The “Progressives” Who Today Masquerade as “Liberals” May Rant Against “Fascism”; Yet It Is Their Policy that Paves the Way for Hitlerism

An ideological struggle cannot be fought successfully with constant concessions to the principles of the enemy. Those who refute capitalism because it supposedly is inimical to the interest of the masses, those who proclaim “as a matter of course” that after the victory over Hitler the market economy will have to be replaced by a better system and, therefore, everything should be done now to make the government control of business as complete as possible, are actually fighting for totalitarianism. The “progressives” who today masquerade as “liberals” may rant against “fascism”; yet it is their policy that paves the way for Hitlerism.

Nothing could have been more helpful to the success of the National-Socialist (Nazi) movement than the methods used by the “progressives,” denouncing Nazism as a party serving the interests of “capital.” The German workers knew this tactic too well to be deceived by it again. Was it not true that, since the seventies of the [nineteenth] century, the ostensibly pro-labor Social-Democrats had fought all the pro-labor measures of the German government vigorously, calling them “bourgeois” and injurious to the interests of the working class? The Social-Democrats had consistently voted against the nationalization of the railroads, the municipalization of the public utilities, labor legislation, and compulsory accident, sickness, and old-age insurance, the German social security system which was adopted later throughout the world. Then after the war [World War I] the Communists branded the German Social-Democratic party and the Social-Democratic unions as “traitors to their class.” So the German workers realized that every party wooing them called the competing parties “willing servants of capitalism,” and their allegiance to Nazism would not be shattered by such phrases.

—Ludwig von Mises, Interventionism: An Economic Analysis, ed. Bettina Bien Greaves, trans. Thomas Francis McManus and Heinrich Bund (Indianapolis: Liberty Fund, 2011), 89-90.

The Nazis Have Succeeded in Entirely Eliminating the Profit Motive from the Conduct of Business

No private enterprise will ever fall prey to bureaucratic methods of management if it is operated with the sole aim of making profit. It has already been pointed out that under the profit motive every industrial aggregate, no matter how big it may be, is in a position to organize its whole business and each part of it in such a way that the spirit of capitalist acquisitiveness permeates it from top to bottom.

But ours is an age of a general attack on the profit motive. Public opinion condemns it as highly immoral and extremely detrimental to the commonweal. Political parties and governments are anxious to remove it and to put in its place what they call the “service” point of view and what is in fact bureaucratic management.

We do not need to deal in detail with what the Nazis have achieved in this regard. The Nazis have succeeded in entirely eliminating the profit motive from the conduct of business. In Nazi Germany there is no longer any question of free enterprise. There are no more entrepreneurs. The former entrepreneurs have been reduced to the status of Betriebsführer (shop manager). They are not free in their operation; they are bound to obey unconditionally the orders issued by the Central Board of Production Management, the Reichswirtschaftsministerium, and its subordinate district and branch offices. The government not only determines the prices and interest rates to be paid and to be asked, the height of wages and salaries, the amount to be produced and the methods to be applied in production; it allots a definite income to every shop manager, thus virtually transforming him into a salaried civil servant. This system has, but for the use of some terms, nothing in common with capitalism and a market economy. It is simply socialism of the German pattern, Zwangswirtschaft. It differs from the Russian pattern of socialism, the system of outright nationalization of all plants, only in technical matters. And it is, of course, like the Russian system, a mode of social organization that is purely authoritarian.

—Ludwig von Mises, Bureaucracy, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 53-54.

There Is Always Disequilibrium in the Real Economy and the State of “Equilibrium” Never Becomes Actual

A new sophisticated version of the image of the perfect society has arisen lately out of a crass misinterpretation of the procedure of economics. In order to deal with the effects of changes in the market situation, the endeavors to adjust production to these changes, and the phenomena of profit and loss, the economist constructs the image of a hypothetical, although unattainable, state of affairs in which production is always fully adjusted to the realizable wishes of the consumers and no further changes whatever occur. In this imaginary world tomorrow does not differ from today, no maladjustments can arise, and no need for any entrepreneurial action emerges. The conduct of business does not require any initiative; it is a self-acting process unconsciously performed by automatons impelled by mysterious quasi-instincts. There is for economists (and, for that matter, also for laymen discussing economic issues) no other way to conceive what is going on in the real, continually changing world than to contrast it in this way with a fictitious world of stability and absence of change. But the economists are fully aware that the elaboration of this image of an evenly rotating economy is merely a mental tool that has no counterpart in the real world in which man lives and is called to act. They did not even suspect that anybody could fail to grasp the merely hypothetical and ancillary character of their concept.

