9. 1919

0:00Chapter IX, 1919 The war had seemed like it would never end. Then suddenly it was over. The Balkan Front crumbled in the wake of the armistice in Bulgaria at the end of September 1918. This time it was clear that it would not be possible to liberate enough additional forces from elsewhere to stem the tides in the South East. The Central Faced with defeat, the pre-war nationalistic tensions within the Empire began to reappear even more forcefully. Now Czechs, Croats, Slovenians, Hungarians and Serbs all sought political independence. Juri Kríček argues that these tensions were amplified during the war because of the compulsory centralisation of the KUK economy, which unilaterally benefited the Industrial and Financial Establishment in Vienna and Budapest.

0:55The young emperor attempted to save what he could of the centuries-old order by making a peace offer to President Wilson on October 4. Twelve days later, in a last, desperate effort to reconcile his recalcitrant nations, Carl abandoned the traditional policy of his family and now tried to spearhead the opposition. He issued a manifesto announcing the reconstruction of Austria-Hungary as a federal state with and the autonomy for the lands of Czechoslovakia and Yugoslavia. The attempt failed miserably. In fact, his manifesto only compounded the crisis. It had been widely interpreted as proclaiming the dissolution of the empire and legalising the secession of its nations. Udall Zickart later stated, World history knows no similar case in which the dissolution of an empire has been organised in all forms from above.

1:45in his last speech to the upper chamber of the Austrian parliament, the same writer summed up the ironic essence of the manifesto. Even before the Austrian nations gave up their state, the state gives them up. Two days after Karl's proclamation, the Entente replied that mere autonomy for Habsburg lands was not enough. The Emperor had to give carte blanche to the secessionists and to the enemies of the monarchy. On October 21st, the revolution broke out in the streets of Vienna and in the following weeks spread to Hungary, Bavaria and Berlin. The South Front collapsed when the Hungarian leader Mikhail Karolyi called back the Hungarian troops, thus preparing a last-minute Italian victory on the battlefield. When Ludendorff's army surrendered on November 11th, 1918, Germany was no longer a monarchy and in the process of rapid political dissolution. Even worse was the fate of its southern ally. Austria-Hungary had been entirely wiped off the political map.

2:48The former Habsburg dominions, so rich in territories, individuals and nations, had shrunk back to, well, to what? It was even difficult to pick a name for the territory that remained after national successions had amputated most of the old empire. The leftover land The remaining citizens spontaneously baptised their land Deutsch-Österreich, or German-Austria. Obvious it could no longer be called Austria-Hungary, Hungary was gone. Neither did it make sense to call it only Austria, because historically this name did not refer to national borders, but circumscribed the limits of the Habsburg possessions, Österreich, the Eastern Empire. The remaining citizens spontaneously baptised their land Deutsch-Österreich or German-Austria.

3:37The name speaks to their uneasiness and lack of identity. The Emperor's Manifesto had proposed that all nations of the Empire establish national councils. The German members of the Reichsrat had immediately accepted the idea and formally met on October 21st in Vienna, calling their gathering Provisional National Convention of German Austria. In their second meeting on October 30th, then, the provisional parliamentarians had claimed Appointed for themselves the supreme control over the German-Austrian state. Even though they did not try to determine the form of the new state, Emperor Karl had not yet formally abdicated. They appointed a government composed of social democrats, Christian socialists and German nationalists. Leadership fell to the socialist Karl Renner, who became state chancellor in Austria's darkest hour.

4:27Twelve days after the appointment of the provisional government, the emperor abdicated and left The Socialist parliamentarians pushed for both the immediate proclamation of a new republic and its unification with the German Reich, where the socialists were the leading political power. The leaders of the new state had no more urgent business than to dissolve that state. One day after the German armistice, the new German Austrian Republic, in the very act of her birth, declared an Anschluss, an exation, joining the new German Republic. It was November 12, 1918. New Battlefields In the years preceding the war, the Social Democratic Party had sunk into political insignificance.

5:15By 1911 it had splintered into various national organisations and suffered a terrible setback at the Reichstag elections, but the war and eventual defeat had discredited the political establishment to such an extent that the Social Democrats, by virtue of their outsider status, now seem to be the most important political force in a country, though elections could not yet be held to confirm the fact. Their hour of glory came at the very moment when they lost their eminent leader. Viktor Adler died on November 11, and Otto Bauer, the Austro-Marxist, who had debated Boehm-Bawerk as a student in his seminar became the number one party official. But while Bauer had the strongest backing within the party, he lacked support in the general population because of his youth and his radicalism. Leadership of the government, therefore, remained in the hands of the moderate Kyle Renner until June 1920. The radicals under Bauer tried to push Renner to turn the political revolution into a social and economic revolution as well.

6:21They sought fully to nationalise the Austrian economy and to incorporate Austria into the German Reich, which was already under firm social democratic rule. When the attempts failed, largely because of Ludwig von Mises' personal impact on Bauer, as we shall see, the political climate in German Austria slowly reversed. Elections in February 1919 gave have raised to a constitutional convention and showed the Social Democrats to be far less powerful than so many had believed. Renner was forced to admit the Christian Social Party's charismatic leader, Monsignor Ignaz Zeipel, into his government, and Zeipel's party would come to rule German Austria for most of the 1920s. In the dramatic winter before the elections, Nobody saw those changes coming. People had more immediate concerns. The economic situation in the new Austrian Republic was even worse than in Germany. The average citizen lacked access to basic goods, especially potatoes, sugar and coal. Traditionally, the Austrians bought these supplies from other parts of the former empire, from their Czech neighbours in the north, from the Hungarian and Galician plains in the east. But now these regions

7:39The Austrians had gained political independence, and their new leadership brought international trade to a standstill. The war was lost, stomachs were empty, people were freezing to death, and there was no relief in sight. From a purely financial point of view, the German Austrians were the great losers of the war among all nations. In the winter of 1918-1919, most Most Austrians were optimistic that the new government, composed as it was of an enlightened elite, would eventually overcome the political and economic chaos that was the aftermath of the war. Yet the new men in charge set out to continue and complete the policies of the previous imperial governments, which had already put in place a system of war socialism.

8:28A contemporary observer and political acquaintance of many of the country's new leaders, Mises And from the beginning the intention prevailed in all socialist groups of dropping none of the measures adopted during the war after the war, but rather of advancing on the way toward the completion of socialism. If one heard differently in public, this had only the purpose of dissipating possible doubts about the rapid tempo of socialisation and about individual measures and of stifling opposition to them. The slogan had already had only been found, however, under which further socialising measures should sail. It was called Transitional Economy. During the first year of its existence, the National Parliament dedicated its sessions to deliberation on social legislation and voted the latest socialist wisdom into law. Within a few months, the new government imposed eight-hour workdays, compulsory vacation for workers, compulsory co-management of firms through worker representatives, Coercively financed unemployment insurance and many other such schemes. The educated public looked on Austria as Americans of 1950 would have looked on a US government run by

9:42Milton Friedman, Alvin Hansen and Paul Samuelson, power and intellect finally united, Felix Austria. But the Socialists failed, despite their undeniably personal brilliance and economic Planning The cornerstone of the new economic system was the printing press of the Austro-Hungarian Bank. Tax revenue was far too low to pay for the various government handouts, and increasing the tax rate was both politically impossible and likely to be inadequate to increase their revenue sufficiently in any case. New debts could not be incurred, because there was not enough money left over to lend, and the government's credit was terrible. No one expected it to to pay back the pile of debts it had amassed during the war. There was therefore only one way for the new government to establish a large-scale welfare state – print more money.

