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NOTE 16. Between the Wars: From Re-formation to Exodus

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CHAPTER XVI. BETWEEN THE WARS. FROM RE-FORMATION TO EXODUS.

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Friedrich Wieser, then 70 years old, was considered the doyen of the Austrian school after the

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First World War. He had wandered away from several doctoral areas over the years and

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had in fact devoted himself to questions of sociology and political science. The second

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One edition of his Theorie der gesellschaftlichen Wirtschaft, 1924, Social Economics, remained

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largely unaltered. The new edition of Menger's Principles, 1923, compiled by Menger's son

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Carl, from his father's legacy, also remained the same in many ways. As such, it documented

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the standstill which had arisen in the school in the meantime. The term marginal utility,

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long since established, was curiously enough not mentioned even once. But then again, Menger

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Mayer integrated collective need, collective bedervness, in his revised demand theory,

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which, when looked upon with subjectivist hindsight, would make the new edition appear

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to be a step backward when compared to the first.

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Mises had named his pupil, Hans Mayer, his successor. He was able to persuade the widely

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respected legal scholar Hans Kirzen, 1881-1973, to support Mayer, who was not uncontroversial,

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Carl Grünberg's 1861-1940 chair became vacant shortly after Meyer's appointment.

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Grünberg had moved to Frankfurt after having been demoralized and worn out by the quarrels

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within the faculty. Mises and Schumpeter were not considered once again for different reasons.

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Schumpeter accepted an appointment at the University of Bonn in 1925.

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In 1927, after much quarrelling, the Viennese chair went to Ferdinand Degenfeld Schornburg,

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1882-1952, whose writings demonstrated a simple-mindedness which one would hardly expect in an academic

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environment.

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Otmar Spann began training a growing number of young lecturers after assuming his professorship

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in 1919.

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In contrast, the only habitant whom the Austrian School produced after Mises was Richard Striegel.

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It follows that a lot was expected where Meyer was concerned, and he was indeed able to recruit

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a succession of talented assistants initially, all of whom would later become successful

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– Oskar Morgenstern, 1902-1977, Paul Rosenstein-Rodan, 1902-1985, and Alexander Gerschenkron, 1904-1978.

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But Meyer was hardly in a position, nor was he willing, to offer a university post to

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everyone interested in the Austrian School. Ludwig von Mises felt himself so hampered

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by this, owing to jealousies and patronizing administration during his time as an external

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private lecturer, that he even compared Meyer to Spahn. Spahn himself missed no opportunity

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to publicly proclaim his contempt for the individualism of the Austrian School. The

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The feud was even fought out in newspapers for a time, and culminated in crude anti-Semitic

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diatripes from Audemars Spann and his circle, in which the theory of marginal utility was

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called a spawn of Polish-Jewish minds, and Menger and Boehm-Bawerk were pejoratively

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referred to as Jews. It was by no means a voluntary decoupling from the University,

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but an unwanted marginalisation within the University establishment that forced the scattered

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Remnants of the Austrian School and its new generation to attempt reconvening outside of

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the universities and within private initiatives that had ties to each other, in the Rockefeller

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Foundation, the Mises Privatseminar, Hayek's Geistkreis, the Nationalökonomische Gesellschaft

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and in the Österreichische Institut für Konjunkturforschung. In 1924 the Rockefeller Foundation had begun

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to award scholarships to European social scientists. The person responsible was historian Karl

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Francis Priebrum, 1859-1942, whose choice of students proved fortunate. Oskar Morgenstern,

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Alexander Maher, 1896-1972, Gottfried Habeler, Paul Rosenstein-Rodan and Ewald Schams, 1889-1949,

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all established good reputations for themselves later on. The scholarships provided funding

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for study visits of one to three years duration in the United States, and later in European

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countries as well, all for research and or publication projects.

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The Mises Privatseminar, Mises' private seminar, was without doubt the most important training

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arena for the Austrian School. Mises was teaching at the University of Vienna, but in 1919 he

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started gathering young social scientists to his office in the Viennese Chamber of Commerce

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at Stubenring 8 bis 10 every other Friday evening.

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Important problems of economics, social philosophy, sociology, logic, and the epistemology of

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the sciences of human action were debated, and the private seminar soon became an established

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institution.

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All members of the Austrian School frequented the seminar with a few exceptions.

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Meyer, Weiss, and Maher, alongside trained economists.

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The group, amounting to almost 30 regular participants, included representatives of

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of other disciplines as well, many of whom had studied two subjects or were exceptionally

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talented in more than one area. Seminar members later included such well-known historians as

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Friedrich Engel-Janozzi, 1893-1978, sociologists such as Alfred Schutz, 1899-1959, constitutional

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law experts such as Erich Erich Voegelin, 1901-1985, and law philosophers such as Felix

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The meetings continued for several years and, as a result of the intensive exchange of ideas

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alone, had the effect of propagating a school of thought. The main topics were monetary theory,

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methodology and questions concerning economic policy. There were also regular lectures from

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visiting foreign speakers. The ingenious Felix Kaufmann came up with a catchphrase for the

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Seminar, das Verstehen, Verstehen, to understand, understanding.

