An Essay on the Economic Effects of the Reformation

By George O'Brien and Dr. Edward McPhail

This work offers a unique perspective on the rise of capitalism and socialism and the effect of the Reformation. Specific topics include consequences of belief in the private judgment of scriptures; separation of spiritual and secular life; difference between Lutheran and Calvinist teachings on economics; the Calvinist concept of vocation; its

• Language: English
• Publisher: IHS Press
• Release date: Apr 1, 2003
• ISBN: 9781932528954

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To Michael, with thanks for the inspiration.

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An Essay on the Economic Effects of the Reformation.

Copyright © 2003 IHS Press.

This Work is published by arrangement with The Continuum International Publishing Group, Inc.

Preface, footnotes, typesetting, layout, and cover design copyright 2003 IHS Press.

All rights reserved.

An Essay on the Economic Effects of the Reformation was first published in 1923, in London, by Burns, Oates & Washbourne, Ltd. The present edition is based principally thereupon; footnotes have been converted to endnotes, for easier reading, and the few editor’s notes that have been added are included among the endnotes, and are so indicated.

ISBN-13 (eBook): 978-1-932528-32-9

Library of Congress Cataloging-in-Publication Data

O’Brien, George Augustine Thomas, 1892-

An essay on the economic effects of the reformation / by George O’Brien

p. cm.

Originally published: London : Burns, Oates & Washbourne, 1923.

Includes index.

ISBN 0-9718286-2-8 (alk. paper)

1. Economic history--16th century. 2. Reformation. 3. Capitalism. 4. Socialism. I. Title: Economic effects of the reformation. II. Title.

HC1.5.O27 2003

330.9’031--dc21

2003040667

Printed in the United States of America.

Table of Contents

Dedication

Title Page

Copyright Page

INTRODUCTION

An Essay on - THE ECONOMIC EFFECTS OF THE REFORMATION

CHAPTER I - THE ECONOMIC EFFECTS OF THE REFORMATION IN GENERAL

CHAPTER II - PROTESTANTISM AND CAPITALISM

CHAPTER III - PROTESTANTISM AND SOCIALISM

CHAPTER IV - CONCLUSION

Notes.

SUGGESTIONS FOR FURTHER READING

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ORDER DIRECTLY FROM THE PUBLISHER AT THE ADDRESS BELOW. ALSO AT FINE BOOKSTORES.

About IHS Press

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Ever since the Reformation the old foundations of European life have been attacked by successive waves, first of Protestantism, and then of rationalism, until society has arrived at its present chaotic, formless, distracted condition. If the critical period continues much longer, European civilization will cease to be equal to the strain. In the economic world in particular, distraction reigns. Man is arrayed against man, and class against class, and nowhere is there to be found any sure guide or preceptor. The need is urgent for some social creed which will restore the harmony of human relationships, and will save Europe from tottering into the abyss which she seems to be rapidly approaching.

INTRODUCTIONa

GEORGE AUGUSTINE THOMAS O’BRIEN began his career as a lawyer, practicing for three years before turning to an academic career. His first foray into economics was marked by his work The Economic History of Ireland in the Eighteenth Century (1918). The book was well received, and O’Brien quickly followed up his success with his second volume: The Economic History of Ireland in the Seventeenth Century (1919). Showing the diversity of his interests, in 1920 O’Brien turned to the history of ideas with An Essay on Medieval Economic Teaching; he also wrote the introduction to E. J. Riordan’s Modern Irish Trade and Industry. Returning to Irish economic history in 1921, he completed his trilogy with The Economic History of Ireland from the Union to the Famine. He showed his continuing interest in the Middle Ages with Labour Organization, published in the same year. Thus, by the age of thirty, George O’Brien had already made important contributions to both economic history and the history of ideas. His Economic History of Ireland established his reputation as an economic historian of some distinction, as did his Essay on Medieval Economic Teaching as an historian of economic thought. In 1929 he turned to contemporary policy issues with Agricultural Economics and to technical matters with Notes on the Theory of Profit. His other works include The Four Green Fields (1936), Economic Relativity (1942), and The Phantom of Plenty: Reflections on Economic Progress (1948).

