CHAPTER TWO
Basic Sociological Categories of Economic Action
Preamble: The following does not involve any kind of “economic theory” but seeks only to define a few widely used concepts and determine some very simple sociological relationships within the economy. The manner in which concepts are here defined is, as before, determined purely by practical considerations. Terminologically, it has been possible to avoid the much-debated concept of “value.” Compared with Karl Bücher’s terminology,1 some variation has been introduced in the relevant passages (on the division of labour [Arbeitsteilung])2 where it seemed desirable for present purposes. All treatment of “dynamics” is for the time being set to one side.
§1. Action will be called “economically-oriented” inasmuch as its intended meaning is oriented to meeting (Fürsorge) a desire for utilities. “Economic activity” (Wirtschaften) will refer to a peaceful exercise of a power of disposition3 primarily oriented to “rational economic action,” which action is primarily rational by virtue of being directed to a purpose (Zweckrational), and hence is planfully oriented to economic ends. “Economy” is autocephalous economic action; “the pursuit of economic activity” (Wirtschaftsbetrieb)4 is continuously ordered (betriebsmäßig geordnetes) economic activity.
1. It has already been emphasised above (Chapter 1, §1, Section 2, Para. 2) that, in itself, economic action need not be social action.
The definition of economic action has to be as general as possible, while giving expression to the fact that all “economic” processes and objects are marked out as such entirely by the meaning that human action lends them—whether as end, means, restraint, or by-product. But it should certainly not be said, as occasionally happens, that economic action is a “psychic” phenomenon. The production of goods, or price, or even the “subjective evaluation” of goods—which are otherwise real processes5—are much more than “psychic.” While this expression involves a misunderstanding, it does, however, imply something correct: that they have a special kind of intended meaning and this alone constitutes the unity of the processes in question, and alone renders them intelligible.—The definition of “economic action” has also to be constructed in a manner that comprehends the modern acquisitive economy (Erwerbswirtschaft); it cannot therefore be based on “consumption needs” and their “satisfaction.” Instead, the definition should be based on two facts: first (and this also fits the naked endeavour to make money), that utilities are desired; and second (extending also to the pure subsistence economy,6 the most primitive economic form), that an effort will be made to secure the meeting of this desire (no matter in how primitive and traditional a manner).
2. “Economically oriented action” (Wirtschaftlich orientiertes Handeln), in contrast to “economic action” (Wirtschaften), will refer to any action that is (a) primarily oriented to other ends, but which in the course of execution takes account of the “economic circumstance” (the subjectively recognised necessity for economic provision), or which is (b) primarily oriented in this way, but which directly employs violence (Gewaltsamkeit) as a means. Thus, it includes any action that is neither primarily, nor peacefully, economically oriented, but that is influenced by that same economic circumstance. “Economic action” is therefore defined as a subjective and primarily economic orientation. (“Subjective” because it is a matter of belief in the necessity for such provision, and not of the objective necessity of such provision.) Robert Liefmann rightly emphasises the “subjective” nature of the concept, that it is the intended meaning of the action that renders it economic action, but in my opinion, he is not right in suggesting that all other authors believe the opposite.7
3. Any kind of action can be economically oriented, even violent (e.g., warlike) action (wars of plunder, trade wars). Franz Oppenheimer8 has quite rightly contrasted “economic” with “political” means. It is in fact useful to distinguish the latter from “economy.” The pragmatics of violence contrast very strongly with the spirit of the economy as normally understood. Neither the direct and immediate confiscation of goods, nor direct and immediate forceful compulsion to adopt alien behaviour, should therefore be called “economic action.” Of course, exchange is not the sole economic means, but one of many means, even if one of the most important. And quite obviously, economically oriented, formally peaceable provision for the means and success of intended acts of violence (armament, war economy) is just as much “economy” as any other action of this kind.
All rational “policy” makes use of economic orientation in its means, while any policy can serve economic ends. While in theory not every economy requires the legal compulsion of the state, the particular conditions of our modern economy do require this guarantee with respect to the powers of disposition that the state provides. The threat of probable violence therefore secures the maintenance and execution of a guarantee of formal, “legal” powers of disposal. But an economy enjoying forcible protection of this kind is not itself an instance of the use of force.
However misconceived it might be to treat economy (however defined) conceptually as solely a “means,” in contrast to, for instance, the “state”—this makes clear that one can only define the state by describing the monopoly of (violent) means that it today employs. If it means anything, then in practice economy means the careful choice between ends; albeit oriented to the scarcity of means that appear to be available, or obtainable, for these various ends.
4. Not every action that is rational in its choice of means should be called “rational economic action,” nor even simply “economic action.” In particular, the expression “economy” should not be used interchangeably with “technology” (Technik). For us, the “technology” of action involves the precise nature of the means employed in that action, in contrast to the meaning or end to which it is substantively and ultimately oriented, “rational” technology being the employment of means that is consciously and planfully oriented to experience and reflection—and at the highest level of rationality, oriented to scientific thinking. Quite what counts substantively as “technology” is therefore fluid: the ultimate meaning of substantive action can, when placed in the general context of action, be of a “technological” kind, that is, a means in the sense of that more comprehensive context. For substantive action, however, it is this perceived technological outcome (Leistung) that lends it “meaning,” and the means employed to achieve this are its “technology.” In this sense, there is a technology for each and every type of action: the technology of prayer, ascetic technology, technologies of thinking and research, technologies of memory, educational technology, technologies of political or hierocratic rule, administrative technology, erotic technology, the technology of war, musical technology (e.g., of a virtuoso), the technology of a sculptor or a painter, legal technology, and so forth—and they are all capable of the most varied degrees of rationality. The existence of a “technological question” always implies that there is doubt about the most rational means. For technology, therefore, the measure of rationality is among others also the well-known principle of “least degree of force”: the optimum of the outcome by comparison with the means to be applied (and not “with the—absolutely—least means”). What appears to be the same principle also applies of course to the economy (and to any rational action in general). But there it has a different meaning. So long as, in our usage, technology remains purely “technology,” then it is addressed solely to the most suitable means for achieving this outcome, an outcome that simply is a given, something to be achieved and over which there is no argument, and which is as such the comparatively most physically efficient (kräfteökonomisch) means of achieving this outcome, assuming the same completeness, certainty, and permanence. “Comparatively” here means the extent to which there exists a directly comparable degree of effort associated with the choice of different paths. Insofar as it here remains purely technology, it ignores other needs. If, for example, there is a choice about making a technically necessary part for a machine out of iron or platinum, then assuming that there was actually a sufficient amount of the latter available to achieve this substantive result, the choice would only take account of how the result could be achieved most completely, and for which of the two options other comparative expenditures (of labour, etc.) are minimised. But the moment that the relative scarcity of iron and platinum is considered in relation to their potential use—as today any “technician,” even in a chemistry laboratory, is accustomed to do—then the issue is no longer (in our sense) merely technologically oriented but also economically oriented. From the standpoint of “economic action,” “technical” questions mean that “costs” become an issue for debate. This is a constant and fundamental question for the economy, but it is a question that is always part of its domain of problems in the form: How can other needs be met (whether these be qualitative different current needs, or qualitatively similar future needs) if this means is now applied to this need.9 (The discussion in von Gottl, Grundriß der Sozialoekonomik, Abt. II.2, is similar,10 detailed, and very good; Robert Liefmann, Grundsätze der Volkswirtschaftslehre, Bd. I, pp. 327ff., contains nothing new as compared with Gottl. It is an error to reduce all “means” to “ultimate physical effort” [Arbeitsmühe].)
For the question of what the comparative “cost” of employing different means for one technical end might be depends, ultimately, on the degree to which means can be substituted for each other (including, above all, labour power) in the realisation of differing ends. “Technologically” (in our sense) the problem is as follows: What kind of arrangements would have to be made to move loads of a particular kind, or haul mining products from a given depth, and which of them is the most “effective,” that is, which of them requires comparatively the least amount of current labour to achieve this end? This problem becomes an “economic” one with the question of whether (in a commercial economy [Verkehrswirtschaft]) such an expenditure in money is repaid through the sale of goods or whether (in a planned economy) disposal over the necessary labour and means of production can be achieved without impairing provision for other interests that might be considered more important. In either case, the problem involves the comparison of ends. Economy is primarily ends-oriented, to the purpose for which means are employed; technology is by contrast means-oriented, to the means employed for a given end. That a particular intended use underlies the engagement of technology is in principle a matter of complete indifference to the question of technical rationality—naturally, not a matter of indifference in actuality but at a purely conceptual level. There are rational technologies (in the sense used here) serving ends for which there is no kind of want. Someone could, for example, for sheer love of all things “technological,” employing the most modern means of production, create atmospheric air, without there being the least objection to the technological rationality of their endeavours; economically, such a project would be, in all normal conditions, irrational, there being no kind of need that might be met by supply of this product. (On the foregoing, see Gottl-Ottlilienfeld, GdS II.2.)11 The economic orientation of today’s so-called technological development to profitability is one of the basic facts of the history of technology. Despite its fundamental importance, however, it was not this economic orientation that exclusively directed the developmental path of technology; in part, there has also been the play and rumination of unworldly ideologies, in part of interests in the afterlife or other fantasies, in part of artistic problematics and of other extra-economic motives. But long since, and even more today, the emphasis lies on the economic determination of technological development; without rational calculation as the basis of the economy and without extremely specific and concrete economic historical conditions, even a rational technology would never have arisen.
That we did not right from the start explicitly address this contrast between economy and technology follows from the sociological point of departure. From the existence of “continuity,” there follows pragmatically for sociology the evaluation of alternative ends against each other, and of these ends against “costs” (insofar as this involves anything other than the relinquishment of one end in favour of a more urgent one). By contrast, an economic theory would do well to incorporate this point immediately.
5. The attribute of power of disposal must not be omitted from the sociological concept of “economic action,” for an acquisitive economy (Erwerbswirtschaft), if not other forms, operates entirely in terms of contracts of exchange; hence the planful acquisition of powers of disposal. (Through this the relation to “law” is established.) But any other organisation of the economy would involve some kind of actual distribution of powers of disposal, although according to principles quite different from those prevailing in modern private enterprise (Privatwirtschaft) where the powers of disposal provide a legal guarantee to autonomous and autocephalous individual enterprises (Einzelwirtschaften). Either the executive (die Leiter) (socialism) or the members (anarchism) have to be able to count on the power of disposal over available labour and utilities; that can be concealed terminologically, but it cannot be analysed away. Exactly how such disposition is secured—whether by convention or law—or perhaps is superficially entirely unsecured save de facto by virtue of custom or self-interest; this is all conceptually irrelevant, however indispensable legally enforceable guarantees might be for the modern economy. The conceptual indispensability of that category for the economic consideration of social action does not therefore imply a conceptual indispensability for the legal order of powers of disposal, no matter how indispensable these might seem empirically.
6. The concept of “power of disposal” here also means the (factual or otherwise guaranteed) possibility of disposition over one’s own labour power (e.g., in the case of slaves this cannot be taken for granted).
7. A sociological theory of the economy is directly compelled to include the concept of “good” among its categories (as is done in §2). For sociological theory is concerned with the kind of “action” that derives its specific meaning from the outcome of deliberations on the part of the economic actor (which deliberations can only be isolated theoretically). Economic theory, which provides the foundations for the theoretical insights of economic sociology—however much the latter might be forced to create its own structures—can (perhaps) proceed differently.
§2. By “Utilities” (Nutzleistungen) will always be meant those concrete (real or putative) Chancen of present or future possible uses that one or more economic agents deem solely appropriate to become objects of provision, to whose presumed significance as means capable of serving the economic agent’s or agents’ ends his (or their) economic activity is consequently oriented.
Utilities can be services (Leistungen) realised either by a human or a nonhuman (material) intermediary (Träger). These latter material intermediaries for utilities, of whatever kind, are called “goods,” whereas human utilities, insofar as they arise from actual action, are called “services.” Social relationships are also the object of economic consideration insofar as they are thought to represent a possible source of present or future powers of disposal over utilities. “Economic Chancen” are opportunities that arise through custom, interests, or a (conventionally or legally) guaranteed order with respect to an economy.
Compare Böhm-Bawerk, Rechte und Verhältnisse vom Standpunkte der volkswirthschaftlichen Güterlehre (Innsbruck, 1881).12
1. Material goods and services do not exhaust the range of those relationships in the wider world of importance to the economically active person, and which can be an object of provision for that person. There are numerous and varied modes of action—such as the relation of “customer loyalty” or the toleration of economic measures by those who could obstruct them—that can have the same degree of significance for the economic agent and likewise be an object of economic concern and of, for example, contracts. But if these factors were included in the definition of one of these two categories, it would only render our concepts less precise. Our conceptual approach is therefore directed only by practical considerations.
2. As Böhm-Bawerk has properly emphasised, our concepts would likewise become imprecise if we called, without discrimination, all perceptible phenomena of everyday life and language “goods,” hence equating the concept of “good” with material utilities. Strictly speaking, it is not the “horse” or the “iron bar” that constitutes the utility; what is thought worthy of desire is their estimated and supposed possibilities of employment, as a means of towage or carriage, or some such. And those factors that function as Chancen for economic transactions (in buying and selling, etc.) such as “customers,” “mortgage,” and “property”—are most certainly not goods according to this terminology. But the services offered by a (traditional or statutory) order through the prospect of, or the guarantee of, these Chancen of disposition of an economy over material and personal services will, for the sake of simplicity, be called “economic Chancen” (or simply Chancen where this is unambiguous).
3. It is again simply for practical considerations that only positive action will be characterised as a “service” (and so not the “toleration of,” “permission for,” or “refraining from” action). But from this it follows that “goods” and “services” do not exhaust the classification of all utilities thought economically significant.
On the concept of “labour,” see below, §15.
§3. Economic orientation can be traditionally or purposively rational. Even where action has been extensively rationalised, the influence of tradition remains relatively important. As a rule, rational orientation bears primarily on managerial action (see §15), whatever the nature of this management might be. The emergence of rational economic action out of an instinctive and reflexive search for food, or from traditionally accepted inherited technologies and customary social relations, has, to a great extent, been influenced by noneconomic, extraordinary events and deeds, along with the pressure of necessity where there has been an increasingly absolute or (recurrent) relative constraint on the provision of subsistence.
1. Naturally, so far as scholarship is concerned there is in principle no such thing as an “economic state of nature.” It would be possible to agree on the convention of positing and analysing as such a natural state an economy of a specific technical level: one with the least conceivable endowment of tools. But we have no justification for the presumption, based on the economic activity of contemporary remnants of primitive peoples lacking in tools, that all past human groups at the same technological stage conducted themselves in the same way (as, e.g., the Vedda, or some tribal groups in the Amazon basin). From the purely economic perspective, at this stage the possibility existed both of concentrating labour in large groups (see §16 below), or alternatively, of fragmenting into small groups. Besides the imperative of natural economic constraints, the choice between the two could also be impelled by quite varied extra-economic (e.g., military) considerations.
2. War and migration are of course not of themselves economic processes—even if they were in early modern times primarily economically oriented—but they have, right up to the present, often brought about radical changes to the economy. Human groups have responded in very different ways to the increasing absolute constraint on subsistence imposed by climate, desertification or deforestation, depending on the structure of their interests and the influence of noneconomic interests; typically, they have cut back both their subsistence needs and their absolute numbers. The response to an increasing relative constraint linked to a given level of material existence and the distribution of Chancen for gain (see §11 below) has likewise been quite varied, but generally the latter has been met with increased economic rationalisation more frequently than the former. But one cannot generalise on this basis. Although we do not know how far these figures are to be relied on, the massive increase in the Chinese population since the early eighteenth century has had the opposite result to the same and entirely contemporary phenomenon in Europe, for reasons that can, to some extent, be explained. The chronic limitation to subsistence in the Arabian desert has only at certain stages led to change in the political and economic structure, and most strongly when accompanied by extra-economic (religious) developments.
3. The strong and enduring traditionalism that, for instance, marked the conduct of life among early modern craftsmen (Arbeiterschichten) presented no obstacle to the rapid increase in the rationalisation of acquisitive economic activity (Erwerbswirtschaften) through capitalist management, nor for example to the fiscal and social rationalisation of state finances in Egypt. (Nevertheless, it was that traditional conduct in the Occident whose relative supersession first made possible the further development of a specifically modern, rational capitalist economy.)
§4. Typical13 measures of rational economic activity are:
1. The planful distribution between present and future (saving) of those utilities on which the economic agent, for whatever reason, believes he can rely.
2. The planful distribution of available utilities among several possible employments ordered according to their estimated significance—according to their marginal utility.
These (strictly speaking “static”) cases achieved their greatest extent in times of peace, and today mostly arise in the form of the allocation of money incomes.
3. The planful procurement—manufacture and transport14—of those utilities for which all such means of procurement are at the disposition of the economic agent. A specific act is rational when the estimated urgency of a desire for an anticipated outcome exceeds the estimated requisite outlay, that is, (1) the requisite exertion; but also (2) the other possible uses of the goods concerned, hence the alternative technologically possible final products (this is production in the broader sense, including transport services).
4. The planful acquisition of secure powers of disposal or associated powers of disposal over such utilities that
α. are themselves at the disposal of others, or
β. whose means of procurement are at the disposal of others; or which
γ. are subject to such competition from others as might tend to jeopardise provision for oneself—
by forming a sociation (Vergesellschaftung) with the current holder of the power of disposal or with competing providers.
Such an associative relationship with the current alien holder of powers of disposal can be effected
a) through the formation of an organisation (Verband) to whose order the procurement or use of utilities should be oriented;
b) through exchange.
With respect to a): the ordering idea of an organisation can be:
α. The rationing of procurement, of use, or of consumption to restrict competition with regard to means of procurement (a regulatory organisation);
β. The creation of a unitary power of disposal concerned with the planful administration of those utilities hitherto held separately (an administrative organisation).
With respect to b): exchange represents compromise between the interests of exchanging partners, in which goods or Chancen are given as mutual compensation. Exchange can be
1. traditional or conventional, hence (in the second case) not economically rational; or
2. sought and concluded according to a rational economic orientation. Every rationally oriented exchange concludes a hitherto open or latent conflict of interest by compromise. The contest over exchange between interested parties, which finds its conclusion in compromise, is always directed first as a contest over price with the prospective party considered to be an exchange partner (the typical means employed here is haggling). Second, it is also a competitive context, with real or possible, present or future anticipated third-party prospective buyers with whom there is competition over procurement (the typical means here is under- and overbidding).
1. An economic agent has exclusive disposal of utilities (goods, labour, or other such bearers of utility) where their use, more or less at will, without the intervention of third parties, can in fact be freely relied on (at least relatively so); whether this Chance depends on a legal order, convention, custom, or given interests is of no account. Mere legal security of such disposal is in no respect the exclusive conceptual precondition for economic activity, even if this is today the actual empirically indispensable precondition with respect to material means of procurement.
2. Incomplete fitness for consumption can also be due to the spatial distance of goods fit for consumption from the place of consumption. Goods transport (as opposed to trade in goods, which involves a change of powers of disposal) can therefore here be treated as a part of “production.”
3. Where personal disposal of utilities is lacking, it is in principle irrelevant how the economic agent is typically prevented from forcefully gaining access to the powers of disposal of another—whether this be through a legal order, by convention, or through intrinsic interests, or through established custom or by consciously cultivated conceptions of morality and good conduct.
4. Competition in procurement can take the most various forms. This is especially true of provision through occupation: hunting, fishing, felling timber, pasture, and land clearance. It can also, and especially, occur within an organisation closed to the outside world. The measures adopted in this case are always: rationing of provision, regularly linked to the allocation15 of procurement Chancen guaranteed in this way to a definite and limited number of individuals or (usually) householding groups (Hausverbände). All agricultural and fishery cooperatives, the regulation of common rights of land clearance, of pasturage, and of woodland, the “manuring” of alpine pasture, and so forth, are of this type. All kinds of heritable “property” in usable land have developed from this.
5. Exchange can include anything that can in some way be “transferred” into the possession of another and for which a partner is prepared to make compensation. It is not therefore confined to “goods” and “services,” but includes economic Chancen of all kinds, such as regarding a “clientele” access to which depends entirely on custom or interest, without any kind of guarantee. And extending of course to all Chancen that are in some way guaranteed by a particular order. The objects of exchange are not therefore only actually existing utilities. Provisionally, for our purposes, in the widest sense exchange includes every offer based on a formally free agreement of existing, continuing, current, or future utilities, of whatever kind, for reciprocal recompense of whatever nature. It can, for example, involve the dedication or disposition of utilities or money for a consideration16 against the future return of similar goods; or the procurement of some kind of permission; or the surrender of the “use” of an object against a “rent” or a “lease,” or the leasing of services of all kinds against a wage or salary. For the time being, we will leave to one side the fact that today, from the sociological point of view, this last-named procedure means for the “worker” as defined in §15 subjection to the authority of a ruling organisation, together with the distinction between “loan” and “purchase,” and so forth.
6. The conditions of exchange can be traditional, and hence conventional, or they can be determined rationally. Conventional acts of exchange were the exchange of gifts by friends, heroes, chiefs, or princes (e.g., the exchange of armour between Diomedes and Glaucus), which, it should be said, were not infrequently strongly rational in orientation and control (cf. the Tell el-Amarna letters).17 Rational exchange is only possible if both parties hope for advantage therein, or if one party is under duress through privation or lack of economic power. Exchange can (see §11) be entered into for the purposes of provisioning in natura, or of acquisition; hence, personally providing the exchanging party or parties with a good, or alternatively, being oriented to Chancen for profit in a market (see §11). In the former case, the conditions of exchange are mostly defined individually, and hence in this sense are irrational: the importance of household surpluses are, for example, assessed with respect to their individual marginal utilities for the particular household economy in question, and probably given a low value in exchange—while the passing demands of the moment do sometimes have a very great influence on the marginal utility of goods sought in exchange. The limits on exchange set by marginal utilities therefore fluctuate very greatly. Rational competition through exchange can only develop with respect to goods that are actually on the market (for this concept, see §8), and finds its most elaborated form where goods are employed or offered for exchange on an acquisitive basis (see §11).
7. The interventions of a regulatory organisation noted in a)α are not its sole possible actions, but rather those that need to be dealt with here, since they arise most directly from a vulnerability in the meeting of needs. The regulation of sales will be dealt with later.
§5. An economically oriented organisation can, depending on its relation to the economy, be either
a) an organisation engaged in economic activity (wirtschaftender Verband)—if the orientation of the group’s primarily noneconomic activity also includes such economic activity;
b) an economic organisation (Wirtchaftsverband)—if the activity being regulated by the order of the organisation is primarily autocephalous economic activity of a particular kind;
c) an organisation regulating an economy (wirtschaftsregulierender Verband)—if and to the extent that the autocephalous economic activity of members of the group is materially and heteronomously oriented to the order of the organisation; or
d) an ordering organisation (Ordnungsverband)—if the order only formally provides norms in the form of rules for the autocephalous and autonomous economic activity of the organisation’s members, and the Chancen thereby gained guaranteed.
The material regulation of economic activity finds its factual limit where the continuation of a particular economic behaviour remains compatible with the vital subsistence interests (Versorgungsinteressen) of the regulated economic activity.
1. Organisations engaged in economic activity are the “state” (although not a socialist or a communist state) and all other organisations (churches, associations, etc.) having control of their own financial organisation, but also, for instance, educational institutions that are not primarily economic unions (Genossenschaften), and so forth.
2. Economic organisations are, of course, in the sense of the terminology used here, not only those organisations commonly identified as such, as, for example, business organisations and stock companies, consumer associations, artels,18 cooperatives, cartels, but also in general all those “enterprises” that bring together the action of several persons, from the workshop shared between two craftsmen to a conceivable worldwide communist association.
3. Organisations regulating an economy are, for example, rural cooperatives, guilds, corporations, trade unions, employers’ associations, cartels, and all organisations whose leadership directs an “economic policy” that materially regulates the substance and goal of economic activity, hence medieval villages and towns that were driven by a policy of this kind just as much as is the modern-day state.
4. A purely ordering organisation is, for instance, the state based on the rule of law (Rechtstaat), which allows the economic activity of individual households and enterprises to be conducted entirely autonomously, and regulates the conduct of freely agreed exchange obligations only in the formal sense of adjudicating disputes.
5. The existence of organisations that regulate economies and provide order presupposes in principle the (varying degree of) autonomy of economic agents. In other words, in principle it presupposes a freedom of economic agents to make whatever dispositions they wish, subject to varying degrees of restraint imposed by statutes to which the agents must orient themselves. This implies the (at least relative) allocation (Appropriation) of economic Chancen to those who have autonomous disposal over them. The purest type of ordering organisation therefore exists where all human action is substantially autonomous and is only oriented to formal statutory conditions, where all material bearers of utilities are fully appropriated in such a way that there is free disposal over them, especially with regard to exchange, which conditions correspond to the typical form of modern property holding. Any other way of delimiting appropriation and autonomy involves economic regulation, since it constrains the orientation of human action.
6. The distinction of economic regulation from a simple ordering organisation is fluid. For the nature of a “formal” order can (and must) in some way materially influence action, and in some circumstances very materially. Numerous modern legal statutes that purport to be no more than formal rules are so constructed that they do indeed exert such an influence (this will be discussed in the treatment of legal sociology).19 Moreover, a genuinely rigorous limitation to pure statutory conditions is only possible in theory. Many “compelling” legal principles—and such rules can never be dispensed with—imply in some way or other important restrictions for the mode of material economic activity. The “enabling provisions” (e.g., in the law governing shareholding) do, in some cases, involve quite tangible limitations to economic autonomy.
7. The limitation of the effects of material economic regulation can be expressed as (a) the cessation of various kinds of economic activity (the cultivation of land only for private use occasioned by sales taxes); or (b) factual evasion (covert trading).
§6. A means of exchange is a material object accepted in an exchange that is typically and primarily oriented to the persisting chance that it can, for the foreseeable future, be given in exchange for other goods; presuming that this exchange corresponds to the interest of participants, whether this exchange be for all such goods (general means of exchange) or only for particular goods (specific means of exchange). The Chance of acceptance in a calculable exchange relationship for other (specifiable) goods will be called the “material validity of the means of exchange in relation to these goods,” and “formal validity” its employment in exchange as such.
A typical object will be called a means of payment inasmuch as its use guarantees, conventionally or legally,20 the valid fulfilment of particular agreed on or imposed obligations (the formal validity of means of payment, which can at the same time mean its formal validity as a means of exchange).
Means of exchange or of payment will be called chartal21 if they are artefacts that have, within a personal or regional domain, been lent a conventional, legal, agreed on, or compulsory degree of formal validity and that have been broken down into specific units, that is, have a specific nominal value, or are either a multiple or a fraction of this value, purely mechanical calculation in terms of this nominal value being thereby facilitated.
Money is a chartal means of payment that is a means of exchange.
An organisation may be capable of conventionally or legally (formally) enforcing to a relevant degree, within the domain under its own control, the validity of means of exchange, means of payment and money, and to the extent that it is capable of so doing, it will be called an “exchange,” “payment,” or “money organisation validating the money, means of exchange, and payments internal to the group.” Means of exchange employed in transactions involving nonmembers of the group will be called “external means of exchange.”
Nonchartal means of exchange and payment are those that are in natura. These can be differentiated as follows:
a) technologically
1. with respect to the natural good that they represent (especially jewellery, clothing, useful objects, and apparatus); or
2. according to their use or otherwise by weight (pensatorisch);22
b) economically: according to their employment—
1. primarily for purposes of exchange or of status (the prestige conferred by ownership);
2. primarily as a means of domestic or foreign exchange, or as a means of payment.
Money and means of exchange and payment are tokens (zeichenmäßig) insofar as they do not (as a rule, no longer) possess value on their own account beyond their use as a means of exchange or of payment;
and substantial (stoffmäßig), insofar as their material valuation is, or can be, influenced by estimation of their employability as usable goods.
Money is either
a) monetary (coinage) or
b) paper (legal instrument).
Paper money tends to conform to the pattern of monetary coinage, or its nominal values are historically related to such coinage.
Coin will be called
1. free money or commercial money (Verkehrsgeld) when at the initiative of a possessor of monetary material an issuing office is prepared to transform it into any desired amount of chartal coinage, hence such payment is oriented to exchanging parties’ need for means of payment;
2. restricted or administrative money if transformation into chartal form depends primarily on the agreement of an organisation that, while formally free, is primarily oriented to the material financial needs of the group’s administrative executive, and is effected at its will;
3. regulated if, although restricted, the nature and extent of the creation of money is effectively regulated by norms.
A legal instrument functioning as paper money will be called a circulating medium if its acceptance as “provisional” money is oriented to the Chance that its exchange on demand for “definitive” coin or a given weight of monetary metal is secured under all normal conditions. It is called a certificate if this is defined by regulations securing complete cover in coin or metal for reserve holdings.
Scales of exchange or payment will refer to the conventionally or legally obligatory reciprocal values of particular means of exchange and payment in natura within an organisation, laid down as a fixed tariff.
Currency is the money form that a monetary organisation endows as such as a means of payment with unlimited validity; monetary material is the material from which a money form is made; and currency metal is the same in the case of money used in commerce. The monetary tariff is the valuation underlying the division and denomination of money forms differing in natural material or administrative uses; the currency relation is the same with regard to money used in commerce but being composed of differing materials.
Intercurrency means of payment is that means of payment that ultimately (if payment is not deferred) serves to settle transfers between different monetary authorities.
Every new ordinance of a monetary organisation is inevitably based on the fact that particular means of payment have been used for debt. The ordinance either legalises the means of payment or—through the forcible introduction of a new means of payment—recalculates units that had hitherto been denominated in kind, by weight, or as chartal forms into the new units (the principle of the so-called historical definition of money as a means of payment). Here we leave to one side entirely the extent to which such an ordinance affects the substitutability of money as a means of exchange involving goods.
It should be emphasised here that these remarks are not intended as contributions to a “theory of money,” but seek to establish as simple a terminology as might be possible for future use. Furthermore, we are primarily concerned here with certain quite elementary sociological consequences of the use of money. (The material theory of money I generally find most acceptable is that of von Mises. G. F. Knapp’s Staatliche Theorie des Geldes—the greatest achievement of monetary economics—brilliantly fulfils its formal demands, but for material issues related to money, it is incomplete; see below. Here we leave to one side its very welcome and terminologically valuable casuistry.)
1. Means of exchange and of payment have often coincided historically, but not always. This does not apply in primitive stages, for instance. The medium of payment with respect to dowries, tribute, obligatory gifts, fines, wergild, and so forth, are often clearly defined by convention and in law, but without regard to the actually existing medium of exchange. Von Mises’s claim in Theorie des Geldes und der Umlaufmittel23 that even the state only seeks a means of payment so that it can be used as a means of exchange is only true of circumstances in which an organisation’s budget is expressed in monetary terms. It does not apply to cases in which the possession of particular means of payment were primarily a mark of social rank (on this, see H. Schurtz, Grundriß einer Entstehungsgeschichte des Geldes).24 With the initiation of state monetary statutes, means of payment became the legal concept, and means of exchange, the economic concept.
2. The boundary between a “commodity” bought only with a view to future Chancen for resale and a “means of exchange” is apparently a fluid one. In fact, certain objects tend to monopolise so exclusively the means of exchange function that their role as such is unambiguous—and this is true even under otherwise primitive circumstances. (In this sense, “wheat futures” will find an ultimate buyer, but are not a means of “payment,” nor even of “exchange,” nor are they entirely “money.”)
3. The origin and nature of a means of exchange is in itself (so long as chartal money does not exist) mainly defined by custom, interest, or conventions of every kind to which the agreements of exchanging parties are oriented. The foundations from which a means of exchange acquired this quality will not be treated in detail here, but they were quite various, altering in line with the nature of the particular exchange in question. Not every means of exchange was necessarily universally applicable to every kind of exchange (not even within the circle that employed it as such)—cowry “money” was, for instance, not a specified means of exchange for women and cattle).
4. “Means of payment” that were not the usual “means of exchange” have sometimes played a considerable role in the advancement of money to its particular position. The “fact” that debt existed (G. F. Knapp)—tribute debt, dowry and bride price debt, conventional presents owed to kings or between kings, wergild debt—and that this often (although not always) had to be settled with particular kinds of goods, whether this was conventionally or legally enforced, lent these kinds of goods a special status. Not infrequently, the form of such artefacts was specified.
5. A one-fifth shekel piece stamped by a trading house (as recorded in Babylonian documents) could serve as “money” in the sense used here, assuming that it was a means of exchange. By contrast, ingots that were used purely for their weight and not broken up into pieces should not be called “money,” but instead means of exchange and payment by weight, no matter how extraordinarily important the fact of their capacity to be weighed was for the development of “calculability.” The transitional forms, such as the acceptance of coin by weight only, are naturally very extensive.
6. “Chartal” is a term introduced in Knapp’s Staatliche Theorie des Geldes. To this belong all kinds of minted and coined money forms, metallic and nonmetallic, rendered valid by legal regulation or simple agreement. It is not, however, obvious why the concept derives solely from proclamation on the part of a state, excluding, therefore, acceptance secured by convention or compulsorily agreed. Nor can production using the state’s own resources, or under political control, be considered a decisive feature—this was entirely absent in China, and only partially true of medieval Europe—so long as standards for the monetary form exist (a view with which Knapp concurs). Within the domain controlled by a political organisation, legal statute is capable of enforcing validity as a means of payment and formal use as means of exchange in domestic commerce. See below.
7. Means of exchange and payment in natura are mostly partly the one and partly the other, and likewise partly employed domestically and partly in foreign trade. The details of this do not belong here; nor, yet, does the question of the material validity of money.
8. Nor does a material theory of money in relation to price belong here (to the extent that it has any place in economic sociology). For the time being, it is sufficient to establish here the facts of money use in its principal forms, since we are concerned with the general sociological consequences of what is, from the economic perspective, in itself a formal fact. We might, however, note that “money” never is, nor can be, only an innocuous “remittance,” nor a merely nominal “unit of calculation,” so long as it is, in fact, money. Its actual valuation is a very complex matter, which valuation is also always a matter of scarcity (or during periods of inflation, abundance), as is currently evident, and which is also clear throughout the past.
A socialistic “certificate of remittance” valid for particular goods and based on a particular quantity of “labour” considered “useful” could be an object either of reinvestment or exchange, but would conform to the rules of a (probably indirect) exchange in kind.
9. The far-reaching consequences for the economy of relationships between the monetary and nonmonetary use of a technical monetary substance can be traced most clearly in Chinese monetary history, since for copper coinage significant manufacturing costs and major fluctuations in the yield of monetary material render these conditions especially plain.
§7. The primary consequences of the typical use of money are
1. so-called indirect exchange as a means of meeting consumers’ needs. This means the possibility of (a) local, (b) temporal, (c) personal, and (d) (also of great significance) quantitative separation of the goods to be given in exchange from those whose possession is desired in return. This leads to an extraordinary extension of existing possibilities for exchange, and related to that
2. the measurement of deferred payments (Leistungen), especially of reciprocal payments (debts) in exchange as sums of money;
3. the so-called store of value—the accumulation of money in natura, or as claims for payment on demand, as a way of securing a future power of disposal with respect to Chancen of conversion;
4. the increasing transformation of economic Chancen into Chancen to control sums of money;
5. the qualitative individuation, and hence, indirectly, extension of the capacity to meet the needs of those who control money, or claims to money, or the Chance to acquire money, and thereby the Chance to offer money for any desired goods and services;
6. today’s typical orientation of the creation (Beschaffung)25 of utilities to the marginal utilities of the sums of money that the directing authority of an economy presumes to be able to control in a foreseeable future, and hence:
7. the orientation of acquisition to all Chancen offered by temporally, locally, personally, and materially multiplied possibilities for exchange (§7.1). This arises on the basis of what is in principle the most important element of all, namely,
8. the possibility of valuing in money all goods and services deemed suitable for giving or receiving in exchange: monetary calculation.
Monetary calculation means, materially, first of all that goods are not simply valued as utilities with respect to their current, local, and personal significance. Rather, the nature of their employment includes, whether as a means of consumption or of production,26 all future Chancen of realisation and evaluation for the purposes of a potentially indefinite number of third parties, inasmuch as they express for the holder of powers of disposal over such goods accessibility to a Chance for exchange against money. The form in which this happens for typical monetary calculation is the market situation.
The foregoing outlines only the most simple and well-known elements of discussions of “money” and is therefore in need of no commentary. The sociology of the “market” will not be pursued here, but [will be taken up] later (on the formal concepts, see §§8, 10).
“Credit” in the most general sense is any exchange of current powers of disposal over material goods, of whatever kind, against a pledge to return such powers in the future. The advancement of credit implies initially an orientation to the Chance that this future transfer will in fact occur. In this sense, credit means the acquisition through exchange (Austausch) by an economy of a power of disposal that is currently absent, but anticipated to be abundant in the future, over material goods or money currently in possession of another, and hence not available for one’s own use. Here rationality indicates that both economies hope for better Chancen (of whatever kind) than would be furnished by the current distribution before any such exchange took place.
1. The Chancen taken into account by no means have to be economic in nature. Credit can be given and taken up for all conceivable (charitable, martial) ends.
2. Credit can be advanced or taken up either in kind or in money, and for both cases in return for services rendered in kind or in money. The money form does, however, imply the monetary calculability of the advancement and taking of credit, with all ensuing consequences (which will be discussed directly).
3. It should also be noted that this definition corresponds to that in everyday use. It goes without saying that credit relations can exist between organisations of any kind, especially socialist or communist organisations, and is unavoidable where several noneconomic autarchic organisations exist alongside each other. There is, however, a problem with rational calculation where there is a complete absence of the use of money. For the mere (indisputable) fact that offsetting transactions are possible would imply nothing for the parties involved with respect to the rationality of conditions of any guarantee, especially in the case of long-term credit. They would, for instance, be in the position of oikos economies (see below), exchanging their surpluses for necessities, but with the difference today that enormous mass interests would be at stake, especially long-term interests. For the poorer sections of the masses, the marginal utility of goods capable of satisfying their immediate wants is especially high. Hence, there is the Chance of making unfavourable bargains over urgently needed goods.
4. Credit can be taken up for the purpose of satisfying current consumption needs that are inadequately fulfilled (consumption credit). In the case of economic rationality, this will only be advanced against the concession of advantages. But the earliest forms of consumption credit, especially emergency credit (Notkredit), originated rather with an appeal to fraternal obligations. (See the discussion of neighbourhood groups in Chapter 5.)27
5. The most general basis for advancing credit in money or in kind for reward is obvious: the party advancing credit, being in a better material situation (which is a relative concept, it should be noted), generally assigns a higher marginal utility to future expectations than does the borrower.
§8. The market situation of an object of exchange is the totality of the identifiable Chancen of giving and receiving that object in return for money, Chancen known to potential exchanging parties oriented to conditions in which price and competition are contested.
Marketability is the degree of regularity with which a given object tends to become a marketable object of exchange;
Market freedom is the degree of autonomy enjoyed by individual potential participants in exchange where price and competition are contested;
Market regulation is, by contrast, the effective and material statutory limitation of the marketability of possible objects of exchange, or of the market freedom enjoyed by potential participants in exchange. Market regulation can be
1. simply traditional in nature, with agents becoming accustomed to traditional restrictions on exchange, or to traditional conditions of exchange;
2. conventional, by social disapproval of the marketability of particular utilities, or by disapproval of the subjection of particular objects of exchange, or of groups of people, to open competition with respect to price or any other factor.
3. legally, through effective legal restriction of exchange, or the freedom of price or any other form of open competition, whether in general, or for particular groups of people, or for particular objects of exchange, such restrictions being intended to influence the market situation of objects of exchange (price regulation), or the restriction of ownership, acquisition, or transfer of rights of disposal over goods to certain groups of people (legally guaranteed monopoly, or the legal limitation of the freedom of economic activity);
4. voluntaristic, that is, related to the given constellation of interests, with material market regulation in a formally free market. This tends to arise when particular parties interested in exchange, by virtue of their more or less entirely exclusive Chance of either possessing or acquiring powers of disposal with regard to specific utilities (monopoly), are placed in a position to influence the market situation by effectively blocking the market freedom of others. In particular, they are to this end able to create agreements among themselves and / or with typical exchanging parties to regulate the market (voluntary monopoly and price cartels).
1. It is expedient, but not absolutely necessary, to refer to market situation only where monetary exchange prevails, since it is only under such conditions that a unitary expression by number is possible. “Exchange Chancen” in natura are better described as such. Individual objects of exchange have been, and today remain, marketable to a quite varied and variable degree, assuming the existence of typical monetary exchange—although this will not be dealt with here in any detail. Standard articles of mass production and of consumption are the most marketable; unique objects for which there is only a passing interest are the least marketable. Durable consumer goods (Versorgungsmittel) capable of being repeatedly used over a long period, production goods with lasting, profitable use, and above all, usable areas of land suited to agriculture or forestry are far less marketable than everyday goods ready for immediate consumption, or means of production capable of rapid depreciation, or even capable of one-off use or quick returns.
2. The rational economic meaning of market regulation has grown historically alongside the increase in formal market freedom and universal access to the market. The primary forms of market regulation were determined partly by tradition and magic, partly by kinship networks, partly by social standing, partly by military concerns, partly sociopolitically, and finally, partly by the needs of the rulers of organisations. Whatever particular form this took, market regulation was governed by interests that were not oriented by any inclination towards a purely purposively rational maximisation of market-related Chancen for acquisition and goods provision on the part of those involved in market relations; often these interests ran entirely counter to such an orientation. They excluded either
- particular objects from markets on a permanent basis, or from time to time as in maximum price regulations covering goods such as grain; these restrictions originated in magic, kinship, or social standing (respectively, e.g., through taboo, ancestral estate, and knight service). Or its terms specified that kin, persons of similar social rank, members of guilds and corporations, and fellow citizens should be given first choice; or specified maximum prices (e.g., during wartime); or alternatively, minimum prices, to be paid as a point of honour by those of high social standing, such as wizards, lawyers, and doctors. Or market regulations
- excluded certain categories of person (nobles, peasants, and in some circumstances craftsmen) from participation in market-based acquisition in general, or for particular objects. Or
- they imposed restrictions on consumption (use according to social rank, rationing during time of war or of high prices) and thus limited market freedom for consumers. Or
- they limited their competitors’ market freedom for reasons of social rank (e.g., independent professions), consumption or acquisition policy, or social policy (“sustaining the guilds”). Or
- they employed the political power of ducal monopolies, or concessions granted by virtue of this power (typical for early capitalist monopolists) to limit access to specific economic Chancen.
Of these five market regulation categories, the fifth had the greatest degree of market rationality, whereas the first had the least. That is to say, in the fifth category the orientation of the economic activity of those particular strata interested in the sale and purchase of goods in the market furthered the market situation—while the remaining four categories, in reverse order, presented obstacles of increasing severity to the market situation. With respect to these market regulations, those interested in market freedom were all those prospective exchanging parties who must have had an interest in the greatest possible degree of free entry to the goods market, whether these interests were on the side of sale or purchase. Voluntary market regulation first emerged, and in time had by far the greatest impact, on those interested in making gains. Serving monopolistic interests, they included
- regulation of Chancen for sale and exchange (typical here was the universality of merchants’ monopolies);
- Chancen for gain with respect to transport (monopolies of sea-going trade and railway monopolies);
- the manufacture of goods (producer monopolies); and
- the advancement of credit and finance (banking and rate-fixing monopolies).
The last two of these usually implied a greater degree of involvement in market regulation on the part of the organisation, or in any case, a planful orientation to market situations in comparison with initial and irrational forms of market regulation. Voluntary market regulation was quite regularly based on interests whose prominent and actual control (Verfügungsgewalt) over means of production facilitated their monopolistic exploitation of formal market freedom. By contrast, voluntary consumer organisations (e.g., consumer associations, purchasing cooperatives) were formed by economically weak parties seeking cost savings for members but succeeding in establishing effective market regulation only in a very local and limited fashion.
§9. The formal rationality of economic activity can be characterised here as the degree of calculation that is technologically possible for that activity, and the extent to which it is actually applied. By contrast, the substantive rationality of economic activity concerns the degree to which the given supply of goods for particular human groups (however delimited), organised through economically oriented social action, was, is, or could be subjected to particular evaluative postulates (however constituted). These postulates are extremely ambiguous.
1. The formulation suggested here (which is only a more precise rendering of a recurrent problem in debates on “socialisation” and calculation “in money” or in natura) is solely intended to introduce a greater degree of clarity regarding use of the word “rational” in this area.
2. Economic activity is formally “rational” to the degree that vital “provision” for any rational economy can be, and is, expressed by numerical, “calculable” estimation (initially quite independently of what technical form these calculations take, whether, that is, they are expressed as monetary calculations or calculations in natura). This concept is therefore at least unambiguous (although as we shall see, only relatively unambiguous) insofar as the monetary form represents the maximum of formal calculability (and of course, ceteris paribus!).
3. By contrast, the concept of substantive rationality is thoroughly ambiguous. It merely states the following common attribute: that we cannot confine ourselves to establishing the purely formal and (relatively) unambiguous fact that the most technologically adequate means are employed in purposively rational calculation, but that ethics, politics, utilitarianism, hedonism, social rank, egalitarianism, or whatever else, introduce some other requirements and so measure the outcomes of economic activity against a value-rational standard, or substantive purposively rational standards, no matter how formally “rational,” that is, calculable, this activity might be. The number of possible standards of value that are here rational in this sense is in principle quite without limit, and those value standards underlying the not unambiguous socialist and communist standards, which are themselves always in some respects ethical and egalitarian, constitute of course only one group among this great variety (social ranking, services related to political power, especially current military aims and all conceivable alternative perspectives are in this sense all “substantive”). We should also note that quite independently of this substantive critique of the economic outcome, there is, moreover, the possibility of an ethical, ascetic, aesthetic critique of an economic disposition (Wirtschaftsgesinnung), as well as one of economic means. For all of these, the “merely formal” implementation of monetary calculation can seem an entirely subordinate consideration, or even inimical to its principles (quite apart from the consequences of the specifically modern form of calculation). No decision can be made here as to what “formal” should mean; we can only assess and delimit the concept. Substantive is thus here also a formal, that is, an abstract, generic concept.
§10. From the purely technical point of view, money is the most “comprehensive” means of economic calculation, that is, the most formally rational means for the orientation of economic action.
Monetary calculation, and not the actual use of money, is hence the specific means of purposively rational economic provision. Where rationality is most fully developed, however, monetary calculation primarily means
1. the assessment of all utilities or means of production, or any otherwise relevant economic Chancen considered necessary for purposes of provision—whether they are now, or will be in the future, actually or possibly available, or obtainable from others in whose possession they find themselves, or which have been lost, or are in danger of being lost—in terms of the (actual or expected) market situation;
2. numerical determination, in the form of a monetary account of costs and yields comparing the various possible outcomes of (a) the Chancen presented by any intended economic action, and (b) the evaluation of the success of any completed economic action, together with a comparative examination, using these calculations, of the estimated “net return” of various options;
3. a periodic comparison of the totality of goods and Chancen available to an economic entity with those that had been available at the beginning of the period, both being expressed in money;
4. estimation in advance, and subsequent confirmation, of all monetary (or monetisable) costs and yields in any one period that an economic entity has the prospect of using while maintaining the estimated monetary value of the totality of means available to it (no. 3 above);
5. orientation of the actual provision of items of need to these data (1–4), using the money available in the accounting period (as in 4) for these desired utilities according to the principle of marginal utility.
The continuous use and procurement of goods (either by production or exchange), whether for (1) the purposes of one’s own provision, or (2) obtaining other goods used by oneself, is called householding.28 For a solitary household, or a group acting economically as a single household, the rational foundation for their activity is the household budget, which states how the anticipated needs in one budgetary period (the need for utilities or for means of production for its own use) will be covered by expected income.
The income of a household is the sum of goods calculated in money that, employing the accounting principle stated in 4. above, can be rationally calculated to have been available to it in a previous period, or for which there is the Chance of such availability in a current or future period according to rational assessment.
The total calculated sum of goods at the disposal of a household for its permanent and direct use, or for the acquisition of income (estimated in market Chancen as in 3.), is called its wealth.29
The premise of purely monetary budgetary accounting is that income and wealth consist either of money, or of goods that can in principle be exchanged at any time for money, and hence are to the highest degree absolutely marketable.
Householding and (its rational expression) the household budget also includes calculation in natura, which will be discussed below. The household’s “wealth” cannot be uniformly and completely estimated in money, nor does the household have a uniformly monetisable “income.” Calculation in natura reckons in terms of the possession of natural goods and (considering only peaceful acquisition) in terms of concrete “incomes” arising from the employment of specific types of available goods and labour power, which specific types are deployed as a means for the assessment and realisation of an optimum in providing for need. The nature of this employment remains, for definite and given needs, a relatively simply and purely technical problem, so long as the state of such provision does not require an exactly calculated determination of optimum utility in the employment of means available for the meeting of needs that involves a comparison of the very heterogeneous possible forms of such employment. But there are demands for which even in the simple, self-sufficient individual household a formal, exact calculated solution has quite definite limits and which tend to be resolved either in a traditional manner or by using very rough approximations that are certainly quite adequate for relatively typical, tangible needs and conditions of production. If the household’s possessions consist of heterogeneous goods (which has to be the case where exchange is not an element in economic activity), calculative, formally exact comparison between stock at the beginning and at the end of a budgetary period can be made only with respect to qualitatively similar goods—and likewise with the comparison of income Chancen. In this circumstance, it is typical to compose a total stock of assets in natura, excluding consumed allowances in natura, whose presumed permanent availability is not thought to involve any reduction of the total stock. Any alteration to the state of provision (e.g., by a failed harvest) or to that of needs makes redisposition necessary, since it alters the marginal utilities involved. Where these conditions are straightforward and simply grasped, such an adaptation can be easily effected. For more complex cases, however, it is technologically more difficult than with monetary calculation, for which (in principle) every shift of price Chancen influences only marginal needs on the scale of urgency that are met by the final units of money income.
The calculation of marginal utility, which is relatively simple when agents have access to monetary wealth and money incomes and can order needs with regard to their degree of urgency, becomes extremely complex where calculation in natura is entirely rational, unbound by tradition. In the first case, the response to a “marginal” problem is simply to apply more labour, or to vary the choice made among needs and the goods capable of satisfying them (which in purely monetary budgeting, ultimately takes the form of “cost” comparisons). But this is very difficult for calculation in natura, for besides ordering needs by their degree of urgency it also has to take account of
1. the potential differential employments of means of production, together with that of the previous total volume of total labour employed, each type of employment altering the (variable) relation between the provision for need and the expense involved, and hence
2. the amount and kind of new labour in which the householder would have to engage to secure new incomes; and
3. the different ways of employing material effort where there is variation in the ways of providing the relevant goods.30
One of the most important matters for economy theory is analysing the rational possible form of these estimations; and for economic history, tracing the manner in which, through the course of historical epochs, budgeting in natura has actually dealt with these issues. In sum, it can be said that
1. in general, the degree of formal rationality has never actually attained the actual (or theoretically possible) maximum and the overwhelming majority of household accounting in natura remained perforce bound to tradition;
2. hence, large households, precisely because there was no extension and increased refinement of everyday needs, tended to find non-everyday, mainly artistic, employment for their material surpluses (which is the basis of the culture of style and art in the era of naturally based economies).
1. “Wealth” is not, of course, only made up of material goods. Rather, the wealth of its holder includes all Chancen of powers of disposal reliably secured, whether by custom, interest, convention, or law (and even a business’s “clientele”—whether the business is that of a surgeon, a firm of solicitors, or the retail trade—is a part of the “wealth” belonging to the owner if, for whatever reason, they can be relied on, and where these are legally appropriated, they can of course be “property” as defined in Chapter 1, §10).
2. One typically finds monetary calculation without actual money use, or where its use is limited to residual uncompensated surpluses in natura arising on sides of an exchange of goods, in Egyptian and Babylonian documents where monetary calculation is the measurement of a payment in natura. The Hammurabi codex, as well as late Roman and early medieval law, typically gave the debtor permission to make good the calculated monetary shortfall: in quo potuerit. (The recalculation can only have been made on the basis of traditional prices, or local prices laid down by decree.)
3. Otherwise, the above only reiterates well-known points for the purpose of presenting a clear definition of the concept of the rational “household” before turning to the contrasting concept of the rational acquisitive economy (Erwerbswirtschaft), which will be introduced next. The aim is to express absolutely clearly that both are possible as rational forms and that, rationally, “subsistence” is not necessarily a more “primitive” category than “acquisition”; “wealth” is not necessarily a more primitive category than “capital”; and “income” is not necessarily a more primitive category than “profit.” Historically, and with regard to the consideration of economic matters that prevailed in the past, “householding” naturally comes first.
4. The form taken by the “household” is a matter of indifference. Both a “state budget” and a worker’s budget come under the same category.
5. Householding and acquisition are not mutually exclusive alternatives. The action of a “consumers’ association” is normally based on householding; it is not, however, a householding enterprise, but with regard to the form of its activity a commercial enterprise without a material acquisitive purpose. An individual’s action can combine both householding and commercial activities (the typical case in the past); it is only the concluding deed (consumption or sale, respectively) that decides the meaning of the process (this is especially true of small farmers). Exchange based on householding (acquisition for consumption, sale of surpluses) is a part of the household. The household (of a duke or a landowner) can include commercial activity (Erwerbsbetriebe) in the sense of §11 following, and was, in earlier times, typical: entire industries grew out of such heterocephalous and heteronomous “subsidiary enterprises” that were established by landowners, monasteries, and rulers for the exploitation of forest and agricultural products. All kinds of “enterprises” are even today an element of communal as well as state economies (Haushaltungen). Where rational calculation is employed, “income” is of course only the “net profit” of those enterprises that the household has at its disposal. It is also possible that commercial enterprises will attach to themselves fragmentary and heteronomous “households” (“welfare institutions,” housing, kitchens) so that, for example, they might feed their slaves or wage labour. “Net profits” are (no. 2) monetary surpluses minus all money costs.
6. The significance of calculation in natura for general cultural development could only be dealt with here in a very preliminary manner.
§11. Acquisition31 is behaviour oriented to the Chancen of gaining a new power of disposal with respect to goods, whether as a singular, regularly reoccurring, or continuing event. Acquisitive activity is activity oriented at least in part to the Chancen of acquisition; economic acquisition is oriented to peaceable Chancen of acquisition; market-related acquisition is acquisition that is oriented to market situations; means of acquisition are those goods and Chancen that can be placed at the service of economic acquisition; acquisitive exchange is the giving and taking in exchange oriented to market situations for purposes of gain, in contrast to giving and taking for purposes of subsistence (exchange related to householding); acquisitional credit is the credit given or taken for the purposes of gaining a power of disposal with respect to means of acquisition.
Proper to rational economic acquisition is a particular form of monetary calculation: capitalist calculation. Capitalist calculation is the estimation and review of Chancen for acquisition and successful outcomes of the same by comparing the estimated monetary amounts of all acquisitional goods (in money or in kind) present at the outset of an acquisitive undertaking with the stock of (remaining and newly manufactured) acquisitional goods present at the completion of a particular undertaking, or where continuous acquisitive activity (Erwerbsbetrieb) is involved, comparing the opening and closing balance in an accounting period. Capital is a monetary estimate of the sum total of means of acquisition at the disposition of the enterprise for its own purposes shown in its balance sheet; profit or loss is the surplus or shortfall of estimated values disclosed by a closing balance compared with an opening balance; capital risk is the estimated Chance of loss to the balance sheet; and an economic undertaking is action that can be autonomously oriented to capitalist calculation. This orientation derives from calculation: prior calculation of the anticipated risk and profit arising from a measure under consideration, and subsequent recalculation reviewing the actual resultant profit or loss. Profitability means (rationally)
1. the possible profit to be achieved through measures taken by the entrepreneur, and calculated in advance;
2. the profit over a specific period that has, according to subsequent calculation, been actually achieved without prejudicing future Chancen for profit (Rentabilitätschancen) within the entrepreneur’s (or entrepreneurs’) budget, usually expressed as a proportion, or today as a percentage, of the initial capital as recorded on the balance sheet.
Undertakings conducted according to the principles of capitalist calculation can be oriented to Chancen for acquisition through markets, or to the exploitation of other Chancen for acquisition, for example, those Chancen arising from relations of power, such as tax farming or the purchase of official posts.
All of the individual measures taken by rational enterprise are oriented by calculation to the estimated achievement of profitability. Where acquisition is effected through the market, capitalist calculation presumes
1. that there exist for the goods acquired sufficiently broad and secure (calculable) Chancen of sale, and hence (normally), marketability;
2. that likewise the means of acquisition—material means of production and labour services—are sufficiently secure and can be acquired on the market for calculated, calculable costs; and finally
3. that the technical and legal conditions associated with all phases of production, from means of production to finished product (transport, manufacturing, storage etc.), can be expressed in principle as calculable (money) costs. We will repeatedly encounter in discussion of the sociological conditions of the economy the extraordinary significance of optimal calculability as the foundation of optimal capitalist calculation. Far from considering here only economic aspects, we will see much later that internal and inner obstacles of the most diverse kind are to blame for the fact that capitalist calculation, a basic form of economic calculation, emerged only in the Occident.
Capitalist calculation, and calculation on the part of a market entrepreneur lacks, in contrast to household accounting, any orientation to “marginal utility”; it is instead oriented to profitability. Chancen for this are ultimately dependent on the income structure, and via this on the constellations of the marginal utility of money income available to the ultimate consumers of finished goods (to their “purchasing power” with respect to commodities of the appropriate kind, in the current formulation). Nonetheless, the accounting system of an acquisitive enterprise is as technologically different in nature to that of a household as are the activities of acquisition and subsistence that they serve. For economic theory, the marginal consumer guides the direction taken by production. In fact, given the distribution of power, this is only partly correct for the present day, since the “entrepreneur” “rouses” and “directs” the needs of consumers—if the latter can in fact make purchases.
All rational monetary calculation, and especially therefore all capitalist calculation, is for purposes of market acquisition oriented to price Chancen that form on the market through a contest of interests (a contest of prices and competition) and subsequent compromises between these interests. This is especially plain in the most technical form of bookkeeping so far developed for the calculation of profitability, the so-called double-entry system. This system of accounts establishes the fiction of exchange processes between the individual departments of an enterprise, or between separate accounting units, and thereby allows the technologically most complete check on the profitability of every individual transaction. Capitalist calculation, then, in its most formally rational guise, presupposes the struggle of man against man. And this involves another very particular precondition. In no economy can subjectively existing “sensations of need” be translated directly into effective demand (Bedarf); the production of goods cannot take account of such felt needs. For whether a subjective impulse can be satisfied depends on the one hand on the scale of urgency of needs, and on the other on the estimated availability of goods (if these are available, or if they first must be procured as is mostly the case) to meet this need. Provision fails if the utilities required to meet this need are no longer available once more urgent needs have been met, being unobtainable with the given quantities of labour and material means, or which place so great a demand on these that provision of future goods presently thought to serve more urgent needs would suffer. So it is in every consumer economy, even a communist one.
For an economy employing capitalist calculation—where the means of production are appropriated to individual economic units and where there is consequently “property” (see Chapter 1, §10)—this means that profitability depends on the prices that “consumers” can pay, and want to pay (according to the marginal utility of money related to their incomes); production is profitable only with respect to consumers in possession of the corresponding incomes and to whom therefore these terms apply. Needs remain unmet not only when more urgent (individual) needs intervene but also when others enjoy a greater purchasing power with respect to needs of all kinds. A further crucial presupposition of the struggle of man against man on the market as the condition of existence of rational monetary calculation is the decisive influence for the outcome of the opportunity enjoyed by higher income consumers to overbid, and for producers having some advantage in the procurement of goods to underbid—having at their disposal money, or goods critical for production. In particular, it presupposes actually existing prices, rather than conventionalised prices created for some purely technical end, and hence also actually existing money, a desirable means of exchange that is not a mere token employed for the purposes of technical enterprise accounting. The orientation to the Chancen offered by money prices and profitability necessitates therefore that
1. differences among individual prospective exchanging partners with regard to their holdings of money or specific marketable goods will determine the production of goods, insofar as this production is commercial (erwerbsbetriebmäßig), for only “effective” (kaufkräftige) demand is and can be satisfied. This orientation hence means that
2. the question of which need will be provided for in the procurement of goods depends entirely on the profitability of such procurement, which is on the one hand of course a formally rational category, but which also, and for precisely this reason, is quite indifferent to material postulates, if these are not capable of presentation on the market in the form of adequate purchasing power.
Capital goods (by contrast to possessed objects or portions of property and wealth) are all goods disposition over which is oriented to capitalist calculation, and for as long as this continues. Interest on capital is therefore—in contrast to interest on loans of quite various kinds—
1. the calculated lowest normal possible Chance of profitability imputed to material means of acquisition by profit and loss accounting;
2. the interest rate at which commercial enterprises obtain money or capital goods.
This account only presents the obvious in a somewhat more specific way. Readers interested in the technical apparatus of capitalist calculation are referred to the general, sometimes excellent, accounts of this in books by Leitner, Schär,32 and so forth.
1. The concept of capital is rigorously defined here with regard to its business usage,33 which implies its resemblance to accounting conventions. This terminology is far less in conflict with general usage than is more usually, and unfortunately, the case with academic usage, where, however, there is really no unity. Today, the language of business (privatwirtschaftslichen Sprachgebrauch) is increasingly used for academic purposes, and we can test its applicability simply by asking the following questions: What does it mean if (1) a limited company has nominal capital of one million? if (2) this is “written down”? and (3) the law has statutes regarding nominal capital, and, for instance, states what assets may and may not be “included” in the nominal capital? The answer is that as regards the first, the distribution of profits, such distribution can only be effected with respect to the sum of stock in hand and formally established total assets and liabilities in excess of one million, which excess is entered in the accounts as “profit,” and which may be distributed to shareholders for their own use (and for an enterprise in sole ownership, this surplus amount is all that may be consumed from the budget). As for the second, when major losses have occurred there need be no lengthy delay, lasting perhaps many years, until such time as renewed profits and their accumulation exceed a total of one million, but a “profit” can be distributed even where the total value of the enterprise is less than one million; it is for this purpose that “capital” is written down. For the third, the aim of regulations specifying which assets may be included to cover nominal capital, and when and how it might be “written down” or “increased,” is to provide creditors and shareholders with a guarantee that the distribution of profits is done “correctly,” according to the rules of rational enterprise accounting; hence, (a) profitability is secured in the long term, and (b) the security of creditors is not thereby reduced. Regulations regarding those “assets counted as part” of the nominal capital are all rules concerning the “inclusion” of objects as part of the “capital.” We can further ask: (4) What does it mean if it is said that “capital is turning to other investments” (as a result of lack of profitability)? It could be that “wealth” is meant here. For “investment” (Anlegen) is a term used for the administration of wealth, not for the operation of a commercial enterprise. Or more infrequently, it could mean that capital goods are partly stripped of this character through their disposal at knock-down prices or as scrap, or are re-employed as such elsewhere. And (5), What is meant by references to the “power of capital”? That the holders of a power of disposal with respect to means of acquisition and to economic Chancen capable of being used as capital goods in a commercial undertaking enjoy a specific position of power with regard to others by virtue of this power and an orientation in economic activity to the principles of capitalist calculation.
Even at the very beginnings of rational acquisitive acts, capital crops up (although not under this name!) as a calculated sum of money—this is the case with the commenda, for example. Goods of various kinds were given to a travelling merchant for sale in foreign markets and, quite probably, so that he might repurchase for the home market; the gains and losses were then divided in a set proportion between the merchant and those who had advanced capital for the enterprise. But for all this to happen, monetary calculation was necessary, linked to an opening and closing balance for the enterprise. The “capital” of the commenda (or societas maris) was this estimated amount, serving solely as a way of calculating participants’ shares and no more.
What does it mean to talk of the “capital market”? This means that goods, especially money, are wanted for the purpose of employment as capital goods, and that commercial enterprises exist (especially “banks” of a particular kind) that make a profit by organising the procurement of these goods (especially money) to this end. With respect to “loan capital”—the advance of money against a promise to return the original nominal sum, with or without “interest”—we shall here talk only of “capital” where this loan is used in a commercial undertaking. Otherwise, we shall refer to this as “money lending.” Common usage tends to refer to “capital” if interest payments are made, since this is usually calculated as a proportion of the original sum. It is only by virtue of the calculating function that the monetary amount of the loan or deposit is called “capital.” This is certainly the point of departure of language use (capitale = the principal of the loan, derived allegedly, but not verifiably, from the “heads” of cattle included in a loan contract involving cattle). But that is neither here nor there. Even in the earliest historical times, a loan of goods in natura was represented as an amount calculated in money on which interest was calculated, so that even here “capital goods” and “capital calculation” appeared side-by-side in a manner that has been customary ever since. We do not wish to refer to a simple loan—which is, of course, one part of the administration of wealth—as “loan capital” from the lender’s standpoint, where it serves budgetary ends. Nor of course do we wish to do so from the standpoint of the person receiving the loan.
The concept of “the enterprise” or “undertaking” (Unternehmen) corresponds to its normal usage, except that the orientation to capitalist calculation, which is usually taken for granted, is expressly emphasised. This is done so as to indicate that not every venture should be treated as an “undertaking,” but only insofar as this can be oriented by capitalist calculation (whether this involves large or “dwarf” capitalistic enterprise is of no consequence). Whether such capitalist calculation is in fact conducted rationally and in terms of calculation according to rational principles is, by contrast, a matter of indifference. Likewise, one should talk of “profit” and “loss” only with respect to enterprises governed by the principles of capitalist calculation. Acquisitive activity in the absence of capital (writers, doctors, lawyers, officials, professors, white collar workers, technicians, workers) is still for us of course “acquisition” (Erwerb), but it should not be called “profit” (nor does common usage do so). “Profitability” is a concept applicable to every independently calculable acquisitive act conducted in terms of the technologies of mercantile calculation (the hiring of a particular worker or of a particular machine, the structuring of rest periods, etc.).
No useful purpose is served by defining the concept of interest on capital from agreed rates of interest on loans. If someone helps a farmer out with seed-corn on condition that it is returned with a supplement, or if the same thing happens with money that one household needs and another can advance—neither of these will, for our purposes, here be treated as a “capitalist” procedure. The additional amount that becomes “interest” is agreed on, in the event of rational action, because the recipient of the loan anticipates that the difference made to his subsistence prospects by taking up the loan will be greater than the additional amount he has to return, compared with the Chancen that he envisages if he foregoes the loan. The lender will, by contrast, be aware of these circumstances and makes use of them if the marginal utility of his current power of disposal over the loaned goods is exceeded by the estimated marginal utility of the agreed on supplementary amount at the time of the loan’s return. These categories remain rooted in the domain of householding and the disposal of wealth, not in capitalist calculation as such. Even someone who takes out an emergency loan from a “money Jew” for their own needs does not in the sense of this terminology “pay” interest on capital, and neither does the lender receive any such—instead, compensation for the loan is paid and received. The established moneylender calculates “interest” for himself from his working capital (when acting in a rational economic manner) and has made a “loss” if any shortfall in the repayment of the loan results in a failure to achieve this level of profitability. This is “interest on capital” in our sense; all other forms are simply “interest.” In this terminology, interest on capital is therefore always interest on capital, not interest for capital; it is always related to monetary estimation, and hence to the sociological fact of private control of means of acquisition, that is, appropriated powers of disposal over marketable or other means of acquisition, without which “capital” accounting, and hence the calculation of interest, would be inconceivable. In a rationally conducted commercial enterprise the interest that, for example, is regularly debited against the accounting entry “capital” is the minimum level of profitability; realisation of this level, or failure to reach it, indicates whether the mode of employment of capital goods has been appropriate or not. (“Appropriate” of course from the standpoint of returns and profitability.) It is well known that the rate set for this minimum level of profitability is only loosely guided by the prevailing rates at which credit can be secured in the “capital market,” although the existence of such a market brings about this form of calculation in the same way that market exchange is the basis of the treatment of accounting entries. However, the most fundamental phenomenon of the capitalist economy—that a fee will always be paid by entrepreneurs for “loan capital”—can only be explained by answering the question, Why might entrepreneurs continue to believe that they will nevertheless still make a profit after paying this fee to their creditors—or rather, under what general conditions can it usually be said that parting with 100 now in return for a future 100 + × is rational? Economic theory will answer this question by reference to the relative marginal utilities prevailing between future goods and current goods. Good! Here the sociologist would be interested in exactly which human action this supposed relationship found its expression: that actors could make a distinction between present and future in the form of “interest” the basis of their operations, for when and where this is true would be no less than obvious. As we know, it does occur in economic activity oriented to acquisition (Erwerbswirtschaften). But here the yardstick is primarily the balance of economic power between commercial enterprises and households—both those households that consume the goods offered to them and those that offer particular kinds of means of production (especially labour). Only under these circumstances will enterprises be created and run on a permanent (capitalist) basis if there is an expectation that the minimum “interest on capital” will be achieved. Economic theory—which could assume many guises—would surely then say that it is only this exploitation of a position of power, itself a consequence of the private ownership of means of production and of products, that makes it possible for this category of economic subjects alone to pursue their economic activity “in conformity with the rate of interest,” as it were.
2. The administration of wealth and acquisitive activity are so similar that they almost seem interchangeable. In fact, the first differs from the second only with regard to the concrete ultimate meaning of economic activity: while the latter seeks to increase and assure the profitability and market position of the enterprise, the former is oriented to securing and increasing wealth and income. In the latter case, there is no specific course of action to be pursued, nor means of selecting such a course. Where the wealth of a business manager coincides with control of his enterprise, his income is the same as his profit: the two seem to go hand in hand. However, personal relations of all sorts can cause the businessman to strike out on a path that, from the standpoint of the rational conduct of the enterprise, appears to be a quite irrational way of running a business. And in fact, wealth and disposal over an enterprise very rarely coincide. In addition, there are some extremely irrational factors (irrational from the perspective of the enterprise) that influence management of the business: an excess of personal indebtedness on the part of the owner, a personal need for a high level of current income, the division of assets through inheritance, and so forth. These factors often give rise to initiatives aiming at the complete exclusion of their influence, such as the issue of shares by a family business. This tendency to separate household and enterprise is no accident. It is a consequence of the fact that both the fate of wealth from the standpoint of the enterprise and the interest of the owner in a given income from the standpoint of profitability are equally irrational considerations. The calculation of profit and loss for an enterprise betrays little about the prospects of constant employment for its workers or for those whose interests arise from their role as consumers, nor do the interests in wealth and income of the individual or organisation with power of control over the enterprise necessarily run parallel to the enduring optimal profitability of the enterprise and its market position. (And quite naturally, not if—often precisely not because—a profit-oriented enterprise is at the disposal of a “producers’ cooperative”). The material interests of modern rational enterprise management are in no sense identical to the personal interests of those with power of disposal over the enterprise, and the two are often in opposition: this signifies the difference in principle between “household” and “enterprise” even where, with regard to the power of disposal and the object at disposal, they are identical.
In addition, it is desirable to make and sustain a sharp terminological distinction between “household” and “profit-oriented enterprise” (Erwerbsbetrieb).34 A pensioner’s purchase of securities to enjoy the monetary proceeds is not an investment in “capital,” but in wealth. From the standpoint of the person making the loan, money loaned by a private person to gain claims to interest payments is quite different from a bank loan to the exact same recipient. A loan made to a consumer or to an entrepreneur (for acquisitive purposes) is distinct from the perspective of the person receiving the loan. In the first case, this is capital investment on the part of the bank, and in the second, the entrepreneur is raising capital. Capital investment on the part of an agent extending credit can in the first case, however, from the standpoint of the creditor, simply be taken up as a household loan, whereas raising capital in the second can, from the standpoint of the agent extending the facility, simply be an “investment of wealth.” Specification of the difference between wealth and capital, between household and profit-oriented enterprise, is not unimportant, especially since, without this distinction, we cannot gain an understanding of the developmental path of antiquity and the limits on the capitalism contemporary with it. (Rodbertus’s well-known essays on this remain important, despite all their errors and need for revision, and withstand comparison to Bücher’s accurate discussion.)
