1902 Encyclopedia > Political Economy (Economics) > Political Economy - The Historical School - Germany

Political Economy
(Part 14)


Germany—The second manifestation of this new movement in economic science was the appearance of the German historical school. The views of this school do not appear to have arisen, like Comte’s theory of sociological method, out of general philosophic ideas ; they seem rather to have been suggested by an extension to the economic field of the conceptions of the historical school of jurisprudence of which Savigny was the most eminent representative. The juristic system is not a fixed social phenomena, but is variable from one stage in the progress of society to another—it is in vital relation with the other coexistent social factors ; and what is, in the jural sphere, adapted to one period of development is often unfit for another. These ideas were seen to be applicable to the economic system also; the relative point of view was thus reached, and the absolute attitude was found to be untenable. Cosmopolitanism in theory, or the assumption of a system equally true of every country, and what has been called perpetualism, or the assumption, or the assumption of a system applicable to every social stage, were alike discredited. And so the German historical school appears to have taken its rise.

Omitting preparatory indications and undeveloped germs of doctrine, we must trace the origin of the school to Wilhelm Roscher. Its fundamental principles are stated, though with some hesitation, and with an unfortunate contrast of the historical with the "philosophical" method,1 in his Grndriss zu Vorlesungen über die Staatswirthschaft nach geschichtlicher Methode (1843). The following are the leading heads insisted on in the preface to that work.

"The historical method exhibits itself not merely in the external form of a treatment of phenomena according to their chronological succession, but in the following fundamental ideas. (1) The aim is to represent what nations have thought, willed, and discovered in the economic field, what they have striven after and attained, and why they have attained it. (2) A people is not merely the mass of individuals now living ; it will not suffice to observe contemporary facts. (3) All peoples of whom we can learn everything must be studied and compared from the economic point of view, especially the ancient peoples, whose development lies before us in its totality. (4) We must not simply praise or blame economic institutions ; but few of them have been salutary or detrimental to all peoples and at all stages of culture ; rather it is a principal task of science to show how and why, out of what was once reasonable and beneficent, the unwise and expedient has often gradually arisen." Of the principles enunciated in this paraphrase of Roscher’s words a portion of the third alone seems open to objection ; the economy of ancient peoples is not a more important subject of study than of the moderns ; indeed the question of the relative importance of the two is one that ought not to be raised. For the essential condition of all sound sociological inquiry is the comparative consideration of the entire series of the most complete evolution known to history – that, namely, of the group of nations forming what is known as the Occidental Commonwealth, or, more briefly, "the West." The reasons for choosing this social series, and for provisionally restricting our studies almost altogether to it, have been stared with unanswerable force by Comte in the Philosophic Positive. Greece and Rome are, indeed, elements in the series ; but it is the development as a whole, not any special portions of it, that sociology must keep in view in order to determine the laws of the movement, - just as, in the study of biological evolution, no one stage of an organism can be considered as of preponderating importance, the entire succession of changes being the subjects of research. Of Roscher’s further eminentservices we shall speak hereafter ; he is now mentioned only in relation to the origin of the new school.

In 1848 Bruno Hildebrand published the first volume of a work, which though he lived for many years after (d. 1878), he never continued, entitled Die Nationalölonomie der Gegenwart und Zukunft. Hildebrand was a thinker of a really high order ; it may be doubted whether amongst German economists there has been any endowed with a more profound and searching intellect. He is quite free form the wordiness and obscurity which to often characterize German writers, and traces broad outlines with a sure and powerful hand. His book contains a masterly criticism of the economic systems which preceded, or belonged to, his time, including those of Smith, Müller, List, and the socialists. But it is interesting to us at present mainly from the general position he takes up, and his conception of the real nature of political economy. The object of his work, he tells us, is to open a way in the economic domain to a thorough historical direction and method, and to transform the science into a doctrine of the laws of the economic development of nations. It is interesting to observe the type which he set before him in his proposed reform of political economy is not that of historical jurisprudence, but of the science of language as it has been reconstructed in the present century, a selection which indicates the comparative method as the one which he considered appropriate. In both sciences we have the presence of an ordered variation in time, and the consequent substitution of the relative for the absolute.

