An Austrian Frame of MindTags Book ReviewsHistory of the Austrian School of Economics
Professor Janek Wasserman, to his credit, is not a polemicist. His new book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas is indeed a critique of the broad school of economic thought now colloquially referred to as “Austrian,” but it is not only that. It is also a lively and well-paced history of the astonishing influence prewar Viennese intellectuals had on the greater world, and continue to have in areas far beyond economics. The author’s ideology intrudes at times, but never quite so obtrusively as to derail the book’s mission. The Marginal Revolutionaries first and foremost is a worthwhile historical account of major figures from the Austrian school, and not primarily an attempt at academic or ideological refutation.
Contrast Wasserman with Duke University history professor Nancy MacLean, who is a polemicist. Her now infamous Democracy in Chains, published in 2017, was a broadside not only against the supposed right-wing takeover of academic economics, but also against the network of think tanks and university sinecures funded by business titans Charles and David Koch. In MacLean’s telling, antigovernment libertarianism has taken deep root in the American political landscape, courtesy of a vast and nefarious Koch campaign of intellectual subterfuge. This coordinated effort to capture economics departments across the country produced a cadre of essentially kept academics, who dutifully provide pseudo-scientific cover for big business interests — particularly oil oligarchs like the Kochs.
In effect, MacLean insists that highly compromised academics favor laissez-faire economic policies because their patrons pay them to do so. In the insecure and petty world of academia, this is an incendiary charge.
The Koch sphere responded predictably, and badly, attempting point-by-point refutations of MacLean’s entirely political hit job. Instead of dismissing her book the way one might treat an offering from, say, Sean Hannity or Rachel Maddow — as unserious and plainly partisan — they defaulted into full academic mode and went running for the footnotes: “Actually, on page 173 of The Calculus of Consent James Buchanan really says … .” This was an obvious mistake, because in politics if you’re explaining, you're losing. Thus MacLean, an unknown and lightweight historian, suddenly became the left commentariat’s darling and the bête noire of nervous Koch professors at universities like George Mason.
On the heels of Maclean comes Wasserman’s book, which similarly approaches its subject from the Left but without MacLean’s outright attacks, vitriol, and blinkered view of professional motivations. The Marginal Revolutionaries does not mimic MacLean’s Koch-bashing style; it is less incendiary and more scholarly in tone.
But Wasserman cannot help indulging himself in the book’s concluding chapter, with its tedious concerns about a so-called Libertarian-to-Alt-Right Pipeline, laughably worried references to supposedly controversial libertarian figures like Murray Rothbard and Ron Paul, and tut-tutting details of internecine fights between the Koch-funded Cato Institute and the Koch-free Mises Institute (your reviewer’s employer). There are also vague but requisite protestations about “reactionary” and right-wing forces in modern Austrianism, including Dr. Hans-Hermann Hoppe, which, for all their lack of objectivity, could have appeared in Vox or The Nation.
But unlike MacLean, one senses Wasserman’s heart is not in examining the sociology of late twentieth-century libertarianism and issuing indictments. As an historian of central Europe, he’s happier considering the familiar turf of coffeehouse Vienna, and thus finds firmer footing at the beginning of the book — particularly in his opening chapters on the early period and then “golden age” of Austrian economists.
Here we find a fairly robust account of Carl Menger, widely considered the father of the Austrian school owing to his seminal 1871 Principles of Economics, published in Vienna. Menger was less prolific than most of his successors, and almost reclusive later in life. As a result, Principles was not fully appreciated for two decades, until Menger’s publication of a second major book on method in 1883 revived interest in his work. But Wasserman seems to grasp the enormity of Menger’s contribution to a theory of value, an understanding desperately missing from classical and Marxist economics in the late nineteenth century. Wasserman duly credits Menger with helping to birth the “Marginal Revolution,” the critical understanding of how consumers determine the value of any good subjectively, based on the importance of the final, marginal unit of that good to them.
This contribution, along with Menger’s other developments in Principles concerning the role of time in production and proffering a deductive methodology for economics, earn sufficient mention from Wasserman. But the author entirely misses arguably the biggest revelation in the book, namely Menger’s groundbreaking insights on the origins of money. According to Menger, money emerges naturally in the market as the most salable (i.e. most liquid) commodity. Markets over time determine the best medium of exchange, an evolution tragically distorted by sovereigns or governments issuing currency by fiat. This was a revolutionary point not only for monetary economics at the time, but also for the broader understanding of political economy in the late stages of European monarchy.
Wasserman’s treatment of Eugen von Böhm-Bawerk, the most important “second generation” Austrian economist, is thorough and engaging. The author deftly illuminates the fin de siècle setting for a burgeoning Austrian movement led by Böhm — who unlike Menger consciously set about developing an established school of thought. Wasserman correctly captures Böhm’s rigor not only as an economist, but also as a wily builder of relationships and alliances at the University of Vienna and beyond. He is portrayed as an ambitious and driven actor, one who sought and found “broad resonance” in academia, government, law, philosophy, and business circles.
Böhm welcomed academic controversy and debate, expanding Menger’s theoretical work on marginal utility to the point of eviscerating the Marxist labor theory of value. Böhm for the first time offered a rational theory of interest payments, not as a form of capitalist exploitation, but rather as a natural part of the production process based on “time preference.” Humans always value something today over something in the future, and so delayed consumption must yield greater value in the form of interest paid in the future. Time preference, the desire to forego consumption today by investing for tomorrow, is Böhm’s key to civilization itself. “Roundaboutness” leads to more and greater goods in the future, making us all richer.
