Historical school of economics

Last updated

The historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The professors involved compiled massive economic histories of Germany and Europe. Numerous Americans were their students. [1] The school was opposed by theoretical economists. Prominent leaders included Gustav von Schmoller (1838–1917), and Max Weber (1864–1920) in Germany, and Joseph Schumpeter (1883–1950) in Austria and the United States. [2]



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 theorems. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The school also rejected mathematical modelling.

Most members of the school were also Sozialpolitiker (social policy advocates), 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 positions as professors.

The historical school can be divided into three tendencies: [3]

Predecessors included Friedrich List. [4]

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 Prussian Ministry of Education 1882–1907, had studied under members of the school. Moreover, Prussia was the intellectual powerhouse of Germany, 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 PhDs. The historical school was involved in the Methodenstreit ("strife over method") with the Austrian school, whose orientation was more theoretical and aprioristic. [ citation needed ]

Influence in Britain and the United States

The historical school had a significant impact on Britain, 1860s–1930s. Thorold Rogers (1823–1890) was the Tooke Professor of Statistics and Economic Science at King's College London, from 1859 until his death. He is best known for compiling the monumental A History of Agriculture and Prices in England from 1259 to 1793 (7 vol. 1866–1902), which is still useful to scholars. [5] [6] William Ashley (1860–1927) introduced British scholars to the historical school as developed in Germany. In the United States the school influenced the institutional economists, such as Thorstein Veblen (1857–1929) and especially the Wisconsin school of labor history led by John R. Commons (1862–1945). More importantly, numerous aspiring economists undertook graduate studies at German universities, including John Bates Clark, Richard T. Ely, Jeremiah Jenks, Simon Patten, and Frank William Taussig.

Canadian scholars influenced by the school were led by Harold Innis (1894–1952) at Toronto. His staples thesis holds that Canada's culture, political history and economy have been decisively influenced by the exploitation and export of a series of "staples" such as fur, fishing, lumber, wheat, mined metals and coal. The staple thesis dominated economic history in Canada 1930s–1960s, and is still used by some. [7]

After 1930 the historical school declined or disappeared in most economics departments. It lingered in history departments and business schools. The major influence in the 1930s and 1940s was Joseph Schumpeter with his 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. Alfred D. Chandler, Jr. (1918–2007), had a major impact on approaching business issues through historical studies. [8]

Members of the school

English school

Although not nearly as famous as its German counterpart, there was also an English historical school, whose figures included Francis Bacon and Herbert Spencer. This school 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, to name a few.

See also

Related Research Articles

The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals and their self interest. Austrian school theorists hold that economic theory should be exclusively derived from basic principles of human action.

<span class="mw-page-title-main">Carl Menger</span> Founder of the Austrian School of economics (1840–1921)

Carl Menger von Wolfensgrün was an Austrian economist and the founder of the Austrian School of economics. Menger contributed to the development of the theories of marginalism and marginal utility, which rejected cost-of-production theory of value, such as developed by the classical economists such as Adam Smith and David Ricardo. As a departure from such, he would go on to call his resultant perspective, the subjective theory of value.

<span class="mw-page-title-main">Joseph Schumpeter</span> Austrian political economist (1883–1950)

Joseph Alois Schumpeter was an Austrian political economist. He served briefly as Finance Minister of Austria in 1919. In 1932, he emigrated to the United States to become a professor at Harvard University, where he remained until the end of his career, and in 1939 obtained American citizenship.

Creative destruction is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations.

<span class="mw-page-title-main">Eugen von Böhm-Bawerk</span> Austrian economist (1851–1914)

Eugen Ritter von Böhm-Bawerk was an economist from Austria-Hungary who made important contributions to the development of the macroeconomics. He served intermittently as the Austrian Minister of Finance between 1895 and 1904. He also wrote extensive criticisms of Marxism.

Methodenstreit, in intellectual history beyond German-language discourse, was an economics controversy commenced in the 1880s and persisting for more than a decade, between that field's Austrian School and the (German) Historical School. The debate concerned the place of general theory in social science and the use of history in explaining the dynamics of human action. It also touched on policy and political issues, including the roles of the individual and state. Nevertheless, methodological concerns were uppermost and some early members of the Austrian School also defended a form of welfare state, as prominently advocated by the Historical School.

<span class="mw-page-title-main">Friedrich von Wieser</span> Austrian economist (1851–1926)

Friedrich Freiherr von Wieser was an early economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry, he first trained in sociology and law. In 1872, the year he took his degree, he encountered Austrian-school founder Carl Menger's Grundsätze and switched his interest to economic theory. Wieser held posts at the universities of Vienna and Prague until succeeding Menger in Vienna in 1903, where along with his brother-in-law Eugen von Böhm-Bawerk he shaped the next generation of Austrian economists including Ludwig von Mises, Friedrich Hayek and Joseph Schumpeter in the late 1890s and early 20th century. He was the Austrian Minister of Commerce from August 30, 1917, to November 11, 1918.

<span class="mw-page-title-main">Gustav von Schmoller</span> German economist (1838–1917)

Gustav FriedrichSchmoller was the leader of the "younger" German historical school of economics.

<span class="mw-page-title-main">Werner Sombart</span> German economist, sociologist, and historian

Werner Sombart was a German economist, historian and sociologist. Head of the "Youngest Historical School," he was one of the leading Continental European social scientists during the first quarter of the 20th century. The term late capitalism is accredited to him. The concept of creative destruction associated with capitalism is also of his coinage. His magnum opus was Der moderne Kapitalismus. It was published in 3 volumes from 1902 through 1927. In Kapitalismus he described four stages in the development of capitalism from its earliest iteration as it evolved out of feudalism, which he called proto-capitalism to early, high and, finally, late capitalism —Spätkapitalismus— in the post World War I period.

