[CTRL] [2a] Behemoth

[Kris Millegan]

 -Caveat Lector-

an excerpt from:
Behemoth - The Structure and Practice of National Socialism
Franz Neuman
Oxford University Press©1942
Tronto/New York/London
532 pps. - first edition/out-of-print
--[2a]--

III

THE MONOPOLISTIC ECONOMY

1. PROPERTY AND CONTRACT
(ECONOMICS AND POLITICS)

To understand the nature of the National Socialist economic system, a few
considerations on the relation between property and contract will prove
helpful. What is capitalism? How do we define it? Many identify capitalism
with freedom of trade and contract, that is, with free competition.
Capitalism is defined as an economy that is continuously maintained by the
free initiative of a large number of entrepreneurs competing in a free
market. It is thereby identified with one phase of its development,
competitive capitalism. In that phase, free competition is held to be the
distinguishing mark. This theory of capitalism is to a certain extent the
classical one, though it has highly significant differences.

We propose to illustrate the nature of the economic system by an examination
of the institution of property.[1] By an institution, we mean an
authoritarian or co-operative enduring association of men or of men and
property, for the continuation of social life. This definition is purely
descriptive. It has nothing to do with institutionalist philosophies, with
pluralism, neo-Thomism, or syndicalism. Our definition covers all kinds of
institutions: family, property, foundations, et cetera. Above all, it defines
the major institution of modern society, private property in the means of
production. Property, for a lawyer, is merely a subjective right that one man
has against all others. It endows the proprietor with absolute defensive
rights. The scope of man's power over the things he owns is, in principle,
unlimited. The owner is a sovereign.

But the sociologist has to distinguish between various types of property. The
man who owns a house in which he lives, furniture which he uses, clothes
which he wears, food which he eats, an automobile which he drives, has no
other power than the direct possession of the things he owns. He does not by
virtue of his ownership control other men's lives. Houses, food, clothes, and
automobiles are not institutions, are not intended to endure. They disappear
or become valueless as they are consumed or used.

There is, however, a second type of property which is an institution, because
it is an enduring and authoritarian organization for the perpetuation and
reproduction of society: property of the means of production. In our
language, domination over means of consumption and means of production is
called by the same name: 'property'; the term has thus become the legal mask
behind which the owner of the means of production exercises power over other
men. The term property (and ownership) never indicates what kind of object
and what kind of power lies behind it, whether it is restricted to control
over things or whether it also gives control over the fate of men. Property
in the means of production gives power: power over workers, power over the
consumers, power over the state. Property in the means of production is
enduring, it aids in the continuous reproduction of society, it is the
primary institution of modern society.

According to liberal ideas, if society is continuously to reproduce itself,
there must be a free market. The prime requisites of the free market are free
entrepreneurs, freedom of contract, and freedom of trade. The owner must be
able to sell and to purchase, to lend and to borrow, to hire and to dismiss.
Freedom of contract is, therefore, a supplementary or auxiliary guarantee of
private property. It makes it possible for the owner of the means of
production to produce and distribute. A competitive society must also be
based on freedom of trade, the right to carry on one's business without
interference and to establish a competing business. Freedom of trade, is
therefore another supplementary or auxiliary guarantee of property during the
era of free competition. It, too, aids in the reproduction of society. In the
process of competition, unfit competitors are thrown out, new establishments
arise. Disturbances in equilibrium eliminate entrepreneurs who are not
sufficiently rational in the conduct of their business; higher profits in one
branch attract capital from other branches, thereby preserving the dynamic
quality of a competitive society. Freedom of trade and freedom of contract
are thus integral elements in a competitive society.

Hence property is surrounded by supplementary and auxiliary guarantees and by
supplementary and auxiliary institutions, which make the operation of this
major institution possible. They are at the service of the major institution,
property, and are, in consequence, changed when the institution changes its
function. Thus they are not merely juristic categories, as they are conceived
to be today. The natural lawyers of the seventeenth century and the classical
economists of the eighteenth century clearly realized that freedom of
contract and freedom of trade are not simply legal categories but exercise
specific social functions. Present-day apologists of economic liberalism
maintain that freedom of contract implies the right to establish industrial
combinations, to erect cartels, concerns, and trusts. They believe that
freedom of trade exists even when a branch of industry is so completely
monopolized that freedom of trade becomes a mere formal right. They maintain
that competition implies the right to eliminate competing businesses and to
establish the prerogative of a monopolistic group.

This was not the view held by the classical economists. 'One individual must
never prefer himself so much even to any other individual as to hurt or
injure that other in order to benefit himself, though the benefit of the one
should be much greater than the hurt or injury of the other.' 'In the race
for wealth and honor and preferment, each may run as hard as he can and
strain every nerve and every muscle in order to outstrip all his competitors,
but if he should justle or throw down any of them, the indulgence of the
spectators is entirely at an end.'[2] In these statements, Adam Smith
introduces a distinction between two kinds of competition, one based on
efficiency and the other based on the destruction of the competitor. He does
not tolerate unfettered competition, since, in the theory of Adam Smith,
competition is more than a right of the entrepreneur: it is the basic device
for the continuous reproduction of society on an ever higher level. But this
necessarily presupposes the absence of monopolies. Freedom of contract does
not imply the right to establish industrial combinations; freedom of contract
is the form of 'free commodities.' Where the commodities are not free, where
they are monopolized, governmental interference must take place. 'For a free
commodity . . . there is no occasion for this [governmental interference],
but it is necessary for bakers who may agree among themselves to make the
quantity and prices what they please.'[3]

Yet the assumptions under which the classical economists are willing to
guarantee freedom are still wider in character. They refer to the basic
institution of society, to private property. Monopolies are repudiated as
incompatible with the economic and social system, exceptions being allowed
only for colonies, and even here only for a transitional period. As for the
laws passed during the mercantilist period for protecting monopolies-'like
the laws of Draco, these laws may be said to be written in blood.'[4] Even
the joint stock corporation is rejected in principle and allowed only for
four economic activities: banking, insurance, the building and navigation of
canals, and the water supply of great cities.[5] It is characteristic of the
profound sociological insight of Adam Smith that he consider joint stock
corporations legitimate only because in these activities the initiative of
the entrepreneur has become unnecessary since the economic activity has been
reduced to a mere routine.

