Monday, May 12, 2014

Mises and the Great Depression in Austria

The final section of this article by Richard Ebeling provides a brief Austrian review of the subject.

There is a lot more that could have been said (especially on the Austrian hyperinflation), and none of it very flattering to Mises.

Take the actual policies implemented in the 1930s by the Austrian government and Mises’ connection to this.

Austria actually had the worst depression in Europe with a real GNP loss of 22.45%.

The Austrian politician Engelbert Dollfuss became Chancellor of Austria in May 1932. In March 1933, Dollfuss effectively abolished democracy, and established an authoritarian Austro-fascist regime, but was assassinated in July 25, 1934 and replaced by another dictator called Kurt Schuschnigg, who was Chancellor from July 1934 to the Anschluss in March 1938. While Dollfuss engaged in some limited interventions in the economy, mostly he seems to have pursued deflationary austerity.

Hans-Hermann Hoppe (an Austrian economist) relates that Mises was a close adviser of Dollfuss:
“Engelbert Dollfuss [sc. was] ... the Austrian Chancellor who tried to prevent the Nazis from taking over Austria. During this period Mises was chief economist for the Austrian Chamber of Commerce. Before Dollfuss was murdered for his politics, Mises was one of his closest advisers.”
Hans-Hermann Hoppe, “The Meaning of the Mises Papers,”, April 1997
Even after his move to Geneva in 1934, Mises was still employed by the Austrian government, visited Austria periodically, and continued to do work for the government (Hülsmann 2007: 884).

So Mises was giving policy advice to Dollfuss and possibly Schuschnigg, and I assume that it was they should pursue austerity.

The historical studies on Austria in this period suggest that Dollfuss appears to have taken most of this advice to heart.

So how did the austerity work out for Austria?:
“In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. …. In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people. On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War” (Bukey 2000: 17).

“Beginning in in 1931, [Austrian] unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work .... When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value. This had a devastating effect on the legitimacy of the Austrian system .... As the Austrian government sustained its reluctance to apply Keynesian policies, the economic recovery never entered a serious tale-off phase in the second half of the 1930s. Linked to an exhausted determination of the Austrian government to resist the pressures from Germany, the economic crisis of the 1930s should be seen as an additional reason why the Austrian society was receptive to the annexation by Germany in March 1938” (Gerlich and Campbell 2000: 55).
You can see the proof of this in the graph below of unemployment in Austria in the 1930s.

Unemployment was a disaster. And GNP growth was mostly feeble in the 1930s in the years after the actual contraction ended as we can see here:
Real GDP in Austria, 1919–1938
* in millions of international Geary-Khamis dollars
1919 | 14 503
1920 | 15 571 | 7.36%
1921 | 17 236 | 10.69%
1922 | 18 784 | 8.98%
1923 | 18 597 | -0.99%
1924 | 20 754 | 11.59%
1925 | 22 161 | 6.77%
1926 | 22 536 | 1.69%
1927 | 23 216 | 3.01%
1928 | 24 295 | 4.64%
1929 | 24 647 | 1.44%
1930 | 23 967 | -2.75%
1931 | 22 044 | -8.02%
1932 | 19 769 | -10.32%
1933 | 19 113 | -3.31%
1934 | 19 277 | 0.85%
1935 | 19 652 | 1.94%
1936 | 20 238 | 2.98%
1937 | 21 317 | 5.33%

1938 | 24 037 | 12.75%
(Maddison 2003: 50).
It was essentially the economic policies that Mises would have approved of that did this to Austria.

It has been suggested by historians – and it seems plausible – that some considerable percentage of the population welcomed the Nazis in 1938 simply because they were sick of the economic problems caused by the Austro-fascist austerity, which Mises may well have designed as a policy adviser.

Modern Austrians simply gloss over this embarrassing part of history.

