One day in 1927, Austrian economist Ludwig von Mises stood at the window of his office at the Vienna Chamber of Commerce, and looked out over the Ringstrasse (the main grand boulevard that encircles the center of Vienna). He said to his young friend and former student, Fritz Machlup, “Maybe grass will grow there, because our civilization will end.” He also wondered what would become of many of the Austrian School economists in Austria. He suggested to Machlup that, clearly, they might have to immigrate, perhaps to Argentina, where they could find work in a Buenos Aires nightclub. Friedrich A. Hayek could be employed as the headwaiter, Mises said, while Machlup, no doubt, would be the nightclub’s resident gigolo. But what about Mises? He would have to look for work as the doorman, for what else, Mises asked, would he be qualified to do?
It is worth recalling that in the mid-1920s, Mises had warned of the rise of “national socialism” in Germany, with many Germans, he said, “setting their hopes on the coming of the ‘strong man’—the tyrant who will think for them and care for them.” He also predicted that if a national socialist regime did come to power in Germany and was determined to reassert German dominance over Europe, it would likely have only one important ally with whom to initially conspire in this new struggle—Soviet Russia. Thus, years before Adolph Hitler came to power, Mises anticipated the Nazi-Soviet Pact to divide up Eastern Europe that set in motion the start of the Second World War in 1939.
In the mid-1920s, Mises had warned of the rise of “national socialism” in Germany.
Ten years after Mises’s playful 1927 prediction to Fritz Machlup, reality was catching up to his joke. By 1938, many of the Austrian economists had, indeed, emigrated and left their native country. To name just a few, Paul Rosenstein-Rodan, who had written a comprehensive exposition of the theory of marginal utility in 1927 moved to Great Britain in 1930. In the autumn of 1931, Hayek, who was the director of the Austrian Institute for Business Cycle Research, took up a visiting position at the London School of Economics, which became a permanent one after 1933.
Gottfried Haberler, who also worked at the Chamber of Commerce, accepted a two-year research position at the League of Nations in Geneva, Switzerland in early 1934, and then immigrated to the United States in 1936 with a professorship at Harvard University. Fritz Machlup, who ran a family-owned corrugated box business in Austria, went to the United States in 1934 on a research tour of American universities and stayed there after landing a teaching position at the University of Buffalo.
Oskar Morgenstern, who replaced Hayek as director of the business cycle institute in 1931, found himself exiled in America while on a lecture tour at the time of the German invasion of Austria in March 1938, and stayed on at Princeton University. And, finally, the noted Austrian School-trained sociologist, Alfred Schutz, who was employed as a lawyer in Vienna, made his way to Paris in 1938, followed by a move to America in 1939 with a part-time teaching position waiting for him at the New School for Social Research in New York City.
Ludwig von Mises and the End of the Austrian School
What of Ludwig von Mises? He had graduated from the University of Vienna with a doctoral degree in 1906. However, university positions in Austria were few and far between, both before and after the First World War. But Mises still had to earn a living. So, beginning in 1909, he was employed with the Vienna Chamber of Commerce, Crafts, and Industry, and served as a senior policy analyst with the Chamber in the years between the two World Wars.
His close friends, like Hayek, were amazed by his intellectual energy and prolific output of both theoretical and economic policy writings—which won him international recognition and renown—while also performing his time-consuming duties and responsibilities at the Chamber of Commerce in the 1920s and early 1930s, duties concerning regulatory and fiscal matters constantly coming before the Austrian Parliament and the bureaucratic agencies of the government. Hayek and the others wondered how long Mises could keep up this pace, seeming to be burning the candle at both ends.
After all, these were the years during which he wrote Nation, State, and Economy (1919), Socialism: An Economic and Sociological Analysis (1922), a revised edition of his 1912 treatise, The Theory of Money and Credit (1924), his summary restatement of the case for classical Liberalism (1927), a monograph on Monetary Stabilization and Cyclical Policy (1928), and his collection of essays devoted to a Critique of Interventionism (1929). This was followed in 1933 with a volume of his methodological writings on the Epistemological Problems of Economics.
