The Near-Death of Liberal Capitalism: Perceptions from the Weber to the Polanyi Brothers

Harold James, The End of Globalization: Lessons from the Great Depression (Cambridge, MA: Harvard University Press, 2001).

See foreword by Joseph Stiglitz to the new edition of Karl Polanyi, The Great Transformation. The Political and Economic Origins of Our Time (abbreviated GT), with an introduction by Fred Block (Boston: Beacon, 2001), xiv; Klaus Hildebrand, Die viktorianische Illusion. Zivilisationsniveau und Kriegsprophylaxe im 19. Jahrhundert, in Macht und Zeitkritik, edited by P. Weilemann et al. (Paderborn: Ferdinand Schoeningh, 1999), 17–28.

In recent decades the economist Stolper best known in this country was Gustav’s son Wolfgang, who died at age eighty-nine in March 2002. Arguing early that free trade had negative effects on some labor sectors, he went on to become an expert on the east German Communist economy and an advisor to newly independent African countries.

Weber apparently did not meet Karl Polanyi, who settled in Vienna only in 1919. After Weber’s death Polanyi contributed critically to the debate on Mises’ much-discussed essay “Economic Accounting in the Socialist State” that appeared in 1920–1921 in the Archiv für Sozialwissenschaft und Sozialpolitik 47, 86–121. At the time, Max Weber’s old house organ was edited by Schumpeter, Alfred Weber, and Emil Lederer. See Polanyi, “Sozialistische Rechnungslegung,” Archiv 49 (1922); 377–420; “Die funktionelle Theorie der Gesellschaft und das Problem der sozialistischen Rechnungslegung,” 52 (1924), 218–228. See also the essays by Peter Rosner, Marguerite Mendell, and Lee Congdon in the section “Ludwig von Mises versus Karl Polanyi,” in The Life and Work of Karl Polanyi, edited by Kari Polanyi-Levitt (Montréal: Black Rose, 1990), 55–84.

Reichstag Verhandlungen 1873, Aktenstück 64.

Although some non-European countries have experimented with a dollar-based currency, there is no direct parallel to another statement made by Bamberger: “We chose gold not because it is gold but because Britain is Britain.” In turn, Disraeli remarked, “Our gold standard is not the cause but the consequence of our commercial prosperity.” Citations from Peter Bernstein, The Power of Gold. The History of an Obsession (New York: John Wiley, 2000), 250, 258. For an up-to-date treatment of issues surrounding the gold standard, see also Niall Ferguson, The Cash Nexus. Money and Power in the Modern World, 1700–2000 (New York: Basic Books, 2001); Ted Wilson, Battles for the Standard. Bimetallism and the Spread of the Gold Standard in the Nineteenth Century (Aldershot: Ashgate, 2000). See also Barry Eichengreen and Marc Flandreau, eds., The Gold Standard in Theory and History, 2d ed. (London: Routledge, 1997).

GT, 288, 209.

Bonn descended from a Frankfurt banking family that had personal and business relations with the New York Speyers, Loebs, and Schiffs. He was visiting professor in Berkeley in 1914, Carl Schurz Professor in Madison in 1915, and Jacob Schiff Professor in Ithaca in 1916. He returned as visiting professor in the nineteen twenties and as a refugee in the nineteen thirties.

See Frank Knight, trans., General Economic History (London: Allen & Unwin, 1927); Knight omitted the basic concepts and typologies.

Moritz Julius Bonn, Wandering Scholar (New York: John Day, 1948), 318 f.; Melchior Palyi, The Twilight of Gold 1914–1936 (Chicago: Henry Regnery, 1972), 270.

GT, 248, 21 f.

On the efforts of mostly Jewish houses to prevent a world war, see, for instance, Alfred Vagts, “Die Juden im englisch-deutschen imperialistischen Konflikt vor 1914,” in Imperialismus im 20. Jahrhundert. Gedenkschrift für George W. Hallgarten, edited by J. Radkau and I. Geiss (Munich: Beck, 1976), 113–144; for summary remarks see James Joll, The Origins of the First World War, 2d ed. (London: Longman, 1992), 160 f. For Karl Polanyi’s position on the “accidental” peacekeeping role of haute finance and on the “metaphysical extraterritoriality” of Jewish bankers, see GT, 10 ff.

