Glotzer Archive   |   Trotskyist Writers Index   |   ETOL Main Page

Albert Gates

German Society and Capitalism

(April 1941)

From New International, Vol. VII No. 3 (Whole No. 52), April 1941, pp. 49–54.
Transcribed and Marked up by Damon Maxwell for the Encyclopaedia of Trotskyism On-Line (ETOL).
Proofread by Einde O’Callaghan (December 2012).

IT IS THEORETICALLY POSSIBLE that the future course of society may take a direction unforeseen by revolutionary Marxists at present, but the attempt of Dwight Macdonald [1] to portray the German fascist state as representative of a new social order is a grievous violation of serious and scholarly investigation. His study is based upon journalistic interpretations of secondary and indecisive phenomena of present-day German society. Despite devoted efforts to understand German economy under Hitler, he has been unable to generalize correctly the studied facts, nor to place them in their proper context and importance.

Macdonald’s reference to Trotsky’s remarks anent Hitler’s role of a super-Wrangel and the latter’s attack on the Soviet Union, is entirely misplaced and without importance. Trotsky erred in the field of prophesy where conjunctural turns frequently occur, especially when forecast is made some eight years before an event occurs. But this fact proves nothing in reality. And, so far as the war is concerned, the end is not in sight.

The matter of the Blitzkrieg is quite something else. For here is a key to Macdonald’s position. It was the Blitzkrieg, quite understanding on economic and military grounds, which so shockedMacdonald that it drove him to what he calls a study of German economy. He searched for the source of Germany’s swift victory over France in his own preconceived “new social order.” Of Germany’s military triumphs, he therefore writes:

Germany’s crushing superiority in war machines (planes, tanks, guns) over the richer “democracies,” the new military tactics her army displayed, and the new non-capitalist ways in which she is now exploiting her victory – all of these phenomena can be explained only on the basis of a radical difference in economic and social systems between Germany and France-England. (Emphasis mine – A.G.)

What these “non-capitalist methods” are remains a secret. In any case we shall show that the whole theory is false and groundless in fact. By his writing, Macdonald does reveal that he knows little of German or European military history, and certainly little of European (especially German) economy.

While this is not the occasion for a review of German military and economic history, it is necessary to point out:

1) Germany has long been a powerful military nation with an enormous military tradition;
2) In 1870–1871 German arms vanquished France in a few weeks (for that period, also a Blitzkrieg);
3) Germany was on the verge of victory against the Allies several times during the 1st World War, without a fascist state;
4) In any gigantic military struggle, new tactics, new strategies, new machinery, new methods of offense and defense arise;
5) The “non-capitalist” means Germany supposedly has and is employing are traditionally imperialist-capitalist;
6) The economic systems of Germany and the Allies are fundamentally identical “war economies”;
7) The war is not over and as it continues in the latter half of its second year promises to spread over the entire globe and to continue for many years;
8) The war cannot be won by a Blitzkrieg; it has already lasted too long, when the Blitzkrieg, as conceived by the General Staffs, especially the German, was a war lasting from three weeks to three months;
9) The German economic organization has been and is today the mightiest in Europe – although that, of and by itself, as we shall soon establish, is only half the answer.

But, queries Macdonald, if the Allies knew all this, why did they not prepare to meet Hitler in advance? The answer to that is, in my opinion, obviously answered. Modern war is an extremely dangerous and expensive undertaking with little or no guarantees involved. The Allies had hoped to turn German attentions toward the east (Russia) and thus avoid war, if not altogether, then at least for some time. England-France were confronted with a fait accompli in Germany’s military resurgence, which, on the basis of their industrial potential and specific class relations (bourgeois-proletarian) they could not hope to match. In two years they could not do what it took Germany with an “enslaved proletariat” more than five. Yet despite this, Germany has not achieved its victory. On the basis of Macdonald’s views this should have occurred shortly after the fall of France in early 1940.

Germany’s conduct in world affairs prior to the outbreak of the present war, was highly reckless because she had nothing to lose. In contradistinction, England and France had nothing to gain from a war with a vanquished foe and everything to lose. Armed Germany, ready to stake all in the hope of victory, was truculent, abusive and aggressive. England and France, playing for time, hoping for diversions to prevent the immediate outbreak of war, playing the game of diplomacy for all it was worth, worked belatedly and feverishly to prepare because neither would give up a single imperialist possession of their own to appease Germany.

But the Blitzkrieg, Macdonald notwithstanding, while illuminating as a topical military subject, has no fundamental significance beyond that, and certainly no fundamental social significance. And yet, it is upon such a basis that the discoverer of new social orders builds his tenuous structure.

On the Study of Marx

It is not only necessary to “reread” Marx’s Capital, but also to READ it, to STUDY it and to avoid the researcher’s method of seeking quotations to fit a preconceived pattern, using them divorced from their context and meaning, especially where they have nothing to do with the subject.

How is Macdonald “illuminated” by rereading Marx’s Capital? He has discovered what comprises simple capitalism. The “mysterious” commodity is stripped of its mystery and there it stands in all its nakedness, long decades after Marx engaged in his economic writings! Yes, it is true that capitalism means commodity production, production for a market, that a product entering the process of exchange becomes a commodity, that the worker sells his labor power to the capitalist in the open market. All of this is true, just as it is true that capitalism means competition, production for profit, and private ownership of the means of production. So much time and space wasted. It would have done Macdonald far more good to have spent his energies in a study of the economics of monopolist capitalism, for it would have taught him many things which he does not seem to know, and the lack of knowledge of which disqualifies him from effectively discussing the issue in dispute.

What Is Modern Capitalism?

Capitalism has become monopolist. Simple factory production, industrial capitalism, has given way to mass production, the victory of industry over agriculture, of heavy metallurgical industry over light, textile, and the triumph of finance capital. Under these conditions, there is a relative end to the competitive struggle in the domestic market, subject to controls by monopoly capitalism, which controls the market, competition, production and prices. It is also characteristic of the present epoch of monopoly capitalism that the domestic market is no longer decisive and dominant. The world market, world prices and world trade, the endless search and competition for raw materials, prevail. We live under a system of world economy.

