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Michael Schiltz, The Money Doctors from Japan: Finance, Imperialism, and the Building of the Yen Bloc, 1895–1937

Aaron William Moore
p. 111-115
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Michael Schiltz, The Money Doctors from Japan: Finance, Imperialism, and the Building of the Yen Bloc, 1895–1937,Cambridge, MA: Harvard University Asia Center, 2012, 290 pages, ISBN: 978-0674062498

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Crédits : Harvard University Asia Center

1The provocative main argument in this recent volume of economic history has gained new currency following the financial crisis: namely, that economic policy is often a deeply political endeavour. For some, this position constitutes preaching to the choir, but there are still plenty of economists, historians, and members of the public who believe in the apolitical, scientific, and ‘free’ nature of capitalism and its markets. Michael Schlitz shows how Japanese leaders, in engineering the country’s membership in an elite group of nations that occupied the commanding heights of the global economy, achieved this through the domination of Asian financial markets, becoming a predominant lender in Korea, Taiwan, northern China, and, for a brief time, Southeast Asia as well. Because this is such a dense volume, I think it will be useful to provide a brief summary of the monograph’s contents.

2The first chapter investigates the empire’s first stab at creating a coherent monetary policy in the early colonial possession of Taiwan. Schiltz rightly points out that this came quickly on the heels of Japan’s efforts at deflation under the controversial Finance Minister Matsukata Masayoshi (1882-1885), who endeavoured to put the country on the gold standard in order to facilitate loans and trade with Western powers. So, while the acquisition of a colony enhanced the nation’s ‘civilised’ appearance, it came at a bad time for the cash-strapped Meiji government. In order to regularize credit in a relatively undeveloped island, the Japanese government had to tame several indigenous Chinese credit institutions, such as the qianzhang moneylenders who were operating as ‘proto-banks’ much like the great merchant houses of Osaka before 1868 (see Toby, 1991). As usual, the risk-averse business community was not capable of planning investments beyond a few years, so the state intervened in the form of the intriguing colonial figure Gotō Shinpei, who spear-headed the establishment of a Bank of Taiwan that was subordinate to Japan’s Finance Ministry. Unfortunately, Taiwan’s largely silver-based economy would be incompatible with Japan’s gold standard ambitions, and this heavily-criticised dual monetary system flourished after 1898, which unsurprisingly fuelled chaotic and unscrupulous currency speculation. The surge in global demand for silver, aided in part by the need for it to pay for services on the Chinese mainland during the Russo-Japanese War, fortuitously abetted a silver buy-back scheme in Taiwan, placing the island on the gold standard, subordinate to the Bank of Japan, by 1906. Under the aegis of monetary reform, then, the Taiwanese economy—particularly the issuance of credit—was made entirely subject to the needs and restrictions of Japan.

3Chapter 2 analyses the ‘opening’ of Korea by Japan following the 1876 Treaty of Ganghwa, which was modelled on the ‘unequal treaties’ forced on Japan by foreign powers during the 1850s. First, Japanese traders were able to use subsidiary copper coins to buy Korean copper currency at the price of bullion, which created a massive depletion of the domestic money supply on the peninsula. Shibusawa Eiichi, one of Meiji Japan’s great entrepreneurs, quickly established a series of credit institutions and remittance offices in Korean ports, leading to the Japanese financial dominance of the peninsula by the mid-1890s (71). As Peter Duus pointed out (Duus, 1998), however, Chinese merchants were successfully competing with the Japanese petty traders that formed Shibusawa’s customer base and, once again, currency speculation vexed Japanese financiers. In order to ensure political instability and head-off the potential for foreign financiers to invade the market, the Meiji state engaged in a limited war with the Qing Dynasty in 1894, and then again with Russia in 1905. Megata Tanetarō, a former director of the Tax Bureau, oversaw the elimination of competing currencies (through redemption) and lenders within Korea at this time, as Gotō Shinpei had done in Taiwan. Indigenous Korean attempts to establish a central bank were thwarted in part due to Japanese financiers’ widespread purchase of gold dust and silver. Again, as Peter Duus and Schiltz have shown, these acts was not driven by an over-abundance of goods and capital desperate to be exported—in this case, business was following the flag. With the establishment of a Bank of Korea (later Chōsen) in 1906, which was subordinate to the BOJ, it became the lender of the last resort for any financial institution that invested in Korean enterprises, as well as dominating currency exchange. By 1910, Korea ceased to exist as a nation, although, citing Carter Eckert, Schiltz points out that the Korean bourgeoisie were more than happy to collaborate with a system that provided them with financial security (116).