See Gustav Stolper, This Age of Fable:The Political and Economic World We Live In (New York: Reynal & Hitchcock, 1942), 201; Felix Somary, The Raven of Zürich: The Memoirs of Felix Somary, translated by A. J. Sherman (New York: St. Martin’s, 1986), 75.

Weber and Mendelssohn Bartholdy were coauthors, with Hans Delbrück and Max Graf Montegelas, of the so-called “professorial memorandum” dated Versailles, 27 May 1919. They argued, “We are dismayed that the totally erroneous theory of the alleged inescapability of trade wars has been promoted and reenforced by a prestigious American author (Veblen, Theory of Business Enterprise 1904).” The document has been reprinted in Max Weber Gesamtausgabe, I/16 (Tübingen: Mohr Siebeck, 1988), abbreviated MWG; see also I/15 (1984), 171 ff. Max Weber’s mother Helene was a cousin of Cécile, the wife of Felix Mendelssohn Bartholdy and Albrecht’s grandmother. Max had personal contacts with Albrecht and with the philosopher Paul Hensel, grandson of Fanny Mendelssohn Bartholdy.

See my study, Guenther Roth, Max Weber’s deutsch-englische Familiengeschichte 1800–1950 (Tübingen: Mohr Siebeck, 2001).

Howard Becker praised Alfred in the second issue of the American Sociological Review (1936), 310 f.: “There is no denying the fact that the brilliance of his brother, Max Weber, blinded most sociologists to the outstanding merits of Alfred Weber. Now, however, there is no longer any excuse for overlooking or underrating him; with the appearance of his Kulturgeschichte als Kultursoziologie he moves into the very front rank of sociologists not only of Germany but of the world.”

Translated in 1929 by the young emigrant Carl Friedrich, later of Harvard; see the 1971 reprint (New York: Russell & Russell).

Alfred Weber’s location theory has recently received some attention again in the German political and academic debates on European and global integration. The advantages and disadvantages of the German economic model and of Germany’s industrial locations are highly contentious issues. See Gert Schmidt, German Management Facing Globalization: The ‘German Model’ on Trial, in Challenges for European Management in a Global Context: Experiences from Britain and Germany, edited by M. Geppert et al. (London: Palgrave Macmillan, 2003).

Alfred Weber, “Deutschland und der wirtschaftliche Imperialismus,” Preussische Jahrbücher 116 (1904), 298–324; Max Weber, “Agrarstatistische und sozialpolitische Betrachtungen zur Fideikommissfrage in Preussen,” MWG, I/8, 92–188. Max’s Freiburg colleague Gerhart von Schulze-Gävernitz went so far as to argue that in spite of tariff barriers the integration of the world economy has “transcended the boldest dreams of the old free traders” (in “Nation,” vol. 15, 1897–1898, 329). These views seem to me compatible with an argument recently advanced by Knut Borchardt in “Globalisierung in historischer Perspektive,” Bayerische Akademie der Wissenschaften, Sitzungsberichte 2001, Heft 2. Borchardt points out that “economic historians increasingly doubt that liberalization played as great a role as many economists still believe today” (p. 22); other factors, techno-logical developments, especially the transportation revolution and the opening of new lands with lower production costs, are given more weight. Borchardt may go further than Alfred Weber and Schulze-Gävernitz in suggesting that “some degree of protectionism probably furthered globalization until 1914” (p. 23). The argument has now been made explicit by Peter T. Marsh: European economic integration benefited from the ability of governments to use the tariff weapon for bargaining purposes; only Britain, committed to free trade, was without such a weapon. See Bargaining on Europe: Britain and the First Common Market. 1860–1892 (New Haven, CT: Yale University Press, 1999). See also Borchardt, “Protectionism in Historical Perspective,” in Perspectives on Modern German Economic History and Policy (1982) (Cambridge, UK: Cambridge University Press, 1991), Chap. 1.

