The German Historical School may not have known it was a "school" before it became involved in the long Methodenstreit with Carl Menger and the Austrian School at the end of the 19th Century. However, it always knew its economics was distinctly different from that practised in the Classical Anglo-Saxon world of Ricardo and Mill. Its flavor, as its name indicates, was "historical" and thus relied much on empirical and inductive reasoning. Its roots were in Hegelian philosophy and the romantic/nationalist critiques of abstract theory by List and Müller. Its kinship across the English Channel lay not with the Classical but rather with the English Historical School.
The early methodological principles of the Historical school were laid down by Wilhelm Roscher. Following Hegel, Roscher disparaged the idea of universal theoretical systems - arguing that economic behavior and thus economic "laws" were contingent upon their historical, social and institutional context. To derive any economic "laws", the he argued, the method is thus inevitably cross-disciplinary: one must look at economic life with the eye of a historian and sociologist, as well as an economist. Hence the first task would be essentially that of combing through history for economic details in order to arrive at some idea of what this relationship between the social and economic organization of society might be. As a result, much of the work of the early Historical school - notably in the work of Roscher's early followers, Bruno Hildebrand and Karl Knies, is couched in terms of "stages" of economic organization through history.
When the Younger Historical School under Gustav Schmoller emerged, this modesty was gradually relinquished. Economics, they claimed, was inherently a normative discipline and thus should be engaged in forging tools for use by policymakers and businessmen. In their view, history exists only to provide illustrations for the particular problem at hand. The Historicists put their words into practice and formed the Verein für Sozialpolitik in 1872 as a vehicle for economic policy activism. However, the Verein was quickly seen as an instrument of the conservative Prussian government and it earned Schmoller and his colleagues the label of "socialists of the chair" (Katheder Sozialisten).
When Carl Menger turned his methological guns on the the Historicists in 1883, who then had a virtual monopoly over German academia to the exclusion of both Classical and Neoclassical theory, the Historicists retreated from their normative position back into the old arguments of Roscher - claiming that their method merely sought to find historical laws first, a positive effort, before theory could be applied. While the Methodenstreit was highly acrimonious and resolved nothing, in terms of impact on later economics, Menger and the Austrians emerged victorious. But, in the short term, it was an empty victory: the Historicists retained control of German economic chairs and went on to extend their influence into America - through Richard Ely, Edwin Seligman and the early American Institutionalists.
The members of the "Youngest" Historical School were of a very different flavor - initially, they were much less conservative than the Schmoller generation and sought to return to the early positivism of Roscher. Indeed, Werner Sombart, Arthur Spiethoff, and Max Weber had closer ties to Marxian economics than they did to the Schmoller group - although Sombart would later implicate himself with his connections to German nationalism. To this "Youngest" school, one can also include the Kiel School led by Adolph Lowe in the 1920s, which was an important center for both independent business cycle research as well as cross-disciplinary social science. In that sense, it adopted the positivist position of Roscher and Older Historical school. However, its espousal of normative "instrumentalism" made it also a policy-oriented group - thus may almost be regarded as a socialist version of Schmoller's Verein. The Kiel School was heavily involved in Social Democratic politics and social and economic policy under the Weimar Republic. It was dismantled after Hitler's rise to power and most of its members were exiled - finding a home at the New School for Social Research in New York.
Although the impact of the German Historical School on social science in general has been widespread, in economics it is virtually absent - although there may seem to be some trace of their ideas scattered in various quarters - such as in the "goldsmith" and Chartalist theories of money, "stages" of economic development and economic location theory. Furthermore, there has always remained elements of the German Historical School in European and American heterodox economics.
Nationalist/Romantic Roots of German Historicism
Early German Historical School
The Younger German Historical School
The Last Generation of German Historicism
Resources on the German Historical School