In Human Action , Ludwig von Mises identified two patterns for the realization of socialism. The first, which he called “the Lenin or the Russian pattern” is “purely bureaucratic. All plants, shops, and farms are formally nationalized.” The second pattern, Mises said, is “the Hindenburg or German pattern,” and Mises claims that this was the means by which the Nazis established socialism in Germany.

Mises goes on to describe what this pattern of socialism looks like:

The second pattern . . . nominally and seemingly preserves private ownership of the means of production and keeps the appearance of ordinary markets, prices, wages, and interest rates. There are, however, no longer entrepreneurs, but only shop managers (Betriebsführer in the terminology of the Nazi legislation). These shop managers are seeming instrumental in the conduct of the enterprises entrusted to them; they buy and sell, hire and discharge workers and remunerate their services, contract debts and pay interest and amortization. But in all their activities they are bound to obey unconditionally the orders issued by the government’s supreme office of production management. This office (the Reichswirtschaftsministerium in Nazi Germany) tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. It assigns every worker to his job and fixes his wages. It decrees to whom and on what terms the capitalists must entrust their funds. Market exchange is merely a sham. All the wages, prices, and interest rates are fixed by the government; they are wages, prices, and interest rates in appearance only; in fact they are merely quantitative terms in the government’s orders determining each citizen’s job, income, consumption, and standard of living. The government directs all production activities. The shop managers are subject to the government, not to the consumers’ demand and the market’s price structure. This is socialism under the outward guise of the terminology of capitalism. Some labels of the capitalistic market economy are retained, but they signify something entirely different from what they mean in the market economy. (pp. 713-14)

Although a comprehensive study of the Nazi economy demonstrating that the Nazis did, indeed, fit the characteristics of this pattern of socialism would require a book, the easiest place to look for historical examples is the Reichsnährstand (the Reich Food Estate or Reich Food Corporation, depending on the translation), which took control of the entire German agricultural industry – one fourth of the entire German economy during the Nazi reign.

The Estate was founded in September of 1933, less than a year after the Nazis came to power, and it was headed by the Nazi Minister of Agriculture, R. Walther Darré. In his early propaganda, we can see Darré clearly demonstrating Mises’s observation that this pattern of socialism operates “under the outward guise of the terminology of capitalism.” Indeed, an anti-Nazi publication criticized the newly established Reich Food Estate for allowing Darré to decide

(1) Whether the farmer can cultivate his own property or whether he has to join an association. (2) What and how much he has to cultivate. (3) What and when he must sell. (4) To whom and at what price he must sell. (5) The price at which the buyer resells it.

Darré responded by saying that, although farmers had nationalistic obligations, they must be free. In a speech addressing these claims, he said:

We demand that each farmer freely submit to relentless discipline; we order him as a soldier in the battle for food – but we must give him freedom, so he can fulfill his national obligation. We can make strict economic and cultural demands only on farmers who live freely on their own soil . (emphasis added)

What Darré was referring to when he called for farmer “freedom” was not the freedom to use his property as he saw fit and to engage in voluntarily exchange, but, in fact, quite the opposite. As historian Clifford R. Lovin put it:

Darré felt that farmers were only free if they could till the soil without fear that this right could be taken away from them. One of the ways to guarantee this freedom was to withdraw the farmer from the free market, the fluctuations of which often reduced his income to a substandard level.

Here we see a claim that sounds like the guarantee of property rights, but in fact, Darré’s “guarantee” that the farmer will retain his land was based on a law that entirely removed property rights: the Hereditary Farm Law ( Reichserbhofgesetz). In this law, farmers were protected from having their land foreclosed on (which the Food Estate ensured by taking control of credit cooperatives), but they were also permanently legally bound to their land. According to this law, any plot of land above 308 hectares could never be divided, sold, or used as collateral for loans. Rather than protecting the rights of property, this law entirely removed the rights of farmers to do with their land as they pleased and effectively forced German farmers into a new form of serfdom in which the Food Estate served as the Feudal Lord. This was Darré’s concept of “freedom” and “property rights.”

Lovin also writes that the primary purpose of the Food Estate, according to Darré, was “to relieve the farmer of the uncertainties of a capitalistic market economy so he could serve his nation better as both a food producer and culture bearer.”

Although Lovin almost certainly was unaware of Mises’s characterization of “socialism of the German pattern,” he describes it quite clearly: “The varied duties and responsibilities of the corporation were to be administered by a vast, highly organized bureaucracy.” Subordinate to the bureau of the Food Estate itself were a multitude of sub-bureaus, such as the Policy Department, the Administrative Department, and the various Central Bureaus that controlled everything from agricultural education, credit practices, soil maintenance, forestry, household economy, animal husbandry, youth organizations, agricultural propaganda, exports and imports, and (of course) every agricultural product produced, which was each governed by its own sub-bureaucracy.

The “Market Bureau” consisted of an assortment of unions ( Hauptvereinigungen), “which included all individuals involved in the production, processing, and sale of one crop or group of crops.” Even though they were ostensibly independent, the unions “followed policy lines laid down by the Food Corporation.” Such policies were decided upon by an “administrative council” composed of “intelligent experts . . . who should work together on the formation of market conditions in responsible and imaginative ways,” and a “price board” that set the exchange rates for each commodity.

In more recent literature, historian Tiago Saraiva has written about the Food Estate’s Seed Decree, which exercised considerable control over the development and regulation of new strains of crops. New varieties of any crop had to be approved by a sub-bureau of the Food Estate, the Biological Imperial Institute for Agriculture and Forestry, before being allowed to go into cultivation. Out of the several hundred new varieties of seed that were inspected, only sixty-four were approved for German production and consumption, and those that were approved were given legally fixed prices. As Saraiva puts it, “it was not for the market to decide the value of a variety; such value was defined at the [Biological Imperial Institute] in accordance with the general food policy of the regime as established by the [Food Estate].”

In agreement with Lovin, Saraiva writes that “the truth is that the setting up of [the Food Estate], taking over the numerous pre-existent associations and societies of agriculture in Germany, by establishing fixed prices and controlling production, marked the end of the free market for agriculture in the country.” Neither Lovin or Saraiva would be considered capitalist apologists (extremely far from it, in fact), but they recognize, just as Mises did, that the Nazis paid only lip service to property rights, while in reality, they established a command economy that fully fits Mises’s description of “socialism of the German pattern.”