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My purpose today is to make just two main points: (1) To show
why Nazi Germany was a socialist state, not a capitalist one.
And (2) to show why socialism, understood as an economic system
based on government ownership of the means of production,
positively requires a totalitarian dictatorship.
The identification of Nazi Germany as a socialist state was one
of the many great contributions of Ludwig von Mises.
When one remembers that the word "Nazi" was an abbreviation for
"der Nationalsozialistische Deutsche Arbeiters Partei — in
English translation: the National Socialist German Workers'
Party — Mises's identification might not appear all that
noteworthy. For what should one expect the economic system of a
country ruled by a party with "socialist" in its name to be but
socialism?
Nevertheless, apart from Mises and his readers, practically no
one thinks of Nazi Germany as a socialist state. It is far more
common to believe that it represented a form of capitalism,
which is what the Communists and all other Marxists have claimed.
The basis of the claim that Nazi Germany was capitalist was the
fact that most industries in Nazi Germany appeared to be left in
private hands.
What Mises identified was that private ownership of the means of
production existed in name only under the Nazis and that the
actual substance of ownership of the means of production resided
in the German government. For it was the German government and
not the nominal private owners that exercised all of the
substantive powers of ownership: it, not the nominal private
owners, decided what was to be produced, in what quantity, by
what methods, and to whom it was to be distributed, as well as
what prices would be charged and what wages would be paid, and
what dividends or other income the nominal private owners would
be permitted to receive. The position of the alleged private
owners, Mises showed, was reduced essentially to that of
government pensioners.
De facto government ownership of the means of production, as
Mises termed it, was logically implied by such fundamental
collectivist principles embraced by the Nazis as that the common
good comes before the private good and the individual exists as
a means to the ends of the State. If the individual is a means
to the ends of the State, so too, of course, is his property.
Just as he is owned by the State, his property is also owned by
the State.
But what specifically established de facto socialism in Nazi
Germany was the introduction of price and wage controls in 1936.
These were imposed in response to the inflation of the money
supply carried out by the regime from the time of its coming to
power in early 1933. The Nazi regime inflated the money supply
as the means of financing the vast increase in government
spending required by its programs of public works, subsidies,
and rearmament. The price and wage controls were imposed in
response to the rise in prices that began to result from the
inflation.
The effect of the combination of inflation and price and wage
controls is shortages, that is, a situation in which the
quantities of goods people attempt to buy exceed the quantities
available for sale.
Shortages, in turn, result in economic chaos. It's not only that
consumers who show up in stores early in the day are in a
position to buy up all the stocks of goods and leave customers
who arrive later, with nothing — a situation to which
governments typically respond by imposing rationing. Shortages
result in chaos throughout the economic system. They introduce
randomness in the distribution of supplies between geographical
areas, in the allocation of a factor of production among its
different products, in the allocation of labor and capital among
the different branches of the economic system.
In the face of the combination of price controls and shortages,
the effect of a decrease in the supply of an item is not, as it
would be in a free market, to raise its price and increase its
profitability, thereby operating to stop the decrease in supply,
or reverse it if it has gone too far. Price control prohibits
the rise in price and thus the increase in profitability. At the
same time, the shortages caused by price controls prevent
increases in supply from reducing price and profitability. When
there is a shortage, the effect of an increase in supply is
merely a reduction in the severity of the shortage. Only when
the shortage is totally eliminated does an increase in supply
necessitate a decrease in price and bring about a decrease in
profitability.
As a result, the combination of price controls and shortages
makes possible random movements of supply without any effect on
price and profitability. In this situation, the production of
the most trivial and unimportant goods, even pet rocks, can be
expanded at the expense of the production of the most urgently
needed and important goods, such as life-saving medicines, with
no effect on the price or profitability of either good. Price
controls would prevent the production of the medicines from
becoming more profitable as their supply decreased, while a
shortage even of pet rocks prevented their production from
becoming less profitable as their supply increased.
As Mises showed, to cope with such unintended effects of its
price controls, the government must either abolish the price
controls or add further measures, namely, precisely the control
over what is produced, in what quantity, by what methods, and to
whom it is distributed, which I referred to earlier. The
combination of price controls with this further set of controls
constitutes the de facto socialization of the economic system.
