Very simply, the economy didn’t work that way back then.
It’s been a very long time since I studied this stuff, I hope I haven’t gotten too much wrong. There was huge variability across Europe and over time, most of what I’m saying here applies to Western Europe in the 1000’s to 1300’s.
Slavery existed, but it very little resemblance to the plantation style slavery that we’re all familiar with today. The idea of a class of people who are completely without rights from birth to death and whose children inherit their status is a modern invention, created along with plantation agriculture as oceangoing Europeans started conquering new lands in the 1500’s. Before that, criminals and debtors and prisoners of war could have their freedom taken away and be forced to do work for the state without compensation. And peasants under the feudal system sometimes strongly resembled slaves – they were legally required to live and work on the land of the noble to whom they owed fealty, and did not have the right to move to another estate if they hated their landlord. But they still had legal rights, and a landlord that violated the rights of his vassals could get in trouble.
Most of the economy was barter based. Vassals gave part of their harvest to their landlord in lieu of rent, and/or did work on their landlord’s fields as well as their own. In exchange, they expected protection as well as a place to live and farm. The landlords (nobles=landlords at this time) used that rent to buy horses and armour. Each little noble owed so many equipped knights and so many solders to a bigger noble, whose job was to collect together and use those military assets to protect the interests of all the nobles who contributed. Which basically meant keeping banditry in check, defending against enemies, and trying to secure additional wealth (wealth = land) by conquering one’s neighbors. A chain of nobles owing military assets to someone higher up in exchange for protection and stability (making the target of conquest be somebody else further away) ended with the king.
Towns and cities, on the other hand, had special status, usually based on charters given out by the crown. Their inhabitants were not part of the feudal system, and very proud that they did not owe fealty to a noble lord like the peasants of the countryside. Towns were centers of commerce and industry, with an actual money based economy. Towns had walls and militia, and could defend themselves against bandits, so they didn’t need the protection of a lord. They gave fealty and (begrudgingly as little as possible) taxes to the king, in exchange for their continued independence and freedom.
Taxation was incredibly inefficient and strongly resisted. The state was always poor, had little power, and what power and money the state could muster were inevitably squandered on wars. Usury was illegal, so the concentration of wealth via banking and finance mostly didn’t happen (especially when Jews, who dominated banking before Renaissance Italians figured out ways to charge interest without calling it interest, were always subject to being turned out of their homes and their wealth stolen).
The secular economic system applied just as much to the church – aside from the Papal states, over which the Pope was feudal landlord, the church’s wealth lay in tithes and in land belonging to monasteries. Large monasteries acted very much like feudal landlords, renting land out to vassals and so on. Except instead of diverting surplus production into military adventures, they used it for the glory of God.
Today it’s possible to be an atheist and think that religion is a load of bunk, but before the modern era (ie, the Enlightenment), humans didn’t have a philosophical or empirical basis to say that gods or a god did not exist. And the only religion available to non-Jews living in Medieval Europe said that if you screwed up this life, you would suffer for all eternity in the afterlife. The self-help ethos of modern Protestant based religion, in which your salvation is under your control, didn’t exist then either. If you sinned, you couldn’t just apologize to god in your prayers. Forgiveness was only available through the church, via confession and penance. And living a sinless life was pretty much impossible – lust was sinful, gluttony was sinful, sloth was sinful, all these normal human impulses were potential gateways to hell. Everyone, from the poorest labourer to the wealthiest guildmaster, was worried about the state of their souls. Making sure you pleased God was high on everyone’s agenda.
Another thing that didn’t exist yet: the convenient reinterpretations of scripture that tell modern Christians that when Jesus says it’s impossible for a rich man to get into heaven, he doesn’t really mean that it’s wrong to have money. Instead, merchants and guildmasters who made money and accumulated wealth were in a very worrisome situation. They had more than the poor peasants and labourers. That was a mortal sin. Short of giving all their wealth away and living the rest of their lives in poverty, how could they avoid Hell? The answer, of course, was to do something that would glorify God. On the one hand, this would prove their piety to others in this life who might otherwise think that their wealth marked them as a sinner. On the other hand, the church handed out indulgences in return for such actions, so it would ensure that their sins would be forgiven in the next life.
Building a cathedral was basically a way for an entire community to get a “get out of hell free” card. The well-to-do could donate money and artwork towards the construction. Ordinary people could do the actual building. Everyone in the community could help to proudly proclaim to all the world that they were important and prosperous enough to be able to build this magnificent building. And everyone in the community could do something to please God, something that granted a church approved indulgence. And it was a way for the local diocese (which paid for materials and paid salaries to the construction workers) to use its tithe income locally, instead of sending the money up the chain of command to Rome.
(eta:) In sum, it’s not like there was any non-military institution in that era other than the Church into which you could pour surplus resources. So basically, building a cathedral was actually the best way for a town to “actually improve their own circumstances,” in this life and in the next.
