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Economics 285
proved to be so intricate. The new problem was to-provide a short-cut towards
development for the newly-independent countries that had formerly provided
the colonial hinterland of the great powers. Traditional economics proved in-
capable of helping to accelerate their economic growth. Later; in the second
half of the fifties, the foundations of a specific economic development theory
adapted to the needs of these countries were laid down which, it was hoped,
would give a considerable economic fillip to their development.
Thus, under the influence of the great economic crisis, the emergence of a
socialist economy, and the new independence of ex-colonial countries, the old
map of schools and economic research trends fundamentally changed. Views
and methodological positions had to prove themselves in the everyday world.
Others were radically altered. New, more realistic theories appeared. A rapid
glance at these transformations can serve as an introduction to contemporary
political economy, its merits and shortcomings.
For about a half century before the world depression in 1929, there were three
main schools of economic thought in Europe and America, called respectively,
historic, Marxist, and marginalist or subjectivist (the third being the most wide-
spread). They were so different in their views of the objects and purposes of
economics as almost to constitute different disciplines. As we shall see, they
changed considerably, but not as a result of reciprocal influences. They were
separate worlds. The few attempts at discussion between them only helped to
extend the divergences, and the deadlock continued for half a century. And this
does not refer only to Marxists and non-Marxists. The famous dispute on meth-
ods between Menger and Schmoller was no more fruitful than the later dispute
between Rudolf Hilferding and Eugen von Btihm-Bawerk. Agreement seemed
impossible, although all three trends originally sprang from the same source and
referred directly back - even if critically - to the classic economics of Adam
Smith and Ricardo. Let us examine each in turn.
11. The historical school is a closed chapter in economic thought today (institu-
tionalism can be regarded as a variety of historicism). It rates a mention here
only for some results which still seem worth while. It originated (and was most
widespread) in Germany as a critical reaction against classical economics and
abstract laws and concepts allegedly governing the production and distribution
of social wealth. The generalizations of the English classical economists, with
their liberal background, did not fit the German situation, then at an earlier
stage of development. Even the usefulness of seeking economic constants was
questioned. Many representatives of the historical school repudiated the theoret-
ical pretensions of economics, but without everJtrying to determine historical
limits for the English classical generalizations, or determine laws of growth for a
relatively backward country. The refutation of the principle of recurrence in the
development of human society resulted in economics being transformed into
descriptive economic history. In the'words of Hayek (cf. Science and the Study
of Society), the extreme proponents ended by taking up a position which no
longer depended on either theory or history; repudiating any theory that organ-
izes the facts into particular structures and tendencies, they produced innumer-