Brink Lindsey

Against the Dead Hand

Professor Johann Plenge, an authority on Marx and Hegel, captured this thinking in his wartime book 1789 and 1914: The Symbolic Years in the History of the Political Mind. According to Plenge, the outbreak of the war signaled a new 'German revolution' that would repudiate the liberal ideals unleashed on Europe by the French Revolution. The outmoded 'ideas of 1789,' wrote Plenge, were nothing but 'shopkeepers' ideals, pure and simple, which served solely to provide individuals with particular benefits.' The new order, animated by the 'ideas of 1914,' would 'exert all the powers of the state in concerted opposition to the revolution of destructive liberation of the eighteenth century.'

Paul Lensch, a Social Democratic (!) member of the Reichstag, sounded similar themes in the 1917 book, Three Years of World Revolution. Interestingly, he identified Bismarck's conversion to protectionism in 1879 as the crucial turning point in world history:

The result of Bismarck's decision of the year 1879 was that Germany took on the role of the revolutionary; that is to say, of a state whose position in relation to the rest of the world is that of a representative of a higher and more advanced economic system. Having realized this, we should perceive that in the present World Revolution Germany represents the revolutionary, and her greatest antagonist, England, the counter-revolutionary side.

Nobody defined the 'ideas of 1914' with more brutal directness than Werner Sombart, who inherited Adolf Wagner's chair at the University of Berlin. Sombart, who started out as a Marxist and ended his life as a Nazi (an intellectual journey that was by no means uncommon), saw the war as a contest between Handler und Helden—merchants and heroes. The war, he wrote in 1915, 'is necessary in order to prevent the heroic outlook from falling prey to the forces of evil, to the narrow, abject spirit of commerce.' These apologists of German militarism proved prophetic, albeit not in the way they expected. They were right that the war would lead to the triumph of the 'ideas of 1914'—the ideas of collectivism and aggressive nationalism. But the triumph did not come through victories of the Kaiser's army. That army was defeated, the Kaiser himself abdicated, and the German Reich collapsed. Far from winning its place in the sun, Germany was devastated, humiliated, chopped up, and required to pay reparations.

Yet the triumph of the 'German Revolution' (or, as I have called it, the Industrial Counterrevolution) came anyway. The war and its aftermath dramatically accelerated the centralizing momentum that had been building steadily for decades. A quarter-century after Sarajevo, the forces of centralization had made such sweeping gains that the only serious question was whether the ongoing consolidation of state power knew any limits at all. Given the rise of totalitarianism, the smart money was on no.

Wartime economic controls provided the template for all subsequent experiments in central planning. The length and intense severity of the conflict led to an unprecedented expansion of government power in the economic realm. Nationalization of mines and railroads; state control over food production and consumption; mobilization of industrial production; labor drafts—such were the techniques of total war. The partisans of centralization were quick to grasp the peacetime applications of those techniques. Lenin, for one, saw the German war economy, which he called 'state monopoly capitalism,' as 'a complete material preparation for socialism, the threshold of socialism, a rung on the ladder of history between which and the rung called socialism there are no intermediate rungs.' Writing in 1916, he declared that the time was ripe for revolution:

The war has reaffirmed clearly enough and in a very practical way...that modern capitalist society, particularly in the advanced countries, has fully matured for the transition to socialism. If, for instance, Germany can direct the economic life of 66 million people from a single, central institution...then the same can be done, in the interests of nine-tenths of the population, by the non-propertied masses if their struggle is directed by class-conscious workers....

The chaos of Russia's military collapse afforded him the chance to put the lessons of the German example to immediate use. Indeed, the German government sent him back to Russia in a special sealed train—injected, in Churchill's memorable phrase, 'like a plague bacillus.' The infection took hold and the Soviet Union was born.

In the United States, the great lurch toward collectivism during Franklin Roosevelt's New Deal owed an enormous debt to wartime precedents. The National Industrial Recovery Act, with its sweeping cartelization of industry under 'fair competition codes,' revived the business-led planning regime of the old War Industries Board; one of the proposals that led to its enactment had called explicitly for a 'Peace Industries Board.' The National Recovery Administration's first director, General Hugh Johnson, was a veteran of the WIB. In similar fashion, the production and price controls of the Agricultural Adjustment Act represented an expansion of Herbert Hoover's Federal Farm Board, which in turn hearkened back to the controls administered by Hoover when he served as wartime 'Food Czar.' The AAA's first director was another WIB man, George Peek. The Reconstruction Finance Corporation, begun by Hoover and expanded by Roosevelt, was modeled on the War Finance Corporation and staffed by many former WFC officers. The Tennessee Valley Authority grew out of a government nitrate and power project at Muscle Shoals. And so on and so on. According to historian William Leuchtenburg, '[T]here was scarcely a New Deal act or agency that did not owe something to the experience of World War I.'

The Great War furnished the partisans of centralization with powerful technocratic tools and expertise. It thus heightened collectivism's intellectual appeal by bringing central planning out of the realm of theory and into the real world. At the same time, the war also greatly increased collectivism's emotional appeal by suppling the intoxicating emotional experience of all-embracing national unity, in the disordered and often bleak years that followed, the centralizing cause profited greatly from its offer of a return to wartime solidarity.

Nowhere did nostalgia for the trenches lead to more horrific consequences than in Germany, 'National Socialism is, in its truest meaning, the domain of the front,' claimed Gottfried Feder, an original member of the party. Such rhetoric proved disastrously persuasive. On March 31, 1933, newly installed Chancellor Hitler and aging President Hindenburg met at the historic Garnisonkirche in Potsdam and shook hands publicly for the first time. In his sermon, the pastor proclaimed that this symbolic union of the Prussian old guard and the Nazi new order marked a 'rebirth of the 'spirit of 1914.' How terribly right he was.

Militaristic metaphors were by no means confined to totalitarian movements. Consider these passages from Franklin Roosevelt's first inaugural address:

[W]e must move as a trained and loyal army willing to sacrifice for the good of a common discipline....[T]he larger purposes will bind upon us all as a sacred obligation with a unity of duty hitherto evoked only in time of armed strife....I assume unhesitatingly the leadership of this great army of our people....I shall ask the Congress for...broad executive power to wage a war against the emergency as great as the power that would be given me if we were in fact invaded by a foreign foe.

In a similar vein. General Hugh Johnson urged citizens to do their patriotic duty and patronize only those businesses that displayed the NRA Blue Eagle, claiming, 'Those who are not with us are against us....The way to show that you are part of this great army of the New Deal is to insist on this symbol of solidarity.' World War I thus provided both means and motive for the collectivist spasm that followed. It also provided the opportunity: the economic and social chaos of the Great War's aftermath. The war subjected the emerging global market order to tumultuous stresses and strains—ones that would ultimately lead to the worldwide implosion of the Great Depression. Just as central planning was gaining ground as both a practical and a romantic alternative to the status quo, the market system tottered and collapsed. Collectivism and aggressive nationalism filled the breach.

The outbreak of hostilities in 1914 caused an abrupt and traumatic disruption of international economic ties: naval blockades; submarine warfare against merchant shipping; suspension of the gold standard; exchange controls; emergency tariffs, quotas, and export restrictions. The global division of labor quickly disintegrated, often with tragic results. The effects of the British blockade of the Central Powers were especially severe. Germans were forced to eat their dogs and cats (the latter came to be known as 'roof rabbits') as well as bread made from potato peels and sawdust. Civilian deaths by starvation climbed to hundreds of thousands per year.

After the war, attempts to restore the international economy had to contend with profoundly disturbed and unstable conditions. Governments had run up enormous debts to finance the war effort: Great Britain's public debt nearly quadrupled between 1914 and 1919, while Germany's rose over tenfold. When governments reached their borrowing limits, they turned to the printing press and indulged in more or less rampant inflation. Fiscal pressures did not relax with the armistice: Reconstruction of areas devastated by the fighting, relief efforts for the destitute, and new benefits demanded by returning veterans all heaped additional burdens on already strained treasuries. And, for Germany, crippling reparation obligations inflicted yet further hardships.

A number of central European countries—Austria, Hungary, Poland, and Germany—ultimately succumbed to runaway hyperinflation. The figures from the German case are incomprehensibly extreme: Prices in 1923 reached a peak of 1.26 trillion times higher than their pre-war levels. Monetary stability was eventually restored, but too late for the struggling middle classes. They had already been effectively pauperized by the destruction of their life savings.

Patterns of production and trade had been scrambled by the war and rescrambled by the peace. Industrial production had been diverted to war needs on a massive scale; demobilization meant another round of jarring and disruptive changes in the allocation of resources. Trade flows were altered by the war: European suppliers lost Latin American markets to American exporters and lost Asian markets to the Japanese. The dismemberment of the Habsburg Empire, combined with the protectionist policies of the successor countries further disrupted the prewar division of labor. The United States compounded the woes of European exporters by enacting the highly protectionist Fordney-McCumber Tariff of 1922. In general, tariff rates crept upward during the 1920s. Average duty rates in Germany climbed from 8.4 percent before the war to 15 percent in the mid-1920s, while in France rates rose from 8.0 percent to 16 percent, and Spanish rates shot from 13.4 percent to 30 percent.

Postwar leaders sought to calm their roiled economies by returning to the international gold standard that had prevailed in the decades before the war. Slowly but surely over the first half of the 1920s, Humpty Dumpty was reassembled. But in the distorted and volatile conditions of the time, returning to a system of fixed exchange rates was fraught with peril. The reconstituted gold standard was plagued from the outset by serious imbalances. Great Britain, in a misconceived effort to boost confidence in the integrity of the system, centered at the prewar conversion rate. As a result it experienced severe contractionary pressures (and resulting high unemployment) throughout the '20s. However, this austerity still did not prevent chronic balance of payment difficulties. Other European countries, their export markets compromised by shifts in competitiveness and rising protectionism, likewise ran large current account deficits. Meanwhile, France's currency was seriously undervalued, and so France heightened problems elsewhere in Europe by draining world gold reserves. For a number of years the United States counteracted these imbalances via large-scale lending. But the system was a house of cards-one jolt could send it tumbling.

The jolt came in 1928 and '29. The U.S. Federal Reserve Board, concerned about speculative excesses in the rollicking stock market boom, decided to yank the punch bowl away from the party. Despite the absence of inflation, it raised its discount rate repeatedly to constrict the money supply. As interest rates rose, American capital that had been heading overseas returned home. To stanch the outflow of their reserves, other countries were forced to tighten monetary policy in turn, sending one after another into recession.