Catholicism as a Failed Monopoly

Friday June 2, 2006

Can the Reformation and the Counter-Reformation be explained in economic terms? Perhaps: the Reformation could be described as an attempt by an upstart firm to move into a market controlled by a monopoly, the Catholic Church. How did this monopoly react?

The Wilson Quarterly discusses the article “The Economics of the Counter-Reformation: Incumbent-Firm Reaction to Market Entry” by Robert B. Ekelund, Jr., Robert F. Hebert, and Robert D. Tollison, in Economic Inquiry (Oct. 2004):

The medieval Catholic Church had evolved from a vertically integrated firm into a powerful monopoly that sought returns from its properties and “sold assurances of eternal salvation and other religious services.” The church created and manipulated doctrine to increase revenues (virtually inventing purgatory, for instance, along with a system of indulgences whereby payments and other sacrifices could cut the time one posthumously had to serve in it).

By the 16th century, the church had “‘sheared too much wool from the sheep.’ Its doctrinal manipulations, complex reward and punishment schemes, and monopoly price discrimination combined to push certain consumers to the limits of their demands for the Church’s product.” Hence the market opening for Protestantism, which made “‘all-or-none’ offers, using an uncomplicated pricing scheme.”

At the Council of Trent (1545–63), the church responded to the Reformation with public efforts “to lower the price (or increase the quality) of its services.” Among the proclaimed reforms: It limited the number of benefices (revenue-producing assets) each bishop could hold; established minimum competency requirements for the clergy; set penalties for concubinage and other abuses; prohibited bishops from selling rights and offices; eliminated charges for providing certain services; and “tried to institute quality control over the doctrine of Purgatory and the veneration of sacred relics, and to abolish ‘all evil traffic’ in indulgences.”

Unfortunately for the Catholic Church, these reforms didn't succeed in helping them maintain their monopoly. In particular, the bureaucracy of the Vatican was uninterested in real reform and, as a consequence, failed to achieve a genuine church reorganization. Even if they had been successful, things may not have changed, but we'll never know.

I'm not sure if this analysis reveals much about the Reformation that wasn't already understood, but it's certainly an interesting perspective to adopt.

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