[An excerpt from Omnipotent Government: The Rise of Total State and Total War, originally published in 1944 by Yale University as the first full-scale examination of German-style National Socialism as a species of socialism in general.]
1. The Ancient Regime and Liberalism
It is a fundamental mistake to believe that Nazism is a revival or a continuation of the policies and mentalities of the ancien régime or a display of the “Prussian spirit.” Nothing in Nazism takes up the thread of the ideas and institutions of older German history. Neither Nazism nor Pan-Germanism, from which Nazism stems and whose consequent evolution it represents, is derived from the Prussianism of Frederick William I or Frederick II, called the Great. Pan-Germanism and Nazism never intended to restore the policy of the electors of Brandenburg and of the first four kings of Prussia. They have sometimes depicted as the goal of their endeavors the return of the lost paradise of old Prussia; but this was mere propaganda talk for the consumption of a public which worshiped the heroes of days gone by. Nazism’s program does not aim at the restoration of something past but at the establishment of something new and unheard of.
The old Prussian state of the House of Hohenzollern was completely destroyed by the French on the battlefields of Jena and Auerstädt (1806). The Prussian Army surrendered at Prenzlau and Ratkau, the garrisons of the more important fortresses and citadels capitulated without firing a shot. The King took refuge with the Czar, whose mediation alone brought about the preservation of his realm. But the old Prussian state was internally broken down long before this military defeat; it had long been decomposed and rotten, when Napoleon gave it the finishing stroke. For the ideology on which it was based had lost all its power; it had been disintegrated by the assault of the new ideas of liberalism.
Like all the other princes and dukes who have established their sovereign rule on the debris of the Holy Roman Empire of the Teutonic Nation, the Hohenzollerns too regarded their territory as a family estate, whose boundaries they tried to expand through violence, ruse, and family compacts. The people living within their possessions were subjects who had to obey orders. They were appurtenances of the soil, the property of the ruler who had the right to deal with them ad libitum. Their happiness and welfare were of no concern.
Of course, the king took an interest in the material well-being of his subjects. But this interest was not founded on the belief that it is the purpose of civil government to make the people prosperous. Such ideas were deemed absurd in eighteenth-century Germany. The king was eager to increase the wealth of the peasantry and the townsfolk because their income was the source from which his revenue was derived. He was not interested in the subject but in the taxpayer. He wanted to derive from his administration of the country the means to increase his power and splendor. The German princes envied the riches of Western Europe, which provided the kings of France and of Great Britain with funds for the maintenance of mighty armies and navies. They encouraged commerce, trade, mining, and agriculture in order to raise the public revenue. The subjects, however, were simply pawns in the game of the rulers.
But the attitude of these subjects changed considerably at the end of the eighteenth century. From Western Europe new ideas began to penetrate into Germany. The people, accustomed to obey blindly the God-given authority of the princes, heard for the first time the words liberty, self-determination, rights of man, parliament, constitution. The Germans learned to grasp the meaning of dangerous watchwords.
No German has contributed anything to the elaboration of the great system of liberal thought, which has transformed the structure of society and replaced the rule of kings and royal mistresses by the government of the people. The philosophers, economists, and sociologists who developed it thought and wrote English or French. In the eighteenth century the Germans did not even succeed in achieving readable translations of these English, Scotch, and French authors. What German idealistic philosophy produced in this field is poor indeed when compared with contemporary English and French thought. 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. These intellectuals, of course, were a minority only. To the masses books and theaters were unknown. They were the poor serfs in the eastern provinces, they were the inhabitants of the Catholic countries, who only slowly succeeded in freeing themselves from the tight grasp of the Counter-Reformation. Even in the more advanced western parts and in the cities there were still many illiterates and semiliterates. These masses were not concerned with any political issue; they obeyed blindly, because they lived in fear of punishment in hell, with which the church threatened them, and in a still greater fear of the police. They were outside the pale of German civilization and German cultural life; they knew only their regional dialects, and could hardly converse with a man who spoke only the German literary language or another dialect. But the number of these backward people was steadily decreasing. Economic prosperity and education spread from year to year. More and more people reached a standard of living which allowed them to care for other things besides food and shelter, and to employ their leisure in something more than drinking. 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.
All intellectuals sympathized with the French Revolution. They scorned the terrorism of the Jacobins but unswervingly approved the great reform. They saw in Napoleon the man who would safeguard and complete these reforms and—like Beethoven—took a dislike to him as soon as he betrayed freedom and made himself emperor.
Never before had any spiritual movement taken hold of the whole German people, and never before had they been united in their feelings and ideas. In fact the people, who spoke German and were the subjects of the Empire’s princes, prelates, counts, and urban patricians, became a nation, the German nation, by their reception of the new ideas coming from the West. Only then there came into being what had never existed before: a German public opinion, a German public, a German literature, a German Fatherland. The Germans now began to understand the meaning of the ancient authors which they had read in school. They now conceived the history of their nation as something more than the struggle of princes for land and revenues. The subjects of many hundreds of petty lords became Germans through the acceptance of Western ideas.
