In a speech given two years ago, Chairman-elect Bernanke enthused that:
“Finance Minister Korekiyo Takahashi brilliantly rescued Japan from the Great Depression through reflationary policies in the early 1930s, while President Franklin D. Roosevelt’s reflationary monetary and banking policies did the same for the United States in 1933 and subsequent years. In both cases, the turnaround was amazingly rapid.”
We know all too well about FDR’s malign influence, but Takahashi is also well chosen as a role model for “Blackhawk” Ben.
Known as the “Japanese Keynes” (though perhaps Keynes was the English Takahashi!), he was once heard to muse that:-
“…the state was not something separate from the self. The state and the self were the same thing.”
Once in office, he abandoned gold; dramatically expanded fiat issuance; closed off capital flows; encouraged the central bank to monetize government debt directly and hence financed Japan’s growing militarism – an act only partly redeemed by his belated resistance to the latter which resulted in his 1936 assassination.
All of this may have brought a temporary reflationary boom – thus earning Bernanke’s breathless encomia – but it assuredly paved the way not only for Japan’s crushing defeat in war, but also for the disastrous hyperinflation of the 40s
In late 1929, well before the ‘paradox of thrift’ became the inflationists’ watch-word in the West, he wrote:-
“If someone goes to a geisha house and calls a geisha, eats luxurious food, and spends 2,000 yen, we disapprove morally. But if we analyze how that money is used, we find that the part that paid for food helps support the chef’s salary, and is used to pay for fish, meat, vegetables, and seasoning, or the costs of transporting it. The farmers, fishermen, and merchants who receive the money then buy clothes, food, and shelter. And the geisha uses the money she receives to buy food, clothes, cosmetics, and to pay taxes.”
“If this hypothetical man does not go to a geisha house and saves his 2,000 yen, bank deposits will grow, but the efficacy of his money will be lessened. But he goes to a geisha house and his money is transferred to the hands of farmers, artisans, and fishermen. It goes in turn to various other producers and works twenty or thirty times over. ”
“From the individual’s point of view, it would be good to save his 2,000 yen, but when seen from the vantage point of the national economy, because the money works twenty or thirty times over, spending is better.”
Not just a pre-emption of Keynes (and here we recall Hazlitt’s devastating verdict on the truth and originality of the “General Theory”) but it also sounds exactly like a fore-runner of Bernanke’s ludicrous “savings glut” hypothesis!
{ 8 comments }
Looking at economic statitistics like unemployment from 1933-1941, it is hard to reconcile the combination of the words “rescued” and “Roosevelt”.
Yancey is absolutely correct; the economic statistics of the 1930s clearly indicate that the U.S. economy never emerged from the Great Depression. This only happened with the military build-up that roughly began in 1940 that preceded FDR’s getting us involved in WW II. I hope Bernanke is just repeating the standard explanation for public consumption, and that he does not really believe it; but in his case, who knows.
Oh my, FDR did just a bang-up job of handling the Depression, which is naturally why it took another war to get us out of it…Bernanke’s starting to sound more than a little dangerous at the helm of the Fed
I wouldn’t say the war got us out of it. We were out of it at the end of the war but we would’ve been out sooner if we didn’t have to waste all those resources fighting the war.
I agree with Horatio. It is often claimed that WWII got us out of the Depression, but I don’t buy that argument. What really ended the Depression appears to have been the end of the war, the end of the worse aspects of the New Deal, and the final clearing of all of the bad debts built up in the 1920s.
Horatio wins the prize for the correct economic history lesson. The depression really did not end because of the war. It ended in a tech boom brough on by the use of some war gadgets by civillians, here is my list of those gadgets in order of impact:
1. Television.
2. Synthetic Materials
3. Improved telephone communication.
4. Improved production of automobiles.
The scary part here is that all the information that comes out on our new Fed Chairman really starts to scare you. The two depressions mentioned were exacerbated by loose monetary policy not helped.
The real scary part is that the biggest inflator Greenspan at least proclaimed in an earlier life some of the principals of Austrian economic thought prior to becoming Fed Chairman.
At least this new guy is consistent?
One aspect of the military build-up required by U.S. entry into WW II was that conscription “solved” the widespread and persistent unemployment problem that was a defining characteristic of the Great Depression. The major reason why unemployment remained so consistently high throughout the 1930s was due to the significant and unprecedented government interference into the labor markets; the government would not permit wage rates to drop to levels that would clear these markets. With conscription, an individual is forced to accept the wages established by the military, and these wages are notably lower than those available in non-military employment.
Comments on this entry are closed.