Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

This agreement had hardly been made, and had not yet been published, when the Japanese opened their attack on North China (July 1937). They were generally successful against a tenacious defense by the National government, driving it successively from Nanking to Hankow (November 1937) and from Hankow to Chungking on the remote upper reaches of the Yangtze River (October 1938). The Japanese, with quite inadequate forces of only seventeen divisions totaling less than 250,000 men in all areas, tried to destroy the Nationalist and Communist armies in China, to cut China off from all foreign supplies by controlling all railroads, ports, and rivers, and to maintain order in Manchuria and occupied China. This was an impossible task. The occupied areas soon took the form of an open lattice in which Japanese troops patrolled the rivers and railroads, but the country between was largely in the control of Communist guerrillas. The retreat of the Nationalist government to remote Chungking and its inability to retain the allegiance of the Chinese peasants, especially those behind the Japanese lines, because of its close alliance with the oligarchy of landlords, merchants, and bankers, steadily weakened the Kuomintang and strengthened the Communists.

The rivalry between the Chinese Communists and the Kuomintang broke out intermittently in 1938-1941, but Japan was unable to profit from it in any decisive way because of its economic weakness. The great investment in Manchuria and the adoption of a policy of whole-hearted aggression required a reorganization of Japan’s own economy from its previous emphasis on light industry for the export market to a new emphasis on heavy industry for armaments and heavy investment. This was carried out so ruthlessly that Japan’s production of heavy industry rose from 3 billion yen in 1933 to 8.2 billion yen in 1938, while textile production rose from 2.9 billion yen to no more than 3.7 billion yen in the same five years. By 1938 the products of heavy industry accounted for 53 percent of Japan’s industrial output. This increased Japan’s need for imports while reducing her ability to provide the exports (previously textiles) to pay for such imports. By 1937 Japan’s unfavorable balance of trade with the “non-yen” area amounted to 925 million yen, or almost four times the average of the years before 1937. Income from shipping was reduced by military demands as well, with the result that Japan’s unfavorable balance of trade was reflected in a heavy outflow of gold (1,685 million yen in 1937-1938).

By the end of 1938, it was clear that Japan was losing its financial and commercial ability to buy necessary materials of foreign origin. The steps taken by the United States, Australia, and others to restrict export of strategic or military materials to Japan made this problem even more acute. The attack on China had been intended to remedy this situation by removing the Chinese boycott on Japanese goods, by bringing a supply of necessary materials, especially raw cotton, under Japan’s direct control, and by creating an extension of the yen area where the use of foreign exchange would not be needed for trading purposes. On the whole, these purposes were not achieved. Guerrilla activities and Japanese inability to control the rural areas made the achievement of a yen area impossible, made trade difficult, and reduced the production of cotton drastically (by about one-third). Export of iron ore from China to Japan fell from 2.3 million tons in 1937 to 0.3 million in 1938, although coal exports rose slightly.

In an effort to increase production, Japan began to pour capital investment into the still-unpacified areas of North China at a rate which rivaled the rate of investment in Manchuria. The Four-Year Plan of 1938 called for 1,420 million yen of such investment by 1942. This project, added to the need for Japan to feed and clothe the inhabitants of North China, made that area a drain on the whole Japanese economy, so that Japanese exports to that area rose from 179 billion yen in 1937 to 312 million in 1938. To make matters worse, the people of this occupied territory refused to accept or use the newly established yen currency because of guerrilla threats to shoot anyone found in possession of it.

All this had an adverse effect on Japan’s financial position. In two years of the China war, 1936-1937 to 1938-1939, the Japanese budget rose from 2.3 to 8.4 billion yen, of which 80 percent went for military purposes. Government debt and commodity prices rose steadily, but the Japanese people responded so readily to taxation, government loans, and demands for increased production that the system continued to function. By the end of 1939, however, it was clear that the threefold burden of a conversion to heavy industry, which ruined the export trade, a heavy rate of investment in Manchuria and North China, and an indecisive war with Nationalist China could not be borne forever, especially under the pressure of the growing reluctance of neutral countries to supply Japan with necessary strategic goods. The two most vital needs were in petroleum products and rubber.

To the militarists, who controlled Japan both politically and economically after 1939, it seemed that the occupation of the Dutch Indies and Malaya could do much to alleviate these shortages. The occupation of the Netherlands itself by Hitler’s hordes in 1940 and the involvement of England in the European war since 1939 seemed to offer a golden opportunity for Japan to seize these southern regions. To do so would require long lines of communications from Japan to Indonesia. These lines would be exposed to attack from the American bases in the Philippines or from the British base at Singapore. Judging the American psychology as similar to their own, the Japanese militarists were sure that in such circumstances America would not hesitate to attack these vulnerable lines of communication. Thus, it seemed to them that a Japanese attack on the Dutch Indies would inevitably lead to an American war on Japan. Facing this problem, the Japanese militarists reached what seemed to their minds to be an inescapable decision. They decided to attack the United States first. From this decision came the Japanese attack on Pearl Harbor on December 7, 1941.

The Italian Assault, 1934-1936

Although the Fascist government of Benito Mussolini talked in a truculent and vainglorious way from its accession to power in 1922, emphasizing its determination to reestablish the glories of the Roman Empire, to dominate the Mediterranean Sea, and to achieve strategic self-sufficiency by increasing the quantity of home-grown food, its actions were much more modest and did not go far beyond efforts to limit Yugoslav influence in the Adriatic and to overly publicize a modest increase in domestic wheat production. In general, Italy’s situation was similar to Japan’s. Limited natural resources (especially an almost complete lack of coal or oil) combined with a rapidly falling death rate to create growing pressure of population. This problem, as in Japan, was intensified by restrictions on the emigration of Italians or on the outflow of Italian goods, especially after 1918.

The important dates in modern Italian history are 1922, 1925, 1927 and, above all, 1934. In 1922 the Fascists came to power in a parliamentary system; in 1925 this parliamentary system was replaced by a political dictatorship with nineteenth century Latin-American overtones rather than a twentieth-century totalitarian character, since the economic system remained that of orthodox financial capitalism; in 1927 an orthodox, and restrictive, stabilization of the lira on the international gold standard led to such depressed economic conditions that Mussolini adopted a much more active foreign policy, seeking to create an economic and political entente with the three defeated Powers of central Europe (Austria, Hungary, Bulgaria); in 1934 Italy replaced orthodox economic measures by a totalitarian economy functioning beneath a fraudulent corporative facade and, at the same time, shifted its dynamic foreign policy from central Europe to Africa and the Mediterranean.