Social question and welfare state in Europe in the second half of the 19th century

Profession of economists as university professors emerged in the second half of the 19 th century in connection with the advent of the so called social question. Three schools of the economic thought, and namely, classical political economy followed by neoclassical ‘economics’, Marxism, and initial institutionalism set up by the German historic-ethical school, gave three different answers to the question. Classical political economy and later economics justified the social order of early industrial capitalism, which gave rise to the social question, and regarded as harmful any state or public interference aimed at solution of this question. Marxists, following early economists, believed that the existing economic laws could be neither repealed nor corrected within the framework of capitalism, but unlike them, flagellated the antagonistic character of these laws. According to Marx, the contradictions between employers and employees are irreconcilable, and this social order must be replaced by another, under which there would be no such division. Schmoller rejected both the concept of natural economic laws and that of irreconcilable antagonism between employers and their employees. The German historic-ethical school was focused on institutions, and solution of the social question was seen by Schmoller in transition to a welfare state with its fair institutions, that would reform but not eliminate private property and wage labour. For a successful progress toward a welfare state, it was necessary to gain a detailed knowledge of the reality to be reformed that was the aim of the professional organization of German economists Union for Social Policy ( Verein fur Sozialpolitik).