Extremism and the Economics of Religion*
This work was supported in part by grants from the Metanexus Foundation and John Templeton Foundation.
Abstract
By modeling religious activity as a product of rational choice and market forces, the economics of religion offers new insights concerning religious trends, the consequences of religious freedom, doctrinal innovation, and the enduring appeal of extremism. The work both complements and challenges that of sociologists, historians, and other religious scholars. Club-theoretic models of sectarianism highlight the potential benefits of strictness and sacrifice, not only in religions, but also in communes, gangs, military units, social movements, political organizations, and even academic subfields.
I Introduction
Adam Smith laid the foundations for the economic study of religion in 1776. In a single extraordinary chapter of The Wealth of Nations, Smith (1965 [1776], pp. 740–766), argued that self-interest motivates clergy just as it does secular producers; that market forces constrain churches just as they constrain secular firms; and that the benefits of competition, the burdens of monopoly, and the hazards of government regulation are as real for religion as for any other sector of the economy.
For two centuries, however, Smith’s contributions were all but ignored. This neglect hurt the social sciences twice over. Economists lost a provocative ‘non-market’ application that deepens their field and broadens its reach. And religious scholars lost a paradigm that complements the alternative perspectives of sociology, psychology, history, theology and anthropology.
Economists finally returned to the study of religion in the 1970s and 1980s. Inspired by Becker’s (1976) path-breaking work, their first papers modeled church attendance and contributions as a special form of household production – one that involved tradeoffs between time and money inputs, secular versus religious outputs and present versus afterlife utility. Extensions to this model soon added preference formation and human capital, thereby broadening its application to childhood socialization, age effects, conversion, intermarriage and family interactions. Around the same time, several sociologists of religion began mining old data sources with new theories of rational exchange and market competition.
Since then socio-economic studies of religion have reshaped our understanding of pluralism, secularization, denominational vitality, conversion, sectarianism, religious extremism, doctrinal innovation, church-state relations, religious trends and religious history. A field that scarcely existed prior to 1990 can now claim hundreds of papers, scores of contributors, centres at major universities, an international association and annual conferences, major grant initiatives and an official American Economic Association (AEA) subject code (for details, see Iannaccone, 1998).
II Economics of Religion versus Religious Economics
The economics of religion remains a distinctly ‘positive’ enterprise. It makes no attempt to advance or undermine faith, and its key contributors include Christians, Jews, Moslems, Hindus, atheists and agnostics. Nor does it seek to evaluate economic action in light of sacred precepts. This latter enterprise is better termed religious economics. Religious economics includes Islamic economics, Catholic social doctrine, rabbinic writings on commerce, Biblical studies of wealth and poverty, and much more. The subject is as old as religion itself, for one can preach little of consequence while ignoring property, production and exchange. But its goals and methods have little in common with mainstream economics (for more on religious economics, see Oslington, 2004.)
Economics of religion employs the same sort of assumptions that characterise other economic forays into ‘non-market’ behaviour – including the economics of marriage, education, the family, crime and discrimination. As in these other areas, the economic approach views people as rational religious consumers. With an eye toward costs and benefits, they choose how extensively to participate in religion and what religion (if any) they will embrace. Similar assumptions apply to religion’s supply side. Religious producers maximise members, net resources, or some other source of institutional welfare. The actions of clergy, congregations and denominations are thus modeled as rational responses to constraints, opportunities and technologies.
Taken together, religious consumers and religious producers form a religious market. As in other markets, the consumers’ freedom to choose constrains the producers of religion. A seller cannot long survive without the steady support of buyers. In a highly competitive environment, religions have little choice but to abandon inefficient activities and unpopular products in favour of more attractive and profitable alternatives.
III Religious Markets
Open competition benefits religious markets much as it does secular markets, pushing churches and clergy to efficiently produce a wide range of alternative faiths well adapted to the needs of their members. Government intervention is, if anything, more pernicious in the realm of religion than in the realm of secular commerce. As Smith (1965 [1776], pp. 740–742) emphasised, established churches suffer from the same incentive problems that plague other state-sponsored monopolies. Their tax-based revenues will fund pomp and splendour, but their bloated bureaucracies and elitist orientation will do little to sustain faith and fervour across the general population.
The logic of competition thus suggests a distinctly economic answer to the puzzle of American piety. Americans may be more religious than their European counterparts because the former inhabit a religious market shaped by two centuries of free enterprise. The American religious landscape is the product of perpetual competition, innovation and pluralism – fostered by liberty, immigration and church-state separation, and further enhanced by the relatively small size and scope of America’s public sector, which rewards the private provision of ‘club’ goods and limits government ‘crowd-out’ (Iannaccone, 1991; Iannaccone et al., 1997).
History provides further evidence of the weakness of state-sponsored churches. It is becoming clear that Europe’s so-called ‘age of faith’ was in fact an era of widespread religious apathy and ignorance (even among the clergy!). Nor did the American colonies begin as bastions of piety. Reliable sources place church membership at a mere 17% of total population in 1776. But membership soared as the established churches of the original colonies gave way to a free and increasingly diverse market of competing denominations. Overall rates of members reached 34% in 1850, 51% in 1906 and 60% in recent decades. Despite the substantial increase in overall church membership, the major denominations that originally enjoyed state support suffered severe losses relative to ‘upstart sects’.
Thus, from 1776 through 1850, the combined market shares of the Episcopalian, Congregationalist and Presbyterian denominations dropped from 55% to 19% of all religious adherents, while the fraction of Methodists and Baptists rose from 19 to 55% (for details, see Finke & Stark, 1992).
Nor is this pattern unique to America. Similar effects have been noted in Eastern Europe, the former Soviet Union, Africa, Latin America and Asia. The most colourful case is post-World War II Japan, where the abolition of state-Shinto and advent of religious freedom led to a five-year period known as ‘The Rush-Hour of the Gods’, during which some 2000 new sects and cults came into existence (Iannaccone et al., 1997). One can only imagine how China will change when and if it finally opens its market to religious laissez-faire.
IV The Economics of Extremism
Strange as it may seem, rational choice theory has proved especially well-suited to the study of deviant religious behaviour. It does so with a club-theoretic perspective that radically upends traditional thinking about sects, cults and extremism.
For more than two centuries, the dominant views of religion within sociology, psychology and anthropology all stressed its non-rational character. Religion was a dying vestige of our primitive, pre-scientific past and so doomed to decline in the face of scientific progress, increasing wealth and general enlightenment. These theories of secularization had no way to explain the persistence of religiosity, much less the growth of sects and cults, except to view adherents as victims of ignorance, coercion, deception, or outright insanity (Iannaccone et al., 1998).
Economists have taken a very different path, seeking to explain religious commitment as consequences of rational choice, rather than exceptions to it. The demand for supernaturalism in general, religious extremism in particular, and the social conditions that foster religious militancy are all modeled as normal human responses to normal human desires. Violent religious extremism is, of course, a special case and special concern. But it cannot be studied in isolation. To account for the suicidal zealot we must also understand the self-sacrificing saint. Not because the two share any sort of moral equivalence, but the internal logic and social foundations of religious extremism are much the same, whether the extremists’ goals are good, bad, or deadly.
(i) Supernaturalism
In the economics of religion, as in the economics of most everything else, it often suffices to posit a demand for religious commodities and jump directly to standard insights about production, consumption, supply, demand, cost, benefit, monopoly, competition, regulation and laissez-faire.
To analyse extremism, however, we must recall the unique character of religious commodities. They presume the existence of supernatural forces or beings that transcend the limits of normal life. Moreover, because there is no way to prove the existence of the supernatural, all religious markets share at least three special features.
First, religious markets are naturally competitive. Anyone can enter, anyone can imitate, and big firms have very few advantages over small ones. Thus, even the medieval Catholic Church at the height of its power was never fully able to suppress witchcraft, heresy and schism.
Second, religious markets offer a uniquely wide range of products. Both in principle and practice, there is no logical limit to the size or scope of rewards that humans will seek through supernatural means. Quite literally, the sky is the limit. People will inevitably invoke the supernatural for everything. They will pray (sacrifice, chant and meditate) for physical and emotional well-being, prosperity and good fortune, favourable weather and plentiful harvests, life-after-death, revelations, romance and, yes, even good sex.
Third and last, religious markets must address problems of information and uncertainty. The existence and efficacy of supernatural technologies remain always a matter of faith. The prospect of otherwise unobtainable rewards (including eternal life, peace on earth and unending bliss) is tied to tremendous uncertainty. No amount of living can fully dispel uncertainty about the afterlife.
