Posted on 05/31/2008 8:27:54 AM PDT by SAJ
Tulip-o-mania ping!
It was common in those days, as it is in ours, to identify the Communists as leftist and the Nazis as rightists, as if they stood on opposite ends of the ideological spectrum. But Mises knew differently. They both sported the same ideological pedigree of socialism. “The German and Russian systems of socialism have in common the fact that the government has full control of the means of production. It decides what shall be produced and how. It allots to each individual a share of consumer’s goods for his consumption.”
The difference between the systems, wrote Mises, is that the German pattern “maintains private ownership of the means of production and keeps the appearance of ordinary prices, wages, and markets.” But in fact the government directs production decisions, curbs entrepreneurship and the labor market, and determines wages and interest rates by central authority. “Market exchange,” says Mises, “is only a sham.”
Mises’s account is confirmed by a remarkable book that appeared in 1939, published by Vanguard Press in New York City (and unfortunately out of print today). It is The Vampire Economy: Doing Business Under Fascism by Guenter Reimann, then a 35-year old German writer. Through contacts with German business owners, Reimann documented how the “monster machine” of the Nazis crushed the autonomy of the private sector through onerous regulations, harsh inspections, and the threat of confiscatory fines for petty offenses.
“Industrialists were visited by state auditors who had strict orders to examine the balance sheets and all bookkeeping entries of the company or individual businessman for the preceding two, three or more years until some error or false entry was found,” explains Reimann. “The slightest formal mistake was punished with tremendous penalties. A fine of millions of marks was imposed for a single bookkeeping error.”
Reimann quotes from a businessman’s letter: “You have no idea how far state control goes and how much power the Nazi representatives have over our work. The worst of it is that they are so ignorant. These Nazi radicals think of nothing except ‘distributing the wealth.’ Some businessmen have even started studying Marxist theories, so that they will have a better understanding of the present economic system.
“While state representatives are busily engaged in investigating and interfering, our agents and salesmen are handicapped because they never know whether or not a sale at a higher price will mean denunciation as a ‘profiteer’ or ‘saboteur,’ followed by a prison sentence. You cannot imagine how taxation has increased. Yet everyone is afraid to complain. Everywhere there is a growing undercurrent of bitterness. Everyone has his doubts about the system, unless he is very young, very stupid, or is bound to it by the privileges he enjoys.
“There are terrible times coming. If only I had succeeded in smuggling out $10,000 or even $5,000, I would leave Germany with my family. Business friends of mine are convinced that it will be the turn of the ‘white Jews’ (which means us, Aryan businessmen) after the Jews have been expropriated. The difference between this and the Russian system is much less than you think, despite the fact that we are still independent businessmen.”
As Mises says, “independent” only in a decorous sense. Under fascism, explains this businessman, the capitalist “must be servile to the representatives of the state” and “must not insist on rights, and must not behave as if his private property rights were still sacred.” It’s the businessman, characteristically independent, who is “most likely to get into trouble with the Gestapo for having grumbled incautiously.”
“Of all businessmen, the small shopkeeper is the one most under control and most at the mercy of the party,” recounts Reimann. “The party man, whose good will he must have, does not live in faraway Berlin; he lives right next door or right around the corner. This local Hitler gets a report every day on what is discussed in Herr Schultz’s bakery and Herr Schmidt’s butcher shop. He would regard these men as ‘enemies of the state’ if they complained too much. That would mean, at the very least, the cutting of their quota of scarce and hence highly desirable goods, and it might mean the loss of their business licenses. Small shopkeepers and artisans are not to grumble.”
“Officials, trained only to obey orders, have neither the desire, the equipment, nor the vision to modify rules to suit individual situations,” Reimann explains. “The state bureaucrats, therefore, apply these laws rigidly and mechanically, without regard for the vital interests of essential parts of the national economy. Their only incentive to modify the letter of the law is in bribes from businessmen, who for their part use bribery as their only means of obtaining relief from a rigidity which they find crippling.”
Says another businessman: “Each business move has become very complicated and is full of legal traps which the average businessman cannot determine because there are so many new decrees. All of us in business are constantly in fear of being penalized for the violation of some decree or law.”
Business owners, explains another entrepreneur, cannot exist without a “collaborator,” i.e., a “lawyer” with good contacts in the Nazi bureaucracy, one who “knows exactly how far you can circumvent the law.” Nazi officials, explains Reimann, “obtain money for themselves by merely taking it from capitalists who have funds available with which to purchase influence and protection,” paying for their protection “as did the helpless peasants of feudal days.”
“It has gotten to the point where I cannot talk even in my own factory,” laments a factory owner. “Accidentally, one of the workers overheard me grumbling about some new bureaucratic regulation and he immediately denounced me to the party and the Labor Front office.”
Reports another factory owner: “The greater part of the week I don’t see my factory at all. All this time I spend in visiting dozens of government commissions and offices in order to get raw materials I need. Then there are various tax problems to settle and I must have continual conferences and negotiations with the Price Commission. It sometimes seems as if I do nothing but that, and everywhere I go there are more leaders, party secretaries, and commissars to see.”
