WEBVTT NOTE The Keynesian and Chicago Schools' Early Infatuation with Fascism 1 00:00:00.000 --> 00:00:10.000 From our perspective at the beginning of the 21st century, it is now quite clear that the most influential economists of the last century were John Maynard Keynes and Frank H. Knight. 2 00:00:10.000 --> 00:00:22.000 This fact is not only of interest to intellectual historians but to the general public because the ideas and doctrines of these two men continue to powerfully shape the economic theories and policies of today. 3 00:00:22.000 --> 00:00:30.200 Keynes, of course, is the acknowledged founder of modern macroeconomics and his ideas still dominate the discipline, even today. 4 00:00:30.200 --> 00:00:43.200 Knight's ideas pervade modern price theory or microeconomics, particularly his model of perfect competition, which is the central construct in microeconomics. 5 00:00:43.200 --> 00:00:55.200 Given the profound and continuing influence of Keynes and Knight on modern mainstream economics, it is astounding to discover that both express strong sympathy with fascist doctrines during the 1930s. 6 00:00:55.200 --> 00:01:07.200 This is especially startling in view of the reputation of Knight and his colleagues in the early Chicago School as staunch proponents and defenders of a classical liberal social order based on economic freedom. 7 00:01:07.200 --> 00:01:19.200 It is even surprising in the case of Keynes, the prototypical modern liberal, whose rhetoric, at least, if post-war left-wing liberals are any guide, we would expect to have been fiercely anti-fascist. 8 00:01:19.200 --> 00:01:22.200 In fact, it was quite the opposite. 9 00:01:22.200 --> 00:01:30.200 In what follows, I first review Keynes' positive assessment of the fascist economic program of national self-sufficiency and a planned economy. 10 00:01:30.200 --> 00:01:41.200 I argue that it represented more than a mere flirtation or intellectual aberration, and that it arose from a strong affinity between key fascist and Keynesian economic doctrines. 11 00:01:41.200 --> 00:01:46.200 I then explain Knight's strangely sympathetic attitude toward the fascist leader principle. 12 00:01:46.200 --> 00:01:54.200 I contend that it also cannot be written off as an intellectual quirk or cranky eccentricity, of which Knight had very many, 13 00:01:54.200 --> 00:02:01.200 and that it emanates from nice peculiar conceptions of freedom and competition in the economic and political realms. 14 00:02:03.200 --> 00:02:10.200 In Mein Kampf, the Bible of the German National Socialist Movement, Adolf Hitler characterized the economy as, quote, 15 00:02:10.200 --> 00:02:14.200 merely a necessary servant in the life of our people and our nationhood. 16 00:02:14.200 --> 00:02:17.200 The movement feels an independent national economy to be necessary, 17 00:02:17.200 --> 00:02:21.200 but it does not consider it a primary factor that creates a strong state. 18 00:02:21.200 --> 00:02:28.200 On the contrary, only the strong nationalist state can protect such an economy and grant it freedom of existence and development." 19 00:02:28.200 --> 00:02:34.200 Whenever Hitler touched on economic issues in his writings and speeches, he always emphasized the primacy of this principle, 20 00:02:34.200 --> 00:02:43.200 that the economy must serve the political needs of the nation and that the primary need of Germany was economic self-sufficiency or autarky. 21 00:02:43.200 --> 00:02:49.200 And this was, I think, emphasized by Dr. Hoppe yesterday. 22 00:02:49.200 --> 00:03:03.200 Hitler's position on national self-sufficiency underlay his foreign policy doctrine of Lebensraum, or living space, which meant the conquest of enough foreign territory to provide for all the agricultural and raw material needs of the German nation. 23 00:03:03.200 --> 00:03:16.200 As Ludwig von Mises pointed out, quote, Germany does not aim at autarky because it's eager to wage war. It aims at war because it wants autarky, because it wants to live in economic self-sufficiency. 24 00:03:16.200 --> 00:03:27.200 The second foundational principle of the National Socialist Economic Program was for a planned economy that would coexist with an attenuated form of private property. 25 00:03:27.200 --> 00:03:32.200 Hitler enunciated this principle in an unpublished interview with a newspaper editor in 1931. 26 00:03:32.200 --> 00:03:35.200 And he's very frank. 27 00:03:35.200 --> 00:03:43.200 What matters, Hitler says, is to emphasize the fundamental idea in my party's economic program clearly, the idea of authority. 28 00:03:43.200 --> 00:03:50.200 I want the authority. I want everyone to keep the property he has acquired for himself according to the principle. 29 00:03:50.200 --> 00:03:53.200 Benefit to the community precedes benefit to the individual. 30 00:03:53.200 --> 00:03:55.200 That sounds good to me. 31 00:03:55.200 --> 00:04:03.200 But the state should retain supervision and each property owner should consider himself appointed by the state. 32 00:04:03.200 --> 00:04:07.200 It is his duty not to use his property against the interests of others among his people. 33 00:04:07.200 --> 00:04:09.200 This is a crucial matter. 