In 1853 appeared the work of Karl Knies, entitled Die Politische Oekonomie vom Standpunkte der geschichtlichen Methode. This is an elaborate exposition and defence of the historical method in its application to economic science, and is the most systematic and complete manifesto of the new school, at least on the logical side. The fundamental propositions are that the economic constitution of society at any epoch on the one hand, and on the other the contemporary theoretic conception of economic science, are results of a definite historical development ; that they are both in vital connexion with the whole social organism of the period, having grown up along with it and under the same conditions of time, place, and nationality ; that the economic system must therefore be regarded as passing through a series of phases correlative with the successive stages of civilization, and can at no point of this movement be considered to have attained an entirely definitive form ; that no more the present than any previous economic organization of society is to be regarded as absolutely good and right, but only as a phase in a continuous historical evolution ; and that in like manner the now prevalent economic doctrine is not to be viewed as complete and final, but only as representing a certain stage in the unfolding or progressive manifestation of the truth.

The theme of the book is handled with, perhaps, an undue degree of expansion and detail. The author exhibits much sagacity as well as learning, and criticizes effectively the errors, inconsistencies, and exaggerations of his predecessors. But in characteristic and vindicating the historical method he has added nothing to Comte. A second edition of his treatise was published in 1883, and in this he makes the singular confession that, when he wrote in 1852, the Philosophie Positive, the six volumes of which had appeared from 1830 to 1842, was entirely unknown to him and, he adds, probably to all German economists. This is not to the credit of their open-mindedness or literary vigilance, if we remember that Mill was already in correspondence with Comte in 1841, and that his eulogistic notice of him in the Logic appeared in 1842. When, however, Knies at a later period examined Comte’s work, he was, he tells us, surprised at finding in its so many anticipations of, or "parallelisms" with, his own conclusions. And well he might; for all that is really valuable in his methodology is to be found in Comte, applied on a larger scale, and designed with the broad and commanding power which marks the dii majores of philosophy.

There are two points which seem to be open to criticism in the position taken by some German economists of the historical school.

1. Knies and some other writers, in maintaining the principle of relatively in economic theory, appear not to preserve the due balance in one particular. The two forms of absolutism in doctrine, cosmopolitanism and what Knies calls perpetualism, he seems to place on exactly the same footing; in other words, he considers the error of overlooking varieties of local circumstances and nationality to be quite as serious as that of neglecting differences in the stage of historical development. But this is certainly not so. In every branch of sociology the latter is much the graver error, vitiating radically, wherever it is found, the whole of our investigations. If we ignore the fact, or mistake the direction, o the social movement, we are wrong in the most fundamental point of all—a point, too, which is involved in every question. Bt the variations depending of race, as affecting bodily and mental endowment, or on diversity of external situation, are secondary phenomena only; they must be postponed in studying the general theory of social development, and taken into account afterwards when we come to examine the modifications in the character of the development arising out of peculiar conditions. And, though the physical nature of a territory is a condition which is likely to operate with special force on economic phenomena, it is rather on the technical forms and comparative extension of the several branches of industry that it will act than on the social conduct of each branch, or the co-ordination and relative action of all, which latter are the proper subjects of the inquiries of the economists.

2. Some members of the school appear, in their anxiety to assert the relatively of the science, to fall into the error of denying economic laws altogether; they are at least unwilling to speak of "natural law" in relation to the economic world. From a too exclusive consideration of law in the inorganic sphere, they regard this phraseology as binding them to the notion of fixity and of an invariable system of practical economy. But, if we turn our attention rather to the organic sciences, which are more kindred to the social, we shall see that the term "natural law" carries with it no such implication. As we have more than once indicated, and essential part of the idea of life is that of development, in other words, or ‘ordered change." And that such a development takes place in the constitution and working of society in all its elements is a fact which cannot be doubted, and which these writers themselves emphatically assert. That there exist between the several social elements such relations as make the change of one element involve or determine the change of another is equally plain; and why the name of natural laws should be denied to such constant relations of coexistence and succession it is not easy to see. These laws, being universal, admit of the construction of an abstract theory of economic development; whilst a part of the German historical school tends to substitute for such a theory a mere description of different national economies, introducing prematurely—as we have pointed out—the action of special territorial or ethnological conditions, instead of reserving this as the ground of later modifications, in concrete cases of the primary general laws deduced from a study of the common human evolution.

