Journal of lr\Stiluliona1 and Thcomical Economics (JllE) 144 (1988).

S43-SSt
Zeitschrift fUr di( se'&mte S~l$wisscn.'lChaft

Schmoller, the Methodenstreit, and the Development

of Economic History
by
CLARK NARDlNELLI

and ROGIlR E. MElNERS

Over one hundred years have passed since Gustav Schmoller and Carl.
Menger engaged in their famous Methodenstreit, the battle over methods. 1 The
original controversy is remembered as much for its bitterness as for its content.
Tlie bitterness arose partly because of the substantial differences between
Schmoller and Menger. The subsequent and continuing appearance of smaller
Methodenstreite implies that the issues that sparked the quarrel went well
beyond the differences that separated Schmoller and Menger.
The origins of the controversy can be traced to the reaction in Germany to
what was considered to be the excessive abstraetion of the English classieal
economists. The work of David Ricardo, in particular, was regarded as flawed
by its exclusive reliance on pure theory. Tbe older historical school (represented
by Wilhelm Roscher, Bruno Hildebrand, and Karl Knies) advocated the use of
bistorieal evidence in the construction of economic theory, The members ofthe
older bistorieal school did not oppose the use of theory; they opposed the
Ricardians' use of deductive theory without regard to bistorieal and social

conditions.
The younger bistorical school, lea by Gustav Schmoller, went beyond the
older school and argued that the abstract, deductive theories of the English
classical eeonomists liad no place in economics. To Schmoller, scientifie economics consisted of generalizations from historical monographs. General economic propositions would emerge from the detailed historical studies that were
to be the main aetivity of economists.
Schmoller's disdain for theoretieal economics did not represent the viewpoint
of an isolated, neglected scholar. He was the dominant figure in Germn
academic economies and used bis influence to keep theoretical economics out
of German universities, His students and followers produced a series of detailed

1 The original controversy started with MENGER(1883], SCHMOLLBR 11883], and

MENon [1884]. The quarrel continued for several years thereafter, though it was carried
on rnostly by other writers. Many historians of economic thought have discussed tbe
controversy. See, especially, GIDE and RlsT [1948], pp. 383-409; SCHUMPETER [1954a),
pp. 800-824. (1954b). pp. 152-201; PIlISRA!>! [1983], pp. 219-224; and BosTAPH (1978].

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Clark: Nardineli and Roger E. Meiners

JJI.I'II'lE

historieal and industrial studies. The historical generalizaticns from these studies appeared in SCHMOLLER'S
[1900-1904] outline of general economics.
Menger, the founder of the Austrian school of economcs, initiated the
Methodenstreit because bis theoretical work was ignored in Germany. He
attacked the methods of the historicaJ school, cJaiming that history without
theory eould not lead to progress in economics (MENGER[1883]). SCHMOLLER'S
[1883] unfavorable review and MENGER'S[1884] bitter reply constituted the
original Methodenstreit. Furtber exehanges did Iittle more than draw the line
more sharply between the two schools. The Austrian school defended theory,
abstracton, and deduction. The bistorical school defended history, realism,
and induction. The differences in methods in turn stemmed Irom fundamental
differences in world views, with the cosmopolitan, individualist outlook of the
Austrians standing in sharp contrast to the nationahstic, collectivist outlook of
the bistoricaJ school.
Historians of economie thought have mostly concJuded that the Methodenstreit was inconclusive or a pointless waste o time. 1Some scholars regret that
Menger devoted sueh a large part o his scholarly Jifeto the controversy. Others
believe that his work on method contributed as mueh to the development of
economics as bis work in pure theory (HAYEK [1934], BoSTAPH [1978]). Although the debate itself proved inconclusive, in the long run the influence of
Menger vastly exceeded the influence o Schmoller. Abstraet theory, not bistory, formed the basis for economics in the twentieth century. 3 lnstitutionalists
and others influenced by the historical school achieved some prominence early
in tbe twentietb century. but were eventuaJly swept away by the theorists.
Moreover, when empirical economics did arise, it took the form of econometries based on mathematical statisties. Contemporary econometrics has far more
in common with contemporary theory than witb tbe detailed empirical studies
of the bistorical school,
Tbe failure of tbe historical school to influence the development o economies
has led many historians of'thought to dismiss it as having had no lasting effect,
That was not the case. The German historicaJ school bad great influence on the
development of economie history. As economic history emerged as a seprate
discipline in England, America, and France the historical method predominated. The dominance of the bistorical metbod cannol be attributed solely to the
German historical school; England, for example, had its own historical school
of economies. The German school nevertheless greatly influenced the development of economic history. The detailed bistorical studies advocated by
Schmoller appeared in England and America, as well as in Germany. In England, separa te departments of economie bistory emerged, dominated by the
2 Such views are lo be foundin GlDEand RIST(1948], p. 400; SCHIJMI'Bml
(1954a].
p. 814; and SELIOMAN[1962], p. 274. Por a different view, see HAYEK(1934].
s Abstraet theory has, however, developed in ways quite differeut from the models of

Menger.

