Austrian School of Economics: Revisionist History and Contemporary Theory
3. The Revival of the Austrian School: Mises and Rothbard
There were reasons for the decline of the Austrian School before its revival and rebirth by Mises and Rothbard. There was an Israel Kirzner view in the 1970s that the Keynesian avalanche had buried Austrian economics in 1936. Then there is a big bang theory of its rebirth in 1974 due to the South Royalton meeting and Hayek receiving the Nobel Prize.
The revisionist account argues that the Austrian School was pretty much dead by 1930. Bohm-Bawerk’s ill health took him out of the picture in 1905 and he died in 1914. Menger refused to allow his book to be reprinted. So his book was not around. Schumpeter wrote two books and was the star in that generation, seen to outshine Mises. After WWI several studied under Weiser in Vienna. He was Hayek’s main influence. Equilibrium training overshadowed Mises’ work.
The few Austrians in England were marginalized. By 1920 everybody in England was a Marshallian. In the US there was a big gap in economic theory that was filled by Marshall. In the 1930s in America general equilibrium analysis was introduced into the English-speaking world. Robbins in England became a Keynesian. Robbins and Hayek did not follow what Mises thought was important.
In the 1930s there were several defects in the Austrian position. From Menger forward money was a barter theory. Money and prices were not yet integrated until Mises wrote Human Action. Mises also did not stress the role of the entrepreneur. Austrian economics was pushed aside as inelegant.
When Human Action was finally published in the 1940’s, Hayek did not even like Mises’ price theory. No wonder the school was dead.
Then, in 1962, Rothbard comes out with Man, Economy and State. He constructs a tremendous theory of production. Then, he writes America’s Great Depression and What Has Government Done to Our Money. He also wrote what became Power & Market – which was too radical to be published. For a New Liberty and Egalitarianism As a Revolt Against Nature then came out.
The rebirth was not South Royalton. The rebirth was Rothbard’s Man, Economy and State and his other work beginning in 1962. In 1982 Lew Rockwell founded the Ludwig von Mises Institute – now Mises Institute. Rothbard was the most important living Austrian economist.
Lecture 3 of 10 from Joseph Salerno's Revisionist History and Contemporary Theory.