Through most of the twentieth century, a serious ideological debate connected to the Cold War pitted capitalist democracies against socialist dictatorships. While the debate encompassed both political and economic systems, on the economic side of things, economists depicted economic systems as falling on a continuum between capitalist market economies and socialist centrally planned economies. At one end of the continuum were pure market economies based on private ownership and voluntary exchange. At the other end, the means of production were owned by government, and economic activity was centrally planned. Real-world economies were depicted as mixed economies, some closer to the capitalist end of the continuum and others closer to the socialist end.1
As the Cold War emerged out of World War II, the proponents of capitalism and free markets saw socialism as a threat to free markets and to freedom more generally. Hayek (1944) called socialism the road to serfdom. Schumpeter (1947, 61), a proponent of capitalism, said “Can capitalism survive? No. I do not think it can.” Schumpeter’s argument was that the people who most benefited from capitalism would not stand up to defend it. Instead of supporting free markets, capitalists were asking government for subsidies, tax breaks, and regulatory benefits that would protect them from market competition. Meanwhile, the proponents of socialism were advancing their agenda, pushing the mixed economy further away from the capitalist end of that continuum of economic systems toward socialism.
That was the state of the intellectual debate on economic systems when Charlotte Twight published her America’s Emerging Fascist Economy (1975). The book fits uneasily into that intellectual debate for a few reasons. First, fascism is not a combination of capitalism and socialism. It is a distinct economic system. Fascism is based on private ownership of businesses. It is not creeping socialism, in which government takes ownership of an increasing share of the means of production. However, government directs economic production in a fascist economy, so it is not free-market capitalism. Because Twight describes an economic system that does not fall neatly on that capitalism– mixed economy–socialism continuum, her book did not fit neatly within the Cold War ideological debate that was raging when the book was published.
A second reason, perhaps more significant than the first, is that the term “fascism” was clearly associated with Nazi Germany and pre–World War II Italy. In the Cold War era, which pitted Western bloc capitalist democracies against Eastern bloc socialist dictatorships, those in the Western bloc would have been reluctant to admit any relationship between the American economy and that of Nazi Germany. Americans might have viewed any support for the book’s thesis as unpatriotic, and the title itself might have dissuaded Americans from even considering the book’s ideas.
The book is a serious piece of scholarship and deserves thoughtful consideration. That means understanding what constitutes a fascist economy and the degree to which the American economy of the 1970s had those characteristics. Now, fifty years after the book’s publication, it also is worth considering the contemporary relevance of Twight’s warning. The book is, indeed, a warning—and was intended to be one.
The Fascist Economy
Twight’s first chapter, titled “Fascism’s Economic Tenets,” describes fascist economic policies. Calling fascism “capitalistic collectivism . . . which endows a group of ‘collective’ rights superior to the rights of the individual” (1975, 14), Twight writes that “fascism is not philosophically committed to the principles of capitalism. Private property and profits are regarded as useful incentives only in areas where the government has not directly usurped total economic control” (1975, 17).
She says, “Fascism is unique among collectivist systems in selecting capitalism as its nominal economic mate” (1975, 16). Discussing fascism’s economic policies, she continues, “economic activity can serve either of two fundamentally incompatible purposes. It can work to satisfy consumers’ actual demands for goods and services in the least costly way possible, or it can be used to accomplish the social goals of designated political leaders with only perfunctory regard for economic costs or consumers’ wishes. The former approach is implicit in a market economy; the latter is embraced by all totalitarian political systems including fascism” (1975, 17).
Twight explains that the fascist state first takes control of a few “vital” industries and gradually expands its scope of control, disregarding consumer demands to promote political goals. The fascist state takes control over the money supply, tending to create inflation, which leads to government-imposed wage and price controls. Mandatory government licenses for businesses enable the government to control firms without the appearance of coercion. Government decrees that require firms to produce goods at government controlled prices can put companies out of business or can be used to reward the well-connected. Fascism tends to lead to cartelization of industries as mandates, required licenses, and government administered prices favor insiders and well-connected firms.
