Plans for after the War

Parallel to the work on his treatise of economics—or praxeology, as he now called it—Mises spent much time writing and teaching about concrete contemporary political problems.¹⁰⁸He applied the general theory of praxeology to explain the rise of Nazism, and he probably also presented his plans for the time after Hitler. He also wrote down these thoughts in a book manuscript and in several lengthy memoranda.

By 1938 he had already composed a book manuscript that described “The Way of the German People toward National Socialism”—the working title in June 1940, when he left a copy of the manuscript with his colleague Potter. The work would eventually be published in an English translation in 1944 under the title Omnipotent Government. Here Mises elaborates on the thesis developed in his 1919 book Nation, State, and Economy, in which he had explained the rise of German imperialism. He now stressed that the age of nationalist protectionism had created an incentive for war. Protectionism promoted the interests of some citizens at the expense of all other citizens subject to the government that applied protectionist measures. But it also came at the expense of foreigners, who therefore stood to gain from a violent overthrow of that government. Mises would later make this point in a paper delivered to an American audience:

The reasoning of the old liberals can be condensed in one sentence: war is useless in a liberal world. This theorem is absolutely correct, but we must not forget the condition “in a liberal world”.... Our world is very different and in this world you cannot say that war is useless. It is not true that the individual citizen cannot derive any advantage of a victorious war.... In the world of state interventionism the territorial expansion of his own state is of the utmost importance to each individual citizen. Every benefit which he derives from his own government is the more valuable the larger its territory is. Every new conquest further restricts the area in which discrimination is applied against him.¹⁰⁹

When World War II broke out in September 1939, Mises was already thinking about the time after the war—a war that Mises was absolutely convinced Hitler would lose. When the war eventually reached the western theater in May 1940, Mises had reached the conclusion that the major economic problem of the postwar period would be shortage of capital. To attract foreign capital and to stimulate capital accumulation, governments would be forced to accept far-reaching curtailments of their sovereignty:

These states will have to renounce any powers in the field of money, credit, trade, and taxation on behalf of foreign capital. They will have to submit themselves unconditionally to the jurisdiction of international courts, and accept that the decisions of these courts be imposed by an international police force.

This might sound somewhat strange, Mises concedes, but a state is free to choose whether it accepts these conditions for receiving foreign capital, and there is a strong political rationale for the abandonment of national sovereignty.

Small states must have an effective protection against aggression by bigger states. States engaging in secret rearmament must be prevented from the execution of their plans by an international police. Governments that violate peace must be treated as robbers and murderers are treated within each state.¹¹⁰

By May 1940, Mises had elaborated a fairly detailed plan for Austria's postwar reconstruction. This plan is of some interest because (1) it is representative of the applied work he did, for example, in the context of his Kammer activities and (2) shows the relatively large scope Mises allowed for government activity within the framework of a market economy¹¹¹

The starting point for his considerations was that Austria could feed its population of 6.5 million people only as an industrialized nation, which requires entrepreneurs who know how to produce for the world market. In old Austria there had been about a thousand such men. Today, these entrepreneurs were gone because the government, the trade unions, and the whole country had fought a war against them. At least two-thirds of them were Jews. Their firms were “Aryanized” according to the Marxist idea that the workers and the means of production are all that matter in a firm: the entrepreneurs are mere exploiters. “However, without the spirit and the energy of the entrepreneur a firm is just a heap of junk and scrap.” And even those entrepreneurs who were not murdered or tortured could not continue their business because of foreign exchange controls and central planning.

As a consequence, Austria would face a far more difficult situation than it faced after World War I, when the creative and industrious entrepreneurs saved the country despite the obstructions thrown up by the government. This time Austria would not be able to count on postwar imports of foreign capital.

Mises's positive program for the postwar period contained several standard classical-liberal positions: that the currency must be based on gold, that the central bank must be obliged to redeem its notes and demand deposits against gold at the legal rate; no foreign exchange control would be permissible, and Austria would have to follow a strict free-trade policy.¹¹²

But Mises also recommended several measures of government intervention. He said that Austria should never impose import duties on luxury goods (which implies that such duties could be taken on other goods) because a major part of its own export is composed of such goods. Interdictions of imports for public-health and veterinary reasons were legitimate, and weapons imports must be reserved for the government. Interdictions of exports should be allowed only from military considerations in times of political tension. Similarly, restrictions of business activity are permissible in the production and trade of weapons, drugs, and poisons.

Mises championed a program of thorough political centralization. On behalf of taxation he claimed: “All taxes and duties accrue directly to the State. The communal authorities have no power of taxation. They get their means from the State.”¹¹³ In order to avoid “expensive double administrations,” the state alone should direct the whole administration of the county. The only other level, under the central institutions of the state, was that of the county administrations and courts. The communal authorities would have to execute the tasks set for them by the general legislation. Their only revenue would come from the state and from public firms and property. The purpose of this ultra-centralized structure was to avoid corruption and waste of public money. The postal, telegram, and telephone services would be organized by a single post office in Vienna. Employment in the public administration was to be regulated according to the French competitive system, to prevent protectionism, nepotism, and corruption.

Mises goes on to discuss how to deal with the Austrian government officials who served under the Nazis. Whether they may stay in the public services is to be decided case by case in the “Interest of the State.”

The system of education “has to be radically re-structured.”¹¹⁴ The Volksschule (elementary school) needed to be nationalized, and all institutions of higher education had to fall under the direct responsibility of the Department of Education. Mises even made proposals on the specific content of education: in the Gymnasien pupils should be obliged to learn English and French, and the requirements to pass exams should be considerably increased because “only extraordinarily talented and industrious pupils merit that the State incurs special expenses for their education.”¹¹⁵

Mises's pronouncements on the Austrian universities were severe. While their expenses constantly increased, the scientific level decreased ever further. The University of Vienna would therefore have to be established anew with the help of Western European scholars and of Austrian professors teaching abroad. The universities of Graz and Innsbruck would have to be closed altogether, since they had long since lost the right to call themselves universities.¹¹⁶

In order to reduce the postwar scarcity of capital, Mises suggested publicizing the new Austria's free-trade policies to foreign capitalists and entrepreneurs and attracting old Austrian entrepreneurs back to their home country.¹¹⁷ He also recommended a study of “the methods of the French cultural propaganda” to improve Austria's image in the world by reference to the great “cultural achievements of its sons.”¹¹⁸ The selection of Austria's representatives would therefore have to be more careful. To the western capitals Austria should only send men “who because of their scientific importance or because of other outstanding qualities command a great personal reputation and thereby can purvey Austria's representation with a prestige that it would lack otherwise. Here too France may serve as an example.”¹¹⁹

Mises never put these proposals into print under his name. He always kept a strict separation between his scientific work, for which he would stand unreservedly, and his work as an economic and political consultant. His plan for Austria's postwar reconstruction fell into the latter category.¹²⁰ It applied his scientific insights about suitable and unsuitable policies to Austria's concrete historical situation on the eve of World War II. It took into account the political forces at work, as well as the political orientation of the men for whom he wrote his report.