Is It Time for a Paradigm Shift

Recent research grounded more firmly in microeconomic than macro-economic analysis suggests that Weber may have been right but for

Table 8.6

Countries ranked by growth rates, Europe, 1500-1600, 1600-1700, and 15001700

Rank by growth rate

Table 8.6

Countries ranked by growth rates, Europe, 1500-1600, 1600-1700, and 15001700

Rank by growth rate

Country

1500-1600

1600-1700

1500-1700

Netherlands

1

1

1

England

2

2

2

Spain

3

15

14

Portugal

4

13

11

Finland

5

6

3

Norway

6

8

6

Switzerland

7

5

5

Denmark

8

3

4

Sweden

8

7

7

Austria

9

4

8

Czech Republic

9

4

8

Ireland

10

11

9

France

11

9

10

Germany

12

12

12

Greece

13

14

15

Hungary

13

14

15

Poland

13

14

15

Belgium

14

10

13

Italy

15

15

16

Source: Daron Acemoglu, S. H. Johnson, and J. A. Robinson, ''The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,'' MIT Department of Economics Working Paper No. 02-43, MIT Sloan Working Paper No. 4269-02, 2002, Appendix Table 2, available at http: ssrn.com/abstract-355880.

the wrong reason. Economists Ulrich Blum and Leonard Dudley reject Weber's core idea that the economic success of Protestant Europe in the pre-industrial period was due to a tendency of individual Protestants to work harder and save more than individual Catholics. Nevertheless, they advocate a ''small-world'' formulation based on Weber's thesis: They contend that Protestantism changed the relative costs of defaulting on business contracts in a way that stimulated economic development. Using noncooperative game theory as a frame for their hypothesis, Blum and Dudley57 make the following arguments:

• The Catholic sacrament of penance resulted in a low cost of defection from contractual relationships, because pardon could always be readily obtained with the intervention of a priest, provided the sinner perform certain acts of reparation.

• By rejecting the sacrament of penance, dissenting Protestant denominations raised the subjective cost of defection. For Calvinists, any defection weakened the individual's conviction that he was predestined to be saved. Although predestination was not an article of faith in the other ascetic Protestant denominations, the dogma had a wide influence.58

• Protestantism therefore had the result of lowering the probability of default in a one-time game of exchange—this widened the network of market relationships for individual traders far beyond the limited number of people whose defection(s) could be punished in repeated transactions. According to Blum and Dudley, "If Weber's argument is correct, ascetic Protestantism lowered... [the hedonic] cost [of cooperation] by abolishing the sacrament of penance. No longer was there an institutionally certified pardon for defection in contractual agreements. Instead, the individual was obliged to adjust his daily behavior so as to dispel doubt that he would be saved. To cooperate with others became an unavoidable moral obligation.''59

• As the number of adherents increased, Protestants thereby created important network externalities (benefits from joining a group of similar believers) for each other.

• Unlike their Catholic counterparts, Protestant merchants were able to take advantage of the new arbitrage opportunities available in cities bordering on the Atlantic. This required that a wide range of information be made available in Protestant printing centers but this information was not available in Catholic centers.

• These growth effects were positively related to proximity to London, the financial and commercial hub of a new hierarchical structure of international economic institutions.

Using population growth rates as a proxy for real-wage growth, Blum and Dudley provide empirical evidence that by 1750 the Protestant cities of northern Europe achieved greater economic integration while the Catholic cities of southern Europe did not—a reversal of the conditions in 1500. In effect, northern Europe was restructured within two centuries of the appearance of Protestantism so as to favor rapid, low-cost communication; southern Europe stagnated in this respect. Their statistical tests lead Blum and Dudley to reject standard, neoclassical, human-capital growth theory as an explanation of differential European economic development in the pre-industrial era. They also point to the importance of information networks for explaining why some economies grow faster than others. They conclude that Weber's emphasis on cultural evolution in early modern Europe, when suitably reformulated in terms of contemporary economics, offers a possible explanation for divergent growth patterns in certain regions.

Blum and Dudley's empirical results are interesting but not conclusive. The robustness of their model depends on the simultaneous interaction of several significant variables besides religion, such as capital, network effects, and so forth. The precise causal relationship between religion and economic development in the pre-industrial era remains a matter of conjecture. Contemporary studies point in different directions. On the one hand, DeLong and Shleifer make a strong case for political regimes as a determinant of economic development in the pre-industrial era; on the other, Acemoglu, Johnson, and Robinson make an equally strong case for Atlantic trade. But the study by Blum and Dudley marks a kind of departure of sorts from the traditional approach to Weber's core question. Rather than focus on the behavior of individuals, as Weber did in his approach to cultural evolution, they focus on the behavior of groups in order to uncover network effects. Network effects are important, but group activity is the cumulative result of individual behavior, so this shift of paradigm is more apparent than real. More dramatic is the shift of emphasis toward the economic effects on individual and group behavior of alterations in relative price that are induced by institutional change. The interpretation of economic history on these grounds is not new—it was pioneered by economists Douglass North and Robert P. Thomas60 and a number of others. But its deep penetration into the economics of religion has not yet occurred. Pursuing this topic in the same spirit of analysis may uncover novel insights that are otherwise beyond the reach of contemporary studies.

There is a substantial supply-side element to Weber's celebrated thesis that remains relatively unexplored. Over a century after the first appear ance of his cultural thesis, Weber's grip on economists' imaginations remains strong. This is particularly true among development economists, who are determined to sort out the relative roles on economic development of economic resources, culture, and politics.61 But major obstacles persist. As Danish economist Martin Paldam (2001, 384) states, "The relations between economic development, culture [and] religion... are surely complex, involving 'grand historical dynamics' far exceeding the possibilities of 'normal' empirical research.''62 In particular, historical studies that rely on a macroeconomic approach are hampered by the scarcity of adequate measures of economic prosperity and reliable sources of aggregate data. Studies that focus on the microeconomic aspects of institutional change, though less prevalent, also face serious challenges, but may offer promising outcomes in terms of understanding key historical transformations. We have attempted to sketch out some of these possible microanalytic implications of Weber's famous idea. In the next and final chapter we apply economic analysis, and specifically, the models discussed in this book, to a number of contemporary issues and problems affecting the form of modern Christianity.

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