Etatism and Totalitarianism: The Legacy of Mises's Omnipotent Government

• A Liberty Classic Book Review of Omnipotent Government: The Rise of the Total State and Total War, by Ludwig von Mises. Liberty Fund.1

Hayek’s book soon became a classic, and it is still considered a force to be reckoned with. Mises’s book has been less fortunate. Yet it is an important contribution, for at least two reasons. On the one hand, Mises offers his explanation of what made German politics degenerate to the point of trusting her fate into Hitler’s hands.

On the other hand, Mises offers a complex understanding of the consequences of what he calls “etatism” in the international sphere. Mises uses “etatism” instead of statism because that word, “derived from the French état… clearly expresses the fact that etatism did not originate in the Anglo Saxon countries, and has only lately got hold of the Anglo-Saxon mind.”

His critique of interventionism here does not only focus on its unintended consequences, insofar as people’s welfare is concerned. Instead, he identifies some of its broader political consequences.

The world parted from liberalism in two key ways. In a liberal world, “frontiers are drawn on the maps but they do not hinder the migrations of men and shipping of commodities. Natives do not enjoy rights that are denied to aliens.” One may think of perhaps the most extraordinary passage in Pericles’s funeral oration: Athens, he claimed, is open “to the world, and never by alien acts to exclude foreigners from any opportunity of learning or observing, although the eyes of an enemy may occasionally profit by our liberality.” That sense of openness as an essential mark of a liberal polity is central to liberalism in Mises’s view (though of course he had a more inclusive understanding of political right). For him, embracing liberalism would be the only effective guarantee of world peace: any other solution than embracing free trade and open borders is bound to develop conflict between states.

In his biography of Mises, Guido Hülsmann points out that, as soon as he arrived in the United States and got in touch with other European emigres, he started thinking about what might happen in Europe after the war. In this context, he thought deeply about the problems of the international order. His reflections are a lucid example of the application of the economic way of thinking—and a meditation on the power of economic ideas, which goes beyond the mere sphere of their application.

If Omnipotent Government seems bitter, it does so because Mises thought “etatism” made conflict widespread and potentially unavoidable. “A democratic commonwealth of free nations is incompatible with any discrimination against large groups,” but modern politics thrive on such discrimination—which are apparent in trade and migration barriers. Etatism”must lead to conflict, war, and totalitarian oppression of large populations:” for Mises, it breeds conflict and thrives on conflict. “In our age of international division of labor, totalitarianism within several scores of sovereign national governments is self-contradictory. Economic considerations are pushing every totalitarian government toward world domination.”

Etatism breeds monism and intolerance. “The right and true state, under etatism, is the state in which I or my friends, speaking my language and sharing my opinions, are supreme. All other states are spurious. One cannot deny that they too exist in this imperfect world. But they are enemies of my state, of the only righteous state, even if this state does not yet exist outside of my dreams and wishes.”

“A world parliament elected by the universal and equal suffrage of all adults would obviously never acquiesce in migration and trade barriers,” since the interests of the world poor are those that are hurt the most. Alas, as Mises knows well, such a Utopian dream can hardly be of any use in the world of politics.

The distinctively non-Utopian world which saw the emergence of Nazism is the core of Mises’s study. Omnipotent Government is the ultimate version of a manuscript on which Mises started to work in 1938, as he wanted to explain “The Way of the German People toward National Socialism” (this was the working title). It is closely linked with his 1919 book Nation, State, and Economy, where Mises had explained the rise of German imperialism.

While he was often dismissed as a laissez-faire ideologue, Mises’s explanation is historical and nuanced. He tracks the decline of the fortune of German liberalism and the rise of nationalism, trying to refuse easy and mistaken explanations. While he was deeply pessimistic about the spirit of the age (“It seems that the age of reason and common sense is gone forever,” he wrote to Hayek in 1941), his work attempts to be a logical, cold analysis of what happened.

He maintains it was “very easy indeed to assemble many facts of German history and many quotations from German authors that can be used to demonstrate an inherent German propensity toward aggression”—but that was wrong. “There have been in Germany, as in all other nations, eulogists of aggression, war, and conquest. But there have been other Germans too. The greatest are not to be found in the ranks of those glorifying tyranny and German world hegemony. Are Heinrich von Kleist, Richard Wagner, and Detlev von Liliencron more representative of the national character than Kant, Goethe, Schiller, Mozart, and Beethoven?”

These words were not written lightly and one should not assume that were dictated by an imperfect knowledge of what happened in Nazi Germany.