34 00:04:09.200 --> 00:04:13.680 Third Reich will always retain its right to control the owners of property. 35 00:04:13.680 --> 00:04:19.600 A contemporary German classical liberal economist and critic of National Socialism, during the 36 00:04:19.600 --> 00:04:25.440 time when the Nazis were coming to power, a brave guy, Gustav Stolper, considered this 37 00:04:25.440 --> 00:04:29.560 principle of the subjection of the economy to the state as, quote, the very essence of 38 00:04:29.560 --> 00:04:31.680 Nazi economics, unquote. 39 00:04:31.680 --> 00:04:35.520 Now, Hitler wrote little regarding the details of his proposed economic system beyond the 40 00:04:35.520 --> 00:04:37.360 enunciation of its basic principles. 41 00:04:37.360 --> 00:04:42.360 Moreover, the National Socialist Movement produced no economic theorists worthy of note. 42 00:04:42.360 --> 00:04:55.360 Nonetheless, the Nazi economic program of autarky, or self-sufficiency, and planned economy was not the blind outcome of a series of accidents and ad hoc measures designed to solve specific problems, as many have argued. 43 00:04:55.360 --> 00:05:06.360 In fact, it was explicitly derived from a long tradition in German economics that extended back to the early 19th century to the works of Adam Euler and Friedrich List. 44 00:05:06.360 --> 00:05:17.360 With the emergence of the German Historical School in the middle of the century, this tradition achieved a dominance in German economics that continued through three generations, right up through the National Socialist period. 45 00:05:17.360 --> 00:05:25.360 Werner Zumbart was the leading representative of this tradition in the third generation and the leading economist in Germany during the interwar period. 46 00:05:25.360 --> 00:05:33.360 He considered himself the leading theorist of what he called German Socialism, which also was the title of the book he published in 1934. 47 00:05:33.360 --> 00:05:39.360 Now this book was translated into English in 1937 under the misleading title of a new social philosophy. 48 00:05:39.360 --> 00:05:42.360 Because they didn't want to put the word socialist in the bad light. 49 00:05:42.360 --> 00:05:45.360 But the title was German Socialism. 50 00:05:45.360 --> 00:05:49.360 According to Zumbart, his task in the book was, quote, 51 00:05:49.360 --> 00:05:52.360 from the standpoint of national socialist opinion, 52 00:05:52.360 --> 00:05:56.360 to give a consistent account of the various social problems of the time, 53 00:05:56.360 --> 00:06:00.360 viewed in a spirit of detachment from the politics of the day, unquote. 54 00:06:00.360 --> 00:06:06.360 Although he was not a member of the National Socialist Party and was never embraced or completely trusted by its leadership, 55 00:06:06.360 --> 00:06:13.360 Zombart influenced individual Nazis, including Gregor Strasser, chief of the Nazi Party organization, with whom he met frequently. 56 00:06:13.360 --> 00:06:21.360 In addition to Zombart, the more intelligent Nazis, which we were told, were acquainted with earlier writers from the second generation of the historical school, 57 00:06:21.360 --> 00:06:28.360 like Gustav Schmoller and especially Adolf Wagner, whom they considered heralds of fascist ideas. 58 00:06:28.360 --> 00:06:36.360 In his book, Zombart articulated the defense of national self-sufficiency and argued that it was a corollary of planned economy. 59 00:06:36.360 --> 00:06:39.360 We represent the national economic principle, and I'm quoting Zombart. 60 00:06:39.360 --> 00:06:46.360 The whole, which we visualize as a guiding thought, is a national economy linked together in a harmonious union. 61 00:06:46.360 --> 00:06:55.360 From this it follows that the national economy must show a certain rounded-off, isolated self-sufficiency which permits it to rest upon its own foundation. 62 00:06:55.360 --> 00:07:07.360 We represent this economic principle, primarily because socialism needs for its realization and expression of life as an economic body to be essentially independent of the procedures in foreign countries. 63 00:07:07.360 --> 00:07:17.360 That, in consequence of all this, German socialism repudiates world economic formations as something in conflict with its innermost nature is self-evident. 64 00:07:17.360 --> 00:07:29.360 Okay, so self-sufficiency wasn't a strategy prepared for war. It was deeply embedded in German historical school thought and it was picked up by the Nazi economists. 65 00:07:29.360 --> 00:07:40.360 Zombart also recognized that a planned economy meant an economy in stasis, one in which all progress must come to an end because it is unpredictable and potentially disturbing to the central economic plan. 66 00:07:40.360 --> 00:07:57.360 Thus, he wrote, we renounce progress in the sense in which the economic age characterized it and in which it met the requirements of capitalism which prolonged its existence by a continuous revolutionizing of the process of production and distribution. 67 00:07:57.360 --> 00:08:06.360 All in all, we are now ready for a stationary economy and ready to send the dynamic economy of capitalism back to the devil from whence it came. 68 00:08:06.360 --> 00:08:13.360 Therefore, the applications of the principles of the planned economy will be much easier, so planned economy and self-sufficiency. 