Max Weber



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




The state in the sense of the rational state has existed only in the western world. Under the old regime in China a thin stratum of so-called officials, the mandarins, existed above the unbroken power of the clans and commercial and industrial guilds. The mandarin is primarily a humanistically educated literatus in the possession of a benefice but not in the least degree trained for administration; he knows no jurisprudence but is a fine writer, can make verses, knows the age-old literature of the Chinese and can interpret it. In the way of political service no importance is attached to him. Such an official, performs no administrative work himself; administration lies rather in the hands of the chancery officials. The mandarin is continually transferred from one place to another to prevent his obtaining a foothold in his administrative district, and he could never be assigned to his home province. As he does not understand the dialect of his province he cannot communicate with the public. A state with such officials is something different from the Occidental state. (338)

In reality everything is based on the magical theory that the virtue of the empress and the merits of the officials, meaning their perfection in literary culture, keep things in order in normal. times. If a drought sets in or any untoward event takes place an edict is promulgated intensifying the examinations in verse-making, or speeding up legal trials in order to quiet the spirits. The empire is an agrarian state; hence the power of the peasant clans who represent nine-tenths of the economic life-the other onetenth belonging to commercial and trading guild organizations-is entirely unbroken. In essence things are left to take care of themselves. The officials do not rule but only interfere in the event of disturbances or untoward happenings.(338, 339)

Very different is the rational state in which alone modern capitalism can flourish. Its basis is an expert officialdom and rational law. The Chinese state changed over to administration through trained officials in the place of humanistically cultured persons as early as the 7th and -llth centuries but the change could be only temporarily maintained; then the usual eclipse of the moon arrived aiid arrangements were transformed in reverse order. It cannot be seriously asserted, however, that the spirit of the Chinese people could not tolerate an administration of specialists. Its development, and that of the rational state, was rather prevented by the persistence of reliance upon magic. In consequence of this fact the power of the clans could not be broken, as happened in the occident through the development of the cities and of Christianity. (339)

The rational law of the modern Occidental state, on the basis of which the trained official renders his decisions, arose on its formal side, though not as to its content, out of Roman law. The latter was to begin with a product of the Roman city state, which never witnessed the dominion of democracy and its justice in the same form as the Greek city. A Greek heliast court administered a petty justice; the contestants worked upon the judges through pathos, tears, and abusing their opponents. This procedure was also known in Rome in political trials, as the orations of Cicero show, but not in civil trials where the praetor appointed an index to whom he gave strict instructions as to the conditions requiring a judgment against the accused or the throwing out of the case. Under Justinian the Byzantine bureaucracy brought order and system into this rational law, in
consequence of the natural interest of the official in a law which would be systematic and fixed and hence easier to learn. (339, 340)

With the fall of the Roman empire in the west, law came into the hands of the Italian notaries. These, and secondarily the universities, have on their conscience the revival of Roman law. The notaries adhered to the old contractual forms of the Roman empire and re-interpreted them according to the needs of the time. At the same time a systematic legal doctrine was developed in the universities. The essential feature in the development, however, was the rationalization of procedure. As among all primitive peoples the ancient German legal trial was a rigidly formal affair. The party which pronounced wrongly a single word in the formula lost the case, because the formula possessed magical significance and supernatural' evils were feared. This magical formalism of the German trial fitted in with the formalism of Roman law. At the same time the French kingdom played a
part through the creation of the institution of the representative or advocate whose task it was especially to pronounce the legal formulas correctly, particularly in connection with the canon law. The magnificent administrative organization of the church required fixed forms for its disciplinary ends in relation to the laity and for its own internal discipline. No more than the bourgeoisie could it take up with the Germanic ordeal or judgment of God. The business man could not permit commercial claims to be decided by a competition in reciting formulas, and everywhere secured exemptions from this legalistic contest and from the ordeal. The church also, after hesitating at first, ended by adopting the view that such procedure was heathenish and not to be tolerated, and established the canonical procedure on lines as rational as possible. This two-fold rationalization of procedure from the profane and spiritual sides spread over the western world.(340, 341)

In the revival of the Roman law has been seen the basis for the downfall of the peasant class, as well as for the development of capitalism. It is true that there were cases in which the application of Roman law principles was disadvantageous to the peasant. An example is the transformation of the old mark community rights into feudal obligations, the individual who stood at the head of the mark community (Obermarker) being recognized as a proprietor in the Roman sense and the holdings of the associates burdened with feudal dues. On the other hand, however, it was especially through the jurists trained in the Roman law that in France the kingdom was able to obstruct the eviction of peasants by the lords. (341)

