Weber was born in Germany in 1864 and grew up during the time when industrialization was transforming government, business, and society. Weber was interested in industrial capitalism, an economic system where industry is privately controlled and operated for profit. He wanted to know why industrial capitalism was successful in some countries and not in others. He believed that large-scale organizations such as factories and government departments were a characteristic of capitalist economies.

Weber visited the United States in 1904 to study the U.S. economy. It was here that he observed the spirit of capitalism. He noted that capitalism in the United States encouraged competition and innovation. He also realized that businesses were run by professional managers and that they were linked through economic relationships. Furthermore, he contrasted this with capitalistic practices in Germany where a small group of powerful people controlled the economy. In Germany, tradition dictated behaviors. People were given positions of authority based on their social standing and connections, and businesses were linked by family and social relationships.

Weber was concerned that authority was not a function of experience and ability, but won by social status. Because of this, managers were not loyal to the organization. Organizational resources are used for the benefit of owners and managers rather than to meet organizational goals. Weber was convinced that organizations based on rational authority, where authority was given to the most competent and qualified people, would be more efficient than those based on who you knew. Weber called this type of rational organization a bureaucracy.