God is a Capitalist

by Roger McKinney

  Socialism’s success in Germany

  In the first quarter of the nineteenth century classical liberal philosophy invaded and captured the hearts of German intellectuals. The ideas had come from England, Ludwig von Mises wrote in Omnipotent Government:

  But German intellectuals welcomed Western ideas of freedom and the rights of man with enthusiasm. German classical literature is imbued with them, and the great German composers set to music verses singing the praises of liberty. The poems, plays, and other writings of Frederick Schiller are from beginning to end a hymn to liberty. Every word written by Schiller was a blow to the old political system of Germany; his works were fervently greeted by nearly all Germans who read books or frequented the theater...

  Whoever rose from misery and joined the community of civilized men became a liberal. Except for the small group of princes and their aristocratic retainers practically everyone interested in political issues was liberal. There were in Germany in those days only liberal men and indifferent men; but the ranks of the indifferent continually shrank, while the ranks of the liberals swelled.

  The rising tide of liberalism threatened to drown the absolute rule of the king and nobility who responded by using the military to crush the revolution of 1848 that might have introduced freedom and an industrial revolution to Germany. Only the educated had embraced classical liberalism, whereas the shock troops of the army tended to be illiterate peasants who submitted to the will of the nobility as they had for centuries. The leaders of classical liberalism understood they would have to wait for change until they had educated more citizens and soldiers in the ideas of freedom. As Mises wrote,

  These much-abused German liberals of the 1860’s, these men of studious habits, these readers of philosophical treatises, these lovers of music and poetry, understood very well why the upheaval of 1848 had failed. They knew that they could not establish popular government within a nation where many millions were still caught in the bonds of superstition, boorishness, and illiteracy. The political problem was essentially a problem of education. The final success of liberalism and democracy was beyond doubt. The trend toward parliamentary rule was irresistible. But the victory of liberalism could be achieved only when those strata of the population from which the King drew his reliable soldiers should have become enlightened and thereby transformed into supporters of liberal ideas. Then the King would be forced to surrender, and the Parliament would obtain supremacy without bloodshed.

  But the liberals did not have the time to educate the population as they had thought, for the doctrines of Saint-Simon achieved their greatest reception in Germany. After the July Revolution of 1830 in France, Paris sucked in intellectuals and revolutionaries like a vacuum from all over, but especially Germany. The Saint-Simonians were at the height of their influence and in the autumn articles on them and translations of some of their writings swept across Germany. Hayek wrote in The Counter-Revolution, “The whole German literary world seems to have been agog for news about the novel French ideas and to some, as Rahel von Varnhagen describes it, the Saint-Simonian Globe became the indispensable intellectual daily bread.”

  The philosophy of Hegel plowed the ground in Germany for the seeds of Saint-Simonianism as John the Baptist had prepared Israel for Jesus. The Young Hegelians found it trivial to merge the two philosophies, Karl Marx and Friedrich Engels being the most notorious members of that group. By 1840, Saint-Simon’s ideas had “come to form the basis of all the socialist movements. And the socialism of 1848 apart from the strong democratic and anarchistic elements which by then had been carried into it as new and alien elements was in doctrine and personnel still largely Saint-Simonian,” according to Hayek. The failed revolution of 1848 gave the liberals an impotent parliament in which to publicly vent their grievances, but time was not on their side. Before they could achieve their goals through education, socialism rushed in and stole the hearts of the majority and then filled parliament. By the middle of the 1860s, the leading academics were evangelizing the nation for Saint-Simon’s socialism. Mises wrote in Omnipotent Government,

  Very soon the economic, philosophical, historical, and juridical university lectures were representing liberalism in caricature. The social scientists outdid each other in emotional criticism of British free trade and laissez faire; the philosophers disparaged the “stock-jobber” ethics of utilitarianism, the superficiality of enlightenment, and the negativity of the notion of liberty; the lawyers demonstrated the paradox of democratic and parliamentary institutions; and the historians dealt with the moral and political decay of France and of Great Britain. On the other hand, the students were taught to admire the “social kingdom of the Hohenzollerns” from Frederick William I, the “noble socialist,” to William I, the great Kaiser of social security and labor legislation. The Social Democrats despised Western “plutodemocracy” and “pseudo-liberty” and ridiculed the teachings of “bourgeois economics.”

  Otto von Bismarck, the Chancellor of Germany from 1871 to 1890, viewed the rise of socialism as an ally against the liberals he hated so much. But neither he nor the nobility welcomed a socialist overthrow of the absolute rule of the monarch. Bismarck defeated both threats by co-opting most of the socialist policies, such as old age pensions, accident insurance, medical care and unemployment insurance and by nationalizing key industries. The leaders of the socialist parties opposed Bismarck’s reforms because they kept the monarchy in power, appeased the ignorant masses and prevented the approach of the revolution and rule of the proletariat. But the common socialists saw the immediate benefits of Bismarck’s reforms and embraced them.

