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

Introduction

Introduction The articles and lectures included in this volume by the Austrian economist Ludwig von Mises were written in the years before, during, and after the Great War of 1914–18, as the First World War used to be called. They focus on the monetary, fiscal, and general economic policy problems of, first, the Austro-Hungarian Empire and, then, the new postwar Austrian Republic after the dismantling of the Habsburg Monarchy. For those who may be familiar with Mises’s more theoretical works on various themes of monetary theory and policy, comparative economic systems—capitalism, socialism, and interventionism —the general nature and workings of the market economy, or the methodology and philosophy of the social sciences, most of these articles and lectures (like the ones in volume 2 and 3 in this series) offer a different 1. Ludwig von Mises, The Theory of Money and Credit (Indianapolis: Liberty Fund, 3rd rev. ed., [1924; 1953] 1981) and “Monetary Stabilization and Cyclical Policy,” (1928) in The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression (Auburn, Ala.: Ludwig von Mises Institute, 2006), pp. 53–153. 2. Ludwig von Mises, Socialism: An Economic and Sociological Analysis (Indianapolis: Liberty Fund, [1951] 1981), Liberalism: The Classical Tradition (Indianapolis: Liberty Fund, [1927] 2005), Critique of Interventionism (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, [1929] 1996), Interventionism: An Economic Analysis (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, [1940] 1996), Bureaucracy (Indianapolis: Liberty Fund, [1944] 2007), and Planning for Freedom, and Other Essays (Indianapolis: Liberty Fund, [1951] 2008). 3. Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, [1933] 1981), Human Action: A Treatise on Economics (Indianapolis: Liberty Fund, [1949; 4th rev. ed. 1966] 2007), Theory and History: An Interpretation of Social and Economic Evolution (Indianapolis: Liberty Fund, [1957] 2005), and The Ultimate Foundation of Economic Science (Indianapolis: Liberty Fund, [1962] 2006). 4. Richard M. Ebeling, ed., Selected Writings of Ludwig von Mises, vol. 2, Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression (Indianapolis : Liberty Fund, 2002); Selected Writings of Ludwig von Mises, vol. 3, The Political Economy of International Reform and Reconstruction (Indianapolis: Liberty Fund, 2000). xvi  introduction perspective on Mises as an applied economist. Here is not the broad theorist concerned, often, with stepping back from the particular details of specific historical circumstances to investigate and evaluate the essential and universal properties of human action; or the institutional prerequisites for economic calculation and the rational allocation of resources among competing ends; or the relationships between time preference, investment time horizons, monetary expansion, and the sequential stages of the business cycle. Instead, these essays investigate and analyze the historical and institutional workings of the pre–World War I monetary system of the Austro-Hungarian Empire, and the issues surrounding legal specie redemption for the banknotes of the Austro-Hungarian Bank; the politics behind the establishment of the gold standard in Austria-Hungary; the growing fiscal imbalances developing in the Habsburg Empire due to the patterns of government spending and taxing policies in the first decade of the twentieth century; and the reasons behind the economic crisis that hit Austria-Hungary in the years immediately before the start of the Great War. Here, too, we see Mises analyzing during the war the motives behind German and Austro-Hungarian trade policy, the impact and significance of emigration from Austria, the effects from the monetary inflation used to fund the government’s war expenditures, and the pros and cons of financing those war expenditures through taxation versus borrowing by the issuance of war bonds. After the war, Mises explains the distorting effects from the new Austrian government’s control and rationing of foreign exchange for imports and exports; the impact on the Austrian foreign exchange rate of monetary expansion to finance the government’s huge deficit spending ; a specific policy agenda to bring the country’s financial house back into order, and the need for cooperation from both businesses and labor unions if this was to be achieved without Austria’s currency collapsing into hyperinflation; the claims that holders of banknotes of the old Austro-Hungarian Bank could make on the new Austrian National 5. On Mises’s life and contributions to economics in general and the philosophy of freedom, see Richard M. Ebeling, “A Rational Economist in an Irrational Age: Ludwig von Mises,” in Austrian Economics and the Political Economy of Freedom (Northampton, Mass.: Edward Elgar, 2003), pp. 61–100, and...