Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not (Cambridge Studies in Economics, Choice, and Society)

by Jared Rubin

  The Reformation came to England in part due to the idiosyncratic desires of Henry VIII, who sought a divorce from Catherine of Aragon, which the pope did not grant. Henry VIII instituted the English Reformation from the top. Unlike in the Holy Roman Empire, where political considerations mixed with local economic and religious preferences to determine whether a city adopted the Reformation, Henry VIII pushed his own brand of Protestantism through Parliament. The printing press played a relatively muted role in the spread of the Reformation in England, but this does not undermine the broader argument made in the previous chapters. By the time Henry VIII brought the Reformation to England, the press already played its role in starting a movement the Church could not stop. Henry VIII merely used it opportunistically to further his own dynastic ambitions. The unintended and unforeseen consequences of this decision are of concern here.

  The Reformation permanently altered the capacity of the religious elite to legitimize the English monarch’s rule. Henry VIII confiscated all Church lands and neutered the power of any churchmen who did not accept the new world order. When Henry VIII married Anne Boleyn following his divorce from Catherine, she was visibly pregnant with Elizabeth. This was a clear indication that Henry VIII believed that “the English king could determine and legitimize the future of its monarchy without authorization from Rome. [Henry] set out to rewrite history by replacing the Spanish queen with the English Anne, transferring the Tudor succession from Princess Mary to Anne’s as-yet unborn baby.”6

  After Henry VIII voluntarily undermined one of his primary legitimizing agents, he turned to other agents to propagate his rule. Parliament was a natural alternative to the Church: it previously helped legitimize the Crown’s controversial policies by giving them the blessing of Parliamentary authority. Consequently, Henry VIII used Parliament to legitimize his Reformation. During the 1530s, Henry VIII pushed through Parliament a series of reforms that increased both monarchical and Parliamentary power at the expense of the Church. The Ecclesiastical Appeals Act of 1532 forbade all appeals to the pope on religious or other matters,7 the 1534 Act of Supremacy claimed for the monarch all of the powers over the Church once held by the pope,8 the Dissolution of the Monasteries Acts of the late 1530s permitted a massive confiscation of Church property, and abbots were removed from the House of Lords in 1539–1540.9

  These changes had enormous consequences for the types of laws established by Parliament and the Crown. One important and immediate consequence was the decade-long debate over English land and property right law. This debate centered around two acts: the Statute of Uses (1536) and the Statute of Wills (1540).10 The nature of the debate over these laws is important, since it sheds light on the changing dynamic between the Crown and Parliament. The basis of the debate was that Henry VIII, starved for funds, sought to end a major loophole in property law that allowed property holders to avoid feudal dues. This loophole – the use – worked as follows: individual A gave “use” of his land to a trusted accomplice, individual B, who would in turn allow those designated by A to enjoy the fruits of the land upon A’s death. This allowed landholders to evade feudal dues owed to the king. Under feudal law, one’s heirs owed dues to the Crown for all of the land that the deceased held at the time of death. If the deceased placed his land in a use, he did not officially hold it at his death, so his heirs owed the Crown nothing.

  Henry VIII wanted to stamp out evasions of feudal dues facilitated by uses. Since the landowners in the House of Commons and Lords were among the primary beneficiaries of uses, Henry VIII was unlikely to succeed by merely asking them to remove this loophole. So Henry used his influence with the courts to secure a ruling declaring that land was not devisable and that the Crown had full rights over all land.11 This could have been disastrous for the landed elite, many of whom already had their land in use. So Henry VIII suggested a compromise: the Crown offered legislation that would once again make the use legitimate, and in return the beneficiaries of the use were subject to feudal taxation. This law passed as the Statute of Uses in 1536.