  Socialists were justified in their skepticism of Bismarck’s plan. The Chancellor revealed his true motives in an interview: “My idea was to bribe the working classes, or shall I say, to win them over, to regard the state as a social institution existing for their sake and interested in their welfare,” according to Richard Ebeling in “Marching to Bismarck's Drummer: The Origins of the Modern Welfare State.” Bismarck understood that a majority of Germans depending on the state for income would be much less likely to revolt as it had in 1848. In public, Bismarck referred to his policies as “practical Christianity,” in the words Frederic B. M. Hollyday in “Bismarck,”

  The real grievance of the worker is the insecurity of his existence; he is not sure that he will always have work, he is not sure that he will always be healthy, and he foresees that he will one day be old and unfit to work. If he falls into poverty, even if only through a prolonged illness, he is then completely helpless, left to his own devices, and society does not currently recognize any real obligation towards him beyond the usual help for the poor, even if he has been working all the time ever so faithfully and diligently. The usual help for the poor, however, leaves a lot to be desired, especially in large cities, where it is very much worse than in the country.

  Bismarck’s fusion of socialism and absolute monarchy became known as Sozialpolitik and aimed at raising the standard of living of workers through legislation. But the pro-labor legislation, minimum wage laws and union strikes succeeded only in raising the costs of production, which increasingly made German exports of manufactured goods uncompetitive in the international marketplace. Had Germany been blessed with ample and fertile farmland, the state might have used tariffs to protect manufacturers who would produce for the domestic market alone. But Germany needed to export manufactured goods to pay for desperately needed food and raw materials. Bismarck responded to the problem by allowing manufacturers to create cartels that gave them monopolies on their products inside Germany. Without competition the cartels raised prices at home enough to subsidize the exports they sold overseas at competitive prices. Higher nominal wages fooled the wage-earners into believing they were better off when in truth the higher monopoly prices Germans paid for manufactured goods took back what the higher wages gave.

  Bismarck’s socialism caused prices to rise but bureaucrats ran the nationalized industries so poorly that they required increa
sing subsidies from the state. The state had to raise taxes to pay the subsidies while the public found the services unsatisfactory. Higher taxes and wages made German manufacturing unable to compete against imported goods, so the state raised tariffs. The monopolies given to the cartels allowed companies to charge high prices in Germany while selling their products overseas at the lower market prices. In other words, German consumers subsidized exports by paying higher prices at home as well as higher taxes to subsidize inefficient manufacturers.

  The German people hated the cartels and monopolies, but Marxists convinced them that residual capitalism and greedy capitalists caused them not socialism. The people saw no connection between the cartels and the government’s intervention in the economy to implement its socialist policies. Germany’s socialist system would later be called the welfare state and fascism. Unlike communism in Russia which ended private property in favor of state ownership, fascism removed all control of property from the owners while leaving them with the paper title. Of course, without control property no longer exists, but leaving the owners with a meaningless paper title fooled most people, especially journalists and historians, into thinking that Germany had a capitalist system.

  The ruse worked so well that when Friedrich Hayek grasped that most British citizens considered Nazi Germany to be a capitalist nation he wrote his most famous book, The Road to Serfdom, to attack that delusion. Hayek wrote to his fellow British citizens and did not expect the book to appeal to other nationalities. But when the book crossed the Atlantic, it infuriated members of the Democrat party who thought Hayek had targeted the policies of President Roosevelt because they were so much like those of Nazi Germany and fascist Italy. Roosevelt admired Mussolini and modeled many of his policies after him.

  Eventually the “money illusion” evaporated in Germany as workers began to slowly understand that price inflation made them poorer. By the time of the disaster of the first world war had ended and the socialists enjoyed the opportunity to form their first truly socialist government, economic reality had boiled away infatuation with Sozialpolitik. Socialist parties faced a dilemma when they formed their government in 1918 according to Mises in Money, Method, and the Market:

  At the beginning of the twentieth century, one could no longer deny the obvious fact that the public authorities had scandalously failed in their attempts to administer the various business organizations they had acquired in the conduct of their "state socialism”...Socialism was in their opinion the great panacea, but it seemed that nobody knew what it really meant and how to bring it about properly. Thus, the victorious socialist leaders did what all governments do when they do not know what to do. They appointed a committee of professors and other people considered to be experts. For more than fifty years the Marxians had fanatically advocated socialization as the focal point of their program, as the nostrum to heal all earthly evils and to lead mankind forward into the new Garden of Eden. Now they had seized power and all of the people expected that they would redeem their promise. Now they had to socialize. But at once they had to confess that they did not know what to do and they were asking professors what socialization meant and how it could be put into practice.

