OVERVIEW OF CHAPTER TWO

CHAPTER 2 IS ORGANISED into forty-three paragraphs (forty-one plus two duplications), although as we shall see the basic division between definitional paragraphs and exposition established in Chapter 1 here becomes increasingly ragged. Weber begins the chapter with some prefatory remarks, noting that what follows is not “economic theory.” The purpose of this qualification is easy to explain: Friedrich von Wieser had already written the entry on “economic theory” for this handbook, the Grundriss der Sozialökonomik, in the very first part published in 1914.1 Here Weber is doing something different, and alerting us to this fact. A link is then made back to Chapter 1 in the first paragraph, asserting that “all ‘economic’ processes and objects are identified as such entirely by the meaning that human action lends them,” a distinction being made between rational economic action directed to the acquisition of utilities and economically oriented action that is mainly oriented to other ends but which for one reason or another had to take account of economic provision.

§2 defines the object of economic activity as the acquisition of utilities. This clear focus firmly aligns Weber with the economics of his time in which subjective choice, balancing striving to acquire utilities against the effort required of the agent to realise this, had displaced the older emphasis on production and distribution. Although economic orientation could be traditional or purposively rational (§3), his attention is focussed on rational economic activity, which is in the detail of §4 repeatedly described as “planful” action, that is, action arising from an agent’s calculation of the means required to realise a given end. As in Chapter 1, this perspective on action is followed by an emphasis on the role of organisation (§5).

Instead of moving directly to elaborate this new perspective, as happened in Chapter 1, Weber then interpolates two paragraphs on money and credit and means of exchange, before moving to examine “market situation” and the various factors shaping this. §9 introduces the important principle that the formal rationality of economic action is determined by the degree to which it is technically possible, and the degree to which calculation can be applied to this. In §10, money is then described as the most complete means of economic calculation, making possible full appraisal of the relationship between means and the chosen end. Already Weber seems to have become somewhat diverted, for the definition of §10 takes up over twelve hundred words, while the subsequent exposition is less than six hundred words.

§11 turns to the issue of acquisition, that is, the acquisition of “chances of disposition” over goods (a conception taken from Carl Menger). Rational economic acquisition requires a particular form of monetary calculation: capital accounting. Here again, the definitional paragraph runs on for more than fourteen hundred words, but is then followed by a very dense discussion of the concept of capital and the nature of a market for capital. Since calculation is important for this, Weber next considers calculation “in kind,” addressing contemporary utopian arguments regarding the abolition of money, while at the same time recognising that capitalist enterprises would naturally make material comparisons—of hours worked, the amount of goods produced, the number of workers—alongside monetary calculations. In these few pages, Weber refutes the idea that the material calculations that had become the norm in a wartime economy could form the basis for a new postwar, postcapitalist economy.

Having established these points, Weber moves on in §13 to consider market competition and “effective demand,” linking this in §14 with the meeting of need through commercial exchange based on the separation of household and unit of production (one of the features of Western capitalism). Then in §15 he moves on to the division of labour, which is treated as the “distribution and connection of human effort for the purpose of producing goods.” While this might seem a long-winded way to describe the idea of division of labour that had been at the heart of Adam Smith’s Wealth of Nations, Weber uses it as a pathway to an elaborate classification of the rationalisation of work stretching through to §20. Here attention turns to the appropriation of the products of this process and the emergence of the role of managers charged with maintaining the rationality of an increasingly ramified economic process (§21). This identification of the role of management is linked to the removal of control over the means of production from workers (§22) and the emergence of specialised occupations (§24). Following on from this there is a casuistry (Weber’s term) of enterprise forms arising out of the foregoing, now in §24a amounting to over twenty-two hundred words, with one very brief expositional passage. The structure of definition and exposition so marked in Chapter 1 has now disappeared, and everything is becoming definition. In fact, classification is displacing conceptual definition.

With §28, we have a change of direction: to the mediation of exchange by financial and nonfinancial organisations, and a related classification of trading relationships. With §29a, we arrive at banks, defined as enterprises that both create and administer money, and the direction of travel is towards a classification of monetary forms. §32 deals with the state and money, heavily influenced by Knapp’s monetary theory, as well as by Knapp’s attempt to construct an entirely new vocabulary for monetary forms and their mode of circulation.2 Many pages are devoted to an increasingly arcane treatment of monetary forms, including a subsection directly addressed to Knapp’s book. Here it is enough to point out that a substantial section of Chapter 2 is devoted to a discussion of money that appears entirely detached from the arguments leading up to it; this diversion is then halted and is abruptly redirected at §37, which deals with the financial needs of political organisations. From this is developed a discussion of the manner in which goods are allocated to individuals and the way that might, or might not, correspond to their interests; the chapter terminates here without any obvious conclusion.

Despite this apparent lack of conclusion, at least two things are made clear in Chapter 2 before Weber becomes transfixed by Knapp’s monetary casuistry. First, he presented a developmental framework for forms of acquisition and exchange, production, labour, and management that can be seen as the analytical underpinning for the economic history lectures he was giving at the time he was drafting Chapter 2—lectures that led up to a concluding section on the emergence of capitalism in Western Europe. The expositional elaboration makes frequent use of historical material, but not the definitions themselves, which remain resolutely abstract. Second, Weber provides here a flexible developmental framework that can account for the emergence of Western capitalism, but towards which there is no inherent tendency. Chapter 2 can therefore be said to contain a developmental history of capitalism that represents how Weber wished the GdS had begun, but for which Karl Bücher had submitted yet another version of his stages theory of economic development.

But the chapter represents more than this. As is clear from the opening paragraphs, Weber was heavily indebted to Austrian economists, especially to Menger and Böhm-Bawerk, but in Chapter 2 he exploits their work to create a framework for the analysis of his leading problem: Why was it only in the West that capitalism took root and then developed into “the most fateful power of our modern life”? It has long been supposed that the Methodenstreit of the 1880s, between “abstract” Austrian economics and “historical” German economics, was resolved only by the displacement of the second by the first. In Chapter 2, Weber demonstrates instead that a synthesis was always possible.

1. Wieser’s GdS contribution was translated and published as Social Economics (New York: Adelphi, 1927).

2. Georg Friedrich Knapp, Staatliche Theorie des Geldes (Leipzig: Duncker und Humblot, 1905). Knapp believed that money was created by the state and was thus defined by law and policy.