It is true that the Soviets entered at Auschwitz in 1945 and only then did the world truly realise the extent of the Nazis’ atrocities. But Mises had a better grasp than many of Nazism. After the Anschluss, his apartment in Vienna was searched and looted by the Gestapo, and the inheritance bequeathed to him and his brother Richard by their father was confiscated. For years, as Hülsmann carefully reports, Mises was doing all he could to help colleagues who were stripped of their jobs and academic positions to find new ones abroad. Then he had to leave Austria himself, first for Switzerland and then the United States.

Yet Omnipotent Government is permeated by a profound admiration for German culture and can be seen as an attempt to save it from a prejudice that sees Germany as fated to become a hotbed of cruel nationalism. On the contrary, Germany could have been liberal, as evidenced by the tentative flowering of liberal developments in the middle of the 19th century, but the political debate took a different turn, thereby preparing the scene for the rise of the Nazi regime.

For Mises, the turning point in German history was the constitutional conflict which opened in Prussia when liberal parliamentarians refused to accept the government’s plan for military reform in the late 1850s. The army was understandably a sensitive issue for German liberals, as it was used to suppress the uprisings in 1848-49. The court wanted to strengthen the army to reduce the likelihood of any other revolutionary attempts. The liberals “wanted to wrest the army from the King and to transform it into an instrument for the protection of German liberty. The issue of the conflict was whether the King or Parliament should control the army.” “The struggle against this army bill,” Mises wrote, “was the last political act of German liberalism.”

Not that the liberals actually wanted to prepare the ground for any popular upheaval. “The liberals were resolved to spare the German people, whenever possible, the horrors of revolution and civil war. They were confident that in a not-too-distant future they themselves would get full control of Prussia. They had only to wait.” Mises describes the German liberals of the 19th century as fervent believers in public opinion and the education of the masses. They knew “they could not establish popular government within a nation where many millions were still caught in the bonds of superstition, boorishness, and illiteracy.” Thus education, and a strong appreciation for the virtues of a free society, ought to spread precisely among “those strata of the population from which the King drew his reliable soldiers.”

In his narrative of German liberalism, Mises emphasizes the extent by which “the aim of German liberalism was the replacement of the scandalous administration of the thirty-odd German states by a unitary liberal government.”He recognizes a liberal element in the struggle for German unification and refuses to see a linear continuity between Prussianism, German nationalism and National Socialism.

Chancellor Bismarck was hardly a hero of Mises: “Bismarck and his military and aristocratic friends hated the liberals so thoroughly that they would have been ready to help the socialists get control of the country if they themselves had proved too weak to preserve their own rule.” Yet they were not proto-Nazis. If they paved the way for Hitler, they did so in a different sense. The triumph of German militarism, together with the emergence and success of socialist doctrine, changed “the nation’s mentality.” The liberal party, and hitherto liberal positions generally speaking, vanished: at some point “there were no longer any liberal authors in Germany. Thus the nationalist writers and professors easily conquered.” Etatism became popular in all quarters. It was not only the bourgeoisie that bought into Prussian militarism: virtually the whole of German society did, with prominent academics (including the so-called “socialists of the chair” Adolph Wagner and Gustave Schmoller) leading the choir.

Mises’s work is idea-centric: he attaches great importance to the fashions of the intellectual world. Politics is a matter of interests, but the dominant ideas in society make those interests intelligible to the very people who hold them. Ideas anticipate and draw the space of the politically possible. The prevailing ideas, in Germany, brought people to consider their nation as a “closed” economic system and to believe that its success depended upon other governments’ failures. “Etatism” becomes a self-fulfilling prophecy: “the most advanced countries of Europe have poor domestic resources. They are comparatively overpopulated.” As a trend “towards autarky, migration barriers, and expropriation of foreign investments” consolidates, they are bound to experience a severe fall in standards of living.

If “the old liberals were right in asserting that no citizen of a liberal and democratic nation profits from a victorious war,” when you introduce “migration and trade barriers” everything changes. The economy becomes a realm of conflict, not of co-operation. “Every wage earner and every peasant is hurt by the policy of a foreign government, barring his access to countries in which natural conditions of production are more favorable than in his native country. Every toiler is hurt by a foreign country’s import duties penalizing the sale of the products of his work.”

Had Germany adopted free trade and liberalism, these ideas would have gained center stage in continental Europe. But not only it did not happen: the fact that the entire world of politics was openly anti-liberal determined that possible opportunities to move in a liberal direction were never grasped.

