To understand the nature of the National Socialist economic system, a few considerations on the relation between property and contract will prove helpful. What is capitalism? How do we define it? Many identify capitalism with freedom of trade and contract, that is, with free competition. Capitalism is defined as an economy that is continuously maintained by the free initiative of a large number of entrepreneurs competing in a free market. It is thereby identified with one phase of its development, competitive capitalism. In that phase, free competition is held to be the distinguishing mark. This theory of capitalism is to a certain extent the classical one, though it has highly significant differences.
We propose to illustrate the nature of the economic system by an examination of the institution of property.1 By an institution, we mean an authoritarian or co-operative enduring association of men or of men and property, for the continuation of social life. This definition is purely descriptive. It has nothing to do with institutionalist philosophies, with pluralism, neo-Thomism, or syndicalism. Our definition covers all kinds of institutions: family, property, foundations, et cetera. Above all, it defines the major institution of modern society, private property in the means of production. Property, for a lawyer, is merely a subjective right that one man has against all others. It endows the proprietor with absolute defensive rights. The scope of man’s power over the things he owns is, in principle, unlimited. The owner is a sovereign.
But the sociologist has to distinguish between various types of property. The man who owns a house in which he lives, furniture which he uses, clothes which he wears, food which he eats, an automobile which he drives, has no other power than the direct possession of the things he owns. He does not by virtue of his ownership control other men’s lives. Houses, food, clothes, and automobiles are not institutions, are not intended to endure. They disappear or become valueless as they are consumed or used.
There is, however, a second type of property which is an institution, because it is an enduring and authoritarian organization for the perpetuation and reproduction of society: property of the means of production. In our language, domination over means of consumption and means of production is called by the same name: ‘property’; the term has thus become the legal mask behind which the owner of the means of production exercises power over other men. The term property (and ownership) never indicates what kind of object and what kind of power lies behind it, whether it is restricted to control over things or whether it also gives control over the fate of men. Property in the means of production gives power: power over workers, power over the consumers, power over the state. Property in the means of production is enduring, it aids in the continuous reproduction of society, it is the primary institution of modern society.
According to liberal ideas, if society is continuously to reproduce itself, there must be a free market. The prime requisites of the free market are free entrepreneurs, freedom of contract, and freedom of trade. The owner must be able to sell and to purchase, to lend and to borrow, to hire and to dismiss. Freedom of contract is, therefore, a supplementary or auxiliary guarantee of private property. It makes it possible for the owner of the means of production to produce and distribute. A competitive society must also be based on freedom of trade, the right to carry on one’s business without interference and to establish a competing business. Freedom of trade is therefore another supplementary or auxiliary guarantee of property during the era of free competition. It, too, aids in the reproduction of society. In the process of competition, unfit competitors are thrown out, new establishments arise. Disturbances in equilibrium eliminate entrepreneurs who are not sufficiently rational in the conduct of their business; higher profits in one branch attract capital from other branches, thereby preserving the dynamic quality of a competitive society. Freedom of trade and freedom of contract are thus integral elements in a competitive society.
Hence property is surrounded by supplementary and auxiliary guarantees and by supplementary and auxiliary institutions, which make the operation of this major institution possible. They are at the service of the major institution, property, and are, in consequence, changed when the institution changes its function. Thus they are not merely juristic categories, as they are conceived to be today. The natural lawyers of the seventeenth century and the classical economists of the eighteenth century clearly realized that freedom of contract and freedom of trade are not simply legal categories but exercise specific social functions. Present-day apologists of economic liberalism maintain that freedom of contract implies the right to establish industrial combinations, to erect cartels, concerns, and trusts. They believe that freedom of trade exists even when a branch of industry is so completely monopolized that freedom of trade becomes a mere formal right. They maintain that competition implies the right to eliminate competing businesses and to establish the prerogative of a monopolistic group.
This was not the view held by the classical economists. ‘One individual must never prefer himself so much even to any other individual as to hurt or injure that other in order to benefit himself, though the benefit of the one should be much greater than the hurt or injury of the other.’ ‘In the race for wealth and honor and preferment, each may run as hard as he can and strain every nerve and every muscle in order to outstrip all his competitors, but if he should justle or throw down any of them, the indulgence of the spectators is entirely at an end.’2 In these statements, Adam Smith introduces a distinction between two kinds of competition, one based on efficiency and the other based on the destruction of the competitor. He does not tolerate unfettered competition, since, in the theory of Adam Smith, competition is more than a right of the entrepreneur: it is the basic device for the continuous reproduction of society on an ever higher level. But this necessarily presupposes the absence of monopolies. Freedom of contract does not imply the right to establish industrial combinations; freedom of contract is the form of ‘free commodities.’ Where the commodities are not free, where they are monopolized, governmental interference must take place. ‘For a free commodity . . . there is no occasion for this [governmental interference], but it is necessary for bakers who may agree among themselves to make the quantity and prices what they please.’3
Yet the assumptions under which the classical economists are willing to guarantee freedom are still wider in character. They refer to the basic institution of society, to private property. Monopolies are repudiated as incompatible with the economic and social system, exceptions being allowed only for colonies, and even here only for a transitional period. As for the laws passed during the mercantilist period for protecting monopolies—‘like the laws of Draco, these laws may be said to be written in blood.’4 Even the joint stock corporation is rejected in principle and allowed only for four economic activities: banking, insurance, the building and navigation of canals, and the water supply of great cities.5 It is characteristic of the profound sociological insight of Adam Smith that he considers joint stock corporations legitimate only because in these activities the initiative of the entrepreneur has become unnecessary since the economic activity has been reduced to a mere routine.
The mechanism of the classical system is based, therefore, on the assumption of a large number of entrepreneurs of about equal strength, freely competing with each other on the basis of freedom of contract and freedom of trade, with the entrepreneur investing his capital and his labor for the purpose of his economic ends, and bearing the economic risks involved.
In this stage of society, freedom of contract was indeed the means by which society was held together. The contract was then the form through which the owner exercised his liberty and it was at the same time the means of ending the isolation in which each owner finds himself. ‘To bring about that I may own property, not only by means of a thing and my own subjective will but by means of another will and thereby a common will—this constitutes the sphere of contract.’6 In Hegel’s words, therefore, contract is the form in which society recognizes property and by which the property owners constitute society.
It is characteristic of the later development of capitalism that it completely divorced the juristic categories of freedom of contract and freedom of trade from the socio-economic background and thereby made the juristic categories absolute. Freedom of contract, the means by which free competition was secured, became the device by which it has been destroyed. Legal theory and practice, even more so in Europe than in the United States, separated the legal notion ‘freedom of trade’ from the socio-economic requirements. Freedom of contract became the means of and the justification for the formation of industrial combinations, announcing the end of free competition. In the same way, freedom of trade degenerated into a mechanism for maintaining economic privileges and prerogatives. Its existence was asserted even in those branches of industry in which, because of the immense capital investment in one plant, no outsider could hope to establish a competing business, since he could not put up the necessary capital. Freedom of trade was perverted into a slogan for the defense of economic prerogatives and against state intervention.
This is one side of the development, but there is a second which is perhaps still more characteristic. Freedom of contract, although long disputed, implies the right to form trade unions and to oppose the power of the monopolist by the collective power of labor. Freedom of trade also implies the right of any entrepreneur to leave a combination and to re-establish his economic freedom, thereby endangering monopolistic possessions. Although it has lost much of its actual content, it still allows the establishment of competing business, once again endangering monopolistic privileges. These rights assume an especially dangerous form of monopolistic privileges in periods of recession and depression. The more perfect and rigid the structure of the economy becomes, the more sensitive it is to cyclical changes. A severe depression will inevitably shatter monopolistic positions. Cartels will be dissolved, outsiders will remain aloof, labor unions will fight off cuts in wages, protected by the sanctity of contracts. In such periods, the free contract, the freedom to keep aloof from the monopolists, turns into a major weapon against them.
Moreover, the new technology requires enormous investments, which involve risks and may give but uncertain returns.* Only rich and powerful corporations will be able to make such investments, and their willingness to do so will depend upon what protection they receive—against cut-throat competition and the chiseler, even against competition as such. They may—and do—even demand specific guarantees from the state, in the form of guarantees of profit or turnover, of permission to write off investments in a short time, even in the form of outright subsidies. Outsiders, new competitors, labor unions—all these manifestations of freedom of trade and contract are then a nuisance. They must be destroyed.