3. By no means were, or are, all profit-oriented enterprises employing capitalist calculation market-oriented in both directions—buying means of production (Beschaffungsmittel) in the market in the same way that they offer products or finished services for sale in the market. Tax farming and financial operations of the most diverse kinds are conducted in terms of capitalist calculation without becoming involved in the latter. Some very important consequences of this will be discussed below. This is a case of gainful activity using the technologies of capitalist calculation but lacking an orientation to the market.
4. Here we can also make a useful distinction between acquisitive activity and acquisitive enterprise. Every person—the clerk and the worker, no less than the entrepreneur—is engaged in acquisitive activity if he is at least also involved in some particular way with the new acquisition of goods (whether money or goods in natura) that he does not yet possess. However, “market-based acquisitive enterprise” will here be reserved for that kind of acquisitive activity that is oriented on a continuing basis to market Chancen, employing goods as gainful means to (a) manufacture and sell desired goods, or (b) by offering desired services in exchange for money, whether through free exchange or the exploitation of appropriated Chancen as in the cases indicated in the previous paragraph. Any sort of person who lives off their wealth is not “acquisitively active” according to this terminology, no matter how rationally they might “economise” their property.
5. While it must, of course, be theoretically understood that calculations of marginal utility made according to the incomes of the marginal consumers determine the trend of profitability for goods-manufacturing enterprises, it cannot be sociologically ignored that the capitalist mode of meeting need (a) “arouses” new needs and allows old ones to wither, and (b) very greatly influences, through aggressive advertising, the nature and extent to which consumers’ needs are met. This is one of its most significant features. It is true that this mostly does not involve needs of the first degree of urgency. But in a capitalist economy, the form taken by food and shelter are very much determined by the supplier.
§12. Accounting in natura can occur in the most varied combinations. One speaks of a money economy, meaning an economy typically employing money and hence oriented to market situations assessed in terms of money, whereas a “natural economy”35 is an economy that does not use money. Historically given economies can thereby be differentiated according to the extent of money use, or of its absence.
But a natural economy is not a uniform entity, and its structural variation can be extensive. It can mean
a) an economy entirely lacking in exchange, or
b) an economy with natural exchange where money is not employed as a means of exchange.
For a), it can be both a
α. 1. fully communistic, or 2. a cooperative individual economy, in the latter case with shares being calculated, but in both cases without any autonomy or autocephalousness for the individual parts. This is a closed domestic economy (Hauswirtschaft), and a
β. combination of different, but otherwise autonomous or autocephalous individual economies, all rendering natural services to a central authority (Zentralwirtschaft) established either for the purpose of rule or of cooperation. This is an economy based on payments in kind (Naturalleistungswirtschaft) (an oikos, a political organisation organised on a rigorously liturgical36 basis).
Both of these cases involve, where the type is pure, or to the extent that it is pure, accounting in natura only.
For the second case, b) it can be
α. a natural economy with pure natural exchange, without the use of money or of money accounting (pure natural exchange economy), or
β. a natural exchange economy with occasional, or typified by, money accounting (typically evident in the ancient Orient, but very widespread).
Only the closed household economy in the instances outlined as a)α.1. and 2. is relevant to the problems of natural accounting; and also as in a)β where liturgy is effected through rational enterprise units, which would be unavoidable if “full socialisation”37 were introduced while retaining modern technology.
All natural accounting is at root oriented to consumption, the meeting of need. Something quite like “gain” or “profit” is of course possible on a natural basis. This can arise in
a) a natural economy without exchange: available natural means of production and labour are used planfully in the manufacture or procurement of goods on the basis of a calculation in which the required level of fulfilment of needs is compared with the situation prevailing either without such use, or with a different form of use, and determined to be more advantageous for the household. Or in
b) a natural exchange economy in which the planful provision of goods is sought through consistently natural disposal and acquisition (quite probably on a recurring basis) that is thought to provide for needs more generously than the previous state of affairs where such measures had not been employed. But it is here only possible to arrive at a numerical comparison that is both unambiguous and free of entirely subjective evaluations if differences are registered between goods that are qualitatively the same. Of course, one can make up typical baskets of consumption goods as was usual especially in Oriental systems of tithe payments and wages in kind (and which even became the object of exchange transactions, like our government bonds). Where the goods were typically uniform, such as Nile Valley grain, it was possible, as in Egypt, to store them and trade certificates of ownership in the same way that silver bars are traded between banks. Moreover—and this is of greater importance—it is possible to establish numerically the technological course of a particular production process and compare this with other kinds of technological processes. This can be done either where the final product is the same, according to the nature and extent of means of production required; or, using the same means of production, by considering the diverse final products produced with the same means of production applied in different ways. Numerical comparison for important subsidiary problems is here often, but not always, possible. However, simple “calculation” first encounters problems when we consider different kinds of means of production, their multiple uses, or qualitatively different end products.
Every capitalist enterprise does constantly make use of accounting in natura in its calculations. For example, take a loom of a particular type, with warp and yarn of a specific quality. Our variables are the potential machine output, humidity, and inputs of coal, lubricating oil and finishing material, given a shuttlespeed per hour and per worker for each individual worker. The result is the quantity of units of the desired product to be expected of a worker in any one period. This kind of calculation can be, and is, made without the use of monetary units in those industries where there is a typical level of waste and by-product. In the same way, it is possible to establish in material terms, for any given circumstances, the existing annual requirements for an enterprise in raw materials (in relation to its technical processing capacity), the depreciation period of buildings and machinery, and typical losses from spoilage, waste, and other material losses—and this is what actually happens. But today’s enterprises also have no problem comparing production processes of different kinds, with various sorts of means of production employable in several different ways, on the basis of monetary calculations of profitability, but such comparisons present natural accounting with serious difficulties, lacking any “objective” solution. While not compelled to do so, the actual accounting calculations used by today’s enterprises take the form of monetary calculations, and this presents none of these difficulties. But some of this at least is no accident. This is the case, for example, with “depreciation,” since this is the manner in which the enterprise’s future production conditions are secured, gaining the maximum leeway for prudent adaptation (without which means of control the actual accumulation of stock or whatever other purely material safeguard would be rendered irrational and seriously impeded), combined with a maximum of security.38 It is difficult to conceive the form that “reserves” not directly specified as such might have in natural accounting. Moreover, there are a number of matters within an enterprise—which elements are functioning, from the technical and material standpoint, in an irrational (unprofitable) manner, and why? That is, where might economies be made in the materials employed (“costs” from the perspective of capitalist calculation),39 and above all, used elsewhere more rationally? It is relatively easy to calculate retrospectively from a technical-material standpoint the relation between “cost” and “benefit” recorded in money (the charge for interest on capital also belongs here as an index), but extremely difficult to establish in natural accounting of any kind, and even where this can be done, the outcome is extremely rough and ready. (These are not accidental problems to be resolved by “improvements” in the methods of calculation; they are instead basic limitations inherent to any attempt to develop genuinely exact natural accounting. This can always be disputed, although not, of course, with arguments drawn from the Taylor system and the idea that some kind of points or incentive system can achieve “progress” [Fortschritte] in the absence of the use of money. The question would be the following: How does one find out at what point in an enterprise such measures should probably be introduced, because exactly at this location there are persisting irrationalities that have to be removed? Exact enquiry along these lines presents problems for natural accounting that are not encountered by a reestimate on the basis of historical costs using monetary calculation.) Natural calculation as the basis of enterprise accounting (where heterocephalous and heteronomous enterprises might be conceivable as part of the administration of goods production in a planned economy) finds the limit of its rationality in the problem of imputation, which here does not take the form of a simple accounting ex-post recalculation, but rather that of the much-disputed form that it assumes in the “doctrine of marginal utility.” For the employment of means of production to be placed on a rational and permanent basis, natural calculation would have to establish “value indices” for the individual objects that would have to assume the function of “balancing items” in contemporary calculations. It would then need to be seen how they could be developed and verified: on the one hand, for enterprises differentiated by location; on the other, integrated with respect to “social utility,” that is (current and future) consumption need.
Nothing is gained here by assuming that if only the problem of a moneyless economy were resolutely confronted, a system of calculation would “be quickly found,” or rather, be quickly invented. The problem is one that is basic to “full socialisation” of all kinds, and in any case one cannot talk of a rational “planned economy” so long as, at the one decisive point, no means for the purely rational design of a “plan” is known.
The difficulties for natural calculation are only increased if one seeks to ascertain whether a given enterprise dedicated to the production of particular goods should, rationally, be located exactly here, or instead (always considering the matter in terms of meeting the needs of a given human group) at another possible site. These difficulties loom yet larger if we consider whether a given natural economic organisation, taking account of the most rational employment of the labour power and raw materials at its disposal, is better served by the procurement of specific goods through “barter” with others or by making such goods for themselves. Of course, the fundamentals determining location are purely natural and their simplest principles can be formulated in material terms. (See Alfred Weber on this elsewhere in this Grundriß.)40 But it is quite plain: natural accounting only permits a very rough estimate of the problem of ascertaining whether it may be rational at an actual site with given critical local circumstances to locate one specific enterprise dedicated to the production of particular goods, or instead another enterprise dedicated to a different range of goods (leaving to one side the case where deposits of raw materials absolutely determine such location), whereas for monetary accounting this is, despite the recurring existence of unknown factors, a calculation that is in principle soluble. Finally, the resulting comparison of the importance, that is, the desirability of specific, differing types of goods, whose manufacture or acquisition through exchange is equally possible in the existing conditions, is a problem that ultimately enters consequentially into every single calculation made in an enterprise. Where calculation is effected in monetary terms, this problem is decisive to profitability and consequently directs the production of goods in all commercial enterprises (Erwerbsbetriebe). But natural accounting can in principle only resolve this problem either by resorting to tradition, or by diktat, openly regulating consumption (by social rank or on an egalitarian basis) and achieving compliance with this. Even then, it would still be the case that natural accounting is incapable of imputing the total output of an enterprise to individual “factors” and measures adopted in the manner that profit and loss accounting in money can now do and, therefore, that today’s mass provision on the part of mass enterprises presents natural accounting with formidable difficulties.
1. The problems of natural accounting have been raised by the recent trend for “socialisation,” and the numerous writings of Dr. O. Neurath have been especially insistent on this point.41 The problem is in fact quite central to any “full socialisation,” that is, where it is presumed that current real prices will disappear. (That this problem is incapable of rational solution serves, it should be clearly said, only to indicate what such socialisation would put at risk, whether or not such consequences were purely economic. Demonstration of this incapacity would not serve to “refute” the “justification” of this endeavour, however, given that it is not based on technical postulates, but like all socialist conviction [Gesinnung] is instead rooted in an ethical or other kind of absolute postulate. No science is capable of “refuting” such a position. From a purely technical viewpoint, it would be possible to examine the degree to which, solely for regions where the population density to be maintained has been exactly calculated, the continued existence of effective prices might limit the form and extent of possible socialisation. But that cannot be dealt with here. It should only be noted that if the conceptual distinction between “socialism” and “social reform” is located anywhere, then it is precisely here.)
2. It is, of course, entirely right to say that “mere” monetary calculation—whether on the part of individual enterprises, of many enterprises, or even of all enterprises, combined with the most comprehensive monetary statistics on the movements of goods and the like—does not say anything about the way that given human groups are provided with that which they really need: natural, material goods. Furthermore, the oft-bruited monetary estimates of “popular wealth” are to be taken seriously only to the extent that they serve fiscal ends (and, therefore, only take account of taxable wealth). The same does not apply to the same degree to income statistics expressed in money, even from the standpoint of the provision of goods in kind, so long as the prices of goods have been statistically established. All that is lacking there is any possibility of verifying the data from the viewpoint of material rationality. It is also true (and has been wonderfully demonstrated by Sismondi and Sombart for the Roman Campagna) that, in numerous cases, satisfactory profitability (which existed for all those participating in the very extensive Campagna economy) had nothing at all in common with what would actually represent the satisfactory organisation of the economy—in terms of the optimal utilisation of given means of production to meet the demand for goods (Güterbedarf) on the part of a given human group. The form of appropriation (especially, as must be allowed to Franz Oppenheimer, the appropriation of land, but not only this form) creates Chancen for rents and services of the most varied kind that can permanently hinder the technologically optimal valorisation of the means of production. (But this is very far from being a characteristic peculiar to the capitalist economy; the much-talked-of restriction of production for the sake of profitability entirely dominated medieval economic organisation, and the present-day position of power assumed by workers may result in something similar. It is, however, indisputable that this is also a central feature of capitalist economy.) The existence of statistics relating to monetary movements, or cast up in the form of monetary estimates, has certainly presented no obstacle to the development of statistics in natura, contrary to what many accounts have suggested, although one can as ever bemoan their condition and effectiveness in comparison with an ideal standard. At least nine-tenths of our statistics are cast up in physical terms, and not on a monetary basis. Overall, the work of an entire generation has ultimately been devoted to almost nothing save a critique of what is implied for the provision of goods in natura by the orientation of the economy to pure considerations of profitability (for this was really the ultimate, and quite conscious, aim of each and every publication of so-called academic socialists [Kathedersozialisten]). But they did have as a clear standard of judgement social reform oriented to social policy; hence, and contrasting to an economy based on calculation in natura, the continued existence of effective prices. Full socialisation was not their aim; social reform was considered the sole (current, or definitive) possibility for the mass economy. Such a stance can of course be thought “half-baked,” but it was not in itself nonsensical. It is true that the problem of natural economy, and especially the possible rationalisation of natural calculation, attracted little attention, and it was on the whole thought to be a historical, not a contemporary, issue. As with every war in the past, the recent war propelled this question to the fore in the form of wartime and postwar economic problems. (And without any doubt, Dr. O. Neurath performed a valuable service with his very early and insistent treatment of just this problem, however much we might argue in principle and in detail over his approach. That “science” has on the whole failed to take account of his formulations is not that surprising, since hitherto only some very thought-provoking but sketchy prognoses were to hand, and it is difficult to engage in serious discussion with what amounted to a series of chapter headings. The problem begins where his public expositions—so far—end.)
3. One has to be very careful in using the performance and methods of a war economy for criticism of the material rationality of a given form of economic organisation. In principle, a war economy is oriented to one unambiguous aim, and is able to make use of powers that in a peacetime economy are only available where the “state enslavement” of “underlings” is practised. It is also at core a “bankrupt’s economy,” the overriding goal pushing aside almost all concern for the coming peacetime economy. It is only technologically precise; economic “calculation” is, however, very rough and ready for any materials supply of which is not on the point of exhaustion. And it is likewise entirely rudimentary as far as labour is concerned. All calculations are therefore predominantly, but not exclusively, technical in character; to the extent that they are economic, that is, that they take account of competition between ends and not only between means to a given end, they are content to make use of what, from the perspective of exact monetary calculation, seem quite primitive assessments and calculations according to the principle of marginal utility. As a type, these are a form of “household” accounting, and there is no sense in which they seek to guarantee the rationality of chosen dispositions of labour and means of production on a permanent basis. However instructive war economies and postwar economies might be for knowledge of economic “possibilities,” it is doubtful whether anything can be deduced from the natural forms of calculation typical of such economies that might be suited to a sustainable peacetime economy.
It can be freely admitted (1) that even monetary calculation is reduced to arbitrary assumptions where means of production lack a market price (this arises particularly in agricultural accounting); (2) that in a weaker form, something similar applies in the apportioning of “overheads,” especially for calculations made with respect to enterprises engaged in diverse activities; and (3) that every cartel agreement arrived at for however rational a motivation, fully oriented to market Chancen, at once reduces the incentive for exact calculation even on the basis of capitalist calculation, since exact calculation is made only as and when there is a compelling necessity to do so. For calculation in natura, on the other hand, the first of these conditions would always exist; in the second case, any exact calculation of “overheads” is impossible, and is in any event effected through capital accounts; and for the third, any stimulus to exact calculation would be eliminated and would have to be artificially re-created using means of questionable effect (see above). The idea that an existing extensive staff of “commercial clerks” dedicated to calculation could be transformed into the personnel of a universal statistical bureau that, it might be believed, was capable of replacing calculation with accounting in natura misrecognises not only the quite fundamental difference in motivation but also the quite different function of “statistics” and “calculation.” They are as different as bureaucrat and entrepreneur (Organisator).
4. Both accounting in natura and monetary calculation are rational technologies. But they by no means exhaust all forms of economic activity. There is also activity that is in fact economically oriented, while lacking any form of calculation. Such action can be traditionally oriented or affectively determined. All primitive human questing for sustenance is related to an instinctive animal search for food. The degree of calculation involved in fully conscious but affectively oriented action—such as religious devotion, warlike arousal, and feelings of piety—is very limited. Bargaining is ruled out “among brothers” of a tribe, of a gild, or of belief; among family, comrades, or youths either no account is kept, or it is very flexibly “rationed” in times of necessity (a modest onset of calculability). See Chapter 5 below for an account of the penetration of calculability into primitive familial communism.42 Everywhere, the agent of calculation was money, and this explains why calculation in natura remained in fact technologically less developed than its inherent nature demanded (and to this extent, Otto Neurath is right).
While this was being typeset, Ludwig von Mises’s essay on these problems appeared in the Archiv für Sozialwissenschaft und Sozialpolitik, Bd. 47.43
§13. The formal “rationality” of monetary calculation is therefore connected to very specific material conditions, among which the following are of sociological interest, above all:
1. a market-based contest between (at least relatively) autonomous economic units (Wirtschaften). Money prices are the product of contest and compromise, and hence are outcomes of power constellations. “Money” is not an innocuous “certificate of entitlement to undefined utilities,” to be transformed into anything one might want. This would require the complete abolition of the quality of prices as an expression of the struggle of man against man. Money is instead and primarily a means of struggle, and price is the outcome of this struggle; it is a means of calculation only in the form of a quantitative expression of an assessment of Chancen in a struggle among differing interests.44
2. The greatest degree of rationality as a calculative means of orientation for economic activity is achieved by monetary calculation in the form of capitalist calculation; materially presupposing the most extensive market freedom, meaning the absence of either compulsory and economically irrational, or voluntary and economically rational monopolies (i.e., monopolies oriented to market Chancen). The competitive struggle over the sale of products that is linked to this situation generates a range of expenditures, especially with respect to sales organisation and advertising in its widest sense, which, in the absence of such competition, would simply cease to exist (hence, in the case of planned economies or rational comprehensive monopolies). Furthermore, rigorous capitalist calculation is linked socially to “factory discipline” and the appropriation of material means of production, and thus to the existence of a relation of rule.
3. It is not “wants” as such, but effective demand45 for utilities that materially regulates the commercial (erwerbsmäßig) production of goods, mediated by capitalist calculation. The production of goods is directed by the constellation of marginal utilities arising from the final specific use typical for an income strata endowed both with purchasing power and the inclination to spend—and according to the existing distribution of income. Combined with absolute indifference on the part of the formally most complete rationality of capitalist calculation with regard to each and every material postulate—and assuming complete market freedom—these fundamental underlying conditions of monetary calculation represent the principal limits of its rationality. Such rationality has a purely formal character. Formal and material rationality (whatever the standard of value to which the latter might be oriented) are in all circumstances quite distinct in principle, even if they might empirically coincide on numerous individual occasions. Their theoretical coincidence for all occasions is conceivable only under entirely unrealistic assumptions, for the formal calculation of monetary calculation implies in itself nothing concerning the material distribution of natural goods. This is always in need of separate discussion. Given the experience of the previous decade, formal and material rationality relatively frequently coincide if the creation of a certain material minimum of provision for a maximum number of people is taken as the criterion of rationality. The reason for this lies in the nature of motivations set in motion by the kind of economically oriented social action unique to monetary calculation. But it is true that, for any circumstances, only when formal rationality is related to the form of income distribution is anything implied about the nature of material provision.
§14. Meeting need through commercial economy (verkehrswirtschaftliche Bedarfsdeckung) means that sociated (vergesellschaftet) economic meeting of need is effected purely through exchange; it is oriented to Chancen for exchange, and made possible purely through a given set of interests. Meeting need through planned economy (planwirtschaftliche Bedarfsdeckung) means all meeting of need within an organisation that is systematically oriented to statutory, agreed-on or imposed, material orders.
Meeting need through a commercial economy normally, and rationally, presupposes monetary calculation and, where there is capitalist calculation, the economic separation of household and enterprise. Meeting need by means of a planned economy depends (according to extent, however this may be defined and measured) on natural accounting as the ultimate basis of the material orientation of the economy; formally however, for the economic agent, it means a dependence on the directives of an administrative staff that is here quite indispensable. In a commercial economy, the orientation of activity on the part of autocephalous individual economies is autonomous: budgeting is performed in terms of the marginal utilities of money in hand and anticipated money incomes, also taking advantage of market Chancen in the gainful conduct of enterprise in terms of capitalist calculation. In a planned economy, all economic activity—insofar as it is undertaken—is on a strictly householding basis, oriented heteronomously to directives and prohibitions linked to prospective rewards and punishments. To the extent that a planned economy offers Chancen for additional income as a means of arousing self-interest, at the very least the nature and course of action rewarded in this way is limited by materially heteronomous behavioural norms. Of course, more or less the same thing can occur in a commercial economy, although there it formally takes a voluntaristic path. This happens everywhere that the difference between those who own property and those who do not (especially where differences in the ownership of capital goods are concerned) compels those with no property to accept whatever they are allocated if they are to receive any remuneration at all for the utilities they supply. These might be provided by a wealthy landlord, or it might take the form of an allocation from those possessing capital goods calculated in capitalist calculation terms (or from agents entrusted by them with their valorisation). In a pure capitalist enterprise economy, this is the fate of the entire workforce.
The deciding motivation for all economic action under commercial economic conditions is normally
1. for the propertyless:
a) the constraint represented by the risk of complete destitution (Unversorgtheit) for the individual and for his personal “dependents” (children, women, probably parents) for whose support the individual is typically responsible;
b) also, to a varying extent, an inner preparedness for gainful economic labour as a way of life;
2. for those actually privileged by the possession of property, or favoured through an education itself determined by such possession:
a) the Chancen of preferential income from gainful activity;
b) ambition;
c) the treatment of preferential (intellectual, artistic, technologically skilled) work as a “profession”;
3. for those sharing in the Chancen provided by acquisitive undertakings:
a) personal capital risk and personal Chancen of profit in connection with
b) a “professional” inner commitment to rational gain as
α) “proof” (Bewährung)46 of one’s own accomplishment and
β) a form of autonomous control over those persons dependent on one’s own instructions, together with
γ) Power: exercised over the Chancen of being provided with that which is important to life or culture enjoyed by indefinitely many people.
A planned economy oriented to the meeting of need, if it is to be implemented in a radically consistent manner, has at least to moderate this compulsion to work arising from fear of complete destitution, since where needs are met materially and rationally it could not allow the dependents of a worker to suffer very greatly if his work were below average. Following the same logic, a planned economy has to impose broad limits on the autonomy enjoyed by managers of productive enterprises, and ultimately abolish it altogether. Furthermore, a planned economy either disregards all autonomy with respect to risk capital, or treats it in a very restricted manner; likewise, it more or less entirely disregards the idea of self-confirmation (Bewährung) through formally autonomous decision making, as it does freedom in the autonomous disposition of persons and Chancen for the meeting of needs essential to life. Besides what are (probably) purely material Chancen for particular gains, it also has at its disposal substantially ideal incentives of an “altruistic” kind (very broadly defined) with which it can seek to emulate the performance of a commercial economy, realised from experience by the autonomous orientation to Chancen for acquisition related to the production of goods for which there is both demand and the means to pay for them. Where a planned economy is pursued with thoroughness and rigour, the diminution of formal calculative rationality has to be simply accepted as an inevitable outcome of the absence of monetary and capitalist calculation. Material rationality and, in the sense of exact calculation, formal rationality, here inevitably part company: the fundamental, and ultimately, inescapable irrationality of the economy is one of the sources of any “social” problematic, and above all, for every form of socialism.
Remarks on §§13 and 14:
1. The exposition above obviously states familiar things in a rather more pointed fashion (as in the closing sentence of §14). A commercial economy is by far the most important form of typical and universal social action oriented to a given constellation of “interests.” The manner in which this results in the meeting of need is the subject of discussion within the domain of economic theory and can be treated here in principle as well known. The use of the term “planned economy” implies no kind of adherence to the familiar proposals of a former Imperial Minister for the Economy;47 the expression has been chosen because it does not violate ordinary language, and because it has become widely used since its initial official use (used here instead of Otto Neurath’s expression “administered economy,” which is not in itself an unsuitable expression).
2. The concept of “planned economy” as defined here does not include any economic activity of organisations, or any economic activity regulated by organisations, that is oriented to Chancen for gain (whether this involves guilds, cartels, or trusts). It only includes the economic activity of an organisation oriented to the meeting of need. Economic activity oriented to gain, however rigorously it is regulated or managed by an organisation, always presupposes effective “prices,” whatever the manner in which they formally originate (in the extreme case of universal cartelisation, through compromise between cartels, wage rates set by “communities of labour,” etc.), and so in turn presupposes capitalist calculation and orientation to this. “Comprehensive socialisation” in the sense of a planned economy run as a giant household, and partial socialisation (of sectors of production) retaining capitalist calculation are, despite the identity of their aims, and despite all their variants, following quite different technological paths. A preliminary stage of a householding planned economy is all rationing of consumption, indeed any kind of measure aimed primarily at influencing the natural distribution of goods. The planful management of goods production, whether undertaken by voluntary or compulsory cartels, or by state agencies, primarily seeks to organise rationally the employment of means of production and labour, as a consequence of which they cannot therefore—or at least not yet, it is thought—dispense with price. It is thus no accident that the socialism of “rationing” gets along so well with “works council” socialism, which form (contrary to the will of its rational socialist leadership) has to connect itself to the interest of the worker in appropriation.
3. No special discussion is devoted here to the creation of economic organisations in the form of cartels, guilds, or workers associations that regulate or monopolise the use of gainful Chancen, whether those are imposed or freely agreed on (and it is regularly the first that occurs, even where, formally speaking, the latter is the case). See above in Chapter 1, §10, for a general discussion of this, and below where the question of the appropriation of economic Chancen is discussed, §§19ff. The contrast between an evolutionary socialism oriented to production linked especially with Marxism and a form of distributional socialism organised around a rational planned economy (which is today once more called “communism”) has not been superseded since it was first articulated in Marx’s Poverty of Philosophy.48 This contrast also ultimately underlays the division within Russian socialism between Plekhanov and Lenin, and their very acrimonious disputes. The division of socialism today, where there is very intense competition for leadership positions and their related spoils, is also implicitly determined by this problematic, where the wartime economy has favoured on the one hand a turn to a planned economy, and on the other has also favoured the development of interests in appropriation. The question of whether one ought to create a “planned economy” is no way to pose a scientific problem, however one defines this and whatever its extent. One can only legitimately ask as a scientific question, What consequences, for any given form, will prospectively arise?—a question that will have to be dealt with if the attempt is made to create a planned economy. It is a dictate of honesty accepted on all sides that while some factors are well known, there are just as many factors that are partly unknown. The details of the problem cannot be settled here in a materially decisive manner at all; relevant points can be touched on partially in the context of the forms assumed by organisations, especially that of the state. At this point, we have only been able to present, in an unavoidably brief review, the most elementary technological set of problems. The phenomenon of a regulated commercial economy has not yet been dealt with, for the reasons given at the beginning of §14.
4. Commercial economic sociation (Vergesellschaftung) of economic activity presupposes the appropriation49 of the actual holders of utilities on the one hand, and market freedom on the other. Market freedom increases in significance (1) the more complete is the appropriation of the actual holders of utilities, especially of means of production and of transport; for their maximum degree of marketability implies a maximum orientation of their economic activity to market situations. It also increases (2) the more that appropriation is limited to actual holders of utilities. Every appropriation of human beings (slavery, bondage) or of economic Chancen (client monopolies) places a limitation on human action oriented to market situations. Fichte was right in his Closed Commercial State50 to regard this restriction of the concept of “property” to material goods (while at the same time extending the content embodied in property to autonomy of powers of disposal) as the characteristic feature of the organisation of property in a modern commercial economy. All those with an interest in the market had a stake in the way such a reorganisation of property eased their orientation to those Chancen of gain that the market situation provided, and the development of this particular form of property order was consequently largely due to their influence.
5. In spite of its common use, the term “communal economy” is here avoided for reasons of practicality, since it presumes a “common interest” or “communal feeling” that is conceptually misplaced: the economies of a feudal lord or a monarch such as the Pharaohs of the Egyptian Empire, as contrasting with commercial economy, belong to the same category as that of a domestic household.
6. The concept of “commercial economy” is quite independent of the existence and extent of a “capitalist” economy, that is, economic activity oriented to capitalist calculation. In particular, the normal type of commercial economy involves meeting need through a monetised economy. It would be wrong to assume that the existence of capitalist economic activity developed in step with the increased use of money to meet need, hence, that it entirely followed the course taken in the Occident. Rather, the opposite is the case. The increased extent of a money economy could be accompanied (1) by the increasing monopolisation of Chancen of making large profits on the part of a ruler’s household. This occurred in ancient Egypt during the time of Ptolemy, for which domestic account books show that the money economy was very developed, but they also show that this did remain a form of monetary accounting based on the household, and never became capitalist calculation. Or (2) with the rise of a money economy, the farming out of fiscal Chancen could arise, resulting in a traditionalist stabilisation of the economy (as in China, which will be discussed at the appropriate point). Or (3) the capitalistic valorisation of monetary property could be directed towards investments other than those oriented to exchange Chancen in a free goods market, and hence not oriented to acquisitive Chancen represented by the production of goods (which is almost exclusively the case outside the modern occidental economic region, for reasons that will be discussed below).
§15. Every typical form of economically oriented social action and economic sociation within a human group involves to some extent a particular form of division and coordination of human work (Leistungen)51 for the purpose of producing goods.52 Any glance at the realities of economic action reveals the distribution of quite various tasks to different persons, and the coordination of these distributed tasks into work done in common that combines with material means of production in the most diverse ways. Nonetheless, among the endless variety of these phenomena some types can be distinguished.
Human work (Leistungen) of an economic kind can be either
a) dispositional53 or
b) oriented to the dispositions of others—labour (Arbeit) (in the sense of the word generally employed here).
The work of “disposition,” or managing others, is of course also in every conceivable respect, labour, if by “labour” we mean a claim on time and effort. The choice of the expression “labour” in the following in contrast to “dispositional work” follows the way “labour” is, for social reasons, commonly used today, and will be employed below in this special sense. Generally, however, one should refer to “work” (Leistungen).
The forms that work and labour can assume in a human group can typically be distinguished as follows:
1. technologically—according to the manner in which, for the technological execution of a productive procedure, several associates’ work is divided among their number, and is reconnected and linked to material means of production;
2. socially—
A) according to the way individual work is the object of autocephalous and autonomous economic action, or not, and according to the economic character of this economic action, which brings us directly to:
B) the degree and nature to which (a) individual work; (b) material means of production; (c) economic Chancen of acquisition (whether they are sources for acquisition or means for it) are themselves appropriated, or not; and the consequent form of (α) occupational structure (Berufsgliederung) (social) and (β) market formation (economic).
Finally,
3. for every way in which work is conjoined, and combined with means of production, and for every way in which it is distributed among economies and appropriation—the economic question has to be posed: Is it employed for householding, or for gainful ends?
Here and in the following paragraphs one should consult the enduringly authoritative account given by Karl Bücher in his entry “Gewerbe” in the Handwörterbuch der Staatswissenschaften,54 together with his book Die Entstehung der Volkswirtschaft [Tübingen, 1893] (both fundamental works); deviation from his terminology and classificatory framework here being made only for reasons of convenience. There is little point in citing other literature since what follows here contains no new results but presents a classification that is useful for our purposes.
1. It has to be emphasised that we are only here recapitulating the sociological side of phenomena as briefly as is possible given the context, and we are dealing with the economic side only to the extent that it finds expression in formal sociological categories. This account would be substantively economic only if it included discussion of price and market conditions that, so far, have been dealt with at a theoretical level only. The material aspect of such issues could only be integrated as theses in such general prefatory remarks at the cost of a very inopportune one-sidedness. Moreover, purely economic explanatory methods are at once seductive, but questionable. For instance, the Dark Ages from the tenth to twelfth centuries have been thought decisive for the emergence of that form of medieval labour which, while subject to organisational regulation, was in a sense “free labour.” It has been further thought that specific ruling powers—lords controlling land, persons, and courts—found themselves having to compete for rental Chancen arising from the qualified labour of peasants, miners, and artisans. The epoch thought decisive for the development of capitalism is that of the great price revolution of the sixteenth century. This involved both an absolute and a relative increase in prices for (practically) all (occidental) agricultural produce, which, conforming to well-known principles of agricultural economy, both prompted and facilitated the emergence of trading enterprises, which in England took the form of capitalist enterprises, and in those regions between the Elbe and Russia, large patriarchal estates. By contrast, for important manufactured products the price revolution certainly involved for the most part absolute price increases, but not a general rise in relative prices; instead, typically a general reduction in relative prices occurred, thus stimulating the formation of enterprise forms capable of competing in a market—insofar as circumstances favoured enterprises together with other external and internal preconditions. In Germany, this was not thought to be the case, with its economic “decline” therefore being held to begin at this point. Later, as a consequence, the capitalist industrial enterprise emerged. The precondition for this is thought to be the emergence of mass markets. The most important sign that these were already in the course of formation can be found in specific changes in English trading policy (disregarding other phenomena). To be cited as proof of theoretical considerations, these and other similar claims have to be evaluated in terms of the material economic specificity of developments in economic structure. But that cannot be done here. These and numerous similar, and quite debatable, theses cannot be included in what are here, quite intentionally, merely sociological concepts, even when they are not thought to be entirely false. In the observations following in this chapter, we renounce any such attempt in this form, as we have done in the foregoing with the treatment of theories of price and money. This repudiation also involves, quite consciously, any genuine “explanation” in the following sections of this chapter; we limit ourselves for the time being to sociological typification. This cannot be emphasised too strongly. For only economic circumstances provide the flesh and blood of a genuine explanation of the course also taken by sociologically relevant trends. This account is for the moment concerned only with the provision of an initial framework so that we might be able to work with tolerably unambiguous concepts.
It is clear that the schematic systematisation presented here is not only inadequate to the empirico-historical sequence of individual possible forms, but also to the genetic typology of this sequence.
2. It is commonly, and properly, argued that in economic terminology there is often a failure to distinguish “enterprise” (Betrieb) from an “undertaking” (Unternehmung). In the domain of economically oriented action, “enterprise” is strictly speaking a technological category, the manner of continuously combining together particular kinds of labour outputs (Arbeitsleistungen), as well as combining such outputs with material means of production. Its converse is either (a) irregular or (b) technologically discontinuous action, as always happens in every purely empirical household. The converse of the practice of “venturing” (Unternehmen),55 a form of economic orientation to gain, is by contrast, “householding” (orientation to the meeting of need [Bedarfsdeckung]). But this contrast of “venturing” and “householding” is not an exhaustive one, for there are acquisitive activities that do not fall under the category “venturing”: all instances of seeking gain from work, such as done by the writer, the artist, or the official, are neither the one nor the other. On the other hand, the drawing and consumption of rental income is obviously “householding.”
It is notable that, despite this dichotomy, one has talked always of “acquisitive enterprise” (Erwerbsbetrieb) where there is continuous, connected, and enduring entrepreneurial action: this is, in fact, inconceivable without the constitution of “enterprise” (probably a sole trader without assistants). And the main point here was to emphasise the separation of householding and enterprise. As can now be established, use of the expression “acquisitive enterprise” instead of continuous acquisitive venturing is acceptable (because unambiguous) only in the simplest case where the technological unit of enterprise coincides with the unit of venturing. In the commercial economy, however, several technologically separate “enterprises” can be brought together into one “venture.” This latter is then naturally not constituted through the mere personal union of the entrepreneur, but through the unity of focus on some kind of unitary plan of utilisation for the purposes of acquisition (and transitional cases are possible). Where only “enterprise” is referred to, this is always understood to be a technologically separate unit—with respect to buildings, means of labour, labour force, and (probably heterocephalous and heteronomous) technological management—of the same kind that exists in the communist economy (as it is already widely known). From this point, “acquisitive enterprise” will only be used where the technological and economic unit (undertaking) coincide.