See Alfred Weber, “Die Standortslehre und die Handelspolitik,” Archiv für Sozialwissenschaft und Sozialpolitik 32, no. 3 (1911); 667–688, esp. 677 ff. Weber did not recognize yet the decentralizing importance of the use of oil instead of coal.

See letters to Lujo Brentano of early September 1912, MWG, II/7, 649 and 653.

See MWG, I/15, 115–125.

Ibid., 117 f.

Bundesarchiv Koblenz, NL Alfred Weber. The “dreadful fellow” was Fritz Warburg (1879–1964), who as commercial attaché worked closely with the German minister to Sweden, Lucius von Stoedten, another Weber relative. Symptomatic of the radical difference in perception between Alfred Weber and Fritz Warburg is that the latter criticized the “bad behavior” of German visitors. See his memoir, Aus meinen Aufzeichnungen (private edition, 1952), 37–41. The Warburg name is still familiar, at least through the Wall Street firm UBS Warburg. The five Warburg brothers, Aby, Felix, Fritz, Max, and Paul, were legends in their lifetimes; Paul was instrumental in the creation of the American Federal Reserve System.

MWG, I/5, 124.

Letter to Karl Loewenstein, 24 October 1918 (MWG, II/10, 282).

The metaphor was not an expression of cultural pessimism about Occidental rationalism, as has so often been incorrectly understood.

John Maynard Keynes left behind an affectionate memoir titled “Dr. Melchior: A Defeated Enemy,” in Two Memoirs (New York: Augustus Kelley, 1949), 11–74; the essay was read in 1931 but published only posthumously.

Stolper, This Age of Fable, 318. Weber was convinced that viable peace conditions were impossible as long as there was a completely one-sided power relationship. On 27 October 1918, he had warned President Wilson, in an op-ed piece in the Frankfurter Zeitung, that he could not act as “arbiter of the world” and effective negotiator of the peace conditions without the continued existence of the German army (MWG, I/15, 642).

G. Roth and Claus Wittich, eds., Economy and Society, abbreviated ES (Totowa: Bedminster Press, 1968; 2d ed., University of California Press, 1978).

See MWG, I/5, 2000.

ES, 106.

An abridged translation by H. M. Lucas and J. Bonar appeared in 1924, The State Theory of Money (London: Macmillan). The citations below are from the first two pages.

Today, Knapp has become practically unreadable, unless the reader remembers schoolboy Greek well. In his first reply to Felix Rachfahl’s critique of “The Protestant Ethic” in 1910, Weber defended the use of neologisms and remarked, “I think it is to the credit of Georg Friedrich Knapp that he had the courage to do this extensively. In the same way Alfred Weber’s book on the locations of industry clearly achieved terminological unambiguity. But in our readers neologisms too often meet with a disapproving shake of the head; and professorial vanity fundamentally resists any expression not coined by oneself.” See David Chalcraft and Austin Harrington, eds., The Protestant Ethic Debate (Liverpool: Liverpool University Press, 2001), 77.

John Maynard Keynes, Monetary Reform (New York: Harcourt Brace, 1924), 10.

ES, 78. Opposing Knapp in 1912, Mises advocated a purely economic theory of monetary value and of purchasing power:

“In an economic system based on private ownership of the means of production, no government regulation can alter the terms of exchange except by altering the factors that determine them ... Such regulation could have achieved its aim only in a socialist state with a centralized organization of production and distribution. In a state that leaves production and distribution to the individual enterprise, such measures must necessarily fail of their effects. Hence the concept of money as a creature of the legal order and the state is untenable.” Ludwig von Mises, The Theory of Money and Credit (London: Jonathan Cape, 1934), 68 f.