To the three writers above named, Roscher, Hilderbrand, and Knies, the foundation of the German historical school of political economy belongs. It does not appear that Roscher in his own subsequent labours has been much under the influence of the method which he has in so many places admirably characterized. In his System der Volkwirthschaft (vol. i. Grundlagen der Nationalökonomie, 1854, 15th ed. 1880; vol. ii., N. O. des Ackerbaues, 1860, 10th ed. 1882; vol. iii. N.O. des Handels und Gewerbfleisses, 3d ed., 1882) the dogmatic and the historical matter are rather juxtaposed than vitally combined. It is true that he has most usefully applied his vast progress of the science itself. His treatise Ueber das Verältniss der Nationalökonomie zum classischen Alterthume, his Zur Geschichte der Englischen Volkswirthschaftslehre (Leopsic, 1851-2), and, above all, that marvellous monument of erudition and industry, his Geschichte der National-Oekonomik in Deutschland (1874), to which he is said to have devoted fifteen years of study, are among the most valuable extant works of this kind, though the last by its accumulation of detail is unfitted for general study outside of Germany itself. Several interesting and useful monographs are collected in his Ansichten der Volkswirthschaft vom geschichtlichen Standpunkte (3d ed., 1878). His systematic treatise, too, above referred to, abounds in historical notices of the rise and development of the several doctrines of the science. But it cannot be alleged that he has done much towards the transformation of political economy which his earliest labours seemed to announce; and Cossa appears to be right in saying that his dogmatic work has not effected any substantial modification of the principles of Hermann and Rau.

The historical method has exhibited its essential features more fully in the hands of the younger generation of scientific economists in Germany, amongst whom may be reckoned Lujo Brentano, Adolf Held, Erwin Nasse, Gustav Schmoller, H. Rösler, Albert Schäffle, Hans von Scheel, Gustav Schönberg, and Adolf Wagner. Besides the general principle of an historical treatment of the science, the leading ideas which have been most strongly insisted on by this school are the following. I. The necessity of accentuating the moral element in economic study. This consideration has been urged with special emphasis by Schmoller in his Grandfragen (1875) and by Schäffle in his Das gesellschaftliche System der menschlichen Wirthschaft (3d ed., 1873). G. Kries (d. 1858) appears also to have handled the subject well in a review of J. S. Mill. According to the most advanced organs of the school, three principles of organization are at work in practical economy; and, corresponding with these, there are three different systems or spheres of activity. The latter are (1) private economy; (2) the compulsory public economy; (3) the "caritative: sphere. In the first alone personal interest predominates; in the second the general interest in the society; in the third benevolent impulses. Even in the first, however, the action of private interest cannot be unlimited; not to speak here of the intervention of the public power, the excessive and abuses of the fundamental principle in this department must be checked and controlled by an economic morality, which can never be left out of account in theory any more than in practical applications. In the third region above-named, moral influences are of course supreme. II. The close relation which necessarily exists between economics and jurisprudence. This has been brought out by L. von Stein and H. Rösler, but is most systematically established by Wagner—who is, without doubt, one of the most eminent of living German economists—especially in his Grundlegung, now forming part of the Lehrbuch der politischen Oekonomic in course of publication by him and Professor Nasse jointly. The doctrine of the jus naturae, on which the physiocrats, as we have seen, reared their economic structures, has lost its hold on belief, and the old a priori and absolute conceptions of personal freedom and property have given way along with it. It is seen that the economic position of the individual, instead of depending merely on so-called natural rights or even on his natural powers, is conditioned by the contemporary juristic system, which is itself an historical product. The above-named conceptions, therefore, half economic half juristic, of freedom and property require a fresh examination. It is principally from this point of view that Wagner approaches economic studies. The point, as he says, on which all turns is the old question of the relation of the individual to the community. Whoever with the older juristic and political philosophy and national economy places the individual in the centre comes necessarily to the untenable results which, in the economic field, the physiocratic and Smithian school of free competition has set up. Wagner on the contrary investigates, before anything else, the conditions of the economic life of the community, and, in subordination to this, determines the sphere of the economic freedom of the individual III. A different conception of the functions of the state from that entertained by the school of Smith. The latter school has in general followed the view of Rousseau and Kant that the sole office of the state is the protection of the members of the community from violence and fraud. This doctrine, which was in harmony with those of the jus naturae and the social contact, was temporarily useful for the demolition of the old economic system with its complicated apparatus of fetters and restrictions. But it could not stand against a rational historical criticism, and still less against the growing practical demands of modern civilization. In fact, the abolition of the impolitic and discredited system of European Governments, by bringing to the surface the evils arising from unlimited competition, irresistibly demonstrated the necessity of public action according to new and more enlightened methods. The German historical school recognizes the state as not merely an institution for the maintenance of order, but as the organ of the nation for all ends which cannot be adequately effected by voluntary individual effort. Whenever social aims can be attained only or most advantageously through its action, that action is justified. The cases in which it can properly interfere must be determined separately on their own merits and in relation to the stage of national development. It ought certainly to promote intellectual and aesthetic culture. It ought to enforce provisions for public health and regulations for the proper conduct of production and transport. It ought to protect the weaker members of society, especially women, children, the aged, and the destitute, at least in the absence of family maintenance and guardianship. It ought to secure the labourer against the worst consequences of personal injury no due to his own negligence, to assist through legal recognition and supervision the efforts of the following classes for joint no less than individual self-help, and to guarantee the safety of their earnings, when entrusted to its care.

