and undistinguished stint as the Austrian Minister of Finance in 1919. Nor does Metzler demonstrate that he was a teacher to more than a small subset of those Japanese involved in making policy.
In the end, while Metzler provides snippets of the fascinating policy scene in 1940s Japan, that is only about half of his book (chapters 5–7 and chapters 8–9). Even there he fails to illuminate the richness of the intellectual threads at play, from Keynes and the classicists to the German historical school and to Marx and even the Stalinist example of “big push” industrialization. If anything, his book makes the case that seat-of-the-pants empiricism rooted in the experience of individuals such as Ichimada and Ikeda was more important than high theory of any school.
Michael Smitka
Washington and Lee University, Lexington, USA
pp. 606-608