Protestant Modernity

Like all Lutherans, each Sunday I was further enlightened about Catholic wickedness and about how Martin Luther had set us free to think for ourselves and to seek knowledge, thereby bringing about the modern world. Although I had outgrown much of this by the time I entered graduate school, once there I was instructed in depth and detail in the gospel of Max Weber (1864–1920): that Protestantism gave birth to a unique work ethic that spawned capitalism, and thus it is that modernity is a direct result of the Reformation.

That Weber's entire thesis was nonsense should have been obvious to all competent scholars from the start (and it was to economic historians). Yet, even now it lives on among sociologists, being recounted in detail in every introductory textbook on the market. I shall deal once and for all with Weber shortly. But first, let me dispatch all variations of the notion linking the Reformation to religious freedom.

Reformation and Freedoms

The fundamental tie between the Reformation and religious freedom is said to reside in Luther's theological conclusion that each person is responsible for her or his own salvation, and therefore, everyone must be free to believe according to their own convictions and to worship as they wish. But, Luther believed nothing of the sort. People may need to accomplish their own salvation, but what they were to believe and how they were to worship were firmly fixed — the Reformation merely replaced monopoly Catholic churches with monopoly Protestant churches. Indeed, a common measure by which scholars decide when (and if) any particular German city turned Protestant is the date when it passed a law making it a criminal offense to celebrate Mass. As for the English Reformation, the Anglicans were soon burning Lutherans as well as hanging any Catholic priests they could find. In Calvin's Geneva too, Lutherans and Catholics were prohibited, and citizens were free only to be Calvinists. Soon thereafter, Catholics, as well as Protestants of all varieties, were busy burning witches — except in Spain and Italy, where the Inquisition prevented such madness (chapter 6). To the extent that there is religious freedom in Europe today (and it falls far short of the American standard), it was evolved by political leaders faced with a diversity of faiths.

Nevertheless, it continues to be the accepted wisdom that by stressing individual responsibility for salvation, the Reformation resulted in a great religious revival — that free from the Catholic compulsion and provided with worship services in their own language, people flocked to church. Nonsense!

Extraordinary reports on the lack of popular religious participation are available for Lutheran Germany based on the regular visitations by higher church officials to local communities, beginning in 1525. These have been extracted by the distinguished American historian Gerald Strauss who noted, "I have selected only such instances as could be multiplied a hundredfold."[1]

In Saxony (1574): "You'll find more of them out fishing than at service. . . . Those who do come walk out as soon as the pastor begins his sermon."[2] In Seegrehna (1577): "A pastor testified that he often quits his church without preaching . . . because not a soul has turned up to hear him."[3] In Barum (1572): "It is the greatest and most widespread complaint of all pastors hereabouts that people do not go to church on Sundays. . . . Nothing helps; they will not come . . . so that pastors face near-empty churches."[4] In Braunschweig-Grubenhagen (1580s): "Many churches are empty on Sundays."[5] In Weilburg (1604): "Absenteeism from church on Sundays was so widespread that the synod debated whether the city gates should be barred on Sunday mornings to lock everyone inside. Evidence from elsewhere suggests that this expedient would not have helped."[6]

As Martin Luther himself put it in 1529: "Dear God help us. . . . The common man, especially in the villages, knows absolutely nothing about Christian doctrine; and indeed many pastors are in effect unfit and incompetent to teach.

Nevertheless, it is not clear that having a large turnout at Sunday services would have been desirable. That's because when people did come to church so many of them misbehaved! In Nassau (1594): "Those who come to service are usually drunk . . . and sleep through the whole sermon, except sometimes they fall off the benches, making a great clatter, or women drop their babies on the floor."[7] In Wiesbaden (1619): "[During church] there is such snoring that I could not believe my ears when I heard it. The moment these people sit down, they put their heads on their arms and straight away they go to sleep."[8] In addition, many brought their dogs inside the church, "Barking and snarling so loudly that no one can hear the preacher."[9] In Hamburg (1581): "[People make] indecent gestures at members of the congregation who wish to join in singing the hymns, even bringing dogs to church so that due to the loud barking the service is disturbed."[10] In Leipzig (1579–80): "They play cards while the pastor preaches, and often mock or mimic him cruelly to his face; . . . cursing and blaspheming, hooliganism, and fighting are common. . . . They enter church when the service is half over, go at once to sleep, and run out again before the blessing is given. . . . Nobody joins in singing the hymn; it made my heart ache to hear the pastor and the sexton singing all by themselves."[11]