This new spirit shook the foundations on which the princes had built their thrones—the traditional loyalty and subservience of the subjects who were prepared to acquiesce in the despotic rule of a group of privileged families. The Germans dreamed now of a German state with parliamentary government and the rights of man. They did not care for the existing German states. Those Germans who styled themselves “patriots,” the new-fangled term imported from France, despised these seats of despotic misrule and abuse. They hated the tyrants. And they hated Prussia most because it appeared to be the most powerful and therefore most dangerous menace to German freedom.
The Prussian myth, which the Prussian historians of the nineteenth century fashioned with a bold disregard of facts, would have us believe that Frederick II was viewed by his contemporaries as they themselves represent him—as the champion of Germany’s greatness, protagonist in Germany’s rise to unity and power, the nation’s hero. Nothing could be further from the truth. The military campaigns of the warrior king were to his contemporaries struggles to increase the possessions of the House of Brandenburg, which concerned the dynasty only. They admired his strategical talents but they detested the brutalities of the Prussian system. Whoever praised Frederick within the borders of his realm did so from necessity, to evade the indignation of a prince who wreaked stern vengeance upon every foe. When people outside of Prussia praised him, they were disguising criticism of their own rulers. The subjects of petty princes found this irony the least dangerous way to disparage their pocket-size Neros and Borgias. They glorified his military achievements but called themselves happy because they were not at the mercy of his whims and cruelties. They approved of Frederick only in so far as he fought their domestic tyrants.
At the end of the eighteenth century German public opinion was as unanimously opposed to the ancien régime as in France on the eve of the Revolution. The German people witnessed with indifference the French annexation of the left bank of the Rhine, the defeats of Austria and of Prussia, the breaking-up of the Holy Empire, and the establishment of the Rhine Confederacy. They hailed the reforms forced upon the governments of all their states by the ascendancy of the French ideas. They admired Napoleon as a great general and ruler just as they had previously admired Frederick of Prussia. The Germans began to hate the French only when—like the French subjects of the Emperor—they finally became tired of the endless burdensome wars. When the Great Army had been wrecked in Russia, the people took an interest in the campaigns which finished Napoleon, but only because they hoped that his downfall would result in the establishment of parliamentary government. Later events dispelled this illusion, and there slowly grew the revolutionary spirit which led to the upheaval of 1848.
It has been asserted that the roots of present-day nationalism and Nazism are to be found in the writings of the Romantics, in the plays of Heinrich von Kleist, and in the political songs which accompanied the final struggle against Napoleon. This, too, is an error. The sophisticated works of the Romantics, the perverted feelings of Kleist’s plays, and the patriotic poetry of the wars of liberation did not appreciably move the public; and the philosophical and sociological essays of those authors who recommended a return to medieval institutions were considered abstruse. People were not interested in the Middle Ages but in the parliamentary activities of the West. They read the books of Goethe and Schiller, not of the Romantics; went to the plays of Schiller, not of Kleist. Schiller became the preferred poet of the nation; in his enthusiastic devotion to liberty the Germans found their political ideal. The celebration of Schiller’s hundredth anniversary (in 1859) was the most impressive political demonstration that ever took place in Germany. The German nation was united in its adherence to the ideas of Schiller, to the liberal ideas.
All endeavors to make the German people desert the cause of freedom failed. The teachings of its adversaries had no effect. In vain Metternich’s police fought the rising tide of liberalism.
Only in the later decades of the nineteenth century was the hold of liberal ideas shaken. This was effected by the doctrines of etatism. Etatism—we will have to deal with it later—is a system of sociopolitical ideas which has no counterpart in older history and is not linked up with older ways of thinking, although—with regard to the technical character of the policies which it recommends—it may with some justification be called neo-Mercantilism.
2. The Weakness of German Liberalism
At about the middle of the nineteenth century those Germans interested in political issues were united in their adherence to liberalism. Yet the German nation did not succeed in shaking off the yoke of absolutism and in establishing democracy and parliamentary government. What was the reason for this?
Let us first compare German conditions with those of Italy, which was in a similar situation. Italy, too, was liberal minded, but the Italian liberals were impotent. The Austrian Army was strong enough to defeat every revolutionary upheaval. A foreign army kept Italian liberalism in check; other foreign armies freed Italy from this control. At Solferino, at Königgrätz, and at the banks of the Marne the French, the Prussians, and the English fought the battles which rendered Italy independent of the Habsburgs.
Just as Italian liberalism was no match for the Austrian Army, so German liberalism was unable to cope with the armies of Austria and Prussia. The Austrian Army consisted mainly of non-German soldiers. The Prussian Army, of course, had mostly German-speaking men in its ranks; the Poles, the other Slavs, and the Lithuanians were a minority only. But a great number of these men speaking one of the German dialects were recruited from those strata of society which were not yet awakened to political interests. They came from the eastern provinces, from the eastern banks of the Elbe River. They were mostly illiterate, and unfamiliar with the mentality of the intellectuals and of the townsfolk. They had never heard anything about the new ideas; they had grown up in the habit of obeying the Junker, who exercised executive and judicial power in their village, to whom they owed imposts and corvée (unpaid statute labor), and whom the law considered as their legitimate overlord. These virtual serfs were not capable of disobeying an order to fire upon the people. The Supreme War Lord of the Prussian Army could trust them. These men, and the Poles, formed the detachments which defeated the Prussian Revolution in 1848.
