The Austrians on Fascism: Hayek, Mises, and Roepke

0:00I'm going to be discussing today the interpretation of fascism by three major Austrian economists, Ludwig von Mises, Friedrich Hayek and Wilhelm Röpke. And I'm going to limit the topic in this way that by fascism I'm not going to cover the whole, all the governments that have been called fascist, were fascist such as the Italian fascism, Romanian fascism. I'm going to consider only the German National Socialism, which was what each of these economists devoted a book, or at least a large part of a book, to analyzing. I'll be dealing with their interpretation of the Nazi system and their very distinctive analysis.

0:54All three economists had basically the same interpretation of National Socialism. They're minor differences of emphasis, but they all had really the same model. Now, I think we can best understand what this model is by looking at what the way of understanding National Socialism and Socialism that was characteristic of the 1940s, which was when all three of these authors wrote their respective books on National Socialism. Now, surprisingly, if we think of the name of the Nazi party, which is the National Socialist German Workers' Party, surprisingly, the interpretation that was dominant during the 1940s of the Nazi system was that the Nazi system was a stage of capitalism, The Final Stage of Capitalism

2:23In this interpretation, the Nazi economy was really dominated by big business interests. We can see this interpretation, say, in the book by the Anglo-Indian R. Palm Dutt, Fascism and Social Revolution. And then probably the most important book giving this interpretation was by the German social democrat Franz Neumann. He had a book published by Oxford in 1942 called Behemoth. It's second edition, 1944. He was a member of the Frankfurt School, which was the kind of dissident group The Marxists, who were notorious later on, Herbert Marcuse, who you may remember as the 1960s leader of the radicals, was a member of this group.

3:29So Neumann, who taught at Columbia University, was probably the most scholarly advocate of this view that Mises, Hayek and Rupp could oppose. And what he said in his book, in his phrase, the Nazi system was totalitarian monopoly capitalism. Now, Mises, in his book, 1944, Omnipotent Government, really argued against this view on two basic grounds that I want to go into. That first he considered, what is the nature of the Nazi system? Can it be really described as a capitalist system, as Neumann and Arpam Dutt and many other people said?

4:18Or was this a completely false view? And secondly, how did the Nazi system arise? Now, in response to the first point, Mises emphasized that the Nazi economy was not a capitalist system at all, that appearances were deceiving in this respect because there were ostensibly prices and wages in the Nazi system, There were private businesses that would post prices, just as in a capitalist system, if you wanted to buy something, you would just go in and pay your money for it, just as you do in an ordinary capitalist economy.

5:05People could invest money in the stock market and have bank accounts. One would think isn't this just a regular capitalist economy, but Mises says, no, no, this is not the case at all. That what you have in the Nazi system is not real prices, even though they appear to be prices, because the government was telling everybody, all the businessmen, what the prices and wages were to be. is a system of complete price control. So this is not a genuine market, it's one in which the government is telling people what to produce and in what quantities and what prices to charge.

5:53So this is really a form of socialism that keeps some of the forms of capitalism. It isn't a capitalist system at all. It's exactly the same, really, as a system in which the government own the means of production. This would be one where the government controls all the means of production, but simply allows them to maintain the fiction that they're owners of the firm, but they're really not. Similarly, in the stock market, there were stock exchanges in Germany. I think they were reduced.

6:38There were over 20 stock exchanges in Germany in the 1930s. Under the National Socialist system, they were reduced to about nine. But there were very strong restrictions on what people could do with the stocks. They had to invest. They could only have dividends as prescribed by the government. I had to put them in bank accounts or loan the funds to the government, just as the government directs it, so it wasn't a genuine capitalist system at all. So, now, given this, and this social system had arisen in part, the system notion of total price control, had arisen in part by Hitler's copying the plan of Erich Ludendorff during World War I, it was called the Hindenburg Plan, which had price control over much of the German economy.

7:42was actually instigated by Eric Ludendorff, who was the quartermaster general of the German army during World War I. He was the real brains behind Hindenburg. So he had a system of total price and wage control over the bulk of the German economy that was dominant during World In 1931, Hitler had been strongly allied with Ludendorff during the early 1920s before Hitler went to prison. Although Ludendorff wasn't a supporter of Hitler during the 1930s,

8:58Mises in accounting for this system in omnipotent government, in his interpretation, in one way resembles that of Franz Neumann. Neumann said in his view that the large businessmen cartels were very important and dominated the Nazi system. Mises didn't agree, as I just said, that the businessmen were in control of the Nazi economy.

9:43But in his account of how the fascist economy had arisen, he also emphasized the role of cartels. However, it was in a completely different way from Neumann. It wasn't in his, in Neumann's view, there's an inevitable tendency for capitalist business to amalgamate into larger and larger Units into Monopolies. Mises, of course, said this isn't right. Hayek also said there is no general tendency of monopoly on the free market. How large firms will be just depends on the particular circumstances of an industry or product. There's no reason in general to think that it's always going to be the case that one or a few large firms will dominate an industry.

