History of Austrian Economics

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History of Austrian Economics – a brief historical sketch | Among the three scholars who accomplished a strong recurrence of theoretical interest in the social sciences in the late 1860s, the Austrian Carl Menger (1840-1921) was in the most unfavorable position. While the work by William Stanley Jevons (1835-1882) was essentially received with passive indifference in London (UK), Leon Walras (1834-1910) of Lausanne (CH), due to his exceedingly complex mathematical presentations was appreciated only by a selected group of congenial people. Menger, however had to cope with intellectual isolation, disinterested colleagues, and a rather cool and insensible reception of his groundbreaking book. Yet, a swift victory of new ideas can hardly be a criterion for an achievement of revolutionary significance. His insight, that the value of goods arises from their relationship to our needs, and thus cannot be inherent in the goods themselves indeed transformed the social sciences.

Although, Carl Menger’s book “Grundsätze der Volkswirthschaftslehre” (Vienna, 1871) was not given proper attention for some years, his elucidation of subjective value and his seminal methodological approach revolutionized economic thinking. Unintentionally and without much external stimulation, Menger thus paved the way for a train of thought that later became famous and influential as the “Austrian School of Economics”. Menger’s appointment as a tutor of Crown Prince Rudolph of Habsburg in 1875 and the famous “Methodenstreit” of the 1880s between the younger German historical school and the Austrian position, fostered his growing academic reputation. While, Eugen von Boehm-Bawerk (1851-1914) and his brother-in-law, Friedrich von Wieser (1851-1926) were not even Menger’s direct students, they quickly picked up the essence of the Grundsätze, continued Menger’s work on the same intellectual niveau, and contributed their seminal insights on capital-, interest-, and value theory.
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Not before long young, inspired scholars began to flock into the University of Vienna and by the late 1880s the enormous influence of this innovative school was hard to miss in continental Europe, in England, the United States, and in Japan. The Austrian school’s individualistic and subjective methodology, its regard of economics as having a nearer affinity with psychology than with mathematics, and the striking distaste for elegant but somewhat useless models increasingly gained ground. Soon Austrian Economics was not a field within economics anymore but a challenging alternative for looking at the entire domain of the social sciences. With seminal contributions to monetary-, business cycle-, and international trade theory and groundbreaking advances in the economic calculations and public policy debates, the worldwide academic dominance of the Austrian school lasted well into the 1930s. However, mostly due to the volatile political environment and the popularity of John Maynard Keynes’ theories, the firm non-interventionist position of the school was gradually pushed to the public sidelines.

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The despicable political and racist bias of the 1930s finally led to the exodus of most of the school’s representatives and Vienna ceased to exist as the world’s leading stronghold for the social sciences. With such eminent scholars as F.A. von Hayek in London, Gottfried von Haberler in Harvard, Ludwig von Mises, Fritz Machlup or Alfred Schuetz in New York, Eric Voegelin in Boston and countless others scattered around the globe, the momentous “brain drain” from Austria turned into a “brain gain” above all for the US, the UK, and Switzerland. The never dormant Austrian School of Economics is currently enjoying a strong and lasting worldwide resurgence, especially in Europe, Latin America, in a number of the new democracies in Eastern Europe, the US, and in Japan. In the US recently the label ‘Austrian Economics’ has come to imply a commitment to a libertarian program. This, however is misleading.