Such were the conditions which prevented the German liberals from suiting their actions to their word. They were forced to wait until the progress of prosperity and education could bring these backward people into the ranks of liberalism. Then, they were convinced, the victory of liberalism was bound to come. Time worked for it. But, alas, events belied these expectations. It was the fate of Germany that before this triumph of liberalism could be achieved liberalism and liberal ideas were overthrown—not only in Germany but everywhere—by other ideas, which again penetrated into Germany from the West. German liberalism had not yet fulfilled its task when it was defeated by etatism, nationalism, and socialism.
3.The Prussian Army
The Prussian Army which fought in the battles of Leipzig and Waterloo was very different from the army which Frederick William I had organized and which Frederick II had commanded in three great wars. That old army of Prussia had been smashed and destroyed in the campaign of 1806 and never revived.
The Prussian Army of the eighteenth century was composed of men pressed into service, brutally drilled by flogging, and held together by a barbaric discipline. They were mainly foreigners. The kings preferred foreigners to their own subjects. They believed that their subjects could be more useful to the country when working and paying taxes than when serving in the armed forces. In 1742 Frederick II set as his goal that the infantry should consist of two-thirds foreigners and one-third natives. Deserters from foreign armies, prisoners of war, criminals, vagabonds, tramps, and people whom the crimps had entrapped by fraud and violence were the bulk of the regiments. These soldiers were prepared to profit by every opportunity for escape. Prevention of desertion was therefore the main concern of the conduct of military affairs. Frederick II begins his main treatise of strategy, his General Principles of Warfare, with the exposition of fourteen rules on how to hinder desertion. Tactical and even strategical considerations had to be subordinated to the prevention of desertion. The troops could only be employed when tightly assembled together. Patrols could not be sent out. Strategical pursuit of a defeated enemy force was impossible. Marching or attacking at night and camping near forests were strictly avoided. The soldiers were ordered to watch each other constantly, both in war and in peace. Civilians were obliged by the threat of the heaviest penalties to bar the way to deserters, to catch them, and deliver them to the army.
The commissioned officers of this army were as a rule noblemen. Among them, too, were many foreigners; but the greater number belonged to the Prussian Junker class. Frederick II repeats again and again in his writings that commoners are not fit for commissions because their minds are directed toward profit, not honor. Although a military career was very profitable, as the commander of a company drew a comparatively high income, a great part of the landed aristocracy objected to the military profession for their sons. The kings used to send out policemen to kidnap the sons of noble landowners and put them into their military schools. The education provided by these schools was hardly more than that of an elementary school. Men with higher education were very rare in the ranks of Prussian commissioned officers.1
Such an army could fight and—under an able commander—conquer, only as long as it encountered armies of a similar structure. It scattered like chaff when it had to fight the forces of Napoleon.
The armies of the French Revolution and of the first Empire were recruited from the people. They were armies of free men, not of crimped scum. Their commanders did not fear desertion. They could therefore abandon the traditional tactics of moving forward in deployed lines and of firing volleys without taking aim. They could adopt a new method of combat, that is, fighting in columns and skirmishing. The new structure of the army brought first a new tactic and then a new strategy. Against these the old Prussian Army proved impotent.
The French pattern served as a model for the organization of the Prussian Army in the years 1808–13. It was built upon the principle of compulsory service of all men physically fit. The new army stood the test in the wars of 1813–15. Consequently its organization was not changed for about half a century. How this army would have fought in another war against a foreign aggressor will never be known; it was spared this trial. But one thing is beyond doubt, and was attested by events in the Revolution of 1848: only a part of it could be relied on in a fight against the people, the “domestic foe” of the government, and an unpopular war of aggression could not be waged with these soldiers.
In suppressing the Revolution of 1848 only the regiments of the Royal Guards, whose men were selected for their allegiance to the King, the cavalry, and the regiments recruited from the eastern provinces could be considered absolutely reliable. The army corps recruited from the west, the militia (Landwehr), and the reservists of many eastern regiments were more or less infected by liberal ideas.
The men of the guards and of the cavalry had to give three years of active service, as against two years for the other parts of the forces. Hence the generals concluded that two years was too short a time to transform a civilian into a soldier unconditionally loyal to the King. What was needed in order to safeguard the political system of Prussia with its royal absolutism exercised by the Junkers was an army of men ready to fight—without asking questions—against everybody whom their commanders ordered them to attack. This army—His Majesty’s army, not an army of the Parliament or of the people—would have the task of defeating any revolutionary movement within Prussia or within the smaller states of the German Confederation, and of repelling possible invasions from the West which could force the German princes to grant constitutions and other concessions to their subjects. In Europe of the 1850s, where the French Emperor and the British Prime Minister, Lord Palmerston, openly professed their sympathies with the popular movements menacing the vested interests of kings and aristocrats the army of the House of Hohenzollern was the rocher de bronze amid the rising tide of liberalism. To make this army reliable and invincible meant not only preserving the Hohenzollerns and their aristocratic retainers; it meant much more: the salvation of civilization from the threat of revolution and anarchy. Such was the philosophy of Frederick Julius Stahl and of the right-wing Hegelians, such were the ideas of the Prussian historians of the Kleindeutsche school of history, such was the mentality of the military party at the court of King Frederick William IV. This King, of course, was a sickly neurotic, whom every day brought nearer to complete mental disability. But the generals, led by General von Roon and backed by Prince William, the King’s brother and heir apparent to the throne, were clearheaded and steadily pursued their aim.
