WEBVTT

NOTE History of the Austrian School of Economics

1
00:00:00.000 --> 00:00:06.000
It's my pleasure to begin this year's series in Austrian Economics.

2
00:00:06.000 --> 00:00:13.000
As you can tell, they're somewhat biased into the future since the remaining four will occur in March.

3
00:00:13.000 --> 00:00:20.000
Today, we're very fortunate to have with us, through the generosity of the William Koch Foundation,

4
00:00:20.000 --> 00:00:23.000
Professor Ludwig M. Lachmann.

5
00:00:23.000 --> 00:00:28.000
Professor Lachmann was born in Berlin in 1906.

6
00:00:28.000 --> 00:00:36.000
And he received his equivalent of our bachelor's degree in November 1927.

7
00:00:36.000 --> 00:00:42.000
And as he says in his note here, I'll read this verbatim because it's humorous,

8
00:00:42.000 --> 00:00:50.000
it is almost exactly 50 years in these October days that I might call myself a professional economist.

9
00:00:50.000 --> 00:00:57.000
Considering everything that has happened in those years, we may regard this as a dotful merit.

10
00:00:57.000 --> 00:01:08.760
He received his degree of Dr. Rerum Politicarum Cum Laude in Berlin in 1930, then as the result

11
00:01:08.760 --> 00:01:17.480
of certain political events, found himself leaving Germany and was in England in 1933

12
00:01:17.480 --> 00:01:25.160
where he began research at the London School of Economics under Professor Friedrich Hayek.

13
00:01:25.160 --> 00:01:32.080
She received a Master of Science degree in economics from the London School of Economics

14
00:01:32.080 --> 00:01:33.080
in 1935.

15
00:01:33.080 --> 00:01:40.160
He was the Leon Research Fellow at the University of London from 1938 to 1940.

16
00:01:40.160 --> 00:01:47.960
He was an assistant lecturer at the University College of London, 1941, and was acting head

17
00:01:47.960 --> 00:01:55.080
of the Department of Economics at the University of Hull from 1943 to 1948.

18
00:01:55.080 --> 00:02:02.920
at which time he moved to Johannesburg and was professor of economics and economic history

19
00:02:02.920 --> 00:02:05.520
at the University of the Wittwatersrand.

20
00:02:05.520 --> 00:02:12.600
He retired in 1972 from that position and has been since that time a visiting professor

21
00:02:12.600 --> 00:02:14.760
of economics at New York University.

22
00:02:14.760 --> 00:02:21.800
He has also served as the president of the Economic Society of South Africa from 1961

23
00:02:21.800 --> 00:02:22.800
through 1963.

24
00:02:22.800 --> 00:02:32.800
Professor Lachmann has written many articles, reviews, there is a review in the latest issue of the Journal of Economic Literature, you might want to look at, I found it very informative.

25
00:02:32.800 --> 00:02:42.800
His books include Capital and Its Structure, which I understand will be reprinted by Sheaton Ward early next year,

26
00:02:42.800 --> 00:02:51.800
The Legacy of Max Weber, Macroeconomic Thinking and the Market Economy, of which I have a copy here,

27
00:02:51.800 --> 00:03:00.800
here, and due out in November, November 14th to be exact, we hope, is a book entitled Capital

28
00:03:00.800 --> 00:03:06.400
Expectations and the Market Process, also be published by Sheed and Ward.

29
00:03:06.400 --> 00:03:13.120
Professor Lachman today will be speaking to us on the subject of the history of the Austrian

30
00:03:13.120 --> 00:03:14.120
School of Economics.

31
00:03:14.120 --> 00:03:15.120
Professor Lachman.

32
00:03:15.120 --> 00:03:29.960
Thank you very much Mr. Chairman for the kind words you've said about me. I duly appreciate

33
00:03:29.960 --> 00:03:37.720
the honor the University of Colorado has done to me by inviting me to give this talk here.

34
00:03:37.720 --> 00:03:48.920
I am of course delighted, both for myself and for the sake of Austrian economics. Now, a

35
00:03:48.920 --> 00:04:00.120
talk on the history of Austrian economic thought, however condensed it will have to be for the

36
00:04:00.120 --> 00:04:14.120
and the obvious reasons had better start with some definition of what Austrian economic thought is.

37
00:04:14.120 --> 00:04:24.120
Now, I must warn you that Austrian economics has recently had a kind of revival,

38
00:04:24.120 --> 00:04:34.120
And, of course, not all Austrian economists see eye to eye in respect of everything.

