Key Arguments

• He defines formal rationality in terms of calculation: 'The formal rationality of economic activity can be characterised here as the degree of calculation that is technologically possible for that activity, and the extent to which it is actually applied.'
• He contrasts this with substantive rationality as oriented to value postulates: 'By contrast, the substantive rationality of economic activity concerns the degree to which the given supply of goods for particular human groups (however delimited), organised through economically oriented social action, was, is, or could be subjected to particular evaluative postulates (however constituted).'
• He explains that his formulation merely seeks clarity in the use of 'rational': 'The formulation suggested here (which is only a more precise rendering of a recurrent problem in debates on “socialisation” and calculation “in money” or in natura) is solely intended to introduce a greater degree of clarity regarding use of the word “rational” in this area.'
• He underscores that formal rationality is relatively unambiguous, especially where money allows maximum calculability: 'Economic activity is formally “rational” to the degree that vital “provision” for any rational economy can be, and is, expressed by numerical, “calculable” estimation (initially quite independently of what technical form these calculations take, whether, that is, they are expressed as monetary calculations or calculations in natura). This concept is therefore at least unambiguous (although as we shall see, only relatively unambiguous) insofar as the monetary form represents the maximum of formal calculability (and of course, ceteris paribus!).'
• Conversely, he calls substantive rationality 'thoroughly ambiguous' and notes that it implies judging outcomes against diverse value‑rational or substantive purposively rational standards beyond pure means‑end calculation: 'By contrast, the concept of substantive rationality is thoroughly ambiguous. It merely states the following common attribute: that we cannot confine ourselves to establishing the purely formal and (relatively) unambiguous fact that the most technologically adequate means are employed in purposively rational calculation, but that ethics, politics, utilitarianism, hedonism, social rank, egalitarianism, or whatever else, introduce some other requirements and so measure the outcomes of economic activity against a value-rational standard, or substantive purposively rational standards, no matter how formally “rational,” that is, calculable, this activity might be.'
• He stresses the limitless variety of such standards and situates socialist and communist criteria as only one group among many: 'The number of possible standards of value that are here rational in this sense is in principle quite without limit, and those value standards underlying the not unambiguous socialist and communist standards, which are themselves always in some respects ethical and egalitarian, constitute of course only one group among this great variety (social ranking, services related to political power, especially current military aims and all conceivable alternative perspectives are in this sense all “substantive”).'
• He adds that there can be ethical, ascetic, or aesthetic critiques of economic disposition and means that may treat monetary calculation as subordinate or hostile: 'We should also note that quite independently of this substantive critique of the economic outcome, there is, moreover, the possibility of an ethical, ascetic, aesthetic critique of an economic disposition (Wirtschaftsgesinnung), as well as one of economic means. For all of these, the “merely formal” implementation of monetary calculation can seem an entirely subordinate consideration, or even inimical to its principles (quite apart from the consequences of the specifically modern form of calculation).'
• Finally, he notes that 'substantive' itself is being used as a formal, abstract generic concept: 'Substantive is thus here also a formal, that is, an abstract, generic concept.'

Source Quotes

By contrast, voluntary consumer organisations (e.g., consumer associations, purchasing cooperatives) were formed by economically weak parties seeking cost savings for members but succeeding in establishing effective market regulation only in a very local and limited fashion. §9. The formal rationality of economic activity can be characterised here as the degree of calculation that is technologically possible for that activity, and the extent to which it is actually applied. By contrast, the substantive rationality of economic activity concerns the degree to which the given supply of goods for particular human groups (however delimited), organised through economically oriented social action, was, is, or could be subjected to particular evaluative postulates (however constituted).

The formal rationality of economic activity can be characterised here as the degree of calculation that is technologically possible for that activity, and the extent to which it is actually applied. By contrast, the substantive rationality of economic activity concerns the degree to which the given supply of goods for particular human groups (however delimited), organised through economically oriented social action, was, is, or could be subjected to particular evaluative postulates (however constituted). These postulates are extremely ambiguous.

2. Economic activity is formally “rational” to the degree that vital “provision” for any rational economy can be, and is, expressed by numerical, “calculable” estimation (initially quite independently of what technical form these calculations take, whether, that is, they are expressed as monetary calculations or calculations in natura). This concept is therefore at least unambiguous (although as we shall see, only relatively unambiguous) insofar as the monetary form represents the maximum of formal calculability (and of course, ceteris paribus!).

Economic activity is formally “rational” to the degree that vital “provision” for any rational economy can be, and is, expressed by numerical, “calculable” estimation (initially quite independently of what technical form these calculations take, whether, that is, they are expressed as monetary calculations or calculations in natura). This concept is therefore at least unambiguous (although as we shall see, only relatively unambiguous) insofar as the monetary form represents the maximum of formal calculability (and of course, ceteris paribus!). 3.

It merely states the following common attribute: that we cannot confine ourselves to establishing the purely formal and (relatively) unambiguous fact that the most technologically adequate means are employed in purposively rational calculation, but that ethics, politics, utilitarianism, hedonism, social rank, egalitarianism, or whatever else, introduce some other requirements and so measure the outcomes of economic activity against a value-rational standard, or substantive purposively rational standards, no matter how formally “rational,” that is, calculable, this activity might be. The number of possible standards of value that are here rational in this sense is in principle quite without limit, and those value standards underlying the not unambiguous socialist and communist standards, which are themselves always in some respects ethical and egalitarian, constitute of course only one group among this great variety (social ranking, services related to political power, especially current military aims and all conceivable alternative perspectives are in this sense all “substantive”). We should also note that quite independently of this substantive critique of the economic outcome, there is, moreover, the possibility of an ethical, ascetic, aesthetic critique of an economic disposition (Wirtschaftsgesinnung), as well as one of economic means.

The number of possible standards of value that are here rational in this sense is in principle quite without limit, and those value standards underlying the not unambiguous socialist and communist standards, which are themselves always in some respects ethical and egalitarian, constitute of course only one group among this great variety (social ranking, services related to political power, especially current military aims and all conceivable alternative perspectives are in this sense all “substantive”). We should also note that quite independently of this substantive critique of the economic outcome, there is, moreover, the possibility of an ethical, ascetic, aesthetic critique of an economic disposition (Wirtschaftsgesinnung), as well as one of economic means. For all of these, the “merely formal” implementation of monetary calculation can seem an entirely subordinate consideration, or even inimical to its principles (quite apart from the consequences of the specifically modern form of calculation).

Key Concepts

• The formal rationality of economic activity can be characterised here as the degree of calculation that is technologically possible for that activity, and the extent to which it is actually applied.
• By contrast, the substantive rationality of economic activity concerns the degree to which the given supply of goods for particular human groups (however delimited), organised through economically oriented social action, was, is, or could be subjected to particular evaluative postulates (however constituted).
• Economic activity is formally “rational” to the degree that vital “provision” for any rational economy can be, and is, expressed by numerical, “calculable” estimation
• the monetary form represents the maximum of formal calculability (and of course, ceteris paribus!).
• The number of possible standards of value that are here rational in this sense is in principle quite without limit
• there is, moreover, the possibility of an ethical, ascetic, aesthetic critique of an economic disposition (Wirtschaftsgesinnung), as well as one of economic means.

Context

§9, where Weber introduces his influential distinction between formal and substantive rationality of economic activity and discusses its implications for debates on socialisation and monetary versus in‑kind calculation.