Chapter 6 Mises in the 1920s: Teacher and Mentor

Since Mises was under severe restrictions in his teaching post at the University of Vienna, as noted above, his influence at university teaching was severely limited. While such outstanding Misesians of the 1920s as F.A. Hayek, Gottfried von Haberler, and Oskar Morgenstern studied under Mises at the university, Fritz Machlup was his only doctoral student. And Machlup was prevented from acquiring his habilitation degree, which would have permitted him to teach as a privatdozent, by anti-Semitism among the economics professors.³⁶

Mises’s enormous influence, as teacher and mentor, arose instead from the private seminar that he founded in his office at the Chamber of Commerce. From 1920 until he left for Geneva in 1934, Mises held the seminar every other Friday from seven to approximately ten o’clock (accounts of participants differ slightly), after which they repaired to the Italian restaurant Anchora Verde for supper, and then, around midnight, the seminar stalwarts, invariably including Mises, went on to the Cafe Künstler, the Favorite Vienna coffeehouse for economists, until one in the morning or after. The Mises seminar gave no grades, and had no official function of any kind, either at the University or at the Chamber of Commerce. And yet such were Mises’s remarkable qualities as scholar and teacher that, very quickly, his Privatseminar became the outstanding seminar and forum in all of Europe for discussion and research in economics and the social sciences. An invitation to attend and participate was considered a great honor, and the seminar soon became an informal but crucially important center for post-doctoral studies. The list of later-to-be eminent names of Miseskreis participants, from England and the United States as well as from Austria, is truly staggering.

Despite Mises’s reputation as an intransigent fighter for his beliefs, all participants testify that he conducted his private seminar as a discussion forum, with great respect for everyone’s views, and without trying to bludgeon the members into his own position. Thus, Dr. Paul N. Rosenstein-Rodan, a student of Hans Mayer and later to be an economist at the United Nations, wrote in reminiscence of Mises’s seminar:

... I was an enthusiastic admirer of Mises’ theory of money and very skeptical of his extreme [laissez-faire] liberalism. It was a proof of how elastic and tolerant (in spite of a contrary general opinion) Mises was that we maintained a very good relation in spite of my being “pink” or rather having a very Fabian outlook on life, which I did not change.³⁷

Mises himself wrote movingly of the seminar and the way he conducted it:

My main teaching effort was focused on my Privatseminar…. In these meetings we informally discussed all important problems of economics, social philosophy, sociology, logic, and the epistemology of the sciences of human action. In this circle the younger [post-Böhm-Bawerk] Austrian School of Economics lived on, in this circle the Viennese culture produced one of its last blossoms. Here I was neither teacher nor director of seminar, I was merely primus inter pares [first among peers] who himself benefited more than he gave.

All who belonged to this circle came voluntarily, guided only by their thirst for knowledge. They came as pupils, but over the years became my friends…

We formed neither school, congregation, nor sect. We helped each other more through contradiction than agreement. But we agreed and were united on one endeavor: to further the sciences of human action. Each one went his own way, guided by his own law.... We never thought to publish a journal or a collection of essays. Each one worked by himself, as befits a thinker. And yet each one of us labored for the circle, seeking no compensation other than simple recognition, not the applause of his friends. There was greatness in this unpretentious exchange of ideas; in it we all found happiness and satisfaction.³⁸

The result of Mises’s method was that many of the seminar members became full Misesians, while the others were stamped, one way or the other, with at least a touch of Mises’s greatness. Even those Mises followers who later shifted to Keynesian and other anti-Misesian doctrines still retained a visible thread of Misesianism. Hence, for example, the Keynesianism of Machlup or Haberler was never quite as unrestrained as in other, more unalloyed disciples. Gerhard Tintner, a Mises seminar member, went on to become an eminent econometrician at Iowa State, but the first chapter of Tintner’s Econometrics took Mises-type reservations about econometrics far more seriously than did his colleagues in the econometric profession. Mises made a mark on all of his students that proved to be indelible. A partial list of Mises private seminar members, followed by their later affiliations and accomplishments, will serve to illustrate both the enormous distinction achieved by his students, and the Misesian stamp placed upon all of them:

Friedrich A. Hayek

Fritz Machlup

Gottfried von Haberler

Oskar Morgenstern

Paul N. Rosenstein-Rodan

Felix Kaufmann (author of The Methodology of the Social Sciences)

Alfred Schütz (sociologist, New School for Social Research)

Karl Bode (methodologist, Stanford University)

Alfred Stonier (methodologist, University College, London)

