Intellectual

and Political Roots of the Older Austrian School*

Von

Emil Kauder, Illinois Wesleyan University

Bloomington, Illinois, USA
L A neglected problem in the history of economic thought
Theorems and methods of the economist are both contributing to and
influenced by the social, philosophical, and cultural climate, in which the
author is living. Historians of economic thought have already seen this
relation 1. Therefore the intellectual background of the Physioerats, A d a m
S m i t h , Karl M a r x , and Alfred M a r s h a l l has been investigated time and
again. Similar analyses of the Austrian school are rare s , although they are
needed. M e n g e r ' s , B S h m ' s , and W i e s e r ' s economic systems, with which
we deal here exclusively a can be better understood if we know the
* It is a great pleasure to thank Professor Oskar M o r g e n s t e r n , Professor Karl Menger, Jr., Professor yon Mering, Professor Jacob Viner, and
Professor Raymond de R o o v e r for help and advice. This paper is dedicated
to the memory of the composer Frank B o h n h o r s t who died so young.
1 H. A l b e r t : Ideologische Elemente im 5konomischen Dcnken. Logische
und soziologische Aspekte der Ideologiekritik, Kyklos, Vol. X, 1957, Fasc. 2,
p. 194, et seq.
2 The majority of papers dealing with the background of the Austrian
school was written by Marxists. N. B u e h a r i n : The Economic Theory of the
Leisure Class. NewYork: 1927. F. B e h r e n s : Hermann Heinrich Gossen oder
die Geburt der ,,Wissenschaftlichen Apologetik" des Kapitalismus. Leipzig: 1949.
A. F u c h s : Geistige StrSmungen in 0sterreich 1867--1918. Wien: 1949. A
critical discussion of the Marxian viewpoint can be found in my papers: The
Retarded Acceptance of the Marginal Utility Theory. The Quarterly Journal of
Economics, Vol. LXVII, November 1953, p. 571, et seq. Reply to John
P. Henderson's Comment. Same Journal, Vol. LXIX, August t955, p. 476.
One valuable paper from a non-Marxian vie~])oint has been written by
M. Gottlieb. Unfortunately it has not been published. (M. G o t t l i e b : The
Ideological Influence in Sehumpeter's Theory of Capitalism. Paper submitted
for discussion at the Midwestern Economics Association Meeting 1953.)
G r a zi a d e i is not a Marxist, but in his work Le teorie sull" utilita marginale e la lotta
contro il Marxismo, Milan: 1943, he accepts partially the Marxian interpretation.
3 I feel justified in restricting this preliminary examination to the three
founders who have much more in common than the following generations.
Menger, Wieser, and B ~ h m - B a w e r k are more determined by ~he Austrian
tradition than their later followers.

412

E. Kauder:

philosophical roots of their thoughts and their connection with the

intellectual climate of Austria. M o n g e r ' s methodological writings are
the best point of departure for such a discussion.
II. M e a g e r a n d W a l r a s

During his struggle for recognition, M e n g e r had to fight on two

fronts; he drew one battle line against the historical school and the other
against the new mathematical method represented by W a l r a s and
J e v o n s . M e u g e r ' s quarrel with S c h m o l l e r is well known. The slowly
growing tension between the Austrian and the Western Marginalists has
been somewhat neglected. Yet the methodical attitude of the Viennese
school can best be understood by analyzing the principles which separate
M e a g e r from W a l r a s .
In the beginning M e n g e r was not aware of the difference between
himself and the school of Lausanne. M e a g e r and his younger friends
considered W a l r a s and J e v o n s their brothers-in-arms. W a l r a s fought
against the obsolete doctrines of the ruling French economists whose
mouthpiece was the Journal des t~conomistes. M e a g e r battled against
the ideas of the historical school. M e n g e r , W a l r a s , and J e v o n s had
discovered marginal utility. Yet the acceptance of the same value concept
did not create a common front, as M e n g e r found out by studying the
works of his Lausanne colleaguea.
He was annoyed by the mathematical treatment of economic problems.
In a letter to W a l r a s of February, 1884, M e n g e r exploded: ,The
mathematical method is w r o n g . . . " (m~thode math~matique est fausse...)~.
In 1889 M e a g e r rejected A u s p i t z - L i e b e n ' s price theory, the great
mathematical work written by Austrian authors. B 5 h m- B a w e r k argued
the same way, he doubted that many readers can and wilt follow algebraic
or geometrical explanations in a book dealing with economic theory. ,fir
one starts with
d
d x 9~ (:r) d x -~- ff-ffff ~p (b - y) d y,
the reader stops understanding and is no longer interested in the bookG. "
it was not lack of mathematical understanding -- the students of a
,,Gymnasium" in Old-Austria had a thorough training in mathematics --,
it was the conviction of the Austrian economists that equations and
curves had no place in economic theory. In the same letter, M o n g e r tried
to explain his method to W a l r a s . M o n g e r ' s private communication
brings the same arguments as his book on methods, but now the slant has
changed: he no longer combats the irreconcilable enemy, the historical
a For the following see E. A n t o n e l l i : Laon Watra~ et Carl Meager
travers leur correspondence, l~eonomie applique, Vol. VI, Paris: 1953,
April/September 1953.
5 E. Antonelli: op. cir., p. 282.
6 E. BShm-Bawerk: Book report on Knut Wiekselt: 12bet Wert, Kapital und Rente. Zeitsehrift fiir Volkswirtschaft, Sozialpolitik und Verwaltung,
Vol. 3, Vienna: 1894, p. 162--65.

