Revival of an oldie but goodie discussion - role of embargo in Japan's decision 4 war

raharris1973

Gone Fishin'
Donor
Monthly Donor
One of the things I learned in several discussions on SHWI was that
the realities of the Japanese economy in 1941 were more complex than
"Japan needs oil, US embargoes oil, Japan fights America to grab oil.
Several contributors, most notably Doug Muir pointed out the Japanese
reliance on coal vice oil for civilian purposes.

http://groups.google.com/group/soc.history.what-if/msg/565379de8cd055...
http://groups.google.com/group/soc.history.what-if/msg/4b17aa3b2b113a...
http://groups.google.com/group/soc.history.what-if/browse_thread/thre...
http://groups.google.com/group/soc.history.what-if/msg/e75a4ee63913b2...


However, a new book by Edward S. Miller adds some additional layering
to the whole issue. Miller does point out some ill effects of an oil
embargo and oil depletion on civilian activities like deep-sea
fishing, but his prime point was that it was not so much an American
*trade* embargo of raw materials as much as *financial* embargo on
dollar transactions that threatened to beat down and hold down
Japanese living standards.


What's remarkable about Miller's book is how it shows how "unipolar"
American financial power was in 1941. While in in 1941, military
power was far more evenly distributed among the great powers than it
is today, America had a vast advantage in the means of exchange; the
dollar freeze amid the circumstances of global war put a stranglehold
on Japanese transactions even with third parties. 2011 appears to be
a mirror image reversal of this situation, with the US possessing a
huge lead in military matters, but a much more balanced situation
prevailing in financial matters.


Here's key excerpts that illustrate the profound threat the US dollar
freeze posed to the Japanese civil standard of living:


Edward S. Miller, “Bankrupting the Enemy: The U.S. Financial Siege of
Japan before Pearl Harbor”


Chapter 18: Calamity- The Economy Under Siege


Pp220-


Extraordinary as it may seem, no agency of the U.S. government
analyzed how the financial freeze would affect the Japanese economy
and people in their entirety. Neither before nor after 26 July 1941
did the administration attempt to forecast Japan’s national product,
national income, employment, standard of living, or health and
nutrition under (dollar) freeze conditions…


Pp 221 Neither, it seems, did Japanese military or civilian agencies
undertake a comprehensive analysis of their economy under the freeze
between 26 July and 7 December 1941…


Pp 226 –


The Wartime Study by the OSS and State Department


Whatever the reasons for inertia, there remains a tantalizing
counterfactual question. What might a US analyst have deduced about
Japanese economic life if one had forged a comprehensive evaluation of
a long-term freeze? Fortunately, a proxy can be found in the files of
the National Archives, an elaborately detailed, secret 519-page study,
“The Place of Foreign Trade in the Japanese Economy.” It was prepared
during World War II, entirely from prewar knowledge, by economists of
the US Office of Intelligence Coordination and Liaison (OCL), a joint
office of the Department of State and the Office of Strategic Services
(OSS) (fig. 2). The OSS, a wartime agency that organized and
coordinated US espionage and intelligence activities, headed by
William J. Donovan, first launched the project in 1943. In 1943 and
1944 it assembled data on Japanese trade from both published and
confidential sources and drew up preliminary analyses. The project
was completed under the direction of Arthur B. Hersey, a thirty-five
year-old economist and statistician born in China but educated at Yale
and Columbia Universities. Hersey, after postdoctoral work and a
stint teaching mathematics, had joined the staff of the National
Emergency Council, a New Deal agency that advised Roosevelt on labor
and economic recovery issues…In 1943 the OSS recruited him into its
Research and Analysis Branch for the study of Japanese foreign trade…
Although he completed his study in 1946 using some secret data from
the prewar years that the Japanese provided US occupation authorities,
his analysis and conclusions about foreign trade were based on open
sources for 1930 and 1936, and to a degree for 1938. Such information
was available in Washington in 1941. The study, declassified in
1948-50, is a unique document that plausibly suggests how American
economists might have quantified the deterioration of an economically
isolated Japan, if Japan had not resorted to war and if the freeze had
continued for a few years in the early 1940s.


Most relevant are Hersey’s scenarios of Japanese standards of living
in a hypothetical year “1950”—always enclosed in quotation marks—which
envisioned a defeated Japan almost recovered from physical war damage
but stripped of its colonies and conquests. (In 1943-1944 he could
not have foreseen the devastating firebombing attacks of 1945.) Japan
in “1950” would not be able to pay for vital imports due to a weak
economy, feeble exporting power, adverse “terms of trade” (relative
international prices), and, possibly, harsh restrictions of a peace
settlement. Although Hersey addressed a theoretical postwar date and
a far different world situation than that of the 1940s, he projected
conditions strikingly similar to those facing Japan in 1941, and
worsening if it had to endure years of the freeze without resorting to
war.


Hersey expected the “1950” foreign trade of Japan to resemble that of
the difficult 1930s. In the 1940s economists widely assumed that
Depression-like conditions would reemerge in the world after a brief
postwar boom. (US troops in the Pacific sang, “Golden Gate in ’48,
bread line in ’49.”) In both hypothetical eras, postwar “1950” and
the frozen early 1940s, Japan would remain an overcrowded, resource-
poor island nation that had to trade to maintain even a Spartan
standard of living, thus vulnerable to acute deprivation when trade
was hobbled for any reason. The adversities of the 1940s would be due
to isolation by potential enemies, and in “1950” to disadvantages in
reopened world markets, but the Japanese people would suffer similar
deprivation in both situations. Other American economists studying
the data available in 1941 would in all likelihood have arrived at
similar conclusions…


Pp229


P 233-


“A Probable Scenario, 1942-1943


Were Hersey’s calculations a valid analog for the fate of Japan under
a multi-year dollar freeze after 1941? Cases A and B probably
bracketed the agonies facing a nonbelligerent, financially frozen
Japan in the early 1940s. A more likely outcome was a middle scenario
proposed here, an interpolation to adjust differing circumstances of
the two hypothetical eras.


A relatively more favorable circumstance for Japan in 1942-1943 would
have been its unimpaired trade with the yen bloc—the colonies of
Korea, Taiwan, Manchukuo, the Mandated Islands, occupied parts of
China, French Indochina, and probably Thailand. In contrast, in
“1950,” the former yen territories would be independent and its former
members demanding hard currency for their goods. In the 1930s, the
yen bloc provided about 45 percent of all Japanese imports (29 percent
from Korea and Formosa, 14 percent from Manchukuo, Kwangtung
(peninsula?), and North China, and 1 or 2 percent from Indochina and
Thailand). It supplied most of Japan’s imported food, all of its
rubber and tin, some iron ore and alloying metals, and some cotton,
but only small quantities of fuels, ores, and metals, and almost no
manufactures. Yen bloc supplies were largely retained for consumption
in Japan rather than processed for reexport. For example, the
deliveries of Korea and Formosa typically consisted 70 percent of food
and fertilizer. A frozen Japan in the 1940s would have continued its
policy of paying them by delivering Japanese-produced articles such as
cement, coal, nitrogen fertilizer, and machinery; by investing yen
capital in public works and industries; and by transferring gold to
Thailand and probably Indochina.


Hersey did not break out retained imports received from the yen bloc.
If one assumes that Japan did not upgrade and reexport more than 10
percent of them in products such as refined flour and sugar or mixed
fertilizers, Japan might reasonably have obtained 60 to 65 percent of
its customary imports for consumers’ needs from the bloc. Yen bloc
rice and cereals, supplementing domestic agriculture, would have been
adequate, or nearly so, to maintain the nutrition of Japan’s
population at the 2,250 calories per person that prevailed in the late
1930s. (Hersey noted, however, that the climate had been unusually
good in the last prewar years so that a regression to normal farm
yields might squeeze food supplies.) On the other hand, the bloc
could supply only 32 percent of the phosphate and almost none of the
potash fertilizers normally imported by Japan. Sooner or later,
perhaps after two years as U.S. vulnerability studies observed,
slumping grain production in Japan would strain food supplies. Except
for sugar from Formosa and the Marianas Islands the diet would be less
varied than before the freeze and short of protein from a fishing
fleet deprived of oil, especially for deep-sea fishing which was both
the most productive and most fuel-dependent form of fishing.


