Institute for Business Cycle Research

One thing that impressed Mises on his 1926 trip to America was the empirical research on business cycles conducted at Harvard University. More precisely, he was impressed by the commercial success of the monthly reports. The price of an annual subscription was on the order of $100, a small fortune at the time.²² Many years later, a member of the sales team that marketed these reports, Frederick Nymeyer, would become a devoted Misesian and set up the Libertarian Press, a publishing house to disseminate Mises's writings. Mises did not meet Nymeyer in 1926, but his trip to Harvard provided the inspiration to establish a similar institute in Austria. His idea was to use the money generated through the sale of reports to fund young libertarian intellectuals, who had little chance of obtaining one of the rare positions at public universities.

Vienna enjoyed a living scientific tradition and still attracted great numbers of excellent students. But the Austrian government's financial calamities after World War I made it impossible to exploit this potential; whatever private means had once been available had been eaten up by the inflation of the early 1920s. The result was a shortage of research positions. The selection of candidates and the funding of research projects were increasingly a function of party allegiance. The universities were politicized in general, but particularly so in the social sciences.

In this context, the establishment of private research institutions that financed themselves by the sale of products, rather than by state funds, offered an attractive alternative. Mises had thoroughly prepared the project, studying the operation and organization of comparable foreign institutes and consulted with experts throughout the world. In fact, he was not the first to think along these lines. The League of Nations had for some years encouraged the creation of business cycle institutes in the United States and in Europe.²³ After Harvard (1919), the NBER (established by Mitchell in 1921) and London (1922), the wave had spread to Germany with establishments in Berlin, Hamburg, Kiel, and Essen (all in 1925). In the same year, a group of businessmen and academics had set up a private Konjunktur-Gesellschaft as a department of the Frankfurt chamber of commerce, which in turn was affiliated with the Frankfurt stock exchange. The director of the Society was Eugen Altschul, who personally trained young economists in statistics and other methods used in Anglo-Saxon-style business cycle research. Similarly, another group of young men around Paul Lazarsfeld would establish a private institute of consumer research in Vienna a few years later, with Mises on its board.

In the fall of 1926, Mises coordinated the final preparations for the establishment of the Österreiches Konjunkturforschungsinstitut— the Austrian Institute for Business Cycle Research (hereafter “Institut”).²⁴ The composition of the board (the Kuratorium) reflected Mises's connections as well as the need to involve, at least nominally, all major stakeholders. Mises found academic front men in Hans Mayer and Karl Pribram; obtained funds from his friends in the Vienna community of bankers and industrialists such as Viktor Graetz, Helene Lieser, and Gustav Weiss-Wellenstein; received support from Kammer colleagues such as Otto Geiringer and Emil Perels, as well as from the Kammer itself, which provided office space. Other board seats were occupied by representatives of public administrations such as the Chamber of Labor, the Nationalbank and the federal railways. Chairman of the Board was Richard Reisch. Mises himself was one of the two vice chairmen, but he was in fact the main force behind the new organization.

The Institut had an executive committee chaired by a Kammer representative. But its daily operations were in the hands of an executive with the title of Director. Mises made sure that Hayek would be appointed to this position. At first, his most important duty was to insure the publication of the Institut's main product: the monthly reports on Austrian business conditions, which he fashioned after the three-curve barometer of the Harvard Committee of Economic Research. Hayek himself wrote the first, very lengthy report, which contained a detailed description of the definitions and quantitative methodologies used in the Institut's research activities. Over the years, he relied more and more on contributions from others. By April 1931, the monthly reports of the Institut had a circulation of 500 copies.²⁵ In the fall of that year, Hayek left Vienna to become a professor of economics in London and Morgenstern assumed leadership of the Institut.

In addition to the monthly reports, the Institut had the mission of organizing meetings and lectures, and to act as a focal point for further research in theoretical economics. Thanks to funding from the Rockefeller Foundation, it also published a series of monographs on problems of business cycle theory that became the most visible outlet for the work of the coming generation of Austrian economists.²⁶

It was the only institution that Mises ever established and it turned out to be a great success. Mises set it up as a private association, which secured a maximum of political independence. Many years later, the then director of the Institut acknowledged that the private character of his institution was the basis for the constructive role it played in Austrian politics. He also mentioned that in difficult times he found inspiration and encouragement in reading Mises's inaugural speech, in which he had made the case for independence.²⁷