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OMNIPOTENT
GOVERNMENT
The Rise of the Total State and Total War
BY
Ludwig von Mises
NEW HAVEN Tale University Press
COPYRIGHT, 1944, BY YALE UNIVERSITY PRESS Printed in the United States of America
First published, May, 1944
Second printing, February, 1945
Third printing, May, 1945
All rights reserved. This book may not be reproduced, in whole or in part, in any form (except by reviewers for the public press), without written permission from the publishers.
A WARTIME BOOK
THIS COMPLETE EDITION IS PRODUCED IN FULL COMPLIANCE WITH THE GOVERN- MENT'S REGULATIONS FOR CONSERVING PAPER AND OTHER ESSENTIAL MATERIALS.
Preface
IN dealing with the problems of social and economic policies, the social sciences consider only one question: whether the measures suggested are really suited to bringing about the effects sought by their authors, or whether they result in a state of affairs which — from the viewpoint of their supporters — is even more undesirable than the previous state which it was in- tended to alter. The economist does not substitute his own judg- ment about the desirability of ultimate ends for that of his fellow citizens. He merely asks whether the ends sought by nations, gov- ernments, political parties, and pressure groups can indeed be at- tained by the methods actually chosen for their realization.
It is, to be sure, a thankless task. Most people are intolerant of any criticism of their social and economic tenets. They do not understand that the objections raised refer only to unsuitable methods and do not dispute the ultimate ends of their efforts. They are not prepared to admit the possibility that they might attain their ends more easily by following the economists' advice than by disregarding it. They call an enemy of their nation, race, or group anyone who ventures to criticize their cherished policies.
This stubborn dogmatism is pernicious and one of the root causes of the present state of world affairs. An economist who as- serts that minimum wage rates are not the appropriate means of raising the wage earners' standard of living is neither a "labor baiter" nor an enemy of the workers. On the contrary, in suggesting more suitable methods for the improvement of the wage earners' material well-being, he contributes as much as he can to a genuine promotion of their prosperity.
To point out the advantages which everybody derives from the working of capitalism is not tantamount to defending the vested interests of the capitalists. An economist who forty or fifty years ago advocated the preservation of the system of private property and free enterprise did not fight for the selfish class interests of the then rich. He wanted a free hand left to those unknown among his penniless contemporaries who had the ingenuity to develop all those new industries which today render the life of the common man more pleasant. Many pioneers of these industrial changes, it is true, became rich. But they acquired their wealth by supplying the public with motor cars, airplanes, radio sets, refrigerators, moving and talking pictures, and a variety of less spectacular but
iv Omnipotent Government
no less useful innovations. These new products were certainly not an achievement of offices and bureaucrats. Not a single technical improvement can be credited to the Soviets. The best that the Russians have achieved was to copy some of the improvements of the capitalists whom they continue to disparage. Mankind has not reached the stage of ultimate technological perfection. There is ample room for further progress and for further improvement of the standards of living. The creative and inventive spirit subsists notwithstanding all assertions to the contrary. But it flourishes only where there is economic freedom.
Neither is an economist who demonstrates that a nation (let us call it Thule) hurts its own essential interests in its conduct of foreign-trade policies and in its dealing with domestic minority groups, a foe of Thule and its people.
It is futile to call the critics of inappropriate policies names and to cast suspicion upon their motives. That might silence the voice of truth, but it cannot render inappropriate policies appropriate.
The advocates of totalitarian control call the attitudes of their opponents negativism. They pretend that while they themselves are demanding the improvement of unsatisfactory conditions, the others are intent upon letting the evils endure. This is to judge all social questions from the viewpoint of narrow-minded bureaucrats. Only to bureaucrats can the idea occur that establishing new offices, promulgating new decrees, and increasing the number of govern- ment employees alone can be described as positive and beneficial measures, whereas everything else is passivity and quietism.
The program of economic freedom is not negativistic. It aims positively at the establishment and preservation of the system of market economy based on private ownership of the means of pro- duction and free enterprise. It aims at free competition and at the sovereignty of the consumers. As the logical outcome of these de- mands the true liberals are opposed to all endeavors to substitute government control for the operation of an unhampered market economy. Laissez faire, laissez passer does not mean: let the evils last. On the contrary, it means: do not interfere with the operation of the market because such interference must necessarily restrict output and make people poorer. It means furthermore: do not abolish or cripple the capitalist system which, in spite of all ob- stacles put in its way by governments and politicians, has raised the standard of living of the masses in an unprecedented way.
Liberty is not, as the German precursors of Nazism asserted, a negative ideal. Whether a concept is presented in an affirmative or in a negative form is merely a question of idiom. Freedom from want is tantamount to the expression striving after a state of affairs
Preface v
under which people are better supplied with necessities. Freedom of speech is tantamount to a state of affairs under which everybody can say what he wants to say.
At the bottom of all totalitarian doctrines lies the belief that the rulers are wiser and loftier than their subjects and that they there- fore know better what benefits those ruled than they themselves. Werner Sombart, for many years a fanatical champion of Marxism and later a no less fanatical advocate of Nazism, was bold enough to assert frankly that the Fiihrer gets his orders from God, the su- preme Fuhrer of the universe, and that Fuhrertum is a permanent revelation.* Whoever admits this, must, of course, stop questioning the expediency of government omnipotence.
Those disagreeing with this theocratical justification of dictator- ship claim for themselves the right to discuss freely the problems involved. They do not write state with a capital S. They do not shrink from analyzing the metaphysical notions of Hegelianism and Marxism. They reduce all this high-sounding oratory to the simple question: are the means suggested suitable to attain the ends sought? In answering this question, they hope to render a service to the great majority of their fellow men.
Ludwig von Mises New York, January, 1944
ACKNOWLEDGMENT
I AM grateful to the Rockefeller Foundation and to the National Bureau of Economic Research for grants which enabled me to undertake this study. Mr. Henry Hazlitt has helped me greatly with his criticism and suggestions and by editing the whole manu- script. Mr. Arthur Goodman has advised me in linguistic and stylis- tic problems. Mr. Eugene Davidson of Yale University Press has assisted me in many ways. The responsibility for all opinions ex- pressed is, of course, exclusively my own.
* Deutscher Sozialismus (Charlottenburg, 1934), p. 213. American ed., A New Social Philosophy, translated and edited by K. F. Geiser (Princeton, 1937), p. 194.
Contents
PREFACE iii
INTRODUCTION i
PART I. THE COLLAPSE OF GERMAN LIBERALISM
I. GERMAN LIBERALISM 18
1. The Ancien Regime and Liberalism 18
2. The Weakness of German Liberalism 22
3. The Prussian Army 23
4. The Constitutional Conflict in Prussia 27
5. The "Little German" Program 29
6. The Lassalle Episode 31
II. THE TRIUMPH OF MILITARISM 33
1. The Prussian Army in the New German Empire 33
2. German Militarism 35
3. The Liberals and Militarism 40
4. The Current Explanation of the Success of Militarism 41
PART II. NATIONALISM
III. ETATISM 44
1. The New Mentality 44
2. The State 46
3. The Political and Social Doctrines of Liberalism 48
4. Socialism 51
5. Socialism in Russia and in Germany 55
6. Interventionism 58
7. Etatism and Protectionism 66
8. Economic Nationalism and Domestic Monopoly Prices 69
9. Autarky 72 10. German Protectionism 74
IV. ETATISM AND NATIONALISM 7g
1. The Principle of Nationality 79
2. The Linguistic Group 84
3. Liberalism and the Principle of Nationality 89
4. Aggressive Nationalism 93
5. Colonial Imperialism 96
6. Foreign Investment and Foreign Loans 101
7. Total War ^4
8. Socialism and War 107
V. REFUTATION OF SOME FALLACIOUS EXPLANATIONS 112
1. The Shortcomings of Current Explanations 112
2. The Alleged Irrationality of Nationalism 112
3. The Aristocratic Doctrine ug
viii Omnipotent Government
4. Misapprehended Darwinism 120
5. The Role of Chauvinism 122
6. The Role of Myths 125
PART III. GERMAN NAZISM
VI. THE PECULIAR CHARACTERISTICS OF GERMAN NATIONALISM 129
1. The Awakening 129
2. The Ascendancy of Pan-Germanism 131
3. German Nationalism Within an Etatist World 135
4. A Critique of German Nationalism 138
5. Nazism and German Philosophy 140
6. Polylogism 143
7. Pan-Germanism and Nazism 147
VII. THE SOCIAL DEMOCRATS IN IMPERIAL GERMANY 149
1. The Legend 149
2. Marxism and the Labor Movement 150
3. The German Workers and the German State 155
4. The Social Democrats Within the German Caste System 161
5. The Social Democrats and War 164
VIII. ANTI-SEMITISM AND RACISM 169
1. The Role of Racism 169
2. The Struggle against the Jewish Mind 174
3. Interventionism and Legal Discrimination against Jews 181
4. The "Stab in the Back" 186
5. Anti-Semitism as a Factor in International Politics 188
IX. THE WEIMAR REPUBLIC AND ITS COLLAPSE 193
1. The Weimar Constitution 193
2. The Abortive Socialization 203
3. The Armed Parties 206
4. The Treaty of Versailles 211
5. The Economic Depression 218
6. Nazism and German Labor 219
7. The Foreign Critics of Nazism 221
X. NAZISM AS A WORLD PROBLEM 229
1. The Scope and Limitations of History 229
2. The Fallacy of the Concept of "National Character" 231
3. Germany's Rubicon 234
4. The Alternative 237
PART IV. THE FUTURE OF WESTERN CIVILIZATION
XI. THE DELUSIONS OF WORLD PLANNING 240
1. The Term "Planning" 240
2. The Dictatorship Complex 241
3. A World Government 243
4. Planned Production 246
5. Foreign Trade Agreements 249
Contents ix
6. Monetary Planning . 251
7. Planning International Capital Transactions 254
XII. PEACE SCHEMES 256
1. Armament Control 256
2. A Critique of Some Other Schemes Proposed 260
3. The Union of the Western Democracies 265
4. Peace in Eastern Europe 271
5. The Problems of Asia 278
6. The Role of the League of Nations 280
CONCLUSION 282
INDEX 289
OMNIPOTENT GOVERNMENT
Introduction
r
essential point in the plans of the German National Socialist Workers' party is the conquest of Lebensraum for the Germans, i.e., a territory so large and rich in natural resources that they could live in economic self- sufficiency at a standard not lower than that of any other nation. It is obvious that this program, which challenges and threatens all other nations, cannot be realized except through the establish- ment of German world hegemony.
The distinctive mark of Nazism is not socialism or totalitarianism or nationalism. In all nations today the "progressives" are eager to substitute socialism for capitalism. While fighting the German aggressors Great Britain and the United States are, step by step, adopting the German pattern of socialism. Public opinion in both countries is fully convinced that government all-round control of business is inevitable in time of war, and many eminent politicians and millions of voters are firmly resolved to keep socialism after the war as a permanent new social order. Neither are dictatorship and violent oppression of dissenters peculiar features of Nazism. They are the Soviet mode of government, and as such advocated all over the world by the numerous friends of present-day Russia. Nationalism — an outcome of government interference with busi- ness, as will be shown in this book — determines in our age the foreign policy of every nation. What characterizes the Nazis as such is their special kind of nationalism, the striving for Lebensraum.
This Nazi goal does not differ in principle from the aims of the earlier German nationalists, whose most radical group called them- selves in the thirty years preceding the first World War A lldeutsche (Pan-Germans). It was this ambition which pushed the Kaiser's Germany into the first World War and — twenty-five years later — kindled the second World War.
The Lebensraum program cannot be traced back to earlier German ideologies or to precedents in German history of the last five hundred years. Germany had its chauvinists as all other nations had. But chauvinism is not nationalism. Chauvinism is the over- valuation of one's own nation's achievements and qualities and the disparagement of other nations; in itself it does not result in
2 Omnipotent Government
any action. Nationalism, on the other hand, is a blueprint for political and military action and the attempt to realize these plans. German history, like the history of other nations, is the record of princes eager for conquest; but these emperors, kings, and dukes wanted to acquire wealth and power for themselves and for their kin, not Lebensraum for their nation. German aggressive national- ism is a phenomenon of the last, sixty years. It developed out of modern economic conditions and economic policies.
Neither should nationalism be confused with the striving for popular government, national self-determination and political autonomy. When the German nineteenth-century liberals aimed at a substitution of a democratic government of the whole German nation for the tyrannical rule of thirty-odd princes, they did not harbor any hostile designs against other nations. They wanted to get rid of despotism and to establish parliamentary government. They did not thirst for conquest and territorial expansion. They did not intend to incorporate into the German state of their dreams the Polish and Italian territories which their princes had con- quered; on the contrary, they sympathized with the aspirations of the Polish and the Italian liberals to establish independent Polish and Italian democracies. They were eager to promote the welfare of the German nation, but they did not believe that oppression of foreign nations and inflicting harm on foreigners best served their own nation.
Neither is nationalism identical with patriotism. Patriotism is the zeal for one's own nation's welfare, flowering, and freedom. Na- tionalism is one of the various methods proposed for the attainment of these ends. But the liberals contend that the means recommended by nationalism are inappropriate, and that their application would not only not realize the ends sought but on the contrary must result in disaster for the nation. The liberals too are patriots, but their opinions with regard to the right ways toward national prosperity and greatness radically differ from those of the nationalists. They recommend free trade, international division of labor, good will, and peace among the nations, not for the sake of foreigners but for the promotion of the happiness of their own nation.
It is the aim of nationalism to promote the well-being of the whole nation or of some groups of its citizens by inflicting harm on foreigners. The outstanding method of modern nationalism is discrimination against foreigners in the economic sphere. Foreign goods are excluded from the domestic market or admitted only after the payment of an import duty. Foreign labor is barred from com- petition in the domestic labor market. Foreign capital is liable to confiscation. This economic nationalism must result in war when-
Introduction 3
ever those injured believe that they are strong enough to brush away by armed violent action the measures detrimental to their own welfare.
A nation's policy forms an integral whole. Foreign policy and domestic policy are closely linked together; they are but one sys- tem; they condition each other. Economic nationalism is the corol- lary of the present-day domestic policies of government interference with business and of national planning, as free trade was the complement of domestic economic freedom. There can be protec- tionism in a country with domestic free trade, but where there is no domestic free trade protectionism is indispensable. A national government's might is limited to the territory subject to its sover- eignty. It does not have the power to interfere directly with conditions abroad. Where there is free trade, foreign competition would even in the short run frustrate the aims sought by the various measures of government intervention with domestic busi- ness. When the domestic market is not to some extent insulated from foreign markets, there can be no question of government control. The further a nation goes on the road toward public regulation and regimentation, the more it is pushed toward eco- nomic isolation. International division of labor becomes suspect because it hinders the full use of national sovereignty. The trend toward autarky is essentially a trend of domestic economic policies; it is the outcome of the endeavor to make the state paramount in economic matters.
Within a world of free trade and democracy there are no in- centives for war and conquest. In such a world it is of no concern whether a nation's sovereignty stretches over a larger or a smaller territory. Its citizens cannot derive any advantage from the an- nexation of a province. Thus territorial problems can be treated without bias and passion; it is not painful to be fair to other people's claims for self-determination. Free-trade Great Britain freely granted dominion status, i.e., virtual autonomy and political independence, to the British settlements overseas, and ceded the Ionian Islands to Greece. Sweden did not venture military action to prevent the rupture of the bond linking Norway to Sweden; the royal house of Bernadotte lost its Norwegian crown, but for the individual citizen of Sweden it was immaterial whether or not his king was sovereign of Norway too. In the days of liberalism people could believe that plebiscites and the decisions of international tribunals would peacefully settle all disputes among nations. What was needed to safeguard peace was the overthrow of antiliberal governments. Some wars and revolutions were still considered unavoidable in order to eliminate the last tyrants and to destroy
4 Omnipotent Government
some still-existing trade walls. And if this goal were ever attained, no more causes for war would be left. Mankind would be in a position to devote all its efforts to the promotion of the general welfare.
But while the humanitarians indulged in depicting the blessings of this liberal Utopia, they did not realize that new ideologies were on the way to supplant liberalism and to shape a new order arousing antagonisms for which no peaceful solution could be found. They did not see it because they viewed these new mentalities and policies as the continuation and fulfillment of the essential tenets of liberal- ism. Antiliberalism captured the popular mind disguised as true and genuine liberalism. Today those styling themselves liberals are supporting programs entirely opposed to the tenets and doc- trines of the old liberalism. They disparage private ownership of the means of production and the market economy, and are enthu- siastic friends of totalitarian methods of economic management. They are striving for government omnipotence, and hail every measure giving more power to officialdom and government agen- cies. They condemn as a reactionary and an economic royalist whoever does not share their predilection for regimentation.
These self-styled liberals and progressives are honestly convinced that they are true democrats. But their notion of democracy is just the opposite of that of the nineteenth century. They confuse democracy with socialism. They not only do not see that socialism and democracy are incompatible but they believe that socialism alone means real democracy. Entangled in this error, they consider the Soviet system a variety of popular government.
European governments and parliaments have been eager for more than sixty years to hamper the operation of the market, to interfere with business, and to cripple capitalism. They have blithely ignored the warnings of economists. They have erected trade barriers, they have fostered credit expansion and an easy money policy, they have taken recourse to price control, to mini- mum wage rates, and to subsidies. They have transformed taxation into confiscation and expropriation; they have proclaimed heedless spending as the best method to increase wealth and welfare. But when the inevitable consequences of such policies, long before predicted by the economists, became more and more obvious, public opinion did not place the blame on these cherished policies; it indicted capitalism. In the eyes of the public not anticapitalistic policies but capitalism is the root cause of economic depression, of unemployment, of inflation and rising prices, of monopoly and of waste, of social unrest and of war.
The fateful error that frustrated all the endeavors to safeguard
Introduction 5
peace was precisely that people did not grasp the fact that only within a world of pure, perfect, and unhampered capitalism are there no incentives for aggression and conquest. President Wilson was guided by the idea that only autocratic governments are war- like, while democracies cannot derive any profit from conquest and therefore cling to peace. What President Wilson and the other founders of the League of Nations did not see was that this is valid only within a system of private ownership of the means of production, free enterprise, and unhampered market economy. Where there is no economic freedom, things are entirely different. In our world of etatism,* in which every nation is eager to insulate itself and to strive toward autarky, it is quite wrong to assert that no man can derive any gain from conquest. In this age of trade walls and migration barriers, of foreign exchange control and .of ex- propriation of foreign capital, there are ample incentives for war and conquest. Nearly every citizen has a material interest in the nullification of measures by which foreign governments may injure him. Nearly every citizen is therefore eager to see his own country mighty and powerful, because he expects personal advantage from its military might. The enlargement of the territory subject to the sovereignty of its own government means at least relief from the evils which a foreign government has inflicted upon him.
We may for the moment abstain from dealing with the problem of whether democracy can survive under a system of government interference with business or of socialism. At any rate it is beyond doubt that under etatism the plain citizens themselves turn toward aggression, provided the military prospects for success are favorable. Small nations cannot help being victimized by other nations' eco- nomic nationalism. But big nations place confidence in the valor of their armed forces. Present-day bellicosity is not the outcome of the greed of princes and of Junker oligarchies; it is a pressure group policy whose distinctive mark lies in the methods applied but not in the incentives and motives. German, Italian, and Japanese workers strive for a higher standard of living when fighting against other nations' economic nationalism. They are badly mistaken; the means chosen are not appropriate to attain the ends sought. But their errors are consistent with the doctrines of class war and social revolution so widely accepted today. The imperialism of the Axis is not a policy that grew out of the aims of an upper class. If we were to apply the spurious concepts of popular Marxism, we
* The term "etatism" (derived from the French 4tat — state) seems to me preferable to the newly coined term "statism." It clearly expresses the fact that etatism did not originate in the Anglo-Saxon countries, and has only lately got hold of the Anglo- Saxon mind.
6 Omnipotent Government
should have to style it labor imperialism. Paraphrasing General Clausewitz' famous dictum, one could say: it is only the continua- tion of domestic policy by other means, it is domestic class war shifted to the sphere of international relations.
For more than sixty years all European nations have been eager to assign more power to their governments, to expand the sphere of government compulsion and coercion, to subdue to the state all human activities and efforts. And yet pacifists have repeated again and again that it is no concern of the individual citizen whether his country is large or small, powerful or weak. They have praised the blessings of peace while millions of people all over the world were putting all their hopes upon aggression and conquest. They have not seen that the only means to lasting peace is to re- move the root causes of war. It is true that these pacifists have made some timid attempts to oppose economic nationalism. But they have never attacked its ultimate cause, etatism — the trend toward government control of business — and thus their endeavors were doomed to fail.
