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Omnipotent Government
by Ludwig von Mises

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The Weimar Republic and its Collapse (cont.)

4. The Treaty of Versailles

The four peace treaties of Versailles, Saint Germain, Trianon, and Sèvres together form the most clumsy diplomatic settlement ever carried out. They will be remembered as outstanding ex­amples of political failure. Their aim was to bring lasting peace; the result was a series of minor wars and finally a new and more terrible World War. They were intended to safeguard the inde­pendence of small states; the results were the disappearance of Austria, Abyssinia, Albania, Czchoslovakia. They were designed to make the world safe for democracy; the results were Stalin, Hitler, Mussolini, Franco, Horthy.

However, one reproach generally cast upon the Treaty of Ver­sailles is entirely unfounded. German propaganda succeeded in convincing public opinion in the Anglo‑Saxon countries that the terms of the treaty were extremely unfair to Germany, that the hardships they inflicted upon the Germans drove them to despair, and that Nazism and the present war are the outcome of the mis­treatment of Germany. This is wholly untrue. The political order given to Europe by the four treaties was very unsatisfactory. The settlement of East European problems was done with such disregard of the real conditions that chaos resulted. But the Treaty of Ver­sailles was not unfair to Germany and it did not plunge the German people into misery. If the provisions of the treaty had been en­forced, it would have been impossible for Germany to rearm and to attack again. The mischief was not that the treaty was bad so far as Germany was concerned, but that the victorious powers permit­ted Germany to defy some of its most important clauses.

The treaty obliged Germany to cede non‑German territories that Prussia had conquered, and whose mainly non‑German‑speaking population was decidedly opposed to German rule. Germany's only title to these countries was previous conquest. It was not—as the German propagandists used to say—the most scandalous robbery ever committed that the Reich was forced to give back what the Hohenzollerns had seized in earlier years. The favorite subject of German propaganda was the Polish Corridor. What, shouted the Nazi speakers and their foreign friends, would the British or the French have said if a piece of land had been cut out from their country, dividing it into two disconnected parts, in order to give a passage way to some other nation? Such utterances impressed public opinion all over the world. The Poles themselves threw little light upon this subject. In all those years they were ruled by an incompetent and corrupt oligarchy, and this ruling clique lacked the intellectual power to combat the German propaganda.

The true facts are these. In the Middle Ages the Teutonic Knights conquered the country which is today known as the Prus­sian province of East Prussia. But they did not succeed in their attempts to conquer the territory which in 1914 was the Prussian province of West Prussia. Thus East Prussia did not adjoin the German Empire. Between the western boundaries of East Prussia and the eastern borders of the Holy Empire there lay a piece of land ruled by the Kings of Poland, forming a part of Poland, and in­habited by Poles. This piece of land, namely, West Prussia, was in 1772 annexed by Prussia at the first partition of Poland. It is im­portant to realize that West Prussia (and the same is true for the Prussian province of Posen) was annexed by Prussia, not by the German Empire. These provinces belonged neither to the Holy Empire, which disintegrated in 1806, nor to the German Confeder­ation, which from 1815 to 1866 was the political organization of the German nation. They were the "private property," as it were, of the kings of Prussia. The fact that the King of Prussia in his capacity as Elector‑marquis of Brandenburg and as Duke of Pomerania was a member of the Holy Empire and of the German Con­federation had legally and constitutionally no more significance for these eastern provinces than the fact once had for Great Britain that the King of England was in his capacity as Elector (and later as King) of Hanover a prince of the Holy Empire and later a mem­ber of the German Confederation. Until 1866 the relation of these provinces to Germany was like the relation of Virginia or Massa­chusetts to Germany between 1714 and 1776 and of Scotland from 1714 to 1837. They were foreign countries ruled by a prince who happened at the same time to rule a German country.