Yet some people misunderstood the meaning and significance of this mental tool. In a metaphor borrowed from the theory of mechanics, the mathematical economists call the evenly rotating economy the static state, the conditions prevailing in it “equilibrium,” and any deviation from “equilibrium” disequilibrium. This language suggests that there is something vicious in the very fact that there is always disequilibrium in the real economy and that the state of “equilibrium” never becomes actual. The merely imagined hypothetical state of undisturbed “equilibrium” appears as the most desirable state of reality. In this sense some authors call competition as it prevails in the changing economy imperfect competition. The truth is that competition can exist only in a changing economy. Its function is precisely to wipe out disequilibrium and to generate a tendency toward the attainment of “equilibrium.” There cannot be any competition in a state of “static equilibrium” because in such a state there is no point at which a competitor could interfere in order to perform something that satisfies the consumers better than what is already performed anyway. The very definition of “equilibrium” implies that there is no maladjustment anywhere in the economic system, and consequently no need for any action to wipe out maladjustments, no entrepreneurial activity, no entrepreneurial profits and losses. It is precisely the absence of the profits that prompts mathematical economists to consider the state of undisturbed static equilibrium as the ideal state, for they are inspired by the prepossession that entrepreneurs are useless parasites and profits are unfair lucre.

—Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 241-242.

8 of the 10 Points in the Communist Manifesto Have Been Executed by the German Nazis with a Radicalism That Would Have Delighted Marx

Karl Marx turned to socialism at a time when he did not yet know economics and because he did not know it. Later, when the failure of the Revolution of 1848 and 1849 forced him to flee Germany, he went to London. There, in the reading room of the British Museum, he discovered in the ’fifties not, as he boasted, the laws of capitalist evolution, but the writings of British political economy, the reports published by the British Government, and the pamphlets in which earlier British socialists used the theory of value as expounded by classical economics for a moral justification of labor’s claims. These were the materials out of which Marx built his “economic foundations” of socialism.

Before he moved to London Marx had quite naïvely advocated a program of interventionism. In the Communist Manifesto in 1848 he expounded ten measures for imminent action. These points, which are described as “pretty generally applicable in the most advanced countries,” are defined as “despotic inroads on the rights of property and on the conditions of bourgeois methods of production.” Marx and Engels characterize them as “measures, economically unsatisfactory and untenable, but which in the course of events outstrip themselves, necessitate further inroads upon the old social order and are indispensable as a means of entirely revolutionizing the whole mode of production.”  Eight of these ten points have been executed by the German Nazis with a radicalism that would have delighted Marx. The two remaining suggestions (namely, expropriation of private property in land and dedication of all rents of land to public expenditure, and abolition of all right of inheritance) have not yet been fully adopted by the Nazis. However, their methods of taxation, their agricultural planning, and their policies concerning rent restriction are daily approaching the goals determined by Marx. The authors of the Communist Manifesto aimed at a step-by-step realization of socialism by measures of social reform. They were thus recommending procedures which Marx and the Marxians in later years branded as socio-reformist fraud.

—Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011), 171-172.

German Labor Turned toward Nazism because the Nazis Had a Program Dealing with Their Most Urgent Problem—Foreign Trade Barriers. The Other Parties Lacked Such a Program

A riddle that has puzzled nearly all writers dealing with the problems of Nazism is this: There were in Germany many millions organized in the parties of the Social Democrats, of the communists, and of the Catholic Center; they were members of the trade unions affiliated with these parties. How could the Nazis succeed in overthrowing these masses of resolute adversaries and in establishing their totalitarian system? Did these millions change their minds overnight? Or were they cowards, yielding to the terror of the Storm Troopers and waiting for the day of redemption? Are the German workers still Marxians? Or are they sincere supporters of the Nazi system?