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Another discussion group was started by Friedrich A. Hayek and Herbert Fürth, 1899-1995, after

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Otmar Spann had prohibited the open exchange of ideas in his seminar in the fall of 1921.

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Only men were permitted to participate in the discussion.

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This prompted Vienna's first female doctoral student, Martha Stephanie Braun, to give the

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and the gathering the designation Geistkreis, literally Circle of Spirit, an ironically intended

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allusion to the self-perception of its members as a circle of exclusive highbrows. Almost

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all of the male Mises Privatseminar economists were members of the Geistkreis as well. Furthermore,

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members made efforts to attract outstanding representatives from other faculties. In this

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way the circle grew from 14 founding members in 1921 to 25 in 1938.

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Employers of both circles earned their living in various ways. There were entrepreneurs Engel Janosi Machlub, bankers Bloch Liese Heldfeld, Schlesinger Schütz, managers Kaufmann, attorneys Fröhlich Fürth, Scheyer Winternitz, Chamber of Commerce employees Mises Habeler, civil servants Schams Bettelheim Gabilon, Clark said the Chamber of Employees Strieger, a journalist Braun, and staff members of the Konjunktur Forschungsinstitut, Business Cycle Research Institute, Hayek.

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Morgenstern-Minz, Lorvassi, Schiff, Gerschenkron. Through individual members, both groups were also

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connected with the circles of Hans Kelsen, Moritz Schlick, 1882-1936, and Rudolf Karnop, 1891-1970,

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and with Carl Menger's mathematisches colloquium, mathematical colloquium.

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The multifaceted Felix Kaufmann captured this remarkable and intellectually charged atmosphere

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In song, core issues of the Austrian School were articulated in verse form, set of Viennese

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melodies and sung at the close of seminar sessions. The last grenadier of the marginal

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utility school, the Mises-Meier debate, the lament of the Mises circle and others. Mises

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wistfully recalled this time after his escape. Within this circle, Viennese culture experienced

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one of its last flowerings. Whereas the tradition of the Austrian School was resumed and further

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After developed within these circles, Spun and Meyer were dissipating their energies with

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a downright running battle that also affected Mises and the students.

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From the very start great tensions had existed between the very active Spun and Meyer, who

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in some respects was out of his depth.

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Even cursory observers noted that they hated each other.

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They had gotten themselves into a kind of perennial logjam that affected all of their

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Common Dealings, The Business of Lecturing and Examining, Postdoctoral Graduation Procedures,

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the Nationalökonomische Gesellschaft and the Zeitschrift für Volkswirtschaft und Sozialpolitik,

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Journal of Economic, Social Policy and Administration, which was published by Friedrich von Mises,

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Ernst von Pläne and Otmar Spann.

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The delicate balance between the antagonists toppled after Mises' death in 1926.

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After a fierce crash, Spann was expelled from the Nationalökonomische Gesellschaft, the

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The society Mises have established as a platform for opinion leaders from business, administration,

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attorneyship and academia.

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It was not possible to publish the Zeitschrift für Volkswirtschaft und Sozialpolitik from

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1927 onward.

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As a result of these controversies, the Austrian School ended up stronger in the end.

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Mayer was elected president, Hayek secretary and Machlub Börser of the Nationalökonomische

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Gesellschaft.

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Hayek also found himself on the board of trustees at the Österreichisches Institut für Konjunkturforschung, which was established by Mises during this same time.

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As it provided a number of positions relevant to the discipline Hayek, Morgenstern, Schiff, Lovassi, Gerschenkorn, publication opportunities in the Institute's own book series and a strong network for international contact, the Institute quickly became a critical centre for the School.

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School.

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The reconstitution of the Austrian School, both in terms of content and personnel, was

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presented for the first time publicly at the Zurich Convention of the Verein für Sozialpolitik

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in 1928, where participants of the Mises Privatseminar set new standards and received much attention

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for their contributions to business cycle research.

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The Austrian School blossomed spectacularly from then on and until the time of political

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upheaval in Central Europe.

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The unveiling of a memorial to Carl Menger in the Arkadenhof in a court-chart of the

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University of Vienna during a grand academic celebration provided a clear sign of recognition.

