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THE SOCIAL CRISIS OF OUR TIME


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THE SOCIAL CRISIS
OF OUR TIME

by
WILHELM ROPKE

52

THE UNIVERSITY OF CHICAGO PRESS
CHICAGO ILLINOIS


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Translated from the German by

ANNETTE AND PETER SCHIFFER JACOBSOHN

“First Published in Switzerland by
EuceN RENTSCH VERLAG, Erlenbach-Ziirich, 1942
as. Die Gesellschaftskrisis der Gegenwart

THE University oF Chicaco Press, CHicaco 37
W. J. Gage & Co., Limited, Toronto 2B, Canada

Copyright in the International Copyright Union
All rights reserved. Published 1950. Printed in Scotland


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PREFACE TO THE ENGLISH LANGUAGE EDITION

I FEEL particularly pleased and honored that, thanks to the initiative
of the publishers, an American/English edition of this book will
now be available. I want to acknowledge how much I feel obliged
to them. At the same time, I wish to express my warmest thanks
to Mr. and Mrs. Peter Schiffer Jacobsohn to whose intelligence and’
devotion I owe a translation which, in my long but sad experience,
is an altogether rare achievement and which I appreciate all the
more highly as I can well imagine how difficult it must have been.
I have checked every word, and I am glad to say that the English
text not only is an exact rendering of my ideas but also a singularly
successful effort in recording the undercurrents of the language.

The present edition is based on the fifth edition of the Swiss
original (1948), with only slight alterations made for the American
and British readers. It should be borne in mind that this book was
written in the later part of 1941 at the time when Hitler was at the
very height of his triumph, and in the solitude of the Swiss Alps
which were then a small island within a continent swamped by
tyranny. When, on this island, we were never sure whether the
next morning would still see us free, the author felt impelled to
make a desperate effort in spiritual orientation. He does not want
to speak immodestly of himself, but as a sober statement of an
interesting fact he might go as far as to say that the echo of this
book throughout Europe has been as gratifying as it has been
unexpected. Because of its scholarly appearance—which at times
has been deliberately stressed in order to deceive the censors in the
different countries—its dangerous character was discovered too late
for smothering the spreading influence of the hundreds and
thousands of copies smuggled into the “Fortress of Europe.” The
author is proud to have hoodwinked even the clever Dr. Goebbels
for some time.

Only little efforts have been made to change the original in the
course of the several editions which have become necessary since
that time. It was thought that this was a case where it is preferable
to preserve the original text instead of rewriting it so as to create the


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PREFACE TO THE ENGLISH LANGUAGE EDITION

impression as if the ideas had been born yesterday and not in
1940-41. ‘This could be done all the more light-heartedly as the
author is able to refer to other books embodying his subsequent
ideas: Civitas Humana (third edition, 1950, English translation
published by W. Hodge & Co., London), Internationale Ordnung
(1945, French translation, published by Les Editions du’ Cheval Ailé,
Geneva, 1947), The German Question (London, 1946), Die Lehre
von der Wirtschaft (fifth edition, Erlenbach-Ziirich, 1949, French
edition published by the Librairie de Médicis, Paris), Die Krise des
Kollektivismus ~ (Erlenbach-Ziirich, 1947, French and other

translations).
WILHELM ROPKE,

GENEVA, September, 1949.


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PREFACE TO THE SWISS EDITION

Tris book is the result of the reflections of an economist on the
sickness of our civilization and on the manner of its cure. These
subjects have been in his mind for years and have gradually reached
fruition, benefitting from a continual exchange of ideas with friends
and sympathizers whom he can hardly thank enough for their help
and interest. However, to write a voluminous book around these
thoughts always seemed to him so bold an undertaking that he
continued to postpone it with the excuse that he had not yet found
the final solution to many problems nor had his research covering so
many fields of knowledge been completed. However, there comes
a time when such an excuse is no longer adequate and simply
serves to cloak diffidence in facing the public. But the reproach of
inactivity finally tipped the scales.

Yet the author would not have decided to write this book if he
had not become more and more convinced that the world’s mental
confusion had reached such a pitch that even a modest and
inadequate attempt at orientation would meet with appreciation
and serve a useful purpose. Millions are in the position of people
who, buried by an avalanche, have lost their bearings completely
and know .:0 longer whether they are standing on their feet or on
their heaus; in abject terror they dig their way ever deeper into the
snow. It may therefore be assumed that every honest endeavor to
help them will meet with understanding.

There is nothing pontifical about this offer of guidance. It
purports nothing more than that as many as possible should be
spared the years of mental struggle and the diverse errors through
which the author himself had to pass before he attained to the
degree of understanding which he believes himself to possess today.
If he has now made one last effort in order to propagate his findings
to the best of his ability, this still amounts to nothing more than the
expression of the thoughts of a man who also needed orientation,
but had to struggle for it alone. He simply wishes others to fare
better.


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PREFACE TO THE SWISS EDITION

Naturally, we have to ask the reader to co-operate: he must
show good will and share the author’s zeal for unsparing truth and
clarity. The ideas in this book form a closely knit whole and
must be considered in that light regardless of whether this or that
group interest is involved in a welcome or unwelcome manner.
The book would have failed in its purpose had it become a ‘quarry
from which everyone could take whatever ‘struck his fancy, throw-
ing the remainder impatiently or contemptucusly aside. Apart
from that, we must in such cases take comfort from what during
the fatal crisis of the ancient world, fifteen hundred years ago,
Boethius . described as the task of the philosopher: pessimis
displicere.

WILHELM ROPKE;

Geneva, November, 1941.


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CONTENTS

INTRODUCTION
PAGE
The Great Interregnum—Spiritual Collectivization—
The Third Way - - -  -  . . . I

Notes ~~ - - - -  - — — oo. 2

~ PART ONE: INTERPRETATION AND INVENTORY

First CHAPTER: SEED AND HARVEST oF Two CENTURIES -  - 37
The Two Revolutions - - -  -  - - 37
The Aberrations of Rationalism and Liberalism - - 48
Historical “Interference” - ~ ~~ 53
The Cult of the Colossal - - - - - - 6
Notes - - - - - - - - - - 72
SECOND CHAPTER : Political Systems and Economic Systems - 83
Democracy, Liberalism and the Collectivist State - 83
Political Structure and Economic Structure -  -  - 87
Notes - - -  - 10
Tuirp CHAPTER: THE SPLENDOR AND MISERY OF CAPITALISM - 100

The Nature and Historical Achievement of

“Capitalism” - - -  - - - -  - 100
The Liabilites - - -  -  - - - - 113
The Conflict of Interests in the Economy - ~~ 124
The End of Capitalism? - - - - -  - 134

Notes - - - - - - - = -  - 143


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CONTENTS

PART TWO: ACTION

First CHAPTER: ABERRATIONS AND BrinD ALLEys - -  - 151
Loose Thinking - - - - - - -  - 151
Socialism - = - = = = = -  - 153
Society—a Machine - = = = = = - 157
Compatible and Incompatible Economic Policy - - 159
Social Welfare Sea - - 163
Full Employment - - - - - - - - 165
Notes - - - - - - - - -  - 174

Seconp CHAPTER: Basic Questions oF RErForM -  - - 176
The Route—the Third Way - -  -  -  -  - 146
The Tools of Economic Policy - - - - - 184
Political and Moral Prerequisites - = = = I9I
Notes - - - - - - - - - - 104

THIRD CHAPTER: AVENUES OF APPROACH AND EXAMPLES -  - 199
Peasants and Peasant Agriculture -  -  - 201
Artisans and Small Traders - - - - -  - 213
De-Proletarization and Decentralization of Industry - 218
New Trends in Social Policy - - - - - 223
Market Policy (Control of Competition and Restraint

of Monopolies) - - - - - - -  - 227
An International New Order - - - - - 235
Notes - - - - - - - - -  - 243

INDEX =. =e eee ee 255


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INTRODUCTION


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INTRODUCTION

THE GREAT INTERREGNUM—
SPIRITUAL COLLECTIVIZATION—THE THIRD WAY

Ox the steps of the scaffold the hapless Louis XVI is supposed to
have said: “I have seen all this coming for the past ten years.
How was it possible that I never wanted to believe it?” There
are but few people in the world today who would not whole-
heartedly say the same of themselves; there are, in fact, none except
those who saw nothing of the sort coming because they lived blindly
from day to day, and those who not only saw the disaster approach-
ing but also disdained to silence their own pessimism with cheap
words of comfort. Sooner or later, however, they were bound to
be seized by the feeling that the ground was rocking under their
feet and thus all became ready for the question which had since long
occupied the thoughts of those whose soul or body had first been
affected by the convulsions of our civilization: what uncanny
disease has invaded our world and what exactly has been happening
in those countries which have already succumbed to it?

As nothing happens without sufficient cause it must surely be
possible to find an interpretation. and explanation for this
catastrophe, offering sounder reasons than just coincidence, stupidity
and malevolence. As the vast dimensions of the rupture became
increasingly evident and one could no longer avoid the impression
that the fissures reached deep down into the foundations, it appeared
necessary and natural to detach oneself from the ever changing
vicissitudes of the moment and to consider oneself more consciously
the heir of an age-old civilization which now seemed more and
more openly jeopardized. Becoming accustomed to seeing ourselves
in perspective against the majestic background of history we have
learned to turn our thoughts to ultimate values, origins and
“constants,” and to ask ourselves: Where do we stand? Whence
do we come? Whither are we drifting? What are we? What is,
and even more, what should be our goal? |

In this manner a growing number of people have learned to
view this world of ours, so sadly out of joint, from a viewpoint
which lets the incidentals recede behind the essential, the variables
behind the constants, the ephemeral behind the permanent, the
fluctuating behind the durable, the fleeting moment behind the
era; and our own unimportant personality behind the responsibility
which we bear towards society, towards the heritage of the past
and the promises of the future. We are experiencing the despair

A

~~


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2 THE SOCIAL CRISIS OF OUR TIME

of one who has gone astray, and to be told the way is almost more
important to us than to be given bread.

Just as the space surrounding us has shrunk and we are con-
stantly aware of the earth as a whole, as something familiar and
intimately affecting us, the historical distances, too, have been
foreshortened in our minds, so that the distant past seems to reach
forward into the present and more than ever before do we consider
ourselves the last member of a continuous chain. “The Burden
of Three Thousand Years” (Goethe) has become an integral part
of the life of every thinking person today. We are continually
looking back on the various stages of our civilization, Miletus,
Jerusalem, Athens, Rome, Florence, Paris, London or Weimar;
we thrill to the dramatic spectacle of the ship of progress threaten-
ing to founder on so many rocks and yet, by a veritable miracle,
always regaining its course, and anxiously we ask whether this
miracle will be repeated today, or whether the inevitable end is
now approaching for the development which began with the
Ionians during one of the greatest moments of world history. On
the other hand, we can now recognize more clearly the cross roads
in the course of history where the wrong path was taken which
finally led us to the present. To the same extent to which we are
consciously reliving the passage of our own civilization through
the ages, we gain a clearer understanding of the general possibilities
and prerequisites for human civilization and society by studying
the experience of other civilizations and the remotest origins of
mankind that prehistoric research, ethnology, and anthropology are
gradually revealing to us. What we learn here tends to strengthen
in us a feeling which divides us as much from the nineteenth
century, drunk with progress, as it links us with the eighteenth
which is constantly growing in our estimation, a feeling, namely,
that we represent by no means the dizzy summit of a steady develop-
ment; that the unique mechanical and quantitative achievements of
a technical civilization do not disembarrass us of the eternal
problems of an ordered society and an existence compatible with
human dignity; that these achievements complicate rather than
facilitate the solution of these problems; that other civilizations
have come nearer to the answer than we, and that throughout the
centuries and civilizations the range of human potentialities has
remained surprisingly small notwithstanding radio and motion
pictures. The sun which shone on Homer is still smiling on us,
and all the essentials around which life revolves have remained
equally unchanged—food and love, work and leisure, religion,
nature and art. Children still have to be born and raised, and
we may surely be permitted to presume that other times, without
radio and motion pictures, have done better than we in this
respect.


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INTRODUCTION 3

The shock would hardly have been so great if it had merely been
a question of a slow and gradual decline. Ours has, however, this
in common with most historical crises, and even with an ordinary
economic crisis, that we have suffered a headlong downfall from
heights never reached before and considered completely safe. The
saying, “It is only a step from the Capitol to the Tarpeian Rock”
also applies in history. It is first of all true in a narrower and
more familiar sense in that the outbreak of the economic and
political catastrophe at the end of 1929 had been preceded by a
period during which the postwar hangover had been effectively
displaced by exceptional world-wide recovery and an excess of
optimism. But the maxim is also true in a much wider sense if
we consider this crisis as a general crisis of civilization beginning
in August 1914, and then look back on the preceding hundred
years. We shall then realize with astonishment that this unique
period between 1814 and 1914 was predominently a century of
peace and at the same time the century of liberal capitalism, and
this century, whose spirit of progress, order, stability, and increasing
prosperity is unequalled in history, is succeeded by a period of
disruption which in turn surpasses most of its historical predecessors.
Truly a sudden descent from the proud pinnacle on which the
nineteenth century—despite the predictions of a few far-sighted
prophets—had felt so secure! An understanding of our times is
therefore impossible unless we first gain a reasonably accurate
picture of what exactly took place beneath the deceptive cloak of
peace and progress in the period between Waterloo and Sarajevo.
Unless we choose to look upon the World War and all its con-
sequences up to the present as an utterly stupid historical coinci-
dence, there can be no doubt that it was the result of conditions
created in the period immediately preceding it, and during the
final quarter of the last century the atmosphere had indeed become
more and more stifling. But how, we may well ask, was it possible
that the calamitous conditions for a world crisis would arise in such
a period of order, peace, freedom, and general prosperity?

These are the questions that are besetting all of us and to which
we are the more anxious to find an answer since we know that
it will not only provide the key to understanding the present,
but will also help to open the gate to a better future. Here, as
everywhere else, no treatment is likely to succeed without proper
diagnosis, and even the very understandable impatience of those
who expect from us an immediate and detailed plan of action
cannot change our fundamental conviction. And yet we cannot,
alas, hope to find an easy and simple answer. On the contrary,
it is likely to be so exceedingly complicated that we must not be
surprised at the ensuing general perplexity, but must rather rejoice
if we seem to be making any progress at all in our quest for a


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4 THE SOCIAL CRISIS OF OUR TIME

solution. In fact, all simple explanations are bound to fail and we
are no less suspicious of those whose diagnosis consists of mono-
tonously repeating the same formula than of those whose thera-
peutics are based on a single patent medicine. For a decade we
have now been observing the best intellects of all countries at work
producing an interpretative literature which is gradually assuming
immense proportions, and it is most encouraging to see that this
analysis has led to a progressive ripening of our ideas.

In the course of this process former contrasts are being gradually
smoothed out, and a regrouping of old fronts and a growing
unification on a new wide front can be observed, a front uniting
all people of good will and foresight who are disregarding differ-
ences which have become unimportant. Now that we are searching
for ultimate truths, we are glad to discover a continually surprising
similarity in our findings which in itself proves the correctness of
one of the most important of these findings, namely, that there are
fundamental truths on which all men are agreed and that there
are courses of action corresponding to them which are therefore,
so to speak, “natural.” When not abandoning themselves to the
ecstasy of mass intoxication, people know after all very well what
is healthy and what is unhealthy, what is strong and what decadent,
what is just and what unjust, what is legitimate and what against
the law, what is in keeping with the nature of man and what is
not. If they do not know it yet they will sooner or later discover
it, when they have awakened and become mature.

And men also remember—to quote Lichtenberg, one of the wise
and loveable figures of the eighteenth century—that one has to
believe in certain ultimate values because it would be absurd not to
believe in them. I know, at any rate, of no other explanation for
the exceedingly comforting and cheering experience that as soon as
one has found the right word and has given clear expression to the
general feeling, one meets a measure of consent which is an ever
recurrent surprise, and discovers the existence of a great invisible
community of people who feel and think the same, a community of
men of good will which extends across all classes, strata and group
interests. And we also have to learn again, in case we have
forgotten it under the influence of the radically wrong sociological
doctrine of the nineteenth century, that men’s actions are not
exclusively, and not even predominantly, determined by their
class interests, but at least as much by general and fundamental:
emotions and concepts of value which unite them beyond all barriers
of class and group interests and without which society and state
could, in fact, not exist, and to which one need only appeal to
evoke an echo: they are a simple sense of justice, a desire for
peace, order and unity; a love of the native soil; a feeling of affinity
with the national cultural -and historical traditions, readiness for


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INTRODUCTION : 5

sacrifice, helpfulness, chivalry and fairness." It is to this we point
when we are asked how on earth we expect any group interests
to support us if we propagate a plan of action which seems to be
so contrary to all interests that it is bound to incense now the
industrial monopolies, now the trade unions, now this association
and now that. In fact we can pay back in like coin by saying
that this question seems to spring from a form of sociology which
is not only narrow-minded but has been strikingly refuted by the
experiences of the most recent days. He who continues to dispute
this, has simply not grasped the main secret of Fascist and National
Socialist success; but that we surely should have learned from them
in the meantime!
*

An exhaustive diagnosis of the world crisis and a thorough
presentation of the appropriate therapy would require a voluminous
and systematic book. For many years it has been my intention to
write such a book, but it seems to. me as if the execution of such
an undertaking deserves more time than the urgency of a pre-
liminary clarification and orientation permits. Not only does a
really thorough treatment of the subject require extremely extensive
preparations which in view of the ramifications of the problems
often exceed the strength and competence of an individual whose
training has been confined to a special field, but also probably
every one of us has the feeling that he is still in the midst of an
unfinished process of clarification in which new outlooks and
insights are continually gained, however firmly the fundamentals
may be laid. Thus the time for the final accounting has not yet
come, and the best we can do at the moment is to give a sort of
interim accounting, which is what in fact we are attempting here.
Although we hope that the following chapters will speak for
themselves and that the attentive reader will be able to recognize
the underlying cohesion of the opinions which make up the whole,
it may yet be helpful to do more and describe, as well as can briefly
be done, the scheme in which the ideas comprising this book are
arranged.

We adhere to the natural division into diagnosis and therapy, \
interpretation and action. And starting with the first, we arrange
the pathological aberrations of our occidental society in two large
groups according to their causes and their symptoms: The spiritual
and ethical group, and the political, social and economic (socio-
logical) group. We must, of course, always bear in mind that both
spheres of the crisis—the spiritual-ethical as well as the sociological —
pervade and influence each other most profoundly, because society,
its many components and manifestations notwithstanding, always
forms a whole in which everything is integrated and interdependent. /


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6 THE SOCIAL CRISIS OF OUR TIME

To fathom the spiritual-ethical aspect of the world crisis means
to assign to our epoch its proper place in the history of thought.
How is it to be distinguished from the preceding epochs and how
did it evolve from them? To find the answer to this question is
obviously exceedingly difficult because the true nature of a period
can be fully appraised only once it has passed. Can one seriously
imagine Lorenzo de Medici one day stopping Botticelli in the streets
of Florence and confiding to him his discovery that they were now
living in the Renaissance, or imagine that Leibnitz was privately
concerned about the period of the Baroque?

The true historical quintessence of the great periods in the
history of thought and culture does in fact not emerge clearly until
afterwards, and thus we, too, can today no more than guess under
what label we and our time are going to be known in history.
But the mere fact that we seem able to venture such a guess proves
that at heart we have already detached ourselves from our time and
are about to overcome it, At present, it seems entirely possible to us
that our age may one day be considered a “spiritual interregnum”
(it may even be called that), the “terrible, the kingless” age of a
spiritual and moral vacuum which was brought about by the dis-
solution and disintegration of all traditional values and norms, by
the drain of one whole century on the cultural reserves. The old
conceptions have been worn out or devaluated, everything has
become soft and flabby, what used to be absolute has become
relative, the firm fundament of norms, principles and faith has
been undermined and is rotting away, scepticism and the “bogy
of ideologies” (H. Plessner) are corroding everything, and the
“warm, uncanny breath of the foehn,” which Nietzsche sensed,
has done its work. ‘Nous vivons du parfum d’un vase vide,”
Renan had said. However, at the moment we can perceive only a
very faint outline of what is destined to replenish this vacuum.
That is why the “makeshift,” the bumptious pseudo-authority of
self-appointed leaders, why nihilism, pure activism and dynamism
striving to drown the meaninglessness of our time, why lack of
principles has become as much a characteristic of our age as man-
kind’s hunger for the definite, the stable and absolute, a hunger as
comforting and touching as it is conducive to the most dangerous
aberrations and perversions.

There is unanimous agreement that we are faced with an
unequalled moral and intellectual decadence, a spiritual chaos, a.
general “abandon des certitudes essentielles” (Henri Massis), a
boundless relativism (which, with involuntary humor, calls itself
positivism), and only the times of the later sophists such as Gorgias

/ or Thrasymachus, who derive the concept of right purely from
- utility, provide us with a historical parallel. We are also com-
paratively clear concerning the process which has led to this result:


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INTRODUCTION 7

it is apparently a cultural retreat where each sacrifice has entailed
others, a continual watering down, a squandering of our inheritance,
a living on our substance, a process which was bound to end in
bankruptcy. That substance was essentially the spiritual and moral
capital which pagan antiquity and Christianity have handed down
to us as their joint heritage.

The Christian element, however, which predominated in this
heritage has, since the beginning of modern times, been subjected
to a continuous process of secularization until finally the power
of faith, which had at first consciously and then unconsciously
nourished the secularized concept of progress, rationalism, liberty
and humanity, began to flag, thus becoming responsible for the
withering of those very concepts, since no alternative sources of
faith and certainty had been provided. Regarding this interpreta-
tion, too, there 1s general agreement today, although it would
still have to be established in detail whether the drain on the
reserves has not been greater in some countries than in others,
and has only reached a really catastrophic point in those countries
where society has already completely disintegrated. The con-
clusions to be drawn from this will vary according to the attitude
of each observer towards Christianity, but everything duly con-
sidered, the differences of really responsible opinion on this cannot
be so very great. Can we seriously agree with Nietzsche’s extremist
view that the time has come “when we have to pay for having been
Christians for two thousand years,” that it is the Christian religion
itself which is to blame for not being able to hold men enthralled
for thousands of years and that it is consequently responsible for
the vacuum which it has finally left behind? This strange applica-
tion of the maxim that “not the murderer but the murdered is to
blame” must needs turn out to be a mere mental radicalism, which
cannot alter the very real fact that the Christian religion is one of
the strongest formative forces of our civilization, which cannot, in
fact, be imagined without it. This realization seems to us to
insure that minimum of affirmation of Christianity which our
cultural responsibility demands. But on the other hand, there
can be no question of artificially “replanting Christianity for the
sake of good conduct” (Jacob Burckhardt), and this illuminates the
full gravity of the present task, of which both theologians and
anti-theologians tend to make light.

We can, however, skirt a discussion of these questions on this—
in any case unsuitable—occasion with a clear conscience, the more
so as we must yet considerably broaden our interpretation of the
process of disintegration and dissolution. Along with the slacken-
ing of the powers of faith and conviction, whatever their origin
may be, people have also lost a certain natural sureness of instinct
and the feeling for what is due to man to such a degree that their


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8 THE SOCIAL CRISIS OF OUR TIME

relationship to the most elementary things—work and leisure,
“nature, time and death, the other sex, children and the succession
of generations, youth and old age, the natural enjoyment of life,
the incomprehensible and the supernatural, property, war and peace,
intellect, emotion and. the community—has been most seriously
disturbed. Men, having to a great extent lost the use of their
innate’ sense of proportion, thus stagger from one extreme to the
other, now trying out this, now that, now following this fashionable
belief, now that, responding now to this external attraction, now
to the other, but listening least of all to the voice of their own heart.
It is particularly characteristic of the general loss of a natural sense
of direction—a loss which is jeopardizing the wisdom gained
through countless centuries—that the age of immaturity, of restless
experiment, of youth, has in our time become the object of the most
preposterous overestimation.

This process of intellectual and moral disintegration can be
observed in all spheres of civilization and is thus impressing its
stamp on every aspect of Western society. The arbitrariness and
vagueness of viewpoints and the accompanying outcrop of virtuosi
and aesthetes, the general loss of style, the lack of respect for
language, the consequent decay of the art of writing and vital
expression, “the expulsion of man from art” (which even such a
clear-sighted critic of our civilization as Ortega y Gasset saw fit
to praise), the increasing emotionalizing, not to say sexualizing of
music since’ the end of the so-called classic period—all of this is
pervaded by a haut gout noticeable even by those who are by no
means used only to simple fare. The effects of this process of
disintegration have, however, been particularly striking and
disastrous in the case of science, for, influenced by inward instability
it has increasingly become a prey to the misunderstanding that all
opinions whatsoever and all decisions based on concepts of value
are incompatible with the dignity of science and must needs com-
prise subjective arbitrariness—commonly known as “ideology.”
The effects of this relativism and agnosticism in science were bound
to be all the more dangerous since it thus eliminated itself as the
leading authority just at a time when the Church had already lost
most of its authority. In this way a vacuum arose which was rightly
felt to be unsupportable and which was finally filled by a form of
pseudo-science and political pseudo-theology, a political theology of
the state which in turn in many countries forcefully transformed
science into a political institution; and it was precisely the spiritually
rootless scientist who was the least able to oppose this develop-
ment. Thus Rabelais’ witticism: “science sans conscience n’est que
ruine de']’dme,” has once more proved true, not only to the spiritual
detriment of the scientists, which need not perhaps cause us concern,
but above all to the detriment of our civilization.


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INTRODUCTION 9

However, here as elsewhere the worst is already over and a
re-orientation has been going on for some time. In science as in:
other cultural spheres a vanguard—perhaps small as yet and by
no means very certain of itself—has long passed the nadir of
decadence but as always in these cases the new spiritual develop-
ment is taking place quietly and far from the noise of the great
stage of the world where the last act of the old drama is still being
played out. However, in accordance with the law of “historical \
interference” (of which we shall speak in more detail later on), the
majority of the public today is still subject to the influence of that
tired refusal to take sides and that vagueness parading in aesthetic
verbiage, which until recently dominated science and literature.
This influence—coupled with sociological symptoms of decadence— -
explains the oppressive phenomenon of a decadent bourgeoisie
which, in its view of history, abandons itself to the cult of historic
pseudo-greatness and is prepared to kow-tow before power and
success, since it has lost all belief in values higher than those of
its own security and comforts and in its cowardice has become
stupid. It is idle to deny the existence of such a decadent liberal- /
bourgeois world, and presumably the time has passed when one
risked being misunderstood if one considered Fascism’s or Com-
munism’s criticism of this world justified. In the meantime we
have witnessed many countries falling victim to this weakness, and
the names of the statesmen personifying it are as yet unforgotten.

*

Whether or not one considers the degenerative symptoms in the
spiritual and moral domain decisive, it is indisputable that they are
extremely important, that they will probably show us the way to
the origin of the world crisis and that in certain countries they
actually point to the explanation of the breakdown. They deserve
first place in our diagnosis, especially when we are dealing with
countries where the sciences of a purely socio-economic kind have
not been striking enough to explain the breakdown—predominantly
middle class and farming countries with a balanced property dis-
tribution where spiritual collectivization had made less progress
than in other countries. In fact, one would not have thought some
of these countries as far gone as they later turned out to be, had
it not been a case of spiritual rather than socio-economic disease,
a “désordre mental” as Henri Massis recently called it. Only
thus, it seems, can we fully explain the emergence here and there
of a plutocratic leader caste which was prepared to capitulate both
at home and abroad—‘‘quanto quis servitio promptior” (Tacitus,
Annals 1 2).

Generally speaking, it is, however, true to say that as the crisis


===== PAGE 22 =====

«,

10 THE SOCIAL CRISIS OF OUR TIME

of Western society is total its causes are also extensive and intricate.
Reference to the spiritual and moral crisis is therefore an inadequate
explanation which must be supplemented by analysing the socio-

logical symptoms of degeneration because both form an interactive

entity. This must also be borne in mind when we turn to the
actual sociological (i.e. the political, social and economic) appearance
of the disease. |

The disease which has been holding Western society in an ever
firmer grip for more than a hundred years is characterized by a
process of social decomposition and agglomeration for which the
term “collectivization” has been coined, a process with which large
circles have become acquainted—in a manner admittedly still in
need of some corrections—through Ortega y Gasset’s book, The
Revolt of the Masses. A healthy society, firmly resting on its own
foundation, possesses a genuine “structure” with many intermediate
stages; it exhibits a necessarily “hierarchical” composition (i.e.
determined by the social importance of certain functions, services
and leadership qualities), where each individual has the good fortune
of knowing his position. Whereas such a society is based on the
grouping functions of genuine communities filled with the spirit of
human fellowship (such as the neighbourhood, the family, the parish,
the Church, the occupation), society has during the last hundred
years moved further and further away from such an ideal and has
disintegrated into a mass of abstract individuals who are solitary
and isolated as human beings, but packed tightly like termites in
their role of social functionaries. The inhabitants of a large apart-
ment house are complete strangers to each other and meet perhaps
for the first time in the air raid shelter, but on the other hand, they
have the closest anonymous relations with the totality of their
fellow men, relations of an external and mechanical kind, as buyers
and sellers, as members of crowds jostling each other, as voters,
as radio listeners and visitors to the motion pictures, sharing the
same acoustic or optic impressions with millions of others, as tax
payers, as recipients of pensions and public assistance, as members
of health insurance societies and this or that centrally organized
association. The place of a genuine integration created by genuine
communities, which requires the ties of proximity, natural roots and
the warmth of direct human relationships, has been taken by a
pseudo-integration, created by the market, competition, central
organization, by “tenementing,” by ballot papers, police, laws, mass
production, mass amusements, mass emotions and mass education,
a pseudo-integration which reaches its climax in the collectivist state.
The more tightly individuals are packed together and the greater
their dependence on each other, the greater is their inner isolation
and loneliness, and there is a direct connection between the grinding
down of society into the sand-heap of myriads of individuals and


===== PAGE 23 =====

INTRODUCTION . 1I

its conglobation into unorganized, structureless and amorphous mass
formations, which provide a luxuriant breeding ground for the mass
instincts and mass emotions which are responsible for the befuddled
and hysterical instability of present day society. :

Pseudo-integration of mass society goes hand in hand with
pseudo-leadership, i.e. in the political, cultural and social spheres
leading positions are occupied by men who cannot legitimately
claim authentic spiritual leadership because, not having attained
detachment from the one-level mass society around them, they are
really part of it both as regards their knowledge and their emotional
reactions, and they owe their leadership positions merely to the
masterly interpretation and handling of these reactions. Through
them mass man—#Aomo insipiens gregarius—himself takes over the
reins, mass man as Ortega y Gasset describes him: with his shallow
popular culture, his entirely baseless and obtrusive presumption,
his dogmatic self-importance, his lack of judgment and his spiritual /
and moral herd life. A century of misinterpreted democratization”
of learning as well as of predominantly intellectual training has, in
conjunction with the crumbling of the hierarchical structure of
society, resulted in a product all of whose features are ultimately
traceable to a lack of reverence, that reverence which—in the sense
of that grand passage in Wilhelm Meisters Wanderjahre (Book II,
chapter 1)—is perhaps the most fundamental element of every
civilization. It is Cicero’s verecundia, sine qua nihil rectum esse
potest, nihil honestum (De officiis, 1, 41). When Leibniz was
writing not more than a few hundred people in Europe rightly
claimed to understand him, whilst the worthy denizens of Hanover
knew him only as “oler Loevenix” (old “doubting Thomas”); and
although the feudal structure of the Germany of those days, based
as it was on exploitation and domination, is open to the strongest
criticism, the intellectual hierarchy which we have described was
doubtlessly sound. Today, assuming the existence of sufficient
interest, Léibnitz’ monadism would be popularized in lectures, books
and evening classes, on the radio and on the sereen, &c., until every-
one had understood the residue of platitudes and was repeating
them ad infinitum—or worse, mass man, spoiled by such successive
popularization and arrogating to himself the high office of cultural
arbiter, would forbid Leibnitz to write such nonsense.

This lack of respect deserves to be placed in an even wider frame
of reference, which may be illustrated as follows. The human body
possesses a complicated and variegated system of reflexes, which
have to function to ensure life’s normal flow and protect it from
all kinds of dangers. If a foreign body enters the eyes, they begin
to water, if it enters through the mouth it is thrown up by the
pharynx, the skin disposes of it by suppurating, and in the intestines
unwholesome matter is removed by peristalsis. Society, viewed as


===== PAGE 24 =====

12 THE SOCIAL CRISIS OF OUR TIME

a whole, presents a very similar picture. It too, must have at its
command prompt and infallible reflexes, which vouch for and, at
the same time, reflect the health of the social organism, and which,
if they become weak, irregular or fail altogether, indicate a patho-
logical condition. They are reflexes of approval and disapproval,
which show us that society is guided by inviolable concepts of value.
‘These reflexes should always begin to function easily and promptly
as soon as we step beyond the wide field of what is permissible and
what can be left to the judgment of the individual, as soon, in fact,
as we enter the border zone where a joke ceases to be a joke. When
such a point has been reached every sign of vacillation and irresolu-
tion, of uncertainty and paralysis is an emphatic warning that some-
thing has seriously gone wrong within the social organism. In a
case like this we speak of a moral crisis, a crisis in legal conceptions, -
or a crisis in taste, but in the last resort we always mean the same
thing, and when we diagnose this condition as moral, political or
aesthetic nihilism we want to indicate that society is in a condition
which corresponds to paralysis in’ the human body. |

All value reflexes of society, both positive and negative, can
finally be traced back to two main reflexes: one of them, reverence,
we know already, the other is unqualified indignation. To have
these two reflexes at one’s command is to possess a scale of values
where the valuable is as securely fixed at the top as the worthless is
at the bottom. Society, knowing instinctively when to doff its hat,
‘must know with equal certainty when to put it on indignantly
without wasting another word. - When it is no longer sure of the
right moment for either, when opinion on ultimate values is begin-
ning to waver, it is time to sound the alarm. The reflexes have
stopped to function and we are faced with the morbid degeneration
of all norms and values, without which no society can exist for any
length of time. With reverence declining at one end of the scale,
unqualified and uncompromising indignation automatically
dwindles at the other. A society is indeed in a bad way if its
patellary reflexes no longer react instantaneously to the bludgeon
blows of broken laws and arbitrary power, of inhumanity, intoler-
ance, cruelty and mercilessness and if that apathy sets in which is
the harbinger of the coming breakdown. The deepest low, how-
ever, is reached when indignation, which countenances no excuse,
is replaced by whitewashing, by morbid interest, by appeals for
“understanding,” by the argument that the end justifies the means,
by cynical rationalizations and snobbish flirtations with the
abnormal. Here Lichtenberg’s words are well applied: where
‘moderation is a fault, indifference becomes a crime.

All this, we feel, is the least that must be said even in an intro-
ductory survey of the process of collectivization in order to prevent
it from being obscured by wide-spread misconceptions. However,


===== PAGE 25 =====

INTRODUCTION 13

it might be just as well to add here that one would be mistaken to
let a wholly misplaced social pride allow one to associate the term
“masses” with low income groups and small property holders. We
are, on the contrary, faced with a sociological process of degenera-
tion which takes place quite independently of the size of income
and has indeed affected least of all those groups, such as peasants
and artisans, who though by no means well-to-do, are comparatively
speaking most securely anchored in fixed conditions. There are
enough mass men at the top of the income pyramid and social
snobbery is precisely one of their characteristics.

What then are the sociological conditions which favour
collectivization?

It will perhaps help to clarify matters if we divide the sociological
factors which further collectivization—the spiritual and moral
factors no longer concern us here—into three groups: into the
demographic, the technological and the political, social and institu-
tional components. Let us then find out what this means and start
with the demographic component, which will probably require least
explanation.

It is obvious that the tremendous and unparalleled increase in
population which took place during the last hundred years—caused
by a “historical interference,” namely the concurrence of the “new,”
i.e. a low, death rate, with the “old,” i.e. a high, birth rate, whose
effects continued to be felt for a considerable time—flooded the
earth with a “mass” in the rough arithmetical sense of the word
which was bound to stamp its mass character on our whole civiliza-
tion. It is this aspect of the population problem which is more
important than all the arguments advanced in this dispute by
economists, statisticians and social hygienists: the flooding of the
West by countless millions of newcomers created an economic,
social and cultural tension which hardly any society would have
been able to withstand without losing its structure and degenerat-
ing into a mass society. The increase was too overwhelming and
came about too suddenly to be assimilated without a break in con-
tinuity and the dissolution of the social and cultural tradition.
Today, more than one example has taught us that a nation can
beget a barbaric invasion from its own midst:

Sewol wAnfos T'avdpibpo
(“Fearful, countless myriads”’—Aeschylus, The Persians).
Even if no other forces had been at work, this unparalleled
spring tide of humanity would have forced upon mankind that

colossal and over-complicated apparatus for catering for the masses,
that orgy of technology and organization, mammoth industries,


===== PAGE 26 =====

14 THE SOCIAL CRISIS OF OUR TIME

infinite division of labor, bloated big cities and industrial areas,
the speed and instability of economic life, that materialist and
rationalist life without tradition, mass production, mass entertain-
ment, centralization, organization, world-wide interdependence,
garish profusion, the constant shuttling of men and goods, the
undermining of everything permanent and rooted, the subjugation
of the whole globe by a mechanical, positivist civilization.

Under the impact of all this and by a process which may be
called “proletarization,” if that term is given a sufficiently wide
meaning, a considerable part of the world’s population has been
pushed into a sociological and anthropological position which is
characterized by economic and social dependence, a rootless,
tenemented life, where men are strangers to nature and over-
whelmed by the dreariness of work. We are faced with a develop-
ment where the demographic component coupled with the techno-
logical and politico-socio-institutional components has exerted its
disastrous influence to the full. It is not only the increase in popula-
tion but also today’s machine technology, the manner of its
application, the forms shortsightedly favored in factory organization,
and finally also certain political and social measures taken by the
state, which are responsible for proletarization having become the
fate of the masses, a fate which threatens the life of our society more
than anything else and condemns millions to an existence which
prevents the positive development of their faculties either as human

eings or as citizens. Their misfortune is no longer thin wage
envelopes or excessive working hours; this stage has long been
passed in the leading countries—which are, precisely, those which
are most threatened by spiritual collectivization—and it is the
peasant and artisan, the opposite of the proletarian, who is usually
worst off with regard to the material aspects of life. No, what
characterizes proletarization is its psycho-physiological side: the
devitalizing effect of the proletarian-industrial way of life and work,
which cannot be improved upon either by higher wages or by
bigger cinemas; the dependence and insecurity which rule out
ownership as well as long-term incomes; the regimentation of labor
which has to be performed anonymously and under the invisible
overseer’s whip of the machine giants, under constant discipline
and as part of an oppressive totality, thus largely losing all meaning
and dignity; a form of existence estranged from nature and an
organic community life, unsuited to man’s constitution and depriv-
ing him of the natural and social integration he needs. In brief,
this is a mode of life, work and habitation which in the physiological
sense is unsatisfactory to the highest degree, and which has never
existed before to this extent. Co |

Proletarization does not necessarily .always exhibit all the

characteristics we have enumerated; rather, we find it in many


===== PAGE 27 =====

INTRODUCTION 15

stages of development and it has affected different population
groups and different countries in varying degrees, and a few have
even been left untouched to a remarkable extent. However, a
country will always have to be considered far gone on the road of
proletarization when giant enterprises and concentrations of property
have made a large part of the population dependent, urbanized
cogs in the industrial-commercial hierarchy, recipients of wages and
salaries, thus bringing about that socio-economic collectivization
with which we are now acquainted. Let us also not forget that
every time an independent livelihood is destroyed, this process is
accelerated and that socialism of whatever kind merely marks its
climax, and this in a twofold sense: it is nurtured by this process
and at the same time it carries the process to its final conclusion.
This holds good to such an extent that the term proletarism can
be substituted for socialism, and that term has, moreover, the
advantage of demonstrating how much socialism is essentially only
the extremist continuation of a development which has already
progressed far under a degenerated capitalist system.

Into this over-all picture of spiritual collectivization, proletariza-
tion, mechanization and centralization all those details have to be
fitted which are known to everyone and which again and again
remind us of the total disease, though it is not always possible to
say with certainty to what extent they are causes, consequences or
merely symptoms. The most serious of them is perhaps the dis-
integration of the family, a concomitant of the general pathological
development and particularly striking proof of how deeply it is
affecting the basis of a healthy human existence and of a well-
integrated society. It has, in fact, created economic and social
~ conditions under which the family—which is the natural sphere of
the woman, the proper environment for raising children and indeed
the parent cell of the community—must needs wither and finally
degenerate into a mere common address, with the reservation that
the contract can be terminated by divorce at any time. Apart from
the as yet unaffected peasant and artisan classes and apart from
those instances where the allotment movement, the revival of peasant
industries and related endeavors have been initiated as remedial
correctives, the family has been degraded to a mere consumers’
~ co-operative—at best, an entertainment co-operative—often enough
without children or, if there are any, without the possibility of
bestowing on them more than a summary education. If those are
right who maintain that in large circles of the bourgeoisie home
education can hardly be said to exist any longer, and if we remember
that, on the other hand, the public authorities—quite contrary tc
Pestalozzi’s teaching—are more and more monopolizing all forms
of education and schooling and thereby influencing man’s develop-
ment in an increasingly one-sided manner, and if we realize that


===== PAGE 28 =====

16 THE SOCIAL CRISIS OF OUR TIME

one¢, viz. the female, half of society, is threatened by this trend in
the fulfilment of its vital functions and thus becomes its real victim,
we can, without exaggeration, describe the decline of the family as
one of the gravest symptoms of the disease of our time. But we
must not forget that mere exhortations and lamentations are as
cheap as they are vain until we concentrate our efforts on changing
those sociological conditions under which the family plainly cannot
flourish. :
We gain a scarcely less melancholy impression when we consider
another aspect of spiritual collectivization and proletarization: the
desolation of rural community life, the decline of the village in
favor of the city, and the urbanization and commercialization of
the open country itself. Nobody who has attentively followed the
development in certain countries can fail to note what is happening
—the decrease in number and influence of the intellectual elite of
the countryside, the decay of communal life in the village, the
degradation of the country to the position of an urban green belt
in both an economic and cultural sense, the increasing destruction
of rural cultural life, &c. - We notice this above all in France, the
United States and England, to a certain extent also in Germany,
whilst Switzerland’s healthy singularity finds perhaps its most
telling expression in the fact that there we see hardly any traces of
such a process of decay but, on the contrary, find that the country-
side has almost completely retained its specific mental and socio-
logical importance, and the lament so often heard, for example, in
France, “Le médecin de campagne, c’est fini,” would cause some
surprise in Switzerland. Those who, unlike the author, have not
experienced this process of decay at first hand will perhaps find in
Louis Bromfield’s novel, The Farm, its best, most powerful and
moving portrayal. Here we may add that the decline of indigenous
~ rural life is usually accompanied by a tendency to polarize men’s
relationship to nature: instead of the balanced interplay between
it and civilization, we have extreme urbanization, completely’
estranged from nature, on the one hand, and on the other, national
parks, camping and nudism, whilst the happy medium—peasantry
and small towns—is vanishing. It is part of the picture of this
disease that the urbanized remoteness of Western man from nature
leads to the extreme of a city-bred, fashionable and condescending
cult of the peasant, which bears the stamp of high-brow artificiality
and which the genuine peasant cannot but find embarrassing. “Rien
n’empéche tant d’étre naturel que I'envie de le paroitre” (La
Rochefoucauld).
*

It is impossible for us at this point to describe, with any claim
to adequacy, the sociological symptoms of disintegration as we


===== PAGE 29 =====

INTRODUCTION oo 17

meet them in the form of spiritual collectivization and its related
processes. However, as the most essential factors have been men-
tioned, we can now turn to the symptoms of the disease in the
narrower sphere of the political and economic systems of the various
nations and thus round off our over-all diagnosis. co

It is so universally obvious that the spiritual-moral and the
sociological crises combined have engendered an extremely serious
crisis in the Western political system, that only a few words need
be added here. On the one hand, symptoms of disintegration and
decay—known as the crisis of democracy—have been receiving
attention in the democratic countries for more than a generation
and increasingly so after the First World War; on the other hand,
a new form of government known as collectivist (totalitarian) has
been gaining ground since the Russian Revolution of 1917 and its
imprint on our time has been so great that there has already been
talk of an “era of tyranny.”

~ The crisis of democracy consists in the dogmatic failure to
understand the limitations inherent in the democratic and liberal
principle, the resulting spiritual collectivization, the arrogance of
vested interests, the fanaticism of minorities. It consists in the
general leveling down which accompanies spiritual collectivization
and leads to “‘plebeianism,” the decreasing understanding of the
requisites of a well constructed democratic state and of the sacrifices
which have to be made for it, the disintegrating effects of the crisis
of the economic system as well as of the policies of economic inter-
vention and planning. All these and a few other factors have
rendered the functioning of democratic institutions increasingly
more difficult, have led to the dissolution of the authority, impar-
tiality and unity of the state and to a weakening of the political
will, which in certain well known cases and situations have
developed into an actual volitional paralysis internally and
externally, and has given free play to various destructive forces. At
the same time growing centralization and bureaucracy have
mechanized the state at the expense of an organic vertical structure
based on federalism or communal self-government, and have thus
repeated in the narrower sphere of constitutional and administrative
problems the levelling process of spiritual collectivization charac-
terizing society as a whole.

We may today count on general understanding if we point out
that that highly disturbing and revolutionary form of government,
the collectivist (totalitarian) state, can be comprehended as essen-
tially arising from the crisis of democracy, but beyond that also
from the spiritual and sociological crisis. If we wish to be at home
in the world of today and not become a prey to grave misunder-
standings, we must keep two things firmly in mind which in
reality are only two aspects of one and the same fact. On the one


===== PAGE 30 =====

18 THE SOCIAL CRISIS OF OUR TIME

hand today’s diseased democracy harbors the germs of the collec-
tivist system, which we define fairly correctly if we call it an
authoritarian and collectivist mass state (plethocracy); the crisis stage
of democracy can thus up to a point be termed “pre-collectivist.”
But, on the other hand, it also follows that it would be totally
wrong to see in the collectivist system the solution of democracy’s
crisis; it is rather the last and most serious result of the crisis, the
climax of the disease which it has introduced into modern mass
society. It would simply amount to an error of 180 degrees to seek
recovery in this quarter.

And finally, as regards the causes, symptoms and consequences
of the total crisis in the sphere of the economic system of the
European-American world, commonly called “capitalism,” we can
be very brief here, too—not so much because in this field concepts
can be assumed to be universally clear, but because this subject will
be dealt with in great detail in the following chapters. To com-
plete our outline it must for the moment suffice to know that the
crisis of the economic system reflects in a particularly striking
manner directly affecting everybody, the general spiritual-moral and
sociological crisis from which it mainly derives. It would, how-
ever, be quite wrong to be reassured by this statement and to
indulge in the delusion that the economic system is only the innocent
victim of destructive forces operating outside it. That is certainly
not the case. It would rather be true to say that the crisis of
capitalism possesses features largely its own so that it is more likely
to be cause than result of the total crisis, if it is indeed at all possible
to distinguish cause and effect in the latter. In other words: the
economic system itself contains sufficient flaws, contradictions and
degenerative features which would have led to a serious crisis of its
own even without the repercussions caused by the total crisis. We
need only recall what has been said above regarding the causes of
spiritual collectivization in order to realize the responsibility a
misdirected capitalism bears for the sickness of our society.

It can certainly not be over-emphasized that ten years ago (1931)
our economic system would not have collapsed in so thorough a
fashion if it had not been for the non-economic convulsions which

‘have been shaking the world since 1914 and under the burden of
which another economic system would probably have suffered a
really irrevocable breakdown at a much earlier date. Yet there can
scarcely be any doubt that sooner or later man would have revolted
against an economic system which, however sound its fundamental
principles, invites a large degree of criticism owing to the way in
which in many countries it has unfortunately been allowed to
develop: its instability; its lack of social justice; the growing oppor-
tunities for monopolistic enrichment and the blackmailing policies
of special interest; the faulty functioning of many individual


===== PAGE 31 =====

INTRODUCTION : I9

markets; proletarization, commercialization and concentration of

power, excesses of speculation and destruction of capital; the

insensate and unnatural way of life imposed on men against which

they finally rebel, driven by a vague feeling of discontent and lured

by nebulous goals. : |
*

Just as the crisis of democracy leads to totalitarianism, the
rebellion against the Western economic system has resulted in the
anti-capitalist movement and its many more or less radical variants,
among them socialism and collectivism. But as the former, far
from overcoming the crisis of democracy, only serves to bring the
sickness of the body politic to a head, socialism too, as the expression
of anti-capitalist mass rebellion, is nothing but a reaction imperiling
everything. It simply follows certain aberrations to their logical
conclusion, and it is certainly therefore not the salvation it pretends
to be. This juxtaposition of totalitarianism and socialism is more
than a mere comparison; the two tendencies are, on the contrary, so
closely interrelated that, as can be proved in detail, they are, in the
last analysis, one. Both—the one in the political and cultural, the
other in the economic and social field—complete the total crisis of
society; both provide anything but a solution: rather, they mark
the outermost point which we can reach in wandering away from
the answer to the problem.

We certainly do not pass this judgment on socialism because we
delight in the provocation and still less because we are out of
sympathy with the motives of many socialists, or because we lack
understanding of the historical factors which have forced mass
rebellion against the malformations of our economic system down
the road of socialism. We would also add that only those are
really entitled to pass such a judgment who not merely do not gloss
over these malformations but deduce from them the necessity for
vigorous and intelligent countermeasures which, although definitely
anti-socialist, are at least as radical as the socialist proposals.” We
naturally consider it beneath our dignity to answer those who would
counter our objective attitude by unchivalrously suspecting our own
motives.

If we consider the term “socialism” in the sense it has acquired
in the course of history and in which we should continue to use it,
that is, a totally planned economy which eliminates markets, com-
petition, and private initiative, it would really seem time to describe
it, especially in the interest of those sections of the population which
are clamoring for it, purely and simply as what it 1s, an aberration,
a routine mental habit of people whom we understand very well,
and to whom, in certain circumstances, we may feel very close. In
this way we justify all the more our attempt to reason with them.


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20 THE SOCIAL CRISIS OF OUR TIME

It is time to say quite frankly and bluntly that it is an error to
think that relentless criticism of the drawbacks of our economic
and social system must necessarily lead to socialism and that, vice
versa, every opponent of socialism must necessarily be a malevolent
reactionary or a hypocritical apologist and appeaser. We are not
concerned with the reasons others have for their opposition: we
ourselves base our arguments on grounds which in the end we
expect to convince anyone who lives for socialism (although it may
not convince all those who live by it). There are definite reasons,
based on the vagaries of history, why radical critics of the short-
comings of our economic system should all have chosen socialism
as a rallying point, and next to the role which certain intellectuals
. such as Karl Marx have played, blindness and intellectual barren-
ness of non-socialists are among the major causes. But that is really
no reason for perpetuating this state of affairs into eternity; on
- the contrary, we have travelled sufficiently far down this blind
alley to know it for what it is. If, in spite of turning away from
it, one wishes to retain the term ‘“‘socialism,” it may be argued
that what matters is the content and not the name; however, even
such a suggestion would be fraught with risk at a time when every-
thing depends on exact thinking, precise concepts and clear-cut
decisions, and it can only lead to growing confusion and want of
orientation. Accurate concepts and frank language are not the least
important requisites for transcending an era among whose chief
characteristics are deep seated insincerity and an invidious camou-
flage of words.
tis also true that the vague and thoughtless use of terms such as .
“planned economy” and “socialism,” so common today, is respons-
ible for considerable confusion. - These pretentious words are more
and more frequently being used in instances when much more
harmless problems, in fact obvious necessities, are involved, about
which nobody has so far made any great to-do, such as the drawing
up of plans for urban developments, the expansion of co-operatives
or standardization of agricultural products. In all these cases such
big words should be avoided since they are compromised in no
small degree by having been assigned to something quite specific,
namely the conscious direction of the economy by a bureaucracy
instead of the market and price mechanism. This generous use
of the terms “planned economy” and “socialism” recalls the touch-
ing figures of the old socialists of the so-called revisionist persuasion,
who were quite willing to accept municipal burials or milk dis-
tribution in lieu of the indefinitely postponed onset of the “big
crash” and the “expropriation of the expropriators.” In such a
case it is really nothing but pious self-deception to continue calling
oneself a socialist. We should rather insist on using the term
“socialism” in its original trenchant and clear-cut sense and then


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INTRODUCTION 21

have the courage to say that we have thoroughly finished with it
and that what we want is at least as far removed from socialism
as from the old brand of liberalism. Now, when everything
depends on clarity and decisiveness, the word is still far too much
‘encumbered by a confused jumble of bitter feelings and proletarion
romanticism.
When it comes to discussing the proper therapy, socialism can
serve us as an example for all the various abberations that are
completely unable to lead to a cure of the symptoms which the
_ diagnosis of the general crisis of society has disclosed. The course
that is likely to result in success will follow from our description
of the disease. However, if we remember how extremely compre-
hensive and complex we found that crisis to be, how it touches
upon every aspect of cultural life, it will be understood why we are
so adverse to presenting—with the disagreeable self-assurance of a
man who has settled everything long ago and now refuses to listen
to any further objections—an exact and detailed recovery plan and
to advertising it cheerfully as promising a prompt and infallible
cure. What matters at the moment is that, firstly, the diagnosis
should be clear and convincing, as otherwise all action will be
nothing but amateurish vivisection practiced on the tortured body
of society, and that secondly, it should indicate to us the genera]
direction which each individual operation must follow. Only
when unanimity of opinion has been reached on these points can
the details of the various measures be discussed and a task be
tackled which is in any case beyond the powers of one person.
Apart from this, it should be clear that we are here concerned
with a reconstruction job as tedious and trying to our patience as
the re-afforestation of a barren tract of land.

While at this point we confine ourselves to a warning against
dilettante impatience and for the rest put our trust in the persuasive
powers of the subsequent arguments, we still think it appropriate to
sketch the general character of the economic policy appearing on
the horizon. The time really seems ripe for a new type of economic
program which does not fit any of the usual patterns and which,
for this very reason, appeals to us.

We are thinking of an economic policy which is in one sense
conservative and radical in another, equally definite sense: conserva-
tive in insisting on the preservation of continuity in cultural and
economic development, making the defense of the basic values and
principles of a free personality its highest, immutable aim—radical
in its diagnosis of the disintegration of our “liberal” social and
economic system, radical in its criticism of the errors of liberal
philosophy and practice, radical in its lack of respect for moribund
institutions, privileges, ideologies and dogmas, and finally, radical
in its unorthodox choice of the means which today seem appropriate


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22 THE SOCIAL CRISIS OF OUR TIME

for the attainment of the permanent goal of every culture based
on the freedom of the individual. The advocates of this program
are as aware of the fundamental errors of nineteenth century
liberalism as they are opposed to collectivism, however dressed up,
and the political-cultural totalitarianism that inevitably goes with
it—not only as an impracticable solution but also as one harmful to
society. oo

This vigorous rejection of collectivism shows at the same time
that nothing is further from the thoughts of the representatives of
our program than the idea of adopting a fundamentally hostile -
attitude towards liberalism as such. They simply do not cling to
that particular form which liberalism assumed both in theory and
practice in the course of the nineteenth century and which finally
discredited it so hopelessly. They are solely concerned with
liberalism in that more general and inviolable sense which has
retained its vigor through the ages: liberalism in the sense of an
individualist culture, a delicate balance between liberty and con-
straint, which man needs, and a society delivered from the original
sin of violence and exploitation, a non-collectivist, non-feudal and
non-mediaeval society. In stressing this they show how deep the
gulf is between themselves and that reactionary obscurantism which
is so busy today making capital out of the general hangover result-
ing from the most recent period of history, and which is trying to
persuade us to surrender the greatest asset of our epoch: the victory
over every form of mediaevalism based on a hierarchy of force.

Precisely in order to preserve this sacrosanct core which today
is most gravely threatened by the collapse of historical liberalism,
the representatives of liberal revisionism are so relentless in their
criticism of what has now broken down, that they have to suffer
that dullards reckon them among members of the hostile camp.
They believe that this pitiless and unsparing frankness is not only
in the best interests of truth but also in the interests of the cause
itself. They furthermore have the advantage of not being among
those who wring their hands before the deserted altars of liberalism
in hopeless despair over the stupidity of others, but are rather in
the fortunate position of being able to point to mistakes which
have been committed by their side, but can be righted. Since self-
improvement notoriously holds more promise than the attempt to
better others, the liberal revisionists have chosen a point of vantage
which, as matters stand today, is the only one that does not appear
hopeless from the start.

It is a program, therefore, which offers battle on two fronts: on
the one against collectivism and on the other against that brand
of liberalism which developed and influenced most countries during
the nineteenth century and which is so much in need of a thorough
revision. It goes without saying that such a two-fronted battle


===== PAGE 35 =====

INTRODUCTION 23

requires mental and moral resources of an uncommon order, and
that there are phases when resistance seems to flag on one front
while all reserves are being rushed to the other. It is also inevitable
that as long as this program is still in its growing stages, irritating
confusion and misunderstandings will continue to arise and the
novelty and singularity of these economic proposals will not be
recognized. In fact, we are dealing here neither with a species of
historical liberalism nor with mere “interventionism,” nor by any
means with something even faintly akin to that collectivism which
today is making so much headway everywhere. What is really
involved, however, is so elusive and so difficult to define that only
a voluminous book could do it justice. It follows that any attempt
at labeling, however necessary, can for the time being only be
provisional. We shall, however, not be far wrong in using such
terms as ‘constructive’ or ‘revisionist’ liberalism, ‘‘economic
humanism” or, as I have suggested myself, the “Third Way.” 1
feel that the last mentioned term has proved reasonably useful since
it seems to be neither too comprehensive nor too narrow and above
all expresses the main purpose of the new program: the elimination
of the sterile alternative between laissez-faire and collectivism.
Today a select circle—at present still small, but steadily expanding
thanks to the lessons which contemporary history has so effectively,
if painfully, taught us—is in various ways and in many countries
engaged in a clear, precise and detailed evolution of such a program,
whatever its ultimate name.

*

The observation—which finds growing confirmation every day—
that the ideas discussed here can count on the approval of a con-
tinually increasing circle of contemporaries in every country,
encourages us to conclude this survey on a more hopeful note and
to modify the pessimism of the statements we have made so far.

Three things we want to emphasize here. First, it must be
understood that our pessimism calls for disillusionment as well as
for constructive action. It is thus not only opposed, as a matter of
course, to all shallow optimism, but also to that decadent and
utterly pagan fatalism of those who, tired and resigned, submit to
a supposedly inevitable fate, or of those who, secretly rejoicing
behind a mask of melancholy philosophy, and assuming the air of
sages who have been granted a preview of the designs of provid-
ence, hoodwink the mentally indolent with the sham argument of
predetermination. We, on the other hand, who do not leave the
decision to a mystical destiny but seek it within ourselves, are par-
ticularly concerned to show beyond doubt how grave and at the
same time how unavoidable it is. At the moment, however, it has


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24 THE SOCIAL CRISIS OF OUR TIME

not yet been made, and we are still free to choose, if only we have
the will and the understanding and if we do not allow ourselves to
be paralyzed by an entirely unmanly and baseless fatalism. Only
he who is pessimist enough to realize the whole extent of the
danger is qualified to take part in averting it—a task where optimists.
.and fatalists are equally useless encumbrances. It is pessimism
that makes us foresee that we are doomed by fate unless we do
something, but we are in no way compelled to believe in a fate that
will overtake us regardless of what we do. And we are citing but
an age old truth if we add that hope and fear are always inseparably
bound up with each other. po

In the second place we base our argument on the observation,
cited above, that the spiritual and moral change indispensable to a
lasting improvement is taking place before our eyes, a change
which includes the resolve to carry through a radical re-orientation
aided by a growing awareness of what is likely to be the right
way. No one, moreover, can overlook the increasing signs that
along with this spiritual and moral transformation a change for
the better is also beginning to take place in various fields in the
economic and social spheres. Just as the forces for the conquest
of the spiritual interregnum are astir everywhere, the resistance to
collectivization, proletarization, mechanization and the other
sociological defects of our society is gradually growing stronger.
Whilst the universal slowing down in the reproduction rate alone
sees to it that matters do not get out of hand, there are also signs
in some countries that in many respects a right way has been
found to combat the spiritual collectivization which is still spread-
ing so terrifyingly in the collectivist countries. The peasantry is
coming into its own; the magnetic power of the giant cities is on
the wane; legislators, administrators and the judiciary as well as
other intelligent leaders are taking the first bold steps in loosening
the ubiquitous grip of centralization, in abandoning the worship
of the colossal, in resisting monopolization and group egoism, and
in creating new and more humane forms of industry; men are flee-
ing from monotony to variety, from the artificial to the natural, and
but for this new World War, we might have been able to register
steady progress in these and many other domains. But it is by
no means certain whether in the end the devastation and the as
yet wholly incalculable consequences of this World War will not
be balanced by the probability that this catastrophe, which is reduc-
ing life to its basic elements, which is burning down all the dead-
wood and confronting everyone point blank with the ultimate
questions of existence, may prove to be a preceptor, as cruel as it is
effective, in the reconstruction of society and the conversion of men.

The prospects of continued favorable development—and this
brings us to the third and last point—are all the greater as-the


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INTRODUCTION 25

process of disintegration has by no means affected all countries, nor,
within each country, all groups of the population, to the same
degree. On the contrary, in most countries—and, with the excep-
tion of what is most corrupt, even in the collectivist states—more or
less considerable moral reserves, a spiritual sense of direction and
quite influential remnants of an undegenerated and uncollectivized
society have been preserved; in a few countries even, disintegration
and spiritual collectivization remain confined exclusively to that
section of society which until now has merely been allowed to set
the fashion. Almost everywhere then, relatively healthy parts of
society are in existence which have only to be strengthened and
encouraged in order to serve as a basis for effecting what in the
more favorable instances may be a surprisingly rapid change in
attitude. |
However, the most hopeful sign and the one which most strik-
ingly refutes the feeble objections of those who consider our
program a Utopian illusion, is that among the intellectually and
economically leading nations of the European-American cultural
sphere there actually are countries where most of what we think
is so urgently needed exists in a more or less perfect form and has
demonstrated an almost provocative sturdiness. We know of no
country of which this would be truer than that in which this work
can be published on this tragic hour of Europe’s history (1942).
One would indeed be rendering a great disservice to Switzerland if
one were to compliment it on its perfection with winning hypocrisy,
and it would lose one of the main aspects of its vitality if it were
ever to forego its moral fibre and intellectual capacity for constant
and relentless self-criticism, and would come to ape the disastrous
examples of the big nations. But we believe it to be so robust that it
can listen to praise and criticism with equal composure, and there-
fore we can hold it up to a world striving for guidance, as one of
the most shining examples in history of spiritual greatness within
physical smallness and as the most vital and convincing refutation
of the assertion that the fundamental problems of mass civilization,
of democracy and of the moral crisis of the West are insoluble. It is
true, Switzerland is an exception in the sense that everything in
history that is almost wholly successful is an exception, but not in
the sense that it does not encourage general and whole-hearted
emulation as something approaching the ideal. As the common
enterprise of freedom-loving peasants and burghers, it has offered
the world a living example of the harmonious integration of peasant
and city culture, and from this synthesis it has drawn the strength
to fuse society’s conservative and progressive forces, to blend con-
tinuity and flexibility, tradition and modernity, reason and faith,
technology and humanitarianism, valor and love of peace, order and
freedom, community life and individuality, prosperity and


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26 THE SOCIAL CRISIS OF OUR TIME

spirituality, into a well-balanced whole. Perhaps only by review-
ing the historical experiences gained through the ages and the
examples of most other countries—and not by concentrating on
every imperfection and mistake—can we fully appreciate that here,
in the heart of Europe, there is a country, alone among its kind,
which, thanks to its strength and its mountains, but thanks also
to a benevolent providence and the configurations of history—De:
providentia et confusione hominum—has been able to grow to full
stature without the destructive admixture of socially poisonous
feudalism and comparatively free from that ancient sin of violence
-and exploitation. It may be that only from such a point of vantage
can one gauge the total extent of the tragedy that would befall
us if, amid the deadly threats of the present world crisis, this
country were to lose the inward strength it needs for safeguarding
itself and its unique patrimony. The most essential elements of
‘that strength, however, are clarity of thought and sureness of
judgment, for not in vain is it said: Quos perdere vult Deus,
dementat prius—“whom the gods would destroy they first make
mad.”

NOTES TO INTRODUCTION

Note No. 1 (page 5). The overestimation of self-interest as a sociological
motive:

It was indeed one of the cardinal sins of the past and typical of the
thoroughly inadequate psychology of the democraticliberal world, that one
thought mainly in terms of economic interests and the social groupings they
create, and believed that they embody a sociological motivating force so
important that it must be brought into play if anything is to be achieved.
Notwithstanding their otherwise divergent aims Marxism and Liberalism
were in complete agreement on this as on other fundamental points, which
explains their simultaneous downfall. We are here dealing with one of
the many forms of overestimation of the purely economic—‘‘economism,” as
we call it—which was so characteristic of the entire nineteenth century. It
was a highly imperfect form of sociology and bound to result in catastrophe
in the field of political tactics, too; its failure has, during the last years,
become particularly apparent in the prognoses—advanced with great self-
assurance—that the totalitarian countries were going to collapse for economic
reasons, prognoses which have consistently turned out to be false. Such a
system of ideas could tempt one to agree with the liberals that a free com-
petitive economy could be sustained by each individual's self-interest; or, with
the Marxists, that the class interests of the masses could be mobilized in
behalf of a new society. These ideas are the basis of the materialist view of
history; they have led to that unrealistic disregard of the daemonic quality
of naked political power and they are also responsible for the fallacious
theory that society's gravest crises—revolutions and wars—should be attributed
to economic causes (the theory of economic imperialism). In short, our own
rationalism was thought to be the hub of the universe. The truth is of


===== PAGE 39 =====

INTRODUCTION 27

course, that man lives not by bread alone but that, regardless of his economic
position, he is also moved by wholly elementary and over-powering passions
and emotional complexes, which cut across all strata, classes and group-
interests. All this had long been known to conservative political scientists
but it was undeniably totalitarian collectivism that first made such ruthless
and overwhelmingly successful use of that knowledge for its own purposes.
Collectivism has proved that men can be controlled and moved not only by
promises but even more by demands on and appeals to their capacity for
sacrifice and devotion. It has also shown what tremendous forces can be
released by altruism, enthusiasm and the struggle for a supra-personal goal,
and the rest of the world has by no means yet drawn all the conclusions and
learned all the lessons from this discovery.

Note No. 2 (page 7). Enlightment, liberalism, humanitarianism and democra-
tism seen as the secularization of the Christian heritage:

While formerly these movements were looked upon as secularizing in the
sense that they were emancipatory movements directed against Christianity
(a classical example is W. E. H. Lecky’s The Rise and Influence of the Spirit
of Rationalism in Europe, London, 1865), we know today that this is only
apparently so. In reality important elements of Christian concepts continue to
act as strong ferments within these movements, only they do it underground
and cut off from their source. Here reference should be made to the par-
ticularly thorough and well-informed work of the English Catholic historian
Christopher Dawson, Progress and Religion. The literature available on this
subject has become so extensive that we must limit ourselves to mentioning the
important work done by Max Weber (Gesammelte Aufsitze zur Religions-
soziologie, 1, Tubingen, 1920), Ernst Tréltsch (Die Soziallehren der
christlichen Kirchen, Tubingen, 1923), G. v. Schulze-Givernitz (Die geistes-
geschichtlichen Grundlagen der anglo-amerikanischen Weltsuprematie, Archiv
fir Sozialwissenschaft, vols. 56 and 58, 1926-1927); A. Riistow (Das Vervowjen
des Wirtschafts liberalismus als religionsgeschichtliches Problem, Ziirich-New
York, 1945). Regarding in particular the influence of Calvinism and the
Protestant sectarian movement (as opposed to Lutheranism which had quite
different effects), it is well-known, since G. Jellinek wrote his pioneer work
Die Erklirung der Menschen- und Biirgerrechte, 3rd edition, 1919), how close
is the connection between Christianity and the basis of political liberalism
and humanism. Another book that can now be conveniently consulted on
this subject is Fritz Ernst’s excellent Die Sendung des Kleinstaats (Ziirich,
1940, pp. 35-57). For some qualifications see: W. Ropke, Civitas Humana,
3rd edition, pp. 192-194. Many useful suggestions and references can also
be found in H. Plessner’s book Das Schicksal deutschen Geistes im Ausgang
seiner biirgerlichen Epoche (Ziirich, 1935).

Note No. 3 (page 7). The drain on spiritual and moral reserves has been
greater in some countries than in others: :

One of our most urgent tasks is a thorough investigation of each country’s
spiritual and moral resources, as well as of the reasons why some have been
able to withstand the universally disintegrating effects of mass civilization so
much better than others. Considered under this aspect each of the main
countries presents a separate problem, first of all Germany (cf., W. Rapke,
The Solution of the German Problem, New York, 1948); then France (L.
Romier, Explication de notre temps, Paris, 1925; J. Giraudoux, Pleins Pouvoirs,
Paris, 1939; Henri Massis, Les idées restent, Lyons, 1941); then Italy (Carlo
Sforza, The Real Italians, New York, 1942); England (Ernest Barker,
National Character and the Factors in its Formation, London, 1939;
Léo Ferrero, Le secret de I’ Angleterre, Geneva, 1941); and finally the United


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28 | THE SOCIAL CRISIS OF OUR TIME

States (Eduard Baumgarten, Die geistigen Grundlagen des amerikanischen
Gemeinwesens, Frankfurt a.M., 1936; B. Fay, Civilisation Américaine, Paris,
1939). As summaries: E. Halévy, C. Bouglé and others, Inventaires. La
crise sociale et les idéologies nationales, Paris, 1936; Hans Zbinden, Die
Moralkrise des Abendlandes, 2nd edition, Berne, 1941.

Note No. 4 (page 8). The exaggerated cult of youth:

It has been left to our time (the “Century of the Child,” as it has been called
with involuntary humor), to reverse the natural relationship between the age
groups to an almost unprecedented degree, a tendency only parallelled by the
equally frantic attempts at transposing the relationship between the sexes. More
than anything else, this boundless overestimation of youth and the corresponding
devaluation of age, throws a revealing light on the contemporary crisis and
the inversion of status and rank, because it is evident that they are most
intimately tied up with the dynamic-activist nihilisth of values, with discon-
tinuity and the frittering away of the cultural patrimony, with disrespect,
spiritual collectivization, &c. Everyone can probably tell from personal
experience of the strikingly great proportion of the younger generation ‘which
does not know its place in the presence of its elders and assumes a studiously
rude. manner especially if the latter are deserving of particular respect, or
even gratitude. A world that has lost its instinct for these elementary prin-
ciples must indeed be thoroughly out of joint. The neurosis of youthfulness,
however, amounts fundamentally to nothing but a disingenuous self-deception,
which is perpetuated against one’s better judgment, and which will sooner
or later provoke a reaction. This reaction will coincide with the rediscovery
of the eternal human values and order of precedence and with a welcome
release from the tension of the empty frenzy of dynamism. Then it will
once more be admitted that different things befit youth and age, that
“gaudeamus igitur” simply corresponds to a state of alcoholic and erotic
intoxication, which may abruptly terminate in suicide—so frequent among
adolescents; that the effervescence of feeling and being young is usually
coupled with a lack of equilibrium, with vagueness, aimlessness and the
inner crises of the young; and that the decrease of physical vitality in old age
is: commonly balanced by proper adjustment, a knowledge of life’s truths and
a feeling of happy serenity. I wonder how many would, from their own
experience, agree with Edgar Quinet when he says: “Je vous étonnerais, en
vous disant que I'dge ou jai le plus souffert, celui ou jai le plus senti le
fardeau de existence, le seul ou j'ai désiré la mort, a été la jeunesse. .
Quand la vicillesse est arrivée, je Iai trouvée incomparablement moins ameére
que vous me prétendiez. . . . Je m’attendais a une cime glacée, déserte, étroite,
noyée dans la brume; jai apergu, au contraire, autour de moi, un vaste
horizon qui ne setait encore jamais découvert 3 mes yeux. Ce n’était plus
cette attente désespérée d'une clarté qui me fuyait. Dans ma longue route,
javais recueilli quelques vérités qui, chaque jour, devenaient plus certaines.
Elles étaient pour moi comme le fruit de la vie.” (L'esprit nouveau, Paris,
1874, pages 309-313). It is also obvious that the “confusion de la volupté et
de la mort” (Massis), characteristic of youth, is one of the most important
elements of war, because an aggressive war can only be waged with young
people. C }

One would thoroughly misunderstand the foregoing if one took it to mean
that age, from its temporal vantage-point, were putting high-spirited youth
in its place. On the ‘contrary, this lamentable confusion is, as always,
primarily the fault of the older generation, and this is also proved by their
frantic attempts either to put themselves on a level with youth or peevishly
to defend their position of authority in which at heart no one really believes
any longer. It is they, in fact, who were the first to lose all feeling for what


===== PAGE 41 =====

INTRODUCTION 29

is proper for each age group; it is their fault if this break in continuity has
taken place; it is they, who have succeeded in creating “the problem of
youth,” because they no longer know what to do with the young and because
they only too often left unsatisfied and unused that natural readiness for self-
sacrifice and devotion which is youth’s happy privilege, allowing it to be
forced into the most dangerous channels. It is very symptomatic that the
cult of youth and the disparagement of age was a striking characteristic even
of the French Revolution and since then every revolution has invariably been
accompanied by paeans to youth. It should also be noted that this absurd
revaluation of the age groups is most closely linked to the positivist-scientific
myth of progress, according to which the younger generation, being the
“more progressive,” may, naturally, look down upon the older. Cf. the
following more recent publications: A. L. Vischer, Old Age, its Compensa-
tions and Rewards, London, 1947; J. Ortega y Gasset, Toward a Philosophy of
History, New York, 1941, pp. 24-40. oo
"Max Picard’s beautiful book Die Flucht vor Gott, Erlenbach-Ziirich, 2nd
edition, 1935, should also be consulted for its discussion of the inner restless-
ness of modern man. Co

Note No. 5 (page 8). The decadence of positivist science:

Concerning this exceedingly important cause of our world crisis, there still
exist too many misconceptions to which even eminent scholars have fallen
victim. They are due to the naive assumption that value. judgments are
unscientific and bound to lead to the justly feared politicalization of science.
Science, it is true, was born when the ancient Ionian philosophers, in opposi-
tion to oriental theology, established the axiom that science is autonomous;
i.e., in its search for truth it is subject only to the conscience of the scholar
as the highest court of appeal, and quite independent of the heteronomous
authority of secular or clerical bodies. Galilei’s “eppur si muove” will for
ever remain a wonderful symbol for this, and everything else is a betrayal
of science, “trahison des clercs” (J. Benda). However, this autonomy by
which science is defined can never mean the abandonment of all premises,
as was naively believed at one time. Absence of premises in the sense of
complete independence of the scientist from subjective conditions has long
been recognized as an illusion or even as an absurdity, since everyone cannot
but look through his own eyes, is circumscribed in his perspective by place
and time, possesses his own inner experience and certain concepts of value,
some of which are general and others more subjective, and all we ask is
that he should not deceive himself or others regarding these subjective
conditions. But this does not make science heteronomous. I may, e.g., for
perfectly legitimate scientific reasons hold peasant agriculture to be essential
for the good of society, although I may also be influenced by certain judg-
ments of value and by rudimentary scientific theories, so that my thesis is
anything but without premise. It is, however, something entirely different
if T am deprived of my professorship in one country because I hold this
theory, and in the other, because I attack it. This would automatically put
an end to autonomy in science and therefore also to science itself. Exigencies
of space do not allow us to prove here how qualitative judgments are in
certain cases not only scientifically legitimate but also urgently required (cf.
Wilhelm Répke, Civitas Humana, 3rd edition, Erlenbach-Ziirich, 1949, pp.
151-161). In his valuable book, Uber die Rechtsethik des Schweizerischen
Zivilgesetzbuches (Ziirich, 1939), August Egger has made out an impressive
case against the particularly disastrous effects of positivism in legal science.
That it is possible to make objectively valid judgments is also proved by the
increasing unanimity. of successive: centuries regarding the truly immortal
works of literature. Today Shakespeare’s classic status is as undisputed as


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30 | THE SOCIAL CRISIS OF OUR TIME

is the mediocrity of his playwright contemporaries. There is such a thing
as a consensus saeculorum.

