Volume 9, No. 3 (Fall 2006)
In the 1930's the Austrian School of economics lived through a crucial phase in its development, which led from the height of its influence at the beginning of the decade to its decline and dissolution after 1945. The rise and fall of the Austrian School and of its liberal wing in particular had its counterpart in the fate it experienced in its country of origin. On the one hand, Austria (and especially Vienna) had played a vital role as a center of communication for all the members of the school. And on the other hand the Austrian Economists in turn had tried to use their reputation for influencing the course of Austrian economic policy, in particular during the Great Depression—and indeed some observers, contemporary and modern, trace the comparatively weak performance of the Austrian economy back to the harmful impact of the Austrian Economists’ ideas.
Against this background this study tries to examine the development of Austrian economics from 1934 to 1938, that is, from the end of parliamentary democracy in Austria and its replacement by the authoritarian Ständestaat (corporate state) regime to the eventual Anschluss (union) to Nazi Germany. It starts by describing the state of the Austrian School of economics in the middle of the decade. The next section analyzes its position toward democracy and the corporate state. Then we turn to the change in leadership within the Austrian community of economists from Mises, the liberal, to Morgenstern, the technocrat, and we discuss the divergences between the strands of thought within Austrian economics as symbolized by these two men. In conclusion we sketch the fate of the Austrian School after the war.