*denotes quotation marks

*Formal rationality of economic action*: the extent of quantitative calculation or accounting which is technically possible and which is actually applied.

*Substantive rationality of economic action*: the degree to which the provisioning of given groups of persons (no matter how delimited) with goods is shaped by economically oriented social action under some criterion (past, present, or potential) of ultimate values, regardless of the nature of these ends.

*Formal rationality of economic action*: concerned with the *production* of goods in the most efficient manner; i.e., through quantitative calculation in given technical conditions. (*instrumentally rational action*)

*Substantive rationality of economic action*: concerned with the *distribution* of goods using a given criterion or set of ultimate values (*value rational action*).

*Formally rational system of economic activity*: the degree to which the provision for needs, which is essential to every rational economy, is capable of being expressed in numerical, calculable terms, and is so expressed.

*Substantively rational system of economic activity*: the degree to which the results of formally rational economic action are measured against the scales of "value rationality" or "*substantive* goal rationality." The number of possible value scales is infinite -- socialist and communist standards constitute only one group. These are *points of view* which are significant only as bases from which to judge the *outcome* of economic action: such outcomes could also be judged from ethical, esthetic or ascetic points of view.

*The rationality of monetary accounting*:

From a purely technical point of view, money is the most "perfect" means of economic calculation-it is, formally, the most rational means of orienting economic activity. So far as it is completely rational, money accounting has the following primary con- sequences:

1. the valuation of everything that enters into a productive activity in terms of the present or expected market situation.
2. a cost and benefits analysis of every possible course of action.
3. a quantitative comparison of assets at different period of time.
4. a record of assets and expenditures.
5. the regulation of consumption or purchase of necessary elements of production taking into account the results of accounting records in a given period and acting according to the canons of marginal utility.

*The concept and types of profit-making. The role of capital*.

*Profit-making*: activity oriented to opportunities for seeking new powers of control over goods or. a single occasion, repeatedly, or continuously.

*Profit-making activity*: activity oriented at least in part to opportunities of profit-making.

*Means of profit-making*: goods and other economic advantages used in the interest of profit-making.

*Exchange for profit*: it is oriented to market situations in order to increase control over goods rather than to secure means for consumption.

*Capital accounting*: form of monetary accounting peculiar to rational economic profit-making. (oriented to acquisition by peaceful methods - exploitation of market situations.)

*Capita*l: the money value of the means of profit-making available to the enterprise at the balancing of the books.

*Profit - loss*: the difference between initial and final balance. Requirements for the undertaking of profit-making activities in the market and capital accounting:

1. the existence of a market for the goods to be produced.
2. the possibility to estimate with an adequate degree of certainty the market costs of labor and means of profit-making.
3. that costs arising from legal and technical conditions are also calculable.

*The highest degree of calculability is of key importance*.

While consumers calculate in terms of marginal utility, the entrepreneur *is oriented to profitability, not marginal utility. In the last instance, the probabilities for profit are dependent on the income of the consumption units and their consumption behavior. From the standpoint of economic theory, it is the marginal consumer who determines the direction of production, i.e., consumer needs will determine what will be produced, how much, etc. IN ACTUAL FACT, GIVEN THE ACTUAL DISTRIBUTION OF POWER; THIS IS ONLY TRUE IN A LIMITED SENSE FOR THE MODERN SITUATION. TO A LARGE DEGREE, EVEN TROUGH THE CONSUMER HAS TO BE IN A POSITION TO BUY, HIS WANTS ARE "AWAKENED" AND "DIRECTED" BY THE ENTREPRENEUR, CAPITAL ACCOUNTING IN ITS FORMALLY MOST RATIONAL SHAPE THUS PRESUPPOSES THE BATTLE OF MAN WITH MAN.

Weber is not referring here to the class struggle but to the ruthless competition in the market. The way the market operates in a capitalist economy is such that profitability is the overriding criteria for production. First, Weber argues that "no economic system can directly translate subjective feelings of need into effective demand, i.e., into demand which needs to be taken into account and satisfied through production goals." The reasons for the inability of economic systems to produce for needs are a) the place of specific needs in the scale of relative urgency; some needs may have low priority and never achieve satisfaction-, b) the relative availability of the goods needed to satisfy a given want; c) their costs in terms of labor and goods would be so high as to jeopardize future wants considered more urgent. This is true of all systems, including a communist system. From a general, abstract characterization of limits to need satisfaction, Weber proceeds to specify the limitations that characterize a historically specific economic system: *the capitalist system - an economy which makes use of capital accounting and which is thus characterized by the appropriation of the means of production by individual units, that is, by property*. In this system, needs fail to be satisfied not only when an individual decides that his need for other goods is more important but also when others with greater purchasing power for all types of goods influence the productive sector. Weber's battle of man against man in the market refers, therefore, to the fact that those with greater purchasing power to outbid the others and those who have a better position in the production system can outbid others and sell at a more profitable price level.

