3. Alma Mater Rudolphina

0:00Chapter 3 Alma Mater Rudolfina When Mises studied law and government science, the University of Vienna was one of the best institutions of higher learning in the world. It had been founded in 1365 by Emperor Rudolf IV, thus the school's Latin name Alma Mater Rudolfina. For centuries it preserved the The three typical features of medieval universities – political and legal autonomy, only four departments, law, medicine, the arts and theology, and management by the Catholic Church. The medieval autonomy of the continental universities was legendary. It went beyond intellectual affairs, extending to jurisdiction over virtually all the legal relationships between university members. The very expression academic freedom is in fact a term translated from the German When Ludwig von Mises was a student at the University of Vienna, the police had still no authority to enter its premises. By the early twentieth century, however, its legal independence was not quite what it had been in ancient times. One of the causes of this reduced autonomy was the imposed change of patrons that, in the age of enlightened despotism,

1:19shifted control over the Catholic Church in Austria, and thus, over the University of Vienna to the House of Habsburg. Starting in the mid-18th century, the Austrian monarchs successfully initiated a grand campaign to break the influence of international Catholicism, a process that was completed by 1790. The bureaucratisation of the clergy, known as Staatskirchentum, also brought the University of Vienna under the control of the Habsburg Appointments of professors had to be approved by the Emperor, as with other high civil servants. As a consequence of this takeover, Protestants could acquire academic degrees after 1778, and in 1782 Jews were admitted to the Departments of Law and Medicine. A century later women Two were admitted, first to the Department of Philosophy, 1897, then to Medicine, 1900, and Law, 1919. Another consequence of the government takeover of the University of Vienna was the proliferation of departments and institutes. Among the new departments were Philosophy, which at first had only the subservient function of preparing the students for study in other

2:34of the Field, and the Department of Law and Government Science. The first full professor's chair in the field of government science had been created in 1763 for Maria Theresa's counselor Josef von Sonnenfels, 1732-1817, one of the few Jews the Empress tolerated in her residential city. The exact name of his chair was Lehrstuhl für Polizei und Kameralwissenschaften. A towering personality, Sonnenfels initiated several important traditions. Not only was he the first professor of applied political science, but also the first due to influence intellectual life in Vienna, and the first great proponent of the economic point of view, that is, of a strict utilitarian perspective in judging political problems. An engaging teacher and gifted writer, Sonnenfels also Mises also started a characteristically Viennese tradition of economist-journalists that in later generations included Carl Menger, Eugen von Boehm-Bawerk, Eugen von Philippowitz, and Ludwig von Mises. Because of their academic pedigree and their clear, concise, and unpretentious writing style, these thinkers would exercise considerable influence on political reform processes in Austria.

3:54In Mises' day studies at the Department of Law and Government Science were organised in two phases. The first two years featured lectures and seminars on the history of law and legal institutions, and they ended with the first of three exams, called the Staatsexamen, because the examiners were specially appointed to act as agents of the Austro-Hungarian state. Then the students spent another two years in lectures and seminars to acquaint themselves with the current civil, penal and legal process laws of the Austro-Hungarian Empire, and with government science, which included economics, economic history and courses on technical and legal aspects of public administration, the Staatsexamen for current law and for government science completed this second phase.

4:41The two phases had nothing to do with our present-day distinction between undergraduate Studies and Graduate Studies. As Kunert Ledin points out, in Mises' day continental universities had no undergraduates. They were graduate schools, pure and simple. Passing these exams completed the university requirement for a career in law, but mandatory two-year apprenticeship still stood between the graduate and his career. Some students, in particular those interested in Becoming Professional Scholars, also acquired the degree of Dr. Juris, Doctor of Law, which required them to pass three additional exams, the Examina rigorosa, after the three Staatsexamen. Mises went through all these stages. In October 1900 he began his two-year study of the history of law, Roman and canon law in particular, and of medieval legal institutions and economic conditions.

5:37Today, the study of church and medieval law is reserved for a handful of scholars. But in the Austria-Hungary of Mises' time, a career in law or government required both the familiarity with these traditions and a solid command of Latin. Hungarian politics was built on medieval thought and institutions, and Latin had been the language of instruction in Hungarian middle schools until 1867. Up to the very end of the monarchy in 1918, Hungarian American intellectuals and politicians did not yield an inch when it came to the mystical foundations of their nation. While students needed to know Austria-Hungary's legal and institutional traditions, these subjects were not particularly popular among non-Hungarian students. Mises did not deem this period of his studies worth mentioning in his autobiographical recollections. The lectures were infamously bad, resulting in part from a distinctive Lack of consumer orientation on the part of the professors. After the government takeover of the Austrian universities, the professors had become financially independent of their audience and had little incentive to accommodate the needs of their students. This affected

6:51both their behaviour and their public status. The government had turned them into civil servant scholars, or, to put it less flatteringly, into court intellectuals. Academic freedom no longer meant political autonomy. When the public spoke of limitless academic liberty, they referred to freedom from responsibility or consequences. In the words of Künurt Ledin, the freedom to teach was limitless. Even a professor who instead of lecturing read newspapers could not be dismissed. Every professor had tenure up to the age of 65 or 67 when he had to retire at 82% of his final salary. The quality of the professor as a teacher bore no weight. The professor was expected not to be an educator, but a scholar, who gave the students a chance to listen to him. Mises's early university years were a mixed experience.

7:48In addition to the poor lecturers, there was rampant hostility between students of different nationalities and widespread anti-Semitism. Student life is generally organised through fraternities, which tended to segregate based on place of origin. This provided newcomers to the capital city with a network of their countrymen for mutual support. It also introduced them to established former members who could later be helpful in finding suitable employment. But the fraternities often degenerated into associations dedicated to excessive collective alcohol consumption, and tended to glorify violence and a militaristic lifestyle with The variants of half-baked nationalistic ideology. There were frequent violent confrontations between members of different fraternities, especially between students of different nationalities.

