Summary and Critical Estimate

Summary and Critical Estimate

From the standpoint of pure theory, the largely negative character of the earlier group of the German historical economists, and the weakness of the method advocated by the later group, are evidenced by the fact that after two decades or more, the founders of the school had directly accomplished little beyond the preliminaries of the introduction of systematic reforms; and, indeed, aside from their valuable studies in industrial history, the work of the later and — for a time, at least — more radical group was polemical and speculative. Directly, it led to results which were largely negative. (Indirectly, however, as has already been emphasized, the thought of the school was one of the great liberating and stimulating forces of the nineteenth century, bringing positive results in the economic theory of all the ad­vanced nations.)

The reasons for this result are not far to seek: strictly inter­preted, the method itself has inherent weakness; it is, in fact, itself one-sided. The adoption of the exclusive use of the his­torical method as urged by the more radical group would de­vitalize the science by depriving generalizations of their validity. As Hasbach and others have pointed out, a purely inductive method — one according to which deductions are made only from premises derived from observation — will not suffice for a science of exchange among men. Suppose that we make a long series of observations concerning a phenomenon, and as a result formulate a rule; suppose further, that we verify this rule; is there not still the question, what is the cause? The his­torical law must ever be an empirical one based on an ever incomplete experience.

It is the recognition of this fact that accounts for the general tendency to deny the validity of economic laws which charac­terizes the school. Even Ingram criticizes it on this score, show­ing that there may be laws in change and development, and "that there exist between the several social elements such re­lations as make the change of one element involve or determine the change of another."

In more positive criticism, the Historical School — at least that of Schmoller and Ashley — has sometimes overlooked the existence of the power to judge of causes from a knowledge of the motives of men and the action of environment. There are certain psychical qualities, certain physical laws, and perhaps certain tendencies in social organization, which may be taken as fundamental. These are like the axioms of geometry. By referring to them, economics may become more than a branch of historical learning, for thus one may determine the causes or sources of the observed regularities, and so allow economics to partake of a scientific character.

In fine, both inductive and deductive methods are needed. The words of an eminent adherent of the latter method state the truth with admirable moderation: this method "recognizes the utility — for technical reasons — of tracing causal connec­tions, not only from special to general, but also, for the sake of experiment, from general to special. It thereby often discovers links in the chain of causes which were, of course, present in the complex, empirical facts, but which were there so deeply inwrapt that they would hardly, if ever, have been discovered by a purely inductive method."

The service of the Historical School has been to counteract an undoubtedly over-abstract tendency. The concrete realities of time and place have been stressed. In applying the principle of least sacrifice, some economists had forgotten that what one people or time considers a gain, another may look upon with indifference or regard as a loss. So it is also with the "at any given stage of the industrial arts" qualification of the "law" of diminishing returns.

The school has broadened the conception of human motives by emphasizing the interaction of non-economic and economic motives. The interrelation existing among the several social sciences, has accordingly been kept in mind. It has clearly shown the fallacy of extreme individualism and laisser faire.

Finally, the followers of the Historical School are to be thanked for valuable studies in economic history, — studies from which data have been obtained for verifying and correcting the theory of the Classicists.

In connection with the two preceding paragraphs, it may be added that the Historical School has been a force tending to broaden the scope of Economics.