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NOTE 15. Crises

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Chapter 15 Crises

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The meltdown of the New York Stock Exchange in October 1929 sent shockwaves through the

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world economy. Central Europe was particularly affected. Corporate profits in Austria had

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been squeezed under the combined impact of increased taxation and labour union power.

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As a consequence, private entrepreneurs were increasingly unable to attract the capital

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all needed to cope with the changes. Moreover, the economy of Germany and Austria had come

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to rely increasingly on public expenditure, which in turn was financed through a steady

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stream of US and French credit. The main players in this process were not the federal governments

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but second-level authorities and municipalities. Loyal to the prevailing socialist ideology

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of the time, city mayors had used post-war foreign loans as a means to communalise firms

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especially in the field of transport and public utilities. The performance of these companies

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plummeted under the new public management, but this was compensated for by ever more

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credit from abroad. Until 1928, the inflationary policies of the capitalist West could be relied

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on for promoting the growth and perseverance of the central European welfare states. Then

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the June 1928 stabilisation of the francs stopped capital exports from France and the

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The volume of new foreign loans floated in the United States dropped by some 50% when

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the Federal Reserve started increasing its interest rates. The party was over.

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One of Mises's professional duties was to help attract capital to Austria. In the international

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meetings for the semi-public comma, he represented his country and sought to protect its interests

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by promoting Austria's reputation as a good credit risk. For example, in late March and

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Early April 1930, Mises went on a mission to London to promote an English-language brochure

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that Hayek's Institute for Business Cycle Research had prepared for the Commer's Propaganda

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Department, what we would now call a public relations office, in London. Mises used the

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occasion to meet his friends at LSE, although he had not announced the trip to them much

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in advance, if at all. Thus he missed Robbins, who had been out of town for some time, and

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then tried to meet him for lunch, but met Meyendorf in King's College on Monday, April

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For first, Meindorf probably introduced him to Alastair Phillips from Trinity College,

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Dublin. They had also planned to meet her in Shaw, but the latter was not in London.

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He was also on a private mission. He had to see Margit again. She had never written after

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leaving Vienna the year before. He somehow learned her address, and they met on his very

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first evening. She recalled,

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From the first look, from the first moment, everything was as it had been before. We both

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knew it never would change. A few months later she returned to Vienna,

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private mission accomplished. Mises' official mission was one of his less successful undertakings.

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After the Wall Street crash in October 1929, U.S. loans quickly became unavailable for

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for Austria and Germany. Even Mises' persuasiveness could not prevent the crisis from spilling

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over to Austria. It soon turned out that the Austrian entrepreneurs, crippled by a decade

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of communal socialism, labour unions and soaring taxes, were unable to provide relief. Stock

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markets plummeted all over Europe and within a year reached an all-time low.

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As usually happens in a financial crisis, all sorts of real and self-appointed experts

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advertised their plans to solve the problem. These plans invariably involved increased

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government intervention. The great panacea was meddling with the gold standard. Several

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well-intentioned amateurs sent their reform proposals to Mises. Not one of them had actually

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studied any of his writings. They just sought a renowned monetary expert to give leverage

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to their ideas. One of them actually proposed a currency based on electricity. Mises usually

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He replied, and in one case even said, he would welcome a publication of the gentleman's

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proposal. A public discussion of these views would be instructive and help to bring about

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a solution to the present monetary problems. This was no idle talk, he sometimes arranged

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such discussions himself. A case in point was Charlotte von Reichmann, a young economist

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from the University of Frankfurt. Unlike the cranks, she had actually read Mises' monetary

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In fact, she had devoured all of his books and admired them very much.

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Still in a doctoral dissertation she had advocated a substantially different inflationary point

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of view on the nature of credit, claiming that even paper money credit was true capital.

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When she sent her dissertation to Mises in December 1931 and solicited his comments,

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she was quite surprised to receive a very appreciative response, plus an invitation

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to give a talk to the Nationalökonomische Gesellschaft.

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She could not believe her eyes when she saw she was invited to give a talk, and her teachers

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laughed at her, saying it could not possibly be a serious invitation. Mises was only being

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polite to a student of his friends from the Frankfurt Circle, but Mises was serious. When

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he thanked her for accepting the invitation to Vienna, she exclaimed, But it is I who

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have to thank you for letting me rise, as if through the touch of a magic wand from

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and the mass of nameless scientists. In 1930, the Austrian government asked Mises

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to join an ad-hoc economic commission to study the causes of the difficulties that plagued

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the country, permanent high unemployment. In 1929, some 200,000 or 14% of the workers

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in industry and commerce were without jobs, numerous bankruptcies, idle production facilities

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and the lack of profitability for a large number of Austrian businesses. Mises was one

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One of the three members of the anonymous editorial committee that eventually issued

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the final report of December 1930. Richard von Schiller was the official president of

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the committee, but he did not take part in the writing. The other two members were Edmund

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Pallar, a Labour Union leader and Secretary of the Chamber of Labour, and Engelbert Dolfuss,

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a rising leader of the Christian Socialist Party who would later become Austrian Chancellor.

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The report detailed the factors that weakened the competitiveness of the Austrian economy.

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It pointed out that the inflation years, 1914 to 1925, had produced an inflationist mentality

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in the Austrian population. Continual increases of prices and incomes were now considered

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to be the normal state of affairs. This mentality conflicted with stable or declining selling

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prices on world markets, to which Austria was exposed after the introduction of the

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Gold Exchange Standard in 1925. Once on the standard, wholesale prices could be increased

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only for local products and only to a limited extent, while production costs continued their

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increase. Taxation had risen by more than 30%, payments for the public social security

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systems by more than 50% and the wage rates of the 1.3 million industrial workers by some

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and 24%. The increase of production costs had squeezed corporate profits, which in turn

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made it impossible to attract the foreign capital direly needed for a quicker adjustment

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of Austrian industry. The Committee therefore recommended a reduction of public expenditure

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and of public revenues, as well as renegotiation of wage contracts in order to reduce total

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labour costs. Mises was not happy with the report. Neither

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Mises' hand in it was obvious. The author states that Mises' views had a major impact

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on Austrian policy debates in the early years of the crisis. He thought it failed to identify

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the main culprits, the welfare state and the labour unions. He used his next opportunity

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to set the record straight, writing under his own name. He also put the discussion of

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of Crisis Related Topics on the agenda of his private seminar, which, in the academic

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year 1930-1931, dealt for the first time in many years exclusively with economic problems.

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Similarly, in the winter semester, the university seminar dealt with the information, maintenance

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and consumption of capital. The summer semester was to deal with methodological problems,

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but it was unexpectedly cancelled because Mises had to travel to the United States for

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for a meeting of the International Chamber of Commerce.

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These sessions were far more satisfying for Mises than were the public debates into which

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he had been drawn by his reputation as Austria's greatest monetary theorist. During the crisis

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he confronted some of the more influential money-cranks in public debate. He argued that

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the Great Depression was more lengthy and severe than any form of bust because it resulted

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from the Combined Effect of Inflation and the Regimentation of Businesses. In one of

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his public appearances in late October 1930, Mises debated Robert Eisler, an Austrian economic

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historian affiliated with the Paris Office of the League of Nations.

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Mises apparently also gave another public talk in Vienna on Monday, December 1st, 1930.

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Eisler had written a book on the history of money and taught courses on his monetary policy

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Policy Schemes at the Sorbonne in Paris and the prestigious private Institut Universitaire

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des Autitudes Internationales in Geneva. He advocated the entire program of anti-crisis

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policies that later became known as Keynesianism. Eisler claimed that the post-1929 crisis had

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resulted from previous deflationary policies and, in particular, from the deflationary

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and the gold standard. In his view, the crisis should be overcome by a simple change in the

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technique of international currency management, the abolition of any form of gold standard

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and the creation of an international fiat money system. This would solve various problems

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in the labour market, agriculture, housing and other fields. It would finance huge public

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take works, give sufficient wages and old age pensions to workers, and guarantee extraordinary

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bull markets for entrepreneurs and bankers. It would even appease social antagonisms within

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society. No written account of the Mises-Eisler debate

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remains, but Mises's argument can be inferred from a public lecture that he delivered a

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few months later to the plenary meeting of the Deutsche Hauptverband der Industrie, the

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Association of German Industrialists in Czechoslovakia. The title of the lecture was The Causes of

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the World Economic Crisis. He delivered it on February 28, 1931, and it was soon published

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under a slightly different title in a major economics series that also featured many socialist

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and interventionist analyses of the crisis. On February 19, 1931, Mises had approached

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Moore's CEO Paul Siebeck for the publication of his lecture in Czechoslovakia in the series

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Recht und Staat. Siebeck was glad to accept this proposal, and by March 2nd they had agreed

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on the terms. Mises would obtain 30 complimentary copies, 80 marks per 16 pages, and the total

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number of copies in any edition would not exceed 2,000. Mises then also changed the

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and the title of the work from The Causes of the World Economic Crisis to The Causes

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of the Economic Crisis. In mid-April, shortly before leaving for the United States, he was

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through with the revisions. On top of his 30 complementary copies, he ordered another

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25 copies and had 20 out of these 55 copies sent directly to their recipients. The money

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The causes of the Great Depression In a mere 34 pages, Mises presented a concise

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and penetrating analysis of the crisis. He pointed out that the market economy was regulated

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by the requirement that entrepreneurs satisfy consumer preferences. Inflation disrupts this

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self-regulation of the market. It induces businessmen to overestimate the possibilities

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for Profitable Investments so that they make bad investment decisions and squander resources.

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These errors became apparent in a crisis – the US stock market crash of 1929 in this case.

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The market participants now revise their plans and adopt more sober views on economic conditions.

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Employment opportunities and capital goods are shifted from the unsustainable production

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projects to those firms and industries that are now most important to consumers and their

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are foremost profitable. The unemployed find new jobs at lower wages, production resumes

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and the economy grows again. Mises stressed that this scenario, while typical of previous

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business cycles, did not exactly fit the conditions of the present one. Before there was virtually

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no unemployment in the boom phase, and even during the bust, unemployment and stagnation

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were temporary. They lasted only as long as it took market participants to find the most

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Profitable New Division of Labour, but this time, Mises observed, things were markedly

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different, so much so that he had to adjust his business cycle theory. This time, despite

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enormous inflation, there was no corresponding general boom economy in Europe. In light of

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past experience, and of our theory, one should have assumed that the crisis would therefore

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be milder, but is far more severe, and it seems business conditions will not improve

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It would have been plausible to assume that the present bust would not be as painful as

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it would have been in the case of a more sweeping boom. The relatively weak boom should have

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induced a relatively moderate bust, but this was not the case. Why? Mises answered that

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the present stagnation was the combined result of two causes layered one over the other.

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The current business cycle had merely aggravated the problems of unemployment and the lack

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of profitability, but these problems had existed and continue to exist independent of the

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and the cycle. Both the lack of profitability and unemployment are being intensified right

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now through the general depression. However, in the post-war period they have become lasting

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phenomena that have not disappeared entirely even in the upswing. We are confronted here

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with a new problem, one that cannot be answered by the theory of cyclical changes alone. What

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were the causes of the permanent post-war crisis? Mises argued that there were several.

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Each one, however, was an instance of government intervention. Mises thus explained the Great

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Depression by combining his theory of business cycles with his theory of interventionism.

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The least controversial of his candidate causes was the nefarious influence of price controls

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and public finance. Most economists agreed that price ceilings created shortages of consumers'

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Investments, and that price flaws resulted in unmarketable surpluses without benefiting

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anyone. They also accepted that the growth of the state increased the costs of production

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and the taxation of capital-induced capitalists to consume rather than reinvest their wealth.

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More controversial, however, was Mises' stance on the labour market, where he was

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one of the few economists with the courage to stand fast on the law of supply and demand,

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In January 1926, the Neues Wiener Tagblatt approached Mises to get his opinion on how

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unemployment was to be reduced, and on March 6, 1930, the Vienna journal Welt am Morgen

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published Mises' advocacy of the abolition of unemployment relief.

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On the unhampered market, he argued, unemployment could only be a temporary phenomenon. There

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are probably always a certain number of job seekers, just as on the unhampered housing

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market there are always unoccupied apartments and apartment seekers. Today we would say

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that search costs cause a certain amount of natural unemployment. Five years before, in

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his piece on interventionism, Mises had characterised this free market unemployment as a frictional

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is a fundamental phenomenon that would not exist in a static state that is in equilibrium.

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Except for this natural residue, however, the market cleared at a wage rate resulting

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from a competitive demand by entrepreneurs and a competitive supply of workers.

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Now this self-regulation of the market is strongly obstructed through the intervention

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of the labour unions acting under the protection and support of government power.

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The labour unions seek to establish the wage rates of their members at higher than market

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rates, the goal the unions pursue by the use of violence.

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Mises went on to explain, Only those workers who belong to the union who demand the wage

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rates prescribed by the union and who do their work in the manner prescribed by the union

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are permitted to work in the firms. Should the entrepreneur refuse to accept the conditions

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of the union, a strike ensues. Those workers who wish to work despite the

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The Union's imposed ban will be forced by acts of violence to refrain from their plan.

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These Union tactics naturally presuppose that the Government tolerates this behaviour at

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the least. Were it to proceed in its usual way and interfere with the criminals who abuse

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job seekers and vandalise the machines and other of the entrepreneurs' facilities, then

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circumstances would be different, but that it has capitulated to the Union is the precise

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This feature characterises the modern state. Owing to this position of power which enables

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them to abuse the property rights of the capitalists as well as the human rights of workers and

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would-be workers, the unions can push wages above the market rate, but at this higher

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level it is impossible to hire all those who would have found employment otherwise. The

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result is unemployment and the concomitant misery of a great many people. For some time

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Even the masses might tolerate their immiseration, but sooner or later they would demand jobs.

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Even the unions could not resist such a large-scale popular movement, and therefore the Institution

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of Taxed Financed Unemployment Relief was created, he concludes. Unemployment as a permanent

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and mass phenomenon results from the labour union policy of pushing up wage rates. Without

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unemployment relief this policy would long since have collapsed. Unemployment relief

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Life is therefore not, as misguided public opinion assumes, a measure to alleviate emergencies

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caused by unemployment. To the contrary, it is an element in the chain of causes that

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create unemployment as a permanent and mass phenomenon in the first place. In short, the

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crisis had turned into a great oppression through government interventionism, and this

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economic calamity in turn accentuated political antagonism within states and between states

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Spurring Yet Another Round of Destructive Policies, How to Break Out of the Vicious

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Circle

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Mises argued that ultimately there was no choice but to abolish all government intervention

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and to confront Union power head on. The confrontation had better be sooner rather than later. The

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longer it is delayed, for example, through inflation, the more capital will be consumed,

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which in turn causes ever-decreasing wages and living standards. And yet this idea continued

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to enjoy great popularity, as Mises wrote some months after publication of his lecture

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to a friend in Paris.

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Today, with the exception of a dozen or two reasonable individuals, the whole world is

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in complete agreement on two points, debts should remain unpaid, and the economy should

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be stimulated through strong inflation.

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Not all criticisms of his views were based on this opinion, however.

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Some critics charged Mises with one-sidedness.

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Some of his colleagues in the Commer thought it was illegitimate to focus only on the problems

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of Government Interventionism. There was also something like entrepreneurial interventionism,

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which brought about very similar problems. The nub of Mises' response to this argument

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is contained in the letter he wrote to CUMMA colleague Rudolf von Baermann, who agreed

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with Mises on questions of government interference but insisted that the government was not the

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only agency to engage in interventionism. Baermann had been a student of Mises in 1918.

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Hans Mises brought the gifted behrman into the comer and also maintained close private

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contact. In his answer Mises stressed the particular features of the selection process

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of the market.

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It is certain that entrepreneurs too commit errors. This has never been denied. But the

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characteristic feature of the capitalist economy is that the entrepreneur diminishes his own

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position as entrepreneur and property owner to the very extent to which he commits errors.

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The capitalist social order, unhampered by interventions therefore, provides for a permanent

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selection among the capitalists and entrepreneurs. Why can incompetent people in the German Reich

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and in Austria remain CEOs for many years? Because, in an interventionist state, these

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executives are selected primarily in regard to whether they enjoy a good reputation with

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The most popular alternative explanation of unemployment

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in those days, at least in intellectual circles, was the one that Émile Lederer had published

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in the same series in which Mises' brochure appeared. Lederer ridiculed the primitive notion

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Even that faced with unemployment one could always restore equilibrium by reducing wage

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rates.

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He argued that the crisis was a consequence of fast technological progress, so fast indeed

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that an adjustment of the market participants was somehow intrinsically impossible.

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As long as innovations applied only to consumer products, according to Lederer, unemployment

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would not result.

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The new industries would absorb any remaining idle labour, but when innovations occurred

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in the form of fast technological progress, which replaced labour by cheaper machinery

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at such a speed that entrepreneurs could not keep pace, unemployment ensued.

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He had advocated these views for many years, along with the opinion that inflation can

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somehow create additional goods. The problem with this argument was not only its implicit

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premise that entrepreneurial speculation could not possibly keep up with fast technological

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progress, but the even deeper assumption that technological progress could somehow take

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Mises pointed out that capital was inherently conservative in the sense that the value of

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the existing capital structure forced the entrepreneurs constantly to weigh its maintenance

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against its Displacement. It is not the case that any new technology merely by virtue of

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being technologically superior to those presently in use would displace the older ones. Such

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a complete replacement would occur only if it were warranted by market prices. While

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Lederer, Conrad and others had tried to counter Mises' analysis of the causes of the crisis

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by proposing alternative explanations, other economists confronted his main thesis head

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and on. They criticized Mises' argument that in an unhampered economy nothing prevents

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the clearing of the market through price adjustments. Erich Carrell claimed that each change of

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supply and demand would induce cumulative, Vixilian effects that amplified the initial

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dis-equilibrium, and Wilhelm Rübke argued, In the present phase of the crisis, it seems

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to me it is wrong to expect that a reduction of the level of wages could re-establish equilibrium.