For both sides, therefore—for the large masses and the small businessman on the one hand and the monopolistic powers on the other-state intervention in economic life becomes the major problem. The large masses and the small businessman will call in the state machinery for their protection. They will demand interference in the freedom of contract and freedom of trade in order to halt monopolization or even to dissolve existing industrial combines. By that demand they are merely drawing the consequences of the views of the classical economists. But in this situation monopolists will demand abrogation of freedom of contract and freedom of trade. They will insist that the right of industrial enterprises to leave cartels or to stay aloof from them means ruin for the economic system. They will point out that the freedom of labor to organize increases the costs of production and thereby the price of commodities. They will therefore demand complete abrogation of economic liberty.
In the period of monopolization, the new auxiliary guarantee of property is no longer the contract but the administrative act, the form in which the state interferes. But because that is so, it is the form and the content of the interventionist measure that now assumes supreme importance. Who is to interfere and on whose behalf becomes the most important question for modern society. The possession of the state machinery is thus the pivotal position around which everything else revolves. This is the only possible meaning of primacy of politics over economics. Shall the state crush monopolistic possessions, shall it restrict them for the sake of the masses, or shall interference be used to strengthen the monopolistic position, to aid in the complete incorporation of all business activities into the network of industrial organizations? Shall the state become the weapon by which the masses will be made completely subservient to the policies of the industrial empires within it?
The aims of the monopolistic powers could not be carried out in a system of political democracy, at least not in Germany. The Social Democratic party and the trade unions, though they had lost their aggressive militancy, were still powerful enough to defend their gains. Their defensive strength made it impossible to place the whole machinery of the state at the service of one particular group in society. Similarly, the National Socialist party could not possibly carry out its economic policy on a democratic basis. Its propaganda and program were ostensibly aimed at protecting the small and medium-scale entrepreneur, handicraftsman, and trader—that is, those very groups that have suffered most under the National Socialist regime. The complete subjugation of the state by the industrial rulers could only be carried out in a political organization in which there was no control from below, which lacked autonomous mass organizations and freedom of criticism. It was one of the functions of National Socialism to suppress and eliminate political and economic liberty by means of the new auxiliary guarantees of property, by the command, by the administrative act, thus forcing the whole economic activity of Germany into the network of industrial combinations run by the industrial magnates.
The German economy of today has two broad and striking characteristics. It is a monopolistic economy—and a command economy. It is a private capitalistic economy, regimented by the totalitarian state. We suggest as a name best to describe it, ‘Totalitarian Monopoly Capitalism.’
The first stage of the National Socialist cartel policy is a direct verification of our thesis. The cartel system, gravely endangered during the great depression, has been saved by National Socialism. Before analyzing National Socialist cartel policy, it will be helpful to make a few preliminary remarks about the depression policy of the Brüning, Papen, and Schleicher administrations.
In 1930, the government was faced with a dilemma. It could attack the existing cartel system, dissolve the cartels, and bring prices down to the world-market level, or it could maintain the existing system at the expense of the large masses of consumers. This dilemma could not be solved by the successive governments between 1930 and 1933 because none of them had a parliamentary majority. The cartel policy of the period 1930-33 was therefore characterized by the most contradictory features. It began with a presidental decree of 26 July 1930, which was directed against the system of bound or fixed prices. This decree gave the cabinet power to void existing cartel agreements or portions of them and to enjoin cartels from carrying out certain practices. This not only covered genuine cartel agreements but also, for the first time, vertical agreements, that is to say, individual contracts between producers, wholesalers, and retailers for the purpose of fixing and maintaining a price structure. Further, all agreements and devices with similar economic effects, even if they did not fall strictly within the range of the decree, were actually covered by it, and this included agreements between independent producers, or associations of entrepreneurs. Finally, the cabinet was empowered to lower or abolish tariffs in order to facilitate the dissolution of cartels or reductions in prices. The official press release that accompanied the decree stated: ‘It is generally agreed that the real adjustment of artificially fixed prices to the altered economic situation and to the decline in purchasing power as well as to the burden of such business circles as are engaged in unrestricted competition, is proceeding at too slow a pace and in too limited a degree.’ The release, besides, reproached the cartels for the dislocation in the relation between prices and services, and asserted that recovery was hindered by the cartel and price system. This emergency decree, taken at its face value, constitutes a considerable step toward an active economic policy. It freed the federal government from any control by the cartel tribunal, and the government could now act without filing a motion with the cartel tribunal. In this way the cartel policy could be completely co-ordinated with the general governmental economic policy. Yet the results of the decree were extraordinarily meager. Only one cartel was dissolved, the lignite cartel, and that because it had been attacked for many years and had been investigated by a special professorial commission which charged it with wholly unreasonable practices. The decisive power that the emergency decree gave to the federal government, to abolish or lower tariffs in order to break down cartel prices, was never utilized.
The failure of the emergency decree soon led the government to seek other ways of breaking the cartel price structure. On the basis of the presidential emergency act, the cabinet issued on 16 January 1931 a decree attacking the price structure of trade-marked articles. All price agreements on trade-marked articles were voided unless the prices were cut down by 10 per cent below the level of 1 July 1930. They were also voided if the price agreements prevented wholesalers and retailers from granting their customers such additional discounts as they were allowed to grant on 1 July 1930. Certain commodities were exempted from the decree, which also prohibited punitive measures against organizations, especially cooperatives, which granted their members certain rebates. Since this decree was restricted to trade-marked articles, it did not, of course, affect the price structure to any marked extent.
For this reason, on 8 December 1931 the president issued the fourth emergency decree, lowering all fixed prices to 10 per cent below their level on 30 June 1931; at the same time wages fixed by collective agreements were reduced proportionately. Brüning’s ominous deflationist policy was now under way. This fourth emergency decree also appointed a price commissioner for supervising the prices of those commodities and services that were important in daily needs. An executive decree of the same date defined the precise powers of the commissioner. If prices were too high, he could lower them. Violators could be punished by imprisonment and fines. The commissioner could close down a plant if the owner was unreliable. He could order that prices in plants and stores be posted or that price tags be affixed to commodities. In a very small field of commodities and services, the commissioner thus had full powers to do whatever he thought best. But this system, too, proved a complete failure. The trade associations refused to co-operate, although they did not make an open attack. An analysis of the rulings of the commissioner shows, for instance, that he set maximum fees for chimney sweeps, a concession to the house owners whose support the cabinet needed. He lowered the price of bottled and draught beer, a concession to the separationist Bavarians, for whom beer is food. He lowered the price of wall paper, mineral water, and sea food. He issued a large number of rulings ordering the posting of price laws and labels. But that is all he did.
With the one exception of reducing the price level by 10 per cent no effective measures were or could be taken by the three pre-Nazi semi-dictatorial governments of Brüning, von Papen, and von Schleicher. Their policy was that of a tightrope walker over a deep abyss.
The National Socialist regime came to power 30 January 1933 and at once initiated a cartel policy that satisfied all the requirements of the industrial combines. The first cartel decree was issued on 15 July 1933. Whereas the cartel emergency decree of 26 July 1930 was merely an emergency act, the statute of 15 July 1933 permanently changed the cartel decree of 1923. It eliminated the cartel tribunal from all actions that the government intended to take against cartels, restricting its sphere to disputes between members, and members and outsiders. German industry had always attacked section 9 of the cartel decree, the so-called preventive censorship on boycotts, and similar measures. The statute of 1933 changed section 9 by adding a new paragraph:
No unreasonable restriction on economic freedom [of the firm against whom the boycott is threatened] exists, if the business of the party concerned is managed by persons who do not possess the reliability necessary in business. Unreliability exists if, in the business of the party concerned, commodities and services . . . are offered or sold at prices which must be held to be economically unjustified in view of the interests of the business as well as those of the national economy or of the common welfare, and if a continuation of such price practices is to be expected.
The new statute thus allows cartels to destroy unreliable competitors by means of boycotts or similar measures. It aims at the exclusion of all unreliable businessmen from the economic system, and it finds unreliability wherever a competitor sells below justified prices, even if he is not bound by any price agreement. The price-cutter can thus be exterminated by private power with the sanction of the state. However, the extermination of the price-cutter is not provided for in a planned or direct manner. It is not the state that purifies the economic system. The death sentence is pronounced by a private organization, although the president of the cartel tribunal has to give his consent.
