Who is a Capitalist Entrepreneur?

One very significant change with capitalist industrialization has been the enormous expansion of the middle strata.

Capitalist accountancy called for a secular bureaucracy, an army of agents and clerks to keep accounts, to attend to correspondence, to furnish the news necessary in order to take advantage, if possible before anyone else, of changed market conditions.

So perhaps the first visible entry of capitalism into the medieval town was made by the grammar school, where the elements of reading, writing, and arithmetic were the main objects of study. The control of paper became the mark of the new commercial bureaucracy.

The institution that marked the turning point in the development of the commercial town was the Bourse, or exchange, which began to serve as a centre for large-scale, impersonal commercial transactions in the thirteenth century. The basic cause of this development was undoubtedly technological.

An ever-smaller portion of the labour force was required for the actual tasks of material production, allowing the diversion of ever larger numbers of workers into administrative activities. There was also a vast expansion of the state bureaucracies.

The rise of the capitalist firm as a new and immensely important form of economic organization has also encouraged the growth of a bureaucracy.

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It has meant a separation between the legal ownership of property and the function of economic control of the assets it entails. It has been suggested that effective control over economic resources rather than legal ownership of them is the defining criterion for the top capitalist class.

Thus Nicos Poulantzas, in Classes in Contemporary Capitalism begins by defining the bourgeoisie not in terms of a legal category of property ownership but in terms of ‘economic ownership’ (that is, real economic control of the means of production and of the products) and ‘possession’ (that is, the capacity to put the means of production into operation). By this criterion, the managers belong to the capitalist bourgeoisie proper.

In The Protestant Ethic and the Spirit of Capitalism, Max Weber makes it clear that a capitalist enterprise and the pursuit of gain are not at all the same thing. People have always wanted to be rich, but that has little to do with capitalism, which he identifies as ‘a regular orientation to the achievement of profit through (nominally peaceful) economic exchange’.

Pointing out that there were mercantile operations – very successful and of considerable size – in Babylon, Egypt, India, China, and medieval Europe, he says that it is only in Europe, since the Reformation, that capitalist activity has become associated with the rational organization of formally free labour.

It called for a new type of economic agent, the capitalist entrepreneur. One of Weber’s insights that have remained widely accepted is that the capitalist entrepreneur is a very distinctive type of human being. Weber was fascinated by what he thought to begin with was a puzzling paradox.

In many cases, men-and a few women- evinced a drive toward the accumulation of wealth but at the same time showed a ‘ferocious asceticism/ a singular absence of interest in the worldly pleasures that such wealth could buy. Many entrepreneurs actually pursued a lifestyle that was ‘decidedly frugal’.

Was this not odd? Weber thought he had found an answer in what he called the ‘this-worldly asceticism’ of Puritanism, a notion that he expanded by reference to the concept of ‘the calling’. This idea dates from the Reformation, and behind it lays the idea that the highest form of moral obligation of the individual, the best way to fulfill his duty to God, is to help his fellow men, now, in this world.

Weber backed these assertions by pointing out that the accumulation of wealth, in the early stages of Capitalism, and in Calvinist countries in particular, was morally sanctioned only if it was combined with ‘a sober, industrious career’. For Weber, capitalism was originally sparked by religious fervor.

Without that fervor the organization of labour that made capitalism so different from what had gone before would not have been possible. Weber was familiar with the religions and economic practices of non-European areas of the world, such as India, China or the Middle East, and this imbued The Protestant Ethic with an authority it might otherwise not have had

He argued that in China, for example, widespread kinship units provided the predominant forms of economic co-operation, naturally limiting the influence both of the guilds and of individual entrepreneurs. In India, Hinduism was associated with great wealth in history, but its tenets about the afterlife prevented the same sort of energy that built up under Protestantism, and capitalism proper never developed.

Europe also had the advantage of inheriting the tradition of Roman law, which provided a more integrated juridical practice than elsewhere, easing the transfer of ideas and facilitating the understanding of contracts.

For Max Weber, ‘rational restlessness’ was the psychological make-up of Europe, the opposite of what he found in the main religions of Asia: rational acceptance of social order by Confucianism and its irrational antithesis in Taoism; mystical acceptance of social order by Hinduism; the worldly retreat in Buddhism. Weber located rational restlessness especially in Puritanism.

Such persons are ‘enterprising’ because they are liberated from strong communal ties, which enable them to seek new opportunities without the constraints of collective traditions, customs and taboos.

This clearly involves a certain ‘ego ideal’, a strong discipline, traits that Weber called ‘inner-worldly asceticism.’ This type of individual is concerned with the affairs of this world, is pragmatic and geared to action, as against the more contemplative or sensitive values.

He is also self-denying, prepared for ‘delayed gratification’, as against someone who immediately spends all he makes. Weber pointed out that it is this ‘asceticism’, rather than acquisitiveness, that distinguishes the capitalist entrepreneur.

Joseph Schumpeter stressed the central role of the capitalist entrepreneur, rather than the stock of capital, as the incarnation of technical progress. In Capitalism, Socialism and Democracy (1943), he sought to change thinking about economics no less than John Maynard Keynes had done.

Schumpeter was firmly opposed to both Marx and Keynes. His main thesis was that the capitalist system is essentially static: for employers and employees as well as for customers, the system settles down with no profit in it, and there is no wealth for investment. Workers receive just enough for their labour, based on the cost of producing and selling goods.

Profit, by implication, can only come from innovation, which for a limited time cuts the cost of production (until competitors catch up) and allows a surplus to be used for further investment. Two things followed from this.

First, capitalists themselves are not the motivating force of capitalism, but instead entrepreneurs who invent new techniques or machinery by means of which goods are produced more cheaply.

Schumpeter did not think that entrepreneurship could be taught, or inherited. It was, he believed, an essentially ‘bourgeois’ activity. What he meant by this was that, in any urban environment, people would have ideas for innovation, but who had those ideas, when and where they had them, and what they did with them was unpredictable.

Bourgeois people acted not out of any theory or philosophy but for pragmatic self- interest. This flatly contradicted Marx’s analysis.

The second element of Schumpeter’s outlook was that profit, as generated by entrepreneurs, was temporary. Whatever innovation was introduced would be followed up by others in that sector of industry or commerce, and a new stability would eventually be achieved. This meant that for Schumpeter capitalism was inevitably characterized by cycles of boom and stagnation.