69 00:08:13.360 --> 00:08:16.360 These were the theoretical foundations. 70 00:08:16.360 --> 00:08:21.360 Zumbart also elaborated the National Socialist position on private property. 71 00:08:21.360 --> 00:08:26.360 Quote, by a planned economy we do not mean the abolition of the private economy, unquote. 72 00:08:26.360 --> 00:08:37.360 What is meant, he said, is that in the private economy, quote, the general endeavor must be so directed that no higher interest will be impaired to the application of the profit principle, unquote. 73 00:08:37.360 --> 00:08:46.360 In other words, not the economic calculations of private entrepreneurs and capitalists, but the priorities of the Nazi state will direct the allocation of scarce resources. 74 00:08:46.360 --> 00:08:54.360 Zumwalt went on to argue the manipulation of credit is the most important weapon at the disposal of the state to keep this sector, meaning the private sector, in order. 75 00:08:54.360 --> 00:09:07.360 He thus advocated nationalizing the banking system, but he warned that the state control of credit is not sufficient to guarantee an orderly economy because not all investment capital is channeled through banks or acquired through retained earnings. 76 00:09:07.360 --> 00:09:22.360 Sombart therefore proposed a strong system of control in which all enterprises and extensions or mergers of existing ones must be legally sanctioned by the state, which would also retain the power to eliminate entire industries that are inexpedient. 77 00:09:22.360 --> 00:09:32.360 Technology, too, would be tamed by the state. A supreme council of culture would decide whether an invention should be annulled, put into the museum, or put into practice. 78 00:09:32.360 --> 00:09:42.360 Finally, the stock exchange would be transformed into simply an adjunct of the nationalized credit markets and will have merely incidental functions to perform. 79 00:09:42.360 --> 00:09:52.360 Form. Sombort summed up the essence of his economic program of German socialism in words that had become the mantra of Hitler and the National Socialists. 80 00:09:52.360 --> 00:10:02.360 Quote, private property and common property will continue to exist side by side. The right of property will no longer determine the principles of economic control, 81 00:10:02.360 --> 00:10:09.360 but the principles of economic control will determine the extent and kind of property rights. That is a significant point, unquote. 82 00:10:09.360 --> 00:10:15.360 So, the economic program of the preeminent academic proponent of National Socialism consisted of four components. 83 00:10:15.360 --> 00:10:23.360 National Self-Sufficiency, Planned Economy, Manipulation of Money and Credit, and Nationalization of Investment. 84 00:10:30.360 --> 00:10:36.360 This precisely describes the economic program that Keynes developed between 1933 and 1936. 85 00:10:36.360 --> 00:10:47.360 In 1933, Keynes published an article entitled National Self-Sufficiency, whose significance was downplayed by his followers as a temporary deviation from his devotion to free trade and international division of labor. 86 00:10:47.360 --> 00:10:54.360 The classical liberal economist and friend of Mises, Michael A. Halperin, however, correctly referred to the article, quote, 87 00:10:54.360 --> 00:11:01.360 This passage will quote, as one of Keynes most significant writings and as representing far more than a passing mood, unquote. 88 00:11:01.360 --> 00:11:10.360 In fact, it is Keynes' public declaration of a loss of faith in capitalism and a call for experimenting with alternative economic institutions and arrangements. 89 00:11:10.360 --> 00:11:17.360 Thus, in a famous passage, Keynes declared, quote, the decadent international but individualistic capitalism is not a success. 90 00:11:17.360 --> 00:11:23.360 It is not intelligent, it is not beautiful, it is not just, it is not virtuous, and it doesn't deliver the goods. 91 00:11:23.360 --> 00:11:30.360 In short, we dislike it, he and his Bloomberg friends, and we are beginning to despise it, unquote. 92 00:11:30.360 --> 00:11:33.360 However, Keynes was perplexed about what to put in its place. 93 00:11:33.360 --> 00:11:39.360 He noted that, quote, the world is embarking on a variety of politico-economic experiments, unquote. 94 00:11:39.360 --> 00:11:46.360 Russia, Germany, Italy and other countries are or will be seeking, after what Keynes called, new economic gods. 95 00:11:46.360 --> 00:11:53.860 Keynes expected many mistakes to be made in these bold experiments in Bolshevism, Nazism and Fascism, but he added, 96 00:11:53.860 --> 00:11:58.360 quote, no one can tell which of the new systems will prove itself best, unquote. 97 00:11:58.360 --> 00:12:06.360 As Halperin pertinently remarked in this passage, the fact that the new economic gods of Russia, Italy and Germany were totalitarian despotic gods, 98 00:12:06.360 --> 00:12:10.360 destructive of human dignity and human rights, did not, it seems, appear worthy of note. 99 00:12:10.360 --> 00:12:14.360 They were experimenting. That was the wonderful thing about it, unquote. 100 00:12:14.360 --> 00:12:18.360 Keynes confided in this article that he is, quote, 101 00:12:18.360 --> 00:12:24.360 one whose heart is friendly and sympathetic to the desperate experiments of the contemporary world, 102 00:12:24.360 --> 00:12:29.360 who wishes them well and would like them to succeed, meaning Bolshevism, fascism, and so on, 103 00:12:29.360 --> 00:12:35.360 who has his own experiments in view and who in the last resort prefers anything on earth 104 00:12:35.360 --> 00:12:43.360 to what the financial reports want to call the best opinion in Wall Street, unquote. 105 00:12:43.360 --> 00:12:55.360 Keynes' primary concern was that free trade and free movement of capital under the international gold standard be abolished, so that the world would be free to experiment with nationalist and socialist alternatives. 106 00:12:55.360 --> 00:13:02.360 Keynes declared, not believing that we are saved already, we each should like to have a try at working out our own salvation. 107 00:13:02.360 --> 00:13:15.360 We do not wish, therefore, to be at the mercy of world forces working out or trying to work out some uniform equilibrium according to the ideal principles, if they can be called such, of laissez-faire capitalism." 108 00:13:15.360 --> 00:13:21.360 He went on to proclaim the dawning of a transitional experimental phase, during which, 109 00:13:21.360 --> 00:13:34.360 during which, quote, we all need to be as free as possible of interference from economic changes elsewhere in order to make our own favorite economic experiments toward the ideal social republic of the future. 110 00:13:34.360 --> 00:13:41.360 Okay, so in short, Keynes was calling for autarky along the lines laid down by the National Socialists. 111 00:13:41.360 --> 00:13:52.360 In this article, which I'll just quickly summarize, he also opposed, like Zumbart especially, the allocation of resources by entrepreneurial profit calculations. 112 00:13:52.360 --> 00:14:07.360 And he contended that judging things, judging resource allocations by financial results, transformed the conduct of life in the 19th century into a sort of parody of an accountant's nightmare, unquote. 113 00:14:07.360 --> 00:14:19.360 Now, Keynes' fulminations against monetary calculation, which we find in this article, can be compared to the ranting of Zumbart on the same topic. 114 00:14:19.360 --> 00:14:22.360 I'll just read a little bit of it. It's pretty funny. 115 00:14:22.360 --> 00:14:41.360 The profit account is one of the basest inventions with which the devil has yet deceived mankind. A large part of our misery is connected with the dissemination of this idea. It has destroyed a colorful world and thrown it into a gray, or grayish, monotony of money values. 116 00:14:41.360 --> 00:14:55.960 Culture and economic revolutions are not reconcilable. If one regards as the chief disadvantage of a removal of capitalism, the slowing down of technical and economic progress, our answer is that we see therein a direct blessing. 117 00:14:55.960 --> 00:15:11.260 So at the end of his article, Keynes doesn't give us any detail about what his favorite experiment is, but he does conclude with a call for greater national self-sufficiency and a planned domestic economy. 118 00:15:11.260 --> 00:15:21.260 Those are his words. Three years later in 1936, he laid out plans for his own national socialist experiment in the final chapter of general theory. 119 00:15:21.260 --> 00:15:30.260 I'll merely summarize it for you. Basically, what Keynes wanted to do there was two things. 120 00:15:30.260 --> 00:15:38.260 One, he wanted the state to take over and determine first how much of people's income in the aggregate would be invested, 121 00:15:38.260 --> 00:15:46.260 and how much they would be permitted to retain for their own consumption, and second, what rate of return capitalist entrepreneurs would be permitted to earn. 122 00:15:46.260 --> 00:15:52.260 Now, he unabashedly described this program as, quote, a somewhat comprehensive socialization of investment. 123 00:15:52.260 --> 00:15:56.260 Okay, so he has arrived now at the full National Socialist Program. 124 00:15:56.260 --> 00:16:01.260 Okay, self-sufficiency and socialization of investment. 125 00:16:01.260 --> 00:16:13.260 In particular, he wanted the state to expand credit to such a degree that it would push the interest rate down towards zero. 126 00:16:13.260 --> 00:16:19.260 In that case, you would have an increase in the amount of capital and productivity in society. 127 00:16:19.260 --> 00:16:25.260 And the financial criteria or monetary calculation would no longer keep England poor. 128 00:16:25.260 --> 00:16:35.260 Now, what he said, he was also happy about this falling of the rate of interest or forcibly forcing it down through monetary inflation. 129 00:16:35.260 --> 00:16:43.260 He was especially pleased that this situation would result in, quote, the euthanasia of the rentier, that is, the stockholder or bondholder, 130 00:16:43.260 --> 00:16:51.260 and, quote, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital, unquote. 131 00:16:51.260 --> 00:16:58.260 Depriving the islands of perfluous bondholders and stockholders of an income would also improve the equity of income distribution. 