Note No. 6 (page g). The treason of the privileged classes—lack of moral
backbone:

Present day experience suggests that it might be worth our while to trace
the historical role of the corrosive and treasonable influence of a materialistic,
spiritually decadent patrician class worried about its possessions and social
privileges—an influence called “moderate” by its advocates, though beyond
question deplorable—and to assemble the findings in a uniform sociological
picture; one might also study in conjunction with this the sociology of an
intellectual leadership frightened of losing its material and spiritual position.
If we recall the Athenian “appeasers,” against whom Demosthenes pitted
his oratory, or the intrigues in which the Carthaginian patricians, led by
Hanno, indulged against Hannibal, who was prevented from fully exploiting
his victories by a clear instance of armament sabotage, or the Prussian
Junkers who after 1806 declared that they preferred a defeat like Jena to an
agrarian reform—if we go back over these and many other examples, we are
amazed by the monotony with which the same situation has repeated itself
up to the present day. Contemporary instances of the opposite kind of
conduct should, of course, likewise be viewed in juxtaposition with their
historical counterparts. Perhaps the most moving and at the present time
most inspiring document of this nature is Thucydides’ description (History
of the Peloponnesian War, chapter V) of the conduct of the inhabitants of
Melos. The arguments of these undaunted people in their fight against
Athenian imperialism have not lost any of their force and freshness even
today, and the fact that among them, too, a “fifth column” was at work
enhances their actuality.

The history of all conquests proves, moreover, that internal weakness on
the part of a subjugated people has always been at least as important as the
strength and skill of the victors. That is true of Alexander's conquest of
Greece not less than of the triumphal advance of Islam; it is as true of the
Ottoman and Napoleonic expansion as of all their historical parallels. Today
it may be presumed to be common knowledge among students of history that
the invasions of the numerically weak Germans would not have destroyed
the Roman Empire if it had not already been rotten to the core.

Note No. 7 (page 10). Spiritual collectivization, lowering of intellectual
standards and destruction of the intellectual hierarchy:

This inexhaustible subject can be further illuminated, firstly by a glance
at the level of the popular newspapers in most countries and the correspond-
ing low intellectual and moral level of all mass entertainments and mass move-
ments; secondy, by the revealing question of who were in the past and who
are today the true popular heroes and celebrities; and thirdly, by reference
to the sociology of language.

The symptoms of spiritual collectivization in a people’s language deserve
indeed much more attention than has been accorded to them so far. It even
appears to be a completely unexplored field of research, owing, of course, to
the fact that the sociological elucidation of the phenomenon of spiritual collec-
tivization is of very recent date. (A pioneer contribution is probably Wein-
bender’s treatise in volume 8 of the journal “Osteuropa,” on the development
of language in Soviet Russia, to which Professor A. Debrunner in Berne has
kindly drawn my attention.) Of course, the sagacious Nietzsche had antici-
pated something like this (Fréhliche Wissenschaft, Aphorism No. 104). This
condition refers not only to the tendency to level off all differences in

"dialect and to centralize even language, but also to the intellectualizing
process, arising from the intellectual ambitions of the half-educated, which is


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INTRODUCTION 3I

peculiar to spiritual collectivization. The admirable W. H. Riehl (Die
biirgerliche Gesellschaft, 6th edition, Stuttgart, 1866, p. 334 ff.) described
the “rogue,” who “found it hard enough to unlearn the live views and
blunt and earthy language of the social class in which he had grown up in
order to exchange them for alien and well-bred phrases.” But: “In the
speech and ideas of the peasants there shines the old and hardy natural
strength of our language, in the speech of the burgher the richness and
variety of its vigorous growth, in the abstract, tidy and fashionably smoothed
phrases of the ‘educated’ elite we meet it in its emasculated senility.” No one
who has followed the development of the German language during the last
century and particularly during the past twenty years can ignore the tell-tale
symptoms of spiritual collectivization which become apparent in the con-
tinually increasing spread of a dry-as-dust, uniform, pretentious, snooty and
semi-educated herd language permeated with stereotyped and artificial neo-
logisms. In it we can sense the mental and social environment of those who
speak or write it. (Here I must again thank Professor A. Debrunner for
pointing out that similar phenomena—such as pompous phrases correspond-
ing to the German “unter Beweis stellen” —were also known in the Hellenistic
era and in Byzantine Greek.) This spiritual collectivization of the language
is, however, not only characterized by continuous repudiation of the organic
linguistic heritage of peasant and regional origin, and by a progressive sub-
stitution of concrete speech forms by dry and abstract forms, but also by a
coarsening of the sense of language and a shockingly blunted feeling for the
laws of the mother tongue as well as of logic in general. Today not only
have we assumed language and speech of the culture-glutted megapolitan
mass man, but also we are in a hurry, want to create an impression, want to
intimidate, to soft-soap others, and just as the musical hit is supplanting the
folk song, the brash and ephemeral slang of the cities is displacing dialects.

Note No. 8 (page 10). The sociological phenomenon of spiritual collec-
tivization:

We are well aware that what we have said in this chapter is in need of
further elucidation and definition. But at this point we must be content
with listing the following more important works among the very extensive
literature on this subject: L. Romier, Explication de notre temps, Paris, 1925;
Ortega y Gasset, The Revolt of the Masses; Karl Jaspers, Die geistige Situation
der Zeit, Leipzig, 1932; Walter Lippmann, An Inquiry into the Principles of
the Good Society, Boston, 1937, London, 1938; La foule, 4¢ semaine inter-
nationale de synthése, Paris, 1934; N. Berdiajew, The Fate of Man in the
Modern World, London, 1935; K. Heiden, Europiisches Schicksal,
Amsterdam, 1937; J. Huizinga, In the Shadow of Tomorrow, London, 1936;
C. Dawson, Progress and Religion, C.-F. Ramuz, Questions, Paris, 1936; Kurt
Baschwitz, Du und die Masse, Amsterdam, 1937. Louis Bromfield’s auto-
biographical novel, The Farm, also deserves mention here as it surpasses many
sociological treatises in insight. A valuable pointer that spiritual collectiviza-
tion meets with far greater obstacles in small countries, is to be found in
Fritz Ernst’s book Die Sendung des Kleinstaats, Ziirich, 1940. For the rest
see my own book Civitas Humana, supra, and English edition, London,
1948.

Note No. g (page 14). Population increase and spiritual collectivization:
That the invasion of our civilization by the “masses,” similar to a land-
slide burying cultivated land, is in the first place and in an almost tangible
manner the result of the colossal increase in population, should be self-evident.
In whatever direction we trace the course of spiritual collectivization, we
come up against this vexatious relationship. It is obvious how much the


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32 THE SOCIAL CRISIS OF OUR TIME

increase in population is responsible for the changes in the economic and
social structure, which in the form of proletarization, mechanization, urbaniza-
tion, mammoth industries, &c., have destroyed the structure of our society.
But even the spiritual and moral crisis, the “interregnum,” cannot be under-
stood if we fail to appreciate that the population increase has made con-
tinuity in cultural traditions as well as cultural assimilation of the coming
generations more and more difficult (cf., e.g., Marcel Dutheil, La population
allemande, Paris, 1937). These long-term sociological effects of the popula-
tion’ increase far surpass in importance all other aspects of the population
problem. It is all the more surprising, then, that they, in particular, find
so little ‘mention in the literature dealing .with this problem, that it is
almost impossible to give any references. Apart from the above mentioned
books by Ortega y Gasset, Romier and Heiden, we refer to W. Ropke, Die
Lehre von der Wirtschaft, sth edition, Erlenbach-Ziirich, 1949, pp. 80-94.

Note No. 10 (page 16). The decay of the family:

An excellent and concise characterization of this very extensive problem,
is offered by the American sociologist, F. H. Giddings (The Principles of
Sociology, 3rd edition, London, 1924, p. 352). He divides the development
of the family into three stages. Regarding these he says: ‘To perpetuate a
patrimony and a faith, the religious-proprietary family sacrificed the inclina-
tion of individuals. To gratify the amatory preferences of individuals, the
romantic family has sacrificed patrimony and tradition; of late, it has even
gone to the extremity of sacrificing children. The ethical family sacrifices
individual feelings only when they conflict with right reason or moral
obligation, but then it sacrifices them without hesitation. It regards a
genuine love as the most sacred thing in the world except duty, but duty it
places first, and in the list of imperative duties it includes the bearing and
right training of children by the vigorous and intelligent portion of the
population.” Here, too, we find that the solution is found in a “Third Way.”

Note No. 11 (page 16).  Artificiality as a symptom of spiritual collectivization:

Our present mode of life has by now become so natural to us that we
can ‘hardly imagine it different, let alone realize how exceptional and
artificial in its most important respects, is this way of life which mass
civilization has forced upon us, as against what has been normal in history.
That is true even of such an innocent institution as the vacationing habit of
the modern city dweller (the peasant or farmer knows no “vacations”!), “this
leisure-ideal of an, over-worked century” (Nietzsche, Morgenrote, 178). A
social history of vacations remains yet to be written, but even without it we
know that this succession of an unnatural working life and hardly less
unnatural leisure periods is, as a mass phenomenon, a stupendous novelty, to
‘say nothing of the unnatural fact that even during our vacations our con-
science is still wrapped up in work, attempting to justify them as an oppor-
tunity to “recover” our strength, i.e., using them as mere means to an end,
the end being further work. Our forefathers had no exhausting and vitally
unsatisfying work to perform and also knew better than we what to do
with their free evenings and their Sundays. Their life was a harmonious
whole of work and leisure, while we place one after the other. But each
one of us knows only too well which is the happier and more normal way
of life.

Until recently the city dwellers vacations were a consequence—necessary
for reasons of health and a balanced life—of mass living, but just lately
collectivization extended its domain to include vacations, too, not by enabling
larger sections of the population to enjoy them (which one certainly would
not begrudge), but by putting even on vacations the stamp of a mass enter-


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INTRODUCTION 33

prise: even here the individual is not allowed to find himself. A climax in
this development seems to be the installation of ski-lifts, whereby the principle
-of the conveyor belt has been transferred from the factory to the winter sport
resort.

Note No. 12 (page 26). The paradigm of Switzerland:

In this context the following should be consulted among many others:
Fritz Fleiner, Tradition, Dogma, Entwicklung als aufbauende Krifte der
schweizerischen Demokratie, Zirich, 1933; Werner Naef, Die Schweiz im
curopiischen Umbruch, Neue Schweizer Rundschau, March, 1941; Emil
Duerr, Urbanitit und Bauerntum in der Schweiz, Die Schweizerische Jahrbuch
der Neuen Helvetischen Gesellschaft, 1934, pp. 140-182.


===== PAGE 46 =====



===== PAGE 47 =====

PART ONE
INTERPRETATION AND INVENTORY


===== PAGE 48 =====



===== PAGE 49 =====

CuaprTEr 1

SEED AND HARVEST OF ‘TWO CENTURIES

Nothing is sadder to behold than the inconsequent striving for the
Unconditional in this wholly conditional world.
—GOETHE, Maxims and Reflections. .

The Two Revolutions

THE present world crisis is the result of a spiritual and political
development which, originating in the Renaissance, yet growing
more pronounced only in the course of the last two centuries—the
eighteenth and nineteenth—has finally led to the situation in which
we find ourselves today. This fateful period was marked by a
plenitude of changes in the intellectual, spiritual and physical world,
culminating in two events both of which are equally unique: the
political and the economic revolution. All the intellectual currents
of modern times converge in them and at the same time they are
the fountain head of all our present-day problems. Together they
amount to an upheaval more gigantic than any that has occurred
within our purview of history. They have created the world as it
confronts us today and if we want to solve the problems posed by
it we must examine and substantiate our point of view regarding
these two revolutions. In doing so, we shall at the same time
gain an opportunity of unrolling all the problematic aspects of both
these centuries and of realizing at which point the course of events
took a fatal turn.

The two revolutions, the political as well as the economic, are,
for obvious reasons, very closely interlocked; their common breed-
ing ground is the sociological climate as developed by the modern
movement for intellectual emancipation—from the Renaissance via
the humanists, the Reformation, rationalism, individualism and
liberalism down to the present civilization of the West. Both also
have this in common, that the generation of our day tends to judge
them from the extremist’s point of view, meting out unqualified
praise or, and this has become increasingly frequent, equally
unmodified criticism. It will be our task to replace this crudely
extremist view by a more discerning and analytical attitude and to
divide the good from the bad.

Turning our attention first to. the political revolution (in its
widest sense, that is, not confining ourselves to the actual event of
the French Revolution), we shall find that everyone is conversant
with the two extremist views on it. The one side embraces spirit
and content with unquestioning fervor; it readily brands any


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38 THE SOCIAL CRISIS OF OUR TIME

qualification and criticism as “reactionary” and is inclined to see in
the counter movement which has been apparent for a considerable
time, nothing but malice and stupidity. In its eyes the Ancien
Régime, to say nothing of the Middle Ages, is as manifestly black
as what succeeds them is radiantly white. On the other hand, its
extreme opponents, who today hold the field, adhere with equally
dogmatic fervour to the view that the political revolution produced
nothing but ruin and—this is important—that this was its inevitable
outcome, ‘since ‘its essence is damnable apostasy and ruination.
While the first faction is turning a deaf ear to all criticism of the
“political revolution, the latter is equally deaf to any reference to
the great things which the revolution set out to achieve with such
sublime enthusiasm and which, to a not inconsiderable degree, it
did achieve. What was black there, appears here as white, and not
a few are already talking with a sigh of relief of the “new middle
ages” which are reportedly about to replace our dissolute times.
~ We refuse point blank to limit our choice to these two extremes,
the doctrinaire radicals and the equally fervent doctrinaires of
reaction, and in our search for a third point of view we shall
concern ourselves first and foremost with discovering the role of this
political revolution in the context of world history. There can only
be one: answer: the Western political revolution of the last two
centuries—in which the French Revolution played the most radical
and dramatic part—represented, by unfurling the flag of democracy
and liberalism, the most comprehensive and gigantic, the most
deliberate and enduring attempt so far undertaken by mankind to
stamp out the ever-recurring original sin of force and oppression in
all their social, political, spiritual and economic manifestations—
that original sin which, as we know, was brought thousands of
years ago by the first highly developed civilizations and organized
states into the peaceful world of the primitive and undifferentiated
cultures and which has constituted what we term feudalism, abso-
lutism, imperialism, monopolism, exploitation, the class state, war
‘and lastly “medi@valism.” During this immeasurable time
‘magnificent attacks, whose repercussions can still be felt today,
have repeatedly been mounted against the absolute state in an
attempt to deliver man from the political and spiritual fetters
fastened on him: first and foremost by the Ionic Greeks whose
exciting genius laid amid remarkable circumstances the foundations
for everything we call European civilization. Again and again
“Middle Ages” have given birth to a “Renaissance” and a “Modern
Age,” and without these we could not conceive even of those
‘elements of culture which the reactionary is as loath to miss as
anyone else—the absence of which would, in fact, lead to his
intellectual insolvency. Thus it is sheer intellectual mulishness as
well as inexcusable ignorance, to divest the political revolution of


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SEED AND HARVEST OF TWO CENTURIES 39

the laurels of a freedom movement the like of which the world
had not witnessed until then, a movement directed towards a goal
which all right thinking and enlightened men have pursued in
every age with equal vigour and to deny which would be tanta-
mount to the fatuous denial of the elementary fact of our humanity.
It is only natural that the cruel disappointments of the political

revolution loom larger in the eyes of people, many of whom have
personal experience of them, than the intolerable yoke cast off by
our ancestors. Perhaps it is not altogether surprising that there are
a number of people—by now possibly again on the decrease—whose
sensibilities have been so blunted by these disappointments as to.
make them deaf to the noble pathos of the immortal lines which
Schiller in the ripe wisdom of his years puts into Stauffacher’s
mouth:

When the oppress’d looks round in vain for justice

When his sore burden may no more be borne

With fearless hand he reaches up to Heaven

And thence brings down his everlasting rights

Which there abide, inalienably his,

And indestructible as are the stars.

All the more, then, must we insist on rekindling the memory of
that pre-revolutionary era with its abuse of power, its arbitrariness
and oppression, its exploitation and humiliation of the masses held
in subjection by State, Nobility and Patriciate: that time of the
enslavement of the peasantry in large parts of Europe and its exter-
mination in England, of the cruel suppression of every free and
daring thought, of the enthrallment of the middle classes in the
small German states, of class justice and class taxation and the most
brazen-faced enrichment, of the trading and ill-usage of soldiers
and the harsh laws of war, of the negro slave trade and the inhuman
cruelties of colonization overseas. In order to prompt our dulled
imagination, we add that in the eighteenth century with all its
vigorous intellectual ferment a Margrave of Ansbach could still
display his marksmanship to his mistress by shooting a tiler from
the castle tower for the sheer fun of it and then most graciously
hand his widow a florin; a Duke of Mecklenburg could command
the Privy Councillor von Wolfrath to be put to death in order to
make his widow the ducal mistress; and a Prince of Nassau-Siegen
was able to deal with a peasant in the same fashion just to prove
that it was within his power; and in Swabia a lawyer could be
beheaded because he had quoted Voltaire in a tavern.

No, we shall certainly not let our disappointment over the fruits
of the political revolution be used to persuade us that those were
better times, times of an idyllic patriarchalism, and thus allow our
sense of what is due to man to be confused. All our lost illusions
notwithstanding we shall persist in bluntly describing such efforts as


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40 THE SOCIAL CRISIS OF OUR TIME

reactionary obscurantism and we shall do this all the more
emphatically as otherwise our criticism of the political revolution
might induce the dull-witted to suspect the self-same attitude in us.
Although we may find that it is precisely the avowed counter-
revolutionary literature that contains valuable criticism and although -
we should freely make use of it, we nevertheless know what to
think of its unblushing attempts to make palatable the downright
evil aspects of dominion and power. When studying this literature
in its entirety—starting with J. de Maistre and Karl Ludwig von
Haller down to the present—even the most sceptical should know
where to draw the line, and though Shakespeare himself in
Coriolanus poetically glorifies the principle of feudal power, we
should still be on our guard.

It was Louis de Bonald, one of those eminent counter-revolu-
tionaries of the French Restoration, who said among many other
~ wise things that ‘““depuis I’évangile jusqu’au Contrat Social ce sont
les livres qui ont fait les révolutions,” that literature is the expression
of the society of today and creates that of tomorrow and that
ideas are the true masters of this world. We subscribe to every
word of this view, but would add that the mind is the ultimate and
indispensable basis not only of revolutions, but also of the tyrannies
which they bring down. Since they cannot rely on naked force
alone, they require for their existence an uncritically accepted system
of ideas (an ° ideology”) which, extending subjugation to the: soul,
turns the oppressed into the willing subjects and accessories of their
rulers. “La servitude abaisse les hommes jusqu’a s’en faire aimer”
(Vauvenargues), and not until it has achieved this—this “servitude
volontaire” with which already in the sixteenth century La Boétie
concerns himself in a treatise bearing this title and relevant even
today—has it brought about the deepest degradation of man and at
the same time, its own security. Since, however, concept and
practice of tyranny are diametrically opposed to the workings of
the sane mind, every ideology of force must make a strong point
of confusing minds. Every liberation must in consequence begin
with that of the mind and in the process make use of the critical
faculties and, accordingly, tyrannies are right in seeing in the free
exercise of the mind their worst and, in the long run, invincible
foe." Hence the alliance of every emancipatory movement with
rationalism, which becomes also an alliance—for obvious reasons
particularly pronounced in the liberation movements of modern
times—with the shortcomings of rationalism gone astray. These
were the final cause of the failure of the political revolution which
we shall have to study in more detail later on. It is these aberra-
tions of a rationalism inestimable in itself which must be held in
equal measure responsible for the ultimate débicle of the political
as well as the economic revolution.


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- SEED AND HARVEST OF TWO CENTURIES 41

The world would not be in its present hopeless state, nor would
this book ever have been written if the errors of rationalism—more
fatal than all misguided passions—had not.caused all the great and
promising beginnings of the eighteenth century to end in a gigantic
catastrophe of which we can still feel the effects: the French
Revolution. This monumental and glorious century gave us music
which promises to remain for thousands of years what the Parthenon
is to us in architecture, it gave us Lessing, Goethe, Schiller, Herder,
Montesquieu, Vico, and Kant, and in the domain of politics it pro-
duced a piece of work so mature and enduring as the American
Constitution—yet in 1789 it ended in a tragedy which marked
the beginning of a world crisis lasting until this day; and it is this
date which for many has sullied the memory of the eighteenth
century to an extent that blinds them to its true greatness and its
yet unfulfilled promises.

How then are we to assess the French Revolution and its vast
and incalculable consequences? It is precisely this question on
which popular opinion has for too long been highly confused and
divided in a manner which has muddled all our political thinking
and it seems that we are only now able to see somewhat more
clearly. For an entire century two views remained sharply opposed
to each other, one lauding the event as liberation, the other con-
demning it as djsintegration. Only in our day has this conflict been
settled by the more profound realization that the French Revolution
itself was a dichotomous event exhibiting that ambivalence charac
teristic of so much that is problematic. It is precisely this which
constitutes the tragedy whose repercussions we can still feel. The
revolution was at one and the same time liberation and disintegra-
tion and a malevolent fate would have it that it could not be the
one without the other, that, indeed, political liberalism was unable
even to recognize this innate defect. It was not only a stirring
drama enacted on the great stage of the world, fit to enthrall the
romantically inclined; it was also an emancipation movement in
the face of whose superlative élan at first only the most hardboiled
reactionaries managed to keep their heads. As such it has created
the Europe which today has to get ready for the last stand because
it is saddled with such an evil heritage. It has turned France itself
into a land of peasants and bourgeois and it has cast its seeds over
every country that calls itself European. The “ideas of 1789” have
created the life-giving air which all of us—including the most
envenomed of counter-revolutionaries—still breathe. All this is
true, and yet the revolution was a catastrophe. Let us see in what
sense.

To begin with, it cannot be stressed too strongly in the face of
all revolutionary romanticism that every revolution is a real mis-
fortune. It is a cataclysmal crisis of society whose eventual outcome


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42 THE SOCIAL CRISIS OF OUR TIME

is never certain and whose highly pathological character is discern-
ible even in its outward forms. It is a potentially fatal paralysis
of society; it is anarchy, dissolution of order, destruction, it is the
primeval battle of passions and instincts, and nothing is clearer
proof of this than the fact that if not stayed in time (a vain attempt
was made to stay the French Revolution), it tends to cast up the
dregs of the people and subjects men to the temporary rule of
notorious neurotics. No amount of hero-worship and romanticising
can alter this, not even in the case of the French Revolution which
is particularly conducive to such attitudes.

But it is when we look at its works that the French Revolution
seems especially catastrophic. The pre-revolutionary period (the
Middle Ages and the Ancien Régime, which strikes us as a
degenerated form of the Middle Ages), had been no less ambivalent
than the French Revolution. While we must firmly keep in mind
the mediaeval character of sovereignty in those times, we should not
forget that it was a society with a real structure in which men
appear to be hierarchically integrated and embedded in a true com-
munity, and if we look at the crowning glory of the Middle Ages,
the period of the culture of the cities, it would seem to us as if it
was in many ways a promising and exemplary era. Yet it was
destroyed in the major part of Europe—particularly in Germany
and France, though hardly at all in Switzerland—hy a new victory
of the power principle in the form of feudalism and absolutism.
But even the Ancien Régime thus created had at least enjoyed the
advantage of a life embedded in a united and organic society. It
was the tragedy of the French Revolution that, afflicted by the
sociological blindness of rationalism of which we shall treat later,
it confused the evil in force with order, coherence, authority and
hierarchy and was not capable of differentiating between aristocracy
and the true élite, the “aristes”; that it believed that in abolishing
the hierarchy of exploiters which at that point appeared as some-
thing intolerable to men, it had to do away with every kind of
hierarchy; that it forgot that no society can exist without a hierarchy,
i.e.,. without a vertical and horizontal structure; and that a social
and economic system relying solely on freedom for its orderly
existence, - will succumb to disintegration and eventually to
despotism, which in the last analysis is but organized anarchy... One
might say that there was too much of Rousseau and Voltaire and
too little of Montesquieu. The social hierarchy against which the
Revolution rose was bad because it had largely degenerated into
what was essentially an exploiters’ hierarchy, but the revolutionaries
were unable to distinguish between this historical form of a hier-
archy and hierarchy as such, which is the indispensable ingredient
in the establishment of any society. They did not know that there
is such a thing as a functional hierarchy, that in fact such a hierarchy


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SEED AND HARVEST OF TWO CENTURIES 43

is essential if society is to survive. The positive aspect of the Ancien
Régime, that is, the genuine structure of society, was destroyed,
and its negative aspect, i.e., the despotism of the state was main-
tained in an even more pronounced form. Order, internal
coherence, rules and norms, continuity, authority and hierarchy—
all these smacked of damnable reaction, but only because the forms
which these indispensable elements of order had assumed in the
cighteenth century were at the same time those of force and had
thus become unbearable. Here the critics of the revolution (the
Maistres, Bonalds, Burkes, Saint-Simons and all the others) had an
easy task, and the same lack of discrimination prompted them, in
good faith or bad, to commit the opposite mistake of presenting the
essential need for a functional hierarchy as the need for a feudal
and absolutist hierarchy of exploitation: an attempt to smuggle
back the old privileges in the name of sociology. It remains true,
nonetheless, that, produced by rationalist delusion, the very revolu-
tion which among other things transformed France into a country
of peasants, has become at the same time the source of that break-
down of society which we call. spiritual collectivization as well as
the prelude of that process of disintegration whose epilogue is mass
civilization, nihilism and collectivism. And now we are faced
with the question of whether we shall at last succeed where they
failed: in the creation of ‘“Eukosmia,” the “City of Man,” the
synthesis of freedom and order.

This revolution produced disintegration and spiritual collectiviza-
tion which in their turn brought forth Napoleon—and of the effects
of his deeds we have not seen the last yet: among them Bismarck
and the seed he sowed. The evil’s family tree is plainly manifest
and least of all must we be deceived by the person of Napoleon
which is so near to the heart of every romantic. We must not
allow our sound judgment to be confounded by the shameful
difference of standards between then and now, nor by the indis-
putable stature of Napoleon himself, nor by the liberal side of his
mission which he had taken over from the Janus-faced revolution
and which makes him such an ambiguous personality himself, nor
by any other consideration. We will have nothing to do with the
romantic Napoleon cult (the number of whose adherents has
presumably dwindled of late), and at best we look at Napoleon as
one of those “terribles simplificateurs” as J. Burckhardt called them,
who, like whirlwinds clearing the forests of dead wood, leave yet
nothing but ruin in their wake. The fact that he was at the same
time a man of great intellectual stature makes him all the more
dangerous, in that it renders the task of discovering his true nature
and of correctly fixing his place in history so enormously difficult
as to make even a man like Goethe spend some time over it. That
he was so remarkably successful in posing as the titan who was


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44 THE SOCIAL CRISIS OF OUR TIME

hindered alone by the shortsighted powers of reaction in the fulfil-
ment of his mission of finally uniting and pacifying Europe, merely
~ proves his ability as propagandist and the obtuseness of his dupes.
Genghis Khan, too, had he been able to write, could have embel-
lished his memoirs with a similar interpretation of his activities in
Asia. Despite all evidence to the contrary, the sum of Napoleon’s
achievement is conquest and destruction of law and order, global
chaos and usurpation, the consequences of which still weigh heavily
on us today.

The great experiment of the French Revolution had indeed to
come to a tragic end. In 1941 we can hardly be accused of exaggera-
tion if we say that the world of 1789 has finally broken down and
since the ideas of that year have spread across the entire globe,
all countries are victims of that collapse to the extent to which
they have followed the French example. However, the intellectual
confusion implicit in this must be vigorously combatted. For it
cannot be stated emphatically enough that the French Revolution
presents nothing more than a special case, that, indeed, only the
dishonest or ignorant can place. the ideas of democracy and
liberalism on a level with those of 1789. The only acceptable excuse
- for this view is the fact that the outstanding role played by France
in the history of the European intellect constantly tempts us to
look upon it as a model in the political field also and to ignore the
almost overwhelming political and social problems of that country,
which are possibly exceeded only by those of Germany. On no
account must we forget that the pathological character of the French
Revolution is matched by that of French absolutism and feudalism
which it succeeded, and that for centuries French society had been
in a state which could not but lead to this end the moment the
appropriate intellectual ferment of the French enlightenment was
added.

It is litte short of tragic that a country which in the course of
its own history had never been able to master the problem of estab-
lishing a tolerably healthy society and which is laboring at this task
up to this day, could become the acknowledged model in the domain
of politics. It has thereby compromised democratism and liberalism
in a manner crying out for correction. All we have to do here is
simply to point to the examples of healthy democracy for which we
claim, in legal language, the right of exclusion from the bankrupt’s
estate of 1789; first of all, Switzerland, then the Nordic and Anglo-
Saxon democracies, all of which are preserving their vitality because
they represent an entirely different, older and far more organic
branch of democracy and liberalism. On the other hand, these
countries appear to be debilitated to the precise extent to which the
errors of 1789 have caused them to lose faith in their traditions.
The mere existence of these democracies stultifies any attempt to


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SEED AND HARVEST OF TWO CENTURIES 45

label democratism and liberalism the invention of 1789 and to
obscure their true ancestry. They owe their origin not to the
rationalist sophistries of philosophers and lawyers, but to peasants
and commoners who fought for liberty since the early Middle Ages,
resisting—like the unhappy Stedingers—the deadly encroachments
of feudalism and absolutism and building up their state from base
to top on a co-operative basis. The beginnings of Swiss democracy
are marked by the co-operatives of the valleys and the communities
of the Alpine peasants, and American democracy commences with
the town meetings which eventually grew into the Union. The
spirit of liberty stemming from these roots was cast by the Reformed
Church into the forms of those human and civil rights which
ultimately found their way from the democracies of New England to
France.

The annals of democratism and liberalism contain dates which
indeed surpass in importance the milestone of 178g: the Swiss
Charter of Federation of 1291, the Magna Charta of 1215, the
Swedish Common Law of Magnus Erikson (about 1350), the
Petition of Rights of 1628, the Mayflower Compact of 1620, the
Dutch Federation of 1579, the Declaration of Rights of 1688, the
American Declaration of Independence of 1776, the American Con-
stitution of 1788, as well as its famous amendments, the so-called
Bill of Rights; and the Swiss Constitution of 1848 and 1874. But
it is precisely the characteristic quality of these vigorous, organically
integrated democracies that these dates represent nothing but the
stages of a gradual growth and that nearly all these events took
place without any of the drama of history. There is no trace of
the operatic stage management, the new flags, the “new era” and
the new calendar, but in their place we find that steadfastness and
rooted strength which only slow and natural growth can produce.
These original democracies are thus endowed with heightened
powers of resistance in the present world crisis which is leaving
its mark also on them.

*

The political revolution of the West which we have surveyed up
to this point, may be termed a bourgeois revolution in as far as
it could never have developed such breadth and momentum—how-
ever decisive the stimulus of the liberation struggle of a peasantry
oppressed by feudalism—if it had not been able to draw support
from the ever more powerful class of the commercial-industrial
burgesses, i.e., the bourgeoisie. Since, however, this class is the
product of that economic development which finally culminated in
the economic revolution of the eighteenth and nineteenth centuries
“Capitalism,” it is a truism to say that the economic revolution has
given a tremendous impetus to the political revolution. Yet the


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46 ~ THE SOCIAL CRISIS OF OUR TIME

opposite is no less true, viz., that the political was ‘godfather to
the economic revolution, since it was the former which: first created
the conditions for the unhampered development of technology, for
the division of labor and commercial interchange. Only thus can
we explain the late advent of the machine age, for the modern
spirit had already demonstrated from the Renaissance down its
bent and particular genius for the solution of technical problems.
Born engineers there had been in abundance, but the restrictive guild
constitutions of the Middle Ages and the Ancien Régime forced
them to express their art in the by-ways of economic life, those
devoted to the manufacture of fanciful toys and articles of worship,
of fountains and magic clocks of matchless perfection, of musical
instruments of almost inexhaustible diversity. and of many other
things—with the significant exception of mining whose special
character had ‘at an early date turned it into a field of technical
experimentation free from guild regulations, up to the first installa-
tion of a steam engine and the first railway in an English mine.
The early flowering of the watch and clock making industry is
part of the same chapter as is the manufacture of astronomical and
scientific precision instruments which in the nineteenth century
still provided in many localities the basis for the development of
the machine industry.

~The accumulation through many centuries of unexploitable tech-
nical ideas accounts for the violent and in part destructive sudden-
ness with which in the later part of the eighteenth and then in full
force in the nineteenth century that economic revolution took place
whose most striking feature is the employment of machinery. While
the political revolution is unique merely in its intensity and boldness,
the economic revolution leaves us altogether without precedents.
That we have mechanized production, passed beyond the limits
of organic nature, utilized steam power won from coal and the
power generated by the internal combustion engine and by electricity
—and witnessed in consequence the colossal increase in population,
the technological revolution in communications and agriculture,
the development of scientific chemistry, the economic interlocking
of the entire globe and finally the conquest of the air—all this is
so unquestionably unique as to divide us from all preceding
millenia by an unbridgeable gulf. Little wonder then that, facing
the economic revolution helpless and without previous experience,
we allowed it to follow a course which we know today to have
been disastrous and which we are belatedly doing our best to right.
And in the unconcern with which our forefathers entrusted their
fate to the economic revolution and in the illusions by which they
allowed themselves to be guided, we recognize the rationalist-
scientific blindness in the face of the eternal laws of life, society
and man, which we have already met with in the realm of politics.


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SEED AND HARVEST OF TWO CENTURIES 47

It would be fatuous to deny the extraordinary progress towards
an easier life and the increase in the material welfare of the masses
which we owe to the economic revolution, and since this has
irrevocably led to a tremendous rise in population, nobody can
seriously wish to put the clock back to the previous stage of develop-
ment. But this we may be permitted to say: today we are aware
of the high price that had to be paid for it and that we will continue
to have to pay, and we are by no means still certain that the price
is not too high. We distrust the optimistic assertion that technology
and the machine are completely innocent of all this and that the
blame rests squarely on man alone who is using them in the wrong
way and will just have to learn the right one. We know that there
are limits to mechanization both of men and work, to the emancipa-
tion from nature and the division of labor, limits which cannot be
overstepped without grievously impairing man’s happiness and the
soundness of the social fabric: in the end even ill-treated nature
retaliates, e.g., against mechanized agriculture, with a continued
deterioration of the soil. The problem of the machine—which
happens to be something else than just a highly developed tool—is
not merely one of its use, but also one of the machine itself, which,
following its own laws and imposing them on man, extracts its
tribute from him. To indulge in any illusions about this fact and
to evade its conclusions would be feeble self-deception. - These
conclusions are two in number: we must first of all be prepared
to consider seriously at which point the price for the increase in
productivity is no longer balanced by its material advantages, and
from that point forego further use of the machine; but even before
we reach this stage we must, secondly, spare no efforts to discover
new ways in the use of machines and the organization of industrial
plants which will minimize their imperfections. oo

~ We have stressed the full gravity inherent in the problem of the
machine, the division of labor and the rapid growth of population
in order to combat the view that the universal disappointment amid
which the economic as well as the political revolution has ended in
our days, is alone or even in greater part due to the character of the
political-social economic = structure created by liberal-bourgeois
society. ‘The intrinsic danger of this view is revealed by the fact
that it has played a decisive role in every collectivist revolution after
the Russian Revolution of 1917. It is, however, precisely these
revolutions which have confirmed the expectation that the replace-
ment of the liberal economy by the collectivist one does not only
leave those problems of production techniques, unsolved ‘which
are not tied up with the economic system, but that it intensifies
them to an unheard of degree. The collectivist cure which not only
retains the “capitalist” production technique, but carries mechaniza-
tion to its utmost limits, can only aggravate the evil until it becomes


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48 THE SOCIAL CRISIS OF OUR TIME

no longer bearable. We may state this with all the greater emphasis
as we make no secret of our opinion that—however firmly we
should adhere to all the essentials of the liberal-bourgeois economic
system—the economic liberalism of the last two centuries has
disastrously gone astray in a manner fully paralleling the mistakes
of political liberalism and ultimately stemming from the same
source. - | : |

The Aberrations of Rationalism and Liberalism

- Rationalism too, together with its offspring—political and
economic liberalism—belongs to that class of things which should
not be praised or condemned wholesale, but should be delimited
and then confined to their proper sphere. If rationalism is so dis-
credited today that even the word itself carries a disparaging note,
this, as everyone knows, is obviously not only due to a transitory
fashion in thought but chiefly to the fact that it suffered abuse in
the past. How and in what respect? Co

~ A satisfactory answer must again be prefaced by proper defini-
tion. The term “rationalism” has come to mean three things
which should be kept strictly separate. Rationalism may, first of
all, mean comprehending the world by means of the critical intellect,
searching for causes, reasons and motives. It may, secondly, mean
that we attribute “rational” motives to the social process, i.e., that
we identify the instrument which we use to observe the world with
the world itself. Thirdly, rationalism may be understood as the
endeavor to represent a particular political measure as the only
rational one and to call for it in the name of reason. Today it is
beyond dispute that the second type of rationalism is pure fiction
and as such actually conducive to the most unadulterated irrational-
ism; it has found its most dogmatic and intellectually preposterous
formulation in Hegel's system, but has also for too long infested
political economy in the shape of the always rationally acting homo
oeconomicus. The problem, therefore, is merely one of justifying
and defining rationalism of the first and third types. |

It is evident that the aberrations of this kind of rationalism can-
not have consisted in a surfeit of intellect, which would amount
to an invitation to despise “man’s foremost power” and “turn the
lamp of our reason so low that we are enveloped by a dim but cosy
semi-darkness” (A. Riistow). That happens to be the opinion of
a ‘fashionable movement of superficial irrationalists and anti-intel-
lectuals, but it can certainly not be our view. No, abuse of the
intellect in the negative sense of rationalism is only possible if the
intellect is taxed beyond its capacity, if its nature, its limits and
premises are ignored. That has in fact happened and even today
we shall find that whenever we have to reject a mental attitude as


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SEED AND HARVEST OF TWO CENTURIES 49

rationalist, that particular error has been committed which we are
going to describe as the blind infatuation with the Unconditional
and Absolute. It is true that in the sphere of pure logic and
mathematics reason is free and independent, following its own
laws, but the error occurs precisely when this a priori method of
thinking is applied to the realities of life and society, where the
intellect is after all merely the judge who has to consider empirical
facts and conditions. In the fields which concern us here, reason
simply is not autonomous and unfettered, it does not exist in a
vacuum, nor is it entitled to spread its wings, but is obliged to
recognize the barriers and conditions set by the circumstances of
our existence. Otherwise it becomes a threat to life and will bring
about that self-obliterative hair-splitting which we associate with
the word “sophist.” As soon as reason frees itself from these limits
and peremptorily announces its independence, trouble ensues: such
is the case of the ethical sophist who, proud of having used his
reason to unmask justice as pure “ideology,” arrogantly ignores
the most certain thing in the world, man’s moral compass, in brief,
his conscience; such again is the case of the libertarian fanatic who,
postulating absolute freedom, forgets that freedom without con-
straint will end in the worst kind of bondage; further, there is the
apostle of equality who airily dismisses the brutal truth that the
essence of life is inequality and variety; the same applies to the
socialist who builds his ideal state without taking man’s unalterable
nature and the anthropologically vital character of property into
account; it is likewise true of the liberal, who, desiring to turn com-
petitive economy into a precision machine based entirely on men’s
rational behavior, forces working and living conditions upon them
against which their nature finally rebels; into the same category
falls the feminist, demanding complete equality with the male sex
while remaining blind to the intriguing circumstance that the
sexes were, after all, and not without reason, created different; and
finally, there is the pacifist who interdicts war as something
irrational, but does not, unfortunately, abolish it since he puts his
faith in legal and organizational measures, and neglects the socio-
logical background of wars. Our rationalist is always offending
against Pascal’s wise axiom: “L’homme n’est ni ange ni béte, et
le malheur veut que qui veut faire I’ange fait la béte.”

Although the. liberating effects of rationalism have been so incal-
culably vast that European civilization cannot be imagined without
it, it is yet undeniable that, viewed as a whole, i.e., seen with all its
laudable exceptions and ultimately unsuccessful attempts at better-
ment, it has turned into the blind alley of the Unconditional and
Absolute, thus preventing the great age of enlightenment from
reaching full fruition. We lack sufficient space to describe the
details of this development which began in the seventeenth century.


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50 THE SOCIAL CRISIS OF OUR TIME

Only one thing must be stressed emphatically: the quantitative
mode of thought, in terms of mathematics and the other natural
sciences, whose chief founder was Descartes, was a decisive cause
of the aberrations of rationalism, since this form of thinking neces-
sarily blinds one against the facts and demands of life—life which
means quality, structure and form. All the protests of Vico, Herder,
the Scottish School, Rousseau, Burke, Hamann, the “Storm and
Stress” and the Romantic movement notwithstanding—this develop-
ment has led Western thought astray along a road which, in the
nineteenth century, culminated in the “cult of the colossal,” and
it is our time that has been privileged to help the concepts of quality,
of “function” and of “form” to regain their rightful place once
more. | |
It is, above all, in the sphere of politics that we encounter the
infatuation with the Unconditional and Absolute and all its catas-
trophic consequences, and here we remind the reader that Goethe’s
words at the head of this chapter were written after the experiences
of the July Revolution of 1830. This infatuation is first of all
demonstrated by blindness towards the structural laws of society,
a blindness which encourages the belief that it is possible to organize
society in accordance with rational postulates while disregarding
the need for genuine communities, for a vertical structure, for
authority and hierarchy. A rationalist republican will no more
understand that a monarchy can be a superior form of government
where it has really legitimate roots than he will be able to grasp
how much federalism, the family or a sense of tradition, really
mean to the health of the state. The democratic rationalist labors
for democracy in its purest and most absolute form and when he
has reached his goal, he is surprised by the distressing results, as
were, for example, the creators of the Weimar Republic, the “freest
constitution in the world,” which finally ended in its complete
reversal. One of the chief concomitants of this delusion is the
framing of the liberal principle in such an absolute form that its
enemies profit by it too, and are, in the name of freedom, given
every conceivable opportunity to put an end to liberal democracy—
as a French pamphleteer of the nineteenth century, Louis Veuillot,
so trenchantly put it: “Quand je suis le plus faible, je vous demande
la liberté parce que tel est votre principe; mais quand je suis le plus
fort, je vous Ite, parce que tel est le mien.” It is obvious that this
absolute tolerance even towards intolerance, this intransigent dog- -
matism of the liberals, which gives a free hand to all trouble makers
and agitators, thereby condemning itself to death with open eyes,
must ultimately reduce “pure democracy” to the defenseless victim
of anti-liberalism, to a sort of gambling club whose rules include
their non-observance. It will always remain a riddle why it needed
such very sad experiences to put an end to this delusion. Today


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SEED AND HARVEST OF TWO CENTURIES 51

(1941, in Central Europe) we may say with Tacitus (Vita Agricolae,
II): “Sicut vetus aetas vidit quid ultimum in libertate esset, ita nos
quid in servitute, adempto per inquisitiones et loquendi audiendi-
que commercio.” It is entirely in keeping with this degeneration
of democratism and liberalism through rationalism, that it was
possible to maintain, in all seriousness, that lack of opinion and
beliefs form the essence of democracy and liberalism, since other-
wise they could not be tolerant. Where such a path can finally
lead was demonstrated by a certain leader of the Democratic Party
in Germany after the 1918 revolution, who, when asked about the
program of his party, gave the priceless answer that it was in
accordance with the principles of democracy to leave the program
to the will of the people itself. |

Not only in internal politics, but also in foreign affairs,
rationalism has wrought far reaching destruction. Here we are,
among other instances, struck by its inability to recognize the living
values of nationhood in those under-currents whose discovery we
owe to the romantics and their forerunners (Vico, Montesquieu and
Herder). Hence the rationalist’s incorrigible addiction to construct-
ting states with the aid of maps and T-squares, his contempt for
national differences of language and culture in general, and for the
small states in particular, and finally also his inadequate under-
standing of Europe’s national diversity, which already Montesquieu
described so fittingly as a nation of nations. But once the rationalist
has decided to appropriate the nationality principle he will not rest
until he has succeeded in flogging it to death, after he has
thoroughly discredited it by misuse.

If we are now to describe the evil influence of rationalism on the
development of economic life, we encounter that form of economic
liberalism whose aberrations, too, cannot be better characterized
than by reference to the infatuation with the Unconditional and
Absolute. The automatic regulation of a competitive market was
certaintly a great discovery which we, who reject collectivism,
would- be the last to minimize. The glory of liberalism would
indeed be unblemished if it had not also fallen victim to rationalism
and thereby increasingly lost sight of the necessary sociological
limits and conditions circumscribing a free market. It was seriously
believed that a market economy based on competition represented a
world of its own, an “order naturel,” which had only to be freed
from all interference in order to stand on its own feet. As it is
miraculously directed by the “invisible hand” mentioned by Adam
Smith, which in reality is nothing but the “divine reason” of deistic
philosophy, men have only a negative duty towards it, namely, to
remove all obstacles from its path—laissez faire, laissez passer. Thus
the market economy was endowed with sociological autonomy and
the non-economic prerequisites and conditions which must be ful-


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52 THE SOCIAL CRISIS OF OUR TIME

filled if it is to function properly, were ignored. It is typical of
that period of enlightenment that what was in reality a highly
fragile artificial product of civilization was held to be a natural
‘growth. One was, therefore, basically inclined to acknowledge no
bounds to economic freedom, and to range again into the Uncondi-
tional and Absolute, granting only grudgingly, and in moments.
of weakness, the concessions which stark reality finally demanded.
One refused to see that a market economy needs a firm moral,
political and institutional framework (a minimum standard of
business ethics, a strong state, a sensible “market police,” and well
weighed laws appropriate to the economic system), if it was not
to fail and at the same time destroy society as a whole by permitting
the unbridled rule of vested interests. Historical liberalism (par-
ticularly the nineteenth century brand), never understood that
competition is a dispensation, by no means harmless from a moral
and sociological point of view; it has to be kept within bounds and
watched if it is not to poison the body politic. One held, on the
contrary, that a competitive market economy, based on division of
labor, was an excellent moral academy which, by appealing to their
self-interest, encouraged men to be pacific and decent, as well as to
practice all the other civic virtues. While we know today—what
could always have been known—that competition reduces the moral
stamina and therefore requires moral reserves outside the market
economy; at that time they were deluded enough to believe that,
on the contrary, it increases the moral stock.

On a par with this rationalist exaggeration of. the competitive
principle, based on the egoism of each individual, was the socio-
logical blindness through which the individual was thought to be
an isolated, atomized entity who could as such be made the basis
of the economy; all the indispensable cohesive forces of the family
and the natural social groups (the neighborhood, the parish, occupa-
tion, &c.), were considered irksome fetters. In this way that
questionable form of individualism was evolved which in the end
has proved to be a menace to society and has so discredited a
fundamentally sound idea as to further the rise of the far more
dangerous collectivism.

It was for the same reason that economic liberalism, true to its
rationalist origin, exhibited a supreme disregard for the organic and
anthropological conditions which must limit the development of
capitalist industrialism unless a wholly unnatural form of existence
is to be forced upon men. This spirit of historical liberalism,
so alien to everything vital, is responsible for our mon-
strous industrial areas and giant cities, and even for that perversion
in economic development which condemns millions to a life of
frustration and has, above all, turned the proletariat into a problem
which goes far beyond material considerations. Although the


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SEED AND HARVEST OF TWO CENTURIES 53

average liberal of that time never thought of looking upon the
social question also (or even in the first place) as a problem of
vitality, i.e., as a non-economic, spiritual problem posed by the
industrial form of life, it would yet be unjust to accuse him of
callous disregard for the material condition of the workers. It
would also be wrong to assume that in the face of the general
upheaval caused by the Industrial Revolution, of the proletarization
of the peasantry in England and large parts of Germany, and of
the rapid and vast increases in population, there was an even chance
of immediate improvements in social conditions; and as regards
the general attitude adopted by the liberals on this point, they
silenced their conscience by an optimistic trust in the future. Only
when, in the course of time, that trust began to wane, did that
bad social conscience arise which in all its disguised forms has
become characteristic of latter-day liberalism.

But let it be said that all these are only aberrations—however
destructive—of liberalism, which we are anxious to separate from
the healthy core: this is borne out by the fact that these errors
were also typical, although often in different or diametrically
opposed form, of contemporary socialism. In its rationalist infatua-
tion the latter is indeed not a whit better than its opponent, in some
respects it is, in fact, far worse. This is particularly true of a
mental attitude common to both and springing from the same
rationalism which, autocratically creating its own postulates, views
the world entirely from the quantitative angle: “economism” we
have called this attitude because it judges everything in relation to
the economy and in terms of material productivity, making material
and economic interests the center of things by deducing everything
from them and subordinating everything to them as mere means
to an end. Those who have become addicts of economism can
probably best be described as those who will shake their heads in
uncomprehending disapproval over the foregoing pages, but we fear
that there will be as many socialists among them as there will be

liberals.
Historical “Interference”

Whenever we look back on the past two centuries we encounter
things that confuse us. What is one to think, if on the one hand
the eighteenth century is praised as the age of Europe’s intellectual
giants, and on the other hand a man can be branded as an arch-
reactionary by being described as a “man of the eighteenth
century”? Or, when Montesquieu, Burlamaqui or Vattel are
quoted in confirmation of the high standard of international legal
concepts, whilst in reality relations in general were then so much
fiercer and more bellicose than in the nineteenth century? How


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54 THE SOCIAL CRISIS OF OUR TIME

are we to reconcile the fact that the nineteenth century was a
unique period of progress, peace, liberty and order, whilst at the
same time its intellectual life was notoriously succumbing to increas-
ing coarseness and disintegration and towards the end some of its
products reached startling depths of barbarism? And how does
our own time fit into this sequence? Is it epilogue or new depar-
ture, and to what extent is it either? :
These are some of the questions to which we must find an
answer. It is likely to be found in a most important set of circum-
stances which we shall call “historical interference” and define as
follows: history apparently always takes its course in two phases, a
phase of internal, mental incubation and a phase of external,
physical realization, and as there is a great time lag between these
two, the most remarkable and confusing phenomena of interference
result from the coincidence of the realization of an already com-
pleted mental process of preparation with the incubation of a period
that is yet to come. A second illustration will serve to make this
clear: the great waves of history reach our shores after the steam-
ship which has caused them has long vanished over the horizon and
even after another ship has passed. Applied to our problem, this
means that we are living today in a period of realization whose
incubation took place in the nineteenth century, whereas the external
physical and socio-political happenings of the nineteenth century
are essentially the fruits of the seed sown in the eighteenth century.
Liberalism, humanity, freedom, order, rational control of the
instincts, balance, peace and progress and the other attributes of the
nineteenth century appear in this light to be largely the fulfilment
of the intellectual and moral theories of the eighteenth century, the
‘cultural heritage on which the nineteenth century lived without
replenishing it because the output of new ideas followed quite
different and coarser patterns. The nineteenth century reaped what
the eighteenth had sown, including the fame which should by
rights have gone to the sower. From this it would appear that one
must not only be careful in the choice of one’s parents but also
in the choice of the century preceding one’s own. And we, at any
rate, living in the present are in the unhappy position of having to
reap what prominent thinkers began to sow a hundred years ago,
just at a time when the seeds of the eighteenth century—including
the weeds which we already know—were about to shoot up. In
fact, at that time, around the 1830’s and 1840s, we notice the first
signs of that general intellectual disintegration, that living on
cultural reserves, which has presented us with the “great spiritual
interregnum” of our day. Yet we must find comfort and encourage-
ment in the thought that the external events of the present are part
of a “realization phase” of a past and closed period, while the
incubation of the future has quietly been taking place for many


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SEED AND HARVEST OF TWO CENTURIES 55

years along quite different lines and is influenced moreover by. the
weight and form of our participation in it. CL

All this can afford us much enlightenment. It explains why the
interpretation of different periods and their prominent men in their
multifarious aspects is so difficult. We are beginning to under-
stand what an outstanding part ideas play in historical development,
the strange illusions men harbor concerning the place which they
happen to occupy in history and the no less curious illusions of
certain revolutionaries regarding the epochal novelty of their régime,
which, far from being the first phase of a new era, is often only the
last ripple of a declining one. It also shows the ambiguity of
concepts such as “eighteenth century” or “nineteenth century”
and demonstrates the necessity of always adding whether one means
the ripening content of ideas or the external development; in the
eighteenth century, for instance, the latter compared unfavourably
and in the nineteenth favorably with the former. But, above all,
these considerations show us what ominous things must have been
germinating in that period of spiritual incubation a hundred years
ago in order to result in the terrible explosion of our days. About
a century ago there occurred, in fact, throughout Europe a break in
the development of ideas which found perhaps its most striking
demonstration in Germany, a break whose long term effects have
been determining factors in today’s catastrophe. The lives of many
leading men could serve as illustration of this rupture, but it is
perhaps advisable to select only one whose story brings out par-
ticularly well the nuances of this transitional period in political
thought. For this purpose we have chosen that mercurial *and
ambitious Swabian, the well-known economist Friedrich List, the
foremost economic writer and propagandist in the Germany of
that time and a fervent patriot to boot, whose main work appeared
exactly a hundred years ago in 1841, characteristically entitled The
National System of Political Economy.

The history of economic theory generally rewards Friedrich
List with such good marks that it is difficult to ascribe an even
faintly sinister role to him. In any case he was far from being a
sinister person and his adroitness and vitality, his rich fund of
experience and ideas, and his sincerity have never been questioned.
It 1s, however, more difficult to do justice to his achievements in the
field of economics, at least in the few words which are appropriate
at this point. He is probably best known for his attempt to breach
the free trade doctrine of the classical economists and to prove the
usefulness of tariffs for the protection of infant industries in agrarian
countries. His claim to have thereby given expression to a con-
~ clusive, and since then generally and in principle accepted—though
by no means original—idea, remains uncontested and has made of
him a kind of national saint in all agrarian countries adopting


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56 “THE SOCIAL CRISIS OF OUR TIME

industrialization. However, if List had imagined that competition
between the gradually growing industries would in the end auto-
matically render tariffs for the protection of infant industries ineffec-
tive and thus remove it, he was greatly mistaken because events
followed a vastly different and completely unforeseen course, chiefly
in Germany but hardly less so in the United States: it was precisely
the industrial protective tariffs which proved to be highly conducive
to the formation of trusts, thus becoming “tariffs for the protection
of trusts.” When in 1879 Germany changed over to the system
of protective tariffs and thereby started out on a path which was
politically and economically equally disastrous, List was certainly
quoted without justification, but it is equally certain that he had a
large share in creating an atmosphere favorable to the rule of pro-
tectionist interests. | oo

The doctrine of tariffs for the protection of infant industries is
based on a general criticism of classical economics and notwith-
standing its gross exaggeration and somewhat rough-and-ready
character, it has in many respects hit the mark and long since
become part of our economic concepts. Who would today deny
that the super-rationalism of the classicists which was so typical of
their time, coupled with their blind refusal to view their liberal
doctrine as being sociologically and historically conditioned, was
in urgent need of adjustment? Who would deny that they had
dogmatically simplified and stated in absolute terms things which
would sooner or later call for refinement? On all these counts List
has his merits, however much we have learned to be sparing in
our praise of him.

On closer examination it would even seem as if List—and in
this he was typical of the period in the history of thought which
had just begun then—in one important respect fell below even the
classicists’ primitive level of sociological understanding, notwith-
standing all the adulation which the historical-romanticist school of
economics has lavished upon him on account of his supposed pro-
fundity. He saw clearly enough that classical economic science
had gone astray in conceiving competitive economy as autonomous,
thus adopting that thoroughly erroneous view which we have
already discussed. Jointly with others, List attacked this disastrous
belief in the sociological autonomy of competitive economy; a belief
which was the cardinal error of the laissez-faire philosophers and
finally discredited liberalism, so seriously that we find it difficult to
salvage its permanent values. He himself, however, committed an
even more serious error by endowing industrial competition with
the miraculous ability of creating the necessary non-economic frame-
work without our co-operation, merely by virtue of its integrating
and morally educative powers. “Evolution” (that magic formula
of the nineteenth century), “social laws,” “industrial civilization,”


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SEED AND HARVEST OF TWO CENTURIES 57

“social utility,” making usefulness automatically identical with
justice and ethics, men’s fervent devotion to the business of increas-
ing their material wealth—all this became a substitute for what in
the eighteenth century had still been accepted (perhaps too much as
a matter of course) as the axiomatic basis of a world order. This
order owed its ennobling powers not to cotton manufacture, but
to a higher authority, an increasingly colorless personal God, and
to a concept of “Nature” or “Culture” synonymous with him. A
last trace of this eighteenth century deism is to be found in List’s
ideas but it is almost entirely smothered by the pseudo-religion of
the nineteenth century: the religion of evolution (i.e., of aimless
progress, which had nothing of the eighteenth century’s deeply
ethical appeal to what is good in man, but proceeded entirely in
accordance with scientific or intellectual “laws” in the manner of
Hegel's determinism), the religion of scientific positivism, of bio-
logism, naturalism, and finally “economism,” which believes
economic considerations to be the driving force in history. When
“The National System” was published both Darwin and Marx were
becoming known, Saint-Simonism was at its height, Cobden—*“the
inspired bagman of a Calico Millenium” (Ruskin)—and Bright
had forged the spirit of industrial and commercial England, that
strange mixture of utilitarianism and idealism, and a few years
later Guizot was to admonish the French: “‘enrichissez-vous.” In
the same year, 1841, Balzac, pitilessly depicting the society which
had followed Guizot’s advice, caustically called his series of novels
“La comédie humaine.” There was still a whole decade to go
before we encounter the recklessness of the German materialism
of a Moleschott and Biichner, but the robust belief in material
strength which pervaded the whole nineteenth century, was already
making itself felt and in this respect the difference between List
and Marx is only a matter of degree. As if to supply the final
proof of our diagnosis even language began to become crude at
that time in its vehemence, pathos, drastic expression, and that
even grammar itself suffered we have no less a witness than
Schopenhauer (“Ueber die Schriftstenerei und Stil”). Ten years
previously Stendhal had in his great novels glorified morally blind
force.

In fact, if “The National System” were as undated as a papyrus,
thousands of years hence philologists should still be able to deter-
mine its publication date—not only to the century but to the decade
—from its contents and tenor. But even today it can be said that
List, however much he may fundamentally have had in common
with Cobden’s Manchester theories, was, on one decisive point,
much worse than his opponent whom he maligned so violently:
whereas the former was sufficiently honest and upstanding to follow
the doctrine of the competitive economy to its logical conclusion


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58 THE SOCIAL CRISIS OF OUR TIME

and left it to shoulder its own risks, List opened the back door to
state support. While heaping abuse on the free traders, he under-
took to give an ethical and philosophical veneer to the insatiable
appetite of the vested interests by his theory of protective tariffs.
Enrichissez-vous—but not only as Guizot had said “par le travail,
par ’épargne et la probité” but also through the good offices of the
state. The damage which List caused with this can hardly be
estimated: it is the first and therefore still timid beginning of a
form of “pluralism,” i.e., the rule of interest groups, which sapped
the strength of state and competitive economy alike; it started its
triumphal march through Germany with the introduction of the
Bismarck tariff in 1879 and characteristically spread to at least the
samé extent in List’s second home, the United States, whilst
Cobden’s country, free trading England, largely succeeded in fend-
ing it-off. List shared most of the faults of the Manchester school’s
liberalism and replaced its advantage with a further fault, by being
the first to demonstrate how to combine, with an entirely untroubled
conscience, the glorification of private enterprise and an “‘econo-
mistic” Weltanschauung on the one hand with the solicitation of
state aid on the other, how to run with the hares and hunt with
the hounds. It was a form of economism which was no longer
even liberal and thus became the forerunner of ‘that national
liberalism with which everyone acquainted with Bismarck’s
Germany is familiar. | |

The picture which we have drawn of this unhappy and divided
man might easily appear distorted unless we add at once that
standing at the intersection of two epochs he is a perfect illustration
of the “interferences” which we mentioned above and for this
reason alone he is of interest to us in this discussion. He resembles
many of his contemporaries, particularly the historian Ranke, in
that he, while sowing new seed, still carries within him a good deal
of the cultural heritage of the eighteenth and the beginning of the
nineteenth century, a humanist education, idealism, and an inter-
national outlook. On the one hand he corrects the rationalist cosmo-
politan attitude of the age of enlightenment by reminding us—as did
Montesquieu, Vico, Herder, Moeser and the romanticists—that
between the individual and mankind the nation is an essential
intermediate stage in the structure of society, but on the other
hand, and in spite of many discordant notes, he was by no means
a mere nationalist. “The National System” bears the motto “Et la
patrie et I’humanité” and many sonorous passages of the work are
in accord with this sentiment. That is particularly true of the fine
spirit in which he tries to do justice to England, the actual target of
his attacks. However honest List may have been in his views,
it is apparent from the context that he thought he had to speak to
his time in this manner in order not to cause offense and yet he


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SEED AND HARVEST OF TWO CENTURIES 59

was still sufficiently rooted in such concepts to be able to express
them fluently and with conviction.

However, let us not forget the twilight in which this man
makes his appearance and which makes him interesting to us: an
epoch ended in him and he stands at the beginning of a new one
which seems to be drawing to a close only in our time. ‘This
happens to be the peculiar weakness which resulted from List’s
intellectually ambiguous position: when the nationalist industrial
states closed their frontiers with tariffs for the protection of their
infant industries, a period of tariff and trade wars was inaugurated
which was bound to lead to the gradual extinction of the funda-
mental ideal of humanity, and once the nations were awakened by
being taught to be ‘industry minded,” forces were set free whose
course no man could predict.- Whether List loved the ideal of
universal brotherhood only as an abstraction or whether there still
lived within him the strong tradition of the classisists, will there-
fore remain debatable, but ‘lasting peace’ and ‘world-wide free
trade’ could never be reached along the lines he recommended.”
(Fr. Schnabel). There can be no doubt that these humane ideas
must be credited to a “Zeitgeist” still extant then. But what is new
and peculiar in List and others like him is to have actively partici-
pated in breaking up these cultural reserves, to have initiated a new
and more robust period of acquisitiveness, of a realistic sense of
life, of lusty participation in political and economic affairs, of ‘a
glorification of power and of “the cult of political unity and national
expansion” (Jacob Burckhardt). He stood at that turning-point of
history which is innocently symbolized by the son of the composer
of the “Freischiitz” becoming a railway engineer. Men were for-
saking the things of the spirit and turning to externals: both the
classic and the romantic periods were coming to an end, the
“Biedermeier,” too, was drawing to its close, the Germany of
Richter, Schwind, Kiigelgen, Schubert, Jean Paul, whose tradition
was continued by Stifter, Morike and Raabe has little connection
with the Germany that followed List’s lead, unless as an object of
infinite contempt; everything gentle, tranquil and serene is gradually
drowned in noise and bustle, symptoms which prophets like Jacob
Burckhardt, as we see from his letters, recognized as ill omens.
“Ce qui s’annonce en Allemagne,” Edgar Quinet wrote in 1831 in
the “Revue des Deux Mondes,” “C’est la ruine de I'intelligence . . .
cette impuissance des consciences, ce vide moral, cette décadence de
la véritable intelligence en Europe.” Indeed, no one who compares
the Germany of the first part of the nineteenth century with that
of the second part, can escape the disheartening impression that this
country, more than any other, became a victim of the general intel-
lectual and moral disintegration, and gradually lost its soul, but now
we are in a position to trace this melancholy development to its first


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60 THE SOCIAL CRISIS OF OUR TIME

beginnings—the break took place about a hundred years ago and
List played a prominent part in it. But we should not forget that
List and everything new that he represented also meant a break in
that unique period of Prussian pre-1848 liberalism, which was
characterized by the Humboldts and that liberal class of public
servants, trained in the humanities (among whom we count Schon,
Motz, Maassen, Kunth, Beuth, Nebenius and Delbriick), whose
last representatives lived into Bismarck’s era and to whom Adam
Smith and Kant were more familiar than Hegel. It was a far cry
from the Prussia of that time to the Prussia of Treitschke and his
even worse successors. But Treitschke’s subsequent trumpet blasts
repeated in essence what List had sounded in the softer key with
which a new era usually begins. Whilst the second half of both the
eighteenth and the nineteenth century represents a'distinct turning
int in the history of thought, it is characteristic of the difference
tween them that in the eighteenth century it was a turn for the
better. The second half of the eighteenth century was a time of
purification, readjustment and reflection, of which the German
classicists, the Scottish philosophers, Adam Smith and Edmund
Burke, and, in a sense, even Rousseau are typical; the second half
of the nineteenth century, however, was a period of progressive
vulgarity, gloom and disintegration. |
If there is any one thing which typifies the latter part of the
nineteenth century in a manner which carries its disastrous con-
sequences over into our day, it is that “cult of political unity and
national expansion” with which we are going to deal more fully
in the following section. It is nothing but the familiar urge for
super-organization and centralization and the habit of attaching
absolute value to it, while regarding any attempt to question it as
heresy, treason or malicious perversity. In the eyes of this cult it is
despicable and a sign of reactionary and romantic stupidity to be
moderate in one’s wants, to stress the necessity for an integrated and
varied social structure and to demand as much independence and
autonomy as possible for the sub-sections which constitute the larger
units (federalism) both in political and economic respects. This
megalolatry is the common ideological breeding ground of modern
nationalism, imperialism, socialism, monopoly capitalism and
statism. We know, to be sure, how much the French Revolution
and the Napoleonic era—both continuing, as Tocqueville and
Taine point out, the tradition of Richelieu and French absolutism—
are responsible for this ideology and its efficacy. However, it must
be stressed that during the nineteenth century hardly anyone pro-
moted it more effectively in Germany than Friedrich List, not
because he was particularly fanatical but because he was one of its
first and most able propagandists. We can better appreciate the
novelty of this doctrine of the colossal at that time if we recall the


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SEED AND HARVEST OF TWO CENTURIES 61

very different spirit of the eighteenth century. Then Matthias
Claudius could say that nothing can be truly great if it is not also
good, whereas now everything that is considered great is conse-
quently good. We find that in the late nineteenth century it is
Adalbert Stifter (in his preface to Bunte Steine, 1853) and Jacob
Burckhardt (particularly in the famous passage in his Force and
Freedom, where he discusses the mission of the small state), who
still echo with clearness and dignity the noble spirit of the eighteenth
century which Claudius represented. The doubts which people like
Wilhelm von Humboldt or the Géttingen historian, Heeren, had
expressed at the beginning of the nineteenth century regarding the
possibility of a unified German state, must indeed have appeared
strange at the end of the century! |

In List’s time and largely owing to his influence, all this is
considered out of date and contemptible. Standardization,
uniformity, organization (extolled above all by Saint-Simon, the
father of planned economy) and centralization are rapidly becoming
the ideals of the century and the smaller units in both the economic
~ and political realm are treated with that contempt with which we
ourselves have been inculcated. In this respect there is no difference
between List, Marx and, later, Treitschke, to say nothing of the
non-plus-ultra of Ernst Jiinger in our time. List would probably
be greatly surprised if he were to learn that we are today seriously
beginning to doubt the sublimity of the colossal and are once more
learning to appreciate the wisdom of Claudius and Burckhardt.
He was an imperialist—of the harmless kind which, in a way, was
still in keeping with the humane Zeitgeist—and a whole continent
took its cue from him. His sweeping schemes of empire as well as
his undisguised contempt for the parochialism of Switzerland and
Holland fit well into this pattern. However, here we must submit
a plea of mitigating circumstances because the smallness with which
List had become familiar had generally been synonymous with
pettiness and meanness. He both remembered and saw all his life
before him that miserable world of German absolutist and feudal |
parochialism which in the course of centuries had broken the
German burgher’s back, and that gallery of “Serenissimi” whose
brutality and stupidity could really hardly be matched. Compared
with these even Frederick the Great could appear as the virtuous
and fascinating hero into which legend has formed him, a legend
‘whose hardiness in the face of the manifest historical facts can only
be explained in this way. And finally we must allow that List was
writing under the depressing feeling that he belonged to a nation
whose history had again and again for a thousand years been
cheated of its fruits in spite of the promise of many fresh starts.
If we thus partially exonerate him, we must conclude our study of
this man with the disturbing realization that the fatality of his work


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62 - THE SOCIAL CRISIS OF OUR TIME

and time is part of the tragedy of German history, which is at the
same time Europe’s tragedy.

The Cult of the Colossal

Crest sortir de ’humanité que de sortir du milieu: la grandeur de 'dme
humaine consiste a savoir s’y tenir.
—PascaL, Pensées, 1, 9, 17.

Let us return once more to the theme “eighteenth and nine-
teenth century.” After having surveyed the whole field from a
biographical point of view, so to speak, we are now making a new
start in order to do justice to the question of the “secular spirit.”
We shall begin by giving a few fundamental explanations of this
concept itself.

Although the secular split is an indispensable concept in any
history of thought and although everyone realizes that its inclusion
is warranted, it is quite clear to us that it has to be handled with
care. To start with, it is plain that a century in our calendar is a
period invented by men for reasons of expediency, which will only
by chance coincide to some extent with the great phases in the
history of thought. In spite of the reverent emotions stirred in the
human breast by “a century’s grave end,” we know that it is an
event which owes its origin, just as every new year’s night, to man’s
arbitrary division of time. It would really be asking too much to
expect the great periods in the history of thought to last more or
less exactly a hundred years, and even more, to correspond with
the century in the calendar. In this sense, then, the “eighteenth
century” or the “nineteenth century” is a very rough concept,
which we must not overtax. On the contrary, in using them we
must always bear in mind that what we understand by the
cighteenth or the nineteenth century cuts in most instances right
across our calendar and that these vague temporal divisions cover
very significant changes within each century of the history of
‘thought.

Secondly, the historical centuries (which we must distinguish
from the calendar centuries) are arranged in the complicated manner
which we studied in the preceding paragraphs dealing with
“historical interference.” And thirdly, we have to apply the same
caution to the concept of the secular spirit as we rightly adopt now
when dealing with the concept of the national spirit (or national
character). Just as the members of the same nation, at least for a
certain period, usually betray more or less similar patterns of think-
ing and feeling—acquired by whatever process—so every period has
in the same way been marked by a certain kinship between mental
and emotional patterns extending across all national boundaries, by


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SEED AND HARVEST OF TWO CENTURIES 63

what, in fact, we call the style of the time or the secular spirit,
which permeates the most trivial questions of taste and fashion.
By this we do not want to say more than that individual thinking
and feeling includes a collective component (be it determined by
time or space), and by this formulation we dissociate ourselves
decisively from the hopeless determinism which completely subjects
the individual to his spatial and temporal surroundings. Indeed,
we do not assert more than what the simplest experience forbids us
to deny, namely, that since everyone is part of the community, his
thinking and feeling display, among others, also a collective com-
ponent. Only in this sense, and fully aware of the dangers inherent
in every kind of typification and generalization, may we talk of a
national character and finally also of a secular spirit.

“Secular spirit and national character have also in common the
fact that their structure can be clearly recognized only from a
distance. = Just as one can express an opinion on the national
character of one’s own country only if one looks as it from the
outside, that is, compares it with the character of another nation,
the secular spirit can, in the same way, assume shape in our minds
only when we have already overcome it. That is what is happening
to us today when we look back on the nineteenth century and see
it as a chapter which is as good as closed, as something that is lying
behind us. Although it extends very tangibly into our own time
and is only now producing its ultimate political consequences, it
requires no sixth sense to realize that the nineteenth century, intel-
lectually speaking, belongs to the past and that everything that still
remains of it represents a grand finale. If we still doubted it, the
growing clarity with which the intellectual elite of all countries
recognizes the outlines of the nineteenth century as a definite chapter
in the history of thought, would convince us. Last and most
infallible affirmation is the fact that, like every century, the nine-
teenth century, too, is, politically speaking, drawing its final con-
clusions, which have been predetermined by long mental prepara-
tion. Thus it is only now making its rather sensational exit from
the stage. What we saw timidly started in the intellectual sphere
in the 1840’s is today coming to an end in the political field accom-
panied by wild convulsions. It is of no consequence that many,
unable to appreciate what is going on, curiously enough look upon
today’s political epilogue to an old century as the prologue of a
new one. They do not know that there is always a great distance
between concrete realization and mental preparation and that while
politics today noisily thrash the sheaves of the nineteenth century,
the soil has already been planted with new seeds.

All this will become clearer now that we shall endeavour t
define more exactly an element of the spirit of the last century
with which we are already acquainted, and to study in it the

’


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64 THE SOCIAL CRISIS OF OUR TIME

changes which the style of the times has undergone. We call this
element the cult of the colossal, and believe that we are thereby
expressing the quintessence of our present reaction towards the
nineteenth ‘century. It is a trait which, when correctly inter-
preted, shows the most diverse temporal tendencies in a surprising
interrelationship and, at the same time, places this century in sharp
contrast to the eighteenth.

It is this difference between it and the eighteenth century which
makes us understand the full significance of the nineteenth century
cult of the colossal—in the last section we called it megalolatry—and
facilitates our interpretation. It is evident that we can talk of the
eighteenth century less than of any other without running every
risk of generalization and without treating some aspects, which
others may deem typical elements, as mere under-currents. We are
well aware of the fact that it is particularly the eighteenth century
that is full of contradictions and displays, side by side with warm-
hearted humanity, the most shocking nihilism and cynicism. In
spite of this we believe we are justified in stating that the eighteenth
century—which, as we saw, extended, in the intellectual sense, far
into the nineteenth—was one of humanitarianism, not only in the
high-flown sense of the word humanity, but also in the unassuming
one of what is befitting man, and of values based on his capabilities;
it was, therefore, essentially an era of moderation, of the “human
mean,” of reverence for the small and scepticism towards sheer
size, of aversion to baroque bombast as well as mere quantity, a
century of tranquil happiness, of family life, of bucolic idylls, of
fervent interest in psychology and pedagogy (the “pedagogic
century”), of progress in the sense of confident appeal to and belief
in the possibilities open to the free will of the individual, a century
of serenity, of an even frivolous enjoyment of life, of love for the
intimate, of sociability within a small circle, of comfortable
informality which did not preclude dignity and ceremoniousness in
their right place, but rather made them particularly impressive. It.
was a century whose quiet enjoyment of the world is demonstrated
by everything it did. It has perhaps received its most beautiful
monument in Claude Tillier’s Mon Omncle Benjamin, although
we find in Casanova’s Memoirs or Choderlos de Laclos’ Les liaisons
dangereuses its lascivious frills. It is the century whose
naturalness is expressed by Maria Theresia radiantly informing the
Viennese theatre audience from her box that “her Poldl has just
gotten a boy,” and the century in which small towns such as
Geneva and Weimar, and even mere country estates like Ferney
and later Coppet come to be centers of European intellectual life,
until during the later course of the nineteenth century the big city
assumes leadership and kills the vivacious world of the small towns
and the open country. It is a century which cannot be bluffed and


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SEED AND HARVEST OF TWO CENTURIES 65

impressed by mere massiveness but lives according to a secularized
version of the bible word: “For what shall it profit a man if he shall
gain the whole world and lose his own soul?”

Certainly nobody wanted to gain the world at that time. The
wars of that period are mainly cold-blooded cabinet and status
quo wars. Even missionary activities begin to flag, and after Louis
XIV energetic imperialism is in abeyance until Napoleon appears
on the scene. It is curbed for the last time by the spirit of the
eighteenth century in the Vienna Congress, and then, half a century
later, it comes to full and permanent fruition. War and armies
are somewhat contemptuously relegated to the background; even
patriotism, if we recall a few of the biting dicta of Johnson or
Lichtenberg, did not rate very high; Vattel and Burlamaqui formu-
late humane principles of international law which find general
approval, and even Talleyrand later adopts Montesquieu’s classic
maxim: “Le droit des gens est naturellement fondé sur ce principe,
que les diverses nations doivent se faire dans la paix le plus de
bien, et dans la guerre le moins de mal qu'il est possible.” While
the mere “always-wanting-more attitude” is considered an abomina-
tion and while mere size is by no means valued highly, people
concern themselves all the more with the soul and what might
harm or profit it, and become so much concerned with the inner
man that they finally tend towards sentimentalism and occultism.

~The respect for the small and the concern with the soul are the
reasons why that century was really fond of children and seems
to have established a natural relationship to. the child, completely
free of any tendency to inculcate precociousness and free of that
disastrous confusion of the hierarchy of the age groups. Prompted
by the same feeling, it took a warm interest in the innocence of
primitive man. Pestalozzi and Rousseau stem manifestly from the
same root, only there is a difference, unfortunate for the latter, in
“that he wants to assign education in its entirety to the schools, while
Pestalozzi gives full play to education within the family. Instead
of chasing after the phantom of the colossal and of gaining the
world, one preferred to live by the famous closing words of
Candide: “mais il faut cultiver notre jardin.” We can say that it
was a century given to gardening, pedagogy, humaneness, a century
which took its cue from man, it was introspective, adverse to spec-
tacular ostentatiousness and obtrusive quantity, and because of that
it was at the same time a serene, humorous, disputatious and sociable
century, full of joie de vivre. It wanted—to paraphrase Lessing’s
well-known letter on the occasion of the simultaneous death of his
wife and child—to have a better time than other centuries, and for
that it had to pay dearly. However, we know that it was by no
means blameless for the load of its misfortunes. We know that in
spite of ‘all its excellent natural talents it failed in certain things,

c


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66 THE SOCIAL CRISIS OF OUR TIME

but this knowledge gives us comfort and encouragement because it
teaches us how we can do better.

