Chapter 24 The Renaissance of the Old Viennese School,
the new Austrian School of Economics In the 1930s it became clearer than ever
before that the fundamental theoretical assumptions of the Austrian School ran decidedly counter
to the dominating spirit of the age, which appeared increasingly dedicated to the salvation-promising
and collectivist ideologies of the left and right. This trend was felt even in those societies
which had remained democratic. It meant that John Maynard Keynes's presumptuous claim
of being able to secure the future welfare of mankind readily found zealous supporters.
The Austrian School had already been on the sidelines for some time when it finally collapsed
under the strain of external forces after the annexation of 1938. The ideas of the school
All seem to sink into oblivion after the Second World War. Social policy in the Western democracies
was oriented toward ideas of a welfare state and was bolstered by economists promising the
affluent society, Galbraith, 1958. One of the fundamental insights of the Austrian
School, namely that utopian societies designed by social engineers are nothing but unscientific
Allusions seemed destined to disappear. That Menger's Principles of Economics was first
translated into English in 1950 made no difference to the fact that the 1950s and 1960s would
become years in the wilderness. Most of the exiled members of the Austrian School joined
the neoclassical mainstream soon after emigration. Fritz Machlup, for example, who became the
pioneer of information economics in the United States. His stance on American monetary policy
University caused a rift between himself and his father-like friend Ludwig von Mises, which
lasted for many years.
Oskar Morgenstern advised American government agencies and primarily published works on
game theory, economic forecasting and methodology, Paul Rosenstein-Rodan became a highly esteemed
expert on developing countries and Gottfried Habeler worked for the American Central Bank
System. They all felt a lifelong bond to the Austrian School, but did not continue to conduct
research on its behalf. It was therefore possible to have the impression that Austrian School
theories had entered into mainstream economics. It's to Friedrich von Hayek's, and in particular
to Ludwig von Mises' credit, that it was not only possible to keep the legacy of the Austrian School
alive in a new environment, but also to perpetuate its marked development with only a few
Among others, Hayek's later and most influential students from his time at the London School of Economics were Ludwig Lachmann, 1906-1990, and George L.S. Shackle, 1903-1992. Lachmann, who taught in Johannesburg, South Africa from 1948 on, and who developed a radical form of subjectivism, challenged altogether the information character of prices on the grounds of constant change and the resulting unpredictability of knowledge.
College. Having begun his doctoral thesis under Hayek, Shackel pursued a similar path,
but ultimately turned toward radical subjectivism, steering it toward nihilism. The Austrian School
tradition came to a sudden halt when Hayek was appointed to the University of Chicago
in 1949. Having there been assigned to the Committee of Social Thought, Hayek increasingly
moved away from the terrain of economic research in the strict sense, which suited his interests
quite well. He subsequently applied himself to the study of the legal and institutional
frameworks of a free society. Even though his contributions to the theories of law and
politics were closely connected to his economic theory and were logically cohesive, his faculty
colleagues soon labelled him a social and law philosopher, and others with smug overtones
placed his work in the category of conventional wisdom. In contrast, Ludwig von Mises remained
true to his original profession. After his arrival in New York in 1940 and with the help
of Machloop's contacts, he was able to have Omnipotent Government 1944, Bureaucracy 1945
and Human Action 1949 printed. In 1945, by then 64 years old, Mises obtained a guest
professorship at New York University with the help of friends and former students. He
He remained active in the position until reaching the grand old age of 87.
The response to his first two books published in the United States was modest.
Human Action, however, became a great success.
Critics of the then prevailing New Deal statism soon recognized in Mises a welcome comrade
in arms.
Particularly impressed by Mises was the brilliant journalist Henry Hazlitt, 1894-1993, who published
Two Influential Books, Economics in One Lesson, 1946, and The Failure of the New Economics,
1959, which contained ideas that were very similar to those of the Austrian School.
