Thorstein Veblen
Review author of: 'Der moderne Kapitalismus'. By WERNER SOMBART. Leipzig: 
Duncker & Humblot, 1902. 8vo, 2 vols. Pp. xxxiv + 669 and vii + 646.
The Journal of Political Economy, vol. 11, No. 2 (Mar., 1903), pp. 300-305.
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[300] Mr. Sombart's Kapitalismus is the most considerable essay in economic 
theory yet made on lines independent of the classical English political 
economy, by an economist affiliated to the historical school. As is well 
known, the adherents of the historical method have not until recently 
entered the theoretical field, except by way of adaptation or criticism of 
doctrines already in vogue; and where they have made the attempt it has 
commonly not had substantial results.
Mr. Sombart is not a Historiker, although his work shows the training of 
the "historical method." In standpoint and animus his work blends the 
historical outlook with Marxist materialism. But his Marxism is very 
appreciably modified by the spirit of modern, post-Darwinian scientific 
inquiry; so that the latter element may perhaps be said to predominate. At 
least no preconceptions of Historismus or Materialismus are allowed to 
divert the inquiry from scientific theory, as that phrase is understood in 
line latter-day work of the material sciences. More than once (as, e.g., 
Vol. I, p. xxxii) he cautious the reader that the inquiry which he has in 
hand aims at an explanation of the economic situation in causal terms; 
although the caution is scarcely necessary for any one who will follow the 
discussion attentively, which is no difficult or tedious task, since Mr. 
Sombart is a master of a lucid and cogent style.
The work is as ambitious as any one could desire. Indeed, it has an air of 
conviction and self-sufficiency at times quite cavalier. It condemns the 
work of predecessors and contemporaries in such harsh and flippant terms as 
sometimes to remind one of Marx's vituperative outbreaks. But, again like 
Marx, a large and ready command of the materials and a tenacious grasp of 
the many converging lines of his argument save Mr. Sombart's work from the 
damage which it would otherwise suffer on account of his jaunty self-
complacency and his discourteous treatment of those who have the fortune to 
differ with him. While the work is theoretical throughout, it brings in 
much of the [301] material used in a somewhat comprehensive manner. So much 
so, indeed, as to make these two volumes the most available general guide 
to the materials of the subject. At times the argument comes near losing 
itself in an excess of illustrative detail, such as had better been dealt 
with in monographic form apart from the theoretical development. A more 
serious weakness of the book is an excess of terminological innovation. 
There is throughout an uncontrolled penchant for discarding definitions and 
distinctions already familiar to economic students and substituting for 
them new terms and distinctions that are not always more serviceable than 
those which they displace. And new distinctions are also multiplied with 
unnecessary alacrity; so that the new categories are not always useful to 
Mr. Sombart, and it is very doubtful if many of them will be of service to 
any one else. No doubt, some, perhaps most, of the new categories that are 
of a general character and a broad bearing are necessary to the argument 
and constitute a substantial theoretical advance; but, also no doubt, a 
great part of the fine-drawn distinctions elaborately worked out and 
designated without apparently serving any theoretical end might 
advantageously have been left out. It is within the mark to say that if 
excessive detail of classification and such materials as are of the nature 
of collateral only had bean omitted, the substance of the two volumes might 
conveniently have been brought within the campuses of one.
The two volumes already published are but the beginning of a comprehensive 
systematic work, eventually to be completed in some three or four 
additional volumes. So that any present appraisement of the work as a whole 
must be taken as provisional only, so far as regards its adequacy for the 
theoretical purpose at which it aims. But as regards its scope and 
character these two volumes afford a sufficiently unequivocal indication. 
It is a genetic account of modern capitalism; that is to say, of modern 
business enterprise, as an English writer might phrase it. Vol. I, on "The 
Genesis of Capitalism," traces the origin of modern business enterprise 
from the small beginnings of the Middle Ages, through the handicraft and 
petty trade of early modern times, down to the full-grown capitalistic 
enterprise as it came to prevail in industrial business in the course of 
the nineteenth century. Vol. II, on "The Theory of Capitalistic 
Development," is occupied with "The Modern Foundations of Business" (Book 
I), "The Reorganization of Business Traffic" (Book II), and "The Theory of 
Business Competition" (Book III). These three books of Vol. II deal with 
the present situation, that is to say, the [302] situation as it stands 
since capitalistic enterprise has come to dominate industrial business.