Then, in March 1934, William E. Rappard, the co-founder and director of the Graduate Institute of International Studies in Geneva, Switzerland offered Mises a visiting position in International Economic Relations, a position that Mises readily accepted and which he took up in the autumn of 1934, while still formally retaining his ties with the Vienna Chamber of Commerce on a partial leave-of-absence. But, as it turned out, Mises’s position at the Graduate Institute was annually renewed and he remained in Geneva until July 1940, when he and his wife, Margit, immigrated to the United States in the shadow of the German occupation of neighboring France.
The Austrian School of Economics, for all intents and purposes, died in the country of its birth.
Mises had jumped at the chance to escape his tiring and mind-numbing responsibilities at the Chamber of Commerce that concerned the daily twists and turns of Austrian government policy on every economic issue under the sun. As Mises expressed in his Memoirs: “For me it was a liberation to be removed from the political tasks I could not have escaped in Vienna, and from the daily routine in the Chamber. Finally [at the Graduate Institute in Geneva], I could devote myself completely and almost exclusively to scientific problems.”
In the first edition of Human Action, Mises explained, “In the serene atmosphere of this seat of learning . . . I set about executing an old plan of mine, to write a comprehensive treatise on economics,” referring to his 1940 German-language treatise, Nationalökonomie, which was the forerunner of Human Action.
It is not an exaggeration to say that, with the German invasion of Austria in March of 1938 and the country’s formal annexation into Nazi Germany shortly after that, the Austrian School of Economics, for all intents and purposes, died in the country of its birth. Mises’s prevision of the fate of his native Austria and the need for most of the Austrian economists to scatter themselves to the four winds virtually came true. In the rubble and ruins of war-ravaged Vienna in 1945, grass did seem to grow, with the city’s earlier fame for a unique and civilized culture of art, music, science, literature, and learning a thing of the past. And most of the Austrian economists, especially those in Mises’s circle during the interwar years, had departed their homeland in the face of the darkening clouds of Nazi barbarism over Central Europe, never to permanently return.
The Nazi Plundering of Mises’s “Lost Papers”
Fortunately for the future of the Austrian School of Economics, Mises was not in Vienna when the German Army invaded Austria on March 12, 1938. He was safe in Geneva. On March 15th, Adolph Hitler triumphantly entered the Austrian capital, and in the center of Vienna proclaimed before a cheering crowd of close to two hundred thousand Viennese that their country was being united with the German fatherland.
Within days, tens of thousands of people were arrested for being actual or suspected enemies of the Nazi regime. Austrian Jews, in particular, were harassed, humiliated and brutally beaten up or murdered on the streets of Vienna. Within months, as well, the “Aryanization” of Austrian businesses and enterprises was rapidly being accomplished, with especially Jewish properties vandalized and confiscated.
No doubt, if Mises had been in Vienna eighty years ago this month, at the time of the arrival of the Nazi and Gestapo thugs, he would have been among those arrested, tortured, and killed, either from beatings or with a bullet to the back of the head; or if not then, then in the gas chambers later used by the Nazis in their drive for a “Jew-free,” German-dominated Europe. Among his persecutors and tormentors most assuredly would have been some of his own colleagues at the Vienna Chamber of Commerce. Mises’s former assistant at the Chamber, Therese Wolf-Thieberger, later reported that the day after Hitler arrived in the city, employees at the Chamber were greeting each other with “Heil Hitler,” and with several of them turning out already to be Nazi Party members.
But if the Nazis could not get their hands on Ludwig von Mises, they could at least deprive him of that which was among the things most precious to him: his books as well as his personal and professional papers and correspondence. Shortly after the German invasion, the Gestapo went to the Vienna apartment in which Mises had lived since 1911 with his mother before his departure for Geneva in 1934 and her death in 1937. After his mother’s passing he had returned the apartment to the landlord and sublet what been his room from the new tenants.
In 1977, I had the good fortune to meet Margit von Mises through Murray and Joey Rothbard.
The Gestapo agents broke into the room, hauled away the portion of his library he had not taken to Geneva with him, and boxed up his personal and family papers and documents, his correspondence with family, colleagues and friends, the copies of his scholarly and popular articles on economic theory and policy, and the memoranda and position papers and speeches he prepared for internal use at the Vienna Chamber of Commerce during his quarter of a century of working at that institution. Also among his looted papers were materials relating to his part-time teaching at the University of Vienna, and the famous private seminar that he ran on a regular basis for many years in his Chamber of Commerce offices with a selected group of Viennese scholars and invited guests from around the world.
About a year after the Nazis had carted away all of these and other family items, Mises sent out a letter of “Information” to friends and associates in Europe telling them what the Gestapo had done. He also explained that people in Vienna who interceded on his behalf with the Nazi authorities in an attempt to get his property back were told that the Gestapo had no idea what had happened to it all.
In 1977, I had the good fortune to meet Margit von Mises through Murray and Joey Rothbard. I had written a review of Margit’s book, My Years with Ludwig von Mises, which Murray had published through his old publication, Libertarian Forum. Margit liked my review and asked the Rothbards to introduce her to me. We met at Murray and Joey’s Manhattan apartment, and to this day I still remember that Joey had prepared a delightful quiche for lunch.
For the next seven years, while I was mostly living in New York City, Margit would invite me over once or twice a month for tea and tasty little sandwiches that she would prepare at the apartment at 777 West End Avenue, where she and Ludwig had lived since shortly after their arrival in America during the war.
Mises’s “Lost Papers” in Soviet Hands And Their Rediscovery
Anyone interested in Mises and the Austrian School has heard some version of the story about how the Gestapo had plundered Mises’s papers. Margit told me that for the rest of his life, Mises believed that either the Nazis had destroyed it all or they were perhaps lost in the destruction of the war.
However, Mises’s “lost papers” had in fact survived the war. They had been transported to a small town in the Czech region of Bohemia and stored with all the many other looted collections of personal and official papers and documents seized by the Nazis as the German Army conquered one country after another during the war.
Mises’s “lost papers” had in fact survived the war.
It all fell into the hands of the Soviet Army as the war was drawing to a close in May of 1945. After the Soviet secret police did a cursory examination of the literally millions of pages of documents that the Nazis had plundered from one end of Europe to another, they informed Stalin what had landed into their hands. The Soviet dictator ordered everything to be brought back to the Soviet Union, and a secret archival building was constructed in Moscow under Stalin’s orders to house all this booty. There it remained, and among it all were those papers of Ludwig von Mises. During the postwar decades until the end of the Soviet Union in 1991, only employees of the KGB and the Soviet foreign ministry had access to anything in this vast collection.
In 1996, my wife, Anna, and I found out about the location of Ludwig von Mises’s “lost papers” in Moscow. We traveled to Russia in October of 1996 and spent ten days in that formerly secret archive carefully looking through and arranging the photocopying of almost everything out of the nearly 10,000 pages of material from Mises’s papers. This would have been impossible to accomplish at the time if not for my wife, Anna, and her friends in Moscow, who helped arrange our visa invitations to Russia, and for their intercession on our behalf to facilitate our access to and use of that archive.
Shortly after our return to Hillsdale College, where I was then teaching as the Ludwig von Mises Professor of Economics, the Liberty Fund of Indianapolis heard of our find and asked me to serve as the editor and translation coordinator of a large selection of these papers to be published by them. Over the next several years, three volumes appeared under the general title, Selected Writings of Ludwig von Mises. Combined, the three printed volumes offer 1,000 pages of essays, articles, and policy memoranda written by Mises from before the First World War to the 1940s. It is a huge addition to our understanding and appreciation of Ludwig von Mises as both economic and social theorist, and as an active policy analyst and proponent on a wide variety of economic issues, especially during those historically momentous years between the two World Wars.
