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NOTE 3. Alma Mater Rudolphina

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Chapter 3 Alma Mater Rudolfina

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When Mises studied law and government science, the University of Vienna was one of the best

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institutions of higher learning in the world. It had been founded in 1365 by Emperor Rudolf

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IV, thus the school's Latin name Alma Mater Rudolfina. For centuries it preserved the

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The three typical features of medieval universities – political and legal autonomy, only four

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departments, law, medicine, the arts and theology, and management by the Catholic Church.

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The medieval autonomy of the continental universities was legendary. It went beyond intellectual

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affairs, extending to jurisdiction over virtually all the legal relationships between university

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members. The very expression academic freedom is in fact a term translated from the German

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When Ludwig von Mises was a student at the University of Vienna, the police had still

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no authority to enter its premises. By the early twentieth century, however, its legal

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independence was not quite what it had been in ancient times. One of the causes of this

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reduced autonomy was the imposed change of patrons that, in the age of enlightened despotism,

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shifted control over the Catholic Church in Austria, and thus, over the University of

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Vienna to the House of Habsburg. Starting in the mid-18th century, the Austrian monarchs

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successfully initiated a grand campaign to break the influence of international Catholicism,

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a process that was completed by 1790. The bureaucratisation of the clergy, known as

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Staatskirchentum, also brought the University of Vienna under the control of the Habsburg

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Appointments of professors had to be approved by the Emperor, as with other high civil servants.

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As a consequence of this takeover, Protestants could acquire academic degrees after 1778,

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and in 1782 Jews were admitted to the Departments of Law and Medicine. A century later women

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Two were admitted, first to the Department of Philosophy, 1897, then to Medicine, 1900,

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and Law, 1919. Another consequence of the government takeover of the University of Vienna

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was the proliferation of departments and institutes. Among the new departments were Philosophy,

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which at first had only the subservient function of preparing the students for study in other

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of the Field, and the Department of Law and Government Science.

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The first full professor's chair in the field of government science had been created

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in 1763 for Maria Theresa's counselor Josef von Sonnenfels, 1732-1817, one of the few

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Jews the Empress tolerated in her residential city. The exact name of his chair was Lehrstuhl

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für Polizei und Kameralwissenschaften. A towering personality, Sonnenfels initiated

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several important traditions. Not only was he the first professor of applied political

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science, but also the first due to influence intellectual life in Vienna, and the first

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great proponent of the economic point of view, that is, of a strict utilitarian perspective

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in judging political problems. An engaging teacher and gifted writer, Sonnenfels also

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Mises also started a characteristically Viennese tradition of economist-journalists that in

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later generations included Carl Menger, Eugen von Boehm-Bawerk, Eugen von Philippowitz,

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and Ludwig von Mises. Because of their academic pedigree and their clear, concise, and unpretentious

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writing style, these thinkers would exercise considerable influence on political reform

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processes in Austria.

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In Mises' day studies at the Department of Law and Government Science were organised

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in two phases. The first two years featured lectures and seminars on the history of law

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and legal institutions, and they ended with the first of three exams, called the Staatsexamen,

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because the examiners were specially appointed to act as agents of the Austro-Hungarian state.

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Then the students spent another two years in lectures and seminars to acquaint themselves

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with the current civil, penal and legal process laws of the Austro-Hungarian Empire, and with

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government science, which included economics, economic history and courses on technical

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and legal aspects of public administration, the Staatsexamen for current law and for government

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science completed this second phase.

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The two phases had nothing to do with our present-day distinction between undergraduate

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Studies and Graduate Studies. As Kunert Ledin points out, in Mises' day continental universities

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had no undergraduates. They were graduate schools, pure and simple. Passing these exams

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completed the university requirement for a career in law, but mandatory two-year apprenticeship

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still stood between the graduate and his career. Some students, in particular those interested

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in Becoming Professional Scholars, also acquired the degree of Dr. Juris, Doctor of Law, which

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required them to pass three additional exams, the Examina rigorosa, after the three Staatsexamen.

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Mises went through all these stages. In October 1900 he began his two-year study of the history

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of law, Roman and canon law in particular, and of medieval legal institutions and economic conditions.

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Today, the study of church and medieval law is reserved for a handful of scholars. But

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in the Austria-Hungary of Mises' time, a career in law or government required both

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the familiarity with these traditions and a solid command of Latin. Hungarian politics

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was built on medieval thought and institutions, and Latin had been the language of instruction

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in Hungarian middle schools until 1867. Up to the very end of the monarchy in 1918, Hungarian

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American intellectuals and politicians did not yield an inch when it came to the mystical

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foundations of their nation. While students needed to know Austria-Hungary's legal and

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institutional traditions, these subjects were not particularly popular among non-Hungarian

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students. Mises did not deem this period of his studies worth mentioning in his autobiographical

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recollections. The lectures were infamously bad, resulting in part from a distinctive

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Lack of consumer orientation on the part of the professors. After the government takeover

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of the Austrian universities, the professors had become financially independent of their

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audience and had little incentive to accommodate the needs of their students. This affected

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both their behaviour and their public status. The government had turned them into civil

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servant scholars, or, to put it less flatteringly, into court intellectuals. Academic freedom

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no longer meant political autonomy. When the public spoke of limitless academic liberty,

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they referred to freedom from responsibility or consequences. In the words of Künurt Ledin,

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the freedom to teach was limitless. Even a professor who instead of lecturing read newspapers

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could not be dismissed. Every professor had tenure up to the age of 65 or 67 when he had

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to retire at 82% of his final salary. The quality of the professor as a teacher bore

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no weight. The professor was expected not to be an educator, but a scholar, who gave

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the students a chance to listen to him. Mises's early university years were a mixed experience.

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In addition to the poor lecturers, there was rampant hostility between students of different

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nationalities and widespread anti-Semitism. Student life is generally organised through

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fraternities, which tended to segregate based on place of origin. This provided newcomers

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to the capital city with a network of their countrymen for mutual support. It also introduced

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them to established former members who could later be helpful in finding suitable employment.

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But the fraternities often degenerated into associations dedicated to excessive collective

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alcohol consumption, and tended to glorify violence and a militaristic lifestyle with

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The variants of half-baked nationalistic ideology. There were frequent violent confrontations

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between members of different fraternities, especially between students of different nationalities.

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The largest non-German student group in Vienna, the Czechs, clashed with German students on

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an almost daily basis. At the turn of the century, 700,000 Czechs lived in Vienna.

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Because the University of Vienna still enjoyed its status of legal autonomy, the police were

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were helpless to prevent these confrontations, and the aggressive students took full advantage

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of the situation. Students from Vienna were less dependent on the support of compatriots,

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and therefore had less incentive to join one of the fraternities. More importantly, however,

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many Viennese students were Jews, and while few of them identified themselves along religious

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lines, the fraternities despised these identifiable and highly efficient competitors. Mises managed

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to stay clear of both the ethnic unrest, and collegiate debauchery.

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He threw himself into his work

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and pursued the opportunities that now opened up.

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As identifying lectures, and IV seminars in the first two years,

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He took part in the meetings of the

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Sozial-Wissenschaftlicher Bildungsverein,

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the association for Social Science-Education.

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This association was non-partisan

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and brought the students in touch with some of the leading intellectuals.

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It was here that Mises first met the historians Ludo Hartmann and Kurt Kaser, the socialist leader

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Karl Renner and Michael Heinisch, who would later become President of the Republic of Austria.

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Among the student members were Friedrich Otto Herz, Otto Bauer and Hans Kelsen.

