Weber and Schumpeter - From Neoclassics to Keynes - by Joseph Belbruno

7/28/2019 Weber and Schumpeter - From Neoclassics to Keynes - by Joseph Belbruno

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dynamic context of economic growth and development, and the mode of political

organization and representation of the antagonistic forces it pro-duces.

To be sure, looked at from a social-scientific point of view, the modern state is an

organisation [Betrieb] in exactly the same way as a factory which is why it is of

fundamental importance to understand their symbiosis and con-currence in the fact thatif indeed it is the specific historical characteristic of the modern state to be

organized in exactly the same way as a factory, it was also the new asset of the

European absolutist nation-state that made possible the concentration of political powerthat enabled the bourgeoisie to impose the rational organization of free labor under the

regular discipline of the factory on the rest of society!

The literati, the nostalgics and apologists for the aristocratic status quo, for therepublique des notables, overlook the reality that there is [not] the slightest difference

between the mental work done in the office of a private firm and that performed in an

office of the state. Indeed, the number of office workers in private firms is growing

faster than that of manual workers. There is a profound and urgent need to understandthe transformation of capitalist industry and labor process because it is this that forms the

foundation of the modern nation-state it is its model that must be examined closely sothat the machinery of State may adapt to the needs of society, of its economy in

such a way that the political will of the economically decisive parts of society may be

expressed powerfully for there to be positive politics and not the present negativepolitics whereby Parliament is prevented or impeded from exercising the vital

functions of leadership that the national economy the economy understood in terms

of theMachtsstaat demands and requires.

The capitalist entrepreneur here has been already side-lined. It is not that his function

is unimportant: it is rather that the entrepreneurial function itself is incapable of

mediating and realizing the trans-formation of the economy, of capitalistdevelopment in the broadest sense, even in the manner championed by Joseph

Schumpeter! The genial Austrian economist had sought to identify and describe precisely

the mechanism of transformation that is specific to the capitalist economy and thatleads to its development. But this development is dependent on society not just in the

sense that it occurs in a social context but also in the far more important sense that the

trans-formations that capitalist industry generates have far-reaching political

implications and consequences that need themselves to be mediated and mustered tomaximize theMachtof theNationaloekonomie, the power of the nation-state and of its

leading class, and not only profits. The differentiation between the dynamic role of

the entrepreneur and the static or passive one of the rentier or capitalist isduplicated at the political level by the pressing need to by-pass thepassive and abulic

inertia of the machinery of bureaucratic state administration with the active powerful

leadership of a parliamentary elite that is not imposed on the country from above but thatrises instead from its midst as the powerful expression of thepolitical will of the nation,

of its industrially relevantcomponents - the representatives of the truly important

powers in the economic world today(PuR, in Collected Political Writings, p.93).


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This problematic had been completely missingin Webers earlier studies on the

Protestant Ethic and the entrepreneurial spirit of capitalism. Armed with the insights of

Schumpeters Theorie, however, Weber is now able to integrate the Austrians theory ofeconomic development with a much more powerful Nietzschean account of

parliamentary politics in a society that is destined to remain capitalistic for a long time

to come!The essential and urgent task is how to co-ordinate theDemokratisierungofsocial forces within the institutional framework of theParlamentarisierung. The problem

is no longer so much to interpret the role of the entrepreneur as the herald of capitalist

development within the organisation that is the capitalist factory. Instead, the essentialand pressing task is that of preserving the rule of the bourgeoisie and of invigorating the

nation-state by understanding whereupon and wherefrom capitalist industry derives its

explosive dynamic power a power that drives the national economy and therefore its

Macht a lot more efficiently and rationally than does the state administration. It is notthe specific role of the entrepreneur within the congealed spirit represented by the

capitalist machine that interests Weber, but rather the source of the energy, of the

productive power that the entrepreneur musters and channels in the direction of

development. And if, as Schumpeter argues, development is really theentrepreneurial channeling or use of crisis, then the state bureaucracy must learn in equal

measure how to muster and channel its own crisis, how to relinquish the romanticutopian dreams of social equilibrium in order to utilizesocial conflict, to mediate and

togovern it so as to preserve the power of the nation in the global arena.

That the capitalist economy can occasion and provoke crises cannot be put in doubt.

Weber had already experienced the economic convulsions of 1905 and their political

complications reverberating from Russia to Germany prompting him even to engage in

a rapid study of the Russian language! But now the Great War and the October revolutionof 1917 in Russia bring prepotently to the fore this problematic of capitalism, of how to

guide its development within a social body that is dramatically more interdependent

and interconnected than ever before in which capitalist development can provokecrises that threaten and traverse the entire fabric of society by reason of its own

socialization (Vergesellschaftung). The Bolshevik leap forward to the dictatorship of

the proletariat in conditions that Lenin himself admits are premature (see TheDevelopment of Capitalism in Russia) shows that socialization need not mean

evolution that it can portend revolution! - and that it poses problems not just for

capitalism but also for socialism itself! Capitalist development poses theProblematikof

rational Socialism.

The central problem of Socialism is one posed by capitalist industry itself - the anarchyof production, the unequal distribution of wealth in society; and both are a direct result

of the separation (the Marxian Trennung) of the worker from the means of production.

The relative independence of the craftsman or the home-worker, thefreehold farmer, the Commendatar, the knight and the vassal, rested in (147)each case on the fact that they themselves owned the tools, provisions,finances or weapons which they used to perform their economic,political or military functions, and lived off them while they were


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carrying out those functions. Conversely, the hierarchical dependencyof the worker, clerk, technical employee, the assistant in an academicinstitution and also of the official and soldier of the state rests in everycase on the fact that the tools, provisions and finances which areindispensable both for the performance of his work and for his economicexistence are concentrated in the hands of an entrepreneur in

the one case, and in those of a political master in the other. (146-7)

The former autonomy of the artisanal skilled worker, of the Gelernte, belonged to a

stage of society in which communities were relatively self-reliant and controlled the

totality of the labour process. But this is exactly what capitalist industrialdevelopment has changed what occasions its crises in the explosive socialization

of the reproduction of society itself! The concentration of industry by capitalism with the

Taylorisation of the labor process has determined the massification of society to such anextent that all pining for a lost paradise of artisanal control over the labour process, of

totality, all resentment and ranting against the dis-enchantment (Ent-zauberung)

engendered by the rise of capitalist industrialisation are sheer romantic fantasy.

Whether an organisation is a modern stateapparatus engaging in power politics or cultural politics (Kulturpolitik)or pursuing military aims, or a private capitalist business, the samedecisive economic basis is common to both, namely the separationof the worker from the material means of conducting the activity ofthe organisation - the means of production in the economy, themeans of war in the army, or the means of research in a universityinstitution or laboratory, and the financial means in all of them. (147)

The same decisive economic basis is common to both! Common to the modern state

apparatus andto private capitalist business.Both are organizations; they are

businesses or factories and what distinguishes them is precisely the separation of

the worker from the material means ofconductingthe activity of the organization. Thisseparation, this Marxian Trennung, then, may well seem peculiar to capitalist industry

but in reality it extends to the rest of society and in especial mode to the modern state

apparatus that we call bureaucracy, including the army and indeed even scientificresearch.

This apparatus is the common feature sharedby all these formations, its existence and function being inseparablylinked, both as cause and effect, with the 'concentration of the materialmeans of operation'. Or rather this apparatus is the form taken

by that very process of concentration. Today increasing 'socialisationinevitably means increasing bureaucratisation.Historically, too 'progress towards the bureaucratic state whichadjudicates in accordance with rationally established law and administersaccording to rationally devised regulations stands in the closestrelation to the development of modem capitalism.


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Bureaucratisation is the inevitable outcome of socialization which, in turn, is

engendered by the concentration of the material means of operation and of course

also of the material means of production. Now, this apparatus is the form taken by thatvery process of concentration: it is this extensive and pervasive parcelisation of social

labor, the very inter-connectedness of social functions that cater to the most basic needs

of social life that make a nostalgic return to the artisanal ownership of the means ofproduction on the part of the individual worker more than just a fantasy but a

dangerous one as well! With one fell swoop, Weber exposes the sheer reactionary

content of the utopian ramblings of the Sozialismus.

The modern state emerges when the prince takes this business into his

own household, employs salaried officials and thereby brings about

the 'separation' of the officials from the means of conducting their

duties. Everywhere we find the same thing: the means of operation

within the factories, the state administration, the army and university

departments are concentrated by means of a bureaucratically structured

human apparatus in the hands of the person who has command

over(beherrscht) this human apparatus. This is due partly to purelytechnical considerations, to the nature of modern means of operation

- machines, artillery and so on - bur partly simply to the greater

efficiency of this kind of human cooperation: to the development of

'discipline" the discipline of the army, office, workshop and business.

In any event it is a serious mistake to think that this separation of

the worker from the means of operation is something peculiar to

industry, and, moreover, toprivate industry. The basic state of affairs

remains the same when a different person becomes lord and master

of this apparatus, when, say, a state president or minister controls it

instead of a private manufacturer. The separation' from the means of

operation continues in any case. (Der Sozialismus, p.281, CPW)

To seek a remedy to the anarchy of private production in a socialism whereby theownership of the means of production are socialized by the State is a pathetic andreactionary chimaera for the simple reason that as Weber blithely intuits here without

perhaps realizing the full implications of what he is writing it was the State in the firstplace that effected the separation of soldiers from their means of operation, and the State that

enabled a class of capitalists to separate the workers from the means of production! Indeed,

Weber may well have argued here that it was some of the workers themselves who rose from the

ranks of artisanry to become accumulators of capital and thereby separating or

expropriating their erstwhile fellow workers and huddling them into factories!

Weber does make this last point in the Vorbermerkungen, quoted later here [Maurice

Dobb makes it a central plank of his Studies in the Development of Capitalism]. InPolitik

als Beruf, he is even more explicit about the first point:

Everywhere the development of the modern state is initiated through

the action of the prince. He paves the way for the expropriation of the

autonomous and 'private' bearers of executive power who stand beside

him, of those who in their own right possess the means of administration,

warfare, and financial organization, as well as politically usable goods of

all sorts. The whole process is a complete parallel to the development


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of the capitalist enterprise through gradual expropriation of the independent

producers. In the end, the modern state controls the total means

of political organization, which actually come together under a single

head. No single official personally owns the money he pays out, or the

buildings, stores, tools, and war machines he controls. In the contemporary

'state' and this is essential for the concept of state - the 'separation'

of the administrative staff, of the administrative officials, and of theworkers from the material means of administrative organization is completed.

Here the most modern development begins, and we see with our

own eyes the attempt to inaugurate the expropriation of this expropriator

of the political means, and therewith of political power. (PaB, p.82).

Lukacs, who quotes and discusses some of these passages from Weber (at pp.95-6 ofGeschichte und Klassenbewusstsein), can only lament further on [at p.103] that [t]he

specialisation of skills leads to the destruction of every image of the whole. Totally lost

to him are the far-reaching political implications of Webers observations about the role

of the State administration in Western Europe after the Great Crisis of the earlyseventeenth century in the development of capitalist industry (a topic closely canvassed

in M. Tronti et alii, Stato e Rivoluzione in Inghilterra). Nor can it be doubted that thisdeficiency has its roots in Marxs own insistence on the superstructural role of the Stateas against the determinant role of the social relations of production. Evidently,

somewhere along the line, Marx lost sight of the fact that there is no such thing as a

capitalist economy or an Economics with a market functioning according to anobjectively definable Law of Value that can be abstracted from Politics and that

indeed the State is part and parcel of those social relations of production, as we are

seeking to demonstrate with this study (on Marxs theory of the State, cf. N. Bobbio,Marx e lo Stato in Bobbio et al.Dizionario di Politica).

But yet again Weber assumes that the nature and substance of the labor that goes into

production can be aggregated into a homogeneous mass and be divided into separateindividual labors subject to the rational discipline of the factory for the maximization of

industrial production and ultimately profit. Weber fails to theorize and to specify what the

content, the historical substance, of this entity called labor is: he continues to skirtthe edges of the question, describing the rise of the bureaucratic state as a progress

toward rationally devised regulations [which] stands in the closest relation to the

development of modern capitalism. We are still none the wiser as to the content of thisrationality and, in causal regressus, of bureaucracy, of socialization, and then of

concentration of both the means of production and operation.

The main inner foundation of the modern capitalist business is calculation. In order

to exist, it requires a system of justice and administration which in147

principle at any rate, function in a rationally calculable manner according to stable,

general norms just as one calculates the predictable performance of a machine.

The fact of the matter is that calculation, however rational, is not and can never bemore than a mathematical or logicalform of behaviour. But it is as clear as daylight

that behaviour itself can never be rationally calculable unless it first assumes a

content, a substantive purpose that is capable of being calculated, that makes this


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behaviour calculable! For it is simply impossible to calculate or to rationalize the

incalculable or the irrational!Mathematics and logic all by themselves are mere

form: they cannot be applied to human behaviour and functions unless these

are first reduced to operations or tasks that can be meaningfully quantified! But

such quantification cannot be in and of itself calculable and rational precisely

because it is the pre-condition of the mathesis, of the Rationalisierung that Webersays is the inner foundation of modern capitalist business and of the modern state

apparatus that make them both akin to (but not identical with!) the predictable

performance of a machine. The entire sociological meaning of theRationalisierung, then,hinges on its being a certain practical conduct whose contentis exquisitelypoliticaland can

never be reduced to sciencewhilst itsform can be made rationally calculable within broad

parameters of that practical conduct. (We have examined in ourNietzschebuch the far-reaching consequences of these Nietzschean insights on the entire logico-mathematical

foundations of Western values.)

We need to go further, to dig deeper and find out what are the stable, general normsthat allow such predictable performance.

Bureaucracy is certainly far from being the only modern form of organisation,

just as the factory is far from being the only form in which manufacture can be

conducted. But these are the two forms which have put their stamp on the present

age and the foreseeable future. The future belongs to bureaucratization

Compared with all these older forms, modern bureaucracy is distinguished by a

characteristic which makes its inescapability much more absolute than theirs,

namely rational, technicalspecialisation and training. (156)

Yet, specialization and training may well make the inescapability of bureaucracymuch more absolute than previous forms of organization; they certainly cannot account

for it in the first place.

But wherever the trained, specialised, modern official has once begun to rule,

his power is absolutely unbreakable, because the entire organisation of providing

even the most basic needs in life then depends on his performance of his duties.

In other words, what makes the power of the modern official and of bureaucracy

absolutely unbreakable is the fact that the entire organization of providing even the

most basic needs in life then depends on the performance of his duties. At last, we arenow able to join the dots of Webers circuitous definitions to conclude that the

socialization on which bureaucracy rests depends in turn on the concentration of the

means of production and operation of society itself that are organized in such a manner

that even the most basic needs in social life depend on the rational, technicalspecialization and training of modern bureaucracy and, a fortiori, of modern capitalism

on which it is founded or at least stands in closest relation.

2

The Iron Cage as System of Needs and Wants


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.In theory one could probably conceive of the progressive elimination of private

capitalism - although this is certainly not the trivial matter some literati, who are

unfamiliar with it, imagine it to be, and it will quite certainly not be a consequence

of this war. But assuming this were to be achieved at some point, what would it

mean in practice? Would it perhaps mean that the steel housing (stahlhartes Gehause)

of modern industrial workwould break open? No! It would mean rather that themanagementof businesses taken into state ownership or into some form of communal

economy' would also become bureaucratised.

