What I have told you here, this schematic and theoretical explanation, is precisely what happened in those countries which tried to enforce a maximum price control, where governments were stubborn enough to go step by step until they came to the end. This happened in the First World War in Germany and England.
Let us analyze the situation in both countries. Both countries experienced inflation. Prices went up, and the two governments imposed price controls. Starting with a few prices, starting with only milk and eggs, they had to go farther and farther. The longer the war went on, the more inflation was generated. And after three years of war, the Germans–systematically as always–elaborated a great plan. They called it the Hindenburg Plan: everything in Germany considered to be good by the government at that time was named after Hindenburg.
The Hindenburg Plan meant that the whole German economic system should be controlled by the government: prices, wages, profits… everything. And the bureaucracy immediately began to put this into effect. But before they had finished, the debacle came: the German empire broke down, the entire bureaucratic apparatus disappeared, the revolution brought its bloody results–things came to an end.
In England they started in the same way, but after a time, in the spring of 1917, the United States entered the war and supplied the British with sufficient quantities of everything. Therefore the road to socialism, the road to serfdom, was interrupted.
Before Hitler came to power, Chancellor Brüning again introduced price control in Germany for the usual reasons. Hitler enforced it, even before the war started. For in Hitler’s Germany there was no private enterprise or private initiative. In Hitler’s Germany there was a system of socialism which differed from the Russian system only to the extent that the terminology and labels of the free economic system were still retained. There still existed “private enterprises,” as they were called. But the owner was no longer an entrepreneur, the owner was called a “shop manager” (Betriebsführer).
The whole of Germany was organized in a hierarchy of führers; there was the Highest Führer, Hitler of course, and then there were führers down to the many hierarchies of smaller führers. And the head of an enterprise was the Betriebsführer. And the workers of the enterprise were named by a word that, in the Middle Ages, had signified the retinue of a feudal lord: the Gefolgschaft. And all of these people had to obey the orders issued by an institution which had a terribly long name: Reichsführerwirtschaftsministerium (Führer of the Reich’s — i.e., the empire’s — Ministry of Economics), at the head of which was the well-known fat man, named Goering, adorned with jewelry and medals.
And from this body of ministers with the long name came all the orders to every enterprise: what to produce, in what quantity, where to get the raw materials and what to pay for them, to whom to sell the products and at what prices to sell them. The workers got the order to work in a definite factory, and they received wages which the government decreed. The whole economic system was now regulated in every detail by the government.
The Betriebsführer did not have the right to take the profits for himself; he received what amounted to a salary, and if he wanted to get more he would, for example, say, “I am very sick, I need an operation immediately, and the operation will cost 500 marks,” then he had to ask the führer of the district (the Gauführer or Gauleiter) whether he had the right to take out more than the salary which was given to him. The prices were no longer prices, the wages were no longer wages, they were all quantitative terms in a system of socialism.
Now let me tell you how that system broke down. One day, after years of fighting, the foreign armies arrived in Germany. They tried to preserve this government-directed economic system, but the brutality of Hitler would have been necessary to preserve it and, without this, it did not work.
And while this was going on in Germany, Great Britain — during the Second World War — did precisely what Germany did. Starting with the price control of some commodities only, the British government began step by step (in the same way Hitler had done in peacetime, even before the start of the war) to control more and more of the economy until, by the time the war ended, they had reached something that was almost pure socialism.
Great Britain was not brought to socialism by the Labour government which was established in 1945. Great Britain became socialist during the war, through the government of which Sir Winston Churchill was the prime minister. The Labour government simply retained the system of socialism which the government of Sir Winston Churchill had already introduced. And this in spite of great resistance by the people.
The nationalizations in Great Britain did not mean very much; the nationalization of the Bank of England was merely nominal, because the Bank of England was already under the complete control of the government. And it was the same with the nationalization of the railroads and the steel industry. The “war socialism,” as it was called — meaning the system of interventionism proceeding step by step — had already virtually nationalized the system.
The difference between the German and British systems was not important since the people who operated them had been appointed by the government and in both cases they had to obey the government’s orders in every respect. As I said before, the system of the German Nazis retained the labels and terms of the capitalistic free-market economy. But they meant something very different: there were now only government decrees.
This was also true for the British system. When the Conservative party in Britain was returned to power, some of those controls were removed. In Great Britain we now have attempts from one side to retain controls and from the other side to abolish them. (But one must not forget that, in England, conditions are very different from conditions in Russia.) The same is true for other countries which depend on the importation of food and raw materials and therefore have to export manufactured goods. For countries depending heavily on export trade, a system of government control simply does not work.
Thus, as far as there is economic freedom left (and there is still substantial freedom in some countries, such as Norway, England, Sweden), it exists because of the necessity to retain export trade. Earlier, I chose the example of milk, not because I have a special preference for milk, but because practically all governments — or most of them — in recent decades, have regulated milk, egg, or butter prices.
This article is serialized from Economic Policy: Thoughts for Today and Tomorrow, a book based on six lectures delivered in Buenos Aires in 1959 on Capitalism, Socialism, Interventionism, Inflation, Foreign Investment, and Politics and Ideas by the great 20th century economist who was too good to receive a Noble Prize: Ludwig von Mises (1881-1973). Copyright (c) 1995 by Bettina Bien Greaves. All rights reserved.