This purification is directed exclusively against the small retailer, wholesaler, and handicraftsman. It is a regular feature of the National Socialist policy of elimination of the inefficient businessman, that is, the businessman whose plant is not big enough to give him a decent living or materially to contribute toward preparedness and war. At this stage, we shall confine ourselves to drawing attention to the purification carried out by the cartels sanctioned by the state, and not by the state itself; two such examples must suffice. The cartel agreement in the German radio industry of August 1934 and February 19367 provides that only recognized wholesalers and retailers may be supplied with receiving sets and that no new traders may be admitted. In consequence, the number of wholesalers declined from about 800-900 in 1933 to 598 in 1939, while within the year 1938 the number of retailers declined from 31,800 to 27,590.8 Recognition is given only to a reliable trader, that is, one who is personally, economically, and financially reliable. To be financially reliable, a wholesaler must have a capital of at least 30,000 marks and he must provide this out of his own means, and may not, therefore, borrow it. The solution in the cigarette industry is just as extreme. According to the cartel charter of 31 December 1938,9 only retailers who have an annual average tobacco turnover valued at not less than 5,000 marks are entitled to be supplied directly by the manufacturer. In the case under review, the federal economic tribunal (which has taken the place of the cartel tribunal, now dissolved) denied that right to a grocer and innkeeper, although there was but one tobacco outlet in his village and although the application was supported by the local National Socialist leader. These two examples indicate clearly that the newly won organizational power of the cartel is utilized for ‘combing out’ the small businessman.
The position of the ‘unreliable businessman’ was further endangered by the weakening of the preventive censorship. An executive decree of 5 September 1934 declared that the filing of a motion with the cartel tribunal, whether by members or by outsiders, against intended boycotting measures no longer had suspensive effect. The organizational power of the cartel was, by the statute of 15 July 1933 enormously strengthened.
On the same date, a second cartel statute was enacted, introducing compulsory cartellization. The federal minister of economics was given the power to create compulsory cartels, to compel outsiders to attach themselves to existing cartels, to prohibit the erection of new enterprises and the extension of existing enterprises either in size or capacity, and to regulate the capacity of existing plants. No indemnification is allowed for damages arising out of such acts.
Compulsory cartellization is nothing new in German economic history. We mention only the coal and potash cartels and compulsory cartels for starch, matches, milk, beet sugar, inland navigation, and corn. But the previous compulsory cartels were always based on special statutes, and thereby subject to parliamentary debate and parliamentary control, whereas the statute of 15 July 1933 gives the minister of economics unlimited and arbitrary power of compulsory cartellization. It is not surprising that we find identical laws in Italy (June 1932) and in Japan (April 1931).
What are the aims of this decree? The official press release bears out our view that cartels are organized forms of waste. It says: ‘The severe depression hanging over the German economy has struck most severely at those branches of industry that have a productive capacity far in excess of present marketing possibilities. Intensified competition and the low price level resultant therefrom . . . have brought nearer the point at which the ruin of enterprises valuable to our national economy is threatened.’ In consequence, compulsory cartellization is necessary. The state must receive greater power in order to prevent the closing down of plants and the slashing of prices, to preserve such enterprises and such industries that are endangered by competition because they are overcapitalized and have excess capacity. Three different powers are thus vested in the minister of economics—the creation of new compulsory cartels, the attachment of outsiders to existing cartels, and the prohibition both of new establishments and of the extension of existing plant capacity. Private organizations for restricting capacity and for subordinating whole industries to the wishes and commands of the monopolistic rulers have thereby received official sanction. The National Socialist state thus brought to its logical conclusion a development initiated many decades ago, namely, that the organization of industry in cartels is a better and higher form of industrial organization. An intelligent National Socialist economist summed up: ‘The compulsory order, with the help of the state’s sovereignty, gives the cartel a power which it could not obtain on a voluntary basis.’10
The compulsory-cartellization decree is again primarily directed against the small and medium-scale businessmen, who are often reluctant voluntarily to join the cartel and thus are now completely subordinated to the demands of the powerful concerns. Resistance to cartellization also arises out of the antagonism between pure and mixed plants, that is, between enterprises producing but a single type of commodity and vertical concerns turning out the whole range of raw materials, production goods, and consumer commodities. It is again against the independent businessman that the new power of the state is applied. This is a direct contravention of the official cartel ideology, which considers cartels as organizations for protecting small and medium-scale businessmen.
A National Socialist investigation into the application of the compulsory cartellization decree up to 1937 confirms our point of view.10 There are dozens, nay, hundreds of such decrees prohibiting the establishment of new plants or the extension of existing ones or compulsorily creating cartels. In the cement industry, for instance, the old dream of the cement magnates has finally come true. For years, the cement cartels fought bitter and expensive fights against outsiders, who, attracted by the high profits that the cartel structure made possible, established new mills or merely threatened to do so, which they could easily do since the raw material is plentiful and the capital requirement low. Millions had to be sacrificed by the cartels to buy off such actual or would-be competitors. On 12 December 1940,11 the four regional cement cartels were compulsorily joined to a German cement union covering the whole territory and comprising every manufacturer. The paper industry was protected by a decree prohibiting the creation of new or the expansion of existing plants.12 The printing industry, which has suffered severely since Dr. Goebbels monopolized printing, was protected by a compulsory cartellization, thus prohibiting outsiders from underbidding.13 In the course of the purification of the retail and wholesale business, which we shall discuss later, the order of 15 January 1940 prohibited with but a few exceptions the establishment or the taking over of commercial enterprises, and made such acts dependent upon previous consent.14 The life of all iron cartels has been compulsorily extended. There are innumerable restrictions of this kind in almost every branch of trade and industry, duly reported by the Kartell-Rundschau.
We see, then, that the statute for compulsory cartellization maintains and solidifies the existing organizational patterns. In the first stage of National Socialist economic policy, the object was to secure the profits of the industrial combines even with the reduced volume of production. In this respect, therefore, National Socialist policy is not different from that of the pre-Hitler crisis cabinets. It merely carries their policies to a radical conclusion.
With the enactment of the Four Year Plan on 18 October 1936, the economic policy of National Socialism changed, now aiming at full employment and the utilization of all resources for preparedness. The place of the cartels in the preparedness and in the war economy has, consequently, also changed. The Four Year Plan decree is very brief and does not give any concrete indication of the course of the cartel policy. It runs:
The realization of the Four Year Plan, which I promulgated at the party conference for honor, requires a unified direction of all the forces of the German people and a rigid concentration of all the competences of party and state.
I entrust the carrying out of the Four Year Plan to Prime Minister Colonel-General Göring.
Prime Minister Colonel-General Göring will issue the measures necessary for the performance of the task assigned to him, and to that extent he has the right to issue executive decrees and general administrative regulations. He is entitled to hear and to give orders to all authorities, including the supreme federal authorities, to all offices of the party, to its organs and affiliated organizations.
The aim of the Four Year Plan is necessarily in contradiction to the traditional character of the cartels. For the essence of the cartel economy, the very reason for compulsory cartellization, is the restriction of productive capacity. For this reason, cartel organization was rejected by many leading German industrialists. Dr. Schacht, for instance, stated as early as 1903 that ‘cartel means stagnation. Trust means progress and production. Cartels are nothing but mutual associations for the assurance of profit.’15 Schacht conceived cartels to be organs of a declining economy and incompatible with an expanding economic system. The goal of the Four Year Plan on the contrary is increase in output and productive capacity and the full rationalization of German industry.