10:361919 was a year of crisis. Serious economic and political problems were compounded through a catastrophic policy of inflation-financed socialism. It was a crisis that brought the Postwar Socialism and the Spectre of Anarchy Official positions in the new government did not always reflect actual power. For instance, Because of the support of the most militant groups within Austrian social democracy, Otto Bauer, who headed the Ministry of Foreign Affairs, was even more influential than Carl Renner, the Chancellor. The situation changed only in 1927, when a social democratic insurrection was defeated with unexpected ease. The Ministry of Foreign Affairs had a trade policy department that was responsible for the preparation of the trade-related aspects of the forthcoming and Peace Negotiations. The department hired several external consultants strongly affiliated with the Austrian School of Economics. Schiller, Mises, Zomary, and Steiner. Virtually all of the higher officials in Bauer's ministry, including Bauer himself, were Jews or of Jewish origin. On November 22, 1918 and again on January 11, 1919, the Vienna Papereichs Post

12:09insinuated that the ministry's takeover by Bauer, the Jew, Dr. Richard von Schiller, a close relative of the recently deceased industrialist Taussig, and Schiller's subordinate, Jews, Dr. von Mises, Dr. Broder and Dr. Steiner, was somehow unacceptable. Yet the fact was, as the Wiener Morgan Zeitung, a Jewish national newspaper, pointed out, that Mises and Zollmery were Austria's most important currency theoreticians. Mises' long-standing personal acquaintance Relations with Bauer, Lederer and Rumpeter, former fellow students and colleagues from the War Economics Department of the War Ministry, was certainly one of the motives behind the decision to involve him in the new government. Another was that Bauer knew Mises was loyal to the Austrian state. Yet a third motive was the time-honoured strategy of containing the most knowledgeable opponent of socialist schemes. But Mises' involvement was a double-edged sword. Had the war not taken place, or the empire not disintegrated, the government and the wider Austrian public would certainly have noticed his views on monetary affairs.

13:15After all, he had acquired a solid reputation as an expert on money and banking, and was also the spokesman for the Commer on these questions. But now his views bore the stamp of political authority. While he could not say everything that he knew and believed, But he did say he gained immediate and widespread attention. Still, his impact on actual government policy remained moderate. Mises' main mission was to lead tedious negotiations on pre-war and wartime financial obligations with foreign businessmen, bankers and government representatives. Within the government, his colleagues sought his advice, but usually did not heed it. Mises Mises often met with Bauer, Lederer, Director of the Staatskommission für Sozialisierung, and Schumpeter, who became Finance Minister in the spring of 1919.

14:07In the case of Bauer, Mises's influence proved to be short-lived. It was limited to one decision, but it was a critical decision of overarching importance. It was solely due to my efforts that Bolshevism did not then prevail in Vienna. Only a few people had supported me in my efforts, and their help was rather ineffective. I alone managed to turn Bauer away from seeking union with Moscow. The radical young men who rejected Bauer's authority and were eager to proceed alone and against the will of the party leadership were so inexperienced, incapable and torn by mutual rivalry that they could not even form a halfway viable Communist Party organisation. The events lay in the hands of the leaders of the old Social Democratic Party, where Bauer had the final word.

14:58Until that fateful winter of 1918-1919, when Mises persuaded Bauer to stop Bolshevism in Vienna, the relationship between the two men was based on mutual esteem. Mises knew personally almost all Marxian theorists of Western and Central Europe, but in his eyes only Bauer surpassed modest mediocrity. He recognized that Bauer had great knowledge of philosophy, classical economics, history and the natural sciences, and that he was an excellent speaker who could quickly master the most difficult problems. He could have been a statesman if he had not been a Marxist. The problem then which eventually corrupted Bauer's intellectual, moral and personal integrity was that all his learning and all his activities were based on an a priori commitment to Marxism.

15:44Otto Bauer arrived at the University of Vienna as a devout Marxist. He had made up his mind never to betray his Marxian conviction, never to yield to reformism or socialist revisionism, never to become a Milrand. Alexandre Milrand, born 1859, French socialist, was originally radical. When in power, he limited his activities to moderate programs. Or Mikuel. Jean von Mikuel, 1821-1901, German statesman, originally was an extreme revolutionary. Later, he was described as one who had entirely surrendered his radicalism and aimed only at practical measures for improving the condition of the people irrespective of the party programs. No one was to surpass him in Marxian zeal. His wife, Ellen Komplowicz, later strengthened him in this resolve to which he remained faithful until the winter of 1918-1919. At that time I succeeded in convincing the couple that a Bolshevist experiment in Austria would have have to collapse in short order, perhaps in a few days. Austria depended on the importation of food from abroad, which was made possible only through relief assistance from former

16:51enemies. At no time during the first nine months after the armistice did Vienna have a supply of food for more than eight or nine days. Without lifting a finger, the Allies could have forced the surrender of a Bolshevist regime in Vienna. Few people clearly recognised The Catholic Church and its followers, that is, the Christian Social Party, were ready to welcome Bolshevism with the same ardour Archbishops and bishops twenty years later welcomed Nazism. Bank directors and big industrialists hoped to earn a good living as managers under of Bolshevism. I knew what was at stake.

17:37In a few days Bolshevism in Vienna would have created starvation and terror. Blundering hordes would soon have roamed the streets of Vienna and in a second bloodbath would have destroyed the remnants of Viennese culture and civilisation. Throughout many nights I discussed these problems with the Bauers until I finally succeeded in convincing them. The resulting restraint of Bauer determined the course of events in Vienna. He went on. Bauer could never forgive me for having made him take the position of a Millerand. The attacks of his fellow Bolsheviks especially hurt him. However, he directed his passionate hatred not against his opponents, but against me. He endeavored to destroy me by inciting chauvinist professors and students against me. But his scheme failed. From that time on, I never again spoke with the Bowers. This passage is the only direct source from which we know about Mises's Some collateral evidence is provided in a February 1919 letter to Mises from a certain Dr. Johanna Wanner. She sent him her telephone number and asked him to give Dr. Bauer her greetings.

18:51Under present circumstances, she writes, she does not want to bother the heiligen Bauer with her affairs. Thus she knew that Bauer was very busy in his government activities and that Mises was likely to see Bauer precisely in these busy times. Bauer and his consorts were subsequently confined to indirect means for achieving their beloved communist state. Rather than copying the Russian model of political revolution, they now sought to bring about communism in a piecemeal fashion. Before he changed his views on the question of socialization, Bauer had been the leader of the left wing of the Austrian socialists. Thereafter, he increasingly shifted to the middle ground and reinforced his position within the party apparatus.

19:36This involved three major strategies. 1. Partial expropriations 2. Supplanting the free market with a system of artificial prices for labour and consumers' goods, and 3. Eradication of any remnants of old authority. On this last front, the Viennese socialists achieved at least one lasting victory. On April 3, 1919, a law was enacted prohibiting the use of all titles of nobility and honours. The imposing von, concise designation of nobility, was verboten in any printed document, and the same order was given in respect to the honorific edler, the noble predicates erlaucht, durchlaucht and hoheit, and the noble class designations of ritter, freiherr, graf, fürst and herzog. As far as business cards, books and other printed documents were concerned, the prohibition has remained effective to the present day. In interwar Austria, however, the old ways were maintained in personal encounters and oral communications. Mises's name was rendered as Ludwig Mises on his book Publications and Correspondence, but in daily business he would still be addressed as Professor von Mises.

