Sam Pawlett wrote:
> >
>
> > I knew Alfred Sohn-Rethel quite well. He lived in Birmingham,
> England, for
> > many years. He left Hitler Germany in the late 1930s as a
> political exile.
> >
>
> He also worked as a mole in the economic planning department of the
> German government, holding a fairly high position. His book on Nazi
> Germany is thus quite good because he was privy to information and stats
> that nooone else was. He actually published stuff he had learned at work
> in underground newssheets.
One of the things I'm proud of was publishing the English edition of this
book, 'Economy and Class Structure of German Fascism' (published in 1978 by
CSE Books, London). It is a classic study of what happens when developed
economies and societies implode under the stress of war and economic
depression.
I have a copy of the book in front of me know, autographed by Sohn-Rethel.
In writing it, he was influenced by Franz Naumann - actually, they
influenced each other - and this volume + Naumann's 'Behemoth' form a
definitive study of the economics of Hitler Germany.
Here are some pages from the book. Alfred's descriptions of his life and
work at the heart of the Hitler governmebnt, while he was also active in in
the anti-Nazi underground, are compelling stuff, but the underlying message
is serious enough.
Mark
--------------------------------------------------------------------
Alfred Sohn-Rethel, Economy and Class Structure of German Fascism
Preface
The events described in this book relate to the Germany of the 1930s, and to
a very great extent they are based on my own personal experience. Some of
the accounts are from material which was originally written in England
between 1938 and 1941, soon after I arrived there as a refugee from Hitler
in October 1937, after 18 months in Switzerland and France. At that time Mr
Wickham Steed, a former editor of the 'Times' rallied around him many
political and intellectual �migr�s from Germany, in an attempt to gain
information to be used to counteract the spread of fascism which already
dominated Germany, Italy and Spain. He was a close friend and political ally
of Winston Churchill, then an active opponent of the pro-Hitler appeasement
policies first pursued by the government of Stanley Baldwin and later, more
perniciously, by that of Neville Chamberlain.
These accounts which I wrote for Wickham Steed, (in German, for he was an
excellent linguist) were intended to demonstrate how the German economy and
its structure paved the way for the Nazi regime. They describe the economic
development following the First World War, the internal contradictions
within the great business concerns, the devastating effect of the big slump
of the early 1930s, the splitting up of German monopoly capital into two
antithetic camps and their final reunification leading to fascism and to the
Second World War. Since Wickham Steed asked for these articles at different
times for distribution to different people within the Churchill sphere, they
inevitably contain repetitions and over-laps. However, any attempt to
eliminate these for purposes of publication in book-form would result in
destroying the coherence of each account. I can therefore only apologise to
the reader for such duplications.
After my experience in Germany I was astonished to find that this 'Churchill
camp' in London existed as a spontaneous, voluntary collaboration of people
without any trace whatsoever of secrecy. I had never before been involved in
that kind of organisation. Up to
the time of my emigration I had worked in various illegal socialist
resistance groups. As early as 1931 there was one in Hamburg, a group of old
Bolsheviks surviving from the Hamburg Rising of 1923, with which I kept in
touch through Dr Joachim Rhter, who later became Professor of Philosophy in
Monster. Collaboration with this group grew increasingly difficult as it
became more and more risky to entrust secret political information and
documents to ordinary postal services. Before long I had to evolve ways of
over-coming this by hiding papers under unsuspected cover. For instance I
recall buying a pair of shoes at the large Berlin department store, the
Kadewe, and saying to this assistant 'I'd like to wear these now, can you
please post my old ones in the box to my home in Hamburg', and whilst
changing the shoes, I placed the document under the old shoes, and handed
her back the box for posting. Thus the illegal communication reached Dr.
Ritter safely. But such ruses were tedious and tricky, and worked only one
way. The Hamburg comrades preferred travelling to Berlin to meet me and this
could not be done on the spur of the moment when the situation called for
it. In 1932 contact with this group became too difficult. Later, when the
Hitler regime had been established in power, I worked with an organisation
called the 'Roter Sturmtrupp' (Red Storm-troop) under Rudolf Kustermeier and
Franz Hering, supported by a left-wing socialist young workers' group. From
1934 I was connected with the Neu-Beginnen, 'New Beginning', under the
direction of Eliasberg and Richard Lowenthal, who then went under the name
of 'Paul Sering'. I kept contact with them until I left Germany.
It is no exaggeration to say that in those pre-war years everything
politically worth knowing in a fascist state went on behind closed doors and
nothing reliable ever appeared in the newspapers. In order to be informed,
it was necessary to make contacts in some way with those 'in the know' and
yet, obviously, to conceal one's own identity and purpose. During those
years the only place to make these contacts was in Berlin, and I shall
endeavour to describe the complexities of a unique situation which resulted
in my ability to compile the information I publish here. The chance of
entering one of the inner centres of finance capital as an unrecognised
Marxist, and of doing so at such a vital time in its development, of course
occurs extremely rarely, and should be of important theor-etical as well as
practical value.
The reasons for the long delay in publication of these accounts are many. I
have been concerned that no positive proof for the authenticity of my
stories and judgements is possible. No docu-mentation of such matters would
survive, even if they ever existed. My opinions and reports have been drawn
from personal observa-tion, conversations and enquiries and their accuracy
entirely satis-fies my own craving for truth. Indeed there are certain areas
in the events I attempt to describe which are only accessible to personal
witness and it is just this type of phenomena on which I can throw light.
For someone like myself, able to follow events close-up from such a splendid
vantage-point, details and facts emerge which I believe have never before
been reported, and they may perhaps add to the general understanding of the
complex picture of the rise of fascism in Germany.
