The Fortunes of Liberalism

Essays on Austrian Economics and the Ideal of Freedom

F. A. Hayek, Peter G. Klein

• Publisher: University of Chicago Press
• Year: 2012
• Print ISBN:
  9780226155340
  9780226320649
• eBook ISBN:
  9780226321165
• Topic: Business
• Subtopic: Business General
• Index: Business

The Reagan and Thatcher "revolutions." The collapse of  Eastern Europe dramatically captured in the tearing down of  the Berlin Wall. F. A. Hayek, "grand old man of capitalism" and founder of the classical liberal, free-market revival which ignited and inspired these world events, forcefully predicted their occurrence in writings such as The Road to Serfdom, first published in 1944.

Hayek's well-known social and political philosophy—in particular his long-held pessimistic view of the prospects of socialism, irrefutably vindicated by the recent collapse of the Eastern bloc—is fully grounded in the Austrian approach to economics. In this new collection, Hayek traces his intellectual roots to the Austrian school, the century-old tradition founded at the University of Vienna by Carl Menger, and links it to the modern rebirth of classical liberal or libertarian thought.

As Hayek reminds us, the cornerstone of modern economics—the theory of value and price—"represents a consistent continuation of the fundamental principles handed down by the Vienna school." Here, in this first modern collection of essays on the Austrian school by one of its preeminent figures, is the genesis of this tradition and its place in intellectual history.

Reflections on Hayek's days as a young economic theorist in Vienna, his opening address to the inaugural meeting of the Mont Pèlerin Society, and essays on former teachers and other leading figures in the Austrian school are included in volume 4. Two hitherto unavailable memoirs, "The Economics of the 1920s as Seen from Vienna," published here for the first time, and "The Rediscovery of Freedom: Personal Recollections," available for the first time in English, make this collection invaluable for Hayek scholars.

Hayek's writings continue to provide an invaluable education in a subject which is nothing less than the development of the modern world.

PART I

THE AUSTRIAN SCHOOL OF ECONOMICS

PROLOGUE

THE ECONOMICS OF THE 1920s AS SEEN FROM VIENNA¹

Although I believe that the sponsors of these lectures rather wished me to do some reminiscing, I have deliberately chosen until now topics which precluded this. It is a dangerous habit to acquire, and when one begins to discover that to most of one’s audience things one remembers are unfamiliar and uninteresting, it is difficult to know where to stop. I have myself in the past not been the most patient of listeners to such recollections and now even regret that, when I first visited this country forty years ago and an old stockbroker who had discovered that I was interested in economic crises insisted on talking to me about his experiences in the crisis of 1873, I was not intelligent enough to ask him the right questions but rather regarded him as a bore. I don’t know why I should expect you to be any more patient, particularly as I have discovered that once one opens the floodgates all sorts of memories tend to slip through which throw more light on the vanity of the speaker than on any matter of wider interest.

On the other hand, as a student of the history of economics I have often spent much effort in vain endeavours to reconstruct the intellectual atmospheres in which past discussions took place and wished that the participants had left some account of their relations with their contemporaries, and especially that they had done so at a time when their recollections were still tolerably reliable. Now as I stand before you committed to the task I can well understand why most men were reluctant to do so: It is, I am afraid, almost inevitable that in such an attempt one becomes somewhat egotistical, and if I speak perhaps too much about my own experiences, please remember that the fact that I can do so is my only, though perhaps insufficient, justification for talking at all about this subject. I have no doubt that if I ever prepare these lectures for publication, what I have put down for these talks will need a good deal of pruning. But this oral presentation is after all largely a talk to old friends and so I will let myself go.

The University of Vienna, which I entered late in 1918 as a raw youth fresh from the war, and particularly the economics part of its law faculty, was an extraordinarily lively place. Though material conditions were most difficult and the political situation highly uncertain, this had at first little influence on the intellectual level preserved from pre-war days. I do not want here to consider the question why the University of Vienna, which until the 1860s had not been particularly distinguished, then for a period of sixty or seventy years became one of the intellectually most creative anywhere and produced distinct internationally known schools of thought in a great variety of fields: philosophy and psychology, law and economics, anthropology and linguistics, to name only those closest to our interests. I am not clear myself what the explanation is—or whether such a phenomenon can really be fully explained. I will merely record that the rise of the place to eminence coincides precisely with the victory of political liberalism in that part of the world and that this eminence did not long survive the predominance of liberal thought.