Intellectual and Political Roots of the Older Austrian School

413

school, but deplores the false steps of a presumed comrade in marginalism

who has fallen into mathematical errors. I have brought errors and truths
according to M e n g e r into an antithetical table.
W a l r a s ' Errors:
1. Mathematics
quantities,

Menger's Convictions:
deals

with

2. The laws of exchange are

expressed inmathematiealequations,
3. Mathematics deals with
relations of measurable factors, in
modern language with functions or
interdependent phenomena,

1 a. Economics do not investigate

quantities of economic phenomena,
but the e s s e n c e s of value, rents,
profit, division of labor, bimetallism, etc.
2 a. Equations can lead only to
arbitrary statements not to exact
laws. (,,des lois fixes")
3 a. Economists have to build
a system like a house out of blocks.
The blocks are the simple elements
of economic life such as needs,
satisfaction, goods. These elements
exist independently from human
decision, they force man to the
exchange of goods. By adding more
realistic assmnptions this market
economy can be changed step by
step into actual economics. Instead
of functionalism the genetic-causal
method can be used.

Generally Menger's followers accepted the principles of this antimathematical manifesto. They may never have read this letter, but the
ideas expressed in it were well known and often discussed.
Menger's thoughts are very important; they reveal the principles
of theoretical thinking in the Austrian school. Yet all three principles in
the form, in which they are presented in the M e n g e r letter to W a l r a s
need clarification: The word ,,essence" with its metaphysical connotations
is very seldom used outside of Austrian publications. Exact laws which
are not based on measures and are not couched in algebraic or geometrical
symbols can hardly be visualized. For economists, well grounded in AngloAmerican theory, the superiority of genetic causality over functionalism
seems at least debatable. By reading these terms we enter a world of
scholarly endeavor whose understanding is only possible by going back
to the philosophical sources which are behind these terms and with which
the Viennese economists were familiar.
III. The e c o n o m i c e s s e n c e s
Essence means the reality underlying a phenomenon. The economist
who seeks for the hidden reality has to trace the eternal pattern of sociM
structure and events. This X-ray technique of investigation is far removed
from our modern approach. Most contemporary economists do not reach

414

E. Kauder:

for the everlasting reality behind the floating observations. They work
with the appearances of every day life which are reduced by abstraction
and isolation to a simplified model. The model is a working hypothesis.
,,The psychological method does not tolerate hypotheses~. '' So writes
W i e s e r taking the young S c h u m p e t e r to task for his aberrations from
the older approach. For M e n g e r and his followers the model is the
photography of a reality behind the appearances of every day life.
The belief in essences is a principle of philosophical realism.
A r i s t o t l e is t h e greatest author of this school. Werner J ~ g e r , the
eminent Aristotelian scholar, has described A r i s t o t l e ' s theory of understanding, as follows: ,,Any real knowledge presupposes a subject which
is outside the mind and which is touched, copied, reflected by the mindS. ``
M e n g e r and B S h m - B a w e r k were Aristotelians 9. Before M e n g e r wrote
his methodology he studied A r i s t o t l e very intensively. In later years
he became acquainted with W u n d t and K a n t 1. The Kantian influence
caunot be traced, for M e n g e r studied K a n t during the long period of
his literary silence n. The Aristotelian influence can be well documented.
M e a g e r wrote his epistemology as a student of Aristotelian metaphysics l~.
7 F. yon W i e s e r : Gesammelte Abhandtungen. Tiibingen: 1929, p. 25.
s W. J ~ g e r : Aristoteles. Grundlegung einer Geschichte seiner Eatwicktung. Berlin: 1923, p. 405.
9 ~[~at Menger and BShm's scientific thinking was strongly influenced
by A r i s t o t l e had first been shown by Oskar Kraus, professor at the
University of Prague. By a critical comparison of texts K r a u s has proved
that A r i s t o t l e ' s , Menger's and BShm's theories of imputation show great
similarities. (0. K r a u s : Die Aristotclisehe Werttheorie in ihren Beziehungen
zu den Lehren der modernen Psychologenschule. Zeitsehrift ffir die gesamte Staatswissenschaft, Vol. 61. Tiibingen: 1905, pp. 573, et seq. See fifth chapter
regarding Btihm's Aristotelism.)
lo Communication to the author by Professor Karl Menger, son of Carl
Menger.
n Due to the good services of Mr. Hideo M u r a k a m i . I became
acquainted with a long K a n t quotation from the beginning of the Critique of
Pure Reason in Menger's unpublished parts of the principles, second edition.
The M e a g e r manuscript is in the library of the Hitotsibachi University of
Tokyo, Japan.
r~ Menger's methodology has not always been understood. For obvious
reasons S c h m o l l e r was too biased to follow the thoughts of his opponent
Meager. (G. S e h m o l l e r : Zur Methodologie der Staats- und Sozialwissenschaften. Jahrbuch fiir Gesetzgebung, Verwaltung und Volkswirtschaftslehre.
N.F. Vol. 7. Leipzig: 1883, p. 975, et seq.) But even in the Austrian camp
he did not always find writers who interpreted him correctly. A contemporary
author, D o b r e t s b e r g e r , claimed that Menger believed that ftmdamental
concepts were innate ideas. (J. D o b r e t s b e r g e r : Zur Methodenlehre C. Mengers
und der 5sterreichischen Schule. Zeitschrift ffir NationalSkonomie, 1949,
Heft 2--4; ebenso in: Neue Beitr~ge zur Wirtschaftstheorie. Essays in honor
of the 70th birthday of Hans Mayer, p. 78, et seq., p. 81, 87.) Other Kantian
interpretations are provided by Japanese scholars (see letter of Hideo Murakami).
Obviously K a n t has been misunderstood: Kant's categories of reason are
logically prior to observations and not forms of thinking which every person

