Austria also had plenty of arms, salt, timber, and manufactures to sell; Czechoslovakia had sugar, potatoes, vegetables, and coal; Hungary and Yugoslavia had milk. But despite efforts by the provisional government to work out barter deals with the new states, nationalist politics and anxiety over the latter’s own potential shortages prevented the exchanges from taking place.
That was not all. The Allies announced that their wartime blockade of Germany would continue until the Central Powers had signed the peace terms proposed by the victorious Entente. That meant that the only country still willing to sell food to Austria had none to sell. Herbert Hoover, who had come to Europe on a fact-finding mission for the American government, commented bitterly, “The peacemakers had done about their best to make [Austria] a foodless nation.”11
Making matters immeasurably worse, Austria’s rural provinces created an informal blockade of Vienna. Several were, indeed, threatening to pursue union with Germany or Switzerland. In the farm districts, the war had wrecked domestic agriculture. The men were not at home to plant fields. Livestock, the chief source of fertilizer, was slaughtered to supply the military. And the government’s policy of forcing farmers to sell food at controlled prices led to less planting and more hoarding. As food shortages worsened, especially in the war’s final year, rural districts began to act independently by enacting local export bans on food, passing laws prohibiting tourists from visiting, and organizing stop-and-search operations to prevent anyone from taking food out of the district.
The new government had inherited crushing war debts but no gold reserves with which to buy food for its citizens. The governments of Hungary and Czechoslovakia had seized the last of the gold deposited in the central bank. Hoover arrived in Paris in mid-December to set up a program for reviving food trade and, if necessary, delivering food aid. He was shocked by the state of Austrian finances: “The citizenry that paid the taxes to pay the army and the bureaucracy had seceded. The state—which paid the salaries of the army, the railway workers—was bankrupt.”12
Serious food shortages had cropped up almost as soon as the war began. As early as 1915, Vienna’s airy white rolls had been replaced by leaden “Kriegsbrot,” and “meatless” weeks had become routine as early as 1915. Everything became ersatz: not only was bread made “of anything but flour,” wrote Stefan Zweig, an Austrian journalist and novelist, but “coffee was a decoction of roasted barley, beer yellow water, chocolate colored sand.”13 The government’s requisitioning and distribution efforts drove a growing share of what food supplies there were underground into the black market. And now, despite the end of hostilities, the city’s supplies continued to dwindle. Ludwig von Mises, Austria’s leading business economist, recalled that “at no time during the first nine months of the Armistice did Vienna have a supply of food for more than eight or nine days.”14 Government depots, the only legal source of food, had absurdly small amounts of pickled cabbage and “war bread” to hand out to housewives who had stood on a queue for hours. The bread ration was six ounces a week per person, less than one-fourth of average prewar consumption. The meat ration had fallen to 10 percent of the prewar level. There was no milk ration for children over the age of one. But one expert estimated that average daily calorie consumption had fallen to little more than a thousand calories—not enough to sustain life for more than a few weeks.
