WEBVTT NOTE Preface 1 00:00:00.000 --> 00:00:17.000 The Austrian School of Economics, a history of its ideas, ambassadors and institutions, by Eugen Maria Schulock and Herbert Unterköffler. Translated by Arlene Ost-Zinner. Read by Paul Strickrider. 2 00:00:17.000 --> 00:00:21.000 Preface 3 00:00:21.000 --> 00:00:27.440 After several years of preparatory work and many interruptions, it seems an odd coincidence 4 00:00:27.440 --> 00:00:32.680 that the authors completed their manuscript at the very time a global crisis in the financial 5 00:00:32.680 --> 00:00:39.040 sector suddenly became evident to all. Economic developments since that time appear only to 6 00:00:39.040 --> 00:00:44.700 confirm many fundamental insights of the Austrian School of Economics, especially those in monetary 7 00:00:44.700 --> 00:00:50.920 and business cycle theory, long-standing low-interest rate policies in the United States, and the 8 00:00:50.920 --> 00:00:56.000 The steady increase in the money supply and money equivalents in industrial nations seem 9 00:00:56.000 --> 00:01:03.080 to have led to a staggering volume of misallocations and countless unsustainable business models. 10 00:01:03.080 --> 00:01:07.600 The attempt of industrial nations to quell the pent-up need for correction through government 11 00:01:07.600 --> 00:01:13.840 intervention will in time lead to a gain that is deceptive at best, but hardly a real solution. 12 00:01:13.840 --> 00:01:18.180 These astonishingly purposeful government interventions are certainly no accident. 13 00:01:18.180 --> 00:01:23.460 In recent decades, the so-called welfare states have entered into a very close symbiosis with 14 00:01:23.460 --> 00:01:29.340 the financial sector. In no other sector of the economy save perhaps the armaments industry 15 00:01:29.340 --> 00:01:34.900 in certain countries, our institutions, people and the economy so closely interwoven with 16 00:01:34.900 --> 00:01:40.060 the state as is the case with the finance industry. It has often been possible in recent 17 00:01:40.060 --> 00:01:44.940 years to get the impression that welfare states might be competing in the most imaginative 18 00:01:44.940 --> 00:01:50.500 and Opportunistic Ways with the banking industry in their efforts to circumvent the basic laws 19 00:01:50.500 --> 00:01:55.940 that rule economics, money and the market. While welfare states, with their increasing 20 00:01:55.940 --> 00:02:01.860 national budget deficits, have for many years nourished the illusion of growing prosperity, 21 00:02:01.860 --> 00:02:06.980 banks and financial institutes have on the one hand provided finances for these deficits, 22 00:02:06.980 --> 00:02:12.260 but on the other hand, and to the wider public, they have acted as impresarios of an everything 23 00:02:12.260 --> 00:02:17.200 Banking is affordable philosophy. Hence, the crisis, which has not yet come near reaching 24 00:02:17.200 --> 00:02:22.020 its full magnitude, will affect both the global financial sector and individual countries 25 00:02:22.020 --> 00:02:26.480 much more deeply than all crises seen thus far. 26 00:02:26.480 --> 00:02:31.360 Based on the assumption that the individual was the decisive economic agent and thus centering 27 00:02:31.360 --> 00:02:36.320 its research on individual preferences and on the intersubjective balancing of these 28 00:02:36.320 --> 00:02:41.200 preferences in the context of market, the Austrian School has consistently pointed to 29 00:02:41.200 --> 00:02:47.120 to the fact that institutions such as money, states and markets had emerged without any 30 00:02:47.120 --> 00:02:52.320 planning, without any central purpose and without force. They had emerged on the basis 31 00:02:52.320 --> 00:02:57.400 of human interaction alone and in a manner that was therefore natural befitting both 32 00:02:57.400 --> 00:03:04.160 humans and human logic. This basic insight counters all political and economic ideologies 33 00:03:04.160 --> 00:03:09.740 that view such institutions as working arenas for the establishment or development of authoritarian 34 00:03:09.740 --> 00:03:15.040 and activity aimed at influencing or even controlling the direction of individual preferences 35 00:03:15.040 --> 00:03:21.120 or their intersubjective balance. This meant that during the interwar period in Austria, 36 00:03:21.120 --> 00:03:25.760 the Austrian School was