The Historical School developed in the late nineteenth century as an alternative to neoclassical economic theory and policy. It was most prominent in Germany and is usually called the German Historical School but there were representatives of this way of thinking elsewhere, natably in Britain and the United States.

The Historical School emerged as a result of several intellectual influences, most notably Charles Darwin's theory of evolution. The success of evolutionary thinking led many thinkers, including Karl Marx as well as the members of the Historical School, to seek an evolutionary form of economic theory to contrast with the static theories of neolassical economics.The Historical School critics of neoclassical economics objected to its atomistic and deductive nature as well as its static nature. They wanted a holistic theory that emphasized the overall structure of economies rather than their individual parts. They wanted a theory that tied the development of economies to a social, political and cultural background. In this matter the Historicists were influenced by the nation states of Europe such as Germany and Italy.

There was an earlier Historical School that included B. Hildebrand (1812-1878) and Karl Knies (1821-1894) but the German Historical School reached the pinnacle of its development in the late nineteenth century with the works of Gustav Schmoller (1838-1917). Some other members of the German Historical School this period were L. Brentano, and G.F. Knapp. An example of economic historicism outside of Germany is the American historian Charles Beard.

The German Historical School did not limit its attention to historical studies. A major area they concerned themselves with was national economic policies. Their studies led them to a justification of protectionist economic policy as an instrument of nation building.

The German Historical School's criticism of neoclassical economics led to the "Greeat Dispute Over Method" (Methodenstreit). Neoclassical economics was undergoing a revolution as it incorporated the marginalist approach to theory. This marginalist revolution made neoclassical economics even more objectionable to the historicists.

Around the turn of the century the German Historical School was replaced by another group of thinkers such as Werner Sombart (1863-1941) and Max Weber (1864-1920). These theorists had the same holistic approach as Schmoller but were critical of the Historical School.

(To be continued.)