The Historical school of economics was an approach to academic economics and to public administration that emerged in 19th century in Germany, and held sway there until well into the 20th century.
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 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 preferred reality, historical, political, and social as well as economic, to mathematical modelling.
Most members of the school were also Sozialpolitiker (Social Policy-ers), 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" (compare armchair revolutionary), due to their position as professors (depicted sitting in chairs).
The Historical School can be divided into three tendencies:[1]
Predecessors included Friedrich List.[2]
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 and 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 Ph.Ds. The Historical school was involved in the Methodenstreit ("strife over method") with the Austrian School, whose orientation was more theoretical and aprioristic.
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In the Anglosphere (English speaking countries), the Historical school is perhaps the least known and least understood approach to the study of economics, because it differs radically from the now-dominant Anglo-American analytical point of view. Yet the Historical school forms the basis - both in theory and in practice - of the social market economy, for many decades the dominant economic paradigm in most countries of continental Europe. The Historical school is also a source of Joseph Schumpeter's 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.
Although not nearly as famous as its German counterpart, there was also an English Historical School, whose figures included Francis Bacon and Herbert Spencer. It was this school that 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 just to name a few.
Productivity improving technologies (historical)
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