First, God presumably possesses more knowledge than any central planner would.  This difference is crucial because it means that the Old Testament theocracy is not comparable to any human-devised system.  The biggest difference between the two systems would be that the theocratic system would not face near the knowledge constraints that a human system would.  As such, God could be reasonably sure of the future and plan accordingly; mere mortals do not have these powers and abilities and thus would not have the ability to plan out an economy.

Second, not even God’s command was enough to ensure compliance with regulations that would work in theory.  Time and again, the children of Israel ignored God’s laws.  (It should be noted that usury laws and gleanings laws are not the only “economic” laws.  Mandatory sacrifices have an economic component, as do the various regulations on commerce and production.)  There were multiple times when the Israelites failed to keep God’s commands, which goes to show that even the laws implemented by the Lord of Hosts can be violated.  If God’s laws can be violated then how can we expect any different for man’s laws?

Finally, note that some of God’s laws were intended to be signs of the Abrahamic covenant (e.g. dietary restrictions).  Also note that some of God’s laws were intended to be signs of the coming Christ (e.g. sacrificial laws).  As such, a good portion of God’s interference served a spiritual purpose.  Not all laws that interfered with the Israelite economy had spiritual significance, but some did, and it is not always easy to discern between the two (e.g. Lev. 19:19).

At this point, it should be obvious that the argument that God’s interference in the Israelite economy during Old Testament times justifies Man’s interference in any economy today fails because it is an invalid comparison, it neglects to consider how even with God non-compliance with economic statutes was possible, and it fails to consider to consider the spiritual component of some of God’s economic laws, which is also an invalid comparison.

As far as I can tell, we are left exactly where we were after that first essay. No altruism to be found. If you made a “sacrifice” it was, by direct virtue of your action, “worth it to you” (at the time of the action) or you would not have taken that action. It is really just that simple. (By the way, this does nothing the render the action more, or less noble, whichever the case may be in the eyes of an observer.) As a fellow anarchist buddy of mine puts it, “altruism is praxeologically impossible.” Agreed, still.

Early analysis of economic growth and its main determinants heavily neglected the effect of institutional variables on economic growth. Second, the theoretical framework of economic growth usually follows the empirical evidence on the existence of postulated hypotheses related to the economic growth. Primarily, the effect of religion and other institutional features on economic growth has been displaced to the lack of empirical estimation techniques that could account and control for the effect of the institutional phenomena on the course of economic growth.

The best lucrative and empirically consistent analysis of economic growth and its determinants had been documented by Robert Barro and Xavier Sala-i-Martin. In 2004, Robert Barro published Economic Growth Across Countries. In the explanatory framework, the author included several institutional variables and examined its effect on 10-year economic growth interval in a cross section of 86 countries over 1965-1975, 1975-1985 and 1985-1995 time periods. For a given set of institutional control variables, the rule of law exerted a strong, positive and statistically significant effect on growth. The effect of democracy, the second institutional control variable, was estimated by a single coefficient and its squared term to account for a possible movement of the effect of the level of democracy.

The magnitude of both coefficients was statistically significant. The sign of the squared term was negative suggesting for a typical inverted-U effect of democracy on economic growth. In the meaning of the economic theory, the estimated coefficients suggested that the adoption of democratic institutions and policies in the initial stage of GDP per capita boosts economic growth, particularly by the institutions such as the rule of law, electoral representation, and multiparty political system as well as by the constitutional protection of civil liberties.

However, as countries depart from the initial level of GDP per capita, the political pressure from electoral representation tends to enforce egalitarian policies that negatively effect economic growth, particularly by the fiscal redistribution of income to mitigate income inequality. Consequently, the effect of democratic institutions tends to diminish and, as the curve bends, the predictive effect of constitutional democracy is negative, thereby exerting a negative effect on economic growth. However, the hypothetical relationship between democracy and economic growth is dubious, if not intriguing. In fact, neoclassical growth theories suggest that the rate of economic growth tends to diminish alongside the expansion of the capital stock and productive capacity of the national economy. The hypothesized theoretical assertion postulates that the non-linear, inverted-U effect of democratic institutions on economic growth is overestimated.

