Get access

Institutions, the Rise of Commerce and the Persistence of Laws: Interest Restrictions in Islam and Christianity


  •  Corresponding author: Jared Rubin, California State University, 800 N. State College Blvd; Fullerton, CA 92834, USA. Email:

  • This article is derived from chapter three of my dissertation, completed at Stanford University. I am extremely grateful to Avner Greif and Timur Kuran for helpful guidance, comments, and insight. I also wish to thank Ran Abramitzky, Latika Chaudhary, Antonio Ciccone, Metin Coşgel, Larry Iannaccone, Murat Iyigun, Michael Makowsky, Gavin Wright, three anonymous referees and participants in workshops at Cal State Fullerton, George Mason University, Stanford University, UC-Irvine, University of Connecticut, the 2007 EHA and ASREC Meetings, and the 2009 ASSA Meetings. I am greatly indebted to funding received from the Center for the Economic Study of Religion and the Mercatus Center. All errors are mine.


Why was economic development retarded in the Middle East relative to Western Europe, despite the Middle East being far ahead for centuries? A theoretical model inspired and substantiated by the history of interest restrictions suggests that this outcome emanates in part from the greater degree to which early Islamic political authorities derived legitimacy from religious authorities. This entailed a feedback mechanism in Europe in which the rise of commerce led to the relaxation of interest restrictions while also diminishing the Church’s ability to legitimise political authorities. These interactions did not occur in the Islamic world despite equally amenable economic conditions.