To understand the concept of State Socialism it is not sufficient to explain the term etymologically. The history of the word reflects only the fact that State Socialism was the Socialism professed by the authorities of the Prussian and other German states. Because they identified themselves with the State and with the form taken by the State and with the idea of the State generally, it suggested calling the Socialism which they adopted State Socialism.

Military Socialism is the Socialism of a state in which all institutions are designed for the prosecution of war. It is a State Socialism in which the scale of values for determining social status and the income of citizens is based exclusively or preferably on the position held in the fighting forces. The higher the military rank the greater the social value and the claim on the national dividend.

A theocratic organization of the state demands either a self-sufficing family economy or the socialist organization of industry. It is incompatible with an economic order which allows the individual free play to develop his powers. Simple faith and economic rationalism cannot dwell together. It is unthinkable that priests should govern entrepreneurs.

The so-called planned economy (Planwirtschaft) is a more recent variety of Socialism.

In the first years after the World War, people in England and on the Continent looked on Guild Socialism as the panacea. It has long since been forgotten. Nevertheless, we must not pass it over in silence, when discussing socialist projects; for it represents the one contribution to modern socialist plans made by the Anglo-Saxons, in economic matters the most advanced of peoples. Guild Socialism is another attempt to surmount the insoluble problem of a socialist direction of industry.

The essence of Socialism is this: All the means of production are in the exclusive control of the organized community. This and this alone is Socialism. All other definitions are misleading.

A Socialist community, which did not include the whole of mankind, would have no reason to remain isolated from the rest of the world. It is true, that it might be disquieting for the rulers of such a state that foreign ideas would come over the frontiers with foreign products. They might fear for the permanence of their system, if their subjects were able to compare their position with that of foreigners who were not citizens of a socialist community. But these are political considerations, and do not apply if the foreign states are also socialistic.

Such considerations indicate the principles on which a socialist community would have to base its commercial policy. In so far as it aspired to let its actions be guided purely by economic considerations it would have to aim at securing just what under complete freedom of trade would be secured by the unrestricted play of economic forces.