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The most fascinating and at the same time bewildering personality among the students

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was Otto Weininger, 1880-1903, who would become famous throughout Austria and Germany almost

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overnight when he published his 1903 doctoral dissertation Geschlecht und Charakter, Sex and

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Character. The book would be republished in more than 30 editions until the 1930s. It had a great

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impact on how German-speaking intellectuals thought about gender differences and gender relations.

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Vininger undoubtedly presented his ideas first to the smaller circles of friends and admirers

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with Hans Kelsen first in line. Mises probably took part in some of the meetings of the Vininger

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Circle and his 1922 Treatise on Socialism would reflect this influence.

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The Grünberg Seminar The university seminars gathered smaller groups

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of students around a professor who directed their reading and research in his field of

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of Expertise. Mises profited in particular from his participation in the seminar of Carl

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Grünberg, a young and energetic professor who had just received a full professorship

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at the department. It is likely that in this first phase of his studies he attended a class

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of Carl Theodor von Inamar Sternek on medieval economic history. Inamar Sternek was an old

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Rival of Carl Menger's Already in 1879, then still under the leadership

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of Lorenz, the Department of Law and Government Science had supported his attempt to gain

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the chair of political economy that eventually went to Menger. Inemar Sterneg was an economic

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historian through and through. His main field of research was German economic history from

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the late ninth to the sixteenth century.

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Grünberg knew what he could expect of the brilliant members of his seminar and encouraged

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even first-year students to do publishable research under his guidance. After only one

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semester, he assigned Mises a research project on the Galician peasants' liberation movement

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from 1772 to 1848. Mises started the work shortly after Easter of 1901 and within a

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year produced a comprehensive study on the subject. He had spent several months in the

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Vienna Staatsarkiv researching all available literature on the evolution of the legal status

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of Galician Peasants on the reforms enacted by Emperor Joseph II and on the events leading

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to the revolution of 1848. His meticulous notes filled several hundred handwritten pages

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from which he eventually distilled a manuscript. His work was published immediately under the

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innocent title The Development of the Relationship between Lords and Peasants in Galicia 1772-1848.

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In the department's prestigious series, Vienna Studies in Government Science.

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The subject of peasant liberation drew much attention due to the widely acclaimed research

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of Georg F. Knapp into the causes and consequences of the liberation of Prussian peasants, which

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had resulted from various agrarian reforms starting in the 18th century.

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This is the same Knapp who today is better known among economists for her staatliche

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Theory des Geldes, Government Approach to the Theory of Money.

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We will discuss Knapp's work in our presentation of Mises' Theory of Money.

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Knapp's research essentially relied on archival evidence. His approach soon found disciples

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in the German scholars Ludwig and Wittig, who further extended and reinforced his analysis

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of German conditions. Knapp's approach was later applied to Austria, most notably in

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and the work of Carl Grünberg, Die Bauernbefreiung in Böhmen, Meeren und Schlesien, Peasant

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Liberation and Bohemia, Moravia and Silesia. It was this work that brought Grünberg to

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the University of Vienna, where he set out to train his students in questions of Austrian

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peasant liberation and especially encouraged them to research with him the conditions of

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those parts of the empire which he had not himself covered.

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Grünberg then produced another volume on agrarian reforms in the Bukowina,

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which was completed by Mises's work on peasant's liberation in Galicia. Some years later a young

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man by the name of Leo Fischmann wrote on peasant's liberation in central Austria.

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In his general exposition Mises closely followed his teacher. He made exhaustive use of the

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literature in Polish and German that was available in the largest Austrian archive,

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Carl Grunberg had worked for a while with Professor Knapp in Strasbourg. His work slavishly

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followed in form, presentation and method Knapp's book on the old provinces of Prussia.

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It was neither economic history nor administrative history. It was merely an extract from government

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documents. A description of policy is found in government reports. Any able government

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official could easily have written it.

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It was Professor Grünberg's ambition to found in Vienna a centre for economic history

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like that created by Knapp in Strasbourg. As far as possible, I endeavoured to free

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In the introduction of the book, Mises describes the evolution of the condition of Galician

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peasants from the 15th through the 18th century. In the late Middle Ages, he points out that

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the Galician peasants had a comparatively favourable lot. They paid low taxes to their

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lords could not be coercively removed from their land, often enjoyed autonomous jurisdiction

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and even had a limited right to leave the country. The lords were not interested in

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agriculture and left the management of all farming affairs to the discretion of the peasants

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and their representatives. Things began to change drastically after two consecutive Polish

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victories against the German order, which had ruled large parts of the East Baltic in

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In the 15th century, after 1466, the Poles controlled the ports of Danzig, Memel and

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Elbing, and as a consequence export of agricultural products of the Polish hinterland became more

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profitable. The local aristocracy tried to gain ever more control over agricultural production

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and in particular over the workforce of their peasants. These attempts proved to be very

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successful. At the beginning of the 18th century, the Polish aristocracy in Galicia controlled

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Mises analysed the state of affairs prevailing in the early 18th century in his first chapter.

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He explained that the Polish aristocracy was essentially a club of slaveholders with no

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backing in the wider population. This was a major reason why they were unable to avoid

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Partitioning of the Country, 1772-1795, and could not re-establish its independence thereafter.

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Ruthenian slave peasants liable to come under Prussian or Austrian dominion had nothing to lose.

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They could only expect an improvement in their situation. In eastern Galicia, the area around

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Limburg, the Ruthenians represented two-thirds of the population, whereas the nobility was almost

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The new rulers in Vienna were keen enough to realize the political opportunity in this state of affairs.

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The policies of the Austrian government in Galicia, Mises wrote, had the objective of benefiting the peasant class at the expense of the nobility.

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This tendency was further reinforced by the adherence of Emperor Joseph II to the ideals of Enlightenment liberalism.

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After Galicia's annexation to Austria, taxes were reduced, legal protection for peasants established, and the property rights of lords and peasants were now more clearly distinguished.

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Most importantly, slavery received a fatal blow. The peasants were no longer considered the property of their lords, but they were still forced to work a certain number of hours, a duty called robot, originally established by Empress Maria Theresa.

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But Joseph II died in February 1790, before his vast programme of social reform could

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be brought to completion. The reforms had failed to specify the rights and duties of

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all parties, in particular that the peasants were no longer forced to complete certain

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types of tasks, but merely to work a certain number of hours. The result was sloppy work,

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and a sharp decline in productivity. The aristocracy then resorted to stronger punishments, which

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which further poisoned social relations. In the first four decades of the 19th century

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democratic agitators believed Galicia to be fertile ground for their activities because

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the rural population seemed to be ripe for revolution. Mises argued that the great majority

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of the peasants did not trust these agitators any more than they trusted the local aristocracy.

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They did trust the Emperor and believed him to have abolished the robot, despite what the

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Polish aristocrats said. When in February 1846 the aristocrats rebelled against Austria

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in an attempt to restore their ancient privileges, they confronted a united rural peasantry which

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smashed this rebellion without any assistance from the Austrian army.

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Mises gave a detailed account of this failed aristocratic rebellion and of its consequences

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in his fourth chapter. He had many things to say on the issue, after all his great-grandfather

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had been an eyewitness to the event and had welcomed the peasants' success. The victorious

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peasants believed they had now earned both liberty and imperial recognition. But the government

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in Vienna was not ready for Galician peasant liberty and feared its repercussions in other

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When a law was passed in December 1846 that essentially preserved this status quo, the

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Galician peasants felt betrayed. They were now ready for the revolution of 1848, which

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eventually succeeded in abolishing the robot, root and branch.

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Although presented as a work of purely historic interest, Mises's research touched important

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and Political Sensibilities of the Day. For the gist of the Knap, Grünberg Mises' argument

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was that slavery was the typical condition of peasants under a Slavic regime, and that

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serious attempts at their liberation were begun only under Germanic rulers. Mises argued

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that the various Polish rebellions following the 1772 partition failed because they were

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not genuine national upheavals, but purely aristocratic ventures that antagonised both

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Both the Imperial Central Government in Vienna and the local population. Because the democratic

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movement did not find support within the rural working classes, its leadership allied itself

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to the higher aristocracy, thus supporting the political status quo. In Mises's words,

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How the peasants I shone when they heard talk of a better, more beautiful future, one in

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which there would be no more lords and servants, and all would be brothers. But what they took

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Look away from the words of the democratic insurgents, fuelled yet further their hatred

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of the aristocracy. They did not wish to hear about the re-establishment of the Polish

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state. What was Poland to them? Whether it was Polish or German met with their indifference.

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But they did know that the Austrian civil servants provided their only help against

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the oppressive landlords. The injustice once suffered by the peasants was still alive in

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and the memory of the older people, and thanks to the intervention of the Kaiser, it no longer

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had to be endured. But because their oppressors were Polish, they felt only disdain for all

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Polish things. They now called themselves Kaiserlich Imperial and Austrian.

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Mises's conclusions were unwelcome among Poles and other Slavic nationals, especially

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Early in early 20th century Vienna heated climate of ethnic sensibilities. How much

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these questions of apparently mere academic interest were fought over can be gathered

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from the fact that in the very same year in which Mises's study appeared, a young Polish

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historian had published a dissertation in which he claimed the exact opposite, that

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the condition of the 18th century Polish peasants was significantly better than that of peasants

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living under German rule.

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Mises's research also had personal resonance for him. It presented his compatriots, who

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had shrugged off the aristocratic rebellion as freedom fighters and hence as motors of

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the historic trend toward liberty in Galicia. Mises's work was positively reviewed by one

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of the main authorities in the field, Knap's disciple Ludwig from the University of Strasbourg,

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who called it a model study and praised the clarity of Mises's style which he seemed

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A review in the principal organ of the German socialists of the chair, Schmoller's Jahrbuch,

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said that the study contained much new material, and that it was an extremely sound and informative

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work. Another expert, Professor R.F. Kindle from the University of Czernowitz, praised

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Grünberg for his brilliant student, mentioning especially Mises's thorough analysis from

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from the generally higher standpoint of the material available in the Vienna Staatsarchiv

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on the Galician reforms that were implemented during the reign of Joseph II.

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On July 15th, 1902, Mises completed the initial phase of his studies by passing the first

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Staatsexamen on the history of law. His examiner's focused particularly on the history of the

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Austrian Empire. Mises passed with distinction and the 20-year-old seemed headed for a brilliant

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and Career in Academia. Before entering the second phase of studies, however, he had to

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fulfil his military obligations.

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Military Service and Death of His Father On October 1, 1902, Mises presented himself

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as a one-year volunteer at the Imperial and Royal Division Artillery Regiment No. 6, later

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renamed the Imperial and Royal Field Cannon Regiment No. 30. Jews had been subject to

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to military obligations after 1788. They were usually employed in transport and the artillery,

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thus Mises was a typical case. He spent exactly one year in this regiment, which was stationed

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near Vienna, and returned on September 30th, 1903 to his studies. In the following years

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he was mobilised twice as a reserve officer within the same regiment in 1908 and 1912

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during political crises between Austria-Hungary and Russia. He would have to resume his duties

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in 1914 under even less pleasant circumstances. The Austrian army had not won a war since

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the defeat of Napoleon in 1815. It had lost the Italian campaign in 1859 with the Battle

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of Solferino and had also lost the important battle against the Prussian forces at Königreiz

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in 1866. But this lack of success did not prevent it from enjoying an overwhelmingly

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positive reputation in all parts of the Habsburg Empire. It was the most visible sign of the

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Empire's unity and security. In those days, army troops and their activities were a highly

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visible element of everyday life. Where present-day troops are typically stationed away from cities,

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their activities hidden from the eyes of the average citizen, the Austro-Hungarian troops

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were stationed inside the towns and cities of the Empire. They exercised within view

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of the civilian population and their appearance set a standard for discipline and elegance.

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Of the old institutions of the Empire, the Army seems to have been the most democratic

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in character. The career of an officer was open to virtually all strata of the population

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and officers paid each other tribute and solidarity, regardless of social background. Most of them

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addressed one another in private conversations with a familiar duel, insinuating that each

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bearer of His Majesty's Peul et Paix was a nobleman and an equal among equals. Yet while

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recognition and prestige within the officer corps depended mainly on individual performance,

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Admission to the higher ranks required admission to the Kriegsschule, war school, which necessitated

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personal connections. Here the old nobility had a net advantage, whereas Jewish origin

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was a handicap. Things began to change slowly after the Austrian Republic was created in

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1918. Quick and thorough changes occurred only under the National Socialist regime.

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Under Hitler, the Wehrmacht employed tens of thousands of partial Jews, Mischlinger,

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The bottom line was that the majority of ambitious and talented young men from low nobility or

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bourgeois circles were effectively deterred from considering a military career. Alumni

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from a gymnasium could obtain the commission of a reserve officer by volunteering for one

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year. And virtually all of them did this because of the military prestige it conveyed, which

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which in turn was very helpful for obtaining employment in all other fields. Many of them

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volunteered directly after leaving the gymnasium and then enrolled in university afterward.

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Others like Mises chose to volunteer after the first two years of university because

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the service gave them a break from their intense studies. They received the officer's commission

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after a year of service and an easy-to-pass exam that certified their ability to be an

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Officer. Mises was patriotic and proud to wear the uniform of the Imperial and Royal

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Army, but he had no militaristic incarnations. He never related details or boasted about

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his one-year service. All in all, this period seems to have been unexciting for him.

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It was also a sad period of his life marked by three tragic deaths. One of the last times

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When Ludwig saw his father alive was at the burial of his uncle Felix. As saddened as

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he was by his uncle's passing, it could not compare with the death of his father later

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the same year. Arthur von Mises had suffered from a gallbladder condition for years and

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regularly sought relief in health resorts. Following his brother's death in the summer

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of 1903, Arthur and his wife went to Carlsbad. By September his condition had noticeably

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On the day before October 4th, 23-year-old Otto Weininger had killed himself, to the

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great consternation of his friends Kelsen and Mises. Suicide was in vogue in those days,

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especially among young people. Even Prince Rudolf, the Habsburg Dauphin, had killed himself

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In 1889, Weininger sought a theatrical exit. Only six months after he had made a splash

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with the first edition of Sex and Character, he rented an apartment in the house where

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Beethoven had died and shot himself on the master's piano.

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In the Filipovich Seminar At the onset of the 20th century, most German

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economists held the teaching of economic theory in disdain. They thought that political economy

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in so far as it was a science at all, was a historical discipline. Historicism. Mises

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recalled certainly with his teacher Grünberg in mind, At that time around the 1900, historicism

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was at the zenith of its career. The historical method was believed to be the only scientific

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method for the sciences of human action. From the height of its historical clarity,

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the historical political economist was looking with unspeakable disgust on the orthodox dogmatist.

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Many members of the School of Thought had strong socialist leanings, and openly called

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for more government intervention. Some even advocated the complete abolition of private

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property. This attitude had earned them the epiphate Katheder Sozialisten, Socialists

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of the Chair. This may sound similar to the English-language epiphate Armchair Socialists,

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but Chair in this case refers to a full professorship in the European university system. Perhaps

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The Ivory Tower Socialists would be more on the mark.

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The Kathedra Socialisten had risen to dominance at the University of the German Reich in the

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wake of the creation of a German Central State under Prussian leadership. Their political

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ascension seemed unstoppable and contributed to their reputation as the avant-garde of their

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discipline. By the turn of the century they had virtually monopolised the chairs in political

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and the Federal Economy in the German Reich and were on the verge of becoming dominant in Austria too.