20:56The major benefit of this unparalleled legislation was to spur Austrian wit. One gentleman of venerable descent circulated his business card with the imprint Geadelt von Karl dem Großen entadelt von Karl Renner, Ennobled by Karl the Great, denobled by Karl Renner. As for the expropriation of private property, the government's policies had a far less The German Agency had convened a group of experts to examine the question of whether the socialisation of coal mining was possible.

21:49The Socialisation Commission in Germany first met on December 5th, 1918, and also included the Austrian Professors Lederer, Hilferding and Schumpeter, as well as Theodor Vogelstein, a former chief executive in the war socialist economy of Germany, the influential publisher Heinrich Kuhnoh, labour union leader Otto Ueh, and the German Professors Karl Ballot, Robert Wilbrandt and Eduard Heimann, who acted as Secretary General of the Commission. By March 1919 similar committees had been established not only in Vienna, but also in Dresden, Munich and Stuttgart. On February 15, 1919, these experts, with the cooperation of Joseph Schumpeter, published a report in which they argued that socialisation was not only possible, but necessary to avoid a mere governmentisation for Staatlichung.

22:41They made no attempt to explain the distinction. The Staatskommission epitomised the embarrassment of a government that was supposed to instigate a socialist revolution but had no idea how to do so. The members of the Commission knew they had to come up with a justification for its existence. Leder presented it at the first post-war plenary meeting of the Verein für Sozialpolitik, which took place in September 1919 in Regensburg. He criticised the present state of socialisation in Russia, ridiculing it as a mere consumer's Socialism. The great goal of the German-Austrian government must be to complete socialist transformation of the economy, for which Lederer discussed two strategies. One was to put control of each individual firm in the hands of its workers. This, Lederer claimed, was liable to establish economic democracy and was therefore a first step toward democratic socialism in the whole society. The second strategy was to levy a huge one-time capital tax to pay back the The War Debts. Such plans had already been discussed during the war at a meeting of the

23:48Verein für Sozialpolitik on October 14th, 1916 in Berlin. Heinrich Herkner had championed the idea of solving the problem posed by the huge war debts through a one-time confiscatory tax. Alfred Weber, who at the time worked for the German Treasury, fiercely opposed any discussion of the issue because it would jeopardise the government's attempt to sell war bonds. This by itself would immediately put the state in control of industrial capital. The only remaining problem would be to make sure that this governmentisation would be followed by a true socialisation, but again this distinction was not explained. The only concrete proposal on the table seemed to be the one-time capital levy, a measure that had the backing of ostensibly reasonable good people such as Schumpeter.

24:35Mises tried to lead the Commer into steadfast opposition to this measure. Some evidence for his involvement is in correspondence with Frau Fischer, his secretary at the Commer. Mrs. Fischer wrote to Mises after his departure to Bad Gassstein, where he would spend his summer vacation. He argued that the imposition of the capital levy would force Austrian entrepreneurs into debt, making them dependent on financial capitalists. Mises also revealed what he perceived to be the long-term political goals behind the innocuous one-time measure. He pointed out that the socialists talked only of sharing the profits, but that this left out the actual structure of enterprise. If, however, the state owns shares in all enterprises, it will also share in losses. Moreover, it will even be forced to concern itself with the administration of individual businesses. Just that, however, is what the socialists want.

25:27The Austrian experience prepared him well for the American discussion of capital levies of the early The socialist government's impact was most devastating, however, in its perpetuation and extension of the wartime system of price controls. The previous imperial governments had started supplanting the free market by a system of administered prices for labour and consumer goods. Right or wrong, the purpose of this approach was to concentrate all economic energies on the war efforts. When the socialists came to power, they made this system even The Socialist Beggar-Thy-Neighbour model had set an example for the entire country in ways that had not been anticipated by the rulers in Vienna.

26:27The provinces were not willing to comply with Vienna-style socialism. They had their own homegrown schemes in mind. Each province now sought to loot their local rich, rather than shed booty with Vienna. These conflicts of interest, a natural consequence of the government's socialist agenda, had already made themselves felt under wartime socialism. Now they had broken out full scale and precipitated town and country into economic warfare. This left Vienna without any resources but the Monetary Printing Press. Rapid political and economic disintegration was accompanied by deterioration of the Krone. Mises wrote to a leader, Here the condition of the currency is hopeless, a hopelessness that results from the pitiable state of public finance. Only the farmers can still pay taxes and they openly declare that they will not pay anything. On the other hand, the government deems it necessary to to spend millions per month to feed an urban population that does not work. Unlike the Russian Bolsheviks, Vienna socialists were unwilling to coerce the provinces into obedience.

27:37They perceived the crisis as constitutional and hoped to remedy it by legal means. They failed to see that the real issue was a profound conflict between Vienna and the provinces is that was sparked by their own economic policies. Mises analyzed the situation in a December 2, 1919 lecture to the Association of Austrian Economists on the political relations between Vienna and the provinces from the overall economic standpoint. Gesellschaft der Österreichischen Volkswirte, die politischen Beziehungen Wien zu den Ländern im Lichte der Volkswirtschaft. The speech was subsequently published in Neues Wiener Tagblatt and Wirtschaftspolitisches Archiv and struck a nerve with the general public.

28:25Herr Roth Seefried, a businessman and lawyer who knew Austria as well as he knew the back of his own hand, wrote to Mises, I would hope that the essay was circulated widely in Germany, where I must unfortunately admit a frighteningly unclear impression of the Anschluss and the like Reins. Rothsefrid lived in Berechtesgaden. Mises might have met him there on vacation, for example in August 1927. He argued that Vienna could only thrive by continued participation in the international division of labour. Austria's harvests could never suffice to feed Vienna's workers, only foreign food supplies could, and these had to be bought in exchange for for Industrial Exports. Even the proposed annexation to Germany could not change this state of affairs. The present policy of funding government by printing new money was a typical short-run device that survived only by depleting the capital accumulated in pre-socialist decades.

29:27It was bound to wreak havoc on the currency and the economy. These public comments understated his real perceptions. He was after all a public figure and therefore obliged by law not to harm the nation. Only after the Second World War, when he no longer held appointed public office, did he become blunt in commenting on public policy. However, one can infer his real views on the state of Austria in late 1919 from a confidential memorandum that he wrote for Vienna's leading bankers and industrialists. We are approaching the collapse of our currency. Our monetary policy presently knows only one means, printing banknotes, printing ever more new banknotes.

30:12There is hardly a prospect of change. One cannot legitimately ask the Social Democratic Party suddenly to acknowledge that the socialist idea has imploded and that all that it has proclaimed for decades has turned out to be wrong. One cannot expect that the Christian Social Party, whose ideal is a stationary economy of autarkic farmers and small craftsmen longing for subsistence, which for decades has championed professional licenses and high tariffs, which along with the Prince of Liechtenstein has advocated the program of an Austria without factories and has fought with Luger and Schlesinger for the Gilda of the Fathers and for people's money, one cannot expect this party suddenly to become free trade and liberal. Neither can one hope that experience will teach any Many economic and financial insights to the German nationalists who have always sought to top the social reform radicalism of the other parties who today have especially become the advocates of those broad layers of public employees whose syndicalism has knocked out our public finance and who have learned nothing about foreign policy and have not forgotten

31:25anything despite their terrible defeat in the World War. It is the misfortune of this country which can only exist on the basis of industrial exports that the spirit of modern economic policy has remained alien to its population. Our policy moves entirely within the intellectual orbit of imperialism, of mercantilism, of socialism and of fantasies about a national economy. Mises pointed out that influential circles within the government believed inflation to to be of secondary importance and of no direct pertinence to the political problems of the day. These men thought they could suppress the domestic consequences of inflation, price increases, through price controls, and that the international consequences, plummeting exchange rates, could be neglected because they did not directly affect the nation.

