In The Protestant Ethic and the Spirit of Capitalism, Max Weber writes that it should be taught "in the kindergarten of cultural history" that capitalism is not synonymous with greed for gain. The impulse to acquire as much money as possible, he points out, has always existed in every society and among all types of people. Indeed, capitalism restrains and tempers this irrational impulse, turning it into something socially useful.
The basis of capitalism, according to Weber, is the free and peaceful exchange of goods, conducted with the expectation of profit. This type of exchange has always occurred, but as a series of individual undertakings by merchants, not as a cohesive economic system forming the basis of a society. Only in modern times has the West developed a new form of capitalism based on the organization of free labor.
Weber identifies three key elements in the development of modern Western capitalism at the end of the nineteenth and the beginning of the twentieth century. One is "industrial organization, attuned to a regular market, and neither to political nor irrationally speculative opportunities for profit." Another is the spatial separation of business from the household, while the third is a rational system of book-keeping. These organizational innovations have allowed capitalism to function as a complex system and become the theoretical and practical basis for entire societies rather than the occasional activity of certain individuals.
In Max Weber’s The Protestant Ethic and the Spirit of Capitalism, he defines capitalism as more than an impulse to accumulation of wealth. Weber’s interest in capitalism is primarily in its ethical and cultural value rather than its traditional understanding. He defines capitalism as an unavoidable result of Europe’s historical progress and says that there is no way to revert back to the patriarchal structures and values.
Weber narrows his definition of capitalism by associating it with peaceful free exchange, not with unequivocal force. As such, rationality in the development of a monetary system and the use of balances is part of capitalism. Furthermore, in his script, Weber centers on the political, economic, and religious constructs that molded Western Capitalism. He begins by dismissing the notion on capitalism as an aspiration for gaining profit. In his opinion, this aspiration is unrelated to capitalism since it is associated with all people of all types and classes.
As a result of the complexities of the social and political structures and the spiritual information of the Reformation era, the author works towards establishing a relationship between specific positions of the existing models of religious beliefs and professional ethics. Consequently, Weber believes that this can make out the significance of religion on the advancement of material culture.
Weber’s major work The Protestant Ethic and the Spirit of Capitalism (1905), highlights the Weber's skepticism toward modernity. He argues that the Protestant faith and the Calvinist belief in “calling,” or predestination, set the stage for the emergence of the capitalist spirit. The motivation of capitalists and the spirit of capitalism is modernity itself—the modern culture (“Kultur”) and code of values that, in the 20th century, went from being religious and personal to atheistic and impersonal. Society was no longer dominated by moral absolutes, as what was “right and wrong” for the individual was, in Weber’s estimation, in the midst of breakdown.
In contrast to religion and ethics, “social” values were determined in light of individual wants, and "correct" behavior began to lay in the observance of correct procedures (much like a machine) rather than an upright spiritual constitution. The modern realities of numbers, market forces, and technology meant less emphasis on universally shared values and more emphasis on output—that is, work. As work became seen as the “new religion” (described by Weber as “an absolute end in itself”), it was clear that the modern “ethic” was entrepreneurial in spirit and linked to labour. Capitalism saw individuals go from wanting the greatest good for self and others to making as much money as possible—and largely for selfish reasons.
Weber defines capitalism as follows:
Where we find property is an object of trade and is utilized by individuals for profit-making enterprise in a market economy, there we have capitalism.
But Weber was not as interested in analyzing the economic aspects of capitalism as he was its cultural underpinnings. In fact, that is, in a way, Weber's point in his most famous treatment of the subject, The Protestant Ethic and the Spirit of Capitalism. There, he argued that capitalism was the product of material conditions, conscious decisions, and cultural changes. Weber locates the cultural origins of capitalism in the emergence of Protestantism, with its emphasis on "callings" which sanctified work. Protestantism also carried with it a certain asceticism which encouraged successful businessmen to invest earnings back into their businesses as capital rather than spending money on finery. Over time, Protestants came to view work, and material success, as a function of spiritual worth. Over time, this spirit, Weber argues, became "demystified," or disconnected from its religious origins. Thus was born modern capitalism, in which one's worth is calculated by earnings potential, and the emphasis on frugality mutates into rationalization, organization, and bookkeeping. Work becomes not so much an expression of piety, but rather a way of surviving within a system which they could not escape or transcend. Accordingly, Weber characterized modern rational capitalism as an "iron cage."