Catholicism Protestantism and Economic Performance

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Christianity is an idea, and as such is indestructible and immortal, like every idea. —Heinrich Heine, History of Religion and Philosophy in Germany

Economists are quite naturally interested in the effects of ideology on economic performance, and because religion is arguably the most powerful ideological force of human experience, it is understandable that economic analysis would extend to the role of religion in explaining economic growth and development. The most famous study linking economics and religion so far is claimed by sociology, even though it was undertaken by an author with no formal training in the subject. Max Weber was employed as an economist and trained as a lawyer, but he wrote one of the most widely read studies in the history of sociology: The Protestant Ethic and the Spirit of Capitalism, a book frequently misinterpreted and often criticized, but, above all, a classic.1

Broadly stated, Weber's argument suggests that because Calvinist ethics support wealth accumulation, Protestants' marginal propensity to save increased and exceeded that of Catholics, so that capital accumulation and economic growth occurred more rapidly in Protestant regions of western Europe. In contrast, Catholicism retarded economic growth in large measure because of its (supposedly) socialistic view of wealth and its maintenance of usury prohibitions and other repressive measures. Weber's approach to capital accumulation is preference-based: It holds that the advent of Protestantism and its precepts changed tastes in favor of work versus leisure and saving versus consumption. This is clearly a demand-side argument for it emphasizes the fact that "saving for salvation,'' together with individual responsibility and initiative, means increased investment over time with economic growth a chief result.

We have no quarrel with the demand-side-preferences approach to Weber, but it may not go far enough. This chapter attempts to break new ground by offering a supplementary supply-side economic explanation for relative economic development in areas that became Protestant after the Reformation. Tastes changed, in other words, but so did constraints. The Reformation freed up resources such as saving, capital, and labor supply that could be directed to productive uses in the first half of the sixteenth century. We believe that both demand- and supply-side factors affected the timing and extent of Protestant entry. The average price of religious services was reduced, thereby releasing capital, increasing investment, and inducing growth. Reduced price came in the form of lower direct and indirect costs of religious activity. Specifically, the Protestant creed emphasized simple customs and worship rituals, and eliminated festivals, feast days, and pilgrimages, which freed up labor for economically productive activity. These factors stimulated economic growth.

Growth in Protestant areas was also premised on the failure of the Counter-Reformation to reclaim lost territory. Protestant entry freed up resources that were available for growth-promoting investments in the areas that embraced Protestantism. Our argument is that, in part, economic growth was made possible by the entry of new denominations offering many kinds of religious services at lower costs to consumers than those offered by the Roman Catholic Church. The consumer surplus released made investments in capital possible and, in Protestant areas, economic growth was stimulated. Additionally, the Protestant creed eliminated costly ceremonies and practices. Finally, one of the chief criticisms of Weber's hypothesis (or the naive version of it, at least) is that it is falsified by demonstrable economic growth in countries that remained Catholic, such as Hungary or Belgium. A supply-side economic perspective demonstrates that growth in such countries was quite predictable.

Thus we reexamine the Weberian hypothesis by adding elements heretofore excluded from the discussion of the impact of religion on eco nomic development. After outlining Weber's hypothesis, we present a theory of the possible impact of the release of physical and human resources made possible by Protestantism. While we make no strong inferences concerning the impact of the new form of Christian religion on economic growth, the addition of supply-side elements establishes a new perspective from which Max Weber's famous thesis may be evaluated.

