5. Early Professions

0:00Early Professions From childhood, Mises had been driven by a progressive outlook and a strong personal urge to contribute to the improvement of the world. Scion of an elevated Jewish family successfully established in post-1867 Vienna, product of a liberal education, he believed that artists and men of science formed the avant-garde of social progress. Carl E. Schorxer is famous for his claims that this interest in science and art was a substitute for the political career that the existing monarchial regimes made impossible. Schocker's claim relies on the implicit hypothesis that politics is inherently more satisfying than science or art, a hypothesis that tells us more about Schocker's own value judgments than about those prevalent among young Germans and Austrians at the time.

0:53Enlightenment through scientific discoveries was paramount for the further development of Humanity. Mises maintained an unconditional affirmation of truth and intellectual integrity as supreme values, even though this uncompromising stance hurt his career and other material interests. As a consequence, he faced the problems of his time in a series of isolated one-man struggles. Erich von Kühnel-Ledding writes, He never fully belonged to a specific Camp. He was always a square peg in a round hole. To make matters worse, Mises was consciously a nobleman, a true gentleman, who rejected all compromise and never concealed his thoughts or his convictions. If someone or something was plainly stupid, he said so, nor could he tolerate cowardice or ignorance. This aristocratic Jewish intellectual was an odd man out and fit into no established pattern. These qualities made a career difficult in Vienna. The inhabitants of the Austrian capital were famous for their sophisticated taste, humour, and fondness of the pleasures their city could offer, but they were not known for candour or courage,

2:02and they openly despised those who displayed the qualities they lacked, especially upstarts from the provinces. A keen connoisseur of the Austrian mind recalls the mentality in and the City on the Danube. People who had their own views and horribly dictu even championed these views were not well received. One had to be popular to be welcome, and appreciation was given not to effort but only to success, not to a man himself, but only to his position. Clearly, Vienna did not provide a favourable climate for Mises's talents, but he made good use of them anyway, thanks to immense will-power and his unconditional devotion and to Truth, which earned him the admiration even of those who resented his brazenness. It was this fundamental attitude to stick to his convictions at all costs that had made him receptive to the message of Menger and Boehm-Bawerk. These thinkers had developed economic theory on fact rather than fancy, and as Mises's own work in the historicist tradition had shown him, the methodology of the German mainstream economists was sterile.

3:09Ludwig Pauler, the famous critic of the historicists, quoted a satirical magazine that described economic research as the activity of measuring workers' apartments and stating that they were too small. When Mises completed his graduate studies in February of 1906 he had likely made plans to continue scientific research in some form. At that point he was thoroughly conversant with the Austrian School and with some of the more serious problems left unsolved in the Existing Literature. He had realized, in particular, that no follower of Carl Menger's had offered a satisfactory integration of the theory of money into the general framework of Menger's theory. This had exposed the Austrian theory to some vigorous criticism, most notably from the German economist Carl Helferich, who claimed that the theory of money could not be reconciled with Menger's theory of value.

4:01Mises dedicated the next five years of his life to filling the gap with a systematic treatise on money that he planned to submit to the University of Vienna as his Habilitation thesis. The Habilitation degree was granted on the basis of a comprehensive scholarly work that not only covered a large field of knowledge and demonstrated the author's ability to shed light on the phenomena under consideration, but also made significant contributions to present knowledge. The idea was that the authorities of the science recognized the in the University System on a par with more senior candidates. But first a book had to be written, and the necessary research to be done. In those days such an enterprise required unusual private financial means or unusual energy. There were no university positions for these young scholars to earn a living while they pursued a long-term Research Project. They were private scholars, but only loose university affiliations. They could hope for academic employment only after the successful completion of a hab. thesis.

5:12Meanwhile they had to survive a prolonged period of professional and material insecurity. If they could not rely on their family, or did not wish to do so, they had to earn their living in some other occupation while pursuing scholarship at night. This was science the the Hard Way, and it was Mises' way from March 1906 until December 1911 when he finally sent his completed manuscript to the publisher. He took the hard times lightly. He was a young man full of energy and enthusiasm for his science. Would he have despaired if he had known that this was how his life would be for almost thirty years? He had later admitted that it was hopeless for him to obtain one of the few positions at a German or Austrian and University. At one point, he observed sarcastically, I was ill-suited to teach the royal Prussian police science. But even in his youth, he had to realize that he would have to make his way without public support. Austria had produced many geniuses only to

6:14confine them to the lives of independent scholars. Pioneers like Mendel and Kumpelowicz never held university positions. The Austrian government dismissed from teaching Bolzano and Brentano So it isolated Mach and did not at all care for Husserl, Breuer and Freud. It appreciated Boehm-Bawerk as a capable official, not as an economist. However, these failed careers did not deter Mises or thousands of like-minded young men from following their examples. Posterity would honor them, they were sure, just as the present society honored the heroes of the past. Books, monuments and street names were dedicated The result of their sacrifices was an explosion of creative energies in virtually all fields of human endeavour that made Vienna's glory in the decades before the National Socialists rose to power. The intellectual explosion in Vienna was already visible when young Mises prepared for the life of a private scholar, ready to earn his living in some liberal profession.

