Beginning with a more general definition of capitalism, I will make a distinction between different types of capitalism regarding the historical background.
After giving a historical outline on the origins of capitalism, Max Weber's Protestant Ethic and the Spirit of Capitalism is discussed. The question whether economy influences the religion or religion influences the economy is also part of the work. I will conclude that a mixture of historical background, technological improvements and a special work ethic led to the modern form of capitalism, which we can find in industrial countries.
„Capitalism is an economic system in which surplus value is extracted from the production process by using wage labour and is utilised in the circulation process for sustaining capital accumulation." (Screpanti: 258).
This definition characterizes the most important principles of a capitalistic system. The basis of this system is the allocation of goods through a market, which is driven by demand and supply. Another key element is the maximization of profit.
But in reality, we observe many different types of capitalism depending on the country and epoch.
From agrarian capitalism to Financial Capitalism: The historical background
Back in the Middle Ages, people lived in a feudal system which structured society on the basis of few powerful landlords and a lot of serfs working for them. This manorial system can't be seen as capitalistic because landlords usually only produced for themselves and didn't trade. The serfs produced goods for their landlords and had hence no interest in innovations. In addition, the serfs worked in order to feed their families and didn't have any incentive to cooperate with others.
Regardless, the manorial system can be seen as agrarian capitalism, which led from feudalism to capitalism.
But in the early 14th century, the feudal system began crashing. The population was increasing, but the means of production were limited due to the lack of innovations. The Great Famine (1315-1317) and the Black Death (1348-1350) led to a population crash.
The serfs, feeling exploited and utilized, rebelled against their landlords and finally got certain basic human rights.
This led to a new class in society, the class of tenants. Renting fields and producing more than they needed themselves, they were able to compete in markets and sell their goods.
Because land was limited, many serfs were forced to find wage-labour. Marx sees in this the “historical process of divorcing the producer from the means of production” (Marx: 874).
Mercantilism arose in Europe in the early 16th century. International trade for profit characterized this epoch. With the previous definition of capitalism in mind, Merchant Capitalism can be seen as the first form of capitalism.
Starting in the 1840s, Industrial Revolution arose across Europe. New technologies, mass production and the split of labour marked the start of Industrial Capitalism, which is close to our modern form of capitalism.
Nowadays, we live in a highly developed world with international communication and trade. Goods are exchanged on financial markets and money is ruling the world. This is why our type of capitalism is called Financial Capitalism.
Simply put, the economy developed from Agrarian Capitalism, Mercantilism, and Industrial Capitalism to modern Financial Capitalism.
Weber's observations concentrate on the rise of Industrial Capitalism.
Weber's motivation on the topic
Before analysing Weber's The Protestant Ethic and the Spirit of Capitalism, one has to take a look on Weber's biography and his religious background in order to find out what motivated him to research the connection between Protestantism and Capitalism.
Max Weber (1864-1920), who was a university professor living in times of social changes, published two versions of his book: One in 1905 and another after World War I in 1920. In between, he suffered from an illness and was in a state of “semiretirement” (Lehmann and Roth: 196).
Concerning religion, Weber called himself “unmusikalisch" (Baumgarten: 670). But one has to emphasize that first, Weber grew up after a time of harsh conflicts between Catholicism and Protestantism (Lehmann and Roth: 5) and second, Weber had contacts to Protestant theologians through all his university studies and was also part of the Protestant Social Congress (Lehmann and Roth: 28).
The importance of religion during his lifetime and his own connection to Protestantism motivated Weber's work.
Weber's The Protestant Ethic and the Spirit of Capitalism
Max Weber observes “the fact that business leaders and owners of capital, as well as the higher grades of skilled labor, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant.” That's why Weber researched on Protestantism and its way shaping modern capitalism.
The basis of the Protestant Ethic is Protestantism, which spread around Europe after Luther claiming his 95 theses in 1517. Lutheran Protestantism claimed that every human being could achieve a place in heaven through hard work. This type of Protestantism is, according to Weber, not what influenced the spirit of Capitalism the most. In fact, Lutheran Protestantism made people earn no more than they needed. Weber focuses on another stream of Protestantism: Calvinism (Weber: 43). It's name derives from the French reformer John Calvin (Steele and Thomas: 15) who claimed that only “the elect” get a place in heaven (Steele and Thomas: 17).
God made the decision of “the elect” before birth, so there was no way to influence this for people. So how can this lead people to work hard, how can this lead to modern Capitalism?
In his work, Weber quotes preaching of Benjamin Franklin, starting with „Remember that time is money“ (Weber: 49). Weber argues that the Calvinists worked hard to convince themselves that they have been chosen by God. According to Weber, people solve the psychological problem of the uncertainty if they are „the elect“ or not by behaving as if they were the elected.