It was only in 1866 that the King of Prussia incorporated these provinces by his own sovereign decision into the Norddeutscher Bund and in 1871 into the Deutsches Reich. The people living in these countries were not asked whether they agreed or not. In fact they did not agree. They returned Polish members to the German Reichstag and they were anxious to preserve their Polish idiom and their allegiance to Polish traditions. For fifty years they resisted every endeavor of the Prussian Government to germanize them.

When the Treaty of Versailles renewed Poland's independence and restored the provinces of Posen and of West Prussia to Poland, it did not give a corridor to Poland. It simply undid the effects of earlier Prussian (not German) conquests. It was not the fault of the peacemakers or of the Poles that the Teutonic Knights had conquered a country not adjoining the Reich.

The Treaty of Versailles returned Alsace‑Lorraine to France and northern Schleswig to Denmark. It did not rob Germany in these cases either. The population of these countries violently opposed German rule and longed to be freed from its yoke. Germany had but one title to oppress these people—conquest. The logical out­come of defeat was ceding the spoils of earlier conquest.

The second provision of the treaty which used to be criticized severely concerned reparations. The Germans had devastated a great part of Belgium and of northeastern France. Who was to pay for the reconstruction of these areas? France and Belgium, the as­sailed, or Germany, the aggressor? The victorious or the defeated? The treaty decided that Germany ought to pay.

We need not enter into a detailed discussion of the reparations problem. It is sufficient here to determine whether the reparations really meant misery and starvation for Germany. Let us see what Germany's income and reparation payments were in the period from 1925 to 1930.


            Income per          Reparation pay-             Reparation pay-

              capita in             ments per capita         ments a percentage

Year   Reichsmarks         in Reichsmarks                 of income


1925             61                      16.25                            1.69
1926           997                      18.30                            1.84
1927         1,118                      24.37                            2.18
1928         1,185                      30.75                            2.60
1929         1,187                      38.47                            3.24
1930         1,092                      26.10[i]                           2.39

It is a grotesque misrepresentation of the facts to assert that these payments made Germany poor and condemned the Germans to starvation. They would not have seriously affected the German standard of living even if the Germans had paid these sums out of their own pockets and not, as they did in fact, out of money bor­rowed from abroad.

For the years 1925‑29 there are figures available concerning the increase of German capital. These increases are, in millions of Reichsmarks:[ii]


                        1925                               5,770
                        1926                             10,123
                        1927                               7,125
                        1928                               7,469
                        1929                               6,815
From September, 1924, until July, 1931, Germany paid as repara­tions under the Dawes and Young plans 10,821 million Reichs­marks. Then the payments stopped altogether. Against this out­flow Germany's private and public indebtedness abroad, most of which originated in the same period, amounted to something over 20,500 million Reichsmarks. To this may be added approximately 5,000 million Reichsmarks of direct foreign investments in Ger­many. It is obvious that Germany did not suffer from lack of capital. If any more proof were needed it may be found in the fact that Germany invested in the same period approximately 10,000 million Reichsmarks abroad.[iii]

The reparations were not responsible for Germany's economic distress. But if the Allies had insisted on their payment, they would have seriously hampered Germany's rearmament.

The antireparations campaign resulted in a complete fiasco for the Allies and in the full success of Germany's refusal to pay. What the Germans did pay they paid out of foreign borrowings which they later repudiated. Thus the whole burden in fact fell on for­eigners.

With regard to possible future reparations it is extremely im­portant to know the basic causes of this previous failure. The Al­lies were from the very beginning of the negotiations handicapped by their adherence to the spurious monetary doctrines of present-day etatist economics. They were convinced that the payments rep­resented a danger to the maintenance of monetary stability in Germany, and that Germany could not pay unless its balance of trade were "favorable." They were concerned by a spurious "trans­fer" problem. They were disposed to accept the German thesis that "political" payments have effects radically different from payments originating from commercial transactions. This entanglement in mercantilist fallacies led them not to fix the total amount due in the Peace Treaty itself but to defer the decision to later negotia­tions. In addition it induced them to stipulate deliveries in kind, to insert the "transfer protection" clause, and finally to agree to the Hoover moratorium of July, 1931, and the cancellation of all reparation payments.