Macdonald, with a stroke of his pen, dissolves the domestic market in Germany, but he fails to understand that in the present epoch the national market is completely subsidiary and subordinated to the world market, and the national division of labor subject to and integrated with the world division of labor.

The tendency and the reality of monopoly capitalism is to elevate the world market at the expense of the home market. Bukharin described in detail the new capitalism in his book, Imperialism and World Economy, when he wrote:

There is a regular market connection, through the processes of exchange between numberless individual (national) economies scattered over the most diverse geographical areas. This world division of labor and international exchange presupposes the existence of a world market and world prices. (p. 23)

And further:

International exchange of commodities is based on the international division of labor . . . international exchange has its basis not in division of labor, which presupposes the production of different use-values, but solely in different levels of production costs, in values having various scales in various countries, but reduced through international exchange to socially indispensable labor on a world scale. (Ibid., pp. 24f.)

This holds true especially for Germany, where economy has been for many decades indissolubly intertwined with world economy. The post-war crisis in Germany resulted not from what Macdonald talks about, but entirely from its relation to world economy, its severance from the world markets, from the sources of raw materials and colonies with its rich supply of cheap labor. Germany’s present war effort can be explained solely by its desire to redivide the world, establish its own dominant colonial empire and occupy the place of America and England. Macdonald does not understand this because he does not understand monopoly capitalism as a system of world economy. That is why, too, he is led to such a sophomoric absurdity as to declare that Germany has dissolved the world market.

The causes of the last World War are now universally known. We suspect, although we are not certain, that Macdonald knows them too, but since it does not fit his preconceived pattern of present day German economy, he forgets everything. World War I was a struggle for a redivision of the earth. Germany’s integration in world economy as long ago as 1914 and earlier was expressed in her foreign investments, which totalled more than 35 billion marks. In addition, the Kaiser’s Germany was in possession of a growing colonial empire. The measure of her stature is apparent by Germany’s intervention in every important international imperialist problem of that period.

The central aim of the Versailles treaty was the destruction of Germany’s colonial empire and military power. The mistake of the Allies was that, in dismembering Germany’s borders, in imposing astronomical reparations and seizing her colonial empire, they failed to destroy the immense German industrial plant which enabled Germany’s military and economic resurgence.

Under the conditions of mass production, the volume of commodities seeking a market has increased, especially in capital goods. This situation occurs with a declining home market, resulting from the disproportionate relationship in the rise of productivity of labor and relative decline of the national consuming power. How explain the contradiction of rising productivity, the mass production of capital and consumers goods and the relative decline of consumption? The contradiction is only explainable by the composition of capital, the polarization of wealth. The falling rate of profit is a tremendous factor driving the bourgeois power beyond the borders of the country and this is especially true for highly industrialized countries like England, Germany and the United States.

Marx graphically described this process when he wrote:

Overproduction of capital never signifies anything else but overproduction of the means of production – means of production and necessities of life – which may serve as capital, that is, serve for the exploitation of labor at a given degree of exploitation ... Capital consists of commodities and therefore the overproduction of capital implies an overproduction of commodities. (Capital, Vol. III, p. 300)

There is an immense export of commodities in general, in which, however, the export of capital is distinguished from the export of commodities of consumption. The motivating force for the export of capital is not that it cannot be employed at home, but that it can be more profitably employed in foreign, colonial and agricultural countries. Of this Marx wrote, with prophetic wisdom, long before the era of monopoly capitalism had arrived:

If capital is sent to foreign countries, it is not alone because there is | absolutely no employment to be had for it at home. It is done because it lean be employed at a higher rate of profit in a foreign country. (Ibid., p. 1279)

Or again:

... capitals invested in colonies, etc., may yield a higher rate of profit for the single reason that the rate of profit is higher thereon account of backward development and for the added reason that slaves, coolies, etc., permit a better exploitation of labor. (Ibid. My emphasis – A.G.)

Macdonald has to prove that none of the aforecited references have application to Germany, and we are certain that he cannot do so. We have already mentioned the disproportionate relationship between production and consumption. Consumption is restricted under capitalism because its prevailing tendency is toward capital accumulation and expansion, and “a production of surplus value on an enlarged scale.” Therein lies the explanation for the present war and Germany’s desperate conflict. In relation thereto Marx wrote:

This is a law of capitalist production imposed by the incessant revolutions in the methods of production themselves, the resulting depreciation of existing capital, the general competitive struggle and the necessity of improving the product and expanding its scale of production, for the sake of self-preservation and on the penalty of failure. The market must, therefore, be continuously extended. (Ibid., p. 287. My emphasis – A.G.)

Modern imperialist capitalism is accompanied by an intensification of the world struggle between nations because (1) there is an increased world competition in the sales market, (2) there is an increased competition in the markets of raw materials, and (3) there is an increased competition in the spheres of capital investment. It is the contradiction between the growth of productive forces, on the one hand, and the national limits of production on the other, that sends capital out to all corners of the earth begetting this terrifying competition between national capitals.

Again, the modern capitalist contradiction occurs because:

... there is a growing discord between the basic social economy which has become worldwide and the peculiar class structure of society, a structure where the ruling class (the bourgeoisie) itself is split in “national” groups with contradictory economic interests, groups which, being opposed to the world proletariat, are competing among themselves for the division of the surplus value created on a world scale ... the development of productive forces move within the narrow limits of state boundaries while it has already outgrown those limits. (Bukharin, op. cit., p. 106. My emphasis – A.G.)

And yet Macdonald can write that: Germany has destroyed the world market!

Monopolist capitalism has marked the end of simple capitalism, laissez-faire capitalism. Under these structural changes, the role of the state to the classes has undergone changes, although its basic role remains identical: the instrument of bourgeois society. Macdonald speaks of the democratic bourgeois state as bourgeois apologists describe it, but as it actually never was, and certainly could not be under monopoly capitalism.

