THE foregoing picture of the German economy is, however, onesided and therefore incomplete. It has not yet taken into account the command economy—the interfering and regimenting state. It is conceivable that the extent and depth of the command economy may decisively change the picture. Five such kinds of interference may shatter our construction: (1) the direct economic activities of the state; (2) of the party; (3) the control of prices; (4) of investment and profits; (5) of foreign trade; (6) and of labor. While the allocation of raw material, the rationing of consumer goods, and the rationalization by the general deputies have already been described, each of these six activities deserves closer scrutiny to determine whether Germany has already reached the stage of a managerial dictatorship or of state capitalism, or whether state regimentation is primarily designed to strengthen existing capitalism in spite of the fundamental changes that are the inevitable consequence of regimentation.
The economic policy of National Socialism may be divided into four stages: the initial phase, Schacht’s new plan, the Four Year Plan, and the war.
In the initial phase, the economic policy was not very much different from any other depression policy. It tried to overcome unemployment by stimulating private enterprise and by extending the work-creation policy of the previous regimes.
A number of such work-creation programs had been started and largely completed when Hitler came to power: the Brüning program of June 1932 (165,000,000 marks), the Papen program of June and September 1932 (280,000,000 marks), the 600,000,000 marks emergency program of Gerecke in January 1933, which was topped by the Reinhardt National Socialist program, with a total cost of 1,070,000,000 marks.1 The aim of all these programs was the abolition of unemployment by stimulating the upward trend of the business cycle, by ‘kindling the initial spark,’ that is, by pump priming—after which private business would be able to carry on the upward trend. Public works, state subsidies, tax remissions, and employment of workers outside of private industry were the devices to be applied. The major part of the money was spent on civil-engineering. New publicly owned financing institutions were founded and the financing was made possible by the issuing of loans, by taxation, or by the extension of credit. There is no doubt about the temporary success of these measures. Public investments undoubtedly stimulated the production goods industry and with it the whole economy.
But perhaps as important as the work-creation policy in this narrow sense were the strengthening of the monopolistic positions, which we have already discussed, and the open or hidden subsidies paid to industry,2 which aimed at raising industrial profits. Investments for the replacement of old industrial and agrarian machinery were free from taxation (act of 1 June 1933), so that the entrepreneur could write off his new investment at once. Outstanding taxes could be remitted if new investments were made, and new industrial units received tax privileges for the development of new methods of production (15 July 1933). House owners received subsidies and tax exemptions for repairs, while industry as a whole received cheaper credits. In order to raise purchasing power and stimulate production, newly licensed motorcars and motorcycles were exempt from the motor vehicle tax (10 April 1933), while owners of old cars could compound the taxes by a lump-sum payment. The marriage loans, which we have already discussed, fell into this category, and the whole cartel policy (discussed previously) served this purpose. All these attempts were undoubtedly successful, as they were in almost every country in which they were applied. The national income rose from 45,175,000,000 marks in 1932 to 58,660,000,000 marks in 1935—that is, by 24.7 per cent (see note 113). The value of production rose by 63.2 per cent, while the turnover in the retail trade increased by only 11 per cent.3 Unemployment was reduced by the absorption of labor in industry, in public-works programs, in the labor service, and in the land service, but prices began to rise, thereby endangering the success of the whole plan.
Whether this initial success would have ripened into a full boom is impossible to say, for late in 1934 the work-creation policy was overshadowed by the new phase of Germany’s economy, the beginning of preparedness economy.
On 24 September 1934, Schacht’s plan for controlling imports went into operation. On 5 November 1934, the first office of Reich commissioner for price control was created. The office was to expire on 1 July 1935. On 30 January 1935, Schacht succeeded Schmidt as minister of economics and on 16 March 1935 compulsory military service was introduced. On 21 October 1935, Germany left the League of Nations, thereby announcing her intention of regaining her former world position either with the help of, or in the face of opposition from, the great powers, and at the party conference held in September 1936 the Four Year Plan was promulgated.
Has the command economy really superseded competition and monopoly? Among these questions the foremost is whether National Socialism has actually embarked upon the nationalization of business. Has the direct economic activity of the state been increased to such an extent as to make it a decisive factor? If it were so, state capitalism would really be operative in Germany. But it certainly is not so. The share of the public authorities in public utilities, industrial production, transportation, and insurance has always been great—greater than in any other country. The organizational forms differ—they do not concern us here. The state carried out its economic activity under public law or under private law, as a public institution or as a private corporation, or sometimes in the form of a mixed corporation, in which public and private capital participated. The federal government, the states, the provinces, municipalities, and associations of municipalities were and still are the bodies that carry on this economic activity.
The railroads have been and are a federal monopoly, with a capital equipment valued at 25,780,000,000 marks, and employing 713,119 men in 1929. Post and telegraphic services are also federal monopolies, capitalized at 2,334,000,000 marks and employing 331,766 men. The federal government runs canal and air transportation. The federal monopoly of railroads, post, and telegraph is a traditional German policy not challenged by any section of the country, whether industry, the middle classes, or labor. This public management was not inferior to private management and in one respect at least it was much superior, since it could and did take into account the interest of the community as a whole. In railroads and the postal service, therefore, the federal government has never been in a competitive position.
But the federal government soon turned toward industrial activity, partly by necessity, partly by accident. Up to 1914, for instance, Germany had no aluminum production of its own, but imported aluminum from Switzerland and France. The First World War helped to give birth to Germany’s powerful aluminum industry. With the aid of several private industrial enterprises, which furnished capital and electricity, the United Aluminum Works were founded in 1917 with a capital of 50,000,000 marks, half of it subscribed by the Reich, half by private interests. The World War had ended before all the plants had fully started production and international competition threatened the profitability of the new aluminum plants. Private industry became frightened, and sold its share to the Reich, with the result that under the Weimar Republic practically the whole aluminum production of Germany derived from one government-owned corporation. There is no doubt that this corporation was run with marked efficiency. Being the producer of aluminum, the federal government was soon coerced to enter the field of electricity.
During the First World War, synthetic nitrogen plants were erected. Here, too, private industry was unwilling and unable to risk such huge investments and refused to expand. The federal government therefore constructed plants of its own, but left the operation to private industry (agreement of 31 March 1915).
Finally, after the First World War there were remnants of armament production by the military services. They were co-ordinated into the Deutsche Werke, A. G. (1920). The federal government also acquired a number of industrial holdings and in addition set up a bank of its own, which is the government’s industrial bank (Reichs-Kreditgesellschaft). All these holdings were finally concentrated in one holding corporation known under the abbreviated name Viag (United Industrial Works).
But this is only a small fraction of the total field of public enterprise. States and municipalities followed. While the federal government’s empire was built primarily on electricity, Prussia’s combine was primarily built on coal, concentrated in one holding corporation, the United Electricity and Mining Corporation (abbreviated name Vebag), with a capital of 250,000,000 marks in 1929. Four industrial groups were attached to the Vebag, all reaching into many other industrial fields. The other states expanded similarly, especially Saxony. As a rule municipalities own the public utilities, gas, water, often electric power, bus, street car, and subway services.
The widespread public-insurance system, the holdings in land and forestry, health and sport organizations, milk distributions, and so on, further illustrate the extent to which public enterprise had spread under the Weimar Republic. There is not the slightest doubt that these enterprises were successful. Their success is due to the efficiency of the ministerial bureaucracy and to the ardor with which trade-union officials devoted themselves to municipal enterprises close to their hearts.
What happened to the nationalized sector under National Socialism?
The changes have not been fundamental. But in many cases the nationalized sector has been restricted. Holdings of the Reich have been returned to their previous owners. During the last years of the Weimar Republic, the Viag had acquired shares of the Steel Trust and of the Dresdner Bank, in order to save the shareholders from ruin. Although these shares had been paid for at a price far above the stock quotations, they were sold back to the original owners at a loss. The Viag also sold the Rheinmetall-Borsig corporation to the Hermann Göring works. The Frankfurter Zeitung of 1 January 1941 announced that the complete restoration of the great shipping lines to private owners is under serious consideration. Their shares had been acquired by the federal government in order to save them from bankruptcy. Aside from this trend, which merely indicates that nationalization is not and never has been the aim of National Socialism in spite of its party program, the nationalized sector has not undergone any changes. On 31 March 19375 the nominal capital of German joint stock corporations and limited-liability combines was 23,300,000,000 marks, while the corporations owned and controlled by the federal government and the states had a nominal capital of 1,774,000,000 marks, that is, about 7 per cent (this does not include railroads, postal service, telegraph and roads). But still more important is the distribution of the capital invested in publicly owned corporations among the various branches. Only 345,000,000 marks were invested in holding corporations, 509,600,000 in heavy industry (299.8 millions in mines, 79 in water power, 75 in machines and armaments) while 611,000,000 were invested in public utilities. The total capital in all municipal enterprises of Germany amounted to merely 1,553,000,000 marks in 1936.
While the nationalized sector has certainly not grown at the expense of the private one, that previously controlled by the public authorities is now under the joint control of public and private managers. There seems to be no reason for the change; it results solely from the ever closer connection between private capitalists and the state. In the supervisory board of the Viag, for instance, we find Krupp, representatives of the Aryanized Berliner-Handels-gesellschaft (bank), and other bankers. In the Reichs-Kredit-gesellschaft the supervisory board contains only two officials; the rest are representatives of private industry and banks. In some of the operating corporations of the Prussian holding corporation, we find similar arrangements.
We may sum up by saying that there is no reason to speak of nationalization in Germany—on the contrary, there is a definite trend away from nationalization. All industrial positions held by public authorities had been established prior to National Socialism. Wherever they expanded, they did so under the pressure of economic necessities. The power of private capital is certainly not threatened or broken by public capital—on the contrary, in the control of public corporations, private capital plays a decisive part.
Side by side with the nationalized sector there has arisen since 1937, with amazing rapidity, a party sector comprising: (1) the Hermann Göring combine; (2) the Gustloff Foundation; (3) the business corporations of the labor front; (4) the business activities of the party (publishing, printing, real estate).
The establishment of a party economy follows the familiar pattern of American gangsters, who, after having accumulated money by blackmail and ‘protection,’ realize their dreams of becoming honorable by entering into legitimate business. In June 1937 a giant industrial enterprise was founded which now occupies the first place in Germany’s industrial structure. It was first called the Reichswerke, A. G. für Erzbergbau und Eisenhütten, Hermann Göring, with a capital of 75,000,000 marks.7 When the Hermann Göring works were founded this act was at once interpreted as a step toward the socialization of the German iron industry, but the German officials at once sharply protested against such an interpretation and Major General von Hanneken, director of the main department II in the ministry of economics and general deputy for the iron and steel industry, declared on 10 January 1938 before a select assembly of iron producers that ‘the works would be taken over as soon as possible’ by private industry,8 although five days later this statement was denied. What was not denied was the assertion that the federal government never had the intention of ‘entering into unbearable competition’ with private industry. The promoters originally intended to utilize the low-grade iron ore which private industry allegedly did not want to touch, but which, in the view of the Four Year Plan office, was needed to fill a gap in the supply. By a decree of 23 July 1937, the Salzgitter (near Brunswick) mining rights were compulsorily amalgamated and the Hermann Göring works were founded to mine the ores, build coke ovens, and complete steel works. Had the Göring works stuck to this program, they would undoubtedly have created something new, even if this new enterprise should have been merely a stop-gap measure for the duration of preparedness and war.
But the Göring works did not keep within the original program; in fact, they soon abandoned it and turned into a gangster organization out to steal and rob as many organizations as they could, in every branch of industry. It is true that the Göring works really opened a new iron and steel plant at Brunswick. The ore production in 1938 amounted to 413,000 tons and the two first blast furnaces utilizing a new smelting process were opened in the fall of 1939.
But the great extension was carried out after the conquest of Austria. In June 1938, the works acquired a huge combine of machine, armament, automobile and railroad-car factories, and mines. In March 1939, the biggest industrial plant of Austria, the Alpine Montan, was taken over from Thyssen. The extension of the Hermann Göring works to its present scope was, in fact, carried out at the expense of Thyssen, just as Flick’s empire would hardly have been conceivable without Thyssen’s downfall. The robbery of the Alpine Montan is an altogether ironical occurrence, since the combine, which never paid high profits, was kept up by Thyssen with great sacrifices for patriotic reasons and had always been the spearhead of anti-unionism and National Socialism in Austria. A number of Austrian works were taken over from the former Austrian state, while the Viag supplied the Hermann Göring works with iron fields and the already mentioned Rheinmetall-Borsig. The Göring works thus entered the armament business in direct competition to Krupp. The Prussian state corporation furnished the Göring works with coal mines, and, last but not least, the expropriation of Thyssen supplied a marvelous opportunity for the acquisition of Thyssen’s coal interests and other holdings, which were first administered by District Leader Terboven, Göring’s henchman who was later appointed federal commissioner for Norway.
The moment the Austrian spoils were digested, the original purpose of the Hermann Göring works was dropped. A leading newspaper9 declared it would be wrong to assume that the Göring works intended to build a new mining center. The national task was abandoned as soon as such spoils had been amassed. It would be arduous to follow the expansion of the works. The Sudetenland, the Protectorate, Norway, and Rumania supplied new opportunities.
The progress of the combine is amazing. The leading German economic journal10 wrote: ‘The Hermann Göring works have here in a short time passed through all the stages which private iron industry had taken several decades to pass. Only one essential difference still remains today: while the private iron combines dispose of coal and coke bases of their own, the Göring works, with the exception of the lignite mines of the Alpine Montan and of the old southeastern participation of the Danube steamship corporation, receive their coal from outside.’ Since the expropriation of Thyssen, this ‘essential difference’ has ceased to exist.
The structure of the combine is not determined by any economic necessity. That an iron-ore work should want to own blast furnaces, steel mills, and a coal basis is understandable. But the Göring works comprise machine construction, munition, transportation, shipping, finance, automobiles, potash, oil, building construction, in short, they enter into almost every economic activity. It is again true that nearly every German combine expanded in these directions. But a private combine usually does so because it becomes overcapitalized, as Hugo Stinnes’s did during the inflation of 1923. But the Hermann Göring works expanded immediately after their foundation—without having any accumulated savings.
How, then, were the acquisitions financed? Very little is known about the method, but the little we know is this: partly it was simple robbery in the form of expropriation (especially against Thyssen), and partly by exchange of shares or by purchase. Who gave the money? The tax payer and private industry. Of the 400,000,000 marks capital which the Hermann Göring works had in 1939, 245,000,000 marks were subscribed by the Reich and 155,000,000 had to be subscribed by private industry, especially by the iron-processing works, which were compelled to acquire shares to the amount of 50 marks for each employee. These shares do not receive any dividends until the steel mills in Salzgitter are fully completed, and they have no voting power until 1943. In 1948, the administrative board of the Göring works may redeem the shares. The financing was thus a typical case of gangsterism. The iron industry had to pay protection money and to finance its own competitor.
That private industry and Schacht were not enthusiastic about the new venture is well known.11 But the threat of expropriation is too great to be disregarded. Besides, it is not known how much the big combines, Flick, Wolff, Mannesmann, the dye-stuff trust, Wintershall trust, have profited by their collaboration with the Hermann Göring works.
