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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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tury. The growing internationalization of capital and the relocation of operations of large corporations to low-wage states especially contributed to the belief that the state is no longer able to control economic forces. However, in most modern states, some centralized economic planning exists, for example to set interest rates on financial markets, but more importantly to protect the workers in regulating the labor market. Those regulations actually allow the market to operate more efficiently.402 In implementing those policies, the state guarantees a legal framework for doing business and especially protects private property rights in securing ownership and transactions, setting ―the economic rule of the game‖.403 Thus, governmental intervention can improve market outcomes also in economic crises when due to market failures resources are not allocated efficiently. At the same time Capitalism has created and maintained the political and economic institutions needed during its historical development to function optimally, and more so it ―becomes increasingly capable of defying, or existing ‗above‘ the state‖.404 Capitalism is a system that reveals a great ability to adapt to different epochs and usurping different cultures and societies.405 However, the relationship between a political system and Capitalism is not restricted to democratic orders. In the 20th century, Capitalism also emerged in as diverse political systems such as liberal democracies, fascist regimes, monarchies, and single-party states, with the most recent example of China. Some researchers tried to prove that capitalist development inevitably leads to the emergence of democracy, but authoritarian regimes like China have been able to achieve economic growth without making concessions to greater political freedom (for a more detailed discussion please refer to chapter 5 and 8).

In this work, it will not be tried to find an unambiguous, ultimate definition of Capitalism, but rather the view of Max Weber and Werner Sombart will be presented, whom have the most valuable and useful definition for this purpose. Their view creates an ideal type of Capitalism that assumes a certain attitude towards the economy with increasing rationalization, bureaucratization and professionalization within a homogenous institutional framework. In this setting, personal connections do increasingly not play an important role for doing business but are replaced by contractual relations. This point of view is still a common argument within mainstream economic literature.

–  –  –

At the beginning of the 20th century, Max Weber described the relatively new economic system called Capitalism developing then in Europe. He defined Capitalism as ―present wherever the industrial provision for the needs of a human group is carried out by the method of enterprise‖ and ―a rational capitalistic establishment‖ as ―one with capital accounting‖. Rational Capitalism has the following institutional characteristics: firstly, a capitalistic enterprise holds profit-making as its sole end; profit is the criterion of its success or survival. Secondly, profit is pursued by the ‗capitalistic adventurers‘ by rationality, continuity, and moral restraint. Also, the labor force is a legally free wage-earning class separated from ownership of means of production. This free labor is rationally organized under bureaucracy, the most efficient pattern of organizing large numbers of people for performing common impersonal functions for Weber. And lastly it involves modern technical features such as production technology and technical means of exchange and distribution, and the price mechanism in competitive markets.407 In his study The Protestant Ethic and the Spirit of Capitalism408 Max Weber analyzes the relationship between religion and the economy and its relevance for the emergence of Capitalism. For him, although he avoided a conclusion on causality and merely strived to analyze the influence of religion on the emergence of a certain economic system, the modern rational capitalistic spirit of Capitalism relies on the religious assurance of salvation of Calvinism and for him described ―the attitude which seeks profit rationally and systematically‖.409 This new type of economic order was developed as ―a very different form of Capitalism which had appeared nowhere else: the rational capitalistic organization of (formally) free labor‖.410 Not only is free labor a major characteristic of rational bourgeois Capitalism, but it is also necessary to have a ―rational industrial organization, attuned to a regular market, and neither to political or irrationally speculative opportunities for profit‖. This can be accomplished with the aid of rational business book-keeping and the ―rational strucWeber, 1976 [1930], p. 48f.

Parsons, 1967 [1937], p. 503-507.

See Weber, 1976 [1930].

Weber, 1976 [1930], p. 64, Schefold, 1996, p. 189.

Weber, 1976 [1930], p. 21.

tures of law and of administration‖, which provides a calculable legal system and administration in terms of formal rules.411 Essential for this type of economic system is thus freedom of markets with a regulated exchange and rational forms of organizations like corporations that use budgets and capital accounts for their business calculations with the aim of profit maximization.

Weber defines rationalization412 as a unique view of the world achieved only by Western civilization. He associates it with the rise of science together with the ―belief that sense, perception and reasoning (rather than faith) are the sole or ultimate source of knowledge‖.413 By rationalization of bureaucracy he therefore indicates a process in which a firm is reorganized with the aim of profit maximization. This also means the growth of an elaborately formed organization. Thus, Weber emphasizes the legal separation of corporate from personal property and the invention of rational book-keeping as distinctive patterns that made Western Capitalism unique. These characteristics are ―indispensable requisites for […] independence‖, which other parts of the world like the Far East, the Near East and in Antiquity lacked.414 He uses rational as opposed to irrational Capitalism in the sense of a Capitalism that develops the methods and the increased quantity of production and can therefore also be called productive. Irrational Capitalism in contrast would not enhance technical progress or growth and thus is 'parasitic'.415 Capitalism is therefore defined as a function of a certain spirit, described by a systematic combination of characteristics, creating the modern, rational Capitalism. Max Weber‘s works were not only concerned with the evolution of Capitalism, they were also, and this is probably what stands out, involved with what this spirit of Capitalism is, what the consequences of this for people are and how they could lead their lives within this economic system. He very vividly describes the spirit of Capitalism as having irretrievable consequences which changes the lifestyle of people fundamentally. Max Weber also assumed that it is the nature - or spirit - of modern Capitalism to impose a unique institutional strucWeber, 1976 [1930], p. 21f and 25.

