Methodenstreit

The Historical School were themselves reacting against materialist determinism, the idea that human action could, and would (once science advanced enough), be explained as physical and chemical reactions.

[1] The Austrian School, beginning with the work of Carl Menger in the 1860s, argued against this (in Grundsätze der Volkswirtschaftslehre, English title: Principles of Economics), that economics was the work of philosophical logic and could only ever be about developing rules from first principles — seeing human motives and social interaction as far too complex to be amenable to statistical analysis — and purporting to deduce universally valid precepts from human actions.

[citation needed] The direct attack on the German Historical School lead Schmoller to respond quickly with an unfavourable and quite hostile review of Menger's book.

[2] Menger accepted the challenge and replied in a passionate pamphlet,[3] written in the form of letters to a friend, in which he (according to Hayek) "ruthlessly demolished Schmoller's position".

[4] The term "Austrian school of economics" came into existence as a result of the Methodenstreit, when Schmoller used it in an unfavourable review of one of Menger's later books, intending to convey an impression of backwardness and obscurantism of Austria compared to the more modern Prussians.