A special influence which has worked on this more recent group is that of theoretic socialism; we shall see hereafter that socialism as a organization has also affected their practical politics. With such writers as St. Simon, Fourier, and Proudhon, Lassalle, Marx, Engels, Marlo, and Rodbertus (who, notwithstanding a recent denial, seems rightly described as a socialist) we do not deal in the present sketch (see SOCIALISM); but we must recognize them as having powerfully stimulated the younger German economists (in the strict sense of this last word). They have even modified the scientific conclusions of the latter, especially through criticism of the so-called orthodox system. Schäffle and Wagner may be especially named as having given a large space and a respectful attention to their arguments. In particular, the important consideration, to which we have already referred, that the economic position of the individual depends on the existing legal system, and notably on the existing organization of property, was first insisted on by the socialists. They had also pointed out that the present institutions of society in relation to property, inheritance, contact, and the like are (to use Lassalle’s phrase) "historical categories which have changed, and are subjects to further change," whilst in the orthodox economy they are generally assumed as a fixed order of things on the basis which the individual creates his own position. J. S. Mill called attention to the fact of the distribution of wealth depending, unlike its production, not on natural laws alone, but on the ordinances of society, but it is some of the German economists of the younger historical school who have most strongly emphasized this we must bear in mind that those ordinances themselves are not arbitrarily changeable by the stage of general social development.

