Policy advice by Austrian economists: The case of Austria in the 1930

In Austria the 1930s constituted the final period of success and failure of the Austrian school, ending with its emigration to the United States. This chapter focuses on this period, when the Austrian economy was hardest hit by the Great Depression, and it examines the ways and means by which the Austrian economists attempted to influence economic policy. In particular, from 1932 to 1934 in a concerted effort Austrian economists like Ludwig Mises, Fritz Machlup, and especially Oskar Morgenstern tried to “educate” the Austrian public and policy-makers in the benefits of a liberal approach towards the crisis. This effort included the advocacy of the policies typically associated with the gold standard, that is, stable money, balanced budgets, the absence of exchange restrictions, and free trade. In the actual situation the outcome of these endeavors was futile, if not harmful, insofar as indeed Austrian economic policy slowly converted to the implied deflationary stance of monetary and fiscal policy. Yet, under the regime of the so-called corporate state the necessary complement of such policies, namely the flexibility of prices and the furthering of competition, could not be accomplished. This eventual failure of the liberal cause may be ascribed to the fact that it had to rely on shifting coalitions and fragile personal relations, which in the end turned out too weak for sustaining the policies envisioned by the Austrian economists.