Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not (Cambridge Studies in Economics, Choice, and Society)
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By far the most important of these conflicts was the Investiture Controversy.46 This five-decade confrontation between the Church and lay European rulers centered on investiture – the right to appoint clerics. By the middle of the eleventh century, it was common for emperors or kings to select bishops. A newly elected bishop would pay homage to the ruler, who “invested” the bishop with a pastoral staff and ring, along with the feudal estates and jurisdictions associated with a medieval bishopric. Many bishops offered money in return for investiture, a practice known as simony. These practices created internal tensions within the Church; many churchmen considered simony a heinous sin, and investiture diminished the Church’s power as Church leaders became increasingly dependent on rulers for their positions.
In 1059, the Church attempted to address these issues at a synod at Rome, which proclaimed a general prohibition on lay investiture. The Church did not enforce this prohibition until 1075, when Pope Gregory VII (r. 1073–1085) put forth a papal decree reaffirming it. The Holy Roman Emperor Henry IV of Germany (r. 1084–1105) quickly ignored this decree. Henry IV was attempting to unify Germany in the face of rebellion – an act that would have been impossible without the ability to appoint and control bishops, who held in fief a significant portion of the Holy Roman Empire. The conflict escalated quickly: Henry IV sought support from his bishops to resist the papal decree, and Pope Gregory VII sought backing from the German princes to depose Henry. Henry attempted to denounce the pope as a usurper, and in response Gregory excommunicated him and deprived him of his royal power. The conflict quickly became one about rulers’ rights in a Christian society: Who ruled, king or church?47
Henry IV overestimated his position, as the princes of Germany had little desire to submit to an all-powerful centralized emperor. Many of the princes welcomed the battle between Henry IV and the papacy and sided with the pope. As Henry saw his grip on power weakening, he made an infamous appeal to Gregory VII to rescind his excommunication in January 1077, where he stood barefoot in deep snow for three days outside the castle of Canossa in the Italian Alps. Gregory absolved Henry, although he did not offer to legitimize his kingship. This enraged the opponents of Henry, who elected their own king, Rudolph of Swabia. This sparked yet another series of battles among the German princes and, eventually, between Henry and the papacy. Gregory VII sided with Rudolph and re-excommunicated Henry IV, but to no avail. Henry had gained the upper hand in the fighting by this point, and soon defeated and killed Rudolph. With his position secured, Henry did not seek reconciliation with the pope. Instead, he elected his own pope, Antipope Clement III, and installed him by force in Rome in 1084.
The struggle over lay investiture continued well beyond the deaths of Gregory VII and Henry IV and eventually spread into England and France. The struggle culminated in the Concordat of Worms in 1122, a pact that gained for the Church practical independence from royal authority, while stipulating that the king must be present for all ecclesiastical appointments and receive homage from newly elected churchmen. In practice, this gave kings a veto over whom the Church could elect.48 In England, the conflict between church and state lasted until 1170, when Thomas à Becket was martyred and the crown renounced suzerainty over the English Church.49
The century following the Investiture Controversy saw numerous conflicts between the Holy Roman Emperors and the papacy. At stake were two issues: the role the Church played in “making” rulers and who “made” and interpreted the law. On these issues, the differences between Western Europe and the Middle East could not be any starker. In the Middle East, religious jurists interpreted the law. There was only a weak distinction between religious and nonreligious law, and anything covered in the Qur’an or other religious teachings was within the realm of the Shari’a. Following the Investiture Controversy, the Church likewise attempted to establish its own set of systematic laws – the canon law. Through canon law, the Church claimed legal jurisdiction over numerous aspects of life – inheritance, marriage, and even some aspects of finance. But unlike Islamic law, canon law was ultimately unsuccessful in penetrating relations that were not of a strictly religious nature. With the growth of canon law came the concurrent growth of European secular law, which covered feudal and manorial relations, merchant activity, urban-commercial codes, and royal law.50 Secular law was flexible and offered rulers – kings, manorial lords, and merchant-mayors – the ability to accommodate the exigencies of the day. And while these laws were not devoid of religious overtones – indeed, canon law provided the basis for the different legal codes – the legal pluralism epitomized by the separation of religious and secular law became an integral part of what Harold J. Berman calls the “Western Legal Tradition.”51
