The Home Front

If Mises could have gotten away earlier, in any honorable manner, he would have welcomed the opportunity. He tried, in the fall of 1914, to use his Kammer affiliation to be transferred to some other duty. The Kammer had had to give up forty-five men for military service but some others were allowed to remain in their prewar functions or were transferred to the War Ministry, which cooperated very closely with the Kammer.³⁴ Mises was not among the lucky few who never had to expose themselves to harm. He had many talents, but he never mastered the art of maneuvering the hallways and offices of the various war administrations, making oneself indispensable to the bureaucrats and thus unavailable for dangerous missions. The great transformation of all forms of modern leadership toward bureaucratic management, which Max Weber so brilliantly described, was epitomized in many of Mises's former colleagues and fellow students, most notably in the cases of Schumpeter, Lederer, and Karl Pribram.

After the Northern Front had calmed down, Mises was finally considered suitable for bureaucratic employment, and the Kammer connections now proved to be effective. During his Christmas holidays in Vienna, on December 22, 1915 he received orders from the War Ministry to join its department no. 13 in Vienna.³⁵

The most immediate benefit of being stationed in Vienna was the availability of superior medical attention, but curing his hip pain proved slower and more wearying than anticipated. At the end of December, Mises was examined in the k.u.k. army hospital of the town of Baden, a base near Vienna. Dr. Hackmüller found that Mises had typhus and ordered a sulfur-based treatment. This did not bring the hoped-for results. In the following months, Mises was sent to two Vienna experts for special hip treatments, which involved massages, hot-air applications, and walking exercises under supervision.³⁶

During this period, he officially resided at a Villa Keller in Baden, but probably spent most nights at the family apartment in downtown Vienna. Thus he came to experience the profound transformations of daily life that his friends in the state bureaucracies had orchestrated to meet the challenges of the war economy. Following the intellectual fashion of the day, in early 1916 these experts had set out to introduce central planning of production and consumption on an increasing scale. Because the existing government apparatus was unable to handle such a task, they turned to the already existing cartel organizations, made them compulsory, and subordinated them to the different k.u.k. ministries. These Kriegszentralen or War Centrals controlled the distribution of industrial products and the allocation of raw materials to the firms.³⁷ Their large-scale activities were financed through the k.u.k. banking establishment in Vienna and Budapest.³⁸ Götz Briefs later described the step-by-step process, which led wartime Austria-Hungary on the road to the Big Brother state:

Commercial advice to the civil administration, import business first in competition with private importers and then on a monopolistic basis, economization and distribution of the stocks—this was the increasing extension of their tasks, which made them assume ever more control functions within their organizations.³⁹

These efforts at top-down management of all society did not reach the proportions or intensity attained in the German Reich (Austrians were famous for Schlamperei, a jovial carelessness—even sloppiness—that effectively prevented a full-blown, German-style command-economy) but they were effective enough, at least in Mises's eyes, to demonstrate what applied socialism is all about—mass misery—and to confirm every single prejudice he might by then have acquired about the idiocy of government meddling with the free market.⁴⁰ “They ‘organized’ and did not notice that what they were doing was organizing defeat.”⁴¹

With retail markets all but eradicated, huge crowds of people lined up in front of a few select food shops that had benefited from official allocations. Butterstehen, Eierstehen, Milchstehen—standing in line for butter, eggs, milk, and virtually everything else, often for hours—this was one of the new sad realities of daily life.⁴² How to cope with all this without losing one's mind? Mises commended the example of his Uncle Marcus, who somehow managed savings under these conditions—truly a model for living at the existential minimum.⁴³ But he also offered more substantial support, buying additional food on the black market to supply his mother and other needy ladies. His basic salary in 1916 was 183 kronen⁴⁴—enough to buy some additional potatoes or flour. When he had to leave again for the Eastern Front in December 1916, he asked Emil Perels, a Kammer colleague and friend from Böhm-Bawerk's seminar, to take care of these women.⁴⁵

The Mises and Perels circle included one Valerie Adler, who worked as advisor in the Ernährungsamt (Bureau of Nutrition), the brothers Karl and Ewald Pribram, one Olly Schwarz, and one Emil Schr.⁴⁶ They would often attend opera or theater performances, or just meet at cafés to discuss politics, economics, and literature. Occasionally, these meetings would also take place in a more extended and official setting. For example, on November 16, 1916, Mises took part in a function of the Österreichische Politische Gesellschaft (Austrian Society for Politics) on current monetary problems. Schumpeter, who had come from Graz to chair the discussion, had urged Mises to debate his old opponent Walter Federn.⁴⁷ Schumpeter opened the session, stating the currency problem was manifest as a high price level and low krone exchange rates. He argued that the high prices were the cause of the low krone, and that prices were high because of a shortage of commodities and because of bank note inflation. Normalcy could only be restored through a reduction of the quantity of money; this was the crucial point: the krone had to be restored to its former purchasing power. Mises had few things to add, and limited himself to discussing the inefficiency of foreign-exchange control through the Devisenzentrale, whereas Federn gave a balance-of-payments explanation of the present situation, blaming import surpluses for the weak krone. Significantly, most speakers—not only Herr von Landesberger, the head of the Devisenzentrale—followed in the same vein.⁴⁸

Mises also resumed his activities as a private lecturer at the University of Vienna, where he discussed in detail the differences between his own theory of money and the various competing views that dominated the scene in German-language universities, in particular the theories of Knapp, Schumpeter, Wieser, and Philippovich.⁴⁹ His experience on the frontlines had changed his conduct and appearance, adding a war veteran's personal weight to his exposition. Young Heinrich Treichl, who met him in those years at the dinner table of his parents, was especially impressed by his dark red mustache.⁵⁰ So must have been his army comrades: Mises occasionally had the nickname Rotwild.⁵¹

One of the greatest admirers of the straight and sharp young lecturer was a certain Louise Sommer, who read all of his writings and would soon want to know all his views on everything. Apparently they even met for extended evening discussions, in the course of which Fräulein Sommer became a friend—perhaps more. The otherwise unapproachable Mises shared his thoughts and feelings with her, including depressive moods. When he had returned to the front, he mailed her the first flowers of spring.⁵² After the war, Louise Sommer became an ardent proponent of Mises's views on liberalism and politics.

On May 5, 1916, Mises received orders to join the Scientific Committee for War Economics, a new committee of the War Ministry.⁵³ Like many such wartime institutions, the Committee provided privileged employment for the upper class of the intelligentsia. It brought together established senior scholars and bright young students, including Mises, Broda, Karl Pribram, Brockhausen, Adler, Perels, and Bartsch, and possibly also Schumpeter and Alfred Amonn.⁵⁴ The whole idea was to establish a forum for in-depth analysis of the economic problems of the war and its strategic “economic goals.”

It was clear from the outset—at least for anyone even faintly acquainted with Mises's views—that he would disagree with some very influential people within the k.u.k. political and military leadership, and also with many Committee members, on the prospective economic benefits of military victory. He definitely did not believe that conquests in the East would convey any economic advantages for the future Austro-Hungarian economy. And in distinct contrast to other committee members, who also knew the rationale for this classical-liberal position, Mises was ready to speak up even to those who were higher in the wartime pecking order and could make his life very unpleasant.

Montesquieu once said that although one had to die for one's country, one was not obliged to lie for it.⁵⁵ This seems to have been Mises's maxim too. He had already demonstrated his readiness to give his life for his country. Now he showed his will to honor the truth even if it brought him in conflict with powerful opponents. Committee meetings and presentations featured Mises arguing for the economic irrelevance of political borders. He also worked on an article restating the scientific case for this view. His article was published in December 1916 under the innocent title “Vom Ziel der Handelspolitik” (On the Goal of Trade Policy) in Max Weber's Archiv.⁵⁶

Mises argued that, “from a purely economic standpoint,” the case for free trade and against protectionism was unassailable. It was true that classical free-trade theory, the theory refined and perfected by Ricardo, had been developed under the assumption that capital and labor were mobile only within national borders, but Mises proceeded to show that the case for free trade stood firm even if these conditions were no longer applicable. In a Ricardian world of free trade, there would be rich and poor countries, and tariffs and import quotas could not change this. In a Misesian world of free international migration, there would be more densely populated countries and less densely populated countries, in all of which the wage rates and interest rates would tend to be equal; and, again, protectionism could not do anything to improve this state of affairs.⁵⁷,⁵⁸

Mises pointed out that no “economic” case could be made against cross-border movements of people and capital, and then spent most of his paper discussing the paramount “non-economic” rationale, which was nationalism. He stated that international migrations conflict with the “principle of nationality,” that is, with the policy goal of promoting the numerical number and the welfare of co-nationals. Emigration leads to the assimilation of the emigrants to the foreign nation. They are then “lost” to their original nation, and this loss presents a prima facie “non-economic” case against free trade. But Mises showed that this anti-free trade conclusion is unwarranted. It is true that emigration to foreign countries weakens the nation, but protectionism cannot correct the problem—at least, Mises contended, it “cannot reach this goal in a manner beneficial to the nation.”⁵⁹ He observed that even the champions of protectionism had to notice that their proposed policies could not accomplish “those goals that they had set themselves.”⁶⁰

By contrast, the anti-German immigration laws of other countries were rational responses to the threat of national alienation resulting from mass immigration.⁶¹ In short, Germany could not change its calamities through protectionism, and was helpless in the face of other countries' policies that further aggravated its problems. Mises soberly summarized this state of affairs, despairing from the point of view of German nationalism:

The foundations of a global empire [Weltreich] are a population that multiplies approximately at the same rate as the population of the other global empires, and a settlement area that offers this population space for its development. Trade policy cannot contribute anything to establish a global empire for a nation if these conditions are not given.⁶²

The isolation of Germany in international politics, Mises surmised, was a result of the fact that it lacked sufficient territories to host its rapidly increasing population. The other nations, which controlled territories suitable to satisfy German expansionism, were united through common interests in defending their possessions and rightly “sensed that Germany must be their natural enemy.”⁶³

Mises then criticized the plans of the social-democratic leader, Karl Renner, to establish an all-encompassing system of protective tariffs as the foundation of the future relations between the Austro-Germans and the other nations of Austria-Hungary. Renner argued that political unity between the various nations was based on common economic interests, and he thought to create this common basis artificially through protectionism. But Mises objected that, in the present age of nationalism, protectionism actually reinforces the antagonisms between the various nations because it privileges the already industrialized nations. He illustrated this point with the prewar antagonism between Austria's ethnic Germans and the Hungarians, which had made Austria-Hungary's political order so tenuous.

The power of the argument and the place of publication made it impossible for the war party to ignore Mises. Trouble lay ahead.