The Last Knight of Liberalism

Chapter 9. 1919

1 Jurij Krizek argues that these tensions were amplified during the war because of the compulsory centralization of the k.u.k. economy, which unilaterally benefited the industrial and financial establishment in Vienna and Budapest. See Jurij Krizek, “Die Kriegswirtschaft und das Ende der Monarchie,” R.G. Plaschka and K. Mack, eds., Die Auflösung des Habsburgerreiches (Munich: Oldenbourg, 1970), pp. 43–52.

2 For a previous Austrian attempt to enter into peace negotiations with the United States on the basis of a proposed new federal structure for Austria-Hungary, see Erik von Kuehnelt-Leddihn, Von Sarajevo nach Sarajevo (Vienna: Karolinger, 1996), p. 21.

3 Rudolf Sieghart, Die letzten Jahrzehnte einer Grossmacht (Berlin: Ullstein, 1932), p. 248.

4 See Christian Eckert, “Friedensverträge. II. Vom staatswissenschaftlichen Standpunkte,” Handwörterbuch der Staatswissenschaften, 4th ed. (Jena: Gustav Fischer, 1927), vol. 4, pp. 444ff., 515.

5 See Sieghart, Die letzten Jahrzehnte einer Grossmacht, p. 354.

6 See Mises, Nation, Staat und Wirtschaft (Vienna: Manz, 1919), p. 134; translated by Leland B. Yeager as Nation, State, and Economy (New York: New York University Press, 1983), pp. 164f.

7 Mises, Nation, Staat und Wirtschaft, p. 144; Nation, State, and Economy, p. 176.

8 Virtually all the higher officials in Bauer’s ministry—including Bauer himself—were Jews or of Jewish origin. On November 22, 1918 (Mises Archive 107: 55a) and again on January 11, 1919, the Vienna paper Reichspost insinuated that the ministry’s takeover by Bauer, “the Jew Dr. Richard von Schüller, a close relative of the recently deceased industrialist Taussig,” and Schüller’s subordinate “Jews Dr. v. Mieses, [sic] Dr. Broda, and Dr. Steiner” was somehow unacceptable. Yet the fact was, as the Wiener Morgenzeitung—a “Jewish National” newspaper—pointed out, that Mises and Somary were Austria’s most important currency theoreticians (see Mises Archive 107: 44).

9 Mises often met with Bauer, Lederer (director of the Staatskommission für Sozialisierung), and Schumpeter (who became finance minister in the Spring of 1919). See Mises Archive 53: 13.

10 Mises, Notes and Recollections (Spring Mills, Penn.: Libertarian Press, 1978), p. 77.

11 Alexandre Millerand, born 1859, French socialist, was originally radical; when in power, he limited his activities to moderate programs.

12 John von Miquel, 1821–1901, German statesman, originally was an extreme revolutionary; later he was described as one who had entirely surrendered his radicalism, and aimed only at “practical measures for improving the condition of the people irrespective of the party programs.”

13 Mises, Notes and Recollections, pp. 16–19. This passage is the only direct source from which we know about Mises’s role in preventing Otto Bauer and his wife Helene Gumplowicz from putting their Bolshevist plans into practice. Some collateral evidence is provided in a February 1919 letter to Mises from a certain Dr. Johanna Wallner. She sent him her telephone number and asked him to give Dr. Bauer her greetings. “Under present circumstances,” she writes, she does not want to bother (behelligen) Bauer with her affairs (see her letter dated February 16, 1919, Mises Archive 53: 30ff.). Thus she knew that Bauer was very busy in his government activities and that Mises was likely to see Bauer precisely in these busy times.

14 Before he changed his views on the question of socialization, Bauer had been the leader of the left wing of the Austrian socialists. Thereafter he increasingly shifted to the middle ground and reinforced his position within the party apparatus. See Norbert Leser, “Otto Bauer—Friedrich Adler—Max Adler,” Walter Pollack, ed., Tausend Jahre Österreich (Vienna: Verlag Jugend und Volk, 1974), vol. 3, p. 270.