This very antagonism between the official aim of the economic policy and the traditional policy of the cartels found expression time and again in outbursts by National Socialist leaders. At a meeting of the federal peasant organization on 27 November 1938, Secretary of State for Agriculture Backe expressed a preference for vertical forms of organization, in other words for full trustification. Only such forms, he said, could solve Germany’s economic problems.16 An even more significant statement was made by Dr. Rudolf Brinkmann, secretary of state in the ministry of economics, on 21 October 1938.17 His programmatic speech viewed the whole economic policy, the relation between the state and the economy, with unprecedented clarity. Brinkmann began from the assertion common to all liberal theory, that the state and the economy are two different systems with two different spheres of influence, two different tasks, and two different organizations. The economic policy of Germany was not that of mercantilism, although he admitted a similarity in the methods applied and in the extent of governmental activity in the economic sphere. National Socialism, Brinkmann continued, believes in the free personality working within the framework of an order that is not and must not be bureaucratic. However, he admitted that the state was forced to create ‘a frightening abundance of administrative agencies.’ But cartels, in his view, were equally subject to that evil. ‘The more the genuine National Socialist economic spirit gains the upper hand—and it will be seen that it does get the upper hand—the more readiness there will be for free submission . . . to genuine economic necessities and many bureaucratic agencies will be replaced by self responsibility of the economy [italicized in the original]. True socialism, it must be stated, is a fight against arbitrariness and for true efficiency.’ The profit motive is still strong and decisive. Free initiative, in Brinkmann’s view, is bound up with the existence of small and middle businessmen. But he is forced to admit that small and medium-scale business is in a state of decline. Powerful private organizations continue to exist and to use the state sovereignty to solidify their powers. Monopolistic organizations dictating prices actually live on subsidies paid out of the pocket of the mass of the people.
From that point Brinkmann proceeds to a severe indictment of the cartel system. The stabilization of cartel prices leads, he believes, to a much greater sensitivity of free prices. It then becomes impossible to secure a sound relation between bound and free prices. High cartel prices do not contribute to the furtherance of rationalization. Quota cartels especially, by rigidly fixing the output of cartel members, compel their most rationalized members to work on unrationalized lines. Worst of all, in his view, is the fact that in a period of full employment, the cartel system prevents the automatic and complete reduction of the costs of production, hinders a higher standard of life for the mass of the people, and prevents the rise of a new generation of entrepreneurs. If the cartel system continues to fail, the state will have to resort to sterner measures. It will not nationalize industry, because National Socialism believes in a ‘spiritual’ and not in a ‘materialistic’ nationalization of the economy. That is why the state has retransferred to private corporations its holdings in private banks and in United Steel Trust. But the state must assume additional responsibility if the drive for high productivity and for the full utilization of all available resources is not to be hampered by the cartel system.
Cartels have indeed become the organs for attaining full employment with the collaboration and under the pressure of the state. They have become so because now more than ever before they are simply the mask hiding the power of the industrial empires, which have thereby secured control of the political structure of business.
We have already mentioned that the corporative organization of business was stopped because the cartels used the new ideology for exterminating outsiders and extending their net over whole branches of industry and trade. Some National Socialist commentators have expressed their hatred of the ‘process of degeneration and falsification caused by the corruption of the state by the cartels’18 Though the corporative organization has been stopped, the delivery of the political organs to the cartels still goes on. One point of supreme significance has to be remembered in discussing the relation between business and its political organization. In the cartel organizations, in the trusts, in the combines, and in the joint stock corporations, the leadership principle does not prevail. In all these organizations, the majority decides. But in the cartels the majority is not a majority of the members, but one of quotas, either of production or of sales quotas. The bigger the quota, the bigger the voting power.* By logical necessity, therefore, cartels are dominated by the biggest members. It is they who use the semi-democratic form of the cartels for seizing control of the political organization of business.
This situation has often been criticized. In fact, no facet of the economic organization has received so much attention as the power that the cartels exercise over public, political, estate, corporate, self-governing or autonomous bodies of business. ‘It is true that in the trade associations [groups] the known identity of the personnel of trade associations and cartels has played an exceptionally important role and has, in practice, had the result that the influence and power of the public organizations which should not regulate the market, has been utilized to strengthen the private power of the cartels’—so writes the Frankfurter Zeitung.19 One of the best observers of structural changes in the National Socialist economy comes to the conclusion:
There appears to be a union between trade associations and cartels, which implies that the organization in its lower and therefore in its decisive stage is bound from the very beginning to the furtherance of existing cartels. The present state has seriously weakened the position of the outsiders, since the leader of the trade association thus has authority as the representative of a compulsory organization and so contributes to the strengthening and domination of the cartel. Cartels have sometimes been directly organized by the groups [electrical industry and automobile trade] in order to be able to carry out cartellization measures. This procedure seems to have begun particularly in various sections of trade which were not previously cartellized.20
Time and again has the complaint been received that the cartels dominate the groups and not vice versa.
The groups have obtained a number of rights over the cartels—and that constitutes primarily what the Germans understand by ‘ordering of the market.’ The groups are entitled to obtain information from the cartels, to examine their prices, quotas, and sales conditions, and to veto all cartel decisions that are contrary to the economic principles evolved by the groups or by the federal government.21
But the distinction between the regulation and the ordering of the market becomes less and less tenable since the groups ‘may almost daily’22 enter into marketing activities with the consent of the minister of economics, and are, besides, vitally concerned with questions of foreign trade, which certainly comes within the scope of market regulation.
So the groups have, indeed, become supervisory organs of the cartels, but at the same time some have also turned into cartels: it is therefore almost impossible to state where the task of the one begins and the other ends. One fact, however, remains decisive: it is still the cartel which, through interlocking personnel, rules the group.
As a result of this development, the federal minister of economics found himself compelled to issue a ruling demanding ‘as far as possible’ a separation of the functions of group and cartel. The statute of 27 February 1934 forbade the groups to engage in marketing activities, and the ruling of 2 July 1936 insisted that the cartels should avoid confusion with the groups. The famous reform decree of 12 November 1936 insisted that the offices of group and cartel leaders and managers should not remain in the same hands, in order ‘to secure their impartiality.’ The minister ordered the national economic chamber to report to him up till 1 April 1937 how far there was still the same personnel occupying the leading positions in the groups and cartels, and whether this identity of personnel was necessary. It is characteristic that nothing further has been heard of the reports of the federal economic chamber. The minister’s ruling adds that the groups, ‘built upon compulsory membership and the leadership principle, with their general economic tasks, stand above the marketing organizations and not beside them. I therefore intend to enlist the aid of the organizations of industry for supervising the marketing organization, which, up to the present, has been carried out by myself. This applies to the groups and chambers. The self-government of industry shall feel itself responsible for seeing that the marketing organizations, in all their measures, act in accordance with the economic policy of the federal government.’23 Groups and chambers have indeed increasingly become supervisory agents of the state but their control by the cartels and trusts has not been lessened—on the contrary, it has been strengthened. The iron law of capitalistic concentration and the requirements of war have been far more powerful than the pious hopes of the minister of economics. For it is during the war itself that the intertwining of cartel and political authority has become more intensified and widespread than ever before. We have already discussed the composition and tasks of the distributive bodies that allocate raw materials and semifinished products to consumers.* Although the distributive agencies are juristically organs of public law and agents of the Reichsstellen, they are either legally or factually identical with the cartels. The wish uttered by the minister of economics and by many well-meaning critics was incapable of fulfilment in the face of the cartel system. Today the most important politico-economic activity in Germany—the allocation of raw materials—is entrusted to private organizations run by powerful monopolists.
This is not all. German industry has sought to strengthen the organizational ties between the cartels and the groups. Two examples will indicate the trend. One of the most recent and comprehensive cartels is the German salt union.24 The statement announcing its establishment says that the charter of the cartel introduces the leadership principle, adding however that the leader is elected and not appointed from above. The charter provides that the leader of the branch group covering the salt industry would automatically become the deputy leader of the cartel. In this case the close relation between cartel and group is accepted even in the charter of the cartel. Only one case known to the present writer shows an apparently genuine subordination of the cartels to the groups: the glass industry, which, owing to the incorporation of the most progressive European glass works of the Sudetenland, was faced with complete disruption. In order to bring order into the chaos, the federal deputy for the glass industry organized a glass trustee-corporation, which assumed leadership over all cartels and over the whole glass industry.25
It is not surprising that, owing to the subordination of the political structure of business to the cartels, the cartels have received a new name. They are alleged to represent a completely new type of organization.26
The cartellization of German business is almost complete. Cartels are fully recognized. They exercise public political functions but are nevertheless exempt from the political leadership principle and remain under the control of their own members. Statistics of the numerical growth of the cartels mean nothing. Between the outbreak of the present war and December 1940, twenty new cartels were set up and between twenty and thirty dissolved.27 These data are meaningless because they do not take into account the rationalization of the cartel system, the incorporation of smaller into larger cartels, the increase in size due to the incorporation of the Sudetenland, Austria, and the Protectorate. Though the number of cartels has not greatly increased, the range of activity of these cartels has become complete.
