The Main Contributors to the GHSE: From the Older Historical School to the Youngest Historical School

It is generally accepted that the origins of the GHSE can be traced back to a growing dissatisfaction with the narrow views and ideas of the domi­nant English school of economics.

From 1848 to 1888, Roscher was a professor of Practical State Sciences and Cameralistics at Leipzig University, where he taught economic theory, economic policy, public finance, statistics, and cameralism. He dedicated his life to finding a historical basis for economics, which would emphasize the need for the inclusion of the historical spirit in economic research and investigation. In doing so, he became recognized as the first economist to use the term ‘historical method’ in political economy (Block 1879, 706). Additionally, he was accepted as ‘the first macroeconomist,’ even though

An Overview of the Fundamental Features of the GHSE 49 the term macroeconomics did not exist in the 19th century (Streissler 2001, 324-325). In:

the first quarter-century of the life history of the historical school it was Roscher’s conception of the scope and method of economics that found the widest acceptance and that best expressed the animus of that body of students who professed to cultivate economics by the historical method.

(Veblen 1901, 74)

It was also claimed that the influence and work of Roscher were primary contributing factors to ‘a veritable revolution’ that had ‘taken place in eco­nomic studies’ in Germany (Cunningham 1894, 317).

never fell below a highly respectable level: honest scholarship and sound common sense is written all over them, and the sympathetic understand­ing that his gentle and highly cultivated mind extended to all types of scientific effort helped to make them perhaps more useful to many gen­erations of students than would have been more original productions. On the whole, however, there is hardly another economist of that period who enjoyed so nearly universal respect inside and outside of Germany.

The value of Roscher’s contributions to the development of political econ­omy is beyond doubt, particularly in light of the fact that his ideas, views, and methods spread beyond the borders of Germany, having been adopted in the universities of many other countries (Small 2001, 6). In addition to Roscher, Bruno Hildebrand (1812-1878) and Karl Knies (1821-1898) are also known as founding fathers of the GHSE. They ended up becoming ‘three of the most inf luential professors in Germany in the middle of the nineteenth century’ (Mitchell 1949, 186). All three not only rejected ‘the claim of universal va­lidity and applicability of classical economics, but insisted that it was grossly inadequate to deal with industrialization and its social consequences, not to speak of its irrelevance, for Germany’ (Balabkins 1988, 25).

Roscher, Hildebrand, and Knies were considered to be among the main contributors to the Older Historical School (OHS), which emerged in the beginning of the 1840s, along with Carl Dietzel (1829-1884), Erwin Nasse (1829-1890), Lorenz von Stein (1815-1890), and Georg Hanssen (1809-1894). Members of the OHS were highly critical of ‘the faulty abstract-deductive methods which they found predominant, and, while they formulated a method of their own’ (Haney 1915, 410). Their ideas, concepts, methods, and teachings quickly spread through universities across Germany. Moreover, many national and international political economists were drawn to Germany so that they could study under the founding fathers of the GHSE, who ‘pro­posed new and almost radical departures in economic thought’ (Balabkins 1988, 87). This was not an unexpected development, as they were regarded as ‘the great innovators of the day in their profession,’ who were ‘doing em­pirical work of considerable merit, even from the contemporary perspective’ (ibid.). In particular, Hildebrand, who founded Jahrbucherfur Nationalokonomie und Statistik (Journal of National Economics and Statistics) in 1863, was accepted as ‘a thinker of a really high order; it may be doubted whether amongst German economists there has been any endowed with a more profound and searching intellect’ (Ingram 1888, 124). His work was focused on saving eco­nomics from ‘false friends,’ including ‘Friedrich List, Marxist socialists, and classical economics’ (Balabkins 1988, 27). Meanwhile, his book Die Nation- alokonomie der Gegenwart und Zukunft (1848) was highly valued for providing ‘a masterly criticism of the economic systems which preceded, or belonged to, his time, including those of Smith, Muller, List, and the socialists’ (Ingram 1888, 124).