For it means that the government then exercises all of the
substantive powers of ownership.
This was the socialism instituted by the Nazis. And Mises calls
it socialism on the German or Nazi pattern, in contrast to the
more obvious socialism of the Soviets, which he calls socialism
on the Russian or Bolshevik pattern.
Of course, socialism does not end the chaos caused by the
destruction of the price system. It perpetuates it. And if it is
introduced without the prior existence of price controls, its
effect is to inaugurate that very chaos. This is because
socialism is not actually a positive economic system. It is
merely the negation of capitalism and its price system. As such,
the essential nature of socialism is one and the same as the
economic chaos resulting from the destruction of the price
system by price and wage controls. (I want to point out that
Bolshevik-style socialism's imposition of a system of production
quotas, with incentives everywhere to exceed the quotas, is a
sure formula for universal shortages, just as exist under all
around price and wage controls.)
At most, socialism merely changes the direction of the chaos.
The government's control over production may make possible a
greater production of some goods of special importance to
itself, but it does so only at the expense of wreaking havoc
throughout the rest of the economic system. This is because the
government has no way of knowing the effects on the rest of the
economic system of its securing the production of the goods to
which it attaches special importance.
The requirements of enforcing a system of price and wage
controls shed major light on the totalitarian nature of
socialism — most obviously, of course, on that of the German or
Nazi variant of socialism, but also on that of Soviet-style
socialism as well.
We can start with the fact that the financial self-interest of
sellers operating under price controls is to evade the price
controls and raise their prices. Buyers otherwise unable to
obtain goods are willing, indeed, eager to pay these higher
prices as the means of securing the goods they want. In these
circumstances, what is to stop prices from rising and a massive
black market from developing?
The answer is a combination of severe penalties combined with a
great likelihood of being caught and then actually suffering
those penalties. Mere fines are not likely to provide much of a
deterrent. They will be regarded simply as an additional
business expense. If the government is serious about its price
controls, it is necessary for it to impose penalties comparable
to those for a major felony.
But the mere existence of such penalties is not enough. The
government has to make it actually dangerous to conduct black-
market transactions. It has to make people fear that in
conducting such a transaction they might somehow be discovered
by the police, and actually end up in jail. In order to create
such fear, the government must develop an army of spies and
secret informers. For example, the government must make a
storekeeper and his customer fearful that if they engage in a
black-market transaction, some other customer in the store will
report them.
Because of the privacy and secrecy in which many black-market
transactions can be conducted, the government must also make
anyone contemplating a black-market transaction fearful that the
other party might turn out to be a police agent trying to entrap
him. The government must make people fearful even of their long-
time associates, even of their friends and relatives, lest even
they turn out to be informers.
And, finally, in order to obtain convictions, the government
must place the decision about innocence or guilt in the case of
black-market transactions in the hands of an administrative
tribunal or its police agents on the spot. It cannot rely on
jury trials, because it is unlikely that many juries can be
found willing to bring in guilty verdicts in cases in which a
man might have to go to jail for several years for the crime of
selling a few pounds of meat or a pair of shoes above the
ceiling price.
In sum, therefore, the requirements merely of enforcing price-
control regulations is the adoption of essential features of a
totalitarian state, namely, the establishment of the category of
"economic crimes," in which the peaceful pursuit of material
self-interest is treated as a criminal offense, and the
establishment of a totalitarian police apparatus replete with
spies and informers and the power of arbitrary arrest and
imprisonment.
Clearly, the enforcement of price controls requires a government
similar to that of Hitler's Germany or Stalin's Russia, in which
practically anyone might turn out to be a police spy and in
which a secret police exists and has the power to arrest and
imprison people. If the government is unwilling to go to such
lengths, then, to that extent, its price controls prove
unenforceable and simply break down. The black market then
assumes major proportions. (Incidentally, none of this is to
suggest that price controls were the cause of the reign of
terror instituted by the Nazis. The Nazis began their reign of
terror well before the enactment of price controls. As a result,
they enacted price controls in an environment ready made for
their enforcement.)
Black market activity entails the commission of further crimes.