Intellectual and Political Roots of the Older Austrian School

415

The mind, so taught the great Greek philosopher, has to grasp what
belongs to the being of a thing, what it is and nothing elsO 3. In the same
vein M e n g e r defines the essence of economic life. ,,We understand the
phenomenon, if we have recognized the reason for its existence (the reason
for its being and its so being)14. "
,,The reason for its being and its so being" is a concept taken
straight out of the Aristotelian metaphysics 15. Here M e n g e r ' s Greek
mentor clarifies his concept of essences: The being of a thing is closely
linked to the form in opposition to the matter. The matter contains the
suitable material. The form realizes the potentialities of the matter. So
we can talk of the grown man as giving form to what is inherent in the
child le . . . . . . it is the form of the completed thing that determines
beforehand what is fit raw material for the thing 17." ,. . . . it is the nature
of the finished product that inspires and controls the process of converting the raw material into the form in questionlS." So the search for
the being and its so being leads further into the field of Aristotelian
metaphysics, to the distinction of form and matter.
M e n g e r applies this separation of form and matter to economics.
Theory deals with the form, history and statistics with matter, i.e.,
concrete cases 19. Theory deals with exact types and typical relations.
These theoretical types provide knowledge which transcends the immediate
information. For M e n g e r each concrete case ,,appears as an exemplification of a general regularity before our mind 2''. M e n g e r ' s concrete
cases (i. e. material provided by history and statistics) are the Aristotelian
matter which contains only potentialities, while the exact laws and types
are the Aristotelian forms which actualize the potential, i. e., they provide
laws and concepts valid for all times and places el.
What M e n g e r created was a combination of an up-to-date theory
with a philosophy which in 1883 was already more than two thousand
years old. As we will see later, B S h m - B a w e r k approved of this
synthesis. W i e s e r chose his own way of justifying theoretical knowledge,
but finally the essences play a decisive role in his way of thinking.
carries with him by birth. Then Menger himself testifies against the Kantian
origin of his epistemology. Plato and Aristotle, so repeats Menger time
and again, are the authors who have helped to create his philosophy of science.
(C. Menger: Untersuchungen fiber die Methode der Sozialwissensehaften und
der Politischen (}konomie insbesondere. Leipzig: 1883, p. 35, 79, 80.)
13 B.A.G. F u l l e r : History of Creek Philosophy, Vot. 3: Aristotle, 1931, p. 43.
14 . . . . . wir verstehen dieselbe (the phenomenon E.K.), wenn wit den
Grund ihrer Existenz und ihrer eigentiimlichen Beschaffenheit (den Grund ihres
Seins und ihres So-Seins) erkannt haben." C. Menger: Untersuchungen, ibid.
The italics are Menger's.
a5 For the following discussion: B. A. G. F u l l e r : Aristotle, p. 52, et seq.
16 B. A. G. Fuller, op. cir., p. 56.
17 B. A. G. Fuller, op. cir., p. 58.
is B. A. G. Fuller, ibid. L. Robin: Aristotle. Paris: 1944, p. 88.
I9 C. Menger: Untersuchungen, op. cit., p. 26, 27.
-~e C. Menger: Untersuchungen, p. 33.
~l B. A. G. Fuller, op. cir., p. 57.

416

E. Kauder:

W i e s e r , the third pioneer of the Viennese school, differs from his

colleagues. Besides Austrian tradition, contemporary intellectual
movements shaped his understanding of society. He was an economist,
a sociologist, historian, and a statesman. He left his mark in all these
fields. In his search for the essence he may have been influenced by
D i l t h e y and Simmel, although he only mentions M a c h and K i r c h h o f f as his guides in philosophy. We find, so W i e s e r writes, the essence
of economizing or in his words the meaning of economics (den Sinn der
Wirtschaft) by listening to the inner experience of our mind 2e. This inner
experience tells us that certain acts are carried out with the ,,feeling of
necessity~3. '' M e n g e r finds the essence of economics in the eternal forms
outside the observer. W i e s e r discovers necessary series of action in the
mind itself. He calls his procedure the psychological method. The label
,,psychological" is somewhat inexact; what W i e s e r really meant, is
introspection in the sense of D i l t h e y and S i m m e l . B o t h , M e n g e r and
W i e s e r , claim that what is essential is also necessary. Law, essences,
and necessity belong together.
IV, T h e " e x a c t " l a w
In his book on methods M e n g e r distinguishes between exact and
empirical laws. In M e n g e r ' s language the word ,exact" does not convey
the usual meaning of absolute precision which can be reached only by
using measurable data and by mathematical formulation. Strangely enough
M e n g e r reveals what he really means when he writes in French to
W a l r a s . He calls his exact laws ,,des lois fixes", statements about
invariable sequences which are not influenced by time and place. For
M e n g e r , the Aristotelian, these laws are not constructions of our mind
but descriptions of the eternal configurations in economic life. W i e s e r
is not an Aristoteliau but his laws too are the formulation of necessary
sequences. M e n g e r and W i e s e r do not follow the same path, yet they
all aim at the same object, i. e., an eternal structure of economics.
T h e y envisage an economic society stripped of all historical peculiarities,
The building material of this structure consists only of those elements
which are sufficient for the mere functioning of economy. These elementary
factors, so declares Menger, are human wants, natural resources, and
the desire for perfect satisfaction of needs 24. For M e n g e r and also for
B 5 h m- B a w e r k the physical nature together with human nature determine
the structure of the economic world. W i e s e r stressed more than M e n g e r
and B S h m - B a w e r k the human element of the economic order. The
ontological position of the Austrian school is rather unique, e.g., the
method of the British classicists S e n i o r , C a i r n e s , and John Stuart Mill
shows only superficial resemblance"25. Although John Stuart M i l l claimed
that economic theories are the product of ,,abstract speculation", he never
~ F. von Wieser: Gesammelte Abhandlungen, p. 17.
2s F. yon Wieser, ibid.
~4 C. Menger: Untersuchungen, op. cit., p. 45.
~'~ See the excellent paper by F. Maehlup: The Problem o:f Verification in
Economics. The Southern Economic Journal, Vol. XXII, July 1955, p. 6.

