Benito and Franklin

There were striking parallels between the economic programs of Mussolini and FDR. Were they coincidental?

January 30th marked the centennial of the birth of Franklin Delano Roosevelt. Congress, ever ready to honor a fellow statist, held a special celebration two days earlier. A three-hour television extravaganza on FDR and the New Deal, featuring all four living American presidents, was broadcast on January 29.

The Smithsonian Institution has come up with a year-long series of exhibits and symposia commemorating the great man. The public will be inundated with books and articles on the glories of the Roosevelt era for at least the rest of 1982 and probably into 1983, which itself marks the 50th anniversary of the New Deal. Welfare state nostalgia is running strong.

A slightly discordant note was sounded by President Reagan who, in the course of an interview last December, opined that many New Dealers espoused fascism. The New York Times, ever-vigilant custodian of liberal mythology, scurried to establishment historian Arthur Schlesinger, Jr., for a rebuttal. "A gross distortion of history," Schlesinger harrumphed. "Fascism was the last thing on the mind of Roosevelt or anyone around him.…There was no hint at any point during the Presidency of any desire to establish a one-party state—and that's what fascism is all about, the suppression of all political opposition."

This, of course, begs the question. While dictatorship may be an element of fascism, it is hardly its distinguishing characteristic. Dictatorship and fascism are not interchangeable terms, else one would be forced to conclude that the Soviet Union is a fascist state. Conversely, a nation can have a fascist economy (its government may be motivated by the fascist ideology) without succumbing to dictatorship. Although fascism will ultimately lead to the loss of political as well as economic freedom, the Nazis came to power via the democratic process.

Mr. Reagan, in his own offhanded way, had stumbled upon a profound truth. Of all the epithets hurled at the New Deal—monarchy, socialism, communism—fascism comes the closest to describing accurately its economic philosophy.

Although fascism is frequently associated with Hitler's campaign against the Jews, antisemitism is not a defining characteristic of the fascist ideology. Fascism, like capitalism or communism, is a form of economic and social organization. It is a variant of collectivism in that it subordinates the individual to the collective—in this case, the nation. Adolph Hitler stated the fascist position quite succinctly: "It is thus necessary that the individual should finally come to realize that his own ego is of no importance in comparison with the existence of his nation as a whole…and that the higher interests involved in the life of the whole must here set the limits and lay down the duties of the interests of the individual."

Unlike the communist state, where the government actually owns the means of production and distribution, the fascist state maintains a capitalist facade. Most businesses are privately owned. Nevertheless, the state effectively controls the factors of production and directs them for its own ends—the hypothetical good of the community.

Contrary to the charge of many opponents, the New Deal wasn't "communistic": state ownership of farms and factories was not on FDR's agenda. Rather, the goal of New Deal economic policy was state control of industry and agriculture—a merger of business and the state. Hence its essentially fascist nature.

FASCISM IN PRACTICE In the fascist state, every economic transaction is subject to regulation. The manifesto of Mussolini's Fascist Party created an open-ended program for economic interventionism: "In the national economy, everything that, in scope or function, goes beyond private interests and affects those of the community comes within the State's sphere of action." At its first meeting, in 1919, the party adopted a platform calling for, among other measures: control of factories, railroads, and public services by collectives; minimum wages and an eight-hour work day; extension of social insurance; and heavy inheritance and income taxes.

Fascism might be termed the complete bureaucratization of a nation's economy. Economist Ludwig von Mises, himself a refugee from Nazism, once described the operation of the National Socialist economy: "There is no labor market; wages and salaries are fixed by the government. The government tells the shop managers [industrialists] what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees to whom and under what terms the capitalists must entrust their funds and where and at what wages laborers must work. Market exchange is only a sham. All prices, wages and interest rates are fixed by the central authority."

Under both German and Italian fascism, industry was organized into cartels (in Italy they were called corporatives). The cartels were state-sponsored trade associations; membership was mandatory. The cartel for a given industry determined the level of production and assigned quotas to various member firms. It also set prices and determined the method of distribution of finished products, including their recipients. This was all done under the aegis of the state.