*Consequences of the orientation of action to money prices and to profit*:

1. the differences in the distribution of money or marketable goods between individual parties in the market is decisive in determining the direction taken by the production of goods, so far as it is carried out by profit-making enterprises, in that it is only demand made effective through the possession of purchasing power which is and can be satisfied.

2 . the question of the type of demand that will be satisfied by the production of goods becomes dependent on the profitability of production itself. Profitability is *formally* a rational category; for that reason it is *indifferent* with respect to *substantive* postulates unless these can make themselves felt in the market in the form of sufficient purchasing power.

*Substantive Conditions(f Formal Rationality in a Money Economy*

1. market struggle among relatively autonomous units. power constellations conflicts of interest money prices money = weapon in the struggle prices = expressions of the struggle

2. the highest level of rationality is obtained in the form of capital accounting. substantive pre-condition: market freedom - competition-sales expenditures in struggle for consumer. STRICT CAPITAL ACCOUNTING IS FURTHER ASSOCIATED WITH THE SOCIAL PHENOMENA OF "SHOP DISCIPLINE" AND APPROPRIATION OF THE MEANS OF PRODUCTION, AND THAT MEANS, WITH THE EXISTENCE OF A SYSTEM OF DOMINATION.

3. the production of goods by profit making enterprises using capital accounting is regulated not by demand, but by effective demand.

Formal and substantive rationality are separate things. Formal rationality of money accounting reveals nothing about the actual dis- tribution of goods or real want satisfaction unless combined with an analysis of the distribution of income.

*Market Economies and Planned Economies**

*Market economies*

a. action oriented to advantages in exchange on the basis of self-interest and, therefore, cooperation through the exchange process result in want satisfaction.
b. want satisfaction presupposes money calculation - in a capitalist economy it pre-supposes separation between the household and the enterprise.
c. the individuals' units are autocephalous and their action is autonomously oriented. Households orient their actions in terms of marginal utility of assets or expected income.
d. profit-making enterprises orient their actions through capital accounting.

e. decisive elements of the motivation of economic activity:
i. *for those without substantial property*: the risk of going entirely without provisions, both for themselves and their dependents subjectively, and in varying degrees, they value economically productive work as a mode of life
ii. *for those who enjoy a privileged position by virtue of wealth or the education which is usually in turn dependent on wealth* opportunities for large incomes from profitable undertakings ambition valuation, as a "calling" of specific types of work enjoying high prestige and high technical competence
iii. *for those sharing in the fortunes of profit making enterprises* the risk to the individual's own capital and his own opportunities for profit combined with the valuation of rational acquisitive activity as a "calling." The latter may be significant as a proof of power.

*Planned economies*

a. economic action oriented systematically to an established substantive order (whether agreed or imposed) valid within an organization results in want satisfaction.
b. want satisfaction dependent on calculations in kind as the ultimate basis of the substantive orientation of economic action (non-market goods may be viewed as allocated on that basis).
c. all economic action is oriented heteronomously and in strictly budgetary manner, to rules which command some actions while forbidding others and establish a system of rewards and punishments.
d. *the issue of motivation of economic action* when additional income is used to stimulate self-interest and increase productivity, for example, the type and direction of the action is thus substantively heteronomously determined.

Formally voluntary economic actions in the context of a market economy result from the UNEQUAL DISTRIBUTION OF WEALTH, AND PARTICULARLY of CAPITAL GOODS. (This) forces the non-owning group to comply with the authority of others in order to obtain any return at all for the utilities they can offer on the market ... IN A PURELY CAPITALIST ORGANIZATION OF PRODUCTION, THIS IS THE FATE OF THE ENTIRE WORKING CLASS.

*motivation in a planned economy*

motivation to work because of the risks to self and dependents is weakened - dependents would not be allowed to suffer from the worker's lack of efficiency in production.

* assumption*: lack of survival risk will result in less productivity reduction in the autonomy of productive units; elimination of motivation by capital risk or proof of merit, power over other individuals eliminated motivations can be special material rewards and ideal motives of an altruistic type.

To implement a planned economy means to inevitably reduce formal calculatory rationality because money and capital accounting are eliminated.

SUBSTANTIVE AND FORMAL RATIONALITY ARE LARGELY DISTINCT PROBLEMS, THIS FUNDAMENTAL AND - in the last instance - UNAVOIDABLE ELEMENT OF IRRATIONALITY IN ECONOMIC SYSTEMS IS ONE OF THE IMPORTANT SOURCES OF ALL "SOCIAL" PROBLEMS, AND ABOVE ALL, OF THE PROBLEMS OF SOCIALISM.

*Social aspects of the division of labor*

DOL according to the ways in which qualitatively different, especially complementary function, are distributed among more or less autocephalous and autonomous economic units (budgetary or profit-making).

There are two polar possibilities:
a. *unitary economy*: specialization or specification of functions is wholly internal, completely heterocephalous and heteronomous and determined on a purely technical basis, e.g., communist national economy, family unit (closed household economy), corporation.
b. the distribution of functions may take place between autocephalous economic units.
i. economic units which are autocephalous but heteronomous oriented to a substantive order.
ii. market economy.

