For what it's worth, in law, one part of the traditional insanity defense is an inability to recognize the nature or quality of one's acts, i.e., not knowing what you are doing or that it is wrong. The matter is subtle. One the one hand, Brad is right that there is a sort of stupid evil involving negligence or recklessness. But these are (again in law) less culpable mental states than knoledge, purpose, or (the state apparantly intended by Finkelstein) wilfulness, which is deliberately doing something that you know to be wrong. Surely you don't have to rise, or fall, to the level of willfulness to be culpable.
But I don't think that is what F really means. I think what he means is to attack a varient of cheap relativism: The Germans have different values, so we cannot judge them. Now Goldhagen clearly does judge them: the Germans up till the fall of Nazism are all exterminist Jew-hating psychos, bad people. however, F's worry is that we cannot, on G's theory, hold individual Germans morally responsible for specific crimes or omissions, rather than blaming all Germans for having bad values. So maybe the idea is, on G's theory, we can condemn German values as bad, but not judge individual German actions that were bad, because given those values, individual Germans couldn't help themselves.
The topic is an interesting one for moral psychology, poses useful puzzles. G's book, however, is worthless, and he's a joke as as a scholar, thinks you deal with academic critic by filing a libel suit.
* * *
If that was his point, it was badly expressed:
"The merit of his thesis, Goldhagen contends, is that it recognizes that 'each individual made choices about how to treat jews'. Thus, it 'restores the notion of individual responsibility'. Yet if Goldhagen's thesis is correct, the exact opposite is true. Germans bear no individual or, for that matter, collective guilt. After all, German culture was 'radically different' from ours. It shared none of our basic values. Killing Jews could accordingly be done in 'good conscience'. Germans perceived Jews the way we perceive roaches. They did not know better. They could not know better. It was a homogeneously sick society. Moral culpability, however, presumes moral awareness. Touted as a searing indictment of Germans, Goldhagen's thesis is, in fact, their perfect alibi. Who can condemn a 'crazy' people?"
Finkelstein's complaint (one of them, at least) is that Goldhagen does not have a theory of collective guilt...
Finkelstein also adopts the weird position that bad people must know at a conscious level that what they are doing is evil before they can be held morally culpable. That's plain weird: the most common source of moral fault is a failure to think things through...