During our neoliberal era, a broad ideological consensus among social scientists has emerged with regards to the inevitability and the superiority of “free-market capitalism” as an economic system. The original argument in defense of markets included a critique of the backwardness of agrarian economies and a celebration of the technological developments industrial capitalism has delivered for all in the western world. This is assumed to be result of the freedom of exchange among rational and self-interested individuals – even as the rewards of this process were distributed quite unevenly. Later on this argument was also mobilized in reaction to the ‘irrationality’ and economic failures of communism, social democracy and progressivism – or broadly left-wing economic programs, since the economic crises of the Keynesian and Communist regimes throughout the 1970s and 1980s. Frederic Jameson (1990: 98) stated that “The surrender to the various forms of market ideology … has been imperceptible but alarmingly universal; everyone is now willing to mumble … that no society can function efficiently without the market and that planning is obviously impossible.” Proponents of the market argue, now that capitalism has for the most part done away with agrarian backwardness, and communism had collapsed on itself, the only role for the politicians, academics, journalists alike must be critiquing the worst excesses of a capitalist society while simultaneously justifying and legitimizing its existence and rationality.
Obviously, the defense of markets did not emerge out of the blue in the late 20th century. The market ideology has existed since the earlier days of capitalist industrialization, if not before. In our era, oftentimes the dead are resurrected to enlighten us about the wonders of the market. In economics departments, especially in the United States, the market ideology is integrated into the dominant framework of today; the Neoclassical Synthesis. This synthesis was inspired by a reading of Adam Smith that was developed by the marginalist school in the 19th century(Clarke 1991: 141-157). In the marginalist account, the moralist Adam Smith was reduced to a mere advocate for free-market reforms, private property, and the pursuit of self-interest over all other social considerations. Homo-economicus, or economic man, was presented as Smith’s conception of how individuals ought to behave in the economy; rational, self-interested and always in ruthless pursuit of personal gains in the market (Grampp 1948). And so long as there are no barriers for free trade, individuals would be free to pursue the optimal outcomes for themselves. This in return would lead to the optimal outcome for society at large, as the invisible hand of the market would guide all economic interactions towards the optimal direction. Rationality and self-interest, and the logic and existence of capitalist markets are assumed to be inherent in human nature. Capitalism is assumed to have risen when the irrational obstacles on its path to dominance are removed and individuals are free to economically express their true selfish nature.
Through this account, neoclassical economists their marginalist forefathers, abstracted Smith from his historical, intellectual and political context and used his arguments to justify the universal superiority and inevitability of capitalism and markets. Although Smith (Smith 1982: 117) did see the markets as a historical expression of a natural “propensity to truck, barter and exchange” in people, he (Smith 2006: 5) believed there were many other propensities in human nature such as “fellow-feeling” that also regulate social behavior. Smith believed that it was the division of labor between towns and agriculture that led to the development of productive capabilities and free trade only guaranteed improvement since it would spread the division of labor (Smith 1982: 121-125). He associated the countryside with feudal landlords who were in continuous state of war with one another and believed that free trade would help create political stability in the countryside.
Smith must be put back where he belongs and understood as a moral philosopher of the Scottish Enlightenment, who only happened to analyze the development of capitalism in England later in his life in order to complete his “account of the general principles of law and government, and of the different revolutions they had undergone in the different ages and periods of society(Skinner 1982: 10).” His methodology, worldview, many of his assumptions and conclusions are derived from the scholars he interacted with and the specific patterns of economic development he observed within the English capitalism of the 18th century.
In sociology departments, the same ideological consensus is reproduced through the works of Durkheim and Weber – often counterposed against Marx. In the Division of Labor in Society, Durkheim mimicked Smith’s work in his own defense of the capitalist division of labor as the source of “organic solidarity” in modern society (Durkheim 1960: 111-133). In Durkheim, organic solidarity is counterposed against the mechanical solidarity of ‘traditional societies’ and, not surprisingly, the conflict between labor and capital is viewed as a potential cause for anomie – or the collapse of social bonds (Durkheim 1960: 353-354). Nevertheless, given the relative irrelevance of Durkheim’s economic works in the academy nowadays, it is much more important to focus on Weber when we talk about the study of the origins and the rationale of capitalism in the field of sociology.
Coming from a vehemently nationalist and anti-Marxist background, Weber dedicated a significant part of his life defending capitalism while simultaneously arguing for “ethical neutrality” in social sciences.(Allen 2004: 4) As late as 1896, Weber would exclaim in a speech:
We need more room externally, we need an extension of economic opportunities through our expansion of our markets … and that is nowadays in the long run absolutely dependent upon expansion of our political power abroad. A dozen ships on the East African Coast are at certain moments of more value than a dozen trade agreements which can be terminated … It is a vital matter for us that the broad masses of our people should become aware that the expansion of Germany’s power is the only thing which can ensure for them a permanent livelihood at home and the possibility of progressive improvement. (Allen 2004: 20-21)
Earlier in his life, Weber was not subtle about his defense of German nationalism, and capitalism in the context of the development of the German nation. Weber’s earlier political views informed his later academic works. Allen (2004: 15-31) claims that Weber wanted to encourage the German bourgeoisie to perform its historical duty in putting Germany in its place in the sun and save it from its weak capitalism dominated by the Junkers. This required the rationalization of the German state and the economy. Weber viewed European capitalism as the natural outcome of his grand narrative of “rationalization” and wanted Germany to catch up and surpass the strength of English industry.