8:39The largest non-German student group in Vienna, the Czechs, clashed with German students on an almost daily basis. At the turn of the century, 700,000 Czechs lived in Vienna. Because the University of Vienna still enjoyed its status of legal autonomy, the police were were helpless to prevent these confrontations, and the aggressive students took full advantage of the situation. Students from Vienna were less dependent on the support of compatriots, and therefore had less incentive to join one of the fraternities. More importantly, however, many Viennese students were Jews, and while few of them identified themselves along religious lines, the fraternities despised these identifiable and highly efficient competitors. Mises managed to stay clear of both the ethnic unrest, and collegiate debauchery.

9:30He threw himself into his work and pursued the opportunities that now opened up. As identifying lectures, and IV seminars in the first two years, He took part in the meetings of the Sozial-Wissenschaftlicher Bildungsverein, the association for Social Science-Education. This association was non-partisan and brought the students in touch with some of the leading intellectuals. It was here that Mises first met the historians Ludo Hartmann and Kurt Kaser, the socialist leader Karl Renner and Michael Heinisch, who would later become President of the Republic of Austria. Among the student members were Friedrich Otto Herz, Otto Bauer and Hans Kelsen. The most fascinating and at the same time bewildering personality among the students was Otto Weininger, 1880-1903, who would become famous throughout Austria and Germany almost overnight when he published his 1903 doctoral dissertation Geschlecht und Charakter, Sex and Character. The book would be republished in more than 30 editions until the 1930s. It had a great impact on how German-speaking intellectuals thought about gender differences and gender relations.

10:41Vininger undoubtedly presented his ideas first to the smaller circles of friends and admirers with Hans Kelsen first in line. Mises probably took part in some of the meetings of the Vininger Circle and his 1922 Treatise on Socialism would reflect this influence. The Grünberg Seminar The university seminars gathered smaller groups of students around a professor who directed their reading and research in his field of of Expertise. Mises profited in particular from his participation in the seminar of Carl Grünberg, a young and energetic professor who had just received a full professorship at the department. It is likely that in this first phase of his studies he attended a class of Carl Theodor von Inamar Sternek on medieval economic history. Inamar Sternek was an old Rival of Carl Menger's Already in 1879, then still under the leadership of Lorenz, the Department of Law and Government Science had supported his attempt to gain the chair of political economy that eventually went to Menger. Inemar Sterneg was an economic historian through and through. His main field of research was German economic history from

11:54the late ninth to the sixteenth century. Grünberg knew what he could expect of the brilliant members of his seminar and encouraged even first-year students to do publishable research under his guidance. After only one semester, he assigned Mises a research project on the Galician peasants' liberation movement from 1772 to 1848. Mises started the work shortly after Easter of 1901 and within a year produced a comprehensive study on the subject. He had spent several months in the Vienna Staatsarkiv researching all available literature on the evolution of the legal status of Galician Peasants on the reforms enacted by Emperor Joseph II and on the events leading to the revolution of 1848. His meticulous notes filled several hundred handwritten pages from which he eventually distilled a manuscript. His work was published immediately under the innocent title The Development of the Relationship between Lords and Peasants in Galicia 1772-1848.

13:00In the department's prestigious series, Vienna Studies in Government Science. The subject of peasant liberation drew much attention due to the widely acclaimed research of Georg F. Knapp into the causes and consequences of the liberation of Prussian peasants, which had resulted from various agrarian reforms starting in the 18th century. This is the same Knapp who today is better known among economists for her staatliche Theory des Geldes, Government Approach to the Theory of Money. We will discuss Knapp's work in our presentation of Mises' Theory of Money. Knapp's research essentially relied on archival evidence. His approach soon found disciples in the German scholars Ludwig and Wittig, who further extended and reinforced his analysis of German conditions. Knapp's approach was later applied to Austria, most notably in and the work of Carl Grünberg, Die Bauernbefreiung in Böhmen, Meeren und Schlesien, Peasant Liberation and Bohemia, Moravia and Silesia. It was this work that brought Grünberg to the University of Vienna, where he set out to train his students in questions of Austrian

14:09peasant liberation and especially encouraged them to research with him the conditions of those parts of the empire which he had not himself covered. Grünberg then produced another volume on agrarian reforms in the Bukowina, which was completed by Mises's work on peasant's liberation in Galicia. Some years later a young man by the name of Leo Fischmann wrote on peasant's liberation in central Austria. In his general exposition Mises closely followed his teacher. He made exhaustive use of the literature in Polish and German that was available in the largest Austrian archive, Carl Grunberg had worked for a while with Professor Knapp in Strasbourg. His work slavishly followed in form, presentation and method Knapp's book on the old provinces of Prussia.

15:12It was neither economic history nor administrative history. It was merely an extract from government documents. A description of policy is found in government reports. Any able government official could easily have written it. It was Professor Grünberg's ambition to found in Vienna a centre for economic history like that created by Knapp in Strasbourg. As far as possible, I endeavoured to free In the introduction of the book, Mises describes the evolution of the condition of Galician peasants from the 15th through the 18th century. In the late Middle Ages, he points out that the Galician peasants had a comparatively favourable lot. They paid low taxes to their lords could not be coercively removed from their land, often enjoyed autonomous jurisdiction and even had a limited right to leave the country. The lords were not interested in agriculture and left the management of all farming affairs to the discretion of the peasants and their representatives. Things began to change drastically after two consecutive Polish victories against the German order, which had ruled large parts of the East Baltic in

16:32In the 15th century, after 1466, the Poles controlled the ports of Danzig, Memel and Elbing, and as a consequence export of agricultural products of the Polish hinterland became more profitable. The local aristocracy tried to gain ever more control over agricultural production and in particular over the workforce of their peasants. These attempts proved to be very successful. At the beginning of the 18th century, the Polish aristocracy in Galicia controlled Mises analysed the state of affairs prevailing in the early 18th century in his first chapter.