O’Brien’s name appears five times in Joseph Schumpeter’s well-known History of Economic Analysis: twice for his Essay and three times for his piece on the John Stuart Mill – J. E. Cairns correspondence. Not once did Schumpeter mention the book you now hold in your hands. That is surely a pity. The Economic Effects of the Reformation is not only of interest to the historian of ideas as one of the earliest books to introduce Max Weber to the English-speaking world, but also for its prescient theoretical insights and its uncanny relevance for today.

Economic Effects makes us see the ideological foundations of capitalism, socialism, and economic modernity in a fresh way. Remarkably, this freshness relies on ideas that date back to the early sixteenth century. Indeed, for O’Brien the Reformation was not merely a religious event. It was an epoch-making social and economic convulsion that in fact gave rise to both capitalism and socialism. The Reformation was much more than a religious dispute. It was the overturning of society as it was then known.b Indeed, in a world in which McJihad seems a common phrase and the drama of religious and ethnic conflict dominates the nightly news, O’Brien’s emphasis on the overwhelming power of faith and ideas does not seem out of place.

To describe Economic Effects of the Reformation as one of his finest contributions may seem a strong claim given that both his better-known Essay and his Economic History of Ireland are still cited and are well worth reading today. But this book, too, has much to teach both economists and laymen, not only about the origins of economic science, but also about the current state of economic theory. In Economic Effects, O’Brien explores the transformational role social and religious institutions played in the development of capitalism and socialism. And he enhances our understanding of the interplay between human behavior and the unintended consequences of political ideas that were let loose at the Reformation.

O’Brien’s story is not mere reporting; the task he undertakes is more difficult. He shows us how economics got to be the way it is, examining not only the economic effects of the Reformation but also the effects of the Reformation on Economics. The Reformation, he says (p. 60), produced the conditions that gave rise to the separate discipline of economics; and with the subsequent decline of revealed religion, that discipline’s classical or orthodox interpretation itself became a kind of secular substitute for it. From this perspective, classical economic theory, the capitalist spirit, and ideological socialism were all mutually reinforcing. The truth is, O’Brien writes,

that the classical school of economics represented in the world of theory what the capitalist spirit represented in the world of practice; while neither was the cause of the other, each aided the other’s progress; and both had their origin in the same cause (p. 75).

Taking this a step further, the capitalist spirit was an expression of a new, secularized Calvinism – with classical economics as its theology, and classical economists as its priests – the existence of which would have been impossible without the Reformation and the subsequent rise of Protestantism.

Although published in 1923, it is remarkable how much relevance O’Brien’s analysis has today. Recent developments within my own discipline favor a number of O’Brien’s concerns. The role of religion in explaining economic growth, the status of homo-economicus (economic man), economic explanations of religion, economics as a secular religion, ethics and economics, economic methodology, rhetoric and economics – all of these considerations still preoccupy economists today, many of whom are beginning to appreciate – though not consciously or overtly – the wisdom of O’Brien’s approach and perspective. These issues and a host of others make the republication of Economic Effects of the Reformation opportune. Given limitations upon the space available we will consider only a few facets of O’Brien’s work.

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Beginning with Jeremy Bentham down to present-day, mainstream economic theory, economists have often relied upon the assumption that economic actors are pure, self-interested agents. The self-interested approach to modeling the economy has been of great practical use to modern economic science because it abstracts from those features that are deemed either unimportant or unchanging over the course of the analysis. It has explanatory power in the sense that it makes definite predictions, and it is simple in the sense that it does not have too many moving parts. Some of the efficiency results of these models and the presumably desirable properties of the state of world that they predict rely upon strong assumptions and have rather strong consequences. For example, even a motive such as altruism is reinterpreted so that it reflects self-interested behavior because sympathy for others leads to an increase in the altruist’s own welfare.

