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NOTE 4. The Emergence of the Austrian School in the Methodenstreit

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Chapter 4 The Emergence of the Austrian School in the Metodenstreit

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The only critic who seemed to have surmised the momentousness of Menger's principles

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right away was an astonished Kusser Schmoller, an aspiring representative of the historical

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school's young generation. Schmoller asked if, left to Menger, economic problems might

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become purely private business problems. The economics of the historical school was distinctly

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different from that practised in the classical Anglo-Saxon world of Ricardo and Mill, its

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bent was historical, and thus relied much on empirical and inductive reasoning. With this

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emerged a central issue in a controversy which would later go down in academic history

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under the rather inaccurate term Mietodenscheid, a dispute over the appropriate methodology.

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The turbulent reconstituting of a science that seeks unity across varying traditional

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strands, cameralistics, political science and political economy, processed along with

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a large influx of ideas from law, history, philosophy and natural sciences, can best

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be described on the level of an event, complete with a decades-long and ongoing feud and a

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and a multitude of intense, even bitter literary skirmishes. Therefore, it's hardly surprising

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that this aggregate of sciences lacked common ground and terminology, and that a view of

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the actual core of the controversy, which was ultimately about the foundations, conditions

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and limits of the economic and social sciences, was obstructed by a kind of Babylonian confusion

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Association of Language and Terms, as previously mentioned, the Vereinsphilosophiatpolitik,

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Association for Social Policy, had tried, with Schmoller's substantial involvement,

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to establish a new role model for future economists. The fact that their analyses of economic phenomena

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were almost exclusively historical empirical, and that they made their results available

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to politicians, especially when it came to finding an answer to the social question,

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In this sense, Schmoller compared economics to the chorus in a Greek tragedy. It may comment

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on the events, but it does not appear on the political stage. Schmoller described the economy

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During the 1870s, the division between Austrian and German economists also intensified in

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line with old and new resentments of a political-cultural nature, Austria's defeat by Prussia in 1866,

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The war against France and the founding of the German Empire in 1871 had left the academic

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elite of the Danube monarchy with a deep resentment against Prussia. This had even led to brawls

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between German and Austrian students at the University of Vienna. In contrast, their historical

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school encountered a powerful surge in feelings of national unity. They openly supported Germany's

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in his pursuit of empire building and its nationalistic expansion plans. Carl Menger put these antagonisms aside when he for the first time publicly criticized the Virein für Sozialpolitik for its bias and accused it of systematically taking action against moderate individualism in Germany.

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In the mid-1870s Menger began his work on a methodology of economics. The manuscript was complete when he was appointed to the position of professor in 1879.

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But Menger deferred publication and for the time being pressed ahead with educating the next generation of academics.

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Boehm-Bawerk received his Habilitation in 1880, followed four years later and in short order

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by Friedrich von Wiese, Robert Mayer, Gustav Groß, Eugen von Filipowicz and Victor Mattheier.

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This group that Menger had assembled surpassed by far the foreseeable staff requirements

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of the six German-speaking universities in the Austrian monarchy, but they served the

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The Ambitious Plan of Reorienting Economics as a Whole on German Soil, as indeed Menger

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had personally noted. In his Untersuchungen über die Methode der Sozialwissenschaften

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und der politischen Ökonomie ins Besondere, Investigations into the Method of the Social

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Sciences with a Special Reference to the Economics, published in 1883, Menger drew distinctions

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between historical, theoretical and practical strands of economics, and accused the historical

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School of Confusing Theoretical Economics with its History.

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The practical economic science, said Menger, required a theoretical foundation, just as

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applied chemistry assumes a knowledge of theoretical chemistry. With powerful eloquence, Menger

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challenged a series of firmly held basic suppositions of the historical school. Visible economic

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phenomena would not alone guarantee the validity of the exact laws of economics. Economic phenomena

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are by no means inseparable, bound to the social and governmental development of nation.

