8. Nation, State, and Economy

0:00Chapter 8 Nation, State and Economy Like many intellectuals of the time, Ludwig von Mises felt the need to come to grips with the causes and consequences of the war that had destroyed the Old World. For quite some time, he had anticipated a dreadful end to the war, and as soon as he had returned from his last mission on the front lines, he began to put his thoughts on paper. Despite his time-consuming involvement in the the new republican government, his comer activities and his duties as a professor, he continued working on a new manuscript, which would contain an in-depth analysis of the causes of the war, his personal experience of it, and the political challenges facing post-war Austria.

0:47As usual, he worked on the book in the evening and late night hours, after long work days spent with other tasks. He finished the manuscript in early July 1919, just before leaving Vienna for a few weeks of vacation in his beloved Bad Kastein. He had written the book as Imperialismus, but he published it under the title Nation, Staat und Wirtschaft, Nation, State and Economy. Although it is now one of his less known works, it made a great impression on many readers at the time and established him as the most important intellectual champion of classical liberalism in post-war Austria, and eventually in all of Europe. The first impressed reader was the young Commerce Secretary who typed the manuscript Deres Tiberger.

1:34She would remain his assistant until 1934, when he left for Geneva, and they would remain good friends for the rest of their lives. The book contains three essays on the theory of imperialism, with applications to the history of Germany and Austria-Hungary. In the first In the first chapter, which comprises almost two-thirds of the book, Mises pioneers what could be called the analysis of the political economy of nations, to explain German imperialism, which in his view was the main cause of the war. The second chapter contains a thorough critique of the alleged blessings of German war socialism, and the third dissects the history and politics of the German social democrats. The book contains most of the political arguments that Mises would develop in more detail during the 1920s.

2:26Despite the rather specific nature of the events he was dealing with, none of his observations have lost relevance. As he himself points out in the book, it would be a mistake to think of pre-1914 German imperialism as a specific problem of the Teutonic race. It was rather the necessary result of certain historical conditions, which are likely to The Peace Dictates of the year 1919 have wiped the Austro-Hungarian monarchy off the map, and for the future world history this empire is likely to be a dead letter. Of all its struggles and sufferings, nothing but some names will remain in history, also it appears as in the case of Cartage, but the problems which this empire has made such painful efforts to solve are not solved in most of its successor states. They reappear everywhere in the world and will for a long time occupy the minds wherever national minorities struggle for for the continued existence of their proper culture, migrations, mixed populations and modern imperialism. In 1914, the predominant political mentality in Germany was authoritarian.

3:54Most Germans believed that sheer physical might was the necessary and sufficient condition for successful politics. Because nothing was impossible to a powerful government, the essence The purpose of politics was to make the state irresistible. Mises believed this view to be short-sighted, but why did the Germans of all nations succumb to imperialism? Why did they not share with so much of the West the classical liberal enthusiasm for individual liberty, private property and national self-determination? Mises gave two answers, one relating to Germany's interior conditions, the other concerning In both cases, he showed that German imperialism resulted from a clash between the principle of national self-determination and the principle of democratic government. After a brief honeymoon with liberal ideas prior to 1848, the Germans embraced the tenets of statism because of certain particular conditions prevailing in the eastern provinces of Germany and Austria-Hungary.

4:59In these areas, the Germans were a small minority among other nations. The introduction of democratic government would have transferred political power from the hands of the German Central States to local majorities of Poles, Ukrainians, Romanians, Hungarians and Slovaks. This in turn would have prevented any political participation of the Hilitude-dominating Germans, because in a democratic system, the command of the language of the majority is an absolute necessity. Mises admits that great political ideas like liberalism, socialism, etc. are not language-dependent, but he points out that the concrete application of such general ideas is conditioned by language and language-dependent culture. As long as the liberal parties were in the opposition, the conflict between German self-determination and majority rule did not become apparent.