Yet, other motives neglected by this approach help to explain human behavior too. O’Brien begins his study by noting that failing to keep this in mind leads to serious error. Ignoring the connection between economics and religion, for example, or the role that ethics must play in economic theory, is a mistake. A mistake that, in the eyes of O’Brien, the classical school made (pp. 1 – 2). Human behavior is more complex than an explanation by self-interest alone will allow; self-interest alone is thus inadequate to account for economic behavior, let alone behavior in general. Recent economic work demonstrates that O’Brien’s suspicions against this mode of thinking were well founded. His awareness of the role that motivational structures and in particular religion play in social interactions has been more and more confirmed. Scholars as diverse as Karl Marx, Max Weber, R. H. Tawney, Amartya Sen, Deepak Lal, Robert Frank, and Robert Nelson have noted that an explanation of the success of an economy relying only on the pursuit of profit without regard to other motivations is inadequate. Indeed there has been a recent revival in expanding the domain of behaviors deemed acceptable for economic study. In particular, this has manifested itself in a growing interest in cultural explanations of growth that professional economists shunned before, regarding them as woolly headed.

To what degree classical political economy as a whole made the mistake of considering economic life from the position of mere self-interest, and to exactly which members of the classical school this mistake applies, can be debated. There is no doubt, however, that interpretations of Smith and the classical school, over the course of the 19th century, tended to stress self-interest over the virtues. By 1870, with the rise of the neo-classical school, economists had indeed begun to focus still more and more attention upon self-interested action alone.c In his influential Mathematical Psychics (1881), F. Y. Edgeworth noted, The first principle of Economics is that every agent is actuated only by self-interest. It is this impoverished approach to economic study that O’Brien’s work partially addresses (although this aspect of his work serves merely as background to his cardinal point, which is to note the rise of the two chief popular schools of thinking about economic things, the capitalist and the socialist, out of the social, philosophical, and intellectual changes occasioned by the Reformation), and which only adds to its relevance for today.

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Not only are the positive aspects of self-interested behavior troubling but so too are the normative aspects. This lies at the heart of O’Brien’s critique of capitalism.

To understand O’Brien’s conception of the problem created for economic norms or guidelines by the triumph of the self-interest school, it is first necessary to understand what he means by the capitalist spirit. O’Brien does not mean merely a state of society in which there exists usury, avarice, or large-scale industry. Neither does he mean a state of society in which a sizable class receives unearned income, nor does he mean simply the employment of capital. By the capitalist spirit, O’Brien means the distinctive point of view... [in which] the accumulation of wealth is looked on as a good in itself (p. 64), and a state of society in which ...economic activity and gain become ends in themselves and not merely means to an end (p. 68). His account of the transition from the pre-capitalist to the capitalist period is thus a story not so much of economic history as it is the story of a brief period of economic thought. His focus is not upon how industry, capital, and finance resulted from the Reformation. It is rather upon how the mentality that governed the use and development of those things changed, and his discussion of those things themselves is admittedly incidental to his discussion of the ideas governing their employment (pp. 25 and 29). Bearing that focus in mind, it becomes clear that in Economic Effects of the Reformation, O’Brien is lamenting not the development of the modern economy per se, but rather the loss of several cardinal ideas which, under the medieval perspective, governed the creation, distribution, and use of wealth. These ideas included, to identify simply a few, the idea that one works to enjoy the fruits of one’s labor (p. 64), the subordination of all commercial and industrial activities to the moral law (p. 21), the obligation of individuals to consider the welfare of the community along with their own interest (p. 49), the corporate conception of man’s economic relation to society (p. 52), the notion of a broad Christian solidarity (p. 52), and the conception of economic life [as] essentially a matter to be regulated by ethical rules (p. 60). The loss or weakening of these notions led to disastrous consequences not so much in the physical, practical manifestation of modern economic life, but rather in the normative assumptions with which both actors and regulators approach economic life:

The pursuit of gain for its own sake having been admitted as the whole duty of man, all artificial barriers in the way of attainment of this end must naturally be swept away (p. 65),

and,

In a capitalistic age, morality itself must submit to be judged on the basis of its tendency to produce a profit or loss. Honour is good because it is useful in obtaining credit, punctuality because it helps to render industry efficient, and so on. The whole of modern commercial ethics might be summed up in the phrase: honesty is the best policy (p. 67).

