793.94/14818½
Memorandum by Mr. George F. Luthringer, of the Office of the Adviser on International Economic Affairs, to the Adviser (Feis)
Mr. Feis: As I understand the attached note from Tokyo,90 its leading argument is that sanctions would destroy the capitalist system in [Page 524] Japan but that the Japanese people would accept this as well as a considerable reduction in their standard of living rather than forego the present Japanese objectives and policies with reference to China. This, in my opinion, by no means demonstrates that some type of socialism or fascism will enable the Japanese to acquire necessary raw materials or to avoid the drastic physical overhauling and rebuilding of their economy that would follow the application of sanctions. To what lines of productive work would many of the people engaged in silk production and the manufacture of cotton textiles be shifted? Could Japan obtain sufficient iron and non-ferrous metals to keep her metallurgical industries operating? How would Japan pay for goods imported from the “yen-bloc”? She has in the past paid for part of these by goods made from raw materials imported from non-yen-currency countries.
In other words, I do not believe that a mere alteration of the social or political framework within which the Japanese economy operates would necessarily solve the basic economic problems that would follow from effective sanctions. It is, of course, almost certain that sanctions would cause a serious reduction in the Japanese standard of living, and I am willing to concede that the Japanese population would accept this. However, the transitional period during which these adjustments were taking place would involve hardships much greater than after readjustment had occurred. It seems to me that the strain of suddenly and drastically readjusting a nation’s economy, together with a simultaneous attempt to carry on a costly foreign war, might well gravely impair military efficiency and strain an economy to the point of collapse, no matter what its social and political framework.
It is of course possible that the Japanese might be able to weather an economic upheaval of this magnitude without finding it necessary to withdraw from China. Russia transformed her economic system and at the same time overcame civil war and foreign intervention. Nevertheless, it seems to me that the strains and difficulties involved are so great that to argue that the problem can be reduced to a willingness to accept a decline in the standard of living is an oversimplification that gives a very misleading impression of the consequences of effective sanctions. In my opinion, there is at least an even chance that Japan would be so weakened by sanctions that she would have to withdraw from China or greatly modify her present objectives.91