Max Weber on law and the rise of capitalism

Weber's discussion concentrated on three issues:

1. the causes for the creation of different legal systems.
2. the relationship between law and the rise of capitalism.
3. comparative analyses of law which he uses to verify his overall theory.
Weber was a lawyer and a legal historian.
To understand Weber's theory of law requires understanding why capitalism as a distinct form of
economic activity and organization arose in Europe and not other parts of the world.
Most organized societies have "law" but the European legal system differs significantly from
others.
He developed a typology of law as a conceptual tool to analytically differentiate European law
from other types of law.
This distinct type of legal system is part and parcel a part of the rise of capitalism. Thus, he
argues the European law played and important role in the emergence of the capitalist economic
system.
While law was critical for the development of capitalism, it was not entirely caused by
capitalism.
Weber argues other non-economic factors were involved including:
a. internal needs of the legal profession
b. necessities of political organization (compromise)
Weber argues that the uniqueness of capitalistic legal orders lies primarily not in its substance,
but in its method of organization.
Capitalist legal order is distinct from all other legal systems in that the law:
a. is separated directly from other aspects of political activity
b. specialized legal groups (lawyers) exist

c. legal rules were consciously fashioned and rulemaking was relatively free of direct
interference from religious influences and from other sources of traditional values.
d. specific decisions are based on the application of universal rules
Thus, the basis for legal decision making was 'formal rationality'.
Other civilizations (i.e., China) lacked the legal heritage (Roman law tradition), aspects of feudal
organization, the religious background, political structures, and economic interests particular to
Europe.
Weber argues that explains, in part, why Europe was the cradle of capitalism.
Capitalism requires a legal order that is rational.
Class struggle generated the legal order of Western capitalism.
A description of the commonwealths: A rising middle-class (third estate) which had to confront
the reality of a more-or-less absolute state that was controlled by the feudal land strata. This
political impotence of the third estate led them to stress formal and logical, rather than
substantive techniques to constrain arbitrary state action.
Weber argues that law has four central concepts:
a. organized coercion
b. Legitimacy
c. Normativeness
d. rationality
a. coercion - an order is called law if it is externally guaranteed by the probability that
physical or psychological coercion will be applied by a staff of people to bring about
compliance or avenge violation.
b & c. legitimate orders are:
1. socially structured systems which contain:
b. bodies of normative perceptions
c. to some degree are subjectively accepted by members of society as
bonding for their own sake without regard for purely utilitarian

calculations of the probability of coercion. We obey the law because of its

legitimacy.
Since law combines legitimacy and coercion, it has both power and authority. Custom (norms),
conventions, and law are basic sources of normative guidance. [Content of law comes from
normative content.]
d. rationality - measures the degree to which a legal system is capable of formulating,
promulgating, and applying universal rules.
General overall definition of law
Law is a system of standards, maxims, principles, or rules of conduct, to some degree accepted
as obligatory by the persons to whom it is addressed, and backed by a specialized enforcement
agency employing coercive standards. To the extent that sanctions are applied in accord with a
system of rules, law is said to be rational.
Max Weber's Typology

Low Degree of Generality

of Legal Norm
High Degree of Generality of
Legal Norm (like cases=like
decisions) [lawfinding]

(like cases like decisions)

[lawfinding]

Formal Rational (1,1)

Substantive Rational (2,1)

Formal Irrational (1,2)

Substantive Irrational (2,2)

The purpose of Weber's typology is to differentiate the dimensions of legal organization of the
law-society relationship. The different types chart differences among the way in which legal

systems handle the problems of formulating authoritative norms [law making] and applying such
norms to specific instances [law finding].
Weber analyzes the structure of law making to show the differences between consciously
constructed law and sacred law. Consciously constructed law can be seen as the instrument to
achieve some set of extrinsic set of goals. And this is obeyed only to the extent that the goals are
met. Sacred law can be seen as a specific set of social purposes and should be obeyed for their
own sake.
Analyzing structures of law-finding shows the different ways laws are applied. According to
Weber's typology, law finding can be rendered in many ways. Decisions can be rendered through
soothsayers and followed because people believe in their magical powers. Decisions can be
based on secular grounds. Decisions can result from a resolution of specific conflicts.
So, Weber was primarily concerned with the extent to which decisions are:
1) Determined by prior existing general rules of universal application,
2) Established by differentiated legal organs.
Logical Formal Rational (1,1): states that all human action is ordered by law. Whatever
cannot be constructed rationally is legally irrelevant. The law is or must be perceived as a
gapless system. Every concrete legal decision is the application of an abstract proposition
to a concrete factual situation. It must be possible in every case to derive the decision
from abstract propositions by means of legal logic. These decisions are not based on
political, economical, and social factors (PES) and like cases get like decisions. An
example of this is the U.S. Constitution.
Substantive Rational (2,1): employs a set of general rules, but these are of some body of
thought extrinsic to the legal system (religion and or political ideology). To the extent to
which the external ideology is understood, it is possible to understand how the legal order
generates decisions. But, this is problematic. These decisions are based (PES) and like
cases get like outcomes. An example of this would be Iran. [Puritan use of Biblical
commandment.]
Formal Irrational (1,2): would indicate prophetic decisions or revelation decisions which
does not reference any standard, or even the parties disputing (e.g., poison oracle). The
criteria of decision making is intrinsic to the legal system but mysterious or unknowable
with no possibility of prediction (poison chickens). This legal system would not be based
on PES forces and the same situation in one case may not get the same outcome. Like
cases do not get like decisions. A good example of this would be a shaman.
Substantive Irrational (2,2): would apply observable criteria (PES) but the decisions are
not based on case precedent, but rather on individual cases. This is known as
revolutionary justice. It is meant to meet the welfare of the citizens. Like cases do not get
like decisions. This is an example of true communism. [Solomon's wisdom]

Discussion topic:
For Weber, the capitalist legal order facilitated the expansion of the growth of capitalism
as an economic order--why and how? Use Weber's analysis of the laws surrounding
contracts to show why and how capitalism needs a formal rational legal order. Compare
and contrast Weber and Durkheim's analysis [Inverarity Ch. 4] of contracts. Again, it can
be argued that an analysis of law is a means by which one can understand how social
order is created and maintained--explain. That is, through Weber's analysis of contracts he
develops a very critical approach of the consequences of a formal legal order and
capitalism as an economic system--explain. Is this perspective similar or different from
Durkheim--why or why not? [Must read Durkheim to answer]
The rise of the Western legal order
Under what conditions did European law arise? Why only in Europe?
Its existence was intimately linked to the rise of the modern bureaucratic state. Yet, the
state itself was dependant on the rise of a new legal order. A dialectic relationship.
To understand this historical transition, Weber created another typology (besides the
formal rational one). This typology measures political systems or forms of domination
(legitimate authority). That is, how different societies justified their power to command.
There are 3 ideal or pure forms of legitimization:
a. Traditional - commands are legitimate because they are issued in accordance with
custom.
b. Charismatic - because they are issued by and individual with extraordinary or
exemplary characteristics (David Koresh).
c. Legal enactment - when law becomes rational law it becomes its own legitimizing
principle and the basis of all legitimate domination. This is the nature of "modern" law
and thus the "modern state". The modern state created formal rational legalism and vice
versa. [Focus on state, not economy.]
Legal domination occurs under the following conditions:
1. there are established norms of general application
2. there exists a belief that a body of law is a consistent system of abstract rules that
administration of law consists in the application of these rules to particular cases and is
limited to these rules.
3. the 'superior' is subjected to this impersonal order.

4. obedience is to the law and not to some other form of social ordering.
5. obedience is owed only within rationally determined spheres (jurisdiction).
The ultimate justification for 'formal rationality' is a clear differentiation of law from
other sources of normative ordering. It must be supersede other systems that might dictate
policy. Law must be autonomous and supreme.
Law must separate itself from power and religion. Rulers will constantly be tempted to
sacrifice universal principles for particular substantive goals. Similarly, where law is
mixed with religion, pressure will emerge to sacrifice generality for concrete ethical ends.
Such legal autonomy entails a differentiated legal structure. Unique skills, roles, and
modes of thought are necessary if a society is to create and maintain rules. A highly
specialized profession must exist to maintain these qualities (lawyers & judges).
Conditions which specifically caused the rise of legalism in the West are:
1. religious and secular law were separated thus allowing a divorce of legal and ethical
norms.
2. bureaucratization of the Roman Catholic Church and its Roman law heritage led canon
law to become significantly more rational than most theocratic legal orders.
3. European kings in their struggles for power found it necessary to create bureaucratic
staffs.
4. the emergence of a merchant class.
5. the argument of 'natural law'.
6. (created by 2) universities trained individuals on the science of law.
Weber emphasizes the importance of the creation of separate 'status groups' - lawyers as
an essential condition for the growth of legal realism.
A status group is an organization founded on the basis of formal education, prestige, and
style of life.
[Insulated from political, economic, and social concerns] Since law is autonomous, it
then can be perceived as a medium to resolve social conflict and since the legal
profession is also autonomous, they are the status group looked to become responsible for
the resolution of social conflict. Any group that is self-policing is a status group.
?Why does capitalism and legal realism need each other?

1. capitalism needs a legal order which has a relative degree of calculability.