On the other hand, the nineteenth century—which we consider
to begin in the 1840’s—is the exact opposite of all this and that in
a nutshell really is everything that has to be said. The more it
shakes off the tenacious influence of the eighteenth century, the
more it abandons itself to the intoxication of mere numbers, of
brutal strength and restless busyness, sterile excitement and
enormous dimensions; it reveres the strong man; accepts mere
quantitative size as a sufficient passport; boundlessness, mechanical
organization and centralization become the vogue; aimless develop-
ment, determined by factors outside and above men, the massive,
the over-ornate and the elephantine are in fashion; and this mania
makes men full of bathos, stilted and ceremonial; makes them
deterministic, fatalistic, humorless, fanatical and full of intense
seriousness. And finally they adopt a tragic, heroic mien, and feel
it their duty to lead an unhappy life.

Every century making its exit seems to rise to a final effort by
means of a “second pull” before it expires and is suddenly replaced
by the counter-current of the new century; and so the eighteenth
century, too, had its Indian Summer lasting into the nineteenth
century in the form of the “Biedermeier” period, which “viewed
from the standpoint of the brutality of many a modern barbarism
was perhaps Europe’s last Sunday” (K. Joel). This echo of the
eighteenth century suffered the same fate as Philemon and Baucis at
the close of Faust, whose quiet and modest idyll is brutally
sacrificed by the devil’s helpmates, Brawlmonger, Havequick and
Speedbooty, to the colossal project with which Mephistopheles had
inspired a Faust turned engineer—a profound symbolism, which
in the last analysis contains everything worth saying on our subject,
and which illustrates most aptly the prophetic vision of the ageing
Goethe. Exactly one hundred years later, Russian peasants are
“liquidated,” after the pattern of Philemon and Baucis, in the
interests of technological progress and of the Moloch of the collec-
tivist state.

~ The cult of the colossal means kowtowing before the merely
“big”—which is thus adequately legitimized as the better and more
valuable—it means contempt for what is outwardly small but
inwardly great, it is the cult of power and unity, the predilection
for the superlative in all spheres of cultural life, yes, even in
language. It is only since Napoleon’s time that the adjective
“great” or “grand” begins to make its telling appearance in
expressions such as “Grand Army,” “Grand Dukes,” “Great
General Staff,” “Great Powers,” and begins to demand from men
the proper respect, and Europe is actually just as much intoxicated
as America by expressions such as “unique,” “the world’s biggest,”


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SEED AND HARVEST OF TWO CENTURIES 67

2 <<

“the greatest of all times,” “unprecedented.” To this style of the
time correspond, in equal degree, the unexampled increase in
population, imperialism, socialism, mamoth industries, monopolism,
statism, monumental architecture, technical dynamism, mass armies,
the concentration of governmental powers, giant cities, spiritual
collectivization, yes, even Wagner’s operas. Since the cult of the
colossal reduces qualitative greatness to mere quantity, to nothing
but numbers, and since quantity can only be topped by ever greater
quantity, the intoxication with size will in the end exceed all bounds
and will finally lead to absurdities which have to be stopped. Since,
moreover, different quantities of different species can only be
reduced to a common denominator by means of money in order to
render them comparable in the race of outdoing each other, the
result is a tendency to measure size by money pure and simple—
as, for instance, in the American seaside resort, Atlantic City,
where in 1926 I found a gigantic pier simply being christened
“Million Dollar Pier.” Thus we find very close bonds of kinship
between the cult of the colossal and commercialism.

While this time the world was gained, the soul suffered con-
siderable damage in the process. The abrupt change from the
concerns of the spirit to material affairs was bound to result in
the withering of the soul. By abandoning humanism one lost
the capacity for making man the measure of things and thus
finally lost every kind of orientation. Life becomes de-humanized
and man becomes the plaything of unhuman, pitiless forces. This
results in “the abuse of greatness . . . when it disjoins remorse
from power” (Julius Cesar 11, 1), hence the increasing indifference
to all matters of collective ethics, hence scientific positivism and
relativism, which represent such a radical departure from the certain
sense of values possessed by the eighteenth century. It further leads
to a fanatical belief in a mechanical causality even outside the pro-
cesses of nature; to the love of mathematics (which the eighteenth
century, in contrast to the seventeenth, did not favor, at least not
during its latter part); to social laws such as Malthus’ “law of
population,” or Lassalle’s “immutable law of wages”; to the
oriental-baroque flirtation with fate; in brief to determinism which
not only is raised anew to a philosophic dogma, but also dominates
sociology, be it in the garb of Marx’s materialist view of history, be
it in that of geographical determinism, as first developed by Ritter
and Ratzel and finally raised in geopolitics to a veritable geographic
romanticism, or be it finally as biological or even merely zoological
determinism, the final degradation that could be reached along that
path.

It is rather fascinating to follow this secular spirit in all its
varied manifestations and to discover traces of it even where one

had hardly expected it. Let us ignore the difficult field of the


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68 THE SOCIAL CRISIS OF OUR TIME

history of art, and look more closely into the scientific activities of
the nineteenth century: it is incontestable that the decidedly onto-
logical, cosmological and objectivist view which the nineteenth
century had of the world, in contrast to the anthropological and
subjectivist view of the eighteenth century, was bound to engender
that scientific attitude which we call “positivism,” and it is just as
undeniable that it is closely linked to “relativism,” the refusal to
hold an opinion, the cool and seemingly objective registration of
facts. It is also related to that type of scholar so characteristic of
the nineteenth century, with his ceremonious gravity, his anti-
quated outlook, his love of great systems, schools of philosophy and
gigantic works of learning, to whom brevity and a pleasing style
are signs of shallowness. These qualities had been regarded like-
wise by the pedantic and stilted seventeenth century, so completely
different from the cheerful and loquacious eighteenth century, which
loved essays and apercus, and in which even a man like Kant did
not consider it beneath his dignity to write Dreams of a spirit-seer,
to say nothing of the merry pranks of a Lichtenberg. Just as typical
is the concomitant difference between the scholar’s life in the
eighteenth century—sociable, characterized by extensive correspon-
dence, dinners and disputations—and the masterful dogmatism of
the scholars of the nineteenth century, each of whom reigned as
despot over the circle of his disciples, bitterly opposed to all the other
intellectual despots. How symptomatic of the eighteenth century
that the aphorisms written by the physicist Lichtenberg for the
“Goettinger Pocket Calendar,” and Samuel Johnson’s table talk, as
recorded by his friend Boswell, are still among the reading we
most enjoy! Where would we find this later in the nineteenth
century?

What nineteenth century science lacked in the final analysis was
the courage to be simple and natural, a courage which this neo-
baroque century of the colossal lacked in every other respect as well,
because it had lost the human measure. We must refrain from
following this trait through the various branches of science, such
as the natural sciences, or history, where the collective concepts were
smothering the concept of man, or medicine, which at that time
earned for itself the reputation of treating the disease and not the
patient, or finally jurisprudence. But we cannot omit mentioning
two exceedingly telling traits by which every century in the history -
of thought usually gives itself away.

The first concerns the estimation in which the great “strong
men” of world history are held at a given period: the Casars, the
imperators, conquerors and tyrants. The value which an era places
on Cesar, Alexander, Cromwell, Richelieu or Napoleon, typifies it
as a whole and there is nothing more characteristic of the century
of the colossal than that, like the seventeenth century before it, it


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SEED AND HARVEST OF TWO CENTURIES 69

looks up, awe-stricken, to this type of man and his works. While
in the sixteenth century (which, in its turn, is so very similar to the
eighteenth), Montaigne had reproached Casar most disrespectfully
for “l’ordure de sa pestilente ambition,” and whereas Montesquieu
had bluntly talked of the “crimes de César,” and Lichtenberg had
even resignedly spoken of the “biggest and fattest oxen that draw
the crowds at the cattle fair,” the nineteenth century again begins
to discourse mysteriously on the “missions” of the conquerors and
to build up a veritable cult around the Czsars. Even Mommsen
wrote his Roman History in this spirit, as did Droysen his history
of Alexander the Great, while it is one of Jacob Burckhardt’s valid
titles to fame that he bravely upheld the standards of true historical
greatness and at an early date opposed the Napoleon cult which
has finally been exploded in our days. Hand in hand with the
over-estimation of the successful, we find a corresponding under-
estimation of those, who, like Demosthenes, offered unsuccessful
resistance to the conquerors. It is a hopeful sign for our own time
that it has again brought the yardsticks of the eighteenth century
down from the attic and begins to note the negative side of the
conquerors and their deeds, that it criticizes the imperators and
tyrants—the Alexanders, Caesars, Richelieus, Napoleons and others
of their kind—and sees their opponents (from Demosthenes and
Cato to Talleyrand, Madame de Sta€l, and Constantin Frantz) in a
new light. It is only today that we have reached the point where,
following in Gibbon’s footsteps, we are once more prepared to add
up dispassionately the terrible liabilities of the Roman Empire.
The second point in which the centuries tend to show a charac-
teristic difference is in their relationship to primitive man, to the
so-called ‘“‘savage,” and here, too, ideas on “greatness” play a
decisive role. Here, too, we find a decisive contrast between the
eighteenth and nineteenth century, which the latter quite clearly
appreciated. It was in keeping with the humane spirit of the
eighteenth century to see in the primitive first of all the human
being and to compare him quite impartially with civilized man,
and that held good not only for the primitive but also as for all non-
European peoples (the Turks, Persians, Chinese), for whom there
existed genuine and highly respectful interest. Therefore,
Rousseau’s glorification of the primordial state must definitely be
considered together with the Persian letters of Montesquieu,
Cooper’s Leatherstocking Tales, Bernardin de Saint-Pierre’s Paul
et Virginie, with the enthusiasm for the Turks (of the Genevese
painter Liotard, for instance), the Robinson Crusoe type stories and
China’s deep influence on eighteenth century culture. In the seven-
teenth century, on the other hand, Hobbes bases his doctrine of the
absolutism of the state on the sentence “homo homini lupus” (which
in the eighteenth century Shaftesbury quite rightly declares to be


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70 THE SOCIAL CRISIS OF OUR TIME

an insult to the wolves), and thus, from a negative estimate of man’s
primordial condition, arrives at the “Leviathan” of the absolutist
state; and here, too, the nineteenth century follows in the footsteps
of its penultimate predecessor, though in a somewhat different
spirit and on different grounds. With an amazing lack of anthro-
pological understanding and on the basis of the evolutionary
doctrines peculiar to the nineteenth century, one now delights in
picturing primitive man as a roaming beast, on an altogether
different level from modern man, particularly since the latter has
been broken in by civilization and the state. This attitude is in
keeping with the intellectual imperialism which undervalues the
constants in the human soul, an imperialism which prompted the
nineteenth century to brutal meddling with primitive and foreign
cultures and did not let it rest before it had raised them, clothed in
calico and top hats, to its own giddy heights; yet withal it did not
realize that it acted from its own deep seated inhumanity and soul
lessness. It is all the more typical that our own time has, as we
know, completely reversed its attitude in these matters; not only
with the aid of improved ethnological knowledge, but also from a
newly awakened interest in man and a deeper psychological under-
standing, it has rediscovered in the primitive a human being not so
very different from the eighteenth century conception; and if one
recalls the panegyric intoned by Montaigne in honor of the Red
Indians one recognizes in this our kinship to the sixteenth century.

If we now review once more all the many signs which today
point to a repudiation of the nineteenth century, and at the same
time to a renewal of the interest taken in the best of what the
eighteenth had to offer, we are inclined to come to the extraordinary
conclusion that in the history of human thought a rhythm of two
centuries seems to obtain and that each century takes after its grand-
father. We are far from establishing this at once as a social “law,”
for that would indeed mark us as unregenerate children of the
determinist nineteenth century. At most we can venture the com-
forting assumption that an excess of stupidity will in the end
always correct itself and wisdom will be re-established. However
this may be, we cannot but acknowledge that these affinities between
the spirit of the centuries do exist and that much what today strikes
us as new and full of promise, is the better part of the newly dis-
covered heritage of the eighteenth century; and here we may add
the hope that we may avoid copying its many disastrous mistakes,
errors and blunders.

There is no doubt that the wind has turned and that a new
spiritual climate is developing, of which we dare to predict or at
least to hope that its main characteristics will not be unlike those of
the eighteenth century. In the midst of all the cultural refuse of
the nineteenth century with which we are still encumbered our


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SEED AND HARVEST OF TWO CENTURIES 71

great hopes and efforts are directed towards the true twentieth
century, which is still before us. Whatever the individual aspects
of that new century may be, one thing seems to be certain: it will
have no room for the cult of the colossal.

Another, perhaps not entirely unjustified expectation arises from
this. In the introduction we spoke of the relationship between the
secular spirit and the national spirit. Now, on closer examination
it appears, strangely enough, that the secular spirit shows a peculiar
affinity to the national spirit of this or that country, that it is “in
character” with a particular country and therefore assigns it a
leading position. We are not going to discuss how far those are
right who associate the nineteenth century with a shift in the
cultural center of gravity from West to East. One may be certain,
however, that the eighteenth century was not only a “siécle des
Anglais” (Voltaire), but that, especially towards its close, it also
found a spiritual center in Switzerland. Whilst in accordance with
“historical interference” the political and social effects of the
eighteenth century did not emerge there, or anywhere else, until
the nineteenth, Switzerland at that time meant more to the West
than it did for many centuries before or after, though in the sixteenth
century too, the Swiss share in European cultural life had been
prodigious. Rousseau, Pestalozzi, Haller, Gessner, Lavater,
Bodmer, Bernoulli, Euler, Vattel, Burlamaqui and many others cast
their seed over Europe, and it occurred to none of them that the
smallness of their country would preclude its individual citizens
from taking part in the great affairs of mankind, a thought which
would indeed have signified that even a small state bowed to the
cult of the colossal. At that time Switzerland exerted a tremendous
attraction on all of Europe’s great men; Voltaire settled there per-
manently, Klopstock and Goethe stayed for a time, and it inspired
Schiller to write the most accomplished of his dramas. Every court
swarmed with Swiss citizens, Berlin as well as St. Petersburg and
Weimar, and from 1750 onwards Swiss scholars were the most
strongly represented among foreign members of the academies of
Paris, London and Berlin. It was Switzerland which at that time
was primarily responsible for awakening an interest in nature and
for the new appreciation of the peasant, which we find expressed
not only in the doctrines of the French physiocrats but also in the
works of the frequently misunderstood Adam Smith. We hope that
we shall be excused from furnishing further proof for an assertion
which is in any case generally known and undisputed. If we may
therefore consider it proven, we arrive at the conclusion that in the
course of the contemporary development of the history of thought,
to which we are also contributing, Switzerland’s great hour will
come again if only it remains true to its own spirit.


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72 THE SOCIAL CRISIS OF OUR TIME

PART ONE—NOTES TO CHAPTER 1

Note No. 1 (page 38). The original sin of force:

Here our text is based on a conception of history which seems to be
confirmed by the convergent results of ethnological, historical and sociological
research. The author found the as yet unpublished manuscript of a book by
his friend Alexander Riistow (Professor at the University of Istanbul) par-
ticularly stimulating. It will be published soon by Eugen Rentsch Verlag,
Erlenbach-Ziirich. In the meantime he recommends Franz Oppenheimer’s
System der Soziologie, volumes 3 and 4. Chapter 24 of the first volume of
Das Kapital, by Karl Marx (a chapter which Marxists like to overlook), will
also be of interest here, and in addition Werner Sombart’s Moderner
Kapitalismus, volume 1, page 715 ff.

Note No. 2 (page 39). Schiller's “Wilhelm Tell” and the French Revolution:

~~ Schiller’s appreciation of the difference between these revolutions is
expressed .in the beautiful stanzas which accompanied Wilhelm Tell when
he sent the play to Dalberg in 1804. As they are very little known we quote

them below :

When angry forces ’gainst each other rise,

~ And by blind rage the flame of war is stirred;
When "mid the virulence of party cries
The voice of justice is no longer heard;
When every crime starts rampant to the skies,
And license at the very shrine will gird,
Cutting the cable which the state maintains—

+ Here is no matter for triumphant strains.

‘But when a pastoral and simple race,
Sufficient for itself, with no desires,
Hurls off the yoke it suffered in disgrace,
Which in its wrath Humanity admires,
And in its triumph wears a modest face—
This is immortal and our song inspires.

Note No. 3 (page 43). The French Revolution and Napoleon:

~ “As regards recent works on this fateful phase in European history, refer-
énce should be made to C. Brinon, A Decade of Revolution, New York, 1934,
Duff. Cooper’s well-known book on Talleyrand and the research done by Louis
Madelin and P. Gaxotte, but above all G. Ferrero, The Gamble: Bonaparte in
Italy, 1796-97, London, 1939, and G. Ferrero, Reconstruction of Europe,
Talleyrand and the Congress of Vienna, New York, 1941, should be consulted.
The essential points are also covered in a lecture which Jacob Burckhardt
gave in 1881, entitled “Napoleon I in the Light of Modern Research.” We
~ take this opportunity to stress how much this whole book is based on the
theory of history developed by this great historian and humanist. Cf. also:
Karl Loewith, Jacob Burckhardt, Der Mensch inmitten der Geschichte,
Lucerne, 1936; Alfred v. Martin, Nietzsche und Burckhardt, Munich, 1941;
Alfred v. Martin, Die Religion in Jacob Burckhardts Leben und Denken,
Munich, 1942. Edmund Burke, in his Reflections on the Revolution in
France (1790), prophesied with admirable perspicacity and profound reasoning
that a Napoleon would finally be the result of the French Revolution.

Note No. 4 (page 43). The fruits of Bismarck’s policy:
The following may be said against the Bismarck cult: Bismarck’s greatness


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SEED AND HARVEST OF TWO CENTURIES 73

consisted merely in his alone being able to master a hopelessly confused
situation which he himself had created not only in domestic affairs (the
ultimately untenable character of the Reich structure as evolved by him, the
fight against the Roman Catholic Church, anti-socialist legislation, suppression
of parliamentary functions and the muzzling of the country’s foremost
personalities), but also in foreign affairs (after the “blood and iron policy”
and the annexation of Alsace-Lorraine followed the “armed peace” and the
“cauchemar des coalitions”). The mastering of such a situation constituted,
a trapeze act with self-imposed hazards, but, as bad luck would have it, the
conditions remained the same and even grew worse while the artiste finally
had to quit. Viewed in this light, Bismarck’s “greatness” seems very
relative today and the disastrous aspects of his personality, which in its
cynicism and nihilism could have no other than a disintegrating and destruc-
tive effect, come to the fore, in contrast to those of the really great’ statesmen
of the time such as Gladstone and Cavour. The similarity between Bismarck
and Frederick II becomes very obvious for, as no less an authority than O.
Hintze (Historische und politische Aufitze, 1, page 32) remarks, Frederick's
state, too, had been reduced to nothing but a machine that could only be
directed by a genius. - In both cases a break-down was inevitable. Cf. W.
Ropke, The Solution of the German Problem, New York, 1947.

Note No. 5 (page 45). The steadfast democracies: .

De laudibus legum Angliae written by the English Lord Chancellor,
Sir John Fortescue, in 1465, is an early testimony to the difference between a
native (organic) democratic system and those parts of Europe groaning under
the yoke of absolutism and feudalism. The social and economic basis in.
history of this essential difference which still exists today, is presented in a
particularly striking and convenient form in the well-known book by the
Belgian historian, Henri Pirenne, History of Europe from the Invasions to the
16th Century, London, 1939. Among the German speaking areas which
managed to fend off territorial and political absolutism and feudalism were,
apart from Switzerland, also the Hanseatic cities, whose “Western” democratic
and liberal tendencies have again and again been demonstrated. After all, it
was the citizens of Hamburg who could inscribe the words “Libertatem quem
peperere maiores digne studeat servare posteritas” on their town hall and it is
no mere coincidence that in the 1840’, for example, both Hamburg and
Ziirich were centers of unfettered publishing activities for the German speak-
ing countries.

In this connection it is important to remember that Burke, the bitter enemy
of the French Revolution, defended the American Revolution, and that Schiller
stressed the difference between the Swiss struggle for liberty and the French
Revolution in the above quoted dedicatory verses. On the same subject we
recommend the masterpiece of the late historian and sociologist Guglielmo
Ferrero, Pouvoir, Les génies invisibles de la cité, New York, 1942.

Note No. 6 (page 47). The Problem of the machine:

The literature on this subject is extensive but not very fertile; the follow-
ing books should be consulted: O. Veit, Die Tragtk des technischen Zestalters,
Berlin, 1935; Gina Lombroso-Ferrero, La rangon du machinisme, Paris, 1931;
G. K. Chesterton, The Outline of Sanity; C.-F. Ramuz, Taille de I’homme,
Paris, 1935; L. Mumford’s books (Technics and Civilization, 1934; The
Condition of Man, 1944); F. Muckermann, Der Mensch in Zeitalter der
Jechnik, Luzern, 1943; D. Brinkmann, Mensch und Technic, Bern, 1946.

"Note No. 7 (page 48). The rationalist confronted with inconvenient facts:

~ Joseph de Maistre, that classical representative of the sovereignty principie


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74 THE SOCIAL CRISIS OF OUR TIME

and of an almost irreligious theology, that fanatical rationalist who might be
called “an inverse Voltaire,” has proved that abstract rationalism can also
be used for developing a recklessly reactionary theory. “Les faits I'irritent ou
I'ennuient,” Emile Faguet wrote in Politiques et moralistes du dix-neuviéme
siecle, 1re série, Paris. What Thomas Huxley said of Comte also applies to
him: Catholicism minus Christianity.

Note No. 8 (page 49). Rationalism and modern thought:

Ortega y Gasset, Die Aufgabe unserer Zeit, Stuttgart; A. N. Whitehead,
Science and the Modern World, New York, 1926; K. v. Neergaard, Die
Aufgabe des 20. Jahrhunderts, Zirich, 1940; B. Bavink, Ergebnisse und
Probleme der Naturwissenschaften, 8th edition, Bern, 1945, inform us on
present day efforts at re-orientation.

Note No. 9 (page 50). The infatuation with the unconditional and absolute
in politics:

An up-to-date book which says all that is necessary on this subject is
W. Astrow’s Grenzen der Freiheit in der Demokratie, Zur geistigen Neuorien-
tierung des Liberalismus, Ziirich, 1940.

Note No. 10 (page 56). Tariffs for the protection of trusts:

What has happened in this field has been discussed in some detail by
W. Ropke, German Commercial Policy, London, 1934, page 24 ff.

Note No. 11 (page 57). History of nineteenth century thought:

Franz Schnabel, Deutsche Geschichte im neunzehnten Jahrhundert, volume
3, Freiburg i. Br., 1934; Karl Lowith, Von Hegel bis Nietzsche, Ziirich, 1941;
H. Plessner, Das Schicksal des deutschen Geistes im Ausgang seiner biiger-
lichen Epoche, Ziirich, 1935; Emile Faguet, Politiques et moralistes du dix-
neuvieme siecle, Paris; Hans Kohn, Prophets and Peoples, New York, 1946;
Benedetto Croce, History of Europe in the 19th Century, London, 1934.

Note No. 12 (page 58). Friedrich List on England:

It is surely to the credit of a man whose life work was a battle against
British supremacy in industry and political economy, if he nevertheless
writes: “Let us, however, do justice to this power and to her efforts. The
world has not been hindered in its progress, but immensely aided in it by
England. Who can tell how far behind the world might yet remain if no
England had ever existed? And if it ceased to be, who can judge how
far mankind would be thrown back?” (National System, page 293). Or:
“Napoleon sought by his Continental system to establish a Continental coali-
tion against the predominant naval and commercial power of England; but in
order to succeed it was necessary for him, first of all, to take away from the
Continental nations the apprehension of being conquered by France. He
failed because on their part the fear of his supremacy on land greatly out-
weighed the disadvantages which they suffered from the naval supremacy”
(ibid, page 331). Or: “Thus there will always be a nation who will surpass
all others by virtue of its superior spiritual and physical resources and if
that is to be so, we are firmly convinced that mankind will fare best if that
nation is England” (Zollvereinsblatt, 1843). oo

Note No. 13 (page 60). Prussia before Bismarck:

In order to gain a complete picture it is advisable to study also the old-
Prussian conservative and Catholic opposition to Bismarck, in particular


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SEED AND HARVEST OF TWO CENTURIES 75

personalities such as Radowitz and E. L. von Gerlach (Kreuzzeitung), who
in the midst of the flush of victory in 1866 and 1871 spoke of “godless
and lawless rapacity” and “the great wicked adventurer.” “The final success,
the tremendous expansion of Prussia’s power and, to crown it all, the estab-
lishment of national unity covered up all the accusations of lawlessness,
violence and lying which had been levelled against Bismarck’s policy”
(Gerhard Ritter, Machtstaat und Utopie, Munich, 1940, page 132). A further
illustration of how quickly inner adjustments were made to outward success
is the attitude adopted by leading Hanoverians after the annexation of
1866, in particular by R. v. Jhering, the well known jurist. Cf. again: W.
Ropke, The Solution of the German Problem. :

Note No. 14 (page 60). The affinity between socialism and imperialism:

An impressive example of this is, among others, the fact that during the
Boer War most of the British Socialists supported the imperialist party (G. K.
Chesterton, Autobiography, London, 1937, page 224 ff.).

Note No. 15 (page 60). The influence of French absolutism and of the

French Revolution:

It should not be forgotten that in Germany the Prussian state, which had
been highly mechanized and centralized since the time of Frederick William I
and Frederick the Great, has played a similar role. As Novalis emphasized
in his Fragmente und Studien I, (Schriften, edited by Kluckhohn, volume 2,
page 56), since Frederick William I no state has been ruled more like a
factory than Prussia, and it is really true that the Prussian barracks have
been the training ground for the German factories. In the case of Prussia
it was, of course, particularly disturbing that nobody knew what ultimate
purpose this collectivist machinery was to serve, and one could not help
suspecting that like Kant’s Categorical Imperative it was an end in itself.
Here, then, we find germs of later collectivist nihilism. :

Nevertheless, it remains true that the centralization of society went nowhere
as far as in France under the Ancien Régime, a feature which the Revolution
and the Empire inherited and accentuated. It was French absolutism. with
its’ policy of centralization and of reducing the nobility to mere courtiers,
that from the time of Louis XI and particularly of Richelieu and Louis XIV
has led to that complete necrosis of social life outside the capital and that
dissolution of every remnant of federal structure in France which to this
very day are the unfortunate characteristics of that country. Compare: the
picture which Hippolyte Taine has drawn in his classic portrayal “L’ancien
régime” (Les origines de la France contemporaine, volume 1, Paris, 1876) of
French society in the eighteenth century, with Eichendorff’s description,
“Deutsches Adelsleben am Schlusse des achtzehnten Jahrhunderts,” or with
the description of the life of the English nobility in the eighteenth century by
David Cecil in his excellent The Young Melbourne, London, 1939. This
is also one of the reasons why our description of the pleasant family life and
the modest style of living in the eighteenth century does not apply entirely
to the nobility in France. For the same reasons we find in France no “gentle-
men farmers” who in the eighteenth century evolved a rational system of
agriculture in England, Switzerland and Germany, and whose absence
explains the terrible decay of French agriculture of that time.

Note No. 16 (page 61). The star witnesses for the small state:

For further information on Humboldt’s and Heeren’s ‘views consult
Meinecke (Weltbiirgertum und Nationalstaat, 7th edition, Munich, 1928).
Jacob Burckhardt’s classic words read as follows: “Small states exist so that:


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76 THE SOCIAL CRISIS OF OUR TIME

there should be one spot on earth where the largest possible number of
nationals are citizens in the full sense of the word. . . . For the small state
has nothing but real and effective freedom with which completely to balance
—ideally speaking—the tremendous advantages, and even the might, of the
large nation.” We also add the testimony of the American statesman, John
C. Calhoun (4 Disquisition on Government, 1849): “Nothing is more difficult
than to equalize the action of government in reference to the various and
diversified interests of the community; to aggrandize and enrich one or
more interests by oppressing and impoverishing the others. . . . Nor is this
the case in some particular communities only. It is so in all, the small and
the great, the poor and the rich irrespective of pursuits, productions, or
degrees of civilization; with, however, this difference, that the more extensive
and -populous the country . . . the more difficult it is to equalize the action
of government—and the more easy for one portion of the community to
pervert its powers to oppress and plunder the other.” Cf. Werner Kaegi, Der
Kleinstaat im europdischen Denken, Historische Meditationen, Ziirich, 1942,

pp. 251-314.

Note No. 17 (page 64). Eighteenth century joie de vivre:

In order to make yet one more attempt to acquaint the reader with that
world, we shall quote what George Sand’s grandmother told her grand-
daughter (see H. Taine, Les origines de la France contemporaine, volume 1,
L’ancien régime, Paris 1876, page 181): “Est-ce qu'on était jamais vieux en
ce tempsJa? Clest la Révolution qui a amené la vieillesse dans le monde.
Votre grand-pére, ma fille, a été beau, élégant, soigné, gracieux, parfumé,
enjoué, animable, affectueux et d'une humeur égale, jusqu’a l'heure de sa
mort. On savait vivre et mourir alors; on n’avait pas d’infirmités importunes.
Si on avait la goutte, on marchait quand méme, et sans faire la grimace;
on se cachait de souffrir par bonne éducation. On n’avait pas de ces pré-
occupations d’affaires qui gitent l'intérieur et rendent I'esprit épais. On savait
se ruiner sans qu’il y parit, comme de beaux joueurs qui perdent sans
montrer d’inquiétude et de dépit. On se serait fait porter demi-mort 3 une
partie de chasse. On trouvait qu'il valait mieux mourir au bal ou 3 la
comédie, que dans son lit entre quatre cierges et de vilains hommes noirs.
On était philosophe; on ne jouait pas I'austérité, on I'avait parfois sans en
faire montre. Quand on était sage, c’était par gofit et sans faire le pédant
ou la prude. On jouissait de la vie, et quand l'heure était venue de la
perdre, on ne cherchait pas a dégofiter les autres de vivre. Le dernier adieu
de mon mari fut de m’engager ‘a lui survivre longtemps et & me faire une
vie heureuse.” Like Voltaire one did indeed try “4 mépriser la mort en
savourant la vie.” But here we are faced with the terribly serious and
important question whether the attitude which an era adopts towards the
reality of death and the way in which it learns that it has to reckon with its
certainty throughout the life of each individual, is not of decisive importance
to the “Zeitgeist” and whether we are not right in saying that from this
point of view the nineteenth century with its affinity to the seventeenth and
to the late Middle Ages, revelling in gruesome death dances, is—in contrast
to the eighteenth century—particularly characterized by its fear of death. One
need only picture Kierkegaard or Heidegger in the eighteenth century! And
how unforgettable is that stoic, almost cheerful dignity with which the victims
of the guillotine generally accepted their fate!

Note No. 18 (page 65). The anti-imperialism of the eighteenth century:

In this connection we quote Lichtenberg’s famous sentence: “It is
immaterial whether the sun never sets in a monarch’s empire, which was the


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SEED AND HARVEST OF TWO CENTURIES 77

one time boast of Spain, but it is important what it sees in these states on its
course.”

Note No. 19 (page 66). The dismal life of the nineteenth century:

The gloomy Puritan attitude of the nineteenth century (particularly of the
Victorian period) finds expression not only in its prudishness and the sombre-
ness of its male attire, but especially in the cult of “work for its own sake.”
At the close of this strange development we find Ernst Jiinger's “Worker,”
and also the idea that recreation is justified solely because it affords strength
for further work. What Burke (4 letter from Mr. Burke to a Member of the
National Assembly ¢o°c., 1791) had to say to the working maniacs of the
French Revolution, sweating in their enthusiasm, is significant: “They who
always labour can have no true judgment. You never give yourselves time
to cool.”

Henceforward everything becomes a duty, including education which
with dogged seriousness one now considers an obligation to oneself, while
completely ignorant of the necessarily free and serene character of all genuine
culture. This, too, is an example of the perversion of value and purpose so
typical of the civilization of the nineteenth century.

~ For further reference concerning work and education in the nineteenth

century, cf. Karl Lowith, Von Hegel bis Nietzsche, pp. 357-397.

Note No. 20 (page 68). The difficult subject of the history of art:

It is obvious that there is hardly a better mirror of the “Zeitgeist” than
the art of a period, and we borrowed the term “secular style” from the
domain of the history of art. There can, moreover, be no doubt that all the
fields of .art provide evidence of the tendency towards the materialist and
‘inhuman glorification of the purely quantitative and the outwardly “great,”
which we have termed the “cult of the colossal.” But we have to make two
very important reservations here:

1. A precise definition of true greatness is even more necessary in this
case than elsewhere; mere bulk and vulgarity must be distinguished from
what is really great and outstanding, and what is only outwardly slight and
‘small, from what is merely pretty and stunted. The author would feel very
misunderstood if he were supposed to condemn the sublime, the mighty,
the grave and the solemn alongside with the colossal. Far from it, for, on
the contrary, he believes that universal and undifferentiating emotionalization
and exaltation will lead from the sublime to the ridiculous, to inner emptiness
and dishonesty, to desecration, debasement and a blurring of our scales of
value. There is a genuine and a false grandeur, there is a genuine and a
false solemnity, if it is genuine it lifts us above our everyday cares and cheers
us as does Mozart's music, if it is false it depresses us and fills us with
dismal gravity; the intrinsic quality and fitness of what is eminent and
‘solemn vouch for its genuineness. The works of Michelangelo and Rubens
speak of true greatness and not mere bloated vulgarity, and no one will
compare the sublime grandeur of the Parthenon, of the Hagia Sophia or of
St. Peter’s with the hippopotamic monstrosities of stone heaps erected by
Nero and his fellow dictators of all ages, with the Voelkerschlacht-Memorial
at Leipzig, the Paris Opera, or with the horrible neo-renaissance of the
nineteenth century secular buildings. Titian’s “Charles V after the Battle of
Miihlberg” emanates true greatness and strength, while Makart and battle-
field painters such as Anton v. Werner manufactured inane, photographic
daubs. (Concerning the question of grandeur in architecture and the general
problems of modern building connected with it, the excellent essays of Peter
Meyer in the journal, Das Werk, Schweizer Monatsschrift fiir Architektur,
Freie Kunst, Angewandte Kunst, April, 1938, July and September, rg4o,


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78 THE SOCIAL CRISIS OF OUR TIME

and April, 1941, should be consulted; and we would also remind the reader
of the wonderful chapter “Ceci tuera cela” in Victor Hugo's Notre Dame de
Paris.)

2. A particular aesthetic difficulty seems to me to lie in the fact that the
various art forms differ so completely in their sociological character and thus
express the influence of the general “Zeitgeist” in different degrees. Whereas
architecture is by nature entirely social and therefore gives direct expression to
the peculiarities of a period in the history of thought and society, this applies
only with considerable reservations to painting which is so much more
individualized, and explains why side by side with the disastrous nineteenth
century architecture we find achievements in the field of painting which on the
average far outdistance those of the eighteenth century. While Europe’s
cities were being disfigured, Cézanne was vigorously painting away for thirty
years without paying any attention to the “Zeitgeist” which was so unfavour-
able to him. That would not” have been possible for an architect, nor, to a
lesser degree, for a sculptor or a composer. Nevertheless, it is, of course,
true that impressionism in painting was dependent on the materialist
“Zeitgeist” and related to the contemporary naturalism in literature; the
friendship between Cézanne and Zola has, therefore, a deeper - meaning.
But here it must be remembered that “style” in painting is only one side
of the art and can be influenced by the times, whereas the other side, ability
itself —Cézanne’s magic treatment of color, for instance—is something great
for all time. However, I would say that painting has been, infected by
the nineteenth and twentieth century adoration of the colossal in two
directions: (a) quite clearly in that form of painting which aiming at
external mass reactions, is nothing but painted vulgarity and inhumanity;
(b) fundamentally in the compulsive abjuration of feeling which has been
taking place since the advent of impressionism, in the conscious distortion and
debasement of form (in the deformed torsos painted by the expressionists, for
instance, whose predecessor at the turn of the seventeenth century was the
now so characteristically overrated El Greco), and finally in the increasing
abandonment of man and his understanding as standard and compass, i.e.,
that “banishment of man from art,” which in an unguarded moment Ortega
y Gasset (La Deshumanisacion del Arte) even praised. The last point explains
the strange and disquieting fact that modern painting (and also modern
music which must be considered in the same way) produces works which
are so far above the heads of the people. It appears to me that we have here
a complete parallel with the positivist and relativist development of modern
science, i.e., the abandonment of human values. “Science pour la science,”
corresponds to ‘“‘art pour Part.” A similar interpretation of the frightful
disease of modern art may now be found in the important book by Hans
Sedlmayr, Verlust der Mitte, Salzburg, 1948. :

There is one last important point: the cult of the colossal also lacks all
appreciation of historical continuity, all sense of harmony and reverence for
what has been created. Just as Nero was suspected, perhaps with some
justification, of burning Rome in order to erect his showy edifices, the
nineteenth century, too, is almost unsurpassed in its. destruction of the
venerable architectural monuments of the past and of the age-old civilization
of the open country, and it is symptomatic that today we find a ruthless
building mania wherever the political and intellectual ideas of the nineteenth
century have their last fling. On the question of how to explain the decay
of architecture in the nineteenth century, see now: A. Riistow,. Die Geistes-
-geschichtlischesoziologischen ursachen des verfalls der Abendlindischen
Baukunst im 19. Jahrhundert, “Archiv fiir Philosophie” (Istanbul), 1937,
vol. II, No. 1. ~~ : i. EE. -


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SEED AND HARVEST OF TWO CENTURIES 79

If we turn to music, we meet the cult of the colossal in the general
development which led from Purcell, Handel, Bach, Haydn and Mozart to
the compositions of the nineteenth and twentieth century, where everything
is brought into play and anything is used for effect; characteristically this
music owes much to Russian influence, for example, when, with almost amus-
ing naiveté, it strives to improve quality by multiplying the number of
instruments in the orchestra. In the same category belongs that most
doubtful “beautification” of Bach which Stokowski has been carrying out in
Philadelphia by the irreverent but artful addition of basses to the simple
instrumentation of the cantor of St. Thomas. In this connection see also
Goethe’s remark to Eckermann on 14th January, 1827. The author is glad
to note that his views are shared by such an eminent expert as Wilhelm
Furtwingler (Gespriche diber Musik, Zurich, 1949).

Note No. 21 (page 68). The science of history:

The idea that the nineteenth century surpassed the eighteenth in historical
understanding is now being recognized as a legend, a legend which was only
possible on the basis of the nineteenth century view of history. Whoever
attributes lack of historical sense to the eighteenth century cannot know
Vico, Montesquieu, Herder, Adam Smith, Hume, Voltaire’s historical works
or Gibbon. Then the study of history was focused on man’s intrinsic nature
and with the aid of certain values and meta-historic principles one tried
to keep out of the morass of factual details (which, it is true, were not gone
into too carefully). The nineteenth century, on the other hand, is charac-
terized, first, by the manner in which man, his fate pre-determined, is left
to the mercy of the tremendous forces of history and thus crushed; secondly,
by the positivist belief that assiduous research of documents would show
“what actually happened” and the concomitant delusion that there is such a
thing as history without postulates and viewpoints; and thirdly, by so-called
“historicism” which reduces everything to historical relativity and is there-
fore bound to ruin not only the science of history but all other sciences which
it influences, by robbing them of all norms of value (which are often based
particularly on history). :

Note No. 22 (page 68). Jurisprudence:

Here we find the same contrast, both in the eighteenth century’s sure sense
of value, and in the greater proximity of its jurisprudence to reality and
humanity, qualities which differ widely from that “logicistic” formal juris-
prudence based on objective positivism towards which the nineteenth century
tended. The jurisprudence of the eighteenth century is to that of the nine-
teenth what the great codes of the former (the Swedish Law Code of 1734, the
General Prussian Common Law, and also the Code Napoléon and the General
Austrian Civil Law Code) are to the German Civil Law Code, whilst the Swiss
can boast that their Civil Code is a true heir of the eighteenth century in its
clear conception of justice, its intelligibility and its popular character. By
incorporating in the Civil Law Code a great part of the old popular laws, as
had the Swedish Civil Code one and a half centuries earlier, Switzerland
demonstrated its spiritual kinship with those countries which have successfully
checked the rank growth of the professional jurisprudence inspired by Roman
Law.

Note No. 23 (page 68). The cult of the “Strong Man”:

E. Quinet (L’esprit nouveau, Paris, 1875, page 199) said of Mommsen that
his Roman History is really nothing but “le Deux-Décembre tranporté dans
les cinq siecles de la République romaine.” And he repeats what the


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80 THE SOCIAL CRISIS OF OUR TIME

eighteenth century had already known and what has now. become tran-
sparently clear: that the real cause of the fall of the Roman Empire was
that it was based on naked force. It is not the fall of the Roman Empire
that is astounding, but the fact that it did not collapse much. earlier—the
empire of which Tacitus (Vita Agricolae, XXX) says in a memorable passage:
“raptores orbis, postquam cuncta vastantibus defuere terrae, et mare scrutan-
tur; si locuples hostis est, avari; si pauper, ambitiosi; quos non oriens, non
occidens satiaverit; soli omnium opes atque inopiam pari affectu concupiscunt;
auferre, trucidare, rapere, falsis nominibus, imperium; atque ubi solitudinem
faciunt, pacem appellant.” Cf. Harald Fuchs’ study, Der geistige Widerstand
gegen Rom in der antiken Welt, Berlin, 1938. St. Augustin spoke from
experience when he called empires ruled without justice great gangs of
robbers (magna latroncitura). : oo

Note No. 24 (page 70). The kinship between the eighteenth and the sixteenth

century:

There is indeed an abundance of material to support the theory of the
inner relationship between each of these centuries with the preceding one,
between the eighteenth and the sixteenth, between the nineteenth and the
seventeenth, and perhaps between the twentieth, only starting now, and the
eighteenth and the sixteenth. As regards the century of Erasmus, Rabelais,
Montaigne, of the well-beloved Queen of Navarre, of “Merry Old England,”
of Sebastian Franck, Fischart and the Humanists, we would only quote the
following from the essays of Montaigne (livre III, ch. 13) in his old-fashioned
French: “Si avons-nous beau monter sur des échasses, car, sur des échasses,
encore faut-il marcher de nos jambes. Et sur le plus haut tréne du monde,
nous ne sommes assis que sur notre cul.” We confidently leave the reader to
draw his conclusions and to decide where lies wisdom and where folly—in
the foregoing or in the following example of the nineteenth century cult
of the colossal: “Forward without pause, is the battle-cry of the present, and
he would indeed not fit the times who would barter the pleasure of unend-
ing change which is synonymous with progress, for the mess of pottage of a
seemingly quietist past” (Karl Lamprecht, Deutsche Geschichte der fiingsten
Vergangenheit und Gegenwart, volume 1, Berlin, 1912, page 260). As regards
the kinship between the seventeenth and the nineteenth century which we
have stressed repeatedly, the very informative book by Karl Joél, Wandlungen
der Weltanschauung, Tibingen, 1928-34, should also be consulted, though
with some caution.

A good example of the difficulties that this theory is likely to present is
provided by the reformers of the sixteenth century, particularly Luther and
Calvin, the former seeming to fit rather into the fifteenth and the latter more
into the seventeenth century; it remains true, of course, that Lutheran
orthodoxy and Calvinist puritanism did not really flourish until the seven-
teenth century when they meet their Catholic counterpart, the fierce theocracy
of the Counter-Reformation. On the other hand, a man like Scarron, who
similar to Lichtenberg in the eighteenth century, triumphed over. his sick body
by sheer joie de vivre, is so completely outside his time that one can hard
believe him to be a contemporary of Corneille and Racine (who dared to
laugh over Scarron’s parody of Vergil only in secret). The intellectual deve-
lopment in seventeenth century England would also require separate treat-
ment. Although the country produced in Hobbes a particularly challenging
representative of that century and through the Puritan revolution took a
worthy part in the intellectual and spiritual development of the Continent, yet
in men like Locke and others the spirit of the eighteenth century stirred at
a noticeably early date.


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SEED AND HARVEST OF TWO CENTURIES 81

We mentioned that Racine only secretly dared to enjoy Scarron’s travesty
of Vergil. This absence of all sense of humor in that stilted period of the
baroque—the  ‘hispanicized’ century” (Jacob Burckhardt)—finds particularly
amusing expression also in the fact that Racine’s attempts at comedy (1688)
fell completely flat; “les personnes de gofit eurent peur de n’avoir pas ri
dans les regles” (according to Anatole France, Le génmie latin, Paris, 1917,
page 176). It need hardly be stressed that in this gloomy century there took
place not only the Thirty Years War (which is reflected even on Swiss soil
in the violent risings around Jenatsch in the Grisons), but also unheard of
colonial crimes, a Hourishing negro slave trade, witches’ trials, the punish-
ment of running the gauntlet, bloody persecutions and cruelties under Peter
the Great, and at the same time the butchering of millions in China. It is on
the other hand worth while to remember that not only Hobbes but also
Descartes, Pascal and Spinoza paid some tribute to the brutal spirit of the
century. A description of how the sun of humanity and reason broke once
more through the clouds at the end of the seventeenth century, and this time
with great and lasting strength, may be found in P. Hazard’s excellent book,
La crise de la conscience européenne, 1680-1715, Paris, 1936.

Note No. 25 (page 71). The “German Century”:

It cannot in truth be gainsaid that there exists a certain kinship between
the spirit of the nineteenth century, as we have described it, and the German
national spirit, with its predilection for excess, its tendency to go to extremes
everywhere, to depart from the human mean, its dogged insistence on taking
everything tragically, its tense “on guard” attitude towards everything life
brings, its aimless dynamic energy, and the readiness to annihilate one’s own
personality, symptoms which no observer can overlook and which are traceable
through a thousand years of German history. It is typical that there is
hardly another country in the world with such an extremist literature, e.g,
Stirner, Spengler, Ernst Jiinger or lesser writers of the most diverse kind. A
contemporary Italian observer (B. Guiliano, Latinita ¢ Germanesimo, Bologna,
1940) is quite right in saying that Nietzsche cannot be imagined as an
Italian (page 130) and he is also right when he declares: “Mentre il nostro
sentimento iniziale ¢ il respetto d’una legge che ci parla dall’ alto, il senti-
mento iniziale della mentalita tedesca ¢ piuttosto quello dell’ impeto di un’
energia da esprimere, par crearsi oltre ogni commandamento superiore la
legge della vita” (page 14), or: “La nostra mentalita latina quando sbaglia
serba ancora sempre una sua capacita di eludere i suoi stessi errori e di
evitarne le conseguenze ultime” (page 132). An Italian Nietzsche would at
least have had that playful operatic manner of a D’Annunzio whom no one
can take really seriously. We also cannot help feeling that if constant “bad
temper” is such a characteristic feature of the intellectual life of the nineteenth
century (which is, as we have seen, still with us), we should blame not only
Queen Victoria, who was “not amused” by witticisms uttered at her table,
but also and in particular the German influence. Edgar Quinet (L’esprit
nouveau, Paris, 1875, page 322) obviously had Germany in mind when he
wrote: “La mauvaise humeur devenue dogme philosophique. Des arts de
mauvaise humeur, une littérature de mauvaise humeur.” And finally, even
if the results had not proved it, it would nevertheless be plain that the famous
“Realpolitik” is only a particular expression of the German love for the
phantastic. and unreal. (Cf. Richard Mueller-Freienfels, Psychologie des
deutschen Menschen und seiner Kultur, 2nd edition, Munich, 1930, page
158.) :

If one has observed the growing influence of all those intellectual opiates
with which the Orient, Russia and Asia have repeatedly seduced Europe and


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82 THE SOCIAL CRISIS OF OUR TIME

upset its intellectual balance, from Plato to Dostoyevsky and to Buddhism,
one cannot deny that an “ecasternization” of Europe and a displacement of
mediterranean moderation and the Graeco-Latin heritage which are the essence
of what we call “Western,” took place during the nineteenth century. - There
can be no doubt that unlimited despotism, Caesaro-Papism and collectivism are
also part of these Asiatic imports. In this connection the excellent book by
Henri Massis, Défense de I’Occident (Paris, 1927), whose only weakness is to
have overlooked China’s exceptional and important position, should be con-
sulted. Confucianism is very closely related to the best traditions of the
Occident and it is no coincidence that the eighteenth century was strongly
attracted by it.


===== PAGE 95 =====

Cuarter [I
POLITICAL SYSTEMS AND ECONOMIC SYSTEMS

You are granting the state too much power. It should not demand what
it cannot compel. But the gifts of love and the gifts of the spirit cannot be
exacted by force. These the state had better leave untouched or else we take
its law and post it on the pillory! By God! he knows not the measure of his
sin who would make the state the arbiter of morals. The state has become
hell because men wanted to make it their heaven. The state is but the
rough shell around the kernel of life and nothing more. It is the wall
around the garden of human fruits and flowers. But what avails a wall
around the garden if the soil is parched? Rain from the heavens is the
only answer here.

—HovperLIN, Hyperion.

Democracy, Liberalism and the Collectivist State

In discussions regarding the political and economic shape of the
future one repeatedly has the comforting experience of being able
to narrow down differences of opinion without much effort to an
area where reasoned thought can achieve clarity. Every discussion
presupposes unanimity regarding fundamental values and ends, and
also the willingness of everyone honestly to submit to the ineluctable
reason of an argument or the convincing force of empirical proof.
As soon as these conditions are no longer fulfilled, genuine dis-
cussion becomes impossible, and what takes its place already con-
tains the elements of civil war. But even before that the discussion
may degenerate into a heated battle of opinions unless we succeed
in basing it on fundamental convictions universally held.

If we may then assume that the fundamentals as well as our
entire moral code are axiomatic, and further that there are clearly
defined political and economic systems which the great majority
are unanimous in rejecting, and further still that there are also
certain basic aims of economic and political reform which enjoy an
equally general recognition, we may hope to be of some use when
attempting to elucidate points where lack of clarity seems to be
the only remaining cause of divergent views, where incompatible
goals are being pursued or courses advocated which endanger
ultimate and generally desired ends.

What we have to clarify first of all is the meaning of those
concepts around which discussion revolves today: democracy,
liberalism and what we are going to call the principle of the
collectivist state. The urgent need for a delimitation and precise,
even if only temporary, definition, arises from the careless and

83


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84 THE SOCIAL CRISIS OF OUR TIME

faulty manner in which these concepts are generally being employed
in everyday discussion. Here it will be most expedient to con-
sider the sociological structure of the collectivist form of govern-
ment from all angles and thence attempt a correct description of
the other forms of government. |
From a historical point of view the modern collectivist form of
government bears a marked resemblance to those city regimes of
antiquity (e.g., Corinth and Megara) which are known as zyrannis
and which we find again in some of the city republics of the
Italian Renaissance. In both cases we witness the brutal usurpation
of sovereignty by a minority which rises from the masses, using
them as stepping stones by cajolery and threats; this minority is led
by a “charismatic leader” (Max Weber) and, in contrast to genuine
“dictatorship” (in the sense of ancient Roman law), it considers its
rule not as a temporary mandate which, after the national emerg-
ency has passed, is to be handed back to the lawful authorities
(“mandatory” or “commissioned” dictatorship), but as a normal
and permanent form of political organization, which is subject to
no control. The widespread use of the term dictatorship to describe
the collectivist state of our time is therefore incorrect and likely
to lead to wrong conclusions. Every well-integrated state contains
in normal, and even more so in abnormal, times a hierarchic-
authoritarian element whose mere intensification does not yet pro-
duce the collectivist state. Kemal Ataturk, for instance, the creator
of modern Turkey, was certainly a dictator in the sense that as the
head of the state he ruled practically unopposed, but it would be
wrong to place him in the ranks of the collectivist usurpators; his
historical function rather approached that of a Roman “dictator”
as closely as possible—in contrast to the genuine tyrants, Sulla or
Cesar, who significantly called themselves “dictatores perpetui”
—so that after his death the reins of state could without break in
continuity pass into the hands of his moderate successor. There is,
“then, in the Turkey of today no hierarchic and exclusive elite of
rulers which recklessly identifies itself with the state and holds a
monopoly in arms. Nor do we find there that nervous self-con-
firmation and drive for ever new mass stimulants in order to
prevent the dangerous backsliding into stable everyday life and
the equilibrium of normal and continuous social forms, which are
the greatest menace to the collectivist state. Where these and some
other factors are lacking we may certainly speak of a dictatorship—
in the case not only of Turkey, but also of Portugal—but not of a
collectivist political system. | | |
While the collectivist state is thus clearly distinguished—as much
as its predecessors in ancient times and in the Italian Renaissance—
from dictatorship and mere despotism, it is yet incorrect to associate
it with the concept of a pre-eminently hierarchic, aristocratic and


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 8s

authoritarian rule and to contrast it with democracy. Wherever
this happens, we are faced with a particularly confusing fallacy.
Since modern democracy has been won in a heated and passionate
battle against arbitrariness and oppression, it is very understandable
that the concept kindles associations in us which do not entirely
coincide with the true nature of democracy and its inherent possi-
bilities. There is no one who is not deeply moved on reading
Abraham Lincoln’s famous speech on the battlefield of Gettysburg,
that speech which concludes with the words “the government of
~ the people by the people for the people,” and is a worthy successor
to the speech. Pericles gave more than two thousand years before
in honor of the Athenians killed in battle. But is it really -
blasphemy when Oscar Wilde parodies Lincoln’s famous phrase as
“the bludgeoning of the people by the people for the people”? It
is certainly blasphemous toward the venerable Lincoln—but is it
also as regards the concept and the dangers of pure democracy?
Benjamin Constant, Tocqueville, John Stuart Mill, Alexander
Hamilton, Madison, Calhoun, Lecky, and many others who cannot
be charged with reactionary views, have pointed out that democracy
—and democracy more than any other political system—can lead
to the worst forms of despotism and intolerance if bounds are not
set to it by other principles and institutions, and it is this limitation
in all its aspects that we must call the liberal content of a political
structure. There is hardly any need to draw attention to the germs
of modern totalitarianism latent in Rousseau or even more in the
radical theorists and practitioners of Jacobinism, in order to furnish
convincing proof that the collectivist state has its roots in the soil
of unlimited democracy when that is not sufficiently balanced and
diluted by “nonpolitical spheres,” “corps intermédiaires” (Montes-
quieu), liberalism, federalism, self-administration and aristocratism.
It is in fact an important characteristic of the collectivist state, both
of the old and the new variety, that it always rises on the waves of
a broad mass movement—‘‘cuncta plebes novarum rerum studio
Catilinae incepta probabat” (Sallust, Bellum Catilinae, 37)—and can
‘only maintain itself on that foundation. It can, therefore, quite
justifiably be asserted that the collectivist state is precisely that form
of sovereignty in which the Revolt of the Masses (Ortega vy
Gasset) against the cultural and social elite expresses itself. Its anti-
thesis is not democracy which is merely one of many possible
vehicles of public authority, but rather the liberal principle which
erects a bar against the power of the state—always liable to exceed
its limits whatever its form—a bar consisting of non-political spheres,
of tolerance and civil liberties; and this principle is, therefore,
compatible with democratic as well as non-democratic political
systems. This is what we usually have in mind when we picture
democracy as the antithesis of the collectivist state, but we know


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86 THE SOCIAL CRISIS OF OUR TIME

now of what dangerous obfuscation we are guilty in doing so.
There is no denying it: the collectivist state is rooted in the masses
(to which professors can belong as well as workers) and it can
only exist under conditions which, sociologically speaking, we term
spiritual collectivization, that is, conditions of society for which
precisely the extreme democratic development is an excellent pre-
paration but which is the direct opposite of the liberal as well as the
conservative-aristocratic ideal. |

It would hardly seem necessary to examine what constitutes the
actual difference between the collectivist state and the pure
despotism of, say, a Louis XIV. It seems that their common
denominator is the lack of freedom, but the lack of freedom of
those times—and we shall certainly not whitewash it—was pro-
bably not only less comprehensive, but primarily of a different
kind. The sociological and intellectual climate must have been
different and what we have just said about the mass character of the
collectivist state will help to explain this significant difference. We
must, however, add yet another fact, namely, that the collectivist
state is distinguished from a genuine democracy, where government
is based on free elections, as well as from all forms of monarchical
absolutism because it lacks legitimacy and therefore those deep
roots in tradition on which even the most indolent and incompetent
of monarchs can generally rely. That is why the collectivist state
seeks to make good its legally doubtful origin and the absence of
the population’s tacit and habitual assent by all the means of
deliberate persuasion and propaganda calculated to appeal to the
strongest motives. What it has to fear above all, is the humdrum
everyday life, the quiestest customary form of existence, the bourgeois
conventionality, and, therefore, its foremost aim must be a
dynamism which does not allow the population to recover its
breath but dangles before its eyes ever new colossal goals of the
future—more and more comprehensive five and ten year plans,
whose completion is constantly postponed, and so forth. One can-
not imagine that the collectivist state will one day be satiated and
will with Faust call out to the fleeting moment: “Linger with me,
thou that art so bright!” It is, rather, like a spinning top which
can only be kept in balance by rapid gyration. This urge for con-
tinuous movement, which is peculiar to the collectivist state, is the
primary element, while the choice of aims seems secondary and is
made in terms of their dynamic value. Hence its characteristic
pragmatism: the interchangeability of principles and programs,
and what one might call the autonomy of the means or the fetishistic
attitude towards means. This creates a difficulty which baffles all
sociologists, namely, to distinguish the real essence of the collectivist
state from what are merely facades or means; there is no other
way than to see in it the maintenance of the power of the state


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 87

itself, in the mere “libido domifandi” (Sallust; Bellum Catilinae, 2),
and to link this absence of a positive program with the general
dissolution of values and disintegration of standards.

Political Structure and Economic Structure

Let us now return to our comforting assumption that regarding
the ultimate ends of society, we may presuppose essential unanimity.
However, we are probably right in saying that agreement on
fundamental political aims is far greater than on economic and
social programs for the future. Only a few wish to tamper with
the liberal-democratic structure of the political system, but many
think that they are therefore free to re-fashion the economic system.
If they find that a radical transformation of the economic system
entails substantial changes in the political constitution, then they
believe at least that in the final analysis only what one might term
administrative changes are involved, leaving the liberal-democratic
core of the constitution intact. To put it bluntly: many people
believe that it is no longer possible to resist the trend of the times
towards economic collectivism, socialism, the planned economy or
whatever one wants to call it, and if that trend necessitates changes
in the constitution these can be carried through without any serious
risk of copying patterns which have been condemned. It would be
false piety—thus one might interpret the thoughts of these people—
to maintain a political structure which developed in the age of the
stage coach; it should be adapted to the age of the high powered
electro-locomotive.

It needs to be said, and said plainly, that people who think along
these lines are victims of a calamitous self-deception. There always
exists a definite, more or less fixed relationship between a political
and an economic system which makes it impossible to combine just
any political system with just any economic system, and vice versa.
Society is always and in all aspects a whole—politically, economically
and culturally—and one would indeed have to believe in miracles
if one would expect socialism to be an exception. That is precisely
the spiritual tragedy of socialism, which anyone could experience
who was its adherent at one time or other and which does not
cease to torment every intelligent and upright socialist: the tragedy
of a movement which suffers from an incurable contradiction,
wanting to complete man’s liberation—initiated by liberalism and
democratism—by radical means, it is forced to turn the state into a
Leviathan. Socialism can be nothing but destructive of freedom in
the widest sense of the word. It wants to crown the work of
emancipation, yet can result in nothing but the most abject sub-
jugation of the individual. Experience and reflection confirm the


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88 THE SOCIAL CRISIS OF OUR TIME

truth of these remarks in so overwhelming a manner that for am
honest socialist of whatever shade there should be no other choice
than either frankly to take upon himself all the political and
cultural consequences of his economic ideals, or to seek other paths
of economic and social reform. The reasons for this have only
recently been demonstrated so frequently and thoroughly that we
can deal with them here in a few brief sentences. :

Socialism—it must be agreed—means that the “autonomy of
the economic will,” with which we are going to deal later on, is
suspended and replaced by the order from above. Since decisions.
regarding the use of the economy’s productive forces are no longer
made through the market but in the office of a government agency,
they become politicalized. It is this politicalization of the entire
economic process which provides an almost complete definition of
every kind of socialism and quasi-socialism (statism), and one can
hardly claim any understanding of the great questions of our time
if one does not persistently and at all times keep this in mind.
Everything which heretofore belonged to the “economic” sphere of
private enterprise and private law, is now transformed into some-
thing “political”; the market becomes a government agency; every
purchase becomes a state transaction; private law becomes public
law; “being served” in store is replaced by “being dealt with” by
civil servants; the price mechanism is controlled by decrees; com-
petition becomes the struggle for influence and power in the state,
for party offices and government jobs; the supply of raw materials
becomes a question of political spheres of influence; property
becomes a concept of state sovereignty; business decisions are turned
into governmental acts sanctioned by penal law; foreign currency
transactions become capital offences. Henceforward the population
has to use its productive capacities in a manner deemed suitable
by the group dominating the state. Does anyone seriously believe
that not only the election of this group but also the millions of
individual decisions which it has to make every day can be based on
democratic principles and that the sphere of individual liberty can
still be safeguarded? It should be clear at once that the process of
public voting cannot be extended to questions regarding the pro-
duction of blotting paper and gramophone records, but whether
such, and millions of other goods, and how many of them, should
be manufactured is precisely the decision which has to be made
anew every moment because it is the essence of collectivist economic
planning. Co

To bring about such a decision all the time in an even imper-
fectly democratic manner is impossible. This follows also from
another reflection. Everyone knows that a democracy can function
properly only if in all the essential questions of communal life there
exists practical unanimity: in necessariis unitas. Even majority


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 89

decisions remain unsatisfactory here, because it is hard to see why
the rule of 51 per cent. of the voters over 49 per cent. should be
much more reputable than that of 49 per cent. over 51 per cent.
and even the possibility characterizing every genuine democracy,
that the majority decision of today can be replaced by the opposite
«decision of the majority tomorrow, must, in view of the almost
irrevocable character of far-reaching decisions, remain often enough
nothing but theory. In such cases, therefore, we can hardly say
that it is the “will of the people,” the ‘“volonté générale,” that
«decides. How far even the model democracies are removed from
this ideal is proved by the mere fact that the financial maintenance
of the state always requires more or less irksome compulsion and
that taxes are everywhere a form of private expense which affords
least pleasure; this would not be the case if the national budget
rested on genuinely unanimous acceptance. An ideal democracy
therefore presupposes that the people are in almost complete agree-
ment on questions of government. However unattainable this
ideal may appear, the problem as such must be clearly discerned
and the nearer a country approaches the solution, the better for its
democracy. Three essential conditions must be fulfilled in order
to come closer to such a solution: first, a certain minimum of
national community spirit and uniformity in thinking and feeling
(a uniformity which is probably the ultimate secret of English
«democracy); second, the greatest possible decentralization of govern-
ment (federalism in Switzerland and in the United States, English
local government); and third, and this is perhaps the most important
point, a limitation of government interference to those tasks where
a maximum of unity can be expected and whose extent coincides
with the legitimate sphere of governmental functions, legitimate
because they are inherent in the concept of the state. This last
observation brings us to the crux of the matter. Unity can only
be expected, even in the most favorable circumstances, when national
problems of a most general and elementary nature are under dis-
cussion. But how would it be possible to effect even a tolerable
agreement on all those questions of detail which are the essence of
economic processes and which affect individual interests most
directly and acutely? - The decisions which the state would have to
make here are always decisions in favor of this and to the detriment
of that group. How can a satisfactory democratic compromise be
achieved here? Such decisions can only be made in an authori-
tarian way; ultimately and essentially they will always be arbitrary
and too often they will be made under the pressure of an interested
minority.

To this we have to add yet another and even decisive reason.
‘The non-socialist market economy is a process which is made up of
innumerable voluntary economic actions of individuals. The market


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go THE SOCIAL CRISIS OF OUR TIME

regulates these actions and gives all participants directives for the
adjustment of production to the wants of the consumers. Obedience
to these directives of the market is rewarded, disobedience is
punished in the most extreme case with bankruptcy (that is, com-
pulsory withdrawal from the ranks of the entrepreneurs responsible
for the production process) and by destruction of the economic
basis of existence. Now socialism means (if it is to mean any-
thing at all), that the democratic ruler “Market” is replaced by
the autocratic ruler “State,” a further example of how socialism
“politicalizes” the economy. It is in keeping with this politicaliza-
tion that the new ruler of the economy, the state, enforces respect
by means which are in accordance with its political nature: orders
sanctioned by criminal law. To express it in the starkest manner
possible, which will only be found incomprehensible by those not
schooled in fundamental thinking: if formerly the bailiff had the
final word, it is now the executioner. It should really be no longer
open to doubt that socialism goes hand in hand with a thoroughly
authoritarian system of government. Whether a state begins with
anti-tyrannic socialism or with anti-socialist tyranny, logical develop-
ment will always see to it that both states finally reach the same
point: a perfect tyranny and a collectivism which permeates all
spheres of social life. In the long run economic dictatorship can
as little exclude political and intellectual control as, conversely,
political and intellectual dictatorship can exclude economic control.
It is hardly forgivable naiveté to believe that a state can be all
powerful in the economic sphere without also being autocratic in
the political and intellectual domain and vice versa. “If there are
Governments armed with economic power, if in a word we are
to have Industrial Tyrannies, then the last stage of man will be
worse than the first” (Oscar Wilde). Thus the saying of Holderlin
of a hundred years ago would then come true: what turned the
state into hell was precisely that men wanted to make it their
heaven. It therefore makes no sense to reject collectivism politically
if one does not at the same time propose a decidedly non-socialist
solution of the problems of economic and social reform. If we are
not in earnest with this relentless logic, we have vainly gone through
a unique and costly histerical object lesson.

Now it is possible to raise a very serious objection here. Does
not the present-day war economy (1940), where even in democratic
countries governmental powers are increased so tremendously, prove
that socialist centralization and control of the economy are possible
without harming the democratic core of the political structure? Do
we not see how entire nations all around us willingly put the
paramount interests of the community first? In order properly
to understand this process which everyone has experienced per-
sonally, we must interpolate here a reflection of fundamental signi-


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 91

ficance, which is likely to deepen our understanding of the biology
of society and state.

Philosophers of all ages are agreed that man’s relationship to
the community has always been two-sided. Two souls dwell in-
his breast, of which the one is gregarious while the other would be
alone. There exists an “antagonism between the anti-social and
social instincts of man” (Kant), which keeps society at a constant
polar tension, the tension between the desire for social unity
(integration) and the opposing desire for individual segregation
(differentiation). Man is neither an ant nor a raving beast; he has
chosen the more difficult path of twofoldedness which is full of
tension, the path of “unsociable sociability’ (Kant), and only thereby
has culture been made possible. It is a clear and unalterable
fact of which one must not lose sight in all topical discussions of
political, economic or constitutional questions: man seeks the
golden mean in his contact with society, not too much, but also
not too little, and this normal degree of integration—the feeling of
“belonging,” the desire to fulfil the social duties of sacrifice and
devotion, temperate patriotism, the natural subjection to the
elementary duties of community life, the feeling of being at one
with the others, of being part of the great whole and having a place
therein—is precisely what neither the individual nor the aggregate
of society can miss for any length of time without becoming
“socially sick.” But since we happen to be as we are, we have, on
the other hand, no intention of letting ourselves be walled in alive
by society as were the unhappy victims of Tamerlane. We are
willing to give unto Caesar what is Casar’s on the condition that
we can keep the rest for God, our family, our neighbors and our-
selves, for otherwise we would become “socially sick” in the
opposite sense. While in the previous case of “insufficient integra-
tion” we suffered from social malnutrition, so now in the case of
“hyper-integration” we suffer from social overfeeding, and we
can bear the one as little as the other, and this is also true of society
as a whole. “La multitude qui ne se réduit pas a l'unité est
confusion; 'unité qui ne dépend pas de la multitude est tyrannie”
(Pascal). | |

Social malnutrition is the typical disease of a society which is
disintegrating into isolated individuals, where there is no longer
that warmth which solidarity generates, where the feeling that
with our rights as well as with our duties we occupy a definite
place in society, in other words, the feeling of being embedded in
the small and in the large community vanishes more and more.
Society appears dissolved into a mass of individuals adrift, whose
relationship to each other becomes increasingly mechanical and
anonymous, based on the market, competition, the division of
labor, technology and the law: precisely the pattern that has


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92 THE SOCIAL CRISIS OF OUR TIME

developed everywhere in the course of the last century. In all
countries, in some less, in others more, society has been ground
into a mass of individuals, who have never been so closely herded
together and so dependent on each other and yet at the same time
“they are more rootless, more isolated and more like grains of sand
than ever before. Whatever one wants to call it—spiritual collec-
tivization, atomization or social disintegration—it is always the
same pathological process, viewed from different sides. All the
misery, all the problems of our time have their ultimate roots here,
and all the new blueprints of our social architects are worthless if
they do not take this ultimate and greatest infirmity of our time as
their starting point. The individual driven into isolation and
suffering from social malnutrition feels forlorn and there exists
even a theory, meriting serious attention, which attributes suicide,
as a mass phenomenon of our civilization, to the individual “losing
his place” (“désencadrement”) in society. In their yearning for
social integration men finally grasp at everything that is offered to
them, and here they may easily and understandably suffer the same
fate as the frogs in the fable who asked for a king and got a crane.
Now to turn to the other extreme, namely, hyper-integration:
this phenomenon appears, like a fever in the human body, in an
entirely normal and beneficient manner when a sudden emergency,
an earthquake, for instance, or a vast fire, summons all the defensive
forces of society. Instantly the temperature of society leaps up, and
entirely of our own accord we sacrifice our privacy in order to be
one with society and to lend a hand where we are needed. We
subject ourselves without reflection and argument to the most far
reaching control from above, and think it perfectly in order for
martial law to be declared in an area visited by an earthquake.
The same holds good on a larger scale in the case of war. It, too,
leads immediately to “feverish” degrees of integration, and then
it is possible not only for civil liberties which safeguard the indivi-
dual’s privacy to be extensively suspended, but also for socialist
measures to be carried out, measures which represent nothing but
the economic side of hyper-integration. All this is completely
natural and is no cause for alarm. But it is something entirely
different to retain socialism as a permanent peace-time institution;
for this would mean that social hyper-integration which socialism
presupposes, would be accepted as the normal, permanent state of
affairs. This, however, is an altogether gigantic task, because it
runs counter to man’s very nature, and it can only be performed
to a certain degree and for limited periods by artificially keeping
the population in that abnormal feverish state which is caused by
earthquakes or wars. While for the normal degree of social integra-
tion the positive feelings of unpretentious patriotism and a genial
liking for one’s neighbors suffice, it seems that this is not enough


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 93

for the spastic degree of integration which the collectivist state
requires. In order to achieve that social molecular density which
is a prerequisite of collectivism, it is apparently always necessary
to incite negative feelings, that is feelings directed against someone
or against something, and when no real targets of hate or sources
of fear are present they have to be invented. If, then, socialism is
to be made the normal, permanent state, it presupposes a political
system which manages to maintain the necessary hyper-integration of
society by these artificial means, even without war, earthquakes or
floods.
Yet perhaps there is some way of jumping into the water with-
out getting wet. Instead of transferring the direction of the
economy to the state, could one not confidently entrust it to the
professional and business associations, made up of non-political
experts, the trusts, co-operatives, labor unions and production
groups, in short is it not possible to make use of the magic formula
of “corporativism”? It seems indeed as if this idea presents a
last refuge for many people who are too clever to indulge in any
illusions regarding the political consequences of collectivism, and
yet believe collectivism to be ineluctable, who resort to it out of
perplexity, out of fatalism, or out of a secret desire which clothes
itself in the sacerdotal garb of the philosophy of history. We fear
that we have to be so impolite as to term this a very unfortunate
idea, however difficult we may find it to be discourteous in this
particular case. It is the pet idea of all those whose speech is
neither yea nor nay, who would like to express freely their
aversion to “liberalism” and “individualism” without acknow-
ledging collectivism as the logical consequence, who are looking
for a third way, without much understanding of the details of
economic life and the biology of society, and who then adopt the
formula of the guild state which appeals more to the emotions than
to the mind—unhappily without paying the least attention to the
plainly discouraging experiences which were made with economic
“self-administration” under the Weimar Republic and finally with
the veritable farce of the guild state in Austria. And lastly, in
the case of some people this idea of a guild constitution is nothing
but economic obscurantism. |

The professional and business associations offer promising possi-
bilities and, properly integrated into the entity of state and economy,
they produce much that is good; however, one cannot render them
a worse service than to assign them functions which are bound to
corrupt them as well as the whole body politic. For, either the
final decision rests with the state after all, and then there is no
change in the political outcome of collectivism except that now the
all-powerful state creates for itself outer bastions in the form of
corporative organizations which serve to carry its will deep into the


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94 THE SOCIAL CRISIS OF OUR TIME

private economy; or—and this is the only possibility we are con-
cerned with here—final decisions in the planned economy really
rest with the corporative organizations and then we have something
which corresponds to what mob rule represents in criminal law. If
the regulation of the economic process is no longer left to the
market, it becomes dependent on conscious political decisions which
cannot be delegated to authorities alien to the state without dissolv-
ing it. Genuine corporativism in the democratic state, then, means
that the state renounces great portions of its sovereignty in favor of
economic groups. The “capitalist” market economy has often been
reproached with “anarchy of the productive process”—a very unjust
reproach as everyone familiar with economics realizes. But what
we have described just now would lead to real and grave economic
anarchy. Suppose a secret anarchist society should announce a com-
petition for the best solution to the problem: how can the cohesion
of the state be dissolved in the safest and most unobtrusive manner
—then this answer: “genuine (democratic) corporativism” would
deserve the first prize. Seriously speaking there should really
be no difference of opinion regarding the fact that once we decide
on the course of collectivism the helm should rest only in the
hands of the state and one can only hope that its agencies can
muster the greatest possible independence, expert knowledge and
resolution in guiding the ship, and the utmost lack of consideration
for the whisperings of group interests and lobbyists. Let us adapt
a sentence from the Bible: “Justice raises a people, but pluralism
(that is, the splitting up of the state into spheres of influence for
group interests) is a people’s undoing.” The anarchy of pluralism,
as all examples teach us, can never be more than a brief interlude.

A grave error is being committed by to-day’s professional
organizations in that they are unable to make a clear distinction
between the legitimate and the illegitimate tasks of the professional
associations, and jumble together things which should be kept
strictly apart. The great danger of such efforts lies in the fact that
through the positive and legitimate parts of their program they
tend to attract well meaning people intent on the public weal,
whom they then turn into representatives and tools of the most
negative and destructive ideas. In order not to be confused we
must realize that whenever we speak of “profession,” or “vocation,”
or “occupation” we may mean one of two quite different things.
First of all, we mean that men apply themselves to the production
of goods or the rendering of services with devotion, specialized
ability and joyful pride in creation and work, and that they share
the professional interests which result from their similar position
in life and the same technical working processes, without in the
least impairing public interests (aspect A). Secondly, however, we
mean that these specialized producers within the market economy


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 95

are at the same time sellers of their products and abilities, and that
for reasons which we will explain later they have interests which
by their very nature conflict with those of the public and which
can only be assimilated by means of competition (aspect B). The
doctor is not only the helpful friend at the sick bed (aspect A), but
at the same time the man who later on sends us his bill and who
has an interest (in his case curbed by a high standard of professional
ethics), in making his bills as many and as high as possible (aspect
B), and by the same token, we must not forget, in spite of all our
esteem for the peasantry and all our interest in the technical ques-
tions of agriculture (aspect A), that the farmer, as the soberly
calculating seller of his products, has an interest in the highest
possible tariffs and subsidies and the lowest possible import quotas
(aspect B).- It is nothing but romantic obfuscation of the facts not to
keep these two aspects apart and to allow the positive feelings
created by aspect A, benefit pure group interests by keeping silent
about aspect B. Nothing is more desirable than to aid the pro-
fessional interests in the first sense (A) by raising professional pride
. and self-confidence and to further it by mutual aid within each
occupation (professional training, welfare funds, &c.), and as long
as these occupational associations remain within this “A sphere”
they deserve our benevolent support. But it is, on the other hand,
equally undesirable for them to trespass into the domain charac-
terized by aspect B. In the sense of “B” the professions serve
indeed no useful purpose in the integration of man in an orderly
political life—they are a disintegrative, not a constructive element.

