I

Articles

The Role of Merchantsin the Market Economy
With Special Reference toWerner Sombart and John Hicks

Yasuhiro Sakai

Shiga University / Professor Emeritus

John Hicks on Theory andHistory: An Introduction

The purpose of this paper is to systematically discuss the role of the merchants in theexchange economy from a historical perspective. In particular, Werner Sombart and John
Hicks will be taken out as two giants in studies
of such relationship, and will critically be evaluated and carefully compared from various
angles.
John Hicks (1904 - 1989) was one of themost outstanding economists in the 20th century. While he led a scholastic life somehow
detached from the real world, he was definitely
a man with wide knowledge and deep insight.
While he was not an economic historian in its
strict sense, he had long been interested in economic history. In fact, in his young days when
he was working for a university in South Africa, he lectured on English medieval economic
history. Back in the United Kingdom, Hicks(1941) changed his subject to labor economics,
thus publishing a nicely written book The Theory of Wages (1941), in which useful theoretical
tools including the concept of the elasticity of
substitution were invented and applied. Just
after the Second World War, Hicks (1946)
published a masterly theoretical work Valueand Capital (1946), which was widely regarded
as one of landmarks in economic theory in the20th century.1)
Even after Hicks succeeded in establishinghimself as a world famous theorist, he seemed
to never forget his 'first love' for history. Afterall, the first love of a young man would be remembered until his death! In 1969, the year inwhich I myself was a graduate student majoredin mathematical economics at the University
1) For a detailed discussion on the life and work of

Sombart, see Backhaus (1996a), Volume I, Introduction,
pp. 13-18..

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of Rochester, Hicks decided to publish "a small
book on a large subject — an enormously large
subject" (Hicks, 1969, p. 1). It had a modest yet
interesting title A Theory of Economic History.
Ironically enough, in 1972, the year when I began to teach general equilibrium theory at the
University of Pittsburgh just after receiving a
Ph.D. from Rochester, he was given a Nobel
Economic Science Prize for his classical workon general equilibrium and welfare economics.
To tell the truth, he was not so happy to receive
the Nobel Prize for his old subject of generalequilibrium rather than for his new field of
economic history. For this point, he once remarked:
They gave me a Nobel prize (in 1972) for
my work on 'general equilibrium and welfare
economics,' no doubt referring to Value andCapital (1939) and to the papers on Consumers' Surplus which I wrote soon after that
date. ... But it was done a long time ago, andit was with mixed feelings that I found myself honored for that work, which I felt
myself to have outgrown.
(Hicks 1977, Preface, p. v)
If I am allowed to simplify the matter, the
New Hicks was awarded the honorable Nobel
Prize for the past work by the Old Hicks. So, akind of mixed feeling derived from such a mismatch seemed to be occurred in his mind.
The late Professor Michio Morishima(1923-2004) was one of the greatest Japanese
economists after the Second World War. We
had great respect for Morishima, who in turn
had great respect for Hicks. Morishima once
remarked:

The Role of Merchants in the Market Economy

When I read A Theory of Economic History, I asked Professor Hicks, " Would you
like to continue such a history work a la Max
Weber from now on?" Taking a pause, he replied to me, "Well, I would not think so."After several days, however, he confessed hishonest opinion, "If I was given a Nobel Prize
for my recent work on Economic History
rather than Pure Theory, I surely would havefelt much happier." This may clearly demonstrate that he himself evaluated his work on
History much higher than the one on Theory.
(Morishima 1994, p. 74)
Personally speaking, Sakai has ever met
Professor John Hicks on several occasions.
Sakai's last and most impressive meeting withhim occurred in Summer 1988, when Sakai wasin Bologna, Italy to present his technical papers
first at the World Congress of EnonometricSociety and then at the Annual Meeting of theEuropean Economics Society held at the Univer s i t y o f B o l o g na , o n e o f th e o l d e st
universities in the world. We should add that
the Special Memorial Conference in Honor ofJohn Hicks was also organized at a separate
place in Bologna. Very fortunately, Sakai wasalso invited as a special guest at the Hicks memorial conference be cause of the kind
invitation of the late Professor Hirofumi Uzawa (1928-2014) , another great Japanese
economist. When Sakai met with John Hicks
at the conference, he was very old and used awheelchair. Yet he looked lively and always ingood spirits. One year after the conference wasover, however, Sakai was informed that Hicks
suddenly passed away. So, it seemed that Sakai
was one of the last persons who could talk to
Professor Hicks in an academic meeting. In

Yasuhiro Sakai005retrospect, Sakai left his heart in the Hicks
Conference aforementioned. Still keeping itin our fond memory, we would like to write
this paper in order to carefully investigate therelation between History and Theory, a very
favorite subject in the late years of Hicks.
According to Toshihiro Fukuda (2011),
both Max Weber (1904) and Werner Sombart(1902, 1911, 1912, 1938) were regarded as thoseshining stars in the famous German Historical
School who did outstanding contributions tocomparative economic studies. Although Weber is still academically alive, it is quite
unfortunate that Sombart is now an almost
forgotten scholar in the academic profession
around the world. Sombart's serial works suchas Sombart (1902, 1911, 1912, 1938) became
more or less neglected. It is my real intention
here to make a bridge between the later workof Hicks and the forgotten work of Sombart.
As far as we know, such a bridge has been neverattempted to build. We strongly believe that itshould be of much value at the Second Age ofUncertainty we face today. 2)
The contents of this paper are as follows.
In Section 2, the important problem of "capitalism versus socialism" will be reinvestigated in
new perspectives. Section 3 will explore thecomparative economic theory of Sombart,with an intensive discussion of its importantpart to be played in modern times. Section 4
will turn to the synthesis of theory and history
by Hicks, comparing the Hicks doctrine with
the Sombart view. Final remarks on the relation between the Sombart-Hicks approach andthe Ohmi merchant theory will be made in
Section 5.

