From the moment we posted it, we have noticed great interest from the friends who visit this site in the piece on "Absolute and Relative Exploitation". This distinction plays a central role in the work we are conducting now, called collectively "Krisis" - particularly the final chapters. This piece is meant to illustrate and enucleate the meaning of this conceptual and historical distinction to our visiting friends by analysing closely Max Weber's own insights that serve as a pro-paedeutic to Keynes's economic analysis. I hope you enjoy this.
The Weberian interpretation of capitalism focuses on 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 Kalkulation 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”.
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)
From the outset, the Vorbermerkungen published in 1920 and meant as a general introduction to the Aufsatze zur Religionssoziologie are intended as a recapitulation of Weber’s reflections on and theory of the origins and nature of capitalism. This is the culmination of a reflection that was already well advanced with the “triptych” of 1918-9 and the intensification of the political debate around the Verfassungsfrage in 1919 in which Weber seems finally to veer toward authoritarianism. Here therefore we have the fruit of Weber’s “mature” reflections on his exegesis and critique of the capitalist economy and its social institutions. In the process, Weber seeks to reconcile the “irrational” calling (Beruf) or “ascetic Ideal”, as the esse, the “Will” or “Spirit” at the origins of “the spirit of capitalism” with the “rationally calculable” operari of capitalistic economic action itself.
Capitalism is only one form of “economic action” that relies on “opportunities for exchange” which, by definition, have a degree of legitimacy and are therefore “peaceful” and that, where they are “rationally pursued” involve the “periodic excess” of the “balance of the enterprise in money assets” over the preceding period. Already, therefore, capitalistic economic action involves a “system” that ensures its legitimate reproduction on an expanded scale. It involves the “systematic utilization of goods or personal services as means of acquisition” for profit, that is, the difference between the cost of utilizing goods and personal services as a means of acquisition and “the estimated value of the material means of production used for acquisition in exchange” or “capital”. Weber’s awkwardness in describing capitalist economic action is on full display here, despite his resolve “to define our terms somewhat more carefully than is generally done”, and it reflects clearly his unwillingness to separate the “institutional” aspects of capitalist enterprise from its narrower systemic elements.
We notice next that Weber does not distinguish between goods and personal services utilized systematically in capitalism from “the means of production”. This indicates that Weber sees no distinction, where capitalist economic action is concerned, between “means of production” and “labor” (personal services). In other words, he treats “labor” as a simple “homogeneous quantity” that is “utilized” just like other “goods” in the production of “means of acquisition”. Weber is not saying that the aim of capitalist enterprise is “to acquire more means of acquisition”, (as Don Patinkin put it, in capitalism “goods do not buy goods”), but it is an awkward way of saying that the “money assets” of a capitalist enterprise at the end of a given period have to be systematically higher than at the start. Thus, what really matters for capitalist “profit” is the value of “money assets” and not “means of acquisition”.
Yet this does not mean that if the “measurement” of profit and the economic actions taken in its “pursuit” can be calculated mathematically so as to maximize that profit then the “pursuit” of profit itself is “rational” in any substantive sense – in terms of what Weber himself called “Wert-rationalitat”. 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: it is a “Zweck-rationalitat”, a rationality limited to and circumscribed by its “purpose”. 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. (p.17)
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 so long as the monetary value of these goods at periodic intervals is greater than the goods and personal services “utilized to acquire them”. 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, which Weber has already excluded. But capitalist enterprise is hemmed in between two pincers: - from below, capitalists are forced by competition to take advantage of profit opportunities that are, therefore, necessarily “limited” or “scarce”. From above, instead, capitalist investment cannot be so foolhardy that it is not checked by “reasonable” opportunities for profit that ensure its “renewed” character. This upper limit can be constituted by “risk” and by “social limits” (values, religion, institutions, social cohesion, the environment – “externalities”).
Already therefore we have a definition of capitalist economic action that requires two fundamental limitations: on the low side, capitalist enterprise requires the regulation of competition so that “regular opportunities for profit” actually exist on a “renewed” basis and are not defeated by monopoly or else by other practices that endanger the “entry” of new competitors into “the market”. And the preservation of the possibility of “renewal” of this action is what sets the upper limit to capitalist industry. It is evident from Weber’s broad definition that there is no “independent” de-finition of capitalistic economic action, but that instead capitalism depends on a number of “institutional” presuppositions or con-ditions that allow it to operate “rationally and systematically”.