The course of my own life necessitated abandoning my intellectual work for
long periods of time in England. During the War many months were spent,
following the fall of France, in internment on the Isle of Man. After my
release, like others in Britain, I was obliged to carry on with 'War Work'
and spent three years in the office of a factory in Birmingham and later
gave lectures for the de-nazification of German Prisoners of War in England.
The factory work proved of value when I did eventually resume my theoretical
work. After some years of preparation and writing my main study
'Intellectual and Manual Labour; a Critique of Epis-temology' was completed,
only to be rejected as too left-wing by some publishers and not sufficiently
'party-line' by another. Family obligations forced me to take up school
teaching,. until finally I re-wrote the book which was published in Germany
in 1970. From 1973-76 1 worked as a guest professor at Bremen University.
The English version of the book has had to wait until 1978 before seeing the
light of day.
Thus it has happened that the publication of these papers has also been long
delayed. They appeared in Germany in 1973, and requests in England have
tempted me to publish them here as translated by my son Martin. They now
appear without the theoretical conclusions which were at one time intended.
It will be the task of others to study these events, and in any case they
will perhaps provide a pointer to the complexities of the world monopoly
capitalist system which threatens new and ever more dangerous types of
fascism in these times.
1 Ramifications Around the Bendlerstrasse Berlin
The setup in which I found myself in Berlin in the early 1930s is of such a
strange nature, particularly to the English reader, that considerable
explanation is essential. By a stroke of good fortune I obtained employment
as a research assistant in an active centre within the inner circles of
monopoly capitalism known as the 'Mitteleuropaischer Wirtschaftstag'* or MWT
for short. This was situated just near the Bendlerstrasse.
The Bendlerstrasse was well known in Berlin as the location of the
Reichswehr, or the German Army Headquarters. It held the same status as the
Pentagon in the USA. Opposite was the Reichsver-band der Deutschen Industrie
corresponding to the Confederation of British Industry. The Bendlerstrasse
was a short street leading from the city, coming from the Bendler Bridge
over the Landwehr Kanal, and down to the Tiergarten - the 'Hyde Park' of
Berlin. At the side of the canal was the Schoneberger Ufer and at the corner
close to the bridge was a large private house, with the MWT occupying three
rooms of a big ten-roomed flat on the second floor which it shared with a
number of other organisations. Two rooms were occupied by the 'Deutsche
Fuhrerbriefe' on whose editorial board I served in an honorary capacity,
being paid only for the articles I wrote. Two other rooms belonged to 'The
German Association for the Near East', whose News Bulletin I edited, and
whose Secretary was Dr. Fritz Hesse, also Director of the official German
News Agency (D.N.B.). In 1934 an extension of the Association for the Near
East was set up - the Egyptian Chamber of Commerce, whose office was a few
doors away in the Bendler-strasse and for whom I also acted as secretary.
One more room was let to the Jugoslav Chamber of Commerce about which I
write in Chapter 7. In yet another room was Dr. Kramer, the scientific
advisor to Dr. Schacht whilst he was waiting to be reinstated as president
of the Reichsbank. When this occurred Dr. Kramer moved into the Reichsbank
with him. The last room was occupied by Baron von Wrangel who edited a
confidential information service, the 'Osthilfe-Korrespondenz' for big
landed estate owners, the 'Junkers'.
All of these institutions and persons connected with them were linked in a
network of common political power which of course was not confined
exclusively to this locality. Working in one of them almost automatically
implied the possibility of participation in the others, even if only
spasmodically. Thus the 'ramifications around the Bendlerstrasse' spread far
and enabled me to glean information which otherwise would have been
inaccessible. My actual insights into the developments which led up to the
fascist dictatorship came mainly from my experience in the MWT, but a great
fund of information arose from my collaboration on the Editorial Board of
the 'Deutsche Fuhrerbriefe'. The name 'German Leader's Letters' misleadingly
suggests associations with Hitler. It had, in fact, been founded by Dr.
Franz Reuter and Dr. Otto Meynen at the end of 1928 in Cologne at the time
when the Nazi movement was in the doldrums and a good eighteen months before
its subsequent upsurge. The name, though purely fortuitous, proved to be an
inspiration when the 'f�hrer' did rise to power.
The newsletter was not on sale to the public but had a constantly growing
readership, a selected circle of subscribers including the upper echelons of
the army, cabinet ministers, leaders of large scale agriculture, industry
and high finance, and selected members of staff of Hindenburg, the President
of the Reich prior to Hitler. It appeared twice weekly and all the
contributions apart from the feature articles were strictly anonymous. It
was not a newspaper in any normal sense; indeed journalists were excluded
from receiv-ing it. Franz Reuter, the editor, had particular connections
with Dr. Schacht and even wrote his biography which was published in 1933.
During the Nazi dictatorship Schacht became Hitler's financial advisor and
confidant and there is no need to stress how vitally useful was Reuter's
unrestricted access to him. Dr. Reuter also had close connections with
Vice-Chancellor von Papen, particularly fruitful in the years which paved
the way to the rise of Hitler. The links of the 'Deutsche Fuhrerbriefe' with
industry and high finance were far-reaching and the information which
appeared before the Editorial Board left little to be desired.
implicitly. eventually met every week to unload, check and analyse the
various pieces of information and speculation each had collect-ed. This
group consisted of Wolfgang Hanstein who was secretary of the German-French
Study Committee also housed in the Bendlerstrasse and in whose
semi-diplomatic office we could meet in safety, Wolfgang Kruger from the
Reich Chamber of Commerce who was the 'moral mentor' of Robert Ley, Nazi
leader of the National Socialist Workers' Front, Dr. Hugo Richarz, Secretary
of the Prussian Chamber of Agriculture, Dr. Margret Boveri, an immensely
intelligent journalist and author who at the time wrote for the Frankfurter
Zeitung and the Berliner Tageblatt, and myself. We met each Friday at
mid-day so that I could pass on the information during the week-ends to my
other illegal contacts. After the War Dr. Margret Boveri published a very
instructive short paper on these secret meetings in the Bendlerstrasse in
which she described me as a 'philosophical communist or a communist
philosopher' by whom she had been informed of the imminent purge of the
Storm Troopers, fourteen days before June 30th 1934.