As Martin Luther himself put it in 1529: "Dear God help us. . . . The common man, especially in the villages, knows absolutely nothing about Christian doctrine; and indeed many pastors are in effect unfit and incompetent to teach. Yet they all are called Christians, are baptized, and enjoy the holy sacraments — even though they cannot recite either the Lord's Prayer, the Creed or the Commandments. They live just like animals."[12] Some revival. One must doubt that things could have been any worse in Catholic parishes. 

Weber and Capitalism

In 1904–05, Max Weber — a celebrated German sociologist — published Die Protestantische Ethik Und Der Geist Des Kapitalismus. It was well received by Protestant German scholars. Weber's work became known in the United States when several young Americans earned their PhDs in Germany and then took positions in leading American universities, especially Talcott Parsons at Harvard. In 1930, Parsons published an English translation of Weber's book, The Protestant Ethic and the Spirit of Capitalism. However, this translation was published only in England and attracted rather few American readers. The visibility of Weber's work in America increased when one of Parsons's students, Robert K. Merton, applied Weber's arguments to the "scientific revolution" (chapter 7). Then, in 1958, an American publisher brought out a paperback version of the Parson translation. It has sold several hundred thousand copies, most of them to American college students.

Weber's first sentence posed the matter to be addressed: "A glance at occupational statistics for any country of mixed religious composition brings to light with remarkable frequency . . . the fact that business leaders and owners of capital, as well as the higher grades of skilled labour, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant." How could this be explained?

In fact, capitalism was a very Catholic invention: it first appeared in the great Catholic monastic estates, way back in the ninth century.

According to Weber, Protestants dominated the capitalist economy of the West because of all the world's religions, only Protestantism provided a moral vision that led people to restrain their material consumption while vigorously seeking wealth. Weber argued that prior to the Reformation, restraint on consumption was invariably linked to asceticism and, hence, to condemnations of commerce. Conversely, the pursuit of wealth was linked to profligate consumption. Either cultural pattern was inimical to capitalism. Weber claimed that the Protestant ethic shattered these traditional linkages, creating a culture of frugal entrepreneurs content to systematically reinvest profits in order to pursue ever greater wealth, and therein lies the key to capitalism and the path to modernity.

Perhaps because it was such an elegant thesis, it was so widely accepted despite the fact that it was so obviously wrong. In fact, the first sentence of the book was dead wrong. As a great deal of subsequent research has demonstrated, Protestants were not more likely to hold the high-status capitalist positions than were Catholics. Catholic areas of western Europe did not lag in their industrial development. And even more obvious at the time Weber wrote was that fully developed capitalism had appeared in Europe many centuries before the Reformation!

As the British historian Hugh Trevor-Roper (1914–2003) explained, "The idea that large-scale industrial capitalism was ideologically impossible before the Reformation is exploded by the simple fact that it existed."[13] The celebrated Fernand Braudel (1902–85) complained that "all historians have opposed this tenuous theory [the Protestant Ethic] , although they have not managed to be rid of it once and for all. Yet it is clearly false. The northern countries took over the place that earlier had been so long and brilliantly been occupied by the old capitalist centers of the Mediterranean. They invented nothing, either in technology or business management."[14] Moreover, during their critical period of economic development, these northern centers of capitalism were Catholic, not Protestant — the Reformation still lay well into the future.

In fact, capitalism was a very Catholic invention: it first appeared in the great Catholic monastic estates, way back in the ninth century.

On Capitalism

Several thousand books have been written about capitalism, but very few authors explain what they mean by that term. This is not because no definition is needed;[15] it is because capitalism is very difficult to define, having originated not as an economic concept but as a pejorative term first used by nineteenth-century leftists to condemn wealth and privilege. To adapt the term for serious analysis is a bit like trying to make a social scientific concept out of "reactionary pig."[16] Fully aware that it might be good strategy to let readers supply their own meaning of capitalism, it seems irresponsible to base any analysis on an undefined term. Therefore, capitalism is an economic system wherein privately owned, relatively well-organized and stable firms pursue complex commercia activities within a relatively free (unregulated) market, taking a systematic, long-term approach to investing and reinvesting wealth (directly or indirectly) in productive activities involving a hired workforce, guided by anticipated and actual returns.[17]

The phrase complex commercial activities implies the use of credit, some degree of diversification, and little reliance on direct producer-to-consumer transactions. The term systematic implies adequate accounting practices. Indirect investment in productive activities extends the definition to include bankers and passive stockholders. The definition excludes profit-seeking ventures assembled for short-term activities, such as an elite-backed voyage by privateers or a "one-shot" trade caravan. It also excludes commerce conducted directly by the state or under extensive state control (or exclusive license), such as foreign trade in ancient China or tax farming in medieval Europe. Undertakings based on coerced labor, such as Roman slave-based industries, are excluded too. Most of all, this definition excludes "simple" commercial transactions — the buying and selling that has gone on among merchants, traders, and the producers of commodities through the centuries and around the world.

Augustine also ruled that price was not simply a function of the seller's costs, but also of the buyer's desire for the item sold.

Consistent with this definition, everyone writing on capitalism (whether or not they actually define the term) accepts that it rests upon free markets, secure property rights, and free (uncoerced) labor.[18] Free markets are needed in order for firms to enter areas of opportunity, which is precluded when markets are closed or highly regulated by the state. Only if property rights are secure will people invest in pursuit of greater gains, rather than hide, hoard, or consume their wealth. Uncoerced labor is needed so firms can attract motivated workers or dismiss them in response to market conditions. Coerced labor not only lacks motivation, but it may be difficult to obtain and hard to get rid of. It is the capacity to motivate work and the systematic reinvestment of profits that account for the immense productivity of capitalism.

The Rise of "Religious Capitalism"

The Bible often condemns greed and wealth — "For the love of money is the root of all evil" (1 Tim. 6:10) — but it does not directly condemn commerce or merchants. However, many of the very early church fathers shared the views prevalent in the Greco-Roman world that commerce is a degrading activity and, at best, involves great moral risk — that it is very difficult to avoid sin in the course of buying and selling.[19] However, soon after the conversion of Constantine (312 CE), the Church ceased to be dominated by ascetics, and attitudes toward commerce began to mellow, leading Augustine to teach that wickedness was not inherent in commerce, but that, as with any occupation, it was up to the individual to live righteously.[20]

Augustine also ruled that price was not simply a function of the seller's costs, but also of the buyer's desire for the item sold. In this way, Augustine gave legitimacy not merely to merchants, but to the eventual deep involvement of the Church in the birth of capitalism,[21] when its earliest forms began to appear in about the ninth century in the great estates belonging to monastic orders. Because of the immense increases in agricultural productivity that resulted from such significant innovations, such as the switch to horses, the heavy moldboard plow, and the three-field system, the monastic estates were no longer limited to mere subsistence agriculture. Instead, they began to specialize in particular crops or products and to sell these at a profit, allowing them to purchase their other needs, which led them to initiate a cash economy. They also began to reinvest their profits to increase their productive capacity, and as their incomes continued to mount, this led many monasteries to became banks, lending to the nobility — as they did to so many Crusaders. As Randall Collins noted, this was not merely a sort of "proto" capitalism involving only the "institutional preconditions for capitalism, . . . but a version of the developed characteristics of capitalism itself."[22 ] Collins referred to this as "religious capitalism,"[23] adding that the "dynamism of the medieval economy was primarily that of the Church."[24]

