Introduction

The US emerged from WWI as the sole economic and political power in the west, rivaled only by the Soviet Union in the east. During the Cold War Era (1947—1991), American universities were well on their way to becoming the primary models of higher education that would be followed and emulated by their counterparts worldwide.

Neoliberals have proceeded to extensively apply the methods, language, and presentations of mathematics to economics. However, they have been unable to effectively relate their sophisticated mathematical models to real- world issues and problems. That is to say, neoliberals have largely ignored the fact that mathematical expression has limits in economics, as all human preferences, choices, and actions cannot be accurately represented through mathematical equations, presentations, and languages.

Over the years, neoliberalism has shown itself to have many f laws, errors, and failures. Nonetheless, its leading economists believe that since neolib­eralism is the latest program of research, it is the best one to have ever ex­isted, which means it should lead the discipline of economics. In other words, neoliberals did not consider their economic program of research to be a phase in a continuous historical evolution; instead, they defended neoliberalism as being absolutely valid and universal. On this basis, mainstream economists were able to falsely convince themselves that, along with a majority of the economists around the world, neoliberal economics was the only legitimate economic program of research that could lead and shape the discipline and profession of economics and achieve positive outcomes. Consequently, notable theorists and practitioners from the leading school of economic thought (i.e., neoliberalism) have been largely unconcerned with the history of economics and the history of economic thought, because they believed that learning and understanding previously existing economic programs of research was of no benefit for students or economics in general.

In the 1970s, the discipline of economics underwent a series of important changes at American universities, including the official abandonment of the history of economic thought as a mandatory class in most graduate programs, after it had already been neglected for decades. Subsequently, many econom­ics departments around the world followed suit. As a result, the study of the history of economic thought came to be viewed as little more than a mere hobby and a useless endeavor that did not make any important contributions to the progress of the discipline of economics (Filip 2020). In fact, study­ing, working, and conducting research in the history of economic thought not only became largely irrelevant to the discipline of economics, they were openly unwelcome. These circumstances caused economics students to lose interest in the history of economics and the history of economic thought, which led to the emergence of generations of economists that were, and con­tinue to be, unfamiliar with the origins and historical development of their own discipline. Meanwhile, scholars of the history of economic thought of­ten encountered difficulties when trying to publish their works in leading mainstream economic journals, apply for positions at universities and other institutions, and obtain support for their research (Filip 2020).

The abandonment of the history of economic thought as a mandatory class not only led to students and economists largely forgetting the history of their discipline, it has also inhibited the development of critical and creative think­ing. Learning about the goals, failures, concerns, inconsistencies, achieve­ments, successes, and crises of previous schools of economic thought, as well as the work of their adherents, can help avoid similar mistakes, understand current problems, and find effective solutions to them. Doing so could also play a significant role in critiquing and potentially discrediting the neoliberal economic program of research, thereby engendering the emergence of alter­native approaches to teaching, studying, and practicing economics.

This book focuses on explaining the instrumental role that the German Historical School of Economics (GHSE) played in the development of the dis­cipline of economics in the US from the late 19th century up until the onset of WWI, particularly the creation of economics departments, graduate schools, and economic chairs at American universities. However, this book will not discuss the important role of Alfred Marshall (1842—1924) in the development of the discipline of economics, even though he extensively studied history and political economy and had a thorough understanding of the GHSE. It will also refrain from exploring the crucial contributions ofJohn Maynard Keynes (1883—1946), though it is important to mention that the rise of Keynesianism, and later neoliberalism, resulted in economists neglecting the important role of the GHSE in the development of their discipline. Ultimately, Keynesian, neoclassical, neoliberal, and heterodox economists were all complicit in the abandonment or erasure of the heritage of the GHSE.

