A Snapshot of a Fascist Economy
A Hampered Economy
According to Ludwig Von Mises, the pioneer of the Austrian School of Economics, western industrial economies are not a "mixed economy' that most economists describe, in that it is part socialist and part free-market. He terms it a "hampered economy". Restrictions on business and individuals to conduct trade such as regulations, licensing, minimum wage requirements, taxes and so on to effect business outcomes are the work of a hampered economy. The more the restrictions, the harder it is to conduct business, both big and small. No where was this more evident than in Germany during the Nazi era. I finished reading a fascinating book written during that era called The Vampire Economy; doing business under fascism, by Gunter Reimann. In it he interviews businessman and investors, and examines the rules and regulations inflicted by the Nazi regime. As one can imagine, it was a frustrating time to run a business or to improve your lot in life, unless you were part of the Nazi bureaucracy. In this article, I will take some pertinent excerpts and comment on them.
Nazism and the Businessman
How did the businessman fare under Nazi Fascism? For some insight, here is an excerpt of a letter from a German businessman to another fellow businessman in America:
You have no idea how far State control goes and how
much power the Nazi representatives have over our work.
The worst of it is that they are so ignorant. In this respect
they certainly differ from the former Social-Democratic
officials. These Nazi radicals think of nothing except "dis-
tributing the wealth."
Some businessmen have even started studying Marxist
theories, so that they will have a better understanding of
the present economic system.
There is more:
How can we possibly manage a firm according to busi-
ness principles if it is impossible to make any predictions
as to the prices at which goods are to be bought and sold?
We are completely dependent on arbitrary Government deci-
sions concerning quantity, quality and prices for foreign
raw materials. There are so many different economic agree-
ments with foreign countries, not to mention methods of
payment, that no one can possibly understand them all.
Nevertheless Government representatives are permanently
at work in our offices, examining costs of production, profits,
tax bills, etc. . . .
He goes on to describe how Nazi influence in his business affects how he deals with his employees. Many people see the businessman as ruthless when dealing with their employees, but this business owner tells his friend in America he is willing to pay higher wages for learned skills, talent and work ethic, for it is in the best interest of the company and consumers However, his hands are tied because the only people he can hire are those workers who are part of the Nazi party, regardless of skill or work ethic. He has to get approval for every hire and fire by the "factory leader". The "factory leader", has no experience with employer/employee negotiations, nor understanding how to profitably run a business, yet both the businessman and employee has to do as he dictates.
The Threat to Private Property
For a nation to be both peaceful and prosperous, individual property rights must be respected. Property rights do not extend simply to the owning of property or a business. but also to an individual to being able to choose who he works for, negotiate the wage that best works for him and the businessman, and keep his earnings as well (and I might add, to be paid with something of value, not a fiat currency). For if one's property, in whatever form it is, can simply be taken by another or the government without recourse, it is impossible for one to build wealth or feel secure. So it was in Nazi Germany. Here are some insight from the book:
...He never dreamed that the new regime
would dare interfere with his God-given rights far more
than had the Social-Democratic government he had
hated. Unable to grasp quickly enough the changes that
were occurring, he did not conform to the ever-mounting
requirements of the ruling Party. Soon he was on
bad terms with the provincial Party secretary, whom
he despised as an upstart. The Party leader tried to
break his stubborn spirit by all manner of petty decrees
and regulations, as, for instance, by ordering him to give
lodging to S.A. men (Brownshirts) and members of the
Hitler Youth League, who annoyed him endlessly.
..Manufacturers in Germany were panic-stricken when
they heard of the experiences of some industrialists who
were more or less expropriated by the State. These industrialists
were visited by State auditors who had strict orders to "examine" the balance sheets and all bookkeeping
entries of the company (or individual businessman)
for the preceding two, three, or more years until
some error or false entry was found. The slightest formal
mistake was punished with tremendous penalties.
A fine of millions of marks was imposed for a single
bookkeeping error. Obviously, the examination of the
books was simply a pretext for partial expropriation of
the private capitalist with a view to complete expropriation
and seizure of the desired property later. The
owner of the property was helpless, since under fascism
there is no longer an independent judiciary that protects
the property rights of private citizens against the State.
The authoritarian State has made it a principle that
private property is no longer sacred.
If one has to constantly look over his shoulder to see if he is violating any rule that may lead to confiscation of his property, he will be much less likely to invest his wealth to create more products or services that people will need and want. He will, in essence, "hoard". Even then, there is no guarantee that he won't be robbed. Magnify this across a whole nation. One can see the immediate impact of the loss of property rights.There will be both a economic hardship and fear of one's neighbor.
