German Historical School

& Socialism
ECON 205W
Summer 2006
Prof. Cunningham

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Major Tenets
 Society is dynamic, evolving.
 (Aggressive) positive role for
government.
 Inductive/Historical approach.
 Advocates of (socially)
conservative reform.

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Friedrich List (1789-1846)
 Background
 1841, National System of Political Economy
 Developed the first of the so-called stage
theories of economic development. Five stages:
 Primitive
 Pastorial
 Agricultural
 Agricultural-Manufacturing
 Agricultural-Manufacturing-Commercial
 Claimed the scheme came to him from his
observations of the U.S.

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Wilhelm Roscher (1817-1894)
 “Older Historical School”
 5-Volume Textbook called Economic
Science
 Volume 1 ran 13 editions and was translated
into English as Principles of Political Economy
 His Principles is comparable in scope to Mill.
 Focus on Method
“The method of science is of greater
significance by far than any single discovery,
however amazing the latter may be.”

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Roscher (2)
 Focus on history and the laws of
economic development that a study
of history can reveal.

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Gustav von Schmoller
(1838-1917)

 “Younger Historical School”

 Background
 Founder and leader of the
Association for Social Policy.
 The AEA was modeled after this.
 Quite hostile toward economic
theory—rejected theory altogether.

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Schmoller (2)
 Pacify the labor class through social
policy—role for government.
 Methodenstreit: engaged in a controvery
with Menger about methods.
 Menger favored theory
 Menger was one of the discoverers of the
subjective theory of value and the marginal
principle.
 Menger defended theory and analysis.

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Max Weber (1864-1920)
 Germany’s greatest social scientist of recent
times.
 Approach: Entzauberung (“breaking of magic
spells”)
 Interpreted history as a process of
rationalization.
 Close to the Schmoller group.
 Contributed enormously to sociology.
 Used “ideal types” (RAs) in analysis.
 Leads to American Institutionalism via John
Bates Clark et al.

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Socialism before Marx
 Classical School under attack.
 Softening view of Classical Writers
 German Historical School
 Socialists (French)
 Socialism—national patterns
 England Socialism
• Godwinian, Ricardian, Christian
 French Socialism
 German (State) Socialism

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Clarification:
Socialism vs. Communism
 Socialism
 Transitory phase between capitalism and
communism
 Features
• Dictatorship of the proletariat
• Bourgeoisie under control of the proletariat
• Payment according to work performed
 Communism
 Classless society in which all live by working
and not by owning
 State is nonexistent
 Wage system is abolished

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Robert Owen (1771-1858)
 Man is essentially good and “perfectible”
but is corrupted by the evil institutions of
society
 Society corrupts the individual.
 Background and community involvement.
 A New View of Society, 1813.
 Report to the County of Lanark, 1821.
 Especially concerned with the welfare of
children in the industrial society.

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Owen (2)
 People are formed by their environment.
 Businesspeople are not enough concerned
with their employees.
 Foresaw that technology would make
poverty and scarcity unnecessary.
 Distrusted Classical pursuit of self-
interest.
 Recommendations…

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Ricardian Socialists
 Hold Classical theory of value as central
issue
 From the labor theory of value, they
derived theories of exploitation
 Proposed cooperative organizations,
trade unions, monetary reform
 Like Owen, rejected revolution and
government action

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Ricardian Socialists (2)
 Charles Hall (c1740-c1820)
 William Thompson (1775-1833)
 Thomas Hodgskin (1787-1869)
 John Gray (1799-1883)
 John Bray (1809-97)

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Christian Socialists
 Most British socialism was based on
rationalism. Hostility toward religion.
 Christian socialists tried to forge a link
between socialism and religion.
 Frederick Denison Maurice (1805-72)
 Charles Kingsley (1819-75)
 John Ludlow (1821-1911)

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French Socialists
 Auguste Blanqui (1805-81)
 Sought:
• Free Education
• Take over (nationalize) large estates
• Guaranteed right to work
• Social equality
• Progressive income tax
 Louis Blanc (1811-82)
 First stated “From each according to his
ability, to each according to his need.”