The partial success of the revolution had resulted in the establishment of a Prussian Parliament. But its prerogatives were so restricted that the Supreme War Lord was not prevented from adopting those measures which he deemed indispensable for rendering the army a more reliable instrument in the hands of its commanders.
The experts were fully convinced that two years of active service was sufficient for the military training of the infantry. Not for reasons of a technical military character but for purely political considerations the King prolonged active service for the infantry regiments of the line from two years to two and a half in 1852 and to three in 1856. Through this measure the chances of success against a repetition of the revolutionary movement were greatly improved. The military party was now confident that for the immediate future they were strong enough, with the Royal Guards and with the men doing active service in the regiments of the line, to conquer poorly armed rebels. Relying on this, they decided to go further and thoroughly reform the organization of the armed forces.
The goal of this reform was to make the army both stronger and more loyal to the King. The number of infantry battalions would be almost doubled, the artillery increased 25 per cent, and many new regiments of cavalry formed. The number of yearly recruits would be raised from under forty thousand to sixty-three thousand, and the ranks of commissioned officers increased correspondingly. On the other hand the militia would be transformed into a reserve of the active army. The older men were discharged from service in the militia as not fully reliable. The higher ranks of the militia would be entrusted to commissioned officers of the professional corps.2
Conscious of the strength which the prolongation of active service had already given them, and confident that they would for the time being suppress a revolutionary attempt, the court carried out this reform without consulting Parliament. The King’s lunacy had in the meanwhile become so manifest that Prince William had to be installed as prince regent; the royal power was now in the hands of a tractable adherent of the aristocratic clique and of the military hotspurs. In 1859, during the war between Austria and France, the Prussian Army had been mobilized as a measure of precaution and to safeguard neutrality. The demobilization was effected in such a manner that the main objectives of the reform were attained. In the spring of 1860 all the newly planned regiments had already been established. Only then the cabinet brought the reform bill to Parliament and asked it to vote the expenditure involved.3
The struggle against this army bill was the last political act of German liberalism.
4. The Constitutional Conflict in Prussia
The Progressives, as the liberals in the Prussian lower chamber (chamber of deputies) called their party, bitterly opposed the reform. The chamber voted repeatedly against the bill and against the budget. The King—Frederick William IV had now died and William I had succeeded him—dissolved Parliament, but the electors returned a majority of Progressives. The King and his ministers could not break the opposition of the legislative body. But they clung to their plan and carried on without constitutional approval and parliamentary assent. They led the new army into two campaigns, and defeated Denmark in 1864 and Austria in 1866. Only then, after the annexation of the Kingdom of Hanover, the possessions of the Elector of Hessen, the Duchies of Nassau, Schleswig, and Holstein, and the Free City of Frankfort, after the establishment of Prussian hegemony over all states of Northern Germany and the conclusion of military conventions with the states of Southern Germany by which these too surrendered to the Hohenzollern, did the Prussian Parliament give in. The Progressive party split, and some of its former members supported the government. Thus the King got a majority. The chamber voted indemnification for the unconstitutional conduct of affairs by the government and belatedly sanctioned all measures and expenditures which they had opposed for six years. The great Constitutional Conflict resulted in full success for the King and in a complete defeat for liberalism.
When a delegation of the chamber of deputies brought the King the Parliament’s accommodating answer to his royal speech at the opening of the new session, he haughtily declared that it was his duty to act as he had in the last years and that he would act the same way in the future too should similar conditions occur again. But in the course of the conflict he had more than once despaired. In 1862 he had lost all hope of defeating the resistance of the people, and was ready to abdicate. General von Roon urged him to make a last attempt by appointing Bismarck prime minister. Bismarck rushed from Paris, where he represented Prussia at the court of Napoleon III. He found the King “worn out, depressed, and discouraged.” When Bismarck tried to explain his own view of the political situation, William interrupted him, saying: “I see exactly how all this will turn out. Right here, in this Opera square on which these windows look, they will behead first you and a little later me too.” It was hard work for Bismarck to infuse courage into the trembling Hohenzollern. But finally, Bismarck reports, “My words appealed to his military honor and he saw himself in the position of an officer who has the duty of defending his post unto death.”4
Still more frightened than the King were the Queen, the royal princes, and many generals. In England Queen Victoria spent sleepless nights thinking of the position of her eldest daughter married to the Prussian Crown Prince. The royal palace of Berlin was haunted by the ghosts of Louis XVI and Marie Antoinette.
All these fears, however, were unfounded. The Progressives did not venture a new revolution, and they would have been defeated if they had.
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.
The liberals were resolved to spare the German people, whenever possible, the horrors of revolution and civil war. They were confident that in a not-too-distant future they themselves would get full control of Prussia. They had only to wait.
