Kammer

Daily work for the Pelzer law firm was somewhat less rewarding than his early scholarship. Mises kept an eye out for more convenient career opportunities, and one came sooner than expected. His friend Victor Graetz, who was employed as an economic counselor at the local chamber of commerce, proposed Mises as his successor.

Storm Clouds

Meanwhile Austrian foreign policy had taken a fateful turn in 1908. A revolution in Turkey had smashed a theocratic establishment that had been unable to enact real reforms for decades, and swept into power a group of ambitious young men who came to be known as the Young Turks.42 These Young Turks pursued a radical reform program designed to make Turkey more like the secular democracies of the West. European leaders were amazed to see the Young Turks putting their ideas into practice so quickly.

Vienna Meeting of the Verein für Socialpolitik

These developments would surface over the next several years and would include two Balkan wars and the Morocco Crisis that preceded World War I, but in 1909, the world had not yet fallen apart. Mises enjoyed his new job at the Kammer and continued to pursue his other intellectual interests, including Böhm-Bawerk’s seminar and the discussion group he had founded with his friend Perels and others.

Breakthrough at the Kammer

At the end of January 1910, Mises finished a long report that had consumed his energies in the preceding months. He presented the report to a plenary Kammer meeting. In it he took issue with proposed legislation to increase corporate income-tax rates, to subject corporate managers to additional taxes, and to give the financial administration access to corporate bookkeeping.

Theory of Money

Despite his workday immersion in the details and intricacies of the Austrian tax policies, Mises had somehow managed to write a treatise on money and banking. He had written no articles for a year, focusing instead on the completion of his book. In mid-December 1911, he put the finishing touches to a manuscript with the title Theorie des Geldes und der Umlaufsmittel (Theory of Money and Fiduciary Media—misleadingly published in English as Theory of Money and Credit).

The Nature of Money

As a true disciple of Carl Menger, Ludwig von Mises began the presentation of his theory of money with an analysis of the nature of money itself. He then went on to deal with the determination of money’s purchasing power and with the impact of what he called Umlaufsmittel (fiduciary media) on the monetary system.

Integration of Value Theory and the Theory of Money

Although the new marginalist approach to the theory of value and prices had thoroughly transformed economic science, the theory of money had been left virtually untouched. Here Menger, Jevons, and Walras championed the same view as the classical economists, stressing that money is merely instrumental in acquiring “real” goods—goods which have some beneficial impact on human life—without itself being such a good.

Wieser’s Theory of Money

The first reaction from the Austrian camp came from Friedrich von Wieser, when he chose the value of money as the topic for his inaugural lecture at the University of Vienna on October 26, 1903. The lecture was published under the title “Der Geldwert und seine geschichtlichen Veränderungen” (The Value of Money and its Historical Changes).24 It was the first statement of Wieser’s ideas on how the theory of money related to the Austrian theory of value.

Mises’s Theory of the Value of Money

Wieser had not gotten everything wrong. Explaining the present value of money by reference to its past value was a crucial breakthrough in monetary theory. Wieser’s work inspired two young Vienna economists—Franz X. Weiss and Ludwig von Mises—to refine the raw idea and hammer out a new doctrine of the value of money.47

The “regression theorem,” as Mises later called it, would become one of the pillars of his monetary thought, but first, let us consider two related problems of Wieser’s version.