The Older or More Negative Historical Group

German Historical School

First among the German historical economists came Wilhelm Roscher (1817-1896), professor at Gottingen and Leipzig. Roscher thoroughly understood the Classical School, and in his positive theoretical writing was at one with it. Perhaps as a result, he was the author of one of the few well-balanced German treatises on economics. In his now famous Grundriss zu Vorlesungen uber die Staatswissenschaft nach geschichtlicher Methode (Out­line of Lectures on Political Science according to the Historical Method), published in 1843, however, he laid down the follow­ing program:

(1) Political economy is a science which can be explained only in the closest relation to other social sciences, especially the history of jurisprudence, politics, and civilization.
(2) A people is more than the mass of existing individuals, and an investigation of its economy cannot, therefore, be based upon a mere observation of present-day economic relations.
(3) In order to derive laws from the mass of phenomena, as many peoples as possible should be compared. Ancient peoples, having run their full course, are peculiarly instructive; and similarities between the old and the new are especially fruitful.
(4) The historical method will be slow to praise or blame economic institutions, for there have been few that have been entirely good or entirely bad for all peoples.
Accordingly, Roscher denied absolute truth as to general economic laws: "general principles" are necessarily incomplete abstractions. He would have recognized only national eco­nomics, holding that each people and each age has its own peculiar economy. The economist should thus confine himself to the statement of rules of government which are applicable to his particular economy, and are based on a study of various stages of industrial evolution.

Roscher shows clear evidence of the influence of Hegelianism. The history of a nation is the unfolding of the human spirit: it is a cycle, repeating itself in different ages. The province of economics is to determine the laws of this process from the economic point of view. This idea is probably to be regarded as having a taint of error, for there is no proof of the existence of any such cultural laws as it assumes. It is surely over-idealistic to regard environmental conditions as mere disturb­ing elements in a self-development cycle, as Roscher sometimes seems inclined to do.

The next apostle of the historical method was Bruno Hilde-brand (1812-1878), whose book, Die Nationalokonomie der Gegenwart und Zukunft (The National Economy of the Present and Future), appeared in 1848. Hildebrand writes brilliantly and clearly, but his profundity seems much less than Ingram, for instance, ascribes to him. His criticism of Socialism is ad­mirable, but he shows a lack of thorough understanding of the founders of the Classical School.

Hildebrand opens with the explanation that his work is an attempt to break the way for an historical direction and method in economics, a reform similar to that already made in philology.

Smith, Hildebrand says, erred, like the Mercantilists and Physiocrats before him, in attempting to build a theory which would apply to all times and places. Though Rau had denied this, on the ground that national lines are recognized by Smith, he did not meet the objection: "The cosmopolitan character of the Smithian school is not to be sought in a denial of the existence of states, but rather in the fact that it applies its doc­trines to all states and peoples equally, considering the state only according to its external boundaries — as a mere frag­ment of the whole mass of humanity — and ascribes the same validity to its laws everywhere."

The Classicists forget that man, as a social being, is always a child of civilization and a product of history, his wants, his character, his relations to goods and men being ever changing. Moreover, they are atomistic, making the individual the end of society, and holding that society itself is based upon an ex­change contract, private advantage being regarded as the source and bond of the community. Then, too, they slight the moral problem of the human race, a course which leads to mate­rialism. Even if immaterial things are recognized, they are not given the slightest effect upon economic doctrine. On the other hand, it is a merit of the Socialists that they have em­phasized ethical factors.

Hildebrand believed that the present money economy is only transitional to a more complete stage of development which he called credit economy.

Karl Knies (1821-1898) was the most thorough and logical expositor of the historical method. His work, Die Politische Okonomie vom Standpunkt der geschichtlichen Methode (Political Economy from the Standpoint of the Historical Method), appeared in 1853, with a second edition containing some addi­tions in 1881-1883. It was dedicated to Roscher. The title of the second edition, it is important to observe, was changed to read, "Political Economy from the Historical Standpoint."

