Crawl Across the Ocean

Saturday, September 05, 2009

26. The Protestant Ethic and the Spirit of Capitalism

Note: This post is the twenty-sixth in a series. Click here for the full listing of the series.

Other than Plato's 'Republic', the historical work that gets the most
discussion in Jane Jacob's 'Systems of Survival' is probably 'The Protestant Ethic and the Spirit of Capitalism' by Max Weber.

This isn't surprising since it turns out that Weber held a view quite similar to Jacobs':

"We will define a capitalistic economic action as one which rests on the expectation of profit by the utilization of opportunities for exchange, that is, on (formally) peaceful chances of profit. Acquisition by force (formally and actually) follows its own particular laws and it is not expedient , however little one can forbid this, to place it in the same category with action which is, in the last analysis oriented to profits from exchange."

In addition to distinguishing the ethics of force from the ethics of exchange, Weber also makes a clear (and somewhat unusual) distinction between capitalism and greed.

"The impulse to acquisition, pursuit of gain, of money, has in itself nothing to do with capitalism. The 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. It should be taught in the kindergarten of cultural history that this naive idea of capitalism must be given up once and for all. Unlimited greed for gain is not in the least identical with capitalism, and is still less its spirit. Capitalism may even be identical with the restraint, or at least a rational tempering of this impulse. But capitalism is identical with the pursuit of profit, and forever renewed profit
(bold face added).

Note the contrast with David Gauthier - where Gauthier viewed the perfect market as a morally free zone which allowed man to pursue his natural bent for 'more' without restraint, Weber sees capitalist activity as involving a restraint on the natural impulse for more, where the restraint serves to further the long term accumulation of capital. For Weber, there is a distinction between a rational calculation of how to accumulate as much capitals over time as possible, and an impulsive or irrational greed that can sabotage the accumulation of capital (although Weber later notes that there is a certain irrationality in just accumulating wealth without ever making any personal use of it).

Weber repeatedly makes the distinction between the man with a capitalist spirit and the 'adventurer' who seeks personal gain but by whatever means possible not within any specific capitalist approach.

"This kind of entrepreneur, the capitalistic adventurer, has existed everywhere. With the exception of trade and credit and banking functions, their activities were predominantly of an irrational and speculative character, or directed to acquisition by force, above all the acquisition of booty, whether directly in war or in the form of continuous fiscal booty by exploitation of subjects.

The capitalism of promoters, large scale speculators, concession hunters, and much modern financial speculation, even in peace time, but, above all, capitalism especially concerned with exploiting wars, bears this stamp even in modern countries. ...

But in modern times the Occident has developed, in addition to this, a very different form of capitalism which has appeared nowhere else: the rational capitalistic organization of (formally) free labour."

I think of this distinction Weber raises as the distinction between someone like Donald Trump - aggressive, ostentatious, frequently in bankruptcy, spendthrift, a promoter, large scale speculator and concession hunter - and Warren Buffett, mild mannered, legendary for his frugality and thrift, not particularly prone to self promotion, perennially focussed on increasing profits.

Much of the essay is devoted to Weber's notion that the restraint that serves the accumulation of capital, takes the form of a set of ethics that transforms a person's desires, as opposed to simply a technique that will best serve a person's pre-existing desires.

"The peculiarity of this philosophy of avarice appears to be the ideal of the honest man of recognized credit, and above all the idea of a duty of the individual toward the increase of his capital, which is assumed as an end in itself. Truly what is here preached is not simply a means of making one's way in the world, but a peculiar ethic. The infraction of its rules is treated not as foolishness but as forgetfulness of duty. That is the essence of the matter. It is not mere business astuteness, that sort of thing is common enough, it is an ethos. This is the quality which interests us." 
 (emphasis added)

Weber reinforces the point by looking at the writings of Benjamin Franklin, who was not particularly religious but was known as an exemplar of the early American dedication to the values of hard work and thrift.

"...all Franklin's moral attitudes are colored with utilitarianism. Honesty is useful, because it assures credit; so are punctuality, industry, frugality, and that is the reason they are virtues. A logical deduction from this would be that where, for instance, the appearance of honesty serves the same purpose, that would suffice, and an unnecessary surplus of this virtue would evidently appear to Franklin's eyes a unproductive waste.

