6. Socialization

Under Liberalism, state-owned factories and production by the State were abolished. The postal service was practically the only exception to the general principle that the means of production should be left to private ownership and every economic activity made over to the private citizen. The advocates of etatism have gone to a lot of trouble to set forth the reasons which they suppose to favour the nationalization of the postal and the related telegraph service. In the first place they put forward political arguments. But in such discussions of the pros and cons of state control of the post and telegraph system, two things are generally lumped together which ought to be considered separately: the questions of unifying the service and of transferring it exclusively to the State. No one denies that the post and telegraph systems afford excellent facilities for unification, and that, even if they were left perfectly free, trusts would inevitably be formed, leading to a de facto monopoly of individuals over whole territories at least. With no other enterprises are the advantages of concentration more obvious. But to admit this is not by any means to decide whether the State is to be granted a legally assured monopoly for all branches of such services. It could easily be demonstrated that State management works uneconomically, that it is slow to extend the facilities for the transmission of letters and parcels in accordance with business requirements, and that it can only with difficulty be persuaded to introduce practical improvements. The great progress in this sphere of economic life has been achieved by private enterprise. We owe largely to private enterprise the development on a large scale of overland telegraphy: in England this was nationalized only in 1869, in the U.S.A. it is still in the hands of joint stock companies. Submarine cables are mostly in the hands of private enterprise. Even German etatism showed hesitation in ‘freeing’ the State from collaboration with private enterprise in deep sea telegraphy. The liberals of that time also advocated the principle of full freedom in post and telegraph services and attempted with great success to expose the inadequacy of State enterprise.1  That nevertheless these branches of production have not been denationalized is to be ascribed only to the fact that those holding political power need the post and telegraph to control public opinion.

The military powers, everywhere ready to hinder the entrepreneur, have acknowledged his superiority by handing over to him the production of arms and munitions. The great advances in war technique date from the moment when private enterprise began to produce war material. The State has had to recognize that the entrepreneur produces better arms than the civil servant; this was proved on the battlefields in a way that enlightened even the most stubborn advocate of state production. In the nineteenth century arsenals and state shipyards disappeared almost completely, or were transformed into mere magazines, and their place was taken by private enterprises. Literary and parliamentary supporters of the nationalization of industry had scant success with their demand for the nationalization of the armaments industry, even in the most flourishing days of etatism in the years immediately preceding the World War. The general staffs knew well the superiority of the private undertaking.

For reasons of public finance, certain revenue monopolies which had existed from a distant past were not abolished even during the epoch of Liberalism. They remained because they were looked upon as a convenient way of collecting a tax on consumption. But people had no illusions about the uneconomic nature of state enterprise — in the administration of the tobacco monopolies, for example. But before Liberalism could carry its victorious principle into this field, Socialism had already introduced a retrograde movement.

The ideas from which sprang the first modern nationalizations and municipalizations were not altogether inspired by modern Socialism. In the origins of the movement, ideas of the old police state and purely military and political considerations played a great part. But soon the socialist ideology became dominant. It was a conscious socialization that was carried out by states and municipalities. The slogan was: away with uneconomic private enterprise, away with private ownership.

At first the economic inferiority of socialist production did not hinder the progress of nationalization and municipalization. The voice of caution was not heard. It was lost in the shouting of etatists, socialists, and all the elements whose interests were at stake. People did not choose to see the faults of government enterprise, and so overlooked them. Only one circumstance restricted the excessive zeal of the enemies of private property — the financial difficulties with which a large number of public undertakings had to contend. For political reasons the government could not completely pass on to consumers the higher costs of State management, and working losses were therefore frequent. Its supporters consoled themselves by stating that the general economic and social political advantages of state and municipal enterprise were well worth the sacrifice. All the same, it became necessary to proceed cautiously with the etatistic policy. The embarrassment in which economists writing on these problems found themselves became evident from their reluctance to ascribe the financial failure of public enterprises to the uneconomic methods of this kind of enterprise. They tried instead to account for it by some special circumstance, such as personal mistakes in the management and errors in organization. And they pointed repeatedly to the Prussian State railways as the most brilliant model of a good administration. Of course the Prussian State railways have yielded good working surpluses. But there were special reasons. Prussia acquired the most important part of its State railway system in the first half of the ‘eighties, that is at a time of specially low prices, and the whole system was equipped and expanded to a large extent before the rapid growth of German industrial prosperity which set in during the second half of the ‘nineties. Thus there was nothing particularly remarkable in the fact that these railways paid well, for their loads grew from year to year without any solicitation, they ran mostly through plains, they had coal on every hand, and could count on favourable running conditions. Their situation was such that they could yield profits for a while although run by the State. It was the same with the gas, water, and electricity works and with the tramway systems of several large cities. The conclusions generally drawn from this were, however, far from accurate.

Generally speaking, the result of nationalization and municipalization was that taxation had to contribute to running costs. So it may be said that no catchword has ever been made public at so inappropriate a moment as Goldscheid’s slogan of ‘the suppression of the taxation state’. Goldscheid thinks that the financial troubles into which the World War and its consequences have landed the State can no longer be remedied by the old methods of public finance. The taxation of private enterprise is failing. Therefore, one must start to ‘repropriate’ the State by expropriating capitalist enterprises, so that the State will be able to cover its expenses out of the profits of its own undertakings.2  Here we have the cart before the horse. The financial difficulties result from the fact that taxation can no longer pay the large contributions required by socialist enterprises. Were all enterprises socialized, the form of the evil would indeed be changed, but far from being abolished it would be intensified. The smaller yield of the public enterprises would no longer be visible in a budget deficit, it is true, but the population would be worse off. Distress and misery would increase, not diminish. To remove the State’s financial troubles Goldscheid proposes to carry socialization to the bitter end. But this financial trouble has come about because socialization has already gone too far. It will vanish only when socialized enterprises are returned to private ownership. Socialism has arrived at a point where the impossibility of carrying out its technique is apparent to all, where even the blind begin to see that it is hastening the decline of all civilization. The effort made in Central Europe to socialize completely at a single stroke was wrecked not by the resistance of the bourgeoisie, but by the fact that further socialization was quite impossible from a financial point of view. The systematic, cool and deliberate socialization practised by states and municipalities up to the war, came to a standstill because the result to which it was leading became all too clear. The attempt to pass it off under a different name, as the socialization commission in Germany and Austria tried to do, could have no success in these circumstances. If the work of socialization had to be carried on, it was not possible to do so by the old methods. The voice of reason which warned men not to venture any further on this path must be silenced, criticism must be obliterated by the intoxication of enthusiasm and fanaticism, opponents must be killed, as there was no other way of refuting them. Bolshevism and Spartacism were the last weapons of Socialism. In this sense they are the inevitable outcome of the policy of destructionism.

• 1Millar, The Evils of State Trading as illustrated by the Post Office. (A Plea for Liberty, edited by Mackay, and Edition, London 1891, p. 305 et seq.)
• 2Goldscheid, Staatssozialismus oder Staatskapitalismus, Vienna 1917; Sozialisierung der Wirtschaft oder Staatsbankerott, Vienna 1919; against: Schumpeter, Die Krise des Steurstaates, Graz and Leipzig 1918.