Knies was recognized for his analyses and critiques of prominent classical economists, mainly Adam Smith and David Ricardo (Ingram 1888, 124). He was also well known for his opposition to socialism, as he was confident that the GHSE would eventually defeat all socialist theories. Knies was special­ized in the fields of statistics, money, and credit, and taught political econ­omy to many German and international students at Heidelberg University. In fact, he played a major role in making Heidelberg into ‘a center of study and research in which the most diverse types were welcomed and made to work together’ (Schumpeter 2006, 777). During his time at Heidelberg University, many prominent figures studied under Knies, including Eugen von Bohm- Bawerk (1851-1914), Friedrich von Wieser (1851-1926), John Bates Clark (1847-1938), Edwin Seligman (1861-1939), and Richard T. Ely (1854-1943). Moreover, his work on subjective utility played an important role in the

An Overview of the Fundamental Features of the GHSE 51 eventual emergence of the Marginalist Revolution that is often associated with the works of Leon Walras (1834-1910), Carl Menger (1840-1921), and William Stanley Jevons (1835-1882) (Papadopoulos and Bateman 2011). Even though the concept of marginal utility was accepted as a decisive innovation of neoclassical economics, Knies was using it decades before the emergence of the Marginalist Revolution (Streissler 2001, 322).

The historical method developed by Hildebrand, Knies, and Roscher ‘ex­hibited its essential features more fully in the hands of the younger generation of scientific economists in Germany’ (Ingram 1888, 126). Accordingly, the Younger Historical School (YHS) emerged in the 1870s under the leadership of Gustav von Schmoller (1838-1917), who was sometimes referred to as ‘the leader of the extreme left of the Historical School’ (Seager 1893, 237).

In 1881, Schmoller became the editor of Jahrbuch fur Gesetzgebung, Ver- waltung und Volkswirthschaft im Deutschen Reich, renamed Schmollers Jahrbuch in 1913, which was ‘the leading German journal for politics and economics’ (Tribe 2002, 9). Then, in 1883, he became a member of the Prussian Staatsrat (Council of State), where he devoted much of his work to Prussian admin­istrative and economic history, and had ‘an unprecedented inf luence over economic and social policy making through a system of professional and advisory organisations he helped establish’ (Backhaus 2007, 13).

a person who was in close and vigorous touch with what were in his day the guiding forces in German life’ (ibid.). It could even be said that Schmoller’s ‘life and work closely reflected the history of the Empire’ (Grimmer-Solem 2010A, 10).

In addition to being an historian, a political economist, and a statistician, Schmoller was also a great philosopher who played a main role in develop­ing ethical economics (Seager 1893, 250). During his lifetime, Schmoller was globally renowned as one of the most respected and important econo­mists in the history of economic thought (ibid.: 237). It was also claimed that ‘the spirit and purpose of the German historical economists’ was expressed in ‘Grundriss der Allgemeinen Volkswirtschaftslehre (part 1, 1900; part 2, 1904)’ (Ashley 1908, 9). This two-volume book was widely considered to be ‘one of the great books on economics at the end of the 19th century which sums up in a most effective fashion an enormous amount of detailed work and has a very considerable substantive value’ (Mitchell 1949, 200). In it, Schmoller focused intensively on developing ‘economic science through historical, de­scriptive, and factual material in order to relate it fully to the other social sciences,’ which he also discussed in some of his other publications (Neff 1950, 360). Over the course of his career, Schmoller also wrote about a va­riety of other issues such as social justice, the history of Prussian economics, the historical development of enterprises, the nature of property, the reasons behind economic development, the evolution of social and economic institu­tions, the relationship between economics and ethics, the economics of fami­lies, the social and economic divisions of labor, social classes, the distribution of wealth, the formation of social classes, international trade, competition, labor laws, wages, and the national economy.