Of course, the pacifists are aiming at a supernational world authority which could peacefully settle all conflicts between various nations and enforce its rulings by a supernational police force. But what is needed for a satisfactory solution of the burning problem of international relations is neither a new office with more com- mittees, secretaries, commissioners, reports, and regulations, nor a new body of armed executioners, but the radical overthrow of mentalities and domestic policies which must result in conflict. The lamentable failure of the Geneva experiment was precisely due to the fact that people, biased by the bureaucratic superstitions of etatism, did not realize that offices and clerks cannot solve any problem. Whether or not there exists a supernational authority with an international parliament is of minor importance. The real need is to abandon policies detrimental to the interests of other nations. No international authority can preserve peace if economic wars continue. In our age of international division of labor, free trade is the prerequisite for any amicable arrangement between nations. And free trade is impossible in a world of etatism.
The dictators offer us another solution. They are planning a "New Order," a system of world hegemony of one nation or of a group of nations, supported and safeguarded by the weapons of victorious armies. The privileged few will dominate the immense majority of "inferior" races. This New Order is a very old concept. All conquerors have aimed at it; Genghis Khan and Napoleon were precursors of the Fiihrer. History has witnessed the failure of many
Introduction 7
endeavors to impose peace by war, cooperation by coercion, una- nimity by slaughtering dissidents. Hitler will not succeed better than they. A lasting order cannot be established by bayonets. A minority cannot rule if it is not supported by the consent of those ruled; the rebellion of the opppressed will overthrow it sooner or later, even if it were to succeed for some time. But the Nazis have not even the chance to succeed for a short time. Their assault is doomed.
II
THE present crisis of human civilization has its focal point in Germany. For more than half a century the Reich has been the disturber of the peace. The main concern of European diplomacy, in the thirty years preceding the first World War, was to keep Germany in check by various schemes and tricks. But for German bellicosity, neither the Czars' craving for power nor the antagonisms and rivalries of the various nationalities of southeastern Europe would have seriously disturbed the world's peace. When the devices of appeasement broke down in 1914, the forces of hell burst forth.
The fruits of the victory of the Allies were lost by the short- comings of the peace treaties, by the faults of the postwar policies, and by the ascendancy of economic nationalism. In the turmoil of these years between the two wars, when every nation was eager to inflict as much harm on other nations as possible, Germany was free to prepare a more tremendous assault. But for the Nazis, neither Italy nor Japan would be a match for the United Nations. This new war is a German war as was the first World War.
It is impossible to conceive the fundamental issues of this most terrible of all wars ever fought without an understanding of the main facts of German history. A hundred years ago the Germans were quite different from what they are today. At that time it was not their ambition to surpass the Huns and to outdo Attila. Their guiding stars were Schiller and Goethe, Herder and Kant, Mozart and Beethoven. Their leitmotiv was liberty, not conquest and oppression. The stages of the process which transformed the nation once styled by foreign observers that of the poets and thinkers into that of ruthless gangs of the Nazi Storm Troops ought to be known by everybody who wants to mold his own judgment on current world political affairs and problems. To understand the springs and tendencies of Nazi aggressiveness is of the highest importance both for the political and military conduct of the war and for the shaping of a durable postwar order. Many mistakes
8 Omnipotent Government
could have been avoided and many sacrifices spared by a better and clearer insight into the essence and the forces of German nationalism.
It is the task of the present book to trace the outlines of the changes and events which brought about the contemporary state of German and European affairs. It seeks to correct many popular errors which sprang from legends badly distorting historical facts and from doctrines misrepresenting economic developments and policies. It deals both with history and with fundamental issues of sociology and economics. It tries not to neglect any point of view the elucidation of which is necessary for a full description of the world's Nazi problem.
Ill
IN the history of the last two hundred years we can discern two distinctive ideological trends. There was first the trend toward freedom, the rights of man, and self-determination. This indi- vidualism resulted in the fall of autocratic government, the estab- lishment of democracy, the evolution of capitalism, technical improvements, and an unprecedented rise in standards of living. It substituted enlightenment for old superstitions, scientific methods of research for inveterate prejudices. It was an epoch of great artistic and literary achievements, the age of immortal musicians, painters, writers, and philosophers. And it brushed away slavery, serfdom, torture, inquisition, and other remnants of the dark ages.
In the second part of this period individualism gave way to another trend, the trend toward state omnipotence. Men now seem eager to vest all powers in governments, i.e., in the apparatus of social compulsion and coercion. They aim at totalitarianism, that is, conditions in which all human affairs are managed by governments. They hail every step toward more government inter- ference as progress toward a more perfect world; they are confident that the governments will transform the earth into a paradise. Characteristically, nowadays in the countries furthest advanced toward totalitarianism even the use of the individual citizen's lei- sure time is considered as a task of the government. In Italy dopo- lavoro and in Germany Freizeitgestaltung are regular legitimate fields of government interference. To such an extent are men entangled in the tenets of state idolatry that they do not see the paradox of a government-regulated leisure.
It is not the task of this book to deal with all the problems of statolatry or etatism. Its scope is limited to the treatment of the
Introduction 9
consequences of etatism for international relations. In our age of international division of labor, totalitarianism within several scores of sovereign national governments is self-contradictory. Economic considerations are pushing every totalitarian government toward world domination. The Soviet government is by the deed of its foundation not a national government but a universal govern- ment, only by unfortunate conditions temporarily prevented from exercising its power in all countries. Its official name does not contain any reference to Russia. It was the aim of Lenin to make it the nucleus of a world government; there are in every country parties loyal only to the Soviets, in whose eyes the domestic gov- ernments are usurpers. It is not the merit of the Bolsheviks that these ambitious plans have not succeeded up to now and that the expected world revolution has not appeared. The Nazis have not changed the official designation of their country, the Deutsches Reich. But their literary champions consider the Reich the only legitimate government, and their political chiefs openly crave world hegemony. The intellectual leaders of Japan have been imbued at European universities with the spirit of etatism, and, back home, have revived the old tenet that their divine Emperor, the son of Heaven, has a fair title to rule all peoples. Even the Duce, in spite of the military impotence of his country, proclaimed his intention to reconstruct the ancient Roman Empire. Spanish Falangists babble about a restoration of the domain of Philip II.
In such an atmosphere there is no room left for the peaceful cooperation of nations. The ordeal through which mankind is going in our day is not the outcome of the operation of uncon- trollable natural forces. It is rather the inevitable result of the working of doctrines and policies popular with millions of our contemporaries.
However, it would be a fateful mistake to assume that a return to the policies of liberalism abandoned by the civilized nations some decades ago could cure these evils and open the way toward peaceful cooperation of nations and toward prosperity. If Euro- peans and the peoples of European descent in other parts of the earth had not yielded to etatism, if they had not embarked upon vast schemes of government interference with business, our recent political, social, and economic disasters could have been avoided. Men would live today under more satisfactory conditions and would not apply all their skill and all their intellectual powers to mutual extermination. But these years of antagonism and conflict have left a deep impression on human mentality, which cannot easily be eradicated. They have marked the souls of men, they have disintegrated the spirit of human cooperation, and have engendered
io Omnipotent Government
hatreds which can vanish only in centuries. Under present condi- tions the adoption of a policy of outright laissez faire and laissez passer on the part of the civilized nations of the West would be equivalent to an unconditional surrender to the totalitarian na- tions. Take, for instance, the case of migration barriers. Unre- strictedly opening the doors of the Americas, of Australia, and of Western Europe to immigrants would today be equivalent to open- ing the doors to the vanguards of the armies of Germany, Italy, and Japan.
There is no other system which could safeguard the smooth coordination of the peaceful efforts of individuals and nations but the system today commonly scorned as Manchesterism. We may hope — although such hopes are rather feeble — that the peoples of the Western democratic world will be prepared to acknowledge this fact, and to abandon their present-day totalitarian tendencies. But there can be no doubt that to the immense majority of men militarist ideas appeal much more than those of liberalism. The most that can be expected for the immediate future is the separa- tion of the world into two sections: a liberal, democratic, and capitalist West with about one quarter of the total world popula- tion, and a militarist and totalitarian East embracing the much greater part of the earth's surface and its population. Such a state of affairs will force upon the West policies of defense which will seriously hamper its efforts to make life more civilized and economic conditions more prosperous.
Even this melancholy image may prove too optimistic. There are no signs that the peoples of the West are prepared to abandon their policies of etatism. But then they will be prevented from giving up their mutual economic warfare, their economic national- ism, and from establishing peaceful relations among their own countries. Then we shall stand where the world stood in the period between the two world wars. The result will be a third war, more dreadful and more disastrous than its precursors.
It is the task of the last part of this book to discuss the conditions which could preserve at least for the Western democracies some amount of political and economic security. It is its aim to find out whether there is any imaginable scheme which could make for durable peace in this age of the omnipotence of the state.
IV
THE main obstacle both to every attempt to study in an unbiased way the social, political, and economic problems of our day, and to all endeavors to substitute more satisfactory policies for those
Introduction 1 1
which have resulted in the present crisis of civilization, is to be found in the stubborn, intransigent dogmatism of our age. A new type of superstition has got hold of people's minds, the worship of the state. People demand the exercise of the methods of coercion and compulsion, of violence and threat. Woe to anybody who does not bend his knee to the fashionable idols 1
The case is obvious with present-day Russia and Germany. One cannot dispose of this fact by calling the Russians and the Germans barbarians and saying that such things cannot and will not happen with the more civilized nations of the West. There are only a few friends of tolerance left in the West. The parties of the Left and of the Right are everywhere highly suspicious of freedom of thought. It is very characteristic that in these years of the desperate struggle against the Nazi aggression a distinguished British pro-Soviet author has the boldness to champion the cause of inquisition. "Inquisition," says T. G. Crowther, "is beneficial to science when it protects a rising class." * For "the danger or value of an inquisition depends on whether it is used on behalf of a reactionary or a progres- siving governing class." f But who is "progressive" and who is "re- actionary"? There is a remarkable difference with regard to this issue between Harold Laski and Alfred Rosenberg.
It is true that outside of Russia and Germany dissenters do not yet risk the firing squad or slow death in a concentration camp.| But few are any longer ready to pay serious attention to dissenting views. If a man tries to question the doctrines of etatism or national- ism, hardly anyone ventures to weigh his arguments. The heretic is ridiculed, called names, ignored. It has come to be regarded as insolent or outrageous to criticize the views of powerful pressure groups or political parties, or to doubt the beneficial effects of state omnipotence. Public opinion has espoused a set of dogmas which there is less and less freedom to attack. In the name of progress and freedom both progress and freedom are being out- lawed.
Every doctrine that has recourse to the police power or to other
* Crowther, Social Relations of Science (London, 1941), p. 333.
•fldem, p. 331.
j Fascism too is a totalitarian system of ruthless oppression. However, there still are some slight differences between Fascism on the one hand and Nazism and Bolshevism on the other hand. The philosopher and historian Benedetto Croce has lived in Naples, carfully shadowed by the police, but free to write and to publish several books imbued with the spirit of democracy and with the love of liberty. Professor Antonio Qraziadei, a communist ex -member of the Italian Parliament, has clung unswervingly to his communistic ideas. Nevertheless he has lived in Italy and written and published (with the most eminent Italian publishing houses) books which are orthodox Marxian. There are still more cases of this type. Such exceptional facts do not alter the charac- teristic features of Fascism. But the historian does not have the right to ignore them.
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methods of violence or threat for its protection reveals its inner weakness. If we had no other means to judge the Nazi doctrines, the single fact that they seek shelter behind the Gestapo would be sufficient evidence against them. Doctrines which can stand the trial of logic and reason can do without persecuting skeptics.
This war was not caused by Nazism alone. The failure of all other nations to stop the rise of Nazism in time and to erect a bar- rier against a new German aggression was not less instrumental in bringing about the disaster than were the events of Germany's domestic evolution. There was no secrecy about the ambitions of the Nazis. The Nazis themselves advertised them in innumerable books and pamphlets, and in every issue of their numerous news- papers and periodicals. Nobody can reproach the Nazis with having concocted their plots clandestinely. He who had ears to hear and eyes to see could not help but know all about their aspirations.
The responsibility for the present state of world affairs lies with those doctrines and parties that have dominated the course of politics in the last decades. Indicting Nazism is a queer way to exculpate the culprits. Yes, the Nazis and their allies are bad people. But it should be the primary aim of politics to protect nations against the dangers originating from the hostile attitudes of bad people. If there were no bad people, there would not be any need for a government. If those in a position to direct the activities of governments do not succeed in preventing disaster, they have given proof that they are not equal to their task.
There was in the last twenty-five years but one political problem: to prevent the catastrophe of this war. But the politicians were either struck with blindness or incapable of doing anything to avoid the impending disaster.
The parties of the Left are in the happy position of people who have received a revelation telling them what is good and what is bad. They know that private property is the source of all ills, and that public control of the means of production will transform the earth into a paradise. They wash their hands of any responsibility; this " imperialist" war is simply an outcome of capitalism, as all wars have been. But if we pass in review the political activities of the socialist and communist parties in the Western democracies, we can easily discover that they did all that they could to encourage the Nazi plans for aggression. They have propagated the doctrine that disarmament and neutrality are the best means to stop the Nazis and the other Axis powers. They did not intend to aid the Nazis. But if they had had this intention, they could not have acted differently.
Introduction 13
The ideals of the Left are fully realized in Soviet Russia. Here is Marxism supreme; the proletarians alone rule. But Soviet Rus- sia failed even more lamentably than any other nation in preventing this war. The Russians knew very well that the Nazis were eager to conquer the Ukraine. Nevertheless, they behaved as Hitler wanted them to behave. Their policies contributed a good deal to the ascendancy of Nazism in Germany, to the rearmament of Germany, and finally to the outbreak of the war. It is no excuse for them that they were suspicious of the capitalist nations. There is no excuse for a policy harmful to one's own cause. No one can deny that the agreement of August, 1939, brought disaster for Russia. Stalin would have served his country far better by collaborat- ing with Great Britain than by his compromise with the Nazis.
The same holds true for the conduct of all other European countries. One could hardly imagine a more fatuous policy than that of Poland, when in 1938 it annexed a part of Czechoslovakia, or that of Belgium, when in 1936 it severed the ties of the alliance which linked it with France. The fate of the Poles, the Czechs, the Norwegians, the Dutch, the Belgians, the Greeks, and the Yugo- slavs deserves profound pity. But one cannot help asserting that they helped to bring their misfortune upon themselves. This second World War would never have broken out if the Nazis had expected to encounter on the first day of hostilities a united and adequately armed front of Great Britain, France, Russia, the United States, and all the small democracies of Europe, led by a unified command.
An investigation of the root causes of the ascendancy of Nazism must show not only how domestic German conditions begot Nazism but also why all other nations failed to protect themselves against the havoc. Seen from the viewpoint of the British, the Poles, or the Austrians, the chief question is not: What is wrong with the Nazis? but: What was wrong with our own policies with regard to the Nazi menace? Faced with the problem of tuberculosis, doctors do not ask: What is wrong with the germs? but: What is wrong with our methods of preventing the spread of the disease?
Life consists in adjusting oneself to actual conditions and in taking account of things as they really are, not as one would wish them to be. It would be more pleasant if there were neither germs nor dangerous barbarians. But he who wants to succeed has to fix his glance upon reality, not to indulge in wishful dreams.
There is no hope left for a return to more satisfactory conditions if people do not understand that they have failed completely in the main task of contemporary politics. All present-day political, social, and economic doctrines, and all parties and pressure groups apply-
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ing them, are condemned by an unappealable sentence of history. Nothing can be expected from the future if men do not realize that they were on the wrong path.
It is not a mark of hostility to any nation to establish the fact that its policies were entirely wrong and have resulted in a disastrous failure. It is not a sign of hostility to the members of any class, pressure group, or organization to try to point out wherein they were mistaken and how they have contributed to the present un- satisfactory state of affairs. The main task of contemporary social science is to defy the taboo by which the established doctrines seek to protect their fallacies and errors against criticism. He who, in the face of the tremendous catastrophe whose consequences cannot yet be completely seen, still believes that there are some doctrines, institutions, or policies beyond criticism, has not grasped the meaning of the portents.
Let the example of Germany stand as a warning to us. German Kultur was doomed on the day in 1870 when one of the most eminent German scientists — Emil du Bois-Reymond — could pub- licly boast, without meeting contradiction, that the University of Berlin was "the intellectual bodyguard of the house of Hohenzol- lern." Where the universities become bodyguards and the scholars are eager to range themselves in a "scientific front," the gates are open for the entry of barbarism. It is vain to fight totalitarianism by adopting totalitarian methods. Freedom can only be won by men unconditionally committed to the principles of freedom. The first requisite for a better social order is the return to unrestricted freedom of thought and speech.
V
WHOEVER wishes to understand the present state of political affairs must study history. He must know the forces which gave rise to our problems and conflicts. Historical knowledge is indispensable for those who want to build a better world.
Unfortunately the nationalists approach history in another tem- per. For them the past is not a source of information and instruc- tion but an arsenal of weapons for the conduct of war. They search for facts which can be used as pretexts and excuses for their drives for aggression and oppression. If the documents available do not provide such facts, they do not shrink from distorting truth and from falsifying documents.
In the early nineteenth century a Czech forged a manuscript in order to prove that his people's medieval ancestors had already reached a high stage of civilization and had produced fine literary
Introduction 15
works. For many decades Czech scholars fanatically asserted the authenticity of this poem, and for a long time the official cur- riculum of the Czech state gymnasiums of old Austria made its reading and interpretation the main topic in the teaching of Czech literature. About fifty years later a German forged the Ura Linda Chronicle in order to prove that the "Nordics'* created a civiliza- tion older and better than that of any other people. There are still Nazi professors who are not ready to admit that this chronicle is the clumsy forgery of an incompetent and stupid backwoodsman. But let us assume for the sake of argument that these two documents are authentic. What could they prove for the nationalists' aspira- tions? Do they support the claim of the Czechs to deny autonomy to several million Germans and Slovaks, or the claim of the Ger- mans to deny autonomy to all Czechs?
There is, for instance, the spurious dispute as to whether Nicholas Copernicus was a Pole or a German. The documents available do not solve the problem. It is at any rate certain that Copernicus was educated in schools and universities whose only language was Latin, that he knew no other mathematical and astronomical books than those written in Latin or Greek, and that he himself wrote his treatises in Latin only. But let us assume for the sake of argument that he really was the son of parents whose language was German. Could this provide a justification for the methods applied by the Germans in dealing with the Poles? Does it exculpate the German schoolteachers who — in the first decade of our century — flogged small children whose parents objected to the substitution of the German catechism for the Polish catechism in the schools of Prussia's Polish provinces? Does it today entitle the Nazis to slaughter Polish women and children?
It is futile to advance historical or geographical reasons in sup- port of political ambitions which cannot stand the criticism of democratic principles. Democratic government can safeguard peace and international cooperation because it does not aim at the op- pression of other peoples. If some peoples pretend that history or geography gives them the right to subjugate other races, nations, or peoples, there can be no peace.
It is unbelievable how deep-rooted these vicious ideas of hegem- ony, domination, and oppression are even among the most dis- tinguished contemporaries. Sefior Salvador de Madariaga is one of the most internationally minded of men. He is a scholar, a states- man, and a writer, and is perfectly familiar with the English and French languages and literatures. He is a democrat, a progressive, and an enthusiastic supporter of the League of Nations and of all endeavors to make peace durable. Yet his opinions on the political
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problems of his own country and nation are animated by the spirit of intransigent' nationalism. He condemns the demands of the Catalans and the Basques for independence, and advocates Castilian hegemony for racial, historical, geographical, linguistic, religious, and economic considerations. It would be justifiable if Sr. Mada- riaga were to refute the claims of these linguistic groups on the ground that it is impossible to draw undisputed border lines and that their independence would therefore not eliminate but per- petuate the causes of conflict; or if he were in favor of a trans- formation of the Spanish state of Castilian hegemony into a state in which every linguistic group enjoyed the freedom to use its own idiom. But this is not at all the plan of Sr. Madariaga. He does not advocate the substitution of a supernational government of the three linguistic groups, Castilians, Catalans, and Basques, for the Castile-dominated state of Spain. His ideal for Spain is Castilian supremacy. He does not want "Spain to let go the work of centuries in one generation/' * However, this work was not an achievement of the peoples concerned; it was the result of dynastic intermarriage. Is it right to object to the claims of the Catalans that in the twelfth century the Count of Barcelona married the King of Aragon's daughter and that in the fifteenth century the King of Aragon mar- ried the Queen of Castile?
