Money, Time and Rationality in Max Weber

Austrian Connections

Stephen Parsons

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781317797326
• Topic: Negocios y empresa
• Subtopic: Negocios en general

This unique study into the roots of Max Weber's Political Economy, is an intriguing read and a valuable contribution to the Weberian literature. Parsons argues that Weber's analysis is highly influenced by the Austrian School of Economics and the relationship between his critique of centrally planned economies and that of Mises.

1 Weber and marginal utility theory

The Austrian connection

Weber commences his sociological investigation of economic action by noting that ‘what follows is not intended in any sense to be “economic theory”’ (Weber 1978: 63). Denying any attempt to develop an economic theory, Weber clarifies his intention by stating his aim is to ‘attempt to define certain concepts which are frequently used and to analyse certain of the simplest sociological relationships in the economic sphere’ (Weber 1978: 63). As the concern is with sociological relationships, albeit in the economic sphere, it would seem plausible to assume that the ‘frequently used’ concepts that Weber is concerned to define will be sociological in nature.

However, slightly later, Weber refers to ‘economic theory, the theoretical insights of which provide the basis for the sociology of economic action’ (Weber 1978: 68). This suggests that Weber is seeking to develop an analysis of the economic sphere through defining ‘frequently used concepts’ drawn from economic theory. This is in fact the case, as Weber’s analysis is concerned to explore economic concepts such as ‘utility’, ‘capital, ‘wealth’ and ‘money’.

Weber’s statement that his analysis is based on the theoretical insights of economic theory, coupled with his rejection of any attempt to develop an economic theory, immediately raises two issues. Firstly, there is an issue concerning the nature of the ‘economic theory’ providing the theoretical insights that Weber will draw upon. Secondly, there is an issue concerning how an investigation of the economic sphere conducted in terms of the concepts drawn from economic theory differs from an investigation of the sphere conducted in economic theory. Although these two issues appear central for any attempt to investigate Weber’s analysis, they are by no means easily resolved. This chapter will explore the first of these issues, whilst the second issue will be addressed in the next chapter. However, it is worth noting that these two issues are interrelated, as resolving the first issue also serves to illuminate the second.

Weber and economic theory in Economy and Society

An insight into the nature of the economic theory that Weber draws upon appears to be offered by Honigsheim’s general observation that ‘the theory of marginal utility … certainly played an essential role in Max Weber’s thinking’ (Honigsheim 1968: 63). If marginal utility theory did play an ‘essential role’ in Weber’s thought, this may well suggest that Weber’s analysis will be conducted in terms of concepts drawn from this theory. However, in the course of his detailed investigation into the chapter, Breiner is led to the conclusion that Weber’s analysis offers ‘a picture of an economy that violates virtually every one of the strictures of marginal utility theory’ (Breiner 1995: 37).

These two observations, although apparently contradictory, could possibly be compatible if Weber came to modify his understanding of marginal utility theory over time. It is thus possible that marginal utility theory initially played an ‘essential’ role in Weber’s early thought, although this role had been rejected by the time he wrote Economy and Society. Yet even this possibility is implicitly rejected by Talcott Parsons, who advances the view that ‘Weber on the whole accepts the views of the functions of a competitive price system current in “orthodox” economic theory’ (Parsons, T. 1947: 39).¹ Parsons is explicitly referring to Economy and Society and is quite clear that by ‘orthodox’ economic theory he means a form of marginal utility theory.

There are thus disparate, if not conflicting, views on Weber’s relationship to marginal utility theory, and this initial exploration leaves the issue concerning the economic theory that forms the basis of Weber’s analysis far from clear. The situation is even more complex as it is not immediately clear which, if any, of the claims about marginal utility theory are compatible with observations that Weber was influenced by Austrian political economy (Bremer 1995, 1996; Holton and Turner 1989).

Swedberg has recently turned his attention to this issue of Weber’s relationship to marginal utility theory. In the course of a close scrutiny of the various claims that have been made regarding Weber’s sociological inquiry into economic action, Swedberg argues that ‘the notion of “marginal utility” plays next to no role in his [Weber’s] general sociology’ (Swedberg 1998a: 25) and concludes that:

Weber’s sociology is not based on ‘marginalist foundations’ in any meaningful sense of this expression. And Weber makes no analytic use whatsoever of the notion of declining utility in his general sociology.

