Catholic Europe lost economical rivalry to Protestant Europe at the turn of the 16th and 17th centuries due to rigid feudal structures, aversion to financial innovation and mistakes in capital management. While Protestant countries (e.g. Holland, England) were building modern marketplace capitalism, Catholic powers (e.g. Spain, Portugal, Italy) were trapped in debt and inflation crises.
1. natural material curse and hyperinflation (Spanish case)
The influx of gold and silver from the fresh World, alternatively of enriching Catholic Spain, led to its economical ruin. This phenomenon, known present as the "price revolution", exposed the weakness of the system:
The demolition of native production: A immense amount of gold has caused powerful inflation. The production of goods in Spain has become more costly than their imports from abroad (mainly from Protestant Netherlands). No investment: alternatively of investing in manufacturing and infrastructure, Spanish elites utilized capital to consume luxury goods and finance spiritual wars.
State bankruptcy: The kings of the Habsburg dynasty have repeatedly declared insolvency (e.g. Philip II), which has ruined trust in financial markets.
2. organization and financial revolution.
Protestant countries have won the match by creating safer and more flexible economical institutions:
Credit Line: W England and the Netherlands limited the monarch's power to the parliaments representing merchants and entrepreneurs. Absoluteism dominated Catholic countriesWhere private property could have been confiscated by the crown at any time.
Modern capital market: To in Protestant Amsterdam was established the world's first stock exchange (1602) and the central bank (Amsterdamsche Wisselbank). This allowed inexpensive capital raising for ocean trade through public limited companies (e.g. VOC) . Debt approach: Protestant governments enjoyed higher credit trust, so they borrowed money at a much lower percent than indebted Catholic rulers.
3. The function of spiritual ethics and education. The impact of religion on economical development, popularized by Max Weber in the explanation of "Protestant Ethics", he appeared in respective key areas:
Relation to usury: The Catholic Church for centuries strictly and officially condemned the collection of interest on loans. Calvinism and Lutheranism accepted capital gains much more rapidly as a natural component of merchant risk.
Education and Illiterateism: Protestantism imposed on all faithful work to read the Bible independently. This has led to a sharp increase in education in North Europe. Higher writing culture has straight translated into better qualifications of craftsmen and merchants.
Concept of work: In the Catholic world, contemplation or nobility position (not ashamed of work) remained the perfect of life. Protestantism raised daily, honest work and saving to the rank of spiritual duty. ➡️