Throughout the medieval era, the Church was by far the largest landowner in Europe, and its liquid assets and annual income not only far surpassed that of the wealthiest king, but probably that of all of Europe's nobility added together.[25] A substantial portion of this wealth flowed into the coffers of the religious orders, much of it in payments and endowments in return for liturgical services — Henry VII of England paid to have ten thousand masses said for his soul.[26] In addition to receiving many gifts of land, most orders reinvested wealth in buying or reclaiming more land, thus initiating an era of rapid growth that often resulted in extensive property holdings scattered over a large area. Although dwarfed by the huge monastic center at Cluny, which may have had a thousand priories by the eleventh century, many monastic orders had established fifty or more outposts.[27] In the twelfth century, under the leadership of Saint Bernard of Clairvaux, the Cistercians protested against the extravagance of Cluny, but being well-organized and frugal, they quickly amassed some of the largest estates in Europe — many Cistercian houses farmed one hundred thousand acres, and one in Hungary had fields totaling two hundred fifty thousand acres.[28] In addition to gifts, much of this growth was achieved by incorporating previously untilled tracts as well as by clearing forests and draining submerged areas. For example, monks at the monastery of Les Dunes recovered about twenty-five thousand acres of fertile fields from the marshes along the Flanders coast.[29]

In addition to gifts, much of this growth was achieved by incorporating previously untilled tracts as well as by clearing forests and draining submerged areas. For example, monks at the monastery of Les Dunes recovered about twenty-five thousand acres of fertile fields from the marshes along the Flanders coast.

This period of great expansion was motivated in part by population growth,[30] and in even greater part by increases in productivity. Until this era, the estates were largely self-sufficient — they produced their own food, drink, and fuel, they made their own cloth and tanned their own leather, they maintained a smithy and often even a pottery. But, with the great gains in productivity came specialization and trade. Some estates only produced wine, others grew only several grains, some only raised cattle or sheep — the Cistercians at Fossanova specialized in raising fine horses.[31] Meanwhile, the rapid increase in agricultural surpluses encouraged the founding and growth of towns and cities — indeed, many of the monastic centers themselves became cities. Writing about the great monastery of St. Gall in Switzerland in 820, Christopher Dawson (1889–1970) noted that it was "no longer the simple religious community envisaged by the old monastic rules, but a vast complex of buildings, churches, workshops, store-houses, offices, schools and alms-houses, housing a whole population of dependents, workers and servants like the temple cities of antiquity."[32]

When estates grew into small cities and sustained many scattered outposts, and as they became specialized and dependent on trade, three very important developments occurred. First, they evolved a more sophisticated and far-seeing management. This was facilitated in the monastic estates by virtue of the fact that, unlike the nobility, their affairs were not subject to the vagaries of inherited leadership. The essential meritocracy built into the orders could ensure a succession of talented and dedicated administrators having the capacity to pursue plans of long duration. As Georges Duby put it, the new era forced monastic "administrators to turn their attention to the domestic economy, to reckon up, to handle figures, to calculate profits and losses, to think about ways and means of expanding production."[33]

Attendant to specialization was a second development, a shift from a barter to a cash economy. It simply was too complicated and unwieldy for a wine-making estate, say, to barter for its other needs, transporting goods hither and yon. It proved far more efficient to sell its wine for cash and then buy whatever was needed from the most convenient and economical sources. Beginning late in the ninth century, the reliance on cash spread rapidly. Perhaps the monks in Lucca (near Florence) were the first to adopt a cash economy, but it was well established across Europe when, in 1247, a Franciscan chronicler wrote of his order's estate in Burgundy that the monks "do not sow or reap, nor do they store anything in barns, but they send wine to Paris, because they have a river right at hand that goes to Paris, and they sell for a good price, from which they get all their food and all of the clothes they wear."[34] In contrast, although the estates of Greco-Roman times (as elsewhere in the world) were expected to produce rents in the form of agricultural surpluses for their rich landlords, they were entirely, or primarily, self-sufficient, subsistence operations. Moreover, they were so unproductive that a wealthy family required huge estates in order to live in style. But, even in its earliest stages, capitalism brought immense wealth to orders having only modest fields and flocks.

