Why Hayek was Right About Nazis Being Socialists

Words are powerful things in that they enable us to share a common world of understanding with our contemporaries and, in the written form, with generations long past. But too often words can just as easily cause confusion, misunderstanding, and conflict among people in any society. One such word that keeps causing this type of confusion and conflict is “socialism.” What does it mean, what forms has it taken, and why does it generate so much intellectual “heat” rather than “light?”

This has come up, again, in a recent article by Ronald J. Granieri, who is research director of the Lauder Institute at the University of Pennsylvania, on why, “The Right Needs to Stop Falsely Claiming that the Nazis were Socialists” (Washington Post, December 5, 2020).

Denying that National Socialism was “Socialist”

He seethes with frustration that those he calls on the political “right” attempt to classify the German Nazi regime of the 1930s and 1940s as “socialist.” Yes, the formal name of the Nazi Party was the National Socialist German Workers Party. But in his view, while the Nazis did impose an extensive degree of government intervention and control over the private sector, “their ‘socialism’ was at best a secondary element in their appeal.”

Some prominent Nazis may have played to the “working-class resentments” with the hope of attracting people away from the communists and the democratic socialists through appeals to anti-Jewish sentiments, but there was no directed and consistent challenge against private property. Rather than “controlling the means of production or redistributing wealth to build a utopian society, the Nazis focused on safeguarding a social and racial hierarchy. They promised solidarity for members of the Volksgemeinschaft (‘racial community’) even as they denied rights to those outside the charmed circle,” Granieri argues.

The Nazis mostly pandered to small businessmen and artisans, and others in the middle class who feared and disliked communism and socialism. And they were not anchored into any advocacy and belief in democracy; to the contrary. What was Nazism all about, then? Granieri says: “National Socialism preserved private property, while also putting the entire resources of society at the service of an expansionist and racist national vision, which included the conquest and murderous subjugation of other peoples.” The Nazi regime, therefore, cannot be considered to be “socialist,” because National Socialism was not interested in controlling the means of production or redistributing wealth to build an egalitarian utopia.

Granieri does admit that the Soviet Union had entered into an alliance of convenience with Nazi Germany between 1939-1941 to divide up Eastern Europe between them. But with Hitler’s invasion of the Soviet Union in June 1941, the remainder of the war became a struggle between them of mutual annihilation. So that two-year period of Soviet-Nazi friendship does not demonstrate any commonality between socialism and National Socialism.

Hayek’s Misplaced Views on Socialism and Nazism

Granieri also takes a swipe at the Austrian economist and Nobel Prize winner, Friedrich A. Hayek, for attempting to put the socialist label on Nazism in his book The Road to Serfdom (1944). “Hayek was appalled by the rise of economic planning in democratic states, embodied by Franklin Roosevelt’s New Deal. Hayek warned that any government intervention in the market eroded freedom, eventually leading to some form of dictatorship,” Granieri claims.

Hayek was “enormously influential,” he says, on both Ronald Reagan and Margaret Thatcher, and “Hayek’s assertion that all government interventions in the economy led to totalitarianism continues to animate popular works” that warn of the “genocidal dangers” from implementing a welfare state.

Ronald Granieri would rather drop all of this distracting labelling controversy and search for ways for “protecting citizens against the negative exigencies of the market,” focusing, instead, on a “proper balance of interests within a democratic political order,” depending “on the measurement of results” from introducing and implementing various types of interventionist and redistributive policies. He also wants “rightists” to drop harping on early 20^th century American Progressives who heralded and advocated eugenics as a means of designing superior human types. (But, wait! Were they not simply “following the science” as widely understood and accepted at the time?)

Many Socialisms in the House of Collectivism

To begin with, in the house of collectivism there have been many socialist mansions. Among the early 19^th century French socialists there was a diversity of views as to whether the socialist society to come, for instance, would be an industrial or agrarian paradise. There were disagreements about whether people could reason their way into radical social change, those whom Marx labelled the “utopian socialists,” or whether it would come only in its own good time due to inescapable historical evolution and revolution, as Marx insisted.

The first socialist party to seriously move towards political influence in the second half of the 19^th century was the German Democratic Socialists, who shunned the call for violent revolution, and amassed a growing number of votes in electing their candidates to the Imperial German Parliament by pursuing power through the ballot box. This frightened the German powers-that-be, so besides attempting for a while to suppress the German socialist party, Otto von Bismarck, as Chancellor of the German Empire in the 1870s and 1880s, introduced all the major component elements of the modern welfare state as well as interventionist regulations over parts of German industry and trade.

