Religion and economic growth: was Weber right?

Evidence of falling wages in Catholic cities and rising wages in Protestant cities between 1500 and 1750, during the spread of literacy in the vernacu lar, is inconsistent with most theoretical models of economic growth. In Th e Protestant Ethic, Weber suggested an alternative explanation based on cul ture. Here, a theoretical model confirms that a small change in the subject ive cost of cooperating with strangers can generate a profound transformati on in trading networks. In explaining urban growth in early-modern Europe, specifications compatible with human-capital versions of the neoclassical m odel and endogenous-growth theory are rejected in favor of a "small-world" formulation based on the Weber thesis.