Religion and Economics

The modern study of religion and economics begins with Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Smith applied his economic analysis to several aspects of religion that researchers since developed with quantitative research. Smith’s fundamental contribution to the study of religion was that religious beliefs and activities are rational choices. As in commercial activity, people respond to religious costs and benefits in a predictable, observable manner. People choose a religion and the degree to which they participate and believe (if at all).

In the 1970s, the rational choice approach to religion, or the economics of religion, reinvigorated social science investigation of religion (Young 1997). The first formal model of religious participation was developed by Corry Azzi and Ronald Ehrenberg (1975). Laurence Iannaccone’s (1998) literature survey of economics attributes to Azzi and Ehrenberg the framework that served as the basis for future research on religion. Using Gallup survey data, Azzi and Ehrenberg found that the opportunity cost of time influences religious behavior. Within a given household, women whose wages are typically lower will spend more time in religious activity. Likewise, individuals whose real wages increase over time can be expected to participate less in religious activities. Education, just as wages, plays an important role in participation in religious activities. Edward Glaeser and Bruce Sacerdote found that the level of education of believers influences their choice of religion. The payoff for higher educated people is social capital in the form of networking rather than stronger religious beliefs. Benito Arrunada found that more education increases the costs of participating in the institution of confession. Individuals with higher education tend to engage in moral ‘‘self policing,’’ relying less on priests for such enforcement.

The family and its dynamics, a popular subject of anthropology, sociology, and psychology, are currently undergoing reinterpretation by rational choice theorists. Evelyn Lehrer (1999), using data from the National Survey of Families and Households, looks at how religious upbringing influences the number of years of schooling a person attains. She also explores how a woman’s religious preference influences her choice of marriage or cohabitation. Maristella Botticini and Aloysius Siow (2003) reexamine the dowry institution and seek to explain parental choices in using different forms of intergenerational transfers.

Religious extremism, both in non violent and violent forms, is explained according to rational choice theory for similar reasons. Ian naccone’s cost benefit analysis of strict religions led to the development of a theoretical model of the evolution of organized religion. Taking Ernst Troeltsch’s (1931) sect–denomination distinction, Iannaccone applied a cost induced commitment to organized religion. He argued that denominations and extremist sects can be construed as distinct modes or ‘‘clubs’’ of religious organization based on consumer (believer) preferences. Using the club model of religion, Iannaccone sought to explain the success of strict religions (cults, sects). Using a cost benefit analysis, Iannaccone argued that people choose to undergo stigma and self sacrifice and engage in unconventional behavior to eliminate free riders, thereby increasing the commitment of believers and benefits to members. Iannaccone’s economic analysis provided a rational explanation for behavior that other professions categorized as brainwashing or a form of pathological behavior. Eli Berman (2000, 2003) applied the club model to Israeli Ultra Orthodox Jews, as well as to Hamas, the Taliban, and the Jewish underground militias. Berman found in the case of the Israeli Ultra Orthodox community that the benefits of remaining in the group outweighed the costs of sacrifice and stigma. For the Taliban, the sacrifices demanded by the group, seemingly gratuitous acts of violence, destroyed outside options and, thereby, increased group loyalty.

Scholars who investigate the demand side of religion tend to favor the view that religious preferences change over time for both the individual and social groups. Sociologists Roger Finke and Rodney Stark (1992) maintain that individual preferences remain constant. Finke and Stark contend that the supply of religious goods changes over time, not the demand for them. Analyzing membership data beginning in the American colonial period, Finke and Stark argue that religions begin small, supplying the religious goods that consumers want. As the religion grows and more members join, the religion accommodates the variety of membership demands by becoming less strict until it loses its religious relevance and declines.

However, religious strictness can reach an optimal level, after which it becomes detrimental to a religion. Extreme religions deter people from joining. A common example is the Shaker movement that practiced celibacy. Because of its inability to attract new members, it became obsolete. Religious strictness is not the only reason a religion declines. Adam Smith argued that state subsidies to organized religion create a dependency upon a regular and enforceable income. State subsidized religion tends to change in two ways. It devolves, losing those aspects of religious devotion that are relevant to people practicing their faith and the authority of its doctrine. Second, it tends to become a religion for elites, and to the degree that the clergy itself becomes an elite group in society, of elites. By contrast, those religious groups that depend solely on voluntary contributions must continually address the religious needs of their congregants to stay in existence.