Weber’s analysis of capitalism must be viewed in this context to make sense of his adoption of a marginalist framework in his later works. Much like the marginalists and Smith, he believed that;
The impulse to acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism. This impulse exists and has existed among waiters, physicians, coachmen, artists, prostitutes, dishonest officials, soldiers, nobles, crusaders, gamblers, and beggars. One may say that it has been common to all sorts and conditions of men at all times and in all countries of the earth, wherever the objective possibility of it is or has been given. (Weber 2005: xxxi)
Also like Smith and the marginalists, Weber believed that capitalism has always existed since he equated markets with capitalism (Allen 2004: 121). This enabled him to make a specific argument with regards to why European capitalism came to dominate what he believed to be Eastern capitalism since commerce and markets existed in both areas, but capitalism was only rational in Europe. His grand narrative of rationalization emerged from this view, where he tied rationality directly to European culture and critiqued Eastern culture as underdeveloped and irrational in typical orientalist fashion. Weber also argued that socialism and communism did not possess “formal rationality” since the rationality of social action in these systems are not based on calculable, quantitative means but they are based on ultimate values towards whatever ends– such as social justice (Max Weber 1978: 85-86).
The influence Smith and Weber in our economic discourse today is undeniable. The missionaries of the neoliberal religion preach the gospels of Smith and Weber as these serve their own purposes. The main threads that tie the proponents of free markets in the neoliberal era to Smith and Weber are the underlying theories of economic rationality and action, and their accounts of the origins of capitalism. Both Weber and Smith assumed, at one point or another, that economic pursuit of self-interest is human nature, and the dominance of capitalism – or markets, is an inevitable consequence of this once all the ‘irrational’ political and economic barriers on the markets are removed and individuals are free to pursue their own economic self-interests.
In this paper, I first critique the marginalist reading of Smith and argue that Smith’s theory of social action is much broader than the rationalistic framework proposed by neoclassicals and marginalists. I also elaborate his account of economic action in this light. Then, I critique Weber’s theory of social action. Weber’s theory is framed in a way that makes ‘rational capitalism’ as the optimal outcome of the social process of rationalization and justifies the domination of the irrational by the rational systems. This is intentional in Weber’s work and flows from his political views, unlike Smith where the defense of capitalism is relatively more pragmatic and conscious of the potential shortcomings of it. In the last section I contrast the underlying theories of origins of capitalism in both authors and critique them from a Political Marxist perspective.
On the Propriety of Passions and Behavior
As was mentioned earlier, Adam Smith viewed his work in the Wealth of Nations and the Theory of Moral Sentiments, as parts of a totality of his account of general principles of law and government. In Moral Sentiments, Smith provided a different conception of human nature and social action, in contrast to the one that is commonly attributed to him by many contemporary economists (Zouboulakis 2005) – which simply defines humans as rational and self-interested machines. Grampp summarizes the marginalist and neoclassical version of the economic man in the following passage:
In his lineaments the economic man for whom Smith is held responsible is an alarmingly rational creature who invariably seeks his own interest, who reacts with lightning speed to actual and anticipated changes in his real income and wealth, turning with ease here and there upon the slightest fluctuation in relative prices. Not only is he as free of error as was Adam originally free of sin, but he is so utterly absorbed by his calculations that he is conscious of no other activities which legitimately could engage a human being. If he ever were to engage in play, he quickly would discover that aimless effort can be replaced by co-operation with his opponent, thereby maximizing the score and thereafter dividing the prize. He is unencumbered by any personal relations which might interfere with his relentless maximizing, being a disembodied creature without a soul and devoid of human compassion. If he is concerned for others, it is only in order to advance himself more certainly. He acknowledges his social responsibility by keeping within the law, for without law and order his pursuit of wealth would encounter obstacles. The consequence of his behavior is necessarily beneficent, because he is guided through an intrinsically harmonious social order by the benign force of natural law. (Grampp 1948: 315)
In order to contrast Smith’s vision of social behavior, we must first locate the context of Smith’s conception of human nature. Smith’s conception of human nature was informed by his relationship to the philosophers of the Scottish Enlightenment. For our concerns, three main commonalities between Smith’s work and the work of members of the Scottish School are most important; first, the method of inquiry was empirical rather than speculative; second, the object of study is not the nature of man in an isolated state, but his nature in a social state; and third, “observation, introspection and reason enable us to establish the characteristics or ‘propensities’ of human nature” but these propensities exist independent of the study (Skinner 1982: 12-13). Smith’s work in Moral Sentiments, emerged as an empirical study of the relationship between morality and social relations, but although he assumed morality was developed socially, he still believed that this process was an expression of the “Rational (Divine) Plan” or human nature.