4Chapters 3 and 4 are, in my view, the most interesting, because they examine the period in which Japan began to expand aggressively on the Chinese mainland, but this time the process was driven as much by bankers and businessmen as it was by the state. John Dower (1988, 85) argued that Japan was divided into ‘go fast’ and ‘go slow’ imperialists, and that domestic opposition to the expansion of Japanese hegemony was ineffective. Schlitz agrees, as this was an argument that corroborated much of what we already knew about the curious ideological union of capitalism, democracy, and imperial expansion among even liberal politicians such as Katō Takaaki (Kōmei); it was also true that anti-colonial pan-Asianism and Japanese expansionism, under the guise of economic development, were not mutually exclusive, which Schiltz shows in his chapter on the infamous Nishihara Loans. Nishihara Kamezō insisted that Japanese-led development of China (through loans and dominance of currency) and regional economic independence ‘was the only method of overcoming Japan’s financial inferiority to the Western powers’ (141). Readers unfamiliar with this seemingly hypocritical view of Japan’s relationship with its Asian neighbours may wish to review Sven Saaler’s extensive work on pan-Asianism and its many articulations (Saaler and Koschmann, 2007; Saaler and Szpilman, 2011).

5Nevertheless, until the 1931 invasion of Manchuria, Japan had largely distinguished itself as a team player by partnering with Western powers to advance sundry goals whenever their interests aligned. Most of the Meiji (1868-1912) leadership chose to operate within an Anglo-American system, although considering the (albeit fleeting) alliances with Germany, Russia, and France, Schlitz may have slightly over-emphasized the former powers’ ‘framework.’ What we are truly considering is the early twentieth century global financial system, in which American and British banks happened to be the most powerful. In any event, the threat of rising American power in the Asia-Pacific region divided Japanese leaders’ views: was the best method of establishing Japanese security in East Asia going to be maintaining credit with Western banks and governments or creating some alternative system?

6What Schiltz’s book does particularly well is repeatedly emphasize the lack of unity in Japanese financial circles when facing this dilemma in China. The argument over security featured fierce competition over the direction of foreign policy both political and economic (again, these prove difficult to impossible to disentangle). Although I am over-simplifying Schiltz’s book, this division often erupted in debates over uses of gold and silver-backed currencies, as well as the gold standard itself, involving figures who had cut their teeth in colonial Taiwan and Korea, but also entrepreneurs experienced in the complexities of doing business with the Chinese. Up to the 1930s, Japan frequently found itself in a confused position, negotiating critical loans from countries that had embraced the gold standard while expanding into regional economies that relied on silver. This conflict in turn reflected the division within Japan over regional autarky (or “bloc-ism”) and working with the foreign global financial system, but it also divided banks against each other, such as the South Manchurian Railway Company and the Yokohama Specie Bank (see pages 169-171). In asserting its economic interests in China, the Japanese Empire had to tame corrupt local officials, enforce a coherent monetary policy, eliminate the influence of middlemen in agricultural markets, and many other tasks that eventually required the intervention of a strong state apparatus. In this respect, the evolution of imperialism from economic expansion is not too difficult to see.