The truth is that the maintenance of monetary stability and of a sound currency system has nothing whatever to do with the bal­ance of payments or of trade. There is only one thing that endangers monetary stability—inflation. If a country neither issues additional quantities of paper money nor expands credit, it will not have any monetary troubles. An excess of exports is not a prerequisite for the payment of reparations. The causation, rather, is the other way round. The fact that a nation makes such payments has the tendency to create such an excess of exports. There is no such thing as a "transfer" problem. If the German Government collects the amount needed for the payments (in Reichmarks) by taxing its citizens, every German taxpayer must correspondingly reduce his consump­tion either of German or of imported products. In the second case the amount of foreign exchange which otherwise would have been used for the purchase of these imported goods becomes available. In the first case the prices of domestic products drop, and this tends to increase exports and thereby the amount of foreign ex­change available. Thus collecting at home the amount of Reich­marks required for the payment automatically provides the quantity of foreign exchange needed for the transfer. None of this, of course, depends in any way on whether the payments are "polit­ical" or commercial.

The payment of reparations, it is true, would have hurt the German taxpayer. It would have forced him to restrict his con­sumption. Under any circumstances, somebody had to pay for the damage inflicted. What the aggressors did not pay had to be paid by the victims of the aggression. But nobody pitied the victims, while hundreds of writers and politicians all over the world wept both crocodile and real tears over the Germans.

Perhaps it would have been politically wiser to choose another method for fixing the amount to be paid every year by Germany. For instance, the annual payment could have been brought into some fixed relation to the sums spent in future for Germany's armed forces. For every Reichmark spent on the German Army and Navy a multiple might have had to be paid as an installment. But all schemes would have proved ineffective as long as the Allies were under the spell of mercantilist fallacies.

The inflow of Germany's payments necessarily rendered the receiving countries' balance of trade "unfavorable." Their imports exceeded their exports because they collected the reparations. From the viewpoint of mercantilist fallacies this effect seemed alarming. The Allies were at once eager to make Germany pay and not to get the payments. They simply did not know what they wanted. But the Germans knew very well what they wanted. They did not want to pay.

Germany complained that the trade barriers of the other nations rendered its payments more burdensome. This grievance was well founded. The Germans would have been right, if they had really attempted to provide the means required for cash payments by an increase of exports. But what they paid in cash was provided for them by foreign loans.

The Allies were mistaken to the extent that they blamed the Germans for the failure of the treaty's reparation clauses. They should rather have indicted their own mercantilist prejudices. These clauses would not have failed if there had been in the Allied countries a sufficient number of influential spokesmen who knew how to refute the objections raised by the German nationalists.

Foreign observers have entirely misunderstood the role played by the Treaty of Versailles in the agitation of the Nazis. The nucleus of their propaganda was not the unfairness of the treaty; it was the "stab in the back" legend. We are, they used to say, the most powerful nation in Europe, even in the world. The war has evidenced anew our invincibility. We can, if we want to, put to rout all other nations. But the Jews have stabbed us in the back. The Nazis mentioned the treaty only in order to demonstrate the full villainy of the Jews.

"We, the victorious nation," they said, "have been forced to surrender by the November crime. Our government pays repara­tions, although nobody is strong enough to force us to do that. Our Jewish and Marxian rulers abide by the disarmament clauses of the treaty, because they want us to pay this money to World Jewry." Hitler did not fight the treaty. He fought those Germans who had voted in the German Parliament for its acceptance and who objected to its unilateral breach. For that Germany was power­ful enough to annul the treaty the nationalists considered already proved by the "stab in the back" legend.

