The Economics of Religion
Introduction
According to popular thought,
Economics-the study of money, banking, taxes, and forecasting
Religion- all about worship, spirituality, and Hereafter
Both views partially capture the true essence of these fields. Hence, it is difficult to imagine the empirical analysis-based, mathematically sophisticated subject we call ‘Economics’ to be related to religion. However, the foundation of modern economics lies in the historical schools of thought where the influence of religions was profound. To this day, religious institutions and beliefs significantly affect national economies. This essay will analyze how the three main monotheist religions affect economic practices.
How Does Religion Guide Microeconomics?
The study of microeconomics concentrates on the relationship between consumers, firms, and households and how different factors affect the decisions taken by these units. As it emphasizes the smaller sections of society, the effect of religion here is more distinct and easier to identify. There are two ways religiosity can impact consumer choices: enhanced morality and adherence to the religious framework.
While scholars argue about the connection between morality and faith, most religious people consider morality an integral part of their beliefs. Although it is not dependent on religion, ethics have been elaborately described in all religious frameworks, be it Islamic Sharia, Catholic doctrines, or the Jewish Halakah. All religious communities portray a higher ethical value and social justice regardless of their faith. This behavior is reflected indecisions made by firms and individuals. An experiment conducted by Professors Azim F. Shariff and Ara Norenzayan found that once primed with religion, the participants displayed a more ethical approach in a classic Dictator Game. [1] Besides, religions also honor labor and promote work ethic, which can yield a more productive workforce. In the Holy Quran, multiple verses state the value of labor, such as, “Disperse through the land and seek of the bounty of God” (62:10).[2] A study by IZA using data from 2000–2015 shows that in the EU countries, given a certain amount of time spent attending religious services, the relationship between religious beliefs(predominantly Heaven and Hell) is positive and the GDP trend is also rising.[3]
Many religious frameworks have specific sets of principles regarding business and economic rights. For instance, Shariah prohibits tacit collusion, interests, and unfair market competition. On the other hand, Jewish ethics do not have any specific guidelines regarding business. However, certain practices such as community harmony promote fair competition and equality. All these traditions impact wage rates, product prices, the banking system, etc. At the same time, some restrictive norms negatively affect the economy. One such factor is the Jewish moneylending practice which was often used to exploit the peasants with astounding interest rates of 30–40%. [4]
How Does Religion Guide Aggregate Economic Factors?
Aggregate factors, such as government intervention, taxation, and trade policy are often affected by religious frameworks under a religion-affiliated government.
One key religious macroeconomic component is taxation. Primarily, taxes provide funding for the government to spend on public infrastructures, improve public facilities, and income redistribution. Both Islam and Judaism have mandatory levies or taxes for the affluent individuals of the society. In Judaism, the tithes mostly surround temples(Terumah for the priests and Machatzit Hashekel, a half-shekel donation made by all Jewish men over 20 for communal expenditures) and agriculture( Ma’aser, a tithe paid for landless Levites; Leket, Shikchah and Peah, portions of harvests). Other community taxes are also designated for education, development, and other sectors.[5] In Islam, Zakat is an annual charity that rich Muslims are obliged to pay. There is a threshold amount of assets and income that a Muslim should have to be eligible for Zakat known as Nisab which is calculated based on the amount of gold or silver. [6]In countries with religious monopolies where Islam is the dominant faith, Zakat is an integral part of the national tax policy. In the case of Christianity, there is no obligatory tax and tithe in the New Testament, although some form of tax is implied in the Old Testament. Instead, voluntary charity is encouraged. Proper implementation of these tithes integrated into religious frameworks can significantly mitigate the income disparity of a community.
Another notable macroeconomic field is trade. In the contemporary world, Laissez-faire or the free market is the driver of prosperity. In 1905, Max Weber popularly stated that Protestants promoted economic development through their ‘ascetic work ethic.’ However, recent studies do not find any direct connection between Protestant beliefs and economic advancement. However, it is assumed that Protestantism promoted literacy in East Europe and Prussian nations, which might affect the income, savings, and aggregate economic state of the countries.
In the case of Islam, it supports free trade, but not without some governmental intervention in the market. Islamic law is a legal framework that takes its key messages from the Holy Quran. The laws are interpreted and implemented through contracts and independent institutions. This flexibility in the system promoted economic growth in the Ancient Muslim Empire. However, a fully capitalist free market is not possible with adherence to Islamic laws as Islam does not promote unfair competition and consumer exploitation.
New Academic Fields
The first person to bring up religion in the economic field was the legendary Adam Smith. Later, during the early 20th century, Max Weber revived the field, discussing religiosity, pluralism, and secularism in economics. Long after Max Weber discussed the role of religiosity in Economics, the discipline returned to academia. Similarly, religious economics, especially Islamic Economics, have had a redemption in the academic field. As of now, over 1500 research articles about Islamic Economics and Finance have been published since 1979.[7]
Conclusion
The relationship between religion and economy is multilayered and complicated. Despite the dispute, all Abrahamic religions show similar attitudes toward economic behavior. With proper integration of religious and secular laws regarding finance and economy, maximum economic benefit can be yielded. Various other factors, such as religious pluralism, monopoly, and other aspects require further research to give better insights into the field.
References
1. Ahmad, Imad-ad-Dean. “Islam and the Free-Market Economy.” Economic Affairs, 2009.
2. Ezzedine Ghlamallah, Christos Alexakis, Michael Dowling, Anke Piepenbrink, “The topics of Islamic economics and finance research”, International Review of Economics & Finance, Volume 75,2021, Pages 145–160, ISSN 1059–0560,https://doi.org/10.1016/j.iref.2021.04.006. (https://www.sciencedirect.com/science/article/pii/S105905602100071X
3. Fel, Stanisław; Zdun, Magdalena; “ Judaism and Economics: The Link between Judaism and Economic Life”, The Person and the Challenges Volume 4 (2014) Number 2, p. 83–96 DOI: http://dx.doi.org/10.15633/pch.662
4. Institute of Economic Affairs, “Islam is compatible with a free economy, argue Muslim scholars”, available at https://iea.org.uk/blog/islam-is-compatible-with-a-free-economy-argue-muslim-scholars
5. Iris Wohnsiedler, Nikolaus Wolf, Felix Kersting, “Weber revisited: The Protestant ethic and the spirit of nationalism”, CEPR, available at https://cepr.org/voxeu/columns/weber-revisited-protestant-ethic-and-spirit-nationalism
6. Lozano, Fernando. A., “The rise of secularism and its economic consequences” IZA World of Labor, available at https://wol.iza.org/articles/the-rise-of-secularism-and-its-economic-consequences/long
7. My Jewish Learning. “Jewish Business Ethics 101”, available at https://www.myjewishlearning.com/article/jewish-business-ethics-101/
8. The Blackwell Firm, “The Impact of Sharia Law on Business”, available at https://theblackwellfirm.com/the-impact-of-sharia-law-on-business/
9. Sharif, Azim F.; Norenzayan, Ara; “God Is Watching You Priming God Concepts Increases Prosocial Behavior in an Anonymous Economic Game”, University of British Columbia
Footnotes:
[2] Work Ethics in Islam — Islamic Insights
[3] IZA World of Labor — The rise of secularism and its economic consequences
[4] History of Jewish Money Lending (jewishhistory.org)
[5] What Does the Torah Say About Jews and Taxes — Chabad.org
[6] Nisab Value — What is Nisab? — Zakat and Nisab | Islamic Relief UK (Islamic-relief.org.uk)
[7] The topics of Islamic economics and finance research — ScienceDirect