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Carl Grünberg, Mises' main teacher during the first two years, was one of them.

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In fact, he had been brought to the University of Vienna precisely in order to bring research and teaching of government science up to date,

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that is, up to the historicist standards of the other German language universities.

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Grünberg's call to the University of Vienna had been a terrible mistake.

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In the case of new appointments, the other faculty members, or lawyers except for two

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economists, had to select the new incumbent. These men were unlikely to give the position

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to an Austrian economist. Mises explained, They had to choose between two opposed schools

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of thought, the Austrian School on the one hand, and the allegedly modern historical

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school as taught at the Universities of the German Reich on the other hand. Even if no

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No political and nationalistic pre-possessions had disturbed their judgment. They could not

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help becoming somewhat suspicious of a line of thought which the professors of the University

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of the German Reich dubbed specifically Austrian. Never before had any new mode of thinking

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originated in Austria. The Austrian universities had been sterile until, after the revolution

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of 1848, they had been reorganised according to the model of the German universities. For

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For people who were not familiar with economics, the predicate Austrian, as applied to a doctrine,

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carried strong overtones of the dark days of the Counter-Reformation and of Metternich.

340
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To an Austrian intellectual nothing could appear more disastrous than a relapse of his country

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into the spiritual inanity of the good old days.

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The Grünberg seminar had reinforced for Mises the worldview of his adolescence, a vision

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of glorified government as the prime mover in the enlightened management of the economy

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and of society. Mises grew up in an atmosphere of almost unlimited confidence in the state's

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ability to make human society safe for its constant improvement. This faith in the state

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went along with the distrust of private individuals and associations to match the good deeds of

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government. He later recalled, By 1900 practically everyone in the German-speaking countries

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Mises was either a statist, interventionist, or a state socialist. Capitalism was seen

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as a bad episode, which fortunately had ended forever. The future belonged to the state.

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All enterprises suitable for expropriation were to be taken over by the state. All others

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were to be regulated in a way that would prevent businessmen from exploiting workers and consumers.

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When I entered the university, I, too, was a thorough statist.

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Mises adds that only in one respect were his views not quite as wrong as those of his fellow

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students. He was consciously anti-Marxian. Most objections to this statist view were

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moral objections, defending the individual's right against bureaucratic encroachments.

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These arguments fell on deaf ears. They could not withstand the appeal of the utilitarian

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case for government intervention, especially since so many 19th century liberals had themselves

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promoted utilitarianism as the basis for social policy. Surely the improvement of the

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vast majority could not be sacrificed to selfish interests. Thus, when he started his legal

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studies, Mises was a champion of interventionist statism. He believed that government was able

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to fix a wide variety of social problems, and he was eager to engage in the scientific

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discovery of the dangerous consequences of unhampered capitalism. It so happened, however,

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The Department of Law and Government Science at the University of Vienna was home to some

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of the most outspoken opponents of historicism, and thus by implication of the Kathedra Socialist

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Program. These scholars denied that economic affairs could only be studied by historical

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methods and they made the case for a rational economic theory which, they held, was indispensable

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for the understanding of certain economic phenomena such as value, interest, money,

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In 1871 Menger had published a book with the title

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Grundsätze der Volkswirtschaftslehre, Principles of Economics, in which he co-pioneered the

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marginalist approach to the theory of value, the standard analysis still in use today.

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This book had earned him a chair in political economy at the University of Vienna where

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where he taught until the spring of 1903. In the 1880s Menger had become famous throughout

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the academic world because of a highly polemical dispute with Gustav Schmoller on the respective

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merits of the historical and theoretical methods. The Metodensteit, dispute on method, as their

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debate came to be known, polarised German economists between the historicists and what

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would come to be known as the Austrian School. At the turn of the century Menger had about

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Eugen von Boehm-Bawerk, Austria's four-time Minister of Finance and holder of a Chair

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of Political Economy at the University of Innsbruck and Friedrich von Wieser, who held

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a Chair of Political Economy at the German University of Prague and would succeed Menger

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at the University of Vienna in 1903.

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Another follower, Eugen von Fulopovitz, was a full professor at the University of Vienna

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and although he was not an important theoretician of the Austrian school, he excelled as a pedagogue.

383
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His textbook, which was at that time the most successful German language textbook on economics,

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almost single-handedly ensured that the avalanche of historicism would not wipe out the teaching

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of economic theory in the German-speaking world.

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Mises's first year at the University overlapped with Menger's last, but during the first phase

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In the second phase of his studies, Mises did not attend Menger's last lectures. When

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he began the second phase, after returning from military service, Menger had retired

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to live the life of a private scholar. It is likely, however, that Mises attended Friedrich

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von Wieser's inaugural lecture as Menger's successor on October 26th, 1903. In this lecture

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Wieser attempted to expand on Menger's monetary writings with an original analysis of the

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The lecture was different in style and content from what the students of government science

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were used to in Grünberg's seminars. Wieser was a pure theorist in the sense that his

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ideas were removed from the hard data studied under Grünberg, but Wieser was an impressive

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speaker, and his lecture might have been the event that prompted Mises to become acquainted

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with Menger's principles, which he started reading about two months later. In any case,

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The lecture was in many ways the basis and starting point for Mises' later work on

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the theory of money, as we will see in more detail in a later chapter.

399
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Mises joined the government science seminar of Filipovits, where he met and befriended

400
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Emil Lederer, who later became Germany's top Marxist economist. The seminar was a rallying

401
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ground for the most fervent social reformers, with the possible exception of Filipovits'

402
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Professor Filipowicz was a very influential public figure, known equally for his Mengerian

403
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Inclinations in Economic Science and his interventionist position on politics. Of all academics with

404
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Catedra Socialist inclinations, his writings had the most thorough grounding in economic

405
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theory, and Mises later praised him as the most thorough theorist ever of third-way policies.

406
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History, Mises wrote without irony, will see in Filipowicz the most outstanding advocate

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of the Ideology of Statism, The Characteristic Representative of the Spirit of Social Reform.

408
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Eugen Philippowitz von Philipsberg, 1858-1917, was the product of an old Austrian family

409
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of military officers. After studies in Graz, Vienna, Berlin and London, he received his

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Habilitationsdiploma under Menger, then quickly became a tenured professor at the University

411
00:40:34.540 --> 00:40:40.540
of Freiburg in Breisgau. In 1893 he returned to Vienna as a full professor of political

412
00:40:40.540 --> 00:40:46.980
economy and public finance. Filipowicz was active in various political associations and

413
00:40:46.980 --> 00:40:52.080
over the years gained great influence at the university and in Austrian politics. As a

414
00:40:52.080 --> 00:40:58.220
young man he had been an enthusiastic champion of the Schmollerheit program, advocating historicism

415
00:40:58.220 --> 00:41:03.740
in economics and heavy government interventionism in politics. Under the influence of Menger

416
00:41:03.740 --> 00:41:28.500
Here, Filipowicz showed great aptitude in putting economic theory in the service of

417
00:41:28.500 --> 00:41:53.580
The group organised public conferences and discussions to promote the idea of government

418
00:41:53.580 --> 00:41:59.020
and intervention in the service of a social agenda, which primarily concerned the support

419
00:41:59.020 --> 00:42:01.580
of the working class poor.

420
00:42:01.580 --> 00:42:07.620
Filipowicz's personal and intellectual qualities made him the centre of the Vienna Fabians,

421
00:42:07.620 --> 00:42:12.540
and helped spread their influence among academics and businessmen. These activities were so

422
00:42:12.540 --> 00:42:18.660
successful that Fabian ideas eventually were incorporated into the programs of all Austrian

423
00:42:18.660 --> 00:42:20.780
political parties.