As little is the Roman law the basis without qualification for the development of capitalism. England, the home of capitalism, never accepted the Roman law, f or the reason that in connection with the royal courts existed a class of advocates who guarded the national legal institutions against corruption. This class controlled the development of legal doctrine, for from its ranks were chosen, as they still are, the judges. It prevented Roman law from being taught in English universities, in order that persons from outside the class might not reach the judicial bench. (341)

In fact all the characteristic institutions of modern capitalism have other origins than Roman law. The annuity bond, whether arising out of a personal debt or a war loan, came from medieval law, in which Germanic legal ideas played their part. Similarly the stock certificate arose out of medieval and modern law and was unknown to the law of antiquity. Likewise the bill of exchange, to the development of which Arabic, Italian, German, and English law contributed. The commercial company is also a medieval product; only the commenda enterprise was current in antiquity. So also the mortgage, with the security of registration, and the deed of trust, as well as the power of attorney, are medieval in origin and do not go back to antiquity. (341, 342)

The reception of the Roman law was crucial only in the sense that it created formal juristic thinking. In its structure every legal system is based either on formal legalistic or on material principles. By material principles are to be understood utilitarian and economic considerations, such for example as those according to which the Islamic cadi conducts his administration. In every theocracy and every absolutism justice is materially directed as by contrast in every bureaucracy it is formal-legalistic. Frederick the Great hated the jurists because they constantly applied in a formalistic sense his decrees which were based on material principles, and so turned them to ends with which he would have nothing to do. In this conneetion, as in general, the Roman law was the means of crushing the material legal system in favor of the formal. (342)

This formalistic law, is however, calculable. In China it may happen that a man who has sold a house to another may later come to him and ask to be taken in because in the meantime he has been impoverished. If the purchaser refuses to heed the ancient Chinese command to help a brother, the spirits will be disturbed; hence the impoverished seller comes into the house as a renter who pays no rent. Capitalism cannot operate on the basis of a law so constituted. What it requires is law which can be counted upon, like a machine; ritualistic-religious and magical considerations must be excluded. (342, 343)

The creation of such a body of law was achieved through the alliance between the modern state and the jurists for the purpose of making good its claims to power. For a time in the 16th century it attempted to work with the humanists, and the first Greek gymnasia were established with the idea that men educated in them would be suitable for state officials; for political contests were carried out to a large extent through the exchange of state papers and only one schooled in Latin and Greek had the necessary equipment. This illusion was shortlived. It was soon found that the products of the gymnasia were not on that account alone equipped for political life, and the jurists were the final resort. In China, where the humanistically cultured mandarin ruled the field, the monarch had no jurists at his disposal, and the struggle among the different philosophical schools as to which of them formed the best statesmen waged to and fro until finally orthodox Confucianism was victorious. India also had writers but no trained jurists. In contrast the western world had at its disposal a formally organized legal system, the product of the Roman genius, and officials trained in this law were superior to all others as technical administrators. From the standpoint of economic history this fact is significant in that the alliance between the state and formal jurisprudence was indirectly favorable to capitalism. (343)


For the state to have an economic policy worthy of the name, that is one which is continuous and consistent, is an institution of exclusively modern origin. The first system which it brought forth is mercantilism, so-called. Before the development of mercantilism there were two widespread commercial policies, namely, the dominance of fiscal interests and of welfare interests, the last in the sense of the customary standard of living. (343, 344)

In the east it was essentially ritualistic considerations, including caste and clan organizations, which prevented the development of a deliberate economic policy. In China, the political system had undergone extraordinary changes. The country had an epoch of highly developed foreign trade, extending as far as India. Later, however, the Chinese economic policy turned to external exclusiveness to the extent that the entire import and export business was in the hands of only 13 firms and was
concentrated in the single port of Canton. Internally, the policy was dominated by religious considerations; only on occasion of natural catastrophes were abuses inquired into. At all times the question of co-operation of the provinces determined the viewpoint, and a leading problem was set by the question whether the needs of the state should be provided by taxation or through compulsory services. (344)

