Like countless members of his generation and social class, Friedrich A. von Hayek had grown to manhood in fin de siècle Vienna and had expected to play a leading role in the mighty Habsburg Empire. However, in the aftermath of World War I—when the vast monarchy collapsed and Austria was reduced to a small, land-locked country—its society had disappeared. The emerging new Austria could not offer the type of opportunities to which he and his contemporaries were accustomed. With little hope for finding a decent position and mindful of the deteriorating political conditions in the 1930s, most of the leading Austrian intellectuals left the country, including the core members of the Austrian School of Economics. With this brain drain—Hayek in London, Joseph Schumpeter in Bonn, Ludwig von Mises in New York, Gottfried von Haberler at Harvard, Fritz Machlup in Buffalo, and numerous others scattered around the world—Vienna ceased to be the stronghold for the Austrian School of Economics.
In April 1939 Hayek ventured a last risky journey to Vienna before the outbreak of war. At the request of Mises, Hayek attempted to reclaim material stolen by the Nazis from Mises’s apartment. (Hayek’s efforts failed, but some 50 years later two Austrian historians discovered most of the stolen documents in a previously secret Soviet archive outside Moscow.)
Only four days after Great Britain (and some allies) declared war on the German Reich, Hayek, frustrated by the unfolding catastrophe, wrote a short memorandum for the BBC in an attempt to improve the BBC’s clumsy anti-Nazi efforts. Hayek tried to show “why, to be effective, propaganda must be based on the most intimate knowledge of German psychology and conditions,” and he explained in detail how to penetrate the Nazi grip on the media and when and where to smuggle disguised anti-Nazi propaganda material into Germany.
Once World War II had ended, a defeated Austria faced the monumental challenge of political reconstruction and economic recovery.
Like Germany and Berlin, Austria and Vienna were divided into four occupation zones. Thus, Vienna, like Berlin, was an isolated island surrounded by Soviet troops in the middle of the larger Soviet occupation zone.
Hayek was finally able to visit surviving family and friends in destroyed and occupied Vienna in early 1946. Shocked and deeply moved by the unbearable conditions under which his countrymen were living, Hayek wrote an article in which he accused the Allies of treating Austria “much worse than Italy or any of the other countries which joined Germany voluntarily.” He strongly argued for an immediate end to the Allied occupation because “the effect . . . of occupation is in the main that the Austrians have been prevented from helping themselves to get out of a desperate economic position.”
Hayek asked several of his friends to help guide Austria’s economic recovery and argued for the formation of a joint commission of economic advisers.
To Hayek, the intellectual reconstruction of Austria was just as important as its political and economic reconstruction. He worked tirelessly in the postwar years in an attempt to rejuvenate Austria’s proud tradition in economics.
He was drawn to the plight of scholars and students in Austria, particularly in Vienna. He realized that it was essential for them to regain contact with the Western academic world after Austria’s long period of isolation. To that end, back in London, Hayek founded the Austrian Book Committee. As chair, he appealed to prominent Austrians and non-Austrians alike to collect books and funds to assist Austrian libraries in rebuilding their collections in the humanities and social sciences, particularly with items published in the West since 1938. With prominent figures such as Lord Beveridge among the sponsors, by December 1947 the committee had already collected some 2,500 books, and Hayek traveled to Vienna to arrange for the shipment. Although this shipment was received in Vienna with gratitude, the appalling inefficiency of the bureaucracy there eventually forced the committee to wind up its operations in July 1948.
In 1947 Hayek participated in the “International College”—an informal gathering of scholars and students founded in the small mountain village of Alpbach as a forum for philosophical, political, and economic ideas. Hayek inspired many of his Austrian friends to participate, including philosopher Karl Popper, physicist Ernst Schrödinger, and economists Haberler, Machlup, and Mises. (This charming and stimulating “summer school” prospers today as the world-famous European Forum Alpbach.)
Deeply concerned with the large number of eager students in Austria “who receive no adequate teaching but who might well some day continue the Viennese tradition if they were given an opportunity to acquaint themselves with the state of modern economics,” Hayek worked hard to organize a reunion of Austrian economists in the form of a summer school in Vienna and persuaded a number of his friends—including Haberler, Machlup, and Mises—to teach there. Using seed money from the Rockefeller Foundation and funding from a small group of Austrian industrialists, in July 1948 he launched the school, which later developed into the Meinl-Collegium. (Among the students there was Reinhard Kamitz, who became Austria’s minister of finance and was instrumental in the Austrian economic miracle of the 1950s and early 1960s.)
Many of Hayek’s activities in Vienna during the postwar years stirred up controversy and irritated the Austrian Socialist Party, which at the time strongly supported central economic planning.
In 1950 Hayek accepted an appointment at the University of Chicago, which made traveling back to Europe expensive and time-consuming. Still, Hayek did not rest.
In his final attempt to revive Austria’s great academic tradition, Hayek became one of the driving minds behind the founding of the Austrian Institute in New York in 1954. He circulated a detailed assessment of the condition and needs of the University of Vienna, which he opened with a dramatic appeal: “One of the great centers of science and scholarship which during the last 3 or 4 generations has given the world perhaps as many original thinkers of the first rank as any other is in acute danger.” He continued: “There is still a spark glimmering, there is still left an atmosphere and a number of first class men that should make it possible to revive the old tradition. . . . The neutralization of Austria and the traditions of Vienna offer an exceptional opportunity . . . in the present ideological struggle of the world to revive the University of Vienna as a main intellectual fort at the boundaries of the West.” Although an American Committee for Vienna University supported the idea and moved things forward, strong local academic and partisan interference eventually frustrated Hayek’s efforts. To get around the bureaucratic hurdles and resistance, Hayek rephrased his original idea and presented a new proposal for a private research institution in Vienna to several U.S.-based foundations. His proposal outlined the tasks, structure, and academic mission of the institute in great detail, and in 1959 he finally met successfully with several leading Austrian politicians. Thanks to a major contribution by the Ford Foundation, the Institute for Advanced Studies was established in Vienna shortly thereafter; Hayek taught there in the spring of 1963.
After the war, the Austrian economy and political system both made remarkable recoveries, drawing on those who had survived the Nazi terror and on returning émigrés. Yet despite Hayek’s best efforts, the Austrian School of Economics never recovered its prewar glory. Why did the authorities fail to invite Hayek, Mises, and their contemporaries to return to the land of their upbringing? That remains one of the signal mysteries—and indeed tragedies—of Austrian history.