Cartels had been employed to a limited extent by both the German Imperial and Weimar governments. The Nazis expanded the program until it encompassed all industry in the Reich. By a law enacted on July 15, 1933, within months after Hitler became chancellor, the minister of economics could force firms to join or organize cartels.

These state-sanctioned monopolies permeated all levels of the German economy. Even skilled tradesmen, such as plumbers and masons, were organized into guilds. After 1935, a masters examination in each craft was a prerequisite for starting a new business.

Besides directing the operation of industry, down to the most minute detail, the fascists were obsessed with controlling the lifeblood of the economy—financial capital. "In fascist Italy," said Mussolini, "capital is at the orders of the State."

As with industry, the Nazis preferred to control German finance by indirect methods. The state first determined which firms it wanted to expand. These businesses were then authorized to buy capital equipment or raw materials. In many instances the state also purchased the finished products. To finance this expansion, the banks were forced to accept either the industry's promissory note for the funds it needed or the government's note for the products purchased. In either event, the Nazi state had managed indirectly to socialize investment. As author John Flynn observed in his 1943 book, As We Go Marching, the German state "becomes the universal banker, investment broker, biggest bond-holder and, in many cases, shareholder."

THE FASCIST DEAL In the United States, the flagship of New Deal programs was the National Recovery Administration (NRA), organized under the National Industrial Recovery Act of 1933. In May of that year, Anne O'Hare McCormick, writing in the New York Times Magazine, commented that the new administration's program, the New Deal, "envisions a federation of industry, labor and government after the fashion of the corporate state as it exists in Italy." FDR was to go far beyond the tentative business-government partnership set up by Herbert Hoover via the Reconstruction Finance Corporation.

The National Recovery Administration put in place a system that was in many ways similar to the German and Italian cartels. The NRA organized corporations into code authorities. These code authorities, under power delegated to the president, were authorized to make rules and regulations for entire industries, including limiting production, setting prices and wages, and determining distribution of products. The regulations, called codes, were legally binding, and violators were subject to fines and imprisonment.

The administration negotiated 557 basic codes and 208 supplementary codes with various industries. Although the NRA codes were eventually held unconstitutional by the Supreme Court, throughout his administration Roosevelt sought to effect this type of control of industry.

During World War II, New Dealers set up the National Resources Planning Board. In a 1943 report to Congress, the board detailed its plans for the postwar economy, which included a continuation of war-time controls on "all scarce goods," a "joint partnership of government and business" in a number of vital industries (ship building, the aircraft industry, communications, and chemical manufacturing), and government subsidies for urban development, housing, and agriculture. Congress was shocked by this proposed expansion of the federal government and immediately abolished the National Resources Planning Board, over FDR's vehement protests.

Perhaps the most state-dominated area of the German economy was agriculture. Hitler's solution to the problem of farm bankruptcies was simply to prohibit foreclosure by creditors. Thereafter, farms could only be transferred by inheritance. Production and marketing of agricultural products was rigidly controlled, and prices were fixed at an artificially high level.

Through the Agricultural Adjustment Act of 1933, the New Deal tried to apply the cartel principle to farming. The act authorized the government to restrict the quantity of agricultural products brought to market, in an effort to keep prices high by keeping supplies low. When this was invalidated by the Supreme Court, a second Agricultural Adjustment Act (1938) attempted to achieve the same end by more devious means. The 1938 AAA permitted the state to make "parity payments" to farmers, to put their incomes on a par with the post–World War I ratio between farm product prices and other consumer prices. It also allowed the administration to limit production through subsidies tied to quotas or acreage restrictions. Production could also be limited by the vote of an association (cartel) of producers of a given food stuff.

The New Deal also brought the state into farm financing with the Farm Bankruptcy Act and Farm Credit Administration. The latter refinanced one-fifth of all farm mortgages between 1933 and 1934.