The mechanism of the classical system is based, therefore, on the assumption
of a large number of entrepreneurs of about equal strength, freely competing
with each other on the basis of freedom of contract and freedom of trade,
with the entrepreneur investing his capital and his labor for the purpose of
his economic ends, and bearing the economic risks involved.

In this stage of society, freedom of contract was indeed the means by which
society was held together. The contract was then the form through which the
owner exercised his liberty and it was at the same time the means of ending
the isolation in which each owner finds himself. 'To bring about that I may
own property, not only by means of a thing and my own subjective will but by
means of another will and thereby a common will-this constitutes the sphere,
of contract.'[6] In Hegel's words, therefore, contract is the form in which
society recognizes property and by which the property owners constitute
society.

It is characteristic of the later development of capitalism that it
completely divorced the juristic categories of freedom of contract and
freedom of trade from the socio-economic background and thereby made the
juristic categories absolute. Freedom of contract, the means by which free
competition was secured, became the device by which it has been destroyed.
Legal theory and practice, even more so in Europe than in the United States,
separated the. legal notion 'freedom of trade' from the socio-economic
requirements. Freedom of contract became the means of and the justification
for the formation of industrial combinations, announcing the end of free
competition. In the same way, freedom of trade degenerated into a mechanism
for maintaining economic privileges and prerogatives. Its existence was
asserted even in those branches of industry in which, because of the immense
capital investment in one plant, no outsider could hope to establish a
competing business, since he could not put up the necessary capital. Freedom
of trade was perverted into a slogan for the defense of economic prerogatives
and against state intervention.

This is one side of the development, but there is a second which is perhaps
still more characteristic. Freedom of contract, although long disputed,
implies the right to form trade unions and to oppose the power of the
monopolist by the collective power of labor. Freedom of trade also implies
the right of any entrepreneur to leave a combination and to re-establish his
economic freedom, thereby endangering monopolistic possessions. Although it
has lost much of its actual content, it still allows the establishment of
competing business, once again endangering monopolistic privileges. These
rights assume an especially dangerous form of monopolistic privileges in
periods of recession and depression. The more perfect and rigid the structure
of the economy becomes, the more sensitive it is to cyclical changes. A
severe depression will inevitably shatter monopolistic positions. Cartels
will be dissolved, outsiders will remain aloof, labor unions will fight off
cuts in wages, protected by the sanctity of contracts. In such periods, the
free contract, the freedom to keep aloof from the monopolists, turns into a
major weapon against them.

Moreover, the new technology requires enormous investments, which involve
risks and may give but uncertain returns.* Only rich and powerful
corporations will be able to make such investments, and their willingness to
do so will depend upon what protection they receive-against cut-throat
competition and the chiseler, even against competition as such. They may-and
do-even demand specific guarantees from the state, in the form of guarantees
of profit or turnover, of permission to write off investments in a short
time, even in the form of outright subsidies. Outsiders, new competitors,
labor unions—all these manifestations of freedom of trade and contract are
then a nuisance. They must be destroyed. [* See P. 277]

For both sides, therefore—for the large masses and the small businessman on
the one hand and the monopolistic powers on the other—state intervention in
economic fife becomes the major problem. The large masses and the small
businessman will call in the state machinery for their protection. They will
demand interference in the freedom of contract and freedom of trade in order
to halt monopolization or even to dissolve existing industrial combines. By
that demand they are merely drawing the consequences of the views of the
classical economists. But in this situation monopolists will demand
abrogation of freedom of contract and freedom of trade. They will insist that
the right of industrial enterprises to leave cartels or to stay aloof from
them means ruin for the economic system. They will point out that the freedom
of labor to organize increases the costs of production and thereby the price
of commodities. They will therefore demand complete abrogation of economic
liberty.

In the period of monopolization, the new auxiliary guarantee of property is
no longer the contract but the administrative act, the form in which the
state interferes. But because that is so, it is the form and the content of
the interventionist measure that now assumes supreme importance. Who is to
interfere and on whose behalf becomes the most important question for modern
society. The possession of the state machinery is thus the pivotal position
around which everything else revolves. This is the only possible meaning of
primacy of politics over economics. Shall the state crush monopolistic
possessions, shall it restrict them for the sake of the masses, or shall
interference be used to strengthen the monopolistic position, to aid in the
complete incorporation of all business activities into the network of
industrial organizations? Shall the state become the weapon by which the
masses will be made completely subservient to the policies of the industrial
empires within it?

The aims of the monopolistic powers could not be carried out in a system of
political democracy, at least not in Germany. The Social Democratic party and
the trade unions, though they had lost their aggressive militancy, were still
powerful enough to defend their gains. Their defensive strength made it
impossible to place the whole machinery of the state at the service of one
particular group in society. Similarly, the National Socialist party could
not possibly carry out its economic policy on a democratic basis. Its
propaganda and program were ostensibly aimed at protecting the small and
medium-scale entrepreneur, handicraftsman, and trader—that is, those very
groups that have suffered most under the National Socialist regime. The
complete subjugation of the state by the industrial rulers could only be
carried out in a political organization in which there was no control from
below, which lacked autonomous mass organizations and freedom of criticism.
It was one of the functions of National Socialism to suppress and eliminate
political and economic liberty by means of the new auxiliary guarantees of
property, by the command, by the administrative act, thus forcing the whole
economic activity of Germany into the network of industrial combinatifts run
by the industrial magnates.

The German economy of today has two broad and striking characteristics. It is
a monopolistic economy-and a command economy. It is a private capitalistic
economy, regimented by the totalitarian state. We suggest as a name best to
describe it, 'Totalitarian Monopoly Capitalism!


2. THE CARTEL POLICY OF NATIONAL SOCIALISM

THE BRUNING DICTATORSHIP AND THE CARTEL

The first stage of the National Socialist cartel policy is a direct
verification of our thesis. The cartel system, gravely endangered during the
great depression, has been saved by National Socialism. Before analyzing
National Socialist cartel policy, it will be helpful to make a few
preliminary remarks about the depression policy of the Bruning, Papen, and
Schleicher administrations.

In 1930, the government was faced with a dilemma. It could attack the
existing cartel system, dissolve the cartels, and bring prices down to the
world-market level, or it could maintain the existing system at the expense
of the large masses of consumers. This dilemma could not be solved by the
successive governments between 1930 and 1933 because none of them had a
parliamentary majority. The cartel policy of the period 1930-33 was therefore
characterized by the most contradictory features. It began with a
presidental[sic] decree Of 26 July 1930, which was directed against the
system of bound or fixed prices. This decree gave the cabinet power to void
existing cartel agreements or portions of them and to enjoin cartels from
carrying out certain practices. This not only covered genuine cartel
agreements but also, for the first time, vertical agreements, that is to say,
individual contracts between producers, wholesalers, and retailers for the
purpose of fixing and maintaining a price structure. Further, all agreements
and devices with similar economic effects, even if they did not fall strictly
within the range of the decree, were actually covered by it, and this
included agreements between independent producers, or associations of
entrepreneurs. Finally, the cabinet was empowered to lower or abolish tariffs
in order to facilitate the dissolution of cartels or reductions in prices.
The official press release that accompanied the decree stated: 'It is
generally agreed that the real adjustment of artificially fixed prices to the
altered economic situation and to the decline in purchasing power as well as
to the burden of such business circles as are engaged in unrestricted
competition, is proceeding at too slow a pace and in too limited a degree.'
The release, besides, reproached the cartels for the dislocation in the
relation between prices and services, and asserted that recovery was hindered
by the cartel and price system. This emergency decree, taken at its face
value, constitutes a considerable step toward an active economic policy. It
freed the federal government from any control by the cartel tribunal, and the
government could now act without filing a motion with the cartel tribunal. In
this way the cartel policy could be completely co-ordinated with the general
governmental economic policy. Yet the results of the decree were
extraordinarily meager. Only one cartel was dissolved, the lignite cartel,
and that because it had been attacked for many years and had been
investigated by a special professorial commission which charged it with
wholly unreasonable practices. The decisive power that the emergency decree
gave to the federal government, to abolish or lower tariffs in order to break
down cartel prices, was never utilized.

The failure of the emergency decree soon led the government to seek other
ways of breaking the cartel price structure. On the basis of the presidential
emergency act, the cabinet issued on 16 January 1931 a decree attacking the
price structure of trade-marked articles. All price agreements on
trade-marked articles were voided unless the prices were cut down by 10 per
cent below the level of 1 July 1930. They were also voided if the price
agreements prevented wholesalers and retailers from granting their customers
such additional discounts as they were allowed to grant on 1 July 1930.
Certain commodities were exempted from the decree, which also prohibited
punitive measures against organizations, especially cooperatives, which
granted their members certain rebates. Since this decree was restricted to
trade-marked articles, it did not, of course, affect the price structure to
any marked extent.

For this reason, on 8 December 1931 the president issued the fourth emergency
decree, lowering all fixed prices to 10 per cent below their level on 30 June
1931; at the same time wages fixed by collective agreements were reduced
proportionately. Bruning's ominous deflationist policy was now under way.
This fourth emergency decree also appointed a price commissioner for
supervising the, prices of those commodities and services that were important
in daily needs. An executive decree of the same date defined the precise
powers of the commissioner. If prices were too high, he could lower them.
Violators could be punished by imprisonment and fines. The commissioner could
close down a plant if the owner was unreliable. He could order that prices in
plants and stores be posted or that price tags be affixed to commodities. In
a very small field of commodities and services, the commissioner thus had
full powers to do whatever he thought best. But this system, too, proved a
complete failure. The trade associations refused to co-operate, although they
did not make an open attack. An analysis of the rulings of the commissioner
shows, for instance, that he set maximum fees for chimney sweeps, a
concession to the house owners whose support the cabinet needed. He lowered
the price of bottled and draught beer, a concession to the separationist
Bavarians, for whom beer is food. He lowered the price of wall paper, mineral
water, and sea food. He issued a large number of rulings ordering the posting
of price laws and labels. But that is all he did.

With the one exception of reducing the price level by 10 per cent no
effective measures were or could be taken by the three pre-Nazi
semi-dictatorial governments of Bruning, von Papen, and von Schleicher. Their
policy was that of a tightrope walker over adeep abyss.

THE PURGE OF THE CHISELER

The National Socialist regime came to power 30 January 1933 and at once
initiated a cartel policy that satisfied all the requirements of the
industrial combines. The first cartel decree was issued on 15 July 1933.
Whereas the cartel emergency decree of 26 July 1930 was merely an emergency
act, the statute of 15 July 1933 permanently changed the cartel decree of
1923. It eliminated the cartel tribunal from all actions that the government
intended to take against cartels, restricting its sphere to disputes between
members, and members and outsiders. German industry had always attacked
section 9 of the cartel decree, the so-called preventive censorship on
boycotts, and similar measures. The statute of 1933 changed section 9 by
adding a new paragraph:

No unreasonable restriction on economic freedom [of the firm against whom the
boycott is threatened] exists, if the business of the party concerned is
managed by persons who do not possess the reliability necessary in business.
Unreliability exists if, in the business of the party concerned, commodities
and services . . . are offered or sold at prices which must be held to be
economically unjustified in view of the interests of the business as well as
those of the national economy or of the common welfare, and if a continuation
of such price practices is to be expected.

The new statute thus allows cartels to destroy unreliable competitors by
means of boycotts or similar measures. It aims at the exclusion of all
unreliable businessmen from the economic system, and it finds unreliability
wherever a competitor sells below justified prices, even if he is not bound
by any price agreement. The price-cutter can thus be exterminated by private
power with the sanction of the state. However, the extermination of the
price-cutter is not provided for in a planned or direct manner. It is not the
state that purifies the economic system. The death sentence is pronounced by
a private organization, although the president of the cartel tribunal has to
give his consent.

This purification is directed exclusively against the small retailer,
wholesaler, and handicraftsman. It is a regular feature of the National
Socialist policy of elimination of the inefficient businessman, that is, the
businessman whose plant is not big enough to give him a decent living or
materially to contribute toward preparedness and war. At this stage, we shall
confine ourselves to drawing attention to the purification carried out by the
cartels sanctioned by the state, and not by the state itself; two such
examples must suffice. The cartel agreement in the German radio industry of
August 1934 and February 1936 [7] provides that only recognized wholesalers
and retailers may be supplied with receiving sets and that no new traders may
be admitted. In consequence, the number of wholesalers declined from about
800-900 in 1933 to 598 in 1939, while within the year 1938 the number of
retailers declined from 31,800 to 27,590.[8] Recognition is given only to a
reliable trader, that is, one who is personally, economically, and
financially reliable. To be financially reliable, a wholesaler must have a
capital of at least 30,000 marks and he must provide this out of his own
means, and may not, therefore, borrow it. The solution in the cigarette
industry is just as extreme. According to the cartel charter Of 31 December
1938,[9] only retailers who have an annual average tobacco turnover valued at
not less than 5,000 marks are entitled to be supplied directly by the
manufacturer. In the case under review, the federal economic tribunal (which
has taken the place of the cartel tribunal, now dissolved) denied that right
to a grocer and innkeeper, although there was but one tobacco outlet in his
village and although the application was supported by the local National
Socialist leader. These two examples indicate clearly that the newly won
organizational power of the cartel is utilized for 'combing out' the small
businessman.

The position of the 'unreliable businessman' was further endangered by the
weakening of the preventive censorship. An executive decree Of 5 September
1934 declared that the filing of a motion with the cartel tribunal, whether
by members or by outsiders, against intended boycotting measures no longer
had suspensive effect. The organizational power of the cartel was, by the
statute of 15 July 1933 enormously strengthened.

COMPULSORY CARTELLIZATION

On the same date, a second cartel statute was enacted, introducing compulsory
cartellization. The federal minister of economics was given the power to
create compulsory cartels, to compel outsiders to attach themselves to
existing cartels, to prohibit the erection of new enterprises and the
extension of existing enterprises either in size or capacity, and to regulate
the capacity of existing plants. No indemnification is allowed for damages
arising out of such acts.

Compulsory cartellization is nothing new in German economic history. We
mention only the coal and potash cartels and compulsory cartels for starch,
matches, milk, beet sugar, inland navigation, and corn. But the previous
compulsory cartels were always based on special statutes, and thereby subject
to parliamentary debate and parliamentary control, whereas the statute of 15
July 1933 gives the minister of economics unlimited and arbitrary power of
compulsory cartellization. It is not surprising that we find identical laws
in Italy (June 1932) and in Japan (April 1931).

What are the aims of this decree? The official press release bears out our
view that cartels are organized forms of waste. It says: 'The severe
depression hanging over the German economy has struck most severely at those
branches of industry that have a productive capacity far in excess of present
marketing possibilities. Intensified competition and the low price level
resultant therefrom have brought nearer the point at which the ruin of
enterprises valuable to our national economy is threatened.' In consequence,
compulsory cartellization is necessary. The state must receive greater power
in order to prevent the closing down of plants and the slashing of prices, to
preserve such enterprises and such industries that are endangered by
competition because they are overcapitalized and have excess capacity. Three
different powers are thus vested in the minister of economics—the creation of
new compulsory cartels, the attachment of outsiders to existing cartels, and
the prohibition both of new establishments and of the extension of existing
plant capacity. Private organizations for restricting capacity and for
subordinating whole industries to the wishes and commands of the monopolistic
rulers have thereby received official sanction. The National Socialist state
thus brought to its logical conclusion a development initiated many decades
ago, namely, that the organization of industry in cartels is a better and
higher form of industrial organization. An intelligent National Socialist
economist summed up: 'The compulsory order, with the help of the state's
sovereignty, gives the cartel a power which it could not obtain on a
voluntary basis.'[10]

The compulsory-cartellization decree is again primarily directed against the
small and medium-scale businessmen, who are often reluctant voluntarily to
join the cartel and thus are now completely  subordinated to the demands of
the powerful concerns. Resistance, to cartellization also arises out of the
antagonism between pure and mixed plants, that is, between enterprises
producing but, a single type of commodity and vertical concerns turning out
the whole range of raw materials, production goods, and consumer commodities.
It is again against the independent businessman that the new power of the
state is applied. This is a direct contravention of the official cartel
ideology, which considers cartels as organizations for protecting small and
medium-scale businessmen.

A National Socialist investigation into the application of the compulsory
cartellization decree up to 1937 confirms our point of view.[10] There are
dozens, nay, hundreds of such decrees prohibiting the establishment of new
plants or the extension of existing ones or compulsorily creating cartels. In
the cement industry, for instance, the old dream of the cement magnates has
finally come true. For years, the cement cartels fought bitter and expensive
fights against outsiders, who, attracted by the high profits that the cartel
structure made possible, established new mills or merely threatened to do so,
which they could easily do since the raw material is plentiful and the
capital requirement low. Millions had to be sacrificed by the cartels to buy
off such actual or would-be competitors. On 12 December 1940,[11] the four
regional cement cartels were compulsorily joined to a German cement union
covering the whole territory and comprising every manufacturer. The paper
industry was protected by a decree prohibiting the creation of new or the
expansion of existing plants.[12] The printing industry, which has suffered
severely since Dr. Goebbels monopolized printing, was protected by a
compulsory cartellization, thus prohibiting outsiders from underbidding.[13]
In the course of the purification of the retail and wholesale business, which
we shall discuss later, the order Of 15 January 1940 prohibited with but a
few exceptions the establishment or the taking over of commercial
enterprises, and made such acts dependent upon previous consent.[14] The life
of all iron cartels has been compulsorily extended. There are innumerable
restrictions of this kind in almost every branch of trade and industry, duly
reported by the Kartell-Rundschau.