The third development was credit. Barter does not lend itself to credit — to conclude a trade by agreeing to a future payment of three hundred chickens can easily be disputed as to the value of the owed poultry: are these to be old hens, roosters, or pullets? But, the precise meaning of owing someone two ounces of gold is not in doubt. Not only did the great Church estates begin to extend one another monetary credit, as they became increasingly rich they also began to lend money at interest, and so did some bishops. During the eleventh and twelfth centuries, Cluny lent large sums at interest to various Burgundian nobles,[35] while in 1071 the bishop of Liège lent the incredible sum of 100 pounds of gold and 175 marks of silver to the countess of Flanders and subsequently lent 1,300 marks of silver and 3 marks of gold to the duke of Lower Lorraine. In 1044, the bishop of Worms lent twenty pounds of gold and a large (unspecified) amount of silver to Emperor Henry III. There were many similar instances — according to surviving records, in this era bishops and monasteries were the usual source of loans to the nobility.[36] By the thirteenth century, monastic lending often took the form of a mort-gage (literally, "dead pledge"), wherein the borrower pledged land as security, and the lender collected all income from that land during the term of the loan and did not deduct this income from the amount owed. This practice often resulted in additions to the monastery's lands because the monks were not hesitant to foreclose.[37]

But the monks did more than invest in land or lend from their bursting treasuries. They began to leave their fields, vines, and barns and retire into liturgical "work," conducting endless paid masses for souls in purgatory and for living benefactors who wished to improve their fates in the next world. Monks now enjoyed leisure and luxury. The monks at Cluny "were given plentiful and choice foods. Their wardrobe was renewed annually. The manual labor prescribed by the rule [of Saint Benedict] was reduced to entirely symbolic tasks about the kitchen. The monks lived like lords."[38] It was the same in the other great houses. And all of this was possible because the great monasteries began to utilize a hired labor force, who not only were more productive than the monks had been,[39] but also more productive than tenants required to provide periods of compulsory labor. Indeed, these tenants had long since been satisfying their labor obligations by money payments.[40] Thus, as "religious capitalism" unfolded, monks still faithfully performed their duties, but aside from those engaged in liturgy, the rest now "worked" as executives and foremen. In this way, the medieval monasteries came to resemble remarkably "modern" firms — well administered and quick to adopt the latest technological advances.[41]

The Virtues of Work and Frugality

Traditional societies celebrate consumption while holding work in contempt. This is true not only of the privileged elite, but even of those whose days are spent in toil. Notions such as the "dignity" of labor or the idea that work is a virtuous activity were incomprehensible in ancient Rome or in any other precapitalist society. Rather, just as spending is the purpose of wealth, the preferred approach to work is to have someone else do it and, failing that, to do as little as possible. In China, the Mandarins grew their fingernails as long as they could (even wearing silver sheaths to protect them from breaking) in order to make it evident that they did no labor. Consequently, capitalism seems to require and to encourage a remarkably different attitude toward work — to see it as intrinsically virtuous and also to recognize the virtue of restricting one's consumption. Of course, Max Weber identified this as the Protestant Ethic, so-called because he believed it to be absent from Catholic culture. But Weber was wrong.

Belief in the virtues of work and of simple living did accompany the rise of capitalism, but this was centuries before Martin Luther was born.[42] Despite the fact that many, perhaps even most, monks and nuns were from the nobility and wealthiest families,[43] they honored work not only in theological terms, but also by actually doing it. In Randall Collins words, they "had the Protestant ethic without Protestantism."[44]

Thus, as "religious capitalism" unfolded, monks still faithfully performed their duties, but aside from those engaged in liturgy, the rest now "worked" as executives and foremen. In this way, the medieval monasteries came to resemble remarkably "modern" firms — well administered and quick to adopt the latest technological advances.

The virtue of work was made evident in the sixth century by Saint Benedict, who wrote in his famous Rule: "Idleness is the enemy of the soul. Therefore the brothers should have specified periods for manual labor as well as prayerful reading. . . . When they live by the labor of their hands, as our fathers and the apostles did, then they are really monks."[45] Or, as Walter Hilton, the English Augustinian, put it in the fourteenth century, "By the discipline of the physical life we are enabled for spiritual effort."[46] It is this commitment to manual labor that so distinguishes Christian asceticism from that found in the other great religious cultures, where piety is associated with rejection of the world and its activities. In contrast with Eastern holy men, for example, who specialize in meditation and live by charity, medieval Christian monastics lived by their own labor, sustaining highly productive estates. This not only prevented "ascetic zeal from becoming petrified in world flight,"[47] but it sustained a healthy concern with economic affairs. Although the "Protestant Ethic" thesis is wrong, it is entirely legitimate to link capitalism to a "Christian Ethic."

