The Breakthrough of the Austrian School

At the University of Vienna, Menger faced the determined opposition of Lorenz von Stein, the great champion of French socialism in Germany and Austria.⁶¹ Stein rejected Menger's first petition for the Habilitation degree, accepting his application only after Menger had his Principles printed by the Vienna publisher Wilhelm Braumüller at his own expense and sent a proof of the first two chapters to Stein. Having accepted his application, Stein still failed Menger for the degree. After several favorable reviews of his book appeared in German professional journals, Menger applied again and this time he passed.

He immediately received offers to teach outside Vienna, but declined because of the heavy financial losses he would sustain if he abandoned his position at the Wiener Zeitung. Instead he stayed as a private lecturer at the University of Vienna. A year later the University of Basel made him a very attractive offer. To keep the gifted young professor, the University of Vienna offered Menger a position as professor extraordinarius⁶² of political economy and allowed him to keep his position with the Wiener Zeitung. He accepted and stayed in Vienna for the rest of his career, teaching courses on banking, credit, general economics, and public finance.⁶³ In the fall of 1874, he abandoned his position with the Wiener Zeitung to have more time to devote to the research that would lead to the publication of Investigations.

In all his academic endeavors, Menger met with the continued resistance of the department, which was run by a group under Stein's leadership. Menger decided to form a new coalition and to wrestle down the old oligarchs. And in 1876 he succeeded, because a decisive change had occurred in his career. The previous fall, he had been approached to become the private tutor of Rudolf von Habsburg, the twenty-two-year-old heir to the throne of Austria-Hungary.

Crown Prince Rudolf

This commission was to be the apex of Menger's pedagogic activities, but it also brought to light his political views, which he had always been careful not to reveal in any of his published writings. After a careful analysis of Prince Rudolf's notebooks, Erich Streissler concludes that these books “show Menger to have been a classical economic liberal of the purest water... with a much smaller agenda for the state in mind than even Adam Smith.”⁶⁴ Streissler goes on:

Menger's Rudolf Lectures are, in fact, probably one of the most extreme statements of the principles of laissez-faire ever put to paper in the academic literature of economics. There is just cause for economic action only in “abnormal” circumstances. Only when “disaster is impending,” only where “government support becomes indispensable” should the state step in. Otherwise “government interference” is “always... harmful.”⁶⁵

Menger was smart enough not to present these views on government as his personal opinion. Rather he worked from carefully selected readings to drive his message home. He even chose as his main textbook Adam Smith's Wealth of Nations. Still, Menger's political views seem to have been familiar enough within the Austrian establishment to cause conflict over the question of his nomination as Rudolf's tutor. In fact it came to a confrontation between the conservative councilors of Rudolf's father Franz Joseph, and the more liberal-minded councilors of his mother Elisabeth. The empress eventually had the last word.

Menger took an extended leave of absence from the University for his work with Rudolf, which started in January 1876 and lasted for two years. He became “one of the most trusted teachers of the Crown Prince, trusted by Rudolf himself and by his elders.”⁶⁶ Menger had made his career. His new monarchical Protektion quickly lifted him to the rank of full professor at the University of Vienna, the most prestigious position for an economist in the entire empire. He was now in a position of virtually unrivalled influence on the academic social sciences in Austria-Hungary. Other honors followed almost as a matter of course: he became a lifetime member of the Herrenhaus, the upper chamber of the Austrian parliament, member of the academies of sciences in Vienna and Rome, of the Institut de France, and of the Royal Society in Edinburgh.⁶⁷

He used this power to settle conflicts within his department at the University of Vienna. And he also seems to have used it to fill Austria's other chairs of political economy with his followers, including Böhm-Bawerk and Wieser.⁶⁸

Menger saw himself as the founder and leader of a new school of social research, and he strove to raise disciples and to spread them over the land. In a confidential March 1902 letter to the Austrian Ministry of Culture in which he petitioned for early retirement, he claimed that his teaching activities “have generated results that surpass the common results of teaching. This concerns in particular the foundation of the Austrian School of economics.” He also points out that many excellent young scholars received their university professor's diploma (the Habilitation) under his auspices and that these scholars had obtained the majority of the chairs of political economy at the Austrian universities. Besides his main followers, Böhm-Bawerk and Wieser, he referred to Emil Sax, Johann von Komorczynski, Robert Meyer, Gustav Gross, Eugen von Philippovich, Victor Mataja, Robert Zuckerkandl, Hermann von Schullern-Schrattenhofen, Richard Reisch, and Richard Schüller. The list of those of his students who had not chosen an academic career is no less impressive. Among them were Moritz Dub, Viktor Grätz, Wilhelm Rosenberg, Rudolf Sieghart, and Ernst Seidler.⁶⁹ These men would play an important role in Ludwig von Mises's life and career.

Carl Menger

Menger was successful not only in developing the continental tradition of economic science, but also in establishing a network of like-minded young thinkers within the confines of Austria-Hungary.⁷⁰ He only failed to get Böhm-Bawerk a chair at the University of Vienna. His favorite disciple applied twice, in 1887 and 1889, but each time the Ministry of Education chose a different candidate. They argued that Böhm-Bawerk represented the same abstract and purely theoretical school as the other chairholder (Menger) and that it was necessary to also have a representative of the new historical school from Germany.⁷¹ Even this did not prove to be a decisive obstacle. In the fall of 1889, Böhm-Bawerk went to Vienna to join the Ministry of Finance and became an adjunct professor at the University of Vienna; in 1905 he obtained a full chair. Hence, in distinct contrast to all other modern (marginalist) schools of economic thought, the Austrian School quickly reached a position of power, protected by intellectual tradition and political patronage. Under the leadership of the next generation, it would obtain a position of unparalleled influence.