DOL according to the mode in which the economic advantages which are *regarded as returns for the different functions*, are appropriated. Objects of appropriation of economic advantages:

the opportunities of disposing of, and obtaining a return from, human labor services
the material means of production
the opportunities for profit from managerial functions

*Appropriation of labor power*

When utilization rights for labor services are appropriated, the services themselves may either:
1) go to an individual recipient or to an organization
2) they may be sold in the market

Possibilities:
a. monopolistic appropriation of the opportunities for disposal of labor services by the individual worker itself ("craft organized free labor")
b. appropriation by "owner" of the worker: slavery, serfdom, hereditary dependency
c. formally "free" labor - the services of labor are the subject of a contractual relationship which is formally free on both sides
d. appropriation by an organization of workers

*Appropriation of the means of production*

1. *appropriation by workers* individual appropriation unitary communist economy collective appropriation shareholding

2. *appropriation by owners* appropriation by "owners" or organized groups or them can only mean the expropriation of the workers from the means of production, not merely as individuals, but as a whole

3. *appropriation by an organization* which only *regulates* economic activity, which does not itself use them as capital goods or as a source of income, but places them at the disposal of its members

*The appropriation of managerial functions*

*Traditional budgetary units (household)* household head - head of kinship group - appointed staff

*Profit-making enterprises*

a. management and ordinary labor are entirely or nearly identical.
b. where management and ordinary work are separated, entrepreneurial functions may be monopolistically appropriated by closed membership groups (guilds) or monopolies granted by political authority.
c. when managerial functions are, from a formal standpoint, wholly unappropriated, the appropriation of the means of production or the credit necessary to secure control over them is in practice, in a capitalistic form of organization, identical with appropriation of control of management. Owners can exercise control personally, or through the appointment of managers.

**The Expropriation of Workers from the Means of Production**

*Marx's views on the so-called "Primitive accumulation"*

The so-called primitive accumulation...is nothing else than the historical process of divorcing the producer from the means of production. It appears primitive because it forms the per-historic stage of capital and of the mode of production corresponding with it. The economic structure of capitalistic society has grown out of the economic structure of feudal society. The dissolution of the latter set frees the elements of the former ... Hence, the historical movement which changes the producers into wage-workers, appears, on the one hand, as their emancipation from serfdom and from the fetters of the guilds, and this side alone exists for our bourgeois historians. But, on the other hand, these new freedmen became sellers of themselves only after they had been robbed of all their own means of production, and of all the guarantees of existence afforded by the old feudal arrangements. And the history of this, their expropriation, is written in the annals of mankind in letters of blood and fire.. K. Marx, *Capital*. V.I - N. York: International Publishers, 1970: 714-15.

*Weber's analysis of the expropriation process*

Expropriation of the individual worker from ownership of the means of production is determined by purely *technical* factors in the following cases.

a. when means of production *require* the services of many workers.
b. the rational exploitation of sources of power *requires* the use of workers doing similar things under unified control.
c. when the technically rational organization of the work process requires it.
d. when the discipline made possible by unified control of means of production and raw materials is required to improve quality and productivity.
These factors do not exclude the possibility of a collective appropriation by a workers' cooperative - then only separation of the *individual* worker from the means of production is required.

Expropriation of workers *in general* - including clerical personnel and technically trained persons - has its *economic* reasons above all in the following factors;

a. it is possible to achieve a higher level of economic rationality; workers' control introduces irrationalities (technical and economic)
b. in a market economy a management which is not hampered by any established rights of the workers, and which enjoys unrestricted control over the means of production, is of superior credit worthiness.
c. historically, the expropriation of labor has arisen since the 16th century in an economy characterized the progressive. extensive and intensive expansion of the market system on the one hand, because of the sheer superiority and actual indispensability of a type of management oriented to the particular market situations and on the other, because of the power relations of the society.

Expropriation has also been favorably affected by the orientation of profit-making enterprises to the exploitation of market advantages:

a. it used the most rational accounting procedure: capital accounting
b. puts a premium on the commercial qualities of management - also maintains commercial and technical secrets
c. it favored a speculative business policy

FINALLY, AND IN THE LAST ANALYSIS QUITE REGARDLESS OF THE DEGREE OF TECHNICAL RATIONALITY, THIS EXPROPRIATION IS MADE POSSIBLE BY THE SHEER BARGAINING SUPERIORITY WHICH IN THE LABOR MARKET ANY KIND OF PROPERTY OWNERSHIP GRANTS VIS A VIS THE WORKERS.

The fact that the maximum of *formal* rationality in capital accounting is possible only where the workers are subjected to domination by entrepreneurs, is a further specific element of *substantive* irrationality in the modern economic order.

free labor and the complete appropriation of the means of production create the most favorable conditions for discipline.