The German Historical School of Economics: Welfare Capitalism Begins

by Nicholas Balabkins

Beginning in the early 1840’s, a group of German university professors denounced the abstract theories of classical economists, rejecting theoretical analysis in favor of a historical approach. They believed that theories only express what happens in a simplified world, not in the real world, and that they offer little solution to the pressing social problems of the underprivileged. Seeking to find a middle ground between laissez faire capitalism and the Marxist revolution, they pioneered welfare capitalism. Great Economic Thinkers is a collection of audio presentations that explain, in understandable language, the major ideas of history’s most important economists. Special emphasis is placed on each thinker’s attitude toward capitalism, revealing their influence in today’s debate on economic progress and prosperity.

Genres: Economics, History

Audio CD

First published April 1, 2006

Reviews

[Helen]

I thought this was an entertaining and interesting presentation of what many consider a dry topic - economics.

This recorded book was produced in 1988 - and featured none other than Louis Rukeyser - speaking no doubt from beyond the grave - exactly as I remember him from watching "Wall Street Week" way back when (not that I ever had any investments, but I always enjoyed watching him, he was so reassuring somehow, like everyone's avuncular uncle). Actually, Mr. Rukeyser did very well with reading the text - and the actors who read bits of the work in "archaic-sounding German, English, or Central European" accents were also effective.

Basically, in reaction to the popularity of Marxism, which appealed to folks disgusted with the excesses of laissez-faire capitalism, the German historical school of economics was founded in around 1840 - to try to find a compromise between straight capitalism and communism. I think the problem with capitalism as it existed then was its cruelty and soullessness and complete lack of recognition of social reality, that there was such a thing as social responsibility. The solution for this school of economists was the welfare state, so Schmoller can be considered the father of welfare capitalism. Schmoller sounds like an endlessly interesting thinker - it's too bad most of his works hadn't been translated into English by the time the book was written. Maybe some have been translated into English in the 30 years since then. But maybe not -since his school of economics isn't popular.

The German historical school of economics believed that economics should consider many associated topics - including history, sociology (study of institutions and how they change), even meteorology - as well as statistics, in analyzing economic problems. However, economics by now has become mostly fixated on mathematical analysis of trends - rather than taking a holistic view of economics in the context of many other factors, such as history. So Schmoller's position has fallen out of favor - actually it fell out of favor long ago, although his recommendation to build up a welfare state, was adapted by the Western industrialized democracies. Balabkins points out that the State in Germany was always extensive, because of the fragmentation of Germany until 1871, and the looming European powers that surrounded Germany (Russia, France, England) that resented the up and coming German state - which the Germans feared. The fact that there were hundreds of minute German duchies and principalities into the 19th Century meant that there were many employed as bureaucrats - and so the state was much more extensive in Germany than in England or the US. Thus, it was easier for Germans to accept the idea of the state providing unemployment, health, disability insurance. I think Balabkins is right in explaining why the welfare state originated in Germany rather than in England or the US. There probably was less of an emphasis of individualism and more of an acceptance of state power and bureaus - given the myriad government offices throughout the German territories. The state apparatus was already in place, and could easily implement national insurance plans etc. Whereas in England and the US, the State had to create a bureaucracy to administer the programs - in Germany, the bureaucracy already existed.

I thought this was a fun book to listen to - I thought it was a well-produced audio book, and at least for me, it represented a good introduction to a nearly forgotten branch of economics. I know I'll look into Schmoller again in case his works were finally translated. He was supposed to have been an extremely erudite thinker capable of taking into account multiple aspects of a problem simultaneously.

[AttackGirl]

Perhaps tunnel vision and lack of rounded life experience is the reason we are so limited in our knowledge. Haven't most of our successes and advancements come from someone who has the ability to see and apply all they have encountered, didn't Fibonacci come to realize the concepts of infinity from looking at a map, Nietzsche from long walks, Curie from love.

So when students say "why do I need to learn to write in an IFSM computer class" I tell them all the ideas you have all the wonderful things you will learn and experience as you grow professionally, perhaps new discoveries all mean nothing if you cannot put it to paper for others to read. If you have developed a security plan, all beautiful pictures in your head but to get it approved or money for your proposal; your project, you will need to submit your work in writing. So learn the APA inside and out. The following day class was half full. So tell me who will get the promotion, the money, the positions, the attention, the ______ for all they desire.

To imagine they are paying to get the knowledge I have to offer and they want to do less. Have a doctor who did less, a pilot who did less, ask yourself do you want to do less?

[Alex Shrugged]

This audiobook is essentially a financial history book about economists who used history and other methods to determine where the economy was going. One could call these people "generalists". nowadays. The German School is now considered a defunct method of guiding the economy.

Note: This audiobook script was written before the time of the uniting of East and West Germany, so remember that West Germany was capitalist and East German was communist at that time.

I doubt I will listen to this audiobook again, but you never know.

[Jude]

I listened to this book while traveling to the Upper Peninsula. It's an informative and excellent program on the genesis of the welfare system. The book is primarily about Gustave von Schmoller and his more liberal economic policies, which largely influenced the welfare system most western countries have today. It's a shame that more of his works weren't translated into English.

[عدنان العبار]

I finished the book while cooking and preparing a meal. It actually surprises me that The German Historical School was not at all as I have thought it would be. It's an interesting school of economics that does not subscribe to the notion of economic laws, but tendencies that are contingent, and that might change from one place to another, and from one time to another. This book covers all the groups associated with the German Historical School (in one side, the Institutional School, and in another, The Austrian School).

[Sam Motes]

This was my third in the great economic thinkers series and they are good concise reviews of the intellectuals of the different branches is the tree of economic thought. Just enough here to get me interested in further readings.

[Maxfield]

quite an excellent review of the school, focuses mostly on Gustav von Schmoller.