In Moral Sentiments, Smith claimed humans are naturally sympathetic. He stated that, “When we see a stroke aimed and just ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm; and when it does fall, we feel it in some measure, and are hurt by it as well as the sufferer (Smith 2006: 5).” The source of this “fellow-feeling” according to Smith was reflection and imagination; our ability to conceptualize and relate how we might feel in situations where others experience joy or grief. Hence the source of sympathy was not the behavior of the individual we observe, but how we feel about their behavior. Smith extended this view of natural sympathy to claim that the fear of death is a consequence of the extrapolation of sympathy towards the dead.(Smith 2006: 8) But he argued that the level of sympathy one feels depended on the type of feelings and propriety of the behavior observed.
Smith believed that people judge the propriety of our own behavior in the same way they judge the behavior of others; as spectators (Smith 2006: 16). Propriety of a behavior is not universal, but it is socially determined. Smith states, “He who laughs at the same joke, and laughs along with me, cannot well deny the propriety of my laughter (Smith 2006: 12).” Our ability to express sympathy is constrained by our sense of propriety or impropriety of another’s behavior, and our sense of propriety is informed by our own past social experiences. We laugh because “We have learned … from experience, what sort of pleasantry is upon most occasions capable of making us laugh, and we observe that this is one of that kind (Smith 2006: 12).”
Smith outlined five different passions or feelings humans sympathize with; passions of the body, passions from habits of the imagination, unsocial passions, social passions, and selfish passions(Smith 2006: 22-37). For our purposes the most important of these are social, unsocial and selfish passions. Unsocial passions include anger, hatred, resentment and they only invoke sympathy when “we are informed of the cause which excited them (Smith 2006: 31).” Social passions include generosity, humanity, kindness and compassion and these are the emotions that we feel most readily available to sympathize with since they are “benevolent affections.” Selfish passions include “Grief and joy, when conceived upon account of our own private good or bad fortune (Smith 2006, 35).” We most easily relate to smaller joys and larger griefs when we witness them. Larger joys of others ‘naturally’ promote envy and ambition, whereas smaller griefs fail to promote sympathy due to their mundanity. Ambition is what promotes hard work and virtue among the less fortunate, even at the end they might not be rewarded. To summarize, Smith believed the expressions of social passions had most propriety and that of unsocial passions had the least propriety, whereas the propriety of selfish behavior was driven by the scale of the joy or grief the spectator witnesses.
Moving from this, Smith contrasted the way we sympathize with the rich over the poor. “It is because mankind are disposed to sympathize more entirely with our joy than our sorrow, that we make parade of our riches, and conceal our poverty” (Smith 2006: 44), Smith stated. The rich celebrate their wealth because they feel it is only natural for them to have the attention of the world on them, since by their accounts, they are the creator of their own wealth. As we observe the rich experience joy, we are driven to sympathize with their joy and pushed towards ambition to attain their joy for ourselves. On the other hand, the poor are ashamed of their poverty and experience little sympathy from those who are more fortunate. When the poor does receive sympathy “ Those humble cares and painful attentions which occupy those in his situation, afford no amusement to the dissipated and the gay (Smith 2006: 45).”
Smith viewed this inclination to worship the rich and the powerful as the primary source of moral corruption (Smith 2006: 53). He counterposed the celebration of the rich to the lack of appreciation for the virtuous and wise. He stated,
In equal degrees of merit there is scarce any man who does not respect more the rich and the great, than the poor and the humble. With most men the presumption and vanity of the former are much more admired than the real and solid merit of the latter. It is scarce agreeable to good morals, or even to good language, perhaps, to say, that mere wealth and greatness, abstracted from merit and virtue, deserve our respect… they almost constantly obtain it; and that they may, therefore, be considered as, in some respects, the natural objects of it. (Smith 2006, 54)
Here Smith was critiquing the irrational celebration of wealth and power over merit and virtue. Of course, it should not be no surprising, given Smith’s background as a lifelong scholar[†] that he would contrast the perceptions of wealth, specifically with virtue and wisdom. Nevertheless, Smith’s critique of social morality here is in direct contrast to the general perception of him as a defender of self-interest since he acknowledges that propriety of actions are clouded by our natural propensity to sympathize with joy over grief, and the rich over the poor.
So far, we can see that Smith viewed the fellow-feeling as a natural inclination. He viewed generosity, kindness and compassion as the most approbated forms of social passions and argued unsocial passions like hatred and resentment only earn sympathy when they are justified by reason. Smith described the logic of selfish passions and argued the way we relate to joy over grief creates a natural inclination among us to celebrate the rich, and neglect or despise the poor. Our celebration of the rich often drives us into ambition or envy. Hence, we can see that Smith believed that social action constrained by the propriety of behavior and fellow-feeling, and the sense of propriety is developed socially through observation and reflection as individuals judge the behavior of themselves and others as spectators. But then, where does this leave us with regards to the marginalist reading of Smith as a proponent of rational calculation and self-interest?
