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NOTE 16. The Geneva Years

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Part 5 Mises in Geneva

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Chapter 16 The Geneva Years

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The economic crisis heightened political antagonisms throughout Europe. Fewer and fewer citizens

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believed democracy could meet the current challenges. Only two alternatives seemed available,

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both based on violence – either the dictatorship of the proletariat, or more precisely the

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The dictatorship of labour union bosses and socialist party leaders or an authoritarian

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dictatorship bent on restoring the old order. In the wake of a financial scandal on February

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6th, 1934, two right-wing mass organisations demonstrated in the streets of Paris. The

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angry mobs tried to storm the Palais Bourbon, whereupon the police opened fire, killing

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The French government under Daladier stepped down and the violence spread to other countries

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including Austria. Mises later said that it was the growing power of the Nazi party in

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Austria that prompted him to leave the country. With this remark he did not refer to the government

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of Engelbert Dolphus, which had reintroduced authoritarian corporatism into Austrian politics

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Mix to resist the socialism of both the Marxist and the Nazi variety. Mises meant the Austrian

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branch of the National Socialist German Workers' Party, which enjoyed strong backing from Berlin

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and fought a daily battle to conquer the streets of Vienna. Dolphus's authoritarian policies

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were in his view only a quick fix to safeguard Austria's independence, unsuitable in the

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in the long run, especially if the general political mentality did not change.

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In March 1934, Mises was delighted to receive an offer from the Geneva-based Graduate Institute

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of International Studies to become a visiting professor of international economic relations.

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He accepted immediately. However, he did not flee Austria as he would when the Nazis seized

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control of the country four years later. He moved to Geneva in disgust, but he considered

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the move temporary. Mises had been an employee of the Kama long enough to qualify for early

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retirement, but he did not wish to burn his bridges and eventually arrived at an agreement

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according to which he would do some work for it during his school vacations and be paid

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half his former salary, as we learn from a letter dated October 31, 1934, from the Kama

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Amtsdirektor zu Mises. The file also concerns salary statements for the years 1936 and 1937.

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In both years, Mises had a gross annual income of 14,620 shillings. In early December 1934,

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he returned to Vienna for the first time and worked some weeks in his old position. Thereafter,

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he continued to work as a consultant and liaison officer for the Vienna Comma. He often came

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Institute des Autitudes International Geneva had been a quiet town before the First

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First World War, even though it already hosted the International Red Cross Committee. After

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the war, it became the home of the International Labour Office, 1919, and of the League of

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Nations, 1920. The latter was the result of an initiative of US President Woodrow Wilson.

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The idea was to create an international political organisation that would resolve conflicts

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between nation-states without resorting to war. Ironically, Wilson did not receive the

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The League began its operations in 1921 without the participation of the man who had created

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it. Geneva was chosen for its location because of the long-standing neutral status of Switzerland,

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a status that in those days had more than mere nominal significance, and because Geneva

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was culturally a French city.

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One of the most pressing problems for the new international bureaucracies was the lack

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of qualified employees. To cope with this problem, a Swiss director of the League named

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William E. Rappard, 1883 to 1958, proposed the creation of a special bilingual school

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for the advanced scientific study of problems of international politics and administration.

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The school was to offer courses in French and English and make full use of the resources

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of the League and the ILO in the form of specialized knowledge, documents and direct observation

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of how international affairs were conducted in the new context of multilateralism.

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Rappard was a diplomat and constitutional historian who combined in himself all the

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qualifications necessary to breathe life into this project.

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His mother was a scion of the Hoffmann-La Roche family from Basel. In July 1919, William

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Emmanuel Rappard became secretary-general of the New League of Red Cross Societies, a position

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he quit in 1921. Before 1919, he was already a member of the International Committee of

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the Red Cross. His magnum opus was the Bundesverfassung der Schweizer Eidgenossenschaft, 1848-1948,

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1848, Vorgeschichte, Ausarbeitung, Weiterentwicklung. He was not only a brilliant diplomat with

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connections to politicians, scholars and statesmen, private firms and foundations as well as government

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institutions in France, Britain, Switzerland and the United States, but was also a highly

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respected scholar with appointments at Harvard University and the University of Geneva, where

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he served as an influential member of the Academic Senate and even briefly headed the

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and the University itself. Last but not least, he had the good fortune to enjoy the personal

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friendship of Woodrow Wilson, his colleague at Harvard from 1911 to 1913. This certainly

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proved to be helpful in more than one respect. Elected as rector in 1926, Rappard launched

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the new School of International Political Relations as a joint venture of the University

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of Geneva, which provided academic affiliation and oversight, and the Rockefeller Foundation

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in New York, which pledged to finance the school in cooperation with the City of Geneva

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and the Swiss Federal Government.

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Rothbard had been in touch with the Rockefeller Foundation since 1924, or more precisely with

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the Laura Spellman Rockefeller Memorial Fund. In 1926, Rockefeller representative Dr. Abraham

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Flexner pledged five annual payments of US$20,000 to the Geneva Department of Education, giving

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Giving the green light to the creation of the school, this was the same Flexner who

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had written the famous Flexner Report, Medical Education in the United $tates and Canada,

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a report to the Carnegie Foundation for the Advancement of Teaching, 1910, which led to

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the closure of four out of six medical schools in the United States.

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Repar hired the Frenchman Paul Montoul as its first director. The school opened its

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The Rockefeller Foundation's pledge of financial support was extended and increased in subsequent

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years, and the Foundation would continue to be the main financial sponsor for nearly twenty

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years. By 1938, the School was receiving annual payments of US$80,000, and by March 1948,

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had received a total of 1.4 million. Rappard and Montou had first met at the Versailles

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Peace Conference in 1919. Rappard had been granted Special Diplomatic Observer status

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due to his personal acquaintance with Woodrow Wilson, and Montou was the principal interpreter

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in the Allied camp and wrote the official records of the Council of Four. During the

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war he had served as a personal interpreter between his college friend Albert Thomas and

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Lloyd George, both of whom were commissioned to coordinate the reorganization of the British

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and French munitions industry. At the end of the war, George was Prime Minister and Thomas

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could soon become the first President of the International Labour Organization in Geneva.

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A die was cast, Montou's new career was made. Rappard had known Montou already through his

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writings on economic history, which had won Montou an excellent international reputation.

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As a young man, he had published a monograph on the Industrial Revolution in the 18th century,

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which brought him quick fame and catapulted him into the higher strata of French academics

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and politics. A few months after the Versailles Conference, he became Rappard's colleague

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in the Directorate of the League of Nations. Giving his academic and political background,

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he was an obvious and excellent choice for the new school.

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Rappard later joined Montoux in the management of the Institute and together they led it

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for about 20 years.

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The harmonious cooperation between the two men proved to be the foundation of the Institute's

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success and its cordial atmosphere, which made it attractive as a destination for scholars

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from around the world.

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The position that Mises would hold for six years was a one-year renewed visiting position

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for economists of international reputation.

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Its predecessors had been Samuel Patterson, Philadelphia, Frank Graham, Princeton, and

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Jacob Weiner, Chicago. Other recent visiting economists of international pedigree were

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Gustav Kassel, Stockholm, and Theodore Gregory, London. It might well have been Gregory who

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brought Mises to Geneva, they had known each other for many years, and in 1933-1934 cooperated

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closely in the International Chamber of Commerce. Michael Halperin later stated that Ropin and

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the economists had particular affinities with Charles Rist, Jacques Ruff, Jacob Weiner,

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and Lionel Robbins.

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All the initiative could have come from someone else, Professor Alfred Zimmern, for example,

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who ran the Geneva School of International Studies and had asked Mises in December 1929

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Who Recommends Suitable Students for Scholarships

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Simon was a professor at the University of Geneva and Head of International Affairs at

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the Institute for Intellectual Cooperation. Before the establishment of the Institute,

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he had run summer vacation schools on international affairs, the Simon School, for some years.

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He then moved to Oxford University. In any case, it's fairly certain that Mises's

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long-standing and close association with the Rockefeller Foundation proved to be beneficial

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once again. He himself had been very active in helping colleagues from Germany find new

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jobs abroad after Hitler rose to power in January 1933, and at least some of these new

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positions were likely financed by the Rockefeller Foundation. It was natural, therefore, that

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he himself received support once the political situation in Austria became untenable for

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him. This was certainly the case after the violence of February 1934 and its aftermath.

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It would be an exaggeration to say that Mises was on the payroll of the Rockefeller Foundation.

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This was effectively precluded both by Rappard's insistence that funds be received with no

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strings attached, and by the co-financing of the Institute from Swiss sources. The fact

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remains that during the Geneva years Mises' salary was paid to a large extent out of Rockefeller

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money, and so things would remain for the next decade.

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With strong financial connection, dependence was downplayed by all sides. In 1942, Tracy

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Kidridge wrote in a letter to the US State Department that the Foundation has been familiar

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with the work of Professor von Mises for more than ten years and has contributed to it research

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projects under his direction in Vienna and in Geneva, and to his present stipend at the

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National Bureau of Economic Research. In fact, the Rockefeller Foundation paid to the NBER

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academic life Rappard quipped that the institute owed the

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excellence of its teaching staff to Hitler and Mussolini. A case in point was Guillermo

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Ferrero, who had been under house arrest in Italy before coming to Geneva as a professor

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of history, and it was also true for men like Mises, Kelsen and Röpke, who found in the

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institute a political safe haven. In Kelsen's case, language also played a role to the extent

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that he was fluent in French but had difficulties with the English language. When Kelsen was

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ousted from his chair at the University of Cologne in 1933, he received offers from the

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Institute, from LSE and from the New School for Social Research. The language issue prompted

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him to opt for Geneva, where professors could teach in French. Mises' command of English

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was also much weaker than his French. Once they located on the shores of Lake Geneva,

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These refugee scholars discovered that their new school also offered a congenial social

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and intellectual atmosphere. Mises arrived in the fall of 1934 and took an apartment

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on 16 Chemins Grigues, literally the war path, but after the first extension of his visit

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he moved to nicer accommodations on Trois Chemins d'Humain. At that point the permanent

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faculty featured in addition to Rappan and Manteau, Eugène Borel, Mark Eastman, economics,

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Hans Wehberg, International Law, Maurice Bourquin, Diplomatic History, Bittman Potter, Political

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Science, Paul Guggenheim, International Public Law, Guillermo Ferrero, Modern History, Karl

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Burkhardt, Modern History and Hans Kelsen, Law. The personal relationships among these

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men appear to have been extraordinarily cordial by the standards of academic life at any rate.

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What is amazing is that there was something like a social life there at all. These famous

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Mises scholars did what other professional groups did as well – exchange visits, entertain

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one another at home, and become acquainted with the family members of their colleagues.

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And they liked it. Mises was apparently most at ease with Rappard, Montoul, Bouquin and

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Ferreiro. He also associated with scholars from the League of Nations Economic Intelligence

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Research Unit, Loveday, Habler, Tinbergen, Mead, Koopmans, Pollack, Fleming, Nurkse,

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Kontliff and Hilgert, the International Labour Office, Carl Primoram and the Geneva Research

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Centre, John B. Witten. The most immediate common bond among these groups was that they

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all depended on funding from the Rockefeller Foundation which in those very years launched

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a massive international programme of business cycle research with a special focus on economic

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Stabilisation. The foundation not only funded the economists working at the League of Nations

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and at Rappard's Graduate School, but also business cycle institutes in Louvain, New

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York, Paris, Sofia, Vienna and Warsaw. Its offices were careful not to impose any research

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agenda, but their wishes could not be ignored. Thus, a group of financially endowed laymen

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had a decisive impact on the path that business cycle research would follow over the course

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of the coming decades. The League's authority and Rockefeller's money gave leadership to

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people such as Alexander Loveday and Alvin Hansen. Business cycle research would henceforth

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be conducted with an increasingly quantitative orientation.

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By the time Mises moved to Geneva, he was already an anachronism, a vestige of the early

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Rockefeller involvement in the social sciences. These developments were noticeable but not

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yet dominant in 1934. Mises and others could conduct their research as they saw fit, and

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in Geneva they could do it under the most pleasant circumstances. Much of the Institute's

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conviviality was related to size. Throughout the 1930s the school remained small and virtually

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free from the plague of bureaucracy. Its administration counted a mere six heads and one part-time

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accountant. Student numbers almost never exceeded 100, and just under half of them were in the

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Malthout was not present all the time. Already in 1928, he had moved his home to Paris because

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the city on the Seine offered better educational possibilities for his children and also because

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he continued to work on the official records of the Versailles Conference. This had prompted

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Rapa to join him as a co-director of the institute in the same year. These residential scholars

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were complemented by one or two visiting professors who stayed for a semester or a year, and there

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were also guest lecturers who gave high-profile short courses, which typically ran for a week.

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The combination of these circumstances made for something approaching academic paradise.

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Rapa explained the recipe.

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I know of no better means of being useful to advanced students than placing at their

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disposal as completely and as informally as possible the most eminent specialists available,

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if these specialists are well chosen, not only for their intelligence and erudition,

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but also for their character and if they are made to realize that their sole professional

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duty is to contribute to the progress of science through their own work and to advise and assist

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The advanced students I believe our job is practically done. Each professor was free

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to choose the subject of his courses and seminars. The only constraint was to give from time

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to time some introductory class for non-specialists. In practice this meant that Mises, on top

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of the three hours he was required to teach anyway, occasionally had to give an introductory

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course on economics for non-economists, which he did in rotation with the other economists.

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The school occupied the basement and first floor of the splendid Blondamour mansion, located

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on the border of the old city centre at 5 Promenade du Pain.

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Mises started lecturing on October 25, 1934. He gave a two-hour seminar on international

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finance and a one-hour course on the international aspects of monetary policy, which he held

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Thursdays from 5.15 to 6.00 pm. In one of the first sessions on November 15, 1934, he

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He gave his inaugural lecture on the gold standard and the problems of controlled currency.

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Apart from the three hours of required teaching, Mises was free to pursue his research as he

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saw fit, and all of this at a very comfortable annual salary of 25,000 Swiss francs or 233.375

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ounces of gold, which corresponded to some 8,177 US dollars in the 1930s and 15 times

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as much in our day.

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For years he had told his students that high salaries, combined with few obligations, were

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the prime factor for the low productivity of university professors, and a few years

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after he had gone to Geneva, Hayek told him about a discovery he had just made. Adam Smith

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too had held this opinion of the consequences of high salaries for academics.

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As Adam Smith quoted in Hayek's letter to Mises dated October 15, 1937, I have thought

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What a great deal upon this subject and I have inquired very carefully into the constitution

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and history of several of the principal universities of Europe. I have satisfied myself that the

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present state of degradation and contempt into which the greater part of these societies

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had fallen in almost every part of Europe arises principally first from the large salaries

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which in some universities are given to professors and which render them all together independent

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of Their Diligence. Now was the opportunity for Mises to prove himself wrong by finally

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writing his general treatise on economic science, a project he had postponed twenty years earlier

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in anticipation of the coming war. His appointment and the lectures on money coincided with the

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publication of the English edition of his monetary treatise. After many years, Batson had finally

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completed the translation with Robinson's help and published the work under the title The Theory

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It was the first foreign edition of a Mises book, perfect timing to support the new professorship in International Economic Relations.

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Mises had pursued a hands-off policy with his translator, a policy he maintained for the rest of his life.

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But while laissez-faire is an unshakable maxim as far as the limitation of governments is concerned, it does not always apply in private affairs.

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I am outright horrified about the since distorting errors that I have found in French and German translations of my English publications, and in English and French translations of my German books.

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In the present case, for example, the title of the English edition, Theory of Money and

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Credit, certainly made for a smoother reading than the more literal Theory of Money and

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Fiduciary Media, but it blunted the title's edge. The point of the original title was

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precisely to highlight the particular character of fiduciary media, which the book showed

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distorted the operation of a monetary economy. For future scholarship, Mises had to develop

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his English. In a letter to Mahlub, he observed that one of the practical consequences of

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Hitlerism was to reduce the importance of the German language.

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The future belonged to English, and to practice, Mises decided to give his institute lectures

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in English instead of French. In light of subsequent events, his decision turned out

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to be extremely fortunate. It was the general policy of the institute that professors and

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Both students were required to understand both French and English, but it was customary

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to speak the language in which one felt most at ease. It was therefore entirely normal

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that a question be asked in English and the answer given in French. Similarly, in written

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examinations, students could use either language, regardless of which language had been used

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for the question. Even greater liberties existed for written homework and doctoral dissertations,

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which could also be written in German or Italian. This information is taken from the school's

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catalogue pertaining to the 1939-1940 academic year. But Mises did not master the English

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language. Tape recordings made in the late 1950s and early 1960s reveal a very strong

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accent, even after some thirty years of lecturing in English. One might therefore assume that

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his early lectures in Geneva were quite a challenge to the patience of his audiences.

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Mises did his best to compensate for his linguistic deficiencies by writing his lectures out in

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advance, but his delivery remained poor. He was a solid lecturer, but never a brilliant

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one, and could not compete in the classroom with charismatic speakers such as Bourcoin

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and Repard, who impressed and overwhelmed their audience through personality and oratorical

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skills.

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Harvard graduate, Parker T. Hart, who attended the Institute in 1935 to 1936, wrote a revealing

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student evaluation.

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At the end of his first semester, Hart did not even mention Mises, but at the end of

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the second semester he praised him in the following words.

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I have gradually come to the conclusion that Professor Mises ranks as one of the best here,

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as an analyser of current economic problems.

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The title of his course is likely to have little relation to the topics treated, but

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his lectures are always stimulating and lucid, and, as a unique feature, always carefully

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written out in advance. His English leaves a good bit to be desired. From a grammatical

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point of view, and a first impression is likely to be unfavourable, however, his vocabulary

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is rich and his meaning always clear. In short, he wears well, indeed, and for those interested

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in the economic riddle left by the breakup of the old Austro-Hungarian Empire, he has

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an especially valuable contribution to make. Best of all, he is able to enliven his discussions

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and lectures by concrete experience and first-hand observations drawn from wide travel and research

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on the spot.

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This is from a typewritten copy of an extract of Parkety Hart's report to the Institute

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of International Education of New York. Rappard had obtained a copy of the report from the

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The President of the Federal Technical University of Zurich, Mr. Rohan, who organized students'

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exchanges between the United States and Switzerland. The report suggests one of the reasons why

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he did not produce any outstanding students during his years in Geneva. An even more important

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reason was the typical mindset of the students at the Institute who were eager to obtain

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employment in an international organization, that is, in a government bureau. It is safe

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It is safe to assume that such students were not especially receptive to Mises' message.