I think it is true to claim without exaggeration, that our small group were
among the best' informed in the Germany of the 1930s. Our knowledge and
foresight simply had to be accurate if we were to evaluate the chaotic
character and incalculability of the events, and to know the hidden but
structural logic which inscrutably shaped their apparently unpredictable
course. I would have found it difficult to tear myself away from this vital
connection and the unparalleled possibility it offered for probing into the
contem-porary German scene had it not been for the threat of arrest by the
Gestapo. A relatively trivial matter was to be investigated concern-ing my
work at the Egyptian Chamber of Commerce and it was clear that this would
have inevitably penetrated to my other clandestine activities, which would
have earned me a death sentence several times over. The rest of the group
continued their meetings in the Bendlerstrasse until well on into the war
years.
Insofar as my information in this book extends beyond 1936 it was obtained
from Margret Boveri whom I succeeded in meeting once more, secretly, in
London in 1938, after which she returned to Berlin, whilst I did my best to
use my knowledge to fight fascism from outside Germany.
I must of course stress again that my illegal activities and political views
were absolutely unknown to these day-to-day contacts around the
Bendlerstrasse. During the course of 1932, however, a group of friends,
enemies of fascism, who could trust each other
2 The Work of the MWT: The Bureau Hahn
The subject at the centre of my book, and on which it focuses continually,
is the varying divisions within monopoly capital. During the slump of
1930-33 the unity of monopoly capital was torn by rifts between the leading
large corporations such as the Steel Trust, I.G. Farben, Krupp, Siemens and
the agricultural interests. Out of the bridging of these rifts was born the
Hitler regime.
A vital question to be considered is by what intermediary links the business
interests in industry, agriculture and banking become transmitted to
decisions of government policy. It has been a peculiar characteristic of
German business, since the 1870s on-wards to group itself into associations
which have helped the formation of monopolies of particular branches of
industry and of economic interests and which have also acted as lobbies to
in-fluence government decisions in their favour. For instance, a policy of
free trade had always been demanded by the textile and pharmaceutical
industries, whereas agriculture, iron and steel tended towards
protectionism. Accordingly, the beads of these associations deserve special
attention. Not that they themselves were any more intelligent than the
bosses of the individual firms which made up the associations; rather that
they underwent, in their professional duties, an incomparable schooling in
the realisa-tion and weighing up of contradictory interests and in bridging,
eluding, suppressing or ironing them out. Moreover, their horizon and
knowledge expanded through the contacts they maintained with their
counterparts in other associations and greatly exceeded those available to
bosses of individual firms.
The de-nazification trials and those of Nuremberg shed an impres-sive light
on the low levels of understanding and intelligence of these heads of
industrial firms. They were mostly grossly ignorant and confused about
politics, and declamations they occasionally made carried about as much
weight as those of the proverbial rain-makers in the jungle. To illustrate
this I might quote a joke which was bandied around the German C.B.I. Krupp
von Bohlen
when interviewed by a representative of the Swedish iron and ore mining
organisation was said to have asked his Secretary through his
intercommunication set 'Please let me know what I think about Swedish ore!'
But to understand the deep-seated causes of events, one cannot rely on the
opinions and activities of individuals taking part, even the most prominent
of them. With Marx we must remember that 'in general, the characters who
appear on the economic stage are merely personifications of economic
relations; it is as the bearers of these economic relations that they come
into contact with each other.*
To appreciate the complex situation developing between the two World Wars a
brief historical elucidation might help. In 1918 the Habsburg monarchy which
had been the main power in the Danubian basin broke up into Czechoslovakia,
Romania and Jugoslavia leaving Austria and Hungary reduced to a fraction of
their previous territorial importance. These three new states formed the
so-called Little Entente under the hegemony of France as the main guarantor
of their independence. The French system of military alliances extended also
to Poland. Stresemann, Foreign Secretary and Chancellor from 1923 until his
death in 1929, formed the Deutsche Volkspartei in which were represented
vital sections of large-scale industry. Stresemann's aim was to accommodate
Germany into the European order created by the Versailles Treaty of 1919 and
was intended as a policy of peace and international co-operation. The main
expression of it in Europe was the Locarno Treaty of 1925. Germany's vital
break-away from this post-war peace policy to a renewal of her aggressive
imperialism can be retraced to a split in the Deutsche Volkspartei occurring
in August 1929, when German heavy industry - iron and steel - left the
party. As it happened, Stresemann died the following October almost at the
same time as the collapse of Wall Street, which was the first signal of the
slump to come and which put an end to the entire post-war order. Under
pressure of the slump the break-away parts of the Deutsche Volkspartei made
clear their opposition to Stresemann's policy of conciliation, leaving the
remainder of the party reduced to virtual insignificance. The recrudescence
of German aggression first raised its head in March 1931 with an attempt to
bring about a German-Austrian customs union which would have been a
spearhead against the power of the Little Entente. That this was thrown out
by the International Court of the Hague in September 1931 as incompatible
with the post-war system was a severe set-back to the industrialists. But
they were not to be deterred from their plans which were now pursued as a
venture of the 'Langnam-Verein'.
[*Fn: Marx. Cap. 1. Penguin p.179]
This latter was the oldest and by far the most powerful of the industrial
associations. It was created in 1871 with its headquarters in Essen, the
same year as the foundation of the German Reich. Its outspoken purpose was
to organise the individual firms of the iron and steel industry of the Rhine
and Ruhr towards a monopolistic concentration. *
In 1931 the Association decided to set up a special office in Berlin as its
own extension for the promotion of the German expansion in Central Europe.
