MARTIN LUTHER’S PARADOX
(ON RELIGION, CAPITALISM AND GLOBALISATION)
Luis Francisco Martínez Montes
Statue of Martin Luther in Dresden, Germany.
History is neither Theology nor Geology.
Last October 31st the Protestant world commemorated the 500 years since Martin Luther allegedly nailed his 95 Thesis on the door of Wittenberg’s Castle Church criticising the sell of indulgences by the Vatican. According to standard historiography, that symbolic act of rebellion, in fact there is no evidence that Luther nailed any paper on any door on that precise day, ushered in a new period in Western and world history, a brave new era characterised by the rise of individualism, free thinking and the gradual demise of intolerance and intellectual oppression as exemplified by the control exercised by the Pope and his clergy on Christians’ minds and conscience.
History is, of course, never so simple. The current Quincentenary has been the occasion to revisit some of the topics adhered both to the significance of the Reformation and of the man Luther himself. This is welcome and will merit a commentary once the commemoration will be a thing of the past so that the passing of time can give us a better perspective on the avenues open by the most recent scholarship. But one thing is to let this opportunity to ponder on the Reformation and its main protagonists pass by and another one is to turn a blind eye to the ideological uses and abuses that, as of lately, some interested parties have made of them.
Implausible as it might seem, one of the most disturbing side effects of the recent financial crisis was the attempt at reviving the North-South divide in Europe along religious lines. In this new, slightly more civilised avatar of the religious wars of yore the argument put forward -or should we say backwards? – by some economists and politicians turned theologians was that the euro zone’s travails were, and to some extent still are, due to the unlikely amalgam of virtuous Protestant countries and lazy and corrupt Catholics and Orthodox brethren.
In other words, Weber revisited with a moral coda added to his thesis on the Protestant origins of capitalism: should the prodigal Southerners had not been allowed to enter into such an unequal relationship with their distant and more prosperous Northern relatives, the world would have been spared its current predicament, Europe would be a safer haven and everyone would be the happier.
As a simple explanation of what has been happening in the euro zone, the Weberian tale has a great appeal for those who feel themselves placed in a position of moral superiority because of their self-proclaimed virtuosity vis à vis those who seem to be suffering because of their alleged proclivity to sin. Furthermore, the former tend to consider that the current state of affairs is rooted in forces that have shaped Europe since the birth of the Modern era and, particularly, since the Reformation. They think, borrowing a well-known Geological law that the same forces that governed events in the pass are still operating in the present and will be active in the future.
The only problem with this line of reasoning is that it is wrong.
History is neither Theology nor Geology. Simply put, there are no countries predestined to thrive or decline according to some inexorable and eternal laws imparted either by an inscrutable Protestant God or by the mechanical equations behind plate tectonics.
A little excursion through the historical record from the Age of Reformation up to our days should be enough to convert any disbeliever.
Luther, the unexpected economist.
It has been said that had Luther attended the 1992 Maastricht meeting where the conditions for entering into the euro zone were set out, he would have been able to tell which countries could past the test of probity and which ones should have been excluded from the inner sanctum of the new currency. Obviously, knowing the man, those suspected of popery and priesthood would have been ipso facto stopped at the gates of paradise and told to reform or to be confined to some sort of secluded limbo lest they would corrupt the chosen few. The only problem here is that his would have been a judgment based on dubious morality and not on sound economics of which he knew very little indeed.
In fact, if we take a closer look at Luther’s economic ideas we may be in for a big surprise. First of all because he had very few of them; second because the few ones he had were quiet in a direction contrary to the workings of a modern, open capitalist economy.
To sum it up, Luther was no Weberian.
Actually, he had a very reactionary cast of mind both in economic and social issues. In his 1524 Sermon on Trade and Usury not only he condemned “spurious borrowing and lending” but also equated those merchants who sought to profit by selling wares at market prices with “thieves, robbers and usurers”.
As to his contempt for the early forms of globalization, suffice it to mention that for him “foreign trade, which brings from Calcutta and India and such places wares like costly silks, articles of gold, and spices – which minister only to ostentation but serve no useful purpose, and which drain away the money of land and people – would not be permitted if we had proper government and princes”.
Death and the Miser, by Jan Provoost, first half XVI century.