39
00:04:34.120 --> 00:04:47.120
With these qualifications, I would say that what distinguishes Austrian economics are three things.

40
00:04:47.120 --> 00:05:04.120
Subject 1, subjectivism, 2, a certain attitude to time, and 3, a distrust of macroeconomic entities.

41
00:05:04.120 --> 00:05:15.120
Now, I briefly, but only briefly, have to explain what the three mean.

42
00:05:15.120 --> 00:05:22.120
The world of nature, when we study it, consists of facts.

43
00:05:22.120 --> 00:05:32.120
The social world consists of facts and the perspectives in which the acting individuals see these facts.

44
00:05:32.120 --> 00:05:38.120
A social science, as distinct from a natural science, has to pay attention

45
00:05:38.120 --> 00:05:45.120
attention to the perspectives in which the acting individuals see facts no less than

46
00:05:46.680 --> 00:05:53.680
to the facts themselves. That essentially is subjectivism for you. That is to say that

47
00:05:57.320 --> 00:06:04.320
when ever in the social sciences a causal explanation is given, such explanation must

48
00:06:08.120 --> 00:06:24.360
Social phenomena are to be explained in terms of human action. All human action is oriented

49
00:06:24.360 --> 00:06:32.360
to means and ends. But means and ends only exist in our minds, of course. Hence, acts

50
00:06:32.360 --> 00:06:40.800
of our minds have to be taken account of. In fact, all explanation ultimately has to run

51
00:06:40.800 --> 00:06:49.000
in terms of them. Brief description, I wouldn't dare to call it definition of subjectivism.

52
00:06:49.000 --> 00:07:02.300
Secondly, the Austrian attitude to time. The future is unknowable, though not unimaginable.

53
00:07:02.300 --> 00:07:09.300
It is a different future to each of us. The past is irrevocable. It consists of facts

54
00:07:12.340 --> 00:07:19.340
which are accessible to all of us. The present is always a solitary instant. Future, present

55
00:07:23.620 --> 00:07:30.620
and past are therefore entirely different things. These three kinds of time are heterogeneous

56
00:07:32.300 --> 00:07:42.900
The heterogeneity of time is, I would claim, an important Austrian insight, for which most

57
00:07:42.900 --> 00:07:50.740
of the credit surely must go to George Shackle in his writings.

58
00:07:50.740 --> 00:08:02.100
Once we have grasped this, we shall presumably look with some distrust at any kind of formula

59
00:08:02.100 --> 00:08:27.100
Where it appears, be it in the numerator, be it in the denominator, such expressions as DT, DQ over DT or DY over DT is the kind of expression which Austrian economists will look at with some suspicion.

60
00:08:27.100 --> 00:08:40.820
3. The distrust of macroeconomic entities, or rather the way certain models in which

61
00:08:40.820 --> 00:08:47.980
these entities play a part. Austrian economists don't deny that macroeconomic entities exist,

62
00:08:47.980 --> 00:09:01.320
that investment, consumption, export, imports exist of cost. What Austrian economists take

63
00:09:01.320 --> 00:09:16.560
Umbridge Ed is a way of looking at macroeconomics as though it were a mechanics of these entities

64
00:09:16.560 --> 00:09:31.200
that as it were in the same way as the various planets of our solar system act on each other

65
00:09:31.200 --> 00:09:39.320
Investment, Consumption and other macroeconomic entities are supposed to act on each other

66
00:09:39.320 --> 00:09:48.800
without any thought ever being given to those forces that govern these entities from the

67
00:09:48.800 --> 00:09:49.800
inside.

68
00:09:49.800 --> 00:09:58.000
That is to say, it is not one has no quarrel with macroeconomic entities.

69
00:09:58.000 --> 00:10:10.800
One has a quarrel with explaining them only in terms of the effects which these entities

70
00:10:10.800 --> 00:10:22.680
are supposed to have on each other when the question why so much is invested is never asked.

71
00:10:22.680 --> 00:10:35.240
Now, happily, it's easy for me to beat the origin of Austrian economics. Everybody presumably

72
00:10:35.240 --> 00:10:49.720
knows 1871, publication of Menger's Principles of Economics. All of you know that this is

73
00:10:49.720 --> 00:10:56.240
The same year in which Revens published The Theory of Political Economy, everyone knows

74
00:10:56.240 --> 00:11:04.480
that Menger's name is coupled with that also of Walras, who a few years later published

75
00:11:04.480 --> 00:11:09.520
the Element d'Economie Politique Pure.