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Schmoller and the Methodenstreit

545

historical method (HARTE(1971), pp. xi-xxxix), Although Irom time te time an

economist or historian made a plea for tbe interaction of economic history and
theory, the general attitude of economic historians might best be typified as a
desire te be left alone by theorists and theory,
In America, economic history also developed as a seprate discipline" although it remained within departments of economics. The German historical
school espeeially influenced American institutionalism, which took the historical approacb as its basic method. Tbe strengtb of institutionalism led to the
creation of departments in which history and theory represented the two basic
approaches te the study of econornics. The historical and theoretical approaches coexisted, with some scholars specializing in history and others in tbeory.
Although important crossovers occurred, a division of labor emerged in American economice. DilTerent approaches to method accompanied the divisin of
labor. The theorists took physics as their model; the historians took seientific
history - induction frorn facts - as their model. The first task of the economist,
then, was te amass large collections of facts, The work eC American institutionalists such as Wesley Clair Mitchell and John R., Commons were remarkable Ior tbe volume of factual material tbey represented.
Tbe institutienalist influence reached its peak in the first quarter of the
twentieth century, Thereafter, the historical rnethod came increasingly te be
restricted le works in economic history. The study of econemic events as part
of larger social developments became .the province of economic hlstorans in
Amrica and England. However, English economic historians retained closer
ties te theory, and produced works that were not se defiantly non-theoretical
as those of their American and German counterparts (HARTE[1971D.
The split between economic theory and economic history widened .aCterthe
second world war. The study of macroeconomics was transfermed by John
Maynard KEYNES
[1936] and his theoretical system. Where the study of'business
cycles had been tbe province of historical economists and a place where theorists took their lead frorn historians, tbe Keynesian Revolution firmly established a theoretical model at tbe center of macroeconomics. The old studies of
the history ofbusiness cycles (and the economic historians who did them) were
made obsolete by the Keynesian theories. Moreover, when the Keynesian
theories themselves declined, it was in favor of other theories, not a return te
histerical studies. Contemporary macroeconemics remains remarkably (given
its subject matter) ahistorical.
The rises of mathemalical economics and econometrics also helped bring
about the decline of economic history. As econometrics and mathematics grew
in importance, courses in those subjects began le push courses in economic
history out of the economics curriculum. Econometrics replaced history as one
of tbe twin pillars of gradate training in economics. Today, most American
economists receive no. training in economic history,
The development of matbematical economics and econometrics benefitted
tbeory in another important way: it made theory scientific. In tbe nineteenth

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Clark NardiMIfi and Roger E.

Meiners

Jll1ll'!E

century, members o the historical school were the "scientists". The historical
method used facts and induetion from facts, The abstraer and subjective nature
o theory (especially Austrian) looked unscientific to nineteenth century scholars. The development ofmathematical economics and econometrics, however,
made economic theory look like physics, Theory now became scientific, while
history was relegated to the inferior status of unscientific. The importance of
mathematics in elevating theory to its present predominant position as scientific
economics should not be underrated. It should also be noted, however, that the
reduction in the scientific status of economic history was helped along by the
perceived poor quality of the work in that field, Much of it - espeeially in
America - was simply bad economcs combined with bad history,
The break between economic history and ecooomics was never complete.
Many scholars continued lo work in both fields. The most important development in maintaining a link between the two was the growth of the new economie history, or cliometrics. 4 The new economic history can be described as the
application of economie theory and methods to the study of economic history.
In effect, the new economie history turned the methodological doctrine ofthe
historical school on its head. s Aocording to the historical school, detailed
historical study was how to do economics. According to the cliometricians,
economie theory and econometrics were how to do history. The work of new
eeonomie historians is often indistinguishable from that of economists proper,
The new economic history arose in the 1950s and quickly grew. Although
there was much grumbling among the adherents to the older methodology, by
the 1960s R. W. FOGEL[1965] eouId announce the reunification of economic
history and economie theory. The results of the reunification were a revitalization of economic history as well as important new results in such areas as the
economics ofslavery, the role ofrailroads in economie development, historical
trends in the distribution of income, and a host of others.
The success of eliometrics in producing significant new scholarship has,
however, been accompanied by sorne notable failures. One such failure is that
economie history has not regained its place as a basie field in the training of
economists. Indeed, economie history has not even held its ground, as eourses
in mathematics, statistics, and now computer science continu to erowd history
out of the currieulum. If new eeonomic historians have succeeded in dernonstrating the sophistication of their work to their colleagues in economics, they
have nOI convinced Ihose colleagues that studying economie history should
form part of the initial or eontinuing education of the adult economist,
The failure to regain lost influence among economists stems partly from the
nature of the new economie history. The most influential works of new econom The history of cliometrics has been the subject of many articles. For a sample, see
(1966), MCCLOSK6Y (1978), and MElNERS and NARDlNEW (1986).
5 The new economic history also managed to generate its own Mcthodenstreit. See
ANDEANO (1970).

