In the spring of 1985, a few of us who had formed the Hayek Society at Oxford for discussing classical liberal and conservative ideas invited Friedrich von Hayek to dinner at the Ritz in London. At the close of the event, a group of musicians approached our table and asked if we wanted any special tunes to be played. I whispered to them that they should play ‘Vienna, the City of My Dreams’ by Rudolf Sieczyński. When our guest heard the tune, he beamed and burst out singing the song in German. He was of course only 86 years old at the time. Hayek had been born and brought up in Vienna, the magnificent city in Central Europe which had in 1683 bravely withstood an Ottoman attack and thus probably saved European civilisation. It is one of the great historical cities of Europe, and in the twilight of the Habsburg Empire it must have been a fascinating place in which to live. As Karl Kraus remarked, ‘The streets of Vienna are paved with culture, the streets of other cities with asphalt.’
Coffee in Vienna
Indeed, it is always a pleasure to come to Vienna, as I did in November 2021, going to the opera (depicted above) where the ballet ‘Peer Gynt’ by Edvard Grieg was being performed, dining in the Rote Bar at the Hotel Sacher, and spending an afternoon at Café Landtmann where Carl Menger, Ludwig von Mises and other economists of the renowned Austrian School of Economics used to have heated discussions on economic problems and political challenges. Vienna is justly famous for its coffeehouses. It was once observed that if you walked into one of them in 1903, you might have found Gustav Klimt, Sigmund Freud, Leon Trotsky, and Adolf Hitler sitting there at the same time, sipping coffee and reading newspapers, presumably at different tables.
This time I could also catch up with my Austrian friends, first and foremost Dr. Barbara Kolm, who runs the Austrian Economics Centre and the Hayek Institute as well as being Vice-Chairman of the Board in the Austrian Central Bank. She is certainly one of the world’s most effective and active intellectual entrepreneurs. It was also encouraging to see how Vienna was, like other European cities, recovering from the Covid Epidemic, as if suddenly waking up after a nightmare.
Menger’s Seminal Contribution: Marginal Analysis
In 2021, it was 100 years since Menger, the father of the Austrian School of Economics, passed away, and on that occasion I was a keynote speaker at a conference the Austrian Economics Centre held at the Central Bank. I had devoted a chapter to Menger in my two-volume book on Twenty-Four Conservative-Liberal Thinkers, and in my lecture I pointed out that his contribution to economic analysis was in many ways as seminal as that of Adam Smith. What Menger did was to break economic goods up into units, and then to find how many units of each good could equally satisfy human wants: this was the crucial concept of marginal utility. He treated all goods according to their potentiality for satisfying human wants, not according to their history, for example cost of production.
Georgism and Marxism Irrelevant
This had important political implications because it meant that two political ideas, or rather dogmas, of late nineteenth century became theoretically irrelevant, Georgism and Marxism. Georgism ascribed special significance to land because its supply was more or less fixed, but for Menger it was just another good, to be valued and priced according to its marginal utility. Marxism ascribed special significance to labour because it was supposed to have created all value, whereas Menger regarded it as a good to be priced according to its marginal utility. It was not labour that created value: it was the potentiality of labour inputs or units to satisfy human wants which created the value of those inputs. Menger’s great insight not only disqualified Marxism, but also government redistribution of income such as John Rawls and Thomas Piketty demanded on various grounds. Such redistribution distorted the information provided in an effective labour market on how different units of labour—individual skills, talents, and abilities—could best be employed to satisfy human wants.
Spectres Still Haunting Europe
I observed that nevertheless the spectres of Georgism and Marxism were still haunting Europe. For example, in Iceland there was widespread agitation for a special tax on fish stocks, a resource rent tax, based solely on the false premises of Georgism. More generally, both radical feminism and ecofundamentalism, vocally promoted in universities and the media, had much in common with Marxism. Radical feminists believed that women were exploited by the ‘Patriarchy’, paid wages below their real value (marginal price). But if true, in a competitive economy this would provide profit opportunities for those who wanted to run companies solely staffed by women. Why was this not done? Ecofundamentalists believed that nature was exploited far beyond what was reasonable. But over-exploitation of natural resources could only occur if they were not correctly priced, at the margin, and this was usually because private property rights to them had not been developed. For example, whales and rhinos were endangered and lakes and rivers were polluted if nobody owned those goods. In most cases it was quite feasible to define private property rights to such goods, take them into stewardship, appoint their protectors.