These aims linked up with pre-war plans of a Central European Policy
advocated by Dr. Friedrich Naumann. His plans had materialised in the
creation of a so-called 'Mittel--europaischer Wirtschaftstag', the MWT,
organising annual con-gresses of representatives of Central European States
and nation-alities. Although after the First World War Germany was no longer
in a position to pursue such a policy the MWT lingered on, having no
substance and no activity. It was, however, still regi-stered and still had
a legal existence. In September 1931 'The Long Name Association' took over
this inconspicuous shell in order to conceal their real aims. The leading
force was Dr. Max Hahn, then principal assistant to Dr. Max Schlenker in
Essen. Through a fortunate chain of circumstances I was engaged as his
research assistant, with a modest room in the Bendlerstrasse looking out at
the back, filled mainly with statistics and specialist literature. Besides
Dr. Hahn and myself there was no-one except the sec-retaries.
Baron von Wilmowski, head of the Fried/Krupp Concern in Berlin became its
President. He and Dr. Hahn soon extended the member-ship to cover all the
concerns and groups of German finance capital worthy of mention, - Iron and
Steel, I.G. Farben1 electro, metal and machine-building and the motor-car
industries, large scale agriculture, and the Deutsche Stadtetage (Conference
of Cities) -to name but a few. The membership embraced the leading elements
of the various groups dividing German monopoly capital at the time. Thus the
MWT became a unique vehicle for the re-unification of German big business on
the basis of a new imperialistic policy. Dr. Hahn kept in constant touch
with the Army, particularly with the War Economic Office, the Army Supplies
Office, the Counter-espionage Department and the Foreign Office.
[* Fn:Its original name was 'Verein zur Wahrung der gemeinsamen
wirtschaftlichen Interessen in Rhein land und Wesefalen' or 'The Association
for the Protection of the Common Economic Interests in the Rhineland and
Westphalia2. When Bismarck spoke of it in the Reichstag he just could not be
bothered to repeat all this and called it the 'Association with the Long
Name' - a title which readily stuck.]
That the Hahn Bureau was so little talked about as far as the public was
concerned was fully intended by its director and was proof of his diplomatic
skill. The MWT's continuing obscurity after the Second World War is
explained by the fact that Dr. Hahn died in 1941 and that his office then
lost the specific importance that had made it so notable when he was alive.
Only his death can explain why the MWT with its far-reaching influence on
German develop-ments before and during the war could have slipped so totally
through the net of the Nuremberg dossiers. As far as I have been able to
find, there is not so much as a trace of it in the records of the trials.
This lack of mention in the Nuremberg records surely justifies a report on
the MWT based on personal witness particu-larly in view of the exceptional
force of this Association's political activity. Why it merits our special
attention amongst all the agencies paving the way to the Hitler regime can
be summed up in one sentence: it contributed like no other one to the
joining of the leading industrial groupings into a new concentration capable
of taking the place of the previous one which had been destroyed by the
slump. I agree with Dr. Margret Boveri when she says that the MWT was a
strategic entity unique at the time and deserving of special contemporary
study.*
I must, however, admit that my evidence is far from complete since I cannot
claim to have known all of Max Hahn's activities. For instance, in what
directly concerned the steering of developments towards war, even before
Hitler, he kept most, if not everything, secret from me. I heard of these
activities only piecemeal, through the grapevine. For example, during 1932,
meetings took place at two monthly intervals in Hahn's capacious room
between the representatives of the 'National Defence Unions' of which the
contents remained unknown to me. Only through hints did I learn of his
contacts with the 'Patriotic Associations' because he wanted these political
and ideological movements under his own control and did not want to lose
them to the rival power of the Nazis. Yet such movements could not have
attained the mass strength indis-pensable for their purpose so long as they
remained under the umbrella of mere industrial patronage. This branching out
into fields outside his business competence indicates the inner
contra-dictions of Max Hahn and of the fascist policy of monopoly capital as
a whole.
[* Fn: Neue Deutsche Hefte 1969. No.123. p205.]
The very date of the re-constitution of the MWT is itself signifi-cant. The
economic crisis might not in 1931 have reached its climax but it was in the
deepest of waters and crucial sections of German large-scale capital could
no longer see any future in using purely economic methods to carry on their
competitive struggle. The policy of the MWT promised a change of these
methods. To recognise the reasons for this, one need only glance at the
current economic situation in Germany.
Based to a large degree on foreign credit to the tune of around 25 billion
Goldmark of which about 11 billion were on short-term loan, German industry
and agriculture were re-built between 1924 and 1930. In many branches,
particularly the iron and steel industry, this had taken place on far too
large a scale compared with the sober prospects in the aftermath of a lost
war - the total disarmament and the loss of all foreign capital decreed by
the Versailles Treaty. These slim prospects were, however, continually
veiled, first by the need to revert to peace-time economy inside the country
and by the extraordinary dumping outside caused by inflation; then, when
real planning should have ensued with currency stabilisation at the end of
1923, the acceptance of the Dawes Plan in April 1924 saw vast export of
industrial equipment, not on a commercial basis, but on reparations account,
paid for mainly by foreign loan capital. Of this the iron and steel industry
took the lion's share. At the same time the new wave of rationali-zation
began in earnest and with it the boom years of monopoly capital from 1924 to
1929. This was primarily a boom of invest-ment and construction, focused on
manufacturing the means of production; consumer goods took second place. It
thus created a disproportionately high demand for products of the iron and
steel industry which gave rise to the formation of the giant steel trust. In
1926 four or five of the largest firms (among them Thyssen, Stinnes and Otto
Wolff) fused their capital, comprehensively modernised their plant and
re-organised the division of labour within produc-tion; the result was the
United Steel Trust, commonly called the Stahlverein.