7:19Pursuits would be his real life, the one that would give significance to all other activities. His professional life would be secondary, a day job to pay the bills, and thus he began, on March 15, 1906, a paid internship with the fiscal administration of Lower Austria in its Vienna district headquarters. The most important source of data on Mises's early professional development is a letter of Application and Curriculum Vitae that he wrote to the Chamber of Commerce in 1909. This letter is today kept in the files containing the Machlup-Mises correspondence at the Hoover Institution. Difficult start in professional life This was the traditional choice of the sons of civil servant families. It had been the first station in Boehm-Bawerk's career, and thus it was a promising start for Mises too. A career within the civil service was was a highly coveted outlet for law graduates, opening prestigious opportunities within the executive branch of government. The civil service was considered to be the nobilium officium par excellence while top executive positions with private firms were valued

8:29far less highly. The office was then under the direction of Alexander Freiherr von Spitzmüller, who later moved to a top executive position at the Gredianstalt and eventually became and the last president of the Austro-Hungarian Bank, the Empire Central Bank. His 1909 curriculum vitae describes his position as that of a Konzeptspraktikant at the KK Finanzbezirksdirektion in Vienna. Mises's congratulatory letter on Spitzmiller's 70th birthday in 1932 speaks of a Finanzlandesdirektion, head financial office of the regional government. It is ironic that Mises would become the most outspoken and influential critic of the policies of the Austro-Hungarian Bank under Spitzmiller's governorship. Patience and loyal service combined, with a dose of clever networking, would have put Mises in a position to follow in this great man's footsteps and, given his interest in the theory of money and banking, gain a high position within the central bank. But Mises soon discovered that this was a mistake, The paralyzing formal procedures, the mental pettiness, and the personal dependence on one's superiors came to him as a shock. He might have been thinking back on this experience

9:44when he later wrote on the nature and significance of bureaucracy. Government jobs offer no opportunity for the display of personal talents and gifts. Regimentation spells the doom for initiative. The young man has no illusions about his future. He knows what is in store for him. He will He will get a job with one of the innumerable bureaus. He will be a cog in a huge machine, the working of which is more or less mechanical. The routine of a bureaucratic technique will cripple his mind and tie his hands. He will enjoy security. But this security will be rather of the kind that the convict enjoys within the prison walls. He will never be free to make decisions and to shape his own fate. He will forever be a man taken care of by other people.

10:33Mises was not going to shudder and bury himself. By the fall of the same year, he asked to be honorably released, and his request was granted. This decision must have caused great consternation among his family and friends. How could he give up one of the most coveted positions for young men of his background. How can someone enjoying the privilege of serving His Majesty quit this service voluntarily? asked Heinrich Treichel in fast ein Jahrhundert. The question was addressed to Treichel's father, Alfred, a friend of Mises's, who had made exactly the same decision a few years earlier. Mises's choice was indeed remarkable and a vivid testimony of the personality of the young man. Ludwig was not the nice guy the Civil Service utterly dreadful. He was full of ambition and independent judgment.

11:41He had far more confidence in his own abilities than in the protection and prestige according to his Majesty's faithful servants. After his resignation he decided to prepare for for a career as a private lawyer. Admission to the bar required that the candidate familiarise himself with the Austrian court system through a two-year internship at the main courts. From October 1906 to September 1908, Mises interned at the Court for Civil Affairs, the Trade Court, the Penal Court, the Executive Court, and the District Court of the City of Vienna. The atmosphere in these institutions was not much different from what he had experienced in Fiscal Administration, but at least there was a prospect of leaving the system one day to become his own man. In those years Ludwig must have been the black sheep of the family.

12:35Was he unfit for the real world? Did he not know how to compromise? His brother Richard was the white sheep. He had graduated in the same year as Ludwig, then moved as an assistant Professor to the University of Brünn, today Brno, and in 1909, at the age of 26, he would land a professorship at the University of Strasbourg. This was a career path Ludwig would have welcomed, but the real world imposed different choices on him. In the fall of 1908, with the end of his two-year internship approaching, Mises looked for suitable employment in Vienna. He was hired by the prestigious law firm of Robert Pelzer and started working in its office The new position was a vast improvement on the suffocating mental narrowness of courtroom routine. Still, the firm was not a real escape from the bureaucratic atmosphere of the courts.

13:34Mises kept looking for other options. The Parallel Life During these years, Mises' scholarly enterprises compensated for the dismal courtroom routine. The first result of his research on monetary theory and policy was a published paper on the motives underlying Austrian foreign exchange controls. The article appeared in Boehm-Bawerk's Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung and dealt with the ways in which interest groups promoted price and production controls. He followed up in 1908 with a survey of recent literature on money and banking. It was a welcome addition to his intellectual life when, in October 1907, he was offered a position teaching economics to the senior class of the trade academy for girls. While the traditionally male gymnasium offered a broad classical education to prepare a young elite for university studies and the assumption of high responsibilities within the civil service, girls' schools had a stronger orientation to concrete professional concerns. Only recently Many had goals been admitted to the Matura exams and the ensuing university studies.

14:42These exams were organized exclusively by the gymnasium, however, so the goals prepared for them in special senior classes, Abiturientenklassen, at their own schools, and on the day of the exam went to the nearest gymnasium to take the tests. Mises taught economics and public finance, and Austrian government. New to teaching, he must have applied the classic pedagogy he had inherited from Menger and Boehm-Bawerk. He would begin with a brief preview of the tenets to be explained, then turn to an elaboration of his subject and eventually conclude by repeating some of the more important tenets. Erich Streisler states that Menger applied exactly this technique in his lectures to Crown Prince Rudolf. As early as 1907 he would have taught educated young ladies under the vibrant inspiration of Boehm-Bawerk's example, whose seminar and why he continued to attend. Boehm-Bawerk inspired Mises throughout his life of teaching.

