When Martin Luther started the Protestant Reformation in Germany in the 16th century he claimed ''special divine grace'' was the secret of his success in converting local authorities. But new research presented at the Royal Economic Society''s 2015 annual conference suggests that God and Mammon take equal credit for the Reformation.
The study by Malik Curuk and Sjak Smulders challenges the idea that the Reformation was exclusively about culture and politics by demonstrating that the German cities that were least economically efficient under the old regime were more likely to embrace the Reformation.
The authors use a measure of ''institutional inefficiency'', which they calculate by comparing the untapped economic potential of a region (measured using its agricultural potential, compared to population). The research concludes that in places that were particularly inefficient, cities were more likely to embrace Luther''s ideas.
Those regions that followed Luther''s reforms reaped the benefit of modernising their inefficient institutions, because the Reformation led to a drastic reorganisation of the judicial, economic and political system. Clergy became civil servants, while monasteries were dissolved. Former monastery buildings housed universities that educated legal scholars of a new style, who contributed to the development of a more professional and centralised state apparatus.
The authors write that their research shows how: ''economic circumstances had an important influence on the selective spread of Protestantism, and the adoption of reforms that turned out to have far reaching effects on economic development on the eve of industrialisation.''
''Since the time of the apostles no doctor or writer, no theologian or lawyer has confirmed, instructed, and comforted secular authority more glorious and clearly than I was able to do through special divine grace.''
Martin Luther, 1533
All English history books explain which personal reasons made Henry VIII eager to separate the Church of England from the papal authority and how the dissolution of the monasteries brought him enough income to pursue his military ambitions.
In sharp contrast, the narrative of the Reformation in Germany is dominated by Martin Luther who was determined to fight against the clerical abuses and radically reform the church for the spiritual benefit of the German people.
This research suggests that this contrast is a misrepresentation. In Germany there were also important economic motives that influenced whether local authorities adopted the Reformation in their region, or not. In particular, the authors find that local rulers were more likely to convert in regions that suffered more from the inefficiencies accumulated under the old regime.
The Reformation shook all strata of the society and had an enormous impact on the social formation in the Holy Roman Empire. It led to a drastic reorganisation of the judicial, economic and political system. Clergy became civil servants, while monasteries were dissolved. Former monastery buildings housed universities that educated legal scholars of a new style, who contributed to the development of a more professional and centralised state apparatus.
Why then did only a subset of German cities take up this opportunity if the Reformation eliminated obvious irrationalities in the Catholic rule which could be universally objected?
In a model of regime change, the researchers show that local authorities convert to Protestantism only when the institutional inefficiencies are so severe that eliminating them yields large benefits and makes the transition feasible. While the argument is simple enough, the degree of institutional efficiency is not observable directly.
Nevertheless, the model is helpful in quantifying the unobserved institutional efficiency. In the Malthusian era where there is no sustained productivity growth, whatever the productivity in urban activities such as crafts and services are, the total economic potential of a region is solely determined by its agricultural potential and the economic wealth is reflected in its population size in the long run.
The researchers infer the agricultural potential of each territory based on land characteristics and climatic conditions. They confront this potential to the actual contemporaneous economic wealth, which they infer from various measures, of which city size is the main one. They thus obtain a measure of ''untapped economic potential'', which they find positively correlated with the local authorities'' decision to reform.
Previous research has found other determinants of the Reformation in Germany, like the ease with which information could spread from Luther''s residence and other centres of protestant thinking (Zurich, Geneva). Indeed, the new study confirms that this is an independent source that contributed with similar quantitative strength as the economic incentives to the spread of the new religion.
Major changes in the organisation of social and economic life seldom occur and not always with success. This case study of one of the major institutional changes in Western history shows how economic motives played a major, but not so visible, role while the political and economic clashes were articulated in a religious discourse.
The study also challenges the widespread view that culture and religion are external to economic incentives. The authors document that economic circumstances had an important influence on the selective spread of Protestantism and the adoption of reforms that turned out to have far reaching effects on economic development on the eve of industrialisation.
Malthus Meets Luther: the Economics Behind the German Reformation – Malik Curuk and Sjak Smulders, Tilburg University