Historical school of economics
Encyclopedia
The Historical school of economics was an approach
to academic economics
and to public administration
that emerged in 19th century in Germany
, and held sway there until well into the 20th century.
The Historical school held that history
was the key source of knowledge about human actions and economic matters, since economics was culture-specific, and hence not generalizable over space and time. The School rejected the universal validity of economic theorem
s. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The School also preferred reality
, historical, political, and social as well as economic, to mathematical modelling
.
Most members of the school were also Sozialpolitiker (Social Policy-ers), i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. They were more disparagingly referred to as Kathedersozialisten, rendered in English as "Socialists of the Chair" (compare armchair revolutionary
), due to their position as professors (depicted sitting in chairs).
The Historical School can be divided into three tendencies:
Predecessors included Friedrich List
.
The Historical school largely controlled appointments to Chairs of Economics in German universities, as many of the advisors of Friedrich Althoff, head of the university department in the Prussia
n Ministry of Education 1882-1907, had studied under members of the School. Moreover, Prussia was the intellectual powerhouse of Germany and so dominated academia, not only in central Europe, but also in the United States
until about 1900, because the American economics profession was led by holders of German Ph.Ds. The Historical school was involved in the Methodenstreit
("strife over method") with the Austrian School
, whose orientation was more theoretical and aprioristic.
(English speaking countries), the Historical school is perhaps the least known and least understood approach to the study of economics
, because it differs radically from the now-dominant Anglo-American analytical point of view. Yet the Historical school forms the basis - both in theory and in practice - of the social market economy
, for many decades the dominant economic paradigm in most countries of continental Europe
. The Historical school is also a source of Joseph Schumpeter
's dynamic, change-oriented, and innovation
-based economics. Although his writings could be critical of the School, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the Historical School, especially the work of von Schmoller and Sombart.
, whose figures included Francis Bacon
and Herbert Spencer
. It was this school that heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo
. This school revered the inductive process and called for the merging of historical fact with those of the present period. Included in this school are: William Whewell
, Richard Jones
, Walter Bagehot
, Thorold Rogers, Arnold Toynbee
and William Cunningham just to name a few.
Economic methodology
Economic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning...
to academic economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
and to public administration
Public administration
Public Administration houses the implementation of government policy and an academic discipline that studies this implementation and that prepares civil servants for this work. As a "field of inquiry with a diverse scope" its "fundamental goal.....
that emerged in 19th century in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, and held sway there until well into the 20th century.
The Historical school held that history
History
History is the discovery, collection, organization, and presentation of information about past events. History can also mean the period of time after writing was invented. Scholars who write about history are called historians...
was the key source of knowledge about human actions and economic matters, since economics was culture-specific, and hence not generalizable over space and time. The School rejected the universal validity of economic theorem
Theorem
In mathematics, a theorem is a statement that has been proven on the basis of previously established statements, such as other theorems, and previously accepted statements, such as axioms...
s. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The School also preferred reality
Reality
In philosophy, reality is the state of things as they actually exist, rather than as they may appear or might be imagined. In a wider definition, reality includes everything that is and has been, whether or not it is observable or comprehensible...
, historical, political, and social as well as economic, to mathematical modelling
Mathematical model
A mathematical model is a description of a system using mathematical concepts and language. The process of developing a mathematical model is termed mathematical modeling. Mathematical models are used not only in the natural sciences and engineering disciplines A mathematical model is a...
.
Most members of the school were also Sozialpolitiker (Social Policy-ers), i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. They were more disparagingly referred to as Kathedersozialisten, rendered in English as "Socialists of the Chair" (compare armchair revolutionary
Armchair revolutionary
Armchair revolutionary is a pejorative term, generally used within the Radical Left and other left-revolutionary movements, to describe a person who endlessly criticizes the thoughts, ideology or practice of social movements or armed groups from a metaphorical armchair — i.e., from a mostly or...
