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



by Hans Eicholz for AdamSmithWorks
In his grand history of economic thought, Wilhelm Roscher told the story of the earliest reception and influence of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (hereafter Wealth of Nations) in Germany.[1] For some, Roscher’s affiliation with the German historical school of economics might detract from his credibility, but even F.A. Hayek distinguished the older from the later generations of that school and placed his concerns more with the latter (Hayek, 112-113). 





On this topic Roscher’s history should be taken seriously. He was an historian of considerable ability who 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 an historian (and someone deeply interested in the course of human freedom), Lord Acton, said of Roscher,




"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)." 




Roscher’s history of economic thought yields important insights into the influence of Smith not only on important thinkers and ideas in Germany but also on its fundamental and general influence of economic thought. Roscher reveals that it was in Germany  that scholars first came to focus systematically on the problem of defining value as the essential and defining question of economics as a social science. 




Contrary to the more common belief that the turn to subjectivism in value theory came in the mid to late nineteenth century with the rise of marginal utility theory, Roscher shows how the reaction among German thinkers to Wealth of Nations contributed to the ascendance of the subjective theory of value in economic thought.[2]





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, since he begins not with economic writers but with philosophers. But this will not surprise fans of Adam Smith. Smith and his close friend and associate David Hume were philosophers, not economists.




Indeed, all of the Scottish Enlightenment thinkers could be classified as philosophers and all understood economics as an extension of ethics and morality. Not only Hume and Smith, but Kames, Hutcheson, and Ferguson began studying economic relations. For Roscher, this led quite naturally to an examination of the specific moment when German philosophy first critically engaged Scottish thought through 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 were uniformly celebratory and uncritical. In fact, most were so laudatory and brief that they left the reader doubtful that the reviewer had actually given the work 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, as Kant said himself, 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. Fredrick Beiser tells a fascinating story about how this came to pass. 




After reading Hume, Kant felt desperate to reestablish the foundations of human understanding. If this couldn’t be accomplished, 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 claimed, 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 ideas, he proposed that belief was grounded on pre-existing categories of thought about space and time that organized the information people gather through their senses into their proper relationships. Once the information from our senses was organized, it became possible to perceive objects in nature, in other words, to perceive what was objectively true. 




Today, most philosophers believe that he 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. Kant was influential in his day, so his contribution fundamentally redirected scholarly attention (Beiser 1987, 5-8). In response, thinkers would take up consideration of ideas and ideals as attributes of the mind.




Because of the shift of focus to the mind , Roscher and most other German historians of his day saw in Kantian idealism the essential move to the subject of the individual. For Roscher in particular, this trend  contained all the essential elements of subjectivism itself. He saw a consistent line of thought stemming ultimately from the deeper intellectual background of the Reformation. 




Where Martin Luther had directed attention to the faith of the individual believer, and Smith to their economic activities, Kant 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, while Smith made the freedom of the person in economic dealings the motivating force behind his theory, Kant believed he had provided the individual with sufficient reason to be a lawgiver unto himself, through his own mental processes and constrained only by the principle of non-contradiction.




From here, Roscher recounted a number of early reactions to Smith that analyzed his work by re-examining Smith’s basic theory of value as it related to individual purposefulness. Through this process, the groundwork for subjectivism was laid much earlier than the “marginalist revolution”[1] in 1871. Of all of these thinkers, the most meticulous and thorough, and the one who best achieved a fairly coherent synthesis of the various strands of thought, was Gottlieb Hufeland. 




Hufeland, History, and the Kantian Mind




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




Trained in both philosophy and law, an associate of Kant, and an editor of one of the leading academic review journals of his day, Hufeland served as both a conduit of ideas and a doorkeeper of future talent, identifying those who would 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). In response to this gap in Kant’s system, which 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 in human nature more particularly. Kant thought the effort was not entirely successful, but encouraged the younger man’s work nonetheless (Kant 1786, 171-174; Rohls 2004, 27-28). Hufeland’s approach to this problem, however unsuccessful it may have been, opened a huge door. It began with Hufeland’s foray into Kant’s ideas on history.




Hufeland examined Kant’s thoughts on moral progress through time. Kant posited that continuous improvement in human morals ought to be evident in the course of historical development, and that this improvement might be detectable in the history of nations. Individuals, he reasoned, would be too caught up in the changes of their times to recognize or display marks of enlightenment. States, on the other hand, might display and preserve what was best among their populations. In 1788, Hufeland observed that the Middle Ages posed a severe, perhaps intractable problem for this thesis (Rohls 2004, 32; Hufeland 1788, 26).