76
00:11:09.520 --> 00:11:17.600
Now happily I can save myself the task of explaining at some length the important differences

77
00:11:17.600 --> 00:11:28.920
is between the three thinkers, because we have now an excellent article by William Traffey,

78
00:11:28.920 --> 00:11:40.320
an economic inquiry, December last year, December 1976, in which is called, perhaps the title

79
00:11:40.320 --> 00:11:49.320
The truth is, the elegance of the title is not quite up to, doesn't quite match the importance of the content.

80
00:11:49.320 --> 00:11:55.320
Jevons, Walras and Menger de-homogenized.

81
00:11:55.320 --> 00:12:06.320
But Jeffy really is concerned with explaining that though all the three thinkers had something to say about marginal utility,

82
00:12:06.320 --> 00:12:14.200
exploit the notion of marginal utility one way or another, their aims were really completely

83
00:12:14.200 --> 00:12:25.520
different. Let me say briefly that contrary indistinction to Jevons, Menger had no extra

84
00:12:25.520 --> 00:12:33.360
grind. Jevons, you all know, was very much the conscious rebel against classical English

85
00:12:33.360 --> 00:12:41.160
and Political Economy. Menger was not a rebel against anything in particular. He was on

86
00:12:41.160 --> 00:12:51.920
the whole a conservatively minded man. For Walrass, marginal utility was really important

87
00:12:51.920 --> 00:12:59.720
within the context of his general equilibrium model. Menger had no such model. For him marginal

88
00:12:59.720 --> 00:13:09.360
Marginal utility was important, as it were, in itself, because in it, in subjective value,

89
00:13:09.360 --> 00:13:16.440
he found the key to the explanation of all economic processes.

90
00:13:16.440 --> 00:13:25.000
It is, of course, and his formulation was, of course, an act of deliberate rejection

91
00:13:25.000 --> 00:13:29.720
of the Ricardian Theory of Value.

92
00:13:29.720 --> 00:13:38.720
Menger says essentially that value is not a quality inherent in an object, in a good,

93
00:13:38.720 --> 00:13:44.000
in a chair, or in an automobile.

94
00:13:44.000 --> 00:13:54.520
Value is a relationship between an appraising and therefore active mind and an object, essence

95
00:13:54.520 --> 00:14:00.520
of the Subjective Theory of Value.

96
00:14:00.520 --> 00:14:13.520
Unfortunately, Menger got involved in the famous Metodensprite, the dispute on method

97
00:14:13.520 --> 00:14:22.520
with certain economists of the drama and historical school about the whole episode, the less said,

98
00:14:22.520 --> 00:14:37.720
The better are Menger-Howe. If Menger had taken a somewhat less extreme position on a subject

99
00:14:37.720 --> 00:14:46.920
that mattered to him, the task of economics, he said, is to formulate exact laws in the

100
00:14:46.920 --> 00:14:52.920
The same way, he said, as is the task of the natural sciences. He then distinguished between

101
00:14:52.920 --> 00:15:01.920
exact laws and empirical laws. Exact laws were laws that were not simply verifiable,

102
00:15:01.920 --> 00:15:10.920
but laws which were necessarily so. The task of economics, as of all other sciences, Menger

103
00:15:10.920 --> 00:15:20.400
of God, who in this way betrayed the essentially Aristotelian quality of his mind to find the

104
00:15:20.400 --> 00:15:28.280
essence of phenomena and to formulate the essence of phenomena in terms of the laws

105
00:15:28.280 --> 00:15:35.360
that govern them. It was this more than anything else that made it difficult for the empirically

106
00:15:35.360 --> 00:15:42.360
to accept Menger's point of view. Menger also in the 90s, Menger made an important contribution

107
00:15:53.160 --> 00:16:00.160
to the theory of money. He retired from the chair of political economy in 1990. He retired

108
00:16:05.360 --> 00:16:17.400
In 1903, to write those books, that series of books of which the principles of 1871 were

109
00:16:17.400 --> 00:16:25.360
supposed to have been only the first. But these books, I regret to say, never were written.

110
00:16:25.360 --> 00:16:37.360
So Menger, after his retirement in 1903, lived another 18 years. He never completed another book.

