The Austrian School in Brief

The Austrian School of Economics, also called the Viennese School of economics, was founded by Carl Menger in Vienna during the last third of the nineteenth century. From that time until today, its vibrant teaching tradition has had a significant influence on the formation and further development of the modern social sciences and economics in Europe and the United States.

In the 1930s, a general change of economic paradigms proceeded to push the Austrian School ever closer to the academic sidelines. This trend was further intensified by the emigration of many of the school’s proponents, and finally through the expulsion of its last remaining representatives when the National Socialists seized power. After World War II, the political atmosphere of coalition and cooperation across party lines did not lend itself to a restoration of the School. Held by many to be the intellectual heir of the French and English Enlightenment and political and economic liberalism, it was considered too old-fashioned. The Austrian School was no longer welcome in Austria. By means of their teaching and scholarly publications, however, Ludwig von Mises and Friedrich Hayek were more or less able to sustain the tradition in the United States. From the 1970s and onward, it has experienced a renaissance as the modern Austrian School of Economics.

Until 1938, the research agenda of the Austrian School was characterized by an astonishing multitude of diverse, and in some cases even contradictory, conclusions. Its forty or so economists had in common their education in law, their almost exclusively elite or aristocratic public-service backgrounds, and their employment with state-funded universities, the civil service, or institutions like banks or chambers of commerce that too had close ties with the state. In any case, the proponents of the Austrian School were highly successful socially and professionally: five became government ministers, many held senior positions in the government or state-owned banks, and quite a few were granted aristocratic titles.

All branches of the school shared the conviction that the subjective feelings and actions of the individual are those which drive economic activity. Based on this conviction, explanations for economic phenomena such as value, exchange, price, interest, and entrepreneurial profit were derived, and step by step expanded into a comprehensive theory of money and business cycles. Because of their subjectivist-individualistic approach, economists of the Austrian School regarded any kind of collective as unscientific in rationale. This led to fierce arguments with the Marxists, the German Historical School, and later with the promoters of planned economy and state interventionism—and solidarity within the school itself.

In the modern Austrian School of Economics, questions regarding knowledge, monetary theory, entrepreneurship, the market process, and spontaneous order placed themselves in the foreground—subjects that the older Austrian School, with remarkable foresight, had already taken up or dealt with in detail. This book endeavors to trace the development of this multifaceted tradition, with all of its ideas, personalities, and institutions.