There is a fundamental error in posing the problem in this way. People take it for granted that the members of the various party clubs and trade-unions were convinced Social Democrats, communists, or Catholics, and that they fully endorsed the creeds and programs of their leaders. It is not generally realized that party allegiance and trade-union membership were virtually obligatory. Although the closed shop system was not carried to the extreme in Weimar Germany that it is today in Nazi Germany and in some branches of foreign industry, it had gone far enough. In the greater part of Germany and in most of the branches of German production it was practically impossible for a worker to stay outside of all the big trade-union groups. If he wanted a job or did not want to be dismissed, or if he wanted the unemployment dole, he had to join one of these unions. They exercised an economic and political pressure to which every individual had to yield. To join the union became practically a matter of routine for the worker. He did so because everybody did and because it was risky not to. It was not for him to inquire into the Weltanschauung of his union. Nor did the union bureaucrats trouble themselves about the tenets or feelings of the members. Their first aim was to herd as many workers as possible into the ranks of their unions.

These millions of organized workers were forced to pay lip service to the creeds of their parties, to vote for their candidates at the elections for Parliament and for union offices, to subscribe to the party newspapers, and to avoid open criticism of the party’s policy. But daily experience nonetheless brought them the evidence that something was wrong with their parties. Every day they learned about new trade barriers established by foreign nations against German manufactures—that is, against the products of their own toil and trouble. As the trade unions, with few exceptions, were not prepared to agree to wage cuts, every new trade barrier immediately resulted in increased unemployment. The workers lost confidence in the Marxians and in the Center. They became aware that these men did not know how to deal with their problems and that all they did was to indict capitalism. German labor was radically hostile to capitalism, but it found denunciation of capitalism unsatisfactory in this instance. The workers could not expect production to keep up if export sales dropped. They therefore became interested in the Nazi arguments. Such happenings, said the Nazis, are the drawbacks of our unfortunate dependence on foreign markets and the whims of foreign governments. Germany is doomed if it does not succeed in conquering more space and in attaining self-sufficiency. All endeavors to improve the conditions of labor are vain as long as we are compelled to serve as wage slaves for foreign capitalists. Such words impressed the workers. They did not abandon either the trade unions or the party clubs since this would have had very serious consequences for them. They still voted the Social Democrat, the communist, or the Catholic ticket out of fear and inertia. But they became indifferent both to Marxian and to Catholic socialism and began to sympathize with national socialism. Years before 1933 the ranks of German trade-unions were already full of people secretly sympathizing with Nazism. Thus German labor was not greatly disturbed when the Nazis finally forcibly incorporated all trade-union members into their Labor Front. They turned toward Nazism because the Nazis had a program dealing with their most urgent problem—foreign trade barriers. The other parties lacked such a program.

The removal of the unpopular trade-union bureaucrats pleased the workers no less than the humiliations inflicted by the Nazis on the entrepreneurs and executives. The bosses were reduced to the rank of shop managers. They had to bow to the almighty party chiefs. The workers exulted over the misfortunes of their employers. It was their triumph when their boss, foaming with rage, was forced to march in their ranks on state holiday parades. It was balm for their hearts.

Then came the rearmament boom. There were no more unemployed. Very soon there was a shortage of labor. The Nazis succeeded in solving a problem that the Social Democrats had been unable to master. Labor became enthusiastic.

It is highly probable that the workers are now fully aware of the dark side of the picture. They are disillusioned. The Nazis have not led them into the land of milk and honey. In the desert of the ration cards the seeds of communism are thriving. On the day of the defeat the Labor Front will collapse as the Marxian and the Catholic trade unions did in 1933.

—Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011), 245-247.

Ludwig von Mises Warns Austrian Bankers in 1919: “We Are Going Down a Road That Leads to the Collapse of Our Currency”

We are going down a road that leads to the collapse of our currency. Our financial policy has been reduced to one remedy: printing more and more paper money. There is almost no prospect that things will change in this respect. It is unreasonable to expect that the Social Democratic party will suddenly admit the inner collapse of its socialist ideas or openly recognize the falsity of all that it has proclaimed for decades. We cannot expect better things from the Christian Socialist party, whose economic ideal is the survival of autarchic farmers and of small craftsmen mainly concerned about their daily bread. . . . And when it comes to the German Nationalists, they have always tried to outdo the other parties by their social-reformist radicalism and are currently the special advocates for the large sector of public employees, whose syndicalism has dealt the final blow to our financial situation. . . . Our entire political life is impregnated with imperialist, mercantilist, and socialist thinking, and with the fantasies of “economic nationalism.” . . .