5:53In the wake of the revolution of 1848, however, popular democracy in the eastern territories threatened the new liberal establishment, and German liberals have been anti-democratic ever since. Significantly, the very first and hotly debated problem of the Constitutive Assembly, Constituirnder Reichstag, was to select the language for its deliberations starting on July 22, 1848. The second great problem of the Germans was their relative overpopulation. Classical liberalism had abolished more and more impediments, not not only to trade, but also to the free movement of persons. As a result, people migrated to places offering better work conditions, which made their labour more productive. Many Germans had moved to colonies that were predominantly populated by English settlers. Surrounded by an English majority, the German emigres quickly assimilated and thus were lost to the German nation. In a desperate attempt to counter this development, the German government established a system of protective tariffs to reduce the incentives of German workers to emigrate under the pressure of more productive foreign competition. When the failure of this

7:06policy became apparent, the government changed its strategy and decided instead to conquer British colonies. It began to build a mighty fleet to combat the Royal Navy, guardian of the British Overseas Empire. This in turn prompted the British entry into the First World War. Mises identifies population mixes with a German minority as the prime cause of German hostility to government by popular majority. The Germans prefer to rule as a minority over a majority of other nationalities rather than be ruled by them. Mises was not moralizing. His purpose was to explain what had happened. He would leave it to others to address what should have happened. The German case was unprecedented. For the first time in the history of liberalism, the principle of national self-determination was incompatible with majority rule. But imperialism was only partly a product of specific German conditions.

8:08It was also nourished through migrations that produced unfavourable population mixes elsewhere, And in this respect, the German case had a universal significance. In fact, in all countries where great migrations had significantly modified the national balance, imperialism had made an unexpected and powerful return. Mises argued that the Czechs, Russians, Poles and Hungarians had already followed in the footsteps of the Germans. The United States and Australia too Tread it on imperialist paths with their immigration policies. Mixed population induced imperialism had become a world problem. This modern imperialism was more powerful and destructive than its predecessors because it could rely on the economic achievements of the brief but very productive era of liberty. Modern tyrants have things much easier than their predecessors.

9:05He who rules the means of exchange of ideas and of goods in the economy based on the division of labour has his rule more firmly grounded than ever an imperator before. The rotary press is easy to put into fetters, and whoever controls it need not fear the competition of the merely spoken or written word. Things were much more difficult for the Inquisition. The limits of tyranny and the industrial age were by no means narrow. If it contended itself Only one external limit is posed to this rage for the destruction. The apparatus of the The economy, based on the vision of labour, cannot be reproduced, let alone extended, if freedom and property have disappeared. It will die out. And the economy will sink back into primitive forms. Only then will mankind be able to breathe more freely.

10:17A truly ironic and sad aspect of the war was that the German imperialist spirit had won over those who had set out to defeat it. Imperialism pressed weapons into the hands of all who In Nation, Staat und Wirtschaft, Nation, State and Economy, Mises expresses essentially The League of Nations, brainchild of Woodrow Wilson, was designed in a spirit of preserving the post-war power positions of the Anglo-Saxon and French nations, just as a hundred years As earlier, the Holy Alliance had been designed to conserve the new balance of power after the defeat of Napoleon. In the League, the imperialist ideas of 1914 are in triumph over those of 1789. While this ironic outcome of the struggle between liberalism and imperialism was tragic for the Germans, it is less decisive from the standpoint of world history. The chief point remains that nations are being punished and that the forfeiture theory comes to Life Again. If one admits exceptions to the right of self-determination of nations,

12:01to the disadvantage of evil nations, one has overturned the first principle of the free community of nations. Moreover, the League pursued a blind one-size-fits-all agenda of making the world safe for democracy, overlooking the inconvenient fact that democratic government in areas with mixed populations does not mean national liberation but national oppression. The League of Nations of Versailles adopts this nationality principle only for the nations of Europe, yet in doing so it overlooks the fact that applying this principle wherever the members of different peoples live mingle together only ignites conflict among peoples all the more. It is still more serious that the League of Nations does not recognise the and the freedom of movement of the person, that the United States and Australia are still allowed to block themselves off from unwanted immigrants.

12:55Such a League of Nations endures so long as it has the power to hold down its adversaries, its authority, and the effectiveness of its principles are built on force to which the disadvantaged must yield, but which they will never recognise as right. American Germans, Italians, Czechs, Japanese, Chinese and others regard it as just that the immeasurable landed wealth of North America, Australia and East India should remain the exclusive property of the Anglo-Saxon nation, and that the French be allowed to hedge in millions of square kilometres of the best land like a private park. Injustice had been perpetrated on the German nation, but Mises prophetically warned that He recommended that the Germans turn their backs on imperialism once and for all and seek instead national self-determination and peaceful relations with all other nations.

