Journal of Classical Sociology
Copyright © 2002 SAGE Publications London, Thousand Oaks and New Delhi Vol 2(3): 227–255 [1468–795X(200211)2:3;227–255;031193]
www.sagepublications.com
The Economic Sociology of Capitalism
Weber and Schumpeter
RICHARD SWEDBERG Cornell University
ABSTRACT This article points to a distinct puzzle in the analyses of capitalism
that can be found in the works of Weber and Schumpeter, and gives a new
introduction to their analysis of capitalism. Both Weber and Schumpeter wrote
voluminously on capitalism, as testified to by such giant works as Economy and
Society (Weber, 1978c [1922]) and Business Cycles (Schumpeter, 1939). One can
also discern a distinct development in their thought over time: from emphasizing
the role of various voluntaristic elements (such as the spirit of capitalism and the
spirit of entrepreneurship) to stressing the role of institutions. The puzzle that
one can find in their writings is as follows. Weber and Schumpeter both argue that
a vigorous and healthy capitalism requires certain economic and non-economic
institutions, in addition to something else. An absence of this ‘something else’
may lead to capitalist petrification or collapse, according to both authors. The
answers of Weber and Schumpeter to the above puzzle, it is shown in the article,
is somewhat different in their early and in their later works.
KEYWORDS capitalism, economic sociology, Schumpeter, spirit of capitalism,
Weber
This article has two purposes: to point to a distinct puzzle in the analyses of
capitalism that can be found in the works of Weber and Schumpeter, and to give
a new introduction to the sociology of capitalism that can be found in the works
of these two scholars. The puzzle is as follows. Weber and Schumpeter both argue
that certain economic and non-economic institutions are needed for there to be a
vigorous and healthy capitalism, but also that this is not enough. Something else
is needed – but what? In situations where this ‘something else’ is needed, but
where otherwise perfectly adequate institutions are present, Weber and Schumpeter agree that capitalism may either petrify or become so weak that it may fall
pray to counterforces. Let me also note on this particular point that Weber and
Schumpeter go directly counter to today’s standard wisdom, in economic sociology as well as in New Institutional Economics, according to which all you need is
the right type of institutions, and economic growth will follow more or less
automatically.
Task number two of this article – to give a new introduction to Weber’s
and Schumpeter’s economic sociology of capitalism – may seem presumptuous
and uninteresting, for a number of reasons. One of these is that we already have a
sociology of capitalism; the other that we already know the economic sociology of
Weber and Schumpeter. We indeed already have a sociology of capitalism, or at
least the beginnings of one; and I am here referring to recent attempts to look at
‘varieties of capitalism’, different ‘governance regimes’, and so on (for an overview, see, e.g., Hall, 1999:141–6, cf. 136–40). This literature, however, draws
very little on Weber and not at all on Schumpeter. There has not been a full
exploration of whatever potential there may be for helpful hints in Weber and
Schumpeter as to what a solid sociology of contemporary capitalism shall look
like. Instead of drawing on the heritage of Weber–Schumpeter and economic
sociology, the current sociology of capitalism draws mainly on political economy,
in particular on Marx, Polanyi and some concepts it has developed on its own
(e.g. Hollingsworth and Boyer, 1997).
But even if the current sociology of capitalism may not be exactly what
some of us who are active in economic sociology would like it to be, do we really
need a new introduction to the analyses of capitalism that can be found in Marx
and Weber? My answer, when it comes to Schumpeter, is that current economic
sociology has failed to assimilate his ideas (for an exception, see Collins, 1986).
Furthermore, his work is considerably more complex and rich than is commonly
thought. Few sociologists (or economists) are, for example, aware of the fact that
his ideas in Theory of Economic Development – where his famous theory of the
entrepreneur is presented – exist in two different versions, of which the original
one is unknown.1
Something similar also turns out to be the case with Weber. While some
parts of Weber’s oeuvre have been properly assimilated – such as his general
sociology, his sociology of law and his sociology of religion – his economic
sociology is still little known. That this is the case is something that I tried to show
in Max Weber and the Idea of Economic Sociology, which appeared in 1998. Today,
a few years later, I find little change. While it has become generally recognized
that Weber indeed produced an important body of work in economic sociology,
and that this part of his work is just as important as his contributions to politics,
law, religion, and so on, practically no studies have been produced during the last
few years that try to advance the knowledge of Weber’s work on this point. This
is a pity because there exists no other sociological analysis of capitalism, in my
opinion, that is as solid and innovative as that of Weber. The following introduc-
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tion to the economic sociology of capitalism in Weber and Schumpeter, in other
words, may be seen as a plea that their contribution to the sociology of capitalism
is properly recognized.
Weber’s and Schumpeter’s Initial Analysis of
Capitalism
Weber’s and Schumpeter’s works are often portrayed as coherent wholes with no
sharp breaks between their different phases. It has, for example, been argued by
Jeffrey Alexander that there is no ‘young Weber’ (as there is a ‘young Marx’)
(1983: 7ff.); and whatever tendency there is in the economics literature to sharply
distinguish between ‘an early Schumpeter’ and ‘a later Schumpeter’ has been
effectively challenged by Richard Langlois (1991). That it is pointless to single
out the early works of Weber and Schumpeter for special discussion may well be
true if we are interested in surveying their entire oeuvres. This, however, is not
something that shall be done here, where I instead will be focusing on their early
analyses of capitalism.
Up until World War I, it can be added, European capitalism was in many
respects a success story, culturally as well as economically, well captured in the
phrase used to describe the situation in France during this period: la belle époque.
Germany, where Weber lived, had been united in 1871 and its politics were
controlled by the Emperor and the landed aristocracy. Economically the German
bourgeoisie was doing very well, even if some of its activities were curtailed by the
Junkers. The Austro-Hungarian Empire, where Schumpeter lived, displayed some
parallels to the German situation. The politics of the Austro-Hungarian Empire
were, for example, controlled by the Emperor, who was backed by the nobility.
The bourgeoisie was much smaller than in Germany but successful in its own
right. Plans to unite all German-speaking peoples into one huge empire existed in
Germany as well as in the Austro-Hungarian Empire.
Weber’s Protestant Ethic
Weber became interested in capitalism very early in his career and was to remain so
till his death in 1920. Both of his dissertations explored different aspects of its
origins. The first was a study of medieval trading corporations and the second a
study of the emergence of a market in landed property in ancient Rome. Weber’s
well-known book on agrarian workers (1984 [1892]) can be characterized as a
study of the impact of capitalism on the organization of labor in the countryside
in Germany, east of the river Elbe. It is, however, in The Protestant Ethic that we
find the fullest attempt in his early production to deal with capitalism in general as
well as its origins.
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229
The main argument of The Protestant Ethic is as follows. By the 1500s a
certain type of non-dynamic capitalism had developed in Europe, based on such
institutions as the small medieval firm, merchant banks and a fairly sophisticated
and pro-capitalistic set of legal provisions, known as the lex mercatoria or the law
merchant. Weber terms this type of capitalism ‘traditionalistic’ because the
mentality of the key actors was not oriented towards new ways of making money
in a methodical manner. The existing ways, it was felt, were good enough (e.g.
Weber, 1958a [1904–5]: 64).
During the late 1500s and the 1600s, however, a new attitude towards the
economy emerged, seemingly out of nowhere. This new mentality set off a series
of changes in capitalism, which eventually was transformed into what Weber calls
‘modern capitalism’ (e.g. Weber, 1958a [1904–5]: 64, 68). Initially these new
ways of working and doing business were carried out in a spirit of religious
enthusiasm by the actors. Later, however, when they had become part of the
economic system, they were experienced as a heavy burden, as an ‘iron cage’ in
Weber’s famous metaphor (1958a [1904–5]: 181).
