Book Review: “The Marginal Revolutionaries. How Austrian Economists fought the War of Ideas” by Janek Wasserman

The publication of Carl Menger’s book Principles of Economics in Vienna in 1871 is usually seen as the birth of the Austrian School of Economics. But the focus of Janek Wasserman’s book The Marginal Revolutionaries. How Austrian Economists fought the War of Ideas lies elsewhere. He points out that it is debatable whether Menger’s book was all that important or all that new. Menger’s book received little attention at the time. In any case, the “Marginal Revolution”, which it is sometimes credited for, would have happened anyway, given that the British economist William Stanley Jevons and the French economist Léon Walras were already independently working along similar lines.

However much the rise of the Austrian School was owed to cutting edge methodology, another factor that mattered even more, Wasserman shows, was an uncommon skill of building relations with constituencies outside of institutional academia. Austrians, in other words, were good at networking.

In the beginning, Austrian Economics was a family affair. A myriad of personal relations connected its leading proponents. To mention a few: Friedrich von Hayek’s maternal grandfather, Franz von Juraschek, was a professor of economics, and his mother, Felicitas, was a cousin of the Wittgenstein family, remembered today for their sons who would make their names in philosophy and music. Juraschek also was friends with one of Menger’s students, Eugen Böhm-Bawerk, who, alongside another Menger pupil, Friedrich von Wieser, later taught economics and served in government. In fact, Böhm-Bawerk and Wieser became brothers-in-law. It would have been impossible to disentangle professional from family ties.

A second hallmark of Austrian economists was that they were unusually successful outside of academia. Carl Menger founded a newspaper in his mid-twenties which, within a year, had a print run of 35,000; Böhm-Bawerk and Wieser were government ministers. Students attracted to Austrian Economics had backgrounds as eclectic as their teachers’. It would be scarcely conceivable today that an ex-Minister of Finance would lead discussion groups as diverse as Böhm-Bawerk’s: one of his seminars included the philosopher Otto Neurath; the future Lenin advisor Nikolai Bukharin (a supporter of the New Economic Policy, who was later executed by Stalin); and the socialist Rudolf Hilferding, who would later become a cabinet minister in Weimar Germany.

Austrian economists often engaged in debate with socialist economists, and indeed a brother of Carl Menger, Anton Menger, was a left-leaning social theorist. On the eve of World War I, Austrian Economics had cultivated a certain temper: cordial personal ties between members, an uninhibited approach to crossing disciplinary boundaries, and fearlessness in sparring with socialists. In fact, that would later become one of their hallmarks: the “Socialist Calculation Debate” was, first and foremost, a debate between Austrians and Marxists. Marxists rarely engaged with “bourgeois” economics, which they viewed as no more than a fig leaf to disguise capitalist class interests, but they made a bit of an exception for the Austrians. Part of the reason may have been that socialist economic planning in the young Soviet Union really did run into the sort of problems that the Austrians said it would.

Austrian economists dug themselves out from the wreckage of World War I with their most valuable asset, networking skills, intact. With government appointments precarious and universities underfunded, they reinvented themselves in business-facing research start-ups. At first, funds were sourced from entrepreneurs in Austria, and then from donors abroad. The Rockefeller Foundation funded the Institute for Business Cycle Research, a base for Mises and Hayek, and continued sending cheques to grantees in Austria until 1938. When Austria slid into depression and dictatorship, Rockefeller funding became an escape hatch for Austrian economists to safe havens in London, Paris, and Geneva, a catalyst for encounters such as those in London with Keynes and in Paris with the Colloque Walter Lippmann. In ways that could not have been foreseen in 1918, Austrian economists became influential again post-1945, this time on both sides of the Atlantic. In the Cold War, Western democracies faced an emboldened socialist challenge, and disputes between free-marketeers and collectivists on a global stage were, in many ways, a scaled-up replay of arguments that had been rehearsed in Habsburg Austria decades earlier.

But oddly, for all its unassailable academic credentials, Austrian economics still depended on seed money from outside academia. One instance of this was a grant from Anthony Fisher to set up the Institute of Economic Affairs in 1955. The IEA was, of course, never an “Austrian Economics think tank”; it is a hub of free-market liberalism, which does not align itself with any particular school of economic thought. But it is certainly a place where economists in the Austrian tradition have always found an open door, provided they do not mind bumping into “friendly rivals” from the Chicago School, the Virginia School or the Freiburg School.

As part of that coalition, Austrian economists became influential once again. In 1979, the newly-elected Prime Minister Margaret Thatcher lauded the work of the IEA, and her Chancellor of the Exchequer Geoffrey Howe was a member of the Mont Pèlerin Society, a group founded mostly by Austrian economists. He shared that affiliation with many officials of Ronald Reagan’s administration.

Readers who are already familiar with the technicalities of Austrian Economics will be more interested in Wasserman’s overall narrative. For the story that shines through in his account is that the history of Austrian Economics was itself a prime example of a central concept of Austrian thought, namely spontaneous order. It is counterintuitive that an approach to economics seeded in Habsburg Vienna would spawn offshoots around the world in areas as arcane as game theory (Oskar Morgenstern studied with Ludwig von Mises); as pragmatic as the multilateral trade organisation GATT (devised by Gottfried von Haberler); and as robust as policy-making (during the Thatcher years, Friedrich von Hayek was an unofficial guru). The trajectory of Austrian economics was shaped by personal encounters, unforeseen events, and unintended consequences: not a straight line but a zigzag. Austrian economics thrived against all odds, by nurturing civility, curiosity, and intellectual nonconformity.

2021 will mark the 150th anniversary of the publication of Menger’s Principles of Economics, and 2012 will mark the 100th anniversary of the publication of Ludwig von Mises’s Socialism: An Economic and Sociological Analysis. This is not just about history. Given that socialism has made a comeback as a mass movement – this time as a “hip” youth movement, under the guise of “Millennial Socialism” – maybe we need a “Millennial Austrianism” too, to counter it. We need to re-learn Austrian arguments, update them, and apply them to today’s conditions. But we also need to learn from the early Austrians’ networking skills, and from their debating style. The early Austrians were tough debaters, but they were always prepared to engage with their socialist opponents, and take their arguments seriously. This firm-but fair debating style worked for them then. Why should it not work for us today?

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