Weber, Schumpeter and Modern Capitalism: Toward a General Theory
Total Page:16
File Type:pdf, Size:1020Kb
WEBER, SCHUMPETER AND MODERN CAPITALISM: TOWARD A GENERAL THEORY by John R. T. Love B.A. (Monash) Ph.D. (Melb) LL. B. (LaTrobe) LL.M. (Monash) Thesis completed in Department of Social and Behavioural Sciences School of Sociology Flinders University WEBER, SCHUMPETER AND MODERN CAPITALISM: TOWARD A GENERAL THEORY TABLE OF CONTENTS INTRODUCTION 1. The Rationale of the Present Work 4 2. Recent Scholarship on Weber and Schumpeter 11 3. The Relationship of Weber to Schumpeter 14 4. Weber as an Economist 18 5. Affinities between Weber and Schumpeter 22 6. The Synthetic Combination of Weber with Schumpeter 25 CHAPTER ONE Weber’s Contribution to the Theory of Modern Capitalism: Part One 1. Weber’s Writings on Capitalism 31 2. Problems in the Interpretation of Weber’s Work 32 3. Wolfgang Schluchter’s Interpretation of Weber’s Oeuvre 37 4. Weber’s Early Work on Modern Capitalism 40 5. The History of Commercial Partnerships in the Middle Ages 44 6. The Thesis of The Protestant Ethic and the Spirit of Capitalism 46 7. The Relation of The History of Commercial Partnerships in the Middle Ages to The Protestant Ethic and the Spirit of Capitalism 49 8. The Definition of Capitalism: the “Author’s Introduction” 53 9. General Economic History 56 10. The Pre-conditions of Capitalism 59 11. The Role of the City 63 12. The Advent of Modern Capitalism According to General Economic History 65 13. Randal Collins’s Reconstruction of Weber’s Theory 67 14. The Protestant Ethic in General Economic History 70 15. Conclusion 73 CHAPTER TWO Weber’s Contribution to the Theory of Modern Capitalism: Part Two 1. The Theory of Modern Capitalism in Economy and Society 74 2. “The Sociological Categories of Economic Action” 75 3. “The Conditions of Maximum Formal Rationality of Capital Accounting” 86 4. The Significance of the Factory 88 5. The Dependence of Modern Capitalism on the State 90 6. The Legal Bases of Modern Capitalism 92 7. Excursus: The Development of the Business Corporation in England 99 8. The Ethical Character of the Market under Capitalism 102 9. Conclusion 105 CHAPTER THREE The Work of Schumpeter: Part One 1. Introduction to the Work of Schumpeter 106 2. The Significance of Walras 108 3. The “Circular Flow” and the Basic Elements of Economic Activity 113 4. Imputation and the Theory of Value 118 5. The Causes of “Development” 124 6. Capitalists, Banks and the Creation of Credit 127 7. The Function of the Entrepreneur 129 8. Conclusion 132 CHAPTER FOUR The Work of Schumpeter: Part Two 1. Introduction to the Theory of Business Cycles 135 2. “Equilibrium and the Theoretical Norm” 140 3. How the Economic System Generates “Evolution” 146 4. The Nature of Innovation 148 5. The Entrepreneur and Business Profit 151 6. The Function of Credit and Banking 152 7. The Contours of Economic Evolution 154 8. Historical Outlines of Business Cycles 156 9. The Long Wave from 1787-1842 159 10. Criticism of Schumpeter’s Theory of Business Cycles 163 11. Conclusion 169 CHAPTER FIVE The Synthetic Combination of Weber with Schumpeter 1. Schumpeter’s Critique of Weber’s Methodology 171 2. The Complementarity of Weber’s Approach with that of Schumpeter 177 3. Weber’s General Attitude toward Modern Capitalism 180 4. Schumpeter’s View of the Prospect of Socialism 184 5. Schumpeter’s Critique of Keynes 192 6. The Problem of Monopoly 195 7. The Schumpeterian Concept of Evolution 198 8. The Continuing Relevance of Schumpeter’s Theory of Business Cycles 202 9. The Continuing Relevance of Weber’s Account of the Work Ethic 204 10. Towards a Synthesis of Weber and Schumpeter 205 11. The Problem of Rationalization 206 12. The Question of “High” or “Late” Capitalism 209 13. Conclusion 211 CHAPTER SIX Conclusion: Toward a General Theory of Modern Capitalism 212 BIBLIOGRAPHY ABSTRACT WEBER, SCHUMPETER AND MODERN CAPITALISM: TOWARD A GENERAL THEORY The present works seeks to explore and bring together the contributions of two of the greatest theorists of modern capitalism, Max Weber and Joseph Schumpeter. It further attempts the ambitious task of laying the foundations for a General Theory of Modern Capitalism. In constructing a General Theory we seek to account for the pre- conditions, essential features and operational dynamics of capitalism wherever it is present in the modern world regardless of national peculiarities. It has variously been claimed that Weber is the most cited authority in all of sociology and Schumpeter the most cited in all of economics, but hitherto there have been few attempts to compare their work on capitalism and no serious attempt to integrate their respective contributions. The present work addresses this deficiency. Its underlying rationale is the view that the writings of Weber and Schumpeter in combination and appropriately integrated can provide a comprehensive theory of the modern capitalist system that is superior to what is available