14:00This was not an ethical imperative, but a policy in the best interest of the Germans. To retaliate for wrongs suffered, to take revenge and to punish does satisfy lower instincts, but in politics the avenger harms himself no less than the enemy. The world community of labour is based on the reciprocal advantage of all participants. Whoever wants to maintain and extend it must renounce all resentment in advance. What would he gain from quenching his thirst for revenge at the cost of his own welfare? The Utilitarian Method of Social Analysis In a highly developed civilisation operating under an international division of labour, it was in no one's interest to wage war or pursue empire. Neither was it in Germany's interest to cultivate resentments against its present oppressors, nor later to seek revenge. And it was against the considered self-interests of the victorious Western Allies that they themselves pursued imperialism.

15:01Mises believes that such purely utilitarian considerations make a much stronger case for passivism than any ethical appeal to the powerful to refrain from exercising power. Mises' rationalist utilitarianism must not be confused with the utilitarianism of Jeremy Bentham, a British philosopher of the late 18th and early 19th century. Bentham had given political utilitarianism from its most famous expression, claiming that the purpose of politics should be to promote the greatest happiness of the greatest number of citizens, a normative claim. Although Mises was inspired by Bentham's work, he was not primarily interested in justifying the application of utilitarianism in politics. He would later comment on the crucial flaw of Bentham's political thought, which celebrated the democratic majority principle as the foundation for Liberty. Max Weber's work had alerted him to the necessity of discarding normative questions from scientific analysis. Science had to deal with the world as it is, not as it should be. Mises was therefore not interested in whether utilitarianism should guide politics but in its application. Is the policy under consideration

16:13suitable to attain the proposed end? This, he saw, was the kind of question that could should be answered objectively. Any other approach risks entanglement in normative questions, therefore the value of utilitarianism for the social sciences did not consist in any ready-made political programs advertised under its banner, but in the practical perspective it offered on social problems. Utilitarianism, as Mises understood it, was not a doctrine, but a point of view. It was the perspective of rational suitability analysis. Its categories were means and ends. These questions had a venerable tradition in economic thought. John Locke, in his analysis of the debasement of coinage, monetary inflation, had stressed that the crucial question was whether this policy would at all serve to those ends for which it is proposed, and went on to show that this was not the case. Similarly, Adam Smith stressed that colonial trade monopolies is reduced national income in all nations, even in those that were meant to benefit from them. At the end of a thorough review of the interventionist

17:20trade policies of his time, he concluded, It is thus that every system which endeavours either by extraordinary encouragements to draw toward a particular species of industry a greater share of the capital of the society than would naturally go to it, or by extraordinary restraints to force from a particular species of industry some share of the capital which which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards instead of accelerating the progress of the society toward real wealth and greatness, and diminishes instead of increasing the real value of the annual produce of its land and labour. Other contemporary economists also argued along these lines. For example, Étienne de Condillac pointed out that virtually all forms of economic Economic Interventionism were in fact blows against commerce. The same approach characterized the policy analysis of subsequent generations of economists up to Carl Menger, who had also been a utilitarian in the Misesian sense. In his investigations and several other writings,

18:27Menger had argued that economic science deals with exact economic laws and that these laws in turn concern the optimal use of available means to attain a given end. Menger noticed with great satisfaction that his colleague Heinrich Dietzel championed the same view in two papers he published at the same time that investigations appeared. Dietzel argued that economists need not postulate that human behaviour is prompted by primordial economic motivations. Economic science is not about motives. It is about finding the optimal means to attain a given end. In short, Dietzel saw economic science as a sort of social technology and and he eventually proposed to rename the science socio-economics. Menger's and Dietzl's writings had influenced those younger German language economists who were outside of the ambit of the historical school, most notably Ludwig Poehler, who criticised the socialists of the chair for assuming that good intentions would make for sound policy.

19:26Poehler stressed that it was necessary to analyse whether a proposed policy really had and the Beneficial Consequences that its advocates intended. Hence in his utilitarian stance, Mises continued a tradition that reached back well beyond Menger. In Nation, State and Economy, as well as many subsequent works, he showed that suitability analysis was extremely useful for the rational assessment of all the major political questions. In fact, the utilitarian method provided the only possible common ground for a rational Social Comparison of Liberalism, Socialism and Government Interventionism. Mises repeatedly argued that these political systems are merely different strategies for the realisation of a common goal, the greatest happiness of the greatest number. Therefore only the utilitarian method of social analysis makes possible a rational choice between these different means.