(ii) Groups
So focus for a moment on the problem of religious risk, and note how it pushes religions toward collective production. The dilemma confronting religious consumers is analogous to that which confronts used-car buyers. Product quality is difficult to assess, even after purchase and use, and this tempts sellers to overstate the value of their merchandise or disguise its flaws. Not wishing to be cheated, buyers demand guarantees, seek information from third parties, or investigate the seller’s reputation. Sellers are thus motivated to provide, or at least appear to provide, proof that their claims are true.
Successful religions will develop arrangements that reduce fraud and increase information. These arrangements often emphasise collective activities and congregational structures. Fellow members are more trustworthy than strangers, and they have less reason to overstate the benefits of religion than the professional clergymen whose livelihood depends on a steady stream of ‘sales’. Clergy are in turn more persuasive if their pay is low relative to what they could earn in other lines of work.
Distinctive features of religious institutions can be explained in terms of their ability to reduce fraud and engender confidence. These include: a small and poorly paid professional staff; heavy reliance on part-time and volunteer workers; a congregational structure, which limits the need for paid professionals and provides a source of credible product endorsements; and collective activities, which provide continuous assurance through the enthusiasm, devotion, conviction and testimony of fellow members.
(iii) Free-riders
Congregational structure is however a two-edged sword. While reducing the risk of fraud, it increases the temptation to free-ride. Communally oriented groups are especially susceptible to free-riding. Commitment problems plagued most nineteenth-century communes, and historians have documented how communes are threatened as much by success as by failure ‘... [for] if they attain prosperity they attract a crowd of members who lack the enthusiasm and faith of the earlier ones’.
(iv) Sacrifice and Stigma
Costly demands offer a solution to the dilemma. These are apparently gratuitous costs that demand sacrifice and invite stigma: burnt offerings that destroy valued resources; distinctive dress and grooming that bring ridicule or scorn; dietary and sexual prohibitions that limit opportunities for pleasure; and restrictions on the use of modern medicine or technology. Such costs are present to some degree in all religions, but they are especially pronounced in the groups we label ‘extremist’.
Costly demands mitigate the free-rider problems in two ways. First, they create a social barrier that tends to screen out half-hearted members. To take part one must pay a price, bearing the stigma and sacrifice demanded of all members. Second, they increase the relative value of group activities, thereby stimulating participation among those who do join the group. Social stigmas make it costly to engage in activities outside the group, and as the price of external activities rises, the demand for internal substitutes increases. (See Iannaccone, 1992 for a formal analysis and empirical evidence.)
It follows that ‘strange’ groups flourish not because they appeal to strange people but because they satisfy normal wants through collective action. Many people find membership a good deal, even after taking full account of their social and economic losses. The benefits of membership are especially great among people with limited economic opportunities or in places where markets perform poorly.
This general theory of extremism is applicable to every major religious tradition, be it Christian, Jewish, Moslem, Buddhist or Hindu, and also to every time, place and culture. The high-cost groups in any religious tradition will tend to be exclusive, strict, small, suspicious of other groups and critical of secular society.
(v) Extremism versus Militancy
Extremist groups are faith-based communities, dedicated to the production of communal goods and goals. They flourish by providing their members hope for the future, benefits for the present and insurance against misfortune. They assist those who suffer financial setbacks and ill health. Their social networks help members form joint business ventures and establish long-term friendships. They help young people find marriage partners and help parents socialise their children.
The club model of religious extremism applies to the Moslem Middle East no less than the Christian West. From Egypt and Palestine to Pakistan and Afghanistan, extremist groups have enjoyed broad support – especially among the poorer segments of society – because they are major suppliers of mutual aid and social services. In countries plagued by widespread poverty, rampant corruption and oppressive governments, people look to religion, not only for spiritual solace, but also for education, entertainment, health care, mutual aid and economic opportunities.
In general this is all to the good. And it must be noted that the vast majority of deviant religious groups never encourage violence. Yet the relatively few exceptions can cause immense harm. Indeed, a sectarian religion’s capacity to foster commitment, reduce free-riding, and sustain collective action can make it uniquely effective if it does embrace militancy -- witness the relative success of Hamas, Al Qaeda, Hezbollah and the Taliban (Iannaccone & Berman, 2006; Berman, 2009).