Price Controls and Subterfuge
Not surprisingly, Germany during the Nazi regime put in place both wage and price controls. Doing so skews supply and demand to such a degree that shortages occur. To get what individuals need for both personal consumption or to run a business, they would have to go underground, or be very tricky in how they get around the laws. In Germany, businessman got very creative. Here is an example:
A peasant was arrested and put on trial for having
repeatedly sold his old dog together with a pig. When
a private buyer of pigs came to him, a sale was staged
according to the official rules. The buyer would ask the
peasant: "How much is the pig?" The cunning peasant
would answer: "I cannot ask you for more than the
official price. But how much will you pay for my dog
which I also want to sell?" Then the peasant and the
buyer of the pig would no longer discuss the price of
the pig, but only the price of the dog. They would
come to an understanding about the price of the dog,
and when an agreement was reached, the buyer got the
pig too. The price for the pig was quite correct, strictly
according to the rules, but the buyer had paid a high
price for the dog. Afterward, the buyer, wanting to
get rid of the useless dog, released him, and he ran
back to his old master for whom he was indeed a
Apparently, there was only one price the farmer could charge for the pig, even though demand was high and supply was low (you can tell that by how willing the buyer was to buy the dog for a much higher price...if he could also get the pig). If he was caught selling the pig for market price, he would be heavily fined and or imprisoned. If he sold the pig for the commissioned price, most likely the farmer would have sold it at a loss. To do so for a long time simply means the farmer can longer raise pigs. This would dry up supply. The way the farmer got around the law was rather ingenious, but it is a shame he had to devote effort to it. He most likely would have been much more productive if he did not have to be so stealth with his dealings.
I want to show one more example:
Other efforts of "private initiative" have similar economic
results. Thus, manufacturers may introduce
changes in standardized products which result in making
the finished article more complicated, solely for the
purpose of enabling the manufacturer to claim that the
finished product is a "new article," which will not be
subject to the old price restrictions. The State is enforcing
more standardization of production in order to
save raw materials; manufacturers must do exactly the
reverse in order to defend their private interests.
To stay ahead of new regulations, businessman would create new products, even if it wasn't an improvement on the old product, just to avoid price controls. Once again, creativity and trickery were used in an attempt to just sell something and stay in business.
Do We Have Fascism in America?
It is clear in hindsight that the bureaucracy imposed on the economy in Germany during the Nazi era hampered trade and wealth accumulation. It decreased the quality of life for every German that was not part of the party. Is fascism alive and well today? To ask that question, we first must determine what, exactly it is. Lew Rockwell describes it as such:
Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police state as the source of order, denies fundamental rights and liberties to individuals, and makes the executive state the unlimited master of society.
Thomas Sowell explains fascism this way:
government control of the economy, while leaving ownership in private hands.
The definitions fits much of the regulations we have to deal with today. It is very difficult to start a business in America, for there are rules, regulations, fees, fines, taxes, hiring requirements, and other such barriers of entry imposed by the state. Furthermore, the auto industry was bailed out not only once, but twice over the last 30 years by the government. The bailouts of the banking system in 2008, and Obamacare (Ironically, I was in the process of writing this article before the legislation passed. How fast things can happen) legislation being passed just last week are all signs of fascism. And let us not forget that now we have the Patriot act, Homeland security, the TSA, and the drug laws showing that we have a very strong police state even now. No one wants to call it that, for the negative imagery of the fascist states of Hitler and Mussolini are still very strong, but fascism is what it is.
I must add a point here that the face of fascism has changed a bit, for in the economic environment in America, big business is better off than during the World War II era. So far they do not have to deal with wage/price quotas or subterfuge to get what they need. And the strict regulations make it very difficult for innovative upstarts to threaten their market share. This works in their favor. I bet, as a matter of policy, big business not only endorses these fascistic policies, but lobbies for more of such regulation.
Fascism fits Ludwig Von Mises's description of a hampered economy. Just like socialism and communism, it has rules and bureaucracy imposed on it by the state that hinders trade and commerce.
Where will it lead? It is hard to say, but the prospects are not bright. Individual liberties are clearly being trampled on, and it is getting harder to get ahead financially for all of us.
It looks difficult to change the course we are going on here in America. To me. it seems impossible to overcome, but even in Germany the fascist state could not last. Even if world war II was prevented and Germany tried to get along by peaceful means, Nazi Germany could not continue for ever. Too much wealth would have been destroyed, eaten up by the state, and It would have collapsed, just like Russia did 20 years ago.
Hindsight also shows us that good times are not guaranteed. In transitions, there is always hardship. What is most important, in my opinion, is that the ideals of individual liberty, free markets, rule of law, and respect for private property come predominant in our collective thinking. After all, actions follows ideas. Then, and only then, will we see prosperity for all.
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