ABSTRACT
In 1920 Ludwig von Mises published his famous essay ‘Die Wirtschaftsrechnung im sozialistischen Gemeinwesen’ (Economic Calculation in a Socialist Community).1 This opened the long ‘socialist calculation debate’ concerning the feasibility or otherwise of a collectively planned economy (Mises, 1920). Later joined by Friedrich Hayek, this debate became crucial in the development of the Austrian school of economics and helped to enhance its theoretical critique of general equilibrium theory (Caldwell, 1988). The Austrian school was founded by Carl Menger and grew out of theoretical and methodological disputes with the then hugely influential German historical school (Menger, 1883). Hayek and other, later members of the Austrian school played less direct attention to German historical school writings and became increasingly dismissive of these defining adversaries. Furthermore, Hayek (1933, p. 125) mistakenly suggested that the historical school had aimed ‘at the replacement of theoretical analysis by description’ without acknowledging that this was an extreme view within this school.2 Later, Hayek (1943, p. 51) again accused the historical school of ‘an anti-theoretical bias’. This description of the entire German historical school as anti-theoretical has endured. Despite endless repetition, it is manifestly false. In fact, Gustav Schmoller (1900, p. 109) – Menger’s adversary in the 1880s – had proposed a combination of inductive evidence with deductive theory as a means of revealing and understanding causal relations. Alfred Marshall (1920, p. 29) quoted and endorsed the methodological position of Schmoller that: ‘Induction and deduction are both needed for scientific thought as the left foot and the right foot are both needed for walking’ (Hodgson, 2001, 2005). Schmoller’s pupil, Werner Sombart, became the de facto leader of the historical school following his teacher’s death in 1917. Sombart (1929, p. 1) criticized ‘the mistaken idea that history can be approached without theory’ and attempts ‘to banish all theory from the investigation of historical reality’. For Sombart (1929, p. 3): ‘Theory is the pre-requisite to any scientific writing of history.’ The historical and Austria schools differed not in terms of being one against and the other for theory, but on the type of theory they proposed. Nevertheless, despite this textual evidence, a dismissal of the German historical school, originated principally by Hayek and his London School of
Economics colleague Lionel Robbins (1932, 1998), has helped to divert succeeding generations of predominantly English-speaking economists away from the accomplishments of this long-standing German tradition (Hodgson, 2006). Among the many achievements of the German historical school, between 1870 and 1885 one of its members analysed the feasibility of socialism. This was before the Austrian school existed, and many years in advance of the 1917 Bolshevik Revolution and von Mises’s (1920) seminal contribution to the theory of socialism. The early and pioneering analysis of socialism by Albert Schäffle is important not only because it pre-dates the Austrian school and its contribution, but because it contains a remarkable and more accurate prognosis of the future of socialism in the twentieth century. Sections that follow provide sequentially: a brief biographical sketch of Schäffle; a discussion of the rise of German socialism and the context in which Schäffle developed his critique; a summary of a book entitled The Quintessence of Socialism; and five sections on the more voluminous and penetrating Impossibility of Social Democracy. The concluding section considers the impact and legacy of Schäffle’s critique.