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Mises is wrong because given the total paralysis of investment each, reduction of prices and

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incomes would lead to a continued sterilization of means of payment in the form of an increase

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of the liquidity of the banking system and thus to an extended disequilibrium.

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Mises and his fellow travellers apparently do not sufficiently take account of the fact

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that today we have monstrous productive reserves that are unused.

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In other words, we have a gigantic capital surplus that requires credit expansions to

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become visible.

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For this reason it is not correct that government investment would deprive the private economy

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of its means. The paradoxical fact which cannot be grasped on the basis of purely static ideas

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is that the means of the private economy would thereby be multiplied.

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Mises had anticipated this line of argument in The Causes of the Economic Crisis. He

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noticed that some economists had come up with a new theory of how inflation could be beneficial.

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Mises economists knew full well that unemployment resulted from excessive wage rates, but rather

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than confronting the unions with the demand to stop their harmful practices, they suggest

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to cheat the unions. Mises summarized the argument and identified its crucial flaw.

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In the next inflation nominal wages shall not be changed, which would be equivalent

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to a reduction of real wage rates. This blithely assumes that in the next boom the unions will

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will not demand further wage increases but quietly contemplate a reduction of real wages.

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It was not reasonable to expect such union behaviour. Mises's refutation of the new

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pro-inflation argument was grounded in common sense, and by analogy it also applied to the

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owners of all other monstrous productive reserves that are unused, as Röpke had claimed. It

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was unreasonable to assume that these owners would quietly contemplate a reduction of the

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As one reviewer of the causes of the economic crisis explained, the labour unions have become

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so powerful and such an important political factor in state and public opinion that nobody

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Mises ventures to tell the truth. Neither the journals, which seek to avoid being accused

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of antisocial sympathies, nor the government, which is afraid of becoming unpopular and

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of exposing itself to the unfettered demagoguery of all these parties that, not surprisingly,

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attract the masses with their bellicose cries against any reduction of wages.

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The plague of political correctness existed well before the end of the twentieth century.

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Some of Mises' critics could not help admiring his courageous stance faced with overwhelming

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Banking Opposition, Eugen Altschul, while calling Mises one of the most extreme representatives

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of liberalism, admitted that he was unafraid to argue consistently.

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Another reviewer said the Vienna Professor Mises, who has been called the last knight

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of liberalism, fights indefatigably against government intervention in the market process.

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Even an otherwise fearless ally like Fritz Wolfram criticised him for stressing labour

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and the Union intervention as the primary factor responsible for the crisis. Wolfram would have preferred Mises to stress other factors, such as price controls, because everybody is better at recognising a fault in others and, after all, our purpose must be to enlighten the broad masses.

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Enlightenment of the broad masses. Often Mises felt that it was precisely the elites who were in need of more light.

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A case in point was his 1931 trip to the United States and Canada, where he took part in a

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congress of the International Chamber of Commerce, ICC, and met many other colleagues and economists.

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The trade policy of the United States was one of the top problems discussed at the ICC

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meeting. In June 1930, the US Congress had passed and President Hoover had signed into

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law the Smoot-Hawley Tariff Act, which authorised the highest tariffs on imports of agricultural

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Products and Manufactured Items in the History of the United States. Within a year it was

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already obvious that the Act was devastating for international trade. It protected the

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farmers and manufacturers who produced for domestic markets, but hurt the consumers and

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farmers and manufacturers who produced for foreign markets. It undermined the international

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gold exchange standard. The American political leadership would not admit this. The President,

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Congress and the American representatives at the ICC meeting were firmly committed to

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the cause of what some of them called the New Economics, rescuing the capitalist economy

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through more government intervention, fighting the disease by torturing the patient. A few

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months later Hoover signed the 1932 Revenue Act, which brought about the largest peacetime

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increase of tax rates in the history of the United States, but this did not raise the

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absolute amount of taxes collected and did not keep Hoover from losing re-election at

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At the end of that year, starting in 1933, the new president, Franklin Delano Roosevelt,

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would intensify the New Deal policies that had begun with Smoot Hawley.

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At the 1931 Washington meeting of the ICC, the interventionist spirit that produced these

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policies was evident. Mises wrote in correspondence,

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At the Congress I saw again how difficult it is today to battle against increasing protectionism.

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The U.S. government and political parties energetically oppose all attempts to impose

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a moderation of U.S. tariffs. What I saw in America was not very pleasant. The official

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circles of the United States hold fast to a policy of high tariffs. To be certain, the

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United States pursues the most pernicious interventionist ideas in its domestic and

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foreign economic policies. But the situation in Austria was certainly no better and declined

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In March, at the general meeting of the stockholders of Österreichische Nationalbank, Mises had

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publicly pointed out that the bank had succeeded in stabilising the exchange rate of the shilling.

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The meeting took place on March 20th, 1931.

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That was probably the best thing that could be said about Austrian finance, but he knew

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that grave problems lay ahead.

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Several times he had rejected executive positions with some of the major banks because he believed

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they were bankrupt, and it was only a matter of time before this state of bankruptcy would

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become apparent. In early May 1931, the day of reckoning came. The default of Austria's

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largest bank, the Rothschild-dominated Kreditanstalt, put the Austrian payments system into immediate

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jeopardy. Anselm von Rothschild had founded the Kreditanstalt in 1855 as a public-private

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venture to stimulate economic development. Its difficulties in 1931 were essentially

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Only due to the fact that, two years before, the Rothschild family had given in to demands

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from the Austrian government to save the semi-public Bodenkrediteanstalt after it had been subject

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to a bank run of several weeks, merging with this bankrupt institution proved to be too

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much even for the financial acumen of Louis von Rothschild, who owned some 30% of the

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Krediteanstalt.

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Upon his return to Vienna, Mises had to decline several invitations to comment on the event

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and its implications for the Austrian government's effort to balance its budget, saying such

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public statements could not be reconciled with his position as Secretary of the Commer.

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A penal lawsuit was brought against the executives of the bank, and Austrian law prohibited any

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initiative to influence public opinion before the verdict of the judges.

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Only three years later did he feel free to analyse these events in an article published

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in a prominent review, Der Weg der österreichischen Finanzpolitik, The Path of Austrian Financial

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Policy.

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Too big to fail, Kreditanstadt was bailed out by Reich's central bank. In exchange,

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it and other leading banks were co-opted into reintroducing foreign exchange controls through

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the back door. They were asked to hamper any gold exports of their consumers. Mises must

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Augusta felt this resurgence of mercantilist ideas was the beginning of the end. To the

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editor of Deutsche Wirtschaftszeitung, one of the journals that had solicited a comment,

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he confided, our financial situation is far worse than the official view admits, and yet

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Parliament opposes any heart-hitting measures out of concerns for the voters, in particular

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the many civil servants. The reluctance of the official view to admit the true extent

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of Austria's socialist plight stemmed also from the corruption of the media. This concerned

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a particular report on the city of Vienna, which had become an international showcase

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for communal socialism. As Mises pointed out in correspondence with a fellow Rotary member

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from the Netherlands, none of the Vienna newspapers dared oppose rent control or criticised a

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budget and other financial reports of the city of Vienna, because the newspapers depended

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in so many ways on the city administration. Mises to Josefus Yeter. Letter dated June 10, 1931.

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Yeter was the president of the Rotary Club in Den Haag, The Hague. Mises never met him on his

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pre-war trips to Holland, 1926, 1936. The two men met for the first time at the second, 1949,

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Mont-Pilerin Conference. Few economists were critical enough to see through the public propaganda,

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and even fewer dare to speak out against it. Again, it was the group around Mises that

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filled this gap, most notably when Hayek published his study on rent control, F. R. Hayek, Das

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Mieterschutzproblem, Nationalökonomische Betrachtungen. Mises was fond of this publication

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and recommended it in private correspondence. Another good study was published by Joseph Schell,

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Gerechtigkeitsidee und Mietungsgesetzgebung. Schell was married to a young woman who had

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Attended Mises' Classes at the Handelsakademie. Mises was so convinced that all the major

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Austrian banks were bankrupt that he kept personal bank accounts elsewhere. He held

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this opinion after 1921. These prophecies materialised at an amazing speed. Bankruptcy

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of the Kreditanstalt could be prevented only with help from the Rothschild banks in Paris

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and London. Few other establishments had saviours from abroad. Within two months financial

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The capital collapse spread throughout Austria and on Black Monday, July 13, 1931 it reached

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Germany. One of the best reputed German banks, the Darmstetter und Nationalbank, closed its

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counters triggering a chain reaction that quickly involved all payments within Germany.

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When the government decreed a compulsory holiday for the banks and the capital markets, international

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Payments came to a halt.

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A Lieutenant in London

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In the spring of 1931, the political prospects for Europe were bleak. The roaring twenties

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had turned out to be a short interlude of relative liberty and international economic

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cooperation. Now the pendulum had swung back to interventionism and state idolatry. The

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The only signs of hope were those few individuals and groups that had liberated themselves from

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the political prejudices of the time. The most promising group was the one led by Lionel

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Robbins at the London School of Economics. Robbins' career had been on a fast track.

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After a two-year stay at Oxford, he had become the chair of LSE's economics department

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in 1929, following the unexpected death of Alan Young. Robbins gathered around himself

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a group of brilliant students who would become stars of 20th century economic science, Ronald

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Coase, William Hutt, John Hicks, Nicholas Caldor, Abba Lerner, Tibor Duszytowski, George

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Shackle, Ludwig Lachmann, Paul Sweezy and Ursula Webb, who married Hicks.

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Coase started his recollections of his early years at LSE with the following words,

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I will be discussing what happened in economics in England, but these were times when, to

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a very considerable extent, this was what happened in economics.

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They were exposed to Mises's ideas like no other group outside Vienna. Mises's influence

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on Robbins was mainly based on his writings, but it had been nurtured through personal

401
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Contact since the early 1920s. By 1931 Mises was thoroughly familiar with the school's

402
00:37:03.060 --> 00:37:08.180
staff and faculty and could give detailed instructions to foreign visitors about how

403
00:37:08.180 --> 00:37:15.980
to meet people at LSE. In a January 1931 letter to Walter Sulzbach, for example, he recommended

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that Sulzbach get in touch with Gregory and Robbins, the best economists and freest minds

405
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in Contemporary England. They had to be looked up in their offices and, if not there, called

406
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on at home. Meyendorf and Schwartz would certainly be willing to receive him if he gave the secretaries

407
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his calling card, mentioning that he was a friend of Mises's. He recommended the same

408
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procedure to solicit the assistance of Mr. Hedicar, the librarian. In those days Robin's

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admiration for Mises was boundless. He eagerly proselytized among his countrymen and had

410
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already converted his friend Arnold Plant to the cause of Austrian economics. He also

411
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sought to increase the Misesian profile of the economics department through regular guest

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lectures by Mises and his closest students. His long-term plan was to build up an effective

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counterweight against the pernicious influence of John Maynard Keynes, whose advocacy of

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of Inflation and Government Intervention had swept the universities of Cambridge and Oxford

415
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as well as the Bank of England. Robbins also sought to stem the tides within his own school.

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This concerned not only political orientation but also fundamental questions pertaining

417
00:38:33.620 --> 00:38:39.560
to the nature and method of economics. For years LSE's management had sought to make

418
00:38:39.560 --> 00:38:45.880
the school a centre of economic research in the image of mathematics and biology. The

419
00:38:45.880 --> 00:38:50.440
A few remaining old-style economists did not believe the young Robbins was strong enough

420
00:38:50.440 --> 00:38:55.640
to fend off the positivist crusaders. But then an unexpected opportunity arose when

421
00:38:55.640 --> 00:39:02.520
Hayek visited the department in late January and early February 1931 to present his Theory

422
00:39:02.520 --> 00:39:06.600
of Business Cycles, which was based on an elaboration of Boehm-Bawerk's Theory of

423
00:39:06.600 --> 00:39:11.840
Capital. It was Hayek's first personal encounter with Robbins, who had known him only through

424
00:39:11.840 --> 00:39:12.840
to his writings.

425
00:39:12.840 --> 00:39:18.640
Marta Brown later said that Robbins had tried for years to get Hayek to LSE. Robbins had

426
00:39:18.640 --> 00:39:23.400
liked in particular Hayek's critique of the doctrines of the American economists, William

427
00:39:23.400 --> 00:39:28.640
Truffin Foster and Waddell Catchings, two highly influential champions of the notion

428
00:39:28.640 --> 00:39:34.400
that excessive savings might prevent economic growth. This work earned Hayek a habilitation

429
00:39:34.400 --> 00:39:39.800
degree at the University of Vienna. It was published in 1929 as Gipters einen Wilders

430
00:39:39.800 --> 00:39:46.240
as in the Spahns. Similar views were prominent also in the United Kingdom, and in particular

431
00:39:46.240 --> 00:39:51.520
in Cambridge, where, as we now know, Keynes went so far as to make plans for the euthanasia

432
00:39:51.520 --> 00:39:58.400
of the coupon-clipping classes. Keynes suggested that a deliberate policy of lowering interest

433
00:39:58.400 --> 00:40:04.060
rates would mean the euthanasia of the rentier, and consequently the euthanasia of the cumulative

434
00:40:04.060 --> 00:40:18.760
Hayek delivered four lectures to an audience composed of professors and students. They

435
00:40:18.760 --> 00:40:23.900
met with mixed success. The senior faculty, most of whom did not know much about Austrian

436
00:40:23.900 --> 00:40:29.480
economics, found Hayek's tall figure far more impressive than his arguments. But the

437
00:40:29.480 --> 00:40:34.180
The younger audience members were stunned. Robbins had prepared his students to receive

438
00:40:34.180 --> 00:40:39.880
a revelation from the epicentre of theoretical research, and under the impact of such passionate

439
00:40:39.880 --> 00:40:45.400
guidance they indeed felt that Hayek's lectures were a great success. One of them later, to

440
00:40:45.400 --> 00:40:49.000
become a noble laureate, wrote about them in retrospect,

441
00:40:49.000 --> 00:40:53.760
They were undoubtedly the most successful set of public lectures given at LSE during

442
00:40:53.760 --> 00:40:59.960
During my time there, the audience, notwithstanding the difficulties of understanding Hayek,

443
00:40:59.960 --> 00:41:06.840
was enthralled. What was said seemed to us of great importance and made us see things

444
00:41:06.840 --> 00:41:12.280
of which we had previously been unaware. After hearing these lectures, we knew why there

445
00:41:12.280 --> 00:41:18.340
was a depression. Most students of economics at LSE and many members of the staff became

446
00:41:18.340 --> 00:41:23.500
from Hayekians, or at any rate incorporated elements of Hayek's approach in their own

447
00:41:23.500 --> 00:41:28.940
thinking. Robbins himself later characterized the Hayek lectures as a sensation that was

448
00:41:28.940 --> 00:41:35.540
at once difficult and exciting. Robbins went on, I do not think nowadays that the analytical

449
00:41:35.540 --> 00:41:41.180
constructions which excited us so much in the lectures on prices and production had

450
00:41:41.180 --> 00:41:47.340
all the width or appropriateness of assumption which some of us, including conspicuously

451
00:41:47.340 --> 00:41:51.540
The present writer were disposed to claim for them.

452
00:41:51.540 --> 00:41:55.680
He immediately prepared their publication and began lobbying to get Hayek a position

453
00:41:55.680 --> 00:42:02.260
at LSE. Hayek, probably at the behest of Robbins, wrote a review of Keynes' Treatise on Money

454
00:42:02.260 --> 00:42:08.540
and sent the manuscript to Robbins, who was the editor of LSE's journal Economica. The

455
00:42:08.540 --> 00:42:14.180
Cambridge Economist's book had just appeared in December 1930, and Hayek's review of it

456
00:42:14.180 --> 00:42:17.660
was brilliant and devastating.

457
00:42:17.660 --> 00:42:22.060
Robbins now persuaded LSE director William Beveridge to make him an offer.

458
00:42:22.060 --> 00:42:25.320
Hayek became the TUC Professor of Political Economy.

459
00:42:25.320 --> 00:42:29.940
His lectures were published under the title Prices and Production, and his review of Keynes's

460
00:42:29.940 --> 00:42:32.540
book appeared in Economica.

461
00:42:32.540 --> 00:42:38.200
The last night of liberalism had found a worthy lieutenant in London.

462
00:42:38.200 --> 00:42:42.820
In the fall of the same year, Hayek and Robbins co-taught Hayek's first LSE seminar.

463
00:42:42.820 --> 00:42:48.320
The entire economics teaching staff was in attendance when he explained and defended the

464
00:42:48.320 --> 00:42:53.700
Austrian Theory of Capital. In a letter to Mises, Hayek reported on the atmosphere of

465
00:42:53.700 --> 00:42:54.700
the discussions.