The Steel Trust indeed represented a model case of 'rationaliza-tion'.
Productivity increased by more than 50%, costs were sub-stantially reduced,
production capacity decisively raised and labour costs per unit of
production correspondingly cut. But, of course, all these advantages could
come to fruition only if capacity were sufficiently utilised. Here lay the
Achilles' heel, the inner contra-diction, of the whole development which I
discuss in detail in the following chapter.
This giant structure was the biggest industrial enterprise in Europe at the
time and alone processed half of Germany's pig-iron pro-duction, employing
up to 200,000 blue and white-collar workers.
3 The Dilemma of Rationalization
In his study on 'Imperialism, the highest Stage of Capitalism', Lenin
retraces the development of modern monopoly capitalism to 'the remarkably
rapid process of concentration of production in ever-larger enterprises'..
'at a certain stage of its development, concentration itself, as it were,
leads to monopoly.'* It is. of course, not the mere size of enterprises that
Lenin has in view, but the structural characteristics linked up with it.
Marx speaks of the increasing 'organic composition of capital' meaning the
growth of the material means of production relative to the human
labour-power employed in the production processes. And within these material
elements, it is the heavy plant, building and complex machinery, in short,
the 'fixed capital' to which Marx attributes particular importance. In the
'Grundrisse' or the 'Rough Draft to Capital', which only came to light
fifteen years after Lenin's death, Marx makes the far-reaching statement:
'...the greater the scale on which fixed capital develops.. .the more does
the continuity of the production process or the constant flow of
reproduction become an externally compelling condition for the mode of
production founded on capital.' 'From the moment when fixed capital has
developed to a certain extent.. from this instant on every interrup-tion of
the production process acts as a direct reduction of capital itself, of its
initial value'.**
At a later stage of our analysis we shall refer back to this statement of
Marx because of its relevance for certain fascist tendencies among
large-scale German industry. Its more general and funda-mental significance
emanates when considered in connection with the views which Professor Eugen
Schmalenbach, a leading expo-nent and indeed the founder of managerial
economics in Germany, attaches to the growth of fixed capital as a cause for
the rise of monopoly capitalism. It is in particular one lecture of
Schmalen-bach's which highlights the detrimental effects of the rationaliza-
tion drive of the 1920s in Germany and their consequences for and during the
big slump of the l9305.* His argument and description are not only of
theoretical interest but offer historical testimony of the industrial
conditions at that time. And it is mainly because of this second quality
that I shall refer to Schmalenbach's lecture in some detail.
[* Fn: Len in, Selected Works, vol. V. p.14/is, Lawrence & Wish art 1944]
[** Fn: Grundrisse. Pelican Marx Library 1973, p.703]
Schmalenbach saw the economic conditions of the 1920s as in tran-sition from
the free economy and on the threshold to controlled economy. This new
economic system was to him marked by cartels and trusts and other
monopolistic formations as well as by a growing number of economic functions
of the State. He remarks that in this transition 'there can be no question
of a conscious choice. Those in charge of the economy have not set
themselves the goal of leaving the old economy and of deliberately trying
out a new one. None of our industrialists enters by an act of free will into
the new economy. It is not people but strong economic forces which are
driving us into the new economic epoch.'
He continues with something of a warning. 'What are we experi-encing if not
the fulfilment of the predictions of the great socialist, Karl Marx? If we
were to tell our industrialists that, whether they like it or not, they are,
as it were, the executors of the Marxian testament, they would, I presume,
protest with all due emphasis. If we seek an explanation of this change of
the system we have to look for the reasons, not in people, but in things.
And if we look closely enough we shall notice that it is almost exclusively
one single phenomenon which is responsible for this transformation; a
pheno-menon which emerged originally very inconspicuously and to which
no-one would have attributed such a powerful effect This phenomenon
which is of such scope that it entails the complete transformation of the
economic system in its entirety is the shifting of the cost of production
within the production plant. Expressed in technical terms, the share of'
fixed costs steadily increases to the extent that finally it becomes the
determining factor in the organi-sational structure of the production
process.
[* Fn: Die Betriebswirtschaftslehre an der Sch we lie der neuen
Wiq-schaftsverfassung [Managerial Economics on the Threshold of the New
Economic Order]. A lecture given in Vienna May 31, 1928, 30th anniversary of
the academic recognition of managerial economics in German universities;
published in Zeitschrift fur handelswissenschaftlkhe Forschung 32. Jg., Heft
V]
The great epoch of the untrammelled economy of the 19th century was only
possible so long as the costs of production were essentially of the
proportional kind. It ceased to be possible when the share of the fixed cost
became more and more predominant
The first thing which is obvious even to the most superficial observer is
the continuing growth in the size of the industrial plant.. and thereby the
source of costs which bear no relation to the output of production and which
cannot be cut even if the plant functions at only half or quarter of its
capacity. To this we find linked a further peculiarity of an ever-growing
trend to coercive operation within the mode of plant utilisation. We have
seen the emergence of flow-production which is characterised by the utmost
degree of stringency in determining the route which every product must
follow, the sequence of the products and particularly the speed. Nothing is
more characteristic for this organisational order than the fact that the
internal means of transport have been given a rigid timetable. The
advantages of this principle are such that they cannot be forfeited; on the
other hand the relative share of the fixed cost goes on increasing.
Inseparable from this development is the continuing increase in capital
intensity.'
Schmalenbach here gives a number of examples to illustrate this well-known
process which Marx calls the growing organic composi-tion of capital.
Schmalenbach points among other things to a large fully automatic milling
machine and comments: 'What this engine requires in wage cost is nothing.