The juxtaposition indeed, the seamless transition that Weber effects from bureaucracyto private capitalism seems at first blush to be surprising given that he had earlier taken

pains to distinguish the bureaucracy from the factory. Yet here Weber seems to conjoin

the two without the slightest hesitation. And, in all fairness, this was to be expected giventhat Weber had earlier stressed the dependence of the entire organization of providing

the most basic needs of social life, which also becomes the function of capital as it turns

into social capital, on the performance of bureaucratic duties. It follows that for Weber

bureaucracy, whether it be in the modern state apparatus or in modern privatecapitalism, has ultimately to do with that concentration and socialization of the

means of production and operation that serve the essential aim of providing even the

most basic needs of society.

The quintessential question and problem of modern societies, therefore, is not so much

whether they are capitalistic or socialistic, that is to say, under state ownership orsome form of communal economy. No! The quintessential question of modern

societies the problematic that is common to both capitalist bourgeois and socialist

worker parties is that of the steel-hard housing [the iron cage] ofmodern industrialwork! It is not then the nature of modern industrial work that determines the iron

cage of bureaucratic, machine-like, rationally calculable rule: the genitive here is

subjective! Instead, it is the iron cage that is the content, the social force or drive orimpetus that conditions and effects the nature or the technically-given and rational

and systematicform of modern industrial work. The iron cage does not in the least

refer to the machinery of modern industrial work, of modern industry or to its labor

process. Nor does it refer to, as is most commonly believed, the rational conduct ofmodern business [that] creates a rigid structure in which work is carried out in a

mechanical fashion (as the editors of Webers Collected Political Writings wrongly

define it in fn12 at p.90). It is not the mechanical fashion of work that concerns Weber,nor is it the rational conduct of modern business that induces modern industrial work.

Weber himself expressly denies any such rigidity or mechanical fashion to modern

industrial work. This homogenization or equalization of tasks in the modernindustrial labor process is not only an essential pre-condition for the rational conduct of

modern business, but also it represents for Weber the only way to understand human

living activity, as we will see later in this piece. Weber resolutely and expressly dismisses

and refutes the socialist fable of a capitalist labor process that, eo ipso, in and of itself(!), leads to the socialization of production and the inevitable expropriation of the

capitalist expropriators! (Cf. his explicit remarks on this inDer Sozialismus discussed in

this section.)


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The iron cage refers instead to the economic demands or needs and wants of

atomized individuals in capitalist mass society that modern industrial work is meant to

provide for and satisfy a condition that the Protestant ethic with itsAskesis (a-scension, climbing) turning to acquisitive greed unleashed initially in the guise of the

spirit of capitalism until that spirit escaped, leaving behind only a soul-less

machine. It is thisEnt-seelung(out-soul-ing, reification, mortification), thiscrystallization of social life caused by the care for external goods that is the iron

cage certainly notthe industrial machinery and the organization of free labor of

modern capitalism! It is this system of needs and wants (Hegel and Marx seen throughthe Eristic filter of the negatives Denken and the Schematismus of Neo-Kantism) that

leads inexorably and inescapably rationally to modern industrial capitalism and

to the rise of bureaucracy: but the two are not identical! It is irrelevant for Weber whether

the form of government in a modern nation-state is capitalist or socialist. Whether inbourgeois Europe or in communist Bolshevik Russia, the common Problematik will be

that of the organization of labor, of modern industrial work as it is created and

maintained by the steel-hard housing or iron cage. Weber takes this modern

industrial work as a given, as a technicalfact. And the inevitability of modernindustrial work, its rationally calculable attributes in the sphere of production, is

derived from the urgency and massive scale of the needs and wants that individualshave in capitalist society.

Let us recall that Weber had already defined this iron cage explicitly in the closingparagraphs of hisProtestantische Ethikpublished thirteen years earlier in 1904. But he

had been unable or unwilling or not ready to define yet the precise nature of the process

whereby the Protestant work ethic had led to a specifically bourgeois economic ethic,

except to stress that it consisted entirely in the glorification of labor as an end in itselfthrough the ascetic religious ideal an ideal that, in any case, had now been dissolved

into utilitarianism (Nietzsche had described in quasi-Hegelian terms the self-

dissolution [Selbst-Aufhebung] of the ascetic ideal in the Genealogie).

The Puritan wanted to work in a calling; we are condemned to do so. For when

asceticism was carried out of monastic cells into everyday life, and began to

dominate worldly morality, it did its part in building the tremendous cosmos of

the modern economic order. This order is now bound to the technical and economic

conditions of machine production which to-day determine the lives of all the

individuals who are born into this mechanism, not only those directly concerned

with economic acquisition, with irresistible force. Perhaps it will so determine them

until the last ton of fossilized coal is burnt. In Baxter's view the care for external

goods should only lie on the shoulders of the saint like a light cloak, which can be

thrown aside at any moment. But fate decreedthat the cloak should become an

iron cage.Since asceticism undertook to remodel the world and to work out its ideals in the

world, material goods have gained an increasing andfinally an inexorable power

over the lives of men as at no previous period in history.

To-day the spirit of religious asceticismwhether finally, who knows?has

escaped from the cage.Butvictorious capitalism, since it rests on mechanical[181]

foundations, needs its support no longer.


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The present system of needs and wants, that is to say the care for external goods is the iron

cage that has replaced the light cloak it once was, now that the spirit of religious asceticism

has escaped from the cage [the care for external goods], and has therefore become irrelevant to

the now mechanical foundations of capitalism whose inspiring spirit or soul it had been

earlier, at the very beginnings of this mode of production. It is this care for external goods

diabolically transmuted into an iron cage that constitutes and effects (Weber might say

creates and maintains, see below) modern industrial work and machinery as well asbureaucratic rule: - it is certainly notmodern industrial work and machinery or indeed

bureaucratic rule that constitute and effect the iron cage!

It is abundantly clear that in theEthikWeber had understood the iron cage to mean the

increasing and finally inexorable power over the lives of men on the part of

material and external goods although as yet in 1904 there is no careful specificationof what this inexorable power might be except the transmutation of the ascetic

ideal that treated labor as an end in itself into a victorious capitalism that has dug by

now mechanical foundations and that has jettisoned thereby the erstwhile religious

asceticism whose support it needs no longer.

Once we accept Webers proposition that the modern system of wants and needs has

turned into an iron cage - how it has congealed or crystallized into mechanicalfoundations or a lifeless machine -, we can then see how and why Weber can argue

without hesitation that there can be no difference between capitalism and socialism as

political forms of the rational organization of modern industrial work except perhapsin the sense that the latter would be far more bureaucratic than the former, and

therefore less free!

Is there any appreciable differencebetween the lives of the workers and clerks in

the Prussian state-run mines and railways and those of people

working in large private capitalist enterprises? They are less free,

because there is no hope of winning any battle against the state bureaucracyand because no help can be summoned from any authority

with an interest in opposingthat bureaucracy and its power whereas

this is possible in relation to private capitalism. Thatwould be the

entire difference. If private capitalism were eliminated, state bureaucracy

would rule alone. Private and public bureaucracies would then

be merged into a single hierarchy, whereas they now operate alongside

and, at least potentially, against one another, thus keeping one

157

another in check. The situation would resemble that of ancient Egypt,

but in an incomparably more rational and hence more inescapable form.

As further proof of Webers reasoning, and to put the matter of the meaning of the iron

cage entirely beyond doubt, let us parse carefully an analogous passage on the

Gehause in an essay (Suffrage and Democracy in Germany) that covers much of theground ofParlament und Regierungbut was published a little earlier in 1917. Having

discussed the harm done to the German economy by government policies that would

encourage rentier investments based on dividends as against entrepreneurial onesbased on profits, Weber lashes the reactionary literati who cannot tell the difference


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between the two. In referring to the casing (Gehause), Weber this time uses the

attribute ehern or brazen (rather than stahlhartes) and this is an adjective that (as

the editors here adroitly point out) is most often used in German with nouns such asGesetz (Law), Schicksal (Fate) and Notwendigkeit (Necessity). Clear is the intention

on the part of Weber to stress the harsh necessity, the iron law, the inexorable fate

of the concept he is about to elucidate.

