Can Putin Survive?
The Lessons of the Soviet Collapse
ON March 31, 1937, the Associated Press reported from Berlin that the German Government is preparing to give the German people "a new conception of property rights differing radically from the ideas of orthodox capitalism. In the new civil laws, now in process of codification, there will be no need and no room for abstract rights of property." Just what this will mean in practice remains to be seen. But in no case will it constitute a revolutionary change from what has been developing gradually through the years since 1933. To all intents and purposes Germany has long since ceased to be a capitalist country. "The capitalist system has been replaced by the National Socialist system which is borne along by an entirely different spirit and obeys entirely different intrinsic laws from those which control the capitalist economy." [i]
For years Fascist propaganda has offered Fascism as a safeguard and panacea against Communism; and Communism has exposed Fascism as its arch foe and antithesis. In fact, the world has never seen two supposedly hostile economic and social systems more alike in essentials, both of practice and ideology, than National Socialism and Communism. (The difference between the German and Italian brands of Fascism is a difference of degree, not of kind. The similarity between them is growing daily, owing in particular to their common aim of autarchy. In accomplishing that aim, Germany, the far stronger industrial Power, of course, takes the lead and Italy imitates; while Italy, being the older Fascist Power, sets the model for Germany in the administrative technique of dictatorship. But this is beyond the scope of this article.) To draw inferences from German developments regarding Russian developments, and vice versa, one must take into consideration the fact that the National Socialist régime has been in power for four years, the Soviets for almost twenty. It is of no avail, therefore, to compare institutions and policies developed in an advanced phase of a régime with institutions and policies created in the initial phase. The change in the social and economic fabric of the Soviets, say between the era of Lenin's New Economic Policy and the Second Five Year Plan now current, is certainly greater than the change from the Tsarist economy to the NEP.
The question to be gone into seems to be: How many, if any, of the essential features of what is known to the world as capitalism have survived and are to survive in Germany? The obvious answer is, of course, that private ownership of the means of production is after all still the rule in Germany. The same was true in Russia, an overwhelmingly agricultural nation, after many years of the Soviet régime, down to the collectivization of the farms and the "liquidation" of the kulaks. That private ownership of the means of production, even as a legal notion, is to undergo a far-reaching change in Germany is already officially announced; and no one familiar with National Socialist ideology has the slightest doubt that its exponents mean a radical change if they say so. But private property has long since ceased to be more than a mere legal form which has almost completely lost its content. The German industrialist has no more control over the means and ends of production than the German worker has over the conditions of his job, the German peasant over the products of the soil, the German tradesman and dealer over the goods he handles or their price to purchase and to sell, or the German banker over the creation and distribution of credit. All are under the complete direction and control of the State, the policy of which again is determined by the exigencies of its political and social aims in general and by the " Second Four Year Plan" in particular. Let us record the facts.
The basis of planned economy in Germany as well as in Russia is complete control of exports and imports. Not one carload, not one parcel, crosses the German border in either direction without the special permit of the Government. No German is even supposed to sell anything abroad without such a permit. Whether and when it is granted is not primarily a matter of market considerations. The German importer cannot buy where he gets the best quality at the lowest price; the German exporter cannot sell wherever he might find a competitive chance. An extremely elaborate system has been built up for the control of foreign exchange, and it tends to become more and more rigid.
As early as March 1934 the so-called Ueberwachungsstellen (Control Offices) were created, first to govern the importation of textiles, non-ferrous metals, rubber, etc., so that such imports might be reserved exclusively for military purposes. The control offices were authorized to fix quotas for purchases of raw materials and to limit inventories kept by manufacturers and dealers. The instrument of control was the assignment of foreign exchange. A few months later, at the end of June 1934, the Reichsbank proceeded to a system of apportioning devisen. This system was designed to secure the imports of raw materials necessary for armaments at the expense of imports of other raw materials. The Reichsbank created a scale of relative urgency governing imports. "Vital" imports were those required by armaments. They were assigned the necessary devisen. Non-vital imports, i.e., those required "only" for the needs of the civilian population, were denied devisen. Gradually, the number of control offices was increased to several dozen, covering virtually all imports. By this means the State has assumed the responsibility for supplying all materials.
It could not stop, of course, at this point. In regulating the inflow of raw materials, the State had to regulate also their use. It had to see that they were consumed most economically; it had to assign certain quantities of raw materials to individual factories and at the same time prescribe what they should be made into. It had to prevent others from acquiring those materials for unnecessary purposes. It had to control inventories, to order genuine materials to be mixed with substitutes, and so on and so on. In other words, the import monopoly of the State leads inevitably to a system of complete control over the whole economic machinery.
