People who study economics are often told that modern capitalism is an outgrowth of a certain English Protestant or agnostic tradition represented by writers such as John Locke, David Hume, Adam Smith, and John Stuart Mill. The notion of a link between capitalism and Protestantism owes a lot to Max Weber’s famous thesis The Protestant Ethic and the Spirit of Capitalism, published in 1906. He argued that the distinctively Protestant values of thrift, discipline, hard work, and individualism helped create a new “spirit of capitalism” — the obvious implication being that Catholicism was an authoritarian form of religion inimical to freedom and self-discipline.
While this view has been conventional wisdom for almost 100 years, it is utterly wrong. For one thing, Protestants never had a monopoly over work and simple living, both of which were practiced by medieval monks many centuries before Luther and Calvin. In the words of historian Randall Collins, quoted in Rodney Stark’s The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success, medieval monasteries “had the Protestant ethic without Protestantism.”
Moreover, capitalism existed in Italian city-states during the late Middle Ages, a period not of obscurantism and darkness but of progress and intellectual vibrancy that established the foundations of what eventually became modernity. Shortly after the publication of Weber’s theory, economic historian Henri Pirenne produced a vast documentation showing that “all of the essential features of capitalism — individual enterprise, advances in credit, commercial profits, speculation, etc. — are to be found from the twelfth century on, in the city republics of Italy — Venice, Genoa, or Florence” (Stark, p. xii).
The same point is made by the highly reputed Fernand Braudel, who argued that “this tenuous theory [linking capitalism to the Protestant ethic] . . . is clearly false.” Long before the emergence of Protestantism, the Hanseatic cities of Northern Germany and the Baltic took over the place that had earlier been held by “the old capitalist center of the Mediterranean” (Afterthoughts on Material Civilization).
What is even more striking, however, is that medieval theologians were the first to reflect systematically on the principles of a market economy. According to the famous Austrian economist Joseph Schumpeter, we owe it to the scholastic doctors of the late Middle Ages who established the foundations of economic science. Referring to these doctors, Schumpeter notes in History of Economic Analysis:
It is within their systems of moral theology and law that economics gained definite if not separate existence, and it is they who come nearer than does any other group to having been the “founders” of scientific economics. And not only that: it will appear, even, that the bases they laid for a serviceable and well-integrated body of analytic tools and propositions were sounder than was much subsequent work, in the sense that a considerable part of the economics of the later nineteenth century might have been developed from those bases more quickly and with less trouble than it actually cost to develop it . . . .
Other historians have emphasized the role of medieval universities in the development of economic thought, particularly as regards value and price, two fundamental economic concepts that contributed mightily to the shaping of different economic schools of thought. For example, whether one adopts the labor theory of value (which asserts that the value of a good is determined by the labor required to produce it) or the subjective theory of value (where the value of an object is a function of both its scarcity and perceived utility) has a major impact on one’s economic worldview. As Schumpeter and others have noted, nearly all the ingredients of modern value and price theory can be found in the writings of medieval thinkers. They developed price and value theories remarkably similar to neoclassical models and rejected the labor theory of value on which Marxist and socialist theories are based. Moreover, they acknowledged the legitimacy of profits and interest charges as early as the 13th century.
According to historian H. M. Robertson, the Jesuits also played a major role in the development of capitalism in the 16th and 17th centuries by promoting enterprise, freedom of speculation, and the expansion of trade. “It would not be difficult,” he wrote, “to claim that the religion that favored the spirit of capitalism was Jesuitry, not Calvinism.”
While testifying to the intellectual contribution of Catholic scholars, these facts tell us little of the understanding of economic life by ordinary medieval laborers. But there is some evidence to suggest that what was being debated in universities was also being preached to the faithful. The best illustration of this is St. Bernardino of Siena, a Franciscan missionary and reformer active in the first half of the 15th century who systematized scholastic economics and was one of the first theologians to write an entire work dealing solely with economics.
Titled On Contracts and Usury, it provides a justification of private property, the ethics of trade, the determination of value and price, and the usury question. Bernardino described the entrepreneur as being endowed by God with a special combination of four entrepreneurial gifts — efficiency, responsibility, hard work, and risk-taking — and argued that the latter two legitimized the notion of profit. In short, profit was understood as the valid remuneration of the entrepreneur.
Largely as a result of the religious wars of the 16th century and the deep rivalries between Protestant and Catholic Europe that followed, the body of economic thought developed in the Middle Ages seems to have gone largely forgotten or ignored throughout the 17th and 18th centuries. And, sadly enough, when the Catholic Church sought to make pronouncements on some of the social and economic issues resulting from industrialization and the rise of modern capitalism in the 19th century, it made little reference to the economic ideas of medieval scholars.
Over the past 140 years, the Church has issued a series of statements on social and economic matters that have come to be known as Catholic social doctrine. Most of its views on specifically economic issues are set out in five encyclicals: Rerum Novarum, issued by Pope Leo XIII in 1891; Quadragesimo Anno, issued by Pope Pius XI in 1931; and Laborem Exercens, Sollicitudo Rei Socialis and Centesimus Annus, all issued in that order during the pontificate of Pope John Paul II.
In terms of economic thinking, the most far-reaching of these encyclicals is Centesimus Annus. What John Paul II argued in this document is:
a) that a regime that does not make room for economic freedom is contrary to human nature and brings about social decline, as attested by the collapse of the former USSR;
b) that unregulated “laissez-faire” capitalism results in an unjust society; and
c) that a just social order is one that negates neither the legitimate self-interest of individuals, nor the risk of abusive economic exploitation of the weak by the strong.
It is in the light of these considerations that Centesimus Annus calls for a regulated form of capitalism, not entirely unlike that which exists in the United States and Canada. To the question of whether capitalism is the model that countries seeking true economic and civil progress should follow, the encyclical offers this answer:
If by capitalism is meant the positive role of business, the market, private property and responsibility for the means of production as well as free creativity in the economic sector, the answer is in the affirmative . . . . But if by capitalism is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom nor is seen as a particular aspect of freedom, the core of which is ethical and religious, then the reply is certainly negative.
What we learn from the latest research in economic history is that the Middle Ages was a period not of economic stagnation but rather of economic fermentation, and that the Church, far from standing in the way of medieval economic development, took an active part in it both materially, through the economic activity of the monasteries, and intellectually, through its universities. Today, Catholic social doctrine, especially since John Paul II’s publication of Centesimus Annus, continues in that same tradition to support regulated free-market economies and to condemn socialism, even in its milder forms.