Intellectual and Political Roots of the Older Austrian School

417

believed that the economic theorist can reavh the absolute reality of
economic life. For Mill abstract reasoning is still based on hypothetical
assumptions 26. Today only von Mises, the most faithful student of the
three pioneers, maintains the ontological character of economic laws. His
theory of human action (in his words praxeology) is a ,,reflection about
the essence of action 27''. Economic laws provide ,,ontological facts ~s''. The
ontological structure will be materialized if the rational individual acts
in a free market. Also M i s e s ' teachers had a strong predilection for the
free market mechanism, at least in theory. Almost invariably the cooperation of the essential elements is shown under the condition of free competition. B 5 h m - B a w e r k ' s magnum opus ,,The Positive Theory of Capital
and Interest" is a very good example for the demonstration of the natural
order undm' the laissez-faire mechanism. In ,,beautiful harmony" the
economic fabric is fitted together by marginal utility, discount theory of
interest, and roundabout production, if the long run price (Dauerpreis)
of free competition is reached~9.
A similar sequence of reasoning can be found in W i e s e r ' s publications: The reach for the laws is motivated by the,meaning" of the social
economy. The ,,meaning" in W i e s e r ' s social economy contains the
blending of personal freedom with order a.
Obviously in this field a far-reaching, difference between the three
authors cannot be found. All three authors are social ontologists. They
believe that a general plan of reality exists. All social phenomena are
conceived in relation to this master plan. This structure of reality serves
,,both as a logical starting point and as a criterion of validity 31". The
ontological structure does not only indicate what is, but also what ought
to be. Man will understand the essence of economizing and then must
organize his actions so that the frictionless functioning of the eternal
organon will be materialized in real life. The social ontology straddles
the border between pure contemplation and moral action.
The belief in social ontology is connected with logical categories which
still more strongly separate Vienna from Lausanne and in the end from all
Western theoretical thinking. W a l r a s claimed that the economic forces
in a free market are interdependent and will mutually align themselves
into a general equilibrium. The Austrian economists think differently:
The structure of economic forces is brought into existence by one final
cause, marginal utility.
36 F. Machlup, ibid.
uv L.v. Mis e s: HumanAction. ATreatise on Economics NewHaven : 1949, p. 39.
~s L. v. Mises, op. eit., p. 756.
~9 E. von Biihm-Bawerk: Kapital und Kapitalzins. II. Positive Theorie
des Kapitales, Vol. I, 4th .edition, Jena: 192t, p. 383.
ao In The Theory of Social Economics freedom is still a guiding principle.
See Theorie-der gesellschaftlichen Wirtschaft, in Grundri~ der SozialSkonomik.
Tiibingen: 1914, p. 397, et seq.
al This description of ontology is taken from D. Bidney: Anthropological
Thought in P. A. Schilpp, Ed. The Philosophy of Ernst Cassirer. The Library
of Living Philosophers, Inc., Evanston, Illinois, 1944, p. 469.

