2 Etatism

By around 1900, most people in German-speaking countries were either etatists or state socialists. The dark episode of history known to us as capitalism had run its course once and for all. The future belonged to the state. The state would take over all enterprise suitable for nationalization and the rest would be regulated in a way that would prevent businessmen from exploiting workers and consumers. Since the fundamental laws of economics were as yet unknown, the problems presented by interventionism could not be seen. Had they been recognized, everyone would have opted for socialism. But without this knowledge it remained unclear if interventionism or state socialism was more desirable.

The program of the Marxist Social Democrats was much clearer. Marxists rejected interventionism theoretically as mere bourgeois reformism; in actuality, however, they freely promoted a theory of reformism that was all encompassing. Their work had long emphasized labor unions, thereby flouting doubts raised by Marx and his strictest disciples. Even so, they jealously guarded every bit of their master’s orthodoxy. The party rejected Bernstein’s attempt to revise the theory, which sought to lessen the glaring contradictions between Marxism and party policy. The victory of orthodoxy was not complete, however. A revisionist group did survive, and it found its expression in the Socialist Monthly.

Middle-class opposition to the Social Democratic Party was not aroused because of the party’s economic program, but because of its simplistic description of extant institutions and its denegation of all facts that did not fit into its scheme. According to the latter, all evil in the world stemmed from capitalism and this evil would be eradicated through socialism. Alcoholism was caused by a free market for liquor, and a free armaments market was to blame for war. Prostitution existed only in capitalist societies, and religion was the clever invention of priests intended to render compliance from the proletariat. Capitalism alone caused scarcity of goods, whereas socialism would bring unknown wealth to all. Nothing, however, excited the opposition of the middle class more than the social-democratic program of free love.

And yet everyone found that the social-democratic program contained a kernel of truth. This was seen in the demand for social reform and a continued push toward socialization. The Marxist spirit animated all governments and political parties. They differed from the Social Democratic Party in that they did not take into consideration the state’s expropriation of all owners and its purely bureaucratic management of all enterprise. Their socialism was not that of Lenin, who wanted to organize all industry according to the model of the state-run postal service. Theirs was a socialism that corresponded to the state-controlled economy of the Hindenburg program of the second period of the First World War, and the “German” socialism of Hitler. Private property and ownership should be formally retained, but business was to be managed according to government directives. Church socialists wanted to retain a preferred position for the Christian church; likewise, state socialists supported the monarchy and the army.

Upon entering the university, I too was an etatist, through and through. I differed from my fellow students, however, in that I was consciously anti-Marxist. At the time I knew little of Marx’s writings, but was acquainted with most important works of Kautsky. I was an avid reader of the Neue Zeit, and had followed the revisionist debate with great attention. The platitudes of Marxist literature repelled me. I found Kautsky almost ridiculous. As I entered into a more detailed study of the most important works of Marx, Engels, and Lassalle, I was incited to contradiction on all sides. It seemed incomprehensible to me that this garbled Hegelianism could have such enormous influence. I realized only later that party Marxists fell into two categories: those who had never studied Marx at all and were acquainted with only a few of the better known passages from his books, and those who knew of Marx only from textbooks, or, as autodidacts, had read none of the world’s literature beyond that of Marx. Max Adler, for example, belonged to the former group. His knowledge of Marx was limited to the few pages in which the “super structure theory” had been developed. Prominent among the latter group were the Eastern Europeans, who led Marxism’s ideological charge.

I have encountered nearly all of the Marxian theorists in western and central Europe during the course of my life, and among them I’ve found but one man who rises above modest mediocrity. Otto Bauer was the son of a wealthy north Bohemian manufacturer. While at Reichenberger Gymnasium,¹he found himself under the influence of the same teacher who had introduced Heinrich Herkner to the ideas of social reform nearly two decades before.

Bauer came to the University of Vienna as a staunch Marxist. Equipped with untiring diligence and a glowing facility for ideas, he became conversant in German idealistic philosophy and classical economics. He had an unusually broad knowledge of history including that of Slavic and oriental nations. He was well versed in current research in the natural sciences, was an excellent speaker, and could quickly and easily familiarize himself with the most difficult of problems. He was not a born trailblazer, to be sure, and one could not expect him to come up with new theories or ideas. But had he not been a Marxist, he could have become a statesman.

As a young man, Otto Bauer had made up his mind never to be untrue to his Marxian convictions, never to make concessions to reformism or socialist revisionism, and never to become a Millerand or a Miquel. No one was to outclass him in his Marxian radicalism. He was later strengthened in his resolve by his wife Helene Gumplowicz. He remained faithful to his intentions until the winter of 1918/19. At that time I was successful in convincing the Bauers that the collapse of a Bolshevist experiment in Austria would be inevitable in a very short time, perhaps within days. The supply of food in Austria was dependent on imports made possible only by the relief assistance of former enemies. Vienna’s food supply would not have lasted more than eight or ten days on any given day during the nine months following the armistice. The Allies could have forced a surrender of a Bolshevist regime in Vienna without lifting a finger. There were few who recognized the state of affairs clearly. People were so convinced of the inevitability of Bolshevism that their main concern was securing a favorable place for themselves in the new order. The Catholic Church and its followers, the Christian Social Party, were prepared to befriend the Bolshevists with the same eagerness with which the bishops and archbishops would embrace National Socialism twenty years later. Bank directors and industrialists hoped to make good livings as managers under the Bolshevists. A certain Mr. Guenther, an industrial consultant to the Bodenkreditanstalt,² assured Otto Bauer, in my presence, that he would prefer serving the people to serving a group of stockholders. The effect of this kind of declaration can be appreciated when one understands that this man was considered, although mistakenly, the best industrial manager in Austria.