(Swedberg 1998a: 28)

Swederg and Breiner thus both conduct detailed investigations into Weber’s analysis and both arrive at a similar conclusion – that Weber’s analysis does not rest on ‘marginalist foundations’. Yet this conclusion leaves a major problem, because if the analysis draws upon the ‘theoretical insights’ of economic theory, yet the notion of marginal utility does not play any significant role in Weber’s analysis, it is difficult to appreciate what insights are being drawn upon. Weber does not claim to be developing an economic theory, and is clearly unhappy with Marx’s economic analysis.² Consequently, if Weber is not drawing upon some form of marginalist theory, what economic theory is he drawing upon?

The main difficulty for the conclusions drawn by both Swedberg and Breiner is the fact that Weber’s analysis clearly does make use of marginalist theory. For example, in the course of his analysis of economic action Weber advances the claim that ‘the marginal utility of money to the issuing authority falls … when it creates administrative money’ (Weber 1978: 170).³ This strongly suggests both that he is appealing to some form of ‘marginalist foundations’ and that he does make use of the idea of ‘declining utility’.

Preliminary excursion on Weber and marginal utility theory

Although the diverse, apparently contradictory views concerning Weber’s relationship to marginal utility theory would seem to suggest that Weber does not offer any sustained investigations into the theory, the opposite is, in fact, the case. In a number of writings Weber is explicitly concerned with both the status and the content of the ‘principle of marginal utility’. These writings clearly indicate the economic theory that Weber will draw upon in his later investigation of economic action.

In the Critique of Stammler, first published in 1907, Weber initially argues that the ‘principle of marginal utility’ serves a double function. Firstly, it can provide a means by which actors regulate their action. The principle thus serves as an ‘ideal rule’ or ‘norm’ which an isolated individual follows if they intend ‘to act in accordance with the ideal of “purposive” action’ (Weber 1977: 106). Secondly, it can serve as a means of theoretical investigation (Weber 1977:106–7). Marginal utility theory can thus be used to investigate how an isolated individual would behave, if following the ‘principle of marginal utility’. Weber thus notes ‘what “must” the “economic” behaviour of Robinson⁴ have been if it had been pursued to its ultimate conceptual or logical consequences? This is the sort of question raised by marginal utility theory’ (Weber 1977: 111).

At this stage, Weber equates ‘marginal utility theory’ solely with economic theory. However, this does not preclude the possibility of incorporating a marginal theory into a sociological investigation. Weber is not stating that only economic theory, understood as marginal utility theory, can investigate actions following the ‘principle of marginal utility’. In economics, marginal utility theory investigates economic behaviour on the assumption that following this principle is taken to its logical conclusions. However, individuals may attempt to follow the principle, yet be incapable, for varying reasons, of following the principle to its ‘ultimate consequences’.

Weber thus describes the ‘principle of marginal utility’ as an ‘ideal rule’, or norm, and elaborates on the status of rules in connection with the rules of a game thus:

The rules of the game can be employed for taxonomic and conceptual-constitutive purposes in order to define the object of investigation. They can be employed heuristically in order to establish causal knowledge of this object. And, finally, they can function as causal determinants of the object of knowledge.

(Weber 1977: 123, emphasis in original)

The ‘principle of marginal utility’, as an ‘ideal rule’, can thus be used to define what constitutes ‘economic action’. Economic theory defines how individuals will, or ought to, act if following the principle to its logical conclusions, and analyses what the results of such behaviour will consist in. It will describe, say, how prices would be formed if all relevant individuals were acting unswervingly according to the principle.

In heuristic terms, the principle of marginal utility may be utilised to investigate actions on the assumption that individuals are actually employing the principle to guide their own actions. Here, it is possible to discern to what extent individual action deviates from the norm, either because individuals are not trying to follow the norm, or because certain factors prevent them from following the norm.

As a causal determinant of action, individuals, as noted, may allow their actions to be guided by the principle of marginal utility. However, Weber is not merely concerned with this aspect of the principle in the context of an isolated individual. In any economic interaction, individuals may base their actions on the assumption that other individuals with whom they are interacting may also be following the norm. Thus the deliberations of any individual following utilitarian maxims may consider the fact that others are also following the maxim (Weber 1977: 118).

