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Affluent Christian Investor | October 24, 2017

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Puritans vs. Capitalism: How A Theological Error Led To Financial Stagnation


The standard academic story is that capitalism came roaring out of the Protestant Reformation and was carried to America on something called ‘the Puritan work ethic’. But that story is wrong and if you don’t understand what really happened, you won’t properly understand the religious nor economic aspects of the rise of America, nor the factors which threaten to cause it to fall.

My friend, Mark Valeri, Distinguished Professor at the John C. Danforth Center on Religion and Politics at Washington University in St. Louis, knows more about how the earliest generations of Colonial Americans thought about economics and how they changed their minds. Having spent ten years reading pamphlets, diaries, Church minutes, sermons, and even ledger books, Professor Valeri has produced the definitive account of the generations which led up to the founding of the United States, the greatest financial power in the history of the human race.

What he found is that from the very beginning, Puritans had strong moralistic doubts about participation in capital markets, and were prone to scold and eventually excommunicate merchants who used state of the art financial instruments and tended strongly towards price controls in the civil and moral spheres. John Calvin himself shared those concerns. The early puritans did not make a decisive break either with the Roman Catholic tradition of synthesis between Aristotle and Christianity in economic affairs, or with British traditions which were based more on compromise between special interests than on the text of the Bible.

It took a combination of internal stagflation, external threat, and deep theological debate to free themselves from medieval economic thought forms, and embrace the processes which led to eventual US financial hegemony. This column describes the reasons for the initial resistance to free-market capitalism; the next column will describe why and how they changed their minds.

If you’d like to listen to the full interview on which these columns are based, click here.

Jerry: “Let’s talk about sort of the financial mechanisms that are growing in the 17thcentury that the Puritans were hostile to, and why they were hostile to them.”

Mark: “The first one that comes to my mind is the most obvious one because it’s shot through the literature everywhere. There are heated debates [in the] second half of the 16th and early 17th century about usury, and redefining usury — trying to come to some accommodation to overseas commerce, which depends on a high level of trading in credit, or use of credit, which violated customary Christian prohibitions on usury. What happens is first of all with some Italian banks, gradually entering into merchant exchanges in Amsterdam and in London, the practice of trading commodities with what’s called bills of credit (which are in essence something like a personal signed check) and these checks are traded from partner-to-partner in business ventures.”

Jerry: “And they are debt instruments, technically. From an anti-usury perspective, they are debt instruments; in modern finance, they are essentially short-term bonds that are secured with commodities.”

Mark: “Exactly. So the question emerges for merchants – “What level of profit are we allowed to make on such credit instruments?” They’re also doing the same thing with mortgages and insurance; all sorts of paper forms of credit that they’re beginning to trade in overseas exchange.”

Jerry: “Is it possible to be an active trader in the 1600s in New England without using these debt instruments?”

Mark: “It is possible. It is not possible without using bills of credit – sort of the personal checks – [but] it is possible without using some of the other instruments: bonds, insurance, mortgages. So you could do a fair amount of trading just using these bills of credit, like personal checks, credit instruments. So that was not frowned upon, but what was frowned upon is the way in which they became traded in themselves – the credit itself became a commodity. That there were people who, moving into the financial sector, if you will, were actually not trading goods but merely trading these bills of credit and charging high interest rates to make a profit from them. And Puritans initially very much resisted the notion that credit itself could become a commodity, that it could be traded. It was merely to be an instrument to facilitate traded goods and there would be a certain amount of interest allowed: 5%, say, on domestic loans; 8% on overseas loans, in order to recoup the cost of inflation or of an extended period of time in which money was unavailable to a creditor.”

Jerry: “Where did these numbers come from? 5% or 8% — they’re not found in the book of Deuteronomy, to my knowledge. So where are these Puritan divines and semi-divines and pastors, et cetera, getting a biblical prohibition of nothing above 5% for domestic credit or above 8% for international credit?”

Mark: “It was taken from parliamentary law, by statutes and legal statutes which had been in place since the mid-16th century, and those numbers were taken upon what was perceived to be something like an inflation rate.”

Jerry: “I see. But what if the inflation rate varies? What if the risks associated–my financial training kicks in here and says that yields are risk-hedges, just basic finance. The higher risk the situation, the more I, as an investor, want a higher yield to compensate me for that risk. That’s how I deal with my risk. If it’s a riskier investment, I want to pay less for it. That seems reasonable. So if we have a period of higher-than-average inflation, then these people are stuck with a below-market interest rate imposed on them by church courts, correct?”

Mark: “Yes, but their response would be twofold: Risk is not a valid criteria for raising an interest rate.”

Jerry: “Interesting. They saw no connection between risk and yield, risk and price?”

Mark: “Exactly. So when a trader would come to them saying, “I lost a ship,” which happened not infrequently to piracy, to storms, to the spoilage of goods, and they would say, “Therefore, when I fund the next voyage I’m going to raise my prices because I’m in debt for this previous disaster.” Churches would say, “That violates God’s law, prohibitions against usury, and you need to trust providence, God’s rule over earthly events. He must be chastising you or he must have his purposes, but his purposes would never contradict his law, and his law says you may not commit usury, and English law says usury will allow you to recoup for some inflation but not disasters. That’s what the law says.” So they’re reading the Bible through the law and vice versa. Risk was not a valid reason for it and their argument about inflation was, “Well, we want low inflation rates, we want a steady economy so prices and credit are predictable and manageable. The way to avoid that is not to allow people to inflate credit rates, which inflates prices.””

Jerry: “I see. So in modern terms it’s ‘cost-push inflation’ — that if interest rates are going up about 5%, it’s not a debasement of the coinage; it’s a punishment of God with no material proximate cause, or if so, too bad, you just have to live with it. And then the people who respond to that by discounting bills or discounting bonds to compensate themselves for the fact that an IOU is worth less if the money I’ll get paid with is worth less. Those people are then blamed for the inflation which they’re trying to hedge against. In other words, they’re in some sense victimized by the inflation, but if they hedge–it’s an age-old story that the markets are kind of scapegoated. What third-world dictator doesn’t blame speculators (often Jewish speculators) when their currency collapses? So, the speculator is seen as the cause of the inflation, rather than someone who’s protecting himself against the inflation or making reasonable responses to the inflation.”

Mark: “Yes. Exactly.”

Jerry: “Interesting.”

Article originally published on

Jerry Bowyer is a Forbes contributor, contributing editor of, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.


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