15 The Socialization Commission in Germany first met on December 5, 1918 and also included the Austrian professors Lederer, Hilferding, and Schumpeter, as well as Theodor Vogelstein (a former chief executive in the war-socialist economy of Germany), the influential publisher Heinrich Cunow, labor-union leader Otto Hué, and the German professors Carl Ballod, Robert Wilbrandt, and Eduard Heimann, who acted as secretary general of the Commission. By March 1919, similar committees had been established not only in Vienna, but also in Dresden, Munich, and Stuttgart. See the very informative piece by neo-Spartakist Manfred Behrend, “‘Der Wandschirm, hinter dem nichts geschieht.’ Bildung, Tätigkeit und Ende der ersten deutschen Sozialisierungskommission,” Glasnost (1998); and the literature quoted therein.

16 See Sozialisierungskommission, Vorläufiger Bericht über die Frage der Sozialisierung des Kohlenbergbaues (Berlin, February 15, 1919); quoted from Behrend, “Der Wandschirm, hinter dem nichts geschieht.”

17 Such plans had already been discussed during the war at a meeting of the Verein für Socialpolitik on October 14, 1916 in Berlin. Heinrich Herkner had championed the idea of solving the problem posed by the huge war debts through a one-time confiscatory tax. Alfred Weber, who at the time worked for the German Treasury, fiercely opposed any discussion of the issue because it would jeopardize the government’s attempt to sell war bonds. See Franz Boese, Geschichte des Vereins für Sozialpolitik, 1872–1932 (Berlin: Duncker & Humblot, 1939), p. 153.

18 See ibid., pp. 160f. See also Lederer’s paper in “Verhandlungen des Vereins für Sozialpolitik in Regensburg 1919,” Schriften des Vereins für Sozialpolitik 159 (1920); and Alfred Amonn, Hauptprobleme der Sozialisierung (Leipzig: Quelle & Meyer, 1919). Amonn belonged to the German-Austrian Staatskommission für Sozialisierung.

19 Some evidence for his involvement is in correspondence with Frau Fischer, his secretary at the Kammer. See the July 1919 correspondence Mises Archive 53: 40. Mrs. Fischer wrote to Mises after his departure to Bad Gastein, where he would spend his summer vacation.

20 Mises, Nation, Staat und Wirtschaft, p. 140; Nation, State, and Economy, pp. 171. The Austrian experience prepared him well for the American discussion of capital levies of the early 1940s. See his comments in “Report of After-Dinner Discussion, July 30, 1941 on The Prospects for and Extent of A Capital Levy,” Grove City Archive: Trusts and Estates file.

21 See Mises, Nation, Staat und Wirtschaft, p. 119; Nation, State, and Economy, pp. 146f. fn.

22 Mises to Emil Lederer, letter dated October 21, 1919; Mises Archive 73: 58.

23 Gesellschaft der österreichischen Volkswirte; “Die politischen Beziehungen Wiens zu den Ländern im Lichte der Volkswirtschaft.” See Mises Archive 107: 20a, 55. The speech was subsequently published in Neues Wiener Tagblatt and Wirtschaftspolitisches Archiv and struck a nerve with the general public. Herr Roth-Seefrid, a businessman and lawyer who knew Austria as well as he knew the back of his own hand, wrote to Mises: “I would hope that the essay was circulated widely in Germany, where, I must unfortunately admit, a frighteningly unclear impression of the Anschluss and the like reigns” (Mises Archive 74: 2; translation mine). Roth-Seefrid lived in Berchtesgaden. Mises might have met him there on vacation, for example in August 1927 (Mises Archive 62: 6).

24 See “Über die im Hinblick auf das Fortschreiten der Geldentwertung zu ergreifenden Massnahmen” (On the measures to be taken on behalf of the decreasing value of money) in Mises Archive 109.

