Max Weber argues in The Protestant Ethic and the Spirit of Capitalism that the discipline of “worldly asceticism” that Puritanism imposed on its adherents laid the psychological foundation for the spirit of capitalistic gain that we all know and (more-or-less) love today. There are a couple pieces to this.
- What is meant by capitalism?
- Why does capitalism need a “spirit”? What does that mean?
- Why Puritanism? What distinguished it from Catholicism and Lutheranism as regards economic activity and the social order?
- What does worldly asceticism mean?
In this post, I’ll try to answer the first two points.
The Spirit of Capitalism
A certain stance on capitalism which I have often heard is what might be called the “free exchange theory”.
Capitalism is a completely natural form of human behavior. For all of history, people have been engaging in free exchange for mutual benefit. Capitalism is no more, and no less, than free exchange for mutual benefit.
Weber has a different view of the matter. Although he defines “capitalistic exchange” as the (in principle) free exchange described above, Weber thinks it is important to also look at the attitudes people have towards wealth and its role in their lives – the ethic, or spirit, of wealth. A system which allows free exchange for mutual benefit is not capitalistic as such. An agricultural society in which all families engaged in just enough work and free exchange to satisfy their (moderate) wants and desires before turning to the other goods in life (such as the enjoyment of family life, religious contemplation, and spontaneous idleness) would not count as capitalistic in Weber’s book.
Another view of capitalism that I have heard expressed is the “greed theory”:
Capitalism is an economic system which allows and encourages unlimited greed.
This does posit an attitude that people take towards their wealth and pursuit of economic gain, but it also does not satisfy Weber. Consider a society (history provides many precedents) in which the spirit of ruthless conquest and pillage dominates, where the production of an agricultural base population is continually extorted by warlords, bandits, and other violent forces. Everyone in this society can be as greedy as he or she wishes, but Weber would still not call it capitalism but indeed its very opposite.
Instead, for Weber, capitalism is neither of these things,
But capitalism is identical with the pursuit of profit, and forever renewed profit, by means of continuous, rational, capitalistic exchange.  p.17.
I think that is a very nice definition of capitalism. The central idea is the pursuit of renewed profit, which is not synonymous with exchange itself. Weber mentions an interesting historical example of this in his discussion of raising wages. In order to encourage field laborers to harvest as many crops as possible before they spoil, a farmer might pay a rate not in terms of hours worked but in terms of crops harvested. By raising the rate, a farmer would hope to encourage a quick and efficient harvest. Often, however, the higher rate had the exact opposite effect! Laborers would actually reduce the size of their harvest, reasoning that they could work less hard but still obtain compensation sufficient for their own needs.
Such laborers are following a very different protocol — they are indwelt by the spirit of traditionalism, not capitalism. Traditionalism has a certain rationality of its own: work is unpleasant and performed insofar as it serves the needs of one’s life and the enjoyment thereof. One might spitefully say that laborers who did so were lazy, unmotivated, or otherwise incorrect. This would be to judge traditionalism from the vantage point of capitalism. Equally, the traditional thinker might find the capitalist absurd — a man living not for himself and his own ends, but for the sake of his wealth and its increase.
The West used to be more or less dominated by the spirit of traditionalism. Today, it is unquestionably ruled by the spirit of capitalism. How did this happen? The free exchange theory I mentioned above does not account for this; neither does the greed theory. People are not more or less greedy today than they were yesterday; free exchange is certainly much easier today than it was in the past but the end towards which free exchange is applied has completely changed from the needs of the individual to the needs of his capital. Weber’s explanation is that the ethical influence of the Protestant faith, and Puritanism in particular, replaced the traditionalist spirit with something much, much closer to the spirit of capitalism. Eventually the religious element withered away, leaving only the spirit of capitalism.
 — Max Weber, The Protestant Ethic and the Spirit of Capitalism.