Erich Voegelin (political scientist, historian, Louisiana State University)

Karl Schlesinger

Richard von Strigl

Karl Menger (mathematician, son of founder of Austrian School, Carl Menger, University of Chicago)

Walter Fröhlich (Marquette University)

Gerhard Tintner (Iowa State University)

Ewald Schams

Erich Schiff

Herbert von Fürth

Rudolf Klein

Members and participants from England and the United States included:

John V. Van Sickle (Rockefeller Foundation, later Wabash College)

Howard S. Ellis (Berkeley, author of German Monetary Theory)

Lionel Robbins (London School of Economics)

Hugh Gaitskell (British Labour Party)

Other participants who, it must be conceded, showed little influence of Mises in later life were the Swedish Keynesian Ragnar Nurkse (Columbia University) and Albert Gailord Hart (Columbia University).³⁹

The number of devoted women members of the Mises seminar was remarkable for that era in Europe. Helene Lieser, later for many years Secretary of the International Economic Association in Paris, was the first woman to attain a doctorate in the social sciences in Austria. Ilse Mintz was the daughter of economist Richard Schüller, a student of Menger’s and permanent Undersecretary of Trade (later at the New School for Social Research.) Mintz later emigrated to America and worked at the National Bureau of Economic Research, and taught at Columbia University. Other leading women members were Marianne von Herzfeld and Martha Stephanie Braun (Browne), who later taught at Brooklyn College and New York University. Martha Browne, in reminiscing about Mises’s seminars, states that “Professor von Mises never restrained any participant in the choice of a topic he or she wanted to discuss.” She concluded that “I have lived in many cities and belonged to many organizations. I am sure there does not exist a second circle where the intensity, the interest and the intellectual standard of the discussions is as high as it was in the Mises Seminar.”^40,41

Not content with his own seminar, Mises single-handedly revived the Economic Society, a professional society of economists that he had helped found, along with Karl Pribram, in 1908, and which had fallen into disuse during the war. The Miseskreis formed the core of the group, which was much larger than the Mises seminar. Mises and his colleagues maneuvered to get rid of Othmar Spann, and, in order to insure Hans Mayer’s participation, Mayer was made President of the Society, while Mises, the driving force of the group, agreed to become vice president. The Society was dominated by Misesians, with Hayek becoming Secretary, Machlup Treasurer, with Morgenstern becoming Machlup’s successor as Treasurer. Richard Schüller was a distinguished member of the group, and Mises seminar member Karl Schlesinger, president of the National Bankers Association, secured the large conference room of the Bankers Association for the Society’s meetings. Many of the Society’s papers were published in Hans Mayer’s scholarly journal, the Zeitschrift fur Nationalökonomie.

By the mid-1920s, Mises made a considerable effort to find a job for F.A. Hayek. He tried to convince the Chamber of Commerce to create a research position in Mises’s office, which Hayek would have filled, but his attempt failed. After Hayek spent a year in the United States and returned singing the praises of empirical business cycle research, Mises founded the Institute for Business Cycle Research in January 1927, and installed Hayek as director in an office at the Chamber of Commerce. In 1930, the poorly funded Institute received a large infusion of funds from the Rockefeller Foundation, at the behest of former Mises seminar member John Van Sickle, who had become assistant director of the Foundation’s office in Paris. The increased funding enabled the Institute to hire Morgenstern and Haberler to assist Hayek, and, when Hayek left Austria for England in 1931, Morgenstern succeeded him as Director.⁴²

While most Viennese, including Mises’s friends and students, basked in the Pollyanna view that Nazism could never happen in Austria, Mises, in the early 1930s, foresaw disaster and urged his friends to emigrate as soon as possible. Machlup credits Mises’s advice for saving his life. With characteristic wit and insight, Mises pictured a likely scenario for his friends and himself in the New World: they would all, he prophesied, open a cafe and nightclub somewhere in Latin America. Mises would be the doorman, the formal and aloof Hayek the head waiter, the songster Felix Kaufmann would be the crooner, and the suave Machlup the club gigolo.⁴³

