“Published in late 1942, it received positive reviews from scholars across the
political spectrum. By the time of its second edition in 1947, it had already
been translated into seven languages. It saw a third edition before
Schumpeter's death in 1950 and two more thereafter. It became a hit in
intellectual circles: the historian Arthur Schlesinger even reviewed it in the
Nation. It was Schumpeter's most accessible work and also his most impactful,
receiving a retrospective treatment in 1978 from the neoconservative journal
Commentary and a 1981 tribute from scholars and friends. [...] Capitalism
launched the final act of Schumpeter's career, which included influence over
the postwar Japanese economic recovery through the appointment of former
students to advisory roles, the presidency of the American Economic
Association, and the publication of a seminal work on the history of economic
thought.” 199


“In Capitalism, Schumpeter also offered an interpretation of democracy that
became enormously influential among midcentury thinkers, especially those
associated with modernization theory. Schumpeter advanced one of the first
procedural definitions of democracy: "Democracy is a political method, that is
to say, a certain type of institutional arrangement for arriving at
political—legislative and administrative—decisions and hence incapable of
being an end in itself, irrespective of what decisions it will produce under
given historical conditions." Democracy is a means, not an end in itself. It
works through competitions among elites for support rather than through mass
participation. The minimal act of voting is therefore the proper form of
popular involvement, meaning democracy should be representative and not
direct. Schumpeter inspired countless scholars from Gabriel Almond to Raymond
Aron in their elite theories of democracy, which verged on theories of
aristocracy. It also gibed with the instrumental, means-ends justifications
for democracy that Mises and Hayek articulated in their later works.
Capitalism, Socialism, and Democracy is one of the greatest and subtlest
apologia for capitalism and elitist liberalism ever written. Despite this,
many readers misread it as a defeatist text. [...] Those who grasped its
nuance appreciated it, especially his fellow Austrians. Haberler and
Morgenstern excitedly discussed Capitalism in their letters. Machlup wrote a
glowing review.” 198


“If the early 1940s represented a low point for the popularity of the Austrian
economists, then the midand late-1940s resurgence was a vindication of
Austrian and central European thought styles. The list of impactful titles
produced by the Austrians between 1942 and 1945 is staggering: Schumpeter,
Capitalism, Socialism, and Democracy (1942); Hayek, Road to Serfdom (1944);
Mises, Bureaucracy (1944); John von Neumann and Morgenstern, The Theory of
Games and Economic Behavior (1944). If you include the works of Karl Polanyi
and Karl Popper—The Great Transformation (1944) and The Open Society and Its
Enemies (1945)—the Austrians may have produced more important texts in social
and political theory than any other midcentury group. [...] In addition to a
successful assimilation into Anglophone society, the Austrians' willingness to
escape the bounds of traditional economics opened their work to new audiences.
The Austrians showed that they were not only economists.” 195


“The features that distinguished the Austrian approach—theoretical rigor,
interdisciplinarity, skepticism about "scientistic" models and forecasting,
attention to subjective factors and the time preference, emphasis on the roles
of institutions in economic development—had either entered the economics
mainstream or had faded from consideration. In particular, the emerging
"Neoclassical-Keynesian synthesis"—which applied neoclassical ideas of supply
and demand to Keynesian macroeconomic concepts—left little room for Austrian
research questions.” 194f


“Hayek conceded that the book showed a glaring ignorance of recent
developments: "it must be admitted that he seems to have been little affected
by the general evolution of our subject during the period over which his work
extends." In fact, Mises displayed "a certain contempt for contemporary
economics." Hayek's critique followed the lead of Haberler, who had argued for
years that Mises was no longer a significant economist and that his work
offered no insights for anyone who had learned economics since the Great War:
"If one had studied the classics and Marshall in 1912, then one would have
learned nothing more from Mises." Hayek also noted that the major innovations
in the Austrian subjective approach introduced in Nationalökonomie were "less
convincing." Hayek criticized Mises's a priori methodological approach, which
everyone from Morgenstern to Felix Kaufmann to Fritz Machlup questioned.” 191f


“Unfortunately for Mises, almost no one noticed the book's appearance. [...]
Nationalökonomie appeared in May 1940 in Switzerland, briefly before its
publisher closed its doors. [...] Only one major review appeared, and Hayek
wrote it.” 191


“In the lead-up to the book's publication, Mises expressed optimism about the
book and its expected reception. In a letter to Machlup, Mises offered a
bittersweet assessment: "It is anyway probably the final economics book in the
German language." Mises believed he would get the last word on German
economics, something he and his Austrian predecessors, going back to Menger,
had always wanted.” 190f


“In Geneva, he was surrounded by sympathetic scholars like Wilhelm Röpke,
William Rappard, and Paul Mantoux. The presence of Haberler (until 1936),
Helene Lieser, Louise Sommer, and other Austrians provided the city a Viennese
inflection. Nevertheless, as the Nazi war machine swallowed up Scandinavia,
the Low Countries, and France in 1940, Ludwig and Margit worried for their
future. Ludwig reached out to Machlup and Hayek. Machlup secured an offer at
the University of California-Los Angeles (UCLA) for a reasonable salary, which
the haughty Mises rejected as inadequate. After signaling his disapproval,
however, Mises reversed course, placing Machlup in the unenviable position of
reopening negotiations. UCLA demurred. Eventually, the Mises family escaped
Switzerland with the help of a French transit visa obtained by Hayek and
Machlup. They arrived in New York City in August 1940. While Machlup welcomed
the opportunity for a "grand reunion" in California in the summer of 1940,
with Haberler (who was at Berkeley), Machlup (at Stanford), and Mises, he
expressed consternation at Mises's aristocratic, elitist bearing. The
Austrian's excessive salary demands doomed any prospect of tenured employment
[...]. Because of the tireless activity of the Austrian School members, by
late 1940 virtually everyone who would escape from the European maelstrom had
made it out. They had expended significant psychological, physical, and
financial means to ensure one another's safety.” 189


“Based in Switzerland since 1934, Ludwig von Mises made periodic trips back to
Vienna. He happened to be in Austria in March 1938, getting out days before
the Anschluss. The Gestapo ransacked his Vienna home and confiscated many of
his books and valuables. His future wife, Margit, and her daughter, the
journalist Gitta Sereny, departed a few months later.” 188f


“Friedrich Hayek's employer, the London School of Economics (LSE), evacuated
its premises and relocated to Peterhouse College, Cambridge. In an interesting
turn, John Maynard Keynes helped Hayek find rooms near his own office, and
according to an apocryphal account, they served on the same nighttime patrols
on the roof of King's Chapel. Increasingly despondent, Hayek wrote to Haberler
and Machlup about opportunities in the United States. Machlup cautioned that
it was unlikely a position could be found without a firm commitment from Hayek
to accept. Haberler appealed to Alvin Johnson, who offered Hayek a position at
the New School, albeit at a substantial salary reduction. Hayek, a proud,
statusconscious man, took the offer as an insult: "The offer from the New
School which I owe to Haberler has really caused me some indignation. ... I
could not help regarding its nature as a personal slight. I wonder what a
Professor at Harvard or Chicago would say if in similar circumstances he were
offered without asking for anything a nondescript job at about a fourth of his
present salary." Hayek declined the offer; the ordeal soured relations with
Haberler for a time.” 188


“When Alexander Gerschenkron, a close associate of Morgenstern's who was
working on a comparative economic study of the Habsburg successor states,
decided to flee Austria in April 1938, he turned to the Berkeley scholars.
Ellis landed him a three-month appointment as a research assistant; Gulick
then employed him on his massive history of interwar Austria.” 187


“Wald narrowly escaped Europe, making it to the United States via Cuba in
1938. He eventually found a permanent position at Columbia in the Statistical
Research Group, and his work played an instrumental role in the development of
game theory and operations theory.” 187


“Born in 1902 in Cluj in the Hungarian half of the Austro-Hungarian Empire
(present-day Romania), Wald was raised in an Orthodox Jewish household. In
1927, he began his studies at the University of Vienna with Karl Menger,
completing his doctorate in 1931. He became Menger's favorite student and
distinguished himself as a precocious talent in the fields of axiomatics and
topology. [...] Few were ready to help Wald, since he was, according to an RF
officer, "a man without a country" and a "homeless Jew." Nevertheless, Wald's
colleagues continued to press his case. Menger, Morgenstern, Haberler, and
Gerhard Tintner all rated Wald as the finest scholar under consideration for
an RF grant. However, the foundation instead awarded the travel money to
Reinhard Kamitz, a scholar with a "convincing and businesslike" appearance,
that is, not Jewish. Kamitz rejected the fellowship, since he assumed
leadership of the Vienna institute after the Anschluss. Still, the RF did not
act on Wald's behalf.” 186


“Felix Kaufmann and the economist Erich Hula received permanent offers from
the New School. The former Böhm seminar participant Emil Lederer was vital in
the recruitment. They also followed the ordeal of Erich Schiff, a Mises
seminar regular, with alarm. Schiff, who was the editor of the institute's
monthly report, fled Austria in March, believing he had a position lined up at
the University of Michigan. Although he possessed an affidavit for entry to
the United States, his visa was delayed. Hayek used his contacts at the SPSL
and the Oxford Refugee Committee to land him a temporary position at Balliol
College. Schiff only arrived at Michigan a year later and in 1940 received a
research fellowship at the Brookings Institution, with recommendations from
Haberler and Morgenstern.” 185f


“With Hayek's aid and the backing of the Society for the Protection of Science
and Learning (SPSL), Richard Schüller followed his daughter, making his escape
to England via Italy in July. The Mintzes, including their six-yearold
daughter, Gabriele (later the renowned literary scholar Marjorie Perloff),
found their way to New York City via Switzerland in the spring of 1938. Furth,
Haberler's brother-in-law, did not enjoy the same financial advantages as the
Mintzes, nor did he possess the academic reputation of his cohort. Haberler,
Morgenstern, and Schumpeter worked for over a year to land him a permanent
position in the United States. Drawing on their Rockefeller Foundation (RF)
connections, they found him an economics professorship at the historically
black university Lincoln University, in Pennsylvania. Morgenstern, Haberler,
Machlup, and Schumpeter wrote countless letters endorsing their Viennese
friends to aid societies and immigration groups, and they tracked progress
closely. In addition to working with the RF, they assisted their peers with
the Emergency Committee in Aid of Displaced Foreign Scholars, headed by
Stephen Duggan, and the University in Exile at the New School for Social
Research, led by Alvin Johnson.” 185


