Technological change and economic development in Werner Sombart's concept of economic system
Paper presented to the 13th Annual Conference of the European Society for the History of Economic Thought, Thessaloniki, April 23-26, 2009
Günther Chaloupek, Austrian Chamber of Labour, Vienna FIRST DRAFT
1. Werner Sombart as pioneer of the economics of technological change
Werner Sombart (1863-1941) deserves credit for being the first economist who analyzed the role of technological change in long term economic development. (1)
This, however, does not imply that before Sombart there was no awareness or understanding of the basic significance of technology for the production of goods and services in the perception of men and in the social sciences. Quite to the contrary, one of the principal characteristics of the nineteenth century is the general belief that human civilization had made substantial progress through advances in technology which were without historical precedent; that a continuous increase of material well being and culture had been made possible by a constant stream of inventions and improvements in production processes. And yet, this fundamental role of technology and its progressive development is very little reflected in the economic thought of the nineteenth century.
Of course, there is Karl Marx who assigned an important role to the development of new technologies as principal means of capitalist entrepreneurs to achieve extra profits, especially in the chapter on machinery and big industry in Das Kapital, Vol. 1. More fundamental still is the role of technological change in the interplay of "Produktivkräfte" and "Produktionsverhältnisse" (productive forces and relationships of production) which serves Marx as a general conceptual scheme for the explanation of history. If Marx often touched upon the crucial importance of technological change in his theory of capitalism, he did not, however, systematically analyze its impact on the evolution of this system.
During the nineteenth century, the analysis of the development of technology was largely left to engineers, technicians and natural scientists. Even in that context, the history of technology was not an academic subject of its own right. The substantial work that the history of technology produced during the second half of the nineteenth century was the achievement of "hobby historians": of engineers, professors of technological sciences, occasionally also of natural scientists (Hausen and Rürup 1975, pp. 11ff). Contributions were also made by authors who addressed a wider circle of readers in a more popular style. As a consequence, the focus on all these contributions on the history of technological change was on the technical-practical side of the matter - engineers writing for engineers, and occasionally on the more trivial economic results of technical advances.
For Sombart, both sources, i.e. the writings of Karl Marx and the literature on the history of technology, were indispensable elements for his investigations into the role of technological change for the evolution of capitalism. Even after his sharply anti-socialist book "Der proletarische Sozialismus" (Sombart 1924) Sombart held Marx in high esteem as social scientist. Marx not only deserved full credit for having identified "capitalism" as an economic system, but also for his analysis of its functioning, leaving for Sombart only the task to "speak the modest last word" on that system (Sombart 1927, p. XXII).
In formulating his concept of "economic system" in general terms, Sombart took two elements from Marx: "form", i.e. regulation and organization, resembles Marx's relationships of production, "technology" has its equivalent in Marx's forces of production. However, Sombart rejected Marx's epistemological realism, as he followed the traditions of German "Geisteswissenschaften". Hence, he added "spirit", i.e. the "objective" ideas that provide the framework for the beliefs and motives underlying social actions of men.
An "economic system" represents the "spiritual unity of the mode of an economy which is (1.) dominated by a specific economic spirit, (2.) which has a specific order and organization, and (3.) which applies a specific technology" (Sombart 1927/2002, p. 289). With respect to technology, Sombart adds three basic general dimensions of qualification along which technologies can be classified: "I. empirical - scientific; II. stationary - revolutionary; III. organic - non-organic (mechanical-anorganic)" (ibidem, p. 299). These qualifications are not deduced by logical-analytical methods, but they are generalizations equally based on historical investigation and theoretical concepts - as a reflection of Sombarts methodological approach of theoretical historicism, i. e. a synthesis between historical empiricism and theoretical economics.
In the first two volumes of Der moderne Kapitalismus, Sombart applies a slightly different scheme for the classification of technologies. He uses only two dimensions of qualification: empirical - scientific, organic - inorganic. Empirical technologies are the subdivided into "empirical-traditionalist", which appears to be the equivalent of stationary, and "empirical-rationalistic", which corresponds to "revolutionary" (Sombart 1916-Vol. I, p. 479).
Sombart makes it clear from the outset that spirit is the element that shapes and ensures the unity of a system. In that sense, order and technology breathe the spirit of the system. "It is the basic idea of this work (Der moderne Kapitalismus), that a different economic mind prevails at different times, and that it is spirit, which gives itself the adequate form and thereby creates the economic organization" (Sombart 1916-Vol. I, p. 25). This does not mean, however, that spirit is the sole determinant of historical evolution. As will be shown by the following, there is a relationship of mutual interdependency between the three basic dimensions of a system, in which at certain points any one of them can have the decisive influence.
2. Technology in the pre-capitalist system and in the transition period("Frühkapitalismus")
Under the heading "non-capitalist systems" Sombart (1925/2002, p. 300ff) lists several types of organizations of agricultural production and the "crafts system", i.e. the economy of medieval cities organized in crafts and trades. The above-mentioned qualifications of technology are well suited to elaborate the essential characteristics of the technology of the crafts system that distinguish it from the technology used in the system of capitalism.
