American Economists on the Methods, Values, and Policies of the GHSE

Many young American economists attributed the economic problems of the 19th century to the arbitrary and unrealistic assumptions of classical ortho­doxy that dominated national policies and the curriculums of colleges and universities (Walker 1891).

Adherents of the New School also called themselves ‘the Historical school, taking the name used’ by their ‘German teachers’ (Ely 1936, 145). Moreover, members of the New School were also labeled ‘the young rebels’ (ibid.: 147). Ely was considered to be the leader of the New School, while some of its main disciples were Seligman, Mayo-Smith, Henry Carter Adams, James, Clark, and Patten (Coats 1985, 1703, Ely 1936, 145). According to the New School, the older generation of economists, known as the Old School, pre­vented real progress, because they adhered to the outdated principles and assumptions of classical orthodoxy.

Hadley, Sumner, and Newcomb were the main adherents of the Old School, which was inf luenced by classical economics in an extreme form (Ely 1936, 143). In particular, they strongly advocated for the free trade and laissez-faire approach that were promoted by classical economics. Naturally, they were disturbed by the thoughts and ideas being put forth by the New School, especially its defense of positive state action as a necessary condition of social and economic progress. In response, they accused adherents of the New School of being ‘unscientific pamphleteers and strident propagandists for social reform, rather than scholars’ (Barber 1993, IX).

Members of the New School supported ideas, policies, and methods that were similar to those advocated by the GHSE. In doing so, they wanted to find solutions to ‘the rapidly changing American situation’ based on everything that they had learned in Germany (Coats 1985, 1703). Meanwhile, they were very critical of the principles and methods of classical economics and sought ‘to overthrow the entrenched “Clerical Ricardian” orthodoxy’ of the Old School, ‘which had hitherto dominated college textbooks’ (ibid.). Seligman (1886A, 19) argued that the GHSE had freed itself ‘from the yoke of a method which had now become sterile, the new school, devoid of all prepossessions, devoted itself to the task of grappling with the problems which the age had brought with it.’ He also accused the Old School of being blind to the rela­tionship between economic theory and changing social and material condi­tions (Seligman 1886B). As for other prominent members of the New School, James (1886, 24) criticized devotees of the classical orthodoxy for strictly ad­hering to their fundamental principles ‘as if they were law and gospel,’ while Mayo-Smith (1886, 105) claimed that classical economists clung to outdated ‘old ideas’ and ‘old formulae.’ Furthermore, Patten (2003, 60) believed that the mistake of classical economists could be found in ‘their low ideal.’ That is to say, they think that ‘we have almost reached the limit of our progress, and hence our economy should conform to a static ideal’ (ibid.).

Adherents of the New School rejected ‘not merely a few incidental con­clusions of the English school, but its method and assumptions, or major premises—that is to say, its very foundation’ (Ely 1883, 234). They argued that ‘the system of Political Economy’ that was ‘imported from England’ and taught at American colleges did not have ‘universal assent to which its scientific character and the eminence and influence of its expounders would seem to entitle it’ (Newcomb 1884, 291). Consequently, many adherents of the New School believed that German methods, values, policies, and ideas were ‘greatly to be admired’ and advocated for them to be ‘appropriated’ (Adams 1879, 294). Even though some American economists recognized that ‘the principles upon which’ German economics and finance were based might be ‘inappropriate to the political and industrial conditions’ of the US, many of them still embraced its fundamental principles, methods, and ideas (ibid.). The following section discusses historical studies, the inductive method, positive state action, ethics, and methodological collectivism, all of which were features of the GHSE and became necessary characteristics of the New School.

Historical Studies

Under the leadership of the New School, political economy ceased to be a branch of the natural sciences (Herbst 1965, 135). This is because its adher­ents believed that political economy should be concerned with men and their relationships with each other. For example, much like theorists of the GHSE, Mayo-Smith (1886, 119) was of the view that it was not possible to ‘cultivate political economy without at the same time cultivating the other branches of social science, especially political science and jurisprudence.’ That means political economists should study ‘the facts of economic life as they actually exist, blended with the political, legal, and social life’ (Mayo-Smith 1886, 120). Similarly, Seligman was of the opinion that jurisprudence, history, pol­itics, ethics, and economics were all closely related.

In his defense of historical studies, Seligman (1910, 25) argued that political economy deals with ‘man’ who is ‘a product of history; economic institu­tions, like all other social facts, have their roots in the past.’ He highly valued historical studies, because he believed that lessons learned from the past could guide people in both the present and the future. He further claimed that his­torical studies could help people identify the conditions that could facilitate progress or lead to retrogression (Seligman 1910). Meanwhile, Taussig (1888) was of the view that historical studies could help provide an understanding of the errors that people and nations committed in their social and economic lives, and determine how those errors could be avoided in the future. He ex­plained that when one analyzes a prolonged historical stretch of customs, val­ues, cultural practices, law, and restrictions among people in a certain period, including primitive man, the ancient world, the Middle Ages, the Renais­sance, and the emergence of the mercantile system, it becomes obvious that there was never a ‘universal applicability of economic laws’ (Taussig 1905, 501). All of these historical periods were fundamentally different in terms of their goals, problems, and priorities. Seligman (1886B) pointed out that these fundamental differences meant economic theories are not absolute, but rela­tive. Since economic theories are developed based on the historical study of the particular social, political, and economic conditions of different societal organizations, they are not universally applicable anywhere or at any time.

Patten explained that historical studies could demonstrate that each nation experiences a different economic situation based on its particular environ­ment, geographical position, and historical development. Each nation also undergoes its own particular period of transition, where its customs, laws, habits, and beliefs are modified or disappear.

Contrary to the GHSE, which accepted economic policies and laws as relative and ephemeral, classical economics regarded them as ‘absolute’ and universal, in that they could ‘conform to the conditions of every nation in all stages of its progress’ (Patten 2003, 12). However, the rise of the New School displaced this conception of political economy, as its adherents no ‘longer seek after a universal economy which will be good under all industrial con­ditions, but for one that is fitted to the people of a particular nation in a particular stage of its development’ (ibid.). For them, a policy that was ‘good for one nation at a particular time is no longer regarded as sufficient evidence that it will be good for other nations, or for other times’ (ibid.). Patten (2003, 12) stressed that ‘the causes of national prosperity must be studied under

American Political Economists and the Influence of the GHSE 109 the peculiar conditions of each nation, and the separate problems which its economy brings forward must be solved by a study of its own economic conditions.’ Farnam (1913, 77) also highlighted the importance of histori­cal studies, as he recognized that ‘each great period of the world’s history’ had an ‘economic ideal,’ which became ‘part of the mores of the time and country.’ Furthermore, Seligman (1886A, 2) pointed out that ‘each period of economic life must be treated by itself, both in regard to the truth or falsity of the doctrine itself, and in regard to the applicability of the particular theory in question.’ Similarly, Dunbar (1904, 40) believed that ‘the economic the­ories of any generation must be regarded primarily as the outgrowth of the peculiar conditions of time, place, and nationality’ and that ‘no particular set of tenets can arrogate to itself the claim of immutable truth.’ He emphasized the importance of historical studies in political economy when he stated that ‘the development of the industrial life of nations and of their economic in­stitutions, and the causes which, in all that relates to material life, make one nation a different historical product from another’ (ibid.: 44).

Mayo-Smith (1886, 114) was convinced that the goal of political economy should be to systematize the knowledge of the past, which was obtained through historical and comparative study, ‘as rapidly as possible, so as to reach general principles of economic life.’ According to him, ‘the chief merit of the new school’ was its historical study of the ‘degree of civilization, custom, law, etc.’ of different nations, which ‘the older economists neglected’ (ibid.: 113). Mayo-Smith (1888, 244) explained that historical study reveals ‘the forma­tion and modification of social institutions,’ as well as the motivations behind people’s choices of action in different civilizations. It also ‘discloses relations of cause and effect’ and provides ‘indications of the direction of human de­velopment’ (ibid.).

The Inductive Approach versus the Deductive Approach

In the US, members of the Old School accepted the deductive approach as the starting point of political economy in order to make it into a branch of the natural sciences. Based on the deductive approach, truths are deduced ‘from certain premises by a logical process’ (Dunbar 1904, 34). However, these truths are ‘limited by their own complete logical statement to cases where the conditions originally premised are present, and not controlled by any others’ (ibid.). In other words, truths are attained only under specified conditions. Therefore, the truths derived from the deductive approach are far from uni­versal, because they require a specific set of conditions to exist. Accordingly, these truths should not be treated as though they are universally applicable to any time or in any place, because they were created based on the particular development of the society being studied (Adams 1886, 4).