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His two best-known students from these years became experts in the economics of war, Stefan

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Pozzoni and Edmund Silberner. Habeler later singled out J. Marcus Fleming and Alexandre

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Kafka. Still, overall relations between Mises and his students were quite good, reflecting

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the general atmosphere in the Plantamour mansion. A student who was at the Institute during

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Mr. Mises' first two years later recalled a scene from one of the soirées that brought

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students and faculty together playing charades.

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Mr. Montou found himself paired with Roland Sharp in the role of the classical lovers

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Leander and Hero. Sharp, despite his little black moustache, managed to achieve a certain

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feminine charm by tying a bright red ribbon around his hair, mounted a chair behind a

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high screen, and held aloft a candle to light the way for Leander.

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Mr. Montreux bravely cast aside his coat, crossed a helispont with a vigorous swimming motion on the floor, and won both first prize of the evening and an abiding place in our hearts as one who was not only a distinguished scholar but also a very good sport.

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Mises also had great fun pursuing a new hobby, driving. While in Vienna all of his activities took place within the confines of the city centre, his new life in Geneva required greater mobility.

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To make excursions into the mountains and into France, he needed an automobile. At some

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point in 1935 or 1936 he must have started taking lessons. In late 1936 he had obtained

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his driver's license and a car. During his training he had become so enthusiastic that

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he bought his first vehicle, a black eight-cylinder Ford called Grand Tourisme Luxe, some six

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6 weeks before he got his license. The price of the car was 5,900 Swiss francs, about

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a quarter of his annual salary. The initial rides he took only with a chauffeur, then step

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by step he set out for excursions on his own, his first guest for a day-tour was Heilbrunn,

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and in the spring of 1937 he set out with Margit for a two-week vacation to the Côte

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d'Azur. He was and would always remain a poor driver, but he greatly enjoyed it nevertheless,

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And he truly wanted to share his new passion with the woman he loved. He made arrangements

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for Margit to take driving lessons in Vienna. Together they spent many happy hours on the

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road.

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Alienation from Former Associates The 1930s witnessed the first phase in a process

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that distanced Mises from some of his closest associates. The most dramatic cases were those

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of Fritz Machlup and Lionel Robbins, both of whom would in the course of the years change

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Mises changed their views on a number of important issues, particularly on money and the gold

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standard. In Makhloub's case, Mises eventually broke off all contact for a few years. The

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issue for him was integrity. It was one thing to disagree on the importance of the gold

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standard, but he believed Makhloub's change of heart to be unprincipled. At a 1965 conference

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Makhloub had attributed the attempt to restore a gold standard to special interest politics.

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Mises was in the audience, and thereafter refused to talk to Machlup. According to his wife, he said,

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He was in my seminar in Vienna. He understands everything. He knows more than most of them,

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and he knows exactly what he is doing. In the 1930s, the seeds of this alienation were newly

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sown, and only hindsight allows us to see where the process began. In 1934, Machlup left Vienna

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for the United States on a Rockefeller stipend. From February to June 1935 he lectured at Harvard

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and then moved on to a full professorship at a new Rockefeller creation, the University of Buffalo.

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Rather than a stalwart of the Austrian School, however,

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Machloub became part of the new economics movement.

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Mises must have sensed the shift in his former student. In January 1936 he appealed to him,

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I hope that you will not become American over there, but to the contrary, that you convert

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the Americans to liberalism and Austrianism. They need it indeed.

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Seventeen months later he asked rhetorically what the Austrian economists could learn from

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the new theory of monopolistic competition. Machlup wrote on Mises's letter,

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That's not the issue, but if we raised the question anyway, the answer would be quite a lot.

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The break with Lionel Robbins was less severe. At the end of Mises' first academic year

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in Geneva, Robbins had come to the Institute to give one of the prestigious week-long short

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courses that attracted not only the entire faculty of the Institute, but also representatives

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of the local authorities, the diplomatic missions and the international organisation. Robbins

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delivered a series of lectures in the summer of 1935 on problems of international economic

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Organization. The product of these lectures was a book with the title International Economic

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Planning. He had brought his family and took the mountain climbing with Mises. The Robbins

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children would later recall how, after a day of climbing, Mises had filled their rucksacks

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with Swiss chocolate. But correspondence between the two men stopped after December 1935 and

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was resumed, somewhat reluctantly on Robbins's part, only in 1943, when Mises made a last

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First Attempt to Win Robbins Back to the Side of Liberty

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Mises commented on the second edition of Lionel Robbins, The Nature and Significance of Economic

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Science, in particular on Robbins' use of the word experience. Speaking about the significance

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and role of tautologies, Mises said that he had learned from Meyerson. Robbins later distanced

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himself very clearly from the ideas he had cherished in the early 1930s. He said in his

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In his autobiography that he wished, he had never written his book The Great Depression,

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1934, Economic Planning and International Order, 1937, the book in which he published

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his Geneva lectures, was to be his last Austrian work.

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In The Economic Bases of Class Conflict, 1939, Robbins started having second thoughts about

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idle resources, the presence of which he felt undermined the applicability of the Austrian

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and Business Cycle Theory. From then on, the Austrian influence on Robbins' thought receded

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more and more into the background. Although he remained on friendly personal terms with

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Mises, they were no longer intellectual comrades in arms.

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In contrast to Mahloub and Robbins, Mises' friendship with Hayek grew stronger during

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these years, especially during the war. It was Hayek who managed Mises' bank accounts

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in London. He paid Mises a subscription for Economica and the Review of Economic Studies

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and bought books for him, a sign of the great trust Mises put in his former Vienna associate.

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Apart from his bankers and Gustav Fischer, a quasi-banker for Mises in the early years

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of German credit controls, the hypercautious Mises never let anybody peek into his financial

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records. The deposit account would be quite substantial after the publication of The Theory

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and Socialism. In February 1936, Mises had more than £237 in the account. By May 1939, it was almost £780.

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The crucial factors in their friendship were Hayek's integrity and appreciation for free markets,

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not any one point-by-point correspondence in outlook on politics or economics,

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Economics, although Hayek felt it necessary to assure his former mentor that he need have

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no fear about my becoming converted to Keynesianism. Their friendship grew despite rather significant

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disagreements. While they did not affect the personal and professional relationships between

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the two men, these disagreements would come to play a role in the rebirth of the Austrian

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School after 1974. What were these disagreements? Mises' impact on Hayek's economic thought

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made itself felt in Hayek's theories of monetary equilibrium and of neutral money, both theories

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that Mises would explicitly reject. Other points of contention appeared when Hayek turned

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to Capital Theory. In the spring of 1934, Fritz Machlup queried the inner circle of

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Austrian economists – Mises, Hayek, Striegel, Haberler, Machlup – about Capital Theory

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in general and the concept of the period of production in particular. Mises had answered

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Mahloub's Five Questions in May, stating that three of them seemed to be based on an

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untenable interpretation of the period of production concept. Mahloub replied with some

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astonishment,

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I should be very grateful for you to write to me whether you totally maintain your fundamental

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objections against my and Hayek's conceptions. Hayek's new book on capital would from A

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to Z be subject to your objections, if strictly interpreted.

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When the later Oskar Morgenstern demolished the idea that the average period production

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was an adequate measure of capital intensity, historian Harald Hagermann suggests that this

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critique was instrumental for Hayek to abandon the period of production concept in later

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works.

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Another difference emerged when Hayek turned his attention to the theory of socialism.

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In 1935 Hayek edited a volume of essays making the case for the impossibility of socialist

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Economic Calculation. The volume contained an introductory essay by Hayek, the two classic

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pieces by Pierson and Mises, and two concluding essays discussing the current state of the

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debate in the continental literature, Halm, and in English language publications Hayek.

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An appendix of the volume featured Barone's 1908 article, arguing that a socialist directorate

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could use a system of general equilibrium equations as a planning device.

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In his introduction Hayek pointed out that Mises had been the first writer to emphasise

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that the pricing process must cover intermediate products and factors of production lest economic

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calculation be impossible. Yet by pricing process Hayek seemed to mean the mere expression

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of prices in terms of money. In other words, his argument seems to be based on the Viserian

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assumption that money prices were just one convenient way of expressing values and performing

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and Value Calculations. In his discussions of the proposal to use mathematical equation

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systems as economic planning tools, Hayek then admits that this proposal is not an impossibility

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in the sense that it is logically contradictory. Rather, the true problem of central planning

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was, according to Hayek, a result of the type and quantity of information required.

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This distinctive perspective on the problem of economic calculation under socialism was

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was a consequence of Hayek's acceptance of mathematical general equilibrium analysis

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as the most advanced expression of modern economic science. This was correctly noticed

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on all sides. For example, Professors Hayek and Robbins of the London School of Economics,

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who next to Mises are the leading opponents of socialism among economists, have apparently

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been influenced by Baron. They have taken up a second line of attack, the line that

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is usually taken after a principle has been admitted. They admit that rational allocation

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Central planners would first need precise information about the location and the physical

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characteristics of every single economic good. Second, they would need to centralise all

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available technical knowledge, as well as knowledge about how to gain new technical

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knowledge, techniques of thought. And third, they would need data relative to importance

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of the Different Kinds and Quantities of Consumers' Goods.

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Given these requirements, socialist economic calculation was clearly impracticable, even

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though it was not, as Mises had contended, impossible. Hayek emphasised all the difficulties

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which have been raised are only due to the imperfections of the human mind, but while

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this makes it illegitimate to say that these proposals are impossible in any absolute sense,

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Hayek's conclusion was that socialist calculation posed insuperable practical difficulties.

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For him the formidable cognitive problem of economic calculation without money prices

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was the beginning and end of his economic argument against central planning. Mises too

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00:38:33.580 --> 00:38:38.060
who recognized the existence and importance of knowledge problems. He pointed out these

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problems in his original 1920 article and throughout his later works. But he had also

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perceived a deeper problem of an altogether different nature. For Mises, the pricing process

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00:38:49.300 --> 00:38:55.620
was not just the solution to an intellectual puzzle. He did not merely express the knowable

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reality of value in terms of some other knowable reality of money prices. Rather, the pricing

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In 1938, Mises published an article on using the equations of mathematical economics as

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as the tools of a socialist planning board.

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The original version of this article was written in German but never published. A French translation

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by Gaston Le Duc appeared in 1938 in Charles Rist's Revue d'Economie Politique in 1938.

411
00:39:46.940 --> 00:39:51.160
The quoted English translation by Vera Smith was originally prepared for Economica but

412
00:39:51.160 --> 00:39:55.840
not published there because the editorial board of the journal rejected all submissions

413
00:39:55.840 --> 00:40:02.280
that had already appeared elsewhere. Here he argued that Hayek had underrated the significance

414
00:40:02.280 --> 00:40:08.800
of the assumption that the Socialist Planning Board knows future consumer preferences. Hayek

415
00:40:08.800 --> 00:40:13.880
had pointed out that the quest for such knowledge encounters great practical problems. Mises

416
00:40:13.880 --> 00:40:20.400
concurred, but there was also a logical riddle, one that subsists even with foreknowledge

417
00:40:20.400 --> 00:40:26.180
of the Future. One cannot simply plug such known future consumer preferences into a system

418
00:40:26.180 --> 00:40:31.400
of equations and obtain a solution of the resource allocation problem. The equations

419
00:40:31.400 --> 00:40:37.520
of Valras, Pareto and Barron merely describe how the economy would look in a state of general

420
00:40:37.520 --> 00:40:45.700
equilibrium. They describe an economy in equilibrium, not an economy tending toward equilibrium.

421
00:40:45.700 --> 00:40:53.020
A real-world economy is always in a state of flux. It is continually in disequilibrium.

422
00:40:53.020 --> 00:40:57.920
The fundamental economic problem is to choose the best actions to approach the equilibrium

423
00:40:57.920 --> 00:41:03.900
state and to do this in the most efficient way. For a person confronted with real-world

424
00:41:03.900 --> 00:41:09.740
decisions in the present, whether an entrepreneur or a socialist dictator, it is therefore no

425
00:41:09.740 --> 00:41:15.260
help whatsoever to know the hypothetical future consumer preferences according to some theoretical

426
00:41:15.260 --> 00:41:31.880
Mises argued that the decisive advantage the market economy has over socialism is in the

427
00:41:31.880 --> 00:41:37.200
use of present experience. For a socialist dictator, the knowledge of present conditions

428
00:41:37.200 --> 00:41:42.980
can be no more than a starting point for speculations about the ultimate equilibrium state of the

429
00:41:42.980 --> 00:41:49.500
economy, but these speculations are overthrown every day by unforeseen changes. In contrast,

430
00:41:49.500 --> 00:41:53.660
the entrepreneurs of a market economy can apply present-day experiences in present-day

431
00:41:53.660 --> 00:41:59.220
decision-making. They can use their knowledge of current conditions, supply-side, and current

432
00:41:59.220 --> 00:42:04.380
entrepreneurial opinions about conditions in the future, demand-side, to bring about

433
00:42:04.380 --> 00:42:08.620
piecemeal improvements of the existing structure of the economy.

434
00:42:08.620 --> 00:42:13.260
Apparently Mises had presented several versions of the paper to Hayek without gaining his

435
00:42:13.260 --> 00:42:14.260
approval.

436
00:42:14.260 --> 00:42:18.300
Even the version that was eventually published in the Revue d'Economie Politique did not

437
00:42:18.300 --> 00:42:19.740
convince Hayek.

438
00:42:19.740 --> 00:42:22.340
He wrote to Mises in a private correspondence.

439
00:42:22.340 --> 00:42:27.340
There would be much to say about the paper, but the problem it raises is so broad that

440
00:42:27.340 --> 00:42:30.580
it is very difficult to deal with it adequately in a letter.

441
00:42:30.580 --> 00:42:35.100
As I mentioned in Paris, I am not yet entirely satisfied even with the new version of the

442
00:42:35.100 --> 00:42:36.780
last section.

443
00:42:36.780 --> 00:42:40.900
Suppose all knowledge of the individual entrepreneurs about the future had come together in the

444
00:42:40.900 --> 00:42:46.340
head of the economic dictator, and suppose it were conceivable that he solved the countless

445
00:42:46.340 --> 00:42:52.980
equations into which these data were to fit, would then really only one other problem remain?

446
00:42:52.980 --> 00:42:59.420
A difference between the position of the entrepreneur and of the dictator? I do not quite see it.

447
00:42:59.420 --> 00:43:04.560
At that point Hayek had already published his now famous paper on economics and knowledge,

448
00:43:04.560 --> 00:43:10.280
in which he had argued that general equilibrium economics, a la Valrace, Pareto, and Visa

449
00:43:10.280 --> 00:43:15.760
was a system of tautological propositions, a pure logic of choice, as it were, and as

450
00:43:15.760 --> 00:43:22.360
such unassailable. It did not give an adequate explanation of how real economies work because

451
00:43:22.360 --> 00:43:28.080
it assumed from the outset that a fundamental problem has already been solved, namely the

452
00:43:28.080 --> 00:43:33.680
problem of knowledge acquisition. Hayek argued that the market could solve this problem because

453
00:43:33.680 --> 00:43:47.120
Thus Hayek had found his way out of the general equilibrium box. The views he adopted on the

454
00:43:47.120 --> 00:43:52.260
theoretical and practical importance of information and the acquisition of knowledge were part

455
00:43:52.260 --> 00:43:57.640
and parcel of his attempt to reconcile his voracian outlook with the fact of life. The

456
00:43:57.640 --> 00:44:03.200
The problem was, however, that he projected these problems onto all other theorists, and

457
00:44:03.200 --> 00:44:08.960
in particular onto Mises. His 1937 essay on economics and knowledge was directed against

458
00:44:08.960 --> 00:44:15.080
what he believed to be the a priorism of Mises. The author quotes from a 1981 letter that

459
00:44:15.080 --> 00:44:17.280
Hayek wrote to Terence Hutchinson,

460
00:44:17.280 --> 00:44:23.160
But the main intention of my 1936 lecture was to explain gently to Mises why I could

461
00:44:23.160 --> 00:44:51.460
Hayek's speculations about the importance of knowledge and information did not change

462
00:44:51.460 --> 00:44:56.180
Despite Mises' views about the a priori nature of economic science, Hayek attributed this

463
00:44:56.180 --> 00:45:02.380
fact to the intellectual inflexibility of his 66-year-old mentor. Yet it was the young

464
00:45:02.380 --> 00:45:08.100
Hayek who lacked openness to new ideas. When Mises published his first pioneering essays

465
00:45:08.100 --> 00:45:13.740
on the nature of value and the relationship between economic theory and the real world,

466
00:45:13.740 --> 00:45:18.780
Hayek and his fellow students had already made up their minds on these questions. Despite

467
00:45:18.780 --> 00:45:25.180
Beyond all this, Hayek did continue to be Mises' favourite student and closest ally.

468
00:45:25.180 --> 00:45:32.580
He visited Geneva in the spring of 1937 to conduct a brilliant and successful Cours Temporaire.

469
00:45:32.580 --> 00:45:37.340
The lectures were published a year later in one of his best books ever, Monetary Nationalism

470
00:45:37.340 --> 00:45:43.000
and International Stability. Unfortunately, Mises could not attend the entire course.

471
00:45:43.000 --> 00:45:48.380
Soon after Hayek's arrival, he received terribly bad news about his mother and immediate

472
00:45:48.380 --> 00:46:17.180
The Disagreement on the Question of Socialist Calculation was but a symptom of a larger

473
00:46:17.180 --> 00:46:21.480
and the dissent between Mises and his erstwhile comrades-in-arms.

474
00:46:21.480 --> 00:46:25.900
Not only did Mises unabashedly defend the central tenets of the Manchester School, which

475
00:46:25.900 --> 00:46:31.400
had by then fallen into general disrepute, he went beyond them. He showed that any third-way

476
00:46:31.400 --> 00:46:35.600
system was inherently unstable because it could not solve the problems it purported

477
00:46:35.600 --> 00:46:41.400
to solve, and thus motivated ever more government intervention, until the interventionist system

478
00:46:41.400 --> 00:46:47.920
Capitalism had been transformed into outright socialism, but socialism was not viable. There

479
00:46:47.920 --> 00:46:53.960
remained only one meaningful option, 100% capitalism. Again and again Mises insisted

480
00:46:53.960 --> 00:46:59.080
that there was no choice in this matter. It was ludicrous to speculate about some particular

481
00:46:59.080 --> 00:47:05.020
third-way policy that would fit the sensibilities of a given group. Society was viable only

482
00:47:05.020 --> 00:47:10.600
to the extent that private property rights were respected, and that was that. This message

483
00:47:10.600 --> 00:47:15.840
which resonated well with the old liberals who marvelled at such splendid restatement

484
00:47:15.840 --> 00:47:21.040
of the ideals of their youth. But Mises's views were received less wholeheartedly by

485
00:47:21.040 --> 00:47:27.600
the rising generation which had been raised in an intellectual environment soaked in statism.