20:20It may be that socialism represents a better form of organisation of human labour. Let But whoever asserts this, try to prove it rationally. If the proof should succeed, then the world, democratically united by liberalism, will not hesitate to implement the communist community. In a democratic state, who could oppose a reform that would be bound to bring the greatest gain to by far the overwhelming majority? Political rationalism does not reject socialism on principle. The Fallacies of German Socialism in War and Peace Nation-State and Economy is a rationalist utilitarian analysis of the three manifestations of German imperialism. 1. Past German imperialism for the sake of national greatness. 2. Economic central planning in the First World War, war socialism, which accelerated the introduction of full-blown socialism, and 3. The blossoming imperialism of the Social Democrats, under under the banner of syndicalism and the dictatorship of the proletariat. Although Mises does not define imperialism explicitly, he understands it to be the exact opposite of self-determination, self-administration, self-rule.

21:37Liberal democracy was historically embodied in the ideas of 1789, which demanded the most exact and complete application of the principles of full freedom of movement of persons and Rewards, the most comprehensive protection of the property and freedom of each individual, and removal of all state compulsion in the school system. In contrast, the majority principle was in his eyes merely a means, rather than a constituent part of democracy. He explained that war socialism, far from supporting the German war effort, was one of five disastrous errors that had led the Central Powers to such a crushing defeat. The other errors were For Military and Political The military errors were 1. to expect the war to be short, and 2. to expect miracles from unceasing offensives. The political errors were 3. not to anticipate a war on all fronts, and 4. to make the interests of the East Elbian Junkers supreme in German politics. To its advocates, the emergency situation that confronted the German economy at the outset of the war, or the great tasks that it now confronted,

22:46were sufficient justification for compulsory central planning on all levels, but such a justification is based in logical fallacy. It was true, Mises granted, that there was an emergency and that the structure of production had to be adjusted as quickly as possible from peacetime to wartime conditions. But it does not follow that the government should then run the economy. The correct question was whether central planning would be better than the free market at achieving the necessary adjustments. Mises proceeded to demonstrate that this was not the case. His views on war finance had an impact on young free market-oriented economists of the interwar period, such as Stefan Pozzoni, die Wehrwirtschaft des totalen Krieges, and Georg Holzbauer, Warzahlung und Zahlungsmittelversorgung in militärisch besetzten Gebieten, but also on interventionists like Adolf Lamper, Allgemeine Wehrwirtschaft. Lamper had a preference for playing markets, though. He suggested that entrepreneurial activities Please be centrally guided. He also showed that the apparent blessings of wartime socialism were a dangerous illusion created by the accompanying inflation. The increase of all prices had

23:57falsified the economic calculations of the entrepreneurs. The higher entries in their books falsified their profit and loss accounting to the point that they believed they were making profits when in fact they were consuming their capital. Similarly, he debunked the The widespread myth that war finance through government debts was a way of making future generations pay for the war effort. This view, he said, was completely wrong. War can be waged only with present goods. One can fight only with weapons that are already on hand. One can take everything needed for war only from wealth already on hand. From the economic point of view, the present generation wages war, and it must also bear all material costs of War. He went on to explain that war financed through debts rather than through taxation or inflation made him modifies the future distribution of resources. General misunderstanding of the economic nature and consequences of wartime central planning was instrumental in reducing resistance to the accelerated introduction of full socialism. The socialists

25:02themselves denounced the wartime economic regime partly because they did not welcome Socialism and Association in the minds of the general public between socialism and war, but also in part from their own intellectual confusion. Mises objected, Socialism means the transfer of the means of production out of the private ownership of individuals into the ownership of society. That alone and nothing else is socialism. All the rest is unimportant. It is a matter of complete indifference for deciding our question, for example, who holds In the third chapter of Nation, State and Economy, Mises explained that the confusion about the nature of socialism resulted from the fact that the programme of the socialist parties in Germany and Austria integrated three distinct elements – Marxist Central Socialism, Syndicalism, Radical Labour Unionism, and Democratic Government. The socialists have championed democracy because Karl Marx's theory predicted that socialism would be the rule of the proletarian majority. Mises observed that the German socialists have stuck to the tenet of democracy only because until 1914 they had always been in the opposition and