The state fuses with monopoly capitalism and has a more direct and intimate interest in the economic well-being of the “nation.” In declining capitalism, the duties of the state are magnified, since the increased conflict of “national capitals” marks the struggle between states.

Engels, despite an essential exaggeration of the development of the state as the sole capitalist, foresaw the main development of the state as far back as 1883. His theoretical writings served as the basis for the works of the post-war Marxists, who, in their studies of imperialism, showed the new role of the bourgeois state. Engels wrote:

In any case, with trusts or without, the official representative of capitalist society – the state – will ultimately have to undertake the direction of production. This necessity for conversion into state-property is felt first in the great institutions for intercourse and communication – the post office, the telegraphs, the railways ... If the crises demonstrate the incapacity of the bourgeoisie for managing any longer modern productive forces, the transformation of the great establishments for production and distribution into joint-stock companies, trusts and state property, show how unnecessary the bourgeoisie are for that purpose ... But the transformation, either into joint-stock companies and trusts or state-ownership does not do away with the capitalist nature of the productive forces. In the joint-stock companies and trusts this is obvious. And the modern state, again, is only the organization that bourgeois society takes on in order to support the external conditions of the capitalist mode of production against the encroachments as well of the workers as of the individual capitalist. The modern state, no matter what its form, is essentially a capitalist machine, the state of the capitalists, the ideal personfication of the total national capital. The more it proceeds to the taking over of productive forces, the more citizens does it exploit. The workers remain wage-workers – proletarians. The capital relation is not done away with. It is rather brought to a head. (Engels, Socialism, Utopian and Scientific, pp. 121ff. My emphasis – A.G.)

The measure of state control and ownership has not proceeded as far as Engels believed, even in fascist Germany, although the resultant class relations described are entirely accurate, as evidenced by post-war Europe and America.

Without understanding this capitalism, it is impossible to understand the Third Reich and we propose to show how Germany fits precisely into this pattern of monopoly capitalism as a system of world economy.

MacDonald’s Germany Through a Looking Glass

Germany is a new society, says Macdonald, not capitalist. To be sure, he adds, uncertain of himself, capitalists do in fact exist, but only in form. Private ownership in the means of production prevails – but only in form. Profits are made – but the profit system exists only in form. Wage labor is present – but only in form; the free labor market no longer exists. The market exists – but only in form. There is a stock exchange and “the speculator buys and sells stocks and bonds” – but this is only a form. “The old capitalist forms exist,” he says, “but they express an entirely different content” (emphasis in original – A.G.). What, then, is new? The state controls! There is no longer a profit system! There is only production for use, planned economy! “Germany has destroyed the world market.” What utter nonsense!

Since the Versailles treaty, the principal effort of German capitalism (once the failure of the proletarian revolution was certain) has been directed to breaking the chains imposed upon it by the victorious Allies, to escape the heavy war reparations, to acquire colonies, establish a place in the division of the world markets, and to realize an equal status in the markets of raw materials. How could the “enormous German plant” enjoy a normal existence under the Versailles restrictions? Obviously, it could not and Germany faced utter and complete collapse. The Weimar regime recognized this, but on the basis of inter-class relations and internal prostration, could do little about it, although its attempts were many. Hitler understood it even better than the Stresemanns and Briinings and he understood that it was necessary to solve internal class relations first and then to rearm to bring about a possibility of realizing German needs.

The democratic bourgeois regime of Germany tried by peaceful and persuasive means to obtain large concessions from the Allies and failed. The early attempts at a German-Austrian customs union were met with a direct order to desist or suffer the penalty of a renewed Allied military intervention. Under the conditions of post-war economy none of the other imperialist powers could grant Germany basic concessions without injuring their own profit economies. Anglo-French imperialism recognized that a German-Austrian customs union meant the creation of a German Middle European tariff alliance to establish a stronger monopoly (fusing German and Austrian capital under the former’s domination) to deal on a world scale with other gigantic monopolies.

The fascists came to power as the result of a combination of factors, not the least of which was the aim of finance capital to place in power a party of its own image, determined to bring about a rebirth of German imperialism, no matter what the effort or what clashes might be engendered.

What has the Hitler regime accomplished? First and foremost, the destruction of the organized working class, their power of resistance, the reduction of their living standards, and the intensification of their exploitation at the hands of monopoly capitalism. Second, the rearmament of the nation. Third, securing the power of the heavy metallurgical industries over all other capitalist groupings through the medium of war orders, a revival of German industry in general in preparation for war. And finally, reclamation of German territories in Europe and seizure of non-German areas. Germany, slowly but surely, has been breaking into the world market and reestablishing her pre-1914 threat to the other powers in a period of international decay and sharpened world competition.

German economy today is a war economy and contains all the abnormalities of a war economy in addition to other abnormalities under which German economy has operated for the past twenty years. In truth, the whole Hitler era is marked by the rise of a war economy. The war effort is directed by the state. In its present role it has only extended the characteristic tendency of monopoly capitalism.

These accomplishments were realized on basically capitalistic grounds, as even Macdonald admits, since he says that before 1936 Germany was capitalist. It is in that year that the social change supposedly took place. This is featured by state control, planned economy and production for use. What actually did occur in Germany? We shall have occasion to refer to Italy also, since it is, despite Macdonald’s failure to discuss that country, a fascist nation and the forerunner of Hitler’s Germany. Macdonald’s deliberate avoidance of a discussion of Italy is indicated for the reason that there a more simple capitalism operates and his theories are even more ludicrous in the light of developments.

The “New Social Order” in Practice

In their franker moments, when propaganda for mass consumption and the confusion of Macdonald is not required, the fascist spokesmen really characterize their system and the purpose of their “anti-capitalist revolution.” The fascist spokesman Luigi Villari in The Economics of Fascism writes:

Fascism ... is definitely a system of class collaboration. It rejects the idea of class and of contrast between classes, and aims at conciliating the aspirations of all the categories of the population in the nation as a whole.