II

Capitalism Versus
Socialism: The Powerful
Rivals in the 20th Century

In historical perspective, the 20th century
could rightly be called the Century of Socialism. In 1917, Vladimir Lenin (1870 - 1924) andhis company overturned the old Russian regime, thereby succeeding in establishing thesocialist government first in human history.
Since then, capitalism and socialism had become powerful rivals for a long time until 1989,
when the Berlin Wall fell and immediately later
the socialist Soviet Union disintegrated into
the more market-oriented Russian Federationand many other countries.
2-1. The Two Different Views of
Seiji Kaya and Shigeto Tsuru
In the 1960s when Sakai was a student at
Kobe University, Japan, the world politicoeconomic map was by and large divided into
the two power blocs. One bloc was called the"blue bloc" or the "capitalist bloc" containing
Western Europe, North America, and Japan.
The other bloc was named the "red bloc" or the"socialist bloc" consisting of the USSR, China,
and East Europe.
Capitalism versus socialism — this rival relation was also apparent in all Japanese
universities. In Japan in the 1960s, Das Kapital(1867) written by a noted socialist Karl Marx
(1867) was so powerful in Japanese academia,
clearly overpowering any other economic
books in terms of selling volumes and influential scopes. In this connection, let us recall that
Professor Seiji Kaya, a noted natural scientist
and then the Chairman of the Japan Science
Council of Japan, wrote in a newspaper: 3)2) Toshihiro Fukuda is one of leading authorities on theGerman Historical School. In recent times, he has developed his own ideas in line with the so-called "ThirdWay", namely the midway between Capitalism and Socialism. For details, see Fukuda (2011).

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On reflection it is really ridiculous thatmankind cannot live in this globe peacefully
with each other when they possess theknowledge and know-how even of making around-trip to the moon. The most important thing from now on seems to be to join
our efforts in making the time nearer when
we can all visit the moon as friendly tourists,
instead of being involved in the clash between communism and capitalism.
(Quoted by Tsuru 1961, p. 1)
In response to Kaya's opinion, Professor
Shigeto Tsuru, a famous social scientist andthen the President of Hitotsubashi University,
quickly wrote:
There are some among the experts in thefield who would regard such terms as "capita lism" and "so cia lism" a s emotiona l
expressions and prefer not to use them intechnical discussion. I would not agree withthem. ... The distinction between capitalism
and socialism as a social system is not due toemotional antagonism of politicians or to
doctrinaire rigidity of academic people. Dr.
Kaya's wish for a harmonious world is everybody's wish; but he should be aware that
there does exist here a scientific problem ofdifferentiating different social systems by anobjective criterion and that the difference
between them cannot be wished away.
(Tsuru 1961, pp. 2-3)
It was very likely that the difference in theirviews over the distinction between capitalism
and socialism reflected the differences of theirresearch areas. On the one hand, Kaya as a nat-ural scientist always sought universal naturallaws such as the universal law of gravitation
which were applicable at any place and at any
time, regardless to possible differences of histories, cultures, skin colors and so on. In his
mind, the heated debate on the choice of capitalism or socialism as a social system seemed sohighly emotional that it had nothing to dowith those technical discussions which wererather common among natural scientists. On
the other hand, Professor Tsuru did not agreewith Professor Kaya, and emphasized the influences of cultures and ideologies on individual
behaviors. Although Tsuru personally might
have wished to make a round-trip to the moon
together with Kaya, the former believed thatany theoretical compromise between capitalists
and socialists was almost impossible because
the gap between the two socio-economic systems could not be wished way overnight.
In our opinion, John Hicks, a noted economist and Nobel prize winner, seemed to be ingeneral agreement with Tsuru. Interestingly
enough, Hicks (1979) took one more step forward to write a small yet important book titled
Causality in Economics (1979) on a very fundamental problem on the cause-and-effectrelationship. According to his opinion, unlike
natural sciences, economic knowledge is far
from perfect. There exist very few economic
laws we can know with exact precision. Theselaws are by and large subject to errors and ambiguities, which would be thought of as
intolerable nonsense by natural scientists. To
sum up, Hicks came to the conclusion that
economics gave us a leading example of uncertain knowledge. 4)3) The Asahi Shimbun , a leading Japanese newspaper, 64) For a detailed discussion on this point, see Sakai(2016), pp. 16-17.

The Role of Merchants in the Market Economy

Yasuhiro Sakai

November 1957. Incidentally, Professor Kaya also served
as the President of the University of Tokyo.