in competing theoretical frameworks. We argue there are important theoretical connections between Weber and Schumpeter via the influence of Austrian economists such as Carl Menger and the so- called Austrian Marginalist School. Biographically there are also notable points of contact between Weber and Schumpeter that warrant attention. The present work will first give an account of the respective contributions of Weber and Schumpeter with regard to the nature and workings of capitalism, a topic that is a central focus for both of them. In doing this we shall explore the compatibility and complementarity of the two approaches. We argue that the full significance of the contributions of both writers has not been adequately appreciated. Weber’s work on law, the city and the state and Schumpeter’s analysis of business cycles are explored in detail. Both writers insist on the rationality of the price mechanism under competitive market conditions and explain how this underpins the prosperity of modern economies. Finally, we attempt to lay the groundwork for a synthesis of the contributions of Weber with those of Schumpeter as the basis for a General Theory of Modern Capitalism. Weber became well-known and even celebrated in the English-speaking world for The Protestant Ethic and the Spirit of Capitalism, which became a classic and one of the most influential works in all sociology. Schumpeter is well known for his Capitalism, Socialism and Democracy. We shall accordingly comment at length on these works but they represent only a small portion of the contributions the two thinkers made on capitalism. Therefore, the present work shows how many other writings of Weber and Schumpeter need to be considered to fully appreciate the value of their contributions. Wherever relevant we shall also relate the work of Weber and Schumpeter to more recent research and offer criticisms where needed. INTRODUCTION The student of modern society is struck by the fact that in the world of today capitalist economic relations and capitalist economic structures appear all but dominant.1 This is the case not simply because Western Europe, the United States, Canada, Japan, Australia and the so-called “Asian tigers” (South Korea, Taiwan, Hong Kong, Singapore) have shown themselves to be enduring and highly prosperous capitalist economies—admittedly despite of some recent difficulties—it is also indicated by the emergence of many new or emerging capitalist economies. This latter development has been largely a consequence of the end of the Cold War following the collapse of the Soviet Union and the worldwide communist movement sponsored by it. For since 1989, there has arisen in the space of the old socialist/communist systems an array of nascent capitalist economies as well as what might be termed various quasi- or neo- capitalist systems. And these embryonic or neo- capitalisms have arisen not only in Russia and the states that were once under the direct control of the Soviet Union, such as Hungary or the Czech Republic, but also in other nations that were once socialist in orientation, such as India and Israel, or avowedly communist, like China and Vietnam. Furthermore, many if not most of the so- called developing countries of Africa, the Middle East and South America, appear to have embarked upon courses of development that are oriented, at least in part, towards bringing about a capitalist system in some form, such as is occurring in societies as various as Turkey, South Africa, the Gulf States, Mexico, Indonesia, Malaysia and Chile. In some instances this transformation is well under way, as with the case of Brazil that has already emerged as a major economic power. All these developments suggest that today there is no longer a serious socio-economic alternative to capitalism—that is, if a country seeks to prosper and develop economically—as the counter examples like Myanmar, North Korea, Libya, Cuba and others seem to confirm. Even in the case of China, which remains officially a communist state, a virulent strain of capitalism has emerged, which is largely responsible for its recent economic progress and the huge improvement in living standards. Of course, the evident dominance of capitalist and quasi-capitalist institutions in the modern world does not prove we are approaching “the end of history”, as Fukuyama might have it, nor does it imply that capitalism as a system is immune from fundamental criticisms and/or reforms. It goes without saying that problems and difficulties remain, some of which are no doubt intrinsic to this mode of arranging economic affairs. And, of course, there are many aspects of capitalist modernity that invite critical reflection and are concerning from a range of points of view.2 But here we shall 1 David Hale has referred to the present as the “Second Great Age of Capitalism”, a phrase that refers to the fact that the world is experiencing economic change on a scale not seen since the Industrial Revolution.