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Friedrich A. Hayek, Oskar Morgenstern and Gottfried Habeler received their habitation

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in 1928 and 1929 and, with their courses alongside those of Meyer, Mises and Striegel, served

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as a quantitative counterbalance to Spann and his circle of students for the first time

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came in many years. Even so, personal and content-related differences made for irritation

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between Mises and Mayer in particular. It was those in Mayer's circle of all things

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who questioned the foundations of the Austrian monetary business cycle theory.

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1930 in turn saw the reappearance of the school's traditional journal under a new name, Zeitschrift

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für Nationale Ökonomie, Journal of Economics. New standards were set in the hands of its

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The first volume boasted a good 800 pages with a total of 43 essays and shorter contributions plus 83 collective and individual reviews of altogether 59 national and international authors, and a non-German-speaking readership was expressly targeted with abstracts of every essay in English and French.

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During these years, the Austrian School intensified its contact with foreign economists by recurrently

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inviting them to lectures or events, particularly to those at the Mises Privatseminar or at

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the Nationale Ökonomische Gesellschaft.

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As a result of these new contacts, Hayek received an invitation to the London School of Economics

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in 1931, which ultimately led to an appointment to one of its professorships.

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A high point of this international cooperation was the appearance of the four-volume anthology

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Die Wirtschaftstheorie der Gegenwart, Economic Theory of the Presence, edited by Hans Mayer,

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Richard Reich and Frank A. Vetter, which united a total of 81 authors from 18 countries in

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more than 1,400 pages. It was only in the course of this intensive intellectual exchange

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that it became readily apparent to the advocates of the Austrian School that they diverged

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decidedly from the marginalist mainstream on some crucial points, and from the mathematically

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oriented Lausanne School in particular. While the Lausanne School's approach was basically

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static, Rosenstein, Rodin, and Shams pointed out that time is an important factor for the

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Austrian School, for example. Hans Meyer reviewed further fundamental differences. He criticised

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the unrealistic nature of some of the assumptions of the Lausanne School in the most significant

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of his academic essays, claiming that the utility of a good can neither be measured

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nor infinitely divided nor indefinitely substituted. In addition, he claimed that the valuable relationship

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between economic factors were not readily reversible, because effects of quantitative

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changes in income on the valuables of mathematical economic models are unpredictable and disproportional

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rather than proportional. Mayer then compared the functional mechanical price theory of

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of the Lausanne School to the Causal Genetic Price Theory, which did not exhibit the aforementioned

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shortcomings. It is something of tragedy that the Austrian School enjoyed a greater general

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recognition in Germany than ever before on the very eve of the seizure of power by the

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National Socialists. Hans Meyer was able to take on a guest professorship for two semesters

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at the University of Kiel in 1931, and Ludwig von Mises, with typical tenaciousness, succeeded

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and Placing the Problem of Value as One of the Main Subjects on the Agenda of the Convention

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of the Vereinfeldsozialpolitik in Dresden, 1932.

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Though the fiercest adversaries of the subjectivist theory of value did not take part in the verbal

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discussion in the end, the Convention resulted in a marked gain in renown for the teaching

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from Austria.

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The School's international recognition and networking encouraged the translation of further

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The standard works into English, including Wieser's Theorie der Gesellschaftlichen Wirtschaft,

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Social Economics, 1927, Hayek's Geldtheorie und Konjunkturtheorie, Monetary Theory and

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the Trade Cycle, 1933, or the Theorie des Geldes und der Umlaufsmittel, The Theory of

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Money and Credit, 1934, and die Gemeinwirtschaft, Socialism and Economic and Social Analysis

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by Mises.

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Moreover, the many foreign scholarships led to the first foreign language primary editions

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Publishments like Hayek's Prices in Production or the biographical sketch Carl Menger. Some

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of these publications were not or only much later translated into German such as Rosenstein

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Rodin's La Komplementarita or Habeler's Prosperity and Depression. This is an obvious

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reflection of the gradual disengagement of the Austrian School from its German language

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and Austrian intellectual and cultural traditions. Mises, filled with misgivings, wrote to his

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By the 1930s, personal and academic connections with the English-speaking world already served

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as links to professional careers outside the country. Hayek and Rosenstein-Rodan received

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appointments in London in the same year, 1931. Habeler accepted an invitation to Harvard

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University, 1931, moved to the League of Nations in Geneva, 1934, and returned to Harvard again

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later on. Indeed, the atmosphere at home contributed in no small part to the younger generations

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trying to make its fortune elsewhere. The smug-to-hostile treatment of intellectual

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elites at that time has aptly been described as embezzlement for Untreuung. The politically

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unstable situation, the establishment of a corporate state, and the noticeable receptiveness

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for the Social Theories of Spann were accompanied by an increasingly aggressive repudiation

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of everything liberal or individual or what was thought of as such.

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For this purpose, Spann came up with the derogatory epithet Neu-liberal, Neo-liberal.

