A chasm has opened between the economy and politics. These scant words give the diagnosis of the times. The economy and politics, two manifestations of the life of society, have declared their autonomy and wage unceasing war against each other. They have become slogans under which political parties and economic classes pursue their opposing interests. Things have reached the point that right and left feud in the name of economy and democracy, as if these two basic functions of society could be embodied in two separate parties within the state! Behind the slogans, however, lurks a terrifying reality. The left is rooted in democracy; the right is rooted in the economy. As a direct result, the current functional breakdown between the economy and democracy is stretching into a catastrophic polarity. The realm of political democracy gives rise to forces that intervene in the economy, disturbing and constraining it. In response, business mounts a general attack on democracy as the embodiment of an irresponsible hostility towards the economy that is devoid of objectivity.
There is no contemporary problem more worthy of the attention of well-intentioned people than this one. A society whose political and economic systems are in conflict is doomed to decline – or to be overthrown. Indeed, political democracy has succumbed in most of the countries of Europe. Bolshevism rules in Russia, while many of the eastern, central and southern European states are under military dictatorship or fascism. And the end is not in sight.
Even we, rooted with our every fibre in the intellectual soil of democracy, can permit ourselves no illusions: democracy is suffering one of the severest trials in its centuries-old development. Since the war, both the economy and democracy, each in its own way, have been in open crisis. In the defeated countries, the economy had scarcely begun to believe the crises of the period of downfall overcome when it again fell victim to a boundless general crisis whose gravity surpassed anything previously experienced. Seemingly unrelated political crises of democracy and parliamentary government manifested themselves in a large number of states. This alone would have diminished the prestige of democracy. But the onslaught was intensified a hundredfold because the economy likewise placed responsibility for its own paralysis at the feet of democracy. Democracy was blamed not only for legislative failures, endless governmental and coalition crises, and the degeneration of party politics but also for the unrelenting decline in prices, production and consumption, the equally unrelenting rise of bankruptcies and the misery of mass unemployment.
The charge-sheet of the economy against democracy (or, as it is also put, against politics) includes: inflation, subsidization, protectionism, trade unionism, currency mismanagement, costly and senseless support and propping up of individual enterprises, state assistance to and bail-outs of specific industrial sectors, tariff protection, and excessively high wages and social obligations. Left-wing governments in the victorious countries went down to defeat on the currency question. The new franc, the belga, the new pound sterling – now approaching stabilization and delinked from gold – and, indeed, even the new Reichsmark were born from the rubble of periods of progressive democratic government. Herriot and the cartel in France, the Pouillet-Vandervelde regime in Belgium, the second Labour government in England, the Weimar coalition in Germany and even, to a certain extent, the coalition government in Austria as early as 1920 were all victims of inflation. In countries like England, where the trade unions are not subordinate to working-class political parties and thus pursued class-oriented wage policies entirely unconstrained by political responsibility, unemployment insurance enabled the rigidification of nominal wages (despite the appreciation of the pound), causing excessive wages in the economic sectors dependent on the world market. Mining, shipping, shipbuilding and the textile industry were forced to comprehend this. For this reason, businesses (with the most incapable at their head) enjoyed state subsidies, the infamous coal subventions. This system of state subsidization of some industries at the expense of others reached fullest flower in Germany (after the Ruhr conflict, for purely political reasons as well). There is hardly a grain-importing country in Europe that did not succumb to the temptation of high protective duties. The driving force here was a thoroughly political pursuit of the delusion of autarky, which, where not impossible, is damaging to the entire economy. The economy as a whole inevitably paid a price for the preferential treatment of certain of its parts. This led to an often overlooked and, for democracy, particularly tragic strain: democracy got the blame for the deepening general economic crisis from the very parts of the economy that benefited from preferential policies – agricultural interests, employers and ultimately sections of the working class itself! Unquestionably, fascism was nourished by working-class disappointment with the economic policies of democracies. Politics, political parties and parliaments came under suspicion. Democracy fell into disrepute. Broad strata of the masses, both right and left, turned against democracy.
Hence springs a realization: nothing can save democracy today except a new mass culture of economic and political education [Bildung]. This alone can protect democracy from suicide. If the grass roots leaders of the masses – who already almost constitute a mass themselves – could be successfully trained, in an emphatic and vivid way, to be economically educated, this would automatically halt a large share of the policy measures that democracy has seized upon only because it is unclear on their consequences. What is killing democracy is ignorance of the requirements and the basic laws of modern economic life. The old truths are no longer sufficient – for the problems are new. The currency issue as it faces the post-war generation is new. Persistent mass unemployment is new. Born of the war, the rudiments of a planned economy are new. For our generation, the experience of an industrial revolution in technology and business practices is new. The incomparably profound interdependence of world capital markets is totally new. Almost as new as these problems are the forms of knowledge that are to be applied to them. In its application to issues of the currency, business cycles, crises, the rationalization of industry and so on, theoretical economics is virtually an entirely new branch of knowledge. (The most important work originated in the post-war period.) But new knowledge is not yet education! Knowledge becomes education only when it contributes to revealing to the masses the meaning of work, life and everyday existence.
