University of Chicago Law School Chicago Unbound Journal Articles Faculty Scholarship 1989 An Economic Approach to Issues of Religious Freedom Richard A. Posner Michael W. McConnell Follow this and additional works at: https://chicagounbound.uchicago.edu/journal_articles Part of the Law Commons Recommended Citation Richard A. Posner & Michael W. McConnell, "An Economic Approach to Issues of Religious Freedom," 56 University of Chicago Law Review 1 (1989). This Article is brought to you for free and open access by the Faculty Scholarship at Chicago Unbound. It has been accepted for inclusion in Journal Articles by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. The University of Chicago Law Review VOLUME 56 NUMBER 1 WINTER 1989 0 1989 by The University of Chicago An Economic Approach to Issues of Religious Freedom Michael W. McConnell & Richard A. Posnert The First Amendment forbids Congress to make any law re- specting an establishment of religion (the "Establishment Clause") or interfering with the free exercise of religion (the "Free Exercise Clause"). Since the critical terms in the clauses are neither self- evident nor defined, and religion is a profoundly emotional subject, it is not surprising that the religion clauses have given rise to enor- mous controversy, both popular and academic, and to a body of case law riven by contradictions and bogged down in slogans and metaphors ("wall of separation," "entanglement," "primary ef- fect"). There is need for a fresh approach. As one component of that approach, we propose using an economic definition of "neu- trality" to determine when government action impinges impermis- sibly on religious choice. The application of economics to issues of religious freedom t Michael McConnell is an assistant professor of law at the University of Chicago Law School; Richard Posner is a judge of the U.S. Court of Appeals for the Seventh Circuit and a senior lecturer at the Law School. McConnell received financial support during the prepara- tion of this article from the Russell Baker Scholars Fund. The authors acknowledge with gratitude the helpful comments of Gary Becker, Frank Easterbrook, David Friedman, Milton Friedman, Douglas Laycock, Ira Lupu, Michael Paulsen, and participants in the Law and Economics Workshop of the University of Chicago Law School, where a previous draft of this paper was given on May 24, 1988. The University of Chicago Law Review [56:1 may seem an eccentric response to the inadequacies of current doc- trine. Religious reasoning and religious faith may seem antithetical to economic reasoning and values; religious freedom may seem un- quantifiable even in principle and therefore beyond the reach of any economic or socio-scientific metric. We shall concede these points at least to the extent of taking no position, as economists or lawyers, on the truths of religion. Instead we shall apply economics to the government regulation of religious institutions. The impor- tant set of regulatory issues that religion has raised makes eco- nomic analysis pertinent to religion.' There are three reasons for believing that economics may be a useful tool for understanding the religion clauses. First, whatever their precise meaning, the religion clauses are plainly concerned with limiting government regulation (promotional as well as re- strictive) of religious activities and institutions; and regulation is an area of central concern to economists. Second, the prevailing view of the religion clauses is that their central purpose is to pre- vent government from either advancing or retarding religion-or, in equivalent economic terms, from subsidizing or taxing reli- gion-and economists are experts in discerning the existence, sometimes heavily disguised, of taxes and subsidies. Third, reli- gious organizations compete with each other and with secular insti- tutions, public and private, to furnish such services as education, consolation, the inculcation of moral values, and the development of a sense of community. These services may confer external bene- fits, meaning benefits that the provider cannot capture in the price for the services. An extensive economic literature deals with com- petition, with the firm (including the nonprofit firm), and with ex- ternalities in general and the external benefits of education in particular. There are also three reasons why many readers may resist the application of economics to religious freedom. None is convincing. First is the tenacious fallacy that the proper domain of economics is confined to profit-maximizing behavior in explicitly "economic" markets. An extensive literature on the economics of nonmarket behavior refutes this view.2 Second, and related, is the paucity of We are not the first to note the similarity between interference with religious freedom and regulatory intervention in economic markets. Dean Kelley, the long time executive di- rector for religious and civil liberty at the National Council of Churches, made the point in his recent essay, Free Enterprise in Religion, or How the Constitution Protects Religion and Religious Freedom, in Robert A. Goldwin and Art Kaufman, eds, How Does the Consti- tution Protect Religious Freedom? 114 (AEI, 1987). 2 See, for example, Gary S. Becker, The Economic Approach to Human Behavior (Chi- 1989] Economics and Religious Freedom economic studies of religion, which lends credence to the supposi- tion that religion must lie outside the domain of economics.' Third, a point already mentioned, is that economics, as well as be- ing scientific and rationalistic in methodology, embodies its own system of values, which are resolutely anti-religious. Viewed nor- matively, economics is a form of applied utilitarianism, or at least closely related to it; and utilitarianism-the philosophy that our duty in life is to maximize the excess of pleasure over pain in the universe-is a secular faith. The questions we seek to answer in this paper, however, are unrelated to issues of faith, and economic theory does not dispute the proposition that an individual may de- rive pleasure or pain from religiously motivated activities, includ- ing self-sacrifice, self-denial, and obedience to religious values. An economic analysis of the religion clauses can have either a descriptive or a normative focus. That is, the analyst can attempt either to determine whether particular government policies have been neutral toward religion and, if not, what the direction of the effect is, or to determine what policy should be adopted in order to achieve consistency with the ideal of neutrality. This paper presents examples of each form. Section I proposes an economi- cally meaningful definition of neutrality. Section II is a normative analysis of aid to parochial schools, an issue arising under the Es- cago, 2d ed 1976); Jack Hirshleifer, The Expanding Domain of Economics, 75 Am Econ Rev 53 (Dec 1985 Supp); Richard A. Posner, The Law and Economics Movement, 77 Am Econ Rev Papers & Proceedings 1 (May 1987). 3 There have been economic studies of religion, but most are very recent (many not yet published) and not widely known. The best known paper, Corry Azzi and Richard Ehren- berg, Household Allocation of Time and Church Attendance, 83 J Pol Econ 27 (1975), ex- plores the hypothesis (for which the paper finds empirical support) that people allocate their time to religious activities in a manner rationally designed to maximize "afterlife util- ity" net of cost. Posner, 77 Am Econ Rev Papers & Proceedings at 9-12 (cited in note 2), contains a brief discussion of the economics of religion, with emphasis on the religion clauses; the present paper both amplifies and modifies the analysis in that paper. Several other recent papers-Gary M. Anderson, Mr. Smith and the Preachers:The Economics of Religion in The Wealth of Nations, 96 J Pol Econ 1066 (1988); Frederick Bold and Brooks B. Hull, Would You Buy a Used Car From This Priest: An Economic Theory of Religion and the Church (Battelle Pacific Northwest Labs & U Mich-Dearborn, Feb 3, 1987)(on file, University of Chicago Law Review office); Laurence R. Tannaccone, A Formal Model of Church and Sect, 94 Am J Soc 5241 (Supp 1988); and Fred S. McChesney, The Efficient Organizationof Religions: A Club-Theoretic Approach (U Chi L Sch, March 1987)(on file, University of Chicago Law Review office)-contain interesting discussions of the economics of religion but do not discuss the regulation of religion, the subject of the present paper. The Posner, McChesney, Iannaccone, and Bold and Hull papers, among them, cite all of the earlier, and very sparse, economic literature on religion. Finally, Laurence R. Iannaccone, Testing Smith's Theory of Religious Markets (Santa Clara U, Dept Econ, Nov 1987)(on file, University of Chicago Law Review office), is an analysis similar to but more extensive than Posner's. The University of Chicago Law Review [56:1 tablishment Clause. Section III is a normative analysis of religion- specific exemptions under the Free Exercise Clause. Section IV analyzes Supreme Court doctrines under the religion clauses to de- termine whether they have been neutral toward religion and what their effect on religious activity has been. I. THEORY A. The Nature of Religious Competition Religious competition can be extraordinarily bitter, divisive, and destructive, especially when religion is mixed with, and used as an instrument of, political struggle. The history of religious in- tolerance persuaded many Enlightenment thinkers,