25 “Über die im Hinblick auf das Fortschreiten der Geldentwertung zu ergreifenden Massnahmen,” p. 1 in Mises Archive 109: 2.

26 “Über die im Hinblick auf das Fortschreiten der Geldentwertung zu ergreifenden Massnahmen,” p. 6 in Mises Archive 109: 7.

27 See Mises Archive 74: 11ff. Much later, in February 1924, Karl Polanyi sent Mises his paper “Sozialistische Rechnungslegung” which had been published in the Archiv 49 (1922) and asked Mises for an offprint of his critique of this article. Polanyi by then lived in the 7th district in Vienna. His letter did not sound very clear (see Mises Archive 80: 87).

28 See Christian Eckert, “Friedensverträge. II. Vom staatswissenschaftlichen Standpunkte,” p. 511.

29 Mises, “Der Wiedereintritt Deutsch-Österreichs in das Deutsche Reich und die Währungsfrage,” Michael Hainisch, ed. Wirtschaftliche Verhältnisse Deutsch-Österreichs (Schriften des Vereins für Sozialpolitik, vol. 158; Leipzig: Duncker & Humblot, 1919), pp. 155.

30 F.A. Hayek, Profit, Interest, and Investment and Other Essays on the Theory of Industrial Fluctuations (London: Routledge & Kegan Paul, 1939), pp. 63f., n. 1.

31 Mises believed and continued to believe for some time that these popular anti-German laws would prove to be short-lived. On May 9, 1919 he took part in a conference sponsored by the Währungsschutz association dealing with the Austrian position in the forthcoming peace negotiations (see Mises Archive 107: 22, 44b). In his comment, which was widely publicized, he stated that the Allies had rejected Russia’s refusal to pay the government debts of the old Czarist regime. On the same grounds, therefore, they would have to reject the demands of the new Czechoslovakian, Polish, and Yugoslavian governments, which sought to repudiate debts incurred under the Habsburg monarchy. This would be in accordance with a time-honored principle of international law. Any other stance on this issue would jeopardize international trade, thus harming the Allies’ own interests. However, this impeccable argument did not prevent the Allies from siding with the Slavic successor states. Hatred is often stronger than self-interest.

32 “Die Abstempelung der Kronennoten im jugoslawischen Staate,” Neue Freie Presse (#19536; January 14, 1919); copy is in Mises Archive 106. Such anonymous pieces were often signed by “a leading monetary politician.” Mises’s authorship is evident from the writing style and vocabulary, as well as from the fact that these pieces are kept in common files (the custodians of the archive in Moscow worked diligently in preserving the “natural” order of the files that they had received from their owner).

33 He wrote that:

the money problem, at the moment of the dissolution of the Austro-Hungarian Monarchy, was merely a technical problem of printing, and the question how to obtain printing-plates, banknote-paper and printing-ink appeared for the moment the most important points of currency policy. (Ludwig von Mises, “Republic of Austria. Banking and Finance,” Encyclopedia Britannica, 12th ed. [1921], vol. 30, pp. 348f.)

34 Graetz’s letter to Mises, dated January 16, 1919; Mises Archive 53:1.

35 The article was signed “von einem hervorragenden Währungspolitiker” (from the pen of a leading monetary politician) in Neue Freie Presse (February 11, 1919); see copy in Mises Archive 107: 39.

36 Mises probably commented on this event too in a piece for Neue Freie Presse. See Dub’s February 25 letter in Mises Archive 53: 16.

37 This is the paper already quoted as “Der Wiedereintritt Deutsch-Österreichs in das Deutsche Reich und die Währungsfrage,” pp. 145–71. Austria’s “re-entering” into the German Empire refers to the years before 1867 when its Kronländerwere part of the Deutscher Bund (German Federation). The Bund had been established under the leadership of the house of Habsburg as a post-Napoleonic-wars successor organization of the Holy Roman Empire of German Nations, which had disappeared in 1806. The Bund ended in 1867 when Prussia defeated it in a short war (battle of Königgrätz).