Smith in fact did believe that self-interest was one of the natural propensities. He claimed, “Every man, is no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so”, but he added
But though the ruin of our neighbor may affect us much less than a very small misfortune of our own, we must not ruin him to prevent that small misfortune, nor even to prevent our own ruin, We must, here, as in all other cases, view ourselves not so much according to that light in which we may naturally appear to ourselves, as according to that in which we naturally appear to others. (Smith 2006, 74)
As we can Smith again argued for individuals to act with respect to how their actions would affect others, rather than purely in their own self-interest. More specifically, when individuals pursue their own self-interest at the expense of others, Smith believed that it should be the role of the state to deliver justice – that is justice determined by social impropriety of the action. He argued,
Those whose hearts never open to the feelings of humanity, should we think, be shut out, in the same manner, from the affections of all their fellow-creatures, and be allowed to live in the midst of society, as in a great desert where there is nobody to care for them, or to inquire after them. The violator of the laws of justice ought to be made to feel himself that evil which he has done to another; and since no regard to the suffering of his brethren is capable of restraining him, he ought to be over-awed by the fear of his own (Smith 2006, 74).
Hence, in contrast to the image of Smith as a defender of relentless pursuit of self-interest he in fact never favored self-interest at the expense of others. Skinner argues that the view of self-interest in Smith originated from his relation to the tradition of philosophical history at the Scottish School (Skinner 1982, 26-27). The School had a theory of history where societies followed a sequence of modes of subsistence – from rude to civilized, whose levels of development were determined by the sizes of the state necessary to enforce property rights. Commercial society was the most civilized stage of development preceded by, in chronological order, hunting and gathering, pasturage and farming. Self-interest was defined, in these terms, strictly by people’s natural inclination to improve their own material conditions of existence. That is why the modes of subsistence would follow a ‘progressive’ path. But as I previously explained, in Smith the pursuit of self-interest was always be constrained by natural sympathy for others. This was also evident in the Wealth of Nations, where Smith associated commercial societies with “liberality, frankness, and good fellowship,” while he critiqued agricultural societies for their “narrowness, meanness, and a selfish disposition, averse to all social pleasure and enjoyment (Smith 2005: 544).” Here he associated selfish disposition with a ‘ruder’ mode of subsistence and good fellowship with a more ‘civilized’ one. In another passage, Smith implied that relentless pursuit of interest at the expense of others would not lead to the optimal outcome for all as he said “People of the same trade seldom meet together … but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Smith 1982: 232) Therefore, we can argue that for Smith, even if the driver of social action was one’s inclination to improve their own material conditions, that inclination was always constrained by their judgment of the propriety of their behavior in relation to their peers. The marginalist view of the economic man is a subversion of Smith’s conception of social action. In the next section, I will elaborate the theory of social action in Max Weber and his relationship to the marginalists.
On Rationality of Social and Economic Action
Weber’s economics and theory of social action were shaped by the debate between the two schools of economics in Europe in the late 19th century; the Historical School and the Marginalists (Allen 2004: 69-70). The Historical School was influenced by the works of Kant. Kant’s philosophy emphasized the role of the “spirit” or Geist as an active element in individual’s perception of reality, in contrast to what he perceived as the mechanical approach of the British philosophers at the time – who were primarily occupied with factors that were empirically observable. The impact of Kant on the Historical School drove them to study things like cultural and national characteristics or spirits, as opposed to universal laws of economic development, such as those studied by Smith. In contrast, the Marginalist School did in fact focus on a similar set of universal laws with some key subversions and exceptions, such as the one I elaborated in the previous section.
One of the most important subversions of Smith by the marginalists was the rejection of the Labor Theory of Value. Classical economists like Smith, Ricardo and Marx were proponents of the LTV, which claimed that the exchange value of commodities in the market are determined by the objective value of the average level of labor that is necessary to produce them. Smith summarized the LTV here:
The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchase by labour as much as what we acquire by the toil of our own body. (Smith 1982: 133)
The marginalists rejected the LTV and instead argued that the exchange value of commodities in the market were subjective, i.e. determined by the use value of the given unit of a commodity to the specific individual that is purchasing it and the relative scarcity of the good also known as the marginal utility. This had significant implications at the time, given that the classical account of the LTV theoretically displayed that the source of profits in a capitalist economy were the unpaid wages – i.e. surplus value. In the marginalist view, the wages equaled the marginal productivity of the laborer because if the worker was rational and to be underpaid, he simply would’ve refused to work. This was informed by the conception of markets as opportunities, which I will discuss in the next section. This latter view was adopted by Weber as he himself was trying to develop an alternative to Marxism. Supposedly, this rejection of the LTV was also based on Smith, as Smith once argued that the value of precious metals is determined by their scarcity and utility. He claimed:
With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches; which, in their eye, is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes, the merit of an object, which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. (Smith 1982, 277)
As can be seen, even by this passage, unlike the Marginalists, Smith never claimed that the value of a commodity was independent from the amount of labor necessary to produce it. The marginalist economics hence came out of subversion of Smith’s theory of value where marginal utility replaced labor. Ironically, the marginalist reading of this passage reveals their class allegiances as they tied their view of value to which Smith described as that of rich people. Nevertheless, the marginalists believed that there were universal laws of economics that existed independent of observation much like Smith. Yet their subversion of Smith partly emerged in reaction to the working-class upheavals of the 19th century and Marxism as they, consciously or not, aimed to protect the ideology and the interests of their own class (Mandel 1962).