Even though adherents of the GHSE produced some of the most produc­tive and valuable works in the history of economics and economic thought, their role in the development of the discipline of economics is essentially ab­sent from the classrooms and textbooks of modern academia. In fact, only a handful of contemporary scholars are even aware that the GHSE had any in­volvement in the development of economics in the US. Moreover, the GHSE has also been ‘pretty much forgotten in its home country,’ as ‘most German economists do not know much more about it than their American colleagues’ (Richter 1996, 568). Unfortunately, by turning their backs on the history of economic thought, modern economists have inhibited the progress of their own discipline by obstructing diversity in views, methods, theories, models, solutions, etc.

This book is intended to serve as a reminder that, from the 1840s until the beginning of WWI, Germany was credited with being the only country in the world to offer systematic academic training in economics. This pe­riod was accepted as the golden years of German universities, as the country was internationally recognized as the center of higher education, not only for political economy, but many other disciplines as well. During that time, Germany set the standards for scholarly education and publications in po­litical economy, even though it was not an economic, political, or military power. A key contributing factor to this international prestige was the GHSE occupying the status of the world’s leading school of economic thought. Its professors were renowned for providing a high-quality education in political economy and successfully discrediting many of the principles and methods of orthodox classical economics. Furthermore, international journals that were published in many different languages often referred to the views and ideas of the theorists of the GHSE, because they were considered reliable and re­spectable authorities and sources in their discipline. In fact, mastering the concepts, principles, methods, and views of the GHSE was widely accepted as an academic requirement for serious scholars around the world, as opposed to being a choice or preference. Therefore, it was necessary for international students and academics to gain a proficiency in German in order to become respected political economists, because it was considered to be the language of the academic world, particularly when it came to publications, interna­tional conferences, and congresses.

The impeccable reputations acquired by German universities and their professors in the second half of the 19th century resulted in dramatic in­creases in enrolment on the part of international students seeking to advance their education in political economy, to the point where Germany surpassed both Britain and France in terms of the number of applications received from abroad.

For most of the 19th century, the discipline of political economy in the US was shaped by classical economics, which found its origins in the works of Adam Smith (1723—1790), David Ricardo (1772—1823), Jean-Baptiste Say (1767—1832), and John Stuart Mill (1806—1873). During that period, before German inf luence became widespread, American colleges and universities did not have dedicated political economy departments. Instead, political economy classes were occasionally offered (e.g., once per year) by the so­cial science or moral philosophy departments. There were also no graduate programs for political economy in the US, and a graduate degree was not a criterion for obtaining a professorship at most colleges and universities. This minimal level of commitment to the subject of political economy on the part of American universities and colleges also meant that professors teaching these courses were not expected to make new discoveries, nor were they called upon to contribute to the progress of knowledge in their discipline. As a result, students who were genuinely interested in political economy were neither motivated nor afforded the opportunity to advance their knowledge and education in the US. In response, a considerable number of American students went abroad to study in the political economy departments of Ger­man universities.

Germany was not just the preferred destination for American students seeking to further their education abroad, it was almost the exclusive choice for a number of reasons. Foremost among them was the prominent status of German undergraduate and graduate programs when it came to providing an advanced level of education, due in large part to the unparalleled inter­national reputations of the theorists of the GHSE. Over the course of their studies and training in Germany, many students and economists from the US enrolled in classes on historical and statistical investigation, as did many of their peers from various other international locations. In particular, young American students took advantage of the opportunity to study under some of the most prominent adherents of the GHSE, including Wilhelm Georg Friedrich Roscher (1817-1894), Karl Knies (1821-1898), Johannes Conrad (1839-1915), Gustav von Schmoller (1838-1917), Lujo Brentano (1844-1931), and Adolf Wagner (1835-1917), among others.

