The Development of Economics

CHAPTER XIII

THE OLD HISTORICAL SCHOOL

A. Historical Background

The conception of the state which he developed was in marked contrast to that of the eighteenth century philosophers based upon the doctrines of individualism and natural rights. It was embodied in the Prussian state of that period, which he defended and set forth as an ideal, and it supplied a new background and suggested a new approach to the social sciences and furnished a number of conceptions and doctrines the application of which involved a thoroughgoing revision of these sciences. His followers became active as innovators in the fields of history, political and legal science, and political economy and stirred up a reaction against the methods used and the results already attained in these fields and an active desire for new constructive effort in them.

The Kultur historians of Germany were a group of workers who interested themselves in researches into and descriptions of the many phases of the life of man which had been neglected by the historians before them, such as art, language, literature, religion, industry and commerce, science, habits, and customs. Everything which concerned civilization came within the scope of their researches, the details and the small things, the concerns of the many and common men as well as those of the few and the great, the affairs of everyday life as well as occasional happenings. In contrast, the older historians occupied themselves chiefly with the activities of states and rulers, wars, courts, and parliaments.

B. Wilhelm Roscher

Wilhelm Roscher, the founder of the school with which we are now concerned, was educated at Gottingen and Berlin in the years 1835-1839 and at an early age was brought into contact with the influences described in the preceding paragraphs, by his father (who was connected with the department of justice of the Kingdom of Hanover) and by his university teachers. Soon after taking his degree at the University of Gottingen he became lecturer in history and political science, and in 1844 extraordinary professor and in 1848 ordinary professor in that institution. In the latter year he was called to the University of Leipzig, where he remained until his death in 1894.

To the carrying-out of the program which he thus sketched at the beginning of his academic career Roscher devoted his life. His researches covered a broad field and extended over more than half a century of time. The most important published results of them may be grouped under three heads:

(a) Historical monographs on a variety of topics, some of which were collected and published in 1861 under the title Ansichten der V olkswirthschaft aus dem geschichtlichen Standpunkte;

(b) Zur Geschichte der englischen Volkswirthschaftslehre in 16. and 17. Jahrhundert, published in 1851, and Geschichte der National-ökonomik in Deutschland, published in 1874; and

(c) System der Volkswirthschaft, published in five parts as follows: Die Grundlagen der Nationalökonomik (1854), Die Nationalökono-mik des Ackerbaues und der verwandten Urproduktionsweige (1859), Die Nationalökonomik des Handels und Gewerbefleisses (1881), System der Finanzwissenschaft (1886), and System der Armenpflege und Armenpolitik (1894).

In the historical monographs Roscher treated a number of disconnected topics, but always in such a manner as to reveal or at least to throw light upon what he called the natural laws of development. Among these topics were luxury, the land economy of the oldest Germans, the geographical basis of large cities, the natural laws which determine the location of branches of industry, the economic significance of machine industry, the position of the Jews in the middle ages from the standpoint of general trade policy, commercial crises, etc., etc.

In these and other monographs his purpose was to trace the development of a group of related phenomena through a series of nations and a number of centuries in the hope and expectation of revealing laws. He believed that the processes of development of the nations of antiquity, the middle ages, and modern times were essentially similar, and for that reason thought that a study of these processes in the ancient world, in which they had run a complete course, would be especially illuminating.

His works on the history of political economy set a new standard for writings in that field and were unique at the time of their appearance. In that on political economy in England in the sixteenth and seventeenth centuries he described and classified the contents of the economic writings of Sir Walter Raleigh, Bacon, Mun, Hobbes, Harrington, Child, Petty, North, Locke, and Davenant and from them made generalizations regarding the characteristic features of mercantile thought and policy which superseded the phrases quoted from Adam Smith which had become traditional.

In his history of political economy in Germany he described in the same objective and comprehensive manner the writings of a thousand or more German authors, including works on finance and political science as well as on theoretical and practical economics. He also included illuminating accounts of the economic history of the periods in which the works described were written. He grouped these writers chronologically, characterizing the period before 1648 as the theological humanistic, that extending from 1648 to about 1750-80 as the cameralistic (politilich-Kameralistisches), and that extending from 1780 to the date of his writing as the scientific.