A turning point was the end of WWI. “The main argument brought forward in favor of the Hohenzollern militarism was its alleged efficiency.” For Mises the First World War “destroyed the old prestige of the royal family, of the Junkers, the officers, and the civil servants.” By late 1918 “the great majority of the nation was sincerely prepared to back a democratic government.” But the Marxist elements of the Social Democratic Party withdrew their support for democracy, hoping to hasten towards the Revolution. Yet that created the impression that “as the conservatives had always asserted, the advocates of democracy wished to establish the rule of the mob.” Thus “the idea of democracy itself became hopelessly suspect.” For Mises, “the nationalists were quick to comprehend this change in mentality.” Very quickly German politics degenerated into a sort of war between “extreme” groups, Marxist and nationalist: “there was no third group ready to support capitalism and its political corollary, democracy.” Those who thought they were opposing nationalism were “fanatical supporters of statism and hyper-protectionism. Bt they were too narrow minded to see that these policies presented Germany with the tremendous problem of autarky.”

Such an ideological climate, together with the Marxists flirting, made for “a spirit of brutality” that gave “political parties a military character.” “If Hitler had not succeeded in winning the race for dictatorship, somebody else would have won it.”

The time was ripe for something like Nazism to emerge. It was not the support of the wealthy that caused Hitler’s success. It is true that he “got subsidies from big business…. Hitler took their money as a king takes the tribute of his subjects…. The Entrepreneurs preferred to be reduced by Nazism to the status of shop managers than to be liquidated by communism in the Russian way. As conditions were in Germany, there was no third course open to them.”

The Nazis conquered Germany because they never encountered any adequate intellectual resistance. Mises insists that this happened because “the fundamental tenets of the Nazi ideology do not differ form the generally accepted social and economic ideologies.”

Such tenets are (a) an understanding of capitalism as a system of exploitation; (b) the idea a duty existed for the government to substitute control of business for free enterprise; (c) price controls are legitimate; (d) easy money policy has “nothing to do with the periodical recurrence of economic depression,” (e) capitalism does not serve the masses and has not increased their living standards., (f) the only advantage in international trade lies in exporting.

For Mises, what consolidated Nazism was the fact that statism was the hegemonic ideology in the Western world too. Instead of being inclined towards international cooperation and trade, other countries faced Germans in the way the Nazi expected—and that allowed them to grow consensus.

“With regard to these dogmas there is no difference between present-day British liberals and the British labor party on the other hand and the Nazi on the other.” Mises of course does not mean that these groups share the same means of the Nazi, who were “sadistic gangsters”: but that in the 1920s and in the 1930s the dominant intellectual discourse was such as to leave no doubt that European countries saw each other as antagonists in the economic race, and not as potential allies that could gain by cooperating and trading with each other.

It is worth noting that, when the book came out, Hans Kohn, the distinguished historian of nationalism, reviewed it in The American Historical Review. While Kohn considered Mises the last holder of the “belief, current a century ago, that in a world of perfect and unhampered capitalism, of free trade and democracy, there would be no incentives for war and conquest,” a faith that he considered “utopian,” he valued Mises’s liberal warnings in an age of collectivism. Furthermore, he thought Mises presented his analysis of German nationalism “with cogent arguments, with many illuminating references and in a brilliant style.”

Mises’s liberalism in this book is, as always, adamant. “It is a delusion to believe that planning and free enterprise can be reconciled. No compromise is possible between the two methods. Where the various enterprises are free to decide what to produce and how, there is capitalism. Where, on the other hand, the government authorities do the directing, there is socialist planning.” But it will be wrong to take this for an uncritical endorsement of “real world capitalism.” He sees the emergence of a businessman’s syndicalism (crony capitalism, we would call it) as “something like a replica of the medieval guild system. It would not bring socialism, but all-round monopoly with all its detrimental consequences. It would impair supply and put serious obstacles in the way of technical improvements. It would not preserve free enterprise but give a privileged position to those who now own and operate plants, protecting them against the competition of efficient newcomers.”

Omnipotent Government may be seen by some as an overly economistic attempt to make sense of totalitarianism. Indeed, there was more to Nazis than their system of price controls. But it is precisely for this reason that it is such a fascinating read. Brutality, hatred and the pride some political groups take in aggression are traced back to a flawed understanding of the world, propelled by their rejection of liberalism. Omnipotent Government is a testimonial to the power of the economic way of thinking and to Ludwig von Mises’s analytical power.

Footnotes

[1] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War. Edited with a Foreword by Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011). Online text available at the Online Library of Liberty at Omnipotent Government: The Rise of the Total State and Total War.