Max Weber differentiates between several forms of rationality and additionally between rational actions and rationality. Rationality is ―neither ‗reasonableness‘ nor a high degree of theoretical scientific development, but a thoroughgoing systematization and adaptation of practical life to a particular set of ideals‖. It rests ―on a complex, hierarchically organized division of tasks […] and impersonality, in the sense that […] commands are given and obeyed by virtue of a ‗legal‘ authority vested in the position of the individual who gives them, not his personal qualities‖. Parsons, 1928, p. 36f. He defines four types of rationality: affectional, traditional, value rational and purposive rational. He was, for example by Ludwig von Mises, criticized for this approach. Mises claims that there is only one unique form of rationality: purposive rationality. See Weber, 1988 [1922], p. 427-452, 475-488 and also Schefold, 2004b and Weber; Hellmann and Palyi, 1991.

Weber and Andreski, 2006, p. 7f.

Weber and Andreski, 2006, p.26.

Weber and Andreski, 2006, p. 8f.

ture on the existing traditional society to develop, with obsolescent cultural idiosyncrasies being replaced. Capitalism had constituted a completely new epoch, breaking with the old economic order and challenging the existing institutions. Constructing a severe disruption between the traditional economy and modern rational capitalism lends Max Weber‘s arguments plausibility. It also separates him from the stages theories of the Historical School that interpreted development more in an evolutionary manner. For Weber, modernity and hence, Capitalism, is defined by inescapable and ongoing conflicts; an interpretation he shares with Sombart. Both also agree on the impression that Capitalism develops a dynamic which becomes impossible to stop once it started; competition is the fuel that keeps this ‗machine‘ going. Sombart calls this the ―esbat‖ of Capitalism.416 Price becomes the means of struggle in markets to the end of economic surviving. This ―struggle for gain is in a ‗continuous, rationally conducted capitalistic enterprise‖.417 Weber stated about the rational economy: ―It is oriented on money prices, found in a fight of interests among men in the market. Without estimation in money prices, that is, without any fight, there is no possibility for calculation given. Money is the most abstract and 'impersonal' concept in the existence of men‖.418 Capitalism is accompanied by an enormous increase in production of goods but this is not connected with rising social harmony or distributive justice.419 This shows that an even more important prerequisite is a cultural factor that is manifested in both economic ethos and a special business ethic for both entrepreneur and employer. This results in a causal relation between the ―spirit of Capitalism‖ and the protestant ethic. The economic spirit is the prerequisite, not the result of Capitalism. A state of mind had been developed that fitted perfectly to the functional characteristics of the capitalistic economy.420 Thus, a certain form of organization is not enough to create the necessary attitudes for Capitalism which is therefore not merely a reflection of its material elements.421 In opposition to Marx‘ historical materialism Weber stresses the importance of ―ideas and ideals, which instead of always being reflections of materialistic conditions can be independent, voluntaristic forces in initiating socio-economic change‖.422 Therefore, not only is the notion of free labor essential for the Weberian type of Capitalism, but institutional preconditions also play an important role, especially the spatial separation of business from the household, therefore also the separation of corporate from See Köster and Plumpe, 2007, p. 3ff., 10, 18f., Sombart, 1987 [1908-1927], Vol. III,2 p. 1010.

Parsons, 1928, p. 36.

Weber, 1963 [1924], p. 544: „Zwischenbetrachtung―, my own translation.

Köster and Plumpe, 2007, p. 8.

Weber, 1976 [1930], p. 91ff.

Parsons, 1967 [1937], p. 516f.

Weber, 1968, p. xv.

personal property.423 But not only physical institutions are separated, destructing formerly holistic units into fractions; Capitalism also separates people from their homes. In 19th century Germany, family structures were still built so as to fit in the feudal structures of medieval Europe. Without going into details of the historical development, in the end the traditional self-sustainable household was not able to counter Capitalism and the longestablished institutions withered away (see also chapter 5.2). In this process, the unity of house and business was lost, which for Weber was a mandatory prerequisite for successful capitalistic production. The ―iron cage‖ of modern Capitalism makes people feel that through the forced artificial conditions of separation of private sphere and working life also their body and soul are separated.424 For Weber, Capitalism changed the lifestyle of people fundamentally once it emerged; he portrays it as separation of formerly unified units and institutions, breaking with the old economic order and challenging existing traditional institutions. Free labor thus also means social inequality, which forces people to work in factories only able to sell their labor power. Not pride or pleasure in the quality one is able to produce motivated to work hard but piece-work wages and the fear of dismissal. Capitalism has ―through the subordination of the process of production to scientific point of view, relieved it from its dependence upon the natural organic limitations of the human individual‖.425 Individuals had to be turned into ‗fictitious commodities‘426 who found themselves in an inescapable ‗iron cage‘, traded on (labor) markets for sale to entrepreneurs and became a class of propertyless workers that was forced to sell its labor power, not being able to escape that "iron cage".427 The traditional family division of labor was put under pressure because production and retail sale were disconnected in time and space by the intervention of an entrepreneur who advanced money for production with the object of subsequent sale at a profit.428 After migrating to the cities, the significance of the household in providing shelter and guidance vanished. In the traditional economic, the pater familias had sole responsibility for business, organizing the work within the household.429 With the emergence of CapitalWeber, 1988 [1922], p. 612.

Köster and Plumpe, 2007, p. 3f., Weber, 1976 [1930], p. 181.

Weber, 1976 [1930], p. 75.

Polanyi, 1944, p. 68ff.

Weber, 1976 [1930], p. 181. The ‗iron cage‘ of course is more than just a metaphor for the capitalist labor market. It is a concept that illustrates that the values of Capitalism are so internalized that the expression of a ‗free will‘ becomes impossible.

Brunner, 1956, p. 33.

Dülmen, 1995, p. 41 and Weber - Kellermann, 1988, p. 144.

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