The same is true of the control of exports. Since exports must at any cost be maintained in order to create the means of payment for necessary imports (part of which was required for non-economic purposes), exports must be subsidized; and since the greater part of German imports is derived from countries with exchange restrictions similar to Germany's own, exports must be directed to these countries, regardless of whether the individual transaction is profitable. By a system of ingenious devices, the price level of German exports is kept apart from the domestic price level. Exports are subsidized by premiums charged to imports. Restrictions of imports apply particularly to manufactured goods, while imports of foodstuffs and raw materials are favored. Raw materials are bought primarily from countries ready to take German exports as pay even if these raw materials are more expensive than others and of inferior quality. And, of course, all commodities, raw materials, semi-manufactured or manufactured goods that are scarce are subject to an export embargo.
The decisive feature of the capitalist system is the price created by the market. The essential difference between a capitalist and a planned socialist economy lies in this: whether the price system or a government agency determines the quantity and quality of production, the quantity and quality of capital investments, the quantity and quality of the goods distributed and consumed. The price system is the central motor which keeps the capitalist machinery going. The socialist planned economy substitutes for the free price the order of the Government. Goods are produced not because the market wants them but because the Government wants them. Capital is no longer invested because it promises a high profit, but because the investment has to put out goods ordered by the Government and placed by it in the category of the necessary or desirable. Individual incomes are no longer the outcome and reward of free economic activity; they are fixed at what the Government considers an adequate return for individual services rendered the community.
This principle has been adopted by the German Government to its fullest extent. By order of the "leader" of the "Reich's Group Banking" the word "profitableness" must no longer be used in bank reports. The price system has formally been put out of commission. By a Government decree of November 26, 1936, price increases have been generally prohibited, retroactive to the level of October 18, 1936. Henceforth every price must be approved by the "price commissar." The decree applies not to commodities only but also to rents and services of all kinds. The Government cannot afford to let prices be determined by the relation of demand and supply. Since the supply of a growing number of vital commodities is becoming scarcer and scarcer, prices would go skyrocketing. An unchecked rise in prices, however, would invite an inflationist catastrophe, for which the monetary conditions have been created for years by a rapidly growing deficit of the Reich's budget and a corresponding increase in public debts and bank deposits. Rigid control of prices is therefore the inescapable consequence of the financial policy imposed by the armament and work creation policy of the Reich.
But this is not the only motive for the elimination of the price system. The whole idea of "autarchizing" the Reich in food and basic raw materials is a force in the same direction. Synthetic rubber, oil, new spinning materials -- these must be produced regardless of their cost in relation to the world prices of competing materials. If "buna" costs four times as much as natural rubber, then governmental and private consumers must pay what it costs. And competition must be eliminated. No one must be allowed to take advantage of the price difference. And after all, it does not matter so much if the army has to pay for tires or gasoline four times or more what they would cost in the United States. It remains a part of the general costs of armament to be covered by the same means as guns and airplanes.
It is not the object of this article to examine the practicability of such a policy or its consistency with the preceding general increase in agricultural prices and with the general cartellization of German industry which naturally tends to price increases. This system makes every price a political issue. It is up to the Government to favor or disfavor certain lines of production, to encourage or discourage certain groups of the population, to grant or to withdraw privileges according to the requirements of the State or to political expediency. It is exactly what has happened and is happening to the price system in Soviet Russia. It no longer has anything to do with capitalism.
Since markets and prices no longer function, the Government has to pass on capital investments. Construction of all kinds requires a special governmental permit. Factories for certain products cannot be erected, for these products are designated as "unnecessary." The same rule applies to the extension of the existing plants or the enlargement of their capacity. New construction must also be approved according to a descending scale of urgency: (1) armaments; (2) food supply; (3) domestic raw material production; (4) promotion of exports; (5) housing, if materials and labor remain.
Restrictions apply equally to merchandizing. The opening of new retail stores is generally prohibited. No one is free to employ the little savings he may have to establish an independent life of his own unless, again, he is able to obtain a special permit. And, of course, there are restrictive laws against department stores and chain stores, which must not expand any more.
