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

3.

The Union of the Western Democracies

The main need is a lasting coöperation among the nations today united in their efforts to smash the totalitarian aggression. No plan can work if the nations concerned do not transform their present alliance into a permanent and lasting union. If they resume their prewar policies after the victory, if they return to political rivalries and to economic warfare, the result will be a repetition of the developments of 1919–39. There can be neither effective political coöperation nor solidarity and collective security among nations fighting each other in the economic sphere.

If the Western democracies do not succeed in establishing a permanent union, the fruits of victory will be lost again. Their disunity will provide the defeated aggressors with the opportunity to enter anew the scene of political intrigues and plots, to rearm and to form a new and stronger coalition for another assault. Unless they choose effective solidarity, the democracies are doomed. They cannot safeguard their way of life if they seek to preserve what the terminology of diplomacy calls “national sovereignty.”* They must choose between vesting all power in a new supernational authority or being enslaved by nations not prepared to treat them on an equal footing. The alternative to incorporation into a new democratic supernational system is not unrestricted sovereignty but ultimate subjugation by the totalitarian powers.

This is obvious in the case of small nations like the Dutch, the Danes, the Norwegians. They could live in peace only as long as the much-abused system of the European balance of power protected them. Their independence was safeguarded by the mutual rivalry and jealousy of the big powers. The countries of Latin America enjoyed their autonomy because the Monroe Doctrine and the British Navy prevented any attempts at invasion. Those days are gone. Today these small nations must themselves guard their independence. They will have to renounce their proud isolationism and their intransigent pretensions in any case. The only real question is whether they will become slaves in a totalitarian system or free men in a supernational democracy.

As for Great Britain and France, there can be no doubt at all that they will spell their own doom if they are not prepared to abandon their traditional aspirations for unrestricted national sovereignty. This may be still more true for Australia and New Zealand.

Then there are the United States and Canada. In the course of the nineteenth century they were in the happy position of islanders. Thousands of miles of ocean separated them from potential invaders. They were safe because technical conditions made aggression impossible. But in this age of air power they have become close neighbors of dangerous foes. It is not impossible that in ten or twenty years more an invasion of the North American continent will be technically as easy for Germany or Japan as was the occupation of the Netherlands, in 1940 and that of the Philippines in 1941 and 1942. The citizens of the United States and of Canada will have to realize that there is no other way for them to live in peace than to coöperate with all other democratic peoples.

It is therefore obvious that the Western democracies must desist from all further measures of economic warfare in their mutual relations. True, it is still the firm public conviction that it is absurd to hope for a general return to free trade all over the world. But if trade barriers are not removed between the individual countries forming the suggested democratic union, there will be no union at all. In this respect all plans proposed for a postwar settlement agree. All are based on the expectation that the democracies will stop warring upon one another with the methods of economic nationalism. But they fail to realize what such a solution requires and what its consequences must be.

It must be emphasized again and again that economic nationalism is the corollary of etatism, whether interventionism or socialism. Only countries clinging to a policy of unhampered capitalism, today generally derided as reactionary, can do without trade barriers. If a country does not want to abandon government interference with business, and nevertheless renounces protectionism in its relations with the other member nations of the new union to be formed, it must vest all power in the authority ruling this union and completely surrender its own sovereignty to the supernational authority. But our contemporaries are not at all likely to accept this.

The core of the matter has been neglected because the belief prevails that the establishment of a federal union would solve the problem. Some powers, people assert, should be given to the supernational union government, the rest should remain with the governments of the member nations. Federal government has succeeded very well in many countries, especially in the United States and Switzerland. There is no reason, people say, to suspect that it would not prove very satisfactory in the great federal union of the Western democracies suggested by Clarence Streit.*

Unfortunately neither Mr. Streit nor the advocates of similar projects take into account the changes that have occurred in the structure of these two federal governments (as in that of all other federations) with the spread of economic interventionism and socialism. The federative systems both in America and in Switzerland were founded in an age which did not consider it the task of civil government to interfere with the business of the citizens. There were in the United States federal customs duties, a federal postal service, and a national currency system. But in almost every other respect civil government was not concerned with the control of business. The citizens were free to run their own affairs. The government’s only task was to safeguard domestic and external peace. Under such conditions it was simple to divide powers between the federal government and the governments of the various member states. To the federal government those matters were assigned which went beyond the boundaries of the states: foreign affairs, defense against foreign aggression, the safeguarding of trade between the states, the management of the postal service and of customs. Moreover the federal government did not interfere with the local affairs of the states, and the states did not interfere with what were considered the private affairs of the citizen.

This equilibrium in the distribution of jurisdictional powers was entirely upset by the policy of interventionism. New powers accrued not to the member states but to the federal government. Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government. Washington and Berne were once the seats of the federal governments; today they are capitals in the true sense of the word, and the states and the cantons are virtually reduced to the status of provinces. It is a very significant fact that the adversaries of the trend toward more government control describe their opposition as a fight against Washington and against Berne, i.e., against centralization. It is conceived as a contest of state’s rights versus the central power.

This evolution is not accidental. It is the inevitable outcome of policies of interference and planning. Such measures must be put on a national basis when there are no trade barriers among the member states. There can be no question of adopting these measures for only one state. It is impossible to raise production costs within a territory not sheltered by trade walls. Within a system of interventionism the absence of interstate trade barriers shifts the political center of gravity to the federal government. Seen from the formalistic viewpoint of constitutional law, the United States and the Swiss Confederation may doubtless still be classified as federations, but in actual fact they are moving more and more toward centralization.

This is still more the case within a socialist system. The various republics which nominally form the Soviet Union have only a spurious existence. The Soviet Union is a wholly centralized government.* The same is true for Germany. The Nazis have replaced the federal constitution with a unitary government.

It would be a mistake to believe that resistance to an international unification of government would arise only out of considerations of national pride and vanity. Such obstacles would not be unsurmountable. The main source of opposition would be more deeply rooted. The shift of sovereignty from the national authorities to a supernational authority implies a total change in the structure of political forces. Pressure groups which were very powerful in the national frame and were in a position to shape policies may become impotent in the supernational frame, and vice versa. Even if we are prepared to set aside the ticklish question of migration barriers, the fact is evident. The American cotton producers are eager for higher prices of cotton and, although they are only a minority in the United States, are in a position to force a policy of high cotton prices upon their nation. It is doubtful whether within a union including many countries importing cotton their influence would be the same. On the other hand, British motor-car producers are sheltered against American competition through very effective protectionist measures. They would not like to lose this advantage. Examples could be multiplied indefinitely.

The most serious and dangerous opposition to the supernational unification of government would come from the most powerful of all modern pressure groups, labor. The workers of those countries in which wage rates are higher would feel injured by the competition of countries with lower wages. They would find this competition unfair; they would denounce it as dumping. But they would not agree to the only measure which could raise wage rates in the countries with less favorable conditions of production: freedom of migration.

Modern government interference with business is a policy of protecting influential pressure groups from the effects of free competition in an unhampered market economy. The pressure groups concerned have taken it as a more or less unalterable fact that in the absence of trade barriers between the various parts of a nation they cannot be protected against the competition within their own country. The New York dairy farmer does not ask for import duties on Wisconsin cheese and butter, and the workers of Massachusetts do not ask for immigration laws against the intrusion of cheap labor from the South. They submit more or less to the fact that there are neither trade barriers nor migration barriers within the United States. The attempts to erect interstate trade barriers have succeeded only to a small degree; public opinion is opposed to such endeavors.*

On the other hand, people are so much under the influence of the generally accepted tenets of economic nationalism that they acquiesce in the disadvantages inflicted upon them by protectionism. The consumer makes little protest against an import duty which forces him to pay more than the world market price for the benefit of the producers of some commodity within his own country. But it is very doubtful whether he would put up in the same way with an import duty levied for the benefit of producers in other parts of a supernational union. Would the American consumer be ready to pay higher prices for a commodity in order to further the interests of English manufacturing? Would he not find that the discrimination thus applied against cheaper products of German, Italian, or Japanese origin was prejudicial to his interests? We may wonder whether a supernational policy of protectionism would not lack the ideological foundations which render national protectionism feasible.

The main obstacle to the establishment of a supernational customs union with internal free trade among the member nations is the fact that such a customs union requires unlimited supremacy of the supernational authorities and an almost complete annihilation of the national governments if etatism is to be retained. Under present conditions it makes little difference whether the constitution of the suggested union of the Western democracies is shaped according to the legal pattern of unitary or of federal government. There are only two alternatives open: trade barriers among the member states, with all their sinister consequences, economic nationalism, rivalries and discord; or free trade among the member states and (whatever the constitutional term adopted for it) strictly centralized government. In the first case there would be not union but disunion. In the second case the President of the United States and the Prime Minister of Great Britain would be virtually reduced to the status of provincial governors, and Congress and Parliament to provincial assemblies. It is unlikely that the Americans or the British will easily agree to such a solution of the problem.*

The policies of government interference with business and of national planning beget economic nationalism. The abandonment of economic nationalism, an indispensable condition for the establishment of lasting peace, can only be achieved through a unification of government, if people do not want to return to the system of unhampered market economy. This is the crux of the matter.

The weakness of Mr. Streit’s plan lies in the fact that he is not aware of this fundamental problem. It is impossible to avoid this difficulty by a mere legalistic solution. The precariousness of the union project is not of a constitutional character. It lies in the essence of interventionist and socialist policies; it stems from present-day social and economic doctrines; and it cannot be disposed of by some special constitutional scheme.

But let us not forget that such a union must be established if any peace scheme is to work. The alternative to the realization of a union of the Western democracies is a return to the ominous conditions prevailing from 1918 to 1939, and consequently to new and still more dreadful wars.

[* ]Of course, the preservation of every nation’s full sovereignty would not hinder peaceful coöperation if the nations were to return to a free market economy without any trade or migration barriers.

[* ]Union Now (London, 1939); Union Now with Great Britain (London, 1941).

[* ]The decree of the Supreme Soviet of February 1, 1944 (see New York Times, February 3, 1944), does not interfere in any way with the perfect centralization of the Soviet economic management and domestic administration. The conduct of all economic and administrative affairs of the whole territory subject to the Soviets remains in the hands of the central offices of Moscow. They alone have the power and the right to direct all economic and political activities. And now, as before, the central committee of Moscow appoints and removes all officials of all the sixteen nominally independent republics.

[* ]See Buell, Death by Tariff (Chicago, 1938); Melder, State Trade Walls (New York, 1939).

[* ]It is futile to ask people whether they are in favor of a renunciation of their own nation’s sovereignty. Most laymen do not understand the meaning of the term “sovereignty.” The correct formulation for the question would be: Do you advocate a system under which your nation could be forced to submit to a measure which the majority of your fellow citizens oppose? Are you ready to see essential laws of your country (for example, immigration laws) altered by a Union Parliament in which the members returned by your country are a minority only?