Many Allied and neutral critics of the Treaty of Versailles used to assert that it was a mistake to leave Germany any cause for grievance. This view was erroneous. Even if the treaty had left Germany's European territory untouched, if it had not forced it to cede its colonies, if it had not imposed reparation payments and limitation of armaments, a new war would not have been averted. The German nationalists were determined to conquer more dwell­ing space. They were eager to obtain autarky. They were convinced that their military prospects for victory were excellent. Their ag­gressive nationalism was not a consequence of the Treaty of Ver­sailles. The grievances of the Nazis had little to do with the treaty. They concerned Lebensraum.

There have been frequent comparisons of the Treaty of Ver­sailles with the settlements of 1814 and 1815. The system of Vienna succeeded in safeguarding European peace for many years. Its generous treatment of the vanquished French allegedly prevented France from planning wars of revenge. If the Allies had treated Germany in a similar way, it is contended, they would have had better results.

A century and a half ago France was the paramount power in continental Europe. Its population, its wealth, its civilization, and its military efficiency eclipsed those of the other nations. If the French of those days had been nationalists in the modern sense, they would have had the opportunity to attain and hold hegemony on the continent for some time. But nationalism was foreign to the French of the revolutionary period. They were, it is true, chauvinists. They considered themselves (perhaps on better grounds than some other peoples) the flower of mankind. They were proud of their newly acquired liberty. They believed that it was their duty to assist other nations in their struggle against tyranny. They were chauvinists, patriots, and revolutionaries. But they were not nationalists. They were not eager for conquest. They did not start the war; foreign monarchs attacked them. They defeated the invaders. It was then that ambitious generals, foremost among them Napoleon, pushed them toward territorial expansion. The French certainly connived at the beginning; but they grew more and more reluctant as they began to realize that they were bleeding for the sake of the Bonaparte family. After Waterloo they were relieved. Now they no longer had to worry about the fate of their sons. Few Frenchmen complained about the loss of the Rhineland, the Netherlands, or Italy. No Frenchman wept because Joseph was no longer King of Spain or Jerome no longer King of Westphalia. Austerlitz and Jena became historical reminiscences; the citizen's conceit derived edification from the poetry praising the late Em­peror and his battles, but no one was now eager to subdue Europe.

Again, later, the events of June, 1848, directed attention to the Emperor's nephew. Many expected him to overcome the new domestic troubles in the same way his uncle had dealt with the first revolution. There is no doubt that the third Napoleon owed his popularity solely to the glory of his uncle. Nobody knew him in France, and he knew nobody; he had seen the country only through prison bars and he spoke French with a German accent. He was only the nephew, the heir of a great name; nothing more. Certainly the French did not choose him because they wanted new wars. He brought them to his side by persuading them that his rule would safeguard peace. The empire means peace, was the slogan of his propaganda. Sevastopol and Solferino did not advance his popularity; they rather injured it. Victor Hugo, the literary cham­pion of the first Napoleon's glory, unswervingly vilified his suc­cessor.

The work of the Congress of Vienna could endure, in short, because Europe was peaceloving and considered war an evil. The work of Versailles was doomed to fail in this age of aggressive nationalism.

What the Treaty of Versailles really tried to achieve was con­tained in its military clauses. The restriction of German arma­ments and the demilitarization of the Rhineland did not harm Germany, because no nation ventured to attack it. But they would have enabled France and Great Britain to prevent a new German aggression if they had been earnestly resolved to prevent it. It is not the fault of the treaty that the victorious nations did not at­tempt to enforce its provisions.