The second issue at stake was the Church’s ability to make or depose a ruler. Here too, the contrast with the Middle East was evident. Whenever a usurper attempted to overthrow a Muslim ruler, they usually received permission from an important religious figure in advance. Such power simply did not exist in Christianity. Gregory VII attempted to claim the power to depose emperors at the height of the Investiture Controversy in a 1075 document known as Dictatus Papae – the first time a pope made such a claim in Christian history.52 Henry IV immediately repudiated this claim, arguing that “the emperor can be judged by no man; he alone on earth is ‘judge of all men.’”53 Throughout the twelfth century, churchmen debated whether deposition was a legitimate right of the papacy, or whether consultation with other nobles was necessary.54 The zenith of papal claims of supremacy was made during the reign of Pope Innocent III (r. 1198–1216), who frequently intervened in political affairs: he claimed the right to decide between two candidates for emperor of the Holy Roman Empire, settled feudal disputes between King John of England and King Philip of France, crowned a king in Bulgaria, and deposed a king in Norway.55 But stronger Christian rulers who had alternative sources of propagation ignored such papal claims. Indeed, the emperor who Innocent III helped install before his death, Frederick II (r. 1220–1250), ignored multiple excommunications by the papacy and was able to nearly unify Italy despite being in constant opposition to the Church. Instead of deriving legitimacy from the papacy, Frederick II employed coercive agents – Saracen mercenaries – to tighten his grip on power.56
After the reign of Innocent III, the capacity of the Church to legitimize rule diminished almost unabated. The rise of the universities in the early thirteenth century provided a means for promoting a theoretical defense of the legitimacy of secular rule using Aristotelian philosophy that was outside the scope of Christian thought. Perhaps the most famous scholastic of the period, Thomas Aquinas (1225–1274), argued (italics added):
The spiritual and the secular power are both derived from the divine power; and therefore the secular power is under the spiritual only in so far as it has been subjected to it by God: namely, in those things that pertain to the salvation of the soul; and therefore the spiritual power is, in such matters, to be obeyed rather than the secular. But in those things that pertain to civil good, the secular power is to be obeyed rather than the spiritual, according to the saying in Matthew 22:[21], “Render to Caesar the things that are Caesar’s.”57
One of the clearest manifestations of the Church’s decline was the conflict between Phillip IV of France and Pope Boniface VIII over whether Phillip was subject to the demands of the ecclesiastical hierarchy. The nobles and commons wrote letters refusing to recognize Boniface as pope, and in response Boniface claimed the right to depose Phillip. The papacy was ultimately crushed by Phillip, who harassed Boniface’s successor, Clement V (r. 1305–1314), into recanting Boniface’s claims to papal lordship over France. Afterwards, the papacy fell under the control of the French monarch, and the papal chair moved to Avignon from 1309 to 1377.
Ultimately, the emergence of national kingdoms in England, France, the Iberian Peninsula, and to a lesser extent Italy and Germany further diminished the legitimizing power of the Church. These kingdoms increasingly relied on bureaucra
cies for justice and finance, mercenaries for military support, and parliaments for legitimacy and law. Parliaments comprised of elites – landed nobility, local churchmen, and urban economic elite – organized themselves in late-twelfth century Spain, thirteenth-century England, France, and Portugal, and soon thereafter in much of the rest of Western Europe.58 Parliaments legitimized rulers and provided them with financial support in return for some say in policy making. Parliaments eventually became the primary body through which the economic elite gained policy-making influence at the expense of the Church. These changes gave rulers access to vast resources and coercive power. As a result, Western European rulers needed less religious legitimation over time. Unlike Middle Eastern rulers, Western European rulers could choose to ignore the dictates of the leading religious authorities because the Church had a weaker capacity to “make” or “depose” rulers. There was no Christian doctrine claiming that a Christian king had to rule by Christian dictates. The religious and the temporal were two separate spheres, each with rights over their own laws and policies.