Who in turn rules the cartels? Are the cartels democratic organizations of approximately equally powerful businessmen? Definitely not. They are much more the democratic mask that the industrial magnates use to disguise their autocratic powers. Behind the powerful cartel movement there is a still more powerful trend of centralization, which has reached a scale never dreamed of before. The cartel structure is not democratic but autocratic. Cartel decisions are reached by a majority of quotas and not of votes. In the Upper Silesian coal syndicate, for instance,28 100,000 tons of production give one vote. The production in 1928 amounted to 26,000,000 tons, shared by four works, each producing between four and five million tons, by five works each producing between one and two millions, and by one work producing 200,000 tons. Of the 260 votes therefore, the four big works alone disposed of about 180 votes. This is not at all an extreme instance.29
The process of monopolization has received an enormous stimulus from a large number of factors. The study of structural changes seems to indicate that there is scarcely any economic measure, of whatever nature, which does not ultimately conduce to concentration and centralization.
In particular, the following factors are vital in that gigantic process: Aryanization; Germanization; technological changes; the weeding out of small and medium-scale businessmen; and the corporate structure. Apart from these factors, each of which will be discussed, there is inherent in the bureaucratic structure of state and of business and in the scarcity of numerous materials a trend toward the encouragement of the big and destruction of the small. The state bureaucracies prefer dealing with one big business or with a few big businesses instead of with hundreds of small and medium businesses, which have many divergent interests. If a system of priorities has to be established, if raw materials have to be allocated, the big businesses will inevitably fare better than the small enterprises, and the ‘mixed combines,’ which have their own raw-material basis, better than the ‘pure’ ones. It is obviously more important to secure the supply of a big corporation employing thousands of workers than to keep a smaller factory running.
This tendency will be more marked the closer the relation between business and the state, provided that, as in the case of Germany, big business runs the cartels and the groups.
The role of Aryanization has already been mentioned.* National Socialist observers admit that the acquisition of Jewish property played a considerable role in the expansion of the industrial combines, and that, in the textile industry, for instance, it even gave rise to new industrial combinations.30 The beneficiaries of Jewish industries have, without exception, been the most influential industrialists: Otto Wolff,31 Friedrich Flick,32 and Mannesmann.33 The profits that thus accrued to the new owners apparently stank to heaven. A special decree had to be issued for the taxation of profits resulting from Aryanization. But this decree does not seem to have gone far enough. A special ruling of the minister of finance, on 6 February 1941, demanded the retroactive taxation of ‘special cases of an especially aggravating kind.’34 Specific cases in which the profits are considered excessive are thus to be reopened by the tax authorities, but the ruling explicitly prohibited any reopening of the general problem of profits derived from Aryanization.
Still more important is the increase in the power of the industrial combines which accrues by including within their orbit all business in the conquered territories. A full survey would almost certainly bore the reader. Some of the techniques have already been mentioned before, the most important being the use of the cartel. The process is by no means complete. Only the surface of business in the conquered territories has as yet been touched. It is not only the Hermann Göring works which benefit from conquest, but also the industrial magnates. Two examples will show the extent to which private property secures the benefits of conquest and the domination of German capital throughout the realm of Europe. One is the establishment of the ‘Continental Oil Corporation’ in Berlin,35 which has been called ‘a model of a future organization of an enterprise.’ The corporation is a holding corporation for all those oil interests outside German territory proper that Germany has already acquired or may acquire in the future. The official report remarks that the acquisition of the Rumanian oil holdings from French and Belgian holders is soon to be expected. The promoters36 are the most important German banks and oil corporations. Two of them are state-owned corporations. The initial capital of the corporation is 80,000,000 marks, and this may be increased to 120,000,000 marks; 50,000,000 marks are divided in personal shares carrying plurality votes, 30,000,000 in bearer shares to be sold to the public. The personal shares, which are to be kept by the promoters, grant 50 times more voting power than the bearer shares, so that the domination of the promoters over the corporation cannot be broken even if the capital were increased to an inconceivable extent. The supervisory council of this new corporation reads like a list of the new German élite. Its members are representatives of the party, the Secretaries of State Keppler and Neumann; of the military bureaucracy, Generals Thomas and von Heemskerk; representatives of the civil service, of the natural oil and synthetic oil producers, of the coal and lignite industry, of the banks, and of the groups. It is headed by Minister of Economics Walther Funk. The supervisory council is therefore an amalgamation of industrial leaders, high party leaders, representatives of the armed forces and of the ministerial bureaucracy. The task of the new corporation is ‘to control the production, utilization, and transportation of [Germany’s] oil needs’ (Frankfurter Zeitung). The National Socialist commentators are full of praise for this new body, especially for the collaboration between the government and business. They prefer it to the old form of a mixed corporation, in which public and private capital jointly entered into specific economic undertakings. They believe that by giving the government influence in the supervisory council, this organization can be made better to serve the interests of Germany than through the capitalistic interest of the government. They forget that this corporation, which, according to its charter, does not and will not drill oil wells in Germany proper and does not and will not produce synthetic gasoline in Germany so as not to compete with the German oil producers, is solely concerned with the exploitation of oil in the conquered territories, acquired by the labor of the German workers and the blood of the German people. The profits accrue solely to this giant corporation in which plurality votes are an absolute guarantee of the power of the capitalistic promoters.
As characteristic is the distribution of the French heavy industry in Lorraine. The five blocks: Heckingen, Rombach, Carlshütte, Kneuttingen and Hagendingen, have been equitably distributed among five German combines: Stumm, Flick, Röchling, Klöckner, and the Göring Works. The five industrialists are, it is true, at present merely trustees. But the official announcement adds that the trustees will have the opportunity to acquire their trusts after the establishment of peace.37
Germanization and Aryanization opened up new fields for the centralizing trends of German business, but they are not the real source. Monopolization is primarily the result of profound technological changes made since about 1930.38 We may go so far as to maintain that the technological changes during the past ten years have been of such an extent and profundity that they deserve the name industrial revolution. The basis of this industrial revolution is the new chemical processes.
In German industry, mixed plants, that is, a combination of iron and coal, mining, metallurgy, and engineering, were always decisive.39 Coal was and is the basis of industrial production, and each steel mill, each big machine-tool construction plant, fought for a coal basis. Very soon the new methods of coal processing made the acquisition of a coal basis a vital concern of the chemical industry.40 The heavy industries were overcapitalized—we have continually stressed this fact. Their expansion, even their further existence, was conditioned by state help and by the introduction of new technological processes. State help was readily given between 1930 and 1933. We have shown that the maintenance of the cartel and tariff structure during that period and directly afterward by subsidy amounted to saving the industrial structure. The new technology provided the second outlet for progress. But it did not start in the state bureaucracy; it originated within the very mechanism of capitalistic production, refuting the belief of those who hold that capitalism has lost its dynamism. While, however, the new technology originated within that mechanism, it could not be utilized within it. The initial costs involved are tremendous. The financial risks that an enterprise shoulders when, for instance, it embarks upon the construction of a new coal processing plant are considerable. The investment may be completely lost, or no returns may be expected for years. It thus follows that only rich enterprises, preferably those that engage in diverse economic activities, can risk such new investments and engage in new and untried processes. But once a process has started in one combine, others are compelled to follow suit. One instance may clarify the situation. The leading potash combine, Wintershall, a powerful and rich enterprise, embarked upon the erection of a coal hydrogenation plant at a time when the risks involved were extremely heavy. It could afford to do so, because its activities were extremely diversified (potash, coal, oil, lignite, and munitions). The Thyssen combine, however, primarily a metallurgic concern with a coal basis, was near financial collapse when compelled to start a hydrogenation plant of its own (Gelsenberg—Benzin). Its financial position became so difficult that it had to surrender its Austrian holdings to the Hermann Göring works, thereby preparing for the expropriation of all Thyssen’s holdings after his flight from Germany. This example may make clear why, on the basis of so monopolized an economic system, huge new investments often cannot be made without state assistance. For that reason state assistance was demanded by German industry and that demand was fulfilled by the National Socialist state. True, the state gave it with reluctance: ‘The endless claim for Reich guarantees is a downright testimonium paupertatis to private initiative and to private business’s willingness to bear responsibilities. There surely remain today and will remain in the future tasks that may not be undertaken or carried out but as collective tasks. In the fulfilment of such tasks, private business must be given a big share. Besides this, however, a vast domain in which private business and the private businessman can exert their efforts will not only be preserved, but in addition found anew to the very largest extent after the war.’ That is the view of Minister of Economics Walther Funk.41
The new methods of processing coal, wood, straw, nitrogen, oil, and metals, are the central features of the new technology and they all require considerable investments. Moreover, the results of the new technology are often unpredictable. Chemical synthesis is the transformation of the structure of high molecular combinations, in order to produce new substances in which the molecules, though of an identical atomic composition, comprehend differently constructed groups (polymers), that is, different chemical bodies with different chemical properties to be used for different manufacturing purposes. Polymerization is carried out under a pressure of hundreds of atmospheres, by an extremely costly machinery, and with uncertain results. The financial expenditure involved leads in the first place to a complete concentration of all chemical industries all over the world. As a second consequence, the combines entering those new fields claim and receive governmental support, thereby strengthening and enlarging their power.