Most of the studies that make up the huge body of secondary literature
that has been devoted to The Protestant Ethic either defend or attack the lynchpin
in Weber’s argument: how ascetic Protestantism caused a change in the spirit of
capitalism. My suggestion in this article is to set this issue aside and instead
concentrate on a less controversial part of Weber’s argument, namely that a new
economic mentality or a new spirit of capitalism emerged from the 1500s and
onwards in the West (and nowhere else). One reason for putting the religious
issue to one side is that Weber’s argument about the link between ascetic
Protestantism and a new attitude towards capitalism is not open to empirical
verification; we simply do not have the data that it would take either to confirm or
to disconfirm his thesis (e.g. Marshall, 1982). To this can be added that my own
reason for putting it to one side is that this will allow us to approach The
Protestant Ethic from a novel and a more productive angle, given the purpose of
this article. This way of proceeding, I argue, may lead us to a better understanding
of Western capitalism, without getting into a discussion of the possible impact of
ascetic Protestantism on modern capitalism; it also allows us to ask some new and
interesting questions about the relationship of economic institutions to the
mentality of economic actors.
Let me therefore return to The Protestant Ethic and Weber’s description of
what the change in capitalist mentality looked like, without making any references
to the issue of the possible impact of ascetic Protestantism on capitalism. The only
concrete example that Weber supplies us with is that of the continental textile
industry, as it existed till the mid-1800s (1958a [1904–5]: 66–9).2 Weber
describes the situation in this industry on an everyday level in the following
manner. After having produced the cloth in their homes, the peasants brought it
to the putter-out, who paid them a traditional price. The customers of the putterout also came to him and bought traditional items for about the same price as they
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always had done. The putter-out worked five to six hours a day and made enough
of a profit to live a respectable life. Weber emphasizes that
. . . the form of organization [of the putter-out] was in every respect
capitalistic; the entrepreneur’s activity was of a purely business character;
the use of capital, turned over in the business, was indispensable; and,
finally, the objective aspect of the economic process, the book-keeping,
was rational.
(1958a [1904–5]: 67)
Suddenly, however, something happened, according to Weber, that was to
destroy the languid manner in which this type of business was carried out. A
young man from one of the putter-out families would typically start to check the
peasants much more carefully; he would approach his customers himself; he
would lower the prices and try for large volumes. His success would set off ‘a
bitter competitive struggle’ and eventually lead to the transformation of the whole
industry (1958a [1904–5]: 68). Modern capitalism had come into being in the
textile industry.
One of the many fascinating arguments in The Protestant Ethic is that the
change from traditional capitalism to modern capitalism took place not because of
a change in the economic institutions but because of a change in the mentality of
the economic actors. Institutions, to repeat, did not play the key role. Once this
has been said, however, it should be added that, according to The Protestant Ethic,
a change in mentality can obviously lead to a change in an institution; the two are
related. Weber notes, for example, that one may sometimes start the analysis either
from the ‘subjective [viewpoint of the actor]’ or from the viewpoint of ‘objective
social institutions’ (1958a [1904–5]: 152).3 How intertwined spirit or mentality
and institutions can be is well exemplified in the fullest account in The Protestant
Ethic of what Weber means with the term ‘capitalistic spirit’.4 This is to be found
in his description of ‘the traditional spirit [of capitalism]’ in the continental textile
industry, and it says that traditionalism infused the way that the profit was set,
how long you should work and how to treat workers, customers and business
associates (1958a [1904–5]: 67).
Schumpeter’s Theory of Economic Development
The equivalent of Weber’s Protestant Ethic, when it comes to Schumpeter, is The
Theory of Economic Development (1911). This was Schumpeter’s second book; his
first had appeared in 1908 – The Nature and Essence of Theoretical Economics5 –
and can be described as a theoretical study in the tradition of Walras. In The
Nature and Essence the economy is conceptualized as a system that can be affected
by various influences from the outside and thereby set in motion. This motion will
then traverse the whole economic system until it settles down into a new
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equilibrium. While Schumpeter was an ardent admirer of Walras his whole life, he
soon came to feel that Walras had only told half the story. The economic system,
he thought, could also be set in motion by forces from within; and this type of
change was considerably more important to the evolution of the economy than
the changes brought about by forces from the outside. Schumpeter would later
describe his own state of mind, just after having completed his first book, in the
following manner:
I felt very strongly that this was wrong [i.e. Walras’s argument about
exogenous forces of change], and that there was a source of energy within
the economic system which would of itself disrupt any equilibrium that
might be attained. If this is so, then there must be a purely economic
theory of economic change which does not merely rely on external factors
propelling the economic system from one equilibrium to another. It is
such a theory that I have tried to build.
(1989 [1937]: 166)
The Theory of Economic Development can be characterized as an attempt
from Schumpeter’s side to flesh out his vision of an economy that is changed from
within and where the sole agent of change is the entrepreneur.6 The heart of
Schumpeter’s book is therefore to be found in his description of the entrepreneur
and entrepreneurship, which comes in the famous Chapter 2. It deserves to be
emphasized, however, that Schumpeter did not want to create a theory of the
entrepreneur and entrepreneurship per se; what he was after was a theory of the
economy as a whole – an economy, nota bene, in change. The Theory of Economic
Development thus contains not only the famous Chapter 2 (entitled ‘The Fundamental Problem of Economic Development’7 and not e.g. ‘The Entrepreneur’),
but also chapters on ‘Credit and Capital’, ‘Entrepreneurial Profit’, ‘Interest on
Capital’ and ‘The Business Cycle’.8 Today most people only read Chapter 2 in
Schumpeter’s book, but the question may be raised whether such contemporary
phenomena as the ‘New Economy’ and complexity theory constitute signs that
Schumpeter’s idea of a whole economy centered on entrepreneurship may be
relevant after all.
However that may be, in the presentation in this article of Schumpeter’s
ideas, it is the famous Chapter 2 that will be the focus of attention. Little that is
new can be added to the standard accounts of the version of this chapter that is
usually referred to in scholarly discussions, namely Chapter 2 in the English
translation from 1934 (which is essentially based on the second German edition
from 1926). For this reason, I shall be quite brief in my summary. There is,
however, also the fact that the first edition of Schumpeter’s book is never cited in
the literature, and its second chapter differs on some interesting points from the
standard 1934 version that everybody cites. Since these changes have not been
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discussed in the existing literature on Schumpeter, they will be highlighted in this
article.9
It can be added that the first edition of The Theory of Economic Development (1911) also differs on several other points from the English translation of
this work, which was made two decades later, at which point Schumpeter as well
as economics had changed quite a bit. When Schumpeter wrote the first edition
he was a young Austrian economist with extremely high ambitions; he was
working at a provincial university; and he had German economics as his reference.
By the early 1930s, in contrast, he was a middle-aged man; he had a tenured
appointment at Harvard University; and he was trying to relate his work to a new
type of economics which was emerging in the Anglo-Saxon world.
In the standard version of Chapter 2, Schumpeter explicitly states that
‘economic sociology’ deals with institutions (‘the social framework of the economic course of events’), which he counterposes to the task of economic theory,
which is to deal with economic mechanisms (1934: 60–1).10 These economic
mechanisms relate either to statics or to dynamics, that is, either to the type of
economics that one can find in Walras or to the new type that Schumpeter was
trying to develop in The Theory of Economic Development. In the static type of the
economy (to which Chapter 1 of Schumpeter’s book was devoted), there is a
‘circular flow’, which means that nothing new ever happens. All is exactly as it
always has been in this type of economy: the same items are produced and
consumed over and over again, and there are no innovations. ‘Add successively as
many mail coaches as you please, you will never get a railway thereby’ (1934:
64).
Still, in reality, change does occur in the economy, and it comes about, in
Schumpeter’s famous formulation, when the entrepreneur puts together ‘new
combinations’ (1934: 65–6, emphasis added). The entrepreneur does not invent
anything new; he innovates, which means that he recombines already existing
resources. According to a famous passage, entrepreneurship essentially covers the
following five situations: ‘(1) The introduction of a new good’, ‘(2) the introduction of a new method of production’, ‘(3) the opening of a new market’, ‘(4) the
conquest of a new source of supply of raw materials or half-manufactured goods’,
and ‘(5) the carrying out of the new organization of any industry, like the creation
of a monopoly position’ (1934: 66).