To conclude his anti-capitalistic rant he closed his Sermon with a blatant warning: “if the trading companies are to stay, right and honesty must perish; if right and honesty are to stay, the trading companies must perish”. It is obvious that the Protestant- to- the- core British East Indian Company or its Dutch equivalent, the VOC, did not pay too much attention to Luther’s admonitions. In fact, their goal was not to follow the Protestant creed to the letter, but to emulate their far more advanced Catholic Iberian competitors in the opening up of new avenues for trade and riches. In doing so, they were mainly guided by profit and power grabbing and not by the urge to follow any scriptural interpretations.
The Catholic origins of capitalism.
It is interesting to compare Luther’s rather crude utterances on finance and trade with the works of the contemporary and very Catholic School of Salamanca, the forerunner in the development of a subjective and free-market based theory of value much later refined by the Austrian School of von Mises and Hayek fame.
To be sure, it was in the equally Catholic Italian city states where in the late Medieval age the first modern instruments of credit and other trade financing mechanisms were created. “In the name of God and profit” was a XIII century motto coined by a Florentine merchant long before Luther and Calvin were even born. Actually, they would have been shocked by it.
It was in Italy and Spain where the first empirical knowledge about the workings of an economy opened to world- wide flows of trade and money was systematised and rationalised centuries before Adam Smith or David Ricardo. At a time when Luther was convinced of the “sterility of money” and chastising those who tried to profit from its circulation, the XVI century Spaniards were laying the foundations of modern monetary theory.
It was the Jesuit Luis de Molina who better explained the quantitative theory of money, already formulated by his compatriot Martin de Azpilicueta in 1556, when he wrote that “as an abundance of goods causes prices to fall (the quantity of money and number of merchants being equal), so does an abundance of money cause them to rise (the quantity of goods and number of merchants being equal). The reason is that the money itself becomes less valuable for the purpose of buying and comparing goods”.
Whilst Luther was still defending the cost of production as the determining factor of the “just price”, the Scholastic Luis Saravia de la Calle, in his influential Instruction to Merchants (1544) was much closer to the mark when he stated that “the just price arises from the abundance or scarcity of goods, merchants, and money…and not from costs, labor, and risk….
The just price is found not by counting the cost but by the common estimation (communis aestimatio)”, in other words: the just price is the one fixed by the market (“aestimatio fori”) and not by the Church or the State.
It is worth mentioning that the Dutch Calvinist Hugo Grotius, who at least had the decency to mention his sources, quoted the writings of the School of Salamanca at length. It was not the case with his disciple, the Swedish Lutheran jurist Samuel Pufendorf, who in his works erased all mentioning of the hated Catholics.
Since it was Pufendorf and not Grotius who was later translated into English by Gershom Carmichael, the XVIII century Scottish economists were ignorant of the fact that most of the issues they had to deal with regarding price formation and the basic principles of international trade had already been addressed, and many of them solved, two centuries before in Catholic Spain. Thus the history of modern economic science was written ignoring its Catholic origins until in the 1950s Schumpeter and Marjorie Grace Hutchinson rediscovered the works of the Spanish scholastics and their seminal influence in theorising the basis of a free market economy.
The Catholic origins of globalisation.
Neither Luther nor Calvin or Zwingli paid much attention to the world outside their Central European provincial confines. They were too busy trying to organize their nascent communities and fighting against the established church to ponder about the vast realms that were being incorporated into the mental and physical map of Europe since the late XV century.
By contrast, their Catholic counterparts, immersed as they were in the early exploration, conquest and administration of distant lands and transoceanic-lines had to devote plenty of material and intellectual resources to create the first networks for the mobilisation of capital, ideas and souls on a global scale.
The port of Seville with the Atlantic Fleet in the late XVI century, attributed to Alonso Sánchez Coello.
It should then be no surprise that the first modern European thinking on how to organise a truly global commonwealth emanated not from Anglican Oxford, Calvinist Geneva or Zwinglian Zurich but from Catholic centres of learning and decision- making. Not by chance, the conception of humankind as a political and moral Republic encompassing totus orbis, the whole world, and governed by a set of universal norms was perfected in that Catholic cradle of early modernity: the School of Salamanca and its branches throughout the Hispanic Monarchy. Francisco de Vitoria, Domingo de Soto or Francisco Suárez, not to talk about Las Casas or Montesinos, were the first modern men who dared to confront, and challenge, the consequences of the radical encounter of Europe with other worlds.