32:17As Mises explained, however, this benign neglect for the Kroner's plummeting exchange rate was extremely short-sighted. Most of the working class's food supply came from abroad through contraband channels. In fact these black markets were all that was keeping the Viennese population alive. If no end was expected for the decline of the Kroner exchange rate, the contraband merchants would eventually refuse to be paid in Kroner banknotes. The consequence would be immediate and impose dire hardship on the urban masses. Mises went on, Given the mentality of our population. This will infallibly lead to excesses. People will first plunder retail businesses and then public buildings, bank palaces and private apartments. The last feeble remnants of government authority will dwindle. Armed bans will attempt to rob the country, an attempt that will everywhere but in the immediate surroundings of industrial centres end in their bloody defeat because today the rural population is armed and is supported by well-armed and Disciplined Local Police Forces.

33:26This anarchy within the country is the more dangerous because there are also great dangers threatening from abroad. Excesses perpetrated by the popular masses can easily lead to hurting foreign citizens, from which many a pretext may be derived, for an invasion by foreign troops. It is true that the Entente does not care much for the state of our country and also that her present military weakness prevents her from intervening, but things are different in the cases of Hungary and Czechoslovakia. Both states control powerful and well-trained armies. In both countries chauvinistic prestige considerations make for an eagerness to occupy parts of German Austria and Vienna in particular. The Czechs are embarrassed by the fact that they did not gain their independence through glorious military achievements. Not without reason, the Czech militarists consider the Czech armies cowardly running away from Hungary's The Magyar troops, too, are eager for national glory. Both Czechs and Magyars will seize any opportunity to retaliate for the alleged injustice that Vienna has perpetrated on them.

34:35In truth, the Czechs seek revenge for the heavy disappointments occasioned by their young Czech state, and the Magyars seek revenge for the plunders that the Romanians have carried out in Hungary. Mises knew what he was talking about when he mentioned Hungarian appetite Rights for Invading Vienna In the early summer of 1919, he led negotiations with representatives of the new and, as it turned out, short-lived communist government of Hungary concerning the property rights of Austrian citizens in Hungary. The official leader of the Hungarian delegation was the ambassador to Austria, but this man rarely took part in the meetings, and thus the real leaders on the Hungarian side were And one Dr. Gorog and one Dr. Polanyi. Gorog was a colourless bureaucrat without any strong political feelings, but Polanyi had a brilliant mind and was a convinced communist who clashed at many meetings with Mises, often in long discussions of fundamental questions of social philosophy. Much later, in February 1924, Carl Polanyi sent Mises his paper Socialistische Rechnungslegung, which had been published in the Archive 49

35:44in 1922 and asked Mises for an off-print of his critique of this article. Polanyi by then lived in the 7th district in Vienna. His letter did not sound very clear. One can guess that these clashes concerned not only socialism and capitalism, but also the injustices that Vienna had perpetrated on Hungary. Mises therefore knew that the slightest military Every weakness entrancated Austria was likely to culminate in a Hungarian invasion. The present Austrian army was too weak to prevent it. The German army could be relied on, but the entente probably would not allow its intervention. At any rate, precious time would be lost with diplomatic negotiations, enough for a plundering expedition to Vienna to escape unpunished.

36:35Vienna was in fact invaded before the Treaty of Saint-Germain-en-L'Air was signed in September 1919, but the invaders were not Czechs or Hungarians. They were Italian troops who forced their way to Vienna to plunder its art collections and libraries. The Hungarian Communists certainly would have followed suit, but they were ousted by a counter-revolution. The treaty then put some constraints on Czechoslovakia and Hungary. A foreign occupation had thus Pro-Government Emergencies Mises was one of the few men who understood that the inflation itself and the inflationary But in the socialist's eyes he was merely a competent technician, who knew the money machine well, and during the first months of his involvement with the new administration Mises did in fact play this role faithfully, preventing on several occasions ostriches fall into lawlessness. Mises knew that funding the government by printing money contradicted all established principles of public finance. As he had explained in The Theory of Money and Credit, it was a risky and temporary expedient. If kept up, it had to lead to hyperinflation.

38:13Still as things stood, he believed it was the only way to maintain law and order in Vienna. Government expenditure is today considerably higher than government revenue, and all effort to limit expenditure and to increase revenue until the budget is equilibrated and counter almost irresistible political difficulties. Under such conditions there is hardly any other solution but to put the printing press directly or indirectly to the financial service of the State, and to provide, by the issue of banknotes, those means that cannot otherwise be provided. It was not the only time Mises would justify and implement emergency monetary It is essentially the policy of the desperado who has nothing to lose and everything to gain from a short breathing space. But keep in mind that Mises' approached policy matters from a utilitarian point of view. Strictly speaking, there is no such thing as scientific Classical liberal principle from his perspective, there are only effective and ineffective policies.

39:31Using the monetary printing press in the winter of 1918-1919 was the only suitable way to keep the government going, he thought. There was also a different sort of emergency that seemed to require a greater use of the printing press. A few months after the political disintegration of the Habsburg Empire, the monetary and financial National disintegration followed suit. The war bonds had in fact been underwritten mainly by ethnic Germans, who tended to represent the wealthier urban population of the country. At the end of the war, cash holdings were largely concentrated in predominantly non-German rural areas. The black market had moved food into the cities and cash out into the agricultural countryside. It is not surprising that one of the first measures of the new national government was to deny responsibility for the war debts incurred by the Empire. It was a simple political decision that seemed to entail only advantages for their main constituencies, which were the anti-German movements of the seceded territories. The burden of the repayment

40:39would fall exclusively on the Germans. As things stood, this was easy enough to justify Mises believed, and continued to believe for some time, that these popular anti-German laws would prove to be short-lived. On May 9, 1919, he took part in a conference sponsored by the Wehrungsschutz Association, dealing with the Austrian position in the forthcoming peace negotiation. In his comment, which was widely publicised, he stated that the Allies had rejected Russia's refusal to pay the government debts of the old Tsarist regime. On the same grounds, therefore, they would have to reject the demands of the new Czechoslovakian, Polish and Yugoslavian governments, which sought to repudiate debts incurred under the Habsburg monarchy.

41:30This would be in accordance with the time-honoured principle of international law. Any other stance on this issue would jeopardise international trade, thus harming the Allies' own interest. However, this impeccable argument did not prevent the Allies from siding with the Slavic successor states. Hatred is often stronger than self-interest. The bondholders soon realised that the small Republic of Austria could not bear the burden of all the war debt on its own. They turned to redeeming their bonds at a discount for cash at the Austro-Hungarian Bank, and the bank granted these requests without fail, printing any quantity of additional banknotes to accommodate the wishes of the bondholders.