486
00:47:27.600 --> 00:47:32.600
Their school teachers and university professors had come to endorse all the main ideas behind

487
00:47:32.600 --> 00:47:38.080
the case for socialism, the doctrine of class conflict and class struggle, the notion of

488
00:47:38.080 --> 00:47:42.560
the immiseration of the working classes under capitalism and the belief that an unfettered

489
00:47:42.560 --> 00:47:46.240
capitalist system tended toward monopoly.

490
00:47:46.240 --> 00:47:51.280
On the positive side, Mises had definitely dethroned full-blown socialism as a policy

491
00:47:51.280 --> 00:47:58.520
ideal. The energies of Hayek, Machloub, Habeler, Robbins, Pérou and Rübke, men who would

492
00:47:58.520 --> 00:48:03.280
play a significant role in shaping post-Second World War policies in the Western world,

493
00:48:03.280 --> 00:48:08.600
no longer served the idol of omnipotent government. This proved to be of decisive importance for

494
00:48:08.600 --> 00:48:14.560
the course of history, but Mises's influence proved too weak to inspire in them the courage

495
00:48:14.560 --> 00:48:20.760
necessary for a wholehearted return to the kind of vibrant liberalism that had characterized

496
00:48:20.760 --> 00:48:27.440
the Manchester School and the worldwide laissez-faire movement of the 19th century. Mises had not

497
00:48:27.440 --> 00:48:32.440
yet published the systematic treatise on economic science that would have clarified the scientific

498
00:48:32.440 --> 00:48:35.160
Case for Unfettered Capitalism

499
00:48:35.160 --> 00:48:39.880
He had presented some important elements of his general economic theory of social systems

500
00:48:39.880 --> 00:48:46.880
but before 1940 it was not yet clear how these elements interrelated and on which general

501
00:48:46.880 --> 00:48:49.760
analytical framework they relied.

502
00:48:49.760 --> 00:48:55.440
In 1940 Mises finally published such a general treatise under the title Nationalökonomie

503
00:48:55.440 --> 00:49:04.260
but by 1940 Hayek was 51 years old and an established scholar. The book came too late

504
00:49:04.260 --> 00:49:08.820
for him and it also came too late for the rest of his generation. For the Röpkes and

505
00:49:08.820 --> 00:49:13.940
Machloops and Robinses and all the others, Mises had steered away from socialism in the

506
00:49:13.940 --> 00:49:19.700
1920s. In the minds of these men, Mises's early work on the impossibility of socialism

507
00:49:19.700 --> 00:49:25.860
Socialism and the ineffectiveness of interventionism had created a paradox. Mises had convinced

508
00:49:25.860 --> 00:49:31.820
them that full-blown socialism was neither feasible nor desirable. They were also persuaded

509
00:49:31.820 --> 00:49:37.260
that third-way systems were overrated, but many of them did not yet question the claim

510
00:49:37.260 --> 00:49:42.660
that nineteenth-century liberalism had failed because its economic program, laissez-faire

511
00:49:42.660 --> 00:49:48.420
capitalism, had not delivered the goods. They believed it to be a simple matter of fact

512
00:49:48.420 --> 00:49:54.100
that the unfettered free market tends toward monopoly, and that the 19th century working

513
00:49:54.100 --> 00:49:59.060
classes had lived in misery because of laissez-faire capitalism.

514
00:49:59.060 --> 00:50:03.420
A revision of the historical performance of 19th century capitalism set things straight

515
00:50:03.420 --> 00:50:11.580
after the Second World War. The feeble beginnings are in F. R. Hayek, capitalism and the historians.

516
00:50:11.580 --> 00:50:18.140
For these men theory had disproved the viability of socialism and history had proven the defects

517
00:50:18.140 --> 00:50:24.020
of Capitalism. What was needed was a third way, a third way that could somehow get around

518
00:50:24.020 --> 00:50:29.940
Mises' demonstration that interventionism was necessarily counterproductive. The solution

519
00:50:29.940 --> 00:50:35.500
that emerged in the 1930s was based on an intellectual construct that split the social

520
00:50:35.500 --> 00:50:41.980
economy into two elements, one, an institutional framework, and two, the processes that played

521
00:50:41.980 --> 00:50:47.940
themselves out within that framework, most notably the pricing process.

522
00:50:47.940 --> 00:50:52.760
According to this new creed, government should not meddle with the processes, but it did

523
00:50:52.760 --> 00:50:56.660
have to establish and maintain the institutional framework.

524
00:50:56.660 --> 00:51:02.500
This set of assumptions is characteristic of what has come to be called neoliberalism.

525
00:51:02.500 --> 00:51:09.020
We find a clear expression of the neoliberal worldview in a paper Hayek wrote in 1935.

526
00:51:09.020 --> 00:51:13.900
Commenting on Mises' theory of interventionism, Hayek observes that it did not follow from

527
00:51:13.900 --> 00:51:19.260
Mises' argument that the only form of capitalism which can be rationally advocated is that

528
00:51:19.260 --> 00:51:24.580
of complete laissez-faire in the old sense. He continued,

529
00:51:24.580 --> 00:51:28.480
The recognition of the principle of private property does not by any means necessarily

530
00:51:28.480 --> 00:51:33.200
imply that the particular delimitation of the contents of this right as determined by

531
00:51:33.200 --> 00:51:38.220
the existing laws are the most appropriate, the question as to which is the most appropriate

532
00:51:38.220 --> 00:51:43.100
permanent framework which will secure the smoothest that most efficient working of competition

533
00:51:43.100 --> 00:51:48.760
is of the greatest importance, and one which must be admitted has been sadly neglected

534
00:51:48.760 --> 00:51:50.620
by economists.

535
00:51:50.620 --> 00:51:56.840
The roots of the neoliberal ideology went back at least to the 1880s and 1890s, when

536
00:51:56.840 --> 00:52:02.260
German economists of the historical school and their American disciples became convinced

537
00:52:02.260 --> 00:52:08.140
that industrial concentration has harmful effects and required moderation through government

538
00:52:08.140 --> 00:52:10.140
intervention.

539
00:52:10.140 --> 00:52:14.620
One of the visible consequences of this mindset was the Sherman Act, which to the present

540
00:52:14.620 --> 00:52:19.300
day has replaced the powers of consumers with that of bureaucrats.

541
00:52:19.300 --> 00:52:24.380
In Germany the philosophy of the Third Way became pervasive in the socialpolitik instigated

542
00:52:24.380 --> 00:52:30.060
under Kaiser Wilhelm. France followed, invoking the necessity of a tiers solution, as did

543
00:52:30.060 --> 00:52:35.700
the United States under the New Deal. Still, the first programmatic statements of neoliberalism

544
00:52:35.700 --> 00:52:42.180
were published only in the 1930s, again unsurprisingly in Germany and the United States. The most

545
00:52:42.180 --> 00:52:49.860
influential statement came from Chicago economist Henry Simons, who in 1934 circulated a working

546
00:52:49.860 --> 00:52:54.800
paper with the title A Positive Programme for Laissez-faire, in which the word positive

547
00:52:54.800 --> 00:52:59.980
indicated that this programme justified ample government intervention, whereas classical

548
00:52:59.980 --> 00:53:05.580
laissez-faire was a negative programme in that it did not provide such a justification.

549
00:53:05.580 --> 00:53:10.140
Humans called on government to regulate money and banking, prevent the formation of monopolies

550
00:53:10.140 --> 00:53:16.540
and provide minimum income for the destitute, a departure indeed from laissez-faire liberalism.

551
00:53:16.540 --> 00:53:20.620
These ideas perfectly expressed the feelings of a generation of economists who had been

552
00:53:20.620 --> 00:53:25.080
raised in a thoroughly statist intellectual environment, but who still knew the teachings

553
00:53:25.080 --> 00:53:31.180
of the classical liberals, F. R. Hayek, Wilhelm Röpke, Fritz Machlup, Milton Friedman, Michael

554
00:53:31.180 --> 00:53:36.420
Paulani, Walter Euken and many others received their university training and their decisive

555
00:53:36.420 --> 00:53:43.140
intellectual impulses during the 1920s and early 1930s. During the later 1930s they began

556
00:53:43.140 --> 00:53:47.740
to acquire more senior positions and would after the Second World War assume intellectual

557
00:53:47.740 --> 00:53:53.780
leadership on the right. Some of them, most notably Hayek, later turned toward a more

558
00:53:53.780 --> 00:53:58.960
laissez-faire stance, but this turn came at a time when the neoliberal steamroller was

559
00:53:58.960 --> 00:54:05.440
already well underway. Their neoliberalism animated the work of the post-war institutions

560
00:54:05.440 --> 00:54:12.720
that would stem the tide of growing statism, in particular the Mont Blérin Society and the Institute

561
00:54:12.720 --> 00:54:17.920
for Economic Affairs in London. In more recent years, the neoliberal agenda is carried forward

562
00:54:17.920 --> 00:54:23.360
by a new wave of educational institutions, such as the Institute for Humane Studies,

563
00:54:23.360 --> 00:54:26.640
the Cato Institute and the Atlas Research Foundation.

564
00:54:27.920 --> 00:54:28.720
Popular Fronts

565
00:54:29.840 --> 00:54:34.800
Meanwhile, the enemies of civilization made further inroads. By the mid-1930s,

566
00:54:34.800 --> 00:54:40.960
Stalin had launched a new offensive both in national politics and in the international theatre.

567
00:54:42.000 --> 00:54:47.440
Through a series of show trials, he affected the wholesale execution of his most important rivals,

568
00:54:47.440 --> 00:54:53.120
as well as their constituencies within the Communist Party. In Geneva, his foreign minister

569
00:54:53.120 --> 00:54:58.960
Lydvinov forged an antifascist alliance that for the first time brought the democratic western states

570
00:54:58.960 --> 00:55:06.960
into coalition with the internationalist socialists in Moscow. The common ground of the alliance was,

571
00:55:06.960 --> 00:55:13.280
of course, opposition to the national socialists in Rome and Berlin. As things turned out,

572
00:55:13.280 --> 00:55:18.960
Lydvinov's move proved to be successful. In retrospect, it seems to have been by far the

573
00:55:18.960 --> 00:55:23.480
are the most effective strategy in the 20th century for undermining Western resistance

574
00:55:23.480 --> 00:55:29.560
to statism of the Russian variety. Western journalists and intellectuals played a shameful

575
00:55:29.560 --> 00:55:33.800
role covering up the reality of the Soviet regime.

576
00:55:33.800 --> 00:55:38.840
At first Western diplomats in Geneva resisted the Russian advances, but this reluctance

577
00:55:38.840 --> 00:55:46.080
crumbled under the impact of the Spanish Civil War 1936-1939. In Western Europe all attention

578
00:55:46.080 --> 00:55:51.640
German was thenceforth focused on nationalist socialism. The presence of fascist governments

579
00:55:51.640 --> 00:55:57.960
in Berlin, Rome and Madrid posed an immediate threat to the security of France and the United

580
00:55:57.960 --> 00:56:04.460
Kingdom while the menace of internationalist socialism seemed remote. None of the diplomats

581
00:56:04.460 --> 00:56:11.860
in Geneva could yet imagine the Red Army standing on the Elbe and in Vienna. This lack of imagination

582
00:56:11.860 --> 00:56:15.860
was reinforced by the communist infiltration of the Roosevelt administration in the United

583
00:56:15.860 --> 00:56:23.380
States, Mrs. Roosevelt in particular, entertained an entire coterie of communist intellectuals.

584
00:56:23.380 --> 00:56:28.260
Roosevelt had swept the states with a panoply of new laws and bureaus that made the country

585
00:56:28.260 --> 00:56:33.260
increasingly resemble old Europe, to mention just a few of these new laws and bureaus,

586
00:56:33.260 --> 00:56:39.820
the Tennessee Valley Authority, 1933, the Agricultural Adjustment Act, 1933, establishing

587
00:56:39.820 --> 00:56:44.960
a system of price control, the National Recovery Administration as part of the National Industrial

588
00:56:44.960 --> 00:56:51.800
National Recovery Act, the Wagner Act, 1935, attempting to establish compulsory unionisation,

589
00:56:51.800 --> 00:56:59.120
the Undistributed Profits Tax, 1936, confiscating up to 74% of profits, the Wages and Hours

590
00:56:59.120 --> 00:57:06.200
Act, 1938, establishing compulsory higher minimum wages, and a compulsory 40-hour workweek.

591
00:57:06.200 --> 00:57:11.480
The New Deal was new for America, but old for Europeans. Mises recognised in the American

592
00:57:11.480 --> 00:57:16.320
and events the very follies he and others had denounced ever since the war socialism

593
00:57:16.320 --> 00:57:18.840
of the First World War. He wrote,

594
00:57:18.840 --> 00:57:23.580
President Roosevelt's New Deal has been greeted with enthusiasm not only in its country

595
00:57:23.580 --> 00:57:28.800
of origin but also throughout the world. The reason for this general affinity is that the

596
00:57:28.800 --> 00:57:34.240
essential idea of the New Deal conformed exactly to public opinion. Everyone believed that

597
00:57:34.240 --> 00:57:40.940
it was necessary to replace capitalism and private enterprise with more government intervention,

598
00:57:40.940 --> 00:57:47.460
Although certain isolated measures were criticised, the new policy as a whole was received favourably.

599
00:57:47.460 --> 00:57:53.420
Most economists believed that American capitalism was now effectively doomed. Schumpeter, who

600
00:57:53.420 --> 00:57:58.620
in the year of Roosevelt's election had moved from Bonn to Harvard, was widely quoted as

601
00:57:58.620 --> 00:58:04.040
complaining that he could just as well have stayed in Germany. These premonitions turned

602
00:58:04.040 --> 00:58:06.860
out to be justified.

603
00:58:06.860 --> 00:58:36.860
In the spring of 1936, Communism,

604
00:58:36.860 --> 00:58:42.620
The communists initiated popular fronts, won elections in France and Spain. Although the

605
00:58:42.620 --> 00:58:48.220
communists stayed in the background, ostensibly to fend off any concerns about secret ambitions

606
00:58:48.220 --> 00:58:53.020
for Bolshevik-style coup d'etat, the fact remains that for the first time ever these

607
00:58:53.020 --> 00:58:59.000
countries had socialist governments. The French socialists now did what their Austrian and

608
00:58:59.000 --> 00:59:04.740
German comrades had done 18 years earlier – Leon Blum and his government nationalised the

609
00:59:04.740 --> 00:59:11.540
the arms industries, outlawed right-wing political organisations, increased compulsory education,

610
00:59:11.540 --> 00:59:17.220
outlawed resistance against labour union violence, imposed a mandatory increase of wage rates,

611
00:59:17.220 --> 00:59:22.820
coercively increased minimum wage rates even further by reducing the labour time to forty

612
00:59:22.820 --> 00:59:28.500
hours per week without reducing weekly salaries, imposed a minimum annual vacation of two weeks

613
00:59:28.500 --> 00:59:34.660
for Every Employee, along with subsidised train tickets courtesy of the taxpayer, and

614
00:59:34.660 --> 00:59:40.220
forced each firm with more than ten employees to pay for worker delegates to supervise the

615
00:59:40.220 --> 00:59:46.580
application of the new policies. Not surprisingly, a great number of small and medium-sized firms

616
00:59:46.580 --> 00:59:51.780
had to cease operations under this wave of regulations, and many of the workers who lost

617
00:59:51.780 --> 00:59:56.260
their jobs in this process could not find employment elsewhere, because the surviving

618
00:59:56.260 --> 01:00:06.780
Capitalists fled the country, and Leon Blum soon had to rely on public debt and inflation

619
01:00:06.780 --> 01:00:12.780
to keep his government functioning at all. In June 1937, he resigned, after little more

620
01:00:12.780 --> 01:00:18.680
than a year in power. In April 1938, the new Daladier government took over, reversing

621
01:00:18.680 --> 01:00:26.100
virtually all the new socialist laws and crushing labour union power in short but violent confrontations.

622
01:00:26.100 --> 01:00:31.860
In Spain the correction was far less swift and far more violent. Mises travelled to Madrid

623
01:00:31.860 --> 01:00:37.540
in May 1936 to attend a conference for the promotion of international studies. In a press

624
01:00:37.540 --> 01:00:41.900
interview he said that the conference was a step forward in improving international

625
01:00:41.900 --> 01:00:46.580
relations but Spain's relations with other nations made no further progress before the

626
01:00:46.580 --> 01:00:49.860
country imploded. Mises reported to Mahlup,

627
01:00:49.860 --> 01:00:57.860
The anarcho-syndicalists are preparing the takeover, and the people on the right sharpen their long knives.

628
01:00:57.860 --> 01:01:04.860
In July 1936, the new Popular Front government had hardly taken office when civil war erupted.

629
01:01:04.860 --> 01:01:10.860
After more than two years of extremely bloody fighting, in the course of which more than one million Spaniards lost their lives,

630
01:01:10.860 --> 01:01:16.860
the authoritarian insurrectionists under General Franco marched victoriously into Madrid.

631
01:01:16.860 --> 01:01:21.160
The Spanish translation of The Theory of Money and Credit had appeared just a couple of weeks

632
01:01:21.160 --> 01:01:27.100
before the outbreak of the war. Now it was condemned to oblivion until decades later.

633
01:01:27.100 --> 01:01:33.220
A group of determined economists resuscitated this work. Outside Spain, the case for laissez-faire

634
01:01:33.220 --> 01:01:39.380
fell on deaf ears, too, while the opponents of the free society found a growing audience,

635
01:01:39.380 --> 01:01:44.120
especially if the rhetoric for more government control was flexible enough to accommodate

636
01:01:44.120 --> 01:01:49.240
a wide variety of political regimes. Thus John Maynard Keynes made a splash in Germany,

637
01:01:49.240 --> 01:01:54.360
where the translation of his general theory appeared the very same year as the original.

638
01:01:54.360 --> 01:01:58.640
In the preface to the German edition, Keynes boasted that his theory was particularly well

639
01:01:58.640 --> 01:02:04.840
suited for totalitarian regimes, and lamented that it was less fit for the conditions prevailing

640
01:02:04.840 --> 01:02:10.640
in freer societies. Keynes writes, Nevertheless the theory of output as a whole, which is

641
01:02:10.640 --> 01:02:16.080
What the following book purports to provide is much more easily adapted to the conditions

642
01:02:16.080 --> 01:02:20.560
of a totalitarian state than is the theory of production and distribution of a given output

643
01:02:20.560 --> 01:02:26.080
produced under conditions of free competition and a large measure of laissez-faire. Similarly,

644
01:02:26.080 --> 01:02:30.720
in 1933 Keynes allowed a German translation of his paper on national self-sufficiency

645
01:02:30.720 --> 01:02:35.960
to be purged of passages that might have been offending to the new Hitler government.

