The Viennese School of Economics: A History of its Ideas, Proponents, and Institutions PDF
Preview The Viennese School of Economics: A History of its Ideas, Proponents, and Institutions
This draft is not the final edition e Viennese School of Economics Eugen-Maria Schulak and Herbert Unterköfler TranslatedbyRobertGrözinger Copyright©2010bytheLudwigvonMisesInstitute 10987654321 PublishedundertheCreativeCommonsAttributionLicense3.0. http://creativecommons.org/licenses/by/3.0/ LudwigvonMisesInstitute 518WestMagnoliaAvenue Auburn,Alabama 36832 mises.org able of ontents eVienneseSchoolinbrief iii Preface v ViennaintheMid-thCentury Economicsasanacademicdiscipline ediscoveryoftheself: etheoryofsubjectivevalue eemergenceoftheVienneseSchoolintheMethodenstreit CarlMenger: FounderoftheVienneseSchool Timeismoney: eAustriantheoryofcapitalandinterest FriedrichvonWieser: Fromeconomisttosocialscientist EugenvonBöhm-Bawerk: Economist,minister,aristocrat EmilSax: erecluseofVoloska OthersupportersandstudentsofMenger Moneymakestheworldgoround: themonetarytheoryofthebusi- nesscycle JosephA.Schumpeter: Acolorfulmaverick i ii Schumpeter’stheoryofeconomicdevelopment eVienneseSchool’scritiqueofMarxism andtheconsequences: theimpendingcollapse Betweenthewars: fromre-formationtoexodus LudwigvonMises: thelogicianoffreedom FriedrichAugustvonHayek: Grandseigneuronthefence OthermembersoftheyoungerVienneseSchool Praxeology,anewbeginningbyLudwigvonMises FriedrichAugustvonHayek’smodelofsocietyandhistheoryofcul- turalevolution eentrepreneur erejectedlegacy: AustriaandtheVienneseSchoolafter erenaissanceoftheVienneseSchool: theAustrianSchoolofEco- nomics ListofAbbreviations SelectedIntroductoryBibliography Bibliography e iennese chool in brief e Viennese School of Economics, also called the Austrian School of Eco- nomics, was founded by Carl Menger in Vienna during the last third of the th century, and enjoys to this day a vibrant teaching tradition. Since the earlysthisteachingtraditionhasbeenasignificantinfluenceontheed- ucationandfurtherdevelopmentofmodernsocialsciencesandeconomicsin EuropeandtheUS. Inthesageneralchangeofeconomicparadigmincreasinglypushed the Viennese School on to the academic sidelines. is development inten- sified when many of its exponents left Vienna and the last remaining repre- sentatives were finally driven out after the National Socialists seized power. AftertheSecondWorldWar,inthepoliticalclimateofconsensusofthegrand coalitioninAustria,itwasnolongerpossibletore-formtheVienneseSchool, whichwasconsideredbymanytobetheintellectuallegacyoftheFrenchand English Enlightenment and of political and economic liberalism. However, bymeansoftheirscholarlypublicationsandtheirteaching,LudwigvonMises and Friedrich von Hayek were, to a greater or lesser extent, able to maintain thetraditionintheUS,sothatfromthesonwardsitexperiencedarevival astheModernAustrianSchoolofEconomics. Until , the research program of the Viennese School was character- izedbyanastonishingmultitudeofdiffering,insomecasesevencontradictory, conclusions. Whattheorsoeconomistshadincommonwastheireduca- tion in law, their almost exclusively elite or aristocratic public service back- ground, andtheiremploymentbystate-fundeduniversities, inpublicservice or in institutions close to the state, such as banks or chambers of commerce. Sociallyandprofessionallyinanycase,theexponentsoftheVienneseSchool were highly successful: five were honored with the post of government min- ister,manyfilledseniorpositionsinofficialdomorinbankswithclosetiesto thestate,andquiteafewwerebestowedwitharistocratictitles. AllbranchesoftheSchoolsharedthecommonconvictionthatthedecisive actorbehindeconomicactivitywasthesubjectivelyfeelingandactingindivid- iii iv THEVIENNESESCHOOLOFECONOMICS ual. esubsequentexplanations,derivedfromthisconviction,foreconomic phenomena such as value, exchange, price, entrepreneurial profit or interest, weregraduallyassembledintoacomprehensivetheoryofmoneyandbusiness cycles. is subjective-individualistic outlook and approach made any kind of collective appear as an unscientific “construct”, which led to fierce argu- ments—incidentallybringingthemembersoftheSchoolclosertogether—with theMarxists,withtheGermanHistoricalSchoolandlaterwiththeexponents ofaplannedeconomyandstateinterventionism. In the Modern Austrian School of Economics more emphasis was then placedonquestionsregardingknowledge,monetarytheory,entrepreneurship, themarketprocessandspontaneousorder,subjectswhichtheolderViennese School,withremarkableforesight,hadalreadytakenupordealtwithindetail. isbookendeavorstotracethemultifacetedtraditionoftheVienneseSchool, withallitsideas,peopleandinstitutions. reface It seems an odd coincidence that after several years of preparatory work and numerousinterruptions,theauthorsfinalizedtheirmanuscriptjustwhensigns of a global crisis in the financial sector suddenly