Monetary and Economic Policy Problems Before, During, and After the Great War. Людвиг фон Мизес
apartment in March 1938 shortly after the Nazi annexation of Austria into the German Third Reich, they ended up among a huge cache of stolen documents, papers, and archival collections that the Nazis had plundered from all over occupied Europe. At the end of the Second World War the entire cache, including Mises’s papers, was captured by the Soviet Red Army in a small town in western Czechoslovakia. After being informed about what had been captured, Stalin instructed that it all be brought to Moscow and that a secret archive be built to house it. For half a century, only the Soviet secret police and the Soviet Ministry of Foreign Affairs had access to the collections in this archive.
In the introduction to volume 2 in these Selected Writings of Ludwig von Mises, I describe in detail how my wife and I came to find out about this archive and the existence of Mises’s papers among them, amounting to about 10,000 pages of material. In October 1996, we journeyed to Moscow and spent about two weeks carefully going through the entire collection of Mises’s papers. We returned to the United States with photocopies of virtually the entire collection, which includes Mises’s correspondence, unpublished manuscripts, published articles, policy memoranda prepared during the years when he worked for the Vienna Chamber of Commerce, material relating to his teaching at the University of Vienna and his famous private seminar, and his military service during the First World War. Many of the articles, policy memoranda, essays, and speeches that were found among Mises’s “lost papers” have been included in this series, especially in volumes 1 and 2 of his Selected Writings.
Shortly after the discovery of the “lost papers” was announced, Liberty Fund contacted Hillsdale College and me about the possibility of publishing a selection of these and some of Mises’s related essays, lectures, and articles covering the period from before the First World War to the 1940s during the Second World War. I most happily accepted Liberty Fund’s kind offer to serve as editor of the translations (mostly from German) and to prepare the volumes for publication.
It has been a labor of love that has ended up taking far longer to complete than I had expected. A good part of the delay in finishing the last of these volumes was due to a five-year “distraction” during which I served as the president of the Foundation for Economic Education (FEE) from 2003 to 2008. But my return to the “calmer” life of academia has permitted me to finally finish the task.
Ludwig von Mises is most famous for his great works on monetary theory, socialist central planning, the general theory of the market process, and the methodology of the social sciences, the leading ones, of course, being The Theory of Money and Credit; Socialism: An Economic and Sociological Analysis; Liberalism; Critique of Interventionism; Epistemological Problems of Economics; Bureaucracy; Omnipotent Government; Human Action: A Treatise on Economics; Theory and History; and The Ultimate Foundations of Economic Science.
But what the Selected Writings of Ludwig von Mises, in general, bring out is the “unknown Mises,” if you will. Not the Mises of grand economic theory and sweeping political economy, or the fundamental problems of human action. Here, instead, is Mises as applied economist, detailed policy analyst, and economic policy problem-solver in the detailed reality of the many pressing public policy issues that confronted the old Austro-Hungarian Empire and the new Austrian Republic in the aftermath of the Great War, and then the need for reconstruction and economic reform after the Second World War.
For those who have sometimes asked, “Well, but how do you apply Austrian economics to the ‘real world’ of public policy?” here is the answer by the economist who was considered the most original, thoroughgoing, and uncompromising member of the Austrian School in the twentieth century!
Indeed, it can be argued that it was having to grapple with the intricacies of these types of everyday economic policy issues during a time of great, and sometimes cataclysmic, change in the Europe and the Austria of the first half of the twentieth century that helped to guide and form Mises’s thinking on those wider and more general problems for which he is most famous.
The Selected Writings of Ludwig von Mises provide an insight into and a better understanding of the first two-thirds of Mises’s long and productive life as a professional economist in a way that has not been available before. It also brings into English translation for the first time the vast majority of his practical economic policy writings from this, in many ways his most prolific, period before he left war-ravaged Europe in 1940 to make a new home and career for himself in the United States.
The articles and lectures included in this volume by the Austrian economist Ludwig von Mises were written in the years before, during, and after the Great War of 1914-18, as the First World War used to be called. They focus on the monetary, fiscal, and general economic policy problems of, first, the Austro-Hungarian Empire and, then, the new postwar Austrian Republic after the dismantling of the Habsburg Monarchy.
For those who may be familiar with Mises’s more theoretical works on various themes of monetary theory and policy,1 comparative economic systems—capitalism, socialism, and interventionism2—the general nature and workings of the market economy, or the methodology and philosophy of the social sciences,3 most of these articles and lectures (like the ones in volume 2 and 3 in this series)4 offer a different perspective on Mises as an applied economist. Here is not the broad theorist concerned, often, with stepping back from the particular details of specific historical circumstances to investigate and evaluate the essential and universal properties of human action; or the institutional prerequisites for economic calculation and the rational allocation of resources among competing ends; or the relationships between time preference, investment time horizons, monetary expansion, and the sequential stages of the business cycle.5
Instead, these essays investigate and analyze the historical and institutional workings of the pre-World War I monetary system of the Austro-Hungarian Empire, and the issues surrounding legal specie redemption for the banknotes of the Austro-Hungarian Bank; the politics behind the establishment of the gold standard in Austria-Hungary; the growing fiscal imbalances developing in the Habsburg Empire due to the patterns of government spending and taxing policies in the first decade of the twentieth century; and the reasons behind the economic crisis that hit Austria-Hungary in the years immediately before the start of the Great War. Here, too, we see Mises analyzing during the war the motives behind German and Austro-Hungarian trade policy, the impact and significance of emigration from Austria, the effects from the monetary inflation used to fund the government’s war expenditures, and the pros and cons of financing those war expenditures through taxation versus borrowing by the issuance of war bonds.
After the war, Mises explains the distorting effects from the new Austrian government’s control and rationing of foreign exchange for imports and exports; the impact on the Austrian foreign exchange rate of monetary expansion to finance the government’s huge deficit spending; a specific policy agenda to bring the country’s financial house back into order, and the need for cooperation from both businesses and labor unions if this was to be achieved without Austria’s currency collapsing into hyperinflation; the claims that holders of banknotes of the old Austro-Hungarian Bank could make on the new Austrian National Bank in the postwar period; Austria’s fiscal problems in the period after the end of the inflation; and the lessons for banking reform after the collapse of several banks in 1931.
Ludwig von Mises became immersed in these issues because he had to earn a living outside the Austrian academic arena. University teaching appointments were few and far between in Austria both before and after the First World War, even though Mises was clearly qualified for such a position.6 His only formal relationship with the University of Vienna, after graduating in 1906 with a doctoral degree in jurisprudence,7 was as a privatdozent (an unsalaried lecturer), which permitted him the privilege of offering seminars during the academic year. Mises offered such a seminar almost every term from 1913 to 1934 (except for most of the time during the Great War). He was promoted to professor extraordinary in May 1918, but this was a purely honorific title that was still unsalaried and with a nominal “tenure” as a professor in this status.8
However,