5. The “Little German” Program
The Prussian Progressives did not fight in the Constitutional Conflict for the destruction or weakening of the Prussian Army. They realized that under the circumstances Germany was in need of a strong army for the defense of its independence. They wanted to wrest the army from the King and to transform it into an instrument for the protection of German liberty. The issue of the conflict was whether the King or Parliament should control the army.
The aim of German liberalism was the replacement of the scandalous administration of the thirty-odd German states by a unitary liberal government. Most of the liberals believed that this future German state must not include Austria. Austria was very different from the other German-speaking countries; it had problems of its own which were foreign to the rest of the nation. The liberals could not help seeing Austria as the most dangerous obstacle to German freedom. The Austrian court was dominated by the Jesuits, its government had concluded a concordat with Pius IX, the pope who ardently combated all modern ideas. But the Austrian Emperor was not prepared to renounce voluntarily the position which his house had occupied for more than four hundred years in Germany. The liberals wanted the Prussian Army strong because they were afraid of Austrian hegemony, a new Counter-Reformation, and the reëstablishment of the reactionary system of the late Prince Metternich. They aimed at a unitary government for all Germans outside of Austria (and Switzerland).
They therefore called themselves Little Germans (Kleindeutsche) as contrasted to the Great Germans (Grossdeutsche) who wanted to include those parts of Austria which had previously belonged to the Holy Empire.
But there were, besides, other considerations of foreign policy to recommend an increase in the Prussian Army. France was in those years ruled by an adventurer who was convinced that he could preserve his emperorship only by fresh military victories. In the first decade of his reign he had already waged two bloody wars. Now it seemed to be Germany’s turn. There was little doubt that Napoleon III toyed with the idea of annexing the left bank of the Rhine. Who else could protect Germany but the Prussian Army?
Then there was one problem more, Schleswig-Holstein. The citizens of Holstein, of Lauenburg, and of southern Schleswig bitterly opposed the rule of Denmark. The German liberals cared little for the sophisticated arguments of lawyers and diplomats concerning the claims of various pretenders to the succession in the Elbe duchies. They did not believe in the doctrine that the question of who should rule a country must be decided according to the provisions of feudal law and of century-old family compacts. They supported the Western principle of self-determination. The people of these duchies were reluctant to acquiesce in the sovereignty of a man whose only title was that he had married a princess with a disputed claim to the succession in Schleswig and no right at all to the succession in Holstein; they aimed at autonomy within the German Confederation. This fact alone seemed important in the eyes of the liberals. Why should these Germans be denied what the British, the French, the Belgians, and the Italians had got? But as the King of Denmark was not ready to renounce his claims, this question could not be solved without a recourse to arms.
It would be a mistake to judge all these problems from the point of view of later events. Bismarck freed Schleswig-Holstein from the yoke of its Danish oppressors only in order to annex it to Prussia; and he annexed not only southern Schleswig but northern Schleswig as well, whose population desired to remain in the Danish kingdom. Napoleon III did not attack Germany; it was Bismarck who kindled the war against France. Nobody foresaw this outcome in the early 1860s. At that time everybody in Europe, and in America too, deemed the Emperor of France the foremost peacebreaker and aggressor. The sympathies which the German longing for unity encountered abroad were to a great extent due to the conviction that a united Germany would counterbalance France and thus make Europe safe for peace.
The Little Germans were also misled by their religious prejudices. Like most of the liberals they thought of Protestantism as the first step on the way from medieval darkness to enlightenment. They feared Austria because it was Catholic; they preferred Prussia because the majority of its population was Protestant. In spite of all experience they hoped that Prussia was more open to liberal ideas than Austria. Political conditions in Austria, to be sure, were in those critical years unsatisfactory. But later events have proved that Protestantism is no more a safeguard of freedom than Catholicism. The ideal of liberalism is the complete separation of church and state, and tolerance—without any regard to differences among the churches.
But this error also was not limited to Germany. The French liberals were so deluded that they at first hailed the Prussian victory at Königgrätz (Sadova). Only on second thought did they realize that Austria’s defeat spelled the doom of France too, and they raised—too late—the battle cry Revanche pour Sadova.
Königgrätz was at any rate a crushing defeat for German liberalism. The liberals were aware of the fact that they had lost a campaign. They were nevertheless full of hope. They were firmly resolved to proceed with their fight in the new Parliament of Northern Germany. This fight, they felt, must end with the victory of liberalism and the defeat of absolutism. The moment when the King would no longer be able to use “his” army against the people seemed to come closer every day.
6. The Lassalle Episode
It would be possible to deal with the Prussian Constitutional Conflict without even mentioning the name of Ferdinand Lassalle. Lassalle’s intervention did not influence the course of events. But it foreboded something new; it was the dawn of the forces which were destined to mold the fate of Germany and of Western civilization.
While the Prussian Progressives were involved in their struggle for freedom, Lassalle attacked them bitterly and passionately. He tried to incite the workers to withdraw their sympathies from the Progressives. He proclaimed the gospel of class war. The Progressives, as representatives of the bourgeoisie, he held, were the mortal foes of labor. You should not fight the state but the exploiting classes. The state is your friend; of course, not the state governed by Herr von Bismarck but the state controlled by me, Lassalle.