Much more significant is the fact that they [the literati] have not the faintest idea of the

gulf of difference separating the kind of capitalism which lives from

some momentary, purelypoliticalconjuncture - from government

contracts, financing wars, black-market profiteering, from all the

opportunities for profit and robbery, the gains and risks involved in

adventurism all of which increased enormously during the war - and

the calculation of profitability that is characteristic of the bourgeois

rational conduct of business (Betrieb) in peacetime. As far as the litterateurs

are concerned, what actually happens in the accounts office of

this type of business is a book with seven seals. They do not know

that the underlying principles' - or 'ethics if this term is preferred - of

these two different types of capitalism are as mutually opposed asit is possible for two mental and moral forces to be. They have not

the slightest inkling that one of them, the 'robber capitalism' tied

completely to politics, is as ancient as all the military states known to

us, while the other is a specific product of modern European man.

Weber: Political Writings

(90) If one wants to make ethical distinctions (and that is at least possible

here) the peculiar situation is as follows: the brazen casing

(ehern Gehause) which gives economic work its present stamp and fate was

created and is maintained precisely by the - in terms of personal

business ethics (Geschafsethik) highest rational- capitalist operational

ethics (Betriebsethik) of this second type of capitalism' - the ethics of

professional duty and professional honour, which, generally speaking,stand far above the average economic ethics which have really existed

in any historical age (as opposed to those which have merely been

preachedby philosophers and litterateurs). Of course, the fate and

character of economic life will be determined increasingly and irrevocably

by this rigid casing if the oppositionbetween state bureaucracy

and the bureaucracy of private capitalism is replaced by a system of

bringing firms under communal control' by a unitarybureaucracy to

which the workers will be subordinated and which would no longer

be counterbalanced by anything outside itself. Let us consider this

opposition further. The bearer of the specifically modern form of

capitalism as an inescapable system ruling the economy and thereby

people's everyday fate was notprofits made on the infamous principle

that, you cant make millions without your sleeve brushing againstthe prison wall'; rather, it was precisely that type of profitability which

is achieved by adopting the maxim, 'honesty is the best policy'. (89-90, CPW)

On the face of it, Weber is referring to the fact that it is this second type of capitalism,

the one based on that type of profitability achieved through honesty, rather than the one

based on opportunistic profit, that created and maintained the ehern Gehause. Yet


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this does not mean that the ehern Gehause is identicalwith it. And of course this

honest capitalism, unlike the first type, is based on the ethics of professional duty and

honour. But the aspect that counts most here is definitely not professional duty andhonour or rational conduct of business, but rather most certainly the aspect of

calculation of profitability in other words, profitability based on sustainable and

renewed business (Betrieb). It is this sustainability and renewability of business,this profitability that created and maintained the brazen casing. But neither of these

properties of business would be possible if they did not respond to an autonomous market

demandthat sets the discipline for the efficient allocation of resources to the industrialproduction of consumer goods for which economic work with its present stamp and

fate is required. It follows that what makes possible the calculation of profitability, its

indispensable ingredient, is precisely this autonomous market demand based on

individual consumer choice (the care for external goods) which, in turn, conditionsthe rational allocation (its present stamp and fate) of the available quantity of

economic work for the production and supply of the various external goods that

provide for and satisfy market demand - the care.

That the autonomousnature of this demand for material goods (or the care for

external goods of theEthik) is the kernel of the concept of brazen casing is madeevident once more by Webers insistence that

the fate and character of economic life will be determined increasingly and

irrevocably by this rigid casingif the oppositionbetween state bureaucracy

and the bureaucracy of private capitalism is replaced by a system of bringing

firms under communal control' [socialism] by a unitarybureaucracy to which

the workers will be subordinated and which would no longer be counterbalanced

by anything outside itself.

Now, if Weber had meant that the second type of capitalism and its ethics of honest andcalculable profitability or the rational conduct of business was identical with the iron

cage, he would never have said instead, as he did just before this long sentence, that it

was these ethics that created and maintained the iron cage! And he would alsoreason here that the replacement of the private capitalist bureaucracy with the state

bureaucracy would bring about the extinction of the iron cage as well as of those ethics

and not, as he does here, the further increasing and irrevocable rigidification of thisrigid casing!

Weber puts the issue beyond doubt when he equates the fate and character of economiclife with the subordination of the workers to the unitary bureaucracy that will no

longer be counterbalanced by anything outside itself! It is the workers not theprofessional ethics of the private capitalists or the rational conduct of business or the

capitalists who will be subordinated to this proto-totalitarian unitarybureaucracy.And in the very next sentence, Weber explains how it is most emphatically notthe

rationality of the profitability of this second capitalism that is the bearer of the

specifically modern form of capitalism as an inescapable system ruling the economy andthereby people's everyday fate, but rather its profitability which, again, is based on


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the autonomous market demand flowing from the formal freedom of the workers

who are still not subordinated to a unitary bureaucracy!

It follows that the brazen casing would be further rigidified if a unitary bureaucracy

replaced private capitalist enterprise based on sustainable and renewable or honest and

calculable profitability for the evident reason that then workers would be whollysubordinated to the rule of a unitary bureaucracy no longer counterbalanced by (in

opposition to) private enterprise that would determine more than ever before the

inescapable system of their needs and wants [the brazen casing] ruling the economy andthereby workers everyday fate or, what amounts to the same thing, their economic

work which is the resultant of the necessarilypoliticalconflict over wants and

provision.

Perfectly aligned with this interpretation of the brazen casing or iron cage is the

detailed discussion that Weber undertakes immediately andseamlessly after this

paragraph on the quintessential role of autonomous, independent, voluntary and

free determination of individual preferences and needs and wants in both the politicaland the economic spheres for the efficient functioning of government and economy, and

therefore for the health and power of the nation-state, in strident opposition to theromantic fantasies (p.100) of the proponents of various forms of socio-economic

corporatism.

It is, however, sheer naivete on the part of our scribbling ideologues to believe that this is the way

104 Suffrage and Democracy in Germany

to weaken or eliminate the rule of the 'profit motive' and the interest

in producing goods 'for gain' which they so despise, and to replace

them with a 'natural, communal economic' interest in providing

good and as far as possible cheap commodities to thepeople who

desire and consume them! What abysmal nonsense! The interest ofthe capitalist producers and profit-makers represented by these cartels

would itself then rule the state exclusively, unless that organisation of

producers' interests is confronted by a power strong enough to control

and steer them as the needs of the population require. But an

individual's needs are notdetermined by his position in the machinery

ofgoods-production. The worker has exactly the same needs for bread,

housing and clothing, regardless of the type of factory he works in.

Thus if that method of organising the economy is imminent, it is

absolutely imperative before it begins to function - which means

immediately - for us to have a parliament elected on the principle

that the needs of the masses must be represented, and notone which

represents the way an individual is employed in the production of

goods - in other words a parliament of equal suffrage, wholly sovereignin its power, which can take an independent stand in relation to

this type of economic organisation. Parliament must be much more

sovereign in its powers than hitherto, for in the past its position of

power has notsufficed to break the power of vested commercial interests

nor the inevitable rule of fiscal interests in state-run industries.

This is a negative reason for equal suffrage. (pp.104-5, CWP)


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One could wish for no better definition from Weber of his identification of the iron cage with

the system of needs and wants based on free labor! But note that both here and in the

quotation above in which Weber did not notice any appreciable differencebetween the

lives of the workers and clerks in the Prussian state-run mines and railways and those ofpeople working in large private capitalist enterprises, Weber vehemently emphasises the

primacy of consumption needs on the part of workers rather than their demands overworking conditions. For him,

an individual's needs are notdetermined by his position in the machinery

ofgoods-production. The worker has exactly thesame needs for bread,

housing and clothing, regardless of the type of factory he works in. (Webers emphases.)

Thisskewed emphasis on the part of Weber on the consumption side of what we have

called here autonomous market demand of workers, and the relative occultation of the

conflict over modern industrial work is conclusive evidence of our thesis on the ironcage, but also an early portent of the insuperable problems that Webers formulation of

the nature of capitalism will run into once he tries to give it a much more systematic andcoherent definition in the Vorbermerkungen. More specifically, this inability to com-prehend the historical specificity of capitalist social relations of production will rigidify

Webers sociological analysis into a value-free positivistic formalism of the

Rationalisierungakin to the experimental science of Mach, the Neo-Kantian Forms andNorms, the Sollen of Cohen, Simmel, and Kelsen, and their equivalent in economics, the

marginalism of Neoclassical Theory and the Austrian School, all significantly removed

from Nietzsches original and far more coherent criticalexposition of this concept.Ultimately, this incomprehension will expose the intrinsic limitations of Webers plans

forparliamentary democracy. We will return to these themes repeatedly in the remainder

of this study.

(Now that we have cleared some initial theoretical hurdles, it may beappropriate to emphasize the dramatic departure of this study fromthe almost universally standard manner in which Max Webers politicalsociology is approached in academic disciplines something that willbecome even clearer and more dramatic as the reader venturesfurther into our study when we deal with the Weberian concept ofcharisma. Almost invariably, these approaches begin with theerroneous interpretation of Webers stahlhartes Gehause as modernrationalism that turns Webers sociology precisely into that romanticfantasy that he himself denounced so vehemently! It is the mistaken

equation of the iron cage with modern rationalism that leads to amuch more catastrophic misinterpretation and hypostatization ofWebers entire work by hiding the immanent materiality and historicalconcreteness of the Nietzschean-Weberian Rationalisierung, itsfoundation upon the system of needs and wants (the care formaterial and external goods) and the labor needed to provide forthem that is the problem not just in Weber, but also in the greatesttheoreticians of the bourgeois era from Hobbes through to Hegel and


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Marx, and then Schopenhauer, Nietzsche and Schumpeter, not tospeak of the liberal tradition from de Tocqueville to Croce!

**************

The system of needs and wants can be satisfied best, most efficiently, as well as

optimally through the rational and systematical application of industrial machinery, or

means of production to the steel-hard casing, to the increasing and finallyinexorable power over the lives of men on the part of material or external goods.

The opposition between private capitalism and theproposedSocialist socialization of

the means of production on the part of a state bureaucracy and its power consistsprecisely in this: - that the inexorable power of material goods over the lives of men

or the iron cage would then become even more binding, their lives or labor even

less free than it is under private capitalism! The rational organization of labor on

the part of private capitalism allows a remnant of individual freedom of movement

(Weber quoted below), of autonomy to the lives of men in terms of the individualchoices that they make about the production of the material and external goods to

which they are now almost ascetically devoted through the system of needs andwants. The inexorable power exercised by material goods over the lives of men

induces the rational organization of their labor, of modern industrial work so as to

maximize the provision for and satisfaction of these needs and wants - which leads inturn to concentration, to socialization and to bureaucratic rule in the provision of

the most basic needs of social life. But the market mechanism allows at least a

modicum of autonomy between the selection of material goods, between the

rational organization of their production and the individual choices of workers as tothe nature and kind and quantity of the material goods that are produced!

Because the Socialists understand social relations of production as governed by ascientificLaw of Value, the only point of disagreement with capitalists has to be

ultimately not so much about the separation of the worker from the means of

production, not about the ownership of the means of production, but rather about howthis separation and ownership affect the production and distribution of this Value

taken as a rationally calculable entity! That is why Weber can confidently dismiss the

protestations of Socialists about the anarchy, thePlanlosigkeit, of capitalist industry asthe pathetic foibles of lazy literati and as romantic fantasies! Socialism in its

current form, as the cult of labor value, its deification in the advent of the Socialist

utopia of bureaucratically planned production is so infinitely inferior to the capitalist

market system of consumer-driven production that its ideals can be dismissed withNietzschean haughtiness and contempt! The Socialist Utopia is Wille zur Ohnmacht

(will to powerlessness) right from the very start because any velleity toward its

implementation would seek to deny the conflict inherent in production and promptlyresult in the erection of a socialist bureaucracy made up of technocratic experts that

the workers themselves would be sure to oppose resolutely and violently precisely for

their absurd denial of the existence or even thepossibility of conflict in their socialistparadise! Weber would have relied here on the massive studies of the massification of


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German industry carried out by two of hisArchiv colleagues, Werner Sombart (Der

Moderne Kapitalismus and Sozialismus und die soziale Bewegung) and Robert Michels,

whose well-researchedDie deutsche Sozialdemokratie (published inArchiv frSozialwissenschaft und SozialpolitikXXIII (1906), S. 471-556) he would have

appreciated much more than the ridiculous anecdotal generalities about the Iron Law of

Oligarchy contained in his later theoretical compendium Political Parties, instantlytranslated in many languages! (The controversy is mentioned by G. Roth in his

introduction toEconomy and Society [at p.LXXI].)

Note that Weber intends the inevitable conflict over the system of needs and wants to

cover not merely the distribution of material goods but also their production in terms

of both working conditions and the choice of material goods produced. Yet the overall

rational conduct of capitalist business will be dictated by the fact that for any givenlevel of conflict there is only agiven rational conduct of business possible for

capitalists, related to the degree of market competition with other capitalists. Private

capitalism allows this conflict to take place on two levels: - at the industrial level in

terms of wages and conditions to be offered in the labor market, and at the broadermarket level in terms of workers demand for consumer goods. Private capitalism allows

therefore the settlement of the conflict inherent to the wage relation both at the industrial-productive level of supply and also at the market-distributive level of demand. It is the

relative political autonomy of demand for labor that determines its political freedom

and permits thereby its political organization and representation and it is this last thatturns free labor into the real motor of development of capitalist industry and society

overall.

If the worker goes to the entrepreneur today and says, We cannot

live on these wages and you could pay us more', in nine out of ten

cases - I mean in peacetime and in those branches of industry where

there is really fierce competition - the employer is in a position toshow the workers from his books that this is impossible: 'My competitor

pays wages of such and such; if I pay each of you even only so

much more, all the profit I could pay to the shareholders disappears

from my books. I could not carry on the business, for I would get no

credit from the bank.' Thereby he is very often just telling the naked

truth. Finally, there is the additional point that under the pressure

of competition profitability depends on the elimination of human

labour as far as possible by new, labour-saving machines, and especially

the highest-paid type of workers who cost the business most.

Hence skilled workers must be replaced by unskilled workers or

workers trained directly at the machine. This is inevitable and it

happens all the time. (Socialism, p.284 in CPW).

Were the entirety of private capitalist industry to fall into the hands of a socialist state

bureaucracy, even this remnant of individual freedom of movement would vanish,preventing the political organization and representation of conflict over wants and

provision that private capitalism utilizes as the motor of its development! Were the

consumer choice that the free market allows through its price mechanismregulating the allocation of labor to be abolished labor intended as modern industrial


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work, as a rationally calculable entity -, then the rational organization of industrial

production would necessarily be eliminated, and so would the competitive dynamic of

inter-capitalist rivalry and industrial conflict over wages and conditions; were all this tobe abolished through the socialization of the means of production and socialist

planning, the disastrous consequence would be not only that workers, labor, would not

achieve their socialist utopia because its implementation would be taken out of theirhands by a socialist technocratic elite, but also that they would no longer be even free

to choose which material and external goods are rationally produced by modern

industrial work or to negotiate the conditions and remuneration of that work!

In other words, labor - a technically calculable quantity applicable rationally to the

production of material goods - would no longer be free because its rational

application to the production of material goods would also be bureaucratically ruledby the removal of individual consumer choice and the market competition between

capitalist employers over wages and conditions that private capitalism allows! The

difference between wants and their provision would no longer exist, and yet the

conflictbetween the two - were the safety-valve of the market to be removed - wouldswell to the point of explosion! The elimination of the anarchy of capitalist production

would lead straight to the elimination of free labor that is, of the ability of labor tobe free to choose and to negotiate the material and external goods (that make up the

iron cage) and the working conditions for the satisfaction and provision of those wants

and needs that jointly exercise their inexorable power over the lives of men.

It is entirely obvious here that whilst capitalist enterprise is able to rationalize the employment

of labor power and the production process it adopts, it is unable to rationalize the needs and

wants of workers! And this is why it is imperative that labor remain free if capitalist

enterprise is to be run rationally for profit at all!

By removing the market pricing mechanism as a system of regulation, ofsocial synthesis,as the ultimate rationality or discipline of private capitalism, Socialism would

remove the last remnant of individual freedom of movement within the iron cage it

would removepolitics! -, and all this in the name of a society finally free from conflict!

The embarrassing thing would be that whereas the political and private-economic

bureaucracies (of syndicates, banks, and giant concerns) exist alongside one another

at present, as separate entities, so that economic power can still be curbed by political

power, the two bureaucracies would then be a single body with identical interests and

could no longer be supervised or controlled. In any event, profit would not be done

awaywith as the lode-star of production. Yet the State as such would then [286] have

to take its share of the workers' hatred, which is directed at the entrepreneurs at present.

(ibid., Socialism, pp.285-6)

3

Schumpeter and Weber:

Unternehmer-geistand leitender Geistbetween Freedom and Necessity


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The Law of Value as reformulated in the new marginal utility theory of the Neoclassical

Revolution represents the scientific specification by political economy of the market

price mechanism as the optimal system for allocating existing scarce resources accordingto individual choices. The machinery of production, the technologies adopted in the

process of production, is determined independently of the system of needs and wants that

demands its rational and systematic utilization through bureaucratic rule so that itstechnically-determined output or supply can be maximized to satisfy the individual

choices as fixed by the capitalist market price mechanism aimed at profit.

The nature of the matter (das Wesen der Sache) for the Economics is that it needs to

determine preciselyfrom the standpoint of the individuals self-interestthe individual

contribution to the production of goods for final consumption (in Schumpeters words

quoted below, the community has occasion to become conscious of the economic valueof its members to itself), which is what interests the individual ultimately, and what

determines the value and distribution or allocation of privately-owned social

resources between individuals in society:

Another application of this theory [marginal utility] is the next step to

a height from which a wide view into the innermost working of an economy

is gained. Means of production are also complementary goods. But

[171] their values are not directly determined: we value them only because

they somehow or other lead to consumers' goods, and their value can thus,

from the point of view of the subjective theory of value, be derived only from

the value of these consumers' goods. But many factors of production are always

involved in the production of a single consumers' good, and their productive

contributions are seemingly indistinguishably intermixed. In fact, before Menger,

one economist after another thought it impossible to speakof distin-guishable

shares of the means of production in the value of the final product, with the

result that further progress seemed impossible along this route, and the idea of

subjective value appeared to be unusable. The theory of the value of complementarycommodities solves this seemingly hopeless problem. It enables us to speak of a

determinate 'productive contribution' (Wieser) of such means of

production and to find for each of them a uniquely determined

marginal utility, derived from its possibilities of productive applica-

tion that marginal utility which has become the basic concept of the modern

theory of distribution and the fundamental principle of our explanation of the

nature and magnitude of the incomes of economic groups.

(J. Schumpeter, Ten Great Economists, ch. on Bohm-Bawerk.)

As former professor of Political Economy, Weber was well aware of and versed in the

new theories of the marginalist revolution propagated by the Austrian School againsttheHistorismus of the old and new German Historical School. He had already published

in 1904 a major critical review of the old School, when it was led by Roscher and Knies,

criticizing heavily the logischen Probleme of its philo-Hegelian emanationism inwhich the economy was interpreted in the holistic and teleological perspective of the

Volksgeistthat denied the possibility of a scientific study of economic facts in isolation

from other political and social phenomena. Weber would also have been perfectly aware

that the central message of all bourgeois intellectual forces - most stridently advanced by


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the emerging Neoclassical Theory - was incessantly to denounce thefutility or the

impossibility of Socialism at this critical time of global conflict and in the face of the

Bolshevik challenge and the spread of revolutionary worker movements in Europe.

Rational socialism cannot escape this beautifully closed chain of logic! Socialism

can only amount to or end up in the identical system of production as capitalism, withonly a lot more bureaucracy and a lot less free choice. At the very best, rational

socialism could minimize the frictions of the market mechanism, its transaction

costs and the negative effects of disturbances or exogenous shocks. At the worst, itwould distort the free individual choices made by free labor by removing the ability

of labor to determine freely the individual choices of workers, in such a way that

bureaucracy would rule alone and would no longer be kept in check by private

capitalism with its free market and free labour, through those conflictual and ir-reconcilable self-interests! Alternatively, were there to be no state bureaucracy, then free

market capitalism would not be able to maintain the laws of free market competition

that determine scientifically its optimal level of production for the satisfaction of

individual needs and wants understood as self-interest.

(185) We now approach the last step of the stairway that takes us to

the top of Bohm-Bawerk's edifice . He was the first to realize fully

the significance of the length of the period of production in its two-fold aspect -

the aspect of productivity and that of the lapse of time.

He gave both aspects their exact content and their places in the

foundation of the system of marginal utility analysis.

Our proof shows further that, because only an agio on present

goods puts the relative demands of present and future into proper

(183) balance with one another, the values of present and future goods can-

not standat pareven in a socialist community, that the value phenom-enon which is the basis of the rate of interest cannot be absent even

there, and hence demands the attention of a central planning board.

From this it follows that even in a socialist society workers cannot

simply receive their product, since workers producing present goods

produce less than those who are employed on the production of

future goods. Thus, whatever the community decides to do with

the quantity of goods corresponding to that value agio, it would

never accrue to the workers as a wage (but only as a profit) even

though it were divided equally among them. This could very well

have practical consequences whenever, for example, the community

had occasion to become conscious of the economic value of its mem-

bers to itself; in such a case it could assess the value of a worker

only at the discounted value of his productivity, and since all work-

ers equally able to work must obviously be evaluated equally, a

'surplus value' must even here emerge which would appear as an

income sui generis. (183)

Two corrections of the idea of exploita-

tion are now also in order: first, one can speak of 'exploitation' as a

cause of profit only in the sense in which such exploitation would

occur also in a socialist state; second, there is exploitation not only


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of labor, but also of land. For moral and political judgment this is

of course irrelevant, since the socialist state would use its 'exploita-

tive gains' in a different way; but it is all the more important for

our insight into the nature of the matter.(183)

Socialism may well be able to remove some of the anarchical features of capitalism -which preserve in large part the individual choices of free labor. But it would do so

at the cost of removing in large part that very free consumer choice and free laborthat capitalism makes possible! In no way whatsoever could the Sozialismusprevent or

abolish the separation, the Trennung, of the worker from the means of production the

source of the Marxian alienation, of the ante litteram Lukacsian and Heideggerianloss of totality, reification and facticity , or still less remove profit, because

these are technically necessary aspects of the efficient utilization of resources for the

satisfaction of the system of conflicting and irreconcilable individual wants and needs!

There is not and there cannot be a capitalist economy and a socialist economy: these

are only formal differences in ownership of the means of production that must give risein any case to the separation of all workers, individually and collectively, from controlover their work in favour of a technocratic bureaucracy for the sake of the paramount

technical and rational efficiency of production and the paramount satisfaction of the

system of needs and wants, of the iron cage! There can only be one Economics, oneeconomic science: the time for PoliticalEconomy is past because politics cannot

determine the rationally calculable technical efficiency of industrial production and its

utilization of resources.

Theoretically more important, however, is the result - to use a terminology

that has become accepted in treatments of this topic that the rate of interest

is a purely economic and not a historical or legal concept.(ibid., p.183)

This is the task and the supreme achievement of capitalism as a mode of production

based on free labor: - that it organizes rationally the factors of production, chief

among them labor, for the maximization of individual utilities. Its ultimate aim is theefficient production of consumption goods, not just for the present but also for the future,

in accordance with the conflicting subjective valuations (needs and wants) of self-

interested individuals!

