The Dynamics of Fascism: Variations on a Theme by Mises

0:00Ladies and gentlemen, I'm very glad to be with you here this afternoon and to show finally my support for the Mises Institute for which I've been working for five and a half years. And so I've been taking part in various supporters conferences and I really always felt that my support didn't count because I was an employee anyway. And so they could just feed me through the weekend, didn't add much. And finally, I mean, this is the first independent contribution. I'm very glad that I can show how important the work of the institute is for me and in fact as various speakers have said before me, not only for the purposes of Austrian economics but in fact for the well-being of our country and of Western civilization in general and of course for the civilization of the world in general.

0:54Now, my subject is the dynamics of fascism, and I chose this title because I realized that after 15 excellent speakers coming before me, I would have the not very enviable task of entertaining you at the very end, preventing foreheads from falling on the stools of the front person. And so I thought the least thing that I could do is rouse some dynamics by bringing in some of the word dynamics, but there's a more substantive reason also for this, which I will come later on. and so I will very dynamically present my subject and not stand in your way with the well-deserved retreat after our conference.

1:51So the dynamics of fascism and it also said variations on a theme by Mises, in fact Mises, as various speakers have explained before me, subsume fascism as one particular type of socialism, which is distinguished by the fact that we have here an economic system in which the state regimentates all aspects of economic life. So we have a system of an all-pervasive interventionism. So, fascism then falls under the category of the theory of economic interventionism and here Mises has developed a theory that explains the dynamics of interventionism.

2:38So my plan is then just to present again Mises' theory of interventionism very briefly and then talk about various problems in his accounts, in his account of what the interventionist dynamics consist in and try to repair what I feel is somewhat deficient in Mises' account and then apply this to the case of fascism. But before this, I'm of course under the obligation, and I'm sorry I cannot really spare you this, to define again what fascism is, right? After all, I'm a university professor, so I'm supposed to define my subject. And one definition I have already given, and that's the most substantive one, right? An all-pervasive system of interventionism, but there are three other connotations that are also widely used, are widely used and they have some importance for me or will have some importance for us when it comes to applying the theory of interventionism to the special case of fascism.

3:40So that's first of all the connotation of fascism as being violence against troublemakers, smashing troublemakers and in particular, Historically, fascism arose as a violent reaction against lefty troublemakers, right? Lefty revolutionaries. That's what the fascist movement in the early 1920s in Italy was all about, as Professor Arreco has explained to us. And this, fascism and this understanding has, of course, goes a long way explaining the bad press that they had, right? So of course called reactionary but also then of course if you react against the left there are only two possibilities, you're either stupid because you really didn't get the point or you are evil and possibly both.

4:34So here we have an explanation why fascism is such a bad press, it's reactionary, stupid and evil because it's against the lefties. Now, some of you might wonder now what my talk will all be about. Some of the conference participants have expressed miscontent about the one-sided presentation of fascism and felt that there was not enough balance. I felt the moral pressure to weigh in on the good side, Which I will do, as usual. So the other widely accepted connotation of fascism is, and that's an important point to make, is that fascism, in distinct contrast to Bolshevik socialism, has enjoyed general support in the population.

5:32So it's an important difference, also important to understand the dynamics of fascism, That, whereas socialism of the Soviet style, as Professor Riesman has explained before, is a system that very strongly relies on a regime of terrorism. Government terrorism exercise wielded against its own population. That's exactly what characterized 70 years of Soviet socialism in Russia. Fascist regimes, as we have known them historically, have, at least during their existence until they were smashed in wars, have enjoyed widespread support of the population. And thirdly, this is also a characteristic often mentioned by leftist opponents of fascism, fascism tends to be chauvinist and aggressive.

6:25So, aggressive in the pursuit of chauvinist objectives. Now, it is important, I feel, that we have a sufficiently large understanding of what chauvinism means. Chauvinism is not only given if we have some racial superiority theories, so we have the Aryan race and the superhuman beings, and we have the underlings on the other hand, so that would be some sort of chauvinism. Chauvinism is also given if we are chauvinistic about the values that we feel underlie our society and even if we feel that these are universal values, such as human rights for example, the right to a three-wool meal today, or democracy and other things.