Professor Wasserman does not completely buy this, and takes a jab at Böhm’s “misreading of socialist theories of exploitation.” But still he gives the Austrian his due as a rising star:
Böhm’s Positive Theory of Capital did not disappoint. He offered a comprehensive explanation of the interest phenomenon while also leveling a blistering attack on labor theories of value. He became a major international figure, embodying the Austrian school even more than Menger.
Under Böhm’s leadership, the rising movement slowly but surely begins to wrest prominence and energy away from the archrival German Historical school, which had looked down its nose and Menger and the renegade Austrians. The historicist Gustav Schmoller in particular attacked Menger as lacking in “universal philosophical and historical education,” questioning his ability to work broadly across disciplines. But Böhm’s rise improves the fortunes and standing of the Austrian movement, shifting influence east toward Vienna by the end of the nineteenth century. Wasserman is skillful in showing this evolution, and the reader appreciates the nuances of both interpersonal and doctrinal disputes between the characters.
Böhm dies in 1914, as Austro-Hungary is embroiled in the Great War. A new breed of Viennese economists and thinkers emerges in the interwar and postwar years, led by Friedrich von Hayek and Ludwig von Mises. The biography and oeuvre of either man could fill several books, but their respective histories have been fully developed elsewhere and Wasserman does not attempt it. Still, it is nearly impossible today to separate their stories from the broader story of the school itself.
Both Mises and his onetime protege Hayek emigrate to America, but via different paths. Hayek wins teaching positions at the London School of Economics and then the University of Chicago, while Mises has to flee Vienna to Geneva in 1934, ahead of the Nazis, who would seize his personal papers. Ultimately, Mises lands in New York City, relying on the patronage of supporters for a position at New York University while Hayek has an easier go of things financially. The two men’s lives and careers remain intertwined, with Mises emerging as the weightier economist through his magnum opus Human Action but Hayek gaining greater notoriety and mainstream acceptance via his political philosophy in The Road to Serfdom and The Constitution of Liberty. Wasserman treats both thinkers fairly but seems disappointingly conventional in his failure to understand Mises’s deductive method of economics (praxeology) and in his lazy labeling of Hayek as the godfather of “neoliberalism” (Leftspeak for “anything I don’t like about modern capitalism”).
But The Marginal Revolutionaries is a history, not a novel, and thus the central portion of Wasserman’s book deals with dozens of other figures as well. Names like Morgenstern, Haberler, and Machlup will escape most lay readers, while the dates, places, and myriad controversies fade into obscurity. So while Mises and Hayek stand today as the best-known Austrian economists, and giants in their field, the book is a survey with no one figure taking prominence.
One of Wasserman’s tendencies, beginning in the introduction and repeated throughout the book, is a form of “concern trolling” in today’s vernacular. Despite his strong criticisms of Austrian economics, he helpfully frets about the movement’s public image. He particularly laments what he sees as heretical deviations into radical libertarianism and unwarranted disdain for empirical data, the former a red herring and the latter a reflection of the author’s aforementioned misunderstanding of method. This ersatz concern bleeds into the text at several points, with volleys like this:
It is also fair to wonder whether Austrian economics is really about economics (and not ideology) anymore. I would not blame readers who are tempted to throw up their hands at this point and, channeling Voltaire, declare that the Austrian School of economics is not Austrian nor a school nor economics.
He also takes pains to inveigh against “American Austrians,” as seen in this perplexing and context-free personal correspondence sent by minor figure Josef Herbert Furth to economist Fritz Machlup:
US Austrianism lost most of the diversity that had defined the best of the earlier tradition. The last ‘Austrian Austrians’ took part in preserving their tradition, trying to save their nonsectarian ‘family’ from radical libertarians who (quoting Furth) ‘have inherited Mises’s dogmatism without his genius, and are continuously quoting Hayek without … understanding a word of what he actually means.’
Are we somehow to assume the author would accept the “older tradition” of Austrian thought were it presented to him anew today? Would he approve of any branch of free market economics, if stripped of strident political associations and corporate patrons Wasserman does not like? Of course not. To the Left, all economics divorced from Keynes or Marx is dangerously right-wing and protective of established capital. On one hand, Wasserman works to portray the modern Austrian school, the ominous “American Austrians,” as radical libertarians whose appendages to the tradition would render it unrecognizable to the old Viennese masters. On the other hand, he credits the radicals with untoward success and influence, and in effect quite remarkably insists their worldview prevailed in the late twentieth century. So, are the Rothbardian radicals obscure and dismissible, or are they the new mainstream Austrians?
Readers already reasonably well versed in the history and sociology of the Austrian school, from sources such as Mises’s Historical Setting of the Austrian School of Economics and Hulsmann’s aforementioned biography, will find enough new insights and anecdotes here to maintain their interest. Readers less interested in economics and more concerned with tracing Viennese intellectual traditions across the Atlantic will benefit as well, though perhaps choose to skim over certain particulars. But The Marginal Revolutionaries is a worthwhile book for anyone interested in the historical context of the Austrian school, its superb and complex thinkers, and its far-reaching, enduring influence on the Western world. This book demonstrates beyond a doubt the intellectual firepower of the late Habsburg era, and provides a worthy account of an Austrian revolution which went beyond economics. Even the reluctant author himself cannot help but accept it:
Whether in university halls or libertarian think tank offices, WTO boardrooms or Silicon Valley confabs, the Austrian school has not only transformed economics and social theory but changed our world. The school’s effects are profound and pervasive, and its history permits us to think the present age.
As Ron Paul said, we are all Austrians now.
This review first appeared in Chronicles magazine.