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Difficulty: HardEconomy in the Interwar Period

Source: Takahashi Korekiyo, Japanese Minister of Finance, speech to the House of Peers, 1932

"In order to rescue our nation from the severe economic depression that has struck since the collapse of the global markets, the government must abandon the gold standard and expand public spending. By devaluing the yen, we will stimulate our export industries, particularly textiles and light manufactures, and provide capital for the expansion of heavy industry and military production. We must reject the orthodox policy of retrenchment and fiscal austerity, which only deepens the misery of our farmers and workers, and instead use state credit to revive domestic demand."

Which of the following developments during the interwar period most directly contributed to the adoption of the policies described in the passage?

  1. A
    The restoration of early modern mercantilist policies characterized by exclusive state-chartered trading monopolies.
  2. B
    The establishment of the League of Nations mandate system to ensure free trade and economic stability across East Asia.
  3. The widespread shift toward government intervention in the economy to mitigate the effects of the global depression.Answer
  4. D
    The global spread of Marxist revolutions that replaced private property with state-controlled command economies.

Answer

The widespread shift toward government intervention in the economy to mitigate the effects of the global depression.
The correct answer is correct because Takahashi's proposals to abandon the gold standard and use state credit and deficit spending to stimulate industry represent Japan's version of the global shift toward state intervention in the economy during the Great Depression. This trend was seen worldwide as governments moved away from classical laissez-faire policies and fiscal austerity to combat mass unemployment and industrial collapse.

Step-by-Step Solution

1
Analyze the stimulus to determine the type of economic policy being proposed.
The Japanese Finance Minister advocates abandoning gold-standard orthodoxy, devaluing the currency, and increasing state spending and credit to stimulate domestic demand and heavy industry.
Identifying the core economic strategy described in the source is required to connect it to the global context.
2
Relate Japan's domestic policy shift to the broader interwar global economy of the 1930s.
In response to the Great Depression, many capitalist states abandoned classical laissez-faire principles and fiscal austerity, turning instead to government intervention, deficit spending, and currency manipulation to protect domestic markets and revive industry.
This contextualization identifies the international trend that matches Japan's policy redirection.
3
Evaluate the choices to find the one that matches this global trend of state intervention.
The option highlighting the widespread shift toward government intervention to mitigate the effects of the global depression matches this historical development.
This confirms the correct option while distinguishing it from unrelated developments like the mandate system or Marxist revolutions.

Key Concept

State responses to the Great Depression and interwar economic policies.
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Topics

Economy in the Interwar Period

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