Lassalle was not on the payroll of Bismarck, as some people suspected. Nobody could bribe Lassalle. Only after his death did some of his former friends take government money. But as both Bismarck and Lassalle assailed the Progressives, they became virtual allies. Lassalle very soon approached Bismarck. The two used to meet clandestinely. Only many years later was the secret of these relations revealed. It is vain to discuss whether an open and lasting coöperation between these two ambitious men would have resulted if Lassalle had not died very shortly after these meetings from a wound received in a duel (August 31, 1864). They both aimed at supreme power in Germany. Neither Bismarck nor Lassalle was ready to renounce his claim to the first place.
Bismarck and his military and aristocratic friends hated the liberals so thoroughly that they would have been ready to help the socialists get control of the country if they themselves had proved too weak to preserve their own rule. But they were—for the time being—strong enough to keep a tight rein on the Progressives. They did not need Lassalle’s support.
It is not true that Lassalle gave Bismarck the idea that revolutionary socialism was a powerful ally in the fight against liberalism. Bismarck had long believed that the lower classes were better royalists than the middle classes.5 Besides, as Prussian minister in Paris he had had opportunity to observe the working of Caesarism. Perhaps his predilection toward universal and equal suffrage was strengthened by his conversations with Lassalle. But for the moment he had no use for Lassalle’s coöperation. The latter’s party was still too small to be considered important. At the death of Lassalle the Allgemeine Deutsche Arbeiterverein had not much more than four thousand members.6
Lassalle’s agitation did not hinder the activities of the Progressives. It was a nuisance to them, not an obstacle. Neither had they anything to learn from his doctrines. That Prussia’s Parliament was only a sham and that the army was the main stronghold of Prussia’s absolutism was not new to them. It was exactly because they knew it that they fought in the great conflict.
Lassalle’s brief demagogical career is noteworthy because for the first time in Germany the ideas of socialism and etatism appeared on the political scene as opposed to liberalism and freedom. Lassalle was not himself a Nazi; but he was the most eminent forerunner of Nazism, and the first German who aimed at the Führer position. He rejected all the values of the Enlightenment and of liberal philosophy, but not as the romantic eulogists of the Middle Ages and of royal legitimism did. He negated them; but he promised at the same time to realize them in a fuller and broader sense. Liberalism, he asserted, aims at spurious freedom, but I will bring you true freedom. And true freedom means the omnipotence of government. It is not the police who are the foes of liberty but the bourgeoisie.
And it was Lassalle who spoke the words which characterize best the spirit of the age to come: “The state is God.”
- 1. Delbrück, Geschichte der Kriegskunst (Berlin, 1920), part IV, pp. 273 ff., 348 ff.
- 2. Ziekursch, Politische Geschichte des neuen deutschen Kaiserreichs (Frankfurt, 1925–30), I, pp. 29 ff.
- 3. Sybel, Die Begründung des deutschen Reiches unter Wilhelm I, 2d ed. (Munich, 1889), II, p. 375; Ziekursch, op. cit., I, p. 42.
- 4. Bismarck, Gedanken und Erinnerungen, new ed. (Stuttgart, 1922), I, pp. 325 ff.
- 5. Ziekursch, op. cit., I, pp. 107 ff.
- 6. Oncken, Lassalle (Stuttgart, 1904), p. 393.
With smart policy, a temporary collapse in GDP doesn’t have to cause great human suffering
The “social distancing” measures needed to slow the spread of the coronavirus clearly reduce economic activity. A growing meme in recent days argues that this reduction might be so damaging that it would be a societal benefit to end the social distancing measures shortly and try to return to normal economic activity.
This is extraordinarily risky from a public health perspective—the potential deaths caused by a premature end to social distancing measures—without exaggeration—could reach the millions.
Further, a scenario that saw this many deaths would also see tens of millions of workers falling so ill they would be unable to work for extended periods. This would cause an economic shock of its own.
Finally, and most fundamentally, this view that terrible (but generally unspecified) economic damage will inevitably occur due to the recent public health measures undertaken represents a profound misunderstanding of how the economy works, and how smart policy measures can neutralize this type of trade-off.
To see why, consider a quick thought experiment.
Recently there have been sensible calls made by people on social media for those households lucky enough to retain income during the crisis to continue paying service-workers like house cleaners, even if their work cannot be done for public health reasons.
Let’s imagine we extended the same (compassionate) logic to all services that couldn’t be consumed during the downturn due to social distancing. So those who would have gone to restaurants in the next 3 months still send their money to those restaurants, and those who would have flown across the country and stayed in a hotel still sent the money they would have spent to airlines and lodging companies. Say further that in exchange for sending these payments even without services being provided, the businesses receiving them agreed to pay their workers the exact same amount they were paying them before.
In this scenario, the wages of workers in shut down sectors would be held harmless and they would have the resources they needed to keep living. They could also maintain consumption spending in those sectors outside the shutdown parts of the economy and hence keep the coronavirus shock from propagating outside of the sectors directly affected by social distancing.
If we could somehow pull off this coordinated scheme of social solidarity, would the economic shock be completely avoided? Not at all. Gross domestic product (GDP) would still absolutely crater.
