Historical School of Economics

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:

• the Older, led by Wilhelm Roscher, Karl Knies, and Bruno Hildebrand;
• the Younger, led by Gustav von Schmoller, and also including Etienne 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.

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.