Conclusion

The Demise of the New School and the Abolishment of Freedom and Human Progress via the Coercive Powers of the State and Corporations

In the second half of the 19th century, the German Historical School of Economics (GHSE) became known for raising the standard of education and encouraging advanced scientific research in political economy.

Like the GHSE, adherents of the New School opposed the laissez-faire sys­tem, because they believed that unrestricted economic actions would produce great evils. They were also against methodological individualism, arguing that the pursuit of individual interests was too powerful, destructive, and unethical to promote the common welfare. These views contradicted those held by classical economists, who believed that all gains in the wealth and progress of civilizations were outcomes of the pursuit of individual interests in a laissez-faire system. Instead, adherents of the New School argued that the progress of society was a result of ethical economics, which contrasted with the classical economist argument that economics is a value-free science. These German-trained Americans maintained that ethical standards regu­lated the actions of individuals, private businesses, and governments, so that they would be united in terms of achieving the common welfare, which is directly correlated with the progress of society. They also claimed that soci­etal progress, which is mainly based on the self-development of individuals, eventually led to social and economic relationships becoming more com­plex, which required a greater reliance on ethical values and positive state actions in order to achieve common welfare. The New School was of the view that the state could contribute to the attainment of common welfare by implementing ethical state reforms and regulations, providing various social services and programs, including health care and education, and engaging in the public ownership and management of natural monopolies like rail­ways, gas, electricity, water, telephone services, and bridges. Additionally, adherents of the New School advocated for protective labor laws and meas­ures, which included setting limits on excessive work hours, prohibiting child workers, improving wage rates, strengthening factory safety regulations, and implementing compulsory state insurance against accidents, sickness, old age, and unemployment.

From the last quarter of the 19th century until the outbreak of WWI, the GHSE was the main inspiration that motivated adherents of the New School to revolutionize the discipline and profession of economics in the US. In fact, it could be argued that theorists from the GHSE and the New School made more contributions to the development of economics than any other economic school of thought that preceded or followed them, as they radically transformed their discipline by broadening the horizons, ideas, methods, and knowledge of political economists. Adherents of both schools also published a number of unparalleled masterpieces in their areas. Nevertheless, the GHSE and the New School are rarely mentioned in standard university textbooks or books discussing the history of economic thought, and their contributions to the development of economics have been largely neglected and obscured in modern times.

The prestigious status held by the GHSE, both domestically and interna­tionally, was irreparably damaged by the Battle of Methods (Methodenstreit) between Gustav von Schmoller (1838-1917) and Carl Menger (1840-1921) as well as accusations that its principles and ideas significantly contributed to the outbreaks of both world wars and the rise of nationalist socialism in Germany. Following WWI, American economists, who were once deeply inf luenced by the GHSE, gradually distanced themselves from this school of thought. Subsequently, the important contributions of the GHSE to the dis­cipline of economics were largely forgotten in the aftermath of WWII, both in the US and around the world. It is also very likely that the influence of the GHSE was short-lived in the US on account of fundamental differences between American and German societies.

Many of the factors that significantly affected the social, political, and eco­nomic thoughts of the German people had little to no effect in America, including a shared common history, the inequalities of aristocratic society, a lack of rich natural resources and poor soil quality, a relatively high pop­ulation density, customs, and religion.

Contrary to Germany, the existence of America was never seriously threat­ened by an external adversary during its relatively short history, due in large part to the fact that it was separated from its enemies by two oceans. The US was also not subjected to the ambitions of kings and princes or the pious worship of religious beliefs, which caused so many wars across the history of Europe. As a result, Americans were not ‘bound down by the necessities of the military rule’ to the same extent as their German counterparts (Patten 2003, 7). Given that the US did not endure centuries of devastating and vio­lent wars and conflicts on its territories, which spared its population from the destruction, misery, and extreme poverty that they bring, it is understandable that Americans are inclined to defend the laissez-faire system and object to positive states actions designed to achieve common welfare.

Unlike in Germany, ‘the aristocratic element’ was ‘always feeble’ in America ‘since its birth,’ which prevented it having any real influence ‘in the course of public affairs’ (Tocqueville 2010V1, 119). Thus, while Germans were di­vided based on their inherited social status under an aristocratic society for centuries, Americans were similar and equal; they did not have hereditary privilege, wealth, or social status like in ‘a caste system’ or ‘the feudal system’ (Farnam 1913, 78).