), due to their position as professors (depicted sitting in chairs).
The Historical School can be divided into three tendencies:
- the Older, led by Wilhelm Roscher, Karl KniesKarl KniesKarl Gustav Adolf Knies was a German economist.He is known as the author of Political Economy from the Standpoint of the Historical Method, one of the 19th century methodological treatises on German historical school of economics...
, and Bruno HildebrandBruno HildebrandBruno Hildebrand was a German economist representing the "older" historical school of economics. His economic thinking was highly critical of classical economists, especially of David Ricardo. His magnum opus was Economics of the Present and the Future . The basic aim of this work was to...
; - the Younger, led by Gustav von SchmollerGustav von SchmollerGustav von Schmoller was the leader of the "younger" German historical school of economics.-Life:Schmoller was born in Heilbronn. His father was a Württemberg civil servant. Young Schmoller studied Staatswissenschaften at the University of Tübingen...
, and also including Etienne LaspeyresÉtienne LaspeyresErnst Louis Étienne Laspeyres was Professor ordinarius of economics and statistics or State Sciences and cameralistics in Basel, Riga, Dorpat , Karlsruhe, and finally for 26 years in Gießen...
, Karl BücherKarl BücherKarl Wilhelm Bücher was an economist, one of the founders of non-market economics, and the founder of journalism as an academic discipline.- Early life :...
, Adolph WagnerAdolph WagnerAdolph Wagner was a German economist and politician, a leading Kathedersozialist and public finance scholar and advocate of Agrarianism...
, Georg Friedrich KnappGeorg Friedrich KnappGeorg Friedrich Knapp was a German economist and founder of the chartalist school of monetary theory, which takes the statist stance on money, claiming that it must have no intrinsic value and strictly be used as governmentally-issued token i.e...
and to some extent Lujo BrentanoLujo BrentanoLujo Brentano was an eminent German economist and social reformer.Lujo Brentano, born in Aschaffenburg into one of the most distinguished German-Catholic intellectual families , attended school in Augsburg and Aschaffenburg...
; - the Youngest, led by Werner SombartWerner SombartWerner Sombart was a German economist and sociologist, the head of the “Youngest Historical School” and one of the leading Continental European social scientists during the first quarter of the 20th century....
and including, to a very large extent, Max WeberMax WeberKarl Emil Maximilian "Max" Weber was a German sociologist and political economist who profoundly influenced social theory, social research, and the discipline of sociology itself...
.
Predecessors included Friedrich List
Friedrich List
Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
.
The Historical school largely controlled appointments to Chairs of Economics in German universities, as many of the advisors of Friedrich Althoff, head of the university department in the Prussia
Prussia
Prussia was a German kingdom and historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries, the House of Hohenzollern ruled Prussia, successfully expanding its size by way of an unusually well-organized and effective army. Prussia shaped the history...
n Ministry of Education 1882-1907, had studied under members of the School. Moreover, Prussia was the intellectual powerhouse of Germany and so dominated academia, not only in central Europe, but also in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
until about 1900, because the American economics profession was led by holders of German Ph.Ds. The Historical school was involved in the Methodenstreit
Methodenstreit
Methodenstreit is a German term referring to an intellectual controversy or debate over epistemology, research methodology, or the way in which academic inquiry is framed or pursued...
("strife over method") with the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
, whose orientation was more theoretical and aprioristic.
Influence in the Anglosphere
In the AnglosphereAnglosphere
Anglosphere is a neologism which refers to those nations with English as the most common language. The term can be used more specifically to refer to those nations which share certain characteristics within their cultures based on a linguistic heritage, through being former British colonies...
(English speaking countries), the Historical school is perhaps the least known and least understood approach to the study of economics
History of economic thought
The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...
, because it differs radically from the now-dominant Anglo-American analytical point of view. Yet the Historical school forms the basis - both in theory and in practice - of the social market economy
Social market economy
The social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...