But it is not only in a negative way that the Government controls production. Certain types of construction and manufacturing are furthered and expanded by the State, such as all kinds of construction directed by the Government itself, armament factories, huge public buildings, including innumerable party buildings in every fair-sized city of the country, and motor highways. An example is the promotion of the automobile industry in order to stimulate the motorization of the country, by cutting the prices of automobiles, by tax privileges for purchase, replacement and maintenance of automobiles, etc. Another is the erection of new and rapidly growing national industrial plants for the manufacture of substitute materials. By direct and indirect means industry is being forced to build and expand plants for spinning materials, synthetic rubber, synthetic gasoline. The Government prescribes the amount of required capital investment, it apportions the amount that each member of the industry has to contribute, it guarantees in advance the sale of the product and the sale price. It forces manufacturers to use these new materials either exclusively or mixed with genuine material. It enforces the use of them either by direct decree or by making such use a prerequisite for government orders which naturally no one can do without.
The remaining "private sector" has thus gradually become negligible and is being reduced more and more every day. It has been estimated that the number of regulating decrees amount to a thousand a week, because more and more the Government has to proceed from general regulations to specific interference. If, for instance, steel or cement is short where the need is considered urgent, General Goering, in charge of the Four Year Plan, is free to take a supply away from anyone who has it.
The general cartellization of industry has its corollary in unrestricted rights of government supervision of cartels and interference in their management. The government may regulate the rights and duties of cartel members; any changes in the charter or the regulations of a cartel must have government approval. This interference goes so far as to prescribe the forms and methods of advertisement, the number of pages for newspapers, etc.
It would again go beyond the scope of this article to describe the technique of administration required by this policy. It presupposes, of course, that literally everybody is a member of some organization that executes government orders -- most people of several. As time goes on, these organizations are growing in number; and since all are based on the leadership principle, which invests unlimited power in each leader, it amounts almost to a miracle that the general confusion, the permanent counteracting of one authority by another, has not long since brought about complete chaos. But from time to time some new authority with dictatorial power is created in order to supersede another dictatorial authority which failed to get along with other dictatorial powers. Here specifically is the background of the rise of General Goering over Dr. Schacht in economic matters. Here, as always, general planning leads to a general jumble.
The mechanism of the capitalist system has not only been abolished in industry and trade. It has been even more thoroughly and consciously excluded from agriculture. Agriculture always held a central position in the philosophy of National Socialism. A metaphor of Herr Darré, the Minister of Agriculture, is worth preservation for posterity: "The peasant estate shall be the cornerstone of the State structure, because it is the motor of life and the source of blood renovation for the whole people." How anything can at one and the same time be a cornerstone, a motor and a source is about as mysterious as the Weltanschauung on which the remark is based. But it implies clearly that the agricultural policy of National Socialism is deeply rooted in the program of national defense and in social policies. Only that country is militarily free which can feed itself by products of its own soil.
The agricultural sector was planned earlier and more completely than the industrial. The so-called Reichsnaehrstand (nutrition estate) fixes prices for every product. It orders how much the farmer has to be paid for his wheat, how much the miller has to charge for milling, how much the bakery is allowed for baking, how much the grocer may add before he sells the bread to the consuming public. This applies to every kind of cereal, fodder, cattle and hogs, meat and fats, dairy products, fruits and vegetables. The execution of this planning is entrusted to so-called Marktverbaenden (marketing boards), which fix prices, regulate supply, and order the margin permitted to dealers and manufacturers. Every farmer is charged with the delivery of a certain quantity of his products, measured by his acreage and the number of livestock. Every farmer has to raise the crops the Government wishes, he has to use so much fertilizer of such quality as is apportioned to him, to plant the kinds of seeds the Government orders. He has to sell his products exclusively through those channels of trade which function as agents for the local authority, under prescribed terms. And he lives under the threat of being driven from his soil if it is considered that he is not complying with the political or economic standards set for him by the Government.
The corollary to regulation of production and trade is regulation of consumption wherever a shortage of supply requires a cut in consumption. The system was practiced generally during the war. It is now applied particularly to fats. Everybody in a town is assigned to a retailer from whom he is entitled to buy a limited quantity of butter, lard and other fatstuffs, if and when available. There have been days and weeks when fats could not be obtained at all or only in quantities of a quarter of a pound or so; then again in various places fats may become so plentiful that they may be bought without restrictions, while at the same time meat or eggs may be scarce. The dealer is assigned what he has to sell and the consumer has to buy what he is offered.