15:37All of Mises's students would praise him for his earnest and engaged style, for the respect he displayed toward his students, and for the unfailing encouragement he provided at the slightest signs of interest and productivity on their part. The first students to profit from these extraordinary qualities were girls from Vienna's better families, students of In 1908, Mises became a member of the Zentralstelle für Wohnungsreform, Center for Housing Reform, an association of politicians and intellectuals, striving for an improvement in Vienna's housing conditions. He greatly enjoyed his activity within the Center, where he met excellent economists such as the brothers Karl and Ewald Pribram, Emil Pirels, Rudolf Mahres, Paul Paul Schwartz, Emil von Fürth and Robert Mayer. When Mayer became Minister of Finance, Mises was asked to write a policy paper on housing taxes, which was high on the agenda of the Austrian Parliament. In his memorandum, Mises argued that the taxes levied on existing buildings were less of a problem than the heavy taxation of joint stock companies which

16:44deterred big capital from investment in real estate. To his great satisfaction, the Centre for Housing Reform, fully endorsed his report. At about the same time, Mises was involved in setting up a group for the discussion of problems of economic theory and the fundamental questions of other social sciences. The other leaders of this group, the brothers Karl and Ewel Pribram, Emil Peerls and Elze Kronbach, were also members of the Boehm-Bawerk seminar. The weekly sessions with their great teacher were far too brief to allow thorough debate of the problems that came up, so they decided to create an additional forum. The first formal meeting took place on March 12, 1908, and from then on, the group met at regular intervals and soon attracted more members. Filipowicz, who headed the Centre for Housing Reform, allowed the group to use the Centre's beautiful premises for its meetings. After World War I, this group would become the Nationalökonomische Gesellschaft, the most important German-language Forum for the discussion of economic theory. It is likely that the group was already hosting

17:47foreign scholars, such as the young Dr. William Rapard, who stayed in Vienna for the 1908-1909 academic year and who some 25 years later would hire Mises to teach international economic relations in Geneva. Meanwhile, Mises continued to make progress in his study of money and banking. He was working on two papers that he probably presented in Boehm-Bawerk seminar, and which he submitted to foreign journals. The first one, which was published in the British Economic Journal, gave a sympathetic presentation of the foreign exchange policy of the Austro-Hungarian Bank, the Central Bank. Edgeworth, the editor of the journal, had asked Filipovits to write this paper, but Filipovits had no time and proposed Mises. The other paper elaborated on the same subject, dealing more critically legally with legal aspects of the bank's policy to redeem its notes in gold.

18:39Legally Austria-Hungary was on a paper money standard, but Mises argued that a de facto gold standard had been established through the bank's redemption policy, which by that time it had followed for some years. He concluded that a legal obligation of the bank to redeem its notes would not represent a new burden or danger, but would be a mere formality. Before he even published the paper, he received an unexpected invitation from a high-ranking officer of the central bank. Mr. Waldmeier offered material that could be useful for the study, but asked that, in exchange, Mises submit the paper to the bank for approval before publication. Mises declined. After its publication in Schmoller's Jahrbuch, the paper prompted a polemical exchange between Mises and two critics, Otto Neurath, another The Legal Obligation to Redeem its Notes would have curtailed a secret fund out of which which the bank paid bribes and other illicit salaries. The beneficiaries were therefore interested in maintaining the notion that legal note redemption was inadvisable for

20:04monetary policy. How was Mises to take this revelation? Should he unmask his opponents and uncover their corrupt scheme? After much thought he decided to do nothing of the sort. His mission as an economist was to unmask fallacious economic arguments. If he also To discuss the corruption of his opponents, the mission would lose focus. He later summarized his new personal maxim as follows. An economist must face his opponents with the fictitious assumption that they are guided by objective considerations only. It is irrelevant whether the advocate of a fallacious opinion acts in good or bad faith. It matters only whether the stated opinion is correct or fallacious. It is the task of other people to reveal corruption and inform the public about it. He added, Throughout my life I have held to these principles. I knew a great deal, if not all, about the corruption of interventionists and socialists with which I had to cope. But I never made use of this knowledge, which was not always properly understood by others. It was often

21:07held against me that I politely rejected offers to supply me with proof admissible in courts of law of embezzlement and frauds by my opponents. Cama. Daily work for the Pelser law firm was somewhat less rewarding than his early scholarship. Mises kept an eye out for more convenient career opportunities, and one came sooner than expected. His friend, Victor Gretz, who was employed as an economic counsellor at the local Chamber of Commerce, proposed Mises as his successor. Gretz had worked a few years for the executive office of the Niederösterreichische Handels- und Gewerbekammer, Lower Austrian and the Austrian Chamber of Commerce and Industry, hereafter Commer. Along with some other young economists, such as Alfred Treichel, he had been hired when the Commer made the strategic decision to strengthen its executive office to increase its leverage on Austrian economic policy. This decision of the Vienna Chamber of Commerce seems to have been paralleled at many other places in Germany and Austria-Hungary since the late 1890s. The new strategy of the Commer was a reaction both to the expansion of government

22:13Interventionism in the first decade of the 20th century, and to the simultaneous elimination of the Cummer from the Austrian Parliament. Until 1907, the sixty Austrian Chambers of Commerce had been directly represented in the Austrian Parliaments, according to the older parliamentary model, where representation referred to predefined interest groups such as the nobility, the clergy, the city dwellers, but also commerce and industry. Then the introduction of Universal Suffrage supplanted the old system, and the Vienna Cummer, which had traditionally been the hub of the whole network of chambers of commerce throughout the country, suddenly found itself without any direct political influence. Fortunately for the Cummer, however, the hyperactive new parliamentarians were completely ignorant of economic and legislative matters, incapable of anticipating the impact of the new laws on the market process. They also lacked the ability to formulate laws in such a way as has to ensure their proper enforcement through the bureaucracy. The Parliament's incompetence was obvious and embarrassing, but to the Commer executives it was an opportunity. They started