While in Germany, American students were exposed to fundamentally novel ideas, approaches, and viewpoints in terms of how a program of higher education in political economy could be organized. They were very im­pressed with, and ultimately influenced by, the high quality of teachings conducted by the GHSE, as well as the research methods, ideas, and aspira­tions of some of its well-known contributors. Subsequently, these American students brought their German experiences with them after they returned to the US, where many of their newly acquired views, concepts, methods, and ideas were fully embraced by their peers. Studying at German univer­sities boosted their prestige, and many of them ended up becoming leading academics at universities across the US, where they contributed to the grad­ual establishment of economic departments and graduate schools. In doing so, they attempted to emulate the ones that they experienced at German universities by integrating the topics, issues, methods, and techniques that were being studied and developed by the GHSE into their newly created American economic departments and graduate schools. More broadly, their efforts launched a series of significant changes that altered the direction of the discipline of economics in the US. By the early 20th century, American universities had elevated their standards and earned reputations for providing a high-quality education in the discipline of economics. Additionally, many German-trained Americans ended up achieving prominence in the discipline of economics at the national and international levels by writing books and articles on various economic subjects that were very well received.

This book explains the direct inf luence of the GHSE on the early develop­ment of the discipline of economics and economic departments at American universities from last quarter of the 19th century until the outbreak of WWI. To do so, it is divided into nine chapters. The introduction is followed by a chapter that highlights a number of important features of the GHSE that were deeply influenced by cameralism and the Historical School of Jurispru­dence, including the collectivist approach, the use of statistics, the develop­ment of public finance and public administration, support for institutional progress, the idea of ethical and historical economics, and the concept of a national economy. Understanding the intellectual sources of the GHSE could provide insights into why the development of the discipline of economics in the US during the 20th century created a disconnect between modern eco­nomics and its origins.

Chapter 3 identifies some of the well-known contributors to the GHSE, though it does not attempt to provide a comprehensive picture of their work. It then describes some of the fundamental features of the GHSE, including the inductive historical method, the collectivist approach, statistics, and the national economy. It also discusses how theorists of the GHSE attributed an important role to ethics in the discipline of economics. Furthermore, this chapter explains that the fundamental features of the GHSE were essential when it came to responding to the prevailing social and economic inequality, misery, and poverty of the time in Germany, which were largely attributed to urbanization and industrialization, among other factors. The GHSE basi­cally defended positive state actions in the form of social and economic re­forms and policies designed to overcome such issues and problems, which had become widespread throughout the country. However, they were adamant that these types of state actions were only justified if they played a role in the achievement of common welfare. Understanding fundamental principles, ideas, approaches, and methods of the GHSE is crucial to recognizing the similarities between this school of thought and its American disciples who revolutionized the development of the discipline and profession of economics in the US during the last few decades of the 19th century.

Chapter 4 provides brief biographical information about some of the dis­tinguished American economists who went to Germany to obtain an ad­vanced education in political economy under the guidance of theorists of the GHSE from the 1870s until the onset of WWI. By conducting an analysis of the writings of various German-trained American political economists, it also explains why they were not satisfied with the classical orthodoxy or the quality of the education and teachings being offered in the area of political economy at their domestic universities. As a result, they challenged many aspects of the discipline of economics that were previously considered settled by classical economists. This chapter also discusses some of the striking simi­larities between the methods, approaches, policies, reforms, goals, values, and ideas defended by these returning American economists and those advocated by the GHSE. However, this chapter is not intended to provide a comprehen­sive list of all the contributions that these German-trained American political economists made to the discipline of economics. It is important to understand the intellectual sources that contributed to the development of the discipline and profession of economics from the 1870s to WWI, because it could pro­vide insights into why such a disconnect emerged between modern econom­ics and its origins following the 20th century.

Chapter 5 concentrates on the early establishment of political economy departments at American universities, which integrated many of the features that returning American students experienced at German universities under the leadership of the GHSE. In doing so, it presents some of the Amer­ican political economists who played major roles in their development. It then describes a number of the features of the newly established economics departments, including some of the classes being offered, the adoption of the seminary method, the teaching of statistics, and the provision of adequate university library resources, all of which were believed to be indispensable when it came to the training of freethinking scholars by the GHSE. This chapter also highlights that students at both the undergraduate and graduate levels had to demonstrate a proficiency in the German language if they were to pass their exams at American universities. This was attributed to the fact that German was the language of the international scientific community dur­ing the dominance of the GHSE.