10:36But there'd been, in the German economy, there'd been a tendency toward cartelization monopoly because of the attempt in the 19th century to the government interference with the free market. Mises stressed in omnipotent government, especially the importance of labor unions in pressuring or wages above the market rate, which would be determined by the marginal productivity of the workers, if firms were, how would firms be able to pay wage rates above marginal productivity?

11:22Well, one way they could do that is if the government put in a very extensive protective with Tariffs, then businesses could charge higher prices than they would have charged had they been paying market wages, and they wouldn't be losing money because of the tariffs. They could sell their products at lower prices overseas, and so the tariffs would act as

12:27The problem here is that what happens if you have a policy of high protective tariffs, well, then it's going to be more difficult for a country that has this to get goods that it needs in trade. Other countries won't be able to pay for the goods with products of their own. And what if there are products that the German economy needs from other countries? Germany was at a very high population density, so they needed to import raw materials, but the high protective tariffs made it very difficult for them to do so, so what was the solution to this?

13:15According to Mises, a number of German intellectuals said the only way Germany can solve this problem is to seize other European land or colonial areas so they can have areas where they can get raw materials under their own control. Mises stresses the influence in promoting this program of Gustav Schmoller, who was the professor at the University of Berlin for a long time, I think from around 1882 to 1917, until his death in 1917, he was the leading economist in Germany.

14:02and he was one who, in his writings, stressed very much the need for expansion in order to seize raw materials and this was a very prominent program of many of the German intellectuals, they said, of the World War I period, they said we have to get, expand, we have to get territory in order to continue with this policy of tariffs. This became a very prominent theme after the war when, of course, the German economy was really doing very badly in the 1920s when it had the inflation, the 1921 collapse, so there was, again, very much a stress on the need for expansion. The famous novel came out in 1926 by Hans Grimm called Folke, Own Around, People Without Space.

15:02This was a best seller at the time. Grimm himself was not, I think it was not always Hitler supported. In fact, in 1934, when there was a proposal to unify the office of president and chancellor in one office, Grimm voted against it. But he later became, it was strange, he after the war, where most of the Germans were saying, oh, we of course never supported Hitler, there were no Nazis left. He said after the war, people didn't realize what a great leader Hitler had been. This is an unusual position, but that's a bit of a digression.

15:48This Lebensraum was an extremely influential idea, so Mises said, well, this is where the Nazis came in, that they were the ones who had the ruthlessness to put into practice the ideas that were prominent among the socialist intellectuals. The Nazis were the ones who said, we can really do this. We have a very risky program that may involve the dangers of war, but we're the ones who can solve this economic problem. We have a very risky program that may involve the dangers of war, but we're the ones who can solve this economic problem.

16:33We can get raw materials, so this became an extremely popular idea that enabled them to gain widespread popularity. They never got a majority of votes in any of the elections, even in the one in March 1933, after Hitler had already taken over and the Reichstag building had burned. I think the Nazi party got 43% of the vote, but they were the largest, even before Hitler came to power, they were the largest party in the parliament.

17:18They become very popular because, according to Mises, they were the ones who said, we can achieve this Lebensraum that is necessary for Germany to become prosperous. Now, I'm going to turn now to another book that also came out in 1944, which is Friedrich Hayek's very famous book, The Road to Serfdom, and what he says is, I think, supplements to a great extent the Mises model in omnipotent government. The fundamental argument of Road to Serfdom is that, according to Hayek, what's going to be the case if government tries to institute a socialist program?

18:17What if it tries to have everything produced according to some plan, whether by government ownership and the means of production or this other type of socialism where the government The Theory of Money and Credit

18:59General Agreement on what to produce. If we had tried to have some sort of votes on what would be produced, people would never be able to reach any agreement on what could be, what should be produced. To sort of have a hierarchy, we have to have really government imposing its views on the rest of the country. To do this, Hayek suggests that to get at least people to agree on what would this program, it's very much the case that there's a tendency for the government to say, to view the people as really a unified force against other countries.

19:54So the problem with the internationalist movement, such as Marxism was, at least before the Russian Revolution was, that people would have no sense of solidarity with those in other countries. To have a socialist system, we have to have a sense of solidarity. To do this, the government will tend to pick certain people as enemies, just as the Nazis did with the Jews during the 1930s. In the 1930s, they'll say, well, we have to be all unified against this out group and they'll tend to pitch their appeals in a very crude way so that they'll be able to drum up popular support for their ideas.

20:50Hayek describes this process in probably the most famous chapter of Road to Serfdom, which is the tenth chapter, why the worst get on top. So, what Hayek is saying, Mises had said that there's a tendency because of this protective tariff policy and carnalization that there was a need in Germany, at least part of the intellectual class thought there was a need for expansion and the Nazis were the ones who said they would be able to do this, so Hayek supplements this by saying, well, any Any attempt to put into practice a collectivist policy was likely to lead to a very violent policy of opposition between the nation and other nations, and there would be crude propagandistic appeals.

