Religious norms, human capital, and money lending in Jewish European history

Circa 1100, money lending was the occupation par excellence of the Jews in England, France, and Germany, and one of the main professions of the Jews in Spain, Italy, and other locations in Europe. Their prominence grew in the following centuries and extended to banking and finance. A common view states that the usury ban on Christians segregated European Jewry into money lending. A similar view contends that the Jews were forced to become money lenders because they were banned from farming as they were not permitted to own land. As we argue in this chapter, the historical evidence contradicts both these views. We present an alternative argument that is consistent with the main features that mark the history of the Jews: the Jews in medieval Europe voluntarily selected themselves into money lending as they had the three key assets for being successful players in credit markets. First, they were highly educated because they were endowed with a “literate” religion. In a medieval Europe populated of illiterate people, the Jews had a comparative advantage in writing and reading contracts, business letters, and account books using a common alphabet despite the different local languages. Second, they had a uniform code of law, the Talmud, and a set of institutions (rabbinic courts, Responsa) that fostered contract enforcement, networking, and arbitrage across distant locations. Third, the Jews had accumulated wealth as urban dwellers engaged in crafts and trade in the Muslim Near East. When they migrated to Europe in the early Middle Ages, they had the capital to become the key players in money lending, and, later, in banking and finance.