17:17He explained that the Polish aristocracy was essentially a club of slaveholders with no backing in the wider population. This was a major reason why they were unable to avoid Partitioning of the Country, 1772-1795, and could not re-establish its independence thereafter. Ruthenian slave peasants liable to come under Prussian or Austrian dominion had nothing to lose. They could only expect an improvement in their situation. In eastern Galicia, the area around Limburg, the Ruthenians represented two-thirds of the population, whereas the nobility was almost The new rulers in Vienna were keen enough to realize the political opportunity in this state of affairs.

18:02The policies of the Austrian government in Galicia, Mises wrote, had the objective of benefiting the peasant class at the expense of the nobility. This tendency was further reinforced by the adherence of Emperor Joseph II to the ideals of Enlightenment liberalism. After Galicia's annexation to Austria, taxes were reduced, legal protection for peasants established, and the property rights of lords and peasants were now more clearly distinguished. Most importantly, slavery received a fatal blow. The peasants were no longer considered the property of their lords, but they were still forced to work a certain number of hours, a duty called robot, originally established by Empress Maria Theresa. But Joseph II died in February 1790, before his vast programme of social reform could be brought to completion. The reforms had failed to specify the rights and duties of all parties, in particular that the peasants were no longer forced to complete certain types of tasks, but merely to work a certain number of hours. The result was sloppy work, and a sharp decline in productivity. The aristocracy then resorted to stronger punishments, which

19:15which further poisoned social relations. In the first four decades of the 19th century democratic agitators believed Galicia to be fertile ground for their activities because the rural population seemed to be ripe for revolution. Mises argued that the great majority of the peasants did not trust these agitators any more than they trusted the local aristocracy. They did trust the Emperor and believed him to have abolished the robot, despite what the Polish aristocrats said. When in February 1846 the aristocrats rebelled against Austria in an attempt to restore their ancient privileges, they confronted a united rural peasantry which smashed this rebellion without any assistance from the Austrian army.

20:03Mises gave a detailed account of this failed aristocratic rebellion and of its consequences in his fourth chapter. He had many things to say on the issue, after all his great-grandfather had been an eyewitness to the event and had welcomed the peasants' success. The victorious peasants believed they had now earned both liberty and imperial recognition. But the government in Vienna was not ready for Galician peasant liberty and feared its repercussions in other When a law was passed in December 1846 that essentially preserved this status quo, the Galician peasants felt betrayed. They were now ready for the revolution of 1848, which eventually succeeded in abolishing the robot, root and branch.

20:55Although presented as a work of purely historic interest, Mises's research touched important and Political Sensibilities of the Day. For the gist of the Knap, Grünberg Mises' argument was that slavery was the typical condition of peasants under a Slavic regime, and that serious attempts at their liberation were begun only under Germanic rulers. Mises argued that the various Polish rebellions following the 1772 partition failed because they were not genuine national upheavals, but purely aristocratic ventures that antagonised both Both the Imperial Central Government in Vienna and the local population. Because the democratic movement did not find support within the rural working classes, its leadership allied itself to the higher aristocracy, thus supporting the political status quo. In Mises's words, How the peasants I shone when they heard talk of a better, more beautiful future, one in which there would be no more lords and servants, and all would be brothers. But what they took Look away from the words of the democratic insurgents, fuelled yet further their hatred

22:02of the aristocracy. They did not wish to hear about the re-establishment of the Polish state. What was Poland to them? Whether it was Polish or German met with their indifference. But they did know that the Austrian civil servants provided their only help against the oppressive landlords. The injustice once suffered by the peasants was still alive in and the memory of the older people, and thanks to the intervention of the Kaiser, it no longer had to be endured. But because their oppressors were Polish, they felt only disdain for all Polish things. They now called themselves Kaiserlich Imperial and Austrian. Mises's conclusions were unwelcome among Poles and other Slavic nationals, especially Early in early 20th century Vienna heated climate of ethnic sensibilities. How much these questions of apparently mere academic interest were fought over can be gathered from the fact that in the very same year in which Mises's study appeared, a young Polish historian had published a dissertation in which he claimed the exact opposite, that

23:07the condition of the 18th century Polish peasants was significantly better than that of peasants living under German rule. Mises's research also had personal resonance for him. It presented his compatriots, who had shrugged off the aristocratic rebellion as freedom fighters and hence as motors of the historic trend toward liberty in Galicia. Mises's work was positively reviewed by one of the main authorities in the field, Knap's disciple Ludwig from the University of Strasbourg, who called it a model study and praised the clarity of Mises's style which he seemed A review in the principal organ of the German socialists of the chair, Schmoller's Jahrbuch, said that the study contained much new material, and that it was an extremely sound and informative work. Another expert, Professor R.F. Kindle from the University of Czernowitz, praised Grünberg for his brilliant student, mentioning especially Mises's thorough analysis from from the generally higher standpoint of the material available in the Vienna Staatsarchiv on the Galician reforms that were implemented during the reign of Joseph II.