In 2003, Robert Barro and Rachel M. McCleary wrote a seminal contribution (link) to the theory and empirics of the relationship between religion and economic growth. Even though in The Protestant Ethics, Max Weber argued that the religious practices and beliefs have had important implications for economic development, the economists paid little or no attention to the role of religiousness as a cultural measure on economic growth. Arguably, the most difficult inferential problem in economic theory is to capture the direction of causality in non-experimental data which indistinguishably confuses the empirical inference from sample estimates. The theoretical relationship between the religion and economic growth is nonetheless a daunting task of the economic theory.

Across the world, there is a whole spectrum of religious diversity in the interplay between religion and economic development. Some countries, such as the United States have been largely influenced by the Enlightenment thought, penned in Thomas Jefferson’s 1779 The Virginia Act for Establishing Religious Freedom, on religious freedom as the principle of freedom from religious oppression. On the other hand, countries in Northern and some parts of the Continental Europe largely adopted Protestantism as the religious establishment while Southern and Central European countries experienced a strong and coercive influence of Roman Catholicism. Hence, the historical bond of nations in the Middle East and North Africa to the Islamic religion accounts for a significant share of the world population and a representative estimate of the effect of Islam on economic growth.

In addition, many political regimes, particularly in China, Soviet Union and Cuba, have attempted to suppress the religious freedom and, hence, establish a system that officially prohibited and punished the religious practice. Surprisingly, countries in Northern Europe such as Norway, Finland and Iceland have established an official religion that is effectively articled in the constitution. Given the vast difference in the distribution of GDP per capita across countries, the assessment of the relationship between the religion and economic growth is not a triviality per se.

Robert Barro and Rachel M. McCleary constructed a broad cross-country dataset which included national account variables and an array of other political, economic and institutional indicators in a cross section of over 100 countries since 1960. The predicted theoretical expectations postulate whether the religion fosters religious beliefs that influence individual cultural characteristics such as ethics, work and honesty. The authors estimated both the effect of different explanatory variables on religious outcomes such as monthly church attendance, the belief in heaven and the belief in hell.

The estimated coefficients suggest that monthly church attendance is strongly affected by urbanization rate and a set of dichotomous religious variables. In particular, a one percentage point increase in the urbanization rate decreases monthly church attendance rate by 1.49 percentage points, holding all other factors constant. In addition, a 1 percentage point increase in religious pluralism fosters the monthly church attendance rate by 1.35 percentage points, ceteris paribus, while the increase in the measure of the regulation of religion by 1 percentage point decreases the church attendance rate by 0.64 percentage point. Hence, the church attendance rate in countries with official state religion, on average, increases the religious participation by 0.87 percent more compared to countries with the absence of state religion, ceteris paribus. The belief in heaven and hell, on the other hand, is positively correlated with state religion and religious pluralism, Muslim religious faction and other religious factions. The belief in heaven and hell is significantly negatively correlated with urbanization rate, communist regimes, Orthodox religion, Hindu religion and Protestant religion. Barro and McCleary regressed growth rates of real GDP per capita on variables of monthly church attendance rate, belief in heaven, belief in hell and dichotomous (dummy) religious variables representing the share of religion in the countries observed. The table below reports dummy coefficients of each religion relative to the Roman Catholicism. The sign of the coefficient is negative suggesting the increase in the share of each religion (see table) decreases the growth rate of real GDP per capita by less than by the anticipated increase in the share of Roman Catholic religion.

The effect of religion on long-run economic growth

Source: R. Barro & R.M. McCleary: Religion and Economic Growth, 2003.

The p-value for religion shares in the regression specification is about 0.001, suggesting that the hypothetical zero simultaneous effect of the explanatory dummy variables of religious share is easily rejected at 0.1 percent level of statistical significance. The estimate suggests that religious shares influence the growth rate of real GDP per capita. Interestingly, sample estimates of regression coefficients suggest that monthly church attendance is significantly negatively related to the GDP growth rate. The estimated coefficient suggests that higher church attendance will, on average, lead to significantly lower growth rate of real GDP per capita and, hence, a lower growth of the standard of living.

