Part 1A: Religion, Monitoring, and Negative Externalities

By: Anthony Gill

October 20, 2014

It should come as no surprise that crime and other forms of socially deviant behavior have a negative impact on economic growth and social well-being. Individuals who live in constant fear that their lives will be snuffed out at any moment, that their possessions will be stolen, or that they will be harassed continually by others will not be very productive individuals. Given that providing for one’s own security means less time devoted to productive activities, there is a great deal of deadweight loss to society when criminal activity exists. Entrepreneurs who fear their long-term gains will be pilfered without their consent have little reason to take risks and invest in the future.
And beyond crime, humans have had a propensity to engage in all sorts of self-destructive and socially disruptive behavior that lowers their productive capacities and the productive capacities of society as a whole, irrespective of whether such behavior is deemed illegal by government. Drunkenness, sexual dalliances producing “illegitimate” children, and general cruelty to others have rarely, if ever, been associated with social flourishing. Economists lump the social consequences of criminal activity and deviant behavior into a category known as negative externalities—costs imposed upon others without their willful consent. Negative externalities, not surprisingly, have a deleterious effect on economic growth and social flourishing.

At a time of rapid urban growth, when the monitoring capacities of gossip and shaming in small towns was declining, Smith observed that social deviance appeared to be increasing:

“A man of low condition… is far from being a distinguished member of any great society. While he remains in a country village his conduct may be attended to, and he may be obliged to attend to it himself. In this situation, and in this situation only, he may have what is called a character to lose. But as soon as he comes into a great city, he is sunk in obscurity and darkness. His conduct is observed and attended to by nobody and he is therefore very likely to neglect it himself, and to abandon himself to every sort of low profligacy and vice” (Wealth of Nations, V.i.g., paragraph 12).

Policing by a government authority, of course, can help to mitigate levels of profligacy and vice, but policing can be expensive, producing huge deadweight losses, and can be used by self-interested government officials to plunder society. To the extent that social norms can arise that allow people to self-monitor their behaviors, and to the extent that organizations in civil society can provide such additional monitoring, the negative externalities of crime and deviance can be reduced. And as Smith noted, this is where religious groups can often serve to promote the general welfare.

“[The man of low condition] never emerges so effectually from this obscurity, his conduct never excites so much the attention of any respectable society, as by his becoming the member of a small religious sect. He from that moment acquires a degree of consideration which he never had before. All his brother sectaries are, for the credit of the sect, interested to observe his conduct, and if he gives occasion to any scandal, if he deviates very much from those austere morals which they almost always require of one another, to punish him by what is always a very severe punishment, even where no civil effects attend it, expulsion or excommunication from the sect. In little religious sects, accordingly, the morals of the common people have been almost always remarkably regular and orderly; generally much more so than the established church” (Wealth of Nations, V.i.g., paragraph 12).

There are several things to think about in this passage. First, while Smith was thinking specifically about people of low socio-economic stature, who among us can deny that even the wealthy and public figures of our time could use such monitoring? Second, Smith noted the tendency to monitor behavior was much more rigorous among small religious sects and not the “established church.” As we will explore in future posts, Smith saw the competitive challenge of upstart sects to the hegemonic faith to be a healthy thing for society. It is through religious liberty that such challenges can arise and promote the common welfare.

But before we get there, Smith offers a surprising twist on the above observations.

This is Part 1A of a series of blog posts by Anthony Gill on Adam Smith and religious freedom, which were originally written for the Religious Freedom Project's Cornerstone blog. 
Opens in a new window