418

E. Kauder:

V. Genetic causality
The central position of marginal utility is typical for the systems of
M e n g e r , W i e s e r , and B S h m - B a w e r k . Subjective value is, as B S h m B a w e r k said, the ,,sesame key" for the whole economic analysis s~-.
Consumer valuation alone explains costs, prices, interest rates, and even
the expansion of economy. The chain of economic actions starts with
rational decisions of the consumer. M a r s h a l l did not accept the Austrian
verdict. He encountered the same problem, he had to decide whether
subjective value or costs determine price, and he claimed that both factors
like the two blades of a pair of scissors create the exchange ratio ss. For
M a r s h all, value and cost, supply and demand are interdependent factors
whose functional connection can be explained in an equation or a geometrical figure. For W i e s e r , M e n g e r , and especially for B S h m B a w e r k the wants of the consumer are the beginning and the end of the
causal nexus. The purpose and the cause of economic action are identical.
There is no difference between causality and teleology, claims B S h m B a w e r k s4. He knew the Aristotelian origin of his argument. It does not
matter that B S h m ' s source is Friedrich P a u l s e n ' s ,,Introduction to
Philosophy" and not Aristotle himself. P a u l s e n defends his combination
of teleology and causality with the authority of the Greek philosopher:
. . . . . The first cause from which the movement proceeds, the ~2o~, is,
as Aristotle says, also the 5'@e~ ~ xl~,~a~. The goal however is not the
eternal end, but the realized whole (Italics P a u l s e n ) . . . ; it is the
entelechy of AristotleaS. ''
The Aristotelian gv~a~gzeta, the motion from the potentiality to
the actualization determines not only the structure of the system but also
the presentation of the thoughts. The process of realization can best be
explained in the form of a fictitious history, where the Austrian economists
show how the Robinson Crusoe economy changes step b y step in a full
grown economy. This is an unfolding process, in whid~ the sequence can
best be explained in words.
This unfolding process, so W i e s e r claims, can also be used for
bridging the gap between theory and empirical phenomena. For the
formulation of laws, W i e s e r writes, experienced phenomena are
3~ E. von B S h m - B a w e r k : The Austrian Economists. Annals of the
American Academy of Political and Social Science, Vol. I., 1890/1, p. 365.
3a A. M a r s h a l l : Principles of Economics, 8th ed., 1952, p. 290.
s4 E. yon B S h m - B a w e r k : Positive Theorie des Kapitales, 2nd volume,
Excurse, Jena: 1921, p. 177, et seq. For a modern version of this argument see
M. N. R o t h b a r d : Toward a Reconstruction of Utility and Welfare Economics,
in M. Sennholz, Ed. On Freedom and Free Enterprise. Essays in honor of
Ludwig yon Mises. NewYork: 1956, p. 236.
~5 F. P a u l s e n : Introduction to Philosophy. Translated by Thilly,
2nd American edition, translated from the third German edition, p. 219. See
also L. R o b i n : Aristotle. Paris: 1944, p. 129. A similar identification of
causality and teleology can also be found in Leibnitz, see R. E i s l e r : WSrtcrbuch dcr philosophischen Begriffe, 4th ed., Berlin: 1927. Vol. I, p. 815.

Intellectual and Political Roots of the Older Austrian School

419

rearranged so that a simplified description can be given. By injecting

more and more realistic assumptions the description becomes more
complicated and approaches reality 36. This is W i e s e r ' s procedure of
declining abstraction. In spite of his avowed empiricism, also in this
respect, W i e s e r fits his ideas into the thought pattern developed by his
Aristotelian colleagues. Like M e n g e r and B S h m - B a w e r k he builds his
system on the three pillers -- marginal utility, philosophical realism and
social ontology.

VI. Economic theory and intellectual climate

The value theory, alone, neither realism nor social ontology, made
Austrian economists famous. But the subjective value theory is not the
distinctive hallmark of the Viennese school. Not only M e n g e r , but also
J e v o n s, and W al r a s, discovered subjective valuation. Marginal preference
is the element common to the three new schools, and therefore cannot be
the specific element distinguishing the Austrian economists from the
Lausanne group, and the Anglo-American writers.
The remaining two principles, i.e., philosophical realism and social
ontology separated the Viennese school from German historism, and, what
matters more, from the new scientific attempts which had started in
Lausanne and in England. Why have the Austrians gone in a different
direction? It is very probable that the intellectual climate in Austria gives
an explanation for this parting of ways. The same ideas which are stressed
in the books and lectures of the Viennese professors can also be found in
the Austrian history of ideas.
The Austrian economists inherited their pattern of thinking from the
great men who left their mark on the Austrian intellectual development:
the philosophers, A r i s t o t l e , T h o m a s A q u i n a s , L e i b n i t z , B o l z a n o ,
the Catholic heretics, J a n s e n and Miguel de M o l i n o s , the emperor
Josef lI, the statesman M e t t e r n i c h , and, last but not least, the poets,
G r i l l p a r z e r , S t i f t e r , and A n z e n g r u b e r aT. In this galaxy of great
~6 F. yon W i c s e r : Gesammelte Abhandlungen, p. 23/24. Same author:
Theorie der gesellschaftlichen Wirtschaft, p. 135.
a7 For the explanation of the philosophical and political ideas the following
publications were consulted:
T. yon B o r o d a j k e w i c z : Die Kirche in (~sterreida. Erbe und Sendung im deutschen Raum, Ed. J. N a d l e r and H. yon Srbik. SalzburgLeipzig: 1936, p. 263, et seq. W. D e i n h a r d t : Der Jansenismus in
deutschen Landen. Miinchen: 1929. H. C. Lea: Molinos and the Italian Mystics.
American Historical Review. Vol. 11, p. 243, et seq. R. Miihlherr: Ontologie
und Monadotogie in der 5sterreichischen Literatur des XI. Jahrhunderts. Festschrift der 5sterreichischen Nationalbibtiothek. Wien: 1948. H. yon S r b i k :
Metternich, der Staatsmann und der Mensch. 2 vol. Miinchen: 1925. The same
author: Geist und Geschichte. Vom deutschen Humanismus bis zur Gegenwart.
Miinchen: 1951, Vol. II, p. 86, et seq. F. V a l j a v e c : Der Josephinismus.
Briinn: 1944. Same author: Die Entstehung der politischen StrSmungen in
Deutschland 1770--1815. Miinchen: 1951. E. Winter, ed.: Bernard Bolzano0
Bolzano Brevier. Wien: 1947,

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E. Kauder:

names all the philosophers were realists and ontologists~. From the middle
ages till the second half of the nineteenth century Austrians taught and
studied the ontological systems ~s. Perhaps Aristotle had a stronger influence than the others, because he often was taught in the secondary
schools. The Viennese Schottengymnasium, the intellectual nursery of
many famous Austrians including W i e s e r , required, even after 1918,
the students to read Aristotle's metaphysics in the original Greek.
While the Schottengymnasium still taught Aristotelian philosophy,
at the end of the nineteenth century in the University of Vienna the
influence of traditional ontology was on the wane. Empiricism, i.e., the
assumption that the primary form of knowledge is simple awareness of
sense data, became a dominating force in Austrian intellectual life. M a c h
taught in Vienna, and his followers in the twentieth century, the Viennese
circle, established logical positivism 89.
The thoughts about knowledge in the Viennese school reflect clearly
the Austrian tradition. But the idea of a social ontology contains elements
which are at variance with the general trend of Austrian thinking.
The natural order according to the three authors shows inconsistencies.
The three pioneers are torn hither and thither between two ideas which
exclude each other. M e n g e r , B S h m - B a w e r k and W i e s e r stand between
Adam S m i t h and the political wisdom of Austrian government and
administration. Adam S m i t h and his school believed that providence had
created, with the help of rationally acting individuals, a self-steering
mechanism which works harmoniously. In the first half of the nineteenth
century free competition was cheerfully accepted by French and British
public opinion and cautiously put into practice by many governments
but not by the Habsburg monarchy. Until 1848 the publication of an
economic textbook based on the principles of Adam S m i t h was not
permitted by the Austrian administration 4. In the eyes of the Viennese
censor Adam S m i t h was a revolutionary. The principle of laissez-faire
ran counter to old Austrian statesmanship and social philosophy.
The men who forbade this book believed that the paternal state is all
wise and that the citizen is not intelligent enough to take care of his
welfare. The archdukes, chancellors, ministers considered themselves social
engineers who had to supervise and regulate the social mechanism.
ss R. Miihlherr: Ontologie und Monadologie ..... loc. cit., p. 489, 490,
About the influence of L e i b n i t z see A. Tibal: L'Autrichien. Essais sur la
formation d'une individualit~ nationale (du XVI e au XVIIIe si~cle). Paris: 1936,
p. 145, et seq.
3~ See E. Mach: Erkenntnis und Irrtum. Leipzig: 1905. About the connection between Maeh and the Viennese circle, see R. yon Mises: Kleines
Lehrbuch des Positivismus. Einfiihrung in die empiristische Wissenschaftsauffassung. The Hague, Holland: 1939.
40 The book Die Grundlehren der Volkswirtschaft is by Josef K u d l e r who
taught from 1821--1848 at the University of Vienna. (Geschichte der Wiener
Universit~t yon 1848-1898, herausgegeben vom akademischen Senat der Wiener Universit~t, Wien: 1898, p. 170.)

Intellectual and PoliticM Roots of the Older Austrian School

421

The three economists tried to compromise between British and Austrian

tradition, between free competition and paternalistic bureaucracy. Consistent with their theoretical assumptions, M e n g e r , W i e s e r , and B S h m B a w e r k should be defenders of free competition. They hesitate to draw
this conclusion. At variance with the second generation, with M i s e s and
H a y e k , they rather condemn laissez-faire with faint praises and strong
criticism.
M e n g e r protested against blending of Manchester-philosophy with
marginalism 41. In 1892 B S h m introduced the new economic journal of
the Austrian school with a programmatic paper 42. The economist, he wrote,
has to stand above free competition and state intervention. In 'his lectures
written twenty years later he claimed that unbridled free competition may
lead to anarchism in production and consumption 4~. W i e s e r ' s ideas are
similar. In his ,,Theory of Social Economy" he compared advantages and
disadvantages of free competition. He is not so sure whether the good of
free competition is balancing the evil 44. The epigones of the great classics,
so W i e s e r complained, have applied the dogma of laissez-faire to an
economic system which was too complicated to be controlled by one single
principle. Contrary to his followers Adam S m i t h was too wise to advocate
unrestrained competition. The older W i e s e r became the more he moved
away from the political program of laissez-faire, from economic and
political freedom. In his last work ,,The Law of Power" he wrote: The
social maximum of utility has never been reached, and freedom has to be
superseded by a system of order 4~.
W i e s e r had returned to the traditional order concept of the time
before 1848. The old and disillusioned man surrendered completely to
the wisdom of the M e t t e r n i c h policy which can be condensed in the
following words: not freedom but order, not progress but stability.
Stability, this principle, created a new tension between Austrian tradition
and the new economics. Since R i c a r d o ' s time economists tried to expand
analysis from the restricted field of static into the field of dynamics.
The administrators and statesmen of the Habsburg monarchy before I848
were not sold on progress, the most important phase of dynamics.
The machinery of the benevolent autocracy was not geared to change.
The social structure needs to be stable. It was M e t t e r n i c h ' s main
41 ']?he collected works of Carl Menger, Vol. III, London School, No. 19.
Series of reprints, p. 83.
42 E. yon B S h m - B a w e r k : Unsere Aufgabe. Zeitschrift fiir Volkswirtschaft, Sozialpolitik und Verwaltung, Vol. I, Vienna: 1892, p. 1.
4s E. yon Biihm-Bawerk: National(ikonomie, p. 232. This is an1
unofficially lithographed copy of his lectures manufactured by some Viennese
bookstore and sold to the students. The 42nd Street main library of the City
of New York and the library of the University- of Illinois both have a copy.
According to the statistical material in this ouriosum the lectures cannot have
been given before 1911.
44 E. yon B S h m - B a w e r k : Kapital und Kapitalzins. II. Positive Theorie
des Kapitales, Vol. I, Jena: 1921, p. 232, et seq.
a5 F. vonWieser : Das Gesetz der Macht, Wien: 1926, p. 46/7,427,525--535.
Zeitschr. f. Nationalilkonomie, XVII. Bd., Heft 4

28

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E. Kauder:

con,,~ction that social innovations bid fair to create revolutions. Technical

improvements are not excluded. They are needed for the betterment of
the masses. The common people are foremost interested in security, peace,
and a higher living standard; these goals, so M e t t e r n i c h assumed, can
be reached by his policy 46. If the social order ought to remain static,
then the individual has to keep his social rank. Man should be satisfied
with his place in society. The insignificant person who lives a happy life
in humble circumstances is also the ideal of S t i f t e r ' s stories and
A n z e u g r u b c r ' s plays 47.
But the idyll of a changeless economy and society did not harmonize
with the fast progressing Austrian industry after 1850. As observers of
the economic development in their country the Austrian economists could
not write an economic treatise without analyzing dynamics, b u t they were
longing for the old ideal of a changeless economy.
By a tour de force B ~ h m forges together progress and stability.
Professor Ludwig M. L a c h m a n n who has a deep understanding of the
,Positive Theory of Capital" writes: ,The world of B S h m - B a w e r k is
then a peculiar world of restricted progress, of progress in only one
direction: that of capital accumulation...4s,,. Neither changes of demand
nor fluctuations of investment, nor inflationary nor deflationary disturbances trouble the constant extension of the roundabout production. The
natural order expands in ,,beautiful harmony". Social stability is worth
more than progress, so B S h m - B a w e r k told his Viennese students in
1911. He preached a social quietism akin to the ideals of the Austrian
past. The social hierarchy in being has to be preserved, the poor should
satisfy his modest needs, the rich man should refrain from exaggerated
luxuries and spend his money for philanthropic purposes. The best
prevention of a crisis, so taught B S h m - B a w e r k , is a steady and
unchanging consumption 49. In this connection it has to be mentioned that
B S h m never published a systematic theory of business cycles.
W i e s c r ' s vision of dynamics is less rigid than B S h m - B a w e r k ' s .
Like S c h u m p e t e r , W i e s e r wrote that the economic progress is started
by the innovating entrepreneur 5. Yet he adds, the days of the riskbearing entrepreneur are numbered, business leaders will have to deal
40 H. yon S r b i k : Metternich, Vol. I., p. 381-384.
47 R. Miihlherr: Ontologie und Monadologie . . . . op. eit., p. 496, et seq.
The glorification of the simple satisfied life is typical for the whole Central
European life before the revolution of 1848. Although written much earlier,
Gellert's poem describes best this attitude:
Geniesze, was Dir Gott beschieden,
Enjoy what God has given you
Enthehre gem, was Du nicht hast,
Gladly make shift without
Ein jeder Stand hat seinen Frieden,
those things, you do not possess
Ein jeder Stand hat seine Last.
Each rank has its peace
Each rank carries its burden.
4s L. M. L a c h m a n n : Capital and its structure. London: 1956, p. 79.
49 E. yon B S h m - B a w e r k :
Nationalfkonomie, op. cit., p. 383/4, p. 440.
50 F. yon W i e s e r : Theoric der gesellsd~aftlichen Wirtschaft, op. cir., p. 354.

Intellectual and Political Roots of the Older Austrian School,

423

with organized labor which will destroy the absolute supremacy of capital.
With the emergence of unions a new stable order is reached. The dynamics
started by business ventures lead to a stationary situation ~1. The new
stable order of economics will be better, so W i e s e r asserts, than the
period where speculators, bankers, and technicians guide unrestricted
capitalism. W i e s e r does full justice to the increase of productivity, but
he also sees the other side of the coin: proletarization of the masses,
misery, and lack of freedom. Without a new organization the national
economy becomes an economy against the nation 5~. Here W i e s e r sounds
like his antagonist Karl M a r x . But the resemblance is only superficial.
M a r x condemns the industrial society as unjust. W i e s e r criticizes his
contemporary economy because it is based on power and not on charity.
In his last work ,,The Sociology of Power" W i e s e r strongly emphasizes
that charity is the highest virtue.
This is the finale of a work which deals with the sociology of power,
greed and selfishness. We should not forget that W i e s e r wrote in a
Catholic country, where since time immemorial charity was preached
from pulpits, in books and pamphlets. Even B S h m - B a w e r k who did
not easily reveal his feelings was influenced by his religious environment.
He exclaimed: ,,In the social sciences the heart is worth more than the
headSa. " Yet it is W i e s e r who expresses, more explicitly than BShm,
the hope that charity will triumph over brutal force. He shares this vision
with Adalbert S t i f t e r who may have influenced W i e s e r . As far as
I could verify, S t i f f e r is never mentioned in W i e s e r ' s writing 54. Bnt
the great resemblance of thoughts induces me to assume that a spiritual
tie binds together the schoolmaster of Oberplan in Bohemia with the last
minister of trade of the Austrian Hungarian monarchy. Long before
W i e s e r , S t i f t e r had emphasized the gentle law of brotherly love that
finally will prevail against the glorification of force and the adoration of
the amoral genius 55. Both see the evil of power. S t i f t e r : ,,If vengeance
51 F. von Wieser, ibid.
5s F. von W i e s e r : Theorie der gesellschaftlichen Wirtschaft, op. cit., p. 354.
5a E. yon Biihm-Bawerk: Unsere Aufgabe, lee. cit., pp. 9, 10.
54 Wieser mentions Spencer's logic and Tolstoj's novel ,War and
Peace" as the works which shaped his sociological outlook in his youth.
F. yon W i e s e r : Arma virnmque cane. Speech in honor of the centenary of
the Schottengymnasium. Gesammelte Abhandlungen, op. eit., p. 338. In a letter
to the author J. Viner suggested the liberal French Catholics in the nineteenth
century may be the source for Wieser's ideas. I am sorry that I have to
disagree with this great scholar. I do not believe that liberal French Catholicism
had a great influence on Austrian thought. L a m e n a i s with his attempt to
unite the ideas of the French revolution with Catholicism would not have fitted
into Wieser's thought pattern. On the other hand S t i f t e r ' s simple stories were
read by high and low in Austria.
s5 A. S t i f t e r : Bunte Steine. Vorrede. Leipzig: Reelam. s.d., p. 29.
H. K u n i s e h : Adalbert Stifter. Mensch und Wirklichkeit. Berlin: 1950.
p. 148.
28*