Smith extended his analysis to the evolution of organized religion. Observing the nonconformist religious groups – ‘‘upstarts’’ – Smith noted that the spiritual, imaginative, and emotional bases of the new religious movements successfully challenge state sanctioned religion. As a reaction to popular criticism of its elitist ways, state religion resorts to coercion, repression, and even violence to maintain its financial, political, and social arrangement in society.

Religion, Smith concluded, is more vibrant where there is a disassociation between church and state. The absence of state religion allows for competition, thereby creating an environment for a plurality of religious faiths in society (Smith 1791 [1776]). By showing no preference for one religion over others, but rather permitting any and all religions to flourish, the state encourages an open market in which religious groups engage in rational discussion.

This competitive but non coercive environment supports an atmosphere of ‘‘good temper and moderation.’’ Where there is a state mono poly on religion or an oligopoly among religions, one will find zealousness and the imposition of ideas on the public. Where there is an open market for religion and freedom of speech, one will find moderation and reason.

Correcting Adam Smith’s argument, it has been contended that the relaxing of state regulation on religion unleashes competitive forces in the economic marketplace but not necessarily competition among religious faiths ( Jeremy 1988). The focus of this variant argument lies with the legal recognition in England during the Industrial Revolution of nonconformist religious groups – the upstarts. These groups challenged the dominant religion – in some cases state religion – with different views of the linkages between salvation and economic activity. Although these nonconformist religious groups did not necessarily increase in membership to challenge the dominant position of the state religion or mainstream faiths, they contributed to and altered economic activity. Thus, state inclusion of nonconformist religious groups can have a positive effect on the economic productivity of society without seriously challenging state religion. This variant view is compatible with what Smith said the effect of religious pluralism would be: the continual subdividing of sects into numerous ones and small units so that a single religion does not dominate (Smith 1791 [1776]).

Economic historians have applied economic analysis to religious institutions. For example, Robert Ekelund, Robert Hebert, and Robert Tollison treat a religious organization as an economic firm to explain the rent seeking practices of the medieval church. More recently, they assess the competitive entry of Protestants into the medieval religion market (Ekelund et al. 2002). They analyze the Roman Catholic Church’s response in the form of the Catholic Reformation. Timur Kuran (2004) investigates the effects of Islamic legal institutions on economic growth and the distribution of goods. Kuran finds the institutions that generated evolutionary bottlenecks include the Islamic law of inheritance, which inhibited capital accumulation; the absence in Islamic law of the concept of a corporation and the consequent weaknesses of civil society; and the waqf – the religious endowment of property for specific, usually philanthropic, purposes to the exclusion of all other uses – which locked vast resources into unproductive organizations for the delivery of social services. All of these obstacles to economic development were largely overcome through radical reforms initiated in the nineteenth century. Nevertheless, traditional Islamic law remains an impediment to economic growth.

A recent application of economic analysis to religion and religious beliefs is the cross country quantitative analysis of Robert Barro and Rachel McCleary (2003). Using international survey data on religiosity for a broad panel of countries, they investigate the effects of church attendance and religious beliefs on economic growth. They find that religious beliefs are more important for economic activity than religious participation. Rene Stulz and Rohan Williamson, using data on financial markets of various countries, find that a country’s principal religious preference is relevant for predicting creditor rights. The improvement of data collected on various religions as well as aspects of religious preferences and institutions will continue to spur research on religion, particularly from an international perspective. The more important data sets used are described below.

The World Values Survey (WVS), directed by Ronald Inglehart at the Inter University Consortium for Political and Social Research (ICPSR), offers four waves of surveys (1981–4; 1990–3; 1995–7; 1999–2001), now covering over 50 countries. Each survey includes a series of questions on religious beliefs, activities, commitments, and values, as well as a variety of economic, political, and social variables. For discussions and uses of these data, see Inglehart and Baker (2000).

