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Wilhelm Roscher and Gustav Schmoller were key figures in the German Historical School of Economics, emphasizing the importance of historical context, ethics, and social factors in economic analysis. Roscher introduced the historical method and a cyclical view of economic development, while Schmoller advanced these ideas with a focus on empirical research and social reform. Their contributions laid the foundation for modern institutional economics and continue to influence economic policy today.

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25 views3 pages

Thought 2

Wilhelm Roscher and Gustav Schmoller were key figures in the German Historical School of Economics, emphasizing the importance of historical context, ethics, and social factors in economic analysis. Roscher introduced the historical method and a cyclical view of economic development, while Schmoller advanced these ideas with a focus on empirical research and social reform. Their contributions laid the foundation for modern institutional economics and continue to influence economic policy today.

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© © All Rights Reserved
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The Economic Thought of Wilhelm Roscher and Gustav Schmoller

Wilhelm Roscher (1817–18)

Wilhelm Georg Friedrich Roscher was born on October 21, 1817, in Hanover, Germany. He
studied at the University of Göttingen and later at Leipzig, where he became a professor of
political economy. Roscher was deeply influenced by German philosophy and history,
particularly the ideas of Hegel and the Romantic movement. He is best known as the
founder of the Older German Historical School of economics.

Roscher believed that economics should not be a rigid, universal science based only on
mathematical and theoretical reasoning. Instead, he argued that economic ideas and
systems are historically conditioned and should be studied in context. His most famous
work, "Grundlagen der Nationalökonomie" (Foundations of National Economy), published
in 1854, laid the foundation for the historical approach in economics.

Economic Ideas
Wilhelm Roscher’s economic philosophy revolved around the use of historical methods in
the study of economic systems. His main contributions include:

1. Historical Method in Economics


Roscher believed that economic laws are not universally applicable across all times and
places. He argued that economic theories must be rooted in the historical, social, and
cultural context in which they develop. He insisted that economists must study the
evolution of institutions, such as property rights, labor markets, and trade systems, to
understand economic behavior.

2. Stages of Economic Development


Roscher proposed that economies develop in three stages:
- Youth (growth): the economy is emerging with basic forms of production and trade.
- Maturity: the economy reaches its peak with organized industries and institutions.
- Decline: the economy may stagnate or regress due to corruption, inequality, or lack of
innovation.
This cyclical view was influenced by biological analogies and German Romanticism.

3. Ethical and Cultural Emphasis


Unlike classical economists, Roscher did not believe that individuals were purely rational
and self-interested. He stressed the importance of ethics, morality, and culture in economic
decisions. He believed that good governance, national spirit, and moral values are crucial to
economic prosperity.
4. Rejection of Abstract Theory
Roscher criticized the classical economists, especially those from Britain like Adam Smith
and David Ricardo, for developing "universal laws" without considering historical and social
realities. For Roscher, economic generalizations should be based on empirical evidence and
historical case studies.

5. Importance of Institutions
He emphasized that institutions such as the family, religion, and government play a vital
role in shaping economic behavior. This perspective paved the way for modern institutional
economics.

Gustav Schmoller (1838–1917)

Gustav Friedrich Schmoller was born on June 24, 1838, in Heilbronn, Germany. He studied
economics and history at the University of Tübingen and became a professor at several
universities, including Halle and Berlin. Schmoller is considered the most important
representative of the Younger German Historical School and a successor to Roscher.

Schmoller was deeply involved in public service and social reform. He served in the
Prussian House of Lords and was an advocate for ethical and social responsibility in
economic policy. He believed that economics should aim to improve society and reduce
social inequality, not just analyze supply and demand.

Economic Ideas
Gustav Schmoller took Roscher’s ideas further and applied them in more practical, policy-
oriented ways. His major contributions include:

1. Empirical and Inductive Method


Schmoller strongly rejected the deductive methods of classical and neoclassical economics.
Instead, he supported inductive reasoning, meaning that theories should be built based on
careful observation, historical data, and real-world case studies. He argued that only by
understanding how economies work in practice can we create useful economic policies.

2. Focus on Ethics and Social Reform


Schmoller saw economics as a moral science. He believed that economists should focus not
only on efficiency but also on justice, fairness, and social well-being. His approach
integrated economic, legal, political, and social factors, making him a pioneer in what is now
called interdisciplinary economics.

3. Role of the State and Institutions


Schmoller supported government intervention in the economy to correct inequalities,
support the poor, and promote national development. He did not believe in free markets
without regulation. He argued that the state should play a proactive role in areas such as
education, public health, labor rights, and economic planning.

4. Volkswirtschaftslehre (National Economics)


Schmoller emphasized the idea of “Volkswirtschaft”, or national economy, which is shaped
by the culture, values, and traditions of a particular nation. He believed that each country’s
economy is unique and should be studied and managed according to its own historical and
social context.

5. Criticism of Classical and Neoclassical Economics


Schmoller was a leading critic of the marginalist revolution, which focused on abstract
models of utility and pricing. He argued that such models ignore the complexities of real-life
economics, such as power dynamics, historical legacies, and institutional constraints.

6. Legacy and Influence


Schmoller influenced the development of social policy in Germany, especially during the
Bismarck era. His ideas also laid the foundation for modern institutional economics and
economic sociology. Though criticized by some for lacking formal theory, Schmoller’s work
emphasized the importance of practical solutions to social problems.

Conclusion
Both Wilhelm Roscher and Gustav Schmoller contributed greatly to the German Historical
School of Economics, which emphasized the use of history, ethics, and social context in
understanding economic systems. Roscher laid the groundwork by introducing a historical
method and a cyclical view of economic development, while Schmoller expanded these
ideas into a powerful critique of abstract, theoretical economics, promoting a more
empirical, ethical, and socially conscious approach. Their work remains relevant today in
areas such as institutional economics, development studies, and economic policy design.

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