Crowds on the street were wan and listless, while children looked three years younger than they were. “Now we are really eating ourselves up,” Freud wrote to a friend. “All four years of the war were a joke compared to the bitter gravity of these months, and surely the next ones, too.”15 Franz Kafka, a clerk in an insurance office, wrote a short story, “Ein Hungerkünstler,” about the art of starving. Tuberculosis was common in middle-class neighborhoods, where it had virtually disappeared before the war. By early 1920, the prewar burial rate of forty to fifty corpses per day would climb to two thousand per day. Felix Salten, an Austrian theater critic and novelist best known for Bambi (1923), remembered “hearing of lions, of panthers, of elephants, of giraffes that died in the drawn-out agony of starvation in their cages in the zoological gardens, people shrugged their shoulders. How many human beings lay in their beds in the throes of death, and dragged on, emaciated, wracked by suffering, to the bitter end.”16
The city itself began to waste away. The population was displaying the classic symptoms of starvation—lassitude, indifference, and passivity, alternating with bouts of mania. Despite the influx of demobilized soldiers, imperial civil servants, and several thousand Jewish refugees fleeing pogroms in the east, the city’s population, which had expanded rapidly during the early 1900s boom, shrank by several hundred thousand people. Like a body deprived of food that begins to absorb its own muscle, the whole country began living off its accumulated possessions. At one point, the government announced that Austria was willing to pawn “anything”—castles, palaces, shooting boxes, game preserves, and chateaus owned by the Hapsburgs.17
The misery of the food blockade was multiplied by a “cold blockade.” One week after the armistice, there was no coal for heating apartments and just one week’s worth of supplies for cooking. The weekly fuel ration consisted of one twenty-five-watt lightbulb per apartment, one candle, and a little more than a cup of fuel. Even for middle-class households, baths and laundry became unaffordable luxuries. Schools, which had already been closed due to the influenza pandemic, now announced Kaltferien, or cold vacations. Stores had to close by four in the afternoon. Cafés were required to kick out their patrons before nine o’clock. People chopped up their doors, stripped bark off the trees, and cut down trees in city parks. Entire tracts of the Vienna Woods were denuded. The telephone poles and trees that had lined Vienna’s elegant boulevards disappeared. Wooden crosses vanished from cemeteries. A visitor wrote, “The whole life of Vienna is haunted by this lack of fuel.”18
Any number of maddening Catch-22s cropped up, as the Social Democratic Die Arbeiter-Zeitung pointed out: “People need wood because they have no coal, but no wood can be shipped because there’s no coal for the locomotives.”19 According to the historian Charles Gulik, the Austrian Republic had inherited 30 percent of the former empire’s factory workers, 20 percent of its steam-generating capacity, and only 1 percent of its coal supplies. No fuel meant that factories; blast furnaces; bakeries; brick, lime, and cement works; and power plants had to be shut down, choking off industrial production, homebuilding, and power generation. Half of Vienna’s sixteen industrial concerns with more than one thousand workers shut down for good. In the city that had been a pioneer of electrification, blackouts became routine, even on Christmas Day. Tram service, which depended on electricity, had to be suspended. Railroad traffic was restricted to freight trains carrying food shipments. In turn, the energy shortage, the falloff in arms production, and demobilization continued to swell the ranks of the unemployed.
On Christmas Eve 1918, just before midnight, Thomas Cuninghame, the official British representative in the former Hapsburg Empire, drove up one of Vienna’s stateliest streets, Mariahilferstrasse. “There was not a soul stirring and hardly a light in the streets,” he wrote in his diary. “The beautiful old city had become ‘Die Tote Stadt.’ ”20 William Beveridge was mobbed on Boxing Day by desperate housewives at a market “twittering around us like ghosts in Hades, saying that they wanted food.”21 One of the great European capitals seemed to be on the verge of death.
• • •
Joseph Schumpeter’s latest ambition—to become commerce secretary in the monarchy’s last cabinet—had come to naught a few weeks before the armistice. Since then he had been cooling his heels in Graz, halfheartedly preparing his lectures for the spring term. With the first national election imminent and the Social Democrats and right-wing Christian Social Party expected to form a coalition government, he put feelers out to the Left about the possibility of being appointed finance minister. A Burkean liberal who favored maximum individual freedom and minimum government
intervention, he was on generally good terms with Socialists. The two Social Democrats who were temporarily in charge of the country were old friends from his university days. Otto Bauer, a middle-class Jew with pan-German sympathies, was the party leader and interim foreign secretary. Karl Renner, the bluff, portly eighteenth child of a Moravian peasant, was chancellor. Though both were Marxists, their politics had more in common with Fabianism than with Bolshevism. Nonetheless, another man got the job.
Early in the New Year, a fresh political opportunity presented itself. Another university pal, a German Socialist who would soon become the Weimar Republic’s first finance minister, wrote to Schumpeter from Berlin with an interesting proposal. Would he join a group of Socialist luminaries assembled that December to advise the new German government on the transition to Socialism; in particular, the possible nationalization of the coal industry?
Strange as it might seem, the Socialist politicians now in charge of the well-being of 60 million citizens had never given any serious thought to how a socialist economy might operate. Marx had expressly forbidden his followers to indulge in what he dismissed as utopian “fantasizing.” The leading German Marxist would admit only that such leaps of the imagination might be “a good mental exercise.”22 But the growing radicalization of German workers had forced the issue. Since the armistice in November, there had been mutinies and strikes, extortionist wage demands, physical intimidation, and “spontaneous expropriations” of firms by their employees. The German working class had sacrificed for more than four years. Now they wanted to be compensated. The leaders of the Left parties had been promising for years to wrest control from employers and put workers in charge. Yet now that they were in power, they realized that no government could survive unless it could revive production. The commission’s job was to suggest a way out of the dilemma.
Schumpeter accepted the invitation with alacrity. The shortest road to Vienna might lie through Berlin, he saw. With Socialists in power in both Austria and Germany, the likelihood that the two German-speaking states would merge was growing, and Bauer, the Austrian foreign secretary, was a member of the commission. Besides, Schumpeter expected the commission to adopt a gradualist view. Later, Schumpeter justified his willingness to get involved in a Socialist project by saying, “If someone insists on committing suicide, it’s better for a doctor to be present.”23 But at the time, most investors, bankers, and industrialists did not expect the commission to propose any such thing. Eduard Bernstein, a prominent German Socialist on the panel, had recently warned, “We cannot seize the wealth of the rich people for then the whole system of production would become paralyzed.”24 Bauer, who wanted to replace boards of directors with representatives of management, workers, and consumers, had stressed that socialized and private enterprises would function side by side “for generations.”25
Schumpeter lost no time in applying for a leave of absence from the University of Graz, which the provost promptly granted. The journey to Berlin took four days instead of the usual two, but when he arrived in the Prussian capital, he was in a city that no one could possibly describe as “dead” even in these desperate times.
• • •
Berlin, January 1919: The city had been spared Allied occupation and had emerged from the war structurally intact, if shabby, woefully short of supplies, and expensive. But each wave of demobilized soldiers—embittered, excitable, and by now addicted to violence—threatened to overwhelm the city. Any stray spark could start a conflagration.
The explosion occurred between Christmas and New Year’s. The Communist Spartacists called a general strike, and a full-scale civil war ensued. Mass demonstrations stretched from Alexanderplatz to the Reichstag. Trains were paralyzed, banks barricaded, the university closed, stores boarded up. Spartacists seized virtually every factory, power plant, government building, newspaper, and telegraph office. Tanks rumbled through the streets, and, after the revolutionaries rained grenades and machine-gun fire on government troops, the German chancellor authorized the use of flamethrowers and field artillery. Terrified citizens jammed the train stations in a vain attempt to flee. Berlin’s most famous citizen, Albert Einstein, had already withdrawn to Zurich: “Glorious reading about events in Berlin here, under sunny skies, eating chocolate,” he wrote to a friend.26 Schumpeter, however, relished being in the thick of things.
The Socialist brain trust had been meeting for several weeks in the basement of the Reichsbank, which had been spared a takeover by alert civil servants who barricaded the building. Despite the chaos and bloodshed, the commission continued to conduct its proceedings like a university seminar, calmly and deliberately considering alternatives ranging from nationalization to laissez-faire, and addressing practical questions such as how enterprises could be socialized without undermining efficiency gains or innovation.