7:14So even if we claim these are universal values, we can still be chauvinistic, namely in imposing these values on individuals or groups who do not similarly cherish them on quite as much as we do and could be very aggressive in the pursuit of this objective. So, before we then come to apply the theory of interventionist dynamics to the case of fascism in this understanding, we will now first talk very briefly about Mises' theory of interventionism, and as you have heard a few times, it contains two distinctive elements.

8:01First of all, Mises defines interventionism as an order, an isolated order issued to a member of society to use this property otherwise in a different way than he would have used it in the absence of this order. And Mises then points out that interventionism has two characteristics. On the one hand, it is an unsuitable means to attain the ends. The example that he gives us is the system of price controls, and his favorite example is always the milk market. So we have a case of an economy, a relatively poor country, and the mothers want to feed their babies.

8:47There's not enough milk there, and they start crying for help. And then the big brother government steps into place, folds up its arms warmly, and imposes a price control. And what happens is that as a consequence of the price control, the marginal producers, So the producers, what we call the marginal producers, will no longer be able to produce profitably, so they stop producing and as a consequence the milk supply is actually lower than it would otherwise have been, that is lower than it would have been in the presence or in the absence of this price control. So rather than improving the situation on the milk market, rather than attaining its end, the intervention brings about the exact opposite. So Mises had first an experience of this, the milk market example was not just made up because everybody knew what milk was about, but because he had experience of such interventions precisely on the milk market during World War I, one of the shortages of various basic supplies among the milk,

9:54But he also studied the impact of price controls in the case of the housing market, even before World War I. As a student, he got the assignment to study the problems of the housing market. Why was it that so many people were lacking houses in Vienna? And well, surprise, surprise, found out that price controls played a huge role. And actually, so he points out in his notes and recollections, in his autobiography, This was one of the crucial events that turned him to become a libertarian. So this is the first element of his theory of interventionism. And the second one is the one that interests us most, namely the interventionist dynamics. And here Mises argues that precisely because interventionism is an unsuitable means to attain the ends, it creates a dynamic or perverse dynamic of some sort.

10:48So if the government finds that the end that it's thought to attain is not reached, it will start to try to improve on the first intervention. So let's say it finds out the milk supply has really decreased rather than increased as a consequence of the price control. Well, what will it do now? It will start to subsidize the milk production or it will start to impose price controls on the factors of production needed for the milk production so that the marginal milk producers will again be profitable and so repair the negative impact of the first intervention. But this again cannot work out because if we impose a price control on the factors of production then their production in turn will be cut down and so on and so on.

11:41So sooner or later it will become necessary for the government to steer the entire production process and impose a system of central planning. And here again, so Mises, this theory is not only logically coherent and consistent, but it was not thought out entirely in his armchair, but it was the result of observation. Mises followed firsthand what we call today German war socialism. So the imposition of the development of a system of central planning during World War I started in 1916 precisely with price controls and food supplies and so on and then ended very quickly by 1917 in a system of all-around planning.

12:31So I promised you to talk about certain problems in Mises' account of interventionist dynamics and that is what we need to do now. So what are the problems? Especially as I see the main problem that we have in this story is that Mises' feedback mechanism does not always apply or the feedback mechanism that it brings about the dynamics does not always apply. So as Mises has it, the government imposes the first intervention, then checks the result and sees, well, the end is not really attained. And as a consequence, then, we add on, we try to repair the first intervention, and so intervene ever more, ever more.

13:19Now, this is not always the case. Consider a very simple example. For example, we impose price controls in the housing market and then still the supply of housing increases. This is not something that would surprise us from the point of view of economic theory, because all we would say is that, well, as a consequence of the price control, the housing supply is smaller than it would otherwise have been. But there might be other factors intervening that have the opposite effect. So that the overall result of all these different factors working together has been an increase of the housing supply. So in this case, the Misesian story would not work.