Weber’s work combined the idealism of the Historical School with the subjectivism of the Marginalists. For him, the appeal of the Historical School came from his attachment to German Nationalism, as he could credit cultural elements as the determinant factor of social change. As I mentioned earlier, Weber wanted to encourage the German bourgeoisie to rationalize the state and the economy in order to reduce the influence of the Junkers, and to be able to compete with English capitalism. His personal background and relationship to Protestantism through his family, and his fascination with American capitalism framed the specific context of his argument (Allen 2004: 32-33). In Kantian fashion, he claimed in the Protestant Ethic that it was the asceticism of the Calvinist sects that produced the rational spirit of modern capitalism, as the Calvinists sects believed that they were predestined to pursue their vocational calling (Weber 2005). Weber believed, the pursuit of self-interest was universal throughout history, but it was only rational in modern capitalism. In Protestant Ethic, Weber exclusively focused on religious texts while assuming all the members of the sects behaved according to the texts. This was due to his use of ideal types, a subjective theoretical abstraction that is supposed to be defined by the common attributes of a widespread phenomenon. As a result of his politics and methodology, in Weber’s view, the ideal type for the modern capitalist appeared as “the modern anti-hero qualities consist in his modesty, dourness and determination,” all of which were qualities that Weber personally admired (Allen 2004: 38-39). Meanwhile in the same text, he also did not hesitate to patronize Marxists through claiming the inferiority and mechanical nature of the historical materialism without really engaging in an honest debate (Weber 2005: 20).
Weber’s adoption of Marginalism, on the other hand, emerged from his view that the comprehensiveness and the ‘scientific’ nature of Marginalism could be used as a method of modernizing in Germany (Allen 2004: 70-73). Marginalism fit well into his Kantianism as it incorporated subjective individualism, ideal types, teleology and a comprehensive alternative to Marxism. Weber was a proponent of what is called the Verstehen method; a method of analyzing social motivation, either through direct observation, or through constructing the motivation of the individual through a longer-term sequence of motivations based on the characteristics of the individual. In either case, the sociologist was ought to impose their own consciousness onto their subjects to understand their motivations. According to Allen, Weber wanted to get rid of “the Verstehen method of a lazy, intuitive approach, which simply assumed there was a natural empathy between individuals. He wanted to lend it instead a ‘scientific’ rigour” (Allen 2004: 73).
Marginalist rationality was perfect for this, as the hole created by the question of the specific the nature of the rational capitalist spirit, could now be filled by imposing marginalist quantitative rationality on it. Marginalists also aimed to create a theory of ideal type capitalism through the idea of perfect competition and to study the causes of deviations from this ideal type. In this conception, assuming everyone behaved like the economic man and that markets were free of all non-economic obstacles, the markets would provide the optimal outcome for all members of society. Weber’s Kantianism enabled him just enough room for him to maintain his critical distance from the free-market dogma of the marginalists, while still defending their foundational premises. Clarke states:
Although Weber developed his sociology as a critique of marginalist economics, he did not challenge the adequacy of the marginalist characterisation of the rationality of the economic institutions of capitalist society, but sought only to locate marginalist economics within a wider cultural theory, based on the ‘voluntaristic theory of action’. This wider theory provided the ground on which Weber could criticise economic liberalism from the perspective of higher moral values, which for Weber established the ‘substantive irrationality’ of capitalism, in contrast to the ‘formal rationality’ of capitalism as an efficient system of provision for human needs. (Clarke 1991: 8-9)
Coming from this background, Weber outlined his theory of social action in Economy and Society. Weber believed that the subjects’ actions were driven by their motivations, whether the individual themselves were conscious of them or not. Like the marginalists, choice played a key role as it was the expression of the motives of the subject. For Weber, there were four types of social action; traditional, affective, value-rational and instrumentally rational (Weber 1978: 24-25). Traditional action is the type of behavior that is determined by “ingrained habituation.” Affective action “is determined by the actor’s specific affects and feeling states.” Weber believed that these two types lied “very close to the borderline of what can justifiably be ‘called meaningfully oriented action” since the actor did not necessarily have to ‘rationally’ consider the implications of his or her action and behaved in a reactive state. These types were associated with traditional societies rather than modern ones.
