Austrian and German Economic Thought

From Subjectivism to Social Evolution

Kiichiro Yagi

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136824609
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This book intends to renovate the view of social sciences in the German-speaking world. It explores the intellectual tension in the social science in Austria and Germany in the late-nineteenth and early-twentieth centuries. It deals with how the emergence of the new school (Austrian School) changed the focus of social science in the German speaking world, and how it prepared the introduction of an evolutionary perspective in economics, politics, and sociology. Based on (mostly hitherto unknown) primary evidence, this development is lively described in a series of encounters and decisions by each social scientists.

1 Portrait of an Austrian Liberal

Max Menger’s politics

The Eldest of the Three Menger Brothers

Max Menger (1838–1911), a German Liberal parliamentarian in late-nineteenth-and early-twentieth-century Austria,¹ was the elder brother of two eminent Austrian scholars, economist Carl (1840–1921) and jurist Anton (1842–1906). It is well known that both Carl and Anton abandoned the nobility title in the family name (Menger, Edler von Wolfensgrün) because of their liberal convictions after attaining manhood. In so doing, they only followed their brother Max, who even at the age of 60 (December 1898) had no hesitation in rejecting the order of the Iron Cross, III class, on the ground that this honor was bestowed on the recommendation of the cabinet to which he resolutely stood in opposition.²

This chapter aims at giving the reader an overview of Austrian politics by focusing on the fate of liberalism in this monarchy in the latter half of the nineteenth century. As Carl Schoske (Schoske 1980) mentions, the decline of Austrian liberalism coincided with an extraordinary ferment of cultural ideas, not excluding the social sciences. All three Menger brothers lived in this age. While the youngest brother, Anton, a resolute socialist in conviction, kept a distance from Max, Carl continued a close relationship with Max up to the death of the latter. I will not say that Carl would have taken the same position as Max did, if he had been politically active. However, it is safe to say that Max’s ideas on liberalism in Austria were some of those with which Carl was best acquainted.³ In the final part of this chapter, the relationship between Max, Carl, and Anton will be briefly discussed.

Emergence as a Leader of the Young Generation

Ernst von Plener (1841–1923), one of the most eminent leaders of the Liberals in the Austrian parliament in the 1870s and 1880s, counted Max, whom he met in the Taxation Reform Committee set up in 1874, as one of the most competent parliamentarians.

Another sincere supporter of the reform, although not always with our passion, was Max Menger, a man of enormous energy and continuous diligence. He engaged in studies rather too intensely, and the papers he worked on were not always free from shallowness. He often assumed what he had gotten from his latest reading as his opinion. In political direction, he stood ahead of others and had a German nationalist tendency already at that time, but never followed this course to its extremes. I must admit his ability, although his way of dealing with others was not a pleasant one.

(Plener 1921: p. 56f.)

In the Taxation Reform Committee, Plener and Max Menger intended to establish a sound base for state finances through an overall reform of direct taxation, the core of which consisted of the introduction of a personal income tax. However, the majority of the committee finally chose to modify the already existing business profit tax (Ertragssteuer), and the reformers of the 1870s failed, just as their predecessors had in the 1860s. Taxation reform again came on the agenda of the House of Representatives (Abgeordnetenhaus) in 1892, and was passed in 1896.

Figure 1.1 Menger family (source: First drawn by Akihiro Matoba in the early 1980s when he was the librarian in charge of the Carl Menger Library at Hitotsubashi University. Amended by Kiichiro Yagi according to the memorandum of Carl Menger’s Diary).

Max contributed to this reform through his chairmanship of the Taxation Committee (1891–96), as did Plener through his responsibilities as Finance Minister (1893–95) in the main period of parliamentary discussions. In other words, Max and Plener were comrades at the forefront of the campaign to modernize the Austrian taxation system.

The rather severe tone in Plener’s comment on Max must have partly come from Max’s aggressive attitude, as one of the “Young generation” (Jungen) among German Liberals, to the mainstream—the “Old generation” (Alten)—to which Plener was rather close. When the first German-Austrian Party Congress (Deutsch-Österreichischer Parteitag) was held in Vienna on May 22, 1870, with an appeal to the solidarity of Germans in Austria, Max attended it and joined the founding members of the Vienna German Association (Deutscher Verein in Wien). After acquiring the mandate⁴ of an urban constituency in Silesia (Städtischer Wahlbezirk Jägerndorf-Freudenthal-Freiwaldau) to the House of Representatives in 1874, he joined the Club of the Progressives (Fortschrittsklub), which had been formed in the previous year as a club of Young generation among the loosely defined German Liberals (Verfassungspartei). This group declared the protection of the interests of Germans, “not the dominant yet a leading nationality” in Austria (Program of April 27, 1873),⁵ the ultimate principle, to which even the liberalist position must be subordinate. However, Plener belonged to the main group, which was concerned that the emphasis on nationality might harm the unity of Austria.