A heterogeneous stream of freedom thinkers gradually emerged who, since the label liberal,
had already been taken by the American Democrats, referred to themselves as libertarians. Admittedly,
their critical and at times hostile attitude toward the state sometimes went too far for
In New York, Mises managed once again to assemble a sustainable circle of students from which eminent economists in the tradition of the Austrian School would arise.
In Market Theory and the Price System, 1963, and Methodological Individualism, Market Equilibrium and Market Process, 1967, Israel M. Kirzner developed a theory of markets and entrepreneurs,
Kirzner's Theory of the Entrepreneur as Discoverer is considered groundbreaking to this day.
Hans F. Zenholz, 1922-2007, another student of German origin, who had later become a professor
at Grove City College and the president of the Foundation for Economic Education, translated
many of Mises's writings from German into English. With his published books and especially his numerous
talks, Zenholz contributed to the early dissemination of the Austrian positions on monetary theory and
and Monetary Policy, and attempted to bridge the gap between the economic sciences and
intellectual Protestant American circles. Quite possibly the most distinguished of Mises'
students in the New World was Murray N. Rothbard, 1926-1995, who had later become professor
at the University of Nevada at Las Vegas. In his opulent early work in True Volumes,
Man, Economy and State, 1962, Rothbard succeeded in expanding on his teacher's approach, especially
in the areas of Monetary Theory, the Theory of Monopoly and the Theory of Capital and
Interest. Using his extensive knowledge of theoretical economics and history, he demonstrated
in America's Great Depression, 1963, how inflation of the money supply, responsible
for the artificial boom in the Golden Twenties, had developed, and how it inevitably led to
the stock market crash of 1929. His explanation contradicted the Keynesianism-biased interpretation
of Black Thursday that prevails to this day.
With An Austrian Perspective on the History of Economic Thought, 1995, a two-volume work,
Rothbard presented a comprehensive history of economic theory from the Austrian perspective.
Aside from his teaching assignments in New York and Nevada, he wrote well over a thousand
articles and 25 books, including works on political philosophy and natural rights ethics.
As a political agitator, he sharply criticized the US's aggressive foreign policy and the
expansion of the state as well as the curtailment of basic freedom rights, and he evolved into
a radical advocate of the libertarian movement, all the while maintaining his pacifist stance.
Even though a succession of talented and later well-known economists emerged from Mises's
New York seminar, for example, Louis Spadaro, George Reisman, Percy L. Graves Jr. and his
In the mid-1960s, many established economists considered the Austrians represented by Hayek
and Mises mere historic relics who fought aggressively and bitterly in a hopelessly
quixotic manner against the mainstream and who made one mistake after another on questions
of Economic Policy. In the academic community, they were but a small minority whose way of
thinking was incompatible with the neoclassical paradigm. The three basic assumptions of neoclassical
economics, optimization behavior, fixed order of preference and equilibrium, was diametrically
opposed then as now to the basic positions of the Austrians, expedient action, individual
Natural Preferences and Dynamic Processes. Moreover, the Austrians categorically rejected
a mathematical treatment of economic problems because, in the sphere of action, there is
no unit of measurement and no measuring. Very few essays appeared in academic journals with
the consequence that Austrian economics was perceived predominantly as a book-science
of little consequence. During this phase of noticeable academic isolation, the Mont-Pélerin
Hayek founded a society established in 1947 in a hotel on Mont-Pelerin-Ner-Bébé on
Lake Geneva, was the most important bridge to old Europe for both Hayek and Mises. As
well as the former Italian President Luigi Ainaudi, 1874-1961, and the philosopher Bruno
Leoni, 1913-1967, the author of Freedom and the Law, 1961, members of the society Hayek
Ludwig founded, included, among others, the French expert on finance and political theoretician
Jacques Ruff, 1896-1978. After the First World War, Ruff successfully proved in every single
case that the money that had been handed out by central banks in the countries suffering
from hyperinflation, France, Italy, Germany, Poland and Austria, had been used primarily
to finance budget deficits. After the Second World War, he introduced currency stabilization
measures under President de Gaulle, and later recorded his insights and experiences in the
monetary sin of the West. Other members of the Mont-Bélerin Society included the Economics
Minister and later Chancellor of West Germany Ludwig Ehrhardt 1897-1977, Walter Eucken 1891-1950,
Alfred Müller, Ahmach, 1901-1978, Alexander Rüstorf, 1885-1963, and Wilhelm Röpke, 1899-1966,
who as ordo-liberals attempted to find a third way between socialism and laissez-faire capitalism.
