With Mill's 'Principles) the teachings of the classical school reached their climax and from now on we meet with increasing dissent from and modifications of its ideas. Exceptions may be made in the case of J. E. Cairnes (1824-75), whose chief contribution lay in his theory of non-competing industrial groups, which limited the scope of competition to a much smaller area than that usually assigned it; of Michel Che valier (1816-79) of France, and of the Swiss A. E. Cherbuliez (1797-1869). The reaction showed itself most prominently in Germany where the teachings of the classical school had never been accepted as fully as they had been in England and in France. To Germany, there fore, we must look for the next forward move ment in economics. This was contributed by the historical school.
The Historical School.— Three names are usually associated with the rise of the historical school in Germany, those of Wilhelm Roscher (1817-94), Bruno Hildebrand (1812-78) and Karl Knies (1821-98). They expressed their disagreement first of all with the abstract de ductive method of the older school and insisted that the 'proper method was inductive and his torical. Later writers of this school, as Gustav Schmoller and Karl Biicher, have laid less stress upon this point, and modern scholars no longer concern themselves with this barren con troversy. As Schmoller says, ((Induction and deduction are both necessary for the science, just as the right and left foot are needed for walking.° Another point of disagreement was their denial of the existence of economic laws. Influenced by Hegelian philosophy and later by the theory of evolution they emphasized the relativity of such generalizations, and pointed out that so-called economic laws are provisional and conditional. On this point there would be little disagreement to-day; the only question would be as to what name to apply to such economic tendehcies. The historical school also criticized the hedonistic psychology of the earlier writers and asserted that man is influ enced even in economic activities by other con siderations than those of self-interest. Perhaps it is putting the case too strongly to say, as M. Rist does, "this newer historical conception came to the rescue just when the science was about to give up the ghost, . . . infusing new life into the study,° but they certainly offered a valuable corrective to the abstract tendencies of the classical school and have led to a great interest in economic history.
The Psychological School.— Another school which has played a very important part in the development of recent theory is the Austrian or psychological school. They em phasize the importance of subjective factors and analyze value on the basis of utility. While the first economists to emphasize these features were a German, H. H. Gossen (1810-58), and
an Englishman, W. S. Jevons (1835-82), it remained for an Austrian group to apply their subjective theory of valuation to all the factors of production, and to develop consistent theories of interest, wages and profits. The foremost members of this school are Carl Menger, F. von Wieser and E. von B5hm-Sawerk (1851 1914). Their main contribution has been their analysis of value, which they have clarified by the concept of marginal utility. Value rests on utility and relative scarcity, or to put it in the words of Wieser, °the value of a single good out of a store is determined by that useful service which is the least important among those afforded by the store.° Mill's cost of production theory of value is rejected, or at most cost has only an indirect influence; value rests on subjective utility. The Austrian school also extend their theory of value to the means of production and even to problems of distribution. The application of the utility theory to the problem of interest was made by Bohm-Bawerk, but it has remained for Ameri can economists to apply it to problems of money, wages and profits. Among these may be men tioned J. B. Clark, I. Fisher, S. Patten, T. N. Carver and F. A. Fetter. This school has con tributed to the advance of economic science by emphasizing the subjective elements in con trast with the classical school, but in sympathy with them and in contrast with the historical school they have reverted to the use of the deductive method. Out of the discussion be tween these various groups however it has be come clear that, just as both inductive and deductive methods are needed, so both objective and subjective factors must be considered in the problems of economics.
Modern As critics and antag onists to all these schools stand the socialists, who since the day of Karl Rodbertus (1805-75) have become more scientific and less utopian. Rodbertus propounded a notable theory of crises, which he thought were due to insufficient purchasing power on the part of the laboring classes; poverty and crises can be avoided only by the socialization of property. More import ant was Karl Marx (1818-83) whose book Kapital) became the veritable bible of the socialists. He held a labor theory of value, which led him to conclude that profits and in terest and rent are robbery, and that socialism is both inevitable and necessary. Socialistic criticism has been valuable in overthrowing the conception of a natural order, in develop ing the social viewpoint, and in leading to greater emphasis upon distributive justice, which, while never overlooked even by the classical school, had not received the attention it merited.