The Economics of Religion

Nor is it only with regard to such frivolous objects that our conduct is influenced by this principle [of utility]; it is often the secret motive of the most serious and important pursuits of both public and private life.

—Adam Smith, The Theory of Moral Sentiments

The genius of Adam Smith is that he saw clearly how competition promoted consumer sovereignty. This is most evident in the realm of commerce; but it is no less efficacious in the realm of religion. Smith wrote long after the Protestant Reformation occurred. Thus he faced the prospect of competing religions throughout Europe and Great Britain. A major controversy of his time concerned established religions (i.e., state-sponsored or enforced) versus non-established religions. By virtue of state sponsorship, established religions enjoyed a kind of monopoly status, whereas non-established religions competed for members, in some cases, against state-imposed sanctions. As the apostle of self-interest, Smith recognized that incentives affect individual behavior and that in religious matters individuals respond to incentives on both sides of the market, that is, from the demand side and the supply side. It may be said that he took a broad, industrial organization approach to religion, in which market structure has an important impact on individual and collective outcomes.

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