Mises finished this work in early July 1919, but he circulated a previous version in the wake of his activities in early 1919; see Staatssekretär Urban’s letter dated March 5, 1919, which refers to this article, in Mises Archive 53: 29.

38 Mises, “Der Wiedereintritt Deutsch-Österreichs in das Deutsche Reich und die Währungsfrage,” pp. 153f. See also his presentation in Mises, “Republic of Austria. Banking and Finance,” pp. 348f.

39 See Mises Archive 107: 23.

40 This is Emil Lederer commenting in correspondence on Mises’s paper “Zahlungsbilanz und Wechselkurse” (Balance of payments and exchange rates). See Mises Archive 73: 57.

41 In those days of heated activity, Mises was often asked to deliver on the same day, and seems to have complied (see Mises Archive 53: 16, for an article on the implications of Czech monetary policies in late February 1919).

42 See Graetz’s letter dated March 8, 1919; Mises Archive 53: 44. In the same vein, Mises was also invited to contribute monetary analyses to Dorn’s Volkswirtschaftliche Wochenschrift, a weekly economics journal edited by a former colleague from the Wissenschaftlichen Comité für Kriegswirtschaft. See the editor’s letter dated January 27, 1919 in Mises Archive 53: 54. The editor also invited him to lecture before the Frauenklub on “Socialization and Economic Planning.” Two weeks before, Otto Neurath had given a talk on this subject, and Mises would provide the antidote.

43 For example, in the lecture he gave on May 2, 1919 on “Means and Ends of Currency Policy” (see Mises Archive 53: 12), he addressed the members of a commerical association. The talk was apparently very successful and dealt a heavy blow to the inflationist party (see newspaper reports in Mises Archive 107: 21, 44a). Mises gave many more talks of this nature during the year, for example, at a common meeting of Austria’s chambers of commerce in October 1919 (see Mises Archive 107: 44c).

44 “Die Quantitätstheorie” and “Zahlungsbilanz und Wechselkurse.” Copies of both papers are in Mises Archive 39.

45 Mises, “Der Wiedereintritt Deutsch-Österreichs in das Deutsche Reich und die Währungsfrage,” p. 156.

46 Ibid., pp. 156f.

47 Ibid., p. 164.

48 Ibid., p. 165.

49 The conference took place on November 11, 1919. See the newspaper report in Mises Archive 107: 44d.

50 Wilhelm Rosenberg was already known as a writer on currency problems. See his Valutafragen, 2nd ed. (Vienna: Manz, 1918).

51 Mises, “Über die im Hinblick auf das Fortschreiten der Geldentwertung zu ergreifenden Massnahmen,” p. 7; Mises Archive 109: 8.

52 Ibid., pp. 2f. (Mises Archive 109: 3f.). Without knowing it, Mises had spelled out here an idea that, many years before him, Carl Menger had stated in a private note, saying that ideas must run their course. F.A. Hayek discovered this note at the beginning of the 1930s, when he worked on a new edition of Menger’s works. Mises later referred to this note in his The Historical Setting of the Austrian School of Economics (Auburn, Ala.: Ludwig von Mises Institute, [1969] 1984), pp. 36f.

53 On the 1920 reform of the law see Bundeskammer and Wiener Kammer der gewerblichen Wirtschaft, eds., 100 Jahre Handelskaminern in Österreich (Vienna: Amtsblatt der Bundeskammer der gewerblichen Wirtschaft, 1948), pp. 143ff.; Franz Geissler, “Die Entstehung und der Entwicklungsgang der Handelskammern in Österreich,” Hans Mayer, ed., Hundert Jahre österreichische Wirtschaftsentwicklung, 1848–1948 (Vienna: Springer, 1949), pp. 110ff.