We must, therefore, adhere to our view: socialism as a per-
manent peace time institution is an economic system which we
can only obtain at the price of the corresponding political system.
The political and the economic structure of collectivism are merely
two aspects of one and the same thing; they both are the ultimate
result and the most radical manifestation of that spiritual collec-
tivization, agglomeration, mechanization, atomization and pro-
letarization which have become the curse of the Western world. If
we want to escape this curse, we must, after first ridding ourselves
of the inevitable wartime socialism, travel new roads in economic
policy which are completely opposed to socialism of any kind. The
nature of these new roads will be discussed in detail later on. There
remains one thing to be emphasized here, namely, that the correla-
tion between economic and political systems also holds good for
the market economy. The market economy as an economic system
which depends on the confidence and the enterprise of the indivi-
dual and on his readiness to save and to take risks, cannot be
maintained without certain protective measures and legal principles
which offer security and protection to the individual not only in
the face of the encroachments of other individuals, but also against


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96 THE SOCIAL CRISIS OF OUR TIME

the arbitrary interference of the state, and which add up to what
we call the constitutional state. The much reviled and frequently
misunderstood “human and civil rights” (and we once more want to
draw attention to their Christiano-Germanic origin), contain pre-
cisely that which, for instance, the old Ottoman Turkey notoriously
lacked for developing a flourishing economy: the inviolability of
certain laws and rules for the protection of persons and property—
the basis of that confidence without which private enterprise cannot
continue for long and without which even the peasant dare no
longer sow his wheat. The development of the last hundred and
fifty years has led us to adopt many dangerous courses and has
brought much misery over the world which is crying out for
restitution, but we would scarcely want to be responsible for
sacrificing lightheartedly its truly greatest achievement: the con-
quest of arbitrary might through right.

PART ONE_NOTES TO CHAPTER II

Note No. 1 (page 84). The new and unexpected—an essential element in
the collectivist state:

On this the chapter concerning “die charismatische Herrschaft” in Max
Weber's Wirtschaft und Gesellschaft, Grundriss der Sozialoekonomie, III,
Tubingen, 1921, page 140 ff., is the primary source of reference. Note also
the following remarkable passage from the classic work De lesprit de con-
quéte et de usurpation, which Benjamin Constant published immediately
after the battle of Leipzig in 1813: “Un usurpateur est exposé a toutes les
comparaisons que suggerent les regrets, les jalousies ou les espérances; il est
obligé de justifier son élévation: il a contracté I'engagement tacite d’attacher
de grands résultats 3 une si grande fortune; il doit craindre de tromper
l'attente du public, qu'il a si puissamment éveillée. L’inaction la plus
raisonnable, la mieux motivée, lui devient un danger. II faut donner aux
Francais tous les trois mois, disait un homme qui s’entend bien, quelque
chose de nouveau: il a tenu sa parole” (II, 2). On the other hand a states
man like Salazar could not have expressed the non-collectivist character of
his regime better than by saying (from Henri Massis, Les idées restent,
Lyons, 1941, page 20 ff.): “Pour moi je n’ai qu'un but. Ce que je me
propose, c'est de faire vivre le Portugal habituellement.”

Note No. 2 (page 85). The anti-liberal tendency of pure democracy:

Machiavelli was, according to G. Ritter (Machtstaat und Utopie, Munich,
1940, page 87), perhaps the first to recognize clearly that the demon of power
is not only to be found in despotic rulers but also in the people and can
easily be released by any demagogue, a fact which neither the mediaeval
theories of tyranny nor Erasmus seem to have realized. After the French
Revolution it is Benjamin Constant in particular who discovers the tyrannical
possibilities inherent in democracy and concludes from this “qu'il faut
tracer un domaine des libertés et des droits personnels dont le limites soient
infranchissables et au souverain et a la nation, et a la loi méme” (E. Faguet,


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 97

Politiques et moralistes du dix-neuvieme sidcle, 1ére série, 16e éd., Paris, page
220). Apart from Tocqueville's well known works, whose main theme is
precisely this inherent danger of democracy, and those of John Stuart Mill
(particularly his essay On Liberty), we find the same idea discussed by the
American writer John C. Calhoun in A Disquisition on Government, 1849,
and in Democracy and Liberty, 1896, by the English writer, Lecky. It speaks
once more for the wisdom of the fathers of the American Constitution that
they clearly foresaw the danger of democratic tyranny by the majority and
were guided by this consideration in writing the Constitution. It is impos-
sible to understand the American Constitution with its complicated system
of “checks and balances” unless one knows that its originators feared the
tyranny of a democratic majority quite as much as that of an absolutist
monarch from which they had just freed themselves. Theirs is an excellent
example of how, with some intelligence, one can avoid jumping from the
frying pan into the fire. It is well known how much the Swiss constitution
has been influenced by the American, particularly in this respect. To the
extent to which one departs in the United States from the spirit of the Con-
stitution, though not from the letter, and reduces the liberal and federal
counter-balances, the danger of a totalitarian development within the demo-
cracy grows, and this applies also elsewhere.

Once it is realized that neither the state, with its natural tendency towards

despotism, nor the masses as such can be expected to produce anything but
a tyrannical government, it becomes clear that other supports for freedom
have to be found, anti-collectivist counter-balances which neither the state nor
the masses can supply. Only those can be the guardians of freedom who
really love it: the elite which, with instinctive authority, leads society and all
genuine communities below, above and outside the state, the “corps inter-
médiaires” (Montesquieu). In this respect, where we find the liberal principle
differing so sharply from the democratic, it seems related to the aristocratic,
but only if we interpret the concept of genuine aristocracy correctly. “Tout
groupement organisé d’une maniére durable dans la nation, possédant une
pensée commune, des traditions, une direction, une vie propre, est un fait
historique qui s'est créé un droit. Il tend au maintien de lui-méme et a la
sauvegarde de ce droit; il est élément aristocratique et élément libéral, libéral
parce qu il est aristocratique, aristocratique au point de devenir libéral.
Un systeme libéral qui prétend étre pratique est forcé d’étre aristocratique
pour ne pas Etre illusoire, comme le systéme aristocratique le plus étroit
est forcé d’étre libéral pour ne pas tendre simplement a la guerre civile” (E.
Faguet, op. cit., page 228 f.). It is typical that both J. de Maistre, the
apostle of pure despotism, and Rousseau, the apostle of pure democracy,
rejected the aristocratic as well as the liberal principle.

Note No. 3 (page 87).. The collectivist state has no program:

This gives us an opportunity to demonstrate how the collectivist state is
the last step in that moral and intellectual dissolution of which we have
frequently spoken in this book, particularly in the introduction, i.e., that
process which has resulted from the general development of Western
civilization and can be traced in all countries, though some have more
reserves with which to combat it than others. It is here that two phenomena
in the history of thought, nihilism (Nietzsche) and pragmatism (William
James) become of political moment. Concerning the connection with
philosophical pragmatism, see W. Y. Elliot’s article in “Political Science |
Quarterly,” volume XLI, 1926, page 161 ff.

Note No. 4 (page 88). The totalitarian character of socialism:
I first dealt with this problem in my article “Sozialismus und politische
D


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98 THE SOCIAL CRISIS OF OUR TIME

Diktator,” “Neue Ziiricher Zeitung,” 18th and 19th January, 1937; subse-
quently I received welcome support from Walter Lippmann, The Good
Society, Boston, 1937, and F. A. von Hayek, Freedom and the Economic
System, Chicago, 1939, who, later on summarized and perfected these views.
in his well known book The Road to Serfdom (London, 1944, and Chicago,
1945). (Cf. also my study, Zur Theorie des Kollectivismus, “Kyklos” (Berne),
1949). The following passage should also be remembered in this connection:
“The probability of the people in power being individuals who would dislike
the possession and exercise of power is on a level with the probability that an
extremely tender-hearted person would get the job of whipping master on a
slave plantation” (Frank H. Knight in his review of Lippmann’s book,
“Journal of Political Economy,” December, 1939, page 869). See also Elie
Halévy, L’¢re des tyrannies, Paris, 1938; William E. Rappard, L'individu et
l'état dans I'évolution constitutionelle de la Suisse, Ziirich, and Gaetano Mosca,
The Ruling Class (the American translation of his standard work, Elementi
di Scienza Politica), New York, 1939, pages 271-328. No one should pro-
nounce a final opinion on this problem without having read this classic
chapter of the great Italian sociologist on the political character of collec-
tivism.
Note No. 5 (page 90). The executioner has the last word in the socialist
State:

This macabre characterization which many, who lack the proper under-
standing of the issues involved, choose to ridicule, we find already in the
second section of Jacob Burckhardt's The Age of Constantine the Great,
London, 1939. To those who are still not convinced we point out that the
economic control exercised by mercantilism led to the execution of great
numbers of offenders. In the important book by the Swedish economic
historian E. Heckscher, Mercantilism, London, 1935, we find the following
concerning French mercantilism during the seventeenth and eighteenth
centuries: “It is estimated that the economic measures taken in this connec-
tion cost the lives of some 16,000 people, partly through executions and partly
through armed affrays, without reckoning the unknown but certainly much
larger number of people who were sent to the galleys or punished in other
ways. On one occasion in Valence, 77 were sentenced to be hanged, 58 were
to be broken upon the wheel, 631 were sent to the galleys, one was set free
and none were pardoned. But even this vigorous action did not help to attain
the desired end. Printed calicoes spread more and more widely among all
classes of the population, in France as everywhere else” (page 173).

Note No. 6 (page 92). Suicide statistics as an indication of insufficient

integration:

The theory of “deséncadrement” as the cause of suicide in our time (at

least as a mass phenomenon), was developed mainly by the French sociologist,

M. Halbwachs (Les causes du suicide). It is supported by the decline in the

suicide rate during times of war, which we know are periods of hyper-
integration.

Note No. 7 (page 95). Occupation cannot serve as a means of national
integration:

The English sociologist Ernest Barker (National Character and the
Factors in its Formation, 3rd edition, London, 1939, page 276), says the
following concerning this question: “The nation is not to be discredited
because there is much false nationalism abroad. I have sometimes thought
that there are three sovereigns which dispute our allegiance. One is blood—


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POLITICAL SYSTEMS AND ECONOMIC SYSTEMS 99

or the idea of a nation as a group of kinsfolk, united by an intimate con-
sanguinity within their gates, but divided from the stranger without by an
impassable barrier of difference. That is false nationalism. Another is con-
tiguity—the sweet ties of neighbourliness, strengthened by old and common
tradition, which unite the racial blend that inhabits a given territory, and
. which make it a nation of the spirit—which is reality, and not a nation of
the body—which is a simulacrum. That is true nationalism. A third is
occupation—the bond of a common profession, which unites its members by
the daily and homely ties of common work and interest. This may be, and
tends to be, though it need not be, a principle which we may call by the
name of anti-nationalism.” This idea would obviously have gained in
precision if our distinction between the A sphere and the B sphere in the
occupational field had been applied.


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Cuarter [II

THE SPLENDOR AND MISERY OF CAPITALISM

Ce n'est pas ce qui écrase qui gene; ce n'est pas une oppression qui
révolte, c’est une humiliation. Les Frangais de 1789 étaient exaspérés contre
les nobles parce qu'ils étaient presque les égaux des nobles; c'est la différence
légeére qui se mesure, et C'est ce qui se mesure qui compte. La bourgeoisie
du XVllle siecle était riche, presque en passe de tous les emplois, presque
aussi puissante que la noblesse. Clest ce “presque” qui Iirritait, et la
proximité du but qui 'aiguillonnait; c’est le dernier pas a faire qui échauffe
toutes les impatiences. :

-—EMiLe FaGuet, Politiques et Moralistes du 19e siecle (1899).

The Nature and Historical Achievement of “Capitalism”

Unper the influence of Marxist propaganda we have become
accustomed to calling the economic system which during the last
hundred years has spread across the realm of European-American
civilization and thence across the whole world, “capitalism.” For
a multiplicity of reasons this is an unfortunate habit, and much
can be said against such sweeping concepts, nevertheless every
attempt to abandon it seems doomed to failure. Even if it were
more likely to succeed we could not ignore the demand for a handy
and comprehensible expression which conveniently and with a
precision adequate for our purpose characterizes everything that, in
a historically peculiar manner constitutes the common property of
the economic and social development of the Occident during the
past century. In this sense and without renouncing any of our
very serious mental reservations and misgivings, we shall for the
time being continue to use this hackneyed expression, which is so
often a temptation to indulge in cheap demagogy. But what
exactly are we concerned with here?

Instead of replying to this question with some definition from
the text books on economics, we shall, in our own fashion, seek
that fundamental lucidity and try to get away from those nebulous
generalities which we all find so wearying. However, in order to
reach this goal, we must have the courage to be simple and must
temporarily shelve all those questions of detail which in the absence
of such fundamental clarity we would in any case not be able to
solve for lack of orientation. oo

If, when looking back on the development of our economic
system, we wish to obtain a true picture in which the economic
questions appear in the right perspective, it is the first and most
urgent requirement that we should separate the essential from the


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THE SPLENDOR AND MISERY OF CAPITALISM IOI

unessential, the permanent from the temporary. Our meaning
may perhaps be made clearer by a comparison taken from the
political sphere with which we concerned ourselves in the preceding
chapter.

Not only our traditional economic system, but also the political
system of the Western world, namely democracy, is today exposed to
criticism from every side, criticism which in both cases is justified
where it is directed against abuse and degeneration, i.e., against
a development whose existence only a hopelessly myopic person can
deny. But here we must distinguish very clearly whether this
criticism is aimed at the essence or merely at the changing and
multiple forms of ‘democracy, a distinction which is only too often
not made. We have become far too accustomed to looking upon
parliamentarism, universal suffrage and all those other forms which
Western democracy has developed in the course of the nineteenth
century, and even the degeneration to which they have fallen
victim, as the essence of democracy.

Nevertheless we should have no trouble in agreeing that we are
dealing here not with the essence of democracy but merely with
forms which are historically conditioned and changeable. In many
countries experience has shown that these forms can even falsify
the real nature of democracy, and, if we do not bethink ourselves
of the difference between form and substance in time, they may
gravely imperil democracy itself. In the last resort it is one funda-
mental question that alone matters: does political authority
emanate from the people or from another quarter, are they its
ultimate point of reference or is something else? Always and
everywhere the basic question is: how is the will of the state
formed? and to that there are two and only two basic answers:
autonomy or heteronomy, autonomous authority or extraneous
authority. If we free the concept of democracy from all the verbiage
entangling it and from all historical weeds, there remains as the
core the autonomy of the nation (or its subordinate organizations).
Around this core one can talk for ever, one can treat it with cheap
irony, one can look at it as an ideal difficult to achieve, or, if one
insists on being original, as an objectionable goal, but at heart we
always know exactly what represents democracy and what does not,
and what we are to think of its various manifestations. It would
be difficult to label this core as absurd, laughable or inconsistent
with human nature; considered in the light of reason and unper-
verted by all kinds of snobbery it would rather seem to be the
most natural and appropriate. Pressed hard enough every right
thinking man must side with Abraham Lincoln when he says:
“No man is good enough to govern another ‘man without that
other’s consent.” NE

Everything, however, that has accumulated around this kernel of


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102 THE SOCIAL CRISIS OF OUR TIME

democracy in the shape of institutions and customs, is hardly more
than the political mechanism which changes according to place and
time. One cannot render a worse service to democracy than to
identify it with the complicated and corrupt parlor game of a
democracy degenerated into pluralism. We know today that not
only a parliamentary, but even a “direct,” a presidential, a direc-
torial, yes, even a dictatorial democracy is possible, always assuming
that the link between the people and the will of the state is not
severed and that whoever wields power must render account to the
people, is subject to its control and can, consequently, be removed
from office. We admit, though, that critical border-line cases may
arise here. It is evident that chemically pure democracy is as
unpalatable as chemically pure water, and that in order to suit our
taste admixtures of all kinds (hierarchical leadership, federalist
regionalism, private spheres free from the interference of the state,
heteronomous balancing factors, traditionalism, “privileges,” &c.)
are necessary as exemplified by Swiss and American democracy
(with the constitutional “checks and balances” mentioned above).

This political comparison can now be of great service to us in
trying to settle the confusion arising from the dispute over the
nature of “capitalism” because it is very similar to the dispute over
democracy. In the same way as democracy is one of two possible
answers to the fundamental question “how is the will of the state
formed?” that which constitutes the core of our economic system is
one of two possible answers to the fundamental problem of
economics. The question “how are the productive forces of a
society to be used, and who is to make the decision?” is the funda-
mental problem of any economy, however organized, whether it is
the economy of the Pharaohs, of the Greek polis, the economy of
Robinson Crusoe, the Sioux Indians, or of modern industrial
nations, and always and everywhere some kind of solution must be
found. The structure of the economic system is determined by this
answer, and here, too, there are in the last resort only two answers:
autonomy or heteronomy. The character, manner and quantity
of production is determined either by those who are primarily
affected by it, that is, by those whose needs are met by this produc-
tion, or it is determined by other agencies. In other words, the
“economic will” either is formed by the democracy of consumers, or
by the strength of an autocratic order. There is no third way here.

The autonomy of the economic will is a matter of course in the
case of the self-sufficient, barterless economy of the smallest social
group where production and consumption are united in the same
individual. The peasant or farmer, as far as he is self-sufficient, is
economically autonomous unless he is a slave, serf, colonus, &c., of
the state itself and thus ceases to be a peasant in the true and noble
sense of the word. But the autonomy of the economic will becomes


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THE SPLENDOR AND MISERY OF CAPITALISM 103

a real problem in the case of the highly differentiated economy with
its division of labor as we have it today. There is, however, a
solution to this problem, too, but only one: an economic system that
is based on the market, price mechanism, private ownership of the
tools of production, and competition. It 1s competition, and only
competition which furnishes the totality of the consumers (who
are, of course, identical with the sum total of the specialized pro-
ducers) with that decisive influence on the nature, manner and
quantity of production which is exercised by the self-sufficient
peasant in the undifferentiated economy on what he produces for
his own consumption. If an economic system based on the division
of labor is directed by the market and by competition, the produc-
tive forces of the people are channelled so as to meet the demands
of the consumers. The production program of the national economy
(with the exception of the government’s administration of the public
finances), is therefore drafted by those who cannot fairly be
deprived of this right, namely, the consumers. The process of the
market economy is, so to speak, a “plébiscite de tous les jours,”
where every monetary unit spent by the consumer represents a
ballot, and where the producers are endeavoring by their advertising
to give “election publicity” to an infinite number of parties (i.c.,
goods). This democracy of consumers has the drawback of a very
unequal distribution of ballots—which could, however, be
extensively corrected—but it also has the great advantage of a
perfect proportional system: there is no nullifying of the minorities’
will by the majority, and every ballot carries its full weight. The
result is a market democracy, which in its silent precision surpasses
the most perfect political democracy. |

This 1s the “planned economy” of the pure market system.
What socialist planned economy entails we know already: it means
nothing else than that the democracy of the consumers is eliminated
and replaced by the command from above. The decision as to
what use is to be made of the economy’s productive forces is trans-
ferred from the market to the office of a government agency; as
we saw, it becomes “politicalized,” and it takes an uncommon
degree of unintelligence or demagogy to maintain that we are
dealing here with a harmless, merely “administrative” task, which
touches the core of the political system as little as, for instance, the
supervision of public hygiene, which we can safely leave to experts.
The truth is that here political as well as economic democracy
come to an end, and among other things this is apparent from the
fact that in all present day socialist states we see the consumer
treated as a burdensome fellow who has to accept whatever the
state-run or controlled production happens to produce at the
moment.

At this point we do not want to engage in a dispute as to how


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104 THE SOCIAL CRISIS OF OUR TIME

far the democratic character of this “sovereignty of the consumer”
falls short of the ideal. Suffice it to say that competition, and
competition alone, can solve the task of directing production based
on the division of labor in a manner which corresponds to the
autonomous system of production existing on the self-sufficient
farm of a free and independent peasant. There is no other
solution, and there can be none. The self-sufficiency of the free
individual (in the undifferentiated economy) and competition (in the
differentiated economy) therefore correspond exactly to each other:
together both secure, in the economic sphere, that autonomy of
which, in the field of politics, democracy is the counterpart. To
this serfdom, monopoly and collectivism (planned economy in the
narrower and true sense) are diametrically opposed. They force a
foreign will on the economy, falsify the consumers’ plebiscite, and
result in’ economic despotism. All these are simple truths with
which we cannot tamper. We should call them to mind again and
again in order to avoid going astray in our reasoning.

It would be very fascinating to continue this comparison between
the economic democracy of the competitive system and political
democracy. The parallels are indeed surprisingly striking. For
instance, each is a highly sensitive artifice which needs constant
attention and supervision and can only exist under certain condi-
tions; further, each is unpalatable in an absolutely pure state; and
it is probable that neither can stand excessive use and that, if
covering too large an area, both are liable to result in dangerous
mechanization. Today we have perhaps occasion to reflect whether
the expansion of the “economic democracy of competition” over the
entire globe in an era of world economy has not led to a certain
straining of this principle, to an over-complication which cannot
continue for any length of time, and which has, in course of time,
produced a far more dangerous reaction in the form of autarky and
the “Grossraum” economy. Finally we must strongly emphasize
that economic autonomy, as guaranteed by the self-sufficiency of the
undifferentiated economy or by competition, and political democracy
are mutually complementary in the manner and for the reasons
explained above.

~The detailed nature of the mechanism of the market economy
directed by price and competition can hardly be described here if
the reader is to be spared an entire course in economics. However,
we may expect his sense of responsibility to restrain him from pro-
nouncing final judgment on our economic system, or even .from
considering himself to be called upon to heal the sick economy
before acquiring the necessary knowledge of its anatomy and
physiology. Not everyone is capable of that, but we believe that
in what we have said so far we have given clear expression to the
decisive point, and also to that which must be obvious to even


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THE SPLENDOR AND MISERY OF CAPITALISM 105

those without expert knowledge. We make this demand also
because nothing can be further from us than the desire, in thus
describing the essence of the market economy, to whitewash its
historical embodiment, “capitalism”; rather, we shall have ample
opportunity duly to criticize its undeniable weaknesses and mal-
formations and to follow up this criticism with extensive demands
for reform.

It is in keeping with the anti-materialist tenor of this book that
we have characterized the essence of the modern market economy
by its outstanding non-materialist achievement, which can best be
appreciated if we keep in mind the economic despotism which we
would exchange for it if we were to adopt a socialist economic
system. Coupled with this there is another non-materialist achieve-
ment, vying in importance with the one already mentioned: the
political neutralization of the economy, resulting from a pure market
system, in contrast to the politicalization of the economy growing
greater with every increase of government control over the economy
and finally, in the socialist state, devouring everything.

A pure market system means that economic success can only be
obtained by rendering an equivalent economic service to the con-
sumer, and that at the same time, failure to do so is relentlessly
punished by losses and finally by bankruptcy, which means
expulsion from the ranks of those responsible for production (entre-
preneurs). Income without equivalent performance and unpunished
default (burdening someone else with the loss) are both prevented
in this pure market system, which, as we shall show later, has been
disastrously falsified by historical “capitalism.” In order to achieve
these ends, this economic system makes use of a double arrange-
ment, first of all, the above mentioned system of competition and,
secondly, the coupling of responsibility and risk (profit and loss
chance). This coupling principle, according to which those who
guide the productive process enjoy the profits of success and per-
sonally bear the full weight of failure, and those who take the
chances of profit and loss guide productive processes, is one of the
most important, even if increasingly adulterated principles of our
economic system, and it would be difficult to prove that it is
unnatural and does not fulfil its purpose. |

At the same time we can now understand the true implications
of the often criticized and morally condemned idea of profit, in
which many people see nothing but a mask for anti-social self-
seeking, greed and unfair practices. But in reality the role of
profit in the pure market economy consists in providing a reliable
and irreplaceable yardstick for establishing whether an enterprise is
going to be a successful part of the national economic structure or
not. Under the rule of profit the entrepreneur who adapts himself,
receives from the market an acknowledgement to that effect in


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106 THE SOCIAL CRISIS OF OUR TIME

form of a bonus, but the entrepreneur who does not fit in is
penalized by the market. As a rule the reward is as high as the
penalty is harsh, but it is precisely this that leads to an especially
effective selection of the managers of the productive process. Since
the fear of loss is probably always greater than the striving for
gain, we may say that in the last resort our economic system is
regulated by fear of bankruptcy. The socialist state would have to
create an equivalent for all this: in the place of profit it would
have to put another yardstick of success and another system of
selection of the managers of production, in the place of bankruptcy
it would have to put another penalty for failure. It is, however, very
doubtful whether such an equivalent can be found. Up to now,
at any rate, it has not been discovered.

The meaning of all this is that in the pure market economy
it is not the state and not the individuals political power that
determines the process of the economy as a whole or one’s success
in private business ventures, but the market to which one has to
render appropriate services. Economic performance is the decisive
factor, not the influence one is able to exert on the state and in
political life. The economy ceases to be a political forum, and it is
the consumer whom the producer has to flatter, not the cabinet
officer; it is the market to which he has to pay attention, not
Congress.

The full significance of this non-materialist achievement of the
pure market economy, which is, to neutralize the economy
politically, may become even clearer to us if we recall its effect on
international trade. We are faced with the following immensely
important fact: in an excessively populated world in which
economic needs and the technique of production—which is depen-
dent on markets being as large as possible—call for world-wide
economic expansion and interdependence, the co-existence of giant,
medium and small countries, of strong and weak states, of rich and
poor regions would in itself lead to a permanent war of all against
all for the greatest possible extension of “living space,” as long as
political possession (sovereignty, “imperium”) decisively determines
economic utilization (““‘dominium’) or even, as in the socialist state,
completely coincides with it. The chief point, however, is that
it was the liberal character of the old international economy (which
favored the pure market system) which resulted in the highest
possible neutralization of national borders, political rule over regions
rich in raw materials, and citizenship problems of the individual.
There remained sufficient reasons for international conflict, but at
least this particular poison of the unequal distribution of raw
materials, of differing productive capacity and population density
in the various countries, and of the possible antagonism between the
political “haves” and “have-nots” had been eliminated almost com-


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THE SPLENDOR AND MISERY OF CAPITALISM 107

pletely by the liberal order in the heyday of much-maligned
capitalism. Thus, and only thus, was it possible at all that small
countries like Switzerland could, within the most narrow and
barren confines, reach a state of flourishing prosperity. In the
same way as the international political order guaranteed their
political co-existence, the liberal world economy guaranteed the
economic co-existence of big and small countries on a footing of
complete equality which precluded the possibility of the exploitation
of weak states by politically powerful nations. But what we have
now been experiencing for some time, is a development in the
opposite direction, the increasing politicalization of both domestic
and foreign economic relations. Since the road to prosperity leads
increasingly via political power, the impulse is for economic group
interests within the country to struggle for domination of the state,
and in the field of foreign policy for the nations to struggle among
themselves for mastery over the entire globe. Pluralism (the rule
of group interests) within the state, imperialism in the world, those
are the sad results of the politicalization of the economy into which
we lapse the more as we increasingly abandon the principles of the
market economy. In both cases we obtain only a short breathing-
space whenever an undisputed victor emerges from the fray.

In the pure market economy, in which the economic sphere is on
principle separated from the political sphere, the demand for
political rule over regions rich in raw materials in order to safe-
guard the supply of raw materials smacks of the paradoxical, since
selling and buying of raw materials takes place in the sphere of
private enterprise and under the rule of private law. The fact that
a certain state holds political sway over areas in which raw materials
are produced does not, in this case, mean that it “owns” the output
of raw materials. While it enjoys political sovereignty over these
regions (“imperium”) and therefore exercises those public and
administrative functions (administration of justice, police, taxation,
&c.), which are within its province, the owners are private indivi-
duals or companies in which citizens of any other state can acquire
stock.

“Imperium” and ‘“dominium” are indeed two fundamentally
different things—but only in a liberal world ruled by a market
economy. In a liberal world economy national frontiers are of no
essential economic importance; the world market is more or less a
“unit where equal opportunities for selling and buying exist for
everyone, regardless of national boundaries or citizenship. There
can really be no problems of raw material, colonies or so-called
“living space.” These questions arise only when socialists abandon
the principles of the market system and a non-liberal economic
policy tends to emphasize increasingly the economic importance of
political frontiers and thereby the size of the politically dominated


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108 THE SOCIAL CRISIS OF OUR TIME

area. If the fact that the individual nations exercise political control
over areas of the globe which are unequal in size, is coupled with
the erection of economic barriers, so that in the end one cannot even
become a boot-black without the requisite passport, this must
finally—in view of the highly differentiated character of our modern
economy and the varying population density in each region—lead
to a situation from which there are only two ways out. Either we
will have to be prepared for the nations unleashing—with the truly
pre-historic ferocity of the struggle for pastures and salt-pans—a
terrible perpetual war for political domination of the entire globe;
or, the barriers erected by short-sighted egoism will have to be torn
down again. It can only be the one or the other: an unending
scuffle for the greatest possible expansion of the closed territories,
or return to the ridiculed principles of a liberal world economy
with tolerable tariffs, most favored nation clauses, the policy of the
open door, an international currency system, and without “Gross-
raum’ politics. These are in truth the only alternatives, and now
we would ask you to reflect which course is the more Utopian.
We shall discuss what conclusions are to be drawn from this for
action in the economic sphere in a later section dealing with the
question of an international new order.

Freedom, immunity of the economic life from political infection,
clean principles and peace—these are the non-materialist achieve-
ments of the pure market economy. However defiled and
adulterated it may appear to us in the form of historical capitalism,
it would nevertheless be unforgivably shortsighted if we were to
deny that even this “tainted” market economy has brought us
nearer to those ideals than any other economic system before or
since. What even this very imperfect capitalism, which is crying
‘out for radical reform, has done for the liberation of man, we would
best learn if we could question as witnesses the shadows of past
centuries groaning under the yoke of feudal and absolutist
oppression or the subjects of socialist countries. That even the latter
cannot answer us, is surely the most striking proof of the true state
of their economic system and its non-materialist achievements.

Moreover we must add that this economic system of market
economy has, aside from its non-materialist spiritual achievements,
performed material feats to deny which would be fatuous. It
would also be wrong to make machine technology and the division
of labor solely responsible for this enormous material achievement,
namely, the increase of total production and of the welfare of the
masses—of which one can gain a rough estimate by noting that the
real wages of the English worker have increased fourfold between
1800 and 1900." Of course, from a historical point of view, these
two factors are the main cause of the increase in productivity, but
again only very coarse materialist thinking can ignore two. things:


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THE SPLENDOR AND MISERY OF CAPITALISM 109

firstly, machine technology and the division of labor could not have
been developed if capitalism had not created the economic, psycho-
logical and political conditions for it, and secondly, all socialist
experiments, in which particularly the use of machines and division
of labor are pushed to extremes, show that very disappointing results
are obtained if one is satisfied with harvesting these technical and
organizational fruits of the market economy, while doing away

-with its non-materialist motivating forces, namely, freedom, private

property, competition and the market. Montesquieu in his Esprit
des Lois has already insisted upon it: “les terres sont cultivées en
raison, non de leur fertilité naturelle, mais de la liberté dont
jouissent les habitants dans les échanges,” and there is a proverb
which says that the hand of the owner turns sand into gold.

However, the great advance in mass welfare during the last
hundred years must not make us forget that it is not as great as one
could have expected in view of the extraordinary increase in pro-
ductivity. In fact, there exists a certain disparity which calls for an
explanation: the disparity between “progress and poverty,” which
is a constant matter of concern particularly to socialists of all
denominations, leading them to the conclusion that the cause must
be sought in constructional faults of the economic system. Again
and again one hears it said that in our economic system ‘‘economic
doctrine” ruins what “technology” has conquered, and it cannot
surprise us that it is especially engineers who tend to hold such
views and who look down upon economists with something of the
contempt which militarists have for diplomats. This is not the place
to investigate the many misunderstandings which lie at the root of
this opinion held by the socialists and by many engineers, but a
few pointers would seem necessary.

We begin by drawing attention to the fact which should be
obvious, especially to the engineer, namely, that we can as little
expect 100 per cent. efficiency from the best organized national
economy as from the most perfect motor. The indignation of the
engineer regarding the loss ratio of our economic system therefore
resembles the incredulous surprise of the layman in technical
matters when he hears for the first time that even our most perfect
heat engines utilize hardly more than 50 per cent. of the fuel-
generated energy. It is obvious that we have to take into account
this percentage of purely technical loss which the engineer knows
to be inevitable, if we hear astounding (incidentally, often also
exaggerated) figures regarding the efficiency of the modern machine
as compared with manual labor, figures which seem to promise us a
paradise on earth. But there are many additional factors.

If we take a machine particularly impressive by virtue of its
output as well as its complicatedness, an automatic bottle manu-
facturing machine, which one can hardly accuse of destroying a


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110 THE SOCIAL CRISIS OF OUR TIME

formerly idyllic handicraft, we have a case which could make us
very optimistic. Here is an automatic machine which replaces
tubercular proletarian glass blowers and which manufactures pro-
ducts of cheapness and utility, nor do we have to mourn the demise
of quality of workmanship. We are therefore all the more tempted
to give ourselves wholeheartedly over to the impression that
machines, employed everywhere and fully utilized, can multiply
human happiness along with total output.

But this impression is misleading. First of all, the example of
the bottle machine cannot be generalized, either in the technical
or in the human sense. It is by no means the rule that a machine
increases productivity to such an extent as in this case, and it is
even less the rule that its human and social effects should leave us
undisturbed. For this reason alone we have to lower our expecta-
tions, and what the machines can do to increase the material welfare
of the community is decreased by further liabilities, some of which
are extremely important, liabilities which can, with good will, be
partially diminished but never wholly eliminated. They are:

(1) expenditure for the manufacture of the machines themselves
(machine tools, &c.), an expenditure which consists not only
in immense amounts of work and raw material, but also in
“capital,” that is, in a renunciation of the enjoyment of
goods in the present, in favor of a more or less distant
future (this sets limits to the use of machines known to
every economist and independent of the particular type of
economic system); |

(2) stoppages in the production of organic and inorganic raw
materials (agriculture, forestry, fishing and mining), which
form the basis of the total output, but offer only small
opportunities of further increase by mechanical devices
and must sooner or later be influenced by the law of
decreasing returns;

(3) inevitable fluctations in the utilization of a productive
apparatus whose capacity must be able to meet the highest
demands (e.g., in the use of electric power), so that in the
same way as a certain percentage of a city’s housing accom-
modation must remain vacant if the housing market is to
have a “margin,” there must always be a certain ratio of
unused productive capacity in the entire national economy;

(4) the losses arising from all bad investments which are always
loudly lamented, a substantial part of which, however, is
nothing but the price for progress and adaptation that has
to be paid in experiments of all kinds, a price the socialist
state, too, would willy-nilly have to be prepared to pay and
without which the development of the last hundred years


===== PAGE 123 =====

THE SPLENDOR AND MISERY OF CAPITALISM III

would not have been possible at all—without which many
of the readers of this book would not even exist;

(5) the tremendous increase in the cost of education and school-
ing required for the training of all the experts whom our
modern economic life demands, a vast capital expense
which devours a great part of today’s national income and
which must be set off against the technical achievements of
the machine age;

(6) the costs of satisfying the new need for recreation and
amusement which arose only with the monotony of the
machine age;

(7) the increased costs of transportation, distribution and adver-
tising, accompanying the development of industrial pro-
duction, of big cities and of world trade;

(8) the costs of a government apparatus which is becoming
increasingly complicated and comprehensive as industries
and cities continue to grow, and also correspondingly more
expensive as it requires greater numbers of civil servants;

(9) the deterioration in quality which has been in many cases
the undeniable consequence of the replacement of manual
labor by the machine;

(10) devastations by war which have increased so vastly in the
machine age. :

All these drawbacks would also appear in a socialist state which
took over capitalist technology and management, apart from
those which would be experienced in addition in that case.
They hardly suffice, however, to explain the disparity between
the promises of technology and the actual fulfilment during the
last hundred years. This disparity—the gap between the welfare
of the masses and the increase in technical productivity—can like-
wise not be explained by the theory that the masses have been
deprived of their due share in the progress of productivity and
that this share has been put into the pockets of a few rich men.
We tend to be subject to a kind of optical illusion when looking
at the conspicuous consumption of luxuries by the rich which
makes us forget how small the number of rich people is in com-
parison with the rest of the population, and what little difference,
therefore, the total amount of their more-than-average-expenditure
makes, when measured against the total consumption of the bulk of
the population. This illusion is refuted by a simple piece of arith-
metic which shows us how insignificant the rise in the average
‘income of the masses would be if an equal distribution were to be
effected—even on the far too favorable assumption that the sum
total would not diminish under such violent treatment.

We shall probably come nearer to solving the riddle if we


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I12 THE SOCIAL CRISIS OF OUR TIME

consider what many people seem to forget in this as well as in other
connections: i.c., the tremendous increase in population, which
took place concurrently. We can actually not only explain the dis-
crepancy in question but also obtain an idea of the vast material
achievement of capitalism if we remember that a considerable part
of the technical and organizational advance in production has
apparently had to serve the one purpose of enabling a greater
number of men to exist on this earth, instead of contributing to a
greater increase in mass welfare. It thus appears as if the dis-
appointments which capitalism has brought in a purely material
sense must to a great extent be explained by saying that this
economic system had to divide its immense prosperity creating
power in order to fulfil two tasks: to improve the economic lot of
the average man, and to provide means of existence for gigantic
floods of newcomers.

It is therefore difficult to reject the assumption that in the
populous industrialized countries the necessity to choose between
“increase in population” and “increase in mass welfare” did not
arise only yesterday, and this choice is of even greater importance
today. However, it also follows from this that we cannot today
simply make short shrift of machines, division of labor, world
economy and industry and return to manual production and
autarky, since the increase in productivity, which was only made
possible by developments in mechanics and organization, has in
the meantime been absorbed by the immense increase in population.
~ We cannot simply reverse economic and social development by one
or two hundred years without jeopardizing the existence of millions
of people, and thereby our social order itself. We must well keep
in mind that this hard and sober fact sets limits to our programs
of reform; at the same time it should also make us look with dis-
comfort at too fast a reproduction rate and produce a feeling of
relief at any diminution.

Of course, we must also warn against the superstition that the
existence of the masses is now absolutely dependent on leaving our
present overwrought mechanical industrial and urban civilization
completely undisturbed. On the contrary: our life—and this is
strikingly demonstrated by many experiences made in the war—
would be far more natural, healthy and happy if certain technical
and organizational developments could be reversed, and this despite
the present size of the population. Every cut and dried judgment
is misplaced here: the uncritical glorification—which today is hardly
taken seriously anywhere—of our technical and industrial civiliza-
tion, as well as its equally uncritical condemnation on principle.
What we need is rather an exact appraisal and investigation of
individual factors and the careful weighing of the pros and cons.
This applies to the particular problem of machine technology and


===== PAGE 125 =====

THE SPLENDOR AND MISERY OF CAPITALISM II3

modern industrialism as well as to the more general one of
capitalism as a whole. For the purpose of such an appraisal we now
turn to the many and blatant defects and aberrations of capitalism
which from the very beginning created the counter-current of
socialism and which in our days have led to a veritable mass
rebellion against the traditional economic and social system, and
this for reasons for which we have great understanding, much as we
reject their destructive consequences.

The Liabilities

The basis of our economic system—freedom, private property,
division of labor, market and competition—must be affirmed as
staunchly as the superstructure which has overgrown it so
luxuriantly (as well as the form which historical “capitalism”
assumed in the course of the nineteenth century, for reasons to be
detailed later) must be condemned. Precisely because one wants to
preserve this basis—and its maintenance has become the crucial
problem of our civilization—one can hardly be vigorous enough in
criticizing all the aberrations, falsifications and distortions which
the historical development has brought. Thus the issue in question
is the sharp and resolute distinction between the essentials of our
economic system and the exchangeable accessories, and only on the
strength of such a distinction is it possible to bring about a wise and
practicable reform.

Not only democracy, but also the economic system correspond-
ing to it has developed during the last hundred years along certain
lines, which might just as well have been different without in any
way affecting the essence of the market economy, and which do,
in fact, vary considerably from country to country and epoch to
epoch. German “capitalism” has always been different from the
English, American or French edition, and they all, in turn, vary
significantly—and not always to their advantage—from Swiss
“capitalism.” In the same way the English “capitalism” of 1930
looks entirely different from that of 1910, 1880 or 1850.
~The highly differentiated market and competitive system

happens to have been organized in this historically conditioned
manner, but it could just as well have been arranged in a different
way. Today we know only too well that in decisive respects it
would have been better if other paths had been taken and extremes
thereby avoided. And now we find here the same faulty judgment
demonstrated as in the case of democracy: the preponderant
tendency to confuse the variable super-structure with the founda-
tion, the appendage with the essence. We have become far too
accustomed to look upon all those familiar forms of “capitalism”
—monopolies, mammoth industries, stock companies, holding com-


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114 THE SOCIAL CRISIS OF OUR TIME

panies, mass production, proletariat, &c.—as the only possible
manner in which a non-collectivist and, at the same time, highly
differentiated economic system can be organized. On the contrary,
however, we should at last seriously ask ourselves whether these
outer forms—in which the economy has paid its tribute to the
“cult of the colossal” and thus to the spirit of the nineteenth
century—do not present an increasingly serious danger to the
content. If we no longer like the nineteenth century architecture
of a building, nobody draws the conclusion that we should now
start to build adobe huts or giant tenements; rather, we adhere
firmly to the essentials of construction, i.e., foundation, materials
and function. It is, however, true that precisely those people are
the best confederates of the revolutionaries who cannot conceive
“capitalism” in any other form than the one which history has
given it—a very misshapen one unfortunately—and who cling to it
with all their might. Both parties agree in equating form and
content and, therefore, agree in their conclusion: either this way or
not at all. Both are ignorant of a third way, and reformers are
equally abhorrent to both. An obtuse conservatism which does not
possess enough imagination to think of new forms, nor sufficient
intelligence to realize the necessity. of these new forms, is bound
to breed an equally obtuse radicalism. Their relationship resembles
that of the photographic negative and positive of a hopelessly under-
exposed snapshot. :

Both liberalism and capitalism have for one and a half centuries
been weighed down by calamitous aberrations, whose mere possi-
bility today amazes us, and nothing has brought these two so near
to the verge of complete doom as the dogmatic belief that this
historical and misshapen form was the only possible one, and that
in the future, too, no other would be conceivable. If these dogmatic
liberals were right, then the essence of political and economic
liberalism would indeed be in a very bad way and that is exactly
why they are the anti-liberal’s most desirable star witnesses. Yes,
dogmatic liberalism leads straight to the conclusion that the
economic and social system of the Western world is lost beyond
redemption—sit ut est aut non sit. Since we are just about agreed,
in full possession of the facts and basing our opinion on wellnigh
irrefutable reasoning, that this economic system should not be as it
is—ut est—it follows: non sit, it should disappear. It is therefore
completely logical that it is precisely the most dogmatic liberals
who are today most easily overwhelmed by weak pessimism, and
from there to capitulation it is often only one step; the psychology
of apostasy is a murky and strange story. If the doctrinaires were
right. . . . But, thank heavens, they are entirely wrong, like every-
one who does not know how to differentiate and to distinguish
between essentials and non-essentials. :


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THE SPLENDOR AND MISERY OF CAPITALISM 115

Let us first of all keep in mind that capitalism has developed in
a historical era which, with a few exceptions—Switzerland being
the main representative—has unfortunately been decisive for the
development of the Western world and has in every respect distorted
it so disastrously: it is the feudal-absolutist era where the principle
of force and exploitation predominated. Only if one surveys the
“miserable ages of brute force and the degradation of man through
feudalism and absolutism, can one fully conceive what men owe
to the liberal-capitalist age for their liberation and relief, and
nothing is more characteristic of the progress due to an even very
imperfect system of capitalism than the new feeling of dignity,
self-esteem, justice and freedom which today has made men so
sensitive. Without looking back into history, they are far from
satisfied with what has been achieved and demand all the more
violently what is still owing to them, as did the French bourgeoisie
of 1789 of which Emile Faguet—following Tocqueville’s example
—speaks in the motto of this chapter. But that capitalism is still
owing them so much, is mainly due to that disastrous heritage
which it took over from feudalism and absolutism.

This feudal-absolutist heritage finds its most striking expression
in the immense accretions of capital and economic positions of
power which endow capitalism with that plutocratic trait which
clings to it in our imagination and has given it a false start from
the very beginning. It is not true that the existing differences in
the distribution of income and capital are purely a matter of
economic performance and could not be altered without disturbing
the laws of the market, and it is therefore also incorrect to ascribe
these differences to the mechanism of the market economy as such.
Under the rule of an unadulterated market economy and with non-
economic conditions at the start being equal, differences in the
distribution of income and capital can hardly assume gross dispro-
portions, and in the absence of that most people feel them to be just.
Violent contrasts between rich and poor, between power and
impotence, are rather due to extra-economic (“‘sociological’’) posi-
tions of power, which bestow economically unjustifiable privileges
and which are either vestiges of feudalism or absolutism or were
obtained later by unfair means, outside the competition of the
market, by establishing monopolies. In both cases the provoking
disparity in the distribution of income, capital and power is the
calamitous heritage with which feudalism and ruthless and cunning
exploiters have saddled us.

Feudal land holdings with whose hardly edifying history we
are today tolerably familiar; profits from the slave trade which still
flourished even in the eighteenth century and helped, especially in
England, to found many a fortune; war and speculative profits of
the most questionable kind, pirates’ and soldiers’ booty, monopoly


===== PAGE 128 =====

116 THE SOCIAL CRISIS OF OUR TIME

concessions granted in the age of absolutism, plantation dividends,
railroad subsidies: these and many others are the unclean sources
of many great fortunes, which then became the basis of the subse-
quent development. Many of them have vanished today, while
others—particularly those founded on feudal mining properties—
stubbornly extend into our time like the well-preserved strongholds
of robber-barons, though, unlike them, without any claim to pro-
tection as ancient monuments. Others, aided by analogous condi-
tions, continue to reappear under our very eyes whenever state and
society are weak and short-sighted enough to permit such condi-
tions.

These feudalist remains in the capitalist system are not only
responsible for differences in income, capital and power which are
alien to the pure market economy—whose guiding principle is
efficiency—and burden it with an unjust odium under which pro-
perty won by honest work and faithful service also has to suffer; it is
also at least as important that thereby capitalism, while still in its
infancy was turned into wrong paths in so far as accretions of
capital resulted which allowed a corresponding agglomeration of
enterprises and factories, and thus paved the way to mammoth
industries, to “corporate capitalism,” to giant enterprises and
monopolism. At the same time this partly explains why Switzer-
land, where, thanks to history, the capitalist system does not suffer
from the feudal infection, has not followed the development into
mammoth capitalism, but has rather become a country not only
with a balanced distribution of income and capital, but also with °
predominantly small and medium-size enterprises.

The abnormal agglomeration of capital was admittedly only one
of the requisites of this lamentable development. The other was the
aggregation of proletarian labor. But where did the first industrial
proletariat come from? There can be no doubt about the answer.
The same power principle which enriched some and gave them
a privileged position, dispossessed others and laid the foundation
for that uprooted class of the population which is dependent on the
constant utilization of its productive power, that class which we
call the proletariat and which we have already characterized in the
introduction to this book. This was the foundation from which
everything else was to follow, thanks to the subsequent rise in the
reproduction rate of the proletariat.

This process becomes particularly clear when we study the
economic history of Germany and England. In Germany it was
the peasants of the feudalist eastern provinces who, dispossessed in
the wake of their “liberation” and reduced to rural proletarians,
rushed into the factories; in England it was the almost complete
elimination of the peasantry in favor of the feudal landowners—
mainly in the seventeenth and eighteenth centuries—which provided


===== PAGE 129 =====

THE SPLENDOR AND MISERY OF CAPITALISM 117

the reservoir for filling the terrible slums of the first English
industrial districts. In both cases proletarization, industrial misery
and exploitation are the logical consequence of the destruction of the
peasantry, and historically inviolable proof of the cardinal maxim
of sociology that a healthy peasantry is the elementary foundation
of a sound society. A proof e conmtrario for this thesis is again
Switzerland, where, because of the absence of feudalism, a pro-
letariat of disquieting size could not arise. And if, lastly, we turn
to the United States, we find that there, too, the development of
big business has profited from the feudal pressure in Europe, from
where men, turned into rural proletarians, preferred to emigrate
and become freer industrial proletarians. As long, however, as
America still had reserves of land which could be freely settled,
American industrial labor could bargain for material conditions
which, in spite of the continuing feudal pressure in Europe, for a
long time prevented the rise of an industrial proletariat in the
European sense and therefore also of a socialist mass movement
appropriate to that class. Since, however, the safety valve provided
by free land ceased to function at about the turn of the century,
conditions there have, in spite of immigration bars, become more
and more similar to those in Europe.

We must at all times keep in mind these dark sources of the
historical form of the market economy and of capitalism so decisive
for everything that follows, always remembering the old truth that
the ultimate source of all the pathological degenerations of a society
must invariably be sought in the forcible separation of the people
from the soil and the feudal appropriation of the latter. ‘‘Latifundia
perdidere Romam” is an experience which may serve us as a guide
throughout economic and social history, in as much as it seems
to admit of no exception. Wherever capitalism was conceived and
developed with the socially poisonous taint of feudalism, it has
been perverted in a manner which we only understand fully today.
The degenerate form of the market economy—modern industrial
and financial capitalism with its all powerful accumulation of
capital and power, its proletarian masses, its centralization, the
elephantiasis of its big cities and industrial areas—is not at all the
form in which such an economic system is bound to develop
according to its own allegedly ineluctable laws. It is anything
but the creature of the often quoted historical destiny, of which fools
prate so much, or of the powers of technology to which we have to
surrender ourselves unconditionally and which, like any oriental
despot, will prescribe our thoughts and actions. It is the creation
of history, as formed by men who could also have acted otherwise,
it is the work of a pre-liberal, feudalist society and finally, in its
later course, the work of badly advised legislators and lawyers.

Our economic world has in the main assumed its present shape


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118 THE SOCIAL CRISIS OF OUR TIME

because certain legal forms and institutions have been created—
the stock company, the corporation, patent law, bankruptcy law,
the law relating to trusts, and many others—and because legislation,
the administration of justice and custom have evolved these forms.
and institutions in a way which today we can often describe as
nothing but harmful to the community and to the economic system
itself. We must, first of all, become accustomed to the idea that a
healthy economic life is quite conceivable without holding com-
panies, without monopolies protected by law, without patents which
prevent competition, yes, if necessary, even without stock com-
panies and corporations as standard forms of industrial enterprises.
It should also no longer be deemed a heresy to envisage an economic
system in which state subsidies, legal protection, the administration
of justice, state authority and economic policing are quite differently
oriented than is the case today in so many countries—for the small
and against the big, for fairness and competition, and against
exploitation and monopolies, for equalizing justice, and against
privileges, for the easing effects of decentralization, and against
frustrating concentration.

It remains to be seen where these thoughts will in each case
finally lead us. At this moment and at this point we are concerned
with the method of radical thinking itself, the lack of prejudice in
the thorough investigation of problems, the willingness to retrace
our steps into the history of a development that is more than a
hundred years old until we reach the point where we took the
wrong turning, and then to continue forward again on the right
path. All this must be done, however, without for a single moment
forgetting the essential foundation of our economic system, which
it is our purpose to protect and fortify by realizing and correcting
the errors of the past.

The mistakes which have been made in putting economic policies
into effect have their roots, as always, in theoretical errors. The
nature of these errors—errors committed by historical liberalism,
which is to fundamental and true liberalism what historical
capitalism is to the pure market economy—has already become
clear to us earlier in this book, when we were dealing with the
errors of rationalism and liberalism (First Part, Chapter I). As we
saw there, it was a catastrophic mistake to consider the market
system as something autonomous, something based on itself, as a
natural condition outside the political sphere requiring no defense
or ‘support and to overlook the importance of an ethical, legal
and institutional framework corresponding to the principles of
the market system.

Not less deplorable and disastrous, however, was the blindness
and even the smugness with which one gave free rein to an indus-
trial development, which, with sovereign disdain for the vital


===== PAGE 131 =====

THE SPLENDOR AND MISERY OF CAPITALISM 119

instincts of man and for his most elementary spiritual needs, has,
thanks to the forms of life and work in the industrial giant cities,
reduced the existence of the masses to something completely
unnatural. The market, division of labor, commercialization, com-
petition, economic rationalism—they all have, among other things,
this in common: there is an optimum in their use, after which their
harmfulness increasingly exceeds their utility. Excess and indis-

criminate use lead to an artificiality of life which man is by nature

not fitted to withstand for any length of time. There are, there-
fore, limits to capitalism from the very start which one must
observe if one does not want to make psychological demands on the
people to which they are not equal in the long run, so that they
finally answer with a revolt of the masses—the revolt of the
excessively domesticated creature. Like pure democracy, undiluted
capitalism is intolerable, and among other things this is apparent
from the deep dissatisfaction which the commercialization of arts,
sciences, education, or the press rouses in us. Today we have
achieved the realization, to a great extent unknown to previous
generations, that men cannot bear, without excessive harm to them-
selves and to society, the constant mental, nervous and moral tension
which is forced upon them by an economic system dominated by
supply and demand, market and technology, nor can they withstand
the insecurity and instability of the living conditions which such a
system entails. The sum total of the material goods at our dis-
posal may increase through this process, and the often cited living
standard may reach those heights which intoxicate a naive social
philosophy, but at the same time this leads to a rapid diminution
of the sum of that immeasurable and inexpressible simple happiness
which men feel in doing satisfying work and leading purposeful
lives.

Man’s nature, therefore, sets definite limits to the rule of the
market principle and in the same way as democracy must permit
spheres free from the interference of the state, if it is not to
degenerate into the worst kind of despotism, the market system,
too, must allow spheres free from the influence of the market, if
it is not to become intolerable: there must be the sphere
of community life and altruistic devotion, the sphere of self-
sufficiency, the sphere of small and simple living conditions, the
sphere of the state and of planned economy. In the 1850’s there
were still leaders of public opinion—for example in Germany the
admirable W. H. Riehl with his book Die birgerliche Gesellschaft
—who clearly expressed such thoughts without being ridiculed as
visionaries, but later more and more of such voices fell silent and
capitalism’s actual development in most countries is an exact reflec-
tion of the ensuing blindness. It goes without saying, that in this
respect the socialists were not a whit better than the liberals, for


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I20 THE SOCIAL CRISIS OF OUR TIME

otherwise they could not have called for an economic order which
is bound to increase man’s mental and moral tension to the utmost
degree. oo |

The lack of insight on the part of historical liberalism was
especially great and the actual capitalist development which it
sponsored particularly deplorable since even the living, working
and housing conditions: which were determined by industry, com-
petition and division of labor could, with good will and reasonable
intelligence, have been fashioned from the start in a more humane
and natural, and less mechanical and proletarian manner. ‘Infatuated
as one was with everything colossal and tightly centralized, one
paid little attention to a more rational organization of industrial
production; without loss, perhaps even with a gain in productivity
one could have kept down the size of factories and enterprises,
could have preserved and developed old and tested forms of work
while inventing new ones, could have increased the number of
independent businesses and of medium and small-sized factories,
could have maintained a healthy middle class and endowed the
entire economic life with more stability and soundness. That this
would have been possible is proved not only by calm consideration
and investigation of all the measures that could have been under-
taken or could have been omitted; but also by the many promising
germs of development which were blindly exterminated; and even
more convincing is the experience of some more favored and
enlightened countries, demonstrable until this day, for we must
always bear in mind that everything good that has been realized
somewhere in the world is a sure index of what could at least have
been achieved elsewhere, too, if one had kept one’s eyes open.
Thus it is once more the example of Switzerland which shows that
“capitalism” can most certainly mean something else than vast
Bochums, New Yorks, Manchesters or Pittsburghs, and that there
is no such thing as rigid laws of “capitalism” which proletarize the
middle classes in town and country and concentrate money and
power in fewer and fewer hands, which pitilessly destroy all simple
and natural relationships and are bound to mechanize the economic
and productive process beyond redemption. If, on the other hand,
the development in some of the larger countries has taken such a
much more unfavorable course, one should, before accusing the
economic system as such, take the trouble of investigating the
various reasons. Only then will we have gained a clear picture
and will we be able to assess the full share of blame due to circum-
stances working from without, historically “incidental” and non-
economic, but above all political: wars, revolutions, inflations and
deflations, domestic and foreign politics, economic policies. Who
can in fairness overlook the fact that it was the World War,
inflation and world politics which so disastrously decimated the


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THE SPLENDOR AND MISERY OF CAPITALISM I21

German middle class, for example; devasted the world market
and plunged capitalism into the worst crisis of its history?

That 1s by no means to say that one may entrust oneself care-
lessly and blindly to the mechanism of the competitive system and
its laws. On the contrary: after historical liberalism had already
sinned by ignoring the importance of the non-economic conditions
that influence the market economy, as well as its anthropological
limits and premises, it committed—steeped in rationalist doc-
trinairism—another error by not paying sufficient attention to the
imperfections and defects. of even the pure and unadulterated
market system. This error—committed in the sphere of economics
itself—prevented the realization that the competitive principle is by
no means applicable in all fields of production without leading to
grave difficulties, further, that there are certain markets which
function only more or less imperfectly, that we meet abuses of
competition everywhere which must be regulated by the state. Since
one failed to realize this, it was only natural that one barred the
‘way to a rational system of governmental intervention and, lacking
proper signposts, tended to flounder about in the field of economic
policy. ‘This led to further grave mistakes and faulty developments
of capitalism in many countries. The different problems involved
here and the conclusions. we have to draw from them for a timely
program of economic reform will concern us in the following
section of this book.

And now we are also in a position to give a calm and balanced
opinion regarding that defect of capitalism which has perhaps
discredited it most of all and which makes it in our day appear so
damnable to the superficial observer: its tendency to pass through
crises and periods of unemployment, and its inadequate utilization
of the productive potentialities. It is a wide field that we are
entering and to do complete justice to the question would mean to
treat of one of the most difficult chapters of economics in the most
detailed manner. But this at least we can say in a few words:
we must admit that the equilibrium of the over-capitalized market
economy has become unstable for reasons on which the crisis
experts are more or less agreed today. Smaller and partial dis-
turbances are in general easily and smoothly overcome by the
regulating mechanism of the market; and a flexible competitive
system can adapt itself with surprising speed and resiliency to most
of the changes in economic “data” (production methods, inter-
national trade routes, population figures, consumers’ habits, &c.).
But from time to time there occur those grave and total disturbances
of the equilibrium, which we call crises. Everything suggests that
their main causes, as far as they are to be sought within the
mechanism of the market economy, that is in as far as they are
“endogenous,” lie in the imperfections of the money and credit


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122 THE SOCIAL CRISIS OF OUR TIME

system and of the allocation of capital. For the following reasons,
however, too much weight must not be attached to this concession
to the critics of the market economy: —

(1) Up to a certain degree, economic depressions are the price
that has to be paid for a boom and for the acceleration of economic
progress, yes, even for higher productivity which we owe, after all,
to a very far-reaching division of labor. The sensitivity of the
economic system regarding disturbances of its equilibrium grows
with every forward step in the division of labor, but along with it
the productivity of the total economy grows as well. If we want
to avoid disturbances of the equilibrium altogether we have to
return to Robinson Crusoe and his meagre standard of life; if,
however, we do not want to do this we have to put up with the
greater degree of instability of our economic system. That is the
great dilemma in which we find ourselves and in which we have to
weigh carefully each consideration against the other. The number
of possible decisions has, however, been appreciably narrowed down
since the increase in productivity, which we owe to the growing
division of labor and the resulting productive techniques, has, as
we saw, begun to be used up by the tremendous increase in world
population. If—to vary the famous words of the Communist
Manifesto (1847)—“it was capitalism that first proved what human
activity can achieve,” if “it has accomplished greater miracles than
the Egyptian pyramids, the Roman aquaeducts and Gothic
cathedrals, and has carried out far vaster expeditions than Vélker-
wanderungen and crusades,” then it is the spasmodic outbreak of
an effervescent and frequently blind spirit of enterprise financed by
periodical expansions of credit, that has rendered capitalism capable
of these achievements. If, for example, we should have postponed
the expansion of the modern railroads until the necessary means
had been gotten together without a temporary inflationary accelera-
tion of the economic process accompanied by grave disturbances of
the equilibrium, a railroad trip might possibly be just as much a
sensation to us today as it was for our grandfathers seventy years
ago. What is true of the railroads also applies to all other technical
and organizational progress of the last hundred years: its rapid
expansion was always coupled with a boom which was inevitably
followed by the reaction—the hang-over called depression. The
boom is that period in which for the purpose of accelerated economic
development all the reserves of the national economy are mobilized;
it is, so to speak, a periodical “several year plan” in which for the
past hundred years the idea of amassing investments which is at
the bottom of the “several year plans” of the collectivist countries
today, has been anticipated—only, as with everything spontaneous
in contrast to what is consciously organized and advertized, one
made less ado about it. Whether such an acceleration of the


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THE SPLENDOR AND MISERY OF CAPITALISM 123

economic development is always a blessing is admittedly a different
«question, and we no longer need to tell the reader how skeptical
‘we ourselves are regarding this point. But that is not what is at
issue here, since all we want to do is to show that one cannot have
the one without the other, and that the boom and slump cycle is not
quite as senseless as it is often portrayed—especially by those who
praise economic progress to high heavens. But here we have to
‘warn against the dangerous illusion of believing that a socialist
«economy would find itself in a fundamentally different position and
‘would not experience like difficulties regarding its equilibrium.

(2) In spite of all the more or less disappointing cures which
have been tried for the last hundred years, the task of improving
our economic system in such a way that the disturbances of the
equilibrium are reduced to an unavoidable and tolerable degree,
must not be considered insoluble, especially not in view of the
insight and experience gained during the last ten years. Failing
such a solution, we are at least able to indicate the ways along
which the national economy can be made so resilient and shock-
proof that it can bear even grave disturbances of its equilibrium
without serious social harm and without general panic.

(3) No intelligent person can deny that the excessively great
«disturbances to which the economic life of most countries has for
«decades been exposed, and which finally culminated in the “great
depression” (1929-1933), owe their gravity and extent primarily
to exterior shocks which have plagued the world since 1914. It is
indeed a miracle that our economic system has not completely
collapsed under them, and we have a right to ask whether a different
economic system would have shown similar powers of resistance.
We should not, therefore, make our economic system the scape-
goat for political sins.

(4) Finally, we have to consider that our economic system,
«during the same period and to a still growing degree, has been
distorted almost beyond recognition by reckless interventions and
perversions of the most varied kind, and has thus become pro-
gressively less able to function, less elastic and less adjustable. It
lost its adaptability and flexibility precisely during a time when
these characteristics had never been more necessary, since the
conditions for a viable economy had been changing more rapidly
and more thoroughly than perhaps ever before. However, in a
process of disastrous interaction the consequences of this discrepancy
between the necessity and the ability to adapt oneself, have, in their
turn, led to certain measures and insensate interventions which only
served to enlarge the rift. To find a way out of this vicious circle
~ is one of the most important, and at the same time one of the most
difficult, of the many gigantic tasks with which our generation is
faced. It is so difficult that not a few have given it up in despair,


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124 THE SOCIAL CRISIS OF OUR TIME

but it is after all one on whose satisfactory solution depends the
fate of our Western civilization. It would be easier if so many
private interests did not have a stake in the present state of affairs
which they defend to the last with dangerous stubbornness. One of
the most effective defensive weapons in this struggle is to obscure
the real position with slogans and ideologies and thereby create the
impression that the fight against the adulteration of the competi-
tive system and against the private interests tied up with it, arose
from an ideology which has become suspect today. As against
this we have to state that it is now simply a question of whether
we have the will and the intelligence to re-establish the meaning
of our economic constitution, and this means in the first place that
the issue is the fight for or against monopolies, for or against the
efficiency principle, and for or against the improvement of economic
competition serving the good of the community and consistent with
our economic system. We shall now proceed to investigate more
thoroughly the various aspects of this conflict between self-interest
and public interest, of this struggle between the many economic
group interests.

The Conflict of Interests in the Economy

Qui autem parti civium consulunt partem neglegunt, rem perniciosissimarm
in civitatem inducunt, seditionem atque discordiam.
(Whoever favors some of the citizens and neglects the others, introduces
the most ruinous evil into the community: division and strife.)
—CiIcero, De officiis, 1, 25.

It is an elementary maxim of sociology that men, in order to
satisfy their needs, can establish mutual relations of a threefold
kind: first, the ethically negative relationship of force and cunning
(the “medium of politics,” according to Franz Oppenheimer);
secondly, the ethically positive relationship of altruism; and thirdly,
the contractual relationship of parties exchanging market commo-
dities, who reach an agreement as soon as each one believes that
he is going to profit by it. Obviously, only in the first and in the
last case 1s there any point in talking of a possible conflict of
interests. However, while it goes without saying that in the first
instance the interests of the robber and his victim clash irreconcil-
ably, it appears as if in the last case the mysterious institution of
the market and the division of labor has actually transformed the
original conflict of interests inherent in every “do-as-you-are-done-
by” transaction, into a harmony of interests. The historical
liberalism of the nineteenth century was, in fact, considerably
deceived by this appearance and engendered that optimistic doctrine
of the harmony of economic interests which has caused so much
mischief, not least because its untenability has finally led us to
overlook the partial truth it contains. |


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THE SPLENDOR AND MISERY OF CAPITALISM 125

In economic life there exists a particularly impressive instance
of an obvious harmony of interests between contractual parties,
namely, life insurance. We can observe how the life insurance
companies endeavor with an almost maternal solicitude to further
our most important interest, our health, by publishing health rules
or even by offering free operations; but before we allow ourselves
to be overwhelmed by this solicitude, we become aware that this,
our vital interest, constitutes at the same time one of the most
important business interests of the insurance companies. We can,
however, hardly overlook that this represents an exceptional case
arising from the nature of the contract and not from a peculiarity
of the economic system, and that it would take exactly the same
form in a socialist state. Life insurance companies can, after all,
count on that farmer’s being an exception who, suffering a fatal
accident as a young man, told my father, who was his doctor, in
‘what were almost his last words, that his greatest comfort was to
have put one over on the insurance company. As regards fire
insurance there exists by no means always such an identity of
interest in the avoidance of damage; the insured person must even
be prevented by law from attempting to bring it about intentionally,
and even in the case of life insurance the size of the premium causes
a very serious conflict which can only be settled by genuine com-
petition among the insurance companies.

We must, in fact, put aside all irrelevant illusions and face the
truth that in a society based on the division of labor there exists a
natural conflict of interests between the individual producer and the
totality of the consumers, a conflict expressed in the fact that every
producer has an interest, diametrically opposed to the interest of
the consumer, that the prevailing exchange conditions should be as
favorable as possible for him and as unfavorable as possible for the
consumer. This, however, merely means that it is in the interest of
any given producer that the product produced by him should be in
as short supply as possible, and it is the interest of the consumers,
on the other hand, that the product should be in the greatest possible
abundance. In their own interest all will desire a maximum supply
of all goods, excepting that one product in whose manufacture any
one of them has happened to specialize and on the most profitable
sale of which his livelihood depends.

This far from edifying fact is necessarily tied up with the division
of labor, and we must take cognizance of it with equanimity in
order to discover the true core of the interest conflicts pervading the
economy. These conflicts become particularly noticeable when
changes occur in supply and demand which alter the exchange
relationship. When, for instance, the consumers decide to spend
less on alcohol and more on books or travel, we are hardly entitled to
act counter to this readjustment in the interest of the distillers


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126 THE SOCIAL CRISIS OF OUR TIME

concerned, since it is a laudable change in consumer habits and
conducive to the general welfare which it is actually the duty of
the individual and the community to further. On the other hand,
the distillers have a very obvious interest in putting a stop to this
shift in consumption. However, if we were to support them in
this and recognize their interest as legitimate, we would be defend-
ing private interests against public interests and overlooking the
elementary principle that we produce in order to consume, and do
not consume in order to produce. The same would be true if we
were to oppose a change in market conditions caused by the opening
up of cheaper sources of supply. This cheapening can come about
in two ways which in their nature and effect are fundamentally the
same: firstly, by technical or organizational progress, and secondly,
by foreign trade. To destroy the possibility of cheap supplies by
measures of any kind, be it by the destruction of machines, be it by
opposing new ways in distribution, be it by erecting tariff barriers,
is undoubtedly in the interest of the industries concerned, but then
it would be just as much in the interest of doctors to suppress effec-
tive and cheap medicines, and in the interest of contemporary
writers to prevent the publication of translations of foreign authors
or of cheap editions of the classics.

We are faced with an even more glaring case if, in a more or less
veiled manner embellished with ‘economic ipseudo-theories and
ideologies, an attempt is made, in the interest of the selfish pro-
ducer, to sabotage not only a beginning improvement in supply,
but to bring about a real deterioration by reducing the supply of
goods, or at least by presenting such a deterioration as being in the
interests of the national economy. If someone smashes every
window in a district, we certainly do not wish to assume that he
has been induced to do this by the glass industry, but that he has
acted in the latter’s interest is just as indisputable as that he has
grossly violated the public interest. This includes also the well-
known case of the destruction of stock piles in order to maintain
or increase prices, of the intentional limitation of a product through
monopolies, and finally, the fact that in certain circumstances a
country’s farmers can have an interest in a mediocre harvest. In
the early nineteenth century the toast “Here’s to a wet harvest and
a bloody war,” is said to have been especially popular among
English farmers, and in a small town of the state of Alabama one
could, fifteen years ago, still see a strange monument which the
cotton planters had erected to the boll weevil in gratitude for its
effective limitation of the cotton crop.

There can be no doubt that it is to the obvious interest of every
individual producing for the market that his own product should
be in short supply, so that he should have more favorable conditions
of exchange, and that he is equally interested in all measures which


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THE SPLENDOR AND MISERY OF CAPITALISM 127

tend to maintain or even aggravate this shortage. But since the
whole purpose of human economy is the alleviation of want, we are
faced here with an irreconcilable conflict between public and
private interest. Even clever advertising which seeks to gain the
consumer’s goodwill by flattery, cannot make the least difference
here, in fact the untruthfulness inherent in it despite all protesta-
tions to the contrary throws a particularly revealing light on the
demoralizing character of the conflict of interests. That the
interest of every individual in his capacity of producer should be
such constitutes a perversity which would appear absurd in any
self-sufficient economy. It is, in fact, the product of an economy
based on a division of labor which, therefore, suffers from a latent
and constant disharmony between the interests of the individual
producers and those of the community. We shall hardly be saying
too much if we call this disharmony one of the greatest dangers and
gravest infirmities of our civilization and if we state that the
crudest mistakes and injustices in economic policy and the greatest
aberrations of the market economy must be ascribed to this
murderous germ which hardens the heart and stupefies the mind.

Now we are also in a position to define more accurately truth
and error in the liberal theory of the automatic harmony of interests.
The truth is—and this truth is terribly important—that (as far as the
selfish appetite of the interests concerned is not curbed by a higher
standard of business ethics, by a nobler tradition or simply by the
law of indolence, and a highly developed professional code does not
prevent, as is still the case with doctors, an all too keen pursuit of
commercial advantages) it is the indispensable function of competi-
tion within the market economy to adjust opposing interests by
insisting on equal value of service and counter-service and by forcing
the producers to pursue their own advantage only by way of
furthering the interests of the community. It is not merely the
division of labor as such nor is it the market alone which leads to
a concurrence of interests, but a special arrangement which men
must consciously arrive at and must take great pains to maintain,
namely, competition. It is necessary not only that this competition
really exists, but that it be fair, honest and unadulterated, and
neither the one nor the other is a necessary consequence of the
division of labor and the market economy. As a community we
must strive for the one as well as for the other with serious intent
whilst everyone in his individual capacity of producer is most
strongly interested in forcing things into exactly the opposite direc-
tion and in avoiding—secure in his position of monopoly and
privileges of all kinds granted by the state—the highly irksome
economic and moral discipline of competition.

It is the incomprehensible and tragic error of historical liberalism
to have overlooked this. It was convinced that the market


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128 THE SOCIAL CRISIS OF OUR TIME

mechanism and the division of labor would naturally and auto-
matically impel solidarity and honorable conduct, and under the
spell of that false philosophy which led it to believe that the market
economy was either sociologically autonomous, or even morally
reformatory, it was deluded enough to think that, in order to cause
any particular group to act in the interest of the community, all
that was needed was intellectual enlightenment, a scientific appeal
to reason. This is certainly indispensable but the decisive factor
is still the effective appeal to conscience and a certain minimum of
readiness to renounce or subordinate one’s interests to those of the
community—traits with which the normal human being is still
equipped, all contrary evidence notwithstanding. If, for example,
Jean-Baptiste Say in his liberal utopia “Olbie, ou Essai surdes moyens
de réformer les mceurs d'une nation” (1800), in all seriousness
recommends as the basis of a moral education “un bon traité
d’économie politique,” we can tell from the ironic smile which
such a proposal evokes today, what distance separates us from this
strange naiveté.

If we are to go by what pays, we must, unfortunately, admit that
each individual industry looks very well after its own interests,
by obtaining protective tariffs or subsidies for itself and by estab-
lishing trusts; the labor unions by insisting on wages which are
higher than those justified by the prevailing state of the market, thus
injuring the public interest, including that of other workers; the
tooth paste manufacturer by persuading the consumer through
indefatigable advertising that without his product life is a failure;
even a whole nation may further its own interests by abusing its
political power for the exploitation of another. Of course there
are limits to the relentless promotion of selfish interests and once
these bounds are overstepped it is the transgressor himself who
suffers. Public opinion may not be provoked too brazenly and
no one is interested in letting the ‘“‘elbow contest” assume propor-
tions where it becomes a war of all against all. But if one tells the
various group interests nothing else than that loyal observance of
the rules of the competitive price mechanism is in the interest of
all and if no strong moral forces are at the same time working to
curb their appetites, one must not be surprised by the disappoint-
ing results. Honesty is undoubtedly the best kind of ethics, but
unfortunately it is doubtful whether, within certain limits, it is
always the best policy. One would have to shut one’s eyes to the
world and to history in order not to see that individuals, classes
and nations have always enjoyed an easy conscience and untroubled
prosperity while indulging in cheating, in selling the other fellow
short, in exploitation, yes, even spoliation. This they do, not
burdening themselves with the thought that after them would come
the deluge which sooner or later would destroy such a society


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THE SPLENDOR AND MISERY OF CAPITALISM 129

without distinguishing between the just and the unjust. One cannot
expect that in our day a dispassionate calculation of profit and loss
will prevent people from indulging in such conduct.

After having recognized the fundamental error of the old liberal
theory of harmony, we also realize that such unjustified optimism
was bound to have a calamitous effect. First of all, this shallow
philosophy has weakened every aspect of liberalism, for, by renounc-
ing any strict moral appeal it has deprived itself of a higher dignity
and of that attraction which is inherent in every movement which
makes demands on men instead of mere promises and appeals to
their self-interest or their sober reason. What is worse, however,
is that this kind of liberalism tends to lull us into a feeling of safety
and finally weakens our resistance against the attacks of the vested
interests.

We can gauge how strong this resistance—of an intellectual and
especially moral kind—must be if we ask ourselves what is needed
in order to make competition and the fair observance of its rules
win out against the immense pressure of all the vested interests.
Owing to the division of labor every individual is, as a producer,
interested in the most favorable exchange rate for the goods he
produces, whereas the interest everyone has as a consumer—that is,
as a representative of the community—in the reverse exchange
relations and in the highest possible service of the manufacturer,
is distributed over innumerable goods which one can only buy if
one has previously, as producer of a single article, gained an income
by making a maximum profit. Hence it follows that the economic
judgment of every individual is more strongly determined by his
position as a producer than as a consumer, and that, therefore, the
concentrated pressure of producer interests has usually no trouble in
overcoming the dispersed interests of the consumers. - Although the
interests of all in their capacity as consumers are larger and of a
higher rank than the interest of each individual producer, they are
often easily defeated because they are distributed over a far greater
number of persons. For the same reason it is also so easy to
falsify the facts by all kinds of pseudo-economic theories and
partisan ideologies, so that in the end only a few recognize how
absurd it is for all producers to obtain special privileges for them-

selves while total production declines. “L’intérét parle toutes sortes
de langues et joue toutes sortes de personnages, méme celui de
désinteressé” (La Rochefoucauld). It is sufficiently known that
among the many languages of which the representatives of these
interests are past masters, the venerable phrases of patriotism occupy
a foremost place. Thus, for instance, they persist in nourishing
the popular belief that in the field of international economic affairs
the interests of the individual national economies are as uniformly
arrayed against each other as two hostile armies. In truth, however,
E


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130 ~ THE SOCIAL CRISIS OF OUR TIME

the lines of interest run quite differently, namely, right across the
individual national economy, in which the interests of the native
producers who favor protective tariffs are opposed to the collective
interests of the consumers as well as of all the other producers.