In economic politics these writers have taken up a position between the German free-trades (or, as it is sometimes with questionable propriety called, the Manchester) party and the democratic socialists. The latter invoke the omnipotence of the state to transform radically and immediately the whole economic organization of society in the interest of the proletariate. The free-traders seek to minimize state action for any end except that of maintaining public order, and securing the safety and freedom of the individual. The members of the school of which we are now speaking, when intervening in the discussion of practical questions, have occupied an intermediate standpoint. They are opposed alike to social revolution and to rigid laissez faire. Whilst rejecting the socialistic programme, they call for the intervention of the state, in accordance with the theoretic principles already mentioned, for the purpose of mitigating the pressure of the modern industrial system on its weaker members, and extending in greater measure to the working classes the benefits of advancing civilization. Schäffle in his Cpitalismus und Socialismus (1870); now absorbed into a larger work), Wagner in his Rede über die sociale Frage (1871), and Schönberg in his Arbeitsämter: eine Aufgabe des deutschen Reichs (1871) advocated this policy in relation to the question of the labourer. These expressions of opinion with which most of the German professors of political economy sympathized, were violently assailed by the organs of the free-trade party, who found in them "a new form of socialism.) Out of this arose a lively controversy; and, the necessity of a closer union and a practical political organization being felt amongst the partisans of the new direction, a congress was held at Eisenach in October 1872, for the consideration of "the social question." It was attended by almost all the professors of economic science in the German universities, by representatives of the several political parties, by leaders of the working men, and by some of the large capitalists. At this meeting the principles above explained were formulated. Those who adopted them obtained from their opponents the appellation of "Katheder-Socialisten," or "socialists of the (professorial) chair," a nickname invented by H. B. Oppenheim, and which those to whom it was applied were not unwilling to accept. Since 1873 this group has been united in the "Verein für Socialpolitik," in which, as the controversy became mitigated, free-traders also have taken part. Within the Verein a division has shown itself. The left wing has favoured a systematic gradual modification of the law of property in such a direction as would tend to the fulfillment of the socialistic aspirations, so far these legitimate, whilst the majority advocate reform through state action on the basis of existing jural institutions. Schäffle goes so far as to maintain that the present "capitalist" régime will be replaced by a socialistic organization; but, like J.S. Mill, he adjourns this change to a more or less remote future, and expects it as the result of a natural development, or process of "social selection;"1 he repudiates any immediate or violent revolution, and rejects any system of life which would set up "abstract equality" against the claims of individual service and merit.

The further the investigation of the German historical school have been carried, in the several lines of inquiry it has opened, the more clearly it has come to light that the one thing needful is not merely a reform of political economy, but its fusion in a complete science of society. This is the view long since insisted on by Auguste Comte; and its justness is daily becoming more apparent. The best economists of Germany now tend strongly in this direction. Schäffle, who is largely under the influence of Comte and Herbert Spencer, has actually attempted the enterprise of widening economic into social studies. In his most important work, which had been prepared by previous publications, Bau und Leben des socialen Körpers (1875-78; new ed., 1881), he proposes to give a comprehensive plan of an anatomy, physiology and psychology of human society. He considers social processes as analogous to those of organic bodies; and, sound and suggestive as the idea of this analogy, already used by Comte, undoubtedly is, he carries it, perhaps, to an undue degree of detail and elaboration. The same conception is adopted by P. von Lilienfeld in his gedanken über die Socialwissenschaft der Zukunft (1873-79). A tendency to the fusion of economic science in sociology is also found in Adolph Samter’s Sozial-lehre (though the economic aspect of society is there specially studied) and in Schmoller’s treatise Ueber einige Grundfragen des Rechts und der Volkswirthschaftslehre; and the necessity of such a transformation is energetically by H. von Scheel in the preface to his German version (1879) of an English tract On the present Position and Prospects Economy.

The name "Realistic," which has sometimes been given to the historical school, especially in its more recent form, appears to be injudiciously chosen. It is intended to mark the contrast with the "abstract" complexion of the orthodox economics. But the error of these economics lies, in the use, but in the abuse of abstraction. All science implies abstraction, seeking, as it does, for unity in variety; the question in every branch is as to the right constitution of the abstract theory in relation to the concrete facts. Nor is the new school quite correctly distinguished as "indicative." Deduction doubtless unduly-preponderates in the investigations of the older economists; but it must be remembered that it is a legitimate process, when it sets out, not from a priori assumptions, but from proved generalizations. And the appropriate method of economics, as of all sociology, is not so much induction as the specialized form of induction known as comparison, especially the comparative study of "social series" (to use Mill’s phrase), which is properly designated as the "historical" method. If the denominations here criticized were allowed to prevail, there would be a danger of the school assuming an unscientific character. It might occupy itself too exclusively with statistical inquiry, and forget in the detailed examination of particular provinces of economic life the necessity of large philosophic ideas and of a systematic co-ordination of principles. So long as economics remain a separate branch of study, and until they are absorbed into sociology, the thinkers who follow the new direction will do wisely in retaining their original designation of the historical school.

