The German Reception of Adam Smith

essay political economy german historical school carl menger immanuel kant lord acton

by Hans Eicholz for AdamSmithWorks

The German Reception of Adam Smith’s The Wealth of Nations: Hufeland, History, and the Origins of the idea of Subjective Value

In his grand history of economic thought, Wilhelm Roscher told of the earliest reception and influence of Adam Smith’s The Wealth of Nations in Germany. For those of the Austrian School of Economics, Roscher’s name will be familiar. Carl Menger dedicated his Principles to him, and he was in fact the best known of the founders of the German Historical School of Economics.

For some, that distinction might detract from Roscher’s creditability, but it should be born in mind, that even Hayek distinguished the older from the later generations of that school, observing that his concerns were more with the latter (See Hayek 112-113). And on this topic one would be right to take Roscher’s history seriously. He was in fact a historian of considerable ability, having personally studied with the father of modern historical practice, Leopold von Ranke. In matters of research and interpretation, he was second to none, regardless of how modern economists might evaluate his particular theoretical considerations on policy.

No less of an historian, interested in the course of human freedom than Lord Acton himself, said of Roscher that
"Assuredly no man on earth has thought my thoughts, and followed out my train of reading as this man has. On every topic we remembered the same books, and reminded each other of the same passages, and corrected each other’s quotations. We have the same heroes, the same judgments on the great problems of history, the same favorite writers (Acton [1877] 1988, 664)." 

Turning then to Roscher’s history of economic thought, one can come away with important insights into the influence of Smith, not only on ideas in Germany, but also on how economic thought was influenced more generally and fundamentally. For it was here, Roscher reveals, when scholars first came to focus systematically on the value problem as the essential and defining question of economics as a social science.

It is often thought that the turn to subjectivism in value theory came in the mid to late nineteenth century with the rise of marginal utility theory. In point of fact, the change began much earlier, and how it began is the story told by Roscher. Erich Streissler and Carl Milford are among those who first pointed to this earlier source in explicating the origins of Menger’s own brand of subjectivism (Streissler 1990, 31-68; Streissler 1997a, 33-88; Streissler 1997b, 16; Milford 1990, 217-220; Milford 1997, 89-160).

The most interesting aspect for me, however, is the way in which the very idea of subjective value came to be conceived. It was in fact Smith’s entrance into the philosophical context of German idealism that initiated the subjective turn, one of the three leading intellectual tendencies of the nineteenth century which included Romanticism and Historicism (Beiser 1987; Beiser 1998; Beiser 2011).

Idealism and Mind
For many present day readers, Roscher’s first forays into economic thought may seem strange and even eclectic, for he begins not with economic writers per se, but with philosophers. Yet, a moment’s reflection ought to underscore the importance of this approach when it is recalled that Adam Smith, and before him, his close friend and associate David Hume, were themselves philosophers.

Indeed, all of the Scottish Enlightenment thinkers were of this particular caste, and all understood economics as an extension of the domain of ethics and morality.  From that vantage point, not just Hume and Smith, but Kames, Hutcheson, Ferguson and others made their first forays into the explication of economic relations. And for Roscher, this fact led quite naturally to an examination of the specific moment when German philosophy first critically engaged Scottish thought: the philosophical idealism of Immanuel Kant.

The first German translations of the Wealth of Nations occurred quite early, coming out of Leipzig and translated by Johan Schiller, a cousin of the more famous literary master Friedrich Schiller. The first volume appeared in 1776 and the second in 1778. The initial reactions, however, were uniformly celebratory and uncritical. In fact, most of them were so laudatory and brief as to leave one doubtful that the reviewer had actually probed the work with anything more than a cursory glance (Hufeland [1807] 1815, xiv-xvi). That was not to last, however, because of the peculiar direction German philosophy had already taken in its reaction to Hume.

Hume’s skeptical treatment of the ability to know and verify the truth of propositions is famously known, by self-admission, to have awakened Kant from his “dogmatic slumbers.” Prior to that, he had worked largely within the well-known parameters of Enlightenment thinking about nature and progress. After that fateful moment, and it is a fascinating story told well by Fredrick Beiser, Kant felt desperate to reestablish the foundations of human understanding. Barring that, he believed, the security of knowledge and the progress of human understanding would be imperiled (Beiser 1987, 4, 11). If sensory data was as unreliable as Hume contended, then how could one ever be certain, even on experimental grounds, of what one thought to be true?

For Kant, the answer had to rest with the nature and construction of the mind. Returning to earlier Neo-Platonist notions, he put forward the proposition that belief was grounded on pre-existing categories of thought respecting space and time that organized the data of sense experience into their proper relationships, making possible our perception of objects in nature, or what was objectively true. Now, of course, most philosophers believe that he had simply pushed the burden of proof back a step. How do we know that the categories themselves reflect reality? But at the time, Kant was convinced that he had satisfactorily resolved the main epistemological issues raised by Hume, and the influence he exerted in his day, fundamentally redirected scholarly attention (Beiser 1987, 5-8). Now thinkers would take up consideration of ideas and ideals as attributes of the mind.

For this very reason, Roscher and most other German historians of his day, saw in Kantian idealism the essential move to the subject of the individual, and for Roscher in particular, this trend contained all the essential elements of subjectivism itself, comprising a consistent line of thought stemming ultimately from the deeper intellectual background of the Reformation. Where Luther had directed attention to the faith of the individual believer, and Smith to their economic activities, Kant had extended those insights to focus particular attention on the sources of the individual’s thoughts and the categorical forms that organized the experiential content of his beliefs (Roscher 1874, 635). Another way to put this is, where Smith had given the initial impetus to the freedom of the person in economic dealings, Kant had provided the individual with sufficient reason (or so he believed) to be a lawgiver unto himself, through his own mental processes, constrained only by the principle of non-contradiction.

From here Roscher recounted a number of early thinkers who began the process of analyzing Smith with regard to his basic theory of value as it related to individual purposefulness. The outlines of subjectivism thus began to come together much earlier than what is usually termed the “marginalist revolution.”[1] Of all of these thinkers, however, the most meticulous and thorough, the one who first tied most of the various strands together into a fairly coherent synthesis, was Gottlieb Hufeland. 

Hufeland, History and the Kantian Mind
Hufeland was one of those rare thinkers around whom others find their respective orbits. He combined the attributes and interests that marked the transition years from the eighteenth to the nineteenth century. As Peter Hanns Reill has argued, the break between an Enlightenment age of science and reason and a Post-Enlightenment age of history and romanticism was not as stark as many like to imagine (Reill 1975, 1-2, 44-45). Hufeland’s ideas were informed by the past, but his questions foreshadowed the future.

Trained in both philosophy and law, an associate of Kant himself, and an editor of one of the leading academic review journals of his day, Hufeland served as both a conduit of ideas and the doorkeeper of future talent, identifying those who would come to play leading roles in the development of the historical, legal and philosophical concepts of the next century.

Today, Hufeland is perhaps best known for his effort to square Kant’s categorical imperative with the tradition of natural law (Encyclopedia Britannica 1910, 856). Seeing the gap in Kant’s system that others would later come to see as insoluble, Hufeland tried to find ways to validate Kant’s moral categories by grounding them in nature and human nature more particularly. Kant thought the effort not entirely successful, but he encouraged the younger man’s work nonetheless (Kant 1786, 171-174; Rohls 2004, 27-28). But Hufeland’s approach to this problem, however unsuccessful it may have been, opened a huge door. And it began with Hufeland’s foray into Kant’s ideas on history.

Specifically Hufeland examined Kant’s thoughts on moral progress through time. Famously, Kant had posited that continuous improvement in human morals ought to be evident in the course of historical development, and suggested that this improvement might be detectable in the history of nations. Individuals, he reasoned, would be too caught up in the vicissitudes of their times, and only sporadically reveal marks of enlightenment. States, on the other hand, might display the attributes of improvement by the collective extension and preservation of what was best among their populations. In 1788 Hufeland critically assessed that thesis and observed that the Middle Ages posed a severe, perhaps intractable problem (Rohls 2004, 32; Hufeland 1788, 26).

Rather than nations, Hufeland argued, one had to consider perfection as it related to persons and by this he meant to draw attention to historical facts and context. The problem of progress might indeed include attributes of moral development not exhausted in the expressions of political life, but…

"The aim of eternal progress for the whole of mankind, in any case, is the ultimate objective of life’s course, and certainly should not be understood, as many have done, as coming at the expense of each individual, but rather through the perfection of each who always has his own particular course towards fulfillment, just as groups have had in their climb upwards (Hufeland 1788, 26)."   

