The State Ethic and the Spirit of Capitalism

The State Ethic and the Spirit of Capitalism April 24, 2012

In his study of the rise of the spirit of capitalism, translated as The Quintessence Of Capitalism: A Study Of The History And Psychology Of The Modern Business Man . . . , Werner Sombart emphasizes the role of the State in cultivating the capitalist spirit and in supporting capitalist enterprises. He sees, for instance, links between the adventurous spirit of capitalism and the adventurism of early modern states.

He also argues that “the modern state” can be viewed as “a huge capitalist undertaking, seeing that its aim is more and more to get gold and money. Such indeed has been the case ever since the discoveries and conquests of the Spaniards cultivated in ruling princes the taste for a share of the booty, and when India also came within their horizon, that taste became even more marked” (p. 83). He views the civil servant as “an early type of the capitalist undertaker” [entrepreneur] because “ruling princes and their servants, the state officials, were among those who kept alive the spirit of capitalist undertaking.” Civil servants and princes “play a role of no small significance among the representatives of the modern economic outlook” (p. 84).

He suggests that “it would require a whole treatise were we to attempt to chronicle all those activities of monarchs in modern times that stamped them as founders of capitalist industries” (p. 84). He fills this out with more specific examples.

“State enterprises appeared as activities on a large scale where before there had been no activities whatsoever. Often enough it was the initiative of the monarch himself that was responsible for the undertakings. Consequently, in many cases it may be said that the monarch was the fount wherein the first beginnings of the undertaking spirit lay hidden” (p. 85). The mining of the Ruhr district in Germany was under the “technical and commercial management of the concern . . . . It was the same in a thousand other cases” (p. 85).

The scale of state enterprises is important: “State enterprises were always on a large scale; there was something big about them. In an age when the accumulation of capital was not extensive, the state was able to devote considerable sums of money to its undertakings, and often enough the state was the only agency with sufficient means to commence an undertaking. As illustrations we need only recall the transportations enterprises both by land and sea, which even into the 19 th century were made possible because the state was behind them,” (p. 86). The state not only had the capital; it had the organization infrastructure: “Earlier ages lacked trained intelligence for administrative work of all sorts. The advantage in this respect which the state possessed over the private undertaker goes without saying. The state had the administrative machine ready; the private undertaker had first to provide it” (p. 86). Early modern monarchs had the ability to make plans for the future. All capitalist enterprise requires far-sightedness, energy, creative ideas, extensive knowledge, and scientific training. In the early modern period, “Who [was] so well situated as the ruler of the state? Where else could you find so much capacity as in the council chamber?” (p. 86).

He admits that states inhibited the development of capitalism and the capitalist spirit in various ways. “Bullionism” – the lust for cash – led to high taxes that crushed private enterprise. National debts also hemmed in the growth of the capitalist spirit. From the Middle Ages on, princes took out huge loans, “more especially for warlike undertakings,” which led to a wasteful loss of manpower, ingenuity, and skill. In France, the traffic in offices blocked the development of the enterprising, competitive spirit of capitalism (pp. 276-278). Yet, the advantages that the state provided far outweighed these costs. Many states wanted to help capitalist enterprises to develop, “and so adopted a number of regulations in its favor. . . . the state was itself one of the earliest of capitalist undertakers and invariably continued to be the largest.” In this way, the state undermined long-held aristocratic prejudices against trade and “low callings”: If the prince could engage in business, then lesser nobility wouldn’t be defiled if they followed suit (p. 279).

Capitalist enterprises were supported also by the mercantilist policies of most states: “Let it not be forgotten that capitalist interests in the era of early capitalism were favoured tremendously by the mercantile system. In accordance with the doctrines of mercantilism, the state, as it were, almost led the citizen by the hand in order to direct his activities into the channels of capitalist undertaking. It pushed him into capitalism; it held out good reasons for his remaining there” (p. 279). A writer of the 18 th century said that “the lower classes will not give up their old ways until they are dragged by the nose and the arms to their new advantages” (p. 279). Early modern princes following mercantilist programs set up a “system of privileges by which the mercantile state favoured such capitalist interests as already existed, nursed those that were about to take root, and planted new ones.” Privileges too many forms: “Sometimes they were monopolies, negative privileges as it were, in that a monopoly for producing a particular article was granted, or a monopoly of trade, or again a monopoly in the means of communication. Sometimes they meted out special commercial advantages to their holders; sometimes, too, they were direct bounties.” Some merchants and manufacturers were made peers, naturalized, excused from customs duties, given loans without interest, or received land or a pension (p. 280). Sombart argues that even after the mercantilist system broke up in the 19 th century, the state continued to support the spirit of enterprise, especially by stressing education: “From the arithmetic schools, founded in Florence as early as the 14 th century, to the commercial colleges of our own day, the institutions which were established by public bodies to spread the sort of knowledge useful to the trader have all become centres where the capitalist spirit throve” (p. 281).

In some European countries, the “non-existence of the state” was “of tremendous advantage to capitalism.” He points to Switzerland and Germany prior to unification in 1870: “The Swiss and the Germans had no mighty state to back them up and win markets for them; consequently, in their economic activities they had to rely on themselves to a great degree. They had to accommodate themselves to the needs of customers; if they wanted to capture trade they were forced to do so by their skill in selling and the e4xcellence of their commodities. Hence their wits were sharpened and their backs adjusted to any burden” (pp. 281-2). Though there were a few “pure” free markets in the early development of capitalism, that was not the norm, and usually the existence of the state was more powerful in advancing the capitalist spirit than the non-existence” “The state may be regarded as one of the basic forms of enterprise, showing the way to the other great capitalist undertakings in the organization of its officials, in the extensiveness of its aim, and in the persistence of its eff
orts” (p. 282).

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