Thus it was that, beginning in about the ninth century, the growing monastic estates came to resemble "well-organized and stable firms," that "pursued complex commercial activities within a relatively free market," "investing in productive activities involving a hired workforce," "guided by anticipated and actual returns." If this was not capitalism in all its glory, it was certainly close enough. Moreover, these economic activities of the great religious orders made Christian theologians think anew about their doctrines concerning profits and interest. Granted that Augustine had approved profits. But were there no moral limits to profit margins? As for usury, the Bible condemned it; but if interest was forbidden, how could one buy on credit or borrow needed funds?

Capitalism and Theological Progress

Christian theology has never crystallized. If God intended that scripture would be more adequately grasped as humans gained greater knowledge and experience, this warranted continuing reappraisal of doctrines and interpretations. And so it was.

Initial Christian Opposition to Interest and Profits

During the twelfth and thirteenth centuries, Catholic theologians, including Thomas Aquinas, declared that profits were morally legitimate and, while giving lip service to the long tradition of opposition to "usury," these same theologians justified interest charges. In this way, the Catholic Church made its peace with early capitalism many centuries before there even were any Protestants.

Christianity inherited opposition to interest (usury) from the Jews. Deuteronomy 23:19–20 admonishes: "You shall not charge interest on loans to another Israelite, interest on money, interest on provisions, interest on anything that is lent. On loans to a foreigner you may charge interest, but on loans to another Israelite you may not charge interest." That interest could be charged to foreigners explains the role of Jews as money lenders in Christian societies, a role sometimes imposed on them by Christians in need of funds. (It also had the consequence, usually ignored by historians, that medieval Christians with money to lend often masqueraded as Jews.)[48]

Of course, the prohibition in Deuteronomy did not necessarily bar Christians from charging interest since they were not Israelites. But, the words of Jesus in Luke 6:34 were taken to prohibit interest: "If you lend to those from whom you hope to receive, what credit is that to you? Even sinners lend to sinners, to receive as much again. But love your enemies, do good, and lend, expecting nothing in return."

Interest on loans was thus defined as the "sin of usury," and widely condemned in principle while pretty much ignored in actual practice. In fact, as already noted, by late in the ninth century, some of the great religious houses ventured into banking, and bishops were second only to the nobility in their reliance on borrowed money. In addition to borrowing from monastic orders, many bishops secured loans from private Italian banks that enjoyed the full approval of the Vatican. Hence, in 1229, when the bishop of Limerick failed to fully repay a loan to a Roman bank, he was excommunicated by the pope until he had negotiated a new agreement under which he ended up repaying 50 percent interest over the course of eight years.[49] The need for loans often was so great and so widespread that Italian banks opened branches all across the continent. Although many bishops, monastic orders, and even the Roman hierarchy ignored the ban on usury, opposition to interest lingered. As late as the Second Lateran Council in 1139, the Church "declared the unrepentant usurer condemned by the Old and New Testaments alike and, therefore, unworthy of ecclesiastical consolations and Christian burial."[50] Nevertheless, documents prove "that in 1215 there were usurers at the Papal Court from which a needy prelate could obtain a loan."[51]

As many of the great Christian monastic orders continued to maximize profits and to lend money at whatever rate of interest the market would bear, they were increasingly subjected to a barrage of condemnations from more traditional clergy who accused them of the sin of avarice. What was to be done?

Theology of the "Just Price" and of Legitimate InterestObviously, people couldn't be expected to simply give away the products of their labor. But, was there no limit to what they should charge? How could one be sure that an asking price was not sinfully high?