Supporters of the deductive method defended a singular approach to po­litical economy. Even though the outright rejection of the inductive ap­proach inhibited scientific inquiry and constrained ‘the progress of political 110 American Political Economists and the Influence of the GHSE economy,’ they continued to use the deductive approach exclusively (Dun­bar 1886, 18). The most successful opposition to the deductive approach occurred in Germany, as the GHSE adhered to the inductive method. Meanwhile, in the US, the inductive method gained support due to the fact that ‘political economy, as pursued by the deductive method,’ had ‘seriously disappointed the hopes which formerly centred around it’ (ibid.: 9). This disappointment was not only attributed to ‘the extravagance of the hopes, but also by reason of its own sterility in results’ (ibid.). In fact, ‘the inade­quate basis’ upon which classical economics rested in the US, with its sup­port of the abstract deductive method, was partly ‘responsible for the growth of the German Historical School’ and its backing of the inductive approach (Clark 1886, 35, 203).

Ely (1883, 233) highlighted that the abstract deductive approach and the ‘a priori doctrines or assumptions’ of classical economics were ‘cast aside’ by the disciples of the GHSE. Contrary to the supporters of the deductive approach, the GHSE did not ‘expect to discover general economic laws by the histor­ical method’; moreover, they denied that ‘such laws existed’ (Farnam 1913, 28). Similarly, adherents of the New School argued that since the abstract deductive method was based on only a few hypotheses with respect to human nature, any economic laws derived from it were too narrow to be considered universal. Accordingly, they were opposed to the premise of formulating universal abstract laws of development that all nations across history and time should adhere to. They also questioned the classical economics assumption that ‘all economic phenomena’ were subject to ‘a few formal laws’ (New­comb 1884, 293). Ultimately, members of the New School argued that clas­sical economists failed to take account of how ‘these laws’ were ‘modified or even reversed in practice’ (ibid.). In response, they abandoned ‘the dry bones of orthodox English political economy for the live methods of the German school’ (Ely 1883, 235). Moreover, they believed that the inductive approach would not lead political economists toward extremes like classical orthodoxy and socialism did.

Much like theorists of the GHSE, members of the New School maintained that the inductive method allowed for the study of ‘the present in the light of the past’ (Ely 1882, 519). That is to say, they adopted ‘experience as a guide, and judged of what was to come by what had been’ (Ely 1883, 233). Based on the inductive approach, they observed ‘external phenomena’ and gathered statistical and historical data in order to study social, economic, and finan­cial questions (ibid.). They collected facts and data about the phenomena of society:

not merely as means of increasing the sum of human knowledge, but as means of grasping a certain series of laws and principles by which, if properly applied, the phenomena of society may be modified and guided, and the future condition of society improved.

(Patten 1891, 103)

They were of the opinion that the inductive method was the best way to understand the reasons behind men’s actions in a society with continuously changing social and economic conditions.

Similar to the theorists of the GHSE, Mayo-Smith considered the induc­tive method to be ‘comparative,’ in that it compares ‘economic institutions performing the same function among different nations of the same degree of civilization, in order to discover which is the best’ (Mayo-Smith 1886, 107). It is also ‘statistical,’ as it collects data to form the basis of its knowledge about ‘man and nature’ and ‘it uses this knowledge for the purpose of guiding and helping its investigations’ (ibid.). Mayo-Smith (1886, 107) also explained that the inductive approach ‘carefully observes the limits of time and place, and abstains from asserting its principles to be either universal or perpetual.’ Accordingly, many of the adherents of the New School believed that the triumph of the inductive method would be fruitful for political economy, as it could allow political economists to ‘escape the sterility’ of the abstract deductive method (ibid.: 114).

Adherents of the New School did not really state ‘explicitly how far they would go in flinging away deduced principles’ (Taussig 1888, 232). However, many of them were not completely opposed to the use of the deductive ap­proach. Some of ‘the leading writers of the new school’ accepted the use of the deductive method ‘in some way and to some extent,’ while also acknowl­edging that it was not separable from the inductive approach (Dunbar 1904, 41—42). For example, even though Patten was concerned that ‘various leaders in the formation’ of the AEA supported the deductive approach, whereas his­torical studies and the inductive approach were ‘very little cultivated’ among them, he did not support the complete elimination of the deductive approach from political economy (Ely 1910, 66). More precisely, he believed that while they had ‘the right idea’ in their decision to focus on ‘concrete facts’ instead of abstract doctrines, both the deductive and inductive methods were indispen­sable to political economy (Patten 1891, 101). In fact, Patten (1891, 100) stated that ‘science has the greatest educational value that uses both deductive and inductive reasoning and properly combines them.’ Similarly, Ely supported the use of both methods as long as they could solve problems that economists were concerned about. For him, the deductive approach could be useful as long as the premises were carefully developed. Taussig (1888, 232) shared parallel views, as he claimed that no ‘real and serious disagreement exists between the deductive economists and the advocates of exclusively historical and practical treatment.’ Additionally, Farnam (1913, 12) did not support the complete exclusion of the deductive approach from political economy, as was advocated by some of the theorists of the GHSE.

According to Seligman (1910, 27, 28), it would be a mistake to assert any predominance between inductive and deductive methods, as ‘neither can be successfully divorced from the other.’ He argued that supporters of the deductive approach often made their generalizations quickly, and ‘through their failure to make allowance for the numberless counteracting tendencies, often gave an appearance of unreality to their conclusions’ (ibid.: 28). He also pointed out that supporters of the inductive approach sometimes ‘exaggerated the difficulty of reaching general laws at all, and have left us to wander aim­lessly in the forest of facts, putting off to an ever-distant day their analysis and utilization’ (Seligman 1889, 1910, 28). In fact, Seligman (1910, 28) claimed that it was those political economists who used both the inductive and deduc­tive approaches that accomplished ‘a real advance.’ He maintained that ‘the more tolerant and wiser economists’ in ‘all countries recognize that both the historical and the comparative method on the one hand, and the deductive method on the other’ were ‘not mutually exclusive, but complementary; and that the use of each method in turn is of the utmost value in the elucidation of different problems’ (Seligman 1912, 158). For example, he pointed out that when it came to problems related to ‘land tenure, e.g., the historical and comparative method is indispensable; in discussing such a problem as the in­cidence of taxation the historical and comparative method is useless’ (ibid.). Thus, he advised students of political economy to familiarize themselves with both methods and hoped that ‘the political economy of future generations will be a combination of Schmoller and Ricardo’ (Balabkins 1988, 68).

In discussing the deductive and inductive approaches, Hadley (1896, 23) explained that ‘the old antithesis between deductive and historical schools’ was ‘giving place to a distinction between static and dynamic problems’ (ibid.). In the case of a static problem, it is assumed that ‘the character and in­stitutions of a people remain fixed while the relations between the individual members change’ (ibid.). Meanwhile, in a dynamic problem, political econ­omists take ‘account of the progressive changes in national character which result from the altered conditions of individuals’ (ibid.). Hadley (1896, 23) believed that the world finally recognized ‘the true position and importance of economic history’ in his time. As such, he argued that it was pointless to separate economists ‘into deductive and historical schools’ (ibid.). In fact, he pointed out that all of the good economists of his time were employing ‘both methods by turns,’ guiding their choice according to ‘the character of the problem’ being investigated (ibid.).

Even though some adherents of the New School were convinced that the dogmatic defense of the deductive approach by classical economists obscured the progress of the discipline of economics, not all its members had a neg­ative view of using both approaches. In other words, much like Schmoller and Wagner, many of the adherents of the New School defended the use of both approaches and argued that it was absurd to exclusively use one while completely discounting the other. They believed that had the supporters of classical orthodoxy understood this absurdity, a reconciliation between in­ductive and deductive methods would have been a simple matter. However, despite the efforts of the New School, neoliberal economists have worked tirelessly to make economics into a branch of the natural sciences for most of the 20th century. That is to say, they essentially imported the methods of the natural sciences into economics and focused on studying economics from the

American Political Economists and the Influence of the GHSE 113 deductive side while disregarding the importance of the inductive approach for economic research.

The New School on the Laissez-Faire Approach

Before the GHSE, Americans were mainly influenced by ‘the older political philosophy of laissez-faire and non-interference’ (Taussig 1911, 434). In par­ticular, Wealth of Nations, which had more ‘influence in forming the character of the Nineteenth Century than any other one book published,’ garnered significant support for the laissez-faire doctrine in the US (Adams 1884, 20). This book served as the intellectual foundation for ‘the establishment of a system of industrial freedom’ (ibid.). Defenders of laissez-faire were of the opinion that ‘any interference on the part of the state with economic activ­ity would be injurious to economic life’ (Adams 1879, 290). They not only opposed state interference, but also associated it with misgoverning and so­cialism. They also believed that the laissez-faire policy was ‘the true policy’ of government (ibid.). In fact, prior to the inf luence of the GHSE in the US, government officials often referenced the laissez-faire approach in their ‘speeches, pamphlets and letters’ (Adams 1884, 21).

