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Open Access Publications from the University of California

Damage, Fear, and Transformation: International Currency Systems and Postwar Japan's Currency Policies

  • Author(s): Lee, Sangbaik
  • Advisor(s): Barshay, Andrew E
  • et al.

Entitled "Damage, Fear, and Transformation: International Currency Systems and Postwar Japan's Currency Policies," my dissertation sheds light on how economic damage/loss arouses fears of politicians, monetary authorities, economic experts, and business groups and how those fears can propel changes in the economic system. This can be seen through a case study of Japanese currency policy since 1945. We are accustomed to the paradigm that regards economic changes as largely the consequence of people's proactive and voluntary actions as embodied in entrepreneurship, challenge spirit, and profit-seeking, but my research shows that another large factor affecting the economic system is reactive actions driven by fear of losing accumulated wealth. Although researchers have examined the immense impact that damages and fear can cause to an economic system, they treated such damage and fear not as persistent factors but as temporary factors that emerged only during or after the time of emergency when the preexisting system became dysfunctional. In contrast, a proactive entrepreneurial spirit has been thought by many as having always been the engine of economic change from ancient times to the present.

The reason the role of damage/loss and fear has been seen in such a limited way is that earlier studies mostly focused on realized economic damage, and not on the potential scale of unrealized economic damage and people's fear of it. This fear of potential economic damage has exerted a persistent influence on economic systems even in times of prosperity. What is potential economic damage? Potential economic damage expands in tandem with economic growth because we come to have more things to lose as we attain larger economic scale and property (scale of accumulation, transaction, etc.). And why does potential damage/loss consistently affect an economic system? As economic scale expands, the preexisting economic system gradually becomes unsuitable for the overgrown scale of the economy. Since such an unsustainable state destabilizes the containment of potential loss that has been growing along with economic expansion, the fear of losing accumulated wealth becomes increasingly widespread, leading both decision-makers and businesspeople to seek the fortification or transformation of the preexisting system. Demonstrating such a relationship, the dissertation argues that damage/loss and fear were not intermittent external causes, but consistent prime movers of economic change.

To support the argument, the dissertation focuses on potential and realized losses related to currency, and their influence on the currency system, especially in Japan. Because a country's currency rate affects its products' overseas price and because trade had high importance for Japan, fear of economic damages that would result from a destabilization of the currency system and foreign exchange market attained massive proportions in Japan. Therefore, through the case of Japanese currency policy, we can relatively easily discern the interrelation between fear of potential/realized economic damage and systemic change. Specifically, the interrelation can be found in the following phases where potential economic damage and fear of it propelled Japanese politicians, monetary authorities, economic experts, and the business community to fortify the fixed exchange rate system until the early 1970s, replace it with the floating exchange rate system between 1971 and 1973, and fortify the floating exchange rate system since 1974. To test this argument I have examined a large number of primary sources such as documents issued by the officials of the Japanese government and the central bank, as well as newspapers and economic magazines issued at each phase. Such extensive archival work confirmed that people's fear of potential economic damage/loss played a large role in defending or altering the preexisting currency system.

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