attacked, sometimes fiercely, by political parties of both the 37 00:03:25.760 --> 00:03:32.580 left and the right. The Austrian School not only denied the legitimacy, but also the efficacy 38 00:03:32.580 --> 00:03:37.460 of many economic policies. Furthermore, the School had always identified itself with a 39 00:03:37.460 --> 00:03:42.900 The Universal Science in which there was no room for national, religious or class-oriented 40 00:03:42.900 --> 00:03:49.180 constrictions. In ways, it even represented a kind of alternate world to many of the country's 41 00:03:49.180 --> 00:03:54.980 idiosyncrasies. It focused exclusively on the individual and asserted that individual action 42 00:03:54.980 --> 00:04:00.380 on the basis of subjective preferences was the starting point for research. It was based 43 00:04:00.380 --> 00:04:06.780 on a realistic image of humanity that was not suited for inconceivable flights of idealistic 44 00:04:06.780 --> 00:04:17.780 It was free of maniloquent utopias, upheld the principles of self-determination and nonviolence, 45 00:04:17.780 --> 00:04:22.600 and was united in its fundamental criticism of any monopolistic and forceful intervention 46 00:04:22.600 --> 00:04:28.700 of the State. In addition, it emanated a highly scholarly ethos, which made possible the emergence 47 00:04:28.700 --> 00:04:34.180 of an uncommonly cosmopolitan and tolerant discourse. It follows that among the many 48 00:04:34.180 --> 00:04:46.180 The Austrian School of Economics was one of the very few traditions that did not become entangled in vice and guilt in the midst of the political upheavals of the 20th century. 49 00:04:46.180 --> 00:05:00.180 The same ideologies of both left and right, which in the 20th century so often caused bloodshed and large-scale destitution and misery, accused with great impudence the Austrian School of Blindness to the urgent economic questions of the period. 50 00:05:00.180 --> 00:05:06.500 It was due to this perspective as well that the history and philosophy of the Austrian 51 00:05:06.500 --> 00:05:12.180 School were not to be incorporated into the foundation and reconciliation myth of the 52 00:05:12.180 --> 00:05:15.980 Second Republic's grand coalition. 53 00:05:15.980 --> 00:05:21.320 Against this backdrop, it is to his credit that Professor Dr. Hubert Christian Ehrhalt, 54 00:05:21.320 --> 00:05:26.280 the publisher of the series Encyclopédie des Wiener Wissens, Encyclopedia of Viennese 55 00:05:26.280 --> 00:05:30.440 Studies Learning acknowledges this almost forgotten piece of Viennese intellectual and 56 00:05:30.440 --> 00:05:36.200 scholarly history. Despite delays on the part of the authors, he has remained a patient 57 00:05:36.200 --> 00:05:42.320 and loyal supporter of this project and it is to him that we are particularly indebted. 58 00:05:42.320 --> 00:05:46.800 It seems to be in the nature of every larger undertaking that a considerable debt of gratitude 59 00:05:46.800 --> 00:05:52.360 is accumulated along the course of its development and one which can hardly be repaid in a few 60 00:05:52.360 --> 00:05:53.360 Minds. 61 00:05:53.360 --> 00:05:58.680 With gratefulness, we recalled the many suggestions that led to the continuous evolution of the 62 00:05:58.680 --> 00:06:00.080 idea for this book. 63 00:06:00.080 --> 00:06:06.080 First, the extensive discussions of economic theory in the Haldenhofrunde in Kitzbühel, 64 00:06:06.080 --> 00:06:10.280 with the thoughtful host and profound expert on the Austrian School, Karl Heinz Moore, 65 00:06:10.280 --> 00:06:15.920 the in-depth engagement with auto-liberalism, repeatedly prompted by Dr. Rüdiger Stix, 66 00:06:15.920 --> 00:06:21.360 a colleague who combines Viennese charm with erudition and intellectual honesty in a manner 67 00:06:21.360 --> 00:06:27.640 and finally the providential encounter with Prof. Dr. Hans-Hermann Hoppe, then still at 68 00:06:27.640 --> 00:06:32.000 the University of Nevada, who introduced us to the current state of the Austrian School 69 00:06:32.000 --> 00:06:37.040 of Economics in the US and piqued our interest most decidedly in the already almost forgotten 70 00:06:37.040 --> 00:06:38.960 history of the Austrian School. 71 00:06:38.960 --> 00:06:44.560 Prof. Hoppe, whose friendship and hospitality led to his series of fruitful conversations, 72 00:06:44.560 --> 00:06:50.280 has continued to be well disposed to our project, contributing a number of important suggestions 73 00:06:50.280 --> 00:06:52.760 and giving it impetus. 