# The political economy of theocracy

The Political Economy of Theocracy is a collection of essays, published in 2009. The work aims to correct the misconception that theocracy is either a purely medieval vestige or an exotic anomaly. Instead, the essays collectively show that theocratic governance has recurred in many times and places, albeit rarely in a “pure" form. The contributors merge historical evidence with rational-choice theories to explain why ecclesiastical elites might seek direct rule, how they sustain power, and why theocratic policies sometimes facilitate rather than stifle material welfare.
At the same time, the chapters highlight internal contradictions within theocratic rule - tensions around moral enforcement, economic innovation, factional splits among believers - that can lead to partial liberalizations, power-sharing, or transformations into more conventional authoritarian or even electoral regimes. Iran, for instance, is described as oscillating between purist theocratic impulses and pragmatic concessions to popular participation.
It argues that theocratic politics is best approached through the same analytical lenses applied to other forms of power: institution-building, strategic behavior, competition among elites, and public opinion. Even when legitimized by divine mandate, religious rule does not circumvent politics - it merely clothes it in theological vestments and heightens the stakes of moral and policy disputes.
The book is divided into four sections: "Theocracy as a divided regime", "theocracy as a dictatorship", "Theocracy, trust, and morals", and "Theocracy, economic development, and Islam".

## "Theocracy as a divided regime"
### "Theocracy and the Separation of Powers"

O'Leary suggest that theocracies can be divided into two groups:
* Nominal theocracies (many medieval and early modern monarchies) in which divine legitimation is invoked but actual governance is handled by kings, nobles, or secular councils.
* Hierocracies in which clerics as a group govern directly.
Drawing on Benedict Spinoza's analyses of the Hebrews under Moses, O'Leary contends that monotheistic theocracies often adopt a “separation of powers" structure. Over time, distinct bodies - clerical councils, religious courts, secular bureaucracies, even local communal assemblies - arise to handle different tasks. This phenomenon occurs for practical reasons: God's law, while supreme, leaves room for human interpretation; multiple institutional layers emerge to interpret and enforce religious decrees in real time.
O'Leary cites examples such as:
* The Caliphate in its formative years, in which political leadership and jurisprudential interpretation quickly diverged (despite a nominally unitary Islamic framework).
* The Catholic Church in medieval Europe, where the papacy claimed supreme moral authority yet needed secular kings for military and administrative power.
He suggests these checks and balances can eventually morph into structures where clerics are no longer omnipotent. Indeed, monotheistic theocracies often face internal “separation of powers" that can pave the way for partial liberalization or re-secularization over time (e.g., the Iranian “Guardian Council" vs. the elected Parliament and President).
Ultimately, O'Leary's argument is moderately optimistic: because purely unitary theocracy is unstable, a partial institutional balance emerges, limiting the most repressive theocratic impulses. The entire system can evolve toward a more pragmatic or power-sharing arrangement.

### "The Economics of Theocracy"

Ferreo asks why clerics - who might fear having their religion co-opted or adulterated by worldly interests - would sometimes want to govern directly? Conversely, why might they sometimes prefer a secular arrangement in which they maintain spiritual authority but delegate secular rule to a monarchy or president? He proposes a principal-agent framework in which the “principal" is the Church (or religious leadership) whose goal is the long-run survival and expansion of the faith. The Church can either:
* Run the government itself (direct theocracy), or
* Contract out secular governance to a monarch or council, while retaining a veto on major policy or moral directives.
Each arrangement has trade-offs. A direct theocracy might ensure tighter regulation of believers' conduct and forestall perceived moral laxity, but it also makes clerics fully responsible for economic and administrative performance - exposing them to blame if the regime mismanages economic crises. By contrast, contracting out might protect the Church's spiritual prestige (the monarchy or president gets the blame for policy failures), but secular rulers could exploit or erode the Church's authority if left unchecked.
Ferrero's stylized diagrams show conditions under which each regime might be optimal for the Church, focusing on risk, monitoring costs, and the potential threat of heresy or secular attacks. If the external environment is perilous - for example, existential threats to the religion from competing faiths - the Church may prefer more direct rule to guard orthodoxy. But once threats diminish, handing power to a secular caretaker may be safer for clergy over the long run, limiting their own risk exposure. This analysis helps clarify why outright theocracies appear in relatively rare historical moments but, once they do, can last if conditions remain threatening.