I knew what was at stake. Bolshevism would lead Vienna to starvation and terror within a few days. Plundering hordes would take to the streets and a second blood bath would destroy what was left of Viennese culture. After discussing these problems with the Bauers over the course of many evenings, I was finally able to persuade them of my view. Bauer’s resulting moderation was a determining factor in Vienna’s fate.

Bauer was too intelligent not to realize that I had been right, but he never forgave me for having turned him into a Millerand. The attacks of his fellow Bolshevists hit close to home. But he directed his animosity toward me instead of toward his opponents. A powerful loather, he opted for ignoble means to destroy me. He tried to cause the nationalistic students and professors at the University of Vienna to turn against me. The attempt failed. I have not spoken with the Bauers since. I had always held Bauer’s character in an unwarranted high esteem, by the way. When, during the civil unrest of February 1934, Secretary Fay announced on the radio that Otto Bauer had deserted the fighting workers and fled abroad with party funds, I considered the statement slanderous. I would have not believed Bauer capable of such cowardice.

During my first two semesters as a university student I belonged to the Sozialwissenschaftlicher Bildungsverein,³ an organization serving students interested in the problems of economics and society, as well as older gentlemen who valued the association with students. Michael Hainisch, who later became President of Austria, was chairman at the time, and membership reflected all political parties. Among Social Democratic leaders, Karl Renner took a special interest in the association. Historians Ludo Hartmann and Kurt Kaser were frequently found at the discussions. Two of the student members most vivid in my memory are Otto Weininger and Friedrich Otto Hertz. My interest began to slacken during my third semester. I found that too much time could be lost on activities associated with the group.

I had thrown myself into the study of economics and social politics with great enthusiasm. At first I devoured the writings of the social reformers without much criticism. If a sociopolitical measure did not produce the desired result, this could only have been because it was not radical enough. In liberalism, which rejected social reform, I recognized the vestiges of a worldview that merited spirited opposition.

It was during my fifth semester at the university that I first began to entertain doubts concerning the supremacy of interventionism. Professor Philippovich assigned me to do an investigation of housing conditions. The following semester, Professor Löffler, in his seminar on criminal law, asked me to research changes in law affecting domestic servants, who at the time were still subject to the corporal punishment of their employers. It became obvious to me that any improvement in the plight of the working classes was a result of capitalism, and that the outcome of social legislation often ran opposite to the intentions of its authors.

It was the study of political economy, however, that led me to an understanding of the true nature of interventionism.

In 1908 I joined the Zentralstelle für Wohnungsreform,⁴ a group who sought to improve unsatisfactory housing conditions throughout Austria. I was quickly named as a consultant on pending real estate tax reform, a successor to Professor Robert Mayer who had been appointed to the position of minister of finance.

Taxation that discouraged large capital investment and entrepreneurship in the housing sector was the cause of these undesirable housing conditions. Austria was a country without beneficial real estate speculation. Exorbitant taxation of corporations and high tax rates on capital gains prevented those with capital from entering the housing market. In order to provide relief, one would have to reduce taxes on corporations and capital gains. There was no inclination to take this direction; hatred of large-scale capital and speculation were deeply ingrained.

Tax rates on returns from real estate were also exceedingly high. In Vienna, more than 40 percent of the gross revenue was claimed and collected in the form of federal, state, and local taxes. Homeowners and building contractors were up in arms. They considered these taxes solely to blame for high rents. Most homeowners were small businessmen whose savings were invested in houses financed at 50 percent of their customarily overappraised value. Building contractors, lacking in capital, worked to fill the orders of this clientele or worked at their own expense, hoping to sell homes as soon as they were completed. Both groups, homeowners and contractors, had great political influence through which they hoped to achieve a considerable reduction in mortgage rates.

A reduction of taxes on existing housing and land returns had not reduced rents, and had, in fact, raised returns and market prices accordingly. In order to make up for lost revenue, the government had to seek other tax income as a substitute. Such reform called for the imposition of new taxes to compensate for tax reductions to landlords.

Receiving general acknowledgment of my views was not easy. My appraisal of the situation was met by the misgivings of those in the Central Association at first. But complete success soon followed.

My activity with the Zentralstelle, which remained intense until the outbreak of the war, brought me great satisfaction. In addition to Robert Mayer, many outstanding economists worked there: the brothers Karl and Ewald Pribram, Emil von Fürth, Paul Schwarz, Emil Perels, and Rudolf Maresch.

I was in constant disagreement with my colleagues on just one point. The Zentralstelle had connections with the Kaiser Franz Joseph Jubiläum-Stiftung-für Volkswohnungen,⁵ which was endowed with large funds to finance housing in general. The same funds also financed the construction of two housing projects for single men. I found the latter to be superfluous. Young men in lower-income brackets customarily boarded with families. It was believed, however, that arrangements of this nature posed a threat to morality. Because of my experience doing investigations as a field worker for Löffler and Philippovich, I was of a different opinion. Intimate liaisons did on occasion develop in these boarding houses; the normal result, however, was a marriage contract. In fact, a probe initiated by the Viennese vice squad revealed that very few young women living under supervision in these houses declared boarders or “sleepers” to be their first seducers. In contrast, an experienced adviser to the police considered houses for single men breeding grounds for homosexuality. It was on these grounds that I could not support their funding.

My view did not prevail. But the outcome of the discussion was of little consequence, as the war halted further construction of such buildings. Adolf Hitler was living in one at the time.