Much like Hayek in his later works, Röpke paid particular attention to cultural factors
like morals and tradition. Moreover, he warned against the modern anti-individualist tendencies
and against the domestication and convenient stable feeding of people by the welfare state.
Whereas Hayek maintained an ongoing close relationship with the auto-liberals,
Mises repudiated them categorically. The Montpellierin Society, however, hardly played
a direct role in the rebirth of the Austrian School as modern Austrian economics. Instead,
it was the historical recollection of its central protagonists and the fundamental themes of the
The School that brought about a new beginning. In 1967, influential English economist John
Richard Hicks remembered the crucial debates between Hayek and Keynes at the beginning
of the 1930s, which he called quite a drama, and rehabilitated Hayek's then-defeated position.
One year later, Hayek published the second edition of the collective works of Carl Menger
in four volumes for German readers. The 1971 centennial of the publication of Carl Menger's
The UDGs of Mises's life's work after his death in 1973 at Hayek's Nobel Prize for Economics in 1974 subsequently created a growing interest in the rich legacy of the old Austrian School.
This return to the roots led to a complete re-evaluation of Carl Menger.
The voluminous literary tradition of the Austrian School had not infrequently obscured a direct view of Menger's original mindset.
mindset. Menger, along with Leon Walras and William Stanley Jevons, was counted among
economic theory's marginalist revolutionaries. With Menger's distinguishing characteristic,
his strict rejection of the mathematical approach being mainly attributed to his mathematical
inexperience. Mathematician Carl Menger, the son of the school's founder, would provide
evidence that his father's verbally formulated, logically constructed concept of marginal
and marginal utility was indeed more comprehensive than that which Walrass had formulated mathematically.
The differences between the three revolutionaries were more clearly outlined in a notable article
some years later. The effort to carve out Carl Menger's original position within the
Austrian School's body of tradition peaked with Max Alter 1990 and Sandi Gloria Palermo
1999, both of whom painted a very complex and sophisticated picture of Menger. Gloria
Roger Palermo was able to point out the considerable methodological differences between Menger and
Boehm-Bawerk. In the same year, Hans-Hermann Hoppe and Joseph T. Salerno, continuing Mises's
work, demonstrated with great detail that Friedrich von Mises had made a crucial departure
from Menger on fundamental questions of methodology and economic policy. The consequence was Mises's
final expulsion from the pantheon of Austrians. Whereas the symposium held in Vienna in 1971
The contributions of Ludwig Lachmann, George L. Schackel, Israel M. Kirzner, and Murray Rothbard seemed radical, enriching, and boldly refreshing, but they threatened to split the already small
The split even began manifesting itself institutionally, and often appeared more confusing than appealing
to outsiders.
In 1981, Kirzner and Lachmann of New York University, along with George Mason University
in Fairfax, Virginia, were challenged with the founding of the Ludwig von Mises Institute,
First in Washington D.C. and later in Auburn, Alabama by Margaret Mises, Murray and Rothbard,
and public intellectual Llewellyn Rockwell, where to this day researchers and students
from all over the world become acquainted with the teachings of the Austrians.
The controversy centering on the question of whether Hayek was opposed to or in agreement
with Mises' theory flared anew in the 1990s.
Contributing to the growing appeal of the Austrians and to a noticeable rise in funding
was replaced at their disposal for research, teaching and publications, was the fact that
from the 1970s on and in light of developments in the real economy, inflation and high unemployment,
the neoclassical Keynesian paradigm suffered a real crisis of interpretation.
Alternative models of explanation were in stronger demand once more.