Value-rational action is “determined by a conscious belief in the value for its own sake of some ethical, aesthetic, religious or other form of behavior, independently of its prospects of success” (Weber 1978: 24-25) Instrumentally rational action is “determined by expectations as to the behavior of objects in the environment and of other human beings; these expectations are used as ‘conditions’ or ‘means’ for the attainment of the actors’ own rationally pursued and calculated ends.” As it is clear, in Weber’s categorization there are only two types of economic action that are consciously rational, but only instrumentally rational action serves rational and calculated ends. Hence Weber’s theory of rational social action can be defined by “a division of social action between actions undertaken for absolutist, utopian goals and actions carried out by a calculating variant of ‘economic man’” (Allen 2004: 78)
These ideal types of social action and his adoption of Marginalism drove Weber’s theory of economic action and economics into what became an explicit defense of the rationalization of German industrial capitalism. Rational economic action required instrumental rationality in its orientation (Weber 1978: 63). It had to utilize rational means for rational ends. There were two types of rationality in economic action. First, economic action is to be formally rational if “the provision for needs, which is essential to every rational economy, is capable of being expressed in numerical, calculable terms, and is so expressed” (Weber 1978:85). On the other hand, an economic system would be substantively rational if it mobilized rational means towards and “ultimate values.” The concept of substantive rationality enabled Weber to both critique socialists and communists as he claimed that they utilized rational ends towards irrational means, but it also distinguished him from marginalists since he could critique the substantive irrationality of capitalism in defense of the German nation or German capitalism specifically, while defending its formal rationality. Hence, like the marginalists Weber defended the formal rationality of modern capitalism as objective (Clarke 1991: 220), while often critiquing its substantive rationality since German capitalism at his time was dominated by the Junkers and was not strongly industrialized (Clarke 1991: 192-194).
To summarize, Weber’s conception of economic action was shaped by his Kantianism – informed by the Historical School, and Marginalism. Weber aimed to explain the spirit of capitalism in a Kantian manner through ideal types and substituted marginalist economics in place of the rationality of the capitalist spirit. His theory of economic action associated affective and traditional types with pre-modern societies, and value-rational and instrumentally rational ones with modern ones. Rational economic action in Weber had to be instrumentally oriented towards rational ends. He made a distinction between formal and substantive rationality – like the one between value-oriented action and instrumentally oriented action, and argued capitalism was formally rational while it might be sometimes substantively irrational – as in Germany where capitalism served the interests of the Junkers at the time. At the same time, he argued socialism and communism were not formally rational, but they could be substantively rational. He believed that the economic logic of capitalism represented the objective formal rationality and hence was superior to both feudalism and communism in terms of the way it allocated resources. In the next section, I will tie the conceptions of economic action in Smith and Weber to their conceptions of the market. I will argue that their conceptions of the markets combined with their theories of economic action make their accounts of the origins of capitalism teleological.
Commercial Society and Rational Capitalism
There are two prominent conceptions of markets in economic theory – in the past and today; markets as opportunities and markets as imperatives (Wood 1995: 118). The view of markets as opportunities is affiliated with the account of the origins of capitalism which Ellen Wood calls bourgeois teleology. Bourgeois teleology is the idea that capitalism has always existed throughout human history and it became dominant once the ‘irrational’ obstacles on its path to dominance were removed. Both Adam Smith and Max Weber describe the emergence of capitalism in a bourgeois teleological manner.
Although for different reasons as we mentioned earlier, both in Smith and Weber’s works, individuals pursue their self-interest in the economy. In Smith this is driven by the individuals’ inclination to improve their own material conditions – and constrained by their fellow feeling, whereas in Weber this is driven by the rational and self-interested nature of the ‘economic man’, which represented the spirit of modern capitalism. The two authors also have a view of markets as opportunities.
In Smith, this view emerged from his association of the division of labor with market exchange. For Smith, the main transformation that led to the emergence of Commercial Society was the division of labor (Smith 1982 109-117). Smith never referred to this system as capitalism, but today his description of a Commercial Society is interpreted synonymously to capitalism. The division of labor is the process of dividing larger tasks in production into smaller more specialized ones. According to Smith, the division of labor improved productivity in three ways. First, it helped workers become more productive as they were to only perform a single smaller task. Second, it helped them save time through making them focus on a single task, rather than a multitude of tasks. And third, it made the use of machinery more efficient, as the workers had an incentive to de-intensify their work. It is important to note that this is a significant distinction since unlike the marginalists, for Smith the increase in productivity was a consequence of the actions of the workers rather than the capitalists.
The complexity of the division of labor was constrained by the freedom to trade (Smith 1982: 117-126). For Smith the division of labor developed because of the natural propensity to “truck, barter and trade.” This propensity drove individuals – direct producers, to trade their surpluses in the market, and since every individual, was rational, they had a natural inclination to specialize in order to maximize their surpluses.
