Austrian Economics emerged as a counterpoint to the prevailing British economic philosophy, which had been pioneered by Adam Smith in his enduringly influential work, The Wealth of Nations. The first significant departure from these British ideas was presented by Carl Menger in his “Principles of Economics”, published in 1871. While Menger is recognized as the official founder, his work built upon ideas proposed by predecessors.
Menger’s contemporaries, Stanley Jevons and Leon Walras, contributed significantly to the development of Austrian economic thought. Collectively, their independent works elaborated on the concept of the subjective nature of economic value, introducing the theory of marginal utility.
This theory posits that the more units of a good an individual possesses, the less value they assign to each additional unit. Menger and his colleagues also explored how money originates in a free market, suggesting that the most desirable commodity is valued not for direct consumption but for its ability to facilitate the acquisition of other goods.
Menger’s subsequent influential work, Investigations, published twelve years later, directly challenged the German Historical School, which viewed economics primarily as a means of data collection for state benefit.
As a professor of economics at the University of Vienna, Menger reoriented the field back to its foundations as a science of human action based on deductive logic. His work laid the groundwork for future proponents of Austrian Economics and influenced students such as Friedrich von Wieser, who later impacted the critically important Austrian School economist Friedrich von Hayek.
Menger’s influential works continue to be studied as an excellent introduction to economic theory and thought. All subsequent Austrian economists consider themselves disciples of Menger, the great founder of this school of economic theory.
Eugen Böhm-Bawerk, a follower and admirer of Menger, was the next significant figure in the Austrian School. He expanded on Menger’s work, addressing complex economic issues such as price, value, interest, and capital. His influential work “History and Critique of Interest Theories” published in 1884, remains a well-regarded examination of historical fallacies in philosophy and economics. He argued that interest rates are integral component to the market itself.
In his later work “Positive Theory of Capital” Böhm-Bawerk demonstrated that the interest rate is the normal rate of profit in business. Böhm-Bawerk’s works led him into extensive debates with Marxists regarding the concept of capital exploitation, effectively refuting socialist ideas on wages and capital well before the rise of communism in Russia.
During his tenure as finance minister in Hapsburg Austria, he implemented his economic theories on sound money, the gold standard, balanced budgets, free trade, and the elimination of monopolies and subsidies for key goods exporters. His writings, research, and practical application of economics helped to popularize the Austrian School throughout the Anglo-American and Imperial British world.
Ludwig von Mises emerged as another key figure in Austrian Economics. His work “The Theory of Money and Credit” further developed the application of marginal utility theory to money and outlined the Austrian School’s perspective on the business cycle.
After World War I, Mises challenged the rising forces of political and economic socialism in his series of essays compiled into the book “Socialism”. In this work, he effectively demonstrated how the practical application of socialism to nation-states and governments would lead to societal breakdown and potentially the end of civilized world. This debate continued, largely favoring the socialists, until the collapse of political and economic socialism globally in 1989, posthumously vindicating von Mises’ arguments.
Mises’ influence on Austrian Economics was so profound that his converts and disciples from the socialist camp included renowned figures such as Hayek, Lionel Robbins, and Wilhelm Röpke. These individuals went on to establish the foundation for the ongoing revival of Austrian Economics in the United States and Great Britain. Among his final and most influential students, Murray Rothbard proved to be one of the most adept proponents of Mises’ ideas. Rothbard’s 1963 work, Man, Economy, and State, initiated a revival in the then-struggling Austrian School that continues to this day.