  What happened following the passage of the Statute of Uses reveals just how much the Crown-Parliament dynamic changed in the years following the Reformation. After the passage of the Statute of Uses, Henry VIII faced a near-revolt by the landed elite in Parliament, who felt that Henry transgressed their rights as property holders.12 Henry was in no position to put up a fight – Parliament was an important propagator of the Tudor line – so he relented on many of the concessions he won in the Statute of Uses. The result was the Statute of Wills (1540). This statute made land devisable by will and restricted the king’s rights to one-third of the estate rather than the entire estate, as was the case under the Statute of Uses.13 This was a monumental advance for the property rights of landholders. For one, it provided the death knell to the system of primogeniture by allowing landowners to bequeath their land to anyone they desired by writing a will. More importantly, the Statute of Wills provided an unprecedented strength and clarity to property rights. Landholders henceforth had the ability to will their land to whomever they pleased with minimal interference from, or payments to, the Crown. In the context of the Crown-Parliament relations, this was a harbinger of things to come. With the Crown relying all the more heavily on Parliament for revenue and propagation of its rule, the Crown had to cede more rights, most of which favored the economic interests of members of the House of Commons.

  Greif and Rubin (2015) argue that the shift toward legitimation by Parliament persisted throughout the Tudor era, in part due to the unique circumstances in which Henry VIII’s three children came to the throne. Edward VI, Henry VIII’s infant son, took over the throne in 1547. As both a child and the first English monarch born a Protestant, he did not have the traditional means of legitimacy available to previous adult male heirs of the English throne. The situation was even worse for his two older sisters, Mary I and Elizabeth I. Mary I intended to reimpose Catholicism on England – often violently, hence her nickname “Bloody Mary” – while Elizabeth I intended to reintroduce Protestantism. Making matters even more difficult for them was the fact that there were open questions about their legitimacy when they came to power. Their father, Henry VIII, had both sisters officially labeled as bastards by separate acts of Parliament in 1533 and 1536,14 which made them ineligible to inherit the throne. Henry had Mary declared a bastard when Anne Boleyn ascended to the throne in order to make way for Elizabeth, while he had Elizabeth declared a bastard after he had Boleyn’s head removed. Although the Third Succession Act of 1543 revoked their status as bastards,15 there were open questions about their rights to the throne. Both Mary I and Elizabeth I felt the need to have Parliament officially confirm the legitimacy of their title to the crown once their reigns commenced. The names of these acts were revealing: the Legitimacy of the Queen, etc. Act of 1553 and the Queen’s Title to the Crown Act of 1558.16

  The three post–Henry VIII Tudor monarchs thus came to the throne under unique circumstances. Edward VI, Mary I, and Elizabeth I lacked two of the conventional means of legitimacy that many of their predecessors had: being an adult male heir and support from the Church. In these circumstances, the Tudor monarchs attempted to claim the “divine right of kings” (or queens) to propagate their rule, but their weakened legitimacy meant that they could not rule absolutely without the support of Parliament.17

  Members of Parliament did not support the Tudors out of the kindness of their hearts, of course. Parliamentary support of the Tudor regime came at a cost, particularly in the House of Commons. Henry VIII, Edward VI, and Elizabeth I made concessions that gave a major voice to property holders in Parliament at the expense of the religious establishment. Unlike the religious establishment, many members of Parliament had a stake in securing property rights, promoting trade, making internal improvements, and promoting general economic well-being. Under Elizabeth I, hundreds of bills concerning industry, poor relief, and agricultural use were passed. Important bills included the Statute of Artifice
rs (1558–1563), which gave the English state many of the rights previously held by guilds; the reinstitution of usury laws, which allowed interest up to 10 percent18; and the 1601 Poor Law. The last of these provided a social safety net unlike any other in Europe at the time, and the economic elite strongly supported it in order to reduce vagrancy. Avner Greif and Murat Iyigun (2013) suggest that the Poor Law was essential to the long-run prosperity of England, as it gave inventors incentive to take on the risks associated with inventive activity by providing a safety net in case of failure.

  Despite these concessions to the House of Commons, Elizabeth I had independent sources of revenue available to her, which gave her some leverage vis-à-vis Parliament. The most controversial of these revenues was the sale of monopolies, which gave the Crown funds at the expense of producers. Elizabeth also sold off 25 percent of the Crown’s land to finance the war with Spain.19 As long as the Crown had these independent sources of revenue, there was less incentive for it to negotiate with the House of Commons. But the problem with selling monopolies and land is that they do not provide infinite streams of revenue. Once the Crown ran out of industries to monopolize and land to sell, it went back to Parliament for funds.

