The mystery ingredient in the formation of capitalism

The mystery ingredient in the formation of capitalism

When you picture a monastery, the last thing that comes to mind is commerce.  However, it’s in this most unlikely of settings where modern capitalism was birthed, incubated and developed to today’s worldwide acknowledgement and acceptance.

Belgian scholar Henri Pirenne noted “… that all of the essential features of capitalism – individual enterprise, advances in credit, commercial profits, speculation, etc. – are to be found from the 12th century on, in the city republics of Italy – Venice, Genoa, or Florence."

To further understand this statement let us take a trip down memory lane to over one thousand years ago, to an 11th century monastery. The religious powers that be fiercely shun avarice and money. Like many of their Christian contemporaries they hold a negative view of money. According to St Francis of Assisi,“We should have no more use or regard for money in any of its forms than we have for dust.” How then did this environment, which prevailed all over Christian Europe, lead to the creation of capitalism?

The story goes like this. “Throughout the medieval era, the church was by far the largest landowner in Europe, and its liquid assets and annual income probably exceeded that of all of Europe's nobility added together. Much of that wealth poured into the coffers of the religious orders, not only because they were the largest landowners, but also in payment for liturgical services – Henry VII of England paid a huge sum to have 10,000 masses said for his soul. As rapid innovation in agricultural technology began to yield large surpluses to the religious orders, the church not only began to reinvest profits to increase production, but also diversified. Having substantial amounts of cash on hand, the religious orders began to lend money at interest. They soon evolved the mortgage to lend money with land for security, collecting all income from the land during the term of the loan, none of which was deducted from the amount owed. That practice often added to the monastery's lands because the monks were not hesitant to foreclose. In addition, many monasteries began to rely on a hired labour force and to display an uncanny ability to adopt the latest technological advances. Capitalism had arrived.”

What also came about was a mindset shift in the religious hierarchy starting with the administrators, who decided “… they were not about to give all their wealth to the poor, sell their products at cost, or give kings interest-free loans.” Rather they would participate in “… free markets that caused monastic theologians to reconsider the morality of commerce” and thus led to them being able to “pursue their economic goals”. Those goals were possible because of their new economic status, whereby which they had enoughpower“to withstand any attempts at seizure by an avaricious nobility “.

The creation of this economic entrepreneurial class coincided with economic and political steps forward for the masses: politically, the banning of the institution of slavery in Europe in the 11thcentury; economically the creation of free labour which was the result of the abolition of slavery. This led to a work force, which had opportunities to gain “rewards by working harder or more effectively than before” rather than being indentured labour.The end result was the development of capitalist economic states in Northern Italy, and, more importantly, a marked increase in the living standards of the people living in those states.


Rodney Stark. "How Christianity Led to Freedom, Capitalism, and the Success of the West." The Chronicle of Higher Education vol. 52, #15 (December 2, 2005), B11.

(Used with the permission of the author Rodney Stark)

Author: Katlego Moatshe is an intern with the Free Market Foundation.

Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE