Monetary and Economic Policy Problems Before, During, and After the Great War LL5787.indb5787.indb i 22/9/12/9/12 11:22:02:22:02 PPMM Titles in the Liberty Fund Library of the Works of Ludwig von Mises Edited by Bettina Bien Greaves The Anti-capitalistic Mentality Bureaucracy Economic Freedom and Interventionism: An Anthology of Articles and Essays Economic Policy: Thoughts for Today and Tomorrow Human Action: A Treatise on Economics Interventionism: An Economic Analysis Liberalism: The Classical Tradition Nation, State, and Economy: Contributions to the Politics and History of Our Time Omnipotent Government: The Rise of the Total State and Total War On the Manipulation of Money and Credit: Three Treatises on Trade-Cycle Theory Planning for Freedom: Let the Market System Work A Collection of Essays and Addresses Socialism: An Economic and Sociological Analysis Theory and History: An Interpretation of Social and Economic Evolution The Theory of Money and Credit The Ultimate Foundation of Economic Science: An Essay on Method Edited by Richard M. Ebeling Selected Writings of Ludwig von Mises Volume 1: Monetary and Economic Policy Problems Before, During, and After the Great War Volume 2: Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression Volume 3: The Political Economy of International Reform and Reconstruction LL5787.indb5787.indb iiii 22/9/12/9/12 11:22:02:22:02 PPMM ludwig von mises LL5787.indb5787.indb iiiiii 22/9/12/9/12 11:22:02:22:02 PPMM LL5787.indb5787.indb iivv 22/9/12/9/12 11:22:02:22:02 PPMM Selected Writings of Ludwig von Mises Monetary and Economic Policy Problems Before, During, and After the Great War Edited and with an Introduction by Richard M. Ebeling liberty fund Indianapolis LL5787.indb5787.indb v 22/9/12/9/12 11:22:02:22:02 PPMM This book is published by Liberty Fund, Inc., a foundation established to encourage study of the ideal of a society of free and responsible individuals. The cuneiform inscription that serves as our logo and as the design motif for our endpapers is the earliest-known written appearance of the word “freedom” (amagi), or “liberty.” It is taken from a clay document written about 2300 b.c. in the Sumerian city-state of Lagash. This 2012 Liberty Fund edition is published by arrangement with Hillsdale College. Introduction, editorial additions, and translation © 2012 by Hillsdale College. Original materials used for the translations that appear in the present edition are © by the estate of Ludwig von Mises and are used by permission. Frontispiece used courtesy of Richard M. Ebeling and Bettina Bien Greaves. All rights reserved Printed in the United States of America c 1 2 3 4 5 6 7 8 9 10 p 1 2 3 4 5 6 7 8 9 10 Library of Congress Cataloging-in-Publication Data Von Mises, Ludwig, 1881–1973. Monetary, fi scal, and economic policy problems before, during, and after the Great War/edited and with an introduction by Richard M. Ebeling. p. cm. (Selected writings of Ludwig von Mises; 1) Includes bibliographical references and index. isbn 978-0-86597-832-4 (hbk.: alk. paper) isbn 978-0-86597-833-1 (pbk.: alk. paper) 1. Austria—Economic policy 2. Austria—Economic conditions— To 1918. 3. Austria—Economic conditions—1918–1945. 4. Monetary policy—Austria—History—20th century. 5. Fiscal policy—Austria— History—20th century. I. Ebeling, Richard M. II. Title. HC265.V664 2011 330.9436′044—dc23 2011041366 Liberty Fund, Inc. 8335 Allison Pointe Trail, Suite 300 Indianapolis, Indiana 46250-1684 LL5787.indb5787.indb vvii 22/9/12/9/12 11:22:03:22:03 PPMM Contents Acknowledgments ix Preface xi Introduction xv Part 1 Austro-Hungarian Monetary and Fiscal Policy Issues Before the First World War 1 The Political-Economic Motives of the Austrian Currency Reform 3 2 The Problem of Legal Resumption of Specie Payments in Austria-Hungary 31 3 The Foreign Exchange Policy of the Austro-Hungarian Bank 83 4 On the Problem of Legal Resumption of Specie Payments in Austria-Hungary: A Reply to Walther Federn 95 5 The Fourth Issuing Right of the Austro-Hungarian Bank 104 6 Financial Reform in Austria 117 7 The General Rise in Prices in the Light of Economic Theory 131 8 On Rising Prices and Purchasing Power Policies 156 9 Disturbances in the Economic Life of the Austro-Hungarian Monarchy During the Years 1912–1913 168 Part 2 Economic Policy Issues in the Midst of the Great War 10 On the Goals of Trade Policy 185 11 Infl ation 209 12 On Paying for the Costs of War and War Loans 216 13 Remarks Concerning the Problem of Emigration 227 LL5787.indb5787.indb vviiii 22/9/12/9/12 11:22:03:22:03 PPMM viii contents Part 3 Austrian Fiscal and Monetary Problems in the Post-War Period 14 Monetary Devaluation and the National Budget 235 15 For the Reintroduction of Normal Stock Market Practices in Foreign Exchange Dealings 240 16 On Carl Menger’s Eightieth Birthday 244 17 How Can Austria Be Saved? An Economic Policy Program for Austria 248 18 The Claims of Note Holders upon Liquidation of the Bank 252 19 The Austrian Currency Problem Thirty Years Ago and Today 259 20 The Restoration of Austria’s Economic Situation 264 21 The Austrian Problem 271 22 The Gold-Exchange Standard 274 23 The Social Democratic Agrarian Program 279 24 America and the Reconstruction of the European Economy 282 25 The Currency and Finances of the Federal State of Austria 287 26 The Economic Crisis and Lessons for Banking Policy 296 Part 4 Interventionism, Collectivism, and Their Ideological Roots 27 The Economic System of Interventionism 303 28 Economic Order and the Political System 308 29 Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 1923 316 Appendixes A. Maxims for the Discussion of the Methodological Problems of the Social Sciences: Paper Delivered at the Private Seminar 325 B. Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg 333 Index 337 LL5787.indb5787.indb vviiiiii 22/9/12/9/12 11:22:03:22:03 PPMM Acknowledgments This volume, like the other two in this series, was made possible by the continuing support of Hillsdale College, which arranged for the trans- lations of virtually all the articles, essays, and lectures contained in the volume. I would like to particularly thank Dr. Larry Arnn, Hillsdale College president, and Mr. Mike Harner, chief staff offi cer and assis- tant to the president at Hillsdale College. I am especially grateful for their patience and encouragement in my bringing the Selected Writ- ings of Ludwig von Mises project to a close with the publication of this, the last of the three volumes in the series. The primary translators of the articles in this volume were the late Dr. Herbert Izzo and Dr. Rebecca Garber, with individual pieces translated by Wolfgang Grassl, Mary M. Custer, and Andrew Swift. To all of them I extend my most sincere thanks for making my work as editor that much easier. Dr. Izzo, an expert in both Romance and Ger- manic languages, had helped in the translation of many of the pieces that also appeared in volume 2 of these Selected Works. He was also a valued friend who deeply believed in the ideas of liberty, and whom I greatly miss. The project would have never begun if former Hillsdale College president Dr. George Roche (1935–2006) had not immediately thrown the complete support of the college behind the work after my wife, Anna, and I discovered in 1996 that Mises’s “lost papers” that had been looted by the Nazis from his Vienna apartment in 1938 had survived the war, and were preserved in a former secret Soviet archive in Mos- cow, Russia. He and Mr. John Cervini, Hillsdale College director for development, promptly arranged the fi nancial support for Anna and me to travel to Moscow in October 1996 to obtain photocopies of virtu- ally the entire collection of 10,000 pages of material. I also owe a deep debt of gratitude to Liberty Fund of Indianapolis LL5787.indb5787.indb iixx 22/9/12/9/12 11:22:03:22:03 PPMM x acknowledgments for enthusiastically expressing an interest in publishing a large selec- tion of these recovered documents and other related papers and es- says in the three-volume set that is now, fi nally, in print. I particularly wish to thank Alan Russell and Chris Talley, who are senior offi cers at Liberty Fund, and Manuel Ayau, Leonard Liggio, and Giancarlo Ib- arguen, who serve on Liberty Fund’s board of directors, all of whom I have known for many years, and whose friendship and support I greatly appreciate. I also owe a sincere thanks to Mr. Dan Kirklin of Liberty Fund, who has very helpfully assisted in the fi nal editing process for this volume. I would be remiss if I did not also mention Ludwig von Mises’s widow, Margit (1890–1993), who took me under her wing when I was a graduate student in New York many years ago, sharing her knowl- edge about her husband and the old Vienna before the Second World War, as well as encouraging my interest in her husband’s work. Margit kindly introduced me to her daughter, Gitta Sereny, who shared her knowledge and memories of her stepfather, Ludwig von Mises. Gitta and her husband, Donald Honeyman, graciously gave of their time during several trips that Anna and I made to London, where they live. I also owe thanks to Bettina Bien Greaves, who for many years worked at the Foundation for Economic Education (FEE) in Irvington, New York.