History of economic thought Presentation 7 Petr Wawrosz

German Historical School

Absolutist versus relativist approach Absolutist approach: tends to believe that there are some objective, absolute “facts or truths” about the perceptions and patterns of economic behavior that cross cultural, temporal and social boundaries. These beliefs and patterns of behavior are perceived as universal. They are believed to apply in every society at all times in similar ways. Relativist approach: holds that what is “true,” or useful, in one time or place may or may not be useful in some other time or place. Economic theory is a product of its environment. The relativist tends to believe that economic theory is shaped by technology, social and economic institutions.

Basic facts Classical political economy school supported absolutistic approach to the economic theory. On the contrary, German historical school supported relativist approach.

Theoretical backgrounds German historicism descended directly from early nineteenth-century Romanticism. It was especially in Germany that Romanticism had been accompanied by an irrationalist and organicist Weltanschauung. In economics it grew together with the first aristocratic and reactionary opposition to capitalist development; and with Fichte, Gentz, and Müller it opposed laissez-faire economics and political liberalism. The members of this school exalted the ideas of the organic unity of the nation, of the superiority of collective over individual goals, and of the historical and geographical specificity of the institutions of each country.

Theoretical background The historicists denied that economic laws had the same properties as ‘natural laws’. They did not deny the possibility of discovering certain economic regularities, and they also admitted that such regularities could be called ‘laws’; but they did not believe that these were universally valid, nor that they were independent of the historical and geographical conditions in which they operated. They denied the possibility of discovering economic laws by deduction. Only the inductive method was allowed: the laws of development had to be constructed by induction and analogy on the basis of the greatest possible quantity of empirical and historical data. Economics was considered as only a branch of historical research.

Georg Friedrich List (1789 – 1846) He rejected free-trade implications, for which he substituted a strongly mercantilist point of view. Tried to construct a theoretical system that, especially in its implications for trade policy, was intended to be used to foster German capitalist growth. Held the idea of the superiority of the nation’s interests over those of individual citizens.