In common English usage, “bankruptcy” is a synonym for “impoverishment.” Japan was cast into international bankruptcy, a condition of absolute illiquidity, by the U.S. financial weapon. The choke hold of the relentless freeze rendered its dollars and gold worthless for national survival.
It was a strange sort of bankruptcy. Japan’s reserve of gold and dollars exceeded $200 million in late 1941, enough to buy, for example, four years of U.S. oil at pre-freeze shipment rates, yet it was rendered useless. Thereafter Japan piled $60 million of new gold and $15 million of silver into the useless reserve every year until it suspended mining of precious metals in 1944. Japan had invested in gold mines, collected gold ornaments, and nurtured dollar-earning exports.1 It had husbanded its reserve for future purchases of resources for its war economy, inflicting “the curse of gold” on its people by a “wholesale attack on the standard of living.” At the end of the war, although the economy was in a shambles, the government of Japan was awash in gold amounting to twice its hoard in 1941. After the surrender the gold and silver in the Bank of Japan and other government vaults was sequestered by MacArthur’s occupation forces. As to Japan’s frozen dollars, they were never returned.2
A contemporary journalist summed it up. He could not have known that for four years, U.S. Treasury and Federal Reserve analysts had predicted Japan would soon exhaust its assets and necessarily abandon its aggressive policies. However, he wrote, “Japanese leaders exerted every possible effort . . . to avoid this outcome. They succeeded. . . . Gold production was stimulated. . . . A vast foreign exchange reserve was maintained.” Although U.S. forecasts of empty vaults proved false, Japan was plunged into the international bankruptcy they predicted because of a stroke of a pen in Washington.3
Two views, one American and one Japanese, illustrate the attitudes about Japan’s bankruptcy on the eve of war.
When Dean Acheson arrived at the State Department in January 1941 he rediscovered the prodigious powers of Section 5(b) of the 1917 Trading with the Enemy Act. He and colleagues of like mind promoted its deployment against Japan, then twisted a cautious squeeze designed “to bring Japan to its senses, not its knees” into strangulation. Acheson, an officer of the department charged with peaceful solutions through diplomacy, boasted to Cordell Hull on 22 November 1941 that financial crippling had proven far more devastating to Japan than embargoes. The freeze administrators thwarted Japan from removing its dollars from U.S. control as it had been doing for a year. Their actions slashed U.S. exports to zero despite Japan’s valid export licenses for oil, and other licenses it would have been entitled to for cotton, lumber, and foodstuffs. Nor could Japan pay the mineral-rich nations of North and South America or the Dutch Indies, which demanded dollars, while the sterling bloc joined in the freeze. U.S. markets abruptly closed to Japan. Washington refused to allow Japanese trading companies to receive dollars, even if paid into their blocked accounts, hastening the ascendancy of nylon, which devastated silk farmers and demolished Japan’s largest renewable flow of dollars.4
In Japanese eyes the bankruptcy was a lethal threat, an assault on the nation’s very existence. After the war, Koichi Kido, lord keeper of the privy seal and adviser to Emperor Hirohito, delivered an eloquent statement through his American defense counsel, William Logan Jr., before the International Military Tribunal for the Far East. (Kido was found guilty of war crimes and sentenced to life imprisonment but was released in 1955.)
Kido styled his defense “Japan Was Provoked into a War of Self-Defense.” Allied charges of war crimes defined aggression as “a first or unprovoked attack or act of hostility.” Kido argued that strangling an island nation dependent on foreign resources was a method of warfare more drastic than physical force because it aimed at undermining national morale and the well-being of the entire population through starvation. A nation, he concluded, had the right to decide when economic and financial blockade was an act of war that placed its survival in jeopardy. Kido thereby harked back to the dawn of international law three centuries earlier when jurists held that refusal to sell to another nation might well be a valid casus belli under extraordinary circumstances such as starvation.
The defense added, “We know of no parallel case in history where an economic blockade . . . was enforced on such a vast scale with such deliberate, premeditated, and coordinated precision. . . . Responsible leaders at that time sincerely and honestly believe[d] that Japan’s national existence was at stake.” Because sanctions “threatened Japan’s very existence and if continued would have destroyed her,” the “first blow was not struck at Pearl Harbor.” Indeed, Lojan continued, the “Pacific War was not a war of aggression by Japan. It was a war of self defense and self preservation.”5
Unfortunately for Japan, its leaders chose a war that brought upon it far more economic devastation than any sanctions, along with great loss of life and untold misery. Although struggling along under bankruptcy without going to war was a dreary prospect, a third course was open to Japan: renouncing imperial aggression in return for thawing of the freeze. One may wonder, what if Japan had endured the freeze long enough to ascertain that Germany could not win and had then abandoned the Axis, perhaps even joined the Allied side as it had in 1914? It would have prospered mightily by selling ships, machinery, and other goods to the Allies. It would have emerged after the war as the strongest regional power, with a world-class navy, an overflowing treasury, and a zeal for industrial modernization, just as colonial empires in Asia were crumbling. It might have shored up China against communism. A cooperative Japanese commercial “empire” in East Asia, economically buoyant and trading internationally on a grand scale a generation sooner, could have changed the course of history in the twentieth century and beyond.