Werner Sombart (1863-1941)

Gunther Chaloupek

The German Historical school of which Werner Sombart was a member had developed in the nineteenth century as a school of economic thought alterna­tive to the classical school, which it criticized for its abstract theoretical approach.

Werner Sombart, who is generally considered the leading member of the third and last generation of the Historical school - together with the sociol­ogist Max Weber - has produced the most comprehensive synthesis of the enormous research work of the Historical school with his book Der moderne Kapitalismus which was completed by the third volume in 1927. An earlier version had been published in 1902, but the critical reception it had encoun­tered, especially from Sombart’s teacher, Gustav von Schmoller, had convinced Sombart of the necessity of both a more detailed empirical foundation and a more thorough analysis of the subject.

Born in 1863 in Ermsleben (Prussia), Sombart studied political economy at the universities of Berlin, Pisa and Rome. His doctoral dissertation on ten­ancy and labour relations in the Roman campagna was completed under the supervision of Gustav Schmoller and published in 1888. The main focus of this book is on the causes of the unsatisfactory level of economic develop­ment of this part of Italy, which Sombart considered typical of numerous other areas of southern Europe. His conclusion was that aristocratic land ownership in combination with tenant farming which used a growing part of the land in units of expanding size for sheep farming constituted a poverty trap for the sizeable rural population.

In 1890, Sombart was awarded an extraordinary professorship at Breslau University. In the following years he took a strong interest in the social movement and in social policy. Sozialismus und soziale Bewegung became his most famous book. First published in 1896, its wide circulation (nine editions by 1923) earned him true popularity among the intellectual public. If Sombart had been sympathetic towards the Social Democratic Party in his early years, he turned away from socialism around the turn of the century and became its fierce critic later, as his book, Der proletarische Sozialismus (1925) testifies. Political authorities, though, viewed him with suspicion for a considerable time, so that he was given an ordinary professorship at the University of Berlin only in 1917, from which he retired in 1933. In his later years, Sombart tried to exert some influence on the National Socialist move­ment through his Deutscher Sozialismus (1934) which was his own version of a genuinely German socialism, but the book was completely rejected by the party, mainly because of the author’s negative attitude towards modern technology. The circulation of Sombart’s last book, Vom Menschen (1938) was restricted by the government. Sombart died in political and social isola­tion in 1941.

Sombart’s scientific reputation rests mainly on his magnum opus, Der moderne Kapitalismus. The book is intended to be a paradigmatic representa­tion of ‘theoretical historicism’, that is, Sombart’s ideal of a synthesis between historical empiricism and theoretical economics. It gives a typology of the stages of capitalism as an economic system and of its evolutionary develop­ment since the Middle Ages: ‘Fruhkapitalismus' - early capitalism, ‘Hochkapitalismus' as the period from the Industrial Revolution to 1914, and ‘Spatkapitalismus' (‘late’ capitalism) as the period during which capitalism is gradually being transformed into a non-capitalist system.

According to his own self-understanding, Werner Sombart’s greatest scientific-theoretical achievement was the introduction of the concept of ‘economic system’ (Wirtschaftssystem'). Economy for Sombart meant pro­vision of livelihood (‘ Unterhaltsfursorge') for which many different settings are theoretically possible and practically feasible. The basic elements of an economic system are its spirit (‘Geist’), its pattern model or ‘form’ (‘Form’) and its technology. Any type of ‘economic order’ can be meaningfully defined only in the context of a distinct economic system.

In his booklet, Die Ordnung des Wirtschaftslebens (1925), Sombart identifies three principal aspects of economic order: regulation, organization and sys­tematization. In the context of the relationship between law and economics, regulation is the most important subject heading under which we have to look for Sombart’s contributions. However, we always have to bear in mind that in Sombart’s view the formal aspects, the pattern models of an economic order, cannot be properly understood without placing them in the context of a specific economic system. Thus Sombart rejected any purely formal classification of an economic order. He did not give abstract definitions of the basic elements of the economic system as such but referred to rather concrete categories which he listed under these elements. In this sense, for example, profit orientation versus provision for needs (‘Bedarfsdeckung") and solidarism versus individualism are categories of ‘spirit’, freedom versus constraint or private versus social economy are categories of ‘form’, and empirical versus scientific or stationary versus revolutionary are categories of technology.