Writing in the thirteenth century, Saint Albertus Magnus proposed the "just price" was simply what "goods are worth according to the estimation of the market at the time of sale."[52] That is, a price was just if that's what uncoerced buyers were willing to pay. Adam Smith could not have found fault with this definition. Echoing his teacher, but using many more words, Saint Thomas Aquinas began his analysis of just prices by posing the question, "Whether a man may lawfully sell a thing for more than it is worth?"[53] He answered by first quoting Augustine that it was natural and lawful for "you wish to buy cheap, and sell dear." Next, Aquinas excluded fraud from legitimate transactions. Finally, he recognized that worth was not really an objective value — "the just price of things is not absolutely definite" — but was a function of the buyer's desire for the thing purchased and the seller's willingness or reluctance to sell, so long as the buyer was not misled, or under duress. To be just, a price had to be the same for all potential buyers at a given moment, thus barring price discrimination. Aquinas's respect for market forces was best revealed by his story about a merchant who brought grain to a country suffering a famine and who knew that other merchants soon would bring much more grain to this area. Was it sinful for him to sell at the prevailing, high market price, or should he have informed the buyers that soon more grain would arrive, thus causing the price to decline? Aquinas concluded that this merchant could, in good conscience, keep quiet and sell at the current high price.

But these worldly aspects of the Church paid serious dividends in the development of capitalism. The Church didn't stand in the way — rather it both justified and took an active role in the Commercial Revolution of the twelfth and thirteenth centuries.

As to interest on loans, Aquinas was unusually confusing. In some writings he condemned all interest as the sin of usury, in other passages he accepted that lenders deserved compensation, although he was fuzzy as to how much and why.[54] However, prompted by the realities of a rapidly expanding commercial economy, many of Aquinas's contemporaries, especially the Canonists, were not so cautious, but began "discovering" many exceptions wherein interest charges were not usurious.[55] For example, if a productive property, such as an estate, was given as security for a loan, the lender could take all of the production during the period of the loan and not deduct it from the amount owed.[56] Many other exclusions involved the "costs" to the lender of not having the money available for other commercial opportunities, such as buying goods for resale or acquiring new fields. Since these alternative opportunities for profit were entirely licit, it was licit to compensate a lender for having to forgo them.[57] In this same spirit, it was deemed proper to charge interest for goods bought on credit.[58] As for banks, aside from the exemptions noted above, they did not make straight loans at a fixed rate of interest since these would have been deemed usurious on grounds that there was no "adventure of the principal." The notion was that interest was legitimate only if the amount yielded was uncertain in advance, being subject to "adventure." But it took very little finesse for bankers to evade this prohibition by trading notes, bills of exchange, or even currencies in ways that seemed adventuresome, but which in fact had entirely predictable returns and thus constituted loans and produced the equivalent of interest.[59] Thus, while the "sin of usury" remained on the books, so to speak, "usury" had become essentially an empty term. Thus, by no later than the thirteenth century, the leading Christian theologians had fully debated the primary aspects of emerging capitalism — profits, property rights, credit, lending, and the like. As Lester K. Little summed up: "In each case they came up with generally favorable, approving views, in sharp contrast to the attitudes that had prevailed for six or seven centuries right up to the previous generation."[60] Capitalism was fully and finally freed from all fetters of faith.[61]

It was a remarkable shift. These were, after all, theologians who had separated themselves from the world. Most of them had taken vows of poverty. Most of their predecessors had held merchants and commercial activities in contempt. Had asceticism truly prevailed in the religious orders, it seems most unlikely that Christian disdain for and opposition to commerce would have mellowed, let alone have been radically transformed. This theological revolution was the result of direct experience with worldly imperatives. For all their genuine acts of charity, monastic administrators were not about to give all their wealth to the poor or to sell their products at cost. It was the active participation of the great houses in free markets that caused monastic theologians to reconsider the morality of commerce, which was abetted by the marked worldliness of the Church hierarchy.