But what it necessitates in interest and depreciation is a great deal and is
totally indifferent to the degree of its utilisation. And this all the more
as it will probably not end its career by wear and tear but because a new
and more efficient specimen will be invented to replace it.'
Schmalenbach clarifies his theme by pointing to the contrast between the
proportional costs previously prevailing and the fixed costs dominant today.
The peculiarity of proportional costs con-sists in the fact that costs rise
with every piece of output, with each ton mined. Each ton which is produced
increases the proportional costs by a definite amount, and conversely. If
the prices fall to a level below the cost of production, production can be
curtailed and thereby a corresponding part of the proportional costs can be
saved. If however the essential part of the costs of production are fixed
then the costs will not be lessened by the curtailment of production. And if
in this situation the prices fall there is no purpose in compensating this
fall by a curtailment of production. It is cheaper to continue to produce
below the production costs. The
enterprise will now function at a loss but this loss will be smaller than it
would be if production were curtailed while the costs remain more or less
undiminished. Schmalenbach goes on:
'In this way modern economy is deprived of the remedy by which production is
brought into harmony with consumption and economic equilibrium is ensured.
Because the proportional costs have become fixed to such a large extent the
economy lacks the ability to adapt production. to consumption and so the
remarkable fact arises that the machines become increasingly equipped with
self-regulating facilities, thus dispensing with human labour, whereas the
economic machinery, the national economy as a whole, loses its automatic
regulative.'
'The fixed costs do not merely compel the plant to be fully exploited
despite lacking demand but even induce its enlarge-ment. In every plant
there is a number of sections used at a low level of their capacity. These
operate at depressive costs even when the whole enterprise is working at
full capacity. On account of such insufficiently used sections the managers
of the enterprise are forced to expand the plant until these particular
sections are more fully utilised. And in this way the capacity of whole
branches of industry is increased without justification of an increase in
demand. In countless company meetings one hears that the enterprise is not
as yet functioning at a satisfactory level but that if a few machines were
to be added and other enlargements made then the enterprise would become
profitable. And as other enterprises in the same branch of industry act
likewise they also rationalize themselves into an excess capacity never
called for by the demand. It is invariably the fixed costs which are at the
root of this. If a particular branch of industry has reached this point then
the forming of a cartel or a merger is no longer far away. Thus the fixed
costs push one branch of industry after another out of the free market
economy and into the monopoly system.'
In further parts of his lecture Schmalenbach underlines the dis-regard of
economic rationality inherent in the tendencies he describes, causing an
irrationality arising from the discrepancy between the production economy of
fixed costs and the market economy of supply and demand. This discrepancy
becomes the more blatant the more the managers are induced to rationalize by
the demand of production economy. Moreover he discovers this economic
irrationality in almost all the manifestations of resulting monopoly. He
deplores the nepotism in the board-rooms which are dominated and
appropriated by groups of interests and even by family connections. In the
administration he finds excessive bureaucratism, excessive sluggishness,
excessive salaries of direc-tors, excessive payments in the form of 'perks'.
He points to the economic irrationality resulting from the fact that the
responsible directors no longer invest their own capital, but the public
capital of other people. He views the legal constitutions of these
monopo-lies as also irrational. The capitalists who previously strove for
the market shares now struggle for their quota of the global sales.
Reassessment of quotas at the periodical renewals of cartels encourage
everyone to increase production in order to claim entitlement to a higher
quota as a consequence. Thus the capacity for production continues to grow
ever further from market de-mands, and results in dumping, or throw-away
sales outside the safeguarded area, at prices even below the proportional
costs.
In his lecture he describes the ultimate absurdity of such a system in the
following words. 'An example will show the weird results which issue from
such contradictions. There are a number of coal producing countries,
England, Germany, France, Belgium and Holland, whilst some countries in the
north and south of Europe have no coal worth mentioning. One would presume
that these countries with no coal would find this a regrettable fact, whilst
those possessing coal would have a feeling of economic superiority. This is
by no means the case! If you look at the price policy of the coal syndicates
you will notice to your astonishment that it is apparently very
disadvantageous to a country to possess coal. This must really be so since
the coal industries supply their coal to the non-coal producing countries at
a price far below the cost of production, seeming to suggest that it is of
the greatest annoyance to possess coal and they take pains to rid themselves
of their surplus at the earliest opportunity, even allowing this to involve
them in a great deal of extra expense. An impartial observer could not help
but receive the impression that the possession of coal amounts to a
disease.'
The conclusion of his lecture is a pleading for the important role of
managerial economics necessary to bring back the minimum of rationality into
monopoly capitalism.
But the picture is clear. In the rationalization drive of the 1920s a novel
kind of production economy of fixed costs took effect where the regulating
factors of the supply and demand of the market were impaired and the time
economy of the modern labour process became predominant. It is the result of
this new plant economy and
its discrepancy with the old market regulatives which forced the development
toward monopoly. The same still applied in later years, and indeed does so
to the present time. Monopolism is nothing more than the summary title of a
great variety of measures aiming at the manipulation of the markets. And as
far as the fixed costs are concerned they are no more than the reified
expression of the highly developed socialisation of labour in the modern
process of production. What we see is indeed the fulfilment of a prophecy of
Marx and Engels that the increasing socialisation of labour, or expressed
technically, the increasing organic composition of capi-tal, would, at a
certain point of development, enter into an irreconcilable contradiction
with the market system of private appropriation.
Commodity and market economy originally arose out of the breaking up of
primitive tribal collectivism into the anarchy of private producers working
independently of each other. Modern flow-production represents a degree of
socialisation of labour marking the opposite end of the developmental line
of commodity production stretching over 3000 years. In the decades after the
Second World War we have seen the contradiction between the constraints of
the market and the cornucopian effect of modern mass production rise to a
new intensity compelling the big private concerns to plan and programme
their processes in an endeavour to forge a necessary link between plant and
market economy.