111
00:16:38.360 --> 00:16:51.360
Now the other two members of the first generation of Austrian economics were Boehm-Bawerk,

112
00:16:55.360 --> 00:17:22.360
and Visa, Visa in 1884 formulated the principle that you know as the Principle of Money, of

113
00:17:22.360 --> 00:17:32.160
Do you know as the principle of opportunity cost, needless to say, a utility theory of

114
00:17:32.160 --> 00:17:40.440
value, such as Menger's, at first face the problem that utility can only explain the

115
00:17:40.440 --> 00:17:48.560
value of consumption goods which have immediate utility to consumers. Then what about the value

116
00:17:48.560 --> 00:17:56.400
of Capital Goods, which have no such direct utility. Classical economics had no difficulty

117
00:17:56.400 --> 00:18:04.560
about them. But, now, the Austrians did face this problem. As I said, visa formulate principle

118
00:18:04.560 --> 00:18:13.640
of opportunity cost. That what is called cost is really opportunity for gone, utility for

119
00:18:13.640 --> 00:18:35.640
I have something more to say about Boehm-Bawerk. Boehm-Bawerk was, in reality, half in Austria,

120
00:18:35.640 --> 00:18:48.640
Half Menger's devoted disciple and half a Ricardian. This should not unduly surprise or, I hope, disturb you.

121
00:18:48.640 --> 00:19:03.640
Mises once said, the first Austrians no more knew they were Austrian economists than Columbus and his people knew they had discovered America.

122
00:19:03.640 --> 00:19:11.640
They simply regarded themselves as people who made contributions to some important problems.

123
00:19:11.640 --> 00:19:18.640
Now, Boehm-Bawerk took up the old Ricardian question.

124
00:19:18.640 --> 00:19:27.640
What is the origin and nature of the rate of interest?

125
00:19:27.640 --> 00:19:35.640
When Boehm-Bawerk talks about interest, he means exactly what Ricardo and the English classical economists mean by profit.

126
00:19:35.640 --> 00:19:55.640
Now, the question, as it were, is inherent in Ricardo. How is it possible in a competitive economy in which capital goods can be produced and acquired by anyone in a market economy?

127
00:19:55.640 --> 00:20:06.640
How is it possible for the owners of augmentable resources like capital goods to derive a permanent income from their resources?

128
00:20:06.640 --> 00:20:16.640
We can understand why landlords can derive a permanent income because land is scarce, land cannot be multiplied.

129
00:20:16.640 --> 00:20:24.640
But machines can be multiplied, ships can be multiplied, so why can ship owners derive

130
00:20:24.640 --> 00:20:33.580
a permanent income was Boehm-Bawerk's problem. Now in the course of trying to solve this

131
00:20:33.580 --> 00:20:48.220
problem of interest. He began to develop a theory of capital which was essentially Ricardian

132
00:20:48.220 --> 00:20:58.420
and which did not really differ from Jevenson's. That is to say that production takes time

133
00:20:58.420 --> 00:21:06.300
and from which he derived the notion that it would be possible to describe the quantity

134
00:21:06.300 --> 00:21:17.420
of capital in a society in terms of a time measure, the so-called length of the average

135
00:21:17.420 --> 00:21:22.740
period of production.

136
00:21:22.740 --> 00:21:36.980
Now, Menger never liked Boehm-Bawerk's theory, though for reasons that I'm sure largely

137
00:21:36.980 --> 00:21:48.180
lie on the fairly high Austrian standard of academic conduct.

138
00:21:48.180 --> 00:22:05.380
Menger repeatedly did make this clear, and also the reason for his dissent, knowing that

139
00:22:05.380 --> 00:22:12.460
in 1889 Bernbauer would be publishing the second and most important part of his Vagrant

140
00:22:12.460 --> 00:22:19.060
of Capital, The Positive Theory of Capital. Menger, in 1888, the year before, published

141
00:22:19.060 --> 00:22:35.140
in a drama journal an article called The Theory of Capital, in which he quite clearly rejected

142
00:22:35.140 --> 00:22:40.980
the whole Ricardian approach, in which he says it is quite wrong to look at capital

143
00:22:40.980 --> 00:22:47.380
as the produced means of production, which of course is the notion of capital that Boehm-Bawerk

144
00:22:47.380 --> 00:22:51.340
had taken over from Ricardo.

145
00:22:51.340 --> 00:22:59.020
Menger's own theory of capital, I regret to say, is something somewhat more difficult

146
00:22:59.020 --> 00:23:00.020
to derive.

147
00:23:00.020 --> 00:23:08.700
By having read the article several times, I have never been able to make out what Menger's

148
00:23:08.700 --> 00:23:10.380
definition would be.

