This term is usually used to describe the tradition of Wundt, de Saussure and Bloomfield in linguistics (though it is also sometimes extended to Chomsky's linguistics).
Wilhelm Wundt (1832-1920), Psychophysicist who in the early 1900s was interested in the mental processes of language production (Psycholinguistics). Wundt believed that language was not a set of utterances but consisted of the underlying rules or principles which made it possible for speakers to produce an unlimited number of such utterances. He considered the sentence as the primary unit of language. Speech production was the transformation of complete thought processes into sequentially organized speech segments. Recall from sec. that Wundt invented the tree diagram of syntax. Note later the continuity of generative linguistics with Wundt and de Saussure.
Ferdinand de Saussure (1857-1953) - Swiss linguist - Cours de Linguistique Générale was compiled out of lecture notes by his students and published in 1916.
De Saussure had earlier been part of the movement that that launched the investigation of the Asiatic origins of European languages (see sec. ). Later he challenged the methodological assuptions of orthodox German philology (eg. that languages close to the original are ``superior'', or that structural similarity implies borrowing or common origin).
see intro at http://184.108.40.206/Arnason_DE/Saussure.html
De Saussure's approach was taken up, criticised and reformulated by the Soviet school - Mikhail M. Bakhtin (1895-1975) with Valentin N. Volosinov and P.N. Medvedev. They liked de Saussure's attention to the social interaction in language, but felt that he overemphasised the formalised ``dead'' code of proper usage. The Soviet school emphasised the fluidity of the vernacular dialogue or ``dialogic character of language'' heteroglot meanings reacting upon one another - Bakhtin.
Contemporary support for the vernacular in education owes much to Volosinov. Bakhtin's linguistic and literary work was later popularised outside the Soviet Union by Roman Jakobson.