42:17Thus, the urban bondholders had saved at least some fraction of their investment, whereas the rural cash owners saw the purchasing power of their money holdings shrinking under the relentless influx of new money. Whether or not the Yugoslav, Czechoslovak and Hungarian leaders had considered the possibility that the central bank could use its control of the production of Krono banknotes to counteract their scheme, there was now only one way out for them. They had to abandon the Austro-Hungarian Bank's currency and establish their own. Technically, this involved stamping the chrono notes circulating in their territories, thus making them identifiably separate currencies. Yugoslavia was the first country to put this into practice in early January 1919, and Mises at once commented on the event in an anonymous piece for Neue and Freie Presse. Such anonymous pieces were often signed by a leading monetary politician.

43:17Mises's authorship is evident from the writing style and vocabulary. As well as from the fact that these pieces are kept in common files, the custodians of the archive in Moscow worked diligently in preserving the natural order of the files that they had received from their owner. He anticipated what the next move would be. Yugoslavia, for example, would use a part of its cash surplus to buy financial and other assets in the countries that still used Austrian Kronen. This would, number one, increase Yugoslavian wealth, trading bad paper for real goods, and number two, provoke a price increase in Austria from which the Yugoslav economy would be protected because of its separate currency. Such a post-war inflationary reflux of Kronen notes had been a constant fear during the wartime expansion of the Kroner currency area. Now it was a reality. Mises started campaigning for immediate countermeasures. The only effective strategy for Austria was to do the same thing, stamping the Kroner notes circulating in its territory and thus creating a separate Austrian currency.

44:27In a truly grotesque episode from mid-January 1919, a champion of sound money provided hands-on on support for banknote production. He wrote that the money problem at the moment of the dissolution of the Austrian-Hungarian monarchy was merely a technical problem of printing, and the question how to obtain printing plates, banknote paper and printing ink appeared for the moment the most important points of currency policy. Mises unofficially approached his friend Victor Gretz, who ran a large printing company. His His inquiry concerned additional printing facilities for the Austro-Hungarian Bank, whose printing press was unable to handle a rapid replacement of the Kroner circulation. Gretz responded, Coming back to the discussion we had on Tuesday, I venture to inform you that I have made inquiries about the question of banknote production and that very probably it is possible to assure the production in private printing houses within the necessary short delay.

45:32The Steiermühl, Gretz's company, would be in the position to provide 10 flat-pressing machines which, considering the urgency of the case, could be operated 24 hours in three work shifts so that the performance would be equal to that of 30 fast-pressing machines. Because quick action was an imperative, the first step was to stamp the Austrian Kronenauts. In early February, Mises made the case for this measure in an anonymous piece for Neue of the Freie Presse, urging quick action. The article was signed von einem hervorragenden Währungspolitiker from the pen of a leading monetary politician in Neue Freie Presse February 11, 1919. The next day the government issued a decree ordering the stamping of the Corona notes circulating in Austria, a process that was completed by June. When the Czechoslovak government started stamping its notes in late February, it was clear that the Austrians Mises had not acted precipitously. Mises probably commented on this event too in a piece for Neue Freie Presse. Mises explained the matter in detail in an article he prepared

46:39for the Verein für Sozialpolitik on the question of currency union between Germany and Austria. This is the paper already quoted as Der Wiedereintritt Deutsch-Österreichs in das Deutsche Reich Austria's re-entering into the German Empire refers to the years before 1867 when its Kronländer were part of the Deutscher Bund German Federation. The Bund had been established under the leadership of the House of Habsburg as a post-Napoleonic war successor organisation of the Holy Roman Empire of German nations, which had disappeared in 1806. The Bund ended in 1867 when Prussia Mises finished this work in early July 1919, but he circulated a previous version in the wake of his activities in early 1919. In the final version of this piece, which he completed in early July, we read, Now German Austria had to act too. She could not wait until all other States had shifted from the Austro-Hungarian Krone to a national Krone. She had to separate She had to prevent the Czechoslovakian Ministry of Finance, which after the stamping had held

48:07back half of the banknotes of its citizens, from using this half to buy stocks and bonds in German Austria. She had to prevent those Kroner banknotes circulating in the billions in the Ukraine and in neutral foreign countries from being considered money of German Austria alone. He did not mention, of course, that he himself had already taken the steps he advocated. The government only ratified the status quo Mises had already brought into being. On March 15, 1919, Schumpeter was appointed Minister of Finance in Karl Renner's Second Government, a coalition between Renner's Social Democrats and the Christian Social Party. Schumpeter immediately put the reform of the currency on his agenda. The matter was apparently settled in a single day of intense discussions with representatives of the Austro-Hungarian bank and external experts, such as Lundesberger, Hammerschlag, Wilhelm König, Walter Fedan and Mises. An executive order of March 25, 1919 conferred this status of legal tender on the stamped chrono note and denied this status to unstamped ones. This seems to have

49:19been one of Schumpeter's few successes as Finance Minister. He had no power base within either party of the new government. The Social Democrats trusted him because he had used his academic authority to support the socialisation of big industry. The Christian Socialists liked him because of his long-standing opposition to union with Germany, but his only real political Capital Asset was the international reputation he enjoyed. He was a recognised authority in economics, and his Chancellor correctly anticipated that this could be helpful in negotiations with international creditors. This reputation was no help, however, in his efforts to put government finance back on track. Not a single major point of his programme was put into practice. He could not impose a one-time capital levy to pay off the war After the other cabinet members denied support for his financial programme, the luckless Schumpeter threw in the towel and quit the government on October 17, 1919.

50:30To its sound money, the stamping of the Corona banknotes had prevented a catastrophe, but The great remaining question was, of course, how Austrian monetary policy and public finance could be restored to sanity. This had to happen quickly, but the average intellectual saw no way out of this mess. Stopping the printing press seemed to imply the destruction of firms and labourers. From a theoretical point of view, it is correct to put the principle of economic freedom into practice, but this principle cannot be realised because of the destruction The destruction of great masses of entrepreneurs and laborers that would result from it without revolutionary changes. Thus, the political consequences of putting this principle into practice would prevent it from having its effect. This is Emil Lederer commenting in correspondence on Mises' paper Zahlungsbilanz und Wechselkurse – Balance of Payments and Exchange Rates. In reality, this destruction would not have been harmful for the workers.

51:33Stopping the inflation would have left intact the physical production facilities and thus the source of the labourer's income. The production sites, factories and other producers' goods would merely have changed owners. What the inflation did was to prevent such a sweeping redistribution of capital goods from the economic establishment to private entrepreneurs. In a profound sense, the socialist status quo was not pro-working class but pro-establishment. From this point of view, the argument that Mises' anti-inflationist endeavours were politically unfeasible was clearly about what was, and was not palatable to the powers that be. He began an anti-inflation campaign in the winter and spring of 1919. His greatest asset was the readership of the liberal Vienna Press, a well-positioned audience. His status Mises as a recognised authority on financial matters put the stamp of officialdom on his pronouncements, and he was therefore a carefully read commentator on current events. So carefully read that he preferred to publish some of his pieces anonymously.

