By Prime Minister Osachi Hamaguchi

August 1929

[After the fall of the Giichi Tanaka Cabinet (Seiyukai) due to its mishandling of a Chinese incident, Osachi Hamaguchi, leader of Minsei Party, formed a new cabinet in July 1929. It was considered the Normal Way of Constitutional Government that when a cabinet fell, the other party assumed power in two party politics. The following "economic policy pamphlet" was created for the purpose of mobilizing popular support. It was type-written in Japanese on one sheet of paper with a signature of the prime minister. Hamaguchi's (=Inoue's) idea that Japan must accept austerity in order to restore economic discipline and return to the fixed exchange rate is repeated here.]

Our country is now facing a very serious economic situation. At the time of the previous world war, our economy experienced an unprecedented boom, and both domestic industry and international trade vigorously expanded. After the war, however, the conditions changed significantly for the worse, with industry in recession, the trade deficit rising year after year, foreign reserves declining, and the exchange rate depreciating. Moreover, our country was severely damaged by the great earthquake, which further worsened the economic recession. If the situation is left unattended, we cannot expect any recovery in the future.

Because of this long and serious business recession, people's income has declined significantly and, accordingly, the budgets of national, prefectural and municipal governments also decreased. Therefore, bold expenditure cuts are required for both the private and public sectors. However, the reality is that people still continue wasteful consumption and central government expenditure has been on a rising trend, financed barely by the issuance of public bonds. Naturally, the outstanding central government debt accumulates and now almost reaches 6 billion yen; and local government debt has risen to as high as 2 billion yen. This situation is unsustainable for both the central and local governments.

As a result, the government is firmly determined to consolidate budgets and already realized an expenditure cut of 147 million yen this fiscal year. With equal resolve, we will cut next year's budget as much as possible. As for the outstanding government debt, our plan is not only to slow down its increase but actually to reduce its level. We are also making efforts to tighten local government budgets. We sincerely hope that enterprises, banks and the general public would understand the intention of the government, and reduce consumption, strengthen the business foundation, increase saving, and prepare for future growth.

If fiscal consolidation and lower consumption are achieved sufficiently, we will finally have the necessary condition for economic reconstruction and stability of living standards. This also makes possible the liberalization of gold exports [return to the gold standard] which has been an aspiration of our business community for a long time.

It has been already 12 years since gold exports were suspended as an emergency measure at the time of the world war. This brought exchange rate instability, lack of natural adjustments in money and prices, and the absence of steady growth of industry and trade. It is well known that, along with wasteful spending by the public and private sectors, these constitute the causes of great uncertainty for the business community. Despite postwar difficulties, other countries have already consolidated budgets, reduced consumption, liberalized gold exports, strengthened the monetary system and returned the economy onto the normal path. Today, Japan and a few other small countries are the only ones that have not returned to the gold standard.

Japan should also resume gold exports as soon as possible, even with many problems, in order to return to the normal way of the international economy. This will lead to sound development of our industry and trade and the strength of our national economy. I firmly believe that this is our most urgent task.

However, if we return to gold suddenly and without preparation, there will be a serious impact on our businesses before and after the transition. Therefore, we have to prepare for this by tightening the private and public sectors, lowering prices and compressing the trade deficit and, as a result, restoring the exchange rate gradually [to a higher level].

There is no doubt that restoration of the national economy must be done quickly. To achieve this, there is no other way except private and public austerity and a return to gold exports. That is why the government is consolidating its budget. However, the fiscal budget is only a small part of the national economy. Unless all people are united in their efforts to reduce consumption, economize greatly and realize more savings, the nation cannot overcome the present difficulties and proceed to future prosperity and growth.

Tight budget and austerity are not our ultimate purpose. We accept them in order to strengthen the fiscal foundation of our country, promote the basis of the national economy, and create conditions for great progress in the future. We shrink today in order to grow tomorrow. We must have the courage to endure the minor pain at present for the purpose of great light in the future. I sincerely hope that you, the people, will cooperate with the government, and make joint effort to overcome the present difficulties. This is not for the government. It is indeed for the people. It is for the good of the nation as a whole.

August, the Fourth Year of Showa [1929]

Prime Minister

[Signed] Osachi Hamaguchi