24:18On July 15th, 1902, Mises completed the initial phase of his studies by passing the first Staatsexamen on the history of law. His examiner's focused particularly on the history of the Austrian Empire. Mises passed with distinction and the 20-year-old seemed headed for a brilliant and Career in Academia. Before entering the second phase of studies, however, he had to fulfil his military obligations. Military Service and Death of His Father On October 1, 1902, Mises presented himself as a one-year volunteer at the Imperial and Royal Division Artillery Regiment No. 6, later renamed the Imperial and Royal Field Cannon Regiment No. 30. Jews had been subject to to military obligations after 1788. They were usually employed in transport and the artillery, thus Mises was a typical case. He spent exactly one year in this regiment, which was stationed near Vienna, and returned on September 30th, 1903 to his studies. In the following years he was mobilised twice as a reserve officer within the same regiment in 1908 and 1912

25:31during political crises between Austria-Hungary and Russia. He would have to resume his duties in 1914 under even less pleasant circumstances. The Austrian army had not won a war since the defeat of Napoleon in 1815. It had lost the Italian campaign in 1859 with the Battle of Solferino and had also lost the important battle against the Prussian forces at Königreiz in 1866. But this lack of success did not prevent it from enjoying an overwhelmingly positive reputation in all parts of the Habsburg Empire. It was the most visible sign of the Empire's unity and security. In those days, army troops and their activities were a highly visible element of everyday life. Where present-day troops are typically stationed away from cities, their activities hidden from the eyes of the average citizen, the Austro-Hungarian troops were stationed inside the towns and cities of the Empire. They exercised within view of the civilian population and their appearance set a standard for discipline and elegance.

26:37Of the old institutions of the Empire, the Army seems to have been the most democratic in character. The career of an officer was open to virtually all strata of the population and officers paid each other tribute and solidarity, regardless of social background. Most of them addressed one another in private conversations with a familiar duel, insinuating that each bearer of His Majesty's Peul et Paix was a nobleman and an equal among equals. Yet while recognition and prestige within the officer corps depended mainly on individual performance, Admission to the higher ranks required admission to the Kriegsschule, war school, which necessitated personal connections. Here the old nobility had a net advantage, whereas Jewish origin was a handicap. Things began to change slowly after the Austrian Republic was created in 1918. Quick and thorough changes occurred only under the National Socialist regime.

27:38Under Hitler, the Wehrmacht employed tens of thousands of partial Jews, Mischlinger, The bottom line was that the majority of ambitious and talented young men from low nobility or bourgeois circles were effectively deterred from considering a military career. Alumni from a gymnasium could obtain the commission of a reserve officer by volunteering for one year. And virtually all of them did this because of the military prestige it conveyed, which which in turn was very helpful for obtaining employment in all other fields. Many of them volunteered directly after leaving the gymnasium and then enrolled in university afterward.

28:24Others like Mises chose to volunteer after the first two years of university because the service gave them a break from their intense studies. They received the officer's commission after a year of service and an easy-to-pass exam that certified their ability to be an Officer. Mises was patriotic and proud to wear the uniform of the Imperial and Royal Army, but he had no militaristic incarnations. He never related details or boasted about his one-year service. All in all, this period seems to have been unexciting for him. It was also a sad period of his life marked by three tragic deaths. One of the last times When Ludwig saw his father alive was at the burial of his uncle Felix. As saddened as he was by his uncle's passing, it could not compare with the death of his father later the same year. Arthur von Mises had suffered from a gallbladder condition for years and regularly sought relief in health resorts. Following his brother's death in the summer

29:25of 1903, Arthur and his wife went to Carlsbad. By September his condition had noticeably On the day before October 4th, 23-year-old Otto Weininger had killed himself, to the great consternation of his friends Kelsen and Mises. Suicide was in vogue in those days, especially among young people. Even Prince Rudolf, the Habsburg Dauphin, had killed himself In 1889, Weininger sought a theatrical exit. Only six months after he had made a splash with the first edition of Sex and Character, he rented an apartment in the house where Beethoven had died and shot himself on the master's piano.

30:17In the Filipovich Seminar At the onset of the 20th century, most German economists held the teaching of economic theory in disdain. They thought that political economy in so far as it was a science at all, was a historical discipline. Historicism. Mises recalled certainly with his teacher Grünberg in mind, At that time around the 1900, historicism was at the zenith of its career. The historical method was believed to be the only scientific method for the sciences of human action. From the height of its historical clarity, the historical political economist was looking with unspeakable disgust on the orthodox dogmatist. Many members of the School of Thought had strong socialist leanings, and openly called for more government intervention. Some even advocated the complete abolition of private property. This attitude had earned them the epiphate Katheder Sozialisten, Socialists of the Chair. This may sound similar to the English-language epiphate Armchair Socialists, but Chair in this case refers to a full professorship in the European university system. Perhaps The Ivory Tower Socialists would be more on the mark.

31:32The Kathedra Socialisten had risen to dominance at the University of the German Reich in the wake of the creation of a German Central State under Prussian leadership. Their political ascension seemed unstoppable and contributed to their reputation as the avant-garde of their discipline. By the turn of the century they had virtually monopolised the chairs in political and the Federal Economy in the German Reich and were on the verge of becoming dominant in Austria too. Carl Grünberg, Mises' main teacher during the first two years, was one of them. In fact, he had been brought to the University of Vienna precisely in order to bring research and teaching of government science up to date, that is, up to the historicist standards of the other German language universities. Grünberg's call to the University of Vienna had been a terrible mistake.

32:19In the case of new appointments, the other faculty members, or lawyers except for two economists, had to select the new incumbent. These men were unlikely to give the position to an Austrian economist. Mises explained, They had to choose between two opposed schools of thought, the Austrian School on the one hand, and the allegedly modern historical school as taught at the Universities of the German Reich on the other hand. Even if no No political and nationalistic pre-possessions had disturbed their judgment. They could not help becoming somewhat suspicious of a line of thought which the professors of the University of the German Reich dubbed specifically Austrian. Never before had any new mode of thinking originated in Austria. The Austrian universities had been sterile until, after the revolution of 1848, they had been reorganised according to the model of the German universities. For For people who were not familiar with economics, the predicate Austrian, as applied to a doctrine, carried strong overtones of the dark days of the Counter-Reformation and of Metternich.