On the other hand, the sample estimates of growth regression coefficients suggest that the extent of belief in heaven and hell is positively related to economic growth. Thus, the empirical evidence from the panel of over 100 countries since 1960 suggests that the belief in heaven and hell encourage ethical behavior and honesty and thereby simultaneously increases the growth rate of real GDP per capita. The reported p-value for church attendance and beliefs is 0.000, suggesting the rejection of null hypothesis on a simultaneous zero effect of church attendance and beliefs in hell and heaven on the growth rate of real GDP per capita, and a strong influence of religious factors on the distribution of economic growth across countries since 1960.

The empirical evidence of the relationship between religion and economic growth suggests that the church attendance and the rate of economic growth are substitutes, not complements. The philosophical premises of Roman Catholicism often scrounge individualism and personal liberties and encourage collectivist mentality by punishing individual work, thrift and effort. Incidentally, the empirical evidence suggests strongly negative effect of the share of Roman Catholic religion on the long-run growth rate of real GDP per capita.

Regarding the true importance of religious freedom, not oppression, on the emergence of order alongside the abstract rules and the pursuit of individual liberty, Friedrich August von Hayek wrote in The Constitution of Liberty: “It should be remembered that, so far as men’s actions toward other persons are concerned, freedom can never mean more that they are restricted only by the general rules. Since there is no kind of action that may not interfere with another person’s protected sphere, neither speech, nor the press, nor the exercise of religion can be completely free. In all these fields … freedom does mean and can mean only that what we may do is not dependent on the approval of any person or authority and is limited only by the same abstract rules that apply equally to all.”

In the microeconomic perspective, religious market is highly oligopolistic, especially in Europe where government subsidies to large religious groups discourage the entry of competitive religions in the market. Therefore, in strongly Catholic countries, such as Italy and Spain, Roman Catholic church firmly resembles the behavioral pattern of a dominant firm, facing price inelastic demand and price elastic supply. Subsidies to churches do not quite differ from subsidies to corporations and enterprises – the net effect are lower marginal costs, increasing the total producer surplus of the church and increasing the deadweight loss to the consumers of religious services. A cautionary approach would require not only the precise modeling of the religious market upon the theoretical assumptions but also the contestable empirical evidence on the existence of the Catholic church as a dominant firm in highly oligopolistic religious market.

Incidentally, the empirical evidence suggests strongly negative effect of the share of Roman Catholic religion on the long-run growth rate of real GDP per capita. Nonetheless, religion is an important determinant of economic growth. However, the evidence from the second half of the last century suggests that the prosperity and wealth of nations is greater if people allocate fewer resources to the exercise of religious activities.

Pastor Rick Warren of Saddleback Church posted his URGENT LETTER on the church website on Wednesday and by close of business Thursday church members had stepped up to close their critical budget deficit of $900,000.

Warren’s Wednesday morning letter stated, “With 10% of our church family out of work due to the recession, our expenses in caring for our community in 2009 rose dramatically while our income stagnated.”

But by Friday morning, the pastor was humbled and amazed: “In spite of a media culture that thrives on bad news and is typically clueless about how churches actually work, and in spite of hatefulness and insults by some who immediately jumped to the wrong conclusion – the church of God marches on, and once again God surprises all of us.”

The letter outlines the church’s accomplishments in 2009 and details how the donations would be used, including the church’s food pantry, homeless ministry, counseling and support groups.

“This is pretty amazing,” Warren told his congregation during a Saturday service. “I don’t think any church has gotten a cash offering like that off a letter.”