466
00:42:54.700 --> 00:43:00.500
Some of the junior, rank-wise, not age-wise, colleagues, in particular Hicks, Benham or

467
00:43:00.500 --> 00:43:05.820
Toysenby, are excellent too. There is much opportunity for me to learn, and I am hindered

468
00:43:05.820 --> 00:43:11.320
in doing so only because Robbins presented me as an eminent authority so that people

469
00:43:11.320 --> 00:43:18.540
I am aware for the first time that I owe to you virtually everything that gives me an

470
00:43:18.540 --> 00:43:24.100
advantage as compared to my colleagues here and to most economists even outside my narrow

471
00:43:24.100 --> 00:43:29.840
field of research. Here my indebtedness to you goes without saying. In Vienna one is

472
00:43:29.840 --> 00:43:34.840
less aware of this intellectual debt to you because it is the unquestioned common basis

473
00:43:34.840 --> 00:43:40.760
of our circle. If I do not deceive too many expectations of the people here at NSE, it

474
00:43:40.760 --> 00:43:46.800
is not to my credit but to yours. However, my advantage over the others will disappear

475
00:43:46.800 --> 00:43:52.160
with your books being translated and becoming generally known. Hayek went on, I must tell

476
00:43:52.160 --> 00:43:57.360
you this because I here feel more indebted to you than any time before. Moreover, given

477
00:43:57.360 --> 00:44:02.000
that Robbins and Plante provide excellent support to championing your ideas, I hope

478
00:44:02.000 --> 00:44:04.440
to have some success.

479
00:44:04.440 --> 00:44:09.320
Mises was certainly happy with this development, commenting on the work of Hut, one of Robbins's

480
00:44:09.320 --> 00:44:13.920
Students who had just published a revisionist account of the impact of capitalism on the

481
00:44:13.920 --> 00:44:18.720
condition of the 19th century English working classes, an account that was devastating for

482
00:44:18.720 --> 00:44:23.080
the established view that the free market had worsened the plight of the working poor,

483
00:44:23.080 --> 00:44:29.400
he wrote in December 1931, In England one can observe a decided turning away from the

484
00:44:29.400 --> 00:44:34.640
a-theoretical direction. The movement that today is centred in the London School of Economics

485
00:44:34.640 --> 00:44:40.080
Mises and in the person of Robbins will have the greatest scientific and political impact.

486
00:44:40.080 --> 00:44:45.160
Robbins and Hayek in turn encouraged their Viennese Meister to visit London more frequently.

487
00:44:45.160 --> 00:44:49.920
Mises had a standing invitation to stay at Robbins' home. Hayek argued, Here you have

488
00:44:49.920 --> 00:44:56.120
at least as many honest admirers as anywhere else, and it would be good if you could reinforce

489
00:44:56.120 --> 00:45:01.540
the influence that you exercise any way through frequent personal visits. The absolute high

490
00:45:01.540 --> 00:45:06.180
My point of Mises's impact was reached with the publication of Robinson's Nature and

491
00:45:06.180 --> 00:45:11.540
Significance of Economic Science. Sending a copy to Mises, the author called it a modest

492
00:45:11.540 --> 00:45:16.620
attempt to popularise, for English readers, the methodological implications of modern

493
00:45:16.620 --> 00:45:22.740
economic science, and he apologised for my crudities of exposition. But the love affair

494
00:45:22.740 --> 00:45:28.020
between LSE and Misesian economics did not last. The new Austrian doctrines had initially

495
00:45:28.020 --> 00:45:33.280
benefited from their exoticness and novelty, but their policy implications prevented certain

496
00:45:33.280 --> 00:45:39.660
long-term conversions. A case in point was William Beveridge, who during the late 1920s

497
00:45:39.660 --> 00:45:45.140
had been infected by Robbins' enthusiasm for the logical rigour of Mises' writings,

498
00:45:45.140 --> 00:45:50.940
which had made him more tolerant towards classical liberal policy prescriptions. He was a notorious

499
00:45:50.940 --> 00:45:56.460
champion of intervention, most notably in the free labour market, but by the time Hayek

500
00:45:56.460 --> 00:46:02.260
Hayek delivered his inaugural lecture in early 1933. Sir William had become again a socialist

501
00:46:02.260 --> 00:46:08.340
of the purest sort. Hayek surmised that this was an emotional reaction to Gemeinwirtschaft,

502
00:46:08.340 --> 00:46:13.900
which he had just read and not understood, said Hayek to Mises in a letter dated March

503
00:46:13.900 --> 00:46:19.740
10, 1933. Mises replied, I am sorry that the impact of Gemeinwirtschaft on Sir William

504
00:46:19.740 --> 00:46:25.240
was not the intended one. By the way, has he already read the English version? Mises

505
00:46:25.240 --> 00:46:30.740
Mr. Hayek and a letter dated March 17, 1933. Thus, the manuscript must have been available

506
00:46:30.740 --> 00:46:38.280
by March 1933. Beveridge's opposition could explain why the book came out only in 1936.

507
00:46:38.280 --> 00:46:43.520
Hayek himself was instrumental in turning the LSE group away from Mises and toward the

508
00:46:43.520 --> 00:46:48.480
emerging verbal Walrassian movement that had begun in Germany a decade earlier under the

509
00:46:48.480 --> 00:46:53.800
leadership of Wieser, Kassel and Schumpeter. Given Hayek's background, this was hardly

510
00:46:53.800 --> 00:46:57.880
Really surprising, his economic thought had been nurtured in the classes of Friedrich

511
00:46:57.880 --> 00:47:03.760
von Mises and he had never made a secret of this intellectual heritage. Mises knew this

512
00:47:03.760 --> 00:47:09.640
perfectly well. Significantly, he hailed Hayek's article on capital consumption as the best

513
00:47:09.640 --> 00:47:15.380
and clearest of all his writings after Hayek had published his two early books on money

514
00:47:15.380 --> 00:47:21.360
and the trade cycle. Hayek not only stressed the common features of the Austrian and the

515
00:47:21.360 --> 00:47:25.960
and Lausanne schools, but also believed the latter to be far more technically advanced

516
00:47:25.960 --> 00:47:30.200
and therefore better suited to deal with the more demanding problems of economic analysis,

517
00:47:30.200 --> 00:47:36.040
in particular with the problem of value imputation. He would have presented these views from his

518
00:47:36.040 --> 00:47:41.400
very first LSE seminar on capital theory, where he must have found the ready support

519
00:47:41.400 --> 00:47:46.140
of the young John Hicks, who at that time had already embarked on his project of bringing

520
00:47:46.140 --> 00:47:55.180
in Valrass and Pareto II LSE. Hicks had taught advanced classes in economics from 1929 onwards.

521
00:47:55.180 --> 00:48:00.300
That is, from the moment Robbins assumed leadership of the department. Their combined influence

522
00:48:00.300 --> 00:48:05.740
came to be felt most notably in the second edition of Robbins' Nature and Significance

523
00:48:05.740 --> 00:48:10.920
of Economic Science, which appeared in 1935. While the first edition almost completely

524
00:48:10.920 --> 00:48:15.520
Hayek actually neglected the Lausanne School. The new edition was replete with references

525
00:48:15.520 --> 00:48:20.240
to mathematical economists. Hayek acquainted Robbins's group with the views of the fourth

526
00:48:20.240 --> 00:48:25.760
generation Austrian economists. He championed the notion that general equilibrium theory

527
00:48:25.760 --> 00:48:31.900
was the state of the art and that all verbal economists, including Mises, worked within

528
00:48:31.900 --> 00:48:36.780
the very same framework. They were convinced that all further elaborations had to depart

529
00:48:36.780 --> 00:48:37.780
From Here

530
00:48:37.780 --> 00:48:43.860
Morgenstern and Hayek most vividly felt the need for reform, but neither of them grasped

531
00:48:43.860 --> 00:48:48.780
that the alternative was already at hand. It has escaped their notice that the logical

532
00:48:48.780 --> 00:48:55.020
structure of Mises' arguments against socialism and interventionism was squarely outside the

533
00:48:55.020 --> 00:49:00.540
Wallrassian paradigm. Hayek's two books on money appeared in English before any of Mises'

534
00:49:00.540 --> 00:49:05.220
works, and he was the first Austrian economist ever to have a direct personal impact on the

535
00:49:05.220 --> 00:49:11.060
Anglo-Saxon World, the last best hope for Austrian economists after Germany and Austria

536
00:49:11.060 --> 00:49:16.740
turned socialist in the 1930s. It was Hayek, therefore, who was responsible for the impression

537
00:49:16.740 --> 00:49:22.380
of most English and American economists about modern Austrian economics during those critical

538
00:49:22.380 --> 00:49:27.540
years before the publication of Keynes's General Theory. It seems he made his case

539
00:49:27.540 --> 00:49:33.300
less successfully than his great rival from Cambridge. Hayek later regretted that he had

540
00:49:33.300 --> 00:49:38.220
Hayek has not refuted Keynes's general theory in 1936 as he had done earlier with his treatise

541
00:49:38.220 --> 00:49:43.380
on money, and he seems to have believed that his failure to do so was crucial to the success

542
00:49:43.380 --> 00:49:47.520
of the Keynesian Revolution. But this was certainly an exaggeration of the influence

543
00:49:47.520 --> 00:49:52.700
he had with his British colleagues at the time. Hayek failed to do in 1930s Britain

544
00:49:52.700 --> 00:49:58.420
what Mises had done in 1920s Germany, reverse the orientation of the profession by the sheer

545
00:49:58.420 --> 00:50:03.500
and the power of his arguments. Hayek had his chance, but in the perception of the British

546
00:50:03.500 --> 00:50:09.180
mainstream his writings were at best controversial. Straffer's review of prices and production

547
00:50:09.180 --> 00:50:14.060
had at least the same negative impact on Hayek's influence as Hayek's review of the treatise

548
00:50:14.060 --> 00:50:20.580
on money had had on Keynes's. To a certain extent this resulted from the inconsistencies

549
00:50:20.580 --> 00:50:26.620
and contradictions Hayek had inherited from his real mentor. Hayek was and would remain

550
00:50:26.620 --> 00:50:32.440
Throughout his life a disciple of Mises, this was so despite the fact that of the entire

551
00:50:32.440 --> 00:50:39.480
fourth generation of Austrian economists, he was the one closest to Mises in both methodological

552
00:50:39.480 --> 00:50:46.180
and political views. In the few years following the creation of the Institut für Konjunkturforschung,

553
00:50:46.180 --> 00:50:52.780
his political views became indistinguishable from those of Mises. The main reason, however,

554
00:50:52.780 --> 00:50:57.780
was that Hayek still in his early thirties was simply overburdened by the amount of work

555
00:50:57.780 --> 00:51:03.500
involved in trying to live up to Robin's expectations. He never managed to publish

556
00:51:03.500 --> 00:51:09.980
more than essays or excerpts of much larger but unfinished manuscripts, a fact he constantly

557
00:51:09.980 --> 00:51:15.020
lamented. He never had the time to think through the fundamental problems of economic theory

558
00:51:15.020 --> 00:51:20.800
in its relationship to all other elements of Austrian economics. His presentations

559
00:51:20.800 --> 00:51:25.940
Theories of Monetary Theory, Capital Theory and Business Cycle Theory were mainly syntheses

560
00:51:25.940 --> 00:51:31.820
of already existing doctrines. Where he could not rely on the work of others as a supporting

561
00:51:31.820 --> 00:51:37.400
framework he lost himself in the analysis of details and never produced a coherent picture

562
00:51:37.400 --> 00:51:43.160
of his subject. The best illustration of this is F. Hayek Pure Theory of Capital, the product

563
00:51:43.160 --> 00:51:47.880
of ten years at LSE. It was a book with neither head nor tail.

564
00:51:47.880 --> 00:51:51.780
When Keynes's general theory appeared, in the same year as the English translation of

565
00:51:51.780 --> 00:51:58.220
Mises' socialism, the initial curiosity about Austrian economics had faded. The stage was

566
00:51:58.220 --> 00:52:03.560
set for the return of the local champion. Hayek had made no progress in promoting Austrian

567
00:52:03.560 --> 00:52:08.340
economists among the group of brilliant students who, after the Second World War, would shape

568
00:52:08.340 --> 00:52:13.500
economic teaching and research throughout the world. After ten years at LSE he had used

569
00:52:13.500 --> 00:52:18.660
up the authority he inherited from Mises, and lost former allies to the burgeoning

570
00:52:18.660 --> 00:52:24.540
Keynesian Revolution. This might seem in retrospect like a lost opportunity. Hayek was in a pivotal

571
00:52:24.540 --> 00:52:30.320
position to prepare for the rise of Austrian economics in England and the United States,

572
00:52:30.320 --> 00:52:35.640
and he certainly could have done more to promote Austrian economics in London had the circumstances

573
00:52:35.640 --> 00:52:41.060
been different. But the circumstances were what they were. Hayek had come to LSE at a

574
00:52:41.060 --> 00:52:46.220
the time when the chair of the economics department was politically weak, and when the efforts

575
00:52:46.220 --> 00:52:50.860
of the school's management to turn economics into applied mathematics had attracted a number

576
00:52:50.860 --> 00:52:56.300
of highly gifted students eager to explore this new direction. Moreover, Austrian economics

577
00:52:56.300 --> 00:53:02.100
was not yet what it was about to become. The school was still in the phase before Mises's

578
00:53:02.100 --> 00:53:07.900
quantum leap. The encompassing system of economic thought that would first be expressed in Nazionale

579
00:53:07.900 --> 00:53:13.780
and Social Economy, 1940, and then Human Action, 1949, was then only visible in its

580
00:53:13.780 --> 00:53:19.120
broadest outlines. Finally, there is the simple fact that Hayek

581
00:53:19.120 --> 00:53:25.400
was not a Misesian. In the early 1930s, Hayek was a pillar of the very same general equilibrium

582
00:53:25.400 --> 00:53:31.720
movement that he decried a few years later. It would be meaningless to regret in hindsight

583
00:53:31.720 --> 00:53:37.120
that Hayek did not do what he had never set out to do. What he could not have succeeded

584
00:53:37.120 --> 00:53:49.880
Return to Foreign Exchange Controls

585
00:53:49.880 --> 00:53:55.520
After his return from the ICC meeting in Washington, Mises spent two busy months trying to limit

586
00:53:55.520 --> 00:54:00.120
the political damage of the Kreditanstalt crisis. When he left Vienna at the end of

587
00:54:00.120 --> 00:54:05.600
July, he had helped beat back attempts to officially establish a system of foreign exchange

588
00:54:05.600 --> 00:54:18.600
He returned to Vienna in mid-September, just in time to learn that the Bank of England had abandoned the gold standard, refusing to redeem its notes in gold.

589
00:54:18.600 --> 00:54:22.600
The Bank of England suspended payments on September 19, 1931.

590
00:54:22.600 --> 00:54:28.960
Mises was shocked and feared the worst. He surprised the members of his seminar but especially

591
00:54:28.960 --> 00:54:37.120
his English student Ursula Webb with the announcement that, in one week, England will be in a hyperinflation.

592
00:54:37.120 --> 00:54:41.640
The incident was reported in John R. Hicks' A Market Theory of Money. Ursula Webb was

593
00:54:41.640 --> 00:54:46.840
at the time studying in Vienna. A few years later she married John Hicks. He still did

594
00:54:46.840 --> 00:54:52.240
not fully anticipate the political landslide that soon set in. A week later he left Vienna

595
00:54:52.240 --> 00:54:56.440
and again this time for lectures in London and Frankfurt.

596
00:54:56.440 --> 00:54:59.440
In London, Mises stayed at Robin's house.

597
00:54:59.440 --> 00:55:03.880
He had probably arranged this trip at the end of September in order to avoid celebrations

598
00:55:03.880 --> 00:55:06.160
of his 50th birthday in Vienna.

599
00:55:06.160 --> 00:55:09.380
He asked his secretary to stifle all such attempt.

600
00:55:09.380 --> 00:55:16.200
He would be more agreeable if the organizers of birthday parties returned in 20 years.

601
00:55:16.200 --> 00:55:20.560
When he returned to Vienna on October 6th, the government had officially reintroduced

602
00:55:20.560 --> 00:55:24.760
Most foreign exchange controls instituting a return to the bad old days he had thought

603
00:55:24.760 --> 00:55:28.400
were gone forever, as he wrote to one of his friends,

604
00:55:28.400 --> 00:55:34.040
Events in Austria taking a turn that causes me to fear the worst. We have found ourselves

605
00:55:34.040 --> 00:55:40.200
in a controlled economy once again. Foreign currency stocks are being managed. A kind

606
00:55:40.200 --> 00:55:45.520
of central economic agency, albeit under a different name, is being set up for each of

607
00:55:45.520 --> 00:56:02.120
The collapse of the brief period of free trade that had blossomed in the second half of

608
00:56:02.120 --> 00:56:07.960
the 1920s was now at hand. More bad news poured in. Some of Mises's former allies

609
00:56:07.960 --> 00:56:12.720
were now advocating inflation using theories that had been refuted countless times. For

610
00:56:12.720 --> 00:56:17.540
For example, Reich published a paper arguing that although all fiduciary media are by their

611
00:56:17.540 --> 00:56:22.660
very nature inflationary, this inflation was not harmful if the fiduciary media were

612
00:56:22.660 --> 00:56:27.900
issued only as short-term commercial credits. Reich, it will be recalled, was the president

613
00:56:27.900 --> 00:56:34.020
of the Österreichische Nationalbank. Mises commented on the paper in private correspondence.

614
00:56:34.020 --> 00:56:41.460
Horrendous! One incident epitomised the entire situation. In July 1930, Mises had been invited

615
00:56:41.460 --> 00:56:47.600
by the League of Nations to write a memorandum for the League's gold delegation. The mission

616
00:56:47.600 --> 00:56:52.780
of the delegation was to examine into and report upon the causes of fluctuations in

617
00:56:52.780 --> 00:56:58.580
the purchasing power of gold and their effect on the economic life of the nations. Among

618
00:56:58.580 --> 00:57:06.000
its members were Keynes, Kassel, Sprague and Janssen, certainly a bad sign. Still Mises

619
00:57:06.000 --> 00:57:11.440
complied and in early October 1930 sent his paper to Alexander Loveday, the head of the

620
00:57:11.440 --> 00:57:16.680
The League's Rockefeller-sponsored economic intelligence unit. Publication was delayed,

621
00:57:16.680 --> 00:57:21.920
however, and a year later Mises was notified that none of the memoranda that had been solicited

622
00:57:21.920 --> 00:57:27.640
for the gold delegation would be published, ostensibly for budgetary reasons.

