Commentary on Political Economy

Friday 28 October 2011

Max Weber’s Theory of the Origins of Capitalism

The Weberian interpretation of capitalism distinguishes its operari, its mechanical functioning which is “rational and systematic” not in a normative or purposive or still less a teleological sense, but only because its “economic action” can be “measured” according to mathematical relations that serve “to maximize” the “profit” expressed in monetary terms of the capitalist activity. The ultimate “rationality”, the basis upon which the “rational-mathematic” and “systematic-scientific” measurement of capitalist economic action is at all possible is the calculation of “profit”, which Weber defines as the difference, monetarily expressed, between expenses and receipts. All other “impulses” must be subordinated to this overriding calculating “rationality”. Yet this does not mean if the “measurement” of profit and the economic actions taken in its “pursuit” can be calculated mathematically so as to maximize that profit – this does not mean that the “pursuit” itself is “rational” in any substantive sense. The “rationality” of capitalist economic action is limited to and defined by the sheer “calculability” of the steps taken in the pursuit of profit maximization. But the “pursuit” itself cannot be “rational” in the sense that the ultimate “motive forces” of human action cannot be subjected to the formal “rationality” of mathematical calculation and maximization.

Unlimited greed for gain is not in the least identical with capitalism and is still less its spirit. Capitalism may even be identical with the restraint or at least a rational tempering of this irrational impulse. But capitalism is identical with the pursuit of profit, and forever renewed profit, by means of continuous, rational, capitalistic enterprise. For it must be so: in a wholly capitalistic order of society, an individual capitalistic enterprise which did not take advantage of its opportunities for profit-making would be doomed to extinction.

Let us now define our terms somewhat more carefully than is generally done. We will define a capitalistic economic action as one which rests on the expectation of profit by the utilization of opportunities for exchange, that is on (formally) peaceful chances of profit….


…Where capitalistic acquisition is rationally pursued, the corresponding action is adjusted to calculations in terms of capital. This means that the action is adapted to a systematic utilization of goods or personal services as means of acquisition in such a way that, at the close of a business period, the balance of the enterprise in money assets (or, in the case of a continuous enterprise, the periodically estimated money value of assets) exceeds the capital, i.e. the estimated value of the material means of production used for acquisition in exchange. (pp17-8)

At first, Weber’s reasoning appears to be circuitous because he defines “a capitalistic economic action as one which rests on the pursuit and expectation of profit and renewed profit by means of continuous, rational, capitalistic enterprise”. But he quickly extricates himself out of the difficulty by further defining “capitalistic enterprise” as

a systematic utilization of goods or personal services as means of acquisition in such a way that, at the close of a business period, the balance of the enterprise in money assets (or, in the case of a continuous enterprise, the periodically estimated money value of assets) exceeds the capital, i.e. the estimated value of the material means of production used for acquisition in exchange.

Thus, “capitalistic enterprise” consists of “exchange for profit” defined as the monetary excess of receipts over expenses. Nowhere does Weber attempt to define “profit” except in monetary terms. And the profit is the simple result of “exchange” of goods. Weber here isolates three elements, namely, “rational” action, exchange and profits. The problem remains, however, that Weber does not define or explain “profit” and therefore we do not know yet how the simple act of “exchange” can give rise “rationally and systematically” to the realization of “profits” unless this is done through extortion or trickstery. This faulty definition is also inconsistent with Weber’s own position that “the rational organization of free labour” and therefore of “production” and “productivity” (see below) is crucial to the definition of capitalism – indicating thereby that “profit” is to be found in the sphere of production and not in the sphere of exchange.

Indeed, having considered a number of “peculiarities” of capitalist economic action, Weber then comes to this startling statement:

However, all these peculiarities of Western capitalism have derived their significance in the last analysis only from their association with the capitalistic organization of labour. Even what is generally called commercialization, the development of negotiable securities and the rationalization of speculation, the exchanges, etc., is connected with it. For without the rational capitalistic organization of labour, all this, so far as it was possible at all, would have nothing like the same significance, above all for the social structure and all the specific problems of the modem Occident connected with it.

