Development Of Historical School

The Origin and Development Of The Historical School

The honour of founding the school undoubtedly belongs to Wilhelm Roscher, a Gottingen professor, who published a book entitled Grundriss zu Vorlesungen iiber die Staatswirtschaft nach geschichtlicher Methode in 1843. In the preface to that small volume he mentions some of the leading ideas which inspired him to undertake the work, which reached fruition in the celebrated System der Volkswirtschaft (1st ed., 1854). He makes no pretence to anything beyond a study of economic history.

" Our aim," says he is simply to describe what people have wished for and felt in matters economic, to describe the aims they have followed and the successes they achieved—as well as to give the reasons why such aims were chosen and such triumphs won. Such research can only be accom­plished if we keep in close touch with the other sciences of national life, with legal and political history, as well as with the history of civilization.

Almost in the same breath he justifies an attack upon the Ricardian school. He recognizes that he is far from thinking that his is the only or even the quickest way of attaining the truth, but thinks that it will lead into 'pleasant and fruitful quests, which once undertaken will never be abandoned.

What Roscher proposed to do was to try to complete the current theory by adding a study of contemporary facts and opinions, and, as a matter of fact, in the series of volumes which constitute the System, every instalment of which was received with growing appreciation by the German world of letters, Roscher was merely content to punctuate his exposition of the Classical doctrines with many an erudite excursus in the domain of economic facts and ideas.

Roscher referred to his experiment as an attempt to apply the historical method which Savigny had been instrumental in intro­ducing with such fruitful results into the study of jurisprudence. But, as Karl Menger has well pointed out, the similarity is only super­ficial. Savigny employed history in the hope of obtaining some light upon the organic nature and the spontaneous origin of existing institu­tions. His avowed object was to prove their legitimacy despite the radical pretensions of the Rationalist reformers of the eighteenth century. Roscher had no such aim in view. He was himself a Liberal, and fully shared in their reforming zeal. History with him served merely to illustrate theory, to supply rules for the guidance of the statesman or to foster the growth of what he called the political sense.

Schmoller thinks that Roscher's work might justly be regarded as an attempt to connect the teaching of political economy with the 'Cameralist' tradition of seventeenth- and eighteenth-century Ger­many. These Cameralists were engaged in teaching the principles of administration and finance to students who were to spend their lives in administrative work of one kind or another, and they naturally took good care to keep as near actual facts as possible. Even in England and France political economy soon got involved in certain practical problems concerning taxation and commercial legislation. But in a country like Germany, which was industrially much more backward than either England or France, these problems wore a very different aspect, and some correction of the Classical doctrines was absolutely necessary if they were to bear any relation to the realities of economic life. Roscher's innovation was the outcome of a pedagogic rather than of a purely scientific demand, and he was instrumental in reviving a university tradition rather than in creating a new scientific movement.

In 1848 another German professor, Bruno Hildebrand, put forward a much more ambitious programme, and his Die Mationalokonomie der Gegenwart und £ukunft shows a much more fundamental opposition to the Classical school. History, he thought, would not merely vitalize and perfect the science, but might even help to recreate it altogether. Hildebrand points to the success of the method when applied to the science of language. Henceforth economics was to become the science of national development.

In the prospectus of the Jahrbucher fur Mationalokonomie und Statistik, founded by him in 1863, Hildebrand goes a step farther. He challenges the teaching of the Classical economists, especially on the question of national economic laws, and he even blames Roscher because he had ventured to recognize their existence. He did not seem to realize that a denial of that kind involved the undoing of all economic science and the complete overthrow of those "laws of development" which he believed were henceforth to be the basis of the science.

But Hildebrand's absolutism had no more influence than Roscher's eclecticism, unless we make an exception of his generalization concern­ing the three phases of economic development, which he differentiates as follows: the period of natural economy, that of money economy, and finally that of credit. Beyond that he merely contented himself with publishing a number of fragmentary studies on special questions of statistics or history, without, for the most part, making any attempt to modify the Classical theory of production and distribution.

The critical study of 1848 hinted at a sequel which was to embody the principles of the new method. But the sequel never appeared, and the difficult task of carrying the subject farther was entrusted to Kasrl Knies, another professor, who in 1853 published a bulky treatise bearing the title of Political Economy from the Historical Point of View.1 But there is as much divergence between his views and those of his predecessors as there is between Roscher's and Hildebrand's. He not only questions the existence of natural laws, but even doubts whether there are any laws of development at all—a point Hildebrand never had any doubts about—and thinks that all we can say is that there are certain analogies presented by the development of different countries. Knies cannot share in the belief of either Hildebrand or Roscher, nor does he hold with the Classical school. He thinks that political economy is simply a history of ideas concerning the economic develop­ment of a nation at different periods of its growth.

Knies's work passed almost unnoticed, ignored by historians and economists alike, until the younger Historical school called attention to his book, of which a new edition appeared in 1883. Knies makes frequent complaints of Roscher's neglect to consider his ideas.

Such heroic professions naturally lead us to expect that Knies would spare no effort to show the superiority of the new method. But his subsequent works dealing with money and credit, upon which his real reputation rests, bear scarcely a trace of the Historical spirit.

The three founders of the science devoted a great deal of time to a criticism of the Classical method, but failed to agree as to the aim and scope of the science and left to others the task of applying their principles.

This task was attempted by the newer Historical school, which sprang up around Schmoller towards the end of 1870. This new school possesses two distinctive characteristics.