23:21offering technical assistance to the various committees and bureaus involved in the preparation of new economic legislation. The services of the Commer coming from the official representatives of the Austrian business world were readily accepted and quite influential. The Commer's Office was once again a major player on Austria's economic policy scene. This had positive personal consequences for the members of the executive office. In early 1909, most of them had been offered to attractive positions within the higher strata of the government bureaucracy and in major corporations. Teichu had left the Kama in March of 1909 for one such. Shortly thereafter, he moved on to become vice-chairman of one of the major banks. After the war, Mises applied in February 1909, mentioning his scholarly publications and stressing practical skills such as the command of English and French, as well as Polish and some Italian, and of stenography according to the Gabersberger System. It is unlikely that the comer received many applications of this calibre. In fact, most candidates with Mises's qualifications

24:43sought careers in the more prestigious civil service. He was hired on the spot and began work on the 1st of April. One author claims that he was hired on October 15th, 1909, as a provisional contipient, an aspiring lawyer who has only recently passed his exams. This seems to be wrong. In a May 1909 newspaper report, Mises is mentioned as a representative of the Kummer Bureau. After three years of wandering, Mises had finally found an agreeable occupation that would support his after-hours scholarship. He remained in this position for the next 25 years. At this point Mises was still living in the Friedrichstraße No. 4. Ludwig and his mother moved to another apartment in 1911. The new His new address was Waldseiler 24, also in the first district. Housing regulations prevented Ludwig from keeping the apartment when his mother died in 1937. By October 31st of that year he found new tenants who sublet him one room where he stored his library and personal documents. He writes, The Commer offered me the only field in which I could work in Austria.

25:52I have created a position for myself. Officially, I was never more than an officer, but amte, in a commerce executive office. I always had a nominal superior and colleagues, but my position was incomparably greater than that of any other commerce official, or of any Austrian who did not preside over one of the big political parties. I was the economist of the country. The Chambers of Commerce fulfilled three main functions. They provided the political establishment with a certain level of control over any emerging commercial power. They provided the commercial establishment with representation in the state apparatus. They helped protect established commercial interests from new competition. Accordingly, the Vienna Comma had gained its greatest impact on Austrian politics in the years from 1884 to 1901, when it most visibly The Austrian industrialist hardliners therefore created a number of other institutions of a more combative character. In particular the Industriellengruppe founded 1875. After After the First World War, it merged with other similar organisations into the Hauptverband der Industrie Österreichs. One of Mises' best friends, Weiss von Wellenstein, led that

27:25organisation. In the wake of this campaign, the Kammer acquired so much regulatory power that it was increasingly perceived as an arm of the Central State Administration. It would be a mistake to think that Mises had quit a bureaucratic life to join a business Education. His job did include some of the benefits of private institutions, but it also maintained some of the characteristics of the civil service, both the prestige and the constraints. The main benefit of his new job was something no government agency could offer – latitude for the creative employment of individual energies and a personal impact on public debate. Mises made ample use of these opportunities to reanimate the spirit of Capitalism, in an institution where it had become a dead letter.

28:12Mises joined the first section of the Commer as an analyst. The official name of his position was Konzipist. At the very moment, the Austrian tax law was undergoing its first major revision since Boehm-Bawerk and his team of economists had reformed direct taxation in 1896. The Boehm-Bawerkian reforms had established a plan for government finance up to 1909. In 1908 the Ministry of Finance had presented a reform plan that did not change anything in the structure of taxation, but increased personal and corporate taxes. Mises's main role within the Commer in the pre-war years was to lead an extended campaign against the official proposal. Even though he was a newcomer, he soon surpassed all expectations. Early on he was entrusted with leading the negotiations with the representatives of the Ministry of Finance, actually obtained a compromise that reconciled the government's endeavour to increase tax revenue with the interest of the commercial and industrial circles organised in the Commer. His first mission was to study the impact of the proposed taxation of beer

29:16and other alcoholic beverages. He took part in a mid-May 1909 Commer conference on the consequences of the increase of the beer tax. The participants criticised the increase with The Standard Economic Argument, pointing out that it would annihilate marginal business. But when another Commer meeting was held two months later on the taxation of alcoholic beverages, the Commer's attitude had undergone a seismic shift. Mises had taken the bull by the horns and, in the first of many reports he would write in the coming years, raised not only the familiar issue of marginal business, but also the politically delicate issue of of the Agricultural Interests, underlying the proposed legislation. Mises pointed out in great detail the existence of inequitable sales quotas for commercial and agricultural producers, and of special subsidies for the agricultural production of alcohol. The meeting denounced these practices, basing all its resolutions on Mises' report.

30:13In a post-war book, he would point out that the conflict between commercial and agricultural Mises then turned to propose legislation concerning private inheritance and donations, as well as corporate taxation and corporate law. He reported on the former topic to a plenary CUMMA meeting in early December 1909. Mises pointed out that the higher taxation and the complicated procedures of the planned law would hurt business life, and he emphasized and again that the stipulations of the new law would treat the agrarian population better than urban circles in commerce and industry. But he also brought more far-reaching considerations into play, noticing that the legislation would subject Austria's courts to the control of the financial administration. Other young economists also gave reports at the meeting, but theirs did not have as great an impact on the public or the press. Mises's set new standards both for analytical scope and rigor and for their political audacity.

31:18The wind of change blew through the Comer. Even though Comer executives did not always share the views expressed in the reports of their new employee, they benefited politically from the fact that his seemingly extreme positions were always backed up for such thorough research that the Comer was able to reach more favourable compromises in the political process. Home Clouds. Meanwhile, Austrian foreign policy had taken a fateful turn in 1908. A revolution in Turkey had smashed a theocratic establishment that had been unable to enact real reforms for decades, and swept into power a group of ambitious young men who came to be known as the Young Turks. All over the world there were various young movements, among the Czechs, in Chinese, in literature, painting, politics, etc.