But when Weber confronts the meaning of this “rationality” he makes clear - unlike Schumpeter who (as we saw in our piece on Nietzschebuch) completely confused Weber’s use for a kind of “empirical scientific truth” – that there is neither a teleological nor a “scientific” meaning to this – and that indeed it cannot even be defined in terms of “systematic empirical methods” (as Langlois does stupidly in his peevish attempt to saddle Marx with the “teleological” aspect of “rationality” – as if, as we are about to see, Weber had not thought that Lenin’s greatness consisted precisely in the attempt to achieve “the rational organization of labour” in Russia!). The Rationalisierung is not for Weber a process of “substantive rationality” intended teleologically, nor is it a process of “systematization”, which in itself would amount to an empty “formalistic” definition. No. Let us see more closely what he means.
It is hence our first concern to work out and to explain genetically the special peculiarity of Occidental rationalism, and within this field that of the modern Occidental form. Every such attempt at explanation must, recognizing the fundamental importance of the economic factor, above all take account of the economic conditions. But at the same time the opposite correlation must not be left out of consideration. For though the development of economic rationalism is partly dependent on rational technique and law, it is at the same time determined by the ability and disposition of men to adopt certain types of practical rational conduct. When these types have been obstructed by spiritual obstacles, the
development of rational economic conduct has also met serious inner resistance. The magical and religious forces, and the ethical ideas of duty based upon them, have in the past always been among the most important formative influences on conduct. In the studies collected here we shall be concerned with these forces.
No finality, then. No telos. Rationality of the Western kind is a “practical rational conduct” that is conditioned and determined by “non-rational”, even “magical and religious forces, and the ethical ideas of duty based upon them”. These are “forces” that Nietzsche had already explored in works that culminate with Genealogie der Moral and Gaya Scienza. Weber is simply continuing from where Nietzsche left off, but in his own exquisitely genial manner. Remember that Weber was a member of the German Parliament and that his “ideas” embodied also the interests and the will of the German bourgeoisie whose very existence was now threatened by the catastrophe of the Great War and the collapse of Wilhelmine
together with its Zivilisation. Germany
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. Or in terms of cultural history, the problem is that of the origin of the Western bourgeois class and of its peculiarities, a problem which is certainly closely connected with that of the origin of the capitalistic organization of labour, but is not quite the same thing. For the bourgeois as a class existed prior to the development of the peculiar modern form of capitalism, though, it is true, only in the Western hemisphere.
Thus, although “the peculiar modern form of capitalism” is “closely connected with that of the origin of the capitalistic organization of labor” or rather “the rational organization of free labor”, still this “peculiar modern” or “sober bourgeois” capitalism “is not quite the same thing” as the “broader” kind of capitalism because “the bourgeois class existed prior to the development of [this] peculiar modern form of capitalism”. There are two types of capitalism, then: - a “broader” type and a “peculiar modern, sober bourgeois” form of capitalism. This second type is “sober” because it involves the “rational organization of free labor”. This “broader” definition seems 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 “sober capitalism” – indicating thereby that in this second type of capitalism “profit” is to be found in the sphere of production and not in the sphere of exchange. Or at the very least the two “spheres” need to be connected through that qualification of “labor” that Weber makes by calling it “free”. What is the nature of this “freedom”?
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)
The shift from “opportunistic exchange”, which would define a capitalism that is far from “systematic” or indeed “rational” or “scientific”, to one that is founded on “the rational capitalistic organization of labour” is as obvious as it is dramatic. Weber has touched – however unwittingly – on the all-important difference between the early forms of “mercantilist” capitalism which do rely on gains derived from the greater “value” of goods exchanged for goods of “less value”, to a form of “organized capitalism” that “rationally and systematically” ensures the production of goods with “higher value” than the means of production utilized on the basis of “the rational organization of labour”!
Not only that! But Weber also makes a statement of truly earth-shattering significance:
“Exact calculation—the basis of everything else—is only possible on a basis of free labour.”
In other words, capitalism is a social system founded on the exchange for profit (in monetary terms) between goods of “less value” for goods of “more value” on the “basis” – “the basis of everything else”! – of “exact [rational] calculation” made “only possible on a basis of [the rational organization] of free labour”!
