Vienna Meeting of the Verein für Socialpolitik

These developments would surface over the next several years and would include two Balkan wars and the Morocco Crisis that preceded World War I, but in 1909, the world had not yet fallen apart. Mises enjoyed his new job at the Kammer and continued to pursue his other intellectual interests, including Böhm-Bawerk's seminar and the discussion group he had founded with his friend Perels and others.

In September 1909, the plenary meeting of the Verein für Socialpolitik took place in Vienna. It turned out to be one of the most significant intellectual events before World War I. The conference took place at the end of September and featured sessions on the problems of municipally owned companies and on the concept of productivity. Mises probably joined the Verein at this point. He certainly attended the sessions that were organized and directed by his teacher Philippovich.⁴⁵

Philippovich, one of the vice-presidents of the Verein, had successfully promoted the subject of “the productivity of national economies and the empirical measurement thereof.”⁴⁶ It was the first time ever that the Verein dealt with a problem of pure economic theory. Moreover, it was a problem of fundamental importance for the cause of the social-policy movement so dear to Philippovich. The productivity debate at the Vienna meeting would become a high point in the history of the Verein and of German economics, featuring the confrontation between the historicist majority and a vociferous group of brilliant younger scholars such as Werner Sombart, Bernd Harms, the Weber brothers, and pastor Friedrich Naumann.⁴⁷

Over the years, Max Weber had become the leader of those who contested both premises of the Verein: the utility of government interventionism and the historicist methodology. Leadership accrued to him not only because of his imposing personality, but also and especially because he had started his career within the Verein as both an interventionist and historicist. Other dissenting voices—Dietzel, Wolf, Ehrenberg, Pohle, Passow, and Adolf Weber⁴⁸—had never been Schmollerites in the first place, but Max Weber was elected into the Committee in 1893 as a young star in the kathedersocialist tradition. According to Mises:

He was appointed professor of economics without having dealt with this science before, which was a customary procedure at that time. It reflected the [Historical] School's opinion on the nature of “social sciences” and on the scientific expertise of legal historians.... When he accepted the position... [the] jurist and historian in him rebelled against the manner in which the School treated legal and historical problems. This is why he began his pioneering methodological and epistemological investigations. It led him to the problems of materialistic philosophy of history, from which he then approached the religious-sociological tasks. He proceeded finally to a grandiose attempt at a system of social sciences. But all these studies, step by step, led Max Weber away from the political and social ideals of his youth. He moved, for the first time, toward liberalism, rationalism, utilitarianism.⁴⁹

In contrast to the still-dominant Schmollerites, Max Weber and his brother Alfred thought that normative propositions of the type “the government should do this or that” had no scientific basis and reflected only the personal value judgments of their author.⁵⁰ These views had been reinforced just the year before the Vienna meeting through Schumpeter's Nature and Essence, which championed the claim that economic research could mimic the natural sciences. The Webers also thought that the mainstream systematically overlooked the problems that arose from government intervention.

In 1905, the plenary meeting in Mannheim featured the first open clash between the young radicals and the establishment over the question of cartels and anti-trust policies. In the 1870s and 1880s, the majority of the Verein had welcomed the formation of cartels as an anti-emigration device.⁵¹ In the 1890s, the dominant view was reversed mainly because the civil servants were jealous of fast-growing corporate power. The Mannheim meeting was meant to be an important milestone of this new orientation. The invited lectures by Brentano, Leidig, Schmoller, and Kierdorf made the case for various policies designed to reinforce the position of labor unions within large firms, to curb corporate power, and to make large firms socially responsible. Schmoller proposed, for example, that 25 percent of the seats of the corporate boards be reserved for government representatives.⁵²

In the ensuing debate, Friedrich Naumann, Werner Som-bart, and Max Weber heavily criticized these analyses and conclusions. Weber accused Schmoller of cultivating old illusory notions about the nature of the state. But the greatest blow against the establishment position came through a speech by pastor Naumann, who seems to have been in his Marxist phase.⁵³ He argued that the formation of cartels had resulted from great secular forces that could not possibly be prevailed against by some minor state and its middle-class policies in support of the handicrafts. Moreover, anticipating an argument that Mises would carefully develop many years later, Naumann pointed out that the proposed government interventions could not attain the end they were meant to achieve. These interventions were “from a technical and economic point of view, nonsense.” Naumann's speech roused the audience to unusually enthusiastic applause—applause that lasted much too long for the embarrassed Schmoller, who later scoffed that the response had been “frenetic.”⁵⁴