Adherents of the New School believed that the doctrine of laissez-faire was ‘a part of the old economic system,’ which assumed that there was ‘a body of economic doctrines good for every people in every age’ (Patten 2003, 12). According to Ely (1883, 226, 1938, 139), ‘Laissez faire, laissez passer-let things alone, let them take care of themselves,’ which ‘was the oft-repeated maxim of a priori economists,’ implied that ‘laws of economic life were “natural laws” like those of physics and chemistry.’ However, adherents of the New School believed that classical economists went too far when they claimed that the laissez-faire approach was a natural law. Taussig (1886, 35) argued that it was a ‘great mistake to treat’ the laissez-faire approach like a natural law, and it was an even ‘greater mistake to treat it as a law of political economy.’ In his own opposition to the laissez-faire approach, Clark (1886, 219) explained that nothing could ‘be wilder or fiercer than an unrestricted struggle of millions of men for gain, and nothing more irrational than to present such a struggle as a scientific ideal.’ He also argued that ‘false economic teachings’ based on classical economics ‘blinded the people’ in the US to the destructive out­comes of the laissez-faire system (Clark 1879, 163). He even went so far as to state that the ‘most savage form of competition’ was tolerated by law under the laissez-faire system of the US (ibid.: 165). For Clark, this type of com­petition resulted in many extreme forms of evils. Meanwhile, Patten (1888, 690) labeled the laissez-faire approach a primitive notion. He argued that supporters of laissez-faire viewed the state as a necessary evil in national life and sought to limit its actions, including the provision of public services and programs intended to facilitate social and economic development.

Taussig (1911, 321) attributed the unprecedented growth in the power of the American business classes, as well as ‘the backwardness’ of labor legislation

and its administration in the US, to the dominance of the laissez-faire ap­proach. More specifically, he explained that swift changes in the ‘social and industrial conditions of the last generation or two, the influx of immigrants and the growth of manufactures’ led to rapid expansions in labor problems and the power of business classes, which could not be adequately addressed via the laissez-faire approach (ibid.). Adams (1887) was also worried about the unprecedented growth in the power of the business classes under the laissez-faire system. In particular, he was concerned that the rise of corporate power menaced ‘the stability of society, by controlling in their favor legis­lation’ (Adams 1887, 532). According to Adams (1887, 502), the laissez-faire approach turned the government into a ‘weak and inefficient’ entity that became obedient to the orders of private interests. He argued that:

a weak government placed in the midst of a society controlled by the commercial spirit will quickly become a corrupt government; this in its turn reacts upon commercial society by encouraging private corporations to adopt bold measures for gaining control of government machinery.

(ibid.)

Adams predicted that, in another century, the kind of power that corpora­tions were exercising under the laissez-faire system would be regarded as a violation of freedom and a threat to the raison d’etre of the government. He believed that the goal of political economy should not be to intentionally make the government ‘weaker, or more corrupt and more inefficient, by continuing to preach the illogical doctrine of laissez-faire’ (ibid.: 475—476). In fact, he supported positive state action to mitigate the growing power of corporations. Ely agreed with him and made it clear that the power of pri­vate enterprises should never undermine state action. As for Seligman, he supported state intervention when ‘the powers of state themselves are threat­ened..^ corporate monopolies’ (Dorfman 1955, 27).

According to James (1887, 54), whenever governments adopted a system of ‘laissez- faire of letting everything take care of itself,’ it ended ‘disastrously in a thousand ways’ (ibid.). Ely (1883, 226) also expressed concerns about the destructive social and economic consequences of the government abstaining from ‘all interference in industrial life,’ including various forms of inequality, injustice, unemployment, and misery. In fact, he went so far as to state that ‘no doctrine. ever made a more complete fiasco than the maxim, Laissez faire, laissez passer, when the attempt was seriously made to apply it in the state’ (ibid.: 230). He argued that the laissez-faire policy was unsound in mor­als and kept people in ignorance, pointing out that it resulted in the ‘moral and physical degradation of large classes’ at English factories, particularly the bankruptcy of the ‘morality of women’ and outcomes that were ‘destructive of the health of children’ (ibid.: 231). According to him, this immoral and exploitive degradation of the social and economic conditions of the people would ‘shame any country calling itself civilized and Christian’ (ibid.).

Ely (1883, 235) agreed with the GHSE view that classical economists used the laissez-faire approach ‘as an excuse for doing nothing while people starve, nor allow the all-sufficiency of competition as a plea for grinding the poor.’ He believed that the GHSE aimed to somehow ‘return to the grand principle of common sense and Christian precept. Love, generosity, nobility of charac­ter, self- sacrifice, and all that is best and truest in our nature have their place in economic life’ (ibid.). Accordingly, he maintained that the theorists of the GHSE were ‘humanitarians and wanted to help bring about a better world in which to live,’ which allowed them to see the evils of the laissez-faire ap­proach (Ely 1936, 145). He further added that they were no longer allowing ‘the science to be used as a tool’ to implement social and economic policies in ‘the hands of the greedy and the avaricious for keeping down and oppressing the laboring classes’ (Ely 1883, 235).

Walker (1889B, 29) argued that the laissez-faire doctrine was ‘imported into American thought, wrought a great deal of mischief.’ However, he conceded that there could be some rare exceptions where the laissez-faire approach could be applied, provided that doing so clearly profited the public interest. In his opposition to the laissez-faire doctrine and his support of state regulation and intervention, Patten (1888, 690) warned that ‘activity on the part of the state’ should not be ‘detrimental to the harmonious development of each individual’ and their freedom. Meanwhile, James (1886, 43) argued that support for the laissez-faire approach prevented the state from ‘under­taking certain great reforms.’ He was of the view that it was ‘perfectly pos­sible’ to allow the state to interfere ‘in such a way as to promote and create industry’ (ibid.). According to him, state interference would be permitted in instances where not doing so would ‘stop’ progress and allow ‘retrogression set in’ (ibid.).

Adherents of the New School believed that the laissez-faire approach advocated by the Old School should be replaced with ‘carefully studied’ state interference and regulations. In other words, rather than promoting the laissez-faire approach, which does not improve the common welfare, more emphasis needed to be placed on state regulations and interventions aimed at advancing the general well-being of the people. Taussig (1911, 435) pointed out that ‘the success of regulation depends on the quality of the individuals’ who regulate them. Accordingly, he believed that the people with regulating authority needed to have ‘stable tenure of office and adequate salaries. They should be chosen not by popular election, but by executive appointment’ (ibid.). Having said that, he noted that these requisites were often neglected in the US.

For adherents of the New School, being critical of the classical orthodoxy ‘in an environment of laissez-faire, where businessmen controlled the boards of trustees of private universities, was not easy’ (Balabkins 1988, 104). Nev­ertheless, they continued to oppose the laissez-faire doctrine and defend state regulations in order to achieve the common welfare. In the final decades of the 19th century, it was believed that the rise of the New School meant that the laissez-faire doctrine had lost ‘its position, and will probably never be reinstated’ (Mayo-Smith 1886, 105). Moreover, the defeat of the laissez-faire approach was accepted as the definitive ‘triumph of the new over the old’ school (ibid.). This was confirmed by Clark (1914, 5) in 1914, as he stated that ‘extreme laissez-faire policy once dominant in literature and thought, now finds few persons bold enough to advocate it or foolish enough to believe in it.’

Positive State Action

During the last few decades of the 19th century, members of the New School were concerned about the growing power and wealth of corporations that often engaged in reckless and destructive business practices, as well as the rise of a large proletariat in the cities that endured deplorable working conditions and miserable lifestyles. In their quest to find solutions to the growing social and economic inequalities and misery of their time, they turned to the work of leaders of the GHSE in the area of the national economy. Similar to theo­rists of the GHSE, adherents of the New School were opposed to the classical economist view that the state was ‘a purely negative factor in economic and social life’ (James 1886, 25). To the contrary, both schools of thought sup­ported positive state actions in many areas of life that were intended to secure common welfare (Patten 1916, 21). They were also in agreement that positive state actions should be designed to improve and develop various sectors of the national economy, including health care, education, social services, ag­riculture, forestry, transportation, commerce, manufacturing, and finance. Ultimately, both the GHSE and the New School supported state regulations that sought to achieve prosperity and progress (ibid.). Of note, James (1886, 25) argued that state interference was an ‘absolutely essential condition of human progress.’ That said, he emphasized that state regulations needed to be beneficial and positive for society as opposed to being repressive and neg­ative. This is because positive state actions threatened the unjust and unfair practices of the business classes, which contributed to the achievement of common welfare.