But, unfortunately, our economic system and the entire non-
collectivist political and social system supporting it, can in the long
run only be maintained if the conflict of interests—so far as it is not
kept within reasonable bounds by highly developed business ethics—
is balanced by a system of perpetually effective and honest competi-
tion. An economic system where each group entrenches itself more
and more in a monopolist stronghold, abusing the power of the
state for its special purposes, where prices and wages lose their
mobility except in an upward direction, where no one wants to
adhere to the reliable rules of the market any more, and where
consequently nobody knows any longer whether tomorrow a new
whim of the legislation will not upset all calculations, an economic
system in which everyone wants to live exclusively at the expense of
the community and in which the state’s budget finally comes to
devour half of the national income: a system of this kind is not
only bound to become unprofitable and thus bound to intensify the
scramble for the reduced total profit, but it will moreover in the
end suffer a complete breakdown. This is usually called the crisis of
capitalism and is used as an occasion for new and revolutionary
interventions which complete the ruin and corruption and finally
present us with the inexorable choice of either returning to a
reasonable and ethical market system or of plunging into the
collectivist adventure.

If, in blind despair, we choose the latter, we have not even the
excuse that we did not know what was in store for us. And least
of all should we expect to find there at last a harmony of interests.
On the contrary, there they conflict even more violently than ever
before, laboriously and for an uncertain period curbed by the
authority of the state, within which the struggle for power and
influence fluctuates by means of bribery, intrigues and executions.
It is obvious that a question of ethics cannot be solved mechanically
by a change of organization, and if society, the state, legislation, the
courts and politics have so far been unable to make the competitive
system work, why should we believe that they will be able to cope
with the infinitely more difficult tasks of a collectivist system? A
good indication of how the powerful group interests would profit
by a planned economy is the eagerness with which in many
countries they advocate a so-called “controlled economy.”

The more the economy and the state become plaything and
prey of the vested interests and the more elasticity and working
capacity of the economic system are thereby impaired, the greater
the temptation to seek a remedy in currency manipulation. Follow-


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THE SPLENDOR AND MISERY OF CAPITALISM I3I

ing the line of least resistance by keeping clear of the highly tire-
some and thankless problems of group egoism and the rigidity of
the price and cost structure, one takes refuge in monetary reforms
which promise instantaneous salvation from all evils without directly
impinging on highly sensitive interests, a solution with “business
as usual,” so to speak. This seems the most promising method of
uniting all the conflicting interests in one’s support and of gaining
a following where everyone hopes to gain without anyone’s getting
hurt. This, then, is the heaven of all the unworldly utopians who
do not realize what it is all about, this is the fourth dimension
where all contradictions are resolved. As the lever of prices and
wages becomes more rusty and the resistance to constantly renewed
demands on the nation’s treasury weakens, devaluation of the
currency, foreign exchange control and inflation become welcome
loopholes, “especially if they are recommended by outstanding
economists. The exceptional and completely disproportionate
popularity which monetary cure-alls enjoy today all over the world
is a direct result of the rigidity and decomposition of our economic
system brought about by the stifling growth of special interests. It
should, however, be clear that even in the most favorable instance
these are only temporary and dangerous palliatives which in the
end make matters worse and are unsuitable as habitual remedies.
For, whatever one does with the currency, the fundamental pro-
blems posed by the economic system itself and the unruly special
interests must be solved if economy and currency are not both to
fall victim to complete chaos.

We already know that we are not dealing here with the economic
system alone. On the one hand if is clear to us that we can only
defend our civilization with a well-arranged non-collectivist
economy; on the other hand, we have convinced ourselves (in the
second chapter) that the struggle among the group interests—the
“pressure groups,” to use the drastic American expression—leads
to the disintegration of the state. By organizing themselves into
powerful asociations, the various groups divide political life up in
terms of specific economic interests, and political power becomes
the price which incites everyone to take part in the struggle. The
extent of this alarming development is as clear to us as is the hardly
comprehensible error of those who believe in all seriousness that
they will be able to base a new and better state, i.c., the corporate
state, on these group interests. We also have to add that the
unification of the various interests in well organized groups makes
matters even worse by producing a “pluralism of the second
degree,” namely, the creation of an “associational” bureaucracy
which, pursuing its special tasks, does not only lend extra momen-
tum to the conflict among the interests but also fights for the
interests of its particular group with an intransigence which many


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132 + THE SOCIAL CRISIS OF OUR TIME

of those whom it represents would rather see modified. Since, in
addition, this bureaucracy has a professional interest in propagat-
ing the interests of others in a manner which constantly proves
the need for its services, it tends only too often to persuade its
clients to make demands which may be well suited to collective
action, but which by no means necessarily correspond to the real
and considered interests of these clients. This unwholesome deve-
lopment has probably reached its highest degree in the United
States where the spokesmen of special interests—the “lobbyists”—
who are entrusted with constantly belaboring the members of
Congress in Washington, are among the highest paid specialists.
The often very short sighted policy of the labor unions in many
countries—especially conspicuous during the last phase of the French
Third Republic, but hardly less so during the most recent history
of the United States—must also be viewed as “pluralism of the
second degree.”

But the method which alone holds promise of a remedy is equally
obvious to us and since the real and basic origin of the evil is the
division of labor, pushed to extremes and interlocking everything
in the most complicated manner, our first thought will be to return
to a simpler stage by increasing the sector of self-sufficiency and
strengthening local relations between producer and customer (handi-
crafts, &c.) as much as possible. Before judging our fellow men
too harshly we should consider that the division of labor has possibly
been developed too far, so that the strain on frail human morality
has become excessive. We must not forget that the growing
anonymity of all social and economic relations has removed those
whom we are bound to treat with fairness to an increasingly remote
distance. This explains how someone who is punctiliously honest
in dealing with people he knows may have no scruples in procuring
advantages for himself at the cost of an abstract community of
consumers and receiving a subsidy from the state which has to be
borne by the shadowy: totality of the tax payers. If all these indivi-
duals go further and join a gigantic association with paid executive
secretaries, the collective ethics of this association tend, in accord-
ance with the laws of mass psychology, to fall even beneath the
rather lax ethical standards of the individual. If we find that the
professional executives of the associations also have to make a living
and cannot therefore afford to be more scrupulous than the members
of their association, that in fact they are even forced to talk them
out of any scruples they may have, we must not be surprised at the
results. Instead of wringing our hands in despair over the wicked-
ness of the human race, we would do better to bemoan a sociological
order which of necessity promotes man’s less noble traits. Let us
also remember that if the bare existence of men is, by virtue of an
all-pervasive division of labor and the market economy, made


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THE SPLENDOR AND MISERY OF CAPITALISM 133

dependent on the continuous sale of a single product or a single
service, a cloud of insecurity hovers over them which is bound to
make them cold hearted and nervous. The well known dictum that
business is no joking matter succinctly expresses this sociological
fact, which is further exemplified by the conduct of the farmer
who is very much concerned with looking after his interests in the
market but very generous with his produce at home and likes
nothing more than for his guests to enjoy his food. Likewise,
the author who drives his publisher to despair with his demands for
royalties, will by no means fetter his wit or count the words in his
letters to his friends. Let us then, at least to some extent, return
to the old easy-going spirit by assigning less importance to money
matters, which is possible by increasing the sector of simple
economic relations (self-sufficiency and local selling and buying) at
the expense of the sector of anonymous competition, and we shall
have taken the first step towards reconstruction. We are convinced
that cultivation of the local sphere in this sense will do wonders.

Of course, this measure alone will not suflice because the possi-
bilities of expanding the sector of simple economic relations is, as
matters stand today, rigidly limited. But what is to be done about
the large market sector? It would be pleasant if we could base our
hopes on a sufficiently high standard of business ethics which
would cause everyone to strive persistently for optimum efficiency;
and it should certainly be our goal to see to it that every producer
of goods or services conducts himself as does a respectable doctor
who, as yet untainted by commercialism, gives of his best and relies,
even without the pressure of competition, on his social good sense
when it comes to making out the bill. Until such time, however,
we will have to resign ourselves to the fact that in the majority
of cases only the re-establishment of unadulterated and honest com-
petition can put an end to the exploitation of all by all rampant
today. But in order to achieve this and to maintain competition
against all opposition, an urgent appeal to the insight and goodwill
of all concerned is once more necessary. It is necessary -also in
order to keep competition itself untainted because it cannot function
unless it is based on certain definite ethical norms: general honesty
and loyalty in business, adherence to the rules of the game, making
excellence of workmanship a point of honor, and a certain pro-
fessional pride which deems it humiliating to defraud, to bribe or
to misuse political power for one’s own selfish purposes. It should
in fact be the rule that everyone who does not adhere to the strict
code of business ethics, who violates the rules of competition,
indulges in monopolistic manipulations, asks the state for economic
assistance without urgent reason, and everyone whose advertising
sails too close to the wind and whose economic demands are too
exaggerated, should be socially ostracized as violating the dictates


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134 THE SOCIAL CRISIS OF OUR TIME

of decency, and in worse cases as a cheat, as a fraudulent bankrupt,
as someone engaging in a “dishonest” profession. If he is rich,
this fact should make him all the more suspect. Here again we
must take refuge in the “terror regime of decency.” Only then
may we look upon the problem of the demoralizing conflict of
interests, which overshadows everything else, as solved, and we
trust man enough to believe that then even today’s most ruthless
protagonist of group interests will feel better than under present
conditions.

We must here address a particularly urgent appeal to the rich,
reminding them of the duties imposed on them by their privileged
position. While we may fully appreciate the difficulties of the
small man, the shopkeeper, the artisan and the peasant whom the
struggle for their bare existence makes narrow-minded in the
defense of their special interests, we must be adamant in demanding
that he who has no real difficulty in making a living uses to the
full the unique opportunity offered by his economic independence
and that he should have the insight, as well as the will, to look
further than the narrow sphere of his own interests and consider
the whole picture of existence cooly, with an open mind and
uninfluenced by the jargon of his particular interest group. Richesse
oblige. We must reach the point where a rich man is ashamed to
promote economic policies which coincide with his special interests,
and where, if he does it, he is not only suspect to others but above
all to himself. It should be possible to discuss with leaders of the
optical industry the dangerous corruptions of patent usage, and
with leading persons in the electric industry the questionable value
to the general public of holding companies, without the feeling
that one is talking to prejudiced persons who are only able to see
things from one angle, and whether or not this is possible should
in future become the touchstone of whether we are dealing with a
member of the true elite or with a hidebound bourgeois.

We may expect general acceptance of such a program especially
since to ascribe the view to us that there are no special interests
in need of protection, would be to miss our point completely. On
the contrary, we consider it a grave mistake of historical liberalism
to have denied that in certain cases the promotion of a special
interest may at the same time greatly benefit the community in
general. We shall elaborate this theme which we have already
anticipated to a considerable extent in the final part of this book.

The End of Capitalism?

Influenced by a few suspiciously agitated writers, many people
have during the last years become convinced that capitalism is
irrevocably doomed. Those who founder helplessly in the chaos of


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THE SPLENDOR AND MISERY OF CAPITALISM I35

the present cling to this view which has the additional advantage
of giving them the appearance of prophets conversant with the
plans of Providence, and enables them to look down with a mixture
of pity and ill disguised irritation on those who are still groping
for the light. A we-are-all-at-the-end-of-our-wits atmosphere is
created and offered as proof of this view. It certainly is not easy to
resist this atmosphere, but the longer one reflects on the theory of
the inevitable “end of capitalism,” the more one is surprised that
serious people can be satisfied with this half-baked mixture of error
and truth without insisting on greater clarity. What exactly is
meant by “capitalism”? The historical form in which it has
evolved up to our time with all its perversions, which in the long
run are indeed intolerable, or the principle of a market economy
as such? The attitude we adopt depends entirely on whether the
first or the second is meant, and we must add that it is a harmless
pastime to call that form of market economy which the future may
bring and which may possibly largely coincide with our ideal, the
opposite of “capitalism.” We shall certainly not begrudge the
prophets of the end of capitalism the pleasure of having been right
in this respect.

But does anyone ask for our opinion at all? This brings us to
another point about which we are never told the whole truth. Is
the end of capitalism, however defined, a consummation devoutly
to be wished, a goal for which we should work, and is one merely
encouraging people a little by vaguely telling them that the wind
is blowing in that direction anyway? Or is it a mere prophecy,
an assessment of future chances and an evaluation of all the forces
and counter-forces, including the will of men themselves? Or,
finally, is it that the “end of capitalism” is a pre-determined process
whose course we can deduce according to the rules of the philosophy
of history, a process which does not offer any alternative to those
who deem it disastrous?

If the first interpretation is meant, our answer must depend on
what is understood by “capitalism” and what economic order is to
replace it. We need not elaborate here what the answer will be in
each case. If, however, we should be advised to adopt an economic
system which we believe to be disastrous, namely, collectivism, then
the fact that the wind is already blowing that way will only—if
we want to maintain our self-respect—redouble our resistance. As
to the second interpretation, we have to admit that prophecy is
outside our field of competence and that we leave it to the astro-
logers. If, however, the third interpretation is to be discussed, it
will suffice to say that it is a final manifestation of the social deter-
minism of the nineteenth century—with Marx as its spiritual
ancestor. And on this issue there is surely nothing more to be said.

We shall now turn our back on these sterile discussions and


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136 THE SOCIAL CRISIS OF OUR TIME

decide on’ the more fertile method of calmly and judiciously
analysing the most important changes in the structure of our
economic system by attempting to interpret those that have occurred
up to date and assessing the probability of others occurring in the
future. Of course, we are forced to be very brief here though
‘the subject, strictly speaking, deserves very comprehensive study.
‘Let us begin with one of the most important changes during
the last fifty years, namely, the growing importance of large
enterprises, giant industries and monopolies of every kind—a deve-
lopment which cannot be denied. However, before drawing far-
reaching conclusions from this, regarding the future of our economic
system and the chances of a program of reform opposed to this
‘development, two points have to be strongly emphasized. The
first concerns the actual extent of the development and we must
warn against over-estimating it. It is by no means true that an
indiscriminate concentration of production, capital, incomes and
economic power has taken place in all spheres. It is well known
that it is not only agriculture that has in most countries successfully
resisted this development, but also a considerable part of all other
occupations, and even in countries like Germany and the United
States, where concentration and proletarization have advanced
farthest, it would be wrong to assume that large-scale industry
dominates the scene. Regarding England, the continuous increase
of small property holders has recently even been represented as a
‘particularly typical phenomenon of that country’s development,
and as for Switzerland, it is superfluous to go into details once
more. However, these observations are only intended to correct
exaggerated notions. What has happened is bad enough, but it is
not quite as bad as the prophets of doom represent it, and above
all, it is not so bad that we should let our hands fall in hopeless
despair. Ce
The less so as—and this brings us to the second and even more
important point—there are most certainly no overwhelming forces
arrayed behind that concentration which has actually taken place,
forces against which we would be powerless. It is usual in this
connection to point particularly to technical development which,
it is asserted, manifestly leads to ever larger industrial and com-
mercial aggregates. In rebuttal we offer four arguments:

First of all, even if we are interpreting this development
correctly, we are not the helpless slaves of technology, but as before
—if only we wish to be—captains of our fate. Secondly, the argu-
ment is incorrect because it can be proved convincingly and in detail
that the concentration of plants as well as of enterprises comprising
several plants, has, on the average, considerably exceeded the size
required by technological considerations. Thirdly, the argument is
wrong because even in the past, assuming good will and efficient


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THE SPLENDOR AND MISERY OF CAPITALISM 137

leadership, technical development could have been steered in a
direction which would have decreased the preponderance of large
enterprises, and this will certainly be possible in the future, once
the engineers are entrusted with the task of social technology. Even
the socially blind development of technology has already initiated
revolutions which, as proved by electricity and the internal com-
bustion engine, have increased the viability of the smaller enter-
prises. Since technology does not develop according to the immut-
able laws of physics, but according to the problems with which it
is confronted, and since these problems have so far chiefly been
posed by big industry itself, there is no reason why technology
should not solve the task of social engineering, which serves to
further the technical progress of small and medium enterprises,
with the same success with which it has solved the problems of the
sound film and of television. But it is first of all necessary that
these new tasks and also the social philosophy on which they are
based, should vividly and clearly be put before the engineering
students at the technical colleges, and we believe that we have
before us a very fertile field of co-operation between the social
sciences and the science of engineering.

But, fourthly, this argument of technological inevitability is also
misleading because it depends entirely on extra-technical factors
whether a certain technological process which, for example, favors
mass production, is in actual fact really superior from the economic
point of view or not. It is obvious that if mass production—at least
in the case of consumption goods—influences the character and
quality of a product, a mass demand for such mass products must
exist in the first place, so that mass production presupposes mass
consumption. Fortunately, however, even the most venturesome
advertising schemes—which, incidentally, the legislator is free to
prohibit—are often not able to inspire such mass consumption and
to destroy more dignified consumer habits. Moreover, the
superiority of technology applied to large scale enterprises becomes
questionable if the machinery for mass production is always
inadequately used in times of depression, thus rendering a large
enterprise more vulnerable to crises than a small one. And again,
this superiority is most sensitive to psychological and organizational
factors. The most rational organization of large enterprises and
the most complicated machines can be of but little use if the human
element is not properly taken into account: it is this factor, after
all, which decides whether the organization of a factory will
function smoothly or not, and, further, if and when the preponder-
ance of large industries is likely to upset the balance of society itself.
If we keep this in mind it may be quite possible that a technology

and a plant organization which promises the most economical pro-


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138 THE SOCIAL CRISIS OF OUR TIME

duction calculated on the basis of the visible costs, may in the end
prove to be the most expensive for the nation as a whole.

Having dealt with this argument of technological inevitability,
we now turn to two further arguments which are closely related
and which are based on the assumption that capitalism, world
trade and liberalism can only really thrive in a dynamic atmosphere
promising everlasting possibilities of expansion and that, for cogent
reasons, these possibilities of expansion are now beginning to
decrease. The first of these two arguments deals with the exhaustion
of opportunities for spatial expansion and for this reason we shall
call it the geographical argument, while the other is based on the
universally noticeable slowing down of the reproduction rate and
we shall therefore call it the demographic argument. According to
the first argument the reservoir of square miles which can still be
opened up on this earth is almost drained and according to the
second argument we are near the end of the increase in the repro-
duction rate; both seek to prove that the vitality of our economic
system is bound to diminish more and more rapidly. But if that
be the case, then, the argument runs, the fate of the market economy
as an economic system would also be sealed, because, like the collec-
tivist mass state, this system, too, can only live dynamically.

We should know that basically there is very little to be said for
these arguments however convincing they may sound. As interest-
ing varieties of that logical error which the American philosopher
Whitehead termed the “fallacy of misplaced concreteness,” they
confuse square miles and men with buying power, the only factor
which matters in the expansion of markets. The possibilities of
marketing all over the world depend solely on the possibilities of a
universal expansion of production and there is no reason why in
certain circumstances extensive market expansion should not be
replaced by intensive expansion—that is to say for a given area and
number of people. Because buying power is in actual fact exercised
by individuals, the sum total of the demand is erroneously—and
herein lies the “fallacy of misplaced concreteness” —thought to
depend on the number of persons. One confuses people with
francs, pounds and dollars. Admittedly there exist certain inelastic
needs where total demand depends more or less on the number of
people, but in all other cases demand is, quite independent of the
number of people, an expression of buying power and that in turn
is dependent on production, in other words on the success with
which one satisfies the needs of others. The number of Christmas
trees which can be sold is on the whole determined by the number
of families, but value and number of gifts which are placed beneath
them vary from family to family according to the income of its
head, at least in the case of those gifts which, like gramophone
records, do not usually depend on the size of the family. If, then,


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THE SPLENDOR AND MISERY OF CAPITALISM 139

the increase in population ceases, the production of goods with a
very inelastic demand (for instance Christmas trees, baby carriages
and oatmeal), cannot expect further expansion, but is there any
sense in envisaging a saturation point for all imaginable goods?
~ Would a hundredfold increase of to-day’s production suffice to lift
the mass income to that level which in the higher income brackets
is today looked upon as necessary in order to live? The
geographical argument has hardly more in its favor. While in the
previous case people were confused with money, square miles are
now taken for francs and dollars, a new “fallacy of misplaced
concreteness” which is responsible for all the misuse which the
term “space” has to suffer today. Of course, the size of the
market is not dependent on the number of square miles, but on the
volume of purchasing power, and this again on successful (that is,
economically appropriate) production. This then destroys the
assumption that capitalist world trade is only possible if its operat-
ing area 1s constantly expanding. Its volume 1s not determined by
space nor by the existence of unexplored islands in the Pacific
Ocean, but by the level of the total world purchasing power and
this again depends on world production being balanced, so that the
individual producers produce for their mutual unlimited needs and
not haphazardly without meeting each other’s demands. :

Our remarks should, of course, not be taken as denying that
the impending end of spatial and demographic opportunities for
expansion will bring about changes of very great and diverse
importance in the structure of our economy. For this and for
other reasons it must be expected that the impetuous dynamism
of economic development will give way to a more measured pace,
and also that forces are at work which may lead to a reduction of
exaggerated industrialization and internationalization. However,
we have to deny most emphatically that the system of the market
economy is dependent on such dynamism and that as soon as this
abates it would be forced to make room for a collectivist economic
system. Notwithstanding all the problems of adaptation, which
we do not want to discuss here, it is, on the contrary, very probable
that our economic system will in the long run merely gain by such
a slowing down. We can, therefore, only regret that the tremen-
dous destruction of the present World War will force us for many
ears to continue relying on capitalism’s proven dynamic powers
which will be needed in their full strength for the task of rebuilding
the devastated cities, industries, ports, railroads and ships. During
that period the entire discussion about the problem of the possi-
bilities of capitalism’s economic expansion will remain purely
academic.

This brings us to the question which is in everyone’s mind today,
of how the present war will affect the fate of our economic system.


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140 THE SOCIAL CRISIS OF OUR TIME

Here, too, we shall make no prophecies, but merely elucidate
difficult problems in order to gain a basis for a reasoned and
balanced opinion. Returning to the thoughts we have just
elaborated, we shall begin by stating that, in contrast to widespread
views, we may in certain circumstances and with certain qualifica-
tions count on there not being a long period of world-wide
unemployment and depression after this war, but rather an extra-
ordinary impetus to production. We are not only borne out in
this by the experiences which occurred, after shorter or longer
periods of reconversion and demobilization difficulties immediately
after the end of hostilities, in the past, but we are also supported
by certain considerations which make such an outcome probable.
The first of these we introduced earlier when we mentioned the
vast needs of reconstruction which are bound to follow in the
wake of this war. Whether and how quickly this will develop into
a post-war boom admittedly depends to a very large degree on
the success with which the exceedingly difficult immediate post-
war stage and the conversion of war production to peace-time
production will be passed—and here we must of course be cautious
enough to take into account the at present completely unforeseeable
possibilities of upheavals. But once this dangerous phase is
weathered, the experience of the world in the ‘twenties should
teach us to curb the all too unbridled and tempestuous course of a
reconstruction boom in order to avoid a new recession. Our
cautious prognosis is the more likely to come true the more we see
to it that rational measures—as, for instance, the well-known
method of compulsory saving in war-time which Keynes recom-
mends—keep war-time inflation and the subsequent deflationary
rebound in as narrow limits as possible.

Then there is another consideration for which we shall have to
go a little further afield. We should start by saying that the final
sources of the utter disorganization of international economic life
and of the grave functional disturbances of the market system are to
be sought in the great physical and spiritual shocks which the
advance of economic and political collectivism has caused in the
world. The collectivist principle represents such an exceedingly
radical invasion of our traditional world of values, emotions and
concepts, and the political practice of the collectivist world has had
such a startling and upsetting effect, that the spiritual reflexes on
which the functioning of the market system depends, have failed to
an increasing extent. All the more or less brilliant explanations
of the economic crisis of the past decade, which seek its causes in
the purely economic domain, have thus missed the essential point:
the destruction of the spiritual and political fundaments of our
economic system. )

It is plain what this means in terms of the present situation:


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THE SPLENDOR AND MISERY OF CAPITALISM I41

should we succeed in mastering the collectivist invasion after the
end of the war, the situation will be so much more clear-cut and
free of strain that it will make recovery of a hardly imaginable
extent possible, The tenacious paralysis would find release and
new life would pulse through every vein. The body economic
would regain its natural reflexes and its old elasticity and would
not require experimenting with new-fangled medicines. A loosen-
ing of the spasm can, however, only be expected if it is clearly
understood that the struggle of our time between the collectivist and
the non-collectivist principle is being waged as between two irrecon-
cilables and must be carried through to the end as such. But this
means that the non-collectivist world must not make any con-
cessions to collectivism which go beyond the most urgent necessities
of the war economy and that it must purge itself of all inclinations
to flirt with the collectivist idea. This is certainly not asking too
much, as it can easily be shown that we need not be too frightened
by the spectre of economic chaos and paralyzing depression after
the war, if only the divorce between the collectivist and the non-
collectivist way 1s made decisive and final. |
The aforesaid answers that unjustified fatalism which, if we
resignedly surrendered ourselves to it would have such a stifling
effect that it would indeed justify a pessimistic prognosis. In this
way we want to correct the view that the economic consequences
of the war will in any case be such as to leave us no choice than
to succumb supinely to economic and political collectivism, thereby
depriving the present hour of world decision of its deeper meaning.
Such a view is certainly false. It can be demonstrated that this
fatalist idea is to some extent based on simple errors of logic which
have only to be corrected—and that it is here not a matter of
optimism or pessimism. That is particularly true of the financial
effects of the war of which many have a downright apocalyptic
vision, with inflation, devaluation and other acts of despair as the
ultima ratio. However, to warn against an exaggerated estimate of
the general burden of debt with which this war will end every-
where, is by no means a sign of financial irresponsibility. |
It must also curb the fatalism based on the view that one cannot
reduce state control and interventions once more to tolerable
dimensions after the proportions they have assumed during the war.
It is unhappily only too certain that a thousand interested parties
will fight such a reduction tooth and nail, and it is just as certain
that they will paint the probable consequences for the entire
economy in the darkest colors. This is all the more reason for us
to point out that the transitional difficulties of a return to the forms
of a free economy tend to be enormously overrated. Certain exper-
iences after the last war—the surprisingly smooth de-control of
housing in Germany or of foreign exchange regulations in Austria—


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I42 THE SOCIAL CRISIS OF OUR TIME

rather prove that cures of this kind are much less fearful than the
resisting patients would make us believe.

If there is no room for fatalism then everything depends on
whether men understand that the present is a critical hour in the
history of the world, and that they act to show whether they
desire a development towards collectivism and economic Caesarism
or not. This brings us back to the crux of the whole dispute.
This desire, or its absence, is by no means a question of the free
and independent decision of the individual: it depends on the
social climate, in which the opinions and the will of the people at
the helm have developed. However, the factors which determine
this climate can be described more accurately, and thence it is
only one step to influencing them. And that is what we are aim-
ing at in all our efforts, not at preaching, lamenting and arguing.

The essential point is this: it is probable that men will fatalis-
tically allow themselves to be carried by the current of collectivism
as long as they see no other positive goal, firm and tangible, before
them; in other words, as long as they know of no counter-
program to collectivism over which they can really wax enthusiastic.
It is indisputable that weighty considerations draw us in the direction
of collectivism, and what is still lacking today are the proper counter-
arguments of an inspiring alternative program which will release
new energies. We would grossly deceive ourselves if we believed
that the watchword of a mere return to the point of departure,
viz., historical capitalism with all its attributes, could become
the battle-cry which will bring us victory over collectivism. Such
a restoration is by no means what we aim at, nor could we
reconcile it with our conscience. It is not really possible to ignore
the fact that the collapse of the liberal-capitalist world order was
to no little extent also caused by its own deficiencies, misdirected
developments and perversions. Just as little is it disputable that
the final causes of the breakdown lie deep in the human, intellec-
tual, moral and political sphere and can in the final analysis be
reduced to the by now sufficiently well-known formula of the
“spiritual collectivization” of our society and the resulting “revolt
of the masses.” A decisive part in this development has been
played precisely by those economic and social factors of which the
liberal age is by no means innocent and for whose treatment we
must have a free hand without being dogmatically tied to the
economic program of historical liberalism.


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THE SPLENDOR AND MISERY OF CAPITALISM 143

PART ONE—NOTES TO CHAPTER III

The observations made in this chapter are based on a system of economic
theories which it was impossible to develop in detail in the text. We, there
fore, expect that readers will either be fair enough to ask themselves whether
more could have been said within the space available, and informed enough
to fill in the necessary details themselves. In so far as the latter is not the
case, the author sees himself forced to refer to some of his other publications
in the field, especially Die Lehre von der Wirtschaft (sth edition, Erlenbach-
Ziirich, 1943), and Crises and Cycles (London, W. Hodge, 1936). The latter
publisher subsequently brought out another book by the author on behalf
of the Rockefeller Foundation, entitled International Economic Disintegration,
which will give the reader further information on important points. Finally
the author refers the reader to his books, Civitas Humana (London, W. Hodge,
1048) and Internationale Ordnung.

Note No. 1 (page 100). The fundamental problems of every economic
system:

Regarding this question consult particularly Walter Eucken, The Founda-
tions of Economics, London, 1950. Cf. also my Lehre von der Wirtschaft,
chapters 1 and 2.

Note No. 2 (page 103). Advertising as a disturbing factor:

It must be strongly emphasized that advertising on its present scale
represents one of the gravest problems of the economic structure, the more
so since those who have an interest in it naturally know how best to
advertise themselves and exert tremendous power over the press. It there-
fore belongs to those subjects which are not usually criticized and analyzed
as bluntly and with as much forthrightness as they deserve. This is
especially true where advertising is no longer even kept within bounds by
a vestige of tradition and good taste. It is undeniable that the “sovereignty
of the consumer” which we mentioned is seriously impaired by the suggestions
which advertising puts out in an attempt to replace his true needs by
imaginary ones. At the same time advertising becomes a dangerous
instrument of monopoly (“monopoly of opinion”) and of big business.
Since, moreover, nobody has a commercial interest in propagating rest and
leisure by advertising, it takes its due share of responsibility for the sterile
excitability of our time, for its “empty activity.” Here we are faced with
particularly important but nonetheless soluble tasks of reform. The best
book on this problem is A. S. J. Baster’s Advertising Reconsidered, London,

1935.

Note No. 3 (page 103). The automatic mechanism of the market economy:

Cf. my book Die Lehre von der Wirtschaft.

Note No. 4 (page 105). Producers’ economy and consumers’ economy:

It is, incidentally, a widespread misconception to imagine that our
economic system is organized solely for “profit,” where profitableness deter-
mines the character of production, while the collectivist economic system is a
genuine ‘consumers’ economy” in which production is geared to the needs
of the population. On the contrary, it is undeniable that, as long as com-
petition safeguards the principle of optimum efficiency our present economic
order is nothing but a consumers’ economy, since the accurate and incor-
ruptible scales of the market decide what is profitable. Can an economic


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I44 THE SOCIAL CRISIS OF OUR TIME

system in which, when its principles are scrupulously adhered to, the
demands of the consumer spur the producer to highest performances to
satisfy these demands, be called anything but a consumers’ economy? The
difference between the communist consumers’ economy—which exists, by the
way, only as an ideal and in practice breaks down only too miserably—and
our own is that the motivating forces and the organization for meeting
demands differ, and quite definitely in our favor. If then one wants to
brand our economic system as a profit economy, it is only logical and fair to
call the communist system a bureaucratic economy.

Note No. 5 (page 110). Curtailments in the production of raw materials:

The over-production of raw materials during the last decades often tempts
superficial observers to overlook that it is for the greater part based on the
rape of irreplaceable natural reserves and that the consequences are already
making themselves felt in many instances and in an alarming manner. The
most tragic example is the increasing deterioration of the soil in wide agri-
cultural areas—especially overseas (thus in the so-called “dust bowl” of the
United States, the scene of the well-known novel by John Steinbeck, Grapes of
Wrath), but also in Europe (e.g., the “steppefication” of Germany!). We also
point to the annihilation campaigns against the forests on all continents and
against the whales of the ocean. Cf. E. Pfeiffer, The Earth’s Fall, London,
1947; 1. Bowman and others, Limits of Land Settlement, New York,
1937; G. V. Jacks and R. O. Whyte, The Rape of the Earth, a World Survey
of Soil Erosion, London, 1939; F. Osborn, Our Plundered Planet, London,
1948; G. O’Brien, The Phantom of Plenty, Dublin, 1948. Regarding Europe,
we point to the inevitable consequences of the excessive use of artificial manure
and to the progressively more serious problem of every country’s water
supply, caused by the enormous water consumption of industries and big
cities.

Note No. 6 (page 112). The population problem:
A more detailed presentation will be found in my Lehre von der Wirt-
schaft, pp. 80-94.

Note No. 7 (page 115). The after effects of feudalism and absolutism:

It might be very fruitful to gauge the influence exerted by the more or
less vigorous feudal-absolutist remnants on the development of capitalism,
by looking at the present day economic structure of various countries. It
will then be found that owing to the diversity of this influence, there exist
widely differing national types of capitalism, a circumstance which provides
us at the same time with an index of the possibilities of reform. Regarding
Germany, for instance, we find among other things a very strange and dis-
turbing absence of instinctive opposition to monopolies which pervades the
entire history of German capitalism and has led to an early and compre-
hensive monopolist organization of industry (usually in the form of cartels).
Even during the social-democratic regime—always inclining towards organiza-
tion and concentration—this attitude persisted, and there can in fact be
no doubt that it is an expression of the national character in the economic
sphere, and, as we know, that character was shaped by feudalism and
absolutism. Almost the same reasons which explain why Germany had a
Reformation but no Revolution like England or France, also explain why
its attitude towards any kind of monopoly has always been strangely weak
and therefore proved to be so susceptible to every form of monopolist ideology.
There has always been—perhaps with the exception of Prussia’s liberal period


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THE SPLENDOR AND MISERY OF CAPITALISM 145

from 1818-187g—a certain reverence for monopolies in Germany, and a
cartel was, as it were, next in rank to Court and Church. The feudal aroma
of the cartels has always been unmistakable, especially in heavy industry
whose leaders have always felt attracted to the landed aristocracy, both socially
and as regards their economic policies. Monopolies were institutions of
which to speak disrespectfully, or even to call by this gross name, was con-
sidered very unrefined and as plebeian as the public use of a tooth pick.
(Cf. Wilhelm Ropke, German Commercial Policy, London, 1934, and the
author’s other book, The Solution of the German Problem, New York, 1947.)
It is an exceedingly interesting question which has not yet received sufficient
attention why monopolies have developed just as vigorously in the United
States, though here there has always been a passionate and traditional
hostility towards them. We may surmise that the reasons are twofold: (1)
the stormy development of the country’s prosperity which, as long as it
lasted, absorbed all energies and seemed to offer a chance to everyone, and
(2) the weaknesses of the American democracy which have permitted the
political influence of vested interests to flourish unchecked. However, in con-
trast to Germany, there has always been a strong section of public opinion
in the United States passionately repudiating monopolies and today, the era
of opening up the country having been concluded, it has assumed such
proportions that this question ranks high on the list of national problems.

#

Note No. 8 (page 116). Proletarization:

The industrial proletariat is merely the particularly conspicuous and best
known expression of a far more general process of “proletarization.” The
latter term applies, as we have already mentioned in the introduction,
whenever big business, concentration of capital and a predominant market
economy (at the cost of self-sufficiency) have resulted in a large part of the
population’s becoming dependent, urbanized receivers of indirect incomes
(wages and salaries), members of the industrial-commercial hierarchy, and
wherever that economic and social collectivization has set in to which we
have to return again and again. It is also characteristic of such a proletarized
world that it can no longer think in anything but terms of money and
income. Cf. G. Briefs, The Proletariat, New York, 1937; G. K. Chesterton,
The Outline of Sanity; Hilaire Belloc, An Essay on the Restoration of Pro-
perty, London, 1936; L. Romier, Explication de notre temps, Paris, 1925, and
the author’s Civitas Humana, London, 1948. -

Note No. g (page 118). The blindness of historical liberalism:

The economic history of the last hundred and fifty years abounds with
examples of the blindness of the liberals towards the fact that the market
requires a firm legal framework and is by no means sociologically autonomous.
We merely mention that as early as 1772 the English Government revoked
highly important market policing laws (against “regrating, forestalling and
engrossing”), with the vigorous support of Adam Smith himself. An even far
more radical liberal (J. R. M‘Culloch) was later responsible for the abolition
in 1824 of further anti-monopoly laws (Combination Acts against conspiracy).
(Cf. W. H. Hutt, Pressure Groups and Laissez-Faire, “South African Journal
of Economics,” March, 1938.)

Note No. 10 (page 120). Thwarted possibilities of development:

1 cannot refrain from quoting here a passage from the book, first pub-
lished in 1851, by W. H. Riehl, Die biirgerliche Gesellschaft (6th edition,
Stuttgart, 1866, page 360): “We find proof of how even the mere appearance


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146 THE SOCIAL CRISIS OF OUR TIME

of a family life can protect the factory worker from the proletarian outlook,
among the Westphalian foundry workers who, being the most sought after
men in their strenuous occupation, travel to the Rhineland in order to labor
there in the smelting plants; they are distinguished both by their industry
and their high moral character. . . . Their families stay at home in West-
phalia on the small fraction of a farm with which the father has been paid
off. The husband thus practically sees his wife and children only once a
year. And yet from this one yearly visit he takes back with him to the life
of the factory the sense of family life and the sterling qualities of the West-
phalian burghers and peasants; the whole year through his consciousness of
these keep him upright and efficient.” Until recently similar conditions
obtained in the Turkish coal mines of Zonguldak, but here, too, a blind spirit
of progress declared them outmoded without reflecting whether they did
not offer possibilities for new forms of industrial organization likely to
prevent proletarization. The attitude towards domestic industries was
similar. Cf. also the description of former working conditions in Franz
Schnabel’s Deutsche Geschichteim neunzehnten Jahrhundert, 3rd volume,
Freiburg, 1934, page 288 f. At the same time as Riehl the like-minded -
Frédéric Le Play published his documentary report Les ouvriers européens
(Paris, 1855), the conclusions of which led him to write his famous and still
topical book La réforme sociale (first published in Paris, 1864). Both books
are a veritable mine for the social historian who wishes to inform himself
as to how much was still sound at that time.

Note No. 11 (page 121). Economic crises:

The author’s own views can be found in his above mentioned book, Crises
and Cycles (London, W. Hodge, 1936). Cf. also Gottfried Haberler,
Prosperity and Depression, 3rd edition, Geneva, 1941.

Note No. 12 (page 123). Economic crises and the socialist state:

It is an illusion entirely at odds with reality that socialism promises a
paradise of economic stability. Economic disharmonies of every kind will
even become chronic under socialism and they will be further distinguished
from the acute and temporary crises in the capitalist system by the additional
fact that the socialist government will suppress their immediate economic
manifestations by every means in its power and will shift them from the
economic apparatus to the periphery, i.e., it will burden the consumers with
them. In other words, the primary tumor will, now, so to speak, produce
metastases in the most distant parts of the social organism: there is an end to
bankruptcy, and if some inventiveness is employed in the disposal of incon-
venient masses of men, all visible unemployment also vanishes; we are saved
the sight of open abscesses, but by means of a therapy which drives the
germs of the disease into the arteries and into the most distant parts of the
social organism. The suppression of the superficial symptoms of economic
disharmonies does not mean, therefore, that one has removed the dis-
harmonies themselves. It rather means that the mechanism which indicates
the location of the trouble has been destroyed, a timely and correct diagnosis
has become impossible and the powers of recovery inherent and active in our
economic system have been paralysed. The economic machine continues to
“work” in some fashion, but the population, robbed of its elementary rights
and freedoms, has to bear in a multitude of ways the consequences of the
neglected and aggravated disturbance of the equilibrium. There will always
be something new in the way of unpleasant surprises without one being able
to foretell what shape they will assume in each case: “several-year-plans” in
endless procession, purges, and then war—the ultima ratio. The socialist state


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THE SPLENDOR AND MISERY OF CAPITALISM 147

is obliged to use practically any and every means in order to avoid reverses
and crises, because its entire prestige is at stake once it has assumed responsi-
bility for the proper functioning of the economy. Every economic crisis
becomes—since every aspect of the economy has been politicalized—a crisis of
the socialist state itself. Cf. Wilhelm Ropke, Socialism, Planning and the
Business Cycle, “The Journal of Political Economy” (Chicago), June, 1936;
Wilhelm Ropke, Totalitarian “Prosperity”: Where Does It End? “Harper's
Magazine” (New York), July, 1949. See also the author’s study, Zur Theorie
des Kollektivismus, “Kyklos,” 1949, and the literature mentioned there. -

Note No. 13 (page 124). The conflict of interests in the economy:

I am reserving a more thorough analysis of this subject, which is so
important but very much neglected by economists, for a special treatise. Cf.
Philip H. Wicksteed, The Common Sense of Political Economy, revised
edition, London, 1933, volume 1, pp. 349-357, and my Lehre von der
Wirtschaft, pp. 96-104.

Note No. 14 (page 124). The errors of the liberal theory of the automatic
harmony of interests:

Consult the admirable essay by Walter Sulzbach, Liberalismus, “Archiv
fiir Sozialwissenschaft,” volume 59, 1928, pp. 382-395, in this connection. The
conclusions applying to the special sphere of international harmony are easily
drawn. The doctrine—which has been made especially popular by Norman
Angell’'s well-known book, The Great Illusion—of the harmonizing and
pacifying effect of close international economic relations as such, is perfectly
right in stressing the solidarity of international interests within a liberal
world economy, but it contains the same error as the harmonic theory of
economic relationships within the state: if the nations are not in any case
of a peaceful and chivalrous disposition, they will now as then by means
of economic and political machinations try to gain all kinds of special
advantages at the cost of other nations, thus undermining the liberal world
economy itself. “Free trade, good will and peace among nations” Cobden
had proclaimed as the motto of the English Free Trade Movement, but
“good will and peace among nations” are the premises not the result of a
liberal world economy. Naturally the same holds good here as in the
national economy: it is to one’s own interest to be ruthless within reason.

Note No. 15 (page 132). Group egoism in the United States:

Group egoism in the United States has always been particularly unbridled
and has hardly been surpassed even by its German counterpart which reared
its head especially after the end of the First World War. It is typical that
precisely under the “New Deal” with its unprecedented subsidies, it has
assumed downright dangerous proportions. Once more it has been demon-
strated that state aid is by no means supplied where the need is greatest, but
where the greatest political pressure can be brought to bear so that the weak
even have to contribute towards the support of the strong. The pinnacle of
this development was probably the Silver Purchase Act of 1934, a law which,
under the pressure of the silver interests, obligated the American Government
to buy up silver at exceedingly high subsidy rates until the silver reserves
had reached a quarter of the gold reserves. That is to say, the silver interests
forced the government, by means of domestic political blackmail, futilely to
squander more than a billion dollars, almost to double the price of silver, to
burden the silver market with completely abnormal and in the long run
untenable conditions, and finally to destroy the monetary system of the
countries with a silver currency (especially China)}—and all this for the sake


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148 THE SOCIAL CRISIS OF OUR TIME

of an industry which employs a total of eight thousand workers—that is, as
much as the American watch-making industry. The world supply of silver
in 1939 can be estimated at 403 million ounces, the consumption, however,
at hardly 100 million ounces. The American government, due to the rule of
the interest groups in Congress, was forced to buy up the difference, and
only now (1941) that it seems to have less urgent need of the votes of the
silver interests, can it envisage a cessation of the silver purchases. In order
to form a just opinion of the pluralism of the labor unions and the farmers,
one must bear in mind such shameless cases of the exploitation of the state.

Note No. 16 (page 136). Structural alterations in our economic system:

For a more detailed description the reader is referred to the author’s
book’s International Economic Disintegration and Internationale Ordnung.


===== PAGE 161 =====

PART TWO

ACTION


===== PAGE 162 =====



===== PAGE 163 =====

CuarTER |

ABERRATIONS AND BLIND ALLEYS

Sanabilibus aegrotamus malis ipsaque nos in rectum genitos natura, si
emendari velimus, iuvat.
(The ills from which we suffer are not incurable and to us, who are born
to do right, nature herself extends her help if only we want to be cured.)
—SENECA, De ira, 11, 13.

Loose Thinking

EVERYDAY experience constantly proves that many people, especially
on questions regarding the life of the community, tend to think in
very vague terms which easily make them miss that crucial nuance
which sharply divides truth from error. One continually discovers
in conversation that the agreement one had believed to be estab-
lished, is deceptive, as soon as one’s partner draws conclusions which
show unmistakably that he has not understood the point at issue.
After emphatically agreeing with the criticisms of liberalism and
capitalism and after seeing himself confirmed in some of his pet
opinions, he thinks it a matter of course that now steps should be
taken which we know to be harmful and which will, in the final
resort, only make matters worse. Most people’s ability to exercise
intellectual discrimination is not subtle enough and their imagina-
tive powers are not sufficiently developed for them to be able to
think of other methods than those which can ultimately only serve
to support economic and political collectivism. Monopolies are an
evil? Then the state should take them over, or establish an official
Monopoly Department. We have concerned ourselves too little with
social problems up to now? Then let the state organize the workers
and make them all members of a national pension system. The old
spirit of peasant life and craftsmanship is on the wane? Then
one should rally the peasants and craftsmen and make them attend
training courses in professional pride and love of tradition. Inter-
national economic relations have become anarchic? Then it is about
time that an international planned economy was introduced. It is
unnecessary to continue this painful game of questions and answers.

The rough-and-ready character of everyday thinking is particu-
larly apparent in the fact that people assume that they have to
decide between two alternatives only and see no other possibility
of choice. Their thoughts move according to the simple formula
of ‘“either—or,” beyond which they are unable to see and therefore
they cannot perceive the possibilities outside these alternatives:

. . . Like on a barren heath an animal
Led in a circle by an evil ghost,
While all around it all is pleasant green.

151


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152 THE SOCIAL CRISIS OF OUR TIME

They think that one can only choose between revolution and
reaction; between fascism and communism; between inflation and
deflation; between the stability of domestic prices and the stability
of foreign exchange; between the decay of the family and continued
population increases; between degenerated democracy and authori-
tarian despotism; between nationalism and internationalism;
between a devitalized civilization and barbarian savagery; between
lasciviousness and asceticism; between rationalism divorced from
reality and irrationalism destructive of all culture; between disorder
and organization; between a romantic hostility towards progress and
an absurd over-estimation of technology and economics; between
weak pacifism and arrogant militarism; between individualism and
collectivism; between the mushroom growth of cities and dull
rusticity; between being either hammer or anvil; between the
imperialism of the one side and that of the other; and, similarly, in
the end between historical capitalism and liberalism at one end
of the scale and socialism at the other end. “La loi de double
frénésie,” as Henri Bergson called it.

We can take it for granted that by now most people have
decided against one of the two possibilities, i.e., against capitalism
(putting it roughly, against the principle of laissez-faire), not the
least reason being that there are still some of its exponents who
follow the same formula of “‘either—or” and do not tire of
emphasizing that there is no other choice than that between
capitalism and socialism. We, therefore, need not fear that one
will again choose the false path of historical capitalism, and so we
can now conclude our indictment of it; understandably enough, we
are rather inclined to protect it against exaggerated attacks and
foolish insults with the chivalry due to the vanquished.

On the other hand, the great majority today would by no means
openly come out for a particularly pronounced form of socialism.
The profound influence of propaganda and contemporary examples
notwithstanding, most people are still restrained by a certain
timidity, since the criticism levelled at socialism for a century has
not remained completely without effect nor have the powers of
resistance of healthy instincts ceased to function. In the Western
countries it is still only a minority—though an especially active and
fanatical one—which adheres to the extreme Russian example or
even openly adopts the word “communism,” and one hears very
little today of the “expropriation of the expropriators,” the
“socialization of the means of production,” and similar slogans of
civil strife. Although today the term “socialism” has lost much of
its old flavor and has almost acquired citizen rights, one is still not
merely careful in its application but also endeavors to invest it with
a more harmless content; one embellishes it with modifying adjec-
tives of every kind by speaking of “Christian,” “national,” *“con-


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ABERRATIONS AND BLIND ALLEYS 153

federate,” “liberal” socialism; one is soothed by terms such as
“planned economy,” ‘controlled economy,” and others, and the
contents of the programs correspond to the more harmless sound of
the words.

There can be no doubt that wide circles find it very irksome
that the only alternative should be between capitalism and socialism
and serious efforts are being made to avoid it and find something
new. However, loose thinking habits are also in evidence here,
in that all too often one still chooses a program which—at times
only by a hand’s breadth—leads past the right “Third Way” into
the wilderness and finally ends in collectivism.

In view of these experiences, which everyone will confirm, we
are forced to begin this section, which is devoted to action, with
a few negative words in order to furnish the right path with various
guide posts which will show us the points where we must take
care not to go astray.

Socialism

Concerning undisguised socialism only a few words are needed
in order to characterize its harmful effects on society, especially
since it has long ceased to be a utopia giving room to every whim
of the imagination. Now that it has become reality it is just as
little permissible to think of socialism as a paradise as to stamp
it an absurdity. Socialism is not a utopia, but a tragedy—that is
the point at issue today. But just as we judged capitalism primarily
by its non-materialist and not by its materialist performance, we
should also beware of basing our judgment of socialism primarily
on the probability of its failure in material affairs. - We have found
Nietzsche's suspicion that socialism is “tyranny brought to a zenith”
(Will to Power, 125) confirmed, and started to prove it earlier in
this book. This statement tends to touch the present day advocates
of socialism in their most sensitive spot and embarrasses them
more than the former purely economic critique; however, up to
now no serious attempt at refutation has come to our knowledge
nor can we well imagine how it could effectively be made. These
circumstances have led some socialists to revise their concepts and
to think up forms of socialism which they believe safe from this
fundamental criticism. That there is no justification for their
belief, we shall show later on. |

It should further be said here that socialism—helped by the
uprooted proletarian existence of large numbers of the working
class and made palatable for them by just as rootless intellectuals,
who will have to bear the responsibility for this—is less concerned
with the interests of these masses than with the interests of these
intellectuals, who may indeed see their desire for an abundant
choice of positions of power fulfilled by the socialist state. Thus


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154 THE SOCIAL CRISIS OF OUR TIME

it is not the industrial proletariat which is the breeding ground for
socialism but the academic and intellectual proletariat and therefore
it is here that the danger for society is greatest and a remedy most
urgently required. Of course, we would bitterly wrong many
intellectuals and would ourselves become guilty of a psychology
which we have often repudiated if we were to deem motives of
naked self-interest an adequate explanation here. Faith, devotion
and a passionate sense of justice are the decisive forces here too,
but that they have chosen socialism as their object can alone be
explained in terms of the proletarian collectivization of society in
general and of the intellectual proletariat in particular. This will
also supply the explanation of the striking fact that the artistic world
supplies a considerable number of the adherents of socialism,
although they should certainly know that art and literature have to
vegetate in a thoroughly murderous climate in the collectivist state,
and would do well to reflect how a man like Cézanne, who was
enabled by his father’s money to paint for thirty years to his heart’s
content without a financial care in the world, would have fared
under a socialist regime. The world of today is full of artists,
writers and scholars who do not know the first thing about economic
and sociological matters, yet wielding the authority acquired in a
quite different field, they set themselves up as judges of our
‘economic system and passionately subscribe to this or that fashion-
able form of socialism. We could quote a list of many illustrious
names here (Romain Rolland, Bernard Shaw, and others). Not all
had, like André Gide, the opportunity to correct their opinion by
experiencing communist reality and still fewer his honesty to con-
fess his error publicly.

But whatever the origins of socialism may be, it is obvious that
it will exacerbate the arch evil of our time, namely, spiritual collec-
tivization and proletarization, to a hitherto unknown degree and
will thus completely correspond to political collectivism, which is
the despotic mass state. We need say nothing more regarding this.
What we have to stress, however, is that socialism of this kind,
which completely mechanizes and disintegrates society, will prove
to be a rape of society’s intangible and organic forces and reserves,
precisely because it brings to a conclusion a process which began
before it and which made its development possible. Merely in
order to keep going, the socialist state will grasp at every and any
means and will impiously smother the wellsprings of our society:
tradition, the treasure of solid principles from the stability of the
currency to the inviolability of person and property, continuity,
small communities, law and peace. Without thinking of the more
distant future, it lives from hand to mouth, glad to be able to
prolong its existence for another year and without knowing the
humble feeling of being embedded as an infinitesimal period of


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ABERRATIONS AND BLIND ALLEYS 155

time between an immeasurable past and an equally infinite future.
The forests are cut down and with the humus the peasants and
craftsmen vanish too. Extreme insecurity and instability spread
in all walks of life. Is it not true that in our glorious age of
planning things have already come to such a pass that it is hardly
possible to make plans for more than a week ahead? Socialism
1s, indeed, the reign of arbitrariness.

In all other respects, too, everything threatens to become far
worse than under the worst form of “capitalism.” To be sure, the
position of the workers in a giant industrial plant today is very
unsatisfactory, but will their dependence not become downright
intolerable when they are confronted with only a single employer,
the all powerful socialist state? One need only listen to the
inveterate socialist talking with deepest contempt of the peasant
and the “petit bourgeois” and with the greatest enthusiasm of
technology, large-scale enterprises and everything bombastic, in
order to recognize the super-Americanism which threatens us from
that quarter. As shown by the collectivization of agriculture in
Russia, an invasion of large-scale production methods must even
be expected into fields where, in our economic system, small enter-
prise has successfully maintained itself—an expectation which is all
the more justified since the collectivist state has a strong political
interest in the agglomeration of tamed and dependent masses, easily
fanaticized and supervised.

One need hardly inquire into the nature of the fair distribution
of commodities in the socialist state. Undoubtedly the masses will
be flattered as they have never been flattered before in history, and
be fed with equalitarian phrases to which emphasis is lent by the
persecution of the old social elite. Just as certainly a leaden
atmosphere of grey proletarian uniformity will pervade the whole
country, leaving hardly a glimmer of brilliance and color; we shall
then have uniform dusk in which “all cats look grey.” However,
in our experience nothing justifies our expecting a miracle: that,
for instance, the new elite dominating the state might ascetically
renounce the opportunities of privilege afforded by their all powerful
position. Aside from that it must be remembered that social justice
does not only involve the equal distribution of income and property,
but above all the equal distribution of power. After all, socialists
do not solely and not even primarily, intend to abolish private
ownership of the means of production in order to do away with
unearned incomes but in order to eliminate the power derived from
such property. But where is there a greater concentration of such
power than in the socialist state? Whether one calls the bene-
ficiaries of this power “owners” or not, does not alter the fact that
that is what they are as regards their crucial function. That is why
one can say that the head of a collectivist state is the largest owner


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156 . THE SOCIAL CRISIS OF OUR TIME

known in history, because in the only sense in which one can
possess something so gigantic, the whole country is his “own.”
His position would not in the least be altered if in accordance with
civil law the property were formally made over to him. But
there is one thing that he will miss, what in our society even the
smallest peasant enjoys, thanks to our social and legal order: the
sanctions of the constitutional state which guarantee the safety of
his property and assure him that the tree he planted on the land
which he inherited from his ancestors, will give shade to his great-
grandchildren. Conversely, it is true that wherever socialist deve-
lopments have removed these sanctions, private property has lost
most of its legal content. When the point has been reached where
political “unreliability” can lead to the confiscation of one’s pro-
perty, the position of the owner rapidly approaches that of a mere
socialist functionary of the state; as everything else in a state drifting:
towards socialism, property has been “politicalized” and thereby
divested of all meaning and dignity.

Although we have placed these spiritual dangers of socialism im
the foreground, we can as little ignore its disappointing material
achievements as we can, conversely, ignore the obvious superiority
which capitalism displays also in this respect. Since, however,
considerable preference—which we think unjustified—has been
given in the extensive literature up to date to the danger of
socialism’s failing in material production, and since this contention
is by no means essential to our argument, we are surely entitled to
refrain from further elaborations. However, it seems necessary to
us to correct a widespread misunderstanding which has gained a
footing as the result of present day experiences. Many people
believe that the critics of socialism can be impressed by the fact
that in socialist countries one works as much as elsewhere, that
huge buildings are being erected and that the wheels of industry
turn no more slowly than under capitalism, and as further evidence
one usually points to the rising figures of the national income
which those countries report. For many reasons, which space
forbids us to detail here, these optical impressions as well as the
statistical figures are deluding. We would have to ask for an
accurate investigation of the vast unproductive costs of the socialist
bureaucracy (of the “waste of planning”), further we would want
to know with what increased—and often hidden—output of labor
this production is bought, and lastly to what extent foreign capitalist
countries have voluntarily or involuntarily contributed to it. We
would also be interested to know the extent of the stock of machines,
experience and education, taken over from the pre-socialist era, with
which the socialist state entered on its rule and for a long time was
able to cover up its own deficit. But all this is not even decisive.
Rather, the point at issue is not the production of objects in a


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ABERRATIONS AND BLIND ALLEYS 157

technical-physical sense, but “production” in the economic sense,
i.e., adapted in its various components to the needs of the popula-
tion. It would be uncharitable to ask for more precise information
regarding this point in the socialist state.

All these damning arguments have, as we said, caused the more
farsighted among socialist theorists of our time to re-orient them-
selves and to work out new forms of socialism which will stand
up to such present-day criticism of socialism as has become irrefut-
able. The interest in such theoretical constructions is very small
if for no other reason than that they are really nothing but the
ingenious products of painstaking cogitation behind dusty desks
which are ideally suited for academic discussion, but hardly for
practical execution, and which in part are only intended to serve
the purposes of subtle propaganda. Mental edifices which are so
complicated that one has to take the greatest pains—often unsuccess-
fully—to understand them at all, condemn themselves. If in
addition these socialist theorists—we find them today primarily in
the Anglo-Saxon countries—do not even pay the slightest attention
to the sociological premises of their programs, we are really entitled
to pass them by and go on to the next point on the agenda. But
‘we will extend ourselves sufficiently to point out that their theoretical
conceptions alone are highly questionable.

Society—a Machine

Socialism is given a special, but for our time characteristic, note
by the still influential techno-scientific rationalism of which a writer
like the late H. G. Wells was an exponent and which his country-
man, Aldous Huxley, has depicted in his utopian novel, Brave
New World, with justified ruthlessness in all its gruesome con-
sequences. Here we have another opportunity for observing how
the spirit of the nineteenth century rises from its beginnings to a
paroxysm which could only lead to absurdities. Marx had called
his socialism “scientific” to give it that prestige which the nine-
teenth century valued above everything else, but science, as he and
his contemporaries understood it, was still primarily philosophy and
sociology, in short the humanities, though in the confused sense
with which Hegel and Comte had endowed them. But today
“science” has acquired the Anglo-Saxon and French meaning of
the exact sciences which comprise mathematics and the natural
sciences, as contrasted to the humanities which can not aspire to
such dignity and are therefore not considered as quite acceptable.
If we now hear that to organize society in a socialist fashion and
with a planned economy, is to shape it scientifically, that means:
vitamins, microscopes, logarithms, slide rules, atomic fission, psycho-
analysis, physiology, mathematical statistics, hormones. Just as


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158 THE SOCIAL CRISIS OF OUR TIME

formerly, in an unenlightened age, man followed his taste in what
he ate, but now in conscientious boredom eats according to vitamin
and calory charts, social life also is at last to be arranged by the
planning hand of the scientist and made the object of strictly
scientific rationalism. It is a domineering and blindly arrogant
form of science which confronts us here with intimidating gestures;
clothed in the sacerdotal robe of the white laboratory coat, it looks
at us through gleaming spectacles in a concerned and penetrating
manner or perhaps with the somewhat synthetic and false solicitude
of the posters of the pharmaceutical industry aiming at the layman.
In this conception of the world men occupy a rank not higher
than that of the dogs on which the Russian physiologist Pavlov
carried out his famous experiments with the “conditioned reflexes,”
and the social question now becomes a kind of bacillus which only
has to be discovered by employing the “exact” methods of mathe-
matical statistics—the method of “multiple correlation,” of the
elasticity coefficients of demand and supply and so forth, and
then, at a scientific world congress—the more participants, the
better—the appropriate panacea is found. Men are categorized and
directed in every situation and in every stage of their development
by means of checks and counter-checks according to highly
elaborated testing procedures; the predictability of their opinions
is thoroughly investigated in order to deduce from it forecasts of
their future conduct, and finally “scientific” methods are worked
out for forming and shaping man according to an image which in
turn is prescribed by “science.” Thus there arises in the eyes of
these reformers what one of them (Karl Mannheim) in all innocence
called the “modern social technique,” i.e., “the more and more
conscious handling, directing and interrelating of human instincts,
of the modes of thought and reaction in modern mass society;
whereby society transforms itself into a kind of machine.”
What such a “machine society” looks like in its final stage one
may read in Aldous Huxley’s Brave New World. It is the
civilized hell of a society rationalized to the last degree, in which
only one fact has been overlooked—man himself with his perennial
traits as he was created in God’s own image. Such a “scientific”
planning of society is indeed on a level with “scientific” courtship,
“scientific” family life, a “scientific” religious service, a “scientific”
Christmas celebration, or a “scientific” village fair. The proposal,
made in all seriousness, that in such a society the “un-planned,” the
spontaneous and the irrational would of course in accordance with
the plan be assigned their scientifically appropriate place, is not
much better than the old undergraduate joke of ordering fresh-
men at a meeting of the student association to burst into laughter
at a given point. Goethe’s saying that everything wise has already


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ABERRATIONS AND BLIND ALLEYS 159

been thought of, may be adapted to apply to everything foolish.
Here, too, it is hardly possible to invent anything new.

The most intelligent among those “social engineers” who
demand the complete ‘“‘functionalization” of man—the sociolo-
gist Karl Mannheim, mentioned above, is one of them—have at
least this advantage over the others that they clearly recognize
the process of our society’s spiritual collectivization. It seems all
the more incomprehensible that they cannot draw any other con-
clusion from this than to push the process of collectivization to a
truly horrible extreme by “scientific” social planning, that is, by
total collectivism, measuring the different modern forms of collec-
tivism with completely unequal standards so that one cannot help
thinking that in the collectivism condemned by them they only
object to the roles not being filled to their satisfaction. This would
indeed be incomprehensible if one did not bear in mind that these
collectivists accept spiritual collectivization as something ordained
and unalterable. That collectivization itself should be done away
with, does not occur to them at all, which only proves that they
have already been so completely submerged in the process of collec-
tivization that they are no longer able to look beyond it.

Compatible and Incompatible Economic Policy

If we now leave the sufficiently discredited field of pure collec-
tivism and turn to the many intermediary forms of economic
policy which can neither be termed liberalism nor collectivism, we
are faced with a problem which is far from easy. While we
repudiate the former as well as the latter it is nevertheless clear
that in this intermediate sphere—of interventionism or statism—
there must be a dividing line separating legitimate from illegiti-
mate interventions, final boundaries to overstep which would in the
end lead to collectivism. But precisely in this respect ideas are still
very confused.

This confusion may be attributed to the mental picture in which
the various possibilities of economic systems are arranged along a
straight line, at one end non-intervention and laissez-faire, and at
the other the complete interventionism of the collectivist system.
Any increase in intervention appears, therefore, in an approach to
the totality principle of collectivism, as a gradual concession: seen
from the laissez-faire end it is a betrayal, viewed from the other
end it is a half-measure. This highly unsatisfactory situation is not
improved by branding the totalitarian principle an exaggeration
of things which are in themselves right, and by preaching modera-
tion. It is, of course, quite right that here, as everywhere else,
quantity makes a difference and that at a certain point quantity
turns into quality; it is indeed very important to stress this in


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160 THE SOCIAL CRISIS OF OUR TIME

order to make clear that an interventionist economic policy has its
Rubicon. One cannot continually intervene without finally reach-
ing a point where the highly developed nervous system of the
market economy refuses to function. The powers of the market
economy must, then, either be restored by a lessening of intervention
or must be completely replaced by collectivism. This crisis was
reached in Germany in 1935 and in France at the end of the
Popular Front Government; in the former case it was overcome
by a step forward, in the latter by a backward turn, whilst in the
United States the battle seems still (1941) to be waged with
changing fortunes.
In accentuating this we feel the urgent need to overcome the
mere criterion of quantity, and to seek the dividing line in the
quality of intervention itself. Here we find that a differentiation
between two groups of state intervention is of foremost importance,
for which we have suggested the terms “compatible” and “incom-
patible” interventions: i.e., those that are in harmony with an
economic structure based on the market, and those which are not.
Interventions which do not interfere with the price mechanism and
with the automatism of the market derived from it are compatible,
they let themselves be absorbed as new ‘‘data’; interventions which
paralyse the price mechanism and therefore force us to replace it by
a planned (collectivist) order, we call incompatible. Let us quote
a significant example: the reconstruction of the external equili-
brium of a nation’s economy by means of currency devaluation is a
weighty intervention which has to be carefully considered and
should only be applied in the gravest emergency; however, it does
not paralyse the price mechanism but only represents a possibly
very disturbing and harmful new condition (“datum”). Basically
it is not an indigestible foreign body in our economic structure
however much one must advise against it for other very serious
reasons; it is, in fact, a compatible intervention. In contrast to this,
exchange control is doubtlessly an incompatible intervention as it
makes it impossible for the market to retain its balance by means
of the automatic play of supply and demand, and therefore forces
the state to adjust the trade balance, which heretofore took place
automatically, by official order. Exchange control is, therefore,
similar to all other forms of a ceiling price economy. A further
example is afforded by a comparison between fundamentally com-
patible protective tariffs on the one hand, and the incompatible
quota and clearing policy on the other. Whilst tariffs represent
nothing but a (possibly intolerable) burden on prices which is
assimilated by the trade in the same way as, for example, obstacles
in freight traffic, which force up shipping costs, are assimilated, but
otherwise leave it unfettered and do not interfere with the regulat-
ing influence of the price mechanism, the regulation of foreign


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ABERRATIONS AND BLIND ALLEYS 161

trade by means of quotas and clearing agreements means that the
state suspends the automatism of the market and has to replace it
by definite governmental control. If one wants to gain a clear
understanding of the difference by an extreme example, it is only
necessary to compare the completely compatible character of regula-
tions concerning store closing-time ordinances and the observance
of the sabbath with a prohibition of investments.

The incompatible character of an intervention is revealed when,
by paralysing the price mechanism, it creates a situation which
immediately calls for further and even greater intervention, transfer-
ring the regulating function so far carried out by the market to a
government agency. If the government introduces rent ceilings,
the divergence between supply and demand in the housing market
grows ever greater as rents remain below the level which is necessary
to promote construction and lessen demand. Consequently, the
state is forced to go further and ration housing, and as at the
same time building activity collapses under these conditions, it
must finally take over housing construction under its own manage-
ment. In addition, this tends to lead to a “freezing” of the housing
situation—everyone clinging to the home which he was lucky
enough to get hold of, without making any adjustments if his
family should decrease—and to a progressive diminution of
mobility. This should teach us that the price mechanism is an
essential part of the mechanism of our whole economic system and
that one cannot do away with it without in the end being forced
down a path leading to pure collectivism.

If, then, one decides to permit incompatible intervention, the
result is an unending dynamic chain of cause and effect and every-
thing begins to go downhill. The state has joined battle with all
the forces of the market which must be fought to the finish. More
and more extensive measures become necessary in order to counter
the constantly recurring reactions of the market, reactions which at
first become all the more violent the deeper and more extensive the
interference is. At length the state can consider the battle half-way
won for an indefinite period when it has reached the ultima ratio
of all incompatible interventions and of all forms of collectivism,
i.e., capital punishment. For this reason it is, we repeat, not a
macabre joke, but the terrible truth, when we say that in the market
economy the sheriff has the last word—and in the collectivist state
the executioner. The motto of incompatible interventionism is
always: aut Cesar aut nihil, as the most recent history of foreign
exchange control has demonstrated most convincingly. |

We also have here an opportunity to give a precise definition
of a term which today is used in a somewhat indiscriminate and
confusing manner. We mean the magic term “planned economy”
(“planning”). There is no doubt that it owes most of its present

F


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162 THE SOCIAL CRISIS OF OUR TIME

day popularity to the circumstance that it is being more and more
used in a sense which in the end embraces every imaginable
economic activity of the state. But as today everyone demands
some kind of economic action from the state, the generous use of
the term “planned economy” is excellently suited for promoting
such activities and for persuading the masses that the world 1s
moving towards planned economy. The term lends itself to this
very well as it is difficult to imagine any economic action which is
not based on some sort of “plan,” i.e., one which has no definite
goal. The introduction of tariffs, too, is based on preconceived
notions as to what constitutes a desirable production structure for
a particular country, but it would be absurd to maintain that a
tariff policy is synonymous with planned economy. The same
applies to railroad and highway construction, and public works of
all kinds which today enjoy popularity as a means of combating
unemployment, can also not be described as planned economy. Most
cities have fortunately been built according to some sort of plan,
and currency and finance policies in the various countries have
more and more assumed the character of regulating measures geared
to the economic process as a whole.

If all this is to be called planned economy, the term completely
loses its meaning. Then we would have had a planned economy
since the dawn of history, since economic life has always been
subject to certain regulations and collective influences, and
capitalism itself would, of course, also be a pure planned economy,
as the legal and institutional frame of this economic system has
been created after systematic deliberations which included a pre-
conceived idea of the competitive economy as a whole. Capitalism
was consciously “planned” as an economic system which could
manage without a “planned economy.” We conclude from this
that if the term “planned economy” is to retain any meaning,
it cannot be applied to every kind of economic policy based on a
“plan,” as there is no economic policy to which this would not
apply, including the liberal policy whose plan it is not to “plan.”
It is therefore not a plan as such which characterizes the planned
economy, but a particular method of planning, i.e., that which
is opposed to the methods of the market economy. For, while the
latter is based on the complicated interplay of spontaneous decisions
made by all the parties connected with the market, it is the
essence of the planned economy to replace this mechanism by
official orders and to transfer the decision of how the production
capacity gf the national economy is to be used, from the market to
the government. | oo

It is evident, then, that the term “planned economy” is mislead-
ing and should be replaced by another which would better
characterize the contrast between it and the market economy. It


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ABERRATIONS AND BLIND ALLEYS 163

would perhaps be appropriate to speak of a “bureaucrat economy”
or a “command economy.” But as long as we retain the old term,
we should no longer permit its vague use and should ask that it be
reserved for defining an economic policy which substitutes the
government’s orders for the mechanism of the free market. Such
an economic policy of planning makes use, however, as we shall
soon see, of incompatible intervention, and conversely we can
describe this form of intervention as typical of a planned economy.
We further differentiate between a single (incompatible) measure
~of the planned economy type and a completely planned economic
system, the latter being the case when the whole economic process
(or at least one or more of its decisive parts, such as the price
mechanism and the investment of capital) is removed from the
control of the market and directed by the government. Such a
totally planned economic system is at the same time identical
with what we call collectivism or socialism. We have seen clearly
that occasional measures of the planned economy type (incompatible
interventions) always tend towards a completely planned economic
system. We therefore have every reason for locking this group
of economic measures into the poison cupboard of our economic
pharmacy. We conclude our observations with the clear-cut state-
ment that we—indignant at such an attempt to dupe us—refuse to
be presented with the choice between laissez-faire and planned
economy as the only alternatives. There are not two, but three
possibilities, namely: laissez-faire, compatible state intervention
and incompatible state intervention (planned economy). We think
that it is now without further explanations understood why we
prefer the second possibility—compatible intervention—if and when
the functioning of the market necessitates economic adjustment.

Social Welfare

Nothing is more dangerous than the vague feeling of no longer
knowing where to turn, and the almost irresistible urge to permit
empty and high-sounding phrases—which look like a radical new
beginning but in reality present no solution—to conjure up a way
out. Some suggest planning, others devaluation of currency,
“stamp money,” or the corporate state. Others again suggest com-
prehensive social services for the masses, “social welfare,” as the
benevolent expression goes nowadays.

Almost every word in this book written so far bears out the fact
that we are even more radical than most in thinking social injustice
to be one of society’s gravest defects, a defect which has destroyed
civilization again and again since it began thousands of years ago,
and that we are prepared to advocate equally radical action. How-
ever, the problem of widely divergent differences in income which
is sapping the lifeblood of a nation and the question of establishing


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164 THE SOCIAL CRISIS OF OUR TIME

a minimum of social justice, are not what is to be discussed here
nor the community spirit -which makes men act for each other,
a spirit on which our entire future depends. Rather, we must
resolutely resist any demagogic attempt to present the situation as
being a simple choice between two possibilities: the social
Darwinism of laissez-faire which would let every one engage in
the struggle for existence by himself, making the best of the highly
unequal opportunities of today, and would leave everything to
automatic selection—"‘the survival of the fittest”—on the one hand;
and an all-embracing public welfare system which aims at pro-
tecting each individual from the cradle to the grave against the
vicissitudes of life as far as possible by means of retirement pensions;
and a blanket insurance against all untoward incidents. We are
most decidedly of the opinion that here, too, there is a Third Way
which alone can lead to a satisfactory solution. This view, however,
obliges us to declare social mass welfare and assistance to be the
aberration which in truth it is. : REE
If one wishes to follow an extreme policy of social assistance
(social eudaemonism), it is first of all necessary that one should
point out the truism that in social matters one cannot overstep
certain limits without destroying the secret spring of a healthy
society, i.e., the sense of responsibility. The more the state takes
care of us, the less shall we feel called upon to take care of ourselves
and our family, and the less we feel inclined to do so, the less we
can expect help from others whose natural duty it would be to
assist us when in need, the members of our family, our neighbors,
our friends, or our colleagues. We have at last found in the state
a secular God whom, like the lilies in the field, we may burden
with all our cares, and at the same time all true charity which can
only thrive on spontaneity and readiness to help, but is already
beginning to be despised, will die out. Since the state, however,
represents nothing but the whole community, its assistance funds
ate limited by the possibilities of taxing its citizens, possibilities
which, as we have demonstrated above, are already being exploited
to the full because all the producers demand assistance—thus illus-
trating the famous definition of the state by the French economist,
Fr. Bastiat: “The state is the great fiction by which everybody
wants to enrich himself at the expense of everybody.” Thus in
both cases the candle is being burned at each end: whilst the efforts
of the individual are on the decline, his demands on a treasury
which can only be filled by all doing their utmost, are growing. To
rephrase Abraham Lincoln’s well-known observation: one can help
some of the people all the time, one can help all the people some
of the time, but one cannot help all the people all the time. =
‘But more is involved than merely the financial limits of a social
welfare policy. The health of society itself is at stake if we continue


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ABERRATIONS AND BLIND ALLEYS 165

along the path of mechanized social welfare which completes the
disease symptoms of a collectivist society. It cannot be gainsaid
that today large numbers of the people are looking forward to the
realization of the ideal of everyone receiving an old age pension
and in the face of the insecurity and isolation in which the indivi-
dual finds himself as a result of proletarization and collectivization,
one will have to have some sympathy for this. But it takes more to
understand why those who should be more far-sighted support these
popular demands instead of realizing that it is our task to pull up
the evil by the roots and at last energetically oppose collectivization
itself as the soil in which the idea of universal pensions thrives. We
constantly encounter the same error: all the problems and dangers
threatening us can finally be reduced to the process of collectiviza-
tion, but instead of realizing that it is necessary to lessen collectiviza-
tion, one sees no other way out than to apply solutions which are
really nothing but a logical continuation of the mistakes. What
applies to collectivism and totalitarianism in general is true of
mechanized social welfare in particular. In as far as an. overall
pension scheme is a genuine form of insurance, i.e., in so far as
it is based on the responsibility of the individual, it is difficult to
see what more the state can do than to further it by propaganda
and organization and finally compulsory social insurance. But the
more the state goes beyond this and uses taxes to supplement the
scheme, the more we perceive how the center of life, welfare and
community spirit is shifted from the natural and obvious mutual
aid association of the family and other genuine communal units,
to the state. Everyone should be aware that to treat this as a basic
principle instead of as an exception, which may in certain circum-
stances be unavoidable, will have quite unpredictable consequences.
Concurrently with our endeavors to relieve the masses of having
to think and to occupy their leisure and, whilst they are losing
their basic freedoms—yes, even the desire for such freedoms—we
lull them with many of the amenities of civilization, only to
degrade man finally to a completely domesticated creature, to a
tail- wagging pet. The spurious “freedom from want” kills all the
genuine freedom. We can call this the “ideal of comfortable
stable feeding” and thereby describe what the Ancients expressed
by the words “panem et circenses.” At any rate, paying taxes, stick-
ing stamps and standing in line waiting for rubber stamp wielding
bureaucrats, are not the activities which first come to our mind
when we try to envisage a healthy solution of the social problem.

Full Employment

After having had several opportunities to draw attention to the
dangerous by-paths which at first seem hardly suspicious but finally
end in the broad road to collectivism, we must deal with one


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166 THE SOCIAL CRISIS OF OUR TIME

which: is particularly deceiving, especially because we see so many
wise people whom we would like to trust taking it. We are
speaking of the dangers in which a too venturesome business cycle
policy can involve us. :

Referring to observations which we have made earlier, we point
out once more that, especially concerning the question of the success-
ful control of crises and mass unemployment, a deep despondency
and lack of confidence in more cautious measures has gained ground
everywhere, whilst at the same time the desire for such control has,
understandably enough, become more urgent, and undisguised
collectivist experimenting with the business cycle has not failed to
make an impression. We need not repeat what can be said against
this in general but point out that extremely difficult and hotly
debated questions are involved which cannot be gone into here.
We must rather confine ourselves to a few remarks, sufficient for a
preliminary orientation, with the sole intention of shedding some
light on the dangers which are threatening a sound economic and
social system particularly in the form of new anti-crisis programs.

