Capitalism doth owe it all to the Reformation

The Reformation is five centuries old. It transformed Europe’s economy and greatly contributed to the Western world’s dominance over morals, culture and resources. Its rise was a tipping point for the West, whose gains in wealth and development were inversely proportional to the influence of the Catholic Church which had been beaten into submission, at least in some of the very rich areas of Europe. Us Westerners owe a lot to that religious movement – Protestantism – that gave itself unconditionally to the scriptures (by the doctrine of “sola scriptura”), successfully defied the Catholic hegemony – or monopoly as we would say today –, and was also a decisive factor in the secularisation of our society.

All powerful and extremely rich, the Church was to suffer a bleeding of its resources, the control of which gradually moving into the hands of secular leaders and what we would now call civil society. Regions that had opted for Protestantism were thus the first to enjoy economic growth that, from 1517 onwards, was due to the reallocation of human capital and resources, to the detriment of the religious elites of the time. Theology was supplanted by law, and the construction of churches by that of palaces, in a sweeping wave that shifted power away from the clergy and towards secular leaders.

Luther’s fightback against the pernicious system of indulgences and other donations considerably weakened the Catholic Church’s monopoly, depriving it of its enormous revenues from consumers of religion, the believers, who in turn reorientated their consumption to be more judicious, and to benefit the economy as a whole. This new distribution of wealth – which had until then only benefited the ecclesiastic bureaucracy – was only the beginning of the Church’s considerable loss of influence, the culmination of which being the gradual closure, starting in 1517, of many monasteries located in areas affected by the Reformation. This expropriation involved substantial sums that were critical to the economy’s growth at the time since it was religious institutions that, in Germany for example, owned the most land.

More importantly though, students were slowly but surely turning away from theology towards other specialisations and fields of research, aiding the social and material explosion that was sweeping through society. Five centuries ago, Martin Luther was thus at the roots of a movement that was certainly religious to begin with, but that nonetheless played a vital role in Europe’s economic and political transformation, indeed the world’s, since it led to our continent becoming capitalism’s testing lab.

Today, this same capitalism is tearing apart at the seams because it is no longer able to produce stable growth, especially in times of existential threat typified by the implosion of speculative bubbles. Since growth and honourable and properly-paid work are only a reality for a small minority, it is no longer possible to live off the illusion that the gradual increase of our income would allow us to live better than our parents, and our children better than us. And we have realised that the middle class – the pillar of our modern democracies – have been dazed by the blows of illegitimate debts contracted by politicians in order to keep the peace, and doled out by the financial sector in order to boost its profits. This belief, which is becoming more and more widespread, that the system is broken because so many businesses and individuals appear to be above the law is therefore ruining capitalism’s image. Capitalism is now in danger, threatened by those who profit from it the most: capitalists.

So, should we throw capitalism to the hounds, along with the capitalists? Is it going to be able to reform itself, or will it suffer the same fate as the Catholic Church in Lutheran times?