Historical school of economics

The Historical school of economics is an economic school of thought that emerged in 19th century Germany and was a reaction to the ideas put forth by economists from the Classical School and Austrian School. More specifically those in the Historical School were reacting against the belief that economic laws could be discovered that were not dependent on the historical setting. The Historical School is often divided between the Older Historical School which was led by Wilhelm Roscher and Karl Knies and the Younger Historical School led by Gustav Schmoller. Members of the Historical School believed that laws of economics are only true for particular periods and conditions, a view which is often referred to as historicism. The methodology proposed by those in the Historical School was strongly influenced by the success of historical studies of language and law, and called for an inductive process for economics. They suggested that before economic laws could be formulated a large amount of data would need to be collected, relating to the historical period of interest, and then with this data patterns could be spotted and laws arrived at through induction and generalization. Furthermore, those who advocated economic historicism were generally in favor of government intervention in the economy.

Mises and the Historical School
Ludwig von Mises was strongly opposed to the theories put forth by the Historical School. He did not believe that economic laws could be arrived at by induction, as economies are too complex and consist of far too many variables for induction to be appropriate. Furthermore, he believed that even if a constant relation were discovered from historical data, this did not imply that such a relation would continue into the future. Finally, Mises suggested that many members of the Historical School were motivated by their desire to achieve their own policy objectives, or as he put it: "The ideas of historicism can be understood only if one takes into account that they sought exclusively one end: to negate everything that rationalist social philosophy and economics had established. In this pursuit many historicists did not shrink from any absurdity. Thus to the statement of the economists that there is an inevitable scarcity of nature-given factors upon which human well-being depends they opposed the fantastic assertion that there is abundance and plenty. What brings about poverty and want, they say, is the inadequacy of social institutions."

- Ludwig von Mises