Monetary and Economic Policy Problems Before, During, and After the Great War

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Людвиг фон Мизес. Monetary and Economic Policy Problems Before, During, and After the Great War

Titles in the Liberty Fund Library of the Works of Ludwig von Mises

CONTENTS

ACKNOWLEDGMENTS

PREFACE

INTRODUCTION

The Habsburg Monarchy and the Austro-Hungarian Empire12

The Austrian Monetary System, 1867-191432

Ludwig von Mises’s Writings on Monetary and Fiscal Policy Before the Great War

War Financing, Inflation, and the Goals of International Trade Policy

After War: Hyperinflation and Fiscal Mismanagement in the New Austria53

Interventionism, Collectivism, and Their Ideological Roots

Liberating Liberalism and the Austrian Jews56

CHAPTER 1. The Political-Economic Motives of the Austrian Currency Reform1. I

II

III

IV

V

VI

CHAPTER 2. The Problem of Legal Resumption of Specie Payments in Austria-Hungary1. I. Process of Currency Regulation Since 1892

II. The Position of the Austro-Hungarian Bank on the Currency and Foreign Exchange Markets

III. The De Facto Resumption of Specie Payments

IV. The Alleged Advantages of Suspended Specie Payments for the Currency Market

V. The Discount Rate in Austro-Hungary in Relation to Foreign Discount Rates

VI. The Costs of the Foreign Exchange Policy

VII. The Form of the Bank Constitution

VIII. The Bank Feud Between Austria and Hungary over the Legal Resumption of Specie Payments

CHAPTER 3. The Foreign Exchange Policy of the Austro-Hungarian Bank1

I

II

III

IV

V

CHAPTER 4. On the Problem of Legal Resumption of Specie Payments in Austria-Hungary

I. The Development of Erroneous Views about Foreign Exchange Policy

II. The Bank’s Policy in Light of the Statements by the Bank’s Governor and the Viennese Stock Exchange

III. Transactions During the Bosnian Crisis

CHAPTER 5. The Fourth Issuing Right of the Austro-Hungarian Bank1

CHAPTER 6. Financial Reform in Austria1

CHAPTER 7. The General Rise in Prices in the Light of Economic Theory1

General Price Increases and Particular Price Increases

The Quantity of Money and the Value of Money

Devaluation as a Consequence of Certain Characteristics of Indirect Exchange

The Social Effects from General Inflation

Increasing Wages and Inflation

A Shortage of Raw Materials as a Cause of Rising Prices

The Recognition of the Reasons for Inflation and Inflationary Policy

CHAPTER 8. On Rising Prices and Purchasing Power Policies1

CHAPTER 9. Disturbances in the Economic Life of the Austro-Hungarian Monarchy During the Years 1912-19131

CHAPTER 10. On the Goals of Trade Policy1. I

II

III

IV

V

VI

VII

VIII

CHAPTER 11. Inflation1. Inflation and Devaluation

Implications of Changes in the Value of Money for National Finances

Side Effects from Devaluation and Their Social Consequences

CHAPTER 12. On Paying for the Costs of War and War Loans1

CHAPTER 13. Remarks Concerning the Problem of Emigration1. Harmful Effects of Emigration

Causes of Emigration

Combating Emigration

Reduction of the Harmful Effects from Emigration

Measures relative to seasonal migration

Permanent emigration

The acquisition of a settlement region

CHAPTER 14. Monetary Devaluation and the National Budget1

CHAPTER 15. For the Reintroduction of Normal Stock Market Practices in Foreign Exchange Dealings1

CHAPTER 16. On Carl Menger’s Eightieth Birthday1

CHAPTER 17. How Can Austria Be Saved? An Economic Policy Program for Austria1

CHAPTER 18. The Claims of Note Holders upon Liquidation of the Bank1

CHAPTER 19. The Austrian Currency Problem Thirty Years Ago and Today1

CHAPTER 20. The Restoration of Austria’s Economic Situation1

CHAPTER 21. The Austrian Problem1

CHAPTER 22. The Gold-Exchange Standard1

CHAPTER 23. The Social Democratic Agrarian Program1

CHAPTER 24. America and the Reconstruction of the European Economy1

CHAPTER 25. The Currency and Finances of the Federal State of Austria1

CHAPTER 26. The Economic Crisis and Lessons for Banking Policy1

CHAPTER 27. The Economic System of Interventionism1

CHAPTER 28. Economic Order and the Political System1

CHAPTER 29. Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 19231

APPENDIX A. Maxims for the Discussion of Methodological Problems in the Social Sciences: Paper Delivered at the Private Seminar1

APPENDIX B. Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg1

Index

A

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

Y

Z

Notes. INTRODUCTION

The Habsburg Monarchy and the Austro-Hungarian Empire

The Austrian Monetary System, 1867-1914

Ludwig von Mises’s Writings on Monetary and Fiscal Policy Before the Great War

War Financing, Inflation, and the Goals of International Trade Policy

After War: Hyperinflation and Fiscal Mismanagement in the New Austria

Interventionism, Collectivism, and Their Ideological Roots

Liberating Liberalism and the Austrian Jews

PART 1: Austro-Hungarian Monetary and Fiscal Policy Issues Before the First World War. CHAPTER 1: The Political-Economic Motives of the Austrian Currency Reform

I

II

III

IV

V

VI

CHAPTER 2: The Problem of Legal Resumption of Specie Payments in Austria-Hungary

I: Process of Currency Regulation Since 1892

II: The Position of the Austro-Hungarian Bank on the Currency and Foreign Exchange Markets

III: The De Facto Resumption of Specie Payments

IV: The Alleged Advantages of Suspended Specie Payments for the Currency Market

V: The Discount Rate in Austro-Hungary in Relation to Foreign Discount Rates

VI: The Costs of the Foreign Exchange Policy

VII: The Form of the Bank Constitution

VIII: The Bank Feud Between Austria and Hungary over the Legal Resumption of Specie Payments

CHAPTER 3: The Foreign Exchange Policy of the Austro-Hungarian Bank

II

III

IV

CHAPTER 4: On the Problem of Legal Resumption of Specie Payments in Austria-Hungary

I: The Development of Erroneous Views about Foreign Exchange Policy

II: The Bank’s Policy in Light of the Statements by the Bank’s Governor and the Viennese Stock Exchange

III: Transactions During the Bosnian Crisis

CHAPTER 5: The Fourth Issuing Right of the Austro-Hungarian Bank

CHAPTER 6: Financial Reform in Austria

CHAPTER 7: The General Rise in Prices in the Light of Economic Theory

The Quantity of Money and the Value of Money

Devaluation as a Consequence of Certain Characteristics of Indirect Exchange

The Social Effects from General Inflation

Increasing Wages and Inflation

A Shortage of Raw Materials as a Cause of Rising Prices

The Recognition of the Reasons for Inflation and Inflationary Policy

CHAPTER 8: On Rising Prices and Purchasing Power Policies

CHAPTER 9: Disturbances in the Economic Life of the Austro-Hungarian Monarchy During the Years 1912-1913

PART 2: Economic Policy Issues in the Midst of the Great War. CHAPTER 10: On the Goals of Trade Policy

I

II

III

IV

V

VI

VII

VIII

CHAPTER 11: Inflation

Inflation and Devaluation

Side Effects from Devaluation and Their Social Consequences

CHAPTER 12: On Paying for the Costs of War and War Loans

CHAPTER 13: Remarks Concerning the Problem of Emigration

Combating Emigration

PART 3: Austrian Fiscal and Monetary Problems in the Postwar Period. CHAPTER 14: Monetary Devaluation and the National Budget

CHAPTER 15: For the Reintroduction of Normal Stock Market Practices in Foreign Exchange Dealings

CHAPTER 16: On Carl Menger’s Eightieth Birthday

CHAPTER 17: How Can Austria Be Saved? An Economic Policy Program for Austria

CHAPTER 18: The Claims of Note Holders upon Liquidation of the Bank

CHAPTER 19: The Austrian Currency Problem Thirty Years Ago and Today

CHAPTER 20: The Restoration of Austria’s Economic Situation

CHAPTER 21: The Austrian Problem

CHAPTER 22: The Gold-Exchange Standard

CHAPTER 23: The Social Democratic Agrarian Program

CHAPTER 24: America and the Reconstruction of the European Economy

CHAPTER 25: The Currency and Finances of the Federal State of Austria

CHAPTER 26: The Economic Crisis and Lessons for Banking Policy

PART 4: Interventionism, Collectivism, and Their Ideological Roots. CHAPTER 27: The Economic System of Interventionism

CHAPTER 28: Economic Order and the Political System

CHAPTER 29: Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 1923

Appendixes. APPENDIX A: Maxims for the Discussion of Methodological Problems in the Social Sciences: Paper Delivered at the Private Seminar

APPENDIX B: Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg

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EDITED BY BETTINA BIEN GREAVES

The Anti-capitalistic Mentality

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After having its financial house in order for almost twenty years, Mises pointed out, the Austrian government was now threatening the fiscal stability of the society with increasing expenditures, rising taxes, and budget deficits. Government spending was likely to significantly grow in future years partly due to the expenses of maintaining costly military forces in an environment of an international arms race. The other major factor at work on the spending side of the government’s ledger were social welfare expenditures that the Austrian authorities were taking on, and which would only grow in the years ahead. Already in the preceding ten years, government spending had increased by over 53 percent, and over the same decade the cost of funding the government’s debt had increased by nearly 20 percent. The cost of financing many of the ministries was exploding; the nationalized railway system was running large deficits that had to be covered from other government funding sources; and the Austrian Crownlands were managed with a three-layered bureaucratic system of administrators at the national, provincial, and municipal levels, each with its own rules, regulations, and taxing authorities—and often in contradiction with each other.

To cover these expenditures, a wide variety of taxes were being increased, including inheritance taxes, sales and excise taxes, and income and corporate taxes. They frequently were manipulated to shift the incidence of the tax burden away from the agricultural and rural areas of Austria onto the shoulders of the urban populations and especially onto industry and manufacturing. In addition, the finance ministry wanted to implement legislation giving the government the authority to examine the books of businesses and industries. Mises observed that “Austrian entrepreneurs rightly see in this arrangement an intensification of the harassment that the authorities display toward them.” Although the tax rates and burdens that Mises analyzes and criticizes seem by today’s higher and more intrusive fiscal standards to be part of that bygone, idyllic world of limited government liberalism before the First World War, they all represented significant increases at the time, and all pointed in a dangerous direction for the future.

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