The relation of “enterprise” and “undertaking” becomes terminologically very difficult when we introduce categories such as “factory” and “household manufacture.”56 The latter is quite clearly a category of undertaking. According to the conventional sense of “enterprise,” an enterprise run by a merchant on the one hand, and enterprises as a part of artisan households with specified tasks on the other (excluding workshop labour, except where such labour is subcontracted by a peripatetic manufacturer), operate on quite different lines. The process is quite unintelligible in terms of enterprise, and categories such as market, undertaking, household (of the individual worker), and valorisation of paid work through acquisition are used instead. It would be possible, as has been suggested, to define “factory” in an economically neutral fashion since the kind of worker (free or unfree), nature of specialisation of labour (the presence or absence of internal technological specialisation), and means of labour employed (machinery, or not) can be left to one side. This would amount to workshop labour. Nonetheless, the definition still has to take account of the form of appropriation of workshops and means of labour (to one owner), otherwise the concept suffers a loss of clarity, like that of the ergasterion.57 And once that happens, it then seems in principle more convenient to consider both “factory” and “domestic industry” as rigorously economic categories of an undertaking based on capitalist calculation. In a thoroughly socialist order, the “factory” would be as rare as “domestic industry,” being characterised instead by natural workshops, sites, machines, and tools, together with workshop and domestic labour of all kinds.
3. The problem of economic “developmental stages” has not yet been dealt with, or has been raised only where the context renders it completely unavoidable and some comment was necessary. Here we can confine our comments to the following:
Recent and more exact distinction of forms of economy and forms of economic policy is quite justified. Schmoller’s terminology of stages,58 anticipated by Schönberg59 and since modified—household economy, village economy (to which additional “stages” were added in the form of landlords’ and patrimonial household economy), urban economy, territorial economy, and national economy (Volkswirtschaft)—is determined by the form of the organisation regulating the economy. But that does not imply that only the form of this economic regulation varied according to the differing scope of organisations. So, for example, German “territorial economy” to a very great extent simply adopted urban economic regulation, and its new measures were not qualitatively distinct from the “mercantilist” policy of specifically patrimonial, but also relatively rational, state organisations (and so represented Volkswirtschaftspolitik in the usual, rather unfortunate, expression). None of this implies at all that the inner structure of the economy—the manner in which work was specified, specialised, and combined, the manner in which such work was distributed to independent economies, and the manner in which labour valorisation, means of production, and Chancen for gain were appropriated—was in conformity with the scope of the organisation that was a (possible!) medium of economic policy, and ultimately, that scope and inner structure had the same meaning. Comparison of the Occident with Asia, and of the modern with the ancient Occident, would show just how mistaken such an idea is. Nonetheless, economic consideration cannot neglect the existence or nonexistence of organisations substantively engaged in economic regulation—not, of course, just political organisations, or the prime meaning of their regulatory mandate. The form of acquisitive activity is very strongly determined by this.
4. The purpose of this discussion is also here, above all: determination of the optimal preconditions of formal rationality of the economy and its relation to substantive “demands,” of whatever kind.
§16. The forms in which work is structured can be distinguished technologically as follows:
A. with respect to the distribution and coordination of work performed, namely:
1. according to the nature of the range of work taken on by one and the same person. These can either
a) be united in the hands of that person
α. be simultaneously the work of management and of execution, or
β. be only one or the other.
With regard to a), the contrast is, of course, relative, since someone who normally only engages in managerial work (e.g., a large farmer) does occasionally “lend a hand.” Otherwise, every small peasant, craftsman, or bargee comes under α.
b) One and the same person performs either
α. work (combination of work) that results in technologically varied and various final outcomes, either on account of
αα) insufficient specialisation of work for technological reasons
ββ) seasonal changes; or
γγ) to make use of resources and powers that cannot be effected by a primary occupation (supplementary work).
Or one and the same person performs
β. only specialised work, which is either
αα) specialised with respect to the end result; hence, the same functional agent completes all the necessary, technologically differentiated, simultaneous, and successive work (so that in this sense we are dealing with the combination of work): this is specification of work; or
ββ) specialised technologically according to the nature of the work involved, so that if necessary the final product can only be realised through the simultaneous or successive work of many persons: specialisation of work.
The contrast is in many instances a relative one but exists in principle and is historically important.
Regarding b)α: the case αα typically arises in primitive household economies in which, apart from the typical sexual division of labour (more about this in Chapter 5), each performs every task as and when necessary.
In the case of ββ), there is the typical seasonal change from agricultural to manufacturing work in the winter period.
For the case γγ), there is rural supplementary work taken on by urban workers, and also the many forms of “working on the side” done because the time was available, a practice that has survived into modern office work.
With respect to b)β: in the case of αα), quite typical is the way occupations were organised during the Middle Ages wherein a huge number of craft industries dealt in one specific end product even as what were often technologically quite heterogeneous labour processes led to this end—which is an instance of the combination of work. The case of ββ) covers the entire modern development of labour. But from a rigorous psychophysical standpoint, hardly any of the most intensely “specialised” labour is isolated to any great extent; there is always an element of work specification involved, except that it is no longer oriented to the final product, as during the Middle Ages.
The way work is distributed and coordinated (see A above) can be further distinguished
2. according to the way the work of several persons is combined to achieve one outcome. There is the possibility of
a) the amassing of work: the technological coordination of similar work on the part of several persons for the purpose of attaining an outcome
α. by means of ordered, technologically independent work performed in parallel;
β. by means of sociated (similar) labour technologically organised to form a larger production.
In the case of α, examples would be reapers or pavers working in parallel; in the case of β, in ancient Egypt, thousands of forced labourers were harnessed together to move huge stones, all of them doing the same work, pulling on a rope.
b) The coordination of work: the technological coordination of qualitatively different, hence specialised [A.1.b)β.ββ] work for the achievement of an outcome:
α. through work whose elements are technologically independent of each other
αα. simultaneously, hence parallel
ββ. successively performed specialised labour, or
β. through technologically specialised (technological complementarity), sociated labour performed simultaneously.
1. In the case of α.αα, an especially simple example is the work running in parallel in spinning on warp and woof, and there are many very similar labour processes that can be likened to this—in fact all labour processes running in parallel that are technologically independent but are directed to one ultimate end product.
2. In the case of α.ββ, there is the relation between spinning, weaving, fulling, dyeing, and finishing that is the most common and simple form, but for which there are examples in all industries.
3. In the case of β, beginning with the holding of a piece of iron and the hammerblow of the smith (and which on a larger scale is repeated in every modern boilermaking plant), any kind of joint “manual manipulation” in the modern factory—not typical of this alone, but an important characteristic nonetheless—is quite typical. Beyond the factory, the ensemble of an orchestra or a troop of actors are quite typical.
§17. Continuation from §16.I.
The forms in which work is structured can also be distinguished technologically as follows:
B. according to the degree and manner of combination with complementary material means of production. First,
1. to the extent that they
a) offer pure services;
Examples: washerwomen, hairdressers, artistic offerings from actors, and so forth.
b) create or transform material goods, that is, process “raw materials” or transport them. More precisely, insofar as these
α. work related to application or installation
β. work related to the production of goods
γ. work related to the transport of goods. The contrast is entirely fluid.
Examples of work related to application or installation: whitewashers, upholsterers, plasterers.
Furthermore:
2. According to the degree to which they make produced goods ready for final consumption.
From agricultural or mining products to those suitable for final consumption, and those products brought to the location of consumption.
3. And finally, to the extent that they make use of
a) “installations” (Anlagen), to wit
αα) power plants, that is, means for the realisation of usable energy, whether this involves
i. natural sources of energy (water, wind, fire), or
ii. mechanised sources of energy (primarily steam, or electric or magnetic).
ββ) separated workshops
b) working instruments, that is
αα) tools
ββ) apparatus
γγ) machinery
and probably: only one or the other, or none at all of these categories of means of production. Pure “tools” are those working instruments whose production is oriented to the psychophysical conditions of human manual labour; “apparatus” requires for its working that human labour “operate” it; and “machinery” is mechanised apparatus. The entirely fluid distinction of these has a certain significance in the characterisation of particular epochs of industrial technology.
For today’s large-scale industry, the characteristic use of installations and machinery is technologically determined by (a) the specific capacity and the saving of human labour, and (b) a specific constancy and predictability in output with respect to quantity and quality. It is therefore rational only where there exists a sufficiently broad need for the products in question. In terms of the conditions of commercial economy, this means sufficiently broad-based purchasing power for goods of the relevant kind, as well as the distribution of money incomes that corresponds to this.
Even a modest outline of a theory of the development of the economics and technology of tools and machinery is, of course, here entirely out of the question. “Apparatus” is here used to refer to working instruments such as the treadle loom and numerous similar pieces of equipment. These do, however, express the autonomy of mechanical technology with respect to the human (or even animal) organism, without whose existence machinery as employed today would never have been invented (as, e.g., the mechanised conveyors used in mining). Leonardo’s “inventions” were “apparata.”
§18. II. The nature of the division of work (Leistungsverteilung) is socially differentiated by
A. the manner in which qualitatively different or especially complementary work is distributed between autocephalous and more or less autonomous economies, which themselves can be economically distinguished as either (a) households or (b) acquisitive enterprises. There are two possible variants:
1. a unified economy with purely internal, and therefore with an entirely heterocephalous and heteronomous, purely technological specialisation of work (or specification of work) and coordination of work (division of work within a unitary economy). Economically, the unitary economy can be
a) a household;
b) a gainful undertaking.
A unitary household writ large would be a communist economy, and on a small scale, the primitive family economy that included most, if not all, work associated with the provision of goods (closed household economy). The type of gainful enterprise with internal specialisation and coordination of work is of course the combined giant undertakings that have an exclusively trading relationship with third parties. These two contrasting types begin and provisionally end the development of the autonomous “unitary economic action.”
2. Or there is a division of work between autocephalous economies. This can be
a) the specialisation or specification of work between heteronomous but autocephalous single economies oriented to an order established by agreement or compulsion. For its part, this order can be substantively oriented
1. to the needs of a superior economy, either
α. the household of a ruler (division of work as per the oikos), or
β. a seigneurial (herrschaftlich) acquisitive economy;
2. to the needs of the members of a cooperative organisation (economic division of work within the organisation), which are from the economic point of view treated either
α. as households or
β. as gainful economies.
For its part, the organisation can conceivably be in all these cases
I. solely concerned with (substantive) economic regulation, or
II. at the same time, an economic organisation. Alongside all of these there is also
b) specialisation of work in a commercial economy between autocephalous and autonomous economies substantively oriented only to the given state of interests, hence formally only to the directive function of an ordering organization (Chapter 2, §5.d)).
1. Typical for the organisation concerned solely with the regulation of economic activity (I) that assumes the form of a cooperative household (2α) is the organisation of Indian village craft work. The typical economic organisation (II) is the household of a ruler who allocates the household needs of a prince, landowner, or feudal lord (or in the case of princes, also political needs) to the individual economies of their subjects, vassals, bondsmen, slaves, cottars, or village craft workers (see below); as such, this type is both primeval and universal. The regulation of economic activity in those instances falling under 1. was often, for example, payment in finished goods on the part of those who were within a landowner’s jurisdiction in the first case, or that of a town corporation in the second, so long as such payments served only fiscal and not material ends. Further such regulation of gainful economic activity [a)1.β] apportioned a levy on the output of domestic industry to individual households.
Typical of the economic organisation (II) for a)2.β are all cases where the specialisation of work has been forced on some small long-established industries. Metalworking in Solingen was originally based on a specialisation of work that had been reached through communal agreement, and only later did it assume the form of seigneurially coordinated manufacturing (the Verlag system).
Economic activity regulated by an organisation as in 2.β.I includes all trade governed by village or urban economies, to the extent that they have a material impact on the manner in which goods are produced.
2.b) is the modern commercial economy.
Some further details can be added to the above.
2. Those organisations of the type 2.α.I are oriented to household economy in a particular way: through their orientation to the foreseeable need of individual members rather than to the (village) organisation’s budgetary aims. Specified obligatory contributions oriented to this will be called demiurgic services in natura, and the form in which this need is met, demiurgic meeting of need. This is always a matter of corporate organisation of the division of labour and, probably, also of the coordination of labour.
This nomenclature will not, on the other hand, be used for an organisation (whether a seigneurial or cooperative order) that has, as in 2.a)II, its own economy for which contributions are levied by specialisation. Types of this kind are specialised or specified contributions in kind made by feudal manors, landed estates, and other large households. Also included here are the obligations assigned to organisations such as those of princes and political, communal, or other groups that are not primarily oriented to economic ends but that contribute to the households of rulers or of the organisation. Such qualitatively specifically ordered obligations to be rendered in labour services or in kind by peasants, craftsmen, and traders will be called oikos-based services in kind where large-scale personal households are the recipients, and corporate services in kind where corporate budgetary units are the recipients. The principle involved in this way of providing for the budget of an economically active organisation will be called “meeting of need through the provision of (liturgical) services.” This particular form in which needs have been met has played an extraordinarily important historical role, as will be discussed below. In political organisations, it represented the position of modern “finance,” while in economic organisations it implied a “decentralisation” of the central household by shifting its needs to units no longer part of this common household, but which had established their own independent households and owed contributory obligations, and were hence dependent—such as peasants owing labour services or tithes, estate craft workers, and those owing payments of all kinds. Rodbertus was the first to apply the term oikos to the large ancient household,60 the leading conceptual feature of this term being intended to convey the principle that needs were met autarchically through the work of household members or of labour belonging to the household, for whom material means of provision were available without need for any exchange. In fact, the landed, and even more so, the princely, household of antiquity (especially the Egyptian “New Kingdom”) converged to varying degrees on one type, although rarely in any pure form: provisioning of large households was effected through obligations in labour and in kind imposed on dependent households. The same can at times be found in China and in India, and to a lesser extent, in our Middle Ages, beginning with the capitulare de villis: there was usually no lack of external transactions, but these transactions assumed the form of exchanges between households. There was likewise no shortage of monetary contributions, but these played a minor role in the meeting of need and were bound up with tradition. External transactions on the part of economies burdened with services to be rendered in kind or in labour were also not uncommon. But what was decisive was that the bulk of needs were met through the provision of goods in kind as the settlement for services levied: goods in kind or tithes were the outcome. There are, of course, intermediate forms between the two. But in every case, the organisation economically regulated the orientation of work performed with respect to the division and coordination of labour.
3. Considering the organisation engaged in the regulation of economic activity [a)2.I], for the instance β (acquisitive economic orientation), a fairly pure type is the economic regulation performed by the occidental medieval commune, as also in the guilds and castes of China and India: here the regulatory activity controlled the number and kind of master’s positions available, and the labour techniques concerned, consequently regulating the orientation of labour in craft industry. In this regard, the purpose was not provision for consumer need through the products of craftsmen, but (if not unfailingly, then very frequently) securing gainful opportunity to the craftsman, maintaining in particular the quality of work done and allotting output directly to clients. As with any regulation of economic activity, this of course implied a limitation of market freedom and so, associated with this, of the freedom for autonomous gainful orientation on the part of craftsmen. For their part, their orientation was to sustaining the “continued existence” of their own enterprises, and so, despite the gainful form assumed by their economic activity, this was nevertheless in substance closely linked to a householding orientation.
4. For case 2.II.β, apart from the pure types of domestic industry already introduced, the principal examples are the landed estates of eastern Germany, oriented to the order of an Instmann61 economy, and those in the northwest oriented to an economy in which free hired agricultural hands (Heuerlinge) played a substantial part. The landed estate, like the Verlag system linked into domestic industry, represents gainful enterprise for the landowner and the manufacturer. The economic enterprises of Instleute and domestic industrial workers are oriented, with respect to the division of labour and work relations forced on them and to their acquisitive activity in general, mainly to the obligatory services forced on them by the labour organisation of the estate, or by their dependence on domestic industry. Apart from this, they remain forms of householding. Their gainful activity is not autonomous, but rather heteronomous gainful activity for the benefit of the enterprise of landowner or manufacturer. Depending on the extent to which there is substantive uniformity in this orientation, circumstance can render the purely technological division of labour within one and the same enterprise, very much like that which prevails in a “factory.”
§19. Continuation of §18.II. The division of work is further socially differentiated by
B. the manner in which existing Chancen for work designated for remuneration are appropriated.62 The object of appropriation can be
1. Chancen for realising the gains from work done (Leistungsverwertungschancen);
2. material means of production;
3. Chancen for gain from the work of management (disponierende Leistungen).
For the sociological concept of “appropriation,” see Chapter 1, §10.
1. The appropriation of Chancen for the valorisation of labour: possibilities are
I. that the work might pass to a single recipient (a ruler) or to an organisation;
II. that the work is sold on the market.
In each case, the four following radically contrasting possibilities exist.
The first of these possibilities:63
a) monopolistic appropriation of Chancen for valorisation to the individual worker (free guild labour) as
α. heritable and alienable, or
β. personal and inalienable, or
γ. still heritable, yet inalienable—in all of these cases, either unconditionally or linked to material presuppositions.
Examples for 1.a)α are I. the Indian village craftsman; II. medieval rights to pursue a trade related to a piece of land or a building; for 1.a)β in case I, all “rights to office”; for 1.a)γ.I and II, specific medieval rights, but above all, those Indian rights to pursue a trade and medieval “offices” of the most diverse kind.
Second possibility:
b) Appropriation of the valorisation of labour power to an owner of the worker (unfree labour)
α. freely, that is, heritable and alienable (complete slavery), or
β. while heritable, either inalienable, or not freely alienable, but rather, for example, alienable together with the material means of labour, especially land (bondage, serfdom).
The appropriation of the valorisation of labour to a ruler can be substantively limited (see b)β, bondage). The labourer cannot unilaterally leave his position, but neither can it be unilaterally taken from him.
Appropriated, valorised labour can be used by its owner
a) in his household, either
α. as a source of rent in natura or in money, or
β. as labour power in the household (domestic slaves or bondsmen);
b) for gainful ends,
α. either as αα providing commodities, or ββ working-up provided raw materials for disposal through sale (unfree domestic industry),
β. as labour employed in an enterprise (slave or bondage enterprise).
“Owner” is here and consistently in the following employed to designate a person participating in the labour process who is (normally) not as such necessary to the work of production or of direction. As owner, he can be the “manager,” but this is not necessary, and very often not the case.
In antiquity and the early medieval period, the use of slaves and bondsmen (vassals of all kinds) in “households,” not as workers in a gainful enterprise, but as a source of rent, was quite typical. Cuneiform writings describe, for example, the slaves of a Persian prince who were apprenticed perhaps so that they might work for the household as labour power, but perhaps, on the other hand, so that they might work substantively freely for a customer in return for a payment (Greek, άποφορά; Russian, obrok; German, Hals or Leibzins). For Hellenic slaves, that was certainly the rule (although not, of course, one without exception), while in Rome this kind of independent economic activity providing peculium or merx peculiaris (and of course, payments made to rulers) became established as a legal institute. During the Middle Ages, serfdom quite often and extensively declined (for example, in western and southern Germany), to a rental right levied on otherwise almost completely independent persons; in Russia, the actual limitation of the ruler to an obrok relationship with otherwise independent serfs (even if the legal basis for this was precarious) was quite common, although not the rule.
In the domestic industry conducted on landed estates (certainly including many princely estates, and quite possibly those of the pharaohs), “gainful” use of unfree labourers assumed the form of
a) unfree obligations: the provision of goods in kind, the raw material for which (e.g., flax) had been cultivated and worked up by the workers themselves (bonded peasants); or
b) unfree valorisation: the working up of material that the ruler delivered. The product was possibly, at least in part, turned into money by the ruler. But in very many cases (as in antiquity) this market valorisation of the product remained a limited, casual activity, although this was not the case in early modernity in the German-Slav border regions. Here in particular (but not only here) domestic industries formed on landed and feudal estates. Feudal acquisitive activity could become a continuous enterprise that takes the form of either
a) unfree home working, or
b) unfree workshop labour.
Both can be found, the latter as one of the different forms assumed by the workshop in antiquity, in the workshops of the Temple and of the Pharaohs; in depictions on tomb frescoes of private feudal lords in the Orient; in Hellas (Demosthenes’s workshop in Athens); in Roman auxiliary estate enterprises (see the description by Gummerus) in Byzantium; in the Carolingian genitum (equivalent to Gynaikeion); and, in recent times, for example, the Russian serf factory (see Tugan-Baranovsky’s book on the Russian factory).64
Third possibility:
c) The absence of any form of appropriation (formally free labour in this sense of the word): work on the basis of a mutually voluntary contract. The contract can, however, be substantively regulated in a variety of ways by conventional or compulsory legal statutory working conditions.
Freely contracted labour can be valorised and is typically employed
a) in a household:
α. as casual labour (Bücher calls this “wage labour”);65
αα) in a tenant’s own household (Stör);
ββ) or based in the labourer’s household (Bücher calls this “homeworking”)
β. as permanent employment
αα. in a tenant’s own household (rented domestic services);
ββ) or based in the labourer’s household (the colonate is typical)
b) as gainful labour,
α. as casual labour, or as
β. permanent labour—in both cases, likewise either
1. based in the labourer’s household (homeworking), or
2. in an owner’s separate enterprise (estate or workshop labourer, especially: factory worker).
In a) the labour contract places the worker in the service of a consumer who “directs” the work; in 2. the worker is at the disposal of an acquisitional entrepreneur—and while there might here be legal equality in form, economically there can be a yawning gulf. Colonate workers can be both, but typically work for an oikos.
Fourth possibility:
d) The appropriation of Chancen for the valorisation of labour can finally devolve to a workers’ organisation without any, or without free, appropriation to the individual labourer, through
α. absolute or relative external closure;
β. exclusion or limitation of the power of the manager to deprive a worker of the Chancen of gainful employment without involvement of the worker.
Here belongs any appropriation to a caste of workers or to a “miners’ community” of this kind (as in medieval mining), to a group of court retainers, or to the “threshers” of a landed estate. This form of appropriation continues down through infinite degrees of differentiation through the social history of all regions. The second form, also widespread, is the Trade Union “closed shop,”66 and this has become especially modern with the emergence of “workers’ councils.”67
Any appropriation of workplaces in gainful enterprises to workers, just as in reverse the appropriation of the valorisation of workers (“unfree”) to owners, implies a restriction to the free recruitment of the labour force, and hence to the selection of workers according to their optimal efficiency, and hence also a limitation on the formal rationalisation of economic activity. This substantively furthers the restriction of technological rationality insofar as
the gainful valorisation of the products of labour are appropriated to an owner;
a) the tendency exists to allocate quotas for work performed (traditional, conventional, or contractual),
b) there is a diminution or, where the worker is entirely appropriated to the owner (slavery of a people), complete disappearance of any interest the worker might have in working at an optimum level;
II. there is appropriation to the worker through a conflict between the worker’s self-interest with respect to a traditional life-situation (Lebenslage) and efforts on the part of those seeking to realise value to (a) force their work to a technologically optimum level, or (b) employ technological substitutes for their labour. Masters (Herren) will thus always be inclined to transform valorisation into a mere source of rent. Appropriating the realisation of gains from products to the worker thus tends to favour, where circumstances are favourable, the more or less complete expropriation of the owner from management. Another regularly occurring phenomenon is the emergence of the worker’s material dependence on partners in exchange who enjoy an advantage (Verleger) and assume the position of manager.
1. There is a practical similarity in outcomes for these two, formally opposed, tendencies: appropriation of the place of work to the worker, and of the worker to an owner. There is nothing especially striking here. First, both are very often already formally connected to each other. This is the case when the appropriation of a worker to a master coincides with the appropriation of Chancen for gain on the part of a worker to a closed organisation of workers, such as court retainers. In such cases, there is of course extensive stereotyping of the worker’s capacity for valorisation, that is, the reduction of work to set quotas, diminution of any interest in work, and therefore workers’ successful resistance to any form of technological “reform” or “renewal.” But even where this does not occur, the appropriation of a worker to an owner actually means that the masters are dependent on the valorisation of this particular workforce that he has not, as in a modern factory enterprise, selected for employment, but that must simply be accepted without discrimination. This is especially true for slave labour. Every attempt to squeeze more from appropriated workers, varying from the amount they are traditionally accustomed to perform, meets with traditionalist obstruction and could be sustained only by the most ruthless means. Normally, such a course would not be without danger for the master’s self-interest, for it would endanger the traditional foundation of his dominant position. Consequently, the work of appropriated workers has everywhere had a tendency to settle at a set amount, and where this has been broken by the masters’ power (as in eastern Europe at the beginning of the modern period), the absence of selectivity and the lack of any self-interest or readiness to take risks on the part of appropriated workers has obstructed progression to a technological optimum. Where positions of work have been formally appropriated to the worker, the same outcome has ensued, only more rapidly.
2. The case described in the last sentence is typical for developments of the early medieval period (the tenth through the thirteenth centuries). The assarts of the Carolingian period contracted and disappeared, together with all other initial elements of large agricultural enterprise. The rents of landowners and feudal lords became stereotypical and settled at a very low level; an increasing proportion of the natural product (agriculture, mining) and of the money return from craft industry found its way into the workers’ hands. The “favourable circumstances” for this path of development, which took this form only in the Occident, were (1) the propertied stratum’s political and military preoccupations, (2) the impossibility, owing to the absence of suitable administrative staff, of property owners employing workers as anything other than a source of rent, linked to (3) the difficulty of preventing workers from moving freely between the property owners’ competing particular interests, (4) the massive Chancen for opening up new land, sinking mines, and creating local markets, in connection with (5) the technological tradition of antiquity. The more that Chancen for gain were appropriated to workers (classical types are in mining and English guilds), instead of the worker being appropriated to the owner—expropriation then rendering owners pure receivers of rents (followed even then ultimately by the abrogation or repudiation of any duty to render payment of rent—“the freedom of town life”)—the more that workers found that differentiated Chancen for making gains in a market were quickly opening up in their midst (and were also being introduced externally by traders).
§20. Continuation of §19.II.B. Appropriation of means of production complementary to labour. This can be
a) to workers, either individually or to organisations made up of workers, or
b) to owners or
c) to third-party regulatory organisations.
As regards a), appropriation to workers. This can be
α. to individual workers, who then “possess” the material means of production;
β. to a completely or relatively closed organisation of workers (members of a cooperative group), such that it is not the individual workers, but the organisation itself that possesses the material means of production.
The organisation can pursue economic activity
αα) as a unitary economy (communist),
ββ) through the appropriation of (cooperative) shares.
In all of these cases, appropriation can be realised by
1. householding or
2. acquisitive activity.
Case α implies either complete commercial economic freedom of the peasants, craftsmen (Preiswerker68 in Bücher’s terminology), canal boatmen, or wagoneers in possession of their material means of production. Or they establish regulatory organisations among themselves (see below). Case β includes some very heterogeneous phenomena, depending on whether economic activity is conducted in a household or for gain. Household economy, which is in principle not necessarily a historical “origin” or actually (see Chapter 5)69 communist, can be oriented purely to its own need. Or it can gradually begin to dispose of its own surplus product through an exchange of necessities (Bedarfstausch), where it enjoys a monopoly thanks to an advantageous location (specific kinds of raw materials) or particular, learned craft skills. This can develop into regular acquisitive exchange. Then “tribal commerce” tends to develop, and since Chancen of disposal depend on monopoly, or mostly on inherited secrets, this takes the form of interethnic specialisation and interethnic exchange. Tribal commerce then becomes either a wandering trade carried on by pariah groups, or, if united into a political organisation, castes (on the basis of interethnic ritual estrangement), as in India. Case ββ) is that of the “producers’ cooperatives.” Household economies can, where penetrated by monetary calculation, come close to this. Otherwise, it is occasionally found as an organisation of workers. Typical of this, and certainly an important case, were the mines of the early Middle Ages.
b) Appropriation to owners or organisations constituted by owners can—since we have already dealt with appropriation to a workers’ organisation—mean here only: expropriation of the worker from the means of production, and not simply as an individual, but as a whole. Here there can be appropriated
1. to the owner one, some, or all of the following posts:
α. land (including waters)
β. valuable underground deposits,
γ. power sources,
δ. workshops,
ε. instruments of labour (tools, apparatus, machines),
ζ. raw materials.
All of these can in each case be held by the same person, or they can be held by different persons.
The owner can valorise the means of production appropriated to him
α. in a household,
αα. as a means of meeting his own needs,
ββ. as sources of rent, by loaning it for
I. household employment,
II. valorisation as a means for gain, hence
ααα) in a gainful enterprise without capitalist calculation,
βββ) as capital goods (in a separate undertaking), finally
β. as his own capital goods (in his own undertaking).
A further possibility is:
2. Appropriation to an economic organisation, for whose conduct the same alternatives exist as in 1.
For c) a final possibility is:
3. Appropriation to an economically regulatory organisation that employs means of production neither as capital goods nor as sources of rent, but which makes them available to members of a cooperative.
1. For individual economic units, the appropriation of land is encountered primarily
a) for the duration of current cultivation until the harvest;
b) to the extent that the land is itself man-made, through
α. clearing,
β. and irrigation
for the duration of continuous cultivation.
Only when the shortage of land makes itself felt do we find
c) closure of access to the cultivation of land, to the use of pasture and timber, and the setting of quotas to members of a settlement group for their usage.
The appropriation that then arises can be assigned to
1. an organisation, differing in size according to the usable resource (Nutzbarkeit) (for gardens, meadows, arable land, pasture, woodland: groups of increasing size from the individual household to the “tribe”).
Typical are:
a) a clan, or additionally,
b) a group of neighbours, normally a village group for the use of arable, meadow, and pasture;
c) a significantly more broadly based territorial group (Markverband) of varying character and extent for the use of wood;
d) households for garden and farm plots with proportionate shares in arable and pasture. Proportionate participation can take the form of
α. an empirical equality when new ground is broken in slash and burn arable cultivation (alternation in use of arable and pasture),
β. rational and systematic periodic redistribution for settled arable cultivation; this is usually first brought about by
α. fiscal claims where villagers are collectively responsible for payment, or
β. political claims for equality on the part of members.
It is normally household communities that are the foundation of enterprise.70
[Or appropriation can be assigned to]71
2. A landowner, whether the source of such rule is founded on being head of a clan (which will be discussed below), or as a chief able to claim labour services,72 or on compulsory fiscal or military levies, or systematically newly cleared land, or irrigation.
Landownership can be exploited
a) with unfree (slave or bonded) labour
1. in a household
α. through tribute
β. through services;
2. gainfully:
as a plantation
b) with free labour:
I. in a household based on payments made for the use of cultivable land and woodland by free peasants
αα) through payments made in natura (sharecropping or tribute) by tenants;
ββ) through a money rent paid by tenants. Both:
ααα) with their own inventory (heritable tenants),
βββ) with inventory belonging to the landowner (colonists);
II. acquisitively: as a rational large enterprise.
In the case of a)1, the landowner tends to cleave to tradition in the manner in which land is exploited with respect both to the person of the (unselected) worker and his performance. Case a)2 is encountered only in ancient Carthaginian, Roman, colonial, and North American plantations; case b)II only in the modern Occident. The nature of the development of landownership (and, above all, its collapse) decided the nature of modern relationships of appropriation. As pure types, these involve only (a) the owner of land, (b) the capitalist tenant, and (c) the propertyless worker. This pure type is exceptional, and found only in England.
2. Land that can be exploited by mining is appropriated to either
a) the landowner, mostly in the past a landlord, or to
b) a political ruler (possessing mineral rights), or to
c) any “finder” of exploitable deposits (“free mining”), or to
d) a group of workers, or to
e) a gainful enterprise.
Landlords and the owners of mineral rights can exploit the deposits appropriated to them either directly themselves (as occasionally happened in the Middle Ages), or they can use them as a source of rental income, and hence lease the deposits; this can be done with respect to either
α. a group of workers (community of miners)—case d)—or
β. to every finder, or to every finder in a particular grouping (as in medieval “freed mines,” from which free mining began).
In the Middle Ages, workers’ groups typically assumed the form of share-based cooperatives with an obligation to work in the mine owed either to the master of the mine who sought a rental income, or as a matter of solidarity with other members of the cooperative; this also involved a right to a share in the product. These groups also assumed the form of owners’ associations sharing in both contributions and product. The mine owner was increasingly expropriated to the advantage of the workers, but who in turn increasingly ceded their possession to the shareholders of mining companies as their need for the installation of capital goods increased, so that the final form of appropriation was the capitalist “mining company,” or a limited company.
3. Means of production that took the form of “installations” [cf. §17.B.3.a)] (power sources, especially watermills, “mills” of all kinds and applications, and workshops quite probably with fixed equipment) have in the past, and especially during the medieval period, been consistently appropriated to
a) princes and landlords (case 1),
b) towns (case 1 or 2),
c) groups of workers (guilds, associations, case 2)
without any unitary enterprise being established.
Rather, in case a) and b) valorisation assumed the form of a source of rental income by granting permission in return for payment, frequently linked to a grant of monopoly and compulsory exploitation. Such exploitation was then effected by a succession of individual enterprises, in turn or as need arose, and they were in many cases themselves the monopoly of a closed regulatory organisation. Baking ovens, mills of all kinds (for grinding grain and sources of oil), fulling mills, grinders, slaughterhouses, dyers, bleaching facilities (belonging, e.g., to monasteries), forges (that were regularly leased to enterprises, however), plus breweries, distilleries, and other installations, especially wharves (in possession of the Hansa), selling pitches of all kinds—these were all precapitalist, permission for their use by workers being granted against payment; they were consequently used as the property of their owners (either individually or as a group, particularly from a town) and not as capital goods. Production and domestic (haushaltsmäßige) exploitation as a source of rental income by individuals or groups, or the work of producer cooperatives preceded any transformation into “fixed capital” in owner-managed enterprises. The users of installations for their part made use of them in part domestically (baking ovens, also breweries and distilleries), in part for gain.
4. Maritime commerce has typically in the past appropriated the ships to a majority of owners (ship share owners) who became increasingly distanced from the crews of these ships. While voyages then became a venture in which risk was shared with shippers, shipowners, ship officers, and crews also participating as shippers, this did not create any relations of appropriation distinct to those outlined above, just special ways in which calculations were made and Chancen for gain were created.
5. In the past, it was the exception if all means of production—plants of all kinds and tools—were appropriated into one hand, as is the rule in the modern factory. In particular, the Hellenic-Byzantine ergasterion (Latin: ergastulum) was economically thoroughly varied in form, a fact that historians stubbornly ignore. It was a “workshop” that could be (1) part of a household, in which (a) slaves carried out particular kinds of work for the domestic needs (Eigenbedarf) of the lord (e.g., an estate economy); or it could be (b) the site of an “ancillary enterprise” for sale, based on slave labour. Or (2), the workshop could be used as a source of rental income and be part of the property of a private individual or group (a town, like the egasteria of Piraeus), rented out in return for payment to individuals or workers’ cooperatives. Thus, when work was done in an ergasterion (especially if an urban one), the constant question is, To whom did the ergasterion belong? To whom did the remaining means of production used in the course of work belong? Did free workers work there? On their own account? Or did slaves work there? And so possibly: to whom did the slaves who worked there belong? Did they work on their own account (against apophora, payment to a master), or on that of their master? Each different answer to these questions resulted in a qualitatively and radically distinct economic configuration. In the bulk of cases, the ergasterion seems to have functioned as a source of rental income (which is what Byzantine and Islamic institutes demonstrate); they were consequently something entirely distinct from any sort of “factory” or even its predecessors, most comparable in economic diversity to the different kinds of medieval “mills.”
6. Even where the workshop and its equipment were appropriated to one owner who hired labourers, this does not at all mean that matters had reached the arrangement that we today commonly refer to as a “factory,” so long as there was (1) no mechanical power source, (2) no machinery, and (3) no internal specialisation and combination of labour. Today, “a factory” is a category of the capitalist economy. This concept should only be used in relation to an enterprise that can be the object of an undertaking with fixed capital, possessing the form of a workshop enterprise with an internal division of labour and appropriation of all material means for the conduct of the enterprise with mechanised labour, that is, labour oriented to the use of motors and machines. Jack of Newbury’s sixteenth-century workshop, whose praises were sung by contemporaries, lacked all these features, despite the alleged assembly of hundreds of looms belonging to him; these were worked independently alongside each other, just as they would be at home, the raw material for them being bought from the entrepreneur and with all kinds of “welfare services” being available to the workers. An Egyptian, Hellenistic, Byzantian, or Islamic ergasterion in the possession of a master of (unfree) workers could—there are doubtless such cases—operate with internal specialisation and a combination of labour. But the circumstance, quite apparent in Greek sources, that even in this case the master occasionally was content with apophora (from each labourer, with a higher rate for supervisory labourers) suggests that caution is needed in equating this economically with a “factory,” or even a workshop enterprise like that of Jack of Newbury. Closest to a “factory” in the usual sense were royal manufactories: for example, the Imperial Chinese Porcelain Manufactory and the European workshop enterprises for courtly luxuries that were modelled in this manufactory, but above all those enterprises created for military needs. No one can be prevented from calling these “factories.” At a superficial level, Russian workshop enterprises employing serf labour were very close to the modern factory. The appropriation of the worker is here added to the appropriation of the means of production. Here, for the reasons given, the concept “factory” will be used only for workshop enterprises with (1) material means of production fully appropriated to an owner, without appropriation to the labourer; (2) with internal work specialisation; (3) where mechanical power sources and machines that require “operating” are used. All other kinds of “workshop enterprises” will be characterised as such with this name together with related qualifications.
§21. Continuation of §19.II.B. 3. Appropriation of managerial work.73 Typically:
1. for all kinds of traditional household management
a) this is done by the head of household or of the clan himself, or
b) by an administrative staff appointed by the head of household to direct the household (socage of house officials).
It occurs
2. in gainful enterprises
a) where there is a complete, or near complete, coincidence of management and labour. In this case, it is as a type identical with the appropriation of material means of production to the worker [B.2.a)]. In this case, it can be
α. unrestricted appropriation, and hence heritable and alienable guaranteed appropriation to the individual,
αα. with, or
ββ. without guaranteed clientele, or
β. appropriation to an organisation, appropriation to the individual being only personally or materially regulated, hence conditional appropriation, or appropriation linked to preconditions, with the same alternative;
b) where management and labour are separated, it assumes the form of monopolistic appropriation of entrepreneurial Chancen in their various possible forms through
α. cooperative (guild-based) monopolies or
β. monopolies arising from political force.
3. Where there is a complete absence of appropriation of management, the appropriation of means of production—or the credit lines required to acquire capital goods—is, for enterprises employing capitalist calculation, in practice identical to the appropriation of disposal of management functions to the owners concerned. These owners can exercise such disposition
a) in owner-managed enterprises,
b) by selection of the enterprise director (or where there are several owners, by cooperating on selection).
These obvious points need no comment.
Any appropriation of materially complementary means of production also naturally means almost as a matter of course at least a deciding right of participation in the selection of management and the expropriation of the worker from management, relatively at least. But not every instance of the expropriation of the individual worker means expropriation of the worker in general, so long as a group of workers is, despite formal expropriation, substantively in a position to forcibly bring about joint management, or joint selection of management.
§22. The expropriation of the individual worker from possession of material means of production is determined purely technologically:
a) where the means of labour are such that they have to be operated simultaneously and successively by many workers,
b) where powered plants can only be run in a rational manner through the simultaneous use of numerous, uniformly organised similar labour processes,
c) where the technologically rational orientation of the labour process can only be effected when combined with complementary labour processes subject to common and continuous supervision,
d) where there is a need for separate specialised training to manage related labour processes, the benefits of which can only be rationally enjoyed on a large scale,
e) where there is the possibility of strict labour discipline and hence the supervision of work, and thereby uniform products in the case of unified disposition of labour and raw materials.
These different moments would, however, leave open the possibility of appropriation to an organisation of workers (producer cooperative), and hence imply only the separation of the individual worker from the means of production.
The expropriation of the entirety of the workers (including commercially and technologically trained staff) from possession of the means of production is determined economically above all
a) generally, all other things being equal, by a greater degree of enterprise rationality with respect to the power of management to select labourers and determine their employment, as contrasted with the technologically irrational restrictions and economic irrationalities arising from the appropriation of workplaces, or from the power to participate in management, especially the introduction of inconsequential everyday conceptions of budgeting and consumption alien to the enterprise.
b) by superior credit-worthiness in a commercial economy of an entrepreneur trained in business whose continued business experience is recognised, whose dispositions are unrestricted by special workers’ rights, and whose management has unlimited powers of disposal over credit and securities.
c) Historically, it originated from the sixteenth century onwards within an economy that developed through an extensive and intensive extension of the market, thanks to the absolute superiority and actual indispensability of individual, market-oriented management on the one hand, and to pure constellations of power on the other.
Beyond these general circumstances, the undertaking oriented to market Chancen furthers this form of expropriation
a) by rewarding the rational and technological qualities of capitalist calculation where there is complete appropriation to the owner, as compared with any other economic process of lower calculable rationality,
b) by rewarding the purely mercantile qualities of management as contrasted with their technological qualities, and the maintenance of technological and commercial secrets,
c) by favouring speculative management, which presupposes such expropriation. This is ultimately made possible without regard to the degree of technological rationality involved:
d) through the superiority possessed
α. in the labour market, by virtue of possession of any property, with respect to partners in exchange (workers),
β. in the goods market with respect to any commercial competitor inferior in methods of calculation, less well situated with regard to credit-worthiness, and less well provided with capitalist calculation, installed capital goods, and access to commercial credit. A further specifically material irrationality of the economic order is that the greatest extent of formal rationality in capitalist calculation is possible only where the worker is completely subject to the rule of entrepreneurs.
Finally,
e) discipline is optimal where there is free labour and the complete appropriation of the means of production.
§23. The expropriation of all workers from the means of production can in practice mean:
1. Management of an organisation by the administrative staff; especially any rational socialist economy would retain the expropriation of all workers and would be completed by the expropriation of private owners;
2. Management by virtue of the appropriation of means of production to owners, or their appointed representatives.
Transfer (Appropriation) to owner-interests of powers of appointing the person charged with management can mean:
a) management by one or more entrepreneurs who are at the same time owners: this is direct appropriation of the entrepreneur’s position. But this does not exclude that, by virtue of the power lent by credit or by financing (see below!), the power to decide the nature of management lies in fact for the most part in the hands of those with gainful interests external to the enterprise, such as the extension of finance by banks or by a financier;
b) the separation of entrepreneurial function from appropriated ownership, especially by limiting owning interests to the naming of the entrepreneur, and free (alienable) appropriation of the property through shares in accounting capital (shares, mining shares). This situation, associated as it is through all kinds of transitional forms with purely personal appropriation, is formally rational in the sense that it permits—in contrast to the permanent and heritable appropriation of management itself to the chance inheritance of ownership—the selection of qualified managers (i.e., qualified with regard to profitability). But in practice, this can mean several different things:
α. disposal over the position of entrepreneur lies, by virtue of the appropriation of ownership, in the hands of those with a pecuniary interest external to the enterprise: shareholders, who above all seek a high rental income,
β. as the result of temporary market acquisition, disposal over the position of entrepreneur falls into the hands of speculative interests external to the enterprise (shareholders who only seek their profit in selling on their shares),
γ. disposal over the position of entrepreneur lies, as a result of power over credit or markets, in the hands of gainful interests external to the enterprise (banks or individual interests, e.g., those of “finance”) that pursue their own gainful interests that are often at odds with those of the individual enterprise.
Interested parties that are “external” to the enterprise are those that are not primarily oriented to the enduring profitability of the enterprise. This can happen with any kind of pecuniary interest, but arises to a marked degree with parties who employ the plant and capital goods, or shares therein (shareholdings) not as an enduring investment in wealth, but rather as a means to make from such disposal a purely transitory speculative gain. Those parties drawing a rental income (α) are most easily reconciled with those parties having a material interest in the enterprise (which here means having a material interest in the enterprise’s current and enduring profitability).
The involvement of interests external to the enterprise in dispositions made with regard to managerial positions, especially where the formal rationality of their selection is concerned, is another specifically material irrationality of the modern economic order (for control of appropriated shares in ownership can be assumed by quite individual pecuniary interests, or other interests whose acquisitive objectives have no kind of connection to the enterprise, or, finally, purely speculative interests—and such interests can then decide on the person of the manager and, above all, force on him a particular style of management). Influence over market Chancen, above all over capital goods and hence the orientation of the gainful production of goods, by purely speculative interests external to the enterprise is one source of the phenomena known as “crises” in the modern commercial economy (this will not here be taken any further).
§24.74 Occupation (Beruf)75 is that mode of specification, specialisation, and combination of the work done by a person that serves that person with ongoing Chancen for provision and acquisition. Occupations can be distributed
1. by heteronomous assignment of tasks (Leistungen) and the allotment of means of support within an economically regulating organisation (unfree division of occupation), or by an autonomous orientation to existing market Chancen for particular kinds of occupations (free division of occupation), or they can be distributed
2. according to the specification or specialisation of function, or they can involve
3. economically autocephalous or heterocephalous valorisation of occupational tasks (Berufsleistungen) on the part of their bearers.
Typical occupations and typical Chancen for acquiring incomes are related one with another, as will be discussed below when dealing with “classes” and “social hierarchies.”
For “occupational groups” and classes in general, see Chapter 4.76
- 1.Unfree occupational division: this is either liturgical or within the framework of the oikos, involving the forcible recruitment of the individual assigned to an occupation within an organisation constituted on the basis of a princedom, a state, a feudal estate, or a commune. Free occupational division: by virtue of the successful supply of occupational services in the labour market, or successful application for free “positions.”
- 2.specification of work, as already discussed in §16, characterises the occupational division of medieval industry; specialisation of work is characteristic of the occupational division of the modern rational enterprise. Occupational division in the commercial economy is, from a methodological perspective, to a great extent based on a technologically irrational functional specification,77 rather than on rational specialisation by function. This is because it is oriented to Chancen for market sales (Absatzchancen), and hence to the interests of purchasers and consumers, which interests compel the assembled outputs of one and the same enterprise to deviate from specialisation of function and lead it into functional combinations of an irrational kind.
- 3.Autocephalous occupational specialisation: the enterprise of a sole trader (e.g., an artisan, doctor, lawyer, artist). Heterocephalous occupational specialisation: factory worker, official.
The occupational division of given human groups can vary
a) according to the extent to which typical and lasting occupations have developed in general. Decisive here is
α. the level to which needs have developed (Bedarfsentwicklung),
β. the development of (primarily) industrial technology,
γ. the development either of
αα) large households—this is important for the unfree distribution of occupations, or of
ββ) market Chancen—this is important for the free distribution of occupations,
b) each according to the nature and degree of specification by occupation or specialisation in economic activity (Wirtschaften).
Decisive here is above all
α. the market situation (determined by purchasing power) for the outputs of specialised economic units,
β. the manner in which disposal over capital goods is distributed;
c) and according to the degree and kind of occupational continuity or change of occupation. Decisive for the latter are primarily
α. the degree of training that specialised work presupposes, and
β. the degree to which Chancen for gain remain stable, or change; which is in turn dependent on the degree of stability in the distribution and nature of income on the one hand, and on the other, in that of technology.
Finally, important in shaping all occupations are status-based (ständisch) structures and the status-based Chancen and educational forms that they create for particular kinds of skilled occupations.
Only work that presupposes a minimum of training, and for which gainful employment (Erwerbschancen) is continuously available, is the object of independent and dependable occupations. Occupations may be handed down traditionally (through inheritance); or be selected for purposively rational considerations (involving gain in particular); or for reasons of charismatic devotion; or performed for affective reasons, especially where the “prestige” conferred by hierarchical status is involved. Individual occupations were primarily quite charismatic and magical in character, the remaining occupational structure (insofar as any such structure existed) being determined by tradition. Charismatic qualities that were not specifically personal properties either became the object of traditional schooling within closed groups, or they formed part of an inherited tradition. Individual occupations that did not have a markedly charismatic character were formed initially by the great households of princes and landowners on a liturgical foundation; towns then placed them on a commercial footing. But a constant element here was always that, related to schooling in magical, ritual, or clerical matters, status-based educational forms developed that were recognised as being literary and refined.
From the preceding, it follows that occupational specialisation did not necessarily involve continuous work whether (1) of a liturgical nature for an organisation (e.g., a princely household or a factory); or (2) for an entirely free “market.” It is far more possible and likely
1. that propertyless labourers with an occupational speciality are used on demand as occasional labour by a relatively consistent set
a) of clients on a household basis (consumers) or
b) of clients who are employers involved in gainful enterprise (Erwerbswirtschaften).
For the households in a), this means
α. with expropriation of the worker at least from the provision of raw materials, hence from disposal of the product; this means
I. itinerant labour, either
αα) purely itinerant or
ββ) settled, but serving a local neighbourhood of households with ambulant work;
II. work “by piece”: settled work performed in the worker’s own workshop or household for a household.
In all cases, the household provides the raw material, but the worker’s tools tend to be appropriated (the scythe to the mower, sowing materials to the seamstress, all kinds of tools to the craft worker).
In the cases falling under I., the relationship implies temporary entry into a consumer’s household.
By contrast to this, Karl Bücher treats the complete appropriation of all means of production to the labourer as Preiswerk.78
As for b), the occasional work of specialised labourers for gainful economic units:
Where the worker is at least expropriated from the provision of raw material, and hence from disposal over the product, this means
I. itinerant labour, moving from enterprise to enterprise and from employer to employer,
II. occasional or seasonal domestic labour for an employer performed in the worker’s own household.
Example of I: Sachsensgänger.79
Example of II: any kind of domestic labour that occasionally supplements workshop labour.
2. The same arises in economic units where the means of production are appropriated to them:
α. where capitalist calculation is used and there is partial appropriation of the means of production to the owner, especially where this is limited to the land and buildings; examples are workshops employing wage labour (wage factories) and above all relocated factories—the first has been the case for a very long time, the latter has recently become much more common.
β. Where the means of production are fully appropriated to the worker
a) in small enterprises without the use of capitalist calculation:
αα) for households: the labourer is a Preiswerker working directly for customers;
ββ) for gainful enterprises: this is domestic industry without the expropriation of means of production, hence formally lacking any ties but in actuality a gainful enterprise producing for a monopolistic group of purchasers;
b) in large enterprises with capitalist calculation: production for a fixed group of purchasers, with the regular, but not sole, consequence that sales are regulated by cartels.
Finally, it has to be stated that neither
a) does every acquisitive action arise from an occupation—
b) nor do such actions, however frequent, necessarily belong conceptually to some kind of continuous, standardised specialisation.
With respect to a), there is casual acquisition
α) of the surpluses created by domestic hard work in a household economy. There are likewise numerous corresponding cases of similar occasional disposal from the larger households, particularly by those of landed estates. From that point, there flows a continuous series of possible “acts of casual acquisition,” up to and including
β) the occasional speculation of a rentier, or the occasional printing of an article, poem, and so forth by a private person, and similar modern instances. From there it leads into the “part-time secondary occupation.”
With respect to b), it should also be remembered that there are also completely unpredictable ways of making a living that are by their nature absolutely irregular, varying between all kinds of occasional gainful employment, and possibly also between normal gainful acts, plus begging, robbery, and theft in all its varied manifestations.
A special status is occupied by
a) purely charitable gain, and
b) maintenance in a noncharitable institution, especially a penal institution,
c) regulated acquisition by force, and
d) unregulated (criminal) acquisition through force or deception.
There is nothing of any great interest in b) and d). The role played by a) for hierocratic organisations (mendicants) and of c) for political organisations (booty) has often been of very great significance, and in both cases it also had an important impact on their economic activity. Specific to these two cases is their estrangement from the economy. For this reason, any more exact classification is inappropriate here. These forms will be developed at another opportunity.80 For partly (and only partly) similar reasons, gain on the part of officials (including that of officers, which belongs here and will be dealt with below in §41) is here called a subcategory of workers’ acquisition solely to give them a place in our classification, but without subjecting them here to any casuistic discussion, for that belongs to a discussion directed to the nature of the relationships of rule in which these categories are to be found.
§24a. The terminology of relations of technological and enterprise-based appropriation and market relations developed in the foregoing, from §15 onwards, is part of a very complex theoretical schemata.
Of the numerous possibilities, however, only a few play a dominating role.
1. Taking the domain of agriculture first, these are
a) shifting arable cultivation: after the exhaustion of the soil, the location is changed. This involves the household economy where the land is appropriated to the tribe and—temporarily or enduringly—use of land is appropriated to neighbouring groups with only temporary appropriation of the land to households.
The scale of the household group is regularly either that of
α. a large domestic commune, or
β. an organised tribal economy, or
γ. a large family household, or
ζ. a small family household.
Arable cultivation normally “shifts” with respect only to the cultivated area, and much less frequently and for greater lengths of time, with respect to farmhouses and built settlement.
b) settled arable cultivation: regulation of rights to use fields, meadows, pastures, woodland, and water by a local (Mark) or village-based cooperative, normally enjoyed by small households. The land and gardens belonging to the farmhouse are appropriated to small families; fields, meadows, and in most cases, pastures, are appropriated to the village group; and rights over woodland, to larger local communities. The repartition of land by law is a possibility, but is not pursued systematically and so for the most part is obsolescent. The economy is mostly regulated by village rules (this is primarily a village economy).
The tribal community only rarely forms an economic community (as in China), and even then, it takes the form of a rationalised organisation (this is tribal sociation—Sippenvergesellschaftung).
c) Landed proprietorship and serfdom: the estate is ruled by a landlord and the dependent peasant enterprises are obliged to render services in kind or by labour. Tied appropriation: the landowner possesses both land and labourer, while the use of the land is appropriated to the peasant together with the right to the position (simple proprietorial organisation based on services in kind).
d) Monopoly of the land either by α) a proprietor or β) a fiscal instance, the communal peasant orders being jointly responsible for fiscal burdens. Hence, there is communal use of fields with systematic and regular redistribution of land. Because of the nature of the fiscal burden, the land is forcibly and enduringly appropriated to the communal peasant order and not to individual households—land is assigned to the latter only for a given period pending the redistribution of rights of use. The economy is regulated by direction of the landed proprietor, or by political rulers (this is proprietorial or fiscal field community).
e) Free landed proprietorship with the household’s use of dependent peasant plots as a source of income (Rentenquelle). Here we have the appropriation of the land to the proprietor, but with
α. colonists,
β. sharecroppers or
γ. peasants paying a set rental,
all of the above being the agents (Träger) conducting economic enterprises.
f) Plantation economy: free appropriation of the land and of the labourer (bought slaves) to the master as a medium for gain in a capitalist enterprise with unfree labour.
g) Estate economy: the appropriation of the land to
α. those possessing rights to ground rent, and who lease the land to large-scale farmers; or
β. those who farm directly for the returns that it provides. In either case, free labour is employed, living in either
a) their own households, or
b) households put at their disposal by the landlord. In both cases, the households are sustained
α. by estate produce, or as a limiting case, β) without any home production whatsoever.
h) The absence of rule by landowners: peasant economy with land appropriated to the cultivator (the peasant). The appropriation can in practice mean
α. that in fact the land is for the most part acquired through inheritance, or
β. the opposite, that land is bought and sold in lots;
the first being typical of isolated farm settlements and large peasant holdings, the second typical of village settlement and small peasant proprietorship.
The normal condition determining the incidence of case e)γ and h)β is the existence of sufficient local market Chancen for peasant agricultural produce.
2. In the domain of industry and transport (including mining), and trade:
a) domestic industry, principally as a means of occasional exchange and only secondarily for gain; with
α. interethnic specialisation of work (tribal industry). From this there develops
β. caste industry.
In both cases, the appropriation of sources of raw material, and consequently the production of raw materials, assumes priority; the purchase of raw materials or wage labour is initially of secondary importance. In the first case, there is often an absence of formal appropriation. Besides that, there is in the second case always heritable appropriation of task-specific Chancen for gain to tribal or domestic orders.
b) industrial activity tied to a particular clientele: the work is specified for a group of consumers, which group can be
α. associated with a form of rule (by an oikos, or by a landed proprietor), or
β. cooperative (demiurgic).
Here there is no acquisition through the market: whether in the case α of work tied to a particular household, or occasionally to a master’s ergasterion; or in case β, heritable (sometimes alienable) appropriation of the workplace, and work for an appropriated clientele (of consumers). There are very limited possibilities for further development:
I. First special case: the worker is appropriated (thus formally unfree) and is the task-specific supporter (Träger) of the enterprise (Gewerbe), and
α. is a source of rental income for his master, but is, despite the formal lack of liberty, for the most part materially free to produce for customers (rental slavery); or
β. is an unfree worker employed for gainful ends in his master’s household; or
γ. is a workshop labourer employed for gainful ends in his master’s ergasterion (unfree domestic industry).
II. Second special case: liturgical specification of function for fiscal ends: similar to the type of caste industry (a)β).
For mining, the corresponding instances are:
The conduct of a prince’s or landowner’s enterprise with unfree workers who are either slaves or bondmen.
For inland transport, the corresponding instances are:
a) Landed proprietors’ appropriation of transport facilities as a source of rental income; the imposition of a requirement for skilled (demiurgischer) services on particular small peasant properties.
b) The cooperative regulation of small-scale caravan trade is another possibility, to whose traders the goods were appropriated.
For seaborne transport:
a) ownership of the ship by oikos, a landed proprietor, or patrician who runs it on their own account;
b) Together with strictly controlled convoys, cooperative construction and ownership of the ship, with the ship’s captain and crew participating on their own account; in addition, small traders travelling interlocally as shippers; the socialisation of risk. In all cases, “trade” was still identical to interlocal trade, and hence transport.
c) Free industries:
free production for consumers either
a) on an itinerant basis or as
b) piecework,
with the appropriation of raw materials to the customer (consumers) and of working tools to the worker, if there are premises to the master (as a source of rental income) or to organisations with rights of use in rotation, or
c) Preiswerk with the appropriation of raw materials and working tools, and hence also the appropriation of management to the worker, and any installations to a group of workers (guild).
Typical for all these cases is the regulation of gainful activity by the guild.
In mining, appropriation of the deposits to political or landed masters as a source of rental income; appropriation of the right of exploitation to a group of workers; guild-based regulation of mining operations with obligations to the mine owners as those with rental interests and to the mining community as jointly responsible for such obligation and with an interest in the proceeds.
For inland transport: guilds of shippers and carriers with fixed routes and regulation of their Chancen for gain.
For maritime trade: the ownership of shares in a ship, convoys, merchants travelling for a commenda.
Development into capitalism:
α. Actual monopolisation of money capital (Geldbetriebsmittel) by entrepreneurs so that they might make advance payments to workers. Associated with this is the management of goods production through producers’ credit and disposal over the product, despite the formal continuation of the appropriation of the means of gainful activity (Erwerbsmittel) to the worker (in industry and mining).
β. Appropriation of the right of sale of products on the basis of previous actual monopolisation of market knowledge, and hence of market Chancen and money capital through forcibly imposed and monopolistic guild regulation, or privilege of political force (as a source of rental income, or against a loan).
γ. Inner disciplining of the labourer dependent on domestic industry: delivery of raw materials and equipment by the entrepreneur.
A special case here is the rational and monopolistic organisation of domestic industries on the basis of privileges granted for financial purposes and for the gainful employment of the population. The granting of a concession with respect to gainful activity was linked to the compulsory regulation of working conditions.
δ. Within the enterprise, creation of workshops without rational specialisation of work where all material means of production are appropriated to the entrepreneur. In mining, this implies the appropriation of deposits, shafts, galleries, and equipment by the owner. In transport, shipping came into the hands of large owners. Everywhere, the outcome was that the workers were expropriated from the means of production.
ε. The final step in the capitalist transformation of productive enterprises is the mechanisation of production and transport, together with capitalist calculation. All material means of production become “fixed” or enterprise capital. The entire labour force becomes “hands.” The transformation of undertakings into associations owned by those holding securities results also in the expropriation of the manager and his transformation into an “official,” the owner becoming a trustee for those who supply credit (banks).
The distribution of these different types is as follows:
1. As far as agriculture is concerned, type a (shifting arable cultivation) is universal, but only here and there in Europe as form α (domestic commune and tribal economy). By contrast, in East Asia (China) it was quite typical, with type b (village and local community) being indigenous to Europe and India. Type c (tied manorial estates) developed everywhere, and is still to be found in places in the Orient. The forms α and β of type d (manorial estate and fiscal rule with systematic redistribution of fields to peasants) in its more landed form of rule was found in Russia and India (where there was also the redistribution of land rents), while the more fiscal forms were encountered in East Asia and the Hellenistic antiquity of the Orient. Type e (free landed estates drawing rents from small tenants) is typical for Ireland, but also occurs in Italy and southern France, as well as in China and the ancient Hellenistic Orient. Type f (the plantation run with unfree labour) was found in Roman-Carthaginian antiquity, in the colonial areas, and in the Southern states of the American Union; type g (estate economy) in form α (separation of landownership and enterprise) was found in England, and in form β (direct farming by the landowner) in eastern Germany, parts of Austria, Poland, and western Russia; type h (peasant proprietor economy) is indigenous to France, south and western Germany, parts of Italy, Scandinavia, and also, with some qualification, in southwest Russia, and especially in modern China and India (with some modifications in this last case).
The great differences now existing between the ultimate forms of agrarian organisation can be related only in part to economic causes (the contrast of cultivation based on the clearing of woodland and on irrigation); it also has to do with historical fate, especially the extent of public burdens and military organisation.
2. As far as industry is concerned—the organisation of transport and mining has yet to be sufficiently studied—
a) type a.α (tribal industry) was universal.
b) type a.β (caste industry) became universal only in India, otherwise it was only to be found for declassed (“impure”) industrial pursuits.
c) Type b.α (industrial activity pursued by an oikos) was the rule in all princely households in the past, most strongly in Egypt, and also on all landed estates worldwide; in the form of b.β (demiurgic industry), it is found here and there everywhere (also in the Occident), but as a type only in India. Special case I (serfdom as a source of rental income) prevailed in antiquity; special case II (liturgically specified work) in Egypt, Hellenism, Late Roman Antiquity, and for periods in China and India.
d) Type c found its classical form as the dominating type of the medieval Occident, and only there, although it was present universally. Especially the guild was universal (in China and the Near East), although it was entirely absent in the “classical” ancient economy. In India, the caste took the place of the guild.
e) Outside the Occident, the stages of capitalist development in industrial activity only attained universally the level of type β. This difference cannot be explained exclusively by purely economic causes.
§25. I. The achievement of a calculable optimum of performed labour (Leistungoptima) (in the most general sense) requires
1. an optimum of aptitude for the task required,
2. an optimum performance of the work, and
3. an optimum inclination to work.81
From this we exclude the three types of communist organisation,82 where noneconomic motives play a role.
Re 1.: aptitude (to whatever extent this is determined by inheritance, education, or environmental influence) can only be established by a practical test. Business enterprises in a commercial economy typically subject their trainees to practical tests. The Taylor System seeks to implement this on a rational basis.
Re 2.: optimal performance of work can only be achieved through rational and continuous specialisation. Today, it remains for the most part on an empirical basis, dealing with implemented specialisation of work from the standpoint of cost saving (in the interest of profitability, which limits its full development). Rational (physiological) specialisation is still in its earliest stages (see the Taylor System).
Re 3.: Preparedness to work can be oriented just like any other form of conduct (see Chapter 1, §2). A willingness to work (in the specific sense of performing work on one’s own initiative or under the direction of a manager) has, however, always been conditioned by a strongly personal interest in success, or by direct or indirect compulsion, which plays an especially great role where work is done according to others’ direction. Such compulsion can take the form of either
1. direct threat of physical violence or other undesirable consequences, or
2. the Chance of unemployment where the work done is unsatisfactory.
Since the second of these, which is very important in a commercial economy, bears much more strongly on personal interest and necessitates freedom of selection by work done (both quantitatively and qualitatively) from the standpoint of profitability, it has a more formally rational effect (with respect to a technological optimum) than any form of direct compulsion to work. A precondition is the expropriation of workers from the means of production and their consequent need to apply for Chancen to earn a wage; this in turn implies a forceful protection of the appropriation of means of production to the owner. By contrast with direct compulsion to work, not only concern on the part of the worker for reproduction (family) but also a proportion of his anxiety as regards selection (the degree of suitability) becomes his own responsibility. In addition to this, the amount of capital required and the risk on capital employed is limited and rendered calculable by comparison with the employment of unfree labour. And finally, of course, the large volume of money wages greatly extends the market for mass commodities. The positive inclination to work is not here impeded as it is, other things being equal, with unfree labour, although where technological specialisation becomes very advanced and takes the form of simple and monotonous (Taylorised) procedures it does become restricted to a purely material interest in the wage rates on offer. Only payment by piece stimulates a greater degree of inclination to work. In the competitive capitalist order, readiness to work is primarily determined by Chancen offered by piece-rates on the one hand, and the risk of dismissal on the other.
The following also applies where there is free labour separated from the means of production:
1. Other things being equal, the prospects of a readiness to work on affectual grounds is greater where the work done is specified rather than specialised, since the individual performative outcome is more readily apparent to the person doing the work. This is, of course, primarily true of any high-quality work.
2. A readiness to work that rests on a traditional foundation, typical of agriculture and of domestic industry (where living conditions are generally traditional) is distinguished by the workers either orienting their labour to outcomes that are qualitatively and quantitatively stereotypical, or to a traditional working wage (or both); hence, rational valorisation is difficult, and it is not possible to increase the amount of work done by offering incentives (such as piecework rates). By contrast, traditional patriarchal relations with a master (owner) have been shown to maintain the readiness to work at a high level.
3. Value rational willingness to work is typically either conditioned by religion, or by the specifically high level of social value given to the particular kind of work involved as such. From lengthy experience, all other motivations are transitory phenomena.
Of course, “altruistic” care for one’s own family is a typical and obligatory element of the readiness to work.
II. One of the strongest sources of an unlimited inclination to work is the appropriation of means of production and personal control of the work process, however formal this might be.
This is the ultimate basis of the extraordinary importance in agriculture of small-scale farming, and especially of smallholdings, whether as a small owner, or as a small tenant (with the aspiration to become a landowner one day). The classical country in this regard is China, whereas for skilled, craft-based industry with specified products India is the prime example, followed by all Asian territories, but also the occidental Middle Ages, where the most important struggles were fought for the sake of (formal) individual disposition over labour and land. The very marked amount of additional labour that small peasants (task specific and not specialised by task, even as gardeners) invest in their enterprises renders their existence possible precisely because of the absence of capitalist calculation and their retention of the household and enterprise as one unit. The standard of living is voluntarily limited so that formal independence might be achieved, and use is also made of the possibility in agriculture of employing, in the household, products that would for a market-based (Erwerbsmäßig) large enterprise be treated as unsellable by-products and waste matter. When run by its owner, the agricultural enterprise based on capitalist calculation is, according to all studies, incomparably more sensitive to economic fluctuations than the small enterprise.83
In industry, the corresponding phenomenon lasted until the era of mechanised and highly specialised enterprises based on combined labour. Enterprises like that of Jack of Newbury could quite simply be prohibited well into the sixteenth century (as happened in England) without catastrophic consequences for workers’ Chancen of employment. The bringing together into one workshop of looms appropriated to their owners together with their owners’ labour without any material increase in specialisation and interconnection of labour did not mean, under given market conditions, a related increase in Chancen for the entrepreneur that would certainly cover the greater risk and workshop costs incurred. But above all in industry, as in agriculture, not only is an enterprise with a great deal of capital invested in plant (fixed capital) sensitive to economic fluctuations, it is also extremely vulnerable to any irrational conduct (unpredictability) in administration and the law, as was everywhere encountered beyond the modern Occident. Decentralised domestic labour was here able to hold its own in competition with the Russian “factory” and all other forms, until—well before the introduction of mechanised power sources and machine tools—the need for a more exact calculation of costs and for the standardisation of products, aimed at the better utilisation of prevailing market Chancen, together with technologically rational equipment, led to the creation of internally specialised enterprises employing water and horse power, to which were then added mechanised motors and machines. All of the large workshops that had previously been created across the entire world could simply disappear without any perceptible disturbance to the Chancen for gain on the part of those involved, and without having any especial effect on the meeting of needs. Only with the emergence of the “factory” did this change. The willingness to work on the part of factory labourers was, however, primarily determined by the transfer to them of maintenance and subsistence risk linked to very strong indirect compulsion (the English workhouse system!), and it has lastingly remained bound by the compulsory guarantee offered by the prevailing system of property, as the recent revolution84 showed when compulsion crumbled and this readiness to work deteriorated.
§26. Communist organisation, including all working communities and associations that do without calculation, do not seek to achieve an optimal level of subsistence, but rather an optimal level of directly felt solidarity. Consequently, they have historically, and right up to the present day, arisen on the basis of a primarily extra-economically oriented ethos (Gesinnung), to wit:
1. the domestic communism of the family—on a traditional and affectual basis;
2. the communistic comradeship of an army;
3. as communistic love in a (religious) community, in cases 2. and 3. primarily arising on a specifically emotional (charismatic) foundation. But they are always either
a) at variance with a context of traditional or purposively rational (hence, predictable) economic conduct based on a division of labour; the group then either works for itself, or by contrast is sustained by external contribution (or both); or
b) they form a household group of the privileged, who rule over separate households and sustain themselves by contribution or by levy; or
c) they form a household of consumers separate from gainful enterprises, drawing their income from the latter, and are therefore in a sociated relationship (vergesellschaftet) with them.
Case a) is typical for religious communistic economies, or those based on a common worldview (communities of monks who either work to support themselves, or renounce the world altogether; sects; utopian [ikarischer] socialists).
Case b) is typical of the military, more or partially communistic societies (the “men’s house” in primitive communities, the Spartan mess, Ligurian pirate communities, the entourage of Khalif Omar, the communism of consumption and [in part] requisition on the part of armies of every period); it is also typical of authoritarian religious groups (e.g., Paraguayan Jesuits, communities of mendicant monks in India and elsewhere).
Case c) is typical of family households within the commercial economy.
Preparedness to work and consumption without thought of any calculation is, within these communities, the consequence of a noneconomic disposition; in cases 2 and 3, this is for the greater part founded on strong feelings of a separation from and a struggle against the orders of the “world.” All modern communist tendencies, insofar as they aspire to become mass communist organisations, have to direct value rational argument to their followers, but employ purposively rational arguments in their propaganda. Hence, in each case they have to employ specifically rational considerations and rely on everyday issues, in contrast to military and religious communities that are formed around the extraordinary. The Chancen that are available to them on an everyday basis are therefore inwardly quite different from those available to communities oriented to the exceptional, or primarily the extra-economic.
§27. In embryonic form, capital goods first appear as commodities that are exchanged either locally or between ethnic groups, presupposing (see §29) that the emergence of “trade” is separate from the household production of goods. This household trading activity (selling its surplus) cannot be conducted in terms of any special form of capitalist calculation. Products made by households, clans, and tribes and sold to other ethnic groups are commodities; their means of production, so long as they remain domestic products (Eigenprodukte), are tools and raw materials, not capital goods. It is just the same with the means of production and products sold by peasants and feudal lords, so long as their economic activity is not based on capitalist calculation of even the most primitive form (for which there are already preliminary signs in, e.g., Cato). It goes without saying that the entire internal flow of goods in oikos and landed estate, as well as opportunistic or typical internal exchange of products, is the opposite of economic activity based on capitalist calculation. Likewise, trade carried on by an oikos (e.g., that of the Pharoah), even when it is not exclusively trade for the sake of its own needs as with household exchange but rather serves partly acquisitive purposes remains noncapitalist in the sense of the terminology used here so long as it cannot be oriented to capitalist calculation, especially to the prior estimation in money of Chancen for profit. This last condition was true of professional itinerant traders, whether they dealt in products they brought together themselves, or by a commenda or a social group. It is here, in the form of the occasional undertaking, that we find the source of capitalist calculation and the original form of the capital good (Kapitalgüterqualität). Humans (slaves, bondsmen) used by serf-owners and landlords as a source of rent, or plant and installations of all kinds, are of course merely rent-bearing components of wealth and not capital goods, just like (with respect to the private individual oriented to rent seeking [Rentenchance]85 or the occasional speculative venture, by contrast with the temporary investment of acquisitive enterprise capital) today’s securities yielding dividends or annuities. Goods received as compulsory dues by serf-owners or landlords from their vassals by force of lordly power and then sold in a market are, in our terminology, “commodities,” not “capital goods,” since rational capitalist calculation (costs!) is absent not only in fact but in principle. By contrast, slaves employed in an enterprise as a means for acquisition (given the existence of a slave market and the prevalence of slave purchase) are capital goods for such an enterprise. In the case of (patrimonial) subjects who are not freely bought and sold but employed in manorial enterprise (Fronbetrieben), we do not wish to speak of capitalist enterprises but only of acquisitive enterprises with bonded labour (what is decisive here is also the bondage of the lord to the labourer!), whether this involves agricultural enterprises or unfree domestic industry.
In manufacture (Gewerbe), craft work (Preiswerk) is “petty capitalist” enterprise; decentralised capitalist enterprise in the case of domestic industry, and centralised in the case of any form of actual capitalist workshop enterprise. All forms of tenants’ servants’ (Stör, see §19), wage work, or homeworking are simply forms of labour, the first two in the interest of a household, the third related to the gainful interest of the employer.
What is therefore decisive here is not in principle the empirical fact, but the possibility, of material capitalist calculation.
§28. Alongside all the earlier forms assumed by specialised or specified tasks and discussed above, there is also in every commercial economy (and also, normally, in a materially regulated economy) the mediation of exchanging a dispositional power possessed by oneself or by another. This can happen
1. through the members of an administrative staff of an economic organisation, against fixed or performance-based remuneration in kind or in money;
2. through a cooperative organisation created specifically to serve its members’ exchange needs; or
3. as a gainful occupation paid by fee, without there being any acquisition by the agency of dispositional powers, this assuming quite varied legal forms;
4. as a capitalist gainful occupation (sole trading): buying in the present in the expectation of a profitable future resale, or sale at a future date in the expectation of profitable premature purchase, where this is either
a) quite freely conducted in the market, or
b) materially regulated
5. through continuously regulated compensated expropriation of goods and their compensated—free or compulsory—exchange on the part of a political organisation (compulsory trade);
6. by offering money on a professional basis, or the procurement of credit against gainful payments, or the acquisition of means of production on the security of credit to
a) gainful economies or
b) organisations (especially political organisations), which is a credit operation. The economic meaning of this can either be
α) the time allowed for payment
β) credit for the procurement of capital goods.
Cases 4 and 5 alone are to be called “trade”; case 4, “free” trade; and case 5, “compulsorily monopolised” trade.
Case 1: a) Household economies: ducal, landed estates, monastic “negotiators,” and “actors”; b) gainful economies: Kommis.
Case 2: Cooperatives for purchase and for sales (including “consumer unions”).
Case 3: Brokers, self-contracting agents, forwarding agent, insurance agents, and other “agents.”
Case 4: a) modern trade,
b) heteronomous compulsorily or autonomously agreed assignment of purchase or sale from or to clients, or purchase or sale of commodities of a particular kind, or material regulation of conditions of exchange according to the directives of a political or cooperative corporate group.
Case 5: Example: a state grain-trading monopoly.
§29. Free sole trading (case 4)—and for the time being this will be our sole point of reference—is always “gainful enterprise,” never “householding,” and so is, under all normal circumstances (if not inevitably), acquisition through the exchange of money taking the form of contracts for purchase and sale. But it can be
a) a “sideline” for a household.
Example: the disposal of surpluses accrued in domestic industry from household members’ work dedicated to this line of production on their own account. By contrast, the disposal of such a surplus from this or that member is not at all a “sideline.” If the members in question devote themselves solely to disposal (or exchange) on their own account, we have an instance of case no. 4 in a modified form, and an instance of case no. 1 if it is attributable to the entirety of the household.
b) an inseparable part of the totality of activity that creates finished goods by its own efforts on a local basis.
Example: peddlers and the small dealers connected with them, taking their stock of commodities with them around local areas, directed primarily to the local movement of goods to market, who have therefore been mentioned above under “transport” (§24a). Travelling “commenda traders” now and then form the transition to no. 3. Whether the transporting activity is “primary” and the “trading profit” a secondary matter, and vice versa, is entirely fluid. In any event, all these categories are “dealers.”
Sole trading (case 4) is always conducted on the basis of the appropriation of means of production, even if the power of disposition arises from credit raised for the purpose. The capital risk always falls on the sole trader as his own risk, and the Chance of profit is likewise appropriated to him, by virtue of the appropriation of the means of production.
There is extensive scope for specification and specialisation within free sole trading (case 4). Of prime economic interest are only the forms:
a) according to the type of economy from which and with which the dealer engages in exchange.
1. Trade between households producing surpluses and consumption households.
2. Trade between gainful economic organisations (“producers” or “dealers”) and households: “consumers,” naturally including all corporate orders, especially political orders.
3. Trade between gainful economic organisations and other gainful economic organisations. Cases 1 and 2 correspond to the concept of “retail trade,” which means: sale to consumers (no matter from where purchases are made), while case 3 corresponds to “wholesale trade” or “merchant trade.”
b) Trade can take place
a) through a market
α) in a consumer market, normally in the presence of the commodity (retail market trade),
β) in a market for acquisitional economic organisations,
αα) in the presence of the commodity (trading fairs)
Mostly seasonal, but this is not conceptually necessarily.
ββ) in the absence of the commodity (bourse trading)
Mostly all year round, but this is not conceptually necessary.
b) through customers, supplying regular customers, which are either
α) households (customer retail trade), or
β) acquisitional economic organisations, which in turn are either
αα) producers (wholesaler), or
ββ) retailers (wholesalers trading in a range of goods), or finally,
γγ) other wholesalers: “first,” “second,” and so forth, “hand” in wholesale trade (intermediate trading in a range of goods).
c) It can be, according to the location of origin of goods sold in one place:
a) interlocal trade,
b) local trade.
Trade can involve material duress
a) with respect to purchases from economic organisations selling to clients (putting-out trade)
b) with respect to sales to economic organisations making purchases (sales monopoly)
case a) is close to putting-out in industrial enterprise and is, for the most part, identical to it.
Case b) is materially “regulated” trade [no. 4, case b)].
Selling goods on one’s own account is, of course, a part of all market-related acquisitive enterprise, even for those engaged mainly in “producing.” This kind of sale does not, however, involve “middlemen” in the sense of the definition so long as no dedicated and specialised administrative agent (e.g., Kommis) is involved, such that there is dedicated “trading” activity on a professional basis. All intermediate forms are quite fluid.
The calculation involved in trade will be considered “speculative” to the extent that it is oriented to Chancen whose realisation is “accidental” and so in this sense are evaluated as “unpredictable,” which hence implies the assumption of “contingent risk” (Zufallsrisiko). The transition from rational calculation (in this sense) to speculative calculation is entirely fluid, since no calculation made with regard to the future can be objectively secured from unanticipated “contingencies.” The distinction rests therefore only on differing degrees of rationality.
The technical and economic specialisation and specification of trading activities does not manifest itself in any particular way. The “department store,” through the most thorough internal functional specialisation, corresponds to the “factory.”
§29a. We shall call banks those kind of gainful trading enterprises whose business is
a) the administration, and
b) the creation of money.
As regards a), the administration of money
α) for private budgetary needs (household deposits, safe deposits for wealth)
β) for political organisations (the conduct of banking accounts for states),
γ) for gainful businesses (safe deposits for enterprises, ongoing accounting for the same)
As regards b), the creation of money
α) for budgetary needs:
αα) private (consumer credit)
ββ) political organisations (political credit)
β) for gainful businesses:
αα) for the purposes of paying third parties:
ααα) exchange of money,
βββ) bank transfer;
ββ) as an advance on client payments that will fall due. Main case: discount of acceptances;
γγ) for the purposes of capital credit.
It is formally a matter of indifference whether
1. This money is paid, advanced, lent from one’s own funds, or promised to be made available on demand (“running credit”), with or without deposit or other provision of security of payee; or whether they
2. cause others through sureties or other ways to credit the payee.
In fact, the gainful business of banks is normally directed to making a profit by advancing credit, using means that have been credited to them.
The bank can create credited money from either
1. monetary metal or reserves of coin from the existing mints, which it obtains through credit, or
2. by creating the money themselves, in the form of
α) certificates (bank money), or
β) circulating media (banknotes). Or:
3. from the privately credited deposits of monetary media by others.
In every case in which the bank either
a) itself takes up credit, or
b) creates circulating media,
it is, assuming rational conduct by the bank, usual to provide “cover,” holding back a sufficiently large sum of convertible money or equivalent amount of earmarked credit for “liquidity,” the capacity of meeting normal demands for payment.
As a rule (but not always), it is to usual to ensure the maintenance of liquidity norms for those banks that create money (issuing banks) through regulations imposed by trade associations or political organisations. These regulations tend to be oriented simultaneously to the aim of protecting as far as possible the chosen monetary order of a given monetary domain against changes in the material value of money, and so in this way securing (formally) rational economic budgetary calculations of households, especially those relating to political organisations, and also those for gainful businesses, against “disturbances” originating in (material) irrationalities. In particular, there is a tendency to seek as stable a price as possible for one’s own monies in the monies of other monetary domains with which trade and credit relations are conducted, or where this is sought (a fixed rate of exchange, monetary parity). A policy directed against monetary irrationality will be called lytric policy,86 following Georg Friedrich Knapp. For a state based purely on the rule of law (a laissez-faire state), this is absolutely the most important economic policy measure that it typically adopts. In its rational form, it is quite characteristic of the modern state.
The measures of Chinese policy relating to copper coinage and paper money, and ancient Roman coinage policy, will be mentioned at the proper point.87 This was not in any way modern lytric policy. Only the Chinese gilds’ promissory money policy (the model for the Mark of Hamburg’s promissory policy) were rational in our sense.
The term financial transactions will be used for all transactions—whether by “banks” or by other casual or privately conducted subsidiary activities, or part of speculative activity by a “financier”—that are oriented to the purpose of establishing profitable powers of disposition over the Chancen enterprises have for gain:
a) by transforming the right to appropriated gainful Chancen into securities (commercialisation) and by acquiring these directly, or from enterprises “financed” as in c)δ) below.
b) through systematic offering (and probably also, refusal) of trade credit,
c) (if necessary, or sought) by imposing a connection between hitherto competing enterprises
α) as in the monopolistic regulation of enterprises at the same level (cartelisation), or
β) as in the monopolistic union of hitherto competing enterprises under one management to eliminate the least profitable (merger), or
γ) as in a (not necessarily monopolistic) union of successive = staged enterprises in a combine,88 or
δ) as in the use of securities to seek centralised control over a large number of enterprises (trusts) and—if desired—the planful creation of new enterprises for the purposes of profit or pure power (financing in the sense used above).
“Financing operations” are quite often done by banks or with their assistance, quite regularly, often unavoidably. But management is often in the hands of stockbrokers (Harriman) or large productive enterprises (Carnegie); cartelisation is in the hands of large enterprises (Kirdorf, etc.), while “trusts” are created by particular “financiers” (e.g., Gould, Rockefeller, Stinnes, Rathenau). (More on this later.)89
§30. The greatest degree of formal rationality in capitalist calculation for productive enterprises (Beschaffungsbetriebe) can be achieved under the following conditions:
1. complete appropriation90 of all material means of production to the owner and complete absence of formal appropriation of Chancen for gain in the market (free market for goods);
2. complete autonomy on the part of the owner in selecting managers, and hence complete absence of formal appropriation by management (freedom of enterprise);
3. complete absence of appropriation both of workplaces and employment Chancen (Erwerbschancen) by workers, and vice versa, by worker to owner (free labour, free market for labour, and freedom of selection of workers);
4. complete absence of material regulations involving consumption, production or prices, or any other statutory provisions limiting free agreement over conditions of exchange (material economic freedom of contract);
5. full calculability of technical conditions of production (mechanically rational technology);
6. fully functional calculability of the administrative and legal order and a reliable purely formal guarantee of all agreements by political force (formally rational administration and formally rational law);
7. the most complete separation possible of the enterprise from the household and from the vagaries of wealth, especially with respect to the capital endowment and cohesion of the enterprise on the one hand and the amount and heritability of the owner’s wealth. In the case of large businesses, this would generally be formally optimal for (1) businesses processing raw materials and providing transport services, and in mining in the form of societies with freely alienable shares and guaranteed capital without personal security; and (2) agriculture where there is a (relatively) long rental period;
8. the greatest possible formal rationality of the monetary order.
Elaboration of these points calls for only a few remarks, which have been touched on previously.
1. Regarding no. 3. Unfree labour (especially slavery) provides more formally unlimited disposition over workers than hiring, as compared with wage labour. Nonetheless, (a) the amount of capital required for investment for the purchase and feeding of slaves was greater than that needed to pay hired labour; (b) the human capital risk was specifically irrational (because of noneconomic factors of all kinds, especially more strongly with respect to political elements than in the case of hired labour; (c) representing slave capital in accounting terms was irrational because of fluctuations in the slavery market and associated price fluctuations; (d) also, for the same reason and above all: supplementing and recruiting slave capital was politically determined; (e) where slave families were permitted, the employment of slaves was burdened with accommodation costs, especially with respect to the feeding of women and the care of children, where there was no economically rational way of realising their potential as a labour force; (f) the complete exploitation of the work done by slaves was only possible where there were no families and ruthless discipline, which increased the significant irrationality of the elements noted under (d); (g) all experience showed that the use of slaves for the operation of tools and apparatus that required high levels of personal responsibility and self-interest was not possible; (h) above all, there was no prospect of selection, [such as] engagement after a test on a machine, or dismissal in the event of a downturn or poor work.
Slave enterprises have only shown a return (a) where there is the possibility of feeding slaves very cheaply; (b) where the slave market is regularly replenished; (c) where there is plantation-based agriculture or very simple industrial processes. The most important examples of this use of slave labour are Carthaginian, Roman, some colonial and North American plantations, and Russian “factories.” The drying up of the slave market (as the Imperium was pacified) led to the shrinkage of ancient plantations; in North America, the same circumstance led to a constant search for new land, since apart from the rent from slaves, no land rent was possible. In Russia, slave factories had difficulty competing with kustar (domestic industry), and were entirely incapable of competing with free factory labour, constantly petitioning for permission to free their workers even before Emancipation. With the introduction of free workshop labour, slave factories disappeared.
For waged labour, (a) risk to capital and the amount of capital required is reduced; (b) reproduction and the care of children is left entirely to the worker, whose wife and children must “seek” work; (c) the danger of dismissal makes it possible to gain the maximum from workers; (d) there is selection according to the capability and willingness to work.
2. Regarding point 7. In England, the separation of rental enterprises run according to capitalist calculation from entailed landed estates is no coincidence, but instead an expression of centuries of development (and also of the lack of formal protection to peasants and farmers, given the island setting). Every connection of landed property with the economic exploitation of land transformed such land into an economic capital good, consequently increasing the need for capital but also the risk for capital; it also limited the separation of household and enterprise (inheritance payments burden the enterprise), as well as the movement of capital belonging to those who were economically engaged. And, finally, it placed irrational demands on capitalist calculation. Hence, the separation of the ownership of land and its cultivation corresponds formally to the rationality of enterprises run according to capitalist calculation (while the material evaluation of the phenomenon will vary greatly according to the viewpoint taken).
§31. There are diverse kinds of “capitalist” tendencies (as regards rationality—conducted according to capitalist calculation) in the orientation of acquisitive activity:
1. Orientation to (a) Chancen for profit in continuing acquisition and disposal in a market (“trade”) where these are free exchanges (formally: not compulsorily imposed; materially: at least relatively voluntary); (b) Chancen for profit making in enterprises using capitalist calculation and continuously involved in the production of goods.
2. Orientation to Chancen for acquisition (a) through trade and speculation in forms of money, assumption of payments of all kinds and creation of means of payment; (b) through professional extension of credit α) for the purposes of consumption, β) for purposes of acquisition or gain.
3. Orientation to Chancen to secure plunder (Beuteerwerb) from political or politically oriented organisations or persons: the financing of wars or revolutions, or the financing of party leaders through loans or gifts.
4. Orientation to Chancen for continuing gain by virtue of force, through rule guaranteed by political force: (a) colonial (gain from plantations with compulsory deliveries or forced labour, monopolies, and coercive trade); (b) fiscal (gain through tax farming and sale of offices, at home or in colonies).
5. Orientation to Chancen for gain through extraordinary deliveries from political organisations.
6. Orientation to Chancen of gain (a) through purely speculative transactions in standardised commodities or securitised shares in enterprises; (b) by taking care on a continuous basis of payments made by public organisations; (c) by financing the foundation of enterprises through selling securities to interested investors; (d) through the speculative financing of capitalist businesses and all other kinds of economic organisation for the purpose of profitable regulation of gainful activity, or of power.
Cases 1 and 6 are generally peculiar to the Occident. The remaining cases (2–5) have been found all over the world for centuries, wherever (in the case of no. 2) the possibility of exchange and a money economy have been found, and (for 3–5) where there was monetary financing. In the Occident, they have only had local and temporary (especially in wartime) prominence as means for gain, by contrast with antiquity. They are to be found everywhere when large parts of the world have been pacified (the unitary empires of China, and later Rome), later shrinking so that only trade and money changing (no. 2) remained as forms of capitalistic gain. For the capitalistic financing of politics was everywhere the product of
a) the competition for power among states,
b) the consequent competition over capital capable of being moved freely between them.
This ended only with unitary empires.
So far as I am aware, this perspective has hitherto been developed most clearly by Johann Plenge, Von der Diskontpolitik zur Herrschaft über den Geldmarkt (Berlin 1913). See before this my own treatment in my article “Agrargeschichte, Altertum,” Handwörterbuch der Staatswissenschaften, Bd. I (3rd ed.).
It is only in the Occident that rational capitalist enterprises with fixed capital, free labour and the rational specialisation and combination of work can be found, with purely commercial distribution effected on the basis of capitalist economy. Which means: the capitalist form of formally purely voluntaristic organisation of labour as the typical and ruling form through which the needs of the broad mass are met, with the expropriation of workers from the means of production, and the appropriation of enterprises to those who hold securities. Only here is there public credit taking the form of government securities; commercialisation; the issue of securities and financial operations as the object of rational enterprise; stock-market trading in commodities and securities; “markets” for money and for capital; monopolistic associations as a form of economically rational organisation for the production of goods in enterprises (and not only trade in goods).
This difference [between the Occident and the rest of the world] calls for an explanation that cannot be based on economic reasons alone. Cases 3–5 can be taken together as politically oriented capitalism. All of the following discussion is also primarily directed to this problem. Generally, we can only say:
1. It is clear from the start that the politically oriented events that provide these possibilities for gain (Erwerbsmöglichkeiten) are economically irrational—considered in terms of their orientation to market contingencies (i.e., the consumption needs of budgetary units).
2. It is likewise clear that purely speculative Chancen for gain [2.a) and 6.a)], together with pure consumption credit [2.b)α)] are irrational for the meeting of needs and for units producing goods, because they are brought about by accidents of ownership or constellations of market Chancen, and because this also might apply to Chancen to found and finance new initiatives [6.b)c)d)], although this does not have to be the case.
Specific to the modern economy, besides the rational capitalist business, is (1) the way the monetary system is organised, and (2) the way shares in going concerns are commercialised through securities. The peculiarities of each of these will be discussed here.91 First of all, the monetary system.
§32. 1. The modern state has taken upon itself
a) without exception: the statutory regulation of the monetary order, and
b) almost without exception: the monopoly of monetary creation (the issue of money), at least as far as metallic money is concerned.
1. At first, purely fiscal reasons were decisive for monopolisation (minting fees and other profits arising from coinage). For that reason, initially [there was] prohibition of foreign money (which we will not deal with here).
2. The monopolisation of the creation of money has not everywhere survived into the present (until the reform of coinage, foreign gold coins were used as currency in Bremen).
Furthermore:
c) the state is, given the increasing importance of its taxes and production by its own enterprises, either by virtue of its own or accounts run on its behalf (both of which will be called “public accounts”)92
α) the greatest recipient of payments, and
β) the greatest maker of payments.
Also, apart from points a) and b), according to c), of decisive importance for a modern monetary system is the behaviour of state funds to money, above all the question of what (public) money they actually
1. have available, and so can distribute,
2. can force on the public, as legal tender,
also the question of what money they actually
1. collect, or
2. repudiate, in whole or part.
Partly repudiated is, for example, paper money, when payment of duties in gold is demanded; French Revolutionary assignats were completely repudiated, as was the money of the American Confederate states and the money issued by the Chinese government during the period of the Taiping Rebellion.
Legally, money can only be defined as a “lawful means of payment” if everyone—hence also, and chiefly, state funds—is obliged to use it, whether under some restrictions, or in unlimited amounts. Public money can be defined as money that state funds pay out and collect in—legally enforced money is especially the money that they impose.
“Imposition” can arise
a) by virtue of established legal authority for the purposes of currency policy (taler and five franken pieces were issued after the cessation of silver coinage—this is well known not to have worked!).
Or it can be
b) imposed because of the inability to pay in any other medium, which leads either to
α) the need to make use of legal authority to impose a new means of payment, or
β) the ad hoc creation of formal (legal) authority to impose a new means of payment (this is what almost always happens when resorting to a paper currency).
In this last case, b)β), it usually happens that a means of exchange previously in use as legal or actual tender is now, in effect, irredeemable.
From the legal standpoint, a state can define any object as “legal means of payment” and any chartal object as “money” in the sense of a legal means of payment.
But where there are formal disruptions to the legal monetary order, the state finds it difficult, or impossible,
a) in the case of administrative money, to suppress forgeries that are almost always profitable;
b) for all metal money:
α) to prevent the nonmonetary use of the metal as a raw material, if the relevant products have a very high price, and especially so if the metal in question has a very unfavourable rate of exchange (see γ);
β) to prevent its export to countries where the metal enjoys a higher value (in the case of coin);
γ) to prevent the legal currency base metal being offered for coinage where its face value is undervalued either in note or coin.
In the case of paper money, the value is set such that a nominal metallic unit is equivalent to a paper unit but becomes too unfavourable for the metallic money when the redemption of notes is suspended; this happens when payments can no longer be made in metallic money.
The rates of exchange between several metallic currencies can be determined
1. by fixing the relationship between different funds for each individual case (free parallel currencies),
2. by establishing rates for a given period,
3. by a permanently fixed official rate (in the case of more than one metal—bimetallism).
In the case of 1. and 2., it is quite usual for only one metal to be used as the public, effective currency—in the Middle Ages, this was silver. For 3., there were trading coins with an exchange rate, such as Friedrich d’or or ducats). A complete separation of the specific uses and valuations of currency seldom occurs in a modern monetary order, but happened more frequently in past times (e.g., China, the Middle Ages).
2. 93 The definition of money as legal tender and as a product of lytric administration does not exhaust its sociological significance. This definition begins from “the fact that there are debts” (G. F. Knapp), in particular taxes owed to the state and interest payments made to states. To meet these legal dues, the nominal stability of money is essential (even if in the meantime the monetary material has changed); or if the nominal measure has changed, then the “historical definition” is retained. Besides that, today the individual values the nominal monetary unit not as a chartal metallic coin or note, but as a portion of his nominal money income.
The state can by its legislation, and the administrative staff charged with its execution, formally in fact likewise control (beherrschen) the “currency” valid in the monetary area it commands through its actual (governing) behaviour.
If, that is, the state operates with modern administrative methods. China, for example, could not do so. Nor could it do so earlier, for at that time payments into and out of the exchequer were on too small a scale as compared with the total flow of transactions. Nor today can China do so: it seems that silver cannot be made into a restricted currency with a monetary reserve, since it would be impossible to prevent the counterfeiting that would arise.
There are not only existing debts but also the ongoing exchange and recontracting of debt for the future. Here, though, the orientation is primarily to the place of money as a means of exchange—hence: the Chance that in the future it will in some way be accepted in exchange for goods thought to be defined or undefined, but at an estimated relative price.
1. Of course, there are some circumstances also primarily oriented to the Chance that pressing state or private debt might be paid off with the proceeds. But we can leave this out of account here, since such circumstances presuppose the existence of a “state of emergency.”
2. It is here that the incompleteness of G. F. Knapp’s otherwise quite “correct” and simply brilliant book Staatliche Theorie des Geldes begins, notwithstanding its permanent and fundamental importance.
For its part, the state needs the money that it raises through taxation or other measures, not only as a means of exchange but also often very urgently as a means of paying off interest on debt. But its creditors want to use money as a means of exchange, and seek it for this purpose. And the state itself nearly always wants money—but very often only as a future means of exchange for commercial market transactions covering the state’s need for utilities. The quality of being a means of payment, no matter how precisely it can be distinguished, is not therefore its defining quality. The Chance of exchanging money for specific goods, resting on its valuation in relation to goods in the market, will be called its “substantive validity” (by contrast 1. to its formal, legal validity as a means of payment, and 2. the frequent existence of legal compulsion for the formal use of money as a means of exchange). “Substantive” valuation exists tangibly in principle 1. only in relation to particular kinds of goods, and 2. for every individual, his own valuation of according to the marginal utility of money (varying according to his income). This individual’s valuation will, of course, shift with the increase in the amount of money available to him. Initially, for the instance issuing money the marginal utility of money generally (but not only) diminishes when it creates administrative money and uses it as a means of exchange to make purchases, or imposes it as a means of payment. The marginal utility of money secondarily diminishes for the state’s exchange partners whose monetary holdings increase because of the higher prices they have approved, given the lower estimate of marginal utility on the part of the state administration. The “purchasing power” that they acquire—the falling marginal utility of money for these holders of money—can then in turn lead to their allowing an increase in prices for their purchases, and so on. If, by contrast, the state were to “withdraw” from circulation some of the paper money it had issued, ceasing to use it and destroy it, then it would have to reduce expenditures corresponding to the raised estimate of marginal utility of its diminished monetary reserves, and reduce its asking price. Then the exact opposite would happen. From the perspective of a commercial economy, therefore, administrative money can have an impact on prices in a single monetary area—although it is not the only form that can effect this, it is the most important one.
Which goods, and at what rate, is not a matter to be discussed here.
3. It has been true universally that a cheapening of and increase in the production of currency metal, or alternatively, a rise in costs and consequent reduction in production, could have a similar outcome for all countries using the currency. Monetary and nonmonetary use of such metals are related. Only with copper (in China), however, was nonmonetary use decisive in its valuation as money. With gold, the equivalent valuation in the nominal gold unit minus minting costs is taken for granted as long as it is used for payments between monetary areas, while at the same time circulating in the monetary areas of leading trading states, as today. It was the same with silver, and would still be the same today under the same conditions. A metal that is not used for payments between monetary areas, but that circulates in some monetary areas, will naturally be considered nominally equivalent to the local nominal monetary unit, although the comparative value of the latter fluctuates according to the so-called balance of payments, depending on the costs of supplementing it and the given quantity. Finally, precious metal that was used universally for the regulated (hence, restricted) minting of administrative money, but that is used for saving (see below) rather than currency, is always valued in the first instance in terms of its nonmonetary worth. The question is always whether the precious metal in question can be profitably produced and in what quantity. Where there is complete demonetisation, the value of precious metal is set solely in terms of relation of the estimated monetary costs of the means of payment used between monetary areas to its nonmonetary uses. And finally, where it is used for a longer period as a universal currency, or as administrative money, production will be determined by whether the existing “demand” outweighs costs expressed in the means of payment used between monetary areas. If its use as currency is restricted, it is unlikely that its monetary use will persist, since the relationship between the currencies of different areas and any one of these will tend, in the long run, to reduce its value, and it is only when domestic prices are entirely cut off that they remain unaffected (this was the case previously in China and Japan, and today applies to all areas that are de facto cut off from each other by war). Even where a metal is simply used as a regulated administrative money, this strictly defined monetary usage would be of significance only where minting costs were significantly higher, but this would end in a similar way for the same reason as in the case of the free minting of coin.
The theoretical limiting case of the monopolisation of all production and the (monetary and nonmonetary) processing of monetary metal—something that became practical in China for a short period—does not open up as many possibilities as might be supposed, once account is taken of the competition between several monetary areas and the use of wage labour. For if all payments from state funds were made in the relevant metallic money, the same thing would happen as did with the high level of Chinese seigniorage, every time there was an attempt to limit minting or very heavily tax it (which could well yield significant profit). First of all, the money would become very “expensive” in relation to the metal, so that the operation of mines using wage labour would become more or less unprofitable. A progressive monetary contraction would tip the economy into “counterinflation” (“contraction”),94 and this process (which in China led for a time to complete freedom to mint) would lead to the use of money surrogates and the development of a barter economy (Naturalwirtschaft), as also happened in China. Where a commercial economy prevails, lytric administration could therefore in the long run hardly proceed any differently from when “free minting” legally existed, except that minting would no longer be left to interested parties—the significance of this will be discussed later. [See §36.II.] If there was complete socialisation on the other hand, the “money” problem would be removed, and precious metal would hardly be produced at all.
4. That precious metal became the usual monetary material derives historically from its function as ornament, and so a typical form of gift, but besides its purely technical qualities, it was defined as a weighed good. Quite why it has persisted in this function is not immediately obvious, since today everyone would normally make any payment over about 100 Marks in prewar currency with paper (a banknote in particular) and want to be paid in the same way, but there are important reasons for this persistence.
5. The issue of banknotes is not only legally ordered in all modern states but also monopolised by the state. This takes the form of the state either directly taking the matter in hand or devolving responsibility to state-regulated sources (central banks) subjected to compulsory norms.
6. Public currency is only that which is actually paid out from these agencies; those currency forms that circulate between private agencies by virtue of formal legal provisions will be called “supplementary currency” (akzessorisches Währungsgeld). Money that is legally limited to use in private transactions will be called subsidiary money (Scheidegeld).
The terminology here borrows from Knapp; the following makes use of it more extensively.95
“Definitive” currency is public currency, while “provisional” currency is any currency that is at any time actually effective and exchangeable or redeemable at whatever financial agency.
7. Of course in the long run, public legal tender has to coincide with effective currency and not with the “official” legal currency that can deviate from it. As discussed above in §6,96 the latter is either (1) free commercial currency, (2) unregulated currency, or (3) regulated administrative money. State funds do not make their payments according to a monetary order that is entirely free and that seems to them ideal, but its actions are forcibly determined both by (1) its own financial interests, and (2) the interests of powerful economic classes.
In its chartal form, an effective standard monetary form can be:
A.97 Metallic money. Only metallic money can be an effective commercial money. But metallic money does not in any way have to be this.
It is
I. free commercial money if the monetary administration coins any particular amount of the standard metallic money or will exchange it for chartal coins—this is Hylodromie.98 Depending on the metal employed, there will then be gold, silver, or copper commercial money. Whether the administration can effectively allow these to circulate depends not on its own decision, but instead on whether there are people interested in coining.
a) The fixing of coin prices can “officially” persist without being “effective”—without existing, in fact. Whatever the official position might be, it is accordingly not effective
aa) if the legal price fixed for several metals (metallic pluralism) sets one or more of these at a lower price than the market price of the given raw metal. In this case, only the metal whose tariff has been set too high will be offered for coining by individuals and employed in making payments. If public exchequers cease making payments in the overvalued coins while continuing to use those that are undervalued, they will “accumulate” quantities of the overvalued money until they have no other money form in which they can make payments. If the discrepancy in prices is sufficiently great, the undervalued coins will be melted down, or sold by weight as a commodity in exchange for coins of the overvalued currency.
bb) Enforcement of the face value of coinage is also ineffective if those making payments, and especially if exchequers by force of circumstance make continuing and widespread use of their formal rights or usurped powers, to compel acceptance of another metal or paper means of payment that is not only a provisional monetary form, but which is either (1) supplementary, or (2) provisional, and is furthermore no longer redeemable because of the inability of the issuing agency to make payments.
The previous fixed rates cease always to apply in the case of aa), and also for bb)1. and bb)2. where supplementary money is forcefully and continuously imposed, or where there are no longer any other forms of effective provisional money forms.
The result in aa) is that monetary price fixing is limited to overvalued metal that then becomes the only free commercial money, and hence a new metallic and commercial currency. In bb), “supplementary” metallic money, or notes that are no longer effectively provisional, become the standard currency (in the case of 1. a currency based on restricted funds, and in 2., one based on paper).
b) On the other hand, the fixing of coin prices can be “effective” without being “official” by statute.
An example: a purely fiscal interest in seigniorage motivated the competition between medieval coining authorities to mint only with monetary metal, even though no formal relative prices had been established. The outcome was at least similar, all the same.
Following on from the above, we shall call a monometallic standard (whether gold, silver, or copper) the circumstance in which a metal has its price fixed by law; a plural metallic standard (whether bimetallic or trimetallic), the circumstance in which several metals are by law supposed to exist in a fixed currency relation; and a parallel currency standard the circumstance in which several metals are by law supposed to exist without a fixed currency relation. We will only refer here to “currency metal” and “metallic currency” (whether gold, silver, or copper) for the particular metal under consideration that has its price effectively fixed, such that it is an effective “commercial money.”
Bimetallism was “legal” in all the countries of the Latin Coinage Union until the German coinage reform suspended the free minting of silver. As a rule, because the stabilisation of relative values had been so effective that one often just did not notice changes, and bimetallism effectively prevailed, the effective currency metal was the overvalued and so fixed-price metal, depending on the given market circumstances. The money of other areas became “supplementary money.” (This is something that coincides closely with what Knapp writes.) “Bimetallism” is, therefore, at least where several autocephalous and autonomous mints are in competition with each other, always only a transitional effective currency system, and, moreover, usually a purely “legal” rather than effective arrangement.
Of course, the fact that undervalued metal is not presented for coining is not something that “administrative rules” have brought about—it does not, of course, have to do with any “regime”—but is rather the outcome of a market situation that we can assume has changed, and the existing associated relationships. Naturally enough, the monetary administration could mint its money at a loss as “administrative money,” but it would not be able to keep it in circulation, since nonmonetary valorisation is more profitable.
§33. II.99 Any type of metallic money whose price is not fixed will be called “restricted money” if it is legal tender (Kurantgeld).
It circulates either
α) as “supplementary” money, in a different legal tender of the same monetary area,
αα) as a different restricted money,
ββ) as a paper money,
γγ) as a commercial money.
Or it circulates as
β) a restricted money with an “international orientation.” This last case occurs if it does circulate as the sole legal tender in its monetary area, but arrangements are made to hold this international means of payment either in coin or bullion in other monetary areas (international reserve funds): international restricted currency.
a) Restricted money will be called “particular” if it is the sole legal tender but is not oriented to an international standard.
Restricted money can then be either priced ad hoc, as when purchasing the international means of payment or “foreign exchange,” or, in permissible cases, given a fixed price in the international means of payment.
(Regarding α) and β)): Talers were restricted money, and so are silver five-franc pieces; both are “supplementary.” Silver Dutch guilders are “oriented to international means of payment” (to gold) after they were for a short period when they became “particular” when minting was suspended; rupees are now in the same position. The Coinage Order of 24 May 1910 made the Chinese yuan (dollars) “particular” for as long as a fixed price, not mentioned in the statute, really does not exist (orientation to an international standard as suggested by the American Commission was rejected). (For a while, it was the Dutch guilder; see above.)
Where money is restricted, a fixed price regime would be very profitable for private holders of precious metal. Despite this (and precisely because of it), restriction is maintained so that, if the fixed price of the previous restricted monetary metal is introduced, the consequent undervaluation of other metals does not lead to the monetary stock made from this metal that is now blocked being put to more profitable and nonmonetary use. The reason that a rational lytric administration seeks to avoid this would be that this other metal is an international means of payment.
b) Blocked commercial money will be called “restricted money” (hence, legal tender) if in direct contrast to a), free coinage is legal, but privately unprofitable and so consequently not pursued. Lack of profitability then depends either on
α. an unfavourable relationship between the market price of the metal and commercial money, or
β. paper money.