623
00:57:27.640 --> 00:57:30.720
Keynes and others had meanwhile published the Macmillan Report, which made a highly

624
00:57:30.720 --> 00:57:36.740
successful case for inflationary finance to stop the fall of the price level. Mises was

625
00:57:36.740 --> 00:57:42.740
He was invited to sit on the new foreign exchange board, whose job was to do everything of which he disapproved.

626
00:57:42.740 --> 00:57:46.740
He probably accepted the position in order not to hurt Austrian credit abroad.

627
00:57:46.740 --> 00:57:51.740
His absence from the board would have disquieted foreign investors.

628
00:57:51.740 --> 00:57:56.740
In a letter to Robbins he described the new system and his function within it.

629
00:57:56.740 --> 00:58:00.740
Just when I returned to Vienna the crazy foreign exchange control was introduced.

630
00:58:00.740 --> 00:58:03.740
At the top of this unfortunate system is a foreign exchange board,

631
00:58:03.740 --> 00:58:07.380
which decides everything pertaining to our foreign commerce and thus is some sort of a

632
00:58:07.380 --> 00:58:12.060
general director of the national economy. I am the only non-interventionist member of

633
00:58:12.060 --> 00:58:17.220
this body and to which I fit as well as into the Executive Council of the Third International

634
00:58:17.220 --> 00:58:23.020
in Moscow. There is a general enthusiasm for new interventionist measures and for state

635
00:58:23.020 --> 00:58:29.100
capitalism and hyper-interventionism. Any resistance against this policy is pre-emptorily

636
00:58:29.100 --> 00:58:35.100
by pointing out that England too is now going to adopt a policy of high protective tariffs.

637
00:58:35.100 --> 00:58:40.420
The original German term for the board was Divisienbeirat or more explicitly Beirat für

638
00:58:40.420 --> 00:58:46.220
die Divisienzuteilung in der Nationalbank. The power of the board was soon cut back quite

639
00:58:46.220 --> 00:58:51.920
drastically, possibly as a consequence of Mises' agitation from within. Only two weeks

640
00:58:51.920 --> 00:58:57.260
after Mises had presented it as a central planning bureau in a letter to Robbins, he

641
00:58:57.260 --> 00:59:01.760
Hayek wrote to Hayek that the board was a totally superfluous institution since it has

642
00:59:01.760 --> 00:59:09.660
no power, and that he regretted having agreed to spend his time there. Still, a board position

643
00:59:09.660 --> 00:59:14.300
seems to have been powerful enough to influence the allocation of foreign currency to individual

644
00:59:14.300 --> 00:59:19.740
firms, giving Mises the unwanted power to grant favors to special interests. In January

645
00:59:19.740 --> 00:59:26.420
1932, for example, he received a letter from Abraham Vorwein, an important German industrialist

646
00:59:26.420 --> 00:59:31.520
and Vice-President of the International Chamber of Commerce, Frohwein owned a silk factory

647
00:59:31.520 --> 00:59:35.980
in Vienna. The firm's activities depended crucially on access to foreign currency to

648
00:59:35.980 --> 00:59:41.980
pay for imported raw materials. Mises ignored the offer to return any services as a matter

649
00:59:41.980 --> 00:59:46.540
of course and instead referred Frohwein's representative to a colleague on the board

650
00:59:46.540 --> 00:59:52.580
who was responsible for the silk industry. After the war, Frohwein became the honorary

651
00:59:52.580 --> 00:59:57.220
The President of the ICC and remained on good terms with Mises.

652
00:59:57.220 --> 01:00:02.060
Since no Austrian could buy foreign currency or take shillings out of the economy, travelling

653
01:00:02.060 --> 01:00:07.460
was almost impossible for ordinary citizens, a considerable problem for Mises, who often

654
01:00:07.460 --> 01:00:13.260
went abroad for lectures. And for other private reasons, he had a small account at the Österreichisches

655
01:00:13.260 --> 01:00:19.140
Kreditinstitut für öffentliche Unternehmungen und Arbeiten, through which all foreign payments

656
01:00:19.140 --> 01:00:24.540
were channeled. Mises used it to pay for his books, for example, for the encyclopedia of

657
01:00:24.540 --> 01:00:29.580
the social sciences to which he had subscribed before the foreign exchange controls were

658
01:00:29.580 --> 01:00:35.480
instituted. Yet this private clearing involved a markup of 22%. But he had just concluded

659
01:00:35.480 --> 01:00:40.780
a new contract with Gustav Fischer for a new edition of socialism, and Fischer agreed to

660
01:00:40.780 --> 01:00:46.220
become Mises' unofficial banker. He did not pay royalties to Mises' account in Vienna,

661
01:00:46.220 --> 01:00:51.020
had capped the money and sent it piecemeal to the hotels where Mises stayed on his trips

662
01:00:51.020 --> 01:00:52.420
in Germany.

663
01:00:52.420 --> 01:00:56.820
This is how Mises was able to participate, for example, in board and committee meetings

664
01:00:56.820 --> 01:01:03.020
of the Verein für Sozialpolitik in Berlin in early January 1932 and in the Verein's

665
01:01:03.020 --> 01:01:05.660
annual convention in September of the same year.

666
01:01:05.660 --> 01:01:10.940
Back home in the fall of 1931, Mises organised a meeting of the Nationalökonomische Gesellschaft

667
01:01:10.940 --> 01:01:16.160
and in a passionate speech attacked the notion that the current crisis resulted from shortcoming

668
01:01:16.160 --> 01:01:21.440
of Capitalism and required the remedy of more government intervention. The only rational

669
01:01:21.440 --> 01:01:26.360
response to the present calamity was finally to stand against the labour unions, which

670
01:01:26.360 --> 01:01:31.840
were the root cause of the inflationary policies behind the crisis. The lecture drew international

671
01:01:31.840 --> 01:01:38.760
attention. Hayek in London had heard reports about it. Some reacted with hysteria, especially

672
01:01:38.760 --> 01:01:45.580
after Mises published his position as Die Krise unter Kapitalismus, Crisis and Capitalism.

673
01:01:45.580 --> 01:01:50.620
Mises' former student, Hedwig Lemberger, claimed that economic science was bankrupt

674
01:01:50.620 --> 01:01:56.180
if it had no other solution for unemployment than to allow the unhampered market to reduce

675
01:01:56.180 --> 01:02:02.580
wage rates. She argued that Mises' Manchester liberal analysis applied only to the conditions

676
01:02:02.580 --> 01:02:07.860
of the nineteenth century, while in the present crisis unemployment resulted from unmanageably

677
01:02:07.860 --> 01:02:13.580
fast technological progress, as Emil Lederer had explained. Mises replied,

678
01:02:13.580 --> 01:02:19.020
I cannot understand why it is a declaration of bankruptcy for economic science to see one

679
01:02:19.020 --> 01:02:23.600
of the causes of disruptions of economic life in the labour union policy of keeping wage

680
01:02:23.600 --> 01:02:29.040
rates above the level that would be established on the unhampered market, and in the fact

681
01:02:29.040 --> 01:02:34.020
that government supports this policy through unemployment relief and the refusal to protect

682
01:02:34.020 --> 01:02:39.560
job seekers. Streamlining has nothing to do with unemployment there, while streamlining

683
01:02:39.560 --> 01:02:44.300
Banking also in the 19th century may be even to a relatively greater extent than today,

684
01:02:44.300 --> 01:02:49.120
but because at the time there were no interventions in the formation of wage rates, the fired

685
01:02:49.120 --> 01:02:54.580
workers found employment in new and extended industries. They would even have been absorbed

686
01:02:54.580 --> 01:02:58.740
far quicker, but for a number of government regulations that hampered their freedom of

687
01:02:58.740 --> 01:03:04.720
migration and change of profession. My assumptions do not merely rely, as you believe, on the

688
01:03:04.720 --> 01:03:12.120
the experience of times long past, but especially, on irrefutable theoretical considerations.

689
01:03:12.120 --> 01:03:16.360
Eventually the crisis was settled the same way as the post-war crisis ten years earlier,

690
01:03:16.360 --> 01:03:22.680
more foreign debt. In July 1932, Austria secured a foreign credit of 300 million shillings

691
01:03:22.680 --> 01:03:28.600
from the League of Nations. The road was free for a new beginning. The crisis prompted a

692
01:03:28.600 --> 01:03:33.720
renewed interest in business cycle research and in seeking the means for government to

693
01:03:33.720 --> 01:03:39.480
to steer the economy away from the increasingly dramatic swings between boom and bust.

694
01:03:39.480 --> 01:03:43.760
The Vienna Institute for Business Cycle Research published two monographs that were to become

695
01:03:43.760 --> 01:03:48.680
classics in the literature of economic science, Hayek's Preise und Produktion and Fritz

696
01:03:48.680 --> 01:03:53.280
Machlups Börsenkredit, Industriekredit und Kapitalbildung.

697
01:03:53.280 --> 01:03:59.120
Mises was very proud of these works, especially of Machlups Bock, which he called a masterpiece.

698
01:03:59.120 --> 01:04:03.720
and analysis of the fundamental practical issues of the day were much needed to counter

699
01:04:03.720 --> 01:04:06.520
prevailing anti-capitalist views.

700
01:04:06.520 --> 01:04:10.440
Mises' educational mission over the past ten years now paid off.

701
01:04:10.440 --> 01:04:17.000
Many years later, a member of the Mises Orbit recalled in correspondence the Die Hard Kempferischer

702
01:04:17.000 --> 01:04:23.400
group of Mises, Hayek, Striegel, Morgenstern and Meiner that used all available media and

703
01:04:23.400 --> 01:04:29.880
and institutions to plead the case for economic liberty and against government interventionism.

704
01:04:29.880 --> 01:04:34.880
These activities had their impact on public policy. In distinct contrast to the massive

705
01:04:34.880 --> 01:04:40.440
proto-Keynesian deficit spending policies that in the early 1930s came to be applied

706
01:04:40.440 --> 01:04:46.060
in other Western countries, the Austrian government pursued a programme of comparative austerity

707
01:04:46.060 --> 01:04:53.000
with some very positive results. From 1932 to 1937 national production dramatically

708
01:04:53.000 --> 01:04:58.000
When they increased in industry and agriculture, the government's budget was balanced, foreign

709
01:04:58.000 --> 01:05:03.880
public debt was cut in half, central bank reserves doubled, and unemployment shrank

710
01:05:03.880 --> 01:05:08.920
from 310,000 to 222,000.

711
01:05:08.920 --> 01:05:14.440
One ally of this group, Fritz Wolfram, proposed a radical remedy to the situation, total liberalisation

712
01:05:14.440 --> 01:05:16.480
of the monetary sector.

713
01:05:16.480 --> 01:05:21.360
Wolfram not only recommended rescinding foreign exchange controls, he also called for the

714
01:05:21.360 --> 01:05:26.460
The abolition of all impediments to private minting and the private issue of banknotes.

715
01:05:26.460 --> 01:05:31.020
This reform, he argued, would not only be a way out of the present calamity and prevent

716
01:05:31.020 --> 01:05:36.620
similar crises in the future, it would also lead to monetary liberalisation in other countries.

717
01:05:36.620 --> 01:05:42.220
This in turn would raise the price of precious metals, further rewarding the early adopters.

718
01:05:42.220 --> 01:05:46.020
It is certain that the country that first liberates the monetary economy will benefit

719
01:05:46.020 --> 01:05:51.640
most from its fructifying benefits, and it is obvious that once the process is set in

720
01:05:51.640 --> 01:05:54.820
motion each country must follow the others.

721
01:05:54.820 --> 01:05:59.160
As Wolfram's case demonstrates, the crisis divided the wheat from the chaff within the

722
01:05:59.160 --> 01:06:00.660
classical liberal movement.

723
01:06:00.660 --> 01:06:05.100
Some abandoned liberalism and returned to interventionism, while others became more

724
01:06:05.100 --> 01:06:07.660
radical in their defense of liberty.

725
01:06:07.660 --> 01:06:13.360
Lionel Robbins wrote to Mises, Every day reveals fresh incursions of the system of free exchange

726
01:06:13.360 --> 01:06:17.880
and Private Property, and it becomes clear that the number of persons capable of putting

727
01:06:17.880 --> 01:06:25.000
up an intelligent defence of capitalist institutions is very small. Behind the scenes we do what

728
01:06:25.000 --> 01:06:29.760
we can, but there are not many of us to carry on the battle. The sad thing about the crisis

729
01:06:29.760 --> 01:06:35.300
is that it seems to be driving so many who at one time were good liberals over to the

730
01:06:35.300 --> 01:06:40.460
other side. With me it has been just the opposite. All sorts of doubts and mental reservations

731
01:06:40.460 --> 01:06:45.960
have been cleared up, and I am conscious of being much more strengh than in the past.

732
01:06:45.960 --> 01:06:49.760
Certainly to judge from the quality of the argument on the other side, it ought not to

733
01:06:49.760 --> 01:06:53.060
be difficult to defeat it on that plane.

734
01:06:53.060 --> 01:06:54.900
Strengh means severe.

735
01:06:54.900 --> 01:06:55.900
Mises agreed.

736
01:06:55.900 --> 01:06:59.300
At the end of December he wrote a two-part article for the Neue Feierpresse on the gold

737
01:06:59.300 --> 01:07:01.500
standard and its enemies.

738
01:07:01.500 --> 01:07:06.380
He argued it was impossible to replace gold in international exchanges, and even in domestic

739
01:07:06.380 --> 01:07:07.380
and Economic Exchanges.

740
01:07:07.380 --> 01:07:11.060
The position of this metal would only grow stronger the more the national governments

741
01:07:11.060 --> 01:07:14.420
followed their inflationary policies.

742
01:07:14.420 --> 01:07:19.880
Mises accepted a proposal of the journalist Robert Shoy, who in February 1932 had invited

743
01:07:19.880 --> 01:07:25.620
him to take part in what was then an entirely new format, the talk show.

744
01:07:25.620 --> 01:07:30.460
Shoy's idea was to conduct live interviews with prominent experts on the pressing economic

745
01:07:30.460 --> 01:07:32.620
issues of the day.

746
01:07:32.620 --> 01:07:37.620
The interviews would be held in a public auditorium and broadcast to a radio audience. The first

747
01:07:37.620 --> 01:07:43.020
interviewee in early March 1932 was Ottmar Spahn. The evening was apparently a great

748
01:07:43.020 --> 01:07:49.880
success despite the fact that Spahn had rarely given public lectures. Still, Mises hesitated.

749
01:07:49.880 --> 01:07:54.780
From previous correspondents, Mises knew sure to be a money crank, so he sought to establish

750
01:07:54.780 --> 01:07:59.900
a list of questions to which he would reply. Mises eventually peered on the talk show on

751
01:07:59.900 --> 01:08:05.660
Thursday, March 17th, to discuss the gold standard compared to other monetary systems,

752
01:08:05.660 --> 01:08:10.500
the regulation of the monetary circulation of a national economy, the role of central

753
01:08:10.500 --> 01:08:15.660
banks in monetary policy, the creation of national currencies, and the theories of Silvio

754
01:08:15.660 --> 01:08:21.700
Gazel, Germany's most popular money-crank who advocated new laws to encourage the spending

755
01:08:21.700 --> 01:08:28.620
of money by special tax on hoarding, that is, on savings. Gazel's views found a spokesman

756
01:08:28.620 --> 01:08:32.140
in the Eloquent and Authoritative Keynes.

757
01:08:32.140 --> 01:08:37.700
In early April 1932, then, Mises eventually got the Cummer to adopt a resolution against

758
01:08:37.700 --> 01:08:40.380
the artificial exchange rate of the shelling.

759
01:08:40.380 --> 01:08:45.820
Albert Hahn wrote from Frankfurt, asking Mises to what extent he was responsible for the

760
01:08:45.820 --> 01:08:48.860
contents of the Cummer report, to which Mises replied,

761
01:08:48.860 --> 01:08:52.580
The resolution has resulted from a first draft that I wrote.

762
01:08:52.580 --> 01:08:57.820
But after difficult and lengthy negotiations it has been revised to obtain unanimity through

763
01:08:57.820 --> 01:09:10.540
The Austrian government did not change its course and by June a return to the old gold

764
01:09:10.540 --> 01:09:15.500
parity was no longer possible without upsetting the price system, which had adjusted to the

765
01:09:15.500 --> 01:09:16.940
circumstances.

766
01:09:16.940 --> 01:09:23.260
The economic situation had considerably deteriorated and Mises was furious, fulminating in a letter

767
01:09:23.260 --> 01:09:33.460
In Austria we stand on the debris of the interventionist and state socialist system. All of the public

768
01:09:33.460 --> 01:09:39.760
firms have passive balances and considerable sums of tax money must be used to compensate

769
01:09:39.760 --> 01:09:45.980
for these deficits. Unemployment grows and unemployment relief devastates public finance,

770
01:09:45.980 --> 01:09:51.700
but the peak of the madness is the foreign exchange controls. He who seeks to study the

771
01:09:51.700 --> 01:09:58.340
consequences. A thorough going state socialism, city socialism and interventionism should

772
01:09:58.340 --> 01:10:03.700
pursue these studies in Austria where we enjoy government interventionism without gaps. We

773
01:10:03.700 --> 01:10:08.420
have reached the point where those who merely argue in favour of protective tariffs and

774
01:10:08.420 --> 01:10:13.780
against the prohibition of imports are decried as free traders. It was probably in these

775
01:10:13.780 --> 01:10:19.500
days that Mises became a metalist. Having supported the gold exchange standard, he now

776
01:10:19.500 --> 01:10:31.260
Mises here states that he advocated the classical old gold standard and not the gold exchange

777
01:10:31.260 --> 01:10:36.300
standard, and that I changed my mind concerning the functioning of the gold exchange standard

778
01:10:36.300 --> 01:10:39.820
as it happened more than thirty years ago.

