In the century leading up to 1945, the Left seemed to win a high proportion of the exchanges in social and economic debate and also many of the real-world campaigns for political loyalties. When The Communist Manifesto was published in 1848, its rhetoric could be seen as stilted and rather silly, and its claims about the inevitability of socialist revolution as unrealistic, if not preposterous. But when the armies of the Soviet Union swarmed all over Eastern Europe in 1945, there was a genuine risk that communism would overwhelm Western Europe as well. Free-market liberalism had been in retreat for a century; it seemed in Europe, although fortunately not in North America, to be little more than a relic from the bygone Victorian era.

Moreover, many of the cleverest and most public-spirited people in the Atlantic world not only expected an eventual communist takeover that would fulfill Marx’s predictions, but also believed in the desirability of that takeover and took practical steps to promote it. As George Orwell wrote in 1945, “A Communist is one who looks upon the ussr as his Fatherland and feels it is his duty to justify Russian policy and advance Russian interests at all costs. Obviously, such people abound in England today, and their direct and indirect influence is very great.”

Two cities—Chicago and Vienna—are routinely singled out in the intellectual counter-revolution against the Left.

Half a century later, by the mid-1990s, the world was utterly different. The Soviet Union had disintegrated, and nearly all of Europe consisted of liberal democracies benefiting from private property, the market economy, and the rule of law. Also of fundamental importance was the fact that the Left had been routed at the level of ideas. Crucial to Marxism had been the notion that economies proceeded by inevitable stages to an end-state with government ownership and control of the means of production. Given that Eastern Europe had moved in exactly the opposite direction since 1989, how could anyone take seriously Marxism and its pretentious ideological baggage?

Two cities—Chicago and Vienna—are routinely singled out in the intellectual counter-revolution against the Left. The resulting focus on “the Chicago School” and “the Austrian School” may be more than a little unfair to, for example, London and New York. At any rate, in the twentieth century, events in Vienna—at the heart of Europe, looking both east and west, and open to intellectual influences from all quarters—made it far more tumultuous and unstable than Chicago or indeed any American city. Janek Wasserman’s fascinating and readable new book, The Marginal Revolutionaries, could be viewed as a biography of the Austrian School.1 It develops and weaves together sketches of the school’s leaders to tell the life story of an intellectual movement.

The origins of the school—and the rationale for the book’s title—are to be found in technical economics. Specifically, they emerged in a radical reformulation of price theory in the middle and late nineteenth century. Until this reformulation, the price of a good or service had tended to be explained by a concept of fundamental value, such as the value of labor. Indeed, “the labor theory of value” in Das Kapital was one of Marx’s most prolix and baffling concoctions. The marginal revolutionaries—notably Carl Menger at the University of Vienna—proposed instead that consumers would purchase additional product until the extra benefit (or “marginal utility”) of the last item acquired was equal to the price. Similarly, a product’s makers would increase the amount supplied until the receipts (or “marginal revenue”) on the last unit sold equaled its cost of production (or “marginal cost”).

The acceptance of the intersection of demand and supply curves—which represent market forces—therefore enabled economists to fix quantity and price in a compelling analytical framework. This framework, an abstraction from reality and plainly theoretical in character, may have appeared remote from the partisan struggles of its time. But it was far from being politically neutral. On the contrary, it respected the choices made by individuals, and in that sense supported the evolving agenda of “methodological individualism.”

In the methodological individualism of the Austrian School, the individual was the unit of analysis, and people—with their freedoms and rights—were valued for themselves. By contrast, in the methodological nationalism of the German Historical School, the nation had an organic integrity to which its citizens were subordinate. In 1884, Menger engaged in a vicious polemical exchange, known as the Methodenstreit (“method dispute”), with Gustav Schmoller, a professor at the University of Berlin and the leader of the Historical School. It was from this tussle that the identity of a distinct “Austrian School” was forged.

Menger was judged by most contemporaries to have lost the Methodenstreit, but he was not without supporters. Two younger men, Eugen von Böhm-Bawerk and Friedrich von Wieser, were only bystanders in the exchanges, but they were impressed by Menger’s work and persuaded by the marginal theory of value. In Wasserman’s words, “If Böhm-Bawerk and Wieser were the true fathers of the new school, Menger was the holy spirit.” Böhm-Bawerk decided to write Capital and Interest, in which the insights of marginalism were to be incorporated in a treatise that provided justifications for the payment of interest. As with Menger’s contributions, those of Böhm-Bawerk could be viewed as neutral and scientific, merely additions to economic knowledge. They were, in fact, full of significance to a much larger social and political debate.

The individual was the unit of analysis, and people—with their freedoms and rights—were valued for themselves.

Böhm-Bawerk found the explanation for the rate of interest in so-called “time-preference”—the preference that people have for consumption today over consumption tomorrow. Capital and Interest came out in three volumes, the first in 1884, the second in 1889, and the third in 1921, after the author’s death in 1914. But in 1895 Böhm-Bawerk published Karl Marx and the Close of His System in which he made it clear that Marx had been the main target of the project all along. Böhm-Bawerk’s argument was that returns to capital were not due to the exploitation of workers, as in Marx’s Kapital and the labor theory of value, but instead were reflections of market forces and competition.

As a key figure in the development of economics, Böhm-Bawerk’s name appears often today in histories of thought. In the early twenty-first century, Wieser is much less well-known. His principal interest was similar to Böhm-Bawerk’s, namely to work out the implications of marginalism for the organization of production and the distribution of income. But his works are nowadays not much read. He is instead seen as important because of the influence he had over his pupils, and for the influence that they in turn had in many fields of political and academic activity. He died in 1926, late enough for his teaching to affect three towering figures in the Austrian School, Friedrich von Hayek (1899–1992), Ludwig von Mises (1881–1973), and Joseph Schumpeter (1883–1950). According to Wasserman, Wieser was Hayek’s “primary mentor” in the early 1920s, but Mises “played a larger role” in Hayek’s work after Wieser’s death.

There is no space here to offer more than a few sentences on the careers of Hayek, Mises, and Schumpeter. Hayek and Mises were both founding members of the freedom-promoting Mont Pelerin Society and attended its first meeting in 1947. Other founders were Milton Friedman (University of Chicago), Frank Knight (also Chicago), and Karl Popper (London School of Economics). The Mont Pelerin Society therefore provided a forum at which thinkers from Vienna and Chicago, as well as London and New York, could interact. Indeed, over time, delegates from anywhere in the world who sympathized with its principles could enjoy each other’s company, gossip, and intellectual excitements. As with any enterprise which upholds freedom of expression, the society has been riven with disputes. All the same, its members have certain shared commitments: to political and economic freedom, to an open society, and above all to a market economy that is under the law and respects private property.

The society encouraged the foundation of think tanks in the world’s leading nations, including the Atlas Network and the London-based Institute of Economic Affairs. Wasserman says that “neither Hayek nor the Austrian School was primarily responsible for [the] iea’s or Atlas’s roles in the sharp rightward turn in Western politics after 1973.” But he immediately, and very sensibly, qualifies that by remarking, “They did provide intellectual ballast and legitimacy for these ideological efforts.” In truth, the Mont Pelerin Society of today is hardly imaginable without the input of the early Austrian School sages and its many continuing votaries.

Nevertheless, the Austrian School had setbacks as well as triumphs: it was both the source of many of the twentieth century’s most seminal political and economic doctrines and also a victim of the period’s events. The original Austrian School was nurtured in the closing decades of the Habsburg Austro-Hungarian Empire, when both Böhm-Bawerk and Wieser served in the official bureaucracy and even on occasion as government ministers. That empire was shattered by the First World War, leaving Austria as only one of a number of independent Eastern European countries. Even worse, in 1938 Austria was annexed by Germany and came under Nazi control. Jews had to escape if they were to stay alive.

Its members have certain shared commitments: to political and economic freedom, to an open society, and above all to a market economy that is under the law and respects private property.

In the 1920s, Hayek had started a seminar and discussion group known as the Geistkreis (Mind Circle). Its membership of twenty-five men (alas, no women in that era) included several with a Jewish background, who made the group’s leader more cosmopolitan in outlook. In Hayek’s words, “Not the least gain which I owed to these Jewish or partly Jewish friends of that period is that they were much more internationally minded than my own circle.” The Geistkreis survived until 1938, but in its final years it took as a priority to organize the emigration of as many of its Jewish members as possible. Mises—Jewish himself—stayed in Vienna until 1940, but then left for the United States, where he lived for the rest of his life. He held a position at New York University and taught there but was unpaid. He was supported financially by the American Lawrence Fertig, also Jewish, who was the founder of a successful advertising and marketing firm.

The Austrian School is the clearest possible proof that university tenure is not necessary for academic greatness. Its leading figures were enormously prolific in terms of written output and massively influential through their impact on students, on audiences at public meetings, and on a broader swath of society by means of television and radio programs. The written output ranged from scholarly tomes of great rigor and profundity to more popular and accessible books, and then to newspaper articles and economic commentary. But none of the school’s leaders stayed in one university for all of their careers. Indeed, most careers were marked by severe disruption, and some by dismissal, exile, and even penury. Mises had a particularly rough time, but his experiences were not at all unrepresentative.

We cannot know exactly how much the defeat of communism in the second half of the twentieth century owed to the marginal revolution pioneered by Menger, Böhm-Bawerk, and Wieser in the late nineteenth century, or to the more wide-ranging writings and thought of Hayek, Mises, Schumpeter, and their several associates closer to our own time. But there can be little question that the Austrian School had an outsize role in confronting and defeating the ideas of the Marxist Left, and that the battle of ideas was a vital associate of the larger political and economic struggle. Wasserman’s own view of the Austrians has more than a trace of ambivalence. He is evidently unhappy about the overlap between people in modern Europe who describe themselves as belonging to the “Austrian School” in economics but who in their cultural attitudes are hostile towards immigration and ethnic minorities. At any rate, his book on The Marginal Revolutionaries is a marvelous introduction to the Austrian School’s work and achievements.