At the same time the Government tries to increase the supply of foodstuffs by every manner of means -- by admonition and compulsion, by subsidies and by furnishing unpaid or almost unpaid labor. With all this, the farmers have been in a privileged position from the very beginning. They have enjoyed every favor the Government could bestow on them, and have possessed security as well. But of capitalism there is hardly any vestige left.
Complete control of production and distribution requires equally complete control of money and credit. When the Hitler Government came into power, the German banks, with almost negligible exceptions, were already dominated by the Reich. In order to overcome the banking crisis of 1931, the Reichsbank had to acquire controlling majorities of all but one of the leading joint stock banks. Since the Reich owned and operated banks founded during the inflation period, and since almost all savings banks have always been owned by the municipalities, there was hardly any private sector in the credit system left. But it was the policy of the pre-Hitler governments to pretend that these banks were free from governmental interference. Although bank stocks were acquired by the Government there was little change in the management personnel, and the banks were not operating very differently than before.
The National Socialist Government, it is true, has sold out part of its holdings of bank stocks, but it has completely abandoned the pretence of non-interference. This applies first to the fixing of interest rates. The interest rates of all long-term debts of the Reich, states, and municipalities, and of mortgages, both agricultural and urban, have been forcibly reduced. The rates of interest the banks are allowed to pay their depositors, as also those which they have to charge their debtors, commercial or otherwise, are fixed by the Government.
All the financial resources of the nation are reserved for the needs of the Government. To this end, all new private issues of stocks and bonds are barred. No private issue is permitted except by special consent of the Government, and this consent is given almost exclusively for government purposes, i.e., for corporations operating under the Four Year Plan that manufacture war materials or substitute raw materials. But the domination of the credit mechanism is not confined to negative measures. The banks are actually ordered to grant credits or to buy shares of such corporations as serve the purposes of the Government under terms decided by the Government. In many instances such credits or participations are guaranteed by the Reich. Apart from this, the banks invest their money in government bonds of various kinds, particularly in so-called work creation bills issued to pay the armament costs.
All banks receive direct instructions from the Reichsbank, which itself is a government agency. The Reichsbank is virtually the supreme central agency on which the execution of the whole plan depends. It is the Reichsbank which directs and controls the financing of all private business. Without the consent and interference of the Reichsbank virtually no major business transaction may be negotiated and concluded. It is no mere accident that Dr. Schacht as President of the Reichsbank exercised economic control long before he was appointed Minister of Economics. Not even the position of the Russian central bank offers anything comparable to the power and authority of the German Reichsbank.
Along with the profit motive profits themselves are to a large extent eliminated. With prices and wages fixed, with raw materials apportioned, technical processes prescribed, trade channels assigned, volume of business dependent on government orders, the profit that eventually can be made is of course wholly arbitrary. And whatever profit may be made is subject to decided restrictions. First, taxes have been substantially increased, particularly the corporation tax; and the practice of the tax authorities has become vexatious, backed by draconic penalties (including the death penalty for infringements of exchange restrictions). Second, since the capital market is under the complete control of the Government, industry has to use the greater part of its earnings to finance new plants even when it realizes that they could not pay under normal conditions and will eventually have to be written off. Third, no corporation is permitted to distribute more than a 6 percent (in certain cases 8 percent) dividend. Profits exceeding this amount must be delivered to the Golddiskont Bank and invested in government bonds to be held in escrow for the stockholders over a period so far undefined.
It is but the logical conclusion of, and unavoidably consistent with, both the philosophy and practice of National Socialism that private contracts are no longer respected by the State, that any private contract is at any time subject to modification or termination by legal or administrative action of the Government. Whoever tries to arrive at a fair and well-balanced opinion of the German system must keep in mind especially this: There is no legal limit to government or party interference in the routine life of business any more than there is a Habeas Corpus Act for the protection of civil liberties. This kind of totalitarianism, every day and everywhere, goes far beyond the written regulations.
With capitalism gone, capitalist methods of dealing with labor have gone too. Strikes and lockouts are no longer permitted, attempts at strikes are treated as high treason. The trade unions have been dissolved, and thereby the instruments of collective bargaining. Collective bargains have been replaced by orders of the so-called Labor Front prescribing minimum conditions for wage fixing by the individual shop. Wages have been rigidly stabilized at the level of 1933, and are being kept there despite the rapidly rising cost of living and the substantial shortage of skilled labor. Freedom to move from place to place is suppressed in principle. As early as May 1934 the Reich Labor Office was instructed to prohibit migration of laborers to districts with substantial unemployment, or from agriculture into industry and commerce. Labor is apportioned to industry upon the same basis as raw materials. Metallurgical industries and agriculture must be provided with sufficient labor at sufficiently low wages. In order to prevent competitive wages, no employer may engage a metal worker from another employer or from outside his local district without special permit. And no metal worker may change one job for another without the local Labor Office's permit. And so on.