779
01:10:39.820 --> 01:10:43.360
More than twenty years earlier, in the first edition of his Theory of Money and Credit,

780
01:10:43.360 --> 01:10:49.300
he had come close to poking fun at the simpletons who believed coins of precious metal were

781
01:10:49.300 --> 01:10:54.840
for Money in some stronger sense than banknotes were. As a young man, he had come across

782
01:10:54.840 --> 01:10:59.740
gold and silver coins only as collector's items. His father had a famous collection.

783
01:10:59.740 --> 01:11:04.860
He had always understood the merit of a metallic standard to keep the quantity of money independent

784
01:11:04.860 --> 01:11:09.700
of political manipulation, but he had never advocated the actual circulation of gold or

785
01:11:09.700 --> 01:11:15.940
silver coins, but now the evidence was undeniable. Governments could not be trusted even with

786
01:11:15.940 --> 01:11:21.660
and the Production of May. He remained a monetary metallist for the rest of his life. In a roundtable

787
01:11:21.660 --> 01:11:27.360
discussion on the gold standard that took place in January 1948, Mises spoke only once,

788
01:11:27.360 --> 01:11:30.580
and only to underline a point made by another speaker.

789
01:11:30.580 --> 01:11:35.180
Under present conditions, no return to the gold standard is possible without a return

790
01:11:35.180 --> 01:11:40.720
to an effectual circulation of gold coins. If gold coins are employed in daily transactions,

791
01:11:40.720 --> 01:11:45.860
if everybody is used to receiving and giving away gold pieces, if people are accustomed

792
01:11:45.860 --> 01:11:50.020
and to carry in gold coins for retail purposes, the public becomes aware of the fact that

793
01:11:50.020 --> 01:11:55.620
gold is the nation's standard money and that the country is under a gold standard.

794
01:11:55.620 --> 01:12:01.140
This cognizance is not merely pedagogic value, it enables the average citizen to realise

795
01:12:01.140 --> 01:12:05.860
in time whether his government is clinging to sound monetary policies or whether it is

796
01:12:05.860 --> 01:12:07.820
tampering with the currency system.

797
01:12:07.820 --> 01:12:13.360
The weakness of a gold standard without effectual circulation of gold coins consists precisely

798
01:12:13.360 --> 01:12:18.640
and the fact that it makes it extremely difficult for the average citizen to discern inflation

799
01:12:18.640 --> 01:12:24.120
in its early stages. An effectual gold coin circulation makes the voter the guardian of

800
01:12:24.120 --> 01:12:32.340
the gold standard. This is its main function. He was underlining something said by Spar.

801
01:12:32.340 --> 01:12:36.960
Second Edition of Socialism The battles on the political front had their

802
01:12:36.960 --> 01:12:44.000
Their impact on Mises's academic pursuits, especially on his teaching. The 1931-1932

803
01:12:44.000 --> 01:12:48.960
private seminar met more irregularly, or at any rate was less well planned than usual.

804
01:12:48.960 --> 01:12:53.060
At least some of the sessions apparently dealt with the theory of capital and the business

805
01:12:53.060 --> 01:12:58.480
cycle featuring lectures by Machloub, Morgenstern and Bloch. His university seminar now focused

806
01:12:58.480 --> 01:13:04.020
on methodological problems of the social sciences. Subjects dealt with in the winter semester

807
01:13:04.020 --> 01:13:08.660
There were the relationship between theory and praxis, and between facts and theories,

808
01:13:08.660 --> 01:13:14.260
the implications of the is-ought distinction, the universal validity of economic knowledge,

809
01:13:14.260 --> 01:13:18.760
quantitative and qualitative knowledge, the relations between statistical, historical

810
01:13:18.760 --> 01:13:25.320
and theoretical research, the meaning of Verstehen, behaviourism, the mathematical method, forecasting

811
01:13:25.320 --> 01:13:31.340
in economics and economics and sociology. Mises had to begin the 1932 summer semester

812
01:13:31.340 --> 01:13:36.460
was delayed because he had to attend two conferences of the International Chamber of Commerce and

813
01:13:36.460 --> 01:13:41.680
also take part in a World Economic Conference in Berlin, which reunited politicians and

814
01:13:41.680 --> 01:13:46.660
experts from all over the world to discuss the implications of the present crisis for

815
01:13:46.660 --> 01:13:51.940
international commerce and finance. The ICC conference in Innsbruck took place

816
01:13:51.940 --> 01:13:57.980
in the third week of April, the Welthandelswoche in the first week of May and the ICC conference

817
01:13:57.980 --> 01:14:05.740
in Munich started on May 18th. The Weltwirtschaftskonferenz Berlin 1932 was part of a Welthandelswoche,

818
01:14:05.740 --> 01:14:11.660
a week-long conference organised by the newspaper Berliner Tageblatt. Mises was back in Vienna

819
01:14:11.660 --> 01:14:17.580
by Friday morning, May 6th, for urgent karma business. The seminar sessions continued the

820
01:14:17.580 --> 01:14:22.900
discussion of the winter semester, dealing in particular with behaviourism and its relationship

821
01:14:22.900 --> 01:14:27.900
with the approach of German historicism, the meaning of meaning in the social sciences

822
01:14:27.900 --> 01:14:34.140
and its connections with utilitarianism, the concept of homo economicus, economics and

823
01:14:34.140 --> 01:14:39.500
sociology, sociology and history, and again forecasting in economics.

824
01:14:39.500 --> 01:14:45.820
Mises' biggest academic project in 1931-1932 was the preparation of the second edition

825
01:14:45.820 --> 01:14:51.540
of socialism. Upon his return from the United States, he found on his desk a letter from

826
01:14:51.540 --> 01:14:56.580
Gustav Fischer announcing that Fischer was running out of copies of socialism and inquiring

827
01:14:56.580 --> 01:15:01.700
whether Mises would be interested in doing a second edition. Of course he would. The

828
01:15:01.700 --> 01:15:08.020
first edition comprised 2,000 copies, plus 100 complementary and review copies, more

829
01:15:08.020 --> 01:15:13.340
than a thousand of which had been sold within two years of publication, to the point that

830
01:15:13.340 --> 01:15:20.380
in 1924 already Fischer anticipated a second edition for some time after 1925. Eventually,

831
01:15:20.380 --> 01:15:24.580
Unfortunately, however, the sales did not confirm these hopes. Mises's friend F. G.

832
01:15:24.580 --> 01:15:29.540
Steiner, a Paris-based banker, believed the main reason the book was not more popular

833
01:15:29.540 --> 01:15:35.780
was the inadequacy of its German title. The prospect of learning something about Gemeinwirtschaft,

834
01:15:35.780 --> 01:15:41.580
the communal economy, did not appeal to less educated readers. He hoped a new edition would

835
01:15:41.580 --> 01:15:43.740
soon be forthcoming.

836
01:15:43.740 --> 01:15:48.980
Even more so than when your book was first published, there is today a kind of defeatism

837
01:15:48.980 --> 01:16:05.300
Mises began revising the manuscript, probably in the summer of 1931. In order not to increase

838
01:16:05.300 --> 01:16:10.320
the length of the book, he had to cut some parts to compensate for additions. Following

839
01:16:10.320 --> 01:16:16.140
suggestions by Robbins, for example, he added a comment on the impossibility of syndicalism

840
01:16:16.140 --> 01:16:22.440
and also added a discussion of Haymann's Mehrwert und Gemeinwirtschaft 1922 as an appendix

841
01:16:22.440 --> 01:16:28.960
to the new edition. Mises in fact reproduced in his book the entire survey on recent contributions

842
01:16:28.960 --> 01:16:34.120
to the analysis of socialist calculation that he had published some years before in the

843
01:16:34.120 --> 01:16:40.760
archive. The passages on Haymann stress the dynamic nature of the problem of pricing.

844
01:16:40.760 --> 01:16:45.860
Prices for factors of production cannot simply be imputed backwards from the prices for

845
01:16:45.860 --> 01:17:01.940
Mises sent the first 405 pages of the revised manuscript to Fisher at the end of October

846
01:17:01.940 --> 01:17:08.740
1931. Then the process slowed due to Mises' greater involvement in the campaign against

847
01:17:08.740 --> 01:17:14.680
foreign exchange controls. In order not to lose too much time, Mises had asked four friends

848
01:17:14.680 --> 01:17:24.800
The Division of Labor worked well and on February 26, 1932 Mises sent the last pages to Fischer

849
01:17:24.800 --> 01:17:30.720
by courier. Fischer received it the next day and immediately forwarded it to Lippert and

850
01:17:30.720 --> 01:17:36.780
Company in Nuremburg. A month later, Fischer held the first copies in his hands and on

851
01:17:36.780 --> 01:17:43.140
April 1st Mises received his complimentary copies in Vienna. He received 30 complimentary

852
01:17:43.140 --> 01:17:47.880
Hardcover copies of the book, ten of which were hardcover, twenty of these sexual hardcovers

853
01:17:47.880 --> 01:17:53.740
were sent to Vienna. Mises had Fischer send the remaining ten plus nine more copies, who

854
01:17:53.740 --> 01:17:59.660
which he himself paid, to the following people. Hardcover copies went to Robbins, Anderson,

855
01:17:59.660 --> 01:18:05.140
Sulzbach and Beveridge. Paperbacks went to Gregory, Hayek, both for Reims-Stewards, Adolf

856
01:18:05.140 --> 01:18:13.100
Weber, Passau, Wiese, Oswald, Fleurus, Holm, Hahn, Röpke, Wolfram, Putzguss and Lederer.

857
01:18:13.100 --> 01:18:19.060
The book was a financial success for Mises. He received a pre-paid 15% of the selling

858
01:18:19.060 --> 01:18:26.620
price of a total volume of 1,500 copies and with royalties totalling 4,050 marks. But the

859
01:18:26.620 --> 01:18:32.100
most gratifying result lay in the reactions from both friends and foes who honoured the

860
01:18:32.100 --> 01:18:38.300
new edition as the leading anti-socialist and affirmatively liberal work within scientific

861
01:18:38.300 --> 01:18:40.040
Economic Literature.

862
01:18:40.040 --> 01:18:41.460
One reviewer said,

863
01:18:41.460 --> 01:18:47.860
The battle between individualism and socialism, which by now has been waged almost 100 years,

864
01:18:47.860 --> 01:18:50.420
has now entered its final phase.

865
01:18:50.420 --> 01:18:56.140
In a few years or decades, at most, victory will be on one side or the other.

866
01:18:56.140 --> 01:18:59.980
At the high point of this battle, Mises's book is a crucial action.

867
01:18:59.980 --> 01:19:05.620
It is impossible to estimate its intellectual, economic and, in the long run, even its political

868
01:19:05.620 --> 01:19:07.100
implications.

869
01:19:07.100 --> 01:19:11.920
It was charged that Mises had not taken account of the most recent attempt to solve the problem

870
01:19:11.920 --> 01:19:17.040
of socialist calculation, but they made no attempt to name or describe these alleged

871
01:19:17.040 --> 01:19:23.880
new solutions. Another typical criticism was, to qualify Mises' ideas as utopian, some

872
01:19:23.880 --> 01:19:29.840
critics apparently felt pity for Mises, whose radicalism had left him few allies. One such

873
01:19:29.840 --> 01:19:32.720
critic wrote about Mises' tragic fate.

874
01:19:32.720 --> 01:19:39.280
He advocates the liberalism of the so-called classical economist so unshakably and bluntly

875
01:19:39.280 --> 01:19:44.480
that he has become an embarrassment to those who would normally agree with him. Mises disdains

876
01:19:44.480 --> 01:19:49.940
any concessions in matters of social policy and ideology, and hence he provides a cheap

877
01:19:49.940 --> 01:19:55.240
opportunity to many liberal theoreticians, who are just not as courageous as he is to

878
01:19:55.240 --> 01:20:02.520
differentiate themselves from him in a self-serving and compassionate way. Inadvertently this

879
01:20:02.520 --> 01:20:07.200
This critic had pointed out a great service that Mises provided for all those who were,

880
01:20:07.200 --> 01:20:12.100
like the critic himself, opposed to government omnipotence, but did not want to reduce the

881
01:20:12.100 --> 01:20:17.800
scope of the state as radically as did the Vienna economist. Mises put these half-baked

882
01:20:17.800 --> 01:20:22.280
liberals in a comfortable middle-of-the-road position. They could make use of his arguments

883
01:20:22.280 --> 01:20:27.760
without a full commitment to their practical implications. Mises made them appear less

884
01:20:27.760 --> 01:20:33.440
It is true that Mises's radicalism alienated some of those who might otherwise have been

885
01:20:33.440 --> 01:20:38.480
closer allies, but it also altered the thinking of many open-minded readers, those who were

886
01:20:38.480 --> 01:20:44.200
willing to weigh his arguments against their prejudices. These readers often acknowledged

887
01:20:44.200 --> 01:20:49.640
the pertinence of his analysis of socialism and interventionism. Mises's work made them

888
01:20:49.640 --> 01:20:56.280
understand that capitalism must not be confused with the observed reality of the traditional

889
01:20:56.280 --> 01:20:58.080
Economic Order.

890
01:20:58.080 --> 01:21:03.480
One reviewer said, possibly the greatest merit of the work is that it shows that the present-day

891
01:21:03.480 --> 01:21:08.460
shortcomings of capitalism, the so-called economic system of individualism, result to

892
01:21:08.460 --> 01:21:13.440
a large extent from the fact that, for some time now, we have not had such a system but

893
01:21:13.440 --> 01:21:18.680
ever more distort it in the interest of domestic and foreign policy.

894
01:21:18.680 --> 01:21:20.080
Another.

895
01:21:20.080 --> 01:21:25.720
In some circles Mises is called the last consistent representative of a liberal economic order.

896
01:21:25.720 --> 01:21:30.920
He is certainly not the last, but after many years the first, who has dared to think through

897
01:21:30.920 --> 01:21:36.640
all the consequences of such an order, and to erect and demonstrate a doctrine with unshakable

898
01:21:36.640 --> 01:21:42.120
logic. The most enthusiastic responses came from younger economists, but these followers

899
01:21:42.120 --> 01:21:47.240
did not expect Mises' argument to convert the mainstream any time soon. One of them,

900
01:21:47.240 --> 01:21:52.920
Georg Halm, from the University of Würzburg, said Mises himself was too optimistic. I could

901
01:21:52.920 --> 01:22:22.760
I find that Lederer in his amply unclear brochure centrally planned economy makes it obvious

902
01:22:22.760 --> 01:22:28.100
is that socialist theory is completely bankrupt. In fact, the use of money is, in his eyes,

903
01:22:28.100 --> 01:22:32.720
the only basis for economic calculation, but he feels to see that, in a society in which

904
01:22:32.720 --> 01:22:37.520
the means of production are not privately owned, there is no pricing process for means

905
01:22:37.520 --> 01:22:44.160
of production. Moreover, and characteristically, he falls prey to the other era of Kautsky,

906
01:22:44.160 --> 01:22:50.160
in that he wants to use past prices as a starting point. The few pages dedicated to this problem

907
01:22:50.160 --> 01:22:55.760
and deliver nothing new, and are even more confused than the previous justification attempts

908
01:22:55.760 --> 01:22:57.920
by socialist writers.

909
01:22:57.920 --> 01:23:03.080
Bresen, Meeting of the Verein für Sozialpolitik

910
01:23:03.080 --> 01:23:08.800
On January 4th and 5th, 1932, in meetings of the Board and of the Committee of the Verein

911
01:23:08.800 --> 01:23:15.400
für Sozialpolitik in Berlin, Mises met some of these colleagues whom he so overestimated.

912
01:23:15.400 --> 01:23:21.080
He had unsuccessfully encouraged Hayek to attend the sessions, saying, doubtlessly, it will

913
01:23:21.080 --> 01:23:26.480
be interesting. Maybe it is the last meeting before the abolition of usury. Brechung der

914
01:23:26.480 --> 01:23:31.960
Zinsknechtschaft. The phrase abolition of usury alludes to point 11 of the National

915
01:23:31.960 --> 01:23:37.420
Socialist Worker Party program of February 24, 1920.

916
01:23:37.420 --> 01:23:42.800
Mises hoped to convince the Committee to have value theory and the economics of cartels

917
01:23:42.800 --> 01:23:48.560
As discussed at the forthcoming plenary meeting in Dresden, both projects were thwarted when

918
01:23:48.560 --> 01:23:53.480
the Committee, after a heated debate, decided to set the issue of national autarky, economic

919
01:23:53.480 --> 01:23:58.600
self-sufficiency, through trade isolation, on the agenda.

920
01:23:58.600 --> 01:24:03.200
Mises thought this decision was completely unacceptable, and that it had the potential

921
01:24:03.200 --> 01:24:08.920
to destroy the Verein. There was no common ground for the discussion of autarky. Making

922
01:24:08.920 --> 01:24:14.520
Being at the subject of discussion was bound to intensify rather than alleviate the clashes

923
01:24:14.520 --> 01:24:19.640
among members. Disillusioned with the Vereins' willingness to promote productive scientific

924
01:24:19.640 --> 01:24:25.080
cooperation, he did not even plan to attend the Dresden meeting, but changed his mind

925
01:24:25.080 --> 01:24:30.000
when he learned from Spiethoff that there would finally be a subcommittee meeting on

926
01:24:30.000 --> 01:24:31.000
value theory.