2. its capacity to develop substantive provisions - principally those relating to freedom of
contract--essential to a free market system.
Legalism supported the development of capitalism by providing a stable and predictable
atmosphere; capitalism encouraged legalism because the bourgeoisie (capitalist class)
were aware of their own need for other types of government structure. A capitalist
class is necessary but not sufficient for the emergence of legal rationality.
Law assures rational prediction through contractual obligation, restrains selfishness
(failing to perform some agreement for personal gain).
What is the relationship between law and the economic form or the structure of
capitalism?
Weber argues that "law" is an economically neutral structure of state action that is
necessary to the effective functioning of a market system. It facilitates but does not
determine economic action.
Law ideally leaves the economic activity of individual households and enterprises
entirely free and confines its regulations to the formal foundation of settling disputes
connected with the fulfillment of free contractual obligators.
The state does not regulate economic activity.
The decline of kinship organization is essential for the use of 'contract'.
Criticisms of Weber
There is a potential conflict between legal rationalism of logically formal types and a
legal system's creative capacity to generate new substantive concepts and institutions
required by a changing economic structure.
Contradiction between the values of a democratic order and the requirements of formal
rationality. No substantive social justice, consequently legal rationality legitimates the
inequalities of modern capitalism.
Some contributions of Max Weber
To Weber, rationality refers simply to the application of general rules to the facts of a case
in reaching decisions.
Irrational: like cases like decisions Formal: distinct legal procedures used.

Substantive Irrational: there is no systematic rules which justify particular decisions.

Litigants are seldom able to anticipate the outcome of their case--irrational. Juvenile
court system (before In re Gault).
Formal Irrational: it is formal in the sense that distinct legal procedures are used to reach
a decision. This type of procedure is irrational because no general rules guide the
decision. The outcome in most instances are unpredictable and inexplicable. Central
authority is weak, and this leads to the central authority being unable to impose a solution
to legal problems, the outcome is placed in the hands of supernatural forces.
Substantive Rational: principles of a decision may be based on political, economic,
social, religious, or ethical standpoint. Legal decisions encounter gaps between the rules
employed and the situation encountered. [The Bible has little to say about real-estate
swindles] To go from PES considerations to the circumstances of a particular legal case
requires a set of auxiliary bridging devices.
Formal Rational: follows logical rules. Characterized by the application to legal problems
of explicit, universal rules. The rules come from no external source, but are intrinsically
legal. Decision are highly predictable and made without consideration of the immediate
needs of PES. The creators of the rules themselves become bound by the rules they
create.
?How did rational capitalism emerge in Western Europe? [Weber's primary goal]
There were a unique set of circumstances that favored economic growth. All were
essential, including capitalism, but themselves did not constitute sufficient conditions for
the emergence of rational capitalism in Western Europe.
But, a particular form of capitalism was necessary for economic development to take
place and this form only developed in Western Europe.
The rational capitalist was concerned with long-term profits rather than immediate
profits. The affinity for long-run calculation was influenced by the legal, political, and
religious institutions of Western Europe.
For Weber, the hallmark of rational capitalism is the propensity for systematic planning,
careful advanced calculation of the costs and benefits, and reinvestment of returns back
into the enterprise. For such an operation to succeed, the legal system must provide a
climate for rational calculation. The capitalist enterprise and the capital state share a
common characteristic--authority relations.
A central feature of the capitalist economy is the dispossession of the worker.
Capitalism concentrates the ownership of the means of production (tools, factory, parts).
The only means of production the laborer owned was "human capital" [Marx called it
labor power]. This was seen in the private sector as well as the state sector.

Modern capitalist enterprises rest on calculation.

The problem with juries is their unpredictability. Capitalistic enterprises cannot calculate
unpredictability.
Rationality in the legal system (application of general rules in reaching a decision) was a
precondition for the emergence of rational capitalism.
The roots of formal rational law lie not in economic transformations, but in the
centralization of political power. Unifying the legal system was important--added
predictability.
Changes in the legal system did not result from previous modifications of the economic
system. Legal change was a consequence of the English King's (Henry II) effort to
consolidate their power.
Both Marx and Weber contend that legal equality in a capitalist economy serves to
reproduce political and economic inequality.
Most famous for the word "bureaucracy"
Family owned business has too many conflicts to be an effective business. He proposed
bureaucracy. Many rules. They are rational. Rationality facilitates
Law creates expectations of behavior--this is needed for capitalism to survive.
We cannot evolve because of the constraints of the system which are placed on us.
Weber - worried about predictability.
CAPITALISM NEEDS A RATIONAL SYSTEM
STYLE OF LAW DETERMINES ECONOMY
Marx was just the opposite--he said the mode of production will determine the social
relations.