Another useful data set is the International Social Survey Program (ISSP), which is a cross national collaboration of surveys (including the General Social Survey or GSS for the United States). The 1991 and 1998 waves are dedicated to religion, the latter for 30 countries. As with the WVS, the ISSP includes an array of other variables. For discussions and uses of the ISSP data, see International Social Survey Program 2002 (available at http://www.issp.org/).

Gallup International has collected cross national survey data on religion for many years. The Gallup Millennium Survey has useful indicators on church attendance and religious beliefs for over 50 countries in 1999; see Gallup International Millennium Survey 2002. Currently, these data are not easily accessible to researchers, although negotiations with Gallup International are underway.

Jonathan Fox and Shmuel Sandler (2004) are assembling a religion and state database (RAS) in which they classify the relation between religion and state into four broad groupings: separation of religion and state, discrimination against minority religions, restrictions on majority religions, and religious legislation. They examine religion and state separation between 1990 and 2002 in 152 states with populations of over 1 million.

The American Religion Data Archive (ARDA), under the leadership of Roger Finke at Penn State University, will prove beneficial. The ARDA (available at http://www.thearda.com/) is widely used as a source of data on religion for the United States and Canada. It provides additional software enhancements for selected ecological files. For the most heavily used files, such as Church and Church Membership Surveys, the site offers ‘‘Mapping’’ and ‘‘Report’’ options. Here state or national maps on church membership totals or rates can be constructed for any denomination in the data file. Users can also get a profile of religious denominations for any state, county, or metropolitan area selected.

References:

1. Azzi, & Ehrenberg, R. (1975) Household Allocation of Time and Church Attendance. Journal of Political Economy 83, 1 (February): 27 56.
2. Barro, & McCleary, R. (2003) Religion and Economic Growth. American Sociological Review 68 (October): 760 81.
3. Berman, (2000) Sect, Subsidy, and Sacrifice: An Economist’s View of Ultra-Orthodox Jews. Quarterly Journal of Economics 115 (August):905 53.
4. Berman, (2003) Hamas, Taliban, and the Jewish Underground: An Economist’s View of Radical Religious Militias. National Bureau of Economic Research Paper, September.
5. Botticini, & Siow, A. (2003) Why Dowries? American Economic Review 93, 4 (September):1385 98.
6. Ekelund, , Hebert, R., & Tollison, R. (2002) An Economic Analysis of the Protestant Reformation. Journal of Political Economy 110(3): 646 71.
7. Finke, & Stark, R. (1992) The Churching of America, 1776 1990: Winners and Losers in Our Religious Economy. Rutgers University Press, New Brunswick, NJ.
8. Fox, & Sandler, S. (2004) World Separation of Religion and State in the Twenty-First Century. Paper presented at the International Studies Association Conference in Montreal, Canada, March.
9. Iannaccone, (1998) Introduction to the Economics of Religion. Journal of Economic Literature 36 (September): 1465 96.
10. Inglehart, & Baker, W. (2000) Modernization, Cultural Change, and the Persistence of Traditional Values. American Sociological Review 65:19 51.
11. Jeremy, (Ed.) (1988) Business and Religion in Britain. Gower, Aldershot.
12. Kuran, (2001) The Provision of Public Goods under Islamic Law: Origins, Impact, and Limitations of the Waqf System. Law and Society Review 35, 4 (December): 841 97.
13. Kuran, (2004) The Economic Ascent of the Middle East’s Religious Minorities: The Role of Islamic Legal Pluralism. Journal of Legal Studies 33 ( June): 475 515.
14. Lehrer, (1999) Religion as a Determinant of Educational Attainment: An Economic Perspective. Social Science Research 28: 358 79.
15. Smith, (1791 [1776]) An Inquiry into the Nature and Causes of the Wealth of Nations, 6th edn., Strahan, London, Book V, Article III.
16. Troeltsch, (1931) The Social Teaching of the Christian Churches, Vols. 1 and 2. Foreword by J. L. Adams. Westminster/John Knox Press, Louisville, KY.
17. Young, A. (Ed.) (1997) Rational Choice Theory and Religion: Summary and Assessment. Routledge, New York.

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