Yet even here, the economic perspective strikes a somewhat sanguine note. For it suggests that religious liberty offers the best insurance against religious fanaticism. Whereas government regulation and state-sponsored religion encourage extreme groups to fight both church and state, a free religious market encourages religious tolerance as a matter of necessity.
Adam Smith works out this argument in The Wealth of Nations, in direct disagreement with his long-time friend David Hume. Hume favoured state-sponsored religion precisely because established churches failed to fire up faith. Let government fund a religious monopoly, turn the priests into civil servants, and thereby ‘bribe the indolence of the clergy’ (Smith, 1965 [1776], p. 744). The fanatics will be underpriced, undermined and crowded out. A clever analysis, but flawed.
As Smith rightly saw, Europe’s historic problem was too little competition, not too much. Had governments not enlisted the aid of a single church (and returned the favour by suppressing all other competing groups), there would have been ‘a great multitude of religious sects’. Competition would then induce moderation, rather than the furious, fanatical violence envisioned by Hume. Smith concluded that ‘The interested active zeal of religious teachers can be dangerous and troublesome only where there is, either but one sect tolerated in the society, or where the whole of a large society is divided into two or three great sects … supported by the civil magistrate. But that zeal must be altogether innocent where the society is divided into two or three hundred, or perhaps into as many thousand small sects … Seeing themselves surrounded on all sides with more adversaries than friends, the teachers of each sect would be obliged to learn candour and moderation’ (Smith, 1965 [1776], p. 745).
(vi) Policy Implications
The policy lesson is clear, and it applies equally to modern-day Moslems and seventeenth-century Protestants. Conflict and militancy are all but guaranteed where the state favours one group over another, thereby raising the stakes for all sides. Deviant sects flourish in all times and places. But genuinely violent groups tend to arise only when civil government has suppressed religious freedom, supporting a few forms of religious expression over all others. The potential for violence is further increased where corruption and autocracy impede the function of civil society by limiting access to public goods, suppressing basic liberties, and thwarting economic opportunities (Berman, 2009).
To see the process in reverse, look at the USA (Canada, Australia and much of modern-day Europe). The most striking feature about the sectarian movements in these countries is their lack of militancy. Despite their strong commitment to what they perceive as absolute and exclusive ‘truth’, the Jehovah’s Witnesses, Mormons and Adventists, and virtually all other American-born sects display an equally strong commitment to religious toleration. Indeed, to link the contemporary ‘Christian Right’ to any form of militancy is deeply misleading – effective rhetoric but terrible scholarship.
V Conclusion
I am increasingly convinced that mainstream economics genuinely needs the economics of religion – and not merely because we now study such ‘non-market’ topics such as marriage, health and discrimination. The traditional heartland of economics (including trade, finance, banking, unemployment and growth) desperately needs better understanding of beliefs, norms, values, self-control, social capital, social networks, institutions and culture. Where better to start than religion, the context in which these things are most clearly described, nurtured, and measured?
Some phenomena are so obviously similar to religion that they all but demand study as such. Modern day environmentalism is the example that comes most readily to mind, and is in fact widely described as ‘secular’ religion. Communism is another system that draws strength and shape from religion, most notably its vast array of quasi-Christian saints and scriptures, doctrines and heresies, sects and schisms, shrines and holidays, songs and catechisms, and iconography and eschatology.
The dynamics of sectarianism are remarkably common. In fact, they arise wherever groups struggle to produce collective goods and services. Sacrifice and stigma is common, therefore, not just in cults and communes, but also in fraternities and sororities, in military units and criminal organizations, in aboriginal tribes and youth gangs, in labor unions and sports teams, in social movements and political organizations, in immigrant communities and ethnic subcultures, and even within the various subunits of ordinary business organizations. The degree of sectarianism is far from uniform. But this too mirrors the religious marketplace. Protestantism has its Anglican and Presbyterian mainstream moderates, its Baptist and Lutheran conservatives, and its Adventist and Pentecostal sects. The corresponding spectrum of environmental denominations is Sierra Club, Greenpeace, and Earth First. And as with religion, these other markets are ever-changing. Old groups decline and new groups emerge; yesterday’s successful radicals become today’s old guard; groups seek state support and the suppression of their competitors.
And lest we think ourselves above this fray, consider the following facts: our universities derived from the monasteries of Medieval Europe, and sectarianism will never die as long as there exist competing schools of academic thought!