THE SOCIAL AGENDA The great goal of fascism, declared Mussolini, was "the distribution of wealth, so that the illogical, paradoxical and cruel phenomenon of want in the midst of plenty shall not be repeated." With these sentiments, the Fuhrer concurred. Said Hitler: "We shall banish want. We shall banish fear. The essence of National Socialism is human welfare." (This statement is not unlike FDR's "Four Freedoms" speech, which called on government to guarantee "the freedom from want and the freedom from fear.") The program of the Nazi Party, adopted in 1920, set forth the state's responsibility to "provide citizens with adequate opportunity for employment and earning a living." This manifesto also called for a broad extension of social welfare legislation, government improvement of health, and the prohibition of child labor.

Both Hitler and Mussolini operated extensive public works programs. The fascists believed wholeheartedly in the Keynesian economic concept of government spending to promote prosperity. If there was insufficient private demand for labor, it was the duty of the state to create jobs. Hitler built the Autobahn and Mussolini drained the Pontine Marshes (a project that, interestingly, was later compared to Roosevelt's TVA). Both dictators built an impressive number of highways, schools, railroads, playgrounds, and various public buildings. Money was also lavished on home repairs, farm subsidies, adult education, and projects to improve health, reduce crime, and (in Germany) increase the birth rate. The National Socialists even subsidized workers' vacations and built a resort hotel on the Baltic.

The concept of compulsory social insurance (unemployment insurance and old age, survivors, and disability pensions) was incorporated into the German state under Bismarck. The Nazis greatly expanded these programs. With the Social Security Act of 1935, the principle of state-mandated cradle-to-grave security was firmly established in the United States also.

Like his fascist counterparts, Roosevelt believed it was the responsibility of the government to see to it that every able-bodied worker was employed. To this end, he undertook a public works program that would have made the pharoahs green with envy. Roads, bridges, courthouses, dams (the Hoover Dam and Tennessee Valley Authority)—there was hardly a project anywhere in the country that the New Deal wasn't willing to finance. The Civil Conservation Corps put young men to work on reforestation and similar programs. Between 1933 and 1934, the Civilian Works Administration put 4.25 million people to work on emergency projects—more than had served in the US armed forces during the First World War. The Works Progress Administration employed an average of 2.1 million people each year from 1935 through 1941.

The housing industry, hit hard by the depression, also received its share of subsidies. While the Home Owners Loan Corporation refinanced about one-sixth of residential mortgages, the Federal Housing Administration started to insure mortgages for new construction and repairs. In 1937 the Federal Housing Authority began substantial construction of public housing.

Despite heavy taxation, most fascist beneficence was financed via the deficit. Before he became chancellor, Hitler denounced deficit spending—as did Roosevelt in his 1932 campaign. On assuming power, however, Hitler quickly overcame his adversity to red-ink budgets. From 1933 to 1936 the German national debt more than quadrupled, going from 11.7 billion to 55 billion marks. On the eve of World War II, Germany's debt stood at 107 billion marks. When Mussolini took office, the Italian national debt was 93 billion lire. By 1934 it had grown to 148.6 billion, and in 1943 the debt was 405.8 billion lire.

The American public also paid a rather exorbitant price for New Deal largess. In 1935 Roosevelt pushed through a major tax increase, raising the maximum rate from 63 percent to 79 percent. In 1936 taxes were raised again, on both individuals and businesses.

FDR was the American patriarch of deficit spending. While his deficits may seem paltry compared to today's $100-billion-plus red-ink budgets, by the standard of presidents who preceded him, Roosevelt was prodigious at spending money the government didn't have. In 1930 the national debt was about $16 billion. Between 1933 and 1942, FDR rolled up over $32 billion in budget deficits. By 1945 the deficit had topped the $200-billion mark. Like the Fuhrer and the Duce, the Squire of Hyde Park was a master of deficit spending.

MORE THAN COINCIDENCE If the economic policies of Nazi Germany and fascist Italy seem surprisingly similar to the New Deal, there's a logical explanation. The political framework of welfare liberalism was constructed in the early 1930s by a group of men who espoused a collectivist ideology parallel to the fascists'.