According to Patten (2003, 41), obstacles that hindered economic progress needed to be removed in order to achieve development in society. As such, he supported an active state role in addressing such obstacles as rapidly as possi­ble. Otherwise, if left unchecked, these obstacles would inhibit society from progressing, resulting in ‘a gradual diminution in the average return for labor and a more unequal distribution of wealth’ (ibid.). Patten (2003, 60) also clar­ified that ‘whatever obstacles to economic progress the nation must overcome to reach a higher civilization can, with the aid of an education, be overcome with less protection, and the period of protection will also be shortened.’

Clark primarily focused on the role of the state in terms of eliminating the evils of competition so as to improve labor rights. He explained that when­ever employers have a bargaining advantage, they will exploit workers by paying them low wages that are below the value of labor’s marginal product.

American Political Economists and the Influence of the GHSE 117 He even suggested that much of the bargaining power held by employers ‘resembles the robbing of defenseless persons’ (Clark 1879, 164). As such, he called on the state to enact labor laws that reduced working hours, prohib­ited child labor, and provided ‘indemnities for injuries’ (Clark 1914, 19, 22). He also supported ‘sanitary regulations’ and the strengthening of ‘pure-food laws’ to improve the living conditions of the working class (ibid.: 19). Ely held similar views, as he stated that ‘the inadequate action of competition in regulating and controlling great corporations gives another excuse for gov­ernmental interference’ (Ely 1883, 232). Additionally, Walker highlighted that, under imperfect competition, the ability of the labor classes to react to ‘the impulses of self-interest was seriously reduced’ (Dorfman 1966V3, 105). However, while he supported perfect competition, he also believed that the state had to maintain the conditions of a competitive market. In other words, the government was supposed to have a corrective role in the marketplace. Walker (1890) also supported the formation of labor unions to offset the destructive outcomes of imperfect competition by establishing more of a bal­ance in economic power. He also highlighted the importance of trade unions and ‘strikes’ in facilitating perfect competition and promoting the ‘common interest’ (Walker 1889A, 268). He argued that ‘if the laboring class are active, alert and aggressive in the pursuit of their interests, the employing class will be continually sifted’ (ibid.: 267). However, if ‘the laborers are ignorant, stu­pid, inert, great numbers of incompetent men will get into the control of in­dustry, and sustain themselves there, at the expense of the community, and of the laboring class in particular’ (ibid.). In this case, not only will the working classes become poorer, but so will their ‘master’ (ibid.: 268).

Kinley (1949, 141) believed that state regulations aimed at ensuring fair­ness and justice became increasingly necessary as a society and its institutions progressed. In particular, he supported state legislation ‘against monopolies, unfair advertising, predatory acts of groups, and other evils’ (ibid.). He also argued that the achievement of fairness and justice would be in ‘the best eco­nomic, social, and moral interest of all classes,’ including employers (Kinley 1893, 12). According to Kinley (1893, 17), defending protective labour laws, standing for social and economic justice, and protecting the land and nat­ural resources of a nation from ‘industrial evils’ are all intended to achieve common welfare. Meanwhile, Adams (1887) claimed that destructive out­comes emerge when competition is mostly confined to a handful of large corporations instead of many small-sized enterprises under a system of laissez faire. Additionally, Seligman maintained that the state had ‘a duty to interfere where free competition ends disastrously’ (Dorfman 1955, 27). He believed that the complexities of modern life meant that the state regulation of ‘many business enterprises on behalf of producers, of consumers, of investors or of the general public’ was a necessity (Seligman 1910, 169). Ultimately, the goal of state regulation was to ensure the conditions of ‘liberty through the attain­ment of equality and responsibility’ (ibid.). Seligman (1910, 169) maintained that state regulations aimed at securing the conditions of general freedom

were justified in cases of: business laws that ‘give the operatives a fair chance’; railway regulations that seek to ‘secure equal treatment of shippers; super­vision of banks, insurance companies and other corporations is designed to enforce financial responsibility.’

Seligman supported the state ownership of natural monopolies, including electricity, water, gas, and postal services. However, James (1887, 54) was concerned about ‘artificial monopolies,’ as he believed that they would ‘con­tinually grow worse unless it be made to grow better’ by the state. He was particularly worried about monopoly power in strategic areas, such as rail­roads, telegraphs, express companies, telephone companies, oil companies, coal companies, gas, water, etc. Accordingly, he supported state interference, as well as state administration, in these important areas of the economy. Ad­ams (1879, 293) also called for an active state role in the administration of ‘railroads, telegraphs, post, and express; in the management of public do­mains and forest.’ He explained that ‘those enterprises that are undertaken by the State and carried on as private enterprises, with the single exception that they are carried on not for profit to the State, but in the interest of the people’ (ibid.).

Ely also promoted the use of laws to limit the power of private corpora­tions. He advocated for the abolishment of ‘private monopoly and substitu­tion therefore of public ownership and management of all those enterprises which are by nature monopolies like railways, gas and electricity, telegraph, telephone’ (Ely 1938, 252). He pointed out that publicly owned and operated railways functioned very well in Germany. However, it should be noted that Ely’s defense of the ‘nationalisation of the railroads’ and the public ownership of monopolies were influenced by his former teacher Wagner (Herbst 1965, 190). To the contrary, Hadley (1886) did not support state ownership for the purpose of mitigating the destructive outcomes associated with monopolies, despite describing how frightening monopoly power can be for the masses. In fact, he believed that state-owned monopolies often became abusive and destructive themselves. As a result, he argued that since large producers had a responsibility to the public, they should be subject to public regulations (Hadley 1888, 591). Clark (1914, 10) also argued that a ‘monopoly of any sort is hostile to improvement, and in this chief ly lies the menace which it holds for mankind.’ He was opposed to both private and public monopolies in any industry, stating that:

if a public monopoly were to exist in every part of the industrial field, the per capita income would grow less, and that it would be only a question of time, and a short time at that, when the laborers would be worse off than they are now.

(ibid.)

To protect the public, Clark supported the regulation and reformation of monopolies so as to offset their growing and damaging power. He also relied

American Political Economists and the Influence of the GHSE 119 heavily on the moral improvement of people in order to mitigate the de­structive practices of monopolies. Meanwhile, James (1887, 79) believed that if it was necessary to have monopoly power ‘in order to secure the interests of the public, this monopoly should be within the control and management of the public.’ He also argued that it was an imperative duty of the state to assume the management of strategic industries to achieve progress and com­mon welfare.

James was opposed to a small state, because he believed that it would in­evitably degenerate into misery, and halt the social and economic progress of society (James 1886, 31). In fact, he claimed that all economic progress was the outcome of an active role on the part of the state (ibid.: 26). According to James (1886, 33), a bigger state becomes necessary when the institutions and interactions in a society become ‘more complicated.’ More precisely, as a society advances and progresses, the ‘government will be so improved that the state can safely undertake to a larger and larger extent the exercise of this collective action’ (ibid.). At the same time, James (1887, 82) made it clear that the ‘proper functions of government’ are not ‘absolute, but relative, and they change with an advancing civilization.’

Ely (1938, 136) was of the opinion that positive state action was an indis­pensable condition of human progress. In fact, he believed that state action was necessary in ‘every time of distress’ (Ely 1883, 231). He even went so far as to claim that all reforms and progress ‘in the social and economic institu­tions of Great Britain’ were ‘accomplished only by the direct, active inter­ference of government in economic affairs’ (ibid.). According to Ely (1883, 231), even though such forms of state interference violate ‘all the principles of laissez faire economists,’ they ‘are nevertheless applauded by the wisest and best men of all lands.’

Like the Germans, Ely supported the state provision of education, as he did not regard the state as a violator of academic freedom; rather, he considered it to be a promoter and guardian of academic freedom. He believed that if the state had ‘the duty of seeing’ the new generation educated, then this role should be supported in order to ‘enable it to accomplish its duty effectually’ (Ely 1880, 259). However, while Ely (1895, 70) was not worried about state involvement in the education system, he was very concerned about powerful classes hindering academic freedom and independence in the study of econ­omies and other disciplines. In fact, he cautioned that ‘large and powerful classes interested in the present condition of things’ would always be opposed to any changes intended to achieve the common good (ibid.).

Similar to the theorists of the GHSE, Ely highly valued the provision of various social security services and programs by the state, such as insurance against accidents, sickness and old age, labor laws to ensure workplace safety and better working conditions, and youth protection. When addressing the implementation of social security programs by Otto von Bismarck (1815— 1898), Ely (1882, 520) commented that ‘we may be sure that the same social problems which now vex Germany will one day confront us’ in the US. It

is not surprising that Ely valued Bismarck’s social and economic policies so highly, as did a number of other German-trained American scholars, because some of their GHSE professors had roles in their design and establishment, including Knies and Schmoller (both served in their parliaments), and Wag­ner and Conrad (both were economic advisors of Bismarck). For American scholars of the New School, ‘the example of Bismarck’s Germany, with its fervent nationalistic spirit, was the one to follow’ (Herbst 1965, 191).