In applying this 'theory of imputation' (Wieser), which owes

to Bohm-Bawerk one of its most perfect formulations, we arrive at

the law of costs as a special case of the law of marginal utility. As a

consequence of the theory of imputation, the phenomenon of costbecomes a reflex ofsubjective value, and the law of the equality of

the cost and the value of a product is derived from the theory of

value never in our science has there been a more beautifully closed

chain of logic.

But all this so far still refers only to the world of values. That

all of its forms express themselves also in the mechanism of the ex-change economy can be shown only by a corresponding theory of

price. Bohm-Bawerk therefore turns to price theory, developing the


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implications ofthe law of value for the behavior of buyers and

sellers, and his investigation culminates in that celebrated proposi-

[172] tion (for the case of bilateral competition) which has since become

'historic'.

All this is developed first for the situation with given quantities of

exchangeable commodities with the conclusion that, since the

forces operating on the supply side of the market are the same asthose operating on the demand side, the old 'law of demand and

supply' turns out to be simply a corollary of the law of marginal

utility. This is then extended to the case of the formation of the

prices of commodities whose available quantities can be varied by

production.

In reviewing the theoretical masterpiece of his Viennese mentor,Die Positive Theoriedes Kapitals, Schumpeter remarks first on the beautifully closed chain of logic of

Bohm-Bawerks elaboration and extension of marginalist theory forgetting in the

process that it was precisely the attempt by Karl Marx to close his system by trans-

forming values into prices that had led Bohm-Bawerk to accuse the German theoreticianof indulging in metaphysics in the appropriately named article The Close

[Abschluss] of Karl Marxs System! Schumpeter is unable to see that the metaphysicsof the socialist and Marxian labor theory of value have now become the metaphysics

of neoclassical marginal utility! It is precisely Bohm-Bawerks attempt to identify and

define a Law of Value that would allow him to close the subjective estimation of

value with the objective manifestation of prices that lands him inexorably into themetaphysical trap that nullified Marxs own efforts in Volume Three ofDas Kapital:

for it is impossible, outside of meta-physics, to quantify mathematically what are

inextricablysocial relations of production!

The Law of Value whether in its socialist or Marxian or Neoclassical form seeksto reconcile the respective inputs of the factors of production with their respectiveshares of income to homologate values and prices. But what distinguishes

economics from engineering isprecisely the element ofindividual, subjective choice

in the specification of needs and wants! It is therefore im-possible to certify the

scientific status of the capitalist market economy and, at the same time, to preserve itsfreedom, itsFreiheit precisely the con-fusion, the closing of the system that

Nietzsche had so devastatingly demolished with his critique of German Idealism, and

Bohm-Bawerk in his Machian critique of Marxs Ab-schluss echoed by Weber in hispolemic against the emanationism of Roscher and Knies.

Already in 1911, Schumpeter had celebrated at the very beginning of chapter two of theTheorie the advent of the WeberianRationalisierungas the overcoming

(Uberwindung) of metaphysics and the triumph of empirical science totally mis-

comprehending yet again theNietzscheanconnotations of the word as applied by Weber.

What Schumpeter overlooks in his Machian exultance isthe evident and dramatic

conflict that Bohm-Bawerks theory contains and exudes!For behind Bohm-

Bawerks scientistic and lucid exposition lies all the explosive conflict of capitalist

society even at the level of market pricing according to consumer choice according to


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marginal utilityor supply and demand! However much the different subjective

valuations of goods on the market may be based on fair and equal exchange, the

terrifyingfact remains that the self-interests of the individual market agents aredetermined by the sheer violence of imposition of their subjective, egoistic choices and

preferences!

The level of price is determined and limited by the level

of the subjective valuations of the two marginal pairs' - i.e .on the

one hand by the valuations of the 'last' buyeradmitted to purchase [!]

and of the seller who is the 'most capable of exchanging' among the

ones already excluded from the exchange, and on the other hand by

the valuations ofthe seller'least capable of exchanging' [!] among those

still admittedto the exchange and of the 'first' excludedbuyer.

The full conflict and sheer violence of the market mechanism is made evident here in all

its stark nakedness! It is futile to seek recourse to the beautifully closed logic of theNeoclassical theory reformulated by Bohm-Bawerk: the inescapable fact remains that

even behind the most beautiful and elegant equations there is all the ineluctableconflict of what Weber will soon call with astonishing (Marxian!) insight the capitalistrational organisation of free labor under the regular discipline of the factory!

[F]or value to emerge, relative scarcity has to be added to utility. With the

aid of a distinction between want categories (or want directions)

and want intensities, and under careful consideration of the factor

of substitutability, Bohm-Bawerk arrives(in Menger's sense, and in

a way similar to Wieser's) at the law of decreasing marginal utility

with increasing 'coverage' of wants within each category - i.e. with

increasing quantities of the commodity in the possession[!] of an indi-

vidual. (169)

As Schumpeter quite uncritically reveals and concedes with this summation, this

scientific-rational economic mechanism is still self-consciously dependent on the

conflicting self-interests of individuals and on their historical or legal acquisition of

possessions which determine both the relative scarcity of commodities as well as theincreasing or decreasing quantities of commodities in their possession! It follows

inexorably, by definition, that this conflict can neverresultin equilibrium and that

contrary to what Schumpeter claims above it can never be a purely economic and not ahistorical or legal concept! Quite to the contrary, this economic concept and process

must be guided and governedpolitically instead!

(The horrifying spiral of bourgeois possessive individualism descendingfrom Hobbes to the scientific administration ofterrorin the Third Reichis traced masterfully by Hannah Arendt in The Origins ofTotalitarianism [1949]. With unequalled perspicacity, Arendt then goeson to trace the historical process whereby theparallel transformationof the capillary bureaucratic administration of the most basic needs of


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social life (Webers phrase) arising out of the capitalist socializationturned into the Nazi and Stalinist nightmares oftotalitarian control andterrorin both the more advanced bourgeois civil society of Germanyand the desolate peasant steppes of Russia. In her later study, OnRevolution [1962], Arendt seeks to distinguish Hobbess

commonwealth from Rousseaus volonte generale, for which theFrenchman was even tagged with the charge of plagiarizing from theEnglishman, in the sense that the latter is an introspective concept the bellum civium becomes the bellum psychologicum in which theexternal threat is the common enemy of selfishness that stands inthe way of compassion or le salut public and therefore more akin tototalitarian ideologies. We have canvassed these matters thoroughly inour Civil Society and shall return to them in Part Three, but it maysuffice here to observe that Arendt over-psychologises the nature oftotalitarian movements at least in the initial stages of their seizure ofpolitical power. After all, however much Robespierres Terror may

have leaned on Rousseaus political philosophy, this was certainly notthe case with the Nazi dictatorship which, if anything, found itsgeistesgeschitlich avatar in Carl Schmitts unquestionably Hobbesianearly jurisprudence of the totalitarian state. Thispalpable change inher attitude to Anglophone political theory as against itscontinental counterparts [though she rescues Montesquieu andproperly chastises, in chapter 6, the charlatanry of twentieth centuryFrenchphilosophes] rhymes with Arendts anointment of the FoundingFathers of the American Constitution. Equally, Arendt absurdlyoversimplifies as compassion with the poor and downtrodden and aprelude to Stalinism, Marxs entire analytical effort to develop a

complex theory of social development in antithesis to the capitalistwage relation, especially in the Grundrisse.)

***************

We intimated above that Weber will soon call this conflict the capitalist rational

organisation offree labor, - but not yet! We have jumped too far ahead. This revealing

re-formulation of the Problematik of rational Socialism indistinguishable from that of

rational capitalism will not come out until Webers Vorbemerkungen to the Aufsatzen

zur Religionssoziologie published in 1920, a Weberian terminus ad quem that we aretracing here. We need to retrace our steps and continue with our linear analysis of

Webers political formulation of the Problematik of bureaucratic rule in 1917, whenParlament und Regierungis first published and then re-worked and extended in 1918

after the Bolshevik Revolution!

