[The essay was first published in 1969. It was one of the last pieces Mises wrote.]

I. Carl Menger and the Austrian School of Economics

1. The Beginnings

What is known as the Austrian School of Economics started in 1871 when Carl Menger published a slender volume under the title Grundsätze der Volkswirtschaftslehre.

It is customary to trace the influence that the milieu exerted upon the achievements of genius. People like to ascribe the exploits of a man of genius, at least to some extent, to the operation of his environment and to the climate of opinion of his age and his country. Whatever this method may accomplish in some cases, there is no doubt that it is inapplicable with regard to those Austrians whose thoughts, ideas and doctrines matter for mankind. Bernard Bolzano, Gregor Mendel, and Sigmund Freud were not stimulated by their relatives, teachers, colleagues, or friends. Their exertions did not meet with sympathy on the part of their contemporary countrymen and the government of their country. Bolzano and Mendel carried on their main work in surroundings which, as far as their special fields are concerned, could be called an intellectual desert, and they died long before people began to divine the worth of their contributions. Freud was laughed at when he first made public his doctrines in the Vienna Medical Association.

One may say that the theory of subjectivism and marginalism that Carl Menger developed was in the air. It had been foreshadowed by several forerunners. Besides, about the same time Menger wrote and published his book, William Stanley Jevons and Léon Walras also wrote and published books which expounded the concept of marginal utility. However this may be, it is certain that none of his teachers, friends, or colleagues took any interest in the problems that excited Menger. When, some time before the outbreak of the First World War, I told him about the informal, but regular meetings in which we younger Vienna economists used to discuss problems of economic theory, he pensively observed: "When I was your age, nobody in Vienna cared about these things." Until the end of the 1870s there was no "Austrian School." There was only Carl Menger.

Eugen von Böhm-Bawerk and Friedrich von Wieser never studied with Menger. They had finished their studies at the University of Vienna before Menger began to lecture as a Privat-Dozent. What they learned from Menger, they got from studying the Grundsätze. When they returned to Austria after some time spent at German universities, especially in the seminar of Karl Knies in Heidelberg, and published their first books, they were appointed to teach economics at the Universities of Innsbruck and Prague respectively. Very soon some younger men who had gone through Menger's seminar, and had been exposed to his personal influence, enlarged the number of authors who contributed to economic inquiry. People abroad began to refer to these authors as "the Austrians." But the designation "Austrian School of Economics" was used only later, when their antagonism to the German Historical School came into the open after the publication, in 1883, of Menger's second book, Untersuchungen über die Methode der Sozialwissenschaften und der Politischen Oekonomie insbesondere.

2. The Austrian School of Economics and the Austrian Universities

Carl Menger, 1840–1921 "Until the end of the 1870s there was no 'Austrian School.' There was only Carl Menger." – Ludwig von Mises

The Austrian Cabinet in whose journalistic department Menger served in the early 1870s — before his appointment in 1873 as assistant professor at the University of Vienna — was composed of members of the Liberal Party that stood for civil liberties, representative government, equality of all citizens under the law, sound money, and free trade. At the end of the '70s, the Liberal Party was evicted by an alliance of the Church, the princes and counts of the Czech and Polish aristocracy, and the nationalist parties of the various Slavonic nationalities. This coalition was opposed to all the ideals which the Liberals had supported. However, until the disintegration of the Habsburg Empire in 1918, the Constitution which the Liberals had induced the Emperor to accept in 1867 and the fundamental laws that complemented it remained by and large valid.

In the climate of freedom that these statutes warranted, Vienna became a center of the harbingers of new ways of thinking. From the middle of the 16th to the end of the 18th century Austria was foreign to the intellectual effort of Europe. Nobody in Vienna — and still less in other parts of the Austrian Dominions — cared for the philosophy, literature, and science of Western Europe. When Leibniz and later David Hume visited Vienna, no indigènes were to be found there who would have been interested in their work.[1] With the exception of Bolzano, no Austrian before the second part of the 19th century contributed anything of importance to the philosophical or the historical sciences.

But when the Liberals had removed the fetters that had prevented any intellectual effort, when they had abolished censorship and had denounced the concordat, eminent minds began to converge toward Vienna. Some came from Germany — like the philosopher Franz Brentano and the lawyers and philosophers Lorenz von Stein and Rudolf von Jhering — but most of them came from the Austrian provinces; a few were born Viennese. There was no conformity among these leaders, nor among their followers. Brentano, the ex-Dominican, inaugurated a line of thought that finally led to Husserl's phenomenology. Mach was the exponent of a philosophy that resulted in the logical positivism of Schlick, Carnap, and their "Vienna Circle." Breuer, Freud, and Adler interpreted neurotic phenomena in a way radically different from the methods of Krafft-Ebing and Wagner-Jauregg.

The Austrian "Ministry of Worship and Instruction" looked askance upon all these endeavors. Since the early 1880s the Cabinet Minister and the personnel of this department had been chosen from the most reliable conservatives and foes of all modern ideas and political institutions. They had nothing but contempt for what in their eyes were outlandish fads." They would have liked to bar the universities from access to all this innovation.

But the power of the administration was seriously restricted by three "privileges" which the universities had acquired under the impact of the Liberal ideas. The professors were civil servants and, like all other civil servants, bound to obey the orders issued by their superiors, i.e., the Cabinet Minister and his aides. However, these superiors did not have the right to interfere with the content of the doctrines taught in the classes and seminars; in this regard the professors enjoyed the much talked about "academic freedom." Furthermore, the Minister was obliged — although this obligation had never been unambiguously stated — to comply in appointing professors (or, to speak more precisely, in suggesting to the Emperor the appointment of a professor) with the suggestions made by the faculty concerned. Finally there was the institution of the Privat-Dozent. A doctor who had published a scholarly book could ask the faculty to admit him as a free and private teacher of his discipline; if the faculty decided in favor of the petitioner, the consent of the Minister was still required; in practice this consent was, before the days of the Schuschnigg regime, always given. The duly admitted Privat-Dozent was not, in this capacity, a civil servant. Even if the title of professor was accorded to him, he did not receive any compensation from the government. A few Privat-Dozents could live from their own funds. Most of them worked for their living. Their right to collect the fees paid by the students who attended their courses was in most cases practically valueless.

The effect of this arrangement of academic affairs was that the councils of the professors enjoyed almost unlimited autonomy in the management of their schools. Economics was taught at the Schools of Law and Social Sciences (Rechts und staatswissenschaftliche Fakultäten) of the universities. At most of these universities there were two chairs of economics. If one of these chairs became vacant, a body of lawyers had — with the cooperation, at most, of one economist — to choose the future incumbent. Thus the decision rested with n