The Other Austrian Economics: Reimann’s Vampire Economy
Published in September 1939, Günter Reimann’s study The Vampire Economy: Doing Business Under Fascism set out to describe “the extent of economic decay” in Germany before the outbreak of the war. It described a centrally-planned, hyper-regulated economy in which government, like an inept but stubborn watchmaker adding an ever growing series of counter-balances to make his machine run on time, had to interfere more and more in order to counteract the imbalances caused by its previous interferences, such as imposing price caps in response to inflation.
Although there are obvious parallels with modern economic dogmata, this is not meant as a version of Leo Strauss’s reductio ad hitlerum. Rather, we should observe that all command economies must inevitably share certain features: if economics has any claim to be a science, empirical observation must show that people and prices respond in predictable ways to given stimuli. As such, the practical realities of this planned economy are a useful admonitory.
Consider, for example, the following passage:
“Rome and Berlin have become the headquarters of many agencies specialising in providing ‘good connections’ (that is, acting as glorified public relations counsels) for their clients. The ‘connections’ are with State and Party officials [whose offices deal with permits, subsidies &c.]…Large German and Italian firms maintain branch offices in Berlin and Rome respectively with staffs of ‘reliables’ whose sole job it is to visit the proper State officials and Party leaders, entertain them, establish good connections and friendly relations, and otherwise protect the interests of their concerns. Smaller firms which can not afford such a staff are serviced by independent agencies. There are hundreds of such agencies…”
Today, these people are instantly recognisable as lobbyists, those shadowy and sinister characters portrayed so unfavourably in political dramas. The need to obtain official sanction for business activities incentivises the reallocation of resources towards acquiring that dubious expertise in navigating the labyrinth of personal connections which can bring about favourable political decisions. These are, of course, resources which could otherwise be spent on research and development, reduced prices for hard-pressed consumers or dividends to the true owners of the company.
In practice, our power as private individuals is not merely shifted from the check-out to the ballot box by politicising the economy. Rather, it is replaced by the frequently unofficial and opaque negotiations between businesses and bureaucracies which we now call corporatism. The result is neither ‘democratic markets’ (i.e., the imposition on market participants of society’s overall objectives via regulation by elected governments), nor ‘market democracy’ (i.e., the allocation of resources according to free consumer preferences).
The process is necessarily symbiotic. Conservative complaints of industry strangled by red tape and progressive complaints of government manipulated by industry are each telling only half the story.
On the one hand, as Reimann noted, “[b]ehind the scenes, different business interests compete with each other, influencing the leaders and trying to get their representatives (i.e., their patrons inside the political system) appointed to key positions.” Without the freedom to position his company in whatever way would maximise profits as market conditions require, the new type of businessman found that political ties were a profitable replacement route for self-enrichment: an unavoidable incentive for establishing and entrenching political influence as his first priority.
Pari passu, politicians were now able to enrich themselves through their importance to those businessmen “who have funds available with which to purchase influence and protection. This power is not illegal but grows naturally out of the system…” Their predecessors before the Great War had no such opportunities: they had been an irrelevance to would-be tycoons who only had products and punters to worry about.
On the other hand, firms had to go to considerable lengths to adjust their organisations to the new environment. To focus on regulatory requirements as opposed to consumer needs, root-and-branch reorganisation was required:
“The businessman has to adapt his business to the State bureaucratic system by building up a huge private bureaucracy too. Clerical work in companies and trusts and even in small enterprises has increased tremendously….It has been said that one commercial bank maintains 500 officials alone for dealing with foreign exchange regulations.”
The high-flyers in a firm changed, too:
“Formerly the purchasing agent and the sales manager were among the most important members of a business organisation. Today the emphasis has shifted and a curious new business aide, a short of combination ‘go between’ and public relations counsel, is now all important. His job… is to maintain good personal relations with the officials in the Economic Ministry, where he is an almost daily caller; he studies all the new regulations and decrees, knows how to interpret them in relation to his particular firm and is able to guess at what may be permitted or forbidden….He also develops special knowledge on how to camouflage private interests so that they appear to be ‘interests of the community’ or of the State.”
This last sentence in particular gives us a clue as to why so many critics, both conservative and progressive, misunderstand the dynamics of politicised economies: the need for each participant to manage appearances. Reimann neatly explained the new aesthetic imperatives:
“Businessmen must claim that everything they do, any new business for which they want a certificate…is in the interest of the national community… [I]t depends largely on political connections and influence whether and how far that claim will be regarded as justified…”
Likewise, government must adopt anti-business postures: he quotes an Economic Group memorandum to leaders of the clothing industry, which announced that “Leaders of enterprises who fail to comply with these regulations will be pilloried”. The televised ritual humiliation of millionaire bankers by parliamentary committees is part of this theatre, serving no other purpose than the assertion of government’s fictional hostility to the banking sector – an industry which is entirely the creature of government.
If these outcomes are familiar to us in the twenty-first century, we should be mindful of the eventual effects on business morale: the “self-respect and self-reliance which marked the independent businessman under liberal capitalism.” Any signs that we are entering the same feedback-loop of economic underperformance and more aggressive policy programmes should focus our attention on this model’s potential impact on both our quality of life and our civil rights. After all, the most basic element of both is quite simply our freedom of choice.