Economists Are Getting Religion

Can organized faith be explained by supply and demand? They think so

Economics and religion have generally been as separate as chalk and cheese. True, Adam Smith delved into religion in the 1776 classic The Wealth of Nations. For the most part, though, economists have regarded religion as a dark continent beyond the reach of their analytical tools.

But religion is simply too big for economics to ignore, and now the gulf is closing. A new generation of economists of religion is following in the footsteps of University of Chicago economist Gary S. Becker, who won a Nobel prize for applying economics to the study of crime, drugs, and family interactions. Economists still avoid such theological questions as the nature of God. But they can shed light on the earthly concern of how people "buy" and "sell" the goods and services -- material and spiritual -- that religious organizations provide. Also, in the wake of September 11 and the rise of militant Islam, fresh work by economists on the nature of religiously inspired terrorism is drawing widespread attention, including from the CIA and other intelligence agencies.

The sudden interest is vindication for the most tireless advocate for the field, Laurence R. Iannaccone, 50, an economics professor at George Mason University who studied at Chicago under Becker. He heads a new academic group, the Association for the Study of Religion, Economics & Culture. Academics ignored religion in part out of a belief that it would fade under the onslaught of secularization. Says Iannaccone: "We finally figured out that religion remains a very powerful force in contemporary society."


The economics of religion is founded on the belief that people are just as rational in their choices about religion as they are about, say, buying a car. "Producers" of religion -- churches, synagogues, and mosques -- compete for "customers" by seeking converts, drawing members from other congregations, or combating the pull of secular society. Some strains are "cheap" in the sense that they place modest demands on adherents, while others are costly but presumably offer bigger rewards.

The idea that religion involves rational choices extends even to suicide bombers who strike in the name of God. Studies show they are far from depressed loners or brainwashed robots. Instead, says Eli Berman, an associate professor of economics at the University of California at San Diego, suicide bombers typically are motivated young men -- and, rarely, women -- from average backgrounds. Berman, who has studied Hamas, the Taliban, and like groups, says the bombers share a sense of obligation to what amounts to a "mutual-aid society." Says Berman: "They think of themselves as making great sacrifices for a cause -- the way we would think of pilots in the Battle of Britain, or the way the kamikaze thought of themselves."

How should the West fight such terrorism? Berman says one approach would be to promote prosperity through freer markets, which would reduce the supply of potential bombers. Iannaccone gives another answer to the question in a paper called The Market for Martyrs that he presented earlier this year to the American Economic Assn. He argues that the supply of would-be terrorists is impossible to suppress. Instead, it makes sense to reduce demand by disrupting the "firms" that sponsor them.

While terrorism is getting lots of attention, economists are also studying how religions affect economic growth. Timur Kuran, a professor of economics and law and the King Faisal Professor of Islamic Thought & Culture at the University of Southern California, argues that development in Muslim countries has been hindered historically by certain rules of the Koran. For instance, Koranic inheritance law long forbade a father from passing a business on to a favored son but required him to divvy up the legacy among all children (with daughters getting half-portions). That made it harder to set up corporations and stymied economic growth. Another oft-mentioned hurdle is the traditional prohibition on interest payments, but Kuran says there are ways to get around that.

More recently, the Muslim world has accepted the legal conventions of corporate life, with modernizers such as Turkey and Malaysia in the lead. But Kuran, author of the new book Islam and Mammon: The Economic Predicaments of Islamism, says the long-delayed modernization "started from a low base, and it's been trailing ever since."

One sign of the field's coming of age is that it's attracting luminaries from outside the specialty, such as Harvard University's Robert J. Barro, a BusinessWeek columnist. Along with his wife and associate, Rachel M. McCleary, Barro found in a paper last year that high levels of religious belief can stimulate economic growth. They concluded that faith may "sustain aspects of individual behavior that enhance productivity," perhaps including honesty and openness to strangers.

Economist Milton Friedman once speculated that free markets and American-style religious pluralism have gone hand in hand, stimulating both economic growth and religion. American religious practices have adapted to economic conditions, says Carmel U. Chiswick of the University of Illinois at Chicago. As time has become more expensive, Americans have come to spend less time -- though often, more money -- on religion. Says Chiswick: "When something gets expensive, you try to figure out ways of satisfying the same wants more cost-effectively."

Just as most economists favor free trade, most economists of religion think a laissez-faire approach to religion works best. The U.S., Iannaccone says, was "the world's first free market for religion" and partly for that reason has been largely spared from religious extremism. He harks back to Adam Smith, who wrote that competition among faiths would make religion "free from every mixture of absurdity, imposture, or fanaticism." It may be hard to find God in supply-and-demand curves, but that isn't stopping economists from bringing their own special insights to religion.

By Joseph Weber in Chicago, with Peter Coy in New York

— With assistance by Peter Coy

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