The extension of Adam Smith's analysis of the economics of religion is even more appropriate today for two reasons: Religion remains at the center of culture and civilization, and economic theory has progressed substantially in the past two and a half centuries. Contemporary economics can bring many analytical tools and concepts to bear that were not available to Smith and his contemporaries. Our study relies not only on the standard techniques of demand and supply analysis, but also on contemporary concepts of industrial organization, bureaucratic behavior, full-price analysis, time allocation, economic interest groups, economic opportunism, spatial competition, and product differentiation.8
Despite the many advances of modern economics, limitations do remain on what it can contribute to the understanding of human behavior. A different and troubling limitation is some people's belief that economic analysis has no place in certain realms, including the family and religion. At base, the key controversy concerns the assumption of rationality. As we've noted, rationality is the foundation of economic analysis. There is, however, a certain resistance, inside and outside the academic world, to extending this assumption to religious behavior. Admittedly there are aspects of religion and religious behavior that are wildly incompatible with typical assumptions of rationality. But these aspects can be confined to the psychology of belief systems, which lies beyond the realm of our investigation. It is clearly not irrational to assume, as we do, that human beliefs (however they are formed) are given, and to proceed accordingly. It may well be that the lynchpin of a full-blown theory of religion requires both a richer model of psychology and economic market analysis. While we are not equipped to advance the former, we shall try to demonstrate the effectiveness of the latter.
In proceeding this way, we merely continue on the path of contemporary microeconomics, which has embellished the theories of competition and monopoly. In earlier centuries it was common to define economics in terms of action focused on achieving wealth. The modern view is that economics is only peripherally concerned with wealth maximization. Its central concern is with utility, or satisfaction. Therefore, all markets may be studied in terms of their utility-creating effects: whether it be the market for bread or automobiles, or the market for marriage, dating, or religion. Any market—not merely traditional ones—in which both suppliers and demanders engage in rational behavior may be analyzed using the principles of economics. With appropriate imagination, we can readily apply common tools of economic analysis, such as demand and supply curves, in nontraditional markets as well. For example, the demand for religious services may be specified such that the quantity demanded is, other things equal, inversely related to the full price paid by the individual believer. Full price is the total cost to an individual in terms of money outlay and resources foregone. In addition to explicit (money) costs it includes implicit costs, such as time spent in delivery, search, or waiting. When the determinants of the demand for religion change, the equilibrium full price of religion (including time spent on ritual and observance of religious precepts) likewise changes. Equilibrium price is the price that results from the free interaction of both supply and demand. The law of demand indicates that, other things equal, quantity purchased decreases as full price increases. The law of supply indicates that, other things equal, quantity offered for sale increases as full price increases. Alternatively stated, quantity demanded is inversely related to full price; whereas quantity supplied is positively related to full price. Equilibrium quantity is traded when the desires of both demanders and suppliers are simultaneously satisfied. What is of particular interest to economists who study market behavior is how market activities are coordinated: how and on what basis participants (demanders and suppliers) make decisions, and what are the outcomes of market activity. Like other markets, religious markets may produce outcomes that are beneficial or detrimental to participants. We anticipate these results but pass no moral judgments about them.
A basic question for many people is whether the law of demand applies to religious activity. To assume that it does not is to argue that relative price changes (due, for example, to aging, or to alterations of time costs connected with ritual or belonging) do not affect behavior in religious markets. It may be that some people (e.g., Joan of Arc or Mother Teresa) do not fit the standard model of economic behavior. (On the other hand, maybe their demand curves were vertical, i.e., their demand remained unchanged regardless of price). Our observations, however, and those of many other researchers convince us that this is not the case for most demanders of religion. Studies have consistently shown that religious participation rises with age and that higher time costs change the kind of religion demanded. The fact that there may be a few exceptions does not refute the general applicability of economics to religious markets.
