Weber, Schumpeter and Modern Capitalism

Towards a General Theory

John Love

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138242388
• eBook ISBN: 9781315278391
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This book provides the groundwork for a general theory of modern capitalism by reinterpreting Max Weber's work on the origins and institutional underpinnings of modern capitalism, and Joseph Schumpeter's thought on the mechanisms and functioning of the capitalist economy. Focusing on the lesser-known works of both figures, particularly in the case of Weber, whose writings on economics and economic history are frequently overlooked, the author contends that a combination of Schumpeter's and Weber's theoretical schemas, incorporating their many valuable insights, provides the basis of a unified, overall theory of modern capitalism that is comprehensive, coherent and persuasive.

With attention to the important theoretical connections between Weber and Schumpeter and the respective contributions of both with regard to the nature and workings of capitalism, the author explores the compatibility of the two approaches, arguing that the full significance of the contributions of the two writers has not been adequately appreciated.

A systematic and sympathetic comparison and synthesis of the contributions of two of the central figures in social and economic theory, which highlights the enduring relevance of their work in times of political and economic crisis, Weber, Schumpeter and Modern Capitalism will appeal to scholars across the social sciences with interests in social and economic theory, classical sociology and economic history.

1
Weber’s account of the origins of modern capitalism

Weber’s writings on capitalism

As we have noted, Weber began his scholarly career as a student of political economy, when he regarded himself as an economist of a kind.¹ But his first major academic publication was in the field of legal/economic history: he wrote his doctorate on The History of Commercial Partnerships in the Middle Ages (1898).² He then produced two works on ancient society, both focused on agrarian issues, with one exploring Roman socio-economic history (Roman Agrarian History), while the other was a comparative study of ancient civilizations (The Agrarian Sociology of Ancient Civilizations).³ In both these works, the issue of the character of ancient capitalism was a major theme, in particular, whether institutions similar to those of today existed.⁴ So it is clear that Weber embarked on his later treatment of modern capitalism with a considerable grounding in the history of early forms of commerce and capitalism.

The first major work Weber wrote specifically on the issue of modern capitalism is constituted by the two essays that became the book The Protestant Ethic and the Spirit of Capitalism. The essays, later published as the book with the celebrated title, were written in 1904 and 1905.⁵ The work, as we shall see, is primarily focused on explaining the original “spiritual” basis (mentality) of modern capitalistic acquisition.⁶ As is well known, Weber locates the origins of the capitalist work ethic in the peculiar conception of “vocation” (beruf) advanced by certain Protestant religions and Puritan sects, in association with positive attitudes towards the meaning of business success. The book, however, was intended to be a contribution to a larger causal analysis of the origins of modern capitalism, as Weber indicated in his concluding remarks and his debate with critics, issues to which we shall return.

Subsequent to The Protestant Ethic, Weber embarked on a series of further studies that involved broad-ranging investigations that some have claimed amount to a virtual comparative study of civilizations.⁷ In what follows, we largely agree with Peter Ghosh that Weber’s key concerns did not alter greatly, if at all, from those advanced in the original essays of 1904–5. Of course, during the period from 1905 until his death, Weber produced a tremendous body of work that included extensive historical and sociological studies of law, politics and religion, but all this largely continued the research program set out in The Protestant Ethic. From 1909 to 1914, he was focused on developing the work that subsequently became his magnum opus, Economy and Society. As already noted, this work arose following the commission by his publishers to edit the large encyclopaedic compendium on the social sciences entitled Grundriss der Socialökonomik. Weber not only performed the role of editor, but he also took responsibility for writing large sections of the work himself. In carrying out this task and in the course of comparative studies, Weber further developed his account of modern capitalism. What is more, he further clarified his ideas concerning the “rationalization” of modern institutions, at one point in his late lecture-essay, “Science as a Vocation”, describing the fate of the times as characterized by “the rationalisation and intellectualisation and, above all, by the ‘disenchantment of the world’”.⁸ Capitalist enterprise is not alone in being an institution infused with distinctively rational features, for extensive processes of rationalization have occurred in law, in government, in science and even in art and architecture. In Economy and Society and in other late writings, Weber develops these notions into a series of propositions and theses concerning the nature of the institutional structures of the modern world at large. We shall explore the specific nature of these contributions as they relate to our topic.

