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.
Preface
After several years of preparatory work and many interruptions, it seems an odd coincidence
that the authors completed their manuscript at the very time a global crisis in the financial
sector suddenly became evident to all. Economic developments since that time appear only to
confirm many fundamental insights of the Austrian School of Economics, especially those in monetary
and business cycle theory, long-standing low-interest rate policies in the United States, and the
The steady increase in the money supply and money equivalents in industrial nations seem
to have led to a staggering volume of misallocations and countless unsustainable business models.
The attempt of industrial nations to quell the pent-up need for correction through government
intervention will in time lead to a gain that is deceptive at best, but hardly a real solution.
These astonishingly purposeful government interventions are certainly no accident.
In recent decades, the so-called welfare states have entered into a very close symbiosis with
the financial sector. In no other sector of the economy save perhaps the armaments industry
in certain countries, our institutions, people and the economy so closely interwoven with
the state as is the case with the finance industry. It has often been possible in recent
years to get the impression that welfare states might be competing in the most imaginative
and Opportunistic Ways with the banking industry in their efforts to circumvent the basic laws
that rule economics, money and the market. While welfare states, with their increasing
national budget deficits, have for many years nourished the illusion of growing prosperity,
banks and financial institutes have on the one hand provided finances for these deficits,
but on the other hand, and to the wider public, they have acted as impresarios of an everything
Banking is affordable philosophy. Hence, the crisis, which has not yet come near reaching
its full magnitude, will affect both the global financial sector and individual countries
much more deeply than all crises seen thus far.
Based on the assumption that the individual was the decisive economic agent and thus centering
its research on individual preferences and on the intersubjective balancing of these
preferences in the context of market, the Austrian School has consistently pointed to
to the fact that institutions such as money, states and markets had emerged without any
planning, without any central purpose and without force. They had emerged on the basis
of human interaction alone and in a manner that was therefore natural befitting both
humans and human logic. This basic insight counters all political and economic ideologies
that view such institutions as working arenas for the establishment or development of authoritarian
and activity aimed at influencing or even controlling the direction of individual preferences
or their intersubjective balance. This meant that during the interwar period in Austria,
the Austrian School was attacked, sometimes fiercely, by political parties of both the
left and the right. The Austrian School not only denied the legitimacy, but also the efficacy
of many economic policies. Furthermore, the School had always identified itself with a
The Universal Science in which there was no room for national, religious or class-oriented
constrictions. In ways, it even represented a kind of alternate world to many of the country's
idiosyncrasies. It focused exclusively on the individual and asserted that individual action
on the basis of subjective preferences was the starting point for research. It was based
on a realistic image of humanity that was not suited for inconceivable flights of idealistic
It was free of maniloquent utopias, upheld the principles of self-determination and nonviolence,
and was united in its fundamental criticism of any monopolistic and forceful intervention
of the State. In addition, it emanated a highly scholarly ethos, which made possible the emergence
of an uncommonly cosmopolitan and tolerant discourse. It follows that among the many
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.
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.
It was due to this perspective as well that the history and philosophy of the Austrian
School were not to be incorporated into the foundation and reconciliation myth of the
Second Republic's grand coalition.
Against this backdrop, it is to his credit that Professor Dr. Hubert Christian Ehrhalt,
the publisher of the series Encyclopédie des Wiener Wissens, Encyclopedia of Viennese
Studies Learning acknowledges this almost forgotten piece of Viennese intellectual and
scholarly history. Despite delays on the part of the authors, he has remained a patient
and loyal supporter of this project and it is to him that we are particularly indebted.
It seems to be in the nature of every larger undertaking that a considerable debt of gratitude
is accumulated along the course of its development and one which can hardly be repaid in a few
Minds.
With gratefulness, we recalled the many suggestions that led to the continuous evolution of the
idea for this book.
First, the extensive discussions of economic theory in the Haldenhofrunde in Kitzbühel,
with the thoughtful host and profound expert on the Austrian School, Karl Heinz Moore,
the in-depth engagement with auto-liberalism, repeatedly prompted by Dr. Rüdiger Stix,
a colleague who combines Viennese charm with erudition and intellectual honesty in a manner
and finally the providential encounter with Prof. Dr. Hans-Hermann Hoppe, then still at
the University of Nevada, who introduced us to the current state of the Austrian School
of Economics in the US and piqued our interest most decidedly in the already almost forgotten
history of the Austrian School.
Prof. Hoppe, whose friendship and hospitality led to his series of fruitful conversations,
has continued to be well disposed to our project, contributing a number of important suggestions
and giving it impetus.
During the course of our considerable archival and literary research, we were lucky enough
to have encountered a number of exceptionally helpful employees in several Viennese libraries.