It is possible that immediately after the First [World] War, though some of the great men of the pre-war period had already gone and there were, at least at first, serious gaps in the faculty, the intellectual fermentation among the young was even greater than before. In part this may have been due to the fact, so conspicuous after the Second [World] War, that the student body was of a more mature age, and partly that the experience of the war and its aftermath had produced a keen interest in social and political problems. Though some of the older men of course were mainly anxious to qualify for a profession as rapidly as possible, among the younger ones the wasted years of war service had rather created an unusual determination to make full use of the opportunities to which we had so long been looking forward.

In part it was of course the circumstances of the time that many of the issues and problems were in those years intensely discussed in Vienna which only somewhat later became topical in the Western world, with the result that in the course of my migrations I had again and again the feeling that “I have been here before”.² The nearness of the communist revolution—Budapest, only a few hours away, had for a few months a communist government in which some of the intellectual leaders of Marxism were active who soon appeared as refugees at Vienna—the sudden academic respectability of Marxism, the rapid expansion of what we have since learned to call the welfare state, the then-new conception of the ‘planned economy’, and above all the experience of an inflation of a degree which no living European remembered, determined very largely the topics of discussion. But some of the purely intellectual currents which since have swept the Western world were already at their height in Vienna at the time. I will mention only psychoanalysis and the beginning of the tradition of logical positivism, which dominated all philosophical discussion.

I must, however, try to concentrate here on the development of economic theory, and perhaps the most remarkable circumstance is how much the interest at the University, at a time when so many urgent practical issues presented themselves, centred upon the purest of pure economics. Here the effects of the marginalist revolution,³ which did not lie much farther back than the time about which I am speaking does now, were still clearly felt. Of the great men who had brought it about only Wieser⁴ was still active. Both Böhm-Bawerk⁵ and Philippovich,⁶ the two most influential teachers of the pre-war period, the first in theory and the second mainly in problems of policy, had died early during the war. Carl Menger⁷ was still alive, but a very old man who had retired fifteen years earlier and was to be seen only on rare occasions. He was to us young men more a myth than a reality, particularly as his book⁸ had become a great rarity which was practically unobtainable as the copies had even disappeared from the libraries. Few of the men whom we met still had direct contact with him. The live memory which we encountered everywhere among our seniors was that of the Böhm-Bawerk seminar, which evidently had been the centre for all those most interested in economics in the pre-war days. Our female contemporaries, on the other hand, were all full of Max Weber,⁹ who for a short semester had taught at Vienna just before the war ended and we men came back.

Wieser, the last living link with the great past, seemed to most of us at first a somewhat aloof and inapproachable grand-seigneur. He had only just returned to the University after serving as Minister of Commerce in one of the last imperial governments. He lectured on the lines of his Social Economics,¹⁰ published just before the outbreak of war—the only systematic treatise on economic theory which the Austrian school¹¹ had produced and which he seemed to know more or less by heart. It was not a lively but, as pure lectures go, a most impressive and aesthetically satisfying performance, meant mainly for the law students for whom this one survey of economic theory would be their only contact with the subject. Only those who took all their courage in their hands and approached the majestic figure after the lecture might discover that this would elicit the most kindly and helpful interest and produce an invitation to his small seminar or even to a meal at his home.

There were at first two other full-time teachers of economics, a Marxist economic historian¹² and soon a young, philosophically inclined new professor, Othmar Spann, who at first evoked considerable enthusiasm among the students. He had some helpful things to say on the logic of the means-ends relationship but soon moved into regions of philosophy which to most of us seemed to have little to do with economics.¹³ But his little textbook on the history of economics,¹⁴ reputedly modelled on Menger’s lectures on the subject, was for most of us the first introduction to this field.

Though a new degree in the political and economic sciences had just been created, most of us were still working for the law degree in which economics was only a small part and any professional competence we had largely to acquire by our own reading and from the teaching of men for whom this was a part-time labour of love. The most important of them was of course Ludwig von Mises,¹⁵ but I myself came to know him well only comparatively late and I shall return to him later.