646
01:02:35.960 --> 01:02:40.880
Mises did not comment on Keynes's general theory. When it appeared in 1936, he reacted

647
01:02:40.880 --> 01:02:46.640
only when the Keynesian movement came into full swing and elevated the British economist

648
01:02:46.640 --> 01:02:52.460
to the status of a guru of the profession. In Mises's eyes, the Keynesian Revolution

649
01:02:52.460 --> 01:02:57.520
was insignificant from the point of view of the history of ideas. Keynes had not brought

650
01:02:57.520 --> 01:03:03.520
forth a single new doctrine. At the onset of the Keynesian Revolution, a few eminent

651
01:03:03.520 --> 01:03:08.280
Historians of Thought had pointed out that Keynes's views about the relationship between

652
01:03:08.280 --> 01:03:13.720
variations of the money supply, employment and output had been anticipated and stressed

653
01:03:13.720 --> 01:03:18.920
in mercantilistic thought. The implication is that Keynes was not so much a revolutionary,

654
01:03:18.920 --> 01:03:24.720
but a reactionary champion of the ancien régime. The single most detailed study of his magnum

655
01:03:24.720 --> 01:03:28.920
opus confirmed this implication in rather devastating terms.

656
01:03:28.920 --> 01:03:33.680
Now though I have analyzed Keynes's general theory in the following pages, theorem by

657
01:03:33.680 --> 01:03:39.500
theorem, chapter by chapter, and sometimes even sentence by sentence, to what some readers

658
01:03:39.500 --> 01:03:45.900
may appear a tedious length, I have been unable to find in it a single important doctrine

659
01:03:45.900 --> 01:03:52.100
that is both true and original. Even as major fallacies were old and had been refuted hundreds

660
01:03:52.100 --> 01:03:57.180
of times, the proper way to deal with Keynesianism, therefore, was to consider it from a sociological

661
01:03:57.180 --> 01:04:00.640
In 1948, Mises wrote,

662
01:04:00.640 --> 01:04:05.720
For a correct appraisal of the success which Keynes's general theory found in academic

663
01:04:05.720 --> 01:04:10.040
circles one must consider the conditions prevailing in university economics during the period

664
01:04:10.040 --> 01:04:14.680
between the two world wars. Among the men who occupied the chairs of economics in the

665
01:04:14.680 --> 01:04:20.560
last two decades there have been only a few genuine economists, that is, men fully conversant

666
01:04:20.560 --> 01:04:26.040
with the theories developed by modern subjective economics. The ideas of the old classical

667
01:04:26.040 --> 01:04:30.120
The classical economists, as well as those of the modern economists, were caricatured

668
01:04:30.120 --> 01:04:36.320
in the textbooks and in the classrooms. They were called such names as old-fashioned, orthodox,

669
01:04:36.320 --> 01:04:42.920
reactionary, bourgeois, or Wall Street economics. The teachers prided themselves on having refuted

670
01:04:42.920 --> 01:04:49.640
for all times the abstract doctrines of Manchesterism and laissez-faire. Two years later, he added,

671
01:04:49.640 --> 01:04:55.760
the great classical economists were harbingers of new ideas. The economic policies they recommended

672
01:04:55.760 --> 01:05:00.600
were at variance with the policies practised by contemporary governments and political

673
01:05:00.600 --> 01:05:05.800
parties. As a rule, many years, even decades, passed before public opinion accepted the

674
01:05:05.800 --> 01:05:10.840
new ideas as propagated by the economists, and before the required corresponding changes

675
01:05:10.840 --> 01:05:16.600
in policies were effected. It was different with the new economics of Lord Keynes. The

676
01:05:16.600 --> 01:05:20.540
policies he advocated were precisely those which almost all governments, including the

677
01:05:20.540 --> 01:05:25.720
British, had already adopted many years before his General Theory was published. Keynes was

678
01:05:25.720 --> 01:05:31.280
was not an innovator and champion of new methods of managing economic affairs. His contribution

679
01:05:31.280 --> 01:05:37.000
consisted rather in providing an apparent justification for the policies which were popular with those

680
01:05:37.000 --> 01:05:44.080
in power in spite of the fact that all economists viewed them as disastrous. His achievement

681
01:05:44.080 --> 01:05:49.280
was a rationalisation of the policies already practiced.

682
01:05:49.280 --> 01:05:51.880
and Transformations.

683
01:05:51.880 --> 01:05:58.200
From August 1st to August 6th, 1937, Mises took part in the meetings of the Ninth International

684
01:05:58.200 --> 01:06:03.360
Congress of Philosophy, where he presented a paper on the logical character of the science

685
01:06:03.360 --> 01:06:09.400
of human conduct. Here he met the Polish philosopher Tadeusz Kuturbinski, who delivered a fascinating

686
01:06:09.400 --> 01:06:15.920
paper on the idea of the methodology of general praxeology. Though the paper itself did not

687
01:06:15.920 --> 01:06:31.460
Mises had already come across it in a 1926 paper from another Polish scholar, the mathematical

688
01:06:31.460 --> 01:06:38.260
economist Eugen Slutsky. Mises quotes this paper in Epistemological Problems of Economics.

689
01:06:38.260 --> 01:06:44.500
This very passage contains the phrase, a universal praxeology, and thus suggests that Mises had

690
01:06:44.500 --> 01:06:56.500
An Allgemeine Praktik – a general science of human practice or human action

691
01:07:14.500 --> 01:07:20.320
Sociology, but by the early 1930s he had to acknowledge that most other social scientists

692
01:07:20.320 --> 01:07:24.680
had come to understand something completely different by this term.

693
01:07:24.680 --> 01:07:31.300
Under the influence of fanatic anti-economists such as Otmar Spann and Werner Sombart, sociology

694
01:07:31.300 --> 01:07:36.940
had become shorthand for an alternative social science, one that did not integrate the tenets

695
01:07:36.940 --> 01:07:42.500
of economics, but instead denied them and sought to replace economics with other explanations

696
01:07:42.500 --> 01:07:47.640
of the Market Economy, Socialism and the Hammered Market Economy.

697
01:07:47.640 --> 01:07:52.960
But now there was a new term – praxeology. It was gaining ground in the academic literature

698
01:07:52.960 --> 01:07:59.180
and, what is more, its champions seemed to use it in a way congruent with Mises's understanding

699
01:07:59.180 --> 01:08:04.240
of what a general science of human action was all about. Kotarbinski probably talked

700
01:08:04.240 --> 01:08:09.780
to Mises about his General Theory of Fighting, in which he applied the general praxeological

701
01:08:09.780 --> 01:08:15.980
method to the phenomenon of war. And it was probably also Kotarbinski who referred Mises

702
01:08:15.980 --> 01:08:22.420
to some of the pioneers of praxeology, such as the French philosopher Alfred Espina.

703
01:08:22.420 --> 01:08:27.660
Mises apparently did not have direct access to Espina's work. Hayek looked up the reference

704
01:08:27.660 --> 01:08:33.020
for him in London, and it was also Hayek who discovered that the relevant passage from

705
01:08:33.020 --> 01:08:39.460
Espina's book was taken verbatim from an article that Espina had published some years earlier.

706
01:08:39.460 --> 01:08:44.440
Mises found that the meaning of praxeology in Espinaz's work was quite different from

707
01:08:44.440 --> 01:08:50.080
what he had in mind. Slutsky's use of the term was somewhat closer to his own views,

708
01:08:50.080 --> 01:08:57.380
but still did not quite hit the nail on the head. Mises thus initiated a second praxeological

709
01:08:57.380 --> 01:09:03.720
tradition. Present-day followers of the early French school call themselves praxeologists

710
01:09:03.720 --> 01:09:09.420
and their discipline praxeology. These scholars, most of whom are academics from France and

711
01:09:09.420 --> 01:09:14.860
in Poland published the series Praxeology, the International Annual of Practical Philosophy

712
01:09:14.860 --> 01:09:22.860
and Methodology. Mises himself kept up with the praxeologists at a distance. In 1956 he

713
01:09:22.860 --> 01:09:27.860
noticed with interest the existence of a journal of praxeology that was edited by a scholar

714
01:09:27.860 --> 01:09:33.500
at the University of Melbourne in Florida. He distinguished the two approaches in a letter

715
01:09:33.500 --> 01:09:41.060
to Stephen B. Miles, dated April 19, 1961. In any case, praxeology had not yet come to

716
01:09:41.060 --> 01:09:48.180
be as closely associated with anti-economics as had the term sociology, and Hayek reported

717
01:09:48.180 --> 01:09:54.180
from London that the term was unknown in English, and thus Mises eventually adopted it as a

718
01:09:54.180 --> 01:10:00.820
label for his general theory of human action. Work on his Great Treatise also progressed

719
01:10:00.820 --> 01:10:05.940
in other fields. One of the important areas that he had neglected for the past two decades

720
01:10:05.940 --> 01:10:11.740
was methodology. He had written on the epistemology of economic science, but he had not yet dealt

721
01:10:11.740 --> 01:10:16.820
with the more narrowly technical aspects of economic analysis. Mises now proceeded to

722
01:10:16.820 --> 01:10:22.060
this task by elaborating on the scattered methodological observations he had made in

723
01:10:22.060 --> 01:10:28.800
previous writings. Occasionally he made interesting observations on the methodology and the logical

724
01:10:28.800 --> 01:10:33.740
Character of Economics in his correspondence. Of particular interest is a letter to Lionel

725
01:10:33.740 --> 01:10:39.360
Robbins commenting on the second edition of The Nature and Significance of Economic Science.

726
01:10:39.360 --> 01:10:44.940
The letter also demonstrates that Mises was in touch with the positivistic Vienna Circle.

727
01:10:44.940 --> 01:10:49.920
He refers to correspondence with the mathematical economist Carl Menger, the son of the founder

728
01:10:49.920 --> 01:10:55.780
of the Austrian School. He presented his very first paper dealing with purely methodological

729
01:10:55.780 --> 01:11:00.980
Methodological Questions in early March 1938 in Venice, at a conference held in memory

730
01:11:00.980 --> 01:11:06.040
of the French pioneer of mathematical economics, Augustin Cournot. The paper was eventually

731
01:11:06.040 --> 01:11:12.580
published in the proceedings of the conference as L'hypothèse de travail dans la science

732
01:11:12.580 --> 01:11:18.620
économique, Working Hypotheses in Economic Science. In previous writings, he had no more

733
01:11:18.620 --> 01:11:24.180
than touched on methodological questions. Fittingly, Mises dealt with one of the core

734
01:11:24.180 --> 01:11:29.700
Four elements of mathematical economics, namely the concept of economic equilibrium. He argued

735
01:11:29.700 --> 01:11:35.980
that this concept did have an important role in economic analysis, but not nearly as important

736
01:11:35.980 --> 01:11:41.780
as the champions of mathematical economics made it out to be. The equilibrium construct

737
01:11:41.780 --> 01:11:49.100
was necessary as the logical opposite of entrepreneurial profit and loss. In equilibrium there would

738
01:11:49.100 --> 01:11:55.180
should be no such thing as profit or loss, only in disequilibrium did these phenomena

739
01:11:55.180 --> 01:12:00.620
come into being. But where these statements only refined the basic conceptual framework

740
01:12:00.620 --> 01:12:05.820
that had already been elaborated by Frank Knight, Mises also emphasized that the equilibrium

741
01:12:05.820 --> 01:12:11.880
construct was necessary only for the correct conception of profit and loss, and for no

742
01:12:11.880 --> 01:12:17.500
other economic phenomena. For some time he had also advocated the use

743
01:12:17.500 --> 01:12:23.100
of Equilibrium as a methodological device for the analysis of dynamic changes. Notice

744
01:12:23.100 --> 01:12:27.820
that Mises was perfectly familiar with the pioneering works on mathematical equilibrium

745
01:12:27.820 --> 01:12:34.160
theory that Walt, Rosenstein-Rodan, Morgenstern and others had just published in the Zeitschrift

746
01:12:34.160 --> 01:12:38.980
für Nationalökonomie. At about the same time the Austrian Chamber

747
01:12:38.980 --> 01:12:46.300
of Commerce was completely reorganised, Mises asked to be retired by January 1, 1938, emphasising

748
01:12:46.300 --> 01:12:59.340
In early February 1938, Wilhelm Becker, right-hand man to the new president of the Bundeskammer,

749
01:12:59.340 --> 01:13:04.100
asked Mises to become the chief of the Department for Monetary and Financial Affairs. The only

750
01:13:04.100 --> 01:13:10.560
caveat was that Mises had to give up his position in Geneva. Mises probably went to Vienna around

751
01:13:10.560 --> 01:13:18.800
February 20 to discuss the project. Eventually the reforms turned the comer into a pure bureaucracy.

752
01:13:18.800 --> 01:13:23.640
One reason for his renewed interest in returning to Vienna might have been the precarious financial

753
01:13:23.640 --> 01:13:29.680
situation of the Institute. In the course of 1936 it had become clear that certain elements

754
01:13:29.680 --> 01:13:36.280
within the Rockefeller Foundation were increasingly reluctant to lend further support. Thus, in

755
01:13:36.280 --> 01:13:42.280
In the fall of 1937, Mises seriously considered a return to Vienna. He then gave much thought

756
01:13:42.280 --> 01:13:48.760
to the central political problem of his fatherland, preserving the liberty of its citizens against

757
01:13:48.760 --> 01:13:54.080
the encroachments of the mighty neighbours North and South. Mises was convinced that

758
01:13:54.080 --> 01:14:00.040
this problem could only be solved within a federation of the East European language communities,

759
01:14:00.040 --> 01:14:10.120
In early 1938 he laid out a confidential master plan for the necessary reforms in a ten-page

760
01:14:10.120 --> 01:14:22.680
paper with the title Principles for the Creation of a New Order in the Danube Area. He left

761
01:14:22.680 --> 01:14:26.600
a copy at the Graduate Institute in Geneva but also took copies with him when he left

762
01:14:26.600 --> 01:14:32.840
for the United States in 1940. Hay argued that such a new order would require the East

763
01:14:32.840 --> 01:14:38.260
European countries to overcome their protectionism, which Mises saw as the root cause of conflict

764
01:14:38.260 --> 01:14:42.700
among them, which was in turn the cause of their weakness confronted with their three

765
01:14:42.700 --> 01:14:48.880
mighty neighbours, Russia, Germany and Italy. But to abandon protectionism requires far

766
01:14:48.880 --> 01:14:54.420
more than the legal abolition of customs and import quotas. It also implies abolishing

767
01:14:54.420 --> 01:15:00.180
the special privileges that come through monetary policy, taxation, health and safety regulations

768
01:15:00.180 --> 01:15:06.460
and construction codes, public works, railway rates and many other fields of public administration.

769
01:15:06.460 --> 01:15:11.880
From this, Mises draws a far-reaching conclusion. It is not sufficient to limit the sovereignty

770
01:15:11.880 --> 01:15:16.380
of the different governments through a customs union. Indeed, their whole administration

771
01:15:16.380 --> 01:15:21.520
would have to be run by a federal government. Without a central government overarching all

772
01:15:21.520 --> 01:15:26.420
For all national governments, the latter would engage in nationalistic policies against the

773
01:15:26.420 --> 01:15:31.720
minorities within their territory, thus creating tensions and conflicts that would ultimately

774
01:15:31.720 --> 01:15:34.420
explode the Confederation.

775
01:15:34.420 --> 01:15:38.940
In short, Mises proposed to counteract the military threat of the moment through a political

776
01:15:38.940 --> 01:15:43.760
federation with other smaller states of the Danube area, but such a federation could work

777
01:15:43.760 --> 01:15:47.400
only if national protectionism could be eliminated.

778
01:15:47.400 --> 01:15:53.680
It followed that the political institutions of the Federation had to be radically centralised.

779
01:15:53.680 --> 01:15:58.960
He went into more detail. The local governments and courts must take account of minorities

780
01:15:58.960 --> 01:16:06.280
by using all languages spoken by more than 15% of the local population. Because economic

781
01:16:06.280 --> 01:16:11.120
legislation, in particular free trade and the regulation of banking and money, must

782
01:16:11.120 --> 01:16:17.120
be uniform in all countries, one needs a central parliament and a central jurisdiction. The

783
01:16:17.120 --> 01:16:21.360
The proceedings of these institutions would be in an official language and Mises believed

784
01:16:21.360 --> 01:16:24.320
French or English should be chosen.

785
01:16:24.320 --> 01:16:28.760
The central organisations would have to be located in Vienna, which would have a special

786
01:16:28.760 --> 01:16:34.160
status corresponding to the status of Washington DC within the United States.

787
01:16:34.160 --> 01:16:39.020
In order to avoid jealousy among the national populations, some of the federal officers

788
01:16:39.020 --> 01:16:42.960
would have to be of French or British nationality.

789
01:16:42.960 --> 01:16:48.060
It needs to be stressed that the primary purpose of Mises' proposal was not to create closer

790
01:16:48.060 --> 01:16:53.020
economic cooperation in the Danube area. This could have been achieved without any political

791
01:16:53.020 --> 01:16:57.280
unification whatsoever through the simple unilateral adoption of free trade by each

792
01:16:57.280 --> 01:17:02.620
government. The point of his scheme was to secure a maximum of political liberty under

793
01:17:02.620 --> 01:17:07.200
present conditions. In his eyes, Austria and the other countries of the area had the choice

794
01:17:07.200 --> 01:17:12.160
between abandoning a part of their autonomy, to become strong enough to resist foreign

795
01:17:12.160 --> 01:17:18.160
and pressure, or losing their autonomy altogether. Either they would become subservient provinces

796
01:17:18.160 --> 01:17:22.840
ruled by Germany, Russia and Italy, or they would rule themselves in a common central

797
01:17:22.840 --> 01:17:28.840
state. A majority of Austrian leaders abhorred the prospect of political centralisation.

798
01:17:28.840 --> 01:17:33.760
They sought national self-determination first and foremost. The point of Mises' paper

799
01:17:33.760 --> 01:17:38.980
was to show that they were in error. National independence was not a suitable means, under

800
01:17:38.980 --> 01:17:43.820
the present circumstances to attain the end of national self-determination. Those who

801
01:17:43.820 --> 01:17:49.260
rejected a supra-national central government for the Danube Basin implicitly believed that

802
01:17:49.260 --> 01:17:53.720
England and France were going to defend them permanently, that these two countries would

803
01:17:53.720 --> 01:17:58.760
become tired of fighting wars on behalf of the eastern states and would eventually demand

804
01:17:58.760 --> 01:18:04.420
that they create a political system that could survive on its own. With these plans in mind,

805
01:18:04.420 --> 01:18:10.060
Mises went to Vienna in February 1938. He later developed his plan for the establishment

806
01:18:10.060 --> 01:18:14.940
of an Eastern Democratic Union in much more detail in two major papers that have only

807
01:18:14.940 --> 01:18:22.020
recently been published, Entwurf von Richtlinien für den Wiederaufbau Österreichs, May 1940,

808
01:18:22.020 --> 01:18:27.660
51 pages, and an Eastern Democratic Union, a proposal for the establishment of a durable

809
01:18:27.660 --> 01:18:35.020
Peace in Eastern Europe, October 1941, 43 pages. He had other reasons to return to the

810
01:18:35.020 --> 01:18:40.460
city on the Danube, getting the paperwork done for marriage. For some ten years Margit

811
01:18:40.460 --> 01:18:45.220
had waited patiently for him to propose. Eight months after the death of his mother

812
01:18:45.220 --> 01:18:52.660
at Christmas 1937, Ludwig was finally ready. True to himself, he left out all ornamental

813
01:18:52.660 --> 01:18:59.700
and went on to propose with his habitual concision, I cannot go on further, I cannot live without

814
01:18:59.700 --> 01:19:03.540
you darling, let's get married.

815
01:19:03.540 --> 01:19:09.860
Margit was incredulous and the happiest she'd ever been. They lost no time making plans.

816
01:19:09.860 --> 01:19:14.140
One of the formalities was the public announcement of their wedding plans six weeks before the

817
01:19:14.140 --> 01:19:20.220
ceremony, but world events conspired against personal happiness. During those weeks before

818
01:19:20.220 --> 01:19:24.920
Before their announced wedding date Adolf Hitler threatened Austrian Chancellor Schussnick.

819
01:19:24.920 --> 01:19:29.720
Germany would provoke civil war in Austria and invade the country. On extremely short

820
01:19:29.720 --> 01:19:35.180
notice Schussnick announced a general referendum on Austria's unification with Germany. The

821
01:19:35.180 --> 01:19:41.020
vote was to take place the next Sunday, March 13th. Mises was in town on one of his short

822
01:19:41.020 --> 01:19:46.660
visits, probably coming in from the Couronneau conference he had attended in Venice. In the

823
01:19:46.660 --> 01:19:50.420
The course of this week it became clear that the Germans were preparing to invade Austria

824
01:19:50.420 --> 01:19:55.260
to prevent the referendum from ever taking place. The cautious Mises knew that he was

825
01:19:55.260 --> 01:20:00.940
high on the Nazi enemy list and he left Vienna on Thursday the 10th or early on Friday the

826
01:20:00.940 --> 01:20:05.460
11th of March, not a moment too soon as it turned out.

827
01:20:05.460 --> 01:20:11.660
On Friday, March 11th, 1938, SS Chief Heinrich Himmler arrived in Vienna with an advance

828
01:20:11.660 --> 01:20:18.660
A group of men broke into Mises' apartment and searched it. At the end of March the Gestapo came and took twenty-one boxes full of Mises' possessions and sealed the apartment when they left. In the fall the Gestapo returned and took the rest.

829
01:20:41.660 --> 01:20:46.820
test, they looted everything they could find, the books Mises had lovingly collected over

830
01:20:46.820 --> 01:20:54.060
decades, his personal correspondence, paintings, silver, personal and administrative documents,

831
01:20:54.060 --> 01:20:59.500
everything, even the laundry. Mises would never see these belongings again and never

832
01:20:59.500 --> 01:21:04.100
learn what happened to them. At the end of the Second World War the Red

833
01:21:04.100 --> 01:21:08.740
Army found his personal files together with the documents of other prominent enemies of

834
01:21:08.740 --> 01:21:15.980
the Nazi regime in a train in Bohemia. They were then sent to a secret archive in Moscow.

835
01:21:15.980 --> 01:21:23.260
In 1991, 18 years after Mises' death, they were rediscovered and are today a most precious

836
01:21:23.260 --> 01:21:29.340
tool for biographers of the great economist. Mises' personal library went in different

837
01:21:29.340 --> 01:21:36.060
directions. The Nazis sent his book collection to a new Judenbibliothek in Berlin. This library

838
01:21:36.060 --> 01:21:41.860
History was under the control of Heinrich's Sicherheitsdienst SD and located at Eisenacher

839
01:21:41.860 --> 01:21:48.160
Straße 12. However, it is not known where Mises' books are today. During the Second

840
01:21:48.160 --> 01:21:52.840
World War the collections of the Judenbibliothek were sent back and forth to the provinces

841
01:21:52.840 --> 01:21:58.420
to protect them against Allied bombings. They were also subject to various transfers, book

842
01:21:58.420 --> 01:22:04.980
exchanges with other libraries and plunder. By 1956 Mises knew that some of his books

843
01:22:04.980 --> 01:22:10.620
had turned up in German second-hand bookshops and opined that some of his letters, two letters

844
01:22:10.620 --> 01:22:15.580
he had received from Sigmund Freud, for example, would be found one day in the possession of

845
01:22:15.580 --> 01:22:20.940
an autographed dealer. The looting of his apartment was only the beginning. The new

846
01:22:20.940 --> 01:22:25.780
authorities soon discontinued his salary and pension payments and attached his bank account

847
01:22:25.780 --> 01:22:32.900
for an escape tax, Reichsfluchtssteuer, and a Jewish tax, Judenabgabe. Nine years later,

848
01:22:32.900 --> 01:22:37.620
Speaking of the reluctance of the Comer to make restitution for those payments, his former

849
01:22:37.620 --> 01:22:44.200
secretary wrote, But how right you were when you prophesied that we would be cheated of

850
01:22:44.200 --> 01:22:46.200
everything.

851
01:22:46.200 --> 01:22:51.220
They also confiscated the most marketable part of Ludwig and Richard's inheritance,

852
01:22:51.220 --> 01:22:57.820
a widely known collection of some 150 rare gold coins and more than 3,000 other coins

853
01:22:57.820 --> 01:23:09.340
There is also the summary list of stolen coins that Mises composed in 1960 but apparently

854
01:23:09.340 --> 01:23:14.180
did not submit to the authorities. Koerner was a lawyer in Vienna. Mises got in touch

855
01:23:14.180 --> 01:23:20.080
with him after learning about the ratification of a US-Austrian treaty in 1955, but the deadline

856
01:23:20.080 --> 01:23:27.140
for claims had already expired in 1953. Most of the gold coins were Polish and pre-1892

857
01:23:27.140 --> 01:23:34.140
Austrian Coins. In 1962 Mises eventually obtained restitution, not from Austrian but

858
01:23:34.140 --> 01:23:39.540
from German authorities, in the value of the estimated weight of the collection, some 25

859
01:23:39.540 --> 01:23:44.960
troy ounces. Mises' family property had become free booty.

860
01:23:44.960 --> 01:23:50.580
The Nazis had prepared the takeover of Austria with diligent care. They had studied all writings

861
01:23:50.580 --> 01:23:56.320
that even remotely questioned the Nazi cause or any of its ideals. After the takeover they

862
01:23:56.320 --> 01:24:02.160
They sought the authors of these works. Perfectly harmless men such as Carl Brokhausen, a philanthropist

863
01:24:02.160 --> 01:24:08.040
and pacifist of some international reputation, were interviewed by the German secret police.

864
01:24:08.040 --> 01:24:12.520
But the Gestapo also took on the greatest champion of National Socialism in Vienna,

865
01:24:12.520 --> 01:24:18.320
Ottmar Spann. The author of Der wahre Staat was all in favour of strong government, but

866
01:24:18.320 --> 01:24:25.200
it would have to be a government in the service of the right ideas, his ideas. Attempts to

867
01:24:25.200 --> 01:24:30.840
who co-opt him as a Hitler propagandist quickly failed, and he and his son Raphael ended up

868
01:24:30.840 --> 01:24:36.240
in the Dachau concentration camp, where he was tortured and partially lost his eyesight.

869
01:24:36.240 --> 01:24:42.600
Mises later testified, Not all those persecuted were anti-Nazis. For instance, Professor Ottmar

870
01:24:42.600 --> 01:24:47.240
Spahn, one of the outstanding champions of the Nazi doctrine, spent some time in a concentration

871
01:24:47.240 --> 01:24:53.180
camp because he was connected with Gregor Strasser, the personal rival of Hitler. Ironically,

872
01:24:53.180 --> 01:24:57.980
and the prison term that he served under Hitler eventually whitewashed him after the war.

873
01:24:57.980 --> 01:25:03.960
Spahn's doctrines continued to be taught in Vienna until the late 1960s.

874
01:25:03.960 --> 01:25:09.780
This was not a time of people with backbone. It was the time of the Hans Mayas of the world.

875
01:25:09.780 --> 01:25:15.260
A few weeks after the Anschluss, Mayer wrote the members of the Nationalökonomische Gesellschaft

876
01:25:15.260 --> 01:25:20.300
announcing that the membership of non-Aryans had been cancelled. Mayer kept his chair at

877
01:25:20.300 --> 01:25:24.660
The University just as he would retain it when the Social Democrats returned to power

878
01:25:24.660 --> 01:25:27.140
after the Second World War.

879
01:25:27.140 --> 01:25:31.220
Decades afterward Lionel Robbins recalled exactly the time when his love affair with

880
01:25:31.220 --> 01:25:37.660
Vienna came to an abrupt end, namely, when to his eternal shame, Hans Meyer, the Senior

881
01:25:37.660 --> 01:25:43.400
Professor of Economics in the University of Menger, Wieser and Boehm-Bawerk, whom I myself

882
01:25:43.400 --> 01:25:49.060
had more than once heard denouncing Hitler and all his works, instead of closing down,

883
01:25:49.060 --> 01:25:57.060
As he could honorably have done, expelled the Jewish members from the Nationalökonomische Gesellschaft, of which he was the president.

884
01:25:57.060 --> 01:26:01.060
I have never been able to screw myself up to go back since.

885
01:26:01.060 --> 01:26:04.060
This is also how Mises felt about the incident.

886
01:26:04.060 --> 01:26:10.060
It took him many years after the war before he could bring himself to return to his once beloved city.

887
01:26:10.060 --> 01:26:17.060
Many scholars had to leave Austria to make way for the Hans Meyers of the new era, and a great number of them passed through Switzerland.

888
01:26:17.060 --> 01:26:31.060
In the coming months and years, Mises increased his efforts to find employment for Austrian expatriates abroad. Engeljanozzi could not find a job in Turkey where only Turks were allowed to teach modern history. To Machloub, Mises wrote,

889
01:26:31.060 --> 01:26:36.380
I'm completely clueless what to do with the masses of Viennese that turn to me for help.

890
01:26:36.380 --> 01:26:40.180
Nobody is allowed to stay in Switzerland," Margit later recalled.

891
01:26:40.180 --> 01:26:45.200
We helped whenever we could. Our living room looked like a miniature Red Cross office.

892
01:26:45.200 --> 01:26:51.160
I was always writing, packing, shipping. This came at a time when his own position in Geneva

893
01:26:51.160 --> 01:26:56.420
became financially precarious. Together with his brother Richard, he also took care of

894
01:26:56.420 --> 01:27:01.780
for relatives and personal friends who had not managed to flee in time.

895
01:27:01.780 --> 01:27:06.340
These efforts were instrumental in bringing about a rapprochement of the Mises brothers,

896
01:27:06.340 --> 01:27:10.100
even though it could still not be called a warm relationship.

897
01:27:10.100 --> 01:27:14.220
When Ludwig married Margit in July, he did not deem it necessary to mention the fact

898
01:27:14.220 --> 01:27:16.260
in their correspondence.

899
01:27:16.260 --> 01:27:22.900
Richard found out about it a month later through their aunt Fanny, and asked Ludwig for a confirmation,

900
01:27:22.900 --> 01:27:26.220
yet even then it was not Ludwig who replied, but Margit.

901
01:27:26.220 --> 01:27:31.300
Through her warmth and charm, she eventually eased the relationship between the recalcitrant

902
01:27:31.300 --> 01:27:37.180
brothers when they were later in some proximity on the western shores of the Atlantic.

903
01:27:37.180 --> 01:27:41.380
Margit and her daughter Gitta had remained in Vienna for several weeks after the Anschluss

904
01:27:41.380 --> 01:27:46.460
because they did not have the necessary paperwork to leave the country. At this time their lives

905
01:27:46.460 --> 01:27:52.020
would have been in greater danger if their relationship with Mises had been known. Eventually

906
01:27:52.020 --> 01:27:57.020
They were able to leave and Ludwig greeted them at the train station in Zurich, flowers

907
01:27:57.020 --> 01:28:00.260
in hand. She later recalled,

908
01:28:00.260 --> 01:28:06.300
In the thirteen years we shared before our marriage I had never seen Lew cry, nor did

909
01:28:06.300 --> 01:28:13.060
I ever see him cry in all the thirty-five years of our married life. He wept, unrestrained

910
01:28:13.060 --> 01:28:19.340
and unabashed, tears were streaming down his face, and he was not ashamed of them. On July

911
01:28:19.340 --> 01:28:25.100
On May 6, 1938, they were married in Geneva. The original marriage certificate is in the

912
01:28:25.100 --> 01:28:30.620
files of the Graduate Institute of International Studies, Margit's records, Hungarian nationality

913
01:28:30.620 --> 01:28:36.480
born on July 3, 1890, father's name was Albert Herzfeld, mother's name was Selika

914
01:28:36.480 --> 01:28:43.180
von Theim. It was a simple administrative ceremony before a civil judge and two witnesses,

915
01:28:43.180 --> 01:28:48.700
Hans Kelsen and Gottfried von Habeler. Ludwig and Margit spent their honeymoon in the French

916
01:28:48.700 --> 01:29:15.220
His years with Margit brought about a profound positive transformation of Mises's personality.

917
01:29:15.220 --> 01:29:20.180
He was still obstinate, in his opinions, and formal in his demeanour, but in interaction

918
01:29:20.180 --> 01:29:25.420
with other people he became much less buttoned down. Most importantly, his temper improved.

919
01:29:25.420 --> 01:29:30.940
The outbursts and tantrums that Margit had so dreaded disappeared completely after a

920
01:29:30.940 --> 01:29:37.500
few years. He greatly needed her love and he got it. Even though she herself had a great

921
01:29:37.500 --> 01:29:43.580
ego, she adapted her life to make him happy. Arriving in Geneva, she had to start at square

922
01:29:43.580 --> 01:29:48.900
Mises' good friend, Weiss Wellenstein, had warned her that her life with Ludwig would

923
01:29:48.900 --> 01:29:54.500
not be easy, and indeed it was quite difficult at first. Mises introduced her to his closest

924
01:29:54.500 --> 01:30:00.500
associate only after the marriage, and not without warning. Here in Geneva, when men talk,

925
01:30:00.500 --> 01:30:06.420
women have to be silent. They only listen. Even Kelsen and Habeler, who were after all

926
01:30:06.420 --> 01:30:11.300
their witnesses, she met only shortly before the wedding, and only afterward did Margit

927
01:30:11.300 --> 01:30:17.340
move into Ludwig's apartment. There she found, to no surprise, a bachelor's residence. The

928
01:30:17.340 --> 01:30:21.660
furniture was first class and beautifully kept, but the whole apartment looked to me

929
01:30:21.660 --> 01:30:27.460
like a display in a department store. It was cold and impersonal. She went on,

930
01:30:27.460 --> 01:30:33.060
For the first time I saw a refrigerator. We did not have them yet in Vienna, and it was

931
01:30:33.060 --> 01:30:39.380
a real marvel to me. I loved Lew's sparkling kitchen, but otherwise I had my doubts. The

932
01:30:39.380 --> 01:30:50.620
But right from the first day, the transformation of his personality set in. Mises had changed

933
01:30:50.620 --> 01:30:56.980
his attitude. Margit was no longer just a friend and lover. She was now Mrs. von Mises,

934
01:30:56.980 --> 01:31:03.140
the comrade he had longed for, and the object of his true and deep love. So complete and

935
01:31:03.140 --> 01:31:08.600
radical was this change that he would henceforth refuse to even talk about the thirteen years

936
01:31:08.600 --> 01:31:14.880
before the wedding. It was as if he had put the past in a trunk, stored it in the attic

937
01:31:14.880 --> 01:31:21.740
and thrown away the key. For Margit this total break with the past would always be a burden,

938
01:31:21.740 --> 01:31:27.160
but the benefits were obvious. From the day of our marriage, Lew was a changed person.

939
01:31:27.160 --> 01:31:32.000
Not that he spoiled me with gifts or presents, he would not have known how to do that, but

940
01:31:32.000 --> 01:31:37.800
he was relaxed, affectionate, and his eyes were sparkling with happiness. Every little

941
01:31:37.800 --> 01:31:44.160
The whole thing I did was of interest to him. The world had changed for him. Lew was overpowering

942
01:31:44.160 --> 01:31:50.940
in his love and affection for me. Never was he cross or dissatisfied with anything I did.

943
01:31:50.940 --> 01:31:56.340
He could not nag. There was not one day to the very end of his life that he did not tell

944
01:31:56.340 --> 01:32:02.840
me, I love you, darling. Oh, how I love you! It seemed to me after our marriage that for

945
01:32:02.840 --> 01:32:12.840
The events in Austria had brought a number of their former Vienna friends to Geneva,

946
01:32:12.840 --> 01:32:18.560
and it was almost like the old days – lunches and dinners with Helene Lieser, Louis Sommer,

947
01:32:18.560 --> 01:32:24.600
Lisa Berger, Hans Kelsen and the Nierensteins. Mises also visited frequently with the local

948
01:32:24.600 --> 01:32:30.240
Guggenheims and Ginzbergs. They went out almost every weekend for a drive across the French

949
01:32:30.240 --> 01:32:34.960
French Border, and with the help of the Michelin Guide they explored the delights of French

950
01:32:34.960 --> 01:32:41.600
cuisine and the beauties of the alpine landscape on both sides of the border. Margett bravely

951
01:32:41.600 --> 01:32:48.200
assisted her new husband on the road. He definitely had an adventurous side and enjoyed the thrills

952
01:32:48.200 --> 01:32:54.000
of high speed and the centrifugal pull of mountain curves. On one of these curves he

953
01:32:54.000 --> 01:32:58.840
lost control of the car, which suddenly lurched over the roadside barrier into the valley's

954
01:32:58.840 --> 01:33:05.840
After this, Margit and Ludwig held their breath, but the car did not move. Then he pulled back

955
01:33:05.840 --> 01:33:12.260
slowly and they continued the rest of the way in a more civilised composure. They were

956
01:33:12.260 --> 01:33:17.560
both thoroughly fond of driving, but they were terrible drivers. They had at least two

957
01:33:17.560 --> 01:33:25.620
other serious accidents in 1948 and 1966. They had other scary moments for completely

958
01:33:25.620 --> 01:33:34.140
One day a dark car stopped them on one of their excursions, and a man in a long dark

959
01:33:34.140 --> 01:33:40.500
coat told Mises he had to talk to him. He asked Mises to follow him into the other car,

960
01:33:40.500 --> 01:33:45.260
which of course Mises refused to do. There were veiled threats, but the situation was

961
01:33:45.260 --> 01:33:49.980
resolved when a friend who was a high official of the League of Nations presented himself

962
01:33:49.980 --> 01:33:55.500
to the strangers who hurried back to their car and left. Mises and family had the distinctive

963
01:33:55.500 --> 01:34:16.460
Richard von Mises refers to such statements from Margit in a letter to Ludwig dated December

964
01:34:16.460 --> 01:34:23.020
29, 1938. At this point Mises's treatise on nationale économie was already very close

965
01:34:23.020 --> 01:34:46.960
The Volta-Lippmann Colloquium Seven weeks after his wedding Ludwig attended

966
01:34:46.960 --> 01:34:53.000
a historic meeting of the champions of both old Manchester-style liberalism and of neo-liberalism

967
01:34:53.000 --> 01:35:05.120
Neoliberalism was at first a purely informal phenomenon. Virtually all of its proponents

968
01:35:05.120 --> 01:35:10.680
were economists who cooperated in a spontaneous network within a few institutions such as

969
01:35:10.680 --> 01:35:15.400
the International Chamber of Commerce in Paris. By the mid-1930s the network had reached the

970
01:35:15.400 --> 01:35:20.960
critical mass needed for a more formal organisation under the banner of the New Third Way. One

971
01:35:20.960 --> 01:35:26.240
One important step to the organised appearance of the emerging neoliberal network was made

972
01:35:26.240 --> 01:35:32.380
when in 1937, the American journalist Walter Lippmann published a neoliberal manifesto

973
01:35:32.380 --> 01:35:37.680
with the title Inquiry into the Principles of the Good Society. The book appealed to

974
01:35:37.680 --> 01:35:42.600
European neoliberals because Lippmann gave eloquent expression to their own deeply held

975
01:35:42.600 --> 01:35:48.100
views about the roots of the present political and economic crisis. Those who still called

976
01:35:48.100 --> 01:35:56.100
They called themselves liberals, rejected socialism, but did not want to be too strongly associated with the Manchester doctrine of laissez-faire.

977
01:35:56.100 --> 01:36:03.100
Lippmann placed himself in opposition of both the old liberals and to the contemporaneous socialist agitators.

978
01:36:03.100 --> 01:36:08.100
Lippmann's middle-of-the-road position suited the pragmatic mentality of his countrymen.

979
01:36:08.100 --> 01:36:15.100
Americans tended to take a businesslike approach to political conflicts, seeking to solve them through negotiation and compromise.

980
01:36:15.100 --> 01:36:44.340
One of these was Louis Roger, 1889-1982, a philosopher at the University of Paris and

981
01:36:44.340 --> 01:36:49.060
Director of Centre Danubien, Roger considered Lippmann's book a brilliant exposition of

982
01:36:49.060 --> 01:36:54.060
a consensus that had emerged among liberal scholars in the recent past, most notably in

983
01:36:54.060 --> 01:37:00.220
books by Mises, Robbins, Laverne, Marliot and Ruff. He quickly arranged for a French

984
01:37:00.220 --> 01:37:04.540
edition of The Good Society and seized the occasion to convene a five-day colloquium

985
01:37:04.540 --> 01:37:09.340
in Paris, with the idea of reviewing the process of capitalism and of trying to define the

986
01:37:09.340 --> 01:37:14.060
doctrine the conditions necessary for its implementation and the new responsibilities

987
01:37:14.060 --> 01:37:20.320
of a True Liberalism. He later emphasized that the purpose was to define neoliberalism.

988
01:37:20.320 --> 01:37:27.020
The event took place on August 26-30, 1938, at the International Institute of Intellectual

989
01:37:27.020 --> 01:37:32.920
Cooperation and it assembled representatives of very different liberalisms. These men fell

990
01:37:32.920 --> 01:37:38.240
into at least four groups, with distinctly different views on the history, theory and

991
01:37:38.240 --> 01:37:43.560
political agenda of modern liberalism. The first group, which represented the mainstream

992
01:37:43.560 --> 01:37:50.000
of New Liberalism, promoted not only practical but also theoretical compromise with coercive

993
01:37:50.000 --> 01:37:54.600
socialism. They were willing to compromise on any particular item to make their general

994
01:37:54.600 --> 01:37:59.900
agenda more palatable to the voter. Their position can be thought of as pro-market social

995
01:37:59.900 --> 01:38:05.080
democracy. Second, there was a small group of men such as Hayek who were dissatisfied

996
01:38:05.080 --> 01:38:10.100
with various aspects of classical liberalism and endorsed a somewhat larger scope for

997
01:38:10.100 --> 01:38:14.860
or Government intervention. In contrast to the first group, however, their fundamental

998
01:38:14.860 --> 01:38:20.060
concern was with individual freedom and in time they therefore took an increasingly radical

999
01:38:20.060 --> 01:38:25.180
stance, moving ever closer to the classical liberal position. Third, there was an equally

1000
01:38:25.180 --> 01:38:30.500
small group of men such as Alexander Rustov, who were reluctant to endorse classical liberalism

1001
01:38:30.500 --> 01:38:35.480
root and branch, but their main objection was to the egalitarianism such as it was of

1002
01:38:35.480 --> 01:38:40.600
of its advocates. They argued that hierarchy was absolutely necessary for the maintenance

1003
01:38:40.600 --> 01:38:46.240
of a free society, because only the authority implied in it would effectively transmit the

1004
01:38:46.240 --> 01:38:51.200
cultural tradition of liberty. The great error of the French Revolution was that it had not

1005
01:38:51.200 --> 01:38:57.160
only abolished the coercive hierarchy of ancienne régime, but it also jettisoned the principle

1006
01:38:57.160 --> 01:39:03.580
of hierarchy per se. In its egalitarian favour it had tossed out the natural hierarchy baby

1007
01:39:03.580 --> 01:39:09.400
with the coercive hierarchy bathwater. Fourth and finally, Ludwig von Mises upheld

1008
01:39:09.400 --> 01:39:14.620
19th-century laissez-faire policies on refined theoretical grounds that he himself had developed

1009
01:39:14.620 --> 01:39:20.780
over the past 18 years. By the 1930s he was acknowledged both within and outside libertarian

1010
01:39:20.780 --> 01:39:26.420
circles as the most important contemporary representative of the Manchester School. The

1011
01:39:26.420 --> 01:39:30.560
anonymous reviewer of the French edition of Gemeinbirchhoff presented the author as the

1012
01:39:30.560 --> 01:39:33.840
The Uncontested Head of the School of Austrian Economists

1013
01:39:33.840 --> 01:39:38.180
When Louis Boudin invited Mises to join the scientific committee of a new French journal

1014
01:39:38.180 --> 01:39:42.840
of comparative economics in 1939, he told him that all political orientations would

1015
01:39:42.840 --> 01:39:47.720
be represented in this committee, reason enough to have liberalism defended by masters such

1016
01:39:47.720 --> 01:39:52.840
as Mises. The uniqueness of Mises's role was still recognised some twenty years later

1017
01:39:52.840 --> 01:39:58.080
by one of the last surviving students of the French laissez-faire school. Writing to Mises

1018
01:39:58.080 --> 01:40:04.960
in September 1957. The Professor A. Bastet said that Mises was the successor to our master,

1019
01:40:04.960 --> 01:40:11.800
Yves Guillot, who himself was the successor to Gustave de Molinarie, 1819-1912, and Molinarie

1020
01:40:11.800 --> 01:40:18.200
was successor to the great Proto-Austrian, Frederic Bastiat, 1801-1850.

1021
01:40:18.200 --> 01:40:23.380
The Lipman colloquium showed that three of Mises' insights had had a profound impact

1022
01:40:23.380 --> 01:40:29.140
on the neoliberals. First, his demonstration that socialist calculation was impossible had

1023
01:40:29.140 --> 01:40:34.620
liberated them from all notions that a full-blown socialist commonwealth was feasible or even

1024
01:40:34.620 --> 01:40:40.060
desirable on economic grounds. Second, the socialist calculation argument had convinced

1025
01:40:40.060 --> 01:40:45.620
them that competitive pricing is of utmost importance and a defining characteristic of

1026
01:40:45.620 --> 01:40:51.540
the free market. Third, they endorsed Mises' original case for liberalism, which stressed

1027
01:40:51.540 --> 01:40:56.460
that a private property order was the only feasible system for the division of labour.

1028
01:40:56.460 --> 01:41:01.300
The latter two insights, however, came to be twisted so as to fit the neoliberal interventionist

1029
01:41:01.300 --> 01:41:06.700
agenda. Whereas Mises had simply stated that a calculation-based division of labour could

1030
01:41:06.700 --> 01:41:12.180
take place only where private property exists, the neoliberals set out to manipulate the

1031
01:41:12.180 --> 01:41:17.260
legal and judicial systems in order to improve on the spontaneous division of labour that

1032
01:41:17.260 --> 01:41:23.980
would have resulted from political laissez-faire. For these men, the market was critically important,

1033
01:41:23.980 --> 01:41:28.300
but they believed that government intervention could enhance the efficiency and fairness

1034
01:41:28.300 --> 01:41:33.940
of the market process. Unlike socialists, neoliberals believed that the market took society

1035
01:41:33.940 --> 01:41:38.820
in the right direction, but unlike classical liberals, they believed that the unhampered

1036
01:41:38.820 --> 01:41:44.460
market fell short of its true potential. In a preface to the first German edition of The

1037
01:41:44.460 --> 01:41:51.140
The Good Society, 1945, Wilhelm Röpke emphasised the orientation of neoliberal policies toward

1038
01:41:51.140 --> 01:41:57.660
the optimisation of the social machine. Thus the question is not for or against laissez-faire,

1039
01:41:57.660 --> 01:42:04.540
rather it is which judicial order, Rechtsordnung, fits an economic constitution that is just,

1040
01:42:04.540 --> 01:42:09.740
free of the highest productivity and based on a sophisticated division of labour? As

1041
01:42:09.740 --> 01:42:13.980
this preface shows, Röpke was deeply impressed by Lippmann's work, which he believed had

1042
01:42:13.980 --> 01:42:18.660
had a tremendous impact on the neoliberal movement. As a consequence of this particular

1043
01:42:18.660 --> 01:42:23.540
interpretation of Mises' theory of social systems, the neoliberals also reinterpreted

1044
01:42:23.540 --> 01:42:29.380
the significance of Mises' insights about the importance of competitive pricing. Mises

1045
01:42:29.380 --> 01:42:33.860
had argued that a rational division of labour could be based only on market prices for factors

1046
01:42:33.860 --> 01:42:39.660
of production, which in turn required private ownership of these factors. In contrast, the

1047
01:42:39.660 --> 01:42:44.540
The neoliberals focused exclusively on the prices themselves, neglecting the conditions

1048
01:42:44.540 --> 01:42:49.280
under which free pricing occurs. For them, the practical conclusion of their socialist

1049
01:42:49.280 --> 01:42:54.420
calculation argument was not that government should not interfere with property in general,

1050
01:42:54.420 --> 01:43:00.380
but rather that it should be kept from meddling with prices specifically. At the colloquium,

1051
01:43:00.380 --> 01:43:04.960
Lippmann was praised for his distinction between market-compatible interventions and interventions

1052
01:43:04.960 --> 01:43:08.960
Incompatible with the operation of a market economy.

1053
01:43:08.960 --> 01:43:14.160
Roustov prided himself on having coined the phrase liberale interventionismus, classical

1054
01:43:14.160 --> 01:43:21.560
liberal interventionism, as early as 1932, he probably referred to his talk at the 1932

1055
01:43:21.560 --> 01:43:24.640
Graysden meeting of the Verein.

1056
01:43:24.640 --> 01:43:29.900
Only direct interference with the working of the price mechanism was illegitimate,

1057
01:43:29.900 --> 01:43:33.580
if the government limited itself to controlling only the legal framework within which the

1058
01:43:33.580 --> 01:43:46.740
The Unifying Principle of Postwar Neoliberal Theories was an attempt to justify liberty

1059
01:43:46.740 --> 01:43:52.860
in some cases and state-sponsored violence in others through one and the same theory.

1060
01:43:52.860 --> 01:43:58.000
The most important products of these endeavours were the theory of public goods and the Chicago

1061
01:43:58.000 --> 01:44:05.200
Mises relentlessly criticised the neoliberal interpretation of the significance of the

1062
01:44:05.200 --> 01:44:10.680
socialist calculation argument. From his point of view, the arbitrary distinction between

1063
01:44:10.680 --> 01:44:16.520
the play of the price mechanism and the framework of the market was nonsensical. The nature

1064
01:44:16.520 --> 01:44:21.160
of government intervention is to violate private property rights, thereby affecting the price

1065
01:44:21.160 --> 01:44:25.760
mechanism in all cases. While it is true that certain phenomena result only from direct

1066
01:44:25.760 --> 01:44:30.980
Interference with the pricing process, shortages and surpluses, most notably, the larger issue

1067
01:44:30.980 --> 01:44:36.380
of economic calculation remains. It is ultimately irrelevant whether government intervention

1068
01:44:36.380 --> 01:44:41.500
meddles directly with prices or indirectly through the framework of price formation.

1069
01:44:41.500 --> 01:44:46.080
In either case, market prices are perverted.

1070
01:44:46.080 --> 01:44:51.580
Plans for After the War Parallel to the work on his treatise of economics

1071
01:44:51.580 --> 01:44:56.900
or praxeology as he now called it, Mises spent much time writing and teaching about concrete

1072
01:44:56.900 --> 01:45:02.380
contemporary political problems. In my course at Geneva dealing with the economic and sociological

1073
01:45:02.380 --> 01:45:07.380
doctrines in modern political thought, I used to devote many hours to a full refutation

1074
01:45:07.380 --> 01:45:12.480
of the Nazi doctrines. He applied the general theory of praxeology to explain the rise of

1075
01:45:12.480 --> 01:45:18.780
Nazism and he probably also presented his plans for the time after Hitler. He also wrote

1076
01:45:18.780 --> 01:45:23.540
Put down these thoughts in a book manuscript and in several lengthy memoranda.

1077
01:45:23.540 --> 01:45:29.700
By 1938 he had already composed a book manuscript that described the way of the German people

1078
01:45:29.700 --> 01:45:35.460
toward National Socialism, a working title in June 1940, when he left a copy of the manuscript

1079
01:45:35.460 --> 01:45:37.660
with his colleague Potter.

1080
01:45:37.660 --> 01:45:42.420
The work would eventually be published in an English translation in 1944 under the title

1081
01:45:42.420 --> 01:45:49.220
Omnipotent Government, here Mises elaborates on the thesis developed in his 1919 book Nations,

1082
01:45:49.220 --> 01:45:55.980
State and Economy, in which he had explained the rise of German imperialism. He now stressed

1083
01:45:55.980 --> 01:46:01.380
that the age of nationalist protectionism had created an incentive for war. Protectionism

1084
01:46:01.380 --> 01:46:06.900
promoted the interests of some citizens at the expense of all other citizens, subject

1085
01:46:06.900 --> 01:46:11.220
to the government that applied protectionist measures, but it also came at the expense

1086
01:46:11.220 --> 01:46:17.060
of Foreigners, who therefore stood to gain from a violent overthrow of that government.

1087
01:46:17.060 --> 01:46:20.860
Mises would later make this point in a paper delivered to an American audience.

1088
01:46:20.860 --> 01:46:27.100
The reasoning of the old liberals can be condensed in one sentence. War is useless in a liberal

1089
01:46:27.100 --> 01:46:33.320
world. This theorem is absolutely correct, but we must not forget the condition in a

1090
01:46:33.320 --> 01:46:39.640
liberal world. Our world is very different, and in this world you cannot say that war

1091
01:46:39.640 --> 01:46:46.000
is useless. It is not true that the individual citizen cannot derive any advantage of a victorious

1092
01:46:46.000 --> 01:46:53.080
war. In the world of state interventionism, the territorial expansion of his own state

1093
01:46:53.080 --> 01:46:58.800
is of the utmost importance to each individual citizen. Every benefit which he derives from

1094
01:46:58.800 --> 01:47:05.480
his own government is the more valuable the larger its territory is. Every new conquest

1095
01:47:05.480 --> 01:47:10.880
further restricts the area in which discrimination is applied against him.

1096
01:47:10.880 --> 01:47:16.360
When the Second World War broke out in September 1939, Mises was already thinking about the

1097
01:47:16.360 --> 01:47:22.000
time after the war, a war that Mises was absolutely convinced Hitler would lose. When the war

1098
01:47:22.000 --> 01:47:27.120
eventually reached the Western theatre in May 1940, Mises had reached the conclusion

1099
01:47:27.120 --> 01:47:33.240
that the major economic problem of the post-war period would be shortage of capital. To attract

1100
01:47:33.240 --> 01:47:38.600
foreign capital and to stimulate the capital accumulation, governments would be forced to

1101
01:47:38.600 --> 01:47:44.760
accept far-reaching curtailment of their sovereignty. These states will have to renounce any powers

1102
01:47:44.760 --> 01:47:50.240
in the field of money, credit, trade and taxation on behalf of foreign capital. They will have

1103
01:47:50.240 --> 01:47:56.040
to submit themselves unconditionally to the jurisdiction of international courts and accept

1104
01:47:56.040 --> 01:48:00.700
that the decisions of these courts be imposed by an international police force. This might

1105
01:48:00.700 --> 01:48:05.620
It sounds somewhat strange, Mises concedes, but a state is free to choose whether it accepts

1106
01:48:05.620 --> 01:48:10.100
these conditions for receiving foreign capital, and there is a strong political rationale

1107
01:48:10.100 --> 01:48:15.020
for the abandonment of national sovereignty. Small states must have an effective protection

1108
01:48:15.020 --> 01:48:20.980
against aggression by bigger states. States engaging in secret rearmament must be prevented

1109
01:48:20.980 --> 01:48:26.520
from the execution of their plans by an international police. Governments that violate peace must

1110
01:48:26.520 --> 01:48:31.500
must be treated as robbers and murderers are treated within each state.

1111
01:48:31.500 --> 01:48:38.260
By May 1940, Mises had elaborated a fairly detailed plan for Austria's post-war reconstruction.