Does it challenge capitalism? If by capitalism we mean simply the classical liberal economic theory of laissez faire, fascism does represent a new spirit [!], inasmuch as it provides a form of economic planning which in some quarters is regarded as tantamount to a kind of state socialism. But if by capitalism we mean individual enterprise and the possession of the means of production by private individuals, fascism by no means rejects it. In fascist economics the state steps in only to correct the defects and deficiencies of private enterprise and intervenes where private enterprise has failed, but the capitalist principle is accepted. (p. 111. My emphasis – A.G.)

Please note, Comrade Macdonald, how concise and categorical Germany and Italy have conformed to this pattern. The “interests” of the workers are now represented by the “impartial” state and the fascist labor organizations. The immediate aim of the fascist power was to make impossible strikes or any kind of struggle by the workers which might interfere with the constant functioning of the industrial machine. Have they succeeded? Even Macdonald recognizes it but does not place it in its proper context when discussing fascist economy because he does not realize its significance in bourgeois production. Here the state enacts the role depicted by Engels.

The prohibition of strikes and class struggles in Germany and Italy are obligatory for their economy. Strike prohibition is not primarily a political question, it is an economic one of the highest importance, for Italy because of its low level of development, for Germany because of its relation to world economy.

Referring to strikes, solidarizing class battles, Villari writes:

One of the chief benefits of the present [the fascist] regime is the complete elimination of these episodes of violence. (Ibid., p. 64)

And why? Because

... a poor country like Italy – whose economic life was only beginning to develop, whose production and working capital was still insufficient – could ill afford such disorders. (Ibid., p. 66)

Thus, the prohibition of the class struggle in Italy was incumbent in order that the capitalist class might develop its economy. Between 1920 and 1924, strikes were reduced from 2,070 to 260, and when Mussolini’s power was consolidated, strikes disappeared, while the level of existence of the proletariat was materially reduced. Villari writes:

Society’s interest [!] is that production should continue, and that its costs should not be so high as to prevent national industry from competing with that of other countries! (Ibid., p. 95. My emphasis – A.G.)

The quotations speak for themselves.

Germany even more than Italy requires class peace and “national unity” (at the point of the bayonet) to enable it to wage the struggle for world power. Its international position requires the ruthless exploitation of the proletariat for competitive economic purposes. And the efficiency of German industry today is in a large measure the result of the enslavement of the proletariat and the subordination of the entire industrial apparatus to war aims.

Capitalism is not only a system of class inequality, it is also a system of state inequality. Germany and Italy represent two bourgeois nations struggling for their existence in world economy.

In Whose Class Interests?

As a result of the first World War, and even prior thereto, the tendency toward nationalization in certain industrial branches existed in all bourgeois countries. Yet in the years following Mussolini’s seizing power, a process of denationalization occurred in the following industrial branches: match, telephone, insurance, municipal power plants, state railways and postal service. They were either turned into the hands of private capital or there occurred an increase of private power and private capital.

Moreover, the victory of fascism was followed with direct state handouts to private capital. In the pre-Hitler era, the Gelsenkirchen Company received from the government $125,000,000 for stock establishing government control. Hitler returned this stock to the company for $100,000,000 – a neat increase to the company.

As a result of bank crashes, the Weimar regime in 1931 established control over the following banks: Dresdner-Bank u. Danat, Commerz u. Privatbank and the Deutsche Bank u. Diskonte Gesellschaft. Government control ended in 1937, five years after the establishment of the Third Reich.

Shipbuilding, a state monopoly by virtue of stock ownership, ended in 1936. The government returned its stock to the Deutsche Schiff- u. Machinebau and Hamburg Süd-Amerika.

On December 13, 1935, the law of 1919 socializing power production was repealed and returned to private ownership and control.

Tax exemption, a very typical bourgeois method of subsidizing capital, was widespread in Italy and Germany with the advent of fascism. In Italy supplemental taxes on negotiable securities was abolished; tax exemptions were permitted large corporations which merged and the 10 per cent tax on capital invested in banking was abolished.

Throughout the years of Hitler’s rule the same process was experienced. A law was passed in 1933–1934 authorizing industrialists to deduct from their taxable income money expended on new equipment! The government reimbursed owners for expenses in repairing houses, factories and stores. Tax delinquents had their debts reduced by half. In July, 1933, legislation was passed providing tax exemptions to new business firms. In 1934, the government granted tax reductions in the amount of 500 million marks to facilitate resumption of business. Income taxes for 1934–1935 were reduced by half of what they were in 1931–1932. And in 1935 a reduction was granted on inheritance taxes. The state also prohibited new industries competing with the old. And non-conforming industries were forced into associations with big monopolies!

Beyond the Brenner Pass, in Italy, the fascist regime gave direct subsidies to industry. The Ansaldo Metal Trust was given 400 million lira. Banco di Roma, Banco di Napoli, Banco de Sicilia, Banco de Milano, Credito Italiano, Banco Commercialo, all insolvent, were made solvent by the state! The state, the good old impartial state, set up the Society to Finance Italian Industry with a capital of a half billion lira.

To be sure, all of this was done to stimulate industry. But note carefully, that there were not and are not to this day, expropriations of the capitalist class, and no nationalization. Quite the contrary, a revival of industry and the acquisition of profits was realized with state assistance. This was accompanied by reprivatization of nationalized sectors of economy.

Let us return to Germany. In 1932, industrial production stood at 57.2 as compared with 103.0 in 1929. A revival was experienced six months prior to Hitler’s triumph. In 4.5 years of Nazi rule the 1929 level was reached. How marvelous, swoons Macdonald. How superior to democratic capitalism. And he writes:

In my opinion the superiority of fascist to capitalist economy is due less to its undoubtedly more intense exploitation of human labor than to its superior ability to plan and control national production without hindrance from the archaic market system. (Emphasis mine – A.G.)