By tradition, Schmoller wrapped up the meeting. He called Naumann a demagogue and said that if he were not allowed to distance himself from Naumann, he would have to step down as president of the Verein. Many thought Schmoller's reaction was excessive, and long-time critics such as Ludwig Pohle and Andreas Voigt cancelled their membership. The controversy eventually died down, especially because the next meeting in Magdeburg (1907) dealt with less controversial subjects, such as the training of young economists and problems of city administration. But the stage was set for the Vienna meeting, where core issues of the social-policy movement were on the agenda.

The first two sessions dealt with problems of municipal firms. As usual, the lectures and the discussion concerned technical problems relating in particular to the administration of those firms, their means of finance, and the remuneration of their employees. This cozy exchange of municipal socialists was shaken up, however, when the Weber brothers brought some rather fundamental considerations into play An eminent historian of the Verein who, siding with the mainstream, attended the Vienna meeting, recalled the “sensation” that the Weber brothers stirred with their remarks:

Whereas, as many speakers stressed, the entire debate had relied on the opinion, shared by all, that municipalization—the transfer of certain suitable industries from private hands into the hands of the municipality—always means social progress, Alfred Weber contested this opinion. He pointed out that municipalization turned ever-greater parts of the population into bureaucrats and presented this without any ambiguity as a great defect.⁵⁵

Alfred Weber had dared to suggest that there might be something wrong with becoming a civil servant, and something even worse about turning large segments of the population into employees of the state. In doing so, he denounced the very mission of the Verein, which was to provide “scientific” underpinnings for ever more government intervention and a larger, more powerful bureaucracy. After his speech, there was too little time for discussion, but the confrontation between the Webers and the Schmollerites would be continued the next day, which dealt with the central concept of national productivity.

The prevailing justification for government intervention stressed the distinction between profitability and productivity. The typical Schmollerite professor would argue that the profit of an investment was, primarily, an indicator of the investment's importance from an individual point of view. Only under very specific and rare conditions was it also indicative of the social value of an investment. From a larger, “social” point of view, it was therefore crucial to judge any decision about the use of society's scarce resources in terms of its “productivity.” But is there anything at all like an objective criterion to distinguish more from less productive uses of resources? On this decisive point the kathedersocialist professors were silent. Philippovich felt that scientific integrity required a clarification of this theoretical issue and he set up an “Austrian” session on productivity theory, featuring plenary lectures by himself and by his distinguished colleague, Friedrich von Wieser.

Philippovich delivered the first of the two lectures. He gave a brilliant overview of the history of the concept of national productivity, but then evaded the true subject of his lecture, which was supposed to deal with the nature of national-economic productivity and the possibility of measuring it. Philippovich focused entirely on the narrower question of the impact of technological progress on productivity. This evasion derived in part from the difficulty of the subject, but was also due to the fierce opposition that was to be expected from the Weber brothers and their allies.

The second lecture also avoided the crucial question of the concrete meaning of national productivity. Wieser's subject was the measurement of the value of money and of the changes of its value, with special consideration to the problem of productivity. The general idea was that money prices could be used as a yardstick to measure the economy's productivity, or at least changes in productivity. This in turn presupposes that it is possible to analyze and quantify alterations in the yardstick itself—changes in the value of money. Now, Wieser had his own views on what precisely was to be understood by the value of money, and he stated his position in a long essay that appeared in advance of the conference in the Verein's publication series.⁵⁶ Based on this essay, he delivered his lecture focusing more narrowly on the technical problems of money-value measurement.⁵⁷

Wieser's discussion highlighted once again that he believed that the natural value of an economic good was not tied to individuals. The natural value of a good was rather its general economic significance within a social context. The difference in value between two goods indicated that the more highly valued good was generally more important than the less valued good—not just for the individual but for all subjects of the commonwealth. In short, the differences between the various values reflected a hierarchy of values. What was better or worse “from an economic point of view” could therefore be determined by reference to differences in value. And despite all problems relating to technical procedure, the value of all things could be ascertained by the inquiring mind. In principle at least it was possible to measure economic productivity and economic progress, just as it was possible to measure the changing value of money.