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Faced with censorship, the advocates of the Austrian School finally gave up their attempt

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to influence public opinion, and their retreat was the first step towards inner emigration.

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Furthermore, the increase in open anti-Semitism made some members of the school exiles in

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their own countries. Fritz Machlub, for example, was told at the University of Vienna that

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his application for habilitation would not be facilitated due to anti-Semitic reservations.

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The seriousness and hopelessness of the situation had in the meantime been demonstrated by Mises's

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relocation to Geneva, where he was at least able to obtain a very well-paid teaching post.

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After that, the Viennese Privatseminar ceased to exist. In a letter to Machlup in the year

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that followed, Hayek summed up a recent visit to Vienna, commenting that he had found the

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city comparatively unchanged, but that the intellectual atmosphere had declined visibly,

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particularly in the field of economics.

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After the exodus of Mises, Hayek, Habeler, Machlup and Rosenstein-Rodan, the director

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of the Institut für Konjunkturforschung, Oskar Morgenstern, became the most important representative

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of the School in Austria.

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Morgenstern carried out policy changes in two ways.

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First, both the Institute and the Zeitschrift für nationale Ökonomie were opened up to

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mathematical economists.

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Between 1935 and 1937, Carl Schlesinger, Abraham Wald, 1902-1950, and Johann von Neumann, 1903-1957,

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wrote five important essays in close contact with the mathematisches Kolokium of the young

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Jung-Menger, which prepared the ground for the neoclassical theory of equilibrium.

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Next, Morgenstern attempted with only modest success to establish himself as advisor of

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the corporate regime until he had no choice but to realise that the structure of the corporate

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state was inevitably based on lobbyism.

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The geographical separation of the Austrian school members who had emigrated was accompanied

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by a content-related and personal estrangement.

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The annexation Anschluss of Austria by Nazi Germany in March 1938 abruptly ended the beginnings

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of mathematically-oriented economics rooted in the Austrian School. Jewish-Hungarian Karl

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Schlesinger, a long-time patron of the Austrian School and himself a qualified economist oriented

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toward mathematics, was one of the first victims. He committed suicide on the day of the invasion.

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In the days that followed, his dismal assessment of the situation proved well-founded for most

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of the other remaining members of the school, Helene Lieser and Herbert Furt were imprisoned

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for a short time, Erich Schiff was taken into custody and forced to clean toilets, and Erich

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Wöglin had to endure a house search.

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At the universities all lecturers and professors who were either Jewish or otherwise disliked

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by the Nazis lost their license to teach, among them Schüller, Habler and Morgenstern

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and Wilhelm Winkler, a statistics professor sympathetic to the school, Hans Bayer who

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The man who originated from and sympathized with the Austrian School was suspended from

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duty at the University of Innsbruck. Morgenstern was abroad at the time of annexation and did

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not return. He was replaced as director of the Institute in Austria by his deputy Richard

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Kamitz, 1907-1993, who later became finance minister. Meanwhile, Hans Mayer, as president

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of the Nationalökonomische Gesellschaft, implemented the so-called Arierparagraph and

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excluded all Jews from the society.

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Most members of the Austrian School left the country in the following weeks, some of them

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under perilous circumstances.

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The list includes Erich Vöglin, Felix Kaufmann, Alfred Schütz, Victor Bloch, Marianne von

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Herzfeld, Helena Lieser, Iris Schiff, Gertrud Lovassi, Alexander Gerschenkorn, Ilse Mint

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Schüller and her father Richard Schüller, and also Martha Stefani.

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Among those who stayed was Ludwig Bettelheim-Gabellon, who later died in a concentration camp, Leo

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Illy, Schönfeld, and Richard Striegel, retreated into inner emigration.

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With his paper about Wixels' process, the Wixelscher Prozess, Striegel, before he died

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of brain tumour in 1942, made one more unequivocal stand against the predominant belief in an

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endless political possibility of shaping economic conditions.

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Hans Maier, Ewald Maier and Ewald Schams remained in Austria and tried to adjust to

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the new circumstances. All the same, the Zeitschrift für nationale Ökonomie could only be published

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sporadically and in a reduced form. The Carl Menger memorial, which in 1929 had been unveiled

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in the inner courtyard of the university and subsequently removed by the university administration,

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was defiled by Nazi students shortly after the annexation.

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When Mayer and Maher resumed their lectures at the University of Vienna after the war,

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shums that the same at the Technische Hochschule and with some difficulty, they did not even

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come close to reconnecting with the past. The 70-year-old tradition of the Austrian

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School soon fell into oblivion. In a balance sheet showing the losses of the emigration,

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such was the title of an essay by Karl H. Miller, Verlust bei Lands der Immigration,

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The Austrian School would appear only as a noted item. The substance of such a balance

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sheet item, however, is in its hidden assets, lying dormant in the residual value.