Max Weber Revisited

Weber's analysis of the relationship between religion and economic development placed more emphasis on broad religious imperatives than on the specific injunctions that each particular religion might impose on economic behavior.2 Hence he wrote of a singular "Protestant ethic,'' even though as we saw in the previous chapter Protestantism is a fractured and fragmented set of religions, each with its own code of beliefs, doctrines, and practices. His project aimed at establishing a link between this Protestant ethic and the "spirit" of capitalism, but it also sought an explanation for why Western civilization proved to be such fertile ground for the Industrial Revolution and the growth of modern capitalism. As such, Weber's study did not confine itself to religious factors, although he elevated religion to a position of dominance, especially in the long run.3 The Protestant ethic is derived from fundamental religious principles, yet it is both secular and worldly. It includes, perhaps even produces, an economic ethic—"the earning of more and more money combined with the strict avoidance of all spontaneous enjoyment of life.''4 For Weber, the spirit of capitalism is antecedent to the emergence of capitalism, and it is derived from the Protestant ethic. Nowhere in his study does Weber define "the spirit of capitalism," but he conveys its meaning in terms of Benjamin Franklin's homespun philosophy concerning the utility of virtue: "Honesty is useful because it assures credit; so are punctuality, industry, frugality, and that is the reason they are virtues. . . . According to Franklin, those virtues, like all others, are only in so far virtues as they are actually useful to the individual, and the surrogate of mere appearance is always sufficient when it accomplishes the end in view.''5

Within this ethic, making money is not only the highest good, it is a duty, one which is closely connected with the religious idea of a calling: "The earning of money within the modern economic order is, so long as it is done legally, the result and the expression of virtue and proficiency in a calling.''6 In other words, economic success is a measure of individual virtue. It is this idea that sets Weber's analysis apart—he limits its acceptance to western Europe and America, but he was well aware that "capitalism existed in China, India, Babylon, in the Classic World and in the Middle Ages. But in all these cases... this particular ethos was lacking.''7

Despite popular and naive perversions of Weber's thesis, it is important to note that he did not claim that the Protestant ethic alone was sufficient to bring about the capitalist system—in other words, religion did not cause capitalism. Nor did he champion the extreme position that modern capitalism would not have come into being without the Protestant ethic. Rather, Weber maintained the intermediate position that the Protestant ethic significantly fostered and accelerated the development of Western capitalism. As noted previously, he was well aware that forms of capitalism existed prior to the Reformation. But he was equally aware that only in western Europe and America did capitalism evolve in such a way as to encourage an Industrial Revolution and an industrial society.8 For Weber, therefore, there was something special about Western capitalism after the Reformation. He found that special factor in the Protestant work ethic and its strong element of asceticism.

The most basic aspect of Protestantism is its doctrine of salvation. Salvation is attained by faith alone, but Protestantism advocates forms of human behavior that are pleasing to God, such as good works. Luther, in particular, decisively altered the (pre-Reformation) Christian conception of good works by prescribing the fulfillment of duties in worldly affairs as the highest form which the moral activity of the individual could assume.9 Calvin complicated matters by adding the doctrine of predestination. Under Calvin's influence, good works became an objective and reliable sign of grace, so that those who practiced them could thereby assuage their doubts and allay their fears. Hence, good works became not so much a toll on the highway to heaven but rather the means of getting rid of the fear of damnation.10 It is easy to see how the combination of Lutheran virtue and Calvinist asceticism yielded an ethos that stimulated entrepreneurs and artisans alike to achieve economic success in their respective spheres. This ethic was a dramatic shift from the Christian ethic of pre-Reformation times. But being preference-based in origin, it postulated a demand-driven course of action: The advent of Protestantism and its precepts changed tastes in favor of work versus leisure and saving versus consumption. In Weber's own words, "We are interested in... the influence of those psychological sanctions which, originating in religious belief and the practice of religion, gave a direction to practical conduct and held the individual to it.''11 The relation to the modern theory of individuals using inputs to obtain more "ultimate" commodities is apparent. Our argument follows economists George J. Stigler and Gary S. Becker in that we seek an explanation of the impact of Protestantism that stresses resource availability.12 This is what we mean when we refer to our approach as a "supply-side" or constraint-driven theory. We are aware, of course, that the postulated changes in tastes by Weber for more work and more investment impacted on the supply-side of these economies. But to Weber's demand-side theory we offer a complementary theory that stresses the supply side of economic behavior and brings more balance to the historical connection between religion and economic growth.

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