And as a matter of fact, the story in his autobiography of his conversion to those virtues, or the discussion of the value of a strict maintenance of the appearance of modesty, the assiduous belittlement of one's own deserts in order to gain general recognition later, confirms this impression. According to Franklin, those virtues, like all others, are only in so far virtues as they are actually useful to the individual, and the surrogate of mere appearance always sufficient when it accomplishes the end view. It is a conclusion which is inevitable for strict utilitarianism. The impression of many Germans that the virtues professed by Americanism are pure hypocrisy seems to have been confirmed by this striking case. But in fact the matter is not by any means so simple. 
Benjamin Franklin's own character, as it appears in the really unusual candidness of his autobiography, belies that suspicion. The circumstance that he ascribes his recognition of the utility of virtue to a divine revelation which was intended to lead him in the path of righteousness, shows that something more than mere garnishing for purely egocentric motives is involved.  

In fact, the summumbonum of his ethic, the earning of more and more money, combined with the strict avoidance of all spontaneous enjoyment of life, is above all completely devoid of any eudaemonistic, not to say hedonistic, admixture. It is thought of so purely as an end in itself, that from the point of view of the happiness of, or utility to, the single individual, it appears entirely transcendental and absolutely irrational. Man is dominated by the making of money, by acquisition as the ultimate purpose of his life. Economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs. This reversal of what we should call the natural relationship, so irrational from a naive point of view, is evidently as definitely a leading principle of capitalism as it is foreign to all peoples not under capitalistic influence. At the same time it expresses a type of feeling which is closely connected with certain religious ideas. If we thus ask, why should "money be made out of men", Benjamin Franklin himself, although he was a colorless deist, answers in his autobiography with a quotation from the Bible, which his strict Calvinistic father drummed into him again and again in his youth: "Seest thou a man diligent in his business? He shall stand before kings" (Prov. xxii. 29). The earning of money within the modern economic order is, so long as it is done legally, the result and the expression of virtue and proficiency in a calling; and this virtue and proficiency are, as it is now not difficult to see, the real Alpha and Omega of Franklin's ethic"

So what virtues actually make up this ethic that Weber is describing? Weber never actually spells out (as far as I could tell) the specific virtues, but they can be easily extracted from various quotes.

A story Weber tells about how a 'traditionalistic' industry might be transformed to a 'capitalistic' one, captures many of the elements of the cpaitalist spirit.

"Until about the middle of the past century the life of a putter-out was, at least in many of the branches of the Continental textile industry, what we should today consider very comfortable. We may imagine its routine somewhat as follows: The peasants came with their cloth, often (in the case of linen) principally or entirely made from raw material which the peasant himself had produced, to the town in which the putter-out lived, and after a careful, often official, appraisal of the quality, received the customary price for it. The putter-out's customers, for markets any appreciable distance away, were middlemen, who also came to him, generally not yet following samples, but seeking traditional qualities, and bought from his warehouse, or, long before delivery, placed orders which were probably in turn passed on to the peasants. Personal canvassing of customers took place, if at all, only at long intervals. Otherwise correspondence sufficed, though the sending of samples slowly gained ground. The number of business hours was very moderate, perhaps five to six a day, sometimes considerably less; in the rush season, where there was one, more. Earnings were moderate; enough to lead a respectable life and in good times to put away a little. On the whole, relations among competitors were relatively good, with a large degree of agreement on the fundamentals of business. A long daily visit to the tavern, with often plenty to drink, and a congenial circle of friends, made life comfortable and leisurely. 

The form of organization 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 bookkeeping, was rational. But it was traditionalistic  business, if one considers the spirit which animated the entrepreneur: 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 business men.  

Now at some time this leisureliness was suddenly destroyed, and often entirely without any essential change in the form of organization, such as the transition to a unified factory, to mechanical weaving, etc. What happened was, on the contrary, often no more than this: some young man from one of the putting-out families went out into the country, carefully chose weavers for his employ, greatly increased the rigor of his supervision of their work, and thus turned them from peasants into laborers. On the other hand, he would begin to change his marketing methods by so far as possible going directly to the final consumer, would take the details into his own hands, would personally solicit customers, visiting them every year, and above all would adapt the quality of the product directly to their needs and wishes.

At the same time he began to introduce the principle of low prices and large turnover. There was repeated what everywhere and always is the result of such a process of rationalization: those who would not follow suit had to go out of business. The idyllic state collapsed under the pressure of a bitter competitive struggle, respectable fortunes were made, and not lent out at interest, but always reinvested in the business. The old leisurely and comfortable attitude toward life gave way to a hard frugality in which some participated and came to the top, because they did not wish to consume but to earn, while others who wished to keep on with the old ways were forced to curtail their consumption.  

