Francis Joseph’s rejection of constitutional reforms and the reimposition of central authority over the Italians, Hungarians, and his Slav subjects in 1848-49 was the first chance lost for any such reconciliation. The second lost opportunity occurred following his defeat at the hands of the Prussians in 1866, when Bismarck pushed Austria out of the German Confederation. Fearful of the Hungarians taking advantage of the empire’s postwar weakness to claim full independence through another violent uprising, Francis Joseph agreed to the Ausgleich, the “Compromise,” of 1867 that transformed the Austrian Empire into the Austro-Hungarian Empire. While Francis Joseph remained emperor of both halves of his domain, Hungary became widely independent in many of its domestic affairs. Only a common customs and monetary system and a shared military and foreign policy completely linked Hungary to the Austrian “Crownlands” directly ruled by Francis Joseph’s government in Vienna.18
As Hans Kohn, one of the twentieth century’s leading experts on the history and philosophy of nationalism, who had grown up under the rule of Francis Joseph in Prague, explained, “In the Compromise with the Hungarian nobility in 1867, the aspirations of the Czechs, Slovaks, Serbs, Croats, and Romanians, who in large majority were then still loyal to the dynasty, were sacrificed for the purpose of winning the assent of the Magyars to a common foreign and military policy on the part of what now became the Dual Monarchy.”19 Indeed, at first, several leading Czech and Hungarian nationalist leaders believed that the flowering of their people’s cultural and linguistic identities could best flourish in the wider setting of a multinational Habsburg Empire. But as the nineteenth century progressed this sentiment shifted into a belief that only national independence could secure these goals.
A far more liberal-minded voice in the Habsburg family was Francis Joseph’s son, Crown Prince Rudolf (1858-89), the heir to the throne. Among his personal tutors had been Carl Menger (1840-1921), the founder of the Austrian School of economics. Under Menger’s guidance, Crown Prince Rudolf had become well versed in the free trade and relatively laissez-faire ideas of the Classical economists.20 Menger also had coauthored with Rudolf a scathing criticism of the Austrian nobility, who were accused of having lost their sense of social duty and, instead, had escaped into frivolous court intrigues, pointless social entertainments, and financial irresponsibility. It was a clear call for recognition of and respect for the middle-class values of enterprise, frugality, and personal responsibility. The bourgeois virtues needed to replace the anachronistic role of the aristocracy in society, who had lost their way in the pretensions of power and lure of wasteful pleasures.21 But whatever influence the crown prince might have had on the course of events in Austria-Hungary was cut short by his suicide in 1889 at his hunting lodge at Mayerling.22
The particularly nationalist imperialism of the Hungarians against the other peoples under their control was not the only problem as the nineteenth century progressed in terms of growing antagonism among the subject peoples in the Dual Monarchy. The German-Austrians, also, increasingly became defensive and antagonistic toward the rising nationalist aspirations of the Czechs, Poles, Slovenians, and others in the Crownlands, as well as the growing demands of the Hungarians for independence.
As Hans Kohn pointed out, “The spread of democracy, literacy, and economic well-being in the western half of the monarchy after 1867 strengthened the non-German nationalities there at the expense of the Germans. The result was that many Germans in the monarchy lost their faith in an Austrian idea as much as many Slavs and other non-Germanic peoples did.... By the end of the nineteenth century many Austrian Germans looked to the Prussian German Reich as their real home and venerated [Otto von] Bismarck.”23
Looking back at the events that brought about the demise of the Habsburg Empire in the immediate aftermath of the First World War, Ludwig von Mises explained why many German-Austrians turned against liberalism as a foundation for the preservation of the monarchy and the Austro-Hungarian state. Over the centuries German-Austrian settlers had made their homes in the eastern reaches of the empire. They brought with them the German language, culture, literature, commercial knowledge, and knowhow. They viewed themselves as a “civilizing force” among the lesser-advanced nationalities, especially among the Slavic peoples. Indeed, many of these subject peoples became acculturated into German-Austrian life, since the latter was the dominant group; the German language in particular became the venue for social and economic advancement. But as literacy and national consciousness awakened among these other peoples in the nineteenth century, loyalties to and identification with German-Austria and the Habsburg dynasty were replaced with a growing allegiance and sense of belonging to their own ethnic and linguistic groups.
Furthermore, these peoples had higher birth rates than the Germans living among them. Cities and towns that had been settled and predominantly populated by Germans for centuries became increasingly Czech or Hungarian or Polish or Romanian or Slovenian communities. German-Austrians found themselves shrinking minorities in lands that they had long considered to be their own politically, culturally, and commercially. This was especially true in the Czech lands with Prague at the center.
As the nineteenth century progressed, German-Austrians discovered that adherence to liberal principles of representative government and full individual and cultural equality before the law meant the demise of the German communities sprinkled across the Habsburg domains. For many German-Austrian liberals the choice was between a liberalism that would logically mean the decentralization and possible eventual breakup of the empire along nationalist lines, or advocacy of centralized political control, monarchical dictate when required, and subversion of democratic aspirations among the non-German peoples.
The first course meant the eventual loss of German political and cultural domination in the non-German lands; the second meant holding onto both political and cultural power as long as possible in the non-German areas of the empire, but only by increasingly alienating the other subject peoples. As Mises explained, part of the German-Austrian tragedy was that national and linguistic imperialism won over liberal idealism.24
What enabled the Habsburg Empire to endure for fifty years after the establishment of the Dual Monarchy in 1867 was the constitutional order that had been implemented at the same time as the Ausgleich (or “Compromise”). The Constitution of 1867, which accompanied the creation of “Austria-Hungary,” was imbued with the spirit of the classical liberal ideas that were then at their zenith in Europe.25 Every subject of the Habsburg emperor was guaranteed freedom of religion, language, association, profession, and occupation, and could appeal to a special higher court of law if a violation of these rights had occurred. Any subject might live wherever he chose throughout the emperor’s domain. Private property was secure, and relatively free trade prevailed within the boundaries of the empire, though protectionist barriers to international trade not only continued but grew in various ways in the last decades of the nineteenth and first decade of the twentieth centuries.26
The economic free trade zone that made up the Austro-Hungarian Empire fostered significant economic development beginning in and especially after the 1880s, though very far from matching the economic progress in Western Europe or in Imperial Germany after 1871.27 However, various forms of government controls and regulations began to be domestically superimposed on the society, including the nationalization of the railways, starting in the 1880s. As a result, the remaining history