132 00:16:58.260 --> 00:17:02.260 Now, Keynes' deep aversion towards interest was shared by the National Socialists. 133 00:17:02.260 --> 00:17:07.260 Point 11 of the Nazi's unalterable party program demanded, quote, 134 00:17:07.260 --> 00:17:13.260 abolition of income not earned by work and toil, breaking the bonds of interest slavery, unquote. 135 00:17:13.260 --> 00:17:29.260 Although Keynes' call for the euthanasia of Narantie was merely figurative, it was chillingly reminiscent of point 25 of the Nazi program, which declared that usury, profiteering and the like must be punished by death, irrespective of creed or race, unquote. 136 00:17:29.260 --> 00:17:43.260 So, this scheme for state direction of the economy bears a striking resemblance to the system that eventually emerged in Nazi Germany under Hitler's chief economic planner, Helmut Schock. 137 00:17:43.260 --> 00:17:52.260 This is not a matter of coincidence, as the evidence strongly suggests an intellectual cross-fertilization between Keynes and Nazi economists and policy makers. 138 00:17:52.260 --> 00:17:55.260 I'll just give you a little bit of this evidence because I want to move on tonight. 139 00:17:55.260 --> 00:18:19.260 For example, the man who translated Keynes' treatise on money and the Keynes-inspired Macmillan report into German was Karl Kramer, who was head of a special bureau established by Schacht in Berlin in 1932 and whose mission was to coordinate Hitler's economic bodies in order to, quote, enable the Nazi party to present an economic platform in which industry and commerce can participate, unquote. 140 00:18:19.260 --> 00:18:23.260 So the guy running this bureau translated these two earlier books by Keynes. 141 00:18:23.260 --> 00:18:33.260 by Keynes. Wilhelm Lautenbach was sometimes called the German Keynes because he had developed a notion of aggregate demand and elaborated the theory of the multiplier in 1931. 142 00:18:33.260 --> 00:18:45.260 He also drew up a plan for the Bruning government for large-scale public works financed by monetary inflation. This plan was very similar to the plan later implemented by Schacht under the Nazis. 143 00:18:45.260 --> 00:18:49.260 Lautenberg also referred to Keynes in a lecture in 1931 stating, 144 00:18:49.260 --> 00:18:57.260 quote, this view concurs to a large extent with that of the Cambridge School in economics, in particular with Robertson and Keynes, unquote. 145 00:18:57.260 --> 00:19:05.260 The Nazi economist Otto Wegener once suggested to Hitler that he read Keynes' book because it was, quote, a highly interesting study, 146 00:19:05.260 --> 00:19:10.260 one field that he feels that he moves in our direction without being acquainted with us or with our views. 147 00:19:10.260 --> 00:19:16.260 Wagner pointed in particular Keynes' idea of abolishing the gold standard. 148 00:19:16.260 --> 00:19:22.260 Hitler very humbly responded that he was not sufficiently familiar with these matters and didn't read the book. 149 00:19:22.260 --> 00:19:28.260 And Keynes himself saw evidence of similarity between him and the Nazi economists. 150 00:19:28.260 --> 00:19:37.260 Someone yesterday, I won't read it again, read the foreword that Keynes had written to the German translation of the general theory. 151 00:19:37.260 --> 00:19:54.260 I might mention one other point. In the early 1940s, Keynes also vigorously promoted what he called the Schachtian device, the Nazi device, of international barter or bilateral trade as an alternative policy for Britain in the post-war world. 152 00:19:54.260 --> 00:20:07.260 So he's taking this right from the Nazis, and he knows it, and he says that Britain should engage in this policy if some version of his inflationist scheme for international monetary reconstruction were not accepted. 153 00:20:07.260 --> 00:20:22.260 Keynes labeled anyone who signed an agreement to preclude the use of such a device in advance, quote, as a great traitor to his country, as if he were to sign away the British Navy before he had a firm assurance of an alternative means of protection, unquote. 154 00:20:22.260 --> 00:20:32.260 Okay. What the implications of that are, I'll leave to you. Now let me turn to Knight, a little more complex case. 155 00:20:32.260 --> 00:20:38.260 Before we can make sense of Knight's attitude toward National Socialism, we must take one more detour through Zumbart. 156 00:20:38.260 --> 00:20:43.260 It's always humorous to read Zumbart. According to Zumbart, quote, 157 00:20:43.260 --> 00:20:53.260 It is obviously established in God's plan of the world that the destiny of mankind is to be realized within the sphere of political associations. 158 00:20:53.260 --> 00:21:01.260 Sombart designated this general comprehensive political association by the word state and attributed to it a number of essential qualities. 159 00:21:01.260 --> 00:21:11.260 First, the state is old, as old as mankind, and all theories of its origin, which assume a pre-state condition, are false. 160 00:21:11.260 --> 00:21:20.260 Second, the state is ideal, meaning that it lies in the realm of the transcendental and is immune to empirical and rational explanation. 161 00:21:20.260 --> 00:21:27.260 Finally, membership in the state is fundamentally unlike the relationship of the individual to any other organization. 