In Japan, the feudal organization led to the same consequences and resulted in complete exclusiveness as regards the outer world. The object was here the stabilization of class relations; it was feared that foreign trade would disturb conditions as to the distribution of property. In Korea, ritualistic grounds determined the exclusive policy. If foreigners, that is profane persons, were to come into the country the wrath of the spirits was to be feared. In the Indian middle ages we find Greek and Roman merchants, as well as Roman soldiers, and also the immigration of Jews with grants of privileges to them; but these germs were unable to develop, for later everything was again stereotyped by the caste system, which made a planned economic policy impossible. An additional consideration was that Hinduism strongly condemned traveling abroad; one who went abroad had
on his return to be re-admitted to his caste. (344, 345)

In the occident down to the 14th century a planned economic policy had a chance to develop only in connection with the towns. It is true that there were beginnings of an economic policy on the part of the princes; in the Carolingian period we find price fixing and public concern for welfare expressed in various directions. But most of this remained on paper only, and with the exception of the coinage reform and the system of weights and measures of Charlemagne, everything disappeared without leaving a trace in the succeeding period. A commercial policy which would have been gladly adopted in relation to the orient was rendered impossible by the absence of shipping. (345)

When the state under its prince gave up the fight, the church interested itself in economic life, endeavoring to impose upon economic dealings a minimum of legal honesty and churchly ethics. One of its most important measures was the support of the public peace, which it attempted to enforce first on certain days and finally as a general principle. In addition, the great ecclesiastical property communities, especially the monasteries, supported a very rational economic life, which cannot be called capitalistic economy but which was the most rational in existence. Later these endeavors more and more fell into discredit as the church revived its old ascetic ideals and adapted them to the times. Among the emperors again are found a few beginnings of commercial policy under Frederick Barbarossa, including price fixing and a customs treaty with England designed to favor German merchants. Frederick II established the public peace but in general pursued a purely fiscal policy favoring merely the rich merchants; to them he granted privileges, especially customs exemptions. (345, 346)

The single measure of economic policy on the part of the German kings was the conflict over the Rhine tolls, which however was futile in the main, in view of the great number of petty lords along the river. Aside from this there was no planned economic policy. Measures which give the impression of such a policy, such as the embargo of the emperor Sigmund against Venice, or the occasional closing of the Rhine in the struggle with Cologne, are purely political in character. The customs policy was in the hands of the territorial princes, and even here with few exceptions a consistent effort to encourage industry is wanting. Their dominant objectives were, first, to favor local as against distaut trade, especially to promote interchange of goods between the towns and the surrounding country; export duties were always to be maintained higher than import duties. Second, to favor local merchants in the customs. Road tous were differentiated, the prince endeavoring to favor his own roads in order the more conveniently to exploit them as a source of revenue; to this end they even went to the length of requiring the use of certain roads, and systematized the law of the staple. Finally, the city merchants were given privileges; Louis the Rich of Bavaria prided himself on suppressing the rural erchants (above, in p. 193). (346)

Protective duties are unknown, with few exceptions, of which the Tirolese duties on wine, directed against the competition of imports from Italy, are an example. The customs policy as a whole is dominated by the fiscal point of view and that of maintaining the traditional standard of living. The same applies to the customs treaties, which go back to the 13th century. The technique of the customs fluctuated. The original custom was an ad-valorem duty of one-sixtieth the value; in the 14th century this was increased to a one-twelfth, in view of the fact that the duty was made to function also as an excise. The place of our modern measures of economic policy, such as protective tariffs, was taken by direct prohibitions against trade, which were very frequently suspended when the standard of living of domestic craftsmen, or later of employing factors, was to be protected.
Sometimes wholesale trade was allowed and retail trade was prohibited. The first trace of a rational economic policy on the part of the prince appears in the 14th century in England. This was mercantilism, so-called since Adam Smith. (346, 347)



The essence of mercantilism consists in carrying the point of view of capitalistic industry into politics; the state is handled as if it consisted exclusively of capitalistic entrepreneurs. External economic policy rests on the principle of taking every advantage of the opponent, importing at the lowest price and selling much higher. The purpose is to strengthen the hand of the government in its external relations. Hence mercantilism signifies the development of the state as a political power, which is to be done directly by increasing the tax paying power of the population. (347)