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The growing hostility towards Muslims in Europe is often linked to the fear of terrorism and associated concerns about the increasing involvement of young Muslims in radical political movements with connections to Al Qaeda. Yet Islamophobia has not emerged to any notable extent in the United States, despite the experience of the September 11 terrorist attacks, suggesting that other factors are also driving the phenomenon in Europe. In any case, Islamophobia had been observed in Europe for some years before the September 11 attacks, linked to concerns about the increased involvement of Muslims, especially of North African origin, in domestic European politics. Although there was undoubtedly a rise in anti-Islamic views and discrimination after September 11 and the London bombings of July 2005, these attacks only served to exacerbate a phenomenon which was already on the increase.

Islamophobia takes a range of forms in Europe, including the more traditional types of socio-economic discrimination and racist attack historically suffered by other ethnic or religious minorities. However, its distinctive feature – as documented by the New York Times article – is the extent to which it has infiltrated European mainstream politics and culture. In recent years many high-profile incidents from across Western Europe have exemplified this trend: the publication in Danish newspaper Jyllens Posten in 2005 of a cartoon portraying the Prophet Mohammad as a terrorist; the online release earlier this year by Dutch right-wing politician Geert Wilders of the movie Fitna, which directly links Islam with terrorism; the banning in French schools of the Islamic hijab, or headscarf, and the debates which are raging throughout Europe over the right to build mosques.

Political Encouragement

The growth of Islamophobia and its seep into mainstream politics have been attributed to the recent strategies of political parties on the Far Right. These have repackaged their traditional messages in a lighter form in order to capitalize on widespread concerns among many European populations about high levels of immigration to Europe and the impact of this on jobs, crime rates and the like. As these parties make political gains, as has been the case in the Netherlands, Italy, Denmark and Austria for example, mainstream parties often adopt similar themes, reinforcing the anti-Islamic stance in national politics. The media also plays a big role: several studies have documented evidence of a bias against Muslims in newspaper reports in countries including Germany and the UK, and more generally there has been much sensationalist reporting about the threat of Islamic terrorism which fails to distinguish between radical Islam and Muslims in general.

Some writers have linked the development of Islamophobia in Europe to the relatively homogenous nature of European populations, the associated development of strong national cultures and identities and a tendency for integration of immigrants to be regarded as synonymous with assimilation. When immigrant cultures or religious beliefs are seen to clash with dominant national ideology, as has occurred in many European countries in the case of Islam, the people concerned are seen as a threat to national identity and become the target of discrimination and prejudice.

Other Factors

Socio-economic factors also play a significant role in contributing to Islamophobia and the factors that drive it. Compared with the U.S., where Muslims are on average better educated and higher earners than the native population, Europe’s Muslim populations are concentrated in low socio-economic groups, at least in part because of the structural discrimination they have experienced over time. This not only makes them an obvious target for racism among those who see them as direct competition for low-skilled jobs but also generates a pool of Muslim youths who are alienated from societies which offer them few rewards and are ready prey for Islamic fundamentalist movements.

A number of European countries, alerted by the threat to their social stability posed not only by Islamic extremism but by growing Islamophobia, are now taking steps to promote better dialogue with their Muslim communities and to enforce new anti-discrimination legislation. This is a positive development for Europe, yet such measures may only be able to skim the surface of a problem which appears deep-rooted in a multitude of cultural, political and socio-economic factors.

References

Al-Azmeh, A. & Fokas, E. (2006). Islam in Europe: Diversity, Identity and Influence. Cambridge: Cambridge University Press.

Cesari, J. (2006). Muslims in Western Europe After 9/11: Why the term Islamophobia is more a predicament than an explanation. Submission to the Changing Landscape of Citizenship and Security. 6th PCRD of European Commission.

Fekete, L. (2008). Integration, Islamophobia and civil rights in Europe. London: Institute of Race Relations.

Feldman, N. (2008). The New Pariahs? New York Times Magazine, June 22, 2008.
Ford, G. (2007). In the wake of xenophobia: the new racism in Europe. UN Chronicle. September 2007.

Saeed, A. (2007). Media, Racism and Islamophobia: The Representation of Islam and Muslims in the Media. Sociology Compass 1, 2: 443–462.