424
00:42:20.780 --> 00:42:25.160
Filipowicz also left a deep impression on his seminar students. In the classroom, matters

425
00:42:25.160 --> 00:42:30.860
of social policy took centre stage. While the students usually jumped head-on into championing

426
00:42:30.860 --> 00:42:36.540
various practical welfare schemes, Filipowicz again and again drew them into discussions

427
00:42:36.540 --> 00:42:42.940
of the theoretical foundations of government intervention. He clearly perceived that emotional

428
00:42:42.940 --> 00:42:49.180
appeals or references to we-all-know convictions were not enough to justify the use of the

429
00:42:49.180 --> 00:42:54.260
Public Organization of Coercion and Compulsion. He urged his students to make a scientific

430
00:42:54.260 --> 00:42:59.980
case for interventionism, and constantly raised problems that they had not considered, problems

431
00:42:59.980 --> 00:43:05.040
for which he himself had not found adequate solutions. This seems to have been rather

432
00:43:05.040 --> 00:43:10.960
exceptional among economics professors. Mises, who knew well the economics profession of

433
00:43:10.960 --> 00:43:15.220
the turn of the century, later said, in the decades between the Prussian constitutional

434
00:43:15.220 --> 00:43:21.820
War Conflict, 1862, and the Weimar Constitution, 1919, only three men sensed the problems of

435
00:43:21.820 --> 00:43:28.540
a social reform, Filippowicz, Straussmann and Max Weber. Among these three, only Filippowicz

436
00:43:28.540 --> 00:43:33.500
had any knowledge of the nature and content of theoretical economics. It was in these

437
00:43:33.500 --> 00:43:38.820
exchanges that he was most impressive, especially in the eyes of his most critical students,

438
00:43:38.820 --> 00:43:44.420
Mises recalled the atmosphere in the Filippowicz seminar. Here he could utter his doubts without

439
00:43:44.420 --> 00:43:49.820
being misunderstood. Here he was not the famous writer who presented his reader with

440
00:43:49.820 --> 00:43:55.700
something that was finished, complete, and apparently unshakable. Here he showed himself

441
00:43:55.700 --> 00:44:03.060
in his true nature, as the critical thinker and explorer who wrestled laboriously Muzarm

442
00:44:03.060 --> 00:44:06.460
in his quest for knowledge.

443
00:44:06.460 --> 00:44:11.560
Filipowicz was in fact only too conscious of the existence of unintended consequences

444
00:44:11.560 --> 00:44:16.360
is that result from government intervention. In a speech delivered in his capacity as a

445
00:44:16.360 --> 00:44:21.400
university president, he warned, may none of you have the painful experience, at times

446
00:44:21.400 --> 00:44:27.580
not even spared the man of the best intentions, of having to say of one's activities, I drew

447
00:44:27.580 --> 00:44:34.460
pure fire from the altar, but what I ignited is not a pure flame. But such experiences

448
00:44:34.460 --> 00:44:40.360
did not shake his conviction that government interventions were necessary. They were needed

449
00:44:40.360 --> 00:44:45.800
Despite all the economic achievements of liberalism that Filipowicz praised in his seminar and

450
00:44:45.800 --> 00:44:50.560
in other public appearances, he stressed that liberalism made it possible for Europe's

451
00:44:50.560 --> 00:44:58.560
population to grow during the 19th century from 187 to 393 million, while simultaneously

452
00:44:58.560 --> 00:45:04.520
increasing the living standards of the masses, a development unprecedented in history. He

453
00:45:04.520 --> 00:45:09.720
even claimed that no previous era had done as much for humanity as liberalism, with the

454
00:45:09.720 --> 00:45:14.320
Possible Exception of Christianity's Acknowledgement of Human Dignity

455
00:45:14.320 --> 00:45:20.040
Celebrating the liberating and creative powers of liberalism in political and economic affairs,

456
00:45:20.040 --> 00:45:25.880
he argued that the only relevant question was whether one could avoid full-blown individual

457
00:45:25.880 --> 00:45:31.840
liberty. The economic forces that the liberal system called forth, capitalistic large-scale

458
00:45:31.840 --> 00:45:37.240
organisation of production and exchange, as well as the personal values and energies that

459
00:45:37.240 --> 00:45:43.120
that it brought into being form a component of social life that we can no longer do without.

460
00:45:43.120 --> 00:45:47.440
The present and future cannot be based on forgoing the products of economic liberty,

461
00:45:47.440 --> 00:45:52.440
the power of fruitful initiative and economic organisation. The question that must be asked

462
00:45:52.440 --> 00:45:57.120
is whether the acknowledgement of the basic ideas of the liberal system necessarily implies

463
00:45:57.120 --> 00:46:02.080
the acceptance of the ultimate consequences of its unrestricted application, that is,

464
00:46:02.080 --> 00:46:06.800
whether clinging to the principle of economic liberty is identical with accepting the social

465
00:46:06.800 --> 00:46:12.080
Social System of Individualism, Filipovich argued that one could enjoy all the blessings

466
00:46:12.080 --> 00:46:18.380
of individual liberty and remedy shortcomings on an ad hoc basis. Pointing to specific fields

467
00:46:18.380 --> 00:46:24.240
where such remedial action was required, he argued that unrestricted individualism leads

468
00:46:24.240 --> 00:46:29.360
to the dissolution of communities, that the interests of the individual are not always

469
00:46:29.360 --> 00:46:34.240
identical with the interests of the social whole, and that unrestricted economic liberty

470
00:46:34.240 --> 00:46:39.600
might destroy its own foundations through the formation of monopolies. Government interventions

471
00:46:39.600 --> 00:46:45.440
were necessary to counteract these shortcomings. The Filipovitz seminar was an important training

472
00:46:45.440 --> 00:46:50.800
ground for Vienna's fervent young social reformers, of whom Mises was one. Filipovitz

473
00:46:50.800 --> 00:46:56.000
did not deny the validity of the traditional case for economic freedom, and he made sure

474
00:46:56.000 --> 00:47:00.480
his students were familiar with the theory and history of classic liberalism. This was

475
00:47:00.480 --> 00:47:19.440
Birth of an Economist

476
00:47:19.440 --> 00:47:25.080
Around Christmas of 1903, Mises had just received his office's commission and had recently

477
00:47:25.080 --> 00:47:39.720
Mises later emphasised that the book made an economist of me. That is, practically

478
00:47:39.720 --> 00:47:45.240
speaking, it made him sceptical of the benefits of government action. To be an economist is,

479
00:47:45.240 --> 00:47:50.080
in fact, to understand the limitations of government. It is to have grasped that the

480
00:47:50.080 --> 00:47:55.840
The State is not omnipotent, and that it cannot do all it claims it can do.

481
00:47:55.840 --> 00:48:00.960
Today, most professional economists would probably reject this definition, but that

482
00:48:00.960 --> 00:48:07.000
is because the economics profession underwent such dramatic changes after World War II that

483
00:48:07.000 --> 00:48:11.600
present-day economists share only the title with their pre-war predecessors.

484
00:48:11.600 --> 00:48:17.400
At any rate, Mises understood the practical essence of economic science to be the insight

485
00:48:17.400 --> 00:48:23.340
that free enterprise and the voluntary association of individuals is superior to the coercive

486
00:48:23.340 --> 00:48:28.100
schemes of the State. In this understanding he continued the tradition of the British

487
00:48:28.100 --> 00:48:34.740
classical economists and of the great 18th and 19th century French économistes.

