Introduction: This program highlights the profound corporate connections between American financial and industrial institutions and the Zaibatsu —the giant family trusts that controlled Japanese industry since the country was opened in 1850s. To recoup their investments in Japan made before the war, American commercial giants and their allies in government, the media and the MacArthur group within the military deliberately frustrated attempts at reforming Japan. The Zaibatsu were returned to power. By whitewashing the Emperor’s pivotal role in Japan’s war of aggression and the attendant atrocities, MacArthur and his mentors preserved the Imperial household. In addition to the economic motives for undermining Japanese reformation, MacArthur and his allies in the State Department and the Morgan financial and industrial group sought to establish Japan as an anti-Communist bulwark. Ultimately, they were entirely successful, and the political figures who had prosecuted Japan’s slaughter in the Pacific were returned to power.
Program Highlights Include: The role of Dillon Read’s William Draper, Jr. in the restoration of the old order in Japan; Herbert Hoover’s primary influence in the perpetuation of Japanese fascism into the postwar period; the smearing and apparent murder of both Japanese and Americans who stood in the way of the negation of Japanese reform.
1. Beginning with discussion of the profound connections between American corporations and key Japanese financial and industrial interests, the broadcast highlights the decisive impact this relationship had in negating the breakup of the zaibatsu (the giant Japanese family trusts.
“Imprudently, the American bureaucrats who drafted FEC-230 foolishly overlooked the vested interests of major U.S. banks and corporations that had made huge prewar loans and investments in Japan. Morgan Bank had provided Japan with many loans, including one of $150 million to rebuild Tokyo after the Kanto earthquake, and the Japanese government had defaulted on repayment of all these loans at the time of Pearl Harbor. Many other U.S. corporations had major prewar stakes in Japan in the form of loans and direct investments. At the end of 1941, American investment accounted for three-quarters of the total foreign capital in Japanese industry. The largest single direct investment, nearly half of the total, was by General Electric, one of the Morgan extended family. GE held 16 percent of the paid-up capital of Tokyo-Shibaura Electric, a firm linked to the Mitsui zaibatsu. Other large investments had been made by Associated Oil in Mitsubishi Petroleum, by Westinghouse in Mitsubishi Electric, by Owens-Libby in Sumitomo, by American Can in Mitsui, and so on. After the war, these U.S. corporations were owed reparations, royalties and loan payments totaling more than a billion dollars. They were determined not only to recover their investments but to resume their profitable business operations in Japan. If Japan’s biggest conglomerates were broken up, this would impact directly on their American partners. If the directors and owners of these zaibatsu were condemned to death or to long prison terms, the new management might well argue that they were not responsible for debts incurred under a previous criminal military dictatorship. If efforts to introduce democracy to Japan miscarried and led to a socialist or communist takeover, past experience with Soviet Russia showed that such debts would never be honored.”
2. Fear of communism and a desire to establish Japan as a bulwark against the Soviet Union (and later Red China) had much to do with the resurrection and sanitization of the old regime.
“This new rationale was taking hold in Washington and being echoed in Tokyo, thanks to careful orchestration. Japanese government spokesmen said that SCAP was persecuting businessmen not because they had committed war crimes, or acquired their wealth by illegal means, but because they had been successful. ‘We find it difficult to understand how this can be democracy . . . the empire’s key financial and industrial figures, the men we need most to provide a sound business development upon which real democracy must rest, are being condemned without trial, merely because they were businessmen.’ The old guard in the Diet (echoing Joe Grew) predicted ‘chaos and confusion’ and communist revolution in Japan if these purges went ahead.”
(Ibid.; p. 229.)
3. As discussed above, the Morgan financial and related industrial interests were centrally involved in the capitalization of Japan after the Kanto earthquake of 1923. It is worth noting that the Morgan group was pivotal in lobbying against the breakup of the zaibatsu and the structural reform of Japanese governmental institutions. (Thomas Lamont was a key Morgan  banker and a dominant influence on diplomat Joseph Grew. The Morgan group was also very close to Douglas MacArthur, who was in charge of the occupation of Japan. Both MacArthur and the Morgan group were involved with the 1934 coup attempt  against President Franklin Roosevelt.)
