Max Weber

from General Economic History, by Max Weber, trans. by Frank H Knight, Ph.D., Greenberg, Publisher, 1927

Chapter XXII, The Meaning and Presuppostions of Modern Capitalism, pp 275 - 278

Capitalism is present wherever the industrial provision for the needs of a human group is caried out by the method of enterprise, irrespective of what need is involved. More specifically, a rational capitalistic establishment is one with capital accounting, that is, an establishment which determines its income yielding power by calculation according to the methods of modern bookkeeping and the striking of a balance. The device of the balance was first insisted upon by the Dutch theorist Simon Stevin in the year 1698.

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The most general presupposition for the existence of this present-day capitalism is that of rational capital accounting as the norm for all large industrial undertakings which are concerned with provision for everyday wants. Such accounting involves, again, first the appropriation of all physical means of production -- land, apparatus, machinery, tools, etc. as disposable property of autonomous private industrial enterprises. This is a phenomenon known only to our time, when the army alone forms a universal exception to it. In the second place, it invovles freedom of the market, that is, the absence of irrational limitations on trading in the market. ... Third, capitalistic accounting presupposes rational technology, that is, one reduced to calculation to teh largest possible degree, which implies mechanisation. This applies to both production and commerce, the outlays for preparing as well as moving goods.

The fourth characteristic is that of calculable law. The capitalistic form of industrial organization, if it is to operate rationally, must be able to depend upon calculable adjudication and administration. Neither in the age of the Greek city-state (polis) nor in the patrimonial state of Asia nor in western countries down to the Stuarts was this condition fulfilled. The royal "cheap justice" with its remissions by royal grace introduced continual disturbances into the calculations of economic life. The proposition that the Bank of England was suited only to a republic, not to a monarchy, referred to above (p 265) was related in this way to the conditions of the time. The fifth feature is free labor. Persons must be present who are not only legally in the position, but are also economically compelled, to sell their labor on the market without restriction. It is in contradiction to the essence of capitalism, and the development of capitalism is impossible, if such a propertyless stratum is absent, a class compelled to sell its labor services to live; and it is likewise impossible if only unfree labor is at hand. Rational capitalistic calculation is possible only on the basis of free labor; only where in consequence of the exitence of workers who in the formal sense voluntarily, but actually under the compulsion of the whip of hunger, offer themselves, the costs of products may be unambiguously determined by agreement in advance. The sixth and final condition is the commercialization of economic life. By this we mean the general use of commercial instruments to represent share rights in enterprise, and also in property ownership.

To sum up, it must be possible to conduct the provision for needs exclusively on the basis of market opportunities and the calculation of net income. The addition of this commercialization to the other characteristics of capitalism involves intensification of the significance of another factor not yet mentioned, namely speculation. Speculation reaches its full significance only from the moment when property takes on the form of negotiable paper.