26:21therefore bore no responsibility for their co-nationals in the Eastern Territories. At the onset of the First World War, when they came to power in Germany and Austria, they slowly changed their minds, and would have followed in the footsteps of the German liberals, but with the loss of the eastern provinces the problem of mixed nations disappeared as well. This part of their programme in which they continued the old classical liberal agenda that German liberals themselves had abandoned, had created widespread sympathy for the socialist was cause even in bourgeois circles, but majority rule was not a central tenet of socialism. The only essential element was central control of all means of production through a dictatorship of the proletariat, and it was this precept of the socialist creed that would have to stand up to rational scrutiny, or else socialism would have to be discarded. Is the compulsory be central control of production more efficient than private ownership of the means of production.

27:22All other considerations were secondary. For example, Mises observed that there was no necessity in 1919 to wait for the proletarians to become a majority in Germany and Austria because the majority of the general population was already socialist. But if the socialist case for central planning was invalid, then no power on earth could maintain a socialist Socialist Order The dictatorship of the proletariat wants to use terror to nip any stirring up of opposition in the bud. Socialism is believed established for all eternity once its property has been taken away from the bourgeoisie, and all possibility of public criticism has been abolished. It cannot be denied, of course, that much can be done in this way, that above all, all European civilisation can thus be destroyed, but one does not thereby build a socialist order of society. If the communist social order is less suited than one resting on private ownership of the means of production to bring about the greatest happiness of the greatest number, then the ideas of liberalism cannot be killed

28:24even by terrorist measures. Mises pointed out that the socialist case crucially relied on the conviction that once the socialised society is realised, its members would be guided by entirely different motivation than from those of their former lives. Rather than pursuing their own interests, they would now think only of serving their community. But if one is sceptical of the feasibility of such a new socialist man, if one seeks instead a system that will reconcile the private interests of real-world human beings with those of the larger community, then liberalism had already found such a system, private property. In In his later work based on the socialist calculation argument, he would show that the problem is the impossibility of identifying what the interests of the Commonwealth are.

29:15In their daily politics, the socialists had long since turned away from Marxist orthodoxy to become the political branch of the labour unions, which Marx had despised as petty bourgeois. They espoused the down-to-earth agenda of their constituency and trumpeted their Marxist heritage only in election speeches. But from both the theoretical and practical point of view, the labour unionist programme was even worse than Marxist socialism. It destroyed the division of labour and the spirit of cooperation. Syndicalism deliberately places the producer interest of the workers in the foreground. In making worker groups owners of the means of production, not in so many words, but in substance, it does not abolish private property. It also does not assure equality. It does has removed the existing inequality of distribution, but introduces a new one, for the value of the capital invested in individual enterprises or sectors of production does not correspond at all to the number of workers employed in them. The income of each single worker will be all the greater the smaller the number of fellow workers employed in his enterprise

30:22or sector of production, and the greater the value of the material means of production employed in it. This syndicalistically organised state would be no socialist state, but a state The state of worker capitalism, since the individual worker groups would be owners of the capital. Syndicalism would make all repatterning of production impossible. It leaves no room for free economic progress. In its entire intellectual character, it suits the age of peasants and craftsmen, in which economic relations are rather stationary. Labour unionism is is therefore purely destructive. It is locally organised robbery elevated to a general principle. Mises's criticism did not focus on its moral reprehensibility, however, but on its inability to sustain the large-scale division of labour characteristic of modern civilisation. Labour unionism was an utterly unsuitable means to pursue the greatest happiness of the greatest Number, Political Economy of Language Communities. In his criticism of imperialist policies in the service of socialism, labour unionism, and the socialist war economy, Mises could restate many conventional arguments. He faced an unprecedented task in confronting the claim

31:44that imperialism can enhance the welfare of a nation. His pioneering analysis brilliantly We confirmed Carl Menger's insight that methodological individualism is able to analyse even large collective phenomena. The main thesis in the first chapter of nation-state and economy is that governments are incapable of improving the condition of the nations they rule. The reason is that the origin, emergence, growth, flower and decline of nations are subject to natural laws. The operation of these laws can be modified by government power, but not are not abrogated, and any alteration will play out to the detriment of the nation. Mises proved his case by first analysing nations in a free society and then turning to examine the impact of government power on their evolution. His practical conclusions called for the denationalisation of the nation, or more precisely for keeping government intervention as far as possible out of the life of language communities. Following Scherer, Grimm and Ottobauer, Mises defined and Nations as Language Communities. He stressed that as far as democratic regimes are concerned,

