I’m currently reading Robert Skidelsky’s wonderful book, John Maynard Keynes: Hopes Betrayed, 1883-1920. I’m an enormous fan of his work, this book being no exception. However, even the best historians are sloppy at times. Writing about the great economist Alfred Marshall, Skidelsky claims that:
Marshall was also much more receptive that his predecessors had been to the use of history to discover economic laws – the so-called inductive as opposed to the deductive method – though he rejected the main conventions of German historical school (which would have destroyed economics’ claim to be a science) (Skidelsky 1983: pg 43)
This interpretation of “Alfred Marshall vs. the historical school” is fairly common among neoclassical economists, most notably Lionel Robbins, but I wouldn’t expect Skidelsky to make this error. Regardless, I suppose it’s time to set the record straight.
In fairness to Skidelsky (and others), Marshall did reject the extreme empiricism of the British and “old” historical school of economics. In his inaugural lecture, Marshall criticized the “extreme wing” of the school, claiming that their obsession with mere observations explains nothing:
Facts by themselves are silent. Observation discovers nothing directly of the actions of causes, but only of sequences in time. It may find that an event followed on, or that coincided with a certain group of other events. But this gives no guidance except for other cases, in which exactly the same set of facts occur over again, grouped in just the same way…. In economic or other social problems no event has ever been an exact precedent for another. The conditions of human life are so various: every event in the complex result of so many causes, so closely interwoven that the past can never throw a simple and direct light on the future. (Marshall 1885: pg 41)
He then went on to echo Carl Menger, saying that facts need to be “examined and interpreted by reason.” The selection and grouping of facts are subject to various assumptions that need to be carefully examined.
Marshall’s rejection of this “extreme wing” was highlighted during an exchange he had with British historicist William Cunningham. In his paper, The Perversion of Economic History, Cunningham criticized Marshall, attacking the assumptions in his economics:
The underlying assumption against which I wish to protest is never explicitly formulated by those who rely on it; but it may I think, be not unfairly expressed in some such terms as these. That the same motives have been at work in all ages, and have produced similar results, and that, therefore, it is possible to formulate economic laws which describe the action of economic causes at all times and in all places. (Cunningham 1892b: pg. 493).
Instead of concerning itself with universal economics laws, economics should be about “the actual world we live in”. The real world, according to Cunningham, is built upon empirical knowledge. It has no universality. In order to cope with the relativity of economic doctrine, economics should be concerned with classification and description. Economists should be preoccupied with taxonomy.
Obviously there are major problems with Cunningham’s argument. The taxonomic empiricism he embraced was subject to Menger’s critique of the historical school. Even taxonomy requires some universal principles before it can start classifying things. But in the grand scheme, Cunningham’s ideas aren’t particularly new for the time and in many ways they reflect the doctrines of the “old” historical school of Wilhelm Roscher. What’s more important is Marshall’s response to Cunningham. Firstly, he didn’t really go into any methodological depth. For someone who was supposedly diametrically opposed to the historical school, that’s a bit odd. Secondly, he concedes quite a bit to Cunningham and admits that historical inquiry is essential for economic theory. He accepts the idea that many economic laws may not apply to a particular historical age without modification. He even devotes a paragraph in praising the historical school and “the study of economic history.” Within the context of economic thought at the time, these statements from Marshall show that he was not an intellectual enemy of the German historical school. Far from it. In order to see why, we need to look at the “younger” historical school in Germany.
Carl Menger’s methodological attack on the historical school in 1883 stimulated an active debate in German speaking countries (also called the Methodenstreit) and the historical school’s response was lead by the economist Gustav von Schmoller. Unlike his predecessors, Schmoller recognized the limits of empiricism:
Observation and description, definition and classification are the preparatory activities. But what we desire to reach thereby is a knowledge of the interdependence of economic phenomena…. Induction and deduction are both needed for scientific thought as the right and left foot are both needed for walking. *
As opposed to empirical enquiry, Schmoller put more emphasis on institutions, how they affected individuals in an economic system, and the historical sensitivity of economic theory. Given his response to Cunningham, it’s almost certain that Marshall would have conceded much to Schmoller and the younger historical school. I’m not saying that he would agree with everything Schmoller had to say. But Marshall recognized many of the problems that the historicists emphasized and he was prepared to accept the role of history in economics. Some might even say that “Marshall himself was a product and part of the historical school tradition” (Hodgson 2005: pg 342) I’m not sure I would go that far, but there was definitely significant overlap between his ideas and the historical school’s.
It’s fairly clear, to me at least, that much of the misinformed intellectual history on the historical school of economics is the result of conflation. Rather than look at the intricacies and the development of the school, some historians of economic thought (particularly Austrians) merely conflate the younger school with the older and declare that the entire historical school was primarily concerned with some naive empiricism. Any honest look reveals that the historical school was not uniform in its methodology. Many historicists, e.g. Schmoller, Weber, and Sombart, developed economic theories and didn’t rely on the empirical methods of Roscher and others. Far from being an antagonist, Marshall should be seen as an ally, perhaps even an extension, of the historical school of economics.
*Marshall cited this exact passage from Schmoller in his Principles of Economics
1. Cunningham, W. (1892a), “The relativity of economic doctrines”, Economic Journal, Vol. 2 No. 1, pp. 1-16.
2. Cunningham, W. (1892b), “The perversion of economic history”, Economic Journal, Vol. 2 No. 3, pp. 491-506.
3. Hodgson, Geoffrey M. (2005), “Alfred Marshall versus the Historical School?” Journal of Economic Studies, 32.4, pp. 331-48.
4. Hodgson, Geoffrey Martin. How Economics Forgot History: The Problem of Historical Specificity in Social Science. London: Routledge, 2002. Print.
5. Marshall, Alfred. The Present Position of Economics. An Inaugural Lecture given in the Senate House at Cambridge, 24 February, 1885. London: Macmillan, 1885. Print.
6. Marshall, A. (1892), “A reply to ‘The perversion of economic history’ by Dr Cunningham”, Economic Journal, Vol. 2, pp. 507-19.
7. Skidelsky, Robert. John Maynard Keynes Volume One, Hopes Betrayed, 1883-1920:. New York: Viking, 1983. Print.