Introduction

The global dominance of English classical economics began to rapidly dimin­ish in the 1850s. By around 1870, ‘England lost her intellectual leadership in the political and social sphere and became an importer of ideas’ (Hayek 2006, 21).

whether it was Hegel or Marx, List or Schmoller, Sombart or Mannheim, whether it was socialism in its more radical form or merely “organisa­tion” or “planning” of a less radical kind, German ideas were everywhere readily imported and German institutions imitated.

(ibid.)

In the case of political economy, the German Historical School of Econom­ics (GHSE) achieved such a level of international prestige and dominance from the second half of the 19th century until the outbreak of WWI that it essentially forestalled the possibility of a rival economic program of research emerging at the same scale of advancement and sophistication. For much of that period, economists and economics students could not even participate in the main debates and discussions within their discipline without possessing an adequate grasp of the German language or being familiar with the goals, principles, and methods of the GHSE. This level of prestige commanded by the GHSE, combined with the lack of viable options at home, made Germany the destination of choice for American political economy students looking to obtain an advanced education in their discipline. However, the emergence of quality graduate economic programs at US colleges and universities began to stem the flow of American students heading to the political economy depart­ments of German universities at the beginning of the 20th century. Interest­ingly, this was largely the result of efforts on the part of Americans trained by the theorists of the GHSE, as they took the initiative to integrate many of the features they experienced at the political economy departments of German

DOI: 10.4324/9781003247715-8

Decline and Demise of the German Historical School of Economics 213 universities into their domestic institutions of higher learning. Naturally, American students stopped going to Germany when WWI actually broke out.

This chapter presents a number of possible explanations as to why the GHSE declined as it did. It begins by highlighting the role of the Battle of Methods (Methodenstreit) between Gustav von Schmoller (1838—1917) and Carl Menger (1840—1921) in damaging the reputation of the GHSE. It also describes how theorists of the Austrian School of Economics (ASE) helped fabricate and spread the view that the GHSE had the ‘worst reputation’ among all economic research programs in history. Additionally, it brief ly explains the significant roles that WWI and the rise of Nazism played in the demise of the GHSE. This chapter then focuses on the decline of the GHSE in the US, where neoclassical economics, and later neoliberalism, became the leading school of economic thought. It argues that the leading theorists of neoclassical and neoliberal economics have turned their discipline into an ahistorical and value-free science, while also intensifying its mathematization and formalization, in order to make it into a branch of the natural sciences. In fact, they elevated mathematics to the point that it became the main pur­pose of economics, which transformed it into a one-dimensional discipline that essentially discarded its own origins, development, and historical back­ground. Meanwhile, they eliminated many of the fundamental features of the GHSE that were highly prized by adherents of the New School and pre­viously played major roles in revolutionizing the education and profession of economics in the US.