The Visionary Realism of German Economics: From the Thirty Years' War to the Cold War

By Erik S. Reinert

The Visionary Realism of German Economics forms a collection of Erik S. Reinert’s essays bringing the more realistic German economic tradition into focus as an alternative to Anglo-Saxon neoclassical mainstream economics. Together the essays form a holistic theory explaining why economic development—by its very nature—is a very uneven process. Herein lie the important policy implications of the volume.

• Language: English
• Publisher: Anthem Press
• Release date: Feb 15, 2019
• ISBN: 9781783089055

Book preview

The Visionary Realism of German Economics

ANTHEM OTHER CANON ECONOMICS

The Anthem Other Canon Economics series is a collaboration between Anthem Press and The Other Canon Foundation. The Other Canon – also described as ‘reality economics’ – studies the economy as a real object rather than as the behaviour of a model economy based on core axioms, assumptions and techniques. The series includes both classical and contemporary works in this tradition, spanning evolutionary, institutional and Post-Keynesian economics, the history of economic thought and economic policy, economic sociology and technology governance, and works on the theory of uneven development and in the tradition of the German historical school.

SERIES EDITORS

Erik S. Reinert – Chairman, The Other Canon Foundation, Norway and Tallinn University of Technology, Estonia

Rainer Kattel – University College London, UK and Tallinn University of Technology, Estonia

Wolfgang Drechsler – Tallinn University of Technology, Estonia and Davis Center, Harvard University, USA

EDITORIAL BOARD

Ha-Joon Chang – University of Cambridge, UK

Mario Cimoli – UN-ECLAC, Chile

Jayati Ghosh – Jawaharlal Nehru University, India

Steven Kaplan – Cornell University, USA

Jan Kregel – Levy Economics Institute of Bard College, USA and Tallinn University of Technology, Estonia

Bengt-Åke Lundvall – Aalborg University, Denmark

Keith Nurse – University of the West Indies, Barbados

Patrick O’Brien – London School of Economics and Political Science (LSE), UK

Carlota Perez – London School of Economics and Political Science (LSE), UK; University College London, UK; SPRU – University of Sussex, UK and Tallinn University of Technology, Estonia

Alessandro Roncaglia – La Sapienza University of Rome, Italy

Jomo Kwame Sundaram – Institute of Strategic and International Studies, Malaysia

The Visionary Realism of German Economics: From the Thirty Years’ War to the Cold War

Erik S. Reinert

Edited by Rainer Kattel

Anthem Press

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Contents

Introduction

Erik S. Reinert

This volume attempts to present a period of around three hundred years of the German-language tradition in economic theory. The German tradition originated as part of a larger Continental tradition in economics, the origin of which can be seen as the massive impact of Italian economist Giovanni Botero’s 1588 bestselling On the Greatnesse of Cities¹—soon incorporated into a larger work on the Reason of State—which appeared in about 45 editions in Italian, Latin, Spanish, French and German between 1588 and 1666. Reflecting the cosmopolitical nature of Jesuit activism, Botero’s connection to Germany and Mitteleuropa was strong. His first four publications appeared, respectively, in Krakow, Würzburg, Nürnberg and Frankfurt.² Before the Thirty Years’ War—which marks the starting point for the present volume—there were already four Latin editions of Botero’s Greatnesse of Cities published in Germany.³

The broad and cross-disciplinary social science tradition started by Botero came to dominate economics in Germany more and longer than in other nations. We can find partial explanations for this in the fact that Germany—compared to countries like Holland, England or France—was a relative latecomer: eine verspätete Nation. Until the end of the nineteenth century, Germany also consisted of many states—several hundred states after the Thirty Years’ War (1648) and still around 30 three centuries later. We can speculate if the diversity and large number of small competing states with small populations may have encouraged researchers to be cross-disciplinary. To paraphrase Adam Smith, the small size of the partly regional markets for social sciences may have limited the division of labor. This may also have reinforced a cultural tendency to attempt to understand large and complex structures in a holistic way: the desire for a Ganzheitslehre.⁴

German philosopher Johann Gottlieb Fichte (1762–1814) certainly thought German political diversity, rather than unity, would cause increased learning and emulation:⁵

How fortunate we are in this regard that there are still so many distinct and separate German states! What is so often said to be to our disadvantage can perhaps work to our advantage in this important national matter. Perhaps imitation on the part of the majority, and the desire to get ahead of the others, will bring about something that the tranquil self-satisfaction of the individual states would not; for it is plain that the one state among all German states that makes a start with this will gain a definite lead in the respect, love, and gratitude of all; it will be the supreme benefactor and true founder of the nation. It will give the others courage, provide an instructive example, and become their model.⁶

Until its swan song as a result of World War II, German economics followed Botero’s approach of blending economics, in its narrow sense, not only with what is now called sociology but also with anthropology, political science, demography, and facts and figures from any other field that seemed to be relevant for the questions at hand. Relevance, as opposed to available tools, was the starting point for any analysis in this tradition. Botero’s second major work, Relazioni Universali,⁷ is organized more by geography and ethnicity than by nation-states proper. As one observer says, Botero brought together an immense mass of geographical and anthropological information, which he tried to organize according to broad methodological categories (like ‘resources’, ‘government’, and ‘religion’).⁸ During the 200 years following the first 1591 Italian edition, Botero’s Relazioni Universali was published in an incredible 84 editions⁹—in Italian, German, Latin, English, Spanish and Polish.¹⁰

The first six chapters of this book trace the German tradition as it was methodologically part of mainstream Continental European economics. Already early on, in the seventeenth century, English economics, so-called mercantilism, started to be dominated by commercial interest and traders, men like Thomas Mun, Josiah Child and John Cary. German economists, the so-called Cameralists, were largely recruited from the ranks of public employees of the many small states. While English economists tended to see the world through the lenses of long-distance traders, German economists often saw the world through the lenses of tax collectors of small states. The English emphasis on trade and barter, rather than on production, still today continues to be a key characteristic of mainstream economics. However, maximizing trading profits and maximizing public revenue gave very different perspectives. The third branch of early economics, French Colbertism, had perspectives not dissimilar from the German ones, but it was decidedly marked by the fact that France had been a unified monarchy centuries before Germany. While the end of the Hundred Years’ War in 1453 unified France, the end of the Thirty Years’ War in 1648 split Germany into hundreds of small states.

David Ricardo’s 1817 Principles of Economics—with an even more extreme focus on barter rather than production as the determining factor in the international economy—moved economics to a much higher level of abstraction. As opposed to the German-language tradition right, left and center—Joseph Schumpeter, Karl Marx and Rudolf Hilferding, respectively—Ricardo did not separate the financial sector from the real economy. This came to limit today’s understanding of financial crises.