32:53this definition is more than a mere convention. In democracies, communication and thus language is the primary political means. Language communities are therefore of critical political importance. He stated that a nation's specific language generated specific political constructions, and in particular specific foundational ideas determining the operation of their governments. Staatsgedanken. Mises did not argue that language communities are the only factor, or the most important one in modern politics. He speculated that racial communities were far more important. The problem was that the sociology of race and of race relations was not sufficiently developed to warrant scientific statements. He acknowledged, however, that it had become a principle of modern political world law that it is no longer acceptable to use force German imperialism made enemies in all quarters by violating this distinction. What were the natural laws determining the rise and fall of language communities? Mises considered various objective factors determining their evolution. For example, he examined the role School of Written Language and stated that it had played a crucial role in the competition

34:12between dialects. The first written dialect became the standard language, but his decisive considerations start from the fact that the membership in the language community is not something unalterable. Each human person can decide to leave his former nation and join another. In a free society, Mises stressed, nations would be purely voluntary associations. No people and no part of a people shall be held against its will in a political association that it does not want. The totality of freedom-minded persons who are intent on forming a state appears as the political nation, patrie, fatalant, becomes the designation of the country they inhabit, patriot becomes a synonym of free-minded. Liberalism knows no conquests, no annexations, just as it is indifferent towards the State itself, so the problem of the size of the State is unimportant to it. It forces no one against his will into the structure of the State. Whoever wants to emigrate is not held back. When a part of the people of the State wants to drop out of the Union, liberalism does not hinder it from doing so. Colonies

35:24that want to become independent need only do so. The nation, as an organic entity, can can be neither increased nor reduced by changes in states. The world as a whole can neither win nor lose from them. What then determines individual membership in a language community? Neglecting objective factors such as the familial, historical, cultural and political environments of the individual, Mises focused on the voluntary factor of assimilation. He asserted that for For practical reasons, language minorities tend to assimilate to the language minorities with whom they are affiliated through trade and other forms of social intercourse. Therefore, local minority nations, ceteris paribus, tend to disappear in the course of time. Mises stressed that this assimilation process was dependent on individual membership in certain social classes, because social contacts were class-dependent. Minorities could preserve have a separate existence for as long as spatial and social mobility were heavily controlled through custom and laws. Things changed radically when classical liberalism abolished such laws.

36:36The result was a dramatic migration, both physical and social, that disrupted the established balances between nations. Mises gave special attention to the impact of the increased spatial mobility, which by the late 19th century had already reached a massive scale. These migrations Mises did not believe these movements could be stopped because they reflected the self-interest of the migrants. En passant, he mentioned his contribution to the economics of migration by highlighting the importance of relative overpopulation in distinction to already known absolute overpopulation. He had developed the concept of relative overpopulation in his Von Ziel der Handelspolitik. What could be done then to alleviate the national conflicts that were the necessary consequence of those migrations? The only viable solution, Mises argued, was to reduce the role of the state within society, because the political conflicts between nationalities primarily concerned control of the state apparatus. Of course, the struggle of nationalities over the state and government cannot disappear completely from polyglot territories, but it will lose sharpness to the extent that the functions of the state are restricted and the freedom

37:55of the individual is extended. Whoever wishes peace among peoples must fight statism. The way to eternal peace does not lead through strengthening state and central power, as socialism strives for. The greater the scope the state claims in the life of the individual and the more important politics becomes for it, the more areas of friction are thereby are created in territories with mixed population, limiting state power to a minimum, as liberalism sought would considerably soften the antagonisms between different nations that live side by side in the same territory. The only true national autonomy is the freedom of the individual against the state and society. The statification of life and of the economy leads with necessity to the struggle of nations. Mises offered here a radical alternative to the prevalent Models for Solving National Conflicts. Austria had the longest experience with national struggles within a common state, and its intellectual, political and institutional history was therefore richer than that of any other country in analysing and solving this problem.