“In Washington, a group known as the Japan Crowd encouraged these reversals of SCAP policy. Joe Grew was their spokesman, guided by Herbert Hoover as well as Tom Lamont, who had raised a generation of investment bankers to share his view of China as a corrupt place and Japan as a nation of fiscal self-discipline. After the war, Grew retired from his post as undersecretary of state and moved to Wall Street, where he became the leading lobbyist of the Japan Crowd. By 1947, America’s Republican Party was in full resurgence. Democrats were on the defensive. SCAP reforms were being aborted and all talk of purges and retribution in Japan was silenced. Grew and the Japan Crowd prevailed because Mao’s success in China and communist challenges in Korea, Vietnam, Indonesia and elsewhere alarmed even liberal politicians, persuading them of the need to build an Iron Triangle of Japan, Taiwan and Korea.”
(Ibid.; pp. 229-230.)
“Conservative American business leaders were usually careful to denounce monopolies and cartels in principle, but they successfully fought off any effort to break up Japan’s conglomerates in practice. Grew and his colleagues made all the right democratic noises about reforming postwar Japan, while working energetically behind the scenes to block all efforts at reform. These men believed that the best hope for the future Pacific economy lay in reviving prewar trade patterns, with America again becoming Japan’s biggest trading partner. Japan had the only massive industrial base in Asia. Once its financial elite were fully restored to positions of control, Japan would become an industrial bulwark against further expansion of communism in Asia. The time frame was urgent.”
(Ibid.; p. 230.)
“Grew also became co-chairman of a new lobbying group, the American Council on Japan (ACJ). The ACJ was a political action committee set up by wealthy American conservatives immediately after the war to lobby Washington and to fight the initiatives on reforming Japan that were being championed by liberals—whom the ACJ scathingly referred to as ‘New Deal Democrats’ and ‘communist fellow travelers’ . . .”
6. A key figure in the resurrection of the old order in Japan was William Draper, who was also instrumental in helping to finance the interests that backed Adolf Hitler. After the war, Draper helped to frustrate the decartelization of Germany (as did Herbert Hoover). (For more about Draper, see—among other programs—Miscellaneous Archive Show M11—available from Spitfire—as well as FTRs 99, 102. For more about Herbert Hoover, see RFAs 1, 2—available from Spitfire.)
” . . . In the summer of 1947, [Harriman associate James Lee] Kauffman visited Tokyo on behalf of Dillon Read and made a personal assessment of the Truman administration’s secret plan for the break-up of the zaibatsu. The secret FEC-230 documents were then leaked to Newsweek by Undersecretary of the Army William Draper, in civilian life a senior partner of Dillon Read. In December 1947, while America was gearing for its presidential election campaign, Newsweek began a series of articles denouncing SCAP-1. The magazine accused SCAP of running amok and exceeding its authority. SCAP was trying to impose ‘ an economic theory which has . . . no counterpart anywhere else in the world. It is not communistic but it is far to the left of anything tolerated in this country.’ Newsweek went on to warn American taxpayers that this plan posed grave dangers to their wallets. ‘Japan is costing the American taxpayers millions of dollars a year.’ Breaking up the zaibatsu would ‘weaken the Japanese economy to the point where the maintenance of Japan would become a continual charge on the American taxpayer.’ It was vital, Pakenham said, to get Japan back on track and make it ‘a fertile field of American capital’ . . . “
(Ibid.; p. 231.)
7. In order to frustrate attempts to reform Japan and establish a true democracy, the reactionaries described above deliberately undermined the officials attempting to bring about change in Japan.
” . . . Herbert Hoover had earlier warned [MacArthur aide] Bonner Fellers that the State Department was sending ‘a bunch of communists’ to Tokyo, along with some ‘fellow travelers.’ At the time Fellers was very busy suborning General Tojo and other key witnesses. Hoover was living in an apartment at the Waldorf Astoria Hotel in New York City, where he met regularly with Grew, Kern and the others. He encouraged them to attack SCAP, while at the same time secretly giving advice to MacArthur and Fellers, and passing questions to Hirohito. During this whole period, Hoover continued to lead MacArthur to believe that he had a serious chance of being nominated as the Republican presidential candidate or, at the very least vice-president. This made MacArthur acutely sensitive to Newsweek’s charges that SCAP was pursuing goals that were virtually communistic . . . Accordingly, MacArthur weeded out the remaining liberals and New Dealers from its ranks, turned SCAP-1 and into SCAP-2, and followed the prophylactic course dictated by those who held his future in his fists.”
(Ibid.; p. 232.)
8. Ultimately, the above-mentioned William Draper played a critical role in destroying Japanese reform.
“The death-blow to reform came soon afterward. In February 1948 the American government sent two Wall Street bankers to Japan to decide whether liberal reforms should go ahead or not. The outcome was predictable. The Draper-Johnston mission—led by banker Percy Johnston and Undersecretary of the Army William Draper—spent two weeks in Japan, then announced its recommendations. Draper knew little about Japan but, as he was on leave from his position as a vice-president of Dillon Read, it was only natural that he was anxious to protect its investments and those of related firms. Earlier, he had made a name for himself by rescuing German industry from the ‘excessive zeal’ of U.S. occupation forces in Europe. Percy Johnston was an executive of New York’s Chemical Bank, which had longstanding ties with Mitsui Bank. So this was like sending foxes to inventory the hen house. What Japan really needed, they said, was not to be punished for waging a merciless war, but to be restored to economic power as quickly as possible. The Japanese themselves could not possibly have said it better.”
(Ibid.; pp. 232-233.)
“Of the original list of 325 Japanese companies that were to be reorganized, only 20 remained on the Draper-Johnston list. No Japanese banks were to be restructured. The ambitious American plan to reform Japan’s economy and government was suffocated in the cradle in less than three years. As a precaution, the great zaibatsu banks did change their names for a while. Mitsubishi Bank temporarily became Chiyoda Bank, Sumitomo Bank became Osaka Bank, Yasuda Bank became Fuji Bank, and so on. (The boom brought about by the Korean War, 1950-1953, quickly returned them to profitability, and made it possible to resurface their carefully hidden assets without attracting attention. Prime Minister Yoshida called the Korean War ‘a gift from the gods.’)”
(Ibid.; p. 233.)
10. Even attempts at effecting reparations to the victims of the war were largely negated, as the zaibatsu and their American business partners successfully appropriated much of the funds earmarked for reparations in order to shore up their own respective situations.
“In the immediate postwar scramble for reparations, the Japanese zaibatsu, including the wealthy families toward whom [Truman adviser Edwin] Pauley was so sympathetic, and who (like postwar prime minister Tanaka, for example) had profited enormously from the war and hid their profits, submitted their own claims for compensation for wartime damage to their armaments factories. These claims came to more than $5 billion, and many were paid. Compare that to the $1 billion paid to victims.”
(Ibid.; p. 296.)
“Instead of cash payments to conquered countries, Japan was ordered to send industrial equipment. Even these token reparations were suspended by Washington when the equipment was claimed as collateral for bonds issued before the war by American firms including Morgan Bank and Dillon Read, who were at the head of a long line of U.S. corporations with big prewar investments in Japan. By the early 1950’s, Japan owed Morgan nearly $600 million in unpaid interest, penalties and principal just for the 1924 earthquake loan. This did not include other huge sums for other loans that Morgan, and members of its extended family, had made before 1940.”
“In 1951, an official from Japan’s Ministry of Finance arrived at Morgan headquarters at 23 Wall Street, saying, ‘I have come to honor my signature.’ At this time no Japanese bureaucrat had the power to make such a statement. Japan was still an occupied country and nothing of this sort could have been said without the explicit approval of General MacArthur. In any event, the official went on to say that Japan had not defaulted on a loan in two thousand years. Refinancing and servicing was arranged through Smith Barney and Guaranty Trust. Smith Barney had already joined the Morgan family when it suffered financial reversals during the Depression, and Guaranty Trust had been a Morgan ‘ward’ since the 1920’s. Thus Morgan not only benefited by getting its loans repaid, but by having its subsidiaries collect commissions for restructuring the same loans. In the end, there was nothing fair about the way Japan’s (acknowledged) postwar resources were allocated. People who were physically the victims of Japanese brutality were completely upstaged by big corporations that commandeered all the money made available. By 1952, Tokyo had repaid all prewar investments by United States corporations, and compensated them for all property damage—so these American firms made a profit on the war even in Japan.”