  Although Elizabeth I maintained some power independent of the House of Commons, Parliament clearly became a more important legitimizing, revenue-generating, and legislative institution in the course of the sixteenth century. Parliament could threaten to revoke either legitimacy or revenue if the Crown did not implement its desired laws and policies. More importantly, Parliament’s increased political power and organizational capabilities permitted it to credibly threaten to revolt against any monarch who attempted to undermine it.20

  Research that I have conducted with Avner Greif (2015), which picks up where the arguments presented in this book leave off, suggests that the change in the balance of political power following the Reformation was the source of the multiple institutional and policy changes in the seventeenth century. Specifically, our analysis suggests that the Civil Wars of the 1640s and the Glorious Revolution of 1688–1689 were conflicts over Parliament’s role in legitimizing the Crown.21 Besides providing revenue, Parliament played a key role in determining the law – that is, which actions were legitimate for the Crown to take. As long as the king followed the rule of law, as determined by Parliament, he was legitimate. We suggest, therefore, that when the Stuart kings of the seventeenth century attempted to reestablish the legitimizing power of the Catholic Church – Charles I married a Catholic princess and James II’s wife birthed a Catholic heir weeks before Parliament kicked him out – Parliament had no choice but to revolt. Otherwise, the gains in wealth and propagating power they achieved under the Tudors would have been undermined.

  When the dust settled in 1689, Parliament had the upper hand against a severely neutered Crown. The upshot of Greif and Rubin’s analysis is that the new institutional framework imposed after the Glorious Revolution settlement enabled the Crown and Parliament to cooperate in advancing their common interests. The new institutional arrangements depended much more on the rule of law than before, with the rule of law being dictated by Parliament. This, in turn, encouraged the formulation of pro-commerce policies and laws. For instance, Greif and Rubin document how naval and trade policy reflected commercial interests during the Interregnum (1649–1660), when Parliament held executive power. In this decade, Parliament passed the Navigation Acts, ordered convoys to protect Levant Company shipping, and engaged in wars over commercial policy (the First Anglo-Dutch War [1652–1654] and the Anglo-Spanish War [1654–1660]).22 After the Glorious Revolution, pro-growth policies were all the more evident. Dan Bogart and Gary Richardson (2009, 2011) show how Parliament reorganized land rights throughout the eighteenth century in order to make land transfers, improvements, and enclosures much more efficient and less costly, while Bogart (2011) shows that the clarity of rules and protection of property rights for those who undertook transportation improvements improved after the Glorious Revolution. This was in stark contrast to the prevailing, pre–eighteenth century property rights regime, where numerous inefficiencies existed: owners were limited in how they could exploit and improve their land, localities were inhibited from providing basic public goods, and the process of changing property rights was costly and time consuming.

  The English civil wars and Glorious Revolution were not the first instances where an English monarch faced revolt from within. Just two centuries prior, the houses of Lancaster and York fought over rival claims to the throne in a series of battles known as the War of the Roses. What differentiated the Glorious Revolution and, to some extent, the civil wars from previous attempts to overthrow the Crown was that they accomplished more than the replacement of one ruling family with another. There were no real institutional changes resulting from the War of the Roses; a king with power over the economic elite replaced a different king with power over the economic elite. By contrast, the Glorious Revolution resulted in a new institutional structure. After 1689, Parliament reigned supreme over the Crown, and its interests dominated English economic and foreign policy.

  The broader takeaway highlighted in Greif and Rubin is that these events were the result of a long historical process that began with Henry VIII’s Reformation. It was the search for alternative sources of legitimacy under the Tudors that led to a rise in the power and wealth of Parliament, which in turn aligned the incentives of major governmental stakeholders with laws and policies conducive to economic success. When Parliament became supreme vis-à-vis the monarchy, it established and enforced new laws that were consistent with its own economic interests. Since these interests were also consistent with broader macroeconomic success, England was well positioned to succeed by the turn of the eighteenth century. It is not coincidental that this is precisely when and where the modern economy – and the Industrial Revolution – soon emerged.

