In sum, the inflation tolerant aspect of the priority production system weakened the financial intermediation function and impeded fund flows from household savings to corporate investments, thereby having a negative impact on the economy. The net effect of the priority production system on economic reconstruction was lessened due to high inflation.
Japan’s experience of post-war reconstruction suggests that price stability is a necessary condition for a stable financial intermediation function, and that policy-makers should pay attention to price stability in order to fully realize the effect of mobilizing resources for financing development.