“Third, and fatal for the theoretical core of the Austrian School, was the displacement of its theory of price, as originated by Carl Menger in 1871 and elaborated upon by Eugen von Böhm-Bawerk, John Bates Clark, Philip H. Wicksteed, Frank A. Fetter, and Herbert J. Davenport. Another strain had begun to develop along the lines spelled out by Menger’s other student Friedrich von Wieser, who followed the Walrasian path of developing price theory within the framework of general equilibrium. Wieser was the primary influence on two members of the third generation of the Austrian School, Hans Mayer and Joseph A. Schumpeter.This is rather interesting, because modern Austrians are quick to dismiss Schumpeter as not a strict member of the Austrian school, and yet the early Austrians were clearly strongly influenced by him and by Walrasian theory.
Members of the fourth generation, including Oskar Morgenstern, Gottfried von Haberler, Fritz Machlup, and Friedrich A. von Hayek, also tended to follow the Wieserian approach. The crucial influence on this generation had been Schumpeter’s treatise Das Wesen und der Hauptinhalt der Theoretischen Nationalökonomie, published in 1908. This book was a general treatment of the methodological and theoretical issues of price theory from a Walrasian perspective. Apart from Wieser’s writings, it was the only ‘Austrian’ work of pure theory to appear prior to Mises’s Nationalökonomie, the German-language predecessor to Human Action. For the young economists studying in Vienna, and despite criticisms by Böhm-Bawerk, Schumpeter’s book became a guide to the future of the science. As Morgenstern said, ‘the work was read avidly in Vienna even long after the First World War, and its youthful freshness and vigor appealed to the young students.… [L]ike many others in my generation I resolved to read everything Schumpeter had written and would ever write.’” (Mises 2008: vi–vii).
Indeed, the Walrasian influence on the early 20th century Austrians, via Wieser, is confirmed by J. G. Hülsmann:
“[sc. Wieser] … held Menger’s former position from 1903 to 1920 and continued to teach as an emeritus until his death in 1926. During this entire period, it was Wieser who taught the introductory courses in economic science at the University of Vienna. Until 1914, Böhm-Bawerk’s presence provided some counterbalance, but after his death, Wieser’s position was that of an unquestioned authority in all matters of general economic theory, a position reinforced by the publication that same year of his general treatise, Theorie der gesellschaftlichen Wirtschaft.Thus one cannot underestimate the influence of Walrasian theory on these Austrians and on Hayek in his early work, particularly in his trade cycle work, which is obviously within the unrealistic framework of general equilibrium.
The entire fourth generation of Austrian economists—brilliant young men like Hayek, Machlup, Haberler, Morgenstern, and Rosenstein-Rodan—were thus shaped by the Wieserian mold before they set off on their own intellectual paths. Largely ignorant of Menger’s Principles (out of print since the 1880s), they were trained in the spirit of the neoclassical synthesis. As a result of these circumstances, there was strictly speaking no fourth generation of “Austrian” economists in the Mengerian sense. All the young men who are commonly held to be fourth-generation members were in fact lost to the neoclassical school—with the possible exception of Hayek, who decades later rediscovered some Mengerian themes in his work on the Counterrevolution of Science (1954)” (Hülsmann 2007: 160–161).
Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism. Ludwig von Mises Institute, Auburn, Ala.
Mises, L. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala.