Part V. The School in the inter-war Period

The unexpected situation in which the fatefully reduced little Austria found itself as a sobering result of the catastrophic WW I raised a new set of unprecedented problems which most Austrian scholars, found difficult to turn their attention to. Their society had simply disappeared. By the end of 1918 most young Austrians who voluntarily joined up or otherwise went into war in the expectation to return from the fronts as heirs to the ideals of a European liberal (European sense) culture, had lost their social positions and had been reduced to political powerlessness. They had to learn democracy first, and thus started to study law, of which only a fraction was economics. It is mainly for these reasons that the Austrian’s school “juristic character” affected deeply the works of the European educated first four generations of the Austrian School. The famous Mises-Seminar in Vienna played the most decisive role. For details about about this seminar please refer to Guido Huelsmann’s ‘Ludwig von Mises: The Last Knight of Liberalism (2007).

In inter-war Austria from about the mid 1930s on mostly due to the politically volatile times, a despicable racist bias developed and with not much hope for a decent academic position, most of the school’s proponents have already left Austria, as a matter of survival. A number has tragically perished during the Nazi regime, a few committed suicides, and some took whatever inferior jobs there were or collaborated with the new political system, which ruled Austria. Especially when in 1938 Hans Mayer, the editor-in-chief of the “Zeitschrift für Nationalökonomie” and a brilliant student of F. von Wieser, enthusiastically endorsed Hitler’s ultimate return to his native Austria, the school lost also its most important publication. With von Mises, von Haberler or Lieser in Geneva, Hayek and Rosenstein-Rodan in London, Machlup in Buffalo, Steffy Braun in New York, Schönfeldt-Illy in hiding, Schams or Strigl more or less silenced and countless others dispersed all over the world, Vienna ceased to exist as the stronghold for Austrian economics. The catastrophic brain drain from Austria eventually turned into a brain gain primarily for the US, the UK and Switzerland.

It is mainly for these reasons that from the early 1930s on the Austrian school’s positions have been pushed to the sidelines of economic and political thinking and the so-called “Keynesian Revolution” was enthusiastically celebrated with full political acceptance. Mises’ and Hayek’s firm non-interventionist position simply could not compete with the politically much more appealing ideas of “under-consumption”, “full employment”, or “deficit spending”. Therefore, not before long Keynesianism began to dominate not only policy making but also the universities, and most importantly, the textbooks used in teaching economics.

Although, today economics is faced with an apparent failure of the policies induced by the flawed theories of Lord Keynes and is struggling with a theoretical backlash against macroeconomics and the mathematization of human action, Austrian School is nevertheless still widely perceived as ‘unscientific’, mostly because of its rejection of mathematical methods and techniques. At leading universities worldwide even today it is not very helpful for a career advancement to be considered an ‘Austrian’. And yet, at least since 1974 when von Hayek was awarded the Nobel-Prize in Economics, the Austrian tradition is enjoying a strong resurgence at several universities, think tanks and research centers in the US, Latin America and Europe.

Kurt R. Leube