Why were the ideas of the Austrian School of Economics never implemented?

. . . as answered on Quora. . . . 

The “Austrian School” is a movement of social scientists sharing similar method while working out a rigorous analysis that first flowered in late 19th century Vienna. The tradition started with Carl Menger’s Grundsätse in 1871, and carried on in several major works by Eugen von Böhm-Bawerk and Friedrich Freiherr von Wieser in the 1880s, till their deaths. Böhm-Bawerk’s work quickly became world-famous, especially his writings on capital and interest, his extremely clear explanations of Menger’s price formation theory, and his understanding of subjective value in the concept of what Wieser called Grenznutzen (“marginal use” or, more commonly, marginal utility). Wieser formulated the crucial concept of opportunity cost, building on work of the French Liberal School economists Frédéric Bastiat and Courcelle-Seneuil. Menger, Böhm-Bawerk, and Wieser were all Austrians, as were a great number of the next generation of the movement — Eugen Philippovich von Philippsberg, Viktor Mataja, Richard Strigl, Hans Mayar — and, of course, the two that remain the most famous, Ludwig von Mises and F.A. Hayek.

Menger gave up academia for tutoring the crown prince of the Austrian-Hungarian Empire. He hoped to influence policy — and it is policy that is meant by “ideas” to be “implemented” in the OQ, right? — through his instruction of that one man. Who committed suicide for murky reasons, making Menger’s career bet a bad one. But both B-B and Wieser held major positions in the government. B-B was even on currency.

They did implement Austrian ideas on policy, B-B especially. Later on, Mises, working for the Chamber of Commerce, advised the government. Some say he helped save as much of the old liberal order that could have been, by fighting inflationism. Mises developed a coherent and powerful theory of the business cycle (trade cycle) which was taken up by the younger scholar, F.A. Hayek, who predicted America’s Great Depression while the great Irving Fisher asserted it was all roses just on the eve of disaster in 1929. Hayek went to the London School of Economics, where he elaborated the Misesian theory in interesting and perhaps ungainly ways, caused quite a furor (convincing many), but was then outdone by Keynes.

Why did Keynes “win” this debate? He offered a few very enticing things, the most important being an excuse for politicians and ideologues-on-the-make to engage in governmental fiscal recklessness, spending more than revenue and increasing the levels of debt, and push monetary inflation, as well. Austrian policy is designed to restrain government and serve the greatest number of people through stability. That is, politically, no match for the Keynesian Temptation. Besides, Keynes’s General Theory, his second big book to push his favorite policy (Hayek “destroyed” the first one, which almost no one reads any more), was such a conceptual mess it gave academics whole careers trying to make sense of it and defend it. Hayek was late in the game with his behemoth failure, The Pure Theory of Capital, which could have had a similar effect, except that the Austrians never encouraged elaborate mathematical formalism, and economists hoping to become court wizards to the emerging welfare state order needed that bit of hocus pocus to advance their social position.

Mises, meanwhile, belatedly fleeing Austria from the Nazis (who hated Mises for being a liberal and a Jew), moved to Switzerland and then the States, in which he could not get a good teaching position through normal means: the crowding-out effect of the order of wizards meant that the universities had no interest in this pioneer theorist of ordinal utility, money, boom-bust and banking, and the impossibility of economic calculation in a socialist commonwealth — he was shut out. He was left to pick up just a few students who carried on this now quite fugitive and subversive work: Israel Kirzner and Murray N. Rothbard are the two great Austrians who came out of the 1960s.

Mises was considered an “intransigent,” occasionally embarrassing fellow liberal/libertarians like Milton Friedman (who was not Austrian in approach). Like in the case of business cycle theory, the Mises-Hayek critique of socialist calculation (another of Hayek’s LSE projects) was said to have been “won” by their enemies. Then, after the Berlin Wall fell and the Soviet Union collapsed, the Austrian position triumphed. Even the egregious Robert Heilbroner admitted that “Mises was right.”

Every time a socialist state dies, replaced by something more market oriented, I tip my hat to Mises’ shade and smile when I say “now that is a kind of implementation of Austrian policy; step in the right direction, anyway.”