You cannot turn entrepreneurship into a ‘vocation’, Schumpeter argues,
since ‘everyone is an entrepreneur only when he actually “carries out new
combinations” ’ (1934: 77–8). Every businessman, however, typically has a
moment when he is entrepreneurial, ‘however modest’ (1934: 78). In the circular
flow it is possible to act in a rational manner, since everything has been done
before and consequently can be calculated in advance. This, however, is not the
case when you are entrepreneurial, since by definition you are doing something
new. The entrepreneur mainly has to rely on ‘intuition’; and may only be courting
failure if he is too rational and tries to figure everything out in advance (1934:
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85). He also has to be prepared to meet with considerable resistance from his
surroundings; people are as set in their ways as ‘a railway embankment [is set] in
the earth’ (1934: 84). What drives the entrepreneur, to cite a well-known passage
in Schumpeter’s book, are primarily ‘the dream and the will to found a private
kingdom’, ‘the will to conquer’ and ‘the joy of creating’ (1934: 93).
This account of the standard version of Chapter 2 in The Theory of
Economic Development covers, to repeat, material that is already well known in the
literature. The original version of Chapter 2 from 1911 is, however, somewhat
different from the standard version from the 1930s, mainly in emphasis.11 As an
example of this, one can mention the parallels that are several times drawn in the
original edition between the artist and the entrepreneur, which tend to heighten
the irrational and individualistic dimension of the entrepreneur. But there is also
the fact that some of the ideas that are only mentioned in passing in the standard
version of Chapter 2 are elaborated upon to such an extent in the original version
that the overall picture of the entrepreneur becomes somewhat different. In the
standard version the entrepreneur is essentially a person who puts together new
combinations. In the original version of The Theory of Economic Development, on
the other hand, Schumpeter says that there are three elements – not just one – that
characterize the entrepreneur:
1.
2.
3.
that he puts together new combinations (just as in the later edition);
that the really difficult thing for the entrepreneur is not to conceive of
these new combinations but to translate them into reality; and
that the entrepreneur can only be successful if he can get other people to
assist him in carrying out the new combinations.
In the 1911 version of his theory of entrepreneurship, Schumpeter
emphasizes very strongly that what is most remarkable about the entrepreneur is
not that he has figured out some new combination – good ideas are plentiful and
cheap, we are told – but that it is extremely difficult to transform these ideas into
reality. ‘New combinations are easy to come by, but what is necessary and decisive
is the action and the force to act’ (1911: 163). The entrepreneur, Schumpeter
repeatedly states, is fundamentally a ‘man of action’ and always ready to leap into
‘energetic action’ (‘Man der Tat’; 1911: 128, 133, emphasis added). It is
consequently in his ‘spiritual constitution’ that the entrepreneur differs from the
ordinary person (‘Geistesverfassung’; 1911: 163, cf. 142–3).
The second point on which the original edition differs in emphasis from
the standard version has to do with the need of the entrepreneur to get other
people to assist him in realizing his venture. This point is of considerable interest,
among other reasons because it contradicts the common notion that Schumpeter’s entrepreneur is some kind of a super-individualistic hero who carries out the
whole innovation by himself. What Schumpeter argues is rather that it is the
entrepreneur who has the initial vision, but who also realizes that it is absolutely
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imperative to get the support of other people, and that these people will not by
themselves turn into persons who are capable of carrying out new and creative
tasks. Most people just want to do things the same way that they have always done
them, Schumpeter says, and change represents a threat to them. What the
entrepreneur has to do in this situation is to buy them over to his side. This is the
only way that he can get their suppport and get them to do something new.
Discussion
If we now proceed to a comparison between The Protestant Ethic and The Theory
of Economic Development, it is clear that one can find some differences between
these two works. Weber’s work is a study of a development that was set off in the
European economy in the 1500s and onwards, while Schumpeter’s work is a study
of a purely capitalist economy in the abstract; the former is a study in sociology,
the latter in economic theory; and so on. From the viewpoint of this article,
however, they also have one interesting quality in common. This is that both
works illustrate what was referred to in the introduction as a puzzle, namely that
the key to a vigorous capitalist development is not exclusively to be found in the
existence of suitable economic institutions, but that something else is also
needed.
This something else is the spirit of modern capitalism in Weber’s case, and
the entrepreneur in Schumpeter’s case. Both of these forces appears pretty much
from nowhere, or in any case have little to do with the existing capitalist
institutions. For Weber, the causality involved is a long chain of peculiar historical
coincidences: some parts of a new religious orthodoxy (ascetic Protestantism),
which was hostile to its mother religion (Catholicism), happened to set off a kind
of behavior in the economy, which succeeded in breaking with economic traditionalism. In Schumpeter’s case, the chain of events is not as long, but the original
impulse also comes from outside the existing economic reality; and the entrepreneur himself literally appears out of nowhere. Schumpeter says in The Theory of
Economic Development that one can find a small number of entrepreneurs in any
human population. In other words, he takes recourse to ‘biology’ to explain the
existence of the entrepreneur.
Weber is quite insistent on the point that the change in capitalist mentality
that started in the West, as a result of Luther’s challenge to the Catholic Church,
was not caused by the existing economic institutions. Before this change came
about, he states very clearly, a number of important capitalist institutions had been
in operation for quite some time, such as the medieval firm, an early version of the
banking system, and so on. All of these institutions, however, operated ‘in a
traditionalistic [economic] spirit’ (e.g. Weber, 1958a [1904–5]: 65). The qualitative change in the economy, on the other hand, was set off by something else –
the spirit of modern capitalism.12
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Schumpeter is as anti-institutionalist as Weber in his analysis. First of all,
institutions fall by definition into the domain of economic sociology and not into
that of economic theory; and The Theory of Economic Development is meant as a
study in economic theory (Schumpeter, 1934: 60). Secondly, and considerably
more important, no part of that which is studied by the economic theorist – some
of which is clearly sociological in nature13 – can account for qualitative economic
change.14 Schumpeter, as we know, was very critical of Walras for his assumption
that all sources of change come from outside the economic system, but Schumpeter
essentially proceeds in the same way. His entrepreneur supposedly emerges from
inside the system – but out of nowhere; he is suddenly just there, as a result of
biological chance.
Finally, there exist some parallels between the cycle that economic change
goes through in Weber and Schumpeter. In Weber, the non-institutional force of
the capitalist spirit comes into the world like a whirlwind and literally changes
everything – but only to end up itself as an institution that weighs heavily on
everyone. The ‘light cloak’ of Baxter, in Weber’s metaphor, became the heavy
‘iron cage’ (Weber, 1958a [1904–5]: 181). The dynamic is quite similar in
Schumpeter: the entrepreneur is born into ‘the circular flow’, where tradition
rules supreme. In putting together his new combination, the entrepreneur has to
fight people’s hostility and resistance to the new. His success in doing so is initially
rewarded not by the population but by the mechanical forces of the economy,
which supply him with ample entrepreneurial profit. This profit also tempts others
to imitate the novel behavior, but soon enough there is no more entrepreneurial
profit to be had, and tradition re-establishes itself – and we are back to the circular
flow.
The Later Analysis by Weber and Schumpeter of
Capitalism
Weber and Schumpeter knew each other quite well and also worked together, as
editors of Archiv für Sozialwissenschaft und Sozialpolitik (1916–20), even if they
never became intimate friends. Exactly when they met for the first time is unclear,
but it is probably safe to assume that they read each other’s works from early on.
Weber’s copy of the first edition of The Theory of Economic Development (1911) is
still around, and Schumpeter was an extremely avid reader of social science and
would not have missed Weber’s work. Weber and Schumpeter both kept writing
on capitalism throughout their lives – which in Weber’s case came to an end in
1920, when he was in his mid-50s, and in Schumpeter’s case in 1950, when he
was in his mid-60s. While Weber’s later works on capitalism were mainly produced
in the 1910s in Germany, those of Schumpeter were primarily written in the
1930s and the 1940s in the United States. Despite the fact that the works of
Weber and Schumpeter were written some years apart and on different continents,
however, there do exist some interesting parallels between them.
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Weber’s Later View of Capitalism
Weber’s production during his last 15 years was to a large extent centered on
capitalism. There is first and foremost Economy and Society, a giant study that he
started to work on in 1908 but that he never completed. The current edition, in
the original German as well as in its English translation, consists of contributions
that overlap and that have been tampered with (e.g. Mommsen, 2001). Only Part
1 of Economy and Society (pp. 1–307) consists of texts that were intended for this
work and that had been approved by Weber. The rest of this two-volume set was
added after his death (Weber, 1978c [1922]: 308–1469). Weber addresses a
multitude of issues of interest to economic sociology in Economy and Society,
including modern capitalism and its key institutions. His project of exploring the
origin of capitalism, as announced in the last pages of The Protestant Ethic, is also
carried out in his studies on the economic ethics of the world religions, which are
primarily known to the English-speaking world as The Religion of China, The
Religion of India and Ancient Judaism (Weber, 1951 [1920], 1958b [1921],
1952 [1921]; see also the following additional texts: Weber, 1946a [1915],
1946b [1915], 1946c [1920]). In 1919–20 Weber gave a lecture series in Munich
entitled ‘Outline of Universal Social and Economic History’, which was later
reconstructed on the basis of students’ notes and published under the title
General Economic History (Wirtschaftsgeschichte) (1981 [1923]). This work is of
particular importance in our context, since it contains an analysis that melds the
ideas from The Protestant Ethic with a general history of capitalism. Finally, Weber
was intensely interested in the future of German capitalism as well as of Western
capitalism as a whole, and he wrote quite a bit on this issue in the press (e.g.
Weber, 1978b [1918]: 1381–469).
Out of this wealth of writings, which are all relevant to an understanding
of Weber’s later view of capitalism, I will focus on the following two: Economy and
Society and General Economic History. The former starts out with a chapter on
sociology in general (‘Basic Sociological Terms’), where Weber presents the key
concepts in his sociology. It is also in this part of Economy and Society that one can
find the fullest discussion of his notion of institution. According to Weber, the
main focus of sociology should be on social action, defined as behavior invested
with meaning by the actor, which is oriented to some other actor(s). When the
interaction between actors ‘remains relatively constant’ and also appears as
‘obligatory or exemplary’, other actors can ‘orient’ their behavior to it – something which means that a stable ‘order’ has come into being (‘Ordnung’; Weber,
1978c [1922]: 28, 31). The concept of ‘order’ is as close as Weber came to the
notion of ‘institution’ in Economy and Society.15 It should be noted, Weber also
adds, that an order will become much more stable if it is adhered to because the
actors believe in its legitimacy, than if it exists for purely customary reasons or
because of some particular interest constellation. Throughout Chapter 1 of
Economy and Society, Weber makes references to the subjective dimension of the
SWEDBERG WEBER AND SCHUMPETER
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behavior of the actor (‘Verstehen’), but concepts such as ‘mentality’, ‘spirit’, and
the like, are not among his ‘basic sociological concepts’.
Chapter 2 of Economy and Society (‘Sociological Categories of Economic
Action’) contains a concentrated exposition of economic institutions. This chapter
is about 150 pages long and covers an enormous amount of material, so a
selection is necessary. The three institutions that I have chosen to briefly present
here are the market, the firm and capitalism. Though a reference or two to ‘the
spirit of capitalism’ can be found in Economy and Society, this notion is not among
the ones that Weber chose to explicate in Chapter 2. To some extent this may be
due to the fact that it is too general in nature for his purposes in this work. Quite
a bit of what is covered by the expression ‘spirit of capitalism’ in The Protestant
Ethic can, for example, be found in his discussion of ‘economic motivation’ in
Economy and Society (1978c [1922]:110–11, 150–3).16 What motivates those
who participate in a market economy and who do not have any property includes,
for example, how they ‘value economically productive work as a mode of life’
(1978c [1922]: 110). And what motivates those with a high value in the labor
market or who own property typically depends on the degree to which they feel
that they have a ‘calling’, either for work of a certain type or for the acquisition of
property (1978c [1922]: 110).
Weber defines the market as a situation ‘whenever there is competition . . .
for opportunities of exchange among a plurality of potential parties’ (1978c
[1922]: 635). In other words, he defines the market not as a place where
exchange takes place, as is common among economists and sociologists, but as a
place that is characterized by two distinct forms of interaction: exchange and
competition. Several actors typically compete for being the one who will do the
buying or the selling, and after this has been decided, the exchange (which has its
own social dynamic) can take place. Competition is defined by Weber as ‘a
‘peaceful’ conflict’, and exchange as ‘a compromise of interests’ (1978c [1922]:
38, 72). A market can be more or less free, depending on its degree of regulation.
While classes thrive on the market, it represents a threat to status groups. The
actors in a market may want to keep it open to outsiders, but may also want to
close it off under certain circumstances and turn it into a monopoly.
The capitalist firm is defined in Weber’s theoretical sociology as a special
type of ‘economic organization’ which is run for profit (1978c [1922]: 64, 76).
In its fully developed and rational form, as this can be found in modern capitalism,
the firm contains three types of actors: the entrepreneur, who leads the company;
the professionals, who manage it; and the workers, who do most of the production. The entrepreneur is ‘the ‘moving spirit’’ of the firm and the only one who
knows as much as the professionals and can overrule them (‘der leitende Geist’;
1978c [1922]: 1403). The professionals regard work as a ‘calling’ and obey
orders. The workers represent their own special category in Weber’s sociology and
have similarly their own social profile.
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In modern capitalism, Weber emphasizes, the huge corporations are
organized along similar lines at state bureaucracies. ‘Bureaucracy . . . is fully
developed . . . only in the modern state and . . . in the most advanced institutions
of capitalism’ (1978c [1922]: 956; cf. 974). According to Weber’s classic
description, this means that the corporation (minus the workers) is organized as
follows. The positions are organized in the form of a hierarchy and orders are
obeyed.17 Each person has a special area of activity, for which he or she has been
especially trained. The bureaucrats carry out their work in a spirit of duty, and they
are remunerated with a salary as well as a pension. The bureaucracy represents,
according to Weber, the most efficient way of organizing economic activities,
from a capitalistic perspective. There exists, however, always a tendency for the
bureacrats to take the firm over since they control most of the important
information and think that they understand how to run things. This, however,
would mean its end as a dynamic capitalist force, among other reasons because
bureaucrats are not very interested in profit-making.18 Just as the political leader
constitutes the only effective counterweight to the bureaucrats in political life, the
entrepreneur is the only effective counterweight to the bureaucrats in economic
life (1978c [1922]: 220–1, 956–7).
Weber does not speak of ‘capitalism’ in his theoretical economic sociology
but of several different capitalisms. He also emphasizes that these different types
of capitalism each consists of social action and are not to be seen as rigid social
systems. In Chapter 2 of Economy and Society the key section on capitalism is
entitled ‘The Principal Modes of Capitalistic Orientation of Profit-Making’
(Section 31); and Weber distinguishes between six different types of these
orientations. There is, for example, ‘orientation to the profit possibilities in
continuous bying and selling on the market with free exchange’ as well as
orientation to profit opportunities that are the result of ‘domination by force . . .
by political authorities’ (1978c [1922]: 164–5).
It is clear from Section 31 that Weber prefers to view capitalism in terms of
social action and, as a consequence of this, to discuss the different types of
capitalism in terms of ‘modes of orientation of profit-making’. Nonetheless, he
also states that his six types can be grouped under three general headings:
‘politically oriented capitalism’; a type of capitalism that can only be found in ‘the
modern Western World’; and a type of capitalism that has ‘been common all over
the world for thousands of years’, but which is not politically oriented (1978c
[1922]: 165–6). Political capitalism (as it is usually called) basically means
capitalistic activity where it is the political authorities that in one way or another
control or make possible the profit opportunities. In what can be called rational
capitalism, the profit opportunities are to be found primarily in the free market
and are approached in a methodical fashion. In traditional commercial capitalism
(as one may call the third form of capitalism), profit is produced through minor
trade or currency deals. It can finally be noted that in his discussion of the
different types of capitalism and capitalistic orientation of profit-making, Weber
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does not use the expression of ‘spirit’ or ‘mentality’, presumably because the
subjective dimension is already built into the concept of social action.
General Economic History is based on a lecture course given at about the
same time as Weber wrote Chapter 2 in Economy and Society, and we would
therefore expect the two accounts to be fairly similar. This is also the case. General
Economic History, however, differs on the following two points: it is not centered
on sociological typologies, as Chapter 2 is, but provides instead a continuous
account of the evolution of the economy; it also discusses the impact of other
factors than economic ones, especially political and religious factors.