The first debate with a global resonance on the just titles, or lack thereof, of Popes, Emperors and Kings to subjugate other people and about the rationality and capacity of all human beings to be bearers of universal human rights took place not in Anglican London or Calvinist Amsterdam, but in Catholic Valladolid, in 1550 and it was not sponsored by the Queen of England or the Dutch stadtholders but by the Holy Roman Emperor Charles V.
Catholic globalisation was accompanied not only by moral, legal and political debates of unparalleled depth and width in the Protestant world; it was also made possible due to the mastering of the best scientific, technological and administrative skills available at the time. One of the tenets of the Weberian thesis has it that Modernity implied a secularisation of power and knowledge that was made largely possible because of the Reformation.
In the standard narratives, Protestantism, the Scientific Revolution and the rise of the bureaucratic state are inextricably linked. But, in reality, the first European countries where science and technology were systematically harnessed at the service of the modern State were Portugal and Spain, two Catholic strongholds.
When Francis Bacon published The New Atlantis in 1627, the idea of an institution devoted to use knowledge as a means to obtain power over and profit from nature had already been put into practice more than a century before in Iberia with the Casa da India, founded in Lisbon in 1501, and the House of Trade of Seville, established in 1503.
The concentration of the best navigators, cartographers and cosmographers in the House of Trade had no equal in Europe at the time. Their work was elevated to new heights under the reign of Phillip II, the most bigoted and anti-modern of monarchs in the Protestant imagination. For all his devoted Catholicism, the ‘hermit’ of El Escorial not only compiled one of the most ecumenical libraries and art collections of the times, he also organised the first state- sponsored scientific expeditions to the New World and the Philippines.
In 1570, the king commissioned Francisco Hernandez, a Court physician, to gather information about herbs and medical plants in New Spain. The outcome of the expedition -assisted by native medicine men and using Nahuatl alongside classical taxonomic systems- was the first botanic survey in the Americas with more than 3000 specimens catalogued and many of them shipped back to Europe for further study and commercial exploitation. In the same vein of deploying royal patronage for the benefit of knowledge and power, Juan de Herrera, Phillip II’s architect and mathematician, designed in 1582 a project named as The Enquiry for the Observation of the Lunar Eclipse. The project was aimed at measuring the extent of the Spanish Empire by fixing key latitude and longitude coordinates in a scientific expedition that sailed from Seville to Mexico and then across the Pacific to the Philippines where it obtained data about the Chinese Empire collected by the friar and astronomer Martin de Rada. That was Big Science literally on a planetary scale, and it was undertaken by a Catholic nation mostly untouched by the Reformation and long before the Enlightment.
Furthermore, in his meticulous approach to administering his realms
Phillip II supervised the composition of a questionnaire that was sent to more than five hundred municipalities of the New World. The answers to the questions posed, including details about ethnography, topography, sanitary conditions, transportation and natural resources, were accompanied by detailed maps and plans in the astonishing Relaciones Geográficas, the first thorough attempt – excepting perhaps in Imperial China, not precisely a Protestant nation- at linking the practise of good government with the systematic collection, compilation and exploitation of empirical data.
The final feather in Philip II’ s cap as the great, though underestimated, promoter of globalisation was his insistence in finding the so-called tornaviaje or round trip from the Philippines to New Spain. Its discovery in 1565 allowed the Manila Galleons in the Pacific and the Spanish Atlantic fleet to connect Asia with America and Europe in an exploit that was to be repeated almost every year for the next two centuries and a half.
Cholula, in New Spain, a 1581 map included in the Relaciones Geográficas.
So it was thanks to Catholic Iberia that a world wide economic system first came into being in the XVI century. The Protestant powers, particularly the British and the Dutch, arrived later. They did not create early modern globalisation; they just jumped into it and learnt to profit from it.
Contrary to the Protestant myth, even after Spain’s relative and temporary decline in the second half of the XVII century, neither London nor Amsterdam dominated the world economy. The simple reason is that, no matter how many times they tried, they failed to conquer the Spanish- held mines in New Mexico and Peru. They could have access to Spanish- American silver and gold through trade, war, piracy and smuggling, but they could not control ab origin the flow of precious metals that were incorporated into the system.