“Primarily Roscher’s book is a learned and bibliographically exhaustive treatise. In a broad series of investigations, expositions and monographs for a decade he had prepared himself for this book. Very many of these must be used together with the main book by everyone who is interested in the persons and the writings of the times in question. In the main work in regard to over a thousand authors, Roscher told what they wrote, what their books contained, what position they took with reference to the more important problems of the science. He read everything of which he wrote, and it was his purpose primarily to report, expound, not criticise. Whenever he expresses judgment, as he frequently does, it is very carefully weighed; he scarcely ever blames anyone, but from his distribution of praise, and from the fine emphasis of his exposition and characterization one can always learn the impression the man made upon him. Although in his description of each particular author he placed before himself primarily the question how he stood with reference to the main features and tenets of present-day doctrine, yet naturally that did not happen without a certain unity of plan, a certain sameness of treatment in each case. This is a method of procedure which pushes the subjectivity of the author into the background and his objectivity into the foreground, and it also fails sometimes to bring out the main points and the leading ideas. For those who consider a number of traditional economic doctrines, classifications and points of view as obsolete, many of the discussions will not have the significance they did for Roscher. To such a person perhaps Leibnitz’s doctrine that the power of a country consists in its land, in its goods, and in its men, considered as the forerunner of the doctrine of the three productive factors, nature, capital, and labor, will have no value. But this method of exposition is so essential to Roscher’s position with reference to inherited doctrines and to his method of objectively reporting things that to him certainly any other method of treatment would have appeared inaccurate and subjective.

“One could perhaps say that although Roscher’s aim was primarily to write a history of books and doctrines, still his work is scarcely less important as a revelation of German economic conditions and institutions from the sixteenth century to the present time. The connection of economic theories with politics and political theories is everywhere carefully followed out. In the main the exposition continues only down to the founding of the Customs Union. Recent development is very briefly treated. As Roscher did not speak of himself, so also Socialism and the entire development of social policy which preceded the appearance of his book were only summarily treated. The followers and German adherents of Adam Smith thus seem to have been given an importance which scarcely would be assigned to them today.”

Roscher’s System was designed as a correction and extension of the famous textbook of Rau, which was at the acme of its fame when Roscher began his career and which he very much admired. He followed Rau in the general arrangement of the books and chapters and even in the presentation of his views in short, pithy paragraphs supported by elaborate foot-notes. Like Rau also his purpose was to supply a guide to administrators and legislators as well as a textbook for students.

In the Grundlegung he discussed the subjects usually covered in American textbooks, such as definitions, classification of subject-matter, history of the science, and general principles. Here he reveals his indebtedness to and appreciation of the classical economists, whose theories he expounds, many of them with approval. At some points he modified their conclusions and their statement of principles, but he more frequently illuminated them by a mass of historical material presented for the most part in foot-notes. In this part of his work he shows clearly that his purpose was not so much to criticize as to supplement the older economists. He does this most effectively, however, in the other volumes of the System in which he covered ground they had almost entirely neglected.

Of these the two that rank highest are Die National-Ökonomik der Akerbaues and Die National-Ökonomik des Handels und Gewerbe-fleisses. Here he did pioneer and epoch-making work, superseding the older Rau and pointing out the road to be followed by the succeeding generation of students. In these books he traced the historical development of industry, commerce, and the production of raw materials in the nations of modern Europe, using as a background their general civilization since the beginning of the middle ages in contrast with that of ancient nations, savage peoples, America, the European colonies, and Asia. He described the characteristic features of country and city life in each period since the beginning of the middle ages, including the methods and technique of production and distribution, the status of the different classes of people, and the relation of the economic to the political, religious, and social life of the time.

His Finanzwissenschajt and Armenpflege are likewise treatises on the historical development of economic institutions, but they cover narrower fields than the books just described and offered less scope for pioneer work. In the former the methods followed in securing and using funds for the support of government, and in the latter the methods of caring for and the policy followed regarding the poor, are depicted for each stage in the development of modern Europe, and the connection between this development and present-day problems in these fields is traced.

All of these books of Roscher’s system have been partially, and perhaps entirely, superseded by later works of other authors which are the product of more detailed and more thorough and accurate investigation, but this fact does not in any degree detract from the merit due him for having started this branch of research and for accomplishing so much in it. He, so to speak, gave the impulse to and set the model for the work of these others.

“Roscher began as philologian and historian. He devoted a simple, quiet, moderate life of scientific and pedagogical labors to the one problem of putting abstract political economy on an historical basis, of transforming the Cameralistic theories of Rau and the theories of the English based upon natural rights into historical laws.”

“He was not an economic historian in the sense in which Nitsch, Inama-Sternegg and others are, that is in the sense that he critically investigated and described certain epochs in the economic history of Germany or other countries. He was not a critic of sources like Ranke. Neither did he aim like Savigny at showing that human institutions are not produced by rational processes but grow unobserved out of the spirit of the times. He was primarily a student of the great Kultur historians of Gottingen who had their starting point in Justus Moser.”