Twight notes the authoritarian and nationalistic orientation of fascism. Despite private ownership of the means of production, the fascist economy is under government control and is organized to promote national interests rather than the interests of individuals. Fascism incorporates protectionist policies, as it must, because fascist organization reduces the efficiency and international competitiveness of firms. This leads to autarky—economic self sufficiency—because the fascist economy is not competitive internationally. That is something fascist leaders willingly choose as a part of their nationalistic agenda.
Twight writes, “To sustain its power and achieve its economic ends, fascism seeks to make its people economically and psychologically dependent on the government” (1975, 27). Businesses depend on government licenses; wages and prices are set by government; government contracts aid the profitability of favored firms; and rationing determines the availability of resources to consumers and firms.
Does this sound like a description of the American economy in 1975? Most of Twight’s book is devoted to providing evidence by describing legislation and court cases that advanced fascist economic policies. Her research is thorough and persuasive. Based on that evidence, Twight concludes, “by capitalizing on the government-fostered illusion linking self-interest to fascist economic policies, the United States government by 1975 has been able to establish fascist controls over virtually every aspect of economic life” (1975, 280).
Fascism and Other Isms
The programs, policies, and court cases Twight documents present a good factual case that the American government has been compromising the economic freedom of its citizens, taking increasing control over their economic lives. But one can ask whether that expansion of government into people’s economic lives fits the definition of fascism. Fascism is fairly loosely defined, both in Twight’s book and elsewhere. Meanwhile, critics of government economic policies, citing the same type of evidence, have referred to the resulting effects on the American economy—and other economies—as corporatism, clientelism, cronyism, favoritism, political capitalism, creeping socialism, and, more bluntly, extortion and corruption.
One might argue that these are just different words for the same thing, but setting aside labels, there are important nuances underlying these concepts that should be clarified. These other isms, to varying degrees, convey the impression of a government that favors well-connected insiders, imposing costs on those who are not well-connected. The political and economic elite cooperate for their mutual benefit, imposing costs on the masses. Fascism, as generally understood and as Twight describes it, is a system in which those who hold political power dominate those who engage in economic activity, using their power to subjugate economic activity to further the goals of the political elite.
Those other isms depict a system in which the political and economic elite cooperate for their mutual advantage. Fascism, in contrast, depicts a system that makes people’s economic activity subservient to the mandates of the political elite.2 Those engaging in economic activity are pawns who are coerced into subordinating their economic interests to the political mandates of their governments.
Twight’s book was written at about the time when public choice—the economic analysis of politics—was just entering the mainstream of economics, so understandably, she makes no reference to public choice ideas. If she had, she likely would have been critical of them, because public choice at that time tended to suggest that government policies were designed to satisfy citizen preferences. In volumes that remain relevant to public choice today, Downs (1957) explains how political candidates and parties adjust their platforms to conform to voter preferences, and Buchanan and Tullock (1962) develop a theory that describes how the institutions of constitutional democracy promote policies that further the general welfare.
Around the time when Twight’s book was published, public choice underwent a substantial transformation, away from describing how political decision-making tended to further citizen preferences toward describing ways in which political decision-making often resulted in inefficient policies that favor a few at the expense of the many. Holcombe (2023) describes this transformation. The pathologies of rent seeking, regulatory capture, bureaucratic inefficiency, and interest group politics became prime components of the public choice research program.
That development takes public choice partway toward providing a theoretical foundation for fascism, but only partway. These public choice ideas are more consistent with the other isms than with fascism. An argument can be made, however, that a fuller development of public choice models points, as Twight describes, toward an “emerging fascist economy.”
Public Choice Models
The theory of rent seeking was developed by Tullock (1967) but entered the public choice mainstream only after Krueger (1974) published her article that gave rent seeking its name. The term is somewhat misleading and would more precisely be called transfer seeking, because the rent is actually a transfer to the rent seeker from others. As the theory goes, rent seekers expend resources to compete with one another to win a rent. While some win, the resources expended by all the rent seekers who compete for the rent are wasted, resulting in a welfare loss.
The theoretical literature on rent seeking depicts it as a contest in which rent seekers devote resources toward winning a rent, with the rent going to the highest bidder. Congleton and Hillman (2015), in their overview of rent seeking, devote eight chapters of their edited volume to the theory of rent seeking, and all eight refer to rent seeking as a contest. Those models depict the behavior of the demanders of rents but, as Holcombe (2017) notes, rarely say anything about those who supply the rents.
