Consistent with our framework, religious competition changed the balance of power between secular and religious elites: secular authorities acquired enormous amounts of wealth from monasteries closed during the Reformation, particularly in Protestant regions.
This transfer of resources had significant consequences.
Particularly in Protestant regions, new construction shifted from religious toward secular purposes, especially the building of palaces and administrative buildings, which reflected the increased wealth and power of secular lords.
Reallocation was not driven by preexisting economic or cultural differences.
We examine rich microdata on the allocation of resources in early modern Germany and find evidence supporting both hypotheses.
While the Reformation was a religious movement, we find that its unintended consequence was to promote economic secularization: a significant shift in the balance of power toward secular authorities and a sharp and immediate reallocation of resources toward secular purposes.Shifts in resources toward secular authorities will also be reflected in fixed investments, such as large-scale urban construction, which embody a full set of factors of production.The new equilibrium will also have implications for the allocation of resources within the secular sector: specifically, resources will shift toward uses that reflect the enhanced bargaining power of secular rulers.Using novel microdata, we document an important, unintended consequence of the Protestant Reformation: a reallocation of resources from religious to secular purposes.To understand this process, we propose a conceptual framework in which the introduction of religious competition shifts political markets where religious authorities provide legitimacy to rulers in exchange for control over resources.Protestant university students increasingly studied secular subjects, especially degrees that prepared students for public sector jobs, rather than church sector specific theology.Second, it affected the sectoral composition of fixed investment.We present a conceptual framework that captures a core feature of religion in history: the role in legitimizing political elites (Weber 1978; North, Wallis, and Weingast 2009).Within our framework, the pre-Reformation era can be understood as an equilibrium in which a monopolist religious producer (the Catholic Church) provided political legitimacy to secular authorities at a high price—charged in the form of control over resources, tax exemptions, and some degree of political power.Where Protestants were willing to grant secular authorities extensive control of church resources, the need to maintain doctrinal consistency restricted the bargains Catholics could offer.The posited new equilibrium in the market for legitimacy has implications for the allocation of resources between secular and religious uses.