Omnipotent Government is a mixture of German history and economic treatise. It was written in 1944 and explains how Germany fell under the control of the Nazis. Although the book is an indictment of statism, for which Mises coined the term Etatism, it is not an emotional or moral indictment. Mises explains in the preface that although the social sciences attempt to make judgements about the quality of outcome produced by one form of government or another, the economist only seeks to determine if the ends sought can be achieved by the method chosen.
Omnipotent Government demonstrates through logic and history the causes and effects of Etatism. Mises examines the professed goals of statist policies and compares them to their inevitable results. However, his political terminology may initially cause some confusion to present-day readers.
In this book, as in others by Mises and Hayek, the reader is confronted with the unfortunate success of the progressive left in capturing the terminology of liberty. Throughout the book, Mises refers to liberalism in the classical sense, a belief in the rights of man and individual freedom. Today Libertarians and Conservatives most closely resemble the liberalism referred to by Mises. But neither term is a direct replacement. As Daniel DiSalvo points out in an article in the April 2011 issue of Commentary, it is now the Conservatives who have been cast in the role of agents of reform or change, while the Liberals are the ones defending the status quo of past initiatives, the results of which are now being painfully recognized. In fact the definitions are quite reversed. Fortunately, Mises’ meaning is clear once the modern reader understands the original meaning of liberalism. Today’s liberal philosophy is more akin to totalitarianism or Mises’ etatism.
Mises asserts that the basis of totalitarian thinking is that the state knows best.
At the bottom of all totalitarian doctrine lies the belief that the rulers are loftier and wiser than their subjects and that they therefore know better what benefits those ruled require than they themselves.
Progressive Cass Sunstein is a modern day example of this elitist mentality. In a paper entitled Conspiracy Theories, Sunstein purports that the government is obligated to put a damper on speech that conflicts with what is acceptable. Those with “crippled epistemology” should be actively rebutted by government. But never fear, Sunstein and his co-author Adrian Vermeule “… assume a well-motivated government that aims to eliminate conspiracy theories, or draw their poison, if and only if social welfare is improved by doing so.” Presumably he and his cohorts have the wisdom to determine what is best for society. His egotism sounds remarkably like Mises’ description of the all-knowing Left:
The parties of the Left are in the happy position of people who have received a revelation telling them what is good and what is bad.
Other themes covered in Omnipotent Government also provide food for thought, such as Mises’ synopsis of contending ideological schools of thought regarding the best basis for government.
In the history of the last two hundred years we can discern two distinctive ideological trends. There was first the trend toward freedom, the rights of man, and self-determination. This individualism resulted in the fall of autocratic government, the establishment of democracy, the evolution of capitalism, technical improvements, an unprecedented rise in standards of living. It substituted enlightenment for old superstitions, scientific research for inveterate prejudices. It was an epoch of great artistic and literary achievements, the age of immortal musicians, painters, writers, and philosophers. And it brushed away slavery, serfdom, torture, inquisition, and other remnants of the dark ages.
In the second part of this period individualism gave way to another trend, the trend toward state omnipotence. Men now seem eager to vest all powers in government, i.e. in the apparatus of social compulsion and coercion. They aim at totalitarianism, that is, conditions in which all human affairs are managed by governments. They hail every step toward more government interference as progress toward a more perfect world; they are confident that the governments will transform the earth into a paradise.
A new type of superstition has got hold of people’s minds, the worship of the state. People demand the exercise of the methods of coercion and compulsion, of violence and threat. Woe to anybody who does not bend his knee to the fashionable idols!
While the Introduction to Omnipotent Government was written to set the stage for Mises to explain the causes of the Nazi ascendancy in Germany, much of what he has to say is relevant for any time. Mises even appears to channel James Madison’s Federalist No. 51,
But it should be the primary aim of politics to protect nations against the dangers originating from the hostile attitudes of bad people. If there were no bad people, there would not be any need for a government. If those in a position to direct the activities of government do not succeed in preventing disaster, they have given proof that they are not equal to their task.
Mises’ prose is sharp and poignant throughout. In his denunciation of the philosophies and policies that promoted the formation of Nazi Germany, he might just as easily have been referring to the current debt crisis and the blind adherence to the failed policies of the American entitlement system.
Life consists in adjusting oneself to actual conditions and in taking account of things as they really are, not as one would wish them to be…
Mises sees no hope for a return to better times if people do not understand why government’s policies have failed. The inexorable judgment of history cannot be evaded by lofty words or political, social or economic doctrines.
Nothing can be expected from the future if men do not realize that they were on the wrong path…
… He who, in the face of tremendous catastrophe whose consequences cannot yet be completely seen, still believes that there are some doctrines, institutions, or policies beyond criticism, has not grasped the meaning of the portents.
Mises takes the reader through a brief history of Germany, because in his words,
Whoever wishes to understand the present state of political affairs must study history. He must know the forces which give rise to our problems and conflicts. Historical knowledge is indispensable for those who want to build a better world.