Sr. Madariaga goes even further and denies to the Portuguese the right of autonomy and statehood. For "the Portuguese is a Spaniard with his back to Castile and his eyes on the Atlantic Sea.*' f Why, then, did not Spain absorb Portugal too? To this Sr. Madariaga gives a strange answer: "Castile could not marry both east and west at one time"; perhaps Isabel, "being a woman after all, . . . preferred Ferdinand's looks to Alfonso's, for of such things, also, history is made." J
Sr. Madariaga is right in quoting an eminent Spanish author, Angel Ganivet, to the effect that a union of Spain and Portugal must be the outcome "of their own free will." § But the trouble is that the Portuguese do not long for Castilian or Spanish over- lordship.
Still more amazing are Sr. Madariaga's views on Spain's colonial and foreign affairs. Speaking of the American colonies, he observes that the Spanish monarchy organized them "faithful to its guiding principle — the fraternity of all men." || However, Bolivar, San
• Madariaga, Spain (London, 1942), p. 176. -\ldcm, p. 185. j Idem, p. 187. § Idem, p. 197. || Idem, p. 49.
Introduction 17
Martin, and Morelos did not like this peculiar brand of fraternity. Then Sr. Madariaga tries to justify Spanish aspirations in Morocco by alluding to Spain's "position which history, geography and inherent destiny seemed obviously to suggest." * For an unbiased reader there is hardly any difference between such an "inherent destiny" and the mystical forces to which Messrs. Hitler, Mussolini, and Stalin refer in annexing small countries. If "inherent destiny" justifies Spanish ambitions in Morocco, does it not in the same way support Russian appetites for the Baltic countries and Caucasian Georgia, German claims with regard to Bohemia and the Nether- lands, Italy's title to Mediterranean supremacy?
We cannot eradicate the past from our memories. But it is not the task of history to kindle new conflicts by reviving hatreds long since dead and by searching the archives for pretexts for new conflicts. We do not have to revenge crimes committed centuries ago by kings and conquerors; we have to build a new and better world order. It is without any relevance to the problems of our time whether the age-old antagonisms between the Russians and the Poles were initiated by Russian or by Polish aggression, or whether the atrocities committed in the Palatinate by the mercenaries of Louis XIV were more nefarious than those committed by the Nazis today. We have to prevent once and for all the repetition of such outrages. This aim alone can elevate the present war to the dignity of mankind's most noble undertaking. The pitiless an- nihilation of Nazism is the first step toward freedom and peace.
Neither destiny nor history nor geography nor anthropology must hinder us from choosing those methods of political organiza- tion which can make for durable peace, international cooperation, and economic prosperity.
* Madariaga, op. cit.f p. 200.
PART I
THE COLLAPSE OF GERMAN LIBERALISM
I. GERMAN LIBERALISM
i. The Ancien Regime and Liberalism
IT is a fundamental mistake to believe that Nazism is a revival or a continuation of the policies and mentalities of the ancien regime or a display of the "Prussian spirit." Nothing in Na- zism takes up the thread of the ideas and institutions of older German history. Neither Nazism nor Pan-Germanism, from which Nazism stems and whose consequent evolution it represents, is de- rived from the Prussianism of Frederick William I or Frederick II, called the Great. Pan-Germanism and Nazism never intended to restore the policy of the electors of Brandenburg and of the first four kings of Prussia. They have sometimes depicted as the goal of their endeavors the return of the lost paradise of old Prussia; but this was mere propaganda talk for the consumption of a public which worshiped the heroes of days gone by. Nazism's program does not aim at the restoration of something past but at the establish- ment of something new and unheard of.
The old Prussian state of the house of Hohenzollern was com- pletely destroyed by the French on the battlefields of Jena and Auerstadt (1806). The Prussian Army surrendered at Prenzlau and Ratkau, the garrisons of the more important fortresses and citadels capitulated without firing a shot. The King took refuge with the Czar, whose mediation alone brought about the preserva- tion of his realm. But the old Prussian state was internally broken down long before this military defeat; it had long been decomposed and rotten, when Napoleon gave it the finishing stroke. For the ideology on which it was based had lost all its power; it had been disintegrated by the assault of the new ideas of liberalism.
Like all the other princes and dukes who have established their sovereign rule on the debris of the Holy Roman Empire of the Teutonic Nation, the Hohenzollerns too regarded their territory as a family estate, whose boundaries they tried to expand through
German Liberalism 19
violence, ruse, and family compacts. The people living within their possessions were subjects who had to obey orders. They were appurtenances of the soil, the property of the ruler who had the right to deal with them ad libitum. Their happiness and welfare were of no concern.
Of course, the king took an interest in the material well-being of his subjects. But this interest was not founded on the belief that it is the purpose of civil government to make the people prosperous. Such ideas were deemed absurd in eighteenth-century Germany. The king was eager to increase the wealth of the peasantry and the townsfolk because their income was the source from which his revenue was derived. He was not interested in the subject but in the taxpayer. He wanted to derive from his administration of the country the means to increase his power and splendor. The German princes envied the riches of Western Europe, which provided the kings of France and of Great Britain with funds for the maintenance of mighty armies and navies. They encouraged commerce, trade, mining, and agriculture in order to raise the public revenue. The subjects, however, were simply pawns in the game of the rulers.
But the attitude of these subjects changed considerably at the end of the eighteenth century. From Western Europe new ideas began to penetrate into Germany. The people, accustomed to obey blindly the God-given authority of the princes, heard for the first time the words liberty, self-determination, rights of man, parlia- ment, constitution. The Germans learned to grasp the meaning of dangerous watchwords.
No German has contributed anything to the elaboration of the great system of liberal thought, which has transformed the structure of society and replaced the rule of kings and royal mistresses by the government of the people. The philosophers, economists, and sociologists who developed it thought and wrote English or French. In the eighteenth century the Germans did not even succeed in achieving readable translations of these English, Scotch, and French authors. What German idealistic philosophy produced in this field is poor indeed when compared with contemporary English and French thought. But German intellectuals welcomed Western ideas of freedom and the rights of man with enthusiasm. German classical literature is imbued with them, and the great German composers set to music verses singing the praises of liberty. The poems, plays, and other writings of Frederick Schiller are from beginning to end a hymn to liberty. Every word written by Schiller was a blow to the old political system of Germany; his works were fervently greeted by nearly all Germans who read books or fre- quented the theater. These intellectuals, of course, were a minority
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only. To the masses books and theaters were unknown. They were the poor serfs in the eastern provinces, they were the inhabitants of the Catholic countries, who only slowly succeeded in freeing themselves from the tight grasp of the Counter-Reformation. Even in the more advanced western parts and in the cities there were still many illiterates and semiliterates. These masses were not con- cerned with any political issue; they obeyed blindly, because they lived in fear of punishment in hell, with which the church threatened them, and in a still greater fear of the police. They were outside the pale of German civilization and German cultural life; they knew only their regional dialects, and could hardly converse with a man who spoke only the German literary language or another dialect. But the number of these backward people was steadily decreasing. Economic prosperity and education spread from year to year. More and more people reached a standard of living which allowed them to care for other things besides food and shelter, and to employ their leisure in something more than drinking. Whoever rose from misery and joined the community of civilized men became a liberal. Except for the small group of princes and their aristocratic retainers practically everyone interested in polit- ical issues was liberal. There were in Germany in those days only liberal men and indifferent men; but the ranks of the indifferent continually shrank, while the ranks of the liberals swelled.
All intellectuals sympathized with the French Revolution. They scorned the terrorism of the Jacobins but unswervingly approved the great reform. They saw in Napoleon the man who would safe- guard and complete these reforms and — like Beethoven — took a dislike to him as soon as he betrayed freedom and made himself emperor.
Never before had any spiritual movement taken hold of the whole German people, and never before had they been united in their feelings and ideas. In fact the people, who spoke German and were the subjects of the Empire's princes, prelates, counts, and urban patricians, became a nation, the German nation, by their reception of the new ideas coming from the West. Only then there came into being what had never existed before: a German public opinion, a German public, a German literature, a German Father- land. The Germans now began to understand the meaning of the ancient authors which they had read in school. They now conceived the history of their nation as something more than the struggle of princes for land and revenues. The subjects of many hundreds of petty lords became Germans through the acceptance of Western ideas.
This new spirit shook the foundations on which the princes had
German Liberalism 21
built their thrones — the traditional loyalty and subservience of the subjects who were prepared to acquiesce in the despotic rule of a group of privileged families. The Germans dreamed now of a German state with parliamentary government and the rights of man. They did not care for the existing German states. Those Germans who styled themselves "patriots," the new-fangled term imported from France, despised these seats of despotic misrule and abuse. They hated the tyrants. And they hated Prussia most because it appeared to be the most powerful and therefore most dangerous menace to German freedom.
The Prussian myth, which the Prussian historians of the nine- teenth century fashioned with a bold disregard of facts, would have us believe that Frederick II was viewed by his contemporaries as they themselves represent him — as the champion of Germany's greatness, protagonist in Germany's rise to unity and power, the nation's hero. Nothing could be further from the truth. The military campaigns of the warrior king were to his contemporaries struggles to increase the possessions of the house of Brandenburg, which concerned the dynasty only. They admired his strategical talents but they detested the brutalities of the Prussian system. Whoever praised Frederick within the borders of his realm did so from necessity, to evade the indignation of a prince who wreaked stern vengeance upon every foe. When people outside of Prussia praised him, they were disguising criticism of their own rulers. The subjects of petty princes found this irony the least dangerous way to disparage their pocket-size Neros and Borgias. They glorified his military achievements but called themselves happy because they were not at the mercy of his whims and cruelties. They approved of Frederick only in so far as he fought their domestic tyrants.
At the end of the eighteenth century German public opinion was as unanimously opposed to the ancien regime as in France on the eve of the Revolution. The German people witnessed with in- difference the French annexation of the left bank of the Rhine, the defeats of Austria and of Prussia, the breaking-up of the Holy Empire, and the establishment of the Rhine Confederacy. They hailed the reforms forced upon the governments of all their states by the ascendancy of the French ideas. They admired Napoleon as a great general and ruler just as they had previously admired Frederick of Prussia. The Germans began to hate the French only when — like the French subjects of the Emperor — they finally be- came tired of the endless burdensome wars. When the Great Army had been wrecked in Russia, the people took an interest in the campaigns which finished Napoleon, but only because they hoped that his downfall would result in the establishment of parliamentary
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government. Later events dispelled this illusion, and there slowly grew the revolutionary spirit which led to the upheaval of 1848.
It has been asserted that the roots of present-day nationalism and Nazism are to be found in the writings of the Romantics, in the plays of Heinrich von Kleist, and in the political songs which accompanied the final struggle against Napoleon. This, too, is an error. The sophisticated works of the Romantics, the perverted feelings of Kleist's plays, and the patriotic poetry of the wars of liberation did not appreciably move the public; and the philo- sophical and sociological essays of those authors who recommended a return to medieval institutions were considered abstruse. People were not interested in the Middle Ages but in the parliamentary activities of the West. They read the books of Goethe and Schiller, not of the Romantics; went to the plays of Schiller, not of Kleist. Schiller became the preferred poet of the nation; in his enthusi- astic devotion to liberty the Germans found their political ideal. The celebration of Schiller's hundredth anniversary (in 1859) was the most impressive political demonstration that ever took place in Germany. The German nation was united in its adherence to the ideas of Schiller, to the liberal ideas.
All endeavors to make the German people desert the cause of freedom failed. The teachings of its adversaries had no effect. In vain Metternich's police fought the rising tide of liberalism.
Only in the later decades of the nineteenth century was the hold of liberal ideas shaken. This was effected by the doctrines of etatism. Etatism — we will have to deal with it later — is a system of socio-political ideas which has no counterpart in older history and is not linked up with older ways of thinking, although — with regard to the technical character of the policies which it recom- mends— it may with some justification be called neo-Mercantilism.
2. The Weakness of German Liberalism
At about the middle of the nineteenth century those Germans interested in political issues were united in their adherence to liberalism. Yet the German nation did not succeed in shaking off the yoke of absolutism and in establishing democracy and parlia- mentary government. What was the reason for this?
Let us first compare German conditions with those of Italy, which was in a similar situation. Italy, too, was liberal minded, but the Italian liberals were impotent. The Austrian Army was strong enough to defeat every revolutionary upheaval. A foreign army kept Italian liberalism in check; other foreign armies freed Italy from this control. At Solferino, at Koniggratz, and at the banks
German Liberalism 23
of the Maine the French, the Prussians, and the English fought the battles which rendered Italy independent of the Habsburgs.
Just as Italian liberalism was no match for the Austrian Army, so German liberalism was unable to cope with the armies of Austria and Prussia. The Austrian Army consisted mainly of non-German soldiers. The Prussian Army, of course, had mostly German- speaking men in its ranks; the Poles, the other Slavs, and the Lithuanians were a minority only. But a great number of these men speaking one of the German dialects were recruited from those strata of society which were not yet awakened to political interests. They came from the eastern provinces, from the eastern banks of the Elbe River. They were mostly illiterate, and unfamiliar with the mentality of the intellectuals and of the townsfolk. They had never heard anything about the new ideas; they had grown up in the habit of obeying the Junker, who exercised executive and ju- dicial power in their village, to whom they owed imposts and corvee (unpaid statute labor), and whom the law considered as their legitimate overlord. These virtual serfs were not capable of disobeying an order to fire upon the people. The Supreme War Lord of the Prussian Army could trust them. These men, and the Poles, formed the detachments which defeated the Prussian Revo- lution in 1848.
Such were the conditions which prevented the German liberals from suiting their actions to their word. They were forced to wait until the progress of prosperity and education could bring these backward people into the ranks of liberalism. Then, they were convinced, the victory of liberalism was bound to come. Time worked for it. But, alas, events belied these expectations. It was the fate of Germany that before this triumph of liberalism could be achieved liberalism and liberal ideas were overthrown — not only in Germany but everywhere — by other ideas, which again pene- trated into Germany from the West. German liberalism had not yet fulfilled its task when it was defeated by etatism, nationalism, and socialism.
3. The Prussian Army
The Prussian Army which fought in the battles of Leipzig and Waterloo was very different from the army which Frederick Wil- liam I had organized and which Frederick II had commanded in three great wars. That old army of Prussia had been smashed and destroyed in the campaign of 1 806 and never revived.
The Prussian Army of the eighteenth century was composed of men pressed into service, brutally drilled by flogging, and held together by a barbaric discipline. They were mainly foreigners.
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The kings preferred foreigners to their own subjects. They be- lieved that their subjects could be more useful to the country when working and paying taxes than when serving in the armed forces. In 1742 Frederick II set as his goal that the infantry should con- sist of two thirds foreigners and one third natives. Deserters from foreign armies, prisoners of war, criminals, vagabonds, tramps, and people whom the crimps had entrapped by fraud and violence were the bulk of the regiments. These soldiers were prepared to profit by every opportunity for escape. Prevention of desertion was there- fore the main concern of the conduct of military affairs. Freder- ick II begins his main treatise of strategy, his General Principles of Warfare, with the exposition of fourteen rules on how to hinder desertion. Tactical and even strategical considerations had to be subordinated to the prevention of desertion. The troops could only be employed when tightly assembled together. Patrols could not be sent out. Strategical pursuit of a defeated enemy force was impossible. Marching or attacking at night and camping near for- ests were strictly avoided. The soldiers were ordered to watch each other constantly, both in war and in peace. Civilians were obliged by the threat of the heaviest penalties to bar the way to deserters, to catch them, and deliver them to the army.
The commissioned officers of this army were as a rule noblemen. Among them, too, were many foreigners; but the greater number belonged to the Prussian Junker class. Frederick II repeats again and again in his writings that commoners are not fit for commmis- sions because their minds are directed toward profit, not honor. Although a military career was very profitable, as the commander of a company drew a comparatively high income, a great part of the landed aristocracy objected to the military profession for their sons. The kings used to send out policemen to kidnap the sons of noble landowners and put them into their military schools. The educa- tion provided by these schools was hardly more than that of an elementary school. Men with higher education were very rare in the ranks of Prussian commissioned officers.*
Such an army could fight and — under an able commander — conquer, only as long as it encountered armies of a similar struc- ture. It scattered like chaff when it had to fight the forces of Na- poleon.
The armies of the French Revolution and of the first Empire were recruited from the people. They were armies of free men, not of crimped scum. Their commanders did not fear desertion. They could therefore abandon the traditional tactics of moving forward in deployed lines and of firing volleys without taking aim.
• Delbruck, Geschichte der Kriegskunst (Berlin, 1920), Part IV, pp. 273 ff., 348 ft.
German Liberalism 25
They could adopt a new method of combat, that is, fighting in columns and skirmishing. The new structure of the army brought first a new tactic and then a new strategy. Against these the old Prussian Army proved impotent.
The French pattern served as a model for the organization of the Prussian Army in the years 1808-13. It was built upon the principle of compulsory service of all men physically fit. The new army stood the test in the wars of 1813-15. Consequently its organization was not changed for about half a century. How this army would have fought in another war against a foreign aggressor will never be known; it was spared this trial. But one thing is beyond doubt, and was attested by events in the Revolution of 1848: only a part of it could be relied on in a fight against the people, the "domestic foe" of the government, and an unpopular war of aggression could not be waged with these soldiers.
In suppressing the Revolution of 1848 only the regiments of the Royal Guards, whose men were selected for their allegiance to the King, the cavalry, and the regiments recruited from the eastern provinces could be considered absolutely reliable. The army corps recruited from the west, the militia (Landwehr), and the reservists of many eastern regiments were more or less infected by liberal ideas.
The men of the guards and of the cavalry had to give three years of active service, as against two years for the other parts of the forces. Hence the generals concluded that two years was too short a time to transform a civilian into a soldier unconditionally loyal to the King. What was needed in order to safeguard the political system of Prussia with its royal absolutism exercised by the Junkers was an army of men ready to fight — without asking questions — against everybody whom their commanders ordered them to attack. This army — His Majesty's army, not an army of the Parliament or of the people — would have the task of defeating any revolutionary movement within Prussia or within the smaller states of the Ger- man Confederation, and of repelling possible invasions from the West which could force the German princes to grant constitutions and other concessions to their subjects. In Europe of the 1850*5, where the French Emperor and the British Prime Minister, Lord Palmerston, openly professed their sympathies with the popular movements menacing the vested interests of kings and aristocrats, the army of the house of Hohenzollern was the rocher de bronze amid the rising tide of liberalism. To make this army reliable and invincible meant not only preserving the Hohenzollerns and their aristocratic retainers; it meant much more: the salvation of civiliza- tion from the threat of revolution and anarchy. Such was the philos-
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ophy of Frederick Julius Stahl and of the Right-wing Hegelians, such were the ideas of the Prussian historians of the Kleindeutsche school of history, such was the mentality of the military party at the court of King Frederick William IV. This King, of course, was a sickly neurotic, whom every day brought nearer to complete mental disability. But the generals, led by General von Roon and backed by Prince William, the King's brother and heir apparent to the throne, were clearheaded and steadily pursued their aim.
The partial success of the revolution had resulted in the estab- lishment of a Prussian Parliament. But its prerogatives were so restricted that the Supreme War Lord was not prevented from adopting those measures which he deemed indispensable for ren- dering the army a more reliable instrument in the hands of its commanders.
The experts were fully convinced that two years of active service was sufficient for the military training of the infantry. Not for reasons of a technical military character but for purely political considerations the King prolonged active service for the infantry regiments of the line from two years to two and a half in 1852 and to three in 1856. Through this measure the chances of success against a repetition of the revolutionary movement were greatly improved. The military party was now confident that for the im- mediate future they were strong enough, with the Royal Guards and with the men doing active service in the regiments of the line, to conquer poorly armed rebels. Relying on this, they decided to go further and thoroughly reform the organization of the armed forces.