But this very process also increases the power of all those combines that control coal. Coal is used for gasoline and oil production,42 for the manufacturing of synthetic rubber (Buna),43 and for the production of plastics, and it is also indispensable in making any other synthetic material. Coal, once an abundant commodity, has become a scarcity.
The new chemical processes have allowed the motorization of the transport system and have thereby provided the requisites of the lightning war. They have necessitated an enormous expansion of the machine-tool industry,44 and at the same time have in turn compelled the introduction of considerable further technological changes, namely the replacement of heavy steel by new light metals. The result is, to take one example, that the weight of a Diesel engine of 50 h.p. could be reduced from 175 kilograms per h.p. to a mere 60 kilograms per h.p.45
There are, besides, many technological changes that, although not new, have now assumed considerable proportions. We have already mentioned the glass industry, which, in the judgment of a very careful observer,46 is undergoing a second industrial revolution. The entire textile industry has been revolutionized. Rayon and cellulose wool have taken another great share. Filaments from straw and potato stalks are now beginning to be produced in considerable quantities.47 All this, in turn, has made enormous demands upon the electrical, iron, steel, and machine industries which have again expanded.48 This demand for more and more iron led to the establishment of the Hermann Göring works, with which we shall deal later.* But private industry followed and also turned to the exploitation of low-grade ores, thereby once more changing the metallurgical processes.
We cannot hope to present an adequate picture of the technological changes and the technological progress achieved. Capitalism has certainly not lost its dynamism. The era of inventions is not at an end. It is true that inventions are no longer, let us say, individualistic, and that the inventor is no longer as a rule a single person but a team of workers who are set to work for the very purpose of inventing. Nor does a single invention any longer change the technological pattern; it is more often a whole series of interconnected inventions that revolutionizes technology. The technological changes undoubtedly originate in capitalistic competition, in the necessity for each competitor perpetually to expand, lest he stagnate or die. Capitalistic economy, therefore, is not a mere routine, not a mere administrative technique; its original drives are still operating.
But the decisive difference lies in the fact that the very process of monopolization and the costliness and uncertainty of technological changes have made the help of the state indispensable. It is certainly true that the state could, if it wanted, utilize this situation for nationalizing at least the new industries. But National Socialism has not done that. On the contrary, the financial help given for the establishment of new enterprises redounded primarily to the benefit of the long-established monopolists.
State financial help has taken various forms, such as guarantees of profit or turnover, or permission to write off investments in a short period. These devices are not very different from the methods that every modern capitalistic system uses in order to overcome the reluctance of businessmen to undertake unknown risks. But Germany has also developed new methods of financing the new technological processes, which led to so-called ‘community financing.’ Its essence is the compulsion of the small and middle entrepreneur to finance the expansion of the big one.
The new technology has thus led to the creation of new types of enterprise, the most striking example of which is the corporate structure of the new cellulose wool industry. Originally only two such plants existed, one being run by the dye trust, the other by the Glanzstoff Bemberg rayon combine. New works appeared imperative, and their regional distribution was necessary since the consumers of cellulose wool are about equally distributed within the federal territory. The capital for the establishment of the new works was taken up under more or less pressure by the local textile factories. The state then appointed experts for the management of the new corporations and sometimes secured for itself a small share of the initial capital. The shares, taken up with reluctance by the promoters, soon turned into a boon, since they carried with them a quota for cellulose wool and thus secured raw material for the textile manufacturers. Because many small textile manufacturers bought the shares, they were fairly equally distributed, and the board of directors very soon became the real power,* the more so since the acquisition of new shares was dependent upon the consent of the minister of economics, who used his authority to strengthen the hold of the combines. In mid-1939, there were 11 cellulose wool plants. Very soon afterwards, they merged first into cartels, then into combines, and within a year after the foundation only four such combines remained. Besides the dye trust and the Glanzstoff Bemberg combine, there was the Phrix group, dominated by the textile combine of Christian Dierich, while the fourth group is still dominated by the small and medium-size textile factories.
The financing of the lignite hydrogenation industry is even more striking. The capital requirements are immense and only the wealthy dye trust could take the risk of constructing such a plant (Leuna). By a decree of 28 September 1934, therefore, a ‘compulsory community of the lignite industry’ was created, composed of all lignite mines with a yearly production of 400,000 tons or more. The community then set up a joint stock corporation for the production of synthetic gasoline from lignite, the so-called Braun-kohlen-Benzin (Brabag). Ten enterprises were attached, in contrast to the organization of the cellulose wool industry, in which hundreds of factories are co-ordinated. The big ten control the whole production of synthetic gasoline from lignite. With the exception of two state-owned works, only the powerful combines are represented—Wintershall, Count Schaffgotsch, Flick, the steel trusts, and the dye trust. The supervisory body of the Brabag also reads like a list of the new élite. The party hierarch, Secretary of State Keppler, is surrounded by delegates of the combines, who are often leaders of their economic groups, by bankers, such as Kurt von Schröder, the broker of the Papen and Hitler understanding of January 1933, and by ministerial bureaucrats—but only four members of the supervisory body are civil servants or delegates of the state.
The new technology and the new financing methods have undoubtedly accentuated the process of monopolization.
While the cartel system has already eliminated inefficient and unreliable businessmen,* legislative measures have opened a frontal attack on the inefficient handicraftsman and retailer. Two such decrees have been enacted, one for the ‘purification of retail trade,’ on 16 March 1939,49 the other ‘for the carrying out of the Four Year Plan in the sphere of handicrafts,’ on 22 February 1939.50 The aims of the decrees are twofold: to solidify the position of the healthy entrepreneur and to gain labor power. Inefficient retailers and handicraftsmen can be compulsorily liquidated without indemnification. For retailers, the economic group carries out the liquidation in conjunction with the local party leader, the local labor exchange, and the trustee of labor. Handicrafts are ‘purified’ by the chambers of handicrafts. The ‘purified’ retailer and handicraftsman become manual laborers, thus sinking from the level of independence to the lowest scale of the proletariat. At the handicrafts conference of 7 May 1938, Minister of Economics Funk reported that 90,448 out of 600,000 one-man plants had been closed in 1936 and 1937, and that this process was by no means at an end (Frankfurter Zeitung, 9 May 1938). In February 1939, Ministerial Councillor Dr. Münz mentioned a figure of 104,000 closed one-man workshops and also added that the trend would continue (Rheinisch-Westphälische Zeitung, 7 February 1939). These figures refer to the situation prior to the enactment of the purification decrees. Funk candidly stated that handicrafts had to bear the increase in the cost of production by a decrease in profits. The absolute number of handicrafts enterprises fell from 1,734,000 in 1934 to 1,471,00051 on 1 April 1939. Figures for the decline of the retail trade are difficult to gather. But the federal coal commissioner, appointed by Göring to raise the efficiency, has announced that the number of coal retailers (70,000) must be reduced by half in order to raise the profitability of the remaining members of the trade.52
This process is intensified by the price-control measures, which often shift burdens resulting from price cuts or price stabilization to the wholesale and retail trader by either cutting down or freezing the trade margin.53
The trend moved sharply upwards during the present war. Many plants in the consumers’ goods industries (textiles, leather, soap, chocolate, and so on) have been shut down. Since spring 1940, hundreds of thousands of workers employed in the consumers’ goods industries have been ‘combed out’ and transferred into producers’ goods industries and into the auxiliary army (organization Todt and labor service). In 1940 alone, 480,000 men were thus set free.54 Some of the closed plants receive community help on the basis of the decree of 19 February 1940, a financial assistance collected by and within the economic groups. Others have been allowed to continue as mere distributive agents. They had to give up production but are allowed to merchandise the products manufactured by the more efficient plants. The trend in the consumers’ goods industries, produced by rationing, is thus in accordance with that in the producers’ goods industries, namely the wiping out of small and medium-scale business.
