In my lifetime I witnessed two major changes in outlook in economics: first the Keynesian revolution, and then the counterrevolution, the return of the Bourbons.
I was raised in the traditions of the Austrian School which represented an attempt to transplant British liberalism in general and Manchester liberalism in particular in space and time to an industrial late comer. The transplant did not take too well, and after the First World War the school became anachronistic. Ludwig von Mises, then its chief representative, as secretary of the Chamber of Trade resided in the middle of a building dedicated mainly to the administration of quotas, clearing agreements, tariffs, etc. He was a splendid pamphleteer and speaker. In his view economics consisted of tautologies. This did not worry him, however, it only made it irrefutable. Ironically enough, he founded the Osterreichisches Institut fur Konjunkturforschung which was devoted mainly to empirical research. It was the focus of a circle of Austrian economists (Hayek and Morgenstern as successive directors, Haberler, Machlup, Strigl, Tintner as collaborators) and a stream of visitors from abroad. Owing to its skillful set-up (everybody who counted in economic life was represented on the board) it became, as reconstituted after the war (under the name Osterreichisches Institut fur Wirtschaftsforschung), a rather important institution in Austrian economics.
My teacher was Richard Strigl, a kind man and good teacher who taught me everything I soon came to disbelieve. He taught me, however, what economics is about, which is perhaps more than some students are learning today.
My existence as an economist is based not on one but on three strokes of luck: I got a job at the above-mentioned institute after graduation in 1935. After losing this job as a consequence of the Nazi takeover in 1938 I obtained a grant as a research lecturer at Balliol College, Oxford, which enabled me to emigrate to England where I passed my formative years. And I worked next to Michal Kalecki at the Oxford Institute of Statistics from 1940 to 1944. Without these rather improbable events I would have been a washout. This probably contributed to my later interest in random processes.
I should mention here that the leading members of the Austrian School, Mises, Haberler, Hayek and others, operating from abroad, showed great solidarity in organizing jobs in other countries for those economists whose career in Austria had been terminated by the political upheaval of 1938. This was a necessary condition also for my emigration. The sufficient condition was provided, in my case, by the openmindedness of the Master and Fellows of Balliol College, in the more general case, of British scholars and universities who assisted refugees at a time when such action was not exactly popular, and when young British academics did not always find it easy to get a job.
My acquaintance with the work of Keynes was mediated by Gerhard Tintner, who organized a seminar in the Konjunkturinstitut to discuss the General Theory as soon as it was published. The resulting process of reorientation was painful, slow, and difficult, for me as for most economists. It seemed to be another instance of the change of paradigm as described by Thomas Kuhn, which takes place from time to time in science.
What distinguished Kuhn from Popper and what shocked his readers was simply that he described scientific evolution as a social and historical process, which looks irrational from the point of view of a naive concept of scientific evolution as a process of selection of the fittest theory, i.e., that which can best survive falsification attempts. This naive concept of the development of science has a close parallel in the concept of pure economics, a rational scheme devoid of any social and historical elements. Such ideas seem to rest on a primitive misunderstanding: if you insist that the object of your analysis (the economy, the development of science) is rational. …