While John Prince Smith and his colleagues were battling valiantly for laissez-faire in the court of business and public opinion, the most prominent academic economist in Germany was becoming a highly influential convert to the cause. Karl Heinrich Rau (1792–1870) was the most important academic economist in Germany in the first half of the nineteenth century, and perhaps down to his death in 1870. Rau was born in Erlangen, a Protestant town in northern Bavaria, and his father was Lutheran pastor and professor of theology at the university there. Graduating from Erlangen in 1812, Rau taught at secondary school, and in 1818 became professor of political economy at the University of Giessen. Four years later, Rau became professor of political economy at the University of Heidelberg and held that post until his death nearly half a century later. In addition to being a widely liked and influential teacher, Rau played an active and influential role in the government of Baden, indeed helping to shape the outlook of Baden officialdom for 50 years.
In addition to being a long-time consultant to the Baden government, Rau became a court councillor upon accession to the chair at Heidelberg, and became a privy councillor at Baden in 1845. Several times, Rau served in the Baden Diet, and in 1848 was elected a member of the Frankfurt Parliament.
Trained in German cameralism, Rau, for the first two decades of his lengthy career, was a temporizing moderate in his views, attempting to balance the Smithian system of natural liberty with cameralism, deductive theory with a compendium of facts and statistics. A cautious moderate, Rau was leery of abolishing the guilds, and defended an organicist view of the state as against Adam Smith.
On the other hand, as time went on, Rau became increasingly laissez-faire liberal and less and less statist. The beginning of this gradual but accelerating conversion came in the early 1820s; in 1819–20, Rau translated the six-volume treatise of the moderate Smithian Heinrich Friedrich von Storch, a Baltic German teaching in Russia and writing in French. Rau's German translation of Storch's Cours d'économie politique was published in three volumes.
Particularly important, however, was Rau's multi-volume textbook on economics, the Lehrbuch der politischen Oekonomie. The first volume of the Lehrbuch was published in 1826, and the second in 1828. The Lehrbuch promptly became the standard economics text in Germany, going through eight editions in Rau's lifetime, with a ninth edition of Volume I published six years after Rau's death. Moreover, Rau's Lehrbuch was translated into no less than eight languages!36
Rau's increasingly classical liberal views were reflected in the successive editions of the Lehrbuch. Still more were they reflected in the pages of the economic journal, the Archiv der politischen Oekonomie und Polizeiwissenschaft, which Rau founded in 1835.
The culmination of Karl Rau's conversion to laissez-faire came at the height of libertarian economic opinion in Europe, in the years around 1847. In his address to the university community at Heidelberg in November 1847, Rau denounced state intervention as the creation of ever-increasing special privileges to the aid of selfish interest groups; state intervention, then, can only benefit one person or group at the expense of another. Moreover, government intervention, instead of curing social problems, creates many new problems of its own. Rau warned, in his Heidelberg address, of the liberties endangered by government planning and controls, and particularly warned of the spread of socialist and communist ‘fantasies’; in the absence of private property and private enterprise, only force could be used to induce people to work.3