Bismarck’s brand soon was labelled “state socialism” or sometimes “monarchical socialism.” As the Iron Chancellor said to a British admirer, William H Dawson, “My idea was to bribe the working class, or shall I say, to win them over, to regard the state as a social institution existing for their sake and interested in their welfare.” And as Dawson explained, what Imperial Germany seemed to have found in state socialism was a middle ground between an individualism that would allow the state to do nothing and an extreme radical socialism that would have the state do everything.

Further to the East in Europe, more doctrinaire Marxian socialists in Imperial Russia rejected the niceties of elections and legislative welfare-state reforms. Only violent revolution could break the capitalist hold on the exploited masses, with, as Lenin came to insist, a dictatorship of the proletariat once in power. This resulted in a schism between democratic and dictatorial socialists for a good part of the 20^th century. But it should be kept in mind while these two groups of socialists denounced each other over the means of coming to power, well into the second half of the 20^th century they almost all agreed on the desired end: the abolition of private ownership of the means of production and the introduction of central planning.

Paternalistic Expediency, from Cradle to Grave

From these forms of “socialism,” Granieri’s desire for a democratic “balancing of interests” based on the expediency of what “works,” Bismarck’s state socialism seems the closest to what he is looking for. As William Dawson expressed it in Bismarck and State Socialism (1891), “No department of economic activity should on principle be closed to the state . . . The state socialists say that this must be determined by expediency, and by circumstances of time and place.” (pp. 4-6)

It was a state socialism in which, as an American admirer of the German system, Frederic Howe, expressed it in his book on Socialized Germany (1915): “The state has its finger on the pulse of the worker from the cradle to the grave. His education, his health and his working efficiency are matters of constant concern.” And if this all seems too paternalistic, Howe said, “This paternalism does not necessarily mean less freedom to the individual than that which prevails in America or England. It is rather a different kind of freedom,” of social welfare guarantees (pp. 83; 162) Howe later served in FDR’s New Deal Agricultural Adjustment Administration (AAA) that attempted to plan the output of American farming. (See my article, “America’s Progressives are Bismarck’s Grandchildren”.)

National Socialism’s Master Race Egalitarianism

But did any of these socialisms have anything to do with the nature and content of what became the National Socialist ideology and actual policies? Granieri insists that National Socialism could not be “socialist” because it did not pursue a “utopian” ideal for greater equality for all as a whole. But this presumes that the only legitimate utopian dream, and therefore benchmark for labeling something “socialist,” is the one that Granieri considers good and right.

In fact, the Nazis had a utopian vision for the future; it began with their notion of German race purity on the basis of which they rejected the older Prussian idea of aristocratic and class hierarchy. All “real” Germans were equal and were to be given opportunities for education, occupational and professional advancement as the means by which they could make their contribution to the high good of the German people as a whole.

That Nazi egalitarianism was limited to only those “real” Germans possessing the racial characteristics that guided their ideological thinking, with Jews classified as the lowest and most treacherous of race enemies, does not change the fact that they, too, were “utopians” with social equality goals, but only for those within the “in-group.” This was nothing but a variation of the Marxist theme that the world is divided into irreconcilable social classes, with the “capitalists” being the inescapable “class enemies” of “the workers.” And as in the Soviet practice, they and their children were stripped of all rights and opportunities, and made into permanent pariahs to be reeducated to serve “the building of socialism” or liquidated.

It may be a notion of a utopia that both Granieri and I would reject, but for many in the Nazi leadership and among the wider German population at the time, it was believed in and worked for, no matter reprehensible it may seem to others, certainly today when we all know what its outcome was in full practice. This is what made it a “national” socialism rather than an international socialism.

Its call and appeal were to a segment of humanity defined by asserted racial characteristics, rather than a call for all workers of the world to unite regardless of who or where. In retrospect, this meant that National Socialism could never have a following great enough to conquer and control the world, since its pool of members was definitionally too limited a number of all of mankind. Most of the world’s population had to find itself in conflict with Nazism precisely due to its race-based exclusivity.

Socialism, Nationalism, and the Race

But was National Socialism not only anti-capitalist, but “socialist” in some reasonable understanding? It would be possible to draw upon any number of Nazi sources to determine and decide whether National Socialism was a form of “real” socialism. In 1936, Nazi educator Friedrich Alfred Beck said in Education in the Third Reich, a text meant as a guide for German teachers around the country:

National Socialism has restored the concept of a people from its modern shallowness . . . By people we understand an entire living body which is racially uniform and which is held together by common history, common fate, a common mission, and common tasks . . . Education, from the standpoint of race and people, is the creation of a form of life in which the racial unity will be preserved through the totality of the people . . .

Socialism is the direction of personal life through dependence on the community, consciousness of the community, nationalism is the elevation of individual life to a unique (microcosmic) expression of the community in the unity of the personality. (Translated in: National Socialism [U.S. Department of State, 1943], p. 28)

The individual lives through the community, and race and nation define to which community an individual owes his allegiance. Rather than social classes, National Socialism classifies people by race category. This makes you who you are and provides meaning to your life, in the Nazi worldview.