“"[Max] Mintz is en route with nine family members to the USA, without an
affidavit. ... As a result, Herbert Fürth was taken into custody for 48
[hours] because it was alleged that he knew about the Mintzes flight. Mintz's
Vienna assets have been confiscated and his citizenship revoked." Max Mintz
and Herbert Furth, founding members of the Geist-Kreis and participants in
Mises's seminar, operated a law practice together. In 1926, Mintz married Ilse
Schüller, the daughter of one of Carl Menger's students, Richard. Schüller-
Mintz was an outstanding economist and scholar in her own right. She worked
for the institute with Hayek and Morgenstern and attended the Mises-Kreis.”
184f


“the Institute for Business Cycle Research, the quintessential Austrian School
project, was taken over by the economist and Nazi Party member Ernst Wagemann,
the head of a similar center in Berlin. The Austrians lamented the
"coordination" of their beloved institute and wryly noted that its monthly
journal was now published by Goebbels's Ministry of Propaganda. [...] Hans
Mayer, Mises's former rival and the leading exemplar of the school at the
University of Vienna, quickly "adapted" to the Nazi order. Mayer joined the
Party and purged the Zeitschrift of "Jewish" editors and contributions. After
the Anschluss, he offered an editorial greeting to the new Nazi authorities in
the Ostmark. He introduced an Aryan paragraph into the bylaws of the Economic
Society and expelled Jewish members. According to rumors, he also denounced
his rival Othmar Spann to the Nazi authorities. To the end of their lives,
Hayek, Machlup, and the others regarded Mayer as a "scoundrel" and a traitor.”
184


“"Austria" as a symbol carried with it an Old World charm, and it lent a
patina of sophistication to anti-New Deal and anticollectivist ideas that had
seemed obsolete a few years prior.” 183


“Gottfried Haberler and Oskar Morgenstern rejected its hollow abstractions.
Haberler damned the book's empty deductions: "He [Hayek] has entered into
highly unfruitful and unrealistic considerations. He very much gives the
impression of a completely unworldly, ivory tower [weltfremd] person who
merely plays around with deductions from entirely unrealistic premises."
Haberler failed to see how Hayek's meditations could advance economics or
resolve contemporary problems. Morgenstern concurred: "Hayek's book displeases
me greatly. ... I find that one cannot go any further with this kind of
science." For economics to advance, scholars had to demand higher scientific
standards than the current "state of stupid palaver." In his final judgment,
Morgenstern declared, "[Pure Theory] is higher nonsense. ... This type of
'economic theory' must vanish." The year 1942 was therefore a nadir on Hayek's
journey, 1945 an unexpected revival.” 182


“No fewer than six reviews appeared within a year [...]. Redoubtable
economists Arthur Pigou, Kenneth Boulding, R. G. Hawtrey, Friedrich Lutz, and
Arthur Smithies wrote commentaries. Each of them recognized the importance of
Hayek's work, yet they found his usage of concepts inconsistent, if not
untenable. Even the most generous evaluation—Boulding's—felt the reasoning too
abstract for use within the economics profession: "It is not yet the 'Pure
Theory of Capital.' For it is required of abstractions that they be
fruitful—that they provide a ladder by which we can climb from the more to the
less abstract. One has the impression that many of Dr. Hayek's abstractions
are foundations without a superstructure."” 181


“His 1941 economics summa, The Pure Theory of Capital, met neither his nor his
peers' expectations. In many ways, Pure Theory was the end of the road for
Hayek's professional economics career. [...] After seven years of work and a
five-hundred-page manuscript, major lacunae still existed. Moreover his work
seemed disconnected from empirical reality.” 181


“In the spring of 1945, Friedrich Hayek became an American celebrity. On April
3, Hayek arrived in the United States from the United Kingdom to give a series
of academic lectures. En route, a condensed version of his 1944 book The Road
to Serfdom appeared and made him a household name and best-selling author.
Featured on the front page of Reader's Digest, which boasted a circulation of
almost nine million readers, the treatise was hailed as "one of the most
important books of our generation." Individuals and organizations bought one
million offprints, and one and a half million copies went to US military
personnel. As part of the media blitz, Look magazine produced a cartoon
version, and Hayek offered a synopsis on NBC's popular radio program Words at
War. Hayek had to move his scheduled talks to larger venues, hiring a
publicity agent to book auditoriums across the country. He spoke to packed
houses everywhere he went. He also made connections to anti-New Deal
businesspeople and free trade foundations, who paid for Hayek's nationwide
tour and later bankrolled many of his late career activities, including the
Mont Pèlerin Society (MPS), his professorship at the University of Chicago,
the publication of The Constitution of Liberty and Law, Legislation, and
Liberty, and his affiliations with the libertarian and conservative Institute
for Humane Studies, Heritage Foundation, and Cato Institute.” 180


“Even Morgenstern, who had adapted to Austrofascist rule, chose to leave. In
winter 1937-38, he accepted a Carnegie visiting professorship to teach in the
United States, with the intention of returning to central Europe in the
summer. By that time, Austria had vanished from the world map: the German
Reich annexed Austria in March 1938. Deciding not to return, Morgenstern wrote
feverishly to US colleagues in search of a job. Put in touch with Abraham
Flexner, a longtime adviser to the Carnegie and Rockefeller Foundations,
founder of the Princeton Institute for Advanced Studies, and driving force
behind the Emergency Committee in Aid of Displaced Foreign Scholars,
Morgenstern received and accepted a professorship offer from Princeton. The RF
paid half his salary for several years. [...] Many friends and
colleagues—including Martha Steffy Browne, Herbert Furth, Walter Fröhlich,
Alexander Gerschenkron, Felix Kaufmann, Erich Schiff, and Alfred Schütz—were
stranded in Austria.” 178


“Morgenstern won commissions from the League of Nations, the ICC, and the Bank
for International Settlements. Spending more time with Karl Menger and his
Mathematical Colloquium—where one could hear presentations not only from
Menger but also from Abraham Wald, Kurt Gödel, Werner Heisenberg, Alfred
Tarski, and Rudolf Carnap—Morgenstern took an interest in modern mathematics
and its potential for improving economic theory. After Mises's departure in
1934, Morgenstern reshaped the school's seminar, inviting more contributions
from mathematicians. [...] Austrian economics under Morgenstern's guidance
enjoyed great international recognition. The RF esteemed Morgenstern highly,
providing monies for his institute's comparative studies of economic
conditions in the Habsburg successor states and programs in mathematical
economics. Morgenstern built the institute into an internationally acclaimed
center. Although it never had a staff of more than eleven, the institute
became the envy of other European institutes [...].” 177


“Machlup arrived in the United States on an RF fellowship in 1934 and spent
time at Harvard, the University of Chicago, the University of Wisconsin, and
Stanford. Rumors of his desire to remain in the United States circulated
widely. Machlup filled in at Harvard in 1935 when Haberler deferred his
arrival. Machlup subsequently received an appointment at the University of
Buffalo, with most of his salary covered by the RF.” 177


“In 1934, Haberler took a position with the League of Nations Economic Section
in Geneva. With the support of Joseph Schumpeter, Haberler secured a
professorship at Harvard in 1936.” 176


“After Hayek's and Rosenstein-Rodan's departures to the United Kingdom in the
early 1930s, the next crest came in 1934 in the face of rising fascism. Mises
leapt at a visiting professorship offered by William Rappard and the Geneva
Institut Universitaire des Hautes Études Internationale, the RF-funded center
designed to furnish the League of Nations with policy experts. Although he
continued to work part-time for the Vienna Chamber of Commerce, Mises returned
for only a few days at a time over holiday breaks. Surrounded by émigrés and
exiles, including his Viennese colleagues Hans Kelsen and Karl Pribram and the
German Wilhelm Röpke, Mises found Geneva a congenial intellectual environment.
[...] Geneva became the makeshift hub for European economics: Haberler, Jan
Tinbergen, Tjalling Koopmans, Ragnar Nurkse, and many others made their home
there. This contributed to Mises's reluctance to immigrate to the United
States.” 176


“On a Vienna trip in April 1936, Hayek ran into Mises and Alfred Schütz, but
they were the only two interesting people still there. In saying this, he
directed a jab at Morgenstern and Karl Menger, who still worked at the
institute but were doing "horrible scientific things." The emigration of "our
economic school" pained Hayek enormously [...].” 175f


“Hayek returned to Austria regularly throughout the 1930s to see family and
friends. He summered in Salzkammergut [...]. Writing to Machlup, Hayek
lamented the brain drain from Vienna [...].” 175


“The Austrian School members, especially Mises, greeted the destruction of the
socialists and the new state with approval. The Austrofascists supported sound
money and the gold standard, yet they turned against Austrian School economic
policy, advocating "corporatist" economics inspired by Catholic social theory,
Othmar Spann's universalism, and Italian Fascism. This was a blow for the
Austrian School, especially Mises and Morgenstern, who had supported the
Christian Socials and advised its leaders for more than a decade.” 175


“By 1933, most of the Austrians realized that they had no future in central
Europe. The Depression bottomed out in 1933, when more than a quarter of
Germans and Austrians were unemployed.” 174


“Even Hayek and Morgenstern continued to correspond after their major spat.
They still attended the Mises seminar fortnightly and ate lunch together
several days a week. In other words, the school dynamic proved stronger than
their personal or doctrinal differences.” 174


“While never close, they cooperated at a major RFsponsored conference in
Annecy in 1936 and found much common ground on economic policy and the role of
experts in decision-making. It was the Hayek-Morgenstern relationship that
suffered more under the strain. [...] Hayek responded icily to Limits and its
score settling. In a letter to Morgenstern, he wrote, "If one is supposed to
be grateful for being sent a book, and one does not agree with it at all, and
one knows the author too well to handle the matter in one phrase, the only way
is to make the letter a counter conclusion. ... That you were rude to some of
my friends makes it even more difficult." In response, Morgenstern had harsh
remarks for Hayek and his friends, whom he accused of abandoning science for
politics. [...]. As Hayek's work became more convoluted and abstract in the
late 1930s, Haberler lamented Hayek's growing ignorance of reality.” 173