Although he started his parliamentary career nearly in the same period as Max, Plener inherited from his father, Ignaz von Plener, not only his mandate but the liberal-conservative position as well.

The attack on corruption by the Young generation was also an issue that caused tension within the German Liberals. Max, who questioned K. Giskra, a leader of mainstream Liberals, at the public election meeting in November 1872 about his suspicious behavior in the negotiations concerning the Lemberg-Czernowitz Railway, led the Young generation in this respect.⁶ On behalf of the Club of Progressives, he submitted to the legislative session of March 1875 a bill for the prohibition of any Representative’s participation in the boards of companies or financing institutions that were subventions of the state or stood in a continuous customer relationship with the state.

This bill was sent to a special committee; however, owing to resistance by most of the parliamentarians, it was abandoned in 1879 without a proper discussion in the plenary session. In his speech on the 1875 bill, Max stressed that the weight of his public obligations on the politician’s conscience was the fundamental condition of constitutionalism, and denied the view that his bill was a direct reaction to the economic crisis of 1873, accompanied as it was by many scandals involving politicians and higher officials.⁷

In the 1880s and 1890s, the appeal to German nationality as well as antipathy to corruption became the seedbed of fanatic German nationalism à la Georg von Schönerer and of the Christian Socialism of Karl Lueger, in whose core ran a strong streak of anti-Semitism. However, to Max, and to most of the Young generation in the 1870s, both were aimed to revive German liberalism on a broader base of newly enfranchised classes of society. These began to appear in state-level politics through the direct election of the Representatives in 1873, although Representatives were still elected by a limited electorate in four separate classes (Curia). Those of the urban class who had newly acquired the franchise in 1882 by the reduction of the previous taxpaying threshold were called the “men of five Florins.” Max declared his sympathy for them, demanded the abolition of the privileged curia of the landlords, and promoted a limited participation of laborers.⁸ Max himself like his brothers had to secure his economic independence by his own effort due to his father’s early death.⁹ This might explain the lack of an aristocratic element in their liberalism, which was still conspicuous in that of Plener.

Max Menger on Economic Issues

Since his emergence in the Parliament with the “Bill of Incompatibility” in 1875, Max’s long career of parliamentary activity did not lack spectacular scenes, such as the conflict with G. Masaryk over the “State Law of Bohemia”¹⁰ and his accusation against Prime Minister Badeni on the latter’s ordering of the Language Decree of 1897.¹¹ However, he was not a showman. Even on hot issues such as the nationality problem or election reform, he tried to consolidate his opinion by presenting detailed statistical data, which were used by many other parliamentarians.¹²

He was a regular member of the Budget Committee, the Taxation Committee, and the Committee of the “Compromise” (Ausgleich) with Hungary. Although he usually belonged to the minority in Parliament after the collapse of the Liberal Cabinet in 1879, he could still keep his leading position in those committees through his profound knowledge and experience. In the budgetary discussion of the plenary session, Max appeared as one of the main speakers every year. I have mentioned already that Max presided over the Taxation Committee in the taxation reform period. Max attacked the increase in the profit and consumption taxes, which were used in the 1880s by the Slav-Conservative Taaffe Cabinet in order to cover the deficit of the state budget.¹³ He worried about the ill effects of these measures on the already feeble industry and commerce sectors. Further, in the Taxation Reform of 1896 he made an effort to combine the introduction of a progressive personal income tax with a reduction of the tax burden on small-and medium-sized business.¹⁴

Further, since 1886, he was elected continuously as a member of the mission (Quotendeputation) that was to negotiate with Hungary on how to share the common expense of the Dual Monarchy. In this negotiation, Max’s estimation of a “fairer” sharing was one of the main bases for Austria’s demand for a reduction of its percentage.¹⁵

Max participated in almost all discussions on economic policy in the Parliament. Although he rejected the laissez-faire approach and expected a positive contribution of the state to the economy, he remained in essence a liberal who wished to confine state activity to establishing the preconditions of free competition in the private sector. He worked actively for the modernization of trade regulations, the introduction of legislation on the stock exchange, and the establishment of vocational schools and other frameworks for the promotion of industry. However, he was against post-office savings, which he thought damaged the development of the already existing small-scale credit and saving institutions and encouraged the misuse of government (December 9, 1879).¹⁶ Max was not blind to the field of social policy and helped several times to produce legislation on the subject. However, he proposed the exemption of craftsmen from the prohibition of Sunday work, when he saw that strict enforcement of this prohibition might ruin small business (September–October, 1885).¹⁷