The yen bloc could not have supplied Japan with other consumer needs.
It had almost no wool for sale. China consumed its rather small
cotton crop in its own textile mills. Except for scarce heavy-duty
work clothes, the Japanese would wear rayon, not the durable long-
strand variety from good foreign pulp, but short-staple spun rayon
from local trees, woven into flimsy textiles well known to fall apart
in Japan’s wet climate. (Silk would be available for blending, but
not in quantities to help much.) Leather for shoes and boots would be
unavailable; rubber from Indochina would substitute, at least for the
lowers. Luxuries would be scarce, perhaps a bit of sugar and
tobacco. Gasoline and diesel motor vehicles would almost disappear
from Japanese roads.


On the other hand, the standard of living of a 1940s freeze era could
have been even worse than supposed for “1950” due to two other
circumstances. First, the economic drain of the war in China had
already caused dire shortages and rationing, made worse by the freeze.
(Logically the China war and a freeze went together; if Japan ended
the war the United States would have relaxed or ended the freeze.)
Second, the freezing orders rendered Japan’s gold production and gold
reserves worthless internationally. Hersey assumed postwar gold and
silver mining at only half the 1930s volume due to equipment shortages
and loss of colonial mines, but after the war Japan could expect to
freely sell its output for hard currency.


Hersey thought the “invisible” elements of Japan’s balance of payments
would be negligible in “1950,” but the same would have been true in
the frozen 1940s. The freeze halted hard-currency earnings from
shipping; revenues could not have been recovered much by “1950,” so
soon after a war in which 80 percent of Japan’s merchant marine was
sunk. The freeze also terminated earnings from Japan’s overseas
investments that were seized by its enemies, a result not much
different from the “1950” scenarios because the investments were not
returned after the war. Similarly, outgoing interest payments on
Japanese foreign loans ceased at the end of 1941, when blocked dollars
in New York ran out, and postwar Japan could not have afforded to
resume payments until long after “1950.” In neither era would Japan
have had access to foreign loans, in the 1940s due to the freeze and
afterward, Hersey thought, due to lack of creditworthiness. (He did
not foresee postwar aid from the United States.) The Bank of Japan’s
gold reserves in its vaults were still large in 1941 but useless
during the freeze. Hersey imagined they might still be unavailable in
“1950” because they would be sequestered by the Allied authorities for
restitution or occupation costs. A small exception, “compassionate
remittances” from overseas Japanese settlers, halted by the freeze
would help a bit in “1950.”


The picture that emerges of the Japanese under a freeze, circa
1942-43, is of people with an adequate diet high in starches but
deficient in other food groups, shabbily dressed as their wardrobes
wore out, and suffering the effects of cold and damp. Transportation
and utilities would be decaying. Depression-era unemployment would
probably have returned to the cities, and extreme hard times to the
villages. After a couple years of embargo, Japan might have matched
Case A in avoiding malnutrition, but with other aspects of life rolled
back to primitive levels approaching those of Case B. While not as
calamitous overall as Case B, a reduction of 35-40 percent of
customary imports for consumption per person would have been a serious
matter for Japan’s trade-dependent society. It would equate to a
rollback of the Japanese standard of living of about 15 to 20 percent
in broad terms. An apt comparison might have been to the most poverty-
stricken families in the most miserable regions of the United States
in the worst depths of the Great Depression, surviving but enduring
lives of grim deprivation with little hope of relief.”
 

raharris1973

Gone Fishin'
Donor
Monthly Donor
My apologies on the thread location

I was doing a few on both sides of the 1900 divide this morning, and got mixed up.
 
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