5. The Economic Depression

The great German inflation was the result of the monetary doctrines of the socialists of the chair. It had little to do with the course of military and political events. The present writer forecast it in 1912. The American economist B. M. Anderson confirmed this forecast in 1917. But most of those men who between 1914 and 1923 were in a position to influence Germany's monetary and banking policies and all journalists, writers, and politicians who dealt with these problems labored under the delusion that an in­crease in the quantity of bank notes does not affect commodity prices and foreign exchange rates. They blamed the blockade or profiteer­ing for the rise of commodity prices, and the unfavorable balance of payments for the rise of foreign exchange rates. They did not lift a finger to stop inflation. Like all pro‑inflation parties, they wanted to combat merely the undesirable but inevitable consequences of inflation, i.e., the rise of commodity prices. Their ignorance of economic problems pushed them toward price control and foreign exchange restrictions. They could never understand why these attempts were doomed to fail. The inflation was neither an act of God nor a consequence of the Treaty of Versailles. It was the practical application of the same etatist ideas that had begotten nationalism. All the German political parties shared responsibility for the inflation. They all clung to the error that it was not the increase of bank credits but the unfavorable balance of payments that was devaluing the currency.

The inflation had pauperized the middle classes. The victims joined Hitler. But they did not do so because they had suffered but because they believed that Nazism would relieve them. That a man suffers from bad digestion does not explain why he consults a quack. He consults the quack because he thinks that the man will cure him. If he had other opinions, he would consult a doctor. That there was economic distress in Germany does not account for Nazism's success. Other parties also, e.g., the Social Democrats and the communists, recommended their patent medicines.

Germany was struck by the great depression from 1929 on, but not to a greater extent than other nations. On the contrary. In the years of this depression the prices of foodstuffs and raw materials that Germany imports decreased more than the prices of manufactures that it exports.

The depression would have resulted in a fall in wage rates. But as the trade‑unions would not permit wage cuts, unemployment increased. Both the Social Democrats and the communists were confident that the increase of unemployment would strengthen their forces. But it worked for Nazism.

The great depression was international. Only in Germany, how­ever, did it result in the victory of a party recommending arma­ments and war as a panacea.

6. Nazism and German Labor

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.[iv]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.

7. The Foreign Critics of Nazism

Hitler and his clique conquered Germany by brutal violence, by murder and crime. But the doctrines of Nazism had got hold of the German mind long before then. Persuasion, not violence, had converted the immense majority of the nation to the tenets of militant nationalism. If Hitler had not succeeded in winning the race for dictatorship, somebody else would have won it. There were plenty of candidates whom he had to eclipse: Kapp, General Ludendorff, Captain Ehrhardt, Major Papst, Forstrat Escherich, Strasser, and many more. Hitler had no inhibitions and thus he defeated his better instructed or more scrupulous competitors.

Nazism conquered Germany because it never encountered any adequate intellectual resistance. It would have conquered the whole world if, after the fall of France, Great Britain and the United States had not begun to fight it seriously.

The contemporary criticism of the Nazi program failed to serve the purpose. People were busy dealing with the mere accessories of the Nazi doctrine. They never entered into a full discussion of the essence of National Socialist teachings. The reason is obvious. The fundamental tenets of the Nazi ideology do not differ from the generally accepted social and economic ideologies. The difference concerns only the application of these ideologies to the special problems of Germany.

These are the dogmas of present‑day "unorthodox" orthodoxy:

1. Capitalism is an unfair system of exploitation. It injures the immense majority for the benefit of a small minority. Private ownership of the means of production hinders the full utilization of natural resources and of technical improvements. Profits and interest are tributes which the masses are forced to pay to a class of idle parasites. Capitalism is the cause of poverty and must result in war.

2. It is therefore the foremost duty of popular government to substitute government control of business for the management of capitalists and entrepreneurs.

3. Price ceilings and minimum wage rates, whether directly enforced by the administration or indirectly by giving a free hand to trade‑unions, are an adequate means for improving the lot of the consumers and permanently raising the standard of living of all wage earners. They are steps on the way toward entirely emancipating the masses (by the final establishment of socialism) from the yoke of capital. (We may note incidentally that Marx in his later years violently opposed these propositions. Present‑day Marxism, however, endorses them fully.)