, for many decades the dominant economic paradigm in most countries of continental Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
. The Historical school is also a source of Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
's dynamic, change-oriented, and innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
-based economics. Although his writings could be critical of the School, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the Historical School, especially the work of von Schmoller and Sombart.
English school
Although not nearly as famous as its German counterpart, there was also an English Historical SchoolEnglish historical school of economics
The English historical school of economics, although not nearly as famous as its German counterpart, sought a return of inductive methods in economics, following the triumph of the deductive approach of David Ricardo in the early 19th century...
, whose figures included Francis Bacon
Francis Bacon
Francis Bacon, 1st Viscount St Albans, KC was an English philosopher, statesman, scientist, lawyer, jurist, author and pioneer of the scientific method. He served both as Attorney General and Lord Chancellor of England...
and Herbert Spencer
Herbert Spencer
Herbert Spencer was an English philosopher, biologist, sociologist, and prominent classical liberal political theorist of the Victorian era....
. It was this school that heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
. This school revered the inductive process and called for the merging of historical fact with those of the present period. Included in this school are: William Whewell
William Whewell
William Whewell was an English polymath, scientist, Anglican priest, philosopher, theologian, and historian of science. He was Master of Trinity College, Cambridge.-Life and career:Whewell was born in Lancaster...
, Richard Jones
Richard Jones (economist)
Richard Jones was an English economist who criticised the theoretical views of David Ricardo and T. R. Malthus on economic rent and population....
, Walter Bagehot
Walter Bagehot
Walter Bagehot was an English businessman, essayist, and journalist who wrote extensively about literature, government, and economic affairs.-Early years:...
, Thorold Rogers, Arnold Toynbee
Arnold Toynbee
Arnold Toynbee was a British economic historian also noted for his social commitment and desire to improve the living conditions of the working classes.-Biography:...
and William Cunningham just to name a few.
Important books on the HSE in English
- Bücher, Karl (1927). Industrial Evolution. 6th ed. New York, NY: Holt.
- Backhaus, Jürgen G. (1994), ed. Gustav Schmoller and the Problems of Today = History of Economic Ideas, vol.s I/1993/3, II/1994/1.
- Backhaus, Jürgen G. (1997), ed. Essays in Social Security and Taxation. Gustav von Schmoller and Adolph Wagner Reconsidered. Marburg: Metropolis.
- Backhaus, Jürgen G. (2000), ed. Karl Bücher: Theory - History - Anthropology - Non Market Economies. Marburg: Metropolis.
- Balabkins, Nicholas W. (1988). Not by theory alone...: The Economics of Gustav von Schmoller and Its Legacy to America. Berlin: Duncker & Humblot.
- Chang, Ha-Joon (2002). Kicking Away the Ladder. Development Strategy in Historical Perspective. London: Anthem.
- Grimmer-Solem, Erik (2003). The Rise of Historical Economics and Social Reform in Germany, 1864-1894. Oxford - New York: Oxford University Press.
- Hodgson, Geoffrey M. (2001). How economics forgot history. The problem of historical specificity in social science. London – New York: Routledge.
- Reinert, Erik (2007). How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor. New York: Carroll & Graf Publishers.
- Roscher, Wilhelm (1878). Principles of Political Economy. 2 vols. From the 13th (1877) German edition. Chicago: Callaghan.
- Seligman, Edwin A. (1925). Essays in Economics. New York: Macmillan.
- Shionoya, Yuichi (2001), ed. The German Historical School: The Historical and Ethical Approach to Economics. London etc.: Routledge.
- Shionoya, Yuichi (2005), The Soul of the German Historical School. Springer.
- Tribe, Keith (1988) "Governing Economy. The Reformation of German Economic Discourse" (Cambridge: Cambridge University Press).
- Tribe, Keith (1995) "Strategies of Economic Order. German Economic Discourse 1750-1950" (Cambridge: Cambridge University Press) (Republished 2006)