Such money was once commercial money, but the prospects for effective private management of fixed prices have been made impossible through either
in the case of α., multimetallistic changes in the relationships of market prices, or
in the case of β., financial catastrophes with monometallic or bimetallic systems that made it impossible for state agencies to pay in metallic money and forced them to impose irredeemable paper money. The money in question is, rationally, no longer used for transactions.
c) Besides restricted currency (which is here simply called “restricted money”), there can be restricted metallic small coin, that is, money that as a means of payment has a “critical” limit to the amount that can be accepted. It is regularly, although not necessarily, deliberately minted at an “undervaluation” in relation to other coinage (to protect it from the risk of being melted down); it is mostly, but not always, a provisional money, usable over specific counters.
This is a matter of everyday experience and of no special interest.
As money forms, all small coin and very many types of restricted metallic money are similar to paper money; they differ from it only with respect to a point that is nonetheless important—the alternative uses of the monetary material. Restricted metallic money is very close to the circulating medium if it is “provisional money”: if sufficient conditions for its redemption in commercial money are met.
§34. B.100 Banknotes are, of course, always administrative money. For a sociological theory, it is always the chartal form of certificate (including the formal meaning of the image printed on it) that is “money,” and not any kind of “claim” that it might represent (which is, of course, entirely absent with a purely unredeemable paper money).
From a formal legal standpoint, an official, redeemable certificate of indebtedness may be
a) that of a private individual (e.g., a goldsmith in seventeenth-century England),
b) that of a privileged bank (banknotes),
c) that of a political organisation (state paper).
If it is “effectively” redeemable, and so only a circulating medium and hence “provisional money,” then it can be
1. fully covered—a certificate,
2. or covered only to the extent that it meets normal demands for redemption, and so a circulating medium.
Coverage can be arranged by
α. specified and standard weights (bank currency),
β. or by metallic money.
Paper money is primarily and quite regularly issued as provisional (redeemable) money, in modern times typically as a circulating medium, almost always as banknotes, and therefore typically denominated in the existing nominal value of metallic currencies.
1. Of course, the first part of this last sentence does not hold when one form of paper money is replaced by another, state paper by banknotes or vice versa. But this does not involve any kind of primary monetary emission.
2. And regarding the opening sentence of B. above: of course, there can be means of exchange and payment that are not chartal, and so neither coin nor certificate nor any other kind of material object—there is no doubt about that. But we do not want to call these “money,” but various kinds of “unit of account,” or whatever might be suitable. Money’s significant characteristic is this: it is tied to quantities of chartal artefacts, something that is by no means an “incidental” and only “superficial” property.
Where the redemption of a hitherto provisional money has been de facto suspended, we need to determine whether interested parties think this to be
a) a transitory measure,
b) or one that is definitive for the foreseeable future.
In the first case, the paper money tends to be discounted with respect to the nominally equivalent metallic currency, since metallic money or bullion is sought after for international payments. This is not by any means inevitable, however, and the size of the discount tends to be moderate (but here again, not necessarily, for the demand for foreign exchange can be very acute).
In the second case, a definite paper currency eventually develops (“autogenically”).101 This no longer involves a discount, but (historically) devaluation.
For it is then even possible that the market price of the metallic money (a former commercial money that once formed the point of reference for banknotes) falls very significantly in relation to international means of payment, while the market price reduction of paper money is less marked. And the inevitable result (which has happened in Austria and Russia) is that ultimately the former nominal unit of weight (silver) can be purchased for a “lower” nominal sum in banknotes that have in the meantime become independent of it, or “autogenic.” This is perfectly understandable. During the early stages following the issue of a pure paper currency, this currency form always has a lower international nominal value than its silver standard, because it is always issued following a prevailing inability to make payments. In Austria and Russia, subsequent developments depended on (1) the so-called international balance of payments that determined the foreign demand for domestic means of payment; (2) the quantity of paper money issued; and (3) the degree of success of the issuing agency in acquiring international means of payment (“exchange rate policy”). It was and is possible that these three elements could in this case combine in such a way that the valuation of the particular paper money on “world markets”—in its relation to international means of payment (today that means gold)—could become more stable, or over time rise, while that of the former currency metal sinks in relation to gold because of (a) increased and cheaper silver production, or (b) the increasing demonetisation of silver. A genuine (“autogenic”) paper currency is precisely one for which any effective “restitution” in the older redeemable metal is no longer made.
§35. The legal order and administration of a state can today formally and legally enforce in its own domain a money form as “currency” if it is itself in a position to make payments in this money form. It is not in a position to do so if it has allowed a former “subsidiary” or “provisional” money form to become the general commercial money (in the case of metallic money), or in the case of banknotes, an independent paper money. This is because these money forms accumulate in the hands of the state until it has no other kinds of money and has to make use of them for its own payments.
Knapp quite properly describes this as the normal course followed in “obstructional” changes to the currency.
This implies nothing, however, about the substantive validity of money, that is, how it is used in its exchange relationship with other natural goods, and so also nothing about the degree of influence over this substantive validity that a monetary administration can gain. Experience has demonstrated that political authorities can effectively exert such influence by rationing consumption, controlling production, and establishing maximum and minimum prices, as long as this only involves goods and services that are domestically available or are manufactured domestically. But even here there are clear limits (as will be discussed elsewhere).102 And in any event, such measures are clearly not a matter for monetary administration.
Rational modern monetary administrations in fact set themselves a quite different task: to influence the material valuation of domestic currency in foreign currency, as a rule to “stabilise” as far as possible the exchange rate expressed in foreign money forms. Financial interests (having in view future foreign loans) play a part here, besides those of prestige and political power, as do powerful commercial interests, such as importers and those domestic industries that use foreign raw materials, and finally also the interests of the strata that consumes foreign products. “Lytric policy” is without any doubt today primarily focussed on international exchange rates.
This and what follows are entirely in agreement with Knapp. His book is formally and substantively one of the great masterpieces of German literary style and scientific acumen. Those specialists who have made criticisms have focussed on the problems with which he does not deal, which are relatively few, if not entirely unimportant.
England probably adopted the gold standard somewhat unwillingly because silver, the more desirable standard, was undervalued by the official rate. By contrast, all other modern, organised, and orderly states have without doubt chosen their monetary standard with a view to the most stable possible relationship with sterling. They have done this by adopting a pure gold standard, or a gold standard with a supplementary silver restricted money, or by adopting a restricted silver currency, or regulated paper money, in both latter cases the aim of monetary policy being to maintain gold reserves for international payments. The adoption of purely paper currencies has occurred only following political catastrophes, as a way of meeting an inability to pay in what had been the previous currency. This is happening today on a large scale.
Now it appears to be true that for these objectives in international transactions (a fixed exchange, today in terms of gold), the free coinage of gold in one’s own monetary system is not the only effective means. The exchange parity between different types of freely minted chartal gold coins can be subjected to very great shocks, even if the Chance of acquiring the means of making international payments in foreign trade by exporting or recoining gold can be eased by domestic coinage of gold. So long as this continues, it can only be significantly disturbed temporarily through natural impediments to the natural course of trade and commerce, or embargoes on the export of gold. On the other hand, experience demonstrates that under normal peacetime conditions it is possible to establish a paper currency area with an orderly legal framework, favourable conditions of production, and a monetary policy that deliberately procures gold for foreign payments, maintaining in this way a relatively stable “exchange rate.” There are, however, other things being equal, notably higher sacrifices in store for finance, or, in other words, those who need gold. (It would be just the same if international trade were conducted with silver, with a silver standard prevailing in the main trading centres of the world.)
§36. The typical and most elementary means of monetary policy in relation to foreign exchange (which we cannot discuss here in any detail) are:
I. In countries where there is free coinage of gold:
1. Provision of backing for that part of the circulating medium not already covered with gold by commercial paper; that is, claims to payments for goods that have been sold and that are guaranteed by “safe” persons (proven entrepreneurs). This is on condition that transactions of the note-issuing banks trading on their own account are as much as is possible restricted to dealing with such paper and to making loans against the security of a stock of goods, accepting deposits, clearing cheques, and finally, acting as a financial agent for the state.
2. The issuing bank has a discount policy that entails raising the rate of interest deducted for paper when it is likely that foreign payments will give rise to a demand for gold that will threaten domestic gold reserves, especially those of the issuing bank. The purpose of this is to encourage foreign owners of money to make use of the Chancen offered by this higher rate of interest, and to discourage internal borrowing.
II. In countries with a restricted metallic currency, or a paper currency:
1. a discount policy as in I.2, to limit undue credit expansion; besides that,
2. a gold premium policy—a means often employed in gold standard areas with a restricted subsidiary silver currency;
3. a policy of planned purchases of gold, and the planned influence of the “exchange rate” through one’s own purchase and sale of foreign exchange.
Policy that is initially purely “monetary” can, however, turn into material economic regulation.
Note-issuing banks occupy a position of great power among those banks extending credit, since the latter are in many cases reliant on the credit extended by the former. The note-issuing banks can use this influence to bring about organised regulation of the “money market,” that is, the conditions for the extension of short-term credit. On this basis, they can further promote the deliberate regulation of business credit, and so influence the direction of the production of goods. This is the closest approximation so far to a “planned economy” within the framework of a capitalist economy. This therefore represents a formally voluntaristic, substantive ordering of economic activity within the area controlled by the relevant political organisation.
This kind of measure was typical in the period before the war and was used in the context of a monetary policy that primarily sought to “shore up,” and hence stabilise, the currency. If, however, change was wanted (in countries with a restricted or paper currency), then mostly this change involved a gradual rise in the foreign exchange value of currency, and so was oriented to the fixed-value regimes of the largest trading areas. But there were strong interests that sought to reverse the policy, seeking a monetary policy that
1. lowered the international exchange rate of the domestic currency, so as to favour exporters, and which,
2. by increasing the issue of money by freely coining silver in addition to gold (which should have meant instead of gold), and even in some cases by deliberately issuing paper money, bringing about a fall in the relation of money to domestic goods and so raising the (nominal) money price of domestic goods, which is the same thing. The objective here was to improve the profitability of those manufactured goods since the increase in their price, denominated in the nominal domestic currency, would probably be the most immediate consequence of the increase in the domestic money supply, and so of its fall in price in terms of the exchange rate. The intended process is called “inflation.”103
Now on the one hand,
1. the significance of this is not entirely undisputed, but it is very probable that any form of monetary regime in which there is a very marked cheapening and increase in the production of precious metals (or where such metal has been seized as booty) will be characterised by a noticeable tendency towards a rise in prices, at least for some products, perhaps to a different degree for all, in those areas using precious metal as a currency. On the other hand, it is an undoubted fact
2. that monetary administrations in areas with an independent paper money [currency] will in times of great financial hardship (especially in time of war) as a rule orient their issue of money solely to the financial needs of waging war. It is likewise clear that in such times, countries with a fixed currency regime or with restricted metallic money not only suspend the redemption of their paper circulating medium—which does not necessarily lead to a lasting shift in the currency—but also, by following a purely financial wartime policy of issuing paper money, adopt a purely paper currency. Here metallic money becomes subsidiary, since its premium in relation to the nominal paper money is ignored and can only be valorised for nonmonetary purposes, so it disappears from circulation. Finally, it is plain that where there is such a transition to a pure paper currency and unlimited issue of paper money, there is colossal inflation, with all its consequences.
Comparing all of these processes and events (1. and 2.), it is apparent that:
A. So long as there is a free commercial metallic money, the possibility of “inflation” is very limited:
1. “mechanically,” simply by virtue of the fact that the quantity of the precious metal used for monetary purposes has a degree of elasticity, but is ultimately strictly limited;
2. economically, normally by the fact that the creation of money is effected only on the initiative of private interested parties, so that any interest in minting coin is oriented to the need to make payments in a market-oriented economy.
3. Inflation is then only possible through the transformation of former metallic restricted currency (e.g., today, silver coin in a country on the gold standard) into a free commercial money, but here generally only if production of the restricted metal becomes much cheaper and is increased.
4. Inflation with a circulating medium is only conceivable as a long-term gradual expansion of circulation through the extension of credit, which offers some elasticity, but ultimately this is strictly limited by the regard an issuing bank has for its solvency. Here an acute risk (Chance) of inflation arises only if the bank is in danger of becoming insolvent, and so once again, normally occurs when a paper currency is issued under wartime conditions.
Special cases, such as the “inflation” occurring in Sweden triggered by wartime exports, are so particular that they can be neglected here.
B. Once an independent paper currency exists, the prospect is perhaps not so much one of inflation—for during wartime nearly all countries adopt a paper currency—but that instead the developing consequences of inflation become noticeably greater. The pressure of financial difficulties and, together with other costs, the demands for increased wages and salaries resulting from inflationary price increases, promote very tangibly the tendency of the financial administration to propel inflation onwards even without any very compelling cause and despite its capacity to avoid such difficulties through severe measures. The difference is certainly only a quantitative one, but nonetheless perceptible—as has been evident for the Entente Powers, Germany, Austria, and Russia.
Hence, monetary (lytric) policy can therefore, and especially where there is a supplementary restricted metallic currency or a paper currency, be a policy of inflation.104 This has long been the case during quite normal times in countries, like America, that have very little engagement with international exchange rates, without there being any kind of financial motive. And by force of circumstance, it has today remained the case after the war in not a few of those countries that allowed themselves to succumb to inflation in the means of payment used in wartime. A theory of inflation will not be developed here. The term is instead always used to denote a special way of creating purchasing power by specific interested parties. I seek only to establish that, while it would seem easier to rationally plan and develop the substantive management of monetary policy with administrative money, and primarily paper money, at the same time this very easily (from the standpoint of exchange rate stabilisation) comes to serve irrational interests.
For formal commercial rationality of monetary policy, and hence of the monetary system, could in terms of the foregoing mean only: the suppression of those interests that are either (1) not market-oriented, as with financial interests; or (2) uninterested in the most feasible preservation of stable exchange-rate relationships as the optimal basis for rational calculation. Instead, they are interested in augmenting the “purchasing power” of certain interested parties by means of inflation, maintaining it without any financial pressure. Whether this latter procedure is something to be welcomed or condemned is, of course, a question that cannot be answered empirically, but its empirical existence is clear. Moreover, a perspective oriented to material social ideals might well be critical of the fact that the creation of money and other circulating media in a commercial economy is in the hands of those who are only interested in “profitability” and not in the question of the “proper” level of the quantity of money and the “appropriate” form of money. They would argue quite rightly that only administrative money can be controlled, not commercial money. Thus, the use of administrative money, which can be produced as any amount and type of paper money, is precisely the specific means of creating money in a substantively rational manner. This line of argument is convincing from a formal and logical standpoint, although it has limitations arising from the fact that it is the “interests” of individuals, not the “ideas” of economic administration, that will rule the world in the future, as they do today. Hence, this demonstrates the existence of a conflict between the formal (in the sense used here) and substantive rationality theoretically open to any monetary authority free of obligation to maintain the free minting of coins—which was the sole purpose of the foregoing discussion.
Quite obviously, this entire analysis engages with G. F. Knapp’s magnificent book, Die Staatliche Theorie des Geldes (first edition 1905, since when a second edition has been published). It is, however, confined here only to the issues raised in the framework presented here and conducted in very summary fashion, entirely leaving aside the finer points. The book immediately became the focus for disputes over values, something that was not Knapp’s intention but to which he might have in part contributed. For this reason, it found an especially warm reception from the Austrian monetary administration.105 Events have not shown Knapp’s theory to be “wrong” on any point; instead they have demonstrated what was already plain: that its treatment of the substantive validity of money is incomplete. The following will provide rather more detail on this.
Digression on the State Theory of Money
Knapp succeeds brilliantly in demonstrating that in every case, state monetary policy and that of agencies regulated by the state has, in seeking to adopt a gold standard or something very close to it, been primarily driven by a country’s regard for the rate at which its currency exchanges with that of other countries, and particularly that of England. The object has been to maintain “parity of coin” with the largest world trading area and the most dominant intermediary in world trade—England. To this end, Germany first demonetised silver; then France, Switzerland and the other countries of the Latin Union, Holland, and ultimately, India transformed what had been a freely circulating silver currency into a restricted currency and made additional indirect arrangements for rendering foreign payments in gold. Austria and Russia did the same, the monetary authorities for these areas using unredeemable paper money that could function as currency so that payments could quickly be made abroad in gold as and when they fell due. They were therefore entirely concerned with establishing the most stable foreign exchange rate. It is for this reason that Knapp maintains that this is the sole significance of the question of a currency’s material base and of monetary policy. He draws the conclusion that this objective would be served equally well by other indirect measures securing the adequacy of gold reserves (such as the use of paper money) as it would by direct measures (e.g., Austria and Russia). Other things being equal, this is not necessarily literally true for those areas in which coins circulate freely. For so long as there is no reciprocal prohibition on the export of coin between two similar currency areas, whether gold standard or silver standard countries, this circumstance does undoubtedly ease quite considerably the maintenance of exchange rate stability. But even so far as that it is true—and under normal circumstances, it is generally true—this does not yet mean that in choosing between metallic money (today, chiefly gold and silver) and paper money (we leave here to one side the special cases of bimetallism and restricted money discussed earlier) as monetary material, that these are the sole issues which could be raised. This would mean that in other respects paper currency functioned in a similar way to metallic money. Even from a formal viewpoint, the difference is significant: paper money is always “administrative money,” something that may be true of metallic money, but not necessarily. Paper money cannot, of course, be minted. The difference between a “devalued” assignat and silver that, following some future demonetisation, becomes a purely industrial raw material is not equal to zero (something that Knapp does occasionally admit).106 Paper was and is today (1920), like precious metal, by no means a good that is freely available in any quantity. But the difference between (1) the objective possibility of production, and (2) the cost of such production in proportion to any likely demand is nonetheless colossal, given that monetary metals are so dependent on the existence of mineral deposits. This difference justifies the proposition that a monetary administration could, before the war, at any time and under normal conditions, produce any amount of paper administrative money if it so wished—compared even with copper money (China), certainly with silver, and entirely so with gold. And at relatively insignificant “cost,” especially where denominated in purely nominal amounts with no particular relationship to the amount of paper used. This was clearly possible with metallic money only in the case of small coin, and so not in the remotest way comparable in extent and significance—certainly not for a currency metal, where the quantity was elastic, but really an amount “infinitely” more fixed and secure than could be possible with the manufacture of paper money. And so, this create limits. Certainly, if monetary administration was exclusively oriented to the objective of maintaining the greatest possible stability in the foreign exchange rate, there then were fixed normative limits, even if there were no “technical” limits—an objection that Knapp would definitely make. He would be right to do so, formally speaking, but only formally speaking. What happened with an independent paper money? Knapp would say that even there it was the same (e.g., Austria and Russia): “all” that was missing was the technical and “mechanical” limit given by a scarcity of precious metal. Was that meaningless? Knapp ignored the question. He would say that there is no known “cure” for the “death” of a monetary standard. Disregarding for the moment the current absolute obstacles to paper manufacture, it cannot be disputed that there were and still are both (1) the individual interests of the political administration managers, who even Knapp recognises to be the incumbent principals or commissioners of the monetary system; and (2) private interested parties. Neither is at all primarily interested in the maintenance of a fixed “exchange rate,” and they are sometimes on occasion even directly opposed to this. These interests can, either from within the political and monetary administration, or by exerting strong pressure on it, have an important influence on creating “inflation.” Knapp rigorously avoids using the term “inflation,” and for him this would only mean the issue of currency for ends other than those related to foreign exchange rates and “permissible” in these terms.
To begin with, there are financial temptations relating to inflation. A devaluation through inflation by an average of 1 / 20th of the German Mark in relation to the most important natural items of domestic property would, if profits and wages had become “adapted” to these price conditions, revalue all domestic consumer goods and labour by a factor of 20 (we here assume). For all those in this happy situation, this would mean a reduction in war debt to a level 1 / 20th of the original. For a state, however, this rise in nominal income would be reflected in correspondingly increased receipts from taxation, and so would be of great benefit to it. Wouldn’t this be nice? That “someone” would pay the “costs” of this is clear, but it would not be the state, or either of the interested parties just noted. And how nice it would be to pay off old foreign debts in a medium any amount of which could be very cheaply produced! Besides the prospect of political intervention, there is the problem that this policy would endanger future lines of credit, but the state often favours immediate rather than long-term solutions. And employers are also interested parties here, for whom a twentyfold inflationary rise in the selling price of their goods would be fine so long as their workers would settle for “only” a five- or tenfold increase of their (nominal) wages—something that is very possible, given their lack of bargaining power, because they do not fully grasp the situation, or for any other reason. This kind of financially driven acute inflation is something that economic experts abominate, and it is true that this kind of policy is not compatible with Knapp’s version of foreign exchange policy. By contrast, a planned and gradual increase of the circulating medium of the kind that central banks sometimes undertake is viewed positively, as something that “stimulates” a speculative spirit—a hope for profitable Chancen, entrepreneurial spirit, and hence the capitalist production of goods led by the promise of returns on capital investment, rather than the enjoyment of a rent from financial investment. But how does this all relate to the stability of foreign exchange? Its own effect—the “stimulation of entrepreneurial optimism” and all its consequences—could influence the so-called balance of payments by increasing the rate of exchange for one’s own currency, or indeed preventing its fall. How often? How strongly? That is another question. We do not here deal with the question of whether the effects of a moderate, financially driven increase in the currency would have a similar impact. This form of currency reserve expansion has no great impact on the exchange rate, and its “costs” are gradually absorbed by the same stratum that is substantively affected in times of acute inflation, when they suffer substantial “confiscation”: all those who are in receipt of an income that has remained nominally static, or who possess wealth in the form of securities with a nominal face value. This therefore means above all: those in receipt of a fixed income from investments, followed by the official in receipt of a “fixed” income that can only be increased by constant complaint, but also the worker on a “fixed” wage that can only be raised by sustained struggle. It is not therefore possible to interpret Knapp as maintaining that only the stability of the foreign exchange rate is of importance for a paper currency policy (and he does not claim this), nor should we consider it possible, as he does,107 that there is a very high probability that it will in fact be decisive. It is undeniable, however, that this would happen in a monetary policy conducted entirely according to his sense of rationality, where procedures related to the creation of money disturb price relationships as little as possible (although he does not express this directly). Nor can it be admitted—Knapp does not do so—that the practical importance of the form of currency policy is limited to a “fixed exchange rate.” We have talked here about “inflation” as a source of a revolution in prices, or of revolutions in prices, but also that it can be brought about by the striving for such changes in price. Inflationary episodes that revolutionise the price of paper money also of course tend to undermine a fixed exchange rate (although as we saw, increases in the volume of money that revolutionise prices do not necessarily do so). Knapp would concede this. He obviously, and rightly, assumes that there is no place in his theory for a currency policy determined by commodity prices, whether revolutionary, evolutionary, or conservative. Why not? Perhaps for the following formal reason: the exchange relationship between two or more countries is expressed on a daily basis by a very small number of (formally) unambiguous and standardised stock market prices, to which it is possible to orient monetary policy on a rational basis. It is further possible for a monetary authority, especially one administering the circulating medium, to estimate—but only to estimate on the basis of facts that are periodically solicited—what kinds of fluctuation in a given reserve of means of payment (held purely for the purposes of payment) might be “required” for the foreseeable future for a particular group of people involved in a commercial economy, assuming that conditions remain more or less the same. By contrast, it is not possible to calculate in the same way the possible extent of the impact of an inflationary or deflationary process; or conversely, what the impact of a withdrawal of money in a given future period would be. In considering inflation (which is all that we will deal with here), we need to know: (1) the current distribution of income; and related to that, (2) the current expectations of economically active individuals arising from that distribution; (3) the “course” taken by inflation—where newly issued money initially goes and where it ends up. This would in turn mean: the sequence and extent to which nominal incomes were increased by inflation. Then (4) the utilisation of the consequent demand for goods (consumption, investment in property and wealth, capital investment), and above all: its form (luxury goods, or means of production of all kinds). Finally, (5) the direction consequently taken by movements in prices, and so once again shifts in income distribution—together with countless further changes in “purchasing power,” as well as the extent of any possible “stimulus” to the increased production of natural goods. All of these matters would be entirely determined by the future expectations of individual economic agents with respect to the newly created situation, which would recoil on the price expectations of other economic agents; there will follow a struggle between different interests whose outcome will be future “prices.” There can be no question of making any kind of “calculation” here of the following kind: 1 billion Marks additional note issue equals the current price of iron + x, the current price of grain + y and so on. The more so given that, while the prices of purely domestic products can be temporarily regulated, this can only determine price ceilings and not minimum prices, and it has a strictly limited impact. Seeking to determine “prices” (which is empirically impossible) would, moreover, be of no benefit, since this would only establish the quantity of money required as a pure means of payment. However, besides and much further beyond this, there would be a new and widespread demand for money for the production of capital goods in the form of credit. This would, however, involve the possible consequences of an intended inflation for which any reasonably definite “calculation” cannot be made. In sum then, and confining ourselves to these extremely rough comments, it is understandable that Knapp entirely disregards any prospect of employing an inflationary price policy in a modern commercial economy in a planned and rational manner that would be comparable to an “exchange rate policy” based on stability and calculability. But the existence of such policies is a historical fact. Inflation and deflation, in much more crude forms, have been repeatedly attempted with copper currency in China’s substantially more primitive monetary economy, with very serious failures. And in America, inflationary policy has been recommended. Knapp limits himself, in a book that works in terms of “demonstrably true” assumptions, to the principle that the state should be “careful” in issuing an independent paper money.108 And since he entirely orients his discussion to a “fixed exchange rate,” this appears to be reasonably unequivocal: inflationary depreciation and the depreciation of an exchange rate do usually go together. They are not identities, however, and above all, every inflationary depreciation is not mainly caused by exchange rates. Knapp does not expressly concede, nor does he deny, that in fact there has been support for inflationary monetary administration oriented to price policy not only from silver mine owners during the free silver campaign but also from farmers who demanded greenbacks. It is very probably a comfort to him that this has not, however, ever worked for any length of time. But things are perhaps in any case not that simple. Whether or not they were intended to raise the price level, inflations have (in the sense used above) often actually occurred, and assignat-type catastrophes are not unknown either in East Asia or in Europe. A substantive theory of money does have to face up to this. Knapp would surely not claim that there is no relation at all between the “devaluation” of silver and the “devaluation” of assignats. Even formally, this is not the case: it was not silver as coin that was devalued, but by contrast, raw silver used for industrial purposes. Chartal silver coin, being restricted, often underwent revaluation. And the raw “paper” used for industrial purposes was not devalued, but (quite naturally) precisely chartal assignats. As Knapp would rightly say, their value would ultimately fall to zero, or to their value for collectors or as items in a museum, only when they were repudiated by the state exchequer, so that they are nonetheless determined by regulatory disposition “by the state.” That is true. But their substantive value (their price relationship to any goods) can long before have fallen to a tiny proportion of what it formerly was, despite their continuing nominal validity for making payments to the state.
But apart from these catastrophes, there have been enough historical examples of inflation and (in China) “sticky currencies” through nonmonetary use of currency metal. Here we might initially note that under some circumstances (but not always) particular money forms become “supplementary” when they had not been hitherto; they pile up in state exchequers and make “obstructional” changes to the currency necessary. Moreover, a substantive theory of money must in such cases also, of course, at least pose the question of how prices and incomes are influenced, and hence the economy, although it is questionable, for reasons already mentioned, how far this question could be answered theoretically. Similarly, a problem is suggested by the fact that as a result of the relative decline in the prices of either silver or gold each in terms of the other, France, which has been formally on a bimetallic standard, has in fact at times operated only a gold standard, and at other times a silver standard, in each case the other metal becoming “supplementary.” In this case, we do not wish only to suggest that these prices changes are market related, nor do we wish to do so in other instances of changes in the monetary material. Instead, we want to ask in addition: Where there is an increase in the supply of precious metal, does this indicate the presence of booty from conquest (Cortez, Pizarro), or instead, enrichment through trade (China at the beginning of our era, and since the sixteenth century), or simply increased production? If the last of these is true, has production simply increased, or also (or only) become cheaper, and why? What changes in the nature of nonmonetary use have played a part here? Has there been in this particular economic area, such as the Mediterranean in antiquity, a marked development of export to very distant locations like China and India (as in the first century AD)? Or can the reasons be found only (or also) in a market-driven shift of monetary demand (the nature of small-scale transactions)? The way these and other various possibilities tend to work must be discussed.
Finally, we can consider once again the commercial regulation of the “demand” for “money,” and ask what this concept means. This much is clear: the current “demand” for means of payment from parties to market relationships determines the creation of “free commercial money” (free coinage). In addition, modern central bank policy with respect to the circulatory medium is determined by the current means of payment and, above all, the demand for credit from market participants, together with regard for their own solvency and the norms imposed to this end. Today, everything is primarily driven by interests—corresponding to the general character of our economic order. Only this, therefore, in our (formally legal) economic order can be properly called “demand for money.” This concept is also quite indifferent to “substantive” claims, such as the “effective demand” for “goods.” In a commercial economy, there is one single compelling restriction on monetary creation only in the case of money based on precious metals. As has been pointed out, the existence of this restriction determines the significance of precious metal for the monetary system. The restriction of standard money to a material not in practice capable of unlimited production at will, especially precious metal, combined with coverage of the circulating medium by this standard, does not entirely exclude the possibility of an (elastic, evolving) inflation in banknotes, but it nonetheless sets very fixed limits to it. Where monetary creation involves a comparatively and practically freely reproducible material like paper, this kind of mechanical limit does not exist. We then really do have the “free choice” of political authorities, which means the view taken by members of the authority of its financial interests, or even (the Red hordes’ use of the printing press!) the entirely personal interests of administrative officials, and so the detachment of any regulation of the quantity of money by these mechanical restraints. The significance of metallic currencies today is rooted in its elimination of these interests from any influence over the monetary system—or more accurately, since the state can be forced by these interests to give up metallic money and adopt a paper currency—by a particular constraint on these interests. In spite of the very mechanical character of its operation, a gold or silver metallic standard today implies a higher degree of formal commercial rationality because it is purely oriented to exchange Chancen (Tauschchancen). It is, of course, true that the financially led policy of monetary administration using a purely paper currency is not, as conceded above, necessarily solely oriented to the personal interests of the authority or of its administrative staff—Austria and Russia have demonstrated this—nor to temporary financial interests, and so to the cheapest possible production of as much means of payment as possible, whatever becomes of this as a means of exchange. But there can be no question that the Chance that this orientation will arise is ever present, something that is ruled out in this respect by any monetary system based on a material having a value in its own right. From the perspective of the formal order of a commercial economy, this Chance is the (likewise formal) “irrational” feature of any currency not based on a material having a value in its own right, however much it has to be conceded that it possesses through its “mechanical” connection only a relatively formal rationality. G. F. Knapp could, and should, concede this much.
For however incredibly primitive the older quantity theories were, nobody denies, not even Knapp, the certainty of a “risk of depreciation” in the event of any “inflation” of paper money conducted for purely financial purposes. The “consolation” he offers in such circumstances must be most vigorously rejected. The “amphitropic” stance “of all” individuals, that each individual is equally a debtor and a creditor, something that Knapp proposes in all seriousness as proof of an absolute indifference to any “depreciation,” is, as we all now know, a phantom. This is true not only for pensioners but also for those living on a fixed wage or salary, whose incomes remain nominally the same, or which in being perhaps doubled depends on the financial context and on the whim of administrative authority, while outgoings perhaps nominally increase twentyfold, as happens today. What happens to long-term creditors? The effect of such radical alterations to the (substantive) worth of money today means that there is a chronic tendency to social revolution, in spite of the fact that many entrepreneurs are in a position to make profits on exchange rates, and that some (very few!) workers are in a position to secure for themselves increased wages. Some may hold this social revolutionary impact and the consequent massive upheaval of the commercial economy as something to be welcomed. That is “scientifically” irrefutable. Rightly or wrongly, anyone is free to anticipate that socialism will evolve in this way out of a “commercial economy.” Or some may conclude that only a regulated economy based on small firms is rational, disregarding, however, the many sacrifices this would entail. Nonetheless, science is neutral with respect to these claims, and its task is to verify these effects in as sober a manner as possible—and that is obscured by Knapp’s claim of “amphitrophy,” in all its false generality. Besides isolated errors, it seems to me that the material incompleteness of his theory has been stated in the foregoing—a lack of completeness that has made scholars into “principled” opponents, something that seems altogether unnecessary.
§37. Besides monetary organisation, the significance of the factual existence of independent political organisations for the economy mainly consists of the following circumstances:
1. That, other things being equal, in their own demand for utilities they tend to favour their own members as suppliers. The more the economy of these organisations is monopolistic in character, or assumes the form of household provisioning, the greater the significance of this, and this is currently ongoing.
2. In the possibility of subjecting foreign trade to planned, substantive supervision, promoting, restricting, or regulating such transactions (“trade policy”).
3. In the possibility and differences of formal and substantive economic regulation, both of degree and of kind, by these organisations.
4. In the repercussions of very great differences in the structure of rule, together with its related administrative and status-related articulation, for the behaviour of influential strata and the consequent attitude towards acquisitive activity.
5. In the fact that there is competition in the leadership of these organisations for their own power and in providing means of consumption and acquisition for the organisational members that they control, and the consequent economic Chancen (Erwerbschanchen) enjoyed by the latter.
6. In the way these political organisations provide for their own needs: see the following paragraphs.
§38. The relationship between the economy and organisations that have a primarily noneconomic orientation is most direct in the mode of provision of utilities for the conduct of the organisation: the activity of the administrative staff as such, and the activity that they themselves oversee (Chapter 1, §12) (this involves “finance” in the broadest sense, but also the provision of goods in kind).
Outlining the simplest types, the “financing” of organisational activity, the provision of economic utilities, can be ordered
I. intermittently, hence,
a) on the basis of purely voluntary contributions, which can in turn be
α) based on patronage, involving large gifts and endowments;
this is typical for charitable, scientific, and other purposes that are not primarily economic or political;
β) based on begging and solicitation—this is typical of particular kinds of ascetic communities.
But in India there are also profane beggar castes, and elsewhere, especially in China, organised bands of beggars.
This reliance on begging can be the subject of a local monopoly and, as a result of the development of a sense of obligation and merit on the part of those solicited, this activity can cease to be intermittent and be transformed into something like a regular contribution.
γ) through formally voluntary gifts to those who count as politically or socially superior: gifts to chiefs, princes, patrons, masters, lords, all of which can acquire the character of levies or dues by becoming conventionalised. They are not usually purposively rational, but determined by occasion (e.g., special anniversaries, family events, political events).
The intermittent nature of such transfers can also
b) arise from extortion.
Types here include the Camorra in southern Italy, the mafia in Sicily, and similar ritually separate castes of thieves and robbers in India; in China, there are sects and secret societies with similar forms of support. Contributions are only apparently intermittent because they are formally “extralegal,” but in practice they often assume the character of “subscriptions” in return for which particular services are supplied, such as guarantees of security. (About twenty years ago, a Neapolitan factory owner told me, responding to concern about the effect of the Camorra on business: “Signor, the Camorra takes x lira from me a month, but guarantees security; the state takes ten times as much and guarantees nothing.” The secret clubs typical of Africa, perhaps survivors of earlier “men’s houses,” function in a similar way, providing informal tribunals that guarantee security.)
Political organisations can be based (such as the Ligurian pirate state was) on pure booty, but not exclusively for any length of time.
Financing can be arranged
II. on a permanent basis,
A. without independent economic activity:
a) through levies of material goods;
α) on a purely money economy basis: acquisition of means through monetary contributions and provision of needed utilities by money purchases (a pure form of Verbandswirtschaft based on money). All salaries paid to administrative staff are paid in money.
β) on a purely natural economy (see §12)—levies specified as deliveries of goods in kind (a pure Naturalleistungsverbandswirtschaft).109 Possibilities here:
αα) the administrative staff is furnished with benefits in kind, and needs are met in natura. Or,
ββ) contributions levied in kind are changed into money in whole or part through sale, and needs are then met with money so far as is possible.
The contributions made, both in money and in kind, can in all cases be, as the most elementary economic types
α) taxes, that is, contributions as a
αα) proportion of property or, in money, of wealth,
ββ) proportion of all receipts or, in money, of income,
γγ) only from the possession of means of production, or from going enterprises of a particular kind (so-called contributions on returns).