149
00:23:10.380 --> 00:23:17.480
In general, what he seems to say is we must regard as capital whatever the market regards

150
00:23:17.480 --> 00:23:38.060
as capital. Now, I turn from the generation of the founders to the, as it were, next decade,

151
00:23:38.060 --> 00:23:45.260
Robert Hayek in his brief article in the International Encyclopedia of the Social Sciences has called

152
00:23:45.260 --> 00:23:57.300
the golden decade of Austrian economics, roughly speaking, 1940-1914, from Menger's resignation

153
00:23:57.300 --> 00:24:06.580
to the outbreak of the First World War and the death of Boehm-Bawerk, who died in August

154
00:24:06.580 --> 00:24:23.580
Now, this was the decade in which Boehm-Bawerk, who had spent 15 years trying to keep the

155
00:24:23.580 --> 00:24:32.820
finances of the Austro-Hungarian Empire in some sort of state of repair, sometimes as

156
00:24:32.820 --> 00:24:57.820
The Minister of Finance, most of the time as the Secretary for Finance, Boehm-Bawerk at the end of 1904 resigned from the Austrian government, and though on his merits and being a close friend of the Emperor Franz Josef, he could have had almost anything he wanted,

157
00:24:57.820 --> 00:25:07.140
All he asked for is that a special chair should be created for him at the University of Vienna.

158
00:25:07.140 --> 00:25:20.460
Now in this golden decade, when the fame of the Austrian School began to spread, we say

159
00:25:20.460 --> 00:25:35.940
Even the gold of that decade was not entirely untarnished.

160
00:25:35.940 --> 00:25:44.140
What Boehm-Bawerk should have done is entirely to rewrite his book on capital and interest

161
00:25:44.140 --> 00:25:56.340
in the light of various criticisms. Somehow he never got around to do it and in general

162
00:25:56.340 --> 00:26:12.600
spent a decade writing various articles defending his own position and or clarifying it. Also

163
00:26:12.600 --> 00:26:22.960
In this, the golden decade, the Austrian School produced three brilliant young men, of whom

164
00:26:22.960 --> 00:26:33.400
only one, alas, remained, as it were, as an Austrian. I mention the other two, one you

165
00:26:33.400 --> 00:26:42.320
may not know, Rudolf Hilferding, who became the leading Marxist theorist, published a book

166
00:26:42.320 --> 00:26:52.320
In 1910, the financial capital contained essentially a defense of Marxism against the revisionism

167
00:26:52.320 --> 00:26:58.320
that had been growing in Germany.

168
00:26:58.320 --> 00:27:09.320
Most of what you know as Marxist theories today and virtually all the ideas of Rosa Luxemburg

169
00:27:09.320 --> 00:27:17.840
and Lenin were derived from Hilfer Dinsburg. His idea being fundamentally, capitalism has

170
00:27:17.840 --> 00:27:24.200
now changed in character. Marx dealt with a competitive capitalism. The modern capitalism

171
00:27:24.200 --> 00:27:31.920
as of 1910 is a monopolistic one. He insisted that the monopoly was an artificial one which

172
00:27:31.920 --> 00:27:40.920
which the banks had imposed on the industry. Now, the second brilliant young man, so well

173
00:27:40.920 --> 00:27:47.080
known that I only need mention him, Schumpeter. It was of course a great tragedy of the Austrian

174
00:27:47.080 --> 00:27:58.680
School that Schumpeter somehow dissociated himself from the Austrian School and now became

175
00:27:58.680 --> 00:28:10.680
Schumpeter regarded Wallrasian general equilibrium as the most important economic idea ever in

176
00:28:10.680 --> 00:28:19.640
judgment to which the other Austrians, of course, would not agree. Therefore, Schumpeter

177
00:28:19.640 --> 00:28:30.160
And Salerno has to be regarded as one of the most, if not the most important Austrian economists.

178
00:28:30.160 --> 00:28:37.440
He did not belong to the Austrian school properly, properly speaking and certainly would not have

179
00:28:37.440 --> 00:28:40.880
regarded, would not have regarded himself.

180
00:28:40.880 --> 00:29:01.680
So now the third was finally Ludwig von Mises. Mises in 1912 wrote a book on the theory of

181
00:29:01.680 --> 00:29:12.860
which contains some thoughts which, though the book, the monetary economics of the book

182
00:29:12.860 --> 00:29:22.640
is essentially Riccardian economics, yes, Mises himself would rest classical, contains

183
00:29:22.640 --> 00:29:32.640
And some interesting new ideas about how these thoughts would have to be extended to credit.

184
00:29:32.640 --> 00:29:43.260
If you are at all interested, if you read Cain's review of this book by Mises in the

185
00:29:43.260 --> 00:29:51.260
The Economic Journal, September 1914. You will easily understand why Mises hated him ever after.

186
00:29:58.260 --> 00:30:08.260
I turn to the 1920s.

187
00:30:08.260 --> 00:30:25.680
In the decade of the 1920s, we find, as it were, a new man in Austrian economics. Boehm-Bawerk

188
00:30:25.680 --> 00:30:47.360
Diet in 1914, Visa Diet in 1921. I should mention as one of the great Austrian achievements

189
00:30:47.360 --> 00:30:56.000
of the Golden Decade, that when German economists published an encyclopedia, Grundriss der Soziale

190
00:30:56.000 --> 00:31:04.360
Ökonomik edited by the famous Max Weber, it was Wieser who was asked to write the volume

191
00:31:04.360 --> 00:31:16.680
on economic theory, a book called in English, The Theory of the Social Economy, published

192
00:31:16.680 --> 00:31:25.680
by Julian Schumpeter in 1914. It shows you that by then the Methodenstreit suddenly was over.

193
00:31:25.680 --> 00:31:35.680
Also, young Schumpeter wrote the volume on the history of methods and dogmas.

194
00:31:35.680 --> 00:31:43.680
In the particular drama set, let's say the methodological part, the part on the history of methodology

195
00:31:43.680 --> 00:31:51.580
was contributed by Schumpeter and was of course a brilliant effort. Schumpeter's history of

196
00:31:51.580 --> 00:32:00.080
economic analysis, which you all know, is simply a father. It is based on his 1914 contribution

197
00:32:00.080 --> 00:32:12.240
to the Gondres. Now, I turn to the 1920s when we see new men and a new generation coming

198
00:32:12.240 --> 00:32:36.240
In the 1920s, the Austrian school seems to have had two poles, etc.

199
00:32:36.240 --> 00:32:57.440
At the University, there was a new man, Hans Meyer, and on the other hand, Mises was, throughout

200
00:32:57.440 --> 00:33:20.440
of the 20s, Secretary of the Chamber of Commerce, Around Mises there gathered three young men,

201
00:33:20.440 --> 00:33:35.440
Havela, and Fritz Machlopp, whose name I'm sure you know.

202
00:33:35.440 --> 00:33:46.440
Since you all know about the work of Havela, Machlopp, I needn't say much more.

203
00:33:46.440 --> 00:34:11.440
Iyer, on the other hand, had two pupils, one Schoenfeld Lee, and one P. N. F. Rosenstein-Rhoder.

204
00:34:16.440 --> 00:34:35.760
I'll say something about Hayek's work in a minute.

205
00:34:35.760 --> 00:34:45.880
Mayer himself, right through the 20s, contributed to the further elaboration of the Austrian,

206
00:34:45.880 --> 00:34:59.200
of the Austrian Method, and though Meyer was a strange man in many ways, he has made important

207
00:34:59.200 --> 00:35:10.200
contributions to Austrian economics. Now Schoenfeld in 1923 and above, never been translated into

208
00:35:10.200 --> 00:35:17.200
on Marginal Utility and the Economic Calculers, Jens Sonsen and Richard Zwerchner,

209
00:35:17.200 --> 00:35:28.200
tried to extend the theory of marginal utility to what we would now call the equilibrium of the individual.

210
00:35:28.200 --> 00:35:40.800
Vice-Rosenstein Rodin was honored by being asked to write the article on marginal utility

211
00:35:40.800 --> 00:35:48.440
for the German encyclopedia, the Huntwerter book in 1929, a very great honor for such

212
00:35:48.440 --> 00:36:01.960
a young man and a task he equated himself of brilliantly. Now the main important events

213
00:36:01.960 --> 00:36:14.240
of the 20s were that Mises now emerged as a prominent Austrian economist as it were in

214
00:36:14.240 --> 00:36:26.680
In his own right, early in the decade, 1922, he had asserted that a socialist economy could

215
00:36:26.680 --> 00:36:36.920
never work unless it had markets and unless actual prices were charged. You probably feel

216
00:36:36.920 --> 00:36:47.560
Unimpressed by such statements, but in considering the views that were put forward by many members

217
00:36:47.560 --> 00:36:54.840
of the left in those days, the turbulent days after the First World War, there was some

218
00:36:54.840 --> 00:37:02.680
considerable merit in this, and even as far with the socialist as Oscar Lange confirmed

219
00:37:02.680 --> 00:37:10.680
and the importance of Mises' contribution by saying that in any future socialist society

220
00:37:10.680 --> 00:37:16.480
there should somehow be a statue for Mises simply for having directed their intention

221
00:37:16.480 --> 00:37:22.640
to an important problem.