ES, 184. Lytric signifies means of payment; papieroplatic refers to paper money. For Melchior Palyi’s views on inflation see “Das Wesen der Inflation,” in Erinnerungsgabe für Max Weber, vol. 2, edited by Melchior Palyi (Munich: Duncker & Humblot, 1923), 339–352; see also his essay on the controversies surrounding Knapp, “Der Streit um die Staatliche Theorie des Geldes,” Schmollers Jahrbuch 45 (1921): 533–578.

ES, 192 f.

Last quotations from ES, 183–186. After his mother’s death Max wrote to his sister Clara Mommsen in February 1920 about Helene’s losses in the textile firm Carl Weber & Co., of which Marianne herself was a major shareholder: “At the time mother’s investment appeared very recommendable. But the execrable drop in the exchange rate (Valutaschweinerei) has changed everything. Her share is no longer worth 30,000 marks, but only 20,000. In the long run, however, her shares will remain for those of us who have children a very safe investment”. (9 February 1920, MWG, II/10, 916) Eighty-year-old Knapp was completely helpless in the face of inflation. His niece remembered, “Uncle Knapp often told us: Now I have millions lying in my desk drawer, but I am in reality so poor that I can’t even buy a hat in spite of my having five honorary doctor hats. [We told him:] First thing tomorrow you will buy yourself a hat and whatever else you need. He replied: How can you advise me to do that, I must not spend so much money. He had not the slightest inkling that on the next day his money would not be worth anything. The housekeeper wrang her hands over her professor. This was the man who had written the famous State Theory of Money, which had been translated into many languages, including Japanese, something he was very proud of. But he had not the faintest grasp of practical matters. He was just a very intelligent impractical professor.” Marie Wittich (1873–1966), Erinnerungen (typescript 1963). (I thank Claus Wittich, her grandson, for making this passage available to me.)

ES, 187.

Knut Borchardt has been in the center of these debates with his thesis that the distributional conflicts between industry, agriculture, and labor retarded economic growth and that in the early thirties Chancellor Brüning had no alternative to his deflationary policies. See Borchardt, Perspectives, Chap. 8–11; id., “Das Gewicht der Inflationsangst in den wirtschaftspolitischen Entscheidungsprozessen während der Weltwirtschaftskrise,” in Die Nachwirkungen der Inflation auf die deutsche Geschichte 1924–1933, edited by Gerald Feldman (Munich: Oldenbourg, 1985), 233–260; Christoph Buchheim, Michael Hutter, and Harold James, eds., Zerrissene Zwischenkriegszeit. Wirtschaftshistorische Beiträge. Knut Borchardt zum 65. Geburtstag (Baden-Baden: Nomos, 1994); Harold James, The German Slump. Politics and Economics 1924–1936 (Oxford: Clarendon, 1986); id., The End of Globalization. Lessons from the Great Depression (Cambridge, MA: Harvard University Press, 2001), esp. 17 l; Carl-Ludwig Holtfrerich, “Economic Policy Options and the End of the Weimar Republic,” in Weimar: Why Did German Democracy Fail? edited by Ian Kershaw (London: Weidenfeld, 1990), 58–90.

Somary, The Raven of Zürich, 120 f.

In Deutschösterreich als Sozial- und Wirtschaftsproblem (Munich: Drei Masken Verlag, 1921), dedicated to the memory of Friedrich Naumann, Stolper made a radical proposal for a sozialen Wirtschaftsstaat (roughly a welfare state). Dramatizing the unviability of an Austrian rump state, he demanded the Anschluss to Germany as soon as politically feasible. In the meantime, to save the people from starvation, he advocated dismantling the old forms of taxation (Steuerstaat) and their replacement by self-taxing compulsory corporations, which would be autonomous but united in a Wirtschaftsparlament (p. 278 ff.). On this score, Weber differed by opposing all projects of a corporatist nature.