Stigler’s (1971) theory of regulatory capture is similar to the rent-seeking literature in that it depicts government regulators acting to further the interests of well-connected insiders rather than serving the public interest. Also in similar fashion, Olson (1965) explains why smaller concentrated interests have an advantage over larger more dispersed interests and so are able to lobby government for benefits to themselves at the expense of the masses. Niskanen (1971) described the inefficiencies inherent in government bureaucracies.
Many theories that play a major part in the public choice research program depict a political process that favors concentrated and well-connected interests over the interests of the masses. That depiction is consistent with many of the isms discussed earlier but does not describe elements of political economy that are uniquely associated with fascism. Those theories were not intended to describe fascism, however. They were intended to describe rent seeking, regulatory capture, and the nature of interest group politics. So, one cannot fault the theories for failing to describe fascism. These public choice theories can be further developed in two ways to provide a theoretical foundation to explain the emergence of fascism. First, they can be extended to examine the long run incentives implied in those theories. Second, they can recognize the cumulative nature of the pathologies described in the theories.
Long-Run Incentives
Tullock (1975) explains that when rents are created for rent seekers, the rent seekers receive a temporary gain in the form of the rent, but over time the value of the rent dissipates as it becomes capitalized in assets that the rent recipients must own to receive the rent. In the long run, because the rent is dissipated, rent seekers earn just the normal rate of return they would have received had the rent never been created. Rent-creating policies are inefficient, but Tullock says we are stuck with them, because to reverse the process and eliminate the rent would create a transitional loss for the rent recipients. Those receiving the rents will engage in the political process to try to make sure they stay in place.
Tullock’s article makes one significant advance over the idea of rent seeking as a contest. In that framework, the rent seeking contest is held, someone wins the rent, and the process ends. Tullock recognizes that once created, rents tend to endure indefinitely. Consider, for example, the mandate that motor fuels must contain ethanol, which provides a rent to corn farmers and corn processors who produce most of that ethanol. That mandate was created in 2005, but it continues, year after year, as long as the mandate remains in place. Rents are not just a one-time prize.
Tullock says “we should try to avoid getting into this type of trap in the future. Our predecessors have made bad mistakes and we are stuck with them, but we can at least make efforts to prevent our descendants from having even more such dead-weight losses inflicted upon them” (1975, 678). Tullock is correct about the long-run costs imposed by the creation of rents, but they were not created by mistake.
Because the rent recipients become dependent on the continued flow of rents, the rent creators—legislators and regulators—now have a target they can extort to provide them with benefits and support into the future. The rent recipients are obligated to the rent creators, so the rent creators can continue to ask for payment in exchange for allowing the rent to continue.
This amounts to extortion on the part of the rent creators, as McChesney (1987; 1997) and Schweizer (2013) explain. Threats are not explicitly stated, but all parties understand how the process works. A legislator will remind the rent recipients, “We have always had a good relationship with your firm/industry, and we hope it continues.” Everyone understands what that means. If the rent recipients do not continue to pay off the legislators, the flow of rents will be terminated.
By digging deeper into the process, it becomes apparent that what initially appears as a benefit provided to the rent recipient by government is a mechanism for making rent recipients dependent on the government. Rent recipients lose their autonomy and must comply with government mandates or risk their survival. The same argument applies to regulatory capture and to interest group benefits from government more generally. The “captured” regulatory agency can reverse its policies if those who are regulated do not pay up in exchange for regulatory benefits.
Interest groups cannot expect government favoritism without giving something in exchange, and when those groups become dependent on those government policies, the implied threat of withdrawing favored treatment hangs over the interest group and pushes the rent-seeking economy toward fascism. Looking at these public choice theories from a longer run perspective shows that they lay the foundation for a shift in power toward the political elite by making economic activity increasingly dependent on government policy. That is the road to fascism.
The Cumulative Nature of Government Pathologies
These theories of rent seeking, regulatory capture, and interest group politics have been developed and presented in a static framework. A regulated firm captures the agency that regulates it. A rent seeker wins a rent. But these actions are cumulative. As the previous section noted, a rent, once created, tends to last indefinitely. The rent recipients become dependent on the rents, and the rent creators are able to use them to extort the rent seekers, shifting power away from the private sector toward the political elite.
