The Rise of Historical Economics and Social Reform in Germany, 1864-1894

EH.NET Book Review (September 2005)

Erik Grimmer-Solem, The Rise of Historical Economics and Social Reform in Germany, 1864-1894. Oxford: Clarendon Press, 2003. xiii + 338 pp. $74 (cloth), ISBN: 0-19-926041-9.

Reviewed for EH.NET by Nicholas W. Balabkins, Department of Economics, Lehigh University.

The late Harry Johnson of the University of Chicago once wrote that in order to carry out an intellectual revolution, one must propound a doctrine that has three features. First, it should be summarized in a single sentence. Second, it should provide young economists with a reason for ignoring the work of their elders. Third, it should tell the new generation how to promote and implement that intellectual revolution.

In the 1870s and 1880s, the members of the Verein f?r Socialpolitik (something like the German counterpart of the American Economic Association) erected the statistical, institutional, and historical foundations for the welfare legislation that Bismarck’s Germany passed in the early 1880s. But the Verein’s intellectual legacy remained locked up in the German script for more than a century in English-speaking libraries. Now Erik Grimmer-Solem, a bilingual and well-trained contemporary mainstream economist, has resurrected this legacy in this volume.

Grimmer-Solem’s book has three parts. The first deals with the emergence of the empirical mode of economic inquiry in late nineteenth-century Germany. The aim of the “young Turks” in German economics was to draft well-documented bills to improve the daily lot of the masses of German industrial workers (pp. 35-85), and to promote social well-being in a united German Reich. Grimmer-Solem quotes Wilhelm Hasbach’s observation in the Economic Journal in 1891 on the “feverish activity” in economic history and descriptive work in Germany. This, he wrote, was encouraged by the rise of the “Historical School,” a variety of practical, social, and economic problems whose solution required a solid empirical foundation (p. 78).

Part II examines the still much misunderstood German term “die soziale Frage,” or “social question.” It surveys Germany’s social, economic and demographic problems from 1860 to 1870. Here, Grimmer-Solem describes how historical economists built the empirical foundations for social reform legislation designed to thwart the spreading Marxian appeal to industrial masses and intellectuals. Hands-on research was in vogue, and empirical social scientists enjoyed status (pp. 130-31), whereas the surviving elderly “armchair economists,” with their “laissez-faire” wisdom, had lost their former influence. The Historical Economists favored an empirically-based social science “directed by ethics to serve tangible human needs,” as the author puts it (p. 135).

Part III deals with social and economic policy making problems between 1872 and 1880. Here, Grimmer-Solem stresses the role of the Verein f?r Socialpolitik (pp. 171-73) in the emergence of social insurance legislation (pp. 210-23). This is one of the key parts of the entire book and could be read as an opening salvo. The volume ends with a conclusion (pp. 280-84), a comprehensive bibliography, and a detailed index.

This is an admirably thorough, clear-eyed study of Historical Economics that puts great emphasis on the role of the empirical foundations that led to the world’s first social legislation. In 1883, the Reichstag provided for health insurance and in 1884, it provided coverage for accident insurance in the workplace. The first old-age pension law followed in 1889.

Alas, among English-speaking economists, German Historical Economics has never attained meaningful standing. For Joseph A. Schumpeter, for instance, German Historical Economics was nothing but endless history. Schumpeter wanted to be known as an economic theorist first, and considered social policy-making, or Sozialpolitik, an almost shameful activity. In 1926, Schumpeter wrote an almost adoring essay on Gustav Schmoller, praising to the sky his broad-based manner of economic inquiry. Alas, in Schumpeter’s Ten Great Economists, published in 1951, the essay on Schmoller was missing.

Critics of any book serve readers and masters of many different agendas. For the contemporary math-oriented mainstream economist, Grimmer-Solem’s volume is likely to be of little importance. Today’s mainstreamers are classroom-oriented economists. Pressing economic and social problems are not quite their bag. I found Grimmer-Solem’s book an admirable rejection of Schumpeter’s innuendo that Historical Economics is nothing but bunk, i.e., “endless history.” Grimmer-Solem has resurrected the various techniques of statistical data collection that helped to solve the pressing social problems in the united German Reich. Personally, I found Grimmer-Solem’s volume a bit short on the rapidly-spreading Marxian message among German workers and intellectuals.

In conclusion, this is a bracing, judicious and eye-opening volume on the nature and functions of the German Historical School of Economics.

Nicholas W. Balabkins is Emeritus Professor of Economics at Lehigh University.