I have already shown that Germany’s economic situation stems directly from its relation to the world market, to which its economy is subjected. Macdonald’s remarks anent the market is stuff and nonsense, for he overlooks the essential fact that in the war, the government has become the chief home market, in (he absence of widespread exports and participation in world economy.

German economy has developed in a completely one-sided manner: an increase of capital goods production, decline in consumers’ goods despite increases in population and demand. In the absence of a strong position in world economy, rearmament has served as the basis for economic revival. Control and restrictions in production grew out of rearmament needs. Thus, in 1932 one billion marks were spent on rearmament, while in 1937, fifteen billions were so absorbed. With the outbreak of the war, this has risen to thirty billion marks yearly. In 1932, only 2 per cent of the national income was diverted into rearmament, while in 1937, 22 per cent was so spent and in the war, from 55 to 65 per cent of the national income has been siphoned off. In these figures is to be found the explanation for the economic revival of German industry and the great abnormalities in economic life.

The internal debt has reached a fantastic level which threatens an inflationary stage. But this obvious fact is lost on Macdonald, who declares that under Germany’s “controlled” economy no inflation is possible; the government controls currency. It would have been better had Macdonald left this question alone entirely. German finances, it is true, are controlled by the government, but it is a financial system that is based upon the bayonet, the looting of subject countries, heavy taxes, securing immediate reparation payments from defeated countries and the most primitive methods of capitalist accumulation.

Hitler’s measures to prevent inflation are typically capitalist and are only possible because of the presence of the war. The losses are socialized, that is, they are placed on the backs of the proletariat and poor peasants, while at the other pole, there is a steady profit accruing to the financial and industrial ruling class. Heavy taxation is levied to finance the war. The proletariat is tied to the industrial machine. In the light of German methods, John T. Flynn, in the N.Y. World-Telegram of March 13, 1941, wrote (attention, Comrade Macdonald):

Financial observers are becoming increasingly interested in what is going on in business inside of Germany. It has become the fashion here to talk about the great economic vigor of Germany and her fascist economy when the war will end ... Better informed observers do not admire Germany’s system and its alleged vigor as much as these journalists and military men. As a matter of fact, the process of inflation inside Germany must be moving at a pretty rapid rate. Of course, Germany does not tell us too much about such things ... this “great” and “efficient” German economic system, which is going to knock us [the United States] out of the world’s markets after the war, is lumbering along on no new or novel devices but on the same well-worn scheme of the capitalist system which has gravely weakened or ruined every capitalist nation ... and will, of course, do the same thing in Germany ... Germany, in spite of Mr. Hitler’s mouthings about the end of capitalism in a capitalist country ... It has resorted to taxation until that power is exhausted. This is the good old way under all systems. Then it has resorted to the equally good old way of borrowing at the banks ... It is possible to keep this up quite a long time – as long as there is a war and a dictator ...

Flynn, of course, is a dubious-liberal critic of capitalist economy. On such concrete questions, he knows what he is talking about.

German Society and Capitalism – II

(May 1941)

From New International, Vol. VII No. 4 (Whole No. 53), May 1941, pp. 86–89.
Transcribed & marked up by Damon Maxwell for the Encyclopaedia of Trotskyism On-Line (ETOL).
Proofread by Einde O’Callaghan (December 2012)

IN PURSUANCE OF THE PRINCIPLES outlined in the April installment of this article, I propose to show now how the “new” society really functions at home.

What is it that stands out so clearly in Macdonald’s exposition of his thesis? Eclecticism! He has no fundamental point of departure and therefore is reduced to examining isolated and unrelated phenomenon which are strange really to him, but nevertheless dovetail with the Marxist analysis of monopoly capitalism as a stage of world economy. However, without this Marxist foundation Macdonald fails to understand the true nature of German economy. A correct summation of his position is to say that it is devoid of a class viewpoint. Hence, the real position of the German proletariat has little place in his writings. Yet the role of the proletariat in the fascist nation is the key to the character of fascism. Nothing has happened in the experience of our lifetime to cause us to forsake the analysis that fascism signifies the triumph of the financial capitalist class within the nation over the proletariat and, consequently, the latter’s violent enslavement. Therein is the key to the revival of the fascist economies and when Macdonald dismisses or alludes not at all to this fact in favor of some mystical “superiority of fascist to capitalist economy” he necessarily commits an ineradicable error.

We repeat, the revival of German industry would have been impossible without the aforementioned enslavement of the proletariat. Labor was regimented, while all the social gains of the post-war period were abolished. Restrictions on the working day were eliminated. The eight-hour day no longer exists. In 1939, prohibitions were levied against the free movement of workers inside the country. The law prohibiting night work for women was abolished, as were all restrictions on the employment of boys and girls under 18 years of age. Discontent and mass fatigue brought about some amelioration, but no genuine improvement of working conditions.

In December 1939, the work day was limited to ten hours and by special permission to twelve! Night work for women and youth was prohibited and the work week RESTRICTED TO 56 HOURS, and longer by special permission.

The War Economy Decree of September 1939 (please note, Macdonald) abolished paid vacations and forbade extra pay for overtime and night work or for Sundays and holidays. These measures naturally occasioned widespread dissatisfaction and “had to be partially repealed.” A decree of November 1939 restored paid vacations beginning with 1940 and permitted payment of overtime wages, “but only for work beyond ten hours a day on week days and at a rate not exceeding the normal compensation by more than 25 per cent.”

What does all this mean? Simply that the proletariat bears the burden for whatever revival has taken place in German economy – especially in the preparation for war. The present intense exploitation of the working class would have been impossible without the victory of fascism which resulted in the physical destruction of the proletarian organizations. Once having vanquished the proletariat as an organized class, it was possible for the new regime, serving the historical interests of the economically dominant ruling class, i.e., the interests of German imperialism, to prepare the struggle for a redivision of the earth. This is the singular achievement of fascism! Yet it is on this question that Macdonald commits the cardinal sin of deemphasis or omission.

The Nature of a War Economy

Macdonald rejects the idea that the war has anything to do with the conduct of German economy and the current situation in the Third Reich. He thereby betrays a light-minded attitude toward decisive economic problems.