Weber illustrates this in terms of the relationship between a ‘worker’ and a ‘manufacturer’. The worker considers whether or not to work for a certain amount of money, which can subsequently be exchanged for goods. In arriving at a decision, the worker considers various ideas associated with exchanging labour power for money, and these ideas have a causal effect on the worker’s decision. In contrast, ‘the manufacturer takes these ideas into account as causally decisive factors which determine how labour power functions in the technical process of production’ (Weber 1977: 101).

The decision that the manufacturer arrives at is thus dependent upon recreating the decision that the worker would arrive at assuming that the worker was following the norm of purposive action. It is worth noting that the situation Weber describes is more complex because implicit in Weber’s analysis is the fact that the ‘thought processes’ determining the worker’s decision also refer to assumptions as to how the manufacturer will behave.⁵ There is thus an interrelationship where each not only assumes the other will act in a certain way, but each knows that the other expects them to act in a certain way. Weber thus refers to a ‘causal regress’, illustrated in terms of the card game ‘skat’:

Consider … a causal explanation of the way a given game of skat was played. It is obvious that the causal regress would have to include the speculation on the part of each player that the other players will in fact follow the usual rules.

(Weber 1977: 119)

The principle of marginal utility is therefore not merely a ‘causal determinant’ regarding the isolated action of ‘Robinson’. Rather, it also plays this role in social action where, in Weber’s later definition, ‘an important… component of social action is its meaningful orientation to the expectation that others will act in a certain way’ (Weber 1978: 1375). Explicit in Weber’s ‘Stammler’ essay is the idea that individual A expects individual B to act in certain ways, whilst implicitly it could also be the case that individual A expects individual B to expect individual A to act in certain ways, and so on.⁶

In a later essay, ‘Marginal utility theory and “the fundamental law of psychophysics”’, written in 1908, Weber clarified his view of the relationship between economic action and economic theory. Empirically, economic action:

shows only an ‘approximation’ to the theoretically constructed course of strictly rational action. Yet, the historical peculiarity of the capitalistic epoch, and thereby also the significance of marginal utility theory … for the understanding of this epoch, rests on the circumstances that… under today’s conditions of existence the approximation of reality to the theoretical propositions of economics has been a constantly increasing one.

(Weber 1975: 32–3, emphasis in original)

Under contemporary capitalism, individual economic action increasingly conformed to the ‘norm’ of purposive action, and thus marginal utility theory was becoming increasingly relevant in understanding economic action. For Weber, one aspect of the increasing relevance of marginal utility theory was the fact that economic institutions were being constructed according to the norms of the theory. Thus he argues that:

It is, for example, no accident that an especially striking degree of approximation to the theoretical propositions of price formation (as Böhm-Bawerk, connecting his work with that of Menger, developed them) has been represented by the fixing of the Berlin market rate … This Berlin situation could serve directly as a paradigm for the theoretical propositions … [A]ction on the stock exchange is economically rational in especially high degree – or can be so.

(Weber 1975: 33)

This statement contains a number of insights into Weber’s views on economics. Firstly, Weber observes that the degree to which individual action can conform to the norm of ‘purposive’ action is dependent upon the institutional arrangements in existence. As institutions may be constructed in order to facilitate action according to the norm, individual behaviour increasingly approaches the norm. Secondly, Weber explicitly mentions the economists Menger and Böhm-Bawerk. Menger was the ‘founder father’ of the Austrian school of economics, and Böhm-Bawerk was writing in the same tradition.

Thirdly, Weber refers to them in connection with the problem of price formation, not price determination. Marginal utility theory is commonly viewed as being independently ‘discovered’ by three individuals – Menger, Jevons and Walras. Whilst the contributi...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgements
• Introduction
• 1. Weber and marginal utility theory: the Austrian connection
• 2. Sociological and economic investigations of economic action: the critique of Menger
• 3. Weber and the sociology of economic action: the critique of central planning
• 4. Rationality and economic action: a sociological perspective
• 5. Situating rationality: planning and rational choice theory
• 6. The significance of a monetary economy: Weber and Habermas
• 7. The debate on central planning: Weber, Mises and after
• Conclusion
• Notes
• Bibliography
• Index