“Occasionally Morgenstern's animus boiled over, demonstrating not just
intellectual differences but also perhaps a latent antisemitism born of his
German nationalist background. After one Mises lecture, he declared the talk
"impossible." When Menger and Mises sparred over mathematical economics and
questions of ethics, Morgenstern lost all patience. He accused Mises of
"talk[ing] pure nonsense" and wished he could create his own seminar to
supplant Mises's. In his next monograph, The Limits of Economics, Morgenstern
offered Mises no quarter for his "naïve" attitudes. He accused Mises, who
limned an a priori epistemology of economics, of failing to grasp the aspects
of "practical life" with which science must grapple: "A priori theory would be
very easy if it were possible to dispense with the necessity of dealing with
reality and the flux of economic events and if it were sufficient to lock
oneself in a room and invent the world of facts, adopting the attitude that if
theory and reality did not agree, so much the worse for reality." For
Morgenstern, it would be great if there were a single "action" that explained
all economic behavior, as Mises maintained. While "nothing easier could be
wished for," this kind of empty theorizing, Morgenstern intoned, had "nothing
to do with the real world." Finally, in his liberal dogmatism, Mises did not
practice his ideal of "value-free" science. Instead, like the socialists, his
political judgments clouded his science.” 172f


“A typical debate revolved around who was the greater economist, Schumpeter or
Mises. Morgenstern recounted one such discussion: "Haberler and I for
S[chumpeter]; Hayek for Mises. Certainly much by Schumpeter is false, but he
is more talented, he sees more, inspires more." Haberler and Machlup
maintained cordial ties with Schumpeter and held high opinions of him despite
their closeness to Mises. Yet even the warm, lifelong relationship between
Schumpeter and Haberler experienced rocky moments when individual ambitions
entered the equation. Schumpeter's appointment at Harvard jeopardized
Haberler's temporary position there in 1932. Haberler's eventual appointment
smoothed over that rough patch. Meanwhile Machlup marveled at Schumpeter's
stature at Harvard just a few years later: "He is an acknowledged central
point. Everything revolves around him." Attitudes toward Mises also showed
volatility in these years, with dissatisfaction arising over his political
views and his idiosyncratic epistemology. His staunchest defender was Machlup,
who expressed the most enthusiasm for Mises's successes; yet even he worried
about mounting conflicts between the implacable Mises and his colleagues.
Haberler and Morgenstern turned more decisively against Mises. While Haberler
still adduced the same causes for the economic downturn as his fellow Austrian
did, he no longer believed that conventional liberal measures could put an end
to the vicious cycle of deflation, contraction, and unemployment. He wrote
more on the phenomenon of "secondary deflation," wherein governmental
deflationary measures failed to correct the previous inflationary episode and
instead provoked further contraction. Haberler began to wonder whether banks
had to loosen credit and increase spending. Partly owing to these
reconsiderations, Haberler wearied of Mises's unswerving advocacy of laissez-
faire. He described Mises's positions as "laughable exaggerations" and viewed
Mises's economics as simplistic and dogmatic. Morgenstern had even more
visceral reactions to Mises. While he shifted allegiance away from Mayer in
the 1920s, his enthusiasm for Mises's ideas remained tepid. In the 1930s,
Morgenstern became more mathematically inclined under the influence of Karl
Menger, Carl's son, alienating him from Mises [...].” 171f


“Tensions between the so-called Wieser and Böhm branches intensified. The
former stressed research on time constructs and equilibrium theory, while the
latter emphasized the role of capital, production, and interest in the
generation of business cycles. The Böhm branch also doubted the applicability
of equilibrium concepts and mathematical models. These differences separated
Mayer and his followers (primarily Paul Rosenstein-Rodan, Leo Schönfeld,
Gottfried Haberler, and Oskar Morgenstern) from Mises and his allies (Machlup,
Richard Strigl, and, to a much lesser extent, Hayek).” 170


“The first attempt at a permanent institution, Rougier's Centre International
d'Études pour la Rénovation du Libéralisme, foundered in the face of the
German Blitzkrieg. It would be another seven years before Hayek, Rappard, and
Röpke initiated a new transnational organization. It was not only war's end
that enabled the success of the neoliberals but also the wide public
readership of their wartime writings, especially within the business
community. Hayek, Mises, and the others were the beneficiaries of the need for
pro-business ideas, becoming pioneering transatlantic "entrepreneurial
intellectuals." Their success owed much to the best traditions of their
Viennese predecessors: connections to the financial and industrial elite and
access to social sources of influence, prestige, and cultural capital.” 167


“two major intellectual and institutional streams converged at the colloquium.
Wilhelm Röpke had introduced an International Disintegration project, with
close ties to the RF, the League of Nations, and the network of business cycle
centers. The Austrians were at the center of that node. The other was the
International Studies Conference (ISC), a pioneer in international relations.
The ISC became part of the League's International Committee on Intellectual
Cooperation, the forerunner organization for UNESCO. Ideas radiating from
Geneva impressed the organizers, who had convened meetings on collective
security, peaceful change, and economics and peace. The "Geneva School" of
liberals, which included Haberler, Hayek, and Mises, now turned to the
restoration of liberalism as a theme. [...] Was it "liberalism" or "laissez-
faire"? Was it "neoliberalism" or "neocapitalism"? "Social liberalism,"
"liberalism of the left," and "positive liberalism" were also bruited. None
attracted many adherents, though "neoliberalism" seemed to stick.” 166


“In the 1910s and 1920s, Lippmann was one of the faces of progressive politics
in the United States, emphasizing the role of expertise and scientific
intervention in public affairs in his books and New Republic essays. A friend
of Keynes and an advocate of Franklin Roosevelt's political program, it was
only in the mid-1930s that his economic views underwent a rightward shift.
While he was skeptical of unrestrained laissez-faire capitalism, he lost faith
in the efficacy of economic planning. He attributed this new attitude to
reading Hayek's Collectivist Economic Planning. In a letter to Hayek, he
confessed, "without the help of you and from Professor von Mises, I could
never have developed the argument." In The Good Society, he castigated
planning, extolled the free market, and admonished his readers to avoid
"authoritarian collectivism." Lippmann called out his former liberal and
progressive allies as potential totalitarians. The Good Society was criticized
from the left by figures like John Dewey for its antidemocratic positions and
the right by economists Frank Knight and Henry Simons, who felt the book hewed
too closely to Mises's radicalism, but it nonetheless opened up a third way
for a "reconstruction of liberalism" that centered on markets, freedom, and
democracy in an authoritarian age. [...] The Good Society enjoyed a far more
positive reception in crisis-wracked Europe than in the United States. In
Switzerland, the German émigré economist Wilhelm Röpke could not contain his
excitement, writing to Lippmann, Hayek, Robbins, and Alexander Rüstow. He
fantasized about an intellectual collective that would gather in the Alps to
discuss ideas. In Geneva, William Rappard enthused about the work, urging his
friend Louis Rougier, a French philosopher, to have the work translated.
Rougier went one step further by organizing a colloquium in the summer of
1938. Rougier called for "an international crusade in favor of a constructive
liberalism." Even though Lippmann raised concerns about the propagandistic
tone of Rougier's announcement, he cooperated with the preparations. Rougier
turned to Hayek to assemble participants. The final list of attendees included
an impressive assemblage of liberal theorists, almost all of whom came from
the Austrians' network of contacts.” 165


“Hayek, Mises, Machlup, and the Austrians were more sanguine about allowing
the downturn to run its course and more confident about the corrective powers
of markets. Knight, supported by his colleagues Jacob Viner and Henry Simons,
was less certain. To use Knight's terminology from his 1921 Risk, Uncertainty
and Profit, he believed that the state had a vital role to play in removing
uncertainties in capitalist production and converting them into measurable
risk, which entrepreneurs could then use to shore up the economic system.
Knight and other Chicagoans therefore decried laissezfaire utopianism,
recognizing the excesses of the capitalist order. They admitted a larger role
for the state in mitigating problems too.” 163


“Knight believed that the starting point of all Austrian School research,
Böhm's capital theory, was erroneous. In a letter to Morgenstern, Knight
argued that "any theory of cycles or any other phase of economic life based on
Bohm Bawerk's [sic] theory of capital is necessarily and egregiously wrong."
As we saw, Böhm predicated his theory of capital on the roundaboutness of
production. The more time allotted for production processes, the greater the
output and return on investment. Knight saw this approach as unrealistic and
untenable methodologically. One could not measure the period of production
with any accuracy and hence could not explain capital growth or the business
cycle using it. Hayek defended the Austrian time preference and the period of
production in his response. Hayek claimed that Knight's approach
oversimplified production processes, since it used a homogeneous concept of
capital. Changes in investment or the interest rate had uneven impacts
throughout the economy, so his concept was too reductive.” 162f


“After Knight's May 1930 stay in Vienna, he began reading Menger, Böhm, Mises,
and Morgenstern for a piece he was writing on marginal utility theory. He
turned to Morgenstern, whom he had known since the latter's Rockefeller
fellowship, because his work seemed "closest to [Knight's] own topic." Knight
was also about to wade into the HayekKeynes affair with a pointed response to
Hayek's Prices and Production. Ironically, Knight criticized Hayek for the
very thing for which Hayek disparaged Keynes: lack of a sound capital theory.
This sparked a four-year exchange of letters and articles among Knight, Hayek,
and the Austrians. Even more striking than the Hayek-Knight exchange, however,
was the intensity of the correspondence within the Viennese circle about the
obtuse Illinoisan. The confrontation came to represent the first standoff
between the most famous free-market economics schools of the twentieth
century. And in this early debate, it was the Austrians, not the Chicagoans,
who seemed the more extreme defenders of free enterprise and liberalism.” 162


“Frank Knight reached out to his friend Oskar Morgenstern to discuss the
Depression. After his visit to Vienna and the Mises seminar, he saw great
value in the ideas of the Austrian School. "I wish I could talk to you + also
Hayek especially, + Haberler too (+ Mises I should add but I didn't find it
easy to learn from him, he seems so narrow + unsuspecting, as does
Haberler—'between us'!) I've gotten interested in this damned crisis
business."” 161


“Emil Kauder broke with his historicist adviser, Werner Sombart, to espouse
Austrian ideas in Berlin. In his role as an economics tutor, he then taught a
young Ludwig Lachmann marginalist economic theory, thereby introducing one of
the significant figures in the 1970s US revival of Austrian economics to the
tradition. International scholars once again flocked to Vienna—figures like
Robbins, Frank Knight, Jacob Viner, Howard Ellis, and Paul Sweezy. Thus began
a stimulating transatlantic cross-fertilization, which reached a climax in the
Austrian-Chicago debates.” 161


“Prominent economists like Luigi Einaudi, the future president of Italy,
acknowledged the ascendancy of the Austrian School at the time: "Excellent
things were coming out of Austria. ... There was a time when the Palma di
Eccellenza was in Italy, and then it passed to Cambridge, England, and then it
passed to Cambridge, United States. But now it seemed to be in Vienna."
Economists from around the globe— Robbins and John Hicks in England, Jacob
Viner and Frank Knight in the United States, Wilhelm Röpke in Germany, William
Rappard in Switzerland—developed their ideas in interaction with the new
school.” 156