488
00:48:34.740 --> 00:48:41.080
In 1904 Vienna, Mises was quite alone in his new orientation. Reading Menger's principles

489
00:48:41.080 --> 00:48:46.860
alienated him from his fellow students, from his professors and then later from his colleagues.

490
00:48:46.860 --> 00:48:51.400
His discovery made him richer intellectually and spiritually, but it also made him a very

491
00:48:51.400 --> 00:48:56.940
lonely man. Twenty-five years later Franz Weiss remembered vividly how Mises had suddenly

492
00:48:56.940 --> 00:49:02.180
turned away from the ideals he had shared with Weiss and other peers. Weiss warned young

493
00:49:02.180 --> 00:49:08.120
Friedrich August von Hayek not to follow Mises in his betrayal of social values for the old

494
00:49:08.120 --> 00:49:13.780
doctrine of liberalism. Hayek surmised, if Carl Menger had not aged at such relatively

495
00:49:13.780 --> 00:49:42.580
Reading Carl Menger did not immediately produce the author of Human Action. Mises's own

496
00:49:42.580 --> 00:49:47.380
Menger's statism was too deep-rooted. He had absorbed it from the earliest days of

497
00:49:47.380 --> 00:49:53.300
his childhood, and he unconsciously applied it in his research for the Grünberg and Filipowicz

498
00:49:53.300 --> 00:49:59.320
seminars. Everyone he knew shared the fundamental conviction that government intervention is

499
00:49:59.320 --> 00:50:06.620
inherently beneficial, while the free market is only accidentally so at best.

500
00:50:06.620 --> 00:50:11.320
What Menger's principles did was to change fundamentally Mises' outlook on the analysis

501
00:50:11.320 --> 00:50:17.060
of Social Problems. Menger's book showed that individual consumer values are paramount

502
00:50:17.060 --> 00:50:21.820
on the market, because they not only determine the values of all consumer goods, but also

503
00:50:21.820 --> 00:50:26.880
the values of all factors of production. It is consumers who steer the entire market system

504
00:50:26.880 --> 00:50:31.780
through their spending decisions. Capitalist entrepreneurs merely carry out or anticipate

505
00:50:31.780 --> 00:50:37.560
their wishes. The market is not beneficial by accident, but is inherently so. It is eminently

506
00:50:37.560 --> 00:50:43.840
just and it is elegant. All government intervention must therefore be considered carefully before

507
00:50:43.840 --> 00:50:49.000
it is allowed to disrupt the order of the market. It took Mises a while to digest the

508
00:50:49.000 --> 00:50:54.560
Mengerian message, to analyse its weaknesses and strengths, and to think through its political

509
00:50:54.560 --> 00:50:59.640
implications. He could not jump directly from his former statist convictions to embrace

510
00:50:59.640 --> 00:51:05.400
complete laissez-faire liberalism. This was the main challenge of Menger's book. Mises

511
00:51:05.400 --> 00:51:10.600
He did not have to be convinced of the merits of Menger's theory. From his childhood days

512
00:51:10.600 --> 00:51:15.560
he had had doubts about a purely historical approach. He had a passionate interest in

513
00:51:15.560 --> 00:51:20.560
deriving practical lessons from the study of history but did not know how to do it.

514
00:51:20.560 --> 00:51:25.200
The writings of the historical school that he digested while at the gymnasium did not

515
00:51:25.200 --> 00:51:30.080
seem to solve the problem either. In his Erinnerungen, he writes,

516
00:51:30.080 --> 00:51:51.240
His years in the Grünberg seminar finally convinced him that the champions of the historical

517
00:51:51.240 --> 00:51:57.400
school had indeed failed to solve this problem. He later summarised their failure. Historicism

518
00:51:57.400 --> 00:52:01.120
William was right in stressing the fact that in order to know something in the field of

519
00:52:01.120 --> 00:52:07.280
human affairs, one has to familiarise oneself with the way in which it developed. The historicist's

520
00:52:07.280 --> 00:52:13.560
fateful era consisted in the belief that this analysis of the past in itself conveys information

521
00:52:13.560 --> 00:52:19.420
about the course future action has to take. What the historical account provides is the

522
00:52:19.420 --> 00:52:24.920
description of the situation. The reaction depends on the meaning the actor gives it,

523
00:52:24.920 --> 00:52:30.380
on the ends he wants to attain and on the means he chooses for their attainment.

524
00:52:30.380 --> 00:52:35.140
In 1860 there was slavery in many states of the Union. The most careful and faithful record

525
00:52:35.140 --> 00:52:39.360
of the history of this institution in general, and in the United States in particular, did

526
00:52:39.360 --> 00:52:44.880
not map out the future policies of the nation with regard to slavery. The situation in the

527
00:52:44.880 --> 00:52:50.400
manufacturing and marketing of motor cars that Ford found on the eve of his embarking

528
00:52:50.400 --> 00:52:56.480
upon mass production did not indicate what had to be done in this field of business.

529
00:52:56.480 --> 00:53:01.640
Practical guidance could not be obtained at all through his historical inquiry. Only theory

530
00:53:01.640 --> 00:53:06.660
of the Mengerian sort could do this. But to go from theory to endorsing the political

531
00:53:06.660 --> 00:53:12.560
programme that seemed to follow from the Mengerian premises was quite a step. It took Mises years

532
00:53:12.560 --> 00:53:18.040
to gradually overcome his prejudices. His ongoing political radicalisation shows that

533
00:53:18.040 --> 00:53:23.600
The process continued late into his life. He recalled its very beginning.

534
00:53:23.600 --> 00:53:30.340
My first doubts about the excellence of interventionism came to me when, in my fifth semester, Professor

535
00:53:30.340 --> 00:53:35.680
Filipowicz induced me to research housing conditions, and when in the following semester

536
00:53:35.680 --> 00:53:40.200
in this seminar on criminal law, Professor Loeffler asked me to research the changes

537
00:53:40.200 --> 00:53:46.160
in law regarding domestic servants, who at that time were still subject to corporal punishment

538
00:53:46.160 --> 00:53:52.400
by their employers. It then dawned on me that all real improvements in the conditions of

539
00:53:52.400 --> 00:53:58.280
the working classes were the result of capitalism, and that social laws frequently brought about

540
00:53:58.280 --> 00:54:03.880
the very opposite of what the legislation was intended to achieve. It was only after

541
00:54:03.880 --> 00:54:10.120
further study of economics that the true nature of interventionism was revealed to me.

542
00:54:10.120 --> 00:54:15.360
Two years later he was already fairly critical of the benefits of organised labour. On November

543
00:54:15.360 --> 00:54:22.080
On 28th 1905 he watched 250,000 labour union members defy the law that prohibited demonstrations

544
00:54:22.080 --> 00:54:27.520
before the parliament while the MPs were in session. That night his friend Otto Bauer

545
00:54:27.520 --> 00:54:35.040
rejoiced over the triumph of the proletarian masses. Mises saw it as anarchy. What if another

546
00:54:35.040 --> 00:54:41.760
mass organisation arose and similarly defied the law? Would that not lead to civil war?

547
00:54:41.760 --> 00:54:47.440
Bauer scorned Mises for this question which he thought betrayed a petty bourgeois mindset.

548
00:54:47.440 --> 00:54:50.560
The future belonged to social democracy.

549
00:54:50.560 --> 00:54:56.800
Mises's early transition period from statism to liberalism is well documented in a lengthy

550
00:54:56.800 --> 00:55:03.800
study he wrote for the Filipovich seminar on the history of Austrian factory legislation.

551
00:55:03.800 --> 00:55:10.280
Mises presented the paper in 1904 or early 1905 and subsequently published it in Boehm-Bawerk's

552
00:55:10.280 --> 00:55:17.640
In it Mises pointed out that in Austria organised child labour was a creation of the State.

553
00:55:17.640 --> 00:55:22.820
Under Empress Maria Theresa, coercive child labour had been instituted in an effort to

554
00:55:22.820 --> 00:55:30.360
combat laziness, misery and sin sexual activities. Thus the State could pursue several goals

555
00:55:30.360 --> 00:55:36.280
through a single measure. It got the children off the streets, ostensibly in their own interest,

556
00:55:36.280 --> 00:55:41.360
And as a beneficial side effect, it promoted large-scale industry and reduced public welfare

557
00:55:41.360 --> 00:55:47.400
expenditures. Not surprisingly, many factory owners abused the situation.

558
00:55:47.400 --> 00:55:53.000
In 1785, Emperor Joseph II visited a factory in the town of Thaiskirchen, and shocked by

559
00:55:53.000 --> 00:55:58.560
what he saw, ordered legislation to remedy the children's misery. Mises proudly noted

560
00:55:58.560 --> 00:56:04.080
that the Emperor's order preceded the British Morals and Health Act by 16 years, but he

561
00:56:04.080 --> 00:56:09.160
He also emphasised that the market was not the cause of the problem. The root of the

562
00:56:09.160 --> 00:56:12.920
children's misery lay not in the factory owner's entrepreneurial function, but in

563
00:56:12.920 --> 00:56:18.960
the lack of a contractual relationship. Commenting on the eventual suppression of the kinderheuser

564
00:56:18.960 --> 00:56:23.520
where the children were kept after work, he said, the children's houses might have offered

565
00:56:23.520 --> 00:56:28.080
better room and board to the adolescent worker than his parents' home, but they delivered

566
00:56:28.080 --> 00:56:33.800
him entirely into the power of the factory owner. This legal relationship could be interpreted

567
00:56:33.800 --> 00:56:46.360
While these facts did not fit the mainstream view of government's role in child labour,

568
00:56:46.360 --> 00:56:50.840
Mises was not yet ready to deny the Austrian government a role in improving the children's

569
00:56:50.840 --> 00:56:58.120
situation. He ferociously criticised a favourable report on free market child labour as tendentious

570
00:56:58.120 --> 00:57:03.660
and exaggerated, though he did not provide a single counter-argument. In his conclusion,

571
00:57:03.660 --> 00:57:10.660
He hailed the progressive Emperor Joseph II for instigating the epoch of social policy.

572
00:57:10.660 --> 00:57:15.660
He writes, The double insight that we first encounter in this law, Joseph II's bill

573
00:57:15.660 --> 00:57:21.460
dated November 20, 1785, that factory work involves grave disadvantages for children

574
00:57:21.460 --> 00:57:26.380
from a hygienic and moral point of view, and that these ills can only be eliminated through

575
00:57:26.380 --> 00:57:30.920
the intervention of the State and through continuous control by the State has become

576
00:57:30.920 --> 00:57:34.480
and the point of departure of modern social policy.

577
00:57:34.480 --> 00:57:40.260
We can see the remnants of unquestioned suppositions in young Mises's thought, but he had learned

578
00:57:40.260 --> 00:57:44.060
from the first step how to think as an economist.

579
00:57:44.060 --> 00:57:49.480
This shift was reflected in his increasingly critical analysis of the limits of government

580
00:57:49.480 --> 00:57:50.480
action.

581
00:57:50.480 --> 00:57:54.600
Such an attitude did not find approval from the established academia.

582
00:57:54.600 --> 00:58:00.140
When Mises presented himself for Staatsexamen numbers 2 and 3, he passed with distinction

583
00:58:00.140 --> 00:58:06.060
in Law but not in Government Science, enough to slow his ambitions in his main field of

584
00:58:06.060 --> 00:58:13.740
academic interest. By February 20, 1906, he had passed his juridical, political science

585
00:58:13.740 --> 00:58:21.820
and general law exams. This gained him the title of Dr. Juris Utrisque, Doctor of Canon

586
00:58:21.820 --> 00:58:29.260
and Secular Law. His mother was proud, and his friends probably poked fun at Dr. Mises,

587
00:58:29.260 --> 00:58:34.540
The synonym under which Gustav Theodor Fechner had published satirical pieces attacking early

588
00:58:34.540 --> 00:58:38.180
19th century German materialism.

589
00:58:38.180 --> 00:58:40.220
Years with a Master

590
00:58:40.220 --> 00:58:45.500
The decisive boost to Mises' intellectual development came when Eugen Ritter von Boehm-Bawerk

591
00:58:45.500 --> 00:58:50.940
opened his seminar at the University of Vienna in the summer semester of 1905, a great day

592
00:58:50.940 --> 00:58:54.460
in the history of the University and the development of economics.

593
00:58:54.460 --> 00:58:59.060
Boehm-Bawerk was Carl Menger's most important follower and had gained international fame

594
00:58:59.060 --> 00:59:10.600
A two-volume treatise on economics and the history of economic ideas.

595
00:59:10.600 --> 00:59:15.720
After a brilliant career as a professor of political economy in Innsbruck and as a four-time

596
00:59:15.720 --> 00:59:20.780
minister of finance, 54-year-old Boehm-Bawerk returned to his alma mater, where a special

597
00:59:20.780 --> 00:59:25.180
position was created for him in the Department of Government Science.

598
00:59:25.180 --> 00:59:30.520
For the next nine years, the University of Vienna would host the three best economic theoreticians

599
00:59:30.520 --> 00:59:37.780
in the German-speaking world, Boehm-Bawerk, Wieser and Filipowicz. It remains the high

600
00:59:37.780 --> 00:59:43.740
point in the teaching of Austrian economics. Boehm-Bawerk was a towering presence as a

601
00:59:43.740 --> 00:59:49.620
teacher and a master of clear thinking and clear speech. His fame attracted outstanding

602
00:59:49.620 --> 00:59:55.100
students from all parts of Austria and abroad, but what made these students stay, often for

603
00:59:55.100 --> 01:00:00.260
For years after graduation was the razor-sharp mind that could cut through the naughtiest

604
01:00:00.260 --> 01:00:02.300
problems of economics.

605
01:00:02.300 --> 01:00:07.220
Many of his students were critical of the Austrian school, and of his writings in particular.

606
01:00:07.220 --> 01:00:13.120
But fearless and thorough, Boehm-Bawerk accepted, examined and discussed all arguments brought

607
01:00:13.120 --> 01:00:19.260
before him, and demonstrated again and again the usefulness of the Austrian approach.

608
01:00:19.260 --> 01:00:21.180
The very first summer set the tone.

609
01:00:21.180 --> 01:00:26.020
Boehm-Bawerk spent the entire semester discussing the shortcomings of Karl Marx's Labour Theory

610
01:00:26.020 --> 01:00:32.060
of Value, engaging in extended debate for the brilliant Austro-Marxist Otto Bauer.

611
01:00:32.060 --> 01:00:36.740
Jung Bauer was the secretary of the parliamentary delegation of the Socialist Party and was

612
01:00:36.740 --> 01:00:40.540
well versed in both Austrian and Marxist theory.

613
01:00:40.540 --> 01:00:44.900
His main duty as secretary was to explain and justify the Socialist Party's current

614
01:00:44.900 --> 01:00:45.900
line.

615
01:00:45.900 --> 01:00:49.820
He was an experienced and impressive debater who had defended Marx's views in countless

616
01:00:49.820 --> 01:00:57.780
He was also the editor of the socialist journal Der Kampf and was on his way to winning greater

617
01:00:57.780 --> 01:01:01.940
claim with the scholarly work on one of the pressing issues of Austrian politics, the

618
01:01:01.940 --> 01:01:06.260
co-existence of national communities within the Danubian state.

