During the second half of the nineteenth century, as “political economy” gave way to a new academically shaped “economics”, the argument was made that the development of economic thought should have a historical basis.

The argument was most consistently made in Germany, and since the German university and its scholars enjoyed interna­tional pre-eminence across many fields, the “German Historical School” became central to this idea of a “historical economics”.

Political economy first emerged in early nineteenth-century Britain and France as a discourse concerned less with the general progress of nations, and more with abstract doctrines concerning the relationships of wages, rents and profits, and the relationship of price to value. By mid-century, arguments had gelled into a more or less settled doc­trine, notoriously represented by John Stuart Mill’s declaration that there was, happily, “nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it” (1848 [1965]: 456). The second half of the century saw the eclipse of this presumption: not only did a new subjectivist approach develop which shifted attention from the properties of a good to the decisions made by an economic agent, the precursor to twentieth-century developments; the older model also became increasingly criticised from the standpoint of logic, politics and history.

So wrote Charles Rist in the first modern history of economic thought, Gide and Rist’s Histoire des doctrines economiques depuis les Physiocrates jusqu’a nos jours (1909: 464), in which “The Historical School and the dispute on methods” is the first of four chapters in the section on “The dissidents”, dissident, that is, from the economic liberalism of Bastiat and Carey, on the one hand, and John Stuart Mill, on the other. The remaining three chapters in this section are on state socialism, Marxism, and Christian doctrines. The sketch Rist gives of the “Historical School” is by now a familiar one: the “School” was inaugurated by Roscher in 1843, elaborated by Hildebrand in 1848, and reinforced by Knies in 1853, together forming what later became known as the “Older Historical School”. From the 1870s a new wave developed around the figure of Gustav Schmoller, what became the “Younger Historical School”, which abandoned any concern with eco­nomic laws, turned increasingly away from any connection with theoretical approaches, and for the first time produced a substantial body of economic-historical studies. “From Germany, this impulse propagated abroad where it encountered especially favourable circumstances” (Gide and Rist 1909: 446) - although besides some passing remarks about France, where the introduction of political economy in the teaching of law fac­ulties in 1878 provided some opening for a historical approach, the impact of these impulses is only detailed for Britain.

Rist was here attempting to sketch out a broad trend in the recent development of economic thought; and it is not so much that the narrative he created is faulty, but that it has never been subjected to any reassessment. Absent in Rist, and also today, is any con­sideration of contemporary historical studies, the status of a modern history detached from classical studies, and linked to conceptions of human development as reflected in the study of language and archaeology - what history meant in a nineteenth-century context. It is also widely assumed today that “historical economics” was, if briefly, a real alternative option to a more theoretical economics in the later nineteenth century, an option supposedly closed down by academic economists who engineered a diver­sion into economic history, which could be tidily segregated from the real business of economics. Rist was making a first pass at the role of the “Historical School”; but this story should by rights have been superseded decades ago by a serious reconsideration of his arguments. In this entry we will try to provide some elements for a reassessment of “Historical Economics”, using material drawn from Germany and Britain. We deal first with German developments, not because of their alleged “influence”, but because it was only in Germany that we can talk of a fully fledged and self-conscious “Historical School of Economics”. It could also be said that the three members of the German “Older” School, necessarily so-called only retrospectively, never asserted themselves as pursuing some kind of common programme in the way that their “successors” did. The distinction between “Older” and “Younger” is therefore somewhat specious, being an invention of later nineteenth century German economists. Moreover, this division fails to account for the real diversity of German teaching and writing on economic matters during the mid to late nineteenth century.