We see, then, that the statute for compulsory cartellization maintains and
solidifies the existing organizational patterns. In the first Stage of
National Socialist economic policy, the object was to secure the profits of
the industrial combines even with the reduced volume of production. In this
respect, therefore, National Socialist policy is not different from that of
the pre-Hitler crisis cabinets. It merely carries their policies to a radical
conclusion.

PREPAREDNESS, WAR, AND CARTELS

With the enactment of the Four Year Plan on 18 October 1936, the economic
policy of National Socialism changed, now aiming at full employment and the
utilization of all resources for preparedness. The place of the cartels in
the preparedness and in the war economy has, consequently, also changed. The
Four Year Plan decree is very brief and does not give any concrete indication
of the course of the cartel policy. It runs:

The realization of the Four Year Plan, which I promulgated at the party
conference for honor, requires a unified direction of all the forces of the
German people and a rigid concentration of all the competences of party and
state.
I entrust the carrying out of the Four Year Plan to Prime Minister
Colonel-General Goring.
Prime Minister Colonel-General Goring will issue the measures necessary for
the performance of the task assigned to him, and to that extent he has the
right to issue executive decrees and general administrative regulations. He
is entitled to hear and to give orders to all authorities, including the
supreme federal authorities, to all offices of the party, to its organs and
affiliated organizations.

The aim of the Four Year Plan is necessarily in contradiction to the
traditional character of the cartels. For the essence of the cartel economy,
the very reason for compulsory cartellization, is the restriction of
productive capacity. For this reason, cartel organization was rejected by
many leading German industrialists. Dr. Schacht, for instance, stated as
early as 1903 that 'cartel means stagnation. Trust means progress and
production. Cartels are nothing but mutual associations for the assurance of
profit.'[15] Schacht conceived cartels to be organs of a declining economy
and incompatible with an expanding economic system. The goal of the Four Year
Plan' on the contrary is increase in output and productive capacity and the
full rationalization of German industry.

This very antagonism between the official aim of the economic policy and the
traditional policy of the cartels found expression time and again in
outbursts by National Socialist leaders. At a meeting of the federal peasant
organization on 27 November 1938, Secretary of State for Agriculture Backe
expressed a preference for vertical forms of organization, in other words for
full trustification. Only such forms, he said, could solve Germany's economic
problems.[16] An even more significant statement was made by Dr. Rudolf
Brinkmann, secretary of state in the ministry of economics, on 21 October
1938.[17] His programmatic speech viewed the whole economic policy, the
relation between the state and the economy, with unprecedented clarity.
Brinkmann began from the assertion common to all liberal theory, that the
state and the economy are two different systems with two different spheres of
influence, two different tasks, and two different organizations. The economic
policy of Germany was not that of mercantilism, although he admitted a
similarity in the methods applied and in the extent of governmental activity
in the economic sphere. National Socialism, Brinkmann continued, believes in
the free personality working within the framework of an order that is not and
must not be bureaucratic. However, he admitted that the state was forced to
create 'a frightening abundance of administrative agencies.' But cartels, in
his view, were equally subject to that evil. 'The more the genuine National
Socialist economic spirit gains the upper hand-and it will be seen that it
does get the upper handthe more readiness there will be for free submission .
. . to genuine economic necessities and many bureaucratic agencies will be
replaced by self responsibility of the economy [italicized in the original].
True socialism, it must be stated, is a fight against arbitrariness and for
true efficiency.' The profit motive is still strong and decisive. Free
initiative, in Brinkmann's view, is bound up with the existence of small and
middle businessmen. But he is forced to admit that small and medium-scale
business is in a state of decline. Powerful private organizations continue to
exist and to use the state sovereignty to solidify their powers. Monopolistic
organizations dictating prices actually live on subsidies paid out of the
pocket of the mass of the people.

>From that point Brinkmann proceeds to a severe indictment of the cartel
system. The stabilization of cartel prices leads, he believes, to a much
greater sensitivity of free prices. It then becomes impossible to secure a
sound relation between bound and free prices. High cartel prices do not
contribute to the furtherance of rationalization. Quota cartels especially,
by rigidly fixing the output of cartel members, compel their most
rationalized members to work on unrationalized lines. Worst of all, in his
view, is the fact that in a period of full employment, the cartel system
prevents the automatic and complete reduction of the costs of production,
hinders a higher standard of life for the mass of the people, and prevents
the rise of a new generation of entrepreneurs. If the cartel system continues
to fail, the state will have to resort to sterner measures. It will not
nationalize industry, because National Socialism believes in a 'spiritual'
and not in a 'materialistic' nationalization of the economy. That is why the
state has retransferred to private corporations its holdings in private banks
and in United Steel Trust. But the state must assume additional
responsibility if the drive for high productivily and for the full
utilization of all available resources is not to be hampered by the cartel
system.

CARTELS AND GROUPS

Cartels have indeed become the organs for attaining full employment with the
collaboration and under the pressure of the state. They have become so
because now more than ever before they are simply the mask hiding the power
of the industrial empires, which have thereby secured control of the
political structure of business.