(1) The useless controversy concerning economic laws which Hildebrand and Knies had raised is abandoned. The members of the school are careful not to deny the existence of natural social laws or uniformities, and they considered that the search for these was the chief object of the science. In reality they are economic determinists. "We know now," says Schmoller, "that physical causation is some­thing other than mechanical, but it bears the same stamp of necessity." What they do deny is that these laws are discoverable by Classical methods, and on this point they agree with every criticism made by their predecessors.

As to the possibility of formulating 'the laws of development' upon which Hildebrand laid such stress, they professed themselves very sceptical. " We have no knowledge of the laws of history, although we sometimes speak of economic and statistical laws," writes Schmoller. " We cannot," he regretfully says later, " even say whether the economic life of humanity possesses any element of unity or shows any traces of uniform development, or whether it is making for progress at all."3 This very characteristic passage from Schmoller was written in 1904, and forms the conclusion of the great synthetic treatise. All attempts at a philosophy of history are treated with the same disdain.

(2) The newer Historical school, not content merely with advo­cating the use of the Historical method, hastened to put theory into practice. Since about i860 German economists have shown a disposi­tion to turn away from economic theory and to devote their entire energy to practical problems, sociological studies, and historical or realistic research. The number of economic monographs has increased enormously. The institutions of the Middle Ages and of antiquity, the economic doctrines of the ancients, statistics, the economic organiza­tion of the present day, these are some of the topics discussed. Political economy is lost in the maze of realistic studies, whether of the present day or of the past.

Although the Historical school has done an enormous amount of work we must not forget that historical monographs were printed before their time, and that certain socialistic treatises, such as Marx's Kapital, are really attempts at historical synthesis. The special merit of the school consists in the impulse it gave to systematic study of this description. The result has been a renewed interest in history and in the development of economic institutions. We cannot attempt an account of all these works and their varied contents. We must remain satisfied if we can catch the spirit of the movement. The names of Schmoller, Brentano, Held, Biicher, and Sombart are known to every student of economic history. Marshall, the greatest of modern theorists, has on more than one occasion paid them a glowing tribute.

The movement soon left Germany, and it was speedily realized that conditions abroad were equally favourable for its work.
By the end of 1870 practical Liberalism had spent its force. But new problems were coming to the front, especially the labour question, which demanded immediate attention. Classical economists had no solution to offer, and the new study of economic institutions, of social organization, and of the life of the masses seemed to be the only hope­ful method of gaining light upon the question. Comparison with the past was expected to lead to a better understanding of the present. The Historical method seemed to social reformers to be the one in­strument of progress, and a strong desire for some practical result fostered belief in it. When we remember the prestige which German science has enjoyed since 1871, and the success of the Germans in com­bining historical research with the advocacy of State Socialism, we can understand the enthusiasm with which the method was greeted abroad.

Even in England, the stronghold of Ricardian economics, the influence of the school becomes quite plain after 1870.

Here, as elsewhere, a controversy as to the method employed mani­fests itself. Cairnes in his work, The Character and Logical Method of Political Economy (1875), writing quite in the spirit of the old Classical authors, strongly advocates the employment of the deductive method. In 1879 Cliffe Leslie, in his Essays on Political and Moral Philosophy, enters the lists against Cairnes and makes use of the new weapons to drive home his arguments. The use of induction rather than deduc­tion, the constant necessity for keeping economics in living touch with other social sciences, the relative character of economic laws, and the employment of history as a means of interpreting economic phenomena, are among the arguments adopted and developed by Leslie. Toynbee, in his Lectures on the Industrial Revolution, gave utterance to similar views, but showed much greater moderation. While recognizing the claims of deduction, he thought thaj history and observation would give new life and lend a practical interest to economics. The remoteness and unreality of the Ricardian school constituted its greatest weakness, and social reform would in his opinion greatly benefit by the introduction of new methods. Toynbee would undoubtedly have exercised tremendous influence; but his life, full of the brightest hopes, was cut short at thirty. The lead had been given; the study of economic institutions and classes was henceforth to occupy a permanent position in English economic writings, and the remarkable works which have since been published, such as Cunningham's Growth of English Industry and Com­merce, Ashley's Economic History, the Webbs' Trade Unionism and Industrial Democracy, Booth's Life and Labour of the People, bear witness to the profound influence exerted by the new ideas.

In France the success of the movement has not been quite so pro­nounced, although the need for it was as keenly felt there. Although it did not result in the founding of a French school of economic historians, the new current of ideas has influenced French economic thought in a thousand ways. In 1878 political economy became a recognized subject in the various curricula of the Facultes de Droit. The intimate connexion between economic study and the study of law has given an entirely new significance to political economy, and the science has been entirely transformed by the infusion of the his­torical spirit. At the same time professional historians have become more and more interested in problems of economic history, thus bringing a spirit of healthy rivalry into the study of economic institu­tions. Several Liberal economists also, without breaking with the Classical tradition, have devoted their energies to the close observation of contemporary facts or to historical research.

Finally, we have a new group of workers in the sociologists. Sociology is interested in the origin and growth of social institutions of all kinds and in the influence which they have exerted upon one another. After studying institutions of a religious, legal, political, or social character it is only natural that they should ask that the study of economic institu­tions should be carried on in the same spirit and with the help of the same method. This object has been enthusiastically pursued for some time. The mechanism and the organization of the economic system at different periods have been closely examined by the aid of observation and history. Abstraction has been laid aside and a preference shown for minute observation, and for induction rather than deduction.