Financing Protestantism

There is, unfortunately, a scarcity of exact information on how the evolving variants of Protestantism were financed. Conventional wisdom is that local churches depended mostly on biblical tithing by members.

Where redistributive organizations such as synods did not exist, many congregational churches had to live by their own receipts. These churches, as Adam Smith suggested, most closely tended to the demands of members. Other organizational structures, such as the episcopal form, created methods of redistribution from wealthier parishes to poorer ones. In all forms, the biblical tithe of 10 percent of a member's income was held up as the ideal. In reality, that ideal was probably seldom met, with the prominent exception of the Mormon Church.

It appears from existing evidence that churches had to be innovative in their search for funds to cover expenses. Church historian David Hemp-ton, for example, discusses the vagaries of the financing of Methodist churches in the post-Colonial period (up to 1830) in the United States. There seems to have been a trend away from volunteerism and egalitari-anism in financing to a situation in which demands were met on a more structured basis.18 More structure meant that congregations had to cater to the practical reality of financing religion by appealing to donors on the basis of what would get them to give. Appeal had to be made and influence given to the wealthier members of particular churches. Practices that worked in medieval times, such as naming aspects of the church (pews, stained-glass windows, etc.) for large donors, were often invoked.

While many churches, especially evangelical churches, depended on tithing, others showed signs of entrepreneurship in devising innovative finance mechanisms. In a discussion of the finances of a Dutch Reformed church—the First Church of Albany, New York—economists Robin Klay and John Lunn present a picture of church finance in the first half of the nineteenth century.19 As might be expected, the ability of the church to cover expenses and finance new projects was a function of the economic conditions in Albany and in the economy in general. Early funding methods included land rentals and sales (ostensibly from purchases and gifts) and special collections to address shortfalls. Clearly, relying on the weekly donations of a "grateful laity'' did not work. Voluntary tithing schemes are typically subject to the free-rider problem. By 1857 the First Church had sold all of the land it owned and was forced to develop more structure to pay for its activities, which included foreign and domestic missions, poor relief, education, publications, and so on.

Some activities were paid for by special assessments, such as the minister's salary (an exaction called domine gelt). One example that indicates the privileged position that its ministers enjoyed is in 1854, the board of Albany's Dutch Reformed church voted for a 25 percent increase in the minister's annual salary—from $2,000 to $2,500 at a time when the annual average earnings of nonfarm employees was $363. In the church's financial reorganization, weekly donations were structured and pew rents, a critically important form of revenue, were doubled. Pew rents, often accompanied by "naming opportunities," were a preferred method of support for all kinds of churches, including Roman Catholic churches, well into the twentieth century. Klay and Lunn report that as much as 88 percent of the operating budget of the First Church of Albany was covered by such rents.20

Pew rents gave religious entrepreneurs a method of practicing price discrimination. Financial statistics for the Twickenham United Reformed Church (in London) show that until 1911, regular members of the morning congregation rented specific seats on a "quarterly rental'' scheme.21 The cost of this reserved seating depended on the proximity to the pulpit, organ, and choir. Seats furthest away cost two shillings and sixpence (12.5p), whereas those closest cost 5 shillings (25p). Intermediate prices were charged for seats in between. It is important to note that these rates were "suggested" and had to be reserved through a church official. In 1910, pew rents at the Twickenham church covered 25 percent of its annual expenditure, with Sunday collections and donations covering 50 percent, and bazaars and similar efforts covering the remaining 25 percent. If all seats had been paid for in the amount suggested, the take on pew rents would have doubled. The high costs of monitoring and administering the pew rent system was one factor, and the non-egalitarian flavor of the discriminatory scheme was another.

The pew rental scheme to raise revenue, common in both Protestant and Roman Catholic churches well into the twentieth century, is a case of second-degree price discrimination. Here sellers (in this case local churches) create different qualities of products or services to maximize profits (or to meet a particular level of expenditures). Consumers are then free to sort themselves according to their demand for the created quality class differences. This differs from third-degree price discrimination, in which consumers are preclassified by external characteristics (age, income, location, and so on). While it might be expected that higher income parishioners would take the highest price seats, this is not necessarily the case. Status seekers, or others who want "to be seen'' at services are willing to pay higher prices. Thus "egalitarian principles'' may have supplemented the argument that pew rents were costly to collect or difficult to devise. In fact, the Twickenham church in London abandoned the pew scheme (and the use of bazaars) in 1911, switching to a system in which "each contributor has a private form sent to him in the first instance and is asked to say in confidence the total amount that he or she is prepared to contribute weekly toewards [sic] support of the church. The amount would be enclosed each week in an envelope to be placed in the collection plate at one of the Sunday services.''22 The abandonment of pew rentals appears to have begun by mid-twentieth century, but the practice was still a major financing device of both Protestant and Roman Catholic churches in the nineteenth and part of the twentieth centuries in the United States and in England.

Economic theory tells us that successful entry into a previously monopolized market is often achieved by offering lower prices to customers of the incumbent monopoly firm. The Protestant Reformation accomplished exactly that. The opening up of religious markets introduced competition among churches in the sixteenth century, and led to an ongoing process of product differentiation. This epochal transformation had a number of important possible effects. Chapter 8 examines a controversial effect: the impact of Protestantism on economic growth and capitalism. In the final chapter we consider another effect: the ongoing evolution of forms of Christianity made possible by the competitive process that the Protestant Reformation engendered.

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