52:42Mises gladly accepted an offer from his friend Victor Gretz, who ran a major printing company and published the daily newspaper Neues Wiener Tagblatt. Gretz had no competent journalists to cover economic policy and monetary policy in particular, and thus wanted Mises to write for his paper. The prolific Mises already wrote on monetary policy for the Neue Freie Presse. In those days of heated activity, Mises was often asked to deliver on the same day, and seems to have complied, but Gretz offered attractive terms. Mises would dictate his articles to a stenographer, who would come every morning between eight and nine o'clock to his In the same vein, Mises was also invited to contribute monetary analysis to Dorn's Volkswirtschaftliche Wochenschrift, a weekly economics journal edited by a former colleague from the Wissenschaftlichen Komitee für Kriegswirtschaft. The editor also invited him to a lecture before the Frauenklub on Socialisation and Economic Planning Two weeks before Otto Neurath had given a talk on this subject and Mises would provide the antidote. He also gave public lectures on these

54:03problems almost exclusively to educated audiences, lawyers and businessmen, not politicians, who were taken with his personality and lecture style. For example, in the lecture he gave on May 2, 1919 on means and ends of currency policy. He addressed the members of a commercial association. The talk was apparently very successful and dealt a heavy blow to the inflationist party. Mises gave many more talks of this nature during the year, for example at a common meeting of Austria's Chambers of Commerce in October 1919. One of the obstacles he had to overcome was that the inflation's effects were not yet visible. In Germany and Austria price price control suppressed domestic price increases, thus limiting the most noticeable and painful consequence of inflation to the decreasing number of unregulated markets and to black markets. The public is thus deceived and fallacious doctrines take hold. These fallacies in turn lead to bad policies, in particular to foreign exchange controls. The only official evidence They argued that the declining exchange rate resulted from the mechanics of the balance of payments and that there was no necessary relationship between increases of the money supply and the exchange rate.

55:37In two papers, Mises gave a concise refutation of this balance of payments theory and made the case for the quantity theory of money. He pointed out that all shortcomings of the quantity theory could not affect its main tenet, that there is a positive relationship between variations of the quantity of money and variations of the price level. These articles, The Quantity Theory of Money and Balance of Payments and Exchange Rate, appeared in a low-circulation professional journal, and Mises had had to be very cautious in wording his critique to protect these papers from the government censor. Nevertheless, his frontal attack on the monetary status quo encountered fierce resistance from several practitioners of economic policy, including Siegfried Rosenbaum, the director of the Anglo-Austrian Mises' papers were widely read and discussed in the following years. Their circulation could have been even larger if Mises had not prevented new printings of balance of trade and exchange rates, which he intended to integrate into the second edition of The Theory of Money

56:49and Credit. In a parallel effort to a sound money campaign, Mises worked out two plans for Monetary Reform, an official one proposing action for normal times, and a secret contingency plan in case of a sudden emergency. The monetary problem that virtually monopolised the attention of the Austrian government and public in the first few months of the republic was a proposed currency union with Germany. Prevailing wisdom and the angst Austrians felt from a lack of political or national identity after the collapse of the empire, had it that Austria was incapable Mises was charged with defining the Austrian position for the upcoming negotiations with the Germans and was invited to contribute an expert report on the question to a special Verein für Sozialpolitik volume that analysed the Austrian economy.

57:46The volume was meant to give a summary of the situation in Austria and thus serve to to inform a larger German public about the specific conditions of their neighbours to the south. The technical details of Mises' report are still relevant to the modern world of paper money. He pointed out that all problems of Austria's proposed monetary unions with the German Reich arose from the fact that both countries presently used paper monies. A currency community of two states on the basis of a paper currency is hardly feasible If there is not from the very outset the intention to abstain from any further inflation, and if this intention is not strictly put into practice, as soon as inflationary measures are resorted to, to add to the State Treasury, there must arise differences of opinion about the distribution of the new quantities of money that are to enter circulation. The only example of such a currency community based on paper money was the Austro-Hungarian Jewel Monarchy, which had been established in 1867 and featured two states using the same currency,

58:51namely the currency of their common predecessor, the Kaisertum Österreich. Yet this currency community could be successful because it was based on the principle that the total quantity of banknotes in circulation could not be increased. Thus, distributive conflicts were avoided from the outset, but if the proposed currency union involved any inflationary measures, The only way to avoid such distributive conflicts was to establish a common financial administration, he thought. It is therefore clear from the outset that German-Austria's adoption of the German Reich's currency can begin only once the political unification has been, if not achieved, then at least unchangeably decided. It was Mises's position that Austria should be granted a special subsidy during the first Mises insisted on these two points, mentioning each of them twice in his 25 page report.

1:00:09As for the ratio for the conversion of cronin into marks, Mises argued that it should be based on the prevailing market exchange rate between the two currencies. The ratio would also have to account for the future redemption rate of marks into gold. He recommended that this rate be based on the prevailing mark price of gold. Attempts to re-establish the pre-war rate would hurt exports which would be devastating under the present circumstances, especially for the Austrians. The transition from the present state of two independent paper monies to the desired currency union could most suitably be achieved through the intermediate creation of a mark exchange standard. In this scheme, the Austrian central bank would start redeeming its notes for marks, thus making kronen de facto money substitutes for marks.

1:00:59By this very fact, German-Austria's adoption of the German currency is put into practice. The The Kroner is nothing but a name for a part of the mark. The final step would be the replacement of Kroner notes by mark notes. This was a simple and elegant solution, but it was already moot by the time Mises finished the revision of his paper. In early May 1919 the Entente powers issued a decree containing the peace conditions for Germany and one of them was that Germany could not unite with Austria. The Western Allies would not budge from this position and on June 28, the German delegation signed the Diktat of Versailles. Political union had become impossible and so had Austria's monetary and financial annexation to the German Reich. But Mises pointed out in his report that his plan for currency unification could still work, even under the conditions of the Versailles Treaty. In fact, the proposed Mark Exchange standard had great legal advantages. German German Austria's adoption of the Mark Exchange Standard does not require any action of the

1:02:04German Reich's government. It therefore does not affect the obligation that the German Reich incurred in the peace treaty on behalf of Austria's independence. His government colleagues preferred other options. They did not see sound money as a priority. They still sought ways to get around the repayment of wartime debts and to expropriate private savings. and Reform, stopping inflation, abolishing price controls and moving toward laissez-faire was out of the question. Apart from all other considerations, these policies would have exposed the enormous redistributive effects of the wartime policies. Renner and Bauer looked for an alternative. One way to deal with the effects of surplus money was to seize Cash Holdings. Expropriation from German-Austria's former creditors was planned and propagated under the insidious term of Vermögensabgabe, which can be translated as Sharing the Wealth.

1:03:05This rhetorically philanthropic measure was an all-out attack on the country's capitalists, who had heavily invested in wall bonds and then redeemed them at a loss from the Austro-Hungarian Bank after the dissolution of the old Kroner currency area. The proposal encountered the fierce opposition of the Kama, of course, and the socialists were forced to consider other alternatives. After the peace agreement had been signed on September 10th, Austria received loans from the West, giving the government new financial flexibility. Characteristically, the foreign credits were used to buy food for Vienna's now inactive proletarian masses, and many Austrians were already counting on more Western help in the future. Mises spoke out against the childish notion that foreign capitalists and governments could have any long-term interest in financing a ruinous socialist experiment in Vienna. A conference on Austria's currency problems organised by the Vienna Association of Commerce and Industry gives a good sense of his alternative programme. The conference took place on November 11, In 1919, Mises and his friend Wilhelm Rosenberg were the main speakers.