The Hermann Göring combine now has the following organizational structure. It is composed of three operating corporations, which are co-ordinated by a holding corporation. It must be understood, however, that the three operating corporations represent in turn a network of many affiliated enterprises. The most important operating corporation is the already mentioned Reichswerke A. G. für Bergbau und Hüttenbetrieb, Hermann Göring, with a capital of 560,000,000 marks and reserves of 118,000,000 marks. It comprises especially mines and foundries. The second operating corporation is called Reichswerke A. G. für Waffen und Maschinenbau, Hermann Göring (guns, munitions, machines), with a capital of 80,000,000 marks and 13,500,000 reserves. The smallest is the Reichswerke A. G. für Binnenschiffahrt, Hermann Göring (canals and shipping), with a capital of 12,500,000 marks and reserves of 11,500,000 marks.12 The holding corporation is called A. G. Reichswerke, Hermann Göring, originally equipped with a capital of 100,000,000 marks, now raised to 250,000,000 marks.
What is the reason for this giant enterprise? A comparison with gangster organizations will illustrate the problem. National Socialist officialdom has not been able to pierce the fortifications held by the ministerial and industrial bureaucracies in the nationalized sector. The overwhelming influence of these two groups is still as secure as it was under the Weimar Republic. Nor has the party been able to penetrate into the private industry, which, on the whole, is run by the very same set of people. The party has not succeeded in supplanting the power of the bureaucracies in the army and in the navy, in the judiciary, and in the administration. The party controls only the police, youth, and propaganda.
But that is not enough. A gangster can survive only if he becomes honorable. Terrorism alone may not give him sufficient security. Only an economic basis, providing him with a steady income and giving him social status, will open the way for him into society. The Hermann Göring works constitute the attempt of the party to provide the economic basis for the party’s rule. The establishment of the works was economically unnecessary from the very beginning. The utilization of low-grade iron ore is not the privilege of the Hermann Göring works. Two other combines financed and organized by private industrialists do the same. Hermann Göring’s irruption into private industry is a political, not an economic phenomenon. It intends to secure and fortify the political power of the party bureaucracy. It opens new careers for party officials. It creates new revenues for the party hierarchy and it puts them on the same social basis as the leaders in industry and in the civil service. More concretely, it is the Göring wing within the party that is trying to make its way into high society, and, to achieve this, will leave no stone unturned. That will become clear when we study the personnel of the corporations.
Who are their managers? The supervisory board of the holding corporation is headed by Secretary of State Paul Körner. Born in 1893, he studied law without completing his studies, has been a member of the party since 1936, and rose to the position of high S.S. leader, member of the Göring Prussian state council, member of the Reichstag, and Göring’s proxy as deputy of the Four Year Plan. The other members are Secretary of State Dr. Landfried, whose name occurs again and again in many corporations and offices: born in 1884, the son of a wealthy merchant and manufacturer, he is a lawyer by profession, who served in the army, entered the Prussian administration in 1920, and rose rapidly. He is an absolutely reliable party member. We find Ministerial Councilor Brekenfeld, of the ministry of finance; Hans Kehrl, born in 1900, textile manufacturer, president of the economic chamber, leader of the textile industry group and district economic adviser of the party; Karl Lange, Germany’s machine dictator; and Thomas, one of the economic generals. The two managers of the holding corporation are Röhnert, formerly with the Quandt combine, and Dr. Guido Schmidt, former Austrian foreign secretary and instrumental in the betrayal of Austria to National Socialism. In the operating corporation number 1, we have a still higher ratio of party hierarchs; besides Körner and Keppler, there is the prime minister of Brunswick, Dietrich Klagges, born in 1891, elementary school teacher and old party member. The managers are Paul Pleiger, a small iron manufacturer, district economic adviser of the party; and the State Councilor Wilhelm Meinberg, born in 1898, member of the party and of the Brown Shirts since 1929, organizer of the National Socialist peasant organization. In the operating corporation number 2, the manager is Dr. William Voss, certified accountant and old party member. In the Alpine Montan, affiliated with the operating company number 1, we have, in the supervisory board, Körner, the brothers Eigruber (Austrian National Socialists), Kehrl, Keppler, and Röhnert, the Bavarian Prime Minister Ludwig Siebert (lawyer by profession, old National Socialist), and some bureaucrats. The influence of the party officials is thus overwhelming.
While the legal status of the Göring combine is that of a federally controlled corporation, there exists another industrial combine which is even legally completely controlled by the party, namely, the Gustloff works, founded upon Aryanized property—the Suhl gun factory. In honor of Wilhelm Gustloff, the National Socialist agent for Switzerland, who was shot in 1934, the party established a Wilhelm Gustloff foundation, which soon turned into a not unimportant industrial combine, consisting of six corporations, among them the famous Austrian Hirtenberg munitions factory. This combine is run solely by the party, that is, by the Thuringian district leader, Fritz Sauckel, who has been affiliated with racial organizations since 1919. The finances of this foundation are in complete darkness, since it does not publish balance sheets or profit-and-loss accounts. It is subject solely to the control of the party hierarchy.
Equally surprising is the growth of the business activities of the German labor front. The German labor front now operates the following enterprises:
1. The Bank of German Labor, with a balance of 513,000,000 marks and 34 branches in 1938; now ranking among the four biggest German banks
2. The German Ring—life and health insurance
3. The Volksfürsorge—popular life insurance
4. The German Ring—Austrian life insurance
5. Gehag and Einfa—building and settlement corporations
6. 26 building and settlement corporations under the name of Neue Heimat
7. ‘German Building Corporation’—a building construction firm
8. 16 printing and publishing houses, among them the famous trade-union book guilds
11. German National Theater Corporation
In 1938 it ran 65 corporations13—most of them (with the exception of Nos. 9 and 10) stolen from the trade unions. In 1941, the labor front finally took over the consumers’ co-operatives, both in the old territory and in Austria.14
The expansion of the labor front’s insurance business received a tremendous stimulus by the decree enjoining all occupations not covered by federal social insurance, to be insured. The lion’s share went to the labor front’s German Ring.
Is that development a negation of capitalism? I do not believe so. On the contrary, it appears as an affirmation of the living force of capitalistic society. For it proves that even in a one-party state, which boasts of the supremacy of politics over economics, political power without economic power, without a solid place in industrial production, is precarious. There is no doubt that German capitalism dislikes this development. There is no doubt that this process has intensified the contempt in which the old bureaucracy and the industrial leadership hold National Socialist gangsterism, which, in less than four years, built up the biggest industrial empire of Europe by expropriation, outright theft, and ‘shake-downs.’
The assertion that the market has been superseded by administrative regulation is, to a large extent, based on the existence of price control. There is, so the argument runs, a system of administrative prices which are determined from above and not by the market automatism. It is undeniable that the potential and actual power of the state over prices has increased. Price control exists and is on the whole efficient. But whether the pattern of control abolishes the operation of the market or whether the market mechanisms reappear in another form in the system of price control is a more decisive problem. We cannot, in this book, hope to present a comprehensive analysis of the price-control measures, their operation and economic effects. The enactments, rulings, regulations, and decisions amount to thousands. All we can do is give a short outline of the organizational structure and present a condensed survey of the principles and mechanism at work.
The legal basis of price control is the act for the execution of the Four Year Plan of 29 October 1936, creating the office of a federal commissioner for price formation. ‘For the control of price formation of goods and services of every kind, especially for all needs of daily life, for the whole agricultural and industrial production, and for the transportation of goods and commodities of every kind, and for other compensations, a Federal Commissioner is appointed.’ Subject to his authority are prices for commodities and services of any kind; rents; transportation rates; fees of doctors, dentists, and lawyers; admission tickets of theaters, cinemas, and concerts; dues to organizations; postal fees and railroad fares; commissions and school fees; and the whole sector of agricultural prices with the exception of labor, which is subject to specific regulation. On 3 June 1939, a penal decree was enacted, which calls for imprisonment (up to five years) and fines without limitation for intentional or negligent violation of the statute and rulings of the price commissioner.
Price Commissioner Joseph Wagner, National Socialist district leader and provincial president, explained his functions in a speech,15 which is interesting for his promise not to do violence to the economy, his view that supply and demand no longer regulate prices, his desire for close collaboration with the groups and chambers, and his insistence that the price policy should secure the living standards of the large masses.
The price commissioner carries out his functions either directly or through two different regional organizations: the price-forming and the price-supervising agencies. The former are attached to the Prussian provincial presidents, to federal regents, or to other high administrative agencies; the latter are attached to the sub-provincial presidents and other administrative organs. Roughly speaking, the former fix the prices, the latter see to it that the rulings of the price commissioner and of the price-forming agencies are carried out.
The underlying aim of any such price policy must be, of course, to prevent inflation and thereby to secure the living standards of the large masses of the people. Inflation in Germany—in contrast to the United States—could already have been the consequence of the war economy, since a sufficient supply of vital consumers’ goods did not and does not exist. Because effective demand far exceeds the available supply, a comprehensive price control appears inevitable. For this purpose, the first decisive decree of the price commissioner was the so-called ‘price freezing’ (price stop) decree of 26 November 1936.16 Price increases for goods and services above the level of 18 October 1936 were prohibited. Prices as they were on this date were thus frozen. Nevertheless, the decree authorized the price offices to grant exemptions, which soon became the rule. Ordinarily the price commissioner decides upon exemptions for rates of public utilities if they operate in the whole federal territory, upon price changes of organizations, including the food estate, upon all cartel prices, and upon special cases of major importance. All other exemptions have to be granted by the price-forming offices.17
We cannot follow the development of the price policy under the Four Year Plan, and shall concentrate entirely on the price policy pursued during the war. The basic enactment, which is not very illuminating, is the war economy decree of 4 September 1939 (Sections 22 to 28). Trices and compensations for goods and commodities of any kind must be calculated according to the principles of an economy committed to war.’18
In order to understand the operation of the price-control measures, the following distinctions have to be made, for, in spite of the price-freezing decree, there are several types of prices differently computed and differently controlled. We may distinguish the so-called ‘bound’ prices, that is, prices agreed upon (by cartels or in similar agreements), non-estimated prices, estimated prices, and prices for government orders.
Bound prices that are fixed by cartels or in similar agreements have been subject to special treatment since 1934. The decree of 12 November 1934 (as amended 11 December 1934) had already demanded the consent of the price commissioner for new price agreements and for changes in existing ones. The supplementary decree of 29 March 1935 had required the previous consent for any understanding among bidders for public works. This whole legislation has now been superseded and codified in the decree of 23 November 1940, in force since 12 March 1941.19 The decree recognizes the price-regulating activities of the cartels and intends only to prevent abuses, those which run counter to ‘National Socialist morals.’ The principles of this decree are that private price agreements must secure sufficient profits to economically necessary plants. They must, therefore, make possible the existence of the good, middle-sized enterprises by giving them adequate profits and by preventing boundless competition; moreover, they must give to the good enterprise a ‘just efficiency premium.’ The differential profit inherent in every cartel structure, the so-called cartel rent, is therefore recognized, but it is supposed to be utilized to improve plant efficiency and thereby prepare for future price reduction. Future price agreements will be examined according to these standards. Three years after this enactment has come into operation (that is, on 12 March 1944) all price agreements already in existence on 12 March 1941 lapse unless they have been newly approved in the meantime. Each change in the agreed price structure needs the consent of the federal price commissioner.
The decree applies to all cartels, to the food estate, to so-called vertical price agreements between producers and wholesalers or wholesalers and retailers. It applies not only to prices but to sales conditions as well. The decree also enlarges the power of the price commissioner. He may make his consent to price changes dependent upon the fulfilment of certain conditions, primarily those aiming at rationalization and modernization of plants.
It is clear—and the commentators of that decree stress this point-that trusts and combines are exempt from it. They appear on the commodity market as individual enterprises and they do not agree upon prices but fix them for their plants. The exemption may, in the future, have a decisive consequence. Should the power of the price commissioner really be utilized for cutting down bound prices, the process of concentration and centralization within the economic system will again be favored. The lowering of bound prices is, by necessity, directed against sub-marginal plants, that is against less rationally working cartel members. The lower the cartel price, the less tenable becomes the competitive position of the weak cartel member, which is finally driven into the arms of its bigger and more efficient brother. Nevertheless, the retention of the differential rent is not attacked; it is rather approved. We have already mentioned the view of the official commentator;20 others ceaselessly stress this point. Göring’s periodical21 reminds industry ‘that plants with high costs have been granted lower profits.’
Yet we must not overlook the fact that by means of interfering with the differential rent, the structure of German business may be seriously affected. One official commentator22 says the primary aim of the decrees is the wiping out of ‘unjustified differential rents by lowering the price structure’ of all cartels, if that price structure is too high because it is based on the production costs of sub-marginal members. Should such a policy be carried out, rationalization and monopolization would be still intensified.
The economic effects of the control of bound prices are thus relatively simple. If a high price level is maintained, efficient cartel members will receive high differential rents, which will be used for self-financing and as a result will strengthen the monopolistic hold. If the price structure is lowered, uneconomical members will be forced into combines. One example may clarify our assertion. The decree of the price commissioner of 23 March 1937 lowered the price of the potash syndicate by 30 per cent. This decree was hailed as a manifestation of truly socialist spirit. Agriculture was subsidized, not by the state and by the tax payer, but by one group of industry which was willing to make such sacrifices. But it is certainly not a coincidence that the unprecedented growth of the two potash combines, Wintershall and Salzdethfurth, occurred just in that period.
There is thus very little in the decree that makes it necessary to assume that cartel prices are administrative prices. They are agreed upon by the cartels and on the whole they are retained. It is true, of course, that in conjunction with the groups the prices of trademark articles have also been lowered.23 But production costs, sales costs, tradition, and political influence with the price-control offices determine the competitive strength of each cartel member, and therefore determine the prices.
The price-freezing decree thus applies merely to so-called free prices, prices not agreed upon by organizations, and in fact it does not apply to all of them. It can logically apply only to such prices where a frozen price can be ascertained, which may be impossible. A textile factory may, for instance, not have any price as of 18 October 1936 for some or all commodities. Besides, new goods may have been produced that had not been manufactured on 18 October 1936. Wherever such frozen prices cannot be found, the price-freezing decree does not apply.24 Its realm is thus narrowed. Moreover, it is steadily and continuously encroached upon by legislative enactments of the price commissioner. There are many price regulations for specific branches, such as the textile25 and leather26 industries. There are maxima, minima, and standard prices (in cases where the manufacturer may move within a maximum and a minimum price), and each of these types admits of further differentiations. But even in the very narrow margin still left to the operation of the price-freezing decree, exemptions may be granted if they are ‘economically necessary or urgently required to avoid special harshness.’27 Such applications must go through the economic groups that have to pass upon the formal correctness as well as the material justification of the application. The federal price commissioner may grant a general exemption for all commodities of one plant or he may grant it only to one commodity produced in a particular plant.
Wherever the price-freezing decree and special enactments do not apply, prices have to be estimated as of 18 October 1936. A plant must then estimate a price under the condition that existed on 18 October 1936 even if the basis for estimating should have completely changed.28 If it is found that the estimate is too hard on the producer, he may apply for an exemption. If the basis for estimating is unavailable, the prices have to be established in accordance with principles laid down by the federal price commissioner.
