Rulers, Religion, and Riches

Short Summary

For centuries following the spread of Islam, the Middle East was far ahead of Europe. Yet, the modern economy was born in Europe. Why was it not born in the Middle East? This book examines the role that Islam played in this reversal of fortunes. It argues that the religion itself is not to blame; the importance of religious legitimacy in Middle Eastern politics was the primary culprit. Muslim religious authorities were given an important seat at the political bargaining table, which they used to block important advancements such as the printing press and lending at interest. In Europe, however, the Church played a weaker role in legitimizing rule, especially where Protestantism spread (indeed, the Reformation was successful due to the spread of printing, which was blocked in the Middle East). It was precisely in those Protestant nations, especially England and the Dutch Republic, where the modern economy was born. In both of those nations, the Church was replaced with the economic elite in parliaments at the political bargaining table. These elites had interests more aligned with laws and policies that portend economic success, and long-run economic growth resulted. Such changes did not occur in Spain or the Ottoman Empire, and they suffered economic stagnation that persisted for centuries as a result.

Table of Contents

Chapter 1: Introduction

Part One: Propagation of Rule: A Theory of Economic Success and Stagnation

Chapter 2: The Propagation of Rule

Chapter 3: Historical Origins of Rule Propagation

Part Two: Applying the Theory: Why the West got rich and the Middle East did not

Chapter 4: Bans on Taking Interest

Chapter 5: Restrictions on the Printing Press

Chapter 6: Printing & the Reformation

Chapter 7: Success: England & the Dutch Republic

Chapter 8: Stagnation: Spain & the Ottoman Empire

Chapter 9: Conclusion

Chapter 1 Summary: Introduction

This chapter poses the questions that are answered throughout the book. Why did the economies of the Middle East fall behind Western Europe after leading them for so many centuries following the spread of Islam? Is Islam to blame? If not, what role did religion play in the divergence between the two regions? This chapter introduces the economic methodologies used to address these questions and provides insight into why these methodologies are the appropriate ones to use. The questions it asks are among the most important in economics and political science: they get at the very heart of why modern economic growth has occurred in some parts of the world but not in others. The answers to these questions must be found in the past, and this chapter makes the case that a historical analysis which employs insights from modern economic theory is the appropriate method to tackle the problems at hand. The chapter proceeds to summarize the argument, place the book in the relevant literature, and preview the argument's implications.

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Chapter 2 Summary: The Propagation of Rule

This chapter lays out the framework that is employed throughout the remainder of the book. It introduces the concept of "propagating agents": persons and organizations in a society that help a ruler stay in power. Propagating agents may be able to legitimize rule (e.g., religious authorities) or support a ruler through coercion (e.g., military). A game theoretic model is verbally described which analyzes the interactions between rulers and their propagating agents. It argues that where propagating agents are good at propagating rule or are inexpensive to employ, they will be given a seat at the bargaining table over laws and policies. Therefore, if the interests of these agents align with laws and policies that portend economic success, economic growth will result. Stagnation will result when agents have goals opposing or tangential to economic growth. One upshot is that conservatism, defined as laws and policies that remain consistent over time in the face of changing circumstances, may be an outcome of these negotiations rather than a cause of stagnation. The chapter concludes with testable predictions that are tested via historical analysis throughout the remainder of the book.

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Chapter 3 Summary: Historical Origins of Rule Propagation

This chapter argues that Muslim religious authorities have a greater capacity to legitimize political rule than Christian religious authorities. This difference resulted from the environment in which the religions were born. Christianity was born in the Roman Empire, which had well functioning legal and political institutions; the early Church was therefore not used to legitimize the state. Islamic doctrine formed coterminously with an expanding empire, and consequently Islam was readily employed to legitimize the state. Over time, Muslim clerical elites were increasingly employed to legitimize rule and in return were given purview over various aspects of law, including commercial law. In medieval Europe, the Church was used to legitimize rule, but its power waned after soon after commerce revived in the 10th century. Ultimately, these "equilibria" entailed that Middle Eastern laws and policies were not updated to reflect the changing needs of the economic elite. In Europe, rulers were more willing to bring the economic elite to the bargaining table, and as a result their interests were reflected in laws and policies.

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Chapter 4 Summary: Bans on Taking Interest

This chapter analyzes diverging views in Islam and Christianity on taking interest on loans. Bans on interest existed in both religions from an early period. The bans were ultimately eradicated in Christianity but not in Islam. This chapter argues that the relative importance of religious authorities in legitimizing Middle Eastern rule explains the divergence. In the Middle East, an equilibrium emerged where lenders subverted the ban with a costly ruse, but pursued no further relaxation of the law because rulers were unlikely to change the law and thereby undermine the religious establishment. In Europe, the rise of commerce encourage secular rulers to relax the restrictions, ultimately eradicating them altogether. One unintended consequence is seen in the way bills of exchange were employed. In Europe, they became an instrument of interregional commerce and encouraged the formation of institutions capable of dealing in impersonal, interregional finance - an important precursor to banking. Bills of exchange were not employed in such a manner in the Middle East, and as a result there was little growth of financial institutions capable of dealing with impersonal exchange.

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Chapter 5 Summary: Restrictions on the Printing Press

This chapter analyzes the causes of the Ottoman failure to adopt the movable type printing press for nearly 250 years. The press spread rapidly in Europe after its invention by Gutenberg in 1450. It immediately set off an information technology revolution; the price of books dropped 85%, and over the following centuries literacy rose rapidly around the continent. Why did the Ottomans forego what was essentially a free lunch? This chapter suggests that the printing press would have threatened the religious establishment, which had a monopoly over Islamic scholarship. This monopoly would have been threatened by the spread of the press, as the religious elite had built high barriers to entry which depended on the oral and hand-written transmission of knowledge. Since the clerical class had a sufficiently strong seat at the political bargaining table, it was in the sultan's interest to ban the press. In Europe, the Church did not play nearly as important of a role in legitimizing rule by the 15th century, nor did it have a monopoly over the transmission of knowledge. It was therefore in no position to stop the spread of the press had it desired.

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Chapter 6 Summary: Printing & the Reformation

This chapter reports the results of a statistical analysis connecting the spread of printing to the Protestant Reformation. It has long been noted by historians that printing was integral to the propaganda efforts of Martin Luther and the reformers. However, it is impossible to tell if this correlation is spurious without a more in-depth statistical analysis. This chapter reports results showing that cities which adopted the printing press by 1500 were much more likely (by 29 percentage points) to be Protestant by 1600. The Church's loss was the economic elite's gain: Parliaments became much more powerful propagating agents in regions that adopted the Reformation. This gave the economic elite a greater seat at the bargaining table over laws and policies. In the Ottoman Empire, the legitimizing power of the religious establishment prevented the spread of the printing press, which further dampened the possibility that a movement like the Reformation could have happened. It is telling that calls for an Islamic Reformation akin to Luther's Reformation arose soon after printing finally spread in the Islamic world in the 19th century.

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Chapter 7 Summary: Success: England & the Dutch Republic

This chapter argues that the Reformation set off a series of events in England and the Dutch Republic which culminated in their becoming the world's two most dominant economies by the eve of industrialization. In both countries, the Church was removed as a propagating agent and replaced with economic elites in Parliament after the Reformation. In England, the power of Parliament grew rapidly after Henry VIII installed the Reformation. Consequently, numerous acts were passed that were in the interest of the economic elite. The rise of Parliament also set the stage for the Crown-Parliament conflicts of the 17th century, which were primarily fought over Parliament's role in making laws and policies. In the Dutch Republic, the Reformation was employed as propaganda in the early stages of the 80 Years' War with Spain. The Dutch victory in the war, along with the adoption of Protestantism, permitted the rise of the economic elite in parliament at the expense of the Church and landed gentry. Pro-commerce policies were enacted thereafter, such as public good provision, land reclamation, property rights for financial and capital markets, and funding of exploration via joint-stock companies.

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Chapter 8 Summary: Stagnation: Spain & the Ottoman Empire

This chapter argues that the strength of religious legitimacy in Spain and the Ottoman Empire disincentivized the adoption of pro-commerce laws and policies. As a result, two nations that were geo-political leaders of the early 16th century fell behind their Western European rivals over time. In Spain, the "Catholic monarchs" gained religious legitimacy through their role in the Reconquista and Inquisition. Their religious legitimacy combined with the massive influx of precious metals from the Americas meant that they did not have to appeal to their Cortes' (parliaments) for revenue or legitimacy. Consequently, the Spanish economic elite had little say in law and policies, and numerous anti-commerce policies were enacted in the 16th century. In the Ottoman Empire, the sultan gained revenue by giving tax farms to the military elite. This meant that the sultan only negotiated with the military and religious elite over laws and policies, and consequently the economic elite never had a seat at the bargaining table. This resulted in the stagnation of commercial law, which was under the purview of the religious establishment, as well as insecure property rights.

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Chapter 9 Summary: Conclusion

This chapter begins by summarizing the book's primary arguments. It proceeds to readdress possible misconceptions about the book's arguments. It then places the book's insights in the broader literature on the "rise of the West". While the book cannot explain why industrialization happened when and where it did, it does provide some insight into why northwestern Europe was a likely candidate to industrialize as early as 1600. It concludes by noting numerous implications of the argument for the present day. For instance, the argument suggests that the oil-producing countries of the Middle East are not likely on the verge of long-run economic success, since the economic elite have little say in laws and policies. However, it also warns against simply "installing" democracy from the outside; such institutional change is unlikely to be effective in a society where religious authorities have significant capacity to legitimize political rule. But where democracy flourishes indigenously in the Middle East - one of the great but largely unsuccessful hopes of the Arab Spring - the necessary prerequisites for long-run economic growth have the potential to arise.

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