The goal of this reform was to make the army both stronger and more loyal to the King. The number of infantry battalions would be almost doubled, the artillery increased 25 per cent, and many new regiments of cavalry formed. The number of yearly recruits would be raised from under 40,000 to 63,000, and the ranks of commissioned officers increased correspondingly. On the other hand the militia would be transformed into a reserve of the active army. The older men were discharged from service in the militia as not fully reliable. The higher ranks of the militia would be en- trusted to commissioned officers of the professional corps.*
Conscious of the strength which the prolongation of active serv- ice had already given them, and confident that they would for the time being suppress a revolutionary attempt, the court carried out this refonp without consulting Parliament. The King's lunacy had
* Ziekursch, Politische Geschichte des neuen deutschen Kaiserreichs (Frankfurt, 1 925-30)' ^ 29 ff.
German Liberalism 27
in the meanwhile become so manifest that Prince William had to be installed as prince regent; the royal power was now in the hands of a tractable adherent of the aristocratic clique and of the military hotspurs. In 1859, during the war between Austria and France, the Prussian Army had been mobilized as a measure of precaution and to safeguard neutrality. The demobilization was effected in such a manner that the main objectives of the reform were attained. In the spring of 1860 all the newly planned regiments had already been established. Only then the cabinet brought the reform bill to Parliament and asked it to vote the expenditure involved.*
The struggle against this army bill was the last political act of German liberalism.
4. The Constitutional Conflict in Prussia
The Progressives, as the liberals in the Prussian lower chamber (chamber of deputies) called their party, bitterly opposed the re- form. The chamber voted repeatedly against the bill and against the budget. The King — Frederick William IV had now died and William I had succeeded him — dissolved Parliament, but the elec- tors returned a majority of Progressives. The King and his ministers could not break the opposition of the legislative body. But they clung to their plan and carried on without constitutional approval and parliamentary assent. They led the new army into two cam- paigns, and defeated Denmark in 1864 and Austria in 1866. Only then, after the annexation of the kingdom of Hanover, the pos- sessions of the Elector of Hessen, the duchies of Nassau, Schleswig, and Holstein, and the Free City of Frankfort, after the establish- ment of Prussian hegemony over all states of Northern Germany and the conclusion of military conventions with the states of South- ern Germany by which these too surrendered to the Hohenzollern, did the Prussian Parliament give in. The Progressive party split, and some of its former members supported the government. Thus the King got a majority. The chamber voted indemnification for the unconstitutional conduct of affairs by the government and be- latedly sanctioned all measures and expenditures which they had opposed for six years. The great Constitutional Conflict resulted in full success for the King and in a complete defeat for liberalism.
When a delegation of the chamber of deputies brought the King the Parliament's accommodating answer to his royal speech at the opening of the new session, he haughtily declared that it was his
* Sybel, Die Begrundung des deutschen Retches unter Wilhelm I (2d ed. Munich, 1889), II, 375; Ziekursch, op. cit., I, 42.
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duty to act as he had in the last years and that he would act the same way in the future too should similar conditions occur again. But in the course of the conflict he had more than once despaired. In 1862 he had lost all hope of defeating the resistance of the people, and was ready to abdicate. General von Roon urged him to make a last attempt by appointing Bismarck prime minister. Bismarck rushed from Paris, where he represented Prussia at the court of Napoleon III. He found the King "worn out, depressed, and dis- couraged/* When Bismarck tried to explain his own view of the political situation, William interrupted him, saying: "I see exactly how all this will turn out. Right here, in this Opera square on which these windows look, they will behead first you and a little later me too." It was hard work for Bismarck to infuse courage into the trembling Hohenzollern. But finally, Bismarck reports, "My words appealed to his military honor and he saw himself in the posi- tion of an officer who has the duty of defending his post unto death." *
Still more frightened than the King were the Queen, the royal princes, and many generals. In England Queen Victoria spent sleep- less nights thinking of the position of her eldest daughter married to the Prussian Crown Prince. The royal palace of Berlin was haunted by the ghosts of Louis XVI and Marie Antoinette.
All these fears, however, were unfounded. The Progressives did not venture a new revolution, and they would have been defeated if they had.
These much-abused German liberals of the 1 86o's, these men of studious habits, these readers of philosophical treatises, these lovers of music and poetry, understood .very well why the upheaval of 1848 had failed. They knew that they could not establish popular government within a nation where many millions were still caught in the bonds of superstition, boorishness, and illiteracy. The politi- cal problem was essentially a problem of education. The final suc- cess of liberalism and democracy was beyond doubt. The trend toward parliamentary rule was irresistible. But the victory of liber- alism could be achieved only when those strata of the population from which the King drew his reliable soldiers should have become enlightened and thereby transformed into supporters of liberal ideas. Then the King would be forced to surrender, and the Parlia- ment would obtain supremacy without bloodshed.
The liberals were resolved to spare the German people, when- ever possible, the horrors of revolution and civil war. They were confident that in a not-too-distant future they themselves would get full control of Prussia. They had only to wait.
• Bismarck, Gedanken und Erinnerungen (new ed. Stuttgart, 1928), I, 325 ff.
German Liberalism 29
5. The "Little German" Program
The Prussian Progressives did not fight in the Constitutional Conflict for the destruction or weakening of the Prussian Army. They realized that under the circumstances Germany was in need of a strong army for the defense of its independence. They wanted to wrest the army from the King and to transform it into an in- strument for the protection of German liberty. The issue of the conflict was whether the King or Parliament should control the army.
The aim of German liberalism was the replacement of the scan- dalous administration of the thirty-odd German states by a unitary liberal government. Most of the liberals believed that this future German state must not include Austria. Austria was very different from the other German-speaking countries; it had problems of its own which were foreign to the rest of the nation. The liberals could not help seeing Austria as the most dangerous obstacle to German freedom. The Austrian court was dominated by the Jesuits, its government had concluded a concordat with Pius IX, the pope who ardently combated all modern ideas. But the Austrian Em- peror was not prepared to renounce voluntarily the position which his house had occupied for more than four hundred years in Ger- many. The liberals wanted the Prussian Army strong because they were afraid of Austrian hegemony, a new Counter-Reformation, and the reestablishment of the reactionary system of the late Prince Metternich. They aimed at a unitary government for all Germans outside of Austria (and Switzerland). They therefore called them- selves Little Germans (Kleindeutsche) as contrasted to the Great Germans (Grossdeutsche) who wanted to include those parts of Austria which had previously belonged to the Holy Empire.
But there were, besides, other considerations of foreign policy to recommend an increase in the Prussian Army. France was in those years ruled by an adventurer who was convinced that he could preserve his emperorship only by fresh military victories. In the first decade of his reign he had already waged two bloody wars. Now it seemed to be Germany's turn. There was little doubt that Napoleon III toyed with the idea of annexing the left bank of the Rhine. Who else could protect Germany but the Prussian Army?
Then there was one problem more, Schleswig-Holstein. The citi- zens of Holstein, of Lauenburg, and of southern Schleswig bitterly opposed the rule of Denmark. The German liberals cared little for the sophisticated arguments of lawyers and diplomats concerning the claims of various pretenders to the succession in the Elbe
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duchies. They did not believe in the doctrine that the question of who should rule a country must be decided according to the pro- visions of feudal law and of century-old family compacts. They supported the Western principle of self-determination. The people of these duchies were reluctant to acquiesce in the sovereignty of a man whose only title was that he had married a princess with a disputed claim to the succession in Schleswig and no right at all to the succession in Holstein; they aimed at autonomy within the German Confederation. This fact alone seemed important in the eyes of the liberals. Why should these Germans be denied what the British, the French, the Belgians, and the Italians had got? But as the King of Denmark was not ready to renounce his claims, this question could not be solved without a recourse to arms.
It would be a mistake to judge all these problems from the point of view of later events. Bismarck freed Schleswig-Holstein from the yoke of its Danish oppressors only in order to annex it to Prussia; and he annexed not only southern Schleswig but northern Schles- wig as well, whose population desired to remain in the Danish kingdom. Napoleon III did not attack Germany; it was Bismarck who kindled the war against France. Nobody foresaw this outcome in the early 'sixties. At that time everybody in Europe, and in America too, deemed the Emperor of France the foremost peace breaker and aggressor. The sympathies which the German longing for unity encountered abroad were to a great extent due to the conviction that a united Germany would counterbalance France and thus make Europe safe for peace.
The Little Germans were also misled by their religious preju- dices. Like most of the liberals they thought of Protestantism as the first step on the way from medieval darkness to enlightenment. They feared Austria because it was Catholic; they preferred Prussia because the majority of its population was Protestant. In spite of all experience they hoped that Prussia was more open to liberal ideas than Austria. Political conditions in Austria, to be sure, were in those critical years unsatisfactory. But later events have proved that Protestantism is no more a safeguard of freedom than Catholic- ism. The ideal of liberalism is the complete separation of church and state, and tolerance — without any regard to differences among the churches.
But this error also was not limited to Germany. The French liberals were so deluded that they at first hailed the Prussian victory at Koniggratz (Sadova). Only on second thought did they realize that Austria's defeat spelled the doom of France too, and they raised — too late — the battle cry Revanche pour Sadova.
Koniggratz was at any rate a crushing defeat for German liberal-
German Liberalism 31
ism. The liberals were aware of the fact that they had lost a cam- paign. They were nevertheless full of hope. They were firmly resolved to proceed with their fight in the new Parliament of North- ern Germany. This fight, they felt, must end with the victory of liberalism and the defeat of absolutism. The moment when the King would no longer be able to use "his" army against the people seemed to come closer every day.
6. The Lassalle Episode
It would be possible to deal with the Prussian Constitutional Conflict without even mentioning the name of Ferdinand Las- salle. Lassalle's intervention did not influence the course of events. But it foreboded something new; it was the dawn of the forces which were destined to mold the fate of Germany and of Western civilization.
While the Prussian Progressives were involved in their struggle for freedom, Lassalle attacked them bitterly and passionately. He tried to incite the workers to withdraw their sympathies from the Progressives. He proclaimed the gospel of class war. The Progres- sives, as representatives of the bourgeoisie, he held, were the mortal foes of labor. You should not fight the state but the exploiting classes. The state is your friend; of course, not the state governed by Herr von Bismarck but the state controlled by me, Lassalle.
Lassalle was not on the pay roll of Bismarck, as some people suspected. Nobody could bribe Lassalle. Only after his death did some of his former friends take government money. But as both Bismarck and Lassalle assailed the Progressives, they became vir- tual allies. Lassalle very soon approached Bismarck. The two used to meet clandestinely. Only many years later was the secret of these relations revealed. It is vain to discuss whether an open and lasting cooperation between these two ambitious men would have resulted if Lassalle had not died very shortly after these meetings from a wound received in a duel (August 31, 1864). They both aimed at supreme power in Germany. Neither Bismarck nor Lassalle was ready to renounce his claim to the first place.
Bismarck and his military and aristocratic friends hated the liberals so thoroughly that they would have been ready to help the socialists get control of the country if they themselves had proved too weak to preserve their own rule. But they were — for the time being — strong enough to keep a tight rein on the Progressives. They did not need Lassalle's support.
It is not true that Lassalle gave Bismarck the idea that revolu- tionary socialism was a powerful ally in the fight against liberalism.
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Bismarck had long believed that the lower classes were better royal- ists than the middle classes.* Besides, as Prussian minister in Paris he had had opportunity to observe the working of Caesarism. Per- haps his predilection toward universal and equal suffrage was strengthened by his conversations with Lassalle. But for the mo- ment he had no use for Lassalle's cooperation. The latter's party was still too small to be considered important. At the death of Lassalle the Allgemeine Deutsche Arbeiterverein had not much more than 4,000 members.f
Lassalle's agitation did not hinder the activities of the Progres- sives. It was a nuisance to them, not an obstacle. Neither had they anything to learn from his doctrines. That Prussia's Parliament was only a sham and that the army was the main stronghold of Prus- sia's absolutism was not new to them. It was exactly because they knew it that they fought in the great conflict.
Lassalle's brief demagogical career is noteworthy because for the first time in Germany the ideas of socialism and etatism appeared on the political scene as opposed to liberalism and freedom. Las- salle was not himself a Nazi; but he was the most eminent fore- runner of Nazism, and the first German who aimed at the Fiihrer position. He rejected all the values of the Enlightenment and of liberal philosophy, but not as the romantic eulogists of the Middle Ages and of royal legitimism did. He negated them; but he prom- ised at the same time to realize them in a fuller and broader sense. Liberalism, he asserted, aims at spurious freedom, but I will bring you true freedom. And true freedom means the omnipotence of government. It is not the police who are the foes of liberty but the bourgeoisie.
And it was Lassalle who spoke the words which characterize best the spirit of the age to come: "The state is God." J
• Ziekursch, op. cit., I, 107 ff.
fOncken, Lassalle (Stuttgart, 1904), p. 393.
j Gustav Mayer, "Lassalleana," Archiv fur Geschichte des Sozialismus, I, 196.
II. THE TRIUMPH OF MILITARISM
j. The Prussian Army in the New German Empire
IN the late afternoon of September i, 1870, King William I, surrounded by a pompous staff of princes and generals, was looking down from a hill south of the Meuse at the battle in progress, when an officer brought the news that the capitula- tion of Napoleon III and his whole army was imminent. Then Moltke turned to Count Falkenberg, who like himself was a mem- ber of the Parliament of Northern Germany, and remarked: "Well, dear colleague, what happened today settles our military problem for a long time/' And Bismarck shook hands with the highest of the German princes, the heir to the throne of Wiirttemberg, and said: "This day safeguards and strengthens the German princes and the principles of conservatism." * In the hour of overwhelming victory these were the first reactions of Prussia's two foremost states- men. They triumphed because they had defeated liberalism. They did not care a whit for the catchwords of the official propaganda: conquest of the hereditary foe, safeguarding the nation's frontiers, historical mission of the house of Hohenzollern and of Prussia, unification of Germany, Germany foremost in the world. The princes had overthrown their own people; this alone seemed im- portant to them.
In the new German Reich the Emperor — not in his position as Emperor but in his position as King of Prussia — had full control of the Prussian Army. Special agreements which Prussia — not the Reich — had concluded with 23 of the other 24 member states of the Reich incorporated the armed forces of these states into the Prussian Army. Only the royal Bavarian Army retained some lim- ited peacetime independence, but in the event of war it too was subject to full control by the Emperor. The provisions concerning recruiting and the length of active military service had to be fixed by the Reichstag; parliamentary consent was required, moreover, for the budgetary allowance for the army. But the Parliament had no influence over the management of military affairs. The army was the army of the King of Prussia, not of the people or the Parlia- ment. The Emperor and King was Supreme War Lord and com- mander in chief. The chief of the Great General Staff was the Kaiser's first assistant in the conduct of operations. The army was an institution not within but above the apparatus of civil adminis- tration. Every military commander had the right and the duty to
* Ziekursch, Politische Geschichtc des neuen deutschen Kaiserreichs, I, 398.
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interfere whenever he felt that the working of the nonmilitary ad- ministration was unsatisfactory. He had to account for his inter- ference to the Emperor only. Once, in 1913, a case of such military interference, which had occurred in Zabern, led to a violent debate in Parliament; but Parliament had no jurisdiction over the matter, and the army triumphed.
The reliability of this army was unquestionable. No one could doubt that all parts of the forces could be used to quell rebellions and revolutions. The mere suggestion that a detachment could refuse to obey an order, or that men of the reserve when called to active duty might stay out, would have been considered an absurd- ity. The German nation had changed in a very remarkable way. We shall consider later the essence and cause of this great trans- formation. The main political problem of the 'fifties and early 'sixties, the problem of the reliability of the soldiers, had vanished. All German soldiers were now unconditionally loyal to the Su- preme War Lord. The army was an instrument which the Kaiser could trust. Tactful persons were judicious enough not to point out explicitly that this army was ready to be used against a potential domestic foe. But to William II such inhibitions were strange. He openly told his recruits that it was their duty to fire upon their fathers, mothers, brothers, or sisters if he ordered them to do so. Such speeches were criticized in the liberal press; but the liberals were powerless. The allegiance of the soldiers was absolute; it no longer depended on the length of active service. The army itself proposed in 1892 that the infantry return to two years of active duty only. In the discussion of this bill in Parliament and in the press there was no longer any question of the political reliability of the soldiers. Everybody knew that the army was now, without any regard to the length of active service, "nonpolitical and nonparti- san," i.e., a docile and manageable tool in the hands of the Em- peror.
The government and the Reichstag quarreled continuously about military affairs. But considerations of the usefulness of the forces for the preservation of the hardly disguised imperial despot- ism did not play any role at all. The army was so strong and reliable that a revolutionary attempt could be crushed within a few hours. Nobody in the Reich wanted to start a revolution; the spirit of resistance and rebellion had faded. The Reichstag would have been prepared to consent to any expenditure for the army proposed by the government if the problem of raising the necessary funds had not been difficult to solve. In the end the army and navy always got the money that the General Staff asked for. To the increase of the armed forces financial considerations were a smaller obstacle than
The Triumph of Militarism 35
the shortage of the supply of men whom the generals considered eligible for commissions on active duty. With the expansion of the armed forces it had long become impossible to give commissions to noblemen only. The number of nonaristocratic officers steadily grew. But the generals were not ready to admit into the ranks of commissioned officers on active duty any but those commoners of "good and wealthy families." Applicants of this type were available only in limited numbers. Most of the sons of the upper middle class preferred other careers. They were not eager to become professional officers and to be treated with disdain by their aristocratic col- leagues.
Both the Reichstag and the liberal press time and again criticized the government's military policy also from the technical point of view. The General Staff were strongly opposed to such civilian interference. They denied to everybody but the army any com- prehension of military problems. Even Hans Delbriick, the emi- nent historian of warfare and author of excellent strategical dis- sertations, was for them only a layman. Officers in retirement, who contributed to the opposition press, were called biased partisans. Public opinion at last acknowledged the General Staff's claim to infallibility, and all critics were silenced. Events of World War I proved, of course, that these critics had a better grasp of military methods than the specialists of the General Staff.
2. German Militarism
The political system of the new German Empire has been called militarism. The characteristic feature of militarism is not the fact that a nation has a powerful army or navy. It is the paramount role assigned to the army within the political structure. Even in peace- time the army is supreme; it is the predominant factor in political life. The subjects must obey the government as soldiers must obey their superiors. Within a militarist community there is no freedom; there are only obedience and discipline.*
The size of the armed forces is not in itself the determining factor. Some Latin-American countries are militarist although their armies are small, poorly equipped, and unable to defend the country against a foreign invasion. On the other hand, France and Great Britain were at the end of the nineteenth century non- militarist, although their military and naval armaments were very strong.
Militarism should not be confused with despotism enforced by a foreign army. Austria's rule in Italy, backed by Austrian regi-
• Herbert Spencer, The Principles of Sociology (New York, 1897), III, 588.
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ments composed of non-Italians, and the Czar's rule in Poland, safe- guarded by Russian soldiers, were such systems of despotism. It has already been mentioned that in the 'fifties and early 'sixties of the past century conditions in Prussia were analogous. But it was different with the German Empire founded on the battlefields of Koniggratz and of Sedan. This Empire did not employ foreign soldiers. It was not preserved by bayonets but by the almost unani- mous consent of its subjects. The nation approved of the system, and therefore the soldiers were loyal too. The people acquiesced in the leadership of the "state" because they deemed such a system fair, expedient, and useful for them. There were, of course, some objectors, but they were few and powerless.*
The deficiency in this system was its monarchical leadership. The successors of Frederick II were not fit for the task assigned to them. William I had found in Bismarck an ingenious chancellor. Bis- marck was a high-spirited and well-educated man, a brilliant speaker, and an excellent stylist. He was a skillful diplomat and in every respect surpassed most of the German nobility. But his vision was limited. He was familiar with country life, with the primitive agricultural methods of Prussian Junkers, with the pa- triarchal conditions of the eastern provinces of Prussia, and the life at the courts of Berlin and St. Petersburg. In Paris he met the society of Napoleon's court; he had no idea of French intellectual trends. He knew little about German trade and industry and the mentality of businessmen and professional people. He kept out of the way of scientists, scholars, and artists. His political credo was the old-fashioned loyalty of a king's vassal. In September, 1849, he told his wife: "Don't disparage the King; we are both guilty of this fault. Even if he errs and blunders, we should not speak of him otherwise than as of our parents, since we have sworn fidelity and allegiance to him and his house." Such an opinion is appropriate for a royal chamberlain but it does not suit the omnipotent Prime Minister of a great empire. Bismarck foresaw the evils with which the personality of William II threatened the nation; he was in a good position to become acquainted with the character of the young prince. But, entangled in his notions of loyalty and allegiance, he was unable to do anything to prevent disaster.