33:23To an Austrian intellectual nothing could appear more disastrous than a relapse of his country into the spiritual inanity of the good old days. The Grünberg seminar had reinforced for Mises the worldview of his adolescence, a vision of glorified government as the prime mover in the enlightened management of the economy and of society. Mises grew up in an atmosphere of almost unlimited confidence in the state's ability to make human society safe for its constant improvement. This faith in the state went along with the distrust of private individuals and associations to match the good deeds of government. He later recalled, By 1900 practically everyone in the German-speaking countries Mises was either a statist, interventionist, or a state socialist. Capitalism was seen as a bad episode, which fortunately had ended forever. The future belonged to the state.

34:21All enterprises suitable for expropriation were to be taken over by the state. All others were to be regulated in a way that would prevent businessmen from exploiting workers and consumers. When I entered the university, I, too, was a thorough statist. Mises adds that only in one respect were his views not quite as wrong as those of his fellow students. He was consciously anti-Marxian. Most objections to this statist view were moral objections, defending the individual's right against bureaucratic encroachments. These arguments fell on deaf ears. They could not withstand the appeal of the utilitarian case for government intervention, especially since so many 19th century liberals had themselves promoted utilitarianism as the basis for social policy. Surely the improvement of the vast majority could not be sacrificed to selfish interests. Thus, when he started his legal studies, Mises was a champion of interventionist statism. He believed that government was able to fix a wide variety of social problems, and he was eager to engage in the scientific discovery of the dangerous consequences of unhampered capitalism. It so happened, however,

35:30The Department of Law and Government Science at the University of Vienna was home to some of the most outspoken opponents of historicism, and thus by implication of the Kathedra Socialist Program. These scholars denied that economic affairs could only be studied by historical methods and they made the case for a rational economic theory which, they held, was indispensable for the understanding of certain economic phenomena such as value, interest, money, In 1871 Menger had published a book with the title Grundsätze der Volkswirtschaftslehre, Principles of Economics, in which he co-pioneered the marginalist approach to the theory of value, the standard analysis still in use today.

36:23This book had earned him a chair in political economy at the University of Vienna where where he taught until the spring of 1903. In the 1880s Menger had become famous throughout the academic world because of a highly polemical dispute with Gustav Schmoller on the respective merits of the historical and theoretical methods. The Metodensteit, dispute on method, as their debate came to be known, polarised German economists between the historicists and what would come to be known as the Austrian School. At the turn of the century Menger had about Eugen von Boehm-Bawerk, Austria's four-time Minister of Finance and holder of a Chair of Political Economy at the University of Innsbruck and Friedrich von Wieser, who held a Chair of Political Economy at the German University of Prague and would succeed Menger at the University of Vienna in 1903.

37:24Another follower, Eugen von Fulopovitz, was a full professor at the University of Vienna and although he was not an important theoretician of the Austrian school, he excelled as a pedagogue. His textbook, which was at that time the most successful German language textbook on economics, almost single-handedly ensured that the avalanche of historicism would not wipe out the teaching of economic theory in the German-speaking world. Mises's first year at the University overlapped with Menger's last, but during the first phase In the second phase of his studies, Mises did not attend Menger's last lectures. When he began the second phase, after returning from military service, Menger had retired to live the life of a private scholar. It is likely, however, that Mises attended Friedrich von Wieser's inaugural lecture as Menger's successor on October 26th, 1903. In this lecture Wieser attempted to expand on Menger's monetary writings with an original analysis of the The lecture was different in style and content from what the students of government science were used to in Grünberg's seminars. Wieser was a pure theorist in the sense that his

38:34ideas were removed from the hard data studied under Grünberg, but Wieser was an impressive speaker, and his lecture might have been the event that prompted Mises to become acquainted with Menger's principles, which he started reading about two months later. In any case, The lecture was in many ways the basis and starting point for Mises' later work on the theory of money, as we will see in more detail in a later chapter. Mises joined the government science seminar of Filipovits, where he met and befriended Emil Lederer, who later became Germany's top Marxist economist. The seminar was a rallying ground for the most fervent social reformers, with the possible exception of Filipovits' Professor Filipowicz was a very influential public figure, known equally for his Mengerian Inclinations in Economic Science and his interventionist position on politics. Of all academics with Catedra Socialist inclinations, his writings had the most thorough grounding in economic theory, and Mises later praised him as the most thorough theorist ever of third-way policies.

40:03History, Mises wrote without irony, will see in Filipowicz the most outstanding advocate of the Ideology of Statism, The Characteristic Representative of the Spirit of Social Reform. Eugen Philippowitz von Philipsberg, 1858-1917, was the product of an old Austrian family of military officers. After studies in Graz, Vienna, Berlin and London, he received his Habilitationsdiploma under Menger, then quickly became a tenured professor at the University of Freiburg in Breisgau. In 1893 he returned to Vienna as a full professor of political economy and public finance. Filipowicz was active in various political associations and over the years gained great influence at the university and in Austrian politics. As a young man he had been an enthusiastic champion of the Schmollerheit program, advocating historicism in economics and heavy government interventionism in politics. Under the influence of Menger Here, Filipowicz showed great aptitude in putting economic theory in the service of The group organised public conferences and discussions to promote the idea of government