It's unlikely that Roosevelt himself had any integrated philosophy of government. He did believe that "government has the definite duty to use all its powers and resources to meet new social problems with new social controls." Moreover, he had a Hudson Valley aristocrat's concern for the welfare of the masses. But FDR was first and foremost a politician—a demagogue rather than an ideologue. His priorities were power, popularity, and a place in the history books, not the advancement of a cause.

Roosevelt did, however, surround himself with advisors who were firmly committed to reshaping American society in the collectivist mold. They viewed the depression as a once-in-a-lifetime opportunity to implement their theories of economic planning.

There was Stuart Chase, who coined the term New Deal in his 1932 book of the same title and later held several important positions in the Roosevelt administration. Chase was a thoroughgoing statist who despised both private wealth and free enterprise.

In his book, A New Deal, which became a blueprint for the Roosevelt administration, Chase rhapsodized about the coming collectivism: "Best of all the new regime would have the clearest idea of what an economic system was for. The sixteen methods of becoming wealthy would be proscribed—by firing squad if necessary—ceasing to plague and disrupt the orderly process of production and distribution.…The whole vicious pecuniary complex will collapse as it has in Russia" (emphasis added). How like the Nazi call, in their 1920 platform, for "an end to the power of financial interests."

The fascist economy was usually described by observers of the period as "autarchy," meaning complete governmental sovereignty over all transactions and relationships. In an article published in September 1933 in Scribner's Magazine, Chase commented: "Autarchy…is distinctly thinkable and it is coming.…It must be planned and planned by the Federal government.…It can only be undertaken when governments take power and speculative profits away from businessmen and bankers.…New industries must be set up; old industries liquidated;…millions of potential unemployed steered to new jobs; colossal capital shrinkage adjusted in some fashion."

Chase was confident that the new day was dawning. "President Roosevelt has accepted the general philosophy of planning. Under his guidance we may move toward an inevitable autarchy."

No individual comes closer to epitomizing the New Deal worldview than Rexford Guy Tugwell. Tugwell, Adolph Berle, and Raymond Moley constituted the "Brain Trust," Roosevelt's inner circle of economic advisors. As assistant secretary of the Agriculture Department, Tugwell helped to shape New Deal farm policy.

A disciple of socialist Thorstein Veblen, Rex Tugwell was thoroughly indoctrinated in the latter's hatred of business owners. "From what I know of human nature," said Tugwell, "I believe the world awaits a great outpouring of energy as soon as we shall have removed the dead hand of competitive enterprise that stifles public impulses and finds use only for the less effective and less beneficial influences of Man. When industry is government and government is industry the dual conflict deep in our modern institutions will have abated." But this is precisely what was then occurring in Germany, where capital remained ostensibly in private hands but the state "became" industry, substituting its judgment for that of the marketplace.

Years later, Tugwell expounded on his ethics more fully: "People must give up thinking only of themselves—how they can increase their pleasures, how they can make certain of their income.…the rule of laissez-faire must be abandoned. Individuals following their own interests do not contribute to the good of the whole. The rule must read that every man, guided by the interest of the whole and contributing to it, will find his own well-being increased by the general product." Compare this with the popular Nazi slogan "Gemeinnutz vor Eigennutz" (the common good before self).

This was the intellectual impetus for the New Deal. Roosevelt's alphabet soup agencies were the concrete manifestation of these theories.

In industrial policy, agriculture, public works, welfare programs, and deficit spending, the New Deal, if not a mirror image of the fascist regimes, certainly followed their pattern quite closely. The same contempt for free enterprise, private wealth, and individualism motivated both New Dealers and the architects of German and Italian fascism.

Anne O'Hare McCormick, in the previously quoted New York Times article, made the following observation on the inauguration of the New Deal: "The atmosphere [in Washington] is strangely reminiscent of Rome in the first weeks after the march of the Blackshirts." Strange indeed. The welfare state, as it has developed over the past 50 years, is the fruition of New Deal economic planning. It is important for Americans to understand its origins. Fascism came to America in 1933 not with a goose step and a stiff-arm salute, but with a cigarette holder and a politician's famous smile.

Don Feder is an attorney and free-lance writer and the editor of the newsletter First Principles.