927
01:24:31.000 --> 01:24:36.400
I have not yet entirely abandoned all hope that it will be possible to do fruitful work

928
01:24:36.400 --> 01:24:41.280
The book within the Verein für Sozialpolitik all depends on the course of the Dresden meeting

929
01:24:41.280 --> 01:24:45.840
and on the new president, said Mises in a letter to Georg Jan.

930
01:24:45.840 --> 01:24:50.360
In preparation for this meeting, Spiethoff and Mises edited a volume on the problems of

931
01:24:50.360 --> 01:24:54.360
value theory, Probleme der Wertlehre.

932
01:24:54.360 --> 01:24:59.760
The chapters of this book were solicited from proponents and opponents of the Austrian theory

933
01:24:59.760 --> 01:25:01.960
of value and prices.

934
01:25:01.960 --> 01:25:07.260
The selection of the authors ensured that all major points of view could be expressed, superficially

935
01:25:07.260 --> 01:25:12.740
the great divide was between the moderns, that is, advocates of marginal value theory

936
01:25:12.740 --> 01:25:20.420
as the basis of price theory, and the Cacelian, kompart, Historicist, Gottel, Marxist, Oppenheimer,

937
01:25:20.420 --> 01:25:23.480
and Universalist, Spann, opponents.

938
01:25:23.480 --> 01:25:28.780
This divide was also reflected in the co-editorship of Mises and Spiethofe, who were known to

939
01:25:28.780 --> 01:25:33.200
to be in different camps, but more to the point, the book was part of Mises's strategy

940
01:25:33.200 --> 01:25:38.120
to spread the message that economic science was not a matter of mere personal opinion.

941
01:25:38.120 --> 01:25:44.080
There are certain fundamental facts on which all past and present economists agreed, despite

942
01:25:44.080 --> 01:25:49.280
all the differences separating the various schools. The subcommittee meeting took place

943
01:25:49.280 --> 01:25:55.680
immediately after the plenary meeting, which was held on September 28th and 29th, 1932.

944
01:25:55.680 --> 01:26:01.000
Mises gave the opening talk emphasizing that marginal value theory alone was able to explain

945
01:26:01.000 --> 01:26:05.960
all economic phenomena, and that the different forms in which the marginal principle was

946
01:26:05.960 --> 01:26:11.940
advocated were not nearly as incompatible as the opponents of economic science claim.

947
01:26:11.940 --> 01:26:16.600
His speech was subsequently printed with that title in Mises and Arthur Spiethoff editors

948
01:26:16.600 --> 01:26:27.400
Problems, Probleme der Wirtlehre, in Mises' book Grundprobleme der Nationalökonomie, translated

949
01:26:27.400 --> 01:26:32.260
by George Reisman as The Controversy over the Theory of Value.

950
01:26:32.260 --> 01:26:37.040
As one newspaper report put it, the meeting was attended by a large delegation from Vienna

951
01:26:37.040 --> 01:26:43.000
and by advocates of the marginal utility school working in foreign countries. These participants

952
01:26:43.000 --> 01:26:48.560
showed how productively the theories of the Vienna and the Lausanne schools could be further

953
01:26:48.560 --> 01:26:52.800
developed. The discussion was less controversial than might have been expected because the

954
01:26:52.800 --> 01:26:57.960
main opponents of value theory, Liefmann, Kassel, Spahn and Oppenheimer, had not even

955
01:26:57.960 --> 01:27:02.840
come to take part in the meeting, neither had any of their disciples appeared. This

956
01:27:02.840 --> 01:27:08.160
was a remarkable fact in its own right and was duly noticed in the preface of the proceedings.

957
01:27:08.160 --> 01:27:12.000
The debate was then to a large extent a Viennese affair.

958
01:27:12.000 --> 01:27:17.000
But the Dresden meeting was also a breakthrough from the point of view of contemporary history.

959
01:27:17.000 --> 01:27:21.500
It was a high point of the renaissance of political economy in Germany.

960
01:27:21.500 --> 01:27:25.840
During the preceding decade, economic theory had again become palatable in the places of

961
01:27:25.840 --> 01:27:31.080
higher learning, where the historical school had for a long time reigned supreme.

962
01:27:31.080 --> 01:27:36.660
Three publications in 1931 epitomised this change, and the central role Mises played

963
01:27:36.660 --> 01:27:37.960
in it.

964
01:27:37.960 --> 01:27:42.800
The most important of these publications was the third edition of Adolf Weber's textbook,

965
01:27:42.800 --> 01:27:48.480
which in Mises' judgement was the most significant German-language textbook of economics in its

966
01:27:48.480 --> 01:27:54.520
day. Weber had sent Mises a copy of his book in November 1931. Mises replied,

967
01:27:54.520 --> 01:27:59.480
I greet the success of your book as a sign that public opinion is beginning a gradual

968
01:27:59.480 --> 01:28:05.800
shift in the direction of sound ideas. Similarly, the Frankfurt Professor Budger published his

969
01:28:05.800 --> 01:28:10.840
textbook on Monetary Economics, Lehrer vom Geld, in which he acknowledged Mises' achievements

970
01:28:10.840 --> 01:28:17.400
and critically discussed Mises' views. Mises was very grateful. Some two years later, shortly

971
01:28:17.400 --> 01:28:21.900
after Hitler had seized power in Germany, Mises stated that his Monetary Theory had

972
01:28:21.900 --> 01:28:27.400
become in Germany, after the First World War, the dominant theory of the business cycle.

973
01:28:27.400 --> 01:28:31.760
Last but not least, Georg Hörn published a revised edition of the late Ludwig Paulus

974
01:28:31.760 --> 01:28:37.120
Standard Textbook on Capitalism and Socialism, based on Poehler's Notes.

975
01:28:37.120 --> 01:28:42.720
The great bulk of the extensive editions brought a more radical rejection of socialist schemes,

976
01:28:42.720 --> 01:28:48.080
bolstered by quotations from socialism and other of Mises' works.

977
01:28:48.080 --> 01:28:53.760
In the same year, a PhD student of Halms in Würzburg, Carl Wagner, defended a doctoral

978
01:28:53.760 --> 01:29:00.200
thesis that ripped national socialist ideology apart and received praise from Mises.

979
01:29:00.200 --> 01:29:06.560
Mises said, your work needs to be welcomed not only as a scientific achievement but also

980
01:29:06.560 --> 01:29:12.120
as a political deed. Wagner was one of several promising young economists who were eventually

981
01:29:12.120 --> 01:29:19.200
swept aside by German National Socialism. The seeds Mises had planted in German soil

982
01:29:19.200 --> 01:29:26.400
were in for a long winter. Most of them died during the Nazi episode. Those few that survived

983
01:29:26.400 --> 01:29:33.440
experienced a short blossoming in the late 1940s and 1950s and helped reestablish a

984
01:29:33.440 --> 01:29:37.640
market economy in the land of Bismarck and Hitler.

985
01:29:37.640 --> 01:29:43.120
The 1932 Dresden meeting of the Verein gave a taste of what might have been possible if

986
01:29:43.120 --> 01:29:47.900
Mises's campaign to demonstrate the libertarian political implications of economic science

987
01:29:47.900 --> 01:29:51.400
had been allowed to run its course.

988
01:29:51.400 --> 01:29:56.000
The first day of the meeting featured a session on industrialisation and unemployment.

989
01:29:56.000 --> 01:30:00.420
Werner Zombart was now the vice president of the Verein and in charge of selecting the

990
01:30:00.420 --> 01:30:02.240
invited lecturers.

991
01:30:02.240 --> 01:30:06.040
He had difficulty finding lecturers he considered suitable.

992
01:30:06.040 --> 01:30:13.440
Eventually, he opted for his disciple Manuel Zeitzel of Zurich and for Gerhard Kolm of Kiel,

993
01:30:13.440 --> 01:30:17.880
but neither one endorsed the Zombartian line, which presented the massive unemployment in

994
01:30:17.880 --> 01:30:24.320
Germany and Austria as a consequence of economization and streamlining in industry.

995
01:30:24.320 --> 01:30:28.940
They argued that such technological changes could not cause unemployment on a massive

996
01:30:28.940 --> 01:30:30.400
and permanent scale.

997
01:30:30.400 --> 01:30:35.840
Zaitsev contended that the real reasons included high tariffs, and Cohn pointed to the inflexibility

998
01:30:35.840 --> 01:30:41.360
of wage rates and other prices, which resulted from powerful labour unions and cartels.

999
01:30:41.360 --> 01:30:46.440
Cohn also stated that the selection process of the market was hampered by modern bankruptcy

1000
01:30:46.440 --> 01:30:52.320
laws which were too lenient on debtors and by subsidies paid to unprofitable firms.

1001
01:30:52.320 --> 01:30:58.620
Clearly, these views were not to the liking of Zombart or the Verein establishment.

1002
01:30:58.620 --> 01:31:04.840
The next day of the meeting, Thursday, September 29, 1932, demonstrated even more forcefully

1003
01:31:04.840 --> 01:31:09.920
how much economic common sense had displaced the old allegiance to the interventionist

1004
01:31:09.920 --> 01:31:10.920
creed.

1005
01:31:10.920 --> 01:31:15.000
The sessions were supposed to deal with the question of autarky, but the meeting once

1006
01:31:15.000 --> 01:31:20.080
again took an entirely different course from what the Verein leadership had anticipated.

1007
01:31:20.080 --> 01:31:24.960
Chapter Two, Zombart had had difficulties finding suitable candidates who could make

1008
01:31:24.960 --> 01:31:31.440
a substantial case in favour of autarky. He eventually settled on Konstantin von Dietze

1009
01:31:31.440 --> 01:31:38.800
and Emil Rederer, who were only moderate autarkists at best. Dietze half-heartedly defended autarky

1010
01:31:38.800 --> 01:31:44.500
by arguing that food freedom was necessary in war and that agrarian workers were physically

1011
01:31:44.500 --> 01:31:58.140
The High Point of the meeting approached when

1012
01:31:58.140 --> 01:32:03.140
Amy Lederer, with the full authority of his position at the University of Berlin, in a

1013
01:32:03.140 --> 01:32:08.140
brilliant speech that was based on the traditional arguments of the Free Trade Doctrine and on

1014
01:32:08.140 --> 01:32:14.420
the most recent statistical data, argued that no country was less suited to engage in protectionism

1015
01:32:14.420 --> 01:32:21.100
than Germany, Indian Sewing Debate on Otaki, almost all the speakers emphasized that it

1016
01:32:21.100 --> 01:32:26.540
was wrong to oppose free trade as contrary to the national interest, and that it would

1017
01:32:26.540 --> 01:32:33.020
be wrong to make free trade policies conditional on the trade policies of other countries.

1018
01:32:33.020 --> 01:32:37.300
Commenting on the meeting for a major Vienna business newspaper, Luisa Sommer noticed the

1019
01:32:37.300 --> 01:32:43.500
historical irony of the Vines majority now advocating free trade and free markets. Sommer

1020
01:32:43.500 --> 01:32:49.180
Sommer traced the emergence of this new majority to the early 1920s, when Heinrich Herkner's

1021
01:32:49.180 --> 01:32:55.100
endorsement of Mises's socialism caused a crisis of social policy. Mises's ideas,

1022
01:32:55.100 --> 01:33:00.060
wrote Sommer, were the primary agent of the transformation of Germany's intellectual

1023
01:33:00.060 --> 01:33:06.500
landscape in the 1920s. The ideas that Mises developed in his book have affected the entire

1024
01:33:06.500 --> 01:33:11.540
ideology of the Verein für Sozialpolitik and turned it toward an endorsement of the

1025
01:33:11.540 --> 01:33:17.500
and the free market economy, it is from this point on that the Verein has unmistakably changed

1026
01:33:17.500 --> 01:33:22.420
its goals. It has now become a battlefield for the debate of questions of economic principle

1027
01:33:22.420 --> 01:33:28.800
and economic order. It is a milestone of the history of this association that free market

1028
01:33:28.800 --> 01:33:34.540
ideas have had a renaissance at this year's meeting, that the fight against autarky, against

1029
01:33:34.540 --> 01:33:39.660
the whole system of restraints and regulations that fetters economic life, has been taken

1030
01:33:39.660 --> 01:34:09.660
When the Nazis rose to power, they immediately began with their program of Gleich-Schalke

1031
01:34:09.660 --> 01:34:17.140
at all, enforced conformity, literally synchronisation, whose goal was to subordinate all organisations

1032
01:34:17.140 --> 01:34:21.820
to the central Nazi organisations that controlled the Federal Government.

1033
01:34:21.820 --> 01:34:26.900
Faced with the choice of becoming part of the Nazi apparatus or self-dissolution, the

1034
01:34:26.900 --> 01:34:32.660
Verein honourably chose to disband in December of 1936.

1035
01:34:32.660 --> 01:34:37.900
Even more honourably, Mises quit the Verein three years earlier in immediate protest against

1036
01:34:37.900 --> 01:34:42.020
The Gleichschaltung Laws Devine was re-established after the Second

1037
01:34:42.020 --> 01:34:49.700
World War in 1948. Mises did not wish to have anything to do with this post-war organisation.

1038
01:34:49.700 --> 01:34:53.940
Mises was also one of the initiators of an international effort to provide new career

1039
01:34:53.940 --> 01:34:58.860
opportunities to the academics, whom the Nazis expelled from Germany. At the end of

1040
01:34:58.860 --> 01:35:06.060
March 1933 Beveridge and Robbins were in Vienna and met Mises for dinner. Their Austrian friend

1041
01:35:06.060 --> 01:35:11.020
stormed into the lobby of the Hotel Bristol, breaking the news that the Nazis had fired

1042
01:35:11.020 --> 01:35:16.860
a number of Jewish academics, such as Bonn, Mannheim and Kantorvitz.

1043
01:35:16.860 --> 01:35:21.980
On the spot, the three men discussed what could be done to help these German socialists.

1044
01:35:21.980 --> 01:35:26.980
Would it be possible to set up relief funds in France and Britain to employ them?

1045
01:35:26.980 --> 01:35:31.820
Beveridge announced that he himself would oversee a relief action to LSE.

1046
01:35:31.820 --> 01:35:36.340
Back in London, Robbins organised a meeting of LSE's professorial council which voted

1047
01:35:36.340 --> 01:35:42.360
for a scheme of voluntary deduction from staff salaries to finance the relief fund. He also

1048
01:35:42.360 --> 01:35:47.440
convinced Beveridge to support an even larger scheme and eventually a relief fund was created

1049
01:35:47.440 --> 01:35:53.240
on a national scale. In a letter to Mises in which he reported on progress, Robbins praised

1050
01:35:53.240 --> 01:35:58.120
his correspondent for having seen the practical implications of the new situation and for

1051
01:35:58.120 --> 01:36:03.600
Economic Theory Completed

1052
01:36:03.600 --> 01:36:08.480
In the Dresden discussions of value theory, Mises had emphasized that a productive debate

1053
01:36:08.480 --> 01:36:13.200
could take place only among those who did not rule out the possibility of a universally

1054
01:36:13.200 --> 01:36:18.920
valid social theory. Those who excluded this possibility on an a priori grounds were forced

1055
01:36:18.920 --> 01:36:24.720
to endorse what Mises would eventually call polylogism, the extreme historicist hypothesis

1056
01:36:24.720 --> 01:36:29.180
Note that there is no such thing as a generally valid social theory, because the structure

1057
01:36:29.180 --> 01:36:33.920
of the human mind was in a state of constant flux. According to this hypothesis, there

1058
01:36:33.920 --> 01:36:39.240
is not just one universally valid theory of human action, there are in fact several different

1059
01:36:39.240 --> 01:36:41.840
logics of action.

1060
01:36:41.840 --> 01:36:49.360
The most explicit champion of polylogism had been the socialist Josef Dietzgen, 1828-1888,

1061
01:36:49.360 --> 01:37:19.360
In 1929 the case for polylogism came into the spotlight of scientific debate with the publication of Carl Mannheim's Ideologie und Utopie. It quickly found support in all political camps. Polylogism was an expedient tool to avoid the scrutiny of arguments, especially those made by economists, and to replace the sober process of reasoning with the emotional appeal of name-calling.

1062
01:37:19.360 --> 01:37:28.360
could simply declare all theories they disliked as bourgeois theories without entering into a detailed discussion of their contents and arguments.

1063
01:37:28.360 --> 01:37:38.360
Not surprisingly, the German racists were eager to adopt the same comfortable strategy to avoid critical debate of the ideology of the Aryan master race.

1064
01:37:38.360 --> 01:37:47.960
Mises recalled, Professor Biberbach of the University of Breslau distinguishes between Anglo-Saxon-Franco-Jewish mathematics and German mathematics.

1065
01:37:47.960 --> 01:37:57.360
Professor Lenard, the winner of the Nobel Prize, believes that only German physics are true, whereas the physics of all the other nations are simply nonsense.

1066
01:37:57.360 --> 01:37:59.360
The author was a medical doctor.

1067
01:37:59.360 --> 01:38:03.960
A few years later, Mises explained the historical setting of this intellectual current.

1068
01:38:03.960 --> 01:38:11.960
Until the middle of the 19th century, everybody took it for granted that the logical structure of the human mind is the same with every human being.

1069
01:38:11.960 --> 01:38:18.960
All human relations are based on this assumption. Wherever men met men, they never had any doubt in this respect.