Modern wars between great bourgeois states are not and cannot be, and as a matter of fact never were, private affairs between contending national economic groupings. The state wages the war in the interest of the dominant economic class. Because the bourgeoisie itself is not a completely homogeneous class its attitudes are not ever unanimous. The state intervenes as the final arbiter in the interest of the whole national economy, whether or not it suits individual or sectional desires. This is true of all states engaged in war.

A modern war is a gigantic industrial and financial endeavor, requiring state direction, management and control for the purpose of a complete and unified effort. An authority on the blitzkrieg should, we think, understand the need for this maximum industrial effort, class cohesion, national unity and planning.

War, above all, is an abnormal stage of economic activity, since the entire industrial machine of a country is concentrated on one thing alone: the production of war materials. Production for use? Of course, tor use in the war. Consumers goods and light industries? They operate only insofar as they are required for the general welfare of the nation at war. Planned economy? Yes, for the war machine! Is it not clear that this kind of a planned economy means to determine in advance: how much steel is required, how many guns, cannon, airplanes, tanks; how much coal, oil, copper, freight cars, ships, food, clothing, etc., is needed. And the state decides, among other things, how much butter and bread and meat and other articles of food shall be consumed. This principle holds true not only for Germany, but for all warring countries and even partially for the United States, which is fast approaching the supreme effort. It is also determined by the resources of the nation.

What About the Market?

What has happened to the internal market? It has ceased to exist in its pre-war form. It could not be otherwise under the aforementioned conditions. The state has now become the immense market through which the production of war material flows. Otherwise chaos would ensue and the war effort would be greatly encumbered, or, more properly, impossible. How else does Macdonald expect the war to be fought?

But for all of this. the stress and strain of the war, nothing fundamental has changed in Germany, nor, for that matter, in England. The profit system remains unimpaired, not only in form, but in fact.

Germany, in the absence of a colonial empire, divorced from the fields of raw materials, economically blockaded, is fighting for her very economic existence, as is England, and stakes all on the hope of a military victory. Such a victory will give her an empire and a dominant position in world economy. Imperialist Germany faced a dilemma: either to stake everything on war where a tangible possibility of victory existed, or else to perish by economic strangulation.

Hitler, who understands better than Macdonald Germany’s needs and why she is fighting, said before the war: “We export or we die.” [2] On January 30, 1939, he warned the world powers that any attempt on their part to exclude Germany from the world markets would find her prepared for a “desperate economic struggle.” The “desperate economic struggle” has now become a desperate military struggle.

When Macdonald says that Germany has destroyed the world market he cannot then explain what this war is all about and is compelled to develop the theory of the “social war,” which gives to fascism a universal or internationalist character. Such an analysis contains dangerous implications!

One of the first results of Germany’s initial victories was the reinvigoration of her colonial companies, which experienced an increase in their share sales at a time when no colonies had yet been won! Shares of the East Africa Company rose from 76 to 152 in 1940. The Otava Mining Company shares rose from 17.50 to 35.00 and the Kamerun R.R. Co. advanced from 71 to 187 in the same period. For more than ten years colonial companies paid no dividends, yet by 1938 seven large enterprises did, the African Fruit Company paying as high as 8 per cent (New York Times, September 15, 1940). Here is a not unimportant indication of what the war is about.

What Has Happened in Germany

The economist John C. deWilde prepared two interesting reviews of German economy for the Foreign Policy Association, which illustrated measures of state control and economic organization in preparation for the war. The studies proceed from the basis that German economy is capitalist, that the measures of control are not abnormally unique from the point of view of a state at war, that planning in Germany is solely for the purpose of war, and that these measures in their extreme result from Germany’s position in world economy. They involved: increasing industrial production, coordinating production in general, putting industry on a war footing, expanding the war industries (at the expense of other branches of production), raising food production, producing of synthetic raw materials in absence of natural raw materials (the driving force for the four-year plan) [3], increasing labor reserves, food rationing, improving the efficiency of transportation, maintaining foreign trade if possible, and financing the war. A truly gargantuan task for which state intervention, control and direction are obligatory. In each instance, as verified by deWilde, the methods employed were unusual and special, in marking a departure from conditions of normal, democratic processes, but were in no way incompatible with capitalism. The difference between present-day Germany and that prior to 1936 is quantitative rather than qualitative.

On March 1, 1939, in relation to the industrial revival then experienced by Germany, deWilde wrote:

“The maintenance of this boom in Germany is not as miraculous as it appears. It must be attributed, above all, to the enormous expenditures of public funds and the government’s power to MOBILIZE all the resources of LABOR and CAPITAL, industry and agriculture.” – John C. deWilde, Foreign Policy Reports, Germany’s Controlled Economy, page 290. (Emphasis mine – A.G.)

There is nothing extraordinary in this since the methods are identically employed in all imperialist nations in times of stress. All classes, presumably and in fact, are faced with equality of demands – yet in a society resting upon the inequality of classes the reality finds the proletariat the chief victim.

How did the boom come about? It should be clear by all the foregoing, but we record from deWilde:

“... they (the government) lavished large sums on the army, navy and air force, but under their direction billions of marks have been invested in plant and machinery to increase domestic output of such vital raw materials as mineral oil, rubber, metals, and textile fibres.” – John C. deWilde, Foreign Policy Reports, Germany’s Controlled Economy, page 290.

Economic and political necessity dictated policy to the German state. There was a construction boom in railroads, highways, fortifications and building projects – all in preparation for the war. It was directed by the state. The state issued contracts, the state paid for these undertakings. How? By the vast exploitation of the working class, by forced labor, and devious ways, not the last of which was the heavy taxation referred to throughout this article. To whom was it paid? To itself? No, these contracts resulted in enormous profits to large sections of the bourgeoisie.

We observe that the indicated controls are such as to guarantee the existence of private enterprise and the inflow of steady, even though, for the sake of argument, small profits. The German ruling class, however, was faced with the alternative of no profits or profits with control. Better limited profits than chaos, no profits and a permanently rebellious and dangerous proletariat, is the axiom of the capitalist.