This process is partly desirable, if it is carried out with sufficient safeguards. For the economic position of the enormously swollen distributive agencies and of small handicrafts has indeed become untenable and incurable. In his book on the social stratification of the German people, the German sociologist Theodor Geiger has distinguished three social types of handicraft and the retail trade: the capitalist, the middle type, and the proletaroid. And, on the basis of the industrial census of 1925, he found the following ratio between them:55
Handicrafts: 4.5—65.5—30.0
Retail Trade: 2.4—65.0—33.5.
According to these statistics, about one third of all retailers and handicraftsmen are economically proletarians, although they are still independent businessmen. This antagonism between economic reality and the demand for social prestige could not be and had not been solved under the Weimar Republic. National Socialism was compelled by the necessity of securing the consent of at least some sections of the middle classes to restore to them a sound economic position by destroying the smallest and most impoverished groups of the middle classes. However bitter may be the descent into the stratum of the proletariat and however brutally the whole process may have been carried out, any other way was unthinkable. But the profits accrued not only to the remaining sections of the middle classes, but also to big business, which, by freezing or even cutting trade margins for the trader, was able to shift some of the burdens resulting from the price policy to the weakest groups in society. This whole process is not yet ended. In fact there seems to be a bitter discussion regarding the future of the retail and wholesale trades, as may be seen from the passionate defense of the function of trade by the general manager of the national group that covers trade.56
The legal form in which the process of monopolization is carried out is the joint stock corporation.
The American scholars, Berle and Means,57 have shown in detail the techniques by which small amounts of capital are able to dominate large combines. These devices have been known and practiced in Germany ever since joint stock corporations played a major role. Even the form of the joint stock corporation is a departure from the principle of the free entrepreneur, and this was recognized by Adam Smith. The modern corporation, whether monopolistic or not, has already changed the function of property.58 By the very form of the joint stock corporation, the capital function is divorced from the administrative one and thereby creates the germ for the development of a managerial bureaucracy, destroying that very cornerstone of free competition, the free entrepreneur, who risks his capital and labor in order to achieve certain economic ends. However, this divorce need not be harmful so long as the capitalists, the stockholders, obtain control of the management—that is, so long as the corporations are democratic bodies. But that is not and cannot be the case. It was Walther Rathenau, who, in a little pamphlet entitled Vom Aktienwesen, drew attention to the fact that the democratic structure of the joint stock corporation inevitably gives way to an authoritarian one.59 Within the joint stock corporations the very same changes occur as in a political democracy. Just as the cabinet becomes independent of parliament, so the board of directors establishes its sovereignty over the stockholders. Preferential stocks, voting by proxy (where the power of attorney is already contained in the conditions of the banks in which the stockholder deposits his stock), the very size of the corporation, which makes it both impossible to convene meetings of thousands of stockholders and impossible for stockholders to attend, and a number of other devices have made the stockholder powerless. Just as in parliament the power of the individual deputy gives way to that of political parties bound by strict discipline, so the stockholders’ meeting is no longer a discussion between industrial capitalists, but a struggle between powerful monopolistic groups, which bargain with the management and support it when their own ends are attained.
The power of the management under the Weimar Republic was in many cases used for entirely selfish purposes, even sacrificing the well-being of the corporation proper and leading to enormous capital destruction. Only a hint can be given how the authoritarian power of the management was misused. The famous Schultheiss Brewery in Berlin was financially ruined by the chairman of its Vorstand (president), who, with the help of the banks, acquired the stock of his own corporation in order to facilitate a merger with an overcapitalized concern, a mixture of factories, mills, cement works, and machine plants. The ensuing loss of 70,000,000 marks had to be borne by the brewery, though the stockholders and even the members of the supervisory board knew nothing of the transaction. The famous insurance corporation of Frankfort o.M. was reduced to complete bankruptcy by its directors, who considered the corporation merely a pot from which to rob as much as possible in as short a time as possible. The famous wool concern (Nordwolle) was also ruined by the criminal activities of its presidents, costing more than 200,000,000 marks. The directorate of the North German Lloyd bought shares in its own corporation in conjunction with members of its supervisory council and thrust the ensuing loss squarely on the North German Lloyd when the shares fell on the stock exchange. The famous industrialist Otto Wolff sold the shares of his own corporation to another one that he controlled at a price far exceeding the value, earning a sum of 10,000,000 marks. The managers of a leading department store, Karstadt, speculated violently. These are just a few examples of the misuse for selfish purposes of the independence of the management from control.
This phenomenon has a deep political significance, too. For just in that period the National Socialist party began violent propaganda against corruption within the Social Democratic party, because some of its leaders were, or were asserted to be, connected with speculators like the Barmats, Kutisker, and so on. But while the criminal activities of the small fry received enormous attention in the German press and led to severe political reverberations, really big cases of the misuse of the corporate structure for the furtherance of the egoistic ends of the managers had practically no such political consequence. The anti-corruption campaign of the National Socialist party was solely and exclusively directed against Jewish and Social Democratic corruption.
The rule of the board, by which we understand the board of managing officers and the supervisory council, was sanctified by the theory of the ‘enterprise as such,’60 that is, by the permeation of individualistic legal theory with the institutionalist doctrine. This theory maintains that a corporation, if it is economically and socially powerful, is divorced from its shareholders and the managing board, and that it constitutes an institution the fate of which must not be identified with that of the persons owning and directing it. Rathenau, for instance, had made the point that a bank like the Deutsche Bank, because of its size and national importance, must not be allowed to go into voluntary liquidation, since public interest demanded its continued operation.
From this institutionalist* point of view, the right of the individual shareholder was a mere nuisance and in consequence the theory became one of identifying the enterprise with its board, which was thus freed from any control by the shareholders.61 The German courts slowly adopted this doctrine and the democratic ministry of justice, in its draft for a new company act, subscribed to the view that ‘the interests of the enterprise as such are as worthy of protection as the individual interests of the shareholders.’ It is worthwhile recalling the criticism by one of Germany’s outstanding lawyers of this draft and of its underlying institutionalist philosophy.
It is surprising to see how, in an age of democracy and sovereignty of the people, an oligarchification of company matters is aimed at, degrading the shareholders to a mere misera contribuens plebs. Even the outworn stock phrase of the organism of the company had to be used to glorify a fascist tyranny of the board, not to speak of minorities for the benefit of which otherwise—in Geneva and elsewhere—such well-meant speeches are nowadays made. These bureaucratic tendencies cannot be sufficiently strongly resisted. They originate from a totally wrong principle. As in the case with the state, so, too, the company does not serve its own purposes, but those of its members, and the gentlemen of the board are not masters, but servants. L’état, ce sont nous.62
By a decree of the president of the Reich, on 19 September 1931, the German company law was changed under the impact of the financial scandals we have just mentioned. But the decree did not break the power of the board. It merely demanded more publicity (in balance sheets, profit and loss accounts, and reports of the directors). It instituted compulsory auditing by certified accountants, made the acquisition of the company’s own shares more difficult, and allowed for the reduction of capital in an easier form.