And, what is most important in this connection, it was not generally in such cases a stream of new money invested in the industry which brought about this revolution -- in several cases known to me the whole revolutionary process was set in motion with a few thousands of capital borrowed from relations -- but the new spirit, the spirit of modern capitalism, had set to work. The question of the motive forces in the expansion of modern capitalism is not in the first instance a question of the origin of the capital sums which were available for capitalistic uses, but, above all, of the development of the spirit of capitalism. Where it appears and is able to work itself out, it produces its own capital and monetary supplies as the means to its ends, but the reverse is not true. Its entry on the scene was not generally peaceful. A flood of mistrust, sometimes of hatred, above all of moral indignation, regularly opposed itself to the first innovator. Often -- I know of several cases of the sort -- regular legends of mysterious shady spots in his previous life have been produced. It is very easy not to recognize that only an unusually strong character could save an entrepreneur of this new type from the loss of his temperate self-control and from both moral and economic shipwreck. Furthermore, along with clarity of vision and ability to it is only by virtue of very definite and highly developed ethical qualities that it has been possible for him to command the absolutely indispensable confidence of his customers and workmen. Nothing else could have given him the strength to overcome the innumerable obstacles, above all the infinitely more intensive work which is demanded of the modern entrepreneur. But these are ethical qualities of quite a different sort from those adapted to the traditionalism of the past.  
(emphasis added)

Here we see the innovation, hard work, competitiveness, openness to new ways of doing things, frugality, and productive investment of the capitalist spirit contrasted with the leisure, respect for tradition and non-competitiveness of the old ways of business.

Weber notes the somewhat internally contradictory nature of the capitalist spirit in that on the one hand, pursuing it properly leads to the accumulation of wealth, yet the same spirit generally forbids spending that wealth on any sort of luxury or self-gratification that might justify (in rational terms) the work and hardship that went into accumulating it.

"This worldly Protestant asceticism, as we may recapitulate up to this point, acted powerfully against the spontaneous enjoyment of possessions; it restricted consumption, especially of luxuries. On the other hand, it had the psychological effect of freeing the acquisition of goods from the inhibitions of traditionalistic ethics. It broke the bonds of the impulse of acquisition in that it not only legalized it, but (in the sense discussed) looked upon it as directly willed by God. The campaign against the temptations of the flesh, and the dependence on external things, was, as besides the Puritans the great Quaker apologist Barclay expressly says, not a struggle against the rational acquisition, but against the irrational use of wealth.  

But this irrational use was exemplified in the outward forms of luxury which their code condemned as idolatry of the flesh, however natural they had appeared to the feudal mind. On the other hand, they approved the rational and utilitarian uses of wealth which were willed by God for the needs of the individual and the community. They did not wish to impose mortification on the man of wealth, but the use of his means for necessary and practical things. The idea of comfort characteristically limits the extent of ethically permissible expenditures. It is naturally no accident that the development of a manner of living consistent with that idea may be observed earliest and most clearly among the most consistent representatives of this whole attitude toward life. Over against the glitter and ostentation of feudal magnificence which, resting on an unsound economic basis, prefers a sordid elegance to a sober simplicity, they set the clean and solid comfort of the middle-class home as an ideal." 

Finally, although Weber tries to keep his own opinions out of it, his concerns about the effect of the capitalistic spirit do occasionally show through, especially in a passage near the end of the essay where he bemoans how once this spirit was a choice but now there is no choice but to adopt it,

"The Puritan wanted to work in a calling; we are forced to do so. For when asceticism was carried out of monastic cells into everyday life, and began to dominate worldly morality, it did its part in building the tremendous cosmos of the modern economic order. This order is now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt."

The last line is interesting. Weber imagines that the capitalist spirit's drive for more and more will be unstoppable until it literally runs out of energy in the sense that there is no more natural support for further expansion of human activity. People largely moved on to oil and gas before we ran out of coal (although we've used up a lot of the best supplies of coal available to us, and continue to use more, all the same) but with peak oil a current topic of discussion, Weber's comment is as timely as ever.

Are those who see an end to our way of life because of peak oil (or global warming) simply looking for a saviour from the capitalistic treadmill we are unable to take ourselves off without outside 'help', or are cornucopians who see no real danger of running out of any resources or hitting any environmental constraints simply dismissing anything which might derail the capitalistic train that is driving progress and which we would be crazy to want to get off?

But back to the main point, which is that Weber viewed successful capitalism as involving a set of ethical restraints on behaviour. Where David Gauthier simply assumed that man always wanted more and that whatever action he took automatically reflected that desire for more, Weber sees that actually achieving a certain kind of more (more profits and wealth) required a form of ascetism and a set of ethics that privileges one set of desires (the desire for accumulation) ahead of another (the desire for consumption and ostentation).

This is how Warren Buffett, whose license place says 'Thrifty' is now one of the world's richest men while Donald Trump, whose license plate has his own initials, repeatedly ends up in bankruptcy.

Note: All quotes from the Talcott Parsons translation, first published in 1930 as viewed here or here.

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