National Socialism’s Anti-Capitalism and “Socialism”

But what about National Socialist economics? Let us look at Gustav Stolper’s German Economy, 1870-1940 (1940). Stolper was the long-time editor of a German economic magazine oriented toward a classical liberal viewpoint. He was forced to leave Germany with Hitler’s rise to power due to his politics and his Jewish family background, and found refuge in the United States. Stolper explained some of the socialist aspects to Nazi ideology and policy:

The National Socialist party was from the outset an anti-capitalist party. As such it was fighting and in competition with Marxism . . . National Socialism wooed the masses [from three angles]. The first angle was the moral principle, the second the financial system, the third the issue of ownership. The moral principle was ‘the commonwealth before self-interest.’ The financial promise was ‘breaking the bondage of interest slavery’. The industrial program was ‘nationalization of all big incorporated business [trusts]’.

By accepting the principle ‘the commonwealth before self-interest,’ National Socialism simply emphasizes its antagonism to the spirit of a competitive society as represented supposedly by democratic capitalism . . . But to the Nazis this principle means also the complete subordination of the individual to the exigencies of the state. And in this sense National Socialism is unquestionably a Socialist system . . .

The nationalization of big industry was never attempted after the Nazis came to power. But this was by no means a ‘betrayal’ of their program, as has been alleged by some of their opponents. The socialization of the entire German productive machinery, both agricultural and industrial, was achieved by methods other than expropriation, to a much larger extent and on an immeasurably more comprehensive scale than the authors of the party program in 1920 probably ever imagined. In fact, not only the big trusts were gradually but rapidly subjected to government control in Germany, but so was every sort of economic activity, leaving not much more than the title of private ownership. (pp. 232-233; 239-240)

German Businessmen Reduced to Enterprise Managers

Guenter Reimann, in The Vampire Economy: Doing Business Under Fascism (1939), highlighted that while most of the means of production had not been nationalized, they had nonetheless been politicized and collectivized under an intricate web of Nazi planning targets, price and wage regulations, production rules and quotas, and strict limits and restraints on the action and decisions of those who remained; nominally, the owners of private enterprises throughout the country. Every German businessman knew that his conduct was prescribed and positioned within the wider planning goals of the National Socialist regime.

Not much differently than the state factory managers in the Soviet Union, even at that time under Stalin, the German owners of private enterprises were given wide discretion in the day-to-day management of the enterprises that nominally remained in their possession. But Nazi planning agencies set output targets, determined input supplies and allocations, determined wage and work condition rules, and dictated the availability of investment funds and the rates of interest at which they could be obtained through the banking system, along with strict central control and direction of all import and export trade.

The Nazi Ideal of a Socialist Welfare State for all Real Germans

But more generally approaching Ronald Granieri-denial of National Socialism being a socialist system, we can turn to a more recent historian of the Nazi regime, that being Goetz Aly in, Hitler’s Beneficiaries: Plunder, Racial War, and the Nazi Welfare State (2007). Aly “focus[es] on the socialist aspect of National Socialism” so as to better understand “the Nazi regime as a kind of racist-totalitarian welfare state.”

Aly emphasizes that the ideology and practice of the Nazi regime were in fact deeply socialist. Within Germany, among the German people of “pure Aryan blood,” the ideal was an egalitarian social order in which every German would be freed from traditional class barriers so that he might have the opportunity to rise to any level of success in serving the fatherland. The welfare-state policies begun by Bismarck in late 19th century Imperial Germany were viewed by the Nazis as a prelude to a complete guarantee of a quality standard of living for all “real” Germans that would be paternalistically provided by the National Socialist state.

The problem was that the promises of the welfare state could not be fulfilled within Germany’s 1933 borders. If the German people were to have this material paradise on earth, someone would have to supply the manpower and the resources to provide the means for this massive redistribution of wealth.

Aly points out that before and during World War II, the German “capitalist class” was made to pay its “fair share” for the benefit of the rest of the German people. Taxes were proportionally far higher on the “rich” in Germany than the rest of the population. During the war the government established mandatory overtime pay in all industries and imposed wage increases to keep “the masses” loyal to the regime – all at the expense of German business. At the same time, German industry worked under government-commanded four-year plans from 1936 until the end of the war in 1945.

Plunder Policy to Fund the National Socialist Welfare State

But it was only after the war started that the machine of redistributive plunder was really set into motion. Every country overrun by the German army not only had to pay the costs of the occupation, but also was systematically looted for the benefit of the German population as a whole.

Both within Germany and around the rest of Europe, the great “enemy” that the Nazis were determined to eliminate were the Jews. Before the war the regime had attempted to pressure German Jews to leave the country. After the war began the government was determined to expel all Jews in western and central Europe to “the East.” Finally, the “solution” to the “Jewish problem” was found in the concentration and death camps.

But beginning in 1941 and 1942 the expelling of Jews from Germany and the rest of occupied Europe was accelerated as part of the Nazi welfare state. When Great Britain began to bomb German cities, at first thousands and then tens of thousands of Germans found themselves homeless, with all their belongings destroyed. Municipal governments, with the approval of the Nazi leadership in Berlin, began to confiscate Jewish houses and apartments, including the contents, to make room for racially pure Germans needing new places to live.

In every occupied country the Nazis initiated similar confiscatory policies with local accomplices with whom they shared looted Jewish property. (Only in Belgium and Denmark did large segments of the population and the bureaucracy resist participating in this plunder of the Jews.) The Nazis first nationalized Jewish property and then distributed it to those deemed worthy among the German or occupied populations.

 “Needy” Germans Provided for by Redistributing from Other Europeans

Hundreds of trainloads of stolen Jewish property were either given away or sold at discounted prices in German cities, large and small, throughout the war. Aly estimates that because of this looted property and the goods sent back to Germany by soldiers, many, if not most, Germans enjoyed a more comfortable standard of living throughout most of the war than the civilian population in Great Britain.

What also fed a large part of this Nazi plunderland was the invasion of the Soviet Union in June 1941. In the East, Hitler wished to show none of the minimal “niceties” with which the people of western Europe were treated. The vast and rich lands of Russia and Ukraine were to become the economic Promised Land in the Nazi dreams of the future. Under the plan at least 20 million Russian peasants would be worked and starved to death in the countryside after a German victory to make room for a huge German resettlement that would provide the “living space” for the Aryan race. The cities of Moscow and Leningrad were to be razed, their populations left to die.

The vast majority of German families continued to feast, even under the allied bombings, thanks to the locust-like seizure of anything and everything across occupied Europe. Aly estimates that during the five-and-a-half years of war, the Nazis plundered $2 trillion worth of property, goods, and wealth from the peoples of Europe—a large sum by any standard, but truly huge considering the much lower levels of output and income in Europe during those war years.

No doubt this summary of the content of Goetz Aly’s analysis of the National Socialist welfare system and its version of central planning would convince Ronald Granieri even more that the Nazi regime should not be classified as “socialist.”

Hayek was Right: Nazis were Socialist Central Planners, Too

But in my view, it demonstrates that all of its characteristics find their family resemblance in socialist regimes. Institutionally, the starting premise is that the individual is little or nothing, and must view himself as dependent upon and working for a wider “common good,” other than his own personal self-interest.

In the name of “the people” those in political authority, whether in that position through votes or violence, establish in the name of “the people” the hierarchy of social goals, purposes, and collective ends for which a set of government planning policies, interventions and welfare redistributions will be set in motion.

Individual choice and decision-making as consumers and producers are significantly reduced or even totally eliminated with government central planning and decision-making replacing voluntary association and exchange through the competitive processes of supply and demand.

Prices and production no longer fully reflect the valuations and appraisements of the multitudes of interacting buyers and sellers in the society – which means all of us in our consumption and production roles in the social system of division of labor. Instead, government plans and interventions determine or heavily influence wages and prices, along with what gets produced and how much; which means everything concerning our personal lives, livelihoods and standards of living.

In other words, extensive and intrusive government regulations, restrictions, redistributions, and imposed centralized plans demonstrate what Friedrich A. Hayek was arguing over 75 years ago in The Road to Serfdom: that the more government command and control replaces market-based choices, decisions, and opportunities, the less freedom we have over increasing corners and aspects of our lives. (See my articles, “Is America Still on F. A. Hayek’s Road to Serfdom?” and “F. A. Hayek and Why Government Can’t Manage Society”.)

Like many others over the more than one hundred last years, Ronald Granieri may very well pooh-pooh this because he may not consider some loss of personal liberty something much to despair when it’s replaced with compulsory political paternalism that “guarantees” various material wants for some that he considers more important than the degree of freedom forgone by some others.

But I would ask him to at least admit that this is freedom lost for a coerced “security,” for which some have had to be plundered; that is, have part of the income and wealth that was theirs taken from them without their voluntary consent. It is still a compulsory “taking,” whether done by a voting majority or dictatorial elite.

And I would further ask him to concede that whether he agrees with the ends and goals of other socialists, their use of command and control and their introduction of some form of institutional central planning to pursue their declared “social good” makes their system just as much a “socialist” one as any other that Ronald Granieri might endorse or look more favorably upon. So, whether he likes it or not, the Nazis, too, were socialists, just a different stripe than the ones he feels more comfortable with.

This article was originally published at The American Institute for Economic Research.

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