41:53and intervention in the service of a social agenda, which primarily concerned the support of the working class poor. Filipowicz's personal and intellectual qualities made him the centre of the Vienna Fabians, and helped spread their influence among academics and businessmen. These activities were so successful that Fabian ideas eventually were incorporated into the programs of all Austrian political parties. Filipowicz also left a deep impression on his seminar students. In the classroom, matters of social policy took centre stage. While the students usually jumped head-on into championing various practical welfare schemes, Filipowicz again and again drew them into discussions of the theoretical foundations of government intervention. He clearly perceived that emotional appeals or references to we-all-know convictions were not enough to justify the use of the Public Organization of Coercion and Compulsion. He urged his students to make a scientific case for interventionism, and constantly raised problems that they had not considered, problems for which he himself had not found adequate solutions. This seems to have been rather exceptional among economics professors. Mises, who knew well the economics profession of

43:10the turn of the century, later said, in the decades between the Prussian constitutional War Conflict, 1862, and the Weimar Constitution, 1919, only three men sensed the problems of a social reform, Filippowicz, Straussmann and Max Weber. Among these three, only Filippowicz had any knowledge of the nature and content of theoretical economics. It was in these exchanges that he was most impressive, especially in the eyes of his most critical students, Mises recalled the atmosphere in the Filippowicz seminar. Here he could utter his doubts without being misunderstood. Here he was not the famous writer who presented his reader with something that was finished, complete, and apparently unshakable. Here he showed himself in his true nature, as the critical thinker and explorer who wrestled laboriously Muzarm in his quest for knowledge.

44:06Filipowicz was in fact only too conscious of the existence of unintended consequences is that result from government intervention. In a speech delivered in his capacity as a university president, he warned, may none of you have the painful experience, at times not even spared the man of the best intentions, of having to say of one's activities, I drew pure fire from the altar, but what I ignited is not a pure flame. But such experiences did not shake his conviction that government interventions were necessary. They were needed Despite all the economic achievements of liberalism that Filipowicz praised in his seminar and in other public appearances, he stressed that liberalism made it possible for Europe's population to grow during the 19th century from 187 to 393 million, while simultaneously increasing the living standards of the masses, a development unprecedented in history. He even claimed that no previous era had done as much for humanity as liberalism, with the Possible Exception of Christianity's Acknowledgement of Human Dignity Celebrating the liberating and creative powers of liberalism in political and economic affairs,

45:20he argued that the only relevant question was whether one could avoid full-blown individual liberty. The economic forces that the liberal system called forth, capitalistic large-scale organisation of production and exchange, as well as the personal values and energies that that it brought into being form a component of social life that we can no longer do without. The present and future cannot be based on forgoing the products of economic liberty, the power of fruitful initiative and economic organisation. The question that must be asked is whether the acknowledgement of the basic ideas of the liberal system necessarily implies the acceptance of the ultimate consequences of its unrestricted application, that is, whether clinging to the principle of economic liberty is identical with accepting the social Social System of Individualism, Filipovich argued that one could enjoy all the blessings of individual liberty and remedy shortcomings on an ad hoc basis. Pointing to specific fields where such remedial action was required, he argued that unrestricted individualism leads to the dissolution of communities, that the interests of the individual are not always

46:29identical with the interests of the social whole, and that unrestricted economic liberty might destroy its own foundations through the formation of monopolies. Government interventions were necessary to counteract these shortcomings. The Filipovitz seminar was an important training ground for Vienna's fervent young social reformers, of whom Mises was one. Filipovitz did not deny the validity of the traditional case for economic freedom, and he made sure his students were familiar with the theory and history of classic liberalism. This was Birth of an Economist Around Christmas of 1903, Mises had just received his office's commission and had recently Mises later emphasised that the book made an economist of me. That is, practically speaking, it made him sceptical of the benefits of government action. To be an economist is, in fact, to understand the limitations of government. It is to have grasped that the The State is not omnipotent, and that it cannot do all it claims it can do.

47:55Today, most professional economists would probably reject this definition, but that is because the economics profession underwent such dramatic changes after World War II that present-day economists share only the title with their pre-war predecessors. At any rate, Mises understood the practical essence of economic science to be the insight that free enterprise and the voluntary association of individuals is superior to the coercive schemes of the State. In this understanding he continued the tradition of the British classical economists and of the great 18th and 19th century French économistes. In 1904 Vienna, Mises was quite alone in his new orientation. Reading Menger's principles alienated him from his fellow students, from his professors and then later from his colleagues.

48:46His discovery made him richer intellectually and spiritually, but it also made him a very lonely man. Twenty-five years later Franz Weiss remembered vividly how Mises had suddenly turned away from the ideals he had shared with Weiss and other peers. Weiss warned young Friedrich August von Hayek not to follow Mises in his betrayal of social values for the old doctrine of liberalism. Hayek surmised, if Carl Menger had not aged at such relatively Reading Carl Menger did not immediately produce the author of Human Action. Mises's own Menger's statism was too deep-rooted. He had absorbed it from the earliest days of his childhood, and he unconsciously applied it in his research for the Grünberg and Filipowicz seminars. Everyone he knew shared the fundamental conviction that government intervention is inherently beneficial, while the free market is only accidentally so at best.

