Religion, Ethic, and Economic Growth:Focusing on Max Weber

J.D. Han with Max Sties

Author

• What roles does Religion play in Economic Growth and Development?

• What roles does Ethic play in Economic Growth and Development?

The protestant Ethic and the spirit of Capitalism (1906)

What he said: „Modern Capitalism arose only in Europe Most succesful businessmen were protestants „

The Lesson is: „The ethic was crucial for the development of

modern capitalism“

• Y=Akα L(1- α)

– What explains A ???

• Knowledge/Human Capital New Growth Theory

• Government Political Economy

• Social Capital Religion; Ethic

Why interest in Weber?

Contents

I. Historical BackgroundII. The ‚Spirit‘ of CapitalismIII. ‚Protestant Work Ethic‘IV. Critique and the broader FrameworkV. Emprirics and Discussion

• AD380 - Roman Empire becomes Christian• AD 395 - Partition of the Roman Empire

Historical Background

• AD 400 – 700 – The dark ages

Historical Background (2)

• AD 500 – 1500 - The Middle Ages

Historical Background (3)

• AD 1515 - Martin Luther‘s Reformation

Historical Background (4)

Structure of Christiandom (6)

Contents

I. Historical BackgroundII. The ‚Spirit‘ of CapitalismIII. ‚Protestant Work Ethic‘IV. Critique and the broader FrameworkV. Emprirics and Discussion

Catholics

• Material Prosperity is ‘blessing’• Any means of Acquisition are tolerated<- Regular ‘Indulgence’ from the church cleans

sins• Commercialism is prevalent• Unlimted Greed

In a word, this type of Commercialism or Capitalism has no ‘Sprit of Ethics’.

It is called ‘Paria(h)-Capitalism’ (贱民的资本主义 ):

->The wealthy people are ‘looked down upon’ as they are with bigger sins.

The ‚Spirit‘ of modern Capitalism (1)

• Unlimited greed ≠ (modern) Capitalism– Paria-capitalism ‚Social market economy‘

• Modern capitalism: Utilization of voluntary exchange oportunities with expectation of profit

• „Capitalism existed in China, India, Babylon, in the classic world, and in the middle ages. But in all this cases… this particular ethos was missing.“

Protestants

Through the Reformation by Martin Luther

– Church is for fellowship, not for salvation

– Individuals have direct relation to god, not through church

– No church indulgence: Your Action and Life are the proof of salvation

-> Job as „Berufung“ (calling)-> Ethical Life

Individuals try to show their living proof of salvation by living an ethical life like “Christ”.

Hard WorkingAscetic and Thrifty Seasoned Charity

“The new religions (in particular, Calvinism and other more austere Protestant sects) effectively forbade wastefully using hard earned money and identified the purchase of luxuries a sin. Donations to an individual's church or congregation was limited due to the rejection by certain Protestant sects of icons. Finally, donation of money to the poor or to charity was generally frowned on as it was seen as furthering beggary. This social condition was perceived as laziness, burdening their fellow man, and an affront to God; by not working, one failed to glorify God.”

Calvinism as the extremeProtestants

• This is good for savings, investment, and development

• The result is

“Modern Capitalism”

Protestant Work Ethik (4)

• Led to Protestants…– Developing enterprises– Engaging in trade– Accumulating wealth for investment

Modern Capitalism

Critiques

• Other factors more relevant?– Advances in Science (H↑)– Introduction of democracy (Pol. Econ)

• How can the growth of „non-protestant“ countries be explained?– Chile– Korea, China, India

• It is NOT religion by itself, BUT ethic that influences economic growth.

-> A society without religion but with ethic will have sustainable and equitable economic prosperity

-> “What is a ‘ethical’ society?

In concrete, by drawing the broader framework, we can say that

Ethic is Respect for Others (Humanity): – Respect for Property Rights• Hernando de Soto

– Respect for Contracts• Blum & Dudley

– Intolerance for Corruption– Attitude towards government (the welfare state)

The Major Lesson from Max Weber

• Despite all short-comings, it has a lesson: “The ‘Sustainability’ of Economic Growth

depends on ‘Humanity’ of the society”

“ A society with a strong Ethical foundation can have a sustainable economic growth”

‘Capitalism and Ethic’ should be paraphrased into

the positive correlation of ‘Sustainable Economic Growth and Humanity’

Empirics and Discussion (1)

• Jonassen (1947)– Case of Norway 19th century– Capitalism has not developed for centuries under

Lutheranism and Catholicism– Economic development in only two generations of

Calvinist influence

Empirics and Discussion (2)

• Blum & Dudley (2001)– European cities between 1500 and 1750– Wages rose in Protestant Cities while they fell in

Catholic Cities– A non-cooperative game decreases with ascetic

protestantism -> Less Transactions Cost– Empirical rejection of the Human Capital

hypothesis– Strong support for the Weber thesis at that period

of time

Empirics and Discussion (3)

• Barro (1997)– Modified Solow model– “rule of law index” associated with more rapid

economic growth– Supports the general case

• Granato, Inglehart and Leblang (1996)– Growth model with ‘cultural values’– “achievement motivation” highly relevant for

economic growth– Support for general case

References• The Weber Theses• - Robert W. Green. Protestantism and Capitalism: The Weber Thesis and Its Critis, Boston, D.C. Heath and Compan

(1967)• - Niles M. Hansen. The protestant Ehtic as a General Precondition for Economic Development, The Canadian

Journal of Economics and Political Sience (1963). • - http://eh.net/encyclopedia/article/frey.protestant.ethic• • Empirics:• - Jonassen, Christen. "The Protestant Ethic and the Spirit of Capitalism in Norway." American Sociological Review

(Dec. 1947).• Blum, Ulrich; Leonard Dudley. "Religion and Economic Growth: Was Weber right?"

http://www.contra-mundum.org/essays/blum/Weber.pdf• • The "General Case"• - Barro, Robert. Determinants of Economic Growth: A Cross-country Empirical Study. Cambridge, MA: MIT Press,

1997.• - Granato, Jim, R. Inglehart and D. Leblang. "The Effect of Cultural Values on Economic Development: Theory,

Hypotheses and Some Empirical Tests." American Journal of Political Science (1996). • • Also very interesting:• - Sabatini, Fabio. The Empirics of Social Capital and Economic Development: A Critical Perspective. Nota di Lavoro,

2006 http://129.3.20.41/eps/dev/papers/0512/0512008.pdf