Since then, the Austrians have tirelessly pointed out that it is quite impossible for
Neoclassicism, with its model of equilibrium, neglect of dynamic market processes, negation
of subjective information, knowledge and learning, and its unconditional application of macroeconomic
aggregates, to reach a well-founded understanding of the real economy. In contrast to Neoclassicism,
Austrians have a much more realistic, coherent and prolific paradigm. The academic network
The work of the Austrians has grown considerably in recent decades, and since the 1980s has extended beyond the United States to the whole world.
A program of study in the tradition of the Austrian school was offered at New York University up until Kirzner went into retirement.
It produced numerous economists who either considered themselves members of the school or who were significantly inspired by it.
For example, Don LeVoy, Sanford Aikida, George Selgin, Roger Garrison, Llew Ellen H. Rockwell, Jeffrey Herberner, Randall G. Holcomb, Peter G. Klein, George Reisman, Roger Garrison, Walter Block, Bruce Caldwell, Richard Langlois, Stefan Boehm, Ouskari Maki, Frederic Sauter, David Harper, and Mario G. Rizzo.
Notable Austrians have been involved in research and teaching at George Mason University in Fairfax, Virginia up to the present as well. For example, Peter Butka, Don Boudreau and Karen I. Vaughan.
Economists adhering to the Austrian creed currently work at Loyola University, Baltimore, Thomas Lorenzo, the University of Missouri in Columbia, Missouri, Pace University in New York, Florida State University in Tallahassee, Florida,
Alexander, Auburn University in Alabama, the University of Nevada at Las Vegas, and at
Grove City College in Pennsylvania, for example, Don LeVoy, Sanford Aikida, George Selgin,
Roger Garrison, Bruce Coldwell, Richard Langlois, Stephen Boehm, Ouskali Maki, Frederic Sautet,
David Harper, and Mario G. Rizzo.
Professor Barry Smith at the University at Buffalo, New York, should also be mentioned.
Two academic journals available to Austrians today are the Quarterly Journal of Austrian
Economics and Review of Austrian Economics. Beyond the United States, economists and philosophers
of the Austrian persuasion are currently at work at universities in Great Britain. Stephen
Littlechild, Norman B. Barry, Holland, William J. Kaiser, Gerrit Meijer, Alcolin, Italy,
Raimondo Cubedo, Enrico Colombato, Lorenzo Inventino, Franz-Jörg Guido Hoesman, Pascal
Salin, Jacques Garello, Gérard Brombolet, Philippe Nataf, Antoine Gentier, Georges Lannes,
Nicolas Gertzsche, Portugal, José Manuel Moreira, Spain, Jesús Huerta de Soto Ballesté, Rubio
and in the Czech Republic, Joseph Sima, Don Stastny, Jan Havel.
No dedicated Austrian chair exists in Germany, Austria or Switzerland, but a number of experts
and Authors, a Christian Watin, Roland Wobel, Victor Van Berg, Erich Wedde, Gerd Hammermann,
Manfred E. Streit, Thorsten Polleit, Roland Badr, Raheem Toukhri Sordegaon, Gregor Hochreiter
and Marc Faber identify themselves with the research agenda of the Austrians.
In Europe today, the leading representatives of the revitalized Austrian School, the Austrian
Hans-Hermann Hoppe, Jörg Guido Hülsmann, Jesus Huerta de Soto
Hans-Hermann Hoppe, born 1949, a native German, wrote his dissertation in philosophy under
Jürgen Habermas, born 1929. After its completion, he departed in order to study in the United
States, where he eventually took over the chair of his long-standing teacher Murray
Murray and Rothbard, at the University of Nevada at Las Vegas.
In his Kritik der Causalwissenschaftlichen Sozialforschung, 1983, Kritik of Causal Scientific
Principles in Social Research, Hoppe made a substantial contribution to the refutation
of empiricism and positivism. It would be logically impossible to research causality
in social science, as such research is incompatible with the statement that learning is possible,
A statement implicitly acknowledged as valid by every scientist and which cannot be denied
without contradiction. Economics, therefore, cannot be an empirical social science, but
has to be understood instead as an a-prioristic science of action.