Schumpeter adopted the same supercilious, cynical attitude he had displayed in Böhm-Bawerk’s seminar at the University of Vienna. “I have no idea whether socialism is possible, but if it is, one has to be consistent,” he would say flippantly. “In any case it would be an interesting experiment to try it once.”27 He treated the issue of nationalization as a technical one, a banker recalled: “ ‘If one wanted, at the end of a war, to socialize large firms, one had to proceed in a certain way.’ ”28
In the end, as expected, the commission rejected both laissez-faire and Soviet-style state ownership and opted for a combination of public ownership and private management. When the report was drafted, two liberal commission members refused to sign it and issued a minority report. Schumpeter, however, added his name to the majority report. His stint on the commission paid off exactly as he had hoped. Impressed by his cooperative attitude and technical expertise, Hilferding urged Bauer to consider Schumpeter for the position of finance minister of Austria, and by the time the commission report was published on February 15—the day before the Austrian parliamentary elections—the Viennese press was already hinting that Schumpeter would be asked to join the government. Two weeks later, Bauer was back in the German capital for four days of secret Anschluss talks with Weimar’s foreign minister, Ulrich von Brockdorff-Rantzau. (Union with Germany was Bauer’s top priority. He had already enlisted Robert Musil, the writer, who was “officially charged with the task of indexing newspaper clips . . . In reality, assigned to promote union with Germany in various newspapers.”29) At that point, “Schumpeter was in a hurry to leave,” recalled another commissioner.30 On the eve of another general strike and bloody uprising, he left Berlin in Bauer’s company.
• • •
The post of finance minister was one of two or three in the new coalition government so unrewarding that no career politicians could be found to take them.
How was one to prevent the currency of a bankrupt nation from falling, buy food from abroad without gold or dollars, or cobble together a budget when every variable from borders to reparations was being decided by the Allies in Paris? As soon as Renner floated his name, Schumpeter’s own party, the conservative Christian Socials, hastily agreed. They did not necessarily trust him. In an anti-Semitic culture, the party of landowners and aristocrats considered Schumpeter a Judenfreund because he associated with Rothschilds and other Jewish bankers and businessmen. He had also shown a woeful lack of party loyalty by blocking the promotion of the Christian Social whip, who was on the faculty at Graz. But the Socialists considered Schumpeter, who was regarded as “something of a genius in the economic sciences,” the right man to take charge of the republic’s shaky finances.31 Since Austria’s fortunes depended on the Allies, Renner and Bauer reasoned, his pro-Western sentiments and early opposition to the war were welcome assets, as was his experience living abroad, his American honorary degree, and his fluency in English and French.
Pamphleteers on the left and right instantly labeled Schumpeter as an opportunist: “How delightful it must be to have three souls in one,” liberal, conservative, and Socialist, Die Morgen began. Karl Kraus called him an “exchan
ge professor in his convictions.”32 But Schumpeter’s desire to join the government was hardly discreditable. If the fledgling Austrian Republic failed to deliver bread along with peace, democracy was doomed. He had an economic recovery plan. For Schumpeter, becoming finance minister in a time of revolution was an opportunity to save his country from ruin.
In some ways, the new finance minister and the Viennese housewife faced similar challenges. To pay for food and fuel for her family, Anna Eisenmenger, whose extraordinary diary provides a window onto day-to-day life in those catastrophic times, had three options: to earn, to borrow, or to sell her belongings. To keep the trains running, the militia on patrol, and the soup kitchens open, Schumpeter had the same choices. To survive, Eisenmenger and her family wound up applying for pensions, renting out rooms, working for an American relief organization, and, as a last resort, selling off Dr. Eisenmenger’s precious stash of prewar cigars. Schumpeter could collect taxes, cajole bankers into buying government bonds, dip into the country’s reserves of cash and gold, if these existed, and, in a pinch, sell assets belonging to the state.
Of course, if an individual had to buy things from abroad—or even take a trip to next-door Geneva—he had to get his hands on foreign currencies. If he had a Swiss bank account he could tap it, as did Max von Neumann, a banker in Budapest who took his family, including his son John, into temporary exile after Béla Kun’s Communist coup. If he had no such reserves, the foreign currency had to be earned or borrowed. Sigmund Freud and his fellow psychoanalysts took in English patients, such as James Strachey and his wife, Alix, who paid him in pounds. Eisenmenger borrowed dollars from a cousin in America. Most of the time, the individual had to use krone to buy pounds or dollars.