Department of Economics
Working Paper Series
Was Adam Smith Right About
Religious Competition?
Peter J. Boettke
Joshua C. Hall
Kathleen M. Sheehan
Working Paper No. 15-47
This paper can be found at the College of Business and Economics
Working Paper Series homepage:
http://be.wvu.edu/phd_economics/working-papers.htm
Was Adam Smith Right About Religious
Competition?
Peter J. Boettke
University Professor of Economics
Department of Economics
George Mason University
MSN 3G4
Fairfax, VA 22030
pboettke@gmu.edu
Joshua C. Hall
Associate Professor of Economics
College of Business and Economics
West Virginia University
Morgantown, WV 26506
joshua.c.hall@gmail.com
Kathleen M. Sheehan
Assistant Professor of Economics
Heider College of Business
Creighton University
Omaha, NE 68178
kathleensheehan@creighton.edu
Abstract
Adam Smith famously argued that increased competition in religion would
result in more religious tolerance and that the benefits of competition in the
marketplace would also be seen in religious instruction when many
religious sects are tolerated. We use a cross-section of a maximum of 167
countries to explore whether increased religious competition results in less
governmental regulation of religion and less governmental favoritism of
religion. Our measure of religious regulation and favoritism comes from the
Association of Religion Data Archives. Our empirical analysis also explores
the influence of economic and political factors, including the size of the
economy, openness of trade, legal origins, education, the amount of checks
and balances on the government and the role of democracy.
JEL Codes: Z12
Keywords: religious freedom; regulation; democracy
1 Introduction
Adam Smith (1776, Book V, Chapter 1, 309ff) famously argued that competition in
religion would instill more religiosity in the population as teachers of religious doctrine
would be incentivized to be more effective communicators.
1
“The teachers of the
doctrine which contains this instruction, in the same manner as other teachers, may either
depend altogether for their subsistence upon the voluntary contribution of their hearers;
or they may derive it from some other fund to which the law of their country may entitle
them; such as a landed estate, a tythe or land tax, an established salary or stipend. Their
exertion, their zeal and industry, are likely to be much greater in the former situation
than in the latter.” (emphasis added) Rather than the “indolence” often witnessed in
instructors of established religions, the upstart churchmen are “kept more alive by the
powerful motive of self-interest” (Smith 1776, p. 310-311).
Smith goes on to suggest that religiosity and zeal can be problematic – in fact
dangerous and troublesome – when only one religion is tolerated in a society, or when a
country is divided between only two or three sects. But where religious freedom reigns,
Smith contends, religious “zeal must be altogether innocent.” In a society where “two or
three hundred” religious sects are tolerated, “no one could be considerable enough to
disturb the public tranquility.” (Smith 1776, p. 314) Thus, Smith’s argument for religious
toleration mimics his overall argument for economic liberalism. Smith was an ardent
critic of monopoly in commerce as well as in religious instruction. He believed that
1
Anderson (1988) provides the seminal overview of the economics of religion contained in The Wealth of
Nations.
under conditions of open competition, the self-interest of each of the parties would direct
them to pursue actions which resulted in productive specialization and peaceful
cooperation.
Anthony Gill (2013) has argued that religious liberty is positively correlated with
economic development through a variety of channels – namely an idea channel and an
acquisition of human capital channel. Conversely, Anderson and Tollison (1992) argue
that a monopoly in morals can be conducive to economic growth since religious
competition can lead to the underprovision of moral order.
2
We are not exploring these
hypotheses. Instead, we are limiting our exploration to the claim that religious
competition (fractionalization) results in less government regulation of religion as well as
government favoritism of religion. This is true controlling for legal origins, democracy,
and checks and balances. But Smith’s observation that improvements in arts,
manufacturing and commerce destroys not only the power of the barons, but also
throughout the greater part of Europe the monopolistic power of the clergy (Smith 1776,
p. 325). Competition, in this sense, erodes religious power just as it does economic power
and leads to improvement in well-being among the people.
2 Data and Empirical Approach
2
Other papers looking at religious competition and outcomes include Lipford et al. (1993) and Lipford and
Yandle (1997). For example, Lipford and Yandle (1997) use the litigiousness of a state as a proxy for
‘formally produced order’ and find that greater religious concentration in a state leads to more ‘formally
produced order.’
Our source of data on religious freedom comes from the Association of Religion Data
Archives (2015). The Office of International Religious Freedom within the U.S. State
Department is tasked with promoting religious freedom. One of the ways it does so is by
producing the Annual Report on International Religious Freedom (Bureau of Democracy,
Human Rights and Labor, 2013). Produced annually since 2001, this annual report to
Congress discusses in a narrative format government policies violating religious freedom
for nearly 200 countries.
In part due to a grant from the John Templeton Foundation, researchers for the
Association of Religion Data Archives systematically coded the material found in the
2003, 2005, and 2008 reports to create indices of religious freedom across a large number
of countries. Using a coding instrument, researchers went through the reports to try to
quantify different measures of religious freedom. A full description of this effort and
process can be found in Grim and Finke (2006). Their efforts produce two quantitative
measures of government regulation and favoritism of religion across 199 countries and
territories, averaged over the sample period.
3
Two variables produced in the indices are the Government Regulation of Religion
Index (GRRI) and the Government Favoritism of Religion Index (GFRI). From a
classical liberal perspective, the GRRI is the most straightforward measure of the two
measures to interpret. In describing the measure, Grim and Finke (2006, p. 7) say that
government regulation is “the restrictions placed on the practice, profession, or selection
of religion by the official laws, policies, or administrative actions of the state.” In
3
Association of Religion Data Archives (2015) recommends that social scientists using the data
for empirical modelling use their measure aggregated over the three years since it has less year-
to-year randomness.
