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The Homecoming of the Austrian School of Economics after WWII

By Janek Wasserman

The story of the emigration of the Austrian School of Economics from Vienna to the US in the 1930s and 1940s is relatively well-known. Less discussed are the various ways that the Austrian émigrés attempted to recreate their tradition in Austria after World War II. These attempts at restoration demonstrate that migration was not a one-way process, nor was the transmission of ideas merely an act of translation. Even as School members successfully assimilated to US norms, they remained dedicated to their Austrian and European heritage.

Originating in the 1870s as part of a broader marginal revolution in economic thought, the Austrian School of Carl Menger, Eugen von Böhm-Bawerk, and Friedrich Wieser slowly gained a foothold in social scientific circles in the late nineteenth century. Its adherents argued for an economic approach that emphasized the role of individuals and their consumer demands in the determination of value. Their stress on methodological individualism placed them at odds with Marxist and classical economists. Their preference for deductive methods over empirical ones also led to conflict with the German Historical School. By the first decades of the twentieth century, the School had established itself in the Austrian academy and the bureaucracy. It published an important journal and hosted regular seminars, which enjoyed international esteem. In the 1920s, the School achieved its greatest recognition. The third and fourth generations of the movement—including Ludwig von Mises, Joseph Schumpeter, Friedrich Hayek, Oskar Morgenstern, Gottfried Haberler, and Fritz Machlup—gained the School an international reputation with their work on business cycles, monetary theory, and marginal utility. They played prominent roles in the Vienna Chamber of Commerce, founded the Institute for Business Cycle Research, disseminated two major journals, and participated energetically in the vibrant, interdisciplinary environment of interwar Vienna and German-speaking Central Europe.

As European politics took an authoritarian turn and the worldwide depression deepened in the 1930s, members of the Austrian School began to emigrate. At first the search for professional opportunities drove their movement; National Socialism and world war hastened their departures. The assimilation of these “quiet invaders”[1] is one of the most successful and well-known examples of interwar emigration. Schumpeter and Haberler became professors at Harvard University. Hayek landed at the London School of Economics. Morgenstern received a professorship at Princeton; Machlup went to the University of Rochester and then Johns Hopkins. von Mises worked at the National Bureau of Economic Research and New York University. The Austrians published some of their most famous works in these years: Schumpeter produced Capitalism, Socialism, and Democracy in 1942; Morgenstern co-authored (with Hungarian émigré John von Neumann) The Theory of Games and Economic Behavior in 1944; Mises completed Omnipotent Government the same year.

The culmination of this successful emigration was the overwhelming response to Hayek’s Road to Serfdom in 1945. On April 3, Hayek arrived in the US to give a series of lectures. A condensed version of Road made him a household name when he stepped ashore. Featured on the front page of Reader’s Digest, the treatise was hailed as “one of the most important books of our generation.” Organizations bought one million offprints, and 1.5 million copies went to American military personnel. Look magazine produced a cartoon version, and Hayek appeared on NBC radio. Hayek consequently had to move his talks to larger venues. He also made connections to anti-New Deal businessmen and foundations, which paid for his nationwide tour. These benefactors bankrolled his late career activities, including the Mont Pèlerin Society and his University of Chicago professorship.[2]

As we see, Austrian School members put down roots in their adoptive homes and successfully transported their ideas across the Atlantic, yet they had no intention of forgetting their traditions or their homeland. They rapidly returned to Europe and helped to resuscitate Austrian intellectual life in venues like the Alpbach Forum and the Vienna Institute for Advanced Studies. In 1945 a handful of Austrian resistance figures conceived the idea of a “community of free European intellectuals” and a “collection of an intellectual and political elite” that would create a unified Europe freed from nationalism. Otto and Fritz Molden, Simon Moser, and Karl Gruber inaugurated a “college meeting” in early 1945 with eighty participants.[3] Émigré Austrian School scholars were among the earliest participants at Alpbach and were crucial to its growth. Hayek first attended Alpbach in 1947. Over the next twenty years, he developed his ideas on spontaneous orders and systems theory at these conferences. Haberler led the economics discussions in 1949; Machlup participated, too. The involvement of the Austrian School émigrés helped attract other leading intellectuals. Vienna Circle philosophers Viktor Kraft, Philipp Frank, and Rudolf Carnap returned. Philosopher Karl Popper, Nobel laureate physicist Erwin Schrödinger, social scientist Paul Lazarsfeld, and historian Eric Hobsbawm attended. Within a few years, several hundred people participated annually. Today the European Forum Alpbach continues to bring scholars together from around the world.