  It was the greatest intellectual fiasco history has ever known and it put in the eyes of all reasonable people an inglorious end to all the teachings of Marx and hosts of lesser-known Utopians...

  And, of course, this committee whose best known members were Doctor Hilferding and Professor [Josheph] Schumpeter, produced a collection of volumes dealing with various subjects, but did not solve the insoluble problem for the solution of which it had been established. It did not indicate a method for a reasonable and successful conduct of business operated by other principles than those of capitalistic profit-seeking.

  Socialists have never allowed failure to deter them and always blamed residual capitalism for those failures. In spite of massive failure, Germany retained the policies of Bismarck’s welfare state as if they had no other options. Those policies immigrated to the U.S. with German union workers sailing to the New World, with students returning from their indoctrination at German universities, and with intellectuals enamored with the power of the German state. For example, Richard Ely, a professor of economics at the University of Wisconsin, studied in Germany then returned to the U.S. to launch the American Economic Association in 1885 with the purpose of promoting Bismarck’s welfare-state. According to Richard Ebeling in “Marching to Bismarck's Drummer,” Ely later wrote,

  Looking into the future we may contemplate a society with real, not merely nominal freedom, to pursue the best; a society in which men shall work together for the common purposes, and in which the wholesale cooperation shall take place largely through the government...We have reason to believe that we shall yet see great national undertakings with the property of the nation, and managed by the nation, through agents who appreciate the glory of true public service, and feel that it is God’s work they are doing, because church and state are as one.

  One of many admirers from the U.S., Frederic Howe, wrote a book in 1915 that preached the virtues of the socialism called Socialized Germany. Ebeling quoted Howe who wrote,

  The state has its finger on the pulse of the worker from the cradle to the grave. His education, his health, and his working efficiency are matters of constant concern. He is carefully protected from accident by laws and regulation governing factories. He is trained in his hand and in his brain to be a good workman and is insured against accident, sickness, and old age. While idle through no fault of his own, work is frequently found for him. When homeless, a lodging is offered so that he will not easily pass into the vagrant class...

  This paternalism does not necessarily mean less freedom to the individual than that which prevails in America or England...[T]he German enjoys a freedom far greater than that which prevails in America or England. This freedom is of an economic sort...It protects the defenseless classes from exploitation and abuse. It safeguards the weak...

  In the mind of the Germans the functions of the state are not susceptible to abstract, a priori deductions. Each proposal must be decided by the time and the conditions. If it seems advisable for the state to own an industry, it should proceed to own it; if it is wise to curb any class or interest, it should be curbed. Expediency or opportunism is the rule of statesmanship, not abstraction as to the philosophical nature of the state.

  In other words, no principles guided the German government, only pragmatism, which became a code word for increased socialism. As Mises wrote in Omnipotent Government, “And it was Lassalle who spoke the words which characterize best the spirit of the age to come: ‘The state is God.’” Bismarck’s state socialism inspired Fabian socialism in Great Britain and the Progressive movement in the U.S., neither of which examined the failed outcomes of his policies.

  With their growing success, socialists began to change the definitions of words. For example, justice became material equality instead of due process. And the term “liberal,” which had referred to individual freedom from the state, socialists re-invented to mean freedom from poverty and insecurity, thereby instantiating the wise words of Confucius, “When words lose their meaning people will lose their liberty.” Hayek wrote in Fatal Conceit,

  There are of course many other ambiguities and confusions, some of them of greater importance. For instance, there was the deliberate deception practiced by American socialists in their appropriation of the term “liberalism”. As Joseph A. Schumpeter rightly put it (1954:394): “As a supreme if unintended compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label.”

  The failure of socialism with the resulting impoverishment of the working class did not cause intellectuals to divorce the ideology, and that revealed a great deal about socialists’ motives. As Schoeck pointed out in his book, the prime mover of socialism is envy. The never ending love of socialism in spite of the misery it has caused exposes the true motive behind it as Mises wr
ote:

  Granted, many of them replied, that socialism may not result in riches for all but rather in a smaller production of wealth; nevertheless the masses will be happier under socialism, because they will share their worries with all their fellow citizens, and there will not be wealthier classes to be envied by poorer ones. The starving and ragged workers of Soviet Russia, they tell us, are a thousand times more joyful than the workers of the West who live under conditions which are luxurious compared to Russian standards; equality in poverty is a more satisfactory state than well-being where there are people who can flaunt more luxuries than the average man.