1926 Journeys

The 1926 congress of the International Chamber of Commerce took place in the United States, and Mises made his way across the Atlantic for the first time. He left by way of London, where he met Cannan and Robbins at a critical juncture in the history of LSE's economics department. Lionel Robbins had returned to LSE from Oxford the previous fall and his continued interest in Austrian economics and in Mises's work in particular would become highly important in the coming years.

Mises in 1926

Edwin Cannan, however, offered less promising news. He was about to retire, and LSE's management planned to hire the Harvard professor Allyn Young as his successor. Young was known as a diehard positivist, and he was expected to make the economics department a center for the transformation of economic science into applied mathematics. This had been a longstanding plan of the socialist founders of the school, and of the New York-based Laura Spelman Memorial, which donated large sums to LSE for research on the “natural bases” of economics.³,⁴ Mises must have seen dark clouds over London as he sailed for New York. Eventually, however, two events slowed the pace of LSE's transformation: Young's unexpected death in 1929, and Lionel Robbins's conversion to Austrian economics.

Mises remained in the States for about two months.⁵ Besides his participation in the ICC meeting, he made various public appearances, which at least in part had the purpose of attracting U.S. investors to Austria. By the time of Mises's visit, Austria was enjoying a good press in the United States thanks to the public-relations efforts by Mises and others. He must have noticed with satisfaction that the U.S. Department of Commerce circulated reports stating that Austria

during 1925 maintained in general the advance made in 1924 and in several respects made considerable progress—especially in fiscal, currency, and credit matters—according to the annual report of the Board of Directors of the Austrian National Bank.⁶

In New York City, he also met the leadership of the Rockefeller Foundation and seems to have made an excellent impression. The timing could not have been better, for shortly after Mises's return to Vienna, Friedrich von Wieser died and Mises became the foundation's main contact among Vienna's economists.⁷ He later recalled that the Rockefeller Foundation had “taken a kind interest in my teaching and research work.”⁸ In Austria, Mises had a decisive influence on the selection of the future Rockefeller Fellows. When he moved to Geneva, the foundation paid his salary at the Graduate Institute for International Studies, and when he eventually moved to the United States, the foundation provided again the lion's share of his income during the first four years.

The acquaintances he made in New York had made his trip a splendid success, but the reactions of academic audiences must have been disappointing. In American universities, there was a marked lack of interest in theoretical work and exaggerated hopes for empirical research, particularly in statistical studies.

Mises had already noticed, in meetings of the International Chamber of Commerce, an ever-greater number of American representatives championing interventionist views. His stay in the United States confirmed his impression that Americans were abandoning liberalism. Back in Vienna, he summarized his impressions in several lectures, in particular in a talk on “Changes in American Economic Policy,” which he delivered in November 1926 before a relatively small circle of top Austrian entrepreneurs in the Industrieller Klub. In December he lectured to a larger audience on the less sensitive topic of “America and the Reconstruction of the European Economy.”⁹

On the ship back to Europe, Mises read the proof pages of his “Sozialliberalismus” and was already planning his longer work on interventionism, which he eventually delivered at an October conference in Rotterdam.¹⁰, ¹¹ Before leaving for the Netherlands, however, he attended two conferences: John Maynard Keynes's lecture at the University of Berlin and the 1926 plenary meeting of the Verein für Sozialpolitik in Vienna.

Mises traveled to Berlin sometime in early September 1926.¹² Keynes's lecture was based on his book, The End of Laissez-Faire, which had been published two months earlier. In the mid-1920s, Keynes already enjoyed an excellent reputation in Germany. He had been among the first western intellectuals to criticize the Treaty of Versailles, which in his view was a manifesto of shortsighted vengefulness. He also thought it was impossible to implement in practice.¹³ Thereafter, his writings were eagerly translated into German, and several German economists attended his courses in Cambridge. Mises later recalled that Keynes was himself influenced by the katheder socialists, who he eventually “outdid... in many points.”¹⁴ His new book would endear Keynes even more to the German public, especially to his German colleagues, who had cultivated a tradition of criticizing what they believed to be the many shortcomings of liberty.¹⁵

John Maynard Keynes

The End of Laissez-Faire reads like a parody of anti-liberalism. For example, Keynes listed several features of real-world economies that did not fit the model of “perfect competition,” and then went on to claim that these were problems for laissez-faire rather than for the perfect-competition concept itself.¹⁶ Anticipating the views he would expound in more detail ten years later in his General Theory, he argued that many of “the greatest evils of our time are the fruits of risk, uncertainty, and ignorance,” as if these would be banished by socialism or interventionism. Keynes did not seem to realize how absurd this diagnosis of “contemporary” social problems was.

To cope with the universal problems of human existence, Keynes advocated the following policies: (1) “deliberate control of the currency and of credit by a central institution,” (2) “collection and dissemination on a great scale of data relating to the business situation, including full publicity, by law if necessary, of all business facts which it is useful to know,” (3) complete control of savings and investment, and (4) control of the population. This last point required, according to Keynes, that the government try to control both the number and the quality of its population—much as a breeder controls livestock.¹⁷

Mises was thoroughly unimpressed by Keynes's case against laissez-faire. As he later wrote in a review of the event, the intellectual significance of Keynes's book was negligible. Its author had merely restated arguments that had been advanced and refuted many times in the past.¹⁸ What made Keynes important were his personality and the prestige he enjoyed from his status at the University of Cambridge. This prestige had been further enhanced by his critique of the Treaty of Versailles, which had gained him an international reputation as an impartial observer.

When Mises returned to Vienna, Richard Schüller caused a scandal at the Verein für Sozialpolitik through his account of the cause for growing unemployment in Germany and Austria.¹⁹ He argued that the permanent unemployment resulted from the consolidation of political power for both labor unions and entrepreneurs. Organized labor and organized capital had eclipsed the self-healing processes of markets, which involved falling prices and wages rates.²⁰ These statements offended many of the assembled economists, but it was no longer taboo to bring them up. The Verein moved slowly, but it was moving in the direction of the free-market radicals. This intellectual change was reflected in the improved social standing of former outcasts such as Mises. Even left-wingers such as the young Adolf Löwe in Kiel now maintained friendly relations with the Vienna champion of laissez-faire.²¹