54 For his involvement with the export academy see Mises Archive 53: 3. The export academy would later become the Hochschule für Welthandel and then the Wirtschaftsuniversität, under which name it is still known today.

55 Schumpeter to Mises, letter dated December 9, 1918, Mises Archive 51: 130f.

56 Most of the same members assembled for a summer seminar on the issue of free trade versus protectionism. Among the participants was apparently Siegfried Rosenbaum, the president of the Anglo-Oesterreichische Bank and sponsor of Walter Federn’s Österreichischer Volkswirt. See Rosenbaum’s September 1919 letter (Mises Archive 53: 33f) in which he expressed his wish to attend soon another seminar with Mises and Fräulein Dr. Sommer.

57 See Mises Archive 17: 25.

58 Starting in 1919, the University of Vienna offered a new degree in government sciences with a strong emphasis on economics. Students had to attend six semesters of courses in economics, public finance, economic history, statistics, general theory of the state, public administration, and international law. To obtain the Ph.D. in government sciences, they then had to write a dissertation and undergo “two thorough exams.” See Amtsblatt der Universität Wien 6, no. 9 (June 1919).

59 This last group met on Monday evenings on the premises of the Staatskommission für Sozialisierung. Most of its members were Marxists or people with communist leanings such as Lederer and Käthe Pick; see Pick’s letter to Mises in Mises Archive 53: 50. Pick had been a member of Mises’s seminar already during the 1918 theoretical exercises in the economics of banking. See her correspondence with Mises in Mises Archive 51: 85, 53: 50. She also took part in his subsequent university seminars.

60 See Mises, Erinnerungen (Suttgart: Gustav Fischer, 1978), p. 11; Notes and Recollections, p. 16. The only exception he refers to was Otto Bauer, see above.

61 See Mises Archive 17: 37. Ephrussi was probably the heiress to the Ephrussi Bank. Margit von Mises mentions Ludwig’s occasional joking remark that he could have married a rich heiress had he not met Margit. He was probably referring to Elisabeth Ephrussi. See Margit von Mises, My Years with Ludwig von Mises, p. 19.

62 Margit von Mises, My Years with Ludwig von Mises, 2nd enlarged ed. (Cedar Falls, Iowa: Center for Futures Education, 1984). On Mises’s private seminar, see pp. 201–11. See also Notes and Recollections, pp. 97–100; Martha Steffy Browne [or Martha Stefanie Braun], “Erinnerungen an das Mises-Privatseminar,” Wirtschaftspolitische Blätter 28, no. 4 (1981).

63 One of Marianne Herzfeld’s letters (October 1, 1919, in Mises Archive 53: 9ff.) is most revealing in this regard. Fräulein Herzfeld’s parents were acquainted with Mises and had him occasionally at their house for dinner.

64 Machlup to Walter E. Spahr, letter dated October 24, 1940; Hoover Institution: Machlup-Mises correspondence file. Spahr was the head of the economics department of New York University. Machlup’s letter was confidential.

65 April 1929 letter of Mises to the Rockefeller Foundation, in Mises Archive 62: 125. In May 1931, Schams was a Sektionsrat in Vienna. Before that, he must have spent some time in Paris, maybe on a Rockefeller Fellowship; see ibid. 73: 13f.

66 The Österreichische Wirtschafts-Psychologische Forschungsstelle, of which Mises was a board member.

67 See Mises Archive 67: 7.

68 It is in this regard very revealing to compare Murray Rothbard’s biography of Mises (Ludwig von Mises: Scholar, Creator, Hero [Auburn, Ala.: Ludwig von Mises Institute, 1988]) with Rudolf Métall’s biography of Kelsen (Hans Kelsen ).

69 Othmar Spann’s lecture was printed in the same year under the title Vom Geist der Volkswirtschaftslehre (Jena: Gustav Fischer, 1919), and later reprinted as an appendix to Fundament der Volkswirtschaftslehre, 3rd ed. (Jena: Gustav Fischer, 1923).