007

2-2. The Official Textbook of
Economics by Soviet Science
AcademyIn the 1960s when Sakai was young and an
ambitious student at Kobe University, the most
fashionable topic among students was about
the sustainability of the capitalist regime as asocio-economic system. Among our fellow
students, there were a lot of debates over thepros and cons. Will capitalism survive for many years to come ? When and how willsocialism overtake capitalism? What is on theearth the best socio-economic system from theviewpoint of ethics and justice?
To find the right answers for those difficult
questions, the Japanese young students neededa set of nice guide books. Among those books
was the official Economics Textbook, the third
edition (1959) published by the Soviet Science
Academy. (1959). It was a very bulky booknicknamed the "Red Text" by young and diligent students. It was often compared to the"Blue Text" , namely Economics: An Introduction, the seventh edition (1955) written by a very
influential American economist Paul A. Samuelson (1955). When we carefully read andcompared both books, we had to confess that
we were overwhelmed by the strong messages
and passions of the more exciting Red Text,
thus more or less underestimating the cool logic and elegant exposition of the less exciting
Blue Text. After all, in young days, human passion tends to overwhelm reasoning !
More exactly speaking, the Red Text consisted of four volumes and totally around 800
pages, which far outnumbered any textbook ofmodern economics available. Its general outline is evidently seen in Table 1. We still
remember how much we were moved by the008very powerful sentence in the very first page of
the Red Text:
Since the Publication of the Second Edition of the Official Textbook of Economics, in
the Soviet Union and other People's Democratic Countries as well, the socialist modeof production has constantly promoted andthus attained uninterrupted growth until today : indeed, not only has the planned
leadership of the nation economy greatly improved, but also both the administration
methods and the open discussions by thegeneral public have been made better thanever before. In contrast to the flourishingsocialist bloc, the capitalist bloc is now moving into the process of the overall crisis ofcapitalism. While every colonial system is
eroding more rapidly than ever before, both
domestic conflicts and international contradictions are surfacing more drastically thanever before.
(Soviet Science Academy 1959, Preface, p. 1 )The rivalry between capitalism and socialism is on the top agenda of the Red Text. The
way in which one economic system changes into another must a rigid one-way street. We
must see a one-directional change from precapitalism to capitalism, and still further tosocialism, but not other way around. Consequently, no matter how a capitalist society
appears to be thriving now, it gradually loses a
growth power, thus finally being doomed todisintegration.
According to the Red Text, communism
will eventually be reached as the culminationof socialism, thereby guaranteeing the final victory of socialism over capitalism. In thisTHE HIKONE RONSO

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Table 2.1 The Soviet science academy (1959) :the contents of the official textbook of economics
The textbook of economics : preface
Chapter 1 The subject of economics
Chapter 2 The production mode before capitalism
The capitalist production mode
Part 1 Capitalism before monopoly		From Chapter 3 to Chapter 14
Part 2 Monopoly capitalism: imperialism		
From Chapter 15 to Chapter 19
The socialist production mode
Part 1 The transition period from capitalism to socialism		
From Chapter 20 to Chapter 23
Part 2 The national economic system of socialism		
From Chapter 24 to Chapter 36
Conclusion

connection, the following sentence at the very
end of the bulky text must be very impressive:
In the above, we have carefully and thoroughly investigated all the processes of
economic development of a society. Conseq u e ntl y, w e hav e c o m e t o th e m o s timportant conclusion of economics that inhistorical perspective, capitalism is doomed
to collapse whereas the victory of communism over capitalism will be unavoidable.
The historical tendency that a modern society is moving toward communism must havea very solid foundation from which the objective laws of social development is surely
derived. The communism, which is led by
the communist party and supported by the
Marx-Leninism, must be produced as thenatural outcome of consciously creative activities of almost one hundred million
working mass. Our society has a built-in
mechanism of going forward communism.
This is definitely the historical tendency

The Role of Merchants in the Market Economy

which cannot be changed whatever by anymeans around the world.
(Soviet Science Academy 1959, Conclusion,p. 1050 )Both the first page and the final page of the
Red Text are decorated by exactly the samemessage, namely the final victory of socialism
over capitalism. We must remember, however,that a powerful trumpet may sometimes soundvery hollow.
Although the debate between capitalism
and socialism has been hot and exciting, it has
somehow sounded hollow and neglected thehistorical truth. It is true that as Karl Marx noticed, the rise of capitalism is important andmust carefully be explored for full understanding of economy history. We would like to say,however, that there exists a more fundamental
transformation in human history, which is evenprecedent to Marx's concept of the Rise of
Capitalism. This is what we may rightly callthe Rise of the Market or the Rise of the Mer-

Yasuhiro Sakai009

cantile Economy. Although there are relatively
few scholars who have pointed it out, there aresome conspicuous exceptions. The Old Werner
Sombart and the New John Hicks belong to
the exceptional group, which should be thenext topic of my investigation in this paper. 5)

3-1. Werner Sombart versus Max
Weber: Friends and Rivals
Both Werner Sombart (1863 - 1941) andMax Weber (1864 - 1920) were the two tower-

ing figures belonging to the German Historical
School originated by Gustav von Schmoller(1838 -1917). They were contemporaries; moreexactly, Sombart was only one year older thanWeber. They were close friends, serving as coe ditors of the leading G erman journa lZeitschrift für National Ökonomie, yet sometimes becoming fierce rivals. The ver ysignificant difference between Sombart andWeber laid in the fact that Sombart outlived
Weber by 21 years. On the one hand, Weber
was periodically mentally ill for a long time andpassed way in 1920 when he was 56 years old:
this was the time when Germany was just defeated in the First World War, and the rise anddominance of the German dictator Adolf Hitler (1889 - 1945) was not be seen yet. On theother hand, after Sombart was appointed a full
professor to the most important economic
chair in Germany, he dared to write a very controversial book Deutschr Soecialismus in 1938,
which was grossly interpreted as a work paying
a tribute of praise to Nazis Germany. Without
the 1938 book, Sombart would have somehow
retained his prestige as a respected representative of the German Historical School. With its
publication, however, he grossly seemed to betaken as a sort of war criminal, thereby being
destined to be a defeated man. 7)
After the death of Sombart in 1941, so many years have passed. We are in the new 21st
century. Since the Sombart conference held in
1991, Sombart's classical work has seen a remarkable comeback. As Backhaus (1996a,5) This was already pointed out by John Hicks (1969).

