In February of 1941, Horkheimer completed “The End of Reason.” It would be his final contribution to the Institute’s journal, which he had edited for the past eleven years. Yet “The End of Reason” represented the culmination of Horkheimer’s previous theoretical efforts not only in a literal sense; he also viewed the essay as the first coherent articulation of the project on dialectical logic that had occupied him for the past several years, and that would remain the primary focus of his and Adorno’s efforts in the coming years. In a letter to Leo Lowenthal from February 11, 1942, Horkheimer says the following about “The End of Reason”: “I have worked on these thirty pages with Teddy during the last weeks and I dare say that this is a piece of work which gives an idea of what I intend to do in the future. I have worked so closely together with Teddy that I even consider to publish [sic] it in connection with him.” A few months earlier, in a letter to Herbert Marcuse, Horkheimer had also described “The End of Reason” as “a conclusion, in a certain way, of my earlier work.” To clarify the status of “The End of Reason” as a qualitative shift in Horkheimer’s thought and at the same time to conclude this examination of Horkheimer’s early Critical Theory, we are left with two interrelated sets of questions. First, how did the transition to the theoretical positions articulated in that essay occur? What motivated Horkheimer to adopt these new positions? Second, how did they differ from his earlier work? Are the differences great enough to justify speaking of a “qualitative shift” in his work? In what follows we will attempt to answer these questions through a brief analysis of the four most important essays Horkheimer wrote during the years 1938–1941: “Montaigne and the Function of Skepticism,” “The Jews and Europe,” “Authoritarian State,” and “The End of Reason.” The chapter will be divided into three parts. In the first part, we will see how Horkheimer’s essay on Montaigne is still firmly grounded in the basic assumptions upon which his early Critical Theory was based – what we have called here the “dialectic of bourgeois society” – while at the same time anticipating the imminent shift in his thought in certain key ways. In the second part, we will examine “The Jews and Europe” and “Authoritarian State” as key transitional essays in which Horkheimer sets forth for the first time his new understanding of contemporary society as “state capitalist,” and his new interpretation of modern history as possessing powerful inherent tendencies that lead to state capitalism. Horkheimer’s adoption of the state capitalist argument – an earlier and different version of which had already been developed by Friedrich Pollock – was the primary cause of the shift in his thought during this time. Once Horkheimer had worked out his new position, many of Adorno’s arguments, which he had viewed skeptically until then, began to seem more appealing. In “The End of Reason,” to which we will turn in the third and final section, Horkheimer definitively crossed the threshold that separated him from his early Critical Theory and laid the foundations for the next phase of his theoretical work, which would find its fullest expression in Dialectic of Enlightenment and Eclipse of Reason. The fact that Horkheimer also viewed “The End of Reason” as “the first ‘official’ result” of his cooperation with Adorno was not a coincidence either. A line of direct continuity exists between “The End of Reason” and Dialectic of Enlightenment. In fact, one could easily view Dialectic of Enlightenment as an attempt to flesh out and provide case studies of the core arguments that are presented in “The End of Reason.”