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The Nationalization of Credit

1. Private Interest and Public Interest

According to Deumer, banks presently serve private interests. They serve public interests only inasmuch as these do not conflict with the former. Banks do not finance those enterprises that are most essential from the national point of view, but only those that promise to yield the highest re­turn. For instance, they finance “a whiskey distillery or any other enterprise that is superfluous for the economy.” “From the national point of view, their activity is not only useless, but even harmful.” “Banks permit enterprises to grow whose products are not in demand; they stimulate unnecessary consumption, which in turn reduces the peo­ple’s purchasing power for goods that are more important culturally and rationally. Furthermore, their loans waste so­cially necessary capital, which causes essential production to decline, or at least their costs of credit, and thus their pro­duction costs, to rise.”3

Obviously, Deumer does not realize that in a market order capital and labor are distributed over the economy in such a way that, except for the risk premium, capital yields the same return, and similar labor earns the same wage every­where. The production of “unnecessary” goods pays no more and no less than that of “essential goods.” In the final analysis, it is the consumers in the market who determine the employment of capital and labor in the various industries. When the demand for an item rises its prices will rise and thus the profits, which causes new enterprises to be built and existing enterprises to be expanded. Consumers decide whether this or that industry will receive more capital. If they demand more beer, more beer will be brewed. If they want more classical plays, the theatres will add classics to their repertoire and offer fewer antics, slapstick, and operettas. The taste of the public, not the producer, decides that The Merry Widow and The Garden of Eden are performed more often than Goethe's Tasso.

To be sure, Deumer's taste differs from that of the public. He is convinced that people should spend their money differently. Many would agree with him. But from this difference in taste Deumer draws the conclusion that a socialistic command system should be established through nationalization of credit, so that public consumption can be redirected. On this we must disagree with Deumer.

Guided by central authority according to central plan, a socialistic economy can be democratic or dictatorial. A democracy in which the central authority depends on public support through ballots and elections cannot proceed differently from the capitalistic economy. It will produce and distribute what the public likes, that is, alcohol, tobacco, trash in literature, on the stage, and in the cinema, and fashionable frills. The capitalistic economy, however, caters as well to the taste of a few consumers. Goods are produced that are demanded by some consumers, and not by all. The democratic command economy with its dependence on popular majority need not consider the special wishes of the minority. It will cater exclusively to the masses. But even if it is managed by a dictator who, without consideration for the wishes of the public, enforces what he deems best, who clothes, feeds, and houses the people as he sees fit, there is no assurance that he will do what appears proper to "us." The critics of the capitalistic order always seem to believe that the socialistic system of their dreams will do precisely what they think correct. While they may not always count on becoming dictators themselves, they are hoping that the dictator will not act without first seeking their advice. Thus they arrive at the popular contrast of productivity and profitability. They call "productive" those economic actions they deem correct. And because things may be different at times they reject the capitalistic order which is guided by profitability and the wishes of consumers, the true masters of markets and production. They forget that a dictator, too, may act differently from their wishes, and that there is no assurance that he will really try for the "best" and, even if he should seek it, that he should find the way to the "best."

It is an even more serious question whether a dictatorship of the "best" or a committee of the "best" can prevail over the will of the majority. Will the people, in the long run, tolerate an economic dictatorship that refuses to give them what they want to consume and gives them only what the leaders deem useful? Will not the masses succeed in the end in forcing the leaders to pay heed to public wishes and taste and do what the reformers sought to prevent?

We may agree with Deumer's subjective judgment that the consumption by our fellow men is often undesirable. If we believe this we may attempt to convince them of their errors. We may inform them of the harm of excessive use of alcohol and tobacco, of the lack of value of certain movies, and of many other things. He who wants to promote good writings may imitate the example of the Bible Society that makes financial sacrifices in order to sell Bibles at reduced prices and to make them available in hotels and other public places. If this is yet insufficient, there cannot be any doubt that the will of our fellow men must be subdued. Economic production according to profitability means production according to the wishes of consumers, whose demand determines goods prices and thus capital yield and entrepreneurial profit. Whenever economic production according to "national productivity" deviates from the former, it means production that disregards the consumers' wishes, but pleases the dictator or committee of dictators.

Surely, in a capitalistic order a fraction of national income is spent by the rich on luxuries. But regardless of the fact that this fraction is very small and does not substantially affect production, the luxury of the well-to-do has dynamic effects that seem to make it one of the most important forces of economic progress. Every innovation makes its appearance as a "luxury" of the few well-to-do. After industry has become aware of it, the luxury then becomes a "necessity" for all. Take, for example, our clothing, the lighting and bathroom facilities, the automobile, and travel facilities. Economic history demonstrates how the luxury of yesterday has become today's necessity. A great deal of what people in the less capitalistic countries consider luxury is a common good in the more capitalistically developed countries. In Vienna, ownership of a car is a luxury (not just in the eyes of the tax collector); in the United States, one out of four or five individuals owns one.

The critic of the capitalist order who seeks to improve the conditions of the masses should not point at this luxury consumption as long as he has not disproved the assertion of theorists and the experience of reality that only capitalistic production assures highest possible production. If a command system produces less than a private property order it will obviously not be possible to supply the masses with more than they have today.

  • 3. Ibid., p. 86.
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