The Austrian school of economics traces its origins back to the Austrian founder Karl Menger (1840–1921), and the first generation of Austrian economists were Friedrich von Wieser, Eugen von Böhm-Bawerk, and Eugen von Philippovich von Philippsberg (see the “Austrian School,” for a short history). In the 1940s a branch of the Austrian school sprung up in America under the influence of Ludwig von Mises (a second generation Austrian), whose student Murray Rothbard was the developer of anarcho-capitalism. Yet another tradition is derived from the work of Friedrich August von Hayek, a third generation Austrian.
And now for what might be a bombshell for some people. Two of the first generation of Austrian economists were clearly supporters of Fabian socialism. Yes, you heard me right: they were advocates of early 20th century Fabian socialism.
First, let’s start with Eugen von Philippovich von Philippsberg (1858–1917). Eugen von Philippovich studied under Karl Menger, taught at the University of Freiburg im Breisgau, and returned to the University of Vienna in 1893 as a professor of economics (Hülsmann 2007: 83). Philippovich was already in favour of state intervention before he taught at Vienna. On his return as a Professor in 1893,
“he immediately joined the Vienna Fabians. The group organized public conferences and discussions to promote the idea of government intervention in the service of a “social” agenda, which primarily concerned the support of the working-class poor. Philippovich’s personal and intellectual qualities made him the center of the Vienna Fabians and helped spread their influence among academics and businessmen. These activities were so successful that Fabian ideas eventually were incorporated into the programs of all Austrian political parties” (Hülsmann 2007: 83).Eugen von Philippovich was not alone in such views.
Baron Friedrich von Wieser (1851–1926), another first generation Austrian economist, was sympathetic to Fabian socialism as well and not hostile to government intervention per se.
Friedrich von Wieser was born in 1851, and took a degree from the University of Vienna in 1872. After historical interests, he came to study economics after reading Karl Menger’s Grundsatze (for Wieser’s life, see Schumpeter 1997: 298ff; Schumpeter and Achille Loria 1927). From 1903 he succeeded Menger at the University of Vienna where he taught economics along with his brother-in-law Eugen von Böhm-Bawerk. Friedrich von Wieser was the teacher of Friedrich August von Hayek.
A. O. Ebenstein, in his Friedrich Hayek: A Biography (Chicago, 2003), provides a good summary of von Wieser’s economics:
“Wieser was more corporatist and intervention-minded than Böhm-Bawerk and Menger. Hayek recalled that when he was a student, he was ‘very much aware that there were two traditions’ in the Austrian school — the ‘Böhm-Bawerk tradition and the Wieser tradition. Wieser was slightly tainted with Fabian socialist sympathies. Hayek observed of his later relationship with Mises, who ‘represented the Böhm-Bawerk tradition,’ that ‘I perhaps most profited from his teaching because I came to him as a trained economist, trained in a parallel branch of Austrian economics from which he gradually, but never completely, won me over” (Ebenstein 2003: 26).Friedrich August von Hayek was a direct student of Friedrich von Wieser. And what’s more Hayek in his youth shared von Wieser’s Fabian socialist leanings: A. O. Ebenstein notes that Hayek had a“mild, Fabian socialist phase … from about the ages of seventeen to twenty-five” (that is, from about 1916 to 1924), though Hayek never accepted Marxist socialism (Ebenstein 2003: 23).
Why did Hayek become a student of von Wieser? We can go straight to the horse’s mouth. Hayek himself explained why he chose to study economics under von Wieser:
“I was personally a pupil of [sc. Eugen von Böhm-Bawerk’s] … contemporary, friend and brother-in-law, Friedrich von Wieser. I was attracted by him, I admit, because unlike most of the other members of the Austrian school, he had a good deal of sympathy with a mild Fabian socialism to which I was inclined as a young man. He in fact prided himself that his theory of marginal utility had provided the basis of progressive taxation, which then seemed to me one of the ideals of social justice” (F. A. Hayek, “Coping With Ignorance,” July 1978; see also Hayek 1983: 17).When Hayek studied under Friedrich von Wieser shortly before 1921, the latter was known to have “a good deal of sympathy with … [the] mild Fabian socialism” of Hayek’s youth.
These details are confirmed in the series of interviews with Hayek published in 1983 (see Nobel Prize-Winning Economist: Friedrich A. von Hayek, Regents of the University of California, 1983).
Hayek was asked about his student days:
BUCHANAN: Well, to go back to the Austrians again, were you actually a student of Bohm-Bawerk and Wieser?When Hayek was asked about the history of the Austrian school in the 1920s, he gave this account:
HAYEK: No. Böhm-Bawerk, no. Böhm-Bawerk died in 1915, when I was sixteen. I happened to know him as a friend of my grandfather and a former colleague at [the University] of Innsbruck, and as a mountaineering companion of my grandfather’s. But when I saw him, I had no idea what economics was, because I was too young. I was a direct student of Wieser, and he originally had the greatest influence on me. I only met Mises really after I had taken my degree (Nobel Prize-Winning Economist: Friedrich A. von Hayek, p. 249).
LEIJONHUFVUD: In economics, let me come back to a question we have touched upon before. In the twenties in Vienna, was there such a thing as an Austrian school in economics? Did you and your contemporaries perceive an identification with a school?In other words, there was a split in the Austrian school in the 1920s between (1) the classical liberal wing of Eugen von Böhm-Bawerk/Mises (which evolved into modern American libertarianism), and (2) the wing of von Wieser, whose members (or at least some of them) were leaning towards Fabian socialism, and was clearly becoming more like modern progressive liberalism or social democracy (see also Shearmur 1996: 29). According to Hayek, Friedrich von Wieser was proud of his work justifying progressive taxation – a viewpoint far indeed from modern American Austrians.
