Faith Through Competition

Exploring the Religious Marketplace

Economists have long been interested in religion. In fact, the earliest economic analysis dates back to handbooks written by sixteenth-century priests in Spain, to answer questions about business ethics from their merchant friends. Correspondence between Adam Smith and his friend, David Hume, reveals that Smith favored more of a separation of church and state while Hume favored a state religion (he thought this would “bribe their [the clergy’s] indolence and render it superfluous”). More recently, however, a formal literature known as the economics of religion has begun to study religion more systematically from the economic perspective.

There are two main approaches economists can take to religion: 1) thinking about how religion shapes economic outcomes, and 2) thinking about how economic outcomes shape religion. As an example of the former, Barro and McCleary have found that economic growth is positively associated with religious beliefs (e.g., in heaven and hell) while being negatively associated with religious behavior (e.g., time spent in church). As an example of the latter, Barro and McCleary have also found that the Catholic Church canonizes more saints when competition from Protestant denominations is stronger.

What brings these approaches together is the fact that the economic model makes sense of social phenomena through the lens of rational choice. By this we mean that only individuals can choose (i.e., a government does not “choose” to support or suppress a particular religion, individuals do), and that individual choice is intelligible. For example, using this framework, I can observe someone donating a large share of their income to their local church and draw several conclusions: 1) this person must value donating this money more than using it for other purposes, 2) if this person’s income rises, they will donate more (holding other things constant), and 3) if the cost of their donation rises (such as being taxed on the donation), they will donate less. Contrary to popular misperception, the economic approach does not assume individuals act selfishly, but that human action is in pursuit of our own self-interested goals (which may be selfish or benevolent). This framework for thinking about human action – which I would argue is shared with Aquinas when he writes that “whatever man desires, he desires it under the aspect of good” – generates powerful insights when thinking about religion.

One of the prominent debates in the literature on the economics of religion concerns the secularization hypothesis, which argues that economic development causes individuals to become less religious. In some ways the economic approach to religion would seem to support this view, since economic growth increases the value of my time spent outside of religious activities, such as earning a market wage or enjoying high-quality leisure activities, and thus we would predict that time spent in religious activities would fall. But while time spent in religious activities may fall with rising incomes, religiosity may still be strong, especially when we focus on religious beliefs. Additionally, the secularization hypothesis doesn’t do a good job at explaining differences in religious behavior across high-income countries, such as why the United States is so religious relative to European countries.

The characteristics of a country’s “market for religion” – such as whether the state subsidizes a particular church – also seems to be important. From the economic perspective, the religious freedom in the United States creates space for a pluralistic, competitive market for religion where “sellers” must persuade “consumers” that their religious good is the highest quality (e.g., will attain them everlasting happiness). Here, tax dollars don’t flow directly to one specific religious organization from the government (such as the church tax in Germany), but rather, the income of the religious organizations is more closely tied to how successfully they can attract members.

In general, the economic approach would predict that the increased competition from pluralism would increase the quality of religious services overall. This could involve better preaching, more community involvement, and greater differentiation of religious goods. However, the type of competition matters. For instance, scholars have found that while pluralism (competition from other religious organizations) increases religious participation, competition from secular sources can cause religious attendance and donations to fall. 

Let’s consider a particular example from the most competitive religious market in the world, the United States, and the oldest religious institution in the world, the Catholic Church. Throughout the history of the United States, the Catholic Church has often competed with various Protestant denominations as well as secular organizations (such as when children’s sports games are held on Sunday mornings). This meant that the Church faced incentives to be more responsive to the specific demands of “consumers,” such as for Bible studies or flexible church times. It wasn’t until competition from the Society for Saint Pius X emerged, which offered more traditional liturgies and stricter interpretations of doctrines, that the Catholic Church responded by offering the Traditional Latin Mass across many dioceses and more rigorous catechesis. The lesson here is that the type of competition matters – “iron sharpens iron,” as the verse goes.

To conclude, the economics of religion is an exciting and growing field of research. It can help us make better sense of the past as well as the future of religion. It can also help people of faith better appreciate the human side of divine institutions.

Clara E. Piano is Visiting Assistant Professor of Economics at the University of Mississippi. Her primary research areas are family economics, law and economics, and public choice. Her latest publication is “The Fertility Gap and Economic Freedom” (with Lyman R. Stone), forthcoming in Contemporary Economic Policy, and she has also published in Public Choice, The Journal of Law and Economics, The Review of Austrian Economics, Cosmos + Taxis, and more. Dr. Piano is the recipient of the Acton Institute’s 2024 Novak Award, which honors early career scholars working to advance understanding of the relationship between religion, economic freedom, and the free and virtuous society.