The German Historical School of Economics

In the middle and late 1800s, a group of German university professors developed the study of economics as a historical discipline, emphasizing careful analysis of realworld circumstances rather than abstract principles and laws. Led by Gustav von Schmoller (18381917), these professors denounced the abstract theories of classical economists and their ideas of natural law, believing that these ideas had very little empirical foundation and offered no solutions to pressing social problems under laissez faire. These German scholars feared Marxist agitation and the socialist takeover of Germany, seeking instead a middle ground between laissez faire and possible Marxist revolution. They pressed for social welfare legislation that would relieve the misery of the underprivileged; they wanted to preserve the market economy, parliamentary democracy, and private ownership of the means of production. This welfare legislation passed in the 1880s, and has been emulated in Scandinavia, the United States, and other countries.