<span class="mw-page-title-main">Karl Knies</span> German economist and author

Karl Gustav Adolf Knies was a German economist of the historical school of economics, best known as the author of Political Economy from the Standpoint of the Historical Method (1853). Knies taught at the University of Heidelberg for over 30 years, and was perhaps the most theoretically oriented economist of the older historical school.

<span class="mw-page-title-main">Bruno Hildebrand</span> German economist (1812–1878)

Bruno 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 (1848). The basic aim of this work was to establish laws of economic development. Hildebrand also stated that economic development was linear not cyclical. He supported socialist theory on the basis of religion, basic morals, and his beliefs of the negative effect of property on economic behavior.

The Verein für Socialpolitik, or the German Economic Association, is a self-important society of economists in the German-speaking area.

<span class="mw-page-title-main">Adolph Wagner</span> German economist and politician

Adolph Wagner was a German economist and politician, a leading Kathedersozialist and public finance scholar and advocate of agrarianism. Wagner's law of increasing state activity is named after him.

<span class="mw-page-title-main">Emil Lederer</span> German economist and sociologist

Emil Lederer was a Bohemian-born German economist and sociologist.

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. The school considered itself the intellectual heirs of past figures who had emphasised empiricism and induction, such as Francis Bacon and Adam Smith. Included in this school are William Whewell, Richard Jones, Thomas Edward Cliffe Leslie, Walter Bagehot, Thorold Rogers, Arnold Toynbee, William Cunningham, and William Ashley.

In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work. While economists do not always fit into particular schools, particularly in modern times, classifying economists into schools of thought is common. Economic thought may be roughly divided into three phases: premodern, early modern and modern. Systematic economic theory has been developed mainly since the beginning of what is termed the modern era.

The Other Canon Foundation is a center and network for research of heterodox economics founded by Erik Reinert. The name refers to the founders' message of there being another economic canon, alternative to the ruling neoclassical economics. Their suggestions, they claim, are valid for and can be applicated in the first, second and third world.

Throughout modern history, a variety of perspectives on capitalism have evolved based on different schools of thought.

Karl Diehl was a German economist and professor who taught from 1908 until his death in Freiburg. He taught at the universities of Heidelberg and Freiburg, known for teaching on the subject of Anarchism.

The Research Center in Entrepreneurial History was a research center at Harvard University founded in 1948 with a grant from the Rockefeller Foundation. Led by the American economic historian Arthur H. Cole, the research center attracted numerous scholars, with varied backgrounds and religious beliefs, in the field of business and economic history such as Joseph Schumpeter, Fritz Redlich, and Thomas C. Cochran. The center issued the first academic journal devoted to entrepreneurship named Explorations in Entrepreneurial History. During the time of its existence, the center attracted rising academic stars such as Alfred D. Chandler Jr., who would later become one of the seminal figures in the field of business history. Intellectually, the research center was influenced by the German Historical School and focused on the role of the entrepreneur in the economy. However, historical research on entrepreneurship ran into methodological roadblocks and the research interest moved towards industrial corporations and neoclassical economics. Today, the research center is seen as one of the first modern attempts to research entrepreneurship and understand the impact of entrepreneurial activities on the economy. While historical research on entrepreneurship has not found much resonance in scientific and public debates, recent decades have seen a revival of the theories of Joseph Schumpeter and more recently calls for a revival of research on entrepreneurial history.


  1. Herbst, Jurgen (1965) [1935]. The German Historical School in American Scholarship: A Study in the Transfer of Culture. Ithaca: Cornell University Press. ISBN   9780804616669.
  2. Yuichi Shionoya (2005). The Soul of the German Historical School: Methodological Essays on Schmoller, Weber and Schumpeter. Springer. ISBN   9780387230832.
  3. Shionoya, Yuichi. (2005). The Soul of the German Historical School. Springer, p. 1.
  4. Fonseca Gl. Friedrich List, 1789–1846 Archived 2009-01-04 at the Wayback Machine . New School.
  5. W. J. Ashley, "James E. Thorold Rogers" Political Science Quarterly (1889) pp. 381–407. in JSTOR
  6. Alon Kadish, Historians, Economists, and Economic History (2012) pp. 3–35 excerpt Archived 2016-02-01 at the Wayback Machine
  7. W.T. Easterbrook and M. H. Watkins, eds. "The Staple Approach" in Approaches to Canadian Economic History. (Carleton University Press, 1984) pp. 1–98.
  8. Richard R. John, "Elaborations, Revisions, Dissents: Alfred D. Chandler, Jr.'s, The Visible Hand After Twenty Years." Business History Review 71:2 (1997): 151–200.
  9. Jun Kobayashi, "Karl Knies's conception of political economy." in Yuichi Shionoya (2002). The German Historical School: The Historical and Ethical Approach to Economics. Routledge. p. 54ff. ISBN   9781134620456.
  10. Harald Hagemann, "Wilhelm Roscher's crises theory." in Crises and Cycles in Economic Dictionaries and Encyclopaedias 130 (2013): 197.
  11. Rudolf Richter, "Bridging Old and New Institutional Economics: Gustav Schmoller, Leader of the Younger German Historical School, Seen with Neoinstitutionalists' Eyes." in Essays on New Institutional Economics (Springer International Publishing, 2015) pp: 135-160.
  12. Manfred Prisching, "Understanding inescapable modernization: Werner Sombart and Joseph Schumpeter." Journal of Evolutionary Economics 25.1 (2015): 185+
  13. Manfred Prisching, "Understanding inescapable modernization: Werner Sombart and Joseph Schumpeter." Journal of Evolutionary Economics 25.1 (2015): 185+

Further reading