I must say here, however, a few words about the Central European, and particularly Austrian, university organisation, the peculiarities of which are rarely understood and which, in spite of all their defects, contributed not a little to that close contact between the full-time academics and the amateurs, in the best sense of the word, which was so characteristic of the atmosphere of Vienna. The number of full-time teachers at the university, full and associate professors (Ordinaries and Extra-ordinaries), was at all times small, and these positions were normally reached only comparatively late in life, rarely in a man’s thirties and more often in his forties or even fifties. To be eligible for such an appointment one had, however, to obtain earlier, usually a few years after one’s doctor’s degree, a licence to teach as a Privatdozent, a position which carried no salary beyond a share in the negligible fees the students paid for the particular courses. In the experimental subjects, where one could do research only at some institute, these Privatdozenten usually also held paid assistantships at these institutes which might just enable them to devote themselves entirely to scientific work. But in all the non-experimental fields, like mathematics, law and economics, history, languages, and philosophy, nothing of the sort was available. And unless one had an independent income, which before the First World War a fair proportion of the class going in for academic work had but after the great inflation scarcely anyone had, there was no other possibility than to take some other job for a livelihood and do one’s research and a little teaching in one’s spare time. In the law faculties, which you will remember included economics, the most frequent choice was to become a civil servant or, the most attractive position, an officer of the various trade or industrial organisations, or a practising lawyer; and in the arts it was usually teaching at a secondary school which had to bridge the gap until at last the hoped-for professorship came, if it came at all—the number of Privatdozenten was always much larger than the number of professorships. Perhaps more than half of those who had aspired to an academic career thus remained mere part-time teachers on a voluntary basis all their lives, teaching whatever they were interested in but drawing practically no income from this. To the outsider and particularly to the foreign observer this situation was largely disguised by the fact that after a few years the mere title of Professor was conferred on the Privatdozenten, which altered however nothing in their position. In some subjects, it is true, such as medicine and law, the prestige of the title might confer considerable pecuniary advantages and a doctor or lawyer might charge considerably higher fees if he could call himself “professor”. It was only in this sense that, for example, Sigmund Freud was ever a professor at the University of Vienna.

This is not to say that some of these men did not as teachers have an influence quite as great as any of the regular professors. The two or three hours a week for which they would usually lecture or hold discussion classes would, if they were gifted teachers, sometimes have more effect than the performances of the regular professors—though the fact that the latter had the monopoly of the degree examinations inevitably reduced the influence of the former.

In law and economics, at any rate, this system had not only the advantage that all university teachers had had more or less long periods of experience in practical work but also that it generally created close contacts between the academic world and the professions. In fact a very much larger proportion of the most gifted graduates than in the end ever got to qualifying as Privatdozenten would long keep this possibility in mind and be doing a certain amount of scientific work on the side. And this served to preserve a tradition of the Privatgelehrte, the private scholar, which in the nineteenth century had been of considerable importance—perhaps not of as great an importance in Austria as it had been in England, but still of some significance. In our field an interesting instance from the 1880s is the authors of one of the great contributions to mathematical economics which came from Vienna, the Researches on the Theory of Price by Rudolf Auspitz and Richard Lieben,¹⁶ of whom the first was a sugar manufacturer and the second a banker. There were still a few figures of this kind about in the period after the First [World] War, of whom at least the financier Karl Schlesinger, who had written an interesting book on money¹⁷ and invented the term ‘oligopoly’, regularly took part in our discussion. Two or three others of the leading businessmen and a few high officials who had earlier made themselves names as economists were during those disturbed post-war years too occupied to take more than an occasional part in current scientific activities.

But on the main platform for current economic discussions at Vienna at that time, a small informal club called the Nationalökonomische Gesellschaft,¹⁸ which had barely survived the war and after an interruption was revived, I think those non-academics and non-professionals were always a majority. But while this was the only group where old and young, academic and non-academic, met some five or six times a year for discussing a set paper, for us younger men other more regular opportunities for discussion outside the university were more important. For most of the period between the two wars the most important of these was what was known as the Mises Privatseminar, though it was really entirely outside the university. These were fortnightly informal meetings held in the evening at Mises’s office at the Chamber of Commerce and invariably continued far into the night at some coffeehouse. They must have started about 1922 and I believe continued until Mises left Vienna in ...

Table of contents

• Cover
• Copyright
• Title Page
• Plan of the Collected Works
• The Collected Works of F. A. Hayek
• Contents
• Editorial Foreword
• Introduction
• PART I: THE AUSTRIAN SCHOOL OF ECONOMICS
• PART II: THE FORTUNES OF LIBERALISM
• Notes
• Editor’s Acknowledgements
• Chronological List of Contents
• Index