Or they can be
β) fees, payments made for use or taking advantage of organisational facilities, possessions, or services made available. Or:
γ) duties on:
αα) specific kinds of use and consumption,
ββ) particular kinds of transactions, primarily on:
1. the movements of goods transport (customs duties),
2. the turnover of goods (excise duties and sales taxes).
Furthermore, all charges can be
1. charged in-house, or
2. farmed or leased out, or
3. lent or mortgaged.
The leasing of a right to collect taxes for a fixed sum of money (tax farming) can be fiscally rational since it may be the only way budgeting can be effected.
Lending and mortgaging are usually fiscally irrational, brought about by
α) the pressure of financial necessity, or
β) usurpation on the part of the administrative staff, resulting from the absence of reliable staff.
Sinecures involve the lasting appropriation of dues by state creditors, by private guarantors of military and tax payments, unpaid mercenaries and soldiers, and finally, those holding rights to official positions. They can take the form
1. of individual appropriation, or
2. collective appropriation (with the freedom of replacement from within the group that collectively appropriates).
Financing without independent economic activity (II.A) can also occur
b) through the requirement of personal services: direct personal natural services specified in kind. Consistent financing can be secured, by contrast to the cases included in II.A as
II.B, through independent economic activity;
α) in a household (oikos, domain),
β) or through going enterprises
αα) that are free, and so competing with other going concerns, and
ββ) that are monopolistic.
Again, exploitation can be effected through a going concern, or by farming, leasing, and mortgaging. It can, finally, other than in both II.A and II.B, be arranged
II.C, “liturgically,” by levies related to privileges:
α) positive privileges: through a freedom for specific groups of people from the obligation to make particular contributions, or (but probably identical to this)
β) negative privileges: with the enhancement of burdens placed on particular groups of people, especially particular
αα) social ranks (Stände), or
ββ) classes of property owners—with particular payments—or:
γ) correlatively, by connecting specific monopolies with the enhancement of specified payments or deliveries. This can take place:
αα) by social rank: through the forcible assignment of members to liturgical bodies organised by property or profession, endowing them with privileges appropriate to their rank;
ββ) capitalistically: through the creation of closed guilds or cartels with monopoly rights and the obligation to make monetary contributions.
On II:
This (very rough) casuistry relates to organisations of all kinds. Here it is elaborated only with respect to political organisations.
On A.a)α): No attempt can be made here to analyse even in a very preliminary way a modern state’s taxation system. Dealing in kind is only possible for small organisations or where communications are very favourable (e.g., the Nile, or the Chinese Imperial or Great Canal). Otherwise, contributions have to be commuted into money so that they can reach their ultimate recipient (this often happened in antiquity), or they could be transformed into objects with prices differentiated by distance transported (this was what is said to have happened in ancient China).
On A.b): Examples here are military service, court service, jury service, the maintenance of roads and bridges, drainage projects and mining, and all kinds of labour obligatory for members of organisations of all kinds. Typical here is the state based on compulsory labour: ancient Egypt (the New Kingdom), during some periods in China, and to a lesser extent, India, and to an even lesser extent, the Later Roman Empire and very many organisations in the early Middle Ages.
Types of sinecure: collectively in China for those awaiting appointment as officials; in India, for the private guarantee of military levies and taxation payments; in the later Caliphate and Mameluke regime, for unpaid mercenaries and soldiers; and everywhere, the sale of public offices to state creditors.
Examples for B.α): economic exploitation of domain land for a budget that is directly controlled and use of the labour service obligations of subjects to produce goods to meet the needs of the Court and for political objectives (Egypt); in the modern case, the manufacture of uniforms and munitions by state factories.
For B.β): for αα), only a few examples, such as maritime trade and so forth. For ββ), numerous examples from all historical eras, with a high point in the Occident from the sixteenth to the eighteenth centuries.
For C: for α), the exemption of the literate classes in China from feudal obligations, of privileged social ranks from sordida munera110 throughout the world, and in many countries the exemption of the educationally qualified from military service.
For β): on the one hand, the additional liturgical burdens of ancient democracy; on the other hand, groups not relieved of burdens in the examples listed under α).
For γ): the case αα) is the most important case for the systematic meeting of public needs on a basis other than that of the “tax state.” China, as well as India and Egypt, hence the countries with the oldest bureaucracies (hydraulic societies), had a liturgical system based on contributions in kind, taken over in part from here by the Hellenistic states and the Later Roman Empire, although in these latter cases mostly commuted into taxes rather than payments in kind. This always involves the organisation of society by occupational rank. This can reemerge today if the tax state’s provision for public needs fails and capitalist private provision for need has to be regulated by the state. Up until the present the financial difficulties of the modern way in which public needs are adequately met by case ββ) has proved adequate, as commercial monopolies (Erwerbsmonopole) that are licensed and pay contributions (the most simple example: the compulsory supervision of Spanish explosives factories, with monopolistic protection against the creation of new firms in return for high levels of payments to the state exchequer). It is always tempting to organise the “socialisation” of individual branches of commercial enterprises in this way, starting with the coal industry: by making compulsory cartels or trusts fiscally useful by obliging them to pay taxes, so that the production of goods remains (formally) rational in its orientation to prices.
§39. The way political and hierocratic organisations provide for their needs has a very major impact on the structure of private economic activity. Rational, market-oriented capitalism is given optimal Chancen by the state based on contributions made in money in sole charge of raising contributions (and only in sole charge here), and also if natural personal services are employed only for political and legal purposes. The combination of a state where contributions are made in money but collected through tax farming favours a politically oriented capitalism but not a market-oriented commercial economy. Granting leases and sinecures related to the raising of taxes normally limits capitalist development by creating vested interests in the existing sources of fees and contributions, and hence promotes the stereotyping of the economy and its resort to traditionalism.
An organisation based purely on provisioning in kind does not promote capitalism and obstructs its development through a commitment to rigid and commercially irrational decisions about production.
An organisation purely based on services in kind obstructs market-oriented capitalism by sequestering labour and inhibiting the development of a free labour market, while it limits the Chancen for the development of politically oriented capitalism by blocking the typical Chancen for its emergence.
Monopolistic commercial economic finance, the commutation of contributions in kind, and liturgical obligations imposed on property all have in common a failure to promote an autonomous market-oriented capitalism. They instead suppress the prospect of commercial market Chancen by fiscal measures that are, from the viewpoint of market relations, irrational: [here there is] a bestowal of privileges and creation of irrational market Chancen for the acquisition of money. Instead, to some extent they favour a politically oriented capitalism.
A viable commercial enterprise with fixed capital and precise capital accounting formally presupposes above all the calculability of taxes and duties. Substantively, it presupposes a structure within which no particular impediments are placed in the way of the valorisation of capital, which means primarily market turnover. By contrast, speculative trading capitalism can coexist with any form of public provision for need that does not, through tying it to liturgical obligations, directly inhibit the commercial valorisation of goods as commodities.
However important the nature of public obligations might be, they do not determine the precise developmental path taken by the orientation of economic activity. Despite the apparent absence of any typical restraints of this kind, for long periods and across large areas a rational (market-oriented) capitalism did not develop, while it has on the other hand established itself elsewhere, in spite of what were apparently substantial obstacles in the form of public obligations. Besides the substantive content of economic policy, which can often be strongly oriented to noneconomic objectives, and besides developments in science and technology, ethical and religious convictions have played a very substantial role in limiting locally autonomous capitalist development. It should also not be forgotten that business and enterprise forms have to be “invented” in the same way as technical products. This depends solely on the historical existence of circumstances that either “negatively” hinder such lines of thinking or “positively” promote them, and not simply on a compelling causal relationship, any more than on strictly individual events of any kind.
1. On the final sentence: even individual, purely natural events can only be precisely linked to individual causal components under very special conditions; in this there is in principle no difference from behavioural events.
2. With respect to the entire paragraph:
Here we can only outline provisionally the fundamentally important interrelationships between political organisations’ order and administration on the one hand, and the economy on the other.
1. The most important historical example of the obstruction of market-oriented capitalist development by channelling public contributions towards the holders of sinecures is [found in] China; or what can amount to much the same, where rights to public contributions are conferred on private individuals, as in the Near East since the Caliphate (I will discuss this in the appropriate place).111 The farming out of rights to public contributions occurs in India, the Near East, the Occident in antiquity, and the Middle Ages; it had an especial influence on the orientation of capitalist activity in occidental antiquity (the Roman Equestrian Order), whereas in India and the Near East it had a greater influence on (landed) property formation.
2. The most important historical case of all involving the obstruction of capitalist development through the liturgical provision for need is that of later antiquity, perhaps also India in the post-Buddhist era, and periodically in China. This will also be dealt with in the appropriate place.112
3. The most important historical case of the monopolistic diversion of capitalism is the early modern concession of princely monopolies, following the model of Hellenistic and Ptolemaic predecessors (this was initiated by certain measures adopted by Frederick II in Sicily, perhaps following a Byzantine model; the most important struggle for its termination was in Stuart England). Further discussion of this [will be offered] in the proper place.113
All of this discussion, in this abstract form, is only broached so that we might be able to post problems in a reasonably proper fashion. But before we return to developmental stages and the conditions for economic development,114 we need to first deal with the purely sociological discussion of the noneconomic components of such development.
§40. The economy has furthermore quite general sociological significance for the creation of organisations where the managers and staff have to be remunerated, as is usually the case. As a result, there is an overwhelmingly strong economic interest in the continued existence of the organisation, even if its perhaps mainly ideological foundations have in the meantime faded into obscurity.
It happens every day that, even though organisations of all kinds might have become “meaningless” for those participating in it, they nonetheless continue to exist because an “executive secretary” or other officials “live off the organisation” and would lack any form of material support without it.
Every Chance that is appropriated, but also in some circumstances one that has not been formally appropriated, can have the effect of stereotyping115 existing forms of a social system. Within the domain of Chancen for peaceful economic gain from the provision of everyday goods, it is in general only the Chancen to gain from commercial enterprises that are autonomous, rational, and revolutionary forces. And even for these, not always.
For example, bankers’ interest in maintaining their commissions long hindered the endorsements of securities and financial instruments. We will often encounter similar examples of how obstructive formally rational institutions can also be because of an interest in capitalist gain, even if we encounter this much less frequently than irrational obstructions whose origins lie in prebendial status, social rank, or economic factors.
§41. All economic activity in a commercial society is undertaken and conducted by individual economic agents to meet their own ideal or material interests. This remains true even where such activity is oriented to the orders of economically active, economic, or regulatory organisations—something that is, quite remarkably, often overlooked.
This would, in principle, be no different in a socialistically organised economy. Decisions would of course be in the hands of organisational managers, while those working in the sphere of the production of goods would be limited to purely “technical” tasks and “work” in the sense outlined above in §15. This would be true so long as these managers ruled in a “dictatorial,” autocratic manner, proceeding without consulting others. Any right of participation in decision making would, even if only formal, immediately lead to the prospect of an open conflict of interests over the style of management, but that would immediately spill over into the question of the level of reserves. But this is not the decisive point. The decisive point is that the individual would then initially ask whether the bonuses and work assigned to him seemed, compared with those of others, to reflect his own interests. His behaviour would be organised accordingly: there might be violent power struggles over changes to the maintenance of the bonuses that had been agreed on (e.g., bonuses for especially heavy work); over the appropriation or expropriation of particular jobs that had been sought because of additional pay or especially favourable working conditions; over work stoppages (strikes or lockouts); over slowdowns in production with the aim of forcing changes to working conditions in particular industries; over boycotts and the forcible removal of unpopular managers—in short, a struggle over appropriation procedures of all kinds and interests would then become quite normal. That they would be fought out within organisations and that those employed in the most essential services and the physically strongest would enjoy an advantage would simply reflect the existing situation. Behind all systems would stand this interest of the individual, probably organised together with others of a similar kind, but in any case organised against the antagonistic interests of many individuals. The constellations of interests and the means by which interests were taken up might change, but this factor would remain the same as before. As certain as it is that an economic system exists oriented in a purely ideological manner to the interests of others, it is also just as certain that the broad mass of people do not behave in this way, and from all experience cannot, and will not, do so.
In a fully socialised, “planned” economy, there would only be space for
a) the distribution of goods in kind according to a plan for allocation according to need;
b) the production of these natural goods according to a production plan. The category of money “income” would necessarily be absent. The rationing of receipts would be possible.
In a commercial economy, the striving for an income is the inevitable ultimate spring of all economic systems. For any particular allocation involving goods or utilities that are not immediately available to the economic agent prompts an orientation to the acquisition and control over future income, and virtually all existing control of goods and utilities presumes the existence of an earlier income. All profits from commercial enterprise transform themselves at some stage in some form into the economic agent’s income. In a regulated economy, the prime aim of regulatory provisions is usually the distribution of income. (In an economy based on exchanges in kind, the terminology employed here relates not to “income” but to receipts of goods and services in kind, and these cannot be calculated in a unitary means of exchange.)
Income and receipts may, considered sociologically, assume the following principal forms, and flow from the following typical principal sources:
A. Incomes and receipts from work performed (related to specified or specialised kinds of work):
I. Wages:
1. freely contracted fixed incomes and receipts from wages (calculated according to the periods worked);
2. incomes and receipts paid according to fixed scale (salaries, the remuneration of officials);
3. the yields employees receive from contracts for piecework;
4. completely free labour contracts.
II. Profits:
1. profits from free exchange transactions involving the production of goods or labour services;
2. regulated profits from exchange transactions of the same kind.
In these cases (II.1 and II.2), “costs” are deducted to give the “net yield.”
3. profits from booty;
4. gains from rights involving the exercise of rule, from offices, bribery, tax farming, and similar gains made from the fact of power.
Costs are deducted in cases 3 and 4 where there are continued and lasting business gains of this kind, otherwise not always.
B. Income and receipts from property ownership (connected to valorisation of a power of disposition over important means of production).
I. Normally, “pure rents” after the deduction of costs:
1. rents from rights of possession over people (slaves, serfs, or freedmen), paid in kind or in money, either fixed or as shares after the deduction of maintenance costs;
2. appropriated rents associated with those who rule (deducting administrative costs), likewise:
3. rent of land (sharecropping, for a fixed period, in kind or in money, receipts from landownership—deducting land tax and maintenance costs), likewise:
4. rent on houses (deducting maintenance costs), likewise:
5. rents from appropriated monopolies (exclusive privileges, patents, less fees), likewise:
II. normally without deduction:
6. property income (see §11 above relating to the commitment of the use of “property” in return for the payment of so-called interest to households or commercial undertakings);
7. payments for the use of domestic animals, likewise:
8. “interest” on loans in kind and contracted allowances in kind,
9. “interest” on money lent,
10. rental payments from mortgages, in money,
11. rental payments on securities, in money and either
a) fixed (so-called interest payments)
b) variable according to yield on profits (typical for this, so-called dividends).
12. Other shares in profits (see A.II.1):
1. shares in exceptional profits and from gains made on rational speculation,
2. rationally assigned shares in the long-term profits of enterprises of all kinds.
All “profits” and the “rental payments” on securities are either not contracted in advance or only with respect to the income from their purchase price or piece rates. Fixed interest and wages, leases of land, and household rents are contracted in advance. Gains from rule, property in human beings, landownership, and booty are forcibly appropriated incomes or receipts. The income from property can be divorced from any occupation if the person drawing the income allows others to administer the property for gain. Wages, salaries, and profits of labour and of entrepreneurs are occupational incomes; the other kinds of rents and profits can be either one or the other (there is no intention here of entering into a systematic examination of this).
Of all types of income, it is particularly those from entrepreneurial profit (A.II.1), and the returns from contracted or free labour (A.I.3 and 4) that have an eminent dynamism that is of revolutionary significance for economic life. Next to these stand gains from free exchange, and in another way in some circumstances, gains from booty (A.II.3).
Incomes fixed according to a scale of payments are preeminently static and economically conservative—these are salaries, wages paid according to time worked, gains acquired through the exploitation of official positions, and (normally) all forms of rent.
In an exchange economy, the economic source of income is, in the great majority of cases, the exchange constellations occurring in the market for labour and goods; hence, it is ultimately determined by consumers’ valuations and is related to the more or less strong natural or statutory monopolistic position of parties to exchange and acquisition.
The economic source of incomes (in a natural economy) is the regular monopolistic appropriation of Chancen for the valorisation of property or services in return for remuneration.
Behind all these incomes lies only the possibility of the forcible protection of appropriated Chancen (see above in this chapter, §1.2). Booty and those forms of gain related to it are the return on the direct and immediate use of force. All casuistry must initially be excluded from this very rough sketch.
Despite our many differences in individual views, I regard Robert Liefmann’s passages on “incomes” to be among the most valuable. Here I will not go any further into the economic problem. The way that the social order provides a context for economic dynamics is something to which discussion will continually return.
1. In §§15–18 below.
2. See the Translation Appendix for discussion of Weber’s terminology relating to the “division of labour.”
3. See the Translation Appendix for remarks on the term Verfügungsgewalt.
4. TSEO translates this as “economic organization” (p. 158), which links this usage to that of the “enterprise” and “unit of production,” but Weber’s term for “economic organisation” from Chapter 1 on is Wirtschaftsverband. Weber is here referring to ongoing economic action, as in Trieb (impulse, drive, urge), and the verb treiben (drift, impel, herd). See §15.2 below and the term Betrieb in the Translation Appendix.
5. Vorgänge. It can be noted here that Weber’s terminology is strongly processual—Betrieb, Vorgang, Ablauf, Erfolg.
6. Bedarfsdeckungswirtschaft: where economic activity meets agents’ immediate needs, but no more. See Translation Appendix.
7. The first section of Robert Liefmann, Grundsätze der Volkswirtschaftslehre, Bd. I: Grundlagen der Wirtschaft (Stuttgart: Deutsche Verlags-Anstalt, 1917), is entitled “The Present State of Economic Theory and Its Basic Error.” Liefmann suggests that all previous theories involve a faulty conception of economic phenomena (p. 67), and on p. 299 he is once more drawing the reader’s attention to the novelty of his own ideas, compared to what he deems the errors of all previous writers. This text essentially recapitulates the position Liefmann had taken in Ertrag und Einkommen auf der Grundlage einer rein subjektiven Wertlehre. Ein wirtschaftstheoretischer Versuch (Jena: Gustav Fischer, 1907), in which he presents a thoroughly confused account of the production and distribution theories of the mid-nineteenth century. See Roman Köster, Die Wissenschaft der Außenseiter. Die Krise der Nationalökonomie in der Weimarer Republik (Göttingen: Vandenhoek und Ruprecht, 2011), pp. 108ff.
8. Franz Oppenheimer, Theorie der reinen und politischen Ökonomie. Ein Lehr- und Lesebuch für Studierende und Gebildete (Berlin: Georg Reimer, 1910), pp. 35ff.
9. In other words, the problem of opportunity cost.
10. Friedrich von Gottl-Ottlilienfeld, “Wirtschaft und Technik,” in Grundriss der Sozialökonomik I Abteilung, Erstes Buch: Grundlagen der Wirtschaft. B. Die natürlichen und technischen Beziehungen der Wirtschaft (Tübingen: J. C. B. Mohr [Paul Siebeck], 1914).
11. von Gottl-Ottlilienfeld, “Wirtschaft und Technik,” pp. 199–381.
12. See the Translation Appendix for a discussion of Böhm-Bawerk’s introduction of the term Nutzleistung.
13. “Typical” should be understood here and below not in its generic sense of being the norm, but as a reference to Weber’s conception of “ideal type.” Something is “typical” not simply by virtue of its frequency, but because it is typified or typifiable.
14. Beschaffung, Herstellung, and Herschaffung: see the Translation Appendix.
15. As in Chapter 1 §10, “appropriation” is used here by Weber more in the sense of allocation—while appropriation in its usual sense implies action on the part of agents (see Translation Appendix). To clarify the exact sense here, “allocation” is substituted, although elsewhere below Weber’s usage is adhered to.
16. “Consideration” is used here in the (English) legal sense: a sum of money that ensures the reciprocity of an exchange.
17. Clay tablets discovered during the 1880s in central Egypt that were part of the administration’s diplomatic correspondence in the mid-fourteenth century BC.
18. A Russian cooperative organisation combining, for example, fishermen or pastoralists; an industrial collective in the broad sense.
19. This elaboration is not contained in the surviving draft (MWG I / 22-3), and is an indication of Weber’s plans for the later sections of Wirtschaft und Gesellschaft that were never completed.
20. This distinction is important for the later discussion of Knapp.
21. Knapp created the neologism “chartal money” to emphasise that one can only make payments with money forms marked in a particular way and whose function is solely as a means of payment: “The definition of money is: chartal means of payment.” Georg Friedrich Knapp, Staatliche Theorie des Geldes (Leipzig: Duncker und Humblot, 1905), p. 31.
22. Another of Knapp’s neologisms, distinguishing between chartal money, whose formal denomination makes them a money form, and pensatoral money, whose value is given by their weight. See Staatliche Theorie des Geldes, pp. 67f.
23. Ludwig von Mises, Theorie des Geldes und der Umlaufsmittel (Munich: Duncker und Humblot, 1912), pp. 54f.
24. Published in 1898 (Weimar: Emil Felber).
25. See the Translation Appendix for a discussion of this term.
26. Here it is made very plain by the juxtaposition with “means of consumption” that Beschaffungsmittel are “means of production,” albeit in an extended sense. See the Translation Appendix.
27. This is the first of six references forwards in Chapter 2 to a Chapter 5 that was never drafted. See MWG I / 23, p. 109.
28. Haushalt—in the following this term is translated both as “household” and “budget.” These overlap in German but not directly in English, where the financial sense of “housekeeping” would capture the sense of budgetary control, but carries too great an emphasis on a domestic context.
29. Vermögen. Parsons, p. 187n30, notes that there is no direct translation of this term. The word would usually be translated as “property,” perhaps here more appropriately “economic property,” but this would raise further problems. Parsons opts for “resources,” but this translation follows Menger’s usage. (See the Translation Appendix.)
30. Parsons here (p. 189) relates this to “means of production” (Beschaffungsmittel), whereas here Güterbeschaffung refers to “provided goods” that could be either production or consumer goods.
31. Parsons (p. 176n4) notes that the best translation of Erwerben is possibly “acquisition,” but decides on “profit making” to set against “householding” as in the previous section. But the sense here is not the presence or absence of profit, but the presence or absence of gainful exchange as a means of securing the existence of an economic agent, whether or not this results in a net gain.
32. Friedrich Leitner, Die Kontrolle in kaufmännischen Unternehmungen, 2nd ed. (Frankfurt a.M.: Sauerländer, 1920); Johann Friedrich Schär, Die Bank im Dienste des Kaufmanns, 3rd ed. (Leipzig: Gloeckner, 1920).
33. privatwirtschaftlich. The German business economics already emerging after 1910 was consciously constructed as a “private economics,” as distinct from a “public” or “national” economics; this distinction goes back to the early part of the nineteenth century, but the point is made here to emphasise the focus on the interaction between consumers and suppliers.
34. In the preceding paragraph, Weber was discussing the business unit, an undertaking or “an enterprise.” He now turns to “enterprise” as a generic process, an activity, as defined in §1; the contrast he is making is not therefore between household and enterprise as alternative units of production.
35. Hereafter, I use “natural economy” and its cognates for reasons of clarity, rather than in natura, as explained in the Translation Appendix.
36. Parsons explains (p. 147n77) that Weber is here referring to obligatory payments made ostensibly as gifts in the Greek city-state by officials or officeholders.
37. Vollsozialisierung: a reference to contemporary German debates on workers’ cooperatives and guild socialism.
38. Parsons’s version of this sentence and the following passage (pp. 204–5) misconstrues the sense and introduces concepts that are not present in the original.
39. I employ the term “economies” here where Weber refers to “saving materials” since this is the sense implied.
40. Alfred Weber, “Industrielle Standortslehre (Allgemeine und kapitalistische Theorie des Standortes),” in Grundriss der Sozialökonomik, VI. Abteilung Industrie, Bergwesen, Bauwesen. Drittes Buch: Die einzelnen Erwerbsgebiete in der kapitalistischen Wirtschaft und die ökonomische Binnenpolitik im modernen Staat. (Tübingen: Verlag von J. C. B. Mohr [Paul Siebeck]), 1914), pp. 54–82.
41. For an account of Neurath’s work on war economy and calculation in natura, see Keith Tribe, chapter 6, “The Logical Structure of the Economic World—The Rationalist Economics of Otto Neurath,” in Strategies of Economic Order. German Economic Discourse, 1750–1950 (Cambridge: Cambridge University Press, 1995 / 2007).
42. There is no indication in Weber’s surviving papers of the scope of this chapter 5.
43. Ludwig von Mises, “Die Wirtschaftsrechnung im sozialistischen Gemeinwesen,” Archiv für Sozialwissenschaft und Sozialpolitik, Bd. 47 (1920): 86–121. A surviving proof dated 10 April 1920 contains this passage set in type, so Weber added this remark sometime after February 1920, when the first proofs were produced, and 10 April 1920 (MWG I / 23, pp. 606, 652).
44. Weber is here even more cryptic than usual, and my translation is freer than usual.
45. The usual economic term for “demand” in German is Nachfrage, whereas here Weber uses Begehr and kaufkräftiger Begehr—“wants linked to purchasing power.” The underlying distinction that he makes, however, is one first made by Malthus in the first edition of his Principles of Political Economy (1820) when he introduced “effective demand” as distinct from Adam Smith’s “effectual demand.” See T. R. Malthus, Principles of Political Economy, ed. John Pullen (Cambridge: Cambridge University Press, 1989), 1:68; 2:49–50.
46. A central concept of Weber’s Protestant Ethic, and so coupling his discussion here back to arguments originally made in 1904–1905.
47. A reference to the rejection by the Reich Ministry of Economics in 1919 of all plans for nationalisation, instead favouring communal ownership. See the pamphlet by Rudolf Wissell and Wichard von Moellendorff, Wirtschaftliche Selbstverwaltung. Zwei Kundgebungen des Reichswirtschaftsministeriums (Jena: Eugen Diederichs, 1919).
48. Weber here places in parenthesis a reference to p. 38 of the German edition first published in 1885 by Dietz (Stuttgart), the 1919 edition being the sixth unrevised edition.
49. See the Translation Appendix for discussion of Weber’s idiosyncratic use of “appropriation.”
50. Johann Gottlieb Fichte, Der Geschlossene Handelsstaat. Ein philosophischer Entwurf als Anhnag zur Rechtslehre und Probe einer künftig zu liefernden Politik (Tübingen, 1800).
51. Leistung is a key concept in §§15–19, but it is used in a very particular way (see the Translation Appendix). Weber contrasts Leistung (performance / output) with Arbeit (which he defines here as “the use of time and effort”). Here Leistung is translated as “work” by analogy with physics: “something done when a force applied to an object moves that object, the outcome, the effect of time and effort, of ‘labour.’ ”
52. Note here that Weber is discussing what is otherwise known as the “division of labour,” but his approach to it requires that we retain some of his terminology.
53. “Disponierende” and “an Dispositionen orientierte.” Parsons (p. 219) translates the first as “managerial” and the second as “oriented to the instructions of a managerial agency.” This has to do with the absence, at the time Weber was writing, of a strict equivalent in German for the English verb “to manage.” There was then a German term for “the management”—die Betriebsleitung—but this has fallen out of general use and the German language has since adopted the anglicism das Management. In any case, the sense Weber is using here is more general, and relates to the concept of Verfügung, translated here as disposal / disposition, and which, it could be argued, is actually the German form of the Latin dispono—so that Disponieren and Verfügung are simply Latinate and German words for the same idea, like Ökonomie and Wirtschaft (the former coming via Latin from the original Greek). “Dispositions” is therefore used here to retain the link to “disposal,” in the sense of “making dispositions,” which is hidden by the use of “managerial.”
54. Karl Bücher, “Gewerbe,” Handwörterbuch der Staatswissenschaften, Bd. 3 ed. J. Conrad (Jena: Gustav Fischer, 1892), pp. 922–950.
55. Das Betrieb is a noun related to the verb treiben, in this case “to pursue,” “to impel”; die Unternehmung is a noun formed from the verb unternehmen, “to venture,” “to undertake,” an “undertaking” in the singular concrete sense; das Unternehmen is a different (neuter) noun formed from the same verb that implies the general sense of “undertaking,” hence “venturing.”
56. That is, where manufacturing is conducted in a domestic setting and coordinated by a peripatetic “manufacturer” who supplies materials and collects finished goods, often referred to as the “putting-out system.”
57. Greek for “workshop.” Weber discusses the genesis of this form in General Economic History, trans. Frank Knight (New York: Greenberg, 1927), pp. 127–28.
58. Gustav Schmoller, “Studien über die wirthschaftliche Politik Friedrichs der Großen und Preußens überhaupt von 1680 bis 1786. II,” Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im deutschen Reich, N. F. Jg. 8 H. 1 (1884): 15–61.
59. Gustav Schönberg, “Zur wirthschaftlichen Bedeutung des deutschen Zunftwesen im Mittelalter,” Jahrbücher für Nationalökonomie und Statistik, Bd. 9 (1867): 1–72, 97–169—pp. 164ff.
60. Rodbertus, “Untersuchungen auf dem Gebiete der Nationalökonomie des klassischen Alterthums. II. Zur Geschichte der römischen Tributsteuern seit Augustus,” Jahrbücher für Nationalökonomie und Statistik, Bd. 4 (1865): 343n3; Bd. 5 (1865): 41ff.; Bd. 8 (1867): 386–91, 400, 405, 446ff.
61. An Instmann was an estate labourer with a one-year contract who was paid both in cash and with goods in kind (Deputat). His wife was available for occasional estate labour, and the family was granted land and housing.
62. Note that here, as elsewhere, Weber uses the term “appropriated” to mean what is otherwise understood as “allocated.” See the Translation Appendix.
63. There is some confusion here in the sequencing, discussed in MWG I / 23, p. 315n83.
64. M. I. Tugan Baranovsky, Geschichte der russischen Fabrik (Berlin: E. Felber, 1900); first published in Russian in 1898, translated into English as The Russian Factory in the 19th Century (Homewood, IL: R. D. Irwin, 1970).
65. See the discussion in Karl Bücher, Die Entstehung der Volkswirtschaft, pp. 86–115.
66. English in the original.
67. Betriebsräte, strictly “works’ councils.” Here Weber is referring to councils formed following the 1916 law conscripting labour into employment, which in 1918–1919 involved workers’ direct control of enterprises, and so more accurately translated as “workers’ councils.”
68. A craftsmen who produced for the market but who remained rooted in family and cooperative.
69. Weber again inserts a reference to a chapter 5 that was never completed.
70. Weber here again refers the reader for elaboration to a chapter 5 that was never written or completed.
71. This is an editorial addition to make clear where the following paragraph fits into the somewhat complex classification being created here.
72. See WuG, part II, chapter 2, §2. Weber here once again refers forwards to a nonexistent chapter 5.
73. Appropriation der disponierenden Leistungen. As already noted, there was no simple way to refer directly to managerial functions at the time Weber was writing. Literally, disponierende Leistung can be translated as “work related to planning and arranging.”
74. From this point, Weber’s text becomes increasingly occupied with classification, in places more like notes than a connected text. For the sake of readability, I have glossed some passages, although comparison with Talcott Parsons’s translation (pp. 250ff.), which reads throughout as a connected text, will indicate how far I have sought to retain Weber’s somewhat cryptic presentation.
75. Beruf, the key Weberian term “vocation,” is best known through its use in the Protestant Ethic and the two essays “Science as a Vocation” and “Politics as a Vocation.” But the word also has a much more everyday sense, which is the one relevant here.
76. This chapter remained a fragment.
77. Weber is here discussing the rationality of Leistungsspezifikation and Leistungsspezialisierung and the manner in which they are determined; I have here adopted in places Parsons’s use of “function” instead of “work” or “output” since this renders the sense rather clearer, given the absence of a suitable generic translation for Leistung.
79. Workers who migrated annually to Saxony for the harvest.
80. MWG I / 23, p. 345n74, notes that some further discussion can be found in chapter 3, §10.
81. Arbeitsneigung, literally, “inclination to work.” Here, as below with Arbeitswilligkeit, literally “willingness to work,” Parsons consistently translates in terms of “incentives” (p. 261), which is incorrect, since it is incentives that work on Neigung and Willigkeit, and Weber deals with the incentive structures separately.
82. Dealt with in the following section.
83. See Max Weber, “Gutachten über die Frage: Empfiehlt sich die Einführung eines Heimstättenrechtes, insbesondere zum Schutz des kleinen Grundbesitzes gegen Zwangsvollstreckung?,” Verhandlungen des 24. Deutschen Juristentages, Bd. 2 (1897): 15–32; MWG I / 4.2, pp. 645–66.
84. The reference is to the situation in Germany from November 1918 to the summer of 1919.
85. Rent seeking is a quite anachronistic translation here but captures Weber’s sense.
86. Georg Friedrich Knapp, Staatliche Theorie des Geldes (Leipzig: Duncker und Humblot, 1905), p. 199. Knapp created esoteric neologisms that tend to obscure rather than clarify; here he uses a Greek term for a sum of money as a name for the legal and institutional framework that designated money as money.
87. Weber never developed this point.
88. That is, vertical integration of suppliers and wholesalers for a given product.
89. This point was never developed further.
90. Here and in the following, Weber’s insistence on using “appropriation” for what is usually referred to as “allocation” or “assignment” is especially obtrusive and unhelpful. See the comments in the Translation Appendix.
91. In fact, Weber only discusses the monetary system.
92. Weber here borrows a term from Knapp, regiminale, meaning “bringing together all state finances.” Parsons’s solution, “public money” (p. 281), is far simpler.
93. The first section (1.) starts at the beginning of §32.
94. That is, what we today call “deflation.”
95. Parsons’s footnotes here are misnumbered—p. 286n111 in the text relates to the content of note 110. Knapp’s terminology is difficult and needlessly obscure, but Weber proceeds to build his casuistry on it. An effort is made in the translation to make the result as intelligible as is possible in the circumstances.
96. In Chapter 2, §6, Weber set out his basic monetary definitions, but as Borchardt points out (MWG I / 23, p. 394n44) he does not, in fact, refer there to “effective currency.”
97. Borchardt notes that the corresponding Section B. on banknotes starts in §34. MWG I / 23, p. 394n45.
98. Knapp’s neologism for the fixed value of a metallic money.
99. That is, II with respect to §32.A.I.
100. In relation to A. in §32.
101. Another term invented by Knapp, contrasted with “hylogenic,” depending on whether the material from which the money is formed is of importance to its quality as money (hylogenic), or not (autogenic). See MWG I / 23, p. 403n71.
102. This was never elaborated.
103. Knut Borchardt points out (MWG I / 23, p. 410n8) that the concept “inflation” was minted during the American Civil War, but was first used in Germany during the World War I to mean a politically motivated increase in the money supply rather than a general rise in prices that was itself seen as the effect of inflation, not its characteristic form. This was discussed in Franz Eulenburg, “Inflation. (Zur Theorie der Kriegswirtschaft. II),” Archiv für Sozialwissenschaft und Sozialpolitik, Bd. 45 H. 3 (1919): 477–526.
104. Here a qualification made by Weber based on an obscure distinction made by Knapp is ignored. See MWG I / 23, p. 413n17.
105. Here “monetary administration” is a translation for papieroplatischen lytrischen Verwaltung, whose precise sense remains obscure. See MWG I / 23, p. 415n20.
106. Borchardt points out (MWG I / 23, p. 417n28) that not only can no such admission by Knapp be found, Weber later contradicts himself on this point, and confirms that Knapp had made no such statement.
107. Borchardt points out (MWG I / 23, p. 420n36), that Knapp expresses no such view in his book.
108. Borchardt points out in MWG I / 23, p. 112n40, that no such explicit statement can be found in Knapp.
109. An example of how four ideas can be fitted into one word, meaning “an organisation whose economic needs are provided for by payments made in kind.”
110. Dirty and unclean services in the Later Roman Empire.
111. Any draft that Weber might have made for such discussion has not survived.
115. In the sense of creating a fixed meaning.