Fooa.

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Schmoller and the Methodenstrelt

547

ic historian s can be described as econometric history (MElNERS

and NARDINELLI
(1986. Econometric history involves explicit, often mathematical theorizing
combined with econometric testing of hypotbeses. The haJlmark of much of this
work is the application of techniques and Iheories developed in economies to
the study of historlcal problems. To economists, the achievements of econometrie history provide further demonstration of the power and scientific methodology of economies. However, note that the tlow is entirely from economies lo
economic history, Nothing in econometrlc history convinces the economist of
the value of economie history. In the Methodenstreit fought over the correet
method in economic history, the theorsts have won yet another battle, Having
driven history out of economics they now threaten to drive history out of
history.
We no doubt exaggerate the econometric eharaeter of eontemporary historieal economics, Much of the besi work in econometric history embodies both
the historieal and theoretical approaches. We also note that many new economie historians have been calling for a reorieutation of economie history.
Douglass NORTH[1981,1986) has argued for a new institutional economies that
will re-emphasze the bistorical approach, Other economiehistorians (and some
economists) stress the importance of the missing historical perspective of contemporary economics (P ARKER [J 986). In particular, stress is laid upon the faet
that constraints - institutions - ehange over time and that these changes affect
the choices made by individuals and societies. The German historieal school, of
course, made the same point.
Many distinguished economists and econornie historians believe that economie history should regain its place as part of the standard equipment of the
economist (PARKER (1986). Yet, such a change does not appear Iikely. The
Jatest generation of economists knows mueh less history than the last: it is a safe
predietion that the next generation will know stiU less, The separation and
decreasing contact between economics and econornie history is an accomplished faet. The question to which we now turn is what role did Schmoller and
the Methodenstreu play in that separation. In order to assess that role, it is
necessary to diseuss two explanations for why economie theory and economie
history have parted company.
One explanation is that the separation was an inevitable outcome of the
progress of econornic science. Modern scholarship is dominated by speeialists:
economists since Adam Smith have emphasized the gains in efficiency from
specialization. As the generaJists of the nineteenth century gave way to the
specialists of the twentieth century, it was inevitable that economics ano economic history should split aparto The Methodenstreit, then, was merely a sign
of things to come. Aceording to the view that specialization and the division of
labor had to occur, Schmoller could have had no effect on the ultimate development of twentieth century econornics. That developmentfollowed a path set
by the nature of economics. The corree! methodology (mathematical and statistical) emerged as part of the discipline's progress toward objective truth.

