Season 15, Episode 2: The Great Crash
In the previous episode, we discussed how the forces of reaction and repression in Japan planned to roll back as many of the social gains of the so-called period of “Taisho Democracy” as they possibly could. Even they probably didn’t think their big opportunity would present itself so soon.
Let’s talk about banks. While most listeners are probably aware of the great financial crash of 1929 in the United States which triggered The Great Depression, a less-famous financial crisis preceded it by two years in Japan. After the Great Kanto Earthquake of 1923, Japan’s economy nearly crashed completely when many overextended banks were facing more red than black in their ledgers. The government intervened, issuing earthquake bonds to troubled institutions, which were essentially short-term loans which would come due in four years. When January of 1927 rolled around, rumors flew that the banks which had relied on these loans to maintain their solvency would go bankrupt upon that repayment. Large numbers of depositors, worried that their accounts would be liquidated if the bank fell into insolvency, panicked and withdrew their money, leading to massive runs on banks across the nation.
Of particular note among the gaggle of imperilled financial institutions was an organization known as “The Fifteenth Bank.” At the time of its establishment in 1877 in Tokyo, the Fifteenth Bank was the largest of its kind, having been established by a cluster of high-ranking nobility including well-known surnames like “Tokugawa.” This inspired the populace to nickname the organization “The Kazoku Bank.” Its starting capital alone accounted for nearly half of the capital controlled by all national banks combined and it frequently floated loans to the government.
Obviously a lot had changed in the fifty-year period between 1877 and 1927, but the Fifteenth Bank still loomed large in the public imagination as the most financially secure of all the national banks. In April of 1927, in the midst of insolvency rumors which were not helped by rather large withdrawals from some of the bank’s more influential shareholders, the Fifteenth Bank experienced its own run as depositors crowded its doors in desperation to withdraw their hard-earned cash. On April 21, the Fifteenth Bank ordered a three-day closure following the run. The institution would be re-organized by the end of the year and any deposits under 100 yen would be honored in full by the government. Larger depositors would have to be content with partial repayment.
There were, of course, many national banks besides the Fifteenth Bank, but its failure in the face of this crisis is a good illustration of the larger crisis and of many crises to come. If the Kazoku Bank - an institution with which many of the wealthiest and most influential magnates in all of the empire trusted their belongings - could fail, then any bank might suffer the same fate.
The prime minister who oversaw the beginning of this massive crisis was Wakatsuki Reijiro, a former Minister of Home Affairs who inherited the Premiership from the late Kato Takaaki. Like his late predecessor, Reijiro was a liberal who helped ensure passage of the Universal Manhood Suffrage Law of 1925. The solution which he conceived for dealing with the Showa Financial Crisis was an extension of the existing earthquake loans, which would, theoretically, give the banks some more breathing room and remove the threat of insolvency, calming the public and convincing them to leave their deposits where they were. However, he did not have the authority to decree this action on his own and needed the support of the Privy Council.
By this point in Japanese history, the Privy Council was indistinguishable from nearly any other conservative “old boys club,” save for the fact that they held regular audiences with the emperor and exercised considerable influence over him. The Privy Council opposed Wakatsuki Reijiro’s extension, causing the diet to become deadlocked while the crisis continued to deteriorate. This was hardly a principled stand against extending loan deadlines, but was rather an opportunity for the conservative Privy Council to get rid of the liberal government which, as far as they were concerned, risked going much too far with its ongoing reforms. Wakatsuki Reijiro resigned in April of 1927.
To replace the liberal prime minister, the Privy Council streamlined the installation of a premier who was far more in step with their conservative leanings. Retired army officer and heavily decorated veteran of the Russo-Japanese War Tanaka Giichi fit the bill perfectly. In addition to being a Baron in Kazoku peerage, he had served recently as president of the conservative Seiyukai party and hated communism. His proposal, which was fast-tracked for approval, was a three-week bank holiday during which time applications for emergency loans would be reviewed and, where appropriate, approved.
While the banking system was preserved by Giichi’s policy, this was a hollow accomplishment in terms of real results. Smaller banks, which by their nature possessed less collateral and were considered risky borrowers, were largely denied the emergency loans they needed to preserve their solvency. This meant they would have to look elsewhere for relief and, as a result, a large majority of independent banks were purchased for a song by the larger financial institutions. In the ensuing consolidation, most of the capital in Japan afterward fell under the control of the financial wings of large zaibatsu conglomerates.