In terms of economic policy, however, our system, like that of the Bolsheviks, promotes an undisguised onslaught on private property, not only of the means of production but of consumption goods as well. And like Bolshevism, it survives only by using up the capital that has been accumulated over several generations under a freer economy. Movable and fixed equipment in public enterprises is not replaced as it gets worn out, and devious taxation and trade policies combine to hinder private enterprises in renovating their technical equipment. Food supplies are imported from other countries, and their counterpart is generated not by the export of domestically produced goods but by increasing indebtedness, the piecemeal sale of domestic productive capital—sale of shares, decimation of timber supplies—and an equally undesirable reduction of the domestic stock of consumption goods.

—Ludwig von Mises, “On the Actions to Be Taken in the Face of Progressive Currency Depreciation,” in Selected Writings of Ludwig von Mises, vol. 2, Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2002), 47-49.

Ludwig von Mises on the Monetary System of German-Austria After the Dissolution of the Habsburg Dual Monarchy in October 1918

Austria and Hungary also largely financed the World War by using the printing press. At the very beginning of the war, the legislation was set aside that had imposed limitations on the expansion of bank notes by the Austro-Hungarian Bank, and on the use of credit by both states of the monarchy through their central bank. This cleared the way for inflation. The indebtedness of both states to the bank grew from month to month, the circulation of bank notes increased precipitously, and, in line with the proliferation of paper currency, the prices of goods and services and the rates of foreign bills of exchange increased.

When, in October 1918, the dual monarchy of the Habsburgs disintegrated into a number of separate national territories, some of them constituted as independent states while others incorporated into neighboring states, the Austro-Hungarian Bank finished its role as the joint institution enjoying the sole privilege of issuing currency for the entire monarchy. In the legal sense, its privilege of issuing notes continued until the end of 1919. However, in actual fact this privilege was only respected by German-Austria.

After the dissolution it was obvious that the Austro-Hungarian Bank would no longer be able to extend credit to the various successor states as it had extended to the Austrian and Hungarian states during the war. . . .

At the beginning of 1919, the first step in this direction was taken by the Southern Slav government [Yugoslavia]. Czechoslovakia was to follow. The notes of the Austro-Hungarian Bank circulating within their territories were stamped, and all other notes were no longer legal tender. Henceforth, only stamped notes could be used to fulfill all contracts denominated in crowns. This completed the creation of Southern Slav and Czechoslovak crowns, though the technical implementation of these reforms may have been deficient from a monetary point of view.

Now German-Austria, also, had to act. It could no longer wait until all other states had made the transition from the Austro-Hungarian crown to separate national crowns. It had to give up the Austro-Hungarian crown in order to avoid there being notes that, for whatever reason, had not been stamped in the other states that would now flow back into German-Austria and increase the inflation within German-Austria. It had to prevent the Czechoslovak Ministry of Finance from using the half of its citizens’ holdings of notes that had been retained upon the marking of currency for the purchasing of securities in German-Austria. Bank notes circulating in the Ukraine and in neutral foreign countries that totaled several billion crowns were not to be regarded simply as German-Austrian currency. This is why German-Austria, as well, applied a special mark to bank notes denominated in crowns and circulating within her territory. The decree of March 25, 1919, which had the force of law, withdrew legal-tender status from all obligations not so denominated. This created a separate German-Austrian currency. All further issues are then of a technical nature and pertain to the independent German-Austrian currency. Important though that may be, it takes second place behind the fact of the independence of the currency. Among the issues open for discussion is the question of whether or not to set up an independent German-Austrian central bank, and the further question of whether to keep the stamped notes in circulation or to replace them by newly designed notes because of the easy possibility of falsifying stamp imprints.

—Ludwig von Mises, “The Reentry of German-Austria into the German Reich and the Currency Question,” in Selected Writings of Ludwig von Mises, vol. 2, Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2002), 69, 71.

A Major Defect in the German Banking System Is That Bankers Stopped Being Bankers in the Classical Sense of the Term

The events of the last few weeks have made obvious to everyone the defects in the German and Austrian banking systems, which previously were recognized by only a few.

At least until very recently, English and American banks have acted, in principle, purely as bankers in the classical sense of the term. That is, they have viewed their primary business to be the lending of money. The development of German banking activity made them not merely banks but also put them in the business of being industrial holding companies and investment trusts. This development did not occur through any logical process. In the beginning, German banks also limited themselves to the granting of credit. They ended up becoming partners in the businesses to which they had granted credit because they lent too much to these enterprises in proportion to their own capital. These banks were plunged into difficulties when there were attempts for immediate conversion of those enterprises’ stocks and debentures into cash.