A glance at the most noticeable trouble spots around the globe in 2008 (suicidal bombers in Iraq; genocidal warriors in Africa; military despots in Myanmar) reminds us that even the most gruesome lessons in history are soon forgotten. What lessons did the last century teach us about the laws of economics? Will they, like other lessons of history, be wasted on future generations?

Here, in no particular order, are my Top Four Lessons of twentieth-century economic history:

• Planned economies (the ex-Soviet Union and the continuing disaster called Cuba) don’t work and can’t make people happy.
• Societies that suppress freedom of religion don’t work and can’t last (same as above: Fidel doesn’t have enough relatives to freeze a nation in time forever).
• Economic growth does not in itself eliminate poverty or make people happy (as the overloaded welfare system in the United States proves).
• Modern economic science has absolutely no answer for the question, what makes life worth living?

People can pretend to ignore one or more of these four lessons of recent economic history; indeed, every trouble spot in the world today is the result of someone insisting that one of these four things isn’t so.

A Wrong Image of Man and His Reality

There is good news on the horizon: an increasing number of economists are fed up with the limitations that mainstream economic theory imposes on the search for solutions to the world’s most pressing problems. You haven’t seen their names in the press; they probably won’t be nominated for the Nobel Prize anytime soon. But if you listen, you can hear their voices in the wilderness.

Dr. Kamran Mofid, an Iranian-born economist and founder of the Globalisation for the Common Good Initiative, is one of those calling for a return to sanity. In Mofid’s opinion, we only need to take a look at the state of the world to reach an obvious conclusion: economics has failed to provide a roadmap for modern society because it has failed to take into account humanity’s deepest need of all—our need of a meaningful spiritual life.

Mofid examines the roots of economics to discover why it has gone so wrong. As Mofid points out, economics was divorced from theology at the end of the eighteenth century; it was freed from political theory in the nineteenth century; finally, in the last several decades of the twentieth century, economics was turned into the abstract science that confounds people today.

Mofid’s mission is to make economics work for the good of all people on earth by reuniting economics and theology. “We need to recreate economic theory based on an understanding of what a human being really is and what makes him happy,” he explains. “As long as economics is based on a partial or wrong image of man and his reality, it will not produce the results we need.”

The First Economist

Kamran Mofid is to the 21st-century what John Ruskin was to the nineteenth. Ruskin opposed the laissez-faire economists whose thoughts provided both philosophical and practical justification for the sprawling slums left in the wake of Britain’s Industrial Revolution.

In Ruskin’s view, society was betrayed by economists like Adam Smith, David Ricardo and John Stuart Mill, who advocated the benefits of enlightened self-interest. As Ruskin told an audience at the Bradford Town Hall in 1864, “Friends, our great Master said not so.” With an ear to Jesus’ words in the Sermon on the Mount, Ruskin concluded, “Indeed, to do the best for others, is finally to do the best for ourselves.”

“Economics must once again find its heart and soul,” says Mofid, echoing the call to sanity voiced by Ruskin in Victorian England and—if we are serious about wanting to get to the root—by King Solomon of Israel. After all, economics is simply about wants being satisfied, and in that sense the author of Ecclesiastes was the first economist.

Since the end of the eighteenth century, economists have written elaborate prescriptions for the regeneration of society. Solomon knew better. “People are always writing books, and too much study will make you tired,” he advised 3,000 years ago. Ruskin suffered incapacitating mental attacks the last twenty years of his life; he spent his last decade as an invalid at his estate in England’s Lake District.

In Small Is Beautiful, E. F. Schumacher wrote, “It is hardly likely that twentieth-century man is called upon to discover truth that has never been discovered before.” Schumacher was right, of course; we won’t discover anything new by opening the pages of a 3,000-year-old book. But it will take us to the real root of economics, and it is there that we can begin to understand what went wrong.

I’ll take a look at King Solomon’s economic theory one week from today. Once we understand the source of the problem, we’ll have an opportunity to be part of the solution.