Farnam (1888, 288) also supported publicly funded social services and programs, as he believed that ‘the state should, as far as possible, endeavor to strike at the root of pauperism rather than to merely prune its branches.’ That said, he suggested that ‘the state should be exceedingly cautious in applying methods of relief,’ and ‘it should not hesitate to go beyond the sim­ple giving of relief’ (ibid.). In this way, ‘the amount of relief needed in the future’ will decrease (ibid.). Hadley (1896) also supported publicly funded social services and programs, because he thought they played a significant role in the achievement of public happiness. Like the theorists of the GHSE, he held the view that ‘the true basis for an estimate of a nation’s wealth is be found in the enjoyments of its members’ (Hadley 1896, 4).

Seligman (1910, 170) focused on the role of the state in the imposition of protective trade measures and the improvement of ‘real productive efficiency.’ He explained that ‘if the relative inequality of two countries in the produc­tion of a certain commodity is great, free trade may hinder in the weaker country the growth of an industry which might become relatively profitable or even highly necessary’ (ibid.). Accordingly, he supported protective state measures that would help build up ‘the industry to the point where there will be a domestic competition’ (ibid.). Meanwhile, Taussig (1883) concentrated on trade restrictions designed to protect infant industries. To be more precise, he argued that it was necessary and legitimate to shield an infant industry if ‘the causes which prevent the rise of the industry’ are not natural and perma­nent obstacles to its flourishing (Taussig 1883, 8). In other words, if artificial obstacles ‘temporarily prevent the rise of the industry,’ then its protection by the state was justified (ibid.: 10). Patten (2003, 41) also supported the protec­tion and development of infant industries. He explained that since people’s wants and goals are not static, and they do not ‘wish merely for the same few articles that their ancestors had,’ the development of new industries was a ne­cessity (ibid.). Patten (2003, 42) stressed that these new industries need state ‘protection and encouragement’ when they are in their infancy.

Patten argued that ‘free trade doctrines are not really based upon the best economic knowledge of today’ (Patten 2003, 13). As an example, he ex­plained that trade restrictions were often accepted as measures that prevented each nation from enjoying the benefits of commerce. However, he main­tained that this view was far from the truth, stressing that advocates of protec­tive trade measures were not intent to ‘destroy foreign trade’ (ibid.). In fact, they sought to ‘develop foreign trade as much as their opponents’ did (ibid.). Patten also argued that since all nations are fundamentally distinct from one

American Political Economists and the Influence of the GHSE 121 another, their trade policies should also be very diverse. That means the suc­cess of free trade in a given nation does not ‘prove that it would be beneficial’ for all nations (ibid.: 8).

Ely also supported positive state actions for environmental reasons. He did not believe that people always pursued their self-interests. However, when they did, he argued that it was false to assume that they would always con­tribute to the best interests of society as a whole. Consequently, he supported state intervention in instances where individual and general interests did not harmonize. For example, he argued that the state interference was necessary for ‘preserving our forests’ because ‘the ordinary laws of supply and demand’ were not adequately doing so (Ely 1883, 232). Other adherents of the New School also advocated for forest conservation projects on the part of the state. Among them, Adams emphasized that ‘corporations could not undertake such a task because the fruits of the investment were too remote’ (Dorfman 1955, 26). Meanwhile, Hadley (1896, 45) attributed an important role to the state in developing the domestic economy in a manner that would help avoid food scarcity and starvation. According to him, this would require the state to play a crucial part in improving the ‘utilization of the products of the land’ (ibid.). Hadley (1896, 45) argued that this could be achieved by enabling the agriculture sector to cultivate ‘the land’ in a way that will ‘furnish larger crops.’ He also supported state action in making ‘improvements in clothing and shelter’ (ibid.).

Adams (1887, 494) believed that it was a mistake to accept ‘the state as a necessary evil,’ like classical economists did, or to regard ‘the state as an organism complete within itself,’ as was the case with the adherents of the GHSE. Instead, he argued that:

both state action and the industrial activity of individuals are functions of the complete social organism. The state is not made out of the chips and blocks left over after framing industrial society, nor does industrial society serve its full purpose in furnishing a means of existence for the poor unfortunates who are thrust out of the civil or the military service.

(ibid.)

Adams stressed that the state needed to be an ethical agent in order to have an active role in regulating economic activities and providing social services and programs. He pointed out that it was possible to have a positive state action aimed at achieving the common welfare in Germany, because ‘the best talent of the people’ were ‘drawn into the public service’ (ibid.: 535). In fact, Germans considered working for the nation in pursuit of the common welfare to be a highly prestigious and respectable occupation. Ely (1938) held similar views to those of Adams, explaining that students in Germany would try to get the highest grades and win distinctions in their final exams in the hopes of acquiring a job in the civil service. This was ‘a question of high so­cial esteem that they felt would be obtained in the civil service rather than in 122 American Political Economists and the Influence of the GHSE private employment’ (Ely 1938, 259). Essentially, the goal in Germany was to attain the best civil service possible while cultivating the right spirit among civil servants. However, the US failed to achieve a comparable civil service because American society developed in ‘the opposite direction,’ with indi­vidual success and interests being highly praised, while the common good was not considered to be particularly important (Adams 1887, 535). Conse­quently, the ‘civil service’ in the US ended up being ‘so poor that an official has no social position, while a business man who accumulates money is gen­erally regarded with deference’ (ibid.). Furthermore, the salary paid by the state was ‘nothing when compared with what men of ordinary talent’ could earn, ‘either as profit if engaged in business on their own account, or as salary if working for a private employer’ (ibid.: 536). To prevent the corruption of public workers, Adams advised for a well-educated and ‘well-paid civil ser­vice,’ which would play a major role in restoring ‘the harmony between state and private service’ (Dorfman 1955, 26).

Adherents of the New School accepted the state as ‘an educational and ethical agency whose positive aid’ was ‘an indispensable condition of human progress’ (Ely 1938, 136). At the same time, they recognized that common welfare has been among the most abused concepts by decision-makers and despots across history. The government had to serve its people as opposed to behaving as though it was their master. In other words, even though they supported positive state actions intended to achieve common welfare, they were conscious that governments have a proclivity for despotic tendencies. As such, they supported a legal framework to limit state actions. They also advocated for well-trained and ethical public servants, as well as a self less and virtuous ruler. Broadly speaking, all adherents of the New School wanted to have positive state action in order to achieve the common good of society, though there were some disagreements among them as to what the exact limits of that state action should be. Ultimately, the efforts of the New School contributed to significantly expanding the positive role of the state in the first decades of the 20th century, which was among the biggest achievements of this school of thought. In fact, their work essentially prepared the ground­work for the welfare state that emerged in the US during the 1930s.

Ethical Values

The dominance of classical orthodoxy resulted in a decline of moral sen­timent in the discipline of economics, the practices of the ‘business com­munity,’ and society in general (Adams 1887, 502). More specifically, the laissez-faire approach, the unrestrained activity of private enterprises, meth­odological individualism, and unlimited ‘free competition,’ all of which were advocated by classical economists, disregarded the role of moral and ethi­cal values in economics (Adams 1879, 291). Similarly, adherents of the Old School, who were disciples of classical orthodoxy in the US, did not give any consideration to the idea of man as an ethical being, nor did they care about improving society based on motivations that were guided by ethical values

American Political Economists and the Influence of the GHSE 123 (Patten 1891, 103). In fact, one of the main differences between the Old School and the New School was that the latter sought ‘the establishment of a new relation between ethics and economics’ (Ely 1886, 70). Like theorists of the GHSE, members of the New School focused on studying mankind from an ethical standpoint, while also highly valuing the application of moral and ethical values in economics.

Ely argued that the stripping of ethics from political economy on the part of classical economists resulted in some of the worst characteristics of man, such as the unrestrained pursuit of self-interests, being accepted as fundamen­tal and universal principles of human behavior. To the contrary, he main­tained that ‘the ethical ideal’ was ‘the most perfect development of all human faculties in each individual, which can be attained’ (Ely 1886, 50). Mean­while, Dunbar (1904, 35) suggested that the progress of political economy in the US was delayed by the widespread adherence to classical economics, as its supporters ignored all higher purposes and duties, while devoting all of their work and effort to ‘the pursuit of wealth alone’ (ibid.). Kinley (1949, 140) also contended that the complete absence of ethics among the consid­erations for an individual’s choice of action resulted in destructive outcomes for the common interest across history. He explained that ‘the plea that the best results will be produced’ by laissez-faire falls to ‘the ground, and the actual circumstances of life constitute a necessity for interference, in order to produce an ethical social life’ (Kinley 1893, 9). According to him, advanced civilizations are correlated with the feeling of being part of a community, as well as the practice of ethical and moral values for the purpose of achieving common welfare for all (ibid.: 13). As for Patten (1888), he explained that classical economists only achieved a temporary benefit for a few people by excluding moral judgments from economics, while the masses were forced to endure many detrimental outcomes. To be more precise, he claimed that if individual temptations were not restricted and simply allowed to be fully realized, then people would enjoy ‘intense present pleasures’ that could result in many evils (Patten 1896, 103). According to Patten, moral and ethical ide­als would create motives by which temptation would be resisted. He further argued that these ethical and moral ‘ideals which raise men’s thoughts above temptation would become the great social forces’ (ibid.: 107). Patten (1896, 125) was also of the opinion that moral and ethical practices were the best way to achieve ‘the highest form of life.’