162 00:21:27.260 --> 00:21:30.260 Here I would agree with him, but not in the way he thinks. 163 00:21:30.260 --> 00:21:36.260 As he points out, he says, in all non-state organizations, membership endows the member with some claim. 164 00:21:36.260 --> 00:21:47.260 He claimed, membership in the state, however, is a sacrifice and a sacrifice unto death. Right. 165 00:21:47.260 --> 00:21:55.260 But the sacrifice presupposes necessarily a super individual something, holding an idea for which man sacrifices himself. 166 00:21:55.260 --> 00:22:03.260 It is senseless to have one individual sacrifice himself for another, the mother for child, the warrior for the civilian, unquote. 167 00:22:03.260 --> 00:22:12.260 So he goes on to say that the idea of compelling sacrifice may be abstract, like liberty or faith, it may be concrete, like the political association. 168 00:22:12.260 --> 00:22:23.260 In any case, it characterizes having ideas, so the state in some sense has ideas, its meaning points beyond this world, unquote. 169 00:22:23.260 --> 00:22:31.260 It is because the state exists beyond empirical reality that its members, individually or collectively, are unable to interpret its true meaning and purposes, 170 00:22:31.260 --> 00:23:00.260 The principle of leadership means the acceptance of the supreme will of a leader who receives his directions, not as an inferior from a superior leader, but only from God, the supreme leader of the world. 171 00:23:00.260 --> 00:23:06.260 One who wholly grasps and affirms leadership principle must believe in progressive revelation. 172 00:23:06.260 --> 00:23:13.260 The ruler of the state receives his commission from God, which means, in the last analysis, all authority comes from God. 173 00:23:13.260 --> 00:23:21.260 He is not required to listen to the voice of the people in so far as he does not recognize in it the voice of God." 174 00:23:21.260 --> 00:23:31.260 Zumbart went on to argue that the leader is really, when he's guided by revelation from God, is really conducting affairs according to the general will. 175 00:23:31.260 --> 00:23:36.260 So in some sense he's starting to talk, he sounds like Rousseau in the French Jacobins. 176 00:23:36.260 --> 00:23:41.260 Wrote Zumbart, the general will which is to be realized in a metaphysical, not an empirical reality. 177 00:23:41.260 --> 00:23:47.260 It is not concerned with the will of all, meaning the will that's expressed through democratic voting. 178 00:23:47.260 --> 00:23:53.260 The leader cannot ascertain it through a plebiscite. He must recognize it and can only have experienced it through revelation. 179 00:23:53.260 --> 00:24:03.260 For this reason, the approval of the people is not necessary for justification of a leader's conduct. 180 00:24:03.260 --> 00:24:16.260 He also points out that the state itself and its will is embodied differently according to different historical circumstances. 181 00:24:16.260 --> 00:24:33.260 He says that the authoritarian power of the state can be instantiated in an absolute monarch, but during democratic times, it would take the form of maybe a single party system along fascist and soviet lines, a military dictatorship, or a constitution that enacts a powerful presidency. 182 00:24:33.260 --> 00:24:42.260 He also pointed to the Catholic Church and its College of Cardinals as an exemplary model of every democratic authoritarian constitution. 183 00:24:42.260 --> 00:24:54.260 His point was that you had to choose the right leader and you needed a group of very wise people to choose the elite, which tended to be one person. 184 00:24:54.260 --> 00:25:00.260 In any case, let me get to Knight. In 1930s, Knight became greatly disillusioned with democratic politics. 185 00:25:00.260 --> 00:25:06.260 He believed that liberal democracy had failed abysmally to discover and apply the knowledge necessary to provide social order, 186 00:25:06.260 --> 00:25:10.260 and particularly to solve, quote, the problem of social control of economic life. 187 00:25:10.260 --> 00:25:16.260 Night's deep pessimism regarding liberal democracy was first expressed in two lectures he gave in 1932. 188 00:25:16.260 --> 00:25:30.260 These lectures were not published until 1991 and they were really suppressed in some sense by his students who published reams and reams of his lectures over the years. 189 00:25:30.260 --> 00:25:37.260 But it was published in 1991 under a remarkable title, The Case for Communism, from the standpoint of an ex-liberal. 190 00:25:37.260 --> 00:25:49.260 In this article, Knight intended to show why our social order shows symptoms of breakdown and why the future belongs to communism or to some really aristocratic social system, a military dictatorship, unquote. 191 00:25:49.260 --> 00:26:00.260 He also confessed his conversion to communism. Whether or not his personal conversion was tongue-in-cheek, engaged to get a rise out of his audience, as some of his students have claimed, is besides the point. 192 00:26:00.260 --> 00:26:10.260 In this rambling and turgid article, Knight made a number of statements that were profoundly anti-liberal and favorable to a national socialist style regime. 