The result is that the rents created today are added to the rents that remain from past rent creation. An increasing share of business profits comes from government connections rather than the satisfaction of consumer desires. As Olson (1982) observes, when old political connections are dissolved (Olson cites examples of post–World War II Japan and Germany), businesses seek profits by satisfying consumer demands, leading to what Olson describes as the rise of nations. As the political system matures, connections increasingly develop between economic and political interests, making it increasingly profitable for firms to engage in rent-seeking activities rather than producing value for consumers. As government becomes increasingly involved in managing the economy, that results in what Olson describes as the decline of nations.
That cumulative process that Olson describes depicts an economy that increasingly finds itself under the control of the political elite. An increasing share of private sector economic activity becomes dependent on government for its economic survival, leading the economy on the road to fascism.
Fascism or Political Capitalism?
Holcombe writes, “Political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. . . .
The elite cooperate to use their political and economic power to retain their positions at the top of the political and economic hierarchies” (2018, 1). Those public choice theories just discussed provide a foundation for describing political capitalism. The difference between political capitalism and fascism lies in the balance of power.
Political capitalism describes a system in which the political elite and the economic elite cooperate with each other. It is a system of mutually advantageous exchange and mutual support. Fascism describes a system in which those engaged in economic activity are subordinated to those who have political power. In either system, the political elite depend on private sector productivity for their support. Political capitalism depicts a process in which exchange between the political and economic elite is mutually beneficial. Fascism depicts a system in which private sector actors are subordinated to the political elite. What determines the balance of power?
Just as public choice theories fall short as an explanation of fascism, they also fall short as an explanation of political capitalism, because they do not recognize that participation in the pathologies described in the theories is open only to a small subset of the population. Most people are not in a position to compete for rents or to capture regulatory agencies. A long-established elite theory in the social sciences describes the division between elites and masses (Bentley 1906; Mosca 1939; Truman 1951; Mills 1956). Combining elite theory with public choice theory offers a more complete picture of the way in which an elite few are able to use political and economic institutions for their own advantage.
Fascism goes a step further to describe a system in which the bargaining advantage goes to the political elite, subordinating the economic elite. Twight makes a good case as she describes the fascist characteristics of the American economy in the 1970s, but fifty years later, while those same characteristics are present, the economy appears to more closely match political capitalism than fascism. One would be hard-pressed to argue that the economic elite have been subordinated to the political elite.
The reason is that fascism is a system of political economy. It encompasses both economic and political institutions. Twight describes the fascist nature of economic institutions, which have only become more extreme in the half century since she wrote. Building on Twight’s analysis, the economic prerequisites for fascism are in place. Fascism is being held in check because America does not have fascist political institutions.
The Quest for Power
There is a reason why fascist governments are led by charismatic authoritarian dictators. Democratic institutions require that those who hold political power are periodically subject to elections, and they could lose their power if challengers offer citizens what they perceive as a better alternative. That limits the ability of the political elite to subordinate the economic elite—but only if voters actually have a choice among credible alternatives when they arrive at the voting booth.
More significantly, democratic political institutions are characterized by a division of power, making it difficult for people who want to retain power to abuse it. Competing elites check and balance each other’s power. Internal checks and balances, along with elections, place constraints on the ability of the political elite to abuse their power.
One can see the significance of these issues in twenty-first-century Russia. Vladimir Putin was democratically elected but over time has managed to consolidate political power so that reelection is merely a formality, and there are no competing elites. Those who would dare challenge Putin’s supremacy find themselves falling to their deaths from sixth-floor hotel windows, being poisoned or imprisoned, or having their private jets shot down. As Putin has consolidated power, Russian oligarchs have come to understand that their positions depend on Putin’s approval. Economic activity in Russia has been subordinated to Putin’s political agenda. Fascism has emerged in the Russian economy, even if it has been held at bay in America.
The U.S. government has a reasonably well-functioning system of checks and balances that prevents any one person from dictating economic policy. Members of the political elite compete with one another for power and negotiate with the economic elite to gain their support. That division of power, and the checks and balances built into the U.S. Constitution, limit the degree to which members of the political elite can subjugate the economic elite. Members of the economic elite can easily shift their alliances to members of the political elite who can offer them a better deal. Members of the American economic elite have political bargaining power, whereas those in fascist economies do not.