32:11These young Turks pursued a radical reform programme designed to make Turkey more like the secular democracies of the West. European leaders were amazed to see the young Turks putting their ideas into practice so quickly. Many of them believed that Turkey would soon regain formidable strength, with drastic consequences for the political map of southeastern Europe. The hawks in Vienna immediately began agitating for the annexation of Bosnia and Herzegovina. The Austro-Hungarian army had occupied these territories since 1878, but they had not been formally incorporated into the empire. The advocates of war insisted that Austria-Hungary could not afford to wait until the Turks were strong enough to reclaim their former colonies.

32:58When it became obvious that the hawks would have their way in Vienna, war nearly broke The war was averted, however, when the Russians withdrew their support for the Serbs. After a year of negotiations, Bosnia was constituted as a part of Austria-Hungary, but the event had a lasting negative impact on foreign relations. Austria-Hungary's Hawkesh Minister of Foreign Affairs, Erenthal, successfully lobbied the governments of Russia, France, Italy and Great Britain to approve the annexation, but the old trust that Austrian statesmen had enjoyed abroad had been destroyed. Rudolf Sieghart, a high government official at the time, said in retrospect that the annexation was the overture to the World War.

33:58An increasing number of crises entangled the major European powers over the next several years. Austria-Hungary mobilised its troops again in 1912 against another Russian-Serb coalition. Once again the Russians withdrew at the last minute, but two years later they would stand fast. The annexation campaign had a profound impact on domestic policy as well. The Liberal Prime Minister Beck had resigned in November of 1908 to protest the The Annexation The last phase of bourgeois liberal rule in Austria ended with his administration. Beginning with Kerber's administration in 1900, which included Boehm-Bawerk as finance minister, Austria had been ruled for eight years by governments that found their main support in the liberal press and in business and finance.

34:44Every prime minister since 1900 had risen to his position through a career in the Austrian to Eurocracy, and each ruled on the basis of emergency laws that allowed the Emperor to appoint governments without parliamentary approval, but Kerber had pioneered the method of governing through the press, and his successors Gauch and Beck skillfully continued this approach. They were not mere administrators for the Emperor, but could initiate political change through direct communication with the citizenry, thus bypassing political party organisations. The succeeding governments could no longer rely on the support of the liberal establishment, especially the press, and for this reason alone were unable to address any pressing political problem before the outbreak of war. National conflicts and suppressed democratic longings continued to alienate the citizenry from the empire. Under relentless centrifugal forces, the country was ready to break apart.

35:41and a meeting of the Verein für Sozialpolitik. These developments would surface over the next several years and would include two Balkan Wars and the Morocco Crisis that preceded World War I, but in 1909 the world had not yet fallen apart. Mises enjoyed his new work at the Comer and continued to pursue his other intellectual interests, including Boehm-Bawerk's seminar and the discussion group he had founded with his friend Peels and others. In September 1909 the plenary meeting of the Verein für Sozialpolitik took place in Vienna. It turned out to be one of the most significant intellectual events before WWI. The conference took place at the end of September and featured sessions on the problems of municipally owned companies and on the concept of productivity. Mises probably joined the Verein at this point.

36:35He certainly attended the sessions that were organized and directed by his teacher Filipowicz. Filipowicz, one of the vice presidents of the Verein, had successfully promoted the subject of the productivity of national economies and the empirical measurement thereof. Other topics dealt with were problems of enterprise owned by local government and a memorial lecture on the German economist Hansen, which was delivered by Georg F. Knapp. It was the first The first time ever that the Verein dealt with a problem of pure economic theory. Moreover, it was a problem of fundamental importance for the cause of the social policy movements so dear to Filipowicz. The productivity debate at the Vienna meeting would become a high point in the history of the Verein and of German economics, featuring the confrontation between the historicist majority and the vociferous group of brilliant younger scholars such as as Werner Sombart, Bernd Heims, the Weber Brothers and Pastor Friedrich Naumann. Over the years Max Weber had become the leader of those who contested both premises of the

37:37Verein, the utility of government interventionism and the historicist methodology. Leadership accrued to him not only because of his imposing personality, but also and especially because he had started his career within the Verein as both an interventionist and historicist. The dissenting voices Dietzel, Wolf, Ehrenberg, Poehle, Basso and Adolf Weber, Adolf Weber had no family ties with the brothers Alfred Weber and Max Weber, had never been Schmollerites in the first place, but Max Weber was elected into the committee in 1893 as a young star in the Kathedas socialist tradition. According to Mises, he was appointed professor of economics without having dealt with this science before, which was a customary procedure at that time.

38:26reflected the historical school's opinion on the nature of social sciences and on the scientific expertise of legal historians. When he accepted the position, the jurist and historian in him rebelled against the manner in which the school treated legal and historical problems. This is why he began his pioneering methodological anti-pistemological investigations. It led him to the problems of materialistic philosophy of history, from in which he then approached the religious sociological tasks. He proceeded finally to a grandiose attempt at a system of social sciences. But all these studies, step by step, led Max Weber away from the political and social ideals of his youth. He moved for the first time toward liberalism, rationalism, utilitarianism. In contrast to the still dominant Schmoller writes, Max Weber and his brother Alfred thought that normative propositions of the type, the government should do this or that, had no scientific basis and reflected only the personal value judgments of their author. Heino Heinrich Nao points out that Max Weber merely elaborated Carl Menger's methodological position. His main contribution