Seligman (1889, 544) believed that there were no conflicts between eco­nomic and ethics, because political economy was not an ‘exact or a purely abstract science’; rather, it was an ethical science. In other words, political econ­omy cannot be separated from ethics (Seligman 1910, 6). In fact, he believed that economic actions and economic institutions should be shaped by ethics so as to achieve common welfare (ibid.: 31). Seligman (1917, 126) also main­tained that people across history were moved by ‘ethical considerations’ and that ‘all progress’ resulted from ‘the attempt to realize the unattainable, the ideal, the morally perfect.’ Thus, he concluded that the acceptance of econom­ics as an ethical discipline was ‘the basis of social progress’ (Seligman 1910,

698). Meanwhile, Patten (1896, 125) stressed that social and economic progress required ‘checking the influence of the degrading tendencies in our present economic and social environment, and in educating the public up to higher moral and political standards’ (Patten 1890, 27). According to him, moral and ethical values had a significant role in economics, even going so far as to argue that they are ‘the real source from which so many economic motives spring’ (Patten 1888, 689). Gay was also highly supportive of ethical economics. He claimed that economic decisions and actions are part of social life, and as such, must be guided by ethical judgments. As for Ely, he also supported the ethical evolution of society and emphasized the importance of ethical economics in the achievement of the collective good. For him, ‘the sphere of economic activity of any society is determined by the laws and mores of the society, and the moral standards of its individual members’ (Kinley 1949, 140). Kinley (1949, 140) not only supported ethical economics, but also regarded it as a necessary compo­nent of progress and the achievement of the common interest. Consequently, he argued that if ethical outcomes are to be achieved, then an ‘extension of the role of government in the economic life’ of Americans was necessary due to ‘the growing complexity’ of the economic system (ibid.: 141). Furthermore, Clark (1886, 41) argued that the ‘growing complexity of the economic process’ meant there was ‘an increasing need of moral force.’ More precisely, the complexity of social and economic life in advanced civilizations necessitated ‘a growing subordination of brain and members to the dictates of moral law’ (ibid.: 42).

Clark (1914, 26) believed that perfect competition was the best guaran­tee of the general welfare of the people. However, he underlined that un­restrained competition was not only unethical and destructive, but it also produced disastrous consequences for society. In fact, he argued that ‘com­petition without moral restraints is a monster’ (Clark 1886, 151). According to Clark (1879, 162), before the influence of the GHSE took hold in the US, ‘moral influence’ was less instrumental, ‘less powerful and less pervasive in America.’ Meanwhile, in Europe, ‘moral forces’ played an important role in ‘limiting competition more and more’ after the GHSE came to prominence (Clark 1879, 160). In particular, Clark (1879, 160) noted that ‘a farther de­velopment of moral force suppressed open robbery’ by the business classes in Germany and England. As such, he advocated for a greater emphasis on moral and ethical values to limit the destructive outcomes of free trade and compet­itive markets in the US. In fact, he believed that ‘the greatest social wealth’ depended on the moral and ethical commitments of society (Clark 1886, 86). He also maintained that higher moral and ethical principles should be ‘recognized’ and consciously adopted by all if the evils of capitalism were to be remedied (Clark 1879, 165). Moreover, Clark (1886, 173) contended that:

justice in the division of products, equality in exchanges, must become the aim of social effort. The gain will be both material and moral; the change which makes workmen richer will make all classes better; and what is of more importance, it will open the way for continued progress. Meanwhile, Patten believed that the desire for economic welfare becomes strong when ethics play an important role in society. In turn, the achieve­ment of economic welfare would create demand for economic justice and equality.

Adherents of the New School believed that the combination of the laissez- faire approach, the unrestricted pursuit of self-interests, and the elimination of ethics from economics, as advocated by classical economics, resulted in the prevalence of insatiable wants for acquisitiveness, power, and wealth, and led to the emergence of a corrupt and incompetent state that could not be trusted to achieve the common good. Contrary to classical economists, they supported ethical economics, which revolutionized political economy based on the works of the GHSE. The ethical economics taught by Schmoller, Conrad, Wagner, and Knies led to adherents of New School respecting the importance of ethics in political economy (Ely 1910, 77). In fact, with the dominance of the GHSE in the discipline of political economy, no economist of repute ‘would attempt to ignore the ethical aspects’ of economics in the last few decades of the 19th century (Hadley 1896, 23). Even when it came to defenders of individualism and socialism, ‘instead of asserting the complete independence of economics and ethics,’ they would ‘insist on the close con­nection between the two sciences’ (ibid.). It could even be said that there was nearly a general consensus among political economists that ‘nothing could be economically beneficial which was ethically bad, because such economic benefit could be only transitory’ (ibid.). They also accepted that ‘nothing could be ethically good which was economically disastrous, because in this case also destruction must ensue with equal certainty’ (ibid.).

Methodological Individualism

Like the classical economists of England, disciples of the Old School only took the interests of individuals into consideration while largely neglecting those of the community. In England, ‘the philosophy of individualism permeates all thought, the presumption is in favor of private enterprise; in Germany, where the state is the center of all interests, the presumption lies in the opposite direction’ (Adams 1887, 493). This contrast between the classical economics of England and the GHSE was very important for adherents of the New School. Like members of the GHSE, they argued that in political economy, there is no ‘natural law of self-interest in the same sense’ of ‘the natural law of gravitation. The one is dependent on man, the other is independent of man’ (Seligman 1910, 25). Accordingly, the New School questioned the classical economics assumption that human beings are entirely self-interest oriented. In doing so, they argued that classical economists oversimplified economic relationships in order to make it easier to construct political and economic laws. Specifically, Ely (1883, 226) claimed that an inadequate and reductive view of ‘the average man’ was very attractive for classical economists, because it provided them ‘with a few easily managed formulas, which enabled’ them

‘to solve all social problems at a moment’s notice, and at any time to point out the only true and correct policy for all governments, whether in the present or the past, whether in Europe or Asia, Africa or America.’

Adherents of both the GHSE and New School believed that real-life indi­viduals were very different from the abstract, self-interest maximizing eco­nomic agents assumed by classical economics. They believed that classical economists had inadequate conceptions of man, because the reasons and mo­tivations behind the ‘activities of men cannot be determined by assuming that man is a being of a certain kind’ (Clark 1886, 33). To the contrary, neither the GHSE nor the New School considered man to be purely ‘an exchanging ani­mal’ with ‘a single unvarying interest, removed from all the real conditions of time and place a personification of an abstraction’ (Leslie 1875). For instance, Clark (1886, 34) was in agreement with the GHSE, as he stressed the neces­sity of building political economy on ‘a permanent foundation of anthropo­logical fact.’ According to him, historical and anthropological studies would reveal that ‘the assumed man’ of classical economics does not ‘resemble the real one in several important respects, and that there is not only a possibility, but a moral certainty’ that ‘the assumed man is too mechanical and too selfish to correspond’ with the man of the real world (ibid.: 34—35). Clark pointed out that real people are not independent of their surroundings or community where they have social relationships with other individuals. In actuality, peo­ple are guided by many different motives in different areas of life aside from the strict pursuit of self-interests, as defended by classical economics. To the contrary, their wants, desires, values, goals, decisions, and actions are shaped by unselfish forces of society, which have generated many benefits for people across history, including filling ‘the land with schools, churches, art muse­ums, hospitals...for social improvement’ (ibid.: 45).