38:57For example, the constitution of the Austrian great dukedom of Siebenbergen, which existed until 1848, provided for separate parliaments and administrations for Saxons, Germans, Hungarians and secular. Affairs of general interest were dealt with in a common parliament which debated in Latin. The ugly side of this otherwise charming arrangement was that the Romanians, who were in the numerical majority in Siebenbürgen, had no representation. During the revolution of 1848, a promising approach was developed to overcome this and similar problems. On March 4, 1849, the deputies of the Constituent Assembly, which had by then moved on to the The City of Kremzier voted on a proposed Kremzier constitution, the point of which was to abolish the old territorial units composing the empire, the kingdoms and lands, and to replace them with administrative counties, the boundaries of which would be drawn according to the national affiliations of the inhabitants.

39:55The German nationalists reacted on the very same day with a counter-proposal presented by Prince Schwarzenwerke. From then on, the principle of equal legal treatment of the different languages was on The Failure of the Revolution prevented the practical application of the Kremsier Constitution, but the idea lived on, especially in the various programmes of the Social Democratic Party. At their 1899 convention in Brünn, the Social Democrats decided to tackle the problem of national conflicts by creating parallel state organisations along national lines. This approach, they believed, would ensure national autonomy to each nation, and thus prevent struggles The Social Democratic Faction in the Central Parliament thereafter called itself Union of Social Democratic Deputies. In the following years its intellectual leaders Carl Renner and young Otto Bauer revived and refined and popularised the idea of replacing the old Territorial Units with New National Counties. Before the First World War, Carl Renner published his ideas on the nationality question under the synonym Synopticus and Rudolf Springer.

41:12At the end of the First World War, he published under his true name das Selbstbestimmungsrecht der Nationen in besonderer Anwendung auf Österreich. It turned out, however, that nationalistic passions were too strong to be tamed even by the spirit of socialist solidarity. After After the introduction of universal suffrage in 1907, the party quickly dissolved into national organisations and lost all impact on Austrian politics. With hindsight, and with the help of Mises' theory, we can identify the root cause of these failures. All of his predecessors had tried to use government to solve the problem of national struggles. None of them recognised or admitted that coercive association, the sine qua non of the state, was the very source of national conflicts. A different government scheme cannot possibly be a solution for a conflict caused by the nature of government itself. But how far could one go in keeping the state out of society?

42:08How far should one go? Mises argued that the only limits are of a technical administrative nature. The size of a state's territory does not matter. It is another question whether Here a state is viable when its population is small. Now it is to be noted that the costs of many state activities are greater in small states than in large ones. The dwarf states, of which we still have a number in Europe, like Liechtenstein, Andorra and Monaco, can organise their court systems by levels of jurisdiction, for example only if they link up with a neighbouring state. It is clear that it would be financially quite impossible Hence, Mises advocated a complete liberalisation of society. There should be no political limits to this process, and it would in practice be limited only by banal technical considerations.

43:07In other words, Mises welcomed the unhampered competition among national territories, which which in a free, inter-national society would be a peaceful competition between language-based cultures in which each individual, through its assimilation choices, would determine the fate of the various language communities. Mises sensed that the only dignified attitude toward the reality of cultural competition was national self-confidence, a nation that believes in itself and its future, a nation that means to stress the sure feeling that that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them would necessarily be able to remain unperturbed when it saw individual persons shift to other nations. A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their free will. To let the attractive force of its own culture prove

44:06Mises argued not only that political rule is unnecessary to improve the condition of a nation, but also that it is incapable of doing so. In a free society, people constantly With this consideration, Mises complemented the Ricardian analysis of free trade, which was based on the assumption that capital and labour were mobile only within the borders of the State.

44:59In a liberalised world, therefore, there would be a tendency away from differences in income. There would eventually be no rich or poor countries in the world, there would only be countries that are more densely populated and other countries that are less so. Mises pointed out that government intervention does not change anything about people's motives to migrate from relatively poor areas into relatively rich ones. On the contrary, if government tries to keep its people in the land through a system of of Protective Tariffs. It only exacerbates the problem. Protective tariffs might prevent the emigration of those who would be most affected by foreign competition, but they reduce the per capita income of all the other members of society, further multiplying the incentives for emigration. Again, a dispassionate suitability analysis comes out against government intervention. Mises concluded that the only rational approach in matters of political Nationalism was to follow classical liberal precepts, shrink the state, open borders, and face the cultural competition of international migrations.