50:06What Menger's principles did was to change fundamentally Mises' outlook on the analysis of Social Problems. Menger's book showed that individual consumer values are paramount on the market, because they not only determine the values of all consumer goods, but also the values of all factors of production. It is consumers who steer the entire market system through their spending decisions. Capitalist entrepreneurs merely carry out or anticipate their wishes. The market is not beneficial by accident, but is inherently so. It is eminently just and it is elegant. All government intervention must therefore be considered carefully before it is allowed to disrupt the order of the market. It took Mises a while to digest the Mengerian message, to analyse its weaknesses and strengths, and to think through its political implications. He could not jump directly from his former statist convictions to embrace complete laissez-faire liberalism. This was the main challenge of Menger's book. Mises He did not have to be convinced of the merits of Menger's theory. From his childhood days

51:10he had had doubts about a purely historical approach. He had a passionate interest in deriving practical lessons from the study of history but did not know how to do it. The writings of the historical school that he digested while at the gymnasium did not seem to solve the problem either. In his Erinnerungen, he writes, His years in the Grünberg seminar finally convinced him that the champions of the historical school had indeed failed to solve this problem. He later summarised their failure. Historicism William was right in stressing the fact that in order to know something in the field of human affairs, one has to familiarise oneself with the way in which it developed. The historicist's fateful era consisted in the belief that this analysis of the past in itself conveys information about the course future action has to take. What the historical account provides is the description of the situation. The reaction depends on the meaning the actor gives it, on the ends he wants to attain and on the means he chooses for their attainment.

52:30In 1860 there was slavery in many states of the Union. The most careful and faithful record of the history of this institution in general, and in the United States in particular, did not map out the future policies of the nation with regard to slavery. The situation in the manufacturing and marketing of motor cars that Ford found on the eve of his embarking upon mass production did not indicate what had to be done in this field of business. Practical guidance could not be obtained at all through his historical inquiry. Only theory of the Mengerian sort could do this. But to go from theory to endorsing the political programme that seemed to follow from the Mengerian premises was quite a step. It took Mises years to gradually overcome his prejudices. His ongoing political radicalisation shows that The process continued late into his life. He recalled its very beginning.

53:23My first doubts about the excellence of interventionism came to me when, in my fifth semester, Professor Filipowicz induced me to research housing conditions, and when in the following semester in this seminar on criminal law, Professor Loeffler asked me to research the changes in law regarding domestic servants, who at that time were still subject to corporal punishment by their employers. It then dawned on me that all real improvements in the conditions of the working classes were the result of capitalism, and that social laws frequently brought about the very opposite of what the legislation was intended to achieve. It was only after further study of economics that the true nature of interventionism was revealed to me.

54:10Two years later he was already fairly critical of the benefits of organised labour. On November On 28th 1905 he watched 250,000 labour union members defy the law that prohibited demonstrations before the parliament while the MPs were in session. That night his friend Otto Bauer rejoiced over the triumph of the proletarian masses. Mises saw it as anarchy. What if another mass organisation arose and similarly defied the law? Would that not lead to civil war? Bauer scorned Mises for this question which he thought betrayed a petty bourgeois mindset. The future belonged to social democracy. Mises's early transition period from statism to liberalism is well documented in a lengthy study he wrote for the Filipovich seminar on the history of Austrian factory legislation.

55:03Mises presented the paper in 1904 or early 1905 and subsequently published it in Boehm-Bawerk's In it Mises pointed out that in Austria organised child labour was a creation of the State. Under Empress Maria Theresa, coercive child labour had been instituted in an effort to combat laziness, misery and sin sexual activities. Thus the State could pursue several goals through a single measure. It got the children off the streets, ostensibly in their own interest, And as a beneficial side effect, it promoted large-scale industry and reduced public welfare expenditures. Not surprisingly, many factory owners abused the situation. In 1785, Emperor Joseph II visited a factory in the town of Thaiskirchen, and shocked by what he saw, ordered legislation to remedy the children's misery. Mises proudly noted that the Emperor's order preceded the British Morals and Health Act by 16 years, but he He also emphasised that the market was not the cause of the problem. The root of the children's misery lay not in the factory owner's entrepreneurial function, but in

56:12the lack of a contractual relationship. Commenting on the eventual suppression of the kinderheuser where the children were kept after work, he said, the children's houses might have offered better room and board to the adolescent worker than his parents' home, but they delivered him entirely into the power of the factory owner. This legal relationship could be interpreted While these facts did not fit the mainstream view of government's role in child labour, Mises was not yet ready to deny the Austrian government a role in improving the children's situation. He ferociously criticised a favourable report on free market child labour as tendentious and exaggerated, though he did not provide a single counter-argument. In his conclusion, He hailed the progressive Emperor Joseph II for instigating the epoch of social policy.

57:10He writes, The double insight that we first encounter in this law, Joseph II's bill dated November 20, 1785, that factory work involves grave disadvantages for children from a hygienic and moral point of view, and that these ills can only be eliminated through the intervention of the State and through continuous control by the State has become and the point of departure of modern social policy. We can see the remnants of unquestioned suppositions in young Mises's thought, but he had learned from the first step how to think as an economist. This shift was reflected in his increasingly critical analysis of the limits of government action. Such an attitude did not find approval from the established academia. When Mises presented himself for Staatsexamen numbers 2 and 3, he passed with distinction in Law but not in Government Science, enough to slow his ambitions in his main field of academic interest. By February 20, 1906, he had passed his juridical, political science and general law exams. This gained him the title of Dr. Juris Utrisque, Doctor of Canon

58:21and Secular Law. His mother was proud, and his friends probably poked fun at Dr. Mises, The synonym under which Gustav Theodor Fechner had published satirical pieces attacking early 19th century German materialism. Years with a Master The decisive boost to Mises' intellectual development came when Eugen Ritter von Boehm-Bawerk opened his seminar at the University of Vienna in the summer semester of 1905, a great day in the history of the University and the development of economics. Boehm-Bawerk was Carl Menger's most important follower and had gained international fame A two-volume treatise on economics and the history of economic ideas.