Sombart (1916-Vol. I, pp 200ff) characterizes the technology of the crafts system as "empirical-organic". Technical skills are based on personal knowledge of the craftsman, of the artisan, who has been taught his art by an other master. Improvements are only made possible through practical experience. Knowledge is transferred from person to person through the apprenticeship system. Rules of secrecy prevent knowledge which is specific of a certain trade from becoming disclosed to wider circles of the population. Except for metals only organic materials are used, the transformation of materials is achieved mostly through manual work, with the occasional support from animals, water power or wind power. It is not explicitly mentioned by Sombart at this point, but it can be inferred from spirit and form of the crafts system that its technology is stationary. This is ensured by the solidaristic spirit that prevails in the craft guilds, as well as by the rules of organization to which its members must comply. The corporate order provides detailed regulations for all parts of production and sale of goods, for the materials used as well as for quality and price of the product; it includes also limits for the size of establishments and sometimes even on the quantity of output. (ibidem, pp. 188ff)
The Reformation and the discovery and exploration of new continents mark the beginning of a new age shaped by a new spirit which strives for transcending traditional limits of knowledge and power. In this "Faustian spirit", as Sombart calls it (ibidem, p. 327) (2), men embark on many kinds of new enterprises, in the sciences and arts as well as in travelling to unknown destinations, and also on new economic ventures. In the economic sphere, the new spirit "breaks the barriers of peaceful, static, feudal economy orientated at provision for needs ("Bedarfsdeckungswirtschaft") and pushes men into the whirlwind of the economy of acquisition ("Erwerbswirtschaft")" (ibidem, p. 328). The entrepreneur emerges as the powerful agent of change from solidarism to individualism, from provision for needs to production for profit.
However, it takes more than two centuries for the new spirit and for the new forms of enterprise to become the prevailing style of goods production, trade and finance. Traditional forms of economy and habits of mind continue to dominate many areas of economic life, and even in the fully developed system of capitalism of the nineteenth century traditional forms manage to survive, e.g. in certain handicrafts.
In the area of technology change is slow, so that by mid eighteenth century Sombart finds that technology is still predominantly empirical and organic. If, nonetheless, the new spirit has brought some dynamic movement into technology, this has been due to the gradual displacement of the previous traditional approach by a "rationalist" approach (ibidem, p. 479) - (mildly) "revolutionary" in the terminology of Sombart's final scheme of classification. In the transition period, "technology is still lacking an exact scientific foundation" (ibidem, p. 466) - Leonardo da Vinci is an untypical, exceptional case in this respect. But the drive for new inventions of various kinds takes hold of the minds of men interested in new things, and this drive is increasingly encouraged by project makers, wealthy noblemen, later even by state governments. Inventions are made by experimental methods, by trial and error; many are the unintended by-product of alchemistic experiments.
What is behind these accelerating technical change is not only "the determinate will for technical progress" (ibidem, p. 475), but also an intensifying desire for money wealth (alchemy, mining), and an increasing demand for weapons. During the early period of the modern age, the size of armed forces increased steadily. The armies required new weapons with more power and greater precision, from them originated a mass demand for supply of food and clothing.
Traditional orientations continued to shape major parts of the economic order for centuries. In particular, the restrictions on entrepreneurial activity imposed by guild orders were maintained for the urban handicrafts. This entailed severe impediments for the introduction of new technologies. The prohibition of the automatic ribbon loom in the Low Countries and in the German Reich (1685, ibidem pp. 496ff) and the barriers against the use of cotton are the most prominent examples for this hostile attitude towards technical change.
Due to this and other reasons, technical progress was comparatively slow until the beginning of the nineteenth century. The achievements in improvement of transport techniques and production processes remained rather modest due to both the empirical and the organic nature of technologies. In the iron industry, e.g., the reliance on charcoal prevented the full exploitation of productivity increases made in the stages of melting and processing. (Sombart 1916-Vol. II, p. 1126ff)
In the second half of the eighteenth century the European economy's march towards capitalism is threatened to come to halt due to the organic nature of its technology. (ibidem, pp. 1137ff) Wood, which was by far the most important source of energy, became increasingly scarce as a consequence of population growth and of increasing demand for industrial production (charcoal for iron production, material for construction of machinery and transport equipment, etc.). Various kinds of regulations were enacted by governments to counter the shortage which could finally be overcome by opening up a new source of energy supply: coal, which Sombart categorizes as "inorganic" in the context of technology.
3. The acceleration of technological change in the era of "high capitalism" ("Hochkapitalismus")
In the era of fully developed capitalism technology becomes the main driving force by changing its orientation from empirical to scientific, from organic to inorganic, and from empirical-rationalistic (halfway between traditional and revolutionary) to revolutionary.
Major break-throughs in the sciences of physics (mechanics especially), chemistry and in the theory of electricity form the basis of the scientific development of new technologies, instead of their improvement by trial and error (Sombart 1927, pp. 78ff). Technical knowledge becomes fully "objectivised", knowledge about the functioning of production processes is based on laws of nature and is formally taught at universities and polytechnic institutes (ibidem, p. 81). Natural sciences and modern technology are "twin sisters" (p. 78), which mutually benefit from each other. The horizon of action of activities of capitalist entrepreneurs is pushed outward progressively through invention of new products and processes, their development and further improvement (p. 34).
