Positive Ideas Of The Historical School

The Positive Ideas Of The Historical School

What made the criticism of the Historians so penetrating was the fact that they held an entirely different view concerning the scope and aim of economics. Behind the criticism lurked the counter-theory. Nothing less than a complete transformation of the science would have satisfied the founders, but the younger school soon discovered that so ambitious a scheme could never be carried out. It is important that we should know something of the view of those older writers on this question, and the way they had intended to give effect to their plans. The positive contribution made by the Historical school to economic study is even more important than its criticisms, for it gives a clue to an entirely different point of view with which we are continually coming into contact in our study of economic doctrines.

The study of economic phenomena may be approached from two opposite standpoints, which we may designate the mechanical and the organic. The one is the vantage-ground of those thinkers who love generalizations, and who seek to reduce the complexity of the economic world to the compass of a few formulae; the other of those writers who are attracted by the constant change which concrete reality presents.

The earlier economists for the most part belonged to the former class. Amid all the wealth and variety of economic phenomena they confined their attention almost entirely to those aspects that could be explained on simple mechanical principles. Such were the problems of price fluctuations, the rate of interest, wages, and rent. Production adapting itself to meet variation in demand, with no guide save personal interest, looked for all the world like the intermolecular action of free human beings in competition with one another. The simplicity of the idea was not without a certain grandeur of its own.
But such a conception of economic life is an extremely limited one. A whole mass of economic phenomena of the highest importance and of the greatest interest is left entirely outside. The phenomena of the economic world, as a matter of fact, are extremely varied and change­able. There are institutions and organizations without number, banks and exchanges, associations of masters and unions of men, commercial leagues and co-operative societies. Eternal struggle between the small tradesman and the big manufacturer, between the merchant and the combine, between the peasant proprietor and the great landowner, between classes and individuals, between public and private interests, between town and country, is the common feature of economic life. A state rises to prosperity again to fall to ruin. Competition at one moment makes it superior, at another reduces its lead. A country changes its commercial policy at one period to reintroduce the old regime at another. Economic life fulfils its purposes by employing different organs that are continually modified to meet changing conditions, and are gradually transformed as science progresses and manners and beliefs are revolutionized.

Of all this the mechanical conception tells us nothing. It makes no attempt to explain the economic differences which separate nations and differentiate epochs. Its theory of wages tells us nothing about the different classes of work-people, or of their well-being during successive periods of history, or about the legal and political con­ditions upon which that well-being depends. Its theory of interest tells us nothing of the various forms under which interest has appeared at different times, or of the gradual evolution of money, whether metallic or paper. Its theory of profits ignores the changes which industry has undergone, its concentration and ex­pansion, its individualistic nature at one moment, its collective trend at another. No attempt is made to distinguish between profits in industry or commerce and profits in agriculture. The Classical economists were simply in search of those universal and permanent phenomena amid which the homo economicus most readily betrayed his character.

The mechanical view is evidently inadequate if we wish to delineate concrete economic life in all its manifold activity. We are simply given certain general results, which afford no clue to the concrete and special character of economic phenomena.

The weakness of the mechanical conception arises out of the fact that it isolates man's economic activity, but neglects his environment. The economic action of man must influence his surroundings. The character of such action and the effects which follow from it differ according to the physical and social, the political and religious sur­roundings wherein they are operative. A country's geographical situation, its natural resources, the scientific and artistic training of its inhabitants, their moral and intellectual character, and even their system of government, must determine the nature of its economic institutions, and the degree of well-being or prosperity enjoyed by its inhabitants. Wealth is produced, distributed, and exchanged in some fashion or other in every stage of social development, but each human society forms a separate organic unit, in which these functions are carried out in a particular way, giving, accordingly, to that society a distinctive character entirely its own. If we want to understand all the different aspects of this life we must make a study of its economic activity, not as it were in vacuo, but in connexion with the medium through which it finds expression, and which alone can help us to understand its true nature.

This was the first doctrine on which they laid stress: the other follows immediately. This social environment cannot be regarded as fixed. It is constantly undergoing some change. It is in process of transforma­tion and of evolution. At no two successive moments of its existence is it quite the same. Each successive stage calls for explanation, which history alone can give. Goethe has given utterance to this thought in a memorable phrase which serves as a kind of epigraph to Schmoller's great work, the Grundriss. "A person who has no knowledge of the three thousand years of history which have gone by must remain content to dwell in obscurity, living a hand-to-mouth existence." We must have some knowledge of the previous stages of economic develop­ment if we are to understand the economic life of the present. Just

as naturalists and geologists in their anxiety to understand the present have invented hypotheses to explain the evolution of the globe and of living matter upon it, so must the student of economics return to the distant past if he wants to get hold of the industrial life of to-day. "Man as a social being," says Hildebrand, is the child of civilization and a product of history. His wants, his intellectual outlook, his relation to material objects, and his con­nexion with other human beings have not always been the same. Geography influences them, history modifies them, while the progress of education may entirely transform them.