A presupposition of the mercantilistic policy was the inclusion of as many sources of money income as possible within the country in question. It is, to be sure, an error to hold that the mercantilistic thinkers and statesmen confused ownership of the precious metals with national wealth. They knew well enough that the source of this wealth is the tax paying power, and all that they did in the way of retaining in the country the money which threatened to disappear through the commerce was done exclusively with a view to increasing this taxable capacity. A second point in the program of mercantilism, in obvious immediate connection with the power-seeking policy characteristic of the system, was to promote the largest possible increase in the population; in order to sustain the increased numbers, the endeavor was to secure to the greatest extent external markets; this applied especially to those products in which a maximum quantity of domestic labor was embodied, hence finished manufactures rather than raw materials. Finally, trade was to be carried on as far as possible by the merchants of the country, in order that its earnings should all accrue to the taxable capacity. On the side of theory, the system was supported by the doctrine of the balance of trade, which taught that the country would be impoverished if the value of imports exceeded that of exports; this theory was first developed in England in the 16th century. (347, 348)

England is distinctively the original home of Mercantilism. The first traces of the application of mercantilistic principles are found there in the year 1381. Under the weak king Richard II, a money stringency arose and Parliament appointed an investigating commission which for the first time dealt with the balance of trade concept in all its essential features. For the time being it produced only emergency measures, including prohibitions of importation and stimulation of exportation, but without giving to English policy a truly mercantilistic character. The real turning point is generally dated from 1440. At that time, in one of the numerous Statutes of Employment, which were passed for the correction of alleged abuses, two propositions were laid down which indeed had been applied before, but only in an incidental way. The first was that foreign merchants who brought goods to England must convert all the money which they received into English goods; the second that English merchants who had dealings abroad must bring back to England at least a part of their proceeds in cash. On the basis of these two propositions developed gradually the whole system of mercantilism down to the Navigation Act of 1651, with its elimination of the foreign shipping. (348, 349)

Mercantilism in the sense of a league between the state and the capitalistic interest had appeared under two aspects. One was that of class monopoly, which appears in its typical form in the policy of the Stuarts and the Anglican church,- especially that of Bishop Laud who was later beheaded. This system looked toward a class organization of the whole population in the Christian socialist sense, a stabilization of the classes with a view to establishing social relations based on Christian love. In the sharpest contrast with Puritanism, which saw every poor person as work-shy or as a criminal, its attitude toward the poor was friendly. In practice, the mercantilism of the Stuarts was primarily oriented along fiscal lines; new industries were allowed to import only on the basis of a royal monopoly concession and were to be kept under the permanent control of the king with a view to fiscal exploitation. Similar, although not so consistent, was the policy of Colbert in France. He aimed at an artificial promotion of industries, supported by monopolies; this view he shared with the Huguenots, on whose persecution he looked with disfavor. In England the royal and Anglican policy was broken down by the Puritans under the Long Parliament. Their struggle with the king was pursued for decades under the war cry "down with the monopolies" which were granted in part to foreigners and in part to courtiers, while the colonies were placed in the hands of royal favorites. The small entrepreneur class which in the meantime had grown up, especially within the guilds though in part outside of them, enlisted against the royal monopoly policy, and the Long Parliament deprived monopolists of the suffrage. The extraordinary obstinacy with which the economic spirit of the English people has striven against trusts and monopolies is expressed in these Puritan struggles.(349, 350)

The second form of mercantilism may be called national; it limited itself to the protection of industries actually in existence, in contrast with the attempt to establish industries through monopolies. Hardly one of the industries created by mercantilism survived the mercantilistic period; the economic creations of the Stuarts disappeared along with those of the western continental states and those of Russia later. It follows that the capitalistic development was not an outgrowth of national mercantilism-, rather capitalism developed at first in England alongside the fiscal monopoly policy. The course of events was that a stratum of entrepreneurs which had developed in independence of the political administration secured the systematic support of Parliament in the 18th century, after the collapse of the fiscal monopoly policy of the Stuarts. Here for the last time irrational and rational capitalism faced each other in conflict, that is, capitalism in the field of fiscal and colonial privileges and public monopolies, and capitalism oriented in relation to market opportunities which were developed from within by business interests themselves on the basis of saleable services. (350)

The point of collision of the two types was at the Bank of England. The bank was founded by Paterson, a Scotchman, a capitalist' adventurer of the type called forth by the Stuarts' policy of granting monopolies. But Puritan business men also belonged to the bank. The last time the bank turned aside in the direction of speculative capitalism was in connection with the South Sea Company. Aside from this venture we can trace step by step the process by which the influence of Paterson and his kind lost ground in favor of the rationalistic type of bank members who were all directly or indirectly of Puritan origin or influenced by Puritanism. (350, 351)

Mercantilism also played the role familiar in economic history. In England it finally disappeared when free trade was established, an achievement of the Puritan dissenters Cobden and Bright and their league with the industrial interests, which were now in a position to dispense with mercantilistic support. (351)