Under de facto socialism, the production and sale of goods in
the black market entails the defiance of the government's
regulations concerning production and distribution, as well as
the defiance of its price controls. For example, the goods
themselves that are sold in the black market are intended by the
government to be distributed in accordance with its plan, and
not in the black market. The factors of production used to
produce those goods are likewise intended by the government to
be used in accordance with its plan, and not for the purpose of
supplying the black market.
Under a system of de jure socialism, such as existed in Soviet
Russia, in which the legal code of the country openly and
explicitly makes the government the owner of the means of
production, all black-market activity necessarily entails the
misappropriation or theft of state property. For example, the
factory workers or managers in Soviet Russia who turned out
products that they sold in the black market were considered as
stealing the raw materials supplied by the state.
Furthermore, in any type of socialist state, Nazi or Communist,
the government's economic plan is part of the supreme law of the
land. We all have a good idea of how chaotic the so-called
planning process of socialism is. Its further disruption by
workers and managers siphoning off materials and supplies to
produce for the black market, is something which a socialist
state is logically entitled to regard as an act of sabotage of
its national economic plan. And sabotage is how the legal code
of a socialist state does regard it. Consistent with this fact,
black-market activity in a socialist country often carries the
death penalty.
Now I think that a fundamental fact that explains the all-round
reign of terror found under socialism is the incredible dilemma
in which a socialist state places itself in relation to the
masses of its citizens. On the one hand, it assumes full
responsibility for the individual's economic well-being. Russian
or Bolshevik-style socialism openly avows this responsibility —
this is the main source of its popular appeal. On the other
hand, in all of the ways one can imagine, a socialist state
makes an unbelievable botch of the job. It makes the
individual's life a nightmare.
Every day of his life, the citizen of a socialist state must
spend time in endless waiting lines. For him, the problems
Americans experienced in the gasoline shortages of the 1970s are
normal; only he does not experience them in relation to gasoline
— for he does not own a car and has no hope of ever owning one —
but in relation to simple items of clothing, to vegetables, even
to bread. Even worse he is frequently forced to work at a job
that is not of his choice and which he therefore must certainly
hate. (For under shortages, the government comes to decide the
allocation of labor just as it does the allocation of the
material factors of production.) And he lives in a condition of
unbelievable overcrowding, with hardly ever a chance for
privacy. (In the face of housing shortages, boarders are
assigned to homes; families are compelled to share apartments.
And a system of internal passports and visas is adopted to limit
the severity of housing shortages in the more desirable areas of
the country.) To put it mildly, a person forced to live in such
conditions must seethe with resentment and hostility.
Now against whom would it be more logical for the citizens of a
socialist state to direct their resentment and hostility than
against that very socialist state itself? The same socialist
state which has proclaimed its responsibility for their life,
has promised them a life of bliss, and which in fact is
responsible for giving them a life of hell. Indeed, the leaders
of a socialist state live in a further dilemma, in that they
daily encourage the people to believe that socialism is a
perfect system whose bad results can only be the work of evil
men. If that were true, who in reason could those evil men be
but the rulers themselves, who have not only made life a hell,
but have perverted an allegedly perfect system to do it?
It follows that the rulers of a socialist state must live in
terror of the people. By the logic of their actions and their
teachings, the boiling, seething resentment of the people should
well up and swallow them in an orgy of bloody vengeance. The
rulers sense this, even if they do not admit it openly; and thus
their major concern is always to keep the lid on the citizenry.
Consequently, it is true but very inadequate merely to say such
things as that socialism lacks freedom of the press and freedom
of speech. Of course, it lacks these freedoms. If the government
owns all the newspapers and publishing houses, if it decides for
what purposes newsprint and paper are to be made available, then
obviously nothing can be printed which the government does not
want printed. If it owns all the meeting halls, no public speech
or lecture can be delivered which the government does not want
delivered. But socialism goes far beyond the mere lack of
freedom of press and speech.
A socialist government totally annihilates these freedoms. It
turns the press and every public forum into a vehicle of
hysterical propaganda in its own behalf, and it engages in the
relentless persecution of everyone who dares to deviate by so
much as an inch from its official party line.
The reason for these facts is the socialist rulers' terror of
the people. To protect themselves, they must order the
propaganda ministry and the secret police to work 'round the
clock. The one, to constantly divert the people's attention from
the responsibility of socialism, and of the rulers of socialism,
for the people's misery. The other, to spirit away and silence
anyone who might even remotely suggest the responsibility of
socialism or its rulers — to spirit away anyone who begins to
show signs of thinking for himself. It is because of the rulers'
terror, and their desperate need to find scapegoats for the
failures of socialism, that the press of a socialist country is
always full of stories about foreign plots and sabotage, and
about corruption and mismanagement on the part of subordinate
officials, and why, periodically, it is necessary to unmask
large-scale domestic plots and to sacrifice major officials and
entire factions in giant purges.
It is because of their terror, and their desperate need to crush
every breath even of potential opposition, that the rulers of
socialism do not dare to allow even purely cultural activities
that are not under the control of the state. For if people so
much as assemble for an art show or poetry reading that is not
controlled by the state, the rulers must fear the dissemination
of dangerous ideas. Any unauthorized ideas are dangerous ideas,
because they can lead people to begin thinking for themselves
and thus to begin thinking about the nature of socialism and its
rulers. The rulers must fear the spontaneous assembly of a
handful of people in a room, and use the secret police and its
apparatus of spies, informers, and terror either to stop such
meetings or to make sure that their content is entirely
innocuous from the point of view of the state.
Socialism cannot be ruled for very long except by terror. As
soon as the terror is relaxed, resentment and hostility
logically begin to well up against the rulers. The stage is thus
set for a revolution or civil war. In fact, in the absence of
terror, or, more correctly, a sufficient degree of terror,
socialism would be characterized by an endless series of
revolutions and civil wars, as each new group of rulers proved
as incapable of making socialism function successfully as its
predecessors before it. The inescapable inference to be drawn is
that the terror actually experienced in the socialist countries
was not simply the work of evil men, such as Stalin, but springs
from the nature of the socialist system. Stalin could come to
the fore because his unusual willingness and cunning in the use
of terror were the specific characteristics most required by a
ruler of socialism in order to remain in power. He rose to the
top by a process of socialist natural selection: the selection
of the worst.
I need to anticipate a possible misunderstanding concerning my
thesis that socialism is totalitarian by its nature. This
concerns the allegedly socialist countries run by Social
Democrats, such as Sweden and the other Scandinavian countries,
which are clearly not totalitarian dictatorships.
In such cases, it is necessary to realize that along with these
countries not being totalitarian, they are also not socialist.
Their governing parties may espouse socialism as their
philosophy and their ultimate goal, but socialism is not what
they have implemented as their economic system. Their actual
economic system is that of a hampered market economy, as Mises
termed it. While more hampered than our own in important
respects, their economic system is essentially similar to our
own, in that the characteristic driving force of production and
economic activity is not government decree but the initiative of
private owners motivated by the prospect of private profit.
The reason that Social Democrats do not establish socialism when
they come to power, is that they are unwilling to do what would
be required. The establishment of socialism as an economic
system requires a massive act of theft — the means of production
must be seized from their owners and turned over to the state.
Such seizure is virtually certain to provoke substantial
resistance on the part of the owners, resistance which can be
overcome only by use of massive force.
The Communists were and are willing to apply such force, as
evidenced in Soviet Russia. Their character is that of armed
robbers prepared to commit murder if that is what is necessary
to carry out their robbery. The character of the Social
Democrats in contrast is more like that of pickpockets, who may
talk of pulling the big job someday, but who in fact are
unwilling to do the killing that would be required, and so give
up at the slightest sign of serious resistance.
As for the Nazis, they generally did not have to kill in order
to seize the property of Germans other than Jews. This was
because, as we have seen, they established socialism by stealth,
through price controls, which served to maintain the outward
guise and appearance of private ownership. The private owners
were thus deprived of their property without knowing it and thus
felt no need to defend it by force.
I think I have shown that socialism — actual socialism — is
totalitarian by its very nature.
In the United States at the present time, we do not have
socialism in any form. And we do not have a dictatorship, let
alone a totalitarian dictatorship.
We also do not yet have Fascism, though we are moving towards
it. Among the essential elements that are still lacking are one-
party rule and censorship. We still have freedom of speech and
press and free elections, though both have been undermined and
their continued existence cannot be guaranteed.
