Secularising Europe’s economy

It is widely known that the Protestant Reformation, which was launched by popular reformers like Martin Luther King and John Calvin in the 16th century, brought about an abrupt end to the massive and unquestioned powers of the Catholic Church. What is not fully appreciated, however, is the role that the Reformation played in secularising the European economy. This is elaborated in a forthcoming paper in the Quarterly Journal of Economics, “Religious competition and reallocation: The political economy of secularisation in the Protestant Reformation”, by Davide Cantoni, Jeremiah Dittmar and Noam Yuchtman.

The authors argue that before the Protestant Reformation, the Catholic Church possessed monopoly power over the rulers of Europe who were in need of its religious sanction to wield political power. This meant that the rulers often had to pay an exorbitant price to receive the Church’s divine sanction for their rule. After the Reformation, however, things changed drastically and the Church was forced to compete against the Protestants in the market offering religious sanction to rulers. The Protestant Reformation, the authors thus believe, was, in essence, a competitive shock in the religious market. This played to the favour of the secular rulers who could now obtain a better bargain from religious authorities. They no longer had to pay a huge price to receive religious sanction because the Catholic Church had to cut down its price when faced with competition from the Protestants.

The authors further take a deep dive to look into how the dilution of the Church’s powers over Europe’s secular rulers also caused a shift in how resources were allocated between religious and secular purposes. They found that graduates from universities, for instance, increasingly began to take up secular administrative jobs instead of traditional religious roles after the Protestant Reformation. Further, there was a shift in investment activities from religious to secular purposes. For instance, construction activities began to cater to non-religious demands like the building of palaces and administrative buildings instead of churches and monasteries. Religious competition between the Catholics and Protestants thus had the effect of secularising Europe’s economy.