Towards the end of his life after the First World War had ended, Weber produced several works that in some ways could be said to summarize his thinking on the question of the nature of capitalism and the phenomenon of rationalization. Two of those works that we consider in what follows are: (1) the so-called “Author’s Introduction”,⁹ which was originally the “Introduction” to Weber’s Collected Works on the Sociology of Religion being readied for publication in 1919; and (2) the series of lectures delivered in 1919–20 under the title “Outline of Universal Social and Economic History”, subsequently published as the General Economic History. This last mentioned book was not actually penned by Weber, but it was put together from notes students took of the lectures given at the University of Munich.¹⁰ We shall have occasion to discuss both of these works, but in this chapter we shall focus on the General Economic History because it is a comprehensive historical account of the origins of modern capitalism. While the book was not written by Weber and did not benefit from his personal authorial guidance, there seems no doubt that it is a largely accurate rendering of the lectures he gave, and it has a status somewhat akin to what we might have if we had his own lecture notes. It is accordingly a very useful text for the interpretation of Weber’s thought, despite the unusual nature of its creation. Importantly, and in contrast to The Protestant Ethic, Weber includes very lengthy discussions of non-religious factors. In no other work does Weber condense his thinking on the many aspects of relevance to the origins of capitalism to produce an overall statement.

Weber’s approach to the theory of modern capitalism

As we have noted, Weber’s approach has certain limitations from our point of view, because he does not create a complete theory of capitalism in the manner of, say, Marxian political economy; nor, apart from marginal utility and monetary theory, does he deal expressly with the theories of economics proper. Even though he was undoubtedly aware of developments in the emerging science of economics and recognized that it was producing important new explanatory theorems, apart perhaps from his early lectures and his work on the stock exchange, he does not make direct reference to this body of theory.¹¹ For he had begun to develop somewhat different concerns, and in effect, largely accepted the state of knowledge already achieved in the economics of his day, especially, the contributions of the so-called Austrian School. To a degree it could be said that he left the tasks of economic theory proper to others, those like Weiser, Schumpeter and Menger, whom he regarded as more expert than himself. Weber makes no attempt to offer theorems that address crucial economic phenomena such as the formation of prices, the function of supply and demand, the nature of the monetary system, the source of capitalist profit, the effects of monopoly or the origins of economic crises – as, for example did classic economists like Smith, Mill, Ricardo, Menger and others. Nor does Weber set out to discover the underlying “logic” or developmental tendencies of the capitalist system, as does Schumpeter.

Broadly speaking, Weber’s work in relation to capitalism is concerned with two fundamental issues that are interrelated. The first is to account for the historical origins of modern capitalism. The second set of concerns is to characterize the essential nature of modern capitalism and to analyze its sociological conditions of existence. The second set of concerns is focused on the character of capitalist institutions and in particular, the phenomenon of rational calculation and the rational organization of the business enterprise. Weber places particular emphasis on the role of capital accounting and the orientation of the enterprise towards the market situation and the estimation of prospective profits.¹² We shall discuss this dimension of Weber’s work at length in Chapter Three.

As we have noted, Weber does not devote effort to analyzing the way capitalism functions as an economic system once it has come into being. Nonetheless, in the course of his work, Weber occasionally comments on the workings of the capitalist system once it has emerged and is fully developed. In The Protestant Ethic, he refers to it resting today on “mechanical foundations”, and argues that present-day capitalism no longer requires the asceticism of the early Puritans in order to maintain its ongoing functionality.¹³ The ethos or spirit of modern capitalism is today largely lacking its original Puritan pathos such that the pursuit of wealth tends to have the character of “sport”.¹⁴ Weber even speculates that the ascetic basis of early modern capitalism is being undone by a counter tendency set in motion by the effects of asceticism itself. This is because the wealth created by asceticism produces temptations for indulgence and pleasurable consumption. As he puts it in his “Second Reply to Rachfahl”,

Precisely that type of amassing of wealth which was conditioned by specifically “ascetic” conduct of life was what again and again tended to break the power of asceticism … It would become even rarer for the self-made man – and certainly for his sons and grandsons – spontaneously to resist the “temptations” of living for the “world” (i.e. for the pleasurable consumption of acquired goods) … In fact one of the achievements of ascetic Protestantism was that it combated this tendency, that it steadily opposed such tendencies to “idolatry of the flesh” as the securing of “splendor familiae” through the tying up of one’s fortune in real estate as rentier income, along with the “seigneurial” pleasures of the “high life,” intoxication with beauty and aesthetic enjoyment, excess, pomp and circumstance. And it is these tendencies, so anathema to ascetic Protestantism, which continually evoked the danger of “capitalist tranquillisation” based on the use of assets for purposes other than “active capital” and which thus worked against the capitalist “spirit”.¹⁵

