This review appears in the Fall 2020 issue of Modern Age. To subscribe, click here.


The Marginal Revolutionaries:
How Austrian Economists Fought the War of Ideas
By Janek Wasserman (Yale University Press, 2019)

The so-called Austrian School of Economics has been credited with all kinds of glorious and malevolent accomplishments. Depending on whom one asks, Ludwig von Mises, Friedrich Hayek, and company saved liberalism, capitalism, and indeed Western civilization from socialism and fascism; or they carried out a globalist plot to produce staggering inequality, democracy in chains, the Kochtopus, and a Starbucks on every corner. One man’s latté is another man’s neoliberal hellscape.

These would be no small feats, especially for a coterie of academics. To assess these claims, we must ask two fundamental questions: Who were the Austrian economists, and how did their ideas make their way from musty seminars into Margaret Thatcher’s briefcase?

Janek Wasserman answers both questions in The Marginal Revolutionaries. A blend of intellectual history and group biography, the book transcends conspiracy theories about malevolent influencers. Mises and Hayek are its most famous names today, but Wasserman shows that the story of the Austrian School had an ensemble cast, from the godfathers who laid the theoretical groundwork to the politicians who turned monographs into a movement. Though Wasserman writes from the left, he has produced a trustworthy guide to this adored, hated, but rarely understood school.

Its war of ideas had many theaters, from the coffeehouses of fin-de-siècle Vienna, to the Swiss Alpine resort town of Mont Pèlerin, to the conservative think tanks of today. The first shots of the conflict, however, involved a rather dry question: how to understand economic value.

Since at least Adam Smith, most economists had endorsed the “labor theory of value,” according to which a good’s objective worth is proportionate to the amount of effort expended to create it. Smith states in The Wealth of Nations, for example, that if killing a beaver takes twice as much work as killing a deer, then the beaver has twice the value of the deer. But this claim can’t be squared with an obvious fact: if no one wants the beaver, it’s not worth anything. The labor theory couldn’t make sense of how markets work, but it remained the consensus view, partly because no one had a better explanation.

No one, that is, until Carl Menger and Eugen von Böhm-Bawerk. In the last days of the Habsburg Empire, the two economists argued that goods have only the subjective value that a given person, thinking on the margin, ascribes to the last unit consumed. Customers purchase a good until its price equals its “marginal utility,” and it is their aggregate personal preferences and actions that determine what something is worth.

Applying this insight, the Austrians, like Hamlet, thus concluded that “there is nothing either good or bad, but thinking makes it so.” By shifting the emphasis from the objective factors of production to the subjective preferences of consumers, the Austrians flipped economics on its head and precipitated the so-called Marginal Revolution. Controversial then, marginal utility is now universally accepted and is taught in every Principles of Economics course.

From this discovery, Menger, Böhm-Bawerk, and their colleagues developed a distinct way of understanding human behavior. If consumers’ discrete decisions, rather than nebulous forces like labor and capital, were what shaped markets, then the way to explain social phenomena was by studying individual actions and their motivations. Influenced by their contemporary Max Weber, the Austrians thus crafted a theory of “methodological individualism,” in contrast to the national holism of the then-prominent German Historical School.

Weber’s stamp could also be seen in the Austrian School’s aspirations to scientific objectivity. By treating tastes and intentions as given, the Austrians could explain how and why people behaved as they did, without judging whether they should do as they did. They could explore new subjects, such as the role of knowledge in the economy, without “imposing their values,” as we would say today.

Such abstract ideas hardly seemed relevant to the rest of the world. But as later generations of Austrians saw, even such supposedly neutral, “value-free” economic concepts carried important political implications. Ludwig von Mises, for example, argued for the epistemic impossibility of a centrally planned economy. Friedrich Hayek branched off from economics to explore the legal and philosophical foundations of a liberal society. For better or worse, abstract economic principles merged with concrete political goals and policy preferences. Today, touting one’s Austrian sympathies is as likely to signal support for the Tea Party as it is fidelity to any scholarly method.

Ideas Have Consequences

While The Marginal Revolutionaries is about “how Austrian economists fought the war of ideas,” Wasserman emphasizes the fight rather than the ideas. If anything unites scholars and activists flung across continents and generations who have been associated with Austrianism (and as Wasserman shows, there have been so many feuds and rival sects that this is far from obvious), it is a commitment to certain principles of social scientific analysis. But Wasserman gives only the briefest summary of these principles. He dispatches Mises’s theory of praxeology—a deductive, axiomatic approach to human action—in just over a page. Readers will hardly come away with a justified reason either to accept or to reject Austrian ideas.

Glossing over theory keeps the narrative lively, but without a focus on the concepts some of the history becomes unclear. Despite marginal utility’s acceptance in mainstream economics, the Austrian School overall is a heterodox approach today. One cannot understand why Austrians reject the mainstream approaches without understanding their objections to “scientism” and their skepticism of predictive models. The history only becomes fully coherent in light of the ideas. Yet Wasserman is not an economist, so perhaps he is prudently following the dictum of another Austrian, philosopher Ludwig Wittgenstein: “Whereof one cannot speak, thereof one must be silent.”

The book is more compelling in its descriptions of the Austrians’ intellectual milieu. Wasserman is at his best when describing the economists’ contribution to “the world of yesterday,” as Stefan Zweig dubbed it—the Vienna of Sigmund Freud, Arnold Schoenberg, Gustav Klimt, and other cultural giants. Surrounded by artists and scholars, the first Austrian economists brought a sense of nobility to their work, treating it “as a grand, humanistic science, a Geisteswissenschaft”—though they were not above hitting the pubs to sing drinking lieder about marginal utility. Wasserman approvingly quotes Joseph Schumpeter’s reminder, “We must never forget that genuine schools are sociological realities—living beings.” The Austrians’ ideas did not spring ex nihilo but rather emerged from countless exchanges that together formed a unique institutional culture. The excitement and camaraderie of the Viennese period also lend a certain poignancy to later chapters on the economists’ postwar diaspora in America.

As Wasserman moves to the present day, he appears oddly torn about the Austrian School’s legacy. He seems to admire much about the Austrians, particularly their simultaneous cosmopolitanism and commitment to a distinct institutional culture. And he acknowledges their economic insights, conceding that “the Austrians seemed to have the better part of the argument over socialism’s viability.” To his credit, Wasserman also provides level-headed discussions of subjects that inspire most writers on the left to don their tinfoil hats, including the “neoliberal” Mont Pelerin Society, a discussion group dedicated to promoting global economic liberalism, and Hayek’s infamous support for Chilean strongman Augusto Pinochet.

The Austrians’ forays into politics are where Wasserman grows more antagonistic, however. He prefers the genteel school of coffeehouse seminars and theoretical treatises to the ideological school of The Road to Serfdom and “taxation is theft” mantras at LibertyCon. Wasserman’s occasional jibes at the Austrians’ political proclivities distract from his strength, which is describing their lives and relationships. He does his best to suggest that the politics were only marginal to the theory, and that, in appropriately Hayekian fashion, the early Austrians could not have foreseen all the ways in which their ideas would be co-opted by politicians and activists. Wasserman is holding out for a similar appropriation of Austrian methods on the left, but as he admits, it is hard to imagine this happening any time soon: “What an Austrian progressivism would look like remains unclear.”

Nevertheless, Wasserman is right to consider how participants of continually evolving, and competing, traditions can look back on their genealogy with both respect and circumspection. As conservatives today wage their own civil war of ideas, they would do well to take a similar approach. They must adopt the “institutional entrepreneurialism” that Wasserman shows was so important for the Austrians’ development. As Wasserman puts it, “For a school to succeed, it takes more than ideas. . . . It also requires organizations to transmit ideas, interactions between peers, and transmission across generations.” Success also requires a willingness to preserve commitments and principles that are constitutive of the tradition, while casting off intellectual baggage that consigns the tradition to stagnation or worse.

The Marginal Revolutionaries can teach conservatives about a part of their own tradition and about the nature of intellectual traditions as such. In addition to shedding light on the Austrian economists, it is a valuable guide to how scholars can pursue the life of the mind while engaging with the real world. As Wasserman notes, in a great irony, the Austrian School has perfectly expressed Marx’s dictum that the philosophers have merely interpreted the world, but the point is to change it. Be careful what you wish for.

Robert Bellafiore Jr. is a congressional staffer. His writing has appeared in the Wall Street Journal, the American Conservative, and Law & Liberty.