193 00:26:10.260 --> 00:26:20.260 Knight contended that in liberal democracy, those in power engaged in talking down the opposition, while in non-liberal regimes, the rulers beat up the opposition. 194 00:26:20.260 --> 00:26:36.260 Knight prefers the latter. The advantage of the latter was that the opposition will stay beaten up a little while, as they do not stay talked down, and government would get a chance to govern instead of continuously campaigning for retention of office. 195 00:26:36.260 --> 00:27:06.260 Knight went on to state, quote, that a minority party dictatorship would be made up of men of some kind of ability and some conception of what they wanted, and that wishing to keep power without perpetual war and requiring the cooperation of the people in their constructive program, they would have more respect for the needs and wishes of the country than is true of our system of multiplex bureaucracy and passing the buck, unquote. Knight also argued that the basis of social cohesion was not the mutual benefits realized through the social 196 00:27:06.260 --> 00:27:20.260 Social Division of Labor, as Mises and the Austrians believe, but secularized religious myths and lies that men make, or that, I'm sorry, that make men accepting of, quote, a government based on force, unquote. 197 00:27:20.260 --> 00:27:44.260 wrote Knight, the basis of unity must be mystical, religious. The effect of content itself cannot be utilitarian, and the sociological character and historical role of religion, morals and legal formalism is precisely to furnish this mystical basis for unity which enables men to accept a degree of rule of force or traditional law which is necessary for peace within the group. 198 00:27:44.260 --> 00:28:11.260 A society which hangs together and functions has to have a religion, which from a scientific or critical point of view is nothing but fiction or mythology, but it must also have a government which not only uses force, but uses the social religion as well. 199 00:28:11.260 --> 00:28:19.260 One of the secrets of the political greatness of Rome is that its rulers knew their onions in the matter of religion, unquote. 200 00:28:19.260 --> 00:28:29.260 Later rulers in Europe were successful, claimed Knight, to the degree that they recognized religion, including popular morality as good for society, puts that in quotes, in quotation marks, 201 00:28:29.260 --> 00:28:36.260 without allowing their own style and action to be seriously cramped by regard for any of its sacred principles. 202 00:28:36.260 --> 00:28:47.260 So basically lying and beating people up is what Knight was in favor of, because that would restore social order. 203 00:28:47.260 --> 00:28:54.260 Knight published an article in 1935 entitled Economic Theory and Nationalism, in which he really lets himself go. 204 00:28:54.260 --> 00:28:58.260 He argued that laissez-faire capitalism was for doom to break down. 205 00:28:58.260 --> 00:29:04.260 The breakdown comes because he believed monopoly and inequality at some point becomes intolerable, 206 00:29:04.260 --> 00:29:14.760 and the losers of the contest, the economic contest, become ideologically disillusioned and turn to democratic socialism, such as the New Deal, Fabian Socialism or Social Democracy. 207 00:29:14.760 --> 00:29:24.760 However, democratic socialism is not a real New Deal, he says, because political democracy as it works in practice is like free enterprise, competitive and individualistic. 208 00:29:24.760 --> 00:29:34.760 Hence, democratic socialism is incapable of initiating the ideal democratic discussion that will at last awaken the social mind. 209 00:29:34.760 --> 00:29:44.760 So now we're back at some part. Out of its ages-long slumber and succeed in ascertaining a real general will, ascertaining a real general will are Knight's words. 210 00:29:44.760 --> 00:29:54.260 Politics and economics under liberalism, meaning either democratic socialism or laissez-faire capitalism, are the same game, in Knight's words. 211 00:29:54.260 --> 00:30:01.560 The fundamental fact in both is the moral fact of rivalry, competitiveness and the interest in power." 212 00:30:01.560 --> 00:30:08.760 Knight argued that democratic socialism was actually less stable than laissez-faire capitalism because both theory and experience go to show 213 00:30:08.760 --> 00:30:26.760 He wrote that the cumulative tendency to inequality and the consequent disruption of the system is likely to be actually stronger in the political field where the power is purely moral and psychological than in the economic sphere where such power is supplemented by, or competes with, control over material agents. 214 00:30:26.760 --> 00:30:30.760 So he's slightly more favorable to laissez-faire capitalism than democratic socialism. 215 00:30:30.760 --> 00:30:33.800 However, these are not what he proposes. 216 00:30:33.800 --> 00:30:39.120 Knight concluded that both wealth power and persuasion and prestige power will exist and 217 00:30:39.120 --> 00:30:43.840 be utilized under democratic socialism to acquire more power of both kinds, and that 218 00:30:43.840 --> 00:30:48.000 the predominance of politics under democratic socialism will render it susceptible to an 219 00:30:48.000 --> 00:30:52.040 even quicker self-destruction than laissez-faire capitalism. 