These principles are ordinary business principles; they do not demand any sacrifices from the manufacturer. Raw material may be inserted in the cost sheet at cost price; wages, only in the legally permissible amounts. There is a provision for overhead costs, for special costs, even for contributions to the party and other organizations, and for ‘adequate profits.’ Also important is the insistence of the price commissioner on the following considerations: ‘If a plant operates at costs which are high above the average, if it is badly organized or badly managed, only adequately lower profits may be granted to it, and, in this case, it must even be expected to bear a loss.’29 Wherever the rulings allow adequate profits or average branch profits, the view of the economic groups is decisive.
The price policy, therefore, has clearly rationalizing and monopolizing functions; it compels unrationally working plants to modernize or to perish, and if modernization is impossible (for instance, because of lack of capital), the sub-marginal plant is driven into the fold of the monopolistic competitor.
As for government orders, a distinction is made between such commodities where the government competes with private entrepreneurs on the demand side (for instance, food and clothing for the armed forces) and where the demand is monoplized by the government. In the former case all price regulations are valid; in the latter the cost-plus basis becomes the rule. The principles are laid down in two decrees,30 which follow, on the whole, ordinary business principles. The decrees do not violate the principles of competitive prices and even exempt cartel prices,31 but since the bulk of public orders is not competitive by nature (there are no competing buyers for guns, tanks, and ammunition), the prevailing standard of measurement becomes the cost of production plus adequate profits. But on what basis shall the costs be determined? If the most modern plant is selected, all others must go bankrupt; if the sub-marginal plant is picked out, the others must receive too-high differential profits; so that, as is usually the case in such situations, the practice follows a middle course, the American bulk-line method.
On the whole the price-fixing policy has been successful, although stabilization of prices has not been obtained, has perhaps not even been desired. The index of wholesale prices has risen from 90.7 in 1933 to 110.9 in December 1940 and 111.9 in April 1941 (1913 = 100).32 This is not a decisive rise in wholesale prices, yet if we analyze the wholesale index we find that while the prices of producers’ goods have remained relatively stable, those of consumers’ goods have risen from 109.2 in 1933 to 145.0 in December 1940 and to 147.3 in April 1941, so that the price rise chiefly affects the last consumer. This, of course, is a deliberate policy of curtailing consumption. The wholesale index coincides with the index of the cost of living. It rose (without rents) from 115.9 to 134.7 in April 1941 (1913/14 = 100). The index for clothing rose from 105.6 to 153.1 in the same period.33 The figures are, of course, of but little value. The deterioration of commodities is not and cannot be taken into account. Besides, prices in a rationed economy do not indicate whether goods are obtainable.
What is the function of the price control?*
In a purely competitive economy, prices crystallize as a result of supply and demand. Supposing a given level of prices, an arbitrary increase in the price of any particular commodity would contract the demand and an arbitrary price-cut would increase the demand. If the contraction of demand is not accompanied by a reduction in the supply, a surplus of commodities ensues that tends to exercise a pressure on the price and to re-establish the previous correlation of prices. Maintaining the increase in price presupposes a reduction in the volume of supply, alters therefore the proportions of production. Conversely, demand increasing with price-cuts can be satisfied only through increase in production; if more of the cheaper commodity can be produced, again the proportions of production are altered; when production cannot expand, an excess of buying capacity ensues that either tends to re-establish the previous correlation of prices or flows into other spheres, disrupting the given concatenation of price relations.
It is obvious that this mechanism of prices can function without disturbance only in an economic system wherein no restrictions of any kind bar competition. The slightest check on competition—either as a result of a natural shortage in the supply of elements of production or of an artificial regulation of supply or demand in any particular sphere—must disrupt the system of functional equations that constitutes the ‘price level,’ and must prevent the proportions of production from directly following the price equations as well as preventing the price equations from exactly reflecting the proportions of production. This is the case both when monopolies bar competition in particular fields and when centralized controls are established to ‘stabilize’ any set of given correlations of several elements of production or even of all of them.
Yet, the disruption of the ‘automatism’ of market reactions does not abolish the market. The fact that the tendencies of the production agents to react accordingly are checked and are subject to restrictions does not annihilate them. When an individual production agent is prevented through monopoly or administrative regulation from making profits by raising prices, he will try to increase his sales or cut down his costs, or both, in order to achieve his goal as a producer of commodities for sale. When he is not allowed to market more than a definite quantum of goods, he will have to raise prices, and when both prices and marketing quotas are set by regimentation or monopoly he must recur to alternations in the set-up of the cost elements in the manufacturing processes through pressure upon the costs of raw materials, manufacturing equipment, labor and capital used, as well as through changes in the manufacturing process itself, both organizational and technological.
In doing so he again will modify the given correlations of the elements of production at all the stages of manufacture and marketing, at which changes in the previous set-up can be executed. The system of equations that appears at the surface of the production relations as ‘the market’ will undergo changes with any move the production agent is free to make. Thus, economic activities will constitute market activities and provoke ‘movements in the market’ as long as there are any activities at all that the production agents are free to undertake in their own right and upon their own decision.
Under totalitarian rule, of course, the automatism of market relations is disrupted in numerous fields. This does not mean, however, that market relations have ceased to exist. Even if it were true that the prices have been established and remain stabilized on a definite level (which it is not), there still would remain the tendency of the producers to find compensation through changes in the marketing possibilities, in the costs of production, in the manufacturing process. Any such change would alter the system of equations that underlies the set-up of ‘stabilized prices’ and change the economic meaning of the market relations, which would thus prove only superficially stabilized.
In reality, the centralized controls of prices as well as of other components of the economic process veil and dissemble economic facts, which by themselves revolutionize the ‘automatic’ interdependence of supply and demand. The system of totalitarian controls masks an economy that expands permanently on the basis of full employment. This means that there is an ever-increasing demand of commodities while supply is limited by the productive capacity of the economic apparatus as determined by the general economic set-up at any given moment. Therefore, all prices display the tendency to rise. General shortage produces a general increase in the price level.
In a competitive economy this would result in a final contraction of the demand that would not be able to follow the progressive increase in prices, and in a more or less general decline of prices. The expansion would be temporarily checked, and since neither the increase nor the decrease in prices would be uniform, the new expansion would start from a modified correlation of individual prices.
The principal aim of controls and restrictions under totalitarian rule is to prevent any such temporary checks on expansion. In preventing all prices from going up simultaneously, the system of price regimentation that culminates in the price-freezing legislation equally prevents a general slump, which would be inevitable when the buying capacity fell short of the exorbitantly priced supply. Yet, price freezing does not and cannot hamper intrinsic changes in the price correlations. On the contrary, the restrictions imposed upon the arbitrary raising of prices compel the production agents to hunt for compensations both in the manufacturing set-up and in the cost elements of production. Thus, the basic correlations of prices undergo permanent changes, permanently adjust themselves to the permanently changing conditions of production and marketing. The visible general readjustment taking place in the market after a general slump within a competitive system is replaced under the totalitarian regime by a steady subterranean current of readjustments modifying the system of price equations through scarcely visible convulsions every hour and every minute. The market, instead of being abolished by regimentation, functions invisibly underground and maintains, within the framework of regimentation, legions of unco-ordinated economic decisions that scorn planning and control.
Prices still play the decisive part in determining who shall produce, or better, who shall produce most. The expansion of a plant improves its competitive position and thereby increases its profits, in turn stimulating expansion. To be sure, the entrepreneur cannot arbitrarily expand or restrict production. To restrict production is, under conditions of full employment, unnecessary. But it is precisely the incessant excess of demand over supply that provides a powerful stimulus for expansion and higher profits. This is the motivating force of the National Socialist economy:
Still bigger tasks than the ones he has . . . to perform in peacetime devolve upon the head of the enterprise in the war economy. It is understood that the war demands thorough planning in the use of man power, raw material, and productive capacity and thus imposes certain planning restrictions upon business. However, this kind of planned economy must never lead to a situation in which the initiative and the working impulse of industrialists are hampered by executive agencies of the authorities. Extensive restriction of free market production does not mean obstructing the entrepreneurial initiative; on the contrary, the more active, resourceful, and daring the head of the enterprise, the more will he be able to fulfill his war task.*
In these words Major General George Thomas, the head of the division of defense economy in the High Army Command, outlined the tasks of the entrepreneur.34 It is the most daring and the most ruthless competitor who wins and shall win. Price control organizes and speeds up the process of selection taking place in a competitive economy.
Price control does not negate the profit motive but rather intensifies it. Even if the volume and the kind of production were fully regimented, the entrepreneur would have no other aim than to produce profitably, and no price decree negates this principle.35 In every economy in which the flow of commodities is punctuated by money transactions, the impossibility of making profits would be equivalent to being debarred from production. Since, besides, the raising or even the maintaining of a production level depends upon the supply of raw material and labor, and this in turn is easier to secure to the most efficient plant, profit making and accumulation become in fact more imperative than ever. Each restriction imposed upon the entrepreneur sharpens the sting of the profit motive. Each regimentation strengthens the need of business to have pull with the authorities. A good connection with the raw-material allocating agencies, the labor exchanges, the price-control agencies becomes in fact a priceless commodity—as one National Socialist economist frankly admits.36 Even admitting that National Socialism has succeeded in stabilizing the prices—which it has not—there is no price control for either liquid or fixed capital. Even if the prices of commodities were completely freed from the pressure of supply and demand, the prices of capital, of quotas, of permits, of shares, of bonds, of patents, of licenses would still be definitely subjected to it. It is by this detour, so to speak, that the market laws are still operating.
Nor does the fact that the government is the major buyer change the pattern. It is again true that the government as the major buyer and distributor receives a huge part of the total demand and can thereby direct, contract, or expand it. Yet even there economic limits exist that cannot be transcended. If we assume—we shall have to prove it in the next chapter—that the social system of National Socialism is based upon full employment in order to ward off opposition of the working classes, then a contraction of government demand must be compensated for by an expansion of private industry; moreover, the buying capacity of the state is limited by the volume of production and the speed of the flow of commodities. In an economy in full production, the printing of money will not increase production; it can only change the distribution.
Does the control of profits and investments change this picture? If they were rigidly controlled, if a planning machinery directed the flow of investments according to social principles, if profits were taxed away, then possibly the system would no longer be capitalistic.
But a profit control never has existed and does not exist today. Not even the celebrated Dividend Limitation Act of 1934 contains a profit control.37 According to the act, which in German is called Anleihestockgesetz, a joint stock corporation should not distribute more than 6 per cent (in some cases 8 per cent) among its stockholders. Dividends in excess of 6 per cent or 8 per cent had to be paid into the Gold Discount Bank, which invested them, on behalf of the stockholders, in government bonds. The bonds were to be redeemed in 1938 and could be used for paying taxes in 1941 and the following years. The act, therefore, had no intention of cutting down profits but merely of restricting the distribution of dividends among the shareholders, who, in the view of German economists and lawyers, are a mere nuisance. The act thereby intended to make the stock market less attractive in order to divert the flow of capital into the government bond market. The act thus belongs to the policy of controlling investments. Up to 1936, the capital market was almost closed to private industry and reserved for the government, but in 1936 this ban was relaxed and in 1939 practically abandoned. The effect of the act was small. By the end of 1940 the accumulated dividends amounted to merely 108,000,000 marks.38 Aside from price control and taxation, there was no profit control of any kind.
The situation changed in the spring of 1941. On 5 and 11 March 1941, the Four Year Plan office and the price commissioner jointly issued two decrees. I quote that of 11 March 1941:
The price-supervising offices are authorized to order that profits which have been made contrary to the provisions of the war economy decree of 4 September 1939 have to be delivered to the Federal Government even if no infraction against the law has been committed. Against the order of the price-supervising offices an appeal can be lodged within a week with the price-forming offices.
The federal price commissioner and the price-forming offices may change the orders when such action is justified according to the principles of the national economy.39
Two rulings are in effect that concretize these measures, one for industry and one for trade.40 The details do not concern us here. The basic principle is that wherever super-profits have been made in the past, they must be paid to the federal government, while, for the future, prices must be lowered. In both cases only the lower profits will be subject to corporate and income taxes. By profits the price commissioner understands the profits of a whole enterprise, not the profit deriving from specific commodities, so that losses and profits in different departments or commodities can be equalized. Expenses for investment are not deductible from profits except by special permission of the price commissioner. Plants with higher production costs ought to have smaller profits than those with lower costs. ‘The differential rent is, therefore, admitted.’41 All measures have to be carried out in conjunction with the competent economic groups.
The new enactments do not, therefore, abolish the previous price-control measures, they merely supplement them. Their primary aim is undoubtedly the lowering of the price structure. The social aims stand in the foreground; it is the prices of consumers’ goods which should primarily be lowered. But the decrees do not demand ‘economic suicide,’42 they do not aim at destroying the profits of an enterprise, they are directed merely against super-profits made by super-prices. It is, however, very questionable whether and how far the rulings have been put into operation.
A speech of Minister of Economy Funk indicates the trend of the new legislative enactments.43 Funk attacked the self-financing of German industry and also announced the intention of restricting the distribution of dividends to 6 per cent, at the same time the possibility that the nominal value of the shares could be raised was admitted. The decree of the Ministerial Council for the Defense of the Realm of 12 June 1941 translated Funk’s announcement into practice.44 For the duration of the war, dividends are limited to 6 per cent except in the cases of corporations having paid more than 6 percent. A limitation to 8 per cent is introduced in regard to dividends paid in cash, but the excess earnings must be invested by the corporations in government bonds which the ministry of economics holds in trust. The decree, finally, imposes heavy taxes on excess dividends. But—and this is the big hole—the decree allows the revaluation of capital, and the reports of the Frankfurter Zeitung show that a large number of corporations have already availed themselves of this opportunity. The leader of the national group industry, W. Zangen, explained that dividend limitation and profit freezing are merely war measures, to be discarded after the war (Frankfurter Zeitung, 6 July 1941), and the official press release stresses that ‘it does not lie in the interest of the economy or of the enterprise . . . to lay bare too much of the hidden reserves’ of an undertaking—self-financing shall, therefore, not be tampered with.
The interpretations in the German periodicals and press are very contradictory. Some take the view that it would be sufficient to raise the nominal capital of the shares. This would lead to a higher amount of distributed dividends,45 would raise the income taxes, and would, thereby, ultimately increase savings. Others direct the attention to self-financing, which robs the tax offices of taxes and makes a comprehensive investment control impossible.
As we already mentioned, the new decrees may be directed against internal financing (acting, therefore, as a kind of undistributed profit tax), and it is this phenomenon that we shall have to discuss, because it constitutes one of the decisive aspects of German economic life. We have seen that the capital market was closed to private business until 1939 so that expansion could be financed only internally, out of undistributed profits. The 1933 legislation had, as we have already seen, encouraged internal financing by tax privileges and tax exemptions. As a consequence, undistributed profits rose for the old territory from 175,000,000 marks in 1933 to 1,200,000,000 in 1935, and 3,420,000,000 in 1938, and have since risen considerably.46 We have to add to this figure the internal investments of individual firms and partnerships, estimated at more than 1,000,000,000 marks, so that for 1938 we reach a figure of nearly 5,000,000,000 marks undistributed profits, while the total of savings accumulated in the savings banks in 1938 amounted to merely 2,000,000,000 marks and distributed dividends during that year to approximately 1,200,000,000 marks. These figures make us realize that a decisive change has taken place, a change even greater than the change in the United States revealed in the hearings before the Temporary National Economic Committee.47 The Frankfurter Zeitung of 14 March 1941, says about this situation, that while balance sheets of the corporations became ‘untrue’ due to self-financing, ‘many dividends have become “unnatural” to a still higher degree—of course, unnaturally low.’ ‘It cannot be overlooked,’ so it says on 10 January 1941, ‘that it is just the plants necessary for warfare which, in many cases, possess a considerable fortune for investments out of their own strength and a high and even ever-increasing liquidity.’ Industry is no longer indebted to banks. The nominal capital of the corporations is low, the reserves are high and permanently increasing.
Yet even the shareholders cannot complain; not only did the stock-price index of the Frankfurter Zeitung (according to its issue of 10 January 1941) rise from 128.22 in September 1935 to 180.97 in November 1940, but even the average dividends rose from 4.20 per cent in 1935 to 6.49 per cent in 1939, while the average yield increased from 3.91 per cent in 1935 to 5.19 per cent in 1939.48
The victory of internal financing over the borrowing from banks, savings banks, and insurance institutions indicates the decline of the investment banks, and the decay of the role of banking capital. That decline is a universal trend and is as operative in the United States as it is in Germany. This trend seems to be determined by the decline in the pace of economic expansion; by the monopolistic and cartel structure, which, by granting differential rents, facilitates the internal accumulation of capital; by the growth of institutional investments, government spending, and financing.
The primacy of self-financing over borrowing is not the end of capitalism and is not even the end of finance capitalism. It merely indicates that the seat of finance capitalism has shifted from the banks to industry, or rather to a congruence of banks and industry. The Bank-Archiv,49 a periodical issued by the economic group ‘private banks,’ quite openly ridicules the attempt of heavy industry to present internal financing as a kind of socialism, as a fight against capitalism and capitalistic principles of financing. What the Bank-Archiv attacks is the very basis of the National Socialist ideology, and this attack reveals the sham character of National Socialist anti-capitalism.
National Socialist anti-capitalism has always exempted productive capital, that is, industrial capital, from its denunciations and solely concentrated on ‘predatory’ (that is, banking) capital. We have already pointed to the party program of 1920.* But even the fight against banking capital was only a sham. On 14 October 1930, the National Socialist parliamentary group introduced into the democratic parliament a draft bill demanding the confiscation without indemnity of the ‘entire property of the bank and stock exchange barons, of the eastern Jews, and of other foreigners who had entered after 1 August 1914, and of all additional property acquired through war, revolution, inflation, or deflation after that date.’ When the Communists and Social Democrats declared their intention of voting for the bill, the National Socialists quickly withdrew their motion. Still the attack against ‘predatory’ as opposed to ‘productive’ capital did not cease; on the contrary, it increased by leaps and bounds. The slogan was no doubt popular—a bank is always a creditor of the small and little businessman and, therefore, hated as a creditor usually is. Interests on loans are no doubt not the outcome of productive labor, though they are necessary within the capitalistic system. Finance capital as identified with banking capital has always been the target of all pseudo-socialist movements, movements that never dared to touch the foundations of capitalist society but rather sought a reform that would break the poisonous teeth off the capitalist system and direct the deep resentment of the masses against exploitation toward certain concrete symbols. Whether the chosen symbol is John Pierpont Morgan or a Jewish banker is immaterial.
In singling out predatory capital, National Socialism treads in the footsteps of Proudhon, who, in his Idée Générale de la Révolution au 19e Siècle, demanded the liquidation of the Banque de France and its transformation into an institution of ‘public utility’ together with a lowering of interest to one-half or one-fourth of 1 per cent. The Communist Manifesto had already denounced that type of socialism, the so-called ‘True Socialism,’ as specifically Germanic. Marx, in a letter to Engels on 8 August 1851,50 had, with supreme wit, denounced Proudhon’s fight against banking capital and interest as a sham. He had already pointed out that the socalled ‘social liquidation’ is ‘merely the means of starting afresh the healthy bourgeois society.’ The theory expresses the longing of every non-industrial capitalist to become an industrial capitalist—a quite understandable wish. The anti-finance capitalistic propaganda may have had even a certain amount of truth in it when banking capital really was decisive, when banks could control, merge, and acquire industries, when money alone really represented economic power. But, as we shall see, that period is far behind us, and it is important to realize that National Socialist anti-capitalism and its fight against predatory capital was raised to the rank of the supreme economic principle in a period when banking capital has lost its significance, when the investment banker has lost his power, when money alone cannot found economic empires, when, in short, industry has become financially almost self-sufficient, when it not only finances its own expansion by its own means but even penetrates into banks and insurance institutions and subjugates them to the needs of the industrial capitalists.
It is ironical that the exclusive concentration of National Socialist anti-capitalism on banking capital was preceded by the economic doctrine of the leading Social Democratic theorist, Rudolf Hilferding, who devoted a whole and deservedly famous book to showing how banking capital becomes the promoter ‘and finally the ruler in industry.’51 ‘In the final instance,’ he continues, ‘this tendency would lead to the fact that one bank or one group of banks obtains the control over the whole money capital. Such a central bank, therefore, would control the whole social production’ (page 218). As important as is his theoretical basis are the political consequences he draws. ‘As soon as finance capital has achieved control over the most important branches of production, the seizure of finance capital by society, through its . . . executive organ, namely, the state which has been conquered by the proletariat, is sufficient to achieve immediate control over the major branches of production’ (page 473). And already in 1910 he maintained that ‘the seizure of six big Berlin banks would already mean today the seizure of the most important spheres of the great industries.’
The economic theory of the Social Democratic party, however, lagged behind reality even before the First World War. For in 1910, when Hilferding’s book was published, the theory of the supremacy of the banks over industry was no longer completely true. Emil Kirdorf, one of the leaders of heavy industry, the representative of the most die-hard industrialists in Germany and a close friend of Hitler, who visited him on his 80th birthday and handed him the eagle shield of the Third Reich, had stated as early as 1905: ‘Never has the power of the banks over us been as weak as it is today.’52 Many competent economic observers in Germany shared Kirdorf’s view.
The relation between industrial and banking capital passes through three stages;53 in the early stage of large-scale industry, capital formation within industry is not sufficient for expansion. Industry needs large amounts of capital in single lumps. The banks organize the credit system by canalizing the savings of the masses, especially to the railroads. In this period the demand for money capital is indeed high, and correspondingly the power of the banks, whether in the form of the private investment banker as in the United States, or in that of the joint stock banks as in Germany. In the second phase, however, the accumulation of capital within industry increases to such an extent that industry becomes almost independent of the banks and is able to finance expansion out of undistributed profits. In the final phase, that of National Socialist monopoly economy, industry is often incapable of investing all its savings in its plant. It begins to expand into almost any other economic activity, and even begins to conquer banks and insurance institutions—and thereby assumes the role of the finance capitalist.
The fight against banking capital is not anti-capitalism; it is, on the contrary, capitalism and indeed often fascist capitalism, not only in Germany but in almost every other country. Those who do not tire of attacking the supremacy of finance capital (by which they always understand banking capital) thereby play into the hands of the most powerful and most aggressive groups in modern society, the industrial monopolists. Whenever the outcry against the sovereignty of banking capital is injected into a popular movement, it is the surest sign that fascism is on its way. The Bank-Archiv, which is closely connected with the economic group ‘private banks,’ ridiculed, therefore, with full justice the so-called socialist character of internal financing as asserted by heavy industry. Unfortunately the Bank-Archiv stops here. One step further and it would have recognized the sham of the whole National Socialist economic philosophy.
Finance capitalism is not dead; it is a reality and a very powerful one, too. The accumulation of undistributed profits by the corporations was not merely used for plant expansion and for an increase in stock, but it was as much utilized for the extension of the power of the monopolies over other enterprises. That we have already showed in detail. But we have still to prove the congruence of industrial and banking capital and the extent to which industrial capital penetrated into the banks. We have no other means of ascertaining this except by analyzing the composition of the supervisory boards. We select two banks, the Deutsche Bank and the Dresdner Bank.
In the Deutsche Bank, the supervisory board consists of two chairmen and thirty members. Only three of them belong to the administration of the bank, among them the vice-president of the Reichstag, Dr. E. G. von Stauss; four are connected with other banks; one may be considered as somehow representing public interests; those remaining are delegates of industrial combines, of the Haniel combine (heavy industry), of the United Steel trust, of the Hoesch combine (heavy industry), of the Mannesmann combine (represented by the leader of the national group industry, W. Zangen), of the chemical industry (Henkel and Pietzsch, who is also the president of the national economic chamber), of the Quandt combine, of the Dye Stuff trust, of the cigarette industry (Reemtsma), of the potash industry (Salzdethfurth), and of the automobile industry (the Duke of Saxe Coburg-Gotha). Not much different is the board of the Dresdner, which formerly belonged to the federal government. Its supervisory board has one chairman, three deputies, and twenty-seven members. Only the chairman belongs to the Dresdner Bank proper; one is a member of the Reichsbank, five belong to other banks, three to insurance institutions, three to the Göring combine, and the rest to private combines such as Krupp, Junkers, Flick, North German Lloyd, automobile industry, Wintershall and Bosch.
Industrial capital also pushes into the insurance corporations; Krupp, Röchling, and Mannesmann into the famous Allianz; the steel trust, Quandt and Hoesch, into the Gerling combine, to name but a few. They are thus also trying to control institutional investments. Nor is this all. Private industry and allied big banks have also penetrated into the mortgage banks, which finance agriculture by the issue of mortgage bonds. In the Rhenish Mortgage Credit Bank, we find representatives of Röchling, of the Dresdner Bank and of a number of private banks. The automobile industry, Krupp, the Dresdner Bank, and a number of private banks have entered into the German Central Real-Estate Credit Bank. The chemical industry, the Deutsche Bank, the Dresdner Bank, and private banks have entered into the Rhenish Westphalian Real-Estate Credit Bank. There is, I believe, not a single fully autonomous bank in Germany. No independent financial combines as they exist in the United States—even if their power is reduced—are to be found in Germany—in contrast to Austria of 1931 where the Austrian Credit Bank dominated industry and its collapse seriously threatened the whole industrial structure of Austria.
But even as far as the banks proper are concerned, they have not become simple governmental agencies. They in turn have expanded not only in incorporating private banks, especially the Jewish banking business, but in acquiring a number of commercial and industrial holdings, partly in the process of Aryanizing, partly in that of Germanization. The Deutsche Bank, for instance, acquired 90 per cent of the capital of the Banca Commerciala Romana in Bukarest—French and Belgian interests had to withdraw. Two of the Czechoslovakian Banks have fallen prey to the Deutsche and Dresdner Banks, other Rumanian and Yugoslavian banks have been taken over by a number of other German banks—so the Frankfurter Zeitung proudly reports on 4 June 1941.
Nevertheless, it is in the control of the banks that the influence of the state is great, so great that indeed a change in the sociopolitical structure must be admitted. A special statute of 1934 created a credit supervisory board54 composed of the president and vice-president of the Reichsbank directorate, a member appointed by Hitler, and the secretaries of state in the ministries of finance, economics, food and agriculture, and the interior. The leading influence belongs to the Reichsbank. The board enacts rulings which serve a dual purpose. They intend to prevent all those misuses in the banking system that had become apparent and were partly the cause of the banking crisis of 1931. The board may therefore issue rules fixing the amount of reserves, regulating the liquidity of the banks, controlling the granting of credits to employees of the bank. But the board exercises also an investment control. The actual supervision of the credit structure is carried out by a federal credit commissioner to whom is entrusted the actual supervision within the framework of the rulings of the supervisory board. O. C. Fischer’s article54 stresses the groups’ supreme importance in exercising the control of credits. Not only has the power of the private banks decreased in view of the significance of internal financing, but the banks have also been superseded to a large extent by the public financial institutions and by institutional financing (savings banks and insurance institutions).
The center of the credit structure is, of course, the Reichsbank, no longer an autonomous body controlled by the shareholders and the directorate, but, since 30 August 1934, simply an executive agency of the federal government.55 Section 6 of the new statute states that ‘The bank is administrated by the Reichsbank directorate which stands directly under the Leader and Chancellor; it consists of a president acting as chairman, and the necessary number of members. The Reichsbank directorate especially determines the currency, discount, and credit policies of the bank.’ By its power to discount bills the Reichsbank exerts considerable influence over the private banks. By closing the capital market to private industry it compelled the banks to invest primarily in government bonds—which the banks did without reluctance because of their high liquidity.56 It is, therefore, true that the control of credits no longer rests with the banks. But this does not mean that it rests solely with the federal government, since internal financing sets up a definite limit, and besides, government spending flows to a large extent into private industry.
Credit control, nevertheless, indicates a new phase in the development of the political structure of society. Under conditions of liberal democracy, the control of the credit machinery gave the banks a stranglehold upon the political machinery, while the independence of the central banks more than once was utilized by powerful financial and industrial interests to break the neck of any government that threatened their privileges. The history of France, of Great Britain, and particularly of Germany in 1923 and 1924 provides a large number of instances.
This private money capital can no longer do. Banks, insurance institutions, and savings banks cannot invest where they please. They can no longer organize investors’ strikes. The central bank can no longer sabotage the financial machinery, or paralyze a political system. In this field, the state has indeed absolute supremacy. But this supremacy does not mean that the flow of investments is planned. Indeed it is impossible to say that investment planning exists in Germany. Too large a sector, self-financing, is completely free from regimentation. Neither does the state’s sovereignty over the credit system mean that that control is exercised for the sake of universal interests. Nor does it mean that the banks are opposed to credit control. There is no longer any need for a banker to go on strike against the government since the short-term interests of the banks and of the government have become almost identical. The regime fulfils their expectations.
The supremacy of politics within the credit system, in spite of the reduced significance of that credit system for industrial capitalism, makes it again urgent to subordinate the political machinery to the needs of capital. The more the state regiments, the greater the urgency to eliminate the ‘accidents’ inherent in every democracy, that is, to make the political system safe for banking capital too. It is significant that some of the most powerful figures in the National Socialist hierarchy are outstanding bankers. Dr. E. G. von Stauss of the Deutsche Bank is a vice-president of the Reichstag; O. C. Fischer, originally of the Reichskreditgesellschaft, now a partner in a powerful private bank that greatly benefited from Aryanization, is the leader of the national group banking; Friedrich Reinhart, with the Commerz-Bank, is president of the Berlin stock exchange, leader of the economic chamber Berlin-Brandenburg, member of the central committee of the Reichsbank and of the advisory committee of the railroads; Kurt von Schroder of Cologne, the famous intermediary between Hitler, Papen, and Hindenburg in January 1933, sits in almost every important supervisory board. We may also mention again Kurt Weigelt, a member of the management of the Deutsche Bank, member of the colonial office of the National Socialist party and close collaborator of that arch-imperialist, Werner Daitz.* They are representatives of powerful banking interests and at the same time outspoken advocates of National Socialism.
The control of profits never has existed and does not exist today. The distribution of dividends has now been restricted to 6 per cent—it is even possible that some kind of undistributed profit tax might be levied on the basis of the so-called profit-freezing decrees of the price commissioner. They would not change the picture.
There is a control of credits, which, however, halts before one of the essential sources, self-financing, where the mechanism of capitalistic society fully asserts itself. The existing credit control strengthens the necessity for business to get power and more power over the state machinery.
Foreign trade may be a means of enriching a higher and better-organized nation at the expense of a less industrialized. This is the essence of foreign trade even under conditions of free competition. That was not Ricardo’s view. In the seventh chapter of his Principles he tries to prove that the profit rate can only be raised by the lowering of wages, while foreign trade, though beneficial to the country, never increases profits. We believe that on the world market commodities are not exchanged at their value, but that, on the contrary, a more industrialized country exchanges less labor for more. Foreign trade, under conditions of free competition, is thus the means of transferring profits. For this reason, foreign trade is one of the decisive means of counteracting the dangers arising from domestic over-accumulation and the saturation of the domestic market. The fight for a bigger share in foreign trade thus assumes paramount importance for every industrial nation. In addition, it brings in surplus profits that may even be, for a time, the sole source of profits. This fundamental impetus has not changed. What has changed are the methods.
As soon as Germany began to threaten England’s trade monopoly, the whole situation on the world market underwent decisive changes culminating in what amounts to a state-regimented foreign trade.
England’s supremacy was threatened when Germany achieved a monopolistic structure protected by tariffs. Monopoly and tariffs deeply affect the character of foreign trade; they give birth to dumping, that is, to a differential between domestic and export prices, to the cutting of export prices on the basis of a higher domestic price structure. ‘Once monopoly control has been achieved in the domestic market, it may pay, if domestic orders do not fully occupy the productive facilities, to bid for orders in other markets at prices lower than those exacted at home,’57 says America’s foremost expert in the question of dumping.
This, indeed, was the situation in Germany as early as the turn from the nineteenth to the twentieth century. England, the ‘have’ nation, was the country of free trade; Germany, the ‘have-not’ nation, was the country of monopolies and protection. The cartel system made it possible for a time to sell on the world market without profits, even at a loss, since the cartel rent and protective tariffs operated as an indirect tax levied upon the domestic consumers and paid to the cartels, and thus compensated the domestic industries for the temporary losses on the international market. Cartels and protective tariffs thus changed from a device for the protection of the domestic market into one for the conquest of foreign markets.
Dumping as a practice of German monopolies was the subject of a federal investigation as early as 1902, namely during the first federal cartel inquiry, and became the standard practice of German industry when industry openly became imperialistic. But this very process creates counter-tendencies, above all the monopolization of raw materials in the ‘have’ countries. Rubber and tin, oil and copper are, as every raw material is, conducive to monopolization. International cartels and pools raise the prices, curtail production, and thereby impose taxes upon the have-nots that heavily reduce their profits. The monopolization of the raw-material market has often been discussed and the super-profits accruing to the monopolists have often been attacked. There is no doubt that the mastery over the raw-material market tends to diminish the profits that are derived from industrial production.
But the monopolization of raw material has a second, a political, function. If a country like Germany is committed to expansion, the control of raw material becomes a political as well as an economic necessity. International cartel agreements, even if Germany shares in them, will not be sufficient to protect her interests. The supply of raw material may be cut off and her industrial production may be jeopardized at any moment. The security of the raw material supply thus becomes a problem to be solved by the state. The political power of the state must get control over territories where such raw materials are found. Moreover, during the Weimar Republic, the government’s gold reserves became depleted and raw-material imports could be paid for solely by the export of finished goods. But since the spread of protectionism made the export of finished goods more and more difficult, political control over territories producing raw materials seemed inescapable to a Germany committed to foreign expansion.
Not only the raw material supply, but also the export trade proper must ultimately rely upon political protection. Monopolies and tariffs in one country beget monopolies and tariffs in a competing country. Dumping by one state produces dumping by others, until a time comes when political power has to decide which competitor shall exploit the market.
This coalescence of foreign trade and politics receives a new stimulus by capital export. Capital export is not just one of the many phenomena of capitalism, it is the decisive phenomenon in the stage of modern capitalism. If the internal market is over-capitalized, if domestic investments do not yield returns, if the pace of economic expansion slackens, if domestic depression throws the economy out of gear, if the burdens cannot be fully thrown upon the large masses of the people because parliamentary democracy functions and trade unions operate, the need for capital export becomes more and more stringent. Capital export is the export not merely of money but also of industrial equipment. To secure a sufficient and stable return from investments, political means once again are necessary.
This is the secular trend of foreign trade: domestic monopolies and protective tariffs—dumping—monopolistic exploitation of raw-material producing countries—control of foreign trade to save gold for the payment of imports—capital export—demand for political guarantees of investments.
It is against this background that Germany’s foreign trade has to be understood. It is foreign trade in name only. Foreign trade and currency manipulation now become predominantly the means of subjugating foreign countries.
It is, therefore, nonsense to maintain that Germany aims at autarky or self-sufficiency.58 Autarky is not Germany’s long-range aim but a political necessity for a country out to wage war against a world that controls most of the vital raw materials. Autarky is the philosophy of a fortress about to be beleaguered. Even during the Weimar Republic the debate on autarky raged among economists and the wide public. The discussions, when we re-read them today, betray a complete unreality. Those who advocated self-sufficiency as a ‘new philosophy of life,’ as a ‘platonic idea’59 (like Sombart and Fried), wanted Germany to devote its energies to internal reconstruction and even to undo part of its industrial development and turn to agriculture. The statistics that the advocates of autarky appended to their books intended to prove that once the domestic resources of Germany were fully utilized (like low-grade iron ore and synthetic industries), Germany would become nearly independent of the outside world and only a narrow margin of imports would be needed, which could be paid for by the export of finished goods. The advocates of autarky thus demanded a ‘conscious withdrawal from the world economy.’ Apparently they did not expect that only one year later Germany would be committed to a rearmament program such as the world has never seen before, that industrial capacity would be expanded to tremendous proportions, and that enormous quantities of raw material would have to be imported, in addition to the full utilization of domestic resources—while re-agrarization remained a pious dream that was certainly not even dreamed by the National Socialist leadership except perhaps by Dr. Darré.
Autarky in Germany is not a new philosophy of life, it does not express the wish of the leadership, it does not imply the undoing of industrialization, it is merely a war measure intended to make Germany as independent as possible in foodstuff, fodder, fats and raw material. Its ultimate aim is the conquest of raw material bases and of markets for export goods. Free trade no longer opens such vistas. The world is divided among powerful states, each of them committed to protect its own economy. The higher the industrial capacity of Germany, the more foreign markets will be needed to absorb production. Even a completely Nazified Europe will not be sufficient. The grossdeutsche Reich will not be able to absorb the goods unless the process of industrialization in the conquered territories and perhaps even in the old federal territory is deliberately reversed. Even assuming that Germany will retain control of the whole of Europe (excepting Russia), the new order must still rely upon imports of foods, fodder, and raw materials—as a Brookings Institution study has convincingly shown.60 Yet even the figures this study mentions may be more or less meaningless, as the author admits. They do not and cannot take account of the amount of destruction wrought upon Europe. They cannot foresee whether Nazi Europe will receive co-operation or hostility from the rest of the world. One factor, however, will always remain. Germany will need enormous amounts of raw material to keep its industrial machinery going, and the greater the industrial machinery, the more it will need, and the more urgent will be the need for foreign trade with the rest of the world.
This is implied in Minister Funk’s speech of 12 June 1941, given in Vienna before the Southeastern Europe Society, headed by Baldur von Schirach; he insisted that extreme autarky would lead to the impoverishment of Germany and must, therefore, be rejected was the extreme international division of labor. Large-space economies and world trade are, in his view, not incompatible, and Germany demands ‘free access to the markets of all countries’—which, in his view, does not imply that other competitors should be arbitrarily excluded.61 The most comprehensive analysis of Germany’s foreign-trade policy yet undertaken62 comes, indeed, to a wholesale refutation of the autarky philosophy.
Autarky is indeed incompatible with Germany’s imperialist population policy. Autarky would imply the reduction of the standard of living to the lowest level and ‘is thereby the means of making impossible an active population policy.’63 Autarky is incompatible with the doctrine of social imperialism, which, as we have tried to show, is directed against the Anglo-American ‘haves.’ Therefore, it is merely a transitory phenomenon, and not even a complete one—whether it is a ‘small’ or ‘large-space’ autarky.
As a result Germany will be driven to the conquest of the world market, for it is an indisputable fact that the bulk of surplus goods is absorbed not by trade with colonial, semi-colonial, and non-industrial states, but by trade with industrial nations. To trade successfully with them, that is, to transfer from them more labor for less labor, can no longer be carried out by mere economic exchange but only with the help of political domination that incorporates the states into Germany’s currency system.
National Socialism has always recognized the supreme importance of foreign trade.64 ‘We know that the geographic location of Germany, poor in raw materials, does not permit complete autarky for our Reich. It must be insisted again and again that the federal government is far from being hostile to exports. We know that we need connections with the world and that the sale of German commodities nourishes many million Germans.’ This was Adolf Hitler’s view on 23 March 1933.65
Germany’s trade policy encouraged export trade wherever it could. A federal foreign-trade board was established (October 1933) as a liaison agency to the ministries of economics and foreign affairs. It is assisted by a foreign-trade council composed of the most powerful representatives in foreign trade. Federal export insurance, formerly the business of private insurance corporations, was now given by the state. Trade with Russia had always received favorable treatment, and Germany often advanced money to Russia. Similar agreements were made with the Balkans. Reduction of transportation rates, tax privileges, direct subsidies by blocked marks, and collective levies raised within the economic groups (28 June 1935) gave additional stimuli.
The policy was successful on the whole, though the annexation of Austria worsened the condition of foreign trade.66 A number of methods were used for the purpose of securing raw material and of conquering foreign markets, namely the control of foreign currencies, the manipulation of clearing agreements, and barter-trade methods. It is these aspects of Nazi policy that are best known to the outside world.67 Control of foreign currency proved an excellent means of getting rid of foreign debts. It is a well-known fact that the bigger the debt, the more powerful the position of the debtor. To owe huge debts gives power—this is one of the anomalies of every credit system. It makes it risky for a creditor to insist on the payment of a huge debt if that insistence might lead to the destruction of the very existence of the debtor. Big debtors must, therefore, be handled with care, they must be treated like hens laying golden eggs—in the future. To this general observation there must be added the solidarity of international capitalism. To insist on German payments might, in the view of the creditors, have driven National Socialism into Bolshevism. This was indeed the music that Schacht played with success.
German indebtedness to foreign creditors was high. The Layton-Wiggin Committee appointed on recommendation of the London conference of 1931 established it at 23,000,000,000 marks—8,000,000,000 in long-term, 9,000,000,000 in short-term loans, and 6,000,000,000 in other investments.68 The depression and the collapse of international trade (see note 66) made the flow of gold from Germany and the payment of reparations extraordinarily difficult. This difficulty was overcome, however, by the Hoover moratorium, which Congress ratified on 22 December 1931. Reparation payments ended in the middle of 1931. But these payments never were a considerable drain on German resources. From 1924 to July 1933, 11,400,000,000 marks were paid,69 though that figure is disputed as too high. How little the reparation payments amounted to may be gathered from the fact that domestic savings from 1925 to 1928 amounted to 25,000,000,000 marks and those from 1925 to 1930 to about 45,000,000,000 marks.70
While reparation payments were thus ended, the payment of private debts still remained a problem. The legal means of stopping them was the decree for the control of foreign currency enacted by President von Hindenburg on the basis of Article 48 of the Constitution on 15 July 1931; this decree served in turn as the basis of a number of other decrees, which were ultimately codified in one comprehensive regulation.71 Control of foreign currency was vested in the Reichsbank, which, together with the Gold Discount Bank, was exempted from control. All others had to have permission to acquire, sell, or otherwise dispose of foreign-currency holdings and securities above a certain amount. Exemptions were to be granted by the Reichsbank. Future trading in foreign currency was forbidden and securities acquired after a certain date were to be reported to the Reichsbank. The legislation proved only partly efficient. The drain on gold and foreign currency continued and the gold reserves of the Reichsbank fell from about 3,000,000,000 marks in the middle of 1930 to 991,000,000 in December 1932, and finally to approximately 78,000,000 in 1939. This, in spite of the various standstill agreements concluded between the German debtors and the foreign creditors, first in August 1931, and changed and renewed at various other dates.
The democratic government of Germany refused to go again the way of devaluating the mark, as Great Britain had done in 1931 with its own currency. This refusal was perhaps not so much a result of economic reasons as of psychological. The terror created by the inflation of 1923 was not yet forgotten. There even existed political groups thriving on the inflation and fighting for revaluation. The government tried to check the drain on currency by sharpening the foreign-currency control legislation.72 Permission was now necessary for the paying of imports, foreign services, for the amortization and interest on foreign debts.
The new currency legislation, of course, affected foreign trade. The currency control authorities had already the power to control the flow of imports and thereby the allocation of raw materials.
This was the situation when National Socialism came into power. The reparation problem had ceased to exist, but the deficit in capital payments was still heavy. It could still be met by Germany’s export surplus of about 1,000.000,000 marks (see note 66) but it was doubtful, indeed unlikely, that the export surplus could be maintained. The devaluation of the mark by National Socialism was still more out of question, since National Socialist propaganda had lived for years on the denunciation of the democratic parties as responsible for the 1923 inflation. The new regime started with a transfer moratorium, which was followed by a full moratorium in 1934. German debtors had to pay their international obligations into a conversion office for foreign debts, which, at discretion, could make payments to foreign creditors. Only the Reichsbank and the obligations arising from the standstill agreements were exempt, although certain concessions were wrought from time to time by one or other creditor nation. At the same time the control of foreign currency was transferred to a special agency, until, on 24 September 1934, Schacht’s new plan went into operation and the manipulation of foreign currency became entirely a function of foreign trade. The supervisory boards and later the Reichsstellen* controlled the flow of imports. A clearing office was established, a number of obligations were denounced. By clever manipulation of the stock and bond market the standstill debts were heavily reduced (to 4,100,000,000 marks in February 1933) while the subsequent standstill agreements and currency legislation tightened the control and closed existing leaks.
Control of foreign currency changed from a means of supporting the rather tottering German currency, into a powerful device for controlling foreign trade and thereby subjugating foreign countries. The currency-control offices and the Reichsstellen could, at will, stop any imports from any country so as to soften it. The law for the protection of the German commodities export of 22 September 1933 made possible the establishment of import quotas, the quotas being regularly determined by the treatment accorded to German exports.
Within a very short time bilateral trade agreements became the rule. Export and import prices were often arbitrarily determined.73 Prices for food-stuffs to be imported, especially those paid to the Balkan peasants, were certainly high in terms of local currency, but the aim, of course entirely propagandist, was to win the masses of the peasants for Germany. The hold that currency and import control gave Germany over most of the exporting European countries was strengthened by clearing agreements and barter contracts.
