The economics of religion

February 5, 2012

It may seem perverse to look for God in supply-and-demand curves, endogenous growth theory and circular-flow diagrams, but that isn’t stopping economists from bringing their own particular way of thinking to religion. I can hear your objections already – they haven’t exactly covered themselves in glory in our current financial meltdown. But I feel that the dismal science can offer some interesting insights. There are now economists like Larry Iaconne who have specialised in investigating the economics of religion. These economists start from a couple of assumptions. They treat religion as a market in which the religions are like firms.  The producers of religion, be they churches mosques, temples or synagogues, have to compete for by seeking followers. Their other premise is that believers are rational actors – people choose which religion they want to belong to at some level.

One of the lessons taught by economics is the beneficial effects of competition. And in the United States there has been a wonderful experiment in a laissez-faire approach to religion.  It is the ultimate religious marketplace in which faiths compete for followers. The United States is of course an anomaly. In general economic development tends to lead to less religiosity. At least that’s the theory.

Economists also like to examine the role of religion in fostering or hindering economic growth. The seminal work about religion and its role in economic growth is Max Weber’s The Protestant Ethic and the Spirit of Capitalism which first came out in 1905. Weber was definitely on to something. The Calvinist mentality about making money was very different to official Catholic doctrine. The Franciscans in particular seemed to abhor money:

A legend from the Franciscan tradition speaks of a person who, when he entered the church of Saint Mary of the Portiuncula to pray, left some money near the cross as an offering. After he had left, one of the Franciscan brothers simply picked it up and threw it on the windowsill. St. Francis found out what the brother had done. The brother seeing that he was found out, hurried to ask .pardon. He cast himself on the ground and asked to be beaten. St Francis rebuked him most severely and commanded him to lift the money with his mouth and place it with his mouth on the ass’ dung that lay outside the walls of the church.

Having said that, the causes of economic growth are complex, and should not be reduced to one factor. Many of the institutions of capitalism were created in renaissance Italy, a Catholic country. Within Europe, Protestant areas did not necessarily grow faster than other areas.Scotland, a centre of Calvinism did less well than England, which had a more moderate brand of Protestantism.

Now the debate is about Islam. According to Wikipedia in 2008, at least $500 billion in assets around the world were managed in accordance with Sharia law, with the sector growing at more than 10% per year. Islamic finance seeks to promote social justice by banning what they call exploitative practices. This results in a set of prohibitions on:

  • charging interest
  • derivatives and options,
  • investments in firms that make pornography or pork

There are some elements of Islam that do not seem conducive to economic growth. The discrimination against women has important economic costs. These were described by David Landes in his book The Wealth and Poverty of Nations:

“To deny women is to deprive a country of labour and talent, but even worse – to undermine the drive to achievement of boys and men. One cannot rear young people in such ways that half of them think themselves superior by biology, without dulling ambition and devaluing accomplishment. …But it cannot compete with other societies that ask performance from the pool of talent.”

And there is the famous prohibition on charging interest. However it should be pointed out that there are ways round it. The Islamic economic record is mixed. There has been lots of economic populism.Iranhas been heavily statist with a large public sector. I think these policies are bad in themselves, but I wouldn’t want to put all the blame on religion.Turkey,Malaysia and Indonesia seem to have done much better.

Economists analyse the sacrifices that religions place on their adherents in terms of dress code, eating habits etc. Religious groups face a free-rider problem. They want followers who are committed to the cause. What may seem extreme to an outsider is exactly what promotes commitment. The Hare Krishna movement demands that its followers shave their heads, wear those rather garish orange robes and chant in the streets. This will weed out those who are not serious. What’s more it is easy to check compliance. The strict rules that church members have to follow actually help and strengthen the ties within the group. This conclusion is a bit depressing as it suggests that religions will tend to extremism. Doubt and uncertainty don’t seem to do well in the religious marketplace.

My final topic is sainthood. This has been the subject of an economic study by Robert J. Barro and Rachel M. McCleary of Harvard. It’s called Saints Marching In, 1590-2009. The Catholic Church has been making saints for centuries. I should make a clarification here. The church would argue that they don’t “make” saints and neither does the pope. The Church, through the ministry of the Bishop of Rome, recognizes the saints that God has made. Anyway the process typically involves two stages:  beatification and canonization. The academics have produced an extensive data set of the “beatifieds” and saints chosen since 1590. Their conclusion is that the last two popes, John Paul II and Benedict XVI are outliers, creating blessed persons at a much higher rate than that of their predecessors. Barro and McCleary see it as a response to competition from Protestantism. And this competition has escalated in recent years. They claim Pope John Paul II beatified as many individuals as all of his predecessors combined.