7The book possibly does not do enough justice to the influence of those outside the financial world in pushing foreign policy. Schlitz does mention in passing the importance of strategic thinking in, for example, Korea; he also frequently notes the importance of Nazi Germany’s example, although it arguably came too late to exercise serious influence over the course of events in East Asia. As Michael Barnhardt shows in Japan Prepares for Total War (1988), the inspiration for economic autarky may have been the Soviet Union. Schlitz also downplays anti-communism (221) as a factor in the thinking of Japan’s financiers based on their records, but that is to be expected: containment of the Soviet Union and socialism was the purview of the Special Higher Police and the armed forces, not bankers. There was a very large gulf indeed between the expansionary tactics imagined by Schiltz’s ambitious financiers and the military dreamers described by Mark Peattie (1975). This led to frequent, and violent, disruptions in domestic politics, culminating in the assassination of Takahashi Korekiyo in 1936 (for further detail, see Richard Smethurst’s new biography). In any case, the book in some ways is limited by the relative absence of the planners outside of the world of global finance, but this is not what is most relevant to Schiltz’s tale. By the end of the book, Schiltz hints at the monumental changes already emerging in Japanese-controlled northeastern China, wherein “five year plans” and taming capitalism to serve the state took overcame the need to balance payments or establish a coherent monetary policy. As his book shows well, however, we should absolutely not read ‘Japanese fascism’ or the ‘Greater East Asia Co-Prosperity Sphere’ back into the earlier expansion of the empire. While not comprehensive in its approach, Schiltz provides us with a compelling view of how financial growth and dominance of lending markets related to the subjugation of Japan’s neighbours and the eventual erosion of their sovereignty to serve Japan. What does that mean, he asks at the beginning and the end of the book, for institutions such as the IMF?

8Doubtless some will find the book difficult to get through, given Schiltz’s exhaustive examination of the period’s financial figures and institutions. Conversely, many specialists of economic history may find the context fairly alien, given that its action takes place entirely in East Asia. Nevertheless, I recommend both to endure. Mark Metzler’s Lever of Empire (2006) also examined these issues, so the two monographs should be read together. Schiltz’s study of how global economic structures facilitated expansionism is a serious challenge to any reader who believes that markets can realistically be free or separable from political ambition. In the context of naked imperialism this is thankfully easy to see, but it may also be a good start to discuss the ramifications of the 2008 global financial crisis as well.

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Barnhardt, Michael. 1988. Japan Prepares for Total War. Ithaca: Cornell University Press.

Dower, John W. 1988. Empire and Aftermath: Yoshida Shigeru and the Japanese Experience, 1878-1954. Cambridge, MA: Harvard East Asian Monographs 84.

Duus, Peter. 1998. The Abacus and the Sword: The Japanese Penetration of Korea. Berkeley, CA: University of California Press.

Metzler, Mark. 2006. Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan. Berkeley, CA: University of California Press.

Peattie, Mark R. 1975. Ishiwara Kanji and Japan’s Confrontation with the West. Princeton, NJ: Princeton University Press.

Saaler, Sven and J. Victor Koschmann. 2007. Pan-Asianism in Modern Japanese History. London: Routledge.

Saaler, Sven and Christopher W.A. Szpilman. 2011. Pan-Asianism: A Documentary History, v. 1 and 2. London: Rowman & Littlefield.

Smethurst, Richard. 2009. From Foot Soldier to Finance Minister: Takahashi Korekiyo, Japan’s Keynes. Cambridge, MA: Harvard University Asia Center.

Toby, Ronald. 1991. Both a Borrower and a Lender Be: From Village Moneylender to Rural Banker in the Tempō Era. Monumenta Nipponica, 46(4): 483-512.

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Aaron William Moore, « Michael Schiltz, The Money Doctors from Japan: Finance, Imperialism, and the Building of the Yen Bloc, 1895–1937 »Œconomia, 4-1 | 2014, 111-115.

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Aaron William Moore, « Michael Schiltz, The Money Doctors from Japan: Finance, Imperialism, and the Building of the Yen Bloc, 1895–1937 »Œconomia [En ligne], 4-1 | 2014, mis en ligne le 01 mars 2014, consulté le 19 octobre 2021. URL : ; DOI :

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Aaron William Moore

Department of History, University of Manchester.

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