Although markets always existed by this logic, they grew largely as a consequence of the royal policies in Great Britain and France which allowed the towns significant autonomy(Skinner 1982:32-34). Prior to the expansion of the division of labor in towns, the country was ruled by a different set of lordships who each had their own self-sufficient subsistence economies in agriculture, and the military power to maintain them. Each lord would constitute the laws of their own lordship. Smith claimed that the military power of the lords in the country maintained continuous political instability because the political system was “too weak in the head, and too strong in the inferior members; and the excessive strength of the inferior members was the cause of the weakness of the head” (Smith 1982: 512) In the towns of Great Britain and France, the weakness of the monarchs restricted their ability to tax the towns, while the feudal law guaranteed the lords’ ability to collect rents in the country. This enabled the lords to exchange with foreign merchants which created the impetus for the growth of trade and the division of labor. As Smith put it:
But what all the violence of the feudal institutions could never have effected, the silent and insensible operation of foreign commerce and manufactures gradually brought about. These gradually furnished the great proprietors with something for which they could exchange the whole surplus produce of their lands, and which they could consume themselves, without sharing it either with tenants or retainers. All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons. (Smith 1982: 512)
According to Smith, the commerce in towns improved the country in three ways (Smith 1982: 507-509). First, the creation of a market in towns created an incentive to produce more surplus, since the surplus could now be traded in the market. The peasants in the country had limited opportunities to trade their surpluses prior to this, hence the division of labor remained simple. Second, the ownership of land switched hands from “country gentlemen” to merchants. According to Smith a merchant was “accustomed to employ his money chiefly in profitable projects; whereas a mere country gentleman is accustomed to employ it chiefly in expense.” This profit seeking, when applied to agricultural production, led to technical innovations and expansion of the division of labor to the country. And the creation of a trade-based society reduced the number of wars and hence prevented the waste caused by them. As I mentioned earlier, Smith believed that prior to the creation of a market-based economy, the inhabitants of the country lived in a continual state of war and supported free trade primarily because he believed it would make the countryside more peaceful.
To summarize Smith’s conception, the transformation from an agrarian society to a commercial one was a consequence of the royal policies which enabled the quantitative growth of trade and the division of labor. I should note that Smith believed different types of societies could coexist, but he aimed to explain the growth of the commercial type. For Smith, once individuals – direct producers, were allowed market opportunities, their natural propensity to truck, barter and trade would drive them to exchange their surpluses and increase the division of labor. The more complex division of labor in turn would enable the increase in productivity due to the reasons I mentioned earlier.
Similarly, Weber assumed that capitalism existed in ancient societies and believed that the fall of the Roman Empire and spread of feudalism led to a hibernation of it. He argued
It was only when the mediaeval city developed out of free division of labour and commercial exchange, when the transition to a natural economy made possible the development of burgher freedoms, and when the bonds imposed by outer and inner feudal authorities were cast off, that – like Antaeus – the classical giants regained a new power, and the cultural heritage of Antiquity revived in the light of modern bourgeois civilization. (Weber 1988: 410-411)
But Wood added that “The rebirth of commerce and the revival of Western civilization in the context of new burgher liberties was, however, to be enhanced by a wholly new element, the union of economic rationality with a radically new attitude toward labour, a work ethic contrary to all traditional denigrations of labour as a curse and a burden” (Wood 1995: 155-156). Hence, as I mentioned earlier, the subject of Weber’s study was not to explain the origins of capitalism, but it was to explain this rationality or spirit of modern capitalism. But as Wood argued, Weber’s own work implied that this rationality also existed in commerce and the application of this rationality to production was what defined the character of modern capitalism. Weber defined the rationality of markets in the following passage;
The reason for the impersonality of the market. is its matter-of-factness, its orientation to the commodity and only to that. Where the market is allowed to follow its own autonomous tendencies, its participants do not look toward the persons of each other but only toward the commodity; there are no obligations of brotherliness or reverence, and none of those spontaneous human relations that are sustained by personal unions. They all would just obstruct the free development of the bare market relationship, and its specific interests serve, in their turn, to weaken the sentiments on which these obstructions rest. Market behavior is influenced by rational, purposeful pursuit of interests. The partner to a transaction is expected to behave according to rational legality “and, quite particularly, to “respect the formal inviolability of a promise once given. (Weber 1978: 636)
Hence both Smith and Weber assumed the existence and rationality of capitalism in order to explain the quantitative growth of the markets and their rationality.