  The Reformation, the Dutch Revolt, and Economic Success

  The Netherlands provides perhaps the most straightforward example of how movements away from religious legitimation can encourage economic growth. A broad overview of the history of the Dutch Revolt against Spain (1568–1648) and the shift toward Calvinism in the 1570s is strikingly consistent with the arguments made in this book. Prior to the Revolt, the Netherlands was already one of the most advanced economies in Europe. However, the center of economic activity was in the southern Netherlands – present-day Belgium – in cities such as Antwerp and Ghent. These territories remained Catholic under Spanish rule after the Revolt. Yet, soon after the Dutch States General (i.e., parliament) adopted the Reformation in the northern Netherlands, the locus of economic activity moved north to present-day Netherlands, initiating the Dutch “Golden Age.” Over the ensuing century, the Dutch Republic became a superpower deeply entrenched in the political spats and colonization efforts of the other European powers. Dutch wealth, urbanization, energy consumption, population, wages, and industry all grew immensely in this period in both absolute and relative terms. Between 1550 and 1675, the fraction of the Dutch population living in urban areas increased from 24 percent to 45 percent, and a gap in real wages opened between Holland – the most economically advanced province in the Dutch Republic – and England.23 The Dutch also took the lead in science and art; Dutch economic success provided an atmosphere in which important scientists such as Huygens and van Leeuwenhoek and artists such as Rembrandt and Vermeer thrived.

  How could such a small nation become a world superpower? A number of institutional and historical features combined in this period to propel the Dutch economy. First, the Dutch had a “head start” prior to the Reformation. By 1500, the Low Countries were more highly urbanized than the rest of Europe, with a much greater portion of their workforces employed outside of agriculture. This was in part a result of progress made in Dutch agriculture in the late medieval period. Sophisticated drainage techniques and the concentrated use of manure resulted in excess food that fed the urban population.24 In the cities, the wa
ges of laborers and craftsmen rivaled, if not exceeded, those in England and were higher than wages in the rest of Europe.25 Clearly specified and enforced property rights supported vast capital markets, Dutch ships and merchants dominated Baltic trade, and nonagricultural activities were almost completely oriented to international markets.26

  There were many reasons for these developments. For one, the Burgundian rulers of the Low Countries historically discouraged monopoly privileges as well as guild and trade restrictions, all of which were drags on medieval European economies.27 Perhaps more importantly, feudalization was less present in the Low Countries than elsewhere in medieval Europe. As early as the twelfth and thirteenth centuries, land reclamation and colonization of new areas encouraged wealthy lords to free the peasantry from feudal ties, incentivizing them to farm the new land by leasing them small farms.28 It is true that a small feudal elite of nobles dominated political life in the late medieval period, but their small size and the relative lack of centralized authority allowed the urban economic elite to gain a larger say in government than elsewhere in Europe.29 The result was that by 1500, the Dutch commercial cities were politically and economically important.30

  The Dutch “head start” meant that a Golden Age may have occurred in the sixteenth and seventeenth centuries even if the Reformation had not taken hold in the Netherlands. However, other facts suggest that the Golden Age was by no means a sure thing. First, and most importantly, it was the southern Netherlands where the head start was most apparent, yet the actual Golden Age occurred in the northern Netherlands. Prior to the Golden Age, the “rich trades” in textiles, spices, metals, and sugar, which eventually dominated the economic life of the Dutch Republic in the seventeenth and eighteenth centuries, were centered in the Flemish and Brabant towns of the southern Netherlands. The northern Netherlands was not involved in the rich trades; its trade consisted of less valuable bulk goods such as fish, grains, and timber.31 The southern Netherlands thus provides the relevant counterfactual. It hardly became an economic laggard at the time of the Dutch takeoff, and it ended up being a relatively early adopter of industrial technologies in the nineteenth century. But, unlike its northern neighbor, it was far from an economic leader in the early modern era. This result was far from preordained, and as late as the mid-sixteenth century, the southern Netherlands was in a better position to succeed than the northern Netherlands was. Is it coincidental that the Dutch shook off Spanish and Catholic domination while the southern Netherlands remained Catholic under Spanish Habsburg rule? Is it a coincidence that the Dutch Golden Age occurred in the century following the major institutional changes brought on by the Reformation and the fight for independence from Spain?