In this totalitarian paradigm, a businessman, declares a Nazi decree, “practices his functions primarily as a representative of the State, only secondarily for his own sake.” Complain, warns a Nazi directive, and “we shall take away the freedom still left you.”
In 1933, six years before Reimann’s book, Victor Klemperer, a Jewish academic in Dresden, made the following entry in his diary on February 21: “It is a disgrace that gets worse with every day that passes. And there’s not a sound from anyone. Everyone’s keeping his head down.”
It is impossible to escape the parallels between Guenter Reimann’s account of doing business under the Nazis and the “compassionate,” “responsible,” and regulated “capitalism” of today’s U.S. economy today. At least the German government was frank enough to give the right name to its system of economic control.
Here is the link for this article:
I disagree with this guy. If we run a futures market that is different than in, say, London, the futures market will simply move across the pond and we’ll have a lot of people out of business in this country. Only if all markets trading oil futures do the same will this make an impact.
Thanks for the post. Interesting and educational.
>> George Soros is scheduled to testify before the Senate next week. He has already publicly blamed speculators for higher prices.
Well, that sucks. Soros and I agree on something...
OTOH, knowing George Soros, he too was speculating in oil — probably up until last week. Now he has liquidated his long position and is short oil... hence the testimony that speculators are ruining everything for innocent “biznesmen” like his honorable self. The bastid.
This new found "public spiritedness" (at the point of a Congressional skewer) will merely result in greatly increased trading of oil futures outside the US!
Money flows at the speed of light to where the biggest bang for the buck can be found and there is no more fungible commodity on the planet than oil!
I wonder where the huge pension funds and international government investment entities will trade?
If we do something stupid such as raising margins to prohibitive levels (say, 50% of gross contract value), you're right, the big specs will move offshore. That, however, is not what is being discussed by CFTC right now, only by a few idiots such as Sen. Bunghole Bingaman.
The problem here is not mkts, but that enormous capital pools have been allowed to skirt the position limits in mkts, and have created a huge artificial demand component, thus driving price well above what it would be due to strictly actual supply/demand considerations.
The proper move, and CFTC are considering it now, is to reclassify investment banks as specs (as they are classified in their own trading accounts) not ''commercials'' (as they are classified when acting as agents for a client, like, say CALPERS or one or another pension fund).
The second move is to tell these bloody pension funds that, no matter what their lawyers tell them, ERISA prohibits their participation in speculative mkts. In short, get them entirely out of the futures game. They don't belong there in any case (you've heard of the ''prudent man'' rule, I'm sure), and nobody who receives or expects to receive a pension from these chaps would approve of their dealing in crude and copper and bean futures.
Nobody (for once) is proposing mucking around with mkts; reclassifying some big players and enforcing position limits will put the affected markets' price at clearing levels in very short order.
Nor will there be any incentive to trade on other futures exchanges outside the US. Why? Because every exchange in the world has position limits in place for physical futures mkts, and would-be expatriate traders will see no advantage in dealing offshore.
FReegards!
If ERISA is held over the pension funds' heads (as it should be), they won't move offshore -- they'll get out of the futures game entirely, which is also as it should be.
Neither will the investment banks move offshore; when they trade for their own account, they're already classed as specs, and as such subject to position limits.
The specs will indeed go, like lightning, to other exchanges IF they see an advantage in doing so. If the current situation is properly handled, there will be no such incentive.
mark
Thanks for posting this. A lot of background information that’s good to know.
So do I understand you correctly that the US market is not enforcing position limits but overseas markets are ?
Also, that it’s only US-based funds (pension, IBs, hedges whatever) that don’t get classified as specs and not other “funds” like SWFs and other overseas entities ?
This situation is unique to the US. I don't know if any hedge funds are using investment banks in this fashion. I don't **think** so, because we should have heard about it by now if they were.
The US exchange are certainly enforcing position limits -- the point here is that the biggest specs are in a situation where they are not subject to the limits. This simply has to be stopped.
Legitimate industry hedgers, aka 'commercials', should continue to be exempt from position limits, of course.
If he has dealt in crude, he has done so as a spec, subject to the usual rules AND to the position limits. So, your hypothesis about him being short and looking for a big payday by jawboning the energy mkts lower...is quite realistic.
Seems that a big spec could be good for something after all, eh?
;^)
mucho useful post....
"Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay, one of my favorite arcane books with many leasons for any psychologist, ad person, propagandist or political manipulator. AlBore and the the watermelons practice many of it's lessons.
Anyone who has started a small business knows all about this stuff. I've always been tickled by the cops on 'Homicide' buying a bar and all the crap that government dished out on them.
Very good article. The current trend is to use the environment as the universal excuse for government to infringe on individual liberties, rather than servitude to the state.
The result, however, is the same.
That should be rich. This jerk made a fortune speculating in the currency markets, now watch him put on a big show about how it's evil. Pure scum, Soros is.
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