“By the mid-1930s, Haberler was probably the best-regarded member of the
younger Austrian School, yet he had begun to modify his positions. [...] The
League commissioned him to write a work "coordinat[ing] the analytical work
then being done on the problem of the recurrence of periods of depression."
The final product, Prosperity and Depression, was immediately hailed as a
seminal contribution. No less an authority than Joseph Schumpeter regarded
Haberler's work as a "masterly presentation of the modern material." The
London Times also acknowledged the work's significance: "in a mere two years
he has done what might have taken some men a lifetime." Haberler struck a pose
of neutral arbiter between various theoretical undertakings, placing distance
between himself and other approaches, including the Austrian. After witnessing
the deepening of the Depression in 1931-33, when deflation and unemployment
showed no signs of abating, he began to wonder about the correctness of
Austrian explanations about overinvestment, credit expansion, and inflation.
Haberler criticized the Austrian School for its inattention to the possibility
and effects of a secondary deflation. He sided with Germans like Wilhelm Röpke
who considered the possibility of "igniting" the economy with state spending.
In the final analysis, though, Haberler endorsed the Austrian view and became
even more convinced after an investigation into the failures of Keynesian and
monetarist theory.” 155


“Robbins saw Hayek as an ally in his debates with John Maynard Keynes and the
Cambridge economic community over the UK government's response to the
Depression. With the unanimous support of the LSE faculty, Hayek was appointed
the Tooke Chair of Economic Science and Statistics. The publication dates of
Monetary Theory—1929 in German; 1931 in English translation—turned out to be
fortunate, because they predated the nasty deflationary spiral of 1931-32 that
announced the arrival of a full-blown economic downturn. Hayek's advocacy of
self-adjustment seemed insensitive when industrialized countries like the
United States, the United Kingdom, Austria, and Germany suffered unemployment
rates in the twenties and thirties, and the worldwide economy contracted by 15
percent.” 153


“Mises led a three-person Economic Commission in 1930 while serving as the
chamber's secretary. Meanwhile the ICC was the most important international
business organization of the interwar era. US businesspeople in particular
used the ICC to engage in international exchange after the United States
refused to join the League of Nations. The ICC and its members sought to tear
down tariff walls, increase capital and information flows, and encourage world
economic activity. They saw states as economically interdependent and were
positively disposed to the Austrian School's globalist vision and
individualist precepts. Mises attended his first ICC meeting in 1925; Vienna
hosted the seventh ICC congress in 1933.” 149f


“Mises's home institution, the Vienna Chamber of Commerce, as well as its
affiliated organization, the International Chamber of Commerce (ICC), provided
him a pulpit to espouse his program of capitalist internationalism.” 149


“Mises operated behind the scenes throughout the mid-1920s while Austria
negotiated with the League of Nations and foreign investors for loans and
better terms of trade. He was joined in these negotiations by Richard
Schüller, Carl Menger's last and most brilliant doctoral student, who served
as the postwar section chief for trade in the Foreign Office and as a member
of the Economic Committee of the League of Nations in Geneva. In the name of
economic stability, Mises was willing to see Austria sacrifice a large degree
of its democratic sovereignty. Since the publication of Nation, State, and
Economy, Mises had become increasingly leery of mass democracy and conflicts
between liberal economics and democratic governance. Economic stability was
his primary goal, which he advocated in his governmental advisory role and in
his advocacy work through the Chamber of Commerce. Although he was not fully
pleased with the final postwar settlement, Mises took credit for the defeat of
Bolshevism and Austria's economic stabilization. He did not accept the blame
for the deflation and unemployment that hampered the Austrian economy in the
late 1920s, however. He also looked askance at Seipel's increasingly
authoritarian tendencies, which the chancellor embraced in the face of growing
popular disillusionment with the government and economy.” 148f


“Moritz Benedikt, the editor of the Neue Freie Presse until 1920, was a
classmate of Böhm and Wieser and an early popularizer of marginalism. His son
Ernst succeeded him and offered his paper as an outlet for liberal economics.
Meanwhile Viktor Graetz, a Menger student, the director of one of Austria's
largest companies, and a prominent member of the National Economic Society,
ran the Wiener Neues Tagblatt. Julius Meinl, scion of an Austrian coffee
dynasty—whose shops still dot the Viennese cityscape today—attended salons
with the younger economists. Morgenstern occasionally visited Julius at the
Meinl family's summer estate. Richard Reisch and Viktor Kienböck, the two
interwar presidents of the Austrian National Bank, had close ties to Böhm and
Mises, respectively, attending their private seminars and inviting their
advice. These men were the original benefactors of the Institute for Business
Cycle Research. Lastly, the Austrian School developed good relations with the
Christian Social Party through Kienböck, three-time Chancellor Ignaz Seipel,
and Walter Breisky, head of the Statistical Office.” 147f


“That same October, the Bodencreditanstalt (BCA), one of Austria's most
storied financial institutions, announced its insolvency. Headed by Rudolf
Sieghart, one of Eugen von Böhm-Bawerk's disciples, the bank faced bankruptcy
when it could no longer make payments on its foreign loans. The Austrian
government hastily orchestrated its takeover by the Rothschild-owned
Creditanstalt (CA) by arranging for the state to take on most of BCA's
outstanding debts. [...] In November, Hayek confirmed his judgment that "an
acute depression had arrived," yet a "very significant relaxation of the world
monetary market" should moderate the effects and precipitate a turnaround. If
politicians stayed out of financial and economic matters, the world economy
would recover in the next year, as prices and interest rates stabilized, wages
declined, and production rebounded. Order and general equilibrium would
return. Little did Hayek realize that the economic upturn would not come for
years, a period punctuated by the worst war the world had ever seen. By 1933,
his codirector and eventual successor at the institute, Oskar Morgenstern, had
devised the Kindleberger spiral—which rightly should bear Morgenstern's
name—to depict the precipitous decline in world trade from January 1929 to
June 1933.” 145


“In the October institute report composed the week prior to the collapse,
Hayek thought he saw the tide turning: "The last four weeks have seen
important changes in the entire economic landscape, which address the long-
feared sharpening of depression tendencies and simultaneously offer a definite
clarification of the outlook for the future."” 144f


“By May 1929, Hayek had serious concerns about the Austrian and global
economies. [...] Hayek criticized the world's central banks for failing to
adjust interest rates in response to decreased production in Europe, increased
financial speculation in New York, and the steady flow of gold from Europe
across the Atlantic. Barring a change in monetary policy and a course
correction in the US markets, the European economy could only anticipate
further setbacks. Hayek hammered home these judgments throughout the summer,
as central banks refused to adjust their rates, and capital continued to flow
to the overheating US financial markets. He complained that economic decisions
had taken a back seat to political ones, which prevented the natural
adaptation of the business cycle to changing conditions. Despite these
sanguine pronouncements, Hayek did not foresee the Wall Street stock market
crash of October 29, 1929 [...].” 144


“The London School of Economics (LSE) received substantial grants to sustain
its activities. The RF supported the Paris-based Institut de Recherches
Économiques et Sociales, headed by Charles Rist, and William Rappard's
Institut Universitaire des Hautes Études Internationales in Geneva. It granted
money to the League of Nations, including the Economic and Financial Sections.
With the US failure to ratify the Treaty of Versailles and its refusal to join
the League, RF institutions became proxy agents of the US government. Geneva
became a seedbed for liberal internationalist and nascent neoliberal thought.
Meanwhile in Vienna, the RF financed two fledgling centers, Karl and Charlotte
Bühler's Psychologisches Institut and the Mises and Hayek institute. In
backing the latter project, Pribram drew an explicit connection between
Hayek's research trip to the United States and the center. The RF responded
positively, providing a five-year grant totaling $20,000 ($321,000 in 2019
dollars) beginning in 1931. This was $1,000 per annum more than Hayek
requested, with the extra funds earmarked for Morgenstern and Hayek, since
"these two men are among the ablest of the younger economists in the German
speaking countries, and there is some danger that they will be drawn away from
Vienna unless conditions can be made for [sic] attractive for them." The RF
was right to fear a brain drain, for Hayek left for London in 1931. Likewise,
Morgenstern had regular employment offers, declining positions at Berkeley and
Kiel. The RF showed its satisfaction by renewing its support in 1936 for two
years at $6,000 per annum and again for three years in 1938, though it
canceled payment after the Anschluss. If the RF helped establish the younger
Austrians, it also saved them, since the RF played a pivotal role in the
emigration of the Austrian School in the 1930s.” 141


“The intervention of the Rockefeller Foundation (RF) in central European
affairs was the decisive factor in the institute's success. The Austrian
School was one of the primary beneficiaries of the RF's decision to expand its
areas of expertise into the social sciences. The younger Austrians'
international reputation owed much to this serendipitous liaison, and their
successful transatlantic emigration was facilitated by this intervention.
After the 1924 establishment of the Laura Spelman Rockefeller Memorial Fund,
which permitted European social scientists to research in the United States,
Viennese economists formed a strong relationship with Alfred Pribram, the RF
selector in Austria. A close friend of Freud's and a member of several
Viennese circles, Pribram favored Wieser's students. Furth, Haberler, Machlup,
Morgenstern, Rosenstein-Rodan, Gerhard Tintner, and Voegelin received
fellowships in the next decade. Fellowships, which lasted one or two years,
introduced the Austrians to new research trends, particularly the business
cycle research conducted at the Cambridge (UK) Economic Service, the Harvard
Economic Service, and the National Bureau of Economic Research. As a result of
these fellowships, the younger Austrians combined empirical and theoretical
work in ways unimaginable to their predecessors.” 140


“Besides Mises and Hayek, the other key members—the chairman and vice
chairman—were Richard Reisch, the president of the Austrian National Bank and
a former student of Menger's, and Walter Breisky, a Christian Social
politician and the head of the Federal Statistical Office. Of the other forty-
five members, there were representatives of the conservative federal
government, lobbying groups for industry, bankers, CEOs, and nationalist
professors. The Austrian School, Chamber of Commerce, and private industry
held the majority of positions and steered the direction of the institute,
with Hayek and Mises in primary control.” 139


“Despite the school's disparagement of economic forecasting, rejection of
macroeconomic data, skepticism about expert opinion, and concerns about
uncertainty in the market process, its members created a renowned forecasting
center known most of all for its reports on actual economic conditions, not
its theory.” 139


“Many younger school members—Machlup, Morgenstern, Helene Lieser—followed him
into the industrial and financial sectors. Lieser, the first woman to receive
an economics doctorate in Vienna, worked for the League of Austrian Banks and
Bankers. Machlup ran his father's cardboard factory and lectured to business
associations. Eventually Mises helped him get a newspaper column with the Neue
Wiener Tagblatt, where his pro-industry and pro-finance positions endeared him
to bankers and industrialists. The Institut für Konjunkturforschung (Institute
for Business Cycle Research), founded by Mises in 1927 and run by Hayek
[...].” 138f


“Despite superficial resemblances to the prewar Böhm seminar, Mises's had a
narrower focus and a clearer ideological program. This reflected the changed
circumstances of postwar Austria, where political and ideological polarization
made "value-free" scientific discussions less likely. An Otto Bauer, Rudolf
Hilferding, or Otto Neurath would have been persona non grata for Mises, let
alone a Nikolai Bukharin. Mises claimed that he cultivated "neither school,
nor community, nor sect," but some topics, especially socialism, were
verboten: "Mises was so convinced that he had exhaustively dealt with all the
essential questions in the area of socialism, and that all participants in the
seminar had the same opinions on the subject, that any such conversation [on
that topic] had nothing to offer." All participants were expected to embrace
marginal utility theory and liberal politics.” 138


“Machlup, who was an intimate of Hayek, became Mises's only doctoral student.”
138


“Hayek spent 1922 and 1923 enrolled at NYU, and he traveled the eastern United
States using his own funds. When he returned to Austria in 1924, Hayek joined
the MisesKreis, which he loyally attended until leaving Vienna for London in
1931. Like Hayek, Morgenstern started attending the Mises seminar in 1924.
Morgenstern had recently parted company with the "unscientific" Spann-Kreis,
and his alienation from Mayer grew after 1929. Morgenstern bided his time
before the break, since he needed Mayer's support to complete his
habilitation, especially since Spann was firmly opposed to the "Jew"
Morgenstern.” 137


“He devoted much of his energy to editorial work, particularly a mammoth
Festschrift for Wieser. His students, especially Paul RosensteinRodan and Leo
Schönfeld, used his "causal-genetic" explanations of economic change over time
to level important criticisms of general equilibrium theory. They identified
complementarity—the idea that the utilities of goods are not just based on
subjective appraisals of discrete goods but on the relationship between
different goods—as the outstanding issue in modern economic theory. These
dependency relationships meant that attempts to calculate general equilibrium
using a series of equations, à la Walras and Pareto, would never explicate
real, existing economic conditions. They declared the "New Austrian School" to
be the only group equipped to address this deficiency. Mayer's lasting legacy
was a negative one, however. Irascible and provocative, Mayer carried on open
feuds with Spann and Mises, devoting more time to thwarting their efforts than
advancing his own work. All three men deserve their share of blame for the
balkanization of economics at the university, yet Mayer was the main driver.
He also heightened the tensions at the Zeitschrift. In his role as editor, he
frequently excluded authors with whom he disagreed. He acquired a reputation
as disorganized, opportunistic, and mediocre, yet younger Austrians kept those
opinions to themselves in the name of self-preservation. Morgenstern confided
his frustrations to his diary: "Yesterday I met with [Ewald] Schams at Café
Reichsrat. ... We should complain about Mayer. Why doesn't Mayer work? He
doesn't write, doesn't read, doesn't finish the second volume, he doesn't act
on behalf of the journal, but he sits for hours in the café and talks about
Spann. We are all of the same opinion of him."” 135


“A Wieser acolyte identified with the Austrian School, Mayer was skeptical of
methodological individualism, even though he espoused marginal utility theory.
This middle position made him more acceptable to the university faculty than
the individualists Mises or Schumpeter. Mayer's research focused on the role
of time for equilibrium theory (which he identified with the concept of
"complementarity"), the imputation problem, and the role of mathematics in
economics. In the complicated politics of the law faculty, Wieser's and
Spann's intervention on Mayer's behalf was decisive.” 134


“Kaufmann and Voegelin saw great promise in the subjectivist approach for
social theory, with Voegelin especially appreciative of the Austrian focus on
the dynamism of human communities and the role of time in human affairs. [...]
After a fifteen-month stint in the United States, Hayek published on US
banking policy [...].” 133


“Spann's attempt to establish a cult of personality grated with independent-
minded students like Furth, Hayek, and Morgenstern, and they eventually fell
out with him by 1923, with the former two "excommunicated" in 1921. After
Spann's rejection, Furth enjoined Hayek to start a circle. Called the Geist-
Kreis, this assemblage of bourgeois, often Jewish, students took an ecumenical
approach to intellectual life, weaving together literature, philosophy,
history, science, and, of course, economics. As Hayek described it, the Geist-
Kreis broadened his horizons and pushed him to become a cosmopolitan: "Not the
least gain which I owed to these Jewish or partly Jewish friends of that
period is that they were much more internationally minded than my own circle."
The circle of about twenty-five men (women were not admitted) met fortnightly
for the next seventeen years, enduring hyperinflation, the Great Depression,
civil war, fascism, and Nazism. This remarkable cohort, "a collection basin
for university outsiders," [...]. In addition to Furth and Hayek, close
friends Morgenstern and Gottfried Haberler joined, as did Fritz Machlup. [...]
Alfred Schütz and Felix Kaufmann, two philosophers of the social sciences,
attended. So did Karl Menger, the son of the Austrian School's founder. The
philosopher Erich Voegelin, historian Friedrich Engel-Janosi, psychoanalyst
Robert Wälder, and art historians Otto Benesch and Emmanuel Winternitz also
participated.” 130


“Friedrich Hayek's grandfather Franz was a jurist and professor at the
University of Vienna. He also went on alpine hiking expeditions with his
friend Eugen von Böhm-Bawerk when the latter taught at the University of
Innsbruck. Friedrich's father, August, was a medical doctor and botanist who
published several books and lectured at the university. His mother, Felicitas
von Juraschek, came from a distinguished, land-owning family. The Jurascheks
owned a stately, ten-room flat on the elegant Kärnterstrasse, Vienna's premier
shopping boulevard, around the corner from the Opera House and the
Ringstrasse. The Jurascheks were related to the Wittgensteins, and the
families summered in the Vienna woods together. Friedrich himself struggled
somewhat in school, changing high schools twice. [...] Furth and Hayek (and
later Oskar Morgenstern) gravitated to the most lively and popular circle at
the university, the Othmar Spann Kreis. Spann succeeded to Philippovich's
chair in 1919 [...]. [Spann's] followers rose to academic and political
positions, and they became activists in the nascent, protofascist
"conservative revolution" of the interwar era. [...] Hayek owed his first
encounter with Menger's Principles to Spann's course on methodology.” 129


“Some scholars, for example, Karl Popper, Paul Lazarsfeld, Marie Jahoda, and
Wilhelm Reich, joined socialist student groups. Young liberals like Herbert
von Furth and Friedrich von Hayek created societies for the defense of
democratic and republican ideals. Upon returning to the university for the
winter semester of 1918-19, they helped found the German Democratic Students'
Union, organized as a counterbalance to leftist and rightist student
organizations. Although their involvement was short-lived, the teenagers
developed a lifelong friendship. [...] Furth's father, Emil, was a jurist at
the University of Vienna, a member of the city council, and a pioneer in
school and housing reform. He also appeared on the income tax commission
chaired by Böhm and dominated by Menger in the mid-1890s. His sister,
Marianne, married Ewald Pribram, a colleague of Mises's. Emil himself married
Ernestine Kisch, the founder and leader of the Austrian women's suffrage
movement.” 128


“Supporters in England and the United States applauded Mises as a defender of
Western liberalism against "German" socialism. John Van Sickle—an American
economist who later became a patron of the Austrian School as a program
officer for the Rockefeller Foundation—commended it for its broad learning and
its stridency.” 121


“Mises served in the imperial army during the war, distinguishing himself on
the northern and Romanian fronts. Interspersed with his frontline tours, he
worked in the War Ministry, advising on war planning and economic policy. In
the Scientific Committee for War Economics, he reunited with fellow Austrian
School students Emil Perels, Karl and Ewald Pribram, and Alfred Amonn. Mises's
proposals seldom pleased government authorities, since he opposed expansion of
the war effort, central planning, and increased taxation. Schumpeter
encouraged Mises to speak out on Austrian monetary problems in the Austrian
Political Society, where the two made common cause against the inflationary
tendencies of the wartime government. Mises began to publish his opinions in
the liberal press in 1917. Mises distilled these positions into a popular
book, Nation, State, and Economy. Applying his liberal views, he offered the
work as both criticism and positive program. Mises argued that Germany's lack
of commitment to the values of the Enlightenment and its preference for
authoritarianism, nationalism, and militarism had landed the world in its
current predicament. He felt that only a democratic state along English or
French lines, coupled with a liberal economy free of protectionism, could
sustain the postwar order.” 116


“Friedrich von Wieser served the Austrian government in several capacities
during the Great War. He became a member of the House of Lords in 1917 and
acted as trade minister on three separate occasions. When the Habsburg Empire
signed an armistice with the Entente in November 1918, Wieser still occupied
his government post. An Austrian patriot through and through, the defeat of
the Central Powers and the dissolution of the empire traumatized him. His 1919
book Österreichs Ende (Austria's end) represented his attempt to come to
terms. Wieser lamented the empire's demise, yet his book was no mere nostalgic
reminiscence. It argued that the Austrian people needed a "new heroism" built
on the past yet oriented toward a vital future. This would be the task of a
new generation: "The old generation, which lived through great imperial
Austria, places too much stress on the old with its recollections, and cannot
with a clear vision carry a new banner to its goal. The duty of leadership
falls to the younger, which fought during the world war and saw great imperial
Austria once more in its final brilliance." According to Wieser, a new leader,
a Führer, would provide a "German answer" to French revanchism in the form of
a quiet and powerful commitment to restoring Austrian greatness.” 108


“Weber and Sombart, for example, enlisted the younger Austrians for their
journal, the Archiv. Mises, Amonn, Richard Schüller, and other school members,
not to mention Austrian social scientists more generally, became core
participants. In time, Schumpeter became an editor. The significance of the
Austrian movement was confirmed when Weber personally sought Wieser and
Schumpeter to write the accounts of economic theory and the history of
economics for his proposed encyclopedia. In return, Wieser got the University
of Vienna to hire Weber in 1918 as Philippovich's successor.” 106


“As their friend Felix Somary noted, "What linked me to both these friends was
the deep respect we shared for the importance of the problems themselves: it
was our very freedom from all narrow-mindedness that made objective
discussions possible—but only to a certain point. Schumpeter and Bauer were
both close friends of mine, but never of each other; they showed mutual
tolerance and respect, until in 1919 they were both members of the same
government, at which point they became deadly enemies."” 105