Gradually, banks were pushed out of the role of creditor into the role of the chief interested party. As a result, these banks no longer faced those enterprises with the critical eye of a banker who carefully judges the businesses’ prospects as debtors, and who constantly evaluates the borrower’s creditworthiness in order to limit or withdraw lines of credit if changing circumstances warrant it. These banks no longer looked at businesses’ activities from the standpoint of a lender but from the viewpoint of the borrower. When the monitoring function that the lending institution normally exercises over businesses fell by the wayside, an essential regulator of the money market disappeared in fact if not in name.

The news media would appropriately offer strong criticisms of any combination of the banking business with production and trading activities, when individual enterprises and business firms made attempts to publicly raise investment money. But it was overlooked that at many respected banks that had readily put money into risky ventures (including three major banks in Vienna and Berlin that have recently failed) conditions were no better. The independence of these banks from industrial enterprises was in many cases purely formal in the legal sense.

The representatives of the banks who had to decide on the granting of credit were, unfortunately, in many instances, identical with the representatives of the debtors who appealed for loans and credit expansion. When writers on the economy spoke out against this combining of banking and industry, those in banking labeled them ivory-tower theoreticians. Modern conditions, it was said, absolutely demand the amalgamation of banking and industry. The failure of this system clearly proves who was right. The more cautious the bank was in the establishment of its associations, the better off it is today.

The most pressing reform that must be pushed for is the elimination of the existing close ties between the banks and industrial combinations. Everyone agrees with this. Of course, this goal can be only slowly achieved. It will be years before it will be possible to transfer the large debts of many enterprises from the banks to the public through the issuing of stocks and bonds. Recent experience has caused severe mistrust of stocks and bonds issued by industry, and this mistrust will not be quickly overcome. But the distrust is even stronger against stocks issued by banks, due to the serious doubts about their connections with industry.

—Ludwig von Mises, “The Economic Crisis and Lessons for Banking Policy,” in Selected Writings of Ludwig von Mises, vol. 1, Monetary and Economic Policy Problems Before, During, and After the Great War, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2012), 296-298.

Foreign-Exchange Control Enables European Banks to Use the Government's Restrictions As a Way to Avoid Making Their Repayments Abroad

The primary problem behind the foreign-exchange controls comes from the fact that a number of European banks have invested long-term the equivalent of the short-term credits that have been extended to them from abroad, with no ability to pay on their part being anticipated in the near future. These banks are not in a position to fulfill obligations to their creditors to pay on demand or on short notice. It is the most difficult problem confronting these European banks today. Foreign-exchange control enables these banks to use the government’s restrictions as a way to avoid making their repayments abroad. But this does not resolve the underlying problem, it merely postpones it. This problem, however,must be resolved; otherwise a restoration of international relations in these as well as in credit matters in general cannot be restored.

Foreign-exchange control allows these banks to contact their creditors and temporarily arrange moratorium agreements. But these agreements do not provide a definitive solution. But a definitive solution must be found in order to restore the credit system and its functioning again in a normal manner. This is one of the principal conditions necessary for bringing an end to the world economic crisis.

The restructuring of the insolvent banks must therefore precede the abolition of foreign-exchange control. The banks whose balances are in severe deficit must be liquidated, and the losses that have occurred must be recognized as complete losses. It is useless to postpone the liquidation of these enterprises. The losses will only be made greater by delaying a final settling of accounts. Fortunately, the balances of the majority of the banks in question are not bankrupt but only insolvent. These banks would be in a sound condition if the maturity dates of their own debt obligations coincided with the dates when they received claims owed to them. It is necessary to make every effort to reach an arrangement through agreements between these banks and their foreign creditors, in collaboration with the governments of the various countries involved as well as with international organizations (the League of Nations, the Bank of International Settlements, the International Chamber of Commerce). This is all the more feasible considering that it is not in the interest of creditors that the banks in which they have placed their capital should fail and suffer further losses, only adding to the harm to themselves in the process. These arrangements should be initiated and carried out as soon as possible. Once they are, there will no longer be any obstacles, from this source, to delay the abolition of foreign-exchange control.

It would be superfluous, in this regard, to provide special legislation requiring that banks maintain their own liquidity in the future. The banks will do this in their own interest, particularly if it is clear that any bank that poorly manages it own affairs can have no hope of being kept afloat by government intervention at the expense of the rest of society.

—Ludwig von Mises, “The Return to Freedom of Exchange,” in Selected Writings of Ludwig von Mises, vol. 2, Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2002), 217-218.