9.1 The German Historical School
3 min readโขaugust 9, 2024
The German Historical School challenged classical economics, emphasizing historical context and empirical research. Key figures like List, Schmoller, and Weber developed theories on national economic development, capitalism's evolution, and the role of institutions in shaping economies.
This approach sparked the debate with the , influencing economic methodology. The Historical School's focus on ethical considerations and laid the groundwork for future developments in welfare economics and institutional economics.
Key Figures
Influential German Historical School Economists
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- developed the emphasizing protectionism and infant industry support
- led the younger historical school focusing on detailed historical studies and institutional analysis
- analyzed capitalism's evolution through historical stages (early, high, and late capitalism)
- explored the relationship between religion and economic development in works like "The Protestant Ethic and the Spirit of Capitalism"
Contributions to Economic Thought
- List challenged classical free trade theories advocating for temporary trade barriers to nurture domestic industries
- Schmoller emphasized the importance of empirical research and historical data in economic analysis
- Sombart introduced concepts like "creative destruction" later popularized by Joseph Schumpeter
- Weber developed the concept of "ideal types" as analytical tools for understanding social phenomena
Methodological Debates
The Methodenstreit Controversy
- Methodenstreit refers to the methodological debate between the German Historical School and Austrian School
- Carl Menger of the Austrian School criticized the historical approach advocating for deductive reasoning
- Historical School economists argued for based on historical and empirical evidence
- Debate centered on the proper methodology for economics deductive vs. inductive reasoning
Historical Method and Ethical Economics
- emphasized studying economic phenomena within their specific historical and cultural contexts
- Approach rejected universal economic laws favoring context-specific understanding
- integrated moral and ethical considerations into economic analysis
- Historical School economists argued economics should promote social welfare and ethical outcomes
Impact on Economic Methodology
- Methodenstreit influenced the development of economic methodology in the late 19th and early 20th centuries
- Debate contributed to the emergence of institutional economics in the United States
- Historical method influenced the development of economic history as a distinct field of study
- Ethical economics laid groundwork for later developments in welfare economics and social economics
Economic Theories
National System of Political Economy
- List's national system emphasized the importance of national economic development
- Theory advocated for to support infant industries
- Emphasized the role of government in promoting industrialization and economic growth
- Challenged classical economics' focus on individual self-interest proposing a national approach
Stages of Economic Development
- German Historical School developed theories of economic stages to explain historical economic evolution
- List proposed a five-stage model (savage, pastoral, agricultural, agricultural-manufacturing, and industrial-commercial)
- Bรผcher's three-stage model included household economy, town economy, and national economy
- Sombart's theory of capitalist development identified early, high, and late stages of capitalism
Institutional Analysis and Economic History
- Historical School emphasized the role of institutions in shaping economic outcomes
- Focused on studying the evolution of economic institutions over time (guilds, banks, labor unions)
- Contributed to the development of economic history as a distinct field of study
- Influenced later institutional economists like Thorstein Veblen and John R. Commons
Key Terms to Review (16)
Austrian School: The Austrian School is an economic school of thought that emphasizes individual action, subjective value, and the importance of spontaneous order in markets. It argues that economic phenomena can only be understood through the actions and decisions of individuals, rather than through aggregate models or historical data, which ties its critiques closely to the German Historical School's methodologies and resonates with Hayek's insights on knowledge in economics.
Cultural Context: Cultural context refers to the social, historical, and cultural environment in which ideas, beliefs, and practices are formed and understood. It plays a crucial role in shaping economic theories and models, highlighting how cultural norms and values influence economic behavior and policies.
Economic sociology: Economic sociology is the study of how social processes, relationships, and institutions influence economic behavior and outcomes. It examines the interplay between economic actions and social structures, exploring how cultural, political, and historical contexts shape economic practices and systems. By analyzing these connections, economic sociology helps to understand how markets operate within society.
