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Austrian Economics arose as a challenge to the then-dominant British tradition of economics originally championed by Adam Smith in his influential across the centuries work The Wealth of Nations. It was Carl Menger and his Principles of Economics published in 1871 that presented the first alternative to the Imperial British ideas on the workings of the free market system. Menger founded the Austrian School officially, though other had come before him with ideas upon which he built.
Menger was assisted by contemporaries Stanley Jevons and Leon Walras. The trio in their various separate works fleshed out the original ideas of the subjective nature of economic value. It was they who for the first time explained the theories on marginal utility. This was the idea that stated the more units of any good an individual has, the less value he will place on any single unit of them. Menger and company also demonstrated the ways that money begins its life cycle in a free market. The most desirable commodity is wanted not because it can be directly literally consumed, but because it is useful in procuring other goods.
Menger’s next influential work was his highly regarded Investigations. This twelve year later published book took on directly the German Historical School that viewed economics as the accruing of data for the benefit of the state. While serving as economics professor at University of Vienna, Menger returned economics back to its roots as the human action based science using deductive logic. He laid the groundwork for the later Austrian Economics’ proponents and had students such as Friederich von Wieser who later impacted the critically important Austrian School economist Friedrich von Hayek. Even today, Menger’s key works are studied as a fantastic beginning to the economics theory and thinking. All Austrian economists since Menger have considered themselves to be disciples of the great economics school and theory founder Menger.
The next great mind in the Austrian school was follower and admirer of Menger, Eugen Böhm-Bawerk of the University of Innsbruck, Austria. He expanded upon Menger’s vast work and repackaged it so that he might apply it to a whole different range of economic questions and challenging topics such as price, value, interest, and capital. His influential work History and Critique of Interest Theories was published in 1884 and remains a well-regarded review of the fallacies in the history of philosophy and economics. He first argued that interest rates are an integral component of the market itself. In his later Positive Theory of Capital, Böhm-Bawerk proved that the interest rate is actually the normal rate of profit in business.
As a result of these and other works, the Austrian economist battled extensively with the Marxists regarding the ideas of exploitation of capital, refuting the socialist ideas on wages and capital far in advance of the communists arising in Russia. In the final years of Hapsburg Austria, he served three terms as finance minister. This is where he was able to put into place his wise economics theories on sound money and the gold standard, balanced budgets, free trade, and the reversal of monopolies and subsidies for exporters of key goods. His writings, research, and practical application of economics helped to champion the Austrian School all across the Anglo-American and Imperial British world.
A last key Austrian Economics’ founding scholar proved to be Ludwig von Mises. He published his perennial The Theory of Money and Credit, once again breaking fresh ground for the Austrian School. Here he fleshed out the application of the theory of marginal utility to money. Mises also worked out a full-scale outline of the Austrian School on the business cycle. After the First World War ended, Mises attacked the rising forces of political and economic socialist in his expository series of essays he purloined into the book Socialism. Here he demonstrated effectively how the practical application of socialism to nation states and governments would lead to the complete break down of society and eventually the end of the civilized world. This debate raged on, mostly in favor of the socialists, all the way until the crash of political and economic socialism around the world in 1989. From beyond the grave, von Mises had the last laugh.
Mises was such an influential Austrian Economics thinker that his converts and disciples from the socialist side included legendary Hayek, Lionel Robbins, and Wilhelm Röpke. They went on to lay the ground work for the revival of Austrian Economics in the U.S. and Great Britain still ongoing in the present days. Among his last and most influential of students, Rothbard proved to be one of the most adept proponents of Mises’ ideas. He wrote Man, Economy, and State in 1963. The revival this began in the then-struggling Austrian School still continues to this day.