The essence of the clearing agreements, which soon became the condition without which trade agreements could not be concluded, is as follows: German debtors paid into the Reichsbank or into a clearing account while the foreign importers paid to their central agencies. The balances were then adjusted. If Germany had a surplus in relation to another country, that currency surplus was used to pay her debts to a third over-seas country for raw material. The agreements were made partly with central governments, partly with central banks. The function of the clearing agreements has been admirably described by Douglas Miller.74
Exporters in Germany would ship, for example, to Yugoslavia and be credited with the mark value of their shipments by the German Reichsbank. Yugoslav exporters to Germany would be credited in dinars by the central bank in Belgrade, with the two banks balancing accounts. Payment was credited to the exporters in each country in their local currency, and at the time of the year the balance would be carried forward in favor of one or the other country to apply against next year’s transactions.
The aim of Germany’s trade policy thus became exceedingly simple: to buy from a country as much as you can; acquire for instance the whole crop of a country—but without paying. The increase in imports even led to the importation of finished goods in competition with German industry.75 As a result of this policy Germany was in the process of becoming a huge debtor nation—on clearing accounts. We have already mentioned the case of Denmark under German occupation.* Today the accumulation of debts within Nazified Europe is a simple matter. But even previously the economic position of certain countries, especially the Balkan states and some Central and South American states, played into Germany’s hands.76 There was no consumer for their agricultural over-production except Germany. The western democracies, which still pursued a policy of appeasement, were unable or unwilling to see that the fight against National Socialism must be fought on all fronts, not the least being the economic one, and that economic war could be waged only by taking over the surplus production of the threatened nations.
Germany not only gained a supply of some raw materials and food-stuffs by the clearing system, but also succeeded in economically subjugating the countries she traded with. The National Socialist economists have therefore described the clearing system as the most powerful means of currency and trade politics.77 Berlin has become the clearing center and the Reichsmark has been deliberately overvaluated in comparison with the currencies of Holland, Czechoslovakia, Yugoslavia. Clearing thus became the basis for what is called a ‘planned exchange of commodities.’78
Barter and clearing also gave an excellent means of flooding a country that had claims against Germany on the clearing account with overvaluated or depreciated export goods, the creditor nation often being glad to receive at least that.
This then is, in the briefest possible outline, the course of Germany’s trade policy. In it Germany’s imperialist character is most apparent. Here the change in the methods of German capitalism is most manifest. Here the congruence of economics and politics becomes a complete identity of interests and aims.
It is, we repeat, nonsensical to believe that Germany aims at autarky and renounces foreign markets. Autarky is on the contrary merely a preparation for the conquest of world markets. Since the world market is divided among powerful contending states, it can no longer be conquered by trade and investments but only by political means. And since trade between industrial states is the essence of foreign trade, the political conquest of the world is and must be the aim of National Socialist Germany if she wants to survive as a highly industrialized nation. If Germany is willing to transform Europe into a primarily agricultural state, if she is willing to reduce the standard of living of the masses in Europe, she may indeed renounce the conquest of the world. But is it conceivable that a highly industrialized state should voluntarily abandon economic progress? In our opinion, it is not. Germany, if defeated, may be compelled to withdraw from the society of highly industrialized states, but that is certainly not the policy of her present government. It would be a complete negation of the whole history of German industrial capitalism. On the contrary, it is the high productivity of the industrial apparatus, the pressure for foreign markets, and the need for satisfying the vital material interests of her masses that have driven Germany into a policy of conquest and will continue to drive her to still further expansion until she is defeated or has fulfilled her aim. It is the dynamics of a fairly young, aggressive, monopolized country that is the prime mover of Germany’s expansion.
It is in the control of the labor market that National Socialism is most sharply distinguished from democratic society. The worker has no rights. The potential and actual power of the state over the labor market is as comprehensive as it can possibly be. The state has already reached the utmost limit of the labor market control.
It might, therefore, be argued that since the freedom of the labor contract has ceased to exist, capitalism has ceased to exist in Germany. For capitalism, one might say, is built on free labor, and free labor distinguishes capitalism from any previous economic system. That is the view of all economists, from Karl Marx to Max Weber. The view is certainly correct. But we have to define what we understand by free labor and the freedom of the labor contract. There are three different concepts of freedom of labor, expressing different stages in the development of capitalism.
Freedom can mean the individual right of the worker to bargain with his employer on the basis of legal equality. Such freedom characterized liberal capitalism and found its best expression in the lex Le Chapelier of the French Revolution. There is,’ Le Chapelier said on 14 June 1791, ‘only the interest of the individual and the interest of the commonwealth, and no one is entitled to win over citizens to the pursuit of any interests that conflict with these and that alienate them from service to the state through the medium of corporate interests.’ Such freedom, hostile to trade unions and collective bargaining, characterized European labor policies for decades—in France until 1864, in Germany until 1869, in England until 1871. It meant either outright prohibition of trade unions or their mere toleration. Such law gave the power to the worker to determine formally the price of his labor power—but it failed to take into account that, in relation to him, the employer always is a monopolist and that, in consequence, freedom also veils exploitation.
Freedom of the labor contract may also mean the material right of the laborer to determine the price of his labor power—by means of collective organization and bargaining. This material freedom does not negate the formal freedom, it merely fulfils it; formal and material freedom do not contradict but supplement each other. The material freedom of labor, to bargain with the employer on a basis of factual equality, was achieved by the triumph of trade unionism after the First World War. Neither of these two types of freedom exist under National Socialism.
But there is a third type of freedom, upon which the other two types rest—the freedom consisting in the mere rejection of slavery and servitude. This concept of free labor is polemical, directed against any kind of servitude. The feudal contract was a contract of faith, involving the whole personality of the worker without distinguishing between labor and leisure. Such contract is incalculable and unpredictable, it controls man in all his aspects, it demands complete subservience. In such a contract the worker does not sell himself for specific services and for a specific time, but for any service that might be required and for his whole time. In Prussia, remnants of such feudal labor relations existed until the end of 1918. The famous Gesindeordnungen, for domestic and agrarian personnel, granted the police the power forcibly to return the workers to their employers if and when they left their services in violation of their contractual obligations.
Freedom of the labor contract means, then, primarily a clear distinction between labor and leisure time, which introduces the element of calculability and predictability into labor relations. It means that the worker sells his labor power for a time only, which is either agreed upon or fixed by legislative acts. It also means, though not primarily, that laborers sell their time only for specific performances, which are defined by agreement, statute, or custom, and that they are not obligated to do any kind of work their employer might arbitrarily determine. This type of freedom prevails in the period of primary accumulation.
Such freedom of the labor contract still exists in Germany. The labor contract is still the form that rules labor relations. The distinction between labor and leisure is as sharp in Germany as it is in any democracy, even though the regime attempts to control the worker’s leisure time. In the next chapter we shall have occasion to deal with the development of labor law and we shall try to prove that every attempt of the National Socialist lawyers to supersede the labor contract by another legal instrument (such as community relations) has failed, and that all relations between employer and employee are still contractual ones.
To be sure, the identity of the basic pattern does not say much about the actual operation of the labor market, and it is here that the sharpest possible difference exists between democracies and totalitarianism.
A free labor market does not, of course, exist when trade unions bargain collectively. The price of labor power is not merely the result of supply and demand, and the pressure from industrial reserve army is partly overcome. Wages are also determined by the social power of trade unions. Workers’ organizations attempt to transform the mere legal fact of the free contract into genuine material freedom. Yet we must not overestimate the power of the unions. If all their activities are not subordinated to the interests of small aristocratic groups within the labor movement, and if they really strive to improve the wages and labor conditions of the working class, their power is extremely limited. We maintain that their power is primarily of a defensive character. This thesis cannot be proved here. I must content myself with the bare assertion which I believe to be true and which can be substantiated by research. In the upward business cycle, wages normally increase. But the increase is, as a whole, the natural outcome of improved economic conditions. It is rather in the period of contractions that the power of the trade unions manifests itself and that their influence makes itself felt. It is always easier to defend a position than to conquer a new one. The policy of the German trade unions during the depression of 1931-2 proves my contention.* Though they could not prevent wage cuts, they could and did prevent the complete adjustment of wages to the low of the business cycle, and it was their very defensive strength that made them the target of industry. It is this aspect of autonomous labor-market control that National Socialism has destroyed. Yet it is no longer necessary under conditions of full employment. If the effective demand for labor far exceeds the supply, no defensive organizations are needed to prevent the fall in wages; what is needed rather is offensive unions fighting to adjust the wage scale to full capacity. It is the function of the National Socialist policy to prevent such adjustment.
For in contrast to business, labor has no organization of its own. There is no autonomous organization of the working classes corresponding to that of business. There is no organization of labor for the control of the labor market, corresponding to the cartels. The German labor front is not an autonomous organization of labor, for it does not consist solely of workers and employees, nor is it a marketing organization. We shall deal with its functions later.†
The aims of the National Socialist labor-market policy are clear and directly expressed. Since two descriptions of that kind exist,79 it is not necessary to add here a third one. We are primarily concerned with the functions performed by that policy and with its principles. They may be defined as: (1) the full utilization of manpower for productive purposes (Arbeitseinsatz); (2) the raising of the productivity of each individual worker and the simultaneous stabilization of the wage level.
The utilization of man-power means two different things: the introduction into gainful employment of as many people as possible not yet gainfully employed, and the shift within the gainfully employed from industries and trades where labor is not needed into other branches suffering from a shortage.
The number of gainfully employed rose, of course, steadily from 17,817,000 in 1929 to 22,617,000 in January 1941.80 Preparedness and war have also led to an increase in the employment of women, especially in transportation and industry. While in 1933 women constituted 37.3 per cent of all workers employed in industry and in 1936 their share was reduced to 31.8 per cent, it had already reached, in October 1940, 37.1 per cent. In absolute figures, the number of employed women rose from 4,700,000 in 1933 to 6,300,000 in 1938 and 8,420,000 in January of 1941.81 The labor reserve, represented by women, is not yet exhausted, for the total number of women capable of working is estimated at between 10,000,000 and 12,000,000, and for this reason, the ways and means of mobilizing the reserve of women are being increasingly discussed.82
The labor supply was further increased by the combing-out of handicraft and retail, already described,* and the closing down of plants producing consumption goods.† To these figures must be added the alien workers, partly composed of workers imported into Germany on the basis of international agreements (1,100,000 in October 1940)83 and partly of war prisoners.84
There is no doubt that although the labor reserve is scarce, it is not yet exhausted and three more million women can be introduced into the productive process. More plants producing consumption goods can be closed down and more workers from the occupied territories can be shifted to Germany proper.
But the policy of utilizing the available man-power to the utmost equally implied the increase in the supply of skilled labor, and that in turn meant the repatriation of skilled labor from other branches in trade and industry, compulsory training and the shortening of the apprenticeship period.
The policy of transferring people to productive work has been brutally carried out, without regard to humanitarian considerations. The legal acts on which this power rests have become more and more stringent. They began with the decree for securing labor power of 22 June 1938, issued by the Four Year Plan office, which obligated every German citizen to work on a fixed place for a fixed period or to submit to compulsory vocational training. The decree did not go far enough. It was soon superseded by that of 13 February 1939,85 extending the obligation to all inhabitants of the federal territory and making the service compulsory for indefinite periods. Every inhabitant of the territory, foreigner or citizen, already employed or not, man or woman, juvenile or adult, may be summoned to do any kind of productive work for a fixed or an indeterminate period. If he is summoned for a definite period and already employed, the labor contract remains in force; if he is summoned for an indefinite period, it lapses. The compulsory service is carried out under a labor contract. The moment an individual receives an order that summons him to work for a specific employer, a labor contract between him and the employer is deemed to be concluded. This contract is regulated by all legislative and administrative provisions under which the free labor contract stands. It can be ended, however, only with the consent of the labor exchange.
The same decree also considerably reinforced the legislation intended to prevent the workers from changing their place of employment by empowering the minister of labor to make the dissolution of the labor contract dependent upon the consent of the labor exchange.86 A later decree forbade the dissolution of the labor contract by both parties without the consent of the labor exchange; this consent is also required in the hiring of workers, except miners and domestic workers in households with children below 14 years of age.87
This comprehensive regulation is, however, supplemented by others equally far reaching. While this act aims at increasing the labor force in the economic sphere, the emergency service act of 15 October 193888 gave the authorities the right to summon ‘inhabitants of the federal territory in cases of public emergency or for training purposes for a limited time.’ According to the ruling of the Four Year Plan deputy, it is primarily the police which has received these powers. The emergency service, being a political function, is not based upon the labor contract. The decree, incidentally, reveals that the regime places the workers above the National Socialist officials, civil servants, or free professions. If an employee is called for emergency service exceeding three days, the labor exchange has a right to protest. But if civil servants, political leaders of the party, its clerical and labor staff, employees of the health services, or lawyers are summoned, no notice even need be given to the labor exchange. Only persons of less than 15 and more than 70 years of age, mothers of minors under certain conditions, pregnant women, and invalids are exempt. In the protectorate, only the president of the protectorate and the president and members of the government are free from emergency service. The army, the two S.S. police troops, and the air raid protection workers are exempt by the very nature of their work.89 The emergency workers receive certain emoluments and family support, which is finely differentiated according to the previous income of the worker summoned to service.
We may thus say, briefly, that the worker does not enjoy any freedom. He cannot choose his place of work or kind of work, he cannot leave at will, but, as a rule, he cannot be fired without the consent of the labor exchange—a protection quite unnecessary today.
The executive agency for the full utilization of man-power is the labor exchange whose work is co-ordinated with that of other agencies by the defense commissioner.* The labor exchanges have now (since 28 June 1935) absolute monopoly over employment service, thus completing a development that has started under the Weimar Republic.
Originally the Federal Institute for Labor Exchange and Unemployment Insurance was a semi-autonomous body (statute of 16 July 1927), run by the trade unions, the employers’ organizations, and the representatives of public authorities, under the control of the minister of labor. It had a regional and a local set-up. National Socialism changed the structure from top to bottom. The provincial and local labor exchanges are now simply executive agencies of the ministry of labor (25 March 1939) while the head office has been incorporated into the ministry of labor. Its president (the inevitable Dr. Syrup) has been appointed secretary of state in the ministry of labor. Only the financial administration is under a separate body, serving merely accounting purposes.
The device by which that control is exercised is the work book that was gradually extended to cover every branch of trade and industry. Every employee must possess a work book in which all data relevant to his occupation are entered, such as apprenticeship training, former employment. It must indicate flying experience, and training, and experience in agricultural work. The work book has, of course, lost its significance as a condition necessary to procure employment, but it is a fully developed method for terrorization of the worker; at the same time it provides a means for statistically controlling the labor supply.
The regime also strengthened the power of the labor trustee, both as regards his power to issue wage regulations90 and his authority to inflict fines for the violation of any of his rulings and orders.91
While the mobilization of the available labor supply has been achieved successfully, it is questionable, and far from being clear, whether the raising of the productivity of labor has been equally successful. For it is in this that the last remnants of the market mechanism are still operating. The regime cannot place behind each worker a S.S. man who at the point of his gun forces the worker to work harder and faster. Consequently, new methods of industrial warfare, hitherto unknown to German workers, have apparently risen methods more akin to revolutionary syndicalism than to German trade unionism. Passive resistance, the Ca’ canny, or the slowdown, one of the decisive methods of syndicalist warfare, attempted on a large scale first in 1895 by Italian railroad workers, advocated by Emile Pouget and Fernand Pelloutier of the French syndicalist movement, applied successfully by the Austrian railroad workers in 1905, 1906 and 1907 in the form of scrupulous compliance with all traffic and security regulations, has seemingly come to the front in Germany. The slow-down staged by the German workers is certainly not an open or very marked policy, which would spell death for the leaders and concentration camps for the followers. It consists in the refusal to devote all energy to work, and sometimes in the determination to give much less than the normal.