Seligman (1910, 4) acknowledged that it is an undisputable fact that people are motivated by the satisfaction of their individual ‘wants with the smallest possible effort’ in their economic lives. However, he criticized classical econ­omists for reducing man into an entity that is driven solely by the pursuit of individual self-interest maximization while excluding all other possible in­centives (Seligman 1886A). According to Seligman (1910, 5), an examination of the actual motives in people’s economic lives reveals ‘widely varying effects at different times and places, as well as in different individuals or classes at the same time or place.’ In particular, he pointed out that history has countless cases where ‘nations, like individuals, have acted unselfishly and have fol­lowed the generous promptings of the higher life’ (Seligman 1917, 126). Sim­ilarly, Ely (1883, 229) also argued that the pursuit of individual self-interests was not always ‘the force which moves great masses.’ He strongly disagreed with classical economists that ‘the only motive for human action’ is ‘the mo­tive of self-interest’ (Ely 1887, 10). To be more precise, he maintained that self-interest is ‘the motive of the economic activity of men-but by no means of all men; it promotes the common welfare-but by no means in all cases’ (Ely 1884, 37). With that in mind, Ely (1883, 229) stated that:

American Political Economists and the Influence of the GHSE 127 any scientific method must strive to take into account all of men’s mo­tives and all the conditions of time and place in framing economic laws concerning men’s actions. The nearer it comes to this “all,” the more precise it is, the nearer it attains to its ideal. To neglect other motives, and consider self-interest alone, is absurd.

Contrary to the narrow-minded commitment that classical economists dis­played for methodological individualism, Ely pointed out that people do not always act based on their personal self-interests. He suggested that other forces that could move people included moral and ethical commitments, national honor, principles, patriotism, politics, language, literature, compassion, tra­ditions, and customs. Ely (1883, 228) specifically stated that:

all men may be more or less selfish, but he who is thoroughly so, even in business transactions, is so rare as to be despised by the vast majority of mankind. During the late “hard times,” hundreds of manufacturers continued business chief ly for the sake of their employees. Even great corporations, with their proverbial lack of feeling, are far from utterly disregarding the welfare of those in their employ.

This was in direct contradiction with the views expressed by classical econ­omists, who believed that individuals are ‘most truly benefiting others in pursuing their own egotistic designs’ (ibid.: 227). Adams (1887, 482) coun­tered that it was false to accept the notion that ‘when a man advances his own interests or what he believes to be his own interests, he thereby necessarily advances the interests of society.’ Furthermore, Ely (1887, 10) was frustrated that classical economics did not make any effort to ‘ascertain how men actu­ally do act; it only undertook to philosophize respecting the results, provided they acted in a certain assumed manner.’ In fact, he suggested that classical orthodoxy became worse than ‘an apostate in religion’ (Ely 1883, 226).

Ely (1884, 37) argued that ‘the economic system, based on the exclusive consideration of self-interest, is full of self-contradictions.’ He further claimed that the universal acceptance of such a system by classical economists almost ‘deified a monstrosity known as the economic man, that it looked upon laissez- faire as a law of beneficent providence, and held that free trade must be received as an ethical dogma’ (Ely 1910, 64). Meanwhile, Ely (1883, 234) highly praised the fact that theorists of the GHSE accepted ‘man as man, and not wealth’ and focused on the achievement of his true welfare as a member of the community.

Ely (1884, 37) described methodological individualism as a ‘strange psy­chology’ that ‘destroys the unity of the mind!’ According to him, the fact that people reside in communities means that there are many other factors that affect their decisions and actions aside from self-interest maximization. He explained that theorists of the GHSE supported methodological collectivism, because they recognized ‘the divine element in the associations’ of people in

‘towns, cities, states,’ and nations (Ely 1883, 234). They were ‘animated by a fixed purpose to elevate mankind, and in particular the great masses, as far as this can be done by human contrivances of an economic nature’ (ibid.). Additionally, Kinley (1893, 7) argued that ‘the idea that all are equally able to care for their own interests’ is ‘an utterly baseless belief.’ He claimed that this was ‘an unattainable and an undesirable ideal’ (ibid.). In fact, he believed that only classical orthodoxy and its supporters could believe in such an idea. According to Kinley (ibid.: 9), the pursuit of self-interest maximization is not beneficial when people are:

really oppressed, either unintentionally by stronger competitors, or de­liberately by the selfishness of those who think their own “success” more important than the health and happiness and good character, and perhaps the lives, of some whom chance or dire necessity has put in their power.

Meanwhile, Hadley (1896, 15) argued that methodological individualism was destructive to the unity of the community, as it promoted unlimited increases in the possessions and wealth of individuals. In his own opposition to meth­odological individualism, Patten (1895, 120) argued that ‘self-interest is active in the child from the very beginning’ and that this kind of behavior needed to be discouraged and restrained at ‘every stage through life.’ He pointed out that, contrary to the classical economists who worshipped self-interest maxi­mization, Germans accepted ‘the sacrifice of self-interest to the higher social life’ as ‘the first duty of a man, and that no personal motive should weigh in the scale against it’ (Patten 1916, 19). Patten (1916, 20) further stated that ‘the spirit of calculation and self-aggrandizement’ were ‘absent when the higher interests of Germany’ were ‘endangered, or when the cultural life of the peo­ple’ was ‘threatened.’

The New School on Socialism

Since adherents of the New School and the GHSE supported a more just so­ciety, they were worried about the destructive outcomes of the laissez-faire approach and methodological individualism, including misery, injustice, and inequality. According to them, the laissez-faire approach and methodological individualism were used to further the interests of the already rich elite classes at the expense of the poor and hard-working people. For example, under classical economics, factory owners appealed to ‘the principles of political economy’ to avert strikes that could improve working conditions and raise wages (Mayo-Smith 1886, 118). Members of the New School and the GHSE believed that it was ‘a mistake to formulate scientific principles so absolutely that they can be used in this way’ (ibid.).

Adherents of the New School advocated for the working and living condi­tions of the masses to be improved through ethical state reforms, as opposed to some kind of socialist revolution. However, they recognized that it would

American Political Economists and the Influence of the GHSE 129 be difficult for the state to implement protective labor laws in the US on account of the fact that the laissez-faire approach was strongly supported by Old Economists and deeply ingrained in the social and economic practices of Americans. Therefore, even though adherents of the New School were anxious to follow the example of Germany, they had a hard time trying to introduce similar welfare legislation in the US, because Americans were not ready for it. In other words, the ‘German welfare legislation of the 1880s was acceptable in Germany,’ but not in the US (Balabkins 1988, 102). Neverthe­less, Farnam (1913) supported the introduction of similar welfare legislation in the US. He pointed out that under the laissez-faire system, neither patent laws, which motivate invention and innovation, nor corporation laws, which ‘encourage production on a large scale and give the investing capitalist the benefit of a limited liability,’ were advantageous for the whole population (Farnam 1913, 171). He was particularly concerned that the laissez-faire sys­tem allowed for some to profit handsomely while not being held accountable for any injury or death from the accidents, negligence, and disease caused by their economic activities (ibid.). In order to achieve economic progress, Farnam (1913, 88) defended collective bargaining and protective labor laws prohibiting ‘child labor, limiting the hours of employment, limiting the age of employment, etc.’ More broadly, Farnam (1913, 89) supported a legal framework that protected the rights of the working classes and established ‘a standard’ that changed ‘the conditions of competition, and made it impossible for the employer’ to violate labor laws.

Commons also supported state reforms that ensured fair competition and improved the working and housing conditions of the labor class (Dorfman 1966V3, 280). For example, he defended reduced working hours, unemploy­ment insurance, compensation for work-related injuries, and a minimum wage (ibid.: 292). In fact, Commons defended ‘so many important proposals for social legislation that he has been called “the intellectual origin of the movement toward the welfare state”’ in the US (Lafayette 1962, 3). One could argue that the role he played in establishing social security programs and services aimed at achieving common welfare in the US was similar to that of Schmoller in Germany (Yefimov 2009, 39).

Hadley (1896, 60) also advocated for the foundation of a ‘system of com­pulsory insurance’ to support and protect American employees and their families, which would be similar to the one that already existed in Ger­many. Additionally, Adams highly supported the formation of labor unions so that workers could protect their rights by strengthening their bargaining power relative to employers. He also supported legislation to ‘remove serious abuses in the factory’ (Dorfman 1955, 26). Adams believed that such meas­ures would guarantee the conditions of personal freedom and secure ‘to men an enjoyment of the fruits of their labor’ (ibid.). Meanwhile, Clark (1914, 19) concentrated on supporting labor rights by reducing work hours, providing ‘protection for the workers and indemnities for injuries.’ He stressed that such laws and regulations needed to be ‘strengthened and more fully enforced’

(ibid.). Seager also supported labor unions and the protection of labor rights, including the reduction of working hours, and an improvement in wages and other working conditions, particularly in sweatshops. He also supported the child labor ‘amendment in 1925’ (Dorfman 1966V4, 166).

Ely also defended the labor movement, because he believed that it would improve working conditions. More broadly, he claimed that ‘the ameliora­tion of the condition’ of the working classes was dependent upon ‘the labor organization, the school, the state, and the church’ (Farman 1886, 684). That said, he regarded the existence of labor movements and trade unions as ‘the strongest force outside of the Christian church, making for the practical rec­ognition of human brotherhood’ (ibid.). In his own defense of labor rights, Patten (1888, 698) argued that ‘a reduction in the hours of labor elevates the moral nature,’ and ‘the elevated moral nature increases the estimate of future welfare.’