That vital factor was dependent upon the capacity of the Spanish Monarchy to ensure the exploitation and transportation of the New World’s wealth thanks to its treasure fleets, a feat that more often than not it was able to achieve with remarkable success over three long centuries. What the Royal Navy did for trade in the XIX century or the US navy does today securing the oceanic routes the Spanish Armada achieved for a longer period of time as the primary custodian and conveyor of massive quantities of silver and gold coins: the lifeblood of the first global economy.
We can add a coda to the story. Even after the peak of the Spanish power, the Spanish American silver pesos, neither the pound nor the guilder, remained the currency of choice for merchants in China, North America and large parts of Europe. When the Founding Fathers tried to find a model for the currency of the new and mostly bankrupt Republic they ended up choosing the Spanish piece of eight.
As the first US Secretary of the Treasury, Alexander Hamilton ensured the adoption of the 1792 Coinage Act by which the US dollar was determined to be “of the value of a Spanish milled dollar”. Thus the currency that was the testimony to the Catholic origins of the first international monetary system came to be transmuted into the instrument of the US economic hegemony.
The Counter- Reformation as a world enterprise.
In the standard Protestant, and particularly Anglo-American narrative of world history- as found for instance in the works of Hugh Trevor-Roper, David S. Landes or, more recently, Niall Fergusson, the Counter-Reformation was the reason why Catholic Europe lagged definitively behind Protestant Europe in the race for economic prosperity and historic success. As we will see later there is an element of truth in this proposition as regards the strictly economic side of the argument, though much less so than normally believed. But when it comes to affirming that the Counter- Reformation was a historic failure then there are strong reasons to object.
Quite on the contrary, by most objective accounts, and particularly when we adopt a non-Eurocentric perspective, it was quite a success. During the XVII century, when supposedly the Protestant world overtook its Catholic rivals, the Roman Church, and particularly its most militant order, the Jesuits, was able not only to contain Protestantism in Europe – even regaining previously lost terrain in Poland, Lithuania and the Czech lands and securing Southern Germany and the Spanish Netherlands, today’s Belgium- but also to mount a world-wide pre-emptive attack against the emerging Protestant powers. It could do so by using and expanding the global networks created and sustained by the Catholic Iberians in a way that the major Protestant countries found hard to emulate.
Glory of St. Ignatius of Loyola, by Peter Rubens, 1661.
As Diarmaid MacCulloch says in his masterful history of the Reformation, the Protestant equivalent of the Catholic world missions did not appear until the XVIII century. Even Thomas Babington Macaulay, the prominent Victorian historian, had to concede that “the Spiritual force of Protestantism was a mere local militia” when compared to the global reach of Catholicism. “If a Jesuit was wanted in Lima, he was on the Atlantic in the next fleet– he wrote. If he was wanted in Baghdad, he was toiling through the desert with the next caravan”.
Contrary to Luther, who saw the world beyond Europe as a moral threat, Ignacio de Loyola and his fellow Jesuits, as well as other revitalised missionary orders, saw it as an immense opportunity for a beleaguered Church. In doing so, not only they gained more new souls than their competitors in the global “religious market” but also helped protecting most of the landmass and the periphery of the Catholic Empires from the assault of their Protestant enemies.
For instance, as the combined result of the Catholic religious revival and secular administrative and economic reforms, the Hispanic Monarchy was able to maintain practically intact its overseas possessions until the XIX century though its power in Europe had diminished long before. The same goes for Portugal in Brazil and parts of Africa. As to republican France, although officially secular, it had no qualms about using the missionary zeal of its Catholic priests to defend its shrinking colonies in North America and expand its empire across Western Africa and South East Asia in the XIX century.
The existence of large, distinctive and predominantly non- European though Westernised Hispanic, Portuguese or French- speaking worlds increasingly connected with the current wave of globalisation and at the same time able to maintain their own idiosyncrasies is in great part one of the main legacies of the Catholic Counter-Reformation.
It is also a bonus for the former metropolis, since their connections with human networks, resources and markets outside their national confines is proving to be one of the best cushions in times of economic distress.
Were Protestant countries always prosperous and Catholic countries always poor?
Apart from the previous arguments in favour of Catholicism as a promoter of early capitalism and globalisation both in theory and in practise, there is still another surprise as to the relative, long-term performance of Protestant and Catholic economies coming from an unsuspected quarter. GDP per capita statistics from 1500 to 2000 as compiled by Angus Maddison (2003) show a much more complex pattern of growth in Catholic and Protestant countries than previously thought.