Eine exakte Kalkulation: – die Grundlage alles andern, – ist eben nur auf dem Boden freier Arbeit möglich. Und wie – und weil – keine rationale Arbeitsorganisation, so – und deshalb – hat die Welt außerhalb des modernen Okzidents auch keinen rationalen Sozialismus gekannt.
Note how “exact calculation” – that is, rational calculation – here means “regular profitability”! Weber is certainly 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”! Clearly, “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 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.
Weber 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 being alienated by being placed under 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)
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)
Weber starts from the most blindingly obvious fact visible to the most “superficial observer” with even the slightest knowledge of capitalist industry:
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.
It is this obvious fact that leads one immediately to suspect that capitalist profitability has to do with “the rational organization of labor”. Minimising wages tends to maximize profits. But the relationship is far more complicated than that, because it is often possible for individual capitalists to offer higher wages to their workers so as to get them to work harder or longer. Yet this runs up against the undeniable reality that
[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.
Weber is absurdly wrong here – because this “immensely stubborn resistance” is not merely “a leading trait of pre-capitalistic labor” but it is indeed a trait especially of workers in the most advanced industrial capitalist sectors or nations! Workers are keen to accept higher wages, but only on the condition that their working conditions, which include wages and labor process, are not extended or “intensified” significantly. It is because of this “immensely stubborn resistance” that the capitalist either increases wages significantly or else replaces existing means of production (machinery and labor process) “to types of enterprise which make more intensive use of labour” so as to increase the “productivity” of the workers. There is an obvious quid pro quo involved here between the “technology” of the means of production and the “wage and working conditions” of workers. It does not seem possible therefore for Weber to hold to the notion that the workers’ “stubborn resistance” to the increase “in the productivity of human labor by increasing its intensity” is a “leading trait of pre-capitalistic labor” because in fact and in reality this “exchange” between high productivity and high wages and conditions is unquestionably the most evident aspect of advanced capitalism! Weber himself admits as much when he writes,
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….That [is a] road capitalism has taken again and again since its beginning.
And this “opposite policy” of “forcing the worker to work harder”, consists not so much, as Weber says, “of reducing his wage-rates to earn the same amount as before”, which only happened in the “putting-out” system of “piece-rate wages”, but rather by deploying “a reserve army of labor” prepared to work for lower wages – which is an indispensable ingredient of capitalism, not just “a road capitalism has taken” repeatedly! Weber finally gets to this violent reality:
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.
Once again, Weber displays the awkwardness of someone who, by his own admission according to his wife, “attended his first lessons on political economy when he began giving them”! But Weber is making a terrifically valid and extremely insightful point here that deserves close attention: Capital may “expand quantitatively” by employing a greater number of workers at low wages. But these “low wages” may not mean that the labor employed is “cheap” if the productivity of that labor is so low that its output becomes uncompetitive because it is “relatively” expensive. So, rather than “expanding” – that is, seeking to maximize revenue – by what we may call “absolute exploitation” of workers, capital may “develop qualitatively” by “making more intensive use of labor” through the employment of new technologies and labor processes - what Weber calls here “types of enterprise [Betrieb]”. We may call this “relative exploitation”. But we should note above all the “difference” in Weber’s terminology between “expansion” and “development”, and then the emphasis on “the type of enterprise”. These are analytical features first outlined by Marx, especially in the Grundrisse, and adopted and adapted by Schumpeter in his “theorie der wirtschaftlichen Entwicklung”.
Four major elements emerge already from the thrust of Weber’s analysis of capitalism thus far:
The first is the distinction between “opportunistic” or “mercantilist” capitalism and the more “serious bourgeois” modern capitalism that Weber subdivides further into the “entrepreneurial” capitalism of “innovators” and “risk-takers” who create new opportunities for “profit”, and the “capitalistic” or “rentier” or “financial” capitalism constituted by “passive investors” happy to collect “dividends, interest and rent” from their mere “ownership” of capital. This distinction Weber would have taken straight out of Schumpeter’s pioneering theory of economic development glorifying the Unternehmer-Geist (entrepreneurial Spirit) and the corresponding Unternehmer-Gewinn (profit).