Weber’s economic history is divided into four sections, and the last of
these, on which I shall concentrate in this article, is entitled ‘The Origin of
Modern Capitalism’. In accounting for the economic factors that were important
in bringing about capitalism, Weber starts with developments in the 16th century,
and the reader is given the impression that by the end of the 1700s modern
capitalism had pretty much come into being for good. Weber also discusses the
impact of the Industrial Revolution, but it is clear from his account that he does
not see it as the decisive event in the history of Western capitalism, along the lines
that many economic historians do today. Nonetheless he stresses that it was
during this period that the production of goods entered into ‘a union with
science’; and he also notes that ‘the connection of industry with modern science
. . . enabled industry to become what it is today and so brought capitalism to its
full development’ (1981 [1923]: 306).
At several points in General Economic History Weber enumerates the
factors that in his view created modern capitalism. These fall into three categories:
economic, political and religious. The economic factors essentially include institutions that are also discussed in Economy and Society, such as the rational firm, the
free market, modern accounting, and the like. A number of new and fascinating
historical facts are added to the account that can be found in Economy and Society,
but there is little that is new in theoretical or sociological terms.
Also political forces have played an important role in the development of
modern capitalism, and General Economic History contains two full chapters
devoted to this topic, one that is entitled ‘Citizenship’ and the other ‘The
Rational State’. Together these chapters make up about a third of the space
allotted to ‘the origin of modern capitalism’ in General Economic History; and this
testifies to the importance that Weber attached to political forces in the development of modern capitalism. Citizenship has primarily played a role in liberating
the individual from the hold of the family and the clan, and in helping him or her
to step forward as an autonomous actor. The rational state is absolutely essential
to modern capitalism; ‘in [it] alone modern capitalism can flourish’ (1981 [1923]:
339). What Weber singled out as important in the rational state were its procapitalistic attitude and its predictability, based on expertise, in political and legal
matters.
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But even if Weber towards the end of General Economic History felt that it
was necessary to include a long section on political forces, in order to give a full
account of how modern capitalism had come into being, there was more to the
story. The very last chapter of the work is entitled ‘The Evolution of the
Capitalistic Spirit,19 and it here says:
In the last resort the factor which produced capitalism is the rational
permanent enterprise, rational accounting, rational technology and
rational law, but again not these alone. Necessary complementary factors
were the rational spirit, the rationalization of the conduct of life in general,
and a rationalistic economic ethic.
(1981 [1923]: 354)
The roots of the complementary factors that Weber speaks about go far
back in history. Judaism, for example, helped to introduce a rational attitude into
Western religion through its hostility to magic. Still, Weber’s account of the forces
that created the rational spirit, the rationalization of the conduct of life, and a
rationalistic economic ethic peaks with his discussion of the impact of ascetic
Protestantism. Catholicism, he says, was deeply suspicious of capitalism, while
ascetic Protestantism was positive to it. The latter not only helped to usher in a
new type of attitude to the economy, but also shaped it, especially through its
doctrine of calling. The idea of ‘vocation’, Weber specifies, turned rational activity
in one’s work into ‘the fulfillment of a God-given task’ (1981 [1923]: 367). This
doctrine gave ‘a fabulously clean conscience’ to the entrepreneur and also supplied
him with ‘industrious workers’, who were willing to put up with ‘ruthless
exploitation’ (1981 [1923]: 367).
General Economic History ends on a similar somber note as The Protestant
Ethic. Whatever religious justifications for economic activities there may once have
been, these had vanished by the 1800s.
Ascetic religiosity has been displaced by a pessimistic though by no means
ascetic view of the world, such as that portrayed in Mandeville’s Fable of
the Bees, which teaches that private vices may under certain conditions be
for the good of the public.
(1981 [1923]: 369)
According to General Economic History, life in contemporary capitalist society is
experienced as a heavy burden by everyone.
Schumpeter’s Later View of Capitalism
Just as Weber, Schumpeter devoted a major part of his later scholarly production
to capitalism. After 1932, when Schumpeter moved to the United States for
good, he worked primarily on Business Cycles (1939), a giant two-volume work
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that represents an attempt to analyze the economic history of capitalism in
Germany, Great Britain and the United States between 1787 and 1938. A few
years after the publication of Business Cycles, Schumpeter’s most popular work
appeared: Capitalism, Socialism and Democracy (1975a [1942]). During the rest
of his life Schumpeter kept coming back to the issue of capitalism, and he gave
numerous talks on it. His very last public lecture – given in December 1949 at the
American Economic Association – was devoted to capitalism and its future
(Schumpeter, 1975b [1949]).
While Business Cycles deserves an important place in an account of
Schumpeter’s scientific work, it is of less interest for the purposes of this article.
The main reason for this is that while Business Cycles deals with the evolution of
capitalism, it does not include a discussion of its institutions. Schumpeter wanted
to focus exclusively on the mechanism of the business cycle, and this was easier, he
argued, if he kept institutions constant. He wrote in Business Cycles that he wanted
not to span ‘the entire range of the economy and sociology of capitalism’; but to
pursue ‘a purely economic argument’ (1939: 86, 279; cf. 96–7, 144–5). In
Capitalism, Socialism and Democracy, in contrast, institutions have not only been
included in the analysis but also play a central role in Schumpeter’s main thesis,
namely that capitalism is about to go under, not because of its failures but because
of its success.
Schumpeter was convinced that institutions play a key role in the economy
and in principle should be part of the analysis.What he disliked about institutionalists such as Veblen and company was not that they focused on institutions but that
they did such a lousy job:
I have been referred to as the ‘arch-enemy’ of Institutionalism. I plead
guilty to the charge, but I want to make it quite clear what it is I object to.
If Institutionalism went quietly to work on the programme which seems to
be implied in its name, that is to say if institutionalists produced studies
about social institutions, such as the family, private property and so on, I
should not only not object, but welcome. But they do nothing of the sort.
Instead, they criticize without understanding, what has been done and is
being done, and they replace positive achievement by ambitious programmes. Whatever of value has been written by any member of that
group could have been written by any other economist and does not imply
any fundamental change in method and outlook. I reproach to the most
famous of institutionalists, to Th. Veblen, bad workmanship and insufficient scientific equipment, which made him take old err for new truth. But
this whole movement is passing away. And that eminent economist, who
for some time showed some favour to it, Wesley C. Mitchell, has by his
most recent work proved that he is willing to lead towards
reconciliation.
(2000 [1931]: 23)
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Capitalism, Socialism and Democracy does not deal very much with the
history of capitalism but mainly focuses on the situation during the 20th century;
Schumpeter also speaks quite a bit about the future of capitalism. To give a
background to his famous thesis of the self-destruction of capitalism, however,
and also to set his argument within the framework of his overall view of capitalism
and its history, I shall first say a few words about an article from 1946, entitled
‘Capitalism’ and written for Encyclopaedia Britannica. In this article Schumpeter
defines capitalism in the following way: ‘a society is called capitalist if it entrusts its
economic process to the guidance of the private businessman’ (1951a [1946]:
184). The entrepreneur is the key figure in capitalism, and Schumpeter contrasts
him to the bureaucrat or the manager: ‘the central figure on the capitalist stage,
the entrepreneur, is concerned not with the administration of existing industrial
plant and equipment but with the incessant creation of new plant and equipment,
embodying new technologies that revolutionize existing industrial structures’
(1951a [1946]: 193). As opposed to the tendency of certain social scientists to
view capitalism exclusively in economic terms, Schumpeter used this term in a
much broader sense:
It must be borne in mind that capitalism cannot, any more than any other
form of organization, be judged by economic results alone. Accounts must
also be taken of the social and cultural achievements for which the
capitalist process provided both the means and the psychological requisites. Moreover, . . . any final appraisal really involves appraising an attitude
towards life, a scheme of life’s values, in short, a civilization.
(1951a [1946]: 192; emphasis added)
According to Schumpeter, the history of capitalism can be divided into the
following four phases: ‘Early Capitalism’, ‘Mercantilist Capitalism’, ‘Intact Capitalism’ and ‘The Modern Phase’. Like Weber, Schumpeter believed that capitalism
existed long before the advent of modern, industrial capitalism, and what he calls
Early Capitalism roughly covers the period from Antiquity to the 16th century.
