Hannes H. Gissurarson Twenty-Four Conservative-Liberal Thinkers Part II Hannes H. Gissurarson Twenty-Four Conservative-Liberal Thinkers Part II New Direction MMXX CONTENTS Hannes H. Gissurarson is Professor of Politics at the University of Iceland and Director of Research at RNH, the Icelandic Research Centre for Innovation and Economic Growth. The author of several books in Icelandic, English and Swedish, he has been on the governing boards of the Central Bank of Iceland and the Mont Pelerin Society and a Visiting Scholar at Stanford, UCLA, LUISS, George Mason and other universities. He holds a D.Phil. in Politics from Oxford University and a B.A. and an M.A. in History and Philosophy from the University of Iceland. Carl Menger (1840–1921) 7 William Graham Sumner (1840–1910) 33 Ludwig von Mises (1881–1973) 55 Friedrich von Hayek (1899–1992) 99 Wilhelm Röpke (1899–1966) 187 Michael Oakeshott (1901–1990) 219 Founded by Margaret Thatcher in 2009 as the intellectual Sir Karl R. Popper (1902–1994) 249 hub of European Conservatism, New Direction has established academic networks across Europe and research Bertrand de Jouvenel (1903–1987) 293 partnerships throughout the world. Ayn Rand (1905–1982) 321 Milton Friedman (1912–2006) 353 James M. Buchanan (1919–2013) 443 New Direction is registered in Belgium as a not-for-profit organisation and is partly funded by the European Parliament. Registered Office: Rue du Trône, 4, 1000 Brussels, Belgium. President: Tomasz Poręba MEP Executive Director: Witold de Chevilly. Robert Nozick (1938–2002) 485 The European Parliament and New Direction assume no responsibility for the opinions expressed in this publication. Sole liability rests with the author. 6 Carl Menger (1840–1921) 7 Carl Menger (1840–1921) n 1871, Austrian economist Carl Menger transformed economics with a new theory of value and price.(1) What he did was to break I up an economic good into units. A thirsty man finds his first cup of water delicious, but as the number of cups he consumes increases, the value of each of them for him goes down, to the point when an additional cup does not provide more satisfaction than something else on offer. This is the point where the marginal utility of water, as it was later called, will be equal to the price offered for the cup of water in the marketplace, or for something else with the same capacity to satisfy a need. The marginal utility of a good is the utility of an additional unit, which usually decreases with increased consumption, until demand meets supply at a mutually acceptable price. The ‘Marginal Revolution’ enabled Menger to resolve an old paradox, why diamonds are much more expensive than water, although water is much more useful than diamonds.(2) It is because there is much more water than diamonds in the world. Therefore the marginal utility of water is much lower, although its total utility is much greater. While Menger’s analysis was rigorously scientific, it implied that two influential political creeds of his time, Georgism and Marxism, were based on erroneous theories. Furthermore, in a book on the methodology of economics, Menger made important contributions to the theory of spontaneous order—an order which was the result of human action, but not of human design. He was the founder of the ‘Austrian School’ of Menger solves the ancient problem of value: even if water is (1) Almost simultaneously, and independently, two of Menger’s colleagues, William Stanley Jevons in very useful, diamonds are more England and Léon Walras in Switzerland, presented similar explanations of price formation. valuable because their marginal utility is higher. (2) Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Bk. I, Ch. IV (Oxford: Oxford University Press, 1976), pp. 44–45. 8 Carl Menger (1840–1921) Twenty-Four Conservative-Liberal Thinkers - Part II 9 economics to which two other eminent conservative liberals, Ludwig economics at the University of Vienna. In 1873 he became a fully paid von Mises and Friedrich von Hayek, both belong. professor, Professor Extraordinarius, and resigned his position at the Prime Minister’s Office, to the surprise of his chief, Prince Adolf von Menger’s Life and Works Auersperg, who found it difficult to understand how anyone would leave a promising career in government. But for Menger economics was a passion. Carl Menger was born on 23 February 1840 in the city of Neu-Sandez in If he had seven sons, he would want all of them to become economists, he Galicia which then belonged to the Austrian part of the Habsburg Empire, once exclaimed.