Characteristic of Mr. Sombart's point of view and significant of the aim of 
his inquiry is the careful distinction with which he sets out (chap. i), 
between business (Wirtschaft) and industry (Betrieb).

Betrieb ist Arbeitsgemeinschaft; Wirtschaft ist Verwertunsggemeinschaft. Es 
liegt mir viel daran, diese Unterscheidung zwischen Wirtschaft und Betrieb 
zu einem sicheren Besitzstande unserer Wissenschaft zu machen, da ich ihr, 
wie sich im folgenden zeigen wird, eine grosse Bedeutung für die richtige 
Beurteilung des Wirtschaftslebens beimesse.

Accordingly, is the genesis and the ramifications of that modern form of 
business enterprise called "capitalism" that the inquiry pursues; and it 
does not concern itself with diversities and changes of the mechanical 
methods of industry, except so far as they condition or are conditioned by 
the methods and aims of business. In tracing the genesis of capitalistic 
enterprise there are two main factors of the development to be accounted 
for: the accumulation of capitalizable funds (Book II, Part II), and the 
rise of the spirit of business enterprise (Book II, Part III). 
Capitalizable funds, Mr. Sombart finds, gradually accumulated toward the 
close of the Middle Ages in the hands of the landed gentry, particularly 
such of the nobility as held urban real property. To the growth of 
accumulations in the hands of the landless merchants of the towns he 
assigns an altogether secondary importance. A great, perhaps the decisive, 
auxiliary of this landed property was the influx of the precious metals. 
This new supply of money at the arms time tempted to investment in 
adventures of the commercial kind by holding out large chances of gain, as 
it also familiarized men with the notion of trafficking for increase of 
wealth rather than (as had been the case) for the means of a decent 
livelihood.
The capitalistic spirit, the habit of mind involved in diligently seeking 
gain for gain's sake, was new when the modern era set in; and its gradual 
spread and ultimate dominance in the economic life of the western nations 
is a phenomenon which not only itself needs explanation, but which is 
conditioned by, and in turn conditions, the habits of life, the 
institutions, the industrial methods, and the methods of business traffic 
of these nations. Mr. Sombart's inquiries on these heads run chiefly on 
German ground. He looks to the early German situation primarily, and to the 
growth in those communities (particularly Italian) with which the early 
German business community stood in [303] close relations. And it is from 
the German situation outward that his investigations chiefly run in working 
out the course of business growth. In so looking to Germany (and Italy) as 
the quasi-independent "area of characterization" of modern business 
enterprise it is scarcely to be doubted that Mr. Sombart is following a 
mistaken lead. It need not, certainly it cannot, be disputed that both in 
Germany and in Italy, on the transition from mediaeval to modern times, 
business enterprise flourished both in commerce, banking, and industry; 
that the transition was effectively made, from the mediaeval spirit of 
handicraft and petty trade carried on for a livelihood and governed by 
corporate regulations designed to safeguard a livelihood, to the modern 
spirit of capitalistic investment for a profit, governed by some measure of 
free contract and presuming freedom of competition. This early start on the 
continent might be taken to signify that modern business enterprise took 
its rise from these continental cultural areas, and that it embodies the 
spirit of their traditions, and rests on their institutional substructure. 
But to that view there are two counter considerations to be ordered. As it 
is notorious, among students of these matters, that business enterprise 
arose and rapidly grew great within these continental communities, so it is 
also notorious that it presently decayed and all but disappeared from among 
those nations when the era of politics, wars, and church dissensions set 
in. These communities carried over into the new era that dates from the 
late eighteenth century nothing in the way of a business spirit or business 
tradition that is at all comparable with what the English community then 
had to offer. The question of how much the English community may have 
borrowed from continental examples of business methods and the like, is not 
much to the point, since the conditions out of which modern business 
enterprise has arisen prevailed in such effective force in the English 
community that nothing more substantial than an acceleration of the growth 
could be ascribed to the continental influence. "Materialistic" as his bias 
is, Mr. Sombart is not inclined to rate an inquiry into chronological 
precedence high as compared with the economic causes at work, the 
conditioning circumstances out of which this modern institutional fact of 
business enterprise has arisen. And so far as regards these decisive 
circumstances, material and cultural, the English situation in that late 
modern time to which current business enterprise takes back was favorable 
to business, whereas the continental situation was then decisively 
unfavorable. The circumstances favorable to the growth of business 
principles had in very great [304] measure disappeared from the 
continental, particularly the German and Italian, situation, so that it was 
only during the course of the nineteenth century, and only under the 
tutelage of that modern spirit of business and mechanical technology that 
spread outward from the English-speaking community after the Napoleonic 
era, that these countries again fell into line and recovered the degree of 
development which they had lost a couple of centuries earlier.