One advising democracy to foster education can easily give the appearance of wanting to pit the economy against politics. But it must be stated loud and clear that business is often as deficient in its education about politics as the politicians are in their education about economics. How often in the course of the last ten years has business not received priority over politics! In every single case, business failed. And that is not all. Business leaders have proved to be as ignorant in economic affairs as the politicians, without having even a rudimentary understanding of politics. What has the world not been led to believe by business, beginning from the first private supply agreements to the creation of the international steel cartel by the now deceased Mayrisch via the Luxembourg understanding, the potash agreements of Arnold Rechberg, the so-called commercialization and mobilization of reparations, and up through Loucheur's cartel plan as the supposed solution to the German–French problem? Or take the international economy: merely recall the Genoa conference where, amidst general astonishment, the petroleum interests proposed to solve the Russian question with a 25 million pound sterling joint-stock company. Or consider Morgan's amazing contribution to the problems of the world system of credit by the creation of the Bank of International Settlements; or the numberless world economic conferences; or finally the failure of almost all bank directorates to contain the problem of short-term credits – the lenders no less than the borrowers! Truly, with the exception of Morgan's short-lived contribution to the financial ceasefire known as the Dawes Plan, each and every initiative on the part of serious business aimed at the solution of political questions has proved worthless. Stinnes and Kreuger are not the problem; but rather Thyssen and Loucheur, Hoover and Ford.
That business leaders were not even educated about economics raised the comedy of errors to the level of paradox. Not only in politics but even in their own field they lacked comprehension of interconnections and an overview of the entirety of the situation. With the aid of inflationary monetary policies, countless investments were made whose profitability could only be secured by high protective tariffs. First in Germany, then in France, and now in England, protectionism and state intervention have come up trumps. Certainly, democracy's charity to entrepreneurs was often given as compensation for the consequences of socio-political interventions. This unholy alliance of economic interests of the left and the right, of which those concerned were frequently only partially aware, inflicted grievous damage to the image of democracy, especially in Germany.
However, the declining authority of democracy did not increase the influence of business leaders in the democracies. This was their greatest failure. Instead of educating democracy in economic responsibility, they abandoned democracy. In many countries where parliamentarianism and democracy were relatively recently established, as in Germany, Italy, Poland and almost all of Eastern Europe, economic interests deserted democracy and civil rights. In the post-war period, the working classes manifested greater intellectual and moral resistance to dictatorial thinking than did the bourgeoisie. With a casual unconcern unthinkable in the Anglo-Saxon countries, where democracy was ideologically anchored in religious foundations of puritan origins, democracy was abandoned and permitted to fall as if mere external formalities were at stake, rather than the highest expression of moral consciousness within the modern state. To the English, ‘free trade’ means more than the freedom to trade in the continental sense; it also means peace, liberty and civil rights. The failure to understand these most elementary relationships betrays, like nothing else, the lack of true political culture in the regions of Europe that are geographically isolated from the West or lag behind it historically.
This applied as much to politics as to economics. In the post-war period, the political sciences have written significant new chapters. For here too the problems themselves are new: the surprising failure of proportional representation by a system of rigid lists; the grounds for and limits to the incorporation of professional interest representation into constitutional institutions; the significance of the theory of referenda to the health of parliamentary democracy; and several other issues. But above all, the decisive chapter: the rise of fascism.
We stand before a new calling for knowledge in our times. In the national and international division of labour, modern technologies and modern communication have created so tangled a structure that any overview of the position of the individual is lost. This is also the most profound cause of the chasm between democracy and economy. That it is often the very same man, who in the arenas of democracy and the economy struggles against himself, remains hidden from individuals. The result is the disillusionment that has stripped democracy of legitimacy. In the mirror of knowledge, the individual would be astonished to discover how, standing on both sides, in politics and economics, he is often merely in senseless conflict with himself. He would note in wonder how knowledge awakens him to his responsibilities for previously unknown interconnections. The richer, deeper and more ramified the framework of democracy, the more real this responsibility is. This, though, already spills into the realm of worldviews, which lies outside of science. There is no need to enter this realm in order to affirm staunchly and clearly the calling of economic and political education in our times: to lead democracy to maturity through knowledge and personal responsibility.