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

The Conflict with the German
Historical School

1. The German Rejection of Classical Economics

The hostility that the teachings of Classical economic theory encountered on the European continent was primarily caused by political prepossessions. Political economy as developed by several generations of English thinkers, brilliantly expounded by Hume and Adam Smith and perfected by Ricardo, was the most exquisite outcome of the philosophy of the Enlightenment. It was the gist of the liberal doctrine that aimed at the establishment of representative government and equality of all individuals under the law. It was not surprising that it was rejected by all those whose privileges it attacked. This propensity to spurn economics was considerably strengthened in Germany by the rising spirit of nationalism. The narrow-minded repudiation of Western civilization?philosophy, science, political doctrine and institutions, art and literature?which finally resulted in Nazism, originated in a passionate detraction of British political economy.

However, one must not forget that there were also other grounds for this revolt against political economy. This new branch of knowledge raised epistemological and philosophical problems for which the scholars did not find a satisfactory solution. It could not be integrated into the traditional system of epistemology and methodology. The empiricist tendency that dominates Western philosophy suggested considering economics as an experimental science like physics and biology. The very idea that a discipline dealing with "practical" problems like prices and wages could have an epistemological character different from that of other disciplines dealing with practical matters, was beyond the comprehension of the age. But on the other hand, only the most bigoted positivists failed to realize that experiments could not be performed in the field about which economics tries to provide knowledge.

We do not have to deal here with the state of affairs as it developed in the age of the neo-positivism or hyperpositivism of the twentieth century. Today, all over the world, but first of all in the United States, hosts of statisticians are busy in institutes devoted to what people believe is "economic research." They collect figures provided by governments and various business units, rearrange, readjust, and reprint them, compute averages and draw charts. They surmise that they are thereby "measuring" mankind's "behavior" and that there is no difference worth mentioning between their methods of investigation and those applied in the laboratories of physical, chemical, and biological research. They look with pity and contempt upon those economists who, as they say, like the botanists of "antiquity," rely upon "much speculative thinking" instead of upon "experiments."[1] And they are fully convinced that out of their restless exertion there will one day emerge final and complete knowledge that will enable the planning authority of the future to make all people perfectly happy.

But with the economists of the first part of the nineteenth century, the misconstruction of the fundamentals of the sciences of human action did not yet go so far. Their attempts to deal with the epistemological problems of economics resulted, of course, in complete failure. Yet, in retrospect, we may say that this frustration was a necessary step on the way that led toward a more satisfactory solution of the problem. It was John Stuart Mill's abortive treatment of the methods of the moral sciences that unwittingly exposed the futility of all arguments advanced in favor of the empiricist interpretation of the nature of economics.

When Germans began to study the works of British Classical economics, they accepted without any qualms the assumption that economic theory is derived from experience. But this simple explanation could not satisfy those who disagreed with the conclusions which, from the Classical doctrine, had to be inferred for political action. They very soon raised questions: Is not the experience from which the British authors derived their theorems different from the experience which would have faced a German author? Is not British economics defective on account of the fact that the material of experience from which it is distilled was only Great Britain and only Great Britain of the Hanoverian Georges? Is there, after all, such a thing as an economic science valid for all countries, nations, and ages?

It is obvious how these three questions were answered by those who considered economics as an experimental discipline. But such an answer was tantamount to the apodictic negation of economics as such. The Historical School would have been consistent if it had rejected the very idea that such a thing as a science of economics is possible, and if it had scrupulously abstained from making any statements other than reports about what had happened at a definite moment of the past in a definite part of the earth. An anticipation of the effects to be expected from a definite event can be made only on the basis of a theory that claims general validity and not merely validity for what happened in the past in a definite country. The Historical School emphatically denied that there are economic theorems of such a universal validity. But this did not prevent them from recommending or rejecting?in the name of science?various opinions or measures necessarily designed to affect future conditions.

There was, e.g., the Classical doctrine concerning the effects of free trade and protection. The critics did not embark upon the (hopeless) task of discovering some false syllogisms in the chain of Ricardo's reasoning. They merely asserted that "absolute" solutions are not conceivable in such matters. There are historical situations, they said, in which the effects brought about by free trade or protection differ from those described by the "abstract" theory of "armchair" authors. To support their view they referred to various historical precedents. In doing this, they blithely neglected to consider that historical facts, being always the joint result of the operation of a multitude of factors, cannot prove or disprove any theorem.

Thus economics in the second German Reich, as represented by the Government-appointed university professors, degenerated into an unsystematic, poorly assorted collection of various scraps of knowledge borrowed from history, geography, technology, jurisprudence, and party politics, larded with deprecatory remarks about the errors in the "abstractions" of the Classical school. Most of the professors more or less eagerly made propaganda in their writings and in their courses for the policies of the Imperial Government: authoritarian conservatism, Sozialpolitik, protectionism, huge armaments, and aggressive nationalism. It would be unfair to consider this intrusion of politics into the treatment of economics as a specifically German phenomenon. It was ultimately caused by the viciousness of the epistemological interpretation of economic theory, a failing that was not limited to Germany.

A second factor that made nineteenth-century Germany in general and especially the German universities look askance upon British political economy was its preoccupation with wealth and its relation to the utilitarian philosophy.

The then prevalent definitions of political economy described it as the science dealing with the production and distribution of wealth. Such a discipline could be nothing but despicable in the eyes of German professors. The professors thought of themselves as people self-denyingly engaged in the pursuit of pure knowledge and not, like the hosts of banausic money-makers, caring for earthly possessions. The mere mention of such base things as wealth and money was taboo among people boasting of their high culture (Bildung). The professors of economics could preserve their standing in the circles of their colleagues only by pointing out that the topic of their studies was not the mean concerns of profit-seeking business but historical research, e.g., about the lofty exploits of the Electors of Brandenburg and Kings of Prussia.

No less serious was the matter of utilitarianism. The utilitarian philosophy was not tolerated at German universities. Of the two outstanding German utilitarians, Ludwig Feuerbach never got any teaching job, while Rudolf von Jhering was a teacher of Roman Law. All the misunderstandings that for more than two thousand years have been advanced against Hedonism and Eudaemonism were rehashed by the professors of Staatswissenschaften in their criticism of the British economists.[2] If nothing else had roused the suspicions of the German scholars, they would have condemned economics for the sole reason that Bentham and the Mills had contributed to it.

[1] Cf. Arthur F. Burns, The Frontiers of Economic Knowledge (Princeton University Press, 1954), p. 189.

[2] Later similar arguments were employed to discredit pragmatism. William James's dictum according to which the pragmatic method aims at bringing out of each word "its practical cash-value" (Pragmatism, 1907, p. 53) was quoted to characterize the meanness of the "dollar-philosophy."

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