“Böhm began offering his regular seminar in 1905, shortly after he resigned as
minister of finance. It ran until August 1914, when the outbreak of the Great
War, followed closely by Böhm's death, put an abrupt end to the proceedings.
Unfortunately, we only have spotty recollections of the seminar—there are no
minutes, records, or contemporary accounts of the meetings. The periods 1905-6
and 1912-14 appear to have been the most fertile. The first era involved
conversations on socialism and Marxism, coming on the heels of the Böhm-
Hilferding debate on Marx's Kapital. The second period concentrated on money
and interest, using Schumpeter's Theory of Economic Development and Mises's
Theory of Money as centerpieces. In the early years, the key participants were
Mises, Schumpeter, and Hilferding; Felix Somary, a future professor, banker,
and finance expert; Emil Lederer, a future professor of economics and an
editor of the prestigious journal Archiv für Sozialwissenschaft und
Sozialpolitik; Otto Neurath, member of the Vienna Circle of logical positivism
and an unorthodox socialist; and Otto Bauer, leader of the younger
AustroMarxists. Ewald and Karl Pribram, the latter an expert on economic
statistics, also attended the early meetings. Richard Strigl, a theorist in
Böhm's mold and another future economics professor, and Nikolai Bukharin, the
Bolshevik radical, entered the debates in the seminar's latter phase.” 101


“Philippovich's best-selling book, first published in 1893 and entering its
ninth edition in 1919, only mentioned Mises's earlier, historicist essays.
Even more galling was Wieser's omission, given the centrality of Social
Economics for the Austrian School's self-understanding. Hayek called Social
Economics "the only systematic treatise on general economic theory produced by
the older Austrian school." While Wieser included Theory in the bibliographic
entry on credit and money alongside fifty-five other sources, that was the
extent of his acknowledgment. Professionally, Mises did not enjoy the support
Schumpeter received. He was not advanced as a candidate for university jobs
despite his qualifications. This might have been because of Mises's Jewish
origins or his irascible temperament, but it nevertheless signaled that his
stature lagged behind Schumpeter and several others.” 100


“In comparison to Schumpeter, Mises did not receive the same engagement or
support. While Böhm's seminar devoted two semesters to Theory, Böhm did not
review the book or even reference it. Neither Philippovich nor Wieser
discussed Mises's work in their respective textbooks, the Grundriß der
politischen Ökonomie or Social Economics.” 99


“In a sixty-page takedown essay, Böhm marshaled his considerable polemical
gifts to decimate Schumpeter's approach because "heresy demands it. Too bad
that a talent with such a mind and a command of language ... is not paired
with a higher degree of patience and self-criticism."” 92f


“Wieser argued that one could not accept marginal utility theory without
accepting its subjectivist method. In Schumpeter's synthesis of different
methodological approaches, he arrived at an impossible muddle. Moreover,
Wieser believed that Schumpeter mistakenly used the techniques of the natural
sciences to shackle the humanities.” 91f


“By the time Schumpeter was thirty, he had established himself as the most
important young economist in the Habsburg Empire. His elders, Böhm and Wieser,
recommended him for positions and saluted his intellect and ambition. However,
each book also elicited vituperative criticisms from them—Wieser on Wesen and
Böhm on Theory.” 91


“Discussing the impacts of broader natural and social phenomena, Schumpeter
made a deliberate move beyond the static models of Walras. A more realistic
image of the actual economy required more than mathematics and models, so
Schumpeter turned to sociology and psychology.” 90


“In 1909, he received a tenured appointment at the University of Czernowitz in
the easternmost province of the empire. He completed much of his early
masterpiece, The Theory of Economic Development, there. Two years later, the
University of Graz came calling, naming him the youngest full professor in the
realm. Schumpeter received his promotion over the objections of the Graz Law
Faculty, where several members saw him as a sterile theorist. Böhm allegedly
intervened with the Ministry of Education to ensure his pupil's success.” 89f


“In spite of his cautious attitude toward the elder Austrians, he admitted
that he owed his greatest debt to Wieser and Léon Walras, "nearest to whom I
stand." After making a case for a more pragmatic and less contentious
economics, Schumpeter directed his focus to the concept of equilibrium, an
area where he believed theoretical economics could still develop.” 89


“Schumpeter laid claim to the mantle of the Austrian School with his first
publications while still in school. Schumpeter, who studied under Böhm,
Wieser, and Philippovich, wasted no time jumping into the methodological
controversies swirling around the Austrian School. In 1906, Schumpeter
published his first essay, asserting that economics required greater
methodological precision. Finding the earlier divisions of the Methodenstreit
passé and unproductive, Schumpeter believed that mathematical forms could
offer clarity for both "historical" and "exact" economic approaches. Citing
work by Jevons, Walras, Pareto, and Fisher, Schumpeter maintained that
mathematics, properly deployed, could further economics by offering better
tools for analyzing empirical data and more formal definitions of core
theoretical concepts. [...] Schumpeter 's early work dismayed his mentors
because of his apparent preference for Walras's mathematical approach. That
said, Böhm and Wieser still admired him greatly. Böhm not only invited his
first scholarly publications but also included him in the seminar that would
launch his intellectual career: a 1905 colloquium on Marx. [...] He married an
older, upper-class Englishwoman and journeyed to Cairo, where he worked in a
corporate law firm and handled the finances of an Egyptian princess.” 88


“A twenty-three-year-old Ludwig von Mises published his first essay in 1904.
It was not a theoretical text—it dealt with retirement policies for Austrian
workers—yet it displayed his promise. Mises wrote in the Zeitschrift every
year thereafter, typically on welfare and labor legislation. Joining him were
Schumpeter, Alfred Amonn, Ernst Broda, Hans Mayer, Ewald and Karl Pribram,
Felix Somary, and Franz Weiss. With interests that ranged into political and
social theory, jurisprudence and mathematics, they reinforced the earlier
interdisciplinary commitments of the school.” 86


“The biggest beneficiaries of the changing political landscape made the
Großbürgertum nervous: the working-class Social Democrats, the petit
bourgeois, antisemitic Christian Socials, and the Czech and Polish nationalist
parties. Böhm, who had served in the highest echelons of the Habsburg
bureaucracy for more than a decade, including three stints as finance
minister, retired out of frustration. In doing this, Böhm represented a
general tendency within the bourgeoisie. As Carl Schorske argued, many members
of the Bildungsbürgertum chose to retreat from public life after the "failure"
of Austrian liberalism, experiencing feelings of anxiety and impotence in the
face of mounting social and political tensions.” 85


“The Werturteilsstreit, or value judgment debate, split Europe's most
venerable social scientific association and reoriented the scholarly
landscape, joining younger German scholars around Max Weber and Werner Sombart
with their Austrian peers against the German orthodoxy. That the culmination
of this debate came at a Vienna meeting of the Verein für Socialpolitik
attested to the central role that Austrian School scholars played in the shift
toward more theoretically rigorous scholarship.” 80


“After another crash in 1893, the Austrian economy remained stagnant for
years, plagued by persistent deflation—which was exacerbated by the gold
standard—that disproportionately hurt the lower classes, whose ranks swelled
as conditions worsened. The population of Vienna soared to 1.8 million people
in 1900—a 200 percent increase in fifty years—as Habsburg subjects fled
crushing poverty in the provinces. Inadequate housing, unemployment, and
public health crises plagued the city. This spurred new populist movements
like Karl Lueger's antisemitic Christian Social Party and Viktor Adler's
Social Democratic Party.” 73


“One of the first and most influential pamphlets calling for a progressive
income tax came from Emil von Fürth, a jurist at the university, close ally of
the Mengers, and the father of Herbert, a participant in the post-World War I
school. Wieser, Auspitz, Mataja, Sax, and Richard Reisch all published
articles on taxation. The Austrian parliament consequently convened hearings.
Böhm again directed the proceedings. The chairman of the hearings was Carl
Menger's brother Max. Thirty-six commissioners participated in nearly fifty
sessions between February 1892 and October 1896, when the parliament passed a
progressive tax based on individual incomes. Robert Meyer, a student of Carl
Menger's, wrote the final legislation. Böhm composed the preamble. Böhm argued
that since the wealthy benefited considerably more from state
expenditures—through educational opportunities, infrastructure usage, and the
protection of property rights—progressive taxation made sense on marginal
utility grounds.” 73


“Böhm's coeditors at the Austrian economics journal Zeitschrift were Theodor
Inama von Sternegg, an honorary professor and the head of the state
statistical commission, and Ernst von Plener, scion of a prominent liberal
political family and a minister of finance in his own right. Working with
fellow school member Robert Meyer, Böhm drafted a white paper and a bill that
formed the core of the 1892 currency reform bill. The Austrian bimetallist
currency, based on the values of silver and gold, had experienced large
fluctuations in the decades since the Austrian Compromise of 1867. The Crash
of 1873 hit the Habsburg industrial and financial sectors especially hard. It
undermined confidence in the Austrian currency, the Thaler. Austrian liberals
sought to revive the economy, restore the currency, and stabilize economic
conditions. The government tasked a currency commission with devising a policy
to make Austria more competitive within the central European and world
economies. Serving as the lead government representative at the hearings in
March 1892, Böhm helped assemble a who's-who of Austrian economists, bankers,
and liberal power brokers. Of the thirty-six members of the commission, six
were members of the Austrian School. They included Richard Lieben, Viktor
Mataja, Emil Sax, and Carl Menger himself. Franz von Juraschek, a jurist and
economist, Böhm's close friend, and Friedrich Hayek's grandfather, also
participated. So did editors of the major liberal newspapers, Die Neue Freie
Presse and Die Wiener Allgemeine Zeitung, and the directors of the largest
banks in the empire. Menger took the lead, advancing a gold standard position.
He dominated the proceedings, first with an ardent defense of a gold-based
currency, then with a passionate rejoinder to Theodor von Taussig, a
conservative banker. Using marginal utility theory, he suggested that money
itself was not a neutral medium that objectively measured the value of goods.
Relying on two different metals only increased the volatility of prices and
values, since each one possessed variable subjective valuations. To reduce
uncertainty, a more stable currency regime based on a single precious metal
was needed. Menger, with the assist of an inspired defense of gold from Sax,
carried the discussion. The government adopted a "shadow" gold standard.
Menger declared victory a year later. Menger, Böhm, and their allies also
drove through tax reform. The early Austrians argued for a progressive income
tax on liberal and marginalist grounds while advocating for targeted state
intervention in economic affairs. Since the time of Maria Theresia and Joseph
II in the late eighteenth century, the Habsburg state and its powerful
bureaucracy underwent significant expansion, yet revenues lagged behind.
Property taxes and indirect taxes did not cover state expenditures. After the
unsuccessful wars of the 1860s and the economic downturn of the 1870s, these
problems became more acute. By the 1880s, resolving the "social question"
added to the state's budgetary woes. The emergence of mass immigration and a
poor urban industrial class further threatened the stability of the empire.
Liberal Austrians, deeply invested in the Habsburg state, recognized the need
for reform to stave off revolution. Austrian officials took a page out of Otto
von Bismarck's playbook in the German Reich, proposing welfare, housing, and
insurance measures. In order to pay for these proposed changes, liberals
argued that the state needed to rationalize its tax code and broaden its
revenue base. For the reformers, the Austrian School foremost among them, a
direct, personal income tax was deemed necessary to maintain order and shore
up the hegemony of the Bürgertum.” 71f