Hufeland argued that perfection has to be considered as it relates to persons rather than nations. 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 implications of Kant’s epistemology and ethics, he believed, pointed in this direction, which required a careful examination into the medieval period, when political forms seemed to decay and decline. It was here that the problems of the differences between individuals and the uniformity of 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 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 his academic positions he could continue his explorations into the problems of variety and difference. As an editor of the journal he could direct attention to authors and reviewers exploring that area (Rohls 2004, 30-31).




Hufeland was in direct contact with notable scholars, including 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). Each would have a considerable influence on the thought of the era, especially the unfolding of historical thought.[3]





Hufeland’s influence also had a more direct effect on emerging intellectual trends. He turned the critical eye he had applied to Kant’s historical musings to Smith and his Wealth of Nations. Where Kant had been concerned with the progress of morals, Smith was concerned with the progress of wealth. It was through 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 wealththe 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 his reliance on a single source for the origin of value inadequate. Indeed, Hufeland thought that Smith might not have intended what many understood as his meaning with regard to labor as the fixed measure of value. How could labor be the original measure of the worth of all goods when labor itself is so highly specialized? And what could account for the difference in tastes and desires of consumers, which seemed to exist for all matter of goods and services regardless of the amount of labor needed to produce them (Hufeland 1815, 146, 148-149, 201)?




The answers would revolve, in each instance, around the same point from which Hufeland 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 spends only a few 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 He observes, when writing about Kant’s influence, that Hufeland’s main contribution was to more clearly define the importance of human aims or purposes. Specifically, Roscher believed Hufeland’s work countered what Germans at the time regarded as Smith’s “materialism”. 




In this context, a materialistic explanation referred to the attempt to find a measurable, objective standard of value outside of the human mind. In Smith’s Wealth of Nations, it referred to the use of labor as the common measure of value for every good. Hufeland set about to correct that misconception, owing to his prior Kantian idealism and grappling with the historical problems that it posed. Hufeland’s significance didn’t rest in the inception of the idea that goods 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 contended, his reasoning should have led him to stick with the Physiocratic compliment to labor (land as an original basis of value), but Hufeland was not certain that Smith intended to make labor so important a measure as he was interpreted to have made it. It appeared ill-suited for a foundation for the rest of his theory of exchange. This inconsistency was a source of considerable confusion, Hufeland argued (Hufeland 1815, ix-xii, 32-33). He set about to make the necessary corrections, retaining Smith’s basic principles of exchange, but setting them on a new footing. 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 focused on the concept of an economic good and its value to 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, 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). They embraced Smithian principles, but did so on Hufeland’s subjective grounds, which stemmed from the motives and aims of persons.




Interestingly, if we reexamine the work of Carl Menger, we see that he was well aware of these earlier roots. He referenced Hufeland explicitly in his first appendix concerning the definition of an economic good (Menger [1871] 1950, 287). For this and other reasons, Karl Milford has interpreted Hufeland as a forebear of both Menger and Hayek (Milford 1997, 89-160). Erich Streissler argues that Menger 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 was likely the result of Menger initially presenting his work in terms of the empirical concepts of cause and effect.




Through the friendly prompting of Theophil Friedrich Hack, a student of Albert Schaeffle (Raberg 2001, 304) and a leading member of the German Historical School (Hodgson 2010, 296-315), Menger began (he never finished) to revise his Principles along the individually subjective, teleological lines of ends and means (Yagi 2010, 24; Yukihiro 2011, note 7; and also Yagi 2011, 51-53). Ludwig von Mises later completed this process by transferring Menger’s work to more solidly subjectivist foundations in neo-Kantian epistemology.  




Though Smith’s Wealth of Nations grounds economic value in labor, The main point here, however, is simply to clarify what needs to be remembered, and that is the interesting way in which Smith’its reception began the thought processes through 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 is a logical conclusion, it is also another story altogether.




 




[1] For those interested in 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.

[2] Erich Streissler and Carl Milford were among the first to discover this earlier source explaining the origins of Menger’s brand of subjectivism (Streissler 1990, 31-68; Streissler 1997a, 33-88; Streissler 1997b, 16; Milford 1990, 217-220; Milford 1997, 89-160). It was the consideration of Smith’s work in the philosophical context of German idealism that began the turn towards subjectivism, one of the three leading intellectual tendencies of the nineteenth century which included Romanticism and Historicism (Beiser 1987; Beiser 1998; Beiser 2011).

[3] 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).







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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 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.