In 1984 the process was speeded up. Under the old system you had to perform two miracles in order to be beatified. And a further two miracles had to be performed in order to qualify for sainthood. These miracles had to be posthumous. In addition you had to wait 50 years before you could nominate somebody to even be considered as venerable, the first stage in this arduous process. That’s been shortened; it’s now only one miracle for each stage and you have to wait just five years after the death of the individual before you can promote them to be venerable and then beatified. Benedict has continued the streamlining process. This may be due to a huge backlog of “beatifieds” created by his predecessor.

This has been my brief survey of the economics of religion. I realise that the economic study of religion doesn’t provide any insights into the transcendent aspects of religion, but I feel it can shed light on the behavioural aspects.

Glass half full

February 5, 2012

I am currently reading Steven Pinker’s The Better Angels of Our Nature. I thought I would share this extract with you:

I graduated from university in 1976. Like most college alumni, I have no memory of the commencement speech that sent me into the world of adulthood. This gives me license to invent one today. Imagine the following forecast from an expert on the state of the world in the mid-1970s.

Mr. Principal, members of the faculty, family, friends, and Class of 1976. Now is a time of great challenges. But it is also a time of great opportunities. As you embark on your lives as educated men and women, I call on you to give something back to your community, to work for a brighter future, and to try to make the world a better place.

Now that we have that out of the way, I have something more interesting to say to you. I want to share my vision of what the world will be like at the time of your thirty-fifth reunion. The calendar will have rolled over into a new millennium, bringing you a world that is beyond your imagination. I am not referring to the advance of technology, though it will have effects you can barely conceive. I am referring to the advance of peace and human security, which you will find even harder to conceive.

To be sure, the world of 2011 will still be a dangerous place. During the next thirty-five years there will be wars, as there are today, and there will be genocides, as there are today, some of them in places no one would have predicted. Nuclear weapons will still be a threat. Some of the violent regions of the world will continue to be violent. But superimposed on these constants will be unfathomable changes.

First and foremost, the nightmare that has darkened your lives since your early memories of cowering in fallout shelters, a nuclear doomsday in a third world war, will come to an end. In a decade the Soviet Union will declare peace with the West, and the Cold War will be over without a shot being fired.Chinawill also fall off the radar as a military threat; indeed, it will become our major trading partner. During the next thirty-five years no nuclear weapon will be used against an enemy. In fact, there will be no wars between major nations at all. The peace in Western Europe will continue indefinitely, and within five years the incessant warring in East Asia will give way to a long peace there as well.

There is more good news. East Germany will open its border, and joyful students will sledgehammer the Berlin Wall to smithereens. The Iron Curtain will vanish, and the nations of Central and Eastern Europe will become liberal democracies free of Soviet domination. The Soviet Union will not only abandon totalitarian communism but will voluntarily go out of existence. The republics that Russia has occupied for decades and centuries will become independent states, many of them democratic. In most of the countries this will happen with not a drop of blood being spilled.

Fascism too will vanish from Europe, then from much of the rest of the world.Portugal,Spain, and Greece will become liberal democracies. So will Taiwan,South Korea, and most of South and Central America. The generalissimos, the colonels, the juntas, the banana republics, and the annual military coups will depart the stage in most of the developed world.

The Middle East also has surprises in store. You have just lived through the fifth war between Israel and Arab states in twenty-five years. These wars have killed fifty thousand people and recently threatened to drag the superpowers into a nuclear confrontation. But within three years the president of Egypt will hug the prime minister of Israel in the Knesset, and they will sign a peace treaty that will last into the indefinite future.Jordan too will make a lasting peace with Israel.Syria will engage in sporadic peace talks with Israel, and the two countries will not go to war.

In South Africa, the apartheid regime will be dismantled, and the white minority will cede power to the black majority. This will happen with no civil war, no bloodbath, no violent recriminations against the former oppressors.

Many of these developments will be the results of long and courageous struggles. But some of them will just happen, catching everyone by surprise. Perhaps some of you will try to figure out how it all happened. I congratulate you on your accomplishments and wish you success and satisfaction in the years ahead.

How would the audience have reacted to this outburst of optimism? Those who were listening would have broken out in snickers and shared a suspicion that the speaker was still tripping on the brown acid from Woodstock. Yet in every case the optimist would have been right.