478 Ball to Department of External Affairs

Cablegram ACJ8 TOKYO, 17 April 1947

1. At (yesterday's) meeting of the Allied Council the subject of wage and price fixation was again raised. I reminded the Council that at the previous meeting I had insisted that this was primarily a political and not an economic question. I said I maintained that view. Nevertheless it appeared that GHQ Officers would welcome the views of members on some of the administrative and economic questions involved. In a desire to help in every way possible I would table a number of detailed recommendations.

The following is a summary of my conclusions and recommendations.

1. The destruction and wastage of war and the dislocations of defeat present the Japanese Government with a series of major economic problems.

2. Japan to-day is faced with a twofold task. First to restore capital equipment for the production of peace time goods and second to ensure that the goods produced are justly distributed.

Efficiency and social justice must be the key note of economic policy.

3. Inflation must be stopped. It has produced inefficiency since available resources have been wasted [in] non-essential uses. It has caused injustice by throwing the main burden of sacrifice on wage and salary earners while other sections of the community have profited.

4. While the immediate cause of inflation is the unbalanced budget a more fundamental cause is the failure to make price control effective by strictest control over the distribution of raw materials and consumer goods.

5. The control of raw materials must be enforced to make price control effective and to ensure that materials are reserved for essential use. It should be based on a permit system. Permits should be necessary for both the purchase and transport of controlled materials. Records for Government inspection of movements of controlled materials should be kept by suppliers, merchants, carriers and users.

6. Rationing of essential consumer goods is necessary to ensure just distribution and should be controlled by a coupon system.

7. Prices should be fixed to restrict profits to a minimum.

Control of prices to prevent profiteering is more important than fixing particular level by money wages since in the present circumstances of Japan's economy increases in wages simply raise costs and prices and do not increase real wages.

8. Provided profiteering is eliminated by price control, wages should be pegged as an additional safeguard against excessive increases in costs and prices. These pegged rates should however be periodically received [1] and raised as production effectively increases.

9. Every effort must be made to ensure that Government revenue keeps pace with expenditure. Taxes should be based on current incomes. Returns of business and professional incomes should be made at intervals of less than one year if possible each quarter so that taxes may be adjusted to current earnings.

10. Government expenditure should be pruned to eliminate all but the most essential items. Accounts submitted by Government contractors should be carefully audited to prevent excessive charges.

2. A S.C.A.P. officer presented a comprehensive description of the Japanese banking system. Discussion of this was held over.

3. Derevyanko spoke on the present state of public health in Japan. He said the system of state and private hospitals was utterly inadequate and that only the well-to-do could afford medical attention. He claimed that there was a very high death rate and that contagious diseases were increasing.

Further discussion was postponed.

1 Presumably this should read 'reviewed'.

[AA : A1067, P46/10/33/17]