The first Misesian to emigrate was F.A. Hayek. Lionel Robbins had been converted to laissez-faire and to Austrian economics by reading Socialism and then participating in Mises’s Privatseminar. Ensconced as head of the economics department at the London School of Economics, Robbins soon became an influential adviser to the head of the school, Sir William Beveridge. Robbins got Hayek an invitation to give a series of lectures at the LSE in 1931, and the lectures took the school by storm. Quickly, Hayek was offered a full professorship at the LSE. Hayek and Robbins swept all before them at LSE in the first half of the 1930s, spreading the influence especially of Austrian capital and business cycle theory. Hayek converted the top young economists at LSE to the hard-money and laissez-faire views of Austrian economics; enthusiastic Austrian converts included such later Keynesian leaders as John R. Hicks, Abba P. Lerner, Nicholas Kaldor, Kenneth E. Boulding, and G.L.S. Shackle. Economica, the journal of the LSE, was filled with Austrian articles. Only Cambridge, the stronghold of Keynes, remained hostile, and even here, there were similarities to Austrianism in D. H. Robertson’s monetary approach. Robbins was a student of Edwin Cannan at the LSE, himself an advocate of hard money and laissez-faire. Frederic Benham, a student of Cannan, adopted the Austrian view of the Depression, and Robbins wrote a scintillating Misesian study of The Great Depression in 1934. Under Robbins’s influence, Beveridge, in his 1931 edition of Unemployment, a Problem of Industry, attributed the large-scale British unemployment of the post-war world to excessively high wage rates.

Robbins, furthermore, published some challenging Austrian articles on microeconomics and on population theory in the early 1930s. In 1932, moreover, he published a watered-down version of Misesian praxeology, On the Nature and Significance of Economic Science, which became the bible of methodology for economists until Milton Friedman’s unfortunate positivist manifesto was published in the early 1950s.⁴⁴ In addition to these prodigious efforts, Robbins arranged for the translation and publication of Hayek’s two books on business cycle theory (Monetary Theory and the Trade Cycle, and Prices and Production), and finally arranged for the translation of Mises’s Theory of Money and Credit and Socialism.

But, then, just as it seemed that Austrian economics would conquer England (particularly as having predicted and offered an explanation of the Great Depression), Keynes’s General Theory swept all before it, and by the late 1930s all of Hayek’s converts had shifted suddenly to Keynesianism, even though they were by then mature enough to know better. All the stalwarts, including Robbins, Hicks, Beveridge, and the rest, had shifted over, and by the end of the 1930s only Hayek was left untouched by the Keynesian storm.⁴⁵ But it must have been a particularly bitter blow to Mises that such favorite students of his as Machlup and Haberler had become Keynesians, albeit relatively moderate ones.

In addition to his enormous influence upon thought in Austria, Mises also exerted considerable influence over economists in Germany. Georg Halm joined Mises in attacking the possibility of economic calculation under socialism. L. Albert Haln, a German banker and economist, had been a proto-Keynesian inflationist in the 1920s, but turned around to be a severe critic of Keynes in the 1930s. Other German economists strongly affected by Mises were Wilhelm Röpke, Alfred Müller-Armack, Goetz A. Briefs, an expert on labor unions, Walter Sulzbach, a critic of the Marxian concept of class, Alexander Rüstow, economic historian, Mortiz J. Bonn, and Ludwig Pohle. Luigi Einaudi of Italy, and monetary specialist Jacques Rueff in France were also friends of, and influenced by, Mises.

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³⁶ See note 17.

³⁷ Mises, My Years, p. 208.

³⁸ Mises, Notes, pp. 97–98.

³⁹ On cafés and private seminars in the intellectual life of Vienna in the period, see the perceptive account in Craver, “Emigration,” pp. 13–14.

⁴⁰ Mises, My Years, p. 207.

⁴¹ On Mises’s private seminar, see Mises, My Years, pp. 201–211; Mises, Notes, pp. 97–100; Craver, “Emigration,” pp. 13–18.

⁴² Morgenstern soon took the Institute onto decidedly non-Misesian paths, sponsoring econometric studies under the influence of his friend Karl Menger, including work by Menger students Gerhard Tintner and Abraham Wald. Craver, “Emigration,” pp. 19–20.

⁴³ Part of this story is told in Mises, My Years, p. 205.

⁴⁴ Unfortunately, the better known edition of Robbins’s book was the second, in 1935, which was already substantially less Misesian and more neo-classical than the first edition.

⁴⁵ The apostasy was so fervent that at least two of these men took the unusual step of openly repudiating their own Mises-influenced work. Lionel Robbins repeatedly denounced his own Great Depression and Hicks repudiated his Austrian-oriented Theory of Wages. The only anti-Keynesian remaining besides Hayek, was former Cannan student W.H. Hutt, whose brilliant quasi-Austrian refutations of Keynes passed unnoticed, since Hutt taught and published in South Africa, not exactly the center of economic thought and argument.