222
00:37:22.640 --> 00:37:36.760
Now the other respect in which Mises came to look for was now as Menger's air as regards

223
00:37:36.760 --> 00:37:50.200
methodology. Most of the Austrians had on the whole thought rather shy of Menger's insistence

224
00:37:50.200 --> 00:37:56.600
on the exact laws that we must find, that it is not enough to find empirical laws, anyone

225
00:37:56.600 --> 00:38:11.600
can do that. We have to find laws that are logically necessary. Mises, of course, would

226
00:38:11.600 --> 00:38:18.320
He did not accept the Aristotelian philosophy inherent in Menger.

227
00:38:18.320 --> 00:38:27.000
He borrowed some ideas from the German neo-Kentian philosophers of the first part of the first

228
00:38:27.000 --> 00:38:38.840
decade of the century and in particular of one idea of the great German thinker Max Weber

229
00:38:38.840 --> 00:38:48.480
In a discussion with one of the members of the historical school hostile to the Austrian

230
00:38:48.480 --> 00:38:56.480
School, Weber, though describing himself as no Austrian, said that there is such a thing

231
00:38:56.480 --> 00:39:08.240
as a logic of success, that it remains a fact that if we wish to attain ends, we must employ

232
00:39:08.240 --> 00:39:18.240
of Certain Means. There is such a thing as a logic of success, which is true, as it were,

233
00:39:18.240 --> 00:39:31.240
a priori. Mises built his own, a priorism, more or less, on this argument of labor.

234
00:39:31.240 --> 00:39:42.680
I now come to the next talk at the early thirties, or the decade of the thirties, which I better

235
00:39:42.680 --> 00:39:56.580
describe as a brief moment of glory. Hayek had started as a trade cycle, as a trade cycle

236
00:39:56.580 --> 00:40:23.580
in Germany in the 1920s, in 1931 in the book Prices and Production, and again in the days

237
00:40:23.580 --> 00:40:32.500
of the Great Depression, in which anyone who had some new explanation of what was the cause

238
00:40:32.500 --> 00:40:39.460
of the depression could be reasonably sure of at least a hearing.

239
00:40:39.460 --> 00:40:53.820
Now, Hayek combined Boehm-Bawerk's theory about the structure of production with the

240
00:40:53.820 --> 00:41:02.380
Wixilian notion that differences between the money and the natural rate of interest would

241
00:41:02.380 --> 00:41:08.720
would have important effects.

242
00:41:08.720 --> 00:41:17.940
Now, Wichsel himself had always rejected the notion that the difference between money and

243
00:41:17.940 --> 00:41:26.780
natural rate could be used for any explanation of the trade cycle and had warned his fellow

244
00:41:26.780 --> 00:41:39.660
by those Swedish economists against such fallacies, but Hayek, as it were, did combine the two

245
00:41:39.660 --> 00:41:48.540
and for a moment became a famous man. The moment of triumph was when in 1931 he was

246
00:41:48.540 --> 00:41:53.100
appointed to a chair at the London School of Economics.

247
00:41:53.100 --> 00:42:01.580
Another remarkable event of the time was the great success of Robin's book on the nature

248
00:42:01.580 --> 00:42:11.900
and the significance of economic science.

249
00:42:11.900 --> 00:42:30.740
At the same time, Streatis, economic on November 31 and February 1932, the next step and one

250
00:42:30.740 --> 00:42:41.320
can see now the first step at the decline of the influence of Austrian economics was

251
00:42:41.320 --> 00:43:04.680
and in the end the triumph of kinesianism made an end for the time being of the moment

252
00:43:04.680 --> 00:43:08.040
of glory of the Austrian School.

