Vol. 74, No.4
According to neoclassical economics, sufficient development of market trade could lead to a Pareto-efficient allocation of resources. While it is not easy to evaluate the Pareto-efficiency of the real economy directly, an important condition needs to be met for market trade to deliver efficient resource allocation: That is informational efficiency. Informational efficiency is about how much, how fast, and how accurately available information is incorporated into the prices. This concept of market efficiency enables us to evaluate the performance of the markets existing in the real economy.
To test informational efficiency, we need first to construct highly frequent price indices from original historical documents, because existing rice price indices are not frequent enough. Relying on newly constructed daily price indices, this paper shows that the Dojima rice market in Osaka had achieved informational efficiency during the period from 1798 to 1864.
First, unit root tests confirmed that both the base money and the money supply were non-stationary time series. Moreover, the ADF-test confirmed that both variables had co-integration, and so the credit multiplier in the 1930s was proven to be stable.
Next, the ADF-test clarified the existence of co-integration by four models between the monetary demand and the real economy by using non-stationary time series (the money supply, the index of mining and industrial output, the stock index, and the call-rate). In addition, we observed the significance of the negative coefficient of the error correction term that was a short-term divergence from the state of balance of the monetary demand and the real economy by ECM. So the long-term balance relation between money and the real economy was thus proven to be stable.
As a result of these analyses, the credit multiplier and the money demand function were proven to be stable in Japan in the 1930s.
The steel industry was under the control of the Ministry of Munitions (especially the Steel Section, which later developed into the Iron and Steel Department), a situation that lasted until the end of the war. In order to coordinate supply for the conflicting demands for steel, the Ministry of Munitions introduced a steel allocation system for supply and production. It also fixed the maximum price of iron and steel products and granted steel-makers subsidies to keep price rises in check and so as not to disrupt the contract manufacture of munitions. In addition, attempts to restrict exports and increase imports of steel were made. The main goal for the Ministry of Munitions was to enlarge steel production capacity and, by providing financial assistance to steel-makers, to promote investment in plants and equipment.
Although the above-mentioned policies could only barely meet the vast demand for steel, many problems arose, such as imposition of a heavy burden on the exchequer. It must be noted that the resulting surplus in steel production capacity caused a depression in the steel trade during the 1920s.