Generally speaking, adherents of the New School defended social justice, as did the theorists of the GHSE. To achieve it, they supported the public provision of health care and education, unemployment insurance, the estab­lishment of labor unions, and the legislation of insurance to protect against sickness, accidents, invalidity, and old age. However, their advocacy for social justice did not mean that adherents of the New School were supporters of socialism. Like theorists of the GHSE, they supported state regulations while opposing socialist revolutions, which would entail the elimination of the pri­vate property ownership, a more active state role, and the elimination of economic freedom. Essentially, members of the New School were concerned about the destructive outcomes of socialism on the development and progress of societies, just like they were in the case of classical economics. They were fully aware that the public ownership and management of everything in an economic system was ‘ruinous,’ while allowing everything to be owned by ‘private enterprise’ was ‘equally ruinous’ (James 1887, 55).

Efforts on the part of the New School aimed at improving the working conditions of the labor classes, as well as their support for state reforms that provided social services and programs, were ‘dubbed socialistic or anarchistic’ and ‘communistic, or bolshevistic’ by adherents of the Old School (Balabkins 1988, 102, Dorfman 1966V4, 166). As such, members of the New School often experienced a lack of academic freedom and other difficulties due to their support for state regulations and interventions. They were also targets of hostility on account of their advocacy for labor rights and protections, includ­ing calls to abolish child labor and expressions of support for labor unions, strikes, and labor movements. Furthermore, their support for the public own­ership and management of natural monopolies was very unpopular among adherents of the Old School and certain special interest groups. There were ‘a number of high-profile cases in which academic appointments were placed in jeopardy and—more often than not—were lost’ due to the lack of academic freedom (Barber 2001, 228). For example, in 1881, Walker was pressured to resign from his position as chair of political economy at Yale due to the

American Political Economists and the Influence of the GHSE 131 hostile attitude of Sumner. In fact, while he was working at Yale, Walker wrote a letter to Ely in which he admitted that he was ‘treated at times even contemptuously by the Old Guard and felt keenly the injustices that had been done him’ (Ely 1936, 147). He also confessed that:

before its foundation he felt himself alone. After the AEA was founded, he stood among friends. Instead of finding himself more isolated in the face of hostile criticism, he had a forum for the sympathetic discussion of views, where the things that he said helped a hundred others and where he, in turn, was helped by what others said and did. What was true in the case of Walker was true in the case of many others.

(Ely 1910, 98)

Henry Carter Adams also endured difficulty on account of his opposition to the laissez-faire approach and his defense of labor rights at the University of Cornell, where he worked from 1880 until 1887. Ultimately, he was fired from Cornell for having socialist views. In 1888, German-trained Elisha Benjamin Andrews (1847—1917) left Brown University and joined the Uni­versity of Nebraska because of ‘academic freedom difficulties’ (Cookingham 1993, 284). Furthermore, Ely moved from Johns Hopkins to the University of Wisconsin in 1892 because of a hostile environment and false accusations that he was a socialist. Then, in 1894, Ely was accused of teaching socialism and promoting strikes and boycotts at the University of Wisconsin, which actually led to him being subjected to a trial. Additionally, Edward Alsworth Ross (1866—1951), a former student of Ely at Johns Hopkins, was dismissed from the University of Stanford due to his support for state intervention and reforms aimed at improving the rights and living conditions of the working class (Cookingham 1993, 283). Another former student of Ely, Commons, was dismissed from the University of Chicago. ‘Edward W. Bemis (at the University of Chicago)’ was also let go on account of his support for social and economic justice (Barber 2001, 228).

Ely (1899, 167) valued the fact that socialism helped ‘men to picture to themselves an ideal society’ and ‘familiarized them with the idea of social change.’ He also pointed out that, contrary to the ‘individual side of eco­nomic life’ defended by classical economics, socialists highlighted the im­portance of ‘the social side of economic life’ (ibid.). While Ely (1886, 70) undoubtedly recognized that socialists made significant contributions to eco­nomic knowledge, he clarified that among those who were ‘known as the new school of political economists,’ there was not ‘a single one who could be called an adherent of socialism.’ In fact, he believed that ‘pure socialism’ was not being advocated by any ‘teacher of political economy in any American college or university’ (Ely 1886, 70). However, Ely was also critical of Amer­ican economists who were ‘neither on the side of the rich nor on that of the poor, neither a partisan of the class of employers nor a partisan of the class of employees’ (ibid.: VII). He even went so far as to describe them as little more

than mere office workers without any opinions and exhibiting no concern about the consequences of their work on society. With that in mind, Ely (1886, X) underlined that in order ‘to understand any organism better than others,’ one must have ‘opinions about it which differ from those ordinarily current’ views.

Even though Clark (1886, 199—200) admitted that ‘the socialistic ideal has a beauty that captivates the intellect which fairly grasps it,’ he was nonethe­less concerned that socialism would eliminate personal freedom, which led him to oppose a socialist revolution. In reality, he deemed socialism to be impractical and undesirable. Taussig (1911, 435) was also opposed to social­ist revolutions, electing instead to support social and economic reforms. He agreed with the theorists of the GHSE, who maintained that the best alter­native to the public ownership of the socialist system was state regulation and reform. Furthermore, Patten (1885, 70) opposed socialist revolutions in favor of the state provision of public services and programs designed to improve the skills and knowledge of people. He believed that the training and edu­cation of people in such ways would lead to the emergence of ‘new qualities in men’ (ibid.). In turn, these new qualities would result in ‘a great increase of the opportunities to labor, and an enlarged return for labor in the field of employment’ (ibid.).

Seligman (1910, 656) criticized socialism for forgetting about the individ­ual while exaggerating the role of the state. In fact, he went so far as to claim that if socialism was ever realized in practice, it would be ‘the death knell of economic advance and true social betterment’ (ibid.: 658). He was particularly opposed to the socialist ideas of eliminating private property and competitive industry, as he was of the opinion that these were important factors in the pro­gress and development of societies. According to Seligman (1917, 108), ‘private property and private initiative’ were ‘the very secrets of the whole modern movement.’ Nevertheless, he still wanted to have a society that was character­ized by social and economic justice and equality. That said, like theorists of the GHSE, he made it clear that justice did not require the equal redistribution of incomes or wealth. Instead, Seligman (1910, 164) relied on the development of a ‘sense of social solidarity’ and responsibility in order to eliminate social and economic inequalities. Contrary to classical economists, he argued that freedom without responsibility was destructive, and as such, advocated for ‘real economic liberty’ which is accompanied by equality and responsibility (ibid.: 165). He also pointed out that ‘liberty without equality and responsibility may mean advance for the few and retrogression for the many’ (ibid.).

Adams (1879, 291) was also highly critical of‘extreme socialists’ who claimed that labor was ‘the source of all wealth, and therefore, that all wealth belongs to the laborer’ that controlled all economic activity in society. That said, he did not oppose all socialist ideas. Like Wagner, Adams (1879, 285) recognized that socialism had an important place in ‘the historical development of Politi­cal Economy, just as the Mercantile System, the System of the Physiocrats, or the English System of Private Economy.’ He argued that socialism was not just ‘an ideal, a dream, like Plato’s ideal state, or Sir Thomas More’s Utopia,’ it had ‘actual economic and political results’ (Adams 1879, 285). These results were evident in the German Empire’s politics and economy during the reign of Bis­marck (ibid.). However, while Adams accepted that Bismarck’s Germany was ‘an example of efficiency and enlightened reform’ and was impressed by some of its achievements, he was opposed to the way that Germans worshipped the state (Dorfman 1955, 25). He maintained that the US should avoid ‘the centralizing tendency of German Economy’ because it was ‘opposed to the ideas upon which the government is founded’ (Adams 1879, 294). At the same time, he warned that ‘another century of unrestrained activity of private en­terprise will itself contradict the theory of freedom, and destroy’ the govern­ment (ibid.). In the end, he highly valued the coexistence of public and private ownership, both of which he considered to be necessary ‘to the development of a highly organized society’ (Dorfman 1966V3, 168).

Adherents of the New School were often labeled socialists when they called for the working conditions of the labor classes to be improved or supported state reforms that provided social services and programs aimed at achieving the common good. In reality, they wanted to achieve social and economic progress by carefully observing the effects of a given course of action rather than trying to instigate a socialist revolution. In fact, they were opposed to socialist revolutions and believed that the best way to prevent socialism was to improve the working and living conditions of the masses. In the end, their efforts resulted in a number of advancements in social justice in the US, in­cluding the ‘movement for the conservation of natural resources, the demand for protective labor laws,’ and the regulation of railroads and other public services (Seager 1904, 36).