Why? GDP measures the amount of final goods and services produced and sold. In our scenario, households continue to transfer money to the workers and businesses in the shutdown sectors of the economy, but they don’t receive any goods or services in exchange because none are being produced.
But the economic damage would be just this: paying money for restaurant meals and hotels and flights without actually getting to enjoy them. This is unpleasant, for sure—as I said, eating in restaurants and traveling are fun things to do.
But this clearly doesn’t sound near-dramatic enough to bolster arguments that the economic damage done by shutting down sectors of the economy to stop the spread of coronavirus is so large it justifies quickly reopening and flirting with the death of literally millions, right?
Obviously the strategy of holding workers in shut down sectors harmless in the face of this shock would be impossible to undertake if we just relied on private altruism.
Thankfully, we don’t have to rely on private altruism. We already have a system in place to transfer money to families facing economic distress from families doing okay—taxes and transfer programs (unemployment insurance, most notably). Granted, our current welfare state is too-stingy and too-patchy generally, but it can be changed, and lots of these changes can happen on the fly. The CARES Act, for example, makes a number of excellent changes to the UI system that will make it far more useful in implementing just the kind of “hold workers harmless” strategy we’re discussing here.
And it turns out that we can do even better than this. In the thought experiment where still-employed workers continued sending money to businesses and workers in shut-down sectors without receiving goods and services in return, there was no way for the still-employed to boost their private savings and stockpile pent-up demand that could supercharge a recovery once the public health all-clear was sounded. But if we use public debt to finance the income flows to laid-off workers and their families, this means that all the money not being spent by still-employed workers in the shutdown sectors is just building up their private savings, and they will have extra resources to spend once the economy fully opens back up for business.
Even in the most-staid textbook presentations of public debt, this kind of consumption-smoothing across time is exactly why debt exists and is useful. In the macroeconomic environment that existed even before the coronavirus shock—when private savings were far in excess of firms’ desires to expand their production capacity and hence interest rates and inflationary pressures were already historically low—this extra public debt taken on to buffer the coronavirus shock is either free or actually just increases societal income and production.
Are there complications to this super stylized analysis? Of course. The effects of the coronavirus on trading partners is affecting supply chains and imposing a supply-shock on the economy. But supply shocks are much less damaging than demand shocks now. And won’t the huge stock market declines of recent weeks put negative pressure on spending through “wealth effects”? Sure, but smart policy that addresses the problems noted above will help the stock market bounce back that much faster.
If the extremely widespread social distancing measures of recent weeks are temporary, any failure to see a rapid recovery in economic activity will be entirely because of an inadequate policy response. The stingier we are with providing aid to workers laid-off due to social distancing measures, the more this initial coronavirus shock will spread to other sectors of the economy, and the more help in the future will be needed to reboot the economy. But, a very large temporary fall in GDP does not have to translate into human carnage, and a very quick bounceback from this type of fall is possible if policymakers don’t fumble this economic recovery from the coronavirus shock as badly as they have so far fumbled the public health response.
Some misconceptions about wage stickiness
When macroeconomists talk about wage stickiness, they are generally referring to nominal stickiness. Because nominal wages are slow to adjust, a sudden and unexpected change in NGDP will usually impact employment, often in a sub-optimal fashion.
It’s possible to construct a variable called “real wages”, but I don’t view that as a useful concept. This is partly because (like Keynes) I don’t view inflation as being a particular useful concept, except perhaps when trying to come up with ballpark figures for long run changes in living standards. The problem is not so much that inflation figures are wrong; it’s not even clear what inflation is supposed to measure.
Here’s Tyler Cowen:
The restaurant used to pay you $13 an hour, now they pay you “$13 an hour plus p = ?? of Covid-19.” That new wage is a lower real wage.
That’s a defensible claim, if you define “inflation” in a certain way. But it’s also an example where the nominal wage is “sticky”, and hence this example has no bearing on “sticky wage models of the business cycle”. Again, it’s nominal wages and nominal GDP that matter, ignore real wages.
Tyler’s post is entitled “Real wages are flexible now”. But the post does not contain any supporting evidence for that claim. A change in the real wage is not evidence of increased flexibility.
For example, real wages rose sharply in 1930. Does the big change in real wages in 1930 show that real wages were increasingly flexible? No, they rose because prices fell while nominal wages were fairly stable. A flexible real wage is one that moves toward equilibrium, not one that randomly moves around due to some price level shock even as nominal wages are fixed. As an analogy, if The Soviet Union had raised the official price of bread from one ruble to two rubles, it doesn’t mean that bread prices are becoming more flexible, just that they are fixed at a different level.
I expect unemployment levels to rise to new and scary heights, and yes I do think the government should do something about that. But if you are analyzing the status quo with “a sticky wage model,” that assumption is probably wrong. Even though it is usually correct.
It’s true that sticky wages are not the reason why unemployment is about to surge much higher. We are facing an unusually large “real shock.” Nonetheless, nominal wage stickiness remains very relevant, as it is quite likely that 12 months from today we will have an elevated unemployment rate due to sticky nominal wages and lower than trend NGDP. I hope I’m wrong, but the financial markets seem to view it as a very real threat.