4. Easy money policy, i.e., credit expansion, is a useful method of lightening the burdens imposed by capital upon the masses and making a country more prosperous. It has nothing to do with the periodical recurrence of economic depression. Economic crises are an evil inherent in unhampered capitalism.

5. All those who deny the foregoing statements and assert that capitalism best serves the masses and that the only effective method of permanently improving the economic conditions of all strata of society is progressive accumulation of new capital are ill-intentioned narrow-minded apologists of the selfish class interests of the exploiters. A return to laissez faire, free trade, the gold standard, and economic freedom is out of the question. Mankind will fortunately never go back to the ideas and policies of the nineteenth century and the Victorian age. (Let us note incidentally that both Marxism and trade-unionism have the fairest claim to the epithets "nineteenth-century" and "Victorian.")

6. The advantage derived from foreign trade lies exclusively in exporting. Imports are bad and should be prevented as much as possible. The happiest situation in which a nation can find itself is where it need not depend on any imports from abroad. (The "progressives," it is true, are not enthusiastic about this dogma and sometimes even reject it as a nationalist error; however, their political acts are thoroughly dictated by it.)

With regard to these dogmas there is no difference between present-day British liberals and the British labor party on the one hand and the Nazis on the other. It does not matter that the British call these principles an outgrowth of liberalism and economic democracy while the Germans, on better grounds, call them antiliberal and antidemocratic. It is not much more important that in Germany nobody is free to utter dissenting views, while in Great Britain a dissenter is only laughed at as a fool and slighted.

We do not need to deal here with the refutation of the fallacies in these six dogmas. This is the task of treatises expounding the basic problems of economic theory. It is a task that has already been fulfilled. We need only emphasize that whoever lacks the courage or the insight to attack these premises is not in a position to find fault with the conclusions drawn from them by the Nazis. The Nazis also desire government control of business. They also seek autarky for their own nation. The distinctive mark of their policies is that they refuse to acquiesce in the disadvantages which the acceptance of the same system by other nations would impose upon them. They are not prepared to be forever "imprisoned," as they say, within a comparatively overpopulated area in which the productivity of labor is lower than in other countries.

Both the German and foreign adversaries of Nazism were defeated in the intellectual battle against it because they were enmeshed in the same intransigent and intolerant dogmatism. The British Left and the American progressives want all-round control of business for their own countries. They admire the Soviet methods of economic management. In rejecting German totalitarianism they contradict themselves. The German intellectuals saw in Great Britain's abandonment of free trade and of the gold standard a proof of the superiority of German doctrines and methods. Now they see that the Anglo-Saxons imitate their own system of economic management in nearly every respect. They hear eminent citizens of these countries declare that their nations will cling to these policies in the postwar period. Why should not the Nazis be con­vinced, in the face of all this, that they were the pioneers of a new and better economic and social order?

The chiefs of the Nazi party and their Storm Troopers are sadistic gangsters. But the German intellectuals and German labor tolerated their rule because they agreed with the basic social, eco­nomic, and political doctrines of Nazism. Whoever wanted to fight Nazism as such, before the outbreak of the present war and in order to avoid it (and not merely to oust the scum which happens to hold office in present‑day Germany), would have had to change the minds of the German people. This was beyond the power of the supporters of etatism.

It is useless to search the Nazi doctrines for contradictions and inconsistencies. They are indeed self‑contradictory and incon­sistent; but their basic faults are those common to all brands of present‑day etatism.

One of the most common objections raised against the Nazis concerned the alleged inconsistency of their population policy. It is contradictory, people used to say, to complain, on the one hand, of the comparative overpopulation of Germany and ask for more Lebensraum and to try, on the other hand, to increase the birth rate. Yet there was in the eyes of the Nazis no inconsistency in these attitudes. The only remedy for the evil of overpopulation that they knew was provided by the fact that the Germans were numerous enough to wage a war for more space, while the small nations laboring under the same evil of comparative overpopulation were too weak to save themselves. The more soldiers Germany could levy, the easier it would be to free the nation from the curse of overpopulation. The underlying doctrine was faulty; but one who did not attack the whole doctrine could not convincingly find fault with the endeavors to rear as much cannon fodder as possible.