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French Socialists (2)
 Henri de Saint-Simon (1760-1825)
 More interested in social reform than equality or
abolition of private property
 Sought a theory of history
 Collectivization instead of class struggle
 Upheld private property
 Advocate of industrial development
 Thought forces of competition lead society to anarchy
 A “rational” centrally planned economy would remove
the causes of social conflict and eventually eliminate the
need for the state.
 Power should move to the productive classes
(businesspeople, bankers, engineers, workers)
 People should be paid according to their value to society
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French Socialists (3)
 Fourier (1772-1837)
 Opposite of Saint-Simon
 Decentralization instead of central planning
 Movement back to land instead of industrialization
 Felt that the entire industrialization movement was a
mistake.
 The only work that is good work is work that gratifies
innate propensities
 Propensities or passions: for variety, for
adventure, for socializing
 Phalanx

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French Socialists (4)
 Pierre-Joseph Proudhon (1809-65)
 Anarchist
 No use for authority beyond family and
local community
 Rejected representative democracy in
favor of authoritative
socialism/communism
 Disapproved of revolution by radical
schemers or violent upheaval.

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Karl Marx (1818-1883)

 “Scientific Socialism”
 His co-author and sponsor was
Friedrich Engels (1820-1895)
 Background
 1848, Communist Manifesto
 1867, Vol. I of Das Kapital
 Posthumously, Engle published vols.
II and III.
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Marx (2)
 Influences
 Smith and Ricardo
 French Socialists

 Darwin

 Hegel

 Feuerbach

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Socialist Ideology
 Equality
 Brotherhood
 Cooperation

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Inferiority of Capitalism
 Capitalism morally and spiritually
deforms people.
 Capitalism is based upon
exploitation and alienation.
 Capitalist economies undergo
unavoidable business cycle.

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Economic Determinism
 Result of Marx’s historical materialism as
a theory of history.
 Capitalism will ultimately be replaced by
socialism.
 Provides a framework for interpreting
history.
 Provides a theory of social change or
evolution.
 Marx’s interpretation of history.

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End of History
 Rejection of religion.
 Thorough-going empiricism and
pragmatism.
 A social and political arrangement
that allows all an equal voice and
equal claim in society. (Communal
democracy?)

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Marx’s Vision
 Economy coordinated by a central
planning agency.
 All production of goods under social
control.
 Labor supplied by “new men”,
motivated by “spirit of social
cooperation”, not self-interest.
 Communism elevates humankind.

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Theories and Work
 Communist Manifesto (1848), by Marx
and Engels
 Appeal for organized political action.
 Recognition of the advances made by the
bourgeoisie revolution.
 Points to forces currently undermining
capitalism.
 Lists a number of intermediate measure to
revolutionize production.
 Marx’s message has not been heeded in free,
economically advanced countries without
foreign intervention.
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Theories and Work (2)
 Das Kapital: A Critique of Political
Economy
 Vol I published by Marx in 1867
 Vols. II and III edited and published by
Engel (1885, 1894)
 Fragments exist of a Vol. IV, published
later as Theories of Surplus Value.
 Closely aligns with Hegel.

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Theory and Work (3)
HEGEL MARX
1. History is an unfolding of the spirit, 1. Rise of classes, class struggle.
manifesting in the rise of nations and
their struggles.
2. Wars between nations were result 2. War between classes an
of historical necessity. historical necessity.
3. Prussian monarchy would fulfill 3. Proletariat would fulfill mankind’s
mankind’s quest for liberty & justice. quest for liberty & justice.
4. Liberty is a conscious and willing 4. Same
submission to necessity.
5. Power = morality 5. Same
What is = what ought to be
Reality = reason
6. These conclusions follow from 6. Same
philosophically based theory, not
empirics, therefore defy validation.
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Theories and Work (4)
 Concept of class
 The state
 Purposes of Das Kapital
 Labor theory of value
 Concentration of capital leads to a
declining rate of profit.
 This leads to an increasing misery of the
proletariat.
 Economic crises.

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