Weber on law and economics

Decoupled from its original religious content, worldly asceticism became a part of modern civilization:

For when asceticism was carried out of monastic cells into everyday life, and began to dominate worldly morality, it did its part in building the tremendous cosmos of the modern economic order.

Weber knew that the influence of ideas on the economy is only one side of the medal, asserting that ‘I consider the influence of economic development on the fate of religious ideas to be very important’ (ibid., p. 277, n. 84).

The striving for maximum profit is not the main characteristic of capitalism: it can be found in waiters, robbers, corruptible officials and so on. Capitalism is based on the exploitation of possibilities of exchange, of formally peaceful gain, sometimes presupposing the taming of the irrational instinct of the ram­pant desire to acquire. Typical of Western capitalism are rational bookkeeping, substantive freedom of contract, mechanically rational technology, market free­dom, formal rational order of the monetary system, the separation of household and business, rational business forms which are oriented towards the possibili­ties of the consumer market, the capitalistic organization of formally free work and - as already mentioned - the disposition of people to lead their lives in a certain systematic and rational way.

The term ‘formal rationality of economic action’ will be used to designate the extent of quantitative calculation or accounting which is technically possible and which is actually applied. The ‘substantive rationality’. is the degree to which the provisioning of given groups of persons. with goods is shaped by econ­omically oriented social action under some criterion (past, present, or potential) of ultimate values (wertende Postulate), regardless of the nature of these ends. (Weber, 1978, p. 85)

Formal rationality depends on its capability of being expressed in numerical, calculable terms; substantive rationality depends on the possibility that eco­nomic results are measured on a scale of value rationality or substantive goal orientation.

Weber’s somehow neglected sociology of law (see Weber, 1978, pp. 641­900; on the interrelationship of legal and economic order, see ibid., pp. 311-38) deals with the interrelationship of law, religion, the economy and politics and its internal antinomies and contradictions. In an intercultural (from the most ‘primitive’ societies to the world’s greatest civilizations) and diachronical way (from magical and irrational forms to the rational law techniques of today) he develops some general typological terms to understand the empiri­cal validity of law as social conduct in a legitimate order and its likelihood of being obeyed, including its social holders, the impact of material interests of social groups, the influence of law education and political institutions as a source of law enforcement and so on in a comparative perspective without making any simple cause-and-effect assumptions (see, for the striking paral­lels between his sociology of law and religion, Treiber, 1984).

Already in his early dissertation about the history of trading companies in the Middle Ages (Weber, 1924, pp. 312-443) and in his habilitation on Roman agricultural history and its significance in public and private law (1891; see also the introductions in Weber, 1984, 1986, 1993), Weber focused on the constant interrelations with political, economic, legal and religious developments (such as the influence of the Church on legal thinking - he argued that Jewish-Christian religions foster a higher degree of rational thinking and institutionalization) until his last theoretical contributions such as the Wirtschaftsgeschichte (1958, first published in 1923), understanding sociology as the science of society in general.

Weber asks ‘What actually happens in a group owing to the probability that persons engaged in social action (Gemeinschaftshandeln) especially those exerting a socially relevant amount of power, subjectively consider certain norms as valid and practically act according to them, in other words, orient their own conduct towards these norms?’ (Weber, 1978, p. 311). Law is distinguished from custom and conventions by a specific coercive apparatus which enforces the legal rules, the legal coercion by violence as the mon­opoly of the state only being a specific modern case. ‘The empirical validity of a norm as a legal norm affects the interests of an individual in many respects. In particular, it may convey to an individual certain calculable chances of having economic goods available or of acquiring them under certain conditions in the future’ (ibid., p. 315). For Weber, the originating form of law has to be seen in contracts (first being status contracts) which are also essential for the exchange mechanism in modern, money-based indus­trial capitalism, which needs (in a certain contrast to trade capitalism) the calculable chance of economic exchange guaranteed by legal rules.

The relationship between law and economics is not an easy and causal one, but is characterized by relative autonomy, mutual indifference and functional complementarities and alternatives:

(1) Law...

In accordance with his evolutionary minimal programme, he develops comparative stages and general tendencies. Like his three types of dominance (charismatic, traditional and rational) he distinguishes

the general development of law and procedure. as passing through the follow­ing stages: first charismatic legal revelation through ‘law prophets’; second, empirical creation and finding of law by legal honoratiores, i.e., law creation through cautelary jurisprudence and adherence to precedent; third, imposition of law by secular or theocratic powers; fourth and finally, systematic elaboration of law and professionalized administration of justice by persons who have received their legal training in a learned and formally logical manner.