Medieval European history is therefore consistent with the framework presented in the previous chapter. The capacity of the Church to legitimize was initially weaker than its Islamic counterparts, and therefore the importance of religious legitimacy diminished over time once commerce revived and secular law emerged in the medieval period. These developments gave rulers an effective source of propagation outside of the Church, and rulers increasingly employed these propagating agents throughout the medieval period.
The Reversal of Fortunes
As recently as 1200, the Middle East was more economically, technologically, and scientifically advanced than Western Europe. At some point a “reversal of fortunes” occurred in which Western Europe clearly took the lead on all of these fronts. This chapter suggests the possibility that the reversal of fortunes arose due to institutional differences that were apparent as early as the turn of the fifteenth century. In Western Europe, the power of the Church to legitimize rulers weakened as secular leaders grew increasingly powerful vis-à-vis the Church. Of course, this is not to say that Middle Eastern rulers were not powerful. Indeed, the Abbasid, Fatimid, Mamluk, and Ottoman sultans were much more powerful than their European counterparts. But this is precisely the point. These Muslim rulers were strong, but how they derived their strength was very different from Western European rulers, especially after the Commercial Revolution.
The degree of religious legitimation employed by rulers is not the only thing that matters for long-run economic development. Nor is the weakening of religious legitimation the sole reason why Europe eventually took off. However, it is hard to imagine a world where parts of Western Europe took off – and the Middle East did not – without these changes. The institutional changes that reduced the importance of religious legitimation in Western Europe were a necessary but not sufficient condition for certain Western European economies to take off. If this assertion is correct, it also provides an explanation for why Middle Eastern economies never took off to the extent that European ones did, since they never met these “necessary conditions.” Chapter 8 supports this assertion; it analyzes the causes and consequences of the lack of political power for the Ottoman commercial classes.
This is also not to say that the organizational structure of Christian and Islamic religious institutions is unimportant. One fact heretofore glossed over is that the Roman Catholic Church is much more centralized and hierarchical than anything that has ever existed in the history of Sunni Islam. These structural differences certainly affected the relationship between religious and political authorities in Western Europe and the Middle East. There was nothing in Middle Eastern history close to a formal military confrontation between religious and political authorities akin to the Italian Wars discussed in the opening of this chapter. But it is unclear how these differences benefited the Western European economic trajectory. It is true that it was easier for a Middle Eastern ruler to find a religious authority that would support its laws or policies, as there were a number of authorities a ruler could choose from. But this also meant that, all else being equal, the Roman Catholic Church was in a stronger position to legitimize than any single, decentralized Islamic religious authority. The Church was a pan-European institution; Islamic religious authorities did not have nearly as much breadth of influence. The point here, though, is that all else was not equal. Even though the Church’s organizational structure gave it a greater capacity to legitimize than its Islamic counterparts, it was still a weaker source of legitimacy due to the weaker doctrinal basis of religious rule in Christianity.
So far, this book has spoken mainly in generalities, laying out a framework for how differing propagating arrangements can lead to different economic outcomes, as well as why these arrangements differed in Western Europe and the Middle East. The histories presented in this chapter are macro-level, overviewing the major events in church-state relations over a millennium or so. One benefit of focusing on macro-historical phenomena is that it provides an opportunity to falsify the testable predictions of the framework: if religious legitimacy became stronger over time in Western Europe but weaker in the Middle East, one could rightfully call the veracity of the framework into question. The relevant macro-history is also important because the “reversal of fortunes” is a macro phenomenon, and this is ultimately what this book attempts to explain. Yet, one major drawback of focusing on macro-history is that it does not allow for an analysis of the micro mechanisms that drive the results predicted by the framework. The next two chapters remedy this problem, analyzing the divergent evolution of two important laws: the legality of taking interest on loans and printing. While the general story of institutional divergence is more important than the divergence of specific laws, these micro-histories highlight in much greater detail how and why the divergence arose.
Part II
Applying the Theory: Why the West Got Rich and the Middle East Did Not
4
Bans on Taking Interest
Prior to the 1850s, there was no such thing as a Middle Eastern “bank” that conducted even the most basic of activities we now associate with banking: taking deposits, lending those deposits, and investing in capital markets. There were certainly moneylenders in the Middle East – it is a profession dating well before the advent of Islam – but no complex organizations existed that could readily match capital-needy borrowers and resource-rich lenders. Where money lending did occur, it was generally for small amounts and often between two individuals known to each other.1
This imposed impediments on Middle Eastern economic growth. Without a banking system capable of pooling resources, large-scale loans were practically impossible to obtain. Potential entrepreneurs necessarily kept their ambitions small unless they happened to know someone with vast amounts of wealth who was willing to invest in their enterprise. In the absence of fully functioning financial markets, entrepreneurs could not have possibly put capital to anything close to its most efficient use. Multiply this by millions of people over many centuries, and it is not hard to see how the absence of anything close to resembling modern banking had a dampening influence on Middle Eastern economic fortunes.
Why did no indigenous form of banking ever arise in the Middle East? Even when banks did emerge in the Ottoman Empire in the 1850s, Europeans owned them. The contrast with Western Europe is especially relevant. Modern banking arose in Western Europe through a series of innovations – certain forms of partnerships, family firms, branches, bills of exchange, limited liability, and joint-stock companies – during the medieval and early modern periods. Why did these innovations emerge in Western Europe and not the Middle East?
The absence of banks for most of Middle Eastern history was hardly a result of banking being contrary to Islam. In fact, the rise of Islamic banking since the early 1970s is suggestive that banking can thrive in an Islamic setting. As of 2016, Islamic banking is a trillion-dollar industry and is popular in Qatar, Saudi Arabia, I
ndonesia, Iran, Turkey, and many other predominantly Muslim nations. Islamic banking borrows many of its general features from Western banking,2 but it also contains a number of unique elements. Islamic banking forbids certain types of “anti-Islamic” investments. Most famously, loans are “interest free.” This is not to say that lenders give loans free of payment – for all intents and purposes, loans carry interest but under the guise of some ruse that conforms the transaction to the letter of the law. And other mechanisms for avoiding interest abound. For instance, if one wants to obtain the equivalent of a mortgage to buy a house, an Islamic bank would buy the house and sell it to the “borrower” at a higher-than-market price, payable in increments. Such a transaction is de facto tantamount to a mortgage, but it abides by Islamic law de jure.
This chapter provides a partial answer to the puzzling observation that banking never arose indigenously in the Middle East despite its economic “head start” during the four centuries following the spread of Islam. The central claim is that the ultimate complexity of the Western European financial system relative to the Middle Eastern one was due to the lifting of bans on taking interest on loans in the former but not the latter.
But the connection between the weakening of anti-interest laws in Western Europe and the growth of the financial system is not as clear-cut as it may seem on the surface. It is not simply the case that allowing interest equals financial growth and banning interest equals financial retardation. The connection is complex for two reasons. First, bans on interest do not mean that people refrain from lending at interest. Humans are smart; if there is a sufficient demand for some prohibited action, someone will find a work-around. And indeed, from the early Islamic period we know of numerous ruses created to simulate lending at interest while following the letter of the law. The most famous of these is the double sale, in which the prospective debtor sells to a creditor some commodity for cash, then immediately buys it back for a greater sum payable later. If interest restrictions were so easily avoidable, it is not obvious they had any practical effect. For this reason, some scholars have argued that interest restrictions “belong less to economic history than to the history of ideas.”3