Ricardo’s foundation of international trade theory as represented by the barter of qualitatively identical labor hours, void of any qualities, is in my opinion perhaps the largest barrier to our present understanding of two main problems in the world economy today: poverty and large-scale migration. To the nineteenth-century latecomers—like Germany, United States, Japan and Russia—Ricardo’s trade tended to be seen almost like an insult to common sense, an attempt to reduce the rest of the world to suppliers of raw materials to English industrial and de facto colonial might. The less abstract German tradition was to therefore become the dominating nineteenth-century economic tradition in the other main latecomer nations, not only in Continental Europe but also in the United States,¹¹ Japan¹² and Russia.¹³

The liberalist school labelled the adherents of the German Historical School of economics as Kathedersozialisten—or socialists of (academic) chairs. In our focus on German authoritarianism, we tend to forget that the Iron Chancellor Otto von Bismarck said to Gustav Schmoller that he was really also a Kathedersozialist but did not have time for such activities. It can be discussed if Bismarck’s remark originated in a paternalistic view toward labor, if it originated in an understanding that it was politically necessary to improve the well-being of the working masses to prevent revolution, if it originated in a love for mankind, or in all of the above. The important thing is that the movement originating in the Verein für Sozialpolitik (1882–1932)—the genetic material of which is contained in 188 volumes of economic deliberations on my shelves—created the European welfare state and gave important impetus to similar movements abroad.

Richard Ely, one of the founders of the American Economic Association in 1885, described the German influence on the founders thus:

The young men who gathered at Saratoga in 1885 to form the American Economic Association had very generally returned from Germany about 1880.¹⁴ Ideals of freedom were strongly cherished and very precious to us all. So as not to commit others I will describe my own feelings as a student of economics in Germany, but I believe I speak for many others. I had the feeling when I went there that I had entered into a new heritage of freedom, and a certain joyous expansion was one of the most pronounced feelings which I experienced. There was a free and large spirit on the part of professors of economics in the Fatherland, as well as other professors in the German university, to which I had not been accustomed. I felt that in the atmosphere of the German universities there was room for growth and encouragement of the development of individuality, which was something new to me.¹⁵

Unfortunately, to many these are not the values Germany came to represent during the twentieth century, but there is all the more reason to try to understand why German economics in its golden age inspired so many and could still serve as a major inspirational source to poor and rich nations alike. That is, if we manage to eliminate the negative leftovers from a relatively brief period (from the 400 years’ perspective of this volume) in the twentieth century.

Apart from Francis Walker, already the president of MIT by then, the first elected officials of the American Economic Association were the following: Henry C. Adams, who from 1887 until his death in 1921 was a professor of political economy and finance at the University of Michigan; Edmund J. James, at the time at the University of Pennsylvania where he became the director of the Wharton School of Finance and Economy and later president of the University of Illinois; John Bates Clark, later a professor at Columbia University; Richard T. Ely, at the time a professor and the head of the Department of Political Economy at Johns Hopkins University; and Edwin Seligman, who spent his whole career at Columbia University as a professor of political economy.¹⁶

One reason I relate the distinguished careers of the founding officers of the American Economic Association in such detail is that the association’s Wikipedia entry reads as follows: "The AEA was established in 1885 in Saratoga, New York by younger economists trained in the German historical school; since 1900 it has been under the control of academics."¹⁷ This curious phrasing clearly indicates that the distinguished group of economists and university presidents related here were not academics by Wikipedia standards. Unfortunately such slants are not uncommon in Wikipedia articles on economics.

Richard Ely’s autobiography Ground under Our Feet¹⁸ details a young American scholar’s meeting with German economic thought and method, and how rugged individualism was mellowed by an understanding for a state. Indeed, the German school of economics at the time distanced itself equally from both political extremes, from communism and from what was then referred to as Manchester Liberalism—from what Gustav Schmoller, dean of German economics at the time, in his inaugural speech at the University of Berlin called the ahistorical twins:

The simplistic optimism of laissez-faire and the childish and frivolous appeal to revolution, the naive hope that the tyranny of the proletariat would lead to world happiness, increasingly showed their real nature, that they were twins of an ahistorical rationalism. […] The old doctrines of individualistic natural law were transformed from the humanistic idealism of an Adam Smith to the hard mammonism of the Manchester School and (were useless for the present situation). […] The period 1870–1890 led to the theoretical and practical bankruptcy of both the old schools.¹⁹

This type of economics—which I have called the Other Canon²⁰ of economics—can be distinguished from today’s mainstream economics in several ways. One is that it is based on the study of historical events rather than on abstract axioms. Another is that there is an emphasis on qualitative understanding—on verstehen, as one would profoundly understand, for example, a person. This is in contrast to the approach of the natural sciences, which is more explaining (erklären).²¹ In this sense, Other Canon economics represents the opposite of the physics-envy of today’s economic mainstream.

Employing verstehen as a scientific method involves a particular form of objectivity. Real objectivity is not achieved by observing and quantifying a phenomenon with great accuracy; objectivity in the Other Canon tradition is of the type described by Nietzsche:

The only seeing which exists is a seeing in perspective, a seeing with perception; and the more feelings we allow to get involved about an issue, the more eyes—different eyes—that we mobilise to observe one thing, the more complete will our concept of this thing, our objectivity, be. Would not eliminating the will […] be the same as to castrate the intellect?²²

Quantification does not imply understanding; in fact, quantification may produce a false sense of understanding. As Jerome Ravetz put it in a recent conference in Brussels, We may be ignorant of our ignorance but at least we can measure it to two significant digits.

Yet another angle from which to explain the difference to today’s mainstream economics is to focus on the level of abstraction: German economics and the Other Canon tradition, facing a question or a policy problem, consistently attempt to place themselves at a level of abstraction where they are likely to find an answer to the question or problem at hand. Whereas abstraction often has been seen as synonymous of science itself, in the German tradition pragmatism and Praxisnähe—relevance and closeness to reality—have always been highly regarded. The opposite is represented by what one of the economists represented in this volume calls verschimmelte Schulweisheiten²³—mouldy school truths—or what a rector of the University of Berlin²⁴ scorned as Stubengelehrten—drawing-room academics—persons who lack experience and have acquired his or her knowledge only from books and never tried them out in real life.

The insistence on adjusting the analysis to a level of abstraction where a relevant reply is likely to be found automatically opens up both for a very large toolbox and for cross-disciplinarity. It also opens up for understanding that some factors, perhaps extremely important ones, have had to be sacrificed due to the restrictive assumptions needed in order to use the tools economists have chosen to use. As Schumpeter puts it, The general reader will have to make up his mind, whether he wants simple answers to his questions or useful ones—in this as in other economic matters he cannot have both.²⁵ One important criticism of today’s mainstream economics would be precisely this: a level of abstraction that has led to irrelevance.

