The man and his time

Gustav von Schmoller, the main representative of the younger German His­torical school, was born on 24 June 1838 in Heilbronn, where his father had been Kameralverwalter of the Wurttembergische fiscal interests since 1833, a family tradition deeply influencing young Schmoller and which goes back to 1651, when an ancestor became a public servant.

The combination of economics (called ‘national economics’ at the time) and history is already manifest in his first major scientific undertaking ‘Untersuchung der volkswirtschaftlichen Anschauungen zur Reformationszeit', written in 1860. It is a study of the economic conceptions of the Reformation period, with which he won first prize in a competition and for which he was awarded his PhD. In this study the main question of his intellectual life already played a major role: the tension between the necessity of an indi­vidual sphere and a strong, market-regulating state. The second part of his time as junior barrister he passed at the Wurttembergische statistical office headed by his brother-in-law, G. Rumelin, a friend of his father. He thoroughly analysed the census of industry of 1861 (1863) and in 1864 become professor at the University of Halle, where he published ‘Die Arbeiterfrage' (the labour question) in which another tension of his economic approach stands out: on the one hand, he argues against the free marketeers and Manchester liberals like John Prince-Smith and their ‘Kongress der Volkswirte' and their strict and general principle of non-interventionism.

In 1862, he published (first anonymously) a short tract about the French commercial treaty and its enemies. He argues in favour of the Prussian- French treaty and against a treaty with Austria, a solution which was favoured by most southern German states and which clearly reveals his conviction that the future of Germany and its economy stands and falls with Prussia, which should unify the many small German states and abolish the manifold tariffs and other ‘mercantilist’ trade restrictions, on the one hand, but at the same time develop the backward German economy by establishing a dense legal- institutional framework (the market as an instituted set of legal rules) including interventions in the distribution process to solve the social question (exploita­tion, long working hours, no insurance systems, child labour and so on). He believed in a benevolent, efficient and ethically motivated state and its bureaucracy in a monarchy which should include the best elements of parliamentarism and a liberal state, where the monarch should be neutral and above the class and interest groups, pursuing the common good.

With this perspective in mind, Schmoller studied the constitution, adminis­tration and economy of the Prussian state intensively (which was his great love and weak point as far as objectivity is concerned, but which does not necessarily invalidate his general policy conclusions). Although looking back­wards in his historical research, as in his history of German small business in the nineteenth century (1870), his economic policy conclusions had a very topical perspective because in 1869 the principle of freedom of trade (Gewerbefreiheit) had been introduced in the commercial laws of some states. Schmoller was arguing that then and now there are some legitimate fields where the intervention of the state is for the common good, to solve the social problems and to support industrial development.

In 1872, Schmoller received a call to Strasburg where in 1879 he published a study about the Strasburg cloth and weaver guild. He stressed again that a certain mercantilist interventionism is not entirely bad and may be in the interests of social harmony and economic development. After going to Berlin in 1882, he edited the Acta Borussica (1882), a broad compilation of source material, a result of his empirical archive studies, following his methodologi­cal principle of inductive-empirical research methods (his reproach against members of the older Historical school like Wilhelm Roscher, Bruno Hildebrand and Karl Knies was that, for example, they constructed stage theories without basing them on sound empirical evidence - what Schmoller called false abstractions). In 1900/1904, he published his major theoretical contribution, the 1400-page heritage of the Historical school, the Grundriss der Allgemeinen Volkswirtschaftslehre, in which he wanted to delineate his approach to the general questions of economic science. In it another tension in Schmoller comes to light: on the one hand, he was an ardent defender of empirical-inductive research, on the other, he had a strong inclination to generalize, that is, to apply a more deductive-‘theoretical’ method.

Besides giving innumerable lectures, public talks and reports, he became a member of the Prussian state council and rector of Berlin University in 1897/ 98. From 1899, he represented the university in the Upper House (Herrenhaus) and became a member of the order Pour le Merite; he received many honor­ary doctorates (including one in 1896 in Breslau from the Law Faculty) and corresponding memberships inside and outside the country. Although his direct influence on the social policy of the Bismarck state (which he criti­cized in a very direct manner, even going too far in some respects) was rather weak, his main achievement at this time has to be seen in the foundation of the ‘Verein fur Socialpolitik' (Lindenlaub, 1967) in 1872, in Eisenach. It was inaugurated to contribute to the evolutionary solution of the social question by scientific research and policy recommendations: a young generation of economists without dogmatism but with ethically minded enthusiasm should help to abolish social misery. Against other voices, Schmoller preferred an ‘open society model’, where no scientist should be excluded for his economic or political opinions. A major achievement of the ‘Verein’ was its annual meetings, where all opinions were voiced. The accompanying monographs, from the question of the development of seaports to the lofty problems of monetary and fiscal policy, are examples of sound theoretical and statistical research. Once again a main tension in Schmoller became apparent, one of the real dilemmas of the life of the mind, the dilemma of the ascetic and the worldly, of detachment and involvement, the dispassionate and (what Max Weber called) value-free research versus the formulation of tentative solu­tions to build up a good society, the desire to know the causes of things versus the desire to change them.

Schmoller died on 27 June 1917, in Harzberg, so he did not witness the final defeat of the Prussian state and the monarchy (as a result of the aggres­sive expansionism of the young German Reich in the First World War) on which all his hopes were placed; Schmoller as a moderate nationalist sup­ported the war with some enthusiasm. Historically, he was both right and wrong at the same time. The Prussian monarchy was dead, but the failure of the Weimar Republic was that it was a state and bureaucracy above everyday interests. A (republican) ideal was missing. The middle class had no common denominator, social policy was of no central concern and in the great depres­sion the role of the state was defined as a ‘hands-off’ policy (invisible hand plus tight monetary and no fiscal policy beyond the balanced budget con­cept). The chaos and tyranny after 1933 was even worse than that which Schmoller tried to make us believe would be the result of a non-intervention- ist policy.