Physical Capital Accumulation: Religious restrictions on lending at interest had a profound effect on financial development. The Catholic Church banned usury at the Council of Nicaea in 325 CE, while Islamic law prohibited riba (interest). Although workarounds emerged—such as the Islamic mukhatara (double sale) that disguised interest—these restrictions shaped institutional development. European regions under Ottoman rule for centuries show 10 percent less bank penetration today than neighboring areas. Similarly, Islamic partnership and inheritance laws kept commercial enterprises small and short-lived, constraining the emergence of large-scale corporate forms that drove European growth. The lack of legal structures for big business meant Islamic merchants could not exploit economies of scale until European institutional innovations were imported in the 19th century.

Human Capital Formation: The impact of religion on education represents perhaps the clearest channel to growth. The Protestant Reformation created a massive educational advantage by encouraging universal Bible reading. Martin Luther’s insistence that every Christian should read Scripture led Protestant territories to establish widespread schooling for both boys and girls. By the 19th century, Protestant areas of Prussia showed substantially higher literacy rates than Catholic regions—and this educational advantage largely explains the Protestant economic lead that Weber attributed to a Protestant work ethic. The effects extended globally through Christian missionaries, who established schools throughout Africa, Asia, and Latin America. Regions with Protestant missionary presence show higher literacy and educational attainment even today, as well as stronger intergenerational mobility in education.

However, religious education can also substitute for economically valuable knowledge. After the 11th century, as madrasas spread across the Islamic world, scientific works declined sharply relative to religious texts. Medieval Christian monasteries preserved classical knowledge but rarely spread literacy beyond clerical ranks.  Ultra-Orthodox Judaism creates strong in-group bonds through extensive religious education, but at the cost of lower earnings outside the community. This trade-off persists because the community enforces strict religious demands that effectively filter out those who would enjoy the benefits without truly committing.

Population and Labor: Religious teachings profoundly shaped demographic transitions from high to low fertility—a crucial condition for sustained per capita growth. In 19th-century Prussia, Protestant counties showed lower fertility than Catholic ones, partly because the Protestant emphasis on education created a quantity-quality trade-off in children. More dramatically, France’s early secularization enabled the world’s first demographic transition in the 18th century—earlier than anywhere else. Religious health practices also mattered: Jewish adherence to Talmudic teachings on breastfeeding led to dramatically lower infant mortality than among European Christians from 1500–1930, despite similar birth rates. This translated into faster Jewish population growth in Central and Eastern Europe.

Total Factor Productivity: Religion shaped economic efficiency through multiple channels beyond capital, labor, and education. Technological change was sometimes encouraged and sometimes suppressed. The Ottoman Empire banned printing in Arabic script for 250 years (1480s–1727) because it threatened the religious establishment’s intellectual monopoly—they used their role in legitimating political authority to block the technology. Conversely, religious tolerance spurred innovation: Prussian cities with greater religious diversity in the late 19th century produced more patents per capita. Religious persecution could devastate human capital, as when Nazi genocide thinned Russia’s Jewish middle class, or spur it elsewhere, as when persecuted Huguenots brought advanced textile techniques to Prussia.

Perhaps most importantly, religion shaped political economy and state development. Religious authorities often legitimated rulers in exchange for policy influence. In medieval Islam, rulers relied heavily on religious legitimacy, giving religious authorities substantial power to block policies they opposed—including interest-based lending and large-scale commerce. In Europe, the Protestant Reformation disrupted this equilibrium: Protestant rulers could no longer rely on the Catholic Church for legitimacy and turned instead to parliaments, inadvertently promoting more inclusive institutions. The Church also helped keep Europe fragmented after the fall of Rome by preventing any single power from becoming dominant—a fragmentation that many historians credit with spurring Europe’s eventual economic rise.