Panic, Prosperity, and Progress: Five Centuries of History and the Markets

CHAPTER 18

The Rising and Setting Sun of Japan

As the summer came to a close in 1945, Japan lay in ruins. It had spent the past five years at war, and the nation had been assaulted by an unrelenting fire-bombing campaign, climaxed, of course, by the only two nuclear weapons ever dropped on humans in world history. Japan, once with dreams of Pacific-wide domination, was now one of the poorest and most devastated nations on Earth.

The United States, Japan’s fiercest opponent during the war, now turned its attention to rebuilding a country in which 25 percent of housing had been laid waste and whose power grid and industrial infrastructure were effectively non-existent. What would happen over the next half-century would become one of the most astonishing economic miracles—as well as one of history’s greatest collapses—ever recorded.

■ The Early Economic Structure

As an island-nation, Japan for centuries had been isolated from the rest of the world, at first by the surrounding sea, and later by deliberate cultural choice. Japan was a nation that, as far as possible, practiced self-reliance. In the late nineteenth century, there existed a world of difference between highly developed industrialized nations—such as the United States and Britain—when compared to Japan.

As a largely agricultural society, Japan focused its modernization efforts on improving mechanization and modernization of farming. From the 1880s to the beginning of the twentieth century, Japan made great improvements ...