My Amazon Review of Janek Wasserman's "The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas"

Something was in the Coffee

I first learned of Eugen von Bohm-Bawerk from the late and great UCLA economist Jack Hirshleifer’s capital theory class nearly 50 years ago. Who knew he was an Austrian and I had never heard of the Austrian School of economics. I have since learned of the people and ideas associated with the school. Here University of Alabama history professor Janek Wasserman presents a way too detailed look at the people and ideas of the Austrian School.

There must have been something in the coffee of late 19^th and early 20^th Century Austria-Hungary. In Vienna there lived the founders of the Austrian school including the above mentioned Bohm-Bawerk and Friedrich Hayek, Joseph Schumpeter, Carl Menger, Fritz Machlup, Gottfried Haberler, Oscar Morgenstern, and Ludvig von Mises. Not to be overshadowed in the dual monarchy, Budapest produced such physicists as Edward Teller, Leo Szilard, John von Neumann, and Dennis Gabor around the same time. In fact the two strands would merge when Morgenstern teamed up with von Neumann to write the “Theory of Games and Economic Behavior” in 1944.

The Austrian school was a major promoter of the now accepted marginal utility theory of value. Menger along with Jevons and Walras developed the theory in the 1870s and it was codified by Marshall in the 1890s. Marginal utility stood in direct contrast to the classical labor theory of value developed by Adam Smith and David Ricardo that was later expanded by Karl Marx.

The Austrians viewed themselves as classical liberals and as such they stood foursquare in opposition to the growing appeal of socialism that developed in the 1880s. Their theory was developed in the coffee houses of Vienna and many of their seminars were open to all. Indeed Bohm-Bawerk was open enough to invite socialists Otto Bauer and Rudolf Hilferding and the soon to be Bolshevik   revolutionary Nikolai Bukharin. But make no mistake, the Austrians were suspicious of popular democracy.

Their world first crashed with the onset of World War I and its aftermath and then the leading lights were forced into exile with the arrival of Hitler. Two emigres to the West became famous in the 1940s with Hayek’s “The Road to Serfdom” and Schumpeter’s “Capitalism, Socialism and Democracy.” 

With collectivism on the rise in the 1940s, they formed the Mont Pelerin Society where unlike the looser seminars of pre-World War I Vienna, dissent was not welcomed. It was through Mont Pelerin that the Austrians linked up with such Chicago School luminaries as Milton Friedman and George Stigler. It was at one of their conferences that von Mises called them out as socialists. Splits were inevitable.

Nevertheless after the Austrians linked up with Chicago and they received increasing funding from sympathetic foundations their influence soared as their views of limited government, free trade, floating exchange rates and the information economy percolated up to policy makers on both sides of the Atlantic. In a sense they were the godfathers of the neoliberal world.

Wasserman tells the story in way too much detail which is great for the academic reader, but not so much for the educated lay reader.

The Full amazon URL appears at: https://www.amazon.com/review/R1ZQEF4OUM2GWU/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv