The Establishment and Evolution of Protestantism

How many different masters will the next century follow? The confusion will reach new heights. None of them will be willing to be governed by the opinion or authority of the others. Each will want to set up as his own rabbi... And what terrible scandals there will be! What excesses! The best course would be for the princes to avert such evils by means of a council. But the Papists would avoid this: they are so afraid of the light.

—Martin Luther, Letters of Martin Luther

The general argument of the preceding chapters is that Protestantism was a form of competitive action taken in a market that was previously monopolistic. As in economics, competition in religion has advantages. Adam Smith recognized that sixteenth-century Protestants helped promote a supply-side revolution that amounted to a massive tax cut in terms of money and time committed to salvation seeking. The full price of church membership fell for those who embraced the Protestant faith: Time costs were reduced by leaner rituals and less ornate churches; the cost of practicing one's faith was lowered by the elimination of middlemen; and the monetary cost of securing indulgences was eliminated. Protestantism gained a foothold in the religious market by offering a new product, but the nature of the new product was not fixed for all time at its entry point. Whereas Catholicism aspired to be an all-embracing, unambiguous faith with universal appeal, Protestantism ushered in heterogeneity and diversity, evolving in response to local customs, values, and politics, as well as measures taken by the Roman Catholic Church to counteract its entry. Eventually these different brands of Protestantism would come into conflict with each other.

In the previous two chapters we described in fairly general terms the process of new-firm (Protestant) entry and dominant-firm (Catholic) reaction. In this chapter we focus on the subsequent development of Protestantism after it gained a foothold in the religious market. We wish to accomplish three major objectives. First, to establish an economic theory capable of explaining the evolution of the many forms of Christianity that Protestantism spawned. Our theory focuses on the evolution of the characteristics of these forms and on spatial competition as a determinant of market structure. Second, to particularize, mainly in economic terms, the initial governance systems (theological and organizational) of the various forms of Protestantism that were demanded and supplied in the period following Luther's break with Rome in 1517. Finally, to develop a brief analysis of the export of Christian religion and the competitive conflicts that took place as a result of European Christian market expansion.

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