7) Before the Sombart Renaissance took place, Gal-III

The Sombart Renaissance
RevisitedIn hindsight, Werner Sombart seemed to
be a man in paradox. Before the First World
War, he was a famous professor at Berlin University, being widely regarded as a great
economist belonging to the German Historical
School. After the war was over, however, hisfame fell down quickly and became an almost
forgotten economist. Only recently, just after
the Fall of Berlin Wall in 1989, his destiny took
another turn. According to Jürgen Backhaus(1996a, 1996b, 1996c), the classical work of
Sombart saw a considerable comeback: in fact
in 1991, a distinguished group of many scholars
around the world gathered in the City of Heilronn, Germany, to intensively discuss the workof Sombart and its modern implications. In
what follows, we will critically reevaluate theso-called Sombart renaissance and its true significance. 6)

While we agree with him in this respect, we wonder why
he failed to refer to Werner Sombart as one of his pioneers. Now, it is high time to do equal justice to ignored
economic historians in the past.

6) At present, the three volumes evaluating the work of

Werner Sombart are available. Backhaus (1996a, 1996b,
1996c) as an organizer of the Sombart Conference did an
outstanding contribution to the timely return of Sombart to the world academia today.

010

braith (1987) uncharacteristically criticized Sombart's
work in a very bitter fashion : "Its principal exponent
was Werner Sombart (1863-1941), the German historianeconomist, a diligent but not completely reliable scholar.
Intuitively and perhaps even openly anti-Semitic, Sombart sought in his later years to give a measure of theoretical sanction to National Socialism." (Galbraith, 1987,
Footnote 2, pp. 22-23) It seems that the "theoreticalsanction to National Socialism (or Nazi)" and the "antiSemitic" stance are a sort of taboos which must be avoided at all cost in the western world. Let us recall thatTHE HIKONE RONSO

Summer / July 2021 / No.428

1996b, 1996c) rightly told us, Sombart may bethought of as one of founders of the economics
of comparative systems. Now, the return of theold masters including Sombart should urgently
be needed.
3-2. The Demand Side Approach
Versus the Supply Side Approach
We are now in a position to draw a historical chart of interdependence among
economists. As is seen in Fig. 1, there are fundamentally two different ways — horizontal

and vertical ways. On the one hand, if we lookat the figure horizontally, we can classify the
economists into two groups; namely, the groupof the "demand side approach" and the one ofthe "supply side approach". Needless to say, amarket economy consists of two sides; namely,
the demand or consumer side, and the supply
or producer side. In historical perspective, thedemand group, which emphasizes the demandside more than the supply side, contains Mercantilism (led by Daniel Defoe (1728) andJames Steuart (1767)), Werner Sombart (1902,

Fig. 1 Alternative theories of comparative economic systems:
the demand side approach versus the supply side approach

Schumpeter (1954) said harsh things about the German
Historical School, and especially spoke bitterly of Sombart. "The only work of Sombart that needs to be mentioned here, his Der Moderne Capitalismus ( or Modern
Capitalism, 1902) shocked professional historians by its
often unsubstantial brilliance. They failed to see in it
anything that would call real research–the material of
the book is in fact wholly second hand – and they entered protests against its carelessness." (Schumpeter,
1954, Footnote, pp. 816-817) We belong to the oriental
world, thus do not quite ag ree with Ga lbraith andSchumpeter. We would sincerely wish that the creative,

but not dogmatic, Sombart would rightly come backinto the academic world.

The Role of Merchants in the Market Economy

Yasuhiro Sakai

011

1911, 1912, 1938), and J.M. Keynes (1936). The
supply group, which attaches more importanceto supply side than the demand side, includes
Karl Marx (1867), Max Weber (1904), and Joseph Schumpeter (1926). Since the New Hicks
is an open-minded man who intends to integrate the demand side and the supply side intoa grand new system, his position should be located somewhere between the two groups. On
the other hand, now by looking back at Fig. 1
vertically, we may classify the economists into
four schools; namely, the Classical School, theHistorical School, the Modern School, and theContemporary School.
In Fig. 1, the solid line arrow (AB)
shows that A strongly influences B whereas thedotted line arrow (CD)means that the influence of C on D is rather weak. For instance,
while Mercantilism as a demand side approachin the early days strongly influences Sombart
and Keynes, the influence of Sombart on
Keynes looks rather weak and requires a further investigation. Perhaps against the current
stream of thinking, we are nevertheless inclined to believe that Sombart's impact on
Hicks is fairly substantial. 8)
3-3. Sombart on the Capitalist
Spirit
The word "capitalism" is now very popularand so frequently used together with its rival
word "socialism". Remarkably, the former word
was not seen at all in the Wealth of Nations byAdam Smith (1776), the Father of Economics.
Although Karl Marx (1867) in his main work
Das Kapital eloquently discussed the dominance of the "capitalist class" over the "worker
class" along with the characteristics of the "capitalist production mode", he never employed the

keyword "capitalism." It is Werner Sombart
himself who first invented and regularly employed the word "capitalism" (or Kapitalismus)
and its companion "capitalist spirit" (or kapitalistische Geist). Unfortunately, thishistorical fact has been almost forgotten in theeconomics history literature. We might to addthat unlike his close friend Max Weber, Werner
Sombart lived long enough (perhaps too long !
) to be involved in the darkest episode of fascist
Nazi Germany with anti-Semitism. A longer
life may not guarantee a better life !
In his most important book Der moderne
Kapitalismus (or modern capitalism), Sombart(1902) gave a very important characteristics ofthe capitalist economy in the following way:
Capitalism is an exchange economic organization, in which normally two different
groups of people exist. They are the people
who own the means of production, being responsible for the management and thus
being economic subjects, and the people
who are mere workers (as economic subjects)
and are united together and interconnected
through the market, being motivated by theearning principle and economic rationalism.
(Sombart 1902, p. 319)
Apparently, Sombart's view of capitalism
was different from Marx's one. First of all, concerning the definition of capitalism, Sombart
adopted a more flexible stance than Marx.
Sombart differed from Marx in the sense that
capitalism should be regarded as an exchange
economy organization rather than a production economy organization. Second, while
Marx argued that the rich capitalist who monopolized the means of production had a8) Keynes strongly argues that there is "the element ofscientific truth in the mercantilist doctrine" (Keynes,
1936, p. 335) that is designed to maximize the export of anation and minimize its import so as to increase the aggregate demand.

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power to exploit the poor worker, Sombart argued that both capitalists and workers were
engaged in reciprocal relations in the market
economy. Third, all the people including capitalists and workers were economically rationalmen, whence being motivated by the earning
principle and economic rationalism. To sum
up, Sombart's view of capitalism should be very
akin to the market exchange economy, which
could be interpreted widely enough to include
any kind of commercial trading in the pre-capitalistic feudal economy.
Der moderne Kapitalismus (or modern
capitalism), consisting of huge three volumes,
was a historical and systematic portrayal of theeconomic life of all Europe from its beginningto the present time, no doubt represented thelife work of Werner Sombart. Those three vol-umes of Sombart (1902) could be compared tothe bulky three volumes of Das Kapital (1867)
by Karl Marx (1867). Although the views ofSombart and Marx looked similar, they were
fundamentally different.
Seeing is believing ! Sombart's view on thehistory of economic systems may be depicted
in Fig. 2. The key concept played in the historyof economic systems was the capitalist spirit,
being located in the center, which intermediated between the pre-capitalist era and the era ofcapitalist economy. The importance of thecapitalistic spirit for the Sombart world could
not be overstated. Sombart without the capitalistic spirit looked like Hamlet without the
prince. According to Sombart, the spirit ofcapitalism was describable by three factors:
monetary transactions, competitive trading,Fig. 2 Sombart on the history of economic systems, withfocus on the capitalist spirit

The Role of Merchants in the Market Economy

Yasuhiro Sakai013

and economic rationality. All trades were carried out by means of money, and must be freefrom outside regulations. Traders or merchantsbehaved as profit seekers in the sense that theymaximized revenues and minimized losses. 9)
Historically speaking, any economic organization could largely be divided into the two:
namely, the non-capitalist economy in an earlier era and the capitalist economy in a later era.
Moreover, the non-capitalist economy consisted of the two subgroups; namely, the selfsupporting economy with farming and local
communities, and the circulation economy
with handcraft masters and associates. Unfortunately, the vital capitalistic spirit did notcome to light yet. The critical factors which
contributed to the transformation of the noncapitalist economy into the capitalist economy
consisted of the three — the rise of the capitalist spirit, the capitalist functions and thecapitalist technology. In contrast to Marx who
mechanically emphasized the irreconcilable
contradictions between ever-socializing productive power and antag onistic private
relations in big enterprises, Sombart shifted his
interest to various human factors such as individualism, rationality, scientific knowledge,
freedom of movement and active marketing.
In short, let the capitalist spirit decide ! Thiswas really the essence of Sombart's concept of
the capitalist economy.
According to Sombart, the era of capitalist
economy has so far developed through threestages. The first stage, called Frühkapitalismus(or early capitalism), covered the long period
from trading activities in the 13th century to
the Industrial Revolution in the 1760s. Thereemerged many specialized merchants with lively spirit on the scene. Although some wereactively engaged in speculation and even military activities, they could be regarded by
Sombart as the bearers of the capitalist spirit.
The second stage, named Hochcapitalismus(or high capitalism), contained the period fromthe Industrial Revolution to the break of theFirst World War in 1914. This period was characterized by the high development of capitalist
system all over the world. The third stage,
called Spätkapitalismus (or late capitalism),corresponded to the period after 1914 until thepresent day. This late period is in a sense thebeginning of the end of capitalist economy, inwhich Sombart bravely predicts the eventual
return of the non-capitalist economy. Although this seems to be a bit strange argument,
I believe that by and large, Sombart's analysis
on the capitalist spirit remains to be very important even today.

IV Hicks on the History of
Economic Systems

When Hick's new book A Theory of Economic History was published in 1969, Sakai wasa graduate student at Rochester. Sakai was taking a sequence of courses in economic theory,
with Professor Lionel McKenzie being the outstanding leader of the theory group. Although
Richard Thaler , Sakai's good friend at Rochester, recommended Sakai to attend econometrichistory classes of Professor Robert Fogel, Sakai
himself was then much more impressed by thepower and beauty of pure mathematics than
the seemingly odd mixture of econometrics
and history. To our deep regret, neither McKenzie nor Fogel seemed to refer to Hicks' newapproach to economic history, which will be9) For this point, see Stehr and Grundman (2001),
Chapter 1.

