Nitpick - China war was not bankrupting Japan in the near-term

raharris1973

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I've seen this show up in numerous threads about the second Sino-Japanese War.

The idea that fiscal drain from the China war directly required Japan to conquer and steal the resources of Southeast Asia.

Every so often, a really great source is brought up that does a good job of illustrating the economic vulnerability of Japan in this era. That is Edward S. Miller's Bankrupting the Enemy.

But one point that never gets cited from that book by anyone but me is a counter argument to the "Japan was soon going to be out of money" meme. In fact, Miller argues that US officials for a a long time had a view that the Japanese would run down their foreign exchange quickly and this would force them to terminate the China War without any severe U.S. economic sanctions.However, about a year before Pearl Harbor, US officials discovered the existence of a hoard of Japanese-owned dollars in the US that ended this hope, and that this ultimately strengthened the argument for broad economic sanctions of Japan and the freezing of her assets in the United States.

As he mentions, early US projections from 1937 predicted Japan would run out of dollars in 1939
Projections from 1939 predicted the Japanese would run out of dollars in 1940. In 1940 there was a prediction that Japan would run out of dollars by August 1941.

After the hidden dollar hoard was discovered (December 1940), US estimates drastically changed, with officials now estimating Japan would not run down its reserves till 1944 or 1948. This meant that when the U.S. decided to tighten the economic screws on Japan, a freezing of Japanese assets was needed. Japan needed to be shown "your money is no good here" precisely because it still had relevant and useful amounts of US dollars. Otherwise the US needn't have bothered with the dollar freeze and its policy wishes would have been achieved without any such drastic step.
 
Frankly, I would say people are really underestimating Japanese financial capabilities of the time. Sure, they bingled things during the depression with the gold standard and such, but Japan always had access to gold and other collateral that could be used as long as trade was not restricted.

Basically, money was not a issue with continuing the war in China if Japan was unrestricted. The problem would be whether the manpower or politics can handle a never-ending quagmire.
 

raharris1973

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Japan always had access to gold and other collateral that could be used as long as trade was not restricted.

The other thing apparent in "Bankrupting the Enemy" is that 1. Japan had a lot of gold and 2. It's gold, when not convertible into dollars, was useless for long distance trade transactions.
 
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