We have already mentioned that the corporative organization of business was
stopped because the cartels used the new ideology for exterminating outsiders
and extending their net over whole branches of industry and trade. Some
National Socialist commentators have expressed their hatred of the 'process
of degeneration and falsification caused by the corruption of the state by
the cartels'.[18] Though the corporative organization has been stopped, the
delivery of the political organs to the cartels still goes on. One point of
supreme significance has to be remembered in discussing the relation between
business and its political organization. In the cartel organizations, in the
trusts, in the combines, and in the joint stock corporations, the leadership
principle does not prevail. In all these organizations, the majority decides.
But in the cartels the majority is not a majority of the members, but one of
quotas, either of production or of sales quotas. The bigger the quota, the
bigger the voting power.* By logical necessity, therefore, cartels are
dominated by the biggest members. It is they who use the semidemocratic form
of the cartels for seizing control of the political organization of
business.[ See below, P. 274-]

This situation has often been criticized. In fact, no facet of the economic
organization has received so much attention as the power that the cartels
exercise over public, political, estate, corporate, selfgoverning or
autonomous bodies of business. 'It is true that in the trade associations
[groups] the known identity of the personnel of trade associations and
cartels has played an exceptionally important role and has, in practice, had
the result that the influence and power of the public organizations which
should not regulate the market, has been utilized to strengthen the private
power of the cartels'so writes the Frankfurter Zeitung.[19] One of the best
observers of structural changes in the National Socialist economy comes to
the conclusion:

There appears to be a union between trade associations and cartels, which
implies that the organization in its lower and therefore in its decisive
stage is bound from the very beginning to the furtherance of existing
cartels. The present state has seriously weakened the position of the
outsiders, since the leader of the trade association thus has authority as
the representative of a compulsory organization and so contributes to the
strengthening and domination of the cartel. Cartels have sometimes been
directly organized by the groups [electrical industry and automobile trade]
in order to be able to carry out cartellization measures. This procedure
seems to have begun particularly in various sections of trade which were not
previously cartellized.[20]

Time and again has the complaint been received that the cartels dominate the
groups and not vice versa.

The groups have obtained a number of rights over the cartelsand that
constitutes primarily what the Germans understand by 'ordering of the
market.' The groups are entitled to obtain information from the cartels, to
examine their prices, quotas, and sales conditions, and to veto all cartel
decisions that are contrary to the economic principles evolved by the groups
or by the federal government.[21]

But the distinction between the regulation and the ordering of the market
becomes less and less tenable since the groups 'may almost daily'[22] enter
into marketing activities with the consent of the minister of economics, and
are, besides, vitally concerned with questions of foreign trade, which
certainly comes within the scope of market regulation.

So the groups have, indeed, become supervisory organs of the cartels, but at
the same time some have also turned into cartels: it is therefore almost
impossible to state where the task of the one begins and the other ends. One
fact, however, remains decisive: it is still the cartel which, through
interlocking personnel, rules the group.

As a result of this development, the federal minister of economics found
himself compelled to issue a ruling demanding 'as far as possible' a
separation of the functions of group and cartel. The statute Of 27 February
1934 forbade the groups to engage in marketing activities, and the ruling Of
2 July 1936 insisted that the cartels should avoid confusion with the groups.
The famous reform decree Of 12 November 1936 insisted that the offices of
group and cartel leaders and managers should not remain in the same hands, in
order 'to secure their impartiality.' The minister ordered the national
economic chamber to report to him up till 1 April 1937 how far there was
still the same personnel occupying the leading positions in the groups and
cartels, and whether this identity of personnel was necessary. It is
characteristic that nothing further has been heard of the reports of the
federal economic chamber. The minister's ruling adds that the groups, 'built
upon compulsory membership and the leadership principle, with their general
economic tasks, stand above the marketing organizations and not beside them.
I therefore intend to enlist the aid of the organizations of industry for
supervising the marketing organization, which, up to the present, has been
carried out by myself. This applies to the groups and chambers. The
selfgovernment of industry shall feel itself responsible for seeing that the
marketing organizations, in all their measures, act in accordance with the
economic policy of the federal government.'[23] Groups and chambers have
indeed increasingly become supervisory agents of the state but their control
by the cartels and trusts has not been lessened-on the contrary, it has been
strengthened. The iron law of capitalistic concentration and the requirements
of war have been far more powerful than the pious hopes of the minister of
economics. For it is during the war itself that the intertwining of cartel
and political authority has become more intensified and widespread than ever
before. We have already discussed the composition and tasks of the
distributive bodies that allocate raw materials and semifinished products to
consumers.* Although the distributive agencies are juristically organs of
public law and agents of the Reichsstellen, they are either legally or
factually identical with the cartels. The wish uttered by the minister of
economics and by many wellmeaning critics was incapable of fulfilment in the
face of the cartel system. Today the most important politico-economic
activity in Germany-the allocation of raw materials-is entrusted to private
organizations run by powerful monopolists.[ * See p. 257.]

This is not all. German industry has sought to strengthen the organizational
ties between the cartels and the groups. Two examples will indicate the
trend. One of the most recent and comprehensive cartels is the German salt
union.[24] The statement announcing its establishment says that the charter
of the cartel introduces the leadership principle, adding however that the
leader is elected and not appointed from above. The charter provides that the
leader of the branch group covering the salt industry would automatically
become the deputy leader of the cartel. In this case the close relation
between cartel and group is accepted even in the charter of the cartel. Only
one case known to the present writer shows an apparently genuine
subordination of the cartels to the groups: the glass industry, which, owing
to the incorporation of the most progressive European glass works of the
Sudetenland, was faced with complete disruption. In order to bring order into
the chaos, the federal deputy for the glass industry organized a glass
trustee-corporation, which assumed leadership over all cartels and over the
whole glass industry.[25]

It is not surprising that, owing to the subordination of the political
structure of business to the cartels, the cartels have received a new name.
They are alleged to represent a completely new type of organization.[26]

The cartellization of German business is almost complete. Cartels are fully
recognized. They exercise public political functions but are nevertheless
exempt from the political leadership principle and remain under the control
of their own members. Statistics of the numerical growth of the cartels mean
nothing. Between the outbreak of the present war and December 1940, twenty
new cartels were set up and between twenty and thirty dissolved.[27] These
data are meaningless because they do not take into account the
rationalization of the cartel system, the incorporation of smaller into
larger cartels, the increase in size due to the incorporation of the
Sudetenland, Austria, and the Protectorate. Though the number of cartels has
not greatly increased, the range of activity of these cartels has become
complete.