The Historians maintained that the earlier economists, by paying exclusive attention to those broader conclusions which had something of the generality of physical laws about them, had kept the science within too narrow limits. Alongside of theory as they had conceived of it—some Historians would say instead of it—there is room for another study more closely akin to biology, namely, a detailed descrip­tion and a historical explanation of the constitution of the economic life of each nation. Such is the positive contribution of the school to the study of political economy, and it fairly represents the attitude of most modern economists towards history.

Their aim was a perfectly natural and legitimate one, and at first sight, at least, seemed very attractive. But beneath its apparent simplicity there is some amount of obscurity, and its adversaries have thought that upon close analysis it is really open to serious objections.

In the first place, is it the aim of the science to present us with an exact, realistic picture of society, as the Historians loved to think? On the contrary, do we not find that a study can only aspire to the name of a science in proportion as its propositions become more general in their nature? There is no science without generalization, according to Aristotle, and concrete description, however indispensable, is only a first step in the constitution of a science. A science must be explanatory rather than descriptive.

Of course Historians are not always content with mere description. Some Historians have attempted explanation and have employed history as their organon. Is the choice a suitable one?

"History," says Marshall, "tells of sequences and coincidences; but reason alone can interpret and draw lessons from them."
Moreover, is there a single important historical event whose cause has ceased to be a matter of discussion? It will be a long time before people cease to dispute about the causes of the Reformation or the Revolution, and the relative importance of economic, political, and moral influences in determining the course of those movements has yet to be assigned. The causes that led to the substitution of credit for money or money for barter are equally obscure. Before narrative can become science there must be the preliminary discovery by a number of other sciences of the many diverse laws whose combination gives rise to concrete phenomena. Not history but the sciences give the true explanation. The evolutionary theory has proved fruitful in natural history simply because it took the succession of animal species as an established fact and then discovered that heredity and selection afforded a means of explaining that succession. But history cannot give us any hypothesis that can rival the theory of evolution either in its scientific value or in its simplicity. In other words, history itself is in need of explanation. It gives no clue to reality and it can never take the place of economics.

The earlier Historians claimed a higher mission still for the historical study of political economy. It must not only afford an explanation of concrete economic reality, but it must also formulate the laws of economic development. This idea is only held by a few of them, and even the few are not agreed as to how it should be done. Knies, for example, thinks that it ought to be sufficiently general to include the economic development of all nations. Saint-Simon held somewhat similar views. Others, and among them Roscher, hold that there exist parallelisms in the history of various nations; in other words, that every nation in the course of its economic development passes through certain similar phases or stages. These similarities constitute the laws of economics. If we were to study their movements in the civilizations of the past we might be able to estimate their place in existing societies.

Neither point seems very clear. Even if we admit that there is only one general law of human development we cannot forecast the line of progress, because scientific prediction is only applicable to recurrent phenomena. They fail just when the conditions are new. Of course one can always guess at the nature of the future, but divination is not knowledge. And predictions of this kind are almost always false. Historical parallelism rests on equally shaky foundations. A nation, like any other living organism, passes through the successive stages of youth, maturity, and old age, but we are not justified in thinking that the successive phases through which one nation has passed must be a kind of prototype to which all others must conform. All that we can say is that in two neighbouring countries the same effects are likely to follow from the same causes. Production on a large scale, for example, has been accompanied by similar phenomena in most countries in Western Europe. But this is by no means an inevitable law. It is simply a case of similar effects resulting from similar causes. Such analogies are hardly worthy of the name of laws. The discovery of the law, as Wagner says, may be a task beyond human power; and Schmoller, as we have already seen, is of the same opinion.

One remark before concluding. There is a striking similarity between the ideas just outlined and those of a distinguished philosopher whose name deserves mention here, although his influence upon political economy was practically nil. We refer to Auguste Gomte.

It is curious that the earliest representatives of the school should have ignored him altogether, but just as Mill remained unknown to them so the Cours de Philosophie positive, though published in 1842, remained a sealed book so far as they were concerned. Comte's ideas are so very much like those of Knies and Hildebrand that some Positivist econo­mists, such as Ingram and Hector Denis, have attempted to connect the Historical tendency in political economy with the Positive philo­sophy of Comte.

