Typography

1942 Japanese Invasion Philippines Peso with a JAPWANCAP Stamp In his reply to Mike Sproul, Kurt Schuler brings up the question of the determination of the value of a very peculiar kind of money: military currency. Curious, I investigated one example of such money, Japanese-issued "invasion money" in Philippines both during and after World War II. As best I can tell, the mechanism by which the value of these military notes has been mediated has gone through three different phases, each of them teaching us something interesting about money. In January 3, 1942, a few weeks after successfully invading Philippines, the Japanese Commander-in-Chief announced that occupying forces would henceforth use military-issued currency as legal tender. Notes were to circulate at par with existing Philippines "Commonwealth" Pesos. Since this military scrip was not directly convertible into existing pesos, the trick to get it to circulate at par can probably be found in the tersely t...

Paul Krugman points to Japan's apparent resurgence in GDP and asks: "There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it …" My comment: The lesson here is that one needs to be careful when trying to understand natural disasters using flow-based identities like Y=C+I+G. The latter fails to account for large draw-downs in national wealth due to, say, tsunamis. Using a stock identity, and stock related data like national net worth, will be more helpful in this situation. For a proper accounting treatment of Japan's experience, Krugman should refer to the 722 page UN System of National Accounts Manual ( pdf ). Krugman wants to use the production accounts for his analysis, which are represented as flows. He should be using the wealth account, in particular new worth , which is a stock. The tsunami will have resulted in a large fall in Japan's net worth. This is elementary, so I don't know why a Nobel-prize winnin...

Lars Christensen teaches me some interesting things about Japan and deflation in Did Japan have a “productivity norm”? See also an older post here titled Japan’s deflation story is not really a horror story . This involves George Selgin's idea of the productivity norm. See Less than Zero (pdf). I notice that Paul Krugman has also chimed in on Japan, charting GDP per working age citizen rather than GDP so as to adjust for demographics. *Update: Lars has responded to the Krugman post here , and includes another chart. As I pointed out in the comments, I am not entirely convinced by his chart because he computes it on a per capita basis, not a per worker basis. Krugman's chart measures the ratio of Japan's per worker GDP to that of the US, which is a more powerful way to visually tell the tale. Unfortunately the time axis's resolution is by the decade in Krugman's chart, which gives no granularity, and he only includes the US. So I made my own chart. I think it's...