In A Theory of Socialism and Capitalism, 1989, Hoppe defines socialism as an institutionalised
system of aggression against property, a deeply immoral social system which by no means corresponds
to a Natural Order.
This key idea was further expanded in Democracy, The God that Failed, 2001, and augmented by
a fundamental and comprehensive critique of democracy.
Hoppe has written numerous books and articles on theoretical questions of the Austrians and
on natural rights ethics, and has also criticised prevailing economic fallacies with his focus
on monetary theory and public goods.
In 2006 he founded the Property and Freedom Society, a forum committed to intellectual
radicalism in the tradition of Mises and Rothbard. German economist Jörg Guido Hülsmann, born
1966, of the University of Angers, France, pointed to the interest debate in a completely
new direction with the publication of a theory of interest in 2002. According to Hülsmann,
interest reflects the difference in value between ends and means resulting from the
and the logic of action.
Unlike Boehm-Bawerk and Mises, Hoesman no longer traced interest back to the factor
time.
In his work on the problem of money, Hoesman emphasized that until now advocates of the
subjectivist theory of value have laid too much stress on the material aspect, that is,
the economic aspect in the narrow sense.
In the Ethics of Money Production, 2008, he defined inflation as that part of money production
which arises from the violation of property rights and classed the problem primarily as
an ethical one. Quite generally, says Hoetman, state intervention in the monetary system
produces a continually perverse internal dynamic that ultimately leads to either the destruction
of the currency or to total state control. With The Last Night of Liberalism, he provided
a comprehensive biography of Ludwig von Mises using English, French, German and Russian
sources. Jesus Huerta de Soto, born 1956, the current
Vice President of the Montpédalin Society and a leading economist in the Hayekian tradition,
is a professor at the Universidad Rey Juan Carlos in Madrid. A master's and Ph.D. program
devoted specifically to the Austrian School have been set up under his guidance. With
money, bank, credit and economic cycles, 1998-2009, Huerta de Soto, who majored in economics,
Law, and Actuarial Mathematics, succeeded in presenting a comprehensive fundamental
work on the Austrian theory of business cycles. He also published a comprehensible book, The
Austrian School, Market Order and Entrepreneurial Creativity, 2008, Spanish 2000, offering an
easily readable exposition of the Austrian approach.
Another focus of his work is research into creative, entrepreneurially driven market
Processes. Huerta de Soto has also become well known for his theory that Spanish late
scholasticism should be considered the forerunner of the Austrian School. He has yet to provide
the crucial missing link between the scholastic tradition and Menger.
The newly awakened interest in the tradition of the Austrian School and its modern form,
the Austrian School of Economics, has led to an increased number of publications in
in the last two decades. Austrians today are focusing primarily on the theory of institutional
coercion, price theory, and the theory of monopoly and competition, the theory of capital
and interest, the theory of money, credit and financial markets, and questions of the
welfare economy and its implications. Other areas of activity proven fruitful are the
new institutional economics, the branch of law and economics, and the analysis of law
and Ethics. Irrespective of the multitude and diversity of these contributions, the
original canon of issues of the Austrian School is still strongly discernible in the current
research agenda of modern Austrians. Nothing could be better proof of the astonishing longevity
and freshness of the Austrian School, arguably the most significant Austrian contribution
to modern economics. As we enter the third millennium, Austrians
Experts are endeavouring more than ever to intensify the dialogue with mainstream economics,
to find allies beyond the boundaries and effectively to reach an audience of interested experts.
In doing so, they share with Carl Menger, the founder of their tradition, the strong
conviction that they indeed have the better ideas at their disposal. They want to use
these ideas actively to influence economic and political discourse and not rely merely
on the Hope of a Mature Menger, who once penned the following. In science, there is only one
secure way that leads to the final triumph of an idea, to allow each and every opposing
school of thought to live itself out completely.