The three fundamental conceptions which formed the basis of the teaching of the Historical school are clearly formulated by Comte. The first is the importance of studying economic phenomena in con­nexion with other social facts. The analysis of the industrial or economic life of society can never be carried on in the 'positive' spirit by simply making an abstraction of its intellectual, political, or moral life, whether of the past or of the present. The second is the employ­ment of history as the organon of social science. "Social research," says he, "must be based upon a sane analysis of the all-round develop­ment of the best of mankind up to the present moment, and the growing predilection for historical study in our time augurs well for the regeneration of political economy." He was fully persuaded that the method would foster scientific prediction—a feature which is bound to fuse all those diverse conditions which will form the basis of Positive politics.

Comte wished to found sociology, of which political economy was to be simply a branch. The Historical school, and especially Knies, re­garded economics in the same spirit. Hence the analogies with which Knies had to content himself, but which the younger school refused to recognize. But there was a fundamental difference between their res­pective points of view, and this will help us to distinguish between them.

Comte was a believer in inevitable natural laws, which, according to the earlier Historians, had wrought such havoc. The Historical method also, as he conceived of it, was something very different from what the older or the newer Historical school took it to be.

Adopting a dictum of Saint-Simon, Comte speaks of the Historical method as an attempt to establish in ascending or descending series the curve of each social institution, and to deduce from its general outlines conclusions as to its probable growth or decline in the future. This is how he himself defines the process:

The essence of this so-called historical spirit, it seems to us, consists in the rational use of what may be called the social series method, or, in other words, in the due appreciation of the successive stages of human development as reflected in a succession of historical facts. Careful study of such facts, whether physical, intellectual, moral, or political, reveals a continuous growth on the one hand and an equally continuous decline on the other. Hence there results the possibility of scientific prophecy concerning the final ascendancy of the former and the complete overthrow of the latter, provided always such conclusion is in conformity with the general laws of human development, the sociological preponderance of which must never be lost sight of.

It was in virtue of this method that Saint-Simon predicted the coming of industrialism and that Comte prophesied the triumph of the positive spirit over the metaphysical and religious.

There is considerable difference between this attitude and the Historical method as we know it, and the attempt at affiliation seems to us altogether unwarranted. But the coincidence between Comte's views and those of Knies and Hildebrand is none the less remarkable, and it affords a further proof of the existence of that general feeling which prompted certain writers towards the middle of the century to attempt a regeneration of political economy by setting it free from the tyranny of those general laws which had nearly stifled its life.

It seems to us, however, that the Historical school is mistaken if it imagines that history alone can afford an explanation of the present or will ever enable us to discover those special laws which determine the evolution of nations.

On the other hand, it has a perfect right to demand a place beside economic science, and it is undoubtedly destined to occupy a position still more prominent in the study of economic institutions, in statistical investigation, and above all in economic history. Not only is a detailed description of the concrete life of the present of absorbing interest in itself, but it is the condition precedent to all speculations concerning the future. The theorist can never afford to neglect the minute observation of facts unless he wills that his structure shall hang in the void. Most abstract economists feel no hesitation in recognizing this. For example, Jevons, writing in 1879, gave it as his opinion that "in any case there must arise a science of the development of economic forces and relations."

This newer historical conception came to the rescue just when the science was about to give up the ghost, and though they may have failed to give us that synthetic reconstruction which is, after all, within the ability of very few writers, its advocates have succeeded in infusing new life into the study and in stimulating new interest in political economy by bringing it again into touch with contemporary life. They have done this by throwing new light upon the past and by giving us a detailed account of the more interesting and more complex phenomena of the present time. Such work must necessarily be of a fragmentary character. The school has collected a wonderful amount of first-class material, but it has not yet erected that palace of har­monious proportions to which we in our fond imagination had likened the science of the future. Nor has it discovered the clue which can help it to find its way through the chaos of economic life. This is not much to be wondered at when we remember the shortcomings of the method to which we have already had occasion to refer. Indeed, some of the writers of the school seem fully convinced of this. Profes­sor Ashley, in an article contributed to the Economic Journal, employs the following words:

As I have already observed, the criticisms of the Historical school have not led so far to the creation of a new political economy on historical lines: even in Germany it is only within very recent years that some of the larger outlines of such an economics have begun to loom up before us in the great treatise of Gustav Schmoller.

In view of considerations like these one might have expected that the Historical school would have shown greater indulgence to the attempts made both by the Classical and by the Hedonistic schools to give by a different method expression to the same instinctive desire to simplify matters in order to understand them better.