Religion and economic organisation

Explaining economic institutions; firms, guilds, clubs, cooperatives etc, is a core issue for microeconomics. Avner Grief pioneered the use of game theory to study historic economic organisations. His work shows that reputations, repeated relationships, and folk-theoretic interactions fostered the rise of anonymous exchange during the later Middle Ages. But when the mortality rate is high, these mechanisms alone may not be enough to sustain cooperation, and religion can come into play as an additional mechanism which helps shape economic institutions. This is the basic idea behind a new NBER working paper, Religion, Longevity, and Cooperation: The Case of the Craft Guild by Gary Richardson and Michael McBride, NBER Working Paper No. 14004, issued in May 2008.

Richardson and McBride set out to examine the organization of industry in late medieval England. In this era artisanal activity occurred in organizations referred to as craft guilds. Craft guilds were basically groups of self-employed skilled craftsmen with ownership and control over the materials and tools they needed to produce their goods. Guilds were in part small business associations and in part cartels. As Ekelund et al explain

The guild system was an example of government-sponsored cartelization. A local group of producers practicing a particular craft would obtain sanction from municipal authorities to forbid the entry of new competitors into the local market, without first securing, the permission of the guild. These organizations tended to be composed of groups of small independent masters (a sole proprietor) and represented local cartels. They frequently entered into open agreements with one another to fix prices and restrict output, with government approval and support. (p.125)

Ekelund et al also note that

The fact is that the Church did not actively campaign against the system of guild-cartels. (p.125)

These associations of artisans dominated economic activity for centuries.

Explaining the rise, decline and changing nature of guilds has perplexed scholars since at least the time of Adam Smith. Richardson and McBride offer a new theory to explain the nature and development of guilds. Richardson and McBride note that the key to their explanation

... is to understand how guilds convinced members to cooperate, and how exogenous changes in the environment influenced the effectiveness of guilds' enforcement mechanisms. The principal driving forces were the disease environment and religious doctrines.

They continue

Disease influenced craftsmen's ability to cooperate by determining the mortality rate. Folk theorem logic holds that cooperation occurs more readily when individuals care more about the future, which in turn, depends on how long one expects to live. Low mortality rates meant long lives and extensive cooperation. High mortality rates meant short lives and little cooperation. The mortality rate for craftsmen fluctuated dramatically during the Middle Ages, as the introduction of virulent, infectious diseases, such as the Black Death, scourged urban populations.

In such an environment a grave concern would be the afterlife. Religion had an influence on the level of cooperation between craftsmen by emphasising the concept of an afterlife.

The late-medieval Christian church promoted the doctrine of purgatory, which stated that after death, individuals experienced excruciating pain, which purged them of sins in preparation for entrance into Heaven, where one experienced ecstasy. Purgatorial pain could be lessened by the prayers of the living, particularly by pious people who knew one well, such as family, friends, and colleagues. Guilds were organized to provide prayers for the souls of deceased members. Guilds threatened to punish members caught breaking the rules by excluding them from intercessory services. This threat became more salient when belief in the doctrine spread and mortality rates rose, enabling guilds that bundled together religious and occupational activities to sustain occupational cooperation in environments where purely secular associations employing folk-theorem threats could not.

This logic underpins Richardson and McBride's explanation of the development of the guilds in medieval and early modern England. They argue

During the twelfth and thirteenth centuries, when industrial activity initially expanded in towns, urban residents formed organizations focused on secular, economic, and legal concerns. During the fourteenth century, as the doctrine of purgatory spread and the disease environment deteriorated, craftsmen organized increasing numbers of guilds that prayed for the souls of deceased members. Guilds that engaged both in religious and occupational activities proved especially effective at facilitating cooperation. During the sixteenth century, mortality rates fell, religious reformation swept aside the doctrine of purgatory, and new methods of organizing industry evolved.

The analysis of Richardson and McBride links two literatures. One is the literature that employs game theory to study economic institutions and the other the literature that uses club theory to study religions institutions. Richardson and McBride provide one channel by which religion can influence the extent of economic activity. In late medieval England religious belief was one contributing factor in the organisation of industry and the scope and scale of occupational cooperation.