The effects of the Showa financial crisis were exceedingly severe. The initial runs on the banks completely bankrupted thirty-seven banking organizations nationwide. People lost their life savings. And public faith in the elites, who were supposed to prevent such events from occurring or at least mitigate them after they began, was at an all time low. That being said, not everyone in Japan engaged in banking at this time in the way that much of the nation does today. Those who kept their cash stashed under their mattresses lost nothing, and while the economy took a dip from this crisis, it was a far cry from what was about to happen in a few years. All things considered, it was the perfect time for Japan’s first general election under the Universal Manhood Suffrage Law.
Conservative leaders nationwide looked to the election of 1928 with great fear and trepidation. Would the people choose the radical parties that even now campaigned for their votes and seemed to be gaining traction? Would this event be remembered as the beginning of Japan’s own communist takeover, in which their own home-grown Lenin would lead the Bolsheviks of Japan to destroy the Privy Council and ransack the Imperial Palace? Well, not quite. In truth, the results of the election of 1928 was a far cry from even a moderate liberal takeover of the lower house, much less a full-fledged February Revolution. It was, however, far from a rout for Seiyukai.
Kenseikai and Seiyu Honto, two political parties who had been rivaled with Seiyukai, merged in 1927 to form a new party called “Minseito,” or the “Constitutional Democratic Party.” Minseito won a massive swath in the 1928 election for a grand total of 216 out of 466 seats. However, Seiyukai won 217, just edging their new rivals out of a majority. The remaining seats were picked up by smaller parties, some of which were ultraconservative and several of which were openly socialist.
Rodonominto, or the “Labor-Farmer Party” won two seats advocating a platform of land reform, resource redistribution, lowering the voting age to 20, women’s rights, progressive taxation, and greater protections for collective bargaining and union organizing. They were not subtle about appealing to the proletarian masses, as their signage usually featured factory workers or farmers and included slogans like, “Give us Land and Freedom!”
There had been significant disruption of their electioneering prior to the vote, with their meetings frequently being interrupted by police raids and many of their campaign workers suffering arbitrary arrest. However, the persecution which far-left parties endured in the course of the campaign was a far cry from the reaction which their moderate gains inspired once that election had ended. Prime Minister Tanaka Giichi had maintained a slim majority over the lower house of the diet, thus preserving his office for the moment. Soon after the February elections, he invoked parts of the Peace Preservation Law which allowed the authorities to engage in mass arrests of communists, socialists, and their many sympathizers.
During what came to be called the March 15 Incident, named for the day it occurred, more than one thousand six hundred people were arrested under the provisions of the Peace Preservation Law. While many were later released uncharged due to lack of actual evidence, around five hundred were charged in public trials in June of 1932. During the four years between arrest and trial, the government prosecutors had not been idle. The Tokko uncovered secret communications between the Japanese Communist Party, or JCP, and the Communist International Congress, or Comintern. While the JCP had already been banned as a political party, many of their members still operated in secret and had assisted many of the new proletarian parties like the Labor-Farmer Party.
You may remember we discussed the Comintern last season, especially how the organization had been appropriated by the Soviet Union and began functioning under guidance from its officials. We will discuss the Soviet Union’s progress later this season but for now it suffices to say that the Comintern was somewhat reckless with the lives of those overseas communists and socialists who came to them for guidance and assistance.
The involvement of the Soviet Union was enough, in the minds of most Japanese spectators, to condemn those who had been brought to trial for violating the Peace Preservation Laws. Regardless of any leftist political sympathies the Japanese public nurtured, Russia was still considered a rival and a potential future enemy in a war. Part of the justification for keeping a garrison of Japanese soldiers in Northeast China at that moment was fear of a Russian war of revenge motivated by a desire to reverse Japan’s victory in the Russo-Japanese War decades before.
As a result of the trials, the government officially dissolved the Labor-Farmer Party as well as the Japanese Council of Labor Unions which had also been caught in the state’s net. All of the five-hundredish who were brought to trial were found guilty and given harsh sentences but the court decided to make a special allowance for a certain subset of the convicted. Those who publicly renounced communist ideology were given more lenient sentences or, in many cases, pardoned outright.
The defections and renouncements make a lot more sense when considering how Prime Minister Tanaka Giichi had taken advantage of the situation in 1928. The election of proletarian parties, regardless of the negligible number of parliamentary seats, was so terrifying for the conservatives in the diet and their allies that they enacted legislation to strengthen the Peace Preservation Law. Previously, the maximum sentence allowed as penalty for its violation was ten years; the new legislation allowed for violators to receive the death sentence. This escalation of punishment marks the beginning of a trend in Imperial Japanese law enforcement which was called “Tenko,” which literally translates to “changing direction.”