Bukey, E. B. 2000. Hitler’s Austria: Popular Sentiment in the Nazi Era, 1938–1945. University of North Carolina Press, Chapel Hill, North Carolina.

Gerlich, P. and D. Campbell, 2000. “Austria: From Compromise to Authoritarianism,” in D. Berg-Schlosser and J. Mitchell (eds). The Conditions of Democracy in Europe, 1919–39: Systematic Case Studies. Macmillan, Basingstoke. 40–58.

Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism. Ludwig von Mises Institute, Auburn, Ala.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.


  1. In every year between 1929 and 1938, The U.S. unemployment rate was higher than the Austrian unemployment rate. In 1933, the U.S. unemployment rate was 25% and the Austrian unemployment rate was 16%. In 1938, the U.S. unemployment rate was 18% and the Austrian unemployment rate was 8%.

    Plus, during the great depression, the real GNP loss was greater in the U.S. than Austria. Real GNP loss was 29% in the U.S. versus 23% for Austria.

    In 1940, Austria only accounted for 0.6% of global GNP. Even if Mises can be blamed for the experience in tiny Austria (he cannot), Keynes's long-term impact on the GLOBAL economy was far more damaging:

    "Keynes took the lead in developing an international monetary system with a bias toward inflation. Keynes role is clear. He had advocated a stronger bias than the one that emerged ... The Bretton Woods system, the extant version of Keynes's postwar plan, collapsed." (Meltzer "Keynes's Monetary Theory", pg. 313).

    1. (1) "In every year between 1929 and 1938, The U.S. unemployment rate was higher than the Austrian unemployment rate."

      False. US unemployment was lower in 1934, 1935, 1936, and 1937:

      US unemployment:
      Year | Unemployment Rate
      1929 | 3.2%
      1930 | 8.7%
      1931 | 15.3%
      1932 | 22.5%
      1933 | 20.6%
      1934 | 16.0%
      1935 | 14.2%
      1936 | 9.9%
      1937 | 9.1%
      1938 | 12.5%
      1939 | 11.3%
      1940 | 9.5%
      1941 | 6.0%
      1942 | 3.1%
      1943 | 1.8%
      Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16, p. 8.

      (2) the real GDP loss was greater in the US but that was caused by the greater economic crisis in the US in those years, and hardly refutes that statement about what happened after 1933 in Austria.

      (3) the world experienced the greatest age of economic growth in modern history under post-WWII Keynesian economics:

      Average OECD real per capita GDP growth rate
      1700–1820 – 0.2%
      1820–1913 – 1.2%
      1919–1940 – 1.9%
      1950–1973 – 4.9%
      1973–1990 – 2.5%
      Davidson, P. 1999. “Global Employment and Open Economy Macroeconomics,” in J. Deprez and J. T. Harvey (eds), Foundations of International Economics: Post Keynesian Perspectives, Routledge, London and New York. 9–34, at p. 22.

  2. (1) "US unemployment was lower in 1934, 1935, 1936, and 1937"

    You are using Darby's questionable data. For a critique of Darby's data, see Kesselman and Savin 1978.

    Lebergott estimates the unemployment rate BOTTOMED at 14.3% in 1937. In 1937 the Austrian unemployment rate was under 14%.

    Regardless of which data set used, the U.S. unemployment rate was greater than the Austrian unemployment rate throughout the 1930s. This is confirmed by the NBER's official unemployment rate data.

    (2) "the real GDP loss was greater in the US"

    Yes. The Austrian economy outperformed the U.S. economy during the 1930s.

    (3) The data you use is selective and contrived. All the time periods you use have different lengths. Important periods are left out.

    For example, it's meaningless to compare per capita GDP growth rates in the short period from 1950 to 1973 and the much longer period from 1820 to 1913.

    Finally, some of the data is just wrong. World real per capita GDP was $2,111 in 1950 and $4,083 in 1973. The CAGR was only 2.9%, not 4.9%.

    The failure of the INTERNATIONAL Bretton Woods system is far more embarrassing than the experience of tiny Austria in the 1930s.

    1. (1) Darby's data is not questionable. It is the official unemployment data that counts employed people as unemployed that is clearly flawed.

      "Regardless of which data set used, the U.S. unemployment rate was greater than the Austrian unemployment rate throughout the 1930s."

      False, as I have already shown.

      That you are reduced to plain lying speaks volumes.

      (2) You cannot say that of two economies in deep depression that one "outperformed" the other. This is stupid.

      One - the US -- had a worse real output contraction than the other, but that is explained by historical circumstances.

      (3) " Important periods are left out. "

      lol.. No time periods are left out in the period the data covers, from 1700-1990.

      You can get extensions of the data to the 2000s, but they confirm what I said.

      "it's meaningless to compare per capita GDP growth rates in the short period from 1950 to 1973 and the much longer period from 1820 to 1913."

      No, it is not.

      It meaningful. Because these two periods had fundamentally different economic systems.

      "World real per capita GDP was $2,111 in 1950 and $4,083 in 1973."

      The data applies to the OECD nations, not all nations on earth: the data for the OECD is not "wrong", it is right.

    2. As for J. R. Kesselman and N. E. Savin. 1978. “Three-and-a-Half Million Workers Never Were Lost,” Economic Inquiry 16.2: 205–225, there is no refutation of Darby there.

      This paper is mostly devoted to arguing against Darby’s general equilibrium analysis about the “natural rate of unemployment”: but his corrected unemployment stats do NOT need GE theory, and this is a separate issue.

      At one point, Kesselman and Savin question whether the public workers in relief programs should be counted as employed, but the arguments are unconvincing.

      E.g., Kesselman and Savin say that many people on public works programs were still looking for private sector jobs, but so what? That does not refute Darby’s case that they were employed.

      After all, plenty of people in full time private sector jobs still look for better private sector jobs: does this mean that such people are not employed? It does not, and no argument in this paper refutes Darby.

    3. Yes. Reading it a few years ago, I was struck by how the K & S paper illustrates how crazily convoluted "Keynesian" thought had become by the 70s, so that a monetarist like Darby could be more realistic and logical.

  3. They don't only gloss over it. They actively rewrite history. This point really must be stressed over and over again. During and after the war Hayek and Mises constructed a false history of what had happened in Germany and Austria which put the blame of the rise of Hitler on some vague notion that the state was becoming more centralised. But every serious historian knows that it was the austerity program of the Bruning government that brought Hitler to power in Germany and, as you say above, accounted for his welcome into Vienna in 1938 (something still remembered today in Vienna, by the way. I was there in October and was shown where Hitler gave his speeches).

    Also, see:

    Source (registration required):

  4. This is the guy Ron Paul tells us we should be reading and heeding. I guess there is a blessing behind some reformers with the best intentions not getting their way!

  5. I posted the link to your article here:

    Someone mentioned that there's a discrepancy in the figures cited between your chart & the quote right above it from Gerlich and Campbell. They say:

    "Austrian unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work .... When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value"

    But the chart shows the following:

    In 1933–6: Roughly 12-15%

    In 1937–8: Starting at 14% and dropping rapidly afterwards.

    Is there something I don't understand? Thanks for the help, LK.

    1. Yes, there is a discrepancy on the data.

      I checked Gerlich and Campbell, and they provide no citations for their figures.

      Quite possibly, Gerlich and Campbell have made a mistake.

      My data is taken from Angus Maddison, Phases of Capitalist Development, Oxford University Press, Oxford and New York, 1982, p. 206, Table C6.

      I have checked the data and it is accurate. Angus Maddison is absolutely an authority on this kind of data.

      So all you need to do is revise Gerlich and Campbell's figures with Maddisons' and all the arguments still work.

  6. Thanks. Here's the article cited in your 1st link, which is broken:

    Also ran across this: