Mark Metzler has been in the forefront of moves to treat Japan’s economic history not as a unique curiosity explicable only to specialists, but rather as an analytically important element in global processes of change. He is also an original, challenging and stylish writer and his work can profitably and enjoyably be approached by readers beyond the particular bounds of Japanese history. In this book, he follows up his fascinating account of Japan’s experience of the gold standard in the interwar years (Lever of Empire, 2006) with a rather different kind of study examining the theoretical underpinnings and practical development of the policy framework within which Japan’s post-World War II “economic miracle” occurred. By this means, he is able to make the far-reaching argument that an elite group of Japanese academics and officials pioneered the form of credit-driven industrial growth that has transformed major parts of the world economy in which we now live.
As his headline-grabbing title suggests, Metzler assigns a key role in his argument to the now-neglected theories of the Austrian economic thinker Joseph Schumpeter. In Schumpeter’s model, economies develop through technology-driven cycles of investment (together with “creative destruction”), which are funded not by prior savings, but by means of the creation of credit-money in a process very different from that envisaged in the kinds of neoclassical approaches that have dominated economic thinking in more recent times. Metzler shows how key Japanese economists and officials took Schumpeter’s thinking on board during periods of study in interwar Germany. On this basis, as they adapted wartime economic experience and institutions to the realities of the shattered postwar economy and the occupation, they proceeded to develop a system of “capitalist planning” whereby credit creation within the banking system was used to fund industrial investment under the direction of the economic bureaucracy. The later chapters of the book then detail the political and administrative mechanisms of the “modified capitalism” under which Schumpeterian bureaucrats used the allocation of bank credit, via the Bank of Japan, to promote and manage the surge in competitive business investment that powered the miracle. The result, Metzler argues, was that Japan became the foremost proponent of a form of planned, finance-driven capitalism, the diffusion of which has produced a “new epoch in world industrial history” (p. 173).
Metzler’s approach to writing his history is unconventional, and he perhaps indulges himself more than is necessary in the kind of philosophic musing his title suggests. The idea that money is a human creation that works only because we believe in it (hence “will and imagination”) hardly shocks economists. In fact, the early theoretical stages of the book took me back to my undergraduate economics days spent trying to understand what “capital,” “value,” and the nature of money might be, and will not say anything particularly new to economists (at least of a certain age), though they might be useful (if difficult) for historians of Japan. Equally, some aspects of the story Metzler tells are already quite familiar from existing work on the Japanese economy; this book might usefully be read alongside both Metzler’s own study of the prewar period and, for example, Scott O’Bryan’s The Growth Idea (2009) on the policy background to the postwar miracle, not to mention Chalmers Johnson’s MITI and the Japanese Miracle (1982) and the large body of literature that it generated. Nonetheless, Metzler’s genius is to bring everything together within a distinctive theoretical framework that enables him to make his provocative and original case for the significance of Japan’s economic history as revealing fundamental features of the way capitalism has come to work in much of the contemporary world.
For economic historians of Japan, Metzler’s argument, while fitting in with the new emphasis on the prewar and wartime origins of much of the institutional structure of postwar growth, goes against the current tendency to downgrade the role of the state in Japan’s development, suggesting, as it does, that if we start from the monetary side of things, the government was central to the creation and allocation of investment resources, as it had been, in somewhat different ways, during the war economy and possibly earlier (for instance during the Meiji period). At the same time, “purer” economists than Metzler may well not be happy with a story told largely as institutional and policy history, rather than as an analysis of the underlying economic forces making for growth and cycles. The Schumpeterian framework seeks to unite the two and does make for a more absorbing and personalized form of economic history, but it would certainly be possible to counter that the creation of credit-money through the Bank of Japan system facilitated but did not cause high-speed growth, which has to be explained via other processes (perhaps Schumpeterian cycles of innovation, but there are many other contenders).
In fact, the principle that investment comes first and savings follow is Keynesian as much as Schumpeterian. Substantial research suggests that it was the eagerness of Japanese firms to invest, given their incentives and institutional structures, that was the fundamental driving force behind the miracle. What Metzler seeks to show is how Japanese officials, under Schumpeter’s influence, consciously encouraged and managed this process, but neither he nor the officials keen to take the credit for the miracle really consider the factors behind the demand for the bank money pumped into the system, and recent experience (e.g., of quantitative easing, which Japan also pioneered) suggests that who gets this money, and what they choose to do with it, is what really matters in determining whether the result is an investment-driven economic miracle or an inflationary financial bubble. However, understanding of the role of credit finance in the unprecedented and global industrial growth of the second half of the twentieth century is certainly advanced by knowledge of the Japanese case, as is appreciation of its tendency toward bubbles and to the restructuring that their eventual collapse induces. After all, Japan was also in the forefront of the process whereby “what ended up being conserved and protected politically was the bankrupt core of the banking system” (p. 220).
Thus, although Metzler perhaps does not have anything particularly new to add to the already large body of literature on Japanese corporate and state institutions and their operation, what his striking Schumpeterian line makes possible is the presentation of Japan’s recent economic history within a comparative structure of forms of capitalism, which throws light not just on the Japanese case, but also on the others. The theories of economics apply to Japan, too, but we have perhaps missed the fact that different theories seem to work better for Japan than those that we habitually apply to most capitalist economies. Given that, in some respects at least, Japan appears to have led where the rest later followed (for example, in overcoming the interwar Great Depression by “Keynesian” means and much later in experiencing property and financial bubbles followed by protracted stagnation), this ought to give us pause for thought. “Learning from Japan” might apply to the fundamental ways in which modern capitalist economies operate at the macro and monetary levels, rather than simply to surface matters such as management practice. For this point alone, as well as for a wealth of other interesting insights, Metzler’s book should be widely read.