21:49Now, another aspect in which Hayek very usefully supplements Mises is that he points out, as As in the twelfth chapter, the socialist roots of Nazism, he points out various prominent intellectuals whose views very much tended to amalgamate with the Nazis. One he mentions is Werner Zumbart, who was one of the leading Marxists in Germany. Friedrich Engel said this Zumbart was the only German professor who understood das Kapital.

22:36So what Zumbart, in his later writings, he'd been a very strong Marxist, but he turned And away from Marxism, he favored, actually his main argument against Marxism was that Marx had talked about proletarian revolution, but the proletariat would never become a majority of the population. He estimated it would be about one-third of the population, so you could never have a revolution if you relied on the proletariat. Sombart said in a book that came out around 1950 called Merchants and Heroes, he contrasted the English culture based on trade and exchange, which he thought was retinial and unheroic, with the warrior culture of Germany.

23:31So here we have a socialist who, just as Hayek has suggested in the theoretical part of the book, is now saying we have to have militaristic values, sort of a way to put socialist ideas into practice is to have a sort of militarized form of activity and that by, just as Hayek has suggested, a militarist policy really is the outcome that it's likely to have if we favor socialism. And by the 1930s, when Hitler came to power, Sombart was writing in his book, New Social Philosophy, which came out in 1934, he says that the Fuhrer, the leader of Germany, receives his order direct from God, who is the supreme Fuhrer of the universe.

24:24So he had become, one time believing German academic Marxists had become a supporter of the Nazis and if Mises and Hayek are right, this is no coincidence, it's what we would be likely to expect. Now, another figure Hayek discusses is the famous philosopher of history, Oswald Spengler, Spengler's essay Prussianism and Socialism, where Spengler said that he admired the way the Socialist Party in 1914 had supported the German war aims.

25:15The Socialist had built up a very militant party who could act in a decisive way. He compared this to the traditions of the Prussian army. So, again, we have this policy, this rather unusual spectacle, in this case a very right-wing German conservative who was finding something to admire in the Socialists. The Socialist, so we have this kind of convergence where a very strong nationalist view with a socialist system, just as Mises and Hayek had suggested. I should say in his later work, the Our Decisions, actually, the German title is The Year of Decision, that Spengler claims he was misunderstood, but what he says, they were all economic, The economics really isn't that important. That's just emphasizing money. He doesn't care about money. What he cares is the militarist virtues the socialists displayed in 1914.

26:28So, in effect, he's really confirming what Hayek said about him, although Hayek didn't discuss that book. We find in the work of the third economist I have to discuss, Wilhelm Röpke, a similar emphasis, and I want to mention in this connection a series of very important articles that Röpke wrote in September 1931 that appeared in the Frankfurter Zeitung. Röpke was not only wrote about the Nazis after the war, but he was a very active opponent of them before they came into power. So what Röpke wrote in these articles in 1931, he was replying to the views of a man called Ferdinand Fried,

27:55Ferdinand Fried, who was actually using very standard anti-capitalist arguments, he was

28:52The Stalin had succeeded in eliminating the business cycle in Germany. Wouldn't it be wonderful if we could do this here in Germany? So, Röpke stresses that, just along the same lines I've been indicating, that Friedman Fried's program was very much a socialist program. He pointed this out as saying that Friedman Fried, I should say, was an alias. The man's real name was Friedrich Zimmermann, but I don't suppose that affects the argument in one way or the other. Now, Röpke published a book, which in the English translations is called The Solution of the German Problem, came out in English in 1946 and second edition in 1947, I think it originally came out in Germany in 1945.

29:48I should indicate that these, all the authors I'm talking about agree with each other. Hayek wrote the preface to the English London publication of the book. Now, Rupka's interpretation is very much compatible with what I've already said about Mises and Hayek, but one detail he mentioned, which I'll conclude that he stresses very much, is that the Nazi system was one of centralization, in the sense that there'd been under the Germany before that, especially before Bismarck came to power, there'd been a great many separate German states When Bismarck came to power, he had the three wars of German unification against Denmark in 1864, Austria in 1866, and France in 1870-71.

30:52Bismarck, in some cases, completely amalgamated and suppressed the various German states and centralized them into one country. In some countries, some of them remained somewhat independent. Bavaria had its own foreign consuls in countries even down through World War I. There was a King of Bavaria who was still very much active after Wilhelm I became the German Emperor in 1870. There was a King of Hanover, also. There were certainly German states that remained independent, but Rupka says there was very much a move toward centralization, which was continued by the Nazis. This, again, taking up a theme from Mises, is that we can't have a federal system where you have a government-centralized of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money

32:55It was in fact just a variety of socialism that had arisen through interventionist policies that had very drastic consequences for the germination that put them into practice.