But during the 1920s the new economy of the labour process was only in the
stage of innovation and it steered its way blindly and unsuspectingly into
economic and social chaos. All the more remarkable was the insight of
Schmalenbach's analysis, even if hamstrung by the reified manner of
bourgeois thinking. His testimony is of importance because it affords a
standard by which to gauge some of the individual economic conditions of
particular firms.
The creation of the Trust in the steel industry in 1926 most clearly
demonstrates the process. Rationalization and the consequent lowering of
labour costs of production had been achieved by the method of amalgamation
of similar firms and was a feature of much of large-scale industry. But in
iron and steel this assumed a particularly rigid form. Not only were the
various departments of the concern - production of pig iron, steel casting,
strip mills, wire, tube-making, etc. - organised as far as possible in
accordance with the flow of production, but the various sections of the
concern were in their turn linked together by the utilisation of blast
furnace gases as their fuel. As far back as 1905 in America the very hot
gases which gather in the upper part of furnaces were collected into pipes
and directed from one department to another as a use of fuel and energy. The
result was not only a very considerable economising of fuel but also a
linking up of all the departments of the concern so that it functioned like
one single gigantic clockwork, where none of the parts could be worked on
its own. Synchronisa-tion of all parts of such an industrial concern was
perfected to such a degree that the massive plant could be supervised and
steered from one central switchboard by two or three engineers. Techno-logy
and economy became one. But at the same time the fixed costs had increased
more than ever before and had thereby made the whole concern extremely
crisis-prone.
The advantages of this production economy were evident during the War, when
the fullest utilisation of production, regardless of markets, was demanded.
During the world crisis in the thirties this blessing of rationalization was
soon transformed into a curse of irrationality. And this was indeed realised
by the directors of industry themselves. The Deputy Director of the Steel
Corporation, Ernst Poensgen, whom I knew personally through family
connec-tions, exclaimed to me in Autumn 1931: 'Science! don't mention
science to me! We have been pumped full with science; scientific technology,
scientific managements, scientific market research, scientific accountancy
and so on and so on. And where has all this science brought us?'
At that time Schmalenbach produced a memorandum (not the lecture already
quoted) in which the blatant contradictions were ruthlessly exposed. He
described the production plants of the modern large concerns as thoroughly
rationalized, planned struc-tures which, however, would only fulfil their
rationality and function for the good of society if they could exist in a
planned, unified economy. They were so incompatible with the anarchy of
private and market economy that in the present circumstances they could only
revert to social irrationality. This openly anti-capitalist conclusion
coming from such an authority provoked horror in industrial circles and fear
in the face of the threatening class tensions of the time. The Minister of
the Economy in the Bruning cabinet, Dietrich, was prevailed upon by the
industrialists to suppress and destroy the Schmalenbach memorandum. *
[* Fn:Stnke Hundt in his book ~Zur Theoriegeschichte der
Betriebswirt-schaftslehre' (On the History of the Theory of Managerial
Econo-mics) Bund- Verlag. KoIn 1977, casts doubt on the existence of this]
For by then the irrationality of the 'planned' industry had become a
palpable fact. When demand was high and prices high, the plants produced
their products at cheaper costs than ever before, running at full capacity.
But when demand fell, forcing prices down, then if production slowed
according to diminishing demand the unit cost rose in geometrical
progression. Prices and costs moved in inverse proportion instead of
parallel to each other.
In production the only flexible factor which remained was the variation of
production speed, but even the slowing down was possible only within narrow
limits. In the case of the Steel Trust, for instance, the minimum possible
output was reached at about 67% of rated capacity; if the tempo was reduced
further the machinery ground to a stop. And from the economic point of view
to vary the timing in order to limit production also had the effect of
reducing the wage account to a part of the fixed cost of production. Even
during the boom years the Steel Corporation had rarely functioned at full
capacity, so thorough had been its 'rationaliza-tion'. In fact 80% of full
capacity was regarded as satisfactory. But by autumn 1931 the orders
corresponded to hardly more than 40% of the rated capacity; early in 1932 it
fell to 20W. and of course this 20% was distributed unevenly over the
sections of the various departments. Until then production had been partly
for stock, thereby causing only further deterioration of price levels. As,
however, the whole economic situation showed no promise of immediate
improvement but only of further decline, a policy of despair was reached;
namely to stop and start the works alterna-tively every 14 days, although
some of the saving was partly lost by the extra expense of starting up the
plant. It needs little imagination to realise that plants so used not only
fail to make a profit but that they are also in danger of swallowing up
their own invested capital if such a situation continues.
memorandum. He has searched all available archives for it and quotes two
close collaborators of Schmalenbach who he states could not have failed to
have known about a memorandum concerning the German Steel Trust if such a
one had ever existed. However, there is obvious confusion here. I have never
written of a memorandum regarding the Steel Trust The Paper at issue is of a
very different character concerning the rationalization drive of the 192Os
and its results. I find no reason to doubt its existence and immediate
suppression and destruction in October 193 1. It was fully discussed in my
presence in one of the Editorial Meetings of the Deutsche Fuhrerbriefe.
It is clear, therefore, that enterprises of this new modern type which are
run on the principal of structural socialization of labour but continue
along private capitalist lines, are under continual coercion to produce. So
long as they arc not totally closed down, thrown on the scrap-heap, so to
speak, they must produce regardless of whether there is a demand for their
products or not. And if there is no demand of a real kind, that is, of
reproductive values, then an alternative demand, that of non-reproductive
values, must be created in order to keep the works in motion.
