Part III. On its Development

From around the early 17th century until about the 1860s there was hardly anything written in imperial Austria that could be perceived as an enduring advancement in socio-economic thinking. While elsewhere the works by David Hume, John Locke, or Adam Smith were studied and the spirit of early modern enlightenment philosophy had produced an attitude of independent intellectual inquiry, most of their books were still on the Index of banned works in the Austrian Empire. As an example, when Hume visited Vienna, he was simply ignored by intellectual circles and probably only Emperor Franz Stephan (1708-1765) and Prince Eugene of Savoy took some interest in his work.

Therefore, it can barely be a surprise that there was little historical evidence in Imperial Austria a supporter of economic liberalism (European sense) could bank on. It seems as if the social system which had been envisioned by repressive rulers was one in which the initiative of the individuals was to be tapped to the greatest extent possible and in which the checked freedom to dispose over property as one saw fit would automatically increase the wealth of their society as a whole.

This modest support for market oriented thinking or economic liberalism (European sense), insofar as it had a theoretical foundation was largely due to a kind of “enlightened despotism” exercised by the so-called Austrian “Kameralisten” Hornigk, Becher, Sonnenfels). However, their passion for statistics hampered the depth of their grasp of the nature of economic freedom. The fact that until 1846 economics was taught chiefly on the basis of a single, totally outdated and obscure textbook (Joseph von Sonnenfels’ textbook (Principles of Police Science, Finance and Action 1787) originally published as “Grundsaetze der Policey, Handlung und Finanzwissenschaft” (1787)) did not much to improve the situation.

This distinct absence of serious academic or political thinking on important social issues was also due to Count Metternich’s vicious absolutistic governing system, in which there was no free press or free universities and all ideas only remotely smacking of individualism were brutally suppressed. Within the lifestyle of the romantic Biedermaier era, neither the court nor the awakening bourgeoisie thus did not even bother to engage in any thoughtful consideration about socio-economic issues.

However, subsequent to violent revolutions during the late 1840es in many areas of the Empire and after catastrophic military debacles, the Metternich-System collapsed and the young Emperor Franz Joseph I. was forced to pass an enlightened liberal constitution for most parts of the ethnically diverse monarchy by the 1850s. Politically restrained, the “Polizeistaat” was slowly being replaced by the “Kulturstaat”. Uniform legal rules, equality before the law, the lifting of censorship, and the liberalization of economic activities among other measures were to provide the keys for the developments of a modern state. Faced with the necessity to somehow elevate the lower classes to the new political status, which they were now allowed and even encouraged to form under the new constitution, the attachment of Austrian scholars to the idea of law and legislation became particularly strong. Law took on the appearance of much more than an utilitarian tool for social control. These few thinkers at the universities were among the first who emphasized the intimate connection between the conceptual foundations of legal and political theory on the one hand, and those of economic theory on the other. To some extent they foreshadowed the modern discipline of Law and Economics.

In the 1870s Carl Menger (1840-1921) discovered the whole scheme by which men decide how to allocate the resources at their disposal among their ever so different endeavors.

On a broader scale, the more permissive legislation with these new civil liberties eventually energized Austrian scholars to engage in research dealing with such topics as individualism, self-responsibility, spontaneous orders or legal philosophy. Due to these fundamental new liberties, Vienna was set to gradually mature from its elegant imperial splendor with little intellectual stimuli into a culturally vibrating world-center. Eminent minds from the Empire’s provinces started to flock into Vienna and began to convert the academic institutions into intellectual hotbeds for all kinds of revolutionary ideas in almost all disciplines. By the end of the 19th century countless important and path breaking schools, circles or movements developed in Vienna: From the famous Vienna schools of Medicine, of Law, of Art, of Economics, to Sigmund Freud’s psychoanalysis, Schoenberg’s new music, Klimt’s art, the Philosophy of Wittgenstein, to the most powerful and influential Austro-Marxist movement under the leadership of Otto Bauer, a colleague of Ludwig von Mises.

And yet, the question remains: How did it happen that in the Austro-Hungarian Monarchy where until the 1850s the intellectual climate was outright hostile to any individualistic philosophy, there suddenly appeared a Carl Menger and published in 1871 his stunning first book Principles of Economics that indeed revolutionized economic thinking? Without much external stimulation, or as J. A. Schumpeter put it, “as if from another world – inexplicable, without a cause”, Carl Menger started single-handedly to dislodge the established theories of economics and seriously challenged the methodology of the social sciences.

Moreover, how could it be that within merely 10 years and without much backing in public life, a sizeable group of dedicated students, lawyers, or administrators have formed a whole new school of thought, that seriously challenged all fields of the social sciences?

I should mention here that with the exception of students and professors, most proponents of individualism and free market based ideas paradoxically worked primarily as skilled bureaucrats in the huge centralized government of the monarchy. Given the nature of free markets itself this suggests that these bureaucrats were able to implement their radical cultural, political and economic ideas only in a somewhat concealed way.

Kurt R. Leube