HAYEK: Yes, yes. Although at the same time [we were] very much aware of the division between not only Meyer and Mises but already [Friedrich von] Wieser and Mises. You see, we were very much aware that there were two traditions—the [Eugen von] Böhm-Bawerk tradition and the Wieser tradition—and Mises was representing the Böhm-Bawerk tradition, and Meyer was representing the Wieser tradition.
LEIJONHUFVUD: And where did the line between the two go? Was there a political or politically ideological line involved?
HAYEK: Very little. Böhm-Bawerk had already been an outright liberal, and Mises even more, while Wieser was slightly tainted with Fabian socialist sympathies. In fact, it was his great pride to have given the scientific foundation for progressive taxation. But otherwise there wasn’t really—I mean, Wieser, of course, would have claimed to be liberal, but he was using it much more in a later sense, not a classical liberal (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 49–50).
Hayek also confirms that socialist ideas were by no means confined to von Wieser in the 1920s/1930s Austrian school: another member who was apparently sympathetic to socialism was Richard von Strigl (1891–1942). Nor was classical liberalism/libertarianism the major or defining ideology in the discussion group called the “Geistkreis” that Hayek and J. Herbert Fürth founded in 1921:
LEIJONHUFVUD: Now, in the twenties, were most of the economists in Vienna at that time liberals in the traditional sense?Hayek gradually abandoned his earlier sympathy to Fabianism under the influence of Mises in the 1920s (Ebenstein 2003: 40–41), and the classical liberal strand of Austrian economics hostile to government intervention has become the only real modern form of the Austrian school. This classical liberal strand spread to America when Mises moved to New York in 1940, and as noted above it was this type that transmuted into American libertarianism.
HAYEK: No, no. Very few. Strigl was not; he was, if anything, a socialist. Shams was not. Morgenstern—was not. I think it reduces to Haberler, Machlup, and myself.
LEIJONHUFVUD: So my previous question was: Was there an Austrian school? and you said yes, definitely.
HAYEK: Theoretically, yes.
LEIJONHUFVUD: In theory.
HAYEK: In that sense, the term, the meaning of the term, has changed. At that time, we would use the term Austrian school quite irrespective of the political consequences which grew from it. It was the marginal utility analysis which to us was the Austrian school.
LEIJONHUFVUD: Deriving from Menger, via either Wieser or Bohm-Bawerk?
HAYEK: Yes, yes.
LEIJONHUFVUD: The association with liberal ideological beliefs was not yet there?
HAYEK: Well, the Menger/Bohm-Bawerk/Mises tradition had always been liberal, but that was not regarded as the essential attribute of the Austrian school. It was that wing which was the liberal wing of the school.
LEIJONHUFVUD: And the Geistkreis was not predominately liberal?
HAYEK: No, far from it.
LEIJONHUFVUD: And what about Mises’s seminar?
HAYEK: Again, not. I mean you had [Ewald] Schams and Strigl there; and Engel-Janoschi, the historian; and Kaufmann, who certainly was not in any sense a liberal; Schutz, who hardly was—he was perhaps closer to us; Voegelin, who was not ….
LEIJONHUFVUD: So in the revival of interest in the Austrian school that has taken place in recent years in the United States …
HAYEK: It means the Mises school (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 54–56).
But hostility to government was not the original essence of Austrian economics at all, and the school was divided on the issue of government intervention.
Here’s my advice for the next time you debate a libertarian who quotes Mises and Hayek: remind them that two of the first-generation founders of Austrian economics were Fabian socialists.
APPENDIX 1: HAYEK ON RICHARD HENRY TAWNEY
Richard Henry Tawney (1880–1962) was an English economic historian and Christian socialist, and famous for his book The Acquisitive Society (1920). He was professor of economic history at the London School of Economics (LSE) from 1931–1949, in much the same period as Hayek’s time at the LSE.
Tawney was an inspiration to many people who advocate social democracy or democratic socialism in the non-Marxist Western tradition.
Hayek was asked his opinion of Tawney and this is worth quoting:
ROSTEN: What about the others at the London School, such as Harold Laski, who were very much in the Fabian tradition, out of which you came, in one way or another?Despite his condescending reference to Tawney as a “do-gooder,” Hayek was willing to refer to Tawney as a man who “was only concerned with doing good—my Fabian socialist prototype—and a very wise man.”
HAYEK: Harold Laski, of course, at that time had become a propagandist, very unstable in his opinions. There were many other people whom I greatly respected, like old [Richard Henry] Tawney. I differed from him, but he was a sort of socialist saint, what you Americans call a dogooder, in a slightly ironic sense. But he was a man who really was only concerned with doing good—my Fabian socialist prototype—and a very wise man.
(Nobel Prize-Winning Economist: Friedrich A. von Hayek, p. 113).
I can only say: how far has modern Austrian economics diverged even from Hayek. I cannot imagine a modern Austrian ever writing words like this.
Ebenstein, A. O. 2003. Friedrich Hayek: A Biography, University of Chicago Press, Chicago.
Ebenstein, A. O. 2005. Hayek’s Journey: The Mind of Friedrich Hayek, Palgrave Macmillan, New York.
Hayek, F. A. von, 1983. Knowledge, Evolution, and Society, Adam Smith Institute, London
Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism, Ludwig von Mises Institute, Auburn, Ala.
Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983
Schumpeter, J. and J. B. Achille Loria, 1927. “Obituary: Friedrich von Wieser,” Economic Journal 37.146: 328–335.
Schumpeter, J. A. 1997. Ten Great Economists (rev. edn), Routledge, London.
Shearmur, J. 1996. Hayek and After: Hayekian Liberalism as a Research Programme, Routledge, London.