These considerations go to say that the connection of the present situation 
with the past, in point of continuous growth, is to be sought within the 
English-speaking communities, and that any historical study of the 
antecedents and character of modern business enterprise had best be 
directed to the British development. These considerations are strongly 
backed by Mr. Sombart's own answer, in the second volume to the question: 
"What were the forces which created modern business enterprise?" There is 
neither place nor occasion here to follow out in detail the solution of 
this question, for that would require a recital of the substance of the 
second volume, but it is worth while in this connection to point out what 
is said in Book I of this volume on the institutional and material 
foundations of modern business enterprise and to call to mind that these 
institutional and material conditions are of British derivation and are not 
found in their best development outside of the English-speaking 
communities. This Book I, on "Die Neubegründung des Wirtschaftslebens," 
comprises these chapters : "Das neue Recht," "Die neue Technik," and "Der 
neue Stil des Wirtschaftslebens." The substance of the chapter on "The New 
Legal Basis" may be summed up in a few words. It is the system of natural 
liberty; that is to say, in its economic bearing, inviolability and 
equality of property rights, freedom of contract, free competition. This 
institutional foundation of business enterprise is embodied in the English 
common law; it was worked out on British ground, gradually, from the time 
of the Tudors; it is to be found ingrained in the common-sense of all 
English-speaking peoples and prevails nowhere else in anything like the 
same degree of consistency and tenacity. Institutionally speaking, the 
British natural-rights development affords the only practicable foundations 
for a consummate business life, and the other peoples of western Europe are 
on this head borrowers and imitators of the British, driven in good part by 
the exigencies imposed by British competition. In proportion as the 
institutional situation in any of these neighboring communities departs 
sensibly from the British natural-rights patterns, they are handicapped 
[305] for the business purpose. Those who (practically) come nearest the 
British pattern, as e.g., Germany, are most fortunately placed for 
purposes of business enterprise.
So also as to the material, the technological basis of business enterprise. 
The industrial revolution, which brought in the technology of the machine 
process and so laid the material foundations of modern business, is, of 
course, broadly an English fact - whatever fragmentary technological 
elements the English community may ones have borrowed from southern Europe. 
And from the time when the modern machine industry got under way the lead 
in this matter has remained with the English-speaking peoples. It is only 
in the immediate present, and then doubtfully, that other than the English-
speaking peoples have come into the first rank as creative factors in 
industrial technology. The aptitude, or the habit, of consecutive and 
aggressive thinking in terms of the machine process is by no means confined 
within the limits of English speech, but the boldest and widest prevalence 
of this habit of materialistic thought lies within those limits; and this 
habit of mind is the spiritual ground of the modern technology. That its 
prevalence, or its vogue, should roughly coincide with English speech and 
English institutions need not bring surprise, since an analysis of its 
character and derivation will show that it comes of the same range of 
cultural factors that have given rise to the characteristically English 
institutions.
It is on this institutional and technological ground that modern business 
traffic rests, and it is accordingly not a matter of surprise that business 
methods and business enterprise - der neue Stil des Wirtschaftslebens, as 
Mr. Sombart calls it - have reached their freest swing and their maturest 
expression among the English-speaking peoples. And it is to be regretted 
that Mr. Sombart's masterly analysis of the growth and the current 
phenomena of business enterprise should not have taken the British and 
American situation as the typical, central body of the development, by 
comparison with which the ramifications of business enterprise through the 
rest of the industrial world are best to be appreciated. Instead of this he 
has chosen as his immediate subject of inquiry the, essentially outlying, 
business community of Germany, and has taken account of the main (English) 
line of growth only by way of qualification. The result is a slightly more 
roundabout discussion, a slightly less clear insight into the working of 
the mechanism, a slightly less true perspective in the presentation, than 
might have been had from a more fortunately chosen historical point of 
departure.
V.