253
00:43:08.040 --> 00:43:15.800
When we came to the London School of Economics in the spring of 1933, I think it's fair

254
00:43:15.800 --> 00:43:22.960
to say that with a very few exceptions everybody was an Austrian. When in September 1939 the

255
00:43:22.960 --> 00:43:30.280
London School of Economics closed for the war, I think Hayek and I were the only Austrians

256
00:43:30.280 --> 00:43:48.000
Now, I have a few minutes, I think, to talk about the years in the wilderness and the recent

257
00:43:48.000 --> 00:44:00.760
The revival of Austrian economics. Even in the years of the wilderness, I think at least

258
00:44:00.760 --> 00:44:07.080
one important, I would say at least two important contributions were made to Austrian thought.

259
00:44:07.080 --> 00:44:17.720
One is Mises' great book, Human Action, which was published in English in 1949. Mises, who

260
00:44:17.720 --> 00:44:27.600
who had left his native Austria in 1934 and had first settled in Geneva and later on in

261
00:44:27.600 --> 00:44:34.200
New York, for once found the time to write a comprehensive treatise. It means that human

262
00:44:34.200 --> 00:44:41.520
action still is the most comprehensive treatise on the social sciences and not economics only

263
00:44:41.520 --> 00:44:46.320
that the Austrian School has got.

264
00:44:46.320 --> 00:44:55.560
The other important contribution, I would say, was Sheckle's first writings from Expectations

265
00:44:55.560 --> 00:45:04.840
in Economics in 1949, and in particular his Otterdam Lectures of 1957, Time in Economics,

266
00:45:04.840 --> 00:45:16.840
He first presented the thoughts on time that I try to condense in my few introductory remarks.

267
00:45:16.840 --> 00:45:26.840
It looks as though at the moment we are having an Austrian revival.

268
00:45:26.840 --> 00:45:35.280
There are, I think, certain straws in the wind, and I would regard certain preferences

269
00:45:35.280 --> 00:45:42.120
by Sir John Hicks as the most important among them.

270
00:45:42.120 --> 00:45:45.120
I simply state certain facts.

271
00:45:45.120 --> 00:45:53.200
In Hicks's Capital and Growth of 1965, we Austrians rated exactly one footnote, in which

272
00:45:53.200 --> 00:46:20.200
In 1967, we find the Hayek's story as the last of his critical essays in Monetary Theory,

273
00:46:20.200 --> 00:46:27.160
and Monetary Theory, in which he explicitly says Hayek has been misunderstood, he has

274
00:46:27.160 --> 00:46:34.640
some important things to say, perhaps he misunderstood himself, he thought he was a business cycle

275
00:46:34.640 --> 00:46:43.120
theorist when he really was a growth theorist. And in 1973, as you know, Sir John has published

276
00:46:43.120 --> 00:46:49.720
a book, Capital and Time, which is quite clearly in the spirit of Boehm-Bawerk and which is

277
00:46:49.720 --> 00:47:01.000
officially described, he describes, as a neo-Austrian, as a neo-Austrian theory. But the most important

278
00:47:01.000 --> 00:47:15.240
contribution to the Austrian revival, I think, is George Shackel's book of 1972, hardly exists

279
00:47:15.240 --> 00:47:26.240
In English, I better put it down, epistemics and economics. Epistemic simply means a word for knowledge.

280
00:47:26.240 --> 00:47:31.240
Clearly, it is about the importance of knowledge for economics.

281
00:47:31.240 --> 00:47:50.440
I must not omit to mention my colleague Israel Kirzner's important book of 1973, Competition

282
00:47:50.440 --> 00:47:57.840
and Entrepreneurship.

283
00:47:57.840 --> 00:48:12.520
I would like a conclusion. I think I should say that as so often events external to those

284
00:48:12.520 --> 00:48:20.960
who were the ultimate, who were the beneficiaries, started a course of events which enabled certain

285
00:48:20.960 --> 00:48:30.960
Beneficiaries to Draw Benefits. If the famous neoclassical symphonies of Hicks and Samuels

286
00:48:30.960 --> 00:48:40.960
hand-lived had been viable for longer than it has proved to be, I think the Austrian

287
00:48:40.960 --> 00:48:49.960
revival would have been far more difficult. Most economists, now I take it except, and

288
00:48:49.960 --> 00:48:57.120
Not only since Leon Heffert and the neoclassical synthesis, the strange combination of Keynesian

289
00:48:57.120 --> 00:49:04.520
macroeconomics and Samuel Tzionian microeconomics is simply not viable.

290
00:49:04.520 --> 00:49:10.560
The two parts belong to different worlds, and I think there is a realization of this

291
00:49:10.560 --> 00:49:13.960
which has somehow helped the Austrian revolution.