The members of the historical school have produced valuable works besides those which there has been occasion to mention above. Ample notices of their contributions to the several branches of the science (including its application) will be found dispersed through Wagner and Nasse’s Lehrbuch and the comprehensive Handbuch edited by Schönberg. The following list, which does not pretend to approach to completeness, is given for the purpose of directing the student to a certain number of books which ought not to be overlooked in the study of the subjects to which they respectively refer:---

Knies, Die Eisenbahnen und ihre Wirkungen (1853), Der Telegragh (1857), Geld und Credit (1873-76-79); Rösler, Zur Kritik der Lehre vom Arbeitslohn, 1861; Schmoller, Zur Geschichte der deutschen Kleingewerbeim 19 Jahrh., 1870; Schäffle, Theorie der ausschliessenden Absatzverhältnaisse (1867), Quintessenz des Socialismus (6th ed., 1878), Grundsätze der Steuerpolitik (1880); Nasse, Mittelaterliche Feldgemeinschaft in England, 1869; Brentano, On the History and Development of Gilds, prefixed to Toulmin Smith’s English Gilds (1870), Die Arbeitergilden der Gegewart (1871-72), Das Arbeitsverhältniss gemäss dem heutigen Recht (1877), Die Arbeitsversicherung gemäss der heutigen Wirthschaftsordnung (1879), Der Abeitsversicherungszwang (1881); Held (born 1844, accidentally drowned in the Lake of Thun (1880), Die Eikommensteuer (1872), Die deutsche Arbeiterpresse der Gegewart (1873), Sozialismus, Sozialdemokratie, und Sozialpolitik (1878), Grundriss für Vorlesungen über National-ökonomie (2d ed., 1878); Zwei Bücher zur socialen Geschichte Englands (posthumously published, 1881); Von Scheel (born 1839), Die Theorie der socialen Frage (1871), Unsere social-politischen Parteien (1878). To these may be added L. von Stein, Die Verwaltungslehre (1876-79), Lehrbuth der Finanzwissenschaft (4th ed., 1878). E Dühring is the ablest of the few German followers of Carey; we shall mention his history hereafter. To the Russian-German school belongs the work of T. von Bernhardi, which is written from the historical point of view, Versuch einer Kritik der Gründe welche für grosses und kleines Grundeigenthum angeführt warden, 1848. The free-trade school of Germany is recognized as having rendered great practical services in that country, especially by its systematic warfare against antiquated privileges and restrictions. Cobden has furnished the model of its political action, whilst, on the side of theory, it is founded chiefly on Say and Bastiat. The members of this school whose names have been most frequently heard by the English public are those of J. Prince Smith, who may be regarded as its head; H. von Treitschke, author of Der Socialismus und seine Gönner, 1875 (directed against the Katheder-Socialisten); V. Böhmert, who has advocated the participation of workmen in profits (Die Gewinnbetheiligung, 1878); and J. H. Schultze-Delitzsch, well known as the founder of the German popular banks, and a strenuous supporter of the system of "co-operation." The socialist writers as has been already mentioned, are not included in the present historical survey, nor do we in general notice writings of the economists (properly so called) having relation to the history of socialism or the controversy with it.

The movement which created this school in Germany, with the development which have grown out of it, have without doubt given to that country at the present time the primacy in economic studies. German influence has been felt in the modification of opinion in other countries—most strongly, perhaps, in Italy, and least so in France. In England it had been steadily making way, though retarded by the insular indifference to the currents of foreign thought which has eminently marked our dominant school. Alongside of the influence thus exerted, a general distaste for the "orthodox" system has been spontaneously growing, partly from a suspicion that its method was unsound, and partly from a profound dissatisfaction with the practice it inspired, and the detected hollowness of the "Manchester" policy of mere laissez faire. Hence everywhere a mode of thinking and a species of research have shown themselves, and come into favour, which are in harmony with the systematic conceptions of the historical economists. Thus has itself in the economic world, a younger school advancing towards predominance, whilst the old school still defends its position, though its adherent tend more and more to modify their attitude and to admit the value of the new lights.


FOONOTES (page 393)

(1) This should be remembered by readers of M. Leroy-Beaulieu’s recent work on Collectivism (1884), in which he treats Schäffle as the principal theoretic representative of the form of socialism.

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