548

Ctark Nardirtelliand Roge, E, Meiners

An alternative explanation for the break between economic history and

theory is based on the belief that the current state of a discipline is indeed
dependent upon 'its past. IC such be the case, then events in the history of
economics led to the break. Under dfferent circumstances, then, history rnight
have remained an integral part ofeconomics. We will atternpt lo assess the
influence of Schmoller and the Methodenstreit on the assumptions that the
development of economics is not a movement along a fore-ordained path lo
truth, and that particular scholars and movements have significantly altered the
methods and content of contemporary economics.
No single individual can be credited (or blamed) fOI the rise of the historical
approach in economics. In Germany itself the older historical school and other
members of the younger school had great influence. France had its own tradition of positivism and the historical approach. In England, the development of
the historical approach owed more to the English historical school Iban the
Germn (KOOT (1980)).With these qualifications in mind, we would argue that
Schmoller himself significantly increased the useand influence ofthe historical
method in economics and economic history.
Schmoller exercised his influence both directly and indirectly. His direct
influence stemmed from his many students and disciples in Germany. Through
bis influence members of the younger historical school carne to domina te
academic economics in Germany, holding a majority of the professorships,
Frederick LANE (1966] identified Werner Sombart, Arthur Spiethoff, Walter
Eucken, and the Austrian Joseph Schumpeter as the heirs 'of Schmoller. Prominent students and disciples from outside Germany included William J. Ashley,
Edwin F. Gay, W. A. S. Hewins, George Unwin, and WilIiam H. Cunningham.
The indirect influence of Schmoller stemmed from the enormous prestige of
German social science. As a major figure within Germany, bis ideas naturally
filtered out to foreign scholars affected by German thought, The Germn
influence is particularly apparent in much of the economics and economic
history published in the United States in the late nineteenth and early twentieth
century. Thousands of Americans studied at German universities during the
era. In a 1908 survey of 116 American economists, 59 had engaged in graduate
study in Germany (SEUGMAN
[1962], p. 615). The influence of Schmoller and
the historical school, then, kept the historical approach alive in American
economics. Indeed, one might argue that the break between economics and
economic history would have come earlier but for the influence ofthe historicaJ
school, The traditional place of historical studies in the currculum in economics could be a legacy of Ibat influence.
In another way, however, Schmoller's influence probably hurt the cause of
economic history. His insistence that the historical method was the only way
to conduct economic research contributed to the decline of German economics
and economic history. lo the long ron, pertinacity in matters of method may
have damaged American economic history as well. American institutionalism
- first cousin to economic history - declined and virtually disappeared because

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Schmoller and the Methodenstrett

549

it failed to develop a "theoretical focus" (NoR1lI [t 986), p. 235). That same lack
of theoreticalfocus contributed 10 the decline of the old economic history. In
botb England and fue United States, economic history and economic theory
lived under conditions of peaceful coexistence, sharing the task of educating
future scholars but in other ways not interacting. As the theorists refined and
improved their product, the historical method fell into disrepute as a way of
doing economics. Although scholars madc occasional picas for history in economic lheory or theory in economic history, the two fields drifted apart. The
drift may in part be attributed to Schmoller, for two reasons.
First, the extreme bitterness ofthe Methodenstreit may have caused scholars
10 be wary of methodological conflict in general. Although an occasional
Jlare-up occurred, theorists and historians mostly kepl 10 Ihemselves. Second,
the tradition that economic history dealt with facts, nOItheory, led lo Ihe failure
to make important theoretical contributions. If economic historians had been
enthusiastic consumers of economic theory, tbey might have become producers
as well. Using economc theory lo answer historieal questions might have
forced them io confront the inadequacies of completely ahistorical economic
theory.
What ultimately was missing, then, was a dialogue between economics and
economic history. Such a dialogue would have increased the theoretical content
of econornc history and the historical content of economic theory, As Clapham
said,"it is at the overlapping margins of disciplines and sciences that the most
important discoveries are iusually rnade" (CWHAM [1953), p.420). When
the cliometricians re-introduccd economic theory into economic history,
Clapham's insight was vindicated many times overoWhen new economic historians, however, attempted 10 re-introduce the historical method into economics, they met with no success. Indeed, the cliometric revolution appeared to
justify the economic theorist's beliefin the power oftheory. Economic history
was viewed as merely a field in applied economics, not an equal partner with
theory. As Parker has pur it, the fields of economic history and economic
institutions "have themselves been partially transformed or distorted into playgrounds for the imagination ofthe theorist" (PARKER [1986), p. 7). The interaction between history and theory, tben. is not a conversation; it is a lecture.
We therefore view the Methodenstreit primarily as a lost opportunity.
Schmoller and Menger might have begun a conversation between the theoretical and historical schools, a conversation that could have served as a model for
other times and other places. Moreover, Schmoller must bear the greater part
of the blame. Menger, the admirer of WiJliam Roscher, did not deny the
importance of the historical approach; the treatment of his work by the historical school led him to the controversy.
No single scholar determines the course of a discipline. Yet, the influence of
Schmoller may well have affected in sorne way the course of the discipline of
economic history. The emphasis upon the institutional aspects of economic life
and upon the need for historical study are difficult lo fault. The products of

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Clark Nardirrelli and Roger E. Meiners

JJIJlI'IB

historical approach nclude many landmark studies. Balanced against these

achievements, however, is the failure to engage the Austrians and other theorists in scholarly conversation, Such a failure contributed 10 Ihe twentieth
century split between history and theory, and left the field of empirica! economics lo the statisticians. Some scholars believe that such an outcome was inevitable. We believe that Schmoller's failure to confront theory with history
may have pennanently damaged the effort to establish a truly historical economics.

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Profuso, Clark. No,dinelli

Professor Roger E. Meiners
Department of Economics and
Center for Poticy Studies
Clemso Universlty

Clemson, S.C. 29634

U.s.A.

551