It is, of course, difficult to prove our contention, since it is next to impossible to evaluate statistically the average output per man; and besides there is nothing so closed and so veiled in secrecy by the regime as the response the regime has evoked within the working classes. We have, however, one proof: the slow-down of the miners in 1938 and 1939 and the resulting changes of the regime’s wage policy. The average productivity of the miners dropped in the Ruhr district from 2,199 kilograms in 1936 to 1,964 kilograms in 1939,92 and with it the whole coal production. As a result a special deputy was appointed to raise the productivity in the coal industry. The labor time below ground was extended from 8 hours to 8 hours and 45 minutes, but piece work and over-time pay had to be increased by a special decree of 2 March 1939.93 The decree granted the miners not only 25 per cent of the wage as overtime pay, but gave them an additional 200 per cent premium for additional increase in productivity.
But apparently a new and much greater victory was won by the masses of the workers during this war.
The war economy decree of 4 September 1939 provided not only for price freezing but also for wage freezing.94 To understand the wage-freezing decree a few introductory words are necessary. The act for the regulation of national labor of 20 January 1934,95 the German charter of labor, had created the office of the labor trustee, a federally appointed civil servant who replaced the collective agreements between trade unions and employers’ organizations. The labor trustees received the right to enact tariffs, that is, rulings containing wage scales and labor conditions for a whole industry within their territory. The new tariffs were, on the whole, identical with the collective agreements, with the difference, however, that they applied not only to organized members of the contracting parties but to every employer and employee working in that specific branch of trade or industry. The tariffs were in consequence minimum regulations leaving it to the individual agreement between the employer and the employee or to agreements between a plant and its workers to improve the working conditions.
Already the decree of the Four Year Plan deputy of 25 June 1938 authorized the trustees to fix in certain trades (building and metal) not only minimum but also maximum wages in order to prevent the exploitation of the labor shortage by employers and employees alike. The wage-freezing provision in the war-economy decree now gave the trustees the power ‘to adjust at once according to orders of the ministry of labor the earnings of labor to the conditions created by war and to enforce maximum wages, salaries, and other labor conditions.’ The decree thus empowered trustees arbitrarily to interfere with the existing structure of wages and labor conditions without regard to existing obligations.
Since then, it is not the minimum but the maximum wage that has been the rule.
Soon, however, this new authority vested in the trustees was deemed insufficient. A large number of acts gradually shifted to labor the burdens caused by the exigencies of war. If, for instance, in the process of shutting down plants, dismissals appear necessary, the trustees may (and do so regularly) shorten the dismissal periods foreseen by statute, tariff regulation, or individual contracts.96 It expressly forbade employers to pay the usual wage provisions for overtime, Sunday, holiday, and night work, and invalidated all provisions contained in statutes, tariff regulations, or individual agreements granting paid or unpaid holidays, thereby destroying an achievement of which National Socialism had so much boasted. Moreover, it empowered the minister of labor to change all provisions concerning labor time.
Nevertheless, at least one attempt has been made to prevent employers from reaping profits from the abolition of overtime pay and other regulations. They were compelled to deliver such additional profits to the federal tax offices, though later this duty was considerably abrogated.97
All this, however, was deemed insufficient, and another executive decree finally created a ceiling of wages98 prohibiting raises of wages, salaries, and other compensations and changes in the piece work provisions. How rigidly the wage-freezing decree is carried out may be gathered from the tariff regulation of the labor trustee for Berlin, which fixes the salaries of Berlin commercial employees.99 Not only is it prohibited to increase salaries, but even the adjustment of lower salaries to the new salary scale is expressly forbidden. Even Christmas bonuses must not exceed the amounts paid the previous year.100
The war legislation did not stop short at wages. It went out to destroy the whole protective legislation of labor, of which Germany was rightfully proud. Statutes and regulations fixing a maximum working time for male workers and salaried employees above the age of 18 were repealed by the decree of the ministerial council for the defense of the realm,101 and the administrative agencies were entitled to deviate from the whole existing labor-time legislation with regard to juveniles between 16 and 18 years of ages. They may, in urgent cases, be employed up to 10 hours daily, not exceeding 50 hours a week.102 Juveniles below the age of 16 may be employed in urgent cases, if they have to attend occupational training and trade schools, up to 10 hours, but when training does not take place, up to 48 hours a week; practically all regulations prohibiting Sunday and holiday work for juveniles have been rescinded.
Hand in hand with this downward revision of wages, salaries, and labor conditions went the destruction of unemployment insurance—which, though of little practical value in a period of full employment, may at any moment be of major significance. The new decree of the ministerial council for the defense of the realm103 no longer considers the support of the unemployed as insurance but as help, and accordingly makes it dependent on a rigid means test. It is true that the new decree contains some improvements over previous legislation; the waiting period and the time limit are abolished. But since the benefits are considerably reduced, since the means test is rigidly carried out, and since assistance may be refused if the unemployed rejects an offer of employment, the financial obligations toward the unemployed are not great.104 However, the profits that accrue to the government from the contributions to the unemployment assistance scheme are enormous. The joint contributions of employers and employees, raised in 1930 from 3 to 6½ per cent of the nominal wages, are retained. The total expense in 1937, at a time when full employment had not yet been reached, was already 1,058,000,000 marks, of which 9,600,000 marks were spent for incapacity insurance, 674,300,000 for work creation policy, 6,200,000 for subsidizing the Saar region, while 368,800,000 were paid to the federal government.105 In late years practically the whole income has gone directly into the federal government treasury.
Thus, it is clear that the intention of the regime at the outbreak of the war was not only to establish a ceiling of wages but to abolish all social gains made in decades of social struggles.
But it is at this point that passive resistance seems to have begun on a large scale. The regime had to give way and to capitulate on almost every front. On 16 November 1939,106 it reintroduced the additional payments for holiday, Sunday, night, and overtime work. On 17 November 1939,107 it reintroduced paid holidays and even ordered compensation to the workers for previous losses. On 12 December 1939,108 the regime had finally to enact new labor-time legislation, and strengthen the protection of women, juveniles, and workers as a whole. The regular working time is now 10 hours a day, or 60 hours a week, though an extension of the labor time is permitted in a number of cases. The employment of women and juveniles beyond the limits foreseen in the youth protection act of 30 April 1938 is prohibited. Night work is now possible only in extraordinary cases and then only with special permission. Overtime payment is 25 per cent. We cannot here go into the details of the new regulations, which have from time to time been modified.109 They signify in my view a defeat of the regime and a victory of the working classes. This may be seen from the wording of the decree reintroducing payment for overtime. It justifies the reintroduction of bonuses by the blackout; it asserts that Sunday work brings special hardships upon the workers; and that the abolition of additional payments was only a temporary measure. If the blackout had been more than a pretext, it would not have been necessary to reintroduce over-time payment for the whole territory. The wording of the decree is intended to veil the defeat of the regime.
It may be true that the partial restoration of the workers’ rights has primarily been the result of the ‘phoney’ war of 1939, which made it unnecessary to demand high sacrifices. The enactment of a decree for assistance of part-time employed workers seems to support this view.110 The regime apparently expected that the war on the western front would necessitate the closing down of many plants in the west; that, as a result, production in other plants would have to be stepped up, labor time extended to the utmost, and provisions made for those who became fully or partly unemployed because of the closing down. This did not happen. The plants situated in western Germany worked to full capacity and the stringent legislation could be relaxed.
To raise the productivity of labor, the regime used not only terror and propaganda, but also ordinary wage incentives.
It also used other methods. The shift from consumption to production goods111 and the increase in the volume of production necessitated an occupational shift in the working classes. Apprentices had to be trained and, as a result, vocational training was made compulsory. Certain branches like building and engineering were compelled to hire apprentices according to a fixed ratio between journeymen and apprentices. Skilled workers who, during the depression, had migrated to other professions had to return to their old ones. As a result, there was a considerable decline in the number of agricultural laborers. The census of 1939 showed that labor employed in agriculture and forestry dropped by 1,145,000, that is, by more than 10 per cent.112 The gap had to be filled by war prisoners and foreign civilian workers.
Still the decisive question whether the average productivity of labor has increased cannot be answered. We believe that because of the exhaustion of the workers, the employment of too young or too old people, and of insufficiently trained workers, the average productivity of the worker will be lower than in 1929, despite rationalization and increased volume of production.
Labor has been delivered to authoritarian control, as completely as possible. The labor market is regimented.
We have come to the end of our tiresome journey through National Socialist economics. We have not explored every by-path. We have not touched the subjects of the agrarian market and the food estate. A discussion of the latter is today quite unnecessary, since it is now merely a governmental agency without any independence; the social position of the peasant will be dealt with in our next chapter.* We have not discussed war financing. Suffice it to say that the problems, although formidable, have been overcome. War financing is done by revenues consisting primarily of: the income tax plus a war surtax of 50 per cent, with the provision, however, that tax and surtax together must not exceed 65 per cent of the income; war surtaxes on consumption goods (beer, champagne, alcoholic beverages, tobacco); increased contributions by the states and municipalities to the federal government; the corporation tax, which had already been raised before the war; the issue of government bonds; the anticipation of future tax revenues; short-term borrowing. They all and more provide the financial basis for warfare. Full employment and the low exemptions in the income tax, the high liquidity of banks, mortgage banks, private and social insurance institutions, and the government’s tight hold on the credit structure have made financing of the war not an exceedingly difficult task. Owing to full employment, national income rose considerably.113 It must be mentioned, however, that the surtax of 50 per cent does not affect the wage earners who earn less than 234 marks a month or 54 marks a week or 9 marks a day, and they are a huge section of the wage earners. In other words, the taxation policy has not shifted the burden of war financing upon the large masses, wage and salary earners. Indeed, the wage and salary tax levied since 1919 has not been increased by National Socialism. The contributions to social-insurance institutions have not been raised since 1930. Only the contributions to the party and its auxiliary organizations constitute a heavy burden, as shall be seen later. Anyhow, the curtailment of consumption has not been effected by taxation.
Though we have not aimed at completeness, we believe that we have covered the major phenomena of German economy and we are now able to piece the many parts together into a whole. Three problems have confronted us again and again.
How is the organization running?
What is the generating force of the economic system?
What is its structure?
The present efficiency of the organization would have been impossible without the smoothness and completeness of the organizational structure of business already achieved under the Weimar Republic. The groups and chambers have here, for decades, acted as the centers in which industrial, commercial, financial, and technical knowledge has been pooled, deepened, and systematized. The groups and chambers are the mediators between the state bureaucracy and the individual enterprise. In the rationing of raw materials and of consumers’ goods, in rationalization, in the allocation of public orders among businessmen, in price control, credit control, and foreign trade, the groups and chambers are active, partly as advisory bodies, partly as executive organs to which the state has delegated coercive power.
The completeness of the cartel organization, also achieved under the Weimar Republic, is another contributing factor. As marketing organizations, the cartels have for decades studied the markets closely, followed every fluctuation, and were thus able to place their long experience at the government’s disposal. In consequence, the cartels have, during the war, become privately controlled public organs, especially in the allocation of raw material.
The efficiency of the organization also owes much to the ministerial bureaucracy and the complete absence of the ‘heavy hand of the treasury.’ The German ministerial bureaucracy has always been highly competent, and the experience it has gained in the railroad and postal services, in the Reichsbank and other public financial institutions, in the currency-control offices, in the federal- and state-owned industrial organizations has prepared it for the gigantic task of running a war economy of such size. Credit must also be given—perhaps more than to any other factor—to the high training and skill of the German worker and the system of occupational training during apprenticeship, in trade schools, technical schools—all of which was achieved under the Weimar Republic by the states, the municipalities, the trade unions, and, to a lesser degree, by industry.
The contribution of the National Socialist party to the success of the war economy is nil. It has not furnished any man of outstanding merit, nor has it contributed any single ideology or organizational idea that was not fully developed under the Weimar Republic.
To show in detail how the machine is operating is, however, much more difficult. I shall try to analyze a few typical cases.
Let us take a medium-size entrepreneur. He must be a member of his group and of his local chamber of industry and commerce, and he may or may not be a member of the cartel. If he works unrationally, that is, if his production costs are too high, a number of things may happen. The general deputy* under the Four Year Plan may ask his group to investigate. The group will report and submit its recommendation, to close down the plant or to modernize it or to let it continue as it is. If the report condemns the plant, the general deputy may execute the sentence indirectly or directly. If the entrepreneur desires raw material, the Reichsstelle† or the distributing agency‡ (cartel or group) or the quota office§ (which is, as a rule, the group) will refuse it to him. Or the general deputy may execute it directly. He or the group may approach the minister of economics and the minister of economics may make use of the powers vested in him by the cartel decree. If the entrepreneur is not a member of the cartel, he may be forced to join it and the cartel may then give him no quota or an insufficient quota; or the minister of economics may close down the plant.*
If the report of the group recommends modernization of the plant, negotiations will take place with a bank to obtain the necessary capital, which may or may not be found. The same result may be achieved by a lowering of the price structure by the price commissioner or the price-forming offices.† If the entrepreneur desires, or is even dependent upon government orders, he may or may not receive a share in public orders by the clearing office of the provincial economic chambers,‡ or even if the clearing office is willing to allocate government orders to him, he may not be able to accept because he cannot produce profitably at the prices allowed by government decrees.§
If the entrepreneur runs a consumers’ goods factory (let us say, a shoe factory), his stock in leather will have been attached by the leather Reichsstelle.114 If he wants to continue production, he has to apply to his quota agency, that is, to his Reichsstelle or to his branch group, for a leather cheque.115 If the plant is sufficiently big and is running efficiently, the application may be granted. If it is refused, he must close down and may receive community help.|| If he is a soap manufacturer, he has to produce one of four kinds of soap, either the ‘federal standard soap’ for bodily culture, or shaving soap, or one of the two existing types of laundry soap.116 If the Reichsstelle refuses him raw material because his group testifies that he is inefficient, he must cease production, but he may be allowed to continue as a trader living practically on a commission basis.117
But there are other ways by which the machine can be put into operation. If a new factory necessary for economic warfare must be established or if an existing one must be expanded, the labor exchange¶ will make a survey within its territory in order to find out which other plants may be ‘combed out.’ It will ask the group to report, the defense commissioner** will co-ordinate the activities, and some day the labor exchange will command workers in unnecessary plants to leave employment and to start in another factory.*
If the entrepreneur is a shoe retailer and needs shoes for delivery to his customers, he will have to apply to his Reichsstelle for rationing cards, which will be given only in conjunction with the provincial economic office.† He may meet with refusal and be ‘combed out’ by the chamber of industry.‡ If he is a shoemaker and needs leather for repairs, he has to apply for order cards to the president of his handicraft guild, who may or may not give it to him.118 He might then be ‘combed out’ by the chamber of handicraft and then be transferred to the proletariat.§
If the need for new industrial plants arises, the general deputy under the Four Year Plan for his specific industry will investigate the situation in conjunction with the ministry of economics and perhaps in collaboration with the federal bureau of spatial research.|| The technical problems will be discussed with the group. The discussion will be continued with the leading combine. The combine may or may not desire to start construction of this new plant. If it expresses such a wish, the problem of financing will be discussed. The Reichsbank¶ and private banks in conjunction with the combine will decide whether the plant should be financed out of undistributed profits** or whether banks should advance the money, or whether the capital market should be approached, or, finally, whether a decree should be issued for community financing of the new undertaking.†† Problems of technical equipment, of location, and of financing will be discussed by the groups and cartels and combines and federal officials. The Reichsstelle in question will be asked to clarify the problem of raw material supply, and the relevant labor exchange that of labor supply. Once the decision has been reached, the machinery will be set into motion.