39:40was to synthesise Menger's methodology with Heinrich Rickert's theory of value relations. The debate on value freedom itself was therefore a continuation of Methodenstreit between Menger and Schmoller. After World War II, there was another round of essentially the same debate in the so-called positivismusstreit, which at the beginning of the 1960s opposed the Marxist Frankfurt School and Karl Popper and his followers. These views had been reinforced just a year before the Vienna meeting through Schumpeter's Nature and Essence, which championed the claim that economic research could mimic the natural sciences. The Weber's also thought that the mainstream systematically overlooked the problems that arose from government intervention. In 1905, the plenary meeting in Mannheim featured the first open clash between the young radicals and the establishment over the question of of Cartels and Anti-Trust Policies In the 1870s and 1880s, the majority of the Verein had welcomed the formation of cartels as an anti-immigration device. The cartels reduced foreign competition and thus they diminished for a while at least the downward pressure on wage rates in the least competitive

40:55industries. Workers employed in these industries had less incentive to emigrate than they otherwise In the 1890s, the dominant view was reversed mainly because the civil servants were jealous of fast-growing corporate power. The Mannheim meeting was meant to be an important milestone of this new orientation. The invited lecturers by Brentano, Leidig, Schmoller and Kierdorff made the case for various policies designed to reinforce the position of labour unions within large firms to curb corporate power and to make large firms socially responsible. Schmoller proposed, for example, that 25% of the seats of the corporate boards be reserved for government representatives. In the ensuing debate, Friedrich Naumann, Werner Sombart and Max Weber heavily criticised these analyses and conclusions. Weber accused Schmoller of cultivating old illusory notions about the nature of the state, but the greatest blow against the establishment position came through a speech by Pastor Naumann, who seems to have have been in his Marxist phase. He argued that the formation of cartels had resulted from great secular forces that could not possibly be prevailed against by some minor state and

42:08its middle-class policies in support of the handicrafts. Moreover, anticipating an argument that Mises would carefully develop many years later, Naumann pointed out that the proposed government interventions could not attain the end they were meant to achieve. These interventions were, from a technical and economic point of View Nonsense. Nauman's speech roused the audience to unusually enthusiastic applause, applause that lasted much too long for the embarrassed Schmoller, who later scoffed that the response had been frenetic. By tradition Schmoller wrapped up the meeting. He called Nauman a demagogue, and said that if he were not allowed to distance himself from Nauman, he would have to step down as president of the Virein. Many thought Schmoller's reaction was excessive, and long-time critics such as Ludwig Poehler and Andreas Voigt cancelled their membership. The controversy eventually died down, especially because the next meeting in Magdeburg, 1907, dealt with less controversial subjects, such as the training of young economists and problems of city administration. But the stage was set for the Vienna meeting, where

43:16core issues of the social policy movement were on the agenda. The first two sessions dealt with problems of municipal firms. As usual, the lectures and the discussion concerned technical problems relating in particular to the administration of those firms, their means of finance, and the remuneration of their employees. This cosy exchange of municipal socialists was shaken up, however, when the Weber brothers brought some rather fundamental considerations into play. An eminent historian of the Verein, who, siding with the mainstream, attended the Vienna meeting, He called the sensation that the Weber brothers stirred with their remarks. Whereas as many speakers stressed the entire debate had relied on the opinion shared by all that municipalisation, the transfer of certain suitable industries from private hands into the hands of their municipality always means social progress, Alfred Weber contested this opinion. He pointed out that municipalisation turned ever-greater parts of the population into bureaucrats and presented this without any ambiguity as a great defect. Alfred Weber had dared to suggest that there might be something wrong with becoming a civil servant, and something

44:29even worse about turning large segments of the population into employees of the state. In doing so, he denounced the very mission of the Virein, which was to provide scientific underpinnings for ever more government intervention and a larger, more powerful bureaucracy. After his speech there was too little time for discussion but the confrontation between the Weber's and the Schmollerites would be continued the next day, which dealt with the central concept of national productivity. The prevailing justification for government intervention stressed the distinction between profitability and productivity. The typical Schmollerite professor would argue that the profit of an investment was primarily an indicator of the investment's importance from an individual point of view. Only under very specific and rare conditions was it also indicative of the social value of an investment.

45:21From a larger social point of view, it was therefore crucial to judge any decision about the use of society's scarce resources in terms of its productivity. But is there anything at all like an objective criterion to distinguish more from less productive uses of resources? On this decisive point the cathedra socialist professors were silent. Filipowicz felt that scientific integrity required a clarification of this theoretical issue and he set up an Austrian session on productivity theory featuring plenary lectures by himself and by his distinguished colleague Friedrich von Mises. Filipowicz delivered the first of the two lectures. He gave a brilliant overview of the history of the concept of national productivity but then One evaded the true subject of his lecture, which was supposed to deal with the nature of national economic productivity and the possibility of measuring it.

46:14Filipowicz focused entirely on the narrower question of the impact of technological progress on productivity. This evasion derived in part from the difficulty of the subject, but was also due to the fierce opposition that was to be expected from the Weber brothers and their allies. The second lecture also avoided the crucial question of the concrete meaning of national Productivity. Visa's subject was the measurement of the value of money and of the changes of its value, with special consideration to the problem of productivity. The general idea was that money prices could be used as a yardstick to measure the economy's productivity or at least changes in productivity. This in turn presupposes that it is possible to analyse and Quantify Alterations in the yardstick itself, Changes in the Value of Money.

47:04Now Wieser had his own views on what precisely was to be understood by the value of money and he stated his position in a long essay that appeared in advance of the conference in Wieser's publication series. Based on this essay, he delivered his lecture focusing more narrowly on the technical problems of money value measurement. Wieser's discussion and highlighted once again that he believed that the natural value of an economic good was not tied to individuals. The natural value of a good was rather its general economic significance within a social context. The difference in value between two goods indicated that the more highly valued good was generally more important than the less valued good, not just for the individual but for all subjects of the commonwealth. In short, the differences The differences between the various values reflected a hierarchy of values. What was better or worse from an economic point of view could therefore be determined by reference to differences in value.

