Germany’s Master Plan by Joseph Borkin and Charles A. Welsh – 1943. An Introduction by Thurman W. Arnold – Assistant Attorney General heading the Antitrust Division of the U.S. Department of Justice.
This book is a brilliant and arresting exposition of the results of the disease of cartelization. In all commercial civilization great industries rise out of initiative and superior efficiency. At a certain stage in their growth, hardening of the arteries takes place. Industrial leaders believe that the time has come to rationalize and stabilize production. Restricted production, high cost, and low turnover become the order of the day. To maintain that order, new industry must be kept out of production and old industry must not produce too much because, according to this order of new ideas, too much goods is not wealth but distress goods and an undesirable surplus. Prices and production become fixed at levels which will pay dividends on an existing capital structure. Industrial progress becomes sluggish and then stops. The productive capacity of the nation is curtailed. It is an order of ideas that can produce neither wealth in peace nor strength in war.
There is no short way of defining a cartel. For present purposes we may describe it briefly as a small ring of producers or distributors who have acquired control of domestic or foreign markets. That control is justified as a rationalization of industry management for the purpose of expert economic planning. It is used, however, to crush new enterprise and to prevent maximum production.
The first symptom of cartelization is an unbalanced exchange between industry which is restricting production and unorganized farmers and small businessmen who are unable to restrict production. The farmer becomes unable to buy enough industrial goods to keep factories running. Labor is laid off, thus restricting purchasing power further. Goods pile up in domestic markets because they cannot be distributed at the artificial levels maintained by the cartel. People begin to talk about over-production, even in the face of scarcity in terms of actual need.
The next symptom is the attempt of the domestic cartels to control foreign markets so that the nation can get rid of this so-called over-production, this inconvenient wealth that threatens an artificial price structure. International cartels are formed, dominated by private groups without public responsibility, who control the foreign economic policy in the interests of international scarcity. With the growth of these international cartels democracy becomes a shell which conceals the power of private groups. Political freedom cannot exist except when it is founded upon industrial freedom. If a private group controls a man’s livelihood it can control both his actions and his philosophy.
And so with the progression of the disease of cartelization. A new political philosophy arises justifying centralized planning of production and distribution. The competitive race for efficiency which is symptomatic of a young and vigorous commercial organization is denounced as waste.
Socialists eagerly advocate this new order. Their only quarrel with industrialists is in the selection of those who will manage the brave new world. Socialists want to recruit the managers from the ranks of the academic thinkers sympathetic with the underdog. Industrialists want to choose them from the cartel leaders. Both groups are ready to abandon industrial democracy. Thus a culture that is willing to embrace a political dictatorship spreads over the thinking of the Nation.
In the first stage of this struggle between socialists and cartel managers the industrialists win because they start out in the seats of power. They fail to maintain that power, however, because their policy of stabilizing prices at home prevents the distribution of goods–creating idle capital and idle labor–want in the midst of plenty. Before Hitler’s rise to power, Germany had reached a stage under private cartelization when agricultural products, though scarce, sold at ruinously low prices. Industrial products, though plentiful, could not be distributed in Germany. The wheels of industry stopped. There was a minimum of 7,000,000 unemployed.
When private industry fails to distribute goods, Government is compelled to step in. Deficit financing, subsidies, and huge relief rolls grow with alarming rapidity. In this stage the writers and thinkers of a socialistic tinge flood into Government with dreams of a new world arising out of the collapse of capitalism. But, unfortunately, for socialistic dreamers the techniques of acquiring and holding power in times of economic chaos require individuals of a tougher and less humanitarian mould. In other words, only a Hitler had the ruthlessness and cold cruel realism to consolidate a position out of the collapse of the German economic structure which the cartels brought about.
And thus the vast centralized cartel organization of Germany became a tool in the hands of a dictator who no longer operated for private profit but solely to serve a ruthless ambition. The cartels of the democracy were easy dupes. Hitler was able to aid them in restricting their own production, while Germany’s production went ahead by leaps and bounds.
The soft opulent business organizations of England and America were intent on the pursuits of their short-run policies of restricted production, high costs and low turnover. They saw in German cartels an ally, not an enemy.
To such international cartels we owe the peace of Munich. To our own cartels we owe the failure to expand American industry prior to Pearl Harbor. To the interests of these cartels in stabilizing prices and restricting production we owe our present scarcity in all basic materials.
To a large extent our present industrial unpreparedness of this war is due to the fact that Germany through international cartels built up its own production and assisted the democracies in restricting their production in electrical equipment, in drugs, in chemicals, in basic war materials such as magnesium and aluminum. International cartels with the active assistance of American interests have operated to deprive us of markets in our own hemisphere by giving them away to Germany.
We are now faced with the necessity of making our industrial democracies so efficient that we can win this war, which is essentially a war of industrial production. Our cartel structure has weakened us spiritually by introducing an alien philosophy which leads us to distrust our own economic traditions. It has weakened us materially by making us afraid of full production because it creates surpluses which cannot be distributed after the war.
We must, if we are to fight this war with enthusiasm for our own way of life, destroy both the philosophy and the private power of domestic and international cartels over foreign and domestic economic policy. At such a time this book should be read by everyone interested in the economic future of America.
No other book that I know of analyzes in such vivid detail the growth and activities of international cartels. The writers have studied the cartel problem not only from books but from first-hand information and observation. Mr. Joseph Borkin has been for many years Economic Advisor to the Antitrust Division, Department of Justice, particularly in relation to foreign international cartels. The fact that the public is now aware of the international cartel structure is in a large measure due to his work. Mr. Welsh is an authority on international trade and finance, and is a cartel expert for the Office of Price Administration. Both of them have shown exceptional ability in this particular field.
While of necessity the emphasis of this book is upon the war problem, I would suggest that the reader consider it in light of the long-run economic policy for America. We cannot turn over our future economic policy to private groups without public responsibility as we have done in the past. We not only must win the war but the peace which follows. We cannot win the peace if the cartel problem remains unsolved.
I must conclude this introduction with a caveat because of my official position. The research and conclusion the writers of this book have been done outside of their official duties in the Government. They have not been checked or approved in any official way.
Thurman W. Arnold
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The Silent War 