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The term nation, volk, describes neither a large subject that has needs, that works,

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practices economy and consumes, nor a large singular economy, but rather a peculiar complication

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of singular economies, and the dogma of human self-interest never means that all humans always

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act in the same way, because error and ignorance alone could create differences. Furthermore,

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the historical school strictly denies laws of nature in the economy, and is searching,

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on the other hand, for laws of development in history in order to vindicate for the latter

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the character of laws of nature. And finally, the terms used by the historical school were

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cloudy throughout, as the varying definitions of the term economics, by a total of sixteen

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One of its representatives obviously shows. In his investigations, moreover, Menger devoted

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himself in detail to the emergence of economic phenomena by which he meant law, language,

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the state, money, markets, prices of goods, interest rates, ground rents, wages, and a

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thousand other phenomena of social life in general and of economy in particular. These

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These were to no small extent the unintended result of social development. Thus, the economic

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interest of the economic individuals led, without any agreement, without legislative

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compulsion, even without any consideration of public interest, to the use of goods which

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our predecessors called money. Menger thereby insinuated that the historical school often

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demanded measures of social policy without proper knowledge of the underlying causal

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Reactions to Menger's investigations were numerous, and ranged from exhortative agreement

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and objective criticism to harsh rejection. The fiercest remarks came from Schmoller.

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In order to see basic, final elements, scientifically speaking, in assuming human needs, the desire

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for procurement or self-interest, one would need a completely escapist, book-smart naivety,

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and Menger was not able to understand the historical school at all because he lacks

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is the necessary organ. Schmoller ended his largely scathing review in the style of a verdict.

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We have finished with this book. He went on to say that Menger lacked the universal, philosophical

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and historical education as well as a naturally broad vision. The offending passages were

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silently toned down in a future edition. Menger's response appeared first in the form of a letter

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in Konrad's Jahrbücher. Because it expressed an accusation of the tyranny of the historical

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school, it is possible that Schmoller had refused the publication of a similar letter

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in his Jahrbücher. Menger supplemented the above with his Ihr Tümer des Historismus

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in der deutschen Nationalökonomie, Errors of Historicism in German Economics, in 1884.

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His ad hominem criticism became more severe, and he angrily questioned Schmoller's integrity

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In addition, like no other scholar in Germany, he was inconsiderate in his choice of means,

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master of both a personal as well as vulgar style, a prototype of the problematic nature

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in academia.

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Menger's final words were full of scorn.

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Let Schmoller, the methodologist, stride like a lion in the sands of the spray, shake his

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brain, brandish his paw and yawn epistemologically, only children and fools will take his methodological

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gesticulation seriously henceforth. The Spree is a river that flows through the city of

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Berlin where Gustav Schmoller ruled at the University from 1882 to 1913. The blow for

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blow between Menger and Schmoller framed the spectacular climax of the mid-Orangetide,

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But the angry vehemence of the ear tumour proved to be counterproductive for Menger.

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Even his fellow campaigners felt he had gone too far in style and form. People were whispering

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about signs of nervous exhaustion behind his back. Menger's standing at the Viennese

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faculty was in any case shaken to such an extent that the proposal he made during consultations

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about the reform of law studies to separate economic theory from political economy in

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in the curriculum was outvoted. Nor was Menger able to have an influence on the appointment

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of the successors of Stein and Brentano during appeal procedures. The ministry even deliberated

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appointing Schmoller to Vienna. In the future Menger avoided any lapses in objectivity.

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In the two decades that followed a complex and multi-faceted debate generated over fifty

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relevant titles, not to mention the many annotations and digressions that appeared in publications

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Continually and Throughout

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The topic areas of the ongoing Mittorrenstride were primarily the classification of economics,

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the function of the sub-disciplines, the re-evaluation of the classical economists, the emergence

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of social institutions, and the interplay of theoretical and empirical research, individualism

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and collectivism, as well as induction and deduction. In the field of economic theory,

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However, the historical-ethical orientation proved less than able to deliver satisfaction.

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The exceptions were Adolf Wagner, 1835-1917, one of Schmoller's colleagues at the University

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of Berlin, and his pupil Heinrich Ditzel, 1857-1935. Both were close to the historical-ethical

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school of thought with regard to economic policy, but they were vehement advocates of

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Menger's position on methodological questions. Beyond that, many of the works of the historical

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school were comparable to essays by high school seniors, as even one of the more brilliant

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proponents admitted. Not exempt were those economists of the Austrian monarchy who were

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counted as adherents of the historical ethical school, Friedrich Kleinwächter, 1838-1927,

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The position of the Austrians was supported by

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Emil Sachs, Eugen von Boehm-Bawerk and a range of young Viennese lecturers. Sachs, who advocated

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a methodological individualism, developed an interpretation all of his own, in which

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which he saw the individual to be determined above all by egoism, mutualism and altruism.