From this summary it will be clear that the intertwining of business, self-governmental agencies, and governmental agencies achieved what appears outwardly as a higher amount of organizational efficiency, though, of course, antagonisms and conflicts will be operative under the surface.
What, however, is the generating force of that economy: patriotism, power, or profits? We believe that we have shown that it is the profit motive that holds the machinery together. But in a monopolistic system profits cannot be made and retained without totalitarian political power, and that is the distinctive feature of National Socialism. If totalitarian political power had not abolished freedom of contract, the cartel system would have broken down. If the labor market were not controlled by authoritarian means, the monopolistic system would be endangered; if raw material, supply, price control, and rationalization agencies, if credit and exchange-control offices were in the hands of forces hostile to monopolies, the profit system would break down. The system has become so fully monopolized that it must by nature be hypersensitive to cyclical changes, and such disturbances must be avoided. To achieve that, the monopoly of political power over money, credit, labor, and prices is necessary.
In short, democracy would endanger the fully monopolized system. It is the essence of totalitarianism to stabilize and fortify it. This, of course, is not the sole function of the system. The National Socialist party is solely concerned with establishing the thousand-year rule, but to achieve this goal, they cannot but protect the monopolistic system, which provides them with the economic basis for political expansion. That is the situation today.
It is the aggressive, imperialist, expansionist spirit of German big business unhampered by considerations for small competitors, for the middle classes, free from control by the banks, delivered from the pressure of trade unions, which is the motivating force of the economic system. Profits and more profits are the motive power. It is, indeed, in the words of Major General Thomas, the most daring and the most enterprising industrialist who wins and shall win.* It is as though Mandeville’s contention that private vices are public benefits had now been raised to the rank of supreme principle—not for the masses, not for the retailers, wholesalers, and handicraft men, not for the small and middle businessmen, but for the great industrial combines. As regimentation spreads, as price control becomes more efficient, as regulation of the credit and money market becomes more stringent, as the government strengthens the monopoly of the capital market, and as foreign trade evolves into a political operation, the need to make profits becomes increasingly urgent. Profits are not identical with dividends. Profits are, above all, salaries, bonuses, commissions for special services, over-valuated patents, licenses, connections and good will. Profits are especially undistributed profits.
Each of the regimenting measures tends to play into the hands of the monopoly profiteers. Each technological process, each invention, each rationalizing measure strengthens their power. German coal mining, for instance, seems to stand today before an industrial revolution, the introduction of the so-called ‘iron miner,’ but German periodicals insist119 that only big plants will be able to carry out full mechanization.
With all this the party does not interfere. The period of party interference in economics has ended long ago.
The organization of the economy is an institution below the state. It is not a group or an affiliated organization of the party. This does not mean an expression of lack of interest by the party. Such interest follows principally from the fact that the whole economy, too, has to follow the National Socialist philosophy of life. But it means that the party restricts itself to questions of philosophy of life and, the selection of leading personalities in the organization of the economy, and that it leaves all technical questions of detail of the economic policy to the state. Whether one allocates foreign currency and grants claims for international clearing, whether one furthers compensation trade or ordinary export business, how and whether one exports . . . whether borrowing or self-financing is to be preferred—all these and many other questions of technical and organizational expediency must be decided by the state.120
That is the view of the official commentator of the National Socialist economic organization. The party receives a compliment, but it must not interfere with the economy. The relation between the party and the economy is identical with that between the party and the inner administration, which has found the best expression in the decree* that leaves the leadership of the morale of the people to the party and the coercive machinery to the civil service. It would, therefore, be wrong to assume that there exists a dual rule in the economy, one of the party and one of the state. In our opinion, the very fact that the party is so completely excluded from the control of economic power positions led to the foundation of the Göring works.
What is the structure of the economic system? It might be instructive to translate an editorial in the Deutsche Volkswirt,121 written on the occasion of the foundation of the Continental Oil Corporation:*
The most competent representatives of the new German state and the most faithful guardians of the National Socialist ideals have, from the very beginning, stressed the principle that the state should merely steer the economy, but leave economy itself to the private initiative of the entrepreneur, based on private property and the efficiency principle. To invoke such declarations would be tiresome if the unequivocal clarity of the principle did not stand in strange contrast to the permanently arising doubts about the actual fate of private economy.
A realistic study of the situation confirms that small business and, in fact, the whole trade (perhaps with the exception of special tasks in foreign trade) and handicraft are the exclusive domain of private activity. But even in the industrial sector, the position of the private entrepreneur including large middle-sized plants is practically uncontested and not endangered; from the beginning, the isolated activity of public authorities in this field has always been the exception which confirms the rule. Only in the realm of big enterprises and giant plants do phenomena appear which could induce us to express a fundamental concern over the fate of private economy.
. . . Two developmental trends cause in many places skepticism about the durability of the principle of private economy in big industry. The first comes from above and concerns its direct relation to the state. To execute its . . . program the grossdeutsche Reich had to demand from the economy performances which . . . exceeded the ability even of big private enterprises . . . The Hermann Göring works, the people’s car works, and now the people’s tractor works may be quoted as examples. It is, however, so it is very often argued, the solution of new economic problems . . . which forms the very field of activity of private entrepreneurial initiative . . . If the demands which the state has to make upon the giant industry sector exceed the possibilities of private activity, does this not spell the end of private big industry? Is it possible that the industrial enterprises of the state, despite their limited number, are not mere exceptions from the rule, but the first symptoms of a fundamentally new development?
The second developmental trend . . . comes from below. It concerns the relation between the enterprise and the share-holder . . . It is a fact that the living ties between . . . the joint stock corporation and the broad stratum of the small and free share-holders have gradually loosened. The sole remaining tie is the yearly distribution of profits; but dividend policy has become more and more independent of the actual economic policy. New blood and new shares could hardly flow into the corporations. The share-holders’ interest in the enterprises has been deprived of its living character and reduced to a mere phantom of a juristic construction . . .
Thus we witness from above the taking over of entrepreneurial tasks by the state: from below, the dissolution of the ties between big industry and the public, which are based on the concept of property.
However, the announcement of the federal minister of economics at the shareholder’s meeting of the Reichsbank signifies a break in the development threatening the existence of private big industry. The clarification of the capital structure of joint stock corporations will abolish the unclear conceptions of the broad public . . . and will thereby increase its interests in the corporations.* This break will be strengthened and widened† by a remarkable positive measure which National Socialist economic policy now makes with the establishment of a giant corporation, namely Continental Oil Corporation,† in which the chairmanship of the supervisory board has been taken over by the minister of economics, and in which private big industry and small capital owners form a unified† front.
The view that the foundation of the Continental Oil Corporation has strengthened private economy actively in the sector of big industry is not contradicted by the fact that the state itself has actively participated in this foundation, because of two facts. The Continental Oil Corporation will not be concerned with the production of fuel in the old federal territory in the hand of private industry. The tasks of the new corporation lie beyond the frontiers of the Reich . . . These tasks require a settlement among private . . . and political interests . . . In addition, the political importance of oil and geological . . . factors create risks* which cannot be borne solely by the private economy . . .
The very reasons which justify the active participation of the state in the Continental Oil Corporation contribute additional clarity to the fundamental importance of the decisive participation of the German big enterprises in the oil and coal industry . . . For it is now obvious that the future political* new order . . . will give [private industry] possibilities and tasks for far-reaching collaboration . . .
We apologize for so long a quotation. It has the merit of indicating the trend so clearly that no comments are necessary.
The question arises why such steered or controlled economy, why such ‘planning,’ if we may use the word, has not been carried out under democratic conditions and by democratic methods. The reasons for the failure of democratic planning and collectivism in Germany seem to be both economic and political. ‘Planning’ becomes necessary (this, too, is indicated in the quotation above) because industry refuses to make new investments that require huge capital and that are, moreover, extremely risky. The risks involved are twofold: political uncertainty, which leads to economic uncertainty, and economic depressions, which lead to the disintegration of political democracy.
The parliamentary system may at any time give rise to forces hostile to the monopolists, who are continually threatened by heavy taxes, above all, taxes on undistributed profit, by a loosening of the system of protection, by ‘trust busting,’ by the possibility of industrial disputes. All this leads to the well-known investors’ strike, the refusal to expand because political uncertainty may endanger returns on the investment. Political uncertainty creates economic instability. If the state does not fully control money, credit, and the foreign trade, the business cycle cannot be stabilized. A downswing would lead to the collapse of the overcapitalized monopoly structure. In these conditions the co-ordination of all regimentation measures by the state seems inevitable and necessary.
There existed, of course, an abstract possibility of entrusting such co-ordination to parliament. The German trade unions proposed a number of such plans; the French Popular Front and the Belgian Labor party developed similar plans, and Roosevelt’s New Deal partly carried them out. All European attempts failed and Roosevelt’s New Deal succeeded in part because the country is rich and its reserves, which have been only partially tapped, are far from being exhausted.
Democratic planning failed because democratic planning must satisfy the needs of the large masses—and that is the very reason why democracy should take up planning. To satisfy the demands of the large masses, however, means to expand or at least maintain the consumers’ goods industry; this necessarily restricts the profits of heavy industry. Moreover, in the dynamics of the democracy one achievement of the masses will lead to further demands. One example: under democratic conditions, an arch reactionary and industrial die-hard like Krupp would never have granted his workers the concessions they demanded. They would have infringed upon his being master in his own house. They would have given rise, so he feared, to more and more dangerous demands. Under totalitarian conditions, he will not hesitate to fulfil certain demands, because democratic automatism has ceased to function.
Democratic planning must co-ordinate the many particular interests of retail and handicraft, of small, middle, and big businessmen, of the peasants, civil servants, workers, and salaried employees. A democracy cannot simply annihilate, ‘comb out,’ the inefficient producer and trader. It cannot enslave the workers. It cannot simply transfer the middle class into the proletariat; this would merely strengthen the anti-democratic trends and contribute to the growth of fascism.
Democratic planning, also, enlarges the power of the state; it adds the monopoly of economic coercion to the monopoly of political coercion. The more powerful an instrument becomes, the more precious it is. The monopolists could fear that if democratic groups had control over the state they would strive to increase the welfare of the masses and cut down profits.
In the case of Germany, additional reasons were: the bankruptcy of the leading political parties, of the social democrats, and of the trade unions who were motivated by cowardice, led by incompetent leaders, and who preferred abdication to a fight. We must remember that the Catholic Center party, never a homogeneous group, discovered in 1930 that it had a reactionary wing as well as a democratic; that political liberalism in Germany had died many years ago; that the Communist party, incompetently led, wavered between dictatorship of the proletariat, revolutionary syndicalism, and national bolshevism, and thereby weakened the working classes. It is also significant that the army, the judiciary, and the civil services organized a counter-revolution the very day on which the revolution of 1918 broke out.
The ruling classes refused to give the power over the economy to a democracy. To them, democracy appeared ‘as a species of social luxury,’ to use the words of Carl Becker122—but they did not hesitate to give all economic power to a totalitarian regime. Thyssen,123 Kirdorf, and others paid the debts of the National Socialist party in 1932, and today it is no secret that industry financed the party in the past; this is openly admitted by Deutsche Volkswirt.124 The homes of the industrial leaders were open to Hitler and Ley, to Göring and Terboven. Baron von Schröder, the owner of the Cologne Banking house J. H. Stein, arranged the reconciliation between Hitler, Papen, and Hindenburg on 4 January 1933. It is, of course, correct to say that National Socialism failed to keep many of the promises to the industrial leaders. So it appeared at least to Thyssen, who, never very intelligent, accepted the nonsense of the guild state and social monarchy at its face value.
National Socialism has co-ordinated the diversified and contradictory state interferences into one system having but one aim: the preparation for imperialist war. This may now seem obvious. For years it did not appear so to the outside world, and it gives a certain satisfaction to the author that as early as 1935 he formulated the aim of National Socialism in the following terms: ‘Fascism is the dictatorship of the Fascist [National Socialist] party, the bureaucracy, the army, and big business, the dictatorship over the whole of the people, for complete organization of the nation for imperialist war.’125 Once this aim is recognized, the economic structure is clear. Preparation for totalitarian war requires a huge expansion of the production-goods industry, especially of the investment-goods industry, and makes it necessary to sacrifice every particular economic interest that contradicts this aim. That involves the organization of the economic system, the incorporation of the total economy into the monopolistic structure, and, though we use the word with reluctance, planning. This means that the automatism of free capitalism, precarious even under a democratic monopoly capitalism, has been severely restricted. But capitalism remains.
National Socialism could, of course, have nationalized private industry. That, it did not do and did not want to do. Why should it? With regard to imperialist expansion, National Socialism and big business have identical interests. National Socialism pursues glory and the stabilization of its rule, and industry, the full utilization of its capacity and the conquest of foreign markets. German industry was willing to co-operate to the fullest. It had never liked democracy, civil rights, trade unions, and public discussion. National Socialism utilized the daring, the knowledge, the aggressiveness of the industrial leadership, while the industrial leadership utilized the anti-democracy, anti-liberalism and anti-unionism of the National Socialist party, which had fully developed the techniques by which masses can be controlled and dominated. The bureaucracy marched as always with the victorious forces, and for the first time in the history of Germany the army got everything it wanted.
Four distinct groups are thus represented in the German ruling class: big industry, the party, the bureaucracy, and the armed forces. Have they merged into a unit? Is the ruling class one compact body? Is their rule integrated within and accepted by the masses? What are their methods of mass domination? These are the final problems that we must consider.
* I am indebted to Dr. A. Gurland for his help in formulating the following paragraphs on price control.
* Italics mine. F. N.
* See p. 228.
* See p. 171.
* See p. 251.
* See p. 180.
* On the legal and sociological aspects of the control of labor, see p. 413.
* See also p. 434.
† See p. 413.
* See p. 282.
† See p. 283.
* See p. 59.
* See p. 392.
* See p. 249.
† See p. 251.
‡ See p. 252.
§ See p. 250.
* See p. 265.
† See p. 305.
‡ See p. 245.
§ See p. 310.
|| See p. 283.
¶ See p. 342.
** See p. 59.
* See p. 341.
† See p. 248.
‡ See p. 282.
§ See p. 282.
|| See p. 249.
¶ See p. 324.
** See p. 318.
†† See p. 280.
* See p. 314.
* See p. 72.
* See p. 276.
* Meant is the speech which we mentioned on p. 317, where Funk made it appear likely that the nominal value of capital could be raised.
† Italicized in the original. F. N.
* Italicized in the original. F. N.