Unlike those in the religious orders, few holding higher Church positions had taken vows of poverty, and many displayed a decided taste for profligate living. Bishops and cardinals were among the very best clients of "usurers." That is not surprising since nearly everyone holding an elite Church position had purchased his office as an investment, anticipating a substantial return from Church revenues. Indeed, as noted in chapter 9, men often were able to buy appointments as bishops or even cardinals without having held any prior Church positions, sometimes before they were ordained or even baptized![62] This aspect of the medieval Church was an endless source of scandal and conflict, spawning many heretical mass sect movements, and culminating in the Reformation. But these worldly aspects of the Church paid serious dividends in the development of capitalism. The Church didn't stand in the way — rather it both justified and took an active role in the Commercial Revolution of the twelfth and thirteenth centuries.[63]  

Capitalist City-States

Although capitalism developed in the great monastic estates, it soon found a very receptive setting in the newly democratic Italian citystates. In the tenth century, they rapidly began to emerge as the banking and trading centers of Europe, exporting a stream of goods purchased from suppliers in northern Europe, especially in Flanders, Holland, and England, their primary customers being Byzantium and the Islamic states, especially those along the coast of north Africa. Subsequently, the Italian city-states industrialized and soon were producing a large volume of manufactured goods not only for export across the Mediterranean, but they also began shipping a great many products back to northern Europe and the British Isles. For example, eyeglasses (not only for nearsightedness, but for farsightedness as well) were massproduced by plants in both Florence and Venice, and tens of thousands of pairs were exported annually.

Now for a remarkable irony. Quite possibly the most profound and lasting consequence of the Protestant Reformation was that it prompted the Catholic Reformation or Counter-Reformation.

Perhaps the most striking aspect of Italian capitalism was the rapid perfection of banking. The Italian bankers quickly developed and adopted double-entry bookkeeping. To facilitate long-distance trade, Italian banks invented bills of exchange, making it possible to transfer funds on paper rather than undertake the difficult and very dangerous practice of transporting coins or precious metal from a bank in Florence to one in Genoa, let alone from a trading company in Venice to a woolens dealer in England. Italian bankers also initiated insurance to guard against loss of long-distance shipments by land or sea. Perhaps the most important of all the Italian banking innovations was the perfection of modern arithmetic, based on the adoption of Hindu-Arabic numerals and the concept of zero. Even addition and subtraction were daunting chores for Romans, given their cumbersome numeral system. The new system was revolutionary in terms of its ease and accuracy, and arithmetic schools soon sprang up in all the leading northern Italian citystates, eventually even enrolling students sent from northern Europe. With easy and accurate arithmetic available, business practices were transformed.[64] All of this accompanied the proliferation of banks in the Italian city-states. By the thirteenth century, there were 38 independent banks in Florence, 34 in Pisa, 27 in Genoa, 18 in Venice — a combined total of 173 in the leading Italian city-states.[65] Moreover, most of these Italian banks had foreign branches. In 1231, there were 69 Italian banking houses operating branches in England and nearly as many in Ireland. In fact, until well into the fifteenth century, every bank in western Europe was either in Italy or was a branch of an Italian bank.[66]

The proximate cause of the rise of Italian capitalism was freedom from the rapacious rulers who repressed and consumed economic progress in most of the world, including most of Europe. Although their political life often was turbulent, these city-states were true republics able to sustain the freedom required by capitalism. Second, centuries of technological progress had laid the necessary foundations for the rise of capitalism, especially the agricultural surpluses needed to sustain cities and to permit specialization. In addition, Christian theology encouraged extremely optimistic views about the future, which justified long-term investment strategies, and by this time theology also provided moral justifications for the business practices fundamental to capitalism.

Conclusion

Now for a remarkable irony. Quite possibly the most profound and lasting consequence of the Protestant Reformation was that it prompted the Catholic Reformation or Counter-Reformation. At the Council of Trent (1551–52, 1562–63), the Catholic Church ended simony (the sale of church offices), enforced priestly celibacy, and made available official, inexpensive Bibles in local languages (vulgates). In short, the Church of Piety permanently replaced the Church of Power. At Trent, the Church also decided to establish a network of seminaries to train men for the local priesthood. Hence, by the eighteenth century, in most places the Church was staffed by literate men well versed in theology and whose vocations had been shaped and tested in a formal, institutional setting. Thus, the Church did confront the modern world.