Historical school of economics

The German historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The professors involved compiled massive economic histories of Germany and Europe. Numerous Americans were their students. The school was opposed by theoretical economists. Prominent leaders included Gustav von Schmoller, and Max Weber in Germany, and Joseph Schumpeter in Austria and the United States.

Tenets

The historical school held that history was the key source of knowledge about human actions and economic matters, since economics was culture-specific, and hence not generalizable over space and time. The Historical School of Economics, in addition to rejecting the universal validity of economic theorems and emphasizing an empirical and historical approach, drew significant methodological influence from the historism of Leopold von Ranke. Although von Ranke was not an economist, his insistence on rigorous, source-based analysis to understand societal development profoundly shaped the school's approach. Wilhelm Roscher, a leading figure of the Older Historical School, studied under von Ranke and incorporated his focus on historical and cultural specificity into the analysis of economic phenomena. This legacy reinforced the school's view that economics could not be abstracted from its historical and cultural context, further distancing it from universal theories and mathematical models.The school rejected the universal validity of economic theorems. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The school also rejected mathematical modelling.
Most members of the school were also Sozialpolitiker, i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. They were more disparagingly referred to as Kathedersozialisten, rendered in English as "socialists of the chair", due to their positions as professors.
The historical school can be divided into three tendencies:

the Older, led by Wilhelm Roscher, Karl Knies, and Bruno Hildebrand;
the Younger, led by Gustav von Schmoller, and also including Étienne Laspeyres, Karl Bücher, Adolph Wagner, Georg Friedrich Knapp and to some extent Lujo Brentano;
the Youngest, led by Werner Sombart and including, to a very large extent, Max Weber.

Predecessors included Friedrich List and Adam Müller,.
The historical school largely controlled appointments to chairs of economics in German universities, as many of the advisors of Friedrich Althoff, head of the university department in the Prussian Ministry of Education 1882–1907, had studied under members of the school. Moreover, Prussia was the intellectual powerhouse of Germany, so dominated academia, not only in central Europe, but also in the United States until about 1900, because the American economics profession was led by holders of German PhDs. The historical school was involved in the Methodenstreit with the Austrian school, whose orientation was more theoretical and aprioristic.

Influence in Britain and the United States

The historical school had a significant impact on Britain, 1860s–1930s. Thorold Rogers was the Tooke Professor of Statistics and Economic Science at King's College London, from 1859 until his death. He is best known for compiling the monumental A History of Agriculture and Prices in England from 1259 to 1793, which is still useful to scholars. William Ashley introduced British scholars to the historical school as developed in Germany. In the United States the school influenced the institutional economists, such as Thorstein Veblen and especially the Wisconsin school of labor history led by John R. Commons. More importantly, numerous aspiring economists undertook graduate studies at German universities, including John Bates Clark, Richard T. Ely, Jeremiah Jenks, Simon Patten, and Frank William Taussig.
Canadian scholars influenced by the school were led by Harold Innis at Toronto. His staples thesis holds that Canada's culture, political history and economy have been decisively influenced by the exploitation and export of a series of "staples" such as fur, fishing, lumber, wheat, mined metals and coal. The staple thesis dominated economic history in Canada 1930s–1960s, and is still used by some.
After 1930 the historical school declined or disappeared in most economics departments. It lingered in history departments and business schools. The major influence in the 1930s and 1940s was Joseph Schumpeter with his dynamic, change-oriented, and innovation-based economics. Although his writings could be critical of the school, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the historical school, especially the work of von Schmoller and Sombart. Alfred D. Chandler, Jr., had a major impact on approaching business issues through historical studies.

Members of the school

English school

There was also an English historical school, whose figures included Francis Bacon and Herbert Spencer. This school heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo. This school revered the inductive process and called for the merging of historical fact with those of the present period. Included in this school are: William Whewell, Richard Jones, Walter Bagehot, Thorold Rogers, Arnold Toynbee, and William Cunningham, to name a few.