59:10After a brilliant career as a professor of political economy in Innsbruck and as a four-time minister of finance, 54-year-old Boehm-Bawerk returned to his alma mater, where a special position was created for him in the Department of Government Science. For the next nine years, the University of Vienna would host the three best economic theoreticians in the German-speaking world, Boehm-Bawerk, Wieser and Filipowicz. It remains the high point in the teaching of Austrian economics. Boehm-Bawerk was a towering presence as a teacher and a master of clear thinking and clear speech. His fame attracted outstanding students from all parts of Austria and abroad, but what made these students stay, often for For years after graduation was the razor-sharp mind that could cut through the naughtiest problems of economics.

1:00:02Many of his students were critical of the Austrian school, and of his writings in particular. But fearless and thorough, Boehm-Bawerk accepted, examined and discussed all arguments brought before him, and demonstrated again and again the usefulness of the Austrian approach. The very first summer set the tone. Boehm-Bawerk spent the entire semester discussing the shortcomings of Karl Marx's Labour Theory of Value, engaging in extended debate for the brilliant Austro-Marxist Otto Bauer. Jung Bauer was the secretary of the parliamentary delegation of the Socialist Party and was well versed in both Austrian and Marxist theory. His main duty as secretary was to explain and justify the Socialist Party's current line. He was an experienced and impressive debater who had defended Marx's views in countless He was also the editor of the socialist journal Der Kampf and was on his way to winning greater claim with the scholarly work on one of the pressing issues of Austrian politics, the co-existence of national communities within the Danubian state.

1:01:06Bauer was a worthy sparing partner for Boehm-Bawerk, but he was no more than that. He found it impossible to raise a point the old master had not thought of. The spectacle of their Their encounter left the other seminar members with the distinct feeling that they had had the privilege of studying under a true master. Ludwig von Mises was one of those who continued attending the seminar after graduation. Critical though he was in all things, he could not help but feel awe in Boehm-Bawerk's presence. More than half a century later the celebrated author of Human Action had this to say on the occasion of a new English translation of Boehm-Bawerk's Capital and Interest. There is no doubt that Boehm-Bawerk's book is the most eminent contribution to modern economic theory. For every economist it is a must to study it most carefully and to scrutinise its content with the utmost care. Although Boehm-Bawerk's great opus is mere theory and abstains from any practical applications, it is the most powerful intellectual weapon in the great struggle of the Western way of

1:02:10Life Against the Destructionism of Soviet Barbarism. Boehm-Bawerk's seminar decisively reinforced the impact of Menger's principles. Under Boehm-Bawerk's guidance, Mises began to delve more systematically into the literature of economic theory. He began the research that led to his first great book, A Treaty on Money and Banking. These were years of apprenticeship. Mises continued to liberate himself step by step from his status prejudices and to become acquainted with the great tradition of monetary analysis in 19th century British and French thought. He started publishing papers on questions related to money and banking, articles that reveal his changing views on the role of government in this field. Some of these early opinions are likely to surprise the reader who knows Mises only as the author of Human Action or of The Theory of Money and Credit. For example, in a 1907 paper on the motivations of Austrian In exchange rate regulations, Mises hailed the policy of suspending cash redemptions so that the central bank could separate the so-called legitimate demand for gold from the illegitimate

1:03:19one, because it thereby became possible to keep Vienna inter-bank interest rates lower than in Berlin and London. He still had a long way to go to become the famous intransigent opponent of all government interventionism. As his earlier writings show, he did not adopt Ludwig von Mises became the most radical free-market economist of his time, only by overcoming the part of himself that was still hostage to the dominant worldview. The zeitgeist had a firm grip on his feelings and instincts, but it could not subdue his will to follow reason wherever it led him. In his last months as a student, Mises witnessed a great political earthquake, which forebode even more fateful events to come. Far from Vienna, at the easternmost end of the Eurasian landmass, Russia unexpectedly lost a war against Japan. In one stroke, the war smashed Moscow's Far Eastern ambitions, and it was suddenly clear to all of Europe that Russia's energies would be redirected to its western borders.

1:04:30Even more unexpectedly, however, the loss revealed the precarious condition of the Russian monarchy. Insurrection was in the streets of St. Petersburg and Moscow, and on October 31, 1905, the Tsar capitulated. In a spectacular October manifesto, Nicholas II promised Russia a constitution and the election of a parliament. Vienna and the rest of Europe were shocked to see how far socialist agitation had undermined the Russian power structure, which had been considered the greatest bulwark of reactionary politics in the world. On November 1, Nicholas' October Manifesto was read in the Austrian Parliament, and the Social Democrats began singing the Marseillaise. Viennese workers took to the streets. On November 2, Mises watched thousands march down the Vienna Ringstrasse. There were bloody and the encounters with the police.

1:05:23One day later, Emperor Franz Josef introduced universal male suffrage in both Austria and Hungary. The turmoil did not subside and was not limited to the capitals of Europe. In the coming years, new revolutions shook old regimes in Turkey, Persia and China. A contemporary citizen of Vienna later recalled the revolutionary atmosphere. The next generation can hardly One positive effect of the new situation was that it finally compelled the Emperor to confront The Hungarian problem head on. For years, the ruling clique of Hungarian landowners had pressed for a revision of the Ausgleich Agreement of 1867. They demanded in particular that the Hungarian army be allowed to give up German as the language of command, that Hungary should obtain its own central bank, and that it should be severed economically from the rest of the empire through an internal tariff line.

1:06:42When Franz Josef allowed equal voting rights in all parts of the empire, the Hungarian establishment was doomed. On January 30th, 1907, the Austrian estates-based parliament, Kurienparlament, which guaranteed a majority of seats to the establishment, was abolished, 46 years after its creation. The first general elections under the new law on May 11th, 1907, brought 86 socialist Deputies out of 516 into the Abgeordnetenhaus, the lower chamber of parliament.