He, however, firmly rejects Weber’s thesis about the role of ascetic Protestantism
with the argument that capitalism has always developed in a gradual way. ‘We find
no sharp break anywhere’, he says, ‘but only slow and continuous transformation’
(1951a [1946]: 184). Mercantilist Capitalism begins in the 16th century and ends
towards the beginnings of the 18th century. A certain symbiosis between bourgeois strata and feudal strata characterizes this period, even if the bourgeois strata
always remained inferior to the prince and the aristocrats.
Intact Capitalism was set off by the Industrial Revolution but takes its
beginnings with the Napoleonic wars and lasted till the end of the 19th century.
To Schumpeter, this was the period par excellence of capitalism, and also the one
that he felt most sympathy for. Individuals, he says, were essentially left alone to
do what they wanted, and this resulted in a good society. Liberalism, laissez-faire
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and free trade all flourished during Intact Capitalism, even if counterforces also
existed and could be quite strong, as the example of imperialism shows. During
the Modern Phase of Capitalism (1898 and later) the economy has continued to
grow in a healthy manner, but this has not resulted in peace, free trade and low
social expenses, as one could have expected. On the contrary, wars, protectionism
and rising taxes have accompanied economic growth. Why this is so, Schumpeter
notes, ‘is much more complex and difficult [to explain] than is generally realized,
and cannot be attempted here’ (1951a [1946]: 191). He adds that for the future
the most likely scenario is a movement towards ‘increasing bureaucratization of
economic life, coupled with an increasing dominance of the labor interest’ (1951a
[1946]: 203). ‘Regulated capitalism’ or ‘fettered capitalism’ will slowly turn into
‘guided capitalism’ – and this last type of capitalism is so close to socialism,
according to Schumpeter, that one might just as well call it precisely this (1951a
[1946]: 204).
If you try to evaluate the performance of capitalism, Schumpeter says in
Capitalism, Socialism and Democracy, it soon becomes clear that it has been
extremely successful, when it comes to both the economy and culture. The
United States grew, for example, by 2 percent per year between 1870 and 1930,
and there is no reason, from a purely economic viewpoint, why capitalism could
not repeat this ‘striking preformance’ also in the future (1975a [1942]: 107). In
that case, poverty could be eliminated and the unemployed would have enough to
get by on. The main reason for the success of capitalism in the past has to do with
the entrepreneur and the ‘creative destruction’ that he brings about, by starting
up new firms, by introducing new goods, and so on (1975a [1942]: 80–6).
Contrary to what is taught in the textbooks of economics, there is also the fact
that monopolistic practices have had a very positive impact on the economy. In
general, Schumpeter argues, monopoly does not mean that a corporation can
simply raise its prices, sit back and collect the extra profit. ‘A monopoly position is
in general no cushion to sleep on’ (1975a [1942]: 102).
Capitalism, however, is not only about economics but also about culture;
and Schumpeter defines ‘the civilization of capitalism’ as ‘the cultural component
of the capitalist economy’ (1975a [1942]: 121). Rationalism constitutes the heart
of the capitalist culture and is crucial to modern life in general, according to
Schumpeter. It means logic and reason, as opposed to magic and mysticism.
Economic action has always played a key role in bringing forth rationalism:
Now the rational attitude presumably forced itself on the human mind
primarily from economic necessity; it is the everyday economic task to
which we as a race owe our elementary training in rational thought and
behavior. – I have no hesitation in saying that all logic is derived from the
pattern of the economic decision or, to use a pet phrase of mine, that the
economic pattern is the matrix for logic.
(1975a [1942]: 122–3)
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While rationalism existed long before capitalism, the latter has nonetheless
contributed to its development in a powerful way. This has mainly been due to the
centrality of the monetary unit or the fact that much of human behavior can be
measured and controlled with the help of money. There is also the fact that
capitalism has increasingly attracted ‘the best brains’, who have added their
creativity and strength to the cause of rationalism (1975a [1942]: 125).
The capitalist process has helped to create magnificent cultural achievements:
. . . not only the modern mechanized plant and the volume of the output
that pours forth from it, not only modern technology and economic
organization, but all the features and achievements of modern civilization
are, directly or indirectly, the products of the capitalist process.
(1975a [1942]: 125)
More concretely, capitalism has created modern medicine, modern painting and
the modern novel. Schumpeter also includes what he calls ‘Individualist Democracy’ among its results, and by this he means ‘personal freedom of mind and body’
(1975a [1942]: 126). Capitalist culture, Schumpeter sums up, is rationalistic,
pacifist and pro-scientific.
But despite all of these economic and cultural achievements, capitalism is
about to disappear from the scene of history, Schumpeter says. There are a number
of reasons for this, each of which is elaborated upon in Capitalism, Socialism and
Democracy. The capitalist process is first and foremost undermining the role of the
bourgeoisie by decreasing the role of the entrepreneur; it is also eliminating the
protective strata of capitalism as well as weakening such key institutions as property
and the contract. To this should be added the general atmosphere of hostility that
capitalism has helped to develop, and a general weakening of bourgeois motivation.
‘Can capitalism survive?’, Schumpeter asks at one point in his book; and his famous
answer is, ‘No. I do not think it can’ (1975a [1942]: 61).
In modern capitalism, according to Schumpeter, entrepreneurship tends to
become obsolescent. Modern capitalism has rationalized entrepreneurship in
various ways, something that has made it easier for everyone to understand it and
accept it. While people today may still be tied to the old order of things through
various interests and therefore fear the new, they are nevertheless ready to accept
novelties in a way that is unprecedented in human history. This also means that
there is less and less need for the heroic entrepreneur of former times; he is about
as necessary as a general in a society without war. This whole development,
Schumpeter suggests, has much to do with the emergence of the giant industrial
enterprise:
The perfectly bureaucratized giant industrial unit not only ousts the small
or medium-sized firm and ‘expropriates’ its owners, but in the end it also
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ousts the entrepreneur and expropriates the bourgeoisie as a class which in
the process stands to lose not only its income but also what is infinitely
more important, its function.
(1975a [1942]: 134)
Through its very success, capitalism is also about to eliminate the last
remnants of feudal society, which in many ways have helped to maintain capitalism
by operating as its flying buttresses. Aristocrats have joined the bourgeoisie and
supplied it not only with experience and talent but also with a bit of that ‘mystic
glamour’ that is so important for successful rule. ‘The stock exchange is a poor
substitute for the Holy Grail’, to cite an aphorism from Schumpeter’s book
(1975a [1942]: 137). Capitalism is also in need of this type of support since it
totally lacks the capacity to make itself liked among people. ‘Emotional attachment
to the social order’, according to Schumpeter, is ‘the very thing capitalism is
constitutionally unable to produce’ (1975a [1942]: 145).
Two of the key institutions of capitalism are also getting weaker. The first
is property, which is being hollowed out: the old-fashioned owner has disappeared
from the scene of history and been replaced by managers and shareholders, who
do not have much of a feel for what property is. While the old type of owner knew
his factory inside-out, managers and shareholders only have an abstract concept of
property, symbolized by the share. What drives this whole development is, again,
the giant capitalist firm. Similarly, the contract is losing ground. Originally it was
used to regulate a situation where real choices needed to be made, and where
entering into a contract was an act of importance. Today, however, contracts are
impersonal and bureaucratized. The labor contract exemplifies this trend, with its
restricted and predictable meaning.
Schumpeter also speaks quite a bit about ‘the social atmosphere of
capitalism’ and how capitalism has succeeded in creating ‘almost universal hostility’ to itself (1975a [1942]: 143). A key factor in this development has been the
rational attitude, which not only was used to criticize feudalism but has also been
extended to capitalism. Everything is questioned; nothing is holy. Intellectuals
have played a particularly important role in giving voice to this hostility and in
amplifying it. Intellectuals live by being critical, according to Schumpeter, and
usually see nothing positive in capitalism.
But capitalism is not only being attacked from the outside, it is also
disintegrating from the inside; its will to live and to fight have been severely
sapped. In general, the bourgeois is unheroic to the point of the comic and does
not even dare to say ‘boo to a goose’ (1975a [1942]: 138). His lifestyle has also
undermined much of his original vitality. While the bourgeois of the past lived in
a large house, with a large family, and saw himself as the creator of a long-lasting
dynasty, today’s bourgeois lives in an apartment, has fathered a few or no children,
and lives by a short time horizon. The bourgeois, Schumpeter says, is being
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‘decomposed’; socialism may soon take over the whole thing, and he does not even
care (1975a [1942]: 156–63).
