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NOTE 15. The Consequences of War: The Imminent Collapse

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15. 1918 and the Consequences of War, The Imminent Collapse

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Although the Austrian School was critical of the historical, ethical school's belief

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in the state during the Metodenstreit, its position had gradually changed by the turn

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of the century. Carl Menger's fundamentally sceptical attitude toward the state receded

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in direct proportion to the increase in the number of his postdoctoral students who entered

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into Civil Service. The scepticism disappeared almost entirely after Menger's withdrawal

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in 1903. An increasingly symbiotic relationship with the State ensued.

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Active involvement of Austrian School members in the administration of the State reached

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its culmination precisely in the years of the so-called war and transition economy,

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1912-1919. This was especially calamitous for the Austrian School. It had never before

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5 habilitierte scholars had been appointed to the Herrenhaus in succession, 5 had become

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Some ministers, some even several times, and two became members of the Reichsrat. Five

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out of a total of seventeen highly tiered economists and public finance experts had become

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excellencies and were therefore highly ranked representatives of the monarchy. Aside from

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holding top positions in public administration and in the press, members of the school were

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found in the chamber of commerce and in higher echelons of large banks and industrial conglomerates.

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For example, Rudolf Sieghart, Bodenkreditanstalt and Julius Landesberger, Anglo-Österreichische Bank.

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So at the end of the war, the influence of the school reached its height.

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Among its members were a prime minister and head of the emperor's cabinet, Ernst von Seidler,

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several ministers, Ernst von Seidler, Friedrich von Wiese, Viktor Mattheier, the last president of the Reichsrat, Gustav Groß,

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Representatives of University Administration, Richard Schüller, Ineaz Gruber, Hans Mayer, Richard Reich, and leading members of the central administration of the war economy, for example Josef Arschumpeter, Eugen Peter Schwietland or Julius Landesberger.

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The Gesellschaft Österreichischer Volkswirte, which in 1897 had a total of 232 members,

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served as a forum in which representatives of administration, politics, press and business could meet.

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Banker Richard von Lieben, 1842-1919, and the sugar magnate and Member of Parliament Rudolf Auspitz, 1837-1906,

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were among the regulars there, as were politicians from all parties.

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The basis of this war and transition economy was the Kriegsleistungsgesetz, War Effort Act of 1912.

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It would lay the foundation for the centrally controlled management of all economic sectors deemed strategically important in war,

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that is, for a state penetration of the economy.

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The aging Carl Menger, who saw catastrophe looming, warned against this development in vain.

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Boehm-Bawerk also reminded everyone on several occasions in 1914, the year in which he died,

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that neither politics nor administration could suspend the basic laws of economics. He was

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clearly pointing his finger at the government which had begun to finance its costly war

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preparations by printing money.

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Up to ninety-one central offices were established during the war with the help of the Kriegsleistungsgesetz,

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some of which were in competition with each other. The coordinator was head of the Directorate

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The highest civil service position within a ministry, Richard Riedel, 1865-1944, whose

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attempts at management led to a large-scale squandering and to an undesired decline in

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production especially in farming. Even in those areas in which sufficient resources

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were available, there were massive shortages that quickly led to a flourishing black market.

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Riedel, for whom the term Durchorganisieren, to thoroughly organize, became the verb of

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of Choice, considered the level of black market prices to be a barometer of goods shortages,

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thus admitting, with unintentional cynicism, that even he could not dispense with the market.

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In March of 1917, at the culmination of this hyperstatism or war socialism, all central

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offices were answerable to a single Generalkommissariat für Kriegs- und Übergangswirtschaft, General

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Commission for War and Transition Economy.

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Most Austrian School economists participated in the work of these institutions of the war

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economy.

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Only Ludwig von Mises seemed to have had serious misgivings.

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The monarchy lacked entrepreneurial spirit, the government budget was inflated, the internal

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administration was costly and deficient, and publicly owned enterprises were badly managed

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on the whole.

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When Mises was assigned to the War Economy Department of the War Ministry, he reported

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back to the front.

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Mises' decision may have been made easier by the fact that the department was run by

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Hans Mayer, and that Otto Bauer and Ottmar Spahn were working there as well.

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Mises could hardly conceal his disrespect toward Mayer and Spahn.

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The practice of central economic planning was continued for some time after the end

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of the war, which indeed suited the plans of the revolutionary socialists.

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The philosopher Otto Neurath, 1882-1945, thus suggested taking quick advantage of this

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prepared ground. Since the war organizations were still in existence, the present moment

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was a particularly good time for nationalization. But surely enough, such statism also prolonged

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the economy of scarcity. In the winter of 1919-1920, the University of Vienna had to

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closed down for several weeks due to a lack of heating fuel. Poverty at the University

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also had a direct effect on the Austrian School. The Zeitschrift für Volkswirtschaft, Sozialpolitik

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und Verwaltung, Journal of Economics, Social Policy and Administration was discontinued

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due to financial reasons after 26 years of unbroken publication. Numerous university

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lecturers from German-speaking universities of former crown lands thronged to Vienna.

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Some had to take early retirement, but others were given positions in the administration.

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The number of professorships at German-speaking universities decreased from 2,254, 1913-1914,

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to 1,206, 1917-1918. Under these unfavorable circumstances, the institutional entrenchment

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of economics was reconfigured, and a six-semester degree program of political science was set

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Up in all law faculties, the following subjects became canonical, economics, economic policy,

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administration studies, public finance, economic history, statistics, political science, international

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law, general history, and economic geography. For the first time women were admitted as

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fully matriculated students. The title awarded upon completion of a degree program was Doctor

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R. E. R. Paul, Dr. Rerum Politicarum, which by the way was not recognised as an academic

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qualification for legal positions in public administration. International isolation that

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had developed during the war further paralysed the Austrian school. Since the school had

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always championed a universal understanding of science and had cultivated lively exchange

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with economists from all over the world, this hit something of a nerve centre. The war had

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had now destroyed that extensive network of contacts. Even more far-reaching and no less

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devastating were the effects of the great social changes that occurred during and after

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the war. Members of the Austrian School stemmed predominantly from the nobility.

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Johann von Kormosinski, Carl Menger von Wolffensgrün, Friedrich von Mises, Eugen von Boehm-Bawerk,

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Eugen von Philippowitz, Hermann von Schullen zu Schottenhofen, Ludwig von Mises, at this

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This point in time, Friedrich A. von Hayek and Gottfried von Habeler were just beginning

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their studies.

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All from the educated and propertied middle classes, Robert Mayer, Gustav Gohs, Victor

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Mattheier, Robert Zuckerkandel, Hermann Schriedland and Richard Schöller.

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And some had only recently been given titles, Julius Landesberger von Arntheim, Injad Gruber

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von Menningen and Ernst Seidler von Feuchtenegg.

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Strictly speaking, they were the true losers of the war.

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Originally, the ruling classes of the Habsburg monarchy, who now saw themselves exposed to

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progressive material impoverishment as well. There was also the disturbing experience of

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social powerlessness in the face of the dominance of the left. This was clearly expressed by

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the crude ban on all aristocratic titles, for example. At the University of Vienna,

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this new era became painfully apparent when von Filipowicz's vacated professorship was

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is awarded to Audemars Spann, an outspoken and aggressive antagonist of the school.

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His collectivist or universalist economics appeared to the new ruling powers as a lesser

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evil and obvious candidates, Josef R. Schrumpeter and Ludwig von Mises were simply passed over.

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We can assume that many members of the school looking back saw their involvement with the

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centrally planned war and transition economy as an intellectuals sacrificium affecting

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Having a compromise of their world view, along with economic hardship, social upheaval, international

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isolation and hostilities from right and left, they found the situation both depressing and

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demoralizing. A later historian from the fringes of the Austrian School recalled the absolute

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desolation and complete hopelessness that prevailed. Like the Viennese middle class,

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the Austrian School, on account of the events of the period, appeared to be an eagle with

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with Broken Wings