CHAPTER 15 1918 and the Consequences of War: The Imminent Collapse

Although the Austrian School was critical of the historical–ethical school’s belief in the state (during the Methodenstreit), its position had gradually changed by the turn of the century. Carl Menger’s fundamentally skeptical attitude toward the state receded in direct proportion to the increase in the number of his postdoctoral students who entered into civil service. This skepticism disappeared almost entirely after Menger’s withdrawal in 1903. An increasingly symbiotic relationship with the state ensued.

Active involvement of Austrian School members in the administration of the state reached its culmination precisely in the years of the so-called “war and transition economy” (1912–1919). This was especially calamitous for the Austrian School. It had never before had such opportunities for influencing others: its representatives taught at three Viennese universities and at the Exportakademie. They played a leading role in the Gesellschaft Österreichischer Volkswirthe, (“Society of Austrian Economists”) and even had their own publication, the Zeitschrift für Volkswirtschaft, Socialpolitik und Verwaltung (“Journal of Economics, Social Policy and Administration”).

Five habilitierte scholars had been appointed to the Herrenhaus,¹ in succession; five had become ministers,² some even several times, and two became members of the Reichsrat.³ Five out of a total of seventeen habilitierte economists and public finance experts had become “Excellencies” and were therefore highly-ranked representatives of the monarchy (cf. Vorlesungsverzeichnis 1911, p. 10). Aside from holding top positions in public administration⁴ and in the press,⁵ members of the School were found in the chamber of commerce⁶ and in higher echelons of large banks and industrial conglomerates, for example Rudolf Sieghart (Boden-Credit-Anstalt) and Julius Landesberger (Anglo-Österreichische Bank). Toward the end of the war, the influence of the School reached its height: among its members were a prime minister and head of the Emperor’s cabinet (Ernst von Seidler), several ministers (Ernst von Seidler, Friedrich von Wieser, Viktor Mataja), the last president of the Reichsrat (Gustav Gross), representatives of university administration (Richard Schüller, Ignaz Gruber, Hans Mayer, Richard Reisch), and leading members of the central administration of the “war economy” (for example Joseph A. Schumpeter, Eugen Peter Schwiedland and Julius Landesberger). The Gesellschaft Österreichischer Volkswirthe, which (in 1897) had a total of 232 members, served as a forum in which representatives of administration, politics, press and business could meet (cf. ZfVSV 1897, vol. 6, p. 307). Banker Richard von Lieben (1842–1919), and the sugar magnate and Member of Parliament, Rudolf Auspitz (1837–1906), were among the regulars there, as were politicians from all parties.

The basis of this war and transition economy was the Kriegsleistungsgesetz (“war effort act”) of 1912 (RGBl 1912, no. 236). It would lay the foundation for the centrally controlled management of all economic sectors deemed strategically important in war, i.e., for a “state penetration of the economy” (Hanisch 1994/2005, p. 199). The aging Carl Menger, who saw catastrophe looming, warned against this development (cf. Nautz 1990, p. 113; Mises 1978/2009, p. 26) in vain. Böhm-Bawerk also reminded everyone on several occasions in 1914—the year in which he died—that neither politics nor administration could suspend the basic laws of economics. He was clearly pointing his finger at the government, which had begun to finance its costly war preparations by printing money (Böhm-Bawerk 1914/1924–1925; 1914/2010, esp. p. 9).

Up to ninety-one central offices were established during the war with the help of the Kriegsleistungsgesetz, some of which were in competition with each other. The coordinator was head of the directorate (the highest civil service position within a ministry), Richard Riedl (1865–1944), whose attempts at management led to large-scale squandering and to an undesired decline in production, especially in farming (cf. Sandgruber 1995/2005, p. 320). Even in those areas in which sufficient resources were available, there were massive shortages (ibid., 325) that quickly led to a flourishing black market. Riedl, for whom the term durchorganisieren (“to thoroughly organize”) became the verb of choice, considered the “level of black market prices” to be “a barometer of goods shortages,” thus admitting—with unintentional cynicism—that even he could not dispense with the “market” (cf. Riedl 1932, esp. p. 123). In March of 1917, at the culmination of this “hyperstatism” or “war socialism” (cf. Hanisch 1994/2005, p. 199), all central offices were answerable to a single Generalkommissariat für Kriegsund Übergangswirtschaft (“General Commission for War and Transition Economy”).

Most Austrian School economists participated in the work of these institutions of the war economy. Only Ludwig von Mises seemed to have had serious misgivings: the monarchy lacked “entrepreneurial spirit,” the government budget was inflated, the internal administration was costly and deficient, and publicly-owned enterprises were badly managed on the whole (cf. Mises 1915). When Mises was assigned to the war economy department of the war ministry, he reported back to the front (cf. Hülsmann 2007a, pp. 278–279). His decision may have been made easier by the fact that the department was run by Hans Mayer, and that Otto Bauer and Othmar Spann were working there as well. Mises could hardly conceal his disrespect toward Mayer and Spann.

The practice of central economic planning was continued for some time after the end of the war, which indeed suited the plans of the revolutionary socialists. The philosopher Otto Neurath (1882–1945) thus suggested taking quick advantage of this “prepared ground.” Since the “war organizations” were still in existence, “the present moment was a particularly good time for nationalization” (Neurath 1919, p. 21). But surely enough, such statism also prolonged the economy of scarcity. In the winter of 1919–1920, the University of Vienna had to close down for several weeks due to a lack of heating fuel (cf. Hennecke 2000, p. 41). Poverty at the university also had a direct effect on the Austrian School. The Zeitschrift für Volkswirtschaft, Socialpolitik und Verwaltung (“Journal of Economics, Social Policy and Administration“) was discontinued for financial reasons after twenty-six years of unbroken publication.

Numerous university lecturers from German speaking universities of former crown lands thronged to Vienna; some had to take early retirement, but others were given positions in the administration. The number of professorships at German-speaking universities decreased from 2,254 (1913–1914) to 1,206 (1917–1918) (cf. Fleck 1987/2004, pp. 187–188). Under these unfavorable circumstances, the institutional entrenchment of economics was reconfigured and a six-semester degree program of political science was set up in all law faculties. The following subjects became canonical: economics, economic policy, administration studies, public finance, economic history, statistics, political science, international law, general history and economic geography (StGBl 1919, no. 49 §2).⁷ For the first time women were admitted as fully matriculated students (StGBl 1919, no. 250). The title awarded upon completion of a degree program was “Dr. rer. pol.” (Doctor rerum politicarum)—which, by the way, was not recognized as an academic qualification for legal positions in public administration.

International isolation that had developed during the war further paralyzed the Austrian School. Since the school had always championed a universal understanding of science and had cultivated lively exchange with economists from all over the world, this hit something of a nerve center. The war had now destroyed their extensive network of contacts. Even more far reaching and no less devastating were the effects of the great social changes that occurred during and after the war. Members of the Austrian School stemmed predominantly from the nobility⁸ or from the educated and propertied middle classes,⁹ and some had only recently been given titles.¹⁰ “Strictly speaking, they were the true losers of the war”: originally the “ruling classes of the Habsburg monarchy,” who now saw themselves exposed to progressive material impoverishment as well (cf. Bauer 1923, pp. 755–756). There was also the disturbing “experience of social powerlessness in the face of the dominance of the Left” (cf. Bruckmüller 1993, p. 69). This was clearly expressed by the crude ban on all aristocratic titles, for example. At the University of Vienna, this “new era” became painfully apparent when von Philippovich’s vacated professorship was awarded to Othmar Spann, an outspoken and aggressive antagonist of the School. His collectivist or “universalist” economics appeared to the new ruling powers as a lesser evil, and “obvious” candidates Joseph A. Schumpeter and Ludwig von Mises were simply passed over.

We can assume that many members of the School, looking back, saw their involvement with the centrally planned “war and transition economy” as an intellectus sacrificium, effecting a compromise of their world view. Along with economic hardship, social upheaval, international isolation and hostilities from right and left, they found the situation both depressing and demoralizing. A later historian from the fringes of the Austrian School recalled the “absolute desolation” and “complete hopelessness” that prevailed (cf. Engel-Janosi 1974, p. 69). Like the Viennese middle class, The Austrian School, on account of the events of the period, appeared to be an “eagle with broken wings” (Heimito von Doderer, cited by Bruckmüller 1993, p. 69).

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¹Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, Eugen von Philippovich, and Rudolf Sieghart.

²Eugen von Böhm-Bawerk, Robert Meyer, Viktor Mataja, Friedrich von Wieser, and Ernst von Siedler.

³Emil Sax and Gustav Gross.

⁴Viktor Mataja, Robert Meyer, Ignaz Gruber, Ernst von Seidler, and Richard Reisch.

⁵Max Garr, Julius Friedrich von Lovassy, and Moritz Dub.

⁶Viktor Grätz, Ludwig von Mises, and, as a young man, Ernst von Seidler.

⁷StGBl, i.e., “Staatsgesetzblatt,” the official law gazette of the Republic of Austria in 1918–1920 (each with the number of the act and the year of decree).

⁸Johann von Komorzynski, Carl Menger von Wolfensgrün, Friedrich von Wieser, Eugen von Böhm-Bawerk, Eugen von Philippovich, Hermann von Schullern zu Schrattenhofen, Ludwig von Mises; at this point in time, Friedrich A. von Hayek and Gottfried von Haberler were just beginning their studies.

⁹Robert Meyer, Gustav Gross, Viktor Mataja, Robert Zuckerkandl, Herrmann Schwiedland, and Richard Schüller.

¹⁰Julius Landesberger (von Antheim), Ignaz Gruber (von Menningen), and Ernst Seidler (von Feuchtenegg).