Studies in New Economic History

Whereas economic studies of religious participation focus on the recent past (i.e., newly generated data), "new" historical studies in the economics of religion emphasize the events of the (sometimes distant) past. Inasmuch as history provides a prologue to the future, we believe that the study of economic history holds great potential for contributing to our understanding of the economics of religion. History records the unfolding of events, which can be interpreted within different analytical frameworks. Although many past studies of church history have been sensitive to economic considerations, we are aware of none that attempt to interpret major historical movements within the framework of contemporary economics. This book is therefore an early foray into mostly uncharted waters. It is not without precedent, however.

The historical approach that we favor involves mining Adam Smith's fundamental insight that in the religious realm, organizational structure (i.e., what economics calls the theory of industrial organization) is a major determinant of individual and group behavior. Brooks B. Hull and Frederick Bold embarked on this path by modeling the church as a firm that maximizes profit under competitive conditions in order to maintain long-term survival.59 In their joint work and in Hull's,60 the church as firm took on the role of provider of social insurance,61 promises of an afterlife, and other social and economic services. Hull and Bold concluded that church enforcement of property rights is a public good, but in contrast to the enforcement of property rights by the state, church authority can summon the supernatural enforcement mechanisms of heaven and hell. Hull maintains that this was a particularly important feature of the establishment of mendicant orders of the Roman Catholic Church at the beginning of the thirteenth century.62 By their practice of poverty, itinerant monks added "quality assurance'' to the products being sold by the church, which, in turn, promoted efficient property and financial rights within the emerging towns and cities. The invention of purgatory and the establishment of the threat of hell and damnation at the time of death helped establish and enforce efficient standards of behavior. At the same time, social goods, such as abbeys, monasteries, hospitals, and schools, were also added to the mix of things that make up the product of the church.

We extended the basic concept of the church as an economic firm in Sacred Trust, which was a compilation and extension of various particularized studies involving the organizational structure of the medieval church and its economic consequences. Because the medieval church was a quasi-monopolistic, bureaucratic firm, prospects for rent seeking (i.e., using the political or bureaucratic process to secure economic advantage)63 was a major component of our investigation. Since then, we have broadened our reach to include analysis of the Protestant Reformation and the Catholic Counter-Reformation.64 This book is yet another leg on an extended intellectual journey.

History holds that Christianity rose (against long odds) as a fledgling competitor in the faith market that was dominated by varieties of late Greek and Roman Gnosticism. After the tenth century, Christianity had so extended and consolidated its market power that it took on the form of a supranational government, with important implications for economic growth. We perceive that the medieval church was (rationally) as worldly as it was otherworldly, and that it developed a market for assurances of eternal salvation (and other elements of a complicated product) under extremely venal conditions. The medieval church sought to extract wealth from secular society and to dominate civil authority in a variety of ways: suppressing heresy through violence, regulating credit markets for its own benefit, and monopolizing religious doctrine and dogma. Moreover, as a kind of supranational government, the Roman Church clashed with secular rulers and administrations, with civil jurisdictions, feudal aristocrats, and virtually all other non-Church authorities. In general, an observable outcome of these clashes was either stimulation or protection of Church rents. That is, the Roman Church was a rent-seeking organization.65

The theory of rent seeking has undergone numerous emendations since its inception.66 In terms of applying the theory to historical episodes and to historical institutions, no extensions have been more important than those integrating and illustrating the rent-seeking process to regulatory and institutional change. Economists George J. Stigler67 and Sam Peltz-man68 designed an elaborate analytical apparatus for this purpose. They present a model that emphasizes marginal trade-offs by politician-regulators in an interest-group setting, accounting for both producers' and consumers' surplus distributions and redistributions. Rent seeking is the motivating factor of a process through which regulations appear and disappear. Seekers of regulation (i.e., any effective interest group) are willing to invest resources to get it, and regulations may come in many forms: taxes, tolls, regulated prices, quantity or quality restrictions, territorial limitations, and so on. Those injured by such economic controls, typically larger numbers of unorganized consumers, will invest up to the amount of their interest in preventing such regulation. The challenge faced by the politician-regulator (e.g., pope, monarch, dictator, legislator) is to balance the gains from favors granted to one group against the costs imposed on another.

By encouraging misallocation of resources (i.e., expenditures merely to obtain differential privilege), rent seeking becomes a theory of government and historico-institutional change. Over time rents and potential rents emerge through technological change that can support new regulations, deregulations, or a cycle of interventions. Ripe cultures for rent seeking are established by monarchy, dictatorship, and authoritarian rule of whatever kind, whether secular or religious. When the tools of modern industrial organization theory, public-choice theory, the microeconomics of information costs (including asymmetric information), and concepts of full price are wedded to it, rent seeking becomes an important tool for analyzing explicit and implicit markets, including those re lated to religion and, in the case of this book, the evolution of modern Christianity.

This new historical approach that seeks to bring culture within the purview of economic analysis is slowly gaining adherents. Economist Douglas Allen has developed a model that treats Christian churches as firms constrained by their theology.69 Like all firms, churches must manage opportunistic behavior. As attempts are made to do so, a church finds that its organizational structure is determined by the transaction cost problems that arise in the production of its spiritual good. Allen attempts to test this theory by examining the history of the church and examining cases of church failures and successes. Economists Dieter Schmidtchen and Achim Mayer posit a model of the medieval church as a rent-seeking, franchise monopolist, and use game theory to demonstrate that friars were "licensed" to sell indulgences (i.e., dispensations from purgatory) in competition with parish priests.70 (The latter, prior to the introduction of the mendicant friars, had exclusive territorial rights in the sale of indulgences.) Friars are here represented as raiders licensed by the pope to increase papal rents in the face of opportunistic behavior by the local clergy. Schmidtchen and Mayer maintain that in this way a profit-maximizing papacy could divert economic rents from the local level to the Vatican. In their game-theoretic model they show how the pope could exact greater profits by regulating the amount of indulgences sold by friars.71

But unlike economist Audrey Davidson's study of monasteries, which is supported by empirical evidence on the incentive-incompatibility problems faced by medieval monasteries,72 Schmidtchen and Mayer do not provide any direct historical examination of contracts that would have the effects predicted by their theory. As a consequence, their claim remains unsubstantiated that the objective function of the pope was to contract with friars to exact maximum profits from the system. It is no less likely that the establishment in the thirteenth century of Franciscans, Dominicans, and other mendicant orders was a consequence of other, perhaps more overarching, goals of the papacy.73

Some writers have employed the rent-seeking paradigm in an attempt to explain selected features of religion, such as the institution of auricular confession within Catholicism. Economist Benito Arrufiada views confession as a form of "moral enforcement," albeit one that involves a trade-off between specialization advantages and exchange costs.74 This interesting approach offers insights into the possible function of confession, but it does not displace the fact that confession and price schedules were not designed for optimum deterrence, or that rent seeking riddled church policy during the high Middle Ages when the upstream church was clearly an input monopoly.75 Auricular confession was one of several concomitant product developments introduced by the church in the twelfth and thirteenth centuries, including the invention of purgatory and the distinction between mortal and venial sin—a distinction that paved the way for commerce in indulgences.76 Nevertheless, using contemporary data, Arrunada finds that increases in the frequency of confession are positively correlated with increases in cash giving and in-kind service, which lends credence to the premise that rent seeking remains a component of the modern Roman Catholic Church.77

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