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The Historical Setting of the Austrian School of Economics
Ludwig von Mises

II.
The Conflict with the German
Historical School

4. The Political Aspects of
the Methodenstreit

The British free trade philosophy triumphed in the nineteenth century in the countries of Western and Central Europe. It demolished the shaky ideology of the authoritarian welfare state (landesf?rstlicher Wohlfahrisstaat) that had guided the policies of the German principalities in the eighteenth century. Even Prussia turned temporarily toward liberalism. The culmination points of its free trade period were the Zollverein's customs tariff of 1865 and the 1869 Trade Code (Gewerbeordnung) for the territory of the Norddeutscher Bund (later the Deutsches Reich). But very soon the government of Bismarck began to inaugurate its Sozialpolitik, the system of interventionist measures such as labor legislation, social security, pro-union attitudes, progressive taxation, protective tariffs, cartels, and dumping. [4]

If one tries to refute the devastating, criticism leveled by economics against the suitability of all these interventionist schemes, one is forced to deny the very existence?not to mention the epistemological claims?of a science of economics, and of praxeology as well. This is what all the champions of authoritarianism, government omnipotence, and "welfare" policies have always done. They blame economics for being "abstract" and advocate a "visualizing" (anschaulich) mode of dealing with the problems involved. They emphasize that matters in this field are too complicated to be described in formulas and theorems. They assert that the various nations and races are so different from one another that their actions cannot be comprehended by a uniform theory; there are as many economic theories required as there are nations and races. Others add that even within the same nation or race, economic action is different in various epochs of history. These and similar objections, often incompatible with one another, are advanced in order to discredit economics as such.

In fact, economics disappeared entirely from the universities of the German Empire. There was a lone epigone of Classical economics left at the University of Bonn, Heinrich Dietzel, who, however, never understood what the theory of subjective value meant. At all other universities the teachers were anxious to ridicule economics and the economists. It is not worthwhile to dwell upon the stuff that was handed down as a substitute for economics at Berlin, Munich, and other universities of the Reich. Nobody cares today about all that Gustav von Schmoller, Adolf Wagner, Lujo Brentano, and their numerous adepts wrote in their voluminous books and magazines.

The political significance of the work of the Historical School consisted in the fact that it rendered Germany safe for the ideas, the acceptance of which made popular with the German people all those disastrous policies that resulted in the great catastrophes. The aggressive imperialism that twice ended in war and defeat, the limitless inflation of the early Twenties, the Zwangswirtschaft and all the horrors of the Nazi regime were achievements of politicians who acted as they had been taught by the champions of the Historical School.

Schmoller and his friends and disciples advocated what has been called state socialism; i.e., a system of socialism?planning?in which the top management would be in the hands of the Junker aristocracy. It was this brand of socialism at which Bismarck and his successors were aiming. The timid opposition which they encountered on the part of a small group of businessmen was negligible, not so much on account of the fact that these opponents were not numerous, but because their endeavors lacked any ideological backing. There were no longer any liberal thinkers left in Germany. The only resistance that was offered to the party of state socialism came from the Marxian party of the Social-Democrats. Like the Schmoller socialists?the socialists of the chair (Kathedersozialisten)?the Marxists advocated socialism. The only difference between the two groups was in the choice of the people who should operate the supreme planning board: the Junkers, the professors and the bureaucracy of Hohenzollern Prussia, or the officers of the Social-Democratic party and their affiliated labor unions.

Thus the only serious adversaries whom the Schmoller School had to fight in Germany were the Marxists. In this controversy the latter very soon got the upper hand. For they at least had a body of doctrine, however faulty and contradictory it was, while the teachings of the Historical School were rather the denial of any theory. In search of a modicum of theoretical support, the Schmoller School step by step began to borrow from the spiritual fund of the Marxists. Finally, Schmoller himself largely endorsed the Marxian doctrine of class conflict and of the "ideological" impregnation of thought by the thinker's class membership. One of his friends and fellow professors, Wilhelm Lexis, developed a theory of interest that Engels characterized as a paraphrase of the Marxian theory of exploitation.[5] It was an effect of the writings of the champions of the Sozialpolitik that the epithet "bourgeois" (b?rgerlich) acquired in the German language an opprobrious connotation.

The crushing defeat in the first World War shattered the prestige of the German princes, aristocrats, and bureaucrats. The adepts of the Historical School and Sozialpolitik transferred their loyalty to various splinter-groups, out of which the German Nationalist-Socialist Workers' Party, the Nazis, eventually emerged.

The straight line that leads from the work of the Historical School to Nazism cannot be shown in sketching the evolution of one of the founders of the School. For the protagonists of the Methodenstreit era had finished the course of their lives before the defeat of 1918 and the rise of Hitler. But the life of the outstanding man among the School's second generation illustrates all the phases of German university economics in the period from Bismarck to Hitler.

Werner Sombart was by far the most gifted of Schmoller's students. He was only twenty-five when his master, at the height of the Methodenstreit, entrusted him with the job of reviewing and annihilating Wieser's book, Der nat?rliche Wert. The faithful disciple condemned the book as "entirely unsound."[6] Twenty years later Sombart boasted that he had dedicated a good part of his life to fighting for Marx.[7] When the War broke out in 1914, Sombart published a book, H?ndler und Helden (Hucksters and Heroes).[8] There, in uncouth and foul language, he rejected everything British or Anglo-Saxon, but above all British philosophy and economics, as a manifestation of a mean jobber mentality. After the war, Sombart revised his book on socialism. Before the war it had been published in nine editions.[9] While the pre-war editions had praised Marxism, the tenth edition fanatically attacked it, especially on account of its "proletarian" character and its lack of patriotism and nationalism. A few years later Sombart tried to revive the Methodenstreit by a volume full of invectives against economists whose thought he was unable to understand.[10] Then, when the Nazis seized power, he crowned a literary career of forty-five years by a book on German Socialism. The guiding idea of this work was that the F?hrer gets his orders from God, the supreme F?hrer of the universe, and that F?hrertum is a permanent revelation.[11]

Such was the progress of German academic economics from Schmoller's Glorification of the Hohenzollern Electors and Kings to Sombart's canonization of Adolf Hitler.

[4] Cf. Mises, Omnipotent Government (Yale University Press, 1944), pp. 149 ff.

[5] Cf. the more detailed analysis in Mises, Kritik des interventionismus, (Jena, 1929), pp. 92 ff.

[6] Cf. Schmoller's Jahrbuch, Vol. 13 (1889), pp. 1488-1490.

[7] Cf. Sombart, Das Lebenswerk von Karl Marx (Jena, 1909), p. 3.

[8] Cf. Sombart, H?ndler und Helden (Munich, 1915).

[9] Cf. Sombart, Der proletarische Sozialismus, 10th ed. (Jena, 1924), 2 vol.

[10] Cf. Sombart, Die drei National?konomien (Munich, 1930).

[11] Cf. Sombart, Deutscher Sozialismus (Charlottenburg, 1934), p. 213. (In the American edition: A New Social Philosophy, translated and edited by K. F. Geiser, Princeton, 1937, p. 149.) Sombart's achievements were appreciated abroad. Thus, e.g., in 1929 he was elected to honorary membership in the American Economic Association.

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