When the Protestant Reformation began in the 16th century, it was as if a new business firm were seeking to gain a share of the religious market from an established monopoly. And in the Counter-Reformation, the Catholic Church responded just as monopolistic firms typically do—with a corporate reorganization plan. But the plan failed.
It’s enlightening to subject the whole episode to a business analysis, say economists Ekelund and Hebert, both of Auburn University, and Tollison, of Clemson University. The medieval Catholic Church had evolved from a vertically integrated firm into a powerful monopoly that sought returns from its properties and “sold assurances of eternal salvation and other religious services.” The church created and manipulated doctrine to increase revenues (virtually inventing purgatory, for instance, along with a system of indulgences whereby payments and other sacrifices could cut the time one posthumously had to serve
in it). By the 16th century, the church had “‘sheared too much wool from the sheep.’ Its doctrinal manipulations, complex reward and punishment schemes, and monopoly price discrimination combined to push certain consumers to the limits of their demands for the Church’s product.” Hence the market opening for Protestantism, which made “‘all-or-none’ offers, using an uncomplicated pricing scheme.”
At the Council of Trent (1545–63), the church responded to the Reformation with public efforts “to lower the price (or increase the quality) of its services.” Among the proclaimed reforms: It limited the number of benefices (revenue-producing assets) each bishop could hold; established minimum competency requirements for the clergy; set penalties for concubinage and other abuses; prohibited bishops from selling rights and offices; eliminated charges for providing certain services; and “tried to institute quality control over the doctrine of Purgatory and the veneration of sacred relics, and to abolish ‘all evil traffic’ in indulgences.”
Such measures “permitted at least the advertised cleaning up of abuses at the retail level of Church organization,” actions that apparently slowed down defections.
Despite the outward appearance of reform, say the authors, the Council of Trent’s measures “failed as a reorganization plan.” “The [Vatican] bureaucracy, entrenched in its power for at least a century before the Council of Trent, defied actual reform at the wholesale level of church organization.” Nepotism, the sale of sacred offices, and other abuses continued behind the scenes. As a result, the powerful firm’s monopoly was permanently lost.