The clear implications of Kant’s own epistemology and ethics, he believed, pointed in this direction, requiring a minute examination into the medieval period, when political forms seemed to decay and retrograde. It was here that the problems of difference and historical change drew Hufeland’s attention to the idea of improvement at the personal level. How could one account for the unique and the different, when ethics and science seemed to demand both common principles and stable laws?

Not long after the publication of this essay and the completion of his studies at both Leipzig and Goettingen, Hufeland took a position at Jena with the law faculty and assumed the role of the number two editor at the prestigious Allgemeine Literatur Zeitung (ALZ). From these positions he could continue his explorations into the problems of variety and difference and as an editor of the journal, could direct attention to authors and reviewers who would take up that quest (Rohls 2004, 30-31).

Among the notables with whom Hufeland was in direct contact were such men as the Schlegel brothers August and Friedrich (See Friedrich Schlegel [1797b] 1987, v. 23, 368), Wilhelm and Alexander von Humboldt (See Wilhelm von Humboldt [1794] 1916, v. 14, 242, 243, 250, 251, 252, 253), Novalis, and Friedrich Karl Savigny (Beiser 2011, 222, 225 n51). The influence of each upon the era that would follow is well known, especially as it related to the unfolding of historical thought.

Friedrich Schlegel is now recognized to have first coined the term Historismus in relation to the work of Johann Joachim Winkelmann in antiquities, the first to separate Roman and Greek art and partition aesthetics into modern and ancient forms (Schlegel [1797a] 1981, 35-41; On the origins of the term, see Iggers 1973, 456, 464; Iggers 1995, 130; On Winkelmann’s influence on Schlegel see Lederbogen 1908, 16-25; and Beiser 1995, 246). Wilhelm von Humboldt was later to write one of the leading early expositions on historical method (Beiser 2011, 167-207). And Friedrich Savigny was to apply a version of that approach to the understanding of law (Bethmann-Holweg 1867, 4-8; Beiser 2011, 214).

But Hufeland’s influence would also have a more direct bearing to these new intellectual trends. As he did with Kant’s historical musings, so he did with Smith, turning his critical eye to The Wealth of Nations. Where Kant had been concerned with the progress of morals, Smith was concerned with the progress of wealth. It was here that Hufeland was to strike his most lasting influence in the area of political economy with his book, Neue Grundlegung der Staatswirthschaftskunst, durch Prüfung und Berichtigung ihrer Hauptbegriffe von Gut, Werth, Preis, Geld und Volksvermögen [New Foundations of Political Economy through an examination and correction of its main concepts of good, value, price, money and national wealth], the first volume of which appeared in 1807, but which was not completed until 1815 (Rohls 2004, 85).

Hufeland was powerfully drawn to Smith’s explanation for the variety of employments in the production of goods and services (Hufeland 1815, 159-160), but found inadequate his reliance on a single source for the origin of value. Indeed, Hufeland thought that Smith might not always have intended what many seemed to understand him to be saying with regard to labor as a fixed measure of value. How could it be the original measure of all goods respecting their worth when labor was itself so highly variegated and specialized? And what could account for the differences in tastes and subsequent desires of consumers for all matter of goods and services regardless of the amount of labor involved in producing them (Hufeland 1815, 146, 148-149, 201)?

The answers would revolve, in each instance, around the same Kantian point from which Hufeland had critiqued Kant’s historical speculations: The inescapable importance of the individual mind.

Hufeland and the Birth of the Subjective Paradigm
In his discussion of Hufeland’s idealism, Roscher spent only a few brief paragraphs noting its importance in the definition of goods and their use, but then he was still within the same century as Hufeland, and awareness of those notions was taken for granted. Observing the influence of Kant, Roscher simply had to nod in Hufeland’s direction, observing that his main service was to more clearly define concepts with regard to their reliance on human aims or purposes.

Specifically, Roscher saw Hufeland’s work as countering what Germans at the time regarded as Smith’s “materialism”. In this context, a materialistic explanation simply referred to any attempt to find a measurable empirical objective standard of value outside of the human mind. Here it specifically referred to the use of labor as the common measurable material denominator of every good. Hufeland had set about to correct that misconception, and it was owing to his prior Kantian idealism and his grappling with the historical problems that it posed, which prepared him to make that observation. His significance is seen by Roscher to rest, not so much in the origination of the notion that goods must serve particular purposes, but in the clear and definite way he established the concept in economic theory (Roscher 1874, 357).   