Dividends and Profits

The fascist state, it is true, has designated a limit to dividends, not their abolition but their limitation, to 6–8 per cent. Yet Otto Tolischus of the New York Times points out that dividends of 14 per cent are not uncommon. But suppose no dividends were paid? Dividends are not identical to profit. No dividends or low dividends could mean a rise in profits since it would signify the concentration of profit in a smaller circle. The absence of dividends, or even the failure to realize profits, which may be due to many circumstances, would not necessarily have anything to do with the character of the economic and social order. During the crisis in the United States dividends and profits ceased for many concerns, yet it had no fundamental significance so far as the bourgeois order was concerned – it is typical of capitalist economy with its recurrent crises. If no profits or dividends were realized in Germany today, as was the case in previous crises there, nothing would be changed, so long as bourgeois class relations to capital prevailed.

Yet the opposite is true. Dividends and profits have been constant; they have increased under Hitler’s rule. In 1932, dividends were paid at 2½ per cent; in 1935 they increased to 6 per cent. The value of shares rose from 5 billion marks in 1932 to 11 billion in 1938. Undivided profits increased from 175 million marks in 1932 to 2,200 million marks in 1938, an increase by twelve times!

These increases were made possible by government expenditures for war, by the intensified exploitation of the working class, whose average working day was increased 12 per cent. Yes, it is illuminating to reread Marx’s Capital, especially those chapters on surplus value!

What is also illuminating is that during all these years no measures for the expropriation of the capitalist class were enacted. Control? Of course, but these, again, were not directed against the existent property relations. The class positions of the bourgeoisie and the proletariat remain unaltered. Nor has nationalization of finance or industry been manifested. On the contrary, the tendency toward reprivatization was dominant.

What, then, does Macdonald mean when he says a fundamental change took place in 1936 which brought about a structural change in German society? Obviously, the date itself has no meaning to our discoverer of a new social order. Germany was preparing for the final effort to break her chains – war! German economy became a full-fledged war economy. Everything was subordinated to solving this crisis, for war is an expression of the deepest capitalist crisis.

The Limitation of Profits

Macdonald makes a great deal out of the limitation of profit, as if it were of fundamental importance. Unusual, yes, but not fundamental. Setting a limit to profit and compelling reinvestment in industry is necessary in Germany to insure the steady flow of war goods and even the expansion of the war industries in the midst of the war, to increase the quickly depleted supplies. But this situation holds true for England and will hold true for the United States. Germany’s world position makes this, for her, even more incumbent. Yet despite limitation of profits, profit, as we have already shown, is not eliminated, the rise of new millionaires is not halted.

David M. Nichols, the New York Post Berlin correspondent, in a dispatch dated December 9, 1940, points out how the ruling classes are benefitting from the war itself. These groupings are:

“(1) Armament manufacturers whose profits are rigidly controlled on a cost plus basis but whose turnover has been vastly increased.
(2) Smaller manufacturers and building contractors whose profits are less rigorously limited and whose benefits have come indirectly as a result of the demand for heavy goods.
(3) Merchants and manufacturers not directly or indirectly connected with war activity, whose fields have been freed of foreign competition as a result of Nazi trade policies.
(4) Owners of large agricultural estates, especially those devoted to wheat production.”

Referring to an official survey made in Germany relating to the new wealth of Nazi Party leaders, Nichols writes:

“As they neither reject the principle of private ownership, nor of private incomes, they have no objection to these men earning (!) a lot of money.”

Nichols points out, too, that incomes from securities, parasitic incomes based on investments, have been the most rigidly controlled, profit being limited to 6 per cent.

“Any declared profits OVER this figure must be deposited with the Reichsbank, where they are available in government securities and credits by which the Nazis are financing, roughly, half of their 50,000,000,000 M. yearly expenses. The Minister of Economy, Walter Funk, has stated publicly, however, that THIS MEASURE WILL NOT BE EXTENDED.” (Emphasis mine – A.G.)

Ship building concerns are paying dividends of 10 per cent. The number of firms previously earning less than 6 per cent now report great increases. While wages have increased from 54.2 to 55.1, independent incomes from trades and professions were more than doubled, from 11.6 to 25.6.

The Hermann Goering Werke has no doubt expanded and earned great sums as a government institution. But its origin lay in the refusal of private industry to undertake the costly production of synthetic materials. Nonetheless, with the existence of the Goering Werke, Krupp’s profits were 6 per cent, as reported by the New York Times of March 11, 1941.

Without doubt, German industry fully enjoys the fruits of the war boom, but, observing that victory is not yet in sight, is hesitant about “taking risks.” And this, in the “new social order,” where industry supposedly enjoys no independence. That the problem has a measure of seriousness is evident by Economic Minister Funk’s allusion to it as reported in the New York Times of March 13, 1941. Funk admonishes business to be ready to take risks and refrain from shifting the entire burden of the war upon the government. The economic minister referred to the limitation of dividends at 6 per cent and declared that all dividends over such limitation would be prohibitively taxed – not eliminated, confiscated or prevented, but taxed! And note, too, that despite government control, supervision and direction, profits and dividends more often than not rise above 6 per cent.

Funk threatened that unless industry and business in general took the risks required and growing out of the war, the government would step in:

“When private enterprise does not take risks it gives itself up, and then we not longer need private enterprise.”

Mark well, “then we no longer need private enterprise.” That is, if private enterprise does not meet the needs of the war, then the government will step in. This was stated, not in 1932, nor even in 1936, the year of the great change, but in 1941, the second year of the war. The statement is important because it lifts the veil to the true economic relations existing in the Third Reich, and none of it conforms to the fancies of Macdonald.

Moreover, Funk says, of the industries or enterprises with a low capitalization, that there will not at present be a prohibitive taxation of their dividends in order to permit that section of the bourgeoisie to significantly raise their aggregate capitalization!