It is not difficult to see in these remarks an anticipation of the thesis of commentators, such as Daniel Bell, regarding the fate of the work ethic in advanced capitalism.¹⁶ Capitalism is now a kind of “cosmos”, but is unlike the religious cosmos of the past in that it is not inwardly meaningful. It is rather an externally imposed order that, because of the requirements of specialization and bureaucracy, constrains men within an “iron cage” or “straight jacket”:¹⁷ “The capitalist economy of the present day is an immense cosmos into which the individual is born, and … in which he must live. It forces the individual, in so far as he is involved in the system of market relationships, to conform to capitalistic rules of action.”¹⁸

Issues in the interpretation of Weber’s work

Weber’s writings on capitalism present a number of difficulties of interpretation. His first writings, which address the nature of modern capitalism at length, the essays that make up The Protestant Ethic, were written at the same time as two major methodological essays and a number of other discussions on epistemological questions.¹⁹ At this time, Weber was clearly engaged by the controversy of the so-called Methodenstreit. He was acutely concerned with the problem of how theory can grasp the world in the light of the insights of the neo-Kantians concerning how scientific knowledge of reality can be obtained. Under the influence of Heinrich Rickert and others, Weber adopted a “solution” to these problems in part with the concept of the “ideal type”.²⁰ The function of the ideal type in Weber’s thought is first to provide a simplification of the complex manifold of reality; second, it facilitates a more precise and less ambiguous formulation of conceptual elements.²¹ But the further purpose of the ideal type is to deal with the problem that reality can always be viewed from different points of view.²² Thus, for example, it is possible to approach a given religious phenomenon in terms of the beliefs that certain religiously inspired individuals actually hold, in terms of the theological conceptions that have been articulated by intellectuals claiming to represent the beliefs of a group, in terms of the actual practices of persons comprising a sect or church, or again, in terms of an ideal formulation of what a particular religious meaning should be – and there are other possible angles as well. The problem is the same with all historical phenomena – such as the French Revolution, the Roman Republic, the Greek state, Islamic jurisprudence, mediaeval monasticism, Egyptian bureaucracy, the Reformation and so on. And, of course, this problem also arises in relation to capitalism: “modern capitalism”, “ancient capitalism”, “political capitalism”, “the market system”, “the Industrial Revolution”, etc. Any of these phenomena can be viewed from a variety of perspectives, and the concepts to deal with them must be created by the theorist. This latter aspect is what is embraced by the so-called problem of the “hiatus irrationalis”, that the world does not come already conceptualized from the everyday meaning of these terms.²³

Weber sought to cope with these methodological issues by conceding that, in a sense, all scientific theorizing involves an inherent one-sidedness, or perhaps, to use the Nietzschean notion, “perspective”. Further, there is no scientific or objective ground upon which one perspective can be said to be superior or preferred over any other. Weber approached this problem, which threatened to render all scientific endeavours subjective and relativistic, by developing Rickert’s notion of “value relevance” (Wertbeziehung). The value relevance of a phenomenon enables a selection of features to be made from the manifold of possible aspects that imposes limits on the dimensions to be conceptualized. It follows from these presuppositions that when Weber formulates his concepts, whether of capitalism, Protestantism, the entrepreneur or whatever, he highlights certain aspects of significance from value points of view that he believes are widely shared and thus meaningful to fellow researchers. Even though he rejects the idea that such value points of view can be “objectively” given, he nonetheless maintains that some value perspectives resonate widely amongst one’s contemporaries. In some cases, the values in question may have broader, cross-cultural and even “universal significance”; thus, for example, aspects of modern culture, especially law, science and technology, Weber beli...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Preface
• List of Abbreviations
• Introduction
• 1 Weber’s account of the origins of modern capitalism
• 2 Weber’s later account of modern capitalism
• 3 Schumpeter’s theory of capitalist development
• 4 Schumpeter’s account of the long-term trend of capitalism
• 5 The synthetic combination of Weber with Schumpeter
• 6 Towards a general theory of modern capitalism
• Bibliography
• Index