In older civilizations, history occupied a central place in people’s lives, with the chain of history being particularly highly valued. For example, each generation in Germany typically had a great deal of knowledge about and respect for their ancestors and family heritage. The reverence that Germans had for their history is apparent in the emphasis that they placed on great events, illustrious personages, heroic narratives, and warriors. Meanwhile, it could be said that democratic America ‘breaks the chain and sets each link apart’ (Tocqueville 2010V3, 93). History held little impor­tance in ‘a new country’ like the US, which was dominated by a love for the present and a distaste for the past (Walker 1889, 19). In fact, Americans barely cared about their own ancestors, let alone ‘what happened in Rome and in Athens’ (Tocqueville 2010V3, 75). This was to be expected, as ‘the inhabitants arrived but yesterday on the soil they occupy. They scarcely know each other, and each one is unaware of the history of his closest neighbor’ (Tocqueville 2010V1, 118). Given the lack of importance attrib­uted to history in the US, it is not surprising that historical economics and the history of economic thought were eliminated as requirements for obtaining a higher degree in the discipline of economics when neoclassical economics and later neoliberalism became the leading school of economic thought in the 20th century.

Originally, inhabitants of the US were ‘practically all of foreign’ to and isolated from each other (Seager 1910, 3). They expected nothing from their countrymen, as they were ‘always accustomed to consider themselves in iso­lation’ in the pursuit of their individual goals (Tocqueville 2010V3, 93). That is to say, they wanted to be ‘let alone in their quest for prosperity’ (Seligman 1910, 38). The availability of vast natural resources, including abundant fer­tile land and highly productive mines, meant that Americans had ‘the freest social and commercial movement’ when it came to advancing their wealth and interests (Walker 1889, 19). In essence, the diverse and plentiful supply of land and natural resources provided them with ‘unrivaled opportunities for individual achievement,’ while blinding them to the need for ‘common interests’ (Seager 1910, 3). That is to say, Americans were not tied together by a common interest; rather, they were united in their commitment to the pur­suit of their individual self-interests in the present (Tocqueville 2010V3, 11). In fact, at the end of the 19th century, Richard Theodore Ely (1854-1943) (1899, 167) stated that ‘even up to the present day, we, in the United States, are accustomed to regard projects and measures simply from the standpoint of the immediate interests of a few’ as opposed to the common interests of the society (Ely 1899, 167).

The availability of rich natural resources, and a lifestyle that was unencum­bered by customs, traditions, hereditary titles, or political limitations, played significant roles in keeping Americans ‘crude and selfish’ (Patten 1889, 33). In other words, individualism was ‘a natural result of the economic,’ historical, geographic, and ‘the climatic’ conditions in the US (Seligman 1910, 39). Furthermore, ‘the twenty-seven odd million immigrants who have come to this country since it was discovered by Europeans have thus left a strong indi­vidualistic impress on their descendants’ (Seager 1910, 3). With that in mind, Henry Rogers Seager (1870-1830, 1910, 3) stated:

As though it were not enough that heredity and environment combined to make us individualists, our forefathers wrote their individualistic creed into our federal and state constitutions... As interpreted by the courts, a significance has been given to these constitutional rights that has seemed at times to make a fetish of the merely formal freedom of the individual. Thus it is not too much to say that Americans are born individualists in a country peculiarly favorable to the realization of individual ambitions and under a legal system which discourages and opposes resort to any but individualistic remedies for social evils.

This was really the first time in human history that individualism was in­tegrated into the lives of the entire population of a country (Patten 1889). Since the doctrine of laissez-faire and individualism were integral parts of American society, it should come as little surprise that the variants of classical economics have been so successful in the US.

In the US, the ‘business spirit,’ which was guided by the pursuit of individ­ual self-interests, was applied to every aspect of life (Tocqueville 2010V3, 57). This should have been expected, as ‘business is actually held in greater honor here than else where,’ because Americans were blind to ‘its defects’ and evil outcomes (Clark 1886, 163). This high level of importance attributed to the business spirit meant that Americans devoted little time to leisure, education, enlightenment, establishing close relationships with one another, and for­mulating new opinions and ideas (Tocqueville 2010V3). As a result, ‘literary men (other than journalists) were rare, the universities few and unimpor­tant, science scarcely pursued, philosophy absorbed in theology and theology dryly dogmatic’ (Bryce 1887, 9). The love that Americans had for business, combined with their disregard for intellectual activities, was evident in the development of many aspects of their lives (Tocqueville 2010V3, 63). For example, business terminology invaded their vocabularies and displaced the language that originated from philosophical or literary sources, like Greek or Latin (Tocqueville 2010V3, 359-360). Given that Americans did not par­ticularly care about learning other languages, it should not be surprising that economists did not object to the elimination of the German language as a requirement for obtaining a degree at US universities in the 20th century. At that time, the ‘only new language that American economists’ needed to learn aside from English was mathematics (Balabkins 1988, 111). Unfortunately, this ‘deplorable linguistic deficiency among American economists’ for most of the 20th century has hindered their ‘ability to learn’ from the brilliant theorists of the GHSE (Balabkins 1988, 107).