The capitalist system derives its energy for unlimited expansion from the entrepreneur's drive for extraprofit and from the dynamics of technological change. "Because every entrepreneur hopes to gain an edge and thus an extraprofit over his competitor through improvements of the production process or of the organization of production, his efforts and endeavours are directed towards permanent innovation, with his entrepreneurial spirits always under utmost possible tension. In this drive for extraprofit ... the innermost secret of the utmost dynamic orientation of 'high capitalism' is embedded"(ibid., p 35). Moreover, inventive activities are promoted by the state through various means; remaining regulatory impediments for innovations are abolished.
The boundary from the side of resources that for some time seemed to choke off the expansive drive of capitalism is lifted through the switch from organic to non-organic technologies: from wood to coal and iron, steam power for animal power, synthetic for natural fertilizer, etc. (ibidem, p. 97ff) "Until the end of the early capitalist period mankind had lived from the income which accrued to it every year in the form of solar energy and from the effects of the latter on the growth of plants and trees...And now mankind had at its disposal treasures from the interior of the earth that had been collected from solar energies over millions of years, which mankind has been enabled to consume (in addition to the annual income) through the inventions of new technology"(ibidem, p. 122). There were other advantages of inorganic materials, such as greater precision, reliability and dependability.
So much for the broad lines of Sombarts analysis of the significance of technological change in the development of capitalism. Some of the more specific aspects mentioned in Vol. III of Der moderne Kapitalismus will be discussed in section 5.
4. Technology in the era of "Spätkapitalismus" ("late capitalism")
Sombart was convinced that the ascent of capitalism had reached its high point before World War I. In the following period of gradual decline which he called "Spätkapitalismus", it is again spirit that is the determinant factor.(3) For development of capitalism as a system 'objectivization' ('re-ification', for the German word 'Versachlichung' which is difficult to translate in the particular meaning Sombart assigns to it) and 'rationalization' of all kinds of social relationships are fundamental characteristics. Relationships of all kinds increasingly take on abstract, institutionalized forms which exist independently of men acting within these forms (Sombart 1916-Vol. II, pp. 1076 sseq.). This 'mechanization of society', as Sombart also calls it, is at the same time a powerful driving force of economic development but also of cultural decline. Sombart's cultural pessimism is only one example of this attitude which dominates human sciences in Germany before and after the First World War.
What Schumpeter later called "automatization" is essentially the same process for which Sombart has developed his theory of "Versachlichung" (reification) or "Vergeistung" of modern enterprise. As regards the evolution of relationships between different enterprises, Sombart sees two main long term trends at work: there is an increasing specialization in the production of goods and services while at the same time in many areas there is an increase in the concentration of production in enterprises of increasing size. Underlying these two phenomena Sombart sees a very general process which is at work in all spheres of western civilization: a process of "Entseelung" (de-animation) and "Vergeistung" (spiritual reification), which is a consequence of the inner logic of the capitalist spirit: rationalization goes hand in hand with reification in which individual animal spirits ("soul") are replaced by overpowering abstract constructs and concepts, which increasingly assume a life of their own. The evolution of capitalist enterprise is just a special case, which is transformed "from a community of lively individuals tied to each other by personal relationships into a system of artfully designed interdependent work performances which are executed by functionaries in human shape."(Sombart 1927, p. 895) Personal leadership by the entrepreneur in a traditional sense is replaced by a bureaucratic structure. Bureaucratization of enterprise goes hand in hand with a growing perfection of methods to narrow down or even eliminate risks of economic life, which leads to a reduction in the amplitude of business cycle fluctuations. (ibidem, pp. 680f) Furthermore, with the gradual exhaustion of the potential for the rationalization of production, "administration" gets the upper hand over innovation and ever growing perfection. Production for profit ("Erwerbswirtschaft") gives way to the provision of goods and services for the needs and wants of the population ("Bedarfsdeckungswirtschaft"). (ibidem, p. 1015) State-operated railways and postal services are cited as examples of this type of enterprise through which a growing number of industries will be run. In the private sector, freedom of entrepreneurial action is increasingly restricted trough regulations of the state and also by cartelization and self regulation. Flexibility has given way to rigidity. (Sombart 1932/2002, p. 442)
Sombart does not go into greater detail as regards technological change in late capitalism. He predicts a slowdown of productivity growth in the twentieth century, based on two assumptions. First, due to increasing scarcity of minerals, especially coal, there will be a backward shift towards a more organic technology. (4) Second, a slowdown of technological progress will dampen productivity growth in finished goods production. (Sombart 1929)
5. Economic effects of technological change under high capitalism: specific aspects of Sombart's treatment of technology in the Third Volume
Volumes I and II of Der moderne Kapitalismus give detailed accounts of technological advances in the branches of industry and in transport for which Sombart assembles the results of the vast literature on the history of technology. In the third volume Sombart chooses a different approach. The broad lines of capitalist development during the nineteenth century are presented under synoptic aspects which Sombart considers central for the understanding of the process.