It is probable that nothing has more contributed to the despon-
dency mentioned above and to the preference given to collectivist
business: cycle experiments, than the experiences gained during
the past decade in the United States. No one has been able to
avoid feeling utterly downcast about the on the whole hardly success-
ful battle which the richest and most powerful country in the world
has been waging in order to re-establish its economic equilibrium,
and many have concluded that deep in the entrails of the capitalist
system there is a mysterious worm destroying it. However, we
believe that, as a rule, these experiences are being quite wrongly
interpreted. :

Everyone who a decade ago was convinced that the economic
recovery of the world depended in the first place on a policy of
credit expansion carried out by the big creditor nations, was relieved
when in the spring of 1933 the new Roosevelt Administration
seemed determined to carry out such a policy. Immediately before
the new President assumed office deflation in the United States had
reached such proportions that there was no alternative but to adopt
a vigorous and bold policy of expanding domestic purchasing power.
But everything was subsequently spoiled because Roosevelt—for
reasons which must partly be attributed to the perplexity of his
economic experts, partly to domestic conditions, and partly to the
necessity of at the same time carrying out a radical reform of the
structure of American capitalism—involved his business cycle policy
in an almost disastrous state of confusion and under the spell of this -
confusion pulled levers which upset the whole mechanism of
recovery—one may well say up to the present day (1941). Misled
by the doctrine that economic recovery should be initiated by an


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ABERRATIONS AND BLIND ALLEYS 167

increase in prices (instead of by an increase in demand) and by the
primitive idea of *“under-valuing” the dollar to meet the price of
the pound sterling which had been devaluated in 1931, the American
Government began to devaluate the dollar, a course which circum-
stances had by no means called for. Whilst this policy turned the
London World Economic Conference of 1933, a last rally to save
the world economy, into a miserable failure whose effects are also
still felt today, the United States managed, thanks to devaluation
—and not even without difficulties—to effect a domestic and specu-
lative increase in prices. As soon as prices suffered a recession, the
tendencies towards planned economy and monopolies which had
been present for some time received such an impetus that now that
chain of laws and subsidies of all kinds (the New Deal) set in,
which largely destroyed the essential element of the recovery
mechanism: the elasticity of the economic system as well as business
confidence and readiness to invest. At the same time unskilled
hands meddled with the complicated and sensitive price-cost-
structure of the American economy by reviving the popular
economic theory of the purchasing power of wages and the intro-
duction of wage and labor regulations in the National Industrial
Recovery Act, accompanied by price controls of all kinds. Small
wonder that the New Deal was not a roaring success in view of
such a concentrated attack on the reaction mechanism of the national
economy and on the groups (producers, consumers, savers and
investors) on whom the economic process, and on whose favorable
psychological state, recovery depends.

It would be unfair not to appreciate the extremely difficult posi-
tion in which Roosevelt found himself at that time, or the energy
and skill which he demonstrated in many ways. The main fault,
as we have observed, rested with his economic advisers and the
domestic party constellation for which he had to make allowances.
Above all we must not forget that circumstances forced a twofold,
contradictory task on him: besides having to put business on its
feet again, he was at the same time obliged radically to reform
the capitalist structure of the country. Anyone who, in the
‘twenties, travelled in the United States during the years of pro-
sperity must have recognized that this uncurbed form of capitalism
with its speculative frenzy, its all-embracing commercialism, its
dominant monopolies and its yet practically unsolved social and
agrarian problems, could not be maintained for long and was in
need of a thorough reform. The collapse of prosperity, which was,
at the same time, a collapse of the system itself, however, made the
reform of the structure as unpostponable as bringing about normal
business conditions again. This posed a very serious dilemma,
since structural reform at this moment, when it was important to
revive business confidence, demanded measures which to some


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168 THE SOCIAL CRISIS OF OUR TIME

extent were bound to run counter to the interests of these very
business men, as, for example, the necessary drive against the huge
private monopolies of the public utilities. All this must be appre-
ciated, and yet one can hardly believe that a compromise could not
have been found which would to some extent have harmonized
structural reform with the business cycle policy. For this purpose
a different business cycle policy would first of all have been neces-
sary, including a firm outline of the principles which were to be
respected in all circumstances. One of these principles should have
been the inviolability of the currency, but this was the first to be
sacrificed in a particularly ostentatious and happy-go-lucky manner.
‘The argument that at that time the Roosevelt administration had
no other choice but to devaluate the dollar does not hold water.
In 1933 the United States was one of the few countries in the world
which, in contrast to most others, could have afforded a domestic
expansion policy of gigantic dimensions (possibly including huge
subsidies to the needy farmers) without requiring devaluation or
exchange control in order to avoid a crisis of the balance of pay-
ments. There the crisis was not characterized, as in Germany
and England, by an “external drain” (outflow of gold and non-
renewal of foreign credits), and with the backing of the huge gold
and foreign exchange reserves one could boldly have faced all
possible dangers of this kind—including that of a gigantic bearish
speculation against the dollar. The American Government, how-
ever, by starting with a devaluation anticipated the threats which
it might have had to meet if the domestic expansion policy had
outgrown all bounds, thus acting like a man who, before going
sailing, first jumps into the water in order to anticipate the danger
of getting wet in case the boat should capsize. It could quite easily
have tested the actual extent of the much quoted over-valuation ‘of
the dollar, and if in the course of American expansion a gold out-
flow had taken place, it would not have harmed the United States
and would have been a blessing for the rest of the world, burdened
with deflation; at the same time it would have resulted in an
upswing of prices and the business cycle outside the United States
and thus helped to re-establish the international equilibrium. This
appears all the more so as there seems to have been no reason why
the United States could not have followed as successfully: as, e.g.,
Australia, a policy combining credit expansion and a lowering of
price (reduction of prices and wages). This would have been sound
policy. |
In 1933 the Roosevelt Administration could have laid the basis
for a steady recovery and earned the gratitude of the whole world
if it had inaugurated a policy of effective expansion at home (by
an extensive program of public investment, farming and unemploy-
ment subsidies, special incentives for new private investments,


===== PAGE 181 =====

ABERRATIONS AND BLIND ALLEYS 169

scaling down of taxation of enterprises and production, and other
well considered measures), combined with a policy of giving some
margin to the price and cost structure and of resolute adherence
to the gold standard (even at the cost of suffering a considerable
outflow of gold), and if by such a mixture of boldness and an
appeal for confidence it had caused the spark struck by the state
to reach private industry. Instead of that an effective expansion
policy was introduced much too late and with too much hesitancy,
and an attempt was made to set the recovery mechanism going by
currency experiments which could only create a short-term specula-
tive boom, by artificial wage and price boosts and by production

regulations; to put it figuratively, one used fuel of the wrong type

which was bound to lead to the carbonization of the engine—and
in addition to that one threw handfuls of sand into the bearings.
This conjured up the danger that the New Deal would in the end
merely result in a huge national debt and an economy which
through planning and monopolies had become lethargic and almost
impossible to operate. |

In fact it turned out that the original calculation that the
Government’s boost of purchasing power would set off the private
investment drive that was due, was wrong. Every time the Govern-
ment’s injections were withheld it appeared that there was no
private initiative which could take the place of public initiative: The
motor would not start and one found that the fly-wheel had all the
time been set in motion by the starter and not by the motor. Every
time the public’s purchasing power was increased, it was as if the
American Government stepped on the starter in order to start the
revolutions of the fly-wheel of economic activity, always with the
fresh hope that the motor would start this time. But experience
up to date (1940) indicates that the motor itself is out of order. It
can hardly surprise us if an unmistakably anti-capitalist atmosphere
is created, if private investment is discouraged both actually and
psychologically by wage increases, by giving a free hand to mono-

polies harmful to the public interest and by other developments.
The normal reaction mechanism fails to function and in the end.
the critical point is reached where one must decide whether one

should subject what is left of the market economy after all these
interventions to collectivist control or whether by reducing control
and freeing business life one can rehabilitate the normal reaction
mechanism.’

~ Of course, the supporters of a collectivist economic policy in the
United States also realized that the motor had failed. But the
attitude which they adopted towards it was absolutely typical. Some

of .them put the blame on the stubborn “capitalists” who had
sabotaged the efforts of the government by an “investment strike,”
and thus they associated themselves with those who attributed. the:


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1770 THE SOCIAL CRISIS OF OUR TIME

Russian famine of 1932-33 to sabotage on the part of the “liqui-
dated” peasants who should have patiently allowed themselves to
be deprived of all their possessions. Others invented a new theory
for this occasion—the theory of the “mature economy’ —according
to which the United States had reached such a degree of wealth
and economic maturity that there were not enough opportunities for
private investment and a continuous boosting of public purchasing
power was necessary. Up to the present day one has carefully
evaded the highly inconvenient question of how private investments
would be stimulated if one would not follow a business cycle policy
aimed at prosperity, to justify which policy this theory of the
“mature economy” has been invented.

We have dealt with the economic developments in the United
States so extensively not in order to indulge in belated recrimina-
tions, but in order to correct certain opinions which are threaten-
ing to gain a considerable influence on the future economic policies
of all countries, and to show at the same time that the American
economic situation, which is of decisive importance for the world,
could be saved today, as it could have been saved then, if only it
were correctly analysed. And as regards the United States of
today, we have the encouraging impression that a certain change
of heart has taken place and that in influential circles opinions
have gained ground which are akin to our own. It would, there-
fore, appear as if our words should be addressed less to the leading
men in the United States than to quite different people who are
still flirting with the idea of a semi- or quarter-socialist business
cycle policy.

These people are under the spell of a business cycle mentality
which has gained ground everywhere partly under the influence
of fashionable economic theories, partly as a result of the experiences
of the last world wide depression. It is the mentality which
advocates “full employment at any price.” |

In common with many other catchwords of our time, the term
“full employment” has a dangerous quality that it is calculated to
disarm all criticism from the start. Everyone advocates full employ-
ment in a reasonable sense, because no one considers involuntary
mass unemployment for more than a short period as anything but
a national disaster. And if in addition it is understood that in
practice there can never be and never has been absolute full employ-
ment, that there is always a certain normal quantity of unemploy-
ment whose decrease (due to “over-employment” and manpower
shortage) is as pathological as its increase, and lastly, that this
state is quite tolerable from a human and social point of view,
perfect agreement obtains. Differences of opinion, therefore, do
not arise concerning the goal but merely the means and conditions

by which this goal is to be reached.


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ABERRATIONS AND BLIND ALLEYS I71

We hold the view (for which we have given reasons above),
that the problem of the economic equilibrium can be solved within
the limits set to us if we wish to preserve the essence of our economic
system. In contrast to this, the school of “full employment at any
price” —of the “business cycle engineers” as we shall call them—is
determined to take over permanent direction of the economic
process in a manner which endangers the core of our economic
system—without, we believe, really and permanently achieving its
aims. By means of a complicated “business cycle mechanism” the
factors of the economic process—total income, wages, savings and
the volume of investments—are to be continually balanced against
cach other within the economy so that the equation is resolved
regardless of what has caused the disturbance in each case (be it a
shift in demand, wage and price relations, changes in technology,
disturbances in international trade, or bad speculations and mis-
guided investments); regardless also of whether this policy forces
‘one to adopt planned interventions of all kinds (investment pro-
hibitions, official price and wage regulations, official demand and
supply control) or to close the economic frontiers (particularly by
exchange control, a measure viewed with alarming unconcern). Let
us illustrate this more drastically: one can either convey fishes
which have been stranded, back into their element, or one can
pump the water level so high that all fishes, wherever they may
have got to are reached by the water.” The last procedure is what
the school of “full employment at any price” envisages; whatever the
individual conditions may be, however high the wage level, what-
ever the cause of unemployment, whether structural or due to a
slump, whatever the stage of the business cycle, whether deepest
depression or unsupportable boom—purchasing power must always
be pumped up to a level ensuring “full employment.” For this
continuous pumping a type of machinery has to be used which
gained considerable notoriety during the last depression: the silent
mechanism of the “cheap-money-policy”” which was employed par-
ticularly in England, and if the worst comes to the worst, the
combination of public investments and public indebtedness incurred
in order to alleviate the crisis, and all their consequences in the
various forms of autarky and planning. According to this view a
boom has to be maintained under all circumstances and the crisis
is simply an accident which only a backward economic. theory can
associate with the alleged dangers of an exaggerated boom.

Such a doctrine is bound to be popular. After the world has
for many years—and indeed far too inactively—put up with a
devastating depression, people will only be too eager to make
every and any sacrifice in order to forestall the repetition of such a
tragedy even on a smaller scale. And, if, to make matters worse,
even leading economists (particularly the late J. M. Keynes) come


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172 THE SOCIAL CRISIS OF OUR TIME

and tell us in rather incomprehensible books that what we have to
sacrifice for the sake of economic stabilization is not, as was taught
formerly, the inflationary boom but only this moth-eaten doctrine
of the alleged dangers of the boom—then we must not be surprised
that they are applauded. The whole question of economic equili-
brium and mass unemployment is seen as a mere problem of con-
tinuously prolonging the boom by means of the business cycle
mechanism and thus, in an exceedingly dangerous manner, atten-
tion is diverted from the deeper causes upsetting the equilibrium,
any knowledge of which is felt to be highly inconvenient. But
the school of “full employment at any price” can also adopt
economic nationalism in a manner particularly attractive to the
masses, by giving the appearance that in the past it had only been
the lack of the nation’s autonomy and the necessity of having to
consider foreign market conditions which, under the regime of the
gold standard, could force a particular country to put a stop to
its business boom. If the thermostat of the gold standard or of
any other international currency system prevents us from reaching
and maintaining the business cycle at the desired temperature, one
should do away with the thermostat and replace it by a system of
exchange control or of a paper currency which can be devaluated
at any time—thus one could interpret the doctrine of the business
cycle mechanism and full employment.

~ We have said that such a control of the economic process
jeopardizes the essence of our economic system without in the
end really and permanently attaining the desired stabilization. That
indeed 1s the concise formula to which we can reduce our criticism.
A continued policy of increasing and prolonging the boom finally
reaches a point where the recession can only be delayed by means
which do away with the market system and lead to collectivism. It
is decisive here that the boom develops forces inimical to the
equilibrium (whose nature is described by the theory of crises)
which grow in strength the longer one forestalls the natural
recession.

To sum up, a policy of “full employment at any price” has the
following results: every attempt to maintain the flagging boom at
maximum revolutions produces certain reactions in our economic
system, each of which must now be suppressed. However, as long
as the causes of the disturbed equilibrium continue to exist and are
even strengthened, every suppressed reaction is replaced by a new,
intensified reaction, which then evokes even more stringent measures
of suppression. A policy of full employment will therefore lead
to the piecemeal scrapping of our economic system: the external
reactions will be cut short by controlling foreign exchange (mere
continued devaluation very soon proves to be inadequate) and
blocking foreign trade, and finally, whether one wants to or ‘not,


===== PAGE 185 =====

ABERRATIONS AND BLIND ALLEYS 173

one will end with wage, price, capital and investment control and
for this purpose will have to adopt the necessary political stage
properties of collectivism. But the longer this road is followed,
the more, as the example of the United States shows, the market
economy’s ability to function is paralysed until the well-known
critical point is reached where the collectivist sphere can no longer
be increased without the private sector being simultaneously
rendered incapable of further reactions, so that one either has to
collectivize it as well, or reconvert the collective sphere into a
private one. The question of what things will be like under a
collectivist control of economic developments—which replaces the
organic market mechanism—need no longer concern us here since
we assume agreement on the fact that a business cycle policy which
threatens to lead us towards collectivism is thus already adequately
characterized.

All this certainly does not mean that we are advising against a
well-considered and sober control of the business cycle, and especially
the author, who as early as 1931 had asked for a positive business
cycle policy and had met with much opposition, particularly from
subsequent adherents of the full employment school, finds such
an idea quite foreign to his thinking. But here, too, he is of the
opinion that one should not stagger from one extreme to the other
and counsels moderation and observance of the limits. Regarding
business cycle policies there is also, apart from the alternative
between laissez-faire and collectivism (including involuntary collec-
tivism) a Third Way. In order to realize this clearly it should be
borne in mind that the problem of economic stabilization is seen
in a completely false perspective if it is viewed as a mere problem
of business cycle policy. Rather, it is basically a problem of the
total economic and social structure, which in turn must be seen
against the background of the general crisis of civilisation. The
great structural problems of our time must be solved, whatever
business cycle policy we may be following, but if, and as long as,
they are not solved, the structural disturbances also cannot be
settled permanently however highly contrived the policy of the
business cycle may be. There is even the grave danger that the
boldness of such a policy will only serve to accelerate the general
process of structural disintegration. Over and above all the problems
of the mere market mechanism there are problems of a
higher order which are more important than anything else, and
they must be solved whatever our plan of action in the restricted
field of the market mechanism may be. It is obvious that par-
ticularly for a small country like Switzerland which is so very
dependent on unimpeded and maximum trade relations with foreign
countries, the possibilities of an autonomous regulation of the
business cycle are extremely limited. |


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174 THE SOCIAL CRISIS OF OUR TIME

PART TWO—NOTES TO CHAPTER 1

Note No. 1 (page 153). Critique of socialism:

Since the publication of this book, the author made some further studies
on the theory of collectivism which are to be found in his books Civitas
Humana, Internationale Ordnung, and Die Krise des Kollektivismus. His
most recent contribution to the subject in his article Zur Theorie des Kollek-
tivismus, “Kyklos” (Bern), 1949, where he also referred to some of the most
recent publications on this vast problem. Generally, he wants to emphasize
the importance of the following books: F. A. v. Hayek, Collectivist Economic
Planning, London, 1935; Walter Lippmann, The Good Society, Boston, 1937;
J. Jewkes, Ordeal by Planning, London, 1948. As for the well-known book
by Joseph A. Schumpeter, Capitalism, Socialism and Democracy, New York,
1942, he confesses that he found it as an apology of socialism even less
convincing than as a criticism of “capitalism” (cf. his revue of this book in
“Erasmus,” Speculum Scientiarum, International Bulletin of Contemporary
Scholarship (Amsterdam-Brussels), 1947, 1). In particular, Schumpeter does
not give an answer to our arguments proving the incompatability of socialism
and liberal democracy, and at the end of his book he even conveys the
impression that he is prepared to accept them.

Note No. 2 (page 155). Socialism exhausts the economy:

A well known French philosopher (whose main occupation is farming)
expresses this vividly in the following words: “Chaque essai novateur repré-
sente un coup de fouet qui communique a l'organisme collectif une vigueur
factice au prix de la consomption d'une réserve vitale. On dilapide les plus
obscures, les plus profondes resources du corps social (je pense a des choses
aussi diverses que la stabilité monétaire, la continuité et la saine spécialisation
professionnelles, l'insertion de lindividu dans les vieux cadres locaux,
familiaux et religieux), au profit d'une réussite éphémeére, d’une euphorie
d’agonisant. Le salut de I’heure présente a pour rangon la dégradation de
Pavenir. Que sait-on aujourd’hui . . . de la vraie politique, de cette sagesse
patiente et silencieuse qui regarde, qui crée des réserves? Le stigmate
essentiel du socialisme (et quelle nation n’est pas aujourd’hui plus au moins
infestée du virus socialiste?) réside 13; il méconnait, il détruit les réserves, les
lentes réserves dormantes, la patience conservatrice des organes profonds. La
ou sont les puits de la vie—les puits de la tradition, de 'autorité, de I'expér-
ience oll s’abreuve obscurément la caravane sociale—il voit des parasites et
des obstacles. Il confond réserve et inutilit€” (Gustave Thibon, Diagnostics,
Paris, 1942, p. 23). Montesquieu means the same when he says: “Quand les
sauvages de la Louisiane veulent avoir du fruit, ils coupent I’arbre au pied,
et cueillent le fruit. Voila le gouvernement despotique” (De lesprit des
lois, V, 13). Cf. also the very impressive paragraphs in H. Taine’s Les
origines de la France contemporaine, Le régime moderne, I, page 153 f. and
page 180 ff.

Note No. 3 (page 157). Hybrid forms of socialism:

The theoretical constructions which we mentioned in the text are intended
to take the wind out of the critics’ sails by proposing to retain the essential
institutions of capitalism—market, competition, price mechanism, free choice
of occupation and consumption—and only to abolish the private ownership of
the means of production (“market socialism™). This suggestion appears to
us as brilliant as that of playing bridge with oneself. In all seriousness:
either one gives business the power of disposal which the market pre-
supposes, and then it exercises the functions of ownership—or one really


===== PAGE 187 =====

ABERRATIONS AND BLIND ALLEYS 175

deprives it of property and all its functions, and then the power of disposal
which the market necessitates is abolished. Competitive economy can be
planned centrally as little as a game of cards. A discussion of these ideas
of a “market socialism” could possibly be considered if there were never any
changes at all in economic life. Cf. F. A. Hayek, Individualism and Economic
Order, London, 1949, pp. 181-208.

Note No. 4 (page 158). “Social technique”:

The quotation in the text is taken from Karl Mannheim’s article Zur
Diagnose unserer Zeit (“Mass und Wert,” September/October issue, 1937).
His views are presented more elaborately in the book characteristically entitled
Man and Society in the Age of Reconstruction (London, 1940). The common
spiritual ancestor of all collectivist social engineers was probably Edward
Bellamy, the American author of the futuristic socialist novel, Looking
Backward (1888), whilst the idea of social “scientific” organization itself dates
as far back as Saint Simon.

Note No. 5 (page 166). Crisis theories and policies:

The difficult subject has been further analyzed by the author in Civitas
Humana (English edition, London, 1948, pp. 196-223) where also further
references will be found. The whole discussion centers around the doctrines
of the late Lord Keynes (The General Theory of Employment, Interest, and
Money, London, 1936). While their influence has been enormous, criticism
—partly on the lines indicated in the text—has recently become more notice-
able (besides Haberler’s Prosperity and Depression, see: Henry C. Simons,
Economic Policy for a Free Society, Chicago, 1948; Keynes’ Contributions to
Economics, Four views by R. F. Harrod, Alvin H. Hansen, G. Haberler, J. A.
Schumpeter, “Review of Economic Statistics,” November, 1946; L. A. Hahn,
The Economics of Illusion, New York, 1949; J. Rueff, The Fallacies of Lord
Keynes’ General Theory, “Quarterly Journal of Economics,” May, 1947; Hans
Gestrich, Kredit und Sparen, Jena, 1944; L. H. Dupriez, Des Mouvements
Economiques Généraux, Louvain, 1947; Luigi Federici, La Teoria della Piena
Occupazione, Bologna, 1949). From among the author’s own works the
following might be mentioned: W. Ropke, Crises and Cycles; W. Ropke,
Praktische Konjunkturpolitik, Die Arbeit der Brauns-Kommission, Weltwir-
schaftliches Archiv, October, 1931; W. Ropke, Trends in German Business
Cycle Policy, “Economic Journal,” September, 1933; W. Ropke, Die sekundire
Krise und ihre Ueberwindung, Economic Essays in Honour of Gustav Cassel,
London, 1933; W. Répke, Vollbeschiftigung, “Economist” (Dutch), 1938, Nos.
7-8; W. Ropke, Streifziige durch die neuere konjunkturtheoretische Literatur,
“Zeitschrift fiir schweizerische Statistik und Volkswirtschaft,” 1940, issue No.
1. For more details on the question of the American New Deal, consult:
A. S. J. Baster, The Twilight of American Capitalism, London, 1937; W.
Ropke, Die Nationalokonomie des “New Deal,” “Zeitschrift fiir Nationalo-
konomie” (Vienna), 1934, Volume V, issue 5, and W. Ropke, Crises and
Cycles.

Note No. 6 (page 169). Monopolistic interference with the American business

cycle:

During the past years, i.e, up to the last war, it seems to have been of
decisive importance that the exorbitant wages which the building laborers
and the not less exorbitant prices which the building material industry seem
to have succeeded in securing for themselves in the United States, have
throttled building activity and thereby paralysed one of the most important
factors of the business cycle. To set things right here is surely better than
evolving elaborate business cycle theories.


===== PAGE 188 =====

| CuarTErR [I
BASIC QUESTIONS OF REFORM

“Le gouvernement en dehors de sa sphére ne doit avoir aucun pouvoir;
dans sa sphere, il ne saurait en avoir trop.” .-
—BENJAMIN CONSTANT.

The Route—"“The Third Way”

Ler us glance back once more at the road of collectivism which
we are under no circumstances prepared to take and do not even
want to approach along the deceptive by-paths which we have
just mentioned. Its details are sufficiently known: abolition of
freedom and of the sphere of private personality, extreme mechaniza-
tion, rigid hierarchies and proletarization, the kneading of society
into a dough-like lump, unrelieved dependency of each on the
dominant group with its arbitrary and changing plans and pro-
grams where man in his uniqueness and dignity means nothing,
power and the bureaucratic machine everything. Human dignity,
freedom and justice have completely vanished there and, to round
off the picture, even material productivity leaves much to be
desired. :

But we also know that this is not an entirely new and revolu-
tionary state of affairs which has succeeded an idyllic non-collectivist
existence. What we are facing is rather the last stage of a long
pre-collectivist development which smoothed the way for total
collectivism: the increasing mechanization and proletarization, the
agglomeration and centralization, the growing dominance of the
bureaucratic machinery over men, monopolization, the destruc-
tion of independent livelihoods, of modes of living and
working which satisfy men, the disruption of the community by
ruthless group interests of all kinds and the dissolution of natural
ties (the family, the neighborhood, professional solidarity, and
others). Of course, important differences of degree become apparent
between the various countries, differences which show at the same
time how far a particular country has remained sound and healthy.

Now it cannot well be denied that this process of the progressive
hardening of the arteries which finally ends in the apoplexy of
collectivism, has taken place in the era of a world order which—
rightly or wrongly—is called liberal. The apologists of this world
order cannot offer the excuse that this development must solely be
attributed to the fact that economic liberty, one of the points on the
liberal program, has not been realized with sufficient seriousness

176


===== PAGE 189 =====

BASIC QUESTIONS OF REFORM 177

and radicalism. Our previous investigation of the perversions and
malformations of capitalism has already shown us that this excuse
is not adequate. The exclusive emphasis placed on economic
liberty as a postulate—which is certainly important, but by no
means sufficient and in any case necessitates further elaboration—
tends to divert attention from other equally weighty matters. That
becomes quite clear when we realize that laissez-faire and economic
liberty are by no means antipodal to collectivism, that they are,
rather, quite compatible with many shortcomings of the pre-
collectivist stage. A return to domestic and foreign economic
liberty would very likely lead to the disappearance of many—we
even believe, of most—monopolies, and in other respects, too, there
might be a turn for the better, but in some respects also for the
worse. Above all: would the remaining aspects of the disease of
our time be altered to any great extent? For example, would a
country now without peasants and craftsmen be able to get them
back by returning to a system of comprehensive economic freedom?
Would the proletariat vanish? Would society acquire a stable
economic and social equilibrium? Would it become, in a very
elementary sense, a just society? Would it invest work and life of
the individual once more with meaning and dignity? But if a
‘return to economic freedom is insufficient to achieve all this, can
we really advocate it with a good conscience? And how can we
expect men to warm to this postulate? Where is the vitality
necessary for carrying out such a revision of our economic policy?

This once more places before us—in a new perspective—the
problem which has accompanied us throughout this book and whose
solution, we hope, is gradually taking more definite shape: the
problem of an anti-collectivist alternative program which meets
the real situation and the justified desires of men. We saw again
and again that the fight against collectivism only holds promise of
tangible success if we succeed in revitalizing the liberal principle
in such a manner that satisfactory solutions will be found for all
the now obvious defects, the breakdowns and deficiencies of
historical liberalism and capitalism, without interfering with the
structure of the market economy’s competitive system and our
whole economic system’s ability to function. The non-collectivist
world will only be able to deal with the dangers of collectivism
successfully when it knows how to deal in its own way with the
problems of the proletariat, large scale industrialism, monopolism,
the multitudinous forms of exploitation and the mechanizing effects
of capitalist mass civilization.

Economic freedom as an essential form of personal liberty and
as a premise of everything that follows belongs undeniably to the
total picture of a society which is diametrically opposed to collec-
tivism. While this social order is necessarily based on economic


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178 THE SOCIAL CRISIS OF OUR TIME

freedom, other factors are also essential. In order to recognize
the true antithesis of a collectivist society we must look far beyond
economic freedom. We shall find it in a society in which the
greatest possible number of people leads a life based on private
property and a self-chosen occupation, a life that gives them
inward and, as much as possible, outward independence, which
enables them to be really free and to consider economic liberty
as a matter of course. It is at the same time a form of society
whose arbiters are not the proletarians—with or without white
collars—not the vassals of a new industrial feudalism and retainers
of the state, but men who, thanks to their way of working and
living, depend on no one but themselves and do not allow the affairs
of the world to touch them; these are to be found among the best
types of peasants, artisans, small traders, small and medium-sized
businessmen in commerce and industry, members of the free pro-
fessions and trusty officials and servants of the community. They
set the tone not because they are a minority which has usurped
power, but because their number will be so great that they will
determine the character of society. Whatever one may think of
it, no one will dispute that only such a society and not one which
is herded together in large cities, giant enterprises, tenements, mass
associations, trusts and monopolies of all kinds, represents the true
antithesis of collectivism. The conditions enumerated here have
already taken us half or three quarters of the way along the road
to collectivism—in spite of all the remnants of economic freedom—
and it will not take long to cover the rest of the way. The misery
of “capitalism,” we must point out to the socialists, is not due to
some men owning capital, but rather to others not owning any,
and thus being proletarians. Sufficient millenia have passed into
recorded history for us to have learned in a most convincing manner
that whenever the lamp of freedom, of the enquiring mind and
of humanity has illuminated the darkness, it was in times when a
sufficient number of people had a modicum of private property
and were therefore in a position to shake off their economic
dependence on the state or the feudal lord. It rests with us whether
one of the most magnificent of these periods, which started with
the rise of the cities in the Middle Ages and reached its peak in
the liberation of the peasants, is now again to come to a close.
These remarks are intended to show once more the kind of
measures with which the defense and re-establishment of economic
liberty and the accompanying battle against selfish vested interests
must be conducted in order to fulfil our counter-program of the
“Third Way”; they are also intended to show the more important
aspects of this program, the character of the philosophy behind
it, and with which of the more or less clearly felt grievances of
the under-privileged we concern ourselves. Economic liberty


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BASIC QUESTIONS OF REFORM 179

and competition are self-evident postulates where the arch evils of
collectivism and monopolism are involved, but they are only part
of a many-sided and comprehensive general program. This pro-
gram lays down the firm frame which will give the necessary
support to the freedom of the market. Decentralization, promotion
of smaller production and settlement units and of the sociologically
healthy forms of life and work (after the model of the peasant and
the artisan), legislation preventing the formation of monopolies
and financial concentration (company law, patent law, bankruptcy
law, anti-trust laws, &c.), strictest supervision of the market to
safeguard fair play, development of new, non-proletarian forms of
industry, reduction of all dimensions and conditions to the human
mean (“a la taille de ’homme,” as the Swiss poet Ramuz put it
so well); elimination of over-complicated methods of organization,
specialization and division of labor, promotion of a wide distribu-
tion of property wherever possible and by all possible means,
sensible limitation of state intervention according to the rules of,
and in keeping with, the market economy (compatible state inter-
ventions instead of incompatible interference a la planned economy),
while care is exercised to reserve a sphere for the actual planned
economy—these are some of the main points which we would
mention, though for the time being only in the form of headings
open to misunderstanding. We add, however, that perhaps the
Swiss reader is the least likely to misunderstand these since he has
the example of his own country before his eyes, a country whose
economic and social structure corresponds in decisive respects
largely to our program. How much still remains to be done in
that country, too, in order to make the imperfect more perfect
and the diseased healthy again, we need not go into here. All the
more should we stress, however, that the fundaments are still
sound that what has become subject to disease and disintegra-
tion seems relatively easy to cure, compared with the gravely
pathological state of the big industrial nations. It therefore seems
advisable to us to recommend not only, as is frequently done
today, the political but also the economic and social constitution of
Switzerland as a model for the rehabilitation of the world after
this war. Switzerland, in any case, refutes by its mere existence
every cynical doubt regarding the possibility of realizing our
program.

Our program is to be one in which everything is balanced. It
must therefore appeal more than any other to the willingness of
the reader to follow our thoughts with sympathy and understanding
and not to pick out this or that point for premature praise or
criticism. However, in the case of some readers we have to reckon
with the possibility of being misunderstood as siding with trends
which are foreign to us. All endeavors would be in vain if we were


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180 THE SOCIAL ‘CRISIS OF OUR TIME

to be misunderstood on one decisive point: the necessity of com-
petition. That is why we shall add a few words on this subject.
However unsatisfactory and even misleading a program of
reform seems to us which has to offer nothing but the postulate of
economic freedom, we nevertheless hope that we have left no doubt
that economic freedom—to be more exact, competition—is indeed
the conditio sine qua non of any recovery of our sick society. How
to maintain the freedom of the market and of competition happens
to have become the crucial problem of the non-collectivist world,
and if we fail to solve it everything else will be pointless. But—
and that is the other side of the problem—we are bound to fail in
this task if we devote ourselves solely to this problem and neglect
everything else or push it aside with gentle sarcasm. However
radical our thoughts and demands should be concerning the ques-
tions so far discussed, we must be on our guard not to transcend
the limits set to us, if we are really concerned with the essentials
of the economic order of a free society. Such an economic order,
we recall, is the opposite of collectivism, monopoly and—in the
field of agriculture—of peasant serfdom (including serfdom to
the state). In saying this we have—with the exception of the
sphere of agricultural self-sufficiency—defined this constitution as
a competitive economy. But has that term not already become in
our eyes somewhat ambiguous? Is it not often associated with
matters which seem to be at variance with the rest of our program?
To this we have to reply first of all that outside the sphere of self-
sufficiency, we only have the choice between monopoly and collec-
tivism on the one hand and competition on the other. Even if we
did not particularly like competition, we would have no other choice
and would thus be forced to make the best of it. That is precisely
the task of a reform policy, however radical in other respects, which
will prove that this problem is by no means insoluble. There is a
world of difference between the competitive principle and the fre-
quently perverted form of competition as it is practised today. One
must further note that the economic order of a free society pre-
supposes competition only in as far as that economy is a market
economy dependent on the division of labor. Competition, there-
fore, is only one of the pillars on which such an order rests, while
the other is self-sufficiency. We are, therefore, free to modify the
competitive character of the economy in full harmony with the
principles of our economic order, by enlarging the sphere of market-
less self-sufficiency, and we should make full use of this freedom
within the limits which have been set to us for reasons already
discussed. This is a new and important point illustrating the
inestimable importance of sustenance farming and the “rurification”
of the industrial proletariat. Here we should add that in the
‘domain of handicrafts and of the small tradesmen—of “local trade”


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_ BASIC QUESTIONS OF REFORM 181

as we called it—competition lacks that often inhuman anonymity

and brutality which we find, for instance, in the international stock
exchanges; competition within a small, controllable circle, can
perhaps be compared to the democracy of rural communities and
communal self-government.

We must further note that it is merely a matter of making
competition outside the sphere of self-sufficiency the paramount
but not the exclusive principle; chemical purity is as little aimed
at here as in the case of democracy. Thus it is naturally under-
stood that, in accordance with well thought out tenets, a considerable
section of the economic sphere is reserved for the economic activities
of the public authorities. Planning also has very definite and
positive tasks particularly in the realm of regional development.
But we shall have to remain quite firm and make no compromises
as far as monopolies and “monopoloids” are concerned. Wherever
they are unavoidable (as, for example, in the important sphere of
the so-called utilities, e.g., communications and electricity, but
also in many fields of raw material production), we should adopt
the attitude that if a monopoly must be permitted, it should only be
in the hands of public authorities and is quite insupportable as a
private monopoly. Fanaticism must be as far from us as that
sloppy lack of principles to which the world has succumbed in
the past twenty years.

Finally, we must stress most emphatically that we have no
intention to demand more from competition than it can give.
It is a means of establishing order and exercising control in the
narrow sphere of a market economy based on the division of labor,
but not a principle on which a whole society can be built. From
the sociological and moral point of view it is even dangerous because
it tends more to dissolve than to unite. If competition is not to
have the effect of a social explosive and is at the same time not to
degenerate, its premise will be a correspondingly sound political
and moral framework. There should be a strong state, aloof from
the hungry hordes of vested interests, a high standard of business
ethics, an undegenerated community of people ready to co-operate
with each other, who have a natural attachment to, and a firm
place in society.

Those who have already agreed with us in our defense of com-
petition, may perhaps find it somewhat wearisome that we cannot
yet decide to leave this extremely important subject. As, however,
there is a possibility that there are a few readers who are not yet
fully convinced and cannot yet overcome their mental resistance
against the principle of competition, we will go further by strongly
emphasizing two points. In the first place we once more feel called
upon to deal with an idea which many may have been pondering
‘without expressing it: that competition is most uncomfortable and


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182 THE SOCIAL CRISIS OF OUR TIME

wearing, whereas we long for the peace of a secure position in the
market, where we do not have to fear every day that the better
and cheaper services of another may perturb us, and we hope to
enjoy this peace the more tranquilly the more successful we are in
finding a nicer word for the crude term “monopoly.” That is
quite human and excusable as long as one keeps this feeling within
certain bounds. Our sympathy even extends so far that we would
like to see competition shaped and controlled in such a manner
that it loses all traces of its cut-throat and nerve-racking character.
In saying this we must stress with even more emphasis that the
efforts which the competitive principle demands from us will never
become unnecessary, particularly not if we decide to choose collec-
tivism. All those who today groan under competition and would
employ any means to protect their position in the market against
inconvenient competitors, cannot be shown convincingly enough that
the collectivist state would be a much harder task-master than com-
petition. Collectivism knows perfectly well that its success will be
all the greater, the more it succeeds in insuring that discipline and
effort with which the competitive system burdens the producers,
and under collectivism there will be fewer chances than before of
clinging in unmanly fashion to comfortable nests. If competition
has chastized us with whips, the collectivist state will chastize us
with scorpions (1 Kings, 12, 11). Indeed, in economic life we can
never do without that pitiless, yet beneficent discipline, if we do
not want to make the acquaintance of that anarchy which we know
only too well from the recent history of great countries. However,
there are only two kinds of such discipline, i.e., that of competition,
or that of the state as task-master. Between these two lies our
choice. To speak against competition and to evade the problem of
monopolist and interventionist industrial feudalism with all the
only too familiar phrases, simply means taking the side of collec-
tivism.

The above also answers the objection that, if one rejects
unadulterated competition, one need not necessarily accept collec-
tivism, since there exists, after all, what we are impolite enough to
call, monopolism. Monopolist-interventionist capitalism can only
exist as a relatively short intermediate phase, just as in the political
field the distortion of democracy through the anarchy of group
interests (pluralism) can never be permanent. We want to print
this sentence in italics and impress it again and again on all who
openly or secretly flirt with the monopoly principle: our economic
system and everything else that we defend in it against collectivism,
can in the long run only be maintained as a competitive system
which continually ensures discipline, hard work, decency, harmony,
balance and a just relation between performance and payment. We
cannot honestly and effectively defend what is so near to our hearts


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BASIC QUESTIONS OF REFORM 183

if, instead of employing the same strong words against monopoly
and subsidy capitalism as we do against collectivism, we agree to
weak compromises and a dishonest play on words, and we can
hardly. blame people if in the end they come to the conclusion:
then let us rather have collectivism.

Competition which encourages producers to compete with each
other in terms of performance, also assigns a function within the
market economy to the principle of ownership—which we believe
to be of such outstanding importance—a function which safe-
guards it against attacks, in contrast to monopolies which make
honest defense of property so difficult. Here again there is no
problem in the sphere of straight-forward self-sufficiency, and it
1s only the differentiation of society through the division of labor
that creates difficulties. In a non-feudal society the property of a
peasant who produces primarily for his own needs and with the

help of his family, is as much a matter of course—if we may use a

comparison already employed by Cicero—as is the legal right I
have to my theater seat. Just as it would be unfair and, at the
same time, senseless, if I would claim such a right for several seats
simultaneously as I can only use one seat at a time, so right and
function of peasant property in a non-feudal society are based on
the fact that the maximum size of the property corresponds auto-
matically on the one hand to the ability of tilling the soil, and on
the other to the needs of the peasant family. Thus no sensible
person regards the peasant’s property as a problem which conflicts
with our sense of justice and that is also one of the reasons why
even the socialists have never evinced much liking in their pro-
grams for artificially turning it into such a problem. And we may
_ be sure that in this case a provocative concentration of property
will never take place.

A completely different picture is presented by the highly differen-
tiated industrial society where we can as little as in feudal society
expect a natural self-limitation of property and its exact adjustment
to its function. Just as feudalism, it would open the doors to
limitless enrichment and exploitation, if it were not for the institu-
tion of competition which forces the owner of the means of pro-
duction to constantly justify himself by corresponding performance
and which makes the income from such performance functional
profits and excludes functionless enrichment. It is competition and
competition alone which presses the owners of the means of pro-
duction into the often inconvenient role of social functionaries and
trustees of the means of production available in the national
economy. Since those who perform this role badly have to cede
their property to others, petrification as well as agglomeration of
property are prevented. There are indeed very few great fortunes
which have been created solely by superior competitive performance


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184 THE SOCIAL CRISIS OF OUR TIME

within the frame of a strict market economy, and there are even
fewer which can be conserved within this frame. These few
fortunes, however, firstly represent no really serious social problem
and secondly they lack the provocative character peculiar to the
illegitimate fortunes. The cause of property is strong and hardly
refutable under the rule of competition, but weak under the rule
of monopoly. Here again competition is analogous to self-
sufficiency so that competitive property corresponds to self-sufficient
property. On the other side, monopolist property and feudal
property are parallel cases, and we have therefore spoken of modern
industrial feudalism in a very definite sense. But in the same way
as feudalism was in all countries sooner or later tamed by mon-
archical absolutism, monopolism, too, will have to expect to be
displaced by centralizing collectivism, unless it surrenders in good
time to competition. Monopolistic, interventionist and industrial
feudalism must decide whether it wants to be replaced by com-
petition or by collectivism. In the long run it will hardly have any
other choice.

The Tools of Economic Policy

After having decided on the. general direction reform should
follow and having outlined what we mean by the program of the
“Third Way,” we must now make a few general observations
concerning the various methods which should be chosen in order
to reach this goal. First and foremost, we must make the dis-
tinction between compatible and incompatible intervention with
which we are already familiar. After what we have said above,
‘there is no need to state once more that we have very sound reasons
for preferring the compatible to the incompatible interventions in
all circumstances. If we wish to avoid the down hill path to collec-
tivism it will always be in our interest to realize our economic aims
by attempting changes in the framework of the economic system,
but not by interfering with the actual mechanism of the market
economy itself which is characterized by the price mechanism and
by competition. Such a procedure requires foresight, thought and
an intimate knowledge of the economic mechanism, but if we try
hard enough we shall always find that there is scarcely any problem
in the economic sphere which does not offer some opportunity for
compatible adjustment.
In saying this, we really only paraphrase what one of the fathers
of political economy, Léon Walras, the famous head of the so-called
Lausanne School expressed in the following words in his Etudes
d’économie sociale (1896): oo |

“I bow down before the holy name of liberty and declare that
it would be contrary to all order, if the state, interfering in my
private affairs, began to weigh, select and apportion my food, my


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~ BASIC QUESTIONS OF REFORM 185

clothing and my accommodation, and to watch and control my
inclinations and thoughts. . . . But I should like to be told whether
the name of authority is less lofty and whether it is more in keeping
with order, when individuals take the function of the state upon
themselves. . . . In the first case we have despotism and in the
second, anarchy. The one must be avoided as much as the other
and for this purpose a line must be drawn between the individual’s
sphere of initiative and action, i.e., liberty, and the state’s sphere of
initiative and action, i.e., authority. We can establish this line by
simply distinguishing between two things. There is an order of the
integrated whole (ordre d’ensemble ou d’unité) and the order of
varied detail (ordre de détail ou de variété). The former causes all
the musicians in a concert to play in time, the latter sees to it that
they all play different parts. If the various parts as well as the
measure were to be subjected to the order of the integrated whole,
an unbearable consonance would result with all harmony destroyed.
But if, conversely, the measure together with the different parts
is subjected to the order of varied detail, a horrible discordance is
the result and harmony is destroyed again. If we apply this
differentiation to the problem of the social order we can see at
once the line of demarcation between the field of liberty and that
of authority. Man is a moral being i.e., a being that fulfils its
destiny in freedom. It is therefore completely against the order of
detail if the state interferes in every action by which the individual
achieves and maintains the position appropriate to it in society,
because thereby it would suppress the moral personality of each
individual. On the other hand, man is a moral being only within
society, i.c., within the natural environment in which human
destiny is fulfilled. It is therefore entirely opposed to the order of
the integrated whole if the individual assumes the function of the
state in any action which concerns the delineation, maintenance and
improvement of the social frame, because thereby the moral per-
sonality of man is again suppressed through the destruction of the
elements absolutely necessary to it. Freedom of the individual as
regards his position, authority of the state as regards the conditions—
that is the formula according to which we can distinguish and
adjust to each other the spheres of rights and duties of the individual
and of the state.”

If one wants to express the matter even more clearly—and
perhaps in a more felicitous way, in some respects, one might take
advantage of the well-known simile of traffic control. As long
as traffic control is confined to laying down and enforcing trafhc
regulations, backed by the whole force and incorruptibility of the
state—by licensing vehicles and drivers, marking traffic routes,
controlling traffic itself and giving instructions for the proper con-
duct on the road—it fulfils an absolutely necessary task whilst every


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186 THE SOCIAL CRISIS OF OUR TIME

individual is still quite at liberty to decide whether and where and
how he is going to drive. This control of traffic—which is all the
more necessary the more complex and intensive the traffic becomes
—represents our compatible interventions and the official deter-
mination of conditions, of which Walras spoke. However, it would
be an entirely incompatible intervention and thus akin to planned
economy if the traffic police would, absurdly enough, attempt
to determine the “position” (Walras) of each individual on the
road and to direct every move as an officer directs a column on
the march. Incompatible interventionism, planning and collec
tivism mean in fact nothing but the transfer of military principles
to economic life.

It is a permanent task of economic policy to lay down and
enforce the norms and standards of economic life. There must
always be certain laws and institutions which form the framework
in which the economic process takes place. The major part of the
reform which we have to accomplish is to change, extend and
strengthen this permanent framework in accordance with the pro-
gram of the “Third Way.” In addition, there is another no less
important task. Within the legal and institutional permanent
framework the economic process will always produce certain
frictions which are temporary by nature, changes which will bring
hardship to certain groups, states of emergency and difficulties of
adjustment. This is where special dynamic problems arise concern-
ing which we shall always have to ask ourselves two questions:
firstly, whether or not economic policy should interfere and,
secondly, what is the best method to be adopted.

The nature of the problem becomes clear when we recall that
extremely important conflict of interests in the economy with which
we dealt above. Whenever certain changes in economic life
demand a re-grouping of production, a grave dilemma arises because
this re-grouping is as much in the interest of the community as it
brings loss and hardship for the producers involved. Faced with this
problem, historical liberalism, following its dogmatic program of
laissez-faire, tended to pass over the frictions and adjustment
difficulties in the economy with a grand gesture, and to refer the
threatened economic sector to the relentless but finally universally
beneficial economic laws. It was certainly right in saying that a
declining economic sector could only in exceptional circumstances
demand to be saved by the rest of the community. An economic
policy which strives to conserve such a sector in spite of the shift
in demand or changes in technology, in accordance with the
inverted principle of Mephistopheles “everything that exists is
worthy not to perish,” would in the long run, and if applied
generally, be quite intolerable and bound to ruin any national
economy. However, the dogmatic refusal of state aid in any form


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"BASIC QUESTIONS OF REFORM 187

and the feeding of the afflicted with hopes of the balancing tendency
of the market economy, have contributed to the pendulum’s swing-
ing to the other extreme, i.e., from laissez-faire to intervention for
preservation (or “obstructive” intervention, i.e., obstructing the
natural process of development). The old form of liberalism was
bound to evoke all the more anger because in theory the laissez-
faire principle was supposed to apply to everybody, but in practice

werful groups had always been able to look after their own
interests, whilst the weak were only too often the losers. These
weaker members of society who were helpless in face of a mis-
fortune which they could not master and who naturally enough
clung to their position, in addition had to let themselves be branded
reactionary ignoramuses and egoists. Again and again this has
been the fate of the craftsmen, the wine growers, the small trades-
men, the unemployed and similar groups, and many are still in
this situation today. We do not intend to defend all the desperate
attempts of these groups, but if liberalism only permitted the choice
between laissez-faire and reactionary intervention for preservation
(which is in fact the principle of the “wild life reserve” in economic
life), was it surprising that those affected by misfortune chose the
latter and put liberalism on a par with an unconstructive and cruel
dogmatism, a dogmatism which, when it came to the problem, did
not even know how to apply the same yardstick?

Here, as everywhere else the solution of the problem is to be
found in a “third” direction: neither in laissez-faire nor in inter-
vention for preservation (obstructive intervention) but in intervention
for adjustment (constructive intervention). Instead of counteracting
the tendency to establish a new balance by subsidies, &c., as would
intervention for preservation, adjustment intervention accelerates
and facilitates the attainment of such a balance in order to avoid
losses and hardship, or at least reduce them to a minimum. The
ultimate aim of adjustment interventionism is the same as of the
laissez-faire principle, but now it is to be reached with the support
of all those not affected adversely by the change, and, therefore,
with the good will of all; everyone will look hopefully forward to
the new balanced situation and not bitterly backward to the vanish-
ing old conditions and the forces destroying them. Instead of the
production branch which is forced to make a change being left to
find new ways by itself, as was usual under the old form of
liberalism, adjustment intervention will actively promote this process
by constructive reorganization plans, credits, re-training courses
and publicity campaigns. It neither wants to dam the natural
course of development by the concrete walls of intervention for
preservation—which will in the end give way in any case—nor does
it wish to turn it into the wild falls of laissez-faire. Here, too, a
third method will be adopted: the flow will be controlled and


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188 THE SOCIAL CRISIS OF OUR TIME

channelled, whilst its course will be shortened as much as possible.
The pendulum which previously swung wildly from one extreme
of laissez-faire to the other of obstructive intervention, will- come
to rest in a reasonable, central position of constructive adjustment
intervention. 3 | : |
Let us illustrate all this by an example: if the evidence that a
permanent crisis is afflicting the wine growers of a country—partly
owing to a reduction in alcohol consumption, and partly owing to
- foreign competition—becomes irrefutable, this resulted in the past
only too often in a most unfortunate state of affairs. On the one
hand, the wine growers led a stubborn fight of ever growing bitter-
ness against misery and debt, determined to defend their economic
position to the last by steadily increasing wine tariffs, by subsidies,
lost credits, compulsory admixture of alcohol, reduced taxes on wine
and an increased taxation of competing beverages, by government
purchases and all the other weapons from the only too well-known
arsenal of this type of economic policy. But, on the other hand,
the other producers, the consumers and the liberal theorists also
formed a front and pointed out to the wine growers that their
special interests were not those of the community and that it was
up to them to adapt themselves to the new situation. In practice
this controversy usually ended in a half-hearted compromise which
consisted in putting always new and always inadequate bandages
on the wounds of the clamoring wine growers, allowing the crisis
to drag on painfully and to poison the political atmosphere. The
struggle came out into the open whenever it appeared that the
high and ever-increasing tariff rates made it impossible to conclude
advantageous trade agreements, so that the export industries of the
country became those most directly affected. However, since the
crisis in one economic branch—which we have at random illustrated
by the wine growing industry—was accompanied by many other
crises in the country’s economy, the general effect was bound to be
disastrous both economically and in the field of politics and public
finance, and we do no more than repeat what we said earlier, if we
place a large part of the responsibility for the present state of the
- world on just this total effect of intervention for preservation.
Adjustment intervention, however, would consist in the repre-
sentatives of the community getting together with the wine growers
and giving them an exact and unbiased picture of the general situa-
tion so that both parties could then draw up a plan for the
reorganization of the wine growing industry, for which the state
would make available its specialists and its financial assistance. An
exact market survey would be made by the Office of Statistics (which
would thus become a permanent testing ground for economic
diagnostics) and in this way a rough estimate would be obtained
concerning the extent by which the wine industry should be reduced.


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BASIC QUESTIONS OF REFORM 189

Thereupon all vineyards would be classified in such a manner that,
first of all, those most favorably situated would be eliminated as
not requiring any help, and those most unfavorably situated as not
fit for further wine production. For this latter category a switch
to other forms of production would have to be arranged with the
competent counsel of all experts; the wine growers affected by this:
would receive free advice and re-training opportunities and would.
have to be helped with all available means over the first difficult
years of conversion. Finally, as regards the vineyards of average
success, they could be relieved by increasing the consumption of
grapes through the creation of an efficient marketing organization, a
change-over to more suitable types of wine, and, if necessary, by
effective publicity—such as, for instance, free equipment of all soda-
stands with hand grape squeezers on the pattern developed by the
California orange growers. Co

The methods outlined here must not, of course, be taken as
practical suggestions open to cheap criticism. They are merely
intended to illuminate, by presenting a hypothetical case, the prin-
ciple which forms the basis of the idea of adjustment intervention.
The facts are, after all, ever-recurring: the crisis of one branch of
industry means the slow movement of capital, labor and land
towards a more profitable use. It would be unreasonable and in
the long run unfeasible to try to stop them or to lure them away
from this path by creating artificial market conditions and doling
out economic charity; but it is also both unreasonable and harsh to
leave those afflicted by the crisis to their fate on this trek through
the desert, except for the ones who are strong enough to get along
without our help, even though they have an interest in convincing us
of the contrary. This must at the same time be the principle of any
rational unemployment policy. | |

If we turn to other functions of economic action, it seems as
though compatible intervention is too weak a tool to deal with
more radical tasks, and particularly the tasks of a distribution
policy whose aim is a more equitable distribution of income and
property. ‘This impression, is however, completely fallacious: we
find rather that also in this field—so important in the big industrial
countries—compatible intervention is not only applicable, but that
here as everywhere else, it should be given definite preference over
cruder methods. We cannot here go into the difficult details of such:
a compatible distribution policy. But let us note that it is certainly
in accordance with the market economy, if the state with the means
of compulsion at its disposal (especially taxation) carries out a
readjustment of income levels in order to effect a more equitable
distribution, and it is equally entitled to grant subsidies out of tax.
revenue for, say, workmen’s housing or for piping water to moun-
tain villages. Indeed, it is true to say that today a great part of


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190 THE SOCIAL CRISIS OF OUR TIME

the public finance policy consists in such a fiscal redistribution,
supplemented by private charity. Although certain limits may
not be exceeded in the use of these measures, unless the productive
process itself is to be partially paralysed—limits which today (1949)
have been reached in socialist countries like Great Britain and
Sweden—it is clear that these are not measures which touch the
core of the market economy itself, i.e., the price mechanism and
competition. |

It must also be understood that it is by no means contrary to a
compatible economic policy, i.e., one that respects our economic
constitution, if the state itself manages individual enterprises or
even whole branches of production and now appears on the market
in the capacity of producer or merchant. The same is true of
public work projects which the state inaugurates in order to bridge
or overcome a depression. One must, therefore, not fall victim
to the widely current misconception of looking upon the nationaliza-
tion (or communalization) of individual enterprises as a genuine
collectivist measure; on the contrary, public enterprises are com-
pletely in harmony with the basic laws of the market economy as
long as the state as enterpreneur respects them and as long as it is
not a case of general nationalization which completely eliminates the
market economy. Thus we need not fear to raise the question
whether in certain cases the transfer of enterprises to the state is not
an urgent dictate of a rational economic policy. We have already
seen that this question might be answered with an emphatic “yes”
in those cases where for technical and organizational reasons mono-
poly is inevitable, but inadmissible in private hands. As we know,
we are here concerned with that group which is growing more and
more important, the so-called utilities (railroads, postal com-
munications, municipal transportation, gas, water, electricity,
radio). That there is a strong presumption for these enterprises
belonging to the state and its subordinate units, may today be
called a generally acknowledged fact, but we must certainly con-
sider whether this principle should not also be extended to some
monopolies of raw material production. At any rate, such measures
could be kept within the framework of a compatible economic
policy and need not put us on the road to collectivism. There exists,
therefore, no basic objection to the proposal of counter-acting the
dominance of individual industrial monopolies by letting the state
appear as a competitor with its own enterprises, except for the one
objection that every not absolutely necessary extension of the state’s
activities is an evil, not least in the interest of the state itself.

It is also extremely important to realize that its monetary policy
offers the state far reaching possibilities for a compatible economic
policy, and demands constant vigilance and supervision. Par-
ticularly in this field, far-sighted liberals have at a very early date


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BASIC QUESTIONS OF REFORM I9I

yielded to the necessity of intervention and have subscribed to a
view expressed by the English statesman, Lord Overstone, in 1840,
in the following words which are worth remembering even today:
“For the purpose of drawing up enlightened and beneficial laws
it is necessary to differentiate between those cases where the prin-
ciple of unimpeded competition is applicable, and those where
exclusive privileges, accompanied by undivided responsibility, are
necessary for the public weal. Such last-named cases exist, although
they may be relatively restricted in number. And wherever they
occur, they are by no means insignificant or unimportant. The
power to create money belongs to this category as much as the
royal prerogative to mint coins.” That the principle of laissez-faire
is not applicable to the coining of money, is indeed obvious if one
realizes that it is senseless to speak of “money production” in the
same way as of the production of goods. For here it is not a
question of producing as much money as possible and as cheaply as
possible with the help of competition, but rather of strictly regulat-
ing its amount and its speed of circulation so that neither too much
of it (inflation) nor too little (deflation) can cause harm. This
control can only be carried out by the governmental authorities
responsible for it and this all the more so since the problems and
difficulties of monetary control have, through the immense
expansion of deposit money (checks and remittances), grown to
such an extent that we cannot yet boast of having really mastered
them. Nonetheless we have to admit that a compatible economic
policy cannot do all the work. There exists a sector which must
be strictly defined, where genuine planning must take place. The
sphere of this planned economy is primarily determined by the
tasks which of late have been summarized by the term ‘regional
planning” (in England: Town and Country Planning). Regional
planning is based on the observation, confirmed by sad experience,
that the highly important task of developing the soil and the
natural reserves of a country in a manner consistent with the
interests of the present as well as of future generations cannot be
left to the control of the market alone.

Political and Moral Prerequisites

Of course, the more we burden the state with various tasks, the
more insistent becomes the question: how about the state itself?
Are we not perhaps committing the frequent mistake of turning
the state into an ideal which does not correspond to sober reality?
Quis custodiet ipsos custodes? Who is to guard the guardians?

It would indeed be very unrealistic if we were to call for an
economic policy which presupposed such a moral and intellectual
perfection of the organs of the state that in practice it could never


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192 THE SOCIAL CRISIS OF OUR TIME

be attained. In this respect, too, one should not overburden human
beings but should rather confront them with simple and straight-
forward tasks and keep temptations away from them. For this very
reason it is advisable to base economic policy on definite rules and
fixed principles and to restrict the sphere of arbitrary action as much
as possible. The economic system must, so to speak, be an unbreak-
able toy—*“fool-proof” is the telling English expression. In that
consists the insurpassable strength of the market economy and,
vice versa, the great danger of collectivism. For this same reason
we should beware of artificial monetary systems and give preference
to a quasi-automatic system such as the gold standard. It is easy
to criticize the gold standard and to draft—on paper—a more
perfect monetary system. Nevertheless, we adhere to the gold
standard because it is distinguished particularly by the fact that it
preserves the stability of the currency, as one of the most precious
possessions of the national economy, against the inevitable imper-
fections of conscious governmental manipulations. We must further
realize quite clearly that an economic policy which makes interven-
tion for preservation (through protective tariffs and subsidies of all
kinds) its rule, must, according to unalterable sociological laws, lead
to open or disguised corruption and generate a poison which in the
end will spell ruin for the nation. Ordinary interventionism and
pluralism (i.e., the disruption of the state by group interests), are
in fact, as everyone should know, very close relatives. a

By renouncing this interventionism and the ruthless exploitation
of the state by the mob of vested interests, we can create the pre-
requisites for a trust-worthy state and a clean public life. But on
the other hand, this same renunciation presupposes a really strong
state, a government with the courage to govern. A strong state is
by no means one that meddles in everything and tries to monopolize
all functions. On the contrary, not busyness but independence
from group interests and the inflexible will to exercise its authority
and preserve its dignity as a representative of the community, mark
the really strong state, whereas the state that acts as a maid of all
work, finally degenerates into a miserable weakling and falls victim
to the vested interests. A market economy and our economic
program presuppose the following type of state: a state which
knows exactly where to draw the line between what does and
what does not concern it, which prevails in the sphere assigned
to it with the whole force of its authority, but refrains from all
interference outside this sphere—an energetic umpire whose task
it is neither to take part in the game nor to prescribe their move-
‘ments to the players, who is, rather, completely impartial and
incorruptible and sees to it that the rules of the game and of sports-
manship are strictly observed. That is the state without which a
genuine and real market economy cannot exist. Benjamin Constant


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BASIC QUESTIONS OF REFORM 193

envisaged it when he wrote the words which form the motto of this
chapter: “Le gouvernement en dehors de sa sphere ne doit avoir
aucun pouvoir; dans sa sphere, il ne saurait en avoir trop.”

Of course it is not sufficient just to demand such a state. One
must rather develop the structure of the state in such a fashion
that it meets our demands as far as possible. This poses a problem
whose extent and importance can hardly be exaggerated. To deal
with it properly would require a book of its own so that here, too,
we are forced to restrict ourselves to a few pointers and hints. We
have to start with the negative observation—not unfamiliar to us—
that there is no more disastrous way to obstruct the desired develop-
ment than by erecting one of the types of the corporate state, so
much discussed today, to make the vested interests themselves the
masters of the state and thereby assign them a legitimate place in
its structure. It is our plain duty not to solidify and legalize the
political influence of the vested interests, but reduce it. The means
to be employed for this end require careful and expert investigation
which we do not feel competent to make here. But this much is
certain, if the authority of the state is to be strengthened it is
absolutely necessary that it should be headed by a qualified civil
service small in numbers but equipped with the highest standard of
professional ethics and a pronounced esprit de corps. At this point,
too, the difficult questions of political constitutions, administration
and party rules should be discussed.

It must always be remembered that nowhere in the political
sphere is the authority of the state expressed as directly as in the
administration of justice. Nowhere else are integrity and impar-
tiality of the civil service usually of such a high quality as among
judges. And, therefore, confidence is nowhere as great as here, nor
the readiness to accept the decision made as final. And lastly, we
find nowhere else such reluctance to influence decisions illegiti-
mately. Indeed, the law courts of a country are the last citadel of
the authority of the state and of trust in the state, and no state is
completely lost where this citadel is still intact., This leads us to
urge more insistently than has ever been done before that the law
courts should be made organs of national economic policy and that
they should be given jurisdiction over matters which up to now
have been left to the administrative agencies. How such a judicially
directed economic policy is likely to work in practice can best be
learned from the example of the American anti-trust legislation
(since the Sherman Act of 2nd July, 1890) according to which the
highest courts of the land decide in civil or criminal proceedings
whether an act of a monopolistic nature, prohibited by the law and
listed as an offense, has been committed. Such an economic policy
presupposes, of course, that the law schools afford more oppor-
tunities to future judges to acquire a knowledge of the principles

Gc


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194 THE SOCIAL CRISIS OF OUR TIME

of our economic order than has so far been the case—to the great
disadvantage, alas, of the highly important commercial law
practice. :

But where shall we find the people who desire this kind of
state? To which group should we turn in order to form a van-
guard for carrying out our program? We have asked this question
already in the introduction of this book and replied to it there:
we do not appeal to any single group and its special interests at all,
because it seems to us to have been the great mistake of the past to
appeal to the “interest” of people, rather than to what is common
to them all, i.e, reason and an elementary sense of decency, justice,
order, community spirit, chivalry and a conciliatory disposition.
Man is a being with many facets—ni ange, ni béte, to quote Pascal’s
famous words—and everything depends on the side of his nature
to which we appeal, to the better or to the worse, to that which
makes him vicious like a chained cur or to that which makes him
friendly and peaceable. If the author may be permitted to close
with a personal anecdote, he must confess that he will always
remember a small event in his life which took place more than
twenty years ago in the main railroad station in Hamburg. About
to consign his baggage, he saw the official behind the counter trying
to persuade an American negro to take out baggage insurance,
hoping thereby to earn the commission paid by the insurance com-
pany. Unfairly exploiting the fact that the negro was unfamiliar
both with the language and local customs, the official was trying to
tell him that such an insurance was practically a necessity, when
suddenly his colleague interfered and, flushed with anger, shouted
at him in front of the public: “Don’t you see he is a foreigner who
can’t understand you? You ought to be ashamed to take advantage
of him.” The other was shame-facedly silent, and the incident
was closed. Whenever we are asked who are the people to whom
we address ourselves, we cannot help thinking of that honest rail-
road official in Hamburg, and we believe that there is something in
most men which one need only arouse and encourage in order to
make them the brethren and comrades of our friend.

PART TWO—NOTES TO CHAPTER II

Note No. 1 (page 178). The “Third Way”:

The program which we call by this name has an intellectual history
which goes back to the beginning of the nineteenth century and some of
its elements—though nothing more—can be found already in the works
of Sismondi, Proudhon, Mazzini and Riehl. Names such as Kropotkin
(Fields, Factories, and Workshops, 1899) or Le Play (La réforme sociale en


===== PAGE 207 =====

BASIC QUESTIONS OF REFORM 105

France, Paris, 1864) hold important places in this history. So do Southey,
Thoreau, Ruskin and Geddes... Among contemporary writers significant
affinities can be found in G. K. Chesterton’s An Outline of Sanity, in Hilaire
Belloc’s An Essay on the Restoration of Property, London, 1936; Lewis
Mumford’s trilogy (Technics and Civilization, 1934; The Culture of Cities,
1938; The Condition of Man, 1944), R. Borsodi’s works (This Ugly Civiliza-
tion, 2nd ed., New York, 1933; Education and Living, New York, 1948), and
several others. Today many efforts are being made in various countries to
clarify and define our program in detail. (Cf. Wilhelm Ropke, Grundfragen
rationeller Wirtschaftspolitik, ‘Zeitschrift fiir schweizerische Statistik und
Volkswirtschaft,” 77th year, No. 1, 1941). I proposed the term “Third
Way” in my book Die Lehre von der Wirtschaft (Vienna, 1937, now sth ed.,
Erlenbach-Ziirich, 1949) and others took it up, as for example recently in the
American tract: The City of Man. A Declaration on World Democracy (by
Alvin Johnson, G. A. Borgese, Thomas Mann and others, New York, 1941).
In the economic policy of several countries various beginnings have also
been made, for example in Belgium (L’ expérience Van Zeeland en Belgique,
by *** Lausanne, 1940), in Sweden (Marquis W. Childs, Sweden: The
Middle Way, New Haven, 1936) and in Australia (William R. Maclaurin,
Economic Planning in Australia, 1929-1936, London, 1937). Important clari-
fications in the realm of the history of society and thought may be expected
from an as yet unpublished book by Alexander Ristow (University of
Istanbul). A short time ago I heard that Franz Oppenheimer used the term
“Third Way” for his program of reform which is in some respects related
to ours, and in some others quite different (Franz Oppenheimer: Weder So
noch So: Der Dritte Weg, Potsdam, 1933). It always seemed ridiculous to
me to consider this term eligible for a “patent” in the scientific sense, and to
make it the object of a priority dispute. Anyone who has realized the
truth: tertium datur, is bound to think of it. The conception of the
“third” plays, by the way, an almost mystical role already in de Bonald’s
works.

Since the first appearance of this book (1942), the subject of a reformist
economic and social policy has been further developed on lines not too
dissimilar from what I call the “Third Way.” Among these I mention:
Frank D. Graham, Social Goals and Economic Institutes, Princeton, 1942;
J. M. Clark, Alternative to Serfdom, New York, 1948; C. Bresciani-Turroni,
Economic Policy for the Thinking Man, London, 1950; Luigi Einaudi, La
Terza Via fra i Secolt XVIII e XIX, “Rivista di Storia Economica,” June, 1942
(study by the actual President of the Italian Republic on the first Swiss edition
of the present book); Walter Eucken, Die Wettbewerbsordnung und ihre
Verwirklichung, “Ordo,” Jahrbuch fiir die Ordnung von Wirtschaft und
Gesellschaft, vol. II, Godesberg, 1949; Alexander Riistow, Zwischen Kapitalis-
mus. und Kommunismus, ibidem; A. P. Lerner, The Economics of Control,
New York, 1944; J. E. Meade, Planning and the Price Mechanism, London,
1948; A. Miiller-Armack, Wirtschaftslenkung und Marktwirtschaft, Hamburg,
1947; Gustave Thibon, Retour au Réel, Lyon, 1943; W. H. Hutt, Plan for
Reconstruction, London, 1943; Henry C. Simons, Economic Policy for a Free
Society, Chicago, 1948; Frank H. Knight, Freedom and Reform, New York,
1947; Jacques Rueff, L’ordre social, Paris, 1948; Jacques Rueff, Epitre aux
Dirigistes, Paris, 1949. In a wider sense, also books like Louis Bromfield’s
Pleasant Valley, Aldous Huxley’s Science, Liberty, and Peace, and le Comte
du Nouy’s Human Destiny belong to this group. Since 1942 I tried to refine
and develop my own ideas on the subject in the following publications:
Civitas Humana; Internationale Ordnung; Klein- und Mittelbetrieb in der
Volkswirtschaft, “Ordo,” Jahrbuch fiir die Ordnung von Wirtschaft und


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196 THE SOCIAL CRISIS OF OUR TIME

Gesellschaft, vol. I, Godesberg, 1948, pp. 155-174; Die Krise des Kollektivis-
mus, Erlenbach-Ziirich, 1947; Das Kulturideal des Liberalismus, Frankfurt/
Main, 1947; Die Ordnung der Wirtschaft, Frankfurt/Main, 1948; Die natiira-
liche Ordnung, “Kyklos,” (Bern), vol. II, 1948, pp. 211-232.

Note No. 2 (page 182). Industrial feudalism:

Cf. particularly the book, mentioned above, by an Assistant Attorney
General of the United States, Thurman W. Arnold: The Bottlenecks of
Business, New York, 1940. To this we add the following outspoken passage
from the English “Economist” of 15th June, 1940: “. . . the set of notions
that sees its ideal of an economic system in an orderly organization of
industries, each ruled feudally from above by the business firms already estab-
lished in it, linked in associations and confederations and, at the top, meeting
on terms of sovereign equality such other Estates of the Realm as the Bank
of England and the Government. Each British industry, faithful to the
prescription, has spent the past decade in delimiting its fief, in organizing
its baronial courts, in securing and entrenching its holdings and in adminis-
tering the legal powers of self-government conferred on it by a tolerant
State. This is the order of ideas that has transformed the trade association
from a body of doubtful legality, a conspiracy in restraint of trade, into a
favoured instrumentality of the State, until membership in such a body has
“become as necessary to the businessman who wishes to be successful as an
old school tie has been to the ambitious Conservative politician. It is the
order of ideas that led to the Import Duties Act being drafted in such a way
as to put a premium on self-seeking monopolies and a discount on the
public interest; that turned ‘high profits and low turnover’ into the dominant
slogan of British business; that raised the level of British costs to the highest
in the world. It is a set of ideas that is admirable for obtaining security,
‘orderly development’ and remunerative profits for those already established
in the industry—at the cost of an irreducible body of general unemployment.
It is emphatically not a set of ideas that can be expected to yield the maximum
of production, or to give the country wealth in peace and strength in war.”
We have quoted this passage at length, because it gives an excellent picture
of the development which can be observed in England and in other countries,
but nowhere as clearly as in the one time citadel of liberalism and free
trade. Cf. also: Ben W.. Lewis, Price and Production Control in British
Industry, Chicago, 1937.

Note No. 3 (page 187). Adjustment intervention versys intervention for pre-
servation:

Adjustment intervention is the same as what Alexander Riistow (Deutsch-
land und die Weltkrise, “Verhandlungen des Vereins fiir Sozialpolitik in
Dresden 1932,” Munich, 1932, page 62 ff.) called “liberal interventionism.”
This extremely important subject has recently been treated extensively by
Allan G. B. Fisher, The Clash of Progress and Security, London, 1935; Allan
G. B. Fisher, Economic Progress and Social Security, London, 1945; W. H.
Hutt, op. cit.; Carl Major Wright, Economic Adaptation to a Changing
World Market, Copenhagen, 1939; N. F. Hall, Enquéte préliminaire sur les
mesures d’ordre national et international visant a relever le niveau d’existence,
Société des Nations, Comité Economique, Geneva, 1938. The problem has
already been clearly stated by Philip H. Wicksteed in his book, first published
in 1910, The Common Sense of Political Economy, where he says (in the
revised edition of 1933, volume 1, page 357): “To mitigate the penalties of
failure, without weakening the incitements to success, and to effect an
insurance against the disasters incident to advance, without weakening the


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BASIC QUESTIONS OF REFORM 197

forces of advance themselves, is the problem which civilization has not yet
solved.”

Note No. 4 (page 189). Distribution policy:

On this difficult subject cf. Wilhelm Ropke, Die Lehre von der Wirt-
schaft, sth ed., Erlenbach-Ziirich, 1949, pp. 227-259.

Note No. 5 (page 190). Levers provided by monetary policy:

The best description of the basic problems involved here will be found in
the small book by Friedrich Lutz, Das Grundproblem der Geldverfassung,
- Stuttgart, 1936.

Note No. 6 (page 192). Problems of political structure:

The literature on this subject is by no means extensive, but we recom-
mend: Walter Lippmann, The Good Society, Boston, 1937; Walter Eucken,
Staatliche Strukturwandlungen und die Krisis des Kapitalismus, Weltwirt-
schaftliches Archiv, October, 1932; and Alexander Ristow’s books, op. cit.
I repeat that subsequently I have dealt with this subject extensively in my
Civitas Humana. Whilst stressing the outstanding importance of the civil
service one must, of course, not overlook the problems it presents. They
are due to modern officialdom having grown up together with the modern
centralized state, thus being at one and the same time indicative of the
disintegration of the old social units and of spiritual collectivization. These
problems can be exemplified most palpably by the position of any village
policeman: if he succeeds in enforcing the full authority of the state in the
village he will remain outside the village community with all the resultant
consequences which in the long run he will find intolerable; but if he wants
to be part of the community, he is forced to make continual compromises.
The moral of this would seem to be that all centralism is indeed a necessary
evil and can only be defended as such. Cf.: F. Le Play, La réforme sociale
en France, 2nd edition, Paris, 1866, II, pp. 406-440; Odilon Barot, De Ia
centralization et de ses effets, Paris, 1861; Max Weber, Wirtschaft und
Gesellschaft, Grundriss der Sozialokonomik, III, Tubingen, 1921; G. Mosca,
The Ruling Class, New York, 1939, page 83 ff.


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Cuarter III

AVENUES OF APPROACH AND EXAMPLES

Natura tamen infirmitatis humanae tardiora sunt remedia quam mala;
et ut corpora lente augescunt, cito extinguuntur, sic ingenia studiaque oppres-
seris facilius quam revocaberis.

(Due to the natural frailty of humankind remedies are slower to take
effect than disease, and just as the body grows imperceptibly but declines
rapidly, it is likewise easier to stifle talent and competition than to recall them
to life.)

—Tacrrus, Agricolae Vita, 111

ONCE again we must raise our voice to combat the deeply embedded
belief that there are magic cures for the recovery of our sick world,
a patent medicine which we only need to swallow in order to be
suffused at once by a feeling of radiant health, or an Archimedean
Point from where society and the economy can be set right at one
pull—the belief that a transformation is possible from one day to
the other if only we can be persuaded to follow this or that
euphonious program. It is the common belief of all those who
expect salvation from the “grand solution,” from intricate organiza-
tions, from international conferences, from committees and central
councils, from all kinds of economic “blueprints,” from planning
offices, from scientific bodies and from decisive surgical operations
in the economic life, basing their hopes on all kinds of new con-
structions—with a trust that would touch us in its innocence if it
were not so exceedingly dangerous. |

The practical value of all programs and proposals based on such
a belief is next to nil, but the damage they cause is immense, even
if they only remain on paper, because they divert the attention of
men from essential and urgent—although inconspicuous—tasks and
raise hopes whose non-fulfilment leads to the lethargy of despair.
Therefore, we must not tire of warning most urgently against all
patent solutions and doctrines of salvation and we must insist that
there exist no miracle cures and no Archimedean Point, no lever
which we merely have to pull in order to put everything right again.
All this we must leave to ambitious quacks, of whom there is no
lack whether they act in good faith or bad. The modest role which
befits us is that of the honest physician who tells the sufferer from
chronic gastritis that it is senseless to add new bottles to his already
well assorted collection of medicines, and that he can only expect
recovery from a change in his habits, supported by proven household
remedies and medicines, together with air, movement, mental
equilibrium and moderation in all things. However clear the

198


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AVENUES OF APPROACH AND EXAMPLES 199

general picture of the disease may appear to him, the physician will
nevertheless openly admit to himself that he is by no means sure
which combination of medicaments and remedial conditions will
procure the best results. Any gesture reminiscent of the Dalai Lama
must be as alien to us as to such a physician—though it may dis-
appoint our readers. What we counsel is this: less boosting of
prescriptions and less hatching of projects, more care in the
diagnosis and more circumspect modesty in therapy; and we our-
selves shall follow this advice most closely.