Non-reproductive values are products which are not consumed either directly
or indirectly into the maintenance or renewal of human labour power and
social life or into the renewal of productive machinery. Among these,
armaments obviously have pride 6f place, and in our most recent experience
since the 1960s onwards can be added the manufacture of waste products and
space exploration. In order to make the demands effective a state power is
needed to compel the population to pay for this production.
The capitalist economy can force enterprises into liquidation whose
technical efficiency has dropped behind the necessary progressive
requirements of production. It cannot do likewise with those which do not
conform with these standards for the opposite reason, because they have
grown beyond these standards. Their losses have to be transferred to the
community by the State. Such enterprises in common with others in the same
position put in jeopardy by their paralysis the entirety of finance capital.
They are out of step because they have rationalized too quickly beyond the
possibility of
to the market. Capitalism is forced in such cases to provide for the
necessity for production which such enterprises require. Schmalenbach was
perfectly right with his conclusions that such planned giants of production
demand production relations entirely different from private capitalism.
Had it been possible in the thirties to overcome and discard capitalism then
these production relations would have become socialist. Instead they became
trans-capitalist - encapsulated in capitalism. The resultant developments
described in the following chapters should serve to clarify the way the
transcending elements of capitalism contributed to the tilt over into
fascism. Marx and Engels predicted that the basic elements for a socialist
mode of production would generate within the depth of capitalism.
Capital-ism can either give birth to socialism, or to the deformed monster
of fascism.
4 The Bruning Camp and Harzburg Front
During 1931 and 1932, the crucial years for the formation of the power
constellation around Hitler, German industry was clearly split into two
factions. One was usually summed up under the name of the 'export
industries', the other liked to think of itself as 'autarchists', those who
aimed at self-sufficiency by basing the national economy on the home-market.
We shall see that this distinction was as inaccurate as it was misleading.
Neither was the one group interested exclusively in export nor the other
only in the home-market. In reality they both had international economic
struggle in mind but with different methods and different ap-proaches and
also, as it later transpired, with different kinds of products. In any case,
their antagonism was not in doubt and until we know more of the reasons it
will be best to refer to them by the accepted labels of the 'Bruning camp'
and the 'Harzburg front'. A few words are needed to describe the meaning of
their conflict.
After the resignation of Hermann Moller's cabinet, which was the last social
democratic coalition government, the mantle of the Weimar Republic fell upon
the right-wing Catholic party politician Heinrich Bruning, previously an
unknown figure. On March 30, 1930 he shouldered the task of bringing Germany
through the most shattering of all international economic crises. The first
political expression of the catastrophic turn of the slump was the formation
of the so-called 'National Opposition' which gathered on October 11, 1931 at
Harzburg Spa, - hence the nickname of 'Harzburg Front'. It was a
heterogeneous mixture brought together under the initiative of Hugenberg,
the arch-reactionary leader of the conservatives, and rallied such mass
movements as the Nazis* with Hitler and the 'War Veterans of the Stahlhelm'
(Steel-helmet), under their leader Seldte. They voiced the mood of vast
numbers of small traders, farmers and business people, all facing the danger
of bankruptcy. But with this medley were associated powerful representatives
of German big business: Thyssen and Flick, the main financiers of the Steel
Trust and its general manager Albert Vogler, Kirdorf, the Director of the
Coal Syndicate, and Borsig, owner of a locomotive and heavy machinery
company. What united this conglomeration of desperados was the demand for
dictatorial government directed against the organised working-class in their
trade unions and the social democratic and communist parties.
The crisis had started in October 1929 with the collapse of the bull market
on the New York stock exchange but through the whole of 1930 it had seemed
to be a mere repetition of the periodical 'cleansing crises' of capitalism
with the usual falling of prices, wages and credit. Soon the deepest point
of this process would be reached and business would once more revive; the
economy would take on the usual 'new lease of life' and everything would be
alright again. But after a time when many people thought they could glimpse
the signs of a new stabilisation, the crisis began in earnest. In April 1931
the Austrian credit bank of Rothschild collapsed; it had been one of the
corner-stones of the Central and Eastern European financial systems based on
foreign loans. The foreign creditors, above all the Americans, panicked for
their money and immediately withdrew all their short-term investments. In a
few weeks the Reichsbank lost three billion RM in gold and foreign currency.
On June 7 President Hoover proclaimed a general moratorium on the German
reparations obligations which simul-taneously halted any inter-allied
payment of debts to the United States.
But now collapse began within the German economy itself. The bankruptcy of
the Wool Trust of Bremen pulled down with it the Danat Bank, one of the big
five, and the main instrument for financing heavy industry and the Steel
Trust from American debentures. The Danat Bank lost more than its entire
reserves of capital. The government was compelled to intervene to safeguard
the other big banks, particularly the Dresdner Bank, by State guarantees,
and this put a stop to the loss of confidence. The effect of these measures
was limited to the domestic sphere alone; they did not reassure the foreign
creditors. In July a moratorium on the whole of Germany's short-term foreign
debts became necessary and with this overall standstill agreement entering
into force on August 1, the entire free international money market operated
by Germany and the other European debtor nations was frozen and subjected to
the foreign currency control of the issuing banks. Currency embargo had
descended upon Europe. Throughout the
network of creditor nations the crisis continued and when the English pound
came off the gold standard on September 21, 1931 the whole international
credit system came to a standstill.
>From then until the beginning of the Second World War, practi-cally no
capital transfer took place between different countries. When a sum of 10
million RM was transferred from America to Germany in 1937, it created a
sensation which was headline news; it remained a solitary occurrence. The
economy and trade of each of the debtor countries was to all intents and
purposes restricted to their home territory. Even the most indispensable
imports and exports had to be painstakingly negotiated by barter deals,
almost as if no international money market had ever existed. This state of
affairs must be kept in mind in order to understand the consequent
developments within the various sectors of large-scale capital in a highly
industrialised country such as Germany.
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