Americans preferred to develop their own language by relying on ‘generic terms and abstract words’ that avoided details and complex knowledge (Toc­queville 2010V3, 61, 64). That is to say, they liked ‘general ideas, because they exempt them from studying particular cases’ (Tocqueville 2010V3, 20). However, while generalizations allow ‘the human mind to make rapid judge­ments about a great number of matters,’ in the end, ‘they never provide it with anything other than incomplete notions’ (Tocqueville 2010V3, 17). For instance, ‘after an inattentive and short examination,’ American researchers would often come to believe that they noticed ‘among certain matters a com­mon relationship,’ which would lead them to push ‘their research no further, and, without examining in detail how these diverse matters are similar or different,’ they would rush to ‘arrange them according to the same formula, in order to move on’ (Tocqueville 2010V3, 20). Given that Americans were prone to treating their singular cases or situations as though they were uni­versal (or general) laws and principles, it makes sense that the abstract deduc­tive approach of classical economics was embraced in the US. In other words, individuals in the US believed that ‘all the truths that are applicable to himself seem to him to apply equally or in the same way to each one of his fellow citizens and of his fellow men’ (Tocqueville 2010V3, 18). Furthermore, the fact that deduction was an essential feature of the way that people thought in the US, it also makes sense that the inductive approach of the GHSE was short-lived among American economists.

Ethical economics was another feature of the GHSE that was short-lived among American economists. Like the GHSE, the New School had realistic views about society, the nature of human beings, and the reasons behind their actions, which led them to believe that ethical state actions were needed in order to achieve common welfare. They did not regard the state as a violator of freedom; rather, they believed that ethical state action could be used to effectively promote and safeguard freedom. In fact, adherents of the GHSE and the New School thought that ethical state actions and ethical public in­stitutions were indispensable to achieving the conditions of freedom. At the same time, they were fully conscious of the dangers that unrestricted state ac­tions posed to freedom. In particular, they acknowledged that an oppressive authoritarian state cannot provide shelter for freedom, which is a necessary condition for the achievement of common welfare.

Freedom was ‘strongly cherished and very precious’ for adherents of the New School (Ely 1910, 69). In fact, they believed that freedom is ‘the foun­dation stone of all human progress’ (James 1918, 3). Therefore, the progress of society and humanity are measured by ‘the growth in freedom’ (Ely 1902, 63). The specific conceptions of freedom defended by the New School in­cluded: negative freedom (freedom from) or freedom from coercion; positive freedom (freedom to) or freedom of self-determination; economic freedom; and civil liberties (e.g., the freedom of assembly, expression, the press, speech, thought, and religion, as well as the right to security and liberty, the right to equal treatment under the law, the right to own property, the right to bodily autonomy, etc.).

According to theorists of the New School, based on the concept of negative freedom, nobody should be deprived of freedom by being coerced into obey­ing a person or an entity with authority, including the state, individuals, and corporations, without their consent (Commons 1918). Furthermore, nobody should be coerced into providing consent, because they lack power or are not provided with a reasonable choice. Meanwhile, positive freedom requires the highest self-development of individuality. It basically refers to developing the capacities and faculties of individuals to the highest level possible. Positive freedom also means having ‘a positive power or capacity of doing or enjoying something worth doing or enjoying’ (Ely 1902, 63). German-trained Amer­ican political economists were impressed by the opportunities that were af­forded to Germans when it came to achieving their highest self-development, as they felt that ‘there was room for growth and encouragement of the de­velopment of individuality, which was something new’ to them (Ely 1910, 69). They had especially high praise for the fact that the German government exercised its power to ‘secure to each individual the highest development of all his faculties’ (Ely 1910, 50, Haney 1915, 517).

Like the GHSE, members of the New School believed that the achieve­ment of self-development would be supported by a state that provides the public with education and training, safeguards public health and safety, and improves working conditions and labor rights (James 1918). According to them, individuals do not only benefit themselves when they use all availa­ble opportunities to achieve their highest self-development, they also bene­fit society as a whole. Theorists of the New School also maintained that it would not be possible to achieve positive freedom without economic free­dom, which refers to the right to earn one’s living and the ability to freely spend, invest, and save one’s earnings with the greatest possible number of opportunities in the marketplace.

Adherents of the New School believed that freedom could only be fully realized when people are free to pursue their inclinations and goals based on their own free wills and ideas. However, they also thought that free­dom required legal restraints if social progress was to be achieved, while also avoiding social dissolution. That is to say, according to the New School, the law was required in order to protect people from the oppressive and co­ercive powers of the state, corporations, and other individuals. They were aware that without a legal framework to ensure the conditions of freedom, the wills of poor and weak people would be subjugated to the wills of their wealthy and strong counterparts. They also realized that in societies where self-interest maximization, individualism, and the laissez-faire doctrine are highly valued, inf luential individuals, elite groups, and the business classes could acquire large-scale authoritative power and use it to control the social, economic, and political lives of the majority of citizens. In this case, only those with the authoritative power could enjoy freedom at the expense of the freedom of the masses.

According to Henry Carter Adams (1851-1921) (1887, 393), Americans ‘de­ceive themselves in assuming to think their liberties are endangered only by the encroachments of government.’ In fact, Adams and other adherents of the New School believed that the greatest threat to the freedom of the masses came from the growing power to control and coerce that was being accumu­lated by the corporate world under the laissez-faire system. For instance, Ely (1899, 262) stated that ‘the most serious menace to freedom at the present time comes from private monopoly which invades even our churches and institu­tions of learning.’ Meanwhile, David Kinley (1861-1944) (1914, 5) explained that competition degenerated from ‘a struggle between equals to an exploita­tion of the weak by the strong,’ whereby industry was ‘swallowed up by in­dustry until in many lines’ only a monopoly existed, to the point ‘that prices, wages, terms of employment, and the welfare of large numbers of people, are in the control’ of a few large corporations. He was particularly concerned that corporations had been given ‘the attributes of a natural person, without im­posing upon it the consequences of personal responsibility’ (Kinley 1914, 6).

Adams (1887, 532) was concerned that the rise of corporate power men­aced ‘the stability of society, by controlling in their favor legislation’ (Adams 1887, 532). That is to say, the laissez-faire system turned the government into a ‘weak and inefficient’ entity that became obedient to the dictates of power­ful corporations (Adams 1887, 502). He explained 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.)

According to Adams (ibid.: 475-476), the goal of political economy should not be to deliberately make the government ‘weaker, or more corrupt and more inefficient, by continuing to preach the illogical doctrine of laissez- faire.’ Adherents of the New School advocated for measures that effectively restrained the activities of corporations and ensured the conditions that would facilitate the achievement of the highest development of individuality. They believed that failure to do so would lead to the tyranny of corporations destroying freedom and undoing all of the progress achieved by humanity.

The concept of freedom that characterizes most progressive societies is ac­tually the product of contributions made by countless thinkers across history. Those thinkers realized that over the course of human history, ‘the world has passed through many stages of civilization, and each of them has a lesson for the present’ (Kinley 1893, 31). They believed that since similar ideas, meth­ods, and systems have appeared and reappeared under different conditions, people needed to be very vigilant when it came to preventing states, elite groups, and business classes from acquiring coercive powers that would allow them to engage in large-scale central and authoritarian planning that might lead to the decay and demise of civilization. Contributors to the development of the concept of freedom were cognizant that anyone with coercive powers would end up abolishing freedom, destroying human progress, and bring­ing misery to the masses, even if their true intention was to achieve noble ends. To the contrary, when the coercive powers of states, elite groups, and business classes are effectively obstructed, civilization can reach ‘its highest development’ and ‘the irresistible power of public opinion’ can be ‘governed by the ideas of the universal brotherhood of man and of democratic equality’ (Roscher 1878V1, 223). Unfortunately, recent years have demonstrated that despite historical evidence and the many warnings of countless thinkers since the times of Ancient Greece, the masses were poorly equipped and disarmed when it came to dealing with the coercive powers of the state and large and powerful corporations.