Carl Menger was the founder of the Austrian School of Economics, one of the central figures of the Marginal Revolution, author of “Principles of Economics”, and one of the foremost European scholars of his day. What follows is the story of how he (indirectly) started World War I.
Very early in his career, Menger was already making a name for himself in the economics profession. His “Principles” was published in 1871, when he was just thirty-one years old. Shortly after, Menger started teaching finance and economics at the University of Vienna in 1872. By the next year, Menger was named chair of the university’s department on economic theory — a very young age to occupy such a position.
Menger’s academic and scholarly success did not go unnoticed. The king of Austria-Hungry, Franz Joseph I, was looking for a tutor to teach his son, Crown Prince Rudolf von Hapsburg, economics and business. After all, if he was going to rule the empire one day, these subjects would be necessary knowledge to govern his subjects. Because he was the king and could choose whomever he wanted, Franz Joseph chose Menger to teach his son.
Menger would spend a total of three months tutoring the young prince, but would travel Europe with him in the following months, spending a total of two years together. However, Menger’s teaching methods were quite different from those that he employed at the University, however. First, Menger didn’t use his own book at all. Instead, he exclusively used Adam Smith’s “Wealth of Nations” for the lessons. This was probably done so that Menger did not appear biased, and instead was leaning on established and respected works in the field for Prince Rudolf’s education. In the translations of the Prince’s personal notes from the lessons, we can also see that Menger placed little to no emphasis on economic theory. He almost exclusively focused on economic policy. Because of the position that the Prince would occupy in the future, this decision makes sense on Menger’s part. What matters most principally is that he understands which economic policies are harmful and which are beneficial. Understanding why this is the case, going all the way back to first principles, isn’t as important for practical purposes (although I’m sure that the two had discussions on economic theory in their lessons and subsequent travels together).
After Menger and Prince Rudolf went their separate ways, Franz Joseph was so impressed with Menger that in 1879 he appointed him as chair of law and political economy at the University of Vienna. Menger would go on to have a prestigious career, but his student, Prince Rudolf, would not have such a happy ending. On January 30, 1889, the Prince and his lover, Marie von Vestra, committed suicide at the Mayerling hunting lodge in southern Austria.
The million-dollar question that has haunted historians ever since is: why? What could have been the reason for the Prince and his mistress to do something so drastic and final? As you might imagine, theories of all sorts have floated about in the 130-plus years since their deaths. Everything from a lover’s death pact to a murder cover-up have been proposed. For some insight into the Prince’s fatal decision, we’ll turn to the remembrances of the titan of the Austrian School, Ludwig von Mises.
In his “Memoirs”, Mises wonders why Carl Menger was not more productive in the later years of his life. After publishing his “Principles” at thirty-one, Menger would publish only a handful of other books and papers, despite the fact that he lived to be eighty years old and kept his mental faculties far into his old age. Mises gives us the answer, writing:
“I believe I know the cause of Menger’s discouragement and premature silence. His keen intellect had recognized in which direction Austria, Europe, and the world were pointed; he saw this greatest and highest of all civilizations rushing toward the abyss. He had anticipated the atrocities with which we are faced today; he knew the consequences of the world’s turning away from liberalism and capitalism, and had done what he could to battle these trends.” (pg. 26)
According to one of Mises’ relatives, in 1910 Menger even made a prophetic prediction of how he thought the world would soon collapse into chaos:
“Carl Menger had made the following remarks: The policies being pursued by the European powers will
lead to a terrible war ending with gruesome revolutions, the extinction of European culture and destruction of prosperity for people of all nations. In anticipation of these inevitable events, all that can be recommended are investments in gold hoards and the securities of the two Scandinavian countries.” (pg. 26–27)
Mises also adds that Menger’s savings were invested in Swedish Securities. He was putting his mouth where his money was already at. This bleak view of the future of Europe led Menger into a dark depression — one that was apparently contagious:
“He realized that his fight was futile and hopeless, and became filled with a dark pessimism that exhausted his strength. He passed this pessimism on to his student and friend, Rudolf, successor to the throne. The crown prince took his own life because of despair over the future of his empire and that of European civilization, not because of a woman. The young girl had had a death wish of her own and he took her into death with him; he did not commit suicide on her account.” (pg. 26)
Mises’s account of events is interesting for his clarity and insistence on the reason for the Prince’s suicide. He even tells us that it was the Prince who wanted death and he mistress followed him out of a sense of loyalty. Unfortunately, Mises does not elaborate more on the reasons for his firm conviction on the motivation for the Prince’s actions. Its possible that he has access to some insider information that he doesn’t disclose, or he is perhaps just very confident in his opinion as to what happened. Given his own prominence in the Austrian School tradition — a tradition which Menger originally founded — it seems likely that Mises knows something we don’t, and that is why he is so confident in his version of the story.
While we can’t know for sure, Mises’ account of events makes the most sense out of any existing theories. It is clear that Menger had a significant intellectual influence upon Rudolf, as is indicated by a pamphlet secretly authored by the two, which was published in 1878. The pamphlet critiqued the monopoly that the Austrian aristocracy held on the country and government, arguing that their performance in these roles had done little to show that they had earned them — all ideas that Rudolf had almost certainly originally absorbed from Menger. It’s quite possible that Menger’s other ideas about the dark future of Europe might have passed on to the Prince as well. Especially if the Prince already struggled with depression and mental health, one could imagine how these views about the fate of the empire he was born to rule could drive him into the depths of despair.
Regardless of the exact reason why, the death of Prince Rudolf set off a chain of events that would lead to the undoing of Europe, what Menger had feared most all along:
Prince Rudolf was the only male heir of Franz Joseph I. Because he had no other children who could ascend to the throne upon his death, the succession now passed to his brother, Karl Ludwig. However, in 1896, Prince Ludwig died from a bought with typhoid. That meant that the secession now passed to his son, Archduke Franz Ferdinand.
In 1908, Austria-Hungry officially annexed Bosnia and Herzegovina into the empire. Both of these territories contain many ethnic Serbs, and their occupation inflamed the anger of many Serbian nationalists who wanted to see all Serbs united into one nation (or, “Yugoslavia”). The heir apparent to the throne, Archduke Franz Ferdinand, held the position that the territories of the empire, including the newly acquired Bosnia and Herzegovina, should have more autonomy, but still remain as Austro-Hungarian subjects.
In June of 1914, Archduke Franz Ferdinand visited the Bosnian town of Sarajevo to meet with local officials and oversee the opening of a new state museum. However, he would be assassinated by members of The Black Hand, a Serbian nationalist terrorist group. Austria-Hungry would blame Serbia for the Archduke’s death, which Serbia denied. Austria-Hungry sent Serbia a list of demands to avoid war, demands which Serbia could never acquiesce to. Just under a month after the Archduke’s death, war broke out between the two countries. Because of the dizzying web of alliances built up between the great powers, nations were dragged into the conflict one by one. By early August, all of Europe was at war.