3. THE GROWTH OF MONOPOLIES

Who in turn rules the cartels? Are the cartels democratic organizations of
approximately equally powerful businessmen? Definitely not. They are much
more the democratic mask that the industrial magnates use to disguise their
autocratic powers. Behind the powerful cartel movement there is a still more
powerful trend of centralization, which has reached a scale never dreamed of
before. The cartel structure is not democratic but autocratic. Cartel
decisions are reached by a majority of quotas and not of votes. In the Upper
Silesian coal syndicate, for instance,[28] 100,000 tons of production give
one vote. The production in 1928 amounted to 26,000,000 tons, shared by four
works, each producing between four and five million tons, by five works each
producing between one and two millions, and by one work producing 200,000
tons. Of the 260 votes therefore, the four big works alone disposed of about
180 votes. This is not at all an extreme instance.[29]

The process of monopolization has received an enormous stimulus from a large
number of factors. The study of structural changes seems to indicate that
there is scarcely any economic measure, of whatever nature, which does not
ultimately conduce to concentration and centralization.

In particular, the following factors are vital in that gigantic process:
Aryanization; Germanization; technological changes; the weeding out of small
and medium-scale businessmen; and the corporate structure. Apart from these
factors, each of which will be discussed, there is inherent in the
bureaucratic structure of state and of business and in the scarcity of
numerous materials a trend toward the encouragement of the big and
destruction of the small. The state bureaucracies prefer dealing with one big
business or with a few big businesses instead of with hundreds of small and
medium businesses, which have many divergent interests. If a system of
priorities has to be established, if raw materials have to be allocated, the
big businesses will inevitably fare better than the small enterprises, and
the 'mixed combines,' which have their own raw-material basis, better than
the 'pure' ones. It is obviously more important to secure the supply of a big
corporation employing thousands of workers than to keep a smaller factory
running.

This tendency will be more marked the closer the relation between business
and the state, provided that, as in the case of Germany, big business runs
the cartels and the groups.

ARYANIZATION

The role- of Aryanization has already been mentioned.* National Socialist
observers admit that the acquisition of Jewish property played a considerable
role in the expansion of the industrial combines, and that, in the textile
industry, for instance, it even gave rise to new industrial combinations.[30]
The beneficiaries of Jewish industries have, without exception, been the most
influential industrialists: Otto Wolff,[31] Friedrich Flick,[32] and
Mannesmann.[33] The profits that thus accrued to the new owners apparently
stank to heaven. A special decree had to be issued for the taxation of
profits resulting from Aryanization. But this decree does not seem to have
gone far enough. A special ruling of the minister of finance, on 6 February
1941, demanded the retroactive taxation of 'special cases of an especially
aggravating kind.'[34] Specific cases in which the profits are considered
excessive are thus to be reopened by the tax authorities, but the ruling
explicitly prohibited any reopening of the general problem of profits derived
from Aryanization.[ *See pp. 116-19.]

GERMANIZATION

Still more important is the increase in the power of the industrial combines
which accrues by including within their orbit all business in the conquered
territories. A full survey would almost certainly bore the reader. Some of
the techniques have already been mentioned before, the most important being
the use of the cartel. The process is by no means complete. Only the surface
of business in the conquered territories has as yet been touched. It is not
only the Hermann Goring works which benefit from conquest, but also the
industrial magnates. Two examples will show the extent to which private
property secures the benefits of conquest and the domination of German
capital throughout the realm of Europe. One is the establishment of the
'Continental Oil Corporation' in Berlin,[35] which has been called 'a model
of a future organization of an enterprise.' The corporation is a holding
corporation for all those oil interests outside German territory proper that
Germany has already acquired or may acquire in the future. The official
report remarks that the acquisition of the Rumanian oil holdings from French
and Belgian holders is soon to be expected. The promoters[36] are the most
important German banks and oil corporations. Two of them are state-owned
corporations. The initial capital of the corporation is 80,000,000 marks, and
this may be increased to 120,000,000 marks; 50,000,000 marks are divided in
personal shares carrying plurality votes, 30,000,000 in bearer shares to be
sold to the public. The personal shares, which are to be kept by the
promoters, grant 50 times more voting power than the bearer shares, so that
the domination of the promoters over the corporation cannot be broken even if
the capital were increased to an inconceivable extent. The supervisory
council of this new corporation reads like a list of the new German elite.
Its members are representatives of the party, the Secretaries of State
Keppler and Neumann; of the military bureaucracy, Generals Thomas and von
Heemskerk; representatives of the civil service, of the natural oil and
synthetic oil producers, of the coal and lignite industry, of the banks, and
of the groups. It is headed by Minister of Economics Walther Funk. The
supervisory council is therefore an amalgamation of industrial leaders, high
party leaders, representatives of the armed forces and of the ministerial
bureaucracy. The task of the new corporation is 'to control the production,
utilization, and transportation of [Germany's] oil needs' (Frankfurter
Zeitung). The National Socialist commentators are full of praise for this new
body, especially for the collaboration between the government and business.
They prefer it to the old form of a mixed corporation, in which public and
private capital jointly entered into specific economic undertakings. They
believe that by giving the government influence in the supervisory council,
this organization can be made better to serve the interests of Germany than
through the capitalistic interest of the government. They forget that this
corporation, which, according to its charter, does not and will not drill oil
wells in Germany proper and does not and will not produce synthetic gasoline
in Germany so as not to compete with the German oil producers, is solely
concerned with the exploitation of oil in the conquered territories, acquired
by the labor of the German workers and the blood of the German people. The
profits accrue solely to this giant corporation in which plurality votes are
an absolute guarantee of the power of the capitalistic promoters.

As characteristic is the distribution of the French heavy industry in
Lorraine. The five blocks: Heckingen, Rombach, Carlshutte, Kneuttingen and
Hagendingen, have been equitably distributed among five German combines:
Stumm, Flick, Rochling, Klockner, and the Goring Works. The five
industrialists are, it is true, at present merely trustees. But the official
announcement adds that the trustees will have the opportunity to acquire
their trusts after the establishment of peace.[37]

TECHNOLOGICAL CHANGES AND MONOPOLIZATION

Germanization and Aryanization opened up new fields for the centralizing
trends of German business, but they are not the real source. Monopolization
is primarily the result of profound technological changes made since about
1930.[38] We may go so far as to maintain that the technological changes
during the past ten years have been of such an extent and profundity that
they deserve the name industrial revolution. The basis of this industrial
revolution is the new chemical processes.