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But the impact of his contributions was limited because of his abstract and cumbersome style.

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Boehm-Bawerk, on the other hand, who made use of gripping and visual language, became

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a rousing champion of the Austrian cause, albeit at the cost of substantial simplification.

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With the exception of some methodologically relevant annotations by Wieser, the other

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Other proponents of the emerging Austrian school authored no further contributions to

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methodology. Instead, they applied Menger's approach, and with this contributed to the

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emergence of the school of thought that was soon to gain the reputation of a particular

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logical astuteness. In the 1880s, the Viennese lecturers Robert

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Meyer, Gustav Groß, Victor Mattheier, Robert Zuckerkandl and Johann von Komorzinski produced

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Monographs on the basis of Menger's teachings. They were followed in the 1890s by Hermann

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von Schullen zu Schraddenhofen, Sigmund Feilbogen and Richard Schiller.

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The Gesellschaft der Österreichischen Volkswirte, Society of Economists of Austria, played a

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decisive role in the consolidation of the young Austrian school. Politicians of every

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shade were often invited to regularly scheduled lecture evenings where timely financial, social

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and Economic-Political Affairs were discussed. In 1897, the exceedingly active society had

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a total of 232 members, some of whom also made important moves towards approaching the

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German Verein für Sozialpolitik. After holding its annual general meeting in Vienna in 1895,

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the Verein's Austrian membership jumped from around 10 to 144, of its total membership

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of 489. This contributed significantly to the Metodenstreits being conducted more rationally.

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That is not to say, however, that there were no further skirmishes. Schmoller spoke disparagingly

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of the Austrian circle of scholars and as principal of the University of Berlin announced

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his intention to bar from teaching all those not following the current of the historical

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School, including the Austrians. In time, the Gesellschaft der Österreichischen Volkswirte

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sponsored the newly founded magazine Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung,

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Journal of Economics, Social Policy and Administration. It was published from 1892 onward by Eugen

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von Boehm-Bawerk, Carl Theodor von Inama-Sternig, 1843-1908, and Ernst von Plener, 1841-1923.

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From the beginning it was open to international authors and readers, and was the first German-language

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professional journal to provide an overview of the most important international articles.

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The program outline was set by Boehm-Bawerk, who in his opening essay unambiguously rejected

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all forms of bias and intolerance.

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To declare the theory as redundant means having the arrogance to say one does not need to

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This quotation translated for this edition and reputed to come from Pierre-Paul Royer-Colard was mentioned by Dr. Karl Freiherr Ferdinand von Hock, a leading civil servant in the Ministry of Finance and an expert in finance administration in Vienna in the midst of the 19th century.

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In the öffentlichen Abgaben und Schulden verlag der J. G. Quotaschen Buchhandlung Stuttgart

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1863. The page preceding the foreword contains this quote alone, and it is that to which

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Boehm-Bawerk refers.

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When the Zeitschrift first appeared, ten additional professors and lecturers had become part of

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Menger's circle. Four more habilitierte scholars would join them by the turn of the century.

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It was not only the academic identity, but also the name of the school of thought had

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The first verifiable link of Menger's circle, with the term Österreichisch, Austrian, happened

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at the height of the Mitterdenstein.

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Shortly after it, one could read about a Menger school and of an Austrian young school of economics,

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and it was only Schmoller who in an 1888 review acknowledged the younger Viennese school.

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The term itself, Austrian School, initially appeared in foreign publications as Scuola

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Austriaca or as Austrian School of Economics. An österreichische Schule von Volkswirten,

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Austrian School of Economists, was first mentioned in a newspaper article of Menger's in 1889.

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Shortly thereafter, this label was used in a widely read essay by Heinrich Dietzel and

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and finally adopted in a textbook by Schmoller's colleague Adolf Wagner, 1835-1917.

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Little by little, the terms Österreichische Schule or Wiener Schule became established

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in subsequent years. Though upheld to this day, the claim that the granting of these names

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Programs who is intended to be pejorative cannot be proven.