One reason why the objections raised to the despotism of the Nazis and the atrocities they committed had so little effect is that many of the critics themselves were inclined to excuse the Soviet methods. Hence the German nationalists could claim that their adversaries—both German and foreign—were being unfair to the Nazis in denouncing them for practices which they judged more mildly in the Russians. And they called it cant and hypocrisy when the Anglo‑Saxons attacked their racial doctrines. Do the British and the Americans themselves, they retorted, observe the principle of equality of all races?

The foreign critics condemn the Nazi system as capitalist. In this age of fanatical anticapitalism and enthusiastic support of socialism no reproach seems to discredit a government more thoroughly in the eyes of fashionable opinion than the qualification pro‑capitalistic. But this is one charge against the Nazis that is unfounded. We have seen in a previous chapter that the Zwangswirtschaft is a socialist system of all‑round government control of business.

It is true that there are still profits in Germany. Some enterprises even make much higher profits than in the last years of the Weimar regime. But the significance of this fact is quite different from what the critics believe. There is strict control of private spending. No German capitalist or entrepreneur (shop manager) or any one else is free to spend more money on his consumption than the govern­ment considers adequate to his rank and position in the service of the nation. The surplus must be deposited with the banks or invested in domestic bonds or in the stock of German corporations wholly controlled by the government. Hoarding of money or bank­notes is strictly forbidden and punished as high treason. Even before the war there were no imports of luxury goods from abroad, and their domestic production has long since been discontinued. No­body is free to buy more food and clothing than the allotted ration. Rents are frozen; furniture and all other goods are unattainable. Travel abroad is permitted only on government errands. Until a short time ago a limited amount of foreign exchange was allotted to tourists who wanted to spend a holiday in Switzerland or Italy. The Nazi government was anxious not to arouse the anger of its then Italian friends by preventing its citizens from visiting Italy. The case with Switzerland was different. The Swiss Government, yielding to the demands of one of the most important branches of its economic system, insisted that a part of the payment for German exports to Switzerland should be balanced by the outlays of Ger­man tourists. As the total amount of German exports to Switzerland and of Swiss exports to Germany was fixed by a bilateral exchange agreement, it was of no concern to Germany how the Swiss dis­tributed the surplus. The sum allotted to German tourists traveling in Switzerland was deducted from that destined for the repayment of German debts to Swiss banks. Thus the stockholders of the Swiss banks paid the expenses incurred by German tourists.

German corporations are not free to distribute their profits to the shareholders. The amount of the dividends is strictly limited according to a highly complicated legal technique. It has been as­serted that this does not constitute a serious check, as the corpora­tions are free to water the stock. This is an error. They are free to increase their nominal stock only out of profits made and declared and taxed as such in previous years but not distributed to the shareholders.

As all private consumption is strictly limited and controlled by the government, and as all unconsumed income must be invested, which means virtually lent to the government, high profits are nothing but a subtle method of taxation. The consumer has to pay high prices and business is nominally profitable. But the greater the profits are, the more the government funds are swelled. The government gets the money either as taxes or as loans. And everybody must be aware that these loans will one day be repudiated. For many years German business has not been in a position to replace its equipment. At the end of the war the assets of corpora­tions and private firms will consist mainly of worn‑out machinery and various doubtful claims against the government. Warring Germany lives on its capital stock, i.e., on the capital nominally and seemingly owned by its capitalists.