220 00:30:52.040 --> 00:30:58.120 In any case, now he's watching now as he believes the US economy is becoming more socialistic 221 00:30:58.120 --> 00:31:05.320 with the New Deal. So he says, as the liberal game inexorably degenerates, the unfulfilled 222 00:31:05.320 --> 00:31:11.820 quote, moral cravings, unquote, of the masses for justice, freedom and interesting activity 223 00:31:11.820 --> 00:31:18.760 compel a change in the rules of the game, which gives rise to a real New Deal. Now, 224 00:31:18.760 --> 00:31:24.440 this real New Deal is what he calls fascist nationalism. Quote, the next stage in the 225 00:31:24.440 --> 00:31:26.840 and the political evolution of the liberal democracy. 226 00:31:26.840 --> 00:31:31.040 So this was the next higher stage of evolution. 227 00:31:31.040 --> 00:31:35.920 Knight characterized fascist nationalism as, quote, natural, although extreme, reaction 228 00:31:35.920 --> 00:31:41.000 to economic individualism, as a movement from crushing competitivism to a worship of emotional 229 00:31:41.000 --> 00:31:46.800 unity and from intolerable insecurity to morbid craving for security. 230 00:31:46.800 --> 00:31:51.000 Despite his professed hatred for nationalistic dictatorship, Knight perceived in the emergence 231 00:31:51.000 --> 00:32:20.000 This truth is that there can be no human life without group life and no group life without real devotion in a religious sense of the members to the group as a more or less mystical entity and beyond it to some set of values for which the group is supposed to stand. 232 00:32:20.000 --> 00:32:25.560 Stan, unquote. Now we get to the leader. The position of the leader under fascist 233 00:32:25.560 --> 00:32:29.240 nationalism relies partly on power in the forms of both armed might and 234 00:32:29.240 --> 00:32:34.120 charismatic persuasion, but also, quote, rests in part on deliberate acceptance by 235 00:32:34.120 --> 00:32:38.600 the group based on failure to secure adequate unity by democratic methods. In 236 00:32:38.600 --> 00:32:44.600 other words, in some way the group brings forth the leader, okay, as democracy 237 00:32:44.600 --> 00:33:05.600 breaks down. Cooley considered, Knight says, the ethical ideal of fascists, bread and circuses cannot be considered inferior to the ideal of economic man, although he did express his personal regret at the, quote, passing of freedom as an ideal to be striven for and to an important degree in actuality, unquote. 238 00:33:05.600 --> 00:33:13.600 So in some sense we actually did have freedom under laissez-faire capitalism, but following the group mind is something that's much more important. 239 00:33:13.600 --> 00:33:22.600 Knight's main objection to fascist nationalism was that the leader and his party are ultimately incapable of truly ascertaining and articulating the social mind, 240 00:33:22.600 --> 00:33:28.600 quote, because they do not secure their position through an active, intelligent and moral selection within the group, unquote. 241 00:33:28.600 --> 00:33:38.600 Let me just sum up here. What was Knight's ideal system? Very difficult to figure out, but his ideal system, as I saw it, was democracy defined, 242 00:33:38.600 --> 00:33:56.600 is defined, quote, as a process of discussion leading to agreement, which is necessitated by the existence of a value cosmos, a world of objective super individual norms to be thought of as discovered or progressively approached in the discussion process. 243 00:33:56.600 --> 00:34:04.600 That is a discussion of a true democracy, in which people, in which most people shut up. 244 00:34:04.600 --> 00:34:10.600 People who don't know what they're talking about, they're not supposed to talk. They're antisocial if they do. 245 00:34:10.600 --> 00:34:14.600 I mean, he has a whole article on the sociality of talk. I mean, he's really crazy. 246 00:34:14.600 --> 00:34:17.600 And let me finish. 247 00:34:17.600 --> 00:34:23.600 The discovery and progressive realization of valid norms governing social interaction is thus the product of a real social choice 248 00:34:23.600 --> 00:34:29.600 This is a social choice that presupposes the existence of a group mind and manifests itself as, quote, 249 00:34:29.600 --> 00:34:33.600 free choice for a group of free individuals acting as a unit, unquote. 250 00:34:33.600 --> 00:34:44.600 Such group freedom of choice stands over and above individual freedom and leads to the intellectual direction of social processes by society in its own interest, unquote. 251 00:34:44.600 --> 00:34:46.600 Okay, so there's some real group mind. 252 00:34:46.600 --> 00:34:54.600 The fascist leader comes close to articulating it in some sense, but he fails, and you can really only find it when you have true democracy. 253 00:34:54.600 --> 00:34:59.600 So for Knight, the only problem with fascist nationalism is that the leader is chosen by a defective mechanism. 254 00:34:59.600 --> 00:35:09.600 He might have agreed with Zumbart's recommendation that the leader be chosen by a small group of socially minded intellectuals, possibly based, say, in Chicago.