48:04And despite all problems relating to technical procedure, the value of all things could be ascertained by the inquiring mind. In principle, at least, it was possible to measure economic productivity and economic progress just as it was possible to measure the changing value of money. These views enabled Wieser to bridge some of the differences that he, the highly prominent theorist, otherwise had, with the predominantly historicist members of the Verein. In fact, the traditional purpose of the Verein was to provide theoretical guidelines for public policy, and on the most fundamental level this required that one be able to distinguish between better and worse economic states of affairs. Shares, Viserion Economics promised such a distinction based on the Theory of Value, even though Wieser himself was reluctant to commit to any policy position.

48:54After Wieser had finished his lecture, the first comments came from Herkner and Knupp, champions of the traditional view which considered the notion of national productivity to be generally coherent, though it was difficult to give it operational meaning. But then came, Mises later recalled that memorable exchange of arguments in which, for the first time within the Verein, the amalgamation of the economic, theoretical, and ethical political viewpoints was vervently attacked. Werner Sombart led the attack, denying that the concept of national productivity was useful for scientific research. Then Gottel-Odlienfeld argued in the same vein that the notion of national productivity had no correlate in the real world. It was finally Max Weber's turn to address the question. He had long awaited this opportunity to corner his opponents on the question of the nature of scientific research. He was already known for his ideal of value-free scientific research, that is, research with the strict orientation toward the ascertainment of matters of fact. He was himself a passionate man, and he did not believe that value freedom required emotional detachment from the object

50:03of One Study. But it did imply that the scientist, and especially the social scientist, strictly distinguish between what is and what should be. It implied that he must not conflate his personal preferences with the factual results of his research. In a frontal attack against Filipowicz, Weber argued that there was no objective way to speak about the productivity of an aggregate of human beings. The very notion of national Professional productivity had a normative rather than descriptive function. It therefore had no place in economic science and should be cast into the economist's dustbin where it belonged. Significantly, the main target of Weber's attacks was Filipovich and Schmoller. Weber was implicitly acknowledging Filipovich as the true intellectual leader of the interventionist movement. In his replies to Weber, the latter Walter demonstrated the qualities that had won him this position. As Mises recalled many years later, the cause that Filipovich advocated has been defeated. Today it is generally recognised that it is not the task of science to establish value judgements, but in that encounter in

51:13which Filipovich was on the wrong side he was greater than his opponents, who turned out to be right, and these opponents were led by Max Weber. Never has Filipovich's intellectual Persona revealed itself in a brighter light, never have his oratorical skills made a deeper impact on the audience than in the final comment of that now famous debate. The Cateda Socialist establishment had spent all its energies justifying the introduction of ethical considerations into economic analysis and insisting that this was science too. In Vienna they had won the day to the great frustration of Max Weber, who no longer believed the Verein could be a suitable forum for genuinely scientific questions. The Vienna Debate had a follow-up in a meeting of the Vereins Committee, which took place on January 5th, 1914 in Berlin and was dedicated exclusively to the discussion of the role of value judgements in economic science.

52:10In order to avoid unsuitable publicity, the fifteen papers on which the meeting was based were not published and there are no records of the debate. The meeting was the culmination of the value judgment debate which in modified form was continued in the 1960s in the so-called positivismusstreit. Meanwhile, those 15 papers have fortunately been published. After the Vienna meeting, Max Weber founded the German Sociological Association, which met for the first time a year later in Frankfurt am Main. By early January 1909, Weber had had taken part in a meeting in Berlin to prepare the establishment of the Sociological Association. Among the 39 other participants were Ferdinand Tönnies, Georg Simmel, Werner Sombart, Friedrich Herkner, Paul Barth, Ludwig Goldscheid, Hermann Kantorowitz, Franz Oppenheimer, Ernst Tröltsch and his brother Alfred. Max Weber was also among the signers of the open letter of invitation to the First Meeting of the Association in Frankfurt in 1910, where Tönnies was elected president and Weber himself treasurer.

53:18This retreat turned out to be unnecessary. After the Vienna meeting, the cause of Schmoller and Filipowicz was doomed. They had failed to capture the hearts of the rising generation. After Schmoller's death in 1917, new men would begin to take over the Verein für sozialpolitik and set German social research on an entirely different path. Among these men was Mises, who fully endorsed Max Weber's view of science as a purely fact-oriented discipline, a view that was emphasized in the by-laws of the new sociological association. For the rest of his life, most notably after the death of Boehm-Bawerk, Mises would fight for truly empirical research. During the 1920s he even upheld Max Weber's use of the expression and Sociology, shorthand for empirical social science, as opposed to the value-laden rumblings of the German early government scientists to describe his own works. He abandoned this practice when he realised that most other writers used the same word to establish a parallel social science based on foundations completely different from economics, but this

54:24is a topic for a later chapter. Breakthrough at the Cummer At the end of January 1910, Mises finished a long report that had consumed his energies in the preceding months. He presented the report to a plenary CUMMA meeting. In it, he took issue with proposed legislation to increase corporate income tax rate, to subject corporate managers to additional taxes and to give the financial administration access to corporate bookkeeping. Mises criticized the bias of this new legislation, which sought To Increase Government Revenue at the Expense of Austrian Industry, the Kammer Klientel, while favouring agricultural producers, Mises suggested that a more reasonable policy would be to apply existing tax laws equitably. His position with the Kammer left him even less time than usual for his academic endeavours, but he seems to have continued his studies with iron discipline. In 1910 he came out with two new publications, an article in a The New French Journal on the Reform of Government Finance in Austria, and a survey of New Literature