According to him, “one of the most important criteria for good or bad legislation should be whether the middle class (Mittelstand) in the urban and rural areas would be supported by the legislation and helped through its enforcement.”¹⁸

Max was also concerned about the effect of the railways and canals. As Max’s constituency lay in Silesia and Moravia, far from both Vienna and Trieste, Austria’s only seaport, transport routes and the cost of transportation were always among the problems about which he was most seriously concerned. He backed several projects, but resisted those that seemed to be merely products of political concession without sound economic prospects.¹⁹

In the trade policy dispute of the 1870s, Max rejected the free traders’ position and supported tariffs for industrial products. Within the framework of the Trade and Customs Union of Austria-Hungary, this industrial tariff was to compensate for the agricultural tariff designed to benefit Hungarian agrarians by keeping the whole empire for Austrian industry. However, in the 1880s the manufacturers began to fear the effects of the tariff increase on the prices of raw materials, semi-manufactured goods, and machines it needed. Partly due to the industrial promotion policy of the nationalistic Hungarian government, Austrian industry could not maintain its dominance over the market of the whole empire. Max, of course, attacked the subvention policy of Hungary,²⁰ but criticized the Austrian government, which wished to enjoy the positive effects of protection without the conditions of sound capital accumulation.

The protection system needs inevitably a sound finance policy. Protective tariffs cannot be accepted except in the context of a transition, during which the state recovers its power and the protected industry or agriculture strengthens itself…. With a finance policy under which no capital could be accumulated and every newborn industry is ruined in its first year under the pressure of taxation, so that everyone should bitterly regret all but temporary investments in speculative enterprises, a protective tariff would be useless. A protective tariff is a crutch, indeed a pernicious crutch.

(Kolmer 1902–14: vol. 4, p. 95)

Fight For a Liberal Cause

“We are their leaders. We must follow them.” With this witty phrase L. Höbelt described the general attitude of German Liberals in the late-nineteenth-century Austria.²¹ The identity of Liberals as the antecedents of the bourgeois opposition of the 1848 Revolution lay originally in their support of civil rights against absolutism and clerical influence. The secular school system, the independent papers, and freedom of confession were inseparable elements of liberalism in Austria. However, in the 1880s, when the attack on these three elements began with the often demagogic combination of “Jew” and “liberalism” (Judenliberal), most liberal politicians, not to mention several ex-liberals who had moved to other camps, began to moderate their liberalist position. However, it is worth mentioning that Max remained loyal to his conviction in spite of the overwhelming tide of anti-Semitism.

In February 1880, when bishops in Bohemia demanded of the Ministry of Education the restoration of the confessional school, Max regarded it as an offense to the Constitution by religion. When, after the collapse of the Liberal government, the turn from the liberal school policy was sworn by the new cabinet under Taaffe, Max’s interpellation to the cabinet on this matter was taken as a herald of Liberal resistance.²² Objections to the development of the secular school system after the National School Law (Volksschulgesetz) of 1869 came from the antipathy of the feudal groups against the people’s increasing literacy, as well as the wish for restoration of Catholic authority on the side of clerical groups. Max, to whom “the 1869 law is a monument to humanity and public interest,”²³ objected to the reduction of obligatory school years, saying, “The future belongs to the nation which guarantees to the largest section of its population the richest education.”²⁴ He warned of the debasement of education under the influence of clericalism.

The Liberals could have persisted in their defense, if their enemies had been the same as before. Max expected that the broad mass of people who received the franchise in the ele...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Acknowledgements
• On citations
• General introduction
• 1. Portrait of an Austrian liberal: Max Menger’s politics
• 2. Carl Menger as journalist and tutor of the Crown Prince
• 3. Carl Menger’s Grundsätze in the making
• 4. Carl Menger and historicism in economics: from Carl Menger to Max Weber
• 5. Origin of Böhm-Bawerk’s theory of interest and capital
• 6. Anonymous history in Austrian economic thought: from Carl and Anton Menger to Friedrich von Wieser
• 7. Alternative equilibrium vision in Austrian economics
• 8. Karl Knies, Max Weber, and Austrians: a Heidelberg connection
• 9. Determinateness and indeterminateness in Schumpeter’s economic sociology: the origin of social evolution
• 10. Evolutionist reading of Max Weber’s economic sociology: a reappraisal of the “Marx–Weber problem”
• Notes
• Bibliography
• Index