The Online Library of Liberty

A project of Liberty Fund, Inc.

• The Liberty Fund Library of the Works of Ludwig Von Mises
• Foreword to the Liberty Fund Edition
• Preface
• Omnipotent Government
• Introduction
• Part I: The Collapse of German Liberalism
• I: German Liberalism
• 1.: The Ancien Régime and Liberalism
• 2.: The Weakness of German Liberalism
• 3.: The Prussian Army
• 4.: The Constitutional Conflict In Prussia
• 5.: The “little German” Program
• 6.: The Lassalle Episode
• II: The Triumph of Militarism
• 1.: The Prussian Army In the New German Empire
• 2.: German Militarism
• 3.: The Liberals and Militarism
• 4.: The Current Explanation of the Success of Militarism
• Part II: Nationalism
• III: Etatism
• 1.: The New Mentality
• 2.: The State
• 3.: The Political and Social Doctrines of Liberalism
• 4.: Socialism
• 5.: Socialism In Russia and In Germany
• 6.: Interventionism
• 7.: Etatism and Protectionism
• 8.: Economic Nationalism and Domestic Monopoly Prices
• 9.: Autarky
• 10.: German Protectionism
• IV: Etatism and Nationalism
• 1.: The Principle of Nationality
• 2.: The Linguistic Group
• 3.: Liberalism and the Principle of Nationality
• 4.: Aggressive Nationalism
• 5.: Colonial Imperialism
• 6.: Foreign Investment and Foreign Loans
• 7.: Total War
• 8.: Socialism and War
• V: Refutation of Some Fallacious Explanations
• 1.: The Shortcomings of Current Explanations
• 2.: The Alleged Irrationality of Nationalism
• 3.: The Aristocratic Doctrine
• 4.: Misapprehended Darwinism
• 5.: The Role of Chauvinism
• 6.: The Role of Myths
• Part III: German Nazism
• VI: The Peculiar Characteristics of German Nationalism
• 1.: The Awakening
• 2.: The Ascendancy of Pan-germanism
• 3.: German Nationalism Within an Etatist World
• 4.: A Critique of German Nationalism
• 5.: Nazism and German Philosophy
• 6.: Polylogism
• 7.: Pan-germanism and Nazism
• VII: The Social Democrats In Imperial Germany
• 1.: The Legend
• 2.: Marxism and the Labor Movement
• 3.: The German Workers and the German State
• 4.: The Social Democrats Within the German Caste System
• 5.: The Social Democrats and War
• VIII: Anti-semitism and Racism
• 1.: The Role of Racism
• 2.: The Struggle Against the Jewish Mind
• 3.: Interventionism and Legal Discrimination Against Jews
• 4.: The “stab In the Back”
• 5.: Anti-semitism As a Factor In International Politics
• IX: The Weimar Republic and Its Collapse
• 1.: The Weimar Constitution
• 2.: The Abortive Socialization
• 3.: The Armed Parties
• 4.: The Treaty of Versailles
• 5.: The Economic Depression
• 6.: Nazism and German Labor
• 7.: The Foreign Critics of Nazism
• X: Nazism As a World Problem
• 1.: The Scope and Limitations of History
• 2.: The Fallacy of the Concept of “national Character”
• 3.: Germany’s Rubicon
• 4.: The Alternative
• Part IV: The Future of Western Civilization
• XI: The Delusions of World Planning
• 1.: The Term “planning”
• 2.: The Dictatorship Complex
• 3.: A World Government
• 4.: Planned Production
• 5.: Foreign Trade Agreements
• 6.: Monet Ary Planning
• 7.: Planning International Capital Transactions
• XII: Peace Schemes
• 1.: Armament Control
• 2.: A Critique of Some Other Schemes Proposed
• 3.: The Union of the Western Democracies
• 4.: Peace In Eastern Europe
• 5.: The Problems of Asia
• 6.: The Role of the League of Nations
• Conclusion

5.

Socialism in Russia and in Germany

The attempts of the Russian Bolsheviks and of the German Nazis to transform socialism from a program into reality have not had to meet the problem of economic calculation under socialism. These two socialist systems have been working within a world the greater part of which still clings to a market economy. The rulers of these socialist states base the calculations on which they make their decisions on the prices established abroad. Without the help of these prices their actions would be aimless and planless. Only in so far as they refer to this price system are they able to calculate, keep books, and prepare their plans. With this fact in mind we may agree with the statement of various socialist authors and politicians that socialism in only one or a few countries is not yet true socialism. Of course these men attach a quite different meaning to their assertions. They are trying to say that the full blessings of socialism can be reaped only in a world-embracing socialist community. The rest of us, on the contrary, must recognize that socialism will result in complete chaos precisely if it is applied in the greater part of the world.

The German and the Russian systems of socialism have in common the fact that the government has full control of the means of production. It decides what shall be produced and how. It allots to each individual a share of consumer’s goods for his consumption. These systems would not have to be called socialist if it were otherwise.

But there is a difference between the two systems—though it does not concern the essential features of socialism.

The Russian pattern of socialism is purely bureaucratic. All economic enterprises are departments of the government, like the administration of the army or the postal system. Every plant, shop, or farm stands in the same relation to the superior central organization as does a post office to the office of the postmaster general.

The German pattern differs from the Russian one in that it (seemingly and nominally) maintains private ownership of the means of production and keeps the appearance of ordinary prices, wages, and markets. There are, however, no longer entrepreneurs but only shop managers (Betriebsführer). These shop managers do the buying and selling, pay the workers, contract debts, and pay interest and amortization. There is no labor market; wages and salaries are fixed by the government. The government tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees to whom and under what terms the capitalists must entrust their funds and where and at what wages laborers must work. Market exchange is only a sham. All the prices, wages, and interest rates are fixed by the central authority. They are prices, wages, and interest rates in appearance only; in reality they are merely determinations of quantity relations in the government’s orders. The government, not the consumers, directs production. This is socialism in the outward guise of capitalism. Some labels of capitalistic market economy are retained but they mean something entirely different from what they mean in a genuine market economy.

The execution of the pattern in each country is not so rigid as not to allow for some concessions to the other pattern. There are, in Germany too, plants and shops directly managed by government clerks; there is especially the national railroad system; there are the government’s coal mines and the national telegraph and telephone lines. Most of these institutions are remnants of the nationalization carried out by the previous governments under the regime of German militarism. In Russia, on the other hand, there are some seemingly independent shops and farms left. But these exceptions do not alter the general characteristics of the two systems.

It is not an accident that Russia adopted the bureaucratic pattern and Germany the Zwangswirtschaft pattern. Russia is the largest country in the world and is thinly inhabited. Within its borders it has the richest resources. It is much better endowed by nature than any other country. It can without too great harm to the well-being of its population renounce foreign trade and live in economic self-sufficiency. But for the obstacles which Czarism first put in the way of capitalist production, and for the later shortcomings of the Bolshevik system, the Russians even without foreign trade could have long enjoyed the highest standard of living in the world. In such a country the application of the bureaucratic system of production is not impossible, provided the management is in a position to use for economic calculation the prices fixed on the markets of foreign capitalist countries, and to apply the techniques developed by the enterprise of foreign capitalism. Under these circumstances socialism results not in complete chaos but only in extreme poverty. A few years ago in the Ukraine, the most fertile land of Europe, many millions literally died of starvation.

In a predominantly industrial country conditions are different. The characteristic feature of a predominantly industrial country is that its population must live to a great extent on imported food and imported raw materials.* It must pay for these imports by the export of manufactured goods, which it produces mainly from imported raw materials. Its vital strength lies in its factories and in its foreign trade. Jeopardizing the efficiency of industrial production is equivalent to imperiling the basis of sustenance. If the plants produce worse or at higher cost they cannot compete in the world market, where they must outdo commodities of foreign origin. If exports drop, imports of food and other necessities drop correspondingly; the nation loses its main source of living.

Now Germany is a predominantly industrial country. It did very well when, in the years preceding the first World War, its entrepreneurs steadily expanded their exports. There was no other country in Europe in which the standard of living of the masses improved faster than in imperial Germany. For German socialism there could be no question of imitating the Russian model. To have attempted this would have immediately destroyed the apparatus of German export trade. It would have suddenly plunged into misery a nation pampered by the achievements of capitalism. Bureaucrats cannot meet the competition of foreign markets; they flourish only where they are sheltered by the state, with its compulsion and coercion. Thus the German socialists were forced to take recourse to the methods which they called German socialism. These methods, it is true, are much less efficient than that of private initiative. But they are much more efficient than the bureaucratic system of the Soviets.

This German system has an additional advantage. The German capitalists and the Betriebsführer, the former entrepreneurs, do not believe in the eternity of the Nazi regime. They are, on the contrary, convinced that the rule of Hitler will collapse one day and that then they will be restored to the ownership of the plants which in pre-Nazi days were their property. They remember that in the first World War too the Hindenburg program had virtually dispossessed them, and that with the breakdown of the imperial government they were de facto reinstated. They believe that it will happen again. They are therefore very careful in the operation of the plants whose nominal owners and shop managers they are. They do their best to prevent waste and to maintain the capital invested. It is only thanks to these selfish interests of the Betriebsführer that German socialism secured an adequate production of armaments, planes, and ships.

Socialism would be impracticable altogether if established as a world-wide system of production, and thus deprived of the possibility of making economic calculations. When confined to one or a few countries in the midst of a world capitalist economy it is only an inefficient system. And of the two patterns for its realization the German is less inefficient than the Russian one.

[* ]The United States, although the country with the most efficient and greatest industry, is not a predominantly industrial country, as it enjoys an equilibrium between its processing industries and its production of food and raw materials. On the other hand Austria, whose industry is small compared with that of America, is predominantly industrial because it depends to a great extent on the import of food and raw materials and must export almost half of its industrial output.