It has also been argued that Schmoller was the original creator of the mod­ern welfare state. He played a major role in the establishment of some of ‘the most advanced welfare legislation’ in the world during the rule of Otto von Bismarck (1815—1898), who was Germany’s first chancellor between 1871 and 1890 (Backhaus 1988, 5, Balabkins 1988, 50). He was also credited with being ‘the father’ of ‘Institutionalism’ in the US (Schumpeter 2018, 275). This is because ‘Schmoller made a lasting impression on many of’ the Amer­ican students who flocked to ‘German universities by the thousands’ (Balab­kins 1988, 50). After they returned home, these former students of Schmoller played a major role in developing economic thought and reforming the ways in which political economy was taught and studied at American universities.

Lujo Brentano (1844—1931) was also among the main contributors to the YHS. He studied law and economics at the University of Gottingen before entering the Prussian Office of Statistics in Berlin. Ultimately, he ended up working at universities in ‘Berlin, Breslau, Strasbourg, Vienna,’ and Munich, before succeeding Roscher at Leipzig University, when the latter resigned his post in 1888 (Grimmer-Solem 2010B, 10). Similar to other theorists of the GHSE, Brentano also warned ‘German businessmen, journalists, and academics that laissez-faire was not a cure-all for the social

An Overview of the Fundamental Features of the GHSE 53 ills of rapid industrialization and that welfare legislation might be in order soon’ (Balabkins 1988, 30). That said, his work generally focused on the roles of trade unions and various social programs in the achievement of common welfare.

Adolf Gotthilf Wagner (1835—1917), who studied jurisprudence and polit­ical science at the universities of Gottingen and Heidelberg, was also known as a leading member of the YHS. He was ‘the editor and, to a large extent, the writer, of a Handbook on Political Economy,’ and reputed to be one of the original founders of public finance (Seager 1893, 238). According to Wag­ner, the achievement of the common good had to be the starting point in political economy. That said, he did not believe that the common good could be adequately satisfied via the free market system, which led him to oppose economic liberalism and support positive state action. Wagner advocated for protective trade measures, public ownership, and the state provision of social and economic programs and services. Even though he defended public own­ership, he also supported private property ownership, so long as it served ‘the best interests of society’ (Seager 1893, 244).

Johannes E. Conrad (1839—1915) was another important member of the YHS, who first taught at the University ofJena, before later joining the Uni­versity of Halle, where he succeeded Schmoller. Despite receiving an offer of employment from the University of Gottingen, he elected to stay on at the University of Halle, where he remained until his death. He was one of the co-organizers of Verein fur Sozialpolitik and director of Jahrbucher fur Nation- alokonomie und Statistik, a scientific journal published in Germany since 1863. Another prominent member of the YHS was Adolf Held (1844—1880), whose research focused on taxation. In fact, his work on an ‘advanced program of social security’ played a major role ‘in Bismarck’s legislation of sickness, accident, invalidity, and old age insurance’ (Dorfman 1955, 21). This is not particularly surprising, given that members of the YHS featured prominently in the formation of Bismarck’s social and economic policies.

The YHS also included Karl Friedrich Hermann Rosier (1834-1894), Conrad Gustav Cohn (1840-1919), Karl Theodor von Inama-Sternegg (1843-1908), Albert Schaffle (1831-1903), Hans von Scheel (1839-1901), and Gustav Schonberg (1839-1908) (Ingram 1888, 127). Subsequently, the generation that followed the YHS was labeled the Youngest Histor­ical School, which included Werner Sombart (1863-1941), Arthur Spie- thoff (1873-1957), Max Weber (1864-1920), Georg Hanssen (1809-1894), Wilhelm Lexis (1837-1914), Karl Bucher (1847-1930), and Georg Friedrich Knapp (1842-1926). There were some notable differences between the ideas held by the older, younger, and youngest generations of the GHSE, with some being more conservative in their policies and reforms, whereas oth­ers were more liberal. However, their diverging views and policies are not discussed in this book, as it primarily focuses on identifying and explaining their converging views and ideas on the methods, approaches, principles, and goals of political economy.