The Historical School and Conflict Of Methods

Schools Of Historical Thought

The second half of the nineteenth century is dominated by Historical ideas, though their final triumph was not fully established until the last quarter of the century. The rise of these ideas, however, belongs to a still earlier period, and dates from 1843, when there appeared a small volume by Roscher entitled Grundriss. We shall have to return to that date if we wish to understand the ideas of the school and to appreciate their criticisms.

The successors of J. B. Say and Ricardo gave a new fillip to the abstract tendency of the science by reducing its tenets to a small number of theoretical propositions. The problems of international exchange, of the rate of profits, wages, and rent, were treated simply as a number of such propositions, expressed with almost mathematical precision. Admitting their exactness, we must also recognize that they are far from being adequate, and could not possibly afford an explana­tion of the different varieties of economic phenomena or help the solution of the many practical problems which the development of industry presents to the statesman. But McCulloch, Senior, Storch, Rau, Gamier, and Rossi, the immediate successors of Ricardo and Say in England and France, repeated the old formulae without making any important additions to them. The new system of political economy thus consisted of a small number of quite obvious truths, having only the remotest connexion with economic life. It is true that Mill is an exception. But the Principles dates from 1848, which is subsequent to the foundation of the Historical school. With this exception we may say, in the words of Schmoller, that after the days of Adam Smith political economy seems to have suffered from an attack of anaemia.

Toynbee gives admirable expression to this belief in his article on Ricardo and the Old Political Economy: "A logical artifice became the accepted picture of the real world. Not that Ricardo himself, a bene­volent and kind-hearted man, could have wished or supposed, had he asked himself the question, that the world of his treatise actually was the world he lived in; but he unconsciously fell into the habit of regarding laws which were those only of that society which he had created in his study for purposes of analysis as applicable to the com­plex society really existing around him. And the confusion was aggra­vated by some of his followers and intensified in ignorant popular versions of his doctrines." In other words, there was a striking divergence, between economic theory and concrete economic reality, a divergence that was becoming wider every day, as new problems arose and new classes were being formed. But the extent of the gap was best realized when an attempt was made to apply the principles of the science to countries where the economic conditions were entirely different from those existing either in England or in France.

This divergence between theory and reality might conceivably be narrowed in one of two ways. A more harmonious and a more compre­hensive theory might be formulated, a task which Menger, Jevons, and Walras attempted about 1870. A still more radical suggestion was to get rid of all abstract theory altogether and to confine the science to a simple description of economic phenomena. This was the method of procedure that was attempted first, and it is the one followed by the Historical school.

Long before this time certain writers had pointed out the dangers of a too rigid adherence to abstraction. Sismondi—an essentially historical writer—treated political economy as a branch of moral science whose separation from the main trunk is only partial, and insisted upon studying economic phenomena in connexion with their proper environment. He criticized the general conclusions of Ricardo and pleaded for a closer observation of facts. List showed himself a still more violent critic, and, not content with the condemnation of Ricardian economics, he ventured to extend his strictures even to Smith. Taking nationality for the basis of his system, he applied the comparative method, upon which the Historical school has so often insisted, to the commercial policy of the Classical school; but history was still employed merely for the purpose of illustration. Finally, socialists, especially the Saint-Simonians, whose entire system is simply one vast philosophy of history, had shown the impossibility of isolating economic from political and juridical phenomena, with which they are always intermingled.

But no author as yet had deliberately sought either in history or in the observation of contemporary facts a means of reconstructing the science as a whole. It is just here that the originality of the German school lies.

Its work is at once critical and constructive. On the critical side we have a profound and suggestive, though not always a just, analysis of the principles and methods of the older economists, while its con­structive efforts gave new scope to the science, extended the range of its observations, and added to the complexity of its problems.

Generally speaking, it is not a difficult task to give an exposition of the critical ideas of the school, as we find them set forth in several books and articles, but it is by no means easy to delineate the concep­tions underlying the positive work. Though implicit in all their writings, these conceptions are nowhere explicitly stated; when­ever they have tried to define them it has always been, as their disciples willingly admit, in a vague and contradictory fashion.1 To add further to the difficulty, each author defines them after his own fashion, but claims that his definition represents the ideas of the whole school.

In order to avoid useless repetitions and discussions without number we shall begin with a rapid survey of the outward development of the school, following with a resume of its critical work, attempting, finally, to seize hold of its conception of the nature and object of political economy. From our point of view the last-named object is by far the most interesting.