To illustrate the inf luence of the GHSE on the development of the disci­pline of economics in the U S, Chapter 6 explains the roles of German-trained American political economists in the foundation and evolution of various economic associations and a number of prominent economic journals. Their objectives were to provide platforms and environments that allowed for the free exchange of academic ideas and professional discussions between polit­ical economists, and to encourage and support advanced scholarly training and research in the US. Many of these journals and associations were actually inspired by ones that already existed in Germany.

Chapter 7 demonstrates that efforts to protect the environment and nat­ural resources are not strictly recent developments. In the 19th century, courses about the protection of the environment and the conservation of natural resources were already being offered by the adherents of the GHSE in Germany. Consequently, German-trained American political econ­omists in the US were concerned about the destructive use and exploita­tion of natural resources and sought remedies to help preserve them. These American economists believed that any efforts aimed at effectively protecting the environment were directly opposed to some of the fundamental features of classical economics, including methodological individualism, free trade and the laissez-faire approach. To the contrary, they were of the view that humanity could not always advance by exploiting the natural environment so as to satisfy the selfish wants and desires of the economic man of classical economics. Accordingly, they supported positive state actions to protect the environment and advocated for the provision of an ethical education, so that people would understand the importance of conservation efforts.

Chapter 8 looks into possible explanations as to why the GHSE declined as it did. It begins by highlighting the role of the Battle of Methods (Methodenstreit) between Schmoller and Carl Menger (1840—1921) in damag­ing the reputation of the GHSE. It then focuses on accusations that the GHSE was the original intellectual source of the destructive consequences of WWI and the rise of socialist nationalism in Germany. However, this chapter coun­ters those accusations by explaining that, in reality, adherents of the GHSE were of the view that state interventions should only be used to achieve common welfare and not to constrain or coerce people in any way. They did not support despotic state authority, because they regarded the state as an ethical institution, which they considered to be an indispensable condition of human progress. Nevertheless, accusations that the GHSE supported the policies of Nazi Germany significantly diminished the prestigious status that it had previously occupied. After WWII had concluded, the German educa­tion system and its scholars were unable to regain the international standing and respect that they had formerly enjoyed. At the same time, the reputa­tions of American economists and universities started to gain unprecedented traction around the world. Chapter 8 also argues that the leading theorists of neoclassical and neoliberal economics in the US have turned their discipline into an ahistorical and value-free science, while also intensifying the mathe- matization and formalization of economics, in order to make it into a branch of the natural sciences. The book is concluded in Chapter 9.

This book aims to contribute to the restoration of the lost memory of the GHSE by demonstrating its important role in the early development of the discipline of economics at American universities. It is intended to serve as a reminder of what has been lost, as economics has significantly diverged from its original raison d’etre. That said, this book does not attempt to provide a complete summary of the goals, ends, and concerns of the GHSE and its American disciples, nor does it seek to explain all of the contributions made by these theorists to the field of economics. Rather, it aims to show that studying the role of the GHSE in the development of economics, as well as the goals, conflicts, ideas, agreements, failures, and successes of this school of thought, could provide insights that could help redefine the priorities, goals, and principles of modern economics, which is currently experiencing signif­icant anomalies and an identity crisis. Furthermore, investigating the GHSE and the Americans that trained under it also reveals that the current preoccu­pation that many prominent economists seem to have with inequality, envi­ronmental disasters, social justice, and the integration of the common good and moral and ethical reasoning into economics is not a new phenomenon.

Bibliography

Filip, Birsen. 2020. The Rise of Neo-liberalism and Decline of Freedom. Cham: Palgrave MacMillan.

Richter, Rudolf. 1996. ‘Bridging Old and New Institutional Economics: Gustav Schmoller, the Leader of the Younger German Historical School, Seen with Neo-institutionalists’ Eyes.’ Journal of Institutional and Theoretical Economics. Vol. 152, No. 4: 567—592. URL: http://www.jstor.org/stable/40751932

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