1:04:17Wilhelm Rosenberg was already known as a writer on currency problems. Rosenberg explained that foreign exchange controls and banking regulations had stopped the inflow of badly needed foreign credit, and encouraged costly barter and black market exchanges. The present relief was only temporary. He proposed attracting foreign credit by granting special privileges to foreign companies in such fields as mining, road construction and tourism. Then Mises observed that strikes and work stoppages were pandemic in Austria. The only exception was the printing press of Austria's central bank, which worked day and night. If this state of affairs continued, the corona notes would soon become worthless, their circulation would break down and chaos would ensue. Mises then explained the origins of the present mess. The government itself had created the inflation. It then took the ensuing price rises as a pretext for imposing price controls and many more interventions. As in ancient Rome, the Austrian government was now at the point of providing the means of sustenance for a majority of the metropolitan

1:05:27population. Hoping for more allied financial support was futile. The only way out was for Mises was completely disillusioned concerning the government's capacity to solve the problems that threatened to bring chaos and violence throughout the country. It had taken him time to learn this lesson, and he learned it the hard way. He had had his own ideas about how an enlightened government could enact a thorough monetary reform, but he now knew that it would would never happen. He developed instead a revolutionary private enterprise strategy for the establishment of sound money and was resolved to pursue it without delay. The fundamental paradigm shift at the heart of the Mises plan was simply to ignore the government and to make the reform of the monetary system an affair of the country's principal bankers, merchants and industrialists. In the fall of 1919, Mises distributed a Confidential School memorandum. He argued that there was an imminent danger that the inflation and the plummeting Kroner exchange rate would incite people to give up on using Kroner banknotes

1:06:39altogether and that it was necessary to prepare for this day. One can hardly expect the government to make such preparations. It cannot be assumed that the financial administration that for five years has not only followed but also repeatedly that he sought to defend the disastrous inflation policy, and which in complete ignorance of the sole source of the decreasing value of money has accelerated the decline of the corona, would suddenly change its mind. Leaders responsible for its policies who correctly saw the economic connections have up to now been unable to overcome prevailing in-house traditions. Citizens must seek to achieve, through their own powers, that which the government fails to bring about. All one can hope for on the part of the government is that it not hamper the initiative of the private sector. It is the duty of the banks, and with the banks that of big corporations in industry and trade, to make ready the measures that appear necessary to overcome the catastrophic consequences of the collapse of currency. This is in their own interest, and also a

1:07:46service to society as a whole. Mises then gave the details of his plan. He proposed to take measures to replace the Kroner with a foreign currency. If the inflationary process was sufficiently slow, he argued, no further measures would be necessary. The Kroner would then be replaced in a continuous process without threatening a disruption of business operations. The danger lay exclusively in the scenario of a sudden collapse that would leave the citizens without money. In this case, disruption could ensue and lead to misery and violence. It was in anticipation of this possibility that he urged the Austrian entrepreneurs to seek a credit of 30 million Swiss francs that could be used for the payment of one month's worth of wages and for retail payments. Moreover, it was of utmost importance that this sum be available in very small denominations lest it be useless for the man on the street. Austrian Human law did not allow this, but in the emergency scenario underlying the Mises Plan such legal

1:08:53considerations would be secondary, and he urged his readers not to despair about the possibility of such an emergency, but to see it instead as an opportunity for political improvement. Political ideas that have dominated the public mind for decades cannot be refuted through rational arguments. They must run their course in life and cannot collapse otherwise than are in great catastrophes. One has to accept the catastrophic devaluation of our currency as foregone. Imperialist and militarist policy necessarily goes in hand with inflationism. A consequent policy of socialisations necessarily leads to complete collapse of the monetary order. The proof is delivered not only through the history of the French Revolution, but also through the present events in Bolshevist Russia and a couple of other states that more As unbecoming as the collapse of the currency is in its consequences, it has the liberating effect of destroying the system that brings it about. The collapse of the Asignat was the kiss of death for the Jacobin policy, and marked the beginning of a new policy.

1:10:11In our country, too, a decisive change of economic policy will take its impetus from the collapse of the currency. Without knowing it, Mises had spelled out here an idea that many years before him, Carl Menger had stated in a private note. Saying that ideas must run their course, Eva Hayek discovered this note at the beginning of the 1930s, when he worked on a new edition of Menger's works. Mises later referred to this note in the historical setting of the Austrian School of Economics. Vienna Circles Mises's main occupation was still that of a Kammer secretary, in which capacity he profited from the government's attempt to democratise Austria. The egalitarian wave reached the Kammer during the year 1919 and was eventually voted into law on February 25, 1920. The Kammer was now renamed a Lower Austrian Chamber of of Trade, Commerce and Industry, and all members now had equal voting rights, irrespective of their tax bill. The internal organisation of the Cummers Executive Office was also changed.

1:11:18The new law stipulated a stronger emphasis on giving the different branches of the economy a more equal representation within the Executive Office, even a level of autonomy within its confines. A new Department of Transport was set up, and also a new Department of Banking Mises became the executive responsible for questions of money and credit. In his new function he exercised leadership far beyond the borders of Vienna and Lower Austria due to the privileged status of the Vienna-Kammer. He also remained a professor of economics both at the University of Vienna and, briefly, at the Export Academy. The Export Academy would later become the Hochschule für Welthandel and then the Wirtschaftsuniversität, under and of which name it is still known today.

1:12:09He resumed the regular discussions of economic theory that he had organized before the war. These meetings attracted the small number of economists in Austria and Germany, sharing a genuine interest in theoretical problems of the social sciences. Mises's group, a nucleus of what would soon after become the more formal Nationalökonomische Gesellschaft, enjoyed a virtual monopoly on Vienna's top theorists, especially because Because Mises, who was still the most renowned theorist in Vienna, was not interested in this kind of exchange of ideas, and so attracted no such group about himself or his precepts. The Mises circle, thus, became a crystallisation point for the dispersed and isolated theorists in the German-speaking world. Their attitude towards the Vienna group is beautifully summed up by Schumpeter, who, having to cancel an appearance at one of the group's meetings said he had dearly wished to speak to our circle and graze in congenial company on a theoretical meadow. The most time-consuming of Mises's intellectual endeavors were the seminars he taught at the University of Vienna, but the activity also gave him relief from

1:13:18the tiresome work days at the Commer and from hopeless political affairs. He loved being a professor. He loved intelligence and intelligent debate. No amount of political turmoil could When the first session started, the seminar members were the subjects of a monarchy. When the discussion resumed after a fortnight, they were citizens of a republic. The students must have been impressed by the presence of Dr. Ernst Zeidler, who had been one of Imperial Most of the same members assembled for a summer seminar on the issue of Free Trade vs. Protectionism.

1:14:10Among the participants was apparently Siegfried Rosenbaum, the president of the Anglo-Österreichische Bank and sponsor of Walter Fedan's Österreichische Volkswirt. Mises' plan for the seminar was was to highlight the importance of the theory of value for the analysis of market phenomena and to stimulate discussions of the major competing theories of value, the subjective theory of value, Marxist theory of value, value in mathematical economics and Franz Oppenheimer's objective theory of value. He sought to entrust the presentation of each of these doctrines to one of its adherents. The seminar also featured discussion sessions on the measurement of value and on the differences between classical and modern economics. Rather than taking into account only the most recent articles published in the most prestigious journals, Mises used the seminar to introduce the students to important classical authors.

1:15:06He also encouraged them to do outside research and write articles on particular topics and offered his assistance with these tasks. He urged them to read broadly without any specific and the goal or particular agenda, a principle he advocated all his life. He tried to be helpful in various ways, from lending books out of his personal library to finding suitable employment for his students after graduation. Despite the war and its aftermath, Vienna had remained a great centre of learning. Besides the Austrian School of Economics, which continued to thrive under Wieser, Mises and Meyer, there were Austrian or Vienna schools of theoretical of Physics and Philosophy, Moritz Schlicke, of Law, Kelsen, Psychoanalysis, Freud, Adler, History, Dopsch and Young Otto Brunner, and Art History, Max Vorjak and Josef Sztrigowski.