Discussion
When one moves from the early works on capitalism by Weber and Schumpeter to
their later works, it is clear that quite a bit of the effervescence and vitalism has
disappeared. During the later part of his life Weber developed his well-known
theory of charisma, which can also be applied to his own theory of capitalism as
well as to that of Schumpeter. There is initially the creative entrepreneur of The
Theory of Economic Development and Weber’s spirit of capitalism that transforms a
whole economic system. Then, however, the focus changes to the role of
institutions and how the creativity of the entrepreneur gets routinized – until the
entrepreneur finally disappears for good.
It would not be entirely wrong to state that while the early Weber and the
early Schumpeter emphasized the role of non-institutional forces, they would later
stress the role of institutional factors. Still, it would probably be more correct to
say that there is a balance between the two in the later production of Weber and
Schumpeter, or, more precisely, that institutional and non-institutional factors
enter into complex forms of interaction. While in The Protestant Ethic there is a
movement from the spirit of modern capitalism to the iron cage of modern
capitalism, in General Economic History institutions that are of relevance to
capitalism emerge long before the advent of the spirit of modern capitalism, and
are then followed by a long period when new capitalist institutions emerge as well.
In Capitalism, Socialism and Democracy the general development is from an
economy with plenty of room for the entrepreneurial spirit to one that does not
need it. Schumpeter’s analysis of the period of transition between these two is,
however, full of interesting subtleties. There exist institutions whose spirit is
slowly being hollowed out; institutions that are run by people whose motivation is
being weakened; and so on.
One important parallel that exists between Weber’s and Schumpeter’s later
works on capitalism is that both assign a key role to one actor that is not present
in their early works: the giant corporation. In Weber’s case this new actor is at the
center of his theory of bureaucracy; it is also reflected in his argument that the
entrepreneur is the only actor who can stand up to the bureaucrats. In Schumpeter’s case, it is the giant corporations that eliminate the entrepreneur and replace
him with managers who are administrators and nothing more. To Schumpeter,
the giant corporation also constitutes the avant-garde in ushering in socialism,
without anyone noticing or very much caring. In brief, the development that
Alfred Chandler has written so much about and in such glowing terms (‘managerial capitalism’) was much more ambivalent to Weber and Schumpeter (e.g.
Chandler, 1984).
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While Chandler saw the giant corporation as the motor for ever more
economic progress, it also represented something of a threat to capitalism and
humanity more generally, according to Weber and Schumpeter. Weber was afraid
that the giant corporations might let loose the forces of bureaucracy and set off a
development that would end up by pushing Western society back to the days of
ancient Egypt. Schumpeter pretty much thought the same. Things would in his
opinion get increasingly worse if the 20th century continued as it had begun.
Whether one preferred to call the new stage of society ‘socialism’ or ‘capitalism’
was of little consequence since they amounted to the same thing: a permanent
stage of ‘the circular flow’ in which nothing new would ever happen and where
humankind would fall back into inertia and darkness.
The Puzzle – and Its Solution According to Weber
and Schumpeter
In the introduction to this article I referred to a distinct puzzle in the works of
Weber and Schumpeter, namely that something more than the right type of
institutions are needed for there to be a vigorous and healthy capitalism. I noted
that many of today’s analyses of capitalism, by economists as well as by sociologists, proceed on the assumption that it is sufficient to have good economic
institutions for there to be a strong economic development. In order better to
understand the views on this topic by Weber and Schumpeter, I will first discuss
their argument that something more than the institutions are needed for there to
be capitalism in general; and, after that, their parallel arguments for there to be a
vigorous capitalism.
What is needed for any capitalism to exist, besides the relevant institutions,
is, according to Weber, a ‘spirit of capitalism’, and, according to Schumpeter, a
‘capitalist civilization’. If we start with Weber, it is clear from The Protestant Ethic
that what he calls ‘traditional capitalism’ had its own distinct spirit – a traditional
spirit of capitalism; and from this we may conclude that all types of capitalism have
their own spirit. What precisely does this spirit consist of? Weber enumerates the
following items as characteristic for the traditional spirit of capitalism:
. . . the traditional manner of life, the traditional rate of profit, the
traditional amount of work, the traditional manner of regulating the
relationships with labor, and the essentially traditional circle of customers
and the manner of attracting new ones. All these dominated the conduct
of the business, were at the basis, one may say, of the ethos of this group of
businessmen.
(1958a [1904–5]: 67)
In Gordon Marshall’s opinion, the spirit of capitalism consists of ‘attitude’
as well as ‘behavior’ (Marshall 1982: 64–5). Weber himself uses the term
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‘mentality’ (‘Gesinnung’) as synonymous with ‘spirit’ (‘Geist’) and admits that the
latter is chosen a bit ‘ad hoc’ – presumably because he liked the association to
religion in the concept of ‘spirit’ (1978a [1907]:27, 36). In his later work,
especially in Economy and Society, Weber translates spirit primarily into the
sociological categories of ‘economic motivation’ and ‘economic ethic’. To these
one should add ‘lifestyle’ (‘Lebensstil ’, ‘Lebensführing ’) and ‘ethos’.
Also the early Schumpeter thinks that there is more to the existence of
capitalism than institutions. The argument in The Theory of Economic Development
is, however, a bit complex in this regard. In a situation of circular flow, the
capitalist economy consists of institutions and economic mechanisms; in a situation where there is economic development there is, furthermore, the entrepreneur, without whose activities there would be stagnation. As I see it, Schumpeter
overdoes the difference between the circular flow and economic development; in
reality, there is always a bit of creativity and entrepreneurship in any economy.
Hence, in Schumpeter’s early work, whatever there is beyond economic institutions is the entrepreneur, or the individual who even in adverse situations will try
out something new.
In Schumpeter’s later works, the situation is similarly complex, but for
other reasons. First, in addition to the economic process itself (by which
Schumpeter more or less means economic mechanisms), there is what he calls ‘the
capitalist civilization’. This civilization consists of institutions as well as of a
number of items, such as ‘motivation’, ‘atmosphere’, ‘lifestyle’, ‘rationalism’, art,
science, and so on. We note some similarity to Weber on this score, especially
when it comes to ‘motivation’ and ‘lifestyle’, even if Schumpeter interprets these
in a broader sense than does Weber.
If we now switch from the extra something that is needed for capitalism in
general to exist, to the extra something that is needed for vigorous capitalism to
exist, the opinions of Weber and Schumpeter are as follows. According to the early
Weber and The Protestant Ethic, vigorous capitalism came about through the
introduction of a modern capitalist spirit into the already existing economic
institutions of traditional capitalism. This spirit can be characterized as an attitude
that energizes the individual in economic matters, making him or her more alert
to profit opportunities and also making work more central to his or her life. All of
these economic activities are carried out in a methodical manner.
In Weber’s later works, he carefully enumerates the economic institutions
that are necessary to a vigorous modern capitalism; and these are, according to
General Economic History, the following: the rational enterprise, rational accounting, the modern state (including rational or calculable law), the free market, free
labor, rational technology and the commercialization of economic life (1981
[1923]: 276–7, 312–14, 354). To this are then added the following three items,
which roughly cover what Weber in The Protestant Ethic calls the spirit of modern
capitalism: the rational spirit, the rationalization of the conduct of life, and a
rationalistic economic ethic. Apart from references to the rationalistic economic
SWEDBERG WEBER AND SCHUMPETER
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ethic and the element of vocation, there is little that helps to specify in what the
creativity of the spirit of modern capitalism exactly consists.
While Weber in General Economic History, as opposed to in The Protestant
Ethic, very clearly states that no vigorous capitalism is possible without the
appropriate institutions, there is the same emphasis on the creativity of the spirit
of capitalism as an explanation for why modern capitalism came into being. We
also find the same argument about modern capitalism turning into an iron cage
once the influence of the original spirit of capitalism wanes, that is, once it stops
being voluntary and is replaced by institutional demands. The novelty in relation
to The Protestant Ethic has mainly to do with Weber’s account of what he calls a
rationalistic economic ethic – which he describes as a way of doing business where
a rational and alert approach in economic affairs characterizes one’s dealings with
foreigners as well as with people from one’s own community.