That balance of power, which prevents American political capitalism from evolving into fascism, may be more fragile than is commonly recognized. Schlesinger (1973) wrote about what he described as the imperial presidency: the growing power of the American presidency in the twentieth century. The power of the presidency increased substantially during Franklin Roosevelt’s terms in office, as he was able to amass power to address the Great Depression and fight World War II. That trend continued through succeeding presidents. Recall that Adolf Hitler was democratically elected. Putin was democratically elected. A charismatic and persuasive American president might be able to persuade citizens, and gain the support of other members of the political elite, to give the president dictatorial powers. It has happened in other nations.
Higgs (1987) notes that when nations face crises, citizens turn to government to address them, and the size and scope of government permanently ratchets up as a result. Coyne and Hall (2018) explain how the use of American power abroad comes back to oppress Americans at home. A perceived crisis coupled with a persuasive president could shift the balance of power to give the president dictatorial powers. As has happened in other countries, the elimination of competing elites could endow the president with the ability to subjugate the economic elite, producing a fascist economy. The economic prerequisites are already in place, as Twight described half a century ago. Presidential power has been gradually increasing since the Great Depression, with minimal backlash. A scenario that puts fascist political institutions in place to complete the process is not outside the realm of possibility.
One cannot count on restraint on the part of officeholders to prevent the emergence of American fascism. People go into politics because they want to exercise power over others. Galbraith writes, “In all societies, from the most primitive to the ostensibly most civilized, the exercise of power is profoundly enjoyed” (1983, 24). Adam Smith says, “The pride of man makes him love to domineer, and nothing mortifies him so much as to be obliged to condescend to persuade his inferiors” ([1776] 1937, 365). Bertrand Russell, in his Nobel lecture (1950), says, “In any autocratic regime, the holders of power become increasingly tyrannical with experience of the delights that power can afford. Since power over human beings is shown in making them do what they would rather not do, the man who is actuated by love of power is more apt to inflict pain than to permit pleasure.” Holcombe (2020, ch. 1) discusses in more detail why it is reasonable to assume that politicians are power maximizers.
America may be closer to a fascist economy than at first it appears. The economic institutions are in place. All it would take is the right combination of a crisis, coupled with a persuasive and power-hungry president, to embark upon the road to fascism.
Conclusion
Readers may have a tendency to discount Twight’s book because half a century after it appeared, few people would describe the American economy as fascist. But President Donald Trump’s critics have referred to him as a fascist and drawn parallels between Trump and Hitler, so the term has some contemporary relevance. Twight describes in detail the regulations, court cases, and public policies that are characteristic of fascist economies—elements of the economy that have only increased in the past half century. The idea of American fascism merits consideration, at least.
Meanwhile, there has been widespread discussion linking the American economy to other isms—corporatism, clientelism, cronyism, creeping socialism, statism—that have resulted in more government control over the economy. The essential difference between these other isms and fascism is that those other isms depict a political elite and an economic elite that cooperate with each other for their mutual benefit, whereas fascism is a system in which all economic activity is subordinated to the goals of the political elite. A key difference is the status of the economic elite. Those other isms view the economic elite as beneficiaries of the system, along with the political elite. Fascism depicts all economic activity as subordinated to the mandates of the political elite.
Fascism is an economic and political system, and Twight has shown that even in 1975, the American economy had characteristics of fascism. What was lacking then, and is lacking now, is the political component of fascism. Should a charismatic dictator assume power, the economic prerequisites are already in place to turn America into a fascist state. If this sounds implausible, remember that Hitler and Putin were democratically elected. Meanwhile, the power of the American presidency has continually increased over the past century, regardless of who has held the office. The warning signs are there, and Twight’s book helps illustrate the potential threats.
My own view is that American political institutions are robust enough to resist the consolidation of political power that fascism would require. Resistance requires constant vigilance, however. A complacent nation, faced with a crisis, could find itself swayed by a charismatic populist leader. That is what happened in the 1930s in Italy and Germany, in twenty-first-century Russia, and to some degree in the United States during Roosevelt’s presidency. With the economic prerequisites in place, a careless, cautious, and fearful America could find itself on the road to fascism.
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