For the moment, after the publication of Schumpeters Theorie, Weber has discovered the

one element in it that will help him reformulate his entire theory of bureaucratic rule


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most closely related to the rise of modern capitalism by seeking to integrate into it

the Schumpeterian notions of the trans-formation mechanism (Ver-anderungs-

mechanismus) that characterises capitalist development (Entwicklung): developmentunderstood as crisis, - not simply as evolution but as meta-morphosis, not simply as

growth but as trans-crescence, asgrowth-through-crisis, as Nietzschean creative

destruction (the concept appeared in NietzschesZarathustra long before Schumpetermade it popular). In this re-working and extending of his previous formulations dating

back to theEthikin 1904, Weber gives proof yet again of having grasped much more

thoroughly than Schumpeter the powerful and unprecedented Nietzschean critique ofWestern thought and society, of its Kultur and Zivilisation, of its Politics and a fortiori

of its political economy (see ourNietzscebuch, end of Part One, on his ontogeny of

economic relations and categories in Western societies).

By the time Weber returns to the theorization of this transition, however, it is clear that

it is no longer the inexorable powerof external goods that interests him, but rather

the rational organization of modern industrial work under the pervasive aegis and

control ofmachine-like bureaucratic rule, rational and systematic. What troublesWeber above all is the decisive leap forward of the Bolshevik Revolution and the

possibility of its upsetting his seemingly inescapable fate of bureaucracy. The ironcage has now meta-morphosed from the simple secularization of the ascetic spirit of

capitalism its glorification of labor to the dependence of the provision of the most

basic needs of society on the rational organization of that labor. The BolshevikRevolution of October 1917 has forced Weber to re-work and extend for publication in

1918 the original series of five articles that had appeared in the Frankfurter Zeitung

between April and June 1917. If bureaucratization is the fate of human social

development, if capitalism represents its closest relation and possibly its foundation,then the Bolshevik experiment needs to be understood and re-configured within Webers

overall interpretative and methodologicalEntwurf(framework) so that its political impact

can be anticipated and even neutralized. The Russian Revolution and its Leninistvariant represent a quantum leap in the linear, scientific, rational and systematic

Ordnungof bourgeois society. Specifically, precisely this vital element of conflict

needs to be re-articulated and re-inserted organically within an overall theory ofcrisisand trans-formation of capitalist society and industry.

Weber understands that conflict is the very nature of the matter of Economics and that

he needs to theorize and devise an institutional framework capable of capturing thisconflict, to encapsulate it and turn the energy of its antagonism into the motor of

development, the source of real dynamism of bourgeois society and of the modern

nation-state. Of course, the political realities that need to be considered are the incipient andseemingly unstoppable democratization of governmental rule due to the irrepressible push on

the part of the urban industrial proletariat for representation of their interests that are no

longer mere individual interests but take on instead an organized form as class interests in

the urgent instance with the formation of imponent and (sit venia verbo!) bureaucratic social

democratic parties that reflect and even replicate the very rational organization of labor that

characterizes the modern industrial work of the factory in modern capitalism.


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Whereas the static equilibrium scientific analysis of Neoclassical Theory describes

wishfully the equivalence of these conflicting self-interests in the marketplace as

indicated by prices, it fails to com-prehend, to grasp practically the process wherebythis conflict can be mustered and governed! There may well be no exploitation in

the marginalist view of economics: certainly, there is no inter esse or teleological

reconciliation of economic antagonism. But just as certainly there is conflict becausethere is self-interest; there are wants that cannot be satisfied due to lack of

provision, due to scarcity a scarcity induced and provoked by the very conflict

of want and provision of the quantity of possessions, as Schumpeter put it earlier.And it is simply unscientific and irrational to believe that these conflicts, these

self-interests can be in equilibrium! That they can be balanced without

evolution, without development without crisis.

The static and trans-historical analysis of the ascetic origins of capitalism carried out in the

Ethik, the scientific, value-neutral framework ofWirtschaft und Gesellschaftare no longer

applicable to the highly specific reality of capitalist industry and the trans-formation it has

effected through the Sozialisierung of the most basic needs of social life. This antiquatedanalytical framework has been superseded and dissolved just as completely as the old

Protestant work ethic. (As the editor ofEconomy and Society, Gunther Roth,put it, withall its seeminglystatic typologies, the [p.XXXVI] work is a sociologist's world history, his

way of reconstructing the paths of major civilizations. This is the principal reason why

we are ignoring completely Webers sociological lexicon in this work.) To prove the

point, if proof is needed, one need not do more than point to the profound upheavals ofthe Great War and the revolutionary workers movements spreading rapidly throughout

Europe at this time! The question is: what ideal type of institutional structure can both

reflect the conflictual and antagonistic reality of capitalist industry and its economy andmuster the energy of this conflict to transform its existing static structures into the

dynamic motor of capitalist and national development? In short, what institutionalstructures can capture and govern the class antagonism of modern capitalism and turn itinto the dynamo of its development? The problem is one that invests not merely the

reality, the experience of modern capitalism, but also the conceptual categories

that can be used to com-prehend it: how can science, which involves a system of

determinate concepts, com-prehend, under-stand(verstehen) dynamic, vital socialprocesses that are by definition indeterminate and free? Can there be a dynamic

science of capitalist development, or is this just an oxymoron, a contradictio in adjecto?

The central problem here for Weber as for Schumpeter will be to analyze and theorize the

interplay of ascienceof Economics in determining an optimal process of production

that is managed rationally and systematically with thePolitical resolution of theconflict over wants and provision that the process of production the machine is

meant to serve! If indeed there is conflict between want and provision, then the

process of production cannot stand still! It will have to be driven by this conflict andby the crises to which it will unquestionably give rise. This antithesis between static

science and dynamic transformation, between objective factors that can be weighed,

quantified, andsubjective forces impossible to rationalize and calculate, had already

occupied Weber in hisRoscher und Knies and again in theEthikboth written and


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published between 1896 and 1904. It also became the central problematic for Schumpeter

in a work first published seven years later in 1911 of which Weber must have been aware

even because it cites him at the very beginning of chapter two!

Having only recently succeeded Karl Knies in the Chair of Political Economy at

Heidelberg, Weber was quick and keen to tackle the methodological diatribe that hadseen the emerging Austrian School of Economics riding high on the early acceptance of

its marginal utility theory in Central European industrial capitalist circles pitted against

the more established German Historical School of Roscher, Knies and Hildebrand andnow led by Gustav Schmoller, also close to German industrial circles. In his review of the

by then notoriously heatedMethodenstreit, Weber cuts to the quick and singles out the

central bone of contention between the two Schools around the issue of whether it is

possible to reconcile idiosyncratic [or ideographic] freedom and rationalcalculation, nomothetic necessity and irrational individuality in social science, -

whether it is possible to build such a social science methodically on the individual

idiosyncratic inquiry in a manner that is consistent with sociological nomothetic

measurement.

Intriguingly, Weber openly sides with the methodological individualism of theAustrian School, denying that any sociological categories can legitimately or logically

abstract from the role of the individual in society against the emanationism of the

Historical School that starts from broad idealistic concepts such as people ornation.

Yet, as we are about to see, Webers apparent championing of individual freedom very

soon veers in the direction of social necessity in such a way that, whilst he recognizes

the ultimately irrational forces that motivate human action, that make it peculiar andsubjective, as he does in theEthik, he ultimately asserts the logical rationality of

Neoclassical Theory basing himself on the historically specific characteristics of modern

capitalist society and therefore also on the full legitimacy, and indeed the theoreticalnecessity, of the kind of scientific-logical approach to the Economics propounded by

Menger and the Austrian School that would seem to contradict the very methodological

individualism that was ostensibly its theoretical point of departure! We shall see soonenough that despite Webers truly astounding and profound insight into the differentia

specifica of capitalism, that is, its ability to transform apparently irrational social

relations into apparently rationally calculable ones which is theformal significance

of the rationalisation this trans-formation is indeed only apparentonce the ultimatesignificance of t

Weber and Schumpeter - From Neoclassics to Keynes - by Joseph Belbruno

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