The influential Columbia University economist Edwin Seligman—already mentioned as one of the founders of the American Economic Association—described the program of German economics as follows:

• It discards the exclusive use of the deductive method, and stresses the necessity of historical and statistical treatment.

• It denies the existence of immutable natural laws in economics, calling attention to the interdependence of theories and institutions, and showing that different epochs or countries require different systems.

• It disclaims belief in the beneficence of the absolute laissez-faire system.

• It maintains the close interrelations of law, ethics and economics.

• It refuses to acknowledge the adequacy of the presumption of self-interest as the sole regulator of economic action. ²⁶

The chapters in this volume—attempting to resurrect and show the relevance of a now virtually distinct type of economic theory—were written over a period of twenty years. Their publication is spread over a variety of books and journals, and—since they all relate to the overarching subject of the now decidedly unfashionable German-language approach to economics—it seems useful to unite them in a single volume. In this volume they are primarily organized in chronological order from the earliest German economist to the last representative of the German historical school.²⁷

Chapter 1 gives an overview of German-language economics as it relates to economic development. Chapter 2 discusses the role of the state in the process of economic growth, where a key feature of German economics is that both the individual and society are seen as relevant units of analysis. Chapter 3 introduces the life and work of Veit Ludwig von Seckendorff (1626–1692) and the birth of German-language economics after the Thirty Years’ War. Chapter 4 introduces Christian Wolff (1679–1754) and the role of innovation and new knowledge in economics. Chapter 5 discusses Johann Heinrich Gottlob von Justi (1717–1771) and his generation of economists. Chapter 6 introduces Jacob Bielfeld (1717–1770) and his theory of the decline of nations. Chapter 7 focuses on Friedrich List (1789–1846) and his perspectives on free trade. Chapter 8 presents a discussion of the mechanisms that have historically compensated for technological unemployment, an issue that was discussed by Karl Marx (1818–1883). Chapter 9 looks at Karl Bücher (1847–1930) and his view of the geographical dimensions of techno-economic change. Chapter 10 discusses Austrian economics—part of which is presently decidedly fashionable—from the point of view of Other Canon economics. Chapter 11, written with my youngest son Sophus Reinert, looks at Friedrich Nietzsche (1844–1900) and his relationship to the German historical school of economics. Chapter 12, written with my eldest son Hugo, discusses the origins and use of the term creative destruction—generally associated with Joseph Schumpeter (1883–1950)—back to Werner Sombart (1863–1941) and to Nietzsche.

Chapters 13 and 14 look at the work of Joseph Schumpeter more in detail: Chapter 13 discusses him in the context of the history of economic thought, focusing on his ambivalent relationships as torn between historical analysis and highly abstract theory. Chapter 14 looks at poverty and underdevelopment in a Schumpeterian context. Chapter 15 is a plea for establishing a synthesis of German and Austrian economics in order to fight world poverty. Chapter 16, written with Rainer Kattel, was a warning issued in 2004—at the time of the large European Union enlargement eastward—that this integration worked contrary to previous EU integration schemes, done in the spirit of Friedrich List, and predicting a Latinamericanization of the European Union: that the differences between the rich and the poor would become much more marked. Chapter 17 looks at the present crisis in the European Union from the point of view of three German economists, Heinrich von Thünen (1783–1850), Friedrich List and Joseph Schumpeter. Chapter 18 looks at financial crises as seen by Joseph Schumpeter, US economist Hyman Minsky and Venezuelan social scientist Carlota Perez. Chapter 19 takes us back to an overview of the history of economic thought based on a prize essay by German mathematician and economist Johann Jacob Meyen (1731–1797). The final Chapter 20 discusses Werner Sombart (1863–1941) and the swan song of a German economic tradition that had lasted about three hundred years, an economic tradition that had created the welfare state and provided inspiration to virtually all countries that emulated England’s road to industrialization.

In an interview, Paul Krugman essentially admitted the helplessness of an economics profession that has been defined by its employing certain tools:

I think there’s a pretty good case to be made that the stuff that I stressed in the models is a less important story than the things that I left out because I couldn’t model them.²⁸

Faced with such a degree of helplessness—being locked into a partly irrelevant toolshed of economics and having lost the key to get out—one would expect a cry of common sense to return to an economics profession that, because it is less formal, goes beyond the present tools in order to solve the many pressing problems of mankind. Indeed, Krugman seems to find himself in the situation described by Nietzsche above: the intellect has been disabled—castrated, in Nietzsche’s words—by a self-imposed inability to work outside the models. This is a situation that would seem to appeal to normal and healthy common sense, in German philosophy called der gesunde Menschenverstand.

Someone trained in the German historical school of economics would have understood that the deindustrialization of the Southern European periphery over the past years would cause precisely the transfer union that German politicians fear. Someone trained in the German historical school would have understood why people flee Northern Africa, with 40 inhabitants per square kilometer, for lack of jobs but find jobs when they come to the Netherlands, with 400 inhabitants per square kilometer. This lack of understanding—which is now the elephant in the room in European (and North American) politics—was well understood in economics all the way back to Giovanni Botero’s On the Greatnesse of Cities until fairly recently.

After World War II, Germany itself was saved by a German-type economic analysis with roots back to Botero: the sustainable population level of a nation is determined by its economic structure. A deindustrialized nation will not be able to retain its former population. The organs of the Marshall Plan that turned the formerly approved Morgenthau Plan—a 1943 plan to deindustrialize Germany—into a reindustrializing Marshall Plan was largely the product of a fact-finding mission of former president Herbert Hoover, who, in January 1947, had been asked by President Truman to go to Germany and Austria to address the food and economic problems in the British and American occupation zones.²⁹ By January 1947, the huge unforeseen consequences of the Morgenthau Plan had become evident.

In March 1947, Herbert Hoover reported back to President Truman what was the strongest statement in development economics ever:

There is the illusion that the New Germany left after the annexations can be reduced to a pastoral state. It cannot be done unless we exterminate or move 25,000,000 out of it.³⁰

There is virtually no trace of this understanding to be found in Germany and in the EU today. The Euro straitjacket relentlessly deindustrializes growing parts of the EU periphery. As we have noted, Germany’s nineteenth-century Iron Chancellor Bismarck professed to be a Kathedersozialist, someone with a pronounced social consciousness. Today’s Iron Chancellor Angela Merkel is, according to one biographer, better known for her Werteabstinenz, her absence of values.³¹

After World War II, Germany was saved from a deindustrializing Morgenthau Plan by the Marshall Plan. I therefore see it as a very strong moral obligation on Germany not to continue applying de facto Morgenthau Plans on the EU periphery and Africa. Most educated Germans know that a key element in Hitler’s coming to power was that after World War I the Allies attempted to collect a debt from Germany that was unpayable. I therefore see it as a very strong moral obligation on Germany not to attempt to collect an equally unpayable debt from Greece. If Friedrich List had been here today, he would most likely have scorned his fellow Germans in the same way he scorned England in the 1840s. After having climbed to wealth employing a certain type of economic wisdom, Germany now prohibits other nations from following the same road to wealth, throwing away the very ladder it has used in the past.³²

It is my hope that this volume, presenting a less formal approach to economics—which can solve the issues Krugman sees as important but cannot model—will contribute to raising interest in the now defunct German tradition in economics. At present, the European Union seems to get the worst of all worlds: German authoritarianism based on neoclassical economics instead of the economics understanding of Bismarck and his contemporaries.

List of (Mostly) Forgotten German-Language Economists

³³

Veit Ludwig von Seckendorff (1626–1692)

Philipp Wilhelm von Hörnigk (1640–1714)

Gottfried Wilhelm Leibniz (1646–1716)

Simon Peter Gasser (1676–1745)

Christian Wolff (1679–1754)

Georg Heinrich Zincke (1692–1769)

Jacob Bielfeld (1717–1770)

Johann Heinrich Gottlob von Justi (1717–1771)

Johann Friedrich von Pfeiffer (1718–1787)

Johann Jacob Meyen (1731–1797)

Johann Beckmann (1739–1811)

Johann Gottfried Herder (1744–1803)

Johann Gottfried Hoffmann (1765–1847)

Johann Heinrich von Thünen (1783–1850)

Friedrich List (1789–1846)

Bruno Hildebrand (1812–1878)

Wilhelm Roscher (1817–1894)

Karl Marx (1818–1883)

Heinrich Bernhard Oppenheim (1819–1880)

Karl Knies (1821–1898)

Eugen Dühring (1833–1921)

Adolph Wagner (1835–1917)

Gustav Schmoller (1838–1917)

Carl Menger (1840–1921)

Lujo Brentano (1844–1931)

Karl Bücher (1847–1930)

Werner Sombart (1863–1941)

Franz Oppenheimer (1864–1943)

Max Weber (1864–1920)

Rudolf Hilferding (1877–1941)

Joseph Alois Schumpeter (1883–1950)

Fritz Redlich (1892–1987)

Friedrich von Hayek (1899–1992)

Hans Singer (1910–2006)

The original publication data for the articles in this book is as follows:

Chapter 1. German Economics as Development Economics: From the Thirty Years War to World War II. In Jomo, K.S. and Reinert, Erik (eds.), The Origins of Development Economics: How Schools of Economic Thought Have Addressed Development, London, Zed, 2005, pp. 48–68.

Chapter 2. The Role of the State in Economic Growth, Journal of Economic Studies, vol. 26, no. 4/5, 1999, pp. 268–326.

Chapter 3. A Brief Introduction to Veit Ludwig von Seckendorff (1626–1692), European Journal of Law and Economics, 19, 2005, pp. 221–230.

Chapter 4. Exploring the Genesis of Economic Innovations: The religious gestalt-switch and the duty to invent as preconditions for economic growth (with Arno Daastøl), European Journal of Law and Economics, vol. 4, no. 2/3, 1997, pp. 233–283.

Chapter 5. Johann Heinrich Gottlob von Justi (1717–1771): The Life and Times of an Economist Adventurer. In Backhaus, Jürgen (ed.), Johann Friedrich Gottlob von Justi: The Beginnings of Political Economy: Johann Friedrich Gottlob von Justi, series The European Heritage in Economics and the Social Sciences, New York, Springer, 2009, pp. 33–74.

Chapter 6. Jacob Bielfeld’s On the Decline of States (1760) and its Relevance for Today, The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics, No. 47, 2013.

Chapter 7. Raw Materials in the History of Economic Policy; or, Why List (the Protectionist) and Cobden (the Free Trader) Both Agreed on Free Trade in Corn. In Parry, G. (ed.), Freedom and Trade: 1846–1996, London, Routledge, 1998, pp. 275–300.

Chapter 8. Compensation Mechanisms and Targeted Economic Growth – Lessons from the History of Economic Policy. In Vivarelli, Marco and Mario Pianta (eds.), The Employment Impact of Innovation, London, Routledge, 2000, pp. 182–206.

Chapter 9. Karl Bücher and the Geographical Dimensions of Techno-Economic Change. Backhaus, Jürgen, (editor) Karl Bücher: Theory – History – Anthropology – Non-Market Economies, Marburg, Metropolis Verlag, 2000, pp. 177–222.

Chapter 10. Austrian Economics and the Other Canon: The Austrians between the Activistic-Idealistic and the Passivistic-Materialistic Traditions of Economics. In Backhaus, Jürgen (ed.), Evolutionary Economic Thought. European Contributions and Concepts, Chelthenham, Elgar, 2003, pp. 160–207.

Chapter 11. Nietzsche and the German Historical School (with Sophus Reinert). In Backhaus, Jürgen and Wolfgang Drechsler (eds.), Friedrich Nietzsche 1844–2000: Economy and Society, series The European Heritage in Economics and the Social Sciences, Boston, Springer, 2006, pp. 111–135.

Chapter 12. Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter’ (with Hugo Reinert). In Backhaus, Jürgen and Wolfgang Drechsler (eds.), Friedrich Nietzsche 1844–2000: Economy and Society, series The European Heritage in Economics and the Social Sciences, Boston, Springer, 2006, pp. 55–85.

Chapter 13. Schumpeter in the Context of two Canons of Economic Thought. Industry and Innovation, vol. 6, no. 1, 2002, pp. 23–39.

Chapter 14. The role of technology in the creation of rich and poor nations: Underdevelopment in a Schumpeterian system. In Aldcroft, Derek H. and Ross Catterall (eds.), Rich Nations – Poor Nations. The long run perspective, Aldershot, Edward Elgar, 1996, pp. 161–188.

Chapter 15. Towards an Austro-German Theory of Uneven Economic Development? A Plea for Theorizing by Inclusion. Review of Austrian Economics, vol. 20, nos. 2/3, June 2007.

Chapter 16. The qualitative shift in European integration: towards permanent wage pressures and a ‘Latin-Americanization’ of Europe? (with Rainer Kattel). PRAXIS Working Papers No. 17, 2004.

Chapter 17. Primitivization of the EU Periphery: How the European Union hollowed out Heinrich von Thünen’s model and put both Friedrich List and Joseph Schumpeter into Reverse Gear. Informationen zur Raumentwicklung / Informations on Spatial Development, Bonn, Germany, No. 1, 2013.

Chapter 18. Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky. Jornal Ekonomi Malaysia, vol. 46, no. 1, 2012, pp. 85–100.

Chapter 19. Full Circle: Economics from Scholasticism through Innovation and back into Mathematical Scholasticism. Reflections around a 1769 price essay: ’Why is it that Economics so Far has Gained so Few Advantages from Physics and Mathematics? Journal of Economic Studies, vol. 27, no. 4/5, 2000, pp. 364–376.

Chapter 20 is modified from Reinert, Erik S., Warum manche Länder reich und andere arm sind. Wie der Westen seine Geschichte ignoriert und deshalb seine Wirtschaftsmacht verliert, Stuttgart: Schäffer-Poeschel, 2014.

In Chapters 7 and 9 the page numbers from the original publication are found in brackets, indicating the start of a new page in the original publication.

I would like to thank Rainer Kattel for all his assistance in the publication of this volume. A note of deep gratitude goes to Fernanda Aars Reinert, my wife, librarian, muse, and proofreader for the last almost 50 years. The Heilbronn Symposia, organized by Jürgen and Ursula Backhaus, provided a demand which led to the production of several chapters in this volume. Theirs has been a most important work.

¹ For a discussion of Botero and his influence on economics, see Reinert, Erik, and Kenneth Carpenter, German Language Economic Bestsellers before 1850, with Two Chapters on a Common Reference Point of Cameralism and Mercantilism, The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics , No. 58, 2014, technologygovernance.eu/eng/the_core_faculty/working_papers/.

² See Firpo, Luigi, Gli scritti giovanili di Giovanni Botero , Florence: Sansoni, 1960, pp. 12–22.

³ The first edition in German followed in Frankfurt only in 1657.

⁴ Austrian economist Othmar Spann (1878–1950) represents both an extreme example of this holistic approach and how it could degenerate into totalitarianism.

⁵ For the role of emulation in the growth and development of Europe, see Reinert, Sophus, Translating Empire: Emulation and the Origins of Political Economy , Cambridge, MA: Harvard University Press, 2011.

⁶ Fichte, Johann Gottlob, Addresses to the German Nation , trans. with introduction and notes by Isaac Nakhimovsky, Béla Kapossy and Keith Tribe, Indianapolis, IN: Hackett, 2013, p. 141. Originally published in 1808.

⁷ The first three parts of which were published in Rome in 1591 (presso Giorgio Ferrari).

⁸ Rubies, Joan-Pau, Travel and Ethnology in the Renaissance , Cambridge: Cambridge University Press, 2000, p. 294.

⁹ The main bibliographical source on Botero is Assandra, Giuseppe, Giovanni Botero. Note biografiche e bibliografiche di Giuseppe Assandra suo concittadino (edited by Gino Borghezio), in Bollettino storico-bibliografico subalpino , vol. XXVIII, Turin, 1926, pp. 407–42, and vol. XXX, 1928, pp. 29–63, 307–51.

¹⁰ There were three early Polish translations: 1609, 1613 and 1659. Botero’s biographer Assandra indicates that the lack of a French translation was the result of this work being banned there.

¹¹ German economics was also influenced from the United States and the periphery of the British Isles. See Reinert, Erik S., Daniel Raymond (1820): A US Economist Who Inspired Friedrich List, with Notes on Other Forerunners of List from the English-Speaking Periphery, in Peukert, Helge (ed.), Taking Up the Challenge! Festschrift für Jürgen Backhaus , Marburg: Metropolis, 2015.

¹² For a discussion, see Sugiyama, Chuhei, and Hiroshi Mizuta, Enlightenment and Beyond: Political Economy Comes to Japan , Tokyo: University of Tokyo Press, 1988.

¹³ The foremost German influence on Russian economics was Count Sergei Witte, Friedrich List’s Russian translator. Witte held several influential ministerial posts in Russia from 1892 onward and was an initiator of Russian industrialization and of the Trans-Siberian Railroad. See Narcave, Sidney, The Memoirs of Count Witte , Armonk, NY: Sharpe, 1990; and von Laue, Theodore, Sergei Witte and the Industrialization of Russia , New York, NY: Columbia University Press, 1963.

¹⁴ The exception, who had no educational background from Germany, was Francis Amasa Walker, the first president, who at the time was the president of the Massachusetts Institute of Technology (MIT). Walker was a law graduate from Harvard.

¹⁵ Ely, Richard T., The American Economic Association 1885–1909, American Economic Association Quarterly , 3rd series, vol. 11, no. 1, Papers and Discussions of the Twenty-Second Annual Meeting: Being the Twenty-Fifth Anniversary of the Founding of the Association. New York City, December 27–31, 1909 (April 1910), pp. 67–68.

¹⁶ Adams had studied in Heidelberg and Berlin, James in Halle under Johannes Conrad (Conrad’s students had strong influence on Harvard’s economics department), Clark in Zürich and Heidelberg (under Karl Knies), Ely in Heidelberg under Knies, and Seligman in Berlin, Heidelberg, Geneva and Paris.

¹⁷ https://en.wikipedia.org/wiki/American_Economic_Association , accessed July 30, 2015. Italics added.

¹⁸ Ely, Richard, Ground under Our Feet , New York, NY: Macmillan, 1938.

¹⁹ Schmoller, Gustav, Wechslende Theorien und faststehende Wahrheiten im Gebiete der Staats- und Socialwissenschaften und die heutige deutsche Volkswirtschaftslehre , Berlin: W. Büxenstein, 1897, p. 22. My translation. Downloadable on www.othercanon.org .

²⁰ See Reinert, Erik S., and Arno Daastøl, The Other Canon: The History of Renaissance Economics. Its Role as an Immaterial and Production-Based Canon in the History of Economic Thought and in the History of Economic Policy, in Reinert, Erik S. (ed.), Globalization, Economic Development and Inequality: An Alternative Perspective , Cheltenham: Edward Elgar, 2004, pp. 21–70.

²¹ See Drechsler, Wolfgang, Natural versus Social Sciences: On Understanding in Economics, in Reinert, Erik S. (ed.), Globalization, Economic Development and Inequality: An Alternative Perspective , Cheltenham: Edward Elgar, 2004, pp. 71–87.

²² Es gibt nur ein perspektivisches Sehen, nur ein perspektivisches ‘Erkennen’; und je mehr Affekte wir über eine Sache zu Worte kommen lassen, je mehr Augen, verschiedene Augen wir uns für dieselbe Sache einzusetzen wissen, um so vollständiger wird unser ‘Begriff’ dieser Sache, unsre ‘Objektivität’ sein. Den Willen aber überhaupt eliminieren, die Affekte samt und sonders aushängen, gesetzt, daß wir dies vermöchten: wie? Hieße das nicht den Intellekt kastrieren?, Nietzsche, Friedrich, Werke , Digitale Bibliothek Band 31, Berlin, Directmedia (CD-ROM), 2000. 7394–95. My translation.

²³ Bücher, Karl, Lebenserinnerungen , Tübingen: Laupp, 1919, p. 197.

²⁴ Wagner, Adolph, Die akademische Nationalökonomie und der Socialismus , Rede zum Antritt des Rectorats der Königlichen Friedrich-Wilhelms-Universität in Berlin am 15, October 1895, Berlin: Julius Becker, 1895, p. 7.

²⁵ Schumpeter in Zeuthen, Fredrik, Problems of Monopoly and Economic Welfare , London: Routledge, 1930.

²⁶ Seligman, Edwin, Essays in Economics , New York, NY: Macmillan, 1925, p. 15–16.

²⁷ The most important German economist not specifically treated in this volume is Gustav Schmoller (1838–1917). For introductions to Schmoller, see Backhaus, Jürgen (ed.), Gustav von Schmoller and the Problems of Today , Oxford: Berg, 1989; and Balabkins, Nicholas W., Not by Theory Alone: The Economics of Gustav von Schmoller and Its Legacy to America , Berlin: Duncker & Humblot, 1988.

²⁸ Paul Krugman in the New Yorker , March 1, 2010.

²⁹ http://www.trumanlibrary.org/hoover/documents.php?page=3 .

³⁰ For a German view on this issue, see Baade, Fritz, Gruß und Dank an Herbert Hoover, in Weltwirtschaftliches Archiv , vol. 74, no. 1, 1955, pp. 1–6.

³¹ Höhler, Gertrud, Die Patin: Wie Angela Merkel Deutschland umbaut , Zürich: Orell Füssli, 2012.

³² Es ist eine gemeine Klugheitsregel, daß man, auf den Gipfel der Größe gelangt, die Leiter vermittelst welcher man ihn erklommen, hinter sich werfe, um andern die Mittel zu benehmen uns nachzuklimmen (from List’s Das nationale System der politischen Oekonomie: Der internationale Handel, die Handelspolitik und der deutsche Zollverein , Stuttgart & Tübingen: Gottascher Verlag, 1841, p. 501).

³³ Source: Reinert, Erik S., Warum manche Länder reich und andere arm sind. Wie der Westen seine Geschichte ignoriert und deshalb seine Wirtschaftsmacht verliert , Stuttgart: Schäffer-Poeschel, 2014, p. 233. These economists are all cited in the book.

Chapter One

German Economics as Development Economics: From the Thirty Years’ War to World War II

Erik S. Reinert

Three main elements make a study of the German economic tradition) particularly rewarding for development economists. First of all, German economics was born late and at a time when the nation was particularly backward, poor and ravaged by the Thirty Years’ War (1618–48), which had cost the lives of up to 70 per cent of the civilian population in some areas. Therefore, from its very inception, German economics was that of a backward nation attempting to catch up with its wealthier neighbours. As opposed to English and American economics, whose philosophical base changed radically when the nations attained world economic power, the analytical base of German economics was not modified as the nation grew wealthier. Second, German economics has consistently, through the centuries, seen the economy from a different vantage point with different metaphors: essentially from the point of view of production rather than trade, and operating at a much lower level of abstraction than today’s mainstream economics and its predecessors. Third, the scope of economics in the German tradition has been much wider than in the Anglo-Saxon mainstream. Factors such as geography and history, technology and technical change, government and governance, and social problems and their remedies, have all been central to the approach since its very inception.¹

A frequent theme in German historical writing is the idea of the country as a verspätete nation, a laggard nation, as compared to the rest of Europe. In such a situation, the state plays a very different role than in the more developed nations.² As Keynes said, ‘the worse the situation, the less laissez-faire works.’ It was therefore only natural that other latecomers — in particular, the United States and Japan — built their economic theories and policies on the German model.³ During the nineteenth century, united in a common position against English economics, economics in Germany and the United States strongly influenced and fertilized each other. These catching-up nations formed a common theoretical front against England, a nation that not only made it politically clear that she saw it as a primary goal to prevent other nations from following the path of industrialization, but also — for the first time in the history of economics — possessed an economic theory that made this goal a legitimate one. From a policy perspective, the novelty of the economics of Smith and Ricardo was that they made colonialism morally defensible.⁴

The nineteenth century produced important German–American economic exchanges and alliances against English classical economics. Friedrich List, a German political refugee in the United States, was inspired by the vision and arguments of US economists: publications by Daniel Raymond and Mathew Carey in 1820 and 1821 provided List with new ammunition and inspiration. Later in the century, another German–American pair of economists, Henry Carey and Eugen Diihring, supported and defended each other. During the nineteenth century, both US and Japanese economists were trained in German economics: US economists through their graduate studies at German universities, and Japanese economists through their training under not only German economics professors in Japan but also a large number of German-trained US professors teaching in Japan (see Sugiyama and Mizuta 1988). There were no graduate schools in economics in the United States at that time, and most US economists received their Ph.D.s at German universities, as did all the founders of the American Economic Association. Reading knowledge of German was mandatory for a Ph.D. in economics in the United States until World War II.

We should not, however, exaggerate the differences between the German economic tradition and that of the rest of continental Europe. In the long term, the most important dividing line was between the English economic tradition and the continental European traditions seen as a whole. The works available in English on the German economic tradition tend to be seen from an Anglo-Saxon viewpoint, where German economics is seen in contrast to the English tradition without recognizing its similarities to the rest of the continental tradition. To most historians of economic thought, cameralism — the particular German form of economics — is solely a German phenomenon. Many are not aware that both the term ‘cameralism’ itself and the works of the cameralist authors spread from Sweden and Russia to Spain and Italy.⁵ The textbook written by the first professor of economics outside Germany, Anders Berch in Uppsala (Berch 1747), used the term ‘cameralism’ in its title. The first professor of economics in northern Italy in the 1760s, Cesare Beccaria, was one of ‘cameral sciences’.

The only two German-language economists broadly studied in the rest of the world — Karl Marx and Joseph Alois Schumpeter — are, in fact, much less original in the context of the German tradition than they appear in the standard historiography of economic thought. Marx and Schumpeter indeed shared a typical ‘German’ view of productive forces bringing about change in society. In his Foreword to the Japanese edition of The Theory of Economic Development (reproduced in Clemence 1951: 158–63), Schumpeter stressed the similarities between Marx’ approach and his own, contrasting their approach with Walrasian and Marshallian economics. In the German production-based tradition, capital per se has no value, and this is reflected both in Schumpeter and in Marx. As a result, the interest rate under perfect equilibrium in Schumpeter’s system would be zero. This finds its parallel in Marx’s proposition that constant capital does not produce any surplus value. However, these similarities, according to Schumpeter, are ‘obliterated by a very wide difference in general outlook’ (in Clemence 1951: 161).