Tenko amounted to increasing coercive measures against communists, socialists, leftists, and other enemies of Japan’s Kokutai in hopes of gaining exactly the renouncements which they achieved in 1932. Of those who chose to renounce communism during that period were two fairly prominent leaders of the JCP, whose defections caused chaos to spread through the ranks of their underground organization. While the danger of being sentenced to death for the crime of exploring leftist ideology was a considerable deterrent, the practices of Tenko soon expanded beyond the courtroom and outside the scope of judicial affairs.
After the trials in 1932, Police, especially the Tokko, began regularly inflicting a variety of punishments against accused communists and leftists, usually but not always amounting to physical torture. In fact, these pre-trial punishments became the primary means of enforcing the Peace Preservation Law, and few cases ever actually made it to trial before the accused either recanted their ideology or was killed by overly enthusiastic members of law enforcement.
The backdrop for much of this leftist repression was the continued economic slump caused by the Showa Financial Crisis of 1927. That slump transformed quickly into an undeniable economic crash beginning on October 24, 1929, when the New York Stock Exchange experienced a sharp downturn in the values of its stocks. Exact causes of the Wall Street Crash of 1929 are still debated and will probably never be understood in an exhaustive sense, but a large amount of blame appears to lie with speculators who were buying large quantities of stocks on credit. The post-war economy in the United States had been extremely good, and is part of why the 20s are frequently referred to in US History books as the “roaring 20s.” Stocks continued to climb throughout that decade, leading investors to gradually believe that stock prices would continue increasing indefinitely.
There had been a few warning signs of the imminent disaster earlier that year. Prices took a slight dip back in March after the Federal Reserve report warned about the excessive speculation which was inflating prices in the nearly-unregulated stock market. However, some of the larger banks increased their supply of available consumer credit to shore up stock values and ensure more participation in the market for everyday Americans. Throughout much of that year, however, production began to decline as demand in booming industries like automobile manufacture began to plateau.
In September, prices began to dip and panic started to cause a price decline. The following month, it appeared as though the tide had turned as some larger investors purposefully bought large lots of stocks at prices higher than their valuation, which did seem to stop the financial hemorrhage. However, on the following Tuesday, October 29, prices once again plummeted and over the next several years, that plummet would largely continue as an overall trend in spite of a few days here and there where prices went up. By 1932, the stock market had lost 90% of its value since October of 1929.
The effect worldwide was nothing short of economic devastation. While the study of economics in modern times can help guide nations through such fiscal crises with minimal disruption, economics was still in an extremely primitive state in the late 1920s and early thirties and, just as now, was often ignored if its advice offended the politics of those in power. Herbert Hoover and the Republican-controlled congress of his day famously responded to the outset of the stock market crash and subsequent depression by passing the Smoot-Hawley Tariff Act, which sought to shore up the domestic economy of the US by making imported goods more expensive and thus encouraging an increase in domestic manufacture. As anyone who has watched the 1986 film “Ferris Bueller’s Day Off” should be able to tell you, the Smoot-Hawley Act did not work and in fact caused the depression to get even worse.
In truth, very few national leaders in the late 20s and early 30s understood the first thing about the application of economics and many of them were doing the political equivalent of flipping various switches and hoping that one of them turned the power back on. There was also no single universal solution to this crisis which every country had available. Nations which had abandoned the gold standard seem to have recovered sooner than nations which had not possibly because they had greater control over their own currency valuation. Japan was one of those nations which had left the gold standard behind and was thus poised, in spite of its own recent fiscal missteps, to bring the crisis to an end sooner and return to a growth economy. However, rather than trying various currency devaluing measures and increasing domestic spending on infrastructure to reduce unemployment, the Japanese government instead re-adopted the gold standard and also chose the path of austerity - a fancy word which means reducing government spending in nearly all sectors.
Demand for Japanese exports dropped, which led to mass unemployment and bankruptcy for many households both rural and urban. Economic malaise turned to indignant frustration as the government floundered to find an appropriate response. The dream of Fukoku Kyohei, a rich country with a strong army, seemed to be fading away before their eyes. In the face of their own potential budget cuts, elements within the Japanese military would seek new justifications for increased funding. We’ll discuss some of their ensuing adventures in the next episode.
The Great Depression was well underway and, in many ways, its fallout would come to define much of the remainder of the twentieth century. Germany, now in its “Weimar Republic” period, would endure a massive banking crisis which would lead to social and political upheaval which helped pave the way for certain radical elements to take power who would eventually lead that nation into utter ruin. As for Japan, what began as a crisis for the capitalists and the petit-bourgeois would soon result in severe contraction for the rest of their economy which likewise had particularly negative results. Next time, we will discuss the particulars of how the Great Depression affected Japan’s rural population and how this led to the radicalization of a significant portion of the Imperial Japanese Army’s officer corps, who would look to expansion in northeast China and beyond as the answer to this pressing economic problem.