What is Economic Fascism?

Fascism is an emotion-laden term that is burdened with many negative connotations, so it must be carefully defined to be useful in analyzing politico-economic doctrines, policies and institutions.[11] One of the most rigorous attempts to define fascism was undertaken by John T. Flynn, the great American journalist and essayist of the Old Right, a diverse movement of libertarians, conservatives, and anti-FDR liberals and Old Progressives that coalesced in the 1930s.[12] In his classic work, As We Go Marching, published in 1944, Flynn enumerated what he called “the essential ingredients of fascism.”[13] According to Flynn, the first ingredient is a large centralized government that spends large sums on “planned consumption”—or what today is euphemistically called welfare—financed by means of huge budget deficits. The second ingredient is what Flynn called “the planned economy,” which involves systematic government interference with prices, wages, rents, and interest rates within the formal structure of a capitalist economy. Militarism as a deliberate and permanent economic institution and imperialism as its handmaiden represent the third and fourth ingredients, respectively. The combination of these four ingredients Flynn labeled the “prologue to fascism.”[14] Here, we will refer to it either as “economic fascism” or, more descriptively, “the welfare-warfare state.”[15]

For Flynn, full fascism comes into being when to the ingredients constituting economic fascism is added a totalitarian state with a “leader” or dictator at its head. Although Flynn derived this definition from Fascist Italy, he argued compellingly that it fully described National Socialist Germany as well. Moreover, he demonstrated that by the 1930s, the U.S. had arrived at economic fascism and was precariously poised on the precipice of a headlong plunge into full fascism in the 1940s.[16] Flynn graphically described the evolving American style of fascism in the following passage:

The test of fascism is not one’s rage against the Italian and German war lords. The test is—how many of the essential principles of fascism do you accept and to what extent are you prepared to apply those fascist ideas to American social and economic life? When you can put your finger on the men or the groups that urge for America the tax-supported state, the autarchical corporative state, the state bent on the socialization of investment and the bureaucratic government of industry and society, the establishment of the institution of militarism as the great glamorous public works project of the nation and the institution of imperialism under which it proposes to regulate and rule the world and, along with this, proposes to alter the forms of our government to approach as closely as possible the unrestrained, absolute government—then you will know you have located the authentic fascist. . . . Fascism will come at the hands of perfectly authentic Americans, as violently against Hitler and Mussolini as the next one, but who are convinced that the present economic system is washed up and that the present political system in America has outlived its usefulness and who wish to commit this country to the rule of the bureaucratic state; interfering in the affairs of the states and cities; taking part in the management of industry and finance and agriculture; assuming the role of great national banker and investor, borrowing billions every year and spending them on all sorts of projects through which such a government can paralyze opposition and command public support; marshaling great armies and navies at crushing costs to support the industry of war and preparation for war which will become our greatest industry; and adding to all this the most romantic adventures in global planning, regeneration, and domination all to be done under the authority of a powerfully centralized government in which the executive will hold in effect all the powers with Congress reduced to the role of a debating society. There is your fascist.[17]

Despite the rigor and historical applicability characterizing Flynn’s definition of fascism, however, it lacked a crucial ingredient. This lack was manifest in Flynn’s prediction, which since has been falsified on numerous occasions, that economic fascism could not last very long without being ruthlessly imposed by a totalitarian dictatorship a la National Socialist Germany or Fascist Italy. In other words, for Flynn, economic fascism was inconsistent with a liberal-democratic political order so that the only choice in both the short run and the long run was between full fascism and the free-market economy. He reasoned that as soon as the citizenry was hit with the immense tax bill required to finance the interest payments on the accumulating debt generated by the welfare-warfare state, it would spontaneously rise up in a glorious tax revolt and either abolish it in short order or be crushed by a totalitarian dictator who comes to the fore. In Flynn’s words:

The spending of borrowed money as a permanent policy with a continuous rise in the public debt can have only one effect. As the debt rises, the yearly interest charge increases. In time the interest charge gets to be more than all the other costs of government. Funds for interest can be obtained only by taxes. A rising public debt means a continuously rising interest charge and persistently rising taxes to service the debt. . . . Of course businessmen and individuals will resist such taxes. The free society knows such a device as the “tax strike”. . . . Only in a totalitarian state can these oppressive levies be imposed and enforced. And even in such a state there is a limit. But the limit in the free society is swiftly reached. . . . It is for this reason—and there are other reasons as well—that I make the statement that this managed public-debt-supported autarchy must turn to the totalitarian government or abandon its plans.[18]

Unfortunately, here’s where Flynn was misled by his own inadequate definition of the fascist political economy, for he left out its most important component: monetary inflation, the unrestrained creation of fiat money by the government or its central bank. Thus, if a democratic government is able to finance its spending on domestic welfare programs and imperialist military adventures by money creation, it can effectively hide the true costs of these programs from its citizens for years or decades, during which economic fascism could come to thrive under mass democracy. This has been the experience of the U.S. since the early 1960s.

There is a second problem with Flynn’s definition, however, in that it does not provide the causal mechanism by which huge government deficits and spending programs transform a market economy with an unhampered price system into a centrally planned economy with all-around controls of prices, wage rates, profits, and interest rates. Once again, monetary inflation provides the key. When the consequences of monetary expansion become visible in the form of rapidly rising prices, the government may at first react to suppress these symptoms by employing “jawboning” or “moral suasion” to convince big business and labor unions to abide by “voluntary” wage and price guidelines or incomes policy. Of course, this policy is completely ineffective in preventing the depreciation of the monetary unit in the face of the relentless and ongoing expansion of the supply of money. Nonetheless, it does serve to obscure the responsibility of the State for accelerating price inflation and to direct the attention and ire of the public onto “grasping” corporations and “piggish” labor unions. In fact, it is precisely the inevitable failure of such moderate incomes policy that smooths the way for the later imposition of mandatory wage and price controls, which are then touted as a necessary final resort for curing a manifestly intractable problem. However, coercive wage and price controls, if they are not to result in a systemic breakdown of the entire economy, must be supplemented by a comprehensive and detailed system of government directives to private resource owners and firms regarding the allocation of land, labor, and capital goods in the production process and the rationing of the final products to consumers. This policy is, of course, tantamount to abolishing the market economy and instituting central planning.

Thus, contrary to Flynn, the unrestrained spending on welfare and warfare programs and the bloated budget deficits that are essential characteristics of economic fascism do not necessarily give rise in the short run to a war to the knife between a dictatorial regime and a mass tax-resistance movement. It is more likely that economic fascism will evolve slowly under the guise of mass democracy as the monetary inflation undertaken as a surreptitious method of confiscatory taxation eventually, yet inevitably, begins to engender the highly unpopular consequence of accelerating price inflation. This outcome will compel the incumbent administration to devise and implement progressively more thoroughgoing interventions into the price system that end up in comprehensive economic planning within the nominal property rights structure of a market economy.