A Journal for Western Man

 

An Analysis of the Views of the German Historical School and the Austrian School on the Use of Theory and History in Economics

G. Stolyarov II

Issue XCIX- May 12, 2007

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Principal Index

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Old Superstructure

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Old Master Index

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Contributors

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The Rational Business Journal

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Forum

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Yahoo! Group

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Gallery of Rational Art

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Online Store

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Henry Ford Award

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Johannes Gutenberg Award

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CMFF: Fight Death

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Eden against the Colossus

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A Rational Cosmology

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Links

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Mr. Stolyarov's Articles on Helium.com

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Mr. Stolyarov's Articles on Associated Content

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Mr. Stolyarov's Articles on GrasstopsUSA.com

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Submit/Contact

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Statement of Policy

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            Wilhelm Roscher (1817-1894) and the Older German Historical School challenged the cosmopolitanism of the Classical School’s belief in universal, abstract economic laws—valid for all times and places—that could be deductively arrived at. Roscher believed that, due to specific differences among cultures, locations, and time periods, as well as differences in institutions, economic science needed to proceed deductively and, after a lengthy process of analyzing and comparing data from various time periods, societies, and institutional frameworks, maybe arrive at general economic laws—though Roscher and his fellow historicists found none and concluded tentatively that there were not any. Roscher did, however, believe that there exist time-and-place specific economic laws that apply to a given society at a given time. The older German Historical School held that a study of other disciplines, such as the history of law, the history of civilizations, and the history of culture, was necessary to obtain an adequate understanding of economic phenomena.

            The younger German Historical School, led by Gustav Schmoller (1838-1917), was more radical than the older school, and held that Roscher and his followers had jumped to conclusions too quickly regarding time-and-place-specific historical economic laws. Schmoller et. al. insisted on an even more thorough use of the inductive method and an even greater hesitancy to reach definite conclusions about economic principles and claim overarching validity for them. Schmoller and his followers rejected the use of theory altogether in economics and insisted rather on ultra-rigorous data analysis without initial overarching abstract principles whereby to interpret the data.

            Carl Menger (1840-1921) and the early Austrian School, unlike the German historicists, considered abstract theory and abstract, universal economic laws to be of prime importance as a foundation for economic science and a key to understanding economic phenomena. Menger and the Austrians wished to provide a superior theoretical base to that offered by classical economics. They endeavored to do this by grounding their economic theory in the principles of methodological individualism, subjective utility, and marginal utility. The Austrians held that individual choice, subjective valuation, and valuation of goods on the margin are valid for all societies at all stages of development; these principles provide a fundamental explanation for human economic behavior.

            However, the Austrians did not discount the importance of studying history or analyzing the role of institutions in the economic sphere. For example, Friedrich Wieser discussed the prime importance of institutions as setting up constraints to future economic behavior, the key role of social, economic, and political entrepreneurial leadership in altering institutional constraints or establishing new ones, and the importance of competition among institutions to economic freedom and prosperity. The Austrians held that numerous economic conditions can only be understood by accompanying economics with a study of history and of key institutions themselves. But general, fundamental, abstract, abstract economic laws, deductively arrived at from basic and irrefutable premises, are necessary as a framework in which to make sense of the historical economic phenomena and explain historically observed economic behavior.

G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, Le Quebecois Libre,  Rebirth of Reason, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, weekly columnist for GrasstopsUSA.com, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. Mr. Stolyarov also publishes his articles on Helium.com and Associated Content to assist the spread of rational ideas. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.

This TRA feature has been edited in accordance with TRA’s Statement of Policy.

Click here to return to TRA's Issue XCIX Index.

Learn about Mr. Stolyarov's novel, Eden against the Colossus, here.

Read Mr. Stolyarov's new comprehensive treatise, A Rational Cosmology, explicating such terms as the universe, matter, space, time, sound, light, life, consciousness, and volition, at http://www.geocities.com/rational_argumentator/rc.html.