55:27on Money and Banking for Boehm-Bawerk's Zeitschrift. But he was far better known for his Kummer Report, which were followed attentively by friends and foes, and praised in the Vienna Daily Press as very thorough, exhaustive, very well researched, and richly documented with statistical material. The thoroughness of his work, and the intellectual leadership that he exercised in cummer circles gained Mises a level of public recognition that allowed him to comment on government policy in the central organ of Austria's ruling elites. Thus, in a Neue Freie Presse-piece from October 1911, he criticised Finance Minister Bielinski for his proposed increase of income taxes, and about a year later he criticised the tax proposers of MP Steinbender, observing that they would reintroduce the bad old pre-Boehm-Bawerk The government's constant drive to increase old taxes and to create new ones was a permanent issue on the public agenda. At the end of October 1911, the Commer hosted a meeting of various automobile associations to discuss the government's plan to tax cars. Mises

56:42Mises was unhappy with the assembly's toothless resolution to appeal to the government not to exceed German automobile taxes and to tax foreigners only after a stay of more than three months in Austria. He was similarly disappointed in a November 1911 meeting in which the Commer took up the problem of rising meat prices. Mises' report stressed the common-sense point that the easiest solution would be to open the borders for foreign meat Imports. But this solution was not politically viable. The reduction of meat taxes, another simple and effective solution, was equally unfeasible because of the government's chronic financial difficulties. Despite such setbacks, Mises tenaciously pursued his strategy of changing the structure of Austrian taxation, and in March 1912 he was promoted to the rank of consulente, counselor. The bottom line of his many reports was that the prevailing Banking Tax Code enshrined the privileges of various vested interests, particularly Austrian agriculture and hampered industrial progress. This line of argument seems to have been especially pronounced at the end of his campaign. A case in point is a report that

57:50he probably submitted in May 1913 on the proposed taxation of insurance contracts. Mises here criticised the differential treatment of agrarian and urban segments of the population and the and the excessive orientation of the proposal toward the interests of the financial administration. He sought a compromise that would guarantee the government higher revenue while preventing the burden from falling entirely on his clientele. His tenacity eventually paid off. In early 1914, parliament voted a new tax law that granted most common demands. The new law stipulated Theory of Money Despite his workday immersion in the details and intricacies of the Austrian tax policies, Mises had somehow managed to write a treatise on money and banking. He had written no articles for a year, focusing instead on the completion of his book. In mid-December 1911 he put the finishing touches to a manuscript with the title Theorie des Geldes und der Umlaufsmittel – Theory of Money and Fiduciary Media, misleadingly published in English as Theory of Money and Excited to see the work of more than five years come to completion, he had already approached several prestigious publishers and now decided to accept the offer of Dunker & Humlott in Leipzig.

59:35Mises received 50 complimentary copies and had to pay 1372.50 marks or 26.6 ounces of gold as his share of the total production costs, 2264.18 marks. Works. The first edition comprised a thousand copies plus one hundred complimentary copies for reviews and gifts. They had produced the beautiful edition of Schumpeter's spectacular first book, and were one of the most prestigious names in economic publishing. Mises worked feverishly revising the proof pages, making last-minute changes and constantly inquiring about the production process. Under his pressure to speed up production, Duncker and Humlott even hired additional staff. On June 14, 1912, the book was delivered to the book dealers who sold it for the cover price of 10 marks. The long-term impact of Mises's first treatise can only be called spectacular, and we therefore take a deeper look at its main ideas in the next chapter. After 90 years, it is still in print and remains a source of inspiration Rejection for Monetary Theorists Despite initial rejection by the majority of German economists, the value of Mises's work was recognised immediately by the profession's

1:00:52greatest mind. Max Weber called it the most acceptable theory dealing with the substantive monetary problems. Schumpeter praised its power and originality, noticing that, as usual, the critics had overlooked these qualities in their discussion of unsubstantial side After the war, Albert Hahn would stress the Mangerian qualities of Mises' work, saying that its author, the master of economic theory, never falls for the temptation to pursue fictitious abstractions, but stands on the firm ground of the facts. The principal advantages of the work are found in that the author, in all mastery of the theory, never allows himself to fall into unrealistic abstractions, but remains fully grounded in fact.

1:01:37On the other side of the Atlantic, a young pioneer of economic theory praised the book for essentially the same reasons. In von Mises, there seems to me to be very noteworthy clarity and power. His Theorie des Geldes unter Umlaufsmittel is an exceptionally excellent book. Von Mises has a very wide knowledge of the literature of the theory of money. He has a keen insight into the difficulties involved. The greatest sign of recognition, however, was the fact that Boehm-Bawerk devoted two entire semesters of his seminar to the discussion of Mises's book, an honour shared by no one else, not even Schumpeter. Boehm-Bawerk acknowledged Schumpeter's brilliance, but wrote that he wished to see Schumpeter turn to serious work. Apparently Mises's book was serious theoretical work of the sort Boehm-Bawerk had in mind, and its enduring success proved the old master to be right once again.

1:02:31again. Mises submitted the book to the University of Vienna to obtain the Habilitation degree and to be admitted as a privatdozent, a private lecturer who could offer the students optional courses. His request was granted in the spring of 1913 and he began lecturing in the summer semester. What glorious days when one could study under Boehm-Bawerk, Wieser, Filipowicz and Mises! But these days were numbered. The all-star Austrian faculty lasted only three semesters. In August 1914, Boehm-Bawerk died, and Mises was sent to the front. His best students perished in the war.