(5) but which now is Nowy Sacz in Poland. He was the son of Anton Menger In 1876 Menger returned to public service when he became private Edler von Wolfersgrün and his wife Caroline, born Gerzabek. His father tutor to Crown Prince Rudolf, the eighteen year old son of Emperor was a lawyer who belonged to the fifth and lowest order of Austrian nobility, Franz Joseph. The multi-ethnic Habsburg realm was in a permanent comparable to an English baronetcy, although his three sons did not use constitutional crisis. It had slowly formed over centuries as the dynasty the title they inherited. Carl’s father died when he was eight years old. had expanded its territories by conquest or marriage. ‘Alii bella gerunt, He spent a lot of time on his maternal grandfather’s estate in whose large tu felix Austria nube,’ it was said: Let others wage war; you, fortunate library he encountered the works of Adam Smith and other economists. Austria, marry. Thus, the Habsburg Empire was a union of many crowns, After grammar school, Gymnasium, Menger studied law at the University while the Archduke of Austria was also for almost four centuries the of Vienna in 1859–1860 and at the University of Prague in 1860–1863. elected Holy Roman Emperor, presiding over a loose federation of Upon graduation he worked as an economic journalist and prepared for German or German-dominated states. In 1804 the Archduke assumed his doctoral dissertation, which he defended at the University of Cracow the title Emperor of Austria, and two years later the Holy Roman Empire in 1867. He continued working as an economic journalist until he was in was dissolved after having existed for a millennium, although never 1870 appointed to a position in the Prime Minister’s Office in Vienna. really being Holy, or Roman, or an Empire. Between 1804 and 1867 the A year later he published Principles of Economics, largely based on his Habsburg Empire stretched over what is nowadays Austria, the Czech observations of market behaviour as an economic journalist.(3) He wrote Republic, Slovakia, Hungary, Slovenia and Croatia, in addition to parts the book in a state of morbid excitement: he knew he was transforming of Poland, Romania, and Italy. The Austrians lost their leadership of economics. It was however only slowly appreciated by others how original the German Confederation after defeat in a war against Prussia in 1866, his analysis of value and price formation was. ‘His fame rests on this work and a year later they had to make a settlement with the Hungarians. The and through it his name will go down to posterity, for one can safely say Habsburg dominions became a union between the Austrian Empire and that since Ricardo’s Principles there has been no book,’ Swedish economist the Hungarian Kingdom. The Austrian part was often called Cisleithania Knut Wicksell wrote, ‘which has exercised such great influence on the and the Hungarian part Transleithania, as a tributary of the Danube, development of economics as Menger’s Grundsätze’.(4) Menger submitted Leitha, divided Austria and Hungary. But within both parts of the Realm the book as a thesis to become an unsalaried lecturer, Privatdozent, in there were many ethnic minorities. Cisleithania whose official name was ‘The Kingdoms and Lands represented in the Imperial Council’ was divided into seventeen crown lands. Transleithania whose official name (3) Carl Menger, Grundsätze der Volkwirthschaftslehre (Wien: Wilhelm Braumüller, 1871); Principles was ‘Lands of the Holy Hungarian Crown of St Stephen’ was divided of Economics, tran. by James Dingwall and Bert F. Hoselitz (Auburn AL: Ludwig von Mises Institute, 2007). (4) Knut Wicksell, Carl Menger, Ekonomisk Tidskrift, Vol. 23, No. 4–5 (1921), p. 118. Wicksell added that it had been even more influential than the works by Jevons and Walras. Cf. Friedrich A. Hayek, Introduction, Menger, Principles, p. 21. (5) Hayek, Introduction, Menger, Principles, p. 36. 10 Carl Menger (1840–1921) Twenty-Four Conservative-Liberal Thinkers - Part II 11 into Hungary proper, the Kingdoms of Croatia and Slavonia and the Principality of Transylvania. The defeat against Prussia in 1866 had a similar salutary impact on Austria as Sweden’s defeat in 1721 against Russia and Denmark’s defeat in 1864 against the German Confederation: She turned inwards and started to pursue peace and prosperity instead of seeking glory on the battlefield. But the Austrians faced a much harder task than the Swedes and the Danes. While they managed to placate the Hungarians by the 1867 settlement, it caused discontent among smaller ethnic minorities such as the Poles, Czechs, Slovaks, Slovenes and Croats who demanded autonomy and resented the dominance of Germans and Hungarians in the now Dual Monarchy. The rise of nationalism in the nineteenth century greatly threatened the Empire, especially Cisleithania with its seventeen diets, one for each crown land. Menger influenced Prince Rudolf in a liberal direction, as his lectures to him and their (6) correspondence show, and he travelled widely with him in the two years Calm before the storm: The he served as his tutor.