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E, Kauder:

follows vengeance, then the second vengeance is followed by the t h i r d . . .

and so it continues, till n o b o d y . . , is livingS~. " Both agree that the gains
won by the sword will destroy the winner according to the word in the
gospel that ,,all they that take the sword shall perish with the sword ~7''.
With the condemnation of power S t i f t e r ends his homily; not so W i e s e r .
He admits that the force of the leader is the driving power in history
creating new political realms and new forms of production. Force is still
now a necessary evil. Both hope for an age where Christian charity takes
over the role now played by power. Both hope that the gentle law of
brotherly love will eventually overcome brutality. This faith is expressed
by W i e s e r in words which could have been written by S t i f t e r himself:
,,The inner power works with quiet and almost imperceptible raps (Schl/igen), especially in the beginning. Very slowly this power will win its
victories so that public opinion will not be aware of itss. "
It is easy to sneer at the dream of triumphant love, yet he who does
so misses the meaning of W i e s e r ' s and S t i f t e r ' s social message. The
final triumph of brotherly love forms the goal, for which the statesman is
striving in spite of power politics, labor unrest, and all that misery which
existed in Old-Austria.
Without bias the historian should point out the social vision which
lies behind the Austrian economic policy. But sometimes he cannot refrain
from asking whether this grand concept of social life was not far removed
from the real life of Austria-Hungary.
Could power be condemned without restriction in the age of big
industry, could freedom be successfully suppressed, when Czechs, Poles,
Croatians, and other nations asked for freedom? Were the socialist
workers satisfied with a sermon about the quiet happiness of the lower
stages of society, and did not the dream of a stable order clash with the
economic changes and with the revolutionary forces which soon were to
tear to pieces the Habsburg monarchy? It is a tragical sin of omission
that two ministers of state, B S h m - B a w e r k and W i e s e r , and the former
civil servant and educator of the crown prince, M e n g e r , persons who
dealt in their non-academic capacity with all the small and big problems
of their monarchy, did not feel the need for a thorough revision of their
social ideals. But this criticism is only valid for us and not for them.
According to the writers themselves a social program is not made up
arbitrarily by the thinkers but is dictated by nature. According to the
Austrian economists neither political planning nor scientific thinking are
spontaneous actions, neither the statesman nor the scholar can create
something completely new, theirs is the function of presenting and
materializing the hidden natural order.
~ Quotation from Stifter's novel ,Witiko". In E. F e c h n e r : Recht und
Politik in Adaibert Stifters Witiko, op. cit., p. 15.
~ St. Matthew. 26.53.
~s F. von Wieser: Das Gesetz der Maaht, op. tit., p. 6.

Intellectual and Political Roots of the Older Austrian School

425

VII. The signi|icance of this investigation

I maintain that the hunt for this hidden order with the tools of
realistic ontology offers a new clue for the understanding of Austrian
theory and economic policy. M e n g e r ' s great methodology is written and
conceived in the terms and pattern of the Aristotelian metaphysics.
B S h m - B a w e r k ' s defense of genetic causality, of the central position
of marginal utility in the economic system, the strong opposition of all
three writers against functionalism and mathematics is derived from the
Aristotelian entelechy. The very inconsistency in the ontological concept
of economic society explains the uneasy swinging back and forth between
freedom and authority in their economic policy.
Ontological realism and old Austrian paternalism are main themes in
the Austrian history of ideas. The Austrian economic systems could not
have been written in the European West. Since the middle ages Englishmen
and Frenchmen of all ways of life fought for the rights of the individual.
Austria had only two revolutions, and they were unsuccessful, in the
18th century the reforms of Joseph II, and in 1848 the revolutions in
Vienna and in Hungary against the imperial powers. In both cases the
cause of the individual lost.
Since 1800 no great British or French economist can be pointed out
who was an Aristotelian and at the same time sympathized with an
enlightened autocratic order. M e a g e r ' s , W i e s e r ' s and B S h m - B a w e r k ' s
great achievements are as typical for Austria as Viennese Baroque or
Mozart's and Haydn's music. Like these works of art the books on
economy have dual national and international character, they grow in a
specific cultural environment and receive international recognition.