Ethical economics: Ethical economics is an approach that emphasizes the moral dimensions and social implications of economic decisions, advocating for fairness, equity, and justice in economic systems. This concept connects closely to historical perspectives that critique pure market-driven approaches, suggesting that economic policies should reflect ethical considerations alongside efficiency.
Friedrich List: Friedrich List was a German economist and nationalist who is best known for his ideas about economic development and protectionism in the early 19th century. He argued against the prevailing laissez-faire economics, advocating for state intervention to nurture domestic industries and promote national economic interests, which positioned him as a key figure within the German Historical School of economic thought.
Gustav von Schmoller: Gustav von Schmoller was a prominent German economist and a key figure in the German Historical School, known for his advocacy of the importance of historical context in economic analysis. He emphasized that economic phenomena cannot be understood in isolation but must be viewed in relation to the social, cultural, and political factors of the time. His work helped shape a more empirical approach to economics, challenging the abstract theorizing of classical economists.
Historical method: The historical method is a systematic approach used by historians to study and interpret past events, artifacts, and documents. It involves gathering evidence, critically analyzing sources, and constructing narratives to understand how historical events have shaped societies over time. This method is essential in the German Historical School's focus on contextualizing economic ideas within specific historical settings.
Historical specificity: Historical specificity refers to the idea that events, ideas, and economic theories must be understood in the context of the particular historical and social conditions in which they arose. This concept emphasizes that economic phenomena cannot be viewed in isolation, as they are shaped by unique circumstances and cultural contexts that influence their development and interpretation.
Inductive reasoning: Inductive reasoning is a logical process in which conclusions are drawn from specific observations or examples to form general principles or theories. This method is significant in building knowledge as it allows for the development of broader concepts based on patterns identified in particular instances, making it especially relevant in historical analysis and economic theories.
Institutional analysis: Institutional analysis is a framework used to study the role that institutions play in shaping economic behavior and outcomes. It emphasizes understanding how formal and informal rules, norms, and practices influence individuals and organizations within an economic system. This approach connects closely with the idea that economic actions are embedded in social contexts, which is crucial for analyzing historical economic phenomena.
Max Weber: Max Weber was a German sociologist, philosopher, and political economist, best known for his foundational work in sociology and his influence on social theory. His contributions significantly shaped the German Historical School's understanding of economic and social structures, particularly through his analysis of the relationship between culture, religion, and capitalism.
Methodenstreit: Methodenstreit, or the 'method dispute', refers to the academic debate in the late 19th century regarding the appropriate methods and approaches for studying economics. This conflict primarily involved the German Historical School, which emphasized historical and empirical methods, against the Marginalist School, which focused on mathematical and theoretical approaches. This clash highlighted fundamental differences in how economists perceived the nature of economic phenomena and the role of scientific inquiry.
National system of political economy: The national system of political economy is a concept that emphasizes the role of the state in promoting economic development and national interests, particularly through protectionist policies and regulations. It advocates for a coordinated approach to economic policy that aligns with the specific historical, cultural, and institutional context of a nation, reflecting the ideas put forth by the German Historical School.
Protective tariffs: Protective tariffs are taxes imposed by a government on imported goods to raise their prices, making domestically produced goods more competitive in the market. These tariffs aim to shield local industries from foreign competition, encouraging domestic production and preserving jobs. The concept of protective tariffs is closely linked to economic nationalism and has played a significant role in the development of various economic theories and policies throughout history.
Stages of economic development: Stages of economic development refer to the sequential phases through which economies progress as they evolve from agrarian societies to advanced industrialized economies. This concept highlights the transformation in production methods, social structures, and economic outputs over time, often linking economic growth with technological advancement and institutional change.
Werner Sombart: Werner Sombart was a prominent German economist and sociologist known for his contributions to economic theory and social thought in the early 20th century. He is best recognized for his work on capitalism, especially his comparative analysis of capitalism in different cultures and its historical development, which aligns closely with the ideals of the German Historical School.