74 00:06:52.760 --> 00:06:57.720 During the course of our considerable archival and literary research, we were lucky enough 75 00:06:57.720 --> 00:07:03.940 to have encountered a number of exceptionally helpful employees in several Viennese libraries. 76 00:07:03.940 --> 00:07:08.880 The University of Vienna Libraries' Dr. Roland Zlanziger, who more than once set off 77 00:07:08.880 --> 00:07:14.720 in person to search for some rare volume or other in the depths of the archive's basement, 78 00:07:14.720 --> 00:07:19.840 Frau Daniela Atanasowsky, who sometimes postponed her lunch break in order to suit the author's 79 00:07:19.840 --> 00:07:39.680 We were also received kindly in the Vienna University Archive, in the Library of Historical 80 00:07:39.680 --> 00:07:46.680 Science, in the Austrian Nationalbibliothek and in the Library of the Austrian Parliament. 81 00:07:46.680 --> 00:07:52.440 Our sincere thanks go out to all of the above, including Vionika Weiser, for her valuable 82 00:07:52.440 --> 00:07:57.040 support and time-saving assistance in the finding of resources. 83 00:07:57.040 --> 00:08:01.440 We are grateful for the help and support we received on many occasions while drafting 84 00:08:01.440 --> 00:08:07.240 this manuscript from Rahim Tuchresordegon and Gregor Hochreiter from the Institut für 85 00:08:07.240 --> 00:08:12.080 Werte Wirtschaft, Institute for Value-Based Economics in Vienna. 86 00:08:12.080 --> 00:08:16.740 Apart from many expert suggestions and help in researching the literature, they commented 87 00:08:16.740 --> 00:08:20.960 on our drafts and looked over the final draft critically. 88 00:08:20.960 --> 00:08:24.900 After having completed this book project, we left not only with the feeling that we 89 00:08:24.900 --> 00:08:29.120 had greatly profited from their tremendous knowledge of the subject, but also with the 90 00:08:29.120 --> 00:08:33.440 certitude of having forged a selfless and sincere friendship. 91 00:08:33.440 --> 00:08:38.300 Heartfelt thanks are also extended to a Beata Huber for the many valuable and extensive 92 00:08:38.300 --> 00:08:47.420 In particular help was the proofreading by Dr. Barbara Fink of the publisher Bibliotheque 93 00:08:47.420 --> 00:08:51.980 des Provinces. Dr. Fink's sharp eye and mind brought to light a considerable number 94 00:08:51.980 --> 00:08:57.500 of incorrect source citations, which were subsequently corrected by the authors. 95 00:08:57.500 --> 00:09:01.760 The authors are also much obliged to those colleagues who contributed a great deal to 96 00:09:01.760 --> 00:09:06.820 their understanding of the dramatic ruptures in recent Austrian history, in particular 97 00:09:06.820 --> 00:09:12.500 to Prof. Dr. Norbert Leser, who focused our sight on genuine Austro-Marxism in the course 98 00:09:12.500 --> 00:09:17.980 of many friendly conversations, and to Prof. Dr. Oliver Rathkolb, who offered a number of 99 00:09:17.980 --> 00:09:23.420 new perspectives on the great intellectual exodus of 1938 and on Schumpeter's work 100 00:09:23.420 --> 00:09:29.860 in the United States. Finally, our special thanks go to Prof. Dr. Jörg Guido Hössmann 101 00:09:29.860 --> 00:09:35.520 of the Université of Angers, France, whose profound knowledge of the original Austrian 102 00:09:35.520 --> 00:09:41.540 School Literature, himself a biographer of Mises, was able to offer advice and make suggestions 103 00:09:41.540 --> 00:09:47.220 regarding the history of dogmas on many occasions. He also very kindly took upon himself the 104 00:09:47.220 --> 00:09:53.180 task of looking through the final manuscript. All remaining deficiencies, inaccuracies or 105 00:09:53.180 --> 00:10:00.240 even errors in content or form are naturally the sole responsibility of the authors. 106 00:10:00.240 --> 00:10:05.300 Last but not least, it is our wish to extend our thanks to our nearest and dearest, to 107 00:10:05.300 --> 00:10:10.020 to Elvira, for whom this book offered the opportunity to exercise the virtue of spousal 108 00:10:10.020 --> 00:10:15.420 tolerance, and to Weid Georg, who had to do without a number of games of soccer with 109 00:10:15.420 --> 00:10:21.180 his father, and to Kersten, who faced with radical reduction of free time, always remained 110 00:10:21.180 --> 00:10:28.060 a loving soul and an affectionate partner, Eugen Maria Schulag and Herbert Unterköffler, 111 00:10:28.060 --> 00:10:32.140 Vienna November 2008. 