Exact calculation—the basis of everything else—is only possible on a basis of free labour. (p22)

Now, we certainly agree that Weber here is getting very close to the mark. Unfortunately, however, he fails to give any indication at all as to why and how “exact calculation… is only possible on a basis of free labour”!

Hence in a universal history of culture the central problem for us is not, in the last analysis, even from a purely economic view-point, the development of capitalistic activity as such, differing in different cultures only


in form: the adventurer type, or capitalism in trade, war, politics, or administration as sources of gain. It is rather the origin of this sober bourgeois capitalism with its rational organization of free labour.

Clearly, then, “free labour” is at the very centre of capitalism with the added attribute or characteristic that capitalism is responsible for “its rational organization”. But how does this lead us to profit? Weber does not explain even though he seems to have extensive insights into the workings of industrial relations and of the labour process for the production of goods for exchange as well as of the “antagonism” of free labour and capital with regard to the wage relation, that is, with regard to the antagonism of living labour to alienate itself to the command of the capitalist:

A man does not "by nature" wish to earn more and more money but simply to live as he is accustomed"* to live and to earn as much as is necessary for that purpose. Wherever modern capitalism has begun its work of increasing the productivity of human labour by increasing its intensity, it has encountered the immensely stubborn resistance of this leading trait of pre-capitalistic labour. And to-day it encounters it the more, the more backward (from a capitalistic point of view) the labouring forces are with which it has to deal.

Another obvious possibility, to return to our example, since the appeal to the acquisitive instinct through higher wage-rates failed, would have been to try the opposite policy, to force the worker by reduction of his wage-rates to work harder to earn the same amount than he did before. Low wages and high profits seem even to-day to a superficial observer to stand in correlation; everything which is paid out in wages seems to involve a corresponding reduction of profits. That road capitalism has taken again and again since its beginning. (p60)

Nor is Weber bereft of knowledge about the dynamic whereby the antagonism of workers in the production process compels the capitalist to turn into an entrepreneur and so transform both the means of production and, with them, the goods produced:

But the effectiveness of this apparently so efficient method has its limits. Of course the presence of a surplus population which it can hire cheaply in the labour  market is a necessity for the development of capitalism. But though too large a reserve army may in certain cases favour its quantitative expansion, it checks its qualitative development, especially the transition, to types of enterprise which make more intensive use of labour. Low wages are by no means identical with cheap labour. (p61)

But then, suddenly and inexplicably, Weber abandons his analysis of the antagonism between capital and workers and begins to describe the process by which certain “religious upbringing” historically helped overcome the opposition of workers to the alienation of their living labour and how this “change of attitude” was itself responsible for the “spirit of capitalism” that transformed industry from “traditionalism” to modern capitalism:

Labour must, on the contrary be performed as if it were an absolute end in itself, a calling. But such an attitude is by no means a product of nature. It cannot be evoked by low wages or high ones alone, but can only be the product of a long and arduous process of education. (p62)

The ability of mental concentration, as well as the absolutely essential feeling of obligation to one's job, are here most often combined with a strict economy which calculates the possibility of high earnings, and a cool self-control and frugality which enormously increase performance. This provides the most favourable foundation for the conception of labour as an end in itself, as a calling which is necessary to capitalism: the chances of overcoming traditionalism are greatest on account of the religious upbringing.

This observation of present-day capitalism in itself suggests that it is worth while to ask how this connection of adaptability to capitalism with religious factors may have come about in the days of the early development of capitalism. (p63)

Of course, this “explanation” of the origins of capitalism or of its “spirit” can satisfy no one because it raises more questions than it pretends to answer. Again, Weber has not explained the meaning and content of “profit”. He has not accounted for the antagonism of workers to the wage relation both in terms of “distribution” of goods produced and above all in terms of the alienation of living labour from the means of production and from social labour. But above all he has not explained satisfactorily or at all how and why “the Protestant work ethic” could ever induce workers to relinquish their antagonism to the wage relation to become instead “enthusiastic and dutiful” participants in the alienation of their living labour!

Above all, Weber has failed to explain how the quantification of the “content” of profit as a social relation of production can be operated by capital and therefore enable the “rationalization” of production and distribution of commodities for the realization and maximization of profits from their sale on the market!

This is a topic we will address in connection with the adoption of neoclassical value theory from the Austrian School through to Keynes.

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