The first chapter of Omnipotent Government explains why liberalism (in the classical sense) never got a chance to take root solidly in Germany. It was pre-empted by etatism, nationalism, and socialism. The second chapter covers the rise of militarism in Germany and provides insights into the role of aristocracy and intellectuals in the formation of a German identity.
It is in chapter 3 that Mises sets aside his German history lesson and defines his term etatism. He explains,
Etatism assigns to the state the task of guiding the citizens and of holding them in tutelage. It aims at restricting the individuals freedom to act. It seeks to mold his destiny and to vest all initiative in the government alone.
Etatism has two variants, socialism and interventionism. Both have the common goal of subordinating the individual unconditionally to the state. Mises defines the concept of the state thusly,
The state is essentially an apparatus of compulsion and coercion. The characteristic feature of its activities is to compel people through the application or threat of force to behave otherwise than they would like to behave.
It’s a sobering definition, but not one that implies a moral component. Mises explains that the state is limited (by other states) to within the scope of its sovereignty, and that the means of management by which “those at the helm” rule, are the laws of the state. If they are arbitrarily applied, they are meaningless. There is no rule of law if those in power can do whatever seems at the moment to be expedient in their eyes… It does not make any difference whether those tyrants are “benevolent.”
Consider the selective enforcement of immigration law and “hate crimes,” by the Obama DOJ.
Mises undertakes a long set up of definitions and logic to lay the groundwork for his arguments about the most efficacious form of government. But it is these seemingly obvious truisms which appear to have been forgotten today.
With human nature as it is, the state is a necessary and indispensable institution. The state is, if properly administered, the foundation of society, of human coöperation and civilization. It is the most beneficial and most useful instrument in the endeavors of man to promote human happiness and welfare. But it is a tool and a means only, not the ultimate goal. It is not God. It is simply compulsion and coercion; it is the police power.
It has been necessary to dwell upon these truisms because the mythologies and metaphysics of etatism have succeeded in wrapping them in mystery. The state is a human institution, not a superhuman being. He who says “state” means coercion and compulsion. He who says: There should be a law concerning this matter, means: The armed men of the government should force people to do what they do not want to do, or not to do what they like. He who says: This law should be better enforced, means: The police should force people to obey this law. He who says: The state is God, deifies arms and prisons. The worship of the state is the worship of force. There is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men. The worst evils which mankind ever had to endure were inflicted by bad governments. The state can be and has often been in the course of history the main source of mischief and disaster.
Mises does not deny that there have been excellent rulers who have been both competent and fair. But the reverse is too often true.
The thesis of etatism that the members of the government and its assistants are more intelligent than the people, and that they know better what is good for the individual than he himself knows, is pure nonsense. The Führers and the Duces are neither God nor God’s vicars.
Mises reiterates that the features that make a state what it is don’t depend on how it is implemented. A state is merely an institution whereby men are compelled to submit a portion of their freedom and rights to the power of its authority. Democracies as well as despots can exercise tyrannical authority.
The essential characteristic features of state and government do not depend on their particular structure and constitution. They are present both in despotic and in democratic governments. Democracy too is not divine… it should never be forgotten that majorities are no less exposed to error and frustration than kings and dictators. That a fact is deemed true by the majority does not prove its truth. That a policy is deemed expedient by the majority does not prove its expediency. The individuals who form the majority are not gods, and their joint conclusions are not necessarily godlike.
The Founders were cognizant of that truth and tried to ameliorate it by forming a republic rather than a democracy.
Having properly defined the concept of the state, Mises moves on to discuss (classical) liberalism before advancing to etatism with which it is compared.
The essential teaching of liberalism is that social coöperation and the division of labor can be achieved only in a system of private ownership of the means of production, i.e., within a market society, or capitalism. All the other principles of liberalism—democracy, personal freedom of the individual, freedom of speech and of the press, religious tolerance, peace among the nations—are consequences of this basic postulate. They can be realized only within a society based on private property.
In defining the role of the market and state operating under (classical) liberalism, Mises previews some of the themes found in his later works, Bureaucracy (reviewed here) and Interventionism (reviewed here).
Unlike (classical) liberalism,
Socialism aims at a social system based on public ownership of the means of production. In a socialist community all material resources are owned and operated by the government. This implies that the government is the only employer, and that no one can consume more than the government allots to him.
Interventionism, on the other hand, purports to stand between socialism and capitalism. In theory, the government does not own the means of production, but merely “intervenes” in prohibiting or mandating certain actions as in regulation and price control. Of particular interest were his remarks on the setting of minimum wages and the inevitable unemployment and diminished standard of living that results.
Predictably, when government tries to fix the problem of unemployment by spending, prices go up.