People are now unfair to William II. He was not equal to his task. But he was not worse than the average of his contemporaries. It was not his fault that the monarchical principle of succession
* Whoever wants to acquaint himself with the political mentality of the subjects of William II may read the novels of Baron Ompteda, Rudolf Herzog, Walter Bloem, and similar authors. These were the stuff the people liked to read. Some of them sold many hundred thousand copies.
The Triumph of Militarism 37
made him Emperor and King and that as German Emperor and King of Prussia he had to be an autocrat. It was not the man that failed but the system. If William II had been King of Great Britain, it would not have been possible for him to commit the serious blunders that he could not avoid as King of Prussia. It was due to the frailty of the system that the toadies whom he ap- pointed generals and ministers were incompetent. You may say it was bad luck. For Bismarck and the elder Moltke too were courtiers. Though the victorious field marshal had served with the army as a young officer, a good deal of his career was spent in attendance at court; he was among other things for many years the attendant of a royal prince who lived in sickness and seclusion in Rome and died there. William II had many human weaknesses; but it was precisely the qualities that discredited him with prudent people which rendered him popular with the majority of his nation. His crude ignorance of political issues made him congenial to his subjects, who were as ignorant as he was, and shared his prejudices and illusions.
Within a modern state hereditary monarchy can work satis- factorily only where there is parliamentary democracy. Absolutism — and, still more, disguised absolutism with a phantom constitu- tion and a powerless parliament — requires qualities in the ruler that no mortal man can ever meet. William II failed like Nicholas II and, even earlier, the Bourbons. Absolutism was not abolished; it simply collapsed.
The breakdown of autocracy was due not only to the fact that the monarchs lacked intellectual ability. Autocratic government of a modern great nation burdens the ruler with a quantity of work beyond the capacity of any man. In the eighteenth century Fred- erick William I and Frederick II could still perform all the adminis- trative business with a few hours of daily work. They had enough leisure left for their hobbies and for pleasure. Their successors were not only less gifted, they were less diligent too. From the days of Frederick William II it was no longer the king who ruled but his favorites. The king was surrounded by a host of intriguing gentle- men and ladies. Whoever succeeded best in these rivalries and plots got control of the government until another sycophant supplanted him.
The camarilla was supreme in the army too. Frederick William I had himself organized the forces. His son had commanded them personally in great campaigns. Herein too their successors proved inadequate. They were poor organizers and incompetent generals. The chief of the Great General Staff, who nominally was merely the King's assistant, became virtually commander in chief. The
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change remained for a long time unnoticed. As late as the War of 1866 many high-ranking generals were still not aware of the fact that the orders they had to obey did not emanate from the King but from General von Moltke.
Frederick II owed his military successes to a great extent to the fact that the Austrian, French, and Russian armies that he fought were not commanded by their sovereigns but by generals. Frederick concentrated in his hands the whole military, political, and eco- nomic strength of his — of course, comparatively small — realm. He alone gave orders. The commanders of the armies of his adversaries had only limited powers. Their position was rendered difficult by the fact that their duties kept them at a distance from the courts of their sovereigns. While they stayed with their armies in the field their rivals continued to intrigue at the court. Frederick could venture daring operations of which the outcome was un- certain. He did not have to account for his actions to anybody but himself. The enemy generals were always in fear of their monarch's disfavor. They aimed at sharing the responsibility with others in order to exculpate themselves in case of failure. They would call their subordinate generals for a council of war, and look for justi- fication to its resolutions. When they got definite orders from the sovereign, which were suggested to him either by a council of war deliberating far away from the field of operations, or by one or several of the host of lazy intrigants, they felt comfortable. They executed the order even when they were convinced that it was inexpedient. Frederick was fully aware of the advantage that the concentration of undivided responsibility in one commander offered. He never called a council of war. He again and again forbade his generals — even under penalty of death — to call one. In a council of war, he said, the more timid party always pre- dominates. A council of war is full of anxiety, because it is too matter of fact.* This doctrine became, like all opinions of King Frederick, a dogma for the Prussian Army. It roused the elder Moltke's anger when somebody said that King William had called a council of war in his campaigns. The King, he declared, would listen to the proposals of his chief of staff and then decide; it had always happened that way.
In practice this principle resulted in the absolute command of the chief of the Great General Staff, whom, of course, the King ap- pointed. Not William I but Helmuth von Moltke led the armies in the campaigns of 1866 and 1870-71. William II used to declare that in case of war he would personally command his armies, and that he needed a chief of staff only in peacetime. But when the first
* Delbriick, Geschichte der Kriegskunst, Part IV, pp. 434 ff.
The Triumph of Militarism 39
World War broke out this boasting was forgotten. Helmuth von Moltke's nephew, a courtier without any military knowledge or ability, timid and irresolute, sick and nervous, an adept of the doubtful theosophy of Rudolph Steiner, led the German Army into the debacle at the Marne; then he collapsed. The Minister of War, Eric von Falkenhayn, filled the gap spontaneously; and the Kaiser in apathy gave his consent. Very soon Ludendorff began to plot against Falkenhayn. Cleverly organized machinations forced the Emperor in 1916 to replace Falkenhayn by Hindenburg. But the real commander in chief was now Ludendorff, who nominally was only Hindenburg's first assistant.
The German nation, biased by the doctrines of militarism, did not realize that it was the system that had failed. They used to say: We lacked "only" the right man. If Schlieffen had not died too soon! A legend was composed about the personality of this late chief of staff. His sound plan had been ineptly put into execution by his incompetent successor. If only the two army corps which Moltke had uselessly dispatched to the Russian border had been available at the Marne! Naturally, the Reichstag too was considered guilty. There was no mention of the fact that the Parliament had never earnestly resisted the government's proposals concerning alloca- tions for the army. Lieutenant Colonel Hentsch in particular was made the scapegoat. This officer, it was asserted, had transgressed his powers, perhaps he was a traitor. But if Hentsch was really responsible for the order to retreat, then he would have to be deemed the man who saved the German Army from annihilation through encirclement of its right wing. The fable that but for the interference of Hentsch the Germans would have been victorious at the Marne can easily be disposed of.
There is no doubt that the commanders of the German Army and Navy were not equal to their task. But the shortcomings of the generals and admirals — and likewise those of the ministers and diplomats — must be charged to the system. A system that puts incapable men at the top is a bad system. There is no telling whether Schlieffen would have been more successful; he never had the op- portunity to command troops in action; he died before the war. But one thing is sure: the "parliamentary armies" of France and Great Britain got at that time commanders who led them to victory. The army of the King of Prussia was not so fortunate.
In accordance with the doctrines of militarism the chief of the Great General Staff considered himself the first servant of the Emperor and King and demanded the chancellor's subordination. These claims had already led to conflicts between Bismarck and Moltke. Bismarck asked that the supreme commander should ad-
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just his conduct to considerations of foreign policy; Moltke bluntly rejected such pretensions. The conflict remained unresolved. In the first World War the supreme commander became omnipotent. The chancellor was in effect degraded to a lower rank. The Kaiser had retained ceremonial and social functions only; Hindenburg, his chief of staff, was a man of straw. Ludendorff, the first quarter- master general, became virtually omnipotent dictator. He might have remained in this position all his life if Foch had not defeated him.
This evolution demonstrates clearly the impracticability of hereditary absolutism. Monarchical absolutism results in the rule of a major-domo, of a shogun, or of a duce.
3. The Liberals and Militarism
The lower chamber of the Prussian Parliament, the Abgeordne- tenhaus, was based on universal franchise. The citizens of every constituency were divided into three classes, each of which chose the same number of electors for the final poll by which the parlia- mentary representative of the constituency was elected. The first class was formed of those adult male residents who paid the highest taxes and together contributed one third of the total amount of taxes collected in the district; the second class of those who together contributed the second third, and the third class of those who to- gether contributed the third third. Thus the wealthier citizens had a better franchise than the poorer ones of their constituency. The middle classes predominated in the ballot. For the Reichstag of the North German Federation, and later for that of the Reich, no such discrimination was applied. Every adult male cast his vote directly on the ballot which returned the representative of the constituency; franchise was not only universal but equal and direct. Thus the poorer strata of the nation got more political influence. It was the aim of both Bismarck and Lassalle to weaken by this electoral system the power of the liberal party. The liberals were fully aware that the new method of voting would for some time sap their parliamentary strength. But they were not concerned about that. They realized that the victory of liberalism could be achieved only by an effort of the whole nation. What was important was not to have a majority of liberals within the chamber but to have a liberal majority among the people and thereby in the army. In the Prussian Abgeordnetenhaus the Progressives outnumbered the friends of the government. Nevertheless liberalism was powerless, since the King could still trust in the allegiance of the greater part of the army. What was needed was to bring into the ranks of liberalism
The Triumph of Militarism 41
those backward ignorant masses whose political indifference was the safeguard of absolutism. Only then would the day of popular government and democracy dawn.
The liberals therefore did not fear that the new electoral system would postpone or seriously imperil their inexorable final victory. The outlook for the immediate future was not very comforting but the ultimate prospects were excellent. One had only to look at France. In that country too an autocrat had founded his despotism upon the loyalty of the army and upon universal and equal franchise. But now the Caesar was crushed and democracy had triumphed.
The liberals did not greatly fear socialism. The socialists had achieved some success. But it could be expected that reasonable workers would soon discover the impracticability of socialist Utopias. Why should the wage earners whose standard of living was daily improving be deluded by demagogues who — as rumors whispered — were on the pay roll of Bismarck?
Only later did the liberals become aware of the change taking place in the nation's mentality. For many years they believed that it was only a temporary setback, a short reactionary incident which was doomed to disappear very soon. For them every supporter of the new ideologies was either misguided or a renegade. But the numbers of these apostates increased. The youth no longer joined the liberal party. The old fighters for liberalism grew tired. With every new election campaign their ranks became thinner; with every year the reactionary system which they hated became more power- ful. Some faithful men still clung to the ideas of liberty and democracy, gallantly fighting against the united assaults on liberal- ism from the Right and from the Left. But they were a forlorn squad. Among those born after the battle of Koniggratz almost nobody joined the party of liberalism. The liberals died out. The new generation did not even know the meaning of the word.
4. The Current Explanation of the Success of Militarism
All over the world the overwhelming victory of German militar- ism is interpreted in accordance with the legends developed by the propaganda of the German Social Democrats. The socialists assert that the German bourgeoisie seceded from the principles of freedom and thus betrayed the "people." Based on Marxian historical materialism absurd theories concerning the essence and the de- velopment of imperialism were invented. Capitalism, they say, must result in militarism, imperialism, bloody wars, Fascism, and Nazism. Finance and big business have brought civilization to the
42 Omnipotent Government
verge of destruction; Marxism has the task of saving humanity.
Such interpretations fail to solve the problem. Indeed, they try purposely to put it out of sight. In the early i86o's there were in Ger- many among the politically minded a few supporters of dynastic absolutism, of militarism and of authoritarian government, who strongly opposed the transition to liberalism, democracy, and popular government. This minority consisted mainly of the princes and their courtiers, the nobility, the commissioned officers of higher ranks, and some civil servants. But the great majority of the bourgeoisie, of the intellectuals, and of the politically minded members of the poorer strata of the population were decidedly liberal and aimed at parliamentary government according to the British pattern. The liberals believed that political education would progress quickly; they were convinced that every citizen who gave up political indifference and became familiar with political issues would support their stand on constitutional questions. They were fully aware that some of these newly politicized men would not join their ranks. It was to be expected that Catholics, Poles, Danes, and Alsatians would form their own parties. But these parties would not support the King's pretensions. Catholics and non-Germans were bound to favor parliamentarism in a pre- dominantly Protestant and German Reich.
The politicization of the whole country went on faster than the liberals had foreseen. At the end of the 'seventies the whole people was inspired by political interests, even passions, and ardently took part in political activities. But the consequences differed radically from those expected by the liberals. The Reichstag did not earnestly challenge the hardly disguised absolutism; it did not raise the constitutional issue; it indulged only in idle talk. And, much more important: the soldiers who now were recruited from a com- pletely politicized nation became so unconditionally reliable that every doubt concerning their readiness to fight for absolutism against a domestic foe was considered an absurdity.
The questions to be answered are not: Why did the bankers and the rich entrepreneurs and capitalists desert liberalism? Why did the professors, the doctors, and the lawyers not erect barricades? We must rather ask: Why did the German nation return to the Reichstag members who did not abolish absolutism? Why was the army, formed for a great part of men who voted the socialist or the Catholic ticket, unconditionally loyal to its commanders? Why could the antiliberal parties, foremost among them the Social Democrats, collect many millions of votes while the groups which remained faithful to the principles of liberalism lost more and more popular support? Why did the millions of socialist voters who
The Triumph of Militarism 43
indulged in revolutionary babble acquiesce in the rule of princes and courts?
To say that big business had some reasons to support the Hohen- zollern absolutism or that the Hanseatic merchants and shipowners sympathized with the increase of the navy is no satisfactory answer to these questions. The great majority of the German nation con- sisted of wage earners and salaried people, of artisans and shop- keepers, and of small farmers. These men determined the outcome of elections; their representatives sat in Parliament, and they filled the ranks of the army. Attempts to explain the change in the Ger- man people's mentality by demonstrating that the class interests of the wealthy bourgeoisie caused them to become reactionary are nonsensical, whether they are as childish as the "steel plate" * legend or as sophisticated as the Marxian theories concerning im- perialism.
* The "Panzerplat ten-doctrine" maintained that German militarism and the trend to increase Germany's armed forces were due to machinations of the heavy industries eager to enlarge their profits. Cf. pp. 132-133.
PART II NATIONALISM
1
III. ETATISM
/. The New Mentality
most important event in the history of the last hun- dred years is the displacement of liberalism by etatism. Etatism appears in two forms: socialism and interven- tionism. Both have in common the goal of subordinating the individual unconditionally to the state, the social apparatus of compulsion and coercion.
Etatism too, like liberalism in earlier days, originated in Western Europe and only later came into Germany. It has been asserted that autochthonous German roots of etatism could be found in Fichte's socialist Utopia and in the sociological teachings of Schelling and Hegel. However, the dissertations of these philosophers were so foreign to the problems and tasks of social and economic policies that they could not directly influence political matters. What use could practical politics derive from Hegel's assertion: "The state is the actuality of the ethical idea. It is ethical mind qua the sub- stantial will manifest and revealed to itself, knowing and thinking itself, accomplishing what it knows and in so far as it knows it." Or from his dictum: "The state is absolutely rational inasmuch as it is the actuality of the substantial will which it possesses in the par- ticular self-consciousness once that consciousness has been raised to consciousness of its universality/' *
Etatism assigns to the state the task of guiding the citizens and of holding them in tutelage. It aims at restricting the individual's freedom to act. It seeks to mold his destiny and to vest all initiative in the government alone. It came into Germany from the West.f Saint Simon, Owen, Fourier, Pecqueur, Sismondi, Auguste Comte laid its foundations. Lorenz von Stein was the first author to bring the Germans comprehensive information concerning these new
* Hegel, Philosophy of Right, translated by T. M. Knox (Oxford, 1942), pp. 155-156. f Hayek, "The Counter-Revolution of Science," Economica, VIII, 9-36, 119-150, 281-320.
Etatism 45
doctrines. The appearance in 1842 of the first edition of his book, Socialism and Communism in Present-Day France, was the most important event in pre-Marxian German socialism. The elements of government interference with business, labor legislation, and trade-unionism * also reached Germany from the West. In America Frederick List became familiar with the protectionist theories of Alexander Hamilton.
Liberalism had taught the German intellectuals to absorb West- ern political ideas with reverential awe. Now, they thought, lib- eralism was already outstripped; government interference with business had replaced old-fashioned liberal orthodoxy and would inexorably result in socialism. He who did not want to appear back- ward had to become "social," i.e., either interventionist or socialist. New ideas succeed only after some lapse of time; years have to pass before they reach the broader strata of intellectuals. List's National System of Political Economy was published in 1841, a few months before Stein's book. In 1847 Marx and Engels produced the Com- munist Manifesto. In the middle 'sixties the prestige of liberalism began to melt away. Very soon the economic, philosophical, his- torical, and juridical university lectures were representing liber- alism in caricature. The social scientists outdid each other in emotional criticism of British free trade and laissez faire; the phi- losophers disparaged the "stock-jobber" ethics of utilitarianism, the superficiality of enlightenment, and the negativity of the notion of liberty; the lawyers demonstrated the paradox of democratic and parliamentary institutions; and the historians dealt with the moral and political decay of France and of Great Britain. On the other hand, the students were taught to admire the "social kingdom of the Hohenzollerns" from Frederick William I, the "noble so- cialist," to William I, the great Kaiser of social security and labor legislation. The Social Democrats despised Western "plutodemoc- racy" and "pseudo-liberty" and ridiculed the teachings of "bour- geois economics."
The boring pedantry of the professors and the boastful oratory of the Social Democrats failed to impress critical people. The £lite were conquered for etatism by other men. From England pene- trated the ideas of Carlyle, Ruskin, and the Fabians, from France Solidarism. The churches of all creeds joined the choir. Novels and plays propagated the new doctrine of the state. Shaw and Wells, Spielhagen and Gerhart Hauptmann, and hosts of other writers, less gifted, contributed to the popularity of etatism.
• Adolf Weber (Der Kampf zwischen Kapital and Arbeit, 50! and 4th eds. Tubingen, igsi, p. 68) says quite correctly in dealing with German trade-unionism: "Form and spirit . . . came from abroad."
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2. The State
The state is essentially an apparatus of compulsion and coercion. The characteristic feature of its activities is to compel people through the application or the threat of force to behave otherwise than they would like to behave.
But not every apparatus of compulsion and coercion is called a state. Only one which is powerful enough to maintain its existence, for some time at least, by its own force is commonly called a state. A gang of robbers, which because of the comparative weakness of its forces has no prospect of successfully resisting ,for any length of time the forces of another organization, is not entitled to be called a state. The state will either smash or tolerate a gang. In the first case the gang is not a state because its independence lasts for a short time only; in the second case it is not a state because it does not stand on its own might. The pogrom gangs in imperial Russia were not a state because they could kill and plunder only thanks to the connivance of the government.
This restriction of the notion of the state leads directly to the concepts of state territory and sovereignty. Standing on its own power implies that there is a space on the earth's surface where the operation of the apparatus is not restricted by the intervention of another organization; this space is the state's territory. Sovereignty (suprema potestas, supreme power) signifies that the organization stands on its own legs. A state without territory is an empty con- cept. A state without sovereignty is a contradiction in terms.
The total complex of the rules according to which those at the helm employ compulsion and coercion is called law. Yet the char- acteristic feature of the state is not these rules, as such, but the application or threat of violence. A state whose chiefs recognize but one rule, to do whatever seems at the moment to be expedient in their eyes, is a state without law. It does not make any difference whether or not these tyrants are "benevolent."
The term law is used in a second meaning too. We call interna- tional law the complex of agreements which sovereign states have concluded expressly or tacitly in regard to their mutual relations. It is not, however, essential to the statehood of an organization that other states should recognize its existence through the conclusion of such agreements. It is the fact of sovereignty within a territory that is essential, not the formalities.
The people handling the state machinery may take over other functions, duties, and activities. The government may own and operate schools, railroads, hospitals, and orphan asylums. Such activities are only incidental to the conception of a state. Whatever
Etatism 47
other functions it may assume, the state is always characterized by the compulsion and coercion exercised.
With human nature as it is, the state is a necessary and indis- pensable institution. The state is, if properly administered, the foundation of society, of human cooperation and civilization. It is the most beneficial and most useful instrument in the endeavors of man to promote human happiness and welfare. But it is a tool and a means only, not the ultimate goal. It is not God. It is simply com- pulsion and coercion; it is the police power.
It has been necessary to dwell upon these truisms because the mythologies and metaphysics of etatism have succeeded in wrap- ping them in mystery. The state is a human institution, not a superhuman being. He who says "state" means coercion and com- pulsion. He who says: There should be a law concerning this mat- ter, means: The armed men of the government should force people to do what they do not want to do, or not to do what they like. He who says: This law should be better enforced, means: The police should force people to obey this law. He who says: The state is God, deifies arms and prisons. The worship of the state is the worship of force. There is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men. The worst evils which mankind ever had to endure were inflicted by bad govern- ments. The state can be and has often been in the course of history the main source of mischief and disaster.
The apparatus of compulsion and coercion is always operated by mortal men. It has happened time and again that rulers have ex- celled their contemporaries and fellow citizens both in competence and in fairness. But there is ample historical evidence to the con- trary too. The thesis of etatism that the members of the govern- ment and its assistants are more intelligent than the people, and that they know better what is good for the individual than he him- self knows, is pure nonsense. The Fiihrers and the Duces are neither God nor God's vicars.
The essential characteristic features of state and government do not depend on their particular structure and constitution. They are present both in despotic and in democratic governments. De- mocracy too is not divine. We shall later deal with the benefits that society derives from democratic government. But great as these advantages are, it should never be forgotten that majorities are no less exposed to error and frustration than kings and dictators. That a fact is deemed true by the majority does not prove its truth. That a policy is deemed expedient by the majority does not prove its expediency. The individuals who form the majority are not gods, and their joint conclusions are not necessarily godlike^
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3. The Political and Social Doctrines of Liberalism
There is a school of thought which teaches that social coopera- tion of men could be achieved without compulsion or coercion. Anarchism believes that a social order could be established in which all men would recognize the advantages to be derived from coop- eration and be prepared to do voluntarily everything which the maintenance of society requires and to renounce voluntarily all actions detrimental to society. But the anarchists overlook two facts. There are people whose mental abilities are so limited that they cannot grasp the full benefits that society brings to them. And there are people whose flesh is so weak that they cannot resist the temptation of striving for selfish advantage through actions detri- mental to society. An anarchistic society would be exposed to the mercy of every individual. We may grant that every sane adult is endowed with the faculty of realizing the good of social cooperation and of acting accordingly. However, it is beyond doubt that there are infants, the aged, and the insane. We may agree that he who acts antisocially should be considered mentally sick and in need of cure. But as long as not all are cured, and as long as there are infants and the senile, some provision must be taken lest thry destroy society.
Liberalism differs radically from anarchism. It has nothing in common with the absurd illusions of the anarchists. We must em- phasize this point because etatists sometimes try to discover a simi- laiity. Liberalism is not so foolish as to aim at the abolition of the state. Liberals fully recognize that no social cooperation and no civilization could exist without some amount of compulsion and coercion. It is the task of government to protect the social system against the attacks of those who plan actions detrimental to its maintenance and operation.
The essential teaching of liberalism is that social cooperation and the division of labor can be achieved only in a system of private ownership of the means of production, i.e., within a market society, or capitalism. All the other principles of liberalism — democracy, personal freedom of the individual, freedom of speech and of the press, religious tolerance, peace among the nations — are conse- quences of this basic postulate. They can be realized only within a society based on private property.
From this point of view liberalism assigns to the state the task of protecting the lives, health, freedom, and property of its subjects against violent or fraudulent aggression.
That liberalism aims at private ownership of the means of pro- duction implies that it rejects public ownership of the means of
E tat ism 49
production, i.e., socialism. Liberalism therefore objects to the socialization of the means of production. It is illogical to say, as many etatists do, that liberalism is hostile to or hates the state, be- cause it is opposed to the transfer of the ownership of railroads or cotton mills to the state. If a man says that sulphuric acid does not make a good hand lotion, he is not expressing hostility to sulphuric acid as such; he is simply giving his opinion concerning the limita- tions of its use.
It is not the task of this study to determine whether the program of liberalism or that of socialism is more adequate for the realiza- tion of those aims which are common to all political and social en- deavors, i.e., the achievement of human happiness and welfare. We are only tracing the role played by liberalism and by antiliberalism — whether socialist or interventionist — in the evolution which re- sulted in the establishment of totalitarianism. We can therefore content ourselves with briefly sketching the outlines of the social and political program of liberalism and its working.
In an economic order based on private ownership of the means of production the market is the focal point of the system. The working of the market mechanism forces capitalists and entre- preneurs to produce so as to satisfy the consumers' needs as well and cheaply as the quantity and quality of material resources and of man power available and the state of technological knowledge allow. If they are not equal to this task, if they produce poor goods, or at too great cost, or not the commodities that the consumers de- mand most urgently, they suffer losses. Unless they change their methods to satisfy the consumers' needs better, they will finally be thrown out of their positions as capitalists and entrepreneurs. Other people who know better how to serve the consumer will replace them. Within the market society the working of the price mechanism makes the consumers supreme. They determine through the prices they pay and through the amount of their pur- chases both the quantity and quality of production. They deter- mine directly the prices of consumers' goods, and thereby indirectly the prices of all material factors of production and the wages of all hands employed.
Within the market society each serves all his fellow citizens and each is served by them. It is a system of mutual exchange of services and commodities, a mutual giving and receiving. In that endless rotating mechanism the entrepreneurs and capitalists are the serv- ants of the consumers. The consumers are the masters, to whose vestments and methods of production. The market chooses the whims the entrepreneurs and the capitalists must adjust their in-
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entrepreneurs and the capitalists, and removes them as soon as they prove failures. The market is a democracy in which every penny gives a right to vote and where voting is repeated every day.
Outside of the market stands the social apparatus of compulsion and coercion, and its steersmen, the government. To state and government the duty is assigned of maintaining peace both at home and abroad. For only in peace can the economic system achieve its ends, the fullest satisfaction of human needs and wants.
But who should command the apparatus of compulsion and coercion? In other words, who should rule? It is one of the funda- mental insights of liberal thought that government is based on opinion, and that therefore in the long run it cannot subsist if the men who form it and the methods they apply are not accepted by the majority of those ruled. If the conduct of political affairs does not suit them, the citizens will finally succeed in overthrowing the government by violent action and in replacing the rulers by men deemed more competent. The rulers are always a minority. They cannot stay in office if the majority is determined to turn them out. Revolution and civil war are the ultimate remedy for unpopu- lar rule. For the sake of domestic peace, liberalism aims at demo- cratic government. Democracy is therefore not a revolutionary in- stitution. On the contrary, it is the very means of preventing revolutions. Democracy is a system providing for the peaceful ad- justment of government to the will of the majority. When the men in office and their methods no longer please the majority of the na- tion, they will — in the next election — be eliminated, and replaced by other men and another system. Democracy aims at safeguarding peace within the country and among the citizens.
The goal of liberalism is the peaceful cooperation of all men. It aims at peace among nations too. When there is private ownership of the means of production everywhere and when the laws, the tribunals, and the administration treat foreigners and citizens on equal terms, it is of little importance where a country's frontiers are drawn. Nobody can derive any profit from conquest, but many can suffer losses from fighting. War no longer pays; there is no mo- tive for aggression. The population of every territory is free to determine to which state it wishes to belong, or whether it prefers to establish a state of its own. All nations can coexist peacefully, be- cause no nation is concerned about the size of its state.
This is, of course, a very cool and dispassionate plea for peace and democracy. It is the outcome of a utilitarian philosophy. It is as far from the mystical mythology of the divine right of kings as it is from the metaphysics of natural law or the natural and impre- scriptible rights of man. It is founded upon considerations of com-
Etatism 5 1
mon utility. Freedom, democracy, peace, and private property are deemed good because they are the best means for promoting human happiness and welfare. Liberalism wants to secure to man a life free from fear and want. That is all.
About the middle of the nineteenth century liberals were con- vinced that they were on the eve of the realization of their plans. It was an illusion.
4. Socialism
Socialism aims at a social system based on public ownership of the means of production. In a socialist community all material re- sources are owned and operated by the government. This implies that the government is the only employer, and that no one can consume more than the government allots to him. The term "state socialism" is pleonastic; socialism is necessarily always state so- cialism. Planning is nowadays a popular synonym for socialism. Until 1917 communism and socialism were usually used as syno- nyms. The fundamental document of Marxian socialism, which all socialist parties united in the different International Working Men's Associations considered and still consider the eternal and un- alterable gospel of socialism is entitled the Communist Manifesto. Since the ascendancy of Russian Bolshevism most people differen- tiate between communism and socialism. But this differentiation refers only to political tactics. Present-day communists and social- ists disagree only in respect to the methods to be applied for the achievement of ends which are common to both.
The German Marxian socialists called their party the Social Democrats. It was believed that socialism was compatible with democratic government — indeed that the program of democracy could be fully realized only within a socialist community. In West- ern Europe and in America this opinion is still current. In spite of all the experience which events since 1917 have provided, many cling stubbornly to the belief that true democracy and true so- cialism are identical. Russia, the classical country of dictatorial oppression, is considered democratic because it is socialist.
However, the Marxians' love of democratic institutions was a stratagem only, a pious fraud for the deception of the masses.* Within a socialist community there is no room left for freedom. There can be no freedom of the press where the government owns every printing office. There can be no free choice of profession or trade where the government is the only employer and assigns every- one the task he must fulfill. There can be no freedom to settle where one chooses when the government has the power to fix one's place
* Bukharin, Program of the Communists (Bolshevists), p. 29.
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of work. There can be no real freedom of scientific research where the government owns all the libraries, archives, and laboratories and has the right to send anyone to a place where he cannot con- tinue his investigations. There can be no freedom in art and litera- ture where the government determines who shall create them. There can be neither freedom of conscience nor of speech where the government has the power to remove any opponent to a climate which is detrimental to his health, or to assign him duties which surpass his strength and ruin him both physically and intellec- tually. In a socialist community the individual citizen can have no more freedom than a soldier in the army or an inmate in an or- phanage.
But, object the socialists, the socialist commonwealth differs in this essential respect from such organizations: the inhabitants have the right to choose the government. They forget, however, that the right to vote becomes a sham in a socialist state. The citizens have no sources of information but those provided by the government. The press, the radio, and the meeting halls are in the hands of the administration. No party of opposition can be organized or can propagate its ideas. We have only to look to Russia or Germany to discover the true meaning of elections and plebiscites under so- cialism.
The conduct of economic affairs by a socialist government can- not be checked by the vote of parliamentary bodies or by the con- trol of the citizens. Economic enterprises and investments are de- signed for long periods. They require many years for preparation and realization; their fruits ripen late. If a penal law has been promulgated in May, it can be repealed without harm or loss in October. If a minister of foreign affairs has been appointed, he can be discharged a few months later. But if industrial investments have been once started, it is necessary to cling to the undertaking until it is achieved and to exploit the plant erected as long as it seems profitable. To change the original plan would be wasteful. This necessarily implies that the personnel of the government can- not be easily disposed of. Those who made the plan must execute it. They must later operate the plants erected, because others can- not take over the responsibility for their proper management. Peo- ple who once agree to the famous four- and five-year plans virtually abandon their right to change the system and the personnel of government not only for the duration of four or five years but for the following years too, in which the planned investments have to be utilized. Consequently a socialist government must stay in office for an indefinite period. It is no longer the executor of the nation's will; it cannot be discharged without sensible detriment if its ac-
Etatism 53
tions no longer suit the people. It has irrevocable powers. It be- comes an authority above the people; it thinks and acts for the community in its own right and does not tolerate interference with "its own business" by outsiders.*
The entrepreneur in a capitalist society depends upon the market and upon the consumers. He has to obey the orders which the con- sumers transmit to him by their buying or failure to buy, and the mandate with which they have charged him can be revoked at any hour. Every entrepreneur and every owner of means of production must daily justify his social function through subservience to the wants of the consumers.
The management of a socialist economy is not under the neces- sity of adjusting itself to the operation of a market. It has an abso- lute monopoly. It does not depend on the wants of the consumers. It itself decides what must be done. It does not serve the consumers as the businessman does. It provides for them as the father pro- vides for his children or the headmaster of a school for the students. It is the authority bestowing favors, not a businessman eager to attract customers. The salesman thanks the customer for patroniz- ing his shop and asks him to come again. But the socialists say: Be grateful to Hitler, render thanks to Stalin; be nice and submissive, then the great man will be kind to you later too.
The prime means of democratic control of the administration is the budget. Not a clerk may be appointed, not a pencil bought, if Parliament has not made an allotment. The government must ac- count for every penny spent. It is unlawful to exceed the allotment or to spend it for other purposes than those fixed by Parliament. Such restrictions are impracticable for the management of plants, mines, farms, and transportation systems. Their expenditure must be adjusted to the changing conditions of the moment. You cannot fix in advance how much is to be spent to clear fields of weeds or to remove snow from railroad tracks. This must be decided on the spot according to circumstances. Budget control by the people's representatives, the most effective weapon of democratic govern- ment, disappears in a socialist state.
Thus socialism must lead to the dissolution of democracy. The sovereignty of the consumers and the democracy of the market are the characteristic features of the capitalist system. Their corollary in the realm of politics is the people's sovereignty and democratic control of government. Pareto, Georges Sorel, Lenin, Hitler, and Mussolini were right in denouncing democracy as a capitalist method. Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.
• Hayek, Freedom and the Economic System (Chicago, 1939), PP* IO &
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The advocates of socialism who are keen enough to realize this tell us that liberty and democracy are worthless for the masses. People, they say, want food and shelter; they are ready to renounce freedom and self-determination to obtain more and better bread by submitting to a competent paternal authority. To this the old liberals used to reply that socialism will not improve but on the contrary will impair the standard of living of the masses. For so- cialism is a less efficient system of production than capitalism. But this rejoinder also failed to silence the champions of socialism. Granted, many of them replied, that socialism may not result in riches for all but rather in a smaller production of wealth; never- theless the masses will be happier under socialism, because they will share their worries with all their fellow citizens, and there will not be wealthier classes to be envied by poorer ones. The starving and ragged workers of Soviet Russia, they tell us, are a thousand times more joyful than the workers of the West who live under conditions which are luxurious compared to Russian standards; equality in poverty is a more satisfactory state than well-being where there are people who can flaunt more luxuries than the average man.
Such debates are vain because they miss the central point. It is useless to discuss the alleged advantages of socialist management. Complete socialism is simply impracticable; it is not at all a system of production; it results in chaos and frustration.
The fundamental problem of socialism is the problem of eco- nomic calculation. Production within a system of division of labor, and thereby social cooperation, requires methods for the computa- tion of expenditures asked for by different thinkable and possible ways of achieving ends. In capitalist society market prices are the units of this calculation. But within a system where all factors of production are owned by the state there is no market, and con- sequently there are no prices for these factors. Thus it becomes im- possible for the managers of a socialist community to calculate. They cannot know whether what they are planning and achieving is reasonable or not. They have no means of finding out which of the various methods of production under consideration is the most advantageous. They cannot find a genuine basis of comparison be- tween quantities of different material factors of production and of different services; so they cannot compare the outlays necessary with the anticipated outputs. Such comparisons need a common unit; and there is no such unit available but that provided by the price system of the market. The socialist managers cannot know whether the construction of a new railroad line is more advan- tageous than the construction of a new motor road. And if they have once decided on the construction of a railroad, they cannot
Etatism 55
know which of many possible routes it should cover. Under a sys- tem of private ownership money calculations are used to solve such problems. But no such calculation is possible by comparing various classes of expenditures and incomes in kind. It is out of the ques- tion to reduce to a common unit the quantities of various kinds of skilled and unskilled labor, iron, coal, building materials of dif- ferent types, machinery, and everything else that the building, the upkeep, and the operation of railroads necessitates. But without such a common unit it is impossible to make these plans the subject of economic calculations. Planning requires that all the commodi- ties and services which we have to take into account can be reduced to money. The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation.
Socialism as a universal mode of production is impracticable because it is impossible to make economic calculations within a socialist system. The choice for mankind is not between two eco- nomic systems. It is between capitalism and chaos.
5. Socialism in Russia and in Germany
The attempts of the Russian Bolsheviks and of the German Nazis to transform socialism from a program into reality have not had to meet the problem of economic calculation under socialism. These two socialist systems have been working within a world the greater part of which still clings to a market economy. The rulers of these socialist states base the calculations on which they make their deci- sions on the prices established abroad. Without the help of these prices their actions would be aimless and planless. Only in so far as they refer to this price system are they able to calculate, keep books, and prepare their plans. With this fact in mind we may agree with the statement of various socialist authors and politicians that socialism in only one or a few countries is not yet true social- ism. Of course these men attach a quite different meaning to their assertions. They are trying to say that the full blessings of socialism can be reaped only in a world-embracing socialist community. The rest of us, on the contrary, must recognize that socialism will result in complete chaos precisely if it is applied in the greater part of the world.
The German and the Russian systems of socialism have in com- mon the fact that the government has full control of the means of production. It decides what shall be produced and how. It allots to each individual a share of consumer's goods for his consumption.
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These systems would not have to be called socialist if it were other- wise.
But there is a difference between the two systems — though it does not concern the essential features of socialism.
The Russian pattern of socialism is purely bureaucratic. All eco- nomic enterprises are departments of the government, like the ad- ministration of the army or the postal system. Every plant, shop, or farm stands in the same relation to the superior central organiza- tion as does a post office to the office of the postmaster general.
The German pattern differs from the Russian one in that it (seemingly and nominally) maintains private ownership of the means of production and keeps the appearance of ordinary prices, wages, and markets. There are, however, no longer entrepreneurs but only shop managers (Betriebsfiihrer). These shop managers do the buying and selling, pay the workers, contract debts, and pay interest and amortization. There is no labor market; wages and salaries are fixed by the government. The government tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees to whom and under what terms the capitalists must entrust their funds and where and at what wages laborers must work. Market exchange is only a sham. All the prices, wages, and interest rates are fixed by the central authority. They are prices, wages, and inter- est rates in appearance only; in reality they are merely determina- tions of quantity relations in the government's orders. The gov- ernment, not the consumers, directs production. This is socialism in the outward guise of capitalism. Some labels of capitalistic market economy are retained but they mean something entirely different from what they mean in a genuine market economy.
The execution of the pattern in each country is not so rigid as not to allow for some concessions to the other pattern. There are, in Germany too, plants and shops directly managed by government clerks; there is especially the national railroad system; there are the government's coal mines and the national telegraph and telephone lines. Most of these institutions are remnants of the nationaliza- tion carried out by the previous governments under the regime of German militarism. In Russia, on the other hand, there are some seemingly independent shops and farms left. But these exceptions do not alter the general characteristics of the two systems.
It is not an accident that Russia adopted the bureaucratic pattern and Germany the Zwangswirtschaft pattern. Russia is the largest country in the world and is thinly inhabited. Within its borders it has the richest resources. It is much better endowed by nature than any other country. It can without too great harm to the well-being
Etatism 57
of its population renounce foreign trade and live in economic self- sufficiency. But for the obstacles which Czarism first put in the way of capitalist production, and for the later shortcomings of the Bol- shevik system, the Russians even without foreign trade could have long enjoyed the highest standard of living in the world. In such a country the application of the bureaucratic system of production is not impossible, provided the management is in a position to use for economic calculation the prices fixed on the markets of foreign capitalist countries, and to apply the techniques developed by the enterprise of foreign capitalism. Under these circumstances social- ism results not in complete chaos but only in extreme poverty. A few years ago in the Ukraine, the most fertile land of Europe, many millions literally died of starvation.
In a predominantly industrial country conditions are different. The characteristic feature of a predominantly industrial country is that its population must live to a great extent on imported food and imported raw materials.* It must pay for these imports by the export of manufactured goods, which it produces mainly from im- ported raw materials. Its vital strength lies in its factories and in its foreign trade. Jeopardizing the efficiency of industrial production is equivalent to imperiling the basis of sustenance. If the plants produce worse or at higher cost they cannot compete in the world market, where they must outdo commodities of foreign origin. If exports drop, imports of food and other necessities drop correspond- ingly; the nation loses its main source of living.
Now Germany is a predominantly industrial country. It did very well when, in the years preceding the first World War, its entrepreneurs steadily expanded their exports. There was no other country in Europe in which the standard of living of the masses improved faster than in imperial Germany. For German socialism there could be no question of imitating the Russian model. To have attempted this would have immediately destroyed the apparatus of German export trade. It would have suddenly plunged into misery a nation pampered by the achievements of capitalism. Bureaucrats cannot meet the competition of foreign markets; they flourish only where they are sheltered by the state, with its compulsion and coer- cion. Thus the German socialists were forced to take recourse to the methods which they called German socialism. These methods, it is true, are much less efficient than that of private initiative. But they
* The United States, although the country with the most efficient and greatest industry, is not a predominantly industrial country, as it enjoys an equilibrium be- tween its processing industries and its production of food and raw materials. On the other hand Austria, whose industry is small compared with that of America, is pre- dominantly industrial because it depends to a great extent on the import of food and raw materials and must export almost half of its industrial output*
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are much more efficient than the bureaucratic system of the Soviets.