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the topic to be discussed in the following subsections. 10)
4-1. The Rise of the Market
Hicks was a multifaceted man. His research interests were wide enough to coverphilosophy, theory, and history. Quite unfortunately, however, so many people tended torefer only to the Old Hicks as a theorist, thus
thinking light of the New Hicks as a historian.
We have to mend such unbalanced view ofHicks' academic achievements. For this point,
we recommend to see Hicks (1979).
In our opinion, Hicks' position in the theory of economic history is quite unique. Firstof all, he was not fond of employing rigid terms
such as the rise of capitalism and its transition
to socialism, but rather felt a strong affection
for gentler expressions such as "the rise of themarket " and "the role of the merchant." For thispoint, he once remarked:

Where shall we start? There is a transformation which is antecedent to Marx'sRole of Capitalism, and which, in terms of
more recent economics, looks like being
even more fundamental. This is the Rise of
the Market, the Rise of the Exchange Economy. It takes us back to a much earlier stageof history, at least for beginnings.
(Hicks 1969, p. 7)
Hicks started his historic inquiry with therise of the market or the emergence of the exchange economy. This could be compared very
well to Sombart's idea of capitalism as a distributive e conomic org anization. Inde e d,Sombart's capitalism was very akin to Hicks'
market economy; both of them were well-il-

lustrated in the activities of merchants in the
Mediterranean trade and those at the Age of
Discovery, covering for the long period from13th century to the 18th century.
Second, Hicks also avoided the use of hardidioms such as mercantilism and the Industrial
Revolution, and instead liked to employ softer
expressions such as mercantile economy andindustrialism. According to Hicks, mercantilism sounded too political to be academicallyusable, and unlike the riotous French Revolution, the ke y players of the Industria l
Revolution were far from well-defined. Third,
he did not want his theory to rely on any formof Historical Determinism including Marx's
materialistic interpretation of history. He did
not think that a socio-economic society wasforced to change one-sidedly by way of the"conflict between expanding productive powerand stiffening productive relations". His historical stance was very flexible to accept theinteractions between economic and non-economic factors, also observing the possibilities
of backward movements, cycles, and many other non-regular movements.
In my opinion, the second and third points
aforementioned clearly demonstrate the flexibility and open-mindedness of the "Hicksian
theory of economic history," thus distinguishing itself from the German Historical School
including Marx, Weber, and Sombart.
Hicks' view on the history of economic
systems may be depicted in Fig. 3. The key concept played in the Hicks system is the rise of
the market with regular trading, which is located in the center of the figure. According to
Hicks, the history of economic systems beganwith the primitive non-market organization,
which contained two types of economies;

10) Several years later, the great teacher Robert Fogel

moved from Rochester to Harvard and was awarded Nobel Economics Prize for his contribution to econometrichistory. Sakai's good friend Richard Thaler also moved
from Rochester to Chicago, and later was awarded Nobel Economics Prize for his contribution to behavior
economics.

The Role of Merchants in the Market Economy

Yasuhiro Sakai015

namely, the "custom economy" with local communities, and the "command economy" withmilitary order such as the Mongol control by
the strong man Genghis Khan (1162-1227).
Historically speaking, the primitive nonmarket organization was destined to fade out
and even vanish by the rise of the market, inwhich many specialized merchants appeared
and engaged in regular and permanent trading.
According to Hicks, the mercantile economy
had the three phases of development. The "firstphase" was characterized by the continuationand expansion of market trading in the city
state. In the "second phase" of mercantile develo p m ent , ma rke t c ent er s em er g e d a n dflourished, with insurance and stocks being theitems of trading. The "modern phase" beganwith the Industrial Revolution with modern

technology and industries. This modern phaseof Hicks was quite analogous to the concept of"high capitalism" dealt with by Sombart in his
analysis on the history of economic systems.
As mentioned above, Sombart preferred to
employ a light phrase of "industrialism" rather
than a heavier idiom of "industrial revolution".
So, the "capitalist production mode", which was
heavily favored by Marx, was merely regarded
by Hicks as "just one phase of the bigger framework of mercantile economy. "The question which would naturally arise
here is how Sombart's view on the history of
economic systems is similar to, and different
from, Hicks' view. No doubt, it constitutes thecore of this paper. Fortunately, a good answer
to this question would be given by comparisonof the last two figures, namely, Fig. 2 and Fig. 3.

Fig. 3 Hicks on the history of economic systems, withfocus on the rise of the market

016

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Summer / July 2021 / No.428

It is quite apparent from a structural viewpointthat those two figures look alike. So, theyshould have a lot of things in common. First ofall, as far as the historical structure of economic systems is concerned, Sombart's view is very
akin to Hicks' one. On the one hand, as is seenin Fig. 2, Sombart argues that the economic
history starts with the pre-capitalist era with
self-supporting and/or circulating economies,
later acquires the strong capitalist spirit, functions and technology, and finally gets into theera of capitalist economy which in turn consists of the three stages of early capitalism, highcapitalism, and late capitalism. On the other
hand, as Fig. 3 tells us, Hicks thinks that theeconomic history begins with primitive nonmarket organization with custom and/or
command economies, later faces the remarkable rise of the market with regular trading,and finally reaches the mercantile economy
which contains the three stages of first, middle, and modern phases. If we are allowed to
identify Sombart's capitalism with Hicks' market economy, then the fundamental structuresof Sombart and Hicks doctrines become very
similar.
Second, both economists — Sombart andHicks — attach the greatest importance to therole of merchant in the market economy. On
the one hand, Sombart observes the strong
capitalist spirit in external activities of adventurous Italian and Dutch merchants. On theother hand, Hicks pays special attention to therise of the market in which regular trading occurs among high-spirited merchants. In either
case, both Sombart and Hicks adopt demandside economics, thus being different from Marxand Weber as the believers of supply-side economics. We should add that comparing