1070
01:38:18.960 --> 01:38:22.960
All philosophers and all laymen agreed were unanimous in this belief.

1071
01:38:22.960 --> 01:38:26.960
But in the middle of the 19th century, Karl Marx expanded a different view.

1072
01:38:26.960 --> 01:38:31.960
According to Marx, the logical structure of mind is different with the members of different classes.

1073
01:38:31.960 --> 01:38:37.760
The human mind does not find truth but ideologies. Ideologies seem true in the eyes of the members

1074
01:38:37.760 --> 01:38:42.160
of the same class, but are meaningless in the eyes of members of other classes. Every

1075
01:38:42.160 --> 01:38:48.200
class produces its own ideologies, which later are debunked by ideologies of other classes.

1076
01:38:48.200 --> 01:38:54.120
In this way, Karl Marx stigmatised the philosophy of John Locke as a bourgeois philosophy. Later

1077
01:38:54.120 --> 01:38:59.800
Marxians called Schopenhauer the philosopher of the rentier class and Nietzsche the philosopher

1078
01:38:59.800 --> 01:39:05.000
of Big Business, Lenin, the founder of the Third International, and Friedrich Adler,

1079
01:39:05.000 --> 01:39:09.240
the secretary-general of the Second International, investigated whether the physical theories

1080
01:39:09.240 --> 01:39:15.320
of Mach are bourgeois or not. The Einstein theory of relativity is branded by some Bolsheviks

1081
01:39:15.320 --> 01:39:20.720
as bourgeois and reactionary. In this lecture, Mises presented material that he eventually

1082
01:39:20.720 --> 01:39:26.160
published in Omnipotent Government. In the 1932 debate in Dresden, Mises pointed out

1083
01:39:26.160 --> 01:39:32.760
that any defense of the polylogistic hypothesis involves a self-contradiction since the exchange

1084
01:39:32.760 --> 01:39:37.920
of arguments only makes sense if the logical structure of the human mind is independent

1085
01:39:37.920 --> 01:39:41.160
of social or racial class.

1086
01:39:41.160 --> 01:39:46.480
A Marxist, and I understand by this term not only the members of a political party that

1087
01:39:46.480 --> 01:39:52.100
swears by Marx, but all who appeal to Marx in their thinking concerning the sciences

1088
01:39:52.100 --> 01:40:09.900
If thought is conditioned by the thinker's social existence, how can he understand me

1089
01:40:09.900 --> 01:40:13.140
and how can I understand him?

1090
01:40:13.140 --> 01:40:19.340
If there is a bourgeois logic and a proletarian logic, how am I the bourgeois to come to an

1091
01:40:19.340 --> 01:40:21.900
and understanding with him the proletarian.

1092
01:40:21.900 --> 01:40:27.700
Whoever takes the Marxist point of view seriously must advocate a complete division between

1093
01:40:27.700 --> 01:40:30.660
bourgeois and proletarian science.

1094
01:40:30.660 --> 01:40:36.300
And the same is also true, mutatis mutandis, of the view of those who regard thought as

1095
01:40:36.300 --> 01:40:39.980
determined by the race or the nationality of the thinker.

1096
01:40:39.980 --> 01:40:45.320
The Marxist cannot be satisfied with separating classes in athletic contests with bourgeois

1097
01:40:45.320 --> 01:40:50.720
and proletarian Olympics, he must demand this separation, above all, in scientific discussion.

1098
01:40:50.720 --> 01:40:55.880
The fruitlessness of many of the debates that were conducted here in the Verein für Sozialpolitik,

1099
01:40:55.880 --> 01:41:00.000
as well as in the Gesellschaft für Sozialurgie, are to be attributed more than anything else

1100
01:41:00.000 --> 01:41:03.160
to the neglect of this principle, in my opinion.

1101
01:41:03.160 --> 01:41:08.800
The position of dogmatic Marxism is wrong, but that of the Marxist who engages in discussions

1102
01:41:08.800 --> 01:41:13.520
with representatives of what he calls bourgeois science is confused.

1103
01:41:13.520 --> 01:41:19.440
The consistent Marxist does not seek to refute opponents whom he calls bourgeois, he seeks

1104
01:41:19.440 --> 01:41:23.200
to destroy them physically and morally.

1105
01:41:23.200 --> 01:41:26.900
He had only touched on this point which he now regarded as fundamental in a paper he

1106
01:41:26.900 --> 01:41:31.480
wrote for Probleme der Wirtlehre, the volume that served as a basis for the discussion

1107
01:41:31.480 --> 01:41:32.980
in Dresden.

1108
01:41:32.980 --> 01:41:37.520
In a paper he had written in preparation for the Dresden meeting, Mises had highlighted

1109
01:41:37.520 --> 01:41:43.560
and the wider significance of polylogism, characterizing it as a romantic revolt against

1110
01:41:43.560 --> 01:41:48.920
logic and science, and pointing out that it does not limit itself to the sphere of social

1111
01:41:48.920 --> 01:41:54.240
phenomena and the sciences of human action, it is a revolt against our entire culture

1112
01:41:54.240 --> 01:41:55.240
and civilization.

1113
01:41:55.240 --> 01:42:01.520
In Dresden, Amy Lederer argued that this argument was considerably overblown. Mises

1114
01:42:01.520 --> 01:42:07.500
was wrong in assuming that the being generates consciousness theory implied that every single

1115
01:42:07.500 --> 01:42:14.500
The fundamental instance of thought is ideology, in the Marxist sense of an intellectualisation of economic interests.

1116
01:42:14.500 --> 01:42:22.500
According to Lederer, nobody claimed that there were no universally valid theories, logic and mathematics certainly counted,

1117
01:42:22.500 --> 01:42:30.500
but neither could it be denied that there were other disciplines, the basic categories of which were largely dependent on the historical situation,

1118
01:42:30.500 --> 01:42:35.500
that is, on the social structure of the time and on the social position of the thinker.

1119
01:42:35.500 --> 01:42:37.360
Later I went on.

1120
01:42:37.360 --> 01:42:41.640
Now the question is whether economics belongs to the first category of sciences, which totally

1121
01:42:41.640 --> 01:42:48.660
rely on pure intuition, rein unshau, and logic, or to the socially determined fields of knowledge

1122
01:42:48.660 --> 01:42:53.840
in the sense of modern sociology, or, if you wish, in the sense of Marxism.

1123
01:42:53.840 --> 01:42:57.820
Here von Mises apparently shares the view of the physiocrats.

1124
01:42:57.820 --> 01:43:03.840
The latter believed that the physiocratic theory was, as obliging for each rational thinker,

1125
01:43:03.840 --> 01:43:05.840
as the Theorem of Pythagoras.

1126
01:43:05.840 --> 01:43:10.760
Hervon Mises apparently claims the same rank, the same validity for economic theory in its

1127
01:43:10.760 --> 01:43:14.560
entire scope, and this is what I deny.

1128
01:43:14.560 --> 01:43:19.880
It is true that economic theory has a kernel that is independent of historical economic

1129
01:43:19.880 --> 01:43:25.640
developments, but this general or exact or pure theory, for which I feel affinities,

1130
01:43:25.640 --> 01:43:30.400
is not the theory of economic action per se in all its historical phases.

1131
01:43:30.400 --> 01:43:33.760
The substance of this theory is a narrow one.

1132
01:43:33.760 --> 01:43:39.720
It essentially covers the static process or stationary circulation Chryslov. It ultimately

1133
01:43:39.720 --> 01:43:46.980
deduces all consequences from the principle of economising, as applied to man in his dependency

1134
01:43:46.980 --> 01:43:53.620
on nature. In his rejoinder, Mises pointed out that static economic theory did not merely

1135
01:43:53.620 --> 01:43:59.240
apply to static processes, but especially to change. The word static did not mean that

1136
01:43:59.240 --> 01:44:05.200
The subject of inquiry was a stationary economy. Rather, it referred to a specific method of

1137
01:44:05.200 --> 01:44:11.400
analysis which studied the implications of a change of one datum setteris paribus, that

1138
01:44:11.400 --> 01:44:17.280
is, under the assumption that all other data remained unchanged. But Mises still had not

1139
01:44:17.280 --> 01:44:23.000
clarified his views about the epistemological character of economic science. This was the

1140
01:44:23.000 --> 01:44:27.880
task to which he proceeded upon his return to Vienna, where he finished an essay on the

1141
01:44:27.880 --> 01:44:31.640
Task and Scope of the Science of Human Action

1142
01:44:31.640 --> 01:44:36.600
Mises planned to publish this piece as the introductory chapter of a new book on fundamental

1143
01:44:36.600 --> 01:44:42.120
problems of economic analysis. The book would contain various essays he had published in

1144
01:44:42.120 --> 01:44:47.880
the past five years in the fields of epistemology and value theory. The idea was to clarify

1145
01:44:47.880 --> 01:44:53.560
the very foundations of economic science not only by a general discussion of its philosophical

1146
01:44:53.560 --> 01:45:03.440
The book would therefore contain both an introduction to economics from the point of view of the

1147
01:45:03.440 --> 01:45:11.040
philosophy of science and actual economic analyses of value and of inconvertible capital.

1148
01:45:11.040 --> 01:45:16.120
The first three chapters on epistemology consumed some 60% of the volume.

1149
01:45:16.120 --> 01:45:21.520
The next four chapters dealt with value theory and the concluding essay was his contribution

1150
01:45:21.520 --> 01:45:28.520
to the Verein Stuart-Festschrift. Mises finished revising the manuscript over Christmas 1932,

1151
01:45:28.520 --> 01:45:35.080
and on January 3, 1933, wrote to Gustav Fischer to propose the book for publication. Fischer

1152
01:45:35.080 --> 01:45:40.520
did not believe the book would sell well, but agreed to publish it. By mid-April, Mises

1153
01:45:40.520 --> 01:45:45.640
received the first copies of Grundprobleme der Nationalökonomie, Fundamental Problems

1154
01:45:45.640 --> 01:45:47.380
of Economics.

1155
01:45:47.380 --> 01:45:53.200
Almost three decades later, Mises's American student, George Weissman, produced a translation.

1156
01:45:53.200 --> 01:45:57.920
The American edition eventually appeared under the somewhat different title of Epistemological

1157
01:45:57.920 --> 01:46:00.760
Problems of Economics.

1158
01:46:00.760 --> 01:46:06.760
His new essay on the task and scope of the science of human action was chapter one.

1159
01:46:06.760 --> 01:46:12.800
It would be the keystone of the system of economics Mises had been working on for years.

1160
01:46:12.800 --> 01:46:19.000
Taking up Ladler's challenge, Mises argued that economic laws were true a priori on a

1161
01:46:19.000 --> 01:46:23.120
par with the laws of logic and mathematics.

1162
01:46:23.120 --> 01:46:27.160
To the present day, this has remained one of his most controversial tenets, but the

1163
01:46:27.160 --> 01:46:32.440
debate resulted, in most cases, from a misunderstanding of his position.

1164
01:46:32.440 --> 01:46:38.720
Twentieth century social scientists typically argued that science was always based on experience,

1165
01:46:38.720 --> 01:46:44.680
and that any proposition that was based instead on some arbitrary a priori principle was therefore

1166
01:46:44.680 --> 01:46:50.640
not scientific. Mises agreed. He had been a proponent of a rigid fact orientation since

1167
01:46:50.640 --> 01:46:56.280
his early years as a student. He had enthusiastically supported Max Weber in the controversy on

1168
01:46:56.280 --> 01:47:02.260
value judgments, arguing that the proper sphere of science was the world as it is, not as

1169
01:47:02.260 --> 01:47:08.040
it should be. Mises himself rigorously held to the notion that true science was always

1170
01:47:08.040 --> 01:47:15.780
So why were his epistemological views controversial?

1171
01:47:15.780 --> 01:47:20.320
Most other social theorists believed that the facts relevant for the social sciences

1172
01:47:20.320 --> 01:47:24.280
could be known through observation-based methods of inquiry.

1173
01:47:24.280 --> 01:47:26.560
Here Mises disagreed.

1174
01:47:26.560 --> 01:47:31.000
In the tradition of Carl Menger's quest for empirical theory, he believed that economic

1175
01:47:31.000 --> 01:47:36.640
theory describes facts of the real world such as the one that human beings make choices.

1176
01:47:36.640 --> 01:47:42.640
Thus, he insisted, for the purposes of science, we must start from the action of the individual,

1177
01:47:42.640 --> 01:47:47.800
because this is the only thing of which we can have direct cognition.

1178
01:47:47.800 --> 01:47:52.640
And he also stated, science cannot proceed otherwise than discursively.

1179
01:47:52.640 --> 01:47:58.280
Its starting points must have as much certainty as human knowledge is capable of, and it must

1180
01:47:58.280 --> 01:48:03.200
go on from there, making logical deductions step by step.

1181
01:48:03.200 --> 01:48:08.960
It can begin as an a-prioristic science, with propositions necessary to thought that find

1182
01:48:08.960 --> 01:48:14.000
their support and warrant in apodictic evidence. Or, as an empirical science, it can start

1183
01:48:14.000 --> 01:48:19.560
with experience. But facts of this sort cannot be observed. It is impossible, for example,

1184
01:48:19.560 --> 01:48:24.520
to look at choices, to smell them or touch them. Economics is not an empirical science

1185
01:48:24.520 --> 01:48:29.860
in this sense, but it is a science nevertheless because the facts it deals with are true,

1186
01:48:29.860 --> 01:48:56.700
The Science of Human Action that strives for universally valid knowledge is the theoretical

1187
01:48:56.700 --> 01:49:21.060
He went on to argue that the theory of human action ultimately coincides with the science

1188
01:49:21.060 --> 01:49:23.020
of logic.

1189
01:49:23.020 --> 01:49:27.720
When thought serves human life and action, it is not absolute thought, but the forethought

1190
01:49:27.720 --> 01:49:34.380
directed toward projected acts, and the afterthought that reflects upon acts done. Hence, in the

1191
01:49:34.380 --> 01:49:41.480
last analysis, logic and the universally valid science of human action are one and the same.

1192
01:49:41.480 --> 01:49:46.420
How did Mises address Liderer's argument that only a part of economic theory was universally

1193
01:49:46.420 --> 01:49:51.500
valid, namely, the aspect that dealt with the equilibrium relationship between human

1194
01:49:51.500 --> 01:49:57.380
Human Action and Nature. Mises argued that universal validity does not imply that all

1195
01:49:57.380 --> 01:50:02.660
laws of human action apply in every single instance of human behaviour. Rather, it means

1196
01:50:02.660 --> 01:50:08.620
that a law applies whenever the conditions specified by it are given. Whether or not

1197
01:50:08.620 --> 01:50:13.500
they are is an empirical question, but once this is stipulated, the law holds true on

1198
01:50:13.500 --> 01:50:19.260
a priori grams. For example, we are unable to grasp the concept of economic action and

1199
01:50:19.260 --> 01:50:24.900
of Economy without implying in our thought the concept of economic quantity relations

1200
01:50:24.900 --> 01:50:29.820
and the concept of an economic good. Only experience can teach us whether or not these

1201
01:50:29.820 --> 01:50:34.380
concepts are applicable to anything in the conditions under which our life must actually

1202
01:50:34.380 --> 01:50:40.500
be lived. Only experience tells us that not all things in the external world are free

1203
01:50:40.500 --> 01:50:45.780
goods. However, it is not experience but reason which is prior to experience that tells us

1204
01:50:45.780 --> 01:50:51.100
What is a free and what is an economic good? Some of the empirical conditions under which

1205
01:50:51.100 --> 01:50:56.860
human action can take place are universally given. For example, all human actions occur

1206
01:50:56.860 --> 01:51:03.300
during the passage of time and all acting persons age in the course of time. Other empirical

1207
01:51:03.300 --> 01:51:09.220
conditions, such as the use of money, are of a more contingent nature. But however universal

1208
01:51:09.220 --> 01:51:14.160
or contingent these conditions are, it remains true that once they are given, they cause

1209
01:51:14.160 --> 01:51:19.280
has certain objective effects, which are the subject matter of the a priori theory of human

1210
01:51:19.280 --> 01:51:21.280
action.

1211
01:51:21.280 --> 01:51:25.680
Because the theory of human action does not rely on data gathered through the senses but

1212
01:51:25.680 --> 01:51:31.700
rather on a priori facts that we come to know through discursive reasoning, it cannot possibly

1213
01:51:31.700 --> 01:51:38.560
be verified or refuted by experience gained exclusively through observations. Mises highlighted

1214
01:51:38.560 --> 01:51:43.820
the practical implications of this fundamental epistemological fact.

1215
01:51:43.820 --> 01:51:49.340
Human action always confronts experience as a complex phenomenon that first must be analyzed

1216
01:51:49.340 --> 01:51:54.620
and interpreted by a theory before it can even be set in the context of a hypothesis

1217
01:51:54.620 --> 01:51:57.140
that could be proved or disproved.

1218
01:51:57.140 --> 01:52:02.260
Hence the vexatious impasse created when supporters of conflicting doctrines point to the same

1219
01:52:02.260 --> 01:52:05.900
historical data as evidence of their correctness.

1220
01:52:05.900 --> 01:52:11.100
The statement that statistics can prove anything is a popular recognition of this truth.

1221
01:52:11.100 --> 01:52:15.980
No political or economic program, no matter how absurd, can in the eyes of its supporters

1222
01:52:15.980 --> 01:52:18.460
be contradicted by experience.

1223
01:52:18.460 --> 01:52:23.600
Whoever is convinced a priori of the correctness of his doctrine can always point out that

1224
01:52:23.600 --> 01:52:29.100
some condition essential for success according to his theory has not been met.

