State versus Private Control of Industry

State versus Private Control of Industry

Frankfurter Zeitung und Handelsblatt (Frankfurt am Main, Germany : Daily)

WWP25438

1918 May 10

Calls for Germans to work for the shift to a peacetime economy.

Library of Congress, Woodrow Wilson Papers

Woodrow Wilson Presidential Library & Museum

World War, 1914-1918--Germany

Economics--Germany--History

Danna Faulds

WWP25437

English

Document scan was taken from Library of Congress microfilm reel of the Wilson Papers. WWPL volunteers transcribed the text.

World-historic events are not always immediately understood by contemporaries in their full significance. This seems to be the case today. People are only now beginning gradually to realize that the emperor’s order of September 30 might mean a fundamentally new orientation for our economic life. However we may have carried on our wartime economic existence up to the present time, or, to be more accurate, have let it drift, nevertheless it is a fact that it could not continue for any length of time. Even a “conservative paternal” (konservativ-obriglichkeitlich) government would have gradually to realize this; for neither the policy of taxation, with its half-way methods and multitudinous qualifications, is adequate to counteract the expenses of war, nor above all can the inadequate policy of price control, which was advocated by partisans--and as a matter of fact by mighty short-sighted ones--be endured any longer, unless we wish to bring about the undermining and ruin of even the powerful middle class, to say nothing of the lesser capitalist class.

Profiteering has become today a matter of course in wide circles of industry. Examples taken at random would prove this to a professional statistician in countless cases. If you will just take the trouble to investigate the cause of textiles made out of paper yarn costing today many times as much as was formerly paid for a far superior piece of cotton goods, you will discover that, beginning with the dealer in wood and passing to the celluloid manufacturers, the paper merchants, the spinners, the weavers, and various other merchants until you reach the purchaser, ridiculous increases in price are charged. This is the only way of explaining how factories that are putting out scarcely twenty-five per cent of their normal capacity give evidence of still greater profits than in normal times when they worked at full capacity. We say “give evidence of profits” because the actual earnings arrived at often come to several times the balance which is made public. We must also take into account the indemnities, often very large, which are allowed to industries which have stopped running, and which occasionally have even caused such manufacturers to refuse to start their machines going again, because they profit more by this present indemnity system.

If we will be just, we must admit that in these things many of the enemy countries have managed far better. If we compare the policy of taxation and the policy of price control as it has been carried out in America, which is certainly not a country governed socialistically, we find there a succession of measures decidedly worthy of imitation, as well in connection with the policy of taxation as with the policy of control of price. If that country, ruled, as we said before, by capitalists, not only sharply reduced the prices of all important commodities only a few months after entering the war, but, going still further, made a strict ruling that in time of war an interest rate of eight per cent should be sufficient for capital actually invested--if that country still further fixed the war profits tax at eighty per cent, and today is already raising eight billion(?) dollars in annual federal taxes--then that country is a model which might rightly be studied with marked and careful (liebevoll) attention by a popular government with strong socialistic tendencies. Capital and industry must be prepared for this. But that alone would hardly suffice to make income and expenditures balance, and to bring about the first steps in preparing for a removal of the prices which have been so unwholesomely inflated. That will only be possible when we are thoroughly rid of paper in its manifold forms, whether it be loans or banknotes. To achieve this we shall certainly have to expect a property tax of considerable size. It can be assumed with certainty that this tax will have nothing but a favorable effect on the present and past war loans, not only because the loan itself will gain a greater incentive with the lessening of the immense sum total, but also because with the introduction of the property tax the government will probably remunerate the subscribers to the loan correspondingly.

However much one agrees in principle with all these radical measures-- property taxation, limitation of surplus profits, and heavier current war taxes--because in the long run they will be of greatest advantage to our economic life, still one must guard against the government, through these measures, “pouring out the baby with the bath”,* *(common German idiom meaning “to go to extremes”) so to speak, and going to far as to kill the impulse towards new business enterprise by fixing altogether too high an income tax rate. It is above all in the future regime, in the hard years of transition, that we need men and companies who can take chances; who, led by the hope of profit, are willing also to venture along paths that have not yet been trod. Therefore the idea, expressed by many clever minds, that it is better to keep the income tax in reasonable bounds and instead pay taxes on the consumption (which is altogether too high) is decidedly in point and worthy of recommendation. The average man takes a keen interest in having productive agencies turn their profits as quickly as possible into new production, instead of wasting it out of fear of taxation, as has unfortunately happened in this war. Inheritance taxes and the like will then take care that “the trees do not grow up to heaven”* *(i.e. “will keep things in control.”) and that the State is not cheated.

This view point presupposes, of course, that we do not merge into pure state-socialism. We hope that the German “social democracy” (Sozialdemokratie) which especially in these hard days has given evidence of such a fund of good common sense, has drawn the necessary lesson in this connection out of its experiences with purely bureaucratically conducted enterprises, and recognized that pure State management is inferior to private enterprise everywhere where the situation is complex; and more expensive also, as one glance at the State mining industry clearly demonstrates. It will, therefore, be the duty of the new regime to find new methods in this field. That such exist is not to be doubted. The “mixed-economic enterprise” (gemishtwirtschaftliche Unternehmen) which combines the social and other advantages of government management with the greater mobility and venturesomeness to be found in private undertakings, will now in all probability be realized in many spheres of industry.

Will our leading minds in industry and trade recognize these problems of tomorrow and the day after tomorrow in time? Will they take the proper precautions in time to keep faith with the new era? Will they cooperate joyously and secure for themselves a place in this new economic order? Will these leaders, who were as disinterested as the majority of the German people in political issues, who, owing to the pressure of all kinds of important business, overlooked the most important problem of our nation--will they become active members of our “Volksregime”? Or will they sulk in a corner and continue to relegate their interests in politics and economics to that multitude of syndicates and general secretaries who are notoriously “more popish than the pope himself”? That would be an irreparable loss for the community in general as well as for industry and trade in particular. No, we think too highly of the cleverness and thoroughness of these men to assume any such thing. On the contrary, we are convinced that they will recognize in time the basically changed conditions, and that they will take part to the limit of their ability in the reconstruction of our economic order. They will, we hope, recognize that lack of cooperation or opposition, whether secret or open, on their part, could easily lead our political economy (Wirtschaftspolitik) into paths which from the point of view of the producer, as well as from the view point of the community as a whole, could be of imminent danger; and therefore the watchword of today for industry and trade must be: Cooperation in the honorable termination of war-time economy and the reconstruction of our economic life!

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