We must, therefore, become familiar with the idea that our
program of action must be multifarious and elastic and that a long
period of reconditioning has to be passed before the pathological
state of our society can take a turn for the better, according to the
words of Tacitus which are the motto of this chapter. Basing our
action on what exists at present, we must carefully probe at many
points in order to find out the weak places in the economic and
social structure and see to it that they are reinforced, but all this at
the same time with a radical spirit which keeps the great general
aim of a free, just, de-collectivized, de-centralized and de-prole-
tarized society before our eyes and encourages us to undertake,
where necessary, even incisive operations. In order that this over-all
aim should be fixed firmly and clearly in our minds, we must come
to as detailed an understanding as possible concerning basic ques-
tions and the general system of co-ordinates into which every detail
has to be fitted. Only when this has been done, can we go
ahead, with the advantage, however, of having guidance and
standards for every individual question. First of all, we must
know the goal of all our various reforms, the general state of society
which we envisage and for what extra-economic reasons we aim at
it; then, with a little reflection and good will regarding the concrete
details we can hardly miss arriving at the relatively best solutions.
Then, and only then, may we expect that all will co-operate in the
common task with real civic pride and will feel inspired and
interested as people who are responsible for the whole. Otherwise
we shall have nothing but thrashing of phrases and the quarrels of
group interests. This is why it is so highly important to point out
over and over again, how deeply and widely everything is inter-
related, a task to which the foregoing part of this book was devoted.

It will therefore be understood why we hesitate to answer the
question, perhaps already being asked impatiently, what immediate
and detailed action should be taken, and why we realize in all
modesty that we can often offer no more than hints and examples
for discussion. To work out a detailed plan of action, surpasses the
strength and experience of one man even under the most favorable
conditions; this is therefore the point where it becomes necessary
to appeal for co-operation to all those who have similar aims and


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200 THE SOCIAL CRISIS OF OUR TIME

think along the same lines. We thus cannot do better than simply
ask everyone to work for the common task, and in the meantime
to demonstrate independently what conclusions are to be drawn
from our program of the “Third Way.” We exercise this restraint
with a clear conscience since, as long as we do not know the
permanent political shape which Europe will assume, there can be
no question of a long term economic policy; we must, rather, live
from hand to mouth. Until that time nothing more can be expected
from practical economic policies than wise and flexible adaptation to
the needs of the moment. By making a virtue of necessity we can
in the meantime reflect quietly what is to be done permanently,
after real peace has returned and it has become possible to think
and act on a long term basis.

There is also a special reason why it is advisable that on this
occasion, where it is a matter of basic principles, we should severely
limit the elaboration of a detailed program. Though we are
certainly of the opinion that science is by all means competent, after
having diagnosed the disease of our society, to draw the logical
conclusions for the therapy, yet the scientist who recommends
political and economic measures is bound by certain limits which he
cannot overstep without entering the field of subjective, and there-
fore debatable, opinions. We have every right to claim that the
principles of our program are both scientific and objective in
character, as, after all, it does not consist of a subjective and arbitrary
list of miscellaneous wishes but has naturally evolved from the
problems confronting us and from the experiences common to all
of us; therefore, all those who have the necessary intelligence, know-
ledge and good will will agree on it after some discussion. How-
ever, the more we progress from matters of principle to those of
detail, the greater becomes the degree of subjectivity and, therefore,
the greater the number of points on which agreement can no longer
be presupposed. The more we go into detail, the more, too, grows
the danger of the basic outline becoming blurred by too many and
—worse—even hotly debated details, but the important thing at
this stage of the discussion is precisely the basic outline. We shall
certainly not get anywhere if we kill each fundamental thesis with
more or less justified qualifications and modifications in every case,
thus permitting the essentials to be perpetually watered down. The
outcome of such a procedure has been experienced ad nauseam by
a world which for decades has been confused and disoriented.

With these reservations, justifications and explanations in mind
we shall now proceed to go a little further in the presentation of
our program of action, beyond the hints and allusions made so
far, and to attempt to render them more precise by discussing
individual points. Whatever subject we consider first, our reflec-
tions always begin with the basic point at issue. Everything leads


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AVENUES OF APPROACH AND EXAMPLES 201

us back to the ultimate dilemma from which we want at last to free
ourselves. We know that the economic and social system of all the
highly developed countries has become untenable in its present
form and that peace and our civilization depend on a thorough
reform. In the good old days such a conviction would have implied
no real inconveniences, and some believe that they can still afford
this comfortable ease today: one would simply have become a
socialist and intoxicated oneself with all kinds of phrases such as
“socialization,” “planning,” and ‘economic democracy.” But in
the meantime it should have become plain to even the blindest that
this is the wrong path which can lead to no good, and which not
only leaves the essential questions unsolved but makes them even
more acute. Socialism, collectivism and their political and cultural
appendages are, after all, only the last consequence of our yester-
day; they are the last convulsions of the nineteenth century and
only in them do we reach the lowest point of a century-old develop-
ment along the wrong road; these are the hopeless final stages
towards which we drift unless we act. Thus all these schemes are
still entirely on this side of the new and positive conception of
society, and therefore nothing is more ridiculous than the revolu-
tionary pose of the collectivist. The new path is precisely the one
that will lead us out of the dilemma of “capitalism” and collec-
tivism. It consists of the economic humanism of the “Third Way,”
of which we spoke in the last chapter.

Peasants and Peasant Agriculture

What does this mean, in practical terms? It means in the first
place a return to economically balanced forms of life and pro-
duction which are natural and satisfying to men. By saying this
we do not want to commit the opposite mistake of deprecating the
city, trade and industry, or the bourgeoisie: it means first and
foremost that we should again become conscious of the economic,
social and communal foundation of the primary organic production
process, i.e., agriculture. Of course, not agriculture per se, but a
form of agriculture with a very special economic and sociological
structure, i.e., one carried on by a free peasantry. It is not so
much the production of food and organic raw materials as such
which interests us here, as that particular form of production
which we call peasant production, for it alone possesses the inestim-
able sociological importance which we have made the basis of our
argument and we have it alone in mind when we speak of agri-
culture as the last mighty refuge in the face of the collectivization,
mechanization and urbanization of our time and lament its decline
as the “flight from the land.” Although anyone who has a financial
interest in the non-peasant forms of agriculture will be very


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202 THE SOCIAL CRISIS OF OUR TIME

interested in persuading us that such a differentiation is purely
artificial, we nevertheless insist on considering all forms of feudal,
capitalist or collectivist large-scale agriculture a calamitous aberra-
tion and a destruction of that wellspring of society which peasantry
and peasant agriculture represent. “Wheat factories,” “pig breeding
grounds,” collective farms, incorporated plantations with colored
or white wage slaves, appear to us from this point of view not only
as uninteresting, not only as the mere transfer of the pattern of
large-scale industrial enterprises to basic organic production, but as
something far worse: as the annihilation of the peasantry which is
the very corner stone of every healthy social structure, and as a
refusal to oppose spiritual collectivization even where such strong and
natural forces would aid us. Whoever looks upon agriculture as an
industry like any other, whilst in reality, in the form of peasant agri-
culture, it is far more than this and becomes a comprehensive way of
life, cannot logically look upon the flight from the land with other
eyes than, say, upon the “flight from the textile factories,” and
whoever restricts his thinking to the rational and technical field of
the agricultural engineer and concentrates on artificial fertilizer,
tractors and maximum yield, is bound to pass blindly by the
sociological problem posed here: the maintenance and confirmation
of the peasantry and of peasant agriculture with the whole of its
subtle economic, social and spiritual structure, so difficult to describe
to one not acquainted with it. Not agriculture per se is the back-
bone of a healthy nation but peasant agriculture alone, whilst the
non-peasant form can even become the source of pernicious diseases.

It is an essential characteristic of peasant agriculture that the
size of each farm does not exceed the working capacity of one
family together with those who have become members of it and a
few additional and often temporary agricultural laborers; as a rule
it is the property of the farmer, thus embodying tradition and the
succession of generations; it is embedded in the social organization
of the family and the kinship group, of the village, of the co-opera-
tive peasant associations and the occupational and neighborly com-
munity to which every thought of competition is alien; and lastly,
following the cycle of nature and its laws, it is a mixed holding
and embraces both cattle raising and tillage in various combinations.
By saying this we have also shown that the peasant holding is the
scene of life and work, of production and consumption, that it
provides shelter and working quarters, brings men and nature
together, affords satisfying and purposeful activity and immediate
enjoyment of its fruits, promotes in an ideal manner the independent
development of personality and at the same time the warmth of
human fellowship, and thereby counter-balances the industrial and
urban aspects of our civilization with tradition and conservatism,
economic independence and self-sufficiency, many-sided activity and


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AVENUES OF APPROACH AND EXAMPLES 203

development, proximity to nature, moderation and tranquility, a
natural and full existence near the scources of life, and a humble
integration into the chain of birth and death.

A peasant who is unburdened by debt and has an adequate
holding is the freest and most independent man among us; neither
food problems nor the threat of unemployment need worry him
and the subjection to the moods of nature which he exchanges for
that of the market and the business cycle, usually ennobles a man
instead of embittering him. His life, from whatever angle we view
it, is the most satisfying, the richest and the most complete in terms
of human needs. The fact that the peasant frecholder tends to
stick to his holding and his calling in spite of the most adverse
conditions and if necessary accepts the hardest possible working
conditions which, materially speaking, push him far below the
existence level of an industrial laborer, proves that he really agrees
with our estimate of the peasantry. Another very important point
to complete our picture is that the peasant economy demonstrates
that a type of family is possible which gives each member a pro-
ductive function and thus becomes a community for life, solving all
problems of education and age groups in a natural manner; so
very different from today’s average family which has been degraded
to a mere consumption co-operative, devoid of all other meaning.

We may, in fact, sum up by saying that the peasant world
together with other small sectors of society, represents today a last
great island that has not yet been reached by the flood of collec-
tivization, the last great sphere of human life and work which
possesses inner stability and value in a vital sense. It is a priceless
blessing wherever this reserve still exists, as in the greater part of
continental Europe, and it is a great misfortune for a country if,
as in England, it has been destroyed to such an extent that even its
loss is no longer realized. As Oliver Goldsmith said in his Deserted

Village (1769):

“But a bold peasantry, their country’s pride,
When once destroyed, can never be supplied.”

If, therefore, we want our sick society to recover, our predominant
and foremost endeavor must be to maintain and, if necessary, aug-
ment this reserve.

It is of course true that even in the eighteenth century, there
existed besides a most impressive and genuine regard for peasant
life, a false and superficial enthusiasm for the peasantry, which
in the saccharine conception of opera and ballet peasants simply
served as a further diversion for a blasé court society and nobility,
but in no way seriously concerned itself with the real peasantry.
The circle of shepherds and shepherdesses around Marie-Antoinette
at Trianon was oblivious of the miserable state of French agriculture


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204 THE SOCIAL CRISIS OF OUR TIME

and the sorry plight of the half-starved peasants oppressed by
feudalism; they would have been shocked had they been told that
stable manure is the soul of agriculture. If we want to beware of
such arcadian lyricism and treat this subject realistically, we must
first of all define more accurately what really constitutes a sound
peasantry and then fearlessly denounce its degenerated forms.

Such soundness we shall find neither in those regions where
feudalism has just been overcome (like in Russia) or extends almost
into the present (like in Hungary, Poland, Spain, Southern Italy,
and large areas of Eastern Germany), nor in areas where rural over-
population and the continued subdivision of property have created
(like in Bulgaria and Yugoslavia) a type of proletarized and narrow
minded dwarf peasant. In addition, the complete subjection of the
country to peasant agriculture brings with it the danger that the
rural districts cannot afford an intellectual elite with the necessary
leisure. The picture of the healthy peasant which we envisage has
nothing in common with the oppressed and ignorant beast of
burden which thousands of years of exploitation and suppression by
the feudal lord or parsimonious nature have created. It is rather
the picture of the Swiss, North-West German, Scandinavian, Dutch,
Belgian and French peasant who is proud to call himself “Bauer,”
“Boer” or “paysan.” This European peasant is also by no means
identical with the English tenant-farmer (who, after the complete
victory of feudalism over the English yeomanry, has taken the place
of the former peasant) and just as little with the average North
American farmer who represents the colonial type of the landlord
as speculative businessman. And finally, the more a collectivist
economic and social system demotes him to the position of a state-
serf, to a cog in the machinery of a planned economy, to an owner
whose property title is politically dependent on good conduct and
arbitrary laws, the more he ceases to be a peasant in a sense worthy
of this name; and here it is useful to recall that it was exactly this
precarious state of ownership which was Rousseau’s ideal.

We see, then, that many conditions have to be fulfilled in order
to create and maintain a genuine and healthy peasantry, and we
need not be surprised that in the midst of our modern world
which is so alien and in many respects even hostile to him, the
peasant is exposed to many dangers and forces of decay, and that
even in the countries favoring the development of the peasantry all
is not well. If, on the other hand, one considers that peasant agri-
culture must maintain itself against so many threats—feudalism,
socialism, capitalism, mechanization, and last, but not least, nature
which has to be mastered anew every day—one is forced to admire
its tremendous vitality and to draw comfort and hope from it. But
that, of course, does not settle the problem: we are, rather, faced
with the sober question of what can be done in order to preserve


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AVENUES OF APPROACH AND EXAMPLES 205

peasant agriculture, to strengthen it and to revive it where it has
been destroyed. With this question we enter the wide and disputed
field of rational agrarian policies and must therefore restrict our-
selves to some essential remarks for the purpose of orientation.

The primary question here is this: Is it true, as both pessimists
and the vested interests maintain, that the peasant agriculture of
industrial countries is based on such weak foundations that it can
only be preserved by a continuous policy of protection and subsidies
—somewhat along the lines of a national park? If this widespread
view which is often dogmatically presented as self-evident, were
really correct, we would indeed be faced by an exceedingly serious
situation. Admittedly, agriculture is that part of the national economic
system to which the principles of a free market economy could
always be applied only with broad reservations, the peculiar condi-
tions obtaining here having always confronted economic policy
with special problems which could not be left to solve themselves.
Especially in this sector, then, a particularly high degree of far-
sighted, protective, directive, regulating and balancing intervention
is not only defensible, but even mandatory. It is also certain that
the national importance of a viable peasant agriculture can under
certain circumstances justify the community’s shouldering certain
temporary or even permanent burdens, always supposing that they
are justly distributed. But such a policy of peasant protection—
only this is under consideration here, not the general protection of
agriculture—has, in the nature of things, certain limits, which
cannot be overstepped without seriously imperilling the economic
and social equilibrium of the nation nor, possibly, without damage
to agriculture itself. These limits are rather narrow and in most
industrial countries they have already before this war been exceeded
to a considerable extent.

It is, then, all the more important that the pessimistic and
defeatist doctrine, which fundamentally amounts at the same time
to a disparagement of peasant agriculture, seems to be unfounded.
For the agriculture of the industrial countries there does, in fact,
exist an optimum structure, which makes it possible to carry out
successfully an agrarian policy which tends to preserve and
strengthen peasant agriculture with a minimum of economic
‘nationalism, protectionism, subsidies and collectivism, and by an
exceedingly fortunate concurrence of circumstances this optimum
structure is that of a highly developed peasant agriculture devoted
to specialized production. These circumstances are the following:

(1) It is precisely in specialized agricultural products (dairy pro-
ducts, eggs, meat, fruit and vegetables) as opposed to staple products
(especially grain), that the small holder’s farm of the European type
naturally excels; and it could still be considerably improved by
bettering agrarian techniques and training the peasants accordingly.


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206 THE SOCIAL CRISIS OF OUR TIME

(2) This type of production for which the peasant farm possesses
a natural superiority over large-scale enterprises, happens to be at
the same time naturally located in the European industrial countries,
that is, near the centers of consumption (i.e., within what is called
“Thiinen’s inner circle”). That means in the industrial countries
the specialized production of the small-holder enjoys a natural com-
petitive advantage not only because this kind of farm is particularly
suited for this type of production, but also because it is favorably
situated from a transportation point of view, especially when low
feeding stuff tariffs enable it to take advantage of the position
which the more distant zones of world agriculture enjoy in the
field of staple production. It is well known that the peasant agri-
culture of free trading Denmark has become the model for this
form of agrarian structure; without any form of agrarian protec-
tion it has not only maintained its peasant agriculture but even
developed it to admirably high standards and thereby contradicted
the pessimistic opinions of the opponents of free trade in a most
impressive manner. Denmark’s example also corrects another
mistaken notion which might arise from the term “specialized
peasant production”: the idea that such a form of farming is bound
to lead to a one-sided development of cattle raising and a wastage
of arable land. The opposite is true. Intensive agriculture will
always be diversified and will be based on a combination of cattle
raising and crop farming, thereby maintaining the biological
balance. Such a system not only completes the organic cycle of
farming but also achieves the economic and social advantage of
the farm’s greatest possible self-sufficiency. In fact, contrary to
widely current ideas, Denmark’s arable area has been trebled
between 1871 and 1912, whilst the number of heads of cattle has
only been doubled; during the same period the agricultural popula-
tion increased by a quarter, and all this took place without any
protective tariffs and subsidies, though on the basis of an extremely
high standard of peasant culture and an exemplary organization of
agricultural co-operatives. Denmark’s example should be of par-
ticular importance to a country like Switzerland where a certain
one-sided development—dairy farming—has taken place in pre-
ference to tillage, a fact which is being rightly lamented and could
lead to the erroneous conclusion that these two branches of produc-
tion are mutually exclusive within the peasant agrarian structure,
rather than what they really are, namely, complementary.

(3) It is the above named type of agricultural produce (“protective
food) which meets the physiological and habitual needs of the
urban and industrial population, who require strong nerves rather
than muscles.

(4) Specialized agricultural production, if it is to be carried out
rationally, requires an agrarian technique which maintains the


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AVENUES OF APPROACH AND EXAMPLES 207

fertility of the soil, a factor of particular importance today when
even in Europe erosion is more and more endangering this fertility.

(5) Because it also includes a large variety of farm produce, it
can distribute production and marketing risks efficiently, can
maintain the equilibrium of the biological process, convert the
peasant into an adaptable agriculturalist with a many sided occupa-
tional training, and permit the farm to develop a high degree of
self-sufficiency which makes it “crisis-proof” because it becomes
independent of the fluctuations not only of the sellers’ but also of
the buyers’ market.

(6) This ability of a farm (not overburdened by debt) to resist
economic crises which is founded on the distribution of risks and
self-sufficiency, is further increased by the fact that costs in the
form of money wages do not play any appreciable role because of
the peculiar labor structure of a peasant farm. The power to resist
crises can also be heightened by revitalizing peasant industry and
crafts. This extremely important work has been performed in
Switzerland by Dr. Ernst Laur’s excellent “Heimatwerk” organiza-
tion, the venerable “Okonomische und Gemeinniitzige Gesellschaft
des Kantons Bern,” founded in the eighteenth century, or the
“Hemsloejd” in Sweden; but they have done it quietly and with-
out the fanfare of the “great programs.” Quite apart from the
cultural education which these organizations provide, they not only
extend the field of peasant self-sufficiency to include handicrafts,
but open up additional sources of income by making use par-
ticularly of compulsory leisure periods in the winter. This marks
an important step towards the solution of the, in every respect
difficult and peculiar, problem of the mountain peasant who deserves
our particular sympathy in the hard struggle he leads to make a
meagre living. At this point, however, we must not forget that
the peasant economy’s ability to resist crises more successfully only
applies to the small holding unburdened by debt. All the more
serious is the problem presented by the notoriously heavy indebted-
ness of wide regions of European and even of overseas agriculture,
an indebtedness caused by the over-capitalization of agricultural
real estate values in the past, so that in this respect agriculture
rests on a capital structure which can in the long run hardly be
maintained. How to solve this special problem and how to prevent
a recurrence of this process, we lack the space to discuss here.

(7) Especially in the case of specialized agricultural produce we
can count on great reserves of demand which have not yet been
tapped but would, in conjunction with the production stoppages
which may be expected from the well-nigh universal exhaustion of
the soil, avert the danger of a new agricultural over-production
crisis. We want to recall that the income as well as the price
elasticity of the demand for these products is, in contrast to that

~


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208 THE SOCIAL CRISIS OF OUR TIME

for the staple products, remarkably high, so that an increase in
that part of the consumers’ income which can be used for buying
food or a lowering of the prices of specialized agricultural products
leads to a more than proportional increase in demand. How
great the elasticity of demand is, i.e., how far the demand for the
specialized produce containing protein, fats, vitamins and minerals
can be expected to expand if mass incomes increase or prices
diminish, has been demonstrated by the experience of all the indus-
trial countries after the last great economic crisis. This demonstration
would have been even more striking if the increase in mass income
(with a simultaneous increase in employment and wages) had
been accompanied by a lowering of agricultural prices. It can be
stated as a fact that these demand reserves. have only recently been
recognized in their full extent, and the famous investigation of
the nutritional state of the world carried out by the Economic
Department of the League of Nations has greatly contributed to
this. This investigation has opened the eyes of many people
regarding the great gap between the actual demand for food and
what, physiologically speaking, it could and should be throughout
the world, and the tremendous amounts which would be necessary
in order to eliminate the existing malnutrition of a great part of
the earth’s population. This potential demand could be released
by the following methods: (a) lowering the retail price of specialized
foodstuffs, which, by a corresponding decrease in production and
marketing costs, would enable us to reach that stage which has
already been attained by leading farms and in whole countries like
Denmark. This reduction of costs presupposes a more rational
form of peasant production, a decrease in feedingstuff tariffs, a
high development of agricultural production and marketing co-
operatives, as well as the greatest possible cut in trading profits
which have been unduly increased in many countries by the
unrational organization of the food trade and quasi-monopolist
associations of all kinds. If, for example, we learn from the investi-
gations of the Department of Agriculture that in the United States
the trading profits for such important foods as milk, meat and
fruit amount to 300 per cent. and that the share of the farmer in
every dollar spent by the American consumer for foodstuffs has
dropped from 53c. in 1920 to 4Ic. in 1939, or even that the tobacco
planters, confronted by the impenetrable monopoly of the big
tobacco companies, in some years receive less for their entire crop
than the net profit of all the companies put together, one obtains
an idea of the big task that has to be done here. (b) An increase
in the purchasing power of the urban and industrial consumers, as
regards their total income as well as the part available for buying
food. High total incomes presuppose a minimum of unemploy-
ment and high wages, and also the availability of a great part of


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AVENUES OF APPROACH AND EXAMPLES 209

the consumers’ income for food presupposes low prices of the non-
agricultural goods and services. Since nothing promotes both
requirements as much as the reasonable and positive integration of
the national economy into the world economic order, guaranteeing
a flourishing export industry, a low price level and a price
mechanism as free as possible from monopolist influences, we find
that it is precisely peasant agriculture which should have a strong
interest in counteracting autarkic tendencies. A national economy
impoverished by an autarkic policy offers no market for the high
grade specialized products of peasant agriculture. The resulting
decline in the sales volume might even force the distressed farmers
to ask for subsidies from a population which, lacking purchasing
power, can in any case hardly afford more than minimum quant-
ties of butter, cheese, milk, eggs and meat; however, it should be
clear that this would be a policy of burning the candle at both
ends, and a well-advised peasantry should take exactly. the opposite
road and cut through the vicious circle by combatting all autarkic
tendencies. From this it also follows that the peasantry is as
interested in preventing the formation of monopolies of any kind
as the urban industrial consumers. (c) A purposeful policy of
nutritional hygiene which makes it its task to bring about a desirable
change in consumers habits by instruction, education of young
women in home economics, people’s restaurants, price reductions
and other measures.

(8) By rousing this latent demand for high grade foods (“pro-
tective foods” in contrast to staple foods), the “collateral” demand
for agricultural staples (grain, potatoes, root crops, &c.), is necessarily
also increased since specialized production is, after all, largely a
process of refining staple products and changing quantity into
quality. Thus, in order to produce a certain number of calories,
the production of quality foods, counting all the stages from the
staple product up to the final commodity ready for the market,
requires a relatively large area. As we saw, these additional staple
products are most rationally produced partly on European peasant
farms, partly in the border zones of the world agricultural area;
the European peasant economy itself will thus assume a useful
place in the international division of labor in agriculture and the
danger of international over-production which tends to threaten
every national agriculture will be averted.

(9) Another extremely important point is that it is chiefly
specialized production which, thanks to the intensity of the labor
required, its family character and the moderate area it needs for
operation, is able to tie a maximum number of people to the land
and thereby maintain the beneficial influence of farming and country
life.

(10) It would be wrong to imagine that such an agrarian


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210 THE SOCIAL CRISIS OF OUR TIME

structure in the industrial countries would endanger food supplies
in war-time. It should be remembered that the most important
staple products—particularly wheat and sugar—are highly suitable
for long-term storage, so that war-time stock piles can be carefully
accumulated. On the other hand, the livestock of the peasant
farmer presents an extremely important war-time reserve which
has the advantage of not having to be stored, whilst the agrarian
methods of specialized "peasant production promote the fertility
of the soil to a high degree which in itself is a valuable asset in
times of war.

We have now enumerated the most important conditions and
considerations which make a rational peasant agriculture, adapted
to existing conditions, and well-integrated into the world economy,
appear as that form of agriculture which not only can be success-
fully preserved but even presents the optimum agrarian structure
of the industrial countries. Indeed, if peasant agriculture did not
exist it would have to be invented. It is this form of agriculture
towards whose maintenance and strengthening the efforts of all
those must be bent who consider a strong, populous and socially
sound agriculture as the highest aim of a far-sighted policy. Since,
however, it is at the same time the optimum agrarian structure
and in line with natural development, it can—and this is the
important conclusion with which we confront the defeatists and
pessimists in agrarian matters—be maintained and furthered by a
minimum of state interference and, if both sides show sufficient
good will, it can change the unholy and poisonous conflict of
interests between town and country, from which the pure protec-
tionist agrarian policy has suffered so much, into friendly co-opera-
tion.

This conclusion seems to us all the more convincing when we
use the agrarian policy which so many European industrial countries
have favored as a comparison and reveal its basic error. It consisted
in making grain production the pivot of agrarian protection, and
thereby inaugurated an agrarian policy which not only hindered
each country from producing whatever it was most suited, but also
put peasant production at a relative disadvantage, not to mention
the repercussions which the industrial population had to suffer.
The long list of sins of this policy of stimulating grain production
(which has at the same time led to a good deal of exhaustion of
the soil), makes depressing reading: (1) It has further increased
the world over-production of grain by making possible the pro-
duction of an additional amount at increased costs; (2) it has thereby
decreased the international total, marketable at profitable prices,
and (3) has considerably contributed to the circulatory disturbances
of the world economy, lowering the income of the industrial and
urban masses by increasing unemployment and lowering wages;


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AVENUES OF APPROACH AND EXAMPLES 211

(4) the latter fact has, in conjunction with the relative increase in
grain prices, compressed that part of the total income likely to
demand specialized products, and has thus put this highly important
branch of agriculture into a difficult position; (5) this crisis in
specialized agricultural production has in turn led to ever more
comprehensive and incisive protective measures; and finally, (6) the
policy of primary grain protection has raised the production costs
of specialized production by increasing the prices of supplementary
feedingstuffs and has thus contributed also from the production
angle to the difficulties of this branch of agriculture. Briefly, these
campaigns to increase grain production acted as an explosive in
the world economy, they have driven a deep wedge between the
interests of town and country, they have lowered the state of
nutrition and, above all, they have in the long run proved to be
bad agrarian policy because they have led to a dangerous over-
intensification of cultivation and to a relative weakening of precisely
that form of agriculture which, in the industrial countries, is made
imperative by practically every factor—location of industries in the
world, nutritional science, cultural aims and population policies.

At this point we must warn against a disastrous tendency to
confuse an increase in self-sufficiency resulting from peasant agri-
culture with an expansion in land cultivation carried out by the
non-agricultural classes, with the goal of national autarky in food-
stuffs. These are, indeed, two things which should be kept strictly
apart, even by reserving the clumsy expression for the second. To
use them indiscriminately is an error of logic of the type which is
called “conceptual realism”: individual self-sufficiency is the self-
sufficiency of an actual and tangible economic unit, viz., the
family, and therefore a genuine, thorough and remedial alteration
in the economic and social structure of the country; autarky, how-
ever, is only the forcible limitation of the otherwise unchanged
functions of the market to the area within the historically con-
ditioned national frontiers, it is “self-sufficiency” in an abstract
sense, for it is based on no concrete economic unit, as in the case
of genuine (individual) self-sufficiency, at least not as long as we
do not live in a communist state in which the nation itself becomes
the concrete economic unit.

We are faced here with a simple question of logical distinction.
A policy of “self-sufficiency” is designed to make the concrete unit
of the family more independent of the market as such, whereas it
is the aim of ‘“‘autarky” to make the national market independent
of the foreign markets. The first case represents a real and funda-
mental alteration of the economic cellular structure (limitation of
the market sector in favor of the marketless sector of self-
sufficiency); the second case, however, represents only the replace-
ment of one (the foreign) market by another (the home) market, a


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212 THE SOCIAL CRISIS OF OUR TIME

substitution which has primarily only political significance and can
be defended only on that basis. In the first case the family is
emancipated from its dependence on the market, in the second case
the national sector of the market severs its ties with the international
market. ‘Therefore, the first emancipation neutralizes the price
mechanism and the law of costs and takes place without resorting
to economic means of compulsion (tariffs, quotas, import embargo,
foreign exchange control), which would fit the totalitarian collec-
tive state and also presuppose its structure if they are to be carried
through effectively. We insist on this distinction just as much
because we advocate more self-sufficiency as because we reject
autarky. We should be compromising what is so near to our heart,
namely, the economic and social structural change inherent in
“self-sufficiency,” most seriously if we were to confuse it with
“autarky,” and speak in the language of the advocates of an extreme
economic nationalism.

We, too, consider it both desirable and likely that the inter-
national division of labor should and will be modified in the
agrarian sector, but this is only desirable and rational in so far as
it takes place as a natural consequence of changes in the internal
economic structure (by enlarging the sphere of self-sufficiency and
perfecting the economic equilibrium of the peasant farms) and not
as the result of economic compulsion (i.e., trade barriers).

We shall endanger all our efforts if we are not quite clear on
this point and become entangled with economic nationalism which
we should not touch with a ten-foot pole. It is very necessary that
we should protect ourselves against being misunderstood in this
respect and being used for goals which are completely foreign to
us. The structural changes not only in agriculture but, beyond
that, in the whole national economy, which we have at heart, will
lead to an agricultural recovery of such an extent that it will allow
agriculture to abandon almost entirely the crutches of protection and
subsidies. We should get accustomed to the thought that a positive
“peasant and agrarian policy” can be something quite different
from such a system of protection and subsidies. To this observa-
tion we link an appeal to all experts on this subject to view the
problem from this angle and to devote the sum total of their
experience and ingenuity to its solution, being convinced that an
agriculture which has to be maintained like a natural reservation
and is dependent on the economic charity of the state and the con-
sumers, is unsound and can bring no satisfaction whatever to the
good agriculturalist who has his job at heart. The time has really
come to devote all one’s energies to the task of changing this
unsound state of affairs, by determining what type of agriculture is
best suited to industrial countries, and developing a detailed reform
program based on these findings. It is a quite wonderful coinci-


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AVENUES OF APPROACH AND EXAMPLES 213

dence which can hardly be stressed sufficiently, that, as we have
plausibly argued, a mixed farming process, aiming at specialized
production, is, in fact, this optimum type. Realizing this, we
can disassociate ourselves from all those plans which would revolu-
tionize agriculture by the establishment of collective enterprises
which can be characterized as a kind of neo-feudal estate and
which would destroy the unique sociological-vital structure of the
peasant enterprise. It is precisely the values of such a peasant
structure which must always be given pride of place, whereas every
kind of “industrialization” of agriculture is diametrically opposed
to our efforts. We should indeed be glad that peasant agriculture
together with the handicrafts has until now proved such a firm
bulwark against industrial mechanization. This does not in any
way touch on the feasibility of co-operation between independent
peasant holdings. This is indeed a consummation devoutly to be
wished.

Artisans and Small Traders

In order to estimate the value of the functions of the artisan and
small trader, we would remind the reader once more of the great
and supremely important goal, namely, to promote and strengthen
all forms of living and working which have not yet succumbed to
collectivization and proletarization, wherever they can be found.
From this viewpoint, we must now, having dealt with the peasantry,
turn our attention to the artisan and the small trader whose occupa-
tions are in many ways similar or even interrelated, and who,
like the peasants, too, deserve all the well-planned assistance that
is possible.

The unintelligent objection that this would simply mean re-hash-
ing the old fashioned middle class policy is not going to deter
us. It is true that such a policy has in the past often been dis-
credited by the self-centered and narrow-minded efforts of groups
bent on obtaining special privileges and has therefore acquired a
somewhat musty smell. Only too often one could not avoid the
impression that certain occupational groups were simply to be
preserved in moth-proof camphor. A thorough airing is urgently
needed here but if one watches these groups more closely one
gains the comforting impression that in many instances they are
motivated by a new and more hopeful spirit.

The camphorous odor of the old “middle class policy”’—and
the same applies, as we saw, to the agricultural policy of certain
vested interests—was in the final analysis caused by discouragement.
The members of the middle classes had lost all confidence in their
own strength and ability to take their place alongside the large
enterprises, and believed that they had only the choice between
complete ruin and artificial conservation. However, naturally


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214 THE SOCIAL CRISIS OF OUR TIME

choosing the second possibility, they courted the danger of obstruct-
ing the general development by their purely negative policy of
restraint and rigidity. But, in the meantime, it has become apparent
that the small enterprises can hold their own far better in the face
of big business than had been believed in the initial period of
intoxication with industrial expansion, and they have every right
to become self-confident once more. The statistics of industrial
countries prove that as a concomitant of the growing differentiation
of economic life, the complexity of requirements and the increasing
importance of personal services (“tertiary” production, as against
the “primary” production of agriculture and the “secondary” pro-
duction of industry), the number of small independent enterprises
has not decreased, but increased. Also, in the light of the most
recent technical advances which, thanks to electric motors, internal
combustion engines and the improvements in machine tools, are
excellently suited to small enterprises and have greatly benefited
them, the idea that a large-scale enterprise is a priori superior
must be thoroughly revised. Whilst in the case of agriculture
there was really never any doubt that mechanical development
would leave the age-old dominance of the small enterprise
untouched and whilst one is now contritely returning to this insight
wherever one has sinned against it as in the United States, the
artisans and small traders are also stubbornly maintaining their
position which is characterized precisely by its difference from
industrial production. The “selling factory” which mechanizes
trading activities has not yet been invented, and it is not likely that
either custom tailoring or hand made furniture will be replaced
by the conveyor belt as long as there are people who are able to
appreciate the quality of such work.

It is remarkable how deeply the contempt of the peasantry and
of the “petit bourgeois,” common to both Marxist and feudalist
thought, has permeated the thinking of our times and the old
“middle class policy” bears indeed some traces of the resentment
of a man who at heart believes that his capabilities are not fully
appreciated. All this will have to be completely changed and the
progressive revaluation which will entail an outward redistribution
of social power will become the very index of the recovery of our
society. What is needed all along the line is an inward and outward
recovery, a re-arrangement and increase of the independent small
and medium sized enterprises, a strengthening of their self-con-
fidence and their encouragement by sound economic measures.

What then is the present position of the artisans? This is a
subject of which we do not by any means know enough yet, but
it is certain at least that the former defeatist attitude is no longer
in order. Although in the middle of the last century the astute
German sociologist, W. H. Riehl, could describe the craft guilds


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AVENUES OF APPROACH AND EXAMPLES 215

as the “ruins of the old burgher class” which “are still littering
modern middle class society,” it is not too much to say that con-
siderable parts of these ruins have in the meantime been restored
to a quite habitable state. It is particularly interesting to note in
this connection that conditions vary most markedly from country
to country. In Germany, Austria, Switzerland and in other
European countries a sturdy class of craftsmen has survived whilst
the United States may as correctly (i.e., with some exaggeration)
be called the country without craftsmen, as England the country
without peasants. As always, such international differences are
experimental proof that the high level of preservation and adapta-
tion which has been attained in some particular place could, with
good will, be reached elsewhere too, and that the problem is by no
means one of pure economic accountancy.
The popular argument that industrial mass production is boun

to destroy the artisans obscures the truth. It only applies if the
identical product is actually being manufactured more cheaply
by industrial mass production than by an individual craftsman. No
nail-smith can hope that his craft will be resurrected because in
his field there exists clear price competition for the identical pro-
duct which will unequivocally be decided in favor of mass produc-
tion. But there are many other cases where the industrial product
is not only distinguished from the work of the artisan by its cost
but also, in a more or less obvious manner, by its inferior quality.
In such an instance it is no longer a question of pure price com-
petition but rather of competition between substitutes (as, e.g.
between margarine and butter). The better quality of the artisan’s
product is in this case not only a matter of taste but also of greater
durability. There is a wide sphere here where the lower cost of
manufactured goods is weighed only very loosely against the better
taste and greater durability of both materials and workmanship of
the handicraft product, in fact, the decision is usually left to thought-
less and ignorant consumption habits. In so far as this is true, it
is not primarily mass production which is throttling craftsmanship
but the collectivization of consumption habits which first makes
mass production possible. This collectivization of consumption
habits has progressed in varying degrees in different countries,
probably farthest in America. It goes hand in hand with the
disappearance of the traditional ways of life and is, therefore, a
symptom of the general crisis of society. To the same extent as
this crisis is successfully overcome the artisans, too, will benefit,
and it is certain that much can be done here by an intensive educa-
tion and publicity program which should, if possible, already start
in the schools. The case is quite different where the above men-
tioned process of weighing the advantages against the disadvantages
actually takes place, and the cheaper mass produced commodity is


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216 THE SOCIAL CRISIS OF OUR TIME

simply preferred owing to lack of money, in spite of the clear, if
depressing, knowledge that in the end it is really more expensive.
Is there another instance where an organized system of payment
by instalments is as necessary and legitimate as here? Should
not what applies to the automobile (which may be out of date or be
driven to pieces within a year) at least also apply to well-built
furniture (which the grand-children will still be able to use); par-
ticularly at a time when, as some economists assure us—though
‘prematurely, as we have shown—in such a handicraft-less country
as the United States the population no longer knows what to do
with the accumulation of savings? These questions well deserve
some consideration. They at least give us some inkling of the
direction in which our thoughts might profitably travel if we want
to aim higher than the old “middle class policy” and achieve the
aurca sectio between conservation and progress. Anything further
that might be said on this extremely important subject will be
dealt with when we discuss the general problems and possibilities
of a policy of optimum size enterprises.

As we have seen, it is by no means in all cases technical and
physical factors which decide the battle between handicrafts and
industry, but rather those subjective and imponderable forces
which determine demand. This always applies when the products
of the craftsman and of industry are different from each other,
and it is only due to our shortsightedness and ignorance if we
think that the handicraft product and the industrial product are
identical. Only too often do we thoughtlessly follow a fashion
which favors mass produced commodities, and only slowly do we
come to realize that these also have great disadvantages. How-
ever, where we know from the beginning that our funds are
insufficient to pay for expensive craftsmanship—the custom tailored
suit, hand-made furniture—we find that the system of paying by
instalments has a very legitimate function, which in turn necessi-
tates that the banks take more interest in the small enterprises than
they have done so far. And apart from that, one can argue that
in this way the growing wealth of a nation which permits wider
and wider sections to give preference to hand-made products will
benefit the artisan, provided, of course, that the consumers are
properly instructed and informed regarding this subject. In so
far as the increase in the nation’s wealth is based on- growing
mechanization and industrialization, the economic situation of the
artisan would rather become more secure—always supposing that
a sense for quality production has been maintained and promoted
among the people—and a counterbalance to the mechanization in
the industrial sector would automatically be established. Of course,
as so much rests on the appropriate direction and schooling of
demand, success will chiefly depend on whether the advertising of


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AVENUES OF APPROACH AND EXAMPLES 217

the large, rich enterprises can be kept within bounds or be balanced
by similar joint advertising campaigns of artisan associations. This
particular case proves most convincingly how the dangerous instru-
ment of advertising can become the effective weapon of an economic
policy aiming at the good of the community.

All these considerations, however, presuppose that the craftsmen
maintain the vitality and proud tradition of their work and do
not succumb to a dull and discouraged sloppiness which grants easy
victories over sluggish small enterprises to the vigorous large-scale
undertaking which is kept on its toes by high capital investments
and wage bills. The consumer’s preference for craftsmanship must
be reciprocated if it is to have permanence, but perhaps it is in many
cases a feeling of faintheartedness and of being pushed into the
background which paralyses the craftsman and degrades him to a
botcher. Professional ethics and pride in one’s work do not permit
petty cunning and carelessness; they are tender plants which require
constant care from all sides, posing psychological problems as com-
plicated as those of pedagogy. An experience of the author may
throw some light on this point: he had entrusted a difficult job
of shoe repairing to a cobbler in his neighborhood instead of to
the repair shop of a big department store and was disappointed
when the shoe was returned completely ruined. Without letting
this experience discourage him, he told the cobbler that he had
preferred to give him the work rather than the department store
in order to do his modest bit in encouraging a small craftsman,
but that he had expected correspondingly careful work. The
cobbler seemed greatly affected and since then has taken great care
and is successful in satisfying his customers. Since, however, not
all customers would demonstrate such patience there is a lesson here
which all artisans should learn. Those consumers who can at all
afford it should not shrink from the sacrifice of a few cents in order
to carry out an economic policy of their own and support artisans
to the best of their ability for the good of the community, but
they must find in the artisan himself a willing partner to this
scheme, ready to give his best. We should be unwilling to make
awards for incompetence and indolence, and that is also why that
convenient but shortsighted policy of merely preserving the middle
classes which, like the old guild policy, would keep out the draft
of competition, must definitely discomfit us. Instead of constantly
hatching new plans for restrictive practices and conserving the
status quo, we should exert our inventive powers to show the artisans
ways of self-help, ways of increasing their efficiency, and assist them
by rational means to maintain and widen their sphere of activity.
Only such an attitude among craftsmen can assure that inner
soundness which makes the preservation and strengthening of
their occupations appear to be so exceedingly important from the


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218 - THE SOCIAL CRISIS OF OUR TIME

viewpoint of the general social structure.. Thus, we see that what
we said regarding the peasantry applies here too.

What is true of artisans is paralleled by the conditions existing
among small traders whose occupation is in many cases interrelated
with that of the craftsmen. As in the case of handicrafts the
sociological significance of the small shops consists in rendering
indispensable services and at the same time providing the basis of
an independent livelihood for many people. They afford a form
of life and work which permits a high degree of self-determination,
the enjoyment of purposeful work, the warmth of social contact
and a well integrated family life. In these respects, of course, the
small trader falls far short of the artisan, let alone the peasant,
because he is to all intents and purposes wholly absorbed in the
business of selling and easily dispenses with the ‘“objectifying”
influence of creation which protects men against the bare struggle
of interests. That is why his occupation tends to be so charac-
teristically bereft of the weight of professional tradition and a
laboriously acquired education. Beyond doubt, we are here enter-
ing a zone in many respects problematical and further characterized
by the fact that all kinds of marginal beings tend to settle here—
people with indefinable training and professional suitability. It is
not a field circumscribed by example and tradition, but a sphere
with wide open boundaries and of a somewhat heterogeneous
composition in which rootless commercial adventurers exist side
by side with the very different type of the solid storekeeper who,
similar to the artisan, is supported by traditional and professional
honor. For these reasons it is also a sphere of peculiar hazards
and conflicts in gaining a livelihood on which one can only express
an opinion after very careful consideration. The picture is even
‘more complicated by the fact that conditions vary greatly in the
different branches of the retail business, thus requiring different
sociological and economic valuations. It is, therefore, impossible
to do justice here to the problem of the small trader.

De-Proletarization and Decentralization of Industry

While the lives of peasants, artisans and, to a lesser degree, of
small traders constitute the most important sectors of non-proletarian
existence and only require to be preserved and furthered, the
opposite is true of industry where conditions of life and production
are practically calculated to lead to proletarization. Here, then,
the strongest and most intelligent efforts are necessary in order to
counteract the natural tendency towards proletarization and to find
forms of industrial life and organization which will lead to the
de-proletarization of workers and employees. Since originally the
majority of the people led a well-integrated and non-proletarian


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AVENUES OF APPROACH AND EXAMPLES 219

life as peasants and craftsmen, the essentials of an industrial de-pro-
letarization policy. will consist in rendering the working and living
conditions of the industrial worker as similar to the positive aspects
of the life of the peasant and artisan as possible. This logically
presupposes that industry is dispersed in the open country and the
small towns, and that regional planning combats its tendency to
concentrate in the big cities.

It scems rather obvious that a start should be made with the
traditional intermediate forms between industry on the one hand
and the peasant and artisan enterprises on the other, and that
it should be pointed out that the rural trades—the rural mills, the
small distilleries, the small brick-works, and similar enterprises—as
well as the rural domestic industries represent forms of manufactur-
ing organizations which deserve to be closely studied. For our
purpose they vary in value, of course, and in their present state
they are far from ideal but, though today we realize this more and
more, it would be exceedingly short-sighted if, instead of infusing
them with new life, we should praise their disappearance as “pro-
gress.” Even from the point of view of better nutrition there is
considerable lamenting that the old country mills, where the
peasants had their grain milled for a milling fee, have today almost
totally been displaced by the big commercial mills, and there are
experts who tell us that this is one of the reasons for the deteriorat-
ing quality of bread. |

- The traditional rural trades are the original form of decentralized
industry, to which modern industries should, as far as possible,
return in order to enable their workers and employees to become
well integrated in their surroundings, and the example of Switzer-
land, in particular, shows how beneficent such an industrial structure
can be. This all the more if the plant management follows a
clear-sighted policy of facilitating their employees’ settlement on
the land. What can be done in this field is shown by the well-
known experiment of the Bally shoe factories (Schoenenwerd,
Switzerland), which deserves special praise: this company assists its
workers and employees in acquiring a house and adequate garden
plots by negotiating the purchase of land for them, advising them
on building and finance matters and affording them financial aid;
over and above this the company sells arable and pasture land at
low prices, pays for the land to be fertilized and ploughed, employs
an agricultural inspector to advise its workers, awakens an interest
in agriculture by instruction, lectures, competitions and exhibitions,
maintains a model training farm, promotes cattle rearing by being
instrumental in the purchase of sound milch cows of a suitably
small breed and in arranging for expert advice, purchases locally
tested seeds and seedlings, and encourages the raising of poultry,
rabbits, &c., which are so very important for this type of semi-


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220 THE SOCIAL CRISIS OF OUR TIME

agricultural life. It should be especially stressed here that these
are not factory settlements in the sense that the workers do not
only work for the firm but are also its tenants, and thus doubly
dependent on it. That would be a deterioration rather than an
improvement of their condition and their proletarian dependence
would be increased. This policy, as demonstrated by the example
of the Bally shoe factories, has nothing in common with those
patriarchal “welfare institutions” which assume the function of
guardians and have therefore always been rightly criticized. On
the contrary, this policy is anxious to assist the workers to acquire
their own house and land and thus in a decisive way to save them
from their proletarian existence. In this connection we would also
point out that the decentralization of industry in England which
the air attacks have made necessary has had such a good effect on
the health of the workers that it has been decided to utilize this
experience after the war.

Another question is how far and by what means it is possible
to transform the organization of an industrial plant in such a
manner that the work will acquire the meaning, self-determination
and rhythm which characterize the working life of the artisan.
Without sacrificing the output rate of industrial production methods,
the de-personalizing and mechanizing effects of the old large-
scale industrial enterprise, its massiveness, its minute division of
labor and its barrack-like atmosphere, would have to be replaced
by forms which are diametrically opposed to the conveyor belt
and the Taylor system.” We do not consider ourselves competent
to give an expert answer to this question and confine ourselves to
emphasizing how important the problem is and pointing to the
various beginnings that have been made (Hellpach’s “Gruppenfabri-
kation,” Rosenstock’s ‘“Werkstattaussiedlung,” the “fabrique dis-
persée,” and others) which prove in this instance too that where
there is a will there is a way. Further problems to be solved here
are the re-awakening of the worker’s professional pride; his personal
and occupational interest in the problems of production, which
should be more than the mere desire for a large pay check and the
shortest possible working hours. Unless he is to remain a pro-
letarian in his way of living and in his outlook, it is also necessary
that he should receive recognition as a partner in the plant com-
munity which values his special knowledge; the industrial nomads
whose life is measured by the short periods between pay days
should be replaced by a type of worker who has ties not only with
the soil but also with the factory and enjoys conditions of employ-
ment which promise some security, not perhaps guaranteed by legal
titles that are difficult to enforce, but at least by custom and good
will, conditions which include the claim to paid vacations, for
example. Such a development, which is everywhere showing


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AVENUES OF APPROACH AND EXAMPLES 221

encouraging signs, will contribute much to the solution of the
major problem of de-proletarization. But in addition to developing
close relations to the soil and to his place of work, the proletarian
must in all circumstances be divested of his chief material charac-
teristic, viz., his unpropertied state, he must be given the chance
of attaining that degree of relative independence and security,
that awareness of kinship and tradition which only property can
give. It is well if he can rent gardening plots cheaply, but it is
better if he owns a house and arable ground. More than that, he
must also be able to acquire freely disposable funds and become
a “small capitalist,” possibly by being given the opportunity of
acquiring stocks. The perennially discussed idea of letting the
workers share in the profits of an enterprise by the distribution of
stock to them, meets with the objection, never entirely silenced,
that the risk of unemployment is a sufficient burden for the worker
without the additional risk of losing his capital. However, one
would have to consider whether this objection could not to a great
extent be met by creating preferential labor stocks or by labor
investment trusts (as in England). At this point we should also
remember the beneficial activities of saving banks, mutual building
societies, co-operatives and similar institutions.

It must of course be realized that industry cannot be de-centra-
lized and attuned to the working habits of the peasant and artisan
if, as compared with large-scale enterprises, this adjustment results
in a noticeable decrease in output which upsets all estimates of its
profitableness. However, even if certain sacrifices have to be made
as regards immediate and measurable profitableness and technical
practicability, it must nevertheless be stressed that this sacrifice will
be repaid in a wider, social sense and may in the long run even
redound to the advantage of the enterprise itself. If we take into
consideration all the sociological consequences of proletarization,
we are, as we saw above, entitled to the conclusion that in certain
circumstances the mechanical organization of industrial plants which
permits the cheapest form of production on the basis of measurable
costs, may in the end prove to be the most expensive for society
as a whole. As has been frequently emphasized in the course of
this book, at present even the purely technical and organizational
efficiency of large-scale industrial enterprises tends to be greatly
over-estimated. This may be aggravated by an optical illusion
which frequently traps the uninformed. Mammoth factories and
giant enterprises force themselves upon our attention, with adver-
tising doing the rest, whilst a great number of smaller undertakings
is less conspicuous. Added to this, the birth of a new big business
enterprise or trust is heralded with great publicity, whilst the
liquidation of old ones takes place behind the scenes. This gives
‘rise to a somewhat distorted picture of the true importance of, and


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222 THE SOCIAL CRISIS OF OUR TIME

numerical proportion between, larger and smaller enterprises and
we need only glance at the sober tables of statistics to learn that the
importance of the smaller enterprises is still far greater and in some
countries, indeed, even on the increase (as, e.g., in Sweden, where
from 1913 to 1935 the average size of industrial plants decreased
from 39 to 28 workers). It is sufficiently well known that Switzer-
land, more than any other country, has demonstrated not only the
viability, but in many fields even the superiority of the smaller
enterprise. It must also not be forgotten that the development of
large-scale undertakings is often determined by irrational motives:
by the desire for commercial prestige, a struggle for power, and
finally even by an acquisitive mania which in other men expresses
itself more harmlessly in collecting antique china or stamps. Such
motives can find expression all the more if the so-called “self-
financing” of the concerns increases, permitting them to expand
without depending on the capital market and therefore without
the regulating function of the interest rates.

The actual tendency for small plants and enterprises to maintain
themselves can be vigorously promoted by an appropriate and
well-planned policy of optimum sized enterprises, a policy which
will counteract the economic and social policy favoring large-scale
enterprises which so often wins out today. This task seems so
very foreign to most people who still suspect it of being an attack
on “progress,” that we have hardly begun to examine it for all the
possibilities it offers. Apart from solving some of the problems
by taxation, it would, for example, be quite feasible to entrust
public authorities with the task of making available costly experi-
mental stations, model workshops and testing plants not only, as
today, for agriculture but also for small industrial undertakings,
thereby reducing that category of costs which is so likely to put
the small enterprise at a disadvantage compared with big business.
It is also of special importance that appropriate measures are taken
to organize credit distribution in such a way as to improve the
supply of capital for small businesses and remove the defects in the
capital distribution process (stock exchanges and banks) still exist-
ing in this respect. After all, we are not dealing, as the abstract
theorists like to presuppose, with a uniform central catch-basin
where the capital of the national economy accumulates and from
where the money, regulated by uniform capital interest rates, is
distributed, but with a great number of more or less separate indivi-
dual basins which are represented by the various groups in the
credit system. This easily causes economically unjustified dis-
crimination which may decisively influence the industrial structure
of the national economy. There can be no doubt that in many
countries (particularly in the United States) small industries are the
losers as regards their capital requirements. It would be one of the


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AVENUES OF APPROACH AND EXAMPLES 223

urgent tasks of such an optimum size policy to set this state of
affairs right and counteract the dubious effect of banking concentra-
tions, which easily favor large-scale industrial credit, by develop-
ing special methods and institutions for the encouragement of
credits for small industries. It should be understood that this
must not be dubbed a “pro-middle class policy” and burdened with
all what has indeed discredited the latter.

New Trends in Social Policy

Tragically enough one of the factors which favor large-scale
enterprises, and therefore proletarization to a considerable degree
is a particular type of social policy which we shall call “the old-style
social policy.” Blindly ignoring the fact that the root of the evil
is to be found not in material causes but in proletarization, that
working class problems are, therefore, in the first place problems
of personality, this type of social policy has only too often sought
to solve matters by social legislation which necessitated a more and
more comprehensive and growing welfare bureaucracy, by a definite
pattern of collective bargaining contracts, by an unhampered policy
of battling for wage increases and a decrease in working hours—in
short, by all those methods which we have learnt to associate with
the term social reform—thus trying to remedy the symptoms
without even thinking about the cure of the basic ills. This
symptomatic treatment has aggravated the disease itself by still
further increasing the powers favoring proletarization. As the
Popular Front episode in France and the New Deal in the United
States have shown such a welfare policy can, in fact, have this
paradoxical result since “it talks the worker out of the only saving
idea, namely, that the working class is able to reform itself on its
own and, therefore, can also improve its conditions without in the
process having first to reform the whole world” (W. H. Riehl in
1866). But it particularly tends to apply schematically, experiences
it has made in large-scale industrial enterprises to the medium and
small enterprises, thereby making their life so hard that they have
to abandon the field to big business. The result of such a “pro-
gressive” form of social policy is the further proletarization of the
country. How, over and above that, it has succeeded in pro-
letarizing and commercializing what was once a free profession
which embodied, as hardly any other, the non-commercial pro-
fessional ideal in the best sense of the word, is shown by the state
of the German and British physicians who since the development
of the increasingly comprehensive compulsory health insurance
system have become supervised health workers handling patients
like parts on a conveyor belt.

I think I never realized more clearly how concepts are opposed


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224 THE SOCIAL CRISIS OF OUR TIME

to each other regarding this problem than when, some years ago, I
had a discussion with a leading official of the International Labor
Office. I was asked to attend a meeting dealing with the problems
of the agricultural laborer, a subject which was then being newly
included in the program of the Office, and I made the following
points in my conversation with this official: “Your Office is an
expression of one of the worst diseases of our society, the name of
which is ‘proletariat.’ You think that you can effectively combat
this disease with higher wages, shorter working hours and as com-
prehensive a social insurance system as possible, and you consider
it your task to extend the top results achieved by such a policy in
one place to as many other production branches and countries as
possible. At the moment you are dealing with agriculture. I do
not want to say anything against your efforts, but is it not really
time that you conceived your task to be greater, and investigated the
question whether forms of agriculture could not be found and
developed which would not permit the disease to which your Office
owes its existence, i.e., the proletariat, to arise in the first place?
And should it not quite generally be your final and highest goal
to make yourself superfluous by promoting de-proletarization
instead of continuing to move in the old rut? How about taking
a greater interest than heretofore in peasant family farms, the
support of artisans and small traders, the technical and organiza-
tional possibilities of loosening up large-scale enterprises, the
diminution of the average size of factories, workers’ settlements
and similar projects?” “Why, you are a Catholic, are you?” he
replied, to which I gave the obvious answer that one did not have
to be a Catholic in order to see things this way. At the same time
I recalled that dogmatic old-time liberal to whom a friend of mine
in Rotterdam was proudly showing a number of workers’ allotments
and who on seeing these happy people spending their free evenings
in their gardens could think of nothing better than the cool remark
that this was an irrational form of vegetable production. He could
not get it into his head that it was a very rational form of “happiness
production” which surely is what matters most. The main issue
is that our social reformer as well as the old-fashioned liberal both
really belong to the same world, a world which to us today seems
very passé. Both are completely blind to the vital and imponderable
values, and in spite of their controversies they have this in common
that they are unable to think in other terms than in those of money
cost and profit.

It is clear, therefore, that we gain a new perspective once we
realize that the workers’ question is a problem of life as a whole
and working and living conditions in general, rather than an
economic problem in the narrower sense. It is the problem of the
proletariat as such, which cannot, therefore, be solved by means of


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AVENUES OF APPROACH AND EXAMPLES 225

the old-style welfare policy and may, in fact, as we saw, even be
aggravated by it. Of course, as long as we have a proletariat, this
form of welfare policy will have a limited function, and in this
narrower field of wage regulations, trade unionism, factory inspec-
tion and social insurance much intelligent work has been done and
doubtlessly still remains to be done. But when viewed in the light
of the great and comprehensive task of welfare policy, all these
measures appear to us almost like taking an aspirin for a toothache.
That task is really to attack the source of the evil and to do away
with the proletariat itself—to achieve what the Papal Encyclical
Quadragesima Anno (1931) has termed the Redemptio Proletariorum.
True welfare policy is therefore equivalent to a policy of eliminat-
ing the proletariat whilst henceforth the old-style welfare policy
would have to concern itself only palliatively with the hard core
that still remains, and thereby of course greatly loses in importance.
This task also deprives welfare services of their former character of
something independent, which has always seemed somewhat
absurd and an expression of the distorted conditions of our time,
and incorporates them in a sensible policy concerning itself with
the problems of peasants, artisans and small traders, industrial ques-
tions, settlement, housing and distribution schemes.

This also adds a new and more hopeful note to the most difficult
and important task facing the welfare services: the reduction of
unemployment. This problem is so urgent that the danger of
repeating ourselves must not prevent us from discussing it once
more.

As we saw above, many tend to approach this question with a
sort of economic ‘“Maginot Line Mentality.” They believe that it
is only necessary to organize some kind of bulwark and to seck
protection behind it in order to be automatically secure from all
economic disturbances—some sort of one hundred per cent. bomb-
proof monetary system or some sort of planned economy. The
results so far obtained in this direction have been highly disappoint-
ing. In reality the problem is in the long run presumably insoluble
in this manner, even by applying the most rational monetary and
credit policy. The problem of economic stability and unemploy-
ment is not simply one of business cycles but in the final analysis
one arising from the economic and social structure as a whole even
if one disregards for the moment the difficulties of a politically com-
pletely disjointed world. Today’s economic crises must be under-
stood in their gravity and tenaciousness against the background of
a world which has been almost completely “proletarized” and
has succumbed to economic and social collectivization, a world
which has; as a result of this, lost its inner resilience and regulating
mechanism and with them the psychological climate of security,
continuity, confidence and inner balance it needs. In brief, the

H |


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226 © THE SOCIAL CRISIS OF OUR TIME

economic crises which are getting so uncontrollable belong to a
‘world which has “coagulated” socially and economically and it is
therefore no accident that they weigh most heavily on those
countries which have gone furthest down the road of proletariza-
‘tion, mechanization, centralization and “coagulation,” i.e., Eng-
land, Germany and the United States. The main cause of this
instability is to be found where common sense would look for it
first: in the over-complication of the social apparatus, in the excess
of concentration and interlocking, in the preponderance of wage
earners, in deficient adaptability which is bound to grow worse
with increasing concentration and interlocking, and in the fact
that adaptation will have to be carried out by way of ever greater
units and ever more agencies and that the individual’s ability to
adapt himself decreases in the same ratio.
We hope we shall not be misunderstood in this: we do not
‘wish to detract from the importance of a sensible business cycle
policy which influences the economic mechanism as a whole by
regulating’ the volume of credit and similar measures, but in the
first place such a policy is, as we saw, limited to a narrow sphere,
and secondly even in the most favorable instance there is always an
insoluble remainder of instability which has to be dealt with. This
remainder has increased continuously, whilst the ability of the
‘individual to resist these shocks has steadily decreased. The most
“extreme examples of this tendency are perhaps some American
farmers who had become so specialized and so dependent on their
current money incomes that when the crisis came they were as
near starvation as the industrial worker. At the other, more for-
‘tunate ‘end we see the industrial worker in Switzerland who, if
necessary can find his lunch in his garden, his supper in the lake,
‘and can earn his potato supply in the fall by helping his brother
clear his land. :
‘Let us illustrate our point with another example: a smooth auto-
mobile ride depends on two conditions, the smoothness of the road
and the quality of the springs. A road can never be so smooth
‘that -we can do away with the springs. But the bumpier it is, the
better our springs will have to be. Now as regards economic
stability, the prospects of a smooth road are worse than ever; we
must expect that it will even get bumpier in spite of all the refine-
ments of the business cycle policy. It is logical that we must
therefore provide better springs so that our economic and social
system will be in a better position to absorb the shocks. It can
easily be seen that the program of economic and social reforms
which we have sketched here has, apart from other points, also the
effect of greatly improving a country’s internal resistance to shocks
because it. combats proletarization, agglomeration and organiza-
tional “over-complication and thereby the actual causes of the


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AVENUES OF APPROACH AND EXAMPLES 227

economic upsets while minimizing their consequences for the
individual.

Speaking in medical terms, such a program of social reform is,
therefore, not a therapy which only deals with local symptoms
but one which overhauls the whole constitution and aims at recon-
ditioning, and as it strikes at the root of the social problem it is
truly a radical policy. As such it must, as we saw above, aim at
a widespread diffusion of property without being afraid of using
the appropriate means to effect the smoothing down of sharp
differences in property. Its goal must not only be de-proletarization
but also what we describe by the rather vague and easily misused
term social justice. If one spends some thought on this concept one
will finally realize that it essentially rests on a particular concept
of social equality, a form which L. Walras in his Etudes d’ économie
sociale called “égalité des conditions” as opposed to the inevitable
“inégalité des positions.” In the light of this goal it seems as just
to us that the starting conditions should be the same for all com-
petitors (‘“‘égalité des conditions,” equal opportunity) as that they
should be differently rewarded according to their different per-
formances (‘“‘inégalité des positions”). This gives us a framework
within which we can discuss in detail the manifold measures of this
type of social policy which we are, however, reserving for special
treatment.

Market Policy (Control of Competition and Restraint of
Monopolies)

~All partial measures in whatever field they may be taken and
however well thought out and necessary they may be, must always
be in harmony with, and converge toward the main goal of
economic reform: the goal of achieving that complete economic
order which seems the most desirable in the light of all the con-
siderations which have been discussed here at length. The center
of this economic order will, as we realized, have to be a free market
and genuine competition, in which, under fair and equal conditions,
the success of the private enterprise will be measured in terms of
its service to the consumers (“performance competition”). How-
ever, a free market and performance competition do not just occur
—as the laissez-faire philosophers of historical liberalism have
asserted—because the state remains completely passive; they are
by no means the surprisingly positive product of a negative
economic policy. They are, rather, extremely fragile artificial
products which depend on many other circumstances and pre-
suppose not only a high degree of business ethics but also a state
constantly concerned to maintain the freedom of the market and
of competition in its legislation, administration, law courts, financial


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228 THE SOCIAL CRISIS OF OUR TIME

policy and spiritual and moral leadership, by creating the necessary
~ framework of laws and institutions, by laying down the rules for
competition and watching over their observance with relentless but
just severity, In economic life, too, the saying holds good that
liberty without restraint is license, and if we desire a free market
the framework of conditions, rules and institutions must be all
the stronger and more inflexible. Laissez-faire—yes, but within a
framework laid down by a permanent and clear-sighted market
police in the widest sense of this word. The freedom of the market
in particular necessitates a very watchful and active economic
policy which at the same time must also be fully aware of its goal
and the resulting limits to its activity, so that it does not transgress
the boundaries which characterize a compatible form of interven-
tionism.

As we can only make a selection from the abundance of the pro-
blems confronting the market police, we restrict ourselves to one
which is more important and obvious than all the others: the
problem’ of monopolies. This problem is so palpably important
because the urgent necessity of combatting the monopolies cannot
be doubted as their economic and social harmfulness is almost
unanimously acknowledged. Wherever monopolies seem unavoid-
able for technical and economic reasons (particularly in the case of
the above-mentioned utilities), the state or the community will
have to be satisfied either with exercising a strict supervision over
~ the enterprises run by private monopoly or with changing the
private monopoly into a public one. Apart from that, however,
it will be a case of fighting the monopolies themselves and recon-
verting them into part of the competitive market, realizing that
they present one of the worst perversions of our economic system
and, at the same time, that they can only be effectively combatted
by elimination, not by supervision.

Monopolies are in fact a falsification of the market economy,
constituting a privilege and at the same time a violation of the
principle that higher profits can only be gained through correspond-
ing performance which is determined by the unhampered play of
supply and demand (principle of a fair guid pro quo, an equivalence
of reciprocal services). Not only are monopolies socially intolerable
but they also interfere with the economic process and act as a brake
on productivity as a whole. An economy infested with monopolies
will succumb to a slow process of auto-intoxication of a chronic |
character, becoming acute in its later stages and bound to destroy
the market economy completely and with it the democratic and
liberal structure of state and society. The economic system loses
its elasticity and adaptability; the rigidity of the market paralyses
the numerous balancing factors, thereby aggravating and lengthen-
ing the economic crises and retarding recovery. Monopolistic


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AVENUES OF APPROACH AND EXAMPLES 229

privileges dull all efforts to give the best possible services and lead
to an economically, socially and politically unbearable agglomera-
tion of economic power, resulting in an increasing concentration
of the control over the whole process of the national economy in
the hands of a few who need render no account, whereby the work-
ings of the economic process are progressively obscured. This
obscurity becomes the breeding ground for all manner and degrees
of corruption; it becomes more important to them that public
opinion should be misled and that the advantages gained should
be held by any means, than that the consumer’s demands should
be satisfied as plentifully and cheaply as possible; instead of the
maxim “large turnover and small profits” we now have the opposite,
“small turn-over and large profits,” and eventual possibilities of
increasing sales by decreasing prices remain unutilized because
monopolies may prefer the combination of high prices and little
production; monopolies permit an arbitrary differentiation of prices
to the advantage of one group of buyers and to the disadvantage of
other groups; the price policy of monopolies withholds from the
consumers the better and cheaper possibilities of living provided by
technical progress and mass production and halts the equalizing
mechanism which, if there is free competition, sees to it that the
workers who have become unemployed due to technical and
organizational progress find new work in a short time.

If we identify the “public interest” with that of the consuming
community it is clear that monopoly violates this interest. It leads
to an allocation of productive forces other than that corresponding
to the preferences of the population with regard to what and how
much of everything wanted shall be produced. Most arguments
in favor of some organizational and technological advantages of
monopoly (e.g., that it facilitates mass production) miss this point.
Just to give a hint as to what I have in mind: monopolistic con-
centration of the press may make the newspaper much cheaper,
but what do we read there? The cheapest of all, indeed, would be
the single paper of the totalitarian state which has no rivals any
more. We must not assume that monopoly is an obstacle to tech-
nological “progress” as such, but it is likely that it favors that sort
of progress which is less wanted on the base of the subjective
valuations of the consumers, and to retard that which is really
wanted. We all want better and cheaper houses, but here all sorts
of monopoly—not to forget labor monopoly—are in the way con-
demning millions in the industrial countries to satisfy one of the
most essential wants badly and at excessive costs. :

Privileges, exploitation, rigidity of the market, the distortion of
the economic process, the blocking of capital, the concentration of
power, industrial feudalism, the restriction of supply and produc-
tion, the creation of chronic unemployment, the rise in living costs


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230 - THE SOCIAL CRISIS OF OUR TIME

and the widening of social differences, lack of economic discipline,
the uncontrollable pressure on state and public opinion, the trans-
formation of industry into an exclusive club, which refuses to accept
any new members—all these comprise monopolism’s list of sins and.
we are not even sure whether we have completely exhausted it.
To avoid any impression of sanctimoniousness we add that, mutatis
mutandis, the labor unions, too, may develop extremely harmful and
dangerous monopolistic powers, particularly when they have suc-
ceeded in obtaining the privilege of being the sole representatives
of the workers and have received extensive powers from the state.
Among others, the well known encroachments committed by the
labor union leaders in the United States teach us that this is not
an exaggerated assertion.

In order to be able to estimate the chances of successfully com-
batting ‘monopolies, we must remember that in the great majority
of cases it was the state itself which through its legislative, adminis-
trative and judicial activities first created conditions favorable to
the formation of monopolies. There are in fact not many mono-
polies in the world which would exist without privileges having
been consciously or unconsciously granted by the state, or without
some sort of legislative or administrative measure, legal decision
or financial policy having been responsible for it, and the fact that
hardly any one today properly appreciates this connection makes
it all the more dangerous because it makes the actual power which
the state can exercise over the monopolies appear much less than it
actually is. That the state acted as midwife is quite clear in those
cases where a monopoly was expressly granted by a special charter,
a procedure which is particularly characteristic of the early history
of European monopolies. Even then, however, the grant of mono-
polies appears to have been a sign of the state’s weakness since the
state in this way usually tried to free itself from debt, as for example
when in Germany Maximilian I granted monopolies to the Fuggers.
To similar transactions the Bank of England (1694) and a large
number of the big British trading companies owe their existence,
and even in our days it was possible for a man like Ivar Kreuger
to persuade weak states—among them even the Weimar Republic—
to enter upon an infamous agreement granting him the monopoly
for the manufacture of matches in return for his taking over the
national debt.

It is very useful to recall that in monopolism’s early days and
right up to the nineteenth century, certain legal rights were estab-
lished by granting individual privileges which today, due to a
most regrettable trend of events, have lost their character of being
exceptional and have become a matter of course, so much so that
most people have completely forgotten that these rights were
originally based on privileges granted by the state and, in spite of


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AVENUES OF APPROACH AND EXAMPLES 231

their everyday legal aspect, are still that. We are thinking in par-
ticular of the legal status of patents and corporations which have
proved to be of such importance for the development of modern
monopolism. Today we accept both as a matter of course. We,
therefore, have to do some thinking and look back into history in
order to realize that these are legal institutions which are of very
recent origin and were only created after long debate during which
the very serious dangers they involve were clearly recognized. As
regards patents, there can be no doubt that they are nothing but
monopolies expressly granted by the state, with the peculiarity,
which accounts for the existence of a patent law, that patents seem
justified because they protect intangible property. In order to
appreciate fully the effects of the present day patent laws one
need only imagine them as abolished in their modern sense and
replaced by compulsory licensing, thus leaving the fair compensa-
tion of the inventor untouched but depriving big business mono-
polism of one of its chief supports. k
The responsibility which the corporations bear for the develop-
ment of monopolism is not as plain, and yet it is perhaps the
greatest of all. Only, in this case, the relationship is not direct,
since the issue of the charter of incorporation does not immediately
grant a monopoly as in the case of patents, but creates the conditions
necessary for the agglomeration of capital and concentration of
manufacturing processes which stamp a great deal of modern
industry as more or less monopolist. Although big business and
monopolies are not necessarily identical, it is obvious that as an
enterprise grows and the number of competitors shrinks correspond-
ingly, the possibility of a monopolist or semi-monopolist control of
the market increases, that the market is further and further removed
from free and genuine competition, and that the agglomeration of
capital and economic power results in a predominance which easily
clears the way to monopolies.
~ This is where the problem of optimum sized plants and the
problem of monopolies meet: everything that tends to expand the
size of plants or enterprises promotes monopolies, just as anything
which counteracts such expansion at the same time promises effec-
tively to counteract monopolies. No one can doubt that corporations
not only greatly further the concentration of enterprises but in
many cases have alone made it possible. If our economic system
can with some justification be called “monopoly capitalism” it is
because it has to such a far reaching extent become a system of
“corporate capitalism,” but this corporate capitalism is the creature
of legislation, a product of the work of corporation lawyers and
an edifice which rests on the thoughtless multiplication of con-
cessions which the state granted originally only after a most careful
consideration of each case and as an exceptional and solemn event.


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232 : THE SOCIAL CRISIS OF OUR TIME

Today we realize how problematical this legal creation is from
every. point of view, since the discussion concerning the reform of
corporation law seems never ending and has already led to several
revisions. Although we are still far from being able to find an
answer to all the questions which have arisen, it nevertheless seems
as if agreement has been reached on several points. This applies
especially to the manner in which the misuse of corporations leads
to a particularly questionable interlocking of enterprises, made
possible by the establishment of holding companies. It is signi-
ficant, for example, that in the United States today the battle against
monopolies concentrates chiefly on the holding companies whose
prohibition would indeed restrict the corporations to that function
which alone can justify their dangerous privilege: the raising of
capital in cases where large scale production is inevitable. It is
also quite obvious that investment trusts and limited liability com-
panies require strict supervision and that the huge capital concentra-
tion in the hands of the life insurance companies presents a grave
danger unless there is a thorough overhaul of the rules governing
investment. In all these respects the experiences of the United
States are particularly valuable and lately the reports of the govern-
ment instituted Temporary National Economic Committee have
given us an impressive picture inviting suggestions for reform.

In the case of patents and corporations the state itself has
forged and is protecting the legal instruments by which monopolies
can be established, but the position is the same where monopolistic
power is based on an agreement between independent enterprises
(cartel agreements) to which the state is granting legal protection
and support by legal sanctions. As it could just as well refuse to
extend such protection to a monopoly agreement, and that common
sense would regard such a refusal as most natural, we see that here,
too, the state is expressly granting monopoly concessions, and of the
most dangerous kind to boot. No one, for example, can doubt that
the economic development of Germany would have been quite
different and much less hampered by monopolies if the German
Supreme Court decision of 4th February, 1897, had not created a
precedent and legalized cartels, in contrast to the United States
where they have been outlawed since the Anti-Trust Law of 1890
(Sherman Act).

But even if the state creates the necessary conditions for the
establishment of monopolies by specific or general, conscious or
unconscious, direct or indirect concessions, their development is
effectively kept in narrow limits as long as they are confined within
the national frontiers and have to compete on equal terms with
foreign enterprises. This barrier is only removed when the par-
ticular monopoly either becomes international or is protected against
foreign competition by the state’s throttling imports, and here it


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AVENUES OF APPROACH AND EXAMPLES 233

should be noted that even an international monopoly as a rule
presupposes that the particular group of countries exercising each
national group is protected by tariffs. From this it follows that
in a large number of cases a protectionist trade policy may not be
a sufficient, but certainly is a necessary condition for the formation
of monopolies. While the protectionist countries, Germany and
the United States, have at the same time been foremost in develop-
ing industrial monopolism, free trade, although not preventing the
(desirable) formation of business pools for the purpose of rationaliz-
ing production and reducing costs, effectively prevented such pools
from following a monopolist market policy, and not until protective
tariffs had provided the necessary conditions in 1932, did English
industry in a surprisingly short time and to a really frightening
degree assume monopolist forms.