### Serving God in a largely theocratic society: rivalry and cooperation between church and king

Pierre Salmon focuses on the interplay between religious and royal authorities in Western history, especially during the medieval and early modern periods when Catholicism was intimately bound with European governance. He relies on a model where “Church" and “King" each attempt to serve God's will (by punishing heresy, ensuring moral behavior, etc.), but they also represent distinct institutional centers with separate incentives.
Key points of Salmon's analysis:
* Interpretations of God's Law: Because religious texts are open to interpretation, the Church can claim a more “authentic" reading than the monarchy, justifying clerical oversight of the secular realm. Simultaneously, kings can assert that only they have the rightful means to enforce divine law in a stable manner.
* Rivalry vs. Cooperation: In some eras (e.g., under the Carolingians or the Holy Roman Empire), the Church and monarchy cooperated to enforce Christian norms, whereas in others they turned into bitter rivals (e.g., Investiture Controversy, the "Gelasian dualism" that distinguished spiritual and temporal swords).
* Different Forms of Theocratic Overlap: Salmon uses examples such as Islamic governance (modeled as near-perfect unity of religious and secular spheres, at least in theory) and “Gelasian" or “Carolingian" interpretations within Latin Christendom to illustrate how the Church's capability or activism can shift the equilibrium from rivalry to near-fusion or near-subservience of one side to the other.
* Role of Local Communities: Salmon reminds us that medieval polities were not centralized nation-states. If local communities disliked the Church's or the King's intrusions, they could resist or rebel; thus, both Church and monarchy competed for local loyalty, which partially limited each party's ability to impose uniform rule.

## Theocracy as a Dictatorship
### "Theocracy, natural spiritual monopoly, and dictatorship"

Wintrobe and Padovano argue explicitly that theocracy should be viewed as one subtype of dictatorship, with religious elites exercising top-down control akin to how dictators do in purely secular authoritarian regimes. Their starting point is Wintrobe's earlier classification of dictatorships, in which dictators employ a mix of loyalty (co-optation, propaganda) and repression (force, policing) to stay in power.
They claim a theocracy exhibits the features of a “natural spiritual monopoly." This means:
* The ruling clerics possess unique religious expertise and moral authority. By interpreting the sacred texts, they can reinforce claims of divine legitimacy - functionally parallel to how communist parties once claimed a monopoly on “scientific socialism."
* Theocratic elites "sell" spiritual goods - salvation, moral purity, and so forth. Repression is justified as necessary to protect the religious community from heresy, sin, or external contamination.
* The faithful (the "buyers" of spiritual goods) can be relatively easy or difficult to mobilize, depending on the emotional potency of religious symbols.
Using historical vignettes - Savonarola in Florence, John Calvin in Geneva, and Iran under Khomeini - the authors illustrate how an initial religious fervor can vault clerics into power. Once in control, they face the standard dictator's dilemma: how to prevent disloyalty or rebellion without alienating supporters by overusing repression. Over time, the “spectrum" of theocratic types can shift from:
* "Totalitarians" 'who try to remake society entirely via religious law (e.g., the early Taliban in Afghanistan).
* "Tinpots", who rely on minimal ideological fervor or moral policing but use enough force to maintain their rule (less common in openly theocratic states, but possible if religious fervor wanes).
* "Timocrats", who rely heavily on moral authority and the genuine loyalty of believers, using less brute force (some see Papal States or Calvin's Geneva in these terms).
Overall, Wintrobe and Padovano depict theocracy as a specialized authoritarian regime that centers on religious authority. They note that over the long run, purely coercive theocracies struggle unless they maintain a high level of genuine loyalty - often requiring a careful balancing act of moral leadership and skillful policymaking.

### "On the economics of the socialist theocracy of the Jesuits in Paraguay (1609–1767)"

Walter Nonneman provides one of the volume's most striking historical case studies, looking at the Jesuit missions established among the Guaraní in Paraguay (1609–1767). This arrangement is sometimes called a “theocracy," although it might equally be described as a centrally planned, missionary-led mini-society. The Jesuits obtained a royal license from the Spanish Crown to convert and “civilize" the indigenous peoples, who were often vulnerable to enslavement by colonial settlers. Over about 150 years, the Jesuit-run “reductions" governed tens of thousands of Guaraní in enclosed mission communities.
Nonneman's analysis centers on economic and organizational factors:
Collective production: The Jesuits organized agricultural and craft labor collectively, forbidding private property to the Guaraní. Surpluses were distributed to maintain mission infrastructure, support the local population's basic needs, and finance some evangelizing expansions.
Work incentives: Despite the paternalistic structure, evidence suggests that the Guaraní were not wholly coerced. Jesuits provided some measure of security (protection from slavers) and ensured that basic needs were met, while using religious appeals and local leadership networks to foster compliance. Moral suasion replaced a wages system.
Redistribution and welfare: The missions provided Christian education, healthcare, and catechism. Although paternalistic, these social provisions improved local health and literacy relative to non-mission areas.
Parallel to Modern “Command Economies": Nonneman draws analogies between the Jesuit missions and 20th-century experiments in socialist central planning, with top-down resource allocation, heavy moral or ideological oversight, and minimal market exchange. Yet, unlike Soviet regimes, the Jesuits rarely needed lethal force or mass repression to maintain compliance.
Collapse and Aftermath: This “theocracy" was dismantled when the Spanish Crown, fearing Jesuit power, expelled the order in 1767. Without their paternal management, mission communities disintegrated, a testament to how closely the “Jesuit project" had depended on the specific presence of missionary administrators and the spiritual worldview they imposed.
Nonneman's study illuminates how a theocratic project, though unusual, can deliver rudimentary public goods effectively in a small, isolated environment. It poses the question of whether paternalist theocracy might sometimes out-perform rapacious colonialism or feudal exploitation - at least in the short run.

### "Combining autocracy and majority voting: The canonical succession rules of the Latin church"

Luisa Giuriato explores the internal governance of the Roman Catholic Church - most famously, the election of Popes by the College of Cardinals. Although “the Church" is widely seen as a hierarchical and sometimes authoritarian institution, Giuriato highlights how the Papacy's rules of succession developed over centuries to balance autocratic tendencies with “collective input" from senior clergy.
Key themes:
* Electoral Politics: While the Pope is an absolute monarch within the Church's organizational structure, the method of his selection is a form of majority vote among cardinals. This has a centuries-old tradition, with repeated modifications to minimize external interference (e.g., from secular rulers).
* Stability and Autocracy: The Church had to reconcile its top-down approach to doctrine and discipline with the risk of schisms or power struggles over who becomes Pope. Over time, a quasi-constitutional framework evolved, spelled out in canon law.
* Strategic Institutional Design: Giuriato interprets these rules as strategic devices that ensure loyalty from the Church elite (the College of Cardinals) and simultaneously preserve the image of papal authority. The result is a stable yet adaptable autocracy - one that has survived many secular transformations over nearly two millennia.

## "Theocracy, trust, and morals"
### "Theocracy and the evolution of morals"

Donald Wittman discusses how theocracies attempt to legislate morality - yet moral and political judgments inevitably diverge in any large population. Since religion aims at universality (“all humans are equal before God," etc.), but politics inevitably involves winners and losers, Wittman argues that theocracies can become deeply polarizing.
Key considerations:
* Religious Absolutism: Strongly theocratic regimes claim near-absolute truths about salvation, virtue, heresy, sin, and so forth. This sense of certainty can foster strong in-group solidarity but also out-group hostility (i.e., those labeled heretics or apostates).
* Repression and Legitimacy: If theocratic leaders resort to severe punishments for moral infractions, they may lose moral legitimacy in the eyes of moderate believers who feel uneasy about cruelty or excessive policing. Conversely, if they show leniency, they risk accusations of tolerating moral decay from fundamentalist factions.
* Informal vs. Formal Enforcement: Wittman also highlights the difference between “communal moral pressure" and institutionalized religious courts or police. He hypothesizes that communal, informal enforcement of religious norms might reduce direct confrontation with the state, whereas formal religious police can provoke resentment. Over time, the tension between strict rules and people's actual behavior can destabilize the theocracy unless it adapts or loosens strictures.
Wittman's overarching conclusion is that theocracies must grapple with a contradiction between universal moral pretensions and the political reality of plural interests and moral perspectives. Many examples - from 16th-century Europe to modern Iran - illustrate that overreach in moral policing can discredit clerics, accelerate calls for reform, or generate intense internal conflicts.

### "Theocracy as a Screening Device"

Douglas Allen develops a novel explanation for why theocracies occasionally arise in pre-modern contexts. In eras or regions where general bureaucratic oversight is weak, it can be hard for a ruler (or for society at large) to monitor officials' honesty and competence. This is essentially an information and enforcement problem.
Allen proposes that a theocracy, built around a stringent religious framework, can act as a screening mechanism: only officials with high religious commitment and reliability can function effectively in the system. Overt religious tests (e.g., requiring clergy or devout believers to assume public roles) may filter out opportunists who are unwilling to abide by strict moral codes or who fail to demonstrate piety.
He draws parallels with “aristocratic screening" in feudal societies, in which personal honor codes limited who could hold positions of responsibility. In a theocracy, the vow of obedience, religious asceticism, or willingness to uphold a complex set of ritual requirements may signal a capacity for self-discipline and loyalty.
The net effect: theocratic leadership, though potentially harsh, might deliver a more honest government than a corrupt secular monarchy - especially in contexts without well-developed legal bureaucracy. Historically, Calvin's Geneva or the medieval Papal States may fit this logic. However, Allen also acknowledges the weaknesses: once the theocracy is established, it can become more about punishing dissent than ensuring high-quality administration, thereby undermining the original “screening" rationale.

## "Theocracy, economic development, and Islam"
### "Learning and Imitation by Theocracies"

In this chapter, Amihai Glazer tackles a crucial question: are theocracies inherently resistant to innovation and economic progress? One common accusation is that strongly religious regimes, bound by rigid dogma, fail to adopt productivity-enhancing technologies or new ideas - leading to relative stagnation, especially compared to secular or more open societies.
Glazer first notes that “learning by observation and imitation" is one of the primary vehicles of technological transfer and economic growth. If a theocracy insists on strict doctrinal conformity, it may discourage or forbid contact with outside communities and new ideas, hindering imitation.
On the other hand, he cites cases where religious communities (including strongly hierarchical ones) selectively adopt innovations that appear to serve their interests or do not violate core religious rules. For example:
* Historical Catholic orders, such as the Benedictines or Cistercians, that employed agricultural or architectural innovations so long as they saw them as conducive to monastic discipline.
* Modern Islamic finance, which creatively reinterprets Sharia-based bans on interest to allow profit-sharing instruments.
Glazer's conclusion is nuanced: theocracies do not universally reject innovation. Instead, they are more likely than purely secular regimes to filter and block innovations that conflict with official doctrine. Over time, however, successful theocracies tend to adapt selectively, adopting (or rebranding) outside practices that can be made “doctrinally compliant."

### "An essay on the Muslim gap: Religiosity and the political system"

Martin Paldam examines cross-national data to assess the so-called “Muslim gap" - the hypothesis that Muslim-majority countries have lagged behind Western countries in economic and political development, including the spread of democracy. He asks whether “theocratic" or quasi-theocratic governments in the Muslim world have systematically impeded modernization.
Key points include:
* Empirical Trends: Paldam compares clusters of countries by majority religion (Christian, Muslim, etc.) to see how they score on metrics such as GDP per capita, measures of democracy, educational attainment, or women's rights.
* Interpretations: He finds a consistent correlation between Muslim majority status and slower or incomplete democratization, fueling debate about whether Islam itself is the causal factor. Paldam cautions against simplistic conclusions, noting potential confounds like colonial history, oil dependence, or geography.
* Gender and Demographic Variables: One line of argument is that Islamic tradition can be more restrictive of women's economic and social participation in some regions, which in turn correlates with slower human capital development.
* Transition Experiences: In separate comparisons, Paldam examines how ex-communist countries fared after the Soviet collapse, concluding that many faced “transition shocks" but eventually liberalized. By contrast, Muslim-majority states, though starting from varied baselines, faced additional constraints from clerical or religious norms.
Overall, Paldam's analysis suggests that regimes with strong religious legitimations - if not fully theocratic - often create or preserve institutional barriers to certain forms of modern liberal democracy. The data, however, do not show that all Muslim countries follow the same path, highlighting the importance of local political and cultural variation.

### "The Political Economy of a Semi-industrialized Theocratic State: The Islamic Republic of Iran"

Frederic Pryor highlights that while Iran labels itself an “Islamic Republic," it is also:
* A semi-industrialized economy heavily dependent on oil revenues.
* A multinational society with major ethnic cleavages (Persian vs. Azeri vs. Kurd vs. others).
* A politically hybrid regime with elected bodies (President, Parliament) overshadowed by unelected clerical councils (Guardian Council, Supreme Leader).
Pryor addresses how well Iran fits various theories of theocracy:
* Multiple Power Centers: Although the constitution invests ultimate authority in a faqih (jurist), real policymaking involves negotiations among the Supreme Leader's circle, the Parliament, the President's administration, and influential bodies like the Revolutionary Guard. This arrangement resonates with O'Leary's earlier notion that monolithic theocracy is often undermined by an internal separation of powers.
* Economic Consequences: Iran's reliance on oil revenue means the clerical elite can finance broad patronage networks. This can offset public anger at times of economic mismanagement, but it also fosters corruption and inefficiency. Conservative factions within the clergy may be more willing to isolate Iran economically rather than embrace globalization that might weaken their authority.
* Social Policies and Liberalization: Post-revolution Iran has oscillated between moral conservatism (strict dress codes, stifling of dissent, moral policing) and periods of partial reform (some relaxation of cultural restrictions under reformist presidents like Khatami). Pryor highlights that changing demographics - especially the large, educated, and underemployed youth population - make the status quo volatile.
* Comparison to Other Theocracies: Pryor underscores that while Iran is in many respects “theocratic" (clerics wield real power, Islamic law is a constitutional reference), it retains significant modern institutions. It is not a uniform “dictatorship of mullahs." Instead, it is a distinct hybrid: a theocratic framework layered over populist and technocratic elements, plus an unpredictable factional politics among conservative, moderate, and reformist clerics.