For Weber, the distinction was not only between capitalism and feudalism, but most importantly it was also between ancient and modern capitalism – given that capitalism always existed. In General Economic History, Weber claimed capitalism existed both in Europe and elsewhere but was only rational in Europe. He outlined six conditions for rationalized – or modern capitalism (Weber 1950: 275-278): (1) the appropriation of all the means of production as private property; (2) freedom of the market which he defines as the absence of irrational limitations – such as religion, in market transactions; (3) the application of rational accounting to both production and commerce to maximize profits. (4) the characteristic of “calculable law” which requires that all decisions be based on calculable judgements and administration; (5) the presence of free labor – the working class who does not own any means of production and is detached from the means of its own subsistence; (6) the use of commercial instruments for the purposes of holding shares in an enterprise or ownership of private property. By Weber’s account, all these conditions were originally met in medieval cities in various parts of Europe – like some cities in England and Italy, which enabled the development of capitalism in these regions first (Weber 1950: 302). What’s most important is that the rationality of capitalism always existed in commerce and much like Smith’s argument, the relative freedom of trade in the cities was the primary impetus for the development of modern capitalism as it combined this rationality with the other factors due to the relative degree of free trade in the cities.
Weber made three primary distinctions between the western countries and eastern countries with regards to the development of capitalism(Weber 1950: 309-313). First, he claimed that only in the western countries the law was practiced on a rational basis by jurors etc. In the eastern countries – the clans in China and castes in India, prevented the rational application of the law. Second, he argued that the western countries were the first to combine rational science with technology which allowed for development of capitalism. And third, religious beliefs in the west have led to rational thinking whereas in the east they have prevented the development of rational thinking. It should be self-evident that for Weber it was only the Western cities that could develop modern capitalism based on these classifications. Of course, Weber never really observed eastern societies but only imposed that the rationality of modern capitalism could only be developed based on the characteristics of Western culture. This was partly informed by his nationalism and his orientalist outlook towards other societies.
We have seen that both Weber and Smith assumed the existence of capitalism – in the form of markets, and the rationality of capitalism – in the form of market rationality in Weber and the propensity to truck, barter and trade in Smith, as they tried to explain the origins of Modern Capitalism and Commercial Society, respectively. Both conceptions have a bourgeois teleological approach to the study of the origins of capitalism, since both assume the very thing that they aim to explain.
The alternative to the bourgeois teleological in understanding the origins of capitalism was introduced in Capital by Marx and later developed by Brenner in Agrarian Class Structure and Economic Development in Pre-Industrial Europe – and other later by Political Marxists in studying the origins of capitalism in different geographic contexts. For the purposes of this paper, I will only very briefly summarize this conception.
In Capital, Marx critiqued the notion of primitive (previous) accumulation introduced by Adam Smith. For Smith – and Weber in our case, capital always existed in one form or another as a social relationship. Marx critiqued this notion and said that “money and commodities are no more capital than are the means of production and of subsistence. They want transforming into capital” (Marx 2015: 359). For Marx this transformation required the polarization of society into two different type of commodity owners; “on the one hand, the owners of money, means of production, means of subsistence, who are eager to increase the sum of values they possess, by buying other people’s labour power; on the other hand, free labourers, the sellers of their own labour power, and therefore the sellers of labour.”
The logic of capitalism emerged once the peasants were separated from direct access their means of subsistence – which was land, and became workers. The workers and capitalists had no other means to reproduce themselves as classes besides market competition since the workers would starve if they didn’t sell their labor and capitalists would go under if they did not develop the forces of production. The transformation in the social property relations is what created the market imperatives for continuous expansion of capital through profit extraction, as well as market dependence for both classes. Both Brenner and Marx explained the historical specificity of this transformation, not by by the logic of capital itself – unlike Smith and Weber, but by the political nature of accumulation under feudalism and as a consequence of class conflict between the aristocracy and the peasants – originally the English countryside (Brenner 1976). Both argued that the conflict between the monarchy and the lords, and that between the lords and the peasants resulted in the expropriation of the peasantry and the introduction of capitalism in the form of competitive land tenancies. Marx concluded that the process of transition from capitalism to feudalism “therefore, is nothing else than the historical process of divorcing the producer from the means of production.”
Conclusions
Today, we live in a world dominated by capitalism, and as a result many of our institutions reproduce capitalist ideology in various forms. Hence, it is important to delineate and deconstruct the original sources of this ideology. In this light, to critique the neoclassical reading of Smith, I aimed to contextualize his rationality of social action and theory of the origins of capitalism in the face of his complete decontextualization in popular discourse. In the case of classical sociology, I attempted to do the same, as Weber is often promoted as an ethically neutral or value-free social scientist. Both scholars reproduce the bourgeois teleological conception of the origins of capitalism, as they assume the existence of capitalism and its logic and explain the process by which it becomes dominant based on its prior existence. I tried to point to the historical specificity of capitalism by introducing Marx and Brenner’s conceptions of the origins of capitalism. It is essential today to state that capitalism was not an inevitable outcome of social development and is far from the only way society can be organized in a rational manner – depending on what we mean by rationality.
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[†] Smith began studying moral philosophy at the age of 14 and has been a scholar at various institutions across the United Kingdom throughout his life. See (Buchan 2016)
Hakan Yilmaz 