Mises’s Principled Consistency on Economics and Public Policy
What can be learned about “Mises the Man” from these “lost papers”? What do they tell us about how he thought, the policy perspective from which he confronted the economic issues facing the Austria of his time, and how he saw the application of Austrian Economics to public policy, to which he, himself, contributed so much during those same years that he had to work as a policy analyst at the Vienna Chamber of Commerce?
What especially stands out is how consistent a worldview he had formed in his mind from a relatively young age. Mises tells us in his Memoirs that it was around Christmas time in 1903, when he was 22 years old, that he read Carl Menger’s Principles of Economics for the first time and that this made him an economist. This is not surprising, since all of the core concepts that have marked off the Austrian School from other schools of economic thought were all clearly outlined in Menger’s work: methodological individualism; methodological subjectivism; the inescapability of time and uncertainty in all human action; the market has a coordinating process of prices and human plans; and the spontaneous order of social institutions such as the emergence and evolution of money.
The other great influence on Mises, while he was in his 20s, was the writings and the personality of Eugen von Böhm-Bawerk, who returned to teaching at the University of Vienna in 1905 after serving as finance minister of the Austro-Hungarian Empire. From his Memoirs and his 1924 commemorative essay, marking ten years since Böhm-Bawerk’s death, it is clear to see the impact Böhm-Bawerk left on Mises, both as a scholar and as a human being. Böhm-Bawerk’s principled stance on fiscal matters during his years as finance minister, including his disagreeing with Emperor Franz-Joseph in cabinet meetings over government spending, and his stepping down from that high office rather than look the other way at corruption in the military budget, must have left a strong impression on Mises. This was, no doubt, reinforced by the generous and serious attention that Böhm-Bawerk gave in his university seminar to Mises’s Theory of Money and Credit shortly after it appeared in 1912.
Economic understanding could only successfully emerge and assist in making informed analyses and decisions based on a properly grounded foundation in economic theory.
Again, Mises tells us in his Memoirs that it was his student researches and investigations into the housing policies of the Austrian government, especially the socially undesirable effects of public housing and the impact of tax disincentives on the building of private-sector housing, that began to make him aware of the negative consequences arising from various forms of government intervention. This, combined with his obvious intense reading of the classical economists and their critique of government controls and regulations over both domestic and international trade, was leading him to the laissez-faire policy views of which he became, no doubt, the most consistent and well-known proponent in Europe of between the World Wars.
But Mises also had come to understand that historical or contemporary “facts” were of no use by themselves to determine the why or the how of the workings of markets or the failures of government intervention. Economic understanding could only successfully emerge and assist in making informed analyses and decisions based on a properly grounded foundation in economic theory. And an economic theory, as Carl Menger had enlightened him, started with the logic of individual human action and then was extended to the social arena of many individuals interacting in various institutional settings.
Mises’s Memoirs, written shortly after arriving in the United States in 1940, often convey a tone of despair and despondency about an Austria that he clearly loved and deeply cared about that now seemed to be gone. Looking back over his more than a quarter of a century of policy work at the Vienna Chamber of Commerce, at one point he said:
Occasionally I entertained the hope that my writings would bear practical fruit and show the way for policy . . . I have come to realize that my theories explain the degeneration of a great civilization; they do not prevent it. I set out to be a reformer, but only became the historian of decline.
But Mises also insisted that as far has he was concerned, he had no regrets in fighting for freedom-oriented economic policies during all those years. “I could not act otherwise,” he said. “I fought because I could do no other.”
Adapted from a speech delivered at the Mises Institute's 2018 Austrian Economic Research Conference.