14:07There would be no Misesian incentive, so to say, for a further intervention everything would be fine. The government could say, oh, we increased, we imposed a price control, and the housing supply went up, so everything worked out fine. Policy was successful, there was no need to repair this, and so on. So we have a problem here. On the other hand, it is also not always necessary for the government to be confronted to a problem in the first place in order to find a pretext to intervene. The government might be just conceited enough to believe that it can handle things better than the market. This is an idea that, of course, sounds very outlandish to this group. Well, typically in capital cities, it's a fairly widespread notion.

14:56So these people actually believe they can run things better than the free market can run them. A very important example is Keynesian macroeconomic policies, which boils down to the belief that we have this underemployment equilibrium on the market, which means that the market is not really quite as good as a market directed by central planners in the capital city. That's what it means. It doesn't mean you have a huge cause of unemployed people in the street. or what they say is, look, we might have just a natural rate of unemployment but actually we could decrease this further if we intervene and pursue an expansionist monetary policy and then dropped it a little bit more. So we have catallactic unemployment there because we don't have a Keynesian economic czar.

15:47So Mises then gives us only one scenario of interventionist dynamics. It's not necessarily the most general scenario. I think it is probably empirically, if we look at it rather, it covers only a small number of cases. So how can we get around this? How can we develop a more realistic approach of interventionist dynamics? And that's what I will try to do now very quickly and I will start by a slightly different definition of what interventionism is all about. So interventionism we can define as a situation in which we have coercive co-ownership or involuntary co-ownership.

16:35If the government imposes a price control issue of some other order, what it actually does is to impose itself as a co-owner of my resource. It says, well you can do anything that you want with your apples or with your milk, but if you ever have the idea to sell it on the market, well you will sell it at this price. So it establishes itself as a co-owner of the resource of the citizens. Now, as we all know, from at least those of us who are married, from first hand experience, co-ownership works more or less well, sometimes less, sometimes a little more, when it's voluntary, okay?

17:20When it's voluntary. It never works if it's involuntary. So what happens if co-ownership is involuntary? Well then a situation emerges that economists call moral hazard. Moral hazard here, which means that people now have an incentive to use as much of the common property for their own purposes, just taking it away from the co-owner that they don't like in the first place. Now this phenomenon is fairly well known under the name of tragedy of the commons.

18:05So tragedy of the commons is the title of a famous article A biologist by the name of Garrett Harding wrote or published in 1968, in which he points out that if you have communal property, co-owned prairies and so on, then everybody sends as many cows as he can of his own cows and they are eating away all the grass, nobody cares about replanting the grass and so on. and so we have the tragedy of the commons, tragedy of common property, it always disappears, it always goes down the drain. Now, Harding was not the first one to identify this problem. At least we have in our Austrian ranks very famous economists who identified the problem, namely Mises in 1940 in Nationale Economie, he stressed this problem.

18:58Most importantly, I would like to draw your attention to the fact that already in 1922, in his book on socialism, in his treatise on socialism, Mises identified moral hazard. He didn't use this word, but he identified precisely this incentive problem as one of the two great problems of socialism, one of the two fatal problems of socialism. The other problem was the problem of economic calculation, which is impossible in socialism. But this problem, according to Mises, alone would make that socialism could not work. Because under socialism, no manager of any production plant is responsible. He's just a co-owner, so to say. He's a temporary owner. So he has an incentive to divert as many of those resources that he controls immediately for his own purposes and not for the purposes that would be most important from the overall point of view.

19:57So we have then from the point of view of this definition an explanation why interventionism does not work, namely because we have moral hazard and so we create on the side of the citizens an incentive to evade the intervention. And evasion can come in various forms. It can mean that you just delocalize your resources, you sell your property in the country where the taxes are high and then you buy other property elsewhere or you bring yourself from this country where you're presently to another country, you emigrate, you go on the black market and you no longer sell in the light of day and so on. So we have invasion, and this invasion has as an effect that the interventionism will not work.