“After the abrupt departure of Lujo Brentano from the University of Vienna in
1889, Böhm appeared to be the heir apparent to his chair, but the minister of
finance swooped in and offered him a position as the head of the department in
charge of tax reform. Böhm spent the 1890s rising through the ranks of the
bureaucracy: he was appointed head of the tax department in 1891; he acted as
vice president of the currency commission; he served three terms as minister
of finance.” 71


“Conversations often spilled out of Böhm's office into Viennese coffeehouses,
where debate raged into the wee hours of the morning.” 69


“Bolshevik revolutionary Nikolai Bukharin stole into Vienna via Germany in
August 1911. He took up residence in 1912, remaining there for almost two
years. [...] Bukharin wished to study "bourgeois economics," and no other city
promised a better education: "I had long been occupied with the plan of
formulating a systematic criticism of the theoretical economy of the new
bourgeoisie. For this purpose, I went to Vienna." For this budding
theoretician, the Austrian School embodied the best and most dangerous in the
bourgeois tradition: "Our selection of an opponent for our criticism probably
does not require discussion, for it is well known that the most powerful
opponent of Marxism is the Austrian School."” 68


“Seager, Böhm's weekly seminar was the finest debating society in central
Europe. Instead of having a main lecture or presentation, "the presentation of
papers is simply secondary; they are designed to introduce, but never to take
the place of, the general debate which is to follow." Collective endeavor and
debate were the keys. The seminar possessed a high degree of coherence, since
the participants had all studied under Menger and Böhm and shared their
orientation toward marginal utility theory. Seager's final assessment was an
endorsement of the Austrian project: "The value ... consists in the
encouragement it gives to original thinking and in the sharpening effect it
has upon the critical faculties of all those who take part in it. It has been
to me the most valuable economic course I have had in Germany." Even if
Berlin's institutional apparatus was superior, he maintained that the Viennese
were winning the battle of ideas. Vienna was becoming a magnet, "attracting
... economic students from all countries."” 66f


"He lauded Menger as a lecturer nonpareil, whose engaging, conversational
style attracted a cadre of "talented young men" to his views. He marveled at
the comprehensiveness of Menger's library, which contained every major
scientific work in five European languages. For"


“In 1891, Henry Seager, an American scholar trained at Johns Hopkins and the
University of Pennsylvania, traveled to Europe at the behest of his advisers,
Herbert Baxter Adams and Richard Ely, to study at Berlin and Vienna, the
recognized centers of international economic thought.” 66


“Böhm's primary practical interest was the "social question." He urged
political leaders to use smarter economic policy to alleviate poverty and
social unrest. Eschewing "panaceas" like laissez-faire or strict
protectionism, he advocated for sensible, time-tested state interventions that
could achieve narrowly circumscribed aims. [...] Paternalistic progressivism,
a staple of the Austrian liberal tradition, best describes the elitism of the
early school.” 66


“The Gesellschaft Österreichischer Volkswirthe (Society of Austrian
Economists, GÖV) and its journal, Die Zeitschrift für Volkswirtschaft,
Socialpolitik und Verwaltung (Zeitschrift) represented the school's
actualization. In them, the Austrians wedded theoretical and empirical work
with liberal policy prescriptions based on an assumption that educated experts
could solve the problems of the day—if political elites listened. [...] In
1888, Böhm, Gross, Max Menger, Philippovich, Lieben, Meyer, and Lorenz von
Stein resuscitated the GÖV, a moribund trade organization, transforming it
into an academic society. They viewed it as a counterpart and rival to the
German Verein für Socialpolitik. By 1892, the Gesellschaft had 225 members and
published a journal to rival Schmoller's Jahrbuch. The first issue called all
hands on deck—the list of contributors included Sax, Wieser, Zuckerkandl,
Mataja, and Gross. A younger generation also contributed. Walter Schiff, Eugen
Schwiedland, and Hermann von Schullern took on active roles reviewing books.
Economists of international repute like Knut Wicksell and Franz Oppenheimer
affiliated with the paper. The GÖV's membership grew to nearly three hundred
by 1900.” 65


“As opposed to a purely theoretical focus, the Austrians asserted that their
mission consisted of addressing practical life through scientific inquiry. In
this, the economists resembled the psychoanalyst circle forming around Freud,
which established clinics and fought for school reform, and the followers of
Ernst Mach, who turned to social democracy, monism, and freethinking to
challenge Austrian conservatism. For all of them, theory had to serve life.”
64f


“Lieben and Auspitz anticipated the formalist turn of postWorld War II
economics by decades. While their use of mathematics distanced them from other
Austrians, members of the prewar Austrian School, from Wieser to Schumpeter,
included them proudly in their tradition. [...] Robert Zuckerkandl, brother of
the anatomist Emil and brother-in-law of Bertha Zuckerkandl-Szeps, published
an investigation of price theory. Emil Sax, Viktor Mataja, Johann Komorzynski,
and Hermann Schullern zu Schrattenhofen produced noteworthy texts in 1889.” 64


“Relying on graph, curve, and set theories, Auspitz and Lieben plotted
intricate interactions between use and demand, cost and supply, supply and
demand, and other core economic concepts. As a result, they are viewed as
independent cooriginators of indifference curves. They also anticipated
several of Vilfredo Pareto's contributions on imperfect competition and
monopoly prices. Their work on stocks, banking, and finance inspired scholars
like Irving Fisher.” 63


“The edifice, built in 1873 during the height of Austrian liberalism, is the
Palais Auspitz-Lieben, named after the wealthy families who erected it.
Richard Lieben and his siblings, along with his cousin and brother-in-law
Rudolf Auspitz, planned and financed its construction. The Palais was more
than a family home; it was also a center of Viennese modernism. Café Landtmann
was popular with the Mengers, Ludwig von Mises, and Max Weber. Bertha
Zuckerkandl-Szeps, heir to a newspaper empire and an early proponent of the
Secession movement, hosted her salon there from 1917 to 1938, attracting
Johann Strauss, Gustav Klimt, Arthur Schnitzler, Alma and Gustav Mahler, and
many others. The Liebens represented the Austrian Bildungsbürgertum in its
greatest glory. Ignatz, the patriarch, was an industrialist and banker who
left part of his fortune to establish a prize honoring the greatest
achievements in the sciences. The Lieben-Preis was a forerunner of the Nobel
Prize and is still viewed as the "Austrian Nobel." Ignatz's children achieved
great fame too. Adolf became a chemistry professor in Prague before attaining
the directorship of the Chemistry Institute at the University of Vienna. Ida,
a brilliant thinker and salon leader, married the famed philosopher Franz
Brentano. Richard became vice president of the Credit-Anstalt, the largest
financial institution in Austria-Hungary. Richard was a precocious scholar and
mathematical savant, and the family honored him by introducing a Richard-
Lieben-Preis, which was awarded from 1912 to 1928. Helene, an accomplished
painter and student of Georg Decker, produced one of the most famous portraits
of the Austrian national playwright, Franz Grillparzer. She married Rudolf
Auspitz, a sugar magnate and head of the banking house Auspitz, Lieben & Co.
The Lieben clan demonstrated an astounding range of interests across
disciplinary boundaries; Richard's work in economics reflected this diversity.
Advanced knowledge of mathematics and the physical sciences informed Auspitz
and Lieben's Untersuchungen. Like Menger, Jevons, and Böhm, the authors
recognized the need for greater exactitude in the economic sciences. As
opposed to the other Austrians, however, they did not look to empirical or
commonsense knowledge for inspiration. Instead, they turned to mathematical
models, which they believed could approximate real phenomena. In this way,
they hewed closer to Léon Walras, with whom they carried on a productive
conversation about partial and general equilibria.” 62f


“In contradistinction to Böhm, Wieser stressed creativity and novelty over
dogmatism. He extolled Sax's work on state policy, and he singled out figures
rarely associated with the school as vital contributors—namely, Rudolf Auspitz
and Richard Lieben. These mathematically savvy Viennese, poised at the
intersection of a number of the most prominent Viennese circles, took marginal
utility in directions that few of their contemporaries could fathom.” 61f


“With a clearer mode of expression and evenhanded tone, Natural Value met with
easier acceptance than either Menger's or Böhm's works. It was rapidly
translated, and it received favorable reviews.” 61


“Wieser argued along similar lines, yet he placed greater emphasis on applied
economics. Recognizing that science seeks "its highest laurels on the field of
observation," he maintained that the Austrians viewed themselves as
experimentalists first and foremost. Wieser identified three directions in
which the Austrians would continue to innovate in the subsequent decades:
critique of socialist and communist economics, economic theory and
methodology, and public finance and state economics. Like Sax, he supported
state regulation of the economy and progressive taxation on economic and
ethical grounds. He suggested that the wealthy, who derived more benefits from
state services than the poor, must pay more for those advantages. [...] A slow
but steady stream of new works appeared between 1884 and 1887, yet it was the
publication wave of 1888 and 1889 that launched the school to new heights of
recognition and influence.” 58


“Wieser 's book also advanced anti-Marxist critiques. His objections centered
on the problems of price calculation in a centralized socialist state. In this
way, Wieser anticipated Ludwig von Mises's famous argument about socialist
calculation by thirty-five years. Wieser saw the world divided in two camps:
either you were an individualist or a collectivist, both methodologically and
ideologically. [...] Marginal utility was not a bourgeois, individualist
ideological outgrowth but a universally applicable science. Neither a
capitalist nor a socialist society could escape its dictates. No other system
of calculation could exist, and "any attempt through legislative act, promise
of recompense or threat of punishment to introduce another rule of calculation
will be in vain." [...] With the authors' innovative economic and ideological
arguments, Böhm and Wieser found broad resonance. Anton Menger, Carl's brother
and a professor of law, even preferred their work to his brother's. In his
juridical work, Anton took up their antisocialist arguments, criticizing the
feasibility of worker control of the means of production and the distribution
of goods, along Wieser's lines. An Austrian School was beginning to coalesce
in the mid-1880s not just in economics but in political theory, jurisprudence,
and philosophy too.” 56


