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This chapter provides a comprehensive survey of the contributions of the Austrian school of economics, with specific emphasis on post-WWII developments. We provide a brief history and overview of the original theorists of the Austrian school in order to set the stage for the subsequent development of their ideas by Ludwig von Mises and F. A. Hayek. In discussing the main ideas of Mises and Hayek, we focus on how their work provided the foundations for the modern Austrian school, which included Ludwig Lachmann, Murray Rothbard and Israel Kirzner. These scholars contributed to the Austrian revival in the 1960s and 1970s, which, in turn, set the stage for the emergence of the contemporary Austrian school in the 1980s. We review the contemporary development of the Austrian school and, in doing so, discuss the tensions, alternative paths, and the promising future of Austrian economics.

Austrian economics today is a living research program, pursued by scholars around the globe, associated with an intellectual lineage that began in Vienna with Carl Menger's 1871 Grundsätze der Volkswirtschaftslehre (Principles of Economics).¹ Menger's ideas were soon advanced by his followers Eugen von Böhm-Bawerk and Friedrich von Wieser. In the mid-20th century Ludwig von Mises and Friedrich Hayek did the most to extend economic research along Mengerian lines. Some of the Mengerian innovations (marginalism, opportunity cost) have been incorporated into mainstream neoclassical economics, and Mises and Hayek viewed their own research program merely as modern economics.² But as Israel Kirzner (1994, p. xii) has noted, those involved in “the contemporary post-Misesian revival of Austrian Economics” now appreciate “the distinctiveness of the Austrian tradition” stemming from Menger.³

Friedrich Hayek, Ludwig von Mises, Ludwig Lachmann and George Shackle upheld that investigations of the causes of purposes, preferences, beliefs or behaviors by the social scientist were unwarranted. Shackle proposed that human agency is an “uncaused cause.” Others admitted that human volitions and actions are caused, but ruled out explanations of these causes from social science. By considering Darwinian insights from modern evolutionary psychology, this essay criticizes the view that causal investigations of human volitions and actions are beyond social science. These insights also point to the role of habit and instinct in human behavior.

The modern revival of “Austrian economics” dates to the South Royalton conference of 1974 (Vaughn, 1994, pp. 103–111). At that time, neoclassical orthodoxy excluded evolutionary concepts. It was, in Ludwig Lachmann’s memorable phrase, “late classical formalism” (1977, p. 35). Opposition to neoclassical orthodoxy was part of the definition of Austrian economics. It formed part of our identity. Today it is no longer clear what “orthodoxy” is or whether current mainstream economics is “neoclassical” at all (Colander et al., 2004). One of the more salient changes in mainstream economics over the last 30 years is the introduction of evolutionary ideas. Mainstream economics is rich with evolutionary concepts. Evolutionary game theory, for example, is certainly a part of today’s standard toolbox. Thirty years ago, it did not even exist.¹ Some of the evolutionary ideas entering mainstream economics are similar or identical to ideas from the Austrian tradition. In this situation, it is no longer clear what the Austrian differentiae are. I hope this volume will help to sort out some of the issues relating to Austrian economics and one group of evolutionary ideas, namely, those of evolutionary psychology.

In Austria the 1930s constituted the final period of success and failure of the Austrian school, ending with its emigration to the United States. This chapter focuses on this period, when the Austrian economy was hardest hit by the Great Depression, and it examines the ways and means by which the Austrian economists attempted to influence economic policy. In particular, from 1932 to 1934 in a concerted effort Austrian economists like Ludwig Mises, Fritz Machlup, and especially Oskar Morgenstern tried to “educate” the Austrian public and policy-makers in the benefits of a liberal approach towards the crisis. This effort included the advocacy of the policies typically associated with the gold standard, that is, stable money, balanced budgets, the absence of exchange restrictions, and free trade. In the actual situation the outcome of these endeavors was futile, if not harmful, insofar as indeed Austrian economic policy slowly converted to the implied deflationary stance of monetary and fiscal policy. Yet, under the regime of the so-called corporate state the necessary complement of such policies, namely the flexibility of prices and the furthering of competition, could not be accomplished. This eventual failure of the liberal cause may be ascribed to the fact that it had to rely on shifting coalitions and fragile personal relations, which in the end turned out too weak for sustaining the policies envisioned by the Austrian economists.

The papers collected here were written for the second biennial Wirth conference on Austrian Economics. The Wirth Institute for Austrian and Central European Studies sponsored the conference in cooperation with the University of Toronto in Mississauga. The conference was held from 17 to 18 October 2008 in Mississauga. The Wirth Institute has a natural home in Edmonton on the campus of the University of Alberta, which is a leading center for Central European Studies. The fact that the Institute has received support not only from government of Austria, but also from the governments of the Czech Republic, Hungary, Poland, Slovakia, and Slovenia reflects its historically minded recognition of the unique intellectual milieu of the Habsburg Empire. This intellectual milieu lasted beyond the breakup of the empire right through to the Anschluss in 1938. It is this milieu that shaped the Austrian school of economics and helped shape the context for the conference.

Roger Koppl (2009, p. 1) argues that “Austrian economics is a school of thought within the broader complexity movement in economics.” Is he correct? Although there are many who have argued for some overlapping between the two, I shall argue that this is probably an overly strong statement. The main reason is that there are substantial elements and strands within Austrian economics that do not fit in with any of the multiple varieties of complexity theory, even though there are some that clearly do.

Hayek favored both classical hermeneutics and science. His scientific reasoning shows the logical necessity of methodological dualism. Bruce Caldwell and Viktor Vanberg oppose hermeneutics and methodological dualism in favor of science. Their arguments depend on inappropriate interpretations of the doctrine of methodological dualism and an impoverished understanding of hermeneutics that fails to distinguish classical hermeneutics from universal hermeneutics. Hayek showed that “scientific” and “humanistic” approaches to social science can and should be compatible and complementary. Opposing (classical) hermeneutics in favor of science may cause a loss of knowledge by tending to deprive “scientific” social science of insights arising from more “humanistic” traditions.