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FTR #426 The Return of the Rising Sun, Part 2

MP3 One Seg­ment
NB: This RealAu­dio stream con­tains both FTRs #426 and #427 in sequence. Each is a 30 minute broad­cast.

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.”

(The Yam­a­to Dynasty; Ster­ling Sea­grave and Peg­gy Sea­grave; Copy­right 1999 by Peg­gy and Ster­ling Sea­grave; Broad­way Books [a divi­sion of Ran­dom House] [HC]; ISBN 0–7679-0496–6; pp. 228–229.)

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.)


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