[This article is based on a talk given at Mises University 1994.]

The Austrian School of economics arose in opposition to the German Historical School; and Carl Menger developed his methodological views in combat with the rival group. I thus wish first to discuss the philosophical doctrines of the Historical School, since this will deepen our comprehension of the contrasting Austrian position.

Next, I shall examine some of the philosophical influences on the founders of the Austrian School, in particular Franz Brentano and his followers. Brentano was the leading Austrian philosopher of the late nineteenth century. He favored a return to Aristotle, and I shall be stressing the Aristotelian roots of the Austrian School.

Eugen Böhm-Bawerk, the second great figure of the Austrian School after Menger, was influenced by a quite different school of philosophy, the nominalists. I shall briefly examine his emphasis on conceptual clarity.

Ludwig von Mises, the greatest twentieth-century Austrian economist, found himself the target of philosophical attack. The logical positivist movement subjected his deductive or praxeological approach to severe scrutiny. The philosophers of the Vienna Circle argued that science was empirical. Deduction cannot give us new knowledge about the world, without the use of non-deductive premises. We shall examine the force of the positivist criticism.

Before beginning the discussion of the Austrians, I think it essential to note that in intellectual history it is normally quite difficult to establish who influenced a particular author. One can very often show parallels between doctrines, but except for special cases, one can usually attain no more than a suggestive hypothesis. If an author states directly that he has been influenced by someone, one of course can go beyond guesswork; but, unfortunately, the thinkers we have here to consider were rarely explicit about their intellectual sources. The account presented below aspires at most to plausibility. No historical interpretation is apodictically true.

The German Historical School

The German Historical School included among others, Adolf Wagner, Karl Knies, and Gustav Schmoller. Although most people think of the group as confined to the nineteenth century, it lasted substantially longer. Werner Sombart, the most important member of the younger Historical School, died in 1939. Sombart, incidentally, was an acquaintance of Mises and the teacher of Ludwig Lachmann. Another economist, Othmar Spann, who was quite sympathetic to the Historical School, lived until 1951. For a short time, Spann was a teacher of Friedrich Hayek, but Hayek was expelled from Spann's seminar.

The Historical School's view of economics differed not only from the Austrian school but from classical economics as well. The members of the group rejected laws of economics, even such basic principles as the law of supply and demand. They regarded economics as a historical and practical discipline.

Somewhat in the manner of Aristotle, who characterized economics as the study of household management, they thought of economics as the science of state management. Here they continued the tradition of the German mercantilists of the seventeenth and eighteenth centuries, the so-called Cameralists. They were less interested in economic theory than in the advancement of the power of the state, particularly the Prussian state, or, after 1871, the German Empire of which Prussia was the principal constituent.

These views hardly sound as if they were based on philosophy. Nevertheless, as it seems to me, strong philosophical currents helped to produce the characteristic doctrines of the Historical School. In particular, the members of the school were to some extent influenced by the most influential and important German philosopher of the early nineteenth century, G.W.F. Hegel.

Hegel was quite well informed about economics. He read the British economists very carefully, including Adam Smith; Sir James Steuart was an especial favorite of his. He did not reject the market: quite the contrary, he thought that property and the right to engage in free exchange were very important constituents of a good society.[1]

Hegel considered the development of autonomy essential for each individual within society; in this respect at any rate, he did not diverge from Immanuel Kant. To become self-determining, a person needs to have property, through the development of which his personality will take shape. Further, he needs to make decisions. Exchange provides people with just the opportunities they require.[2]

Hegel cannot however be considered a supporter of the free market, whether in the full-fledged Austrian sense or in the more attenuated fashion of most American economists. Freedom of exchange exists within civil society, but civil society is