It is probably fair to say that the last German economist in the old tradition was Werner Sombart. What is most noteworthy about Sombart is probably his going from being Germany's best known economist – one of his books was translated into 25 languages – and being acclaimed as ‘brilliant’, and at his death being honoured with both an obituary and an editorial in New York Times, to being virtually unknown today. In this sense Sombart epitomizes German economic theory itself: its swan song from world centre stage to oblivion. One historian has pertinently characterized Sombart as a seismograph for what happened in Germany: a country diagnosed in 1915 by Thorstein Veblen as having moved too fast from feudalism to machine-age capitalism. Sombart's career is a part explanation why German influence was lost: thrown out as the proverbial baby with the bathing water after World War II. Sombart's life and writings open up for an insight into a process that went very wrong in 20th century Germany.

Three months before Werner Sombart was born, his father had participated in the establishment of Verein für Sozialpolitik, a group of economists, under the leadership of Gustav Schmoller (1838– 1917), who wanted to ‘civilize’ capitalism. The members disliked communism just as strongly as they disliked the Manchester liberalism, the neoliberalism of the day: the two ahistorical twins as Gustav Schmoller later referred to them. There is a clear concordance between the members of Verein für Sozialpolitik – who by their opponents were called Kathedersozialisten (“socialists of the professorial chair”) – and the German historical school of economics. One common element was that ethics had to be an integral part of economics. This influential association, which lasted from 1872 to 1936, gradually built up what came to be the social institutions of the welfare state. In most parts of Europe the construction of the welfare state was heavily based on the German experience.

Because of bad health, young Sombart did his studies partly in Pisa and Rome, where he also found the theme for his doctoral thesis written under Schmoller in Berlin: ‘The economic situation in Campagna’, i.e. the rural area around Rome. Here Sombart found a feudal society exploiting the dependent farmers. This probably contributed to the radicalization of his views, and soon he turned to the writings of Marx. Later this made it problematic for him to find a professorship.