The Nazis interpret the attitudes of other nations with regard to the problem of raw materials as an acknowledgment of the fair­ness of their own claims. The League of Nations has established that the present state of affairs is unsatisfactory and hurts the interests of those nations calling themselves have‑nots. The fourth point of the Atlantic Declaration of August 14, 1941, in which the chiefs of the governments of the United Kingdom and of the United States made known "certain common principles in the national policies of their respective countries on which they base their hope for a better future of the world," reads as follows: "They will endeavor, with due respect for their existing obligations, to further the enjoyment by all States, great or small, victor or van­quished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.

The Roman Catholic Church is, in a world war, above the fighting parties. There are Catholics in both camps. The Pope is in a position to view the conflict with impartiality. It was, therefore, in the eyes of the Nazis very significant when the Pope discovered the root causes of the war in "that cold and calculating egoism which tends to hoard the economic resources and materials destined for the use of all to such an extent that the nations less favored by nature are not permitted access to them," and further declared that he saw "admitted the necessity of a participation of all in the natural riches of the earth even on the part of those nations which in the fulfillment of this principle belong to the category of givers and not to that of receivers[v].

Well, say the Nazis, everybody admits that our grievances are reasonable. And, they add, in this world which seeks autarky of totalitarian nations, the only way to redress them is to redistribute territorial sovereignty.

It was often contended that the dangers of autarky which the Nazis feared were still far away, that Germany could still expand its export trade, and that its per capita income continued to increase. Such objections did not impress the Germans. They wanted to realize economic equality, i.e., a productivity of German labor as high as that of any other nation. The wage earners of the Anglo-Saxon countries too, they objected, enjoy today a much higher standard of living than in the past. Nevertheless, the "progressives" do not consider this fact a justification of capitalism, but approve of labor's claims for higher wages and the abolition of the wages system. It is unfair, said the Nazis, to object to the German claims when nobody objects to those of Anglo-Saxon labor.

The weakest argument brought forward against the Nazi doctrine was the pacifist slogan: War does not settle anything. For it cannot be denied that the present state of territorial sovereignty and political organization is the outcome of wars fought in the past. The sword freed France from the rule of the English kings and made it an independent nation, converted America and Australia into white men's countries, and secured the autonomy of the American republics. Bloody battles made France and Belgium predominantly Catholic and Northern Germany and the Nether-lands predominantly Protestant. Civil wars safeguarded the unity of the United States and of Switzerland.

Two efficacious and irrefutable objections could well have been raised against the plans of German aggression. One is that the Germans themselves had contributed as much as they could to the state of affairs that they considered so deplorable. The other is that war is incompatible with the international division of labor. But "progressives" and nationalists were not in a position to challenge Nazism on these grounds. They were not themselves concerned with the maintenance of the international division of labor; they advocated government control of business which must necessarily lead toward protectionism and finally toward autarky.

The fallacious doctrines of Nazism cannot withstand the criticism of sound economics, today disparaged as orthodox. But whoever clings to the dogmas of popular neo-Mercantilism and advocates government control of business is impotent to refute them. Fabian and Keynesian "unorthodoxy" resulted in a confused acceptance of the tenets of Nazism. Its application in practical policies frustrated all endeavors to form a common front of all nations menaced by the aspirations of Nazism.



[i]Income per capita: Statistiches Jahrbuch für das Deutsche Reich. Reparations per capita: figures obtained by dividing reparation payments by 65,000,000. As the population of Germany was increasing slightly during that period, the real proportion should be slightly lower than that given above.

[ii]"Zuwachs an bereitgestalltem Geldkapital," Vierteljahrshefte fuer Konjunkturforschung, Special number 22 (Berlin, 1931), p. 29.

[iii]Stolper, German Economy 1870-1940 (New York, 1940), p. 179.

[iv]However, the London Times as late as October 6, 1942, reported from Moscow that interrogation of German prisoners of war by the Russian authorities showed that a majority of the skilled workers were still strong supporters of the Nazis; particularly men in the age groups between 25 and 35, and those from the Ruhr and other older industrial centers.

[v]Christmas Eve broadcast. New York Times, December 25, 1941.

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