1225
01:52:29.100 --> 01:52:33.980
Each of the German political parties seeks in the experience of the Second Reich confirmation

1226
01:52:33.980 --> 01:52:37.100
of the soundness of its program.

1227
01:52:37.100 --> 01:52:41.820
Studies and opponents of socialism draw opposite conclusions from the experience of Russian

1228
01:52:41.820 --> 01:52:48.560
Bolshevism. Disagreements concerning the probative power of concrete historical experience can

1229
01:52:48.560 --> 01:52:53.460
be resolved only by reverting to the doctrines of the universally valid theory, which are

1230
01:52:53.460 --> 01:52:59.900
independent of all experience. Every theoretical argument that is supposedly drawn from history

1231
01:52:59.900 --> 01:53:07.380
The Theory necessarily becomes a logical argument about pure theory apart from all history.

1232
01:53:07.380 --> 01:53:11.900
Twilight in Vienna The discussion of the epistemology of economics

1233
01:53:11.900 --> 01:53:18.220
was continued in Mises's private seminar in Vienna where his views found far more opposition

1234
01:53:18.220 --> 01:53:23.940
and more competently offered than in Dresden. Several members of the seminar, including

1235
01:53:23.940 --> 01:53:29.200
Dr. Friedrich Kaufmann and Albert Welder were also members of a discussion group of

1236
01:53:29.200 --> 01:53:34.440
the positivistic philosophers, the Vienna Circle. These men brought a completely different

1237
01:53:34.440 --> 01:53:40.100
perspective to the problems, and the clash of their views with the opinion of the seminar

1238
01:53:40.100 --> 01:53:45.300
director was a highlight in the history of those gatherings. Much of the fame that later

1239
01:53:45.300 --> 01:53:50.900
accrued to the seminar through the recollections of its prominent participants was due to the

1240
01:53:50.900 --> 01:53:56.220
and methodological debates in the last years of its existence. Mises characterized them

1241
01:53:56.220 --> 01:54:04.420
as vivid, even outright passionate. The brilliance of the discussions in the academic year 1933-1934

1242
01:54:04.420 --> 01:54:10.100
happily combined with the presence of a significant number of distinguished guests. Mises was

1243
01:54:10.100 --> 01:54:16.020
at this point more than just a well-known author. He was a recognized leader among German-speaking

1244
01:54:16.020 --> 01:54:22.940
Economists. After his election to the board of the Verein Für Sozialpolitik in early 1929,

1245
01:54:22.940 --> 01:54:28.560
the private seminar attracted an increasing number of guests, especially from foreign

1246
01:54:28.560 --> 01:54:35.900
countries. Alvin Hunzen came in 1929, Frank Knight for a stint in May 1930, Carver, Batson

1247
01:54:35.900 --> 01:54:43.760
and others in 1931, but the absolute high point was in 1933-1934 when four scholars

1248
01:54:43.760 --> 01:54:53.080
Viewers from Japan, Ichitani, Midutani, Otaka, Takemura, plus Hugh Gateskell, Ragnar Norske,

1249
01:54:53.080 --> 01:54:59.640
Karl Pribram, Francois Pierrot, Gerhard Tittner and Immanuel Wintonitz, to name just the more

1250
01:54:59.640 --> 01:55:05.800
prominent guests attended the sessions. During his sojourn in Vienna, Hugh Gateskell

1251
01:55:05.800 --> 01:55:11.240
set out to make a new translation of Boehm-Bawerk's Capital and Interest, which was still available

1252
01:55:11.240 --> 01:55:16.860
only in a translation from the first edition. Mises later recalled that other English economists

1253
01:55:16.860 --> 01:55:21.760
too were ready to shoulder the task, and even publication was not a problem in these days

1254
01:55:21.760 --> 01:55:26.920
when the public interest in Austrian economics was at its peak in Great Britain. They abstained

1255
01:55:26.920 --> 01:55:32.560
from this undertaking because they expected that Gateskill would execute his plan. But

1256
01:55:32.560 --> 01:55:37.780
the young man in Mises' Vienna seminar never finished the job. Gateskill opted instead

1257
01:55:37.780 --> 01:55:42.660
for an acceleration of his career in politics, becoming Minister of Fuel and Power in the

1258
01:55:42.660 --> 01:55:45.680
post-war British Labour government.

1259
01:55:45.680 --> 01:55:50.220
On March 9th, Mises gave the opening talk to a debate that would fill the next three

1260
01:55:50.220 --> 01:55:56.200
months and which more narrowly concerned the question of whether economics was an a-prioristic

1261
01:55:56.200 --> 01:55:59.020
science of human action.

1262
01:55:59.020 --> 01:56:04.340
Mises presented his case and also addressed the position of Kaufmann, who held that economic

1263
01:56:04.340 --> 01:56:09.320
Economic science was based on potentially fictional stipulations arrived at through

1264
01:56:09.320 --> 01:56:15.040
conventions. Mises' paper highlights the reason why his position was not very convincing

1265
01:56:15.040 --> 01:56:20.200
to the other participants. More than in his previous written essays, he stressed that

1266
01:56:20.200 --> 01:56:25.760
economic theory was an a priori discipline because it could not be verified or refuted

1267
01:56:25.760 --> 01:56:31.480
in laboratory experiments. This line of argument was rather unsatisfactory because it seemed

1268
01:56:31.480 --> 01:56:37.140
and to draw epistemological conclusions from a mere technical difficulty, at any rate it

1269
01:56:37.140 --> 01:56:44.320
was unpersuasive to the next four presenters, Felix Kaufmann, Robert Welder, Erich Schiff,

1270
01:56:44.320 --> 01:56:50.460
Oskar Morgenstern. In the wake of the economic crisis in 1931, the Christian socialists had

1271
01:56:50.460 --> 01:56:57.080
proposed a coalition government to the socialists under Bauer. When Bauer refused, voters shifted

1272
01:56:57.080 --> 01:57:02.620
increasingly to the Austrian National Socialists. Christian Socialists now believed that the

1273
01:57:02.620 --> 01:57:08.020
best way to hold back the tide of National Socialism was to use authoritarian methods

1274
01:57:08.020 --> 01:57:13.260
to suppress opposition to the government. These tactics were decisively intensified

1275
01:57:13.260 --> 01:57:20.180
after the National Socialists rose to power in Germany on January 30, 1933. Many observers

1276
01:57:20.180 --> 01:57:25.620
expected that Austria too would now fall into their hands, especially since they supported

1277
01:57:25.620 --> 01:57:31.000
their Austrian branch organization through media campaigns and terror bombings against

1278
01:57:31.000 --> 01:57:34.180
the Austrian government and its allies.

1279
01:57:34.180 --> 01:57:39.660
Desperate in its quest to stop the Nazi tide and keep Austria independent, the government

1280
01:57:39.660 --> 01:57:46.200
under Engelbert Dolfus concluded an alliance with fascist Italy, but also resorted to authoritarian

1281
01:57:46.200 --> 01:57:48.780
methods in its domestic policies.

1282
01:57:48.780 --> 01:57:55.380
The alliance with Italy was cemented in the Protocols of Rome signed on March 17, 1934.

1283
01:57:55.380 --> 01:58:02.380
Dolfus abolished the parliamentary republic, using a suitable opportunity on March 4, 1933,

1284
01:58:02.380 --> 01:58:07.140
when all three presidents of the parliament stepped down in protest against a questionable

1285
01:58:07.140 --> 01:58:12.900
procedure. The last of the three officially convened the parliament for March 15, but

1286
01:58:12.900 --> 01:58:17.740
now Dolfus stepped in, convinced the Christian Socialist parliamentary faction to support

1287
01:58:17.740 --> 01:58:22.820
his coup d'état, and sent in the police to prevent a consolidation of the pro-German

1288
01:58:22.820 --> 01:58:28.620
and Social Democrats and German Nationalists on March 15. In the course of the next few

1289
01:58:28.620 --> 01:58:34.140
months, Dolfuss also abolished the Communist Party and the Austrian branch of the German

1290
01:58:34.140 --> 01:58:40.580
Nazi Party. Henceforth, he ruled dictatorially, on the basis of an emergency law passed in

1291
01:58:40.580 --> 01:58:48.580
1917. On May 20, he established the Vaterländer Schafront, Patriotic Front, to rally all

1292
01:58:48.580 --> 01:59:14.500
Mises became a member on March 1st, 1934, at the Patriotic Front's Commer Branch Office.

1293
01:59:14.500 --> 01:59:20.220
Membership was probably mandatory for all employees of public and semi-public organisations.

1294
01:59:20.220 --> 01:59:27.900
Mises's membership card, number 282632, can now be found in the Grove City Archive.

1295
01:59:27.900 --> 01:59:33.800
He was also a member of the Werke Neues Leben, a subdivision of the Patriotic Front.

1296
01:59:33.800 --> 01:59:38.860
Ideologically, de Dolfour's regime relied on state-of-the-art Catholic political and

1297
01:59:38.860 --> 01:59:45.260
and Social Theory, as embodied in the writings of Watmach Spann and Pope Pius XI, both of

1298
01:59:45.260 --> 01:59:52.220
whom glorified social order based on the respect of the professional Ständer or estates.

1299
01:59:52.220 --> 01:59:58.100
Arguably his true significance lay elsewhere. Historian Ernst Hoare presents Dolfus as the

1300
01:59:58.100 --> 02:00:04.420
first and only statesman of the first Austrian Republic who consciously and explicitly reclaimed

1301
02:00:04.420 --> 02:00:11.380
an Austrian nation as distinct from the German nation and who framed his policies accordingly.

1302
02:00:11.380 --> 02:00:16.620
While Spahn's view had a deep impact on the German-speaking world, his influence could

1303
02:00:16.620 --> 02:00:24.420
not match Pius XI's encyclical Quadragissimo anno, 1931, which was a shot in the arm for

1304
02:00:24.420 --> 02:00:29.900
the corporatist movement. As one of Mises's correspondents from Switzerland reported, young

1305
02:00:29.900 --> 02:00:36.820
Young Catholic politicians were entirely imbued with its ideas, even more than those of Otmar

1306
02:00:36.820 --> 02:00:43.060
Spann. Arguably, these young politicians gave the papal encyclical a stronger statist reading

1307
02:00:43.060 --> 02:00:48.860
than was really warranted by its contents. Mises would later acknowledge that the man

1308
02:00:48.860 --> 02:00:54.980
who wrote the first draft of the encyclical, Jesuit parter Or von Nell Boining, was one

1309
02:00:54.980 --> 02:01:01.780
One of the few German economists who in the interwar period advocated economic freedom.

1310
02:01:01.780 --> 02:01:08.180
In February 1934 the socialists rose one last time against the Dolfus dictatorship when

1311
02:01:08.180 --> 02:01:13.540
the police tried to seize a social democratic arms depot. In the provincial town of Linz,

1312
02:01:13.540 --> 02:01:19.020
Dolfus had their revolt bloodily repressed and lost no time using the opportunity to

1313
02:01:19.020 --> 02:01:24.760
oust the social democrats from parliament. The leftover deputies then voted for a new

1314
02:01:24.760 --> 02:01:53.960
The New Constitution was proclaimed on May 1st, 1934. On July 25th, 1934, Engelbert

1315
02:01:53.960 --> 02:01:59.200
Dolfus was murdered in the wake of an attempted nationalist socialist coup d'etat. German

1316
02:01:59.200 --> 02:02:04.120
troops then marched on to the northern border of Austria and were called back only because

1317
02:02:04.120 --> 02:02:09.040
Mussolini had concentrated his army on the southern border, pledging to guarantee the

1318
02:02:09.040 --> 02:02:14.920
country's independence. From that day on, Austria's fate lay in the hands of the Italian

1319
02:02:14.920 --> 02:02:21.560
government. Italy changed its alliances in the autumn of 1936 when France and Great Britain

1320
02:02:21.560 --> 02:02:26.760
and sanctioned the Italian invasion and annexation of Abyssinia.

1321
02:02:26.760 --> 02:02:32.140
The new alliance between Hitler and Mussolini spelled the doom for Austrian independence.

1322
02:02:32.140 --> 02:02:37.360
In the course of these events, life in Vienna became increasingly unpleasant for Mises,

1323
02:02:37.360 --> 02:02:41.700
as in the First World War there was once again an official government censor.

1324
02:02:41.700 --> 02:02:47.560
For some years Fritz Machlup had written weekly editorials for the Neue Freie Presse.

1325
02:02:47.560 --> 02:02:53.560
He stopped in May 1934 when it became pointless to write on the few topics still free from

1326
02:02:53.560 --> 02:02:59.800
censorship. At that point, Machloub received a Rockefeller stipend to go to the United States

1327
02:02:59.800 --> 02:03:05.560
following in the footsteps of Virglin and Habler. Now Mises himself would leave to the

1328
02:03:05.560 --> 02:03:10.280
great regret of his circle of friends and colleagues, who bid him farewell at the high

1329
02:03:10.280 --> 02:03:14.080
point of their many years in his private seminar.

1330
02:03:14.080 --> 02:03:17.080
Frederic Skauffmann rhymed one last time.

1331
02:03:17.080 --> 02:03:23.080
Farewell to Professor Mises. What is going to become of the Mises Kreis in the year that's coming?

1332
02:03:23.080 --> 02:03:30.080
Geneva can't for all suffice. My fingers won't stop drumming. The question will not leave me be.

1333
02:03:30.080 --> 02:03:34.080
This seminar means everything to me.

1334
02:03:34.080 --> 02:03:42.080
Das Mises Kreislied. Liebe Kinder, weil heute Freitag ist, gibt es Mises Privatseminar.

1335
02:03:42.080 --> 02:03:59.680
Und dort geh ich hin, auch wenn ein Mai-Tag ist. Süß und duftend, wie keiner noch war. Denn der Blütenduft muss vergehen. Doch die Wahrheit, die bleibt bestehen. Und die Wahrheit findest du im Mises-Kreis. Jeden Abend, zehnte und scheffelweis.

1336
02:03:59.680 --> 02:04:05.520
The first thing you have to do is to start arguing, because the debates have already started there.

1337
02:04:05.520 --> 02:04:09.840
I'm going to Mises tonight, because I love being there so much.

1338
02:04:09.840 --> 02:04:15.360
You don't really talk about economy, society and sense anywhere in Vienna.

1339
02:04:15.360 --> 02:04:22.000
And if you really want to understand that, you have to go to Mises too,

1340
02:04:22.000 --> 02:04:27.760
because you know that nowhere else but in the Mises Circle.

1341
02:04:27.760 --> 02:04:54.240
Is auch ein Problem noch so konsistent, traut sich gar nicht zu Tiere herein, Denn es weiß sehr wohl, dass Gefahr es rennt, aufgelost, binnen kurzem zu sein, Sind auch noch so hart manche Nisse, knackt man doch sie durch kluge Schlisse, Bis die Kerne uns auf der Zunge zergehen, Wie sonst nur noch die sissen Palinäen, Der ein glittiger Geist offeriert, dass das Schweigen nicht gar zu schwer wird.

1342
02:04:54.240 --> 02:04:55.240
Refrain

1343
02:05:21.240 --> 02:05:22.240
Refrain

1344
02:05:24.240 --> 02:05:53.040
The song of the Mises Circle.

1345
02:05:53.040 --> 02:05:58.560
Come and gather all around, it's Friday. Time for Mises' Privatseminar. I'll be

1346
02:05:58.560 --> 02:06:04.700
there for sure, even if it's May, and the day is the sweetest thus far. Oh, the fragrance

1347
02:06:04.700 --> 02:06:10.640
fades, it is certain, but truth, you'll find, knows no curtain. In the Mises case,

1348
02:06:10.640 --> 02:06:16.120
it's always centre stage. Buckets full of truth remain the latest rage, and when you

1349
02:06:16.120 --> 02:06:22.320
begin to debate, you know that the hour will grow late. You'll find me with Mises tonight,

1350
02:06:22.320 --> 02:06:47.160
Do you know a problem full of nasty quirks? Come escort it to Mises's door. It will know

1351
02:06:47.160 --> 02:06:53.040
know full well this time that danger lurks, as it's whittled right down to its core.

1352
02:06:53.040 --> 02:06:58.120
Many shells, of course, know the same fate, nuts, so hard to crack, but at this rate they

1353
02:06:58.120 --> 02:07:04.600
will melt on tongues that no deductive prose, like the chocolate creams our friends so kindly

1354
02:07:04.600 --> 02:07:11.360
chose, making silence a happy refrain, but now let us all sing again.

1355
02:07:11.360 --> 02:07:16.420
Ten o'clock comes round and wisdom's filled our minds, but our bodies demand evermore

1356
02:07:16.420 --> 02:07:22.860
that Green Anchor calls and here our stomachs find, import tariffs to even the score, here's

1357
02:07:22.860 --> 02:07:29.420
where ear is our motto, have spaghetti and eat risotto, no one ever dreams how fast the

1358
02:07:29.420 --> 02:07:35.540
time can race, midnight rings, we take our favourite place in that nice little Künzler

1359
02:07:35.540 --> 02:07:43.460
Cafe, an ingenious end to the day, refrain, all the time it comes when we must question

1360
02:07:43.460 --> 02:07:50.580
Why is such questioning really that smart? Life goes on and on, it just keeps flowing by,

1361
02:07:50.580 --> 02:07:56.420
and we all play a very small part. We could swim along, take no notice of the tide's direction,

1362
02:07:56.420 --> 02:08:02.580
the world's focus. Should we not keep these thoughts at bay, push our cares aside and relish

1363
02:08:02.580 --> 02:08:09.580
Watch What's Today, and yet there's no trade-off at hand. Somehow we must take a stand.