Objections to the use of economics to help explain church behavior have come mostly from non-economists, and are not especially persuasive. For example, William Campbell, a Roman Catholic apologist, argues that the medieval church could not be selling a commodity. In a critique of our previous work,9 Campbell asks: "What do we put on the quantity axis that makes any sense?''10 The answer of course is that just as insurance companies sell protection against loss, the medieval church sold a product that is a composite good that includes both temporal and supernatural elements. A demand curve may be generated that reflects the relationship between the full price of this product and corresponding quantities demanded. In any specified market a change in demand (or supply) will have predictable effects. That other motives may be involved is incontestable. It is undoubtedly true that many in the Roman Catholic Church were "shocked and distressed" at Church abuses in the Middle Ages, but it is clear that the Church, largely in an attempt to maximize wealth, was unable to prevent Protestant entry by internal reforms, as we demonstrate in chapter 5. If accepted, Campbell's metaphysical arguments concerning religion would preclude further inquiry, for he declares: "The question of whether God is also to be included among the purposive rational agents is the crux question in the interpretation of history that mere empirical evidence will probably never solve.''11 Such arguments do not carry us very far in understanding the evolution and functioning of institutions such as the Christian church.12
Sound research on the economics of religion does not casually apply the sweeping idea that all human activities can be reduced to market analysis. Religion is a complex good that satisfies a complicated set of individual wants. Faith, philosophy, and other intangibles play critical roles in religious markets. Like science in general, economics must abstract and simplify in order to make intellectual headway. Economics is only one avenue for explaining phenomena that may have observational equivalents. The scientific method demands, among other things, that theories be portrayed in terms that are verifiable or refutable, usually on the strength of empirical evidence. And therein lies a major problem for the economics of religion that has so far hampered progress.
For the most part, existing economic studies of religion share a common weakness: They do not accurately define the subject being studied. As a consequence, religion may, and often does, take on different meanings, some of which are amenable to empirical (or anecdotal) study, and some that are not. This ambiguity may merely reflect familiar usage in the nonscientific community, as standard dictionary definitions of religion are far from uniform. Religion is usually treated as a system of beliefs, but sometimes the system is tied to an institutional structure and sometimes it is not. One leading authority defines religion, alternatively, as "belief in and reverence for a supernatural power or powers regarded as creator and governor of the universe''; and simultaneously as a "personal or institutionalized system grounded in such belief and worship.''13 This ambiguity introduces a problem in how to count believers or members of a religion for those attempting empirical research. This problem arises because believers may or may not be members of a religion or, if they are, they may or may not attend services. Can a general (Christian) market or a particular (Methodist) market be defined by the (increasingly) standard measure of church attendance, or must it be delimited by specific (Christian vs. Methodist) beliefs? If we think of religion as a belief system, what does or can a survey of belief in God, heaven and hell, or the Ten Commandments tell us about the market for religion? These are issues that challenge investigators and trouble skeptics. They present problems that so far have proven insoluble.
As an example of the difficulties involved, consider the following: Some Christians reject institutionalized religion because they do not find a church that matches their beliefs, or satisfies their wants. These Christians may become both suppliers and demanders of religion—Christian or otherwise. Individuals may want to embrace religion (demand) but only on their own terms, which means changing an existing belief system to conform to individual wants (supply). Clearly, changing one's belief system involves certain costs, such as time spent learning new rituals, carrying out new responsibilities, or meeting new brethren. Costs may also be raised by the imposition of different behavioral constraints imposed by a revised belief system. Given the wide latitude concerning biblical interpretation that is characteristic of Protestantism, there is no fundamental reason why Christianity cannot be tailored to individual tastes, within limits. This point was made in an important empirical study by Robert Barro and Rachel McCleary, who first demonstrated that income and education tend to raise church attendance.14 However, they showed that the primary factor relating economic growth to religion is the ratio of believing in certain doctrines to attendance. In other words, belief rises relative to attendance, which seems affirmed by the following survey statistics: Approximately 96 percent of Americans believe in God or a universal spirit, while only 60 percent find religion to be "very important'' in their lives, and only 40 percent attend services on a regular basis.15 Clearly, mere head counts of attendance or membership must undercount religion if it is defined as a personal belief system. Other survey data corroborate this view. In ongoing surveys conducted by the National Opinion Research Center at the University of Chicago, respondents overwhelmingly report that "faith in God'' is im portant to some degree, that they feel "deep inner peace or harmony,'' and that they are "spiritually touched by the beauty of creation.''16 Yet this seems to contradict the survey data on attendance.
Rather than resolve these contradictions (which may be insoluble) we propose a different approach that asks how general forms of religion, such as Christianity, are developed and morph into other, more specific forms, either Christian or otherwise. Although our approach does not solve the empirical challenge presented by survey data, it does underscore the ramifications of the competitive process, which presumably works in religious markets just as it does in all other markets. We appreciate the fact that attendance and membership statistics provide a starting point for many researchers—one must, of course, start somewhere—but at the same time, the acknowledged deficiency of the survey approach cries out for alternatives. We regard our approach as complementary to, rather than a substitute for, the survey approach.
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