A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

The movement soon left Germany, and it was speedily realised that conditions abroad were equally favourable for its work.

By the end of 1870 practical Liberalism had spent its force. But new problems were coming to the front, especially the labour question, which demanded immediate attention.[819] Classical economists had no solution to offer, and the new study of economic institutions, of social organisation, and of the life of the masses seemed to be the only hopeful method of gaining light upon the question. Comparison with the past was expected to lead to a better understanding of the present. The Historical method seemed to social reformers to be the one instrument of progress, and a strong desire for some practical result fostered belief in it. When we remember the prestige which German science has enjoyed since 1871, and the success of the Germans in combining historical research with the advocacy of State Socialism, we can understand the enthusiasm with which the method was greeted abroad.

Even in England, the stronghold of Ricardian economics, the influence of the school becomes quite plain after 1870.

Here, as elsewhere, a controversy as to the method employed manifests itself. Cairnes in his work The Character and Logical Method of Political Economy (1875[820]), writing quite in the spirit of the old Classical authors, strongly advocates the employment of the deductive method. In 1879 Cliffe Leslie, in his Essays on Political and Moral Philosophy, enters the lists against Cairnes and makes use of the new weapons to drive home his arguments. The use of induction rather than deduction, the constant necessity for keeping economics in living touch with other social sciences, the relative character of economic laws, and the employment of history as a means of interpreting economic phenomena, are among the arguments adopted and developed by Leslie. Toynbee, in his Lectures on the Industrial Revolution, gave utterance to similar views, but showed much greater moderation. While recognising the claims of deduction, he thought that history and observation would give new life and lend a practical interest to economics. The remoteness and unreality of the Ricardian school constituted its greatest weakness, and social reform would in his opinion greatly benefit by the introduction of new methods. Toynbee would undoubtedly have exercised tremendous influence; but his life, full of the brightest hopes, was cut short at thirty.

The lead had been given; the study of economic institutions and classes was henceforth to occupy a permanent position in English economic writings, and the remarkable works which have since been published, such as Cunningham’s Growth of English Industry and Commerce, Ashley’s Economic History, the Webbs’ Trade Unionism and Industrial Democracy, Booth’s Life and Labour of the People, bear witness to the profound influence exerted by the new ideas.

In France the success of the movement has not been quite so pronounced, although the need for it was as keenly felt there. Although it did not result in the founding of a French school of economic historians, the new current of ideas has influenced French economic thought in a thousand ways. In 1878 political economy became a recognised subject in the various curricula of the Facultés de Droit. The intimate connection between economic study and the study of law has given an entirely new significance to political economy, and the science has been entirely transformed by the infusion of the historical spirit. At the same time professional historians have become more and more interested in problems of economic history, thus bringing a spirit of healthy rivalry into the study of economic institutions. Several Liberal economists also, without breaking with the Classical tradition, have devoted their energies to the close observation of contemporary facts or to historical research.[821]

Finally, we have a new group of workers in the sociologists. Sociology is interested in the origin and growth of social institutions of all kinds and in the influence which they have exerted upon one another. After studying institutions of a religious, legal, political, or social character it is only natural that they should ask that the study of economic institutions should be carried on in the same spirit and with the help of the same method. This object has been enthusiastically pursued for some time. The mechanism and the organisation of the economic system at different periods have been closely examined by the aid of observation and history. Abstraction has been laid aside and a preference shown for minute observation, and for induction rather than deduction.[822]

II: THE CRITICAL IDEAS OF THE HISTORICAL SCHOOL

Among so many writers whose works cover such a long period of time we can hardly expect to find absolute unanimity, and we have already had occasion to note some of the more important divergencies between them, especially those separating the newer from the older writers of the Historical school. We cannot here enter into a full discussion of all these various shades of opinion, and we must be content to mention the more important features upon which they are almost entirely at one, noticing some of the principal individual doctrines by the way.

The German Historical school made its début with a criticism of Classical economics, and we cannot better begin than with a study of its critical ideas.[823]