The Alpbach Forum provided encouragement for other Austrian School endeavors, especially in the Austrian capital. In 1946 Hayek wrote, “There is clearly an opportunity to preserve Vienna as an intellectual centre…. I am naturally most interested in seeing the tradition in Economics preserved.” Hayek proposed “to get some of the Austrian economists who are now located in the United States or in England to go to Vienna for a short concentrated course.”[4] Hayek, Morgenstern, and Haberler made the trip in July 1947. They drew large audiences to their courses. on game theory, international trade, and monetary theory.

The four-week Vienna trip was encouraging, yet it also highlighted the unlikelihood of reestablishing something resembling their former school. The émigrés stressed the quality of Austrian students but the inadequacy of educational facilities. Morgenstern identified a “considerable interest in economics” that “may perhaps produce very lasting effects.” He feared that Austrian economics teaching was “very poor,” however. The only way to rectify the situation was to bring in foreign scholars as visiting professors. Only then could one “resurrect what might still remain an important center of economic studies.”[5] Hayek pushed this idea further. In 1955 he devised a program for an “Institute for Advanced Human Sciences at Vienna.” For him, the restoration—and extension—of the Austrian tradition demanded support: “Although the first aim would be to bring back so far as possible the men who can revive and continue the interrupted tradition, the efforts should not be confined to this.”[6]  He encouraged the Rockefeller and Ford Foundations to invest in “a few endowed professorships…which would enable them to act as a social centre for the community of scholars.”[7]

These institution-building efforts bore fruit in the 1960s, if not exactly as Hayek and Morgenstern planned. A less expensive proposal from Paul Lazarsfeld won favor with the Ford Foundation and Austrian government. In 1962 the Institute for Advanced Studies (IAS) was established in Vienna. Hayek and Morgenstern both assisted in the IAS’s growth. Hayek served as an inaugural fellow in 1962-3; Morgenstern became director in 1965. Austrian émigrés taught summer courses and served as visiting professors, including Morgenstern, Hayek, Haberler, and Gerhard Tintner. The IAS remains a leading center of social scientific research today.

Ultimately, the influence of the postwar Austrian School economists was more significant outside Austria. They plied their theories in American think tanks and universities, in governmental agencies, and US-led international institutions. Austrian thought enjoyed a resurgence in the early 1970s with the first conferences on “Austrian Economics” and then with the rise of conservative politicians like Margaret Thatcher and Ronald Reagan. The collapse of the Soviet Union and the end of the Cold War also seemed to confirm Austrian assertions about the shortcomings of planned economies. While “Austrian Economics” has remained on the margins of the economics discipline, the free market and capitalist political and economic theories of Hayek, von Mises, and Schumpeter enjoy a wide popularity among conservatives, European-style liberals, and libertarians.

While their US and international recognition has exceeded their reputation in Austria, School members nevertheless committed to their homeland and its postwar revitalization with as much enthusiasm as they dedicated to international endeavors.  The Austrian School left a mark on their homeland through the Austrian Institute of Economic Research (the heir to their interwar Institute), the European Forum Alpbach, and the Institute for Advanced Studies. These endeavors demonstrate that migration was not unidirectional, nor was the dissemination of ideas. The Austrians bridged the transatlantic world, contributing significantly to the contemporary economic and political landscape in the US, Austria, and beyond.

Author Bio

Janek Wasserman is Associate Professor of Modern German and Central European History at the University of Alabama. He was a Botstiber Institute for Austrian-American Studies Fellow for 2014-2015. His current book, Marginal Revolutionaries: Austrian Economics from Coffeehouse to Tea Party, was published by Yale University Press in September 2019. His first book, Black Vienna: The Radical Right in the Red City, 1918-1938 appeared with Cornell University Press in 2014.

[1] E. Wilder Spaulding, The Quiet Invaders: The Story of the Austrian Impact on America (Vienna: Österreichischer Bundesverlag, 1968).

[2] On Road’s publication history, see Bruce Caldwell, “Introduction,” in Friedrich Hayek, Road to Serfdom: Text and Documents, ed. Bruce Caldwell (Chicago: University of Chicago Press, 2007): 15-23.

[3] See Maria Wirth, A Window to the World (Vienna: European Forum Alpbach, 2015).

[4] Hayek to J.H. Willits, October 31, 1946, RG 1.1, Series 700, Box 2, Folder 16, Rockefeller Archive Center (RAC).

[5] Oskar Morgenstern, “Report on a trip of lecturing and study in some European countries,” RG 1.1, Series 700, Box 2, Folder 16, RAC.

[6] Friedrich Hayek, “Memorandum on Condition and Needs of the University of Vienna,” Friedrich Hayek Papers, Box 62.

[7] Friedrich Hayek, “Report on Visits to Austria and Switzerland,” R.G. 1.1, Series 700, Box 2, Folder 16, RAC.