20:44And we have also an explanation why interventionism ever increases, namely because the government, conscious of the fact that it is just the co-owner of the resources, and there's still the other guy who is trying to save as much as he can for himself, well the government now does what is called closing the loopholes. The government is cracking evermore down because it wants this guy to use the resource in a precise way, but as long as he has some freedom, whatever, in the use of the resource that is being regulated, he can just evade the regulation. So the government has an incentive to crack down evermore to get him to do precisely what it wanted him to do in the first place. So here then we have a realistic account of interventionist dynamics and I take it that they cover a much larger number of cases than we have in the Misesian account.

21:39Now we need to apply this very quickly to fascism and here I will explain in a few words that fascism is in fact a particularly pernicious form of interventionism. Why is this so? Well, first of all, as we have noticed in the beginning, fascism tends to enjoy general support. So as a consequence, people do not feel the government interventionism as much as an imposition as they would feel it in a Bolshevik state, in a Soviet-type form of socialism. Socialism. If they don't comply with the government orders, it's not only the government that is cracking down on them, it's also their fellow citizens, so there are various forms of ostracism that come into place because the government is supported by general public opinion and so the fellow, the dear, nice neighbors and so on start cracking down on them too, denouncing them, spying on them, no longer buying from them or selling to them, and so on.

22:49As a consequence, fascism tends to last longer. Evasion is less quick, less thorough. Secondly, fascism in its pure form, as we have said, is worship of power per se. I said that fascism is the application of violence against troublemakers. And if we look at the psychology of fascists, well indeed what they like about this is that finally there is the big guy with the big stick who is creating order. And so they relish in the exercise of power per se. And as soon as we have this situation, we are confronted with the following problem, namely with the problem that there is no more rational assessment or criticism of this policy possible at all.

23:43at all. We can apply the standards of reason to criticize interventionism if there are certain ends that are being pursued, different from the interventionism itself. We can say, well, the imposition of a price control does not help us to improve the supply of the milk market. There is a contradiction between the means and the end, but if the means, in this case the violence, is the end in itself, well there is no more criticism left. Certainly slapping people on the head and so on is an exercise of violence, so if we worship the power of our government per se, well it's impossible to criticize it.

24:29So as a consequence then, in a fascist system, the growth of government and the growth of the interventionist system is much stronger than in other socialist interventionist systems. In its mildest form only, that was probably empirically given for example in the Italian case, fascism is a security state, I know certain similarities with present day US policies, the government is supposed to create order finally and create security which is threatened from outside of the country or by troublemakers within the country and here again so if it does not come in this pure form fascism is liable to the critique of economic argument because we can show and Rothbard and Professor Hoppe and various others have shown it in various works that government interventionism designed to create greater security creates exactly the opposite, creates If we see this in the international context today, we say we have a terrorist threat and as a consequence we start cracking down on various terrorist nests outside of the country.

25:53What we create, in fact, is a reaction on the side of those who we do not yet perfectly control, in particular foreigners, who form coalitions and give us a greater pretext for further interventions and so on, and create therefore less security than we would otherwise have enjoyed. In conclusion, let me summarize, Frederic Bastiat, the French great economist once said that the state is the great illusion by virtue of which everybody tries to live on the costs of everybody else, at the expense of everybody else.

26:40So we might say that the fascist state is also a great illusion, that the greatness of a nation depends not on its achievements in production, in arts, in the arts and in the sciences, but on its ability to be non-nationals into submission. And that is an illusion. The greatness of a nation at all times and all places only depends on the positive achievements of the nationals, of the members of society and never on its ability to beat into a submission other people or to exercise violence against other people. And the only way to get rid of this illusion, as my predecessor Professor Riesman has pointed out, is of course to propagate the right ideas against fascism and other deviations from the right part of society.

27:35And I can only concur that the Ludwig von Mises Institute is one of the most important institutions designed to fight the good fight. And I thank you for your support. Thank you very much.