See Michele Cangiani, “Prelude to The Great Transformation. Karl Polanyi’s Articles for Der Oesterreichische Volkswirt,” in Humanity, Society, and Commitment, edited by Kenneth McRobbie (Montréal: Black Rose, 1994), 7–24; Richard A. Bermann, “Editorial Meetings of the Oesterreichische Volkswirt (1928),” in Karl Polanyi in Vienna, edited by Kenneth McRobbie and Kari Polanyi Levitt (Montréal: Black Rose, 2000), 325–327.

See Bonn, Wandering Scholar, 318 ff.; Palyi, Twilight, esp. Chap. 9. For the state of scholarship, see Barry Eichengreen, Golden Fetters. The Gold Standard and the Great Depression, 1919–1939 (New York: Oxford University Press, 1992). Like Bonn and Palyi, Arthur Salz, a friend of the Webers, belonged to the shrinking number of liberal economists who defended the rationale for a capitalist order throughout the Weimar period; he ended up in exile at Ohio State University. See “Der Sinn der kapitalistischen Wirtschaftsordnung,” Archiv für Sozialwissenschaft 52, no. 3 (1924), 577–622; Macht und Wirtschaftsgesetz (Leipzig: Teubner, 1930); Das Wesen des Imperialismus (Leipzig: Teubner, 1931).

See Robert Skidelsky, John Maynard Keynes, vol. 3 (New York: Viking, 2000), 201 ff., 228 ff.

In 1940, Stolper also published German Economy 1870–1940. Issues and Trends (New York: Reynal & Hitchcock); see also Deutsche Wirtschaft seit 1870, 2d ed., continued by Karl Häuser and Knut Borchardt (Tübingen: Mohr, 1966).

A. M. Bartholdy, The War and German Society. The Testament of a Liberal (New Haven: Yale University Press, 1937), 267 and 55; it was part of the 150-volume series Economic and Social History of the World War published by the Carnegie Endowment for International Peace.

Skidelsky, Keynes, vol. 3, 284.

GT, 265, 263.

Michael Polanyi, Full Employment and Free Trade (Cambridge, UK: Cambridge University Press, 1945), 144, 142.

After the war, Michael engaged himself in the Congress for Cultural Freedom and also became a member of the Mont Pelerin Society. On the differences between Karl and Michael, especially in their judgments of the Soviet Union, see Endre J. Nagy, “After Brotherhood’s Golden Age: Karl and Michael Polanyi,” in Humanity, Society, and Commitment, edited by McRobbie, 81–112. See now also the illuminating illustrations from the correspondence of the brothers between 1940 and 1945 in Berkeley Fleming, “Three Years in Vermont: The Writing of Karl Polanyi’s The Great Transformation” (Eighth International Karl Polanyi Conference, Mexico City, November 2001). Fleming also mentions that Toni Stolper, Gustav’s wife and a professional economist, recommended The Great Transformation to the Book-of-the-Month Club but with a number of critical comments. I thank Fred Block for making the Fleming manuscript available to me.

Charles Kindleberger even spoke of Karl Polanyi’s “fervent Christian socialism” in “The Great Transformation by Karl Polanyi,” Daedalus, winter (1974): 45–52. In 1935, Karl Polanyi edited a volume, with John Lewis and Donald Kitchin, Christianity and the Social Revolution (London: Gollancz), to which he contributed an essay on “The Essence of Fascism.” See Jordan Bishop, “Karl Polanyi and Christian Socialism: Unlikely Identities,” in Humanity, edited by McRobbie, 162–178.

See Toni Stolper, Ein Leben in Brennpunkten unserer Zeit. Wien, Berlin, New York. Gustav Stolper 1888–1947 (Tübingen: Wunderlich, 1960), 462 f.

See Karl Mannheim, Freedom, Power, and Democratic Planning (New York: Oxford, 1950): “We propose to plan for freedom … [for a] society beyond Laissez-Faire or Total Regimentation on the one hand, and beyond the alternatives of Fascism or Communism on the other” (p. xvii); Eberhard Demm, Von der Weimarer Republik zur Bundesrepublik. Der politische Weg Alfred Webers 1920–1958 (Düsseldorf: Droste, 1999), 378 f.