The Founder of the Austrian School of Economics

Through his two masterworks of 1871 and 1883, Menger heralded a new era in economics. Commentators are strongly disputing whether he conscientiously founded a school to spread the word.

In any case, Menger’s economics became known as “Austrian” because of their Viennese originator. Even if Menger may have somehow caricatured historicism - as some historicists such as Emil Sax, Gustav Schonberg or Hans von Scheel had themselves criticized “ultra-historical” views - Menger had been cautious to refrain from entering debates on ontological issues. Also, because he provided economic research with the lineaments of a nascent epistemology based on a fully individualistic approach, he is rightfully said to have originated this school of thought.

There is evidence from letters to the Austrian ministry that Menger was indeed at least conscious that initiating a new school against the dominating German Historical School made sense in his fight. He spent much energy in it. His followers would develop some of his themes and the Austrian school would become famous for paying attention to socioeconomic phenomena taken in a multifaceted perspective: the economics of “time and ignorance”, the idea of the “roundaboutness” of production, imputation theory. Neither Menger nor his disciples managed to solve all the queries that had been raised. Yet, from Eugen von Bohm-Bawerk and Wieser to more recent followers, Austrian disciples would deal with themes that Menger originated: information (Hayek), uncertainty (Frank Knight), entrepreneurship (Israel Kirzner), and so on. Thus, the work of Menger still remains to this day seminal in debates about all sorts of conditions in trade, on the role of time, information, location and allocation of resources, legal conditions, the birth and growth of institutions.

While so-called Austrians picked on the mainstream, some of their arguments also slowly made their way into it, like information into agency cost theory. Some Austrian traits remain specific, such as a rigorous methodological individualism and their interest in subjectivity, which sometimes pervades neighbouring sciences, like sociology.

The views of Menger and his followers also diverged at times: for example, his understanding of empirical studies contrasts with the “extreme a-priorism” defended in Human Action (1949) by Mises and, later on, Murray Rothbard. More divergences can be spotted with recent Austrians: “free-banking” is widely upheld among them, while it is a far cry from Menger’s say, notably that “states, or groups of states may decree the quantity of money they emit” in order to provide a stable measure for the varying prices of commodities (Menger 1892 Campagnolo [2005]: 259). However, Menger’s views on the evolution of payment systems remain topical (Latzer and Schmitz 2002).

A seminal thinker, Menger, whose legacy is still an object for inquiry, initiated a major current of thought. Many economic policies would be advocated in his name (free-trade policies and radical economic liberalism), although he may not have upheld all of these as the inspiring founder of the school. In this regard and through the new sense he gave to what doing research means in economics, Menger stands in historical significance on a par with Quesnay, Smith, Marx or Keynes.

Gilles Campagnolo

The Founder of the Austrian School of Economics

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