HISTORICAL SCHOOL OF ECONOMICS

branch of economic thought, developed chiefly in Germany in the last half of the 19th century, in which the economic situation of a nation is understood as the result of its total historical experience. Objecting to the deductively reasoned economic laws of classical economics, exponents of the historical approach believed in the need for an inductive method that would take into account the continuing development of the entire social order, of which purely economic motives and decisions were only one component. Members of both the earlier and later historical schools viewed government intervention in the economy as a positive and necessary force. Founders of the earlier school included Wilhelm Roscher, Bruno Hildebrand, and Karl Knies, in whose works the idea of a historical method was developed. They held that the merits of economic policies depended on place and time but that by studying various societies it would be possible to specify certain general stages of development through which all countries must pass. The later historical school (roughly after 1870) was responsible for most of the detailed historical research for which the school is known. The primary founder was Gustav von Schmoller, who hoped to discover cultural trends through extensive historical inquiry. Other prominent members of this school were Georg Friedrich Knapp and Lujo Brentano. Although the historical school was most influential in Germany, its impact was felt throughout Europe and the United States, particularly by the American institutional economists.