619
01:01:06.260 --> 01:01:11.620
Bauer was a worthy sparing partner for Boehm-Bawerk, but he was no more than that. He found it

620
01:01:11.620 --> 01:01:16.480
impossible to raise a point the old master had not thought of. The spectacle of their

621
01:01:16.480 --> 01:01:20.520
Their encounter left the other seminar members with the distinct feeling that they had had

622
01:01:20.520 --> 01:01:26.860
the privilege of studying under a true master. Ludwig von Mises was one of those who continued

623
01:01:26.860 --> 01:01:31.680
attending the seminar after graduation. Critical though he was in all things, he could not

624
01:01:31.680 --> 01:01:37.920
help but feel awe in Boehm-Bawerk's presence. More than half a century later the celebrated

625
01:01:37.920 --> 01:01:42.600
author of Human Action had this to say on the occasion of a new English translation

626
01:01:42.600 --> 01:01:48.160
of Boehm-Bawerk's Capital and Interest. There is no doubt that Boehm-Bawerk's book

627
01:01:48.160 --> 01:01:53.320
is the most eminent contribution to modern economic theory. For every economist it is

628
01:01:53.320 --> 01:01:59.900
a must to study it most carefully and to scrutinise its content with the utmost care. Although

629
01:01:59.900 --> 01:02:06.000
Boehm-Bawerk's great opus is mere theory and abstains from any practical applications,

630
01:02:06.000 --> 01:02:10.520
it is the most powerful intellectual weapon in the great struggle of the Western way of

631
01:02:10.520 --> 01:02:16.820
Life Against the Destructionism of Soviet Barbarism. Boehm-Bawerk's seminar decisively reinforced

632
01:02:16.820 --> 01:02:23.080
the impact of Menger's principles. Under Boehm-Bawerk's guidance, Mises began to delve more systematically

633
01:02:23.080 --> 01:02:28.040
into the literature of economic theory. He began the research that led to his first great

634
01:02:28.040 --> 01:02:34.640
book, A Treaty on Money and Banking. These were years of apprenticeship. Mises continued

635
01:02:34.640 --> 01:02:39.720
to liberate himself step by step from his status prejudices and to become acquainted

636
01:02:39.720 --> 01:02:45.340
with the great tradition of monetary analysis in 19th century British and French thought.

637
01:02:45.340 --> 01:02:49.820
He started publishing papers on questions related to money and banking, articles that

638
01:02:49.820 --> 01:02:55.220
reveal his changing views on the role of government in this field. Some of these early opinions

639
01:02:55.220 --> 01:03:00.780
are likely to surprise the reader who knows Mises only as the author of Human Action or

640
01:03:00.780 --> 01:03:07.660
of The Theory of Money and Credit. For example, in a 1907 paper on the motivations of Austrian

641
01:03:07.660 --> 01:03:13.360
In exchange rate regulations, Mises hailed the policy of suspending cash redemptions so

642
01:03:13.360 --> 01:03:19.140
that the central bank could separate the so-called legitimate demand for gold from the illegitimate

643
01:03:19.140 --> 01:03:24.560
one, because it thereby became possible to keep Vienna inter-bank interest rates lower

644
01:03:24.560 --> 01:03:30.360
than in Berlin and London. He still had a long way to go to become the famous intransigent

645
01:03:30.360 --> 01:03:36.000
opponent of all government interventionism. As his earlier writings show, he did not adopt

646
01:03:36.000 --> 01:03:46.200
Ludwig von Mises became the most radical free-market economist of his time, only by overcoming

647
01:03:46.200 --> 01:03:52.000
the part of himself that was still hostage to the dominant worldview. The zeitgeist had

648
01:03:52.000 --> 01:03:58.080
a firm grip on his feelings and instincts, but it could not subdue his will to follow

649
01:03:58.080 --> 01:04:01.560
reason wherever it led him.

650
01:04:01.560 --> 01:04:06.980
In his last months as a student, Mises witnessed a great political earthquake, which forebode

651
01:04:06.980 --> 01:04:13.440
even more fateful events to come. Far from Vienna, at the easternmost end of the Eurasian

652
01:04:13.440 --> 01:04:21.440
landmass, Russia unexpectedly lost a war against Japan. In one stroke, the war smashed Moscow's

653
01:04:21.440 --> 01:04:26.360
Far Eastern ambitions, and it was suddenly clear to all of Europe that Russia's energies

654
01:04:26.360 --> 01:04:30.620
would be redirected to its western borders.

655
01:04:30.620 --> 01:04:34.980
Even more unexpectedly, however, the loss revealed the precarious condition of the Russian

656
01:04:34.980 --> 01:04:40.740
monarchy. Insurrection was in the streets of St. Petersburg and Moscow, and on October

657
01:04:40.740 --> 01:04:47.860
31, 1905, the Tsar capitulated. In a spectacular October manifesto, Nicholas II promised Russia

658
01:04:47.860 --> 01:04:53.640
a constitution and the election of a parliament. Vienna and the rest of Europe were shocked

659
01:04:53.640 --> 01:04:59.120
to see how far socialist agitation had undermined the Russian power structure, which had been

660
01:04:59.120 --> 01:05:03.240
considered the greatest bulwark of reactionary politics in the world.

661
01:05:03.240 --> 01:05:09.240
On November 1, Nicholas' October Manifesto was read in the Austrian Parliament, and the

662
01:05:09.240 --> 01:05:15.600
Social Democrats began singing the Marseillaise. Viennese workers took to the streets. On

663
01:05:15.600 --> 01:05:21.440
November 2, Mises watched thousands march down the Vienna Ringstrasse. There were bloody

664
01:05:21.440 --> 01:05:23.800
and the encounters with the police.

665
01:05:23.800 --> 01:05:29.480
One day later, Emperor Franz Josef introduced universal male suffrage in both Austria and

666
01:05:29.480 --> 01:05:35.760
Hungary. The turmoil did not subside and was not limited to the capitals of Europe. In

667
01:05:35.760 --> 01:05:42.440
the coming years, new revolutions shook old regimes in Turkey, Persia and China. A contemporary

668
01:05:42.440 --> 01:05:47.720
citizen of Vienna later recalled the revolutionary atmosphere. The next generation can hardly

669
01:05:47.720 --> 01:06:14.960
One positive effect of the new situation was that it finally compelled the Emperor to confront

670
01:06:14.960 --> 01:06:20.760
The Hungarian problem head on. For years, the ruling clique of Hungarian landowners

671
01:06:20.760 --> 01:06:27.640
had pressed for a revision of the Ausgleich Agreement of 1867. They demanded in particular

672
01:06:27.640 --> 01:06:32.880
that the Hungarian army be allowed to give up German as the language of command, that

673
01:06:32.880 --> 01:06:37.760
Hungary should obtain its own central bank, and that it should be severed economically

674
01:06:37.760 --> 01:06:42.340
from the rest of the empire through an internal tariff line.

675
01:06:42.340 --> 01:06:46.980
When Franz Josef allowed equal voting rights in all parts of the empire, the Hungarian

676
01:06:46.980 --> 01:06:49.660
establishment was doomed.

677
01:06:49.660 --> 01:06:56.580
On January 30th, 1907, the Austrian estates-based parliament, Kurienparlament, which guaranteed

678
01:06:56.580 --> 01:07:03.220
a majority of seats to the establishment, was abolished, 46 years after its creation.

679
01:07:03.220 --> 01:07:09.880
The first general elections under the new law on May 11th, 1907, brought 86 socialist

680
01:07:09.880 --> 01:07:16.760
Deputies out of 516 into the Abgeordnetenhaus, the lower chamber of parliament.