Carl Menger and the Methodenstreit: a Liberal Against the Mainstream?

Points of origin are questions of extreme importance in the history of thought, albeit ones that are often neglected. Many times, when analyzing traditions, schools, or epistemic communities, the emphasis is placed on the representative intellectuals of the moments in which the group is consolidated. That can spell danger: the founder may turn into a motionless statue.

The Austrian School of Economics is the most important school of thought in the contemporary age. Much of its importance is due to the enormous work of 20th-century intellectuals who promoted its ideas throughout the world. But it is also the result of the work that its founder Carl Menger began in the late 19th century.

The issues that Kai Weiss raised in his recent article caught my attention in this regard. It is true, as he mentions, that some topics of Menger’s thought are still unexplored. This is not because Menger has been forgotten within our school – quite the opposite. But being such an interesting character, it can nonetheless be difficult to understand him fully.

I was always interested in a phrase that Ludwig von Mises expounded in the brilliant Historical Settings of the Austrian School of Economics: “Until the end of the Seventies there was no ‘Austrian School.’ There was only Carl Menger.” That phrase has great complexity. Superficially, it reflects the non-existence of a consolidated school. However, he gives an account of the battle that Menger was about to wage.

One of the central points – and little-seen throughout the history of science – is that Menger positioned himself in front of an academic world that was opposed to him. At the end of the 19th century, the academic world was guided by an epistemic community commanded by the young Historical School of German Economics. The School, headed by Gustav von Schmoller, not only had dominion over the decisions of the universities in the German-speaking world but also supported and influenced the imperialist expansion of Germany and its Kulturkampf.

Despite this bulwark of German Historicism, Menger slowly established himself in the academic world. His Principles of Economics, published 150 years ago, allowed him to access that world. The publication of the Principles was a momentous change in the history of science. Gustav von Schmoller conjectured the importance of that work and initiated a series of pejorative attacks towards the Austrian. There are interesting political elements to understand the origin of these tensions. The relations between Austria and Germany were complex, especially after the Austro-Prussian War of 1866. But even more so, the historicist envisioned that Menger’s work was a crucial work that went beyond the principles that sustained Schmoller’s influence in Bismarck’s policymaking.

The debate that arose between Carl Menger and the young Historical School of Economics in Germany is one of the central points in understanding Menger’s intellectual journey. The debate was reduced to a mere conflict between Carl Menger and Gustav von Schmoller over the defense of the deductive and inductive methods respectively. However, unfortunately, the debate has not been understood for the complex phenomenon that it is.

This conceptual reduction brought with it a series of myths around the figure of Menger. Many of the defenders of German historicism presented him like a dogmatic and radicalized liberal. Through these myths, they tried to hide Schmoller’s extremism.

Erroneously, it has been believed that Menger advocated a radical specialization of economics and attacked the use of history. The focus of his attention was of course economic phenomena. However, he was a great defender of the comprehensive approach to social phenomena. He did not position himself as a detractor of what he called historical economics and practical economics, but he did advocate the abstract and general support necessary to be able to analyze phenomena to explain their general nature and laws of operation. He argued that the models of the different sciences can be found in a common methodological model that takes into account, as he writes in his Investigations, “the psychological basis for the most general economic phenomena, the theory of human needs and the means available to us for satisfying them, the theory of the nature and quantity of needs and goods (of need and the available quantity of goods), of use-value and its measure, of the nature of the economy and abstract economic reality” and so forth.

Furthermore, Schmoller and his followers hid behind their supposed emphasis on ‘ethics.’ Menger was then presented as ‘unethical.’ Nothing is further from reality than that statement. Menger argued in his Errors of Historicism that “Schmoller fights against social evils and wants to improve the lot of the weak and the poor. However different the direction of my research is, in this struggle, my sympathies are entirely on the side of the same endeavors.” The truth is that Menger did not disagree with the policies themselves defended by the historicists or because they came from the state, but because they did not know the negative implications in economic terms that they brought with them.

Finally, the Historicists tried to disconnect Menger’s contributions from the German-speaking world and to position him as an ‘outsider.’ But the connections of what is stated in the Principles with German thought are profound. Menger did not want to level a personal attack on the Germans, which can be easily seen by him dedicating the Principles to Wilhelm Roscher, a leading member of the Historical School. What Menger did was initiate a strong argument in favor of the liberal tradition in political economy.

Ultimately, Menger shaped his thought structure within the liberal tradition in the political economy. From there he built a true scientific revolution in an adverse scenario and against the advance of the nationalist and interventionist political project of historicism in Germany. Now, this reality need not lead us to believe that the Methodenstreit is a discussion of two dogmatic positions. Defenders of Schmoller’s position have spread the idea that Menger dedicated himself only to attack the Germans, rejecting any implementation of state policies and promoting anti-moral postulates. As shown, this is not the case.

Was the Methodenstreit a waste of time then? Not for the Austrian School. The Battle demonstrated that Menger’s thinking contains many interesting nuances within liberalism and that the thinking of his detractors was static and dogmatic. Thus, Menger should not be pigeonholed into a static ideology.