The administrative instrument is the "work book" which every employable person must obtain in order to find a job. These "work books" are special passports for workers and employees. They register the whole course of each individual's life. Thus an unfavorable remark in one may stigmatize a worker irrevocably. They are supposed to facilitate the task -- as the law says -- of putting the right man in the right place, of preventing overcrowding in crowded occupations, of stopping the migration of country people into towns, of stopping "illicit" jobs (Schwarzarbeit). This administrative device, like so many others, has been copied from Russia. The work book serves as a means of complete subjugation of every individual worker to the command of the Government, which is directed by the National Socialist Party.
Withdrawal of the work book amounts to the death penalty. It is a threat that makes every worker subservient to the will of the authority. By this threat, armies of workmen have for many months been transported from one part of the country to another like prisoners of war. If there are unemployed in the district of Magdeburg, for instance, and labor is needed in the district of Koenigsberg, labor is sent to Koenigsberg. The workers must leave behind their families, who are given 1 Mark (25 cents) a day. It is called Arbeitseinsatz, a military term which amounts to throwing troops to whatever part of the front they are needed. In an article published on September 19, 1936, in the Frankfurter Volksblatt, a director of a labor office explains it in this way (the translation is literal):
"Arbeitseinsatz" means directing the nationally available labor to where national economy needs it. It is therefore not as though we had abandoned the word "labor market" -- it has disappeared from all headlines and is used only colloquially because of habit -- because the customary simile did not suit us any more. The notion itself has passed out because we think and act differently. "Market" means confusion. One is tempted to talk of a "free play of forces." "Einsatz" is conscious direction of existing currents. We have not assumed a new name for the old thing, we behave and act differently.
Here again the fundamental notions of the capitalist system are consciously decried and abandoned. In all fairness it must be said that this system increases the security of the individual worker almost as much as it restricts his liberties. No worker can be arbitrarily dismissed by his boss (though the party boss may of course order his dismissal at any time for real or pretended political reasons).
The American reader of this article will probably have begun to wonder why the German people have stood for such a change in their economic and social system, why this change has not met with any decisive resistance from the bourgeoisie or the proletariat, or both. The simple answer is that to the average German the change does not appear anywhere near as revolutionary as it does to the Western world. In fact, the economic and social policy of National Socialism does not include a single feature not conceived or practiced in Germany in the past. The political philosophy and practice of National Socialism are exclusively the incarnation of familiar traits of German history. The German conception of capitalism was always essentially different from the Anglo-Saxon, because it was developed under an entirely different conception of state and government. Perhaps without the war it would have developed in the direction of a greater resemblance to the Western pattern of capitalist democracy. The war certainly terminated what seemed to be a very promising historical development. During the war a totalitarian régime was established for the first time. During the war the entire social and economic fabric was subjected to government regulation and interference. During the war whatever feeble elements of genuine economic liberalism might have come into being during the preceding decades were definitely eradicated.
What National Socialism builds up is war economy once more, but war economy on a Socialist ideological foundation. National Socialism is as genuine Socialism as it is genuine Nationalism. And this régime has inherited a full-fledged machinery from the improvised episode of democracy which struggled hopelessly for life from the hour of its birth in 1918. It was the democratic republican government in Germany that was already in control of the banks, the railroads, the power sources, the urban transit systems, the municipal gas and water, vast housing developments, and large parts of heavy industries. How many German industrialists were still independent of the Government in 1932, before Hitler came into power? How many could afford to arouse the ire of a determined government, to challenge it by refusing cooperation? Hardly a handful.
And the workers? Should German workers, brought up in Marxist ideology, in the pursuance of collectivist ideals, trained to demand public ownership, should they oppose a totalitarian régime which promised to complete what their own men had left undone? Could they fight for individual liberties on economic and social grounds? Hitler had only to reap where his foes had sown. Capitalism is lost where it is not built on liberalism and democracy. And liberalism and democracy are lost where they fail to convince the people of the necessity of capitalism as the only available economic safeguard of political, intellectual and spiritual freedom.
[i] Dr. Dietrich, Chief of Press of the National Socialist Party, in an address on January 28, 1936.