112 00:10:32.140 --> 00:10:39.660 The Austrian School of Economics, also called the Viennese School of Economics, was founded 113 00:10:39.660 --> 00:10:45.140 by Carl Menger in Vienna during the last third of the nineteenth century. From that time 114 00:10:45.140 --> 00:10:50.780 until today, its vibrant teaching tradition has had a significant influence on the formation 115 00:10:50.780 --> 00:10:56.020 and further development of the modern social sciences and economics in Europe and the United 116 00:10:56.020 --> 00:11:02.220 States. In the 1930s, a general change of economic paradigms proceeded to push the Austrian 117 00:11:02.220 --> 00:11:08.140 School ever closer to the academic sidelines. This trend was further intensified by the 118 00:11:08.140 --> 00:11:13.480 emigration of many of the school's proponents, and finally through the expulsion of its last 119 00:11:13.480 --> 00:11:19.000 remaining representatives when the National Socialists seized power. After the Second 120 00:11:19.000 --> 00:11:24.380 World War, the political atmosphere of coalition and cooperation across party lines did not 121 00:11:24.380 --> 00:11:41.440 The Austrian School was no longer welcome in Austria. 122 00:11:41.440 --> 00:11:46.980 By means of their teaching and scholarly publications, however, Ludwig von Mises and Friedrich Hayek 123 00:11:46.980 --> 00:11:51.480 were more or less able to sustain the tradition in the United States. 124 00:11:51.480 --> 00:11:56.720 From the 1970s onward, it has experienced a renaissance as the modern Austrian School 125 00:11:56.720 --> 00:12:01.680 of Economics. Until 1938, the research agenda of the Austrian 126 00:12:01.680 --> 00:12:06.900 School was characterized by an astonishing multitude of diverse and, in some cases, even 127 00:12:06.900 --> 00:12:13.240 contradictory conclusions. Its 40 or so economists had in common their education in law, their 128 00:12:13.240 --> 00:12:18.840 almost exclusively elite or aristocratic public service backgrounds, and their employment 129 00:12:18.840 --> 00:12:23.820 government with state-funded universities, the civil service, or institutions like banks 130 00:12:23.820 --> 00:12:29.940 or chambers of commos that too had close ties with the state. In any case, the proponents 131 00:12:29.940 --> 00:12:35.820 of the Austrian School were highly successful socially and professionally. Five became government 132 00:12:35.820 --> 00:12:40.740 ministers, many held senior positions in the government or state-owned banks, and quite 133 00:12:40.740 --> 00:12:46.260 a few were granted aristocratic titles. All branches of the school shared the conviction 134 00:12:46.260 --> 00:12:51.140 that the subjective feelings and actions of the individual are those which drive economic 135 00:12:51.140 --> 00:12:52.980 activity. 136 00:12:52.980 --> 00:12:58.180 Based on this conviction, explanations for economic phenomena such as value, exchange, 137 00:12:58.180 --> 00:13:03.660 price, interest and entrepreneurial profit were derived and step-by-step expanded into 138 00:13:03.660 --> 00:13:07.300 a comprehensive theory of money and business cycles. 139 00:13:07.300 --> 00:13:12.020 Because of their subjectivist, individualistic approach, economists of the Austrian School 140 00:13:12.020 --> 00:13:18.740 School regarded any kind of collective as unscientific in rationale. This led to fierce arguments 141 00:13:18.740 --> 00:13:24.020 with the Marxists, the German Historical School, and later with the promoters of planned economy 142 00:13:24.020 --> 00:13:30.140 and state interventionism, and solidarity within the school itself. In the modern Austrian 143 00:13:30.140 --> 00:13:35.220 School of Economics, questions regarding knowledge, monetary theory, entrepreneurship, 144 00:13:35.220 --> 00:13:40.740 the market process, and spontaneous order placed themselves in the foreground, subjects 145 00:13:40.740 --> 00:13:46.000 that the older Austrian School with remarkable foresight had already taken up or dealt with 146 00:13:46.000 --> 00:13:52.020 in detail. This book endeavours to trace the development of this multi-faceted tradition 147 00:13:52.020 --> 00:13:55.900 with all of its ideas, personalities and institutions.