The National Socialist company act of 1937 carries these principles still further. The middle-class ideology of National Socialism had frowned upon the joint stock corporation and its anonymous character. An act of 1934, therefore, allowed the conversion of joint stock corporations into partnerships or limited-liability companies in a more or less formless manner. The act of 1937 provides that the minimum capital of joint stock companies is 500,000 marks and that the nominal value of a share must be at least 1,000 marks. Exemptions are, however, admitted. The act further allows the dissolution of a company whose board ‘grossly violates the law or the principles of responsible business methods.’ The main feature of the new act, however, is the re-definition of the relation between board and shareholders. While the Academy for German Law desired the introduction of the leadership principle, however, not of an appointed, but of an elected leader, the statute itself does not go as far, but nevertheless strengthened the position of the board against ‘the mass of irresponsible shareholders who largely lack the necessary insight into the position of business.’ The shareholders have, in consequence, lost most of their rights. Normally now, the accounts are established by the supervisory council if it accepts them as they are prepared by the board of directors. The shareholders’ meetings are thus deprived of the right to accept or reject the yearly accounts unless the board of managers and the supervisory council submits them to the meeting, or unless the supervisory council rejects the proposal of the board of managers. This change, of course, merely sanctifies a de facto practice, since in reality the meetings of the shareholders had usually been a mere formality. Besides, the shareholders’ meeting is formally forbidden to decide questions of management. Plurality shares are admitted only with the permission of the federal minister of economics.
The National Socialist act thereby gives legal sanctions to a trend apparent in all modern corporations. It now lays the sacrificing of the rights of the shareholders to the very principle of company law.
Under National Socialism, the number of joint stock corporations declined, but the average capital invested in each corporation increased.63 There is no doubt, therefore, that the new corporation law and the law allowing the conversion of joint stock corporations into partnerships materially contributed to the process of monopolization.64 Shareholders are mere rentiers. Interlocking directorates, proxy voting, plurality votes, exchange of shares, pooling of profits, all these well-known devices have made possible the erection of a system of combines not surpassed in any country, not even the United States.
Are the monopolists merely managers, or are they only or also genuine private capitalists? The outstanding achievement in building up an industrial empire is that of Friedrich Flick, industrial condottiere who outranked every industrial competitor, above all, Fritz Thyssen. His career is meteoric. From the middle German steel industry, he soon reached into the United Steel Trust, into the North German steel industry (blast furnace work, Lübeck). He acquired a coal basis (Harpen and Essen), he got control of a considerable lignite basis (formerly Petschek), and he finally again entered into manufactory.65 This process started in 1936 and reached its height in 1937.
Perhaps still more surprising is the rise of the Quandt combine, though its size cannot be compared with the big ones. The Quandt family, originally small textile manufacturers, soon entered into machine construction (Accumulatoren Fabrik, Hagen), into armament and munitions, and from there into metallurgy (Dürener Metall), thence into electricity, transportation, building construction, lignite, and potash. In 1939 its general manager took over the management of parts of the Hermann Göring works.66 The combine is a family affair, as is the Flick combine. How this phenomenal rise can be explained we do not know. Perhaps the fact that the leader of the combine was Mrs. Goebbels’ first husband may help to explain it.
Rapidly rising to the fore is the Otto Wolff combine.* Wolff started in trade and then acquired minorities in the United Steel Trust and in the Mansfeld Copper combine. But he soon exchanged his minorities for acquisitions that he controlled exclusively, and rapidly built up a kingdom, if not an empire. From Jewish hands he acquired the steel mills of Thale. He then gained control of the Weser iron works and of the Bochum iron and steel mills. The Anschluss with Austria rounded off his kingdom, after he had already pushed into the Saar territory.67 Otto Wolff had already played a considerable role under the Weimar Republic, closely collaborating with the right wing of the Center party, playing the cultured gentleman and even writing a biographical novel about Ouvrard, Napoleon’s financial condottiere. His combine reached its height in 1937.
The Mannesmann combine is well known to all students of international relations. Under National Socialism it realized an old dream, its extension from a specialized to an all-embracing combine. It is the most distinguished beneficiary of Aryanization, but it went far beyond swallowing Jewish property. In 1935 its famous steel-pipe works acquired a rolling mill in the Saar. In 1936 it rounded off its holdings in the Kronprinz corporation. In 1938 it acquired further rolling mills.68 It is not by chance that its general manager, W. Zangen,* is also the leader of the national group industry.
The Count Ballestrem69 combine knew how to establish its absolute control in the Upper Silesian iron industry, pushing from there into lower Silesia and lower Austria. From the Prussian state it acquired the remaining capital of the Upper Silesian mill works. This expansion gave no rest to the other Upper Silesian, Count Von Schaffgotsch,69 whose combine rounded off its holdings in the Upper Silesian coal and mining industry, profiting heavily from Aryanization.
Perhaps the most striking phenomenon is the rise of the Winters-hall potash combine. It offers a convincing proof that the cartel system, by guaranteeing differential profits, gave rise to a combine that invested its savings in a large number of other branches. Even under the Weimar Republic the Wintershall combine accounted for about 50 per cent of all the potash produced in Germany. In 1936, it incorporated a competitor, the Burbach combine, and reached out into oil production, oil refining, coal and lignite mining,70 and then into the production of synthetic gasoline. The only remaining potash competitor, the Salzdethfurth combine, followed suit.71 It strengthened its position in potash, acquired the Otto Wolff holdings of copper shares, and finally entered into lignite mining, again profiting from Aryanization.
We cannot continue this story. We have not even mentioned the old combines, the Krupp, Haniel, Gutehoffnungshütte, Klöckner, nor have we mentioned the concentration in the textile, electrical, glass, cement, and ceramics industries. It is the same story repeatedly. It is not restricted to the production goods industry, but is equally true of consumption goods industries. In the cigarette industry, there is one combine, Reemstma, which had always supported National Socialism and had found financial support from the Weimar Republic, which had granted respites from the payment of cigarette taxes and had finally waived a considerable amount. This combine now produces 95 per cent of all cigarettes.72 The same process is also true of banking, where it has taken on tremendous dimensions. Private banks rapidly decreased.73 The big banks again expanded and soon entered industry, thus playing havoc with the National Socialist theory that creative capital should not be dominated by financial companies. According to an estimate of the German Business Cycle Institute,74 all raw and semi-manufactured goods produced within Germany and about half of all finished industrial goods were bound by monopoly or cartel agreements.
This monopolistic structure is not maintained solely by the general managers (Generaldirektoren), but just as much by capitalists.* Otto Wolff, Friedrich Flick, and Günther Quandt are not managers, but powerful capitalists. They are not rentiers who at the end of the year cut the dividend coupons of their stock certificates and cash their dividends. Nor are the managers themselves simply managers, that is, salaried employees. They have long ago assumed the role of capitalists proper, investing their savings in shares and often speculating with the funds of their own corporations, thereby strengthening their personal financial power within them. Moreover, the managerial positions are often as hereditary as those of the capitalists proper.
At this stage we need only show that markets and competition have by no means been abolished. The conflicts are reproduced on a higher level and the incentives of competition remain operative. The defeat of Thyssen is a major example. His economic decline was an accomplished fact long before his flight from Germany, which, in reality, may have been merely the consequence of his defeat by his competitors, Friedrich Flick and the Göring combine.
Competition is even intensified by the scarcity of raw materials, and the state itself is drawn into the struggle between the competing combines. Cartellization and monopolization are not the negation of competition, but only another form of it. Following some National Socialist economists, we may distinguish three types of economies existing within Germany: a competitive economy, a monopolistic economy, and a command economy;75 and, on the basis of our material, we may agree with their conclusion that the monopolistic economy is at least as powerful an element as the command economy. We may even go beyond this statement and maintain that, far from negating competition, cartels assert it. The struggle for production or sales quotas within the cartel—for raw materials, for capital, for consumers—determines the character, the stability, and the durability of the cartel. It is true that the more monopolistic the system, the less it is open to scrutiny. The veils become thicker, the anonymity takes ever more complicated forms. But competition, even cut-throat competition, still goes on. Opponents are compelled to surrender not by price cutting or ruinous underbidding but by the cutting off of supplies of raw materials and capital.
Entrepreneurial initiative is not dead; it is as vital as ever before and perhaps even more so. Karl Lange, general deputy for machine building and general manager of the economic group covering the machine industry, in discussing the performance of the German machine industry in comparison with England and America,76 again stressed the fact that without the energetic co-operation of private industry success could not have been attained. The motivating power of expansion is profit. The structure of the German economy is one of a fully monopolized and cartellized economy.
* See p. 277.
* See below, p. 274.
* See p. 257.
* See pp. 116-19.
* See p. 298.
* See p. 284.
* See p. 264.
* See p. 448 on institutionalism.
* Otto Wolff died in 1939.
* See also p. 390.
* See also the chapter on the New Society, pp. 385-91.