“the first major article defining the school appeared in England in 1888. The
author, James Bonar, argued that the Austrians had successfully introduced
marginalism à la Jevons in central Europe. He appreciated Austrian critiques
of classical value theories, yet he also expressed concerns about their
methodological approach. He worried about the Austrians' abstractness and
voiced concerns that the "psychological" or subjective approach undermined
economists' search for objective value. Universal laws of exchange and
economic behavior would be difficult to deduce if each individual determined
his or her own set of valuations.” 55


“Böhm and Wieser, in particular, made Austrian ideas more accessible by
linking them to international—read: British and US—trends. By the end of the
1880s, their efforts met with acceptance: foreign scholars read their works
and commissioned translations, and articles on the "Austrian theory of value"
appeared. [...] If Böhm and Wieser were the true fathers of the new school,
Menger was the holy spirit. Menger began the process of institution building
in his role as academic mentor at the University of Vienna, advising the
dissertations of about a dozen scholars. Although they had little success
achieving positions in the larger German academic community, they thrived in
Habsburg Austria. Böhm became a professor in Innsbruck in 1881. Wieser joined
Emil Sax at Charles University in Prague in 1884. Eugen von Philippovich, who
studied the Bank of England and wrote a best-selling economics textbook,
taught at the University of Freiburg before being called to Vienna. Many other
students taught as untenured lecturers (Privatdozenten) in Vienna while
serving in the government. Robert Meyer, who wrote on progressive taxation,
served in the finance ministry. Gustav Gross, who studied business profits and
wrote a critical biography of Karl Marx, became a representative of the
liberal German Progressive Party. Viktor Mataja also wrote on business profits
and became Böhm's successor in Innsbruck. He also founded the government's
Department for Trade Statistics. Each of them published notable works in 1884.
Other adherents worked as lawyers for the government, served in the Central
Commission for Statistics or Chamber of Commerce, and sat on corporate boards
at banks and industrial enterprises. As we see from the diversity of interests
and the range of employments, the Austrian School was neither purely
theoretical nor entirely academic.” 52


“Böhm's first work, appearing in 1881, illustrated his adoption of Menger's
theory of goods, though it was hardly the work of a dogmatic disciple. Böhm
wanted to determine whether immaterial things like services, intellectual
property, and rights could be treated as economic goods. He hypothesized that
the marginalist theory of the good could illuminate these concerns.
Nevertheless, Böhm drew his main insights from the field of capital and
interest theory, not Menger's value theory. Instead, Böhm used the works of
his first economics instructor, Albert Schäffle, as well as Knies and Roscher.
Ultimately, Böhm argued that legal rights and other immaterial things could
not be viewed as goods, since these "goods" derived their value from
underlying physical objects rather than themselves. Böhm's first book
attracted little notice. There was only one review in an academic publication,
which consisted of little more than a synopsis. Menger himself paid the work
scant attention. While he possessed a copy in his library, he only once
referenced the book in later works. In spite of this desultory debut, Böhm's
prominent social status and his bureaucratic connections helped him secure a
professorship at the University of Innsbruck, where he taught from 1881 to
1890.” 51


“Two long reviews of Investigations appeared: one by Heinrich Dietzel and the
other by Schmoller. Schmoller published his own journal, and it was the
leading German social scientific publication. In it, Schmoller offered an
unenthusiastic verdict. Schmoller applauded Menger for pointing out
inconsistencies in the Historical School, and he recognized the benefits of
discrepant theoretical positions in economics. Still, he maintained that
Menger "had never produced a truly great work" and should thus reserve
judgment on others. He ended with a backhanded compliment: "Menger is a sharp
dialectician, a logical mind, an uncommon scholar, but he lacks the universal
philosophical and historical education [Bildung], the natural breadth of
horizons, to be capable of appreciating experiences and ideas from all sides."
Schmoller defended his own "polemic" on the grounds that Menger's "attacks
partially concern [him] personally." Schmoller's condescending tone probably
set Menger off. The German's remark about Menger's accomplishments the
Austrian could perhaps forgive. Being called "uneducated" Menger could never
forget. For a member of the Bildungsbürgertum, the "ungebildet" epithet was
calumnious. Thus began a two-year war of words. Menger accused Schmoller of
bias, superficiality, and vulgarity. He asserted that the German professor
used his academic position and journal to intimidate others and to foreclose
new research. In exhaustive detail, he catalogued the ways in which Schmoller
misread and misunderstood him. The reply to Schmoller—a one-hundred-page
pamphlet—evinced Menger's unquenched fury: "The future—and indeed, as I hope a
not-too-distant future—will decide whether Schmoller is finished with my
methodological investigations, or if I am finished with the theoretician
Schmoller." Menger was willing to bet he would have the last laugh: "Only
children and fools will henceforth take his methodological views seriously."
Menger saw this contretemps as a struggle for the soul of economics, one that
he had to win. The Methodenstreit concluded with a passive-aggressive
Schmoller open letter. In his Jahrbuch, he announced to the German economic
community that he had returned Menger's Streitschrift directly to the author,
unread. He expressed his policy of discarding personal attacks, saying he did
not wish "to bore the public by continuing literary feuds in the polemical
manner of many German professors." Schmoller felt he did not need to answer
Menger to maintain his status. After these salvos, Schmoller and Menger rarely
acknowledged each other again in their scholarly work. It is difficult to
declare a winner in the Methodenstreit, though if Schmoller won the battle,
Menger won the war. On Schmoller's side, several allies such as Adolph Wagner
and Heinrich Dietzel distanced themselves from his approach, though Schmoller
maintained his prominent academic standing in the German-speaking world. His
approach predominated in the academy until the Nazi takeover. On the other
side, Menger suffered. He lost support at his own university, where he was
outvoted on a measure to reform the law faculty and overruled in the selection
of economists to replace Lorenz von Stein and Lujo Brentano. Showing signs of
nervous exhaustion, he retreated from academic engagement.” 48f


“liberal Vienna was at its zenith in the 1870s, and no place experienced a
more exciting renaissance than the University of Vienna. At almost the same
time as Menger's appointment in 1873, his brothers, Max and Anton, the
philologist Theodor Gomperz, the doctors Carl von Rokitansky and Theodor
Meynert, and the philosopher Franz Brentano all received appointments. These
men transformed Vienna into a center of positivist science and philosophy.
They made theoretical research the primary aim of the university. Brentano
published his foundational phenomenological work Psychologie vom empirischen
Standpunkte in 1874. In it, he argued that the true method of philosophy was
scientific and that experience was the only way to knowledge, which required
introspection, observation, and experiment. His phenomenological orientation
inspired Menger, Freud, and the later Vienna Circle of logical empiricists.
Simultaneously scholars transformed the methodology of the sciences in Vienna
from an unreflective objectivism into a critical empiricism. The central
emphasis in this turn involved calling into question the primacy of the
individual subject. Innovative approaches in a number of disciplines
challenged the stability of ontological categories; for example, the physi-cal
world, the soul, the state. Instead, they focused on the subjective—the
perceptions of observing subjects and their interactions with the surrounding
world. Ernst Mach, a Prague professor soon to join the University of Vienna
physics faculty, and Georg Jellinek, a prominent jurist, contributed key
insights. Mach denied the existence of a real external world outside of
perception. He taught physics as a "Kraftlehre ohne Kraft" (mechanics without
forces) and psychology without a stable self or ego. The world—and the
self—consisted of nothing more than individual perceptions of the world and
how we interact with the objects around us. Freud picked up on these insights
about the instability of self, conducting psychoanalytic research without a
metaphysical concept of the soul (Seelenlehre ohne Seele). Hans Kelsen,
Jellinek's student and a world-famous jurist, developed a state theory without
a fixed concept of the state (Staatslehre ohne Staat). Jellinek and Kelsen
emphasized the role of norms and positive laws in creating the state. For the
Viennese vanguard, science was to be a critical, reflexive project that took
nothing for granted. Carl Menger participated in this avant-garde intellectual
sea change. Emboldened by his friends and colleagues, Menger saw his
opportunity to transform economics similarly. Economics, known as
Volkswirtschaft or Nationalökonomie in German, traditionally relied on
objective categories like Volk (people) or Nation, and its central object of
investigation was the national economy. The German Historical School
represented this tradition; Schmoller doubled down by prioritizing state
policy. Menger, on the other hand, believed a critical, subjective approach
could produce a Viennese countertradition: a "Volkswirtschaft ohne Volk" or a
"Nationalökonomie ohne Nation." The individual, not the nation, must be the
starting point for economic inquiry if one wanted to get to the heart of
economic exchange.” 46f


“A typical lecture course on economics attracted a couple dozen students.
Those who took an interest in the discipline, like Menger's students Eugen von
Böhm-Bawerk and Friedrich von Wieser, had to travel abroad to receive formal
training. There were no Austrian economics journals and no professional
associations either.” 43


“Political in-fighting, intradepartmental squabbling, and administrative
meddling made university life unappealing. Although the University of Vienna
attracted notable economists to its faculty, it had a hard time retaining
them. Adolph Wagner and Albert Schäffle taught in the Austrian capital in the
1860s and early 1870s, but quarrels with fellow incumbent Lorenz von Stein led
to their departure.” 42f


“As late as 1893, an American student could describe Vienna as a backwater,
with few courses on the subject: "In all nine courses, occupying just nineteen
hours a week. Compared with the nineteen courses occupying forty-eight hours a
week offered at Berlin, certainly a rather meagre showing." [...] a
professorship at the University of Vienna, while an elite appointment
accessible to only a sliver of the educated classes, was not a prestige
position compared to government posts.” 42


“British thinkers steeped in utilitarian philosophy opined that calculations
of utility—whether of pleasure and pain or of perceived wants and
needs—provided a better means for determining value. Richard Jennings called
the labor theory of value "the great fundamental fallacy." In France, Frederic
Bastiat and Jean-Baptiste Say advocated utility theory. Jules Dupuit wrote
about marginal utility as early as 1844. Auguste Walras, the father of Léon,
built his economic edifice on the concept of rareté, or scarcity. In German
lands, Hermann Gossen produced an early formulation of the law of diminishing
returns—that is, that the value of a unit decreases with each additional
available unit—in 1855. One could argue that the marginal turn really began in
the 1850s, if not earlier.” 40