Like his fellows, Knies attacks absolutism in theory. No economic laws can be declared absolutely final, for they con­cern points in a "constantly unfolding evolution," and can do no more than reflect a progressive manifestation of the truth. "The truth of all theories which have their foundation in em­pirical life rests upon concrete hypotheses. Relativity in the validity of their conclusions or judgments is a necessary result of the circumstance that those hypotheses do not remain iden­tical nor occur constantly in all times, places, and circum­stances." No complete parallelism between the past and the present exists. Knies dwells upon the fact that the concept of private property has been a changing one, and that self-interest often conflicts with the social welfare. And he calls attention to the fact that various ideas as to what kinds of labor are pro­ductive have prevailed. Valuations themselves rest upon such shifting hypotheses. He shows in some detail the circumstances which have given rise to the various kinds of economic thought, developing the idea of relativity between economy and eco­nomics. He believes in a certain relationship between the indus­trial stage and the development of the science.

The next question is, what method shall be followed in each case? By method, Knies means the manner in which funda­mental facts are ascertained, demonstration is made valid, and conclusions are established. The method applicable in any scientific discipline stands in the closest relation to the character of the science; therefore, progress in the science affects the method, and vice versa.

Knies criticizes Roscher for the unusual and unscientific way in which he uses the term, "historical method," stating that Roscher devotes his attention to the exposition of historical material, method meaning to him merely a general point of view. A beautiful and fruitful field is opened alongside of polit­ical economy, but economic doctrines remain uncorrected. The chief problem remains, which is to establish the causal connection between ever-changing phenomena. When the question concerns phenomena, and the laws of phenomena, in which likeness and difference appear, Knies says that we cannot expect to establish identities but only analogies: "Only laws of analogy can be won, not laws of absolutely equal causation." We are concerned with clarifying the regularly occurring anal­ogies in economic phenomena. In this connection, Roscher is again criticized for believing tha\t a comparison of historicalconditions which are merely similar, not identical, will lead to the establishment of laws of cause and effect.

Knies shows a usual tendency of the German Historical School by differentiating natural and social phenomena, and by laying strong emphasis upon the modern importance of social institutions in connection with the distribution problem.

The foregoing economists had no idea of a revolution in economics, and were by no means averse to theory and deduc­tion, as the character of their work shows. As much has already been indicated concerning Roscher; and Knies wrote acute theoretical works on money and credit, telegraphs, railway transportation, and statistics. In these books there is no one­sided application of historical-descriptive methods. Rather one wonders if, after all, there is much difference between the methods of the older members of the Historical School and those of the men they criticize; and no little misunderstanding has arisen on this very point.

Knies, it will be remembered, changed the title of his work to read "from the historical standpoint" instead of "from the standpoint of the historical method." This he did to disarm just such criticism as still follows the school, and to show that he advocated no exclusive, one-sided method. In the new edi­tion he 'wrote: "Taken in the true methodological sense, there­fore, the designation, 'historical method of Political Economy/ would be unreservedly permissible only if historical investiga­tion were to be recognized as the sole task of the science. Though we may strongly desire to refer to history and stand upon it in a well-considered way, yet we must never on that account allow to pass unrecognized the difference between economic history and political economy, nor that between the special tasks of the historian and the economist."

As a matter of fact, the older group of the German Historical School stood first for a criticism and attack upon the narrow, error-breeding abstractions of the Classical School; and sec­ondly, and positively, for a theory of evolution and for a spirit of free and full investigation. Roscher believed that by the study of history we can find a "firm island of scientific truth which may be accepted in the same manner as the adherents of different systems of medicine all admit the teaching of math­ematical physics." He believed that there are general principles or laws, only they are to be applied to particular cases with the aid of statistics of local conditions. Knies denied, not that any laws exist, but that there are laws like those of the external universe, e.g., physics and astronomy.

This group will be remembered as standing for a new spirit and a fresh point of view. It cannot be maintained that their effect was merely negative, for in America and England and Italy and France the stimulus of their thought was a virtual emancipation, and produced profound results. Moreover, the significance of their part in leading up to the more positive historical thought which followed, is to be remembered.

Closely affiliated with the older Historical School were the German economists, Schafne, Kautz, and Schuz.