In German industry, mixed plants, that is, a combination of iron and coal,
mining, metallurgy, and engineering, were always decisive.[39] Coal was and
is the basis of industrial production, and each steel mill, each big
machine-tool construction plant, fought for a coal basis. Very soon the new
methods of coal processing made the acquisition of a coal basis a vital
concern of the chemical industry.[40] The heavy industries were
overcapitalized-we have continually stressed this fact. Their expansion, even
their further existence, was conditioned by state help and by the
introduction of new technological processes. State help was readily given
between 1930 and 1933. We have shown that the maintenance of the cartel and
tariff structure during that period and directly afterward by subsidy
amounted to saving the industrial structure. The new technology provided the
second outlet for progress. But it did not start in the state bureaucracy; it
originated within the very mechanism of capitalistic production, refuting the
belief of those who hold that capitalism has lost its dynamism. While,
however, the new technology originated within that mechanism, it could not be
utilized within it. The initial costs involved are tremendous. The financial
risks that an enterprise shoulders when, for instance, it embarks upon the
construction of a new coal processing plant are considerable. The investment
may be completely lost, or no returns may be expected for years. It thus
follows that only rich enterprises, preferably those that engage in diverse
economic activities, can risk such new investments and engage in new and
untried processes. But once a process has started in one combine, others are
compelled to follow suit. One instance may clarify the situation. The leading
potash combine, Wintershall, a powerful and rich enterprise, embarked upon
the erection of a coal hydrogenation plant at a time when the risks involved
were extremely heavy. It could afford to do so, because its activities were
extremely diversified (potash, coal, oil, lignite, and munitions). The
Thyssen combine, however, primarily a metallurgic concern with a coal basis,
was near financial collapse when compelled to start a hydrogenation plant of
its own (Gelsenberg-Benzin). Its financial position became so difficult that
it had to surrender its Austrian holdings to the Hermann Goring works,
thereby preparing for the expropriation of all Thyssen's holdings after his
flight from Germany. This example may make clear why, on the basis of so
monopolized an economic system, huge new investments often cannot be made
without state assistance. For that reason state assistance was demanded by
German industry and that demand was fulfilled by the National Socialist
state. True, the state gave it with reluctance: 'The endless claim for Reich
guarantees is a downright testimonium paupertatis to private initiative and
to private business's willingness to bear responsibilities. There surely
remain today and will remain in the future tasks that may not be undertaken
or carried out but as collective tasks. In the fulfilment of such tasks,
private business must be given a big share. Besides this, however, a vast
domain in which private business and the private businessman can exert their
efforts will not only be preserved, but in addition found anew to the very
largest extent after the war.' That is the view of Minister of Economics
Walther Funk.[41]

The new methods of processing coal, wood, straw, nitrogen, oil, and metals,
are the central features of the new technology and they all require
considerable investments. Moreover, the results of the new technology are
often unpredictable. Chemical synthesis is the transformation of the
structure of high molecular combinations, in order to produce new substances
in which the molecules, though of an identical atomic composition, comprehend
differently constructed groups (polymers), that is, different chemical bodies
with different chemical properties to be used for different manufacturing
purposes. Polymerization is carried out under a pressure of hundreds of
atmospheres, by an extremely costly machinery, and with uncertain results.
The financial expenditure involved leads in the first place to a complete
concentration of all chemical industries all over the world. As a second
consequence, the combines entering those new fields claim and receive
governmental support, thereby strengthening and enlarging their power.

But this very process also increases the power of all those combines that
control coal. Coal is used for gasoline and oil production.[42] for the
manufacturing of synthetic rubber (Buna),[43] and for the production of
plastics, and it is also indispensable in making any other synthetic
material. Coal, once an abundant commodity, has become a scarcity.

The new chemical processes have allowed the motorization of the transport
system and have. thereby provided the requisites of the lightning war. They
have necessitated an enormous expansion of the machine-tool industry,[44] and
at the same time have in turn compelled the introduction of considerable
further technological changes, namely the replacement of heavy steel by new
light metals. The result is, to take one example, that the weight of a Diesel
engine Of 50 h.p. could be reduced from 175 kilograms per h.p. to a mere 60
kilograms per h.p.[45]

There are, besides, many technological changes that, although not new, have
now assumed considerable proportions. We have already mentioned the glass
industry, which, in the judgment of a very careful observer,[46] is
undergoing a second industrial revolution. The entire textile industry has
been revolutionized. Rayon and cellulose wool have taken another great share.
Filaments from straw and potato stalks are now beginning to be produced in
considerable quantities.[47] All this, in turn, has made enormous demands
upon the electrical, iron, steel, and machine industries which have again
expanded .[48] This demand for more and more iron led to the establishment of
the Hermann Goring works, with which we shall deal later.* But private
industry followed and also turned to the exploitation of low-grade ores,
thereby once more changing the metallurgical processes.[ * See p. 298]

We cannot hope to present an adequate picture of the technological changes
and the technological progress achieved. Capitalism has certainly not lost
its dynamism. The era of inventions is not at an end. It is true that
inventions are no longer, let us say, individualistic, and that the inventor
is no longer as a rule a single person but a team of workers who are set to
work for the very purpose of inventing. Nor does a I single invention any
longer change the technological pattern; it is more often a whole series of
interconnected inventions that revolutionizes technology. The technological
changes undoubtedly originate in capitalistic competition, in the necessity
for each competitor perpetually to expand, lest he stagnate or die.
Capitalistic economy, therefore, is not a mere routine, not a mere
administrative technique; its original drives are still operating.

But the decisive difference lies in the fact that the very process of
monopolization and the costliness and uncertainty of technological changes
have made the help of the state indispensable. It is certainly true that the
state could, if it wanted, utilize this situation for nationalizing at least
the new industries. But National Socialism has not done that. On the
contrary, the financial help given for the establishment of new enterprises
redounded primarily to the benefit of the long-established monopolists.
--[cont]--
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris

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