1112
01:48:38.260 --> 01:48:43.600
This plan is of some interest because 1. it is representative of the applied work he did,

1113
01:48:43.600 --> 01:48:50.240
for example, in the context of his comer activities, and 2. shows the relatively large scope Mises

1114
01:48:50.240 --> 01:48:54.720
allowed for government activity within the framework of a market economy.

1115
01:48:54.720 --> 01:48:58.760
The starting point for his considerations was that Austria could feed its population

1116
01:48:58.760 --> 01:49:04.680
of 6.5 million people only as an industrialised nation, which requires entrepreneurs who know

1117
01:49:04.680 --> 01:49:11.040
how to produce for the world market. In old Austria there had been about a thousand such

1118
01:49:11.040 --> 01:49:16.840
men. Today these entrepreneurs were gone because the government, the trade unions and the whole

1119
01:49:16.840 --> 01:49:22.480
country had fought a war against them. At least two-thirds of them were Jews. Their

1120
01:49:22.480 --> 01:49:27.020
Their firms were Aryanised according to the Marxist idea that the workers and the means

1121
01:49:27.020 --> 01:49:34.260
of production are all that matter in a firm. The entrepreneurs are mere exploiters. However,

1122
01:49:34.260 --> 01:49:40.780
without the spirit and the energy of the entrepreneur, a firm is just a heap of junk and scrap. And

1123
01:49:40.780 --> 01:49:44.740
even those entrepreneurs who were not murdered and tortured could not continue their business

1124
01:49:44.740 --> 01:49:49.820
because of foreign exchange controls and central planning. As a consequence, Austria would

1125
01:49:49.820 --> 01:49:54.820
would face a far more difficult situation than it faced after the First World War, when

1126
01:49:54.820 --> 01:49:59.780
the creative and industrious entrepreneurs saved the country despite the obstructions

1127
01:49:59.780 --> 01:50:06.380
thrown up by the government. This time, Austria would not be able to count on post-war imports

1128
01:50:06.380 --> 01:50:12.540
of foreign capital. Mises' positive programme for the post-war period contains several standard

1129
01:50:12.540 --> 01:50:18.600
classical liberal positions that the currency must be based on gold, that the central bank

1130
01:50:18.600 --> 01:50:24.820
must be obliged to redeem its notes and demand deposits against gold at the legal rate, no

1131
01:50:24.820 --> 01:50:29.640
foreign exchange controls would be permissible, and Austria would have to follow a strict

1132
01:50:29.640 --> 01:50:36.420
free trade policy. Then, however, Mises proceeded to an astounding contention. Free trade does

1133
01:50:36.420 --> 01:50:42.280
not mean that all import duties are abolished. It only means that one does not try to increase

1134
01:50:42.280 --> 01:50:46.540
domestic prices through import duties in order to enable domestic producers to sell their

1135
01:50:46.540 --> 01:50:51.520
are products at higher prices than their foreign competitors, thus two kinds of import duties

1136
01:50:51.520 --> 01:50:57.180
are in accordance with free trade, a. financial duties, which have to correspond to domestic

1137
01:50:57.180 --> 01:51:03.340
sales taxes, and b. retortion duties on the import of all or certain commodities from

1138
01:51:03.340 --> 01:51:08.620
countries pursuing a policy which is hostile to the interests of Austrian trade, and Wurf

1139
01:51:08.620 --> 01:51:12.700
von Richtlinien für den Wiederaufbau Österreichs.

1140
01:51:12.700 --> 01:51:17.420
But Mises also recommended several measures of government intervention. He said that Austria

1141
01:51:17.420 --> 01:51:22.480
should never impose import duties on luxury goods, which implies that such duties could

1142
01:51:22.480 --> 01:51:29.660
be taken on other goods, because a major part of its own export is composed of such goods.

1143
01:51:29.660 --> 01:51:33.780
Interdictions of imports for public health and veterinary reasons were legitimate, and

1144
01:51:33.780 --> 01:51:39.120
weapons imports must be reserved for the government. Interdictions of export should be allowed

1145
01:51:39.120 --> 01:51:56.360
Mises championed a programme of thorough political centralisation.

1146
01:51:56.360 --> 01:52:01.840
On behalf of taxation, he claimed, all taxes and duties accrue directly to the State. The

1147
01:52:01.840 --> 01:52:08.340
communal authorities have no power of taxation. They get their means from the State. He spelled

1148
01:52:08.340 --> 01:52:15.260
Build out a definite list of taxes a. Sales taxes for alcohol and tobacco b. A sales tax

1149
01:52:15.260 --> 01:52:20.400
that is only levied on commodities bought by consumers c. An income tax on wages to

1150
01:52:20.400 --> 01:52:27.500
finance the social security system d. A progressive tax on housing expenditures e. A tax on luxury

1151
01:52:27.500 --> 01:52:35.500
cars f. A tax on lottery gains g. A tax on playing cards h. Fees for certain administrative

1152
01:52:35.500 --> 01:52:41.980
of Acts, registering of patent rights, brands, etc., i. a moderate taxation of yields of

1153
01:52:41.980 --> 01:52:46.600
more than 6% on capital which are paid out to the stock owners of corporations with limited

1154
01:52:46.600 --> 01:52:54.720
liability. Mises emphasised that, apart from point C, there could be no income taxes. Penalising

1155
01:52:54.720 --> 01:53:00.240
income kills the goose that lays the golden eggs. Moreover, all public enterprises would

1156
01:53:00.240 --> 01:53:05.960
have to be sold or closed if their proceeds did not cover costs.

1157
01:53:05.960 --> 01:53:11.540
In order to avoid expensive double administration, the state alone should direct the whole administration

1158
01:53:11.540 --> 01:53:16.480
of the county. The only other level under the central institutions of the state was

1159
01:53:16.480 --> 01:53:22.120
that of the county administrations and courts. The communal authorities would have to execute

1160
01:53:22.120 --> 01:53:27.860
the tasks set for them by the general legislation. Their only revenue would come from the state

1161
01:53:27.860 --> 01:53:33.220
and from public firms and property. The purpose of this ultra-centralised structure was to

1162
01:53:33.220 --> 01:53:37.820
avoid corruption and waste of public money. The postal, telegram and telephone services

1163
01:53:37.820 --> 01:53:43.220
would be organised by a single post office in Vienna. Employment in the public administration

1164
01:53:43.220 --> 01:53:48.460
was to be regulated according to the French competitive system to prevent protectionism,

1165
01:53:48.460 --> 01:53:51.460
nepotism and corruption.

1166
01:53:51.460 --> 01:53:55.460
Mises goes on to discuss how to deal with the Austrian government officials who served

1167
01:53:55.460 --> 01:53:59.980
under the Nazis. Whether they may stay in the public services is to be decided case

1168
01:53:59.980 --> 01:54:08.060
by case in the interest of the State. The system of education has to be radically restructured.

1169
01:54:08.060 --> 01:54:12.940
The Volksschule, elementary school, needed to be nationalised, and all institutions of

1170
01:54:12.940 --> 01:54:19.380
higher education had to fall under the direct responsibility of the Department of Education.

1171
01:54:19.380 --> 01:54:24.860
Mises even made proposals on the specific content of education. In the Gymnasium, pupils

1172
01:54:24.860 --> 01:54:29.920
should be obliged to learn English and French, and the requirements to pass exams should

1173
01:54:29.920 --> 01:54:36.220
be considerably increased because only extraordinarily talented and industrial pupils merit that

1174
01:54:36.220 --> 01:54:41.340
the State incurs special expenses for their education.

1175
01:54:41.340 --> 01:54:47.700
Mises's pronouncements on the Austrian universities were severe. While their expenses constantly

1176
01:54:47.700 --> 01:54:53.100
increased the scientific level decreased ever further. The University of Vienna would therefore

1177
01:54:53.100 --> 01:54:57.860
have to be established anew with the help of Western European scholars and of Austrian

1178
01:54:57.860 --> 01:55:03.580
professors teaching abroad. The universities of Graz and Innsbruck would have to be closed

1179
01:55:03.580 --> 01:55:09.800
altogether since they had long since lost the right to call themselves universities.

1180
01:55:09.800 --> 01:55:13.940
In order to reduce the post-war scarcity of capital, Mises suggested publicising the new

1181
01:55:13.940 --> 01:55:19.580
Austria's free trade policies to foreign capitalists and entrepreneurs and attracting old Austrian

1182
01:55:19.580 --> 01:55:24.540
and Entrepreneurs Back to Their Home Country. He also recommended his study of the methods

1183
01:55:24.540 --> 01:55:29.460
of the French cultural propaganda to improve Austria's image in the world by reference

1184
01:55:29.460 --> 01:55:35.300
to the great cultural achievements of its sons. The selection of Austria's representatives

1185
01:55:35.300 --> 01:55:39.940
would therefore have to be more careful. To the western capitals, Austria should only

1186
01:55:39.940 --> 01:55:45.340
send men who because of their scientific importance or because of other outstanding qualities

1187
01:55:45.340 --> 01:55:51.020
Mises command a great personal reputation, and thereby can purvey Austria's representation

1188
01:55:51.020 --> 01:55:56.620
with a prestige that it would lack otherwise. Here too France may serve as an example.

1189
01:55:56.620 --> 01:56:01.600
Mises never put these proposals into print under his name. He always kept a strict separation

1190
01:56:01.600 --> 01:56:06.640
between his scientific work, for which he would stand unreservedly, and his work as

1191
01:56:06.640 --> 01:56:12.300
an economic and political consultant. His plan for Austria's post-war reconstruction

1192
01:56:12.300 --> 01:56:15.300
fell into the latter category.

1193
01:56:15.300 --> 01:56:20.040
One historian of his cummer activities pointed out, at the university and in his books he

1194
01:56:20.040 --> 01:56:25.060
showed himself as an uncompromising champion of the free market. As a practitioner and

1195
01:56:25.060 --> 01:56:29.700
cummer politician, he was rather flexible and ready for compromise if nothing essential

1196
01:56:29.700 --> 01:56:35.180
had to be given up, but even in compromise he then remained hard and would not deviate

1197
01:56:35.180 --> 01:56:40.900
from the course of action that had been recognised and agreed upon. It applied his scientific

1198
01:56:40.900 --> 01:56:59.880
Escape from Europe

1199
01:56:59.880 --> 01:57:07.380
The summer of 1939 was exceptionally beautiful. Ludwig and Margit spent a vacation in Elbein,

1200
01:57:07.380 --> 01:57:12.140
which had a magnificently alpine setting, almost as Bad Gastein, their regular vacation

1201
01:57:12.140 --> 01:57:14.820
spot in Austria.

1202
01:57:14.820 --> 01:57:22.640
On August 7th, 1939, Mises wrote from Eleben to a Giovanni de Maria. He granted permission

1203
01:57:22.640 --> 01:57:27.960
for an Italian translation of his Theorie des Geldes und der Umlaufsmittel, stating

1204
01:57:27.960 --> 01:57:33.980
that he alone had all rights for translations into foreign languages. This translation probably

1205
01:57:33.980 --> 01:57:53.700
Richard von Mises paid them a visit on his way to the United States. In June, he had

1206
01:57:53.700 --> 01:57:58.460
come to the conclusion that Turkey was no longer safe and decided to accept a visiting

1207
01:57:58.460 --> 01:58:13.020
The war broke out on September 1, 1939, when Mises must have been in the process of reviewing

1208
01:58:13.020 --> 01:58:19.880
the proof pages of his Nationalökonomie. Strangely enough, during the first eight months

1209
01:58:19.880 --> 01:58:25.680
of the war, everything was quiet on the Western Front. The governments of France and Britain

1210
01:58:25.680 --> 01:58:55.680
The Soviet Union had declared war on Germany in fulfillment of the guarantees they had extended to Poland, but they did nothing to prevent the Wehrmacht from completing its invasion of Poland within two weeks, and they did not even declare war on the Soviet Union, which also invaded Poland in visible execution of a secret agreement between Hitler and Stalin to divide Poland between them, thus continuing the tradition of Frederick II and Catherine II.

1211
01:58:55.680 --> 01:59:08.440
There was widespread sentiment, especially in France, that the cause was not worth another

1212
01:59:08.440 --> 01:59:14.520
round of mass slaughter. They believed that the First World War had been fought in vain

1213
01:59:14.520 --> 01:59:20.080
and the Treaty of Versailles had humiliated the Germans without creating justice. It had

1214
01:59:20.080 --> 01:59:25.280
given protection to former ethnic minorities through the creation of the Czechoslovak and

1215
01:59:25.280 --> 01:59:30.360
Polish States, but the Germans who remained there were now exposed to an oppression that

1216
01:59:30.360 --> 01:59:35.920
was virtually indistinguishable from the one that the Czechs, Slovaks and Poles had experienced

1217
01:59:35.920 --> 01:59:43.400
in pre-1914 Germany and Austria. Under Hitler, the Germans set out finally to protect their

1218
01:59:43.400 --> 01:59:49.280
co-nationals in the East, and a great number of Western Europeans found this foreign policy

1219
01:59:49.280 --> 01:59:58.000
This attitude did not express passivity or apathy. It resulted naturally from the political

1220
01:59:58.000 --> 02:00:04.320
dogma that ruled the West in those days, namely, that ethnic self-determination was the highest

1221
02:00:04.320 --> 02:00:10.320
political principle. But while most citizens of the West did not feel the Wehrmacht threatened

1222
02:00:10.320 --> 02:00:16.960
their existence, the governments were ready to draw a line in the sand. In September 1939,

1223
02:00:16.960 --> 02:00:23.080
The resolution to stop Hitler was not much more than a moral resolve, a resolve moreover

1224
02:00:23.080 --> 02:00:28.920
that was half-baked and corrupted by several years of anti-fascist lobbying by the Bolshevists

1225
02:00:28.920 --> 02:00:33.640
in Geneva, but it marked the beginning of the efforts that would eventually lead to

1226
02:00:33.640 --> 02:00:37.440
the German defeat in the Second World War.

1227
02:00:37.440 --> 02:00:42.480
Mises was silent on the subject, but Margit became nervous.

1228
02:00:42.480 --> 02:00:46.840
In anticipation of a German invasion, she asked him to consider emigration to America

1229
02:00:46.840 --> 02:00:52.400
or elsewhere. Reluctantly, Mises began to explore the possibility in correspondence

1230
02:00:52.400 --> 02:00:58.480
with his brother Richard and Fritz Machloub, both of whom had already crossed the Atlantic.

1231
02:00:58.480 --> 02:01:05.360
Machloub had discussed the idea of a California vacation for Mises with Benjamin Anderson

1232
02:01:05.360 --> 02:01:10.980
and other friends from the University of California. Anderson had just moved to the Los Angeles

1233
02:01:10.980 --> 02:01:16.220
Mises' campus of the University of California and was the most influential man in the hitherto

1234
02:01:16.220 --> 02:01:23.020
un-prestigious Department of Economics. UCLA showed interest, and the chairman of the department

1235
02:01:23.020 --> 02:01:28.740
wrote two letters to Machloub, who then mediated between the two parties. In this process things

1236
02:01:28.740 --> 02:01:34.660
got mixed up. At first Mises declined when Machloub told him UCLA could offer only a

1237
02:01:34.660 --> 02:01:41.660
Mises asked his friend, Tudel Dudley Peghram, the chair of the department, that his Austrian passport had expired, and that he could therefore not accept the offer of a salary of $4,000 per annum.

1238
02:02:04.660 --> 02:02:11.060
the offer at the moment and would be grateful if the invitation could be postponed a year.

1239
02:02:11.060 --> 02:02:16.140
While Mises's letter was on its way, Machloub wrote again, this time pointing out that an

1240
02:02:16.140 --> 02:02:21.760
invitation from UCLA would procure you a permanent non-quota immigration visa for the United

1241
02:02:21.760 --> 02:02:29.060
States which might be considered an asset these days. This convinced Mises. Meanwhile,

1242
02:02:29.060 --> 02:02:33.900
he had received a cable from his friend Unger, a former Geneva student of his who was already

1243
02:02:33.900 --> 02:02:41.260
in New York City and who told him in telegraphic language that he, Mises, was making a mistake.

1244
02:02:41.260 --> 02:02:46.020
As soon as he received Makhloub's letter on February 28th, Mises wrote back that his

1245
02:02:46.020 --> 02:02:51.900
concerns about passport and visa questions had been dispelled and that he would be ready

1246
02:02:51.900 --> 02:02:58.180
to go to California. If he had cabled this message to Makhloub, Mises might have begun

1247
02:02:58.180 --> 02:03:04.060
and a career in California in August 1940, and history would have been different. But

1248
02:03:04.060 --> 02:03:09.460
Mises sent the letter by surface mail, and it reached Machlup only after he had already

1249
02:03:09.460 --> 02:03:15.300
declined the offer on Mises's behalf. When Machlup wrote to Anderson, trying as diplomatically

1250
02:03:15.300 --> 02:03:20.060
as I could to reopen the negotiations, he received a response from Anderson's secretary

1251
02:03:20.060 --> 02:03:26.380
that her boss was on a short vacation. One month later, Pegram gave him a definitive

1252
02:03:26.380 --> 02:03:32.320
No, meanwhile Mises himself had been in touch with Anderson, though on less vital matters.

1253
02:03:32.320 --> 02:03:37.740
In March 1940, Nationalökonomie was at the printer, and there was no sign that the war

1254
02:03:37.740 --> 02:03:43.480
would soon reach Western Europe. The printing of Nationalökonomie had started by January

1255
02:03:43.480 --> 02:03:49.240
1940. Mises half-jokingly surmised that it might be the last economics book published

1256
02:03:49.240 --> 02:03:56.120
in the German language. To most citizens of the West it was not clear that it ever would.

1257
02:03:56.120 --> 02:04:00.640
Following Mises from his new position in Los Angeles, Benjamin Anderson announced his intention

1258
02:04:00.640 --> 02:04:02.640
to come to Europe in the summer.

1259
02:04:02.640 --> 02:04:06.160
He hesitated to do so, though not from fear of danger.

1260
02:04:06.160 --> 02:04:10.160
I have a feeling that coming to Europe at this time, even to the neutral states, is

1261
02:04:10.160 --> 02:04:15.320
almost like going to a friend's house, when a member of the family is undergoing an operation,

1262
02:04:15.320 --> 02:04:20.340
and that I might simply be an additional burden on busy and wary men who have more important

1263
02:04:20.340 --> 02:04:24.180
things to do than to carry on discussions with a foreign economist.

1264
02:04:24.180 --> 02:04:28.380
In his response, Mises assured his American friend that these fears were groundless. Your

1265
02:04:28.380 --> 02:04:33.420
doubts about a visit in Europe are unfounded. It is just the right time for you to come

1266
02:04:33.420 --> 02:04:36.660
and to see what is going on.