The Situation in Agriculture

It is common knowledge that the Nazis, upon their acquisition to power, returned large agricultural estates to the Junkers, lowered taxes for such estates throughout Germany and prepared for a national rise in the productivity of agriculture. Efforts have been made to extend the areas of land cultivation and to stabilize agricultural prices. Only moderate success was achieved in these aims. Why? For one reason, because:

“Large sums have been spent of land reclamation and improvement ... BUT THE ACREAGE AFFECTED HAS BEEN SMALLER THAN THE AREA TAKEN FOR AIRPORTS, ROADS, BUILDINGS AND OTHER PURPOSES CONNECTED WITH REARMAMENT.” (de-Wilde: Germany’s Wartime Economy, June 15, 1940, page 94. Emphasis mine – A.G.)

Partial price stabilization in agricultural goods has been attained only because the government was the chief recipient of agricultural goods, and the distribution of agricultural goods came under its strict supervision. Agricultural production, however, remaining low in relation to needs and by no means corresponding to the requirements of the war economy, accompanied with a shortage of livestock, cereals, fats and similar commodities, has driven Hitler to all the corners of Europe.

Financing the War

Taxes, according to deWilde, reached the figure of 27 billion marks per year with the public debt rising at the rate of two billion marks per month for the first three months of the war. Government expenditures average well over 50 billion marks a year. The total national income varies between 85 and 90 billion marks. The attempt to finance the war by prohibiting war profits (how very much like England and the United States) failed. As we have already shown, there was an improvement in profit earnings. As regards labor, however, the government did carry out its program in complete accord with German business. Yet even here, where an effort was made to freeze wages, labor shortages led to increases in various fields, quite in accord with the capitalist law of supply and demand in relation to labor.

Taxes, of course, are the main source of income for the government. The government has taxed business, excess profits, commodities, etc., to the limit. Where no further taxes could be levied the responsibilities for raising new funds were placed on provincial and local governments, or through the looting of occupied countries and the collection of reparations before the war has even approached some definitive conclusion!

Yet even these measures are not enough and the government sought to increase taxation. This led Dr. Funk to:

“Repeatedly warn against heavier taxation which would impair the capital of industry and DEPRIVE BUSINESS OF THE INCENTIVE TO PRODUCE (!), a factor he apparently believes essential even in a totalitarian state.” (deWilde: Germany’s Controlled Economy, page 95. Emphasis mine – A.G.)

And finally the whole war effort is summed up by deWilde:

“Germany’s totalitarian government has had no hesitation in subordinating everything to the war and in exacting sacrifices from everyone. AT THE SAME TIME THE STATE HAS NOT, WITH FEW EXCEPTIONS, ASSUMED DIRECT CHARGE OF PRODUCTION. It decided what was to be done, BUT IMPOSED THE RESPONSIBILITY FOR CARRYING OUT THE PROGRAM SQUARELY ON PRIVATE ENTERPRISE ...” (deWilde: Germany’s Controlled Economy, page 96. Emphasis mine.)

What does this all sum up to? Bearing in mind the general principles outlined throughout this article, we find that Germany represents in reality a monopolist capitalist nation under a totalitarian regime, suffering from restrictions of isolation in the world economic system of finance capitalism and driven on by the basic organization of its economy to wage war. Rauschning knew what he was talking about when he wrote that the Nazi leaders’ main aim was “... the renewal of Germany’s power in the field of foreign policy.”

How explain the methods employed by German imperialism? Lenin explained it in part when he wrote in his introduction to Bucharin’s Imperialism and World Economy:

“The typical ruler of the world became finance capital, a power that is peculiarly MOBILE AND FLEXIBLE, peculiarly intertwined AT HOME AND INTERNATIONALLY, peculiarly DEVOID OF INDIVIDUALITY AND DIVORCED FROM THE IMMEDIATE PROCESSES OF PRODUCTION, peculiarly easy to concentrate ...” (Emphasis mine – A.G.)

Faced with extinction, German imperialism is making a valiant effort in this war. Why should the chance be taken? Because it lies in the very nature of capital. No more apt description of the character of capital is to be found than that of P.J. Dunning, quoted by Marx:

“Capital is said by a Quarterly Reviewer to fly turbulence and strife, and to be timid, which is very true; but this very incompletely states the question. Capital eschews no profits, or very small profit, just as nature was formerly said to abhor a vacuum. With adequate profit, capital is very bold. A 10 per cent will insure its employment anywhere; 20 per cent will produce eagerness; 50 per cent positive audacity; 100 per cent will make it ready to trample on all human law; 300 per cent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged.”

And who is to say what possibilities will be opened to German imperialism in the event of a victory in the war?

I am fully aware of the fact that the foregoing in no way exhausts this immense subject. But I have endeavored to show by examining various features of German economy both prior to and in the war, that while there have been changes in the character of economic life under the totalitarian regime, no fundamental departures from monopoly capitalism is observable.

Macdonald has produced nothing tangible in verification of his theory of the existence of a new social order in the Third Reich. All that he has done is to show measures of state control, state direction and planning as it related to the rearmament of Germany for the war and as it is operating in the midst of die gigantic conflict involving the future existence of imperialist Germany. His article not only does not indicate any basic reasons why the Marxist analysis of fascism should be altered; it does not add anything of fundamental value to the study of fascism in general or German fascism in particular.



1. See the article by Dwight Macdonald on Germany and the fascist social order in the last issue of The New International.

2. The absurdity of Macdonald’s position is nowhere better expressed than in the statement that Germany as a result of its current victories is importing capital rather than exporting it. Reference is had here to the destruction of industries in conquered countries, or the removal of machinery, etc., to Germany. Yet the dominant economic feature of the war is the suspension of normal economic activity.

3. Economic necessity, arising from Germany’s position in world economy, an inferior position, is translated by Macdonald as a proof of economic superiority. Germany with her immense industrial organization is doing what any other capitalist country, under like conditions, would be compelled to do.

Top of page

Main NI Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

Last updated on 23.3.2013