For instance, from 1500 to the end of the XVII century- the period when the main conflict between Reformation and Counter Reformation was played out- the average GDP per capita in core Catholic countries (France, Belgium, Spain, Italy, Austria, Ireland and Portugal) was consistently higher than in core Protestant lands (Switzerland, Norway, Denmark, Sweden, The Netherlands, Finland, Great Britain and Germany) as measured in 1990 international dollars.
The Protestant countries only moved slightly ahead at the beginning of the XVIII century, even though Germany or Switzerland lagged behind the average Catholic country well until the 1820s. A striking case in that period was The Netherlands, where GDP per capita dropped from 2.130 international dollars in 1700 to 1.838 in 1820. Actually, the divergence between Protestant and Catholic economies only started widening between 1870 and 1900 (in 1850 the average GDP per capita in Protestant countries was 1.783 international dollars as compared with 1.419 in Catholic countries whilst in 1900 the difference was 3.493 in the former and 2.335 in the latter). The gap thus opened in the second half of the XIX century was sustained through the first half of the XX century. However, from 1940 onwards, and particularly in the period from 1960 to 1980, the difference narrowed to 10% and even farther in 2000 to just 6%.
From the above mentioned figures it transpires that from 1500 to approximately 1700 the Catholic bloc was richer than the Protestant one, with the latter surpassing by a small margin the Catholics in the period between 1700 and 1870. From 1870 to 1960 the gap widens in favour of the Protestant side and finally, from 1960 to 2000 there is a rapid process of catching up on the Catholic side and the gap diminished substantially.
Though it is early to say, it is possible that the boom years in Southern Mediterranean countries plus Ireland prior to 2007 further contributed to the process of convergence in GDP per capita between Protestant and Catholic Europe. The effects of the recent crisis in the Euro zone on that process is still to be properly measured since the day- to day media fixation on the travails of the predominantly Catholic (and Orthodox) European “periphery” is obscuring the decreases in GDP suffered in recent years by the predominantly – France apart- Protestant “core”. On this as on many other things, the dice is still in the air.
Have Catholic countries being always financially irresponsible and Protestant countries sober in matter of monies?
The ultimate argument evoked in favour of Protestantism as economically and morally superior to Catholicism is the different way both groups are supposed to behave when dealing with money. Protestants are extremely cautious with their hard won savings whilst Catholics are spendthrift and financially irresponsible, true?
The problem with this argument, again, is that it does not stand a closer scrutiny. There is no denying that, for instance, Catholic Spain at the peak of its power was a serious defaulter, though that fact did not prevent it from maintaining its preponderance for quite a long period of time. Or that Greek has been virtually bankrupt for most of its history as an independent state. Or that France has not had a balanced budget since the early 70s. Or that Italy has hardly been an example of fiscal prudency. Fine, but wait a moment. That is not the entire story. There is another side to the coin.
When it comes to the origin of the biggest financial crisis in the modern history of capitalism, where should we look?
We can find the answer in the classic essay on manias, panics and crashes written by Charles P. Kindleberger now in its fifth edition and still a delightful reading. Here we learn that of the ten more damaging financial crisis since the XVII century to 2000, or eleven if we include the recent meltdown, seven were directly originated in Protestant countries and had always as a cause what we would call today irrational exuberance: the Dutch Tulip Bulb Bubble (1636); the South Sea Bubble (1720); the Mississippi Bubble (1720); the late 1920s stock price bubble; the 1985-1989 bubble in real state and stocks in Finland, Norway and Sweden; the 1995-2000 bubble in over-the-counter stocks in the United States and, finally, the bubble provoked by the combination of a lax monetary policy in the US and the creation and dissemination of toxic financial products mainly from the City and Wall Street, hardly two Catholic emporia.
So are Protestants financially more responsible than Catholics? Should not we conclude that, given a set of circumstances, particularly an exuberant expansion of credit, both are equally prone to acts of folly? What has religion to do with it?
A Satire of Tulipmania, by Jan Brueghel the Younger, circa 1640.
In any case, history has not finished yet and the final judgment as to the historic and economic performance of Protestant vs. Catholics will have to wait. Whatever it ends up being, one thing is sure:
neither Theology nor Geology will have anything to do with it. As it stands, it will depend on human agency and the uses or abuses of our freewill, not on predestination.
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