Regulation is the system of rules which govern economic behaviour of the actors. Sombart distinguishes between the legal order, the conventional order and the ethical order. A regulatory order derives its orientation from a certain spirit. ‘Insofar as this spirit is incorporated into the economic order by the law-giving power, we can speak of a specific system of economic policy (Wirtschaftspolitisches System)’ (Sombart, 1925, p. 3). Parallel to the evolu­tion of the economic system, the system of economic policy has evolved from the pre-capitalist economic policy of medieval cities to mercantilism, that is, the economic policy of early capitalism, and to liberalism, which is the economic policy corresponding to ‘high capitalism’.

In the first volume of Der moderne Kapitalismus, Sombart gives a separate and systematic treatment to economic policies that promoted development towards the capitalist system. Essentially, capitalism evolved gradually through a transformation of the production apparatus from the traditional handicraft system organized in guilds into capitalist enterprises operating in a market- regulated exchange economy (‘Verkehrswirtschaff) with the state playing a decisive role as initiator and promoter of this transformation process. Sombart also describes and evaluates a multitude of legal measures concerning the regulatory framework of the economy intended to promote expansion and growth of the ‘commercialized’, that is, capitalist sector. In this context, he elaborates in great detail on subjects such as the gradual dilution and abolition of traditional guild orders restricting competition and protecting small handi­craft shops, unification of markets at the level of national states, or expanding public demand caused by the centralization of government functions.

Sombart’s most original contributions to the study of law and economics are the sections in which he elaborates in detail on the evolution of legal forms of enterprise and of business transactions which have become standard practices of business life, mostly during the nineteenth century, so that we take them as self-evident elements of economic life today without being aware that these forms are products of complex and sometimes difficult evolutionary processes.

The evolution of a capitalist organization of wealth and property is essen­tially characterized by businesses becoming entities of their own (Verselbstandigung des Geschafts) separate from the persons who own and operate them (ibid., pp. 101ff.). Sombart cites evidence for the origins of this process from Italian city states in the fourteenth century (firma). The develop­ment of a formal accounting system is an important step in the process of Verselbstandigung, as is the development of trading companies. Joint-stock companies are the final step in the process towards limiting personal liability of the owner to the amount of capital which he has contributed to the share capital of the enterprise which is a legal entity totally separate from its owners. To establish these various legal forms of businesses within the legal orders of states was a complicated process which was not completed before the nine­teenth century. By devoting considerable attention to describing and analysing their evolution, Sombart places great emphasis on their availability as a precon­dition for the real take-off of capitalism at the end of the eighteenth century.

Another example of legal forms constituting a basic precondition of capi­talist development is the separation of obligations from personal relationships: what later became known as the ‘Berle-Means hypothesis’. As a means of payment without using cash, the bill of exchange dates back to the late Middle Ages (ibid., pp. 520ff.) Originally, mere accommodation bills without an underlying trade transaction were used to facilitate payment, especially at international trade fairs.

These are two examples of aspects of the history of modern capitalism which are barely dealt with in modern literature. Economic histories of Europe may have separate chapters on money and banking but they do not succeed in integrating these aspects properly into their overall view in which usually the ‘real sector’ dominates the stage. In his writings, Sombart does not devote special attention to the actual and concrete interlocking of the real and of the financial spheres. None the less, his analysis has a unifying point of view: for development towards capitalism, ‘objectivization’ (‘reification’ is the usual English word, for the German ‘ Versachlichung' which is difficult to translate in the particular meaning Sombart assigns to it) and ‘rationalization’ of all kinds of social relationships is a fundamental characteristic. Relation­ships of all kinds increasingly take on abstract, institutionalized forms which exist independently of men acting within these forms (Sombart, 1916/1927, Vol. II/2, pp. 1076ff.). This ‘mechanization of society’, as Sombart also calls it, is at the same time a powerful driving force of economic development and also of cultural decay. Sombart’s cultural pessimism, which dominated human sciences in Germany before and after the First World War is perhaps the main reason why he made little effort to apply his sophisticated insights into the interdependence of law and economics and into the working of institutions to the practical problems of his times.

If ‘institutions form the incentive structure of a society, and the political and economic institutions... are the underlying determinants of economic performance’ (North, 1994, p. 359), then differences in the institutional set­up are important for the explanation of success and failure in the economic performance of nations, and also for the conclusions to be drawn for im­provement of such performance. Sombart’s principal interest was in the great tendencies of capitalist evolution, including the evolution of its institutions in time. His preference was to assemble evidence for facts and causes that were supporting and promoting these tendencies. He thought that, sooner or later, all countries would follow a similar path of development. He was not really interested in comparative analysis, whose main purpose is to find out about the differences between countries.

Sombart has not dealt with the relationship between law and economics in a general and abstract mannner as he did with methodology of economics in Die drei Nationalokomien, and as Max Weber has done in Wirtschaft und Gesellschaft. If Weber points out that (personal-individual) valuations of goods are particularly inaccessible to the influence of law, because they derive from the consequences of economic actions emanating from primary origins’ (Weber, 1980, p. 197), this is an aspect in the relationship between law and economics which is not pursued by Sombart. Sombart’s emphasis is always on the production side of the economy. Demand is considered under structural aspects (for example, increasing consumption of luxuries) or as an aggregate (for example, in the context of cyclical fluctuations) but not in the form of individual schemes of preference.

In dealing with questions of legal forms of doing business and of capitalist enterprise, Sombart draws on works of economic history and also on the history of law as his sources:

It is a precondition of any investigation of the origins of an institution, no matter whether it is an investigation in the history of law or in economic history, to have a clear concept of this institution in its ideal-type perfection.... The sociologist usually faces the task of having first to formulate such a concept towards which he can orientate his subsequent investigation, because it is a synthetic concept; whereas the jurist finds this concept in the law in force at the time. (Sombart, 1916/1927, vol. II/1, p. 142)

But the meaning of an institution can be understood and determined only in a socioeconomic context which does not coincide with the logic of juridical argumentation and investigation. Sombart therefore implicitly rejected ap­proaches put forward by some of his contemporaries (R. Stammler and Karl Diehl) which made legal institutions appear as the determinant of economic evolution (Pribram, 1983, p. 224). With respect to the traditional orders for handicraft and small business (Gewerbeordnung) Sombart maintains that they were a nuisance for expanding capitalist enterprises but ‘no essential obstacle to progress towards capitalism’ (Sombart, 1916/1927, vol. II/2, p. 1119). While Sombart did not deny that there is some kind of logic of its own inherent in the development of legal forms, in his work the ‘law’ of the ‘law and economics’ paradigm primarily lies in what he calls the ‘spirit’ of the system.

Bibliography

Backhaus, Jurgen (ed.) (1996), Werner Sombart (1863-1941) Social Scientist, 3 vols, Marburg: Metropolis.

Lenger, Friedrich (1994), Werner Sombart 1863-1941. Eine Biographie, Munich: C.H. Beck.

North, Douglass (1994), ‘Economic performance through time’, American Economic Review, 3 (84), March, 359-68.

Nussbaum, Frederick Louis (1933), ‘A history of economic institutions of modern Europe’, Introduction to Der moderne Kapitalismus of Werner Sombart, New York: F.S. Crofts & Co.

Pribram, Karl (1983), A History of Economic Reasoning, Baltimore, MD and London: Johns Hopkins University Press.

Sombart, Werner (1888), ‘Die romische Campagna’ [‘The Roman Campagna’], in Gustav Schmoller (ed.), Staats- und sozialwissenschaftliche Studien, VIII (3), Leipzig.

Sombart, Werner (1896), Sozialismus und soziale Bewegung im neunzehnten Jahrhundert, Jena: Gustav Fischer; English translation, Socialism and the Social Movement in the 19th Century, New York: G.P. Putnam’s Sons, 1898.

Sombart, Werner (1911), Die Juden und das Wirtschaftsleben, Leipzig: Duncker & Humblot; English translation, The Jews and Modern Capitalism, London: T.F Unwin, 1913.

Sombart, Werner (1916/1927), Der moderne Kapitalismus [Modern Capitalism], vols I-III, Munich and Leipzig: Duncker & Humblot.

Sombart, Werner (1925), Die Ordnung des Wirtschaftslebens [The Order of Economic Life], Berlin: Verlag Julius Springer.

Stammler, Rudolf (1925), ‘Recht’ [‘Law’], in J. Conrad and E. Loening (eds), Handworterbuch der Staatswissenschaften, 4th edn vol. 6, Jena: G. Fischer, pp. 1187-1202.

Weber, Max (1980), Wirtschaft und Gesellschaft [Economy and Society], Funfte revidierte Auflage besorgt von J. Winckelmann, Tubingen : J.C.B. Mohr (Paul Siebeck).

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