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Chapter 2 - The Spirit of Capitalism

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What does the term "the spirit of capitalism" mean? This term can only be applied to something that is "a complex of elements associated in historical reality which we unite into a conceptual whole from the standpoint of their cultural significance." The final concept can only come out at the end of an investigation into its nature. There are many ways to conceptualize the spirit of capitalism. We must work out the best formulation based on what about that spirit interests us; this, however, is not the only possible point of view.

To come up with a formulation, Weber presents a long excerpt from the writings of Benjamin Franklin. He says that Franklin's attitudes illustrate capitalism's ethos. Franklin writes that time is money, that credit is money, and that money can beget money. He encourages people to pay all of their debts on time, because it encourages the confidence of others. He also encourages people to present themselves as industrious and trustworthy at all times. Weber says that this "philosophy of avarice" sees increasing capital as an end in itself. It is an ethic, and the individual is seen as having a duty to prosper. This is the spirit of modern capitalism. While capitalism existed in places like China and India, and in the Middle Ages, it did not have this spirit.

All of Franklin's moral beliefs relate to their usefulness in promoting profit. They are virtues for this reason, and Franklin does not object to substitutes for these virtues that accomplish the same ends. However, this is not simply egocentrism. The capitalist ethic does not embrace a hedonistic life-style. Earning more and more money is seen completely as an end in itself, and is not simply the means for purchasing other goods. This seemingly irrational attitude towards money is a leading principle of capitalism, and it expresses a type of feeling closely associated with certain religious ideas. Earning money reflects virtue and proficiency in a calling. This idea of one's duty in a calling is the basis of the capitalist ethic. It's an obligation that the individual should and does feel toward his professional activity. Now, this does not mean that this idea has only appeared under capitalistic conditions, or that this ethic must continue in order for capitalism to continue. Capitalism is a vast system that forces the individual to play by its rules, in a kind of economic survival of the fittest.

However, Weber argues that in order for a manner of life so conducive to capitalism to become dominant, it had to originate somewhere, as a way of life common to a large number of people. It is this origin that must be explained. He rejects the idea that this ethic originated as a reflection or superstructure of economic situations. In Massachusetts, the spirit of capitalism was present before the capitalistic order took shape, as complaints of profit-seeking emerged as early as 1632. Furthermore, the capitalistic spirit took stronger hold in places like Massachusetts that were founded with religious motives than in the American South, which was settled for business motives. Furthermore, the spirit of capitalism actually had to fight its way to dominance against hostile forces. In ancient times and during the Middle Ages, Franklin's attitude would have been denounced as greed. It is not the case that greed was less pronounced then, or in other places that lack the capitalist ethic.

The biggest opponent the capitalist ethic has had in gaining dominance has been traditionalism. Weber says that he will try to make a provisional definition of "traditionalism" by looking at a few cases. First, there is the laborer. One way in which the modern employer encourages work is through piece-rates, for example paying an agricultural worker by the amount harvested. In order to increase productivity, the employer raises the rate of pay. However, a frequent problem is that rather than work harder, the workers actually work less when pay increases. They do this because they can reduce their workload and still make the same amount of money. "He did not ask: how much can I earn in a day if I do as much work as possible? but: how much must I work in order to earn the wage, 2 1/2 marks, which I earned before and which takes care of my traditional needs?" This reflects traditionalism, and shows that "by nature" man simply wants to live as he is used to living, and earn as much as is necessary to do this. This is the leading trait of pre-capitalistic labor, and we still encounter this among more backward peoples. Weber then addresses the opposite policy, of reducing wages to increase productivity. He says that this effectiveness of this has its limits, as wages can become insufficient for life. To be effective for capitalism, labor must be performed as an end in itself. This requires education, and is not simply natural.

Weber then considers the entrepreneur in terms of the meaning of traditionalism. He observes that capitalistic enterprises can still have a traditionalistic character. The spirit of modern capitalism implies an attitude of rational and systematic pursuit of profit. Such an attitude finds its most suitable expression through capitalism, and has most effectively motivated capitalistic activities. However, the spirit of capitalism and capitalistic activities can occur separately. For example, consider the "putting-out system." This represented a rational capitalistic organization, but it was still traditional in spirit. It reflected a traditional way of life, a traditional relationship with labor, and traditional interactions with customers. At some point, this traditionalism was shattered, but not by changes in organization. Rather, some young man went into the country, carefully chose weavers whom he closely supervised, and made them into laborers. He also changed his relationship with his customers by making it more personal and eliminating the middleman, and he introduced the idea of low prices and large turnover. Those who could not compete went out of business. A leisurely attitude towards life was replaced by frugality. Most importantly, it was usually not new money that brought about this change, but a new spirit.

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