Friday, April 19, 2013

the chosen: competitive advantage of a religion of literacy

pbs | The key message of "The Chosen Few" is that the literacy of the Jewish people, coupled with a set of contract-enforcement institutions developed during the five centuries after the destruction of the Second Temple, gave the Jews a comparative advantage in occupations such as crafts, trade, and moneylending -- occupations that benefited from literacy, contract-enforcement mechanisms, and networking and provided high earnings.

Once the Jews were engaged in these occupations, there was no economic pressure to convert, which is consistent with the fact that the Jewish population, which had shrunk so dramatically in earlier times, grew slightly from the 7th to the 12th centuries.

Moreover, this comparative advantage fostered the voluntary diaspora of the Jews during the early middle ages in search of worldwide opportunities in crafts, trade, commerce, moneylending, banking, finance, and medicine.

This in turn would explain why the Jews, at this point in history, became so successful in occupations related to credit and financial markets. Already during the 12th and 13th centuries, moneylending was the occupation par excellence of the Jews in England, France, and Germany, and one of the main professions of the Jews in the Iberian Peninsula, Italy, and other locations in western Europe.

A popular view contends that both their exclusion from craft and merchant guilds and usury bans on Muslims and Christians segregated European Jews into moneylending during the Middle Ages. But our study shows, with evidence we have come upon during more than a decade of research, that this argument is simply untenable.

Instead, we have been compelled to offer an alternative and new explanation, consistent with the historical record: the Jews in medieval Europe voluntarily entered and later specialized in moneylending and banking because they had the key assets for being successful players in credit markets:
  • capital already accumulated as craftsmen and traders,
  • networking abilities because they lived in many locations, could easily communicate with and alert one another as to the best buying and selling opportunities, and
  • literacy, numeracy, and contract-enforcement institutions -- "gifts" that their religion has given them -- gave them an advantage over competitors.
With these assets, small wonder that a significant number of Jews specialized in the most profitable occupation that depended on literacy and numeracy: finance. In this sector they worked for many centuries. As they specialized, just as Adam Smith would have predicted, they honed their craft, giving them a competitive advantage, right up to the present.


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