How far modern, mainstream economic thought – particularly about normative issues – has departed from the wisdom which O’Brien found in medieval economic conceptions can be seen by contrasting those conceptions with the views of a modern day expositor of the laissez-faire position. Take, for instance, Milton Friedman’s famous remark, The economist’s value judgments doubtless influence the subjects he works on and perhaps also at times the conclusions he reaches.... Yet this does not alter the fundamental point that, in principle, there are no value judgments in economics.d How foreign this idea would have been to the medievals is noted by O’Brien, who quotes Foxwell’s Introduction to an English edition of Menger’s Right to the Whole Produce of Labor to the effect that the medieval would find modern notions of economic fairness to be positively scandalous.

O’Brien’s sense that a utilitarian pursuit of gain as a sole guide to economic action is problematic is also slowly being recognized within my profession.e As economists Robert Frank and Philip Cook have argued, a winner-take-all market in which participants vie for positional status, and the lion’s share of rewards goes to top performers, can lead to enormous expenditure of resources, much akin to an arms race. Individuals are attracted to the high payoffs that such a market affords and are willing to make investments to enhance their chances of success. Yet for each additional entrant the chances of receiving a top spot diminish. Not everyone can be in the top ten. The effects of winner-take-all competition today can be seen in the growing income disparities across a number of professions. Top salary earners in law, business, sports, and entertainment routinely earn a thousand times over the median.

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The last aspect of O’Brien’s work that I would like to point out is his observation that social and political relationships played a much larger role before the Reformation than after. In addressing this issue O’Brien’s prescience is evident: his conclusions are similar to those made by Karl Polanyi in his work, The Great Transformation, though they predate Polanyi’s by more than 20 years.

In the Middle Ages, O’Brien observes, economies were embedded in the larger social context to a greater degree than after. Economic transactions relied on trust, norms of exchange, and institutions that regulated their nature and terms. Broadly speaking, these norms determined economic relations. But after the rise of the market system, economic relations took precedence over – or were at least somewhat liberated from – those norms. Although these effects were not immediately felt, the break up of Christendom set into motion a chain of events that culminated in radically different economic systems, and gave rise to schools of thought with decidedly different notions of how to achieve the good life. Before the Reformation, the science of political economy was not known, and economic life... [was treated] ... as a branch of general ethics[, which] at that time [was] dealt with exclusively by ecclesiastics in the light of revelation as well as in that of natural reason (p. 21). For O’Brien, Protestantism acted as an acid on the body politic as well as upon the entire set of economic relations. The whole fabric of medieval civilization rested upon a religious basis (p. 23), and that fabric was torn asunder. It gave birth to twins: capitalism and socialism. It not only produced competing theological sects but also gave rise to secular theologies in economics, sociology, and political science.

Of course, O’Brien does not argue that markets and the price system did not play a role in society before the Reformation. Both are well known artifacts of the ancient world. Consider the agora of Periclean Athens or the detailed economic records of transactions in ancient Egypt, both of which make clear that markets and prices are found in nearly all societies. Yet, as O’Brien argues, the religious and the economic life of Europe in the Middle Ages were intimately connected, and that connection had profound effects on the economic relations between people. The terms and conditions of employment, for example, were not likely determined by supply-and-demand in an auction market. Pay was determined much more by considerations of obligation, norms of exchange, status, and fairness (claims that, by the way, some authorities have made about post-World War II Japan). Thus, market forces did not solely