The situation is quite different when it comes to The Theory of Economic
Development, whose Chapter 2 can practically be read as a manual for how to
make capitalism dynamic. Individuals put together new combinations in the
economy; they raise money to finance these; and they then translate their plans
into reality, despite strong resistance from the surroundings. What drives the
individual is the desire to found a dynasty, the wish to be creative, and the pleasure
of getting things done. The section on the civilization of capitalism in Capitalism,
Socialism and Democracy looks essentially at a situation where this no longer is
possible. As in The Protestant Ethic, the spirit dies out when instead of being
voluntary it gets institutionalized and routinized.
What, then, is the solution to our puzzle: what is needed, beyond appropriate economic (and non-economic) institutions, for a vigorous capitalism to exist?
The answer that one can find in Weber’s as well as in Schumpeter’s work is
straightforward enough: you need a number of individuals who are driven to be
creative in economic affairs by their own inner motivation – not by pressure from the
outside and from institutions. These individuals are driven, to phrase it a bit
differently, to try out new approaches in economic life because this is perceived as
deeply meaningful to them. What you need can alternatively be characterized as a
rational capitalist spirit (Weber) or as a strong entrepreneurial drive, in the form of
a healthy capitalist civilization (Schumpeter). This spirit or drive must exist in the
heart of the individual and cannot be replaced by the existence of institutions.20
The right type of institutions are necessary for a healthy capitalism to exist,
but they cannot bring it about by themselves. Without the capitalist or entrepreneurial spirit, the institutions will stifle a healthy capitalism and replace it with
traditional capitalism or some form of socialistic capitalism. On this last point
special attention should be paid to the fact that there exists one capitalist
institution that may have a distinctly negative impact on the development of a
vigorous capitalism. This is the giant corporation; and it is possible to see the
writings of Weber and Schumpeter on capitalism – from their early emphasis on a
vigorous capitalism to their later worry about the future of capitalism – as a direct
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reaction to the rise of the giant corporation, or what Chandler (1984) calls
‘managerial capitalism’. The central message of Weber and Schumpeter is as
follows:
•
•
capitalist institutions are a necessary but not a sufficient condition to bring
about a healthy capitalism; and
the key to a vigorous capitalism is to be sought in the structure of ‘the spirit of
capitalism’ (Weber) or ‘the civilization of capitalism’ (Schumpeter). This
means that research of such items as ‘mentality’, ‘ethos’, ‘lifestyle’, ‘economic
ethic’, and the like, should be high on the current agenda of economic
sociology.
Notes
For comments and support I would like to thank Victor Nee and Thorbjorn Knudsen.
1.
I am exaggerating – in German-speaking countries, scholars naturally read the first edition. The
point to make, however, is that also in these countries it is nearly always the second edition from
1926 that is referred to.
2.
I have not written ‘empirical example’, but ‘concrete example’, since Weber does not provide any
figures or much concrete detail. Since there existed textile mills in Weber’s family, it is usually
assumed in the Weber literature that Weber knew quite a bit about this type of industry when he
wrote The Protestant Ethic. To this can be added that a few years after this study had appeared,
Weber made a detailed empirical study of a textile mill that his family owned (Weber, 1988
[1908]). When he revised The Protestant Ethic just before his death in 1920, he found no reason
to make any chances in the description of the textile industry, to which the main text of this article
now will return.
3.
In these quotes Weber is speaking about religion – he is starting from ‘the subjective adaption of
an ascetic faith’ as opposed to ‘the objective social institutions of the older Protestant churches’ –
but in my opinion the same argument is valid for the economy (cf. 1958a [1904–5]: 151–52).
4.
The spirit of modern capitalism is illustrated by the example of Benjamin Franklin (e.g. Weber
1958a [1904–5]: 49–57, 64–5).
5.
This is Schumpeter’s own translation of Das Wesen und der hauptinhalt der theoretischen
Nationalökonomie. This work has never been translated into English.
6.
Schumpeter always refers to qualitative and sudden change in Theorie, when he speaks about
entrepreneurship. He admits that infinitesimal change is perfectly possible, but also notes that this
type of change is quantitative in nature and therefore differs from the type of change that his
theory of entrepreneurship deals with.
7.
‘Das Grundphänomen der wirtschaftlichen Entwicklung’ in the original 1911 edition.
8.
The first edition has, in addition, a last chapter entitled ‘Das Gesamtbild der Volkswirtschaft [The
Overall Picture of the Economy]’. The other chapters have titles that have been kept in the
translation of the second edition.
SWEDBERG WEBER AND SCHUMPETER
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252
9.
Interesting work on comparing the first to the second edition of The Theory of Economic
Development is currently being carried out by Torbjorn Knudsen and Marcus Becker at Odense
University (see Becker and Knudsen, in press).
10.
Schumpeter habitually refers to institutions as the surrounding framework of economic mechanisms (e.g. 1951b [1949]; cf. Swedberg, 1989).
11.
The original version of Chapter 2 is a little less than double the size of the English translation from
1934 (cf. 1911: 103–98; 1934: 57–94). In quite a few cases the formulations are exactly the same
in the two editions, even though both also contain interesting formulations that cannot be found
in the other. In some respects the later version is clearly preferable to the original one. The two
famous typologies of the five different types of innovations and of the three motives that drive the
entrepreneur, for example, are only to be found in their well-known and distinct form in the
second edition (cf. 1911: 138ff., 159; 1934: 66, 93–4). Schumpeter also decided not to include
some ethnocentric and pejorative references to Africans from the second edition. The closest that
he comes to a definition of the entrepreneur in the 1911 edition is the following statement: ‘We
consequently assert that anyone is an entrepreneur who realizes a new combination, for which, as
we have seen, non-hedonistic action is practically always necessary’ (1911: 172).
12.
Weber, just like Schumpeter in The Theory of Economic Development, does not deny that
incremental change is possible in a traditionalistic economy.
13.
It is often noted by sociologists that what Schumpeter exclusively considers as falling into the
domain of economic theory belongs more naturally to that of sociology. An obvious example
would be the resistance from his social environment that the entrepreneur encounters when he
tries something new. There also are others (e.g. Swedberg, 1989).
14.
As the reader may recall, according to Schumpeter, small and quantitative changes can come
about in the circular flow; but only the entrepreneur can set off qualitative changes in the
economy.
15.
In Economy and Society, as well as elsewhere, Weber also uses the term ‘institution’ (‘Institution’;
e.g. 1972: 899). This is done in a casual way, roughly the way that other social scientists of the day
tended to do.
16.
Weber used the notion of ‘spirit of capitalism’ until his death, for example in his studies of the
economic ethics of the world religions (see, e.g., 1951 [1920]: 247).
17.
It has been argued that Weber’s view of the capitalist firm was influenced by the fact that the early
German firms were modeled after the Prussian state bureaucracy (Kocka, 1981).
18.
Bureaucrats have an ‘abhorrence of the acquisitive drive’ (1978c [1922]: 1108–9).
19.
In Wirtschaftsgeschichte, of which General Economic History is a translation, the term ‘Gesinnung’ or ‘mentality’, not ‘Geist’ or ‘spirit’, is consistently used. Presumably this mirrors Weber’s
terminology during his lectures.
20.
A latter day economic sociologist might say that what is needed for a healthy capitalism, apart
from good institutions, are networks. This, however, is not at all the answer of Weber and
JOURNAL OF CLASSICAL SOCIOLOGY VOL 2(3)
Schumpeter. Weber’s ascetic Protestant is actually characterized by his lack of networks and
existential loneliness; and Schumpeter’s entrepreneur comes fully armed out of nowhere, a bit like
Pallas Athena from the brain of Zeus.
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Richard Swedberg is Professor of Sociology at Cornell University. His main research areas are economic
sociology, including the relationship of law and economy, and classical sociological theory. His books
include Schumpeter: His Life and Work (1991), Max Weber and the Idea of Economic Sociology (1998)
and Principles of Economic Sociology (forthcoming in 2003). Swedberg is currently working on a series
of essays on the economic sociology of law.
Address: Department of Sociology, 314 Uris Hall, Cornell University, Ithaca, NY 14853, USA. [email:
rs328@cornell.edu]
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