What we have is a hampered market economy that is growing ever
more hampered by ever more government intervention, and that is
characterized by a growing loss of individual freedom. The
growth of the government's economic intervention is synonymous
with a loss of individual freedom because it means increasingly
initiating the use of physical force to make people do what they
do not voluntarily choose to do or prevent them from doing what
they do voluntarily choose to do.
Since the individual is the best judge of his own interests, and
at least as a rule seeks to do what it is in his interest to do
and to avoid doing what harms his interest, it follows that the
greater the extent of government intervention, the greater the
extent to which individuals are prevented from doing what
benefits them and are instead compelled to do what causes them
loss.
Today, in the United States, government spending, federal,
state, and local, amounts to almost half of the monetary incomes
of the portion of the citizenry that does not work for the
government. Fifteen federal cabinet departments, and a much
larger number of federal regulatory agencies, together, in most
instances with counterparts at the state and local level,
routinely intrude into virtually every area of the individual
citizen's life. In countless ways he is taxed, compelled, and
prohibited.
The effect of such massive government interference is
unemployment, rising prices, falling real wages, a need to work
longer and harder, and growing economic insecurity. The further
effect is growing anger and resentment.
Though the government's policy of interventionism is their
logical target, the anger and resentment people feel are
typically directed at businessmen and the rich instead. This is
a mistake which is fueled for the most part by an ignorant and
envious intellectual establishment and media.
And in conformity with this attitude, since the collapse of the
stock market bubble, which was in fact created by the Federal
Reserve's policy of credit expansion and then pricked by its
temporary abandonment of that policy, government prosecutors
have adopted what appears to be a particularly vengeful policy
toward executives guilty of financial dishonesty, as though
their actions were responsible for the widespread losses
resulting from the collapse of the bubble. Thus the former head
of a major telecommunications company was recently given a
twenty-five year prison sentence. Other top executives have
suffered similarly.
Even more ominously, the government's power to obtain mere
criminal indictments has become equivalent to the power to
destroy a firm, as occurred in the case of Arthur Andersen, the
major accounting firm. The threatened use of this power was then
sufficient to force major insurance brokerage firms in the
United States to change their managements to the satisfaction of
New York State's Attorney General. There is no way to describe
such developments other than as conviction and punishment
without trial and as extortion by the government. These are
major steps along a very dangerous path.
Fortunately, there is still sufficient freedom in the United
States to undo all the damage that has been done. There is first
of all the freedom to publicly name it and denounce it.
More fundamentally, there is the freedom to analyze and refute
the ideas that underlie the destructive policies that have been
adopted or that may be adopted. And that is what is critical.
For the fundamental factor underlying interventionism and, of
course, socialism as well, whether Nazi or Communist, is nothing
but wrong ideas, above all, wrong ideas about economics and
philosophy.
There is now an extensive and growing body of literature that
presents sound ideas in these two vital fields. In my judgment,
the two most important authors of this literature are Ludwig von
Mises and Ayn Rand. An extensive knowledge of their writings is
an indispensable prerequisite for success in the defense of
individual freedom and the free market.
This institute, The Ludwig von Mises Institute, is the world's
leading center for the dissemination of Mises's ideas. It
presents a constant flow of analyses based on his ideas,
analyses that appear in its academic journals, its books and
periodicals, and in its daily website news articles that deal
with the issues of the moment. It educates college and
university students, and young instructors, in his ideas and the
related ideas of other members of the Austrian school of
economics. It does this through the Mises Summer University, the
Austrian Scholars Conferences, and a variety of seminars.
Two very major ways of fighting for freedom are to educate
oneself to the point of being able to speak and write as
articulately in its defense as do the scholars associated with
this institute or, if one does not have the time or inclination
to pursue such activity, then to financially support the
Institute in its vital work to whatever extent one can.
It is possible to turn the tide. No single person can do it. But
a large and growing number of intelligent people, educated in
the cause of economic freedom, and speaking up and arguing in
its defense whenever possible, is capable of gradually forming
the attitudes of the culture and thus of the nature of its
political and economic system.
You in this audience are all already involved in this great
effort. I hope you will continue and intensify your commitment.
https://mises.org/library/why-nazism-was-socialism-and-why- socialism-totalitarian
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