19th Century Economic Thought: Historical School and Early Socialism

In the 19th century, reaction movements began to emerge against the foundations of the classical school of economics. The Historical School developed in Germany between 1834 and 1883, extending its influence across Europe and the USA.

Branches of the Historical School

Within this school, two distinct currents are usually identified: the "Old Historical School" and the "Modern Historical School." Some of the common features shared by both currents include:

• The defense of the historical inductive method.
• The view of the State as a driver of development, proposing its intervention in favor of the weakest members of society.

Key Representatives of the Historical School

The Old Historical School

The principal representatives of the "Old Historical School" were its founder, Wilhelm Roscher, along with Karl Knies and Bruno Hildebrand.

The Modern Historical School

The postulates of the Modern Historical School were based on the idea that economic facts must be studied by considering the particular characteristics of each people. This involved analyzing their history and degree of development to establish economic laws. Its greatest representative was Gustav Schmoller.

Critique of the Historical School: Karl Menger

One of the most significant reactions against the Historical School, and more specifically against Schmoller, came from Karl Menger. Menger's position was based on his conviction that through the individual explanation of phenomena, one could come to recognize the developmental nature of certain economic facts.

For Menger, the error of the Historical School was that, despite their detailed knowledge about the evolution of an economic phenomenon, this knowledge did not necessarily relate to the formation of that phenomenon in the present. Conversely, Schmoller's position argued that empirical observation of economic events was necessary, and from these observations, the inductive method should be applied.

The Industrial Revolution and Social Change

The Industrial Revolution gave rise to a series of circumstances that revealed the poor living conditions to which the working class was subjected. The struggle for greater equality was waged through two main factors:

• The concentration of workers in industrial centers, which fostered greater contact and solidarity among them.
• A wider dissemination of their advocacy positions, which in turn caused a series of movements aimed at improving their situations.

Emergence of Socialist Thought

Socialist authors have traditionally been classified into two groups: Utopian Socialism and Scientific Socialism.

Key Utopian Socialist Thinkers

The leading representatives of Utopian Socialism include:

• Saint-Simon: Advocated for state leadership in economic life and accepted private property and economic differences among individuals.
• Charles Fourier: Proposed the organization of work through self-sufficient communities called "phalanxes."
• Robert Owen: Believed that education was crucial for achieving socialist goals. He proposed abolishing profit and replacing money with "labor bonds."