(Ibid.; pp. 296-297.)
13. In order to frustrate Japanese reform, MacArthur and his aides saw to it that Emperor Hirohito was absolved of all war guilt. As seen in FTR#290, as well as M26, the Emperor bore a great responsibility for the Japanese aggression and atrocities of World War II. One of the ways in which MacArthur whitewashed the Emperor was to impugn the character of anyone who implicated him or his family in war crimes, even a member of the imperial royal family, Prince Konoe. The Prince’s character was assassinated, and his own biological death followed shortly thereafter—an alleged “suicide.” Two aides to Prince Asaka, who directed the Rape of Nanking, also died under strange circumstances.
“When [MacArthur aide General Bonner] Fellers discovered something negative about Hirohito, he literally set about destroying the source. Naturally Prince Konoe was intimately informed, and when Fellers heard what Konoe had to say about Hirohito’s guilt, he denounced the prince as ‘a rat who’s quite prepared to sell anyone to save himself, and even went so far as to call his master the emperor ‘the major war criminal.’ Thereafter, Fellers, [Grew protégé Max] Bishop and Macarthur took an intense dislike to Prince Konoe and, with no further justification, added his name to the list of war criminals to be prosecuted. One of the few statesmen who had tried to talk Hirohito into seeking an early peace, and who had earlier volunteered to go to Switzerland to arrange secret peace talks, Prince Konoe now was blackballed by the Americans and hounded to despair in a vicious campaign of backbiting and innuendo. He was informed (falsely) that his name had now been moved to the top of the list of war criminals, and that he faced imminent arrest and imprisonment. One December 16, 1945, he was found dead in his home. Most sources quote him saying he would not submit to the indignity of trial. The official ruling was suicide, but scholars Meirion and Susie Harries, among others, believe that Prince Konoe was murdered. They offer compelling evidence against suicide. For one thing, Generalissimo Chiang wanted Konoe’s name removed from the list of potential war criminals. Konoe was not on the British list. American sources indicate that Konoe was, in fact, never a serious candidate for trial. Joseph Keenan, who became head of the Tokyo tribunal, regarded Konoe as a ‘confidential informant’ of the greatest importance. Yet as the Harrieses note, ‘There was no shortage of people at every level of the Japanese government who would have preferred Konoe not to testify.’ Other crucial witnesses also died conveniently before the trials commenced. Two of Prince Asaka’s staff who carried out his orders at the Rape of Nanking died suddenly of ‘heart trouble’ at the end of 1945, before trials got under way.”
(Ibid.; pp. 208-209.)
“America’s oligarchs had rescued Japan’s oligarchs. Although it was absurd to see the Pacific War as only a minor historical aberration, they were intent upon restoring things in Japan as they were before the war. George Kennan said: ‘We had purposely relieved our erstwhile opponents of every shred of responsibility for what was now to come.’ The elite simply tucked the bitter pill in their cheek to spit it out the moment the Americans were gone.”
(Ibid.; p. 236.)
15. Another highly suspicious death was that of State Department official George Atcheson, consistently at odds with the reactionary policies of MacArthur and his staff.
“Given a priceless opportunity, the American occupation had done little to change Japan. What was intended to be a victory of Western democracy over Japanese fascism became a struggle between American liberals and American conservatives, with many casualties. One of them was George Atcheson, the senior State Department adviser in Japan. Although he was resigned to ‘the short solution,’ he had his enemies, more than he knew . . . In August 1947, when MacArthur’s inner circle was making the final turnabout from SCAP-1 to SCAP-2, George Atcheson decided he had to go back to Washington personally to report to the Secretary of State and the White House what was afoot. He gathered several members of his staff together and set out by government plane across the Pacific, bound for Honolulu. After passing lonely Johnston Island but well short of Hawaii, the plane that had been fully fueled mysteriously ran out of fuel and went down. One of the survivors said that, as the plane fell, Atcheson shrugged, shook his head sadly and said, ‘It can’t be helped.'”
(Ibid.; pp. 236-237.)