To analyse lawmaking and lawfinding in an evolutionary and comparative perspective, Weber used as main categories the differences between rational/ irrational and formal/informal (the latter referring to the technical apparatus of legal practice). The historical evolution went (according to the reconstruc­tion by Schluchter, 1979, pp. 129-31) from material-irrational law (traditional law) to the formal-irrational law (reveiled law), followed by material-rational law (derived law from ‘out of law’ perspectives such as ethics) and led finally to the formal-rational law (modern continental legal law), which is most compatible with rational capitalism.

A body of law can be ‘rational’ in several different senses, depending on which of several possible courses legal thinking takes toward rationalization. Let us begin with the seemingly most elementary thought process, viz. generalization, i.e., in our case, the reduction of the reasons relevant in the decision of concrete indi­vidual cases... ‘systematization’, which has never appeared except in late stages of legal modes of thought. it represents an integration of all analytically derived legal propositions in such a way that they constitute a logically clear, internally consistent, and, at least, in theory, gapless system of rules, under which, it is implied, all conceivable fact situations must be capable of being logically sub­sumed lest their order lack an effective guaranty. Both lawmaking and lawfinding may be either rational or irrational. They are formally irrational when one applies in lawmaking or lawfinding means which cannot be controlled by the intellect, for instance when recourse is had to oracles or substitutes therefor. [They] are substantially irrational on the other hand to the extent that decision is influenced by concrete factors of the particular case as evaluated upon an ethical, emotional, or political basis rather than by general norms. Law. is ‘formal’ to the extent that, in both substantive and procedural matters, only unambiguous general char­acteristics of the facts of the case are taken into account.

Leaving out Weber’s tragic view that formal rationalization undermines from a certain phase its own rationality and the relapses of modern law into substan­tive concepts (rematerialization), the more formal rational law is, the more it is compatible with capitalism on an ideal-type level of reasoning. But the judge- centred practical training and special case-oriented common law of Great Britain belongs to the substantial irrational type, although Great Britain, where the attorneys were organized like guilds which could dominate and fill the law courts, was the first country to industrialize. The academic models of formal general law have been developed in more backward countries (perhaps as a legal attempt to foster the missing political and economic unification?) like Germany, where conceptual jurisprudence (Begrijfsjurisprudenz) which strongly influenced Weber dominated in the nineteenth century.

British common law shows that logical formalism is not the only compat­ible form of law in modern exchange economies, but Weber nevertheless believed in the greatest congeniality (‘ Wahlverwandschaftj between modern economies and societies and formal rational law. Some criticism has been raised against his opinion. One point is that he overstated the difference between the common law and the academic conceptual jurisprudence be­cause case law is based on general principles too (making a case as a comparable variant of something: see Rheinstein, 1954b, p. lv) and that the academic model contains manifold elements of ‘irrationality’ (like the lay courts’ decision-finding process). So the ideal-type character of the distinc­tion should not be forgotten.

On the other hand, Rehbinder (1987) argues that Weber even misunder­stood the signals of his time in social and labour law, arguing (somewhat paradoxically as a founder of sociology) against a sociological jurisprudence. He sees the prime function of the lawyer to be a guardian of formal contract law, on which Weber concentrated one-sidedly. He did not recognize the importance of the law of the welfare state and that manifold inclusions of substantive reasonings like the antiformal social law have not undermined the inner logic of law and its functioning in modern society, although it has passed over the liberal-formal, contract-centred approach of a mere deducing according to systems of notions. Weber’s neo-Kantian epistemological view­point on the purity of method in different social sciences led him to believe that, for example, the law of the Sozialstaat as a non-formal substantive orientation is a step backwards and not forwards in the process of internal rationalization. Probably he was wrong with this assumption, but on the other hand it illustrates that the process of rationalization may be more heteroge­neous and contradictory then even he himself thought.

References

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Lavoie, D. (ed.) (1991), Economics and Hermene^,utics, London and New York: Routledge. Loos, F. (1970), Zur Wert- undRechtslehre Max Webers, Tubingen: Mohr.

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