This German system has an additional advantage. The German capitalists and the Betriebsfiihrer, the former entrepreneurs, do not believe in the eternity of the Nazi regime. They are, on the contrary, convinced that the rule of Hitler will collapse one day and that then they will be restored to the ownership of the plants which in pre-Nazi days were their property. They remember that in the first World War too the Hindenburg program had virtually dispossessed them, and that with the breakdown of the imperial government they were de facto reinstated. They believe that it will happen again. They are therefore very careful in the operation of the plants whose nominal owners and shop managers they are. They do their best to prevent waste and to maintain the capital invested. It is only thanks to these selfish interests of the Betriebsfiihrer that German socialism secured an adequate production of armaments, planes, and ships.
Socialism would be impracticable altogether if established as a world-wide system of production, and thus deprived of the possi- bility of making economic calculations. When confined to one or a few countries in the midst of a world capitalist economy it is only an inefficient system. And of the two patterns for its realization the German is less inefficient than the Russian one.
6. Interventionism
All civilizations have up to now been based on private ownership of the means of production. In the past civilization and private ownership have been linked together. If history could teach us anything, it would be that private property is inextricably linked with civilization.
Governments have always looked askance at private property. Governments are never liberal from inclination. It is in the nature of the men handling the apparatus of compulsion and coercion to overrate its power to work, and to strive at subduing all spheres of human life to its immediate influence. Etatism is the occupational disease of rulers, warriors, and civil servants. Governments become liberal only when forced to by the citizens.
From time immemorial governments have been eager to inter- fere with the working of the market mechanism. Their endeavors have never attained the ends sought. People used to attribute these failures to the inefficacy of the measures applied and to the leniency of their enforcement. What was wanted, they thought, was more energy and more brutality; then success would be assured. Not until the eighteenth century did men begin to understand that
Etatism 59
interventionism is necessarily doomed to fail. The classical econ- omists demonstrated that each constellation of the market has a corresponding price structure. Prices, wages, and interest rates are the result of the interplay of demand and supply. There are forces operating in the market which tend to restore this — natural — state if it is disturbed. Government decrees, instead of achieving the particular ends they seek, tend only to derange the working of the market and imperil the satisfaction of the needs of the consumers.
In defiance of economic science the very popular doctrine of modern interventionism asserts that there is a system of economic cooperation, feasible as a permanent form of economic organiza- tion, which is neither capitalism nor socialism. This third system is conceived as an order based on private ownership of the means of production in which, however, the government intervenes, by or- ders and prohibitions, in the exercise of ownership rights. It is claimed that this system of interventionism is as far from socialism as it is from capitalism; that it offers a third solution of the problem of social organization; that it stands midway between socialism and capitalism; and that while retaining the advantages of both it es- capes the disadvantages inherent in each of them. Such are the pretensions of interventionism as advocated by the older German school of etatism, by the American Institutionalists, and by many groups in other countries. Interventionism is practiced — except for socialist countries like Russia and Nazi Germany — by every contemporary government. The outstanding examples of inter- ventionist policies are the Sozialpolitik of imperial Germany and the New Deal policy of present-day America.
Marxians do not support interventionism. They recognize the correctness of the teachings of economics concerning the frustra- tion of interventionist measures. In so far as some Marxian doc- trinaires have recommended interventionism they have done so because they consider it an instrument for paralyzing and destroy- ing the capitalist economy, and hope thereby to accelerate the com- ing of socialism. But the consistent orthodox Marxians scorn inter- ventionism as idle reformism detrimental to the interests of the proletarians. They do not expect to bring about the socialist Utopia by hampering the evolution of capitalism; on the contrary, they believe that only a full development of the productive forces of capitalism can result in socialism. Consistent Marxians abstain from doing anything to interfere with what they deem to be the natural evolution of capitalism. But consistency is a very rare qual- ity among Marxians. So most Marxian parties and the trade-unions operated by Marxians are enthusiastic in their support of interven- tionism.
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A mixture of capitalist and socialist principles is not feasible. If, within a society based on private ownership of the means of pro- duction, some of these means are publicly owned and operated, this does not make for a mixed system which combines socialism and capitalism. The enterprises owned and operated by the state or by municipalities do not alter the characteristic features of a market economy. They must fit themselves, as buyers of raw materials, of equipment and of labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws de- termining production for the needs of consumers. They must strive for profits or, at least, to avoid losses. When the government tries to eliminate or to mitigate this dependence by covering the losses of its plants and shops by drawing on the public funds, the only result is that this dependence is shifted to another field. The means for covering the losses must be raised by the imposition of taxes. But this taxation has its effect on the market. It is the working of the market mechanism, and not the government collecting the taxes, that decides upon whom the incidence of the taxes falls and how it affects production and consumption. The market, not the govern- ment, determines the working of those publicly operated enter- prises.
Nor should interventionism be confused with the German pat- tern of socialism. It is the essential feature of interventionism that it does not aim at a total abolition of the market; it does not want to reduce private ownership to a sham and the entrepreneurs to the status of shop managers. The interventionist government does not want to do away with private enterprise; it wants only to regulate its working through isolated measures of interference. Such meas- ures are not designed as cogs in an all-round system of orders and prohibitions destined to control the whole apparatus of production and distribution; they do not aim at replacing private ownership and a market economy by socialist planning.
In order to grasp the meaning and the effects of interventionism it is sufficient to study the working of the two most important types of intervention: interference by restriction and interference by price control.
Interference by restriction aims directly at a diversion of produc- tion from the channels prescribed by the market and the con- sumers. The government either forbids the manufacture of certain goods or the application of certain methods of production, or makes such methods more difficult by the imposition of taxes or penalties. It thus eliminates some of the means available for the satisfaction of human needs. The best-known examples are import duties and
Etatism 6 1
other trade barriers. It is obvious that all such measures make the people as a whole poorer, not richer. They prevent men from using their knowledge and ability, their labor and material resources as efficiently as they can. In the unhampered market forces are at work tending to utilize every means of production in a way that provides for the highest satisfaction of human wants. The inter- ference of the government brings about a different employment of resources and thereby impairs the supply.
We do not need to ask here whether some restrictive measures could not be justified, in spite of the diminution of supply they cause, by advantages in other fields. We do not need to discuss the problem of whether the disadvantage of raising the price of bread by an import duty on wheat is outweighed by the increase in in- come of domestic farmers. It is enough for our purpose to realize that restrictive measures cannot be considered as measures of in- creasing wealth and welfare, but are instead expenditures. They are, like subsidies which the government pays out of the revenue collected by taxing the citizens, not measures of production policy but measures of spending. They are not parts of a system of creating wealth but a method of consuming it.
The aim of price control is to decree prices, wages, and interest rates different from those fixed by the market. Let us first consider the case of maximum prices, where the government tries to enforce prices lower than the market prices.
The prices set on the unhampered market correspond to an equi- librium of demand and supply. Everybody who is ready to pay the market price can buy as much as he wants to buy. Everybody who is ready to sell at the market price can sell as much as he wants to sell. If the government, without a corresponding increase in the quan- tity of goods available for sale, decrees that buying and selling must be done at a lower price, and thus makes it illegal either to ask or to pay the potential market price, then this equilibrium can no longer prevail. With unchanged supply there are now more potential buyers on the market, namely, those who could not afford the higher market price but are prepared to buy at the lower official rate. There are now potential buyers who cannot buy, although they are ready to pay the price fixed by the government or even a higher price. The price is no longer the means of segregating those potential buyers who may buy from those who may not. A different principle of selection has come into operation. Those who come first can buy; others are too late in the field. The visible outcome of this state of things is the sight of housewives and children stand- ing in long lines before the groceries, a spectacle familiar to every-
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body who has visited Europe in this age of price control. If the government does not want only those to buy who come first (or who are personal friends of the salesman), while others go home empty handed, it must regulate the distribution of the stocks availa- ble. It has to introduce some kind of rationing.
But price ceilings not only fail to increase the supply, they reduce it. Thus they do not attain the ends which the authorities wish. On the contrary, they result in a state of things which from the point of view of the government and of public opinion is even less desira- ble than the previous state which they had intended to alter. If the government wants to make it possible for the poor to give their children more milk, it has to buy the milk at the market price and sell it to these poor parents with a loss, at a cheaper rate. The loss may be covered by taxation. But if the government simply fixes the price of milk at a lower rate than the market, the result will be the contrary of what it wants. The marginal producers, those with the highest costs, will, in order to avoid losses, go out of the business of producing and selling milk. They will use their cows and their skill for other, more profitable purposes. They will, for example, produce cheese, butter, or meat. There will be less milk available for the consumers, not more. Then the government has to choose be- tween two alternatives: either to refrain from any endeavors to control the price of milk and to abrogate its decree, or to add to its first measure a second one. In the latter case it must fix the prices of the factors of production necessary for the production of milk at such a rate that the marginal producers will no longer suffer losses and will abstain from restricting the output. But then the same problem repeats itself on a remoter plane. The supply of the factors of production necessary for the production of milk drops, and again the government is back where it started, facing failure in its inter- ference. If it keeps stubbornly on pushing forward its schemes, it has to go still further. It has to fix the prices of the factors of pro- duction necessary for the production of those factors of production which are needed for the production of milk. Thus the government is forced to go further and further, fixing the prices of all con- sumer goods and of all factors of production — both human (i.e., labor) and material — and to force every entrepreneur and every worker to continue work at these prices and wages. No branch of industry can be omitted from this all-round fixing of prices and wages and from this general order to produce those quantities which the government wants to see produced. If some branches were to be left free, the result would be a shifting of capital and labor to them and a corresponding fall of the supply of goods whose prices the government has fixed. However, it is precisely these
Etatism 63
goods which the government considers especially important for the satisfaction of the needs of the masses.*
But when this state of all-round control of business is achieved, the market economy has been replaced by the German pattern of socialist planning. The government's board of production manage- ment now exclusively controls all business activities and decides how the means of production — men and material resources — must be used.
The isolated measures of price fixing fail to attain the ends sought. In fact, they produce effects contrary to those aimed at by the government. If the government, in order to eliminate these inexorable and unwelcome consequences, pursues its course fur- ther and further, it finally transforms the system of capitalism and free enterprise into socialism.
Many American and British supporters of price control are fas- cinated by the alleged success of Nazi price control. They believe that the German experience has proved the practicability of price control within the framework of a system of market economy. You have only to be as energetic, impetuous, and brutal as the Nazis are, they think, and you will succeed. These men who want to fight Nazism by adopting its methods do not see that what the Nazis have achieved has been the building up of a system of socialism, not a reform of conditions within a system of market economy.
There is no third system between a market economy and social- ism. Mankind has to choose between those two systems — unless chaos is considered an alternative.f
It is the same when the government takes recourse to minimum prices. Practically the most important case of fixing prices at a higher level than that established on the unhampered market is the case of minimum wages. In some countries minimum wage rates are decreed directly by the government. The governments of other countries interfere only indirectly with wages. They give a free hand to the labor unions by acquiescing in the use of compulsion and coercion by unions against reluctant employers and employees. If it were otherwise strikes would not attain the ends which the trade-unions want to attain. The strike would fail to force the em- ployer to grant higher wages than those fixed by the unhampered market, if he were free to employ men to take the place of the strikers. The essence of labor-union policy today is the application or threat of violence under the benevolent protection of the gov-
• For the two situations in which price-control measures can be used effectively within a narrowly confined sphere, the reader is referred to Mises* Nationaldkonomie, pp. 674-^75.
f We pass over the fact that, because of the impossibility of economic calculation under it, socialism too must result in chaos.
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ernment. The unions represent, therefore, a vital part of the state apparatus of compulsion and coercion. Their fixing of minimum wage rates is equivalent to a government intervention establishing minimum wages.
The labor unions succeed in forcing the entrepreneurs to grant higher wages. But the result of their endeavors is not what people usually ascribe to them. The artificially elevated wage rates cause permanent unemployment of a considerable part of the potential labor force. At these higher rates the marginal employments for labor are no longer profitable. The entrepreneurs are forced to restrict output, and the demand on the labor market drops. The unions seldom bother about this inevitable result of their activities; they are not concerned with the fate of those who are not members of their brotherhood. But it is different for the government, which aims at the increase of the welfare of the whole people and wants to benefit not only union members but all those who have lost their jobs. The government wants to raise the income of all workers; that a great many of them cannot find employment is contrary to its intentions.
These dismal effects of minimum wages have become more and more apparent the more trade-unionism has prevailed. As long as only one part of labor, mostly skilled workers was unionized, the wage rise achieved by the unions did not lead to unemployment but to an increased supply of labor in those branches of business where there were no efficient unions or no unions at all. The workers who lost their jobs as a consequence of union policy entered the market of the free branches and caused wages to drop in those branches. The corollary of the rise in wages for organized workers was a drop in wages for unorganized workers. But with the spread of unionism conditions have changed. Workers now losing their jobs in one branch of industry find it harder to get employment in other lines. They are victimized.
There is unemployment even in the absence of any government or union interference. But in an unhampered labor market there prevails a tendency to make unemployment disappear. The fact that the unemployed are looking for jobs must result in fixing wage rates at a height which makes it possible for the entrepreneurs to employ all those eager to work and to earn wages. But if minimum wage rates prevent an adjustment of wage rates to the conditions of demand and supply, unemployment tends to become a permanent mass phenomenon.
There is but one means to make market wage rates rise for all those eager to work: an increase in the amount of capital goods available which makes it possible to improve technological meth-
Etatism 65
ods of production and thereby to raise the marginal productivity of labor. It is a sad fact that a great war, in destroying a part of the stock of capital goods, must result in a temporary fall in real wage rates, when the shortage of man power brought about by the enlist- ment of millions of men is once overcome. It is precisely because they are fully aware of this undesirable consequence that liberals consider war not only a political but also an economic disaster.
Government spending is not an appropriate means to brush away unemployment. If the government finances its spending by collecting taxes or by borrowing from the public, it curtails the private citizens' power to invest and to spend to the same extent that it increases its own spending capacity. If the government finances its spending by inflationary methods (issue of additional paper money or borrowing from the commercial banks) it brings about a general rise of commodity prices. If then money wage rates do not rise at all or not to the same extent as commodity prices, mass unemployment may disappear. But it disappears precisely because real wage rates have dropped.
Technological progress increases the productivity of human ef- fort. The same amount of capital and labor can now produce more than before. A surplus of capital and labor becomes available for the expansion of already existing industries and for the develop- ment of new ones. "Technological unemployment** may occur as a transitory phenomenon. But very soon the unemployed will find new jobs either in the new industries or in the expanding old ones. Many millions of workers are today employed in industries which were created in the last decades. And the wage earners themselves are the main buyers of the products of these new industries.
There is but one remedy for lasting unemployment of great masses: the abandonment of the policy of raising wage rates by government decree or by the application or the threat of violence.
Those who advocate interventionism because they want to sab- otage capitalism and thereby finally to achieve socialism are at least consistent. They know what they are aiming at. But those who do not wish to replace private property by German Zwangswirtschaft or Russian Bolshevism are sadly mistaken in recommending price control and labor-union compulsion.
The more cautious and sophisticated supporters of interven- tionism are keen enough to recognize that government interfer- ence with business fails in the long run to attain the ends sought. But, they assert, what is needed is immediate action, a short-run policy. Interventionism is good because its immediate effects are beneficial, even if its remoter consequences may be disastrous. Do not bother about tomorrow; only today counts. With regard to this
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attitude two points must be emphasized: (i) today, after years and decades of interventionist policies, we are already confronted with the long-run consequences of interventionism; (2) wage interven- tionism is bound to fail even in the short run, if not accompanied by corresponding measures of protectionism.
7. Etatism and Protectionism
Etatism — whether interventionism or socialism — is a national policy. The national governments of various countries adopt it. Their concern is whatever they consider favors the interests of their own nations. They are not troubled about the fate or the happiness of foreigners. They are free from any inhibitions which would pre- vent them from inflicting harm on aliens.
We have dealt already with how the policies of etatism hurt the well-being of the whole nation and even of the groups or classes which they are intended to benefit. For the purpose of this book it is still more important to emphasize that no national system of etatism can work within a world of free trade. Etatism and free trade in international relations are incompatible, not only in the long run but even in the short run. Etatism must be accompanied by measures severing the connections of the domestic market with foreign markets. Modern protectionism, with its tendency to make every country economically self-sufficient as far as possible, is in- extricably linked with interventionism and its inherent tendency to turn into socialism. Economic nationalism is the unavoidable out- come of etatism.
In the past various doctrines and considerations induced govern- ments to embark upon a policy of protectionism. Economics has exposed all these arguments as fallacious. Nobody tolerably famil- iar with economic theory dares today to defend these long since unmasked errors. They still play an important role in popular discussion; they are the preferred theme of demagogic fulmina- tions; but they have nothing to do with present-day protectionism. Present-day protectionism is a necessary corollary of the domestic policy of government interference with business. Interventionism begets economic nationalism. It thus kindles the antagonisms resulting in war. An abandonment of economic nationalism is not feasible if nations cling to interference with business. Free trade in international relations requires domestic free trade. This is funda- mental to any understanding of contemporary international rela- tions.
It is obvious that all interventionist measures aiming at a rise in domestic prices for the benefit of domestic producers, and all meas-
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ures whose immediate effect consists in a rise in domestic costs of production, would be frustrated if foreign products were not either barred altogether from competition on the domestic market or penalized when imported. When, other things being unchanged, labor legislation succeeds in shortening the hours of work or in imposing on the employer in another way additional burdens to the advantage of the employees, the immediate effect is a rise in production costs. Foreign producers can compete under more fav- orable conditions, both on the home market and abroad, than they could before.
The acknowledgment of this fact has long since given impetus to the idea of equalizing labor legislation in different countries. These plans have taken on more definite form since the international con- ference called by the German Government in 1890. They led finally in 1919 to the establishment of the International Labor Office in Geneva. The results obtained were rather meager. The only ef- ficient way to equalize labor conditions all over the world would be freedom of migration. But it is precisely this which unionized labor of the better-endowed and comparatively underpopulated countries fights with every means available.
The workers of those countries where natural conditions of pro- duction are more favorable and the population is comparatively thin enjoy the advantages of a higher marginal productivity of la- bor. They get higher wages and have a higher standard of living. They are eager to protect their advantageous position by barring or restricting immigration.* On the other hand, they denounce as "dumping" the competition of goods produced abroad by foreign labor remunerated at a lower scale; and they ask for protection against the importation of such goods.
The countries which are comparatively overpopulated — i.e., in which the marginal productivity of labor is lower than in other countries — have but one means to compete with the more favored countries: lower wages and a lower standard of living. Wage rates are lower in Hungary and in Poland than in Sweden or in Canada because the natural resources are poorer and the population is greater in respect to them. This fact cannot be disposed of by an international agreement, or by the interference of an international labor office. The average standard of living is lower in Japan than
* Many Americans are not familiar with the fact that, in the years between the two world wars, almost all European nations had recourse to very strict anti-immigration laws. These laws were more rigid than the American laws, since most of them did not provide for any immigration quotas. Every nation was eager to protect its wage level — a low one when compared with American conditions — against the immigration of men from other countries in which wage rates were still lower. The result was mutual hatred and — in face of a threatening common danger — disunion.
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in the United States because the same amount of labor produces less in Japan than in the United States.
Such being the conditions, the goal of international agreements concerning labor legislation and trade-union policies cannot be the equalization of wage rates, hours of work, or other such "pro-labor" measures. Their only aim could be to coordinate these things so that no changes in the previously prevailing conditions of com- petition resulted. If, for example, American laws or trade-union policies resulted in a 5 per cent rise in construction costs, it would be necessary to find out how much this increased the cost of produc- tion in the various branches of industry in which America and Japan are competing or could compete if the relation of production costs changed. Then it would be necessary to investigate what kind of measures could burden Japanese production to such an extent that no change in the competitive power of both nations would take place. It is obvious that such calculations would be extremely difficult. Experts would disagree with regard both to the methods to be used and the probable results. But even if this were not the case an agreement could not be reached. For it is contrary to the interests of Japanese workers to adopt such measures of compensa- tion. It would be more advantageous for them to expand their export sales to the disadvantage of American exports; thus the de- mand for their labor would rise and the condition of Japanese workers improve effectively. Guided by this idea, Japan would be ready to minimize the rise in production costs effected by the Amer- ican measures and would be reluctant to adopt compensatory meas- ures. It is chimerical to expect that international agreements concerning socio-economic policies could be substituted for pro- tectionism.
We must realize that practically every new pro-labor measure forced on employers results in higher costs of production and thereby in a change in the conditions of competition. If it were not for protectionism such measures would immediately fail to attain the ends sought. They would result only in a restriction of domestic production and consequently in an increase of unemployment. The unemployed could find jobs only at lower wage rates; if they were not prepared to acquiesce in this solution they would remain un- employed. Even narrow-minded people would realize that eco- nomic laws are inexorable, and that government interference with business cannot attain its ends but must result in a state of affairs which — from the point of view of the government and the sup- porters of its policy — is even less desirable than the conditions which it was designed to alter.
Protectionism, of course, cannot brush away the unavoidable
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consequences of interventionism. It can only improve conditions in appearance; it can only conceal the true state of affairs. Its aim is to raise domestic prices. The higher prices provide a compensa- tion for the rise in costs of production. The worker does not suffer a cut in money wages but he has to pay more for the goods he wants to buy. As far as the home market is concerned the problem is seem- ingly settled.
But this brings us to a new problem: monopoly.
8. Economic Nationalism and Domestic Monopoly Prices
The aim of the protective tariff is to undo the undesired conse- quences of the rise in domestic costs of production caused by gov- ernment interference. The purpose is to preserve the competitive power of domestic industries in spite of the rise in costs of pro- duction.
However, the mere imposition of an import duty can attain this end only in the case of those commodities whose domestic produc- tion falls short of domestic demand. With industries producing more than is needed for domestic consumption a tariff alone would be futile unless supplemented by monopoly.
In an industrial European country, for example Germany, an import duty on wheat raises the domestic price to the level of the world market price plus the import duty. Although the rise in the domestic wheat price results in an expansion of domestic produc- tion on the one hand and a restriction of domestic consumption on the other hand, imports are still necessary for the satisfaction of domestic demand. As the costs of the marginal wheat dealer include both the world market price and the import duty, the domestic price goes up to this height.
It is different with those commodities that Germany produces in such quantities that a part can be exported. A German import duty on manufactures which Germany produces not only for the domes- tic market but for export too would be, as far as export trade is concerned, a futile measure to compensate for a rise in domestic costs of production. It is true that it would prevent foreign manu- facturers from selling on the German market. But export trade must continue to be hampered by the rise in domestic production costs. On the other hand the competition between the domestic producers on the home market would eliminate those German plants in which production no longer paid with the rise in costs due to government interference. At the new equilibrium the do- mestic price would reach the level of the world market price plus
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a part of the import duty. Domestic consumption would now be lower than it was before the rise in domestic production costs and the imposition of the import duty. The restriction of domestic con- sumption and the falling off of exports mean a shrinking of produc- tion with consequent unemployment and an increased pressure on the labor market resulting in a drop in wage rates. The failure of the Sozialpolitik becomes manifest.*
But there is still another way out. The fact that the import duty has insulated the domestic market provides domestic producers with the opportunity to build up a monopolistic scheme. They can form a cartel and charge the domestic consumers monopoly prices which can go up to a level only slightly lower than the world market price plus the import duty. With their domestic monopoly profits they can afford to sell at lower prices abroad. Production goes on. The failure of the Sozialpolitik is skillfully concealed from the eyes of an ignorant public. But the domestic consumers must pay higher prices. What the worker gains by the rise in wage rates and by pro-labor legislation burdens him in his capacity as con- sumer.
But the government and the trade-union leaders have attained their goal. They can then boast that the entrepreneurs were wrong in predicting that higher wages and more labor legislation would make their plants unprofitable and hamper production.
Marxian myths have succeeded in surrounding the problem of monopoly with empty babble. According to the Marxian doctrines of imperialism, there prevails within an unhampered market soci- ety a tendency toward the establishment of monopolies. Monopoly, according to these doctrines, is an evil originating from the opera- tion of the forces working in an unhampered capitalism. It is, in the eyes of the reformers, the worst of all drawbacks of the laissez- faire system; its existence is the best justification of intervention- ism; it must be the foremost aim of government interference with business to fight it. One of the most serious consequences of monop- oly is that it begets imperialism and war.
There are, it is true, instances in which a monopoly — a world monopoly — of some products could possibly be established without the support of governmental compulsion and coercion. The fact that the natural resources for the production of mercury are very few, for example, might engender a monopoly even in the absence of governmental encouragement. There are instances, again, in
* We need not consider the case of import duties so low that only a few or none of the domestic plants can continue production for the home market. In this case foreign competitors could penetrate the domestic market, and prices would reach the level of the world market price plus the whole import duty. The failure of the tariff would be even more manifest.
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which the high cost of transportation makes it possible to establish local monopolies for bulky goods, e.g., for some building materials in places unfavorably located. But this is not the problem with which most people are concerned when discussing monopoly. Al- most all the monopolies that are assailed by public opinion and against which governments pretend to fight are government made. They are national monopolies created under the shelter of import duties. They would collapse with a regime of free trade.
The common treatment of the monopoly question is thoroughly mendacious and dishonest. No milder expression can be used to characterize it. It is the aim of the government to raise the domestic price of the commodities concerned above the world market level, in order to safeguard in the short run the operation of its pro-labor policies. The highly developed manufactures of Great Britain, the United States, and Germany would not need any protection against foreign competition were it not for the policies of their own gov- ernments in raising costs of domestic production. But these tariff policies, as shown in the case described above, can work only when there is a cartel charging monopoly prices on the domestic market. In the absence of such a cartel domestic production would drop, as foreign producers would have the advantage of producing at lower costs than those due to the new pro-labor measure. A highly de- veloped trade-unionism, supported by what is commonly called "progressive labor legislation/* would be frustrated even in the short run if domestic prices were not maintained at a higher level than that of the world market, and if the exporters (if exports are to be continued) were not in a position to compensate the lower export prices out of the monopolistic profits drawn on the home market. Where the domestic cost of production is raised by govern- ment interference, or by the coercion and compulsion exercised by trade-unions, export trade will need to be subsidized. The subsidies may be openly granted as such by the government, or they may be disguised by monopoly. In this second case the domestic consumers pay the subsidies in the form of higher prices for the commodities which the monopoly sells at a lower price abroad. If the govern- ment were sincere in its antimonopolistic gestures, it could find a very simple remedy. The repeal of the import duty would brush away at one stroke the danger of monopoly. But governments and their friends are eager to raise domestic prices. Their struggle against monopoly is only a sham.
The correctness of the statement that it is the aim of the govern- ments to raise prices can easily be demonstrated by referring to conditions in which the imposition of an import duty does not result in the establishment of a cartel monopoly. The American
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farmers producing wheat, cotton, and other agricultural products cannot, for technical reasons, form a cartel. Therefore the admin- istration developed a scheme to raise prices through restriction of output and through withholding huge stocks from the market by means of government buying and government loans. The ends ar- rived at by this policy are a substitute for an infeasible farming cartel and farming monopoly.
No less conspicuous are the endeavors of various governments to create international cartels. If the protective tariff results in the formation of a national cartel, international cartelization could in many cases be attained by agreements between the na- tional cartels. Such agreements are often very well served by an- other pro-monopoly activity of governments, the patents and other privileges granted to new inventions. However, where technical obstacles prevent the construction of national cartels — as is almost always the case with agricultural production — no such interna- tional agreements can be built up. Then the governments inter- fere again. History between the two world wars is an open record of state intervention to foster monopoly and restriction by inter- national agreements. There were schemes for wheat pools, rubber and tin restrictions, and so on.* Of course, most of them collapsed very quickly.
Such is the true story of modern monopoly. It is not an outcome of unhampered capitalism and of an inherent trend of capitalist evolution, as the Marxians would have us believe. It is, on the contrary, the result of government policies aiming at a reform of market economy.
9. Autarky
Interventionism aims at state control of market .conditions. As the sovereignty of the national state is limited to the territory sub- ject to its supremacy and has no jurisdiction outside its boundaries, it considers all kinds of international economic relations as serious obstacles to its policy. The ultimate goal of its foreign trade policy is economic self-sufficiency. The avowed tendency of this policy is, of course, only to reduce imports as far as possible; but as exports have no purpose but to pay for imports, they drop concomitantly.
The striving after economic self-sufficiency is even more violent in the case of socialist governments. In a socialist community pro- duction for domestic consumption is no longer directed by the tastes and wishes of the consumers. The central board of produc- tion management provides for the domestic consumer according * G. L. Schwartz, "Back to Free Enterprise," Nineteenth Century and After, CXXXI
Etatism 73
to its own ideas of what serves him best; it takes care of the people but it no longer serves the consumer. But it is different with pro- duction for export. Foreign buyers are not subject to the authorities of the socialist state; they have to be served; their whims and fancies have to be taken into account. The socialist government is sovereign in purveying to the domestic consumers, but in its foreign- trade relations it encounters the sovereignty of the foreign con- sumer. On foreign markets it has to compete with other producers producing better commodities at lower cost. We have mentioned earlier how the dependence on foreign imports and consequently on exports influences the whole structure of German socialism.*
The essential goal of socialist production, according to Marx, is the elimination of the market. As long as a socialist community is still forced to sell a part of its production abroad — whether to for- eign socialist governments or to foreign business — it still produces for a market and is subject to the laws of the market economy. A socialist system is defective as such as long as it is not economically self-sufficient.
The international division of labor is a more efficient system of production than is the economic autarky of every nation. The same amount of labor and of material factors of production yields a higher output. This surplus production benefits everyone con- cerned. Protectionism and autarky always result in shifting pro- duction from the centers where conditions are more favorable — i.e., from where the output for the same amount of physical input is higher — to centers where they are less favorable. The more pro- ductive resources remain unused while the less productive are utilized. The effect is a general drop in the productivity of human effort, and thereby a lowering of the standard of living all over the world.
The economic consequences of protectionist policies and of the trend toward autarky are the same for all countries. But there are qualitative and quantitative differences. The social and political results are different for comparatively overpopulated industrial countries and for comparatively underpopulated agricultural coun- tries. In the predominantly industrial countries the prices of the most urgently needed foodstuffs are going up. This interferes more and sooner with the well-being of the masses than the correspond- ing rise in the prices of manufactured goods in the predominantly agricultural countries. Besides, the workers in the industrial coun- tries are in a better position to make their complaints heard than the farmers and farm hands in the agricultural countries. The statesmen and economists of the predominantly industrial coun-
* See above, p. 57.
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tries become frightened. They realize that natural conditions are putting a check on their country's endeavors to replace imports of food and raw materials by domestic production. They clearly un- derstand that the industrial countries of Europe can neither feed nor clothe their population out of domestic products alone. They foresee that the trend toward more protection, more insulation of every country, and finally self-sufficiency will bring about a tre- mendous fall in the standard of living, if not actual starvation. Thus they look around for remedies.
German aggressive nationalism is animated by these considera- tions. For more than sixty years German nationalists have been depicting the consequences which the protectionist policies of other nations must eventually have for Germany. Germany, they pointed out, cannot live without importing food and raw materials. How will it pay for these imports when one day the nations producing these materials have succeeded in the development of their domes- tic manufactures and bar access to German exports? There is, they told themselves, only one redress: We must conquer more dwelling space, more Lebensraum.
The German nationalists are fully aware that many other na- tions— for example, Belgium — are in the same unfavorable posi- tion. But, they say, there is a very important difference. These are small nations. They are therefore helpless. Germany is strong enough to conquer more space. And, happily for Germany, they say today, there are two other powerful nations, which are in the same position as Germany, namely, Italy and Japan. They are the natu- ral allies of Germany in these wars of the have-nots against the haves.
Germany does not aim at autarky because it is eager to wage war. It aims at war because it wants autarky — because it wants to live in economic self-sufficiency.
jo. German Protectionism
The second German Empire, founded at Versailles in 1871, was not only a powerful nation; it was — in spite of the depression which started in 1873 — economically very prosperous. Its indus- trial plants were extremely successful in competing — abroad and at home — with foreign products. Some grumblers found fault with German manufactures; German goods, they said, were cheap but inferior. But the great foreign demand was precisely for such cheap goods. The masses put more stress upon cheapness than upon fine quality. Whoever wanted to increase sales had to cut prices.
In those optimistic 1870*5 everybody was fully convinced that
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Europe was on the eve of a period of peace and prosperity. There were to be no more wars; trade barriers were doomed to disappear; men would be more eager to build up and to produce than to de- stroy and to kill each other. Of course, farsighted men could not overlook the fact that Europe's cultural preeminence would slowly vanish. Natural conditions for production were more favorable in overseas countries. Capitalism was on the point of developing the resources of backward nations. Some branches of production would not be able to stand the competition of the newly opened areas. Agricultural production and mining would drop in Europe; Europeans would buy such goods by exporting manufactures. But people did not worry. Intensification of the international division of labor was in their eyes not a disaster but on the contrary a source of richer supply. Free trade was bound to make all nations more flourishing.
The German liberals advocated free trade, the gold standard, and freedom of domestic business. German manufacturing did not need any protection. It triumphantly swept the world market. It would have been nonsensical to bring forward the infant-industry argument. German industry had reached its maturity.
Of course, there were still many countries eager to penalize im- ports. However, the inference from Ricardo's free-trade argument was irrefutable. Even if all other countries cling to protection, every nation serves its own interest best by free trade. Not for the sake of foreigners but for the sake of their own nation, the liberals advocated free trade. There was the great example set by Great Britain, and by some smaller nations, like Switzerland. These coun- tries did very well with free trade. Should Germany adopt their policies? Or should it imitate half-barbarian nations like Russia?
But Germany chose the second path. This decision was a turning point in modern history.
There are many errors current concerning modern German pro- tectionism.
It is important to recognize first of all that the teachings of Frederick List have nothing to do with modern German protec- tionism. List did not advocate tariffs for agricultural products. He asked for protection of infant industries. In doing this he under- rated the competitive power of contemporary German manufactur- ing. Even in those days, in the early 1840'$, German industrial pro- duction was already much stronger than List believed. Thirty to forty years later it was paramount on the European continent and could very successfully compete on the world market. List's doc- trines played an important role in the evolution of protectionism in Eastern Europe and in Latin America. But the German sup-
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porters of protectionism were not justified in referring to List. He did not unconditionally reject free trade; he advocated protection of manufacturing only for a period of transition, and he nowhere suggested protection for agriculture. List would have violently opposed the trend of German foreign-trade policy of the last sixty- five years.
The representative literary champion of modern German pro- tectionism was Adolf Wagner. The essence of his teachings is this: All countries with an excess production of foodstuffs and raw ma- terials are eager to develop domestic manufacturing and to bar access to foreign manufactures; the world is on the way to economic self-sufficiency for each nation. In such a world what will be the fate of those nations which can neither feed nor clothe their citizens out of domestic foodstuffs and raw materials? They are doomed to starvation.
Adolf Wagner was not a keen mind. He was a poor economist. The same is true of his partisans. But they were not so dull as to fail to recognize that protection is not a panacea against the dangers which they depicted. The remedy they recommended was conquest of more space — war. They asked for protection of German agricul- ture in order to encourage production on the poor soil of the coun- try, because they wanted to make Germany independent of foreign supplies of food for the impending war. Import duties for food were in their eyes a short-run remedy only, a measure for a period of transition. The ultimate remedy was war and conquest.
It would be wrong, however, to assume that the incentive to Germany's embarking upon protectionism was a propensity to wage war. Wagner, Schmoller, and the other socialists of the chair, in their lectures and seminars, long preached the gospel of conquest. But before the end of the 'nineties they did not dare to propagate such views in print. Considerations of war economy, moreover, could justify protection only for agriculture; they were not ap- plicable in the case of protection for the processing industries. The military argument of war preparedness did not play an important role in the protection of Germany's industrial production.
The main motive for the tariff on manufactures was the Sozial- politik. The pro-labor policy raised the domestic costs of produc- tion and made it necessary to safeguard the policy's short-run ef- fects. Domestic prices had to be raised above the world market level in order to escape the dilemma of either lower money wages or a restriction of exports and increase of unemployment. Every new progress of the Sozialpolitik, and every successful strike, disarranged conditions to the disadvantage of the German enterprises and made it harder for them to outdo foreign competitors both on the
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domestic and on the foreign markets. The much glorified Sozial- politik was only possible within an economic body sheltered by tariffs.
Thus Germany developed its characteristic system of cartels. The cartels charged the domestic consumers high prices and sold cheaper abroad. What the worker gained from labor legislation and union wages was absorbed by higher prices. The government and the trade-union leaders boasted of the apparent success of their poli- cies: the workers received higher money wages. But real wages did not rise more than the marginal productivity of labor.
Only a few observers saw through all this, however. Some econo- mists tried to justify industrial protectionism as a measure for safe- guarding the fruits of Sozialpolitik and of unionism; they advocated social protectionism (den sozialen Schutzzoll). They failed to recog- nize that the whole process demonstrated the futility of coercive government and union interference with the conditions of labor. The greater part of public opinion did not suspect at all that Sozialpolitik and protection were closely linked together. The trend toward cartels and monopoly was in their opinion one of the many disastrous consequences of capitalism. They bitterly indicted the greediness of capitalists. The Marxians interpreted it as that concentration of capital which Marx had predicted. They pur- posely ignored the fact that it was not an outcome of the free evo- lution of capitalism but the result of government interference, of tariffs and — in the case of some branches, like potash and coal — of direct government compulsion. Some of the less shrewd socialists of the chair (Lujo Brentano, for example) went so far in their in- consistency as to advocate at the same time free trade and a more radical pro-labor policy.
In the thirty years preceding the first World War Germany could eclipse all other European countries in pro-labor policies because it above all indulged in protectionism and subsequently in carteliza- tion.
When, later, in the course of the depression of 1929 and the fol- lowing years, unemployment figures went up conspicuously be- cause trade-unions would not accept a reduction of boom wage rates, the comparatively mild tariff protectionism turned into the hyper-protectionist policies of the quota system, monetary devalu- ation, and foreign exchange control. At that time Germany was no longer ahead in pro-labor policies; other countries had surpassed it. Great Britain, once the champion of free trade, adopted the German idea of social protection. So did all other countries. Up-to- date hyper-protectionism is the corollary of present-day Sozial- politik.
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There cannot be any doubt that for nearly sixty years Germany set the example in Europe both of Sozialpolitik and of protection- ism. But the problems involved are not Germany's problems alone.
The most advanced countries of Europe have poor domestic re- sources. They are comparatively overpopulated. They are in a very unlucky position indeed in the present trend toward autarky, migration barriers, and expropriation of foreign investments. In- sulation means for them a severe fall in standards of living. After the present war Great Britain — with its foreign assets gone — will be in the same position as Germany. The same will be true for Italy, Belgium, Switzerland. Perhaps France is better off because it has long had a low birth rate. But even the smaller, predominantly agricultural countries of the European East are in a critical posi- tion. How should they pay for imports of cotton, coffee, various minerals, and so on? Their soil is much poorer than that of Canada or the American wheat belt; its products cannot compete on the world market.
Thus the problem is not a German one; it is a European prob- lem. It is a German problem only to the extent that the Germans tried — in vain — to solve it by war and conquest.
IV. ETATISM AND NATIONALISM
/. The Principle of Nationality
IN the early nineteenth century the political vocabulary of the citizens of the United Kingdom of Great Britain and Ire- land did not differentiate between the concepts state, people, and nation. The conquests which expanded the realm and brought countries and their inhabitants into subjection did not alter the size of the nation and the state. These annexed areas, as well as the overseas settlements of British subjects, remained out- side the state and the nation. They were property of the crown un- der the control of Parliament. The nation and the people were the citizens of the three kingdoms, England, Scotland, and Ire- land. England and Scotland had formed a union in 1707; in 1801 Ireland joined this union. There was no intention of incorporating into this body the citizens settled beyond the sea in North America. Every colony had its own parliament and its own local government. When the Parliament of Westminster attempted to include in its jurisdiction the colonies of New England and those south of New England, it kindled the conflict which resulted in American inde- pendence. In the Declaration of Independence the thirteen colonies call themselves a people different from the people represented in the Parliament at Westminster. The individual colonies, having proclaimed their right to independence, formed a political union, and thus gave to the new nation, set up by nature and by history, an adequate political organization.
Even at the time of the American conflict British liberals sym- pathized with the aims of the colonists. In the course of the nine- teenth century Great Britain fully recognized the right of the white settlers in overseas possessions to establish autonomous gov- ernments. The citizens of the dominions are not members of the British nation. They form nations of their own with all the rights to which civilized peoples are entitled. There has been no effort to expand the territory from which members are returned to the Parliament of Westminster. If autonomy is granted