Socialists Soon Recognized that a Result of Punitive Measures Against the Black Market Was an Increase in the Profits from It

Our politicians, blinded by their Étatist illusions, believe that the urban population is entirely dependent upon whatever is supplied to them by the state sector. That may be true for public employees without a second income and for many pensioners, to the extent that they are not supported by food supplements provided by relatives in the countryside. It is completely erroneous as far as the majority of the population is concerned. Rationed food items do not supply enough nutrition to sustain bodily functions in an adult at rest. Anyone who must restrict himself to what the government provides and what is offered in public food kitchens is doomed to a slow death from starvation. Expenses for rationed food items and prepared meals in war kitchens do not at this point use up the entire income of the workers. Any money left over finds its way into the black market. The masses live on what their black market purchases provide, and as soon as they can no longer obtain food supplies from the black market with crowns, they will be faced with a very difficult situation.¹¹

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¹¹ Following the collapse of the Austro-Hungarian Empire and the declaration of German-Austria as an independent republic in November 1918, the provincial authorities took increasing power over political and economic affairs in their jurisdictions, including restrictions on the sale and shipment of food supplies out of their areas to Vienna, leading to near-starvation conditions in the capital city through all of 1919 and into 1920. See Chapter 9, “Vienna’s Political Relationship with the Provinces in Light of Economics.” The black market became the only avenue for many in Vienna to acquire many of the essential items of life; see Charles A. Gulick, Austria: From Habsburg to Hitler, Vol. I (Berkeley: University of California Press, 1948), pp. 90–92:

Closely connected with the problem of state particularism [provincial political and economic nationalism] were the important Schleichhandel or black market difficulties; indeed, the restrictive policies of the [provinces] rendered that trade possible. And because of the desperate food shortage it became the most thriving “business enterprise” of Austria. The number of persons engaged in it, in defiance of law and decrees both of central and [provincial] governments, was naturally never statistically ascertained, but must have amounted to many thousands. . . . Despite their support for laws and ordinances on the matter, the Socialists soon recognized that a major result of punitive measures against the black market was an increase in the profits from it. The consumer needed commodities so badly that he had to buy them at almost any price; consequently, he was generally prepared to pay for the greater risks of the profiteer and his higher costs, that is, bribes, entailed by the prohibitive measures. . . . Specifically, the black market became a source of income for many official circles in the [provinces], for the bribes willingly paid by the profiteer were a welcomed addition to the lean wages of the civil servants. Thus the state bureaucracy had a special reason for supporting the system of trade restrictions which, as already noted, rendered the illicit trade possible.

—Ludwig von Mises, “On the Actions to Be Taken in the Face of Progressive Currency Depreciation,” in Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling, vol. 2 of Selected Writings of Ludwig von Mises (Indianapolis: Liberty Fund, 2002), 51, 51-52n11.

“The Catastrophic Depreciation of Our Currency,” Wrote Mises in 1919, “Must Be Accepted As Our Inescapable Fate”

The catastrophic depreciation of our currency must be accepted as our inescapable fate. Imperialist and militarist policies are inevitably linked with inflationism. A consistent implementation of socialization necessarily leads to the total collapse of the monetary system. This fact is corroborated not only by the history of the French Revolution but by what is happening in Russia under Bolshevism and in a series of other countries that have more or less closely followed the Russian example, but where less bloody methods have replaced the appalling brutality of the Jacobins and the Bolsheviks. No matter how disastrous a collapse may be, it does at least have a salutary effect in that it annihilates the system that brought it into being. The collapse of the assignats dealt a deathblow to the policies of the Jacobins. After the collapse, new policies were pursued. In our case, too, the collapse of the currency will give us a fresh start in our economic policy. . . . 

Moreover, the psychological significance of a complete depreciation of the crown on foreign-exchange markets should not be underestimated. The crown has already lost a lot of ground in the wholesale and real-estate markets, and it is becoming more and more common to buy and sell with foreign currencies, even in the retail market. As the value of the crown falls close to zero in foreign-exchange markets, this tendency will become all the more pronounced and will assume catastrophic proportions as soon as the crown becomes valueless in Zurich and Amsterdam. It is obvious that it will become impossible to sell imported commodities in crowns. As soon as the “black marketers”—on whom the urban population in German-Austria is entirely dependent for its food supply—refuse to accept crowns, they will be completely displaced from the domestic markets. Crowns will still be accepted for taxes, for the payment of rent, and for rationed food supplies, but they will no longer be usable on the unregulated markets.

—Ludwig von Mises, “On the Actions to Be Taken in the Face of Progressive Currency Depreciation,” in Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling, vol. 2 of Selected Writings of Ludwig von Mises (Indianapolis: Liberty Fund, 2002), 49-50.