Seen from the perspective of German economics, the part of Marx’s work alien to this tradition was his use of Ricardo’s labour theory of value. Marx’s contemporaries among German economists, starting with Eugen Diihring who was the first to comment on his work, therefore tended to be sympathetic towards Marx’s economic analysis but not to his turning the social pyramid upside down as the solution to society’s ills. Still, Marx’s influence on the German economists who followed him is clear. In fact, in his book review of Werner Sombart’s main work, Der moderne Kapitalismus, Gustav Schmoller, the oldest of the giants of the New Historical School, chided his younger colleague for being too greatly influenced by Marx.

Permanent Characteristics of the German Economic Tradition

It is possible to distinguish an economic tradition in Germany from after the end of the Thirty Years’ War in 1648. Prior to this date, in the tradition of Xenophon, a literary tradition generally labeled Hausvaterliteratur gave advice on how to run estates, small and large. Fiirstenspiegel (Wings’ Mirror’), of which the best known is Sachsenspiegel from the twelfth century, were books that collected the laws and customs of the German states. During the three hundred years from 1648 until the German economics tradition dissolved after World War II in 1945, a continuity of principles and approaches can be observed that clearly distinguished this type of economics, both from English economics after 1776 and from today’s mainstream economics. In the chapter on ‘Mercantilism and Economic Development’ in this volume, we point to the similarities between English economics before 1776 and the German tradition.

Different types of economics tend to be influenced by the professions from which the economists are recruited. English economists were, to a large extent, merchants and traders who brought their professional perspective with them. Adam Smith spent many years as a customs inspector, adding to the commercial bias of English economic theory. Indeed, a common German criticism of English classical economics has been that it reduced the science of economics to catalectics, to a science limited to the study of barter, trade and exchange. German economists, by contrast, were involved in the management of the many small German states. The term cameralism itself originates in the camera principis or Kammer, that is, treasury. The perspective of the cameralists was that of public management, of taxes and institutions, laws and regulations. Their view of economic development was, therefore, very practical, and led them to a consideration of production — rather than trade alone — and the balance between different economic activities. For example, the need for creating a healthy base for taxation led them to favour the promotion of mechanized manufacturing, whose employees would gain a taxable income and whose owners were much better tax subjects than farmers or small artisans. German economists were, almost to a man,⁶ in ardent opposition to the French Physiocrats, who established agriculture as the only producer of ‘net wealth’ (see also the chapter on ‘The Italian Tradition of Political Economy’ in this volume).

The German economic tradition focuses on the state as an important economic facilitator and occasionally also as an entrepreneur of last resort in difficult situations (Reinert 1999). Probably also as a legacy of the chaos of the Thirty Years’ War, a chaos similar to that of any ‘failing state’ today, pragmatism called for an orderly environment, with the state as a necessary facilitator in order to create individual opportunity and happiness. The state is seen as something through which, rather than against which, individual liberty and progress are gained within the framework of a common weal? Through this tradition, German economics provides key insights for contemporary economies where the ‘natural order’ is non-productive rent-seeking involving raw materials and/or cheap labour, and where the ‘natural order’, at times, is utter chaos.⁷

German economics is above all an Erfahrungswissenschaft — a science based on experience. There is little metaphysical speculation and high abstractions; many considered the economic theories of David Ricardo to be an example of ‘metaphysical speculation’.⁸ Strukturzusammenhänge — structural coherence and connections — among economic factors, and between the economy and the rest of society, are not only obvious, understanding such connections is also most important for both economic theory and policy. Synergies would be one example of this. Compared to Anglo-Saxon economics, the German approach has therefore always been holistic. Economics was to become an umbrella science of the social sciences. There was only one criterion for what was to be included under the heading of ‘economics’: relevance. To the degree that nutrition might be important to the economy at one point in time, it would be a part of economics.

Praxisnähe — closeness to reality — and relevance have been key criteria for academic quality in this tradition. There is also a fundamental understanding that important economic factors are irreducible to mere figures and symbols. A frequent criticism is that standard economics often produces qualitätslose Grössen, quantities that are devoid of any qualitative understanding. Even the most accurate and comprehensive description of a human being by all his or her quantifiable aspects — height, weight, percentage of water and trace minerals — would leave out the key factor in economic development, what Friedrich Nietzsche called Geist and Willenskapital: the wit and will of mankind.

As it developed, German economics came to be solidly based on the philosophical foundation of Gottfried Wilhelm von Leibniz (1646–1716) and Christian Wolff (1679–1754),⁹ arising from the legal tradition of Naturrecht or natural law. The devastation of the Thirty Years’ War created a need for a common basis of law regardless of creed. In the natural ‘uncivilized state’, the natural law tradition maintains that man still has moral obligations, the origins of which are to be found in nature. Modern state theory also emerged in the same period. At the core of the system of Christian Wolff, who came to be the basis of German economics starting around 1750, rests the presupposition that man is essentially a social, peaceful and rational being. Related to this is a fundamental belief in man’s common sense: der gesunden Menschenverstand.

Schumpeterian elements are deeply embedded in the German economics tradition. A focus on learning and progress, very clear in Leibniz and Wolff, is based on the Gottesähnlichkeit of man: man’s near-God-like quality of being able to create new things. Being born in the image of God meant that it was man’s pleasurable duty to invent. At its most fundamental level, the contrast between English and German economics lies in the view of the human mind. To John Locke, man’s mind is a blank slate — a tabula rasa — with which he is born, and which passively receives impressions throughout life. To Leibniz, man has an active mind that constantly compares experiences with established schemata, a mind both noble and creative.

Of Adam Smith’s ideas, the one most repudiated by German economists was that man is essentially an animal that has learned to barter. In the tradition that followed Smith, ideas and inventions have been produced outside the economic system. Karl Menger, the founder of the Austrian School of Economics, dedicated a whole chapter in his Grundrisse to refute Smith’s view on this point. In the German tradition, including Marx and Schumpeter, the view is that man is an animal who has learned to invent. Nietzsche later added the point that man is the only animal that can keep promises, and therefore creates laws and institutions. Putting these elements together, we have an impressionistic picture of what differentiates English from German economics — barter and ‘metaphysical speculation’, on the one hand, and production and institutions, on the other.

To sum up, the following are the main characteristics that distinguish the German economic tradition — from Gottfried Leibniz and Christian Wolff, via Johann Gottlob von Justi and Friedrich List, to the Verein fur Sozialpolitik and the Historical Schools:

• Centre of theory: man and his needs: Der Mensch and seine Bedürfnisse.

• A non-mechanical understanding of the world: qualitative (verstehen, as opposed to purely quantifiable ‘ begreifen’ (Drechsler 2004).