There is no need to explain in great detail that all these mono-
polies which the state has created present as many possibilities of
effective counter-measures as in each case the state actually only
needs to take back what it has granted. But this by no means
exhausts the possibilities of anti-monopolist measures. Not only
can the state put a stop to monopolies by avoiding all action that
might promote their formation, it can go further and supplement
or replace its passive anti-monopolist policy by an active policy, by
attacking the causes of monopolies outside its sphere—for example,
certain forms of advertising—by trying to re-establish competition
through setting up its own enterprises or by favoring the develop-
ment of private competitive business, or finally, by prohibiting
monopoly agreements and heavily penalizing violations of these
prohibitions. That this last mentioned method is quite feasible
has been proved by the example of the United States where the
Sherman Act of 18go prohibits all monopolies and all monopoly
agreements and even today is still the basis of commercial law in
America. If this law has so far proved to be so ineffective it is
due to the American government at the same time doing every-
thing to further monopolies indirectly, particularly by increasing
tariff rates. Thus the American anti-trust law is an attempt to carry
on the battle against monopolies even when no change is made in
the economic conditions which favor it. But even a struggle in
such difficult circumstances would have brought considerable success
if the law had been executed vigorously and interpreted sympathe-
tically by the courts. Both these factors, however, were notoriously
lacking until recently, but now that the Sherman Act is really
being seriously carried out, remarkable success can be recorded
which gives the lie to the dangerous defeatism regarding monopoly
policy, and proves that here, too, the state can effectively enforce
its authority if it so desires. | |

Finally, it should be noted that monopolist power can be success-


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234 THE SOCIAL CRISIS OF OUR TIME .

fully attacked from the side of demand by instructing and inform-
ing the consumer. It is particularly the notorious ignorance of the
majority of consumers as regards the goods they buy and their lack
of knowledge about economic budgeting which permit semi-mono-
polist concentrations and continuous infringements of the principle
of equivalent services in the market for consumption goods. Here
we are faced with a great task which has not yet been sufficiently
recognized and in whose solution housewives’ associations, con-
sumers’ co-operatives, small traders’ organizations, schools and
public bodies should share. :
Summarizing our findings, we emphasize that the general
principle should be the destruction of monopolies instead of mere
monopoly control which is politically dangerous and mostly
illusionary. How this is to be done depends on the various causes
of monopolies which must be explored in each case and attacked
accordingly (tariffs, subsidies, privileges, abuse of publicity, patent
laws, company laws, laws and jurisdiction on all sorts of economic
associations, &c.). As a background of such a policy an Anti-trust
law after the American example (without its drawbacks and lack
of enforcement) would be necessary in order to establish the funda-
mental legal principle of a competitive society. Besides that we
recommend a policy of encouraging competitors (private, co-opera-
tivist, or public) wherever markets have become sticky (e.g., in the
highly important case of the building industries). For the public
utilities we favor governmental (or municipal) monopolies undef
strict control of representative democracy. An important help
might be the establishment of a special state board charged with
the thorough investigation of all cases of monopoly and with X-ray-
ing the whole structure of the economy wherever there is some-
thing shunning the light. The findings of this board would get
the widest possible publicity, which, in itself, would be an efficient
measure against monopoly. They would also be used by legislation
or jurisdiction as instruments of anti-monopoly policy. ~~
The recommendation to make public utilities governmental
monopolies has not been given by us without a good deal of
reluctance. Any enthusiasm in this respect will be damped by the
well-known experiences which have been made almost everywhere
with public enterprises. In theory, public monopolies might be
geared consciously to the common interest, and in the case of the
state-owned (municipal) public utilities we must cling desperately
to this hope. In practice, however, everything depends on the kind
of government and on the kind of monopoly. The more mono-
polies are taken over by the state, the more likely it is that the
government will be of the wrong kind. » :
The case of the public utilities is the only concession we would
be prepared to make to the idea of public monopolies, and even this


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AVENUES OF APPROACH AND EXAMPLES 235

‘we do only grudgingly and with an open mind for the possible
«disadvantages of this solution. Generally, we do not consider the
nationalization of private monopolies, as projected by socialist
governments, as an adequate solution of the monopoly problem.
On the contrary, nationalization would create the worst possible
monopoly, that of the collectivist state, while we have no guarantee
that it will be even exploited in the public interest (which would
be very hard to define, anyway).

Let us finally stress that we must combat most energetically the
defeatest notion that “monopoly has come to stay.” The return to
a genuinely competitive society is possible if we want the conditions
necessary for such a return. One of the most important among
these is in our view a simultaneous change of our whole economic
and social system in favor of drastic decentralization of cities and
industries, of the restoration of some more “natural order,” more
rural, but less urbanized, mechanized, industrialized, proletarized
and commercialized. People will not like to face competition unless
they have some firm stand. They must not feel lost in this present
dehumanized world. Competition is a necessary social arrangement
not a social gospel likely to make us enthusiastic. It is a negative
concept which derives its strength from the fact that we like the
alternatives, i.e., monopoly and collectivism, even less. It must be
supplemented by something which is humanly positive.

An International New Order

We have purposely left the question of an international new
order until the end of this book and have at the same time incurred
the disadvantage of not being able to devote the space to it that it
deserves. Our reason for this is twofold. Firstly, it should by now
be plain that the international reform of our economic system must
not only correspond in its basic aspects to the reforms carried out in
each country, but in fact presupposes such reforms, just as the
decay of the international economic order for the past decades can
only be.understood in terms of the decay of the national market
‘economies. Here too, charity begins at home, and nothing seems
to us to illustrate the confusion of our world better than the fact
that many recommend the return to a liberal international economic
order but favor collectivist tendencies at home without even realiz-
ing that they are contradicting themselves. Secondly, however, it
is obvious that the instability of the international situation today
(1941) imposes on us a certain restraint when discussing inter-
national affairs in view of the uncertainty of future developments.

But whatever shape the world of the future will assume, one
thing is certain: after this war and for the first time for innumerable
ages truly gigantic problems will have to be faced and solved by


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236 THE SOCIAL CRISIS OF OUR TIME

humanity as a whole notwithstanding all the devastation’ and
passions which the war will have left in its wake. Let us explain
what is at issue. Ethnology, anthropology and philology seem to
‘be in agreement today on the “monophyletic” origin of man from
a primeval horde, closely knit and maintaining peaceful relations by
virtue of a common language, descent and surroundings, and thus
the progress-drunk picture of history of the past century, with
which we have already dealt, is completely reversed. It is becom-
ing more and more likely that originally there really existed a
society living in a small and easily surveyable area, closely confined
by natural obstacles, a society in which unity, friendliness and peace
reigned and whose members, fighting an arduous battle against the
forces of nature, had neither cause nor taste for killing each other.

If this hypothesis—which in a strange way recalls the old myths
of the “Golden Age” and the “Tower of Babel”—is correct, we
can confidently assert that after thousands of years mankind today
finds itself for the first time once more in a position which in
decisive aspects is similar to the starting point.

After thousands of years of segregation and wandering, man-
kind has once more reached the borders of a thoroughly familiar
world which this time encompasses the whole planet and in which
we find practically everywhere men to whom we feel related at least
as regards outward living conditions. This earth no longer harbors
anything strange that might attract the adventurous and rapacious;
it has been divided up and whoever wants to expand his domain
can only do so by trespassing on the property of men of his own
kind. We have completed the inventory of our planet and know
now that there are no empty spaces, no other Mississippi valley,
no second Argentine, no new Canada, open to mass settlement,
and it is perhaps our good fortune that now, when the earth is
fully populated, the truly unique population increase of the last
century seems slowly—much too slowly, in truth—to be ebbing.
These billions of people who are jostling each other on the earth
today are not only conditioned by the increasing uniformity of
their civilization, but are, at the same time, dependent on an
apparatus of mass supply which spans the whole earth and forces
them to co-operate in the economic field whether they want to or
not. If we add to this that progress in communications has led
to a tremendous shrinking of distances, we can say without
exaggeration that the majority of mankind today live in a closer
and more active social and economic relationship than did the
subjects of any of the great empires of the past. The individual
nations have become like cantons that will have to decide how to
adjust themselves to this development.

After decades of fumbling a decision will at last have to be
made, now that all the inadequate solutions have been tried oui


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AVENUES OF APPROACH AND EXAMPLES 237

and everyone has come to realize the real reason why the world
cannot get peace: the intolerable contradiction between those forces
and necessities which strive for co-operation on the one hand and
international political anarchy on the other, in short, between the
necessity for international integration and actual disintegration,
between ruthless nationalism and a world-wide development of
trade and civilization. This contradiction must indeed be recon-
ciled, but none of us will doubt that it is a task more difficult than
any which mankind has ever had to solve. Here, as always,
the first step toward a solution consists in our clearly understanding
the nature of the problem, soberly estimating the possibilities of a
solution and then plainly announcing the conclusions which force
themselves upon us, while leaving it to the statesmen to make such
use of them as they believe they can answer for before history.
The period between 1814 and 1914 has proved that, with good \\
will all around, the solution of the problem is not impossible. At
that time there really existed an international economic order worthy
of this name, which fulfilled those conditions which alone give
meaning and permanence to international economic integration.
~ This international economy was not merely the aggregate of foreign
trade statistics of the various nations but a genuine organic unit in
the sense of an interdependent system of international economic
relations. As such the international economy was at the same time
“multilateral,” i.e., able to move freely without being hampered
by exchange controls, clearing agreements and quota regulations
(bilateralism) and able therefore to transfer import and export trans-
actions from one country to another whenever necessary, and in
this way profit from any change in prices (“arbitrage”), thereby
bringing about a real price union without which no genuine
economic integration is possible, nationally or internationally. The
canalization of international economic relations as they have become
customary today in the age of clearing agreements, was unknown,
but that in turn presupposed that world trade had at its disposal
a genuinely international currency system, a condition which, as is
known, was met by the gold standard. Thus this world economic
order was necessarily not only a market and a price union, but at
the same time a payments union. Indeed, the one is not possible
without the other and once one has admitted the necessity of an
international economic order, one will also have to accept its condi-
tions for better or for worse. But all this presupposed that the
individual states’ interventions in international trade were restricted
to such measures as—being of a compatible kind—might reduce
full economic integration but could not disrupt it. These interven- #
tions consisted chiefly in import tariffs whilst Great Britain and .
her crown colonies—supported by the liberal commercial policy


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238 THE SOCIAL CRISIS OF OUR TIME

of smaller countries—represented the free trade core of the inter-
national economic system. oo

All these conditions, on the fulfilment of which our former and
indeed any world economic system depended and depends, them-
selves presuppose another factor of a higher and extra-economic
nature, viz., the existence of the firm political and moral frame-
work of an international order. Economic integration—a network
consisting of the division of labor, the mutual exchange of products
and the specialization of production, coupled with the precarious
dependence which it imposes on the individual worker—cannot
extend further than the sphere of political, social and moral integra-
tion which guarantees a minimum of law, order, security, and
dependable ethics. And conversely, political, social and moral
disintegration, the decay of the indispensable extra-economic frame-
work, will sooner or later entail economic disintegration. This
constitutes the simplest and most elementary law of economic
history, which allows of no exception; and it also explains the
dissolution of the modern world economic system.

The grave risks involved in the intricate inter-dependence of
individuals can only be borne if a strict legal order and an
unwritten but generally recognized code of minimum ethical
standards ensure that all members of a society based on the division
of labor, feel secure in an atmosphere of mutual confidence and
safety. Economic integration—i.e., an extensive form of the division
of labor—can only develop to the extent to which the conditions
providing a successful legal system and an accompanying ethical
code are fulfilled. While within the national economy the com-
munity and the state guarantee law and order, an intensification of
international trade has always resulted in particular difficulties
because the establishment of international order belongs among the
exceptional achievements of world history. If, in spite of that,
world trade could develop so fabulously during the nineteenth
century, we find that it was due to that century really succeeding
in establishing an international order which however distant from
the ideal state, represents nevertheless an achievement whose extent
we can only today recognize in its entirety. What was the nature
of this order?

Today we are agreed that the Middle Ages, however much we
may find fault with them in other respects, possessed to a very high
degree an international order which lost none of its effects because
it was essentially of a moral-theological nature and its denomina-
tional limitations confined it to Christendom. After this order, on
whose basis a remarkable “medieval world economy” was deve-
lopéd, had been disrupted by the evolution of national absolutism,
Europe was engulfed by an anarchy in which law, order and

security threatened to disappear and in which, as under the “law


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AVENUES OF APPROACH AND EXAMPLES 239

kh

of the jungle,” the weak were completely at the mercy of the
strong. The creation of a new international order became impera-
tive, and the entire European history of the last four hundred years
may be looked upon as one great struggle for the solution of this
gigantic task. Three ways were open, and all three have been tried
with varying success. The first is the co-operative method—a firm
international organization of states, a “Civitas Maxima” (Christian
Wolffy—and this concept engrossed leading European intellectuals
again and again, whilst the League of Nations was the first and
unfortunately unsuccessful attempt to translate it into practice.
The second way is the imperial way, the establishment of a
European empire by force, but here again all attempts—from
Charles V to Napoleon—have miscarried, fortunately for Europe,
and until today it has been England’s historical mission always to
help avert this misfortune in her own interest. There only remains,
then, the “Third Way,” which. Europe—lately together with the
entire civilized world outside of Europe—has successfully followed :
the way of that international order which we saw at its peak in the
nineteenth century and which we shall proceed to describe now.

It has become customary to call the international order of the
nineteenth century a Pax Britannica in which the Pax Romana of
antiquity and the Pax Christiana of the medieval Church are
supposed to have found their direct successor. It is true that
England’s predominant position—approximately from the Treaty
of Utrecht until the First World War—was an essential pillar of
world trade whose decay England should not have regarded with
equanimity, if only in the interest of world trade, without helping
to procure a modern substitute. But we must not be content with
this as yet very crude conception. We must first of all note that
hegemony may mean very different things. While it is absolutely
correct that the liberal world order can hardly be conceived without
the core of British power, trade and finance, it is nevertheless
decisive that this core itself was, after all, liberal and thus made
possible a liberal world trade, and that is precisely the reason why
the world in the last resort tolerated the British Empire. Of
course, this core would not have been able to lead without the
power and prestige of the British Empire, but this is no valid
objection to a liberal world economy and even less is it a justification
for an un-liberal world empire, of which we may doubt whether it
could even exist. It is at any rate significant that the British Empire
became much more open to criticism the moment it renounced, a
decade ago, the liberal tradition, and took the path of economic
nationalism.

‘We must further remember that the Pax Britannica was only a
part of the international order which assured world trade, and
perhaps it was not even the most important one. It is a wrong


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240 .. THE SOCIAL CRISIS OF OUR TIME

view, derogatory to the non-British world, that in the final analysis
only English sea power has kept the globe in order to the degree
required by an intensive and multilateral world trade. No, all
civilized countries participated in this as long as they looked upon
tacit respect for an unwritten international order—a secularized
Pax Christiana—as a matter of course. A network of long-term
treaties spanned the world, based on the universally acknowledged
law of nations, the adjustment of tensions between large and small
countries—the often misinterpreted “balance of power”—an inter-
national monetary system (the gold standard) and a high degree of
consensus on the concepts of law and national legal norms. This
external order was pervaded by an atmosphere of a certain loyalty
and fairness in international relations which made it unchivalrous,
dishonorable and inconsiderate to overstep certain limits of national
egoism and to disregard obligations and “rules of the game.” This
secularized Pax Christiana was the true basis of world trade at the
destruction of which the ideological termites had worked for
generations until suddenly the proud and recently refurnished
edifice collapsed.

There is no point in decrying this liberal and multilateral world
economy unless first of all one understands and appreciates its
greatest achievement, for only thus can we recognize how difficult
are the problems with which a reconstruction of the world economy
confronts us. Not only did it provide that world-embracing
apparatus for satisfying the needs of the masses without which our
world, notwithstanding all autarkic tendencies, is no longer con-
ceivable, but beyond that—and just because it was a true, ie., a
multilateral, economic world order—it ensured the political neutra-
lization of international economic relations in a manner which has
already been described in this book. Only now that this true
world economy no longer exists and a number of piecemeal
exchange relations have taken its place, can we realize the true
extent of that achievement and the urgent necessity again to create
an equivalent, if we want to give peace and order back to the
world.

But how can the reconstruction of a genuine world economic
order be effected? Will the regional or continental blocks, which
have been discussed so much recently, play an important role in
it? It is impossible to discuss this unless one has previously
agreed that these “Grossraiime” look very different according to
whether they are open or closed, whether they are of a co-operative
or imperial character, whether they are welded together by com-

pulsory bilateral agreements or whether they afford free “multi-
laterality.” Now, if the “Grossraiime” are closed and imperial
and of a. compulsorily bilateral character, they cannot be expected
to solve the problem of the reconstruction of a genuine world


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AVENUES OF APPROACH AND EXAMPLES 241

economic order. They would merely perpetuate the war of all
against all, since one could not rely on a permanent saturation of
such autarkic regions nor on a genuine balance of interests within
each area concerned. The dissolution of the world economy into
such areas is the expression and the result of international dis-
integration, it may even be its climax, but it represents by no means
a victory over it.

The evolution of economic “Grossraiime” which we have
witnessed for the past decade is indeed nothing but a manifestation
of that process of bilateralism in the world economy whose last
stages are compulsory clearing agreements. Compulsory bilateralism
is, however, only another term for the disintegration and decay of
the world economic order, which is quite incompatible with such
a two-sided compulsory relationship and can only be conceived as
multilateral. . Only when it is multilateral is the world economic
order, just as any national economy, a market, price and payments
union, and only then can it also be a production union. However,
multilateralism is quite incompatible with any trade policy making
use of more than a moderate degree of protective tariffs. A mult
lateral world economy presupposed that international trade is
uncontrolled and that that equality of trading conditions obtains
which was formerly guaranteed by the most-favored-nation clause
incorporated in commercial treaties, but it also requires that in no

case should there be clearing compulsion (a compulsion which is

no less detrimental to multilateral world trade, even if several
countries are parties to it). The old form of multilateral world
trade represented an extremely functional and intricate switch-
board where the economic relations between the nations were
related to each other in such a manner that the industrial states could
obtain their industrial raw materials without the slightest difficulty
by re-exporting their products sometimes by way of several other
countries, and where the nations producing raw materials could
sell their products on a uniform world market, and could pay
for their foreign debts and keep their currencies in order without
chronic difficulties. If at that time the industrial states had neither
a raw material problem nor a foreign exchange problem (in present-
day jargon, “a dollar shortage”), the key to that mystery was the
multilateral character of world trade, a discovery which, however,

many people still seem to ignore. This also gives us an idea of .

the devastating effects of bilateralism during recent times. It
destroyed the switchboard and short-circuited the world economy,
and the result was the decay of world trade and all its effects with
which we are faced today, its division into individual blocks, its
politicalization, the destruction of its market, price and payments
union, and, finally, the sudden appearance of a “raw material
problem” which began to harass several industrial nations.


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242 THE SOCIAL CRISIS OF OUR TIME

If, therefore, we must seck the true solution in exactly the
opposite direction, the obvious way is, of course, a return to:a
liberal and multilateral form of world trade with tolerable tariffs,
most-favored-nation clauses, the policy of the open door, the gold
standard, and the elimination of closed compulsory blocks (with
their machinery of exchange controls and clearing agreements). It
is very easy to acquire the reputation of being a realist by declaring
such a return to be utopian. No doubt it is that, but saying so will
not get us anywhere; rather, a careful study of all the obstacles in
the path should be made in order to ascertain under what condi
tions the essentials of a genuine (i.e., free and multilateral) world
economy can be realized. By adopting this procedure, we are trying
to solve the problem of reconstructing the world economy by a
“Third Way,” too, i.e., by an economic and social structure which
releases us from the sterile “either—or” of collectivism and laissez-
faire and which seems to us the only possible way out, both domes-
tically and internationally. We get a clearer idea of what this
“Third Way” looks like in the world economic order if we
remember that there are two chief obstacles in the way of the
establishment of free and multilateral world trade: the ambitious
aims and collectivist methods of present-day domestic economic
policies (the decay of the market economy) in every country, and,
very closely linked to these, international political anarchy.
~~ The former obstacle can only be overcome by finding a solution
for the problems of domestic economic policy which is in keeping
with the program of the “Third Way” and which, not being collec-
tivist in domestic affairs, also does not place collectivist shackles on
foreign trade. The second obstacle, however, forces us to the con-
clusion to which all such thoughts must necessarily lead: the
necessity for a true world union, whose structure must be genuinely
federal, i.e., composed of regional and continental sub-groups.
That is the positive content with which we can endow the concept
of international blocks. No one is naive enough to believe that
such a transformation can be carried out without the leadership of
a dominating group of nations. It is our firm conviction, however,
that such a group will dominate and lead permanently only if its
actions are ruled by the insights which have been traced here, if
it arranges the world in accordance with the concepts of liberty
and equal rights and the old principle “suum cuique,” and if it
considers its task as a trusteeship which devolved on it in one of
the most critical moments of the history of mankind. The decisive
“factor will not be outward power, but in the last analysis solely
intellectual and moral maturity. |


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AVENUES OF APPROACH AND EXAMPLES 243

PART TWO—NOTES TO CHAPTER III

Note No. 1 (page 201). Peasantry and peasant agriculture:

The problems discussed in this chapter are more fully dealt with in my
book International Economic Disintegration (London-New York, 1942,
Part IV). There I wrote (pp. 112-113): “The author is fully aware that the
word ‘peasant,’ having clearly disparaging connotations, is no real equivalent
to the French word ‘paysan’ or the German word ‘Bauer.’ It is clear, how-
ever, that the word ‘farmer’ must be reserved for a special type of agricul-
turalist who often is not a ‘paysan’ or ‘Bauer.’ Other terms which have been
suggested to the author by his Anglo-Saxon friends—like ‘agricultural
freeholder’ or ‘farmer yeoman’—sound too artificial and laborious. The only
possibility left, then, would seem to be to retain the word ‘peasant,’ and to
ask the Anglo-Saxon reader to forget for the moment its pejorative sense
until a better term is suggested. That this is not an insolent demand is
proved by the fact that good English writers like G. K. Chesterton have used
it before in a clearly laudatory sense. It has been shown, therefore, that it
can be done. The reader should also be reminded that no less an author
than J. Stuart Mill wrote, in his Principles, special chapters which bear the
title ‘Of Peasant Proprietors’ (Book II, chap. VI-VII) and which, from
beginning to end, are a real panegyric on peasantry in the continental sense.
“The generality of English writers,” he says (Principles, ed. by Ashley, London,
1929, p. 256), ‘are no better acquainted practically with peasant proprietors,
and have almost always the most erroneous ideas of their social condition
and mode of life. Yet the old traditions even of England are on the same
side with the general opinion of the Continent” Nor should it be forgotten
that William Thornton published in 1848 his Plea for Peasant Proprietors, to
say nothing of Wordsworth and other poets. So we feel in very good
company. It is, of course, not without deep significance that it is so difficult
to find an English equivalent of ‘paysan’ and ‘Bauer,’ for if the thing itself
existed there would be a word for it. The rather disreputable sense of
‘peasant’ arises surely out of the fate of peasantry under British feudalism,
and the Anglo-Saxon settlers transplanted this sense to the United States and
the Dominions. It seems that in the United States the word has fallen still
more into disrepute by the fact that there the reminiscences of old-world
feudalism have been freshly supplemented by the new feudalism in the
Southern States, which was based on the subjection of people belonging even
to another race of a different color. It is more than probable, however,
that in the United States there are more real peasants in the very respectable
French, Scandinavian, Swiss or German sense than the habit of abhorring
the term itself would suggest. It is equally probable that on the average
they are quietly prospering, which explains why we hear so little about
them. At all events, the whole question is badly in need of a thorough
investigation.”

It must indeed not be forgotten that agriculture in the overseas settle-
ments—“farmer” agriculture—was in the main developed by peasants who
had escaped the feudal oppression of their European homelands and naturally
carried with them and perpetuated a conception of the peasant which dated
from that time and was not modified by the European liberation of the
peasants. Both in an economic as well as in a sociological sense the overseas
farming system contains generally only little of the peasant element. The
“farmer” system and the “peasant” system are two quite different types of
agriculture. Whereas the “old world” type of peasant agriculture has
developed historically from the self-sufficient peasant holding with its corres-


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244 THE SOCIAL CRISIS OF OUR TIME

pondingly diverse production program and only gradually has begun to
produce for the market, the basis of the overseas type of agriculture has
from the beginning been a specialized and commercial form of production
for the market. How near, however, the peasant system comes to the natural
form of agriculture is shown by the fact that overseas agriculture is gradually
adopting certain features of peasant farming, partly for reasons of efficiency,
partly in order to reduce the risks of a highly specialized and commercialized
form of farming. Characteristically enough, it is above all in the United
States that more and more experts are now recommending such a develop-
ment—even including the self-sufficient “subsistence farm.” This drive
converges with a development which can be observed in the agriculture of
the tropical countries. Here a capitalistic large-scale form of agriculture
has been developed which we call the plantation system. This system is not
only most regrettable from a social point of view, and perhaps for this reason
plus the growing emancipation of the colored people cannot be maintained
much longer, but is, at the same time, burdened with all the dangers of
capitalist overproduction, which has, particularly during the past ten years,
become an economic world problem. As in the case of non-tropical agri-
culture there are three ways of solving this problem: (1) unfettered and free
competition and non-interference with economic forces; (2) planned regulation
of tropical raw material production; and (3) the reconversion of capitalist
and speculative specialization and a return to the mixed farming methods
of the peasant. It becomes increasingly clear that the last mentioned solution
(the return to peasant methods in overseas raw material production) is the
‘method which—apart from being attractive from the human and social
aspect—seems the most suitable for overcoming an era of intolerable specula-
tive-capitalist exploitation. It also seems as if this development is beginning
to make its way in a quite natural manner, unless it is throttled, as in the
Netherlands East Indies, by state regulations in the interest of the plantation
corporations (cf. J. van Gelderen, The Recent Development of Economic
Foreign Policy in the Netherlands East Indies, London, 1939, page 53 ff.).
In favorable contrast to this is the plan of the Belgian Prime Minister, Paul
van Zeeland, to carry out a policy of introducing the peasant system in the
Belgian Congo (L’expérience van Zeeland en Belgique, Lausanne, 1940, page
187). In the cocoa growing districts of the Gold Coast, too, peasant agricul-
ture has proved successful among the natives. This development is a par-
ticularly good illustration of the essence of the “Third Way”: neither specula-
tive-capitalist large-scale enterprises, nor a mechanically planned economy, but
a third method—in this case, peasant agriculture.

It is, as a matter of fact, not only of philological interest but at the same
time very revealing in this context that the German world “Bauer” is not
derived from ‘bauen” (to build) at all, but from “Nachbar” (neighbor)—the
Dutch word for neighbor is to this day “buur”—and thus expresses the
friendly warmth of the village community. (F. Kluge, Etymologisches
Worterbuch der deutschen Sprache, 10th edition, Berlin, 1924, page 43.)

Note No. 2 (page 205). The special position of agriculture:

The following points will briefly stress the extent to which agriculture
occupies a special place as compared with other branches of production:

(1) It is in every aspect an organic process which is subject to natural
forces and has a number of important consequences (limitations of mechaniza-
tion and division of labor, constant necessity of conserving the soil by means
of a complex system of precautions, a tendency of decreasing returns,
irregularity and uncertainty of the harvest, the unchangeable rhythm of the
seasons or even longer periods necessary for growth, the difficulties of


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AVENUES OF APPROACH AND EXAMPLES 245

storage, necessity of mixed farming, a smaller optimum size of the enterprise
than in industry).

(2) The socially conditioned forces controlling supply and demand are of
a special character in the case of agriculture (little elasticity of supply and
demand, and consequently agrarian crises of a special type). For these
reasons no parallels can be found in agriculture for such phenomena as
unemployment, closing down of plants, advertising, formation of trusts,
financing by sale of securities and many others familiar to industry.

(3) Because of its peculiar structure, agriculture has specific problems of
agrarian credit, property, leaschold tenure and inheritance which result in
the grave problem of agrarian indebtedness.

(4) For various reasons agriculture has to struggle with a particular labor
problem which makes it difficult for it to compete with industry in the
labor market under the same conditions. This is actually another reason why
a family farm is preferable to a large agricultural enterprise.

(5) The sociological peculiarities of agriculture, make it not a business just
like any other but a form of living to which one is born. Hence the peasant’s
conservatism and love for tradition and the possibility of two farmers of
widely different ability existing next to each other. A peasant produces
primarily to cover his needs and only secondarily to sell a surplus, whereas
it would be silly to suppose that Mr. Ford first makes cars for his own
family and sells them only as far as some are left over.

All these peculiarities (and there are many more we could mention)
explain the recurrence and the particularly stubborn character of agrarian
crises and the special place agriculture occupies in the modern capitalist
system—Ileading to the question of how far it fits into this system at all.
There can be no doubt that during the past hundred years agriculture has to
a greater or lesser degree always been one of the problem children of
capitalist development and has called for special economic policies.

Cf. C. v. Dietze, Landwirtschaft und Weltbewerbsordnung, ‘“‘Schmollers
Jahrbuch,” vol. 66, 1942, pp. 129-157; C. v. Dietze, Bauernwirtschaft und
Kollektiv, “Schweizerische Zeitschrift fiir Volkswirtschaft und Statistik,” vol.
82, 1946, pp. 230-259; W. Ropke, International Economic Disintegration, chap.
IX; W. Ropke, Das Agrarproblem der Vereinigten Staaten, “Archiv fiir
Sozialwissenschaft,” volumes 58 and 59, 1927-1928.

Note No. 3 (page 206). Agriculture in Denmark and in England:

It is well known that Danish agriculture was able to develop in such an
exemplary manner under free trade after Denmark had decided to escape
the international wheat crisis in the 1870's and 1880’s by changing its agri-
cultural system from one-sided wheat production to more intensive cattle
raising largely on cheap imported feedingstuffs, instead of following the
example of Germany and other countries who decided to adopt an increas
ingly strict policy of protective tariffs. This energetic and courageous
re-adjustment required, of course, spiritual resources which Denmark found
among its excellent peasant stock and in the profound intellectual and
religious reform movement (people’s universities, &c.) which under the
leadership of Bishop Grundtvig, followed the defeat of 1864. Denmark’s
example contradicts the opinion based on the experiences of England, that
free trade is bound to ruin agriculture, and that sound agriculture must
be. paid for by a policy of protection and subsidies. This is a very crude idea
which pays no attention to the special and complicated conditions responsible
for the decay of English agriculture during the nineteenth century. This
decay overcame an agricultural system which had lost its strength, its vitality
and its social soundness because it had lost its peasantry. It was not free


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246 THE SOCIAL CRISIS OF OUR TIME

trade that injured English agriculture and forced it into dubious paths, but
the preceding destruction of the agrarian peasant order through feudalism.
This is also substantiated by the fact that even when English agriculture
‘was relatively prosperous—as during the time just before the First World
War—it continued its extensive trend (by way of turning arable land into
pastures) without interruption. “Unfortunately we cannot believe that the
establishment of a reliable price-system with good marketing as a basis for
the industry would be enough by itself. During the years before the war
when agriculture was doing well, land still continued to be laid down to
grass because a living could be got that way in place of more active cultiva-
tion” (Lord Addison of Stallingborough, A Policy for British Agriculture,
London, 1939, page 217). Cf. also Sir William E. Cooper, England’s Fatal
Land Policy, London, 1913.

Note No. 4 (page 207). Agricultural methods that ravage the land:

In all quarters suspicion is increasing today that the extravagant ideas
concerning the stepping up of agricultural production were due to technical
and mechanical conceptions which were most inappropriate for agriculture.
Danger signals are appearing which indicate that the most important pro-
duction factor of agriculture, i.e., the soil, exhibits definite symptoms of
exhaustion when too vigorously exploited by mechanical and chemical means.
The experience of the United States in this respect has become particularly
well known. Especially those semi-arid areas in the Middle West whose
initially so successful opening up was only fifteen years ago the bugbear of
the older wheat growing districts, have in the meantime deteriorated into
the dreaded “dust bowl” where the land, robbed of its humus, has become
a sandy desert: this, by the way, is the ghostly symbol of a society tired
and atomized by thoughtless mechanization. Everywhere—in India, Africa
and Australia, as well as in certain parts of Europe—soil erosion has become
a grave problem and there are experts whose pessimism goes so far as to
prophesy the most serious consequences for the food supply of the world
within a generation if the present tendencies of agricultural production should
continue. The often mentioned “steppefication” of Germany (due to. the
chemical forcing of the soil, thoughtless deforestation, and the consequent
lowering of the ground water level, the excessive exploitation of the soil and
the over-industrialization of certain areas) also should be mentioned here.

Note No. 5 (page 207). Reserves of demand for agricultural produce:

The League of Nations report mentioned in the foregoing chapter is the
“Report on Nutrition.” Cf. also F. L. M‘Dougall, Food and Welfare, Geneva,
1938. We quote here some figures to illustrate the growing importance of
the “new” foodstuffs: in 1938 the total value of the world export of fruit
was greater than that of wheat and meat, and from 1909-13 to 1934-35 the
consumption of fruit in England rose by 89 per cent. (E. W. Tessin, Welz
handel mit Friichten, Internationale Agrar-Rundschau, March, 1939).

Note No. 6 (page 209). Specialized production requires increased acreage:

In order to illustrate this important fact we quote the estimates of the
American expert, O. E. Baker (from “Internationale Konferenz fiir Agrar-
wissenschaft,” Leipzig, 1934, page 363):

Acreage necessary for the production of the annual food requirements per
capita (=1.4 million calories): :


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AVENUES OF APPROACH AND EXAMPLES 247

Sugar beets - - - 0.28 tomatoes -  - 1.47
cane sugar - - - 0.34 apples - - 235
potatoes - = - 056 pork and bacon - 3.10 + 0. pasture
corn meal - -  - 0x9 milk -  - 2.354 1.6 pasture

wheat flour - - - 145 beef - -  - 11.30+42.5 pasture

Note No. 7 (page 210). The sins of the wheat protection policy:

As a rule the wheat protection policies of the European countries were in
favor of large estates and detrimental to peasant agriculture, Cf. W. Ropke,
German Commercial Policy, London, 1934; A. G. Street, Farming England,
London; 1937; C. T. Schmidt, The Plough and the Sword: Labor, Land and
Property in Fascist Italy, New York, 1938. From a wider view: W. Ropke,
International Economic Disintegration, chap. XIII; L. Robbins, Economic
Planning and International Order, London, 1937, page 134 ff; and the League
of Nations monograph, Considerations on the Present Evolution of Agri-
cultural Protectionism, Geneva, 1935. :

Note No. 8 (page 213). Neo-feudal estates or collective farms:

It does not make much difference whether one calls the communal enter-
prises, consisting of a large central estate and surrounding peasant holdings,
which some agrarian reformers envisage, neo-feudal estates or collective
farms. In both cases their structure is in essentials that of the East-German
estate which subjects the peasants to a system of allowances in kind and
it is immaterial what more or less tempting name we give to this system.
As regards the Russian collective farms system one need only recall that it

necessitated one of the most cruel mass exterminations in order to overcome’

the opposition of the peasants to this new order and that subsequently the
Russian government saw itself forced to expand constantly individual peasant
farming again. It is most characteristic that the peasants on the Russian

collective farms as soon as they had been assigned private garden plots pro-

ceeded to farm these most intensively while neglecting their work on the collec-
tive farm and constantly reducing the latter by illegal means (“Economist,”
27th September, 1941). It seems that nothing in the world can serve as a
substitute for peasant ownership. And it must further be remembered that
the Russian peasant is far less attached to his land than his European counter-
part. On the Russian experience and on the fate of the German peasant
under the collectivist policy of the Third Reich, see the two studies by
Professor v. Dietze, mentioned in Note 2.

Note No. g (page 217). Policies encouraging the crafts:

Cf. Fritz Marbach, Theorie des Mittelstandes, Berne, 1942; Emil Anderegg,
Schweizerische Gewerbepolitik auf neuer Grundlage, St. Gall, 1940; W.
Ropke, Die Funktion des Klein- und Mittelbetriebes, “Handwerk und
Kleinhandel i in der modernen Volkswirtschaft,” St. Gall, 1947, pp. 21-40. A
thorough sociological investigation of occupations would have to consider that
several professions based on academic training also show traces ‘of the crafts-
man, for example, the occupation of the apothecary, which, however, due to
the development of large-scale pharmaceutical industries and the trade mark
system, is unfortunately, but characteristically enough, doomed to a process of
decline which one might describe under the heading “From Mortar and
Pestle to Drug Store.” It is possible that new trends in medicine may
bring about a desirable renaissance in this field.

Note No. 10 (page 218). Small traders:

On this comprehensive and much discussed subject consult : Richard


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248 THE SOCIAL CRISIS OF OUR TIME

Buechner, Einzelhandel und Mittelstandspolitik, Zirich, 1940, and Fritz
Marbach’s book mentioned above. We would mention that regarding this
subject one should refrain from dogmatism of any kind and consider the
best possible solution to be a balance of the various forms of enterprise in
the retail trade (small traders, consumers’ co-operatives, large trading enter-
prises). One will also have to distinguish between the various branches of
retailing and recognize—perhaps with a heavy heart—the particularly. pro-
blematic character of the grocer.

Note No. 11 (page 222). The optimum size of industrial enterprises:
As regards the influence which self-financing has on the size of an enter-

prise, cf. W. Ropke, Die Theorie der Kapitalbildung, Tibingen, 1929, page
18 f. In this connection it should also be pointed out that in Japan the
small industrial enterprise plays an outstanding role and has proved to be
very viable (T. Uyeda, The Small Industries of Japan, London, 1938; E.
Reubens, Small-scale industry in Japan, “Quarterly Journal of Economics,”
August, 1947). The industrial re-organization of China under Chiang-Kai-
Chek in the form of co-operative small enterprises (“Indusco”), also deserves
mention here. The whole question was recently thoroughly investigated in
the United States by the Temporary National Economic Committee (in par-
ticular in the report of the Federal Trade Commission, Relative Efficiency
of Large, Medium-sized and Small Business, Washington D.C., 1941) which
plainly proves the average superiority of the medium-sized and small enter-
prises.

Nobody who is really informed can deny either the strength of small
business in Switzerland or its beneficient effects, but there are some who
believe that the case of Switzerland can be dismissed as an exception. That
this is not true is proved by the fact that conditions in many other countries
(Wiirttemberg, Austria, Italy, Belgium, Holland, or France) are rather
similar. On the case of Wiirttemberg, see: Erich Preiser, Die wiirttember-
gische Wirtschaft als Vorbild, Stuttgart, 1937. General references for the
question of optimum size: S. R. Dennison, The Problem of Bigness, “The
Cambridge Journal,” November, 1947; A. D. H. Kaplan, Small Business: Its
Place and Problems, New York, 1948; T. K. Quinn, I Quit Monster Business,
‘New York, 1948; K. Gruber, Die Zusammenhinge zwischen Grosse, Kosten
und Rentabilitit industrieller Betriebe, “Zeitschrift fiir Nationalokonomie,”
1948; J. M. Blair, Does large-scale enterprise result in low costs? “American
Economic Review,” May, 1948; Colin Clark, The Conditions of Economic
Progress, London, 1940; W. Ropke, Civitas Humana; W. Réopke, Klein- und
Mittelbetrieb in der Volkswirtschaft, “Ordo,” Jahrbuch fiir die Ordnung von
Wirtschaft und Gesellschaft, vol. I, Godesberg, 1948, pp. 155-174.

On the problem of the geographical decentralization of industries (“dis-
persal”) consult: J.-F. Gravier, Paris et le désert frangais, Paris, 1947; E. T.
Peterson, Cities are abnormal, Norman, 1946; La Modernisation de la Vie
Rurale, Association des Maires de France, Paris, 1948; W. Ropke, Civitas
Humana.

Note No. 12 (page 223). The care of the sick and the problem of the medical
profession:

The economic and social aspect of medicine presents an extremely grave
and as yet unsolved problem which can be mentioned here only in passing.
But we may at least say that compulsory health insurance of a whole people
is no solution but merely one particular aspect of the general disastrous
collectivization and proletarization, i.e., part of that river which is carrying
its murky waters into the sea of collectivism. We cannot elaborate here what


===== PAGE 261 =====

AVENUES OF APPROACH AND EXAMPLES 249

form a true solution might take and the experiences one would have to
make use of in working it out. How much easier, healthier and more human
all such questions appear under the simple and neighborly conditions of the
open country is shown by the recollections of the author whose ancestors
were country practitioners as far back as the eighteenth century. Neither his
father. nor his grandfather nor his great-grandfather knew of anyone whose
poverty ‘excluded him from their medical assistance; their services were paid
or automatically in the way of neighborly intercourse, perhaps by wood
cutting in the fall or by lending a hand in the garden or in the fields. A
family doctor, in the sense of a secular confessor, only the landed gentry could
afford, but this was a luxury which had the advantage of permitting the
medical ancestors of the author the luxury of tending the poor. Human
relations were pleasant in every respect in this world until it was gradually
permeated by the collectivization which also invaded the open country, a
sad process which deserves to be described by some one who knows it from
personal experience and observation.

Note No. 13 (page 228). The fundamental error of the laissez-faire principle:

The old liberal concept of a state with a “neutral” function in economic
affairs is based on the completely erroneous idea that one can “do without”
the state in a differentiated social economy. But this idea is not feasible, as in
all circumstances the state must provide the legal conditions under which
the economic process takes place. Whichever method it adopts in determining
these conditions influences the economic order. Thus the state interferes in
any case, the question merely being how and where.

~ Note No. 14 (page 228). The sins of monopolism:

In this connection the following should be: consulted: Franz Boehm,
Wettbewerb und Monopolkampf, Berlin, 1933; E. Chamberlin, The Theory of
Monopolistic Competition, sth edition, Cambridge, Mass, 1946; W.
Lippmann, The Good Society, Boston, 1937; Walter Eucken, Foundations of
Economics, London, 1950; A. Wolfers, Das Kartellproblem in Lichte der
deutschen Kartelliteratur, “Schriften des Vereins fiir Sozialpolitik,” volume
180/1, Munich, 1931; A. Wolfers, Uber monopolistische und nicht
monopolistische ~~ Wirtschaftsverbinde, “Archiv fur Sozialwissenschaft,”
volume 59, 1927; A. R. Burns, The Decline of Competition, New York,
1936; L. Miksch, Wettbewerb als Aufgabe, 2nd edition, Godesberg,
1947; A. Riistow in “Schriften des Vereins fiir Sozialpolitik,” volume
187, Munich, 1932, page 60 ff.; W. Ropke, Kapitalismus und Konkurrenz-
system, “Zeitschrift fiir schweizerische Statistik und Volkswirtschaft,” 72nd
year, No. 3, 1936; T. W. Arnold, The Bottlenecks of Business, New York,
1940; also the monographs of the Temporary National Economic Committee,
Washington D.C., 1940-41; J. M. Clark, Alternative to Serfdom, New York,
1948; ‘E. S. Mason, Industrial Concentration and the Decline of Competition,
Explorations in Economics . . . in Honor of F. W. Taussig, New York, 1936;
‘Walter Eucken, Die Wettbewerbsordnung und ihre Verwirklichung, “Ordo,”
vol. II, Godesberg, 1949; Henry C. Simons, Economic Policy for a Free
Society, Chicago, 1948; C. Bresciani-Turroni, Economic Policy for the Think-
ing Man, London, 1950.

The effects of monopolism can often assume unexpected and complicated
forms. For example, it may happen that the abolition of price competition
results in the struggle for customers being conducted with the aid of an
extravagant and unctuous publicity (as in the American cigarette industry) or
through luxurious packaging and make-up, or through all kinds of unnecessary
and unwanted services (the “service” of gas stations, &c.). The uncomfortable


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250 ) THE SOCIAL CRISIS OF OUR TIME

sleeping cars of the American Pullman Company should also be mentioned
in this connection, and if in the United States automobiles are cheaper and
better than houses that is also due to competition existing in the former
industry but not in the latter. If Henry Ford had not courageously fought
the automobile manufacturers’ combine from the beginning, a standard
automobile would still cost $5,000 (according to T. W. Arnold, op. cit., p. 121).
This gives rise at the same time to the depressing question whether such
pioneers could today still win out against the monopoly associations and
restrictive economic policies. Co

Note No. 15 (page 231). Questionableness of the patent system:

In the same measure as the corruption of the patent system and the
abuse of patents by the big business monopolies have become more apparent,
the discussion of this subject has increased and the will to carry out radical
solutions has become stronger. Cf.: L. Walras, De la propriété intellectuelle,
Etudes d’économie sociale, 2nd edition, Paris, 1936, page 247 ff.; L. Einaudi,
Rileggendo Ferrara—a proposito di critiche recenti alla proprieta letteraria
ed industriale, “Rivista di Storia Economica,” 1940, No. 4; A. Plant, The
Economic Theory Concerning Patents for Inventions, “Economica,” February,
1934; T. W. Arnold’s above mentioned book, passim; Alfred E. Kahn,
Deficiencies of American Patent Law, “American Economic Review,”
September, 1940; W. Hamilton, Patents and Free Enterprise, Temporary
National Economic Committee, Washington D.C., 1941; Hearings of the
‘Temporary National Economic Committee, part 2-3, 1941 (which, like
Arnold’s book, offer convincing proof of the impossibility of today’s situation);
H. G. Fox, Monopolies and Patents, Toronto, 1947; The Patent System,
Symposium of Law and Contemporary Problems, Durham, 1947; G. Gather,
Reform der Patentgesetzgebung, “Ordo,” vol. II, Godesberg, 1949, pp.
270-307. The dilemma of the patent system consists on the one hand of
having to protect intangible property (compensating the inventor and encout-
aging new inventions) but of having, on the other hand, to avoid granting
monopolies. The best solution seems to consist in temporary patent protection
and in the establishment of a system of compulsory licenses, which would
permit everyone to make free use of the invention on payment of a fee.
The minimum requirement would be to limit the actual patent to a short
term of a few years and then to replace it by compulsory licensing. Those
acquainted with the situation know to what degree the modern patent system
has developed into a weapon of the big against the small, since the rich can
indiscriminately make use of intimidation by threatening patent actions in
which the man of limited means cannot afford to become involved. The
case of the copyright is essentially different from that of patents as already
Henry George (Progress and Poverty, Appendix) has clearly demonstrated.

Note No. 16 (page 231). Corporations and holding companies:

Cf. W. Lippmann, The Good Society; Norman S. Buchanan, The
Economics of Corporate Enterprise, New York, 1940; E. Welter, Erneunerung
des Aktienrechts, Frankfurt a. M., 1929. These books also discuss the more
general problems concerning stocks, whose solution must likewise occupy a
foremost place in every comprehensive economic reform program. A con-
vincing picture of the sins of the holding companies is drawn by A. S. J.
Baster, The Twilight of American Capitalism, London, 1937, pages 8-13.
That they cannot be justified by the allegedly favorable effects of the financial
concentration of enterprises, was recently shown by the comprehensive
investigations of the American Temporary National Economic Committee in
‘which striking case material was quoted (The Relative Efficiency of Large,


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AVENUES OF APPROACH AND EXAMPLES 251

Medium-sized and Small Business, T.N.E.C., No. 13, Washington D.C.,
1941). The holding company (in contrast to the purely productive corpora-
tion) is the means by which the tremendous concentration of capital in the
United States has been effected, and which is rightly felt to be intolerable.
The Temporary National Economic Committee has illustrated its importance
by the statement that today two hundred of the biggest corporations own
52 per cent. of the entire American corporate capital. The interlocking of
enterprises would be hit by the simple provision that no corporation may hold
the stocks of another. Likewise, one would have to see to it that investment
trusts do not develop into holding companies and do not exert powerful
influence on the companies whose stocks they hold (e.g., by the provision
that they may only own stocks of an individual corporation or a branch of
manufacture up to a certain maximum percentage of their total investments,
that its executives may occupy no position in a corporation, that they may
only hold stocks without voting rights, &c.). Further interesting reform pro-
posals will be found in Henry C. Simons’ A Positive Program for Laissez-faire,
Chicago, 1934.

Note No. 17 (page 233). American anti-monopoly policy:

The antecedents of the Sherman Act are of interest here. After President
Cleveland had called protective tariffs the “mother of trusts” and had thus
directed the attention of anti-monopolist public opinion to this point, the
Republican Party, in order to save the high protective tariffs from the
anti-trust movement, suggested that the trusts should now be combatted
without lowering the tariffs. It promised an anti-trust law and on the
strength of this promise President Harrison was elected.

Note No. 18 (page 234). Combating monopolies by consumer instruction:

It is a matter of constant surprise to what degree the ignorance of con-
sumers concerning goods and market conditions results in their being over-
reached, as a matter of course, regarding prices and quality, and to what
extent it is therefore also possible to confuse them by advertising, while the
purchaser of capital goods and raw materials tends to be protected against
this by his professional and specialized knowledge of the merchandise. Up to
a certain point the system of brand names offers a remedy against being sold
inferior goods, but in this case the consumer must pay for his ignorance of the
merchandise with an increased (monopolistic) price. A satisfactory solution
can, therefore, only be expected from measures which remove this ignorance
as far as possible. Such measures should consist, for example, in training
the consumer—perhaps even in his school period—in testing the quality of
merchandise; further, impartial agencies should constantly investigate the
market of consumption goods regarding the qualities offered and publish their
findings without fear or favor. If authors and publishers must justly submit
~ to relentless criticism of their products we have, by the same token, the right
to expect that newspapers and journals exercise constant criticism of the
consumption goods offered in stores or boosted by advertising, by means of
spot checks, and that they should not shrink from saying that, e.g., the
claspknives offered in their city can be placed in this or that category,
that the knives offered in store X are by no means as stainless as they are
made out to be, that the new Y radio does not possess the qualities advertised,
that Z toothpaste has a manufacturing value of so and so many cents, &c.
In case this seems utopian, the public authorities would have to assume the
task of supplying the necessary information. Cf. also the monograph of the
Temporary National Economic Committee (No. 10), Consumer Standards,
Washington D.C., 1941. oo


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252 - THE SOCIAL CRISIS OF OUR TIME

Note No. 19 (page 237). Genuine multilateralism essential to an inter-
national economic order:

True multilateralism does not only consist in the adjustment of trade
taking place actually between three and more countries (actual multilateralism).
There must also exist a guarantee that every bilateral relation can at any
time be changed into a multilateral one and vice versa, and that complete
freedom obtains regarding the choice of the import and export country
according to the change in prices (virtual multilateralism). While actual
multilateralism will never amount to more than a fraction of the total world
trade, virtual multilateralism must, so to speak, be one hundred per cent., if a
permanently effective price arbitrage, a real interdependence of economic
relations and genuine economic integration are aimed at. That is true of
the world economy as well as of every national economy. Such a genuine
multilateralism can therefore never be “arranged,” “canalized” and enforced,
and this shows how problematic the expression “multilateral clearing” is.
Canalized multilateralism always presupposes a central control office which
only shares the name with the “central” point of a genuine world economy—
which may be said to have formerly been represented by London. For the
same reason we cannot draw any parallel between present-day clearing
practices and voluntary accounting via a mutual banking house, which is
likewise called clearing. The latter represents nothing but a book-keeping
operation and does not in the least affect genuine multilateralism, either
within the national economy or in the world economy. As in the national
sphere, multilateralism in world trade also presupposes a genuine payment
union with free convertibility of currencies, i.e., an international currency
system untrammelled by foreign exchange controls. Thus in practice we
have in the last resort to choose between an international currency system
(like the gold standard) and the clearing system, and this choice is equivalent
to that between a world economy and no world economy. Cf. W. Ropke,
Internationale Ordnung, Erlenbach-Zirich, 1945; W. Ropke, International
Economic Disintegration, chap. III; J. B. Condliffe, The Reconstruction of
World Trade, New York, 1940, page 282 ff. That bilateralism spells for
the smaller countries a particularly serious limitation of their freedom of
movement and thus a considerable deterioration of their position, as com-
pared to the free world trade obtaining in the past, is obvious without further
explanation. They become economically dependent on their powerful clear-
ing. partners (politically they either were already dependent or will become
so now), at the same time they are liable to be constantly exploited, and it
would indeed be strange if such opportunities were not made use of. Thus
an entirely new system of political and economic imperialism would arise
from this bilateralism, an imperialism which in its economic power of
exploitation could be compared in some respects with that of the Byzantine
Empire, in contrast to the so-called “imperialism” of the liberal age which
in return for making great capital gains could at least show the real opening
up and economic advancement of the colonial areas. To speak indis-
criminately of exploitation in the case of that former “imperialism” is rather
risky, because, as a rule, the exploited regions were still better off than if
they had not been opened up at all. That “imperialism” provided—in part
very lucrative—profits, but they were not usually derived from exploitation.
In so far as force was really used—and only then can one speak of
imperialism—it is a gross distortion of the truth when Marxist and near-
Marxist writers make it appear as if this imperialism had been an essential
component of the world economy. A worse misinterpretation is indeed
hardly possible. That genuine imperialism was not an essential part of the
world economy, but rather a foreign body which had been introduced into


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AVENUES OF APPROACH AND EXAMPLES 253

it by the aggressive policy of the great powers. A “pure” world economy
would not only have always been possible, but would have been infinitely
superior to that tainted by imperialism. Cf. regarding the problem of
imperialism: L. Robbins, The Economic Causes of War, London, 1939; E.
Staley, War and the Private Investor, New York, 1935; W. Répke, Inter-
nationale Ordnung; Walter Sulzbach, National Consciousness, Washington,

1943.

Note No. 20 (page 238). Medieval world economy:

We know today that in the Middle Ages there already existed a very
intensive trade over large areas, so that we are certainly entitled to speak
of a medieval world economy which was by no means limited to certain
articles of luxury. This system collapsed at the beginning of the modern
era and in the age that witnessed the development of the national states
and the mercantilist economic policy, it made way for a phase of a less
differentiated economy. Like the world economy of antiquity, that of the
Middle Ages, too, disintegrated simultaneously with the political system on
which it was based. Cf. F. Rorig, Mittelalterliche Weltwirtschaft, Jena,
1933; H. Pirenne, Economic and Social History of Medieval Europe, New
York, 1937.

Note No. 21 (page 239). Pax Britannica and the secularized Pax Christiana:

The personal representative of the Pax Britannica in the nineteenth century
in its sublimated form and as support of the general secularized Pax
Christiana was primarily Gladstone. His person and his mission become
especially clear to us if we look upon him as the true opponent and counter-
type of Bismarck (cf. Erich Eyck’s excellent book, Gladstone, Erlenbach-
Zurich, 1938).

Regarding the system of international law of the secularized Pax
Christiana, we read in G. Radbruch’s Einfihrung in die Rechtswissenschaft,
2nd edition, 1913, page 128: “The legal nature of international law is as little
impaired by the absence of legislative powers as by the absence of the powers
of administering and enforcing justice, e.g., by the fact that the state whose
rights have been violated can only resort to war. For often the legal maxims
valid within a state are also not enforceable without this being made a reason
for denying their legal character. The guarantee of regular observance which
we have recognized as necessary for the concept of a valid code of laws is as
much a feature of the law of nations as of that of the individual state. Inter-
national public opinion, moreover, sees to it that violations of international
law are much rarer than those of a country’s domestic laws, and further,
that such a violation of international law may not openly be acknowledged
as such but must be justified before international law by every conceivable
sophistry.” We leave it to the reader to measure the distance between then
and now.

Note No. 22 (page 241). Restless dynamism of the “Grossraiime” :

We have explained towards the end of Note No. 19 why one cannot
count on a genuine balance of interests within an imperial “Grossraiime.”
But the idea held by some writers (among them the American author
Lawrence Dennis in his book The Dynamics of War and Revolution) that
the world could be divided into several imperial “Grossratime” (“Socialist
Imperialism,” according to Dennis) without an early outbreak of a global
struggle for predominance is just as unjustified; the same applies to the
assumption that such a “Grossraiim” will one day proclaim that it has been
satiated, or to the utopian notion that the Saurians, after securing their


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254 "THE SOCIAL CRISIS OF OUR TIME

territory, will peacefully lie down like lambs next to each other and begin
to co-operate. Every empire will rather have the elementary aim to extend
its more or less “closed block” economy over the widest possible basis of
the politically dominated and economically exploited area and, as F. Fried
(Wende der Weltwirtschaft, Leipzig, 1939, page 389) so very rightly remarks:
“then the territorial possessions of the individual nations assume decisive
importance and the dispute over these questions passes progressively from the
economic to the political plane.” This international scuffle over the feeding-
trough caused by the “politicalization” of world trade will never cease until
one power attains sole and undisputed world hegemony on a lasting basis.
The less so as the historic origin of these economic empires and their socio-
logical character would turn them, just like the collectivist national economy
from which they stem, into a deficit economy—this time of a continental
order—which would always be dependent on an increase in wealth from
outside. The greater the empire the greater also its need for further
annexations.

Note No. 23 (page 242). The restoration of an international monetary system:
For the details, see my book, Internationale Ordnung.


===== PAGE 267 =====

| INDEX
Absolutism, 44, 60, 61, 75, 115, 144 Borsodi, R., 195

Addison, Lord, 246 Botticelh, 6
Advertizing, 143, 216-217, 233 Bouglé, C., 28
Aeschylus, “13 Bourgeoisie, 9, 45
Agriculture, special position of, 244- Bowman, L; 144
245; 'in° Denmark and England, Bresciani-Turroni, C., 195, 249
245-246; “farmer” agriculture, Briefs, G., 145
243-244 Bright, John, 57
Alexander the Great, 30, 68, 69 Brinkmann, D., 73
American Bill of Rights, 45 Britain, Great, 16, 53, 58, 89, 113, 117,
American Constitution, 45, 97 136, 168, 191, 203, 204, 215, 220,
American Declaration of Independence, 221, 226, 230, 237-238, 245-246
45 British Empire, 239-240
Anderegg, Emil, 247 Bromfield, Louis, 16, 31, 195
Angell, Norman, 147 Buchanan, N. S., 250
Arnold, T. W., 196; 249, 250 Biichner, 57, 248
Art, history of, 77-79 Buddhism, 82
Artisans, 213-218 Co Bulgaria, 204
Astrow, W., 74 Burckhardt, Jacob, 7, 43, 59, 61, 69, 72,
Augustine, St., 80 81, 98
Australia, 168, 195, 246 Burke, Edmund, 43, 50, 60, 72, 77
Austria, 93, 141, 215, 248 Burlamqui, 53, 6s, 71
Burns, A. R., 249
Bach, 79 “ Business cycle, 166-173
Baker, O. E., 246 Byzantine Empire, 252
Bally shoe factories, 19, 220
Balzac, 57. Caesar, Julius, 68, 69, 84, 91
Bank of England, 230 Calhoun, John C., 76, 85, 97
Barker, Ernest, 27, 98 Calvin, 8o
Baroque, 6 Calvinist,’ 27, 80
Baschwitz, Kurt, 31 Candide, 65
Baster, A. S. J., 143, 175, 250 Capitalism, 18, 45, 100 ff.
Bastiat, Frederic, 164 Capitalism, end of, 134-135
Baumgarten, Eduard, 28 Cartels, 232
Bavink, B., 74 Casanova, 64
Belgium, 195, 204, 248 Cato, 69
Bellamy, Edward, 175 Cavour, 73.
Belloc, Hilaire, 145, 195 Cecil, David, 75
Benda, J., 29 Cézanne, 78, 154
Berdiajew, N., 31 Chamberlin, E., 249
Bergson, Henri, 152 Charles V, 239
Bernoulli, 71 Chiang-Kai-Chek, 248
Beuth, 60 Chesterton, G. K., 73, 75, 145, 195, 243
Brinon, C., 72 Childs, M. W, 195
Biedermeier, 66 : China, 248
Bilateralism, 241, 252-253 Christianity, 7, 27
Bismarck, 43, 72-73, 253 Cicero, 11, 124, 183
Blair, J. M., 248 | Civil Service, 193
Bodmer, 71 Clark, Colin, 248
Boehm, Franz, 249 Clark, J. M., 195, 249
Bonald, Louis de, 40, 43, 195 Claudius, Matthias, 61
Borgese, G. A., 195 Cleveland, Grover, 251

255


===== PAGE 268 =====

256 INDEX

Cobden, Richard, 57, 147 Duerr, Emile, 33
Codes of law, 79 . Dupriez, L. H., 175
Collective farms, 247 Dutch Federation, 45
Collectivism, 10-13, 17, 19, 22, 23, 24, Dutheil, Marcel, 32

7% 47 83, 96, 104, 142, 143, 150, Economic freedom, 176-179

Economic imperialism, 26, 75, 252-253
Economism, 26, 53, 58

“Economist,” English, 196, 247
Egger, August, 29

Eichendorft, 75

Einaudi, Luigi, 195, 250

Collectivist state, 17, 27, 83, 96, 97
~ Colossal, cult of, 64, 78, 114
Combination Laws, 145
Communism, 144, 152
Communist Manifesto, 122
Competition, 51-52, 103-104, I2I, I33,
i. 180-184, 227-228, 235 EB) Grets, z o
mte, 74; 157

Condliffe, J. B., 252 Employment, suf, 165-173
Confucianism, 82 as i » 90
Constant, Benjamin, 8s, 96, 176, 192 rf wv, 27, 3 10%. 10°. 2
Consumers’ economy, 143-144 Euler. » 143, 195, 197, 249
Consumers, education of, 234, 251 Ev iy 7 I h
Consumption, collectivization of, 215- yex, brich, 253

216 .

Faguet Emile, 74, 96-97, 97, 100, 115

Cooper, Sit W. E., 246 Farmer” agriculture, 243-244

Corneille, 80 Fascism, 5, 152

Corporate capitalism, 116 Sg? 66, 36

Corporations, 231-232, 250-251

Corporativism, 93

Counter-Reformation, 8o Ferrero. Léo
’ bd

Crafts, 247
Crises, economic, 121-124, 146-147, Feudalism, 13571, 144145

225-226
Crisis theories and policies, 175, 226 Fisher, Fh jd 196

Croce, Benedetto, 74 Ford, Hen
ry, 245, 250
Cromwell, 68 Fortescue, Sir John, 73 -

Frederici, igh, 175
Ferrero, G., 7 73

Currency manipulation, 130-131 | Fox, H. G., 250
France, 16, 42, 43, 45, 75, 113, 132,

D’Annunzio, 81 160, 203-204, 223, 248
Darwin, 57 France Anatole, 81
Dawson, Christopher, 27, 31 Franck, Sebastian, 8o
Debrunner, 30, 31 . Frantz, Constantine, 69
Declaration of Rights, 45 Frederick the Great, 61, 73, 75
Delbriick, 60 : Frederick William I, 75
Democracy, 17, 18, 27, 45, 83, 96-97, Free trade, 233

101-102 Fried, F., 254
Demosthenes, 30, 69 Fuchs, Harald, 80
Denmark, 206, 245-246 Fuggers, 230
Dennis, Lawrence, 253 Fiirtwangler, Wilhelm, 79
Dennison, S. R., 248
Descartes, 50, 81 Galilei, 29
Dictatorship, 84 : Gasset, Ortega y, 8, 10, 11, 29, 31, 74,
Dietze, C. v., 245, 247 8, 85
Distribution policy, 189, 197 Gather, G., 250
Dostoyevsky, 82 Gazxotte, P., 72

Droysen, 69 Geddes, Patrick, 195


===== PAGE 269 =====

INDEX 257

Gelderen, J. van, 244

Genghis Khan, 44

George, Henry, 250

Germany, 42, 44, 51, 53, 55, 56, 58,
60, 61, 73, 74-75, 81, 113, 116, 136,
141, 144-145, 160, 168, 204, 215,
226, 230, 232, 244

Gessner, 71

Gestrich, Hans, 175

Gibbon, 69, 79

Giddings, F. H., 32

Gide, André, 154

Giraudoux, J., 27

Gladstone, W. E., 73, 253

Goethe, 2, 11, 37, 41, 43, 50, 66, 7I,
79, 158-159

Goldsmith, Oliver, 203

Gorgias, 6

Graham, F. D., 195

Gravier, J.-F., 248

Grossriume, 240-241, 253-254

Group egoism, 147

‘Gruber, K., 248

Grundtvig, Bishop, 245

Guiliano, B., 81

“Guizot, 57, 58

Haberler, Gottfried v., 146, 175
Hahn, L. A., 175
Halbwachs, M., 98

Halévy, E., 28, 98

Hall, N. F., 196

Haller, K. L. v., 40, 71
Hamann, s0

Hamilton, Alexander, 85
Hamilton, W., 250

Handel, 79

Hannibal, 30

Hanno, 30
Hansen, A. H., 175
Harrison, Benjamin, 251
Harrod, R. F., 175

Haydn, 79

Hayek, F. A. v., 98, 174, 175
Hazard, P., 81

Hecksher, E., 98

Heeren, 75

Hegel, 48, 60, 157
Heidegger, 76

Heiden, K., 31

Hellpach, 220

Herder, 41, 51, 79

Hintze, O., 73

Historical interference, 9, 54
Historicism, 79

History, science of, 79

Hobbes, 69, 80, 81
Holderlin, 83, go

Holding companies, 250-251
Holland, 61, 204, 248
Hugo, Victor, 78
Huizinga, J., 31
Humboldt, 60, 61, 75
Hume, David, 79
Hungary, 204

Hutt, W. H., 145, 195, 196
Huxley, Aldous, 157, 158, 195
Huxley, Thomas, 74

“Indusco,” 248

Industrial concentration, 136-139

Industrial enterprises, optimum size of,
248

Industrial feudalism, 182

Industry, decentralization of, 248

Industry, deproletarization of, 218-233

Integration, 91-93, 98

Interests, conflict of, 124-130, 147, 186

International Labour Office, 224

International order, 237-242; of Middle
Ages, 238-239; of nineteenth cen-
tury, 237-238

Interregnum, spiritual, 6, 24, 32, 54

Intervention, compatible and
incompatible, 159-163, 184

Intervention, constructive and
obstructive, 187, 196

Italy, 248

Jacks, G. V., 144
Jacobinism, 85

James, William, 97
Japan, 248

Jaspers, Karl, 31

Jean, Paul, 59

Jellinek, G., 27

Jewkes, J., 174

Jhering, R. v., 75

Joel, K., 66, 80
Johnson, Alvin, 195
Johnson, Samuel, 65, 68
Julius Caesar, 67
Jinger, Ernst, 61, 77, 81

Jurisprudence, 79

Kaegi, Werner, 76

Kahn, A. E., 250

Kant, 41, 60, 68, 75, 91
Kaplan, A. D. H.,, 248
Kemel Ataturk, 84
Keynes, J. M., 140, 171, 175
Kierkegaard, 76


===== PAGE 270 =====

258 INDEX

Klopstock, 71 Maria Theresa, 64
Kluge, F., 244 Market economy, 89-90, 95-96, 103-109,
Knight, F. H., 98, 195 118-119, 121, 143"
Kohn, Hans, 74 Market socialism, 174-175
Kreuger, Ivar, 230 Martin, Alfred v., 72
Kropotkin, 194 Marx, Karl, 20, 57, 61, 67, 72, 135,
Kiigelgen, 59 157
Kunth, 60 Marxism, 26, 252
La B Mason, E. S., 249
a Boetie, 40 Co Massis, Henri, 6, 9, 27, 28, 82, ve

Laclos C. de, 64

Laissez-faire, 23, 51, 186-187, 227, 228, Maximilian 1, 230

Mayflower Compact, 45

249 ini
Lamprecht, Karl, 80 ng Br 195
Lassalle, 67 : - Medici, Lorenzo de, 6
Laur, Ernst, 207 3 Meinecke, 75
Lavater, 71 Mephistopheles, 186

League of Nations, 208, 239, 246, 247

Lecky, W. E. H,, 27, 85, 97 Meyer, Peter, 77

Leibnitz, 6, 11 Michelangelo, 77

Le Play, Fréderic, 146, 194, 197 Miksch, L., 249

Lerner, A. P., 195 Mill, J.’ S., 8s, 97, 243

Lessing, 41, 65 Moleschott, 57

Lewis, B. W., 196 Mommsen, 69, 479 -

Liberalism, 17, 22, 23, 26, 27, 45, 48 Monetary policy, 190-191, 197, 254
51-53, 83, 114, 118, 120-121, 127, Monopolies, 136, 144145, 175, 227-235,
129, 142, 145, 147, 176-177, 186- 249-250
187, 228, 249 Montaigne, 6g, 80

Lichtenberg, 4, 12, 65, 68, 69, 76, 80
Lincoln, Abraham, 8s, 101, 164 ao gd Hoar 53, 58, ’ 69,

Mercantilism, ¢8, 253

Lippmann, Walter, 31, 08, 174, 197, Mérike, 59
249, 250 C
List, Friedrich, 55-62, 74 Nea & 98, 107
Locke, 80
Lombroso-Ferrero, G., 73 Na, 77, 7 oe 73
Louis XI, 75 Miiller-Armack, A., 195
Louis XIV, 65, 75, 86 OE R., 81
rows : Multilateralism, 237, 241, 242, 252- 253
Ion her. wg » 72 74 Mumford, L., 73, 195
Lutz, Friedrich, 197 Naef, Werner, 33
Napoleon, 43-44, 60, 66, 68, bo, 72, 239.
Maasen, 60 Nationalism, 58, 99, 211-212
M‘Culloch, J. R., 145 Nationalization 190, 234-235
M Dougall, F. L, 246 Navarre, Queen of, 8o
Machine production, 46-48, 73, 109-111 Nazis, 5
Maclaurin, W. R., 195 Nebenius, 60
Madelin, Louis, 72 Neergaard, K. v., 74
Madison, 85 Nero, #78
Magna Carta, 45 . Neo-feudal estates, 247 :
Maistre, J. de, 40, 43, 73, 97 New Deal, 147, 167-170, 223
Malthus, 67 Nietzsche, 6, 7, 30, 32, 81, 97: 153
Mann, Thomas, 195 Novalis, 75
Mannbhein, Karl, 158, 159, 175
Marbach, Fritz, 247, 248 O’Brien, G., 144

Marie-Antoinette, 203 : Odilon Barot, 197.


===== PAGE 271 =====

INDEX 259

Oppenheimer, Franz, 72, 124, 195 Reubens, E., 248
Osborn, F., 144 Revolution, economic, 45-48
Opverstone, Lord, I9I Revolution, French, 37-45, 60, 72, 75
oo Revolution, political, 37-45
Pascal, 49, 62, 81, 91, 194 i Richelieu, 60, 68, 75
Patents, 231, 250 . Richter, 59
Pavlov, 158 Riehl, W. H., 31, 119, 145, 146, 194,
Pax Britannica, 239, 253 214-215, 223
Pax Christiana, 239, 240, 253 Ritter, 67, 75, 96
Peasant agriculture, 201-213, 243-244 Robbins, L., 247, 253
Pericles, 85 Rochefoucald, 16, 129
Pestalozzi, 15, 65, 71 Rolland, Romain, 154
Peterson, E. T., 248 Roman Empire, 79-80
Peter the Great, 81 Romier, L., 27, 31, 145
Petition of Right, 45 Roosevelt, Franklin, 166-169
Pfeiffer, E., 144 Ropke, Wilhelm, 27, 29, 31, 32, 73, 74,
Picard, Max, 29 75, 98, 143, 145, 146, 147, 148,
Pirenne, Henri, 73, 253 174, 175, 195, 197, 243, 245, 247,
Planned economy, 20, 103, 161-163 248, 249, 252, 253, 254
Plant, A., 250 Rorig, F., 253
Plato, 82 Rosenstock, 220
Plebeianism, 17 Rousseau, 42, 50, 60, 65, 69, 71, 85, 204
Plessner, H., 6, 27, 74 Rubens, 77
Plethocracy, 18 Rueff, J., 175, 195
Pluralism, 58, 102, 107, 131-132, 148 Rural industries, 219
Poland, 204 Ruskin, 57, 195
Popular Front, French, 223 Russia, 17, 47, 66, 152, 155, 170, 204,
Population, 13, 31-32, 112, 144 247
Portugal, 84, 96 Riistow, A., 27, 48, 72, 78, 195, 196,"
Positivism, 68, 78 197, 249
Preiser, Erich, 248 Lo }
Producers’ economy, 143-144 Saint-Pierre, Bernardine de, 69
Profit, 105-106, 143-144 Saint-Simon, 43, 57, 61, 175
Proletariat, 116, 154, 224-225 Salazar, 96
Proletarization, 14-15, 16, 19, 24, 145, Sallust, 85, 87
223 Sand, George, 76

Saurians, 253-254
Say, J. B., 128
Scarron, 8o

Schiller, 39, 41, 71, 72, 73
Schmidt, C. T., 247

Protestantism, 27
Proudhon, 194

Prussia, 74, 75
Purcell, 79

Quadragesimo Anno, 225 Schnabel, Fr., 59, 74, 146
Quinet, Edgar, 28, 59, 79, 81 Schon, 60
Quinn, T. K., 248 Schopenhauer, 57

Schubert, 59
Raabe, 59 Schulze-Gavernitz, G. v., 27
Rabelais, 8, 8o Schumpeter, J. A. » 175
Racine, 80, 81 : Schwind, 59
Radbruch, G., 253 Science, 157-159
Ramuz, C. F,, 31, 73, 179 Secular spirit, 62
Ranke, 58 Sedlmayer, Hans, 478
Rappard, W. E., 98 Self-sufficiency, 132-133, 211-212
Rationalism, 48, 53, 73, 74 Seneca, 151 2
Ratzel, 67 Sforza, Carlo, 27
Relativism, 68 Shaw, Bernard, 154

Renan, 6 Sherman Act, 193, 232, 233, 251


===== PAGE 272 =====

260 INDEX

Sick, care of, 248-249 Thornton, William, 243

Silver Purchase Act, 147 Thrasymachus, 6

Simons, H. C., 175, 195, 249, 251 Thucydides, 30

Sismondi, 194 Thiinen, 206

Small traders, 218, 247-248 Tillier, Claude, 64

Smith, Adam, 51, 60, 71, 79, 145 Titian, 77

Socialism, 15, 19-21, 75, 87-90, 95-96, Tocqueville, 60, 85, 97, 115
97-98, 146-147, 152-157, 174-175 Totalitarianism, 19, 22

Social technique, 175 Trade unions, 230

Social welfare, 163-165 Treitschke, 60, 61

Society—a machine, 157-159 Troltsch, Ernst, 27

Soil exhaustion, 246 Turkey, 96

Sombart, Werner, 72 |
Southey, 195 |

. 52, 74
Spain, 77, 204 United States, 16, 45, 56, 58, 67, 89,

Spengler, Ne : 97, 117, 120, 132, 136, 144, 145,
aay ro | 147-148, 160, 166-171, 173, 175, 204,
piritual collectivization, 9, 14, 15, 16, | 208, 214, 215, 216, 222, 223, 226

17, 18, 24, 25, 30, 31, 32 ’ > i 4 % er
Spiritual interregnum 6, 24, 32, 54 | 230, 232, 233, 246, 248, 249-250,

Unconditional and Absolute, 49, 50, 51,

. 250-251

Sta€l, Madame de, 69 | Urba ivadion, 6

Staley, E., 253 Uveda. T.. 248

State, 192-194 yeda, L., 24

Steinbeck, John, 144 Vattel, 53, 65, 71

Stifter, Adalbert, 59, 61 Vauvenargues, 40

Stirner, 81 Veit, O., 73

Stokowski, 79 Veuillot, Louis, 50

Street, A. G., 247 Vico, 41, 51, 79

Suicide statistics, 98 | Victoria, Queen, 81

Sulla, 84 Vischer, A. L., 29

Sulzbach, Walter, 147, 253 Voltaire, 42, 71, 76, 79

Sweden, 195, 207 Wagner, 67

Swedish Common Law of Magnus Walras, Léon, 184-185, 186, 227, 250
_ Erikson, 45 . War, 1939-45, economic consequences

Swiss Charter of Federation, 45 of, 139-142

Swiss Constitution, 45, 97 Weber, Max, 27, 84, 96, 197

Switzerland, 16, 2526, 33, 42, 44, 45, Weimar Republic, 50, 93, 230
61, 71, 89, 107, 113, 115, 116, 117, Wells, H. G,, 157
136, 173, 179, 204, 206, 207, 215, Welter, E., 250

219, 222, 226, 248 Werner, A. v., 77
| Whitehead, A. N., 74, 138

Tacitus, 9, 51, 80, 198, 199 | Whyte, R. O,, 144
Taine, H., 60, 75, 76, 174 | Wicksteed, P. H., 147, 196-197
Talleyrand, 65, 69 | Wilde, Oscar, 85, go
Tamerlane, g1 Wolfers, A., 24
Taylor system, 220 Wolff, Christian, 239
Technology, 109-111, 137-138, 229 Wordsworth, 243
Temporary National Economic Com- Wright, C. M,, 196

mittee, 232, 248, 250, 251 Wiirtemberg, 248

Tessin, E. W., 246

Thibon, Gustave, 174, 195

Third Way, 23, 32, 153, 164, 173, !
176 ff., 184, 186, 187, 195, 200, 201, | Zeeland, Paul van, 244
239, 242, 244 Zbinden, Hans, 28

Thoreau, 195 Zola, 78

Youth, cult of, 28-29
Yugoslavia, 204 ,