7 The First World War

Ineed not report on the war or on my personal experiences during the war in this work; I concern myself with military questions and with the political only to the extent that they aid in making my aim more accessible.

The war came as a result of an ideology that had been proclaimed from German lecterns for hundreds of years. Professors of economics had contributed to the intellectual preparation for war. They did not first need to be retrained in order to become “intellectual bodyguards of the Hohenzollern.” Schmoller authored the famous “Manifesto of 93” (October 11, 1914), another professor, Schumacher, who succeeded Schmoller in Berlin, edited the annexation program of the six central associations. Sombart wrote Händler und Helden.¹ Franz Oppenheimer could not do enough to attack the lack of culture in England and France. Economics was no longer taught; what was taught were the doctrines of war.

Things were not much better in enemy camps, but there one could find many who preferred silence. Edwin Cannan considered it the duty of the economist to protest.

I was hardly able to read the newspaper during the first fifteen months of the war. Conditions improved a little later on. By the end of 1917, I was no longer at the front, but worked in Vienna in the economics division of the Department of War. I wrote only two small essays during those years. The one concerning the classification of monetary theories was later added to the second edition of The Theory of Money and Credit. The other, The Objectives of Foreign Trade Policy,² I made use of when writing Nation, State, and Economy,³ published in 1919. It was a scientific book, but its intent was political. It was an attempt to alienate public opinion in Germany and Austria from yet unnamed national-socialist ideals, as well as promote reconstruction through democratic-liberal policy. Little attention was paid to my work; the book was seldom read. But I know that it will be read in time. The few friends who are reading it today do not doubt this.

Toward the end of the war I published a short essay on quantity theory in the journal of the Association of Austrian Banks and Bankers, a journal intended for its members but not for public consumption. My calm, academic treatment of the problem of inflation was rejected by the censor, and I had to revise it before it could appear. Responses were run in the very next issue. One of these, if I remember correctly, came from bank director Rosenbaum, who was financing Federn’s Economist.

In the summer of 1918 the Army Supreme Command organized a course for officers who were to offer patriotic instructions to the troops. In my presentation, “War Costs and War Loans,” I attempted to oppose the inflationary tendencies. My lecture was published from stenographic notes, and I was never given the opportunity to read the proofs.

My experiences during wartime turned my attention toward a problem that has become more important to me day by day; indeed, I want to call it the principle and fundamental problem of our culture.

He alone who fully understands economic theory can comprehend the great questions of economic and social policy. He alone who masters the most difficult tasks of economics can determine where capitalism, socialism, or interventionism constitute suitable systems of social cooperation. Political decisions, however, are not made by economists, but by public opinion, that is, the general public. The majority determines what should happen. This is true of all systems of government. Even absolute kings and dictators must govern in accordance with the demands of public opinion.

There are schools of thought that simply do not want to recognize these problems. The contention of orthodox Marxism is that the dialectical process of historical development unconsciously guides man on the essential path; that is, the path that leads to his salvation. Another variety of Marxism is of the persuasion that the class can never err. Race mysticism maintains the same concerning race: the characteristics of the race intuit the finding of right solutions. Religious mysticism, even where it appears in worldly garb, for example, the führer principle, relies on God: He will never forsake His children, but protect them from evil through revelation or by sending them a blessed Shepherd. But experience spares us these escapes. It shows us that there are different doctrines and different opinions, even within various classes, races, and nations; it shows us that different men vie for leadership with different agendas, and that different churches come forth to proclaim the Word of God. One would have to be blind to claim that the question of whether interest rates can be permanently reduced by credit expansion could be answered by an appeal to the dialectics of history, an unerring class consciousness, racial or national characteristics, God’s Word, or a führer’s order.

Liberals of the eighteenth century were filled with a boundless optimism that said, Mankind is rational, and therefore right ideas will triumph in the end. Light will replace darkness; the efforts of bigots to keep people in a state of ignorance in order to rule them more easily cannot prevent progress. Enlightened by reason, mankind is moving toward ever-greater perfection. Democracy, with its freedom of thought, speech, and of the press guarantees the success of the right doctrine: let the masses decide; they will make the most appropriate choice.

We no longer share this optimism. The conflict of economic doctrines makes far greater demands on our ability to make judgments than did the conflicts encountered during the period of enlightenment: superstition and natural science, tyranny and freedom, privilege and equality before the law.

The people must decide. It is indeed the duty of economists to inform their fellow citizens. But what should happen if economists do not measure up to the dialectic task and become pushed aside by demagogues, or if the people lack the intelligence to grasp their teachings? With the awareness that men like J.M. Keynes, Bertrand Russell, Harold Laski, and Albert Einstein could not comprehend the problems of economics, must not the attempt to guide the masses in the proper direction be considered hopeless?

One is mistaken and fails to understand what is involved if one expects help to come in the form of a new election system or from some improvement in public education. Proposed changes to the election system would result in a portion of the masses’ being denied the right to vote for legislators and other administrators. This offers no solution, for when an administration put into place by a minority has no popular support it is not sustainable over the long term. If it refuses to yield to public opinion, it will be overthrown by revolution. The advantage of the democratic system consists in the fact that it makes possible a peaceable alignment of the government system and its personnel with the will of the people. This, in turn, guarantees the continuance of uninterrupted and untroubled social cooperation within the state. Concerns taken up here are not just those having to do with democracy. Indeed, they are much more than that: they are concerns that exist under all circumstances and under every conceivable form of government.

It has been said that the problem lay within the realms of public education and public information. But we are badly deceived if we believe that the right opinions will claim victory through the circulation of books and journals and with more schools and lectures; such means can also attract followers of faulty doctrines. Evil consists precisely in the fact that the masses are not intellectually enabled to choose the means leading to their desired objectives. That ready judgments can be foisted onto the people through the power of suggestion demonstrates that the people are not capable of making independent decisions. Herein lies the great danger.

Thus had I arrived at the hopeless pessimism that had long pervaded the best minds of Europe. We know today from the letters of Jacob Burckhardt that this great historian, too, harbored no illusions about the future of European civilization. This pessimism had broken the will of Carl Menger. It had cast a shadow over the life of Max Weber, who had become a good friend of mine while spending a semester at the University of Vienna during the last months of war.

How one carries on in the face of unavoidable catastrophe is a matter of temperament. In high school, as was custom, I had chosen a verse by Virgil to be my motto: Tu ne cede malis sed contra audentior ito (“Do not give in to evil, but proceed ever more boldly against it”). I recalled these words during the darkest hours of the war. Again and again I had met with situations from which rational deliberation found no means of escape; but then the unexpected intervened, and with it came salvation. I would not lose courage even now. I wanted to do everything an economist could do. I would not tire in saying what I knew to be true. I thus decided to write a book about socialism. I had considered the plan before the beginning of the war; now I wanted to carry it out.