• An activist–idealist approach to economic policy based on morality and ethics, as opposed to a passive–materialistic attitude to economic policy (these are Werner Sombart’s terms).

• ‘History matters’: theory and policy must be based on the context and should understand the cumulative mechanisms in economics.

• Technology and new knowledge are the driving forces of the economy.

• Focus on production, rather than trade.

• Economic activities are seen as qualitatively different as carriers of economic growth.

• Economic harmony is man-made, not natural. Passivity is more likely to create ‘spontaneous disorder’ than ‘spontaneous order’.

Cameralist Economic Policy: From Veit von Seckendorff (1626–1692) to Wilhelm von Hörnigk (1640–1714)

Veit Ludwig von Seckendorff (1626–1692) has been called the ‘Adam Smith of Cameralism’ (Small 1909), and justifiably so. His times were violent and extremely difficult for Germany. The Thirty Years’ War (1618–48) was a religious war, initially intra-German, which gradually came to involve several European powers at the time, including Spain, France, Denmark and Sweden. The war had no winner, but it became obvious to a number of German intellectuals of the next generation that the real loser was civilized society as such. When Seckendorff was 16 years old, his father, a German in the service of the Swedish army, was executed as an alleged spy. By the time Seckendorff died at the age of 66, the armies of Louis the XIV of France had recently utterly destroyed one German state, the Palatinate (Pfalz). In between, there were wars with the Turks and two more wars with France that led to the loss of Strasbourg, where Seckendorff had studied. Cameralism, in our view, cannot be properly understood outside this context of a simultaneous reconstruction of a civilized society and of what would today be called ‘failed states’: states where economic life and basic institutions had to be built, virtually, from scratch. The ‘natural order’ of the day was barbarism.

Seckendorff entered the service of a former official in the Swedish army, Duke Ernst of Sachsen–Gotha, called Ernst der Fromme or Ernst the Pious. Seckendorff loyally identified himself with the common weal of the state he served, but was also patriotic about greater Germany. He is referred to as one of the most learned men of his times; he corresponded with Leibniz, among others, and his high ethical standards made him a prototype for later German bureaucrats.

In 1656, at the age of 30, Seckendorff finished his most important work and the first book in the cameralist literature, Der Teutsche Fürstenstaat (The German Principality). The book became the standard handbook for economic policy in Germany and went through a number of editions over the next 98 years. The Fürstenstaat is a kind of ‘owner’s manual’ for a small state. There are accurate descriptions of history, population, economic conditions, administration, school system, law and justice. The principles followed in the very successful reconstruction of the state of Sachsen–Gotha and its institutions after the Thirty Years’ War are described. Seckendorff’s approach was clearly a holistic and organic one, where the state is an organism and its common weal can only be understood in its totality (Ganzheit). His views were similar to those of the Italian economists of the Renaissance. The emphasis on the totality, on Ganzheit, was to be a hallmark of German economics and German philosophy for the next 300 years.¹⁰

Seckendorff travelled to the Netherlands, accompanying Count Ernst. The wealth and religious tolerance he observed there made a huge impression on him (Stolleis 1995:158). Early economic policy in Europe was frequently based on benchmarking against the successful states — the Netherlands (Reinert, ed. 2004c) and Venice being the obvious cases — and against Spain, with its inflow of gold accompanied by deindustrialization and increasing poverty, as the case to avoid. To Seckendorff, the Dutch appeared as ‘examples of the wisest and in production and trade (in Gewerb) the most experienced people’ (Seckendorff 1665). From the Netherlands, Seckendorff understood the crucial need for manufactures and also the need to cluster economic activities, both arguments that Antonio Serra had already raised at a theoretical level in 1613. Seckendorff’s economic measures included promotion of manufactures and resettlement of artisans from the countryside in the cities, where they were likely to make a much better living. He promoted the extension of agriculture and of activities adding value to the produce of the land. He also eased the mobility of labour by eliminating fees required for settlement and resettlement. With him, we find the origins of the welfare state, of care for the poor and of government responsibility for the elderly. In his wish to limit the powers of the guilds, he showed liberal tendencies well ahead of his times.

Seckendorff’s policies were, to a large extent, reflected in von Hörnigk’s principles published eighteen years later, which we shall discuss in detail below. Seckendorff established in the eighteenth century what Albert Hirschman calls ‘a multi-level conspiracy for development’. He was an early proponent of a school of economists and political writers that was to dominate Europe in the next century: writers who convinced the kings and rulers that their right to rule a state or country also entailed a duty to develop that state. The thirteenth-century idea of a common good, originating in Italian humanism, was slowly being transformed into an idea of public happiness, and the ruler was put in charge of the project. Wilhelm Roscher coined the descriptive term ‘enlightened despotism’ for this kind of rule (Roscher 1868: 77).

The enlightened ruler — the ‘philosopher–king’ in Christian Wolff’s terms — was in charge of this ‘developmental dictatorship’, and the job taken up by the cameralists following Seckendorff was to advise, assist, guide, correct, flatter and cajole the ruler into doing his job properly. The logic that emerged was, the better the ruler, the wealthier the people. Instead of judging his success by his own wealth, the ruler’s success would be based on the wealth and happiness of his people.¹¹

Of the cameralists, the first true economist was Johann Joachim Becher (1635–1682), whose varied career matched that of the ‘economist adventurers’ of the next century. Here, however, we concentrate on Becher’s university companion and brother-in-law, Philipp Wilhelm von Hörnigk (1640–1714), who delivered economic policy measures in the most succinct way. Like Johann Heinrich Gottlob von Justi in the next century, Hörnigk was a German-born economist in the service of Austria. His book Österreich über alles, wann es nur will (Austria Supreme (if it so wishes)) was published anonymously in 1684, and was the most successful German-language economics book of the period. Like Seckendorff, Hörnigk corresponded with Leibniz, the famous and practically inclined philosopher of the time. Hörnigk’s economics was ‘reality economics’, based on intensive studies of the actual situation in the country. His 1684 book reached at least sixteen editions and remained in print for a full hundred years (Carpenter 1977: 10). The centenary edition was published in 1784 under the title Bemerkungen über die österreichische Staatsökonomie (Remarks on the Economy of the State of Austria). In this edition, it was claimed that Austria could thank Hörnigk’s book for most of her wealth.

As in the case of Seckendorff, understanding Hörnigk requires an understanding of the setting. Civilization, as it was known then, was under threat. Just two years before Hörnigk’s book was published, the Turks had ended one of several unsuccessful sieges of Vienna. Austria suffered great famines during 1648–50,1692–94,1698–1702 and 1712–13, and devastating epidemics in the 1630s, 1650s and 1680s. To the north, the once powerful Hanseatic League had long been in decline, and to the south, neighbouring Venice