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Pearl Harbor and all that (partly off topic)

Quite a few libertarians of my acquaintance have trouble thinking straight about World War II in the Pacific. The recent anniversary of Pearl Harbor brings them out with their arguments that U.S. government provoked the Japanese government into starting the war. Let’s review the facts, with a complementary glance at Japanese colonial monetary arrangements.

Japan emerged as an international power with the Sino-Japanese War of 1894-5. The Korean monarchy appealed to the Chinese and Japanese governments to help it suppress a revolt. Both sent troops. Japan’s troops seized the royal family and installed a new government that repudiated all Korean treaties with China. War followed, and Japan won. China ceded Taiwan and the Pescadores Islands. In 1904-5 Japan fought Russia after breaking off talks over spheres of influence in Korea and Manchuria. Japan started the war by sinking Russian warships at Inchon. Russia ceded part of Sakhalin island to Japan and recognized a Japanese sphere of influence in Korea. Japan annexed Korea in 1910. Early in World War I, Japanese forces occupied German colonies in the Pacific. In 1915 Japan presented the “Twenty-One Demands” to China, which would have reduced China to a Japanese protectorate, but withdrew them in the face of pressure from foreign governments.  During the Russian civil war, Japanese forces occupied Vladivostok and nominally controlled a huge territory in eastern Siberia, though they had to retreat after the Red Army defeated anti-Bolshevik forces.  In 1919-1920 Japanese forces violently suppressed the Samil independence movement in Korea. In the interwar period the former German colonies in the Pacific became a League of Nations mandate under Japanese administration. In violation of the mandate agreement, Japan established substantial military bases on the islands.

In 1931 Japanese military forces staged an explosion near a Japanese-owned railroad in Manchuria as a pretext to launch an invasion of the region. In 1932 the Japanese army invaded neighboring Jehol province. In 1935 Japan turned eastern Hebein and Chahar provinces into a puppet state. In 1937 a Japanese army unit, conducting unannounced nighttime maneuvers near  Peking, came under fire from a Chinese unit fearing an invasion. After a series of further incidents Japan launched another war on China, conquering large areas near the coast. In 1939 the Japanese army attempted to occupy a disputed territory in Mongolia. A large-scale though undeclared war soon resulted in which Japanese forces were defeated by Mongolian and Soviet troops (the Nomonhan Incident). To end the conflict Japan signed a cease-fire pact with the Soviet  Union on September 15, 1939. (The Soviet Union under Stalin then proceeded to invade Poland two days later.) In September 1940 Japanese forces invaded French Indochina.

That is the background to Pearl Harbor. For more than 40 years Japan had pursued a policy of aggression and conquest. In each case it was the aggressor. As an island nation with a modern military it was in no real danger of invasion from neighboring countries. In the territories it invaded, Japanese forces murdered civilian opponents of its rule by the thousands and suppressed them by the millions.

The 1940 U.S embargo of certain materials frequently used for military purposes was intended to pressure Japan to stop its campaign of invasion and murder in China. The embargo was a peaceful response to violent actions. Japan could have stopped; it would have been the libertarian thing to do. For libertarians to claim that the embargo was a provocation is like saying that it is a provocation to refuse to sell bullets to a killer.

Then, in December 1941, came not just the Japanese bombing of Pearl Harbor, but an attack on the whole of Southeast Asia: Hong Kong, Singapore, what is now Malaysia (British colonies), Indonesia (a Dutch colony), the Philippines (scheduled under American law to become independent in 1945), Thailand (independent). In 1942 there followed the invasion of Burma, a bit of India, and a few of the Aleutian Islands, plus the bombing of Darwin, Australia.

With that history in mind, how can anybody think that the United States could have made a durable peace with Japan? It would have lasted as long as would have been to Japan’s military advantage, no longer. Japan was hell-bent on conquest. Nothing since its emergence as a major international power suggested a limit to its ambitions. It only ceded in the face of superior force. Even as Allied forces retook territory, Japanese fanaticism was such that the government did not surrender until after the U.S. military dropped two atomic bombs. To ignore the long pattern of Japanese aggression as quite a few libertarians are wont to do is not just historically ignorant but dangerous, because it closes its eyes to the hard truth that some enemies are so implacable that the only choice is between fighting them and being subjugated by them. It took a prolonged U.S. military occupation to turn Japan from the aggressor it was to the peaceful country it has become.

Now for some words on Japanese colonial monetary arrangements. In Taiwan, Korea, and Manchuria Japan established local banks combining central and commercial banking functions, whose currencies were tied to the yen. The former German colonies of the Pacific simply used the yen directly. In China, Japan established multiple note issuing authorities but then largely consolidated them into two, the Federal Reserve Bank of China(!) in the north and the Central Reserve Bank of China in the south. During World War II, Japanese occupation forces in some Southeast Asian countries issued paper currency derided as "banana money" for the pictures of bananas that some notes had and their lack of credibility. Elsewhere, as in French Indochina and Thailand, the Japanese hijacked the previously existing local note issuers. In all cases the wartime policy was to use the currency as a means of extracting resources. Where Japanese forces issued banana  money they established exchange rates with local currency that overvalued the banana money. Later the Japanese established a kind of regional central bank, the Southern Development Bank, with headquarters in Singapore, to issue currency for what are now Malaysia, Indonesia, Burma, the Philipines, Brunei, and Singapore. There is probably an interesting book to be written about it. There may even be one  in Japanese, for all I know, but there is not one in English. Being unable to read Japanese, the two best sources I have found are Money and Banking in China and Southeast Asia During the Japanese Military Occupation 1937-1945 by Richard Bányai (1974) and “Japanese Military Currency (1937-1945): Quantities Printed and Issued” in the I.B.N.S. Journal of the International Bank Note Society, v. 42, no. 3: 1-24, 2003, by Kazuya Fujita. The Philippines prior to Japanese occupation were the only territory with a kind of free banking: two commercial banks issued notes alongside the government, whose issue was a type of currency board.

The territories Japanese forces conquered by 1931 were part of what can be considered an inner yen zone, where monetary policy was basically a mirror image of policy in Japan itself and was intended to promote long-term economic development in line with Japanese interests. In what might be termed the outer yen zone, the territories conquered after 1931, the policy was frankly extractive. The populace continued to prefer the currency it had previously used, and the currency board notes of Hong Kong and Malaya were particularly valued and continued to be held despite penalties for doing so. They were backed by sterling reserves held in London, and after the war they again became convertible into sterling at the prewar exchange rate. (The notes were printed in England, so the Japanese could not obtain the paper and design expertise to produce plausible imitations.) As the war continued, banana money became worth increasingly less on the black market, and by the end of the war it was almost worthless in all the countries where it had been issued. Japan's monetary policy in the outer yen zone was the monetary counterpart of its brutal military and political policies.