Sombart and Hicks, Hicks' position is morebalanced than Sombart. After all, the Hicks
theory should be regarded as the magnificent
synthesis of the demand-side and supply-side
approaches.
Third, those two economists do with all
their strengths for the "grand integration of history and theory" , also taking account of
economic and non-economic factors. The abstract-minded economists Marx and Weber are
apt to think light of the real economy , thus
dreaming of "ideal types" and "abstract economic men". In contrast, the empiricists
Sombart and Hicks attach the greatest importance to the real economy with ordinary men.
To sum up, Sombart is an ambitious economic historian who has put his heart and soul
into the project of "actualization of economic
history". In contrast, Hicks in his later years
has done everything in his power to finish thejob of establishing "theoretical economic history." Hopefully, we would like to combine theworks of Sombart and Hicks toward a new
grand synthesis of history and theory.

The Role of Merchants in the Market Economy

Yasuhiro Sakai

4-2. Slavery in the Mercantile
EconomyHicks was known as a man of honesty andgood conscience. In his history book, Hicks(1969) candidly remarked:

The darkest episodes in the history of
mercantile slavery (putting aside the horrorsof slave-catching) are a matter of the largescale employment of slaves such as thecotton and sugar plantations of Americas
and the West Indies.  (Hicks 1969, p. 126)017

As was eloquently argued by Thomas(1997) and Sakai (2018, 2019), the mighty British Empire had long thrived on the foundationof slave trade and many colonies overseas. Its
most famous trade route was known as the triangular trade route, connecting three ports;
namely, Britain (Liverpool, Bristol), West Africa (Slave Coast), and the Caribbean ( Jamaica).
Among the three possible passages connecting
any two of those port, the Transatlantic Passage
from West Africa to the Caribbean was bestknown among the traders. In his popular
book, the novelist and polemic Daniel Defoe(1728) once described the enormous amount ofmoney the greedy merchants brought about to
Britain by the slave trade. And at present, in
his bestseller, the French rising star Thomas
Piketty (2013) eloquently discussed the historical importance of slavery in the New Worldand the Old World.

merchants. In his lifework, Egashira (1959) remarked:

I [Piketty] cannot conclude this examination of the metamorphoses of capital in
Europe and the United States without examining the issue of slavery and the place ofslaves in US fortune.  (Piketty 2013, p. 158)

It was so remarkable to see that Egashirapaid special attention to the controversy between Sombart and Weber on the part ofmerchants played in a capitalist economy. He
also argued that Ohmi merchants greatly contributed to the development of Japanesecommercial capital. He was not so sure, however, how and to what degree the economic
activities of those merchants could be explained by either Sombart or Weber, or
possibly both. We are inclined to support
Sombart more than Weber. We believe thatthe capitalist spirit a la Sombart can be compared very well to the ethic and moral of Ohmi
merchants. Such comparison is very important, requiring a further examination.
The related question of importance is how
and to what degree the old stage of "commer-

The importance of slave trade in the mercantile economy should not be underestimated.
Now, it seems that Pikkety can be thought of as
another Hicks. We would sincerely hope that,
following Piketty's lead, many other successors
will cheerfully come out.

V

Koji Egashira on the Ohmi
Merchant: Final Remarks

The late professor Koji Egashira (19001978) wa s a note d authorit y on Ohmi

018

The controversy between Werner Sombart and Max Weber in Germany was oncepassionately introduced to Japan, becoming
among economists one of fashionable topics
in Japan. It remains to be unsolved even today, however. The Ohmi merchants, whichhave been best representatives of Commercial Capital in Japan. I have no doubt thatthorough studies in those merchants may
greatly contribute to an inquiry into the development of Japanese commercial capital. I
have so far exerted all my energy to examine
the famous Ohmi chants in many possible
ways. As a result, I have reached the conclusion that I am in a position to fully support
neither the Weber doctrine nor the Sombart
doctrine.
(Egashira 1959, Preface)

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Summer / July 2021 / No.428

cial capitalism" was transformed to the newstage of "industrial capitalism". As was mentioned above, the demand side economist
Sombart argued that such transformation
should have been gradual and continuous because changes in people's demand were always
slow and steady. In contrast to Sombart, hiscontemporary economist Weber sided with the
supply side approach, thus pointing out the"wide mental gulf " between commercial andindustrial capitalisms, which was caused by the
uplift of the Protestant ethics. Then, we would
like to ask the following question: whichshould be the right doctrine, the continuoustransformation doctrine of Sombart or the discontinuous transformation doctrine of Weber?
In Japan in the 1950s and the 1960s, Webersupporters greatly outnumbered Sombart supporters. Thus, it was unfortunate to see that
Sombart's theory almost vanished along withthe defeat of the Nazi Germany. Now, however, so many years have passed after the Second
World War. We strongly believe that it is hightime to say farewell to the defeatist doctrine,
thereby reevaluating the Sombart-Weber controversies aforementioned from new angles.
In our opinion, Hicks' new approach to
the theory of economic history can give us a
useful guide to solve the Sombart-Weber antag onism. As was mentioned above,concerning the history of economic systems,
Sombart's doctrine is based on a demand side
approach whereas Weber's view is a supply sideone. Needless to say, the working and performance cannot correctly be explored by one side
only: both demand side and supply side approaches must be integrated into a grand new
synthesis. For such integration, we still requirea further investigation.

As Hicks (1969) has repeatedly stressed,
the rise of the "mercantile economy" constitutes the very core of his inquiry. Now, theproblem of choice between capitalism and socialism becomes a secondary issue because only
capitalism, and not socialism, can be associatedwith the mercantile economy.
We strongly believe that Ohmi merchantsof Japan may give us good examples of the
Hicks-type mercantile economy. To our deep
regret, Hicks hardly referred to Ohmi merchants, or the Japanese merchants who hadstrong forward-looking natures. We also would
like to add that those Ohmi merchants acted aslively players with capitalist spirits a la Sombart. For this point, see Ogura (1980).
Remarkably, Hicks has emphasized thatthe trade should obey the "principle of allround advantage." In other words, the trade
should produce the advantage of all the parties;
namely, the advantages of merchants themselves and the 'surrounding' people with whomthey trade. 11)
Such principle reminds us of the "principleof sampo -yoshi " obeyed by Ohmi merchants ofJapan; namely, the principle of "being good fora seller, good for a buyer, and good for the society". How exactly and to what extent theHicks principle and the Ohmi merchant principle are similar or different remains to be an
open question. We need to do a further investigation. 12)
References
⦿Backhaus, J.G. (ed.) (1996a) / Werner Sombart (1863-

1941) – Social Scientist, Volume I: His Life and Work /Metropolis-Verlag, Marburg, Germany

⦿Backhaus, J.G. (ed.) (1996b) / Werner Sombart (1863-

1941) – Social Scientist, Volume II : His Theoretical Approach Reconsidered / Metropolis-Verlag, Marburg,
Germany.

11) See Hicks (1969), p. 51.
12) For details of Ohmi merchants, see Egashira (1959)

and Ogura (1980).

The Role of Merchants in the Market Economy

Yasuhiro Sakai

019

⦿Backhaus, J.G. (ed.) (1996c) / Werner Sombart (1863-

1941) – Social Scientist, Volume III : Then and Now /Metropolis-Verlag, Marburg, Germany.

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Way: How to Deal with the Age of Crisis (in Japanese) /Koyo Publishers, Kyoto, Japan

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⦿Ogura, E. (1980) / Ohmi Merchants: A Historical Per-

⦿Schumpeter, J.A. (1926) / Theorie der Wirtschaften Ent-

wicklung (in Germany) / Berlin.

⦿Schumpeter, J.A .(1954) / History of Economic Analysis/ Allen & Unwin.

⦿Smith , A. (1776) / An Inquir y into the Nature andCauses of the Wealth of Nations / U.K.

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⦿Sombart, W. (1912) / Liebe, Luxus und Kapitalismus (inGermany) / Berlin.

⦿Sombart, W. (1938) / Deutscher Socialismus (in Germa-ny) / Berlin.

⦿Stehr, N. and Grundman, R. (2001) / Werner Sombart:

Economic Life in the Modern Age / London.

⦿Steuart, J. (1767) / An Inquiry into the Principles of Po-

litical Economy / U.K.

⦿Thomas, H. (1997) / The Slave Trade : The Story of theAtlantic Slave Trade, 1440–1870 / Simon & Schuster,
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Textbook of Economics, Third Revised Version / JapaneseTranslation, Godo Publishers, Tokyo

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der 'Geist' des Kapitalismus (in Germany) / Berlin.

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The Role of Merchants in the Market Economy
With Special Reference to Werner Sombart and John Hicks

Yasuhiro Sakai

This paper aims to discuss the relationshipbetween economic theory and market economy from a new historical angle. Historicallyspeaking, Werner Sombart seems to be a manin paradox. Although he was once a famous
professor at Berlin, he became an almost forgotten man after the Second World War. In
the 1990s, however, we saw a remarkable comeb ac k o f S om b ar t , nam e d th e S om b ar t
Renaissance; his work on the role of capitalist
spirit played in the three stages of capitalism is
now worth serious investigation. In contrast,
John Hicks has mainly been regarded as an important theoretician of general equilibrium andwelfare, but his later work on economic historyis also worthy of vital consideration. Hicks
pays special attention to the role of merchantplayed in the exchange economy. By comparing the works of Sombart and Hicks in many
ways, we can shed new light on the immortal
problem of the relationship between Theory
and History. We strongly believe that Ohmi
merchants of Japan give us very good examplesof the Hicks-type mercantile economy. Hicks
has emphasized that the trade should comply
with the "principle of all-round advantage."
Certainly, it corresponds well to the "principleof sampo-yoshi" obeyed by Ohmi merchants:
namely, the principle of being good for a seller,
good for a buyer, and good for the society." We

also would like to add that Ohmi merchants
acted as lively players with capitalistic spirits ala Sombart. In short, we can learn a set of newlessons from the old teachings of Sombart andHicks.

The Role of Merchants in the Market Economy

Yasuhiro Sakai

Keywords : theory and history. W. Sombart,
capitalist spirit, John Hicks, exchange economy, Ohmi merchant,
principle of all-round advantage021