1267
02:04:36.660 --> 02:04:41.740
Mises had been convinced that the new war would start just as the last war had ended

1268
02:04:41.740 --> 02:04:48.060
in the trenches. He was convinced that France and its allies would withstand any German attack,

1269
02:04:48.060 --> 02:04:53.140
modern conditions, and make defence the most effective military strategy. But the times

1270
02:04:53.140 --> 02:04:58.180
The history of battles of the old style, which permitted getting around the opponent's flank,

1271
02:04:58.180 --> 02:05:03.140
was passed on the great European theatres of war since the massiveness of the armies and

1272
02:05:03.140 --> 02:05:08.540
the tactics that had been reshaped by modern weapons and means of communication, offered

1273
02:05:08.540 --> 02:05:13.740
the possibility of arranging the armies in such a way that a flank attack was no longer

1274
02:05:13.740 --> 02:05:20.080
possible. Flanks that rest on the sea or on neutral territory cannot be gotten around.

1275
02:05:20.080 --> 02:05:26.280
Every frontal attack still remains, but it fails against an equally well-armed opponent.

1276
02:05:26.280 --> 02:05:31.240
With these comforting thoughts in his mind, Mises had the pleasure of holding in his hands

1277
02:05:31.240 --> 02:05:36.400
the freshly-bound nationale économie, the work of a lifetime. The joy lasted only for

1278
02:05:36.400 --> 02:05:42.480
a few days before it was overwhelmed by unexpected and devastating news.

1279
02:05:42.480 --> 02:05:48.240
In May 1940 the Wehrmacht ended the phony war and overran Western Europe in a series

1280
02:05:48.240 --> 02:05:54.360
Mises was completely taken by surprise. He had not realized that conditions had once

1281
02:05:54.360 --> 02:06:00.320
again changed profoundly. Tank divisions had become sufficiently fast to attack the flanks

1282
02:06:00.320 --> 02:06:05.960
of even very large armies, especially when the divisions operated under air support.

1283
02:06:05.960 --> 02:06:11.040
A few military theoreticians had perceived this threat during the interwar period, but

1284
02:06:11.040 --> 02:06:16.040
it was only in the spring of 1940 that General Heinz Guderian and his men proved the threat

1285
02:06:16.040 --> 02:06:20.240
A Reality In their purely tactical use of the Air Force

1286
02:06:20.240 --> 02:06:24.700
in direct confrontations with enemy troops, the Germans applied the theory of the chief

1287
02:06:24.700 --> 02:06:29.820
engineer of the French Navy, Rogeron, who at the beginning of the 1930s had synthesized

1288
02:06:29.820 --> 02:06:34.880
the experiences of the First World War. In distinct contrast, the Western Allies would

1289
02:06:34.880 --> 02:06:39.880
eventually apply the theories of the Italian General, Giulio Due, according to which the

1290
02:06:39.880 --> 02:06:45.160
Air Force should bomb the cities and supply lines in the hinterland of the enemy, thus

1291
02:06:45.160 --> 02:06:49.400
Destroying His Economy and the Morale of the Population

1292
02:06:49.400 --> 02:06:54.240
Dues' theory had already been anticipated in the strategic planning offices of the British

1293
02:06:54.240 --> 02:07:00.280
Royal Air Force directly after its creation in the spring of 1918. The end of the war

1294
02:07:00.280 --> 02:07:05.440
prevented the application of the plans at this point. Mises could hardly believe what

1295
02:07:05.440 --> 02:07:11.480
he read in the newspapers. Belgium, Holland, he exclaimed in his notebook on May 10. Less

1296
02:07:11.480 --> 02:07:16.440
Less than two weeks later, Guderian reached the Channel and cut off the Allied supply

1297
02:07:16.440 --> 02:07:22.120
lines. The British escaped at Dunkirk, and now the Germans took on the 80-some remaining

1298
02:07:22.120 --> 02:07:25.560
French divisions one by one.

1299
02:07:25.560 --> 02:07:31.000
On June 3, 1940, Louis Boudin wrote to Mises that Paris was calm.

1300
02:07:31.000 --> 02:07:37.280
I was not surprised by our early failures. We needed to get rid of our bad leaders and

1301
02:07:37.280 --> 02:07:42.820
to correct people's mindsets, the popular front has cost us dearly.

1302
02:07:42.820 --> 02:07:50.020
On June 14th, Mises exclaimed again, Paris, and three days later, armistice. It was an

1303
02:07:50.020 --> 02:07:57.140
ordeal. May 1940 was, as he later recalled, the most disastrous month of Europe's history.

1304
02:07:57.140 --> 02:08:01.920
It was the only time he was ever wrong in forecasting an important political or economic

1305
02:08:01.920 --> 02:08:05.980
event. After the Allied debacle at Dunkirk, Mises

1306
02:08:05.980 --> 02:08:11.080
He knew it was a question of days or weeks before it would be impossible to leave Geneva.

1307
02:08:11.080 --> 02:08:17.260
His residence in Geneva would soon be unsafe. He had to act. He was high on the German government's

1308
02:08:17.260 --> 02:08:24.100
list of wanted men. The Germans had already tried to kidnap him and had almost succeeded.

1309
02:08:24.100 --> 02:08:28.340
They had already been pressuring the Swiss authorities to surrender Mises. The Swiss

1310
02:08:28.340 --> 02:08:34.860
had refused, but they had also let Mises know they had acted out of charity and that his

1311
02:08:34.860 --> 02:08:39.580
Mises' visa was still subject to extension on a yearly basis. The situation was already

1312
02:08:39.580 --> 02:08:45.100
dangerous and insulting when the Germans were still on the other side of the Alps, but now

1313
02:08:45.100 --> 02:08:50.460
the Axis troops were about to encircle Switzerland from all sides, and Mises felt his days in

1314
02:08:50.460 --> 02:08:52.980
Geneva were numbered.

1315
02:08:52.980 --> 02:08:58.820
Hans Kelsen and Wilhelm Röpke were in the same situation. At least for some time, Rappard

1316
02:08:58.820 --> 02:09:03.980
and Montour planned to provide all three of them with jobs in Vichy, France, but neither

1317
02:09:03.980 --> 02:09:08.220
Neither of them believed this was sufficient protection, and during the next days and weeks

1318
02:09:08.220 --> 02:09:14.080
they actively sought admission to the United States, which they received within two weeks

1319
02:09:14.080 --> 02:09:17.620
of the capitulation of Paris.

1320
02:09:17.620 --> 02:09:21.940
Holding their invitation letters for the United States in his hands, Mises and Röpke weighed

1321
02:09:21.940 --> 02:09:26.140
again the pros and cons of another emigration.

1322
02:09:26.140 --> 02:09:30.380
Eventually Mises and Kelsen left, while Wilhelm Röpke remained in Switzerland.

1323
02:09:30.380 --> 02:09:36.480
Röpke Tull was high on the Nazi list of wanted men and was thus at the mercy of the Swiss

1324
02:09:36.480 --> 02:09:41.600
authorities, but he was courageous and trusted that the influence of his friends would keep

1325
02:09:41.600 --> 02:09:46.500
him in the country. He believed that sooner or later the West would win this war against

1326
02:09:46.500 --> 02:09:54.100
Germany as it had won the last one. Surrounded by fascist regimes, Switzerland naturally adapted

1327
02:09:54.100 --> 02:09:59.180
to the new political landscape as part of a strategy of conflict minimisation. In September

1328
02:09:59.180 --> 02:10:04.140
In 1940, for example, Switzerland temporarily introduced Nazi designations for its political

1329
02:10:04.140 --> 02:10:10.540
offices and institutions, creating Gauleiter and an Arbeitsfront organisation. However,

1330
02:10:10.540 --> 02:10:15.220
the emigres who had stayed on in the small mountain country could never be sure they

1331
02:10:15.220 --> 02:10:20.380
would not be surrendered to the governments they had escaped. Röpke too seems to have

1332
02:10:20.380 --> 02:10:24.600
considered emigration to the United States. This was apparently the prevailing opinion

1333
02:10:24.600 --> 02:10:27.700
in their circle. Hayek wrote to Mises,

1334
02:10:27.700 --> 02:10:34.660
I agree with all you say about the prospects. I have no doubts that we shall have a dreadful

1335
02:10:34.660 --> 02:10:40.300
time, but that in the end we shall win. But the old Europe we shall never see again. It

1336
02:10:40.300 --> 02:10:44.940
does not seem unlikely that at some future date we shall all rejoin on the other side

1337
02:10:44.940 --> 02:10:51.480
of the ocean. I have no intention of running away while the war lasts. But after it I may

1338
02:10:51.480 --> 02:10:57.020
find that if I want to continue my work at all, I may have to follow you. In retrospect

1339
02:10:57.020 --> 02:11:01.220
But one might think that Rupka's decision was the correct one. Mises could have remained

1340
02:11:01.220 --> 02:11:06.780
in Geneva, where he had spent some of the happiest years of his life, and enjoyed ideal

1341
02:11:06.780 --> 02:11:13.460
condition for his scholarly work. For him personally the US move was a disaster, but

1342
02:11:13.460 --> 02:11:18.740
what would the world of ideas and the world at large look like today had Mises remained

1343
02:11:18.740 --> 02:11:23.620
in Europe? He might never have written in English. Human Action would not have seen

1344
02:11:23.620 --> 02:11:28.900
in the Light of Day, and thus would not have reached the group of brilliant students whom

1345
02:11:28.900 --> 02:11:35.260
Mises inspired in the New York of the 1950s and 60s, those students who carry on his ideas

1346
02:11:35.260 --> 02:11:40.060
to this day. Mises now accepted an invitation to Berkeley

1347
02:11:40.060 --> 02:11:45.680
that Machloop arranged to be sent to him by radiogram on May 16th. A month later, Professor

1348
02:11:45.680 --> 02:11:50.700
Penrose from the University of California wrote another official letter of support,

1349
02:11:50.700 --> 02:11:56.100
which was ostensibly addressed to Professor Pitman B. Potter of the Geneva Research Centre

1350
02:11:56.100 --> 02:12:01.040
urging him to facilitate Mises's passage to the United States. The letter predicted

1351
02:12:01.040 --> 02:12:06.020
negative consequences on American public opinion for any country that would hinder Mises's

1352
02:12:06.020 --> 02:12:12.140
safe passage. He quickly proceeded to get his paperwork done, visa, transatlantic fare

1353
02:12:12.140 --> 02:12:16.300
from Lisbon to New York, etc. This took a few weeks, however, which proved to be too

1354
02:12:16.300 --> 02:12:22.560
too long. Kelsen had departed on May 28 with the last plane leaving Switzerland from Locarno

1355
02:12:22.560 --> 02:12:27.780
to Barcelona. When Ludwig and Margit were ready to go, Italy had entered the war on

1356
02:12:27.780 --> 02:12:33.980
the German side attacking France on its south-eastern flank. Although the Italian onslaught was

1357
02:12:33.980 --> 02:12:39.440
unsuccessful, it still made air travel out of Switzerland impossible. The German and

1358
02:12:39.440 --> 02:12:44.400
Italian armies were about to close the circle around Switzerland. Already they controlled

1359
02:12:44.400 --> 02:12:50.500
Air Traffic, and would not allow unauthorized planes to leave the country. There was just

1360
02:12:50.500 --> 02:12:57.960
one escape route left, by bus, but it would take them until July 3rd to obtain passage.

1361
02:12:57.960 --> 02:13:02.920
Hayek had urged Mises to get in touch with Roger for the French transit visa. He has

1362
02:13:02.920 --> 02:13:07.980
worked miracles in other cases. To avoid any loss of time, I am cabling him at the same

1363
02:13:07.980 --> 02:13:11.440
time and you may possibly hear from him.

1364
02:13:11.440 --> 02:13:16.880
On the afternoon of that day, a Wednesday, they were told they could leave with the American

1365
02:13:16.880 --> 02:13:22.000
Express motor car on the following morning at six o'clock. Although the suitcases had

1366
02:13:22.000 --> 02:13:28.640
been packed for many days, there was no more time for last visits with Montoul and Repard.

1367
02:13:28.640 --> 02:13:34.240
Mises wrote a good-bye letter and left. He had already written a good-bye letter to Montoul

1368
02:13:34.240 --> 02:13:39.040
and Repard on June 10th. He had also left a gift, possibly on this occasion, for the

1369
02:13:39.040 --> 02:13:44.800
Library, a copy of George F. Knapp, Staatliche Theorie des Geldes, second edition with Carl

1370
02:13:44.800 --> 02:13:47.040
Menger's annotations.

1371
02:13:47.040 --> 02:13:51.440
The Germans had not yet occupied the entire French territory between the Swiss and the

1372
02:13:51.440 --> 02:13:56.400
Spanish border, but their troops were already setting up control posts at strategically

1373
02:13:56.400 --> 02:14:02.020
important intersections. The bus driver, therefore, had to drive through the German lines, avoiding

1374
02:14:02.020 --> 02:14:07.840
any direct contact with them. Fortunately, he was experienced and cautious, and he could

1375
02:14:37.840 --> 02:14:42.880
Steadily Through Several Southeastern Provinces of France

1376
02:14:42.880 --> 02:14:48.700
Every stop must have made them anxious. Each bit of news about German troops ahead fuelled

1377
02:14:48.700 --> 02:14:54.680
their fear. Each of the many detours ate away at their nerves. Margit got upset about the

1378
02:14:54.680 --> 02:14:59.240
couple sitting in front of them, young Charles Kinderberger and his pregnant wife, because

1379
02:14:59.240 --> 02:15:03.500
they insisted on keeping the window open. Nerves!

1380
02:15:03.500 --> 02:15:10.640
The ride must have seemed endless, but eventually, at the end of the day, they reached the Spanish

1381
02:15:10.640 --> 02:15:16.500
border at Cerbère. Here they learned at the inspection house of the Spanish authorities

1382
02:15:16.500 --> 02:15:21.460
that the border had already been closed for a week. A diplomatic solution had been found

1383
02:15:21.460 --> 02:15:26.980
only for American and English citizens who were allowed to enter Spain and continue their

1384
02:15:26.980 --> 02:15:32.860
trip. On the next day the Swiss citizens were granted entry for similar diplomatic reasons,

1385
02:15:32.860 --> 02:15:38.060
which meant, in practice, that the Portuguese and the Jewish passengers of German and Austrian

1386
02:15:38.060 --> 02:15:45.420
origin were left stuck at the border. They stayed the night in hotels on the French

1387
02:15:45.420 --> 02:15:51.300
side where Ludwig and Margit found cheap accommodation. The Spanish officers had advised them to talk

1388
02:15:51.300 --> 02:15:55.860
to the Spanish consul in the nearby city of Perpignan. The consul found their papers in

1389
02:15:55.860 --> 02:16:01.260
good order and wrote a letter of recommendation to the border officers but to no avail. The

1390
02:16:01.260 --> 02:16:06.460
Mises now insisted they needed a special order from Madrid, and also claimed, falsely it

1391
02:16:06.460 --> 02:16:12.200
turned out, that the passengers' Portuguese visas were no longer valid.

1392
02:16:12.200 --> 02:16:18.880
It was Saturday. Two days wasted. How far were the Nazi troops from Cerdaire? Mises

1393
02:16:18.880 --> 02:16:25.360
had to act and did the only thing he could do on a Saturday afternoon, send cables soliciting

1394
02:16:25.360 --> 02:16:30.960
the help of William Repas and Louis Roger. Repas reacted immediately and cabled on the

1395
02:16:30.960 --> 02:16:41.000
Roger had joined the new French government of Marshal Pétain. The hour of glory for

1396
02:16:41.000 --> 02:16:45.760
the octogenarian Marshal Pétain had been the First World War, which had turned him

1397
02:16:45.760 --> 02:16:51.920
into one of France's greatest heroes. Now he had agreed to lead his country in its darkest

1398
02:16:51.920 --> 02:16:56.820
hour because those who had steered France into the current debacle had abandoned their

1399
02:16:56.820 --> 02:17:03.420
positions and fled to the country in panic. He could rely only on a handful of men, one

1400
02:17:03.420 --> 02:17:09.440
of whom was Roger, whom he used as a foreign liaison officer with his British ally and

1401
02:17:09.440 --> 02:17:14.220
possibly also with Spain. Roger therefore had the necessary personal connections to

1402
02:17:14.220 --> 02:17:20.980
plead on behalf of Mises and the other stranded bus passengers. Somehow Mises managed to

1403
02:17:20.980 --> 02:17:26.180
get in touch with his office and was told to get new visas at the Spanish consulate

1404
02:17:26.180 --> 02:17:56.180
in Perpignan,

1405
02:17:56.180 --> 02:18:23.500
It took them a few hours to reach Barcelona, where they reserved places on the next available

1406
02:18:23.500 --> 02:18:29.400
plane to Lisbon. Upon their arrival in Portugal, Mises lost no time getting in touch with his

1407
02:18:29.400 --> 02:18:35.060
travel agent. The ship for which they had made reservations had already departed. The

1408
02:18:35.060 --> 02:18:41.020
next ship for which bookings were still available left in three weeks. Mises arranged two places

1409
02:18:41.020 --> 02:18:45.540
on the waiting list, renting a room in the park hotel they lived out of a single suitcase

1410
02:18:45.540 --> 02:18:51.740
and would not unpack any of the others so as to be ready for immediate departure. As

1411
02:18:51.740 --> 02:18:56.440
As it turned out, they only spent a few days in Lisbon. Margit was amazed to see that her

1412
02:18:56.440 --> 02:19:00.820
husband seemed to have friends and colleagues everywhere. The city was full of foreigners

1413
02:19:00.820 --> 02:19:06.340
waiting for passage to America. They visited with a couple of academics and former colleagues

1414
02:19:06.340 --> 02:19:10.320
from the International Chamber of Commerce. She herself was mainly concerned about the

1415
02:19:10.320 --> 02:19:15.360
fate of her daughter Gita. Hayek made inquiries, but could not get in touch with the director

1416
02:19:15.360 --> 02:19:17.320
of her school in France.

1417
02:19:17.320 --> 02:19:23.120
The morning of Thursday, July 25, 1940, Margit received a call from the travel agent. There

1418
02:19:23.120 --> 02:19:28.740
was a cabin available on a ship leaving in a few hours. They had to move fast. That same

1419
02:19:28.740 --> 02:19:33.780
day Ludwig and Margit von Mises left Europe on a ship called the Europe. It would take

1420
02:19:33.780 --> 02:19:39.220
almost eight years for Mises to again set foot east of the Atlantic. By then he would

1421
02:19:39.220 --> 02:19:44.920
be an American citizen on his way to rebuilding the Austrian School of Economics in the United

1422
02:19:44.920 --> 02:19:45.420
States