Government spending is not an appropriate means to brush away unemployment. If the government finances its spending by collecting taxes or by borrowing from the public, it curtails the private citizens’ power to invest and to spend to the same extent that it increases its own spending capacity. If the government finances its spending by inflationary methods (issue of additional paper money or borrowing from the commercial banks) it brings about a general rise of commodity prices. If then money wage rates do not rise at all or not to the same extent as commodity prices, mass unemployment may disappear. But it disappears precisely because real wage rates have dropped.
It would behoove today’s politicians to read Mises. The truth of his words are evident in the commodity markets now.
Mises then shows the reader how etatism combines naturally with nationalism. Interventionism is an economic war of sorts, seeking to gain advantage for one state over another. Whereas, free trade and liberalism, tend to globally distribute the costs of labor and production based on market forces. Similarly, in a purely liberal world, people are free to live where they choose and adapt accordingly.
Mises contends that it is delusion that causes some to favor socialism over capitalism. By and large, people are motivated by self-interest.
Advocates of socialism and interventionism exploit this inherent self interest and promise a better life. He asks a series of questions that contrast the promises of a better life with the realities of their policies.
Is it true that people—the voters, the masses of our contemporaries—have intentionally abandoned liberalism, capitalism, and free trade and substituted for them etatism—interventionism or socialism—economic nationalism and wars and revolutions, because they care more for a dangerous life in poverty than for a good life in peace and security? Do they really prefer being poorer in an environment where no one is better off than they to being richer within a market society where there are people wealthier than they? Do they choose the chaos of interventionism, socialism, and endless wars although they are fully aware that this must mean poverty and hardships for them? Only a man lacking all sense of reality or common observation could venture to answer these questions in the affirmative. Clearly men have abandoned liberalism and are fighting capitalism because they believe that interventionism, socialism, and economic nationalism will make them richer, not poorer. The socialists did not and do not say to the masses: We want to lower your standard of living. The protectionists do not say: Your material well-being will suffer by import duties. The interventionists do not recommend their measures by pointing out their detrimental effects for the commonweal. On the contrary, all these groups insist again and again that their policy will make their partisans richer. People favor etatism because they believe that it will make them richer. They denounce capitalism because they believe that it deprives them of their fair share.
Mises also has some pretty blunt observations about society as a whole and about intellectuals in particular.
The intellectuals converted the masses to this ideology; they did not get it from them. If the supremacy of these modern doctrines is a proof of intellectual decay, it does not demonstrate that the lower strata have conquered the upper ones. It demonstrates rather the decay of the intellectuals and of the bourgeoisie. The masses, precisely because they are dull and mentally inert, have never created new ideologies. This has always been the prerogative of the elite.
The truth is that we face a degeneration of a whole society and not an evil limited to some parts of it.
If worthless and ignoble men control the governments of many countries, it is because eminent intellectuals have recommended their rule; the principles according to which they exercise their powers have been framed by upper-class doctrinaires and meet with the approval of intellectuals. What the world needs is not constitutional reform but sound ideologies. It is obvious that every constitutional system can be made to work satisfactorily when the rulers are equal to their task. The problem is to find the men fit for office. Neither a priori reasoning nor historical experience has disproved the basic idea of liberalism and democracy that the consent of those ruled is the main requisite of government. Neither benevolent kings nor enlightened aristocracies nor unselfish priests or philosophers can succeed when lacking this consent. Whoever wants lastingly to establish good government must start by trying to persuade his fellow citizens and offering them sound ideologies.
Throughout the book Mises alternates between explanations of economic theory and demonstrating the results in practice. He takes the reader through the philosophical arguments and rhetorical tricks of the Marxists and shows the results of such policies. He covers the collapse of the Weimar Republic, how anti-Semitism was hitched to etatism and economic justifications, the rise of National Socialism, the results of central planning, and even how monetary systems and gold standard play into the operation world economies.
In his conclusion, Mises states boldly:
The economic theories on which the liberal doctrine is based are irrefutable. Centuries long efforts to disprove them have failed completely.
However, when it comes to world-wide application of liberal thought, Mises has no illusions about the capacity of the masses to understand.
But will all men rightly understand their own interests? What if they do not? This is the weak point in the liberal plea for a free world of peaceful coöperation. The realization of the liberal plan is impossible because—at least for our time—people lack the mental ability to absorb the principles of sound economics. Most men are too dull to follow complicated chains of reasoning. Liberalism failed because the intellectual capacities of the immense majority were insufficient for the task of comprehension.
Unfortunately, today many in America, are falling prey to the same lies that ensnared early 20th century Europe. The weak point in our system of government is that it requires a base level of understanding of the principles of sound economics. Those who advocate class warfare, and mass unionization of industry are successful only because of a declining understanding on the part of the masses they manipulate.
Omnipotent Government is too vast a book to cover even in summary form. Mises’ insights are numerous and erudite. By quoting his words liberally, we hope to have helped restore some of the economic and historical understanding necessary to maintaining the republic.