became visible to all. Since then, economic developments appear simply to confirm many fundamental insights of the Viennese School of Economics, especially those in monetary and business cycle theory. A low interest rate policy over many years in the US, and a steady increase of the supply of money and money substitutes in theindustrialnationsseemtohaveledtoastaggeringvolumeofmisallocations andgeneratedcountlessunsustainablebusinessmodels. e attempts of industrial nations to impede, by means of government intervention, the suppressed need for correction, will at best lead to a decep- tive gain in time, but hardly to a real solution. However, the astonishingly purposeful government interventions are certainly no accident, for in recent decades the so-called welfare states have entered into a very close symbiosis with the financial sector. In no other sector of the economy—apart from maybethearmamentsindustryincertaincountries—aretheinstitutions,peo- pleandeconomysocloselyinterwovenwiththestateasinthefinanceindustry. Consequently, in recent decades it has been possible on several occasions to gettheimpressionthatwelfarestateswerealmostcompetingwiththebanking industry in their efforts to circumvent, in the most imaginative and oppor- tunisticways,thebasiclawsthatruleeconomics,moneyandmarkets. While for many years the welfare states, with their ever increasing national budget deficits, nourished the illusion of growing prosperity, banks and financial in- stitutes functioned, on the one hand as financiers of these deficits, and on theotherhandasstrongadvertisingmessengersofaneverything-is-affordable philosophy for the wider public. e crisis, which at the present time has nowherenearreacheditsfullextent,willthereforeprofoundlyaffectboththe globalfinancialsectorandtheindividualcountriesmuchmoredeeplythanall previouscrises. e Viennese School, working on the assumption of the individual as v vi THEVIENNESESCHOOLOFECONOMICS the essential economic agent, and subsequently centering its research on in- dividualpreferencesandontheintersubjectivebalancingofthesepreferences in the context of markets, consistently pointed out that institutions such as money, states and markets had emerged without any planning, central pur- poseorforce,butsimplyonthebasisofhumaninteractions,inawaythatbe- fittedbothhumansandhumanlogicandwasthereforenatural,asitwere. Of course,thisbasicinsightgotinthewayofallthosepoliticalandeconomicide- ologies,whichviewedsuchinstitutionsasoperationalareasforestablishingor developingauthoritarianactivitiesandwhichaimedspecificallyatinfluencing or even controlling the emergence of individual preferences or the balancing outofthesepreferencesbetweenindividuals. In practice this meant that in Austria during the interwar period the Vi- ennese School was attacked, sometimes ferociously, by political parties both of the right and the left, because it not only denied the legitimacy, but also theefficacy,ofmanyeconomicpolicies. Furthermore,theSchoolalwayscon- sidereditselfauniversalscienceinwhichtherewasnoroomfornational, re- ligious or class-oriented constrictions. In a way it even represented a sort of alternateworldtomanyofthiscountry’sidiosyncrasies: itfocusedexclusively on the individual and declared that individual action on the basis of subjec- tivepreferenceswasthestartingpointofresearch;itproceededfromarealistic imageofhumanity,whichcouldnotpossiblylenditselftoflightsofidealistic fantasy and which for this reason alone did not lend itself to cheap political exploitation;itwasfreeofmagniloquentutopias,upheldtheprinciplesofself- determination and non-violence and was fundamentally critical of any state intervention occurring under a monopoly of the use of force. In addition, it emanatedahighlyscholarlyethos, whichmadepossibletheemergenceofan uncommonlycosmopolitanandtolerantdiscourse. Accordingly,amongthemanyintellectuallegaciesoftheAustrianmonar- chy,theVienneseSchoolofeconomicswasoneofthefewtraditionswhichin the political upheavals of the th century did not become entangled in vice and guilt. In fact, it was those very ideologues, of both left and right, who inthethcenturysooftencausedbloodshedandlargescaledestitutionand misery, who, with the greatest impudence, accused the Viennese School of blindnesstotheurgenteconomicquestionsoftheperiod. Notonlyfromthis perspective,thehistoryandphilosophyoftheVienneseSchoolrefusetobeab- sorbedintothefoundationandreconciliationmythoftheSecondRepublic’s grandcoalition. AgainstthisbackdropitiscommendablewhenProf.Dr.HubertChristian Ehalt,thepublisheroftheseries“EnzyklopädiedesWienerWissens”(“Ency- clopediaofVienneseLearning”),makesspaceforthisalmostforgottenpieceof Viennese intellectual and scholarly history. Despite some delays on the part of the authors, he has always remained a patient and loyal supporter of our
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