The New Euro Stimulus Won't Save the Greek Economy
With fear of the coronavirus continuing to wreak havoc on every country in the West, almost all governments have taken radical measures for containment of the virus: mandatory quarantines for many, the closing of businesses, and the prohibition of many economic and social activities. I am not going to pretend that I am a medical expert and share my thoughts about how serious the virus really is. I will, however, focus on its economic consequences.
(Two very informative articles on healthcare policies for the virus are “Government Is No Match for the Coronavirus” and “The ‘Bootleggers and Baptists’ of the Coronavirus Crisis.”)
The New Stimulus and QE for the Greek Economy
On Thursday, the European Central Bank (ECB) announced massive new stimulus programs, saying that it could buy up to €750 billion ($820 billion) in state and corporate bonds. This news comes just a week after it announced the last stimulus package. The aim is clearly to keep borrowing costs low and to provide money for European countries to deal with the current crisis. This is the first time that Greece has been included in an ECB QE program in a long time.
Shortly after the announcement, the Greek prime minister said that the Greek economy will receive a €10 billion stimulus package. This will be followed with other interventionist policies, the most notable of which provides an €800 subsidy to private workers, entrepreneurs affected by the current crisis, and every worker fired after March 1. But the madness doesn’t end there. There will also be new welfare benefits for almost every Greek, and a 40 percent discount on all rent payments has been enacted for the months of March, April, and May. The government has also made it illegal to fire employees during the crisis.
Why Will It Fail?
There is an old saying that you’ve got to save for a bad day. This means that you need to save some money so that you have the proper funds to get through a tough time. The problem that Greece and the EU face is that they don’t have any savings. Instead the Greek economy—and most European economies—are dependent on debt and on people spending money that they don’t have.
In a healthy economy people would be able to afford not working for a few weeks during such an emergency, because they would have savings, something that mainstream economists hate and have waged a huge war against. The Fed the ECB have artificially pushed down interest rates, prompting government, corporations, and consumers to borrow unsustainable amounts of money. Their response is more spending and “showering” the economy with money.
Bailing out one or two specific industries, although definitely bad economically, is at least feasible, because there are others to pay for it. But bailing out everyone is another matter. Where will the money come from for that? And where will it come from when the government decides to suspend tax payments because of the virus? There is no free lunch. If you cut taxes, you have to cut spending, and if you want to increase spending, you have to tax more. In the end, the deficit will have to be paid by future taxpayers. The money won’t come from lenders. After all, the bond market is crashing, since every country is facing the same crisis.
The only source for all this free money that remains is the ECB, which just like its American counterpart creates money “out of thin air.” But this won’t solve supply shortages in the market, which are sure to result from so few people working.
An Economy That Never Recovered
In Greece things are worse than in most of Europe. The country’s two biggest industries are tourism and sailing, which provide almost half of GDP. These have been hit hard as virus fears have mounted.
And Greece is facing this from an already weak position. According to the Heritage Foundation’s economic freedom index, government spending already amounts to 48 percent of GDP, layered over the still massive public debt, equivalent to 183 percent of GDP. The economy never really recovered from the recession. Labor laws make hiring very expensive and risky. Public union cartels are the ones that really control the country, and they undermine production and entrepreneurship given any chance. The agricultural sector is heavily subsidized, and the the service industry is subjected to many price controls. Even during the years of the “austerity” government surpluses were minimal and were overtaken by deficits from future years. Indeed, the governments failed to cut spending and taxes, and in fact the massive debt has only increased.
Basically, the Greek economy is just a huge bubble of debt and spending. This was situation was sustained by endless bailouts from European taxpayers and low interest rates (even though they were some of the highest in the EU). If it had not been for that, Greece might have been more rational and less likely to be fooled by cheap credit, or it would have had to deal with consequences alone, becoming Europe’s Argentina. After all, if other Europeans were lending them money, the Greeks would have to print the money themselves. Or just stop spending. But the Greeks never saved or produced enough to justify their high standard of living compared to other countries. In other words, we are living beyond our means. Its not that Greeks are lazy; once again, it’s the state that is undermining production and fuels Greece’s famous anticapitalist mentality.
But the ECB’s repeated bouts of QE really do make things worse. It’s foolish to think that businesses that aren’t sustainable at 1.5 percent interest rate will suddenly become productive at 0 percent. If the economy runs on a 0 percent interest rate and doesn’t recover, what will happen when interest rates rise to 0.5 percent? Panic will ensue, making another European debt crisis likely. An economy in which business can’t pay for debts and expenses even with 0 percent interest is an economy ready to collapse.
The Greek state needs to stop its unsustainable policies involving ever growing handouts. Government spending always undermines the private sector’s production, which is made possible by saving. Instead, government policies should be encouraging saving. In order for Greece to survive the economic fallout of the coronavirus it needs to realize that it needs to let the bubble pop.
This means that there will be even harder years ahead for Greeks. But in the long term, it makes more sense. With unsustainable bubble businesses evicted from the market, resources and capital can be used less wastefully. Greece needs more production of goods and services. That’s what makes a nation and its citizens wealthy. Paper money isn’t wealth. If Greece doesn’t do this, then, yes, in the short term it will be less painful. But this means more pain in the long run.
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