The University of Vienna Libraries' Dr. Roland Zlanziger, who more than once set off
in person to search for some rare volume or other in the depths of the archive's basement,
Frau Daniela Atanasowsky, who sometimes postponed her lunch break in order to suit the author's
We were also received kindly in the Vienna University Archive, in the Library of Historical
Science, in the Austrian Nationalbibliothek and in the Library of the Austrian Parliament.
Our sincere thanks go out to all of the above, including Vionika Weiser, for her valuable
support and time-saving assistance in the finding of resources.
We are grateful for the help and support we received on many occasions while drafting
this manuscript from Rahim Tuchresordegon and Gregor Hochreiter from the Institut für
Werte Wirtschaft, Institute for Value-Based Economics in Vienna.
Apart from many expert suggestions and help in researching the literature, they commented
on our drafts and looked over the final draft critically.
After having completed this book project, we left not only with the feeling that we
had greatly profited from their tremendous knowledge of the subject, but also with the
certitude of having forged a selfless and sincere friendship.
Heartfelt thanks are also extended to a Beata Huber for the many valuable and extensive
In particular help was the proofreading by Dr. Barbara Fink of the publisher Bibliotheque
des Provinces. Dr. Fink's sharp eye and mind brought to light a considerable number
of incorrect source citations, which were subsequently corrected by the authors.
The authors are also much obliged to those colleagues who contributed a great deal to
their understanding of the dramatic ruptures in recent Austrian history, in particular
to Prof. Dr. Norbert Leser, who focused our sight on genuine Austro-Marxism in the course
of many friendly conversations, and to Prof. Dr. Oliver Rathkolb, who offered a number of
new perspectives on the great intellectual exodus of 1938 and on Schumpeter's work
in the United States. Finally, our special thanks go to Prof. Dr. Jörg Guido Hössmann
of the Université of Angers, France, whose profound knowledge of the original Austrian
School Literature, himself a biographer of Mises, was able to offer advice and make suggestions
regarding the history of dogmas on many occasions. He also very kindly took upon himself the
task of looking through the final manuscript. All remaining deficiencies, inaccuracies or
even errors in content or form are naturally the sole responsibility of the authors.
Last but not least, it is our wish to extend our thanks to our nearest and dearest, to
to Elvira, for whom this book offered the opportunity to exercise the virtue of spousal
tolerance, and to Weid Georg, who had to do without a number of games of soccer with
his father, and to Kersten, who faced with radical reduction of free time, always remained
a loving soul and an affectionate partner, Eugen Maria Schulag and Herbert Unterköffler,
Vienna November 2008.
The Austrian School of Economics, also called the Viennese School of Economics, was founded
by Carl Menger in Vienna during the last third of the nineteenth century. From that time
until today, its vibrant teaching tradition has had a significant influence on the formation
and further development of the modern social sciences and economics in Europe and the United
States. In the 1930s, a general change of economic paradigms proceeded to push the Austrian
School ever closer to the academic sidelines. This trend was further intensified by the
emigration of many of the school's proponents, and finally through the expulsion of its last
remaining representatives when the National Socialists seized power. After the Second
World War, the political atmosphere of coalition and cooperation across party lines did not
The Austrian School was no longer welcome in Austria.
By means of their teaching and scholarly publications, however, Ludwig von Mises and Friedrich Hayek
were more or less able to sustain the tradition in the United States.
From the 1970s onward, it has experienced a renaissance as the modern Austrian School
of Economics. Until 1938, the research agenda of the Austrian
School was characterized by an astonishing multitude of diverse and, in some cases, even
contradictory conclusions. Its 40 or so economists had in common their education in law, their
almost exclusively elite or aristocratic public service backgrounds, and their employment
government with state-funded universities, the civil service, or institutions like banks
or chambers of commos that too had close ties with the state. In any case, the proponents
of the Austrian School were highly successful socially and professionally. Five became government
ministers, many held senior positions in the government or state-owned banks, and quite
a few were granted aristocratic titles. All branches of the school shared the conviction
that the subjective feelings and actions of the individual are those which drive economic
activity.
Based on this conviction, explanations for economic phenomena such as value, exchange,
price, interest and entrepreneurial profit were derived and step-by-step expanded into
a comprehensive theory of money and business cycles.
Because of their subjectivist, individualistic approach, economists of the Austrian School
School regarded any kind of collective as unscientific in rationale. This led to fierce arguments
with the Marxists, the German Historical School, and later with the promoters of planned economy
and state interventionism, and solidarity within the school itself. In the modern Austrian
School of Economics, questions regarding knowledge, monetary theory, entrepreneurship,
the market process, and spontaneous order placed themselves in the foreground, subjects
that the older Austrian School with remarkable foresight had already taken up or dealt with
in detail. This book endeavours to trace the development of this multi-faceted tradition
with all of its ideas, personalities and institutions.