Had Smith been more consistent, Hufeland had contended, his reasoning should have led him to retain the Physiocratic compliment to labor, namely land as an original basis of value, but Hufeland was not quite certain that Smith even fully intended to make labor such a measure as so many seemed to interpret him. As a foundation for the rest of his theoretical edifice with respect to exchange, it appeared ill suited. Nonetheless, that seeming inconsistency in approach, was a source of considerable confusion Hufeland argued (Hufeland 1815, ix-xii, 32-33), and so he set about to make the necessary corrections by retaining Smith’s basic principles of exchange while setting them on a new footing. In essence he was to “set the greatest importance on psychical processes as the foundation of economic facts” (Roscher 1874, 657-658).

After a lengthy review of the various treatments of Smith in his introduction, Hufeland went on to focus directly on the concept of an economic good and its value, to specifically argue that in this context,

"One takes always the following perspective from this, that every means to an end is designated a good, and places value in the fact that it could be characterized as a method to a human end (a Good), and so also its use in exchange as a human end, such that one can reference back to it again and clarify as a good everything that has value (Hufeland 1815, 16)."

In the field of economics, Hufeland insisted, there is only “the mind of man [Geist des Menschen] (Hufeland 1815, 20).” On this basis then he proceeded to apply the notion of purposefulness to the derivation of prices, employments, and all the other market operations that Smith had otherwise so masterfully described (Hufeland 1815, 122-128, 135, 145-162).

Roscher’s history traced this development further by looking also to the work of later writers such as Karl Heinrich Rau and Friedrich Wilhelm Hermann (Roscher 1874, 846-879). Like Hufeland, they too embraced Smithian principles, but did so on Hufeland’s subjective grounds, grounds that stemmed from the motives and aims of persons.

Interestingly, if we reexamine the work of Carl Menger, we see in fact that he was quite well aware of these earlier roots, referencing them explicitly in his first appendix concerning the definition of an economic good. And here one will specifically find the citation to the very edition of Hufeland cited here (Menger [1871] 1950, 287). For this and other reasons, Karl Milford has, with good reason, interpreted Hufeland as a forebear of both Menger and Hayek (Milford 1997, 89-160). And, as Erich Streissler has pointed out, it is why Menger had dedicated his Principles to Roscher in hopes that his work would be seen as an extension of German ideas (Streissler 1990, 32-33). That it was not, had much to do with the fact that Menger initially presented his work in terms of the empirical concepts of cause and effect.

It was, however, through the friendly prompting of Theophil Friedrich Hack, a student of Albert Schaeffle (Raberg 2001, 304), a leading member of the German Historical School (Hodgson 2010, 296-315), that Menger began later in his life to revise his Principles along the individually subjective teleological lines of ends and means, a project he was unable to finish (Yagi 2010, 24; Yukihiro 2011, note 7; and also Yagi 2011, 51-53). Ludwig von Mises later completed this process through his adroit transference of Menger’s work to more solidly subjectivist foundations in neo-Kantian epistemology.  

The main point here, however, is simply to clarify what needs to be remembered, and that is the interesting way in which Smith’s reception initiated the thought processes by which the idea of subjective value came to eventually characterize modern economics. That it also had powerful implications for later notions respecting historical and institutional ideas, of course, is a logical conclusion but a different history for later.


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[1] This view takes issue with those who insist that subjectivism could only have arisen out of Aristotelian and Thomistic roots. Thus Murray Rothbard interpreted the work of Emil Kauder as demonstrating the primacy of Catholic natural law for Carl Menger’s particular views of subjective value, while classical economics was dismissed as the product of Protestant anticonsumptionist morality. In point of fact, the formalism of Jevons and Walras had far more in common with the attempt by empiricists to measure and calculate utility than subjectivism in the full and proper sense of the term intended by Menger. Kauder himself very explicitly set out to tell the story of marginal utility as a specific kind of subjectivism, but not the whole history of subjectivism itself, which he noted had other roots as well, including the Kantian idealists who “rejected cost value” because “an intrinsic value apart from the evaluating mind does not exist.” See Murray Rothbard, “Review of Austrian Economics: Historical and Philosophical Background, by Wolfgang Grassl and Barry Smith, eds.,” in Journal of Applied Philosophy, 4, 2 (1987): 248-250; and Emil Kauder, A History of Marginal Utility Theory (Princeton 1965), 29.