The second is that “labor” is seen as a homogeneous “force” (labor-power or Arbeits-Kraft) that is interested only or predominantly in “wages and wage-rates” – in its “purchasing power” – rather than in working conditions, technologies and labor process.
The third point is that this “labor” is “free” in the sense that the ultimate “spirit of capitalism” consists precisely of “the care for external goods” that has now rigidified or “crystallized” into a “steel-hard casing” and that determines ultimately the “rational allocation” of the means of production on the part of capitalists for the provision and satisfaction of “the iron cage”. The “freedom” of “labor” is the fundamental condition that will ensure both the “competition” required from below and the “checks and balances” required as a limitation to capitalistic profit-seeking.
The fourth element is that because workers care only for their wages (their needs and wants), the conflict between workers “as a class” and capitalists boils down ultimately to their being employed for satisfactory wages and does not extend to other more “utopian” demands. These “socialist” demands are “utopian” firstly because capitalist production is so rational that it ensures the efficient production and distribution of social resources (in accordance with Marginal Utility Theory) so that essentially “rational Socialism” coincides with “rational capitalism”; and secondly, as a corollary, socialist demands are utopian because they are inflated by the political representatives of workers in the new social democratic and communist mass parties – in effect, they are a by-product of the very Demokratisierung engendered by “sober bourgeois capitalism”.
Weber sees “free labor” as a homogeneous malleable “mass” or “force” that can be “organized rationally” by “sober bourgeois capitalists” in order to maximize the “profits” and the “productivity” of the “lifeless machine” of production which is seen to embody the “crystallized Spirit” of “the iron cage” – of “labor” as “calling” at first, and then as “the care for external goods” – expressed “freely” by workers as their aggregate market demand for goods. Although he is aware of the historical difference between “quantitative expansion” and “qualitative development” as specific capitalist “types of enterprise”, Weber does not see the antagonism in production that this “difference” so evidently demonstrates! For him, conflict exists only in consumption – and the combination of “free labor” and “rational organization for profit” make capitalist enterprise capable of rational calculation and resolution of this pervasive conflict in the “congealed Spirit” of the “lifeless machine” guided by the “living machine” of State and private capitalist bureaucracy. - In the same manner as Hobbes resolved the bellum omnium contra omnes by hypothesizing the convention in metu mortis of the Leviathan, of the State-machine as a “mechanical ab-solution” of all human conflict, Weber envisages the possibility of “resolving” the conflict of the Demokratisierung in the Kalkulation of “compromise” within the Ratio of the “parliamentary oversight of the bureaucracy”, the “selection” of the “responsible” leitender Geist. But, like Hobbes, Weber then faces the problem of the “trans-formation” of the system, of its Entwicklung, of its Dynamik, which he can understand only in terms of “political representation and compromise” – of the Parlamentarisierung. This is the Aufklarung – the “spirit of Enlightenment” – that Carl Schmitt will definitively demolish in his response to Thoma in The Crisis of Parliamentary Democracy.
Weber saw “the problem” of the State that Schumpeter ignored almost completely, but he was unequal to the task precisely because “parliament” alone did not have the “instruments” it needed if the “rational profitability” of market capitalism failed. “Demand” may well come from “free labor”: but it does not “automatically” guarantee “profitability”. As Keynes was about to discover and theorise, it is “aggregate demand” that requires specific policies and instruments that the
lacked and that no “parliamentary compromise” could deliver. (This is at bottom
the charge Schmitt will move in Parlamentarismus.)
Weber ignores that without this ability of the State to manage aggregate demand, the “rational profitability” of capital
may collapse. And if it does, the temptation on the part of capital will be to
resort to that “quantitative expansion” or absolute exploitation that is the
opposite of “qualitative development” or relative exploitation. And what this
means ultimately is that “sober bourgeois capitalism”, far from acting “in opposition” to the State bureaucracy,
will then unite with it in an all-out attempt to suppress (!) that “freedom” of “labor” on which Weber’s entire Parlamentarisierung was absolutely
dependent! This was the Problematik
that only a trained economist blessed with uncommon political insight could
tackle: the Kafkaesque meta-morphosis
of the Weimarer Verfassung into the
Nazi dictatorship could now find an emphatic riposte in the Rooseveltian New
Deal. German State