“In speaking of these matters William Scherer often described Roscher’s service as that of saving for Germany the traditions of the Gottingen school of Kultur historians. He is the true follower of Justus Moser, the universally trained Kultur historian among political economists. His power lies in a very rare breadth of training and of reading, in a realistic sense for the details of economic life; his interest was primarily in the great problems of the historical processes by which nations and states have developed as they had already been formulated by Aristotle and Macchiavelli. He tried to go to the bottom of the problems of state life by the discovery of economic processes. He sought for the natural laws of economic development. Studies of the ancients, utilization of more recent historical writings, investigations of statistics served him as empirical material for the discovery of universal truths with reference to the course of political and economic history. Sometimes he reminds one of Montesquieu and Herder; sometimes of Ritter’s inspiring attempts to explain the course of history naturally and to understand it teleologically. In certain of his views he was in harmony with Buckle, whose whole endeavor was the discovery of the natural laws of history. One might almost say that what Roscher had before him as a goal was a universal theory of history, the laws of historical life par excellence, a goal too high for the present, perhaps, but one after which great souls will continue to strive and after which he may be permitted to strive in whom fineness of spirit and observation is combined with universal culture.”

C. Bruno Hildebrand

To this historical trend of thought and activity in the field of economics started by Roscher in 1843 a noteworthy contribution was made by Bruno Hildebrand, who, born in Naumburg on the Saale in 1812, became privatdocent in history at Breslau in 1836, having in previous years studied philosophy and history in the same institution. In 1841 he was called to the chair of political science of the University of Marburg. He took an active part in the movement of 1848 in the direction of more liberal political institutions for Germany, serving as representative of Marburg in the conference or parliament of representatives of German states held that year in Frankfurt, and in 18491850 as a representative in the Hessian Parliament.

On account of opposition to alleged unconstitutional demands of the Hessian government he lost his position in the University of Marburg in 1850 and went to Switzerland, where he served as professor first in the University of Zurich and afterward in the University of

Berne. In addition to his work in the latter university, he founded and for a number of years conducted a bureau of statistics at Berne. In 1861 he was called to the professorship of political science at the University of Jena, where he remained until his death in 1878. In 1863 he founded the Jahrbuch für Nationalöonomie und Statistik, which he edited alone until 1873 and, with the aid of Professor Conrad, who had been his student, from that date until his death, after which Professor Conrad became sole editor. In 1864 he founded the Statistical Bureau of the United Thuringian States and directed its operations during the remainder of his life.

The wide scope of his activities doubtless kept his literary output within narrower limits than would otherwise have been the case, but it was nevertheless quite extensive. In the field of statistics he published: in 1853, Statistische Mitteilungen über die volkswirtshaftlichen Zustände Kurhessens; in 1860, Beiträge zur Statistik des Kantons Bern; in 1867-1878, Statistik Thuringens; and a number of articles in the Jahrbuch. On economic conditions and ideas in the ancient world he published in 1845: Xenophontis et Aristotelis de œconomia public a doctrines illustratœ; in 1862, De antiquissima agri romani dis-tributionis fide; and magazine articles entitled “Untersuchungen uber die Bevolkerung des alten Italiens” and “Die soziale Frage der Ver-teilung des Grundeigentums in Klassischen Altertum.” In the field of finance he published in 1860, Die Kurhessische Finanzverwaltung and an article in the Jahrbuch entitled “Die Vermögenssteuer and die Steuerverfassung in Althessen während des 16. and 17. Jahrhunderts and die aus der Vermogenssteuer Hessens hervorgegangene Grund-steuer.” Other historical monographs treated of the stages in the development of the economic life of peoples under the heads Natural, Geld- und Kreditwirthschaft and Die Entwickelungsstufen der Geld-wirtschaft, and of the history of the German woolen and linen industries.

“In spite of the great service of Adam Smith and his truly historical position, he and his school have this in common with their predecessors, the Mercantilists and the Physiocrats, that he sought to build up a theory of national economy whose laws should hold true for all times and all people. Just as Rousseau and Kant started a political school which sought to construct an absolute state without reference to the differences of mankind established by nature, and without reference to the different steps of their development or to the condition of different nations, so Adam Smith and his followers attempted to develop out of the special facts of individual peoples and out of the facts which belong to a particular moment in the development of nations, universally valid generalizations, and thus to create a sort of world economy or a sort of economy of humanity, which attempt corresponded completely to the age of rationalism in which Adam Smith lived. They (that is, Adam Smith and his school) proceeded from the view that all the laws of national economy, because they are founded in the relation of men to goods, raise themselves, so to speak, above the limits of time and space, remain true amid all changes of phenomena, and thereby they completely forgot that man as a social being, is the child of civilization and the product of history, and that his needs, his opinions, his relations to goods, as well as his relations to men, never remain the same, but differ geographically and historically, are continually changing, and are continually improving and advancing together with the entire culture of the human race.”

“As a result of this cosmopolitanism a second peculiarity of Smith’s teachings appear, which also is in harmony with the constitutional teachings and the literature of the period. All these writers proceed from the same atomistic view of society, and regard the individual as its sole end. To political rationalism the state appeared as a legal institution for the guarantee of the freedom of all individuals. To the economic rationalist economic society appears as a union or system of individual economies whose end is the easy and pleasant satisfaction of individual needs. The former founded society upon a legal compact, the latter upon a compact of exchange between individuals, and the private advantage of individuals served in both cases as the cause and the bond of society.

“On this account also both of them considered taxation as the price individuals pay to the State for the services rendered them, and founded upon this tenet the necessity for its distribution according to the income each citizen enjoys under the protection of the State.”

“This elevation of the advantage of the individual to the rank of the first principle in economic science also involved the failure to relate economy to the moral problems of the race, and people have consequently and with justice convicted the school of Adam Smith of materialism. Though very often the majority, especially of the German followers of Smith in no sense regarded material enjoyment as the purpose of human life, and connected their teachings regarding political economy and the care of private fortunes with the higher moral good and the welfare of the State and regarded economic life as a means to the moral completeness of individuals, nevertheless, they accorded to ethics not the slightest influence upon the science of political economy, but like Adam Smith built upon the supposition of an all-powerful private egotism. Between the English and German sections of the Smithian school, therefore, only this difference is to be found, that the former proceeded from the fundamental principle that private egotism always leads of necessity to the common good, while the latter did not recognize this principle as universal and therefore wished to complete the political economy based upon the selfinterest principle by the recognition of the necessity for some public care, through the agency of the State, of the common interests of society. To the entire school of Smith, however, economic science serves as a natural science of commerce in which the individual is looked upon as a pure egoistic power, who like every natural power is always active in the same direction and who under the same circumstances always acts in the same way. Therefore, in Germany as well as in England people have named their laws and rules natural economic laws, or the natural laws of economic life, and ascribed to them, as to other natural laws, eternal continuity.”

D. Karl Knies

The third member of the trio of German scholars who constituted the Old Historical School was Karl Knies, who was born at Marburg in 1821. In 1846 he became privatdocent in history and political science at Marburg and in 1849 at the polytechnic at Kassel. In 1852 he became a teacher at Schaffhaussen, Switzerland, and in 1855 was made professor of the Cameralistic sciences at Freiburg. From 1862 to 1865 he was head or director of a committee which had the administrative direction of the elementary and middle schools of Baden. For a number of years beginning in 1861 he was a member of the lower house of the Parliament of Baden and for a time was connected with the Ministry of the Interior. In 1865 he was called to a professorship of political science in the University of Heidelberg, which position he held until his death.

His writings cover a considerable range of topics, political as well as economic. In the latter field his most important books were: Die Statistik als selbständige Wissenschaft (1850), Die politischen Oekon-omie vom Standpunkte der geschichtlichen Methode (1853; 2d ed., 1883), Die Eisenbahnen und ihre Wirkungen (1853), Die Telegraph als Verkehrsmittel (1857), Finanzpolitische Erörterungen (1871), Geld und Kredit (two volumes, 1873-1879), and Karl Friedrichs von Baden brieflicher Verkehr mit Mirabeau und Du Pont (1892). From time to time he also published a number of articles in encyclopedias and magazines.

His connection with the Old Historical School and his place in its development are chiefly due to the book on political economy from the standpoint of the historical method or, as he put it in the second edition, “from the historical standpoint.” This is an exposition of the historical method including a discussion of the theoretical questions involved. In the introduction he indicates the place which in his judgment political economy occupies among the political and social sciences and the place which these larger groups occupy among sciences in general; characterizes the work that had already been done on the history of political economy; and contrasts the historical with other methods.

In Part II, which he named “Volkwirthschaft,” he described the relation to a people’s economy of the territory it occupies, of its racial and other physical and spiritual characteristics, of the magnitude of its capital, of the degree of the exhaustion of its soil, of the state, of religion and the church, and of its dominating ideas and passions, and in the closing chapter indicated the place of a people’s economy in their life as a whole, emphasizing in this connection the fact that it is only a part of a larger unit.

In the third part, which he entitled “Volkswirthschaftlehre,” he first delimited the field of political economy, defining it by the phrase “Das Wirtschaftsleben der geschichtlichen Völker in seiner thatsach-lichen Erscheinungen und in seiner durch Zeiten und Generationen andauerenden Entwickelung.” In this first chapter he discussed such fundamental matters as division of labor, productive activities, the relation between production and consumption, labor and its relation to the individual and to the national economy and the relation of individual economies to each other and to the national economy as a whole. In the following chapters he discussed what he called the “absolute” assumptions of the older theory, namely, private property and self-interest, the relation between economic theories and ideas and the period in which they appear and the characteristics of the people among whom they originate, conflicts of interest between individuals and the nation and between classes, natural laws and social laws, the principle of relativity, and finally methods of investigation, including the establishment of causal relations between different classes of phenomena, the nature and limitations of statistical proof, etc., etc.

He contrasts the doctrine of relativity with the “absolutism” of the classical economists and illustrates it by showing that the conceptions we describe by the terms private property, self-interest and productivity change with changing conditions and are, therefore, relative to the time and the place in which they are used and to the characteristics of the people who use them; and that the methods used in the discovery of truth change with the different stages in the development of a science and at any given time are different in different sciences on account of their unlike characteristics.

Another phase of this doctrine is illustrated by a comparison of the institutions of different countries at the same stage in their development. Knies showed that they are similar rather than identical in character and that the so-called stages in the development of different nations are analogous rather than identical.

His conviction of the soundness of this doctrine of relativity and of the universality of its application led him to question Roscher’s conception of “laws of development” and his use of the term historical method. Since the comparisons which constitute the basis of the generalizations which Roscher called “laws” reveal similarities only and not identities, they do not establish the causal relations which are the essence of scientific laws. What Roscher discovered, therefore, were laws “of analogy” rather than “of causation.”

The term method, in a scientific discipline, he said, should refer to the modus operandi of establishing causal relations between changing phenomena, whereas Roscher used it to indicate merely “a point of view.” Knies, therefore, preferred to describe the innovation introduced by Roscher as the study of political economy from “the historical point of view,” and in the second edition changed the title of his book accordingly.

In this connection he also carefully distinguished between political economy and economic history. While the former should make wide use of history and in a sense should be based upon it, it has a different purpose and cannot depend on historical investigation alone.

“In contrast to him, Knies is a heavy, unfluent, earnest, deep-digging theorist who is continually struggling after new tenable, theoretical conceptions of problems. History does not interest him in the first instance, but the deepening and broadening of economic science. He is not in any sense a collector of historical materials. It is not easy for him to depict individual periods, or particular economic institutions in their historical development. His political economy from the standpoint of the historical method, or as he likes to call it, from the historical point of view, is a collection of monographs on the fundamental theoretical problems, which at the beginning of the 50’s were subjects of controversy, and which stood in the foreground of popular interest and in close connection with the important problems of the day. He emphasized not only the connection of political economy with history, but also its connection with geography, philosophy and jurisprudence. His philosophical and legal training determined the characteristics of his work. On the one hand it led him to those dogmatic formulas and conceptions which stand in the foreground of his later works on Money and Credit, as well as to the general conclusion that political economy rests and must rest upon historical foundations.

“The most essential thing from his point of view is war against mere abstraction, against premature and false generalization, such as were common among the older economists, and which Knies combated even in more recent writers who were not his principal opponents. He demanded the concrete conception of reality. He strongly felt the psychological bonds which connect groups of phenomena. He had a deep insight into the spirit of nations which has determined the entire course of their history. He was a real follower of Savigny and Niebuhr. Without being himself an historian he was the theoretical founder of historical, psychological, modem German political economy. It seems to me that he more clearly grasped even than did Roscher and Hildebrand, the contrast between this and the political economy of Adam Smith and Ricardo. Theoretically, he is what Frederick List was practically. The connection between the national economy and the other departments of national life, the dependence of economic systems upon the intellectual and material elements of the periods in which they arose, the emphasis upon the collective character of all social phenomena, for him these are the main things. In this connection also he displayed rare foresight, calmness, prudence. He is not so intellectual as Hildebrand, nor so many-sided [versatile], productive and skilful as Roscher. His style is somewhat lopsided and heavy. He can never be popular. And perhaps principally for this reason that he continually digs so deep. Indeed he digs until he comes to the formulation of new fundamental conceptions.

“Perhaps his greatest strength consists in the fact that by virtue of his sense for reality and his careful investigations on the one hand and of his abstract, careful thinking-out of the relations between complex phenomena, he attains a rare breadth of scientific principles. In his later works this quality stands out more prominently than in his history of political economy from the historical standpoint. Belonging as it does to the earlier period of his life, and being constructed out of materials covering the whole range of the subject, this latter work stands in the center of the science while the former are special investigations which relate to parts of the territory and which represent work which goes deeper.”

E. General Characteristics of the School

It is certainly true that these men had a conception of the science of political economy different from that of the classical school. In their view its scope was broad enough to include all the phenomena of the economic life of mankind; in that of the classical school only certain classes of economic phenomena were included, namely those which reveal the operation of general laws, such for example as price fluctuations, interest rates, wages, rents, the adjustment of production to consumption under conditions of free competition, etc., etc.

According to this latter conception, “a whole mass of economic phenomena of the highest importance and of the greatest interest is left entirely outside. The phenomena of the economic world, as a matter of fact, are extremely varied and changeable. There are institutions and organizations without number, banks and exchanges, associations of masters and unions of men, commercial leagues and cooperative societies. Eternal struggle between the small tradesman and the big manufacturer, between the merchant and the combine, between classes and individuals, between public and private interest, between town and country, is a common feature. A state rises to prosperity again to fall to ruin. Competition at one moment makes it superior, at another reduces its lead. A country changes its commercial policy at one period to reintroduce the old regime at another. Economic life fulfills its purposes by employing different organs that are continually modified to meet changing conditions, and are gradually transformed as science progresses and manners and beliefs are revolutionised.”

Of all this, “the mechanical conception tells us nothing. It makes no attempt to explain the economic differences which separate nations and differentiate epochs. Its theory of wages tells us nothing about the different classes of work-people, or of their well-being during successive periods of history, or about the legal and political conditions upon which that well-being depends. Its theory of interest tells us nothing of the various forms under which interest has appeared at different times, or of the gradual evolution of money, whether metallic or paper. Its theory of profits ignores the changes which industry has undergone, its concentration and expansion, its individualistic nature at one moment, its collective trend at another. No attempt is made to distinguish between profits in industry or commerce and profits in agriculture. The Classical economists were simply in search of those universal and permanent phenomena amid which the homo œconomicus most readily betrayed his character.”

The Old Historical School recognized a relationship and an interdependence between the different social sciences which was not emphasized by the classical school and the recognition of which was not involved in its method of procedure. According to the former, each social science views society from a different angle, but the face or aspect it looks at directly gives a particular view of the whole and not simply a view of a part. If we think of each social science as treating certain social activities, these historical economists would say that each group of activities so treated are affected and in part determined by all the others. The study of one thus involves the study of all, and each social science must, therefore, use the results of all the others and in turn contribute its results to them.

If, as we should, we recognize the validity and value of the work of the classical economists, that of the Old Historical School may be described as a broadening of the scope of the science. Their most valuable work was in a field the classical economists did not touch, a field the importance of which cannot be questioned. Some of their criticisms of the classical school were valid, but many of them were due to a misconception of its aims and a failure to appreciate the value of pure theory, based largely on analysis of certain classes of economic phenomena and deduction. In the use the classical school, or at least some of its adherents, made of the application of their theories to the solutions of complex social and economic problems, they exposed themselves to criticism of the kind some of the members of the Old Historical School brought against them and in the second quarter of the nineteenth century the increasing importance and complexity of such problems invited a reaction from which the science has profited through the broadening of its scope and the improvement of its methods.

There is a place in the science both for pure theory and for generalizations based upon historical research, and it is to the Nationalists and the Old Historical School that we owe an adequate appreciation of the latter.

Footnotes

1 See the writings of Sismondi in France and of Richard Jones in England.

2 Schwegler’s History of Philosophy (Seeley’s translation), p. 398.

3 See Gustav Schmoller, Zur Literaturgeschichte der Staats- und Sozialwissenschaften (Leipzig, 1888).

4 Ibid., pp. 152 and 154.

5 See Palgrave’s Dictionary, art. “Savigny.”

6 Op. cit., p. 153.

7 Quoted by Gide and Rist, A History of Economic Doctrines, translated by Smart and Richards, p. 382.

8 Ibid.

9 Schmoller, op. cit., pp. 167 and 168.

10 Ibid., pp. 160, 161.

11 Op. cit., p. 158.

12 Pp. 150-153.

13 Palgrave’s Dictionary, art. “Hildebrand.”

14 Pp. 27 sq.

15 Gide and Rist, op. cit., p. 383.

16 See in fahrbücher für Nationalökpnomie und Statistik, Vol. I, Hildebrand’s articles entitled “Die gegenwärtige Aufgabe der Wissenschaft der Nationalökonomie,” p. 145.

17 Op. cit., pp. 206, 207.

18 Ibid., p. 205.

19 Gide and Rist, op. cit., p. 399.

• 1Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 2Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 3The industrial organization of the towns was also gradually weakened by conflicts of interest between townsmen themselves and the oppression of the weaker trades by the stronger, and by the growth of domestic industries. Increasing interference of the central government in town affairs was invited by these conditions, and the power of resistance to it was weakened. The growth of a merchant class in London and some of the other large towns also contributed to the same result. The interests of this class extended beyond the boundaries of the town in which they lived and were promoted by the breaking-down of local trade barriers. The power of this class grew rapidly in and after the sixteenth century.
• 4By the seventeenth century a national commercial and industrial organization had developed, the chief organs of which were middlemen who intervened between producers and consumers and between different classes of producers. Among those of chief importance were the wool-staplers, the clothiers, the drapers, and the foreign trading companies. The wool-staplers purchased the farmers’ wool, their most important staple, and sold it to manufacturers or foreign merchants. The clothiers acted as middlemen between the carders, spinners, weavers, and other handicraftsmen engaged in transforming the wool into cloth. They purchased the wool from the staplers, delivered it to the carders and spinners, distributed the yarn among the weavers to be woven into cloth, and then placed the cloth in the hands of the “fuller,” “walker,” or “tucker” to be fulled and cleansed. The spinners, carders, weavers, and fullers were scattered throughout the hamlets and villages as well as the cities of the country, in many, perhaps most cases, doing agricultural work as a main or a side occupation. The drapers purchased the cloth and sold it to consumers or to foreign merchants; some of them were themselves connected with one of the trading companies. Foreign commerce was chiefly carried on by these latter organizations, to each of which a charter had been granted conferring the exclusive right to trade in a specified part of the world. The Eastland Company, for example, had the exclusive right to trade with Scandinavia and the Baltic region; the Russian Company, with Russia; the Merchant Adventurers, with the Netherlands; the Levant Company, with the Mediterranean region; the Guinea or African Company, with Africa; the East India Company, with the countries of Asia; and several other companies with portions of the American field. At the beginning of the seventeenth century France, Spain, and Portugal were the only countries with which trade could be carried on by an Englishman not a member of one of the companies.
• 5The literary remains of Colbert are of the same general character as those of Sully in that they consist of letters, instructions, and memoirs. They differ from Sully’s, however, in the extent to which they reflect mercantile doctrines. Colbert was the chief executor of the mercantile policy of France, and among his letters, instructions, and other papers may be found expositions and defense of nearly every feature of it. Much more completely than the English writers he reflected the doctrines of nationalism and of the entrepreneur relation of the state to industry. To a greater extent than in any other country these doctrines were realized in the practices of France during the reign of Louis XIV, and for this fact Colbert was largely responsible. Louis XIV aspired to be not only absolute sovereign in France but the dictator of Europe, and he fully realized that foreign commerce and command of the world’s supply of the precious metals would assist in the accomplishment of his purposes.
• 6Becher was at one time a court physician and professor of medicine in Mainz, whence he went to Wurzburg, and later to Vienna. At the two latter places, he was connected with the carneræ of the reigning sovereigns. He wrote on natural science as well as Kameralwissenschaft, his chief work in the latter field appearing at Frankfurt in 1668 under the title Politische Discurs von den eigentlichen Ursachen des Auf- und Abnehmens der Städte, Lander und Republiken, in specie, wie ein Land Volkreich und Nahrhaft zu machen und in rechte Societaten civilen zu bringen. In this book he defines a city as eine volkreiche, nahrhafte Gemeine and defends the following fundamental propositions: The more populous a city, the more powerful it is; but in order to be populous, it must be supplied with an abundance of nourishment; the membership of a community consists of (a) those who serve it and are supported by it, for example, government officers, clergy, learned men, physicians, apothecaries, soldiers, etc.; and (b) those who really constitute it, namely, peasants, handicraftsmen, and merchants. These three classes are essential each to the other. In explaining their mutual relations, however, he makes the following argument: “Consumption is the soul of the three classes, the only bond which holds them together and enables them to live by each other. It is on account of consumption that the merchant class is so necessary in a community, however large the peasant class may be. . . . Since the nourishing of a community can only be accomplished through the trading [Verhandlung] and turning into money [Versilberung] of goods . . . everything which hinders these operations hinders and weakens the populousness which results from it.”
• 7Wilhelm Freiherr von Schroder was in the service of Austria as conductor of a factory according to plans outlined by Becher. He wrote several books, the most noteworthy of which was entitled Fürst-liche Schatz und Rentkammer, which was published in 1686. He was a strong advocate of absolute monarchy and admirably set forth the mercantilistic view of the relation of a sovereign to his people, in the following passage: “A Prince is like a housefather. Now a housefather must fertilize and plough his fields if he would reap a harvest therefrom. He must well stock his pond if he would have fish. He must feed his cattle if he would slaughter them, and well fodder his cows if he desires them to give much milk. Thus a Prince must first help his subjects to a good living, if he wishes to take anything from them.”
• 8In the Détail he gives a discussion of the relation between money and wealth in which he says: “As gold and silver are not and never have been wealth in themselves and are valued only in relation to other things necessary to life,—to which things they serve only as a guarantee and a measure of value,—it is a matter of indifference whether we have much or little of them, provided the same results are produced.” That the same results are produced by much or little he attempts to prove by the following: “Thus we learn from the old accounts that in 1250 a laborer in Paris, who to-day earns 40 or 50 sous a day, earned only 4 pennies a day, 12 one-hundredths part of what he earns now. Nevertheless he then lived with as much comfort as now because all things were in proportion. He satisfied his wants with his four pennies as well as one of the same trade now does with his 50 sous. It follows that a man who at that time had a thousand livres of rent was as rich as one who at present has one hundred thousand.”
• 9In other connections he says: “It is very certain that it [money] is not a good in itself and that the quantity of it does nothing for the opulence of a country in general provided there is enough of it to sustain the prices of the goods necessary to life.”
• 10Silver and gold, he says, have as competitors copper, leather, shells, and “a simple piece of paper which costs nothing but nevertheless performs all the functions of money to the amount of millions by passing from hand to hand an infinite number of times.” By way of illustration he refers to the Lyons fair in the following manner: “In a commerce consisting of purchases and sales to the amount of more than eighty millions not a ‘sou marque’ of money is seen. Everything is done by bills of exchange which after passing through an infinite number of hands, finally return to the original drawer.”
• 11In other connections he emphasized the need of an equilibrium between purchases and sales and the importance of proper adjustments of prices, especially of the prices of raw produce and manufactures.
• 12In order to secure these and other needed adjustments, he affirmed that reliance can be placed only on nature. The following words of his taken from Chapter V of the Dissertation present this doctrine clearly:
• 13In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 14In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 15In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 16The author, Richard Cantillon, was born in Ireland between 1650 and 1690. Soon after the death of Louis XIV he removed to Paris and engaged in the business of banking during the period in which John Law flourished. Being confident of the ultimate failure of the Mississippi scheme, Cantillon speculated on the bear side of the market and made a fortune, but incurred the enmity of Law and was obliged to leave France. He was murdered in London on May 16, 1734, by a discharged man-servant, who set fire to his house and stole some of his papers.
• 17The deviation of the market prices of commodities from “their primary and natural price” Ricardo also described as “accidental and temporary.” The demand and supply of a commodity at the moment may be such as to establish a price for it above or below the point indicated by the labor principle, but in that case the profits of the capital employed in its production will be above or below the average in other industries, and this fact will increase in the one case and decrease in the other the amount of capital employed in this industry, thus causing changes in the supply which will tend to bring the market into accord with the natural price. He concludes his discussion with these words: “In speaking, then, of the exchangeable value of commodities, or the power of purchasing possessed by any one commodity, I mean always that power which it would possess, if not disturbed by any temporary or accidental cause, and which is its natural price.”
• 18The first is indicated in the statement that “rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” He thus excludes from this category any payment received by the landlord for capital invested in or on his lands in the form of buildings, drains, hedges, fences, walls, fertilizers, and other improvements, as well as gains resulting from the removal of timber, the digging of coal or other minerals, or the quarrying of stone. Those payments he classified as profits, and said that “this is a distinction of great importance . . . for it is found, that the laws which regulate the progress of rent are widely different from those which regulate the progress of profits, and seldom operate in the same direction.”
• 19The first is indicated in the statement that “rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” He thus excludes from this category any payment received by the landlord for capital invested in or on his lands in the form of buildings, drains, hedges, fences, walls, fertilizers, and other improvements, as well as gains resulting from the removal of timber, the digging of coal or other minerals, or the quarrying of stone. Those payments he classified as profits, and said that “this is a distinction of great importance . . . for it is found, that the laws which regulate the progress of rent are widely different from those which regulate the progress of profits, and seldom operate in the same direction.”