Why are there no Austrian Socialists?

That is the title of an article by P. J. Boettke (1995; reprinted in Boettke 2000), and I have just finished reading it. While that article is a rich and genuinely interesting treatment of a myriad of topics – such as ethics, claims about the value-free nature of Austrian economics, and economic methodology – Boettke makes a point early on in the article that deserves further analysis:

“Wieser may have been a mild Fabian in political persuasion, but his insight concerning how the decentralized decisions in the private market economy would outperform a centralized economy precisely because of the ‘knowledge problem’ in the latter would become a theme repeatedly stressed by subsequent generations of Austrians in their battles with advocates of socialist and interventionist policies” (Boettke 1995: 36–37).

It is perfectly true that if by “socialist” we mean “Marxist” or “Communist,” then there are no Austrian advocates of “socialism.” If by “socialist” one means “social democrat” or an advocate of a mixed economy, then it is clear that one wing of the early Austrian school was actually compatible with social democracy.

Hayek was once asked about the 1920s history of the Austrian school, and his answer is instructive:

“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 identification with a school?

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 (1983), pp. 49–50).

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). Hayek claims that there were “very little” political differences between the two wings, and yet if we turn to the role of Eugen von Philippovich von Philippsberg (1858–1917), it looks like a different story to me.

Eugen von Philippovich von Philippsberg was a student of Carl Menger, and then taught at the University of Freiburg im Breisgau. He 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, and 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).

So we have an early Austrian who was an explicit member of the Vienna Fabians and was the “center of the Vienna Fabians.” In fact, von Philippovich was at the centre of the Austrian “social” liberal movement:

“Against the seeming hopelessness and isolation of classic Liberalism in German Austria, however, a new generation of younger, social Liberals evolved in Vienna in the mid- and later 1890s. The radicalism and optimism of the Viennese Fabians reflected their limited constituency responsibilities and their freedom of the constraints of membership in a large, diversified bourgeois party …. Viennese social Liberalism was rich in its associational life and in its points of intellectual and administrative influence, but its ideological and moral center point was the Social Political movement launched in 1893 by Eugen von Philippovich, Michael Hainisch, Julius Ofner, and Otto Wittelshbfer. They were soon joined by a wide circle of university academics, lawyers, and state officials, many of whom, like Josef Redlich, wrote for the new social Liberal weekly Die Zeit. These Viennese Fabians were of crucial importance in determining the course of the final generation of Austrian Liberalism before the war. Philippovich especially, with his irenic attempt to reconcile the historicism of Schmoller and the more theoretical, classical traditions of Austrian economics, served at the University of Vienna as a powerful moral and pedagogical influence on hundreds of young academics, journalists, and government bureaucrats after 1893 in reviving a semblance of post-Liberal bourgeois culture” (Boyer 1978: 76–77).

The aims of the Austrian Fabians are described in von Philippovich (1896), which, unfortunately, I can’t get hold of, but his views summed up by J. W. Boyer:

“ … the Fabians were social instrumentalists who sought to improve bourgeois society without destroying its fundamental private capitalist rationale. Much of Philippovich’s scholarly work in economics considered reformist policy questions such as housing reform, tax policy and wage rates, and social insurance for private employees as well as the more general problem of bourgeois solidarism as a mediatory mode between capitalism and socialism” (Boyer 1978: 80–81).

One can turn to von Philippovich’s writings on this, though again I have not yet read them:

Eugen von Philippovich, 1906. Grundriss der Politischen Oekonomie (vol. 1; 6th edn), Allgemeine Volkswirthschaftslehre, Tubingen (pp. 14–19; 206–209; 408–414).

Eugen von Philippovich, 1905. “Individuelle Verantwortlichkeit und gegenseitige Hilfe im Wirtschaftsleben” [“Individual Responsibility and Mutual Assistance in Economic Life”], Zeitschrift fur Volkswvirtschaft, Sozialpolitik und Verwaltung 14: 547–570.

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 Carl 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).

Moreover, according to Hayek, classical liberalism/libertarianism was not 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: 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).

According to Hayek, it was “marginal utility analysis” that was the defining attribute of the Austrian school, not Classical liberalism. And Hayek himself had been an adherent of Fabian socialism as Wieser’s student in the 1920s before he was influenced by Mises (Ebenstein 2003: 40–41).

So what we in fact have is four early Austrians who were connected to Fabian socialism:

(1) Eugen von Philippovich, a leader of Austrian social liberalism;
(2) Friedrich von Wieser;
(3) the early Hayek, and
(4) Richard von Strigl (who was, according to Hayek, “if anything, a socialist”).

There were Austrian socialists of the social democratic variety, and modern Austrians have ignored them, and questions about how early Austrian economics was compatible with Fabian socialism. A more serious question would also be: why are there no Austrian social democrats today?

These seem like promising research questions to me.

Appendix: The Early Austrian School

BIBLIOGRAPHY

Boettke, P. J. 1995. “Why are there no Austrian socialists? Ideology, science and the Austrian school,” Journal of the History of Economic Thought 17: 35–56.

Boettke, P. J. 2000. Calculation and Coordination: Essays on Socialism and Transitional Political Economy, Routledge, New York. 7–28.

Boyer, J. W. 1978. “Freud, Marriage, and Late Viennese Liberalism: A Commentary from 1905,” Journal of Modern History 50.1: 72–102.

Ebenstein, A. O. 2003. Friedrich Hayek: A Biography, University of Chicago Press, Chicago.

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.

Philippovich, Eugen von, 1896. “Alt- und Neu-Oesterreich,” Die Zeit (August 29).

Philippovich, Eugen von, 1905. “Individuelle Verantwortlichkeit und gegenseitige Hilfe im Wirtschaftsleben” [“Individual Responsibility and Mutual Assistance in Economic Life”] Zeitschrift fur Volkswvirtschaft, Sozialpolitik und Verwaltung 14: 547–570.

Philippovich, Eugen von, 1906. Grundriss der Politischen Oekonomie (vol. 1; 6th edn), Allgemeine Volkswirthschaftslehre, Tubingen.

Schumpeter, J. A. 1997. Ten Great Economists (rev. edn), Routledge, London.

Schumpeter, J. and J. B. Achille Loria, 1927. “Obituary: Friedrich von Wieser,” Economic Journal 37.146: 328–335.

Shearmur, J. 1996. Hayek and After: Hayekian Liberalism as a Research Programme, Routledge, London.