These views enabled Wieser to bridge some of the differences that he, the highly prominent “theorist” otherwise had with the predominantly historicist members of the Verein. In fact the traditional purpose of the Verein was to provide theoretical guidelines for public policy, and on the most fundamental level this required that one be able to distinguish between better and worse economic states of affairs. Wieserian economics promised such a distinction based on the theory of value, even though Wieser himself was reluctant to commit to any policy position.

After Wieser had finished his lecture, the first comments came from Herkner and Knapp, champions of the traditional view, which considered the notion of national productivity to be generally coherent, though it was difficult to give it operational meaning. But then came, as Mises later recalled, “that memorable exchange of arguments in which, for the first time within the Verein, the amalgamation of the economic-theoretical and ethical-political viewpoints was fervently attacked.”⁵⁸ Werner Sombart led the attack, denying that the concept of national productivity was useful for scientific research. Then Gottl-Ottlilienfeld argued, in the same vein, that the notion of national productivity had no correlate in the real world.

It was finally Max Weber's turn to address the question. He had long awaited this opportunity to corner his opponents on the question of the nature of scientific research. He was already known for his ideal of “value-free” scientific research—that is, research with the strict orientation toward the ascertainment of matters of fact.⁵⁹ He was himself a passionate man, and he did not believe that value-freedom required emotional detachment from the object of one's study. But it did imply that the scientist (and especially the social scientist) strictly distinguish between what is and what should be; it implied that he must not conflate his personal preferences with the factual results of his research. In a frontal attack against Philippovich, Weber argued that there was no objective way to speak about the productivity of an aggregate of human beings. The very notion of “national productivity” had a normative rather than descriptive function. It therefore had no place in economic science and should be cast into the economist's dustbin “where it belonged.”⁶⁰

Significantly, the main target of Weber's attacks was Philippovich and Schmoller. Weber was implicitly acknowledging Philippovich as the true intellectual leader of the interventionist movement. In his replies to Weber, the latter demonstrated the qualities that had won him this position. As Mises recalled many years later:

The cause that Philippovich advocated has been defeated; today it is generally recognized that it is not the task of science to establish value judgments. But in that encounter, in which Philippovich was on the wrong side, he was greater than his opponents, who turned out to be right. And these opponents were led by Max Weber! Never has Philippovich's intellectual persona revealed itself in a brighter light, never have his oratorical skills made a deeper impact on the audience than in the final comment of that nowfamous debate.⁶¹

The kathedersocialist establishment had spent all its energies justifying the introduction of ethical considerations into economic analysis and insisting that this was “science” too. In Vienna they had won the day, to the great frustration of Max Weber, who no longer believed the Verein could be a suitable forum for genuinely scientific questions.⁶² After the Vienna meeting, he founded the German Sociological Association, which met for the first time a year later in Frankfurt am Main.⁶³ This retreat turned out to be unnecessary. After the Vienna meeting, the cause of Schmoller and Philippovich was doomed. They had failed to capture the hearts of the rising generation. After Schmoller's death in 1917, new men would begin to take over the Verein für Socialpolitik and set German social research on an entirely different path.

Among these men was Mises, who fully endorsed Max Weber's view of science as a purely fact-oriented discipline, a view that was emphasized in the by-laws of the new sociological association. For the rest of his life—most notably after the death of Böhm-Bawerk—Mises would fight for truly empirical research. During the 1920s, he even upheld Max Weber's use of the expression “sociology”—shorthand for empirical social science, as opposed to the value-laden rumblings of the German “government scientists”—to describe his own works. He abandoned this practice when he realized that most other writers used the same word to establish a parallel social science based on foundations completely different from economics. But this is a topic for a later chapter.