1:16:02But while Mises's classes at the University were a great opportunity for students to become acquainted with theoretical economics, the lectures and exercises were necessarily limited to an elementary level. Beginning in 1919, the University of Vienna offered a new degree in government sciences with a strong emphasis on economics. Students had to attend six semesters of courses in economics, public finance, economic history, statistics, general theory of the state, public administration and international law. To obtain the PhD in government sciences, they then had to write a dissertation and undergo two thorough exams. Mises therefore sought to to establish a private seminar for the discussion of more advanced problems.

1:16:48Many such private circles existed in Vienna and their characters differed widely depending on those involved. Some pioneers of various disciplines had instituted private seminars to train their followers in small group sessions. This was the case, for example, with Sigmund Freud, who had really started the group before the First World War, and also for the post-war The School Circle of Hans Kelsen Other private scholarly circles did not feature central figure. For example, the student circle that Mises had set up with the Priebrann brothers and Emil Perls in 1908, and which would eventually become the Nationale Ökonomische Gesellschaft or the Geistkreis, a student group that Herbert von Fürth and Fr. von Hayek founded in the early 1920s.

1:17:34Some scholars had membership in several circles at once. For example, Felix Kaufmann, a student of Hans Kelsen's and later an assistant professor under him, was a member of the law-oriented Kelsen seminar, the social science-centred Mises seminar and the philosophical Vienna Circle. Mises, too, took part in several groups in spring and summer of 1919. He was a member both of the Nationalökonomische Gesellschaft and of a seminar discussing the writings of Marx. This last group met on Monday evenings on the premises of the Staatskommission für Sozialisierung. Most of its members were Marxists or people with communist leanings, such as Lederer and Peter Pick. Pick had been a member of Mises' seminar already during the 1918 theoretical exercises in the economics of banking. She also took part in his subsequent university seminars. It was probably here that Mises confirmed his less-than-favourable impression of the Socialist Intelligencia. Here he learned that the party Marxists consisted of two groups, one, those who had never studied Marx and who knew only a few popular passages from

1:18:44his books, and two, those who with all the literature in the world had read as self-taught men nothing except the works of Marx. Marx Adler, for instance, belonged to the former group, his Marxian knowledge was limited to the few pages in which Marx developed the The Super-Structure Theory To the latter group belonged especially the East Europeans, who were the ardent ideological leaders of Marxism. The only exception he refers to was Otto Bauer. Mises' own private seminar started on November 26, 1919, with a talk by Elisabeth Efrusie on Carver's Theory of Interest. Subsequent speakers included Striegel, Tugendhat and and Sommar. Ephrussi was probably the heiress to the Ephrussi Bank. Margit von Mises mentions Ludwig's occasional joking remark that he could have married a rich heiress had he not met Margit. He was probably referring to Elisabeth Ephrussi. The sessions of the Privatissimum, as Mises called it, probably took place in his offices in the Kammer. In any case, this This is where the seminar met in later years when admission would be limited to participants

1:19:57with a doctoral degree. The degree could be in any science. The purpose of the requirement was only to assure the person's aptitude for scientific research. He wholeheartedly supported his female students as a matter of course, placing for example Marianne von Herzfeld and Elen Lieser as economists with the Association of Austrian Banks and Bankers. Then Lisa was the first woman in Austria to obtain a doctorate in government science. She went on to become secretary of the International Economic Association in Paris. Another female student, Martha Stephanie Brown, who later taught at Brooklyn College and New York University, recalled, Professor von Mises never restrained any participant in the choice of a topic he or she wanted to discuss.

1:20:44I have lived in many cities and belonged to many organizations. I'm sure there does not exist a second circle where the intensity, the interest and the intellectual standard of the discussions is as high as it was in the Mises seminar. In these discussions, Mises openly espoused not only classical liberal economic policies but a complete classical liberal worldview, this at a time when the majority of intellectuals in Vienna and the rest of Europe were socialists. Thus, Mises was known as Der Liberale, in In today's English we would say he was Mr. Libertarian, the living embodiment of classical liberal ideas. One of Marian Herzfeld's letters is most revealing in this regard. Freuland Herzfeld's parents were acquainted with Mises and had him occasionally at their house for dinner. Many years later his former student Fritz Machlup would highlight the role of Mises' convictions for his impact on others. That Mises could be the centre of a school School is evidence of his qualities as a teacher, not that he is a great orator or a brilliant

1:21:52classroom actor, but it is the conviction with which he expounds his ideas which arouses the student's interest, partly by convincing them, partly by provoking their criticism. And then Machloub went on to point out the flaws of his former teacher. He is usually too reserved, and all buttoned up, so to speak. Someone who meets him for the first time may May be repelled by his apparent coldness or some lack of sympathy. People who know him better know that he is fully sympathetic. He is a man unwilling to make compromises. Even if such compromise might be to his material advantage, he will stick stubbornly to his convictions. Although I feel this is really a merit, it sometimes antagonises people.

1:22:39Mises did occasionally show his anger addressing a view that he opposed, but apparently he He did not let intellectual disagreement turn into personal resentment. He realized that progress must necessarily involve disagreement between the newcomers and the establishment, and thus he encouraged talent regardless of orientation. For example, at the end of the 1920s, Mises recommended mathematical economist Ewald Shums for a Rockefeller Fellowship, praising him as one of the ablest younger economists of our country. In May 1931, Shums was a Sektionsrat in Vienna. Before that, he must have spent some time in Paris, maybe on a Rockefeller Fellowship. He also recommended Paul Latarsfeld, the director of a small private outfit dedicated to research into economic psychology, the Österreichische Wirtschafts-Psychologische Forschungsstelle, of which Mises was a board member, who advocated methodological and political views almost the opposite of those cherished by Mises.

1:23:41The names of some of his Vienna Junior Research Associates have indeed become legendary in the post-Second World War period. Hayek, Haberle, Machlub, Schütz and Morgenstern, to name just a few. Although these men were usually the official students and collaborators of Meyer and Spahn, it was in working with Mises that their theoretical work developed and flourished. It is characteristic of their relationship with Mises that they approached It is in this regard very revealing to compare Murray Rothbard's biography of Mises with Rudolf Meytal's biography of Kelsen. In those days he also witnessed the ascendancy of his great rival, Otmar Spann, who was appointed as a full professor of economics and gave Otmar Spann's lecture was printed in the same year under the title Vom Geist der Volkswirtschaftslehre and later reprinted as an appendix to the third edition of Fundament der Volkswirtschaftslehre.

1:24:48Spann professed a worldview diametrically opposed to methodological individualism. His method, which he called universalism, claimed the importance of starting social analysis with the contemplation of larger halls and treating the individual elements of human society as secondary. Such rivalries and disagreements were commonplace and were not limited to the university. The intellectual organization of early 20th century Vienna was a network of dozens of teachers professing their views to disciples and followers in private settings. The system exemplified the intellectual abundance that results from a free market of ideas. It produced Austro-Marxism, psychoanalysis, legal positivism, logical positivism and praxeology.

1:25:40But for international reputation and lasting impact, three of these circles stood above the rest. The psychoanalysts, the logical positivists and the Mises circle.