Three Viennas: Old, New, and Virtual
The original Mises Kreis, made up of members of Mises's private seminar, met regularly in Vienna from 1919 to 1934. Today the Mises Institute unites Austrian scholars in this same city, allowing it to once again act as the heartbeat of the Austrian School — for a few days.
As almost a century ago, perhaps the most important reason for adhering to the Austrian School is this: monetary theory. Mises's seminal work on monetary theory, Die Theorie des Geldes und der Umlaufsmittel (1912), established Mises as the leading monetary economist of his time and a man around whom his circle was eager to gather.
Austrian scholars have predicted and continue to explain financial crises with the help of the very business-cycle theory developed by Mises in 1912. With the recent collapse of the investment bank Lehman Brothers, new interest in the Austrian monetary and business-cycle theory has been stimulated. Only minor adaptations and additions to this theory have been necessary, including the shadow banking system, and securitization and maturity mismatching. Indeed, even maturity mismatching was already identified by Mises in his 1912 opus as a violation of the golden rule of banking.
In the early days of the Mises Kreis, the gold standard in Austria had been suspended in order to finance government expenditures for war, a welfare state, and a vast government bureaucracy. Today we suffer again under monetary experiments.
In the Unites States, for example, we can observe "quantitative easing" (QE), which amounts to money production in order to finance government expenditures at zero-interest rates. As in 1919, the proponents of money production claim that this policy is necessary to maintain the financial system and reduce unemployment. Indeed, there is truth to this claim. Past credit expansion has distorted the structure of production enormously. Industries depend on continuing inflation. If inflation were to be slowed down and QE ended, a readjustment would be triggered, leading to temporary unemployment and problems for financial institutions. This explains why monetary authorities, shortly after the "infamous" QE1, which reinflated bubble activities, proceeded with QE2, which would presumably be followed by QE3, and so on.
In Europe we are currently living out another experiment. There has been one central-banking system in the Eurozone since 1999; it is used by several independent governments to finance their expenditures. I have called the setup a tragedy of the commons. The consequences of the debt-and-deficit orgy have created a situation beyond control for the elites. The sovereign-debt problems are answered only with more debts financed by the European Central Bank. Wealth is transferred from the taxpayers of the more-solvent countries to the governments of the insolvent countries and their creditors, the banking system.
Today, as in 1919, one result of these experiments is a tremendous redistribution of wealth and income. Bankers and speculators buying leveraged companies and financial assets are benefiting from the money production that causes new highs for commodities and financial assets. The majority of the population is on the losing end. They have seen food, transportation, and energy costs rising faster than their incomes. Inflation erodes their standard of living while government price statistics conceal the problem. It is only the incorporation of large parts of Asia into the international division of labor and important technologically driven productivity gains that have prevented an absolute decline of living standards over the last decade.
It is of great symbolic value that Misesian scholars unite today in Vienna, where Mises's anti-inflation campaign coincided, timewise, with the launch of his private seminar, and the 1922 stabilization of the Austrian krone. Similarly, the most important goal for Austrian scholars today is to prevent hyperinflation by explaining the consequences of our present monetary system's setup and "innovative" monetary policies, and by pointing to possible reforms — the best way to achieve 100 percent free banking, for instance.
Austrians today remain connected to a modern-day Mises circle, thanks to the efforts of the Mises Institute in Auburn, Alabama, with its publications and conferences, and most importantly its cutting-edge and effective use of the tools of the Internet. It unites scholars with the public all year round through technology; it succeeds in providing the world with a "virtual" Vienna. But a physical "new Vienna" for Austrian scholars, one where they are united continuously and in person to engage in fruitful and stimulating debates, has yet to be found.
In the United States, another venue for Austrian scholars and students to gather and engage in applied and empirical studies in the Austro-libertarian tradition is George Mason University in Washington, DC. The theoretical center of Austrian economics and the Vienna of the 21st century, however, may well be Madrid.
Cultural, political, and intellectual ties have connected Madrid and Vienna for a long time. Habsburg's Charles V reigned in Spain. His brother, Ferdinand I, born in Alcalá de Henares, Spain, ruled the Austrian hereditary lands. The Habsburgs reigned over the Holy Roman Empire, Austria, and Spain, until the War of Succession (1701–1714) when the Spanish throne was lost to the Bourbons. Symbols of the long connections can still be found today by tourists: the old center of Madrid is called "El Madrid de los Austrias." Vienna reciprocates with its famous Spanische Hofreitschule or Spanish Riding School, founded by Ferdinand I.[product:0]
And still another connection has emerged. A new center of Austrian economics in Madrid is largely the result of the efforts of Jesús Huerta de Soto who fittingly is most well-known for his influential work on monetary economics. The first master's of Austrian economics ("Master in Economics of the Austrian School" at University Rey Juan Carlos in Madrid) worldwide has attracted students from all over the world much in the way the original Mises circle attracted Lionel Robbins and others. The number of master's students who write a PhD thesis in Austrian economics is rising every year, with half of them coming from foreign countries. Formal and informal seminars complement the theoretical education in the Austrian tradition. Numerous professors at different universities, an academic journal, the influential think tank Instituto Juan de Mariana, prominent Austrian contributors in the media, and a thriving community of Austrians complete a unique environment that might be called a new Vienna.
Year-round interaction in this fruitful atmosphere has already resulted in numerous scholarly and popular contributions. Hopefully, this conference in the "old" Vienna can lend impetus to the revival of the Austrian School in general, as well as strengthen the connection of the new, virtual, and physical Viennas as they pave the way to sound money.
 See for instance Nikolay Gertchev's work on securitization (Nikolay Gertchev, "Securitization and Fractional-Reserve Banking," in J.-G. Hülsmann and S. Kinsella, eds, Property, Freedom, and Society: Essays in Honor of Hans-Hermann Hoppe, Auburn, Ala.: Mises Institute, 2009) or the work on maturity mismatching (Philipp Bagus, "Austrian Business Cycle